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CREDIT TRANSACTIONS Include all transactions involving the purchase or loan of goods, services or money in the present and the promise to pay or deliver in the future. May be secured or unsecured. SECURITY Something given, deposited or serving as a means to ensure fulfillment or enforcement of an obligation or of protecting some interest in property. May be personal or real. BAILMENT Delivery of property to another in trust for a specific purpose with a contract that the trust shall be faithfully executed and the property returned or dully accounted for when the special purpose is accomplished or kept until the bailor reclaims it. May be for the sole benefit of the bailor, for the sole benefit of the bailee, and for the benefit of both parties. Bailment for hire arises when goods are left with bailee for some use or service, always for some compensation.
COMMODATUM v MUTUUM / SIMPLE LOAN Commodatum Is gratuitous. Any stipulation for compensation, contract ceases to be commodatum. Generally involves non-consumable things [because you have to return it]. But consumable things may be subject of commodatum – when the purpose is not to consume it, but only to display it. Bailor retains ownership of the SM. Borrower has obligation to return the same thing loaned – the actual thing. Real or personal property may be subject of commodatum. Purpose is only for temporary use or possession. Loss of the thing is suffered by lender – because he still owns the SM. [Res Perit Domino] If thing is not returned – liable for estafa. Ordinary – with term but lender may demand if urgent need Precarium – may demand return at bailor’s will. Consideration is pure liberality Mutuum / Simple Loan Default rule is that simple loan is Gratuitous. But there may also be a stipulation for interest – remember that this must be in writing. SM is money or other consumable thing
Ownership passes to borrower. Borrower need only pay the same amount of the same kind & quality. Payment only of the equivalent. Involves only personal property. The purpose of the contract is to consume the thing. [Consumption] Loss is suffered by borrower – even if by fortuitous event [Res Perit Domino] Borrower not criminally liable – but only civil liability for breach of obligation to pay. Lender may not demand return of the thing before lapse of the term.
GENERAL PROVISIONS Loans are Real Contracts – Require DELIVERY for perfection. But an accepted promise to deliver is binding, although there is no contract of loan until thing is delivered. There is no required form – only that stipulation for INTEREST must be in WRITING. Loans are unilateral contracts – once the SM is delivered, it creates obligations on the part only of the borrower. 2 kinds of Contracts of Loan – Commodatum and Mutuum / Simple Loan. CREDIT v LOAN v DEBT Credit – ability of an individual to borrow. Loan – delivery and receipt of money or consumable thing with agreement to repay same amount of same kind and quality. Debt – credit considered from creditor’s standpoint.
Consideration is the promise of the borrower to pay
JEN LAYGO 2D ‘05
COMMODATUM 2 kinds of commodatum: Ordinary – with term but lender may demand return before expiration only if there is urgent need. Precarium – bailor may demand the thing loaned at will. Bailee acquires use of thing but NOT ITS FRUITS. But parties may stipulate that borrower may use fruits – only incidental to contract of commodatum. If bailee is not entitled to use the thing – contract of deposit. Lender need not be the owner of the thing, enough that he has possessory interest or right to use it. Is Purely Personal in character: 1. GR: DEATH of either party extinguishes contract E: Contrary stipulation that commodatum subsists until purpose is accomplished. 2. GR: Borrower CANNOT LEND to someone else E: Use by members of borrower’s household E to E: There is stipulation to the contrary Nature of thing forbids it [example accdg to JP is a dildo] OBLIGATIONS OF BORROWER [2LORD] 1. ORDINARY EXPENSES - for use and preservation - If, for the purpose of making use of the thing, the bailee incurs expenses other than OP for use or EP for preservation and actual use, he is not entitled to reimbursement. 2. LOSS OF THE THING - GR: borrower not liable if fortuitous event Exceptions: when borrower liable for fortuitous event: a. Bad Faith – used for different purpose [also a breach]
RETURN OF THE THING accomplished
- as soon as term expires or purpose is
- GR: cannot keep thing as security for anything lender may owe him - E: Damages for hidden defects 2 OR MORE BORROWERS – in the same contract, liability is SOLIDARY
b. c. d. e.
- keeps it for longer period than stipulated
Assumption of Risk – thing delivered with appraisal of value - E: Stipulation exempting bailee Breach - Lend to 3rd person not in borrower’s household
Ingratitude - being able to save either thing borrowed or his own thing, he chose to save his own. DETERIORATION - borrower not liable for ordinary deterioration or wear & tear as natural consequence of its use. - must be without his fault
OBLIGATIONS OF LENDER [DREF] 1. RESPECT DURATION – cannot demand return unless period expires or purpose is accomplished - E: Return / temporary use if in Urgent Need – contract of commodatum is deemed suspended - PRECARIUM exists when: a. No stipulation for duration or use of thing b. Use is merely tolerated by the owner - BUT lender may not whimsically, arbitrarily or capriciously demand, otherwise liable for Art19, 20 and 21 for abuse of right 2. DEMAND RETURN FOR - Art765 of CC: ACTS OF INGRATITUDE A. Borrower commits offense against lender’s person, honor or property, his wife or children under parental authority B. Borrower imputes to lender any criminal offense or act involving moral turpitude, even if he proves it. - Except: If crime is against borrower, wife or children C. Borrower is legally and morally required to support the lender but he refuses to. 3. REFUND EXTRAORDINARY EXPENSES A. EP From Preservation of thing - Lender should refund borrower - Notice must be given to lender before incurring the expense - E: need is urgent that lender cannot be notified without danger B. EP From Actual Use of thing - borne by both on a 50-50 basis - E: Contrary stipulation 4. FOR DAMAGES FOR - Requisites for Liability: KNOWN HIDDEN FLAWS A. Flaw or defect B. Hidden C. Lender is Aware 2
JEN LAYGO 2D ‘05
D. borrower E. Borrower suffers damages - Exception: When Buyer should have known - Borrower has RIGHT OF RETENTION NOTE: Remember that Borrower is liable for ORDINARY expenses for use and preservation & half of the EXTRAORDINARY expenses for actual use. Lender is liable only for EXTRAORDINARY expenses. Also, according to Art1952, Lender cannot exempt himself from payment of such expenses or damages by abandoning the thing to the borrower. SIMPLE LOAN / MUTUUM May include fungible [may be substituted – depends on intent of parties] or consumable things [depends on nature of thing]. FORM OF PAYMENT 1. Object is MONEY Lender does not Advise As Damages for delay – rate is based on: a. Penalty clause stipulated b. Regular interest rate stipulated c. Legal interest rate of 12% B. Interest from unpaid Interest GR: Accrued interest shall not ear interest E: JUDICIALLY DEMANDED or COMPOUNDED INTEREST – must be in WRITING Payable in KIND At the CURRENT PRICE of the products AT TIME and PLACE OF PAYMENT Mistake in payment of interest – SOLUTION INDEBITI or undue payment - But if debtor pays out of a moral obligation, he cannot later recover. MUTUUM v COMMODATUM v BARTER MUTUUM 1 party delivers to another money or other consumable thing with understanding that the same amount/ kind/ quality or its equivalent shall be paid. Money or other fungible things Return the equivalent Gratuitous or Onerous COMMODATUM 1 party delivers to another something not consumable so that the latter may use the same for a certain time and return it. Non-fungible things Return identical thing Always Gratuitous BARTER Contract where one of the parties binds himself to give 1 thing in consideration of the other’s promise to give another thing. Non-fungible things Return equivalent Onerous A.
Object is FUNGIBLE THING Other than Money
- Payment in currency stipulated, otherwise in legal tender in Phils. - GR: Value AT TIME OF PAYMENT - E: Extraordinary Inflation – AT TIME OF ESTABLISHMENT - Pay same kind, quality and quantity, even if it changes in value. - In case it is impossible to do so, VALUE AT TIME OF PERFECTION OF LOAN - Opt Out: Stipulate that in case of impossibility, pay market value at time of payment
INTEREST Requisites: Rules:
1. Expressly stipulated 2. Must be in writing 3. Must not be unconscionable
Definition A contract whereby the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter shall fail to do so. Characteristics 1. ACCESSORY 2. SUBSIDIARY & CONDITIONAL 3. UNILATERAL principal debtor - depends on existence of principal obli’n - takes effect only upon principal’s default - May be entered w/o intervention of
Stipulated interest governs No stipulation – 12% for loans, 6% for other obligations Increases in interest must also be stipulated Only in contracts of loan can interest be stipulated Stipulation must be mutually agreed upon, not unilaterally increased. But parties can agree on a FORMULA. 6. Escalation clause [automatic increase in interest] must be accompanied by De-Escalation clause [automatic decrease] When still liable for interest even if none stipulated: JEN LAYGO 2D ‘05
1. 2. 3. 4. 5.
