According to Ownership | Classification of Property | Property | PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

CLASSIFICATION OF PROPERTY ACCORDING TO OWNERSHIP

The classification of property based on ownership under Philippine civil law focuses on the distinction between properties that are privately owned and those that are owned by the public or government. This classification is crucial in determining the rights and limitations applicable to the use, transfer, and disposition of such properties.

1. Privately Owned Property

Privately owned property refers to assets owned by private individuals, partnerships, or corporations. These properties are governed by the rules of ownership as provided in the Civil Code of the Philippines, particularly under Book II, Title II.

Key Features:

• Full Control: The owner has full control, subject only to general legal limitations such as zoning laws, taxation, and other regulations for public welfare.
• Transferability: Ownership rights over privately owned property may be transferred through sale, donation, barter, succession, or other lawful means.
• Exclusivity: Ownership is exclusive, meaning others cannot use or occupy the property without the owner’s consent unless otherwise provided by law (e.g., easements or eminent domain).
• Examples:
  • Residential properties
  • Commercial establishments
  • Agricultural lands owned by private persons

2. Publicly Owned Property

Publicly owned property refers to assets owned by the State or any of its subdivisions (provinces, cities, municipalities, or barangays). Public ownership is further subdivided into property for public use and property of public dominion not for public use.

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A. Property for Public Use

Defined under Article 420 of the Civil Code, these are properties intended for general use by the public. They are considered inalienable and cannot be appropriated for private ownership while they retain their public use designation.

Examples:

• Roads, bridges, public plazas, parks, and rivers
• Public markets and other similar facilities directly benefiting the populace

Key Characteristics:

1. Inalienable While Public Use Exists: Such properties cannot be sold, transferred, or disposed of unless officially reclassified as patrimonial property.
2. Use by the Public: Open for unrestricted use by all members of society, subject to regulatory control.

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B. Property of Public Dominion Not for Public Use

Also under Article 420, these are properties owned by the State but are not intended for direct public use. They are, however, still held for public purposes, such as governmental operations.

Examples:

• Military installations
• Government offices and buildings
• State-owned forests or mineral reservations

Key Characteristics:

1. Inalienable Until Reclassified: Like property for public use, they cannot be disposed of unless declared patrimonial.
2. Reserved for State Functions: These assets are utilized to perform essential governmental roles.

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C. Patrimonial Property

Defined under Article 421, patrimonial property refers to State-owned properties that are no longer intended for public use or public service. Once declared patrimonial, these properties can be alienated or leased.

Key Characteristics:

1. Alienability: Patrimonial properties may be sold, leased, or otherwise disposed of by the State following applicable laws and regulations.
2. Private Use: Unlike public dominion properties, patrimonial assets may be converted for private use once properly acquired.
3. Examples:
   • Lands of the public domain classified as alienable and disposable
   • Old government-owned buildings sold at public auction

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3. Ownership by Local Government Units (LGUs)

Properties owned by local government units (LGUs) are classified similarly:

• Public use properties (e.g., municipal halls, local roads, parks)
• Patrimonial properties (e.g., LGU-owned commercial land or real estate projects)

Ownership and control are subject to provisions in the Local Government Code of the Philippines.

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4. Mixed Ownership

In some cases, property may involve shared ownership, such as:

• Co-ownership: Where multiple individuals share ownership rights over a single property, governed by Articles 484–501 of the Civil Code.
• Joint Ventures or Partnerships: Properties owned collectively by private entities and the government in certain projects, subject to public-private partnership agreements.

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5. Regulatory Considerations

Ownership classifications under Philippine civil law are further influenced by specific laws:

• The Public Land Act (Commonwealth Act No. 141): Governs alienable and disposable lands of the public domain.
• Indigenous Peoples’ Rights Act (RA 8371): Recognizes ancestral domain and lands owned collectively by indigenous peoples.
• The Constitution: Article XII limits foreign ownership of land and defines national patrimony.

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Key Distinctions Between Private and Public Ownership

Aspect	Private Ownership	Public Ownership
Purpose	For private benefit and use	For public benefit or governmental functions
Transferability	Freely transferable, subject to restrictions	Restricted; requires reclassification for alienability
Regulatory Framework	Civil Code, taxation, local ordinances	Civil Code, Constitution, special laws
Examples	Homes, private farms, commercial buildings	Parks, roads, government offices, patrimonial land

Understanding these distinctions helps in properly determining ownership rights and the legal implications for acquisition, use, and disposition under Philippine law.

Movable Property | According to Nature | Classification of Property | Property | PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

MOVABLE PROPERTY UNDER CIVIL LAW: A METICULOUS EXPLANATION

Under Philippine civil law, movable property is defined and classified in Book II, Title I, Chapter 1 of the Civil Code of the Philippines. This discussion provides a comprehensive analysis of movable property, focusing on its nature, classifications, and related legal implications.

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I. DEFINITION OF MOVABLE PROPERTY

Movable property is defined as property that is capable of being moved from place to place without substantial injury to its essence. This distinguishes it from immovable property (real property), which is inherently attached to the ground or permanently affixed to a location.

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II. CLASSIFICATIONS OF MOVABLE PROPERTY

Movable property can be classified into two main categories:

1. By Nature

   • Tangible (Corporeal) Movables: Objects that can be physically moved or handled, such as furniture, vehicles, tools, jewelry, and livestock.
   • Intangible (Incorporeal) Movables: Rights and obligations with monetary value that do not have a physical presence but are enforceable in law, such as shares of stock, intellectual property rights, and credits.

2. By Use

   • Ordinary Movables: Items intended for daily use or trade, such as household goods, clothing, and commodities.
   • Movables by Anticipation: Objects that are intended to become movable once separated from the land, like harvested crops or extracted minerals.

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III. CHARACTERISTICS OF MOVABLE PROPERTY

Movable property has specific characteristics that differentiate it from immovable property:

1. Mobility: It can be physically relocated without damaging its integrity.
2. Fungibility: Some movable items (e.g., money, oil, or grains) can be replaced by another of the same kind, quality, and quantity.
3. Depreciation and Wear: Movable property is often subject to faster depreciation compared to immovable property due to regular use or physical exposure.

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IV. LEGAL RULES GOVERNING MOVABLE PROPERTY

Several provisions of the Civil Code of the Philippines govern the regulation and disposition of movable property:

1. Ownership and Possession:

   • Ownership of movable property may be transferred by delivery and is generally governed by Article 712 onwards.
   • Possession can be acquired through actual delivery or constructive delivery (symbolic handover or implied acts).

2. Transfer and Conveyance:

   • Sale of movable property is regulated by the Law on Sales (Articles 1458–1637).
   • Movable property may be pledged under the Law on Pledges (Articles 2085–2092), serving as collateral for loans.

3. Loss or Abandonment:

   • Article 719 establishes that possession of abandoned movable property belongs to the first finder.
   • For lost property, the rules on finder’s rights and duties under Articles 719 and 720 apply.

4. Accession and Mixture:

   • Movable property may become part of another object through accession or mixture, subject to rules in Articles 466–475.

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V. MOVABLE PROPERTY AS AN OBJECT OF SECURITY

Movable property can be used as security for obligations under the following methods:

1. Pledge: Delivery of movable property to a creditor as security for a debt.
2. Chattel Mortgage: Movable property remains in the possession of the debtor but is mortgaged to secure an obligation.

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VI. SPECIAL TYPES OF MOVABLE PROPERTY

1. Money: While treated as fungible movable property, legal tender follows special rules under the New Central Bank Act (R.A. No. 7653) and related laws.
2. Shares and Stocks: Governed by the Corporation Code, shares are considered movable property despite their intangible nature.
3. Intellectual Property: Patents, copyrights, and trademarks are incorporeal movables protected under special laws like the Intellectual Property Code of the Philippines (R.A. No. 8293).

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VII. TAXATION AND REGISTRATION

Movable property may be subject to:

• Value-Added Tax (VAT) or excise taxes if sold or imported.
• Registration for certain types of movables, such as vehicles, under the Land Transportation Office (LTO) or other regulatory bodies.

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VIII. MOVABLE PROPERTY AND CONFLICT OF LAWS

Under Private International Law, the situs of movable property determines which jurisdiction’s laws apply in disputes. Generally:

• Tangible movables follow the law of the location (lex situs).
• Intangible movables follow the law of the domicile (lex domicilii) of the owner.

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IX. APPLICATION IN MODERN CONTEXT

With advancements in technology, movable property now includes:

1. Digital Assets: Cryptocurrencies and non-fungible tokens (NFTs), treated as intangible movables.
2. Personal Data: Often regarded as a valuable resource with movable property characteristics in some jurisdictions.

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X. CASE LAW AND JURISPRUDENCE

Philippine courts have consistently reinforced distinctions between movable and immovable property to resolve disputes on ownership, contracts, and security arrangements. Landmark cases include:

1. Perez v. Pomar: Establishing the principles of tangible movables.
2. Uy v. Spouses Villanueva: Clarifying the application of pledges.

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XI. SUMMARY

Movable property constitutes a diverse and critical component of property law, defined by its mobility, broad classification, and essential role in transactions. Understanding its nature and legal treatment ensures compliance with obligations, security rights, and effective resolution of disputes.

Immovable Property | According to Nature | Classification of Property | Property | PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

Immovable Property: An Overview (Philippine Civil Law)

Under Philippine Civil Law, immovable property is specifically defined and classified in the Civil Code of the Philippines (Republic Act No. 386), particularly in Book II, Title I, Chapter 1, Articles 415 and 416. Immovable property, often referred to as real property, pertains to things that are inherently fixed or attached to the soil. Below is a detailed discussion of the classification and scope of immovable property according to its nature.

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I. Definition of Immovable Property

Article 415 of the Civil Code explicitly enumerates what constitutes immovable property. These items share a common characteristic of being permanently affixed to or associated with land. The law provides an exhaustive enumeration of what is considered immovable property.

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II. Classification of Immovable Property According to Article 415

1. Land

   • Land refers to the ground or soil itself, including its natural elements. It is inherently immovable as it cannot be transferred or moved from one place to another.
   • Includes both urban and rural land regardless of its use.

2. Buildings, Roads, and Constructions Adhered to the Soil

   • Structures permanently attached to land, such as residential buildings, commercial establishments, or roads.
   • Whether a building is owned separately from the land does not change its classification as immovable. Ownership of the building can, however, be separate from the ownership of the land.

3. Trees, Plants, and Growing Fruits While Attached to the Land

   • As long as these natural elements are still rooted in the land, they are considered immovable.
   • The moment they are severed or detached, they are no longer classified as immovable.

4. Machinery, Receptacles, and Instruments Intended for an Industry or Works

   • Equipment permanently placed on the land or building and essential for the industrial or agricultural activity conducted on the property.
   • Must be fixed to the property to remain immovable. Portable equipment is not included.

5. Docks and Structures Attached to a Fixed Point in Land or Water

   • This includes piers, docks, or other constructions permanently attached to the ground or a fixed point over water bodies.

6. Minerals Still in Their Natural State

   • As long as minerals remain embedded or unextracted from the soil, they are immovable. Extracted minerals are considered movable.

7. Waters

   • Natural water resources such as rivers, lakes, and springs, as long as they are not artificially contained.

8. Right Over Immovable Property

   • Rights pertaining to immovable property are also considered immovable, such as usufructs, leases of more than one year, and servitudes or easements imposed on the property.

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III. Nature and Characteristics of Immovable Property

1. Permanence

   • Immovable property is inherently permanent and cannot be physically transferred without alteration to its character.

2. Inseparability from the Land

   • Anything that is considered immovable is inseparable from the land or soil unless legally and physically detached.

3. Susceptibility to Modification

   • The law allows modifications, such as attaching movable objects (e.g., machinery) to immovable property, which can result in the reclassification of the movable object as immovable.

4. Subject to Property Registration

   • Immovable property must be registered under the Torrens system in the Philippines, which ensures ownership and creates public records.

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IV. Distinction Between Movable and Immovable Property

1. Physical Movability

   • Movable property can be physically relocated without altering its nature, while immovable property is inherently fixed.

2. Nature of Attachment

   • Immovable property is either inherently immovable (land) or rendered immovable due to its attachment (buildings, machinery).

