Security Transactions 2006

ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 1 of 61
LAW ON SECURITY TRANSACTIONS CREDIT TRANSACTIONS include all tran acti!n in"!l"in# $urc%a e !r l!an !& #!!d ' er"ice ' !r (!ne) in t%e $re ent *it% a $r!(i e t! $a) !r deli"er in t%e &uture +c!ntract !& ecurit), 2 TYPES OF CREDIT TRANSACTIONS: -. ecured tran acti!n / t%! e u$$!rted 0) a ecurit) !r c!llateral 2. un ecured tran acti!n / t%! e u$$!rted !nl) 0) $r!(i e t! $a) SECURITY i !(et%in# #i"en' de$! ited er"in# a (ean t! en ure t%e &ul&ill(ent !r en&!rce(ent !& an !0li#ati!n !r !& $r!tectin# !(e intere t in t%e $r!$ert) BAIL ENT i t%e deli"er) !& $r!$ert) !& !ne $er !n t! an!t%er in tru t &!r a $eci&ic $ur$! e' *it% a c!ntract' e1$re !r i($lied' t%at t%e tru t %all 0e &ait%&ull) e1ecuted and t%e $r!$ert) returned !r dul) acc!unted &!r *%en a $ecial $ur$! e i acc!($li %ed !r 2e$t until t%e 0ail!r reclai( it. PARTIES IN BAIL ENT -. 0ail!r / t%e #i"er' t%e $art) *%! deli"er $! e i!n3cu t!d) !& t%e t%in# 0ailed 2. 0ailee. / t%e reci$ient' t%e $art) *%! recei"e t%e $! e i!n3cu t!d) !& t%e t%in# deli"ered !INDS OF CONTRACTUAL BAIL ENT W" REFERENCE TO CO PENSATION -. &!r t%e !le 0ene&it !& t%e 0ail!r +#ratuit!u , e.#. #ratuit!u de$! it' (andatu(' +d! !(e act *3 re $ect t! a t%in#,
2. &!r t%e !le 0ene&it !& t%e 0ailee +#ratuit!u , e.#. c!((!datu(' #ratuit!u i($le l!an !r (utuu( 4. &!r t%e 0ene&it !& 0!t% $artie e.#. de$! it &!r c!($en ati!n' in"!luntar) de$! it' $led#e and bailments for hire5 a. %ire !& t%in# / te($!rar) u e 0. %ire !& er"ice / &!r *!r2 !r la0!r c. %ire !& carria#e !& #!!d / &!r carria#e d. %ire !& cu t!d) / &!r t!ra#e LOAN C#ARACTERISTICS -. real / deli"er) i e ential &!r $er&ecti!n !& t%e l!an +BUT a $r!(i e t! lend' 0ein# c!n en ual' i 0indin# u$!n t%e $artie 0ut it i !nl) a&ter deli"er) t%at t%e real c!ntract !& l!an ari e 2. unilateral / !nl) t%e 0!rr!*er %a !0li#ati!n !INDS -. c!((!datu( / *%ere t%e 0ail!r deli"er t! t%e 0ailee a n!n- c!n u(a0le t%in# ! t%at t%e latter (a) u e it &!r acertain ti(e and return t%e identical t%in# it may either be: a. !rdinar) c!((!datu(' !r 0. $recariu( +*%ere0) t%e 0ail!r (a) de(and t%e t%in# l!aned at *ill, in ca e *%ere5 i. neit%er t%e durati!n !& t%e c!ntract n!r t%e u e t! *%ic% t%e t%in# l!aned %!uld 0e de"!ted %a 0een ti$ulated ii. i& t%e u e !& t%e t%in# i (erel) t!lerated 0) t%e !*ner
Adviser: Dean Cynthia Roxas-Del Castiillo; Heads: Celeste Marie R Cr!" and Christine # $rinidad; %nderst!dies: Myra Mangente and &leanor %mali
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ' of 61
2. (utuu( !r i($le l!an5 *%ere t%e lender deli"er t! t%e 0!rr!*er (!ne) !r !t%er c!n u(a0le t%in# +*%en it i c!n u(ed in a (anner a$$r!$riate t! it $ur$! e, u$!n t%e c!nditi!n t%at t%e latter *ill $a) t%e a(e a(!unt !& t%e a(e 2ind and 6ualit) LOAN $% &e'i(ery )y one *arty an& t+e recei*t )y t+e ot+er *arty o, a -i(en su. o, .oney or ot+er consu.a)'e t+inu*on an a-ree.ent/ e0*ress or i.*'ie& 2% to re*ay t+e sa.e a.ount o, t+e sa.e 1in& an& 2ua'ity/ 3" or 3"o interest LOAN Intere t i u uall) ta2en at t%e e1$irati!n !& a credit Al*a) !n in#le-na(e $a$er CRE7IT T%e a0ilit) !& an indi"idual t! 0!rr!* (!ne) !r t%in# 0) "irtue !& t%e c!n&idence !r tru t re$! ed 0) a lender t%at %e *ill $a) *%at %e (a) $r!(i e *3in a $eci&ied $eri!d
CO ODATU Ordinaril) c!n u(a0le
DISCOUNTIN4 PAPER Intere t i deducted ad"ance 7!u0le na(e $a$er
in
UTUU 5SI PLE LOAN6 M!ne) !r !t%er c!n u(a0le t%in# O*ner %i$ i retained 0) O*ner %i$ i tran &erred t! t%e lender t%e 0!rr!*er E entiall) #ratuit!u 8ratuit!u !r !ner!u +*3 ti$ulati!n t! $a) intere t, B!rr!*er (u t return t%e B!rr!*er need !nl) $a) t%e a(e t%in# l!aned a(e a(!unt !& t%e a(e 2ind and 6ualit) Ma) in"!l"e real !r $er !nal Onl) $er !nal $r!$ert) $r!$ert) L!an &!r u e !r te($!rar) L!an &!r c!n u($ti!n $! e i!n Bail!r (a) de(and t%e Lender (a) n!t de(and it return !& t%e t%in# l!aned return 0e&!re t%e la$ e !& 0e&!re t%e e1$irati!n !& t%e t%e ter( a#reed u$!n ter( in ca e !& ur#ent need L! !& t%e u09ect (atter i B!rr!*er u&&er t%e l! u&&ered 0) t%e 0ail!r ince e"en i& cau ed e1clu i"el) %e i t%e !*ner 0) a &!rtuit!u e"ent and %e i n!t t%ere&!re di c%ar#ed &r!( %i dut) t! $a) Purel) $er !nal N!t $urel) $er !nal NATURE OF CO ODATU -. e entiall) #ratuit!u +!t%er*i e' i& t%ere I c!($en ati!n' it (i#%t 0e lea e, 2. te($!rar) u e !& t%e t%in# l!aned :&!r a certain ti(e; +!t%er*i e' i& t%e 0ailee i n!t entitled t! t%e u e !& t%e t%in#' it (i#%t 0e de$! it, 4. u09ect (atter5
M!re e1$en i"e &!r t%e 0!rr!*er 0ecau e intere t i calculated !n t%e a(!unt l!aned and n!t t%e a(!unt actuall) recei"ed
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ( of 61
n!n-c!n u(a0le #!!d / i& t%e $ur$! e !& t%e c!ntract i n!t t%e c!n u($ti!n !& t%e !09ect' a *%en (erel) &!r e1%i0iti!n 0. (!"a0le !r i((!"a0le <. 0ail!r need n!t 0e t%e !*ner +it i u&&icient t%at %e %a a $! e !r) intere t =. $urel) $er !nal a. deat% !& eit%er $art) ter(inate t%e c!ntract UNLESS t%ere i ti$ulati!n t! t%e c!ntrar) 0. #enerall)' 0ailee can neit%er lend n!r lea e t%e !09ect t! a 4rd $er !n in t%e a0 ence !& !(e a#ree(ent t! t%at e&&ect c. u e !& t%e t%in# l!aned (a) e1tend t! t%e 0ailee> %!u e%!ld +*%! are n!t c!n idered 4rd $er !n , e1ce$t5 -. *%en t%ere i a c!ntrar) ti$ulati!n 2. nature !& t%e t%in# &!r0id uc% u e 6. en9!)(ent !& &ruit / a ti$ulati!n t! (a2e u e !& &ruit i "alid' 0ut it i ne"er $re u(ed. PROVI7E7' it (u t !nl) 0e incidental t! t%e u e !& t%e t%in# it el&' &!r i& it i t%e (ain cau e' t%e c!ntract (a) 0e !ne !& u u&ruct. O)'i-ations o, t+e Bai'ee -. Bailee i !0li#ed t! $a) &!r t%e OR7INAR? e1$en e &!r t%e u e and $re er"ati!n !& t%e t%in# l!aned +Art. -@<-, 2. Bailee i !0li#ed t! $a) &!r all !t%er e1$en e !t%er t%an t%! e re&erred t! in Art. -@<- and
a.
-@<@ +re&und !& e1tra!rdinar) e1$en e eit%er in &ull !r in %al&, +Art. -@=0, REASON5 Bailee (a2e u e !& t%e t%in#. E1$en e &!r ! tentati!n are t! 0!rne 0) t%e 0ailee 0ecau e t%e) are n!t nece ar) &!r t%e $re er"ati!n !& t%e t%in# 4. Bailee (u t ta2e #!!d care !& t%e t%in# *it% t%e dili#ence !& a #!!d &at%er !& a &a(il) +Art. --64, <. Lia0ilit) !& 0ailee in ca e !& l! ' e"en i& due t! a &!rtuit!u e"ent )R: t%e 0ailee i n!t lia0le &!r l! !r da(a#e due t! a &!rtuit!u e"ent +Art. --A<, Rea !n5 t%e 0ail!r retain t%e !*ner %i$ !& t%e t%in# l!aned &x*eptions: +Art. -@<2 / $uni % t%e 0ailee &!r %i i($r!$er act alt%!u#% t%e) (a) n!t 0e t%e $r!1i(ate cau e !& t%e l! , a. Bad &ait% / i& t%e 0ailee de"!te t%e t%in# t! an) $ur$! e di&&erent &r!( t%at &!r *%ic% it %a 0een l!aned 0. 7ela) - %e 2ee$ it l!n#er t%an t%e $eri!d ti$ulated !r a&ter t%e acc!($li %(ent !& t%e u e &!r *%ic% t%e c!((!datu( %a 0een c!n tituted c. Ba 0een deli"ered *it% a$$rai al -t%e t%in# l!aned %a 0een deli"ered *it% a$$rai al !& it "alue' UNLESS t%ere i a ti$ulati!n e1e($tin# t%e 0ailee &r!( re $!n i0ilit) in ca e !& a &!rtuit!u e"ent d. Lend t%e u09ect (atter t! a 4rd $er !n - %e lend !r lea e t%e
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page + of 61
t%in# t! a t%ird $er !n *%! i n!t a (e(0er !& %i %!u e%!ld e. In#ratitude - 0ein# a0le t! a"e t%e t%in# 0!rr!*ed !r %i !*n t%in#' %e c%! e t! a"e t%e latter =. T%e 0ailee %a NO RI8BT t! retain t%e t%in# l!aned a ecurit) &!r clai( %e %a a#ain t t%e 0ail!r' e"en t%!u#% t%e) (a) 0e 0) rea !n !& e1tra!rdinar) e1$en e +Art. -@<<, Rea !n 5 a. O*ner %i$ re(ain in 0ail!r / t%e 0ailee ac6uire !nl) t%e u e !& t%in#' t%e !*ner %i$ !& *%ic% re(ain *3 t%e 0ail!r 0. Onl) te($!rar) u e #i"en t! 0ailee / t%e 0ailee *!uld 0e "i!latin# t%e 0ail!r> tru t in %i( t! return t%e t%in# a !!n a t%e $eri!d ti$ulated e1$ire !r t%e $ur$! e %a 0een acc!($li %ed E1ce$ti!n5 Clai( &!r da(a#e u&&ered 0ecau e t%e 0ail!r d!e n>t ad"i e 0ailee !& t%e &la* 2n!*n t! %i( +Art. -@=-, 6. A 0ailee d!e n>t an *er &!r t%e deteri!rati!n !& t%e t%in# l!aned due !nl) t! t%e u e t%ere!& and *it%!ut %i &ault A. Lia0ilit) *%en t%ere are 2 !r (!re 0ailee 5 T%e $re u($ti!n i t%at t%e) are !lidaril) lia0le +Art. -@<=, Rea !n &!r t%e $re u($ti!n5 t! a&e#uard e&&ecti"el) t%e ri#%t !& t%e 0ail!r. T%e la* $re u(e t%at t%e 0ail!r ta2e int! acc!unt t%e $er !nal inte#rit) and re $!n i0ilit) !& all t%e 0ailee and t%at' t%ere&!re' %e *!uld n!t %a"e
c!n tituted t%e c!((!datu( i& t%ere *ere !nl) !ne 0ailee O)'i-ations o, t+e Bai'or -. Pri(ar) !0li#ati!n !& t%e 0ail!r5 8R5 T! all!* t%e 0ailee t%e u e !& t%e t%in# l!aned &!r t%e durati!n !& t%e $eri!d ti$ulated !r until t%e acc!($li %(ent !& t%e $ur$! e &!r *3c t%e c!((!datu( *a c!n tituted E1ce$ti!n 5 t%e 0ail!r (a) de(and t%e return !r it te($!rar) u e u$!n5 a. 0ail!r %a an ur#ent need &!r t%e t%in# +Art. -@<6, / t%e c!ntract i u $ended Rea !n5 t%e ri#%t !& t%e 0ail!r i 0a ed !n t%e &act t%at c!((!datu( i e entiall) #ratuit!u 0. 0ailee c!((it an act !& in#ratitude +Art. -@<C, i& t%e 0ailee %!uld c!((it an !&&en e a#ain t t%e $er !n' t%e %!n!r !r t%e $r!$ert) !& t%e 0ail!r' !r !& t%e *i&e !r c%ildren under %i $arental aut%!rit) i& t%e 0ailee i($ute t! t%e 0ail!r an) cri(inal !&&en e' !r an) act in"!l"in# (!ral tur$itude' e"en t%!u#% %e %!uld $r!"e it' unle t%e cri(e !r t%e act %a 0een c!((itted a#ain t t%e 0ailee %i( el&' %i *i&e' !r c%ildren under %i aut%!rit)D and i& t%e 0ailee undul) re&u e t%e 0ail!r u$$!rt *%en t%e 0ailee i le#all) !r (!rall) 0!und t! #i"e u$$!rt t! t%e 0ail!r Rea !n5 t%e $er !n *%! c!((it an) !& t%e act !& in#ratitude (a2e %i( el& un*!rt%) !& t%e tru t re$! ed u$!n %i( 0) t%e 0ail!r.
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page , of 61
2. T%e 0ail!r (a) de(and t%e t%in# at *ill *%en t%e c!ntract i $recariu( PRECARIUM / a 2ind !& c!((!datu( *%ere t%e 0ail!r (a) de(and t%e t%in# at *ill. It %a 0een de&ined a a c!ntract 0) *%ic% t%e !*ner !& a t%in#' at t%e re6ue t !& an!t%er $er !n' #i"e t%e latter t%e t%in# &!r u e a l!n# a t%e !*ner %all $lea e 4. t%e 0ail!r -@<@, %all re&und t%e e1tra!rdinar) e1$en e +Art.
8R !n rei(0ur e(ent5 N!tice %!uld 0e #i"en 0) t%e 0ailee t! t%e 0ail!r re#ardin# uc% e1tra!rdinar) e1$en e Rea !n &!r t%e rule5 n!tice i re6uired 0ecau e it i $! i0le t%at t%e 0ail!r (a) n!t *ant t! incur t%e e1tra!rdinar) e1$en e at all. E1ce$ti!n5 *%ere t%e e1tra!rdinar) e1$en e are ! ur#ent t%at t%e re$l) t! t%e n!ti&icati!n cann!t 0e a*aited *3! dan#er. <. i& t%e e1tra!rdinar) e1$en e ari e &r!( t%e actual u e !& t%e 0ailee' e"en t%!u#% %e acted *3! &ault' t%e) 0e 0r!ne e6uall) 0) 0!t% t%e 0ail!r and t%e 0ailee +=0-=0, +Art. -@<@' 2nd $ar., Rea !n 5 a. t%e 0ailee $a) E 0ecau e !& t%e 0ene&it deri"ed &r!( t%e u e !& t%e t%in# l!aned t! %i(D 0. t%e 0ail!r $a) t%e !t%er E 0ecau e %e i t%e !*ner and t%e t%in# *ill 0e returned t! %i( &x*eption: Sti$ulati!n t! t%e c!ntrar) t%at $r!"ide &!r a di&&erent a$$!rti!n(ent !& uc% e1$en e !r t%at t%e) %all 0e 0!rne 0) t%e 0ailee !r 0ail!r al!ne
=. all !t%er e1$en e *%ic% are n!t nece ar) &!r t%e u e and $re er"ati!n !& t%e t%in# (u t 0e %!uldered 0) t%e 0!rr!*er 6. t%e de$reciati!n cau ed 0) t%e rea !na0le and natural u e !& t%e t%in# i 0!rne 0) t%e 0ail!r +Art. -@<4, Reason: T%e $artie t! t%e c!ntract 2n!* t%at t%e t%in# 0!rr!*ed cann!t 0e u ed *it%!ut deteri!rati!n due t! !rdinar) *ear and tear. &x*eptions: a. *%en t%ere i a ti$ulati!n t! t%e c!ntrar)D 0. *%en t%e 0ailee i #uilt) !& &ault !r ne#li#enceD c. i& %e de"!te t%e t%in# t! an) $ur$! e di&&erent &r!( t%at &!r *%ic% %a 0een l!aned 7. T%e 0ail!r i lia0le t! $a) da(a#e &!r 2n!*n %idden &la* +Art. -@=-, Re2uisites: +t%e &!ll!*in# (u t c!ncur, -. t%ere i a &la* !r de&ect in t%e t%in# l!aned 2. t%e &la* !r de&ect i %idden 4. t%e 0ail!r i a*are t%ere!& <. %e d!e n!t ad"i e t%e 0ailee !& t%e a(e =. t%e 0ailee u&&er da(a#e 0) rea !n !& t%e &la* !r de&ect Exception: *%en t%e de&ect i n!t 2n!*n t! t%e 0ail!r' %e i n!t lia0le 0ecau e c!((!datu( i #ratuit!u . 8% T%e 0ail!r %a n! ri#%t !& a0and!n(ent &!r e1$en e and da(a#e +Art. -@=2, Reason: T%e e1$en e and3!r da(a#e (a) e1ceed t%e "alue !& t%e t%in# l!aned SIMPLE LOAN OR MUTUUM / c!ntract *%ere0) !ne !& t%e $artie deli"er t! an!t%er (!ne) !r !t%er &un#i0le t%in# *3 t%e under tandin# t%at t%e a(e a(!unt !& t%e a(e 2ind and 6ualit) %all 0e $aid. +Art. -@44,
SI PLE LOAN Si#ni&ie t%e deli"er) !& (!ne) !r !(e !t%er c!n u(a0le t%in# t! an!t%er *3 a $r!(i e t! re$a) an e6ui"alent a(!unt !& t%e a(e 2ind and 6ualit) N!t a $r!(i e t! return t%e a(e t%in# l!aned *%ic% 0ec!(e $r!$ert) !& !0li#!r
CONTRACT OF RENT"LEASE One $art) deli"er t! an!t%er !(e n!nc!n u(a0le t%in# in !rder t%at t%e latter (a) u e it durin# a certain $eri!d and return it t! t%e &!r(er T%e !*ner !& t%e le ee !r t%e le !r !& t%e $r!$ert) d!e n!t l! e %i !*ner %i$. Be i($l) l! e c!ntr!l !"er t%e $r!$ert) rented durin# t%e $eri!d !& t%e c!ntract T%e relati!n 0et*een T%e relati!n i 0et*een $artie i t%at !& !0li#!r and landl!rd and tenant !0li#ee T%e credit!r recei"e T%e !*ner !& t%e $r!$ert) $a)(ent &!r %i l!an recei"e :c!($en ati!n; !r :$rice; eit%er in (!ne)' $r!"i i!n ' c%attel ' !r la0!r &r!( t%e !ccu$ant t%ere!& in return &!r it u e Ba i !& c!($ari !n Su09ect (atter MUTUUM COMMO7ATUM BARTER N!n&un#i0le !r n!nc!n u(a0le t%in# T%e
!& 0ailee
deli"er t%e a(e 2ind !r 6ualit) l!aned t! t%e 0ailee
identical t%in# 0!rr!*ed *%en t%e ti(e %a e1$ired !r t%e $ur$! e %a 0een er"ed
Nature !& c!ntract
Ma) 0e Al*a) #ratuit!u #ratuit!u
e6ui"alent t%in# i #i"en in return &!r *%at %a 0een recei"ed Oner!u
Nature !& Mutuu( a. 0ilateral- 0!rr!*er> $r!(i e t! $a) i t%e c!n iderati!n &!r t%e lender> !0li#ati!n t! &urni % t%e l!an 0. n! cri(inal lia0ilit) u$!n &ailure t! $a) Su09ect Matter a. &un#i0le !r c!n u(a0le-de$endin# !n t%e intent !& t%e $artie ' t%at t%e return !& t%e t%in# i e6ui"alent !nl) and n!t t%e identical t%in# 0. (!ne) c. i& t%e tran &er !& !*ner %i$ i !n a n!n-&un#i0le t%in#' *it% t%e !0li#ati!n !& t%e !t%er t! #i"e t%in# !& t%e a(e 2ind' 6uantit) and 6ualit)' it i a 0arter Interest 4R: Intere t (u t 0e e1$re l) ti$ulated in *ritin#' and it (u t 0e la*&ul +Art. -@=6, &-C&.$/01#: -. Inde(nit) &!r da(a#e / t%e de0t!r in dela) i lia0le t! $a) le#al intere t +6F3-2F, a inde(nit) &!r da(a#e e"en in t%e a0 ence !& a ti$ulati!n &!r t%e $a)(ent !& intere t. Intere t a inde(nit) &!r da(a#e i $a)a0le !nl) in ca e !& de&ault !r n!n-$er&!r(ance !& c!ntract.