- Obligation of guarantor only as to creditor and not vice-verse. DISTINCT PERSON - Guarantor must be distinct from principal debtor. But in real guaranty, person may guaranty his own obligation with his own properties. 7. Personal and Real Conventional, Legal, Judicial Gratuitous and Onerous Single [principal obli] and Double / Sub-Guaranty Definite [principal obli only] and Indefinite / Simple [no stipulation that guaranty is on principal debt only, liability includes accessory oblis] 8. RULES ON GUARANTY 1. 2. 3. Guaranty is GRATUITOUS - E: Onerous only if stipulated Same Cause as principal obligation. - Guarantor need not have a direct interest in the obligation nor receive any benefit from it. Married woman may guarantee - GR: But if w/o the husband’s consent, she only binds her separate properties. She can’t bind the ACP - E: When it redounds to the benefit of the family. With principal debtor’s consent - SUBROGATED in Rights of Creditor If entered w/o knowledge/consent or against the will of the debtor: - Effect is like payment by a 3rd person: 1. Guarantor can only recover insofar as payment benefited the principal debtor 2. Guarantor cannot compel the creditor to subrogate him in the creditor’s rights such as those arising from a mortgage, guaranty or penalty. May be on a VOIDABLE, UNENFORCEABLE K or a NATURAL OBLI. In natural obligations, even if the principal obligation is not civilly enforceable, creditor may still go after the guarantor A conditional obligation may also be subject of guaranty May be given to secure FUTURE DEBTS, amount of which is not yet known. But there can be no claim against the guarantor until the debt is liquidated. Continuing Guaranty Remember that there must be an existing principal obli. What is allowed is the guaranty for a principal obli in existence PLUS future debt. Guaranty cannot be constituted on a future debt only. Conditional Obligations – If principal obli is subject to a suspensive condition, guarantor liable only upon happening of the condition.
Classifications In General: Origin: Consideration: Principal Debt: [guaranty] Scope:
Guarantor may bind himself FOR LESS but not for more than the principal obli Both as to amount and the onerous nature of the conditions If he bound himself for more, shall be reduced to the limits of the principal debtor’s liability. Opt Out: Separate Contract where lender would render service to guarantor in exchange for the additional amount. However, if creditor sues guarantor, latter may be liable for costs, attorney’s fees & penalties. Guaranty is NOT PRESUMED - must be express and limited to terms - Strictly construed against creditor, in favor of guarantor if gratuitous - must be in WRITING [SOF] - Prospective application [not past debt] - E: if guarantor merely offers to guaranty - E to E: unconditional promise - Creditor CAN WAIVE requirements - Guarantor subject to jurisdiction of court where obli is to be complied w/ - Qualifications need only be present 1. Conviction in 1st instance of a crime involving dishonesty/ moral turpitude 2. Guarantor becomes insolvent – no need for judicial dec. of insolvency
No need for Creditor to Accept
10. Qualifications of a Guarantor A. Integrity the B. Capacity to Bind Himself
Sufficient property upon perfection of contract.
11. Creditor may Demand Another
*Except when creditor required specified person as Guarantor
12. Guaranty SURVIVES death of Guarantor 13. Property of Guarantor IS NOT Subjected to a LIEN by virtue of the guaranty EFFECTS OF GUARANTY
To compel guarantor to pay, creditor must EXHAUST all properties of debtor and must have Resorted to all legal remedies against the debtor [EXCUSSION]. 4
JEN LAYGO 2D ‘05
Benefit of Exhaustion Shall NOT take place: 1. When Excussion shall not take place 2. If guarantor waives or fails to set-up the benefit and point properties of the debtor to the creditor 3. If guarantor is a judicial bondsman and sub-surety 4. Where pledge or mortgage has been given by him as special security 5. Fails to interpose it as a defense before judgment is rendered against him. Benefit of Excussion Shall NOT take place: 1. Guarantor expressly RENOUNCED it 2. He has bound himself SOLIDARILY 3. In case of INSOLVENCY of debtor [Practical Insolvency] 4. Debtor has ABSCONDED, or cannot be sued w/in Philippines, unless he has left a manager or representative 5. USELESS – when it may be presumed that execution on property of principal debtor would not satisfy whole obligation Opt Out – Get guarantor to sign a WAIVER of the benefit or make him SOLIDARILY liable. Payment by Guarantor constitutes Waiver of benefit. II. Guarantor must set-up the benefit against the creditor and point to properties of the debtor in the Phils sufficient to answer the debt To collect from guarantor, creditor must make prior demand for payment from guarantor: Made after judgment on the debt and must be actual demand, not merely joining G in the suit. - Once guarantor sets-up and points to properties, creditor who is negligent in exhausting the property pointed out suffers the loss to the extent of the value of the property. Every action by creditor must be against the principal debtor alone. Creditor must ask court to notify the guarantor. Creditor can only sue the guarantor together with the principal debtor in the instances when the benefit of excussion does not take place. Guarantor must be notified so that he can set-up his defenses The benefit of excussion shall always be unimpaired, even if judgment is rendered against the principal debtor and the guarantor. If guarantor appears in the action, he is still given the benefit of Exhaustion even after judgment is rendered against the principal debtor. IX. V. If guarantor does not appear, judgment is not binding on him. Lender must separately sue guarantor to claim from him. Problem: Time lag between judgment against debtor & against G. Opt Out: Bank guaranty or LC where only need to inform the bank
If a compromise is made, whoever is not party to the compromise benefits but is not prejudiced. If guarantor compromises with creditor – he cannot demand more from the debtor than what he really paid The sub-guarantor enjoys the benefit of excussion with respect to the guarantor and the principal debtor BENEFIT OF DIVISION: Several co-guarantors, 1 debtor, 1 debt – obligation divided among all. Creditor can only claim respective share of each guarantor. GR: joint liability E: In cases where no benefit of excussion [RUSIA] and when solidarity has been stipulated Debtor must indemnify guarantor if the latter pays. Indemnity includes: 1. Total amount of debt – only what he has actually paid. Unless stipulation of right to demand reimbursement as soon as liable, even without having paid. 2. Interest – interest from the time notice of payment of the debt by G is made known to debtor. Guarantor can collect interest on amount paid even if principal obli has no stipulation for interest. Basis of the right is delay of debtor in reimbursing. 3. Expenses – those that guarantor must satisfy in accordance with law. Limited to those incurred after notifying debtor that payment has been demanded from guarantor. 4. Damages – only if they are due Exceptions: Where G has no right to be reimbursed 1. Guaranty constituted w/o knowledge or against will of debtor - can only claim beneficial reimbursement 2. Payment by 3rd person w/o intention to be reimbursed is Donation, requiring consent of donee. But payment is valid as to creditor. 3. Waiver by guarantor of right to be reimbursed. Guarantor who pays is subrogated to all rights of creditor against debtor Right of subrogation only given to guarantor if he has a right to be reimbursed. No right – no subrogation.
JEN LAYGO 2D ‘05
XI. If G pays w/o notifying debtor, debtor may enforce against him all defenses he could have set up against the creditor at time of payment. If debt was for a period and G paid before period ended, he cannot demand reimbursement from debtor until period ends. Exception: if debtor ratified/consents to such payment b4 due date. If G paid w/o notifying debtor, then debtor also pays – G can’t go after the debtor but must go after the creditor. Exception: G may claim from clueless debtor if: 1. gratuitous guaranty 2. G prevented from informing debtor of payment by fortuitous event 3. Creditor becomes insolvent Instances when Guarantor may proceed against principal Debtor even BEFORE payment 1. When G is SUED for payment
If 1 pays for the whole obligation, he can demand shares of others. Instance when joint obligation has effect of solidary obligation: If any of co-guarantors are insolvent, his share shall be borne by the others, including the one who paid. In case 1 co-guarantor pays whole obligation – co-guarantors may set up against the paying G the same defenses of principal debtor against the creditor and are not purely personal to the debtor.
A sub-guarantor is responsible to the co-guarantors in the same terms as the guarantor, if the latter becomes insolvent.
Debt become DEMANDABLE by lapse of period 4 payment 5. After lapse of 10YRS if no fixed due date [accdg to nature] 6. Reasonable ground to Fear principal debtor will ABSCOND 7. Principal debtor in imminent danger of being INSOLVENT Under these 7 instances, G has ff rights before he makes payment A. Right to be released if creditor/lender agrees B. Right to demand security
2. 3. 4.
If principal debtor is INSOLVENT If guaranty is for a PERIOD and period has expired
If G guarantees debt of 3rd person not present, at the request of another, he may sue either the person requesting or the debtor.