3. Legal Implications

   • Immovable property is subject to distinct legal processes for sale, transfer, and taxation. For example, a sale of immovable property requires a public instrument and registration, while movable property does not.

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V. Modifications to Classification

While the general rule for classifying property is found in Article 415, there are specific scenarios where movable property may temporarily acquire the character of immovable property:

1. By Destination

   • Movable items, such as machinery or tools, become immovable when used in conjunction with an industrial or agricultural enterprise and are permanently affixed to the land.

2. By Legal Agreement

   • Parties can stipulate that certain items are to be considered immovable in the context of their agreement, provided it is lawful.

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VI. Legal Implications of Immovable Property

1. Ownership and Transfer

   • Ownership of immovable property must be supported by proper documentation such as land titles or deeds. Transfer of ownership requires registration under the Torrens system.

2. Taxation

   • Immovable property is subject to real property tax (RPT) imposed by local government units. This tax is based on the assessed value of the property.

3. Succession

   • Immovable property is treated as part of the estate and is subject to the rules of succession under the Civil Code.

4. Security for Obligations

   • Immovable property can be used as collateral in transactions such as mortgages.

5. Expropriation and Public Use

   • Immovable property can be subject to expropriation for public use, subject to due process and just compensation.

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VII. Special Rules on Immovable Property

1. Adverse Possession

   • Ownership of immovable property can be acquired through prescription, whether extraordinary (30 years) or ordinary (10 years with just title and good faith).

2. Easements and Rights Over Land

   • Easements, such as the right of way, attach to immovable property and pass with the land.

3. Leases

   • Leases of immovable property exceeding one year must be in writing to be enforceable and must be registered to bind third parties.

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VIII. Summary of Key Principles

• Immovable property is defined and classified exhaustively under Article 415 of the Civil Code.
• Characteristics include permanence, attachment to the land, and susceptibility to registration and taxation.
• Rights and legal relationships over immovable property are governed by distinct rules under civil law.

This framework provides the foundation for the legal treatment of immovable property in the Philippines.

According to Nature | Classification of Property | Property | PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

CIVIL LAW

IX. PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

A. Property

2. Classification of Property

a. According to Nature

Under Philippine law, particularly the Civil Code of the Philippines, property can be classified according to its nature into two main categories: Movable Property and Immovable Property. Below is a detailed discussion of the classifications, their definitions, and key legal principles.

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1. Immovable Property (Real Property)

Defined under Article 415 of the Civil Code, immovable property includes those items that, by their nature, essence, or purpose, are fixed and cannot be moved without altering their substance or destination. The following are the specific classifications:

a. Land

• Includes the soil, ground, and surface of the earth.
• All improvements or structures built or attached to the land (e.g., buildings, roads) are inherently immovable as accessories to the land.

b. Buildings and Constructions

• Structures permanently attached to the land are classified as immovable.
• Ownership of a building may or may not coincide with ownership of the land where it stands, creating potential issues like accession continua or disputes under Art. 448 (good faith builder).

c. Trees, Plants, and Growing Crops

• Permanently planted or rooted plants and trees are considered immovable.
• Crops that have not been severed from the land are also immovable.

d. Machinery, Instruments, or Implements

• Machinery installed by the owner for an industry or work, provided they are fixed to the immovable property and intended for permanent use.

e. Dams, Piers, and Other Constructions

• These include man-made structures that integrate with the immovable land for functionality, usually for public or economic purposes.

f. Rights in Immovable Property

• Rights associated with immovables, such as servitudes, easements, usufructs, and mortgages, are themselves classified as immovable property.

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2. Movable Property (Personal Property)

Defined under Article 416 and Article 417 of the Civil Code, movable property refers to items not fixed to the land and capable of transportation from one place to another without substantial alteration or damage. Movable property can be further divided into:

a. Tangible Movables (Corporal Property)

• Objects perceptible to the senses, such as furniture, vehicles, jewelry, and merchandise.

b. Intangible Movables (Incorporal Property)

• Rights that are enforceable, such as credits, shares, bonds, intellectual property, and goodwill.

c. Fruits and Crops When Severed

• When products of the soil, like fruits or crops, are harvested, they become movable property, even if they were previously immovable.

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Key Legal Doctrines and Principles

1. Doctrine of Accession

Under Articles 440–465, the principle of accession governs ownership of things produced by property (e.g., fruits of a tree) or items attached to property (e.g., constructions).

2. Lex Situs Principle

The location of immovable property determines the law applicable to its ownership, use, and transfer. This ensures that local laws prevail regarding real estate transactions.

3. Mode of Acquisition

Movable and immovable property are subject to different modes of acquisition:

• Movables: Acquired by delivery and possession.
• Immovables: Acquired through formal execution of public instruments and registration under the Torrens System.

4. Possession and Prescription

• Possession of both movable and immovable property can lead to ownership through acquisitive prescription, provided legal conditions are met.

5. Classification's Legal Consequences

• Taxation: Real properties are subject to real property tax, while movables are not.
• Security Interests: Immovable property can be used for real mortgages, while movable property can be pledged or covered under chattel mortgage laws.

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Summary of Differences Between Movable and Immovable Property

Aspect	Movable Property	Immovable Property
Definition	Capable of transport without damage.	Fixed, permanent by nature or use.
Legal Basis	Articles 416-417, Civil Code	Article 415, Civil Code
Transfer	Requires delivery.	Requires public instrument & registration.
Security	Pledge, Chattel Mortgage	Real Mortgage
Possession	Easier to acquire physical possession.	Subject to Torrens registration.

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Practical Implications in Legal Practice

1. Contract Drafting

   • Ensure precision in defining property types, especially in contracts for sale, lease, or mortgage.

2. Land Disputes

   • Immovable property disputes frequently involve encroachments, overlapping claims, and easements.

3. Taxation and Government Regulation

   • Different tax regimes and regulatory frameworks apply to movable and immovable properties, necessitating compliance.

4. Business Transactions

   • Proper classification is crucial for security arrangements (e.g., loans, credits).

This detailed classification provides the foundation for interpreting, negotiating, and litigating property-related matters in the Philippines.

Classification of Property | Property | PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

CIVIL LAW: IX. PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

A. Property

2. Classification of Property

The classification of property under Philippine Civil Law is primarily governed by the Civil Code of the Philippines. Property can be broadly categorized into immovable (real) and movable (personal), with further sub-classifications and distinctions based on their nature, use, ownership, and other legal criteria. Here is an exhaustive overview:

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A. Property as an Object of Ownership

Property, in the context of ownership, refers to all things or rights that may be appropriated and are susceptible to being the object of legal transactions.

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B. General Classifications of Property

1. Immovable Property (Real Property)

Under Article 415 of the Civil Code, the following are considered immovable property:

1. Land, Buildings, Roads, and Constructions
   • Land and anything permanently attached to it are immovable.
   • Buildings, roads, and constructions of all kinds adhered to the soil.
2. Trees, Plants, and Growing Fruits
   • These are immovable as long as they are attached to the land.
   • Once severed, they become movable.
3. Permanently Attached Items
   • Machinery, receptacles, or instruments intended for a business or trade permanently attached to land or a building.
4. Dams, Structures, and Waters
   • Dams, ponds, and irrigation systems are immovable if constructed to meet the needs of the property.
5. Minerals and Quarries
   • As long as they remain under the land, these are immovable.
6. Contracts for Permanent Use
   • Rights of usufruct, easements, or servitudes established over immovable property.
7. Other Properties by Law
   • Other items classified as immovable by specific statutes or jurisprudence.

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2. Movable Property (Personal Property)

Defined under Article 416 of the Civil Code, movable property includes:

1. All Things Susceptible to Manual Delivery
   • Tangible goods such as furniture, books, and vehicles.
2. Forces of Nature Appropriated by Industry
   • Includes electricity, gas, and other energy sources that are subject to control and commercialization.
3. Rights and Obligations
   • Rights over credit instruments or negotiable documents.

Movable property also includes anything not classified as immovable.

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C. Classification by Ownership

1. Public Property (Dominio Público)
   • Property owned by the State or government, intended for public use (e.g., roads, bridges, rivers).
   • Public domain property is governed by special laws.
2. Private Property (Dominio Privado)
   • Property owned by private individuals or entities.
   • Includes patrimonial property of the State not devoted to public use.

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D. Classification by Use

1. Property for Public Use
   • Roads, canals, ports, and public squares used freely by the general population.
2. Patrimonial Property
   • Property owned by the State but not devoted to public use or public service.
3. Property for Private Use
   • Owned by individuals or corporations.

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E. Distinction Based on Susceptibility to Appropriation

1. Res Nullius (Property without an Owner)
   • Includes items like wild animals or abandoned property.
2. Res Communes (Property Common to All)
   • Examples include the high seas and air, which cannot be privately owned.

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F. Classification Based on Legal Function

1. Consumable vs. Non-Consumable
   • Consumable: Property that deteriorates or is consumed through use (e.g., food, money).
   • Non-Consumable: Property that does not perish through use (e.g., houses, machinery).
2. Fungible vs. Non-Fungible
   • Fungible: Interchangeable property based on quantity and quality (e.g., grain, money).
   • Non-Fungible: Unique property with specific value or character (e.g., works of art, heirlooms).

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G. Special Categories

1. Intellectual Property
   • Classified as incorporeal personal property, governed by special laws such as the Intellectual Property Code of the Philippines (RA 8293).
2. Cultural and Historical Properties
   • Items classified as part of the cultural heritage of the Philippines, regulated under laws like the National Cultural Heritage Act (RA 10066).

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H. Legal Implications of Classification

• Immovable Property:

  • Subject to registration under the Torrens system (Property Registration Decree).
  • Easements and servitudes may attach to them.

• Movable Property:

  • Governed by possession and transfer rules that are less rigid than for immovables.

• Public vs. Private Property:

  • Public property cannot be alienated unless reclassified as patrimonial.
  • Private property enjoys constitutional protection from undue seizure (e.g., eminent domain).

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I. Modification of Property Classifications

1. Modes of Acquisition
   • Occupation, succession, donation, or prescription can modify ownership and classifications.
2. Transformation of Property
   • Trees (immovable) may become movable upon cutting.
   • Materials in a building become immovable upon integration with the structure.

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This detailed classification reflects the Civil Code’s intent to delineate property in terms of its nature, ownership, and legal implications, ensuring clarity in transactions and disputes. Mastery of these classifications is critical for resolving legal issues involving ownership and property rights.

Requisites | Property | PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

CIVIL LAW: PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

A. Property

1. Requisites

Property is a fundamental concept under Philippine civil law. It encompasses the rights and obligations regarding the ownership, possession, use, and disposition of things. Article 414 of the Civil Code of the Philippines classifies property into two general categories: movable and immovable. The requisites for property under the law are as follows:

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I. Requisites for Property to Exist

1. Substance or Existence in Reality

   • The object must exist physically or at least be capable of coming into existence. Future things (e.g., future goods) may still be subject to ownership, but they must be identifiable and have a potential to exist.

2. Utility or Usefulness

   • The thing must be capable of satisfying a need or giving some benefit to humans, whether directly (e.g., a house for shelter) or indirectly (e.g., a machine for production). If a thing lacks utility, it cannot be the object of property rights.

3. Subjection to Human Control or Appropriation

   • The thing must be susceptible to control, dominion, or appropriation by a person or entity. For example:
     • Air in the atmosphere is not subject to ownership unless captured or confined in a manner that subjects it to human control.
     • Certain resources like water or minerals may be subject to regulatory laws but remain capable of appropriation under specified conditions.

4. Lawfulness

   • The object must not be outside the commerce of man. This includes:
     • Things prohibited by law (e.g., illegal drugs, contraband).
     • Things not susceptible to private appropriation (e.g., res communes like open seas).
     • Things dedicated to public use or service, unless their appropriation is authorized by law.

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II. Classification of Property

1. Immovable Property (Real Property)
   Under Article 415 of the Civil Code, immovable property includes:

   • Land, buildings, roads, and constructions adhered to the soil.
   • Trees, plants, and growing fruits as long as they are attached to the ground.
   • Everything attached to an immovable property in a fixed manner (e.g., machinery installed for industry or commerce).
   • Dikes and dams intended for permanent use.

