Sectrans with Notes and Cases. Atty. Lerma. 2C.By Butch Ramiro LOAN Art 1933: Definition of Contract of Loan Contract of Loan: It is a real contract, meaning it REQUIRES DELIVERY for PERFECTION It is a unilateral contract, meaning upon delivery, it only creates obligations on the part of the bailee/borrower Commodatum: B delivers to C something not consumable OR something consumable but intended to be non-consumable wherein C can use it for a certain time and return it o Commodatum is gratuitous o Ownership is retained by the bailor Commodatum is either an ordinary commodatum or a precarium (wherein the bailor may demand the thing loaned at will) Simple Loan/Mutuum: B delivers to C money or other consumable thing, with the condition that C will pay the same amount of the same kind and quality o Ownership passes to the bailee/borrower Exception: Consumable goods may be the subject of commodatum IF it is intended merely for exhibition Producer’s Bank v CA: Vives gratuitously deposited money in Sterela Corp’s account so that it can show that it has s ufficient capital to incorporate. Court ruled that this was a contract of commodatum because the money/consumable was deposited for purposes of exhibition (to the SEC) o Lerma dissent: It’s technically wrong because it’s not like the same exact bills have to be returned o Art 1937: Movable or immovable property may be the object of commodatum Mina v Pascual: When a person is allowed to build a structure on another’s land so that the former may use the property for a certain period without payment of rentals, it can be considered a contract of commodatum involving real/immovable property Art 1938: Bailor/Lender in commodatum does not have to be the owner It is sufficient that the lender has possessory interest or right to its use which he may assert against the bailee and third persons Ex: A tells B that he will lend him his cell phone. B agrees. There is NO contract of commodatum because there was NO DELIVERY. Same goes for simple loan or mutuum. Art 1934: An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties as a CONSENSUAL CONTRACT, but not as a PERFECTED CONTRACT of LOAN until delivery of the object is effected Art 1935: Gratuitous nature of Commodatum The bailee acquires the USE of the thing o The bailee must not be required to give ANY compensation for its use (it may be considered a lease IF there is any compensation) Art 1939: Personal character of Commodatum; Effects Death of bailor or bailee/lender or borrower EXTINGUISHES the contract o EXCEPTION: unless there is a stipulation that transmits the commodatum to the heirs of either Borrower may not LEND or LEASE the object of the contract to a third person o EXCEPTION: a stipulation that the borrower may lend or lease to third persons o EXCEPTION: the members of the borrower’s household may make use of the thing EXCEPTION to EXCEPTION: a stipulation that the members of the household that cannot use OR if the nature of the thing forbids such use Art 1936: Consumable goods may be the subject of commodatum if the purpose of the contract is merely for exhibition General Rule: Object of commodatum is non-consumable Ex: A lends to B, a dentist, a dentist’s chair by way of commodatum. The members of B’s household may not just use it because of its nature Art 1940: Bailee/Borrower may make use of the fruits of the thing loaned but it must be expressly stipulated. It cannot be presumed Page | 1 Sectrans with Notes and Cases. Atty. Lerma. 2C. By Butch Ramiro Art 1941: Bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned Borrower must observe ordinary diligence (good father of a family) unless a higher degree of diligence is stipulated use and the thing is destroyed/damaged through a fortuitous event: the borrower is still liable! 6. If being able to save the thing borrowed or his own thing, he chose to save his own thing Art 1943: Borrower does not answer for the wear and tear (due to normal use) of the thing loaned Borrower must prove that the deterioration was due to normal wear and tear and that he was not at fault or he was not negligent There can be a stipulation making borrower liable even for wear and tear Ex: A lends to B his car. B must pay for gas, motor oil, tune up, etc. Art 1942: Liability of borrower for loss of the thing borrowed General Rule: Borrower is not liable for loss or damage to the thing due to a fortuitous event 1. *Fortuitous event: An event that cannot be foreseen, or which, though foreseen, is inevitable. It is independent of the will of the borrower and when it happens, it makes the normal fulfillment of the obligation impossible (meaning he can’t return it anymore if it’s lost OR he cannot return it in its normal state if it has been damaged) EXCEPTIONS: Borrower is still liable for the loss or damage (due to fortuitous event) in the following instances 1. If borrower devotes the thing to a different purpose (from that for which it has been loaned) Ex: A lent to B his car so B can go out of town. B uses it to drag race. B is liable even if lightning hits the car 2. If he keeps it longer than the period stipulated 3. If he keeps it after the accomplishment of the purpose Ex: A lent to B his motorcycle so B can take his children to school. When B’s children graduate, he must return it. Otherwise, he is liable for the loss/damage even due to fortuitous event 4. If the thing loaned has been delivered with appraisal of value UNLESS there is a stipulation exempting the borrower from liability in case of fortuitous event Ex: Republic v. Bagtas: Government delivered to Bagtas the bulls with appraisal of its value so Bagtas can’t disclaim liability even if the bulls were killed due to Huks 5. If he lends or leases the thing to a third person who is not a member of his household IF the borrower lends the thing to a member of his household but the nature of the thing forbids such Art 1944: Borrower has no right of retention on the ground that the lender owes him something even if it is by reason of extraordinary expenses. Borrower can only retain if lender was aware of flaws in the thing lent and he did not inform the borrower (1951!) Ex. A lent his car to B for a week. A borrowed 10k from B. At the end of the week, B still has to return the car notwithstanding A’s loan. Ex. In Art 1951, if the lender has knowledge of a hidden flaw and defect in the thing loaned and he does not advise the borrower, and subsequently the borrower suffers damages by the flaw, the lender is liable for such damages the borrower incurred. o In addition, borrower can retain the thing loaned until he has been indemnified/reimbursed for the damages he suffered The mere failure of the borrower to return the object of commodatum does not constitute adverse possession that can ripen into title Art 1945: When there are 2 or more borrowers to whom a thing is loaned in the same contract, they are liable solidarily Liable for damages solidarily! Art 1946: Obligations of the Bailor/Lender General Rule: Bailor/Lender cannot demand the thing loaned BEFORE: o Expiration of the period stipulated o The purpose of the commodatum has been served Page | 2 Sectrans with Notes and Cases. Atty. Lerma. 2C. By Butch Ramiro EXCEPTION: (meaning the lender may demand the immediate return of the thing loaned even if the period has not yet expired or the purpose has not yet been served) 1. When the bailor has an urgent need 2. When the bailee commits acts of ingratitude 3. When it is precarium (naturally, precarium allows immediate return) The immediate demand of return may be permanent or temporary o If the return is temporary, the rights and duties of the bailor and bailee are suspended while the thing is in possession of the bailor/lender (meaning it will be the bailor who will pay for the gas, etc while it is in his possession) o If the return is permanent, then the contract of commodatum is extinguished So if the borrower imputes a crime/act on the lender, and the lender did such act to the borrower, wife or children, then the lender cannot demand immediate return If the bailee/borrower unduly refuses the bailor support when the bailee is legally or morally bound to give support o Art 1949: Obligation of bailor to refund extraordinary expenses Extraordinary expenses: expenses that were made due to a fortuitous event in preservation of the thing loaned o Ex: A borrowed B’s house. The house was damaged by a typhoon. The expenses for the repairs are extraordinary expenses General Rule: Bailor/Lender must refund to the borrower the extraordinary expenses incurred by the borrower to preserve the thing loaned o BUT, the borrower must notify the lender before actually incurring them However, there is an exception: if the expenses to be incurred are so urgent that the reply to the notification cannot be awaited without danger o Application: If the borrower does not notify the lender of the extraordinary expenses he will incur, then he will not be entitled to reimbursement/refund As regards extraordinary expenses arising from actual use of the thing loaned incurred by the borrower, the borrower and lender will split the expenses EVEN IF the borrower was not at fault o Unless there is a stipulation to the contrary: If stipulated who will bear the extraordinary expenses arising from actual use Art 1947: Precarium Precarium: a kind of commodatum where the bailor may demand the thing at will o If there is no duration in the contract o If there is no purpose stipulated o If use is merely tolerated In precarium, the borrower has no right to retain until expiration of the period OR until the purpose has been accomplished Quintos v. Beck: Lessor gratuitously granted to lessee the use of the furniture in the leased promises subject to the condition that the lessee would return the furniture upon demand. This is a precarium. Art 1948: Bailor may demand immediate return of thing (IN ORDINARY COMMODATUM) if bailee commits acts of ingratitude If the bailee commits offenses against the bailor, his honor, property, his wife and 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 act or crime has been committed against the bailee, his wife or children under his authority Art 1950: Borrower is not entitled to reimbursement for extra/unnecessary expenses that is not required for the use and preservation of the thing Art 1951: Liability of bailor if bailee suffers damage from hidden flaw or defect Bailor liable to bailee for damages if the following concur: o There is a flaw/defect in the thing loaned o The flaw/defect is hidden o Bailor is aware of the flaw/defect o Bailor does not advise bailee of the flaw/defect Page | 3 Sectrans with Notes and Cases. Atty. Lerma. 2C. By Butch Ramiro o Bailee suffers damage by reason of said flaw Bailee is given right of retention However, if the defect was so patent/obvious that the borrower should have seen the defect after inspection OR if the lender was NOT aware of the defect, then the borrower is not entitled to damages Person who borrows a fungible/consumable thing: o Borrower is under obligation to pay the same kind, quantity and quality If it is impossible to do so, the borrower shall pay the value at the time of the PERFECTION of the loan (when it was delivered) Ex: A borrowed from B 2 sacks of rice of a certain kind and quality. One sack cost 200 pesos each at the time of perfection. A must return to C the 2 sacks of rice of the same kind and quality even if at the time payment, the price had increased to 400. However, if on the due date, the same kind of rice could not be delivered by A, then A must pay 400 instead, the value of the rice at the time of the perfection of the loan. Art 1952: Bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee Lender can’t just abandon the thing to escape paying expenses/damages o If he abandons, he still liable Art 1953: Definition of simple loan or mutuum Simple loan: contract where one of the parties delivers to another money or other consumable thing with the understanding that the same amount of the same kind and quality shall be paid o Obligation on the borrower to return the equivalent only o Ownership is transferred to the borrower Art 1956: No interest shall be due unless it has been stipulated in writing Requirements for interest to be due: o Payment of interest must be expressly stipulated o Agreement must be in writing o The interest must be lawful Exception to 1956: o Debtor in delay is liable for legal interest as indemnity for damages even in the absence of stipulation o Interest may be compounded (interest due will earn interest) Lirag v SSS: Interest can come by way of cumulative dividends if it can be shown that the stock purchase agreement was meant to be a debt instrument and that if the cumulative dividend was fixed at a certain rate and was not made to depend or fluctuate with the amount of profits realized OBM v CA: Banks are not required to pay interest when they are prohibited by the CB from doing so It is ONLY IN CONTRACTS OF LOAN that interest can be stipulated Art 1954: Barter: Contract: ownership of non-fungible thing is transferred to another with the obligation of the latter to give thing of the SAME kind, quantity and quality Art 1955: Form of payment Person who borrows money must: o 1249: pay in currency stipulated (legal tender) o 1250: in case of extraordinary inflation/deflation, basis of payment shall be the value of the currency at the establishment of the obligation (unless there is an agreement to the contrary) o Ex: A borrowed from C 2k payable after 5 years. On the maturity, the value of the 2k dropped to 1k because of inflation. A is liable to pay C 4k because basis of payment is the value of the currency at the time of the perfection of the loan. o Ex: A borrowed from C 2k payable after 5 years. On the maturity, the value of the 2k increased to 4k because of deflation. A is liable to pay C 1k because basis of payment is the value of the currency at the time of the perfection of the loan. Art 1957: Contracts and stipulations, under any cloak or device whatsoever, intended to circumvent the laws on usury shall be void. This provision applies only if usury law is deemed to be effective again Page | 4 Sectrans with Notes and Cases. Atty. Lerma. 2C. By Butch Ramiro An usurious contract is not void in its entirety but only as to the interest involved o If the stipulation to pay the principal date is legal, then it still stands notwithstanding the usurious interest The usurious interest paid may be recovered by the borrower Angel Jose v. Chelda: In a loan of 1k with an interest of 20% per annum (200 per year), the whole 200 is the usurious interest, not just the part thereof in excess of the interest allowed by law. VOLUNTARILY because he feels morally obliged to do so, then there can be no recovery Art 1961: Usurious contracts governed by Usury law Art 1958: Determination of interest payable in kind: value of interest appraised at the current price of the products or goods at the time and place of payment Differentiate from 1955: In 1955, what is loaned is the fungible itself while in 1958, what is paid in kind is the interest! Ex: A borrowed from B 10k payable in palay in 1 year (the palay will be appraised at the current market price at the time and place of payment). When the contract was entered into, the price per cavan of palay was 2k. On the due date of the loan, the price per cavan increased to 4k. o In this case, the value of palay shall be appraised at 4k per cavan and not at 2k. Art 1959: Compound Interest General Rule: accrued interest (interest due and unpaid) shall not earn interest) o EXCEPTION: When judicially demanded Express stipulation on compound interest Penalty charges can be made in case of default and this can also be compounded Compound interest must be in writing Art 1960: Solutio Indebiti/Natural Obligation principles apply if borrower pays interest when there is no stipulation SOLUTIO INDEBITI: If unstipulated interest is paid by mistake, then the debtor may recover the mistakenly paid interest NATURAL OBLIGATIONS: However, if there is unstipulated interest or interest stipulated not in writing, and the debtor pays it Page | 5 If obligation is not a loan or forbearance of money No interest on unliquidated claims or damages. Any other kind of monetary judgment which has nothing to do with loans or forbearance of any money goods or credits does not fall within the coverage of the usury law 2. First Metro Investment v. By Butch Ramiro USURY LAW Certain notes on Usury Law: Usury Law has NOT YET BEEN REPEALED o It is still in effect BUT there are no ceilings right now set by the Monetary Board Elements of Usury: 1. Penalty interest shall be triggered by default. then compound from judicial demand 5. Reformina v. The taking or agreeing to take the use of the loan of something in excess of what is allowed by law Usury applies to two transactions only: When there is NO LOAN OR FORBEARANCE. If interest/compound interest is stipulated. When it’s not a loan or forbearance and it’s unliquidated. and interest will earn legal interest from the time of judicial demand 7. once there is judgment. Interest due shall earn legal interest ONLY when there’s judicial demand (or when it’s stipulated by the parties) 4. A corresponding de-escalation clause or a stipulation that the rate of interest agreed upon shall be reduced in the event the maximum interest is reduced by law or the MB Eastern Shipping Summary of Rules (Interests!) 1. then it’s 12% from delay which is triggered by extrajudicial or judicial demand 3. CA a. judgment money) Interest due is the STIPULATED INTEREST The interest shall learn legal interest from the time of judicial demand (filing of complaint) OR due to a stipulation to compound If there’s no stipulation. An understanding between the parties that the loan shall or may be returned 3. A loan or forbearance 2. then it’s 6% either from demand letter or from judicial demand Page | 6 If demand established with reasonable certainty: 6% from time of extrajudicial/judicial demand If demand NOT established with reasonable certainty: only 6% from judgment until finality . is 6% since it is NOT a loan or forbearance of money b. But if it’s liquidated (demand can be established with reasonable certainty). In an action for damages stemming from injury to persons and property. it’s 6% from the time of the decision. If obligation consists in the payment of a sum of money (e. loan. Banks cannot unilaterally increase the interest on its borrower’s promissory note because it is violative of the principle of mutuality Lerma Rules: 1. Mendoza v. then 12% from finality until payment 8. interest stipulated is payable from day 1 2. