CREDIT TRANSACTIONS 


II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
March 7, 2014 – 1st part by Charity Pandita In antichresis, it is expressly stipulated that the creditor given
possession of the property shall apply the fruits thereof to the
ANTICHRESIS
payment of interest, if owing, and thereafter to the principal of the
ART. 2132. By the contract of antichresis the creditor acquires the credit, while in a mortgage, there is no such obligation on the part of
right to receive the fruits of an immovable of his debtor, with the the mortgagee.
obligation to apply them to the payment of the interest, if owing, and Now we have the case of..
thereafter to the principal of his credit. (1881)

Looking at article 2132 we can say that antichresis is an accessory Alojado vs. Sioko
contract as it secures the performance of a principal obligation. Also What is existing in this case is actually a contract of deed of sale.
we would see later on under 2134 that these contracts of antichresis The heirs allege that it was only an antichresis, so that they can
are formal contracts. It must be in writing, otherwise, it would be get back the possession kasi nga walang transfer ng possession.
considered as void. It is perfected by compliance of various forms But again, in determining the nature of the contract, you always go
required by law. back to the intention. It clearly appears that the parties mentioned
Under antichresis, there is this requirement of delivery but not for its that the vendor can purchase the land whenever he can pay the
perfection. There must be delivery here of the subject property in purchase price and not the principal obligation. What characterizes
order that the creditor may receive the fruits but the delivery is not a contract of antichresis is that a creditor acquires the right to
necessary for the perfection or validity of the contract of antichresis. receive the fruits of the property with the obligation to apply it to
the payment of interest when it is due then to the principal of his
Antichresis normally covers all the fruits of the encumbered property, credit.
but the law gives the parties the freedom to stipulate otherwise. (see
Art. 1306.)In other words, they could agree na oh imoha ni na yuta or Now the heirs here of Alojado raised that they could apply the
katong specific trees lang, pwede yun. Pero normally, antichresis is ruling in Dela Vega case. Apparently, in Dela Vega, there was no
resorted to by the parties with reference to all the fruits within the contract of mortgage but it was held by the court as an antichresis
specific real estate property. contract. However, in that case, the parties claim that the debtor
assigned and transferred the ownership and possession of the
Now, the contract of antichresis secures all kinds of obligation land for his management and enjoyment as a profit from the
whether it is a pure obligation, or a conditional obligation. amount for which it had been mortgaged. So you look at the whole
statement. The transfer of “ownership” was for the creditor to apply
the fruits of the principal obligation. So it could not have been a
Antichresis vs. Pledge mortgage but an atichresis.
Do not confuse yourselves with the contract of antichresis from that
of the pledge. While both are accessory contracts, you also have to So therefore, it must be expressly stated that the creditor has been
consider that they are similar in the sense that the debtor loses given the possession of the property and the security is to apply the
control of the subject of the contract whether it is antichresis or fruits, the payment of the interest and owing them to the principal
pledge. Those are the similarities. credit.

As to distinctions, antichresis involves real property, fruits of real
property. In pledge, personal property. In antichresis, if you look at
the discussion there by De Leon, you have there perfected by mere
consent. But again if you look at it, it is actually a formal contract so it
is not perfected by mere consent. In pledge, contract is perfected by
delivery of the thing pledged.
ART. 2133. The actual market value of the fruits at the time of the
application thereof to the interest and principal shall be the measure
of such application. (n)
The fruits will be applied to the interest and then to the principal.
What value? Value of the fruits at the time of the application

ART. 2134. The amount of the principal and of the interest shall
be specified in writing; otherwise, the contract of antichresis
How about Antichresis and Real Estate Mortgage? shall be void. (n)
They are similar because both involve real property. However in This article is very clear. That is why I emphasized that it is a formal
antichresis, the subject matter is delivered to the creditor, again not contract because it must be in writing. This requirement is for validity
for validity, but for the creditor to receive the fruits. On the other and not just to affect third persons.
hand, in mortgage, the debtor retains possession of the subject
property unless there is a contrary stipulation. In antichresis, the If it is not written, it is void. But being an accessory obligation, it does
creditor acquires only the right to receive the fruits of the property not affect the principal obligation.
and no real right is involved. In mortgage, it creates a real right over
ART. 2135. The creditor, unless there is a stipulation to the contrary,
the property which is enforceable against the whole world.
is obliged to pay the taxes and charges upon the estate.
In antichresis, the creditor, unless there is a stipulation to the
He is also bound to bear the expenses necessary for its preservation
contrary, is obliged to pay the taxes and charges upon the estate
and repair.
(Art. 2135.), while in mortgage, the creditor has no such obligation;
and to the contrary, is obliged to pay the taxes and charges upon the The sums spent for the purposes stated in this article shall be
estate (Art. 2135.), while in mortgage, the creditor has no such deducted from the fruits. (1882.)
obligation; and

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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
So we are dealing here with the obligations in antichresis. These
Macapinlac vs Davide (?)
obligations are not present in mortgage. If the creditor does not pay
the taxes, he can be liable for indemnity or for damages. If it is the So here, the contract that was executed in favor of Davide was
debtor who will pay the taxes, the amount he paid shall then be actually an antichresis. Even if you look at the decision of the SC…
applied to the payment of his obligation. Pero, anong nakalagay ditto? The creditor is under the obligation
to apply the fruits of the estate in satisfaction first of the interest,
Now, if eventually sa kababayad ni principal debtor sa taxes and
then, the principal.
charges upon the estate, mag-total na sa kanyang principal
obligation, the creditor has the obligation to return the possession of With that type of agreement, you have a contract of antichresis
the subject matter. because that is not the nature of a mortgage. So it is necessary to
use the obligation of the creditor to account the debtor for said
He is also bound to bear the expenses necessary for its preservation
fruits and the corresponding right of the debtor to grant it in
and repair. These are also deducted from the fruits.
satisfaction of the mortgage debt.

Barreto vs. Barreto So we have here the term, antichretic creditor, he is entitled to
such extension and make the necessary.. So kung yun ang na
This is an old case and has nothing to do with Claudine. ☺ statement, parang same lang sya na definition ng mortgagee at
antichretic creditor, pero yun na nga, kasi may application of the
This is a 1917 case. In fact this refers to the provision of
fruits, so yun yung difference ng dalawa.
antichresis as 1881, di ba? Meaning, that is the article under the
Old Civil Code. Look at 2134, there is (n), di ba? Ibig sabihin If the obligation has already been paid by applying the fruits, then,
(new). So meaning, itong kasong ito, wala pa yung 2134. the mortgagee (Maam: mortgagee sinabi dito but actually
Therefore, tama ang SC in saying that this is consensual despite antichretic creditor) should return the possession of the property to
the requirement in 2134 that antichresis should be in writing. the debtor. Now if he remains in possession after the mortgage
debt has been satisfied, then the mortgagee becomes as trustee
If you look at other books, reviewers or even ditto sa De Leon, you
as to the excess of the rents and fruits over such debt. The
would see that the discussions on distinctions would say that
mortgagor, actually, the debtor, can only enforce his rights through
antichresis is consensual tapos sa 2134 kay formal. Bakit hindi
an equitable act.
tinatanggal ang reference na consensual sya? Because when you
look at the old cases on antichresis, SC ruled that it is consensual. There is also an issue here with regard to tender of payment.
In other words, na overlook kumbaga. Also if you look at the cases Under oblicon, it is one of the special modes of payment. Allegedly
under antichresis, most of them were promulgated before 1950. here, the debtor offered to pay all the debts and the charges but
Same here in this Barreto case. the defendant refused to accept. There could be no
extinguishment of the obligation at that point because there is no
Aside from that, in this Barreto case, we know that the debtor
valid tender of payment as there was no particular mention as to
cannot recover the dues of the real property in a contract of
the amount he paid. In addition, wala yung partner ng tender,
antichresis without previously fully paying the debtor. In case of
consignation.
insolvency, the creditor may ask for the sale of the property which
he possesses by virtue of the contract of antichresis. However, even if tender is not necessary, the amount here cannot
be known until an accounting is had. The ruling here of the court is
Here, Alberto Barreto … hacienda and therefore cannot be held as
essentially for the accounting of the creditor with regard to the
.. of the sale. (sorry di gyud madungog ☹)
application of the fruit to the principal obligation and kung may
Take note of the discussion in this case. balance, yun ang i-demand nya, so yun ang bayaran ni debtor.
Kung hindi mo bayaran, continue lang si mortgagee, or actually
ART. 2136. The debtor cannot reacquire the enjoyment of the antichretic creditor, sa possession and continue to apply the fruits
immovable without first having totally paid what he owes the to the interest and if none, to the principal obligation.
creditor.
Also, if the creditor does not want to pay taxes and other
But the latter, in order to exempt himself from the obligations expenses, the creditor may compel the debtor to reacquire the
imposed upon him by the preceding article, may always compel enjoyment of the same, except if there is a contrary stipulation.
the debtor to enter again upon the enjoyment of the property,
except when there is a stipulation to the contrary. (1883) ART. 2137. The creditor does not acquire the owner-ship of the
real estate for nonpayment of the debt within the period agreed
upon.

