CREDIT TRANSACTIONS private sale what ought to bea public auction. NOTE: The failure to post notice is not per se 2 ‘ground for invalidating a foreclosure sale Provided that the notice thereof is duly published in anewspaper of general circulation (Development Bankof the Philippines v. Aguirre, GR No. 144877, September 7, 2007). 2. No requirement ofpersonal notice NOTE: Unless the partes stipulate personal notice to the mortgagor in extrajudicial proceedings is not necessary because Sec. 3 of Act No, 3135 only requires the posting of notice of the sale in three public places and the publication of tht notice in 2 ewspaper of general circulation (Ramirez v. The Manila Bonking Corp, GR. No. 196800, December 11, 2013), Requisites for a newspaper to be deemed of ‘general circulation ‘4. Itmust be published fo the dissemination ‘of local news and general information: bo. Temust havea bona fide subscription list of paying subscribers, {emust be published at regular Intervals; Iemust be available tothe publicin general and not jst to a select few chosen by the publisher, otherwise the precise objective Of publication of notice of sale will not be realized; and & Iemust not be devoted to the Interests or published for the entertainment of a particular profession, rade, calling, race or religion. @: MBTC granted a loan to spouses Peiafiel, who mortgaged thelr two parcels of land in Mandaluyong. The spouses defaulted in the payment MBTC instituted an extrajudicial foreclosure proceeding under Act No.3135. The Notice of Sale was published in MaharlikaPilipinas, which has no. business permitin Mandaluyong anditslistof subscribers shows that there were no subscribers from Mandaluyong. Did MBTC comply with the publication requirement under Section 3, Act No. 313s? ‘A: NO. MaharlikaPilipinas Is not a newspaper of general circulation In Mandaluyong where the Property is located, To be a newspaper of general reulation, itis enough that Its published for the ¢izcemination oflcal news and general information that it has a bona fide subscription list of paying subscribers, and that it & published at regular Intervals. The newspaper must be available to the public in general, and not just toa select few chosen by the publisher. Otherwise, the precise objective of publishing the notice of sale in the newspaper will not be realized (Metropolitan Bank and Trust Company, Inc. . Bugenio Petofiel GR. No. 173976, February 27, 2008) 3 Nocertiicate of posting is required GR: A certificate of postings not required, much less ‘considered indispensable for the validity of a Foreclosure sale under Act No, 3836, XPN: Such certificate is significant only when becomes necessary to prove compliance with the requited notice of posting, “The fact alone that there is no certificate of posting attached to the sherifis records is not sufficient to provelack of posting (Rabuyo, 2017). 4 Burden of proving non-compliance with the publicetion and posting requirements Foreclosure proceedings have in their favor the presumption of regularity (Union Bank of the Philippines v. CA, GR. No. 164914, September 30, 2005}. Enjoining the implementation of writ possession As ae ay eso repr te ay ofthe morgage ot oreasie cannot be alg gre for refusing the lesuance of 4 wet of possesion. Regards of whether or not theres pending sult for annulment of te morgage othe forelsure tel the purchaser is ented awrite possession, without prelude tothe oto othe case Hence, 4 Injnedon to prohibit the lstance of wnt of Postesion ls enrely ou of place. rokbiion does Zo le to enon the implementation of « wrt of possession. Once the wit of posession has een KEeued the Wal court has no akeratve but fo enforeathe wnt without delay (ps Ong. 4,6. No ar jee 2000) Effect ofinadequacy of price in foredosure sale CGR: When there is a right to redeem, inadequacy of priceis immaterial because the judgment debtor may Feacqulre the property easier atalow price or sells right to redeem (PNB v. CA, GR. No, 121738, June 14, 1993). XP: When the price sso inadequste as to siock the ‘conscience of the court taking into consideration the peculiarly circumstances attendant thereto (United Coconut Planters Bank v. CA, GR. No. 155912, August 17,2007). Judicial foreclosure ‘The mortgagee is specifically given therightto claim forthe deficiency (Rules of Court Sec 6, Rule 68). Extrajudicial foreclosure “The plain result of adoptifig extrajudicial forelacure under Act No. 3135 is that the creditor waives his 451 Univensiry or Santo Tomas Facunry or civintaw WF$$ civil. Law Fight to recover any deficiency (Heirs of ps Flaviano v. Manila Banking Corporation, GR No. 171206, Septemter 23,2013). Wille Act No. 3135. governing exojudical foreclosures of mortgage dos nut give mortgagee the Gh recover etn ater te ube auction sale, nether does it expressly or imped prohibit such recovery. : — NOTE: In both judicial and extrajudicial foreclosure, \when a third persons the mortgagor, heisnot Hable for any deficiency in the absence of a contrary stipulation, Action for recovery of deficiency If the deficiency is embodied In a judgment, it is referred toas deficiency judgment NOTE: The action prescribes ten years fom the time the right of action accrues [NCC Are 1142(2)) Ea TN Redemption isa transaction by which the mortgagor reacquires or buys back the property which may hhave passed under the mortgage or divests the, property of the lien which the mortgage may have created, Persons entitled to exercise rightof redemption 1. Mortgagor or one in privity of tile withthe mortgagor: and 2, Suceessors-in-interestunder Sec. 29, Rule 39, Rules of Court, Kinds of redemption 1. Equity of redemption -tt refers to the right of ‘mortgagor to redeem the mortgaged property after his default in the performance of the ‘conditions of tne mortgage butbefore the sale of the mortgaged property or confirmation of sale. ‘The mortgagor pays the secured debt within the period specified Where applicatl “Juditalforeclozure of real estate mortgage; and ‘Chattel mortgage forecasure XPN: There Is no right of redemption from a judicial foreclosure saleaftertheconfirmation of the sale, except those granted by banks and financial institution as provided by the General Banking Act (GSISv. CFT ofllollo, GR No. 45322, uly 5, 1989). I the mortgagee is a bank the mortgagor may exercise a right of redemption and this rule applies even if the foreclosure is Judilal in accordance with Rule 68 ofthe Rules of Court. Period to exercise: Within 90-120 days from the fgg) University oF Santo Toss BBD 2or8 counen Nores date ofthe service ofthe order of foreclosure or even thereafter but before the order ef confirmation of the sale 2. Riglic ofredemption - Right of the mortgagor to redeem the mortgaged property within one year from the date of registration ofthe certificate of sale fe apliesin case of exrjdial Where applicable: Extrajudicial foreclosure Period to exercise: Within one year from the date of Fepistration of the certificate of sale (Rules of Court Sec. 6, Act Na 3135; See. 28 Rule 39), ‘The right ofredemption, as ong as within the period prescribed, may be exercised regariless of ‘whether or no the mortgages has subsequently conveyed the property to some other party (Sta, Ignacio Rural Bonk v. CA, GR. No. 97012, March 11994) NOTE: Notwithstanding Act No 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure, shall have the right to redeem the property in accordance with See. 47 of the General Banking Act until, but not ater, the registration of the certificate of sale ‘withthe applicable Register of Deeds which ia zo case shall be more than three months ater foreclosure, whichever is earlier Owners of property that has heen sold in a foreclosure sale prior to the effectivity ofthis General Banking ‘Act shall retain their redemption rights until their expiration (RA 8791, See 47}. Q:X and ¥, judgment creditors of A, obtained the transfer of the ttle of the mortgaged property in their names. Earlier, A executed a mortgage over ‘the same property in favor of FGU Insurance. The latter mortgage was registered. When defaulted, FGU. foreclosed the property. A certificate of sale was thereafter issued in FCU's favor, which was confirmed by the RTC. However, before the new TCT could be issued, Xand ¥ filed thelr respective motion for Intervention and to set aside the judgment alleging that they are the new owners of the property and the failure of FGU to implead Xvand Y in the action for foreclosure deprived the later of due process. 15 the contention of Xand ¥ correct? {A: NO, Subordinate lien holders aequire only a lien ‘upon the equity of redemption vested in the mortgagor, and their rights are strictly subordinate to the superior Hen of the mortgagee. Such equity of fedemption does not constitute a bar to the registration of the property in the name of the mortgagee. Registration may be granted inthe name fof the mortgagee but subject to the subordinate lien holders’ equity of redemption, which should be ‘exercised within ninety (90) days from the date the decision becomes final. This registration is merely 8 necessary consequence of the execution ofthe finat 452- SEMA ESE CREDIT TRANSACTIONS deed of sale inthe foreclosure proceedings (Looyuko For purposes of reckoning the oneyear WGA, GR. No. 102696, july 12,2003). redemption period in case of individual ‘mortgagors. or the three-month reckoning Requisites for valid right of redemption period for juridical persons/mortgagors 1 ‘the same shall be reckoned from the date of 1. Must be made within 12 months from the time cwafirmation ofthe auction sale wich Is of tie registration ofthe sale inthe Office ofthe the date when the certificate of te is Registry of Property Issued (BIR RMC No. 15-2008, August 15, 2, Payment ofthe purchase price ofthe property 2008). plus 196 interest per month togeter withthe taxes thereon, any, pald by the porchaser with 2. Judicial ~ Within the period of 90-120 days from tho same rate of Interest computed from the ‘hedate ofthe service of the order of foreclosure date of registration of thesale; ‘or even thereafter but before the order of the 3, Welten notice of the redemption must be Confirmation ofthe Sle (Rules of Cour Sections served on the officer who made the sale and 2 2ond 3 Rule 2) duplicate filed withthe proper Register of Deeds (Rosales v. Yoo, GR No. £42262, February 28, NOTE: Allowing redemption after the lapse ofthe 1983}; and statutory period, when the buyer at the 4 Tender of payment within the prescribed period foreclosure sale does nct object but even \o make the redemption for future enforcement consents to the redemption, will uphold the (Gee 26, Act No. 3135; See 8, Rule 38, Rules of policy ofthe law which isto aid rather than our) defeat the right of redemption (Ramirez v. CA ER Na 96147, Morch 5, 1993} NOTE: The fling of a court action to enforce | Paymentofredemption Fedeinption, being equivalent toa formal eer to Fedeem, would have the effect of “freezing” the Towhom: The purchaser or redemptioner or for him fxplration of the one-year period (ieirs of | to the ofcer who made the sale (Rule of Cour, Sec Quisumbing . PNB, GR. No. 178242, Jonuary 20, 29, Rule39) 2003), Medium of paymen:tn cash orn check ‘Summary of redemption period NOTE: In accepting a check, he undoubtedly places 1. Eetrajuciat Himself in position where he con be held lable to 3. Natural Person-one yer fromregistration the purchaser ata public auction if any damage has ofthe certifeateofsalewiththe Registry of | been suflered by the later as result ofthe medium Deeds by which payment was made (Go PNE, GR. No, b 51767, une 29,1962) NOTE: The statutory period of redemption is only directory and can be extended by | _ Amountof redemption price ‘agreement ofthe parties provided: 4. When mortgagee Is not @ bank (Act 3135 in 1. The agreement to extend is ‘elation to Rae of Coure, Se. 28, Rule 39) voluntary: and 2. Purchase price of the property; {i The debtor commits to pay the b. 196 imerest per month on the purchase redemption price on a fixed date pee from the date of registration of the (Gojudo v. Traders Royel Bank, G8. Certificate upto the time of redemption; ‘No. 151096, March 21,2006) fe Necessary expenses incurred by. the purchase forthe improvements made by . Juridical Person ~ Same rule as natural him t preserve the property during the person, period of redemption: nd i © Juridical Pérson (mortgagor) and Bank 4. Taxespaid and amount of purchaser’sprior (mortgagee) three months after lien, any, with the same rate of interest foreclosure’ or before registration of ‘computed from the date of registration of certificate of foreclosure whichever Is Sale up tothe tne of redemption cai (4.0791, Sec 47). 