   Significance:

   • Subject to formal requirements in transfer (e.g., written contract, registration with the Registry of Deeds).
   • Governed by rules on accretion, accession, and adverse possession specific to immovables.

2. Movable Property (Personal Property)
   Article 416 defines movable property as all things not classified as immovables. Examples:

   • Tangible: Furniture, jewelry, cars.
   • Intangible: Shares of stock, credits, intellectual property.

   Significance:

   • Simpler rules for transfer (e.g., delivery or symbolic acts).
   • Movables are susceptible to pledge and chattel mortgage.

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III. Ownership and Rights Over Property

1. Ownership Defined
   Article 427 states that ownership is the independent right to enjoy and dispose of a thing, without restrictions other than those imposed by law or contract.

2. Characteristics of Ownership

   • Plenary: It encompasses all rights to the thing, including possession, use, enjoyment, and disposition.
   • Perpetual: Ownership subsists until extinguished by law (e.g., prescription, expropriation).
   • Exclusive: Ownership is generally exclusive unless shared (e.g., co-ownership).

3. Bundle of Rights (Article 428)

   • Jus utendi (right to use).
   • Jus fruendi (right to fruits).
   • Jus abutendi (right to consume or dispose).
   • Jus disponendi (right to transfer or alienate).
   • Jus vindicandi (right to recover possession or ownership).

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IV. Modes of Acquiring Property

1. Original Modes

   • Occupation: Acquisition of res nullius (things without an owner, like wild animals or abandoned property).
   • Intellectual Creation: Copyright over original works of authorship.

2. Derivative Modes

   • Tradition or Delivery: Transfer of ownership through delivery (actual, constructive, or symbolic).
   • Succession: Ownership passed through inheritance.
   • Law: Acquisition by legal mandate (e.g., accretion, prescription).
   • Contracts: Sale, barter, donation.

3. Other Special Modes

   • Expropriation: Taking by the State for public use, with just compensation.
   • Adverse Possession (Prescription): Ownership acquired through continuous possession for a period defined by law (e.g., 10 years for good faith possession, 30 years for bad faith).

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V. Modifications to Ownership and Property Rights

1. Accession

   • Extensions or additions to property resulting from natural or artificial means (e.g., alluvium, avulsion).

2. Co-ownership

   • Multiple persons share ownership over a single property. Governed by Articles 484 to 501 of the Civil Code.

3. Limitations on Ownership

   • Police Power: Zoning, environmental regulations.
   • Taxation: Real property tax, estate tax.
   • Eminent Domain: State’s power to take private property for public use.
   • Servitudes or Easements: Rights imposed on property for the benefit of another property or person.

4. Public vs. Private Property

   • Public property includes those intended for public use or owned by the State in its governmental capacity.
   • Private property refers to all other property owned by individuals, corporations, or the State in a proprietary capacity.

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VI. Relevant Jurisprudence

1. Heirs of Malabanan v. Republic (G.R. No. 179987, 2009)

   • Clarified rules on reclassification and ownership of lands of public domain.

2. Republic v. Court of Appeals and Naguit (G.R. No. 144057, 2005)

   • Addressed requirements for conversion of public land into private ownership.

3. Tan v. Valdehueza (G.R. No. 149085, 2006)

   • Emphasized the distinction between possession and ownership in adverse possession cases.

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This framework ensures a robust understanding of property requisites under Philippine civil law.

Property | PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

CIVIL LAW: PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

A. Property

I. Definition of Property

Under the Civil Code of the Philippines, property refers to all things that are or may be the object of appropriation. Property is classified based on ownership, use, and characteristics, as described below.

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II. Classification of Property

1. According to Ownership:

   • Public Property:
     • Owned by the State or its political subdivisions.
     • For public use (e.g., roads, bridges, plazas).
     • For government service (e.g., government buildings, military installations).
   • Private Property:
     • Owned by private individuals or entities.
     • Includes personal and real property not designated for public use.

2. According to Nature:

   • Real Property (Immovable):
     • Defined under Article 415 of the Civil Code.
     • Includes land, buildings, roads, trees, and other immovable structures attached to the land.
   • Personal Property (Movable):
     • Defined under Article 416.
     • Includes all things that can be transported from one place to another without altering their substance.

3. According to Purpose:

   • Consumable Property:
     • Goods that are consumed or extinguished upon use (e.g., food, fuel).
   • Non-Consumable Property:
     • Goods that can be used repeatedly without being consumed (e.g., furniture, tools).

4. According to Susceptibility of Appropriation:

   • Common Property:
     • Things owned by all, such as air, the high seas, and sunlight.
   • Res Nullius:
     • Things that have no owner but can be appropriated, such as wild animals or abandoned property.

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III. Ownership (Articles 427–440, Civil Code)

1. Definition and Attributes:

   • Ownership is the right to enjoy, dispose, and exclude others from property.
   • It includes the right to the fruits and accessories of the property (Article 428).

2. Limitations on Ownership:

   • Must respect the rights of others (Article 429).
   • Subject to laws, such as zoning laws, taxation, and public welfare regulations.

3. Modes of Acquiring Ownership:

   • Original Modes:
     • Occupation.
     • Intellectual creation.
   • Derivative Modes:
     • Through contracts, succession, donation, prescription, and accession.

4. Rights and Obligations:

   • The owner has the right to recover property from any unlawful possessor (Article 428).
   • Must use property responsibly and prevent damage to others.

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IV. Modifications of Ownership

1. Co-ownership (Articles 484–501):

   • Arises when ownership is shared by two or more persons.
   • Each co-owner holds an undivided interest in the property.
   • Partition may be demanded unless prohibited by agreement or law.

2. Usufruct (Articles 562–612):

   • The right to enjoy the use and fruits of property owned by another.
   • Usufructuary must preserve the property and return it upon termination of the usufruct.

3. Easements (Articles 613–651):

   • Encumbrances imposed on a property for the benefit of another (e.g., right of way).
   • Created by law, contract, or prescription.

4. Lease (Articles 1642–1676):

   • Temporary use of property by another under agreed conditions.
   • Lessors retain ownership but transfer possession and use.

5. Trusts:

   • Legal arrangement wherein ownership is separated from benefit.
   • Governed by special laws.

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V. Public Property (Articles 420–425)

1. Definition and Scope:

   • Public property is for public use or service and cannot generally be alienated.

2. Disposition and Use:

   • State property can only be alienated under conditions provided by law (e.g., public bidding).
   • Property of public dominion cannot be acquired through prescription.

3. Reclassification of Public Property:

   • Public property may become patrimonial if explicitly declared by the government (Article 422).

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VI. Private Property

1. Acquisition:

   • Through modes such as sale, donation, inheritance, or prescription.

2. Loss of Ownership:

   • By abandonment, prescription, or destruction of the property.

3. Protection of Rights:

   • Remedies include replevin, action for damages, and recovery of possession.

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VII. Accession (Articles 440–465)

1. Definition:

   • Accession refers to the right of the owner to all that is produced by, incorporated, or attached to their property.

2. Types:

   • Accession Discreta: Refers to natural or industrial fruits.
   • Accession Continua: Refers to improvements or additions to immovable property (e.g., buildings, plants).

3. Rules:

   • Ownership of improvements belongs to the owner of the principal property unless otherwise agreed upon.

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VIII. Possession (Articles 523–561)

1. Definition:

   • Possession is the holding or control of property with the intention of ownership.

2. Kinds:

   • In Good Faith: Belief in lawful ownership.
   • In Bad Faith: Awareness of lack of ownership.

3. Acquisition and Loss:

   • Possession may be acquired by material holding or intention.
   • Lost through abandonment, destruction, or transfer to another.

4. Legal Effects:

   • Possessors in good faith are entitled to fruits and improvements.
   • Possessors in bad faith must return the property and pay damages.

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IX. Prescription (Articles 1106–1155)

1. Definition:

   • Prescription is a mode of acquiring or losing property through the passage of time.

2. Kinds:

   • Acquisitive Prescription:
     • Ordinary: Possession in good faith and with just title for ten years.
     • Extraordinary: Continuous possession for 30 years.
   • Extinctive Prescription:
     • Bars claims to property after the lapse of the statutory period.

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This comprehensive treatment of property under Philippine Civil Law provides a meticulous guide to understanding its scope, classification, ownership rights, and legal implications.

PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

CIVIL LAW: PROPERTY, OWNERSHIP, AND ITS MODIFICATIONS

1. Definition and Scope of Property

• Property refers to anything that can be owned, possessed, or controlled, whether tangible or intangible.
• In the Philippines, property is governed by the Civil Code, primarily under Book II: Property, Ownership, and its Modifications (Articles 414-710).
• Classifications of Property:
  • Movable (Personal Property): Can be transported from place to place without impairing its essence.
  • Immovable (Real Property): Cannot be moved without altering its form, such as land and buildings.

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2. Kinds of Property

1. By Ownership or Title:

   • Public Dominion Property (Article 420):
     • Owned by the State and intended for public use or service (e.g., roads, rivers).
   • Private Property (Article 421):
     • Owned by private individuals or entities, including patrimonial property of the State.

2. By Nature (Articles 415–418):

   • Immovable Property:
     • Land, buildings, roads, constructions adhered to the soil.
     • Trees, plants, and growing crops attached to the land.
     • Machinery, tools, and other items intended for industry or works.
   • Movable Property:
     • All things not classified as immovable, including money, jewelry, vehicles.

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3. Ownership

• Definition (Article 427):
  • Ownership is the independent right of a person to enjoy and dispose of a thing, including its fruits and accessories, without limitations other than those imposed by law or contract.
• Attributes of Ownership:
  • Right to Enjoy (jus utendi): Use and benefit from the property.
  • Right to Dispose (jus disponendi): Sell, donate, or transfer ownership.
  • Right to Recover (jus vindicandi): Reclaim possession from unlawful holders.

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4. Modes of Acquiring Ownership

Ownership can be acquired through various means:

1. Original Acquisition:

   • Occupation (Article 712):
     • Acquisition of things without an owner (e.g., fishing, hunting).
   • Intellectual Creation:
     • Ownership of intellectual property by the author or inventor.

2. Derivative Acquisition:

   • Succession:
     • Through inheritance, will, or intestate succession.
   • Donation:
     • Gratuitous transfer of property.
   • Tradition:
     • Delivery of the thing in sale, barter, or donation.

3. Other Modes:

   • Prescription (Article 1106):
     • Acquiring ownership or rights through continuous possession for a prescribed period.
   • Accession (Article 440):
     • Acquisition of property by natural or artificial means (e.g., alluvium, accretion).

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5. Modifications of Ownership

1. Co-Ownership (Articles 484–501):

   • Exists when the ownership of a thing or right belongs to two or more persons.
   • Key Features:
     • Shares are presumed equal unless proved otherwise.
     • Co-owners have the right to use and enjoy the thing in proportion to their shares.
     • Partition can be demanded unless prohibited by law or agreement.

2. Usufruct (Articles 562–612):

   • Right to enjoy the property of another with the obligation of preserving its form and substance.
   • Rights of the Usufructuary:
     • Right to fruits, use, and enjoyment.
   • Obligations:
     • Return the property after the usufruct ends.
     • Pay necessary expenses for maintenance.

3. Easements or Servitudes (Articles 613–707):

   • A burden imposed on an immovable for the benefit of another immovable or person.
   • Types:
     • Positive Easement: Requires the owner of the servient estate to allow something (e.g., right of way).
     • Negative Easement: Restrains the owner of the servient estate from doing something (e.g., prohibition on building height).

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6. Extinguishment of Ownership

Ownership may be extinguished through:

• Loss or destruction of the thing.
• Abandonment by the owner.
• Transfer to another by sale, donation, or other conveyance.
• Expropriation for public use, with just compensation.

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7. Public and Private Property

1. Public Property:

   • Characteristics:
     • Cannot be appropriated.
     • Regulated by laws on public dominion.
   • Examples: Public roads, plazas, rivers.

2. Private Property:

   • Subject to ownership and rights of individuals or juridical entities.
   • Governed by private property laws.

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8. Conflicts and Remedies

• Legal Remedies:

  • Acción Reivindicatoria: Action to recover ownership.
  • Acción Publiciana: Recovery of possession based on better right.
  • Acción Interdictal: Ejectment to recover physical possession.