EXTINGUISHMENT OF GUARANTY 1. Extinguishment of Contracts - payment or performance; loss of the thing due; condonation or remission; confusion or merger; compensation; novation; annulment; rescission; fulfillment of resolutory condition; and prescription - any agreement between creditor and principal debtor which varies terms of principal contract w/o consent of surety extinguishes surety’s liability. Alteration must impose new obligation or added burden to extinguish G. 2. Creditor accepts other Prop’y - even if creditor should afterwards lose the same through eviction, G is released DACION 3. Release by Creditor of 1 of the co-guarantors w/o their consent benefits all to extent of share of released co-guarantor. 4. Extension granted by Creditor to Debtor w/o G’s consent extinguishes G Mere failure of creditor to demand payment after debt has become due does not constitute extension Exception: If G consents to extension or waives extinguishment 5. Gs, even if solidary, are released when by some act of CREDITOR, they cannot be SUBROGATED to the rights, mortgages and preference of the latter. 6. Guarantor may set up against creditor all defenses pertaining to principal debtor and inherent in the debt, but not those personal to the debtor. *Judicial and Legal Bonds are sureties. No benefit of excussion. SURETY Person binds himself SOLIDARILY with the principal debtor
Joint Liability between several co-guarantors – GR: Creditor cannot collect whole amount from 1 co-guarantor E: In cases of JUDICIAL DEMAND and When principal debtor is INSOLVENT
JEN LAYGO 2D ‘05
Dispenses with all legal requirements or conditions for proceeding against a guarantor. SOLIDARITY AMONG DEBTORS v SURETYSHIP Both stand for some other person Both may demand reimbursement Difference is that in solidarity among debtors, the reimbursement involves only the amount of the share of the other debtors. In suretyship, the surety is reimbursed for the whole amount. Lender cannot go after surety right away, there must be default by the principal debtor first. In solidarity of debtors, creditor can go after any solidary debtor on due date. NATURE OF SURETY’S UNDERTAKING 1. CONTRACTUAL & ACCESSORY BUT DIRECT GUARANTY
Guarantor promises to answer for debt, default or miscarriage of the principal Liability of guarantor depends upon independent agreement to pay the obligation if debtor fails to do so Engagement of guarantor is a collateral/accessory undertaking Guarantor is secondarily liable. Benefit of Exhaustion, Excussion & Division GUARANTOR BINDS HIMSELF TO PAY IF THE PRINCIPAL DEBTOR CANNOT PAY [INSURER OF THE SOLVENCY OF THE DEBTOR]
Surety promises to answer for debt, default or miscarriage of principal Surety assumes liability as a regular party to the undertaking Surety is charged as an original promisor A surety is primarily liable No benefit of Excussion SURETY UNDERTAKES TO PAY IF THE PRINCIPAL DOES NOT PAY [INSURER OF DEBT] - More onerous
LIABILITY LIMITED TO TERMS OF THE CONTRACT LIABILITY ARISES ONLY IF PRINCIPAL DEBTOR IS LIABLE
- liability is merely collateral to principal obligation but direct, primary and absolute obligation to creditor - liability is determined by terms of K
ESSENTIAL REQUISITES OF PLEDGE 1. Purpose - to Secure the fulfillment of a Principal Obligation 2. Real - Requires delivery of the thing - Agreement to pledge, when breached, gives rise to damages 3. Alienation - when PO becomes due and debtor defaults, thing pledged may be alienated to satisfy the principal obli - A direct lien on the property, no need for litigation to alienate. 4. Disposal - Free Disposal of property or legal authority to do so - not subject to any claim by a 3rd person 5. Ownership - Pledgor be the Absolute Owner of thing, bears the loss - Loss: Must replace thing or lose benefit of the period - Future property CANNOT be pledged. - Must have both BENEFICIAL & LEGAL TITLE - In suspensive condition – ownership retroacts 6. Third persons not parties to principal obli may be pledgor Definition of Pledge Contract Debtor delivers to creditor or 3rd person a movable or document involving incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled, the thing delivered shall be returned with all its fruits and accessions. KINDS: Voluntary / Conventional and Legal
- Effects: 1. Surety is bound by a judgment against the principal even if he is not party to the proceedings 2. Creditor may sue, separately or together, the principal debtor and the surety 3. Generally, a demand or notice of default is not required to fix the surety’s liability [?] 4. An accommodation party is a surety 5. A Promise to pay signed by 2 debtors is solidary [not surety] 6. Surety bond where there is no principal debtor is VOID NOT ENTITLED TO EXHAUSTION - of properties of principal debtor, since he assumes solidary liability UNDERTAKING IS TO CREDITOR - debtor cannot claim that surety breached its obligation to pay because there is no obligation between surety and debtor.
JEN LAYGO 2D ‘05
CHARACTERISTICS Real - by delivery, MUST B IN PUBLIC INSTRUMENT Accessory - no independent existence Unilateral - obli of creditor to return thing Subsidiary - obli of creditor arises only upon fulfillment of PO *May be on a VOIDABLE, UNENFORCEABLE K or a NATURAL obligation. 2. 3. 4. RULES ON PLEDGE 1. Creditor CANNOT APPROPRIATE thing pledged or dispose of them contrary stipulation is VOID Stipulation of Pactum Commissorium is VOID A. When there is a pledge or mortgage B. A Stipulation for AUTOMATIC appropriation of the thing in case of default by the debtor - Exception to Pactum Commissorium: When thing is not sold after 2 public auctions, creditor may appropriate for himself. Upon default, creditor moves for sale of the pledged thing If he wants to acquire it for himself, creditor may bid in public auction How to Opt Out of Pactum Commissorium Prohibition: A. Enter into another contract outside the pledge B. Debtor can voluntarily cede property to creditor – Novation. C. Stipulation where debtor merely promises to sell, noncompliance will give rise to damages D. Stipulation granting creditor authority to take possession and not ownership of property upon foreclosure. 4. Promise to constitute a pledge gives rise only to a personal action between parties. W/o prejudice to criminal liability of party who defrauds another by offering a thing in pledge as unencumbered, knowing it was subject to some burden or representing himself to be the owner.
PROVISIONS APPLICABLE ONLY TO PLEDGE
Delivery must be to CREDITOR or 3rd person agreed upon SM - All movables within the commerce of man which are susceptible of possession, and - Incorporeal rights evidenced by documents – must be indorsed if negotiable Must be in a PUBLIC INSTRUMENT, with a description of the thing pledged and the date of the pledge, in order to affect 3rd persons ALIENATION – Thing pledged may be alienated by the owner but must be with consent of pledgee. Ownership is transferred only upon consent of pledgee, but latter continues to possess. RIGHT OF CREDITOR TO RETAIN – in his possession or in 3rd person until Principal Obligation is paid. Creditor shall take care with Diligence of a Good Father of the Family Creditor has a right to be reimbursed for expenses due to preservation Creditor also liable for LOSS or Deterioration Pledgee cannot deposit thing to a 3rd person Exception: contrary stipulation Pledgee responsible for acts of his employees/agents - Remedy of Pledgor: Extrajudicial deposit or deposit with a 3rd person [Arts 2104 & 2106] or Resolution for Breach Pledgor who knows of hidden defects and does not disclose them to pledge, the latter suffering damages, is liable. If Thing earns Fruits, Income, Dividends or Interests, creditor shall compensate what he receives with those which are owing to him. If none are owing to him, or if amount exceeds what is due to him, apply excess to principal Unless contrary stipulation, pledge extends to interest and earnings of right pledged Pledge of Animals – offspring owned by pledgor/owner but subject to the pledge.
Pledge is INDIVISIBLE Heirs of either debtor or creditor cannot ask for proportionate extinguishment or return of the thing pledged. EXCEPTIONS: 1. Several things given in pledge, each one answering for a determinate portion of the credit 2. Only partial release of the loan [Central Bank v CA] 3. Failure of Consideration – creditor took over management but the business failed. Indivisibility of Pledge is NOT AFFECTED by the fact that the debtors are NOT SOLIDARILY LIABLE. Contract of Pledge may secure all kinds of obligations Pure or Subject to a Suspensive or Resolutory Condition Valid, Voidable or Unenforceable Contracts
JEN LAYGO 2D ‘05
If period is for benefit of pledge, even if obli is not due, he may compensate against the interest or principal If thing pledged is retuned to owner or pledgor, pledge is EXTINGUISHED. Contrary Stipulation is VOID. If after to perfection of pledge, the thing pledged is possessed by the pledgor, there is PRIMA FACIE presumption that the same has been returned by the pledge. Same presumption if 3rd person possesses thing, receiving it from the pledgor or owner. EXCEPTION: pledgor acts as agent of pledgee
10. Unless expropriated by State, pledgor retains ownership of thing. - But creditor may bring actions pertaining to owner, in order to recover it from or defend it against a 3rd person
11. Creditor cannot USE the thing without authority of the Pledgor - If he uses it or misuses it in any way, owner may ask that
it be judicially or extra-judicially deposited When preservation requires use, creditor must use but only for that purpose.
16. Statement in writing by pledge that he RENOUNCES or ABANDONS pledge is sufficient to extinguish pledge. No need for acceptance of pledgor or owner Also no need for delivery of thing pledged to pledgor or owner.