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lender’s services which are of little value or which are in fact to be rendered 3. It must not be solely potestative on the part of the creditor 2. there is NO USURY A loan (more specifically a MUTUUM and NOT commodatum) A forbearance: giving a period of time to someone to pay a debt Requisites of a valid escalation clause: 1. Atty. If interest is not stipulated. When there’s interest agreed upon but there’s no rate. the legal interest to be paid. Este Del Sol a. 2C. Lerma.Sectrans with Notes and Cases. It’s ALWAYS 12% from finality until payment (even if not loan or forbearance) 6. Tomol a. Once an obligation is breached: DAMAGES are DUE 2. it’s 12% f rom the start. An unlawful intent to take more than the legal rate for the use of money or its equivalent 4. the rate is 12% from default (due to extrajudicial or judicial demand) 3. except when or until the amount can be established with reasonable certainty Case Notes: 1.g. forbearance of money. it is called a contract of suretyship o Surety’s liability to the creditor is direct. Without knowledge of A. if there be. but G still pays 20k. G agrees to guarantee A’s obligation. If A has already paid 15k. Atty. surety is ONLY liable to the creditor if the principal debtor is held liable o The surety may be sued separately or together with the principal debtor The creditor may even sue the surety first as soon as the principal debtor is held to be in delay/default because the debtor’s default is also the surety’s default o Surety is not entitled to the benefit of excussion the principal debtor cannot or is unable to pay without qualification if the principal debtor does not pay Art 2048: Guaranty GENERALLY gratuitous unless there is a stipulation to the contrary It is not necessary to prove any consideration between the guarantor/surety and the creditor o BECAUSE: a guarantor/surety is bound by the same consideration that makes the contract effective between the principal parties Consideration does not have to directly pass to the guarantor or surety It also never necessary that the guarantor should receive any part or benefit. By Butch Ramiro GUARANTY Art 2047: Contract of guaranty: A guarantor binds himself to the creditor to fulfill the obligation of the principal debtor IN CASE THE PRINCIPAL DEBTOR FAILS TO DO SO Characteristics of Guaranty o Accessory: dependent on a principal obligation o Subsidiary and conditional: it takes effect only when the principal debtor fails to pay o Unilateral: it only gives rise to an obligation on the part of the guarantor to the creditor o Guarantor must be distinct from the guarantor Characteristics of Suretyship: o If a person solidarily binds himself with the principal debtor. 2C. primary and absolute However. Severino: compromise to end litigation was deemed to be sufficient consideration to support a contract of guaranty Art 2049: A married woman may guarantee an obligation without the husband’s consent but it shall only bind the conjugal partnership when for example. immediate.Sectrans with Notes and Cases. guaranty or penalty Ex: A owes B 20k. Lerma. accruing to the principal Severino v. then G can only recover 5k from A because it is only that amount Page | 7 . the guaranty redounded to the benefit of the family General Rule: A married woman who acts as guarantor ordinarily just binds her separate property o Exception: She can bind the conjugal property with her husband’s consent or if it redounds to the benefit of the family A married woman may act as a guarantor for her husband DIFFERENCE OF GUARANTY AND SURETYSHIP Guaranty Liability of guarantor depends upon an independent agreement to pay the obligation Guarantor is subsidiarily liable: he basically insures the solvency of the principal debtor Guarantor’s engagement is collateral Manila Surety: a guarantor assures that that the he will pay if Suretyship Surety assumed liability as a regular party to the undertaking (A surety is usually bound with his principal in the same instrument) Surety is primarily liable: he is the insurer of the debt/obligation itself Surety’s engagement is to the effect that he is an original promissory Lirag: essence of the surety’s obligation is to pay the creditor Art 2050: Guaranty entered into without knowledge of principal debtor A guaranty can be constituted without the knowledge or even against the will of the principal debtor IF PERSON PAYS WITHOUT KNOWLEDGE or AGAINST THE WILL of the debtor: o That person (no-consent guarantor) can recover only insofar has the payment has been beneficial to the debtor o That person cannot compel the creditor to subrogate him in his rights. such as those arising from a mortgage. Sectrans with Notes and Cases. G guarantees 15k only. who must return it based on unjust enrichment. interest at the legal rate. the guarantor is only liable only after the fulfillment of the condition o If the principal obligation is subject to a resolutory condition. If A was only able to pay 10k. he impliedly recognizes his liability. 2C. he steps into the shoes of the creditor) Art 2053: Guaranty of future debts and conditional obligations A guaranty for future debts is a continuing guaranty/suretyship o It contemplates a future course of dealings. Marasigan: a contract deemed void cannot be a basis of suretyship/contract of guaranty Art 2054: Guarantor’s liability cannot exceed principal obligation A guarantor may bind himself for less o Ex. A borrows 20k from B. even if the amount is not yet known. By Butch Ramiro that A has benefitted. his obligation shall be reduced to the limits of that of the debtor Exception: Creditors suing on a suretyship bond may recover from the surety as part of their damages. may be guaranteed BUT there can be no claim against the guarantor UNTIL the amount of the debt is ascertained or fixed and demandable. therefore transforming his obligation to a civil one Municipality of Gasan v. A guaranty may support an obligation procured through vitiated consent because a voidable contract is valid until anulled o Unenforceable contract o Natural obligation When the debtor himself offers a guaranty for his natural obligation. the happening of the condition extinguishes both the principal obligation and the guaranty Art 2051: Different kinds of guaranty Conventional: by agreement of the parties Legal: constituted by law Judicial: required y court to guarantee the eventual right of the parties Gratuitous: guaranty due to the pure liberality of guarantor Onerous: guarantor receives valuable consideration Sub-guaranty: a guaranty constituted to guarantee the obligation of the guarantor Art 2052: Valid obligation required for guaranty Guaranty may be constituted to guarantee a: o Valid obligation IMPORTANT: it doesn’t have to depend on an existing/current obligation because it can even apply to future debts o Voidable contract Ex. G’s payment without the knowledge of A will not grant him the right to foreclose the mortgage because he has no right to subrogation IF PERSON PAYS WITH THE KNOWLEDGE OR CONSENT of the debtor: o That person is subrogated (by virtue of the payment) to all the rights which the creditor had against the debtor (basically. covering a series of transactions generally for an indefinite time until revoked o It is intended to provide security with respect to future transactions o It covers transactions which are within the description or contemplation of the contract of guaranty until the expiration of the guaranty o IMPORTANT: Future debts. G can recover the 15k from B. Atty. B can still collect the balance (10k) from G A guarantor may not bind himself for more and in case he does. If the obligation is secured by a mortgage on a land owned by A. judicial costs 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 o Note: It’s not really that the guarantor/surety is held liable for more than what he guaranteed because he is made to pay by reason of his failure to pay when demanded (Next Provision!) Page | 8 . o Smith Bell and Co v. Lerma. PNB: A guarantor may only be liable if the debt is liquidated/fixed/ascertainable A guaranty may be for a conditional obligation o If the principal obligation is subject to a suspensive condition. substitution of the guarantor may not be demanded (by the creditor) when the creditor has stipulated that a specified person should be the guarantor (creditor is bound by his choice) Estate of Hemady v. 2C. the creditor may demand another guarantor with the proper qualifications BUT he may waive it and still hold the guarantor (who lost his integrity. insolvency or supervening capacity: Guaranty still continues and guarantor will not be exonerated o HOWEVER. accessories. the power to bind the principal in a contract of guaranty must be expressly stipulated because guaranty is not presumed Exception:: Compensated sureties are NOT entitled to strict interpretation because they are business organizations organized for the purpose of assuming classified risks SOCONY v. it shall comprise also its accessories. Luzon Surety: The supervening incapacity of a guarantor does not terminate the guaranty for it merely gives the creditor the OPTION to demand another guarantor. including the judicial costs With respect to costs. recovery from the surety is prevented To reiterate: o When a guaranty is definite. stipulate that you are not liable for interests. property or capacity) to the contract HOWEVER. Atty. it excludes the accessories Art 2056: Qualifications of a guarantor Art 2057: Selection/substitution of guarantor Qualifications of a guarantor: o Integrity o Capacity to bind himself o Have sufficient property to answer for the obligation which he guarantees Note: the creditor can still waive these requirements! These qualifications are required to only be present at the time of the perfection of the contract o Result of subsequent loss of integrity (for committing a crime). In a Special Power of Attorney (SPA). Cho Siong: Surety is only liable as regards the obligation he secured and it is not to be extended beyond its terms Plaridel v. it comprises the accessories Lesson learned here: In a contract of guaranty.Sectrans with Notes and Cases. the guarantor is only liable for costs incurred after he has been judicially required (ordered) to pay o It must be in writing (covered by the Statute of Frauds) o It is strictly interpreted against the creditor and in favor of the guarantor Ex. interest runs from the time of the filing of the complaint OR from the time demand was made on the surety When a guaranty is simple or indefinite. He is not bound to substitute the guarantor Page | 9 . By Butch Ramiro o In this case. judicial costs and the like! o Art 2055: Guaranty is not presumed What encompasses the rule that guaranty is NOT PRESUMED: o It must be EXPRESS o It cannot extend to more than what is stipulated in the contract o If it be simple or indefinite. Lerma. PL Galang: Surety may be made liable to pay beyond the terms of his undertaking like payment of interest at the legal rate if the surety fails to pay upon demand by the creditor Other rules: o Guarantor cannot be held liable for debts contracted prior to the guaranty without his consent o General rule: a demand or notice of default (of principal debtor) is not required the fix surety’s liability Exception: When there is a stipulation that requires a notice of default If there is a stipulation to that effect and the surety is not given notice. If it may be presumed that an execution on the property of the principal debtor would NOT result in the satisfaction of the obligation (useless formality) Additionally. Atty. creditor must make an actual demand on the guarantor Once demand has been made. or cannot be sued within the Philippines. a guarantor may be impleaded as a codefendant the creditor available property of the debtor within Philippine territory (Art 2060) 2. If guarantor fails to set up excussion when creditor demands payment from him AND if he fails to point out to Page | 10 . it must be ACTUAL and the insolvency is NOT sufficiently established by the mere fact that the debtor has been declared insolvent in insolvency proceedings. HSJ: In case of insolvency of the principal debtor. Jungsay: Property not easily available (in possession of third persons under a claim of ownership) is in the same category as property not within Philippine territory Art 2059: Exceptions to the benefit of excussion When the guarantor is NOT entitled to the benefit of excussion (ISAW-U): 1. If the guarantor has bound himself solidarily with the debtor 3. the guarantor must set up the benefit of excussion and point out to the creditor sufficient property of the debtor within Philippine territory o Arroyo v. When the guarantor has expressly waived (renounced) it 5. unless he left a manager 4. In case of the insolvency of the debtor 2. Barbosa: the creditor may secure a judgment against the guarantor but the guarantor is entitled to a deferment of execution of said judgment until after the properties of the principal debtor shall have been exhausted o Therefore. Lerma. If the guarantor is a judicial-bondsman or sub-surety 3. in which the extent of the insolvent’s inability to pay is not determined until the final liquidation of his estate What happens when the guarantor is not entitled to excussion? It simply means that the guarantor can now be compelled to pay the creditor and/or the guarantor can be sued with the principal Art 2060: Duty of creditor to make prior demand for payment from guarantor + duty of guarantor to set up excussion and point out available property of debtor Art 2061: Effect of negligence of creditor When can the creditor demand payment from the guarantor? o The creditor can only demand payment from the guarantor only after judgment on the debt against the principal debtor (this is for obvious reasons.Sectrans with Notes and Cases. it is presumed to have been entered into to defraud creditors Southern Motors v. If the guarantor fails to interpose it as a defense before judgment is rendered against him Machetti v. 2C. Where a pledge or mortgage has been given by him as a special security 4. guarantor is also not entitled to excussion when: 1. the exhaustion of debtor’s property cannot begin to take place before judgment has been obtained) o Furthermore. When the debtor has absconded. By Butch Ramiro EFFECTS OF GUARANTY BETWEEN GUARANTOR AND CREDITOR Art 2058: Benefit of Excussion IMPORTANT NOTE: Excussion is not applicable to suretyship Benefit of Excussion: The guarantor cannot be compelled to pay the creditor UNLESS: o The creditor has exhausted all the property of the debtor o The creditor has resorted to all the legal remedies against the debtor Remedies contemplated: 1380 (3): Action for rescission based on contracts undertaken in fraud of creditors: accion pauliana 1387: when debtor alienates property by donation and he did not reserve sufficient property to pay all debts contracted before the donation. who now has a money judgment against A based on the debt Now. If the debt is increased to 25k due to A and B’s compromise. Same facts. then the guarantor is only liable for 15k because it benefits him o When is a compromise prejudicial to the guarantor? Ex. Lerma. it is then that he can compel G to pay Art 2062: Procedure when creditor sues principal debtor In every action by the creditor. the creditor is duty-bound to exhaust all the property of the debtor pointed out by the guarantor and to resort to all legal remedies against the debtor o IF creditor fails to do so. A (debtor) is given an extension of time to pay. If A and B agree that the debt be reduced 15k. 2061) The guarantor must be notified so that he may appear and set up the defenses he may want to offer o IF guarantor APPEARS: Guarantor is still given the benefit of exhaustion even if judgment is rendered against him and the debtor Note: voluntary appearance is not a waiver to right to excussion o IF guarantor DOES NOT APPEAR: Guarantor cannot set up the defenses and it may no longer be possible for him to question the validity of the judgment rendered against the debtor Art 2064: Sub-guarantor’s right to excussion A sub-guarantor enjoys the benefit of excussion with: o The guarantor o The principal debtor This means that the properties of the guarantor and principal debtor must be exhausted first and all legal remedies must be pursued against them before he (the sub-guarantor) can be held liable Art 2065: Benefit of division among several guarantors (one debtor + same debt) Benefit of Division: (among the guarantors as against the creditor) If there are several guarantors of only one debtor and for the same debt o The obligation to answer for them is DIVIDED among all Page | 11 . then it benefits A of course o When is a compromise prejudicial to the debtor? Ex. he must sue the principal debtor alone o UNLESS the guarantor is not entitled to excussion (2059. By Butch Ramiro Once the guarantor has set up the benefit of excussion. If by B and G’s agreement. his debt is still unsatisfied. he shall suffer the loss due to the insolvency of the debtor BUT only to the extent of the value of said property Art 2063: Effects of a compromise A compromise between the CREDITOR and the PRINCIPAL DEBTOR benefits the guarantor o BUT it does not prejudice him o When is a compromise beneficial to the guarantor? Ex. A owes B 20k. B demands G for payment What must G do? He must set up the benefit of excussion and point out all available property of A B must now resort to all legal remedies against A and exhaust his properties If after that.Sectrans with Notes and Cases. If by B and G’s agreement. G is still only liable for 20k A compromise between the CREDITOR and the GUARANTOR benefits the debtor o BUT it does not prejudice him o When is a compromise beneficial to the debtor? Ex. A fails to pay. A cannot be bound by this because it prejudices him SUMMARY: A owes B 20k. Same facts. Atty. Same facts. G guarantees this debt. G guarantees this loan. 2C. B makes demands and thereafter sues A for collection of sum of money Court then rules in favor of B. A’s (debtor) time to pay is shortened. Lerma. Atty. their liability is joint EXCEPTIONS: o When solidarity is expressly stipulated o Benefit of division also ceases when 2059 takes place to wit: When the principal debtor is insolvent.Sectrans with Notes and Cases. etc What is the effect if benefit of division is lost? o Each guarantor may be held liable for the entire debt of the principal debtor Note: The guarantor is not required to point out the property of his co-guarantors in order to set up the benefit of division Page | 12 . By Butch Ramiro The creditor can only claim from the guarantors the shares which they are respectively bound to pay Basically. 2C. debtor may interpose the defense of the previous extinguishment of his obligation by payment Art 2069: When payment made by guarantor before/after maturity of the principal obligation If the principal debtor’s obligation is for a period and the guarant or pays BEFORE maturity o The guarantor cannot demand reimbursement from the debtor UNTIL the expiration of the period UNLESS payment has been ratified by the principal debtor Art 2070: Effect of repeat payment by the debtor General Rule: Before the guarantor pays the creditor. G guaranteed this debt. Indemnity comprises of (TIED): 1. even though it did not earn interest for the creditor 3. he is subrogated to the rights of the creditor as against the debtor o The subrogation is by operation of law (automatic) o Guarantor steps into the creditor’s shoes as regards the principal debtor o Ex. Damages. Art 2071: Preliminary Remedies available to the guarantor The guarantor. Machuca: Generally. then he is entitled to reimbursement Saenz v. Yapchan: The guarantor CANNOT collect more than he has paid When the guarantor tells the debtor that he has already paid the debt. G is now A’s creditor and he now has all the rights which B previously had against A. The legal interests thereon from the time guarantor tells debtor that he has already paid. may proceed against the principal debtor: (SIIEMA-10) 1. the guarantor has no right to demand reimbursement until he has actually paid debt. When the guarantor is sued for payment Page | 13 . 