• Limitation on Ownership:

  • Taxation.
  • Police power for regulation.
  • Eminent domain (compulsory acquisition with compensation).

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9. Emerging Issues in Property Law

• Digital and Intellectual Property:
  • Governed by specialized laws like the Intellectual Property Code (R.A. 8293).
• Environmental Restrictions:
  • Laws like the Philippine Environmental Code impose limitations on ownership for ecological balance.

Conclusion

Philippine property law integrates traditional principles of ownership with modern innovations and legal frameworks. Understanding the nuances of property rights and their modifications is critical for both individuals and entities. Always seek legal advice for specific property concerns.

Right of Redemption | Real Estate Mortgage | CREDIT TRANSACTIONS

Right of Redemption in Real Estate Mortgage (Philippine Law)

The Right of Redemption in the context of a real estate mortgage is a statutory privilege granted to a mortgagor (or other interested parties) to redeem a foreclosed property within a specified period and under certain conditions. This legal principle is embodied in the Civil Code of the Philippines, Special Laws, and jurisprudence.

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Key Provisions and Principles

1. Legal Basis

• Civil Code of the Philippines: The Civil Code provides general rules on obligations, contracts, and mortgages.
• Act No. 3135 (Act to Regulate the Sale of Property under Special Powers Inserted in or Annexed to Real-Estate Mortgages): Governs the foreclosure of real estate mortgages and prescribes the right of redemption in extrajudicial foreclosure sales.
• Rules of Court: Relevant for judicial foreclosure and redemption.
• Jurisprudence: Numerous Supreme Court decisions elaborate on the nuances of the right of redemption.

2. When the Right of Redemption Applies

• Judicial Foreclosure: If the mortgagee forecloses the property through a judicial action, the right of redemption is recognized.
• Extrajudicial Foreclosure: When a property is foreclosed without court involvement under Act No. 3135, the right of redemption applies, but subject to conditions set in the statute.

3. Nature of the Right

• Statutory in Nature: The right of redemption is not inherent but conferred by law, and its exercise must strictly comply with statutory requirements.
• Time-Bound: Redemption can only be exercised within a specified period, failing which the right is lost.
• Equitable Considerations: Courts may interpret redemption rules liberally in favor of the mortgagor to prevent unjust enrichment.

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Specific Rules and Periods

A. Judicial Foreclosure (Rule 68, Rules of Court)

• The right of redemption exists until the confirmation of the sale by the court.
• The period to redeem is governed by the terms set forth in the judicial decree and applicable laws.
• Redemption requires payment of:
  • The purchase price at the foreclosure sale.
  • Interest at the legal rate from the date of sale.
  • Other lawful expenses incurred by the purchaser.

B. Extrajudicial Foreclosure (Act No. 3135, as amended by Act No. 4118)

• The right of redemption exists within one year from the registration of the certificate of sale with the Registry of Deeds.
• To redeem, the debtor or interested party must pay:
  • The amount of the winning bid during the foreclosure auction.
  • Interest at the rate of 1% per month.
  • All other costs and expenses incurred in maintaining the property (e.g., taxes).
• If redemption is not made within the period, the purchaser can consolidate ownership.

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Who May Exercise the Right of Redemption?

• Original Mortgagor: The borrower whose property was foreclosed.
• Successors-in-Interest: Such as heirs, assigns, or other persons acquiring the mortgagor’s rights.
• Judgment Creditors: Those who have obtained a judgment lien on the foreclosed property.
• Third Parties with Interest: Others with a legally recognizable interest in the foreclosed property.

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Effects of Redemption

• Cancellation of Sale: Redemption extinguishes the purchaser’s rights and restores the mortgagor’s ownership.
• Return of Title: The property is returned free of any liens arising from the foreclosure process.
• Obligation Extinguished: The mortgagor’s obligation to pay the mortgage debt is deemed settled upon full redemption.

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Loss of the Right of Redemption

• Non-Exercise Within the Prescriptive Period: The right of redemption expires by operation of law if not exercised within the statutory period.
• Waiver: Voluntary relinquishment of the right, explicitly or impliedly, bars its exercise.
• Consolidation of Ownership: After the lapse of the redemption period, the purchaser may file for consolidation of ownership, rendering the sale final.

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Prohibitions and Limitations

• Waiver of Right of Redemption Before Sale: Any stipulation waiving the right of redemption prior to foreclosure is void as it contravenes public policy.
• Unlawful Conditions: A mortgagee cannot impose additional conditions that effectively impede the exercise of the right of redemption.
• Good Faith Requirement: Redemption must not be used as a tool to defraud or disadvantage the purchaser.

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Notable Jurisprudence

• Sulit v. CA (268 SCRA 441): Clarified that redemption is a substantive right that courts should uphold in favor of the mortgagor when doubt exists.
• Union Bank v. Court of Appeals (294 SCRA 489): Held that payment of the redemption price must strictly adhere to statutory computation to be valid.
• Gomez v. CA (405 SCRA 366): Emphasized the necessity of registering the certificate of sale to trigger the redemption period.
• Barrozo v. CA (353 SCRA 487): Recognized the equitable nature of redemption and highlighted its role in preserving ownership rights.

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Practical Considerations

• Timely Action: Mortgagors must act quickly to determine the redemption period and ensure compliance with payment conditions.
• Documentation: Accurate records of payments, taxes, and foreclosure proceedings are critical for exercising the right of redemption.
• Legal Assistance: Navigating the nuances of redemption often requires professional legal guidance.

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By understanding these provisions and observing due diligence, parties can effectively exercise their right of redemption or defend their interests in foreclosure proceedings.

Foreclosure | Real Estate Mortgage | CREDIT TRANSACTIONS

CIVIL LAW > VIII. CREDIT TRANSACTIONS > D. Real Estate Mortgage > 3. Foreclosure

Foreclosure of Real Estate Mortgage involves the process of enforcing the rights of a mortgagee (creditor) when the mortgagor (debtor) fails to fulfill their obligations under a real estate mortgage agreement. This remedy aims to satisfy the mortgage debt through the sale of the mortgaged property. Below is a comprehensive discussion of the foreclosure process, types, legal principles, remedies, and jurisprudence in the Philippine legal context.

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I. NATURE OF FORECLOSURE

Foreclosure is a legal proceeding by which the mortgagee obtains the authority to sell the mortgaged property to satisfy a secured debt. The property acts as collateral, and foreclosure allows recovery of the loan amount in case of default.

Key Features of a Real Estate Mortgage:

1. Accessory Obligation: A mortgage is ancillary to the principal obligation (loan or credit).
2. Real Right: A mortgage creates a real right enforceable against third persons when duly registered.
3. Indivisibility: The mortgage subsists in its entirety until the debt is fully satisfied.

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II. TYPES OF FORECLOSURE

Under Philippine law, there are two types of foreclosure applicable to real estate mortgages:

1. Judicial Foreclosure

• Initiated through a court proceeding.
• Governed by Rule 68 of the Rules of Court.
• Procedure:
  1. Filing of a verified complaint by the mortgagee.
  2. Hearing and determination of the amount due.
  3. Issuance of a judgment by the court ordering the sale of the property.
  4. Sale of the property at public auction.
  5. Application of proceeds to the mortgage debt.
  6. Issuance of a Certificate of Sale to the winning bidder.
• Right of Redemption: The mortgagor or a junior lienholder may redeem the property within one year from the date of registration of the Certificate of Sale.

2. Extrajudicial Foreclosure

• Done without court intervention.
• Governed by Act No. 3135, as amended by Act No. 4118.
• Procedure:
  1. The mortgagee issues a notice of default and demands payment.
  2. The mortgagee files a petition with a Notary Public or the Register of Deeds.
  3. Publication of the Notice of Sale in a newspaper of general circulation once a week for three consecutive weeks.
  4. Posting of the Notice of Sale in a conspicuous public place.
  5. Conduct of the auction sale by the Sheriff or Notary Public.
  6. Issuance of a Certificate of Sale to the highest bidder.
• Equity of Redemption: The mortgagor may redeem the property before the sale is finalized.

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III. DISTINCTION BETWEEN EQUITY OF REDEMPTION AND RIGHT OF REDEMPTION

1. Equity of Redemption:
   • Available in both judicial and extrajudicial foreclosures.
   • Refers to the mortgagor’s right to settle the mortgage debt before the foreclosure sale.
2. Right of Redemption:
   • Exclusive to judicial foreclosures.
   • Allows the mortgagor or any interested party to repurchase the property within one year after the auction sale.

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IV. LEGAL REQUIREMENTS AND PROCEDURAL CONSIDERATIONS

1. Valid Mortgage Agreement

• The real estate mortgage must:
  • Be in writing and comply with the Statute of Frauds.
  • Be registered with the Register of Deeds to bind third parties.

2. Notice Requirements

• Notices must strictly comply with statutory requirements to protect the mortgagor’s rights.
• Defects in notice (e.g., improper publication or posting) render the foreclosure void.

3. Compliance with Publication

• Extrajudicial foreclosures require:
  • Publication in a newspaper of general circulation.
  • Strict adherence to publication timelines.

4. Deficiency Judgment

• If the foreclosure sale proceeds are insufficient to cover the mortgage debt, the mortgagee may file for a deficiency judgment to recover the balance.
• This applies to both judicial and extrajudicial foreclosures.

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V. DEFENSES AGAINST FORECLOSURE

1. Payment or Satisfaction of Debt: Proves that the mortgage obligation has been discharged.
2. Defects in the Mortgage Contract: Challenges the validity of the mortgage (e.g., fraud, lack of consideration).
3. Improper Notice or Publication: Raises procedural defects in the foreclosure process.
4. Tender of Payment: Asserts that the mortgagor offered to pay the debt but was refused by the mortgagee.

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VI. RELEVANT JURISPRUDENCE

1. Sulit v. CA (G.R. No. 116599):

   • Strict compliance with notice and publication requirements is mandatory in extrajudicial foreclosure.

2. Development Bank of the Philippines v. Licuanan (G.R. No. 158498):

   • Failure to comply with procedural requisites invalidates the foreclosure sale.

3. Consolidated Bank and Trust Corporation v. CA (G.R. No. 138569):

   • A mortgagor may assert a lack of demand as a defense in judicial foreclosures.

4. Union Bank v. SPS. Santibañez (G.R. No. 149926):

   • Clarifies the application of the right of redemption in judicial foreclosures.

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VII. TAX IMPLICATIONS

1. The winning bidder assumes liability for capital gains tax (if not a financial institution).
2. Documentary stamp taxes and transfer fees apply during the sale and registration process.

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VIII. PRACTICAL CONSIDERATIONS

1. Consolidation of Title:

   • After foreclosure and expiration of the redemption period, the mortgagee must consolidate ownership by registering the Certificate of Sale.

2. Possession of Property:

   • The mortgagee may seek a writ of possession after consolidation, provided the foreclosure was valid.

3. Consumer Protection:

   • The Maceda Law (R.A. 6552) offers additional protections for buyers of real estate on installment who are subject to foreclosure.

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IX. CONCLUSION

Foreclosure of real estate mortgage is a remedy designed to balance the rights of creditors and debtors. Compliance with statutory and procedural requirements is essential to ensure its validity. Courts meticulously scrutinize the process to protect the interests of both parties, and any procedural lapses may nullify the foreclosure proceedings. Legal practitioners must exercise diligence in observing the statutory requirements and advocating for their clients' interests.

Characteristics | Real Estate Mortgage | CREDIT TRANSACTIONS

Characteristics of a Real Estate Mortgage under Civil Law

A Real Estate Mortgage (REM) is a contract whereby the debtor secures an obligation by subjecting immovable property (real estate) to the fulfillment of such obligation, without transferring ownership. Below are the detailed characteristics of an REM as governed by Philippine Civil Law:

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1. Accessory Contract

• A real estate mortgage is an accessory contract, meaning it cannot exist independently but depends on the principal obligation it secures.
• If the principal obligation is extinguished, the mortgage is likewise extinguished (Article 1231, Civil Code).

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2. Real Right

• Once registered, a real estate mortgage creates a real right over the immovable property.
• This real right follows the property, regardless of who possesses it (principle of lex rei sitae).