12. Pledgor can only ask for return of thing if he has paid principal and interest of the obligation – as well as expenses 13. In DANGER OF LOSS OR IMPAIRMENT A. Due to negligence or willful act of pledgee, - PLEDGOR may require thing to be deposited to 3rd person B. W/o fault of pledgee: 2 options of PLEDGEE i. Pledgee may demand return of thing upon offering another thing in pledge, provided that same kind as former and not of inferior quality ii. Pledgee may cause thing to be sold at a Public Sale. When there is danger of loss, destruction or dimunition of value Proceeds of sale shall be security for principal obligation in same manner as the thing originally pledged. Upon due date, if cash value acquired in Public Sale is less than principal obligation, creditor CAN STILL recover deficiency. But pledgor can question sale, alleging he could have obtained a better price. Pledgee’s right takes precedence over pledgor’s right 14. If Creditor DECEIVED on SUBSTANCE or QUALITY Pledgee may either: A. Claim another thing B. Demand immediate payment of obligation Instance when debtor loses benefit of the period 15. THING PLEDGED IS RETURNED JEN LAYGO 2D ‘05 9
FORECLOSURE OF PLEDGE FORMALITIES REQUIRED 1. Debt is due and unpaid 2. Sale must be at public auction 3. Notice to pledgor and owner, stating the amount due 4. Must be with intervention of Notary Public PROCESS 1. 2. 3. 4. 5. 6. Debt becomes due and debtor defaults Creditor proceeds to Notary Public and asks to conduct a Notarial Sale Sale shall be a public auction supervised by Notary but in class, JP said creditor has control and determines details of the sale Notice of sale must be given to pledgor and owner No specified period for notification If not sold on 2 public auctions, creditor may appropriate for himself by giving an acquittance for his entire claim. After auction, pledge shall advise owner or pledgor of result 8. If credit pledged becomes due before it is redeemed, PLEDGEE may collect and receive the amount due. pledge shall apply the proceeds to payment of the principal obligation - SURPLUS should be delivered to PLEDGOR If 2 or more things are pledged, Pledgee may choose which to sell, unless contrary stipulation. as guarantor. - 3rd party pledgor is entitled to: a. Indemnity b. Subrogation c. Pledgor released if creditor accepts property in payment of debt DACION d. Release of 1 pledgor w/o consent benefits all e. Extension granted to debtor extinguished pledge f. Pledgors are released from obli if no subrogation by act of creditor g. Pledgor may set up defenses inherent in the debt CONVENTIONAL PLEDGE Debtor/Owner/Pledgor is not entitled to excess but may stipulate. Debtor is also not liable for deficiency and cannot stipulate. Debtor need only default and notarial intervention for sale to be held. No required period to hold auction sale LEGAL PLEDGE Excess/Remainder of the price of the sale shall be delivered to the debtor May only be sold after DEMAND of the AMOUNT for which the thing is retained Public Auction shall be held ONE MONTH after such demand. If w/o just grounds, creditor does not cause public sale to be held w/in such period, debtor may require return of the thing.
10. If a 3rd party pledges his own movable property, he has same rights
RULES 1. At auction, pledgor or owner may bid and shall have a better right if same terms as highest bidder. 2. 3. 4. Pledgee may also bid but invalid if he is only bidder. All bids must offer to pay price at once. If other bid is accepted, pledgee is deemed to have received purchase price. SALE EXTINGUISHES WHOLE OBLIGATION principal, interest, and expenses DEBTOR NOT ENTITLED TO EXCESS, MAY STIPULATE DEBTOR NOT LIABLE FOR DEFICIENCY - contrary stipulation is VOID - opt out: set a minimum bid, or just file collection suit instead of foreclosing, or stipulate that if pledge goes under certain amount, debtor must pledge additional securities. Any person who has a right to thing pledged may satisfy PO as soon as it becomes due and demandable - creditor cannot refuse payment by interested 3rd person - can be a buyer of the thing, or someone with a junior lien
RULES FOR LEGAL PLEDGE Possesor in GF may retain thing on qwhich he spent for necessary expenses until reimbursed. He who works on a movable may retain the same until paid for the work 10
JEN LAYGO 2D ‘05
Depositary may retain the thing until paid for the deposit Agent may retain objects of agency until reimbursed by principal Laborer’s wages are considered a lien on goods manufactured or work done Execute document of mortgage Go to a notary public who will notarize document Pay documentary stamp tax Go to RD to register, must be updated in tax payments
IV. REAL MORTGAGE
DEFINITION A real estate mortgage is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation, specially subjecting to such security immovable property or real rights over immovable property in case the principal obligation is not complied with at the time stipulated. CHARACTERISTICS Real Accessory Subsidiary RULES/EFFECTS The mortgage Directly and Immediately subjects the property upon which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted. Ownership is retained by mortgagor, may even mortgage it again The portion of the mortgage registered creates a preference in favor of creditor over the land Opt Out: do a credit line arrangement with a ceiling price or execute a new document everytime funds are released.
- by delivery, MUST be REGISTERED - no independent existence - obli of creditor arises only upon fulfillment of PO
May be on a VOIDABLE, UNENFORCEABLE K or a NATURAL obligation. KINDS: Voluntary / Legal and Equitable Mortgage As a General Rule, the MORTGAGOR RETAINS POSSESSION, however this is not essential and mortgagee may have possession and it would still be a mortgage and some other contract. SM: Immovables and Alienable Rights over Immovables
Mortgage extends to: a. natural accessions b. Improvements c. growing fruits, d. rents or income not yet received when obli is due e. Insurance indemnity f. Compensation for expropriation Mortgage over future property invalid but future improvements, valid. To exclude these things, there must be an express stipulation. When expropriated, the cash given by the gov’t as indemnity becomes the security. Upon default, M’ee can apply cash to obligation.
FUTURE PROPERTY CANNOT BE OBJECT OF K o MORTGAGE. Must be absolute owner. But future improvements are valid. REQUISITES Purpose Real Alienation Disposal Ownership
The Mortgage credit may be ALIENATED / ASSIGNED by the creditor to a 3rd person - to secure a Principal Obligation - must be registered in Registry of Property to prejudice 3rd persons - When PO becomes due, may be alienated for payment - Free Disposal or Legally Authorized to do so - Absolute ownership of thing mortgaged Assignee may also foreclose mortgage in case of default Alienation or assignment is valid even if not registered.
When the property is alienated to a 3rd person, the creditor can claim from such 3rd person the part of the credit secured by the property in the latter’s possession
*Even w/o registration, there is already a valid mortgage between parties. HOW TO ENTER JEN LAYGO 2D ‘05
There must be prior demand to debtor and the latter failed to pay, before going after the property possessed 3rd person [must be possession in concept of an owner]
But 3rd person is not liable for deficiency unless contrary is stipulated. He cannot be liable for more than value of property alienated to him. owner from alienating immovable
Stipulation forbidding the mortgaged shall be void. -
But the mortgage can stipulate that property will not be further encumbered – valid stipulation as mere regulation Stipulation that mortgagor must notify m’ee before alienating is valid
FORECLOSURE OF REAL MORTGAGE Default rule: Judicial Foreclosure E: Extrajudicial foreclosure only if SPOA stipulated E: Parties may also stipulate a private sale Foreigner can be mortgagee, governed by RA133 RA133 Applies when mortgagee or his successor in interest is disqualified to acquire or hold lands of the public domain: He shall not take possession of the mortgaged property during the existence of the mortgage Except after default and only for the purpose of foreclosure, receivership, enforcement or other proceedings and In no case exceeding 5years from actual possession Shall not bid or take part in any sale of such real property in foreclosure. Foreigner mortgagee, JUDICIAL FORECLOSURE under Act133. SPOA, EXTRAJUDICIAL FORECLOSURE according to Act3135. No stipulation, JUDICIAL FORECLOSURE under Rule68 of the RoC. Mortgagee BANK, Act3135 applies & Sec47 of the General Banking Act. JUDICIAL FORECLOSURE UNDER RULE 68 OF RULES OF COURT PROCESS M’ee files petition for judicial foreclosure in court where prop’y situated Court will conduct trial. EQUITY OF REDEMPTION PERIOD. Court will promulgate judgment & order mortgagor to pay debt w/in 90-120 days from NOTICE of Judgment. [Book says From entry of judgment] If mortgagor fails to pay within period, property shall be auctioned
Judicial Confirmation of Sale [Registration of certified copy of final order of the court confirming the sale]. Even after 90-120 day period, Equity of redemption period actually extends to before the sale is confirmed. After confirmation of sale, purchaser shall be entitled to possession and all rights of mortgagor are severed. Mortgagor cannot redeem anymore. General Rule is that there is no redemption after confirmation in Judicial Sales. Exception is when it comes to BANKS Proceeds of Sale will be Disposed: Costs/Expenses of Sale Principal Obligation and Interests Junior Encumbrances Excess = mortgagor Deficiency = MOTION for deficiency judgment, may be on other properties, no need for another court action. EXTRA-JUDICIAL FORECLOSURE UNDER ACT 3135 PROCESS
COMPLAINT NOTICE OF SALE
- w/ executive judge in prov. where prop’y situated
