Short answer. That arrangement is called antichresis. Your creditor receives the fruits of your property, such as a harvest or rental income, and must apply them first to any interest you owe and then to the principal, instead of you paying in cash.
What the law says
By the contract of antichresis the creditor acquires the right to receive the fruits of an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing, and thereafter to the principal of his credit.
Civil Code, Article 2132 — Antichresis Defined. Read the full provision →
What antichresis actually gives the creditor
Antichresis is a contract where a debtor lets a creditor collect the fruits of an immovable, land under cultivation, a rented building, and so on, in place of cash payments on a debt. What passes to the creditor is the right to receive those fruits, not ownership of the property itself. The debtor is still the owner; the creditor simply steps into the position of collecting what the property produces and using it to whittle down what is owed.
Interest first, then principal
The statute sets a fixed order for how the collected fruits are applied: interest, if any is owing, is paid off before anything touches the principal. Only once the interest is fully covered does the surplus start reducing the amount originally borrowed. This matters for a debtor trying to work out how much of the debt is actually shrinking each harvest or rental cycle, since a heavily interest-laden debt can take a while before the principal moves at all.
Why this differs from simply handing over the property
Because the creditor's right is limited to the fruits and their application to the debt, an antichresis arrangement is not the same as selling or mortgaging the property outright. The debtor keeps the underlying ownership; the creditor's entitlement lasts only as long as the debt does. Once the obligation is fully satisfied through the applied fruits, or otherwise paid, the creditor's right to keep collecting those fruits ends.
What to keep track of if you are the debtor
If you are the one whose property's income is being collected this way, you are entitled to know how much has gone toward interest and how much toward principal, since that is the entire basis of the arrangement described in the law. Keeping your own record of harvests, rents, or other income turned over, and comparing it against what the creditor reports as applied, is the practical way to confirm the debt is being reduced as it should be.
Cases citing this provision
These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.
- Sps. Charito M. Reyes and Roberto Reyes, et al. vs. Heir of Benjamin Malance, et al, G.R. No. 219071, August 24, 2016 — read the decision on LawPhil →
- Amada Cotoner-Zacarias vs. Sps. Alfredo Revilla and the Heirs of Paz Revilla, G.R. No. 190901, November 12, 2014 — read the decision on LawPhil →
- Oscar Angeles, et al. vs. The Hon. Secretary of Justice, et al, G.R. No. 142612, July 29, 2005 — read the decision on LawPhil →