Every stipulation to the contrary shall be void. But the creditor may
petition the court for the payment of the debt or the sale of the real
property. In this case, the Rules of Court on the foreclosure of
mortgages shall apply. (1884a)

If the obligation has not yet been paid, it is clear that the obligation
has not yet been extinguished and the creditor can still continue
possession of the property. When the creditor does not acquire
ownership of the real estate property, even if he has possession,

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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
there is no transfer of ownership. He merely has the right to receive ART. 2089. A pledge or mortgage is indivisible, even though
the fruits in accordance with the contract of antichresis. the debt may be divided among the successors in interest
of the debtor or of the creditor.
Ramirez vs CA
Therefore, the debtor’s heir who has paid a part of the debt
Very clear in this case that an antichretic creditor cannot ordinarily cannot ask for the proportionate extinguishment of the
acquire prescription the land given to him, any agreement to the pledge or mortgage as long as the debt is not com-pletely
contrary being void. The possession for the purpose of acquisitive satisfied.
prescription must be in the concept of an owner. If you possess a
Neither can the creditor’s heir who received his share of the
property as an antichretic creditor, obviously it is not in the concept
debt return the pledge or cancel the mortgage, to the
of an owner, unless, such creditor repudiates his status as an
prejudice of the other heirs who have not been paid.
antichretic creditor.
From these provisions is excepted the case in which, there
So kung sabihin nya owner sya, hindi sya maningil ng utang. So
being several things given in mortgage or pledge, each one
walang obligation sa kanya si debtor.
of them guarantees only a determinate portion of the credit.
A stipulation authorizing the antichretic creditor to appropriate the
The debtor, in this case, shall have the right to the ex-
property upon the non-payment of the debt within the period
tinguishment of the pledge or mortgage as the portion of
agreed upon is void. Otherwise, it would also constitute pactum
the debt for which each thing is specially answerable is
commissorium.
satisfied. (1860)
So what are remedies available to the creditor if there is a period
of time, walang fruits ma-apply for payment? Bring an action for So the ff provisions are also applicable to Antichresis:
specific performance or petition for the sale of the real property ART. 2090. The indivisibility of a pledge or mortgage is not
involved under the judicial foreclosure rule 68 or as provided under affected by the fact that the debtors are not solidarily liable.
3135 of extra-judicial foreclosure. It is clear in 2137, In this case, (n)
the Rules of Court on the foreclosure of mortgages shall apply.
ART. 2091. The contract of pledge or mortgage may se-
I think that the submission there is that it would also apply for cure all kinds of obligations, be they pure or subject to a
extra-judicial foreclosure. Of course, requirement is the authority suspensive or resolutory condition. (1861)
granted by the debtor.
The last case under antichresis is Dela Vega vs ?
ART. 2138. The contracting parties may stipulate that the interest
upon the debt be compensated with the fruits of the property which Notice that the issue here is as to the nature of the contract, if you
is the object of the antichresis, provided that if the value of the look at the wordings here by the parties, you have there mortgage
fruits should exceed the amount of interest allowed by the laws and redemption. But the SC said that there could have been no
against usury, the excess shall be applied to the principal. (1885a) mortgage since it was not in a public instrument and even if it was, it
was not registered. So contract of mortgage is not perfected.
ART. 2139. The last paragraph of Article 2085, and Ar-ticles 2089
to 2091 are applicable to this contract. (1886a) In cannot also be a pacto de retro sale even if you have the word
there redemption because here, it is clear that it was not the intention
2085 – provision common to pledge and mortgage. Last paragraph. of the parties. There was no intention of transfer of ownership or to
sell the property to the actual antichretic creditor.
ART. 2085. The following requisites are essential to the
It cannot be held as a sale under the pacto de retro inasmuch as the
contracts of pledge and mortgage:
sale of the said contract. It was not shown that the contract was a
(1) That they be constituted to secure the fulfillment of a mortgage and was a security for loan.
principal obligation;
So here, SC studied the contract and based on the stipulations they
(2) That the pledgor or mortgagor be the absolute owner of ruled that it is a contract of antichresis taking into account the
the thing pledged or mortgaged; intention of the contracting parties.
(3) That the persons constituting the pledge or mort-gage If you look at the contract, wala namang nakalagay na “fruits” diba
have the free disposal of their property, and in the absence pero since it cannot be mortgage nor pacto de retro, so antichresis
thereof, that they be legally authorized for the purpose. sya.
Third persons who are not parties to the principal So again, this is an old case, so during those times, antichresis is
obligation may secure the latter by pledging or perfected by mere consent.
mortgaging their own property. (1857)
So those are the provisions and cases under antichresis. Notice
So yung rules would be applied not to the obligation of the owner of class that in the cases we have discussed, these are the old cases,
the property but to the other debtor. Also applicable is 2089 with even yung case ni Ramirez 1986 the contract of antichresis was
regard to indivisibility of a pledge or mortgage. So since applicable sa entered into before the New Civil Code. So there aren’t many new
antichresis, an atichresis is therefore, also, indivisible. cases regarding antichresis presently although people still enter into
these kinds of contracts. Ang ano lang siguro is that wala ng issues
kaya hindi na –maraise before the Supreme Court.

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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
March 7, 2014 – 2nd part by Jase Tan (1) Both are executed to secure performance of a principal
obligation, hence, an accessory contract;
CHATTEL MORTGAGE
(2) Both are constituted only on personal property;
ART. 2140. By a chattel mortgage, personal property is
(3) Both are indivisible;
recorded in the Chattel Mortgage Register as a security for
the performance of an obligation. If the movable, instead of (4) Both constitute a lien on the property;
being recorded, is delivered to the creditor or a third person, (5) In both cases, the creditor cannot appropriate the
the contract is a pledge and not a chattel mortgage. (n) property to himself in payment of the debt; (no pactum
commissorium)
So that is the definition of chattel mortgage. So again just like real
(6) In both cases, when the debtor defaults, the property
estate mortgage, antichresis and pledge this is an accessory
must be sold for the payment of the creditor; and
contract.
(7) Both are extinguished by the fulfillment of the principal
Characteristics of chattel mortgage:
obligation or by the destruction of the property pledged or
Chattel mortgage is: mortgaged.

(1) an accessory contract because it is for the purpose of

securing the performance of a principal obligation;
(2) a formal contract because of its validity, registration in
the Chattel Mortgage Register is indispensable; and
ART. 2141. The provisions of this Code on pledge, insofar as
they are not in conflict with the Chattel Mortgage Law, shall be
applicable to chattel mortgages. (n)

(3) a unilateral contract because it produces only Alright, laws governing chattel mortgage, pledge, yung provisions sa
obligations on the part of the creditor to free the thing from pledge are applicable to a contract of chattel mortgage in so far as
the encumbrance upon fulfillment of the obligation. they are not inconsistent with the provisions of chattel mortgage
under the Civil Code.
Chattel mortgage and pledge both involve personal property. But
there are distinctions. Chattel mortgage under the Civil Code refers to the Chattel Mortgage

Law which is Act 1508. Also, we have other special laws which
govern chattel mortgage, we have the Revised Penal Code as well
as the Ship Mortgage Decree (what is involved are vessels).