– description, date, time, place and principal obli. a. Posting in at least 3 public places 20 days before sale b. Publication in Newspaper of general circulation ONCE a WEEK for ark east 3 CONSECUTIVE WEEKS if value exceeds P400. PUBLIC AUCTION - Time: 9-4pm - Under Sheriff/justice of peace’s direction or NP - Anyone may bid unless exceptions stipulated - Even if M’ee only bidder, valid, may still redeem - Must be at least 2 bidders - Highest bidder, but if ceiling price stipulated and creditor highest bidder, estopped. PROCEEDS Inadequacy of price is immaterial, right to redeem Excess goes to Mortgagor Deficiency must be collected via court action POSSESSION if M’or in possession, will retain possession during redemption period of 1year from date of sale. if purchaser wants immediate possession, must file bond equal to 12months rent. Exception: in Banks, purchaser may immediately posses upon confirmation of sale. In this case, M’or petition the sale to be set aside and writ of possession be cancelled. 12
JEN LAYGO 2D ‘05
REDEMPTION M’or may redeem within 1YEAR from date of execution of Certificate of Sale Exception: Foreclosing Bank and Mortgagor is a juridical person, right to redeem before registration of the certificate of sale but not exceeding 90days from foreclosure. Debtor, Successor in interest or any judgment creditor of debtor, or any person having junior encumbrance on property may redeem. [Sec28 Rule39 ROC] 7. REDEMPTION PRICE- Purchase price plus interest of 1% per month - Except: if foreclosing bank, ORIGINAL OBLI plus INETERST at ORIGINAL RATE plus COSTS. - if M’or sells property to 3rd person w/in redemption period, 3rd person only bought the right to redeem the property and the right to possess w/in the redemption period. Right of redemption may be waived only if there is fair exchange of value and information between parties. Mortgagor can exercise right of redemption in same terms even if property is subsequently sold to a 3rd party. EXCEPTIONS UNDER SEC47 OF GENERAL BANKING LAW Applies when foreclosing mortgagee is a BANK. Same procedures as judicial or extra-judicial but with ff exceptions: RIGHT TO REDEEM GR: No right to redeem in Judicial Foreclosures E: For Banks, there is still a right to redeem w/in 1 year from registration of the sale. REDEMPTION PRICE GR: In extra-judicial foreclosure, the Redemption price is the purchase price plus 1% monthly interest E: In banks, redemption price consists of: principal obligation interest on loan at the rate stipulated in mortgage Costs of Sale AUTOMATIC RIGHT OF POSSESSION GR: mortgagor retains possession w/in redemption period E: in banks, purchaser automatically has right of possession INJUNCTION JEN LAYGO 2D ‘05
Anyone who wants to enjoin foreclosure instituted by a bank may file a bond to satisfy damage may be suffered by injunction PERIOD OF REDMEPTION FOR JURIDICAL PERSONS GR: in extra-judicial foreclosure, mortgagor may redeem after 1 year from execution of certificate of sale. No distinction between juridical and natural persons. E: bank, same rule applies to natural persons. But juridical persons must redeem: i. Before Registration of Sale ii. Not later than 90DAYS from date of sale RIGHTS OF JUNIOR MORTGAGEE 1. Before 1st M’ee sells, JM may exercise equity of redemption vested in Mortgagor. Effect: 2 laws govern a. Sec28 Rule39 ROC – M’or/Debtor has 60dayts to reimburse JM. If he fails to do so, JM owns property. b. Oblicon – rules on payment by 3rd person, JM only subrogated in right of first mortgagee. 2. When extra-judicial sale is made, JM may redeem w/in 1 year from sale. JP says JM should pay price at which property was sold. 3. Proceeds in excess of PO of 1st M shall be applied to JM. But if there is no excess, the 2nd Mortgage is Extinguished. 4. JM may foreclose on the right of redemption so that he will be the only one to exercise the right when the time comes.
V. CHATTEL MORTGAGE
DEFINITION Chattel Mortgage is the contract by virtue of which personal property is recorded in the Chattel Mortgage Registry as a security for the performance of an obligation. If the movable, instead of being recorded, is delivered to the creditor or a 3rd person, the contract is a PLEDGE. CHARACTERISTICS 1. Accessory 2. Formal 3. Unilateral - secures performance of a principal obligation - requires registration in CM Register for validity - produces only obligations on creditor to free thing from encumbrance on fulfillment of PO
REQUISITES 1. PRINCIPAL OBLIGATION 13
2. 3. 4. 5. ABSOLUTE OWNER FREE DISPOSAL or AUTHORITY ALIENATION WHEN PO DUE RECORDED IN CHATTEL MORTGAGE REGISTRY a. RD where mortgagor resides at the time of making b. Resides outside Phils – where prop’y situated c. If prop’y situated in different province different from where M’or resides, RD of BOTH province where resides and where property is situated. – Must be signed by 2 witnesses. CHATTEL MORTGAGE Personal or movable prop’y Not necessary Necessary to bind 3rd persons, in all proper RDs Sec14 of Chattel Mortgage Law Goes to debtor/mortgagor PLEDGE Personal or movable prop’y Necessary for validity Public Document is enough to bind 3rd persons Art2112 [intervention of NP & public auction] Goes to pledge/creditor unless stipulated Cannot recover even if with stipulation 4. General rule is you can’t mortgage future property. Exception is inventory of retail stores bec SC treats it as actually renewal or replenishment of goods on hand at constitution of CM. When mortgagor pays principal obligation, he gets a DISCHARGE from mortgagee and can cancel lien on movable.
SM Delivery Registration Procedure for Sale Excess Deficiency
UPON DEFAULT 1. RIGHT OF REDEMPTION - In case of default, the ff may redeem: i. Mortgagor ii. Subsequent Mortgagee [Junior Encumbrances] iii. Subsequent Attaching Creditor - If attaching creditor redeems, he is SUBROGATED to rights of the mortgagor, he can foreclose mortgage. - PO + COSTS & Expenses = subrogated - No redemption once property is sold, must redeem before sale. 2. RIGHT OF MORTGAGEE TO POSSESSION - M’ee has implied right to foreclose. - If M’or refuses to give possession, creditor may file action for REPLEVIN or action for JUDICIAL FORECLOSURE.
Cab recover except if covered by Recto Law CHATTEL MORTGAGE LAW 1. 2.
Even if not registered in CM Registry, still binding between parties Registration creates a real right or lien, wherever property goes. It gives mortgagee symbolic possession FORM OF OATH / AFFIDAVIT OF GOOD FAITH We severally swear that the foregoing mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud.
FORECLOSURE 1. FILE COMPLAINT FOR FORECLOSURE 2. NOTICE OF SALE i. Posting at 2 or more public places in municipality ii. Personal Notice to M’or and Junior M’ees at least 10 days before the sale PUBLIC AUCTION i. Must be 30 days after default ii. No max time for holding sale iii. If M’or sells w/in 30days w/o consent of M’ee, he is liable for deceits, akin to estafa. iv. Anyone may bid, unless stipulated v. Even if M’ee is sole bidder – bec of redemption PROCEEDS i. Applied to: 1. Costs 2. Obligation 3. Subsequent mortgages 4. Balance given to mortgagor 14
If w/o affidavit of GF, still binding between parties but not to 3 rd persons because of lack of formality. But mortgage will not be preferred against 3rd persons. Purpose of AGF is to hold parties criminally liable for perjury in case of misrepresentation.
CM cannot be constituted on future obligations. Must be existing principal obligation. AGF says “for no other purpose.” - JP says binding between parties but not to 3rd persons. They should execute a new CM Contract.
JEN LAYGO 2D ‘05
ii. iii. 5. Excess: junior liens and encumbrances then M’or Deficiency: File separate Action for Deficiency It is not essential that interest must be stipulated in the principal contract. There must be an express stipulation that the creditor is to APPLY THE FRUITS to the payment of interest then principal. Mere giving of possession is not indicative of antichresis RULES: 1. Actual Market Value of the fruits at TIME OF APPLICATION to interest and principal shall be the measure of such application. - Can stipulate between market value at time of application or value at time of constitution – no more Usury Law. Amount of Principal and of Interest shall be specified in WRITING, otherwise the K of A is VOID - Req’t is necessary for validity, not merely to bind 3rd persons If antichresis void, principal obligation still valid. Creditor is obliged to pay: a. Taxes and charges b. Expenses necessary for preservation and repair c. Sums spent for such expenses shall be deducted from FRUITS if creditor does not pay taxes, he has to pay Indemnity for Damages to debtor If debtor pays taxes which creditor must pay, the amount is to be applied to the payment of the debt. If the amount paid exceeds the principal obli, both the loan and antichresis are extinguished and creditor has to return property to debtor.
POSSESSION i. Possession retained by M’or during redemption ii. If purchaser wants possession, writ of possession plus bond for 12months rent REDEMPTION Equity of Redemption i. 1YEAR from date of registration of certificate of sale ii. Who may redeem? Mortgagor, Subsequent Mortgagee and Subsequent Attaching Creditor
Implied Trust – when deed of assignment made over shares of stock and lender will reconvey upon payment of loan. JP says implied trust because Art1454 says conveyance of property made to secure obligation is a trust. If there’s default, JP says ownership passes to lender/trustee. As between a pledge with a deficiency and a guaranty, creditor should collect on the debt, not as a pledgor. Then he should attach the properties pledged. The shares can be sold at an ordinary execution sale, not a foreclosure sale. In this way, deficiency can be recovered by kinder. After execution, lender can go after guarantor for deficiency.
