CREDIT TRANSACTIONS include all transactions involving the purchase or loan of goods, services or money in the present with a promise to pay or deliver in the future (contract of security) 2 TYPES OF CREDIT TRANSACTIONS: 1. secured transactions – those supported by a collateral or an encumbrance of property 2. unsecured transactions – those supported only by a promise to pay or the personal commitment of another such as a guarantor or surety SECURITY is something given, deposited or serving as a means to ensure the fulfillment or enforcement of an obligation or of protecting some interest in the property 2 TYPES OF SECURITY: 1. personal – when an individual becomes a surety or a guarantor 2. real or property – when an emcumbrance is made on property BAILMENT is the delivery of property of one person to another in trust for a specific purpose, with a contract, express or implied, that the trust shall be faithfully executed and the property returned or duly accounted for when a special purpose is accomplished or kept until the bailor reclaims it. PARTIES IN BAILMENT 1. bailor – the giver, the party who delivers possession/custody of the thing bailed 2. bailee – the recipient, the party who receives the possession/custody of the thing delivered KINDS OF CONTRACTUAL BAILMENT W/ REFERENCE TO COMPENSATION 1. for the sole benefit of the bailor (gratuitous) e.g. gratuitous deposit, mandatum (do some act w/ respect to aQuickTime™ and a thing) TIFF (Uncompressed) decompressor are needed of this bailee (gratuitous) 2. for the sole benefit to seethepicture. e.g. commodatum, gratuitous simple loan or mutuum 3. for the benefit of both parties e.g. deposit for compensation, involuntary deposit, pledge and bailments for hire: a. hire of things – temporary use b. hire of service – for work or labor c. hire of carriage of goods – for carriage d. hire of custody – for storage

LOAN CHARACTERISTICS 1. real contract – delivery is essential for perfection of the loan (BUT a promise to lend, being consensual, is binding upon the parties) 2. unilateral contract - only the borrower has the obligation KINDS 1. commodatum – where the bailor delivers to the bailee a non-consumable thing so that the latter may use it for a certain time and return the identical thing kinds of commodatum: a. ordinary commodatum – use by the bailee of the thing is for a certain period of time b. precarium – one whereby the bailor may demand the thing loaned at will; exists in cases where: i. neither the duration of the contract nor the use to which the thing loaned should be devoted has been stipulated ii. if the use of the thing is merely tolerated by the owner 2. mutuum or simple loan - where the lender delivers to the borrower money or other consumable thing upon the condition that the latter will pay the same amount of the same kind and quality (when it is consumed in a manner appropriate to its purpose) LOAN 1. delivery by one party and the receipt by the other party of a given sum of money or other consumable thing upon an agreement, express or implied 2. to repay the same amount of the same kind and quality, w/ or w/o interest CREDIT The ability of an individual to borrow money or things by virtue of the confidence or trust reposed by a lender that he will pay what he may promise w/in a specified period

—Adviser: Dean Cynthia Roxas-Del Castillo; Heads: Joy Marie Ponsaran, Eleanor Mateo; Understudies: Joy Stephanie Tajan, John Paul Lim; Subject Head: Sarah Lopez; Pledgee: Aiza Constantino—

Civil Law Summer Reviewer
LOAN Interest is usually taken at the expiration of a credit Always on single-name paper DISCOUNTING PAPER Interest is deducted in advance Double name paper More expensive for the borrower because interest is calculated on the amount loaned and not the amount actually received COMMODATUM Object Ownership of the thing Cause Ordinarily nonconsumable Ownership is retained by the lender Essentially gratuitous MUTUUM (SIMPLE LOAN) Money or other consumable thing Ownership is transferred to the borrower Gratuitous or onerous (w/ stipulation to pay interest) Borrower need only pay the same amount of the same kind and quality Only personal property COMMODATUM (Articles 1935-1952) 1. cause: essentially gratuitous (otherwise, if there Is compensation, it might be lease) 2. purpose: temporary use of the thing loaned but not its fruits, unless stipulated or is incidental (otherwise, if the bailee is not entitled to the use of the thing, it might be deposit) 3. subject matter: generally non-consumable goods but if the consumable goods are not for consumption, such may be the subject of the commodatum, as when merely for exhibition (Art. 1936) 4. bailor need not be the owner of the thing loaned (Art 1938) • it is sufficient that he has a possessory interest • a mere lessee or usufructuary may lend but the borrower or bailee himself may not lend not lease the thing loaned to him to a third person (Art. 1932[2]) 5. purely personal a. death of either party terminates the contract UNLESS there is stipulation to the contrary b. generally, bailee can neither lend nor lease the object to a 3rd person in the absence of some agreement to that effect c. use of the thing loaned may extend to the bailee’s household (who are not considered 3rd persons) except: 1. when there is a contrary stipulation 2. nature of the thing forbids such use 6. enjoyment of fruits – a stipulation to make use of fruits is valid, but it is never presumed. The enjoyment of the fruits must only be incidental to the use of the thing itself, for if it is the main cause, the contract may be one of usufruct.

Thing to be returned

Borrower must return the same thing loaned

Subject Matter Purpose

When to return

Who bears risk of loss


May involve real or personal property Loan for use or Loan for temporary consumption possession Bailor may Lender may not demand the demand its return return of the before the lapse of thing loaned the term agreed before the upon expiration of the term in case of urgent need Loss TIFF (Uncompressed) decompressor of QuickTime™ and a the Borrower suffers are needed to see ththe loss (even if subject matter is is picture. suffered by the caused exclusively bailor since he is by a fortuitous the owner event and he is not therefore discharged from his duty to pay) Purely personal Not purely personal

OBLIGATIONS OF THE BAILEE (Arts 1941-1945) (COOLRD2) 1. To pay for the ordinary expenses for the use and preservation of the thing loaned (Art. 1941) 2. To pay for all other expenses other than those referred to in Art. 1941 and 1949 (refund of extraordinary expenses either in full or in half) (Art. 1950) REASON: Bailee makes use of the thing. Expenses for ostentation are to borne by the
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bailee because they are not necessary for the preservation of the thing To take good care of the thing with the diligence of a good father of a family (Art. 1163) To be liable for loss even if due to a fortuitous event: GR: the bailee is not liable for loss or damage due to a fortuitous event (Art. 1174) Reason: the bailor retains the ownership of the thing loaned Exceptions: (Art. 1942 – punishes the bailee for his improper acts although they may not be the proximate cause of the loss) a. Bad faith – if the bailee devotes the thing to any purpose different from that for which it has been loaned b. Delay - he keeps it longer than the period stipulated or after the accomplishment of the use for which the commodatum has been constituted c. Has been delivered with appraisal -the thing loaned has been delivered with appraisal of its value, UNLESS there is a stipulation exempting the bailee from responsibility in case of a fortuitous event d. Lends the subject matter to a 3rd person - he lends or leases the thing to a third person who is not a member of his household e. Ingratitude - being able to save the thing borrowed or his own thing, he chose to save the latter The bailee has NO RIGHT to retain the thing loaned as security for claims he has against the bailor, even though they may be by reason of extraordinary expenses (Art. 1944) Reasons: a. Ownership remains in bailor – the bailee acquires only the use of thing, the ownership of which remains w/ the bailor b. Only temporary use given to bailee – the bailee would be violating the bailor’s trust in him to return the thing as soon as the period stipulated expires or the purpose has been accomplished QuickTime™ and a Exception: TIFF (Uncompressed) this picture. Claim for decompressor damages suffered are needed to see because the bailor doesn’t advise bailee of the flaws known to him (Art. 1951) A bailee doesn’t answer for the deterioration of the thing loaned due only to the use thereof and without his fault Liability when there are 2 or more bailees: The presumption is that they are solidarily liable (Art. 1945) Reason for the presumption: to safeguard effectively the right of the bailor. The law presumes that the bailor takes into account the personal integrity and responsibility of all the bailees and that, therefore, he would not have constituted the commodatum if there were only one bailee






OBLIGATIONS OF THE BAILOR (AD-READ-HA) 1. Primary obligation of the bailor: GR: To allow the bailee the use of the thing loaned for the duration of the period stipulated or until the accomplishment of the purpose for w/c the commodatum was constituted Exceptions: the bailor may demand the return or its temporary use upon: a. bailor has an urgent need for the thing (Art. 1946) – the contract is suspended • Reason: the right of the bailor is based on the fact that commodatum is essentially gratuitous b. bailee commits an act of ingratitude (Art. 1948) • if the bailee should commit an offense against the person, the honor or the property of the bailor, or of the wife or children under his parental authority • if the bailee imputes to the bailor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the bailee himself, his wife, or children under his authority; and • if the bailee unduly refuses the bailor support when the bailee is legally or morally bound to give support to the bailor • Reason: the person who commits any of the acts of ingratitude makes himself unworthy of the trust reposed upon him by the bailor. • 2. May demand the thing at will when the contract is precarium • PRECARIUM – a kind of commodatum where the bailor may demand the thing at will. It has been defined as a contract by which the owner of a thing, at the request of another person, gives the latter the thing for use as long as the owner shall please 3. To refund the extraordinary expenses (Art. 1949)

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GR on reimbursement: Notice should be given by the bailee to the bailor regarding such extraordinary expenses Reason for the rule: notice is required because it is possible that the bailor may not want to incur the extraordinary expense at all. Exception: where the extraordinary expenses are so urgent that the reply to the notification cannot be awaited w/o danger. 4. if the extraordinary expenses arise from the actual use of the thing and even though bailee acted w/o fault, the expenses will be borne equally by both the bailor and the bailee (50-50) (Art. 1949, 2nd par.) • Reasons: a. the bailee pays ½ because of the benefit derived from the use of the thing loaned to him; b. the bailor pays the other ½ because he is the owner and the thing will be returned to him Exception: Stipulation to the contrary that provide for a different apportionment of such expenses or that they shall be borne by the bailee or bailor alone 5. all other expenses which are not necessary for the use and preservation of the thing must be shouldered by the borrower (bailee) 6. the depreciation caused by the reasonable and natural use of the thing is borne by the bailor (Art. 1943) Reason: The parties to the contract know that the thing borrowed cannot be used without deterioration due to ordinary wear and tear. Exceptions: a. when there is a stipulation to the contrary; b. when the bailee is guilty of fault or negligence; c. if he devotes the thing to any purpose different from that for which has been loaned
QuickTime™ and a

e. the bailee suffers damages by reason of the flaw or defect Exception: when the defect is not known to the bailor, he is not liable because commodatum is gratuitous. 8. The bailor has no right of abandonment for expenses and damages (Art. 1952) Reason: The expense and/or damages may exceed the value of the thing loaned


SIMPLE LOAN OR MUTUUM – contract whereby one of the parties delivers to another money or other fungible thing w/ the understanding that the same amount of the same kind and quality shall be paid. (Art. 1933)

SIMPLE LOAN Signifies the delivery of money or some other consumable thing to another w/ a promise to repay an equivalent amount of the same kind and quality There is a transfer of ownership of the thing delivered

RENT/LEASE One party delivers to another some nonconsumable thing in order that the latter may use it during a certain period and return it to the former The owner of the lessee or the lessor of the property does not lose his ownership. He simply loses control over the property rented during the period of the contract The relation is between landlord and tenant The owner of the property receives “compensation” or “price” either in money, provisions, chattels, or labor from the occupant thereof in return for its use

The relation between parties is that of obligor and oblige The creditor receives payment for his loan

7. To pay damagesTIFF (Uncompressed) this picture. flaws (Art. for needed to see decompressor are known hidden 1951) Requisites: (the following must concur) a. there is a flaw or defect in the thing loaned b. the flaw or defect is hidden c. the bailor is aware thereof d. he does not advise the bailee of the same

Basis of comparison


BARTER Nonfungible or nonconsumabl

Subject matter

Money or any other fungible things/

Personal or real property (generally nonconsumable)

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a.interest due shall earn interest from the time it is judicially demanded although the obligation may be silent upon this point. 1959) GR: accrued interest (interest due and unpaid) shall not earn interest Exceptions: • When judicially demanded • When there is an express stipulation made by the parties to wit: that the interest due and unpaid shall be added to the principal obligation and the resulting total amount shall earn interest Compounding interest may be availed of only when there is a written stipulation in the contract for the payment of interest. that the return of the thing is equivalent only and not the identical thing b. bilateral . are needed to see this picture. money c. in the absence of the express agreement as to such rate of interest • During the interim period from the date judgment until actual payment b. NOTE: it is essential that the depository is not the owner of the thing deposited Page 194 of 297 . no criminal liability upon failure to pay SUBJECT MATTER a.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 personal property Obligation Pay or of bailee deliver the same kind or quality loaned to the bailee e things Return the identical thing borrowed when the time has expired or the purpose has been served Always gratuitous The equivalent thing is given in return for what has been received Onerous • • • Other sources (e.g. quantity and quality. and it must be lawful (Art. 2209 of the Civil Code – 6% p. it is a barter INTEREST GR: Interest must be expressly stipulated in writing. • Basis for computation for indemnity: a. with the obligation of safely keeping it and of returning the same. DEPOSIT DEPOSIT . (Art. in cases of: • Loans QuickTime™ and a • Forbearance of decompressor goods or TIFF (Uncompressed) money.a. 1958) Purpose: to make usury harder to perpetrate COMPOUNDING INTEREST (Art.A deposit is constituted from the moment a person receives a thing belong to another. quantity and quality. Nature of contract May be gratuitous NATURE OF MUTUUM a. with the obligation of the other to give things of the same kind. Central Bank Circular 416 – 12% p. fungible or consumable-depending on the intent of the parties. Interest accruing from unpaid interest . credits • Judgments involving such loans or forbearance. if the transfer of ownership is on a nonfungible thing. If the safekeeping of the thing delivered is not the principal purpose of the contract. sale) Damages arising from injury to persons Loss of property which does not involve a loan 2. Art. there is no deposit but some other contract. DETERMINATION OF INTEREST PAYABLE IN KIND: Its value shall be appraised at the current price of the products or goods at the time and place of payment. Interest as indemnity for damages is payable only in case of default or non-performance of contract. Indemnity for damages – the debtor in delay is liable to pay legal interest (6%/12%) as indemnity for damages even in the absence of a stipulation for the payment of interest. in cases of: BARTER BARTER . 1956) Exceptions: 1.borrower’ promise to pay is the consideration for the lender’s obligation to furnish the loan b.A contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind.

since it is merely consensual 2. where property is saved without knowledge of the owner SUBJECT MATTER OF DEPOSIT (Art. extrajudicial (Art. By law QuickTime™ and a TIFF the parties mpressor deco 3. 1966) GR: only movable or personal property may be the object of deposit.if with compensation Basis of comparison each of whom believes himself entitled to the thing deposited. 1965) GR: A deposit is generally gratuitous. 1967) a.when an attachment or seizure of property in litigation is ordered 2. bilateral . Not by the will of(Uncompressed) this picture. unilateral . or on the occasion of any calamity. It is essential that the depositary is not the owner of the property deposited (Art. Exceptions: a. where depositary is engaged in the business of storing goods c. 1964) 1. voluntary.made in compliance with a legal obligation. or by travelers in hotels and inns or by travelers with common carriers Judicial Will of the court Security or to ensure the right of a party to the property or to recover in case of favorable judgment Generally immovables Always onerous Extrajudicial Will of the contracting parties Custody and safekeeping Deposit Safekeeping or mere custody Mutuum Consumption Commodatum Transfer of the use Creation Purpose Principal Purpose Deman dability Demand return of the thing at will Lender must wait until expiration of period granted to debtor May demand return at will (PRECARIUM) Object Both movable and immovable may be the object But in extrajudicial deposit. Exception: In judicial deposit.if gratuitous 3. only a movable (corporeal) thing may be the object May be gratuitous Only money and any other fungible thing may be the object or only after the expiration of the period or accomplishme nt of the use of the thing subject to exceptions Both movable and immovable may be the object Subject Matter Cause Movables only May be compensated but generally gratuitious Upon demand of depositor Depositor or /3rd person designated Return thing of In whose behalf it is held Upon order of the court/ end of litigation Person who has a right Nature of contract May be gratuitous Essentially and always gratuitous DEPOSIT IS GENERALLY GRATUITOUS: (Art. it may cover both movable and immovable property. or 2. real .Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 CHARACTERISTICS 1. are needed to see 4. 1962) KINDS OF DEPOSIT 1. CREATION OF DEPOSIT (Art. whether voluntary or necessary. Page 195 of 297 .delivery is made by the will of the depositor or by two or more persons DEPOSITOR NEED NOT BE THE OWNER OF THE THING: GR: The depositor must be the owner of the thing deposited. b. when there is a contrary stipulation b.because it is perfected only by the delivery of the subject matter BUT an agreement to constitute a deposit is binding and enforceable. judicial . By virtue of a court order. necessary.