Distinctions between chattel mortgage and pledge:

Now, take note that a chattel mortgage is a formal contract and
(1) In chattel mortgage, the delivery of the personal
registration is necessary. What if the subject matter involved is a
property to the mortgagee is not necessary, while in pledge,
motor vehicle? Under 2140, registration must be with the Chattel
such delivery is necessary;

Mortgage register. But what if it is a motor vehicle? The mortgage
(2) In chattel mortgage, the registration of the same in the must be registered with the Land Transportation Office otherwise the
Chattel Mortgage Register is required by law, while in mortgage will not bind third persons. So take note of that.

pledge, registration in the Registry of Property is not
What if it is a ship or a vessel? The mortgage must be recorded with
necessary;

the Philippine Coastguard.

(3) The procedure for the sale of the thing given as security
Another law that is applicable is the Revised Penal Code. Can you
is different. In chattel mortgage, the procedure is found in
still remember the specific provision?

Section 14 of Act No. 1508, as amended, while in pledge, it
is found in Article 2112 of the Civil Code;
Under the Revised Penal Code, the following acts are punishable:

(4) In chattel mortgage, if the property is foreclosed, the (1) Knowingly removing any personal property mortgaged
excess over the amount due goes to the debtor (Sec. 14, under the Chattel Mortgage Law to any province or city
Act No. 1508.), while in pledge, if the property is sold, the other than the one in which it was located at the time of the
debtor is not entitled to the excess unless it is otherwise execution of the mortgage without the written consent of the
agreed (Art. 2125.) or except in the case of a legal pledge mortgagee; and

(Art. 2121.); and

(2) Selling or pledging personal property already
(5) In chattel mortgage, if the property is foreclosed and mortgaged, or any part thereof, under the terms of the
there is a deficiency, the creditor is entitled to recover the Chattel Mortgage Law without the consent of the
deficiency from the debtor except if the chattel mortgage is mortgagee written on the back of the mortgage and duly
a security for the purchase of personal property in recorded in the Chattel Mortgage Register. (Art. 319,
installments. (Art. 1484.)
Revised Penal Code.)

So take note of these distinctions and also take note of the An essential element common to the two acts punished under Article
similarities of these two contracts.
319 of the Revised Penal Code is that the property removed or

repledged, as the case may be, should be the same or identical
property that was mortgaged or pledged before such removal or
Similarities:
pledging. (People vs. Chupeco, 10 SCRA 640 [1964].) The
mortgagor is not relieved of criminal liability even if the mortgage
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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
indebtedness is thereafter paid in full (U.S. vs. Kilayko, 32 Phil. 61
[1915].), or the mortgagor-seller informed the purchaser that the thing
sold had been mortgaged. (People vs. Alvares, 45 Phil. 472 [1923].)
The Supreme Court here emphasized the applicable law
But the sale is valid although no written consent was obtained from
the mortgagee but the mortgagor lays himself open to criminal
prosecution. (Servicewide Specialists, Inc. vs. Intermediate Appellate
Court, 174 SCRA 80 [1989])
Chattel Mortgage Law?
So what are the valid subject matters of chattel mortgage?
enacted to streamline the laws relative to motor vehicles
General Rule: Personal or Movable property.
But the Supreme Court and some authors have submitted that there
are various deviations allowed.
CML?
Other subject matters of chattel mortgage:
The provisions of the RMVL are not inconsistent with the
1. Shares of stock being subject to a chattel mortgage.
However take note that if you have shares of stock as
subject of a chattel mortgage must be registered in both
provinces of domicile of the shareholder (owner of the
shares of stock) and the corporation who issued the
share.
merely complimentary to those of the Chattel Mortgage
Law. A mortgage of any motor vehicle in order to affect
2. An interest in business. If you remember in your
Property, you have the case there of Davao Sawmill?
Machinery treated by parties as personal property even if
they are heavy, bolted or cemented on the real property
does not make it ipso facto immovable. Parties may still
treat those properties as immovable and therefore valid
subjects of chattel mortgage. But again you apply the
principle of estoppels (if there is an issue how the
properties are treated by the parties I guess). An
immovable may be considered a personal property, if
there is a stipulation as when it is used as security in the
payment of an obligation where a chattel mortgage is
executed over it. (Tsai vs. CA)
3. Vessels, but it is essential that the mortgage is recorded
in the office of the Philippine Coast Guard of the port of
documentation of such vessels (Pres. Decree No. 1521
[The Ship Mortgage Decree], Sec. 5[a]; Appendix 6; see
Philippine Refining Co., Inc. vs. Jarque, 61 Phil. 229
[1935].) to be effective as to third persons. It is not
necessary that it be recorded in the office of the register of
deeds.
a conditional buyer in possession; and the lien of a
chattel mortgage given by the buyer to secure a
4. Motor vehicles, but the mortgage must also be registered
in the Land Transportation Office and with respect to
vehicles used for public services, the mortgage must also
carry the approval of the Land Transportation Franchising
and Regulatory Board to make it effective against the
public and the Commission. (Montoya vs. Ignacio)
concerning certificates of title to motor vehicles, such as
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Case: BORLOUGH v FORTUNE
with respect to a vehicle subject of a mortgage. Again
under a chattel mortgage, the owner can sell the property
even if it is subject to a chattel mortgage. Now is there a
conflict between the Revised Motor Vehicles Law and the
The Revised Motor Vehicles Law is a special legislation
while the Chattel Mortgage Law is a general law covering
mortgages of all kinds of personal properties. Does this
mean that the RMVL repealed the provisions under the
CML. So walang repeal. It does mean that the
registration of a chattel mortgage of a vehicle under the
CML shall be dispensed with.
The recording provisions of the Revised Motor Vehicles
Law (now Land Transportation and Traffic Code) are
third persons should not only be registered in the Chattel
Mortgage Registry, but the same should also be recorded
in the Motor Vehicles Office (now Land Transportation
Office) as required by said law. The failure of the
respondent to report the mortgage executed in his favor
has the effect of making said mortgage ineffective
against a purchaser in good faith who registers his
purchase of the same vehicle in the Motor Vehicles
Office.
A mortgage in order to affect third persons should not
only be registered in the Chattel Mortgage Registry, but
the same should also be recorded in the motor Vehicles
Office as required by section 5 (e) of the Revised Motor
Vehicles Law. And the failure of the respondent mortgage
to report the mortgage executed in its favor had the effect
of making said mortgage ineffective against Borlough,
who had his purchase registered in the said Motor
Vehicles Office.
On failure to comply with the statute, the transferee's title
is rendered invalid as against a subsequent purchaser
from the transferor, who is enabled by such failure of
compliance to retain the indicia of ownership, such as a
subsequent purchaser in good faith, or a purchaser from
purchase money loan never becomes effective in such
case as against an innocent purchaser.
One holding a lien on a motor vehicle, in so far as he can
reasonably do so, must protect himself and others
thereafter dealing in good faith by complying and
requiring compliance with the provisions of the laws
statutes providing for the notation of liens or claims
against the motor vehicle certificate of title or
manufacturer's certificate, or for the issuance to the
mortgagee of a new certificate of ownership.
 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
5. House of mixed materials “which by its very nature is third parties are prejudiced the chattel mortgage is still valid. In so far
considered personal property” and because it was so as the third person is concerned, the two parties in the chattel
expressly designated by the parties. (Luna vs. mortgage cannot defeat the rights of the said third person.

