EFFECTS OF GUARANTY Effects of Guaranty between the Guarantor and the Creditor Art 20 !

" The #uarantor cannot be co$%e&&ed to %ay the creditor un&ess the &atter has e'hausted a&& the %ro%erty of the debtor( and has resorted to a&& the &e#a& re$edies a#ainst the debtor" Ri#ht of the #uarantor to benefit of e'cussion or e'haustion) *" #uarantor on&y secondari&y &iab&e + The #uarantor binds hi$se&f to the creditor to fu&fi& the ob&i#ation of the %rinci%a& debtor shou&d the &atter fai& to do so and cannot do so" 2" A&& &e#a& re$edies a#ainst debtor to be first e'hausted + The &aw re,uires the creditor to resort to a&& &e#a& re$edies a#ainst the debtor -e'cussion./ this is not a0ai&ab&e for suretyshi%" Ri#ht of creditor to secure 1ud#$ent a#ainst #uarantor %rior to e'haustion) An ordinary %ersona& #uarantor( not a %&ed#or or $orta#a#or( $ay de$and e'haustion of a&& %ro%erty of the debtor before he can be co$%e&&ed to %ay" there is nothin# %rocedura&&y ob1ectionab&e in i$%&eadin# the #uarantor as a co2defendant" -This e,uity ru&e is based on tria& con0enience." Art 20 3" This e'cussion sha&& not ta4e %&ace) *" 5f the #uarantor has e'%ress&y renounced it" 2" 5f he has bound hi$se&f so&idari&y with the debtor/ 6" 5n case of inso&0ency of the debtor 7" 8hen he has absconded( or cannot be sued within the 9hi&i%%ines un&ess he has &eft a $ana#er or re%resentati0e " 5f it $ay be %resu$ed that an e'ecution on the %ro%erty of the %rinci%a& debtor wou&d not resu&t in the satisfaction of the ob&i#ation" e'ce%tions to benefit of e'cussion) *" Art 20 3 2" 5f he doesn:t co$%&y with art 20;0 6" if he is a 1udicia& bonds$an and sub2surety 7" where a %&ed#e or $ort#a#e has been #i0en by hi$ as a s%ecia& security" " if he fai&s to inter%ose it as a defense before 1ud#$ent is rendered a#ainst hi$" E'ce%tions in Art 20 3) *" Ri#ht wai0ed + it $ust be in e'%ress ter$s 2" <iabi&ity as surety" 6" inso&0ency of debtor %ro0en unsatisfied by writ of e'ecution + if the debtor beco$es inso&0ent( the &iabi&ity of the #uarantor arises as the debtor cannot fu&fi& his ob&i#ation -the dec&aration of inso&0ency to be deter$ined unti& the fina& &i,uidation of his estate." 7" =ebtor absconds or cannot be &oca&&y sued " Resort to a&& &e#a& for$a&ities( a use&ess for$a&ity Art 20;0" 5n order that the #uarantor $ay $a4e use of the benefit of e'cussion( he $ust set it u% a#ainst the creditor u%on the &atter:s de$and of %ay$ent fro$ hi$( and %oint out to the creditor a0ai&ab&e %ro%erty of the debtor within the 9hi&i%%ine territory( sufficient to co0er the a$ount of the debt" Art 20;*" The #uarantor ha0in# fu&fi&&ed a&& the conditions re,uired in the %recedin# artic&e( the creditor who is ne#&i#ent in e'haustin# the %ro%erty %ointed out sha&& suffer the &oss( to the e'tent of said %ro%erty( for the inso&0ency of the debtor resu&tin# fro$ such ne#&i#ence" =uty of creditor to $a4e %rior de$and for %ay$ent fro$ #uarantor" *" 8hen de$and be $ade) the de$and for %ay$ent by the creditor u%on the #uarantor can be $ade on&y after 1ud#$ent on the debt" 2" Actua& de$and be $ade)The fact that the #uarantor was 1oined in a suit doesn:t necessari&y $ean that the de$and has a&ready been $ade u%on hi$" =uty of #uarantor to setu% benefit of e'cussion 5t is not enou#h that the #uarantor c&ai$s benefit of e'cussion" As soon as he is re,uired to %ay( he $ust a&so %oint out to the creditor a0ai&ab&e %ro%erty 3not in &iti#ation or encu$bered. of the debtor within the 9hi&i%%ines =uty of the creditor to resort to a&& &e#a& re$edies) After the #uarantor has fu&fi&&ed the conditions re,uired for $a4in# use of the e'haustion( it beco$es the duty of the creditor to e'haust a&& the %ro%erty of debtor %ointed out and to resort to a&& &e#a& re$edies/ and if he fai&s to do so( he sha&& suffer the &oss( but on&y to the e'tent of the 0a&ue of the said %ro%erty( for the inso&0ency of the debtor" >oinder of #uarantor and %rinci%a& as %arties defendant Genera& ru&e) The #uarantor not bein# a 1t contractor with his %rinci%a&( cannot as a #enera& ru&e( be sued with his %rinci%a&" E'ce%tion) this is not a%%&ied when it wi&& ser0e to de&ay accountin#" Art 20;2" 5n e0ery action by the creditor( which $ust be a#ainst the %rinci%a& debtor a&one( e'ce%t in the cases $entioned in artic&e 20 3( the for$er sha&& as4 the court to notify the #uarantor of the action" The #uarantor $ay a%%ear so that he $ay( if he so desires( set u% such defences as are #ranted hi$ by &aw" The benefit of e'cussion $entioned in Art 20 ! sha&& a&ways be uni$%aired( e0en if 1ud#$ent shou&d be rendered a#ainst the %rinci%a& debtor and the #uarantor in case of a%%earance by the &atter" 9rocedure when creditor sues) * sent a#ainst %rinci%a&) The creditor $ust sue the %rinci%a& a&one" The creditor $ay ho&d the #uarantor on&y after the 1ud#$ent has been obtained a#ainst %rinci%a& debtor and he is unab&e to %ay Art 20;3" if the debt was for a %eriod and the #uarantor %aid it before it beca$e due( he cannot de$and rei$burse$ent of the debtor unti& the e'%iration of the %eriod un&ess the %ay$ent has been ratified by the debtor" Effect of 9ay$ent by #uarantor before?after $aturity)