2. When mortgagee isa bank (General Banking NOTE: By an amendment by the General Law, 2000) Banking Law of 2000, jriieal mortgagors Amount fixed by the court or amount due like partnerships and. corporations. are tiger theannteage den barred from the right of redemption of Heth peice mortgaged property sold pursuant to an © Costand expenses caudal" Trelsure after the Fetistration of the cerifeate of foreclosure Redemption price in this case Is reduced by the win the apple Regier Dees income reeaetfomthe prope nn re UNIVERSITY OF SANTO TOMAS v Pacutry of Civit LawCivit LAW Rentals received by the purchaser ‘The purchaser or redemptioner shal not be entitled to recvive the rents, earnings and income of the property sold ca executionorthe value of taeuse ane ‘occupation thereof while the propery is in the possession of the tenant. [¢ shall belong t@ the Judgment obligor uatl the expiration ofthe period of redemption, Rights of persons with subordinate interest 1. Mortgagor’s equity of redemption before foreclosure - A second mortgagee acquires only the equity of redemption vested. in the mortgagor and his rights are strictly Eubordinate to the superior lew of the first mortgagee (Sun Life Assurance Co, of Canada v. Diez, GR. No L-29027, October 25,1928); 2 Mortgagor's right | of redemption after foraclosure ~ his remedy Is Hmited tothe right to redeem by paying ofthe debt secured by the first mortgage (Tizanv. Valdez and Morales, CR ‘No, L-24797, March 16,1926); 3 The second mortgagee is entitled, under the mortgage constituted in his favor to. the payment of his credit the excess ofthe proceeds fof the auetion sale, after covering the ‘mortgagor's obligations to the first mortgagee; 4 To be made defendant in an action for foreclosure of the mortgage: and NOTE: The effect of the failure of the mortgagee to Implead a subordinate Uen-holder or subsequent purchase or both Is to render the Foreclosure Ineffective against them. 5. To question the legality of the foreclosure proceedings or the effec ofthe alleged lack of notice tc them of such foreclosure (6. Put Sons». PNG GR. Wo, L-16843, April 30,1962). Right to possession of third persons ag purchaser: -Avwritof possession is an order whereby 2 sheriff is ‘commanded to place in possession of real or personal property, the person entitled thereto such as when the property is extrajudically foreclosed, NOTE: The right of the applicant or subsequent purchased for the issuance of a wrt of possession never preseribes (Ching v. Fomily Savings Bank, CR. No, 167835, November 15,2010) 1, Before expiration of redemption period ~ possession can be availed of as long as an ex parte motion under oath is filed and a bond in ecordance with Sec. 7 of Act No.3135 is posted @hilppine Bank of Communications v. Yeung, GR. No. 179691, December 4,2013); and 2, After lapse of redemption period ~ Purchaser is not obliged to bring 2 separate suit for possession. He must invoke theald of the courts {and ask a writ of possession (Javelosav. CA GR. ‘No, 124292, December 10,1996) No bond is required af the purchaser ater the Tedemption peviod if the property ts gn redeemed. ad : pension of the implementation of the writ of possession i nat allowed after the redemption period, NOTE: After consolidation of tite in the purchaser's name forfailureof the mortgagorto redeem the property, the porchazers right to possession Fipens into absolte right of aconfrmed owner When writ ofpossession not available: 1. Where mortgaged property under lease previously registered im the Registry of Property or despite non-registration, the mortgagee hat_prior knowledge of the ‘existence and duration of the lease (Ibaseo Caguioa, GR. No. L62619, August 19, 1986), 2. Where the mortgagor refuses to surrender property sold. The remedy is to file an ordinary action for the recovery of possession in order that the mortgagor may be given opportunity tobe heard: and 3. When third party Is in actual possession adverse to the judgment debtor (Rule of Court, See 26 Rule 39; Act No. 2135, Sec 6) Period of redemptions nota prescriptive period ‘The period of redemption isnot a prescripave period but condition precedent provided byiave to restrict the right ofthe person exercising redemption. If a person exerdsing the right of redemption has offered to redeem the property within the period fixed, he is considered to have complied with the condition precedent prescribed by law and may thereafter bring an action to enforce redemption If, on the other hand, the period is allowed to lapse before the right of redemption is exercised, then the ‘action to enforce redemption will nt prosper, even if the action is brought within the ordinary prescriptive period. Effect of failureto redeem ‘Act No, 3135 provides that if the mortgagor or successors-in interest fal to redeem within the redemption period, the tile over the property ‘consolidates in the purchaser. ‘The consolidation confirms the purchaser a5 the ‘owner entitled to the possession ofthe property. The ‘mortgagor, by falling to redeem loses all interest in the property (United Coconut Planters Ban v.Lumbo, (GR. No, 162757, December 11,2013) D obtained a loan from C secured by a REM over a parcel of land. When D defaulted, C ally foreclosed the property. C was declared the highest bidder in the auction. On BP Sarena 454CREDIT TRANSACTIONS October 29,1993, Ccaused the registration of the certificate of sale. On November 9, 1994, Dfiled a ‘complaint for annulment of the extrajudicial forecinsure and auction sale. Can D redeem the property beyond the one year redemptio period? [A: NO. D last any right or interest aver the subject property primarily because of his failure to redeem the same in the manner and within the period prescribed by law. His belated attempt to question the legality and. validiy’ of the foreclosure proceedings and public auction must accordingly fail (ps tandrito. CA, GR.No. 133078, August 92005). A mortgagor, whose property hasbeen extrajudicially foreclosed and sold, can validly execute a mortgage contract over the same property in favor of a third party during the period of redemption. The purchaser atthe foreclosure sale rerely aequlres an inchoate right to the property which could ripen into ownership only upoa the lapse of the redemption period without his eredit having been discharged, It is logical to hold chat during that same period of twelve months the ‘mortgagor was “divested” of his ownership, since the absurd result would be that the land will consequently be without an owner although it remains reglstered in the name of the mortgagor. Such mortgage does notinvalves transfer, cession or conveyance of the property but only constitutes a lien thereon (Medida t: C& GR. No. 98334, May 8, 1982), Q: DBP guaranteed LcD's loan. When LCD defaulted, DBP pai ‘and sought reimbursement. LD failed to reimburse DBP, hence DBP extrajudicially foreclosed the REM, where it was the highest bidder. The Sheriffs certificate of sale was annotated inthe certificate of titles on Apri 30, 1976. La Campana failed to redeem the properties. The court, amongothers, ordered LED to pay such sums of money “Unlawfully collected or recelved by way of rentals and/or feults from the subject properties to DBP. ‘When should the period for the remittance of collected/received' rentals/trults from the properties, of LCD to DBP start? 4 In foreclosure proceedings the buyer becomes the absolute owner of the property purchased ifitis not redeemed during the prescribed period of redemption, which is one year from the date of registration of the sale. ‘The Sheriff's certificate of sale was annotated inthe certificate of titles on April 30, 1976. DBP became the absolute owner of the properties on May 1, 1977. Thus, the period to be considered in determining the amount of collection should start from May 1, 1997 up to the time when the possession of the properties are actually and ‘completely surrendered to DBP (La Compana Development Corporation v. DBP, GR. No. 146157, February 13, 2008) Options incase of death of debtor A secured creditor holding areal estate mortgagehas three distinct, Independent, and mutually exclusive remedies that can be alteaatively pursuer Incase the mortgagor dies: 1, To walve the mortgage and claim the entire debe from the estate of the mortgagor as an ordinary daim, 2. To foreclose the mortgage judiclally and prove any deficiency as an ordinary ciaims and 3. To rely on the mortgage exclusively, foreclosing the same at any tne bofore itis barred by prescription without aright to file ‘claim for any bank deficiency (Perez v. PNB, GR. No.L-21813, July 30, 1966). Petition for proceedings of foreclosure This petition contests the presumed right of ‘ownership of the buyerin foreclosure sale and puts in issue such presumed right of ownership while an ex parte petition for issuance ofa writ of possession |s@ non-ltigious proceeding. Filling of a petition for nullification of foreclosure proceedings with mation for consolidation is not allowed as twillrendernugatory the presumed right ‘of ownership, as well a the right of possession, of buyer in aforectosuressale. Anvcresis is a, come whereby the erator quires the right to rectve the fs ota immovablofte debe ontn the eligaiontoapaly them to the payment af interest owing and thereafter tothe praca of hs rede (NCE, Are (2132) (1995, 1996, 2007 Bar). Characteristics of antichresis 1, Accessory contract; 2 Formal contract the amount of the principal land of the interest must both be in writing + (Nce, Are 2134); NOTE: Delivery of possession ofthe fmmova'le i ‘not essental to the perfection ofthe contract ofantichresissothatths contractis classed as consensual contract. Nevertheless, the ‘creditor takes and retain possession of the Property until payment of debt (Rabuya, 2017), 3. tedeals only with immovable property: 4 tisareal right; 5. The creditor has the right to receive the fruits ofthe immovable; 6. {can guarantee all kinds of valld obligations (cc, Ares. 2091 & 2129);and 7. Indivsiblein nature (NCC, Are 2090), 455 UNIVERSITY OF SANTO TOMAS Facutty oF Civit Law vCIVIL LAW [NOTE: It isnot eseatil thatthe loan shout earn [reaieredin the |) interest in order that It can be guaranteed with 2 Regis contract of anchresi.Antichrets is suscepule of Proper guaranteeing all kinds of ‘obligations, pure of . a“ EonltionalfoverVlise, (C4) 218 Retpr 2, Creda obigad | Creator ae] 1850, Sta Rosov. Noble, 35 015 27241) copay thetates | nosuch andcharges | ebligaton, Stipulation authorizing for appropriation of | | °Maaton | rectly | Property uponnon-payment ofthe debt ropay | unless putated A stipulation authoring the antchrtic creitor to otherwise appropriate the property pon the non poyinent of the debt within the period agreed upon vat (CC Thereisan | Therein ‘Ar. 2038), express such Sputeton hat | bligation on Form ofa contract of antichrests and its contents hecreditor | thepartof Obligation | spattappty the | the 41. Covers only the frults of rel property but not coopply | irunstote | mortgagee the immovable itself; . isco payment of the oe interest, if NOTE: Art. 1306 of the Civil Code gives the parties Interest |) owing, and the freedom to. stipulate otherwise, The thereafter tothe Feductionofthe amount ofthe fruit avaliable to pratipal ofthe the creditor does not vary the nature of the abe contract. Fubject Resi ropeny Hater 2. Delivery ofthe immovable is necessary forthe creditor to receive the fruits and not Gat the | Anichreste. Pledge centract shall be binding 2. Amount ef principal and interest must be CERT specified in writing (CG, Art 2134) (995, eS 2007 Bar); and find f | property. property 4. Express agreement that debtor wil give Property possesion tthe creditor and tha the credtor Tyncwcomen | yee | {il apy thefts to the fterest and then to Pe | Caren ean the principal ("CG Are 2134) NOTE: The fits ofthe immovable which s the eeeereeete) lawns object of the anichresie must be apprazed at ee |e oy thelr actual market value at the time of the prt: | one oie: ene application (CG. Are 2138) ‘The propery into | contractievold. | maybe delivered stands sea securty forthe payment of ae ida the obligation of the debtor in anichress. alewod Hence te debtor cannot demand ts retrn prov nt the debt totaly pad ‘iectin | Debio Tosesconral a te the.” | subject matter ofthe contract. “Antichresiv, RealEstate Mortgage Debtors Ca {Control - | eC MORTGAGE Debtor Determination of the amount paid in antichresis aagyse| Proper: “The amount of payment in anichressis determined oe | delivered | usually theactal market ale ofthe rats at heme of te ‘detivary af | “eto — application thereof to the interest and the principal: ee ossession of hal be the measure of such appeation (WCE Are pate epropery ET “property Creditor Creditor bas Parties to-a contract of antichrests Sequtresonly | norigtto ee [erie te 1. Antichretic ereditor - One who receives the ates | recdvamye | but moraree frat on te Immowoble propery of he oi] property; does | right against Cede fotprogicesy | the proper seal right unless University oF Santo Tomas 456 | 2018 Gounew Noes —CREDIT TRANSACTIONS 2. Antichretic debtor - One who pays his debt through the application of the fruits of his Immovable property. Rights of antichretic creditor 4. Right ofruts and income ofthe thing (CC, Art. 2132); 2. Retain the thing until debt is paid (NCC, Are. 2136); NOTE: The property delivered standsas security tor the payment of the obligation of the debtor in antichresis. Hence, the debtor cannot demand Its return untilindebtedness|s satisfied andthe property is redeemed (Macapinlac v. Gutierrez Hepide, GR. Mo, 18574, September 20, 192). 3. Have the thing sold upon non-payment at maturity (NCC, Art 2437); ‘NOTE: In this case, the Rules of Court on the rules on Toreclosure of mortgages shall apply. 4. Preference to the proceeds of the sale of the thing; and 5. Tobe reimbursed for his expense for machinery and other improvements on the land, and forthe ‘ums pald as land taxes. Obligations ofan antichretic ereditor 1. Pay the taxes and charges assessable against ‘the property lke real estate taxes and athers (CE Are 2126) unless there stipulation to the contrary: NOTE: The creditor has to pay the taxes even ifthe fruits be insufficient Ifhe does not pay taxes, he is, by law, required to pay indemnity for ‘damages to the debtor (Pando v. Gimenez, GR. ‘No, 31816, February 15, 1930). He may avoid ‘such obligation by compelling the debtor to reacquire enjoyment of the property, unles= there is stipulation the contrary (NCC Art 21362). 