(It is a real contract. The thing is lost through the negligence of his employees whether the latter are manifestly careless or not. Obligation not to transfer deposit (Art. Exemption from liability: The thing is lost without the negligence of the third person with whom he was allowed to deposit the Basis of Comparison Demandability Benefit Preference credit of Page 196 of 297 . in choosing the depositary. ii. Exception: The depositary is authorized by express stipulation.) Depositary capacitated Depositor incapacitated Depositary is subject to ALL the obligations of a depositary Depositary must return the property either to: a) the legal representative of the incapacitated. b. hence. • Reasons: i. when two or more persons claiming to be entitled to a thing may deposit the same with a third person. b. the third person assumes the obligation to deliver to the one to whom it belongs. delivery is required for perfection. AND b) pay the depositor the amount by which he may have benefited himself with the thing or its price subject to the right of any 3rd person who acquires the thing in good faith Irregular Mutuum deposit Demandable at Lender is will of the bound by the irregular provisions of depositor for the contract whose benefit and cannot the deposit has seek restitution QuickTime™ and a TIFF (Uncompressed) pressor been constituteddecomuntil the time of are needed to see this picture. Here one of the depositors is not the owner. Essential requisite of judicial relation which involves the depositor’s confidence in his good faith and trustworthiness. b.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Exceptions: It may belong to another person than the depositor. He deposits the thing with a third person who is manifestly careless or unfit although authorized. OBLIGATIONS OF THE DEPOSITARY (SRT-CCCULC-RITT-RPT-TL-HR) 1. Reason: A deposit is founded on trust and confidence and it can be supposed that the depositor. (Art. safekeeping of the object. 1973) GR: the depositary is not allowed to deposit the thing with a third person. 1972) a. 2. The presumption that the depositor took into account the diligence which the depositary is accustomed with respect to his own property. He transfers the deposit with a third person without authority although there is no negligence on his part and the third person. however is liable to: a) return the thing deposited while still in his possession. payment as provided in the contract has arisen Benefit accrues Necessity of to the depositor the borrower Depositor has Enjoy no preference over preference in other creditors the distribution with respect to the thing deposited of the debtor’s property. • Degree of Care – same diligence as he would exercise over his property. even in the absence of negligence. Liabilities: Depositary is liable for loss of the thing deposited when: a. 1969) Exception: Delivery of the thing deposited. a. Two primary obligations (Art. has taken into consideration the latter’s qualification. FORM OF CONTRACT OF DEPOSIT: GR: A contract of deposit may be entered into orally or in writing. In such case. or c. Return of the thing when required – even though a specified term or time for such may have been stipulated in the contract. The depositary cannot excuse himself from liability in the event of loss by claiming that he exercised the same amount of care toward the thing deposited as he would towards his own if such care is less than that required by the circumstances. Interpleader – the action to compel the depositors to settle their conflicting claims. OR b) the depositor himself if he should acquire capacity Depositary incapacitated Depositor capacitated Depositary does not incur the obligations of a depositary Depositary.

If he allows others to use it. 1976) QuickTime™ and a GR: The TIFF (Uncompressed) this picture. 7. b. Such use is necessary for its preservation but limited for the purpose only. b. Collect the interest as it becomes due. If he uses the thing without the depositor’s permission c. 1977) GR: Deposit is for safekeeping of the subject matter and not for its use. b. Take such steps as may be necessary to preserve its value and the right corresponding to it. when due. 5. Expressly authorized by the depositor. Note: Liability for loss without fortuitous event: Depositary – presumed at fault (Art. but a special kind of deposit. Requisites: a. even though he himself may have been authorized to use the same. 1979) GR: The depositary is not liable for loss through fortuitous event without his fault. 4. Exceptions: a. Obligation not to change the way of deposit (Art. 1974) GR: Depositary may not change the way of the deposit Exception: If there are circumstances indicating that the depositor would consent to the change. depositary decompressor permitted to are needed to see is commingle grain or other articles of the same kind and quality. Exceptions: a. 1978) a. This is a situation wherein the depositary would reasonably presume that the depositor would agree to the change if he knows of the facts of the situation. The prevailing rule in the US is that the relation between a bank renting out safety deposit boxes and its customer with respect to the contents of the box is that of bailor and bailee. Exception: Safekeeping is still the principal purpose of the contract. The depositary must notify the depositor of such change and b. Contract of rent of safety deposit boxes (Art. The various depositors of the mingled goods shall own the entire mass in common. Obligation to collect on the choses in action deposited (Art. as well as the interest. Each depositor shall be entitled to such portion of the entire as the amount deposited by him bears the whole. Exception: When there is a stipulation to the contrary. If he delays in its return. Relation between bank and depositor (Art. If it is so possession 8. Exception: Safekeeping is still the principal purpose of the contract. 6. 1265) .” 3. and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. but it becomes an irregular deposit. If the thing deposited is non-consumable: GR: The contract loses the character of a deposit and acquires that of a commodatum despite the fact that the parties may have denominated it as a deposit. Exception: If the delay of the reply would cause danger. • The depositary is bound to collect the capital. 1975) • If the thing deposited should earn interest. Page 197 of 297 . 1975) A contract for the rent of safety deposit boxes is not an ordinary contract of lease of things. Obligation not to commingle things if so stipulated (Art. hence. d. the depositary is under the obligation to: a. If the thing deposited is money or other consumable thing: GR: Converts the contract into a simple loan or mutuum. Obligation not to make use of the things deposited (Art. b. • Effect of unauthorized use: Liability for damages • Effects of authorized use: (Art. Liability for loss through fortuitous event (Art. Must wait for the reply of the depositor to such change. Effects: a. 1980) Fixed. Bank deposits are in the nature of irregular deposits but they are really loans governed by the law on loans. b. savings.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 thing if such third person is not “manifestly careless or unfit. it is not to be strictly governed by the provisions on deposit.

(Art. Obligation of the depositary when there are two or more depositors. When the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle. Return to one of the depositors stipulated • if by stipulation. Obligation to return products. Obligation to return to the person to whom return must be made. 9. When depositary justified in opening closed and sealed subject matter (Art. Where third person appears to be the owner (Art. • To the depositor himself should he acquire capacity. • To his heirs or successors. return the thing deposited when delivered closed and sealed in the same condition.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 a. 10. Divisible thing and joint depositors – each one of the depositors can demand only his share proportionate thereto. Indivisible thing and solidary depositors – rules on active solidarity GR: Each one of the depositors may do whatever may be useful to the others. b. The depositary is obliged to return the thing deposited. 1212) Exception: Anything which may be prejudicial to the other depositors. Obligation when the thing deposited is closed and sealed (Art. 17. • c. 1251) GR: At the place agreed upon by the parties. 1986) a. for its return has been made by one of them in which case delivery should be made to him. the thing must be returned to his legal representative. transportation expenses shall be borne by the depositor. Obligation to pay interest on sums converted for personal use (Art. such QuickTime™ decompressor does not TIFF (Uncompressed) this picture. 16. when required. The depositary who receives the thing in deposit cannot require that the depositor prove his ownership over the thing (Art. c. 1987) – same as the general rule of law regarding the place of payment. If the owner. which is presumed unless proven otherwise. 1983) 13. If the depositor was incapacitated at the time of making the deposit. (Art. pay for damages should the seal or lock be broken through his fault. with or without his fault. (Necessity) 11. b. 1985) a. 1983) 12. the depositary is bound to return it only to the person designated although he has not made any demand for its return. Obligation to return at the place of return (Art. b. c. b. • To the person who made the deposit. b. the thing should be returned to one of the depositors. at the place where the thing deposited might be even if it should not be the same place where the original deposit was made. is spite of and a information. to: • The depositor. Even if the depositor had capacity at the time of making the deposit but he subsequently loses his capacity during the deposit. 1982) a. Exception: In the absence of stipulation. 1988) Page 198 of 297 . the property must be returned to: • His guardian or administrator. 1981) The depositary has the obligation to: a. 1984) 14. • GR: The depositary may return the thing to any one of the solidary depositors Exception: When a demand. accessories and accessions (Art. (Art. judicial or extrajudicial. He advised the true owner of the thing of the deposit. Relation of creditor and debtor – the relation between a depositor and a bank is that of a creditor and a debtor. Contract of loan – deposits in banks are really loans because the bank can use the same for its ordinary transactions b. (Art. Keep the secret of the deposit when the seal or lock is broken. Obligation to return upon the time of return. (Art. or • To the person who may have been designated in the contract.period of one claim it within the are needed to see month (30 days) 15. 18. 1984) The depositary may be relieved from liability when: a. The depositary is presumed authorized to do so if the key has been delivered to him.

1965. 20. Exception: When the deposit is for a valuable consideration. it is the depositary who is returning the deposit WITH OR WITHOUT THE DEMAND of the depositor GR: The depositary may return the thing deposited notwithstanding that a period has been fixed for the deposit if: a. damages. Obligation to pay losses incurred due to character of thing deposited. benefit if both parties No preference OBLIGATIONS OF THE DEPOSITOR (PLD) 1. 1994) The thing retained serves as security for the payment of what may be due to the depositary by reason of the deposit. as provided in the contract has arisen If with interest. upon the loss or deterioration of the thing deposited. he has the duty to deliver to the depositor money or another thing he receives in place of the thing. Right of the depositary to return the thing deposited. Liability in case of alienation of the depositary’s heir. even though a specified period or time for such return may have been fixed. 21. Exceptions: a. (see Art. 1991) When alienation is done in GOOD FAITH: a. Effect of death of depositor or depositary. Depositary has a right to retain the thing in pledge until full payment of what may be due him by reason of the deposit 2. When notified of the opposition of a third person to the return or the removal of the thing deposited. 1993) GR: The depositary must be reimbursed for loss suffered by him because of the character of the thing deposited. d. Depositor was not expected to know the dangerous character of the thing. • The heir does not need to pay the actual price of the thing deposited. (Art. 1989) NOTE: in this case. Depositary’s liability in case of loss by force majeure or government order. (Art. b. b. When alienation is done in BAD FAITH: QuickTime™ and a a. When the thing is judicially attached while in the depositary’s possession b. Deposit gratuitous – death of either of the depositor or depositary extinguishes the deposit (personal in nature). c. (Art. 22. Note: The debt must be prior to the deposit. 1993). 1995) a. Return the value of the thing deposited b. The deposit is gratuitous. However.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 GR: The thing deposited must be returned to the depositor upon demand. the depositary has no right to return the thing before the expiration of the time designated even if he should suffer inconvenience as a consequence. Depositor was not aware of the danger. Remedy if depositor refuses to receive the thing: The depositary may deposit the thing at the disposal of the judicial authority. decompressor are needed to see b. By the word “extinguished. Depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. (Art. Depositary was aware of the danger without advice from the depositor. b. Irregular Deposit May be demanded at will by the irregular depositor for whose benefit the deposit has been constituted Only benefit is that which accrues to the depositor Depositor has preference over other creditors Mutuum Lender is bound by the provision of the contract and cannot seek restitution until the time for payment. (Art. Depositor notified the depositary of such dangerous character. 3. Assign the right to collect from the buyer. 1992.” the law really means that the depositary is not obliged to continue with the contract of deposit. Deposit for compensation – not extinguished by the death of either party. (Art. 1992) expenses of 2. (Art. Exceptions: a. 19. 1990) Depositary is not liable in cases of loss by force majeur or by government order. Pay the actual price of the thing deposited. A deposit is extinguished: a. Page 199 of 297 . Obligation to pay preservation. Liable forTIFF (Uncompressed) this picture. The reason is justifiable. Other Matters Concerning a Depositor 1.

like flood. servants. 2005) Nature: Auxiliary to a case pending in court. 2000 – 2002) NOTE: In the following cases. the following must concur: Elements: a. The loss or injury is cause by force majeure. Page 200 of 297 . his family. etc. 2. other provisions in the Civil Code (novation. The latter have taken the precautions prescribed regarding their safekeeping. Made by travelers in hotels or inns. The right of retention recognized in this article is in the nature of a pledge created by operation of law. 2001) Reason: Hotel-keeper is apparently negligent. shipwreck. The loss arises from the character of the things brought into the hotel. 538. 1998-2001) is suppressed or diminished shall be VOID. Hotel-keeper’s right to retain The hotel-keeper has a right to retain the things brought into the hotel by the guest. Extent of liability: a. visitors. The loss is caused by the act of a thief or robber done without the use of arms and irresistible force. c. ONLY in gratuitous deposits.) NECESSARY DEPOSIT A deposit is necessary when: 1. Made by passengers with common carriers. and in case of deficiency. and b. 586 and 2104) Made on the occasion of any calamity (governed by the rules on voluntary deposit and Art. It is made in compliance with a legal obligation. The loss or injury to personal property is caused by his servants or employees as well as by strangers (Art. • as to those baggage the passengers or their agents carry 4. fire. 2000). Reason: It is given to hotel-keepers to compensate them for the liabilities imposed upon them by law. the hotelQuickTime™ and a TIFF (Uncompressed) decompressor keeper is liable REGARDLESS of the are needed to see this picture. b. *There must be a causal relation between the calamity and the constitution of the deposit. (Art. as a security for credits on account of: a. supplies usually furnished to hotel guests. Include those lost or damages in hotel annexes such as vehicles in the hotel’s garage. flood. the rules on voluntary deposit e. 3. theft or robbery by a stranger (not the hotel-keeper’s servant or employee) with the use of firearms or irresistible force. b. • In compliance with a legal obligation (governed by the law establishing it. They have been previously informed about the effects brought by the guests. amount of care exercised: a. Exception: Unless the hotel-keeper is guilty of fault or negligence in failing to provide against the loss or injury from his cause. Arts. or other similar events. c. Exemption or diminution of liability: 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. (Art. such as fire. 2003) Effect: Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former (as set forth in Art. merger. (Art. When hotel-keeper not liable: a. Liability in hotel rooms which come under the term “baggage” or articles such as clothing as are ordinarily used by travelers b. When hotel-keeper liable: (Art. The loss is due to the acts pf the guests. (Art. pillage. 2168) • SEQUESTRATION OR JUDICIAL DEPOSIT When judicial deposit takes place: Judicial deposit takes place when an attachment or seizure of property in litigation is ordered by a court. It takes place on the occasion of any calamity. b.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 b. 1998) Before keepers of hotels or inns may be held responsible as depositaries with regard to the effects of their guests. lodging. storm.g. upon the death of the depositary.

Safekeeping of the thing The Issue of Warehouse Receipts WHO MAY ISSUE? 1. but certain essential terms must be present: 1.a person lawfully engaged in the business of storing goods for profit 2. validity and negotiability of receipt is NOT affected b. by the judgment. 2007) Applicable law: The law on judicial deposit is remedial or procedural in nature. Date of issue and receipt . a warehouseman . Rate of storage charges .best evidence of the fact that the warehouseman has received the goods and has bound himself to assume all obligations in connection therewith 8. a duly authorized officer or agent of a warehouseman NOTE: receipts not issued by a warehouseman although in the form of warehouse receipts are not warehouse receipts FORM AND CONTENTS: need not be in particular form. 58(a). Page 201 of 297 . (Art. the Rules of Court are applicable. whether public or private. (Art. Hence. Consecutive number of receipt . RECEIPTS LAW are QuickTime™ and a Scope: all warehouses. Warehouseman’s ownership of or interest in the goods . to other cases where receipts are not issued by a warehouseman. but may be compensated In behalf of the depositor or third person designated TIFF (Uncompressed) decompressor WAREHOUSE needed to see this picture. bonded or not Application: applies to warehouse receipts issued by a warehouseman as defined in Sec. immovable Always remunerated (onerous) In behalf of the person who. Description of goods or packages .for identification 7.purpose is to preserve the lien of the warehouseman over the goods stores or the proceeds thereof in his hands NOTE: Effect of omission of any of the essential terms: a. 2007) Obligations: a. has a right Only movable property In whose behalf it is held Generally gratuitous. Signature of warehouseman . 2009) Basis of Comparison Cause or origin Judicial Deposit By will of the courts Extra-judicial Deposit By will of the parties. To take care of the property with the diligence of a good father of the family.indicates prima facie the date when the contract of deposit is perfected and when the storage charges shall begin 3.consideration for the contract from the view of the warehouseman identify each receipt with the goods for which it was issued 4. the contract will be converted to an ordinary deposit Purpose Subject Matter Remuneration Security. Hence. He may not be relieved of his responsibility until the litigation is ended or the court so orders.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Purpose: To maintain the status quo during the pendency of the litigation or to insure the right of the parties to the property in case of a favorable judgment. there is a contract Custody. 2008) b. Either movable or immovable property but generally. (Art. (Art. Statement of advances made and liabilities incurred (if present) . warehouseman will be liable for damages c. Secure the right of a party to recover in case of favorable judgment.purpose is to prevent abuses in the past when warehouseman issued receipt on their goods 9. Location of warehouse -because the warehouseman may have other warehouses 2. while the Civil Code. Person to whom goods are deliverable determines the person or persons who shall prima facie be entitled lawfully to the possession of the goods deposited 5. Depositary of sequestered property: person appointed by the court.

the option treat it as negotiable CONSTRUCTION OF WAREHOUSE RECEIPTS: Liberal construction of the law in favor of bona fide holders. This has no application to actions against any party other than a warehouseman. Persons lawfully entitled to the possession of the goods or its agent 2. Duplicate receipts (applies ONLY) to negotiable warehouse receipts. Transfer made by the depositor at the time of the deposit for storage or subsequent thereto b. a non-negotiable receipt. those contrary to law. those contrary to this Act (e. The warehouseman’s lien 3. 16: He has acquired title to the goods which was delivered from: a. and (2) supposing it to be an original. • Effect: the warehouseman shall be liable for damages for failing to do this to anyone who purchased the subsequent receipt (1) for value. To deliver the goods to the holder of the receipt or the depositor upon DEMAND accompanied with: a. Persons entitled to deliver under: a. exemption from liability for misdelivery in Sec. Sec. a negotiable warehouse receipt is not a negotiable instrument in the same sense as in the NIL. non-negotiable receipt . public order or public policy DEFINITIONS a. with written authority 3. an offer to surrender the receipt. He has information that the delivery about to be made was not to one lawfully entitled to the goods 2. the word ‘DUPLICATE” shall be placed on the face of the receipt except the one 1st issued. A non-negotiable receipt must contain the word: “non-negotiable” QuickTime™ and a TIFF (Uncompressed) decompressor b. • Whenever more than one negotiable receipt is issued for the same goods. To take care of the goods. a provision in a negotiable receipt that it is nonnegotiable is VOID 2. 33 and 34) b. OBLIGATION AND RIGHTS OF A WAREHOUSEMAN UPON THEIR RECEIPTS PRINCIPAL OBLIGATIONS WAREHOUSEMAN: 1. good customs. Effect of failure to todo this picture.for the protection of the warehouseman and to avoid criminal liability. Failure to make “non-negotiable” (applies only to non-negotiable warehouse receipts) a. Sec. or b. Sec. even though the purchase be after delivery of the goods by the warehouseman to the holder of the original receipt.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 WHAT TERMS MAY BE INSERTED? ANY other terms or condition EXCEPT: a. Sec. this is subject to waiver c. morals. 10 a. an offer to satisfy the warehouseman’s lienbecause a warehouseman may refuse delivery until his lien is satisfied b. 10. an offer to sign when the goods are delivered. give a holder are needed see so will who purchased it for value supposing it to be negotiable. person in possession of a negotiable receipt (which was lawfully negotiated) Page 202 of 297 . and be liable for failure to exercise care BUT he is not liable for loss or injury which could not have been avoided UNLESS there is a stipulation to the contrary 2. an acknowledgment that they have been delivered • BUT a warehouseman may still refuse delivery on the grounds of some lawful excuse like: 1. negotiable receipt .receipt in which it is stated that the goods received will be delivered to the depositor or to any other specified person NOTE: 1. 36: He has already lawfully sold the goods PERSONS TO WHOM THE GOODS MUST BE DELIVERED 1. not giving statutory notice in case of sale of goods in Sec. 21: If goods were lost and he had no fault 5. 18: If there are several claimants to the goods 4. He has been requested by the person lawfully entitled to the goods not to make delivery b.receipt in which it is stated that the goods received will be delivered to the bearer or to the order of any person named in such receipt b.g. an exemption from liability and negligence c. Sec.