DEFINITION 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, then to the PRINCIPAL. CHARACTERISTICS 1. Accessory 2. Formal - secures performance of a principal obligation - must be in WRITING - Delivery is not required for validity. But is required in order that creditor may receive the fruits. 4.
Debtor CANNOT reacquire property w/o first having TOTALLY PAID what he owes creditor. - If creditor does not want to pay the taxes and charges: A. Stipulate B. He may Compel debtor to enter again upon enjoyment of property. Except when: contrary stipulation. has effect of EXTINGUISHING ANTICHRESIS Creditor DOES NOT ACQUIRE OWNERSHIP of the real estate for nonpayment of the debt within the period agreed upon. - Every stipulation to the contrary is VOID - In case of default, creditor has the ff remedies: A. specific performance / collection B. sale of property in judicial foreclosure - ROC
NOTES Law does not require possession Only on IMMOVABLE property Both interest and principal must be in WRITING GR: antichresis covers ALL FRUITS of the encumbered property E: Stipulate. JEN LAYGO 2D ‘05
- GR: Creditor cannot acquire property by antichresis – not held in concept of an owner. Exception: if creditor repudiates antichresis 6. Parties may stipulate that interest be compensated with fruits of property object of antichresis. a. Actual market value of the fruits at time of application b. Form of interest in kind value at date of payment Other characteristics of Antichresis a. A 3rd person, not party to the PO, may offer his immovable under the contract of antichresis for the debt of another b. Contract is INDIVISIBLE c. Indivisibility is not affected by joint liability of debtors d. May secure all kinds of obligations – pure or conditional [resolutory or suspensive] RULES 1. A debtor is liable with ALL his property, present and future, for the fulfillment of his obligations E: Subject to exemptions provided by law [future support, home] As long as ACP or CPG subsists, its property shall not be among assets taken by assignee for payment of insolvent debtor’s obligations E: Redounded to the benefit of the family When insolvent debtor is a co-owner with an undivided share in any property, his undivided share shall be among the assets taken for payment of his obligations. - Right becomes significant only if properties of debtor already liquidated and inventoried and claims of creditors have been established
VI. CONCURRENCE AND PREFERENCE OF CREDITS
DEFINITION Concurrence implies possession by 2 or more creditors of equal rights or privileges over the same property or all of the properties of debtor. Preference is the right held by a creditor to be preferred in the payment of his claim out of the debtor’s assets above others. NATURE & EFFECT 1. An exception to GR of payment so strictly construed 2. Does not create an interest in property – preference of app of proceeds 3. Creditor doesn’t have right to take property or sell it – applies after sale 4. Must be asserted 5. Must be maintained REQUISITES 1. 2 or MORE CREDITORS 2. SEPARATE AND DISTINCT CLAIMS 3. ALL CLAIMS/DEBTS ARE DUE 4. SAME DEBTOR - Except if natural person gets a discharge under insolvency laws 5. INSUFFICIENT PROPERTY - but must be absolute owner of properties 6. PROCEEDING WHEREIN CREDITOR CAN FILE CLAIMS - Like insolvency proceedings JEN LAYGO 2D ‘05
ANTICHRESIS REAL MORTGAGE Same SM Same SM Property is delivered to creditor Debtor usually retains possession Creditor only has right to receive Creditor has no right to receive fruits fruits, not a real right but has real right over the property [But may be a real right if registered] GR: creditor must pay for taxes and Creditor has no obligation to pay charges upon the estate taxes and charges E: contrary stipulation Expressly stipulated that creditor No obligation on part of mortgagee shall apply fruits to payment of to apply fruits to interest then interest, if owing, then to principal principal 4. Property held by insolvent debtor as a trustee of an express or implied TRUST shall be excluded from insolvency proceedings. CLASSIFICATION OF CREDITS I. SPECIAL PREFERRED CREDITS A. Specific Movable Property 1. DUTIES, TAXES on the property itself, and FEES DUE TO THE STATE MISAPPROPRIATION, BREACH OF TRUST or MALFEASANCE by PUBLIC OFFICIALS committed in the performance of their duties, on movables, money or securities obtained by them UNPAID PRICE OF MOVABLES SOLD, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien 16
may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; Credits guaranteed with a PLEDGE so long as the things pledged are in the hands of the creditor, or those guaranteed by a CHATTEL MORTGAGE, upon the things pledged or mortgaged, up to the value thereof; - In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessor, within 30DAYS from the unlawful seizure. - Except for taxes, no preference among those enumerated. - For taxes to be preferred, must be on movable itself. - For misappropriation, must still be with the PO and not innocent purchaser - PLEDGE – public instrument; CHATTEL M – CM registry B. Specific Immovables and Real Rights 1. TAXES DUE upon the land or building; UNPAID PRICE OF REAL PROPERTY SOLD, upon the immovable sold; MORTGAGE CREDITS recorded in the Registry of Property, upon the real estate mortgaged; CREDITS ANNOTATED IN THE REGISTRY OF PROPERTY, in virtue of a judicial order, by ATTACHMENTS or EXECUTIONS, upon the property affected, and only as to later credits; - Except for real property tax, does not create preference, merely enumerates. - Unpaid price for prop’y sold cannot be enforced v IPFV, governed by PD1529 - Credits annotated by judicial order are preferred over credits of the same nature which are registered later. Unlike other special preferred credits, these credits do not share proportionately in the property upon which they are imposed. To determine priority among several credits of this kind, their DATES should be the basis. The first one to be registered is prioritized. *The claims or credits enumerated in the 2 preceding articles shall be considered as mortgages or pledges of real or personal property or liens within the purview of legal provisions governing insolvency. II. ORDINARY PREFERRED CREDITS JEN LAYGO 2D ‘05 17 (1) Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the commencement of the proceedings in insolvency; (9) Taxes and assessments due the national government, other than those mentioned in Articles 2241, No. 1, and 2242, No. 1; (10) Taxes and assessments due any province, other than those referred to in Articles 2241, No. 1, and 2242, No. 1; (11) Taxes and assessments due any city or municipality, other than those indicated in Articles 2241, No. 1, and 2242, No. 1; (14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a final judgment, if they have been the subject of litigation. These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the judgments, respectively. (1924a) - Establishes a PREFERENCE - If there are deficiencies in special preferred credits, must find a heading under Art2244 where applicable. Otherwise, it will not be preferred and will be treated as a common credit. - Once the special preferred claims under Art2241 and 2242 are satisfied, property remaining constitute debtor’s FREE PROPERTY. This will then be used to answer for claims under ordinary credits. 2244 established a preference, unlike 2241 and 2242. - Also, in 2241 and 2242, the preference is only as to THAT SPECIFIC PROPERTY. In 2244, the preference is with respect to the mass of properties of debtor remaining after the special preferred claims are satisfied. III. COMMON CREDITS Credits of any other kind or class, or by any other right or title not comprised in the preceding articles shall enjoy NO PREFERENCE.
RULES 1. Those under special preferred credits are preferred as to the specific property they pertain to. 2. If there are 2 or more credits with respect to the same specific property, they shall be satisfied pro rata, after payment of duties, taxes and fees to the State 3. Common credits shall be paid pro rata regardless of dates.
VII. INSOLVENCY LAW
3 REMEDIES: 1. Suspension of Payments 2. Voluntary Insolvency - discharge 3. Involuntary Insolvency - discharge *Security creditors / secured claims are not covered by Insolvency law, they have option of foreclosing securities instead. SUSPENSION OF PAYMENTS Postponement, by court order, of the payment of debts of one who, while possessing sufficient property to cover his debts, foresees the impossibility of meeting them when they respectively fall due. Solvent but not Liquid.
WHO MAY REQ’TS UNDER 902-A A corporation UNDER INSOLVENCY LAW Natural or Juridical Person SOLVENT – sufficient prop’y NOT LIQUID – foresee impossibility of meeting all when they fall due Petitioning he be declared in state of suspension of payment RTC where debtor resided for 6months prior 1. No disposition of property may be made by the debtor except in ordinary course of business 2. No payments may be made by debtor except in ordinary course of business 3. Upon request to the court, all pending executions against debtor shall be suspended except execution against prop’y especially mortgaged. 1. Debtor must be solvent but not liquid. 2. Creditors have a say 3. Secured creditors are not suspended and may foreclose
b. c. d.
DEBTS AND LIABILITIES STATEMENT OF ASSETS & LIABILITIES PROPOSED AGREEMENT
2. 3. 4.