2 Bear the necessary expenses for preservation and repair ofthe property; 3, Apply the fruits received for payment of the outstanding interests, ifany, and thereafter of the principal (NCC re 2132); 4. To tender an account of the fruits to the debtor (Dice v. De Mendezona, GR. No, L- 24824, Jonuary 30,1926). the Rule on the application ofthe fruit upon the debt The application ofthe frit upon the debt must be expressly agreed between the creditor and the debtor that the former, having been given possession of the properties given as security is to apply their fevits to the payment of interest, if owing, and thereafter to the principal of his eredit (NCC Are 2122), Return ofthe property of the antichretic debtor ‘The atichretic debtor can only demand the return of the property after having fully paid bis obligations to the creditor. Iris not flr forthe debtor to regain the possession of the property when his debt has not been flly paid. Unul there is full payment of the obligation, the property shall stand as security therefor (Macapintac v. Gutierrez Repide, GR. No 18574, September 20, 1922). Remedy of the creditor in case of nonpayment of his credit Creditor does not acquire ownership of the real estate singe what was transferred is not the ‘ownership but merely the righttoreceve frults (NCC, ‘are 2132). 41. Filean action for specific performance; or 2. File a petition for the public sale &f the property (Barreto. Barreto, GR No. 11933, December 11917). NOTE: Parties may agree on an extrajudicial foreclosure in the same manner as they are allowed in contracts of mortgage and pledge (Tavera v. El Hogar Flipino, Inc, GR No. L-45963, October 12, 1939), A stipulation authorizing the antichretic creditor to appropriate the property upon non-payment of the ddebt within the period agreed upon is vold (NCC, Are. 2068), Availablity of acquisitive prescription to the antichretic creditor ‘The creditor in an antichresis and his suocessors-in Interest cannot ordinarily acquire by prescription (alenciav. Valencia, 42 Phil 177, 1921). Possession fof the property is not in the concept of an owner but that of a mere holder during the existence of the contract (Ramireev. CA. GR. No, L-36185, September 24,1986) (CHATTEL MORTGAGE CChattel mortgage is a contract by virtue of which personal property is recorded in the Chattel Mortgage Register asa security forthe performance of an obligation. If the movable instead of being recorded, Is delivered to the creditor or a third person, the contract is a pledge (NCC, Art. 2140). (1994, 1999, 2003 Bar) Characteristics of chattel mortgage A. Formal contract ~ it must be embodied in a public instrument and recorded in the Chatel Mortgage Register; 457 UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCIVIL LAW Accessory contract ~ its existence depends ‘upon an existing valid principal obligation, Unilateral contract - the obligation is only on the part of the creditor to free the chattel from encumbrance upon the payment of the principal ebligation It does nor convey dominion but fs only 2 ‘security (In re: Du Tec Chuan, GR No. 11156, March 28,1916); Iereates areal right ora len which is being recorded and follows the chattel wherever it ‘oes (Northern Motors, Inc v. Coqule, GR. No 1.40019, December 15,1975). Requisites ina chattel mortgage f GR: le covers only movable property XPN: Parties may treat as personal property that which is by nature would be real property (500.2, Act No. 1508; Art 2140), NOTE: A real property may be considered as a personal property for purposes of execu chattel mortgage thereon aé long as the parties to the contract so agree and no innocent third party will be prejudiced thereby. Once the Dartles so agreed, they are aiready estopped from claiming otherwise (Makati Leasing ond Financial Corporation v. Wearever Textile Mills, Inc, GR. No, L-S8462, May 16,1983). Registration with the Chatel Mortgage Register where the mortgagor resides. Ifthe property is, located in 2 different province, registration in both provinces is requlred (Sec 4, Act No. 1508); Description ofthe property NOTE: Sec.7 of the Chattel Morteage Law does not demand specific description of every chattel mortgaged in the deed of mortgage, but only requires that the description of the mortgaged property be such as to enable the parties to the ‘mortgage or any other person to identify the game. after_a reasonable investigation and Inguiry (Saldana Phil. Guarenty Co, Inc, NOL 13134, January 29, 1360}; otherwise, the mortgage is invalid ‘Accompanied by an affidavit for the purpose of twansforming an already valld mortgaged to 3 “preferred mortgage" (Cebu International Finance Corp, v.C4, GR No.107554, February 13, 1997) Affidavit of good faith ‘An affidavit of good faith fs an oath In a contract of ‘chattel mortgage wherein the parties “severally swear thatthe mortgage is made forthe purpose fof securing the obligation specified in the ‘conditions thereof and for no other purposes ‘and that the same Is a Just and vald, existing ‘obligation and one not entered Into for the purpose of fraud.” NOTE: The sence of an affidavit f good faith does not affect the validity of the contract. The absence of the afidavit vitiates the moctguge ‘only asagainst third persons without notice like creditors and subsequent encembrances, butte absence isnot fatal between the parties, 5. lean cover only obligations existing atthe ime the mortgage is constituted NOTE: A mortgage containing a stipulation in regard to future advances im the creet wil take effect, only from the date the same are made and not from the date of the mortgage (aca v. Davao Lumber Co, GR. No. 1-30849, March 29,1982). Laws that govern chattel mortgages 1. Chattel Mortgage Law (Act Ho. 1509) 2. Provisions of the Civil Code on pledge NOTE: In case of conflict between nos.1 and 2, the former shall prevall Revised Administrative Code: Revised Penal Code (Are. 319); (Other special laws (Le. Motor vehicle lav); Ship Mortgage Decree of 1978 (P.D. 1521) Subjectmatter of chattel mortgage 1, Shares of stock n a corporation (Monserrat v, Ceron, GR No. 37078, September 27,1933); 2. Incerestin business: 3 Machinery ane house of mired materials treated by partiesas personal property and no Innccent third person will be prejudiced thereby (Mokat! Leasing and Finance Corp. v. Weaver Textile Mill, Inc, No. 58469, May, 16,1983); 4. Vessels, the mortgage of which have been recorded with the Philippine Coast Guard in ‘order to be effective as to third persons (PD 1521); ‘5. Motor vehicles, the mortgage of which had been registered both with the Land Transportation Commission andthe Chattel Mortgage Registry ‘order to affect third persons; House whichis intended to be demolished: or House built on rented land: House of trong materials; Growing crops and large cattle (Sec 7@2)(3). Act No. 1505}. Fo ‘purposes of the Chattel Mortgage Law, both rowing crops and large eatle are personal Property although they are considered as Immovable under nos. (2) and (6),Art.415, NOTE: Although the parties toa contract may treat certain improvements as chattel, insofar as the fare concerned, it Is now settled in our Jurisdiction that, in general, and so far as the public Is concerned, such’ improvements, if falling under the provisions of Are 415, are Univensity oF Santo Tomas 2018 GovornNores 458=n SUSIE es CREDIT TRANSACTIONS Immovable property Bucessof | GH The debtor amount due | isnotentitied to gorsto | theexcess. debtor (Sec 14,AceNo. | XPNS: 1508), 1 Unless | otherwise ‘agreed upon ‘As a consequence, a mortgage constituted in the mpravements must be susceptible of: 8, Registration asa realestate mortgage: and 1b. Annotation on the ertificate of ste of the land of which they form part, although the land itself may not be subject to said (Nc Are ‘encumbrance (Tolentino v. Battazar, GR 2115);and ‘No. 114597, March 27,1961) 2. Legal Pledge (cc are Extent of chattel mortgage _ 2121 Gi Creditor not ‘A chattel mortgage shall be deemed to cover only property described therein and not like or substituted property thereafter acquired by th ‘moregagor and placed in the same depositary a the property originally mortgaged, anything In the Creditoris | entitled to entitled to | recover recover the | deficiency deficiency | notwithstandin fromthe | gany ‘mortgage tothe contrary notwithstanding (Sec. 74), debtor. | stipulation to eh ‘Act No. 1568). contrary (NCC, XPN:ifthe | Are 2135). Stipulation including after-acquired property chattel mortgage is 1 Is valid and binding where the after-acquired asecurity property is: forthe 1. In renewal efor in substitution for goods on purchase of hand; or Personal 2 Purchased with the proceeds of the sale of Property in ‘such goods (Torres v. Limjap, GR. No. 34385, installments September 21,1931). (CG, are 1484). Chattel Mortgage v. Pledge (1994, 1999, 2003 Bar) NOTE: The contract of pledge can be a continuing security that, ftmay secure future advancement. On re the other hand, 2 chattel mortgage can only cover PC (ac CR obligation existing atthe time of the mortgage is i Constated Itmay not cover hare advancements Delivery of | Delivery ofthe personal | personal Chattel Mortgage RealEstate Mortgage roperyto | property is Necessiorof | fer sent | Se hecessry 7 isnot GPersonal Real property necessany. roperty Registration | Regiraton Ta Fannot ar gary =| inGhatet"" | Registry of waranty future Requiremen’| Morgage | Property uct ligaons. tof | Registeris | necessary reqistration | required by tow for segues vate | mediate Procedure] Procedures cord jisgoverned | governed by it bysec tot | Arezii2 of jsered— Rogiered once Procedure | geen. | NCC. nce recorded. fetordedinthe 1500, as : inthe entry fntry book "| amended. li eokand.” associated ice dom hattel insurance and ortgage —uretyca.v. Lin mer fang (CA) 520 4 zz $218) 459 UNIVERSITY oF Sanro Tomas Facuury oF Civit LawCIVILLAW En Registration is tantamount tothe symbolic delivery ‘of the mortgage to the mortgages, which I ‘equivalent to actual detivery (Meyers Thein, GR. No. 5577, February 21, 1910) Registration period ofthe chattel mortgage ‘The law does not provide period within which the registration should be made. Yet, the law i= substantially and sufMiclently complied with where the registration Is made by the mortgagee before the mortgagor has complied with is principal obligation, and no right of innocent third persons is prejudiced Effects of registration 1, Creates a real right - The registration of the chattel mortgage Is an effective and binding notice to other creditors of its existence and creates 2 real right of a lien which being recorded, follows the chattel wherever It goes The registration gives the mortgagee symbolical possession (Northen Motors Inc v. Coquia, GR No, £-40018, December 15, 1975}:and 2. Adds nothing to the mortgage ~ Registration adds nothing tothe instrument, considered as a source of title and affects nobody's rights ‘except a a specie of notice (Stondard Oil Co.of ‘New York v Jaramillo, GR. No.L-20329, March 16,1923). Effects of failure of registration It the instrument is not recordéd, the mortgage Is nevertheless binding between the partis. However, the person in whose favor the law establishes 2 mortgage haz no other right than to demand the ‘execution and the recording ofthe document. Registration of assignment of mortgage ‘There is no law expressly requiring the recording of theassignment of a mortgage. NOTE: The assignee is bound by the terms and conditions ofthe chattel mortgage executed between the mortgagor and the mortgagee (BA Finance Corp. ¥.C4, GR. No. 82040, August 27, 1981). Liability of third person with debtor {third person who constitutes chattel mortgage on his own property as security to another's obligation rot solely by reason thereof becomes solidarily ‘bound withthe principal debtor (Cerna v.CA, GR No 1.48358, March 30, 1993). Increase in mortgage credit Ifthe parties toa chattel mortgage take an oath that the debt, honestly dueand owingfromthe mortgagor to the mortgagee, itis obvious that a valid mortgage cannot be made to secure a debt tobe thereater contracted A margage hat contains a tiulton regard tofitureadvancesin the cred wiltake chy only fom the at othe mortgage The eres the morgage credit becomes new Wetease (Belgian nthe Monat: ». Magee Pre, Gh 25705 November 261926) Abandonment of mortgage lien ‘The mortgage lien Is deemed abandoned by obtalninga personal judgment on the mortgage tien Orfenses involving chattel mortgage 1. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law to any province or city other than te one in which ‘was located atthe time ofthe execution ofthe mortgage without the written consent of the mortgagee: or 2, Selling oF pledging personal preperty already ‘mortgaged, or any part thereo, under the terms ‘ofthe Chattel Mortgage Law without theconsent fof the mortgagee written on the back of the morteage and duly recorded In the Chattel Mortgage Register (RFC, Are.319) FORECLOSURE OF CHATTEL MORTG After payment ofthe debtor the performance ofthe ‘conition specified in the Chattel Morteage (Act No 1508, Sec. 3), the mortgagee must discharge the ‘mortgage inthe manner provided bylaw. Otherwise, hhe may be held liable for damages by any person entitled to redeem the mortgage (Act No. 1508, Sec 2). 1 Publi Sale Tf the mortgagor defaults in the payment of the ‘secured debtor otherwise ails to comply with the conditions ofthe mortgage, the creditor has no righ t appropriate to himself the personal propery (articles 2088 and 2141) because heis permitted only to recover his eredit from the proceeds ofthe sale ofthe property ata public Auction through a public officer in the manner prescribed in Sec. 14 uf Act No. 1508 (Mahoney ¥-Tuason, GR. No. 14128, July 30,1918). 