10) • To one not lawfully entitled to possession: Liable for conversion (unauthorized assumption and exercise of the right of ownership over goods belonging to another through alteration or the exclusion of the owner’s right) • To a person entitled to delivery under a nonnegotiable receipt or written authorization OR person in possession of a negotiable receipt Still liable for conversion if: a. 7. When the goods are delivered already: Failure to cancel will make him liable to any one who purchased for value in good faith such receipt b. AND b. the warehouseman is liable on the altered receipt according to its original term. Misdelivery of the goods (Sec. prior to delivery. purchaser of the receipt for value without notice. 20): • GR: a warehouseman is under obligation to deliver the identical property stored with him and if he fails to do so. the warehouseman is liable on the altered receipt according to its original tenor. Failure to place “non-negotiable” on a nonnegotiable receipt (Sec. Material alteration fraudulently made: warehouseman is liable according to the original tenor to a: a. a competent court may order the delivery of the goods only: a. such original receipt is uncancelled at the date of the issue of the duplicate • NOTE: The duplicate imposes no other liability upon the warehouseman. Alteration material: but it was authorized. 6 and 15) • When more than one negotiable receipts are issued for the same goods. Issuing receipt for non-existing goods or misdescribed goods (Sec. 3. the warehouseman warrants: a.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 NOTE: a warehouseman does NOT have a cause of action against a person to whom he misdelivered the thing UNLESS the depositor sues him. Material alteration innocently made: though unauthorized. 14) • Remember that a warehouseman must deliver to the one who has the receipt but if such was lost. upon proof of the loss or destruction of the receipt. Failure to stamp “duplicate” on copies of a negotiable receipt (Sec. 11) • This is applicable ONLY to negotiable receipts but NOT to a situation whereand a QuickTime™ there was a valid TIFF (Uncompressed) decompressor are needed to Sec. a. 2. and b. 34) EFFECTS OF ALTERED RECEIPTS: 1. that the duplicate is an accurate copy of the original receipt b. the warehouseman is liable according to the terms of the receipts as altered. he had received notice of the adverse claim or title of a 3rd person 4. authorized or not. When only some of the goods were delivered: Failure to cancel or to state plainly in the receipt that some goods were delivered will make him liable to . Failure to effect cancellation of a negotiable receipt upon delivery of the goods (Sec. 2.. etc. 33) or because the goods are perishable and hazardous (Sec. Alteration immaterial: whether fraudulent or not. 4. to the alterer and subsequent purchasers with notice ( BUT his Page 203 of 297 1. 36 sale in accordance with see this picture. • Exception: if the description consists merely of marks or labels upon the goods or upon the packages containing them. Failure to give notice in case of sales of goods to satisfy his lien (Sec. he had been requested NOT to make such delivery b. In case of lost or destroyed receipts (Sec. he is liable. 12) 8. the warehouseman is NOT liable even if the goods are not of the kind as indicated in the marks or labels 6. ACTS FOR LIABLE: WHICH A WAREHOUSEMAN IS any one who purchased for value in good faith such receipt 5. In such case. upon giving of a bond with sufficient securities • NOTE: the warehouseman is still liable to a holder of the receipt for value without notice since the warehouseman can secure himself in the bond given. 7) 3. the word “duplicate” must be plainly placed by the warehouseman upon the face of every such receipt except the 1st. Failure to take care of the goods (Sec.

Ownership is not a defense for refusal to deliver • The warehouseman cannot refuse to deliver the goods on the ground that he has acquired title or right to the possession of it unless such is derived: a. warehouseman is severally liable to each depositor for the care and redelivery of their portion as if the goods had been kept separate ATTACHMENT OR LEVY OF NEGOTIABLE RECEIPTS • A warehouseman has the obligation to hold the goods for the owner or for the person to whom the negotiable receipt has been duly negotiated.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 liability is limited only to delivery as he is excused from any other liability) * Even a fraudulent alteration cannot divest the title of the owner of stored goods and the warehouseman is liable to return them to the owner. b. the negotiation is enjoined. BUT a bona fide holder acquires no right to the goods under a negotiable receipt which has been stolen or lost or which the indorsement has been forged. b. storage. the goods cannot be attached or levied upon under an execution UNLESS: a. 9) b. Exception: In case of fungible goods of the same kind and grade provided: a. he is authorized by agreement b. money advanced b. and deliver to the person whom he finds is entitled to the possession of the goods Effect: He is NOT excused from liability in case he makes a mistake 2. from the warehouseman’s lien 2. labor c. REMEDY OF CREDITOR WHOSE DEBTOR OWNS A NEGOTIABLE RECEIPT Attachment of the negotiable receipt (NOT the goods) NOTE: the goods themselves cannot readily be attached or levied upon by ordinary legal process EXTENT OF WAREHOUSEMAN’S LIEN 1. it is impounded by the court NOTE: This provision does NOT apply if the person depositing is NOT the owner of the goods or one who has not the right to convey title to the goods binding upon the owner. To the person who wins in the interpleader case (Sec. To the person he finds to be entitled to the possession after investigation (Sec. b. directly or indirectly from a transfer made by the depositor at the time of the deposit for storage or subsequent thereto. lawful charges for a. 3. the document is impounded by the court • The warehouseman cannot be compelled to deliver the goods until: a. or b. To persons to whom the goods must be livered (Sec. court finds to have better right. 36) DUTY OF WAREHOUSEMAN WHEN THERE ARE SEVERAL CLAIMANTS The warehouseman may either: 1. Investigate and determine within a reasonable time the validity of the claims. 17) c. the document be first surrendered. 18) d. or c. weighing e. NOTE: This does NOT apply to cases where the warehouseman himself makes a claim to the goods. the receipt is surrendered to him. He may bring a complaint in interpleader Effect: a. interest d. of conversion as of the date of the original demand for the goods. COMMINGLING OF DEPOSITED GOODS • GR: A warehouseman may not mingle goods belonging to different depositors. He may not do (a) and (b) Effect: He will be liable after a lapse of a reasonable time. Adverse title of a 3rd person is not a defense for refusal to deliver by a warehouseman to his bailor on demand EXCEPT: a. . he is authorized by custom • Effects: a. Therefore. preservation of the goods 2. insurance Page 204 of 297 WITH REGARD TO OWNERSHIP 1. he will be relieved and a from liability in QuickTime™ delivering theTIFF (Uncompressed) this person whom the goods tosee decompressor are needed to the picture. he is liable for refusal to deliver to the rightful claimant when it is required to have an interpleader. each depositor shall own the entire mass in common and entitled to his portion b. lawful claims for a. To the buyer in case there was a valid sale of the goods (Sec. and b.

place where the lien was acquired b. By causing the extrajudicial sale of the property and applying the proceeds to the value of the lien PROCESS OF EXTRAJUDICIAL SALE: 1. 2. statement that if the claim is not paid. this is subject to waiver 3. if such place is manifestly unsuitable for the purpose. delivery of notice if personally delivered 2. an offer to surrender the receipt i. the goods will be advertised for sale and then sold at a specified time and place 2. the warehouseman shares pro rata with the other creditors of the depositor the balance of the proceeds of the sale for the satisfaction of the claims. an acknowledgment that they have been delivered REMEDIES FOR A WAREHOUSEMAN 1. goods of other persons stored by the depositor who is liable to the warehouseman as debtor with authority to make a valid pledge NOTE: A warehouseman has NO lien on goods belonging to another and stored by a stranger in fraud of the true owner’s right. a description of the goods to be sold b. reasonable charges and expenses for notice and advertisements of sale 5. DEMAND accompanied are with: a. an offer to satisfy the warehouseman’s lien (because a warehouseman may refuse delivery until his lien is satisfied) b. THE LIEN MAY BE LOST THROUGH: 1. goods of the depositor who is liable to the warehouseman as debtor wherever such goods are deposited. Sale itself in: a. transportation 3. cooperating g. GOODS SUBJECT TO LIEN 1. all remedies allowed by law to a creditor against his debtor for collection of charges. not less than 10 days from: 1. voluntarily surrendering possession of goods constitutes a waiver or abandonment A warehouseman may NOT claim a lien on other goods of the same depositor for unpaid charges on the goods surrendered if the goods were delivered to him under different receipts. an offer to sign when the goods are delivered. the name of the owner or person on whose account the goods were held c. Even if without lien. for the protection of the warehouseman and to avoid criminal liability ii. All remedies allowed by law for the enforcement of a lien against personal property and recovery of any deficiency in case it exists after the sale of the property. if there is no newspaper: posted at least 10 days before the sale in not less than 6 conspicuous places in the place of sale 4. if there is a newspaper published in the place of sale: once a week for 2 consecutive weeks and the sale not held less than 15 days from the time of the 1st publication b. a demand that a claim be paid on or before a day mentioned.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 f. 2. at the nearest suitable place Page 205 of 297 . time and place of the sale 3. brief description of the goods c. other charges expressly enumerated (from b. the sale will be advertised stating: a. other charges and expenses in relation to such goods 4. time when notice should reach its destination if sent by mail d. 4. By refusing to deliver the goods until his lien is satisfied. charges for storage and preservation of the goods 2. After the time for payment of the claim if the notice has elapsed. 2. d and e above) although the amount is NOT stated NOTE: For claims not specified. itemized statement of warehouseman’s lien showing the sum due and when it became due b. 3. Publication: a. Written notice to the person on whose account the goods are held or to persons who claim an interest in the goods containing: a. sale of the goods where defaults has been made in satisfying the lien EXTENT OF THE LIEN WHEN A NEGOTIABLE RECEIPT HAS BEEN ISSUED 1. c. wrongfully refusing to deliver the goods to a person who holds the areceipt or the QuickTime™ and TIFF (Uncompressed) decompressor depositor uponneeded to see this picture.

or b. CHARACTERISTICS OF THE CONTRACT 1. he may dispose of the goods in any lawful manner without liability • Proceeds of the sale shall be disposed of in accordance with the PROCESS in the sale of the goods. any person may pay the warehouseman for his lien and the other expenses. Real – guaranty is property. warehouseman is NOT liable for nondelivery even if the receipt was given for the goods when they were deposited be negotiated b. if the goods are deliverable to the bearer. Gratuitous – guarantor does not receive any price or remuneration for acting as such (2048) b. including the reasonable charges of notice.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 5. if sale is not possible. Conventional – constituted by agreement of the parties (2051[1]) b. Otherwise. Legal – imposed by virtue of a provision of law c. or immovable i. the warehouseman shall satisfy his lien b. to fulfill the obligation of the principal debtor in case the latter should fail to do so. movable. Real mortgage (2124) or antichresis (2132) – guaranty is immovable ii. the balance shall be held by the warehouseman and delivered on demand to the person to whom he should deliver it 6. It may be entered into even without the intervention of the principal debtor. advertisement and sale c. Onerous – one where the guarantor receives valuable consideration for his guaranty 4. • With regard to perishable and hazardous goods Warehouseman will give notice to owner or person in whose name the goods are stored: a. person to whose order the goods are delivered or by a subsequent indorsee indorsed it to bearer GUARANTY (2047) . Subsidiary and conditional – takes effect only when the principal debtor fails in his obligation subject to limitation 3. 3. The warehouseman shall deliver the goods to that person if he is entitled under this Act. Personal – guaranty is the credit given by the person who guarantees the fulfillment of the principal obligation. As to person guaranteed: Page 206 of 297 GUARANTY AND SURETYSHIP . to satisfy his lien b. pictu 3. a person called the guarantor. Any time before the goods are sold. 2. As to consideration: a.By guaranty. 4. to remove the goods c. Chattel mortgage (2140) or pledge (2093) – guaranty is movable 2. when indorsedneeded to see thisor re. • Effects of sale a. Guarantor must be a person distinct from the debtor – a person cannot be the personal guarantor of himself CLASSIFICATION OF GUARANTY 1. failure to do a &b will give the warehouseman authority to sell the goods without advertising d. Accessory – dependent for its existence upon the principal obligation guaranteed by it. Guaranty in the broad sense: a. It gives rise only to a duty on the part of the guarantor in relation to the creditor and not vice versa b. or QuickTime™ and a TIFF (Uncompressed) decompressor 2. the warehouseman shall retain ownership of the goods. Judicial – required by a court to guarantee the eventual right of one of the parties in a case. to the possession of the goods on payment of the charges. It is a contract between the guarantor and the creditor. From the proceeds of the sale: a. are in blank. binds himself to the creditor. when the sale was made without the publication required and before the time specified by law. As to its origin: a. such sale is void and the purchaser of the goods acquires no title in them NEGOTIATION AND TRANSFER OF RECEIPTS Negotiable receipts negotiable by delivery 1. Unilateral – a.

or to a specific portion thereof. GUARANTY UNDERTAKEN KNOWLEDGE OF DEBTOR (2050) WITHOUT GUARANTY OF VOIDABLE. MARRIED WOMAN AS GUARANTOR (2049) GR: Married woman binds only her separate property Exceptions: 1. Creditor has every right to take all possible measures to secure payment of his credit – guaranty can be constituted even against the will of the principal debtor Rights of third persons who pay: 1. such consideration need not pass directly to the guarantor or surety. bind the QuickTime™ and a community orTIFF (Uncompressed) decompressor property conjugal partnership are needed to see this picture. Legal DOUBLE OR SUB-GUARANTY (2051[2]) One constituted to guarantee the obligation of a guarantor. Presence of cause which supports principal obligation: Cause of the contract is the same cause which supports the obligation as to the principal debtor. Guarantor can recover only insofar as the payment has been beneficial to the debtor b. The consideration which supports the obligation as to the principal debtor is a sufficient consideration to support the obligation of a guarantor or surety. Page 207 of 297 . Indefinite or simple – where the guaranty included all the accessory obligations of the principal. Double or sub-guaranty – constituted to secure the fulfillment by the guarantor of a prior guaranty 5. it is also void.g. Voidable contract – such contract is binging. a consideration moving to the principal will suffice. Payment without the knowledge or against the will of the debtor: a. costs. 3. Unenforceable contract – because such contract is not void 3. unless it is annulled by a proper court action 2.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 a. e. Guaranty is unilateral – exists for the benefit of the creditor and not for the benefit of the principal debtor 2. if the principal obligation is void. Definite – where the guaranty is limited to the principal obligation only. such as when the guaranty has redounded to the benefit of the family. Absence of direct consideration or benefit to guarantor: Guaranty or surety agreement is regarded valid despite the absence of any direct consideration received by the guarantor or surety. NECESSITY OF VALID PRINCIPAL OBLIGATION (2052[1]) Guaranty is an accessory contract: It is an indispensable condition for its existence that there must be a principal obligation. With her husband’s consent. 2. GUARANTY GENERALLY GRATUITOUS (2048) GR: Guaranty is gratuitous Exception: When there is a stipulation to the contrary Cause of contract of guaranty 1. 2. b. AND NATURAL OBLIGATIONS (2052[2]) A guaranty may secure the performance of a: 1. Natural obligation – the creditor may proceed against the guarantor although he has not right of action against the principal 1. Hence. Conventional. including judicial costs. As to its scope and extent: a. Without husband’s consent. Guarantor cannot compel the creditor to subrogate him in his rights 2. Payment with knowledge or consent of the debtor: Subrogated to all the rights which the creditor had against the debtor GUARANTY BY REASON OF ORIGIN (2051[1]) 1. UNENFORCEABLE. Single – constituted solely to guarantee or secure performance by the debtor of the principal obligation. It should not be confounded with guaranty wherein several guarantors concur. 2. in cases provided by law. b. Judicial.