O0li#ati!n
M!ne) !r Per !nal !r real an) !t%er $r!$ert) &un#i0le t%in# 3 $er !nal $r!$ert) Pa) !r Return t%e
Basis ,or co.*utation ,or in&e.nity: a% Centra' Ban1 Circu'ar 9$: ; $2< *%a% in cases o,: L!an G!r0earance !& (!ne)' #!!d !r credit Hud#(ent in"!l"in# uc% l!an !r &!r0earance' in t%e a0 ence !& t%e e1$re a#ree(ent a t! uc% rate !& intere t 7urin# t%e interi( $eri!d &r!( t%e date 9ud#(ent until actual $a)(ent )% Art% 22=> o, t+e Ci(i' Co&e ; :< *%a% in cases o,: Ot%er !urce +e.#. ale, 7a(a#e ari in# &r!( in9ur) t! $er !n L! !& $r!$ert) *%ic% d!e n!t in"!l"e a l!an 2. Intere t accruin# &r!( un$aid intere t - intere t due %all earn intere t &r!( t%e ti(e it i 9udiciall) de(anded alt%!u#% t%e !0li#ati!n (a) 0e ilent u$!n t%i $!int. Deter.ination o, interest *aya)'e in 1in&: It "alue %all 0e a$$rai ed at t%e current $rice !& t%e $r!duct !r #!!d at t%e ti(e and $lace !& $a)(ent. +Art. -@=C, Pur*ose: t! (a2e u ur) %arder t! $er$etrate Co.*oun&in- Interest 5Art% $>?>6 4R: accrued intere t +intere t due and un$aid, %all n!t earn intere t Exceptions: W%en 9udiciall) de(anded W%en t%ere i an e1$re ti$ulati!n (ade 0) t%e $artie t! *it5 t%at t%e intere t due and un$aid %all 0e added t! t%e $rinci$al !0li#ati!n and t%e re ultin# t!tal a(!unt %all earn intere t
C!($!undin# intere t (a) 0e a"ailed !& !nl) *%en t%ere i a *ritten ti$ulati!n in t%e c!ntract &!r t%e $a)(ent !& intere t.
BARTER
De,inition A c!ntract *%ere0) !ne $er !n tran &er t%e !*ner %i$ !& n!n-&un#i0le t%in# t! an!t%er *it% t%e !0li#ati!n !n t%e $art !& t%e latter t! #i"e t%in# !& t%e a(e 2ind' 6uantit) and 6ualit). DEPOSIT De,inition o, DEPOSIT A de$! it i c!n tituted &r!( t%e (!(ent a $er !n recei"e a t%in# 0el!n# t! an!t%er' *it% t%e !0li#ati!n !& a&el) 2ee$in# it and !& returnin# t%e a(e. I& t%e a&e2ee$in# !& t%e t%in# deli"ered i not t+e *rinci*a' *ur*ose !& t%e c!ntract' t%ere i n! de$! it 0ut !(e !t%er c!ntract. NOTE: it i e ential t%at t%e de$! it!r) i n!t t%e !*ner !& t%e t%in# de$! ited C+aracteristics -. real - 0ecau e it i $er&ected !nl) 0) t%e deli"er) !& t%e u09ect (atter BUT an a#ree(ent t! c!n titute a de$! it i 0indin# and en&!rcea0le' ince it i (erel) c!n en ual 2. unilateral - i& #ratuit!u 4. 0ilateral - i& *it% c!($en ati!n Basis o, De*osit utuu. Co..o&atu. co.*ari son Princi*a' Sa&e2ee$in# C!n u($ti!n Tran &er !& t%e
!r !& t%e (ere u09ect cu t! (atter d) De.an&a)i'ity 7e(and Lender (u t return *ait !& t%e until t%in# e1$irati at *ill !n !& $eri!d #rante d t! de0t!r Pur*ose O)@ect
u e
contract
-ratuitous
-ratuitous
an& a'3ays -ratuitous
Ma) de(and return at *ill +PRECARIUM, !r !nl) a&ter t%e e1$irati!n !& t%e $eri!d !r acc!($li %(ent !& t%e u e !& t%e t%in# u09ect t! e1ce$ti!n B!t% Onl) (!ne) B!t% (!"a0le (!"a and and i((!"a0le 0le an) (a) 0e t%e and !t%er !09ect i((!" &un#i0l a0le e t%in# (a) (a) 0e t%e 0e t%e !09ect !09ect
Creation o, &e*osit 5Art% $>:96 -. B) "irtue !& a c!urt !rderD !r 2. B) la* 4. N!t 0) t%e *ill !& t%e $artie <. It i e ential t%at t%e de$! itar) i n!t t%e !*ner !& t%e $r!$ert) de$! ited +Art. -@62, !in&s o, De*osit -. 9udicial - *%en an attac%(ent !r eiIure !& $r!$ert) in liti#ati!n i !rdered 2. e1tra9udicial +Art. -@6A, a. "!luntar)- deli"er) i (ade 0) t%e *ill !& t%e de$! it!r !r 0) t*! !r (!re $er !n eac% !& *%!( 0elie"e %i( el& entitled t! t%e t%in# de$! itedD 0. nece ar)- (ade in c!($liance *it% a le#al !0li#ati!n' !r !n t%e !cca i!n !& an) cala(it)' !r 0) tra"eler in %!tel and inn !r 0) tra"eler *it% c!((!n carrier creati!n $ur$! e Hudicial Will !& t%e c!urt E1tra9udicial Will !& t%e c!ntractin# $artie Securit) !r en ure Cu t!d) and t%e ri#%t !& a $art) t! a&e2ee$in# $r!$ert) !r t! rec!"er in ca e !& &a"!ra0le 9ud#(ent 8enerall) i((!"a0le 3
Nature
But in e1tra9udicial de$! it' !nl) a (!"a0le +c!r$!real, t%in# (a) 0e t%e !09ect o, ay )e
ay
)e Essentia''y
Su09ect (atter
0(!"a0le !nl)ut al ! (!"a0le cau e Al*a) !ner!u Ma)0e c!($en ated 0ut #enerall) #ratuiti!u Return !& U$!n !rder !& t%e U$!n de(and !& t%in# c!urt3 end !& liti#ati!n de$! it!r In *%! e Per !n *%! %a a 7e$! it!r !r 34rd 0e%al& %eld ri#%t $er !n de i#nated De*osit is -enera''y -ratuitous: +Art. -@6=, 4R: A de$! it i #enerall) #ratuit!u . EXCEPTIONS: a. *%en t%ere i a c!ntrar) ti$ulati!n 0. *%ere de$! itar) i en#a#ed in t%e 0u ine !& t!rin# #!!d c. *%ere $r!$ert) i a"ed *it%!ut 2n!*led#e !& t%e !*ner Su)@ect atter o, De*osit 5Art% $>::6 4R: !nl) (!"a0le !r $er !nal $r!$ert) (a) 0e t%e !09ect !& de$! it' *%et%er "!luntar) !r nece ar). E0ce*tion: In 9udicial de$! it' it (a) c!"er 0!t% (!"a0le and i((!"a0le $r!$ert).
0, Inter$leader / t%e acti!n t! c!($el t%e de$! it!r t! ettle t%eir c!n&lictin# clai( . Bere !ne !& t%e de$! it!r i n!t t%e !*ner. For. o, contract o, &e*osit: 4R: A c!ntract !& de$! it (a) 0e entered int! !rall) !r in *ritin#. 5Art% $>:>6 Exception: 7eli"er) !& t%e t%in# de$! ited. +It i a real c!ntract' %ence' deli"er) i re6uired &!r $er&ecti!n., De*ositary A ca*acitate& De*ositor A inca*acitate& 7e$! itar) i u09ect t! ALL t%e !0li#ati!n !& a de$! itar) 7e$! itar) (u t return t%e $r!$ert) eit%er t!5 a, t%e le#al re$re entati"e !& t%e inca$acitated' OR 0, t%e de$! it!r %i( el& i& %e %!uld ac6uire ca$acit) De*ositary A inca*acitate& De*ositor A ca*acitate& 7e$! itar) d!e n!t incur t%e !0li#ati!n !& a de$! itar) 7e$! itar)' %!*e"er i lia0le t!5 a, return t%e t%in# de$! ited *%ile till in %i $! e i!nD AN7 0, $a) t%e de$! it!r t%e a(!unt 0) *%ic% %e (a) %a"e 0ene&ited %i( el& *it% t%e t%in# !r it $rice u09ect t! t%e ri#%t !& an) 4rd $er !n *%! ac6uire t%e t%in# in #!!d &ait% Mutuu(
De*ositor nee& not )e t+e o3ner o, t+e t+in-: 4R: T%e de$! it!r (u t 0e t%e !*ner !& t%e t%in# de$! ited. Exceptions: It (a) 0el!n# t! an!t%er $er !n t%an t%e de$! it!r. a, *%en t*! !r (!re $er !n clai(in# t! 0e entitled t! a t%in# (a) de$! it t%e a(e *it% a t%ird $er !n. In uc% ca e' t%e t%ird $er !n a u(e t%e !0li#ati!n t! deli"er t! t%e !ne t! *%!( it 0el!n# .
Ba i !& C!($ari !n 7e(anda0ilit)
Irre#ular de$! it
7e(anda0le at *ill !& Lender i 0!und 0) t%e irre#ular t%e $r!"i i!n !& t%e de$! it!r &!r *%! e c!ntract and cann!t 0ene&it t%e de$! it ee2 re tituti!n until
t%e ti(e !& $a)(ent a $r!"ided in t%e c!ntract %a ari en Bene&it Bene&it accrue t! Nece it) !& t%e t%e de$! it!r 0!rr!*er Pre&erence !& 7e$! it!r %a En9!) n! $re&erence credit $re&erence !"er !t%er in t%e di tri0uti!n !& credit!r *it% re $ect t%e de0t!r> t! t%e t%in# de$! ited $r!$ert). O)'i-ations o, t+e De*ositary $% T3o *ri.ary o)'i-ations 5Art% $>726 a, a&e2ee$in# !& t%e !09ectD 0, Return !& t%e t%in# *%en re6uired / e"en t%!u#% a $eci&ied ter( !r ti(e &!r uc% (a) %a"e 0een ti$ulated in t%e c!ntract. De-ree o, Care / a(e dili#ence a %e *!uld e1erci e !"er %i $r!$ert). Reasons: a, E ential re6ui ite !& 9udicial relati!n *%ic% in"!l"e t%e de$! it!r> c!n&idence in %i #!!d &ait% and tru t *!rt%ine D 0, T%e $re u($ti!n t%at t%e de$! it!r t!!2 int! acc!unt t%e dili#ence *%ic% t%e de$! itar) i accu t!(ed *it% re $ect t! %i !*n $r!$ert). T%e de$! itar) cann!t e1cu e %i( el& &r!( lia0ilit) in t%e e"ent !& l! 0) clai(in# t%at %e e1erci ed t%e a(e a(!unt !& care t!*ard t%e t%in# de$! ited a %e *!uld t!*ard %i !*n i& uc% care i le t%an t%at re6uired 0) t%e circu( tance . 2% O)'i-ation not to trans,er &e*osit 5Art% $>7B6 4enera' ru'e: t%e de$! itar) i n!t all!*ed t! de$! it t%e t%in# *it% a t%ird $er !n.
%a 0een c!n tituted
Reason: A de$! it i &!unded !n tru t and c!n&idence and it can 0e u$$! ed t%at t%e de$! it!r' in c%!! in# t%e de$! itar)' %a ta2en int! c!n iderati!n t%e latter> 6uali&icati!n. Exception: T%e de$! itar) i aut%!riIed 0) e1$re ti$ulati!n. Lia)i'ities: 7e$! itar) i lia0le &!r l! !& t%e t%in# de$! ited *%en5 a. Be tran &er t%e de$! it *it% a t%ird $er !n *it%!ut aut%!rit) alt%!u#% t%ere i n! ne#li#ence !n %i $art and t%e t%ird $er !nD 0. Be de$! it t%e t%in# *it% a t%ird $er !n *%! i (ani&e tl) carele !r un&it alt%!u#% aut%!riIed' e"en in t%e a0 ence !& ne#li#enceD !r c. T%e t%in# i l! t t%r!u#% t%e ne#li#ence !& %i e($l!)ee *%et%er t%e latter are (ani&e tl) carele !r n!t. E0e.*tion ,ro. 'ia)i'ity: T%e t%in# i l! t *it%!ut t%e ne#li#ence !& t%e t%ird $er !n *it% *%!( %e *a all!*ed t! de$! it t%e t%in# i& uc% t%ird $er !n i n!t :(ani&e tl) carele !r un&it.; B% O)'i-ation not to c+an-e t+e 3ay o, &e*osit 5Art% $>796 4enera' ru'e: 7e$! itar) (a) n!t c%an#e t%e *a) !& t%e de$! it Exception: I& t%ere are circu( tance indicatin# t%at t%e de$! it!r *!uld c!n ent t! t%e c%an#e. T%i i a ituati!n *%erein t%e de$! itar) *!uld rea !na0l) $re u(e t%at t%e de$! it!r *!uld a#ree t! t%e c%an#e i& %e 2n!* !& t%e &act !& t%e ituati!n. Re2uisites: a, T%e de$! itar) (u t n!ti&) t%e de$! it!r !& uc% c%an#e and
0, Mu t *ait &!r t%e re$l) !& t%e de$! it!r t! uc% c%an#e. Exception: I& t%e dela) !& t%e re$l) *!uld cau e dan#er. 9% O)'i-ation to co''ect on t+e c+oses in action &e*osite& 5Art% $>7?6 I& t%e t%in# de$! ited %!uld earn intere t' t%e de$! itar) i under t%e !0li#ati!n t!5 a, C!llect t%e intere t a it 0ec!(e dueD 0, Ta2e uc% te$ a (a) 0e nece ar) t! $re er"e it "alue and t%e ri#%t c!rre $!ndin# t! it. T%e de$! itar) i 0!und t! c!llect t%e ca$ital' a *ell a t%e intere t' *%en due. Contract o, rent o, sa,ety &e*osit )o0es 5Art% $>7?6 A c!ntract &!r t%e rent !& a&et) de$! it 0!1e i n!t an !rdinar) c!ntract !& lea e !& t%in# ' 0ut a $ecial 2ind !& de$! itD %ence' it i n!t t! 0e trictl) #!"erned 0) t%e $r!"i i!n !n de$! it. T%e $re"ailin# rule in t%e US i t%at t%e relati!n 0et*een a 0an2 rentin# !ut a&et) de$! it 0!1e and it cu t!(er *it% re $ect t! t%e c!ntent !& t%e 0!1 i t%at !& 0ail!r and 0ailee. ?% OBLI4ATION NOT TO CO IN4LE T#IN4S IF STIPULATED 5Art% $>7:6 4enera' ru'e: T%e de$! itar) i $er(itted t! c!((in#le #rain !r !t%er article !& t%e a(e 2ind and 6ualit). E,,ects: a, T%e "ari!u de$! it!r !& t%e (in#led #!!d %all !*n t%e entire (a in c!((!n. 0, Eac% de$! it!r %all 0e entitled t! uc% $!rti!n !& t%e entire a t%e a(!unt de$! ited 0) %i( 0ear t%e *%!le. Exception: W%en t%ere i a ti$ulati!n t! t%e c!ntrar).
:% OBLI4ATION NOT TO A!E USE OF T#E T#IN4 DEPOSITED 5Art% $>776 a. 4enera' ru'e: 7e$! it i &!r a&e2ee$in# !& t%e u09ect (atter and n!t &!r it u e. E0ce*tions: a, E1$re l) aut%!riIed 0) t%e de$! it!rD 0, Suc% u e i nece ar) &!r it $re er"ati!n 0ut li(ited &!r t%e $ur$! e !nl). E,,ect o, unaut+oriCe& use: Lia0ilit) &!r da(a#e E,,ects o, aut+oriCe& use: 5Art% $>786 a, T%in# de$! ited' n!n-c!n u(a0le5 4enera' ru'e: T%e c!ntract l! e t%e c%aracter !& a de$! it and ac6uire t%at !& a c!((!datu( de $ite t%e &act t%at t%e $artie (a) %a"e den!(inated it a a de$! it. Exception: Sa&e2ee$in# i till t%e $rinci$al $ur$! e !& t%e c!ntract. 0, T%in# de$! ited' (!ne) !r !t%er c!n u(a0le t%in#5 4enera' ru'e: C!n"ert t%e c!ntract int! a i($le l!an !r (utuu(. Exception: Sa&e2ee$in# i till t%e $rinci$al $ur$! e !& t%e c!ntract' 0ut it 0ec!(e an irre#ular de$! it. Ban2 de$! it are in t%e nature !& irre#ular de$! it 0ut t%e) are reall) l!an #!"erned 0) t%e la* !n l!an . 7% LIABILITY FOR LOSS T#ROU4# FORTUITOUS EDENT 5Art% $>7>6 4enera' ru'e: T%e de$! itar) i n!t lia0le &!r l! t%r!u#% &!rtuit!u e"ent *it%!ut %i &ault. E0ce*tions: a, I& it i ! ti$ulatedD
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 1' of 61
0, I& %e u e t%e t%in# *it%!ut t%e de$! it!r> $er(i i!n c, I& %e dela) in it returnD d, I& %e all!* !t%er t! u e it' e"en t%!u#% %e %i( el& (a) %a"e 0een aut%!riIed t! u e t%e a(e. LIABILITY FOR LOSS WIT#OUT FORTUITOUS EDENT 7e$! itar) / $re u(ed at &ault 5Art% $2:?6 in $! e i!n 8% RELATION BETWEEN BAN! AND DEPOSITOR 5Art% $>8=6 Gi1ed' a"in# ' and current de$! it !& (!ne) in 0an2 and i(ilar in tituti!n %all 0e #!"erned 0) t%e $r!"i i!n c!ncernin# i($le l!an. a, Contract o, 'oan / de$! it in 0an2 are reall) l!an 0ecau e t%e 0an2 can u e t%e a(e &!r it !rdinar) tran acti!n 0, Re'ation o, cre&itor an& &e)tor / t%e relati!n 0et*een a de$! it!r and a 0an2 i t%at !& a credit!r and a de0t!r. >% OBLI4ATION W#EN T#E T#IN4 DEPOSITED IS CLOSED AND SEALED% 5Art% $>8$6 T%e de$! itar) %a t%e !0li#ati!n t!5 a, return t%e t%in# de$! ited *%en deli"ered cl! ed and ealed in t%e a(e c!nditi!nD 0, $a) &!r da(a#e %!uld t%e eal !r l!c2 0e 0r!2en t%r!u#% %i &ault' *%ic% i $re u(ed unle $r!"en !t%er*i eD c, Jee$ t%e ecret !& t%e de$! it *%en t%e eal !r l!c2 i 0r!2en' *it% !r *it%!ut %i &ault. $=% W#EN DEPOSITARY EUSTIFIED IN TO OPEN CLOSED AND SEALED SUBEECT ATTER 5Art% $>826
a, W%en t%e de$! itar) i $re u(ed aut%!riIed t! d! !' i& t%e 2e) %a 0een deli"ered t! %i(D 0, W%en t%e in tructi!n !& t%e de$! it!r a re#ard t%e de$! it cann!t 0e e1ecuted *it%!ut !$enin# t%e 0!1 !r rece$tacle. +Nece it), $$% OBLI4ATION TO RETURN PRODUCTS/ ACCESSORIES/ AND ACCESSIONS 5Art% $>8B6 $2% OBLI4ATION TO PAY INTEREST ON SU S CONDERTED FOR PERSONAL USE 5Art% $>8B $B% T+e &e*ositary 3+o recei(es t+e t+inin &e*osit cannot re2uire t+at t+e &e*ositor *ro(e +is o3ners+i* o(er t+e t+in- 5Art% $>896 $9% W+ere t+ir& *erson a**ears to )e t+e o3ner% 5Art% $>896 T%e de$! itar) (a) 0e relie"ed &r!( lia0ilit) *%en5 a, Be ad"i ed t%e true !*ner !& t%e t%in# !& t%e de$! it. 0, I& t%e !*ner' i $ite !& uc% in&!r(ati!n' d!e n!t clai( it *it%in t%e $eri!d !& !ne (!nt% +40 da) , $?% O)'i-ation o, t+e &e*ositary 3+en t+ere are t3o or .ore &e*ositors% 5Art% $>8?6 a, Di(isi)'e t+in- an& @oint &e*ositors / eac% !ne !& t%e de$! it!r can de(and !nl) %i %are $r!$!rti!nate t%eret!. 0, In&i(isi)'e t+in- an& so'i&ary &e*ositors / rule !n acti"e !lidarit) 4enera' Ru'e: Eac% !ne !& t%e de$! it!r (a) d! *%ate"er (a) 0e u e&ul t! t%e !t%er . +Art. -2-2, Exception: An)t%in# *%ic% (a) 0e $re9udicial t! t%e !t%er de$! it!r . 4enera' Ru'e: T%e de$! itar) (a) return t%e t%in# t! an) !ne !& t%e !lidar) de$! it!r
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 1( of 61
Exception: W%en a de(and' 9udicial !r e1tra9udicial' &!r it return %a 0een (ade 0) !ne !& t%e( in *%ic% ca e deli"er) %!uld 0e (ade t! %i(. c, Return to one o, t+e &e*ositors sti*u'ate& / i& 0) ti$ulati!n' t%e t%in# %!uld 0e returned t! !ne !& t%e de$! it!r ' t%e de$! itar) i 0!und t! return it !nl) t! t%e $er !n de i#nated alt%!u#% %e %a n!t (ade an) de(and &!r it return. $:% O)'i-ation to return to t+e *erson to 3+o. return .ust )e .a&e% 5Art% $>8:6 a, T+e &e*ositary is o)'i-e& to return t+e t+in&e*osite&/ 3+en re2uire&/ to: T%e de$! it!rD T! %i %eir !r ucce !r D !r T! t%e $er !n *%! (a) %a"e 0een de i#nated in t%e c!ntract. 0, I, t+e &e*ositor 3as inca*acitate& at t+e ti.e o, .a1in- t+e &e*osit/ t+e *ro*erty .ust )e returne& to: Bi #uardian !r ad(ini trat!rD T! t%e $er !n *%! (ade t%e de$! itD T! t%e de$! it!r %i( el& %!uld %e ac6uire ca$acit). c, E(en i, t+e &e*ositor +a& ca*acity at t+e ti.e o, .a1in- t+e &e*osit )ut +e su)se2uent'y 'oses +is ca*acity &urin- t+e &e*osit/ t+e t+in- .ust )e returne& to +is 'e-a' re*resentati(e% $7% O)'i-ation to return at t+e *'ace o, return 5Art% $>876 ; sa.e as t+e -enera' ru'e o, 'a3 re-ar&int+e *'ace o, *ay.ent% 5Art% $2?$6
4enera' ru'e: At t%e $lace a#reed u$!n 0) t%e $artie ' tran $!rtati!n e1$en e %all 0e 0!rne 0) t%e de$! it!r. E0ce*tion: +In t%e a0 ence !& ti$ulati!n, At t%e $lace *%ere t%e t%in# de$! ited (i#%t 0e e"en i& it %!uld n!t 0e t%e a(e $lace *%ere t%e !ri#inal de$! it *a (ade. $8% O)'i-ation to return u*on t+e ti.e o, return% 5Art% $>886 4enera' ru'e: T%e t%in# de$! ited (u t 0e returned t! t%e de$! it!r u$!n de(and' e"en t%!u#% a $eci&ied $eri!d !r ti(e &!r uc% return (a) %a"e 0een &i1ed. Exceptions: a, W%en t%e t%in# i 9udiciall) attac%ed *%ile in t%e de$! itar)> $! e i!n 0, W%en n!ti&ied !& t%e !$$! iti!n !& a t%ird $er !n t! t%e return !r t%e re(!"al !& t%e t%in# de$! ited. $>% Ri-+t o, t+e &e*ositary to return t+e t+in&e*osite&% 5Art% $>8>6 5NOTE: in t+is case/ it is t+e &e*ositary 3+o is returnin- t+e &e*osit WIT# OR WIT#OUT T#E DE AND o, t+e &e*ositor6 4enera' ru'e: T%e de$! itar) (a) return t%e t%in# de$! ited n!t*it% tandin# t%at a $eri!d %a 0een &i1ed &!r t%e de$! it i&5 a, T%e de$! it i #ratuit!u D 0, T%e rea !n i 9u ti&ia0le. Re.e&y i, &e*ositor re,uses to recei(e t+e t+in-: T%e de$! itar) (a) de$! it t%e t%in# at t%e di $! al !& t%e 9udicial aut%!rit). Exception: W%en t%e de$! it i &!r a "alua0le c!n iderati!n' t%e de$! itar) %a n! ri#%t t! return t%e t%in# 0e&!re t%e e1$irati!n !& t%e ti(e de i#nated e"en i& %e %!uld u&&er inc!n"enience a a c!n e6uence.