2. PrivateSale There is nothing legal, Immoral, oF against public ‘order in anagreementfor the private saleof the personal properties covered by the chattel ‘mortgage (Art 1306) The mortgagor is in testoppelsto question itexcepton the ground of fraud or duress (PNB v. Manila Investment & Construction Ine, GR. No. 1-27132, April 29, 1971). NOTE: Foreclosure sults may be initiated even during involuntary proceedings as along as leaveisirst obtained from the insolvency court (Reyol Commercial Banking Corp « Royel Cargo Corp. GR. No. 178756, October 2, 2009}. WH voricomnens 460 EE —————EEE—————CREDIT TRANSACTIONS Period to foreclose mortgage ‘The mortgagee may, after 30 days from the time of the default or from the tne the condition is violated, ‘case the mortgaged property to be sold at public suction hy = publi officer (Act No 1508, Sec 24) ‘The 30-day period to foreclose a chate! mortgage is the minimum period after violation of the mortgage ‘condition for the mortgage ‘The creditor has atleast 10days notice served tothe mortgagor. The notice of time, place and purpose of such sale is posted, Aer the sale ofthe chattel at publicauction the right ‘ofredemption sno longer avalable tothe mortgagor (Cabral. Evangelista, 28 1-26860, uly 30,1969) NOTE: Posting of notice of sale for at least 10days in two or more public placesin the municipality where the property is situated is required otherwise, the sales null and void (Rabuya, 2017) Application of proceeds of foreclosure sale ‘a. Costs and expenses of keeping the property ‘and ts sale; b. Payment of the obligation secured by the mortgage: & Claims of persons holding subsequent morigagesin thelr order; and The balance, If any, shall be pald to the mortgagor or person holding under him (Act ‘No. 1508, Sec 14). Legal consequences of mortgaging a building ‘erected not by the owner of the land ‘A building Is immovable or real property whether It is erected by the owner ofthe land,by ausufructuary, cor by a lessee. Iemay be treated as a movable by the parties toa chattel mortgage but such is binding only between them and not on third parties. ASfaras third parties are concerned, the chattel mortgage dees not exist oO 1. Where the mortgage ls foreclosed “The creditor may maintain an ation for deficiency Slthough the Chattel Mortgage Law is slent on this point. ‘Action for deficiency may be aught within 10years tom the time the cause of action accrues [NCC ‘Are 114, Nos. (1) and (2). 2. Where mortgage Is constituted as security for purchase of personal property payable in {installments No deficiency judgment can be asked and any ‘agreement to the contrary shall be void (NCC ‘are 1484), 3. Where mortgaged property is subsequenthy atteched and sold ‘The chattel mortgagee Is entitled to deficiency Judgment in an action for specific performance (NCC, Are. 1484, No. 2) NOTE: The execution sale in such case is not a foreclosure sale (Industrial Finance Corp. 6 Ramirez, G(R No, l-43621, May 26, 1977), co PTION UNDE CRS ho may exercise the right of redemption 1. Mortgagor: 2, Personholdinga subsequent mortgage: or 3. Subsequent attaching creditor NOTE: An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and is entitled to foreclose the mortgage Act No. 1508, Sec. 13). How redemption is made By payingor delivering tothe mortgagee the amount dus on such mortgage and the costs and expenses incurred by such breach of condition before the sale thereof (See 13, ct No. 1508). NOTE: This redemption pattakes of an equity of redemption. When redemption is made ie must be made after his default but before the foreclosure sale After foreclosure sale, the right of redemption no longer exists. Right acquired by the second mortgagee and the subsequent purchaser 1. Before payment of debt ‘After a chattel mortgage is executed, there remains ‘im the mortgagor a mere right of redemption and only this right passes to the second mortgagee in ease of second mortgage. ‘As between the frst and second mortgages, the latter can only recover the property from the former by paying him the mortgage debt. Ben, ‘when the second mortgagee goes through the Tormality of extrajudicial foreclosure, the purchaser acquires no more than the right of ‘edemption from the first mortgagee. 2. After payment of debe the only leviable interest of a chattel mortgage In a mortgaged property is his right of Fedemption, it follows that the judgment or 461 UNIVERSITY OF SANTO TOMAS Facuury oF Civit LawCiv. LAW attaching creditor who purchased the property sttheexecution sale could not acquire anything ‘except such right of redemption. He Is not “ entitled to te actual possession and delivery of the property without first paying the mortgage debi (Tizon v. Valdez ond Morales, GR. No L 24797, March 16,1926) Right of mortgagee to the possession of the foreclosed property After default, theright of the creditor to takethe ‘mortgaged property is implied from the provision (NCC, Are. 2087) which gives him the right to sell. b. Before default, he is not entitled to possession, Otherwise, the contract becomes a pledge (NCC: Art.2093), Remedies when mortgagor refuses to yield property Where the debtor refuses to yield property, the creditor has the following remedies: 1. Judicial foreclosure; or 2. Replevin. NOTE: In case of default and the morzgagor refuses to surrender the chattel, replevin or judicial foreclosure does not require the mortgagee to first ask the sheriff to foreclose the mortgage or take possession ofthe property When applicable Inthe event of foreclosure, judicial or extrajudicial, of any mortgage on real estate which is security for any loan or other credit accommodation granted NOTE: Any petition in court to enjoin or restrain the conduct of the foreclosure proceedings instituted pursuant to Sec. 47 ofthe General Banking Act shall be given due course only uponthetfling by petitioner fof a bond in the amount fixed by the court ‘conditioned that he will pay all damages which the bank may zuffer by the enjoining or the restraint of the foreclosure proceeding. Who may exercise the right of redemption ‘The mortgagor or debtor whose real property has bbeen sold for the full or partial payment of his obligation When redemption is made Iemust be made within one year after the sale ofthe realestate, NOTE: Notwithstanding Act 3135, Juridical persons whose property Is being sold pursuant to an extrajudicial foreclosure, shall have the right 20 redeem the property in accordance with Sec. 47 of the General Banking Act until, but not after, the repistration ofthe certificate of foreclosure sale with the applicable Repster of Deeds which in no case shall be more than three months after foreclosure, whichever is earlier. Owners of property that hae ‘been sold ina foreclosure sale prior to the ellectvity fof the General Banking Act shall retain thely redemption rights unl thelr expiration, How redemption ismade By paying the amount due under the martgage deed, with Interest thereon at rate specified in the ‘mortgage, and all the casts and expenses incurred by the bank or institution from the sale and custody of sald property tess the income derived therefrom, Right of purchaser at the auction sale over the forectosed property ‘The purchaser atthe auction sale concerned whether {na judicial or extrajudicial foreclosureshall have the right to enter upon and take possession of such property immediately after the date of the Confirmation ofthe auction sale and administer the same in accordance with aw. ‘quast-conTRacts, Quasi-contracts are laeful, voluntary, and unilateral acts which generally require 2 person to reimburse fr compensate another in accordance with the principle that noone shall be unjustly enriched atthe ‘expense of another (NCC Art. 2142), Bases for quasi-contracts No one must unjustly enrich himself at another's expense; one benefits, he mustreimburse; Justice and equity; and Presumed consent of the person obliged “to compensate (Pineda, 2006) Kinds of quast-contract AWepotiorumgestio (unauthorized management): 25Soluioindebiti (undue payment: and 3-Other kinds of quasi-contract. 12. When, without the knowledge ofthe person obliged to give support it is given by @ stranger, the latter shall have a right to claim the same from the former, unless it appears that he gave it out of piety and ‘without intention ofbelng repaid (NCC, Art 2164); . _ Whea funeral expensesare borne by athird person, without the knowledge of those Felatives who were obliged to give support to the deceased, sald. relatives shall reimburse the thicd person, should the ), Univensiry oF Santo Tomas 2018 Gouoew Nores 462 Seenee ee CREDIT TRANSACTIONS later claim reimbursement (NCC, Art 2165); ‘c When the person obliged ta support an orphan, or an insane or other indigent person unjustly refuses to give support to the later, any third person may furnish support to the needy individual, wit cight of reimbursement from the person obliged to give support. The provisions of this article apply when the father or mother ofa ‘hil under eighteen years of age unjustly Fafuses to support him (NCC, Are 2166): 4. When through an accident or other cause a person is Injured or becomes seriousy il, and he is veated or helped while he is not ina condition to give consent to a contract, he shal be liable to pay for the services of the physician or other person aiding him, unless the service tas been rendered out af pure generosity (NCC Art. 2167); ©. When during a fire, lod, storm, or ether calamity, property is saved from destruction by another person without the knowledge ofthe owner, the lateris bound to pay the former just compensation (CC Are 2168); When the government, upon the fallure of ‘any person to comply with health or safety regulations concerning property. Uundertakes todo the necessary work, even ‘over his objection, he shal be liable to pay the expenses (NCC. Are 2163); ‘9. When ina small community a majority of the inhabitants of age decide upon a messure for protection against lawlessness, Gre, food, storm or other calamity, anyone who objects to the plan land refuse: to contribute to the expenses but is benefied by the project as executed shall be liable t0 pay’ his share of said expenses (NCC Art. 2174); and 1h. ny person who is constrained to pay the taxes of another shall be entitled to reimbursement from the latter (NCC, Are 2175. RET Ik arises when a person, without the express or Implied authority of, or opposition from, the owner fof a business oF property which is neglected or abandoned, takes. charge of the agency and management thereof (NCC, Are 2144) Iisa kind of quasi-contract where someone called the gestor takes the management of the business or property of another person known as owner without the consent or authority of the later. Essential requisites for negotiorumgestio 1. Nomeeting ofthe minds; 2. Taking charge of another's ‘business or property 3. The property or business must have been abandoned or neglected: 4. Theofficious manager (gestor) must not have bbeen expresely or implicitly authorized; 5. The officious manager (gestor) must have voluntarily taken charge; and ‘The oficious manager oF gestor must not be acting erroneously on the belis that he isthe ‘owner ofthe praperty or business. Negotiorum Gestiov. Implied Agency Lae BASIS eats ca Gestor should | The agent is neverhavebeen | actualy authorized in| authorized to anymanner. | assume the agency by virewe ol the acts of the fowner or by virtue of his silence, inaction, or his failure to repudiate the agency. Business or | Neglector property should | abandonment is eneglected or | not necessary, abandoned, NOTE: So long as the owner does not know that another is acting on his behalf without authority, negotiorumgestio exists, but once he becomes aware ‘ofsuch fact and stil hedoes not repudiate the acts of the agent, the quasi-contract ceases to exist Te has bbecome an implied agency. Responsibilities ofoffcious manager 1. Continue taking charge of the agency or ‘management until the termination ofthe affairs and its Incidents, but he may require the owner, ithe latter is in a postion todo 50, to substitute the offcious manager (NCC, Art. 2144); 2. Perform his duties with all diligence of a good father of a family, and pay the damages which ‘through his faut or negligence may be suffered by the owner ofthe property or business under management, but the courts may however, Increase or moderate the indemnity according to the circumstances of each case (NCC, Art 245); NOTE: A gestor is lable forthe acts of negligence of, his employees: Be lable for the acts of his delegate If he ‘delegated to another person all or some of his ‘duties, without prejudice tothe direct obligation ofthe delegate toward the owner of thebusiness (NCC, Are 2146, par 1); 463 UNIVERSITY OF SANTO TOMAS Facutry oF Civit LawCIvILLAW 4, Be personally lable for contracts which he has centered into with the third persons, eventhough hie acted In the name of the owner, and there shall be no right of action between the owner and third persons except: 4. When the owner fas expressly or tacitly ratified the management or b. When the contract refers to things pertaining to the owner of the business (NCC, Are 2152). NOTE: The responsiblity of two,or more offcious managers shall be soldary, unless the ‘management was assumed to save the things or business from imminent danger (NCC, Are 2148), The offcious manager shal! be liable for any a. fheundertakes risky operations which the ‘owner was not accustomed to. embark ‘upon; Ihe has preferred his