and attorney’s fees as part of damages may be recovered – creditors suing on a suretyship bond may recover from the surety as part of their damages. covering a series of transactions generally for an indefinite time or until revoked. 1. his liability shall be reduced to the limits of that of the debtor. Not limited to a single transaction but which contemplates a future course of dealings. especially if the right to recall the guaranty is expressly reserved. he impliedly recognizes his liability. but by reason of his failure to pay when demanded and for having compelled the creditor to resort to the courts to obtain payment. thereby transforming the obligation from a natural into a civil one. judicial costs. obligation intended to be secured thereby is born. Reason: A contract of guaranty is subsidiary. even if the amount is not yet known. When the debtor himself offers a guaranty for his natural obligation. not by reason of the contract. c. • Reason: Surety is made to pay. Penalty may be provided – a surety may be held liable for the penalty provided for in a bond for violation of the condition therein. Principal obligation subject to a resolutory condition – the happening of the condition extinguishes both the principal obligation and the guaranty GUARANTY OF FUTURE DEBTS (2053) Continuing Guaranty or Suretyship: 1. may be guaranteed but there can be no claim against the guarantor until the amount of the debt is ascertained or fixed and demandable. 3. Interest. Principal obligation subject to a suspensive condition – the guarantor is liable only after the fulfillment of the condition. But the guarantor may bind himself for less than that of the principal. Interest runs from: a. Filing of the complaint (upon judicial demand). interest at the legal rate. a. Future debts. or b. Exceptions: 1. To secure payment if any debt to be subsequently incurred – a guaranty shall be construed as continuing when by the terms therof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period. b. 2. Principal’s liability guarantor’s obligations may exceed The amount specified in a surety bond as the surety’s obligation does not limit the extent of the damages that may be recovered from the Page 208 of 297 . pure or subject to a suspensive or resolutory condition.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 debtor for the reason that the latter’s obligation is not civilly enforceable. To secure the payment of a loan at maturity – surety binds himself to guarantee the punctual payment of a loan at maturity and all other obligations of indebtedness which may become due or owing to the principal by the borrower. be they GUARANTOR’S LIABILITY CANNOT PRINCIPAL OBLIGATION (2054) EXCEED GR: Guaranty is a subsidiary and accessory contract – guarantor cannot bind himself for more than the principal debtor and even if he does. To secure existing unliquidated debts – refer to debts existing at the time of the constitution of the guaranty but the amount thereof is unknown and not to dents not yet incurred and existing at that time. The surety agreement itself is valid QuickTime™ and a and binding(Uncompressed) decompressor even before the principal TIFF are needed to see this picture. 2. and attorney’s fees when appropriate. even without stipulation and even if the surety would thereby become liable to pay more than the total amount stipulated in the bond. judicial costs. The time demand was made upon the surety until the principal obligation is fully paid (upon extrajudicial demand) 2. any more than there would be in saying that obligations which are subject to a condition precedent are valid and binding before the occurrence of the condition precedent GUARANTY OF CONDITIONAL OBLIGATIONS: A guaranty may secure all kinds of obligations. It is prospective in its operation and is generally intended to provide security with respect to future transactions.

It cannot be presumed because of the existence of a contract or principal obligation. without any demand by the creditor upon the principal whatsoever or any notice of default Undertakes to pay if the principal does not pay. by the use of due diligence. and notice thereof is given the surety within a reasonable time to enable it to take steps to protect its interest.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 principal. evidence. and not to obligations assumed previous to the QuickTime™ and a TIFF guarantydecompressor execution of the(Uncompressed) this picture. 1. or quantity of the subject matter of a contract is what it has been represented to be. • It need not appear in a public document. the guarantor proceeded with consciousness of what he was doing. and is so responsible at once the latter makes default. an intent to unless are needed to see be so liable is clearly indicated. If there is any doubt on the terms and conditions of the guaranty or surety agreements. and no farther. of the agreement cannot be received without the writing. it shall be unenforceable by action. Reason: The liability of the surety attaches as soon as the principal debtor defaults. and under the circumstances which are set forth or which may be inferred from the contract of guaranty or suretyship. unfair and unreasonable for it practically nullifies the nature of the undertaking it had assumed. Reasons: 1. GUARANTY STRICTLY CONSTRUED Strictly construed against the creditor in favor of the guarantor and is not be extended beyond its terms or specified limits. Liability for obligation stipulated – guarantor is liable only for the obligation of the debtor stipulated upon. and relates to some agreement made ordinarily by the party who makes the warranty GUARANTY DISTINGUISHED FROM SURETYSHIP GUARANTY Liability depends upon an independent agreement to pay the obligation if the primary debtor fails to do so Engagement is a collateral undertaking Secondarily liable – he contracts to pay if. Remedy of surety: Foreclose the counterbond put up by the principal debtor (if there is any) GUARANTY NOT PRESUMED (2055) Guaranty requires the expression of consent on the part of the guarantor to be bound. There be assurance that the guarantor had the true intention to bind himself. or a secondary evidence of its contents. the latter’s liability being governed by the obligations he assumed under his contract. unless the same or some note or memorandum thereof be in writing. 2. therefore. 3. Liability of surety limited to a fixed period – the surety must only be bound in the manner and to the extent. To make certain that on making it. GUARANTY COVERED BY THE STATUTE OF FRAUDS • Guaranty must not only be expressed but must so be reduced into writing. without regard to his ability to do so Insurer of the debt Only binds himself to pay if the principal cannot or unable to pay Insurer of the solvency Page 209 of 297 . 2. and subscribed by the party charged. quality. or by his agent. Liability of surety to expire on maturity of principal obligation – such stipulation is GUARANTY DISTINGUISHED FROM WARRANTY GUARANTY Contract by which a person is bound to another for the fulfillment of a promise or engagement of a third party WARRANTY An undertaking that the title. the doubt should be resolved in favor of the guarantor or surety. • Hence. the dent cannot be paid SURETYSHIP Assumes liability as a regular party to the undertaking Charged as an original promisor Primarily liable – undertakes directly for the payment without reference to the solvency of the principal.

The subsequent loss of integrity or property or supervening incapacity of the guarantor would not operate to exonerate the guarantor of the eventual liability he has contracted. the creditor is. the responsibility or obligation assumed by the surety is greater or more onerous than that of a guarantor 3. 2. SELECTION OF GUARANTOR: QuickTime™ and 1. 2. Term of the agreement. Guarantor only secondarily liable – the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor only in case the latter should fail to do so. therefore. He has sufficient property to answer for the obligation which he guarantees. bound thereby. As provided in Art. Requires conviction in the first instance of a crime involving dishonesty to have the right to demand another. Exception: The creditor may. If he has bound himself solidarily with the debtor – liability assumed that of a surety i. Remedy of creditor: Demand another guarantor with the proper qualifications Exception: Creditor may waive it if he chooses and hold the guarantor to his bargain. but simply that he is able to do so Pay the creditor without qualification if the principal debtor does not pay. Guarantor personally designated by the creditor: Responsibility of the selection should fall upon the creditor because he considered the guarantor to have the qualifications for the purpose. Right of Creditor to Secure Judgment against Guarantor prior to Exhaustion GR: An ordinary personal guarantor (NOT a pledgor or mortgagor). c. In effect. RIGHT OF GUARANTOR TO BENEFIT EXCUSSION OR EXHAUSTION (2058) Reasons: 1. secure a judgment against the guarantor. the guarantor is discharged from any responsibility. it may not be sufficient that the debtor appears insolvent. Article 2057: 1. and solvency of the guarantor.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 of the debtor Does not contract that the principal will pay. Waiver is valid but it must be made in express terms. If the guarantor has expressly renounced it – Waiver i. Exception: The creditor waives the requirements Effect of Subsequent Loss of Required Qualifications: The qualifications need only be present at the time of the perfection of the contract. 2. He possesses integrity. who shall be entitled. . Guarantor becomes primary liable as a solidary co-debtor. until after the properties of the principal debtor shall have been exhausted. Hence. capacity. b. may demand exhaustion of all the property of the debtor before he can be compelled to pay. to a deferment of the execution of said judgment against him. and the contract of guaranty continues. to satisfy the latter’s obligation. Specified person stipulateda as guarantor: TIFF (Uncompressed) decompressor are needed to see this picture. As a party. Judicial declaration of insolvency is not necessary in order for the creditor to have a right to demand another guarantor. In case of insolvency of the debtor – guarantor guarantees the solvency of the debtor Page 210 of 297 OF QUALIFICATIONS OF GUARANTOR (2056-2057) 1. 3. Guarantor selected by the principal debtor: Debtor answers for the integrity. he renounces in the contract itself the benefit of exhaustion. however. If the principal debtor fulfills the obligation guaranteed. 2. He has capacity to bind himself. All legal remedies against the debtor to be first exhausted – to warrant recourse against the guarantor for payment. 2059: a. prior thereto. b. Such insolvency may be simulated. Substitution of guarantor may not be demanded Reason: The selection of the guarantor is: a. EXCEPTIONS TO THE BENEFIT OF EXCUSSION (2059) The guarantor is not entitled to the benefit of excussion: 1.

Guaranty does not appear – 3. Actual demand to be made – joining the guarantor in the suit against the principal debtor is not the demand intended by law DUTY OF THE GUARANTOR TO SET UP BENEFIT OF EXCUSSION (2060) As soon as he is required to pay. After the guarantor has fulfilled the conditions required for making use of the benefit of exhaustion. If he fails to interpose it as a defense before judgment is rendered against him. guarantor must also point out to the creditor available property (not in litigation or encumbered) of the debtor within the Philippines. the liability of the guarantor as the debtor cannot fulfill his obligation d.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 i. Available property of the debtor – the guarantor should facilitate the realization of the excussion since he is the most interested in its benefit. the guarantor can no longer require the creditor to resort to all such remedies against the debtor as the same would be but a useless formality. If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation – if such judicial action including execution would not satisfy the obligation. If the debtor becomes insolvent. 2. Exception: Debtor has left a manager or representative. 4. iii. if he so desires. DUTY OF CREDITOR TO MAKE PRIOR DEMAND FOR PAYMENT FROM GUARANTOR (2060) 1. the creditor may hold the guarantor only after judgment has been obtained against the principal debtor and the latter is unable to pay. DUTY OF THE CREDITOR TO RESORT TO ALL LEGAL REMEDIES (2061) 1. If he fails to do so. Notice to guarantor of the action – guarantor must be notified so that he may appear. If he is a judicial bondsman and subsurety (2084) Where a pledge or mortgage has been QuickTime™ security. 5. PROCEDURE WHEN CREDITOR SUES (2062) 1. b. It is not necessary that the debtor be judicially declared insolvent. or cannot be sued within the Philippines – the creditor is not required to go after a debtor who is hiding or cannot be sued in our courts. Guaranty appears – voluntary appearance does not constitute a renunciation of his right to excussion. and to incur the delays and expenses incident thereto. e. Set it up against the creditor upon the latter’s demand for payment from him. given by him as a special and a TIFF (Uncompressed) decompressor are needed to see this picture. Within the Philippine territory – excussion of property located abroad would be a lengthy and extremely difficult proceeding and would not conform with the purpose of the guaranty to provide the creditor with the means of obtaining the fulfillment of the obligation. it becomes the duty of the creditor to: 2. 2. ii. Exhaust all the property of the debtor pointed out by the guarantor. If he does not comply with Art. he must: a. When he (debtor) has absconded. and set up defenses he may want to offer a. Exception: Where it would serve merely to delay the ultimate accounting of the guarantor or if no different result would be attained if the plaintiff were forced to institute separate actions against the principal and the guarantors. 2. Sent against the principal – as a rule. 2060: In order that the guarantor may make use of the benefit of excussion. JOINDER OF GUARANTOR AND PRINCIPAL AS PARTIES DEFENDANT GR: The guarantor. 3. for the insolvency of the debtor. not being a joint contractor with his principal. b. Sufficient to cover the amount of the debt. he shall suffer the loss but only to the extent of the value of the said property. cannot be sued with his principal. exhaustion of the principal’s property cannot even begin to take place before judgment has been obtained. When demand to be made – only after judgment on the debt for obviously the Page 211 of 297 . Point out to the creditor: i.

In whose favor applicable – a. 2. it is not required that he point out the property of his co-guarantors. and 2. be they guarantors or possessors of mortgages. or c. When right not available – since subrogation is the means of effectuating the right of the guarantor to be reimbursed. basis. to the right of the creditor. Hence. by making reciprocal concessions. when the guarantor pays. 1. Reason: Obligation of the guarantor with respect to his co-guarantors is not subsidiary but direct and does not depend as to its origin on the solvency or insolvency of the latter. Two or more debtors of one debt. each with different guarantors. and nature of right – right of subrogation is necessary to enable the guarantor to enforce the indemnity given in Art. by virtue of the payment. If any of the circumstances enumerated in Art. Guarantor Reason: He stands with respect to the guarantor on the same footing as the latter does with respect to the principal debtor 2. BENEFIT OF DIVISION AMONG SEVERAL GUARANTORS (2065) 1. and ii. by appearing are allowed to him by law. The guarantors are not liable to the creditor beyond the shares which they are respectively bound to pay. Principal debtor.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 i. Compromise between creditor and principal debtor benefits the guarantor but does not prejudice him. the credit with all the rights thereto appertaining either against the debtor or against third persons. as would the benefit of exhaustion of the debtor’s property. c. The guarantor is subrogated. It may no longer be possible for him to question the validity of the judgment rendered against the debtor 3. b. Only one debtor. Accrual. Arises by operation of law upon payment by the guarantor b. Extent of liability of several guarantors – joint obligation: the obligation to answer for the debt is divided among all of them. 2059 should take place. Hearing before execution can be issued against the guarantor – a guarantor is entitled to be heard before an execution can be issued against him where he is not a party in the case involving his principal. even if they be bound solidarily. It is not a contractual right c. the debtor can set up against the guarantor the defense of previous extinguishments of the obligation by payment. It cannot therefore be invoked in those cases where the guarantor has no right to be reimbursed. Compromise between guarantor and the creditor benefits but does not prejudice the principal debtor. QuickTime™ and a TIFF (Uncompressed) decompressor Page 212 of 297 . subject to stipulation in conventional subrogation. EFFECT OF PAYMENT BY GUARANTOR WITHOUT NOTICE TO DEBTOR (2068) If the debtor has already paid the creditor. He cannot set up the defenses which. Several guarantors. guarantor must notify the debtor before making payment. For the same debt • Cannot be availed of if there are: are needed to see this picture. 1. EFFECTS OF COMPROMISE (2063) Compromise – a contract whereby the parties. 2066 a. 2. not those of the debtor. Two or more guarantors of the same debtor but not only for the same debt d. b. SUB-GUARANTOR’S RIGHT TO EXCUSSION (2064) Sub-guarantor enjoys the benefit of excussion with respect to: 1. Exceptions: When solidarily has been expressly stipulated BENEFIT OF EXCUSSION AMONG SEVERAL GUARANTORS: In order that the guarantor may be entitled to the benefit of division. avoid a litigation or put an end to one already commenced. GUARANTOR’S RIGHT TO SUBROGATION (2067) SUBROGATION – transfers to the person subrogated.

To demand security that shall protect him from: a. 6.” Page 213 of 297 . or 2. To obtain release from the guaranty. without the provisions of the other might be worthless 2071 (Right of Guarantor to Proceed against Debtor even before payment) Provides for the protection before he has paid but after he has become liable – gives a protective remedy before payment Preliminary remedy Remedy given seeks to obtain from the guarantor “release from the guaranty or to demand a security that shall protect him from any proceedings by the creditor and from the danger of insolvency of the debtor. and this period has expired. If there are reasonable grounds to fear that QuickTime™ the principal debtor intends and aabscond. either a remission or novation by subrogation. it connotes therefore. Exceptions: 2071 enumerates instances when the guarantor may proceed against the debtor even before the payment. In case of insolvency of the principal debtor.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Reason: The guarantor cannot be allowed. 2. Purpose: To enable the guarantor to take measures for the protection of his interest in view of the probability that he would be called upon to pay the debt. 4. After the lapse of 10 years. REMEDY TO WHICH THE GUARANTOR ENTITLED GR: The guarantor cannot demand reimbursement for indemnity because he has not paid the obligation. to TIFF (Uncompressed) decompressor are needed to see this picture. 1. and b. when the principal obligation has no fixed period for its maturity. unless it be of such nature that it cannot be extinguished except within a period longer than 10 years. 5. If the principal debtor is in imminent danger of becoming insolvent. which. EFFECT OF PAYMENT BY GUARANTOR BEFORE MATURITY (2069) Debtor’s obligation with a period – demandable only when the day fixed comes. the guarantor is not liable for the debt before it becomes due. Guarantor’s remedies are alternative. 2. Subsequently ratified by him (ratification may be express or implied) RIGHT OF GUARANTOR TO PROCEED AGAINST DEBTOR BEFORE PAYMENT (2071) GR: Guarantor has no cause of action against the debtor until after the former has paid the obligation. When he is sued for the payment. When the debtor has bound himself to relieve him from the guaranty within a specified period. Exceptional remedies: 1. 1. or b. He has the right to choose the action to bring. A contract of guaranty being subsidiary in character. Reason: Release of the guarantor imports an extinction in the obligation to the creditor. 7. The guarantor who pays before maturity is not entitled to reimbursement since there is no necessity for accelerating payment. Exception: The debtor will be liable if the payment was made: a. by reason of the expiration of the period for payment. Against the insolvency of the debtor. 3. 2066 AND 2071 DISTINGUISHED 2066 (Right of Guarantor to Reimbursement after Payment) Provides for the enforcement of the rights of the guarantor against the debtor after he has paid the debt – gives a right of action after payment Substantive right Gives a right of action. SUIT BY GUARANTOR AGAINST CREDITOR BEFORE PAYMENT The guaranty’s or surety’s action for release can only be exercised against the principal debtor and not against the creditor. With his consent. through his own fault or negligence to prejudice or impair the rights or interests of the debtor. and either operation requires the creditor’s assent for its validity. Any proceedings by the creditor. When the debt has become demandable.