Court will issue ORDER calling for the meeting of all creditors. Meeting shall take place 2-8 weeks from date of order. Order will be PUBLISHED and NOTICE sent to all creditors of debtor MEETING of Creditors QUORUM REQUIREMENT – to have a valid meeting, creditors present must represent at least 60% of the total liabilities of debtor. Creditors will APPROVE the proposition MAJORITY REQUIRED FOR APPROVAL A DOUBLE MAJORITY consisting of: a. 2/3 of the numbers of creditors voting b. The 2/3 must represent at least 60% of the total liabilities OBJECTIONS must be made within 10 days after the meeting Court issues order directing agreement to be CARRIED OUT.
Solvent but not liquid; or Insolvent & under receivership
RTC 1. 2. Debtor has continued access to properties Gives debtor leverage or framework for negotiation
CREDITORS NOT AFFECTED Those who did not appear shall not be bound. Persons with claims for personal labor, maintenance, expense of last illness and funeral of the wife or children of the debtor incurred in the 60days immediately preceding to filing Persons having legal or contractual mortgages. They can foreclose upon default. GROUNDS FOR QUESTIONING MEETING 1. Procedural Defects 2. 3. Fraudulent Connivance – legal to give incentives but not bribes Fraudulent Conveyance
1. 2. 3.
More lenient. Even if under receivership only, may file. Only the court decides. Even secured creditors are suspended.
PROCEDURE FOR SUSPENSION OF PAYMENT UNDER INSOLVENCY LAW
File PETITION in RTC where debtor resides 6months prior. Petition shall be accompanied by: a. VERIFIED LIST OF ALL CREDITORS
VOLUNTARY INSOLVENCY An insolvent debtor whose liabilities exceed P1000 may apply to be discharged from his debts and liabilities by filing a petition for voluntary 18
JEN LAYGO 2D ‘05
insolvency in the RTC where he has resided for the last 6months prior to filing. In involuntary insolvency, the debtor himself is the petitioner.
INSOLVENCY Purpose Solvency of Debtor Effect on Amount of Indebtedness Number of Creditors To discharge the debtor from the payment of debts Debtor does not have sufficient property to pay his debts Amount is affected. Creditors receive less than their credits; and where there are preferences, some creditors may not receive anything at all. There must be 3 or more creditors if it is involuntary insolvency SUSPENSION OF PAYMENTS To suspend or delay payment of debts Debtor has sufficient property to pay his debts The amount of indebtedness is not affected The number of creditors is immaterial
Effects of Order: Sheriff takes possession of all assets not exempt Prohibited acts: Payment to debtor of debts due to him Delivery to debtor or to any person for him, any property belonging to him Transfer of any property by him All civil proceedings against debtor are stayed Mortgages, pledges, attachments or executions on property of debtor duly recorded and not dissolved are not affected by order. INVOLUNTARY INSOLVENCY Purpose is to impound all of the non-exempt properties of the debtor, to distribute it equitably among his creditors and to release him from further liability.
Number of Creditors Petitioner Acts of Insolvency Amount of Indebtedness Bond Hearing Residency Requirement Issuance of Order of Adjudication declaring Debtor Insolvent VOLUNTARY 1 creditor is sufficient Insolvent debtor Debtor must not be guilty of any act of insolvency Must be greater than P1000 Not required Not necessary, may be granted ex parte Filed with RTC where debtor resided 6months prior Upon the filing of the voluntary petition INVOLUNTARY 3 or more creditors 3 or more creditors who possess qualifications Debtor must have committed 1 or more of 13 acts Must be P1000 or more Petition must be accompanied by a bond Petition granted only after hearing RTC where debtor resides or his place of business, no residency requirement Upon hearing of the case
PROCEDURE 1. Filing of PETITION, containing: a. Debtor’s place of residence and period of residence b. His inability to pay all his debts in full c. Willingness to surrender all his property, estate and effects not exempt from execution for the benefit of his creditors d. An application to be adjudged insolvent 2. Petition shall be accompanied by: a. A verified SCHEDULE containing: i. Full and true statement of all debts and liabilities ii. Facts which give rise or which may give rise to cause of action against insolvent debtor b. A verified INVENTORY containing: i. Description of all personal and real properties, whether exempt or not, value, location and encumbrance ii. Facts which give rise to action in favor of insolvent debtor
3. 4. 5.
6. 7. 8. 9. 10. 11.
Court issues and ORDER OF ADJUDICATION – no hearing, voluntary PUBLICATION AND SERVICE of order to creditors MEETING of Creditors to elect ASSIGNEE CONVEYANCE of debtor’s property by Clerk of Court to Assignee LIQUIDATION of debtor’s assets and payment of hid debts COMPOSITION DISCHARGE, except if debtor is a corporation OBJECTION APPEAL to SC
REQUIREMENTS PETITIONERS 1. At least 3 creditors of 1 debtor 2. Creditors are residents of the PHILS 3. Credits accrued in the Phils 4. Aggregate amount is at least P1000 19
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5. Should not have accrued w/in 30 days prior to filing of petition PETITION 1. Verified by the petitioners 2. Sets forth 1 or more acts of insolvency 3. Accompanied by a BOND approved by court with at least 2 sureties. 3 Kinds of Acts of Insolvency 1. By debtor to ensure that debtor will not be able to pay 2. By debtor in fraud of creditors 3. By debtor, giving preference to 1 creditor against other creditors PROCEDURE File petition by 3 or more creditors in RTC where debtor resides or place of business Issuance of order requiring debtor to show cause Service to debtor of order Filing of debtor’s answer or motion to dismiss Hearing Issuance of order or decision adjudging debtor as insolvent - So that pending judgment, debtor cannot dissipate his assets, creditors should ask the court for an injunction or for a receiver who will hold the properties. Publication and Service of Order – must attach/garnish assets Meeting of creditors for ELECTION of assignee - elected within 2-8 weeks from date of order Conveyance of debtor’s property Liquidation of assets and payment of debts Composition Discharge Objection Appeal to SC ASSIGNEES Person elected by creditors or appointed by the court to whom an insolvent debtor makes an assignment of all his property for the benefit of the creditors. The assignment vests title to all the assets of the debtor in favor of assignee. Who can participate in Election Creditors who have filed their claims in the Clerk of Court at least 2 days prior to scheduled election. General rule: secured creditors cannot, except if they: 1. Ask for the fixing of the value of the security 2. Surrender the security to the sheriff or the receiver Creditors meet and a MAJORITY of BOTH IN NUMBER AND IN THE AMOUNT OF CREDIT they represent should vote for the same assignee. If this fails, court will appoint. What Assignee should do Within 5days from election, assignee should file BOND w/ 2 or more sureties. Assignee gets 7% for 1st P1000, 5% for greater than P1000 but less than P10,000, 4% for sums exceeding P10,000. Effects of Assignment 1. Assignee takes property in same conditions as insolvent held it 2. Upon appointment, legal title to all property is vested in the assignee, and the control of the property is vested in court. But title of assignee retroacts to the date of filing for insolvency. 3. All actions shall be brought assignee an not by creditors 4. Attachment or judgment against debtor 30days before filing of insolvency shall be set aside. NOTES: If any person knowing the pending insolvency proceedings, embezzles or disposes of any of the insolvent’s property is liable for equal to double the value of the property embezzled/ PARTNERSHIPS AND CORPORATIONS PROPERTIES COVERED: 1. All properties of partnership 2. Separate properties of each of the general partners, EXCEPT: a. Separate properties of limited partners b. Properties which are exempt by law NOTES Partnership may be declared insolvent even if individual partners are solvent. Creditors, after first exhausting its assets, may proceed against the solvent general partners who are proportionally liable with heir separate property. Partnership is automatically dissolved by insolvency of 1 partner Partners get a discharge, corporations don’t. Distribution of Net Proceeds of Properties of Partnership 1. Partnership property - Debts of partnership 2. Individual property - Individual debts 3. Surplus in property of general partner, a proportionate share of such shall be added to partnership assets and used to pay partnership debts. 20
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4. Surplus in partnership assets shall be added to assets of individual partners in proportion to their interest in the partnership. 2. 3. 4. PROOF OF DEBTS DEBTS WHICH MAY BE PROVED/COLELCTED All debts due and payable at time of adjudication All debts existing at time but not payable until a future time Any debt of insolvent arising from his liability as indorser, surety, bailor or guarantor where such liability became absolute after the adjudication of insolvency but before the final dividend shall have been declared Other contingent debts & liabilities contracted by the insolvent if the contingency shall happen before the order of final dividend Any claim for reimbursement of a person who has answered, in whole or in part, for the insolvent’s debt as bail, surety or guarantor or otherwise. CONTINGENT CLAIM A liability which depends on a future and uncertain event. A claim base don a contingency which has not happened at time of the proceedings cannot be proved since there is no real claim yet. But if it happens after the proceedings, creditor can still claim fro debtor. DEBTS WHICH CANNOT BE PROVED 1. barred by prescription 2. secured creditors, unless waived 3. claims of creditors who hold an attachment or execution issued 30days before institution 4. fraudulent preference 5. Support 6. Damages from tort The discharge granted to the debtor does not cover those debts that could not have been proved. Compensation can be set up against insolvent only for debts arising at least 30days before filing. DISCHARGE Debtor must ask for discharge within 3 months to 1 year from time he is adjudicated insolvent. It is not automatic. Only those debts set forth in schedule and those which were or might have been proved against estate in proceedings are released by discharge. Petition for discharge can be denied if he is in bad faith or does acts to prejudice creditors. Discharge can be revoked if creditor can prove it was fraudulently obtained. Creditor must file action within 1year from date of discharge. FRAUDULENT PREFERENCES & TRANSFERS A parting with the property of insolvent for benefit of a creditor with result that estate of insolvent is diminished, to prejudice of other creditors. Fraudulent Preference: disposition by debtor under conditions: 1. he is Insolvent or in contemplation of insolvency 2. made within 30days from filing of petition 3. with a view to giving preference to any creditor 4. person receiving benefit has reason to believe that debtor is insolvent and transfer is made to defeat rights of other creditors Fraudulent Conveyance / Transfer Any disposition made by insolvent 30days before filing, EXCEPT FOR VALUABLE CONSIDERATION AND IN GOOD FAITH Status of Fraudulent Conveyance Within 30days from filing VOID After filing RESCISSIBLE May file criminal complaint Presumption of FRAUD 1. Not made in usual and ordinary course of business of debtor 2. Made under a confession of judgment Offer accepted in writing by a DOUBLE MAJORITY of creditors Made after depositing the consideration to be paid and the cost of proceedings Court must approve terms of compensation