own interest to that of the owner: © Ihefallsto return the property or business after demand by the owner; 4, Ifhe assumed the management In bad faith (cc. Are 2147); fe. Except when the management was assured to save the property or business from imminent danger; £ “It he is manifestly unfit to carry the ‘management: or &Ifby his intervention he prevented a more ‘competent person fram taking up the management (NCC, Are 2148). Responsibilities of the owner ‘The over of the property shall reimburse, the fofficious manager fer the necessary and useful expenses and for damages, which the latter may have suffered in the performance of his duties In the following instances: ‘Wher the owner of the property oF business ‘enjoyed the advantages of the officious ‘management although it may not have been ‘expressly ratified by him [NOG Are 2150(1)); b. When the management has for its purpose the prevention of an imminent and manifest loss although no benefit may have been derived {NCC, Art. 2150(20)}: & Even if there had been no benefit tothe owner and:there has been no imminent and manifest ‘danger to the property or business provided: 1. The offcious manager has acted in good faith; and i, The property of business Is intact, ready to be returned tothe owner (NCC, Are 2151). Liability of two or more gestors: GR: ftherearetwo or more offiious managers. their lability for their acts is solidary. XPN: When the management was assumed Ly the oificious managers to save the property ur business fom imminent canes, in which ease he iat fe nip fine. Ratifiation of the owner Ratification of the owner of the business produces theefect ofan express agency; and this is true even ‘the business is not successful (NCC, Art 2149), Liabilities of the owner even if there is no ratification 1. Liability for the obligation incurred in is 2. Liability for necessary and useful expenses snd for damages; and 3. Damages suffered by the gestor while performing his duties as such (NOG Art 2150). of the owner I the owner is 2 minor, he is stil labie under the article for he should not be unjustly enriched at another's expense (Rotea v. Delupio, GR. No. 45310, ‘April 14,1939) Extinguishment of management A, Repudiation or termination of the ‘management by the owner himself 2. Withdrawal of gestor from the management, and 3. Death, civil interdiction, insanity or insolvency of either party (NCC, Are 2183). SO Intakes place when something s received when there iso right to demand it, and it was unduly delivered thru mistake (NCC, Are 2154). Ie is a quasi-contract that arises when a person Is obliged to return whatever was received by him through error or mistake or received by him although there was no right to demand it NOTE: Ifthe payer was in doubt whether the debt was due, he may recover ifhe proves that Itwas not due (NCC, Art. 2156). The responsibility of two or ‘more payees, when there has been payment of what Isnot dug Is solidary (NCC, Are.2157). Requisites for solution indebiel 4. Receipt of something (NCC, Are 2154): 2. There was no right to demand it because the giver had no obligation; and 3. Undue delivery was because of mistake (CC ‘Are 2155). | University oF Santo Tomas 464 ACREDIT TRANSACTIONS NOTE: Iti presumed that there was a mistake in the payment if something which bad never been due or had already been paid was delivered; but he from ‘whom the retura is elsimed may prove that the delivery was made out of Uberality oF for any other jst eause (NCC Art 2163). Accion in rem verso v. slutioindebict Mistake isan estentia! clement in solutiodndebit in ‘accion In rem verso, i is not necessary that there should havebeen mistake in the payment (Rebuy, 2006). ‘Accion in rem verso isan action for recovery of what hasbeen paid or delivered without just eause or legal ‘ground, Under Art.22 ofthe NCG,ifa person acqui {6r comes into possession ofsomething atthe expense fof another without just oF fegal ground through an actor of performance by another or any other means hnas the ebligation o return the same. Accion in rem verso can only be avalled of if there is no other remedy to enforce it based on contract, quasi contract, crime or quas-delit. Application of solutioindebitiin difficult or doubtfel questions of law Solutioindebici can be applied ifthere isa doubtful or dificult question of law. There can be payme because of “doubt or difficult question of law" may lead to solution indebiti because of the mistake committed (NCC, Art 2155). Liabilities of a person who accepts an undue paymentin bad fath A. He shall pay legal interest if a sem of money is involved, or shall be liable for fruits received or ‘which should have been received ifthe thing produces frais 2, Heshall forthermore be answerable for any loss ‘or impairment ofthe thing from any cause, and for damages to the person who delivered the thing, units recovered (NCC, Art 2159) Effect of acceptance In good faith if there was ‘mistake in the payment 1. Imease of impairment or loss, liabig is only to the extent ofbeneit (NCC, Are 2160); 2. In case of alienation, the price is to be reimbursed, oF in case of credit, the same should be assigned (NCC Are. 2160): and 3, Me shal be exempt from the obligation to restore if he destroyed the document, or allowed theaction to preseribe, or gave upthe pledges, or cancelled the guaranties for his Fight (NCC, Are. 2162) NOTE: He who paid unduiy may proceed only against the true debtor or the guarantors with ‘egard to whom the ation fs stil effective (NCC are 2162). 465 ‘When property is wrongfully delivered or money wrongfully paid ‘When the property delivered or money pad belongs toa third person, the payee shall comply with the provisions of Art 1994 (CC, Are 2158). NOTE: Art. 1984 states thatthe depositary cannot demand that the depositor prove his ownership of thething deposited. Nevertheless, should he discover ‘thatthe thing has been stolen and who ts true owner is, he must advise the latter of the deposit. If the ‘vner, inspite of such information, doesnot claim it ‘within the period of one month, the depositary shal berelieved ofall responsibilty by returning dhe thing deposited to the depositor. If the depositary has reasonable grounds to believe thatthe thing has not been ly accured by the depose, the former may return the same ‘CONCURRENCE AND PREFERENCE OF CREDITS Concurrence of credit Concurrence of credit implies the possession by two ‘or more creditors of equal rights or privileges over the same property orall the property ofa debtor. NOTE: This becomes material where the value ofthe assets 4s not sufficient for then some ereditors of necessity will not be paid or some creditars will not ‘obtain the full satisfaction of their claims (Rabuya, 2017) : Preference of credit Preference of credit isa right held by acreditor tobe preferred in the payment of hic lam above others butof the debtor's assets NOTE: The rules apply when two or mor¢ ereditors have separate and distinct claims against the same debtor who has insufficient property Preference of credit and lien Preference of credit applies only to claims which do not attach to specific properties whileallen creates a chargeon a particular property. Nature and effect of preference GR: A debtor is liable with all his property, present sind future, for the fulfilment of his obligations. The creditors have the right to pursue property in possession ofthe debtor to satity ther claims. .XPN: There should be no rules as to who should be paid first Preference applies only when there are two or more creditors with separate clalms against a ‘debtor who has insufticent property to answer for all his obligations. Since it fs an exception to the ‘general rule, the law as to preference is strictly UNIVERSITY OF SANTO TOMAS Pacuuty oF Civit LawCiviL LAW construed, 1. Does not create an interest -in: property ~ Preference simply creates arightto be pad first from the proceeds othe sale of property of the debtor Iedoes not creates lien on the property itslf, but merely a preference in the application af the proceeds ofthe property after itis sold 2. The creditor does not have the right to take the property and sel ic as against another cred Preference applies after a sale, and It is ‘question of application ofthe proceeds ater ti sold 3. Te must be asserted ~ If the right claimed i not asserved and maintained iis lost. If property hhas nat been seized, itis open to selaure by another. 4 Ie must be maintained - Where a creditor released his levy, leaving the property ia possession ofthe debtor, thereby indicating that hae did not intend to presshis lalm further as to that specific property, he is deemed to have abandoned his claim of preference. Ruleson preference applicable when ‘There are two oF more creditors; ‘With separate and distinct claims: Against the same debtor; and Sich debtor has insufficient property (Pacific Forms Inc. v. Esguerra, GR No. L217283, November 29, 1968) “There must be a proceeding such as an insolvency proceeding wherein the creditors can file theit respective clalms. The right becomes sigaifcant only after the properties of the debtor have been inventoried and liquidated, and the claims of the various creditors have been established (Barreto v. Villanueva, GR. No. 14038, December 29, 1962; Philippine Savings Bank v. Lantin, GR. No. 32923, September 2, 1983: DBP v. NLRC, GR. No. 86932, June 27,1990), ‘Three (2) General Categories of Credit A. Special proferred credits listed in Articles, 2241 and 2242; 2 Ordinary preferred credits Usted In Article 2244; and 3. Common credits (nowpreferred) under Article 2245 (Republic v. Peralta, GR No. L- ‘56568, May 20, 1987). ‘Two Tier Order of Preference 1. First Tier ~ Includes only taxes, duties, and fees due on specific movable oF immovable property: and. 2, ‘Second Tier ~ All other special preferred (non-tax) credits. These credits are to be satisfied paripase! and pro rata, out of any residual value of the specific property to which Such other credits relate (Republic Peralta, GR No, L-S6568, May 20, 197), NOTE: The Pro rota rule does not apply to credits Annotated inthe Registry of Property In viru of a judicata Preferred credits on specific movables as provided in Art.2241, A, Duties.taxesand fees ducthereon tothe state or any subdivision thereef; NOTE: The tax must be duecon the movable. 2. Claimsarising from misappropriation, breach of trast, or malfeasance by” public aflcals committed inthe performance oftheir duties, on the movables, money or securities obtained by them: NOTE: The acquisition must have been in performance of official functions and. the Property must stil be in the hands ofthe public ‘oii IF is sold to a purchaser for value and {good faith there can be no more claim on the sald movable 3. Claims for the ungald price of movable sold, on said movables; NOTE: cla limited tothe value ofthe movable Instances when right to claim is not lost ‘2 Immobilization ofthe thing by destination, provided that Ic has not lost its form, Substance, and identity: oF b. When the thing. together with other property, was sold. for' a lump sum, Provided that the price thereof can be etermined proportionally 4, Credits gudranteed with a pledge so long asthe things pledged are in the hands ofthe credior, or those guaranteed bya chatel mortgage upon the things mortgaged upto the valu thereof, NOTE: Irthe contracts pledge, iemust be embodied ‘in a public instrument If chattel mortgage, It must be registered with the Chattel Mortgage Registry. 5. Credits for making repairs or preservation of personal property on the movable thus made, repaired, kept or possessed; 6, Claims. for’ laborers. wages, on the goods ‘manufactured or the work done; NOTE: The laborer must have been employed by the ‘ovener of the goods and not by the contractor (Bautista v. Auditor General, GR. No.1-6793,June 29,1955). 7. For expenses of salvage, upon. the goods salvaged: \ University oF Santo Tomas 2018 Goroen Nores 466SS CREDIT TRANSACTIONS 8 Credits between the landlord and the tenant arising from the contract of tenancy on shares, fon the share of each in the fries or harvest, 9. Credits for transportation, upon the goods carried, for the price of the contract aud Incdental expenses, until their delivery and for thirty days thereafter; 10, Credits for” lodging and supplies usvally furnished to travelers by hotelteepers, on the smovabies belonging to the guest ar long as such tmovables are in the hotel, but not for money loaned tothe guests; NOTE: This applies so long a6 movables are In the hotel This does not apply to money loaned to vests 11. Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upan the Frults harvested: 12, Credits fo: rent for one year, upon the personal property ofthe lessee existing on theimmovable Teased on the frults of the same, but not on ‘maney oF instruments of credit; and 13, Claims in favor of the depositor ifthe depository hhas weongflly sold the thing deposited, upon the price of the ale. NOTE: In the foregoing cases, ifthe movables to Which the lien or preference attaches have been ‘wrongfully taken, the creditor may demand them fom any possessor within 30days from the unlawful selzures through an acclonsubrogatora The clalms listed in nos. 2 13 n Art. 2241 and nos. 2 to 10 in Art. 2242, all came after taxes in order of preference; such claims enjoy thelr privileged ‘character as liens and may be paid only tothe extent that taxes have been paid from the proceeds of the specific property involved and only in respect of the remaining balance of such proceeds, These non-tax credits, nevertheless are not preferred one over the other inter se. They are to be treated on an equal basis and to be satisfied concurrently and proportionately (Rabuya 2017). Summary: 1. Taxes: 2. Malversation by public oficias; 3) Vendor'slien: 4. Pledge, chattel mortgage: 5. Mechanic's lien; 6 Laborer’ wages 7. Salvage: 8 Tenancy: 9. Carrier's len; 10. Hotes lien; 11. Crop loan: 42. Rentals ~ one year: and 13. Deposit. Preferred credits on specific immovables as provided in Art.2242 are as follows 1, Taxes due upon the land or building; NOTE: This pertains to real property taxes. Thus, ‘capital gains taxis not covered because itis atax ‘om income and not on the property itsel. 