4. Fulfillment of a resolutory condition. 2073 Applicable: 1. The person who requested him to be a guarantor. Novation 7. Condonation or remission of the debt. CAUSES OF EXTINGUISHMENT OF GUARANTY (2076) (PL3CN-ARFP) GR: Guaranty being accessory.TIFF (Uncompressed) this picture. Indemnity agreement for the benefit of surety – indemnity agreement is not for the benefit of the creditor but for the benefit of the surety. DEFENSES AVAILABLE TO CO-GUARANTORS (2074) GR: All defenses which the debtor would have interposed against the creditor. c. b. Rescission.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 RECOVERY OF SURETY AGAINST INDEMNITOR EVEN BEFORE PAYMENT 1. 3. Confusion or merger of the rights of the creditor and debtor. Indemnity against liability – indemnitor’s liability arises as soon as the liability of the person to be indemnified has arisen without regard to whether or not he has suffered actual loss. Loss of the thing due. are needed to see Same debt Each is bound to pay only his proportionate When Art. Annulment. of several 1. the position occupied by them is that of a principal debtor and indemnitor at the same. By virtue of a judicial demand. and 6. Page 214 of 297 GUARANTOR OF A THIRD PERSON AT REQUEST OF ANOTHER (2072) The guarantor who guarantees the debt of an absentee at the request of another has a right to claim reimbursement. d. Guarantor who paid is seeking reimbursement from each of his coguarantors the share which is proportionately owing him. the causes of which are: Payment or performance. Prescription Exception: The guaranty itself may be directly extinguished although the principal obligation still remains such as in the case of the release of the guarantor made by the creditor. Where the principal debtors are simultaneously the same persons who executed the indemnity agreement. Indemnity against loss – indemnitor will not be liable until the person to be indemnified makes payment or sustains loss. Exception: Those which cannot be transmitted for being purely personal to the debtor. Two or more guarantors. Accrual and Basis of Right: The right of reimbursement is acquired ipso jure without need of any prior cession from the creditor by the guarantor. and their liability being joint and several. it is extinguished when principal obligation is extinguished. 2. Payment by such guarantor must have been made: . 2. 3. When one guarantor has paid the debt to the creditor. b. Effect of Insolvency of Any Guarantor: Follows the rule on solidary obligations :The share of the insolvent guarantor shall be borne by the others including the paying guarantor in the same joint proportion. 5. LIABILITY OF SUB-GUARANTOR IN CASE OF INSOLVENCY OF GUARANTOR (2075) Sub-guarantor is liable to the co-guarantors in the same manner as the guarantor whom he guaranteed in case of the insolvency of the guarantor for whom he bound himself as sub-guarantor. 2. Compensation. or b. a. Indemnity agreement may be against actual loss as well as liability – such agreement is enforceable and not violative of any public policy a. 2. and a QuickTime™ decompressor Same debtor. 2. Other causes: a. The debtor BETWEEN CO-GUARANTORS RIGHT TO CONTRIBUTION OF GUARANTOR WHO PAYS (2073) Presumption of joint liability guarantors when there are: 1. 3. after satisfying the debt from: 1. Because the principal debtor is insolvent. Effect: share.

It also avoids collusion between the creditor and the debtor or a third person. the guaranty. or 1. Page 215 of 297 . Imposes a new obligation or added burden on the party promising. Where consent to an extension is waived in advance by the guarantor: Such waiver is not contrary to law. Reason: The act of one cannot prejudice another. It is unimportant whether the extension given has actually proved prejudicial or not to the guarantor or surety. the guarantors are thereby released. others may prejudice the others should a guarantor become insolvent. Such material alteration would constitute a novation or change of the principal contract. Effect: Guarantor is discharged from his undertaking. DEFENSES AVAILABLE AGAINST CREDITOR (2081) TO GUARANTOR RELEASE BY EXTENSION OF TERM GRANTED BY CREDITOR TO DEBTOR (2079) Release Without Consent of Guarantor: Creditor grants an extension of time to the debtor without the consent of the guarantor. 1. discharges the guarantor. changing the legal effect of the original contract and not merely the form thereof. Takes away some obligation already imposed. RELEASE OF GUARANTOR WITHOUT CONSENT OF OTHERS (2078) Effect: The release benefits all to the extent of the share of the guarantor released. thus depriving the guarantor of his right to reimbursement. The debtor may become insolvent during the extension. Reason: The extension constitutes an extension of the payment of the whole amount of the indebtedness 2. GR: All defenses. will release the surety from liability. When Alteration Material – where such change will have the effect of making the obligation more onerous. Reason: The creditor’s action against the debtor is for eviction and this is different from what the guarantor guaranteed. Reason: Necessity of avoiding of prejudice to the guarantor. Reason: A release made by the creditor in favor of QuickTime™ and a one of the guarantors (Uncompressed)the consent of the TIFF without decompressor are needed to see this picture. which pertain to the principal debtor and are inherent in the debt. RELEASE BY CONVEYANCE OF PROPERTY (2077) GR: Payment is made in money.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Material Alteration of Principal Contract – any agreement between the creditor and the principal debtor which essentially varies the terms of the principal contract without the consent of the surety. nor to public policy Effect: Amounts to the surety’s consent to all the extensions granted. which is consequently extinguished. In case of eviction: Eviction revives the principal obligation but not the guaranty. Exception: Any substitute paid in lieu of money which is accepted by the creditor extinguishes the obligation and in consequence. Exception: When the unpaid balance has become automatically due by virtue of an acceleration clause for failure to pay an installment. Upon such extinguishments. the accessory contract to guaranty is also terminator and the guarantor cannot be held liable on the new contract to which he has not given his consent. without the guarantor’s consent. Extension must be based on some new agreement between the creditor and the principal debtor by virtue of which the creditor deprives him of his claim. even if the guarantors are solidary. Effect of exception: The act of the creditor extending the payment of said installment. Where obligation payable in installments: where a guarantor is liable for different payments: GR: An extension of time to one or more will not affect the liability of the surety for the others. Nor does it matter for how short a period the time of payment has been extended. RELEASE WHEN GUARANTOR CANNOT BE SUBROGATED (2080) If there can be no subrogation because of the fault of the creditor.

NOTE: Surety is not entitled to notice of principal’s default 5. Liability is limited by terms of contract 3.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 Exception: Those. should be protected against unjust pecuniary impoverishment by imposing on the principal. Qualifications of personal bondsman: 1. but sureties whose liability is primary and solidary. The creditor may sue. Undertaking is to creditor. duties akin to those of a fiduciary. Prior demand by the creditor upon principal not required Surety is not exonerated by neglect of creditor to sue principal LEGAL AND JUDICIAL BONDS MEANING AND FORM OF BOND (2082) BOND – an undertaking that is sufficiently secured. Exception: Unless otherwise expressly provided. who is QuickTime™ and TIFF (Uncompressed) decompressor entitled to but one performance. the contract is called suretyship and the guarantor is called a surety. He has sufficient property to answer for the obligation which he guarantees. The surety’s undertaking is that the principal shall fulfill his obligation and that the surety shall be relieved of liability when the obligation secured is performed. a pledge or mortgage sufficient to cover the obligation shall be admitted in lieu thereof. two who are bound. If the person required to give a legal or judicial bond should not be able to do so. Reason: They are not mere guarantors. and the latter can always claim that it was never his intention to be the sole person obligated thereby. and as between the are needed to see this picture. A surety bond is void where there is not principal debtor because such an undertaking presupposes that the obligation is to be enforceable against someone else besides the surety. Liability arises only if principal debtor is held liable a. A demand or notice of default is not required to fix the surety’s liability Exception: Where required by the provisions of the contract of suretyship d. 2. Page 216 of 297 . PLEDGE OR MORTGAGE IN LIEU OF BOND (2083) Guaranty or suretyship is a personal security. not to debtor: The surety makes no covenant or agreement with the principal that it will fulfill the obligation guaranteed for the benefit of the principal. the second. SURETYSHIP – a relation which exists where one person (principal) has undertaken an obligation and another person (surety) is also under a direct and primary obligation or other duty to the aobligee. 1. NOTE: Surety is not entitled to exhaustion 4. NATURE OF SURETY’S UNDERTAKING STRICTISSIMI JURIS RULE APPLICABLE ONLY TO ACCOMMODATION SURETY Reason: An accommodation surety acts without motive of pecuniary gain and hence. He has capacity to bind himself. BONDSMAN NOT ENTITLED TO EXCUSSION (2084) A judicial bondsman and the sub-surety are not entitled to the benefit of excussion. the surety is bound by a judgment against the principal event though he was not a party to the proceedings. the principal debtor and the surety. b. rather than the first should perform. Liability is contractual and accessory but direct: 2. Pledge or mortgage is a property or real security. Effect of negligence of creditor: Mere negligence on the part of the creditor in collecting from the debtor will not relieve the surety from liability. Bondsman – a surety offered in virtue of a provision of law or a judicial order. separately or together. which are purely personal to the debtor. c. In the absence of collusion. If a person binds himself solidarily with the principal debtor. 3. He possesses integrity. and not cash or currency.

the rules peculiar to suretyship do not apply. creditor not required to sue to enforce his credit pledgor or mortgagor may be third person 5. pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged 3. Such corporations are in fact insurers and in determining their rights and liabilities. Requisites of pactum commissorium: a. when the principal obligation becomes due. They are secured from all possible loss by adequate counter-bonds or indemnity agreements. PROHIBITION AGAINST PACTUM COMMISSORIUM 1. or by common consent to a 3rd person Not valid against 3rd persons unless a description of the thing pledged and the date of the pledge appear in a public instrument MORTGAGE Constituted on immovables Delivery not necessary Not valid against 3rd persons if not registered PROVISIONS COMMON TO PLEDGE AND MORTGAGE (Art 2085-2123) ESSENTIAL REQUISITES TO CONTRACTS OF PLEDGE AND MORTGAGE: 1. 2. IMPORTANT POINTS 1. Effect on Security Contract -nullity of the stipulation does not affect validity and efficacy of the principal contract Page 217 of 297 . in case of property covered by Torrens title. that they be legally authorized for the purpose 4. future property cannot be pledged or QuickTime™ and a mortgaged TIFF (Uncompressed) decompressor are needed to see thisby one who is not 2. Compensated corporate sureties are business association organized for the purpose of assuming classified risks in large numbers. pledgor or mortgagor has free disposal of property thing pledged or mortgaged may be alienated. 3. debtor retains the ownership of the thing given as a security 6. PLEDGE Constituted on movables Property is delivered to the pledgee. STRICTISSIMI JURIS RULE NOT APPLICABLE TO COMPENSATED SURETIES Reasons: 1. the owner of the property pledged or mortgaged is without legal existence and registration cannot validate it. mortgage of a conjugal property by one of the spouses is valid only as to ½ of the entire property 4. pledge/mortgage executed picture. creditor cannot appropriate to himself the thing nor can he dispose of the same as owner. 7. creditor is merely entitled to move for the sale of the thing pledged or mortgaged with the formalities required by law in order to collect 2. there should be a stipulation for an automatic appropriation by the creditor of the property in the event of nonpayment 3. cannot exist without a valid obligation 5. a mortgagee has the right to rely upon what RIGHT OF CREDITOR WHERE DEBTOR FAILS TO COMPLY WITH HIS OBLIGATION 1. constituted to secure the fulfillment of a principal obligation 2. for profit and on an impersonal basis.stipulation where thing or mortgaged shall automatically become the property of the creditor in the event of nonpayment of the debt within the term fixed 2. 3. 6. the persons constituting the pledge or mortgage have the free disposal of their property. there should be a pledge or mortgage b. appears in the certificate of title and does not have to inquire further. and in the absence thereof.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 This rule will apply only after it has been definitely ascertained that the contract is one of suretyship or guaranty. stipulation is null and void . the thing in which the pledge or mortgage consists may be alienated for the payment to the creditor. 8.

created by operation of law CHARACTERISTICS OF PLEDGE: 1.obligation incurred does not arise until the fulfillment of the principal obligation CAUSE OR CONSIDERATION IN PLEDGE 1. negligence. consisting of several lots should be sold separately. encumber or mortgage the same knowing that the real property is encumbered shall dispose of the same as unencumbered. 1. shall take care of the thing pledged with the diligence of a good father of a family b. where each one of several things guarantees determinate portion of credit b. butt he latter shall continue in possession 6.has no independent existence of its own Page 218 of 297 . a promise to constitute pledge or mortgage creates no real right.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 IMPORTANT POINTS 1. the mere embodiment of a real estate mortgage and a chattel mortgage in one document does not have the effect of fusing both securities into an indivisible whole 5. real. unilateral. pledge or mortgage is indivisible EXCEPTIONS to the rule of indivisibility: a.created by agreement of the parties 2. delay or violation of the KINDS OF PLEDGE: are needed to see this picture. Voluntary or conventional.CONSTRUCTIVE delivery or symbolic delivery of the key to the warehouse is sufficient to show that the depositary appointed by common consent of the parties was legally placed in possession. where only portion of loan was released c.creates obligation solely on the part of the creditor to return the thing subject upon the fulfillment of the principal obligation 4. PLEDGE: A contract by virtue of which the debtor delivers to the creditor or to a third person a movable or document evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation with the understanding that when the obligation is fulfilled. contract of pledge gives right to the creditor to retain the thing in his possession or in that of a third person to whim it has been delivered. The instruments pledged shall be delivered to the creditor and if negotiable. Ownership of the thing pledged is transmitted to the vendee or transferee as soon as the pledgee consents to the alienation. thing pledged may be alienated by the pledgor or owner only if with the consent of the pledgee. incorporeal right may be pledged. creditor : a. principal obligation – in so far as the pledgor is concerned 2. all movables within commerce of men may be pledged as long as susceptible of possession 3. where there was failure of consideration 3. transfer of possession to the creditor or to third person by common agreement is essential in pledge . It is essential that fraud or deceit be practiced upon the vendee at the time of the sale. shall convey. pretending to be the owner of any real property. only a personal right biding upon the parties. 4. and not to foreclosure of mortgages 4. description of the thing pledged b. 2. rule that real property. contract of pledge or mortgage may secure all kinds of obligation. applies to sales in execution. pledge shall take effect against 3rd persons only if the ff appears in a public instrument: a. the thing delivered shall be returned with all its fruits and accessions. accessory. debtor -owner bears the risk of loss of the property 2. until the debt is paid 7. only right of action to compel the fulfillment of the promise but there is no pledge or mortgage yet 7. sell. subsidiary. be they pure or subject to a suspensive or resolutory condition 6.if pledgor is not the debtor PROVISIONS APPLICABLE ONLY TO PLEDGE 1. Legal.ACTUAL DELIVERY is important . date of the pledge 5. compensation stipulated for the pledge or mere liberality of the pledgor. must be indorsed.perfected by delivery 2. has the right to the reimbursement of the expenses made for its preservation is liable for its loss or deterioration by reason of fraud. estafa is committed by a person who. QuickTime™ and a TIFF (Uncompressed) decompressor 3. under RPC.