2C. The total amount of the debt 2. even BEFORE HAVING PAID. if the guarantor pays. By Butch Ramiro EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND THE GUARANTOR Art 2066: The indemnity that must be paid to the guarantor The guarantor who pays for a debtor must be indemnified by the debtor. guarantor can only recover insofar as the payment was beneficial to the debtor o Payment made by a third person who does not intend to be reimbursed o Right to demand reimbursement is subject to waiver Right to subrogation cannot be invoked when guarantor has no right to be reimbursed! Art 2068: Effect of payment by guarantor without notice to debtor If guarantor pays without notifying the debtor o the debtor may enforce against him ALL the defenses which he could have set up against the creditor at the time the payment was made o Ex. Atty. a demand o This is why the debtor is held to be liable for legal interest (12%) EXCEPTIONS to guarantor’s right to indemnity: o When guaranty is constituted without the knowledge or against the will of the debtor. A is unable to pay so G pays. However. if the contract grants him the right to reimbursement before he actually does. If guarantor pays but debtor has already paid. Lerma. he must first notify the debtor o If the guarantor fails to give such notice and the debtor repeats payment. IF THEY ARE DUE Tuason v.Sectrans with Notes and Cases. A owes B 20k. it is in effect. The expenses incurred by the guarantor AFTER having notified the debtor that payment was demanded of him 4. the guarantor’s only remedy is to collect from the creditor o Exceptions: (when guarantor may still claim reimbursement from the debtor despite lack of notice to the debtor) When the creditor becomes insolvent When the guarantor was prevented by a fortuitous event to notify the debtor of the payment When the guaranty is gratuitous Art 2067: Guarantor’s right to subrogation Basically. When the principal debtor is insolvent 3. Lerma. When the debt matures 6. unless it be of such a nature that the obligation will need more than 10 years to be extinguished In all these cases. When the principal debtor is in imminent danger of becoming insolvent 4. When there are reasonable grounds to fear that the principal debtor intends to abscond 7. Demand a security that shall protect him from any proceedings by the creditor and from the danger of the debtor’s insolvency Manila Surety v Batu: 2071 remedies available to a surety because a surety’s obligation is more onerous Art 2072: Guarantor of a third person at request of another The guarantor who guarantees the debt of an absentee at the request of another has a right to claim reimbursement (after satisfying the debt) FROM: o The person who requested him to be a guarantor o The debtor Page | 14 . when the principal obligation has no fixed period of maturity. Obtain release from the guaranty This release is against the principal debtor 2. 2C. After10 years. Atty. When the period of guaranty has expired 5.Sectrans with Notes and Cases. the action of the guarantor is to either: these remedies are alternative: he may choose what action to bring 1. By Butch Ramiro 2. it would be helpful to define what constitutes a material alteration on the contract. illegality may be set up by the other guarantors because they are defenses inherent in the obligation Art 2075: Liability of sub-guarantor in case of insolvency of the guarantor In case of the insolvency of the guarantor for whom he bound himself o A sub-guarantor is liable to the co-guarantors in the same manner as the guarantor whom he guarantees EXTINGUISHMENT OF GUARANTY Art 2076: Obligation of guarantor is extinguished at the same time as that of the debtor and for the same causes as all other obligations Rule: Guaranty is terminated when the principal obligation is extinguished o Causes of Extinguishment: Payment or performance Loss of the thing due Condonation of the debt Confusion or Merger Compensation Novation Annulment Recission Prescription When guarantor is released What is the effect of material alteration of the principal contract on the contract of guaranty/suretyship IF the alteration is without the consent of the guarantor/surety? o First. G. If D becomes insolvent.Sectrans with Notes and Cases. his share in the guaranty Ex2. By Butch Ramiro EFFECTS OF GUARANTY AS BETWEEN CO-GUARANTORS Art 2073: Right to contribution of guarantor who pays Right of Contribution: This is between the guarantors as between themselves When there are two or more guarantors of the same debtor and the same debt o The one among them who has paid may demand from each of the others the share which is proportionately owing from him If any of the guarantors should be insolvent. H and I’s benefit of division ceases. D owes C 15k. G can seek reimbursement of 5k from H. THEN the right to reimbursement granted to G against H and I may only be exercised if G makes payment in virtue of C’s judicial demand o BUT. Lerma.H and I are guarantors of the debt. if the benefit of division ceases for reasons other than the insolvency of the principal debtor. It is anything which essentially varies the terms of the principal contract It makes the obligation more onerous The leg Legal effect of the original contract is changed o If there is indeed a material alteration. 2C. the same defenses which would have pertained to the principal debtor against the creditor o The defenses should also not be purely personal to the debtor Ex: Fraud through vitiated consent and minority is purely personal to the debtor so it cannot be used by the co-guarantors against the guarantor who paid . If G pays the whole debt.5k each) o However. However. and G subsequently pays. prescription. then the guarantor/surety is released! Art 2077: Rule when creditor voluntary accepts immovable property or other property in payment of the debt Page | 15 Art 2074: Defenses available to co-guarantors The guarantors may set up against the one who paid. in the same proportion TRIGGER OF RIGHT TO CONTRIBUTION: (either) o Payment must be made in virtue of a judicial demand o Principal debtor is insolvent Ex. D owes C 10k. including the payer. fraud inherent in the obligation. if H is insolvent. C can then proceed against any of them for the whole amount of 15k. then G. his share shall be borne by the others. he can demand 5k each from H and I. G and H are guarantors of D’s obligation. his share shall be borne by G and I proportionately (7. Atty. If D fails to pay and G is required to pay by virtue of a judicial demand by C or if D is insolvent. Lerma. o Why? Because the extension constitutes an extension of the payment of the whole amount Villa v. the law provides that the release of one guarantor by the creditor made WITHOUT the consent of other coguarantors will benefit all to the extent of the share of the released guarantor o Conversely. If G is released without the consent of H and I. discharges the guarantor. if one of the guarantors is released WITHOUT the consent of the other co-guarantors. 2C. you benefit from the release but if you consent. BY ITSELF. then H and I will only be liable for 5k each o Not 7. then H will be the one burdened. they may be prejudiced should another guarantor be held insolvent They are prejudiced because they would have to pay more Therefore. without the guarantor’s consent. then an extension of time to perform that contract will not release the guarantor Notes: It is immaterial whether the extension given has actually proved prejudicial or not to the guarantor or surety because the law does not require it Art 2078: Release of guarantor without the consent of the other coguarantors General Rule: Several guarantors of the same debt of the same person enjoy the benefit of division and if any of them are insolvent. G. then the guaranty is not extinguished If the creditor grants the principal debtor an extension of time (to pay) without the consent of the guarantor. then H and I will now be liable for 7. an extension of time for one installment without the consent of the guarantor will not extinguish the whole guaranty. H and I are the guarantors of D’s debt. all the other guarantors will bear his (insolvent’s share) o Therefore. It will only extinguish the guaranty as to that installment! Machetti v.5k each because they are benefited to the extent of 5k If G is released with the consent of H and I. if the release is made with the consent of the co-guarantors. thus depriving the guarantor the right to demand reimbursement o What does not constitute extension? The law provides that the mere failure on the part of the creditor to demand payment after the debt has become due does not. constitute the extension contemplated Radio Corp v. HSJ: If the contract covered by the guaranty DID NOT have a PERIOD. o The guarantor is DISCHARGED from his undertaking Why? Because the debtor may become insolvent during the extension. he will have to bear G’s share alone (H: 10k and I: 5k) Rule of Thumb: If you don’t consent.5k each If G is released with only the consent of H and not of I. By Butch Ramiro When the creditor VOLUNTARILY accepts immovable or other property in payment of the debt o The guarantor is released EVEN IF the creditor should lose the same through eviction Effect of eviction: it revives only the principal obligation (between debtor and creditor) and not the guaranty Art. Atty. Roa: If the debt is payable in installments and it is stipulated that failure to pay one installment makes the whole debt automatically due (basically. an acceleration clause). you have to bear the burden of the released guarantor Art 2080: Guarantor is released when guarantor cannot be subrogated the creditor’s rights by the act of the creditor Art 2067 provides that the guarantor is entitled to be subrogated to the rights of the creditor once he (guarantor) makes payment Page | 16 . 2079: Guarantor is released by the extension of time granted by creditor or debtor If the creditor grants the principal debtor an extension of time (to pay) with the consent of the guarantor. an extension of the creditor for payment of one installment. then they remain liable for the released guarantor’s share Ex: D owes C 15k. Garcia Bosque: If the debt is payable in installments (no acceleration clause).Sectrans with Notes and Cases. capacity and sufficient property Additional: must be resident owner of real estate in the Philippines and if he is only one. D loans 10k from C. Lerma. the guarantor is released because by the creditor’s act of returning the shares. D also pledges shares of stock to C as security. Atty. By Butch Ramiro If there can be no subrogation to the creditor’s rights. mortgages and preferences because of the creditor’s act then the guarantors are released Ex. Bondsmen Bond: an undertaking that is sufficiently secured Bondsman: He is a surety offered in virtue of a o Provision of law o Judicial order Qualifications: integrity. the guarantor (G) cannot be fully subrogated to the creditor’s rights o o BECAUSE their liability is primary and solidary It follows that the sub-surety is also not entitled to the benefit of excussion Art 2081: Defenses available to guarantor as against the creditor The defenses available to the guarantor against the creditor are also the defenses which o The debtor has against the creditor BUT IT MUST NOT BE PURELY PERSONAL o The defenses inherent in the debt/obligation LEGAL AND JUDICIAL BONDS Art 2082: Bonds.Sectrans with Notes and Cases. If before payment. G guarantees the loan. the creditor gives back the shares to D. 2C. then his real estate must be worth at least the amount of the undertaking Art 2083: Pledge or mortgage in lieu of bond If a person bound to give a legal or judicial bond is not able to do so o A pledge or mortgage sufficient to cover the obligation may be given Note: Requisites of Pledge/Mortgage as the case may be must also be present! Art 2084: Bondsman not entitled to excussion A judicial bondsman is not entitled to the benefit of excussion Page | 17 . That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged 3. voidable. the mortgagor generally retains possession of the thing pledged Arenas v. That the persons constituting the pledge or mortgage have the free disposal of their property (and in the absence thereof). Raymundo: There can no be valid pledge if the pledgor was not the absolute owner of the thing pledged (VOID) Rural Bank of Caloocan v. By Butch Ramiro PROVISIONS COMMON TO PLEDGE AND MORTGAGE Art 2085: Essential Requisites of Mortgage/Pledge Art 2086: Mortgage/Pledge may secure a valid. natural obligation Art 2087: When the principal obligation becomes due. 2C. the things in which the pledge or mortgage consists may be alienated for the payment to the creditor Pledge: A contract by 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. in mortgage.Sectrans with Notes and Cases. foreclose and soldd) A pledge or mortgage constituted by an impostor is void Future property cannot be pledged or mortgaged Mortgagee in good faith: if the mortgagee relied on good faith based on the Torres title that the mortgagor had the free disposal/authority to mortgage it. creditor is required to exercise due care and prudence when the circumstances show him that he should inquire further Delivery is necessary to perfect pledge o However. the thing delivered shall be returned with all its fruits and accessions. It be constituted to secure the fulfillment of a principal obligation 2. Atty. Lerma. then he is protected Conversely. It is: o Real: perfected by the delivery of the pledgor to the creditor/pledgee OR to a third person by common agreement o Accessory: needs a valid obligation to exist o Unilateral: obligation is solely on the part of the creditor to return the thing upon the fulfillment of the principal obligation o Subsidiary: obligation to return arises only upon the principal obligation’s fulfillment Cause/Consideration in pledge: It depends: o Cause (as to pledgor-debtor): the principal obligation o Cause (pledgor but not debtor): either liberality or compensation stipulated for the pledge Requisites common to pledge and mortgage 1. legally authorized for that purpose Third persons not parties to the principal obligation may secure the principal obligation by pledging or mortgaging their own property Free disposal: property must not be subject to any claim of a third person Capacity to dispose: pledgor or mortgagor has the capacity or authority to make a disposition of the property o o o o During the existence of the mortgage/pledge. the mortgagor/pledgor retains ownership of the thing mortgaged/pledged (until it is of course. Lim: A foreclosure is void if the forced seller is NOT the owner of the thing that is the subject of the foreclosure sale Pledge and Mortgage Distinguished Pledge Movables/Incorporeal Rights Delivery required for perfection. either to the creditor or to a third person by Mortgage Immovables (Art 415) Delivery necessary is not Object Delivery? Page | 18 . CA: o If the creditor is a bank. unenforceable. it has the duty to inquire as to the circumstances especially when the debtor borrows money and mortgages another person’s property to secure his loan without the latter’s consent Bank is guilty of negligence when it relied solely on the debtor’s representations Cavite Development Bank v. A mortgages his house and B mortgages his land (in the same deed. The security remains valid. By Butch Ramiro To bind third persons common agreement There must be a description of the thing pledged and the date of the pledge must appear in a public instrument Mortgage is not valid against third persons unless registered with the RD 1. It is as if the parties have not agreed as to the manner the creditor can recover his credit in case the debtor fails to comply with his obligation Bustamante v. even if the principal (and secured) obligation is joint and not solidary o Ex. only the prohibited stipulation is void. he may foreclose both at the same time to satisfy the obligation EVEN IF A and B’s liability is joint. PNB v. There should be an existing pledge. of course). Tuason: The PC stipulation does not automatically invalidate a contract of pledge. this is allowed Any stipulation granting the creditor that right is null and void What are the rights of the creditor/mortgagee/pledgee if the debtor fails to pay? o The creditor is merely entitled to move for the sale of the thing pledged or mortgaged This must conform to the formalities required by law in order to collect the amount of his claim from the proceeds If the mortgagee really wants the property. If A and B fail to pay. de Leon: A stipulation in a purported pacto de retro sale that the ownership over the property sold would automatically pass to the buyer in case no redemption was effected within the stipulated period is a pactum comissorium Art 2088: Pactum Commisorium The creditor CANNOT o Appropriate the things given by way of mortgage/pledge o Dispose of the things given by way of mortgage/pledge Note: Adding an SPA to sell and apply proceeds to the loan in the mortgage/pledge contract is VOID because it is pactum commissorium (it authorizes disposal) However. Atty. Lerma. mortgage or antichresis. he must buy it at the foreclosure sale The pledgor/mortgagor’s default does not vest in the pledgee/mortgagee the ownership of the things pledged/mortgaged The debtor-owner bears the loss of the property because he remains the owner and the principal obligation is not extinguished by the loss of the pledged/mortgaged property Pactum Commissorium: a stipulation whereby the thing pledged or mortgaged or under antichresis shall automatically become the property of the creditor in the event of non-payment of debt within the term fixed o Requisites: Art 2089: Indivisibility of mortgage/pledge Art 2090: Indivisibility of pledge or mortgage is not affected by the fact that the debtors are jointly liable (as to the principal obligation) Rule: A pledge or mortgage is one and indivisible as to the contracting parties. there is an intent on the part of the creditor to appropriate the thing given by way of mortgage Alcantara v. mortgage or antichresis of property by way of security for the payment of the principal obligation 2. after default. it is not indivisible with respect to third persons who did not take part in the constitution of the mortgage Page | 19 . Rosel: When the debtor is obliged to dispose of collateral (in favor of the creditor) at a value amounting to practically the same loan. A and B jointly owe C 200k. Agudelo: Although it is true that a mortgage is indivisible as to the contracting parties. C does not have to foreclose on the house separately or on the lot separately.Sectrans with Notes and Cases. Alinea: PC requires that the property sought to be automatically appropriated be mortgaged/pledged/given by way of antichresis to the creditor Lanuza v. Stipulation for automatic appropriation by the creditor of the property in the event of nonpayment of the obligation within the stipulated period Mahoney v. 2C. CA: 2089 presupposes several heirs of the debtor or creditor (?) 80k loan agreement entered into by the borrower and the lender. bank can only foreclose on 50% or 50 hectares of the borrower’s property Art 2092: A promise to constitute a pledge or mortgage. if accepted. Atty. gives a personal right between the parties o What exists is only a right of action to compel the fulfillment of the promise BUT there is no pledge or mortgage yet This is of course without prejudice to the criminal responsibility incurred by one who defrauds another. and D pays 20k to B. A borrowed from B 30k. only gives rise to a personal action between the parties and it grants no real right A promise to constitute a pledge or mortgage. 