*" 5f the debtor:s ob&i#ation is with a %eriod( it beco$es de$andab&e on&y when the day fi'ed co$es" The #uarantor who %ays before is not entit&ed to rei$burse$ent" The debtor wi&& be &iab&e if the %ay$ent was $ade with his consent" 2" 8hen %ay$ent by #uarantor is $ade after the $aturity but durin# the ter$ of the #uarantee( the debtor is sti&& &iab&e to %ay the #uarantor" ->N 0s 9hi&#uarantee. Art 20@0" 5f he #uarantor has %aid without notifyin# the debtor( and the &atter not bein# aware of the %ay$ent( re%eats the %ay$ent( the for$er has no re$edy whate0er a#ainst the debtor( but on&y a#ainst creditor" Ne0erthe&ess( in case of #ratuitous #uaranty( if the #uarantor was %re0ented by a fortuitous e0ent fro$ ad0isin# the debtor of the %ay$ent( and the creditor beco$es inso&0ent( the debtor sha&& rei$burse the #uarantor for the a$ount %aid" Effect of re%eat %ay$ent by debtor) *" Genera& Ru&e) Aefore the #uarantor %ays the creditor( he $ust infor$ the debtor" 5f he fai&s to #i0e such notice and the debtor re%eats %ay$ent( the #uarantors re$edy is on&y a#ainst the creditor( but he has no cause of action a#ainst the debtor e0en if the creditor beco$es inso&0ent" 2" E'ce%tion + The #uarantor $ay sti&& c&ai$ rei$burse$ent fro$ the debtor if) a" the creditor beco$es inso&0ent b" the #uarantor was %re0ented by fortuitous e0ent to ad0ise the debtor c " the #uaranty is #ratuitous Art 20@*" The #uarantor( e0en before ha0in# %aid( $ay %roceed a#ainst the %%rinci%a& debtor) *" 8hen he is sued for %ay$ent 2" 5n case of inso&0ency of the %rinci%a& debtor 6" 8hen the debtor has bound hi$se&f to re&ie0e hi$ fro$ the #uaranty within the s%ecified %eriod( and this %eriod has &a%sed 7" 8hen the debt has beco$e de$andab&e( by reason of the e'%iration of the %eriod of %ay$ent " After the &a%se of *0 years( when the %rinci%a& ob&i#ation has no fi'ed %eriod for its $aturity( un&ess it be of such nature that it cannot be e'tin#uished e'ce%t within a %eriod &on#er than *0 years" ;" 5f there are reasonab&e #rounds to fear that the %rinci%a& debtor intends to abscond @" 5f the %rinci%a& debtor is in i$$inent dan#er of beco$in# inso&0ent" 5n a&& these cases( the action of the #uarantor is to obtain re&ease fro$ the #uaranty( or to de$and a security that sha&& %rotect hi$ fro$ any %roceedin#s by the creditor and fro$ the da$#er of inso&0ency of the debtor" Ri#ht of the #uarantor to %roceed a#ainst debtor before %ay$ent) As a ru&e( the #uarantor has no cause of action a#ainst the debtor unti& after the for$er has %aid the ob&i#ation" ART 20@* enu$erates the e'ce%tions Re$edy to which the #uarantor is entit&ed) The #uarantor cannot de$and rei$burse$ent for inde$nity bec he has not %aid the ob&i#ation( Bis re$edy is to obtain re&ease fro$ the #uaranty or to de$and for security that sha&& %rotect hi$ fro$ any %roceedin#s by the creditor and fro$ the inso&0ency of the debtor" Suit by #uarantor a#ainst creditor before %ay$ent) The action for re&ease can be e'ercised a#ainst the %rinci%a& debtor" E'tinction of the ob&i#ation of the #uarantor is a no0ation of the contract and it needs assent of the creditor" Absent the consent of the creditor( the %rinci%a& debtor $ay %roceed to %rotect the de$andin# #uarantor by a counterbond Art 20;; and Art 20@* distin#uished) *" The first %ro0ides for the enforce$ent of the ri#hts of the #uarantor a#ainst the debtor after he has %aid the debt/ the second( for his %rotection before he has %aid but after he has beco$e &iab&e" The one #i0es a ri#ht of action after %ay$ent( the other a %rotecti0e re$edy before %ay$ent" 2 the one is a substanti0e ri#ht and the other nature of a %re&i$inary re$edy" Reco0ery by surety a#ainst inde$nitor e0en before %ay$ent/ *" 5nde$nity a#ree$ent for benefit of surety + the a#ree$ent is e'ecuted not for the benefit of the creditor but for the surety" 2" 5"A" $ay be a#ainst actua& &oss as we&& as &iabi&ity + 5f the inde$nitor binds hi$se&f to inde$nify surety for da$a#es or %re1udice that the surety $ay obtain by 0irtue of the bond( he $ust co0er for the actua&& &oss and &iabi&ity" 5n a contract of inde$nity a#ainst &oss( an inde$nitor wi&& not be &iab&e unti& the oerson to be inde$nified $a4es %ay$ent or sustain &oss( whi&e in a contract of inde$nity a#ainst &iabi&ity arises as soon as the &iabi&ity of the %erson to be inde$nified has arisen without re#ard to 8ON he has suffered actua& &oss" -Cochin#yan 0s RCA. 6" such a#ree$ent is 0a&id + A sti%u&ation( therefore( in an inde$nity a#ree$ent %ro0idin# that the inde$nitor sha&& %ay the surety as soon as the &atter beco$es &iab&e to $a4e %ay$ent to the creditor under the ter$s of the bond( re#ard&ess of whether the surety has %aid or not"( is 0a&id and enforceab&e" 8here the %rinci%a& debtors are si$u&taneous&y the sa$e %ersons who e'ecuted the 5"A"( the %osition occu%ied by the$ is that of the %rinci%a& debtor and inde$nitor at the sa$e ti$e( and their &iabi&ity bein# >T and se0era& with surety( the creditor $ay %roceed a#ainst either/ there is no $ore need to e'haust the %ro%erties of the %rinci%a& debtor" Art 20@2" 5f one( at the re,uest of another( beco$es a #uarantor for the debt of a third %erson who is not %resent( the #uarantor who satisfies the debt $ay sue either the %erson so re,uestin# or the debtor for rei$burse$ent" Effects of Guaranty between Co2Guarantors Art 20@6" 8hen there are two or $ore #uarantors of the sa$e debtor and for the sa$e debt( the one a$on# the$ who has %aid $ay de$and of each of the others the share which is %ro%ortiona&&y owin# fro$ hi$" 5f any of the #uarantors shou&d be inso&0ent( his share sha&& be born by the others( inc&udin# the %ayer( in the sa$e %ro%ortion" The %ro0isions of this artic&e sha&& not be a%%&icab&e( un&ess the %ay$ent has been $ade in 0irtue of a 1udicia& de$and or un&ess the %rinci%a& debtor is inso&0ent" Ri#ht to contribution of #uarantor who %ays) The ob&i#ation of se0era& #uarantors of the sa$e debtor and for the sa$e debt is >T -%ro%ortionate share. *"Restrictions + The %ay$ent shou&d ha0e been $ade by 0irtue of a 1udicia& de$and or because the %rinci%a& debtor is inso&0ent if the debtor %aid the #uarantor( the other #uarantors wou&d be dischar#ed fro$ the ob&i#ation"