has the responsibility for flaws of the thing pledged. pledgor : a. LEGAL PLEDGES 1. may either claim another thing in pledge or demand immediate payment of the principal obligation if he is deceived on the substance or quality of the thing 8. and not due to fortuitous event c. or defend it against a 3rd person d. b. unless and until he has paid the debt and its interest. there is prima facie presumption that the thing has been returned by the pledgee. the sale must be at a public auction 3. pledgee: a. Necessary expenses shall be refunded to every possessor. may bring the actions which pertain to the owner of the thing in order to recover it from. impairment or diminution in value of the thing. extinguishes the principal obligation whether the price of the sale is more or less than the amount due 2. may require that the thing be deposited with a 3rd person if through the negligence or willful act of the pledgee the thing is in danger of being lost or impaired EXTINGUISHMENT OF PLEDGE (RRPP3A) • If the thing pledged is returned by the pledgee to the pledgor or owner. is responsible for the acts of his agents or employees with respect to the thing pledged c. cannot deposit the thing pledged with a third person. the person who has defeated him in the possession having the option of refunding the amount of the expenses or of paying the increase in value which the thing may have acquired and by reason thereof (art 546) Page 219 of 297 . the thing is in the possession of the pledgor or owner. Contrary stipulation is void. with another ofare the to see decompressor pledgee. • If the thing is in the possession of 3rd person who has received it from the pledgor or owner after the constitution of the pledge. may cause public sale of the thing pledged if. needed thing of the same kind and quality d. 9. The proceeds of the auction shall be a security for the principal obligation. • If subsequent to the perfection of the pledge. there is danger of destruction. or misuse the thing. but only possessor in good faith may retain the thing until he has been reimbursed • Useful expenses shall be refunded only to the possessor in good faith with the same right of retention. neither the acceptance by the pledgor o owner. with expenses in a proper case c. cannot ask for the return of the thing against the will of the creditor. nor the return of the thing pledged is necessary. the owner may ask that it be judicially or extrajudicially deposited e. there is prima facie presumption that the thing has been returned by the pledgee • Payment of the debt • Sale of the thing pledged at public auction FORMALITIES REQUIRED IN SALE BY A CREDITOR IF CREDIT NOT PAID IN DUE TIME: 1. stating the amount due. unless there is a stipulation authorizing him to do so b. is allowed to substitute the thing which is in danger of destruction or impairment QuickTime™ and a fault on the without any part TIFF (Uncompressed) this picture. there must be notice to the pledgor and owner. the pledgee becoming a depositary. without fault on his part. and 4. cannot use the thing without the authority of the owner. if the price is more than amount due. For this purpose. the debt is due and unpaid 2. the sale must be made with the intervention of a notary public EFFECT OF THE SALE OF THE THING PLEDGED 1. if the price of the sale is less. has no right to use the thing or to appropriate the fruits without the authority of the owner d. pledge is extinguished. may use the thing if it is necessary for the preservation of the thing f. neither is the creditor entitled to recover the deficiency. and if he should do so. • A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient to extinguish.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 terms of the contract. the debtor is not entitled to the excess unless the contrary is provided 3.

imposed upon immovables * future property cannot be object of mortgage IMPORTANT POINTS 1. Mortgage by surviving spouse of his/her undivided share of conjugal property can be registered EFFECT OF INVALIDITY OF MORTGAGE ON PRINCIPAL OBLIGATION 1. 2124-2131) It is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation. The laborer’s wages shall be a lien on the goods manufactured or the work done. 2. 1454. 6. (art 1914) 4. creates merely an encumbrance LAWS GOVERNING MORTGAGE 1. immovables 2. creates real rights. Proceedings for registration do not determine validity of mortgage or its effect 3. legal 3. 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. (art 1707) Special Laws apply to pawnshops and establishments which are engaged in making loans secured by pledges. that they be legally authorized for the purpose 4. and in the absence thereof. mortgagor be the absolute owner of the thing pledged or mortgaged 3. as regards aliens becoming mortgages Page 220 of 297 . Mortgage deed once duly registered forms part of the records for the registration of the property mortgaged 5. 1450. Provisions of the Civil Code shall apply subsidiarily. RA 4882. alienable real rights in accordance with the laws. 1604 and 1607) ESSENTIAL REQUISITES OF MORTGAGE: 1. the thing in which the pledge or mortgage consists may be alienated for the payment to the creditor. appears in a public document duly recorded in the Registry of Property to be validly constituted LEGAL MORTGAGE: the persons in whose favor the law establishes a mortgage have on other right than to demand the execution and the recording of the document in which the mortgage is formalized. 1602. enforceable against the whole world 2. MORTGAGE REAL MORTGAGE (Arts. KINDS OF MORTGAGE: QuickTime™ and a TIFF (Uncompressed) decompressor 1. It is not an essential requisite that the principal of the credit bears interest. when the principal obligation becomes due.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 2. Revised Administrative Code 4. (art 1731) 3. the mortgagor retains possession of the property he may deliver said property to the mortgagee without altering the nature of the contract of mortgage. New Civil Code 2. voluntary are needed to see this picture. cannot exist without a valid obligation 5. The agent may retain the things which are the objects of agency until the principal effects the reimbursement and pays the indemnity. Mortgagee entitled to registration of mortgage as a matter of right 2. constituted to secure the fulfillment of a principal obligation 2. although it lacks the proper formalities of a mortgage shows the intention of the parties to make the property as a security for a debt (provisions governing equitable mortgage arts 1365. As a general rule. 1603. principal obligation remains valid 2. the persons constituting the pledge or mortgage have the free disposal of their property. PD 1952 3. INCIDENTS OF REGISTRATION OF MORTGAGE 1. a lien inseparable from the property mortgaged. Registration is without prejudice to better right of third parties 4. 2. equitable – one which. He who has executed work upon a movable has a right to retain it by way of pledge until he is paid. mortgage deed remains as evidence of a personal obligation EFFECT OF MORTGAGE 1. OBJECTS OF REAL MORTGAGE: 1. or that the interest as compensation for the use of the principal and the enjoyment of its fruits be in the form of a certain percent thereof.

upon motion. public sale should be made after proper notice 4. Sheriff’s certificate is executed. and d. the court retains control of the proceedings. execution on judgment 6. express authority to sell is given to the mortgagee. as amended) 1. Upon confirmation of the sale by the court. shall order the property to be sold to the highest bidder at a public auction. KINDS OF FORECLOSURE 1. it shall operate to divest the rights of all parties to the action and to vest their rights to the purchaser subject to such rights of redemption as may be allowed by law 5. survives death of mortgagor EXTRAJUDICIAL FORECLOSURE (governed by Act No. CA. If the court finds the complaint to be wellfounded. also upon motion. Before the confirmation. will be protected against equitable claims on the title in favor of third persons of which he had no actual or constructive notice (St. judicial 2. claims of junior encumbrancers or persons holding subsequent mortgages in the order of their priority. If the mortgagor fails to pay at time directed. Judicial foreclosure There is court intervention Decisions are appealable Order of the court cuts off all rights of the parties impleaded There is equity of redemption except on banks which provides for a right of redemption Period of redemption starts from the finality of the judgment until order of confirmation No need for a special power of attorney in the contract of mortgage NOTES A foreclosure sale retroacts to the date of registration of the mortgage and that a person who takes a mortgage in good faith and for valuable consideration. quasi in rem action 2. IAC. costs of the sale. the record showing clear title to the mortgagor. it is immediately executory Foreclosure does not cut off right of all parties involved There is right of redemption JUDICIAL FORECLOSURE (governed by Rule 68 of Rules of Court) (B-PACE-PC) 1. extrajudicial Both should be distinguished from execution sale governed by Rule 39 of the Rules of Court. the balance. 268 SCRA 441) The action to recover a deficiency after foreclosure prescribes after 10 years from the time the right of action accrues (Arts 1142 & 1144) Extrajudicial foreclosure No court intervention Not appealable. acknowledged and recorded to complete the foreclosure NATURE OF JUDICIAL FORECLOSURE PROCEEDINGS 1. May be availed of by bringing an action in the proper court which has jurisdiction over the area wherein the real property involved or a portion thereof is situated 2. The proceeds of the sale shall be applied to the payment of the: a.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 FORECLOSURE OF MORTGAGE: It is the remedy available to the mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure which the mortgage was given. “the price is so inadequate as to shock the conscience of the court” taking into consideration the peculiar circumstances attendant thereto (Sulit v. surplus proceeds of foreclosure sale belong to the mortgagor Page 221 of 297 Period to redeem start from date of registration of certificate of sale Special power of attorney in favor of mortgagee is needed in the contract . foreclosure is only the result or incident of the failure to pay debt 3. Dominic Corporation v. 2. the court. if any shall be paid to the mortgagor 7. 3135. amount due the mortgagee. authority is not extinguished by death of mortgagor or mortgagee 3. 4. it shall order the mortgagor to pay the amount due with interest and other charges within a period of not less than 90 days nor more than 120 days from the entry of judgment 3. b. c. 151 SCRA 577 [1987]) Mere inadequacy of the price obtained at the sheriff’s sale will notQuickTime™ and a to set aside be sufficient TIFF (Uncompressed) decompressor the sale unless are needed to see this picture.

only one filing fee corresponding to such debt shall be collected 5. an ancillary stipulation 3. the certificate of sale must be approved by the Executive Judge 4. RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY 1. Filing of application before the Executive Judge through the Clerk of Court 2. the Clerk of Court shall archive the records 9. equity of redemption: right of the mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the Page 222 of 297 . that is.00. otherwise the sale shall be postponed to another date. whether the notice of sale has been posted for not less than 20 days in at least 3 public places of the municipality or city where the property is situated. it is referred to as deficiency judgment. Mortgagee may waive right to foreclose his mortgage and maintain a personal action for recovery of the indebtedness 2. PROCEDURE FOR EXTRAJUDICIAL FORECLOSURE OF BOTH REAL ESTATE MORTGAGE UNDER ACT NO. Property may be sold for less than its fair market value upon the theory that the lesser the price the easier for the owner to redeem 3. Action to recover prescribes after 10 years from the time the right of action accrues NATURE OF POWER OF FORECLOSURE BY EXTRAJUDICIAL SALE 1. N0. the sale shall then proceed. 4. the application shall be raffled among all sheriffs 8. remedy of party aggrieved by foreclosure is a petition to set aside sale and cancellation of writ of possession. KINDS OF REDEMPTION 1. If on QuickTime™ and a decompressor the new date TIFF (Uncompressed) this picture.M. conferred for mortgagee’s protection 2. and if the same is worth more than P400. the Clerk of Court shall issue certificate of payment indicating the amount of indebtedness. who conducted the sale to the Clerk of Court before the issuance of the certificate of sale. the filing fees collected. after the redemption period has expired. The names of the bidders shall be reported to the Sheriff of the Notary Public.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 5. Mortgagee is entitled to recover deficiency 2. 3135 AND CHATTEL MORTGAGE UNDER ACT NO. least 2 there shall not be at are needed to see bidders. no auction sale shall be held unless there are at least 2 participating bidders. Where there is right to redeem GR: Inadequacy of price is immaterial because the judgment debtor may redeem the property Exception: the price is so inadequate as to shock the conscience of the court taking into consideration the peculiar circumstances 2. 3. in extrajudicial foreclosure of real mortgages in different locations covering one indebtedness. 99-10-05-0. 1508 (A. Clerk of Court will examine whether the requirement of the law have been complied with. 2000) (ARC-DINREA) 1. Action for recovery of deficiency may be filed even during redemption period. January 15. debtor has the right to redeem the property sold within 1 year from and after the date of sale 6. the notice of sale shall be published in a newspaper of general circulation 7. The value of the mortgaged property has no bearing on the bid price at the public auction.It is a transaction by which the mortgagor reacquires the property which may have passed under the mortgage or divests the property of the lien which the mortgage may have created. If the deficiency is embodied in a judgment. a prerogative of the mortgagee Note: Stipulation of upset price in mortgage contract is void EFFECT OF INADEQUACY OF PRICE IN FORECLOSURE SALE 1. Mortgagee cannot have both remedies Note: Foreclosure retroacts to the date of registration of mortgage STIPULATION OF UPSET PRICE OR “TIPO” A stipulation of minimum price at which the property shall be sold to become operative in the event of a foreclosure sale at public auction is NULL and VOID REDEMPTION . provided that the public auction was regularly and honestly conducted WAIVER OF SECURITY BY CREDITOR 1. the description of the real estates and their respective locations 6. the mortgages sought to be foreclosed. that such notice has been published once a week for at least 3 consecutive weeks in a newspaper of general circulation in the city or municipality 3.

and thereafter to the principal of the credit (Art 2132) CHARACTERISTICS 1. if any. 2134) SPECIAL REQUISITES: 1. CA. Purchase price of the property b. express agreement that debtor will give possession of the property to creditor and that the latter will apply the fruits to the interest. Mortgagee is not a bank (Act No. 1% interest per month on the purchase price QuickTime™ and a c. delivery of the immovable is necessary for the creditor to receive the fruits and not that the contract shall be binding 3. juridical person – same rule as natural person c. right of redemption: right of the mortgagor to redeem the property within a certain period after it was sold for the satisfaction of the debt. as long as within the period prescribed. antichresis is susceptible of guaranteeing all kinds of obligations. extra-judicial (Act No. Mortgagee is a bank (GBL 2000) a. up to the time of redemption 2. taxes TIFF (Uncompressed) this picture. natural person – 1 year from registration of the certificate of sale with Registry of Deeds b. formal contract – it must be in a specified form to be valid (Art. applies to judicial foreclosure of real mortgage and chattel mortgage foreclosure NOTE: redemption of the banking institutions is allowed within 1 year from confirmation of sale 2. purchaser’s paidneeded toamount of and see decompressor are prior lien. 28. with the same rate of interest computed from the date of registration of sale. amount of principal and interest must be specified in writing 4. CA. Judicial – before confirmation of the sale by the court NOTE: Allowing redemption after the lapse of the statutory period when the buyer at the foreclosure sale does not object but even consents to the redemption. then to the principal of his credit 5. will uphold the policy of the law which is to aid rather than defeat the right of redemption (Ramirez v. Amount due under the mortgage deed b. it can cover only the fruits of an immovable property 2. may be exercised irrespective of whether or not the mortgagee has subsequently conveyed the property to some other party (Sta. applies only to extrajudicial foreclosure of real mortgage NOTE: the right of redemption. hence. Accessory contract – it secures the performance of a principal obligation 2. pure or conditional Antichresis Refers to real property Perfected by mere consent Consensual contract Pledge Refers to personal property Perfected by delivery of the thing pledged Real contract Antichresis Property is delivered to creditor Creditor acquires only the right to receive the fruits of the property. 219 SCRA 598 [1993]) AMOUNT OF THE REDEMPTION PRICE: 1. Cost and expenses NOTE: Redemption price in this case is reduced by the income received from the property ANTICHRESIS (Articles 2132-2139) – A contract whereby the creditor acquires the right to receive the fruits of an immovable of the debtor. if any. Ignacia Rural Bank. there being nothing in the Code to show that antichresis is only applicable to securing the payment of interest-bearing loans.Inc v. Interest c. with the obligation to apply then to the payment of the interest. 3135 in relation to Sec. but the mortgage creates a real right over the property Page 223 of 297 . it does not produce a real right Real Mortgage Debtor usually retains possession of the property Creditor does not have any right to receive the fruits. NOTE: The obligation to pay interest is not of the essence of the contract of antichresis.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 mortgaged property or confirmation of sale. if owing. 230 SCRA 513 [1994]) PERIOD OF REDEMPTION 1. On the contrary. 3135) a. 117 of General Banking Law) 2. Rule 39 of Rules of Court) a. juridical person (mortgagee is bank) – 3 months after foreclosure or before registration of certificate of foreclosure whichever is earlier (Sec.

however. to render an account of the fruits to the debtor 4. as amended 2. Act No. it is pledge and not chattel mortgage. instead of being recorded is delivered to the creditor. NOTE: If the movable. Civil Code 3. to apply all the fruits.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 The creditor. Ship Mortgage Decree of 1978 (PD 1521) governs mortgage of vessels of domestic ownership AFFIDAVIT OF GOOD FAITH . and thereafter to the principal Subject matter of both is real property The creditor has no such obligation It is a contract by virtue of which a personal property is recorded in the Chattel Mortgage Register as security for the performance of an obligation.An oath in a contract of chattel mortgage wherein the parties "severally swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purposes and that the same is a just and valid obligation and one not entered into for the purpose of fraud. as amended If the property is foreclosed. if owing. the debtor is not entitled to the to the excess UNLESS it is otherwise agreed or in case of legal pledge Creditor is not entitled to recover deficiency notwithstanding any stipulation to the contrary There is no such obligation on part of mortgagee OBLIGATIONS OF ANTICHRETIC CREDITOR (FAT-P) 1. Chattel Mortgage Law. Revised Penal Code 5. by stipulation to the contrary 2. 2088) CHATTEL MORTGAGE (Arts. if owing. 1508. including necessary expenses NOTE: Creditor may avoid said obligation by: a. is obliged to pay the taxes and charges upon the estate It is expressly stipulated that the creditor given possession of the property shall apply all the fruits thereof to the payment of interest. EFFECT OF REGISTRATION 1. Hogar Filipino. creates real rights 2. to bear the expenses necessary for its preservation and repair REMEDIES OF CREDITOR IN CASE OF NONPAYMENT OF DEBT 1. petition for the sale of the real property as in a foreclosure of mortgages under Rule 68 of the Rules of Court NOTES: • the parties. 68 Phil 712) • a stipulation authorizing the antichretic creditor to appropriate the property upon the non-payment of the debt within the agreed period is void (Art. and thereafter to the principal 3. the excess over the amount due goes to the debtor PLEDGE Involves movable property Delivery of the personal property is necessary Registration is NOT necessary for validity Procedure: Art 2112 of Civil Code If the property is sold. after receiving them. compelling debtor to reacquire enjoyment of the property b. to pay taxes and charges on the estate. 2140-2141) Creditor is entitled to deficiency from the debtor EXCEPT if it is a security for the purchase of personal property in installments LAWS GOVERNING CHATTEL MORTGAGE 1. unless there is stipulation to the contrary. CHATTEL MORTGAGE Involves movable property Delivery of the personal property is NOT necessary Registration is necessary for validity Procedure: Sec 14 of Act no 1508. to the payment of interest. El TIFF (Uncompressed) decompressor are needed to see this picture. Revised Administrative Code 4. adds nothing to mortgage Note: Registration of assignment of mortgage is not required Page 224 of 297 . may agree on an extrajudicial foreclosure in the same manner as they are allowed in contracts QuickTime™ and of mortgage and pledgea (Tavera v. Inc. action for specific performance 2.