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3. Formal Contract

• The real estate mortgage must comply with the formal requirements of law to be valid:
  • It must be in writing (Article 2125, Civil Code).
  • If it involves properties required by law to be registered, it must also be registered with the Register of Deeds to bind third parties.
  • Lack of registration makes the mortgage valid only between the contracting parties but not against third persons (Article 2125).

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4. Non-Transfer of Ownership

• Ownership of the mortgaged property remains with the mortgagor.
• The creditor (mortgagee) only has the right to foreclose and sell the property in case of default.

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5. Indivisibility

• The mortgage is indivisible, meaning:
  • It subsists as a whole over the entire property even if the debt is partially paid (Article 2089, Civil Code).
  • Partial satisfaction of the debt does not correspondingly extinguish the mortgage over any specific portion of the property.
• This principle ensures that the mortgagee’s security is not compromised until full payment.

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6. Right to Foreclose

• In case of default, the creditor may foreclose the mortgage to satisfy the obligation.
• Foreclosure may be judicial (through court proceedings) or extrajudicial (pursuant to Act No. 3135, as amended by Act No. 4118).

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7. Limitation to Obligation Secured

• A mortgage is merely a security for an obligation; it does not create or give rise to a debt.
• The debt or principal obligation must exist independently of the mortgage.

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8. Special Rule on Future Obligations

• A mortgage may secure future advancements or obligations stipulated in the agreement, provided the advancements or obligations are clearly contemplated in the contract (Article 2126).

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9. Right of Redemption

• In cases of extrajudicial foreclosure, the mortgagor retains a right of redemption under Act No. 3135.
  • Redemption must be exercised within one year from the date of registration of the certificate of sale.
• In judicial foreclosures, the period of redemption is determined by the rules of court and typically exists until the court's confirmation of the sale.

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10. Coverage of Immovables

• Only immovable property (e.g., land, buildings) and their accessories may be subject to a real estate mortgage.
• The accessories include natural fruits, industrial fruits, and civil fruits if stipulated (Article 2127).

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11. Stipulations Not Contrary to Law

• Parties may freely stipulate terms in the contract, provided these are not contrary to law, morals, good customs, public order, or public policy (Article 1306, Civil Code).
• Pactum commissorium (automatic appropriation of the mortgaged property by the creditor in case of default) is prohibited and void (Article 2088).

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12. Requirement of Default

• The mortgagee’s right to foreclose only arises upon the debtor’s default in fulfilling the obligation.

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13. No Deficiency Judgment in Extrajudicial Foreclosure

• In extrajudicial foreclosures, if the proceeds of the sale are insufficient to cover the debt, the mortgagee is prohibited from recovering the deficiency through personal action against the debtor unless the mortgagor is a juridical person (Act No. 3135).

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14. Priority of Claims

• The mortgagee has a preferential right over the proceeds of the foreclosure sale.
• If multiple mortgages exist, the priority is determined by the order of registration in the Register of Deeds.

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15. Extinguishment of Mortgage

A real estate mortgage is extinguished upon:

• Full payment or performance of the obligation.
• Abandonment or cancellation of the mortgage contract.
• Foreclosure and exhaustion of the mortgaged property.

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16. Applicability of General Provisions on Obligations and Contracts

• General principles on obligations and contracts apply, including rules on:
  • Consent, object, and cause (essential requisites of a contract).
  • Nullity of contracts that lack essential elements or violate prohibitory laws.

By understanding these characteristics, parties can properly structure a real estate mortgage contract while ensuring compliance with Philippine Civil Law.

Requisites | Real Estate Mortgage | CREDIT TRANSACTIONS

CIVIL LAW

VIII. CREDIT TRANSACTIONS

D. Real Estate Mortgage

1. Requisites

A real estate mortgage is a contract whereby the debtor or a third person secures the performance of an obligation by subjecting immovable property or real rights over immovable property to the fulfillment of the obligation, with the condition that if the obligation is not fulfilled, the creditor may cause the property to be sold in a public auction and apply the proceeds to the satisfaction of the debt. The governing provisions can be found under the Civil Code of the Philippines, specifically Articles 2085 to 2123.

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Requisites of a Real Estate Mortgage

A. Essential Requisites

1. Principal Obligation Must Be Valid

   • The mortgage is an accessory contract, meaning there must be a valid principal obligation (e.g., a loan, debt, or any obligation secured by the mortgage).
   • If the principal obligation is void, the mortgage is also void. However, if the principal obligation is merely voidable or unenforceable, the mortgage may still be enforced until annulled or declared void.

2. The Mortgagor Must Have Free Disposal of the Property or Legal Authority to Constitute the Mortgage

   • The mortgagor must own the property being mortgaged or be authorized to mortgage it, as ownership or legal authority is necessary to create a valid lien.
   • A co-owner may only mortgage their undivided share unless consent from other co-owners is obtained.

3. Subject Matter Must Be Determinate Immovable Property or Real Rights Over Immovables

   • The property must be identifiable and must consist of:
     • Immovable property (e.g., land, buildings); or
     • Real rights over immovables (e.g., usufruct, easement).
   • The property must also be alienable, meaning it cannot be subject to prohibitions against alienation or encumbrance (e.g., public lands or properties subject to a prohibition under special laws).

4. Formal Requirements (Article 2125, Civil Code)

   • The mortgage must be constituted in a public instrument.
   • It must be registered with the Registry of Property to bind third parties.
   • Absence of registration does not render the mortgage void but merely makes it ineffective against third parties.

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B. Special Requisites

1. Stipulation on Redemption

   • There can be no pactum commissorium (automatic appropriation of the mortgaged property by the creditor in case of default), as this is expressly prohibited by law (Article 2088, Civil Code).
   • Redemption periods for mortgages are governed by special laws, such as the General Banking Law or Maceda Law, depending on the nature of the loan and debtor.

2. Obligations Secured Must Be Future, Past, or Contingent

   • A mortgage may secure obligations already existing, future obligations (e.g., credit lines), or contingent obligations.
   • Future obligations must be specified or determinable, and the contract must clearly indicate this intent.

3. Indivisibility of the Mortgage

   • The mortgage is indivisible (Article 2089, Civil Code). This means that even if the debt is partially paid, the mortgage subsists until the entire obligation is satisfied unless expressly stipulated otherwise.
   • This rule does not apply to divisible obligations when the property mortgaged is physically divisible and there is express agreement allowing division.

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C. Effects of Non-Compliance with Requisites

1. As to Non-Registration

   • If the mortgage is not registered, it is valid and binding between the parties but not against third parties.
   • Unregistered mortgages cannot prejudice subsequent purchasers or encumbrancers in good faith.

2. As to Lack of Public Instrument

   • If the mortgage is not in a public instrument, it is void.

3. As to Lack of Ownership or Legal Authority

   • If the mortgagor is not the owner or lacks authority, the mortgage is void, but it may give rise to an action for damages if there was bad faith or fraud.

4. As to Invalidity of the Principal Obligation

   • A void principal obligation renders the mortgage void. However, a voidable or unenforceable obligation does not automatically void the mortgage.

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Legal Effects of Real Estate Mortgage

Rights of the Mortgagee (Creditor)

1. Right to Foreclose

   • In case of default by the mortgagor, the mortgagee may file for foreclosure to sell the property in a public auction.

2. Right to Apply Proceeds to the Debt

   • The mortgagee has a preference to apply the proceeds of the sale to the satisfaction of the debt.

3. Right to Retain Lien Until Obligation Is Fully Satisfied

   • The mortgage subsists until the obligation is fully paid, regardless of partial payments.

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Rights and Obligations of the Mortgagor (Debtor)

1. Right to Possession

   • The mortgagor retains possession of the property unless otherwise stipulated.

2. Right of Redemption

   • Redemption rights are governed by the terms of the mortgage or by law (e.g., one-year redemption period under the Rules of Court for judicial foreclosures).

3. Obligation to Pay the Principal Debt

   • The mortgagor must fulfill the principal obligation to extinguish the mortgage.

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Foreclosure of Mortgage

1. Judicial Foreclosure

   • Initiated by filing a court case; governed by Rule 68 of the Rules of Court.
   • The mortgagor has a one-year redemption period from the date of registration of the certificate of sale.

2. Extrajudicial Foreclosure

   • Allowed if there is a special power of attorney in the mortgage contract.
   • Governed by Act No. 3135 (as amended by Act No. 4118).
   • Redemption period depends on whether the mortgage involves a natural person or a juridical entity.

3. Deficiency Judgment

   • If the proceeds of the foreclosure sale are insufficient to satisfy the debt, the creditor may file an action for the deficiency unless otherwise stipulated.

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This comprehensive framework ensures that all legal requisites and effects surrounding real estate mortgages in the Philippines are meticulously applied and adhered to, safeguarding the interests of both creditors and debtors.

Real Estate Mortgage | CREDIT TRANSACTIONS

CIVIL LAW > VIII. CREDIT TRANSACTIONS > D. REAL ESTATE MORTGAGE

A Real Estate Mortgage (REM) is a contractual arrangement where the owner of real property (the mortgagor) grants a security interest over the property in favor of a creditor (the mortgagee) to secure the performance of a principal obligation. This is governed by Articles 2085 to 2123 of the Civil Code of the Philippines and pertinent jurisprudence.

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I. ESSENTIAL REQUISITES OF A REAL ESTATE MORTGAGE

Under Article 2085, the following requisites must be present for a mortgage to be valid:

1. Existence of a Principal Obligation
   The mortgage is merely an accessory contract, meaning it cannot exist without a valid principal obligation (e.g., loan or debt).

   • If the principal obligation is void, the mortgage is also void.
   • However, the nullity of the mortgage does not necessarily affect the validity of the principal obligation.

2. Ownership of the Mortgaged Property
   The mortgagor must own the property or have the authority to encumber it.

   • Third-party mortgages are allowed where the mortgagor is not the debtor but consents to encumber their property as security for another’s obligation.

3. Compliance with Formal Requirements

   • Form: Under Article 1358, a contract creating a mortgage must appear in a public instrument.
   • Registration: The mortgage must be registered in the Register of Deeds to bind third parties under the Property Registration Decree (P.D. 1529). Without registration, the mortgage is valid only between the contracting parties.

4. Specification of Obligation Secured
   The obligation secured by the mortgage must be clearly stated. Ambiguities in the amount or scope of the obligation may render the mortgage unenforceable.

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II. RIGHTS AND OBLIGATIONS OF PARTIES

A. Mortgagor (Owner of the Property)

1. Right to Possess the Property
   The mortgagor retains possession of the mortgaged property unless there is a contrary stipulation (Article 2128).

2. Obligation to Pay the Principal Obligation
   The mortgagor must ensure compliance with the obligation secured by the mortgage.

3. Prohibition Against Alienation Without Consent
   The mortgagor cannot validly sell or encumber the mortgaged property without the mortgagee’s consent, if stipulated.

B. Mortgagee (Creditor)

1. Right to Foreclosure
   If the principal obligation is breached, the mortgagee has the right to foreclose the mortgage, either judicially or extrajudicially.

2. Obligation to Return the Title
   Upon full payment of the obligation, the mortgagee must cancel the mortgage and return the certificate of title to the mortgagor.

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III. REGISTRATION OF MORTGAGE

1. Purpose of Registration

   • To bind third parties and provide notice of the encumbrance on the property.
   • Registration must be done in the Registry of Deeds where the property is located.

2. Effect of Non-Registration

   • The mortgage remains valid between the parties but does not prejudice third parties who acquire rights in good faith and for value.

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IV. FORECLOSURE OF REAL ESTATE MORTGAGE

Foreclosure is the legal process by which the mortgagee seeks to recover the debt by selling the mortgaged property. This can be done either judicially or extrajudicially.

A. Judicial Foreclosure

1. Governing Law: Rule 68 of the Rules of Court.

2. Procedure:

   • Filing a verified complaint for foreclosure.
   • Issuance of a judgment ordering the debtor to pay or, in default, selling the property at a public auction.
   • Sale proceeds are applied to the debt, with any surplus returned to the mortgagor.

3. Right of Redemption:

   • The mortgagor has a right to redeem the property within one year from the registration of the sale.