2" effect of inso&0ency of any #uarantor + his share sha&& be born by the others in the sa$e 1oint %ro%ortion"" 6" Accrua& and basis of ri#ht"DDDD Art 20@7" 5n the case of the %recedin# artic&e( the co2#uarantors $ay setu% a#ainst the one who %aid( the sa$e defences which wou&d ha0e %ertained to the %rinci%a& debtor a#ainst the creditor( and which are not %ure&y %ersona& to the debtor" =efenses a0ai&ab&e to co2#uarantors) E'tin#uish$ent( fraud( %rescri%tion( re$ission( i&&e#a&ity Art 20@ " A sub2#uarantor( in case of inso&0ency of the #uarantor for who$ he bound hi$se&f( is res%onsib&e to the co2#uarantors in the sa$e ter$s as the #uarantor" DDDDD E'tin#uish$ent of Guaranty Art 20@;" The ob&i#ation of the #uarantor is e'tin#uished at the sa$e ti$e as that of the debtor( and for the sa$e causes as a&& other ob&i#ations" Causes of E'tin#uish$ent) *" Guaranty bein# accessory and subsidiary( it is ter$inated when the %rinci%a& ob&i#ation is e'tin#uished a" %ay$ent or %erfor$ance b" &oss of the thin# due c" condonation or re$ission of the debt d" confusion or $er#er e" co$%ensation f" no0ation #" annu&$ent( rescission( fu&fi&&$ent and %rescri%tion" 2" the #uaranty itse&f $ay be e'tin#uished e0en if the %rinci%a& ob&i#ation is sti&& intact as in the re&ease of the #uarantor $ade by the creditor" Eateria& a&teration of %rinci%a& contract *" effect + any a#ree$ent between the creditor and the %rinci%a& debtor which essentia&&y 0aries the ter$s of the %rinci%a& contract without the consent of the surety( wi&& re&ease the surety fro$ &iabi&ity" -bec the chan#e is a no0ation( the #urantor cannot be he&d &iab&e on the new contract to which he has not #i0en consent. 2" 8hen a&teration $ateria& + there $ust be chan#e which i$%oses new ob&i#ation or added new burden on the %arty %ro$isin# or which ta4es away so$e ob&i#ation a&ready i$%osed 2there is no0ation when the credit is increase/ the %rinci%a& debtor is substituted Art 20@@" 5f the creditor 0o&untari&y acce%ts i$$o0ab&e or other %ro%erty in %ay$ent of the debt( e0en if he shou&d afterwards &ose the sa$e throu#h e0iction( the #uarantor is re&eased" Re&ease by con0eyance of %ro%erty) 5f the creditor acce%ts %ro%erty in %ay$ent of a debt( the #uarantor is re&ie0ed fro$ res%onsibi&ity" Art 20@!" A re&ease $ade by the creditor in fa0or of one of the #uarantors( without consent of the others( benefits a&& to the e'tent of the share of the #uarantor to who$ it has been #ranted" Re&ease of #uarantor without consent of others" As a ru&e( the #uarantors en1oy the benefit of di0ision" The re&ease benefits a&& to the e'tent of the share of the #uarantor re&eased" E#) G( B and 5 are #uarantors for a debt of 34" 5f G is re&eased without the consent of B and 5( then B and 5 wi&& each be &iab&e for on&y 64 or *?6" 5f the re&ease was $ade with their consent( B and 5 wi&& each be res%onsib&e for 7( 00" Art 20@3" An e'tension #ranted to the debtor by the creditor without the consent of the #uarantor e'tin#uishes the #uaranty" The $ere fai&ure on the %art of the creditor to de$and %ay$ent after the debt has beco$e due does not of itse&f constitute any e'tension of ti$e referred herein" re&ease by e'tension of ter$ #ranted by creditor to debtor *" 8here re&ease without consent of #uarantor + The #uarantor is dischar#ed/ the reason for the ru&e is the necessity of a0oidin# %re1udice to the #uarantor" the debtor $ay beco$e inso&0ent durin# the e'tension( thus de%ri0in# the #uarantor of his ri#ht to rei$burse$ent Art 20!0 Art 20!* Art 20!2 Art 20!* Art 20!2 Art 20!6 Art 20!7 F5 9<E=GE Cha%ter * 9ROF5S5ONS COEEON TO 9<E=GE AN= EORTGAGE

Art 20! " The fo&&owin# re,uisites are essentia&""" 9&ed#e is a contract by 0irtue of which the debtor de&i0ers to the creditor or to a third %erson a $o0ab&e or docu$ent e0idencin# incor%orea& ri#hts for the %ur%ose of securin# the fu&fi&&$ent of a %rinci%a& ob&i#ation with the understandin# that when the ob&i#ation is fu&fi&&ed( the thin# de&i0ered sha&& be returned with a&& its fruits and accessions Ginds of 9&ed#e *" 0o&untary or con0entiona& + created by a#ree$ent 2" &e#a& + created by o%eration of &aw 9&ed#e is) *" a rea& contract + it is %erfected by the de&i0ery of the thin# %&ed#e by the debtor who is ca&&ed the %&ed#or to the creditor who is ca&&ed %&ed#e( or to a 6rd %erson by co$$on a#ree$ent/ 2" an accessory contract + it has no inde%endent e'istence 6" a uni&atera& contract + it creates an ob&i#ation so&e&y on the %art of the creditor to return the thin# sub1ect thereof u%on the fu&fi&&$ent of the %rinci%a& ob&i#ation 7" a subsidiary contract + the ob&i#ation incurred doesn:t arise unti& the fu&fi&&$ent of the %rinci%a& ob&i#ation which is secured Cause or consideration in %&ed#e) 5ts cause insofar as the %&ed#or is concerned is the %rinci%a& ob&i#ation" Aut if he is not the debtor( the cause is the co$%ensation sti%u&ated for the %&ed#e or the $ere &ibera&ity of the %&ed#or Essentia& re,uire$ents of %&ed#e and $ort#a#e) *" A $ort#a#e e'ecuted before the $ort#a#or beca$e the owner of the %ro%erty( such as before the issuance of a %atent to the $ort#a#or( is 0oid and ineffecti0e" Ownershi% of the htin# #i0en as security is retained by the debtor" 2" Thin# %&ed#e $ust be de&i0ered to the creditor or to a 6 rd %erson by co$$on a#ree$ent" 8ithout de&i0ery( there can be no %&ed#e( %recise&y( in this de&i0ery &ies the security of %&ed#e" 5n a contract of $ort#a#e( the $ort#a#or( as a #enera& ru&e( retains the %ossession of the %ro%erty $ort#a#ed" 5n case of doubt as to whether a transaction is a %&ed#e or $ort#a#e or a dation in %ay$ent( the %resu$%tion is in fa0or of %&ed#e( the &atter bein# the &esser trans$ission of ri#hts and interest" One of the reasons why the %&ed#or?$ort#a#or be the abso&ute owner is in antici%ation of a %ossib&e forec&osure sa&e shou&d the %&ed#or?$ort#a#or defau&t Future %ro%erty cannot be %&ed#ed or $ort#a#ed" The effect of a&ienation or $ort#a#e( with res%ect to the co2owners sha&& be &i$ited to the %ortion which $ay be a&&otted to hi$ in the di0ision u%on the ter$ination of the co2ownershi% A $ort#a#ee has the ri#ht to re&y u%on what a%%ears in the certificate of tit&e and does not ha0e to in,uire further" An innocent %urchaser for 0a&ue -&i4e $ort#a#ee. re&yin# on a Torrens tit&e issued is %rotected" This is the doctrine of $ort#a#ee in #ood faith" This ru&e thou#h doesn:t a%%&y to ban4s because they are e'%ected to e'ercise $ore care and %rudence in their dea&in#s and their business is one affected with %ub&ic interest" The act of %&ed#in# and $ort#a#in# is an act of strict ownershi% in0o&0in# trans$ission of rea& ri#hts in %ro%erty" Free dis%osa& $eans that the %ro%erty $ust not be sub1ect to any c&ai$ of a third %erson" Ca%acity to dis%ose of %ro%erty $eans that the %&ed#or has the ca%acity to $a4e dis%osition of the %ro%erty Acco$$odation %&ed#e or $ort#a#e + a 6rd %erson is the %&ed#or and not the %rinci%a& debtor" the acco$$odation %&ed#or or $ort#a#or who %&ed#e or $ort#a#ed his %ro%erty to #uarantee an indebtedness of another %erson( without e'%ress&y assu$in# %ersona& &iabi&ity for such debt( is not &iab&e for %ay$ent of any deficiency( shou&d the %ro%erty not be sufficient to co0er the debt" 9&ed#e 0s Rea& Eort#a#e) 9&ed#e is constituted on $o0ab&es 5n %&ed#e( the %ro%erty is de&i0ered to the %&ed#e( or by co$$on consent to a 6rd %erson 9&ed#e is not 0a&id a#ainst 6 rd %ersons un&ess a descri%tion of the thin# %&ed#e and the date of the %&ed#e a%%ear in a %ub&ic instru$ent Eort#a#e is constituted on i$$o0ab&e 5n $ort#a#e( de&i0er is not necessary Eort#a#e is not 0a&id a#ainst 6rd 9ersons if not re#istered