2, For the uapatd price of real property sold upon the immavable sold; NOTE: The tsw makes no distinction betwee registered and unregistered vendor's len Hence, any lien of this kind enjoys the preference of credit status. 3, Claimsoflaborers masons, mechanics and other workmen, as wells of architects, engineers and contractors, engaged inthe construction, reconstruction oF repair of bulldings, 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, and other works, upon sald bulidings, canals or other works; 5. Mortgage credits recorded in the Regisby of Property, upon the real estate mortgage: NOTE: Mortgage must have been registered in the Registry of Property. A recorded mortgage credit'ls superior ‘0 an unrecorded unpaid vendor's lien (De Barretto v Villanueva, CR. No. 1614938, January 28, 1961). {6 Expenses for the preservation or Improvement ‘of eal property when the law authorizes reimbursement, upon the immovable preserved or improved 7. Credits annotated inthe Registry of Property. by virtue of » judiclal order, by attachments or ‘executions, upon the property affected, and only astolater credits; NOTE: The preference is according to the order of, time they were levied upon the property. Claims of co-helrs for warranty inthe partition ‘of an immovable among them, upon the real property thus divided; and 9. Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donsted: 410. Credits of insurers, upon the property insured, for the insurance premium for two years. Summary: 4. Tanes; 2. Vendor's lien; 3. Contractor's ie 4 Lien of materialmen; 5. Mortgage: Expenses of preservation; 7. Recorded attachments 8 Warranty in partition 9. Conditional donations; and 10. Premiums for 2 year insurers 467 Univenstry oF Santo Tomas ey Pacuury or civit Law“CIVILLAWw Liability of debtor's property for his obligation ‘The debtors liable with all his property, present and future forthe fuliment of his obligations, sabjectto the exemptions provided by law (NCC, are. 2226) Exemption of conjugat community sartnership or absolute So long as the conjugal partnership or absolute ‘community subsists, Its property shall not be among the assets to be taken possession of bythe assignee for the paymentof the insolvent debtor's obligations, ‘except insofar as the latter have redounded to the benefit of the family. I tis the husband who Is insolvent, the administration of the conjugal partnership of absolute community moy, by order of the court, be transferred to the wife or to a third person other than the assignee (NCC Art 2238). NOTE: The insolvency ofthe husband does not have the effect of dissolving the conjugal partnership or absolute community (NCC, Are 2238). ‘The exemption applies provided that: a. ‘The conjugal partnership or the absolute community subsists;and The obligation did NOT redound to the benefit ofthe fally (Paras, 2008). Rules cin co-ownership ‘The undivided share or interest shale possessed by the assignee (Paras, 2008) NOTE: Art. 2239 of the New Civil Code refers to co- ‘ownership other than that of conjugal partnership oF absolute community, Rule involving property held in trust Property held by the insolvent debtor asa trustee of ‘an express or Implied trust shall be excluded from the insolvency proceedings (NCC, Are 2240) ‘The trustee is NOT the owner of the property held Hence, it should not respond for the insolvent trustee's obligations (Pares'2008). Duty to set apart exempt properties under FRIA Itshall be the duty of the court, upon petition and after hearing, to exemptand et apart, forthe wse and benefit ofthe sald insolvent, such real and personal property as fs by law exempt from execution, and falso.a homestead (FRIA, Sec 130) Properties exempt from execution and sale 41. GR: Family home constituted jointly by husband and wife or by unmarried head ofa fall (Are 152, FO); We oor itoewweres XPNs For: ‘a Non-paymentof taxes; b. Debts incurred prior to the constitution of the family heme; Debts secured by mortgages on the premises before or after such constitution, and Debts due to laborers, mechanics, architecs, builders, material men and others who have rendered service or furnished material forthe construction of the building 2 Rightto receive support as well as any money or property obtained as such support (Art. 205, PO) 3, Tools and implements necessarily used by him Inhis tradeor employment; 4. Two horses, or two cows, or two carabaos or other Beasts of burden, such as the debtor mey select, not exceeding one thousand pesos in value’ and necessarily used by him in his ‘ordinary occupation; His necessary clothing and that of al his family; Household furniture and utensils necessary for housekeeping and used for that purpose by the dabtor, such asthe debtor may select, ofa Value not exceeding one chcusand pesos 7. Provisions for individval’ or fomily use insufficient for three months; 8, The professional libraries of attorneys, judges, physicians, pharmaciss, dentist, engineers, surveyors, clergymen, teachers” and other professionals, not exceeding three thousand pesos in value 9. One fishingboat and net, not exceeding the total value of one thousand pesos, the property ofany Fisherman, bythe lawful use of which he earns livelihood 10. So much of the earnings of the debtor for his personal services within the month preceding the levy as are necessary fr the support of his family: 11, Lettered graveston: 12, All moneys, benefits, privileges or annuities accruing or in any manner growing out of any ife insurance f the annual premiums pald do not exceed five hundred pesos, and if they exceed the sum, a like exemption shall exist ‘which shall bear the same proportion to the maneys, benefits privileges and annuities so ‘accruing or growing out of such insurance that said five hundred pesos bears to the whole premiums pal 413, Copyrights and other properties especially ‘exempted by law (Sec 12, Rule 39): and 114, Property under legal custody and of the public dominion, Order, of preference with respect. to other properties ofthe debtor under Art. 2244: 1. Credits for services rendered by laborers: NOTE: Art. 110 ofthe Labor Code has modified 468nnn nnn evn vnrn nvr nerrtterrrterr etree eta aa CREDIT TRANSACTIONS 10. un 12, 14 Art. 244 ofthe Civil Code in two respects @) firstly, by removing the one. year Tiatation found in Art.2244, number 2; and (8) secondly, by moving up calms for unpaid ‘wages of laborers or workers of the Insolvent from second priority te frst priority in the order of preference established by Art 2244 (Republic Pera, GR. No, L-S6560, May 20,1987) In the event of bankruptcy or liquidation of an ‘employer's business, his workers shall enjoy first preference as regards wages due ther for services rendered during the period prior to the bankruptcy or liqudation (as amended by the Labor Code). Proper funeral expenses far the debtor, or children under his orher parental authority who have no property of thelr ewn, when approved by the court Expenses during thelast illness ofthe debtor or of his or her spouse and children under his or her parental authority if they have no property of their own Compensation due to the laborers of their dependents under laws providing for indemnity for damages in cases of labor aceldent or illness resulting rom the nature ofthe employment; Credits and advancements made to the debtor for suppore of himself or herself, and family, during the last preceding insolvency ‘Support during the insolvency proceedings, and Tor theee months thoreahter Fines and civil Indemnification arising from 2 criminal ofense; Legal expenses, and expenses incurred in the ‘administration of the insolvent estate for the common interest of the creditors, when ‘properly authorized and approved by the court; Taxes and assessments due the national government, other those mentioned in‘Artcles 2261, No, 1,and 2242, No. I: ‘Taxes and assessments due any province, other than those mentioned in Areles 2241,No.1 and 2242, No.1; Taxes and assessments due anj ‘ety or municipality other than those mentioned in ‘Articles 2241, Nos and 2242, No.1: Damages for death or personal injuries caused by aquasi-delice Gifts due to public and private institutions of charity or beneficence; Credits which without special privilege, appear in (a) 2 public instrument, or (b) in the final judgment, if they have been the subject of tigation, These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively (Are 2244 in relation to Art. 110 of ‘the Labor Code) Summary: 1 2 ‘Wages of employees; Funeral expenses; 3. Expenses oflastiliness: 4. Workmen's compensation; 5. Support for oneyear; 6 Support during insolvency; 7. Fines in crimes; 8. Legal expenses ~ administration, 9. Taxes: Tort: Donations; and Appeseing ia judgment. public i Steps in applying the rules in preference and concurrence of edit 1. Categorize the credits accordingly; 2 Determine or makean inventory ofthe assets oF properties othe insolvent 3. Segregatespeciicimmovablesand/or movables ‘mentioned under Arts. 2241 and 2242 of the NCC, respectively: 4. Sellmovables and determine ifthe proceeds are suicent to cover the special preferred credit in ‘Art-2241 ofthe NCC; exclude al ther credits to the extent ofthe value of the movable to which preference refers. Pay No: ereditin Art 2241 of the NCC; and if2 or more eredits im Art 2241 of NCC concur, apply proceeds of sale pro rata to the eredits applying Arts 2246 and 2247 of NCC For mmovables and real rights ~ sell immovable and real right and determine the proceeds of sale i sulfcient te cover the special preferred credits in Art. 2242 of NCC. Exclude all other credits to the extent of the value of the immovables and real rights to which preference refers. Pay No, 1 in Art 2242 of NCC; if 2 or more credits ‘mentioned in Art 2242 of NCC concur, apply proceeds pro rata to the credits applying ‘Articles 2288 and 2249 of the NCC. 5. If proceeds of sale from specfic movable. and ‘immovable are insufcent, the balance of said special preferred credits become common credits under Art 2245 of the NCC If proceeds of sale from specific movable and Immovebles exceed the total special prefered credits, such excess becomes part of free property of the debtor to be added to other assets in order to satisfy the ordinary preferred credits under Art. 2250 ofthe NCC and then the commen credits under Art. 2245 ofthe NCC; 6. With the excess cash sale of assets covered ‘ticles 2241 and 2242 of the NCC, if any, sell other assets of debtor and satisfy the ordinary Preferred creditsby applying proceeds of salen accordance with the order of preference of credit established in Art 2244 of NCC. Rule on Preference applies and 7 ‘After’ applying the proceeds of sale of all properties under Step 6, Apply balance of the proceeds of the sale to common credits in Accordance with the rule provided in Art. 2251 469 UNIVERSITY OF SANTO TOMAS Facutty oF Civit Law vcrv. LAW of the NCC. Rule on concurrence applies, they are puid pro rata regardless of dates (NOC, Art 2251) BP vornennwnors a| SUCCESSION ‘SUCCESSION ‘GENERAL PROVISIONS Succession isa mode of acquisition by virtue of ‘which the property. rights and obligations tothe tertent ofthe value ofthe inlieritance of aperson, are transmitted through his death to another oF thers either by his will or by operation of law (cc, are. 774) equisites of succession (DATE) 1. Death of decedent 2 Acceptance of the Inheritance by the 2 Transmissible estate; and 4 Bplstence and capacity of successor, designated by decedent or law. ‘A decedent is 4 person whose property is ‘transmitted through succession whether oF not he left.a will ifthe decedent lets will, hes aso called aestator (NCC, Art. 775). Inheritance includes allthe property. rights and obligations of -a_person. which are not ‘extinguished by his death (NCC, Are. 770) “The inheritance ofa person Includes natonly the property and the transmissible rights and bbligations existing at the me of his death, but also those which have accrued thereto since the ‘opening ofthe succession (NCC Are. 781) Purely personal rights are extinguished by death, Hence, they are not transmitted to the heirs. ‘The heirs succeed nat only to the rights of the deceased but also to his obligations. GR: Rights and obligations arising ‘contracts are binding upon the hers from LXPNs: When the rights and obligations arising are not transmissible by: 1. Their nature: 2 Stipulation; and 3. Provision of law (NCG:Are. 1311) = Inheritance Teisthe legal mode by which inheritance is ‘transmitted Itisthe objective element of succession, tothe mass br totality ofthe estate of eceased person 471 ‘Rules on properties acquiredafter the execution ofa will GR: Property acquired during the period between the execution of tive will and the death of the testator wll not pass under the provisions of the will ut by the rules on legal succession. Otherwise stated, the property will NOT form part of the estate of the testator that will pass onto his instituted heirs XPNs: 1. When 2 contrary. intention expressly appears inthe will (NC Art. 