B. Extrajudicial Foreclosure

1. Governing Law: Act No. 3135 (as amended by Act No. 4118).

2. Procedure:

   • A special power of attorney authorizing foreclosure must be embodied in the mortgage deed.
   • Filing of the foreclosure application with the Office of the Sheriff.
   • Auction of the property without court intervention.

3. Equity of Redemption:

   • In extrajudicial foreclosure, the mortgagor has the right to redeem only before the foreclosure sale is finalized.

4. Publication Requirement:

   • Notice of sale must be published in a newspaper of general circulation for three consecutive weeks.

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V. OTHER IMPORTANT DOCTRINES

1. Pactum Commissorium (Article 2088)

   • A stipulation that ownership of the mortgaged property shall automatically pass to the mortgagee upon default is void. The remedy is foreclosure, not automatic ownership transfer.

2. Indivisibility of Mortgage (Article 2089)

   • A mortgage remains indivisible even if the debt is divided among heirs or successors. Payment of part of the debt does not extinguish the mortgage.

3. Extent of the Mortgage

   • A mortgage includes all accessions, improvements, and fruits of the property unless otherwise stipulated.

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VI. REMEDIES IN CASE OF BREACH

1. Action to Foreclose: Judicial or extrajudicial foreclosure depending on the stipulations in the mortgage contract.
2. Action for Deficiency: After foreclosure, if the proceeds of the sale are insufficient to satisfy the debt, the creditor may file a separate action for the deficiency.

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VII. JURISPRUDENTIAL PRINCIPLES

1. Registration as Constructive Notice

   • Rizal Commercial Banking Corporation v. CA (1993): Registration of the mortgage in the Registry of Deeds constitutes constructive notice to third parties.

2. Nullity of Pactum Commissorium

   • Spouses Belisario v. IAC (1988): A stipulation that the property automatically becomes the creditor’s upon default is contrary to public policy.

3. Applicability of Redemption Rights

   • Paderes v. CA (1992): The right of redemption or equity of redemption must be exercised strictly within the period provided by law.

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VIII. REAL ESTATE MORTGAGE VS. OTHER CREDIT TRANSACTIONS

1. REM vs. Pledge:

   • Pledge involves movable property; REM involves real property.
   • Possession of pledged property is transferred to the creditor.

2. REM vs. Antichresis:

   • In antichresis, the creditor may use the fruits of the property to apply against the debt.
   • In REM, fruits remain with the mortgagor unless stipulated.

3. REM vs. Chattel Mortgage:

   • Chattel mortgage involves movable property; REM pertains to immovable property.
   • Registration processes differ under the Property Registration Decree and Chattel Mortgage Law.

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IX. CONCLUSION

A Real Estate Mortgage is a critical instrument in credit transactions, balancing the creditor's right to secure repayment with the debtor's right to retain ownership and possession until default. Proper understanding of its requisites, effects, and remedies ensures protection of parties' rights while adhering to the law's requirements.

Legal and Judicial Bonds | Guaranty and Suretyship | CREDIT TRANSACTIONS

CIVIL LAW: CREDIT TRANSACTIONS > GUARANTY AND SURETYSHIP > LEGAL AND JUDICIAL BONDS

Overview

Legal and judicial bonds are specific applications of the concepts of guaranty and suretyship under the Civil Code of the Philippines. They arise primarily in legal proceedings or in compliance with statutory obligations. These bonds serve to secure the performance of an obligation or the payment of a liability.

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Key Concepts

1. Nature of Bonds

   • A bond is a written agreement whereby one party (the surety) guarantees the performance of an obligation by another (the principal) to a third party (the obligee).
   • Legal and judicial bonds specifically arise in the context of legal proceedings or statutory requirements.

2. Legal Basis

   • Governed by Title XV, Chapter 3 of the Civil Code (Guaranty and Suretyship).
   • Rules on bonds in judicial proceedings are also covered under procedural law, particularly in the Rules of Court.

3. Types of Bonds

   • Legal Bonds: Required by law or regulation, often related to compliance with administrative or statutory requirements.
   • Judicial Bonds: Required by courts in legal proceedings, intended to secure the enforcement of judicial orders or judgments.

4. Characteristics

   • Accessory Contract: Bonds are accessory to the principal obligation. If the principal obligation is extinguished, the bond is likewise extinguished.
   • Unilateral: The bond is enforceable against the surety even if the principal debtor defaults.
   • Solidary Obligation: In many cases, the surety assumes joint and several liability with the principal debtor.

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Legal Bonds

Legal bonds are imposed by statutory law to ensure compliance with legal requirements. Common instances include:

1. Fidelity Bonds

   • Required of public officials or employees handling public funds or properties.
   • Secures accountability for financial loss or mismanagement.

2. Customs Bonds

   • Mandated by customs laws to ensure compliance with import/export regulations.
   • Examples: Bonds for the release of imported goods pending duties payment.

3. Performance Bonds

   • Required in government procurement or construction contracts.
   • Guarantees the fulfillment of contractual obligations.

4. Bail Bonds in Non-Judicial Contexts

   • Bonds may also be required in quasi-judicial proceedings to ensure a party's compliance.

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Judicial Bonds

Judicial bonds are specifically required by courts in the course of litigation to safeguard the rights of parties and ensure compliance with judicial orders. Common examples include:

1. Bail Bond (Rule 114, Rules of Court)

   • Posted by an accused in a criminal case to secure provisional liberty while ensuring appearance in court proceedings.
   • Amount determined based on the offense and judicial discretion.

2. Attachment Bond (Rule 57, Rules of Court)

   • Posted by a plaintiff in a civil case seeking a writ of attachment.
   • Ensures indemnity to the defendant for damages if the attachment is wrongfully issued.

3. Replevin Bond (Rule 60, Rules of Court)

   • Posted by a plaintiff seeking possession of personal property.
   • Guarantees the return of the property if the court adjudges in favor of the defendant.

4. Injunction Bond (Rule 58, Rules of Court)

   • Required for the issuance of a preliminary injunction.
   • Secures damages to the adverse party if the injunction is later determined to have been improperly issued.

5. Supersedeas Bond (Rule 39, Rules of Court)

   • Required to stay the execution of a judgment pending appeal.
   • Ensures the judgment's satisfaction if the appeal is unsuccessful.

6. Administrator/Executor Bonds (Rule 81, Rules of Court)

   • Required for estate administrators or executors to secure the proper administration of the decedent's estate.

7. Indemnity Bonds

   • Required in various circumstances to protect against potential damages due to wrongful actions by the party obtaining the bond.

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Parties Involved

1. Principal: The party primarily obligated to perform or comply.
2. Surety: The guarantor, often a bonding or insurance company.
3. Obligee: The party in whose favor the bond is issued.

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Requisites for Enforcement

1. Written Agreement: Legal and judicial bonds must be in writing to be enforceable.
2. Specific Obligation: The bond must identify the obligation it secures.
3. Capacity of Parties: All parties to the bond must have legal capacity to enter into the contract.

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Liability of the Surety

1. Extent of Liability

   • The surety’s liability is typically coextensive with that of the principal debtor.
   • The surety cannot be held liable for more than what is stipulated in the bond.

2. Immediate Enforcement

   • The obligee can directly sue the surety without exhausting remedies against the principal.

3. Defenses

   • Fraud, duress, or illegality in the execution of the bond.
   • Discharge of the principal obligation.

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Termination of Bonds

1. Satisfaction of Obligation: The bond is extinguished once the obligation is performed.
2. Expiration: Bonds may have a specified duration after which they are no longer enforceable.
3. Release by Obligee: Voluntary release by the obligee extinguishes liability.

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Notable Doctrines and Jurisprudence

1. Solidary Liability of the Surety
   • In judicial bonds, the surety assumes solidary liability with the principal, ensuring enforceability even in cases of principal default.
2. No Benefit of Exhaustion
   • Unlike guarantors, sureties are not entitled to the benefit of exhaustion under Article 2058 of the Civil Code.
3. Good Faith in Issuance
   • Courts have emphasized the requirement of good faith in securing and executing bonds, especially in public or judicial functions.

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Practical Considerations

1. Insurance Companies and Surety Firms

   • Most bonds are issued by accredited bonding or insurance companies.
   • These entities often require counter-guarantees from the principal.

2. Costs and Premiums

   • Bonds typically require the payment of premiums, which are calculated based on the amount guaranteed.

3. Court Approval

   • Judicial bonds often require approval from the court as to sufficiency and form.

By understanding the legal and judicial bond framework, parties can navigate credit transactions and court proceedings more effectively while safeguarding their interests.

Extinguishment of Guaranty | Guaranty and Suretyship | CREDIT TRANSACTIONS

Extinguishment of Guaranty

In the Philippine legal context, the extinguishment of a guaranty is governed primarily by the Civil Code of the Philippines and other applicable laws. A guaranty, being an accessory obligation, is extinguished when the principal obligation to which it is attached is extinguished, among other specific instances. Below is an exhaustive discussion on the rules governing the extinguishment of guaranty:

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1. General Rule: Extinguishment of Principal Obligation Extinguishes Guaranty

• Nature of Guaranty as Accessory Obligation
  Article 2052 of the Civil Code states that a guaranty is an accessory obligation and exists only as long as the principal obligation exists. If the principal obligation is extinguished, the guaranty is also extinguished.

• Modes of Extinguishment of Principal Obligation
  The guaranty is extinguished if the principal obligation is extinguished by any of the following:

  • Payment or performance (Art. 1231)
  • Loss of the thing due (Art. 1262-1265)
  • Condonation or remission of the debt (Art. 1270)
  • Confusion or merger of rights of creditor and debtor (Art. 1275)
  • Compensation (Art. 1278)
  • Novation (Art. 1291)

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2. Specific Modes of Extinguishment of Guaranty

The guaranty may also be extinguished independently of the principal obligation due to circumstances affecting the guaranty itself, as follows:

A. By the Release of the Guarantor

• Article 2076: The guarantor may be released by the creditor, either expressly or impliedly.
• If the creditor waives the guaranty without extinguishing the principal obligation, the guarantor is discharged from liability.

B. By the Extinguishment of the Principal Obligation

• As previously noted, any valid extinguishment of the principal obligation extinguishes the guaranty.

C. By Prescription

• The obligation of the guarantor prescribes at the same time as the principal obligation. However, actions to enforce the guaranty may be subject to different prescription periods, depending on the circumstances (e.g., obligations subject to the ten-year or six-year prescription periods under Articles 1144 and 1145).

D. By the Beneficiary’s Actions

1. Release of Securities or Collaterals

   • If the creditor releases securities or collaterals given by the debtor or guarantor without the guarantor's consent, the guaranty is extinguished to the extent of the value of the released securities (Art. 2081).

2. Failure to Act Against the Principal Debtor

   • If the creditor’s negligence or acts impair the guarantor’s right to reimbursement or subrogation against the principal debtor, the guaranty may be extinguished.

E. By Novation of the Principal Obligation

• If the terms of the principal obligation are substantially changed without the guarantor's consent, the guaranty is extinguished unless the guarantor agrees to the changes (Art. 1291).

F. By the Death of the Guarantor

• The Civil Code provides that the guarantor’s heirs are bound to fulfill the obligation only to the extent of the assets inherited (Art. 2060). If the estate is insufficient, the guaranty is extinguished.

G. By Other Grounds Specific to the Guaranty

• If the guaranty was conditional, and the condition fails or does not occur, the guaranty is extinguished.
• A guaranty may also terminate if it is limited to a specific period or amount and that period lapses or the amount is fully satisfied.

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3. Legal Provisions on Continuing Guaranty

Nature of Continuing Guaranty

• A continuing guaranty, which secures future debts or obligations, is extinguished upon:
  • The express revocation by the guarantor as to future transactions, provided that the creditor is duly notified (Art. 2059).
  • The lapse of the specified period within which the guaranty operates.

Creditor's Waiver or Acts

• The creditor’s waiver of the continuing nature of the guaranty or its unilateral discharge may also extinguish it.

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4. The Guarantor’s Subrogation and Extinguishment

• Once a guarantor pays the obligation of the debtor, the guarantor is subrogated to the rights of the creditor against the debtor (Art. 2067).
• However, if the creditor impairs these rights by condonation, release, or failure to secure the debtor's collateral, the guarantor’s obligation is proportionally extinguished.