Art 20!!" The creditor cannot a%%ro%riate the thin#s #i0en by way of %&ed#e or $ort#a#e( or dis%ose of the$" Any sti%u&ation to the contrary is nu&& and 0oid" 8hen the debtor fai&s to co$%&y with the ob&i#ation when due( the creditor is $ere&y entit&ed to $o0e for the sa&e of the thin# %&ed#ed or $ort#a#ed" =efau&t doesn:t o%erate to 0est in the %&ed#ee or $ort#a#ee the ownershi% of the %ro%erty for any such effect is a#ainst %ub&ic %o&icy" An action for conso&idation of ownershi% is an a%%ro%riate re$edy on the %art of the $ort#a#ee in e,uity -D. 9actu$ Co$$isoriu$ is a sti%u&ation whereby the thin# %&ed#ed or $ort#a#ed sha&& auto$atica&&y beco$e the %ro%erty of the creditor in the e0ent of non2%ay$ent of debt within the ter$ fi'ed" this is nu&& and 0oid for bein# contrary to %ub&ic %o&icy because nor$a&&y( the a$ount of the &oan is &ess than the rea& 0a&ue of the thin# %&ed#ed" The security contract is sti&& 0a&id and on&y the %actu$ co$$isoriu$ sti%u&ation is 0oid" Re,uisites) *" There shou&d be a %&ed#e( $ort#a#e or antichresis of %ro%erty by way of security for the %ay$ent of the %rinci%a& ob&i#ation 2" There shou&d be a sti%u&ation for an auto$atic a%%ro%riation by the creditor of the %ro%erty in the e0ent of non2%ay$ent of the ob&i#ation within the sti%u&ated %eriod"

A sti%u&ation %ro0idin# that the $ort#a#ed %ro%erty sha&& be considered in fu&& %ay$ent without further action in court in case on non2 %ay$ent is 0oid" 9er$issib&e sti%u&ations) *" subse,uent $odification of ori#ina& contract 2" subse,uent 0o&untary cession of %ro%erty 6" %ro$ise to assi#n or se&& 7" authority to ta4e %ossession u%on forec&osure RES 9ER5T =OE5NO SUO 2 the debtor owner bears the &oss of the %ro%erty

The %rinci%a& ob&i#ation is not e'tin#uished by the &oss of the %&ed#ed or $ort#a#ed %ro%erty" Art 20!3" A %&ed#e or $ort#a#e is indi0isib&e( e0en thou#h the debt $ay be di0ided a$on# the successors in interest of the debtor or of the creditor"""" A %&ed#e is one and indi0isib&e as to the contractin# %arties and the ru&e a%%&ies e0en if the ob&i#ation is 1oint and not so&idary" As conse,uence of indi0isibity) *" sin#&e thin# 2 e0ery %ortion of the %ro%erty %&ed#ed or $ort#a#ed is answerab&e for the who&e ob&i#ation as soon as it fa&&s due 2" se0era& thin#s + when se0era& thin#s are %&ed#ed or $ort#a#ed to secure the sa$e debt in its entirety( a&& of the$ are &iab&e for the tota&ity of the debt and the creditor doesn:t ha0e to di0ide his action by distributin# the debt( a$on# the 0arious thin#s %&ed#ed or $ort#a#ed" E0en when on&y a %art of the debt re$ains un%aid( a&& the thin#s are &iab&e for such ba&ance" 6" heirs + the debtors heir who has %aid a %art of the debt cant as4 for the %ro%ortionate e'tinction of the %&ed#e or $ort#a#e nor can the creditors heir who has recei0ed the share of the debt return the %&ed#e or cance& the $ort#a#e if the debt isnot co$%&ete&y satisfied" E'ce%tions to ru&e of indi0isibi&ity *" where each one of se0era& thin#s #uarantees deter$inate %ortion of credit 2" where %ortion of the &oan was re&eased" 6" where there was fai&ure of consideration 7" where there is no debtor2creditor re&ationshi% + doesn:t co0er a 6rd %erson who is not %arty to the %&ed#e?$ort#a#e" the ru&e that rea& %ro%erty( consistin# of se0era& &ots( shou&d be so&d se%arate&y( a%%&ies to sa&es in e'ecution and not to forec&osure of $ort#a#es Art 203* the contract of %&ed#e or $ort#a#e $ay secure a&& 4inds of ob&i#ations( be they %ure or sub1ect to a sus%ensi0e or reso&utory condition" Art 2032""" A %ro$ise to constitute a %&ed#e or $ort#a#e( if acce%ted( #i0es rise on&y to a %ersona& ri#ht bindin# u%on the %arties and creates no rea& ri#ht in the %ro%erty" Cha%ter 2 9ROF5S5ONS A99<5CAA<E ON<Y TO 9<E=GE Art 2036" 5n addition to the re,uisite %rescribed in Art 20! ( it is necessary( in order to constitute the contract of %&ed#e( that the thin# %&ed#ed be %&aced in the %ossession of the creditor( or of a 6rd %erson by co$$on a#ree$ent" A %&ed#e is a rea& contract which re,uires de&i0ery for its %erfection" 8ithout de&i0ery( there cannot be a %&ed#e" Notes) reducin# %&ed#e to a %ub&ic docu$ent $a4es it bindin# to the who&e wor&d" Ty%e of =e&i0ery) *" Actua& 2 ani$a&s 2" Constructi0e + sy$bo&ic -4eys. Art 2037 Art 203 Sub1ect $atter of %&ed#e) *" %ersona& %ro%erty( $o0ab&es 2" incor%orea& ri#hts -ne#otiab&e or not. Art 203;" A %&ed#e sha&& not ta4e effect a#ainst 6 rd %ersons if a descri%tion of the thin# %&ed#ed and the date of the %&ed#e do not a%%ear in a %ub&ic instru$ent 9ub&ic instru$ent necessary to bind 6rd %ersons + NotariHed( this is to foresta&& fraud Art 203@" A&ienation of the thin# %&ed#ed 2 Notes) Can %&ed#or a&ienate the thin# %&ed#eD YES with consent of the %&ed#e" The ownershi% is retained by the %&ed#or" Art 203!" the contract of %&ed#e #i0es a ri#ht to the creditor to retain the thin# in his %ossession or in that of a 6 rd %erson to who$ it has been de&i0ered( unti& the debt is %aid" The debtor cant de$and for the return of the thin# %&ed#ed unti& the debt is %aid" The ri#ht of retention is &i$ited on&y to the fu&fi&&$ent of the %rinci%a& ob&i#ation for which the %&ed#e was created"