2C.Sectrans with Notes and Cases. he can’t ask for the diamond ring back because of the indivisibility of the pledge This remains true even if A dies. if accepted. and borrower mortgaged his 100h hectare property. All the things are liable for the totality of the debt and the creditor does not have to divide his action by distributing the debt among the various things pledged or mortgage Consequences of Indivisibility: o The debtor/debtor’s heir who has paid a part of the debt cannot ask for the proportionate extinction of the pledge or mortgage o The creditor/creditor’s heir who has received his share of the debt cannot return the pledge or cancel the mortgage if the debt is not completely satisfied o Exceptions: o If several things are given in pledge or mortgage and each one of them guarantees only a determinate portion of the creditor Ex. by offering in pledge or mortgage as unencumbered. If A pays 20k. in case of borrower’s default. things which he knew were subject to some burden OR by misrepresenting himself to be the owner of the same o Fraud and deceit must be employed upon the buyer Art 2091: All kinds of obligations may be secured by a pledge or mortgage whether they be pure or conditional Page | 20 . As security. Lender only released 40k of the loan (because of CB restrictions) In this case. Lerma. then A can demand the return of the ring o Central Bank v. By Butch Ramiro Every portion of the property pledged or mortgaged is answerable for the whole obligation as soon as it falls due o When several things are pledged or mortgaged to secure the same debt in its entirety. if it was agreed that the ring was given to secure 20k and the earrings for the balance of 10k and A pays 20k. leaves D and E as his heirs. he pledged his diamond ring worth 20k and his bracelet worth 10k. However. the ownership of the thing pledged passes to the vendee as soon as the pledgee consents HOWEVER. a boat) Art 2097: Pledgor may alienate the thing pledged Reminder: Pledgor remains owner even if he pledges the thing therefore he can still sell the thing o BUT pledgor needs the pledgee’s CONSENT In this case. it’s ANYONE not a party to the pledge Art 2094: Subject Matter of Pledge: MOVABLES Art 2095: Incorporeal Rights: What may be pledged? o Movables susceptible of possession o Incorporeal rights evidenced by negotiable instruments. A pledged his medal. Chua: Pledgee must renew the pawn ticket (in his possession) by paying interest on the loan in order to prevent the pledge from being lost. Later on. Art 2096: Necessity of Public Instrument: Date + Description Reminder: Contract of pledge still valid between pledgor/pledgee as long as 2085 and 2093 requirements are present: o HOWEVER. the instrument evidencing the right shall be delivered to the creditor AND if negotiable. he borrowed another 20k. the pledgee remains in possession o The vendee is subject to the rights of the pledgee namely: Pledgee may sell the thing to satisfy the obligation Pledgee must be respected in his possession Important: Keep in mind the public instrument rule to bind third persons o When the law talks of third persons. in order to bind/prejudice 3rd persons: it must be in a Public Instrument containing: Date of the pledge Description of the thing pledged o Ex. shares of stock. warehouse receipts Here. A sells the ring to C. Atty. C has a better right over the ring because it was not in a public instrument Art 2099: Obligation of pledgee to take care of the thing pledged Diligence required from the PLEDGEE: Ordinary Diligence o Pledgee can get reimbursement for: Expenses necessary for preservation o Pledgee is liable for Loss/deterioration Cruz v. B cannot retain if he’s unpaid for 20k. who was in good faith and for value. In this case. B has a right to retain the MEDAL until he is fully paid 1k. bills of lading. As security.Sectrans with Notes and Cases. bonds. indorsed Art 2098: Right of the pledgee to retain until he is paid Right of retention: o Pledgee/Third person to whom thing was delivered is given the right to retain the pledged thing UNTIL the debt is PAID HOWEVER it is limited only to the fulfillment of the principal obligation for which the pledge was created Ex: A owes B 1k. Lerma. 2C. Failure to do that will make him liable Page | 21 . A pledged his ring to B but 2096 was not followed. By Butch Ramiro PROVISIONS APPLICABLE ONLY TO PLEDGE Art 2093: Transfer of Possession is ESSENTIAL in pledge Rule: To constitute a VALID pledge. the thing pledged must BE: o Placed in the possession of the creditor o Placed in the possession of a third person by common agreement The pledgee/third person must be placed in ACTUAL possession o EXCEPTION: Symbolical transfer: Delivery of keys to the warehouse where the goods were stored Yuliongsiu v. PNB: Pledge is still effective if there is constructive delivery because sufficient delivery depends on the particular nature of the thing pledged (In this case. etc. Lerma. If none are owing.Sectrans with Notes and Cases.000 Art 2105: Right of pledgor to demand return of the thing pledged Obviously. they are subject to the pledge if there is no stipulation to the contrary. 2C. the owner retains ownership of the offspring o BUT they are also subject to the pledge IF there is no stipulation to the contrary Ex: A borrowed from C 10. if any. Reasonable grounds to fear the destruction/impairment of thing pledged 2. another thing in pledge with the same kind/quality 4. If the stocks earn dividends. He pledged his certificate of stocks as security. Atty. the 2096 formalities must be met (PI + date + description) Art 2104: Obligation of pledgee not to use General Rule: The pledgee cannot use the thing pledged o Exceptions: When there is a stipulation allowing him to do so .000 at 12% interest. it must be used (like an aircon/automatic watch) Pledgee CANNOT lend the pledged thing to his household members o REMEDY (of pledgor if the pledgee misuses OR uses w/o authority) Ask the thing pledged to be deposited Art 2101: Pledgor liable for hidden flaws (see 1951) Art 2102: Right of pledgee to compensate earnings of pledge with the debt Rules for compensation of earnings of pledge: o Apply the interest/dividends/income to the interest due (to pledgee) o If no interest. By Butch Ramiro Art 2100: Pledgee can’t deposit the thing pledged with another The pledgee cannot deposit the pledged thing with another o Exception: contrary stipulation allowing him The pledgee is also responsible for the acts of his agents/employee with respect to the thing pledged When for the pledged thing’s preservation. No fault on part of pledgee 3. C shall apply the dividends to the interest. then C must apply the dividends to the 10. Pledgor is offering in place of the thing. Right of pledgee to cause sale of thing pledged Right of pledgor to substitute: REQUISITES 1. The pledgee waived his 2108 right What is his 2108 right? If pledgee has reasonable grounds to fear that there is danger of destruction. apply it to principal General Rule. he may have thing pledged sold at a public auction o Result: The proceeds (cash) will be his security Page | 22 Art 2103: Pledgee versus third persons Pledgee is authorized to bring such actions which pertain to the owner of thing pledged in order to recover it from or defend it from third persons o HOWEVER. Pledge shall extend to the interest and earnings of the right pledged o Exception: contrary stipulation In a pledge of animals. in order to enforce it. pledgor can only ask for the pledged thing’s return once he has fully paid his debt plus interest/expenses to the creditorpledgee o When is another instance when he can demand its return? When he is allowed to substitute the thing pledged (2108) Art 2106: Right of the debtor to ask for the deposit of the thing pledged When can the pledgor ask the thing to be deposited? o When by the negligence OR willful act of the pledgee The thing pledged is in danger of being: Lost Impaired o When the pledgee uses the thing without authority o When he misuses the thing in any way Art 2107/2108: Right of pledgor to substitute VS. he must apply the amount to the loan owing him. The excess must be returned to A. By Butch Ramiro Art 2109: Right of pledgee to demand substitute/immediate payment REMEDIES of PLEDGEE if he is deceived on the quality/substance of thing pledged: alternative: choice of one precludes the other o Claim another thing in pledge o Demand immediate payment Rule: Pledgee may appropriate the thing pledged if after two auctions. loss. the thing pledged is in the possession of the pledgor/owner if the thing pledged is in the possession of a third person who has received it from the pledgor/owner Remember: This talks of the PLEDGE or the SECURITY and not of the debt which is secured! Art 2117: Third person may satisfy the principal obligation General Rule: Creditor is NOT bound to accept payment by a third person who has no interest in the obligation o Exception: Any person who has a right in the thing pledged may pay the principal obligation as soon as it becomes due (like the vendee in a contract to sell) Art 2111: Extinguishment of pledge by renunciation/abandonment OF the pledgee For renunciation to be effective. merger. a PN worth 5k with A as payee. the pledgee shall collect and receive the amount due o He shall apply the same to the payment of his claim and deliver the surplus to the pledgor-debtor Ex: A owes B 10k. the pledgee shall advise the owner of the result Effect of Sale: o Sale of thing pledged EXTINGUISHES the principal obligation Debtor not entitled to EXCESS unless there’s a stipulation Creditor not entitled to deficiency. Public auction 3. he is considered a depositary because he remains in possession Other causes of pledge’s extinguishment: o Prescription. etc Art 2118: Right of pledgee to collect and receive amount due on credit pledged If a credit that is pledged becomes due before it is redeemed. he wins o If PLEDGEE is the only bidder. Assuming he got 10k. When the PN becomes due. Art 2112-2116: Public Sale! Remember: Object of pledge may be alienated for the payment to the creditor when the principal obligation becomes due REQUISITES: (when can the pledgee cause the thing to be sold) 1. Lerma. the pledgor/owner has the right to consider that the pledgee has received the price in cash o After the auction. stating amount due 4. it must be in WRITING o Once the pledgee waives. As security. he pledged a receivable. Notice to the pledgor/owner. he can’t acquire the thing o All bids must be for cash and if the pledgee accepts a bid other than cash. 2C. Atty. Made with the intervention of a notary public (notary public must be doing business where the thing is pledged) Art 2119: Right of pledgee to choose which of several things pledged shall be sold Page | 23 . any provision entitling him to deficiency is VOID Art 2110: Effects of RETURN of thing PLEDGD Remember: Creditor’s possession is ESSENTIAL in order to constitute a valid pledge Rule: The pledged is extinguished if the thing pledged is returned by the pledgee to the pledgor/owner o Contrary stipulation is VOID Presumption: o There is prima facie presumption of EXTINGUSHMENT of PLEDGE if subsequent to the perfection of the pledge. Debt is due and unpaid 2. B must collect the note from the maker of the PN.Sectrans with Notes and Cases. the thing pledged remains unsold (it’s automatically his) and it shall be considered as full payment for his claim BIDS: o Both pledgor and pledgee may bid at the auction o If PLEDGOR has same bid as highest bidder. Sectrans with Notes and Cases. to the principal debt To bring actions which pertain to the owner of the thing pledged in order to recover it from OR defend it against a third person To cause the public sale of the thing pledged IF without his fault. with notice to pledgor/owner. the pledgee may choose which one will be sold o He may demand the sale of only as many of the things as are necessary for the payment of the debt o Exception: contrary stipulation diminution in value of the thing pledged (SUPERIOR to RIGHT OF PLEDGOR to SUBSTITUTE) To demand substitution or immediate payment of the principal obligation if he is deceived on the substance/quality of the pledged thing To cause the sale at public auction. 2077-2081 Art 2121-2122: Pledges by operation of law 546: Right to retain of every possessor in GF (property) 1731: one who executes work on a movable has a right to retain it until he is paid 1914: Agent may retain in pledge which are the object of agency until he is reimbursed for his advances When can a thing under a legal pledge be sold?? o Pledgee must demand the amount for which the thing is retained o Auction within 1 month from demand If the sale is unjustly delayed (more than 1 month). the thing pledged is still not sold To collect and receive on the amount due on the credit that has been pledged To choose what to sell if more than two or more things are pledged Art 2120: Right of third person who pledged his own property If a third person secures an obligation by pledging his own movable property. there is danger of destruction. By Butch Ramiro General Rule: When there are two or more things pledged. he shall have the same rights as a guarantor and he cannot be prejudiced by any waiver of defense by the principal debtor o See notes on 2066-2070. 2C. impairment. Atty. upon default of the pledgor/owner To appropriate the thing pledged if after two auctions. or Page | 24 . Lerma. the debtor may ask for its return Summary of PLEDGEE’s Obligations To take care of thing with ordinary diligence Not to deposit is with another Not to use the thing unless required by its nature OR allowed Return the thing once the debt is paid Advise owner/pledgor of the sale’s result Summary of Pledgor’s Rights To have the pledged thing deposited IF o Pledgee misuses o Pledgee uses without authority o Pledgee is negligent/executes acts which puts the thing pledge in danger of being lost To demand the thing’s return upon his full payment To have the thing pledged substituted (subordinate to pledgee’s right to cause the sale) To bid in the auction sale and to be preferred if he has the same bid as the highest bidder To the excess of the auction sale if there’s a stipulation entitling him to it Art 2123: Law hates pawnshops Summary of PLEDGEE’s Rights To retain thing pledged in his possession UNTIL he has been paid To not give consent to pledgor’s sale of the pledged thing To be entitled to indemnity if he suffers damages due to hidden flaws in the thing pledged To compensate earnings with the thing pledged with interest owing him and if none. it is a contract where the debtor secures the performance of his obligation by giving his real property as security to the creditor. and he cannot be permitted to revoke it unilaterally Page | 25 . specially subjecting to such security immovable property or real rights over immovable property which obligation shall be satisfied with the proceeds of the sale of said property/rights in case the said obligation is not complied with at the time stipulated o Otherwise put. third parties were not involved) Registered Mortgage in a Public Instrument (in the proper Registry of Property): VALID and BINDING on THIRD PERSONS Unregistered Mortgage v. Lerma. machineries. Unregistered Sale: Unregistered sale wins because registration is without prejudice to the better right of third parties (land titles!) Note: By executing a mortgage. the improvements thereon Exception: A building by itself may be mortgaged apart from the land on which it is built o PBCOM v. in the absence of stipulation. 2C. construct. effects Mortgage in private document: VALID between the parties and the MORTGAGEE may compel the MORTGAGOR to execute the mortgage in a PUBLIC INSTRUMENT Unregistered Mortgage: VALID between the parties but it is not binding on THIRD PERSONS o Mobil Oil v. x x x. Macadaeg: The mere embodiment of a REM and a CM in one document DOES NOT fuse the securities into an indivisible whole because both are distinct agreements with different governing laws o Dilag v. Additionally. as well as all buildings. install shall immediately be and become subject to the lien of this mortgage in the same manner and extent as if now included therein” Art 2125: Registration of REM. install or use in connection with real property already belonging to the mortgagor is VALID IMPORTANT: Lerma: The reason why this is valid is because the after-acquired properties are understood to be replacements (because the original machines are subject to wear and tear) Stipulation for AFTER-ACQUIRED PROPERTIES: “All property of every nature and description taken in exchange or replacement. that the mortgagor may acquire. Unregistered Pacto de Retro: Unregistered pacto de retro wins because of “without prejudice to the better right of third persons” provision of Act 3344” Registered Mortgage v. By Butch Ramiro REAL MORTGAGE Art 2124: Real Mortgage Real Mortgage (REM/RM): A contract whereby the debtor secures to the creditor the fulfillment of a principal obligation. Dahican: FUTURE PROPERTY General Rule: 2085(2) provides that future property CANNOT be mortgaged Exception: A stipulation subjecting to the mortgage. the creditor is given the right to foreclose on the mortgaged immovable to satisfy his credit upon the debtor defaults What may be the subject of a real mortgage? Land. buildings (415) Leasehold rights Characteristics: o Real: delivery is required (public instrument) BUT debtor generally remains in possession because mortgagor merely subjects the property to a lien but ownership thereof remains with mortgagor o Accessory: cannot exist without a valid principal ob As long as the secured principal obligation is VALID. improvements which the mortgagor may subsequently acquire. the mortgagee may STILL foreclose (in this case. Panis: General Rule: A mortgage of land necessarily includes. Atty. the mortgagor is understood to have given his consent to its registration.Sectrans with Notes and Cases. the mortgage remains valid Its consideration is the same as the principal contract o Subsidiary: foreclosure if principal obligation remains unpaid o Unilateral: obligation on part of the creditor-mortgagee to free the property from the mortgage once principal obligation is paid Cases: o Prudential Bank v. Heirs/PBTC v. Diocares: As between two parties in an unregistered mortgage. Lerma. Veloso: Mortgagor remains the owner of the mortgaged property and he can sell it if he wants Why? Because it is ONLY an encumbrance upon the property The original debtor-mortgagor can be substituted by the purchaser as regards the mortgage and the principal debt IF the mortgagee-creditor CONSENTS (novation: creditor must always consent) o Art 2127: Extent of Mortgage What does the mortgage extend to? (meaning. these are included) o Natural Accessions o Growing Fruits o Rents/Income not yet received when the principal obligation becomes due General Rule: An action to foreclose a mortgage must be limited to the amount mentioned in the mortgage o Exception: Dragnet Clause: It is specifically phrased to secure past and future debts o Tady-Y v.Sectrans with Notes and Cases. 