Encarnacion)

How about incorporeal property or intangible property? Again they

can subject of a chattel mortgage. Example yung shares of stock. So
they can be owned by natural or juridical persons. Incorporeal
6. House intended to be demolished for what are really
properties such as a certificate of stock can be subject of a chattel
mortgaged in this case are the materials thereof and they
mortgage. (Refer to number 1 above as to the registration
are, therefore, personal property.

requirement)

How about improvement on lands (8)? Can they be subject of a

chattel mortgage? Such growing crops, large cattle and other
7. House built on rented land where not only because the
personal properties, although there may instances that they will be
deed of mortgage considered it as such, but also because
considered as immovable.
it did not form part of the land, for it is settled that an
object placed on land by one who had only a temporary Mortgage of improvements on land.
right to the same, such as the lessee or usufructuary,
1. Chattel mortgage. – For purposes of the Chattel Mortgage
does not become immobilized by attachment. The view
Law, both growing crops and large cattle (Sec. 7, pars. 2
that parties to a deed of chattel mortgage may agree to
and 3, Act No. 1508.) are personal property and,
consider a house as personal property for the purpose of
therefore, capable of being mortgaged although they
said contract is, however, good only insofar as the
would be considered as immovable property under the
contracting parties are concerned. It is based, partly, upon
conditions stated in Article 415, Nos. (2) and (6) of the
the principle of estoppel.
Civil Code. There is no conflict between the Chattel
Mortgage Law and the Civil Code because Article 416(2)
Case: THE STANDARD OIL COMPANY OF NEW YORK
of the Civil Code classifies as personal property “Real
vs. JOAQUIN JARAMILLO property which by any special provisions of law is
considered as personalty.”
Alright, just as we have discussed in real estate
mortgage, the register of deeds has the ministerial duty
to register the mortgage and does not have discretion

over its validity or invalidity. The same here sa chattel 2. Real estate mortgage. – Although the parties to a contract
mortgage. may treat certain improvements and crops as chattels,
insofar as they are concerned, it is now settled in our
What is involved in this case is a lease hood interest on a jurisdiction that, in general, and so far as the public is
lot and building. Now, the duties of the register of deeds concerned, such improvements, if falling under the
in respect to the registration of chattel mortgages and provisions of Article 4151 of the Civil Code are immovable
real estate mortgages are purely ministerial in character; property. As a consequence, a mortgage constituted on
and no provision of law can be cited which confers upon said improvements must be susceptible of registration as
him any judicial or quasi-judicial power to determine the a real estate mortgage and of annotation on the certificate
nature of any document of which registration is sought as of title to the land of which they form part, although the
a chattel mortgage. land itself may not be subject to said encumbrance.
It is undeniable that the parties to a contract may by Another thing that you should take note of about chattel mortgage is
agreement treat as personal property that which by the requirement that there should be sufficient description of the
nature would be real property; and it is a familiar property subject of the mortgage. Let’s see what happened in the
phenomenon to see things classed as real property for case of..
purposes of taxation which on general principle might be
considered personal property.

Whether the subject matter is real or personal, the

mortgage will still bind the parties but it will be rendered
ineffective as against third persons.

The register of deeds therefore has no authority to pass

upon the validity of the subject matter subject of a chattel
mortgage. It is only the Court who has authority to pass
upon such questions.

What if what is involved in a chattel mortgage is actually a building?

What if it is an immovable property a real estate property? The same
ruling, you cannot question whether or not the contract is void just
because it is a building which is the subject matter of a chattel
mortgage. In other words, you apply the principle of estoppel. As long
as the parties treat these properties as personal and as long as no

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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
YES. As long the after acquired property is in renewal of, or in
Saldana vs Phil Guaranty
substitution for, goods on hand when the mortgage was executed, or
So here you have the description required for a valid chattel is purchased with the proceeds of the sale of such goods. Examples
mortgage. We know that in a real estate mortgage, diba it must be are those goods found in a store. Such subject matter is valid.
specific dapat correct ang description sa property. A typographical
Now, in this contract if chattel mortgage there is this requirement
error in the title and the description of the property such in a notice
which is not present in real estate mortgage as well as in pledge. You
of sale will be a ground to have the sale annulled. Now, also in real
have there yung “affidavit of good faith”. This is a requirement in
estate mortgage the stipulation must also be clear as to what the
chattel mortgage wherein the parties swear that the mortgage is
mortgage covers. Remember we discussed a case about bank
made for the purpose of securing the obligations specified in the
charges and penalties? Whether or not the penalties are also
conditions thereof and for no other purposes, and that the same is a
covered by the mortgage.
just and valid obligation and not entered into for the purpose of fraud.
In pledge, description of the property is also required. But in the
Chattel Mortgage Law, you apply Section 7 wherein it states that it

does not demand a minute and specific description of every chattel So what is the essence of this affidavit of good faith?
mortgaged in the deal of mortgage but only requires that the
Answer: To secure the fulfillment of the obligation and that the
description of the properties be such "as to enable the parties in
mortgage was not executed to defraud third persons.
the mortgage, or any other person, after reasonable inquiry and
investigation to identify the same". General description would still What is the effect if there no affidavit of good faith? We have the
make the chattel mortgage valid. case of Lilius.
So what applicable here sa chattel mortgage?
ALEKO E. LILIUS vs.MANILA RAILROAD COMPANY
Answer: Reasonable Description Rule
An affidavit of good faith is not necessary for the validity of a
From the case: chattel mortgage. The effect of the absence of such an affidavit is
The specifications in the chattel mortgage contract in the instant mawala yung preference ng claim ng creditor. So let us say I am
case, we believe, in substantial compliance with the "reasonable the mortgagee and walang affidavit of good faith na na-execute, if
description rule" fixed by the chattel Mortgage Act. We may the debtor turns out to be insolvent. Yung natira nyang assets,
notice in the agreement, moreover, that the phrase in question is meron na preferred creditors kung sino unang bayaran.
found after an enumeration of other specific articles. It can thus be Kung meron kang affidavit of good faith with regard to the chattel
reasonably inferred therefrom that the "furnitures, fixture and mortgage, ikaw preferred ka na creditor. Mauna ka makaclaim.
equipment" referred to are properties of like nature, similarly Kaya lang kung walang affidavit of good faith, even if meron
situated or similarly used in the restaurant of the mortgagor located mortgage then that personal property can be sold and then the
in front of the San Juan de Dos Hospital at Dewey Boulevard, proceeds thereof first dun sa kung sino man ang preferred creditor.
Pasay City, which articles can be definitely pointed out or ascertain
by simple inquiry at or about the premises. Note that the limitation What is left from paying off the preferred creditors will be shared
found in the last paragraph of section 7 of the Chattel Mortgage by ordinary creditors pro rata. (Further discussed in preference of
Law1  on "like or subsituated properties" make reference to those credits)
"thereafter  acquired by the mortgagor and placed in the same So just take note that even if there is no affidavit of good faith
depository as the property originally mortgaged", not to those executed, valid pa rin ang chattel mortgage pereo walang
already existing and originally included at the date of the preference si creditor/mortgagee.
constitution of the chattel mortgage. A contrary view would unduly
impose a more rigid condition than what the law prescribes, which
is that the description be only such as to enable identification after
a reasonable inquiry and investigation.

So take note of this description requirement.

Extend of the chattel mortgage, that’s also under Section 7 of the

CML.

Section 7, paragraph 4 of Act No. 1508 provides:

“A chattel mortgage shall be deemed to cover only the property

described therein and not like or substituted property thereafter
acquired by the mortgagor and placed in the same depositary as the
property originally mortgaged, anything in the mortgage to the
contrary notwithstanding.”
So tingnan ninyo ang intentions ng mga parties. Only those
described in the chattel mortgage contract are covered.

Now, all these stipulations in the mortgage extending the scope and
effect to “after acquired property”, are these valid subject matters?