Art 2033"""" 9ater fa$i&ias 5n case of &oss or deterioration of the thin# %&ed#ed due to fortuitous e0ent( the %&ed#ee cant be he&d res%onsib&e but he is &iab&e for &oss or deterioration by reason of fraud( ne#&i#ence( de&ay or 0io&ation of the ter$s of the contract" Art 2*00 """ 8hi&e the %&ed#e is entit&ed to retain %ossession of the thin# %&ed#ed unti& the debt is %aid( he is not authoriHed to transfer %ossession to a 6 rd %erson" This is for the %rotection of the %&ed#or" The e'ce%tion is when there is a sti%u&ation authoriHin# hi$ to do so" The %&ed#e is res%onsib&e for the acts of his a#ents or e$%&oyees with res%ect to the thin# %&ed#ed bec their acts are( in effect( dee$ed his" Art 2*0* See Art *3 * Art 2*02 The %&ed#e has no ri#ht to use the thin# %&ed#ed or to a%%ro%riate the fruits thereof without the authority of the owner" Aut the %&ed#e can a%%&y the fruits( inco$e( di0idends or interests earned by the thin# %&ed#ed to the %ay$ent of interest( if owin#( and thereafter to the %rinci%a& of his credit" Un&ess there is a sti%u&ation to the contrary( the interest in case of ani$a&s( their offs%rin# are inc&uded in the %&ed#e" Art 2*06 The creditor is authoriHed to brin# such actions as %ertainin# to the owner in order to reco0er the thin# or defend it a#ainst c&ai$s of 6 rd %ersons" The ri#ht of a %&ed#e is a rea& ri#ht enforceab&e a#ainst 6 rd %ersons but it is necessary that the contract of %&ed#e be e$bodied in a %ubic instru$ent which sha&& contain a descri%tion of the thin# %&ed#ed and the date" Art 2*07 The %&ed#e who is in %ossession of the thin# %&ed#ed has no ri#ht to $a4e use of it without %er$ission fro$ the owner" 5f the thin# %&ed#ed is of such character that use is necessary in %ro%er&y carin# for it( then it beco$es his duty to use it so that it wi&& not suffer fro$ its disuse" the owner $ay as4 that the thin# %&ed#ed be de%osited 1udicia&&y or e'tra1udicia&&y when) *" the creditor uses the thin# without his authority" 2" if he $isuses it in any other way 6" 5f the thin# is in dan#er of bein# &ost or i$%aired because f the ne#&i#ence of the %&ed#e" Art 2*0 " The debtor cannot as4 for the return of the thin# %&ed#ed a#ainst the wi&& of the creditor( un&ess and unti& he has %aid the debt and its interest( with e'%enses in a %ro%er case" =ebtor cannot as4 for the return of the thin# %&ed#ed unti& said ob&i#ation is fu&&y %aid inc&udin# interest and e'%enses incurred for %reser0ation" %rescri%tion wi&& not be#in to run on the action to de$and the return of the thin# %&ed#ed whi&e the ob&i#ation subsists( neither wi&& the %ossession of the %&ed#ee as such ri%en into ownershi% by %rescri%tion because such %ossession is not in the conce%t of an owner" The owner is a&&owed to substitute the thin# %&ed#ed which is in dan#er of destruction with another thin# of the sa$e 4ind and ,ua&ity" Art 2*0;" The %&ed#ee has the duty to %reser0e the thin# %&ed#e with the di&i#ence of a #ood father of a fa$i&y" Art 2*0@ Re,uisites for the a%%&ication of Art 2*0@ *" The %&ed#or has reasonab&e #rounds to fear the destruction or i$%air$ent of the thin# %&ed#ed 2" There is no fau&t on the %art of the %&ed#ee/ 6" The %&ed#or is offerin# in %&ace of the thin#( another thin# in %&ed#e which is of the sa$e 4ind and ,ua&ity as the for$er/ 7" the %&ed#ee does not choose to e'ercise his ri#ht to cause the thin# %&ed#ed to be so&d at %ub&ic auction Art 2*0! The %&ed#ee:s ri#ht to ha0e the thin# %&ed#ed so&d at %ub&ic auction is su%erior to that #i0en to the %&ed#or to substitute the thin# %&ed#ed" the sa&e $ust be %ub&ic" The %&ed#ee sha&& 4ee% the %roceeds of the sa&e as a security for the fu&fi&&$ent of the %rinci%a& ob&i#ation -they sti&& be&on# to the %&ed#or." Art 2*03 8hen the %&ed#ee is decei0ed as to the substance or ,ua&ity of the thin# %&ed#e( he can) *" c&ai$ another thin# in %&ed#e

2" de$and i$$ediate %ay$ent of the %rinci%a& ob&i#ation These re$edies are a&ternati0e Art 2**0 E'tin#uish$ent of %&ed#e by return of the thin# %&ed#ed + the %&ed#e is e'tin#uished if the ob1ect is returned by the %&ed#ee( and this is true e0en if there is a sti%u&ation that the %&ed#e wou&d continue a&thou#h the %&ed#ee is no &on#er in %ossession" The %&ed#e is a&so e'tin#uished by) *" %ay$ent of debt 2" renunciation of abandon$ent of the %&ed#e 6" sa&e of the thin# %&ed#ed at %ub&ic auction 7" &oss of the thin# " %rescri%tion DDDD ;" $er#er @" co$%ensaton !" no0ation The %ossession by the debtor or owner of the thin# %&ed#ed subse,uent to the %erfection of the %&ed#e #i0es rise to a %ri$a facie %resu$%tion tha the thin# has been returned and the %&ed#e e'tin#uished" 8hen the thin# %&ed#ed is &ater found in the hands of the %&ed#or or owner( on&y the accessory ob&i#ation of %&ed#e is %resu$ed re$itted( not the %rinci%a& ob&i#ation" IArt 2***" A state$ent in writin# bythe %&ed#ee that he renounces or abandons the %&ed#e is sufficient to e'tin#uish the %&ed#e" For this %ur%ose( neither the acce%tance by the %&ed#or or the owner nor the return of the thin# %&ed#ed is necessary( the %&ed#ee beco$in# de%ositary" 9&ed#e is a %ersona& ri#ht and thus( $ay be wai0ed" 8ai0er $ust be in writin# and such is not conditioned by the acce%tance and return of the thin#" The wai0er transfor$s the %&ed#ee into a de%ositary" the %rinci%a& debt howe0er is not e'tin#uished" Art 2**2" One of the essentia& re,uisites of %&ed#e is that the ob1ect %&ed#ed $ay be a&ienated for the %ay$ent to the creditor when the %rinci%a& ob&i#ation beco$es due" The for$a&ities re,uired for sa&e under the abo0e artic&e) *" The debt is due and un%aid/ 2" The sa&e $ust be at a %ub&ic auction/ 6" There $ust be notice to the %&ed#or and owner( statin# the a$ount due/ 7" The sa&e $ust be $ade with the inter0ention of a notary %ub&ic" 9ostin# of notice of sa&e and %ub&ication is not re,uired" Notification to %&ed#or is sufficient" On&y notary %ub&ic can conduct a %ub&ic auction after %ro%er notice is sent to %&ed#or" This is an e'ce%tion to the %rohibition a#ainst %actu$ co$$issoriu$" 5f the creditor a%%ro%riates the thin#( it sha&& be considered as fu&& %ay$ent for his entire c&ai$" Be is thus re,uired to #i0e ac,uittance for the sa$e" The debtor is not entit&ed to the e'cess in case the 0a&ue of the thin# %&ed#ed is $ore than the %rinci%a& ob&i#ation" Art 2**6 5f the debt is not %aid and a %ub&ic sa&e ta4es %&ace( both the %&ed#or and %&ed#ee $ay bid" The %&ed#or sha&& be %referred if he offers the sa$e ter$s as the hi#hest bidder( if a&& thin#s be&on# to hi$" To a0oid fraud( the %&ed#ee is not a&&owed to ac,uire the thin# %&ed#ed if he is the on&y bidder" Art 2**7 A&& bids $ust be for cash" 5f the %&ed#ee acce%ts bid other than for cash( the %&ed#or has the ri#ht to consider the %&ed#ee has recei0ed the %urchase %rice in cash" Art 2** " Effect of sa&e of thin# %&ed#ed The sa&e of the thin# %&ed#ed e'tin#uishes the %rinci%a& ob&i#ation whether the %rice of the sa&e is $ore or &ess than the a$ount due *" 5f the %rice of the sa&e is $ore than the a$ount due the creditor( the debtor is not eneti&ed to the e'cess un&ess the contrary is %ro0ided" 2" 5n the sa$e way( if the %rice of the sa&e is &ess( neither is the creditor entit&ed to reco0ery for deficiency" A contrary sti%u&ation is 0oid" a" The reason is to co$%e& the creditor to ho&d an honest %ub&ic sa&e b" So that the creditor $ay rea&iHe that he shou&d &oan on&y as $uch as he wi&& &i4e&y to rea&iHe at a %ub&ic sa&e" this is in &ine with the %o&icy which forbids reco0ery of the deficiency in case of the e'ecution of a chatte& $ort#a#e