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2=% De*ositaryFs 'ia)i'ity in case o, 'oss )y ,orce .a@eure or -o(ern.ent or&er% 5Art% $>>=6 7e$! itar) i n!t lia0le in ca e !& l! 0) &!rce (a9eur !r 0) #!"ern(ent !rder. B!*e"er' %e %a t%e dut) t! deli"er t! t%e de$! it!r (!ne) !r an!t%er t%in# %e recei"e in $lace !& t%e t%in#. 2$% Lia)i'ity in case o, a'ienation o, t+e &e*ositaryFs +eir% 5Art% $>>$6 W+en a'ienation is &one in 4OOD FAIT#: a, Return t%e "alue !& t%e t%in# de$! ited 0, A i#n t%e ri#%t t! c!llect &r!( t%e 0u)er. T%e %eir d!e n!t need t! $a) t%e actual $rice !& t%e t%in# de$! ited. W+en a'ienation is &one in BAD FAIT#: a, Lia0le &!r da(a#e D 0, Pa) t%e actual $rice !& t%e t%in# de$! ited. 22% De*ositary .ay retain t+e t+inin *'e&-e unti' t+e ,u'' *ay.ent o, 3+at .ay )e &ue +i. )y reason o, t+e &e*osit% 5Art% $>>96 T%e t%in# retained er"e a ecurit) &!r t%e $a)(ent !& *%at (a) 0e due t! t%e de$! itar) 0) rea !n !& t%e de$! it. + ee Art. -@6=' -@@2' -@@4,. N!te5 T%e de0t (u t 0e $ri!r t! t%e de$! it.
Irre-u'ar De*osit Ma) 0e de(anded at *ill 0) t%e irre#ular de$! it!r &!r *%! e 0ene&it t%e de$! it %a 0een c!n tituted
utuu. Lender i 0!und 0) t%e $r!"i i!n !& t%e c!ntract and cann!t ee2 re tituti!n until t%e ti(e &!r $a)(ent' a $r!"ided in t%e c!ntract %a ari en Onl) 0ene&it i t%at *%ic% I& *it% intere t' 0ene&it i& 0!t% accrue t! t%e de$! it!r $artie 7e$! it!r %a $re&erence N! $re&erence !"er !t%er credit!r O)'i-ations o, t+e De*ositor $% O)'i-ation to *ay e0*enses o, *reser(ation% 5Art% $>>26 2% O)'i-ation to *ay 'osses incurre& &ue to c+aracter o, t+in- &e*osite&% 5Art% $>>B6 4enera' ru'e: T%e de$! itar) (u t 0e rei(0ur ed &!r l! u&&ered 0) %i( 0ecau e !& t%e c%aracter !& t%e t%in# de$! ited. Exceptions: a, 7e$! it!r *a n!t a*are !& t%e dan#erD 0, 7e$! it!r *a n!t e1$ected t! 2n!* t%e dan#er!u c%aracter !& t%e t%in#D c, 7e$! it!r n!ti&ied t%e de$! itar) !& uc% dan#er!u c%aracterD d, 7e$! itar) *a a*are !& t%e dan#er *it%!ut ad"ice &r!( t%e de$! it!r. B% E,,ect o, &eat+ o, &e*ositor or &e*ositary% 5Art% $>>?6 a, De*osit -ratuitous / deat% !& eit%er !& t%e de$! it!r !r de$! itar) e1tin#ui %e t%e de$! it +$er !nal in nature,. B) t%e *!rd :e1tin#ui %ed';
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t%e la* reall) (ean t%at t%e de$! itar) i n!t !0li#ed t! c!ntinue *it% t%e c!ntract !& de$! it. a. De*osit ,or co.*ensation / n!t e1tin#ui %ed 0) t%e deat% !& eit%er $art). Ot+er atters Concernin- a De*ositor -. 7e$! itar) %a a ri#%t t! retain t%e t%in# in $led#e until &ull $a)(ent !& *%at (a) 0e due %i( 0) rea !n !& t%e de$! it 2. A de$! it i e1tin#ui %ed5 a. u$!n t%e l! !r deteri!rati!n !& t%e t%in# de$! itedD 0. u$!n t%e deat% !& t%e de$! itar)' ONL? in #ratuit!u de$! it D c. !t%er $r!"i i!n in t%e Ci"il C!de +n!"ati!n' (er#er' etc., NECESSARY DEPOSIT A &e*osit is necessary 3+en: $% It is .a&e in co.*'iance 3it+ a 'e-a' o)'i-ationG 2% It ta1es *'ace on t+e occasion o, any ca'a.ity/ suc+ as ,ire/ stor./ ,'oo&/ *i''a-e/ s+i*3rec1/ or ot+er si.i'ar e(ents% T%ere (u t 0e a cau al relati!n 0et*een t%e cala(it) and t%e c!n tituti!n !& t%e de$! it. B% a&e )y *assen-ers 3it+ co..on carriers% A as to t+ose )a--a-e t+e *assen-ers or t+eir a-ents carry 9% a&e )y tra(e'ers in +ote's or inns% 5Art% $>>86 Be&!re 2ee$er !& %!tel !r inn (a) 0e %eld re $!n i0le a de$! itarie *it% re#ard t! t%e e&&ect !& t%eir #ue t ' t%e &!ll!*in# (u t c!ncur5 E'e.ents:
a, T%e) %a"e 0een $re"i!u l) in&!r(ed a0!ut t%e e&&ect 0r!u#%t 0) t%e #ue t D and 0, T%e latter %a"e ta2en t%e $recauti!n $re cri0ed re#ardin# t%eir a&e2ee$in#. E0tent o, 'ia)i'ity: a, Lia0ilit) in %!tel r!!( *%ic% c!(e under t%e ter( :0a##a#e; !r article uc% a cl!t%in# a are !rdinaril) u ed 0) tra"eler 0, Include t%! e l! t !r da(a#e in %!tel anne1e uc% a "e%icle in t%e %!tel> #ara#e. W+en +ote'A1ee*er 'ia)'e: 5Art% 2=== ; 2==26 In t%e &!ll!*in# ca e ' t%e %!tel-2ee$er i lia0le RE8AR7LESS !& t%e a(!unt !& care e1erci ed5 a, T%e l! !r in9ur) t! $er !nal $r!$ert) i cau ed 0) %i er"ant !r e($l!)ee a *ell a 0) tran#er +Art. 2000,. 0, T%e l! i cau ed 0) t%e act !& a t%ie& !r r!00er d!ne *it%!ut t%e u e !& ar( and irre i ti0le &!rce. +Art. 200-, Reason: B!tel-2ee$er i a$$arentl) ne#li#ent. W+en +ote'A1ee*er not 'ia)'e: a, T%e l! !r in9ur) i cau e 0) &!rce (a9eure' li2e &l!!d' &ire' t%e&t !r r!00er) 0) a tran#er +n!t t%e %!tel-2ee$er> er"ant !r e($l!)ee, *it% t%e u e !& &irear( !r irre i ti0le &!rce. Exception: Unle t%e %!tel-2ee$er i #uilt) !& &ault !r ne#li#ence in &ailin# t! $r!"ide a#ain t t%e l! !r in9ur) &r!( %i cau e. 0, T%e l! i due t! t%e act $& t%e #ue t ' %i &a(il)' er"ant ' "i it!r . c, T%e l! ari e &r!( t%e c%aracter !& t%e t%in# 0r!u#%t int! t%e %!tel. E0e.*tion or &i.inution o, 'ia)i'ity:
T%e %!tel-2ee$er cann!t &ree %i( el& &r!( re $!n i0ilit) 0) $! tin# n!tice t! t%e e&&ect t%at %e i n!t lia0le &!r t%e article 0r!u#%t 0) t%e #ue t. +Art. 2004, E,,ect: An) ti$ulati!n 0et*een t%e %!tel2ee$er and t%e #ue t *%ere0) t%e re $!n i0ilit) !& t%e &!r(er +a et &!rt% in Art. -@@C-200-, i u$$re ed !r di(ini %ed %all 0e VOI7. #ote'A1ee*erFs ri-+t to retain T%e %!tel-2ee$er %a a ri#%t t! retain t%e t%in# 0r!u#%t int! t%e %!tel 0) t%e #ue t' a a ecurit) &!r credit !n acc!unt !&5 a, l!d#in#D 0, u$$lie u uall) &urni %ed t! %!tel #ue t . Reason: It i #i"en t! %!tel-2ee$er t! c!($en ate t%e( &!r t%e lia0ilitie i($! ed u$!n t%e( 0) la*. T%e ri#%t !& retenti!n rec!#niIed in t%i article i in t%e nature !& a $led#e created 0) !$erati!n !& la*. In c!($liance *it% a le#al !0li#ati!n +#!"erned 0) t%e la* e ta0li %in# it' and in ca e !& de&icienc)' t%e rule !n "!luntar) de$! it e g Art . =4C' =C6 and 2-0<, Made !n t%e !cca i!n !& an) cala(it) +#!"erned 0) t%e rule !n "!luntar) de$! it and Art. 2-6C,
W+en @u&icia' &e*osit ta1es *'ace: Hudicial de$! it ta2e $lace *%en an attac%(ent !r eiIure !& $r!$ert) in liti#ati!n i !rdered 0) a c!urt. +Art. 200=, Nature: Au1iliar) t! a ca e $endin# in c!urt. Pur*ose: T! (aintain t%e tatu 6u! durin# t%e $endenc) !& t%e liti#ati!n !r t! in ure t%e ri#%t !& t%e $artie t! t%e $r!$ert) in ca e !& a &a"!ra0le 9ud#(ent. De*ositary o, se2uestere& *ro*erty: *erson a**ointe& )y t+e court% 5Art% 2==76 O)'i-ations: a, T! ta2e care !& t%e $r!$ert) *it% t%e dili#ence !& a #!!d &at%er !& t%e &a(il). +Art. 200C, 0, Be (a) n!t 0e relie"ed !& %i re $!n i0ilit) until t%e liti#ati!n i ended !r t%e c!urt ! !rder . +Art. 200A, A**'ica)'e 'a3: T%e la* !n 9udicial de$! it i re(edial !r $r!cedural in nature. Bence' t%e Rule !& C!urt are a$$lica0le. +Art. 200@, Ba i !& C!($ari !n Cau e !r !ri#in Pur$! e E1tra-9udicial 7e$! it B) *ill !& t%e c!urt B) *ill !& t%e $artie . Bence' t%ere i a c!ntract Securit)D Cu t!d)D Secure t%e ri#%t !& Sa&e2ee$in# !& t%e a $art) t! rec!"er in t%in# ca e !& &a"!ra0le 9ud#(ent. Eit%er (!"a0le !r Onl) (!"a0le i((!"a0le $r!$ert) $r!$ert) 0ut #enerall)' i((!"a0le Al*a) 8enerall) #ratuit!u ' Hudicial 7e$! it
Su09ect Matter
SEHUESTRATION OR EUDICIAL DEPOSIT Re(unerati!n
re(unerated 0ut (a) 0e +!ner!u , c!($en ated In *%! e 0e%al& In 0e%al& !& t%e In 0e%al& !& t%e it i %eld $er !n *%!' 0) t%e de$! it!r !r t%ird 9ud#(ent' %a a $er !n de i#nated ri#%t WARE#OUSE RECEIPTS LAW Sco*e: all *are%!u e ' *%et%er $u0lic !r $ri"ate' 0!nded !r n!t A**'ication: a$$lie t! *are%!u e recei$t i ued 0) a *are%!u e(an a de&ined in Sec. =C+a,' *%ile t%e Ci"il C!de' t! !t%er ca e *%ere recei$t are n!t i ued 0) a *are%!u e(an. The Issue of Warehouse Receipts W+o .ay issue a. !nl) a *are%!u e(an' BUT a dul) aut%!riIed !&&icer !r a#ent !& a *are%!u e(an (a) d! !D 0. *are%!u e(an - a $er !n la*&ull) en#a#ed in t%e 0u ine !& t!rin# #!!d &!r $r!&itD c. recei$t not issue& 0) a *are%!u e(an alt%!u#% in t%e &!r( !& *are%!u e recei$t are n!t *are%!u e recei$t For. an& Content: need not 0e in $articular &!r(' 0ut certain e ential ter( (u t 0e $re ent5 -. 6o*ation of 7areho!se -0ecau e t%e *are%!u e(an (a) %a"e !t%er *are%!u e 2. Date of iss!e and re*eipt indicate $ri(a &acie t%e date *%en t%e c!ntract !&
4. <.
=. 6. A.
C.
@.
de$! it i $er&ected and *%en t%e t!ra#e c%ar#e %all 0e#in Conse*!tive n!mber of re*eipt - t! identi&) eac% recei$t *it% t%e #!!d &!r *%ic% it *a i ued .erson to 7hom goods are deliverable - deter(ine t%e $er !n !r $er !n *%! %all $ri(a &acie 0e entitled la*&ull) t! t%e $! e i!n !& t%e #!!d de$! ited Rate of storage *harges c!n iderati!n &!r t%e c!ntract &r!( t%e "ie* !& t%e *are%!u e(an Des*ription of goods or pa*8ages &!r identi&icati!n #ignat!re of 7areho!seman - 0e t e"idence !& t%e &act t%at t%e *are%!u e(an %a recei"ed t%e #!!d and %a 0!und %i( el& t! a u(e all !0li#ati!n in c!nnecti!n t%ere*it% 9areho!seman:s o7nership of or interest in the goods - $ur$! e i t! $re"ent a0u e in t%e $a t *%en *are%!u e(an i ued recei$t !n t%eir #!!d #tatement of advan*es made and liabilities in*!rred ;if present< - $ur$! e i t! $re er"e t%e lien !& t%e *are%!u e(an !"er t%e #!!d t!re !r t%e $r!ceed t%ere!& in %i %and NOTE5 E&&ect !& !(i i!n !& an) !& t%e e ential ter( 5 a. (a'i&ity and ne-otia)i'ity !& recei$t i NOT a&&ected 0. *are%!u e(an *ill 0e lia0le &!r da(a#e c. t%e c!ntract *ill 0e c!n"erted t!$ an !rdinar) de$! it
W+at ter.s .ay )e inserte&I AN? !t%er ter( !r c!nditi!n EKCEPT5 a. t%! e c!ntrar) t! t%i Act +e.#. e1e($ti!n &r!( lia0ilit) &!r (i deli"er) in Sec. -0' n!t #i"in# tatut!r) n!tice in ca e !& ale !& #!!d in Sec. 44 and 4<, 0. an e1e($ti!n &r!( lia0ilit) and ne#li#ence c. t%! e c!ntrar) t! la*' (!ral ' #!!d cu t!( ' $u0lic !rder !r $u0lic $!lic) De,initions a. ne#!tia0le recei$t - recei$t in *%ic% it i tated t%at t%e #!!d recei"ed *ill 0e deli"ered t! t%e 0earer !r t! t%e !rder !& an) $er !n na(ed in uc% recei$t 0. n!n-ne#!tia0le recei$t - recei$t in *%ic% it i tated t%at t%e #!!d recei"ed *ill 0e deli"ered t! t%e de$! it!r !r t! an) !t%er $eci&ied $er !n NOTE: -. a $r!"i i!n in a ne#!tia0le recei$t t%at it i n!n-ne#!tia0le i VOI7 2. a ne#!tia0le *are%!u e recei$t i n!t a ne#!tia0le in tru(ent in t%e a(e en e a in t%e NIL. D!pli*ate re*eipts ;applies 016=< to negotiable 7areho!se re*eipts - W%ene"er (!re t%an !ne ne#!tia0le recei$t i i ued &!r t%e a(e #!!d ' t%e *!rd L7UPLICATE; %all 0e $laced !n t%e &ace !& t%e recei$t e0ce*t t%e !ne - t i ued.
E&&ect5 t%e *are%!u e(an %all 0e lia0le &!r da(a#e &!r &ailin# t! d! t%i t! an) !ne *%! $urc%a ed t%e u0 e6uent recei$t +-, &!r "alue' and +2, u$$! in# it t! 0e an !ri#inalD e"en t%!u#% t%e $urc%a e 0e a&ter deli"er) !& t%e #!!d 0) t%e *are%!u e(an t! t%e %!lder !& t%e !ri#inal recei$t.
>ail!re to ma8e ?non-negotiable@ ;applies only to nonnegotiable 7areho!se re*eipts< a. A n!n-ne#!tia0le recei$t (u t c!ntain t%e *!rd5 n!n-ne#!tia0le 0. E,,ect5 Gailure t! d! ! *ill (a2e a %!lder *%! +-, $urc%a ed &!r "alue AN7 +2, u$$! in# it t! 0e ne#!tia0le' (a) at %i !$ti!n treat it a ne#!tia0le Construction o, 3are+ouse recei*ts: Li0eral c!n tructi!n !& t%e la* in &a"!r !& bona fide %!lder . T%i %a n! a$$licati!n t! acti!n a#ain t an) $art) ot+er t+an a *are%!u e(an. O)'i-ation an& Ri-+ts o, a Ware+ouse.an u*on t+eir Recei*ts Princi*a' o)'i-ations o, a 3are+ouse.an -. T! ta2e care !& t%e #!!d ' and 0e lia0le &!r &ailure t! e1erci e care +BUT %e i n!t lia0le &!r l! !r in9ur) *%ic% c!uld n!t %a"e 0een a"!ided' unle t%ere i a ti$ulati!n t! t%e c!ntrar),D 2. T! deli"er t%e #!!d t! t%e %!lder !& t%e recei$t !r t%e de$! it!r u$!n 7EMAN7 acc!($anied *it%5 a. an !&&er t! ati &) t%e *are%!u e(an> lien0ecau e a *are%!u e(an (a) re&u e deli"er) until %i lien i ati &ied 0. an !&&er t! urrender t%e recei$t- &!r t%e $r!tecti!n !& t%e *are%!u e(an and t!