2C. accessories belonging to the debtor installed on a mortgaged sugar central (immovable by destination) All objects permanently attached to a mortgaged land or building PSED v. the following are included in the mortgage as security: when mortgagee forecloses. Camps: Although the cinema was erected AFTER the execution of the mortgage deeds. Atty. machinery. By Butch Ramiro Note: If mortgage is void. the principal obligation that it guarantees subsists (because it’s an accessory contract!) o What is lost is the RIGHT TO FORECLOSE to settle the obligation o The mortgage remains as an evidence of debtor’s obligation o o o o Amount of indemnity owing to the mortgagor from the insurers of the mortgaged property Amount of indemnity owing to the mortgagor-owner due to expropriation Accrued and unpaid rents when the credit remains unsatisfied (Afable v. PNB: Future amounts that may be borrowed by the mortgagor-debtor may included in the mortgage the amounts named as consideration in a contract of mortgage DO NOT LIMIT the amount for which the mortgaged property may stand as security if the intent to secure future debts can be gathered (like a continuing guaranty) In this case. Belando) Buildings. which is enforceable against the whole world o Subsequent purchasers (of mortgaged property) must respect the mortgage o A mortgage does NOT give a mortgagee a right to the possession of the property UNLESS there is a stipulation to that effect o Principles on Pactum Commisorium apply in mortgage as well: no stipulation for automatic appropriation allowed o McCullough v. the TCT stated that the mortgaged property “secured the payment of 840 plus interest and other obligations arising thereunder” True/False: Mortgage can cover future debts: TRUE (dragnet clause/intent to secure future debt present) True/False: Mortgage extends to future property: DEPENDS (if stipulated and for substitution OR if it is an accession/improvement) Art 2128: Alienation/Assignment of Mortgage Credit Page | 26 . It is understood to be a substitute of the building that was torn down: In this case the replacement building was considered to be a substitute: Another exception to the “no future property” rule Art 2126: Effect of Mortgage What is the effect of mortgage? o It directly and immediately subjects the property upon which it is imposed whoever the possessor may be to the fulfillment of the obligation o It is a lien inseparable from the property mortgaged. there was no stipulation EXCLUDING it from the mortgage. B may foreclose the mortgage. mortgagee may rescind (done in fraud of creditors) as long as ROFR is in a valid contract (like a lease/mortgage) Art 2131: Foreclosure! Foreclosure: 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 . B also has a right to claim payment of 500k from C. By Butch Ramiro Rule: Mortgagee can sell/assign his mortgage credit to a third person. L&R: o Stipulation that states that mortgagor needs consent of mortgagee before he can sell the mortgaged property is VOID (impedes transmission of property) o ROFR in favor of mortgagee is VALID If mortgagor does not respect ROFR. C’s right of recourse is against A. amount due to the mortgagee. A failed to pay the loan when B made a demand.Sectrans with Notes and Cases. 2C. Atty. prior demand must have been made on the original debtor-mortgagor and he subsequently failed to pay o Ex: A mortgaged his land worth 500k to B to secure a 1M loan. to the mortgagor o Extrajudicial Foreclosure (Act 3135) There must be a stipulation giving the mortgagee the power to foreclose the mortgage by an extrajudicial sale Sale may be done by the sheriff or by the notary public o RULES ON NOTICE: Notice vests jurisdiction the court Lucena v. CA: Law requires that when rural banks extra-judicially foreclose. notice must be posted in the barrio where the land is Cristobal v. Art 2130: Stipulation forbidding alienation of mortgaged property: VOID Litonjua v. his obligation to pay the principal obligation subsists o Exception: If there has been novation o BPI v. the creditor may demand from the possessor-vendee the payment ONLY of the part of the credit secured by the property However. A thereafter sold the land to C. Lerma. Penafiel: Newspaper must be of general circulation where the property is located DBP v Aguirre: There is a need to REPUBLISH/REPOST if sale does not proceed on originally published/posted date Page | 27 Art 2129: Right of creditor to collect from the transferee of the mortgaged property General Rule: Even if the mortgagor sells the mortgaged property. in whole or in part even without the consent of the mortgagor-debtor Can only be done IF the debtor is in DEFAULT (did not pay when principal obligation was due) 2 Kinds: o Judicial: (Rule 68): PROCESS Mortgagee will bring an action to foreclose in a court w/c has jurisdiction (city/province where the land is) The court will order the mortgagor to pay his debt within a period (within 90-120 days from entry of judgment)-> this is the equitable right of redemption! If mortgagor still fails to pay. the property will be sold at public auction (NOTICE required to be given) The sale will be confirmed by the court and this will divest the rights of ALL parties to the action and vest their rights in the purchaser Proceeds: cost. claims of junior encumbrancers/subsequent mortgagees and if any is left. Concepcion: The mortgage credit being a real right which follows the property. CA: Non-presentation of certificate of posting does not affect validity of foreclosure sale Metrobank v. no more redemption! DEFICIENCY: o JUDICIAL: In case of deficiency. mortgagee can still collect: he is given the right to recover o EXTRA-JUDICIAL: Act 3135 is SILENT on the matter True/False: When mortgagee chooses EJ foreclosure. he’s given the right to collect on the deficiency: FALSE: Because Art 3135 does not say anything about it Note: Mortgagee may always just waive the right to foreclosure his mortgage and maintain a personal action for the recovery o HOWEVER. sign and issue the certificate of sale o Notice of auction sale to be posted/published in a newspaper of general circulation Right of Redemption: The right of the mortgagor in case of extrajudicial foreclosure to redeem the mortgage property within a certain period (1 year) after it was sold for the satisfaction of the mortgage debt Equitable Right of Redemption: the right of the mortgagor in case of judicial foreclosure to redeem the mortgaged property AFTER his default but BEFORE the confirmation of the sale o NOTE: In this case however. he cannot have BOTH: once he chooses to collect (ordinary claim). it can still be redeemed if the mortgagee was a bank! Requisites for valid REDEMPTION: o Redemption must be made within the period required o Payment of purchase price +1%/month with taxes paid by the purchaser o Written notice of the redemption must be served on the officer who made the sale Note: Purchaser at the foreclosure sale may waive the redemption period! Redemption Periods: (Thank you Mickey Ingles) Judicial Foreclosure Extrajudicial Foreclosure *So in a case where the mortgagor is a juridical person and the mortgagee is a bank. must have stipulation!) To rely on the mortgage exclusively. CA: A buyer in a foreclosure sale ipso facto becomes the absolute owner of the property purchased if it is not redeemed during the redemption period Page | 28 Periods of redemption Mortgagee Individual debtors/mortgagors banks non-banks banks non-banks 1 year from registration X 1 year from registration 1 year from registration . as long as the bank registers is quickly. By Butch Ramiro PNB v. 2C. after the confirmation. through clerk of court o Clerk of court will receive and docket the application. Lerma.Sectrans with Notes and Cases. he cannot foreclose and vice versa What happens when the mortgagor dies? o 3 Options for the MORTGAGEE: Waive the mortgage and claim the entire debt from the estate Foreclose the mortgage judicially and prove any deficiency as an ordinary claim (if extrajudicial. Nepomuceno: Parties CANNOT waive the republication/reposting requirements of the law because it is for the benefit of the public Posting not required as long as there is sufficient publication: newspaper of general circulation! of sale Juridical persons as debtors/mortgagors 1 year from registration of sale X of sale Until registration of certificate of sale or 3 months from sale whichever is earlier of sale 1 year from registration of sale Process: o Application filed with the executive judge. Atty. without any right to file a claim for any deficiency Cases: o Unionbank v. Lerma. the running of the redemption period is tolled Page | 29 . Atty.Sectrans with Notes and Cases. CA: When the validity of foreclosure sale is questioned. 2C. By Butch Ramiro o Cometa v. with the obligation to apply them to the payment of interest. if owing. and thereafter to the principal of his credit o Other requirements/characteristics: Delivery: the immovable must be delivered by the debtor BUT it is required in order that the creditor may receive the fruits (not for the validity) Basically. Lerma. By Butch Ramiro ANTICHRESIS Art 2132: Definition of Antichresis What is an antichresis? o In this contract. the debtor gives up the enjoyment of the property and makes the creditor an usufructuary Accessory: Secures the performance of a principal obligation Formal: It should be in writing so that it may be valid Stipulation/Express Agreement: the creditor and debtor must expressly agree that the creditor. the value of the sugar cane AT THAT TIME will be used by the creditor in order to apply it to the interest/principal Art 2138: Interest in Antichresis is subject to the Usury Law Art 2134: Antichresis: A Formal contract Page | 30 . then he can reacquire. if owing.Sectrans with Notes and Cases. can he require the creditor to return? No. Art 2137: Remedy of creditor in case of nonpayment of debt Principles of Pactum Commisorium apply: o The creditor CANNOT acquire ownership of the immovable if the debtor defaults What is the remedy of the creditor? o Bring an action for specific performance o Foreclosure: either judicial or extrajudicial True/False: An antichretic creditor can acquire the property through prescription: TRUE: ordinarily. 2C. it is void Art 2135/2136: Obligations of antichretic creditor VS. the creditor acquires the right to receive the fruits of an immovable of his debtor. he can acquire if he repudiates his status as an antichretic creditor Art 2133: Measure of application of fruits to interest and principal What is the measure of application of fruits? o Actual market value of the fruits AT THE TIME of application o Ex: A secured a loan by a contract of antichresis over his sugar cane. he may compel the debtor to enter again upon the enjoyment of the property Except: if there is a contrary stipulation How does the debtor reacquire the enjoyment of the property? o He must pay the debt in full Lerma: If there is urgent need by the debtor. he can’t because possession must in the concept of an owner. having been given possession of the property. Every harvest. it’s a mortgage) True/False: A contract of antichresis requires that there be interest stipulated/due: False: The words “if owing” reveal that it is not essential that the loan should earn interest so that it can be guaranteed with a contract of antichresis The amount of the principal and the interest shall be specified in writing o OTHERWISE. Atty. is to apply their fruits to the payment of interest. and thereafter to the principal obligation (Otherwise. he still won’t pay directly because he can use the fruits to pay it off What if the creditor does NOT want to pay these taxes/necessary expenses? o If he does not want to. He must pay what he owes. However. Right of antichretic debtor What are the obligations of the antichretic creditor? o Creditor must pay the taxes and charges upon the immovable used as security o Creditor bound to bear the necessary expenses for its preservation and repair He will deduct these expenses from the fruits In effect. Atty. By Butch Ramiro Applying the usury law.Sectrans with Notes and Cases. Lerma. 2C. Ipondo: Parties can stipulate that only 1/3 of the fruits will be applied to the payment of the interest/principal Page | 31 . the excess shall be applied to the principal Art 2139: Applicability of other articles 2085: Third persons who are not parties to the principal obligation may secure the latter by putting their immovable under a contract of antichresis 2089-2090: A contract of antichresis is indivisible 2091: Contract of antichresis can secure all kinds of obligations Villanueva v. if the value of the fruits should exceed the amount of the interest allowed by the Usury law. Sectrans with Notes and Cases. it must also be registered in the LTO in order to affect third parties o So. Wearever: o By principle of estoppel. (IF CARS) it must be registration in the CM Registry + Registration in the LTO Makati Leasing v. Future obligations o FUTURE PROPERTY: General Rule: A CM is deemed to cover ONLY the property described therein and not like or substituted property thereafter acquired (otherwise put. the debtor has to be given ACTUAL NOTICE in order for him to be bound Affidavit of Good Faith: An oath in a contract wherein the parties swear that the mortgage is made for the purpose of securing the obligation specified Purpose: to make a mortgage a PREFERRED mortgage IF ABSENT: vitiates the mortgage as to third persons without notice (invalid as to them) Within what time should a CM be recorded? No specific time but it must be done BEFORE the mortgagor has complied with his principal obligation AND no right of innocent third persons is prejudiced o o Future Property v. to affect third parties. real property can be considered as personal property by the parties and therefore be subject to a VALID CHATTEL MORTGAGE PROVIDED: There is consent between the parties No innocent third party will be prejudiced o True/False: A valid chattel mortgage can be entered into over a residential house: True: Provided the parties agree and that there are no innocent parties Note: Making the real property the subject of chattel mortgage does not make it personal property because it will always be real property (Leung Yee v. Lerma. personal property is recorded in the Chattel Mortgage Register as security for the performance of an obligation Characteristics: o Accessory o Formal (However. CA: A CM credit may be assigned to third persons and its assignment need not be registered HOWEVER. GR is that CM cannot include future property) Exception: o Retail stores where goods are constantly sold (Inventory) o In renewal or in substation of goods at hand when the mortgage was executed OR is purchased with the proceeds of such goods o FUTURE OBLIGATIONS Rule: A CM can ONLY cover obligations existing at the time the mortgage is constituted “Quasi-Exception” o Amend the old CM o Execute a New CM Page | 32 . 2C. Frank Strong) Notes: o CM law requires that the description of the mortgaged property be sufficient to enable the parties to identify the property mortgaged o How do you create a CM? By registering the personal property in the CM registry Note that the registration of the CM is an effective and binding notice to other creditors of its existence and it creates a REAL RIGHT The registration gives the mortgagee SYMBOLIC possession Registration ADDS NOTHING to the mortgage: for third parties only! Servicewide v. an unregistered CM is still binding between the parties and the remedy of foreclosure is still available) o Unilateral Aleman v. De Catera: If the CM is over a vehicle. By Butch Ramiro CHATTEL MORTGAGE Art 2140: Definition of Chattel Mortgage CM: A contract by virtue of which. Atty. he has the right to possession If the debtor DOES NOT want to give up the property. who may redeem? Mortgagor Subsequent mortgagee Subsequent attaching creditor o This creditor who redeems shall be subrogated to the rights of the mortgagee How is redemption made? o By paying the mortgage debt to the mortgagee (Basically. creditor CANNOT seek deficiency judgment (barring effect) Notes: A mortgagee who sues and obtains a personal judgment against a mortgagor upon his credit waives his right to enforce the mortgage Redemption o Right of redemption in a CM (Not really redemption) When the condition in a CM is broken (default). Lerma. By Butch Ramiro Note: A promise in a CM to include debts not yet contracted can still be a binding commitment that can be compelled upon BUT the security itself does not arise unless there is a new CM/amended CM The mortgagee may. the second mortgagee/subsequent mortgagor can only recover the property by paying the mortgage debt Right of mortgagee to possession o When default occurs and the creditor desires to foreclose. after 30 days from default. Atty. the right of redemption is NO LONGER available to the mortgagor (cut off) Application of Proceeds: Costs and expenses of keeping/sale Payment of obligations Subsequent mortgagees Excess to mortgagor Deficiency? The mortgagor is entitled to deficiency although 3135 is silent on this point EXCEPTION: Recto Law: o If contract is a sale on movables on installment and this is secured by CM. the creditor may: File an action for a judicial foreclosure File an action for a writ of replevin to recover possession o Before default. 2C.Sectrans with Notes and Cases. cause the property to be sold The 30 day period is the MINIMUM period after violation of the mortgage condition 10 days notice to the mortgagor must be given Notice must be given as regards the sale After the sale of the chattel. the creditor does not have a right of possession Foreclosure: o Upon default. it’s like the equitable right of redemption) What is the right acquired by the second mortgagee/subsequent purchaser? o Before the debt is paid. Sec 14 of the CM Law allows the mortgagee to have the property mortgaged sold in almost the same manner in Act 3135 It can be a PUBLIC or a PRIVATE SALE The mere fact that the mortgagee was the sole bidder for the mortgaged property does NOT warrant the conclusion that the transaction was attended with fraud o Period to foreclose: Page | 33 . or by travelers with common carriers Art 1969: Form of K of Deposit It may be oral or in writing Art 1965: Contract of deposit is GENERALLY gratuitous General Rule: Contract of Deposit is gratuitous (depositor does not have to pay anything) o Exceptions: Contrary stipulation Depositary is engaged in business of storing goods (like a warehouseman) Art 1970/1971: Capacity If depositary is capacitated and the depositor is incapacitated (minor. negotiable instruments may be deposited (what you deposit is the piece of paper representing the incorporeal right) Rule: Judicial deposit may cover movable and immovable property Art 1967: Voluntary Deposit defined Voluntary Deposit: one wherein delivery is made by the will of the depositor o It may also be made by two or more persons each of whom believes himself entitled to the thing deposited with a third person The third person in turn. this article DOES NOT embrace incorporeal or intangible property (like rights/actions) BUT bonds. etc (they may temporarily deposit goods in their possession because it does not involve a transfer of ownership) Art 1963: Binding effect of deposit agreement An agreement to constitute a deposit is BINDING o BUT the K of deposit is only perfected upon delivery Art 1964: Kinds of deposit (How it is constituted) Judicial Deposit: one that takes place when an attachment/seizure of property in litigation is ordered Extrajudicial (Art 1967) o Voluntary: delivery is made by the will of the depositor or by two or more persons each of whom believes himself to be entitled to the thing deposited o Necessary: one made in compliance with a legal obligation or one made in compliance with a legal obligation. it’s just a mutuum In Involuntary deposit. shall deliver it to the one to whom it belongs o In a voluntary deposit. where property is saved from destruction during a calamity by another person without the knowledge of the owner. it may be lease. etc) o Depositary is still subject to all the obligations of depositary Page | 34 . the owner is bound to pay compensation Art 1966: Subject Matter of Deposit Rule: Only movable/personal deposit may be the object of extrajudicial deposit (voluntary/necessary) o Therefore. By Butch Ramiro DEPOSIT Art 1962: Definition of K of Deposit Deposit: It is constituted from the moment a person receiving a thing belonging to another. on the occasion of a calamity. depositor has freedom in choosing the depository General Rule: The depositor must be the owner of the thing deposited o Exception: it may also belong to a person other than the depositor like an agent. Atty. insane. with the obligation of safely keeping it and of returning the same o The safekeeping of the thing must be the PRINCIPAL purpose of the contract IF NOT. commodatum or agency o Characteristics: Real: delivery is required to perfect the contract Unilateral: IF gratuitous Bilateral IF onerous/for compensation o Ordinary bank deposits are NOT real deposits (they are irregular deposits) because in reality. or by travelers in hotels or inns.Sectrans with Notes and Cases. carrier. securities. 