Art 2*66 Eeasure of a%%&ication of fruits to interest and %rinci%a& + fruits $ust be a%%raised at their actua& $ar4et 0a&ue at the ti$e of the a%%&ication Art 2*67

Antichresis $ust be in writin#( otherwise( it is 0oid" Aut the %rinci%a& ob&i#ation subsists" Art 2*6 Ob&i#ations of the anitchretic creditor) *" 9ay$ent of ta'es and char#es u%on the estate + un&ess there is a sti%u&ation to the contrary" if he doesn:t %ay ta'es( he is &ia&e for da$a#es 2" A%%&ication of the fruits to the interest ( if owin#( and thereafter to the %rinci%a&" Art 2*6; Ri#ht of the antichretic debtor to reac,uire the en1oy$ent of %ro%erty + The debtor cant de$and for the return of the thin# unti& the debt is tota&&y %aid" howe0er if the creditor doesn:t want to %ay the ta'es and incur e'%enses necessary for the %reser0ation of the %ro%erty( he $ay co$%e& the debtor reac,uire the %ro%erty e'ce%t when there is a contrary sti%u&ation" Art 2*6@ Re$edy of Antichretic creditor in case of non %ay$ent of debt ) -The creditor doesn:t ac,uire ownershi% of the rea& estate( any sti%u&ation to this effect is 0oid". *" brin# an action for s%ecific %erfor$ance 2" %etition for the sa&e of rea& %ro%erty in forec&osure of $ort#a#es under Ru&e ;! of ru&es of court" Ac,uisition by creditor of %ro%erty by %rescri%tion + Creditor cant ac,uire by %rescri%tion the &and #i0en to hi$" 9ossession for the %ur%ose of ac,uisiti0e %rescri%tion ( $ust be in the conce%t of an owner" Art 2*6! Art 2*63 5J CBATTE< EORTGAGE Arts 2*7022*7* Art 2*70" Ay chatte& $ort#a#e( %ersona& %ro%erty is recorded in the Chatte& Eort#a#e Re#ister as a security for the %erfor$ance of an ob&i#ation" if the $o0ab&e( instead of bein# recorded( is de&i0ered to the creditor or a 6rd %erson( the contract is a %&ed#e and not a chatte& $ort#a#e" Characteristics of chatte& $ort#a#e *" Accessory contract + for the %ur%ose of securin# a %rinci%a& ob&i#ation 2" For$a& contract + re#istration in the chatte& $ort#a#e re#ister is indis%ensab&e 6" Uni&atera& contract + %roduces ob&i#ation on the %art of the creditor" Art 2*7* Offenses in0o&0in# chatte& $ort#a#e) *" 4nowin#&y re$o0in# any %ersona& %ro%erty under chatte& $ort#a#e 2" se&&in# of %&ed#in# %ersona& %ro%erty a&ready $ort#a#ed under the ter$s of chatte& $ort#a#e &aw without the consent of the $ort#a#ee written on the bac4 of the $ort#a#e and recorded in the re#ister"-The sa&e is 0a&id a&thou#h no written consent was obtained fro$ the $ort#a#ee but the $ort#a#or &ays hi$se&f o%en to cri$ina& %rosecution" Chatte& $ort#a#e creditor $ay $aintain an action for deficiency a&thou#h the chatte& $ort#a#e &aw is si&ent on this" sub1ect $atter of chatte& $ort#a#e/ * shares of stoc4 2" interest in business 6" $achineries treated as %ersona& %ro%erty" 7" 0esse&s2it is i$%ortant that the $ort#a#e is recorded in 9hi&i%%ine Coast Guard to be effecti0e a#ainst 6rd %ersons" " Eotor 0ehic&es + re#istered in <TO?<TFRA( fai&ure to do so wi&& be ineffecti0e 0s 6rd %ersons ;" house bui&t on rented &and Sub1ect $atter shou&d be described for %ro%er identification E'tent of chatte& $ort#a#e + Sec @ Act No * 0!) co0er on&y %ro%erty described therein After25ncurred Ob&i#ation + 9&ed#e( rea& estate $ort#a#e and antichresis $ay secure after2incurred ob&i#ations so &on# as these future debts are accurate&y described" A chatte& $ort#a#e howe0er can on&y co0er ob&i#ations e'istin# at the ti$e the $ort#a#e is constituted" Creation of chatte& $ort#a#e + the re#istration of the %ersona& %ro%erty in the chatte& $ort#a#e re#ister as security for %rinci%a& ob&i#ation" 5f the %ro%erty is situated in a different %ro0ince fro$ that in which the $ort#a#or resides( the re#istration $ust be in both re#isters( otherwise( the chatte& $ort#a#e is 0oid" 5f the chatte& $ort#a#e is not recorded( it is ne0erthe&ess bindin# between %arties Effects of re#istration) *" created rea& ri#ht + bindin# notice to other creditors of its e'istence and creates rea& ri#ht or a &ien which( bein# recorded( fo&&ows the chatte& where0er it #oes" 2" adds nothin# to the $ort#a#e there is no &aw e'%ress&y re,uirin# the recordin# of the assi#n$ent of a $ort#a#e" =uty of Re#ister of deed $inisteria&

Affida0it of #ood faith re,uired + Affida0it of #ood faith is an oath in a contract of chatte& $ort#a#e wherein the %arties se0era&&y swear that the $ort#a#e is $ade for the %ur%ose of securin# the ob&i#ation s%ecified in the conditions thereof and for no other %ur%ose and that the sa$e is a 1ust and 0a&id ob&i#ation and not entered into for the %ur%ose of fraud" Absence of the affida0it 0itiates a $ort#a#e on&y as 0s 6rd %ersons" Affida0it is re,uired for the %ur%ose of turnin# a 0a&id $ort#a#e into %referred $ort#a#e" Ri#ht of rede$%tion 8here $ort#a#or refuses to surrender %ossession + *"re$edy is to institute for 1udicia& forec&osure 2" %urchaser $ay brin# an ordinary action for reco0ery of %ossession Forec&osure of Chatte& Eort#a#e) * 9ub&ic Sa&e + $ort#a#ee can be the so&e bidder 2" %ri0ate sa&e 9eriod for forec&osure + After 60 days fro$ the ti$e of the condition bro4en" After the sa&e at %ub&ic auction( the ri#ht of rede$%tion is no &on#er a0ai&ab&e to the $ort#a#or 8hen the condition of the chatte& $ort#a#e is bro4en the ff $ay redee$) a" $ort#a#or b" %erson ho&din# subse,uent $ort#a#e c" subse,uent attachin# creditor 5n case of refusa& of the $ort#a#or to surrender %ossession of the $ort#a#ed chatte& so&d by the sheriff( the re$edy of the %urchaser is to brin# an ordinary action for reco0ery of %ossession instead of $ere&y as4in# for a writ of %ossession Ri#ht of $ort#a#ee to reco0er deficiency + creditor $ay $aintain an action for the deficiency a&thou#h the chatte& $ort#a#e &aw is si&ent on this" Aut when $ort#a#e constituted as security for %urchase of %ersona& %ro%erty %ayab&e in insta&$ents( no deficiency 1ud#$ent can be as4ed A%%&ication of %roceeds of sa&e) a" costs and e'%enses of 4ee%in# and sa&e b" %ay$ent of ob&i#ation secured by the $ort#a#e c" c&ai$s of %ersons ho&din# subse,uent $ort#a#es in their order d" ba&ance sha&& be %aid to the $ort#a#or