2236-2251) CONCURRENCE OF CREDIT: It implies possession by two or more creditors of equal right or privileges over the same property or all of the property of a debtor. for the fulfillment of his obligations. After the sale at public auction. The 30-day period is the minimum period after violation of the mortgage condition for the creditor to cause the sale at public auction with at least 10 days notice to the mortgagor and posting of public notice of time.( CA No. 2. 2. the redemption is made by paying or delivering o the mortgagee the amount due on such mortgage and the costs and expenses incurred by such breach of condition before the sale FORECLOSURE OF CHATTEL MORTGAGE 1. 1. balance. NCC) 3. subjects to exemptions provided by law . CIVIL ACTION TO RECOVER CREDIT 1. as amended) b. an attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it 3. mortgage lien deemed abandoned obtaining a personal judgment be asked and any contrary agreement shall be void 3. costs and expenses of keeping and sale 2. After 30 days from the time of the condition is broken 2. where mortgaged property subsequently attached and sold: mortgagee is entitle to deficiency judgment in an action for specific performance APPLICATION OF PROCEEDS OF SALE 1. right to receive support as well as money or property obtained by such support shall not be levied upon on attachment or execution (Art 205. the public Land Act. person holding a subsequent mortgage. Sec 13. c. if any. when the condition of a chattel mortgage is broken. the ff may redeem: a. and is a period of grace for the mortgagor. is not liable for the unsatisfied claims of his creditors with said property (Secs. independent action not required 2. or person holding under him CONCURRENCE AND PREFERENCE OF CREDITS (Arts. NCC) 2. private sale – there is nothing illegal. Insolvency Law. shall be paid to the mortgagor. Sec 118. where mortgage foreclosed: creditor may maintain action for deficiency although Chattel Mortgage Law is silent on this point. 1956) c. 141. family home (Arts 152. PREFERENCE OF CREDIT: It is the right held by a creditor to be preferred in the payment of his claim above other out of the debtor’s assets. public sale 2. payment of the obligation 3. where mortgage constituted as security for purchase of personal property payable in installments: no deficiency judgment can . the right of redemption is no longer available to the mortgagor. property in custodia legis and of public dominion Page 225 of 297 by RIGHT OF MORTGAGEE TO RECOVER QuickTime™ and a TIFF (Uncompressed) decompressor DEFICIENCY are needed to see this picture. immoral or against public order in an agreement for the private sale of the personal properties covered by chattel mortgage PERIOD TO FORECLOSE 1. the debtor is liable with all his property. subsequent attaching creditor. b. 68 and 69. place. mortgagor.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 RIGHT OF REDEMPTION 1. 3. GENERAL PROVISIONS: 1. Act No. future property • a debtor who obtains a discharge from his debts on account of insolvency. to discharge the obligation.exempt property: a. present and future. present property 1. claims of persons holding subsequent mortgages in their order 4. 153 and 155. Rule 39. Reason is chattel mortgage is only given as a security and not as payment of the debt. Rules of Court 4. and purpose of such sale.

Exemption of conjugal property or absolute community or property provided that: a. shall be added to the free property which the debtor may have. PURPOSES OF INSOLVENCY LAW: 1. 5. and either may operate on the petition of the debtor or that of his creditors. and those which enjoy preference. they shall be satisfied pro rata. after the payment of the taxes and assessment of the taxes and assessments upon the immovable property or real right. BANKRUPTCY The only distinction between insolvency and bankruptcy is a matter of terminology and the source of the laws relating thereto. The Insolvency Law is intended to cover the entire subject of insolvency and bankruptcy and must be treated as a complete body of law upon the subject. are needed to see 4. if any. 6. his undivided share or interest in the property shall be possessed by the assignee in insolvency proceedings because it is part of his assets 5. those credits which enjoy preference in relation to specific real property or real rights. for the payment of other credits. and one of the coowners is the insolvent debtor. EQUITY TEST – a person may be insolvent although he may be able to pay his debts at some future time on a settlement and winding up of his affairs. It is the inability of a person to pay his debys as they become due in the ordinary course of business. shall be excluded from the insolvency proceedings CLASSIFICATION OF CREDITS 1. Obligations of the insolvent spouse have not redounded to the benefit of the family 4. exclude all others to the extent of the value of the personal property to which the preference refers. BALANCE SHEET TEST – relative condition of a man’s assets and liabilities that the former if all made immediately available. taxes and fees due the State or any subdivision thereof 3. special preferred credits (Arts 2241 and 2242 of NCC) a. ordinary preferred credits (Art 2244) preferred in the order given by law 3. credits which enjoy preference with respect to specific movables. refers. taxes due to the State shall first be satisfied 2. shall be satisfied according to the following rules: • order established by Art 2244 • common credits referred to in Art 2245 shall be paid pro rata regardless of dates.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 2. and 2.credits of any other kind or class. Insolvency is thus primarily governed by the CC and subsidiarily by the Insolvency Law. considered as mortgages or pledges of real or personal property or liens within the purview of legal provisions governing insolvency b. INSOLVENCY PRIMARILY GOVERNED BY THE CC Insolvency shall be governed by special laws insofar as they are not inconsistent with the CC. exclude all others to the extent of the valueand a the immovable of QuickTime™ TIFF the preference decompressor or real right to which(Uncompressed) this picture. INSOLVENCY LAW INSOLVENCY – state of a person whose liabilities are more than his assets. those credits which do not enjoy any preference with respect to specific property. 2. as amended) 3. if there are 2 or more credits with respect to the same specific real property or real rights. To benefit the debtor in discharging him from his liabilities and enabling him to start afresh with the property set apart to him as exempt. Partnership or community subsists b. after the payment of duties. if there are 2 or more credits with respect to the same specific movable property. after the payment of the credits which enjoy preference with respect to specific property. property held by the insolvent debtor as a trustee of an express or implied trust. as to the amount not paid. if there is co-ownership. 3. insolvency shall be governed by the Insolvency Law (Act No. or by any other right or title not comprised in Arts 2241-2244 shall enjoy no preference ORDER OF PREFERENCE OF CREDIT 1. would not be sufficient to discharge the latter. To effect an equitable distribution of the bankrupt’s property among his creditors. Page 226 of 297 . they shall be satisfied pro rata. real or personal. Either a bankruptcy or insolvency statute may operate to discharge a debt as well as release the debtor from imprisonment. common credits (Art 2245) . the excess. INSOLVENCY vs. 1956. The regulatory and unifying influence of the law on credit transactions and business usage throughout the country.

and in case where there are preferences. 2. whose credits or demands accrued in the Philippines. All the assets of the debtor not exempt from execution are taken possession of by the sheriff until the appointment of a receiver or assignee. REQUISITES OF PETITION FOR SUSPENSION OF PAYMENTS: 1. Petition the court to suspend payments. some creditors may not receive any amount at all Number of Number of In case of creditors creditors is involuntary required immaterial insolvency. foresees the impossibility of meeting them when they respectively fall due. by court order.00 Page 227 of 297 WHAT MAY BE PERMITTED OF A DEBTOR BY THE INSOLVENCY LAW 1. residents of the Philippines. All civil proceedings pending against the insolvent debtor shall be stayed. three or more creditors are required EFFECT OF COURT ORDER DECLARING DEBTOR INSOLVENT (ADCM) 1. Foreseeing the impossibility of meeting them when they respectively fall due. 2. Two thirds (2/3) of the creditors voting upon the same proposition. 4. which QuickTime™ and a TIFF (Uncompressed) decompressor 2. Petition is filed by a debtor. and 4. KINDS OF INSOLVENCY: VOLUNTARY INSOLVENCY – an insolvent debtor owing debts exceeding the amount of P1. . PURPOSE: To suspend or delay the payment of debts the amount of which is not affected although a postponement is declared. BASIS: Probability of the debtor’s inability to meet his obligations when they respectively fall due. and the amount of which credits or demands are in the aggregate of not less than P1. SUSPENSION OF PAYMENTS – postponement. 2.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 DISTINCTIONS BETWEEN SUSPENSION OF PAYMENTS AND INSOLVENCY SUSPENSION INSOLVENCY OF PAYMENTS Purpose Suspend or Discharge the delay the debtor from the payment of payment of debts debts Sufficiency of Debtor has Debtor does not property sufficient have sufficient property to pay property to pay his debts all his debts Effect on Amount of The creditors amount of indebtedness is receive less indebtedness not affected than their credits. Mortgages or pledges. total liabilities of the debtor. To be discharged from his debts and liabilities by voluntary or involuntary insolvency proceedings. The payment to the debtor of any debts due to him and the delivery to the debtor or to any person for him of any property belonging to him and the transfer of any property by him are forbidden. 3. Petitioning that he be declared in the state of suspension of payments RULE ON DOUBLE MAJORITY IN THE MEETING OF CREDITORS Majority shall be: 1. Possessing sufficient property to cover all his debts.000. attachments or executions on property of the debtor duly recorded and not dissolved are not affected by the order.000. 3. of the payment of debts of one who.00 may apply to be discharged from his debts and liabilities by petition to the RTC of the province or city in which he has resided for six months next preceding the filing of the petition. while possessing sufficient property to cover his debts. despite the fact that he has sufficient assets to cover all his liabilities. INVOLUNTARY INSOLVENCY – an adjudication of insolvency may be made on the petition of three or more creditors. Represents at are neededthree fifths (3/5) of the least to see this picture.

00 Bond is required not Posting bond of Ex parte adjudication An order of adjudication may be granted ex parte Petition is filed in the RTC of the province or city where the debtor has resided for six months Court issues the order of adjudication declaring the petitioner insolvent upon the filing of the voluntary petition Residency duration to vest jurisdiction in courts Requirement of hearing The debtor is not adjudicated insolvent until after hearing of the case *SERVICEWIDE v. 3. EFFECTS OF ASSIGNMENT 1. Those who did not file their claims at least two days prior to the time appointed for such election . or any part thereof. 20) The amount of indebtedness must exceed P1. A mortgage credit may be alienated or assigned to a third person. Vacate and set aside judgment entered in any action commenced within 30 days immediately prior to the commencement of insolvency proceedings. 4. d. Those whose claims are barred by the statute of limitations 3. Assignee takes the property in the plight and conditions that the insolvent held it.000. Vacate and set aside execution issued thereon. and the control of the property is vested in the court. Holders of claims for unliquidated damages arising out of pure tort. 2. Dissolve any attachment levied within one month next preceding the commencement of insolvency proceedings. debts. The assignment shall: a. Secured creditors unless they surrender their security or lien to the sheriff or receiver or unless they shall first have the value of such security fixed 4. c. Upon appointment. This provision is in accordance with Act No. the legal title to all the property of the insolvent is vested in the assignee. and effects of the insolvent shall be brought by the assignee and not by the creditors. All actions to recover all the estate. appointed by he court to whom an insolvent debtor makes an assignment of all his property for the benefit of his creditors. Vacate and set aside any judgment entered by default or consent of the debtor within 30 days prior to the commencement of insolvency proceedings Number creditors of Who may petition the proceedings Acts of insolvency Amount debt of Debtor must not be guilty of any of the acts of insolvency (Sec.00 (aggregate) Petition must be accompanied by a bond An order of adjudication granted only after a hearing Length of residence is immaterial 2. CREDITORS NOT ENTITLED TO VOTE IN THE ELECTION OF ASSIGNEE 1. Since the assignee of the credit steps into the shoes of the creditor-mortgagee Page 228 of 297 QuickTime™ ASSIGNEE – person elected by and a creditors or the TIFF (Uncompressed) decompressor are needed to see this picture. CA (320 SCRA 478 [1999]) ASSIGNMENT OF CREDIT/CONSENT: As provided in Article 2096 in relation to Article 2141 of the Civil Code.000. 1508 which provides that a mortgagor of personal property shall not sell or pledge such property. mortgaged by him without the consent of the mortgagee in writing on the back of the mortgage and on the margin of the record thereof in the office where such mortgage is recorded.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 DISTINCTIONS BETWEEN VOLUNTARY INSOLVENCY AND INVOLUNTARY INSOLVENCY VOLUNTARY INSOLVENCY One creditor is sufficient Filed by the insolvent debtor INVOLUNTARY INSOLVENCY Three or more creditors are required Filed by three or more creditors who possess the qualifications required by law Debtor must have committed one or more of such acts of insolvency Amount must not be less than P1. b. a thing pledged may be alienated by the pledgor or owner with the consent of the pledgee.

When Sec. Hence. To sell. to be received for the benefit of the insolvent’s estate. QuickTime™ and a TIFF (Uncompressed) decompressor are needed to see this picture. 3. 8. wrongfully takes property from such third persons and converts it to his own use. rightfully allotted to a creditor entitled to share in the fund. To settle all accounts between the debtor and his debtors subject to the approval of the court. estate. of every sheriff all the property and money in his possession belonging to the debtor. To recover any property fraudulently conveyed by the debtor. and that third persons have no remedy against the sureties if the assignee. and effects of the debtor. It is paid by the assignee only upon order of the court.) Page 229 of 297 POWERS OF THE ASSIGNEE 1. 7. books. 3. under the order of the court. Purpose: 1. 5. Section 37 constitutes a sort of penal clause which shall be strictly construed. Right of action for damages to real property 4. and papers in relation thereto. To redeem all mortgages and pledges and to satisfy any judgment which may be an encumbrance on any property sold by him. and claims belonging to or due to the debtor. Property to which a mortgage or pledge exists unless the creditor surrenders his security or lien. PROPERTIES OF INSOLVENT THAT PASS TO THE ASSIGNEE: (AFRU) 1. By it. In case of non-resident or absconding or concealed debtor. To take into his possession all the estate of the debtor except property exempt from execution. DIVIDENDS IN INSOLVENCY DIVIDENDS IN INSOLVENCY – parcel if the fund arising from the assets of the estate. 2. including all deeds. (ET-CMANT) 1. 4. it follows that the assignee’s consent is necessary in order to bind him of the alienation of the mortgaged thing by the debtor-mortgagor This is tantamount to a novation. All real and personal property. 4. the assignee is required to give a bond for the faithful performance of his duties.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 to whom the chattel is mortgaged. any estate of the debtor which has come into his possession. 3. one person is given a superior right or claim over another. Properties fraudulently conveyed. Non-leviable assets like life insurance policy which do not have any cash surrender value 7. purporting to be as such. Property of the conjugal partnership or absolute community except insofar as the debtor’s obligations redounded to the benefit of the family. debts. upon order of the court. 2. (The general rule is that the purpose of insolvency proceeding is the equitable distribution of the insolvent’s assets among the debtor’s creditors. 5. to demand and receive . The undivided share or interest of the insolvent debtor in property held under coownership PROPERTIES OF INSOLVENT THAT DO NOT PASS TO THE ASSIGNEE. Right of action for tort which is purely personal in nature. 2. the law on preferences is strictly construed. CREDITOR’S LIABILITY FOR FRAUDULENTLY ASSIGNING HIS CREDIT A creditor’s transfer or assignment of his credit to another without the knowledge and at the back of other creditors of the insolvent may be a shrews surprise move that enables the transferor creditor to collect almost if not the entire amount of the said creditor. To compound. Property exempt from execution. Property held in trust. To establish his official character 2. 6. After-acquired property except fruits and income of property owned by the debtor 6. 37 does not apply: Not applicable where what has been disposed of is the creditor’s own credit and not the insolvent’s property. BOND OF THE ASSIGNEE After his election. CLASSIFICATION AND PREFERENCE OF CREDITORS PREFERENCE – an exception to the general rule. whether in the same proportion with other creditors or in a different proportion. To establish his right to sue in that capacity The bond is solely for the benefit of the creditors of the insolvent. with any person indebted to such debtor. REMEDY OF THE ASSIGNEE: Section 37 of the Insolvency Law: The creditor coming within this purview is liable to an action by the assignee for double the value of the property so embezzled or disposed of. To sue and recover all the estate.