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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
How about after-incurred obligations, as well as, after-acquired
Cebu Int’l Finance vs. CA
properties? Can they be valid subject matters or consideration?
Apparently in this case, there was a deed of sale na pinirmahan What are its effects to a chattel mortgage?
pero hindi na register but here Ong had the deed of sale presented
and then what happened was naregister na sa kanya yung ship. After incurred obligations – a pledge, real estate as well as
When he entered into that contract of loan in favor of Cebu antichresis; these contracts may secure mortgages; they secure after
International with the accompanying chattel mortgage, registered incurred obligations.
owner na si Ong and the ship was also in his possession. So here
you have a valid chattel mortgage even if there was no affidavit Remember the concept of blanket mortgage/dragnet clause? So,
ofgood faith. Again such an affidavit is not necessary for the those are valid mortgages, provided that the future mortgages are
validity of the chattel mortgage. accurately described and that it is really the intent of the parties.
Now on the part of Cebu International, it is considered a
How about a chattel mortgages? With regard to chattel mortgages,
mortgagee in good faith. A mortgagee has a right to rely in good
faith in the certificate of title of the property of the owner given as a in only covers obligations that exist at the time the mortgage is
security where it has no knowledge of fraud or any circumstance to constituted. Although it promises/express a chattel mortgage includes
arouse suspicion. In the absence of any sign that will arouse debts that are yet to be contracted, future debts.
suspicion there no obligation upon the mortgagee to undertake
further investigation. The security does not come into existence until a new chattel
mortgage contract is entered into or the old chattel mortgage contract
Again, nakaregister eh sa pangalan ni Ong. Nasa kanya rin ang is amended.
possession. Walang indication or knowledge on the part of the
representative of Cebu International na there was no actual sale. After incurred obligations or after acquired obligation are not allowed
We can also apply here that a ship or vessel is a personal property in a chattel mortgage as a General Rule. It is only allowed if you re-
and is a valid subject matter of a chattel mortgage. The chattel execute a contract or you amend the old mortgage contract.
mortgage must also be registered with the Philippine Coastguard.
A Deed of Chattel Mortgage is VOID if it provides that a security
The special affidavit is required only for the purpose of stated therein is for the payment of any and all obligations contracted
transforming an already valid mortgage into a “preferred and which may be contracted by the mortgagor in favor of the
mortgage.’’ Thus, it is not necessary for the validity of the chattel
mortgagee.
mortgage itself but only to give it a preferred status.
Why is an after incurred obligation not allowed in a chattel mortgage?
Notice that there is only two articles regarding chattel mortgage You have to relate it to the execution affidavit of good faith. In an
under the Civil Code so ang main basis for this kind of mortgage is affidavit of good faith, a party states that the chattel mortgage
the Chattel Mortgage Law.

secures the obligation. So, you have to describe the obligation.

Obviously, you cannot execute a chattel mortgage contract to secure

March 12, 2014 – by Ran Datukon the performance of a future obligation.
An immovable property, chattel mortgage cannot be eventually… as How about after acquired properties? Replenishment of inventories; if
both parties to be considered in estoppel. In fact, here’s a chattel the subject of the chattel mortgage is of this kind, then it can be a
mortgage involving an immovable property, you would even have it valid object of the contract of chattel mortgage.
registered before the Registry of Deeds.
As a general rule, after acquired properties are not allowed as
However, take note, that Chattel Mortgage Law does not demand a subject in a chattel mortgage contract, because it must be the very
specific description. What is the requirement? Identify the subject same property foreclosed. The only exception is when in the ordinary
matter or specific description to identify the latter after its… course of business, you have to replenish your good, because at the
What about affidavit of good faith? It is not necessary to the time you constituted the mortgage, your inventory is different by the
validity of a contract of mortgage. If there is no affidavit of good faith, time your obligation becomes due and demandable. Why? It was
it in a sense vitiates a mortgage only as against third persons without already sold. So, there is replenishment of goods and those after
notice. Like creditors and subsequent encumbrances. acquired properties are still validly covered by the chattel mortgage.

The special affidavit is required for the purpose of transforming an When the creditor-mortgagee assigns his credit to some other
ordinary [?] mortgage to a preferred mortgage, but not necessarily for person. The creditor can assign his mortgage credits to some other
its validity. person, in which the latter can hold the credits against the debtor.

The credits secured by the mortgage do not assume the position of a If the debtor-mortgagor fails to pay his obligation, the assignee (third
preferred credit. person) may foreclose the mortgaged property. However, take note
of the requirement when a credit can be assigned. There must be a
registration of the assignment to a third person. In addition, there
must be an actual knowledge on the part of the debtor.

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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
What if the debtor did not go on to the assignment? The assignment Before the obligation is paid, what remains to the mortgagor is a
of the mortgage credit to the third person is registered, but the debtor mere right to redeem, and this right passes to the second mortgagee.
did not have any actual knowledge. So what should be done? The The second mortgagee, therefore, can only recover the property from
payment must be made to the original creditor-mortgagee. the first mortgagee by paying him the mortgage debt.

Is the obligation extinguished? Applying the provisions on Obligations
and Contracts.
mortgagee. His obligation has already become due and demandable
Article 1240. Payment shall be made to the person in
whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive
it.
What if the debtor did not have any knowledge that the credit was
already assigned? Here comes the assignor demanding payment of
the obligation from the principal debtor, and the latter says that he
already paid to the original creditor. Can the debtor refuse to pay the
second creditor-assignee?
In this scenario, mere registration of the assignment is not sufficient.
Even if the assignment was registered, it the debtor did not have
actual knowledge of the assignment, he cannot be prejudiced by the
assignment.
property.
In other words, payment made by the debtor to the creditor is
considered a valid payment extinguishing the obligation. If the debtor
not knowing that the creditor assigned the mortgage to a third
person, payment made by him of the obligation to the original creditor
will extinguish the obligation.
So, if there is an assignment, there must be (1) REGISTRATION;
and (2) ACTUAL KNOWLEDGE on the part of the DEBTOR.
Consequently, the creditor-assignee may demand the obligation from
the debtor.
right of the creditor to take the mortgaged property is implied from the
The payment of the debtor to the original creditor is not binding as to
him.
mortgage.
So, the chattel mortgage is registered, and here comes the second
(second obligation). Can he foreclose the property? NO, because it is
subject to the first mortgage.
The first mortgage, of course has the first priority. What now can the
second mortgagee do so he could have the property foreclosed?
Again, he is not allowed to foreclose it, since it is subject to a first
mortgage, but he can redeem the property from the first mortgagee.
So the second mortgagee pays the first mortgagee, what would
happen? There will no longer be a first mortgage and the second
mortgagee may now foreclose the property.
Of course, what is the right here of the second mortgagee? If he pays
the obligation of the first mortgagee, you apply the rules on
subrogation and beneficial reimbursement. With regard to the
obligation of the debtor as to him, he could now foreclose the
Possession of the movable property is not required for the protection
of a chattel mortgage. Before default, the chattel mortgagee is not
entitled to the possession of the property, unless there is an
agreement to the contrary.
Take note, that if there is DELIVERY, it will no longer be considered a
chattel mortgage, but a PLEDGE. But, if the obligation becomes due
and demandable and the debtor fails to pay, then there is already
default, and the creditor decides to foreclose the property, then the
provision which states for the right to sell the property subject of a

Now, as to redemption, is this still a mortgage? Who can redeem the What if the mortgagor refuses to surrender the mortgaged property?
property? Obviously, the mortgagor, a person holding a subsequent The mortgagee is entitled to foreclose the property, nevertheless, or
mortgage, or a subsequent attaching creditor. go to court to secure the possession of the said property.

While the property remains to be owned by the debtor, the latter

remains its possession, and if there is already default, the creditors
Right of Redemption are entitled to the foreclosure of the property and to its possession in
An attaching creditor who redeems shall be subrogated with the relation to their right to sell the mortgaged property. But of course,
rights of the mortgagee and entitled to foreclose the mortgage in the there is no automatic appropriation of the property to the mortgagee.
same manner that the mortgagee could foreclose. It is considered as pactum commissorium and is prohibited by law.

The redemption is made by paying or delivering to the mortgagee the If the debtor refuses to turn over the possession, go to court and file
amount due on such mortgage and the costs and expenses incurred a case to acquire the possession of the property from the debtor.
by such breach of condition before the sale thereof. What if there is some other person who is in possession of the
Now, remember just the same with Real Estate Mortgage, a movable property? Let us say, subsequent purchaser. What if aside from the
property can be a subject of a second mortgage. In fact, the debtor, there are other persons claiming ownership thereof? You also
mortgagor can sell such property to a third person. implead these persons claiming possession or ownership over the
same mortgaged property.
Now, what is the effect of the second mortgage or subsequent
purchaser?