a"!id cri(inal lia0ilit)D t%i i u09ect t! *ai"er c. an !&&er t! i#n *%en t%e #!!d are deli"ered' an ac2n!*led#(ent t%at t%e) %a"e 0een deli"ered BUT a *are%!u e(an (a) till re&u e deli"er) !n t%e #r!und !& !(e la*&ul e1cu e li2e5 a. Sec. -0 -. %e %a 0een re6ue ted 0) t%e $er !n la*&ull) entitled t! t%e #!!d n!t t! (a2e deli"er)D 2. %e %a in&!r(ati!n t%at t%e deli"er) a0!ut t! 0e (ade *a t! !ne n!t la*&ull) entitled t! t%e #!!d D 0. Sec. -65 Be %a ac6uired title t! t%e #!!d *%ic% *a deri"ed &r!( -. tran &er (ade 0) t%e de$! it!r at t%e ti(e !& t%e de$! it &!r t!ra#e !r u0 e6uent t%eret! 2. t%e *are%!u e(an> lien c. Sec. -C5 I& t%ere are e"eral clai(ant t! t%e #!!d d. Sec. 2-5 I& t%e #!!d *ere l! t and %e %ad n! &ault e. Sec. 465 Be %a alread) la*&ull) !ld t%e #!!d .ersons to 7hom the goods m!st be delivered -. Per !n la*&ull) entitled t! t%e $! e i!n !& t%e #!!d !r it a#ent 2. Per !n entitled t! deli"er under5 a. a n!n-ne#!tia0le recei$tD !r 0. *it% *ritten aut%!rit)
4. $er !n in $! e i!n !& a ne#!tia0le recei$t +*%ic% *a la*&ull) ne#!tiated, NOTE5 a *are%!u e(an d!e NOT %a"e a cau e !& acti!n a#ain t a $er !n t! *%!( %e (i deli"ered t%e t%in# UNLESS t%e de$! it!r ue %i(. Acts ,or 3+ic+ a 3are+ouse.an is 'ia)'e ( ! "ailure to sta#p $%uplicate& on copies of a negotiable receipt (Sec' ( an% )! W%en (!re t%an !ne ne#!tia0le recei$t are i ued &!r t%e a(e #!!d ' t%e *!rd :du$licate; (u t 0e $lainl) $laced 0) t%e *are%!u e(an u$!n t%e &ace !& e"er) uc% recei$t e1ce$t t%e - t. In uc% ca e' t%e *are%!u e(an *arrant 5 a. t%at t%e du$licate i an accurate c!$) !& t%e !ri#inal recei$t 0. uc% !ri#inal recei$t i uncancelled at t%e date !& t%e i ue !& t%e du$licate NOTE5 T%e du$licate i($! e n! !t%er lia0ilit) u$!n t%e *are%!u e(an. (*! "ailure to place $non+negotiable& on a non+ negotiable receipt (Sec' ,! (-! .is%eli/er0 of the goo%s (Sec' 1! a $o one not la7f!lly entitled to possession - Lia0le &!r c!n"er i!n +unaut%!riIed a u($ti!n and e1erci e !& t%e ri#%t !& !*ner %i$ !"er #!!d 0el!n#in# t! an!t%er t%r!u#% alterati!n !r t%e e1clu i!n !& t%e !*ner> ri#%t, b $o a person entitled to delivery !nder a nonnegotiable re*eipt or 7ritten a!thori"ation 0R person in possession of a negotiable re*eipt Still lia0le &!r c!n"er i!n i&5
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page '5 of 61
-. $ri!r t! deli"er)' %e %ad 0een re6ue ted NOT t! (a2e uc% deli"er) 2. %e %ad recei"ed n!tice !& t%e ad"er e clai( !r title !& a 4rd $er !n (2! "ailure to effect cancellation of a negotiable receipt upon %eli/er0 of the goo%s (Sec' ! - T%i i a$$lica0le ONL? t! ne#!tia0le recei$t 0ut NOT t! a ituati!n *%ere t%ere *a a "alid ale in acc!rdance *it% Sec. 46 a. 9hen the goods are delivered already5 Gailure t! cancel *ill (a2e %i( lia0le t! an) !ne *%! $urc%a ed &!r "alue in #!!d &ait% uc% recei$t 0. 9hen only some of the goods 7ere delivered5 Gailure t! cancel !r t! tate $lainl) in t%e recei$t t%at !(e #!!d *ere deli"ered *ill (a2e %i( lia0le t! an) !ne *%! $urc%a ed &!r "alue in #!!d &ait% uc% recei$t ()! Issuing receipt for non+existing goo%s or #is%escribe% goo%s (Sec' *1!: )R5 a *are%!u e(an i under !0li#ati!n t! deli"er t%e identical $r!$ert) t!red *it% %i( and i& %e &ail t! d! ! %e i lia0le. &x*eption: i& t%e de cri$ti!n c!n i t (erel) !& (ar2 !r la0el u$!n t%e #!!d !r u$!n t%e $ac2a#e c!ntainin# t%e(' etc.' t%e *are%!u e(an i NOT lia0le e"en i& t%e #!!d are n!t !& t%e 2ind a indicated in t%e (ar2 !r la0el ((! In case of lost or %estro0e% receipts (Sec' 2! Re(e(0er t%at a *are%!u e(an (u t deli"er t! t%e !ne *%! %a t%e recei$t 0ut i& uc% *a l! t' a co.*etent court (a) !rder t%e deli"er) !& t%e #!!d !nl)5
a. u$!n $r!!& !& t%e l! !r de tructi!n !& t%e recei$tD AN7 0. u$!n #i"in# !& a 0!nd *it% u&&icient ecuritie NOTE5 t%e *are%!u e(an i till lia0le t! a %!lder !& t%e recei$t &!r "alue *it%!ut n!tice ince t%e *are%!u e(an can ecure %i( el& in t%e 0!nd #i"en. (,! "ailure to ta3e care of the goo%s (Sec' *! (4! "ailure to gi/e notice in case of sales of goo%s to satisf0 his lien (Sec' --! or because the goo%s are perishable an% ha5ar%ous (Sec' -2! E&&ect !& ALTERE7 RECEIPTS a. Alteration immaterial5 *%et%er &raudulent !r n!t' aut%!riIed !r n!t' t%e *are%!u e(an i lia0le !n t%e altered recei$t acc!rdin# t! it !ri#inal ten!rD 0. Alteration material5 0ut it *a aut%!riIed' t%e *are%!u e(an i lia0le acc!rdin# t! t%e ter( !& t%e recei$t a alteredD c. Material alteration inno*ently made5 t%!u#% unaut%!riIed' t%e *are%!u e(an i lia0le !n t%e altered recei$t acc!rdin# t! it !ri#inal ter(D d. Material alteration fra!d!lently made: *are%!u e(an i lia0le acc!rdin# t! t%e !ri#inal ten!r t! a5 -. $urc%a er !& t%e recei$t &!r "alue *it%!ut n!ticeD and 2. t! t%e alterer and u0 e6uent $urc%a er *it% n!tice + BUT %i lia0ilit) i li(ited !nl) t! deli"er) a %e i e1cu ed &r!( an) !t%er lia0ilit), M E"en a &raudulent alterati!n cann!t di"e t t%e title !& t%e !*ner !& t!red #!!d and t%e *are%!u e(an i lia0le t! return t%e( t! t%e !*ner. BUT a bona fide %!lder ac6uire n! ri#%t t! t%e #!!d under a ne#!tia0le recei$t *%ic% %a 0een
t!len !r l! t !r *%ic% t%e ind!r e(ent %a 0een &!r#ed. Wit+ Re-ar& to O3ners+i* a. O*ner %i$ i n!t a de&en e &!r re&u al t! deli"er T%e *are%!u e(an cann!t re&u e t! deli"er t%e #!!d !n t%e #r!und t%at %e %a ac6uired title !r ri#%t t! t%e $! e i!n !& it unle uc% i deri"ed5 -. directl) !r indirectl) &r!( a tran &er (ade 0) t%e de$! it!r at t%e ti(e !& t%e de$! it &!r t!ra#e !r u0 e6uent t%eret!D 2. &r!( t%e *are%!u e(an> lien 0. Ad"er e title !& a 4rd $er !n i n!t a de&en e &!r re&u al t! deli"er 0) a *are%!u e(an t! %i 0ail!r !n de(and &-C&.$: -. T! $er !n t! *%!( t%e #!!d (u t 0e li"ered +Sec. @, 2. T! t%e $er !n *%! *in in t%e inter$leader ca e +Sec. -A, 4. T! t%e $er !n %e &ind t! 0e entitled t! t%e $! e i!n a&ter in"e ti#ati!n +Sec. -C, <. T! t%e 0u)er in ca e t%ere *a a "alid ale !& t%e #!!d +Sec. 46, Duty o, 3are+ouse.an 3+en t+ere are se(era' c'ai.ants T%e *are%!u e(an (a) eit%er5 a. In"e ti#ate and deter(ine *it%in a rea !na0le ti(e t%e "alidit) !& t%e clai( ' and deli"er t! t%e $er !n *%!( %e &ind i entitled t! t%e $! e i!n !& t%e #!!d E,,ect: Be i NOT e1cu ed &r!( lia0ilit) in ca e %e (a2e a (i ta2e 0. Be (a) 0rin# a c!($laint in inter$leader
a, %e *ill 0e relie"ed &r!( lia0ilit) in deli"erin# t%e #!!d t! t%e $er !n *%!( t%e c!urt &ind t! %a"e 0etter ri#%tD 0, %e i lia0le &!r re&u al t! deli"er t! t%e ri#%t&ul clai(ant *%en it i re2uire& t! %a"e an inter$leaderD c. Be (a) n!t d! +a, and +0, E,,ect: Be *ill 0e lia0le a&ter a la$ e !& a rea !na0le ti(e' !& c!n"er i!n a !& t%e date !& t%e !ri#inal de(and &!r t%e #!!d . NOTE5 T%i d!e NOT a$$l) t! ca e *%ere t%e *are%!u e(an %i( el& (a2e a clai( t! t%e #!!d . Co..in-'in- o, &e*osite& -oo&s )R5 A *are%!u e(an (a) n!t (in#le #!!d 0el!n#in# t! di&&erent de$! it!r . &x*eption5 In ca e !& &un#i0le #!!d !& t%e a(e 2ind and #rade $r!"ided5 a. %e i aut%!riIed 0) a#ree(ent 0. %e i aut%!riIed 0) cu t!( &ffe*ts: a. eac% de$! it!r %all !*n t%e entire (a in c!((!n and entitled t! %i $!rti!n 0. *are%!u e(an i e"erall) lia0le t! eac% de$! it!r &!r t%e care and redeli"er) !& t%eir $!rti!n a i& t%e #!!d %ad 0een 2e$t e$arate Attac%(ent !r le") !r ne#!tia0le recei$t A *are%!u e(an %a t%e !0li#ati!n t! %!ld t%e #!!d &!r t%e !*ner !r &!r t%e $er !n t! *%!( t%e ne#!tia0le recei$t %a 0een dul) ne#!tiated. T%ere&!re' t%e #!!d cann!t 0e attac%ed !r le"ied u$!n under an e1ecuti!n UNLESS5 a. t%e d!cu(ent 0e &ir t urrenderedD !r
E,,ect5
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page '' of 61
0. t%e ne#!tiati!n i en9!ined' !r c. t%e d!cu(ent i i($!unded 0) t%e c!urt T%e *are%!u e(an cann!t 0e c!($elled t! deli"er t%e #!!d until5 a. t%e recei$t i urrendered t! %i(D 0. it i i($!unded 0) t%e c!urt NOTE: T%i $r!"i i!n d!e NOT a$$l) i& t%e $er !n de$! itin# i NOT t%e !*ner !& t%e #!!d !r !ne *%! %a n!t t%e ri#%t t! c!n"e) title t! t%e #!!d 0indin# u$!n t%e !*ner. Re.e&y o, cre&itor 3+ose &e)tor o3ns a ne-otia)'e recei*t Attac%(ent !& t%e ne#!tia0le recei$t +NOT t%e #!!d , NOTE: t%e #!!d t%e( el"e cann!t readil) 0e attac%ed !r le"ied u$!n 0) !rdinar) le#al $r!ce E0tent o, 3are+ouse.anFs 'ien a. la*&ul c%ar#e &!r -. t!ra#e' and 2. $re er"ati!n !& t%e #!!d 0. la*&ul clai( &!r -. (!ne) ad"anced 2. la0!r 4. intere t <. *ei#%in# =. in urance 6. c!!$eratin# A. tran $!rtati!n c. !t%er c%ar#e and e1$en e in relati!n t! uc% #!!d d. rea !na0le c%ar#e and e1$en e &!r n!tice and ad"erti e(ent !& ale
e.
ale !& t%e #!!d *%ere de&ault ati &)in# t%e lien
%a 0een (ade in
E0tent o, t+e 'ien 3+en a ne-otia)'e recei*t +as )een issue& a. c%ar#e &!r t!ra#e and $re er"ati!n !& t%e #!!d 0. !t%er c%ar#e e0*ress'y enu(erated +&r!( 0' c' d and e a0!"e, alt%!u#% t%e a(!unt i NOT tated NOTE5 G!r clai( n!t $eci&ied' t%e *are%!u e(an %are pro rata *it% t%e !t%er credit!r !& t%e de$! it!r t%e 0alance !& t%e $r!ceed !& t%e ale &!r t%e ati &acti!n !& t%e clai( . 4oo&s su)@ect to 'ien a. #!!d !& t%e de$! it!r *%! i lia0le t! t%e *are%!u e(an a de0t!r *%ere"er uc% #!!d are de$! itedD 0. #!!d !& !t%er $er !n t!red 0) t%e de$! it!r *%! i lia0le t! t%e *are%!u e(an a de0t!r *it% aut%!rit) t! (a2e a "alid $led#e NOTE5 A *are%!u e(an %a NO lien !n #!!d 0el!n#in# t! an!t%er and t!red 0) a tran#er in &raud !& t%e true !*ner> ri#%t. T+e 'ien .ay )e 'ost t+rou-+: a. "!luntaril) urrenderin# $! e i!n !& #!!d c!n titute a *ai"er !r a0and!n(ent A *are%!u e(an (a) NOT clai( a lien !n !t%er #!!d !& t%e a(e de$! it!r &!r un$aid c%ar#e !n t%e #!!d urrendered i& t%e #!!d *ere deli"ered t! %i( under di&&erent recei$t .
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page '( of 61
0. *r!n#&ull) re&u in# t! deli"er t%e #!!d t! a $er !n *%! %!ld t%e recei$t !r t%e de$! it!r u$!n 7EMAN7 acc!($anied *it%5 -. an !&&er t! ati &) t%e *are%!u e(an> lien +0ecau e a *are%!u e(an (a) re&u e deli"er) until %i lien i ati &ied, 2. an !&&er t! urrender t%e recei$t a. &!r t%e $r!tecti!n !& t%e *are%!u e(an and t! a"!id cri(inal lia0ilit) 0. t%i i u09ect t! *ai"er 4. an !&&er t! i#n *%en t%e #!!d are deli"ered' an ac2n!*led#(ent t%at t%e) %a"e 0een deli"ered Re.e&ies ,or a 3are+ouse.an -. E"en i& *it%!ut lien' all re(edie all!*ed 0) la* t! a credit!r a#ain t %i de0t!r &!r c!llecti!n !& c%ar#e D 2. B) re&u in# t! deli"er t%e #!!d until %i lien i ati &iedD 4. All re(edie all!*ed 0) la* &!r t%e en&!rce(ent !& a lien a#ain t $er !nal $r!$ert) and rec!"er) !& an) de&icienc) in ca e it e1i t a&ter t%e ale !& t%e $r!$ert)D <. B) cau in# t%e e1tra9udicial ale !& t%e $r!$ert) and a$$l)in# t%e $r!ceed t! t%e "alue !& t%e lien .R0C&##: A. Written n!tice t! t%e $er !n !n *%! e acc!unt t%e #!!d are %eld !r t! $er !n *%! clai( an intere t in t%e #!!d c!ntainin#5 a. ite(iIed tate(ent !& *are%!u e(an> lien %!*in# t%e u( due and *%en it 0eca(e due 0. 0rie& de cri$ti!n !& t%e #!!d c. a de(and t%at a clai( 0e $aid !n !r 0e&!re a da) (enti!ned' n!t le t%an -0 da) &r!(5 -. deli"er) !& n!tice i& $er !nall) deli"ered
2. ti(e *%en n!tice %!uld reac% it de tinati!n i& ent 0) (ail d. tate(ent t%at i& t%e clai( i n!t $aid' t%e #!!d *ill 0e ad"erti ed &!r ale and t%en !ld at a $eci&ied ti(e and $lace B. A&ter t%e ti(e &!r $a)(ent !& t%e clai( i& t%e n!tice %a ela$ ed' t%e ale *ill 0e ad"erti ed tatin#5 a. a de cri$ti!n !& t%e #!!d t! 0e !ld 0. t%e na(e !& t%e !*ner !r $er !n !n *%! e acc!unt t%e #!!d *ere %eld c. ti(e and $lace !& t%e ale C. Pu0licati!n5 a. if there is a ne7spaper p!blished in the pla*e of sale5 !nce a *ee2 &!r 2 c!n ecuti"e *ee2 and t%e ale n!t %eld le t%an -= da) &r!( t%e ti(e !& t%e - t $u0licati!n 0. if there is no ne7spaper5 $! ted at lea t -0 da) 0e&!re t%e ale in n!t le t%an 6 c!n $icu!u $lace in t%e $lace !& ale 7. Sale it el& in5 a. $lace *%ere t%e lien *a ac6uired 0. i& uc% $lace i (ani&e tl) un uita0le &!r t%e $ur$! e' at t%e neare t uita0le $lace E. Gr!( t%e $r!ceed !& t%e ale5 a. t%e *are%!u e(an %all ati &) %i lien 0. includin# t%e rea !na0le c%ar#e !& n!tice' ad"erti e(ent and ale c. t%e 0alance %all 0e %eld 0) t%e *are%!u e(an and deli"ered !n de(and t! t%e $er !n t! *%!( %e %!uld deli"er it G. An) ti(e 0e&!re t%e #!!d are !ld' an) $er !n (a) $a) t%e *are%!u e(an &!r %i lien and t%e !t%er e1$en e . T%e *are%!u e(an %all deli"er t%e #!!d t! t%at $er !n i& %e i entitled under t%i Act' t! t%e $! e i!n !& t%e #!!d !n
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page '+ of 61
$a)(ent !& t%e c%ar#e . Ot%er*i e' t%e *are%!u e(an %all retain !*ner %i$ !& t%e #!!d . =. 9ith regard to perishable and ha"ardo!s goods Ware%!u e(an *ill #i"e n!tice t! !*ner !r $er !n in *%! e na(e t%e #!!d are t!red5 a. t! ati &) %i lien 0. t! re(!"e t%e #!!d c. &ailure t! d! a N0 *ill #i"e t%e *are%!u e(an aut%!rit) t! ell t%e #!!d *it%!ut ad"erti in# d. i& ale i n!t $! i0le' %e (a) di $! e !& t%e #!!d in an) la*&ul (anner *it%!ut lia0ilit) M Pr!ceed !& t%e ale %all 0e di $! ed !& in acc!rdance *it% t%e PROCESS in t%e ale !& t%e #!!d . 6. &ffe*ts of sale a. *are%!u e(an i NOT lia0le &!r n!n-deli"er) e"en i& t%e recei$t *a #i"en &!r t%e #!!d *%en t%e) *ere de$! ited 0e ne#!tiated 0. *%en t%e ale *a (ade *it%!ut t%e $u0licati!n re6uired and 0e&!re t%e ti(e $eci&ied 0) la*' uc% ale i "!id and t%e $urc%a er !& t%e #!!d ac6uire n! title in t%e( Negotiation an% Transfer of Receipts Ne#!tia0le recei$t ne#!tia0le 0) deli"er) -. i& t%e #!!d are deli"era0le t! t%e 0earerD !r 2. *%en ind!r ed in 0lan2D !r 4. $er !n t! *%! e !rder t%e #!!d are deli"ered !r 0) a u0 e6uent ind!r ee ind!r ed it t! 0earer
PRODISIONS CO
ON TO PLED4E AND 5Art 2=8?A2$2B6
ORT4A4E
PLED4E5 A c!ntract 0) "irtue !& *%ic% t%e de0t!r deli"er t! t%e credit!r !r t! a t%ird $er !n a (!"a0le !r d!cu(ent e"idencin# inc!r$!real ri#%t &!r t%e $ur$! e !& ecurin# t%e &ul&ill(ent !& a $rinci$al !0li#ati!n *it% t%e under tandin# t%at *%en t%e !0li#ati!n i &ul&illed' t%e t%in# deli"ered %all 0e returned *it% all it &ruit and acce i!n . E ential Re6ui ite t! C!ntract !& Pled#e and M!rt#a#e -. c!n tituted t! ecure t%e &ul&ill(ent !& a $rinci$al !0li#ati!n 2. $led#!r !r (!rt#a#!r 0e t%e a0 !lute !*ner !& t%e t%in# $led#ed !r (!rt#a#ed 4. t%e $er !n c!n titutin# t%e $led#e !r (!rt#a#e %a"e t%e &ree di $! al !& t%eir $r!$ert)' and in t%e a0 ence t%ere!&' t%at t%e) 0e le#all) aut%!riIed &!r t%e $ur$! e <. cann!t e1i t *it%!ut a "alid !0li#ati!n =. de0t!r retain t%e !*ner %i$ !& t%e t%in# #i"en a a ecurit) 6. *%en t%e $rinci$al !0li#ati!n 0ec!(e due' t%e t%in# in *%ic% t%e $led#e !r (!rt#a#e c!n i t (a) 0e alienated &!r t%e $a)(ent t! t%e credit!r. !in&s o, P'e&-e -. V!luntar) !r c!n"enti!nal- created 0) a#ree(ent !& t%e $artie 2. Le#al- created 0) !$erati!n !& la* C+aracteristics o, P'e&-e -. real- $er&ected 0) deli"er) 2. acce !r)- %a n! inde$endent e1i tence !& it !*n
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ', of 61
4. unilateral- create !0li#ati!n !lel) !n t%e $art !& t%e credit!r t! return t%e t%in# u09ect u$!n t%e &ul&ill(ent !& t%e $rinci$al !0li#ati!n <. u0 idiar)- !0li#ati!n incurred d!e n!t ari e until t%e &ul&ill(ent !& t%e $rinci$al !0li#ati!n Cause or Consi&eration in P'e&-e -. $rinci$al !0li#ati!n / in ! &ar a t%e $led#!r i c!ncerned 2. c!($en ati!n ti$ulated &!r t%e $led#e !r (ere li0eralit) !& t%e $led#!r- i& $led#!r i n!t t%e de0t!r I($!rtant P!int -. &uture $r!$ert) cann!t 0e $led#ed !r (!rt#a#ed 2. $led#e3(!rt#a#e e1ecuted 0) !ne *%! i n!t t%e !*ner !& t%e $r!$ert) $led#ed !r (!rt#a#ed i *it%!ut le#al e1i tence and re#i trati!n cann!t "alidate it. 4. (!rt#a#e !& a c!n9u#al $r!$ert) 0) !ne !& t%e $!u e i "alid !nl) a t! E !& t%e entire $r!$ert) <. in ca e !& $r!$ert) c!"ered 0) T!rren title' a (!rt#a#ee %a t%e ri#%t t! rel) u$!n *%at a$$ear in t%e certi&icate !& title and d!e n!t %a"e t! in6uire &urt%er. =. $led#!r !r (!rt#a#!r %a &ree di $! al !& $r!$ert) 6. t%in# $led#ed !r (!rt#a#ed (a) 0e alienated. A. credit!r n!t re6uired t! ue t! en&!rce %i credit C. $led#!r !r (!rt#a#!r (a) 0e t%ird $er !n PLED4E C!n tituted !n (!"a0le Pr!$ert) i deli"ered t! t%e $led#ee' !r 0) c!((!n c!n ent t! a 4rd $er !n N!t "alid a#ain t 4rd $er !n unle a de cri$ti!n !& t%e ORT4A4E C!n tituted !n i((!"a0le 7eli"er) n!t nece ar) N!t "alid a#ain t 4rd $er !n i& n!t re#i tered
t%in# $led#ed and t%e date !& t%e $led#e a$$ear in a $u0lic in tru(ent Ri#%t !& Credit!r *%ere 7e0t!r &ail t! C!($l) *it% %i O0li#ati!n -. credit!r i (erel) entitled t! (!"e &!r t%e ale !& t%e t%in# $led#ed !r (!rt#a#ed *it% t%e &!r(alitie re6uired 0) la* in !rder t! c!llect 2. credit!r cann!t a$$r!$riate t! %i( el& t%e t%in# n!r can %e di $! e !& t%e a(e a !*ner. Pro+i)ition a-ainst pactu# co##issoriu# -. stip!lation is n!ll and void - ti$ulati!n *%ere t%in# !r (!rt#a#ed %all aut!(aticall) 0ec!(e t%e $r!$ert) !& t%e credit!r in t%e e"ent !& n!n$a)(ent !& t%e de0t *it%in t%e ter( &i1ed ' ReA!isites of pactu# co##issoriu#: a. t%ere %!uld 0e a $led#e !r (!rt#a#e 0. t%ere %!uld 0e a ti$ulati!n &!r an aut!(atic a$$r!$riati!n 0) t%e credit!r !& t%e $r!$ert) in t%e e"ent !& n!n$a)(ent ( &ffe*t on #e*!rity Contra*t -nullit) !& t%e ti$ulati!n d!e n!t a&&ect "alidit) and e&&icac) !& t%e $rinci$al c!ntract .*ortant Points -. de0t!r -!*ner 0ear t%e ri 2 !& l! !& t%e $r!$ert) 2. $led#e !r (!rt#a#e i indi"i i0le &-C&.$/01# t! t%e rule !& IN7IVISIBILIT?5 i. *%ere eac% !ne !& e"eral t%in# #uarantee deter(inate $!rti!n !& credit ii. *%ere !nl) $!rti!n !& l!an *a relea ed iii. *%ere t%ere *a &ailure !& c!n iderati!n
<. =. 6.