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5. Suretyship Distinguished from Guaranty

Although suretyship is closely related to guaranty, their extinguishment may differ due to the solidary nature of suretyship:

• A surety may be discharged by acts of the creditor impairing its rights to reimbursement, just like a guarantor.
• However, the strict application of solidary liability in suretyship may sometimes require explicit provisions to extinguish the obligation.

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Key Jurisprudence

Several Supreme Court cases provide clarity on the extinguishment of guaranty:

1. Sps. Yu vs. CA (2002)
   • Clarifies that the release of the principal obligation extinguishes the guaranty unless expressly reserved.
2. PNB vs. CA (1999)
   • Establishes that the release of a co-guarantor does not necessarily discharge the remaining guarantors unless otherwise stipulated.

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This comprehensive outline demonstrates that the extinguishment of guaranty involves both general rules tied to the principal obligation and specific rules that recognize the unique nature of the guaranty relationship.

Effects of Guaranty | Guaranty and Suretyship | CREDIT TRANSACTIONS

CIVIL LAW > VIII. CREDIT TRANSACTIONS > C. GUARANTY AND SURETYSHIP > 2. EFFECTS OF GUARANTY

The topic of "Effects of Guaranty" under Guaranty and Suretyship is governed by the Civil Code of the Philippines. Guaranty and suretyship are governed by obligations and contract law principles, with specific provisions that regulate their effects on the principal, guarantor/surety, and creditor. Below is a meticulous and comprehensive discussion:

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1. Definition and Nature of Guaranty

• Guaranty is defined under Article 2047 of the Civil Code:
  • It is a contract whereby a person (the guarantor) binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter fails to do so.
• Nature of Liability: The guarantor’s liability is secondary and subsidiary, meaning that the guarantor only becomes liable if the principal debtor fails to perform his obligation.
• Personal Obligation: The guarantor binds his own property, distinct from the principal debtor’s obligation.

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2. Effects of Guaranty on the Principal Parties

A. Between the Guarantor and the Creditor

1. Creditor’s Rights Against the Guarantor:

   • The guarantor becomes liable only upon default of the principal debtor.
   • The guarantor is entitled to require the creditor to exhaust all legal remedies against the principal debtor before proceeding against him (Article 2058, Civil Code). This is the benefit of excussion.

2. Exceptions to the Benefit of Excussion: Under Article 2059, the guarantor cannot invoke the benefit of excussion in the following cases:

   • If he has expressly renounced it.
   • If he has bound himself solidarily with the principal debtor.
   • If the principal debtor is insolvent.
   • If the principal debtor cannot be sued within the Philippines unless he left without the creditor's consent.
   • If it is evident that an execution on the debtor's property would not result in satisfaction of the obligation.

3. Extent of Liability:

   • The guarantor cannot be held liable for more than what is stipulated in the contract (Article 2054). If the obligation is conditional, the guaranty is also conditional.

4. Subrogation of Rights:

   • Upon payment by the guarantor, he is subrogated to all the rights of the creditor against the principal debtor (Article 2067).

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B. Between the Guarantor and the Principal Debtor

1. Right to Reimbursement:

   • The guarantor who has paid the debt has the right to reimbursement from the principal debtor (Article 2066). The amount includes:
     • The total amount paid.
     • Interest from the time of payment.
     • Any expenses incurred by the guarantor due to the guaranty, provided these are reasonable and justified.

2. Action for Exoneration:

   • Under Article 2071, the guarantor can compel the debtor to make provisions for the payment of the debt before the guarantor has paid:
     • When the debtor becomes insolvent.
     • When the debtor has failed to pay the debt after it has become due.
     • When the debt becomes demandable by reason of the expiration of the term.
     • When the guarantor is sued for payment.

3. Effect of Payment Without Notification:

   • If the guarantor pays without notifying the principal debtor, and the debtor pays as well, the guarantor loses his right to reimbursement (Article 2066).

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C. Between Co-Guarantors

1. Right to Contribution:

   • If there are multiple guarantors for the same debtor and debt, and one pays more than his share, he may demand proportional contribution from his co-guarantors (Article 2073).

2. Extent of Contribution:

   • The contribution is based on the amount each guarantor agreed to be liable for. However, if a co-guarantor is insolvent, his share is borne proportionately by the others.

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3. Effects of Guaranty on Third Parties

• The guaranty does not create any obligation or burden on third parties unless there is a stipulation expressly binding them.

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4. Defenses Available to the Guarantor

1. Defenses Derived from the Principal Obligation:

   • The guarantor may set up defenses which the principal debtor could have invoked, such as:
     • Nullity of the principal obligation.
     • Prescription of the obligation.
     • Payment or performance by the debtor.

2. Defenses Personal to the Guarantor:

   • The guarantor may invoke personal defenses, such as:
     • Lack of consent to the guaranty.
     • Expiration or invalidity of the guaranty.

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5. Extinguishment of Guaranty

The guaranty is extinguished under the following circumstances:

1. Extinguishment of the Principal Obligation:
   • Since the guaranty is accessory, its extinguishment follows the principal obligation.
2. Novation:
   • Any substantial change in the terms of the principal obligation made without the guarantor’s consent releases him from liability (Article 2079).
3. Release by the Creditor:
   • If the creditor releases the guarantor or impairs the guarantor’s rights against the principal debtor (e.g., through condonation), the guaranty is extinguished.
4. Loss of Security:
   • If the creditor, through his fault, causes the guarantor to lose his right to be subrogated to the securities given by the debtor, the guarantor is proportionally released (Article 2080).

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6. Suretyship Distinguished from Guaranty

Though often used interchangeably, guaranty and suretyship differ in key aspects:

• In suretyship, the surety’s liability is primary and solidary, meaning the creditor may directly demand payment from the surety without first proceeding against the principal debtor.
• In guaranty, the guarantor’s liability is subsidiary, contingent upon the debtor's default.

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Key Jurisprudence

1. Development Bank of the Philippines v. Prudential Bank (1997):
   • Established that guaranty is purely accessory and contingent.
2. Manila Surety and Fidelity Co., Inc. v. Batu Construction (1969):
   • Highlighted that the surety’s liability is primary and akin to that of the principal debtor.

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This exhaustive outline ensures clarity on the effects of guaranty under Philippine Civil Law.

Nature and Extent of Guaranty | Guaranty and Suretyship | CREDIT TRANSACTIONS

CIVIL LAW > VIII. CREDIT TRANSACTIONS > C. GUARANTY AND SURETYSHIP > 1. NATURE AND EXTENT OF GUARANTY

Definition and Concept of Guaranty

A guaranty is a contract where a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter fails to do so. This contract is governed by Articles 2047 to 2084 of the Civil Code of the Philippines.

Characteristics of a Guaranty

1. Accessory Contract - A guaranty cannot exist without a valid principal obligation. If the principal obligation is void, the guaranty is also void.
2. Subsidiary Obligation - The guarantor's liability is secondary; the creditor must exhaust the debtor's properties first (Article 2058), except in certain cases (e.g., insolvency, waiver of excussion).
3. Consensual - A guaranty is perfected by the mere agreement of the parties; no delivery of an object is necessary.
4. Unilateral or Bilateral - It may be unilateral when only the guarantor has obligations, or bilateral if the creditor has reciprocal obligations.

Kinds of Guaranty

1. As to Source:

   • Legal Guaranty: Imposed by law (e.g., liability of a guardian or administrator).
   • Conventional Guaranty: Arises from the will of the parties.
   • Judicial Guaranty: Provided by order of the court (e.g., posting of a bond).

2. As to Object:

   • Guaranty of Payment: Guarantor is liable immediately upon default.
   • Guaranty of Performance: Ensures the debtor fulfills a specific act.

3. As to Extent:

   • Specific Guaranty: Limited to a particular obligation.
   • Continuing Guaranty: Applies to a series of transactions (Article 2053).

Extent of Guarantor’s Liability

1. Limited to the Principal Obligation:

   • The guarantor is not liable for more than what is due from the debtor, including interest and other agreed-upon damages, unless otherwise stipulated (Article 2054).

2. Strict Construction:

   • A guaranty must be strictly construed against the creditor and in favor of the guarantor. Obligations not expressly included in the guaranty are not enforceable against the guarantor (Article 1378).

3. Solidary Liability:

   • A guarantor is not presumed to be solidarily liable unless explicitly stated. If solidary liability is agreed upon, the contract is treated as suretyship (Article 2047).

Obligations of the Guarantor

1. Right to Benefit of Excussion (Article 2058):

   • The guarantor can demand that the creditor exhaust the properties of the principal debtor before proceeding against the guarantor. However, this right is waived in the following cases:
     • The guarantor has expressly renounced excussion.
     • The guarantor is solidarily liable (surety).
     • The principal debtor cannot be sued within the Philippines.
     • The principal debtor has become insolvent.

2. Right to Subrogation (Article 2067):

   • Upon payment, the guarantor is subrogated to the rights of the creditor, allowing him to recover from the principal debtor.

Special Cases and Rules

1. Multiple Guarantors:

   • If several guarantors guarantee the same obligation, their liability is joint unless expressly stated as solidary (Article 2055).

2. Extinguishment of Guaranty (Articles 2076–2084):

   • Guaranty is extinguished when:
     • The principal obligation is extinguished.
     • The creditor grants an extension to the debtor without the guarantor's consent.
     • The guarantor voluntarily pays the debt without informing the debtor and without demand from the creditor, prejudicing the latter’s rights.

Guaranty vs. Suretyship

1. Nature:

   • Guaranty: Subsidiary obligation.
   • Suretyship: Primary and solidary liability with the debtor.

2. Liability:

   • Guaranty: Liability arises only after excussion.
   • Suretyship: Liability arises immediately upon default.

3. Consent of the Principal Debtor:

   • Guaranty: Generally, the debtor's consent is not necessary.
   • Suretyship: The surety typically requires consent from the debtor, though not always explicitly.

Conclusion

The provisions on guaranty and suretyship in Philippine law ensure clarity in credit transactions by defining the scope, nature, and limits of the guarantor's liability. The guarantor’s rights, such as excussion and subrogation, balance the interests of all parties. It is essential for creditors and guarantors to precisely stipulate the terms of the guaranty to avoid legal ambiguities or disputes.

Guaranty and Suretyship | CREDIT TRANSACTIONS

CIVIL LAW > VIII. CREDIT TRANSACTIONS > C. GUARANTY AND SURETYSHIP

Guaranty and suretyship are credit transactions under Philippine civil law that establish a relationship where one person binds themselves to answer for the debt, default, or miscarriage of another. These concepts are governed by Articles 2047 to 2084 of the Civil Code of the Philippines and applicable jurisprudence. Below is a meticulous discussion of the legal principles, distinctions, and applications of guaranty and suretyship:

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I. DEFINITION AND NATURE

A. Guaranty

• Article 2047: Guaranty is a contract where a person (guarantor) binds themselves to the creditor to fulfill the obligation of the principal debtor if the latter fails to do so.
• Characteristics:
  • Accessory Contract: Cannot exist without a principal obligation.
  • Unilateral or Bilateral: Generally unilateral but can be bilateral if the guarantor is compensated.
  • Subsidiary Nature: The guarantor becomes liable only upon the default of the principal debtor.

B. Suretyship

• Article 2047 (par. 2): If a person binds themselves solidarily with the principal debtor, it is called suretyship.
• Characteristics:
  • Accessory Contract: Like guaranty, it is ancillary to a principal obligation.
  • Solidary Obligation: The surety directly assumes the obligation of the debtor, effectively becoming primarily liable.

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II. ELEMENTS

1. Principal Obligation: A valid and existing obligation between the principal debtor and creditor.
2. Consent of the Guarantor or Surety: The guarantor/surety must expressly agree to undertake the obligation.
3. Capacity: The guarantor/surety must have the capacity to enter into the contract.
4. Cause or Consideration: For onerous guaranties, consideration is necessary. Gratuitous guaranties rely on liberality.

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III. DISTINCTIONS BETWEEN GUARANTY AND SURETYSHIP

Aspect	Guaranty	Suretyship
Nature	Subsidiary	Solidary
Liability	Contingent on the debtor's default	Immediate and direct
Demand from Debtor	Required before guarantor's liability	Not required
Extent of Liability	Limited to what is agreed in the contract	Co-extensive with that of the principal debtor

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IV. KINDS OF GUARANTY

1. As to Formation:

   • Conventional: By agreement of the parties.
   • Legal: Imposed by law (e.g., guardians for minors).
   • Judicial: Ordered by a court.