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 CREDIT TRANSACTIONS 


II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
Now, foreclosure of chattel mortgage, the mortgagee must discharge
the mortgage in a manner provided by law, otherwise, he may be
Period to Foreclose Mortgaged Property
liable for damages claimed by any person entitled to the mortgage.
When can the mortgagee foreclose the subject property? After 30
As a rule, public sale, there is no right to appropriate to his self the
days from the time the condition broken.
property.

CABRAL v. EVANGELISTA
PAMECA v. CA

Q. Can the creditor can still go after Pameca to claim for the
deficiency?

A. Yes.

Q. When is Article 2115 applicable?

A. It is only applicable to pledge.

Q. Can you apply the Recto Law (Article 1484)?

A. No.

Q. When do you apply Article 1484?

A. It applies in payment in installments.

So, you have to be clear there, sale of personal properties payable in

installments. Unlike in 1484, if you go for foreclosure, you cannot
demand for the deficiency. But, if you foreclose a property under
1408, then you could demand for the deficiency from the principal
debtor.

Again, Article 2115 is not applicable to a chattel mortgage, because it

applies only to pledge. Further, Article 1484 is not applicable because
it is for a sale of personal property payable in installment.

Why were these two articles raised in the case? In these cases,
despite foreclosure of properties, deficiencies can no longer be
claimed.

Section 14 of the Chattel Mortgage Law expressly entitles the

mortgagor to the balance of the proceeds upon the satisfaction of the
principal obligation and costs.

Since the Chattel Mortgage Law bars the creditor-mortgagee from

retaining the excess of the sale proceeds there is a corollary
obligation on the part of the debtor-mortgagee to pay the deficiency
in case of a reduction in the price at public auction.

Also, take note, there was an allegation of fraud. Furthermore, the

mere fact that respondent bank was the sole bidder for the
mortgaged properties in the public sale does not warrant the
conclusion that the transaction was attended with fraud.  

Fraud is a serious allegation that requires full and convincing

evidence, and may not be inferred from the lone circumstance that it
was only respondent bank that bid in the sale of the foreclosed
properties.  

The sparseness of petitioners’ evidence in this regard leaves us no

discretion but to uphold the presumption of regularity in the conduct
of the public sale.

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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
Also, take note the right of the creditor to foreclose the properties
Q. What was the property subject to the mortgage?
subject of the mortgage is just ONE OF THE REMEDIES available,
A. Furniture and Equipment (Piano and refrigerator) as he can file an ORDINARY ACTION FOR COLLECTION. If he files
The 30-day period to foreclose a chattel mortgage is the minimum an action for collection, then he is deemed to have abandoned the
period after violation of the mortgage condition for the mortgage mortgage. These remedies are ALTERNATIVE REMEDIES.
creditor to cause the sale at public auction of the mortgaged
NORTHERN MOTORS v. COQUIA
chattel with at least 10 days notice to the mortgagor and posting of
public notice of time, place, and purpose of such sale, and is a The execution was not justified and that Northern Motors, Inc. as
period of grace for the mortgagor, to discharge the mortgage mortgagee was not entitled to the possession of the eight taxicabs.
obligation. After the sale of the chattel at public auction, the right of Those cabs should not have been levied upon and sold at public
redemption is no longer available to the mortgagor. auction to satisfy the judgment credit, which was inferior to the
The prescription period for recovery of movables for foreclosure chattel mortgage.
purposes such as in the present case is eight years as provided in Since the cabs could no longer be recovered because they had
Article 1140 of the Civil Code, and here the plaintiffs had timely been transferred to persons whose addresses are unknown, the
filed their action within 8 months from the mortgage debtor’s proceeds of the execution sale may be regarded as a partial
default. substitute for the unrecoverable cabs. Northern Motors, Inc. is
Defendants-appellants' purchase of the mortgaged chattels at the entitled to the entire proceeds without deduction of the expense of
public sheriff's sale and the delivery of the chattels to them with a execution.
certificate of sale did not give them a superior right to the chattels The essence of the chattel mortgage is that the mortgaged chattels
as against plaintiffs-mortgagees. Rule 39, section 22 of the old should answer for the mortgage credit and not for the judgment
Rules of Court (now Rule 39, section 25 of the Revised Rules), credit of the mortgagor's unsecured creditor.
cited by appellants precisely provides that "the sale conveys to the
The mortgagee is not obligated to file an "independent action" for
purchaser all the right which the debtor had in such property on the
the enforcement of his credit. To require him to do so would be a
day the execution or attachment was levied."
nullification of his lien and would defeat the purpose of the chattel
It has long been settled by this Court that "The right of those who mortgage which is to give him preference over the mortgaged
so acquire said properties should not and cannot be superior to chattels for the satisfaction of his credit.
that of the creditor who has in his favor an instrument of mortgage
The mortgagee has a better right over the thing mortgaged than
executed with the formalities of the law, in good faith, and without
the judgment creditors of the mortgagor. It is improper to deduct
the least indication of fraud.
the expenses of an illegal auction from the proceeds thereof.
This is all the more true in the present case, because, when the Proceeds of such must be delivered to the mortgagee in full.
plaintiff purchased the automobile in question on August 22, 1933,
The third party claim filed by Northern Motors, Inc. should have
he knew, or at least, it is presumed that he knew, by the mere fact
alerted the purchasers to the risk which they were taking when
that the instrument of mortgage, Exhibit 2, was registered in the
they took part in the auction sale. Moreover, at an execution sale
office of the register of deeds of Manila, that said automobile was
the buyers acquire only the right of the judgment debtor, which in
subject to a mortgage lien.
this case was a mere right or equity of redemption. The sale did
In purchasing it, with full knowledge that such circumstances not extinguish the pre-existing mortgage lien.
existed, it should be presumed that he did so, very much willing to
respect the lien existing thereon, since he should not have Application of Proceeds
expected that with the purchase, he would acquire a better right
The proceeds of the sale are to be applied to the payment of the
than that which the vendor then had."
following:
In another case between two mortgagees, we held that "As
(1) Costs and expenses of keeping and sale;
between the first and second mortgagees, therefore, the second
mortgagee has at most only he right to redeem, and even when (2) Payment of the obligation secured by the mortgage;
the second mortgagee goes through the formality of an (3) Claims of persons holding subsequent mortgages in their
extrajudicial foreclosure, the purchaser acquires no more than the order; and
right of redemption from the first mortgagee." (4) The balance, if any, shall be paid to the mortgagor, or person
The superiority of the mortgagee's lien over that of a subsequent holding under him.
judgment creditor is now expressly provided in Rule 39, section 16
FILIPINAS MARBLE v. IAC
of the Revised Rules of Court, which states with regard to the
effect of levy on execution as to third persons that "The levy on
execution shall create a lien in favor of the judgment creditor over
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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
(1) Present property
As regards the second assignment of error, we agree with the
petitioner that a mortgage is a mere accessory contract and, thus, a. GR: Family home shall be exempt from execution,
its validity would depend on the validity of the loan secured by it. sale or attachment.
We, however, reject the petitioner's argument that since the chattel
mortgage involved was not registered, the same is null and void. Exceptions: Art 155 of the Family Code
Article 2125 of the Civil Code clearly provides that the non-
Article 155. The family home shall be exempt from
registration of the mortgage does not affect the immediate parties.
execution, forced sale or attachment, except:
It states:
Art. 2125. In addition to the requisites stated in article 2085, it (1) For nonpayment of taxes;
is indispensable, in order that a mortgage may be validly
(2) For debts incurred before the declaration was recorded
constituted that the document in which it appears be recorded
in the Registry of Property;
in the Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the parties. (3) For debts secured by mortgages on the premises before

or after such record of the declaration;

(4) For debts due to laborers, mechanics, architects,

March 14, 2014 – 1st part by Kirstin Dela Cruz builders, material-men and others who have rendered
service or furnished material for the prosecution of the
CONCURRENCE & PREFERENCE OF CREDIT building.
You only apply this if the debtor’s assets are not sufficient to satisfy b. Right to receive support under Art 205.
all his obligations in full. Otherwise, walang issue kung sino ang
mauna or sino ang maghati-hati sa assets ni debtor if enough

naman. Art. 205. The right to receive support under this Title
Nature and effect of Preference as well as any money or property obtained as such
support shall not be levied upon on attachment or
(1) A preference is an exception to the rule. Therefore, it is execution. (302a)

(2)
strictly construed.