A.
4. rule t%at real $r!$ert)' c!n i tin# !& e"eral l!t %!uld 0e !ld e$aratel)' a$$lie t! ale in e1ecuti!n' and n!t t! &!recl! ure !& (!rt#a#e t%e (ere e(0!di(ent !& a real e tate (!rt#a#e and a c%attel (!rt#a#e in !ne d!cu(ent d!e n!t %a"e t%e e&&ect !& &u in# 0!t% ecuritie int! an indi"i i0le *%!le c!ntract !& $led#e !r (!rt#a#e (a) ecure all 2ind !& !0li#ati!n' 0e t%e) $ure !r u09ect t! a u $en i"e !r re !lut!r) c!nditi!n a $r!(i e t! c!n titute $led#e !r (!rt#a#e create n! real ri#%t' !nl) a $er !nal ri#%t 0idin# u$!n t%e $artie ' !nl) ri#%t !& acti!n t! c!($el t%e &ul&ill(ent !& t%e $r!(i e 0ut t%ere i n! $led#e !r (!rt#a#e )et under RPC' e ta&a i c!((itted 0) a $er !n *%!' $retendin# t! 0e t%e !*ner !& an) real $r!$ert)' %all c!n"e)' ell' encu(0er !r (!rt#a#e t%e a(e 2n!*in# t%at t%e real $r!$ert) i encu(0ered %all di $! e !& t%e a(e a unencu(0ered. It i e ential t%at &raud !r deceit 0e $racticed u$!n t%e "endee at t%e ti(e !& t%e ale. PRODISIONS APPLICABLE ONLY TO PLED4E
<.
=.
6. ,'
-. tran &er !& $! e i!n t! t%e credit!r !r t! t%ird $er !n 0) c!((!n a#ree(ent i e ential in $led#e - ACTUAL 7ELIVER? i i($!rtant - CONSTRUCTIVE deli"er) !r )(0!lic deli"er) !& t%e 2e) t! t%e *are%!u e i u&&icient t! %!* t%at t%e de$! itar) a$$!inted 0) c!((!n c!n ent !& t%e $artie *a le#all) $laced in $! e i!n. 2. all (!"a0le *it%in c!((erce !& (en (a) 0e $led#ed a l!n# a u ce$ti0le !& $! e i!n 4. inc!r$!real ri#%t
(a) 0e $led#ed. T%e in tru(ent $led#ed %all 0e deli"ered t! t%e credit!r and i& ne#!tia0le' (u t 0e ind!r ed. $led#e %all ta2e e&&ect a#ain t 4rd $er !n !nl) i& t%e && a$$ear in a $u0lic in tru(ent5 a. de cri$ti!n !& t%e t%in# $led#ed 0. date !& t%e $led#e t%in# $led#ed (a) 0e alienated 0) t%e $led#!r !r !*ner !nl) i& *it% t%e c!n ent !& t%e $led#ee. O*ner %i$ !& t%e t%in# $led#ed i tran (itted t! t%e "endee !r tran &eree a !!n a t%e $led#ee c!n ent t! t%e alienati!n' 0utt %e latter %all c!ntinue in $! e i!n c!ntract !& $led#e #i"e ri#%t t! t%e credit!r t! retain t%e t%in# in %i $! e i!n !r in t%at !& a t%ird $er !n t! *%i( it %a 0een deli"ered' until t%e de0t i $aid cre%itor : a. %all ta2e care !& t%e t%in# $led#ed *it% t%e dili#ence !& a #!!d &at%er !& a &a(il) 0. %a t%e ri#%t t! t%e rei(0ur e(ent !& t%e e1$en e (ade &!r it $re er"ati!n i lia0le &!r it l! !r deteri!rati!n 0) rea !n !& &raud' ne#li#ence' dela) !r "i!lati!n !& t%e ter( !& t%e c!ntract' and n!t due t! &!rtuit!u e"ent c. (a) 0rin# t%e acti!n *%ic% $ertain t! t%e !*ner !& t%e t%in# in !rder t! rec!"er it &r!(' !r de&end it a#ain t a 4rd $er !n d. cann!t u e t%e t%in# *it%!ut t%e aut%!rit) !& t%e !*ner' and i& %e %!uld d! !' !r (i u e t%e t%in#' t%e !*ner (a) a 2 t%at it 0e 9udiciall) !r e1tra9udiciall) de$! ited e. (a) u e t%e t%in# i& it i nece ar) &!r t%e $re er"ati!n !& t%e t%in#
&. (a) eit%er clai( an!t%er t%in# in $led#e !r de(and i((ediate $a)(ent !& t%e $rinci$al !0li#ati!n i& %e i decei"ed !n t%e u0 tance !r 6ualit) !& t%e t%in# 4' ple%gee: a. cann!t de$! it t%e t%in# $led#ed *it% a t%ird $er !n' unle t%ere i a ti$ulati!n aut%!riIin# %i( t! d! ! 0. i re $!n i0le &!r t%e act !& %i a#ent !r e($l!)ee *it% re $ect t! t%e t%in# $led#ed c. %a n! ri#%t t! u e t%e t%in# !r t! a$$r!$riate t%e &ruit *it%!ut t%e aut%!rit) !& t%e !*ner d. (a) cau e $u0lic ale !& t%e t%in# $led#ed i&' *it%!ut &ault !n %i $art' t%ere i dan#er !& de tructi!n' i($air(ent !r di(uniti!n in "alue !& t%e t%in#. T%e $r!ceed !& t%e aucti!n %all 0e a ecurit) &!r t%e $rinci$al !0li#ati!n. 6' ple%gor : a. %a t%e re $!n i0ilit) &!r &la* !& t%e t%in# $led#ed. 0. cann!t a 2 &!r t%e return !& t%e t%in# a#ain t t%e *ill !& t%e credit!r' unle and until %e %a $aid t%e de0t and it intere t' *it% e1$en e in a $r!$er ca e c. i all!*ed t! u0 titute t%e t%in# *%ic% i in dan#er !& de tructi!n !r i($air(ent *it%!ut an) &ault !n t%e $art !& t%e $led#ee' *it% an!t%er t%in# !& t%e a(e 2ind and 6ualit) d. (a) re6uire t%at t%e t%in# 0e de$! ited *it% a 4rd $er !n i& t%r!u#% t%e ne#li#ence !r *ill&ul act !& t%e $led#ee t%e t%in# i in dan#er !& 0ein# l! t !r i($aired
E0tin-uis+.ent o, P'e&-e I& t%e t%in# $led#ed i returned 0) t%e $led#ee t! t%e $led#!r !r !*ner' $led#e i e1tin#ui %ed. A tate(ent in *ritin# 0) t%e $led#ee t%at %e ren!unce !r a0and!n t%e $led#e i u&&icient t! e1tin#ui %. G!r t %i $ur$! e' neit%er t%e acce$tance 0) t%e $led#!r ! !*ner' n!r t%e return !& t%e t%in# $led#ed i nece ar)' t%e $led#ee 0ec!(in# a de$! itar). I& u0 e6uent t! t%e $er&ecti!n !& t%e $led#e' t%e t%in# i in t%e $! e i!n !& t%e $led#!r !r !*ner' t%ere i prima fa*ie $re u($ti!n t%at t%e t%in# %a 0een returned 0) t%e $led#ee. I& t%e t%in# i in t%e $! e i!n !& 4 rd $er !n *%! %a recei"ed it &r!( t%e $led#!r !r !*ner a&ter t%e c!n tituti!n !& t%e $led#e' t%ere i prima fa*ie $re u($ti!n t%at t%e t%in# %a 0een returned 0) t%e $led#ee. >ormalities reA!ired in sale by a *reditor if *redit not paid in d!e time: -. t%e de0t i due and un$aid 2. t%e ale (u t 0e at a $u0lic aucti!n 4. t%ere (u t 0e n!tice t! t%e $led#!r and !*ner' tatin# t%e a(!unt due' and <. t%e ale (u t 0e (ade *it% t%e inter"enti!n !& a n!tar) $u0lic E,,ect o, t+e sa'e o, t+e t+in- *'e&-e& -. e1tin#ui %e t%e $rinci$al !0li#ati!n *%et%er t%e $rice !& t%e ale i (!re !r le t%an t%e a(!unt due 2. i& t%e $rice i (!re t%an a(!unt due' t%e de0t!r i n!t entitled t! t%e e1ce unle t%e c!ntrar) i $r!"ided
4. i& t%e $rice !& t%e ale i le ' neit%er i t%e credit!r entitled t! rec!"er t%e de&icienc). C!ntrar) ti$ulati!n i "!id. Le-a' P'e&-es -. Nece ar) e1$en e %all 0e re&unded t! e"er) $! e !r' 0ut !nl) $! e !r in #!!d &ait% (a) retain t%e t%in# until %e %a 0een rei(0ur ed - U e&ul e1$en e %all 0e re&unded !nl) t! t%e $! e !r in #!!d &ait% *it% t%e a(e ri#%t !& retenti!n' t%e $er !n *%! %a de&eated %i( in t%e $! e i!n %a"in# t%e !$ti!n !& re&undin# t%e a(!unt !& t%e e1$en e !r !& $a)in# t%e increa e in "alue *%ic% t%e t%in# (a) %a"e ac6uired and 0) rea !n t%ere!& +art =<6, 2. Be *%! %a e1ecuted *!r2 u$!n a (!"a0le %a a ri#%t t! retain it 0) *a) !& $led#e until %e i $aid. +art -A4-, 4. T%e a#ent (a) retain t%e t%in# *%ic% are t%e !09ect !& a#enc) until t%e $rinci$al e&&ect t%e rei(0ur e(ent and $a) t%e inde(nit). +art -@-<, <. T%e la0!rer> *a#e %all 0e a lien !n t%e #!!d (anu&actured !r t%e *!r2 d!ne. +art -A0A, E0tin-uis+.ent o, *'e&-e: -. $a)(ent !& t%e de0t 2. ale !& t%e t%in# $led#ed at $u0lic aucti!n 4. t%in# $led#ed i returned 0) t%e $led#ee t! t%e $led#!r <. tate(ent in *ritin# 0) t%e $led#ee t%at %e ren!unce !r a0and!n t%e $led#e. S$ecial La* a$$l) t! $a*n %!$ and e ta0li %(ent *%ic% are en#a#ed in (a2in# l!an ecured 0) $led#e . Pr!"i i!n !& t%e Ci"il C!de %all a$$l) u0 idiaril).
ORT4A4E REAL ORT4A4E 5Arts% 2$29A2$B$6 It i a c!ntract *%ere0) t%e de0t!r ecure t! t%e credit!r t%e &ul&ill(ent !& a $rinci$al !0li#ati!n' $eciall) u09ectin# t! uc% ecurit) i((!"a0le $r!$ert) !r real ri#%t !"er i((!"a0le $r!$ert) in ca e t%e $rinci$al !0li#ati!n i n!t c!($lied *it% at t%e ti(e ti$ulated. O)@ects o, Rea' ort-a-e -. i((!"a0le 2. aliena0le real ri#%t in acc!rdance *it% t%e la* ' i($! ed u$!n i((!"a0le B f!t!re property *annot be obCe*t of mortgage I.*ortant Points -. A a #eneral rule' t%e (!rt#a#!r retain $! e i!n !& t%e $r!$ert) %e (a) deli"er aid $r!$ert) t! t%e (!rt#a#ee *it%!ut alterin# t%e nature !& t%e c!ntract !& (!rt#a#e. 2. It i n!t an e ential re6ui ite t%at t%e $rinci$al !& t%e credit 0ear intere t' !r t%at t%e intere t a c!($en ati!n &!r t%e u e !& t%e $rinci$al and t%e en9!)(ent !& it &ruit 0e in t%e &!r( !& a certain $ercent t%ere!&. !in&s o, ort-a-e -. "!luntar) 2. le#al 4. e6uita0le / !ne *%ic%' alt%!u#% it lac2 t%e $r!$er &!r(alitie !& a (!rt#a#e %!* t%e intenti!n !& t%e $artie t! (a2e t%e $r!$ert) a a ecurit) &!r a de0t +$r!"i i!n #!"ernin# e6uita0le (!rt#a#e - art -46=' -<=0' -<=<' -602' -604' -60< and -60A,
Essentia' Re2uisites o, ort-a-e -. c!n tituted t! ecure t%e &ul&ill(ent !& a $rinci$al !0li#ati!n 2. (!rt#a#!r 0e t%e a0 !lute !*ner !& t%e t%in# $led#ed !r (!rt#a#ed 4. t%e $er !n c!n titutin# t%e $led#e !r (!rt#a#e %a"e t%e &ree di $! al !& t%eir $r!$ert)' and in t%e a0 ence t%ere!&' t%at t%e) 0e le#all) aut%!riIed &!r t%e $ur$! e <. cann!t e1i t *it%!ut a "alid !0li#ati!n =. *%en t%e $rinci$al !0li#ati!n 0ec!(e due' t%e t%in# in *%ic% t%e $led#e !r (!rt#a#e c!n i t (a) 0e alienated &!r t%e $a)(ent t! t%e credit!r. 6. a$$ear in a $u0lic d!cu(ent dul) rec!rded in t%e Re#i tr) !& Pr!$ert) t! 0e "alidl) c!n tituted LE8AL MORT8A8E5 t%e $er !n in *%! e &a"!r t%e la* e ta0li %e a (!rt#a#e %a"e !n !t%er ri#%t t%an t! de(and t%e e1ecuti!n and t%e rec!rdin# !& t%e d!cu(ent in *%ic% t%e (!rt#a#e i &!r(aliIed. Inci&ents o, Re-istration o, ort-a-e -. M!rt#a#ee entitled t! re#i trati!n !& (!rt#a#e a a (atter !& ri#%t 2. Pr!ceedin# &!r re#i trati!n d! n!t deter(ine "alidit) !& (!rt#a#e !r it e&&ect 4. Re#i trati!n i *it%!ut $re9udice t! 0etter ri#%t !& t%ird $artie <. M!rt#a#e deed !nce dul) re#i tered &!r( $art !& t%e rec!rd &!r t%e re#i trati!n !& t%e $r!$ert) (!rt#a#ed =. M!rt#a#e 0) ur"i"in# $!u e !& %i 3%er undi"ided %are !& c!n9u#al $r!$ert) can 0e re#i tered E,,ect o, In(a'i&ity o, ort-a-e on *rinci*a' o)'i-ation
-. $rinci$al !0li#ati!n re(ain "alid 2. (!rt#a#e deed re(ain a e"idence !& a $er !nal !0li#ati!n E,,ect o, ort-a-e -. create real ri#%t ' a lien in e$ara0le &r!( t%e $r!$ert) (!rt#a#ed' en&!rcea0le a#ain t t%e *%!le *!rld 2. create (erel) an encu(0rance La3s 4o(ernin- ort-a-e -. Ne* Ci"il C!de 2. P7 -@=2 4. Re"i ed Ad(ini trati"e C!de <. RA <CC2' a re#ard alien 0ec!(in# (!rt#a#e Forec'osure o, ort-a-e5 It i t%e re(ed) a"aila0le t! t%e (!rt#a#ee 0) *%ic% %e u09ect t%e (!rt#a#ed $r!$ert) t! t%e ati &acti!n !& t%e !0li#ati!n t! ecure *%ic% t%e (!rt#a#e *a #i"en. !in&s o, Forec'osure -. 9udicial 2. e1tra9udicial B!t% %!uld 0e di tin#ui %ed &r!( e1ecuti!n ale #!"erned 0) Rule 4@ !& t%e Rule !& C!urt. EUDICIAL FORECLOSURE +#!"erned 0) Rule 6C !& Rule !& C!urt, -. Ma) 0e a"ailed !& 0) 0rin#in# an acti!n in t%e $r!$er c!urt *%ic% %a 9uri dicti!n !"er t%e area *%erein t%e real $r!$ert) in"!l"ed !r a $!rti!n t%ere!& i ituated 2. I& t%e c!urt &ind t%e c!($laint t! 0e *ell-&!unded' it %all !rder t%e (!rt#a#!r t! $a) t%e a(!unt due *it% intere t and !t%er c%ar#e *it%in a $eri!d !& n!t le
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page (5 of 61
4. <.
=. 6.
A.
t%an @0 da) n!r (!re t%an -20 da) &r!( t%e entr) !& 9ud#(ent I& t%e (!rt#a#!r &ail t! $a) at ti(e directed' t%e c!urt' u$!n (!ti!n' %all !rder t%e $r!$ert) t! 0e !ld t! t%e %i#%e t 0idder at a $u0lic aucti!n. U$!n c!n&ir(ati!n !& t%e ale 0) t%e c!urt' al ! u$!n (!ti!n' it %all !$erate t! di"e t t%e ri#%t !& all $artie t! t%e acti!n and t! "e t t%eir ri#%t t! t%e $urc%a er u09ect t! uc% ri#%t !& rede($ti!n a (a) 0e all!*ed 0) la* Be&!re t%e c!n&ir(ati!n' t%e c!urt retain c!ntr!l !& t%e $r!ceedin# T%e $r!ceed !& t%e ale %all 0e a$$lied t! t%e $a)(ent !& t%e5 a. C! t !& t%e aleD 0. A(!unt due t%e (!rt#a#eeD c.Clai( !& 9uni!r encu(0rancer !r $er !n %!ldin# u0 e6uent (!rt#a#e in t%e !rder !& t%eir $ri!rit)D and d. t%e 0alance' i& an) %all 0e $aid t! t%e (!rt#a#!r S%eri&&> certi&icate i e1ecuted' ac2n!*led#ed and rec!rded t! c!($lete t%e &!recl! ure
2. 4. <. =. 6.
aut%!rit) i n!t e1tin#ui %ed 0) deat% !& (!rt#a#!r !r (!rt#a#ee $u0lic ale %!uld 0e (ade a&ter $r!$er n!tice ur$lu $r!ceed !& &!recl! ure ale 0el!n# t! t%e (!rt#a#!r de0t!r %a t%e ri#%t t! redee( t%e $r!$ert) !ld *it%in - )ear &r!( and a&ter t%e date !& ale re(ed) !& $art) a##rie"ed 0) &!recl! ure i a $etiti!n t! et a ide ale and cancellati!n !& *rit !& $! e i!n.
Ri-+t o, .ort-a-ee to reco(er &e,iciency -. M!rt#a#ee i entitled t! rec!"er de&icienc) 2. I& t%e de&icienc) i e(0!died in a 9ud#(ent' it i re&erred t! a defi*ien*y C!dgment 4. Acti!n &!r rec!"er) !& de&icienc) (a) 0e &iled e"en durin# rede($ti!n $eri!d. <. Acti!n t! rec!"er $re cri0e a&ter -0 )ear &r!( t%e ti(e t%e ri#%t !& acti!n accrue Nature o, *o3er o, ,orec'osure )y e0tra@u&icia' sa'e -. c!n&erred &!r (!rt#a#ee> $r!tecti!n 2. an ancillar) ti$ulati!n 4. a $rer!#ati"e !& t%e (!rt#a#ee N!te5 Sti$ulati!n !& u$ et $rice in (!rt#a#e c!ntract i "!id E,,ect o, ina&e2uacy o, *rice in ,orec'osure sa'e -. W%ere t%ere i ri#%t t! redee( )R5 Inade6uac) !& $rice i i((aterial 0ecau e t%e 9ud#(ent de0t!r (a) redee( t%e $r!$ert) &-C&.$/015 t%e $rice i ! inade6uate a t! %!c2 t%e c!n cience !& t%e c!urt ta2in# int! c!n iderati!n t%e $eculiar circu( tance
Nature o, Eu&icia' Forec'osure Procee&in-s -. 6ua i in re( acti!n 2. &!recl! ure i !nl) t%e re ult !r incident !& t%e &ailure t! $a) de0t 4. ur"i"e deat% !& (!rt#a#!r EJTRAEUDICIAL FORECLOSURE +#!"erned 0) Act N!' 4-4=' a a(ended, -. e1$re aut%!rit) t! ell i #i"en t! t%e (!rt#a#ee.