2C. Lerma. a minor. A may recover the amount from him. If C is in good faith. B sold it to C. 2C. If C is in bad faith.Sectrans with Notes and Cases. Lerma. A may go after B to compel him to pay the price of the watch (received) or the amount by which he was benefitted Page | 35 . Atty. deposited a watch with B. adult. By Butch Ramiro Depositary may be compelled to return the thing by the guardian/administrator of the incapacitated If depositary is incapacitated and the depositor is capacitated o Incapacitated depositary does not incur the obligations of a depositary HOWEVER He is liable to return the thing deposited if he is still in possession He is liable to pay the depositor the amount by which he may have benefitted himself with the thing or its price subject to the right of any 3rd person who acquired it in good faith Ex: A. BEFORE changing the manner.Sectrans with Notes and Cases. from C. and the depositor cannot gain access without the consent and active participation of the company Bank cannot impose the following conditions: “That the bank is NOT a depositary of the contents of the safe and has neither the possession/control” “That the bank has no interest in the contents and it assumes no liability” Art 1973: Depositary not allowed to deposit the thing with a third person General Rule: Depositary cannot deposit the thing with a third person o If he does so w/o authority. By Butch Ramiro OBLIGATIONS OF DEPOSITARY Art 1972: Obligation of the depositary Obligations: o Obliged to keep the thing safely Degree of Care: same degree of care as if it was his own Applicable Rules: Liable if loss due to his negligence/fault even if insured Presumption of fault if lost in his possession Higher degree of care if for compensation o Return it when required to the depositors/his heirs/person designated in the contract Depositary has to return to the depositor whenever he claims it. but a special kind of deposit o CA Agro v. depositary must inform the depositor and wait for his decision o UNLESS delay would cause danger How to change the manner? Put it in a different safe Art 1975: Obligation to collect interest on choses in action deposited If the thing deposited EARNS interest (certificates. he is liable for the loss o Exception: A stipulation allowing him to If this is allowed Depositary is LIABLE for the loss if he deposited it with a person who is manifestly careless/unfit He is also liable for his employees’ negligence Case to case basis in determining if depositary is UNFIT o Minors: Unfit o Low-IQ guy: Depends if he has common sense Art 1976: Obligation not to commingle if stipulated General Rule: Depositary may commingle grain/articles of same kind and quality o Effect: The various depositors shall own/have a proportionate interest in he mass o Exception: When stipulated that he CAN’T do so Ex: o A received from B 50 cavans of wagwag rice. the bank still retains absolute control when it comes to access to the property. Atty. negotiable instruments). PROVIDED: If under the circumstances. the depositary MUST: o Collect the interest as it becomes due (as well as the capital when it becomes due) o Take the necessary steps to preserve its value Ex: depositary of a negotiable PN which has been dishonored by non-payment must give notice of dishonor to indorsers to hold them liable. Rule DOES NOT apply to contract for rent of safety deposit box o Why? Because it is not an ordinary contract of lease of things. Security Bank: Bailor-Bailee relation between a bank renting out safe-deposit boxes and its customer with respect to the contents of the box In this case. he may reasonably presume that the depositor would consent to the change if he knew the facts . securities. 2C. Lerma. bonds. 20 cavans of wagwag rice and 30 cavans of wagwag rice from Page | 36 Art 1974: Obligation not to change the manner of the deposit Can the depositary change the manner of deposit? o Yes. even if a term was specified. It is stipulated 2. the depositary is presumed to be authorized to do so WHEN o The key has been delivered to him Page | 37 . and the depositary may use it. current deposits of money in banks are governed by provisions on loan Deposits of money in banks are really loans to a bank BECAUSE banks can use the same for its ordinary transactions and for the banking business o The bank has the obligation to return the amount deposited BUT it has no obligation to deliver the same exact money that was delivered o Relationship of bank and depositor: debtor-creditor (depositor actually lends the bank money and the bank agrees to pay the depositor on demand) However. A can commingle the 100 cavans and B. Instead. it becomes an irregular deposit Main differences between irregular deposit and mutuum: o Demandability: Mutuum: Payment of loan not demandable at will because demandability will depend on the stipulation of the contract Irregular Deposit: the consumable thing may be demanded at will Art 1981/1982: Rules where the thing deposited is delivered and sealed When the thing deposited is delivered closed and sealed: o Depositary must return it in the same condition He is liable for damages if the seal/lock is broken through his fault In this case. In the absence of a contrary stipulation. even though he may have been authorized to use Art 1980: Fixed. If he allows others to use it. the statement of the DEPOSITOR shall be accepted prima facie when the forcible opening is the depositary’s fault When the seal/lock is broken. fault on part of the depositary is presumed UNLESS there is contrary proof o Regarding the value of the thing deposited. If he uses the thing w/o depositor’s consent 3. it must be proven o Except: IF the purpose is STILL safekeeping o Ex: If the thing deposited is non-consumable (like an electric fan). if a bank fails to honor a deposit. it becomes a commodatum EVEN if the parties call it a deposit UNLESS safekeeping is still the principal purpose If the thing deposited is money/consumable. with or without depositary’s fault o He is obliged to keep the secret of the deposit When it becomes necessary to open a locked box. Lerma. savings. By Butch Ramiro D. 2C. the permission to use will result in its consumption and converts the contract into a mutuum UNLESS safekeeping is still the principal purpose In this case. If he delays its return 4. C and D would become co-owners of the entire 100 cavans: B: 1/2 C: 1/5 and D 3/10 Art 1977: Obligation not to make use of the thing deposited unless authorized Remember: Primary purpose of deposit is SAFEKEEPING and NOT USE: (compare to commodatum) If depositary uses WITHOUT EXPRESS authority o He is liable for damages HOWEVER o If the preservation of the thing deposited requires its use. Atty. it becomes a loan/commodatum Note: permission cannot be presumed. it is not a breach of trust nor misappropriation. it must be used BUT ONLY FOR THAT PURPOSE (like in pledge) Ex: Aircon/Automatic Watch Art 1979: Liability of Depositary for fortuitous event Depositary is liable for LOSS of the thing IF: 1.Sectrans with Notes and Cases. it is just like the mere failure of a debtor to perform his obligation Art 1978: Effect IF permission to use is given When the depositary has permission to use the thing deposited. if the depositary discovers that the thing has been stolen and who its true owner is He must advise the owner of the deposit If the owner has been informed and he does not claim within 1 month (30 days) The depositary is justified by returning the thing to the depositor Ex: On June 1. unlike in pledge/mortgage) o However. On July 1. D notified C. 2010. Lerma. the place of return is B’s house in Makati Art 1988: Time of return General Rule: Depositor can demand the return of the thing deposited at will EVEN IF there was a period stipulated o Exception: (When depositor cannot demand it at will) When the thing is judicially attached while in the depositary’s possession When the depositary is notified of the opposition of a third person to the return of the thing deposited In these cases. at the place where the thing deposited may be (even if it should not be the same place where the deposit was made as long as there was no malice on the part of the depositary) Ex: A deposits his car to B in his (B’s) house in QC. they are not solidary and the thing is divisible o Each one CANNOT demand more than his share When there is solidarity (ex: Depositary can return to either A or B) When the thing is indivisible (ex: A TV) o Apply rules on solidarity among creditors Art 1212: Each one of the depositors may do whatever may be useful to the others. he shall be liable for interest as indemnity from the day on which he did so Art 1986: When depositor loses his capacity to contract If the depositor loses his capacity to contract AFTER making the deposit o The depositary can only return the thing to the persons who may have the administration of his property/rights Art 1984: Ownership issues Rule: Depositary cannot require the depositor PROVE his ownership of the thing deposited (because the depositor need not be the owner. B moved to Makati. Atty. accessories and accessions o Note: when the depositor deposited money. but not Art 1989: Right of Depositary to return thing deposited Page | 38 . accessories and accessions The depositary must return the thing deposited with all its products. By Butch Ramiro o When the instructions of the depositor regarding the deposit CANNOT be executed without opening the locked box anything which may be prejudicial (one of them just can’t authorize the depositary to deposit the thing with another person so that the other can’t find it) Art 1214: Depositary may return to any one of the depositors BUT he is obliged to deliver to the one who makes a demand for return When it is stipulated that the thing is to be returned only to one of the depositors o The depositary is bound to return it to the person designated even if he does not make any demand for its return Art 1983: Obligation to return products. A deposited a watch with D. 2C. the depositary cannot make use thereof so he can’t be charged interest However. If there is no stipulation. at the place stipulated (depositor pays for transportation) o If not stipulated. D found out that C actually owned it.Sectrans with Notes and Cases. if he uses it without authority. If C does not claim within 30 days. C can’t make the claim. A can make D liable for conversion Art 1987: The place where the deposited thing must be returned Where must the deposited thing be returned? o If it was stipulated. On June 15. then D is justified in returning the thing to A o JBL: What if A demands the return on July 2? Is the depositary justified in refusing to return to A if C has not made a claim yet? This is risky for the depositor because if for some reason. the depositary must inform the depositor of the attachment/opposition Art 1985: Right of two or more depositors When there are two or more depositors. Atty. B must give back this money to the depositor Art 1991: Alienation in GF by depositary’s heir If the depositary’s heir sells the thing deposited in good faith ( meaning he thought it was his predecessor’s) o He must return the price he may have received o Alternatively. wife is sick.Sectrans with Notes and Cases. etc) AND The deposit is gratuitous o If for compensation. he must assign his right of action against the buyer to the depositor (over the unpaid price) Page | 39 . if he has not been paid. Lerma. By Butch Ramiro The depositary can validly return the thing deposited to the depositor o EVEN BEFORE the time designated and EVEN IF the depositor refuses to receive it (remedy of depositary: consignation) PROVIDED He has a justifiable reason (going to the states. he is in breach (damages) Art 1990: When thing is expropriated/lost by fortuitous event If the depositary loses the thing deposited by force majeure or by an act of the government o He is NOT liable o BUT if he receives money/some other thing in place of the lost deposited thing He is BOUND to deliver that to the depositor Ex: o A deposited his car with B. 2C. he is sick. The government expropriated the car and gave B just compensation. depositary has NO RIGHT to return before the time stipulated even if he is inconvenienced If he does so. the depositor was unaware of the dangerous character of the thing At the time of the deposit’s constitution. the death of either party does not extinguished because an onerous deposit is NOT personal: it is transmitted to the heirs BUT the heirs of each party have a right to terminate the deposit even before the expiration of the term (if one was agreed upon) Not exclusive: novation. upon the death of either the depositor/depositary Note: IF deposit is for compensation.Sectrans with Notes and Cases. By Butch Ramiro OBLIGATIONS OF THE DEPOSITOR Art 1992-1994: Obligations If deposit is GRATUITOUS o Depositor must reimburse the depositary for expenses for preservation If deposit is FOR COMPENSATION o Depositary shoulders the expenses IF depositary has not yet been paid He can retain the thing in pledge (pledge granted by operation of law) The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited (if the car explodes) o UNLESS At the time of the deposit’s constitution. the depositor was not expected to know the dangerous character Depositor notified the depositary of the dangerous character Depositary already knew even if he wasn’t notified Art 1995: Extinguishment of Deposit Deposit is extinguished: o Upon the loss/destruction of the deposited thing o In case of gratuitous deposit. merger. etc Page | 40 . return. 2C. Lerma. Atty. Atty. 2C. fire. the keepers of hotels/inns may be held liable as depositaries with regard to the effects of the travelers AND those that may be lost or damaged which are in the hotel’s/inn’s annexes (parked car in the garage) Elements: (to constitute innkeeper as depositary) The innkeeper must have been informed about the effects brought by the guests The guests must exercise the precautions which the innkeeper has advised (lock your doors. Made in compliance w/ a legal obligation Ex: judicial deposit of a thing whose possession is being disputed by two or more persons or when the thing pledged may be deposited by the debtor if pledge uses w/o authority 2. By Butch Ramiro NECESSARY DEPOSIT Art 1996-2004: When a deposit is necessary. Lerma. innkeeper is negligent for not providing competent security) Non-liability of innkeeper For loss /injury caused by a fortuitous event like flood. When passengers deposit their things with common carriers Page | 41 . It takes place on the occasion of any calamity Here. Travelers deposit their effects in hotels/inns Here. the possession of movable property passes from one person to another through force of circumstances Ex: If A saves B’s TV from a flood. Hotel-keeper A deposit is necessary when: 1. servants or visitors For loss arising from the character of things brought into the hotel Rule: Hotel-keeper cannot free himself from liability by posting notices that say that he is not liable for the articles brought by the guests Any stipulation between the hotel-keeper and the guest whereby the responsibility of the hotel-keeper is suppressed shall be void Hotel keeper has a right of retention Over the things brought into the hotel by the guest. For loss caused by the acts of the guests. A is considered a depositary This is called deposito miserable: The calamity must RESULT into the CONSTITUTION of the DEPOSIT 3. idiots) Liabilities of innkeepers (regardless of the amount of care exercised) For loss/injury caused by his servants/employees/strangers o PROVIDED that notice has been given and the proper precautions are taken For loss caused by the act of a thief/robber done w/o the use of arms/irresistible (because in this case.Sectrans with Notes and Cases. as security for credits on account of lodging and supplies usually furnished to hotel guests o This is in the nature of a pledge by operation of law 4. his family. etc. Lerma. a deposit may be constituted judicially or extra-judicially o Judicial Deposit: takes place when an attachment/seizure of property in litigation is ordered by a court o Ex: properties may be attached by the sheriff upon the filing of a complaint It is judicial in nature because it is auxiliary to a pending case in court Purpose: maintain the status quo during the pending litigation or preserve the right of a party to recover in case of a favorable judgment o SM: Movable/Immovable o Obligations of Depositary in Judicial Deposit Take care of the thing with the diligence of a good father of a family Depositary cannot be relieved of his responsibility until the controversy which gave rise thereto has come to an end Exception: when the court orders Page | 42 . By Butch Ramiro SEQUESTRATION/JUDICIAL DEPOSIT Art 2005-2008: When judicial deposit takes place Remember. 