Tit&e on concurrence and %reference of credits is characteriHed by 7 features) *" &iens and $ort#a#es with res%ect to s%ecific $o0ab&e and i$$o0ab&e %ro%erties ha0e been increased 2" ci0i& code and inso&0ency &aw ha0e been %ut into har$ony 6" %referred c&ai$s as to the free %ro%erty of the inso&0ent ha0e a&so been au#$ented 7" order of %reference was e'tin#uished e'ce%t that ta'es $ust be %aid first" %reference doesn:t create an interest in the %ro%erty( it creates a ri#ht of one creditor to be %aid first the %roceeds of the sa&e of %ro%erty as a#ainst another creditor The %referentia& ri#ht of credit attains si#nificance on&y after the %ro%erties of the debtor ha0e been in0entoried and &i,uidated( and the c&ai$s he&d by 0arious creditors ha0e been estab&ished 9reference of Credit 0s <ien) 9reference a%%&ies on&y to c&ai$s which do not attach to s%ecific %ro%erties <ien creates a char#e on a %articu&ar %ro%erty ART 226; =ebtor is &iab&e with a&& his %ro%erty( %resent and future for the fu&fi&&$ent of his ob&i#ations EJEE9T 9RO9ERTY) * 9resent %ro%erty) a" fa$i&y ho$e e'ce%t for non2%ay$ent of ta'es( for debts incurred %rior to constitution of fa$i&y ho$e( for debts secured by $ort#a#e( for debts due to &abourers b" ordinary too&s and i$%&e$ents %ersona&&y used in his trade or &i0e&ihood c" beasts of burden -6s. d" necessary c&othin# and artic&es e'c&udin# 1ewe&s e" househo&d furniture and utensi&s f" %ro0isions for 7 $onths #" %rofessiona& &ibrary h" one fishin# boat and accessories not e'ceedin# *004 i" sa&aries 1" &ettered #ra0estones 4" &ife insurance &" ri#ht to recei0e &e#a& su%%ort 2" future %ro%erty + debtor who obtains dischar#e is not &iab&e for unsatisfied c&ai$s with future %ro%erty 6" %ro%erty in custodies &e#is and %ub&ic do$inion ART 227* 8ith reference to s%ecific $o0ab&e %ro%erties( the ff c&ai$s sha&& be %referred)

*" duties( ta'es( fees due thereon to the State or any subdi0ision thereof 2" c&ai$s arisin# fro$ $isa%%ro%riation( breach of trust $a&feasance by %ub&ic officia&s co$$itted in %erfor$ance of their duties( on the $o0ab&es( $oney or securities obtained by the$/ 6" c&ai$s for the un%aid $o0ab&es so&d( on said $o0ab&es( so &on# as they are in the %ossession of the debtor u% to the 0a&ue of the sa$e 7" credits #uaranteed with %&ed#e " credits for $a4in# re%airs( safe4ee%in# and %reser0ation ;" c&ai$s of &abourer on the #oods $anufactured or wor4 done @" for e'%enses for sa&0a#e u%on the #oods sa&0a#ed !" credits between &and&ord and tenants 3" credits for trans%ortation u%on #oods carried *0" credits for &od#in# and su%%&ies furnished to tra0e&&ers **" credits for seed and e'%enses for cu&ti0ation *2" credits for rent of * yr *6" c&ai$s in fa0or of de%ositor if the de%ositary has wron#fu&&y so&d the thin# de%osited I Genera& cate#ories of Credit) *" S%ecia& %referred credit ARTs 227* and 2276 2" ordinary %referred credits ART 2277 6" co$$on credits ART 227 I ARTs 227* and 2272 do not #i0e the order of %reference or %riority of %ay$ent " They $ere&y enu$erate the credits which en1oy %reference with res%ect to s%ecific $o0ab&es or i$$o0ab&es" 8ith res%ect to the sa$e s%ecific $o0ab&e or i$$o0ab&e( creditors( with the e'ce%tion of the State( $ere&y concur" I The credit of a $ort#a#ee of a $otor 0ehic&e cannot be considered %referred unti& it has been recorded in <TO" I The &essor of a %ro%erty under a contract w?c sti%u&ates that the %er$anent i$%ro0e$ents $ade by the &essee on the &eased %re$ises sha&& be&on# to the &essor( has a better ri#ht to such i$%ro0e$ents than the $anufacturer thereof who so&d the sa$e on credit to the &essee and has not been %aid" ART 2242 With reference to specific immovable property: 1. taxes due upon the land or bldg 2. for the unpaid price of the real property sold . claims of labourers! masons etc engaged in construction etc 4. claims of furnishers of materials used in construction ". mortgage credits recovered in registry of property #. expenses for preservation $. credits annotated in the registry of property! in virtue of a %udicial order &. claims of co'heirs for (arranty ). claims for donors for pecuniary charges 1* credits of insurers I ART 2272 $a4es no distinction bet" re#istered and unre#istered 0endor:s &ien I Un&i4e howe0er( the un%aid %rice of rea& %ro%erty so&d( $ort#a#e credits( in order to be #i0en %reference shou&d be recorded in the Re#istry of 9ro%erty" Aut a recorded $ort#a#e credit is su%erior to an unrecorded 0endor:s &ien" I A recorded $ort#a#e credit is a s%ecia& %referred credit under 2272 - . I 9reference to wor4ers by ART **0 of <abor Code when not fa&&in# within ART 227*-6. and -;. and not attached to any s%ecific %ro%erty is an ordinary %referred credit a&thou#h its i$%act is to $o0e it fro$ 2nd %riority to *st in the order of %reference estab&ished in ART 2277" -D. I Aetween an unrecorded sa&e -%acto de retro sa&e. of a house of a %rior date and a recorded $ort#a#e of the sa$e %ro%erty of a &ater date( the for$er is %referred to the &atter for the reason that( if the ori#ina& owner had %arted with his ownershi% of the thin# so&d( then he no &on#er had the ownershi% and free dis%osa& of the thin# so as to be ab&e to $ort#a#e it" I Refectionary credit 2 is %ri$ari&y an indebtedness incurred in the re%air or reconstruction of so$ethin# %re0ious&y $ade( the re%air $ade necessary by the deterioration of the thin#" The &ibera& inter%retation of refectionary credit inc&ude new construction" ART 224 I ARTs 227* and 2272 sha&& be considered as $ort#a#es or %&ed#es of rea& or %ersona& %ro%erty" 5n case of the inso&0ency of the debtor( such c&ai$s or credits sha&& be considered as &iens within the %ur0iew of &e#a& %ro0ision #o0ernin# inso&0ency" hence( they are not inc&uded in the inso&0ent debtor:s assets" I Accordin# to the Code Co$$ission( the ,uestion as to whether the Ci0i& Code and the 5nso&0ency &aw can be har$oniHed is sett&ed in this artic&e" The %reference na$ed in ARTs 227* and 2272 are to be enforced in accordance with the 5nso&0ency <aw" ta'es on the s%ecific %ro%erty wi&& be %aid first" I ARTs 227* and 2272 on&y find a%%&ication when there is a concurrence of credits -when the sa$e s%ecific %ro%erty of the debtor is sub1ected to the c&ai$s of se0era& creditors and the 0a&ue of such %ro%erty is insufficient to %ay in fu&& a&& creditors. IA %referred creditor:s 6rd %arty c&ai$ to the %roceeds of a forec&osure sa&e by the $ort#a#ee is not the %roceedin# conte$%&ated by &aw for the enforce$ent of %references under ARTs 227* and 2272"