2. Pr!$ert) (a) 0e !ld &!r le t%an it &air (ar2et "alue u$!n t%e t%e!r) t%at t%e le er t%e $rice t%e ea ier &!r t%e !*ner t! redee( 4. T%e "alue !& t%e (!rt#a#ed $r!$ert) %a n! 0earin# !n t%e 0id $rice at t%e $u0lic aucti!n' $r!"ided t%at t%e $u0lic aucti!n *a re#ularl) and %!ne tl) c!nducted Wai(er o, security )y cre&itor -. M!rt#a#ee (a) *ai"e ri#%t t! &!recl! e %i (!rt#a#e and (aintain a $er !nal acti!n &!r rec!"er) !& t%e inde0tedne 2. M!rt#a#ee cann!t %a"e 0!t% re(edie N!te5 G!recl! ure retr!act t! t%e date !& re#i trati!n !& (!rt#a#e Sti*u'ation o, U*set Price A ti$ulati!n !& (ini(u( $rice at *%ic% t%e $r!$ert) %all 0e !ld t! 0ec!(e !$erati"e in t%e e"ent !& a &!recl! ure ale at $u0lic aucti!n i NULL and VOI7 REDE PTION It i a tran acti!n 0) *%ic% t%e (!rt#a#!r reac6uire t%e $r!$ert) *%ic% (a) %a"e $a ed under t%e (!rt#a#e !r di"e t t%e $r!$ert) !& t%e lien *%ic% t%e (!rt#a#e (a) %a"e created. !in&s o, Re&e.*tion -. eA!ity of redemption: ri#%t !& t%e (!rt#a#!r t! redee( t%e (!rt#a#ed $r!$ert) a&ter %i de&ault in t%e $er&!r(ance !& t%e c!nditi!n !& t%e (!rt#a#e 0ut 0e&!re t%e ale !& t%e (!rt#a#ed $r!$ert) !r c!n&ir(ati!n !& ale 2. right of redemption: ri#%t !& t%e (!rt#a#!r t! redee( t%e $r!$ert) *it%in a certain $eri!d a&ter it *a !ld &!r t%e ati &acti!n !& t%e de0t
C#ATTEL ORT4A4E +Art . 2-<0-2-<-, It i a c!ntract 0) "irtue !& *%ic% a $er !nal $r!$ert) i rec!rded in t%e C%attel M!rt#a#e Re#i ter a ecurit) &!r t%e $er&!r(ance !& an !0li#ati!n. NOTE: I, t+e .o(a)'e/ instea& o, )ein- recor&e& is &e'i(ere& to t+e cre&itor/ it is *'e&-e an& not c+atte' .ort-a-e% C#ATTEL ORT4A4E In"!l"e (!"a0le $r!$ert) 7eli"er) !& t%e $er !nal $r!$ert) i NOT nece ar) Re#i trati!n i nece ar) &!r "alidit) Pr!cedure5 Sec -< !& Act n! -=0C' a a(ended I& t%e $r!$ert) i &!recl! ed' t%e e1ce !"er t%e a(!unt due #!e t! t%e de0t!r PLED4E In"!l"e (!"a0le $r!$ert) 7eli"er) !& t%e $er !nal $r!$ert) i nece ar) Re#i trati!n i NOT nece ar) &!r "alidit) Pr!cedure5 Art 2--2 !& Ci"il C!de I& t%e $r!$ert) i !ld' t%e de0t!r i n!t entitled t! t%e t! t%e e1ce UNLESS it i !t%er*i e a#reed !r in ca e !& le#al $led#e Credit!r i entitled t! Credit!r i n!t entitled t! de&icienc) &r!( t%e de0t!r rec!"er de&icienc) EKCEPT i& it i a ecurit) &!r n!t*it% tandin# an) t%e $urc%a e !& $er !nal ti$ulati!n t! t%e c!ntrar) $r!$ert) in in tall(ent La* 8!"ernin# C%attel M!rt#a#e -. C%attel M!rt#a#e La*' Act N!. -=0C' a a(ended 2. Ci"il C!de 4. Re"i ed Ad(ini trati"e C!de <. Re"i ed Penal C!de
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page (' of 61
=. S%i$ M!rt#a#e 7ecree !& -@AC +P7 -=2-, #!"ern (!rt#a#e !& "e el !& d!(e tic !*ner %i$ A,,i&a(it o, 4oo& Fait+ An !at% in a c!ntract !& c%attel (!rt#a#e *%erein t%e $artie O e"erall) *ear t%at t%e (!rt#a#e i (ade &!r t%e $ur$! e !& ecurin# t%e !0li#ati!n $eci&ied in t%e c!nditi!n t%ere!& and &!r n! !t%er $ur$! e and t%at t%e a(e i a 9u t and "alid !0li#ati!n and !ne n!t entered int! &!r t%e $ur$! e !& &raud. E,,ect o, Re-istration -. create real ri#%t 2. add n!t%in# t! (!rt#a#e N!te5 Re#i trati!n !& a i#n(ent !& (!rt#a#e i n!t re6uired Ri-+t o, Re&e.*tion -. *%en t%e c!nditi!n !& a c%attel (!rt#a#e i 0r!2en' t%e && (a) redee(5 a. (!rt#a#!rD 0. $er !n %!ldin# a u0 e6uent (!rt#a#eD c. u0 e6uent attac%in# credit!r. 2. an attac%in# credit!r *%! ! redee( %all 0e u0r!#ated t! t%e ri#%t !& t%e (!rt#a#ee and entitled t! &!recl! e t%e (!rt#a#e in t%e a(e (anner t%at t%e (!rt#a#ee c!uld &!recl! e it 4. t%e rede($ti!n i (ade 0) $a)in# !r deli"erin# ! t%e (!rt#a#ee t%e a(!unt due !n uc% (!rt#a#e and t%e c! t and e1$en e incurred 0) uc% 0reac% !& c!nditi!n 0e&!re t%e ale Forec'osure o, C+atte' -. $u0lic ale ort-a-e
2. $ri"ate ale / t%ere i n!t%in# ille#al' i((!ral !r a#ain t $u0lic !rder in an a#ree(ent &!r t%e $ri"ate ale !& t%e $er !nal $r!$ertie c!"ered 0) c%attel (!rt#a#e Perio& to Forec'ose -. A&ter 40 da) &r!( t%e ti(e !& t%e c!nditi!n i 0r!2en 2. T%e 40-da) $eri!d i t%e (ini(u( $eri!d a&ter "i!lati!n !& t%e (!rt#a#e c!nditi!n &!r t%e credit!r t! cau e t%e ale at $u0lic aucti!n *it% at lea t -0 da) n!tice t! t%e (!rt#a#!r and $! tin# !& $u0lic n!tice !& ti(e' $lace' and $ur$! e !& uc% ale' and i a $eri!d !& #race &!r t%e (!rt#a#!r' t! di c%ar#e t%e !0li#ati!n. 4. A&ter t%e ale at $u0lic aucti!n' t%e ri#%t !& rede($ti!n i n! l!n#er a"aila0le t! t%e (!rt#a#!r. Ci(i' action to reco(er cre&it -. inde$endent acti!n n!t re6uired 2. (!rt#a#e lien dee(ed a0and!ned 0) !0tainin# a $er !nal 9ud#(ent Ri-+t o, .ort-a-ee to reco(er &e,iciency -. 7here mortgage fore*losed: credit!r (a) (aintain acti!n &!r de&icienc) alt%!u#% C%attel M!rt#a#e La* i ilent !n t%i $!int. Rea !n i c%attel (!rt#a#e i !nl) #i"en a a ecurit) and n!t a $a)(ent !& t%e de0t. 2. 7here mortgage *onstit!ted as se*!rity for p!r*hase of personal property payable in installments: n! de&icienc) 9ud#(ent can 0e a 2ed and an) c!ntrar) a#ree(ent %all 0e "!id 4. 7here mortgaged property s!bseA!ently atta*hed and sold: (!rt#a#ee i entitle t! de&icienc) 9ud#(ent in an acti!n &!r $eci&ic $er&!r(ance
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page (( of 61
A**'ication o, *rocee&s o, sa'e -. c! t and e1$en e !& 2ee$in# and ale 2. $a)(ent !& t%e !0li#ati!n 4. clai( !& $er !n %!ldin# u0 e6uent (!rt#a#e in t%eir !rder <. 0alance' i& an)' %all 0e $aid t! t%e (!rt#a#!r' !r $er !n %!ldin# under %i( CONCURRENCE AND PREFERENCE OF CREDITS 5Arts% 22B:A22?$6 Con*!rren*e of *redit: It i($lie $! e i!n 0) t*! !r (!re credit!r !& e6ual ri#%t !r $ri"ile#e !"er t%e a(e $r!$ert) !r all !& t%e $r!$ert) !& a de0t!r. .referen*e of Credit: It i t%e ri#%t %eld 0) a credit!r t! 0e $re&erred in t%e $a)(ent !& %i clai( a0!"e !t%er !ut !& t%e de0t!r> a et . <. 4enera' Pro(isions: -. t%e de0t!r i lia0le *it% all %i $r!$ert)' $re ent and &uture' &!r t%e &ul&ill(ent !& %i !0li#ati!n ' u09ect t! e1e($ti!n $r!"ided 0) la* - e1e($t $r!$ert)5 a. $re ent $r!$ert) -. &a(il) %!(e +Art -=2' -=4 and -==' NCC, 2. ri#%t t! recei"e u$$!rt a *ell a (!ne) !r $r!$ert) !0tained 0) uc% u$$!rt %all n!t 0e le"ied u$!n !n attac%(ent !r e1ecuti!n +Art 20=' NCC, 4. Sec -4' Rule 4@' Rule !& C!urt 2. 4.
=.
<. Sec --C' t%e $u0lic Land Act' + CA N!. -<-' a a(ended, 0. &uture $r!$ert) - a de0t!r *%! !0tain a di c%ar#e &r!( %i de0t !n acc!unt !& in !l"enc)' i n!t lia0le &!r t%e un ati &ied clai( !& %i credit!r *it% aid $r!$ert) +Sec . 6C and 6@' In !l"enc) La*' Act N!. -@=6 c. $r!$ert) in cu t!dia le#i and !& $u0lic d!(ini!n in !l"enc) %all 0e #!"erned 0) t%e In !l"enc) La* +Act N!. -@=6' a a(ended, E1e($ti!n !& c!n9u#al $r!$ert) !r a0 !lute c!((unit) !r $r!$ert) $r!"ided t%at5 a. Partner %i$ !r c!((unit) u0 i t 0. O0li#ati!n !& t%e in !l"ent $!u e %a"e n!t red!unded t! t%e 0ene&it !& t%e &a(il) i& t%ere i c!-!*ner %i$' and !ne !& t%e c!-!*ner i t%e in !l"ent de0t!r' %i undi"ided %are !r intere t in t%e $r!$ert) %all 0e $! e ed 0) t%e a i#nee in in !l"enc) $r!ceedin# 0ecau e it i $art !& %i a et $r!$ert) %eld 0) t%e in !l"ent de0t!r a a tru tee !& an e1$re !r i($lied tru t' %all 0e e1cluded &r!( t%e in !l"enc) $r!ceedin#
C'assi,ication o, Cre&its -. $ecial $re&erred credit +Art 22<- and 22<2 !& NCC, a. c!n idered a (!rt#a#e !r $led#e !& real !r $er !nal $r!$ert) !r lien *it%in t%e $ur"ie* !& le#al $r!"i i!n #!"ernin# in !l"enc) 0. ta1e due t! t%e State %all &ir t 0e ati &ied
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page (+ of 61
2.!rdinar) $re&erred credit +Art 22<<, $re&erred in t%e !rder #i"en 0) la* 4.c!((!n credit +Art 22<=, - credit !& an) !t%er 2ind !r cla ' !r 0) an) !t%er ri#%t !r title n!t c!($ri ed in Art 22<-22<< %all en9!) n! $re&erence Or&er o, Pre,erence o, Cre&it -. credit *%ic% en9!) $re&erence *it% re $ect t! $eci&ic (!"a0le ' e1clude all !t%er t! t%e e1tent !& t%e "alue !& t%e $er !nal $r!$ert) t! *%ic% t%e $re&erence re&er . 2. i& t%ere are 2 !r (!re credit *it% re $ect t! t%e a(e $eci&ic (!"a0le $r!$ert)' t%e) %all 0e ati &ied pro rata' a&ter t%e $a)(ent !& dutie ' ta1e and &ee due t%e State !r an) u0di"i i!n t%ere!& 4. t%! e credit *%ic% en9!) $re&erence in relati!n t! $eci&ic real $r!$ert) !r real ri#%t ' e1clude all !t%er t! t%e e1tent !& t%e "alue !& t%e i((!"a0le !r real ri#%t t! *%ic% t%e $re&erence re&er . <. i& t%ere are 2 !r (!re credit *it% re $ect t! t%e a(e $eci&ic real $r!$ert) !r real ri#%t ' t%e) %all 0e ati &ied pro rata' a&ter t%e $a)(ent !& t%e ta1e and a e (ent !& t%e ta1e and a e (ent u$!n t%e i((!"a0le $r!$ert) !r real ri#%t. =. t%e e1ce ' i& an)' a&ter t%e $a)(ent !& t%e credit *%ic% en9!) $re&erence *it% re $ect t! $eci&ic $r!$ert)' real !r $er !nal' %all 0e added t! t%e &ree $r!$ert) *%ic% t%e de0t!r (a) %a"e' &!r t%e $a)(ent !& !t%er credit . 6. t%! e credit *%ic% d! n!t en9!) an) $re&erence *it% re $ect t! $eci&ic $r!$ert)' and t%! e *%ic% en9!) $re&erence' a t! t%e a(!unt n!t $aid' %all 0e ati &ied acc!rdin# t! t%e &!ll!*in# rule 5 - !rder e ta0li %ed 0) Art 22<<
- c!((!n credit re&erred t! in Art 22<= %all 0e $aid pro rata re#ardle !& date . 4UARANTY AND SURETYS#IP 4UARANTY 52=976 A B) #uarant)' a $er !n called t%e #uarant!r' 0ind %i( el& t! t%e credit!r' t! &ul&ill t%e !0li#ati!n !& t%e $rinci$al de0t!r in ca e t%e latter %!uld &ail t! d! !. It i a c!ntract 0et*een t%e #uarant!r and t%e credit!r. C#ARACTERISTICS OF T#E CONTRACT -. Accessory ; de$endent &!r it e1i tence u$!n t%e $rinci$al !0li#ati!n #uaranteed 0) itD 2. Su)si&iary an& con&itiona' ; ta2e e&&ect !nl) *%en t%e $rinci$al de0t!r &ail in %i !0li#ati!n u09ect t! li(itati!n 4. Uni'atera' ; a. It #i"e ri e !nl) t! a dut) !n t%e $art !& t%e #uarant!r in relati!n t! t%e credit!r and n!t "ice "er a 0. It (a) 0e entered int! e"en *it%!ut t%e inter"enti!n !& t%e $rinci$al de0t!r. <. 4uarantor .ust )e a *erson &istinct ,ro. t+e &e)tor ; a $er !n cann!t 0e t%e $er !nal #uarant!r !& %i( el& CLASSIFICATION OF 4UARANTY $% 4uaranty in t+e )roa& sense: a. Persona' ; #uarant) i t%e credit #i"en 0) t%e $er !n *%! #uarantee t%e &ul&ill(ent !& t%e $rinci$al !0li#ati!nD !r 0. Rea' ; #uarant) i $r!$ert)' (!"a0le' !r i((!"a0le
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page (, of 61
2%
B%
9%
?%
i. Rea' .ort-a-e 52$296 or antic+resis 52$B26 ; #uarant) i i((!"a0le ii. C+atte' .ort-a-e 52$9=6 or *'e&-e 52=>B6 ; #uarant) i (!"a0le As to its ori-in: a. Con(entiona' ; c!n tituted 0) a#ree(ent !& t%e $artie 52=?$K$L6 0. Le-a' ; i($! ed 0) "irtue !& a $r!"i i!n !& la* c. Eu&icia' ; re6uired 0) a c!urt t! #uarantee t%e e"entual ri#%t !& !ne !& t%e $artie in a ca e. As to consi&eration: a. 4ratuitous ; #uarant!r d!e n!t recei"e an) $rice !r re(unerati!n &!r actin# a uc% 52=986 0. Onerous ; !ne *%ere t%e #uarant!r recei"e "alua0le c!n iderati!n &!r %i #uarant) As to *erson -uarantee&: a. Sin-'e ; c!n tituted !lel) t! #uarantee !r ecure $er&!r(ance 0) t%e de0t!r !& t%e $rinci$al !0li#ati!nD 0. Dou)'e or su)A-uaranty ; c!n tituted t! ecure t%e &ul&ill(ent 0) t%e #uarant!r !& a $ri!r #uarant) As to its sco*e an& e0tent: a. De,inite ; *%ere t%e #uarant) i li(ited t! t%e $rinci$al !0li#ati!n !nl)' !r t! a $eci&ic $!rti!n t%ere!&D 0. In&e,inite or si.*'e ; *%ere t%e #uarant) included all t%e acce !r) !0li#ati!n !& t%e $rinci$al' e.#. c! t ' includin# 9udicial c! t .
Exception: W%en t%ere i a ti$ulati!n t! t%e c!ntrar) Cause o, contract o, -uaranty -. Presence o, cause 3+ic+ su**orts *rinci*a' o)'i-ation: Cau e !& t%e c!ntract i t%e a(e cau e *%ic% u$$!rt t%e !0li#ati!n a t! t%e $rinci$al de0t!r. T%e c!n iderati!n *%ic% u$$!rt t%e !0li#ati!n a t! t%e $rinci$al de0t!r i a u&&icient c!n iderati!n t! u$$!rt t%e !0li#ati!n !& a #uarant!r !r uret). 2. A)sence o, &irect consi&eration or )ene,it to -uarantor: 8uarant) !r uret) a#ree(ent i re#arded "alid de $ite t%e a0 ence !& an) direct c!n iderati!n recei"ed 0) t%e #uarant!r !r uret)' uc% c!n iderati!n need n!t $a directl) t! t%e #uarant!r !r uret)D a c!n iderati!n (!"in# t! t%e $rinci$al *ill u&&ice. ARRIED WO AN AS 4UARANTOR 52=9>6 4enera' ru'e: Married *!(an 0ind $r!$ert) Exceptions: -. Wit% %er %u 0and> c!n ent' 0ind t%e c!((unit) !r c!n9u#al $artner %i$ $r!$ert) 2. Wit%!ut %u 0and> c!n ent' in ca e $r!"ided 0) la*' uc% a *%en t%e #uarant) %a red!unded t! t%e 0ene&it !& t%e &a(il). 4UARANTY UNDERTA!EN WIT#OUT !NOWLED4E OF DEBTOR 52=?=6 -. 4uaranty is uni'atera' / e1i t &!r t%e 0ene&it !& t%e credit!r and n!t &!r t%e 0ene&it !& t%e $rinci$al de0t!r !nl) %er e$arate
4UARANTY 4ENERALLY 4RATUITOUS 52=986 4R: 8uarant) i #ratuit!u
2. Cre&itor +as e(ery ri-+t to ta1e a'' *ossi)'e .easures to secure *ay.ent o, +is cre&it / #uarant) can 0e c!n tituted e"en a#ain t t%e *ill !& t%e $rinci$al de0t!r Ri#%t !& t%ird $er !n *%! $a)5 $% Pay.ent 3it+out t+e 1no3'e&-e or a-ainst t+e 3i'' o, t+e &e)tor: a. 8uarant!r can rec!"er !nl) in !&ar a t%e $a)(ent %a 0een 0ene&icial t! t%e de0t!r 0. 8uarant!r cann!t c!($el t%e credit!r t! u0r!#ate %i( in %i ri#%t 2. Pay.ent 3it+ 1no3'e&-e or consent o, t+e &e)tor: Su0r!#ated t! all t%e ri#%t *%ic% t%e credit!r %ad a#ain t t%e de0t!r 4UARANTY BY REASON OF ORI4IN 52=?$K$L6 -. C!n"enti!nalD 2. HudicialD 4. Le#al DOUBLE OR SUBA4UARANTY 52=?$K2L6 One c!n tituted t! #uarantee t%e !0li#ati!n !& a #uarant!r. It %!uld n!t 0e c!n&!unded *it% #uarant) *%erein e"eral #uarant!r c!ncur. NECESSITY OF DALID PRINCIPAL OBLI4ATION 52=?2K$L6 4uaranty is an accessory contract: It i an indi $en a0le c!nditi!n &!r it e1i tence t%at t%ere (u t 0e a $rinci$al
!0li#ati!n. Bence' i, t+e *rinci*a' o)'i-ation is (oi&/ it is a'so (oi&% 4UARANTY OF DOIDABLE/ UNENFORCEABLE/ AND NATURAL OBLI4ATIONS 52=?2K2L6 A #uarant) (a) ecure t%e $er&!r(ance !& a5 -. Doi&a)'e contract ; uc% c!ntract i 0in#in#' unle it i annulled 0) a $r!$er c!urt acti!n 2. Unen,orcea)'e contract ; 0ecau e uc% c!ntract i n!t "!id 4. Natura' o)'i-ation ; t%e credit!r (a) $r!ceed a#ain t t%e #uarant!r alt%!u#% %e %a n!t ri#%t !& acti!n a#ain t t%e $rinci$al de0t!r &!r t%e rea !n t%at t%e latter> !0li#ati!n i n!t ci"ill) en&!rcea0le. W%en t%e de0t!r %i( el& !&&er a #uarant) &!r %i natural !0li#ati!n' %e i($liedl) rec!#niIe %i lia0ilit)' t%ere0) tran &!r(in# t%e !0li#ati!n &r!( a natural int! a ci"il !ne. 4UARANTY OF FUTURE DEBTS 52=?B6 Continuin- 4uaranty or Suretys+i*: -. N!t li(ited t! a in#le tran acti!n 0ut *%ic% c!nte($late a &uture c!ur e !& dealin# ' c!"erin# a erie !& tran acti!n #enerall) &!r an inde&inite ti(e !r until re"!2ed. 2. It i $r! $ecti"e in it !$erati!n and i #enerall) intended t! $r!"ide ecurit) *it% re $ect t! &uture tran acti!n . 4. Guture de0t ' e"en i& t%e a(!unt i n!t )et 2n!*n' (a) 0e #uaranteed 0ut t%ere can 0e n! clai( a#ain t t%e
#uarant!r until t%e a(!unt !& t%e de0t i a certained !r &i1ed and de(anda0le. Reason: A c!ntract !& #uarant) i u0 idiar). a. To secure t+e *ay.ent o, a 'oan at .aturity ; uret) 0ind %i( el& t! #uarantee t%e $unctual $a)(ent !& a l!an at (aturit) and all !t%er !0li#ati!n !& inde0tedne *%ic% (a) 0ec!(e due !r !*in# t! t%e $rinci$al 0) t%e 0!rr!*er. 0. To secure *ay.ent i, any &e)t to )e su)se2uent'y incurre& ; a #uarant) %all 0e c!n trued a c!ntinuin# *%en 0) t%e ter( t%er!& it i e"ident t%at t%e !09ect i t! #i"e a tandin# credit t! t%e $rinci$al de0t!r t! 0e u ed &r!( ti(e t! ti(e eit%er inde&initel) !r until a certain $eri!d' e $eciall) i& t%e ri#%t t! recall t%e #uarant) i e1$re l) re er"ed. c. To secure e0istin- un'i2ui&ate& &e)ts ; re&er t! de0t e1i tin# at t%e ti(e !& t%e c!n tituti!n !& t%e #uarant) 0ut t%e a(!unt t%ere!& i un2n!*n and n!t t! dent n!t )et incurred and e1i tin# at t%at ti(e. T%e uret) a#ree(ent it el& i "alid and 0indin# e"en 0e&!re t%e $rinci$al !0li#ati!n intended t! 0e ecured t%ere0) i 0!rn' an) (!re t%an t%ere *!uld 0e in a)in# t%at !0li#ati!n *%ic% are u09ect t! a c!nditi!n $recedent are "alid and 0indin# 0e&!re t%e !ccurrence !& t%e c!nditi!n $recedent
4uaranty o, con&itiona' o)'i-ations: A #uarant) (a) ecure all 2ind !& !0li#ati!n ' 0e t%e) $ure !r u09ect t! a u $en i"e !r re !lut!r) c!nditi!n. -. Princi*a' o)'i-ation su)@ect to a sus*ensi(e con&ition ; t%e #uarant!r i lia0le !nl) a&ter t%e &ul&ill(ent !& t%e c!nditi!n. 2. Princi*a' o)'i-ation su)@ect to a reso'utory con&ition ; t%e %a$$enin# !& t%e c!nditi!n e1tin#ui %e 0!t% t%e $rinci$al !0li#ati!n and t%e #uarant) 4UARANTORFS LIABILITY CANNOT EJCEED PRINCIPAL OBLI4ATION 52=?96 4R: 4uaranty is a su)si&iary an& accessory contract ; #uarant!r cann!t 0ind %i( el& &!r (!re t%an t%e $rinci$al de0t!r and e"en i& %e d!e ' %i lia0ilit) %all 0e reduced t! t%e li(it !& t%at !& t%e de0t!r. But t%e #uarant!r (a) 0ind %i( el& &!r le t%an t%at !& t%e $rinci$al. Exceptions: -. Interest/ @u&icia' costs/ an& attorneyFs ,ees as *art o, &a.a-es .ay )e reco(ere& ; credit!r uin# !n a uret) %i$ 0!nd (a) rec!"er &r!( t%e uret) a $art !& t%eir da(a#e ' intere t at t%e le#al rate' 9udicial c! t ' and att!rne)> &ee *%en a$$r!$riate' e"en *it%!ut ti$ulati!n and e"en i& t%e uret) *!uld t%ere0) 0ec!(e lia0le t! $a) (!re t%an t%e t!tal a(!unt ti$ulated in t%e 0!nd. Reason: Suret) i (ade t! $a)' n!t 0) rea !n !& t%e c!ntract' 0ut )y reason o, +is ,ai'ure to *ay 3+en &e.an&e& an& ,or +a(in- co.*e''e& t+e cre&itor to resort to t+e courts to o)tain *ay.ent%
Interest runs ,ro.: a. Gilin# !& t%e c!($laint +u$!n 9udicial de(and,D !r 0. T%e ti(e de(and *a (ade u$!n t%e uret) until t%e $rinci$al !0li#ati!n i &ull) $aid +u$!n e1tra-9udicial de(and, 2. Pena'ty .ay )e *ro(i&e& ; a uret) (a) 0e %eld lia0le &!r t%e $enalt) $r!"ided &!r in a 0!nd &!r "i!lati!n !& t%e c!nditi!n t%erein. Princi*a'Fs 'ia)i'ity .ay e0cee& -uarantorFs o)'i-ations T%e a(!unt $eci&ied in a uret) 0!nd a t%e uret)> !0li#ati!n d!e n!t li(it t%e e1tent !& t%e da(a#e t%at (a) 0e rec!"ered &r!( t%e $rinci$al' t%e latter> lia0ilit) 0ein# #!"erned 0) t%e !0li#ati!n %e a u(ed under %i c!ntract. 4UARANTY NOT PRESU ED 52=??6 8uarant) re6uire t%e e1$re i!n !& c!n ent !n t%e $art !& t%e #uarant!r t! 0e 0!und. It cann!t 0e $re u(ed 0ecau e !& t%e e1i tence !& a c!ntract !r $rinci$al !0li#ati!n. Reasons: -. T%ere 0e a urance t%at t%e #uarant!r %ad t%e true intenti!n t! 0ind %i( el&D 2. T! (a2e certain t%at !n (a2in# it' t%e #uarant!r $r!ceeded *it% c!n ci!u ne !& *%at %e *a d!in#. 4uaranty Co(ere& )y t+e Statute o, Frau&s
8uarant) (u t n!t !nl) 0e e1$re ed 0ut (u t ! 0e re&uce& into 3ritin-% Bence' it %all 0e unen&!rcea0le 0) acti!n' unle t%e a(e !r !(e n!te !r (e(!randu( t%ere!& 0e in *ritin#' and u0 cri0ed 0) t%e $art) c%ar#ed' !r 0) %i a#entD e"idence' t%ere&!re' !& t%e a#ree(ent cann!t 0e recei"ed *it%!ut t%e *ritin#' !r a ec!ndar) e"idence !& it c!ntent . It need n!t a$$ear in a $u0lic d!cu(ent.