2C. Atty.Sectrans with Notes and Cases. Over what? Over the price of the sale ii. Furnished the seeds ii. breach of trust or malfeasance by public officials committed in the performance of their duties a. Over what? Over the goods carried 10.000 (not enough!) o Then. Credit due to hotel-keeper from guests i.000 He owes Toyota (seller) 200. Wages: a. Credit due to the one who repaired.Sectrans with Notes and Cases. Spent for cultivation 1. Public Officials: arising from misappropriation. Does NOT matter if movable was sold together with other property for a lump sum (if the price thereof can be proportionately determined) b. EXCEPT: not on money or credit instruments of the debtor 13. on the movable. Over what? On the goods salvaged 8. Government satisfied first: 600. Repairs: a. 2C. they merely concur (so it must be pro rated!) Example: (Overview of how 2241 is applied) o A is an insolvent.000 Next step? Pro-rate their claims o Pro-rate formula: X/Y x Z = A o X: preferred creditor’s individ claim Page | 43 1. Over what? Over the movable repaired 6.000 o In this case.000 What’s left? 200. Credit due to a laborer who manufactured the movable b. Rent: a. Transportation: a.000 He owes C’s Talyer (repairs on the car) 200. He has a car worth 800. Includes irregular depositor! Reminder: Art 2241 merely enumerate credits which enjoy preference with respect to specific movables o HOWEVER With respect to the same specific movable. Over what? Over the movables of the hotel-guest in the hotel 11. Over what? Basically. fees due to the State over the movable 2. Landlord-Tenant: credits between landlord/tenant a. as long as the debtor is in possession (up to the value of the same) i. kept the movable b. Over what? UPON personal property of the lessee in the leased premises and fruits of the same 1. Taxes: duties. For one year i.000 He owes taxes over his car to Government of 600. Atty. Over what? On the share of each in the fruits/harvest . Pledge/Chattel Mortgage: credits guaranteed by pledge/CM a. Over what? On movables sold. the special preferred credits (which merely concur) Toyota and C’s total claim: 400. the following claims or liens shall be preferred Refers to SPECIFIC MOVABLE PROPERTY These are PREFERRED credits o DOES NOT establish an ORDER OF PREFERENCE o Merely says that it’s a credit with a particular preference as regards a certain movable! EXCEPT: Taxes due to the State (always number one!) 9. Over what? Over the fruits harvested 12. money or securities they obtained 3. Does NOT matter if the movable is immobilized by destination (as long as form. If depositary has wrongfully sold the thing deposited i. By Butch Ramiro CONCURRENCE AND PREFERENCE OF CREDITS Art 2241: With respect to SPECIFIC MOVABLE PROPERTY of the debtor. Lerma. a lien may be enforced on the price 4. Unpaid Vendor: a. If movable has been resold by the debtor and seller is still unpaid. A loan secured by a CM on a certain movable b. For lodging 1. Hotel-keeper: a. Depositor: a. and identity preserved) ii. If car. substance. Over what? Over the goods manufactured 7. Salvage: a. Credit due to the person who: i. must be registered in the CMR and the LTO 5. preserved. Seeds: a. business tax. Warranty in the partition of an immovable among them b. Donors a. the following are preferred: Same principle as 2241.000 x 200. 2C. Labor accident claims 5. Insurers a. These credits are preferred according to the order of the time they were levied upon! (Manabat case) i. Mortgage Credit: a. Lerma. Includes separation pay 3. Over what? The real property they divided 9. Over what? Over the building done 4.000/400. Fines/Civil Indemnification a. Funeral Expenses: 2.000 C: 200. Credit due to the laborers b. Legal expenses incurred in administration of insolvent estate for the creditors 9. Taxes due any city/municipality Page | 44 . Over what? Over the buildings where their materials went 5. they can still recover from the free property after the ordinary preferred have been satisfied o 8.000 Result: Toyota and C merely get 100. first come. Over what? Over the preserved immovable 7. For debtor. Laborers: a. Over what? The property insured Art 2244: Ordinary preferred Credits: With reference to free property of the debtor. Atty. Attachments. Not over the specific movable/immovable b. Must be registered in the appropriate registry b. executed upon 1. Credit due to the vendor b.000 each AS REGARDS the car Later on. Materialmen: a. For the insurance premium for TWO YEARS b. it is actually the first priority now c. Taxes due any province other than those mentioned in 2241/2242 11. Expenses for Preservation a. Qualified by Labor Code: no more 1 year limitation. Credit due to the person who preserved or improved the real property b. Taxes due to the national government other than those mentioned in 2241/2242 a. Credit for support/advancements a. Credit due to them b. Credit due to the employees/laborers/household helpers of the insolvent debtor b. first served b.000 = 100. etc 10. Over what? The immovable donated 10. the following claims and credits shall be preferred in the ORDER NAMED This is only on the FREE PROPERTY of the insolvent o They can only be satisfied with the property not burdened with 2241/2242 liens o These creditors get first crack on the free property o Art 2242: With respect to SPECIFIC IMMOVABLE PROPERTY/REAL RIGHTS of the debtor.000 x 200. Ex: income tax. his family i. Doesn’t matter if registered/unregistered c. Co-heirs: a. Annotated Credits by virtue of judicial order. Last Illness expenses 4. Over what? Over the property attached. Wages a.000/400. Arising from criminal offense 8. Over what? The immovable sold 3. but it’s merely immovable/real property this time 1.000 = 100. Taxes: over the immovable/real right 2. Unpaid Vendor: a. Made during the year before the insolvency 6. Credit for support DURING insolvency and for 3 months thereafter 7. it follows the property wherever it goes 6. Executions a.Sectrans with Notes and Cases. This is a LIEN. Basically. By Butch Ramiro Y: total claims of all preferred creditors o Z: money left o A: money each creditor gets as regards the specific movable Toyota: 200. Claims of donors of real property for pecuniary charges they imposed on the done b. In a public instrument b. Kelvin gets satisfied Vicky NEXT: 18M: 1 point. Damages for death caused by quasi-delict 13. first served. so 3M left. Ping still has a deficiency of 10M Step three: Free property! (2244!) In this case. 2002 judicial order of attachment over land by virtue of an unpaid balance due to Kelvin: 22M 9. Claims of the three attachments: Land: 52M LESS Kelvin FIRST: 22M: 1 point. 2002 judicial order of attachment over land due to Vicky: 18M 6. you don’t prorate them. Gifts due to public/private institutions 14. that when it comes to attachments. Lerma. Land: 55M. he always has attachments to confuse you. Unpaid import taxes over yacht due to BIR: 5M 8. Who are the remaining preferred? The three attachments. By Butch Ramiro 12. so you give that 3M to Jack which leaves Jack with a deficiency of 1M (he can still get some from the preferred after the ordinary preferred are satisfied) Land: 55M LESS: 3M (Taxes first!): another 1 point. Income taxes due to the BIR (due to business on the land: PANGGULO): 2M 3. Promised gift due to PCSO: 3M 7. September 14. Iloilo gets satisfied 52M left. Who are the ordinary preferred? Here they are in order: Income taxes due to BIR: 2M Promised gift to PCSO: 3M Unpaid loan to Alfonso: 3M According to 2245. Remember the case. Unpaid purchase price of yacht due to Jack: 4M 5. (Even if the remaining property is not enough. September 12. you satisfy them in the order named. Preference in the order of priority of dates Art 2245: Common credits Mutuum Bank deposit o o o Sept 12: Kelvin: 22M Sept 13: Vicky: 18M Sept 14: Ping: 22M Second Step: Do the 2241/2242 math to figure out the free property left Yacht: 8M LESS: 5M (TAXES first!): 1 point already. It’s first come.Sectrans with Notes and Cases. In a final judgment i. In Lerma’s test. a. 2002 judicial order of attachment over land by virtue of an unpaid balance due to Ping: 22M 2. So it’s only the book collection left. 2002: 3M First step: Group them together! Yacht: 8M Import taxes due to BIR: 5M Unpaid seller Jack: 4M Land: 55M Realty taxes: 3M Attachments: . 2C. BIR gets satisfied Okay. Unpaid loan to Alfonso that is notarized on September 15. Vicky gets satisfied Ping LAST: 22M: (Ping only got 12M) In this case. satisfy them in order) Page | 45 Sample Problem: Assets: Yacht: 8M. Rare book collection: 6M Liabilities: 1. Atty. Credits which appear. the land and the yacht has already been used up. you don’t pro -rate. Realty taxes due to Iloilo on the land: 3M 4. September 13. Alfonso still has a deficiency of 1M. By Butch Ramiro Book collection/free prop: 6M LESS BIR for 2M (1 point: BIR satisfied) PCSO 3M (1 point. So final tally: Iloilo: 3M BIR (import tax/duty): 5M Kelvin: 22M Vicky: 18M Ping: 12M BIR (income tax): 2M PCSO: 3M PSCO: 3M Alfonso: 2M IF there was any property left AFTER the 2245 claims. Same goes with Ping and Jack. then those with deficiencies from 2241/2242 and ordinary common credits will have to share the remaining pro-rata! Page | 46 . 2C.: PCSO satisfied) Alfonso 3M (Alfonso only got 2M) In this case. Lerma. No more property left.Sectrans with Notes and Cases. Atty. he must mark it as such o If he doesn’t. description of the goods or of the packages containing them. Lerma. he must mark the subsequent one/s DUPLICATE If he doesn’t he’ll be liable to the holder of the subsequent receipt Sec 7: Failure to mark non-negotiable If whm issues non-negotiable receipt. bailee: whm) o Whm issues a receipt when he receives goods and this may either be negotiable or non-negotiable What is the purpose of a warehouse receipt? o Symbolic possession of goods o Evidence of the contract between whm and depositor o Evidence of transfer of title/transfer of possession Negotiable: o To the order of a specified person o To bearer Non-negotiable o Goods deliverable to a specified person Sec 6: Duplicate receipts Similar to bills inset in NIL o If whm issues more than one negotiable receipt for the same goods.Sectrans with Notes and Cases. etc If some are omitted. rate of storage charges. date of issue of receipt. Atty. with the necessary indorsements 3. if negotiable. By Butch Ramiro WAREHOUSE RECEIPTS ACT Sec 1: What is a warehouseman? (WHM) One who stores goods for profits Includes: o Public/Private whm o Bonded/Unbonded whm Once goods are stored in a warehouse. a holder for value of such receipt who thought it was negotiable. An offer to satisfy the whm’s lien 2. may AT HIS OPTION. treat it as negotiable If he does treat it as negotiable. it imposes upon the whm the same liabilities as if the receipt was really negotiable Sec 2-3: Form of receipt The receipt must be in writing and certain essential terms are required to be stated namely: o Location. o The relation of BAILOR and BAILEE is created between the parties (bailor: depositor. it is the whm who issues these receipts and holders must NOT be punished with the bad faith of the whm FURTHER. 2C. A willingness to sign an acknowledgment that the goods have been delivered IF the whm requests such signature Sec 9: Justification of whm in delivering Who can the whm validly deliver to? 1. Person lawfully entitled to the possession/his agent Page | 47 Sec 4/5: Negotiable/Non-negotiable receipt . the negotiability is NOT affected o Remember. An offer to surrender the receipt. whm cannot insert the following: Any stipulation which would impair the whm’s obligation to safely keep the goods Terms exempting the whm in case of misdelivery A stipulation enabling him to set up title in himself The words non-negotiable if the receipt is clearly negotiable (contains words of negotiability) Sec 8: Obligation of whm to deliver When is a warehouseman bound to deliver? (Lerma finals question) o If the holder of the receipt or the depositor makes a demand accompanied with: 1. In the original. he is given reasonable time to ascertain the validity of the adverse claim Whm is excused from refusing to deliver if: o Someone other than the depositor has a claim or title to the goods and he has information of it HOWEVER he ordinarily can’t refuse delivery on the ground that a third person other than the depositor is claiming the goods Page | 48 Sec 14: Lost/destroyed receipts . If he delivers the goods to someone else other than the one named in the non-negotiable receipt 3. whm can file interpleader if both parties are suing him for misdelivery: o In this case. By Butch Ramiro 2. 2C. C bought the duplicate from B. Lerma. Atty. he has to cancel it o If he doesn’t cancel it and the holder is able to negotiate it again. who said the original was lost. the parties will fight it out and prove their claims o Whm will then deliver it to the winner Alternatively. bearer or specified person BUT before such delivery he was requested not to OR he had information that he was about to deliver to one not lawfully entitled to possession What is the remedy of a holder of a negotiable receipt if it is lost? o File an action in court o Prove the loss/destruction of the receipt o Give a bond with sufficient sureties If the receipt is not really lost and it was then negotiated to a purchaser for value without notice. it states 400 barrels of wine. acquires no rights thereunder against the warehouseman Sec 17-19: Interpleader/Adverse clams If more than one person is claiming the goods. B asks for a duplicate and A issues it.Sectrans with Notes and Cases. the whm is liable to that person for failure to deliver Sec 15: Effect of duplicate receipts A receipt that states that it is duplicate is a warranty by the whm that the receipt is an accurate copy of an original receipt Ex: o A issues a receipt to B’s order. Person named in a non-negotiable receipt/his authorized representative (written authority!) 3. In this case. he is liable to a purchaser in GF and for value The same principle applies if he has delivered only part of the goods o He has to mark the goods and state what goods have already been delivered Sec 16: Whm cannot set up title in himself Whm cannot refuse to deliver the goods on the ground that he has acquired ownership of the property o Exceptions: When there was a transfer made by the depositor at the time of the deposit/after the deposit When he has a whm lien Sec 13: Altered receipts Whm liable to ORIGINAL tenor (before alteration) o If alteration is immaterial o If alteration is material but innocent o If alteration is material and fraudulent To the one who altered/purchaser who had notice Whm liable for ALTERED tenor o If alteration is material but authorized o If alteration is material and fraudulent To the a purchaser in GF A purchaser of a forged warehouse receipt. A will be liable to C for damages because of this warrant Sec 11-12: Negotiable receipt must be cancelled upon delivery Once whm delivers goods for which he has issued a negotiable receipt. If he delivers to the payee. Person in possession of a negotiable receipt (bearer/order but last indorsement is blank) Sec 10: Liability of whm for misdelivery When is a whm liable for misdelivery? 1. it states 200 barrels of wine. In the duplicate. If he delivers the goods to someone else other than the “payee” or the bearer of the instrument 2. however innocent. reasonable charges for notice/advertisement of sale because of debtor’s default.Sectrans with Notes and Cases. the creditor must have the receipt itself attached (CLV) If non-negotiable and the transferee has NOT yet informed the whm. money advanced. Lerma. to get to the goods. offer to satisfy whm’s lien and readiness to sign acknowledgement for delivery) o The whm is justified in not delivering until his lien is satisfied o The whm. a whm shall have no lien except for storage charges UNLESS the receipt expressly enumerated the charges claims o Against what property may the lien be enforced? Against all goods of the debtor-depositor Against all goods belonging to others which were deposited by the debtor if the debtor was entrusted with the possession of the goods with the authority to pledge them validly o When does a whm lose his lien? (Lerma finals question) By surrendering physical possession By refusing to deliver even if the holder has complied with Sec 8 (surrender of receipt. etc HOWEVER. By Butch Ramiro o What he has to do is ascertain who is really entitled. any person claiming a right to the deposited goods may pay the whm the amount necessary to satisfy his lien Page | 49 Sec 21: Liability for care of the goods What is the degree of care required of a whm? o The care of a reasonably careful owner over similar goods of his own It depends on the circumstances involved o However. w/n he has a lien over the goods. keep in mind that if a negotiable instrument has been issued for the goods. fortuitous event is a defense PROVIDED he had no contributory negligence whatsoever Sec 22-24: Commingling General Rule: goods belonging to depositors must be kept separate (if he does. Atty. THEN the goods can be attached/levied upon by the creditor Sec 20: Liability for non-existence/misdescription Whm generally liable to the holder of a receipt for damages if: o the goods are non-existent o the goods fail to correspond with the description thereof in the receipt Exception: o If the goods described in the receipt merely of marks or label on the goods. the whm is not liable even if the goods are not of the kind as stated in the marks/label Why? Because it’s stupid that he has to check the contents if they correspond to the marking Sec 27-33: Whm’s lien Whm Lien: Whm’s right to POSSESS/RETAIN the goods when he remains unpaid for storage charges and other charges written on the warehouse receipt o What is the extent of the whm’s lien? Lawful storage charges. he is liable for damages) o Exception: Whm may commingle when authorized Whm may commingle if allowed by custom BUT they must be of the same kind and grade! Effect: o Depositors of commingled goods shall be co-owners of the entire mass Sec 25-26: Attachment/Levy upon the goods If a negotiable receipt has been issued over goods o The goods cannot be attached/levied upon by the creditor (of the holder of the receipt. he can still enforce the debt of the debtor-depositor/holder o AT ANY TIME PRIOR TO THE SALE. can file actions to collect against the debtor-depositor for unpaid storage charges Even if whm loses his lien. then deliver OR file an interpleader o The receipt must first be surrendered OR o Its negotiation must be enjoined Basically. 2C. for example) What must be done? . the whm may sell the goods at public/private auction/sale without advertising Distribution of proceeds the same with Sec 33 Sec 35-36: Method to enforce lien/Effect of sale Whm can pursue other remedies in order to have his lien satisfied o He may go against the personal property of the debtordepositor/holder After the goods have been lawfully sold to satisfy the whm’s lien/because it’s hazardous o The whm shall not be liable for failure to deliver the goods to owner/holder EVEN IF the receipt is negotiable Recap: How can the whm enforce his lien? o Refusing to deliver the goods until he’s paid o Selling the property and applying the proceeds o Other means for the enforcement . 