2. As to Consideration:

   • Gratuitous: No compensation.
   • Onerous: Guarantor is paid or compensated.

3. As to Extent:

   • Simple Guaranty: Covers only the principal obligation.
   • Continuing Guaranty: Covers future obligations within the agreed limit.

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V. OBLIGATIONS AND RIGHTS OF THE GUARANTOR

A. Obligations of the Guarantor

1. To Pay upon Default of the Debtor: The guarantor must fulfill the obligation once the principal debtor defaults.
2. To Pay Interest and Expenses: If agreed or stipulated, the guarantor is liable for interest and incidental expenses.

B. Rights of the Guarantor

1. Right of Exoneration: Demand that the principal debtor fulfill the obligation when due.
2. Right of Indemnity: Recover from the principal debtor what the guarantor paid on their behalf.
3. Right of Subrogation: Step into the shoes of the creditor once the guaranty obligation is fulfilled.
4. Benefit of Excussion (Article 2058): Demand that the creditor exhausts the properties of the debtor first before enforcing the guaranty (not applicable in suretyship).

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VI. EXTINCTION OF GUARANTY

Guaranty is extinguished by:

1. Extinction of the Principal Obligation: If the debt is paid or otherwise discharged.
2. Release by the Creditor: Voluntary relinquishment by the creditor.
3. Novation: Substitution of the obligation that effectively extinguishes the original guaranty.
4. Prescription or Expiry: When the period to enforce the guaranty lapses.

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VII. LEGAL EFFECTS AND APPLICATIONS

In Case of Fraud, Duress, or Misrepresentation:

• If the creditor induces the guarantor through fraud, the guaranty contract is voidable.

Jurisprudential Doctrines:

1. Rule of Strictissimi Juris: The guaranty is strictly interpreted and cannot be extended beyond its terms.
2. Benefit of Excussion: Applies unless waived; the creditor must exhaust the debtor’s properties before going after the guarantor.

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VIII. JURISPRUDENCE

Significant Supreme Court decisions clarify nuances:

1. PNB v. CA (1996): Solidary surety is directly liable with the principal debtor and waives the benefit of excussion.
2. Trade & Investment Dev. Corp. v. Roblett (2002): A continuing guaranty remains valid even for obligations unknown at the time of its execution, provided they fall within the agreed terms.
3. Dizon v. Philippine National Bank (2008): The creditor must demand payment from the guarantor within a reasonable time after the debtor defaults.

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IX. PRACTICAL APPLICATIONS

• For Banks and Financial Institutions: Suretyship is often used to secure loans.
• Corporate Setting: Corporate officers may act as sureties for corporate obligations.
• Judicial Bonding: Courts often require guaranties or sureties for the issuance of injunctions or attachments.

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This comprehensive outline provides a detailed understanding of guaranty and suretyship under Philippine law. Legal practitioners must always review relevant statutory provisions, contractual terms, and case law to provide accurate advice tailored to specific situations.

Extrajudicial | Kinds of Deposit | Deposit | CREDIT TRANSACTIONS

CIVIL LAW > VIII. CREDIT TRANSACTIONS > B. Deposit > 2. Kinds of Deposit > b. Extrajudicial Deposit

Definition and General Principles

An extrajudicial deposit is a contract whereby a person (the depositor) delivers a thing to another (the depositary) with the obligation of the latter to keep it and return it when demanded by the depositor. It is one of the two kinds of deposit under Philippine law, distinguished from a judicial deposit which arises in litigation or under compulsion of law.

Extrajudicial deposits are governed by Articles 1966 to 1995 of the Civil Code of the Philippines.

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Characteristics

1. Real Contract: The deposit is perfected upon the delivery of the thing to the depositary.
2. Principal Contract: It exists independently and is not accessory to any other obligation.
3. Unilateral or Bilateral:
   • Unilateral: When the obligation to return the thing rests solely on the depositary.
   • Bilateral: When both parties have reciprocal obligations, such as in a remunerated deposit.

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Essential Elements

1. Subject Matter: Movable or immovable property.
   • Primarily pertains to movable objects unless otherwise specified.
2. Purpose: Safekeeping or custody of the property.
3. Delivery: Actual or constructive delivery of the thing to the depositary.

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Kinds of Extrajudicial Deposits

1. Voluntary Deposit:

   • Made by the depositor’s own free will.
   • Governed by Articles 1966 to 1980 of the Civil Code.
   • Requisites:
     1. Capacity of the depositor: The depositor must have legal capacity to contract.
     2. Acceptance by the depositary: The depositary must consent to the deposit.

2. Necessary Deposit:

   • Made due to some urgent or unavoidable circumstance.
   • Governed by Articles 1996 to 2004 of the Civil Code.
   • Examples:
     • Deposit during a fire, storm, or similar emergencies.
     • Deposit by travelers in inns, hotels, or lodging houses.
   • Requisites:
     1. The deposit arises from an urgent need.
     2. The depositary may not refuse acceptance if such refusal would cause damage to the depositor.
   • Innkeepers’ Liability:
     • Includes responsibility for the personal effects of guests.
     • Liability is presumed unless: a. Loss is due to force majeure. b. The depositor acted with negligence. c. The loss occurred due to the nature of the thing.

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Obligations of the Depositary

1. Principal Obligations:

   • Safekeeping: Exercise diligence in the care of the thing deposited (ordinary diligence unless otherwise agreed).
   • Return: Deliver the thing when demanded, even if a period has been stipulated unless the depositary has a right to retain it (e.g., for unpaid expenses).

2. Accessory Obligations:

   • Non-use: The depositary must not use the thing without the depositor’s consent.
   • Return of accessories or increments: The depositary must return all fruits or accessories of the deposit unless otherwise agreed.

3. Liabilities:

   • The depositary is liable for loss or deterioration unless:
     • It is due to a fortuitous event.
     • The depositor failed to disclose the dangerous character of the thing deposited.

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Rights of the Depositary

1. Retention: The depositary may retain the deposit until full payment of expenses incurred in preserving it.
2. Reimbursement: The depositary has the right to reimbursement for necessary expenses.

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Termination of the Deposit

1. Demand for Return: The depositor may demand the return of the thing at any time unless a period has been fixed and the depositary has not committed a breach.
2. Loss or Destruction: The contract is extinguished if the thing is lost or destroyed without fault of the depositary.
3. Death: If the depositary dies, his heirs are bound to return the thing unless the contract stipulates otherwise.

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Special Rules on Necessary Deposits

1. Deposits with Innkeepers:

   • Guests are presumed to deposit their belongings with the innkeeper.
   • Innkeepers are liable for loss unless the loss arises from: a. Force majeure. b. Fault of the guest. c. Nature of the thing deposited.

2. Deposits by Travelers:

   • Travelers may deposit valuables in the innkeeper’s safe or equivalent facility.
   • Failure to use such facilities may relieve the innkeeper of liability.

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Special Cases

1. Commodatum vs. Deposit:

   • Commodatum involves the loan for use; deposit entails safekeeping.
   • In deposit, ownership remains with the depositor.

2. Bank Deposits:

   • Bank deposits are considered irregular deposits (Article 1980).
   • Ownership of the money passes to the bank, which is obligated to return the same amount.

3. Irregular Deposits:

   • Occurs when the thing deposited is consumable (e.g., money).
   • The depositary becomes the owner but is obliged to return an equivalent amount or quality.

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Relevant Jurisprudence

1. Liability of Depositaries:
   • The depositary’s liability extends to ensuring due diligence is observed in safekeeping, as ruled in relevant Supreme Court decisions.
2. Innkeeper Deposits:
   • Jurisprudence has clarified the extent of innkeepers' liability for losses within their premises.

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This overview provides a meticulous explanation of extrajudicial deposits under Philippine Civil Law, focusing on their kinds, elements, obligations, and related nuances.

Judicial | Kinds of Deposit | Deposit | CREDIT TRANSACTIONS

CIVIL LAW > CREDIT TRANSACTIONS > DEPOSIT > JUDICIAL DEPOSIT

Definition of Judicial Deposit

A judicial deposit, also known as a sequestration, is a form of deposit that occurs when an object or property in litigation is placed in the custody of a third party (depositor or custodian) to ensure its preservation and eventual disposition according to a judicial decision. It is a specific form of deposit regulated by law to safeguard disputed property during the pendency of litigation.

Legal Basis

Judicial deposit is governed under the Civil Code of the Philippines, primarily in Articles 2005 to 2007 and in conjunction with the provisions on deposit in Articles 1962 to 2004.

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Characteristics of Judicial Deposit

1. Judicial in Nature
   Judicial deposits arise by virtue of a court order or through legal proceedings. They are not based on the voluntary agreement of the parties but are imposed by law to protect the interests of the litigants.

2. Involves Disputed Property
   The property or object involved in a judicial deposit is typically the subject of litigation, and its custody is temporarily entrusted to ensure impartial handling and preservation.

3. Depositary Appointed by Court
   The court designates the person or entity to act as the depositary or custodian of the property.

4. Temporary Custody
   The purpose of judicial deposit is temporary, lasting only until the court renders a final judgment on the matter.

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Requirements for Judicial Deposit

1. Existence of a Legal Dispute
   Judicial deposit occurs only when there is a pending litigation concerning the ownership, possession, or custody of the property.

2. Court Order
   The judicial deposit must be expressly ordered by the court. It cannot be established voluntarily between the parties in the absence of litigation.

3. Appointed Depositary
   The court appoints a neutral third party, such as a public official, a bonded warehouse, or any person capable of preserving the property in dispute.

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Obligations of the Depositary in Judicial Deposit

The depositary in a judicial deposit assumes the responsibilities outlined under the Civil Code for voluntary deposits, including:

1. Safekeeping the Property
   The depositary must preserve the property and prevent its loss, destruction, or deterioration.

2. Return of Property Upon Demand
   The property must be returned or delivered in accordance with the final court order or the law.

3. Liability for Negligence or Fraud
   The depositary is responsible for any damage caused to the property due to negligence or fraud.

4. No Right to Use the Property
   The depositary cannot use the property unless expressly authorized by the court or the nature of the deposit allows it.

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Kinds of Judicial Deposit

Judicial deposit may take the form of:

1. Movable Property
   Where the object deposited is tangible personal property, such as goods or documents in dispute.

2. Immovable Property
   Where the subject of the deposit is real property, such as land or buildings. The court may appoint an administrator to manage the immovable property during the litigation.

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Legal Effects of Judicial Deposit

1. Preservation of Property
   Judicial deposit ensures the property remains intact and unaffected by any unilateral actions of the parties involved in the litigation.

2. Neutral Custody
   The court-appointed depositary acts as a neutral party to hold and manage the property until the resolution of the case.

3. Enforcement of Court Decisions
   Once a judgment is rendered, the depositary must comply with the court’s orders concerning the disposition of the property.

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Judicial Deposit Distinguished from Other Deposits

Aspect	Judicial Deposit	Voluntary Deposit
Nature	Mandated by court order	Based on agreement between parties
Cause	Legal dispute over property	Voluntary safekeeping
Appointing Authority	Court	Mutual agreement
Depositary Rights	Governed strictly by court directives	Subject to terms agreed upon

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Relevant Case Law

Philippine jurisprudence has reinforced the principles surrounding judicial deposits:

1. Neutral Custody Requirement: Courts emphasize that the primary purpose of judicial deposit is to maintain the neutrality and preservation of the disputed property.
2. Depositary Liability: The courts have consistently held depositaries liable for damages resulting from their negligence or failure to adhere to court orders.
3. Court Jurisdiction: Only the court handling the case has the authority to order a judicial deposit.

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Key Provisions of the Civil Code

1. Article 2005: Defines sequestration and its relation to judicial deposit.
2. Article 2006: Enumerates the obligations of a sequestrator.
3. Article 2007: Stipulates the procedure for turning over the property to the appropriate party after judgment.

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By understanding these elements, practitioners can navigate issues involving judicial deposits with precision, ensuring compliance with legal standards and the effective resolution of disputes.