4uaranty Strict'y Construe& Strictl) c!n trued a#ain t t%e credit!r in &a"!r !& t%e #uarant!r and i n!t 0e e1tended 0e)!nd it ter( !r $eci&ied li(it . I& t%ere i an) d!u0t !n t%e ter( and c!nditi!n !& t%e #uarant) !r uret) a#ree(ent ' t%e d!u0t %!uld 0e re !l"ed in &a"!r !& t%e #uarant!r !r uret). -. Lia)i'ity ,or o)'i-ation sti*u'ate& ; #uarant!r i lia0le !nl) &!r t%e !0li#ati!n !& t%e de0t!r ti$ulated u$!n' and n!t t! !0li#ati!n a u(ed $re"i!u t! t%e e1ecuti!n !& t%e #uarant) unle an intent t! 0e ! lia0le i clearl) indicated. 2. Lia)i'ity o, surety 'i.ite& to a ,i0e& *erio& ; t%e uret) (u t !nl) 0e 0!und in t%e (anner and t! t%e e1tent' and under t%e circu( tance *%ic% are et &!rt% !r *%ic% (a) 0e in&erred &r!( t%e c!ntract !& #uarant) !r uret) %i$' and n! &art%er. 4. Lia)i'ity o, surety to e0*ire on .aturity o, *rinci*a' o)'i-ation ; uc% ti$ulati!n i un&air and unrea !na0le &!r it $racticall) nulli&ie t%e nature !& t%e underta2in# it %ad a u(ed.
Reason: T%e lia0ilit) !& t%e uret) attac%e a !!n a t%e $rinci$al de0t!r de&ault ' and n!tice t%ere!& i #i"en t%e uret) *it%in a rea !na0le ti(e t! ena0le it t! ta2e te$ t! $r!tect it intere t. Re.e&y o, surety: G!recl! e t%e c!unter0!nd $ut u$ 0) t%e $rinci$al de0t!r +i& t%ere i an), 4UARANTY DISTIN4UIS#ED FRO 8UARANT? WARRANTY WARRANT?
u e !& due dili#ence' t%e *it%!ut re&erence t! t%e dent cann!t 0e $aid !l"enc) !& t%e $rinci$al' and i ! re $!n i0le at !nce t%e latter (a2e de&ault' *it%!ut an) de(and 0) t%e credit!r u$!n t%e $rinci$al *%at !e"er !r an) n!tice !& de&ault Onl) 0ind %i( el& t! $a) i& Underta2e t! $a) i& t%e t%e $rinci$al cann!t !r $rinci$al d!e n!t $a)' una0le t! $a) *it%!ut re#ard t! %i a0ilit) t! d! ! In urer !& t%e !l"enc) !& t%e In urer !& t%e de0t de0t!r 7!e n!t c!ntract t%at t%e Pa) t%e credit!r *it%!ut $rinci$al *ill $a)' 0ut i($l) 6uali&icati!n i& t%e $rinci$al t%at %e i a0le t! d! ! de0t!r d!e n!t $a). Bence' t%e re $!n i0ilit) !r !0li#ati!n a u(ed 0) t%e uret) i #reater !r (!re !ner!u t%an t%at !& a #uarant!r HUALIFICATIONS OF 4UARANTOR 52=?:A2=?76 -. Be $! e e inte-rityG 2. Be %a ca*acity to )in& +i.se',D 4. Be %a su,,icient *ro*erty to ans3er ,or t+e o)'i-ation *%ic% %e #uarantee . Exception: T%e credit!r *ai"e t%e re6uire(ent E,,ect o, Su)se2uent Loss o, Re2uire& Hua'i,ications: T%e 6uali&icati!n need !nl) 0e $re ent at t+e ti.e o, t+e *er,ection o, t+e contract% T%e u0 e6uent l! !& inte#rit)
C!ntract 0) *%ic% a $er !n i An underta2in# t%at t%e title' 0!und t! an!t%er &!r t%e 6ualit)' !r 6uantit) !& t%e &ul&ill(ent !& a $r!(i e !r u09ect (atter !& a c!ntract i en#a#e(ent !& a t%ird $art) *%at it %a 0een re$re ented t! 0e' and relate t! !(e a#ree(ent (ade !rdinaril) 0) t%e $art) *%! (a2e t%e *arrant) 4UARANTY DISTIN4UIS#ED FRO 8UARANT? Lia0ilit) de$end u$!n inde$endent a#ree(ent $a) t%e !0li#ati!n i& $ri(ar) de0t!r &ail t! d! En#a#e(ent i underta2in# SURETYS#IP SURET?SBIP an A u(e lia0ilit) a a re#ular t! $art) t! t%e underta2in# t%e ! a an !ri#inal
a c!llateral C%ar#ed $r!(i !r
Sec!ndaril) lia0le / %e Pri(aril) lia0le / underta2e c!ntract t! $a) i&' 0) t%e directl) &!r t%e $a)(ent
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page +5 of 61
!r $r!$ert) !r u$er"enin# inca$acit) !& t%e #uarant!r *!uld n!t !$erate t! e1!nerate t%e #uarant!r !& t%e e"entual lia0ilit) %e %a c!ntracted' and t%e c!ntract !& #uarant) c!ntinue . Re.e&y o, cre&itor: 7e(and an!t%er #uarant!r *it% t%e $r!$er 6uali&icati!n E0ce*tion: Credit!r (a) *ai"e it i& %e c%!! e and %!ld t%e #uarant!r t! %i 0ar#ain. Artic'e 2=?7: -. Re6uire c!n"icti!n in t%e &ir t in tance !& a cri(e in"!l"in# di %!ne t) t! %a"e t%e ri#%t t! de(and an!t%er. 2. Hudicial declarati!n !& in !l"enc) i n!t nece ar) in !rder &!r t%e credit!r t! %a"e a ri#%t t! de(and an!t%er #uarant!r. Se'ection o, 4uarantor: -. S*eci,ie& *erson sti*u'ate& as -uarantor: Su0 tituti!n !& #uarant!r (a) n!t 0e de(anded Reason: T%e electi!n !& t%e #uarant!r i 5 a. Ter( !& t%e a#ree(entD 0. A a $art)' t%e credit!r i ' t%ere&!re' 0!und t%ere0). 2. 4uarantor se'ecte& )y t+e *rinci*a' &e)tor: 7e0t!r an *er &!r t%e inte#rit)' ca$acit)' and !l"enc) !& t%e #uarant!r. 4. 4uarantor *ersona''y &esi-nate& )y t+e cre&itor: Re $!n i0ilit) !& t%e electi!n %!uld &all u$!n t%e credit!r 0ecau e %e c!n idered t%e #uarant!r t! %a"e t%e 6uali&icati!n &!r t%e $ur$! e.
EFFECTS OF 4UARANTY A% BETWEEN T#E 4UARANTOR AND T#E CREDITOR RI4#T OF 4UARANTOR TO BENEFIT OF EJCUSSION OR EJ#AUSTION 52=?86 Reasons: -. 4uarantor on'y secon&ari'y 'ia)'e ; t%e #uarant!r 0ind %i( el& t! t%e credit!r t! &ul&ill t%e !0li#ati!n !& t%e $rinci$al de0t!r !nl) in ca e t%e latter %!uld &ail t! d! !. I& t%e $rinci$al de0t!r &ul&ill t%e !0li#ati!n #uaranteed' t%e #uarant!r i di c%ar#ed &r!( an) re $!n i0ilit). 2. A'' 'e-a' re.e&ies a-ainst t+e &e)tor to )e ,irst e0+auste& ; t! *arrant rec!ur e a#ain t t%e #uarant!r &!r $a)(ent' it (a) n!t 0e u&&icient t%at t%e de0t!r a$$ear in !l"ent. Suc% in !l"enc) (a) 0e i(ulated. Ri-+t o, Cre&itor to Secure Eu&-.ent a-ainst 4uarantor *rior to E0+austion 4R: An !rdinar) $er !nal #uarant!r +NOT a $led#!r !r (!rt#a#!r,' (a) de(and e1%au ti!n !& all t%e $r!$ert) !& t%e de0t!r 0e&!re %e can 0e c!($elled t! $a). Exception: T%e credit!r (a)' $ri!r t%eret!' ecure a 9ud#(ent a#ain t t%e #uarant!r' *%! %all 0e entitled' %!*e"er' t! a de&er(ent !& t%e e1ecuti!n !& aid 9ud#(ent a#ain t %i(' until a&ter t%e $r!$ertie !& t%e $rinci$al de0t!r %all %a"e 0een e1%au ted' t! ati &) t%e latter> !0li#ati!n. EJCEPTIONS TO T#E BENEFIT OF EJ#AUSTION 52=?>6 T+e -uarantor is not entit'e& to t+e )ene,it o, e0cussion:
$% As *ro(i&e& in Art% 2=?>: a. I, t+e -uarantor +as e0*ress'y renounce& it ; Wai"er i. Wai"er i "alid 0ut it (u t 0e (ade in e1$re ter( . 0. I, +e +as )oun& +i.se', so'i&ari'y 3it+ t+e &e)tor ; lia0ilit) a u(ed t%at !& a uret) i. 8uarant!r 0ec!(e $ri(ar) lia0le a a !lidar) c!-de0t!r. In e&&ect' %e ren!unce in t%e c!ntract it el& t%e 0ene&it !& e1%au ti!n. c. In case o, inso'(ency o, t+e &e)tor ; #uarant!r #uarantee t%e !l"enc) !& t%e de0t!r i. I& t%e de0t!r 0ec!(e in !l"ent' t%e lia0ilit) !& t%e #uarant!r a t%e de0t!r cann!t &ul&ill %i !0li#ati!n d. W+en +e 5&e)tor6 +as a)scon&e&/ or cannot )e sue& 3it+in t+e P+i'i**ines ; t%e credit!r i n!t re6uired t! #! a&ter a de0t!r *%! i %idin# !r cann!t 0e ued in !ur c!urt ' and t! incur t%e dela) and e1$en e incident t%eret!. E0ce*tion: 7e0t!r %a le&t a (ana#er !r re$re entati"eD e. I, it .ay )e *resu.e& t+at an e0ecution on t+e *ro*erty o, t+e *rinci*a' &e)tor 3ou'& not resu't in t+e satis,action o, t+e o)'i-ation ; i& uc% 9udicial acti!n includin# e1ecuti!n *!uld n!t ati &) t%e !0li#ati!n' t%e #uarant!r can n! l!n#er re6uire t%e credit!r t! re !rt t! all uc% re(edie a#ain t t%e de0t!r a t%e a(e *!uld 0e 0ut a u ele &!r(alit). It
2.
B% 9% ?%
i n!t nece ar) t%at t%e de0t!r 0e 9udiciall) declared in !l"ent. I, +e &oes not co.*'y 3it+ Art% 2=:=: In !rder t%at t%e #uarant!r (a) (a2e u e !& t%e 0ene&it !& e1cu i!n' %e (u t5 a. Set it u$ a#ain t t%e credit!r u$!n t%e latter> de(and &!r $a)(ent &r!( %i(D 0. P!int !ut t! t%e credit!r5 i. A(ai'a)'e *ro*erty o, t+e &e)tor ; t%e #uarant!r %!uld &acilitate t%e realiIati!n !& t%e e1cu i!n ince %e i t%e (! t intere ted in it 0ene&it. ii. Wit+in t+e P+i'i**ine territory / e1cu i!n !& $r!$ert) l!cated a0r!ad *!uld 0e a len#t%) and e1tre(el) di&&icult $r!ceedin# and *!uld n!t c!n&!r( *it% t%e $ur$! e !& t%e #uarant) t! $r!"ide t%e credit!r *it% t%e (ean !& !0tainin# t%e &ul&ill(ent !& t%e !0li#ati!n. iii. Su,,icient to co(er t+e a.ount o, t+e &e)t. I, +e is a @u&icia' )on&s.an an& su)Asurety 52=896 W+ere a *'e&-e or .ort-a-e +as )een -i(en )y +i. as a s*ecia' security% I, +e ,ai's to inter*ose it as a &e,ense )e,ore @u&-.ent is ren&ere& a-ainst +i.%
DUTY OF CREDITOR TO A!E PRIOR DE AND FOR PAY ENT FRO 4UARANTOR 52=:=6 -. W+en &e.an& to )e .a&e ; !nl) a&ter 9ud#(ent !n t%e de0t &!r !0"i!u l) t%e e1%au ti!n !& t%e $rinci$al>
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page +' of 61
$r!$ert) cann!t e"en 0e#in t! ta2e $lace 0e&!re 9ud#(ent %a 0een !0tained. 2. Actua' &e.an& to )e .a&e ; 9!inin# t%e #uarant!r in t%e uit a#ain t t%e $rinci$al de0t!r i n!t t%e de(and intended 0) la* DUTY OF T#E 4UARANTOR TO SET UP BENEFIT OF EJCUSSION 52=:=6 A !!n a %e i re6uired t! $a)' #uarant!r (u t al ! $!int !ut t! t%e credit!r a"aila0le $r!$ert) +n!t in liti#ati!n !r encu(0ered, !& t%e de0t!r *it%in t%e P%ili$$ine . DUTY OF T#E CREDITOR TO RESORT TO ALL LE4AL RE EDIES 52=:$6 -. A&ter t%e #uarant!r %a &ul&illed t%e c!nditi!n re6uired &!r (a2in# u e !& t%e 0ene&it !& e1%au ti!n' it 0ec!(e t%e &uty o, t+e cre&itor to: 2. E1%au t all t%e $r!$ert) !& t%e de0t!r $!inted !ut 0) t%e #uarant!rD 4. I& %e &ail t! d! !' %e %all u&&er t%e l! 0ut !nl) t! t%e e1tent !& t%e "alue !& t%e aid $r!$ert)' &!r t%e in !l"enc) !& t%e de0t!r. Eoin&er o, 4uarantor an& Princi*a' as Parties De,en&ant 4R: T%e #uarant!r' n!t 0ein# a 9!int c!ntract!r *it% %i $rinci$al' cann!t 0e ued *it% %i $rinci$al. Exception: W%ere it *!uld er"e (erel) t! dela) t%e ulti(ate acc!untin# !& t%e #uarant!r !r i& n! di&&erent re ult *!uld 0e attained i& t%e $lainti&& *ere &!rced t! in titute e$arate acti!n a#ain t t%e $rinci$al and t%e #uarant!r .
PROCEDURE W#EN CREDITOR SUES 52=:26 -. Sent a-ainst t+e *rinci*a' ; a a rule' t%e credit!r (a) %!ld t%e #uarant!r !nl) a&ter 9ud#(ent %a 0een !0tained a#ain t t%e $rinci$al de0t!r and t%e latter i una0le t! $a). 2. Notice to -uarantor o, t+e action ; #uarant!r (u t 0e n!ti&ied ! t%at %e (a) a$$ear' i& %e ! de ire ' and et u$ de&en e %e (a) *ant t! !&&er a. 4uaranty a**ears ; "!luntar) a$$earance d!e n!t c!n titute a renunciati!n !& %i ri#%t t! e1cu i!n. 0. 4uaranty &oes not a**ear ; i. Be cann!t et u$ t%e de&en e *%ic%' 0) a$$earin# are all!*ed t! %i( 0) la*D and ii. It (a) n! l!n#er 0e $! i0le &!r %i( t! 6ue ti!n t%e "alidit) !& t%e 9ud#(ent rendered a#ain t t%e de0t!r 4. #earin- )e,ore e0ecution can )e issue& a-ainst t+e -uarantor ; a #uarant!r i entitled t! 0e %eard 0e&!re an e1ecuti!n can 0e i ued a#ain t %i( *%ere %e i n!t a $art) in t%e ca e in"!l"in# %i $rinci$al. EFFECTS OF CO PRO ISE 52=:B6 Co.*ro.ise ; a c!ntract *%ere0) t%e $artie ' 0) (a2in# reci$r!cal c!nce i!n ' a"!id a liti#ati!n !r $ut an end t! !ne alread) c!((enced. -. C!($r!(i e 0et*een credit!r and $rinci$al de0t!r 0ene&it t%e #uarant!r 0ut d!e n!t $re9udice %i(. 2. C!($r!(i e 0et*een #uarant!r and t%e credit!r 0ene&it 0ut d!e n!t $re9udice t%e $rinci$al de0t!r.
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SUBA4UARANTORFS RI4#T TO EJCUSSION 52=:96 Su)A-uarantor en@oys t+e )ene,it o, e0cussion 3it+ res*ect to: -. Princi$al de0t!rD and 2. 8uarant!r Reason: Be tand *it% re $ect t! t%e #uarant!r !n t%e a(e &!!tin# a t%e latter d!e *it% re $ect t! t%e $rinci$al de0t!r BENEFIT OF DIDISION A ON4 SEDERAL 4UARANTORS 52=:?6 $% In 3+ose ,a(or a**'ica)'e ; a. Se"eral #uarant!r D 0. Onl) !ne de0t!rD c. G!r t%e a(e de0t Cannot )e a(ai'e& o, i, t+ere are: a. T*! !r (!re de0t!r !& !ne de0t' e"en i& t%e) 0e 0!und !lidaril)' eac% *it% di&&erent #uarant!r D !r 0. T*! !r (!re #uarant!r !& t%e a(e de0t!r 0ut n!t !nl) &!r t%e a(e de0t c. I& an) !& t%e circu( tance enu(erated in Art. 20=@ %!uld ta2e $lace' a *!uld t%e 0ene&it !& e1%au ti!n !& t%e de0t!r> $r!$ert). 2. E0tent o, 'ia)i'ity o, se(era' -uarantors ; @oint o)'i-ation: t%e !0li#ati!n t! an *er &!r t%e de0t i di"ided a(!n# all !& t%e(. T%e #uarant!r are n!t lia0le t! t%e credit!r 0e)!nd t%e %are *%ic% t%e) are re $ecti"el) 0!und t! $a).