2C. By Butch Ramiro What is the procedure for sale to satisfy the lien? o Whm will notify everyone who has interest in the goods Itemized statement of his claim Brief description of the goods Demand of the amount claimed Statement that unless the claim is paid. always bear DOES NOT apply in WRA o So if it’s originally bearer and then it was specially indorsed. the whm undertakes to deliver the goods to the order of the person to whom the possession/custody of the receipt has been intrusted) What are the rights acquired by a person to whom a receipt has been negotiated? o Title of the owner (original depositor) o Title of the indorser o Obligation of the whm to hold possession of the goods for him according to the terms of the receipt Page | 50 Sec 34: Perishable/Hazardous If the goods quickly deteriorate or are hazardous o The whm will give notice to the owner/holder To satisfy his lien upon the goods and to remove them from the warehouse o If he fails.Sectrans with Notes and Cases. it must be indorsed again to have the effect of negotiation When is a receipt negotiable by delivery? o When it is explicitly states it is deliverable to the bearer o When it is an originally order document but the last indorsement is an indorsement in blank When is a receipt negotiable by indorsement? o When it is explicitly states that it is deliverable to the order of a person It may be negotiated in blank It may be specially indorsed again to a specified person o Note: In cases of IMPROPER negotiation. Atty. Lerma. the goods will be advertised for sale and will be sold o After the time for the payment of the claim specified in the notice has elapsed o And after due notice and publication o The sale may be made through public/private auction/sale From the proceeds: The whm shall satisfy his lien and other charges for notice/advertisement IF EXCESS: delivered to the debtordepositor/holder IF DEFICIENT: whm entitled to a deficiency judgment Sec 37-43: Negotiation REMINDER. it would merely constitute as a transfer (governed by law on sales/donation) and the assignee-transferee acquires no better right thereto How is transfer done when the receipt is non-negotiable? o It may be made through assignment or donation Case: o Delivery by a borrower to a lender of the warehouse receipt indorsed in blank covering palay pledged as security for the loan DOES NOT transfer ownership of the palay or place the risk of its loss on the pledgee The pledgor remains the owner of the goods The pledgee-transferee merely acquires the right to keep and thereafter sell the goods Who may negotiate a receipt? o The owner of the receipt o Any person who possesses a bearer instrument o The “payee” of the negotiable title (if by the terms of the receipt. once originally bearer. as security for a loan. mistake. C demands payment from A. he acquires the direct obligation of the whm to hold possession of the goods for him o PRIOR to notification. The negotiation. demands or receives payment of the debt. o The transferee can compel the transferor to indorse the receipt Negotiation takes effect as of the time indorsement is ACTUALLY made A. having sold. even subsequent purchasers for value without notice will lose against the owner because they acquired the title of the thief (which was NOTHING) Ex: o B delivers to C a negotiable receipt for safekeeping. C negotiates it to D. and a negotiable warehouse receipt was issued to him Or he sold.Sectrans with Notes and Cases. However. was able to obtain possession of a negotiable receipt of B. pledgor). 2C. The negotiation is valid. mortgagor. the transferee is the one entitled to the goods) o Right to notify the whm of the transfer to him Once he notifies. who has no notice. delivers the receipt to E (subrogation) In case E cannot obtain possession because the goods did not actually exist. If A negotiates it to C. E pays for . what this section talks about is the VALIDITY of the negotiation of the instrument even if consent is vitiated o This does not talk of the goods! o Remember. Lerma. transferee’s right may be defeated by: Levy of an attachment upon the goods by a creditor of the transferor Notification to the whm by the transferor or a subsequent purchaser (from the transferor) of a subsequent sale When a negotiable receipt is transferred for value by delivery and the indorsement of the transferor is essential for negotiation. duress Basically. is valid. A then negotiated it to D. C is not liable to E. and C accepts payment. o A. It will be as IF the mortgagee-pledgeevendee consented to it Ex: o A has a receipt. warrant the goods described in the receipt Ex: o A owes C 1k. negotiates it again to another (for value. By Butch Ramiro What are the rights acquired by a transferee (improper negotiation OR non-negotiable) o Title against the transferor (as between them. as long as D had no knowledge. or by the fact that the owner of the receipt was induced by fraud. if the depositor was not the owner of the goods (he just stole them) and he was issued a receipt. A continues in possession. in good faith and without notice). mortgaged or pledged goods which are in a warehouse. He pledged a warehouse receipt deliverable to him. Atty. who has no Page | 51 Sec 46: No warranty implied from accepting payment of a debt A mortgagee/pledgee of a receipt who in good faith. Thereafter. Sec 47: Validity of negotiation The validity of negotiation of a receipt is NOT IMPAIRED by the fact that such negotiation was a breach of duty on the part of the person making a negotiation. for which the receipt is security o SHALL NOT BY RECEIVING THE PAYMENT (for the debt from another person). C did not warrant the goods described. He mortgages/pledges the goods covered by the receipt to B. even if a breach of faith. mortgaged or pledged the negotiable receipt itself o AND he still remains in possession IF that person (seller. Sec 44-45: Warranties of Indorser/Transferor Warranties: o That the receipt is genuine o That he has legal right to negotiate/transfer it o That he has no knowledge of any fact which would impair the validity/worth of the receipt o That he has the right to transfer the title to the goods and the goods are fit for a particular purpose Important: The indorser is NOT a guarantor and he does NOT warrant that the whm will comply with his obligation Sec 48: Subsequent negotiation Where a person. C in turn. by means of fraud. a whm and gets a receipt. the negotiation will be as if B authorized it. or upon which there is a lien and mortgage.Sectrans with Notes and Cases. He can exercise it when the buyer becomes insolvent. seller who remains unpaid has a possessory lien over the goods even if he has made symbolic delivery of the goods as long as he has physical possession. with no notice of the lien of A. 2C. By Butch Ramiro notice of the mortgage. B deposits the goods to C. Atty. C can get the goods from the whm and A’s lien cannot prevent this Criminal offenses require intent to deceive and knowledge! Any person who deposits goods to which he has no title. A has a lien over the goods or a right to stop the goods in transit if he remains unpaid. has a right to stop the goods in transit after he has parted with physical possession of it: like when it is delivered to the carrier) Shall defeat the rights of any purchase for value in good faith Whether such negotiation be prior or subsequent to the notification to the whm who issued such receipt The whm is also not obliged to deliver to an unpaid seller unless the receipt is first surrendered for its cancellation Ex: o A sold goods to B. and who takes for such goods a negotiable receipt which he negotiates for value without disclosing his lack of title/existence of lien or mortgage Sec 50-55 Criminal Offenses A whm is criminally liable IF: o He issues a receipt over goods he knows he DID NOT actually receive or are NOT under his actual control o He issues a receipt containing a false statement o He issues a duplicate negotiable receipt for goods knowing that a former negotiable receipt for the same goods is outstanding and uncancelled o He owns goods deposited in his warehouse and he still issues a negotiable receipt for such goods and he does not state such ownership o He delivers goods without obtaining a negotiable receipt Page | 52 . If B negotiates the goods to C. As seller. B should take possession to avoid this. in case the buyer in insolvent. Sec 49: Negotiation defeats vendor’s lien Where a negotiable receipt has been issued for goods o No seller’s lien (generally. Lerma. when credit term has expired or when goods have been sold w/o any stipulation as to credit) o Or Right of Stoppage in Transitu (the unpaid seller of goods. upon the condition that the same amount of the same kind and quality shall be paid (mutuum). 2 kinds of loan: 1.Sectrans with Notes and Cases. Atty. or serving as a means to ensure the fulfillment or enforcement of an obligation or of protecting some interest in property. (personal or real/property) Bailment – the delivery of property of one person to another in trust for a specific purpose. Ordinary Commodatum b. Interest – is the compensation allowed by law or fixed by the parties for the loan or forbearance of money. services. 4. or money in the present with a promise to pay or deliver in the future. that the trust shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept until the bailor reclaims it. Lerma. It is essentially gratuitous and ownership is retained by the bailor. there’s no purpose stipulated 3. Legal Interest – that which the law directs to be charged in the absence of any agreement as to the rate between the parties. or money or other consumable thing. 2. Security – something given. Page | 53 1. It is a real contract (requires delivery of the thing loaned for perfection of the contract) and a unilateral contract (because once the subject matter has been delivered. the party who receives the possession or custody of the thing thus delivered Credit (of an individual) – his ability to borrow money or things by virtue of the confidence or trust reposed by a lender that he will pay what he may promise within a specified period. It may be gratuitous or onerous and ownership passes to the bailee. Bailor . with a contract.the giver. . In order that interest may be chargeable. 1. Simple loan or mutuum – where the lender delivers to the borrower money or other consumable thing upon the condition that the latter shall pay the same amount of the same kind and quality. By Butch Ramiro Definition of Terms/Tables Credit Transactions – include all transactions involving the purchase or loan of goods. it creates obligations on the part of only one of the parties – borrower). in writing and lawful. Contract of Barter or Exchange – one person transfers the ownership of non-fungible thing to another with the obligation on the part of the latter to give things of the same kind. goods or credits. use is merely tolerated The borrower has no right to retain until the expiration of the period or until the purpose has been accomplished. Bailee – the recipient. that is. deposited. Precarium – bailor may demand the thing loaned at will if: 1. 2. the rate of interest within the maximum prescribed by law. Contract of Loan – where one of the parties delivers to another. there’s no duration in the contract 2. quantity and quality. payment of interest must be expressly stipulated. 2C. express or implied. Compound Interest – that which is imposed upon interest due and unpaid. (6% from computed from date of judgment) Lawful Interest – that which the law allows or does not prohibit. a. identical thing. Commodatum – when the lender (bailor) delivers to the borrower (bailee) a non-consumable thing or something consumable but intended to be non-consumable. The accrued interest is added to the principal sum and the whole (principal and accrued interest) is treated as a new principal upon which the interest for the next period is calculated. so that the borrower may use it for a certain time and return the 3. Kinds of interest: Simple Interest – that which is paid for the principal at a certain rate fixed or stipulated by the parties. the party who delivers the possession or custody of the thing bailed 2. either something not consumable so that he may use it for a certain time and return it (commodatum). Escalation Clause – contractual stipulation providing for adjustments (increase) in the interest rate agreed upon in the event there is a change in the legal rate of interest effected by law or the Monetary Board as authorized by law. A corresponding De-escalation clause (that the rate of interest agreed upon shall be reduced in the event the maximum interest is reduced by law or the Monetary Board) must exist. Additionally. Suretyship – a person (surety) binds himself solidarily with the principal debtor. To be valid: 1. goods or chattels.Sectrans with Notes and Cases. the thing delivered shall be returned with all its fruits & accessions Pactum Commisorium – a stipulation whereby the thing pledged or mortgaged or under antichresis shall automatically become the property of the creditor in the event of non-payment of debt w/in the term fixed Concurrence of Credits – implies the possession of two or more creditors of equal rights or privileges over the same property or all of the property of a debtor Preference of Credit – right held by a creditor to be preferred in the payment of his claim above others (to be paid first) out of the debtor’s assets. 2. sufficient property) . 3. Guaranty – where a person (guarantor) binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. with the obligation of safely keeping it and of returning the same Voluntary Deposit – One wherein delivery is made by the will of the depositor. the creditor acquires the right to receive the fruits of an immovable of his debtor. it may also be made by two or more persons.A deposit is constituted from the moment a person receives a thing belonging to another. Bond – undertaking that is sufficiently secured (and not cash or currency) Bondsman – surety offered in virtue of a provision of law or a judicial order. each Page | 54 1. 2.By a contract of CM. 4. Unlawful or usurious Interest – that which is paid or stipulated to be paid beyond the maximum fixed by law. It is a necessary consequence of a non-payment of a mortgage debt Antichresis – By a contract of antichresis. Such change should benefit both the creditor and the debtor. 2C. if owing. Usury – contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money. (statutory creation) Elements of Usury: A loan or forbearance An understanding between the parties that the loan shall or may be returned An unlawful intent to take more that the legal rate for the use of money or its equivalent The taking or agreeing to take the use of the loan of something in excess of what is allowed by law Pledge – a contract by w/c the debtor delivers to the creditor or to a 3 rd person a movable OR a document evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligation w/ the understanding that when the obligation is fulfilled. and thereafter to the principal of his credit Chattel Mortgage . Lerma. personal property is recorded in the CM Register as security for the performance of an obligation Deposit . Atty. has qualification of a guarantor (integrity. It must not be solely potestative on the part of the creditor. capacity. By Butch Ramiro 5. with the obligation to apply them to the payment of interest. It applies ONLY to claims which do not attach to specific properties Lien – creates a charge on a particular property Foreclosure – 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. By Butch Ramiro of whom believes himself entitled to the thing deposited with a third person. CONSIDERATION: JD: always onerous. When it takes place on the occasion of any calamity 3. PURPOSE: Judicial deposit’s purpose is to secure the right of a party to recover in case of a favorable judgment. HOW CONSTITUTED: Judicial is by will of the court.Sectrans with Notes and Cases. Voluntary: safekeeping 3. Voluntary: gratuitous/compensation Irregular Deposit . who shall deliver it in a proper case to the one to whom it belongs Necessary Deposit . When it is made in compliance with a legal obligation 2. voluntary: movable 4.The right of the mortgagor in case of extrajudicial foreclosure to redeem the mortgage property within a certain period (1 year) after it was sold for the satisfaction of the mortgage debt Equitable Right of Redemption .If the thing deposited is money/consumable and there is permission to use BUT safekeeping is STILL the primary purpose.A deposit is necessary if: 1.the right of the mortgagor in case of judicial foreclosure to redeem the mortgaged property AFTER his default but BEFORE the confirmation of the sale Page | 55 .It takes place when an attachment or seizure of property in litigation is ordered. Lerma. Bank deposits are in the nature of irregular deposits but they are REALLY loans governed by the law on loans (because they earn interest) Right of Redemption . Atty. Its main differences from voluntary deposit are: 1. 2C. Voluntary: by the will of the parties 2. SM: JD: immovable/movable. When it is made by travelers in hotels and inns Judicial Deposit . Atty. merchandise) Purpose Obligation Safekeeping Take care of the thing Do not use the thing deposited unless authorized or is required for its preservation Retained by the depositor Anytime Use or consumption Exchange (sale) Exchange a thing of the same kind.Sectrans with Notes and Cases. if no period or purpose has been agreed upon or if by mere tolerance only (precarium) If there is an urgent necessity Acts of ingratitude by the bailee Essentially gratuitous MUTUUM Fungible/ consumable (i. Sign the acknowledge ment Onerous Passes to bailee Only after the expiration of the period Passes to the other party (mutual exchange) Cannot demand return because contract is already extinguished Rescission only if grounds exist Compensation Gratuitous or onerous Gratuitous or onerous onerous Page | 56 . Lerma. quality and quantity Store for profit Take care of the goods Do not commingle with other goods Issue a receipt for the goods Retained by the depositor Anytime up to: a. money) Consumption Return a thing of the same kind and quality DEPOSIT Movable/personal property BARTER Non-consumable WAREHOUSE RECEIPTS ACT Goods (chattels. Offer to pay warehousema n’s lien c. Surrender of warehouse receipt b. By Butch Ramiro COMMODATUM Object Non-consumable Except: consumable if used for exhibition purposes only Temporary use of the thing Take care of the thing with due diligence Return the thing upon expiration of period or purpose Status of Ownership Ability to demand return Retained by bailor Anytime. 2C.e. Sectrans with Notes and Cases. Principle of pactum comissorium applies Except: In pledge. Lerma. Constituted to secure fulfillment of principal obligation 2. bills of lading. warehouse receipts ANTICHRESIS Immovables Requisites 1. after two sales and the thing remains unsold. and then to the principal Must be registered in the RD Delivery? Effect of default Generally not required Delivery essential only so that the antichretic creditor can enjoy the fruits Ownership does not pass to the creditor upon default. bonds. must also registered in the LTO Generally not required be Must be in a public instrument with a description of thing pledged and the date Delivery essential constitute pledge to 1. BUT allowed by deficiency in either EJ/J jurisprudence Except: No deficiency in sale on movables in installment (Recto Law) Foreclosure Deficiency Page | 57 . CM and Pledge is VALID as between the parties even if registration requirements are not complied with BUT is not binding to 3rd persons To bind persons 3rd Must be registered in the RD Must be registered in the CM Registry *If vehicle. shares of stock. Express agreement between debtorcreditor that the fruits will be applied to payment of interest if any. the pledgee can appropriate (in this case. 2C. Mortgagor/Pledgor has free disposal/legal authority *RM. Must be in writing 2. Mortgagor/Pledgor absolute owner 3. Atty. he has to waive his claim) Extrajudicial/Judicial Sale through a notary public Extrajudicial Extrajudicial/Judicial Private sale Creditor can sue for No express right granted by No deficiency Creditor can sue for deficiency in either EJ/J law. By Butch Ramiro REAL MORTGAGE Object Immovables Real Rights over immovables (leasehold rights) CHATTEL MORTGAGE Movables Except: can CM buildings by agreement and no innocent third party prejudiced PLEDGE Movables Incorporeal rights evidenced by negotiable instruments. Sectrans with Notes and Cases. 2C. Lerma. Atty. Ramiro 58 .