on order of the court on petition of the assignee or any creditor whose right to QuickTime™ the estate of the insolvent has beenand a established. 4. Voting of a secured claim. TIFF (Uncompressed) decompressor are needed to see this picture. 3. 2245 of the CC. in discharge and satisfaction of the whole debt. between an insolvent or embarrassed debtor and his creditors. To maintain his right under his security or lien and ignore the insolvency proceedings – it is the duty of the assignee to surrender to him the property encumbered. made upon a sufficient consideration. Preferred claims as to unencumbered property of the debtor which shall be paid in the order named in Art. REQUIREMENTS FOR COMPOSITION (FADA) A VALID OFFER OF Page 230 of 297 . lease. THE FOLLOWING WAIVER: DO NOT CONSTITUTE RULES ON ORDER OF DISTRIBUTION 1. whereby the latter for the sake of immediate or sooner payment. before the general creditors receive anything. the ownership of which has not been conveyed to him by legal and irrevocable title. 1. 2241 and 2242 are considered as mortgages and pledges of real or personal property or liens within the purview of the Insolvency Law.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 6. The claims which are given priority must be paid in full in the order of their priority. Preferred claims with respect to specific movable property and specific immovable property under Art. The priorities fixed by law govern 2. COMPOSITION Designates an arrangement between a debtor and the whole body of his creditors (or at least a considerable portion of them) for the liquidation of their claims by the dividend offered. ACCORD An agreement between a debtor and a single creditor for a discharge of the obligation by a part payment or on different terms. Equitable claims under Sec. The preferred claims enumerated in Art. Money held by the debtor for remittance. agree to accept a dividend less than the whole amount of their claims. Property held by the insolvent on deposit. 2241 and 2242 of the CC. To have the value of the encumbered property appraised and then share in the distribution of the assets of the debtor with respect to the balance of his credit. 5. 2. share in the distribution of the assets of the debtor. Merchandise bought by the insolvent on credit where no delivery is made or where the right of ownership or possession has been retained by the seller. Amounts due the insolvent for sales or merchandise on commission. With reference to specific movable and immovable property of the debtor. 1. or usufruct. WAIVER – release or surrender of the claim to the receiver. shall not be considered to be property of the insolvent and shall be placed at the disposal of its lawful owners. sheriff.An agreement. COMPOSITION . Mere recommendation that the assignee be appointed. 2. 7. 2. to be distributed pro rata. EQUITABLE CLAIMS UNDER THE INSOLVENCY LAW (PD-MN-RCW) Section 48 of the Insolvency Law: Any property found among the property of the insolvent. Paraphernal property belonging to the wife of the insolvent. administration. 4. Merchandise held by the debtor on commission. Common or ordinary credits which shall be paid pro rata regardless of dates under Art. Creditors claiming preference must sufficiently establish their credits and their right to preference to entitle them to such preference. the taxes due the State shall first be satisfied. Negotiable instruments for collection or remittance. or assignee. 2. ALTERNATIVE RIGHTS OF SECURED CREDITOR 1. 3. 8. 48. ORDER OF DISTRIBUTION (EPPC) 1. 2244 of the CC. 3. 3. To waive his right under the security or lien – thereby. Goods or chattels wrongfully taken by the insolvent or the amount of the value thereof.

indorser. For all legal and practical purposes. joint contractor. 6. 4. Itsareproperties picture. DISCHARGE . WHEN COURT MAY CONFIRM A COMPOSITION 1. The terms of the composition must be approved or confirmed by the court. A lawful composition and its performance by the insolvent has the same effect of a written discharge. composition for the insolvency proceedings. The consideration shall be distributed as the judge shall direct. and 4. either as a partner. the insolvency ended on the date of the confirmation of composition and the firm was restored to its status quo. debts. Any debt created by the defalcation of the debtor as a public officer or while acting in a fiduciary capacity. Any time within six months after the composition has been confirmed. 2. EFFECTS OF CONFIRMATION OF COMPOSITION 1. surety or otherwise. The insolvent shall be released from his debts.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 1. Any debt created by the fraud or embezzlement of the debtor. The substitution. The offer must be accepted in writing by a majority of the creditors representing a majority of the claims which have been allowed.and a reacquired its QuickTime™ It TIFF (Uncompressed) decompressor personality. Exception: The property of the insolvent has not been converted into money without his fault. The debtor has not been guilty of any of the acts. 7. 2. for or with the insolvent debtor. The insolvency proceedings shall be dismissed. The offer of the terms of composition must be made after the filing in court of the schedule of property and submission of his list of creditors. The offer and its acceptance are in good faith and have not been made or procured in a manner forbidden by the Act. WHEN CONFIRMATION MAY BE SET ASIDE 1. 3. and liabilities. needed to see this ceased to be in custodia legis. liabilities and demands which were or might have been proved against the estate in insolvency DEBTS NOT RELEASED BY DISCHARGE (TEDLICS-REST-SEC) 1. 2.The formal and judicial release of an insolvent debtor from his debts with the exception of those expressly reserved by law. Exception: The creditors had notice or actual knowledge of the insolvency proceedings Page 231 of 297 . Claim for support (Reason: It will make the law a means of avoiding the enforcement of the obligation) 7. 5. 3. although no written discharge is granted. 3. All claims. the consideration to be paid and the costs of the proceedings. and 4. The title to the insolvent’s property shall revest in him. Debts of a corporation (Reason: Corporation is not granted a discharge) 6. debts. It must be made after depositing in such place designated by the court. and 2. and 3. Taxes or assessments due the Government. thereby delaying the distribution of dividends among the creditors in which case the court may extend the period. Discharged debt but revived by a subsequent new promise to pay (Reason: Discharge does not end the moral obligation to pay) 8. or of a failure to perform any of the duties which would create a bar to his discharge. Debt of any person liable for the same debt. DEBTS RELEASED BY A DISCHARGE 1. in a certain sense. and demands set forth in the schedule. 2. Fraud was practiced in procuring such composition. Knowledge thereof has come to the petitioner after the confirmation of such composition. 5. Debts which have not been duly scheduled in time for proof and allowance. WHEN AN INSOLVENT DEBTOR MAY APPLY FOR A DISCHARGE GR: A debtor may apply to the RTC for a discharge at three months to one year after the adjudication of insolvency. 3. All claims. If it is in the best interest of the creditors. 2.

Not in existence or not mature at the time of the discharge. 2. mortgage. 4. That the debtor is insolvent. indorser. Contingent at the time of the discharged. or to prevent the same from being distributed ratably among his creditors. Claims for: a.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 9. if his rights as such guarantor or surety are not to be barred by the subsequent discharge of the insolvent debtor from all his liabilities. 4. The petition is filed within one year after the date of the discharge. For the benefit of the creditor. There must be a parting of the insolvent’s property. With the result that such creditor receives a greater proportion of his claim than other creditors of the same class. liabilities or demands. whether directly or indirectly. Secured creditors. pledge. surety. Releases the debtor from all claims. absolutely or conditionally. absolutely or conditionally. and provided. debts. property. Operates as a discharge of the insolvent and future acquisitions but permits mortgages and other lien 3. sale or conveyance of any part of his property. or to defeat the object of or any way hinder the operation or Page 232 of 297 WHEN DISCHARGE MAY BE REVOKED Discharge may be revoked by the court which granted it upon petition of any creditor: 1. 3. joint contractor. onpicture. It does not operate to release any person liable for the same debts. or seized on execution or makes any payment. pledge. 2. and the regularity of such discharge. 5. WHEN PREFERENTIAL (PCDG) TRANSFER EXISTS 1. 2. Remedy of guarantor or surety when debtor declared judicially insolvent: File a contingent claim in the insolvency proceeding. liabilities and demand set forth in the schedule or which were or might have been proved against his estate in insolvency. LEGAL EFFECTS OF DISCHARGE Discharge takes effect from the commencement of the proceedings in insolvency. It is a special defense which may be pleaded and be a complete bar to all suits brought on any such debts. to any one under the following circumstances: 1. for or with the debtor. Reason: The estate of the depositor is not diminished for there is an obligation on the part of the bank to pay the amount of the deposit as soon as the depositor may see fit to draw a check against it. Unliquidated damages arising out of pure tort b. assignment. It is made with a view to giving preference to any creditor or person having a claim against him. transfer. as a payment. 3. The person receiving a benefit thereby has reasonable cause to believe: a. WHEN FRAUDULENT PREFERENCE EXISTS Fraudulent preference – when the debtor procures any part of his property to be attached. mortgage. sequestered. d. The transaction in question is made within 30 days before the filing of a petition by or against the debtor. c. 1. and 4. either as partner. gift. The certificate of discharge is prima facie evidence of the fact of release. or otherwise. b. GR: A debtor is not prohibited from paying one creditor in preference to another Exception: In cases mentioned in the Insolvency Law Deposit of money to one’s credit on a bank does not create any preference. or the possession of property. Whose debt was proved orand a QuickTime™ provable against TIFF (Uncompressed) decompressor the estate in insolvency. 2. FRAUDULENT PREFERENCES AND TRANSFERS TRANSFER – includes the sale and every other and different modes of disposing of or parting with . The debtor is insolvent or in contemplation of insolvency. Consequent diminution of the insolvent’s estate. claims. That the transfer is made with a view to prevent his property from coming to his assignee in insolvency. or security. ground that are needed to see this the the discharge was fraudulently obtained.

if: 1. pledge. Of equal value with the one received in exchange. or effects remaining in his hands to the assignee who shall be substituted for him in all pending actions or proceedings. the assignee appears for. dismissal is not allowed without the consent of all parties interested in or affected thereby. even when both parties know that the debtor is insolvent. Made by the insolvent. An adjudication in insolvency and in the latter case. mortgage. or seized on legal process in violation of Sec. 1. in which case. 2. Upon the application of the petitioning creditors. but it is sufficient if they are substantially equal. Death before the order of adjudication – the proceedings shall be discontinued. from the order fixing the amount of costs. If such seizure is made under a judgment which the debtor has confessed or offered to allow. 2. pledge. or b. Remedy: File claims in the proper testate or intestate proceedings WHEN RECEIVER MAY BE APPOINTED Anytime before the election of an assignee. expenses. That the assets of the insolvent or a considerable portion thereof have been pledged.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 evade the provisions of the Insolvency Law. or transfer of property of whatever character. 2. The security given up is a valid one at the time the exchange. sale. and represents the general creditors. Voluntary petition – upon the application of the debtor. OR ITS VALUE The creditors of the insolvent are not authorized to institute an independent action. WHEN APPEAL MAY SUPREME COURT BE TAKEN TO THE WHEN FRAUDULENT TRANSFER EXISTS 1. Involuntary petition – a. The receiver shall deliver all the property. EQUAL EXCHANGE NOT A PREFERENCE An exchange of securities within the thirty-day period is not a fraudulent preference under the law. or 2. assigned. 2. A creditor’s claim when the amount in dispute exceeds P300. 70. Death after the order of adjudication – the proceedings shall be continued and concluded in like manner and with like validity and effects as if he had lived. conveyance. 2. if no creditor files written objections. 3. conveyed. and attorney’s fees allowed the debtor. assets. sale. QuickTime™ and a From an order granting or refusing: 1. That it is necessary to commence an action to recover the same. 2. the proceedings may be dismissed at any time. when it appears by the verified petition of a creditor: 1. assignment or transfer is not made in the usual and ordinary course of business of the debtor. conveyance. In all actions or proceedings to set aside or nullify fraudulent preferences or transactions as VOID. After the appointment of an assignee. that fact shall be prima facie evidence of fraud.00 EFFECT OF DEATH OF INSOLVENT DEBTOR Page 233 of 297 . *Date of registration of sale of real property should determine whether the sale was prohibited by the Insolvency Law or not. mortgaged. damages. assignment. By written consent of all creditors filed in court. If such payment. WHEN PRESUMPTION OF FRAUD EXISTS 1. Any payment. Within one month before the filing of the petition in insolvency against him Exception: Transfer for a valuable pecuniary consideration in good faith Effect of fraudulent transfer: Such transfer is VOID RIGHT OF ASSIGNEE (Uncompressed) decompressor TIFF TO RECOVER PROPERTY are needed to see this picture. transferred. mortgage. WHEN PETITION MAY BE DISMISSED At anytime before the appointment of an assignee: 1. Reason: Exchange takes nothing away from the other creditor Equal value: Not necessary that their value should be mathematically equal.

until a written notice of the loss is given to the bank and such loss be included in the Cancellation Bulletin].69 for a term of 182 days. he discovered that it was missing. with the transaction lasting onlu for 40 minutes. considering that the contract was one of adhesion. CA. 5. through its EVP and GM. Previously. and a Mabuhay Credit Card. someone broke into the Spouses’ home in the US. with the assistance of the bank’s Acct. provision no. that it was not Acol who used his card during the dates in question. 1 [which basically says that the holder of the card will still be liable in case of loss. [2] Obligations and Contracts on Provisions Against Public Policy. which he used for several years. after the phone call. strikes down the said provision. He called again the day thereafter inquiring as to what else he must do in connection with the loss. GR No. Philippine Commercial Credit Card Incorporated. presented under Sec. 2006 JURISPRUDENCE ON SECURITY TRANSACTIONS Acol v.28 ) on the date that he called in the loss and the day thereafter. a person claiming to be Carmelita Cabamongan [the wife] pre-terminated the said deposit. Acol said that he would not pay for accounts incurred after the date he reported the loss. 48 (equitable claims) 4. He then promptly sent the said letter which the company received 2 days thereafter. it was held that the said stipulation is null and void for being contrary to public policy. Diligence Required on Banks FACTS: The spouses Cabamongan [hereinafter Spouses] opened a foreign currency time deposit with Citibank. The QuickTime™ CA RTC ruled in favor of Acol. Spouses Cabamongan and Sons. HELD: Not binding. it could still hold Acol liable for whatever unauthorized transaction incurred during such intervening period. and ATM Card. the and a reversed the TIFF (Uncompressed) decompressor are needed to see this picture. in the amount of $55. and [3] Oblicon Concept of Diligence. 1 in the Terms and Conditions is binding on Acol. the representative spoke to him and told him that his card would be included in the circular of lost cards. A discharge to the debtor. In Ermitaňo v. Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to relieve the former of any liability occasioned by the unauthorized use of his stolen card. same. The person withdrawing left an ID with the bank. Acol could have theoretically done everything in his power to give respondent the required written notice. 135149 (25 July 2006): [1] Contracts of Adhesion. but if the bank took its time to include the card in its Cancellation Bulletin. 146918 (02 May 2006): [1] Simple Loan. 6. Prior to the maturity of the said deposit. Said person presented a Bank of America Versatele Card. Citibank v. the bank still decided to collect the said amounts within 15 days from notice. Setting apart homestead or other property claimed as exempt from execution. Officer. She filled up the required documents for pre-termination [from which a discrepancy in signatures was apparent]. and so. The representative told him that he should put the report in writing and submit it. together with his wife’s and daughter’s extension cards. [2] Interest Rates. Under the said stipulation. The wife of the Spouses’ son received the call and was surprised to hear that Carmelita preterminated the deposit because the Spouses were then in the US. citing the Terms and Conditions Governing the Issuance of a Bankard.216. prompting the said bank to call Carmelita at her listed address. on the following day. so the bank had her execute a release and waiver document in favor of Citibank. ISSUE: Whether provision no. where they reported that only a jewelry box went missing. The court then. She immediately called them and informed them of what happened. they discovered that Page 234 of 297 . someone had already used his credit card (with purchases amounting to P76.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 3. and after investigation and review. he called up the card company and made a report. but nevertheless. FACTS: Acol procured from respondent a bankard credit card and an extension. the said document was not notarized on the same day.067. Nonetheless. This is iniquitous and against public policy under Art. the bank. The bank then filed for collection with the RTC. Settling an account of an assignee. Unfortunately. the money was given to the person withdrawing. where a provision identical to the one at hand was contested. She failed to bring the original certificate of deposit. GR No. 1306 of the Civil Code. who also interviewed her casually during the said transaction. A claim for property not belonging to the insolvent. One day.

from the time of judgment. the legal rate shall be Page 235 of 297 12%. [3] Upon finality of the judgment of the court awarding a sum of money. In a loan of forbearance of money. the highest degree of diligence is expected. the interest due should be that stipulated in writing. and the rate of 12% shall apply from the demand. is correct. If demand is certain. a procedure meant to protect the bank. the pre-termination was allowed. banks are under the obligation to treat the accounts of its depositors with meticulous care.216. since the time deposit provided for roll over upon the maturity of the principal and interest. the said time deposit constitutes a simple loan for which. with this interim period being considered a forbearance of money. Officer was negligent. . a rate of 12% / annum counted from the time of demand. it shall run from that time. even with discrepancies in the pictures and signatures. Carmelita called Citibank to report the incident. but the bank relented to refund the said amount taken for the reason that the said deposit was pre-terminated and released to one “Carmelita” after proper identification. 2220 of the Civil Code. CA: [1] Obligation breached is a loan or forbearance of money : (a) stipulated interest. Even the waiver document was not notarized. Thus. regardless if it falls within [1] or [2] from such finality until satisfaction.69 should be in accordance with the guidelines set in Eastern Shipping Lines v. finding respondent bank negligent.Civil Law Summer Reviewer ATENEO CENTRAL BAR OPERATIONS 2007 their passports and bank deposit certificates were also gone. Interests Chargeable The time Article 1980 provides that a contract between a bank and a depositor shall be governed by the provisions on simple loans. A case was filed by the Spouses in the RTC. or (b) 12% from time of demand. interest shall be based on the amount finally adjudged in any case. ISSUES: 1.564% shall apply for the contract period of the deposit [182 days]. No rate on uniquidated claims until demand can be established with reasonable certainty. In the intervening period [after 182 but before demand]. through the Acct. and the failure to surrender the original of the certificate of time deposit. damages may be imposed at the discretion of the court at the rate of 6%. Citibank is liable for damages. because of the gross negligence of the bank’s officer amounting to bad faith. 2. [2] If the obligation is nota a loan or a QuickTime™ and TIFF an interest (Uncompressed) decompressor forbearance of money. Thus. and in the absence thereof. which ruled in their favor. if not. Since banking institutions are impressed with public interest. the interest rate on the actual damages of $55. the interest chargeable shall be interest rate granted by Citibank. are needed to see this on the amount of picture. Whether the decision of the RTC and the CA. The CA affirmed the finding of the CA that the Bank was negligent. Damages Moral damages are also owed under Art. What is the correct interest rate to be charged? HELD: Negligence The Court agrees with the observation of the CA that Citibank. hence this appeal. if no interest is stated. the rate of 2. always having in mind the fiduciary nature of their relationship. by nature of its functions.

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