793), in which ‘ase the property willbe included in that Portion of the estate that will pass to the fnstituted heirs by way of testamentary succession; and 2. Ifthe aer-acquired property is one which the testator has disposed of under his wills a legacy or devise ie, the property did not belong to the testaor at the time he disposed of it as a devise or as & legacy and hhe only acquired the same after niaking bis wil (NCC, Art 930). In this ease the legacy ‘or devise wil be given effet even ifthe will is silent with regard to such an intention or the part ofthe testator NOTE: Property acquired after the death of the testator in the form of accession, accruals, earnings and the like pertain to the bei as owners of the estate in thelr own right Butfor purposes of defining the extent of the heirs’ liabiltyfr the obligations lef behind by the decedent, the properties after death should be treated as part of the heirs’ inheritance (CG Are 783 in relation to NCC, Art. 777) Liability of the heirs for the obligations of the decedent ‘The'heirs CANNOT be held personally lable with their own individual properties for the: debts oF obligations leftby the decedent The responsibility of the heirs for the debts of their decedent cannot exceed the value ofthe inheritance they receive from him (Estaee of KH. Hemody v. Luzon Surety Co, GR. ‘Na. 1-8437, November 28, 1956). leis only after the debts are pad thatthe residue of, the estate is distributed among the successors. Q: A borrowed from X P4000. A died without paying the debt, A left no property but he is ‘survived by his son, B.Xbroughtan action against B for the collection ofthe debton the ground that, since Bis the only helr of 4,B inherited all of a's Fights and obligations. Will the action prosper? Reason. ‘A: NO. The heirs are not personally Hable with thelr ‘own individual properties for the monetary ‘obligations /debts left by the decedent. An heic's liability for his predecessor'sebigaions is limited by the amount of inheritance he receives. B cant be UNIVERSITY OF SANTO TOMAS FACULTY OF Civit Lawee rv. LAW made liable for A's wnpald obligation because B did ‘not inherit anything fom A. ‘A contract of guaran is NOT extinguished by eal Its not extinguished by death because a contract of, ‘Buaranty isnot one ofthe exceptions under Art. 1311 of NCC (Relativity of Contracts). A guarantor's ‘obligation is basically to pay the creditor if the principal debtor cannot pay. Payment does not require any personal qualifications. The personal ‘qualifications become relevant only at the time the ‘obligation is incurred but not so at the time of discharge oF fulfillment of the obligation (Estate of KH. Hemady v. Luzon Surety Co, Inc, GR. No: L-8437, November 28, 1956) & The wife died while the action for logal separation was pending. Her children wanted 16 continue the action. They ask that they be allowed to substitute thelr deceased mother, arguing that the action should be allowed to ‘continue. Decide. The children cannot be subeiuted in an action for legal separation upon the death of thelr mother who fle the case. An action for legal separation which involves nothing more than” bed-and-board Separation ofthe spouses is purely personal. Being persona in character, follows thatthe death of one ary t0 the addon causes the death of the action Iselt—actio personas mortar eum persone (Lepue Eafe, GR No. 150977, January 31.1972). @: Fortunata died white her action for quieting of tile of parcels of land was pending, Does her death result inthe extinguishment of the action lor may her heirs substitute her in the case? ‘A: YES. Her heirs may substitute her because-the action is not extinguished by her death. Since the Tights t0 the succession are transmitted from the ‘moment of the death of the decedent, the heirs become the absolute owners of his property, subject totherights and obligations of the decedent, and they. ‘cannot be deprived of thelr rights thereto except by the methods provided for by law. The right of the heirs to the property of the deceased vests in ther upon such death even before judicial declaration of their being heirs in the testate or Intestate proceedings ‘When she died, her claim or right tothe parcels'of land in tigation was not extingulshed by her death ‘butwas transmitted to her heirs upon her death. er heirs have thus acquired interest in the properties in ligation and became parties in interest inthe case (Bonilla x. Barcene, & al GR. No. -44715, June 18, 41976). @ Can the hele sell, convey or dispose of his interest In the Inkeritance even pending the settlement ofthe estate? YES. His hereditary share/interest in the decedent's estate is transmitted or vested Immediately feom the moment of decedent's death, This is, however. subject to the outcome of the settlement proceedings. What is the nature of the transaction entered into by the heirpertainingto hishereditary share Inthe estate pending the settlementofthe estate? ‘ke The effect of such transaction is to be deemed listed to what ts ultimately adjudicated to the hel However, this aleatory character ofthe contract docs not affect the validity of the transaction. An heircan sellhis undivided share of theimhertance bit not any particular part of the estate. (Flora v, Prado, GR. No. 156879, January 20,2008) An bet can validly convey a property ofthe estate only insofar as his Individual share In the co-ownership is Concerneld (Aguirre v. C8, GR No. 122249, january 29, 2008). Eutureinheritaice GR: No contract may be entered into upon future Inheritance (NCC, Are. 1347(2)} XPNs 1. Partition inter vivos (NOC, Art 1080); and 2. Donations propter nuptias by future spouses to cach other of future Property. Requisites forthe contractso be classified as.one hinor.future inheritance: 1. The succession has not yet been ‘opened: 2. ‘Theabjectofthe contract forms partot the inheritance; and 3. Thepromissory hasan expectancy ofa right which is purely hereditary in nature with respect to the object. Anhelr CANNOT enter into a compromise agreement torenounce his rights over a future inheritance. Evcry renunciation or compromise as regards a furure legtime between the person owing it and his compulsory heirs is vol and thelatter may claim the same upon the death of the former; but they must bring to collation whatever they may have received by virtue of the renunciation ar compromise (NCC, are 905), ‘A future legitime is merely an expectancy, and the heir does not acquire any right over the same until the death of the testator. Hence, juridically, there is nothing on which to compromise. Furthermore, Art 41347 of NCC expressly provides that, “no contract ‘may be entered into upon future inheritance except incases expressly authorized by la.” University oF Santo Tomas 2018 GousenNores 472SUCCESSION equine ownership overan inherited property ‘The possession of hereditary property is deemed wansmitted to the heir without interruption and from the momento the death ofthe decedent. in case the inheritances transmitted. Pending a proceeding determining the rightful heirs, the prospective helrs can demand delivery of their supposed inheritance because ownership passes (o the heir at the very momentof death. The bass of the hiss rights tothe fruits ithe right of accession, cy Coa un og ‘The rights tothe successionare transmitted from the moment of the death ofthe decedent (NOG Are. 777). (2000 Bar) “The moment of death isthe determining point when the heirs acquire a definite right to the inheritance, whether such right is pure or conditional. The possession of hereditary property is therefore Seemed zransmitved tothe heir withouzinterreption and from the moment of death ofthe decedent. “The interest of the heir over the inheritance price to the death of the decedent is merely inchoate or 3 mere expectancy. ‘The right ofthe heirs tothe property ofthe deceased vests in them even before judiclal declaration of thei being heirs inthe estate or intestate proceedings {eis immaterial whether a hort or lone period of time elapses between the death ef the predecessor and the entry In the possession of the properties of the inheritance, because the right Is always deemed toretroact to the moment of death ‘The law in force at the time ofthe decedent’s death will determine who the heirs should be (Uson v. Del Rosario, GR. No, 1-463, January 28, 1983). ‘Presumptivedeath ‘The absentee shall not be presumed dead for the purpose of opening his succession’ til after an absence of ten years. Ifhe disappeared after the age of seventy-five years, an absence of five years shall be sufficient in order that his succession may be ‘opened (NCC Ar. 390). ‘The following shall be presumed dead for all purposes, including the division of the estate among the hes: 1. Aperson on board a vessel lost during sea voyage, or an aeroplane which is: missing, ‘who has not been heard of for four years ince the loss ofthe vessel or aeroplane; 2. A person inthe armed forces who has taken part in war, and has been missing for four years; or 3, Arperson who has-been in danger of death “under other circumstances and hisexistence bas notbeen known fr four years (NCC Art 391), NOTE: If there is a doubt, as betwen two oF more persons who are called to succeed each other, a to ‘whieh oftiem died frst whoever alleges the death of tne prior to the other, shall prove the same; in the absence of proof itis presumed tht they died atthe ‘same time and there shall be no transmission of Fights from one to the other (NCC, Art 43). COs me TEDSTER rs Kinds ofsuccession a Testamentary Succession +, That which results fromthe designation ofa heit made ina will executed inthe form prescribed by law (NOG Art. 779). b, Legal or Intestate Suecession - That which takes place fa person dies without a wil, or with a vold will, or one which has subsequently lost its validity & Mixed Succession - That effected partly by willand party by operation of law (NCC, Art. 760), Kinds otheirs 1. Voluntary or Testamentary Heirs - called to succeed by virtue ofthe will ofthe testator 2 Devisee- Persons to whom gifts of real property are given by virtue ofa wil b Legatee = Persons to whom its of personal property areiventy wee of NOTE: An heir is one who succeeds to the whole (universal) or aliquot part ofthe estate. Adevisee oF legatee is one who succeeds to definite specific, and individvalized properties. 2, Compulsory heir ~ One called by law to succeed to a portion of the testator’ estate known 35 legitime. Those who succeed by force of Uiw to some portion of the Inheritance, in an amount predetermined by law, of which they cannot be deprived by the testator, except by a valid disiaheritance Legalor intestate hele ~They arethose who succeed by operation of law through intestate succession ‘Those who succeed tothe estate of the decedent who dies without a valid will or to the poron of such ‘estate not disposed of by will 473 UNIVERSITY OF SANTO TOMAS Facutty oF Civit LawCivil LAW To anil the institution of heirs levatees/devisses insofar as it may prejudice the person disinherited, but ma the devises and legacies and other fasto Fepresentation of ever represent re personality of he cena no ea iow big th juridical person logacy or the levise is re always given determinate Determination of fs mount of roertonte I Succeed tothe Ply succeed to mainder of Phedeterminate he properties fing or quantity ctentof fer athe cis ruccessional __[lebtsandallthe fnentioned inthe ight legacies and ‘Fegacy or devise. ovis have een ald or ven | Fanos ether the” onlin tstowhenthey fuccessionbe _festamentary st estate or uccession. rtestate Suppose a person is named to succeed to an entire estate. The estate, however, consists of only one parcel ofland. Isheanhelror a devisee? A:It depends on the manner of his designation in the will. Here, because he is called to inherit the entire estate, he isan hele. Instances where the distinctions between helts and.devisees/legatees become significant 1. Preterition (NCC Art. 854): and a To annul entirely the institution of heirs; but 1b. The legacies and devises shall be valid. insofar as they are not inofficious. 