It does not create an interest in the property. It creates

simply a right of one creditor to be paid first the proceeds c. One provided under the ROC, Sec 13 Rule 39
of the sale of property as against another creditor. It is not
attached to any specific property. It is merely a priority. Section 13. Property exempt from execution. — Except
as otherwise expressly provided by law, the following
(3) The law does not give the creditor who has a preference, property, and no other, shall be exempt from execution:
a right to take the property or sell it as against another
creditor. It is not a question of who takes or sells but (a) The judgment obligor's family home as provided by
merely an application of the proceeds after the sale. law, or the homestead in which he resides, and land
necessarily used in connection therewith;
(4) It is a right which can be made effective only by being
asserted and maintained. Such right must be established. (b) Ordinary tools and implements personally used by
him in his trade, employment, or livelihood;
Article 2236. The debtor is liable with all his property, present and
(c) Three horses, or three cows, or three carabaos, or
future, for the fulfillment of his obligations, subject to the exemptions
other beasts of burden, such as the judgment obligor
provided by law.
may select necessarily used by him in his ordinary
Relate this with the provision under ObliCon, Art 1177. occupation;

(d) His necessary clothing and articles for ordinary

Article 1177. The creditors, after having pursued the property in personal use, excluding jewelry;
possession of the debtor to satisfy their claims, may exercise all the
(e) Household furniture and utensils necessary for
rights and bring all the actions of the latter for the same
housekeeping, and used for that purpose by the
purpose, save those which are inherent in his person; they may also
judgment obligor and his family, such as the judgment
impugn the acts which the debtor may have done to defraud them. obligor may select, of a value not exceeding one
hundred thousand pesos;
All properties of the debtor can be attached and used to satisfy his
obligations – personal and real properties, present and future. (f) Provisions for individual or family use sufficient for
However, there are exceptions to this rule. There are properties that four months;
cannot be attached because the law itself provides that these be (g) The professional libraries and equipment of judges,
exempt from the fulfillment of the obligations of the debtor. lawyers, physicians, pharmacists, dentists, engineers,

surveyors, clergymen, teachers, and other

professionals, not exceeding three hundred thousand
pesos in value;
Exempt property
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 CREDIT TRANSACTIONS 

II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
(h) One fishing boat and accessories not exceeding the assignee in insolvency elected by the creditors or appointed by the
total value of one hundred thousand pesos owned by a court as they have a distinct entity.
fisherman and by the lawful use of which he earns his
livelihood; The exemption applies provided that:

(i) So much of the salaries, wages, or earnings of the (1) The partnership or community subsists; and
judgment obligor for his personal services within the
(2) The obligations of the insolvent spouse have not
four months preceding the levy as are necessary for the
redounded to the benefit of the family.
support of his family;
The insolvency of the husband does not have the effect of dissolving
(j) Lettered gravestones;
the CP or AC.
(k) Monies, benefits, privileges, or annuities accruing or
in any manner growing out of any life insurance; Article 2239. If there is property, other than that mentioned in the
preceding article, owned by two or more persons, one of whom is the
(l) The right to receive legal support, or money or
insolvent debtor, his undivided share or interest therein shall be
property obtained as such support, or any pension or
gratuity from the Government; among the assets to be taken possession of by the assignee for the
payment of the insolvent debtor's obligations. (n)
(m) Properties specially exempted by law.

But no article or species of property mentioned in What we have here is a property where there are 2 or more owners
this section shall be exempt from execution issued but it is not CP or AC. One instance is co-ownership.
upon a judgment recovered for its price or upon a
Q: Pwede ba na ang parcel of land co-owned by 2 people be subject
judgment of foreclosure of a mortgage thereon.
(12a) of execution when one of them is insolvent?

A: Yes, only the undivided share or interest therein shall be among

the assets to be taken possession by the assignee.
(2) Future property
Article 2240. Property held by the insolvent debtor as a trustee of an
A debtor who obtains a discharge from his debts on
express or implied trust, shall be excluded from the insolvency
account of his insolvency, is not liable for the unsatisfied
proceedings. (n)
claims of his creditors with said property subject to certain
exceptions expressly provided by law. A trustee has in his title or name a subject property, say an account
or a land. But his title is only a legal title. He holds the property or the
(3) Property in custodia legis and of public dominion
asset in trust for another person in trust for another person which is
Property under legal custody and those owned by municipal the beneficiary. Essentially, even if nakapangalan sa kanya, he is not
corporations necessary for government purposes have the owner thereof. Hence, property held in trust by the insolvent
been held exempt from attachment or execution. debtor should be excluded from the insolvency proceedings.

Article 2237. Insolvency shall be governed by special laws insofar as

they are not inconsistent with this Code. (n)

Classification of Credits
Dito sa concurrence and preference of credits, sinasabi lang talaga
General category of credits:
kung sino ang preferred at kung sino ang maghati-hati. The process
is provided under the Financial Rehabilitation and Insolvency Act (1) Special preferred credits – discussed under 2241
(FRIA). (movable properties) and 2242 (immovable)

(2) Ordinary preferred credits – under 2244

Article 2238. So long as the conjugal partnership or absolute
community subsists, its property shall not be among the assets to be (3) Common credits – under 2245
taken possession of by the assignee for the payment of the insolvent
debtor's obligations, except insofar as the latter have redounded to

the benefit of the family. If it is the husband who is insolvent, the A. Special preferred credits
administration of the conjugal partnership or absolute community
may, by order of the court, be transferred to the wife or to a third

person other than the assignee. (n) Article 2241. With reference to specific movable property
of the debtor, the following claims or liens shall be
Exemption of conjugal partnership and absolute community preferred:
property

What is involved here is an asset of the CP or AC subject to
(1) Duties, taxes and fees due thereon to the State or any
execution. As a rule, the assets of the CP or AC do not pass to the
subdivision thereof;
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II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
(2) Claims arising from misappropriation, breach of trust, or We have a situation here where a specific property, either movable or
malfeasance by public officials committed in the immovable, is subject to several obligations. Special preferred credits
performance of their duties, on the movables, money or are those that have to be satisfied first in applying the proceeds of
securities obtained by them; the sale of the specific property.

(3) Claims for the unpaid price of movables sold, on said Illustration:
movables, so long as they are in the possession of the
Imported car subject to:
debtor, up to the value of the same; and if the movable has
been resold by the debtor and the price is still unpaid, the a) Custom duties;
lien may be enforced on the price; this right is not lost by b) Unpaid purchase price; and
the immobilization of the thing by destination, provided it
c) Under chattel mortgage to secure another
has not lost its form, substance and identity; neither is the
obligation
right lost by the sale of the thing together with other
property for a lump sum, when the price thereof can be The car will then be sold and the proceeds of the sale
determined proportionally; will now be applied to the several obligations. When you
have to deal with concurrence and preference of
(4) Credits guaranteed with a pledge so long as the things credits, ang una ninyong titingnan is whether there is a
pledged are in the hands of the creditor, or those special preferred credit attached to this specific property
guaranteed by a chattel mortgage, upon the things pledged bago hati hatiin among the creditors.
or mortgaged, up to the value thereof;
In this illustration, meron bang special preferred credit? Kung meron,
(5) Credits for the making, repair, safekeeping or doon muna natin iapply ang proceeds. So, the custom duties will be
preservation of personal property, on the movable thus paid first based on 2241. If meron pang maiwan na pera, then iapply
made, repaired, kept or possessed; sa iba pro-rata.
(6) Claims for laborers' wages, on the goods manufactured Q: What if taxes and hindi nabayaran ng debtor, pwede bang sabihin
or the work done; ng BIR na iattach nila ang car for the satisfaction of the obligation?
(7) For expenses of salvage, upon the goods salvaged; A: No. Kasi, yung taxes na nirerefer ng 2241 are those due on the
(8) Credits between the landlord and the tenant, arising object mismo. So, taxes due on the car itself. Not all taxes. Yes,
from the contract of tenancy on shares, on the share of obligation pa rin yun pero those are covered under 2244 kasi it is not
each in the fruits or harvest; due on the object itself.