COMPOSITIONS An agreement made upon sufficient consideration between insolvent and all creditors whereby the creditors agree to accept a dividend less than the amount of their claims, for the sake of getting paid sooner. REQUISITES 1. offer of the terms of composition made after filing of the schedule and list of creditors JEN LAYGO 2D ‘05
Art. 1970. If a person having capacity to contract accepts a deposit made by one who is incapacitated, the former shall be subject to all the obligations of a depositary, and may be compelled to return the thing by the guardian, or administrator, of the person who made the deposit, or by the latter himself if he should acquire capacity. (1764)
CHAPTER 1 DEPOSIT IN GENERAL AND ITS DIFFERENT KINDS Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (1758a) Art. 1963. An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing. (n) Art. 1964. A deposit may be constituted judicially or extrajudicially. (1759) Art. 1965. A deposit is a gratuitous contract, except when there is an agreement to the contrary, or unless the depositary is engaged in the business of storing goods. (1760a) Art. 1966. Only movable things may be the object of a deposit. (1761) Art. 1967. An extrajudicial deposit is either voluntary or necessary. (1762) CHAPTER 2 VOLUNTARY DEPOSIT SECTION 1. - General Provisions Art. 1968. A voluntary deposit is that wherein the delivery is made by the will of the depositor. A deposit may also be made by two or more persons each of whom believes himself entitled to the thing deposited with a third person, who shall deliver it in a proper case to the one to whom it belongs. (1763) Art. 1969. A contract of deposit may be entered into orally or in writing. (n)
Art. 1971. If the deposit has been made by a capacitated person with another who is not, the depositor shall only have an action to recover the thing deposited while it is still in the possession of the depositary, or to compel the latter to pay him the amount by which he may have enriched or benefited himself with the thing or its price. However, if a third person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery. (1765a) SECTION 2. - Obligations of the Depositary Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book. If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must observe. (1766a) Art. 1973. Unless there is a stipulation to the contrary, the depositary cannot deposit the thing with a third person. If deposit with a third person is allowed, the depositary is liable for the loss if he deposited the thing with a person who is manifestly careless or unfit. The depositary is responsible for the negligence of his employees. (n) Art. 1974. The depositary may change the way of the deposit if under the circumstances he may reasonably presume that the depositor would consent to the change if he knew of the facts of the situation. However, before the depositary may make such change, he shall notify the depositor thereof and wait for his decision, unless delay would cause danger. (n) Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law. The above provision shall not apply to contracts for the rent of safety deposit boxes. (n)
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Art. 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain or other articles of the same kind and quality, in which case the various depositors shall own or have a proportionate interest in the mass. (n) Art. 1977. The depositary cannot make use of the thing deposited without the express permission of the depositor. Otherwise, he shall be liable for damages. However, when the preservation of the thing deposited requires its use, it must be used but only for that purpose. (1767a) Art. 1978. When the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract. The permission shall not be presumed, and its existence must be proved. (1768a) Art. 1979. The depositary is liable for the loss of the thing through a fortuitous event: (1) If it is so stipulated; (2) If he uses the thing without the depositor's permission; (3) If he delays its return; (4) If he allows others to use it, even though he himself may have been authorized to use the same. (n) Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. (n) Art. 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages should the seal or lock be broken through his fault. Fault on the part of the depositary is presumed, unless there is proof to the contrary. As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility of the depositor with respect to the value claimed by him. When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit. (1769a) Art. 1982. When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him; or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle. (n) Art. 1983. The thing deposited shall be returned with all its products, accessories and accessions. JEN LAYGO 2D ‘05 Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary. (1770) Art. 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited. Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit. If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor. If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same. (1771a) Art. 1985. When there are two or more depositors, if they are not solidary, and the thing admits of division, each one cannot demand more than his share. When there is solidarity or the thing does not admit of division, the provisions of Articles 1212 and 1214 shall govern. However, if there is a stipulation that the thing should be returned to one of the depositors, the depositary shall return it only to the person designated. (1772a) Art. 1986. If the depositor should lose his capacity to contract after having made the deposit, the thing cannot be returned except to the persons who may have the administration of his property and rights. (1773) Art. 1987. If at the time the deposit was made a place was designated for the return of the thing, the depositary must take the thing deposited to such place; but the expenses for transportation shall be borne by the depositor. If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not be the same place where the deposit was made, provided that there was no malice on the part of the depositary. (1774) Art. 1988. The thing deposited must be returned to the depositor upon demand, even though a specified period or time for such return may have been fixed. This provision shall not apply when the thing is judicially attached while in the depositary's possession, or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. In these cases, the depositary must immediately inform the depositor of the attachment or opposition. (1775) Art. 1989. Unless the deposit is for a valuable consideration, the depositary who may have justifiable reasons for not keeping the thing deposited may, even before the time designated, return it to the depositor; and if the latter should refuse to receive it, the depositary may secure its consignation from the court. (1776a) 23
Art. 1990. If the depositary by force majeure or government order loses the thing and receives money or another thing in its place, he shall deliver the sum or other thing to the depositor. (1777a) Art. 1991. The depositor's heir who in good faith may have sold the thing which he did not know was deposited, shall only be bound to return the price he may have received or to assign his right of action against the buyer in case the price has not been paid him. (1778) SECTION 3. - Obligations of the Depositor Art. 1992. If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for the expenses he may have incurred for the preservation of the thing deposited. (1779a) Art. 1993. The depositor shall reimburse the depositary for any loss arising from character of the thing deposited, unless at the time of the constitution of deposit the former was not aware of, or was not expected to know dangerous character of the thing, or unless he notified the depositary of same, or the latter was aware of it without advice from the depositor. (n) the the the the Art. 1998. The deposit of effects made by the travellers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. (1783) Art. 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel. (n) Art. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as strangers; but not that which may proceed from any force majeure. The fact that travellers are constrained to rely on the vigilance of the keeper of the hotels or inns shall be considered in determining the degree of care required of him. (1784a) Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible force. (n) Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things brought into the hotel. (n) Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void. (n) Art. 2004. The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of lodging, and supplies usually furnished to hotel guests. (n) CHAPTER 4 SEQUESTRATION OR JUDICIAL DEPOSIT Art. 2005. A judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered. (1785)
Art. 1994. The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. (1780) Art. 1995. A deposit its extinguished: (1) Upon the loss or destruction of the thing deposited; (2) In case of a gratuitous deposit, upon the death of either the depositor or the depositary. (n) CHAPTER 3 NECESSARY DEPOSIT Art. 1996. A deposit is necessary: (1) When it is made in compliance with a legal obligation; (2) When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events. (1781a) Art. 1997. The deposit referred to in No. 1 of the preceding article shall be governed by the provisions of the law establishing it, and in case of its deficiency, by the rules on voluntary deposit. The deposit mentioned in No. 2 of the preceding article shall be regulated by the provisions concerning voluntary deposit and by Article 2168. (1782) JEN LAYGO 2D ‘05
Art. 2006. Movable as well as immovable property may be the object of sequestration. (1786) Art. 2007. The depositary of property or objects sequestrated cannot be relieved of his responsibility until the controversy which gave rise thereto has come to an end, unless the court so orders. (1787a) Art. 2008. The depositary of property sequestrated is bound to comply, with respect to the same, with all the obligations of a good father of a family. (1788) Art. 2009. As to matters not provided for in this Code, judicial sequestration shall be governed by the Rules of Court. (1789)
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JEN LAYGO 2D ‘05
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