2. “Iniperfoct/defetive dlsinheritance (NCC, ‘are 918) The eects testamentary dispositions shall be valid to such extent a5 will not impair the legitime. —____TESTAMENTARY succEssION ‘will isan act whereby a person is permite, with the formalities prescribed by law, to control to a rain degree the disposition of his estate to take flee afters death (NCC, Art 783). ‘A will has Been defined as “a personal, solemn, revocable and free act by which acapacitated person disposes of his property and rights and declares or complies with duties to take effet after his desth” (Vitugv. Court of Appeals, GR. No. 82027, March 29, 1990). ‘Sharacteristics ofall AL Statutory right ~The making ofa willis only a statutory not a natural right. A will should be subordinated to both the law and public policy Unilateral act ~ No acceptance by the transferees is needed during” the Iifetime ofthe testator: 3. Strictly personal act ~ The disposition ‘of property is solely dependent upon the testator; 4 Ambutacory ~ & will is essentially ‘revocable during the Nfetime of the testator. The testator can alter, revise, ‘or revoke itatany time beforehis death, 5° Free from vices of consent Itrmust be fekecuted freely, knowingly and Voluntarily, otherwise, It will be disallowec 6. Individual act—A will must be executed only by one person.A joint will executed by Filipinas even abroad is not allowed inthe Philippines. NOTE: Mutual wills - These are separate wills although containing reciprocal provisions are not prohibited, subject to the rule on désposicion captatora, 7" Solemn or formal act ~ A will is executed in accordance with formalities prescribed by law; and 8 Dispositive of property disposition of the testator's estate mortis causa Q: The holographic document contained only a clause of disinheritance of one of the testator’s ‘son, Does the document meet the definition of will under Art.783 of the NCCalthough itdoes not ‘contain any. disposition of the estate of the deceased? ‘A: VES. The document although itmay initially come ‘neross as mere disinhertance instrument, conforms Univensity oF Santo Tomas 2018 Govan Notes 474pp rrivremremremrmatretrceretrretrerterneTe TESS tee ee ee eee ease ee eee eee eee “ SUCCESSION to the formalities of holographic will. The disinheritance results in the disposition of the property of the testator in favor of thase who would succeed in the absence of the disiaherited heir (Geangio v. Reyes, GR. Nos. 140371-72, November 27, 2006}. "PERSONAL ACT Reeser eee Ted ‘The making of a willis a strledly personal act: it cannot be left in whole or in part to the discretion of {2 third person, or accomplished through the instrumentality of an agent or attorney (NCC, Art 704), . ‘Rule on uonsdelegabllity af will-maldng ‘The exercise of the disposing power Is the act that cannot be delegated. But the mere mechanical act of ‘rafting the will may be dane by a third person ast Goes not constitute a delegation of the will or disposition. Doctrine of Prohibited Designation ‘The following cannot be left to the diseretion of a third person: L Duration or efficacy of designation of hers legatees, or devisees; 2 Determination of the portions which the heirs, legatees or devisees are to receive wwhien referred to by name; 3 Determination as to whether or not a disposition is to be operative (NCC, Arts 785, ‘and 747). NOTE: tis not only the delegation which is void; the testamentary disposition whose effectivity will depend upon the determination of the third person is the one that cannot be made, Hence, the disposition itself is void ‘The following. however may be entrusted toa ‘hind person: 1 Distribution of specitic propeity or suins of ‘money that the testator may leavein generat ‘to specified lasses or causes. 2 Designation of the persons, institutions or establishments to which such property or ‘sums are to be glven ar applied (NCC, Ar 786), NOTE: Should the testator dispose of the whole or part of his property for prayers and pious works for ‘the benefit of his soul, in general terms and without specifying its application, the executor, with the court's approval shall deliver ote-half thereof or its proceeds tothe church or denomination o which the testator may belong, tobe used for such prayers and pious works, and the other half to the State, for the purposes mentioned in Ave 1013 (NCE, Art. 1029). ‘Testamentary provisions in favor of the poor in ‘general without designation of particular persons or Gf any community, shall be deemed limited to the poor living in the domicile of the testator atthe time ‘this death, unless it should clearly appear that his Intention was otherwise (NCC, Art. 1070). Construction ofasuill's provision IF a testamentary disposition admits of different Incerpretations, in case of doubt, that interpretation by which the disposition is to be operative shall be preferred (NCG Are. 788). Construing the provisions ofa will substance Father than form must be regarded, and the instrument should receive the most favorable construction to accomplish the purpose intended by the testater. The words ofa will are to receive an interpretation whieh will give to every expression some effect rather than one Which will render any of the expressions inoperative; and of two modes of Interpreting a wil, that isto be preferred which will prevent intestacy (NCC, Art. 791). ‘Reason: Testagy Is preferred over intestacy because testacy Is the express will of the decedent whereas intestacy is only bis implied will ‘The invalidiy of one of several dispositions contained ina will doesnot result in the invalidity of the other dispositions unless iis tobe presumed that the testator would not have made such other dispositions ifthe first invalid disposition had not been made (WCC, Are. 792). Every devise or legacy shall cover all the interest Which the testator could devise oF bequeath in the property disposed of, unless i clearly appears from the will that he intended to convey a loss Interest (NCC, Are 79). Parolvidence Rule in the interpretation of wills 1. When ehereisanimperfect description or when no person or property exactly answers the deseription The mistakes and omissions must be corrected 2. Ifthe error appears from the context of the wil from ‘extrinsic evidence, excluding the oral ‘decaretions ofthe testator ast his intention; ond ‘when an uncertain arises upon-the face of the Will 05 to che application of any of ts provisions ~ ‘The testator's intention isto be ascertained from the words of the wil, taking into consideration the circumstances under which It was made, ‘excluding such oral declarations (NCC Are 783) ‘Kinds ofambiguiies ina wil 1. Latent (intrinsic) ~ These are ambiguities which are net apparent on the face ofa will but to circumstances outside the will atthe thine the will was made. eg Iie contains an 4758 UNIVERSITY OF SANTO Tomas FACULTY OF CIVIL Lawcrvit LAW Imperfect description of person or property; zo person or property exactly answers the eseription. Testator gives alegay “Yo my cousin Anna” and itil turn out tat the testator bas three cousins | tamed "Anna 2 Patent (extrinsic) ~ When an uricersainty arises upon the face of the will as to the application ofany ofits provisions (NCC Ark. 703), eg, Testator gives a devise “to some of the eleven children of my only brother” ‘Stepsin resolving ambiguities 1. Examine the wil itself; 2. Refer to extrinsle evidence surrounding ereumstances XPN: oral dedarations of the testator as to his Intention; and In the case of patent ambiguities, the extrinsic ‘evidence acceptable is limited to those pertaining to the circumstances under which the will was executed or the ‘Law governing the validity sf wills 1. As to extrinsic validity ~ Rfers to the forms and solemnities required by law. It is governed by: 1 Arto time The law in force at the time ofthe making ofthe will; and bh ke to place » The will can be executed in ‘accordance with the formalities of the testator’s nationality, domicile, residence oF the place where the will was executed 2. Asto intrinsic validity -refers tothe legality of provisions inthe will Its goversied by: 4. Asto ime The aw in force atthe timesfthe ecedent’s death; and 1b As to place - The national law of the testator governs the intrinsic validity of the will regardless ofthe place of execution. Cero moe eed. ba Phitippines | NCC Testator = isa 1. Law ofthe place Filipina | Forel ‘ofexecution; or country — | > Nee. 1. NGG; or Pnitiprines | 2 onal Testator 1. National law; isanalien| rorcign | 2. Lawof the place country ofresidence; or 3. NOC. his Testamentary capacity refers to the ability as well asthe power to makea will (2008 Bar). In American law, testamentary capacity is concerned ‘withthe ability ofthe testator while the testamentary power involves a privilege under the law. Hence, although aperson may have testamentary opacity, it does not necessarily fellow that he has testamentary pawer In the Philippines, such distinction is lost altogether. The term testamentary power is Sometimes understood to refer to the power of the testator to designate the person or persons who are to succeed him in his property and transmissible Fights and obligations. Requisite: oftestamentary capacity A. All persons not expressly prohibited by law (CC Are 79 2 Atleast 18 years of age; (NCC Art. 797}; and 3 Of sound mind (CG Are. 798). NOTE: The ability as well as the power to make a ‘will must be present atthe Ue of the execution of the wil It is not necessary that the testator be in full possession ofall his reasoning faculties or that lis find be. wholly unbroken, unimpaired or lunshattered by disease, injury or other cause To be of sound mind, it shall be sufficient ifthe testato: was able atthe time of making the will t know the | a. Nature ofthe esate to be disposed of b. Proper objects ofhis bounty; and © Character ofthe testamentary at (NCC Art. 798), ‘The'requirement that the testator be of sound mind fs essential only at the time of the making of the will (or execution) fhe Is not of sound mind at that tlme, the willis invalid regardless ofthestae of mind beforeer after stich execution NOTE: Ifthe testator was of sound mind at the time fof the making ofthe will the will is valid even ifthe testator should Inter on become insane and die in that: condition, Supervening incapacity does not Invalidate an effecuve will, nor is the will of an incapable validated by the supervening. capacity (ce, Are 801). GR: The law presumes that every person is of sound tind, in the absence of proof to the contrary /NCC, ‘rt B00(1). EXPN Ifthe testator was: BB ove cacoen ores 476SUCCESSION 1. Publicly iownto be insane, one month or less, before making his will {WCC Ar. ‘800(2)}: oF Under guardianship at the time of the ‘making of the wll (Torres v. Lopes, GR No 1.25966, November 1,1926) NOTE: Mere weakness of mind or partial imbectity from disease of body or from age’ doos not necessarily render 2 person incapable of making a will. Q Paciencia, unmarried and childless, died testate. She bequeathed all her properties to her ‘nephew Lorenzo who filed a petition for probate of the will, Antonio opposed the petition, ‘claiming that Paciencia was mentally incapable to make a will atthe time ofits execution. Rosie, another oppositor, testified that Paciencia referred tos forgetful” when she was still alive ‘Should the will be admitted to probate? ‘A: YES. Its Incumbent upon those who oppose the probate ofa willto clearly establish thatthe decedent was not of sound and disposing mind atthe time of the execution of sald will Otherwise; the state is duty-bound to give full effect to the wishes of the testator to distribute his estate inthe manner provided in his wllso longasitis legally tenable. The state of being forgetful does not necessarily. make & person mentally unsound so as to render him unfit to ‘execute a Will. Forgetfulness is not equivalent to bbeing of unsound mind. Apart from the testimonies pertaining to Paciencias forgetfulness, there {sno substantial evidence, medical or otherwise, that ‘would show that Paciencia was of unsound mind at {he time of the execution of the Will (Boltozar, et al 5 Laxa, GR. No. 174489, April 11, 2012) (Del Castillo, 2). A person suffering from civil interdiction is qualified to make a wil, He is deprived of the power to dispose of his properties through acts inter Vives but not through acts morts causa (RPC, Art. 34) ‘The burden ofproving that the testator acted in lucid Interval ies on the person who maiatains the validity ofthe will NCG Art. 800(2)} Married woman ‘A married woman may make a will without the consent of her husband, and without the authority of the court (NCC, Are 602), ‘A married woman may dispose by will all her separate property as wellas her shareof theconjugal partnership or absolute community property (NCC, r2 803). FORMAL VALIDITY OF WILLS Kinds of wills allowed under the NCC. () Ordinary or notarial will ~ This requires an attestation clause, an acknowledgement before 3 notary pubtie;and @ Holographic will ~ It must be entirely written, dated, and signed in the handwriting of ti testator leis the law of the country where the will was ‘executed that governs the form and solemalties of wills (NCC, Art 17()}. When a Filipino is ina foreign ‘country, he is authorized to make a wil in any ofthe {orms established by the law ofthe country in which he may be. Such will may be probated in the Philippines (NCC, Art. 15}. Time criterion ~ The law atthe time of exceution foverns; subsequent ws cannot apply retroactively. Place eriterion = Under Art 615-817 of NCC, five choices are availabe tothe testator, the law of The testator’ tizenship, 2. Testato's domicile; 3. Place of execution; 44 Testators residence; ‘Philippines Balare, 1996) ‘The will ofan alien who is abroad produces effect In the Philippines iets made: ‘4. With the formalities prescribed by the law ofthe placein which he resides: of According te the formalities observed in his country:or + In conformity with those which the Civil Code preserbes (NCC, Are 816) (1990, 11998, 2009 Bar). b. ‘A will made in the Philippines by a citizen or subject of another country, which is executed in Accordance with the law ofthe country of which he Is a citizen or subject, and which might be proved and Allowed by the law ofhis own country, shall have the Same efféctasifexecuted according tothe laws of ‘the Philippines (WCC Art 817) (2002 Bar). ‘A joint will exeeuted by Filipinos in a foreign ‘country shall not be valid in the Philippines, even ‘though authorized by the laws ofthe country where {they may have been executed (NCC, Are 819). A joint “willis against the publiepotcy ofthe Philippines. GOVERNING LAW’ AS TO SUBSTANTIVE VALIDITY Laws relating to family rights and duties, orto the ‘status, ‘coindition and legal capacity of persons are binding upon citizen ofthe Philippines even thou living abroad (NCC Are 15). ‘Matters petiainiue taintestate and testamentary, ‘succession which ate regulated by the national law ofthe deceased: Order of sucession; 2 Amountof suecessional rights; 3 Intrinsic validity of testamentary provisions and 477 UNIVERSITY OF SANTO TOMAS. Pacuury oF Civit Law e