(9) Credits for transportation, upon the goods carried, for The movable involved must still be owned by the debtor. This is
the price of the contract and incidental expenses, until their obviously not applicable if the debtor has already transferred the
delivery and for thirty days thereafter; ownership of the movable.

(10) Credits for lodging and supplies usually furnished to Illustration:

travellers by hotel keepers, on the movables belonging to Car: 2M
the guest as long as such movables are in the hotel, but not
for money loaned to the guests; Custom duties: 500k

(11) Credits for seeds and expenses for cultivation and Unpaid purchase price: 500k
harvest advanced to the debtor, upon the fruits harvested; Pledge: 500k
(12) Credits for rent for one year, upon the personal Mortgage: 500k
property of the lessee existing on the immovable leased
and on the fruits of the same, but not on money or Expenses for repairs: 500k
instruments of credit; Total obligation: 2.5 million
(13) Claims in favor of the depositor if the depositary has Car was sold for 2M. Do not divide the proceeds by 5.
wrongfully sold the thing deposited, upon the price of the
First, apply the 500k to the custom duties.
sale.

Then, magshare na ang apat sa 1.5M pro-rata.

Auntie Jazzy: Don’t worry, hindi ko kaya ipa-compute sa exam kasi I

In the foregoing cases, if the movables to which the lien or
doubt na ipa-compute kayo sa bar. Para lang malaman nyo kung
preference attaches have been wrongfully taken, the
paano.
creditor may demand them from any possessor, within thirty
days from the unlawful seizure. (1922a)
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II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
(5) Mortgage credits recorded in the Registry of Property, upon the
real estate mortgaged;
Atty. Jazzie’s computation on the board:
(6) Expenses for the preservation or improvement of real property
Custom duties: 2M – 500k = 1.5M

when the law authorizes reimbursement, upon the immovable

preserved or improved;
1.5 M shared pro-rata (7) Credits annotated in the Registry of Property, in virtue of a judicial
Unpaid purchase price: 500k 500k order, by attachments or executions, upon the property affected, and
only as to later credits;
Pledge: 500k 1.5M X 2M= 375k
(8) Claims of co-heirs for warranty in the partition of an immovable
Mortgage: 500k
among them, upon the real property thus divided;
Expenses for repairs: 500k
(9) Claims of donors or real property for pecuniary charges or other
conditions imposed upon the donee, upon the immovable donated;

Kir’s tinamban version ☺ : 1.5 M (10) Credits of insurers, upon the property insured, for the insurance
premium for two years. (1923a)
4

First, taxes due upon the land or building. If may balance pa, pro-rata
sharing.
Balance of 125k per creditor will now fall under the ordinary preferred Again, all of these credits are directly due on the immovables.
credit under 2244. Pro-rata lang sila in relation to this specific
movable. Similar with 2241 ang application.

What if sobra ang proceeds ng car? Barretto vs Villanueva

The excess amount is called – (sorry, dili jud nako madungog guys Atty. Jazzie: There must be some proceeding (insolvency,
☹). That will now be applied to the other creditors (ordinary preferred liquidation proceeding, etc) first where the claims of all the
credits under 2244) preferred creditors be bindingly adjudicated for them to assert their

rights and para malaman ang order of preferred creditors. In this

case, the absence of insolvency proceedings (or other equivalent
general liquidation of the debtor’s estate), the conflict between the
Take note: Credits from #2 - #13 are not in order. Application of the
parties must be decided pursuant to the well-established principle
proceeds will be done pro-rata. concerning registered lands; that a purchaser in good faith and for
value (as the appellant concededly is) takes registered property
free from liens and encumbrances other than statutory liens and
Cordova vs Reyes and SEC (by Mich Anima and her braces) those recorded in the certificate of title. There being no insolvency
or liquidation, the claim of the appellee, as unpaid vendor, did not
Atty. Jazzie: 2241 refers to SPECIFIC movable properties. acquire the character and rank of a statutory lien co-equal to the
mortgagee's recorded encumbrance, and must remain subordinate
Money is generic. It is not covered under 2241.
to the latter.
Article 2242. With reference to specific immovable property and real
rights of the debtor, the following claims, mortgages and liens shall
be preferred, and shall constitute an encumbrance on the immovable
or real right:

(1) Taxes due upon the land or building;

(2) For the unpaid price of real property sold, upon the immovable
sold;

(3) Claims of laborers, masons, mechanics and other workmen, as

well as of architects, engineers and contractors, engaged in the
construction, reconstruction or repair of buildings, canals or other
works, upon said buildings, canals or other works;

(4) Claims of furnishers of materials used in the construction,

reconstruction, or repair of buildings, canals or other works, upon
said buildings, canals or other works;

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II Sanchez Roman SY 2013 - 2014 | From the lectures of Atty. Jazzie Sarona, CPA
Philippine Savings vs Lantin J.L. Bernardo Construction vs CA

Atty Jazzie: Concurrence of credits occurs when the same specific
property of the debtor or all of his property is subjected to the
claims of several creditors. The concurrence of credits raises no
questions of consequence where the value of the property or the
value of all assets of the debtor is sufficient to pay in full all
creditors. However, it becomes material when said assets are
insufficient. For then, some creditors will not obtain full satisfaction
of their claims.
of some kind of a proceeding where the claims of all the preferred
In this case, the Court applied the ruling in the Barretto case
regarding the institution of some proceeding for the purpose of
adjudicating the rights of all the preferred creditors. Although the
lower court found that “there was no known creditors other than
the plaintiff and the defendant herein”, this cannot be conclusive. It
will not bar other creditors in the event they show up and present
their claims that they also have preferred liens against the property
involved. Consequently, the title issued in favor of the bank which
is supposed to be indefeasible would remain constantly unstable
and questionable.
Also, we have what we call as refectionary credit.
preferred liens against the property involved.
Atty. Jazzie: Articles 2241 and 2242 enumerates certain credits
which enjoy preference with respect to specific personal or real
property of the debtor. However, Art 2242 only finds application
when there is a concurrence of credits. In such a situation, the
question of preference will arise, that is, there will be a need to
determine which of the creditors will be paid ahead of the others.
This statutory lien should then and only be enforced in the context
creditors be bindingly adjudicated, such as insolvency
proceedings. The action filed by the petitioners in the trial court
does not partake of the nature of an insolvency proceeding. It is
basically for specific performance and damages.
Such lien cannot be enforced in the present action for there is no
way of determining whether or not there exist other preferred
creditors with claims over the San Antonio Public Market. The
records do not contain any allegation that petitioners are the only
creditors with respect to such property. The fact that no third party
claims have been filed in the trial court will not bar other creditors
from subsequently bringing actions claiming that they also have

Take note that the Court did not say na walang obligation ang local
government. Meron pa rin kaya lang, not on the specific property
Refectionary credit which is the public market.
- refers to an indebtedness incurred in the repair or
Again, 2241 and 2242 only apply when there is concurrence of
reconstruction of something previously made, such repair
or construction being made necessary by the deterioration credits and there is a liquidation or insolvency proceedings.
or destruction of the thing as it formerly existed.

Article 2243. The claims or credits enumerated in the two preceding

articles shall be considered as mortgages or pledges of real or

personal property, or liens within the purview of legal provisions
governing insolvency. Taxes mentioned in No. 1, article 2241, and
No. 1, article 2242, shall first be satisfied. (n)

Dito nakalagay yung preference ng taxes.

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