ART 2244 +rdinary preferred credit: 1 proper funeral expenses 2 credits for services rendered the insolvent by employees ,this should be -1. . expenses during last illness of debtor etc 4. compensation due to labourers or their dependents... labor accident ". credits and advancement made to debtor #. support $. fines arising fr criminal offense &. legal expense ) taxes due to national govt 1*. taxes due to province 11 taxes due to city 12. damages due to /uasi'delict 1 . gifts due to charity 14. credits that appear in a public instrument or by final %udgment. I ART 2277 not on&y enu$erates the %referred credits with res%ect to other %ro%erty( rea& and %ersona&( of the debtor( but a&so #i0es their order of %reference Kin the order na$edL" I 5f the %ro%erty is s%ecific( duties and ta'es -not fees. on said %ro%erty are %&aced as No" * in the order of %reference" I 8hat 2277 creates are si$%&y ri#hts n fa0or of certain creditors to ha0e cash and other assets of the inso&0ent a%%&ied in a certain se,uence or order of %riority" I Order of %riority on&y with res%ect to inso&0ent:s Kfree %ro%ertyL *" S%ecia& %referred credits + credits which are s%ecia&&y %referred because they constitute &iens- ta' or non ta'. ta4e %recedence o0er ordinary %referred credits so far as concerns the %ro%erty to which the &iens ha0e attached" -D. a" 5f the 0a&ue of the s%ecific %ro%erty in0o&0ed is #reater than the su$ tota& of ta' &iens and other s%ecia&&y %referred credits( the residua& 0a&ue wi&& for$ %art of the free %ro%erty of the inso&0ent -%ro%erty not i$%ressed with &iens by o%eration of ARTs 227* and 2272" b" if the 0a&ue of the s%ecific %ro%erty is &ess than the ta' &iens"""( the unsatisfied ba&ance of the ta' &iens are to be treated as ordinary %referred credits under ART 2277 and to be %aid in order of %reference %ro0ided" 2" Ordinary %referred credits + -D. I C&ai$s for un%aid wa#es do not fa&& within the cate#ory of s%ecia&&y %referred c&ai$s estab&ished under ARTs 227* and 2272 e'ce%t to the e'tent that such c&ai$s for un%aid wa#es are a&ready co0ered by 227* -;. and -6." -DDDDDD. % *6 2 *7 I Aased on the <abor Code( a dec&aration of ban4ru%tcy or a 1udicia& &i,uidation $ust be %resent before the wor4er:s %reference $ay be enforced" The ru&e assures an order&y deter$ination of %reference #i0en to creditor:s c&ai$s( %reser0in# in har$ony the &e#a& sche$e of c&assification ( concurrence and %reference of credits in Ci0i& Code( 5nso&0ency <aw and <abor Code" I >udicia& %roceedin# in re$ re,uired be to ho&d ART **0 is a&so a%%&icab&e to e'tra1udicia& %roceedin#s wou&d be %uttin# the wor4er in a better %osition than the State which cou&d on&y assert its own %rior %reference in case of a 1udicia& %roceedin# >udicia& %roceedin#s or a %roceedin# in re$ before concurrence and %reference of credit $ay be a%%&ied is to bind a&& interested %arties" The c&ai$s of a&& credits shou&d be brou#ht into the %icture so that there can be an authoritati0e( fair and bindin# ad1udication of %iece2$ea& sett&e$ent of the 0arious c&ai$s" I 9referentia& ri#ht of wor4ers and e$%&oyees under ART **0 $ay be in0o4ed on&y u%on the institution of inso&0ency or &i,uidation %roceedin#s" 5f the case in0o&0es rehabi&itation -to enab&e the co$%any to #ain new &ease in &ife and thereby a&&ow creditors to be %aid the c&ai$s fro$ its earnin#s. and not &i,uidation( the %reference of credit #ranted to wor4ers or e$%&oyees under ART **0 of <abor Code is not a%%&icab&e" I Credits e0idenced by a %ub&ic instru$ent and those e0idenced by a fina& 1ud#$ent are %&aced in the sa$e order or %reference" 9reference a$on# the$se&0es is deter$ined by considerin# the %riority of sates of the instru$ents and of the fina& 1ud#$ents" I ART 2277 not a%%&icab&e to State + The state is a&ways SO<FENT -it i$%oses ta'. State not sub1ect to inso&0ency %roceedin#s" ART 227 I Credits other than those $entioned in ARTs 227*( 2272 and 2277 sha&& en1oy no %reference and such co$$on credits sha&& be %aid %ro rata re#ard&ess of dates I 5nso&0ency %roceedin#s in0o&0in# ban4s 2 Re$edy a#ainst actions of Eonetary Aoard 2 DDD 20 2 Re$edy of de%ositor or creditor to reco0er c&ai$s + after a ban4 is dec&ared inso&0ent by the Eonetary Aoard of the Centra& Aan4( a de%ositor can:t brin# se%arate action a#ainst it( his re$edy bein# to inter0ene in the 1udicia& %roceedin#s for &i,uidation instituted by the Aoard thru the So& Gen" Reasons) a" <i,uidation court ac,uires e'c&usi0e 1urisdiction o0er a&& c&ai$s a#ainst ban4 to the e'c&usion of other courts b" to ob0iate the %ro&iferations of &iti#ations and to a0oid in1ustice and arbitrariness" For con0enience( %ractica&ity and %re0ention of $u&ti%&icity of suits CBA9TER 6 OR=ER OF 9REFERENCE OF CRE=5TS ART 227;

ART 227@ ART 227! ART 227! ART 22 0 I Under the %resent Ci0i& Code( on&y ta'es and assess$ent u%on s%ecific $o0ab&e or i$$o0ab&e %ro%erty en1oy abso&ute %reference" A&& the re$ainin# c&asses of %referred creditors under ARTs 227* and 2272 en1oy no %riority( but $ust be %aid concurrent&y and %ro rata -in %ro%ortion to the a$ount of their res%ecti0e credits. I 2 tier order of %reference) *st tier + inc&udes on&y ta'es( duties and fees due on a s%ecific $o0ab&e or i$$o0ab&e %ro%erty" 2nd tier + a&& other s%ecia& %referred -non2ta'. credit to be satisfied %ari %assu or %ro rata( out of the residua& 0a&ue of the s%ecific %ro%erty to which such credits re&ate" I 9ro Rata ru&e does not a%%&y to credits annotated in the Re#istry of 9ro%erty in 0irtue of 1udicia& order( by attach$ents and e'ecutions which are %referred to as &ater credits" 5n satisfyin# se0era& credits annotated by attach$ents or e'ecutions( the ru&e is sti&& %reference accd# to %riority of credits in order of ti$e"