E0ce*tions: W%en ti$ulated
!lidaril) %a
0een e1$re l)
Bene,it o, E0cussion a.on- Se(era' 4uarantors: In !rder t%at t%e #uarant!r (a) 0e entitled t! t%e 0ene&it !& di"i i!n' it i n!t re6uired t%at %e $!int !ut t%e $r!$ert) !& %i c!-#uarant!r . Reason: O0li#ati!n !& t%e #uarant!r *it% re $ect t! %i c!#uarant!r i n!t u0 idiar) 0ut direct and d!e n!t de$end a t! it !ri#in !n t%e !l"enc) !r in !l"enc) !& t%e latter. 4UARANTORFS RI4#T TO SUBRO4ATION 52=:76 SUBRO4ATION ; tran &er t! t%e $er !n u0r!#ated' t%e credit *it% all t%e ri#%t t%eret! a$$ertainin# eit%er a#ain t t%e de0t!r !r a#ain t t%ird $er !n ' 0e t%e) #uarant!r !r $! e !r !& (!rt#a#e ' u09ect t! ti$ulati!n in c!n"enti!nal u0r!#ati!n. -. Accrua'/ )asis/ an& nature o, ri-+t ; ri#%t !& u0r!#ati!n i nece ar) t! ena0le t%e #uarant!r t! en&!rce t%e inde(nit) #i"en in Art. 2066 a. Ari e 0) !$erati!n !& la* u$!n $a)(ent 0) t%e #uarant!r 0. It i n!t a c!ntractual ri#%t c. T%e #uarant!r i u0r!#ated' 0) "irtue !& t%e $a)(ent' t! t%e ri#%t !& t%e credit!r' n!t t%! e !& t%e de0t!r. 2. W+en ri-+t not a(ai'a)'e ; ince u0r!#ati!n i t%e (ean !& e&&ectuatin# t%e ri#%t !& t%e #uarant!r t! 0e rei(0ur ed. It cannot t+ere,ore )e in(o1e& in t+ose
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ++ of 61
cases 3+ere t+e -uarantor +as no ri-+t to )e rei.)urse&% EFFECT OF PAY ENT BY NOTICE TO DEBTOR 52=:86 4UARANTOR WIT#OUT
RI4#T OF 4UARANTOR TO PROCEED A4AINST DEBTOR BEFORE PAY ENT 52=7$6 4enera' ru'e: 8uarant!r %a n! cau e !& acti!n a#ain t t%e de0t!r until a&ter t%e &!r(er %a $aid t%e !0li#ati!n. Exceptions: 20A- enu(erate in tance *%en t%e #uarant!r (a) $r!ceed a#ain t t%e de0t!r e"en 0e&!re t%e $a)(ent. -. W%en %e i ued &!r t%e $a)(entD 2. In ca e !& in !l"enc) !& t%e $rinci$al de0t!rD 4. W%en t%e de0t!r %a 0!und %i( el& t! relie"e %i( &r!( t%e #uarant) *it%in a $eci&ied $eri!d' and t%i $eri!d %a e1$iredD <. W%en t%e de0t %a 0ec!(e de(anda0le' 0) rea !n !& t%e e1$irati!n !& t%e $eri!d &!r $a)(entD =. A&ter t%e la$ e !& -0 )ear ' *%en t%e $rinci$al !0li#ati!n %a n! &i1ed $eri!d &!r it (aturit)' unle it 0e !& uc% nature t%at it cann!t 0e e1tin#ui %ed e1ce$t *it%in a $eri!d l!n#er t%an -0 )ear D 6. I& t%ere are rea !na0le #r!und t! &ear t%at t%e $rinci$al de0t!r intend t! a0 c!ndD A. I& t%e $rinci$al de0t!r i in i((inent dan#er !& 0ec!(in# in !l"ent. Pur*ose: T! ena0le t%e #uarant!r t! ta2e (ea ure &!r t%e $r!tecti!n !& %i intere t in "ie* !& t%e $r!0a0ilit) t%at %e *!uld 0e called u$!n t! $a) t%e de0t. Re.e&y to 3+ic+ t+e 4uarantor Entit'e& 4enera' ru'e: T%e #uarant!r cann!t de(and rei(0ur e(ent &!r inde(nit) 0ecau e %e %a n!t $aid t%e !0li#ati!n. E0ce*tiona' re.e&ies: -. T! !0tain relea e &r!( t%e #uarant)D !r 2. T! de(and ecurit) t%at %all $r!tect %i( &r!(5
I& t%e de0t!r %a alread) $aid t%e credit!r' *%en t%e #uarant!r $a) ' t%e de0t!r can et u$ a#ain t t%e #uarant!r t%e de&en e !& $re"i!u e1tin#ui %(ent !& t%e !0li#ati!n 0) $a)(ent. Bence' #uarant!r (u t n!ti&) t%e de0t!r 0e&!re (a2in# $a)(ent. Reason: T%e #uarant!r cann!t 0e all!*ed' t%r!u#% %i !*n &ault !r ne#li#ence t! $re9udice !r i($air t%e ri#%t !r intere t !& t%e de0t!r. EFFECT OF PAY ENT ATURITY 52=:>6 BY 4UARANTOR BEFORE
De)torFs o)'i-ation 3it+ a *erio& ; de(anda0le !nl) *%en t%e da) &i1ed c!(e . -. T%e #uarant!r *%! $a) 0e&!re (aturit) i n!t entitled t! rei(0ur e(ent ince t%ere i n! nece it) &!r acceleratin# $a)(ent. 2. A c!ntract !& #uarant) 0ein# u0 idiar) in c%aracter' t%e #uarant!r i n!t lia0le &!r t%e de0t 0e&!re it 0ec!(e due. E0ce*tion: T%e de0t!r *ill 0e lia0le i& t%e $a)(ent *a (ade5 a, Wit% %i c!n entD !r 0, Su0 e6uentl) rati&ied 0) %i( +rati&icati!n (a) 0e e1$re !r i($lied,
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page +, of 61
a. An) $r!ceedin# 0) t%e credit!rD and 0. A#ain t t%e in !l"enc) !& t%e de0t!r. 8uarant!r> re(edie are alternati"e. Be %a t%e ri#%t t! c%!! e t%e acti!n t! 0rin#. Suit )y 4uarantor a-ainst Cre&itor )e,ore Pay.ent T%e #uarant)> !r uret)> acti!n &!r relea e can !nl) 0e e1erci ed a#ain t t%e $rinci$al de0t!r and n!t a#ain t t%e credit!r. Reason: Relea e !& t%e #uarant!r i($!rt an e1tincti!n in t%e !0li#ati!n t! t%e credit!rD it c!nn!te t%ere&!re' eit%er a re(i i!n !r n!"ati!n 0) u0r!#ati!n' and eit%er !$erati!n re6uire t%e credit!r> a ent &!r it "alidit). 2=:: an& 2=7$ Distin-uis+e& 2=:: +Ri#%t !& 8uarant!r t! Rei(0ur e(ent a&ter Pa)(ent, Pr!"ide &!r t%e en&!rce(ent !& t%e ri#%t !& t%e #uarant!r a#ain t t%e de0t!r a&ter %e %a $aid t%e de0t / #i"e a ri#%t !& acti!n a&ter $a)(ent Su0 tanti"e ri#%t 2=7$ +Ri#%t !& 8uarant!r t! Pr!ceed a#ain t 7e0t!r e"en 0e&!re $a)(ent, Pr!"ide &!r t%e $r!tecti!n 0e&!re %e %a $aid 0ut a&ter %e %a 0ec!(e lia0le / #i"e a $r!tecti"e re(ed) 0e&!re $a)(ent Preli(inar) re(ed)
%all $r!tect %i( &r!( an) $r!ceedin# 0) t%e credit!r and &r!( t%e dan#er !& in !l"enc) !& t%e de0t!r.; Reco(ery o, Surety a-ainst In&e.nitor e(en )e,ore Pay.ent -. In&e.nity a-ree.ent ,or t+e )ene,it o, surety ; inde(nit) a#ree(ent i n!t &!r t%e 0ene&it !& t%e credit!r 0ut &!r t%e 0ene&it !& t%e uret). 2. In&e.nity a-ree.ent .ay )e a-ainst actua' 'oss as 3e'' as 'ia)i'ity ; uc% a#ree(ent i en&!rcea0le and n!t "i!lati"e !& an) $u0lic $!lic) a. In&e.nity a-ainst 'oss ; inde(nit!r *ill n!t 0e lia0le until t%e $er !n t! 0e inde(ni&ied (a2e $a)(ent !r u tain l! D 0. In&e.nity a-ainst 'ia)i'ity ; inde(nit!r> lia0ilit) ari e a !!n a t%e lia0ilit) !& t%e $er !n t! 0e inde(ni&ied %a ari en *it%!ut re#ard t! *%et%er !r n!t %e %a u&&ered actual l! . W%ere t%e $rinci$al de0t!r are i(ultane!u l) t%e a(e $er !n *%! e1ecuted t%e inde(nit) a#ree(ent' t%e $! iti!n !ccu$ied 0) t%e( i t%at !& a $rinci$al de0t!r and inde(nit!r at t%e a(e' and t%eir lia0ilit) 0ein# 9!int and e"eral. 4UARANTOR OF A T#IRD PERSON AT REHUEST OF ANOT#ER 52=726
8i"e a ri#%t !& acti!n' *%ic%' Re(ed) #i"en ee2 t! *it%!ut t%e $r!"i i!n !& t%e !0tain &r!( t%e #uarant!r !t%er (i#%t 0e *!rt%le :relea e &r!( t%e #uarant) !r t! de(and a ecurit) t%at
T%e #uarant!r *%! #uarantee t%e de0t !& an a0 entee at t%e re6ue t !& an!t%er %a a ri-+t to c'ai. rei.)urse.ent' a&ter ati &)in# t%e de0t &r!(5 -. T%e $er !n *%! re6ue ted %i( t! 0e a #uarant!rD 2. T%e de0t!r B% BETWEEN COA4UARANTORS RI4#T TO CONTRIBUTION OF 4UARANTOR W#O PAYS 52=7B6 Presu.*tion o, @oint 'ia)i'ity o, se(era' -uarantors 3+en t+ere are: -. T*! !r (!re #uarant!r D 2. Sa(e de0t!rD 4. Sa(e de0t E,,ect: Eac% i 0!und t! $a) !nl) %i $r!$!rti!nate %are. W+en Art% 2=7B A**'ica)'e: -. W%en !ne #uarant!r %a $aid t%e de0t t! t%e credit!rD 2. Pa)(ent 0) uc% #uarant!r (u t %a"e 0een (ade5 a. B) "irtue !& a 9udicial de(andD !r 0. Becau e t%e $rinci$al de0t!r i in !l"entD 4. 8uarant!r *%! $aid i ee2in# rei(0ur e(ent &r!( eac% !& %i c!-#uarant!r t%e %are *%ic% i $r!$!rti!natel) !*in# %i(. E,,ect o, Inso'(ency o, Any 4uarantor: Fo''o3s t+e ru'e on so'i&ary o)'i-ations : T%e %are !& t%e in !l"ent #uarant!r %all 0e 0!rne 0) t%e !t%er includin# t%e $a)in# #uarant!r in t%e a(e 9!int $r!$!rti!n. Accrua' an& Basis o, Ri-+t:
T%e ri#%t !& rei(0ur e(ent i ac6uired i$ ! 9ure *it%!ut need !& an) $ri!r ce i!n &r!( t%e credit!r 0) t%e #uarant!r. DEFENSES ADAILABLE TO COA4UARANTORS 52=796 4enera' ru'e: All de&en e *%ic% t%e de0t!r *!uld %a"e inter$! ed a#ain t t%e credit!r. Exception: T%! e *%ic% cann!t 0e tran (itted &!r 0ein# $urel) $er !nal t! t%e de0t!r. LIABILITY OF SUBA4UARANTOR INSOLDENCY OF 4UARANTOR 52=7?6 IN CASE OF
Su0-#uarant!r i lia0le t! t%e c!-#uarant!r in t%e a(e (anner a t%e #uarant!r *%!( %e #uaranteed in ca e !& t%e in !l"enc) !& t%e #uarant!r &!r *%!( %e 0!und %i( el& a u0-#uarant!r. CAUSES OF EJTIN4UIS# ENT OF 4UARANTY 52=7:6 4enera' ru'e: 8uarant) 0ein# acce !r)' it i e1tin#ui %ed *%en $rinci$al !0li#ati!n i e1tin#ui %ed' t%e cau e !& *%ic% are5 -. 2. 4. <. Pa)(ent !r $er&!r(anceD L! !& t%e t%in# dueD C!nd!nati!n !r re(i i!n !& t%e de0tD C!n&u i!n !r (er#er !& t%e ri#%t !& t%e credit!r and de0t!rD =. C!($en ati!nD and 6. N!"ati!n A. Ot%er cau e 5
a. Annul(entD 0. Re ci i!nD c. Gul&ill(ent !& a re !lut!r) c!nditi!nD and d. Pre cri$ti!n Exception: T%e #uarant) it el& (a) 0e directl) e1tin#ui %ed alt%!u#% t%e $rinci$al !0li#ati!n till re(ain uc% a in t%e ca e !& t%e relea e !& t%e #uarant!r (ade 0) t%e credit!r. ateria' A'teration o, Princi*a' Contract ; an) a#ree(ent 0et*een t%e credit!r and t%e $rinci$al de0t!r *%ic% e entiall) "arie t%e ter( !& t%e $rinci$al c!ntract *it%!ut t%e c!n ent !& t%e uret)' *ill relea e t%e uret) &r!( lia0ilit). Suc% (aterial alterati!n *!uld c!n titute a no(ation or c+an-e o, t+e *rinci*a' contract/ 3+ic+ i c!n e6uentl) e1tin#ui %ed. U$!n uc% e1tin#ui %(ent ' t%e acce !r) c!ntract t! #uarant) i al ! ter(inat!r and t%e #uarant!r cann!t 0e %eld lia0le !n t%e ne* c!ntract t! *%ic% %e %a n!t #i"en %i c!n ent. W+en A'teration ateria' ; *%ere uc% c%an#e *ill %a"e t%e e&&ect !& (a2in# t%e !0li#ati!n (!re !ner!u . I($! e a ne* !0li#ati!n !r added 0urden !n t%e $art) $r!(i in#D !r -. Ta2e a*a) !(e !0li#ati!n alread) i($! ed' c%an#in# t%e le#al e&&ect !& t%e !ri#inal c!ntract and n!t (erel) t%e &!r( t%ere!&. RELEASE BY CONDEYANCE OF PROPERTY 52=776 4enera' ru'e: Pa)(ent i (ade in (!ne). Exception: An) u0 titute $aid in lieu !& (!ne) *%ic% i acce*te& )y t+e cre&itor e1tin#ui %e t%e !0li#ati!n and in c!n e6uence' t%e #uarant).
In case o, e(iction: E"icti!n re"i"e t%e $rinci$al !0li#ati!n 0ut n!t t%e #uarant). Reason: T%e credit!r> acti!n a#ain t t%e de0t!r i &!r e"icti!n and t%i i di&&erent &r!( *%at t%e #uarant!r #uaranteed. RELEASE OF 4UARANTOR WIT#OUT CONSENT OF OT#ERS 52=786 E,,ect: T%e relea e 0ene&it all t! t%e e1tent !& t%e %are !& t%e #uarant!r relea ed. Reason: A relea e (ade 0) t%e credit!r in &a"!r !& !ne !& t%e #uarant!r *it%!ut t%e c!n ent !& t%e !t%er (a) $re9udice t%e !t%er %!uld a #uarant!r 0ec!(e in !l"ent. RELEASE BY EJTENSION OF TER CREDITOR TO DEBTOR 52=7>6 4RANTED BY
Re'ease Wit+out Consent o, 4uarantor: Credit!r #rant an e1ten i!n !& ti(e t! t%e de0t!r *it%!ut t%e c!n ent !& t%e #uarant!r. E,,ect: 8uarant!r i di c%ar#ed &r!( %i underta2in#. Reason: Nece it) !& a"!idin# !& $re9udice t! t%e #uarant!r. T%e de0t!r (a) 0ec!(e in !l"ent durin# t%e e1ten i!n' t%u de$ri"in# t%e #uarant!r !& %i ri#%t t! rei(0ur e(ent. It i uni($!rtant *%et%er t%e e1ten i!n #i"en %a actuall) $r!"ed $re9udicial !r n!t t! t%e #uarant!r !r uret). N!r d!e it (atter &!r %!* %!rt a $eri!d t%e ti(e !& $a)(ent %a 0een e1tended.
E1ten i!n (u t 0e 0a ed !n !(e ne* a#ree(ent 0et*een t%e credit!r and t%e $rinci$al de0t!r 0) "irtue !& *%ic% t%e credit!r de$ri"e %i( !& %i clai(. -. W+ere o)'i-ation *aya)'e in insta''.ents: *%ere a #uarant!r i lia0le &!r di&&erent $a)(ent 5 4enera' ru'e: An e0tension o, ti.e to one ore .ore *ill n!t a&&ect t%e lia0ilit) !& t%e uret) &!r t%e !t%er . Exception: W%en t%e un$aid 0alance %a 0ec!(e aut!(aticall) due 0) "irtue !& an accelerati!n clau e &!r &ailure t! $a) an in tall(ent. E,,ect o, e0ce*tion: T%e act !& t%e credit!r e1tendin# t%e $a)(ent !& aid in tall(ent' *it%!ut t%e #uarant!r> c!n ent' di c%ar#e t%e #uarant!r. Reason: T%e e1ten i!n c!n titute an e1ten i!n !& t%e $a)(ent !& t%e *%!le a(!unt !& t%e inde0tedne 2. W+ere consent to an e0tension is 3ai(e& in a&(ance )y t+e -uarantor: Suc% *ai"er i n!t c!ntrar) t! la*' n!r t! $u0lic $!lic) E,,ect: A(!unt t! t%e uret)> c!n ent t! all t%e e1ten i!n #ranted. RELEASE W#EN SUBRO4ATED 52=8=6 4UARANTOR CANNOT BE
DEFENSES ADAILABLE CREDITOR 52=8$6
TO
4UARANTOR
A4AINST
4enera' ru'e: All de&en e ' *%ic% $ertain t! t%e $rinci$al de0t!r and are in%erent in t%e de0t. Exception: T%! e' *%ic% are $urel) $er !nal t! t%e de0t!r. LE4AL AND EUDICIAL BONDS EANIN4 AND FOR OF BOND 52=826 u&&icientl) ecured' and n!t
BOND ; an underta2in# t%at i ca % !r currenc).
Bon&s.an ; a uret) !&&ered in "irtue !& a $r!"i i!n !& la* !r a 9udicial !rder. Hua'i,ications o, *ersona' )on&s.an: -. Be $! e e inte-rityG 2. Be %a ca*acity to )in& +i.se',D 4. Be %a su,,icient *ro*erty to ans3er ,or t+e o)'i-ation *%ic% %e #uarantee . PLED4E OR ORT4A4E IN LIEU OF BOND 52=8B6
I& t%ere can 0e n! u0r!#ati!n 0ecau e !& t%e &ault !& t%e credit!r' t%e #uarant!r are t%ere0) relea ed' e"en i& t%e #uarant!r are !lidar). Reason: T%e act !& !ne cann!t $re9udice an!t%er. It al ! a"!id c!llu i!n 0et*een t%e credit!r and t%e de0t!r !r a t%ird $er !n.
8uarant) !r uret) %i$ i a $er !nal ecurit). Pled#e !r (!rt#a#e i a $r!$ert) !r real ecurit). I& t%e $er !n re6uired t! #i"e a le#al !r 9udicial 0!nd %!uld n!t 0e a0le t! d! !' a $led#e !r (!rt#a#e u&&icient t! c!"er t%e !0li#ati!n %all 0e ad(itted in lieu t%ere!&.
BONDS AN NOT ENTITLED TO EJCUSSION 52=896 A 9udicial 0!nd (an and t%e u0- uret) are n!t entitled t! t%e 0ene&it !& e1cu i!n. Reason: T%e) are n!t (ere #uarant!r ' 0ut uretie *%! e lia0ilit) i $ri(ar) and !lidar). E,,ect o, ne-'i-ence o, cre&itor: Mere ne#li#ence !n t%e $art !& t%e credit!r in c!llectin# &r!( t%e de0t!r *ill n!t relie"e t%e uret) &r!( lia0ilit). SURETYS#IP ; a relati!n *%ic% e1i t *%ere !ne $er !n +$rinci$al, %a underta2en an !0li#ati!n and an!t%er $er !n + uret), i al ! under a direct and $ri(ar) !0li#ati!n !r !t%er dut) t! t%e !0li#ee' *%! i entitled t! 0ut !ne $er&!r(ance' and a 0et*een t%e t*! *%! are 0!und' t%e ec!nd' rat%er t%an t%e &ir t %!uld $er&!r(. I& a $er !n 0ind %i( el& !lidaril) *it% t%e $rinci$al de0t!r' t%e c!ntract i called uret) %i$ and t%e #uarant!r i called a uret). NATURE OF SURETYFS UNDERTA!IN4 $% Lia)i'ity is contractua' an& accessory )ut &irect: 2% Lia)i'ity is 'i.ite& )y ter.s o, contract B% Lia)i'ity arises on'y i, *rinci*a' &e)tor is +e'& 'ia)'e a. In t%e a0 ence !& c!llu i!n' t%e uret) i 0!und 0) a 9ud#(ent a#ain t t%e $rinci$al e"ent t%!u#% %e *a n!t a $art) t! t%e $r!ceedin# D 0. T%e credit!r (a) ue' e$aratel) !r t!#et%er' t%e $rinci$al de0t!r and t%e uret)D
c. A de(and !r n!tice !& de&ault i n!t re6uired t! &i1 t%e uret)> lia0ilit) Exception: W%ere re6uired 0) t%e $r!"i i!n !& t%e c!ntract !& uret) %i$ d. A uret) 0!nd i "!id *%ere t%ere i n!t $rinci$al de0t!r 0ecau e uc% an underta2in# $re u$$! e t%at t%e !0li#ati!n i t! 0e en&!rcea0le a#ain t !(e!ne el e 0e ide t%e uret)' and t%e latter can al*a) clai( t%at it *a ne"er %i intenti!n t! 0e t%e !le $er !n !0li#ated t%ere0). Surety is not entit'e& to e0+austion <. Un&erta1in- is to cre&itor/ not to &e)tor: T%e uret) (a2e n! c!"enant !r a#ree(ent *it% t%e $rinci$al t%at it *ill &ul&ill t%e !0li#ati!n #uaranteed &!r t%e 0ene&it !& t%e $rinci$al. T%e uret)> underta2in# i t%at t%e $rinci$al %all &ul&ill %i !0li#ati!n and t%at t%e uret) %all 0e relie"ed !& lia0ilit) *%en t%e !0li#ati!n ecured i $er&!r(ed. Exception: Unle !t%er*i e e1$re l) $r!"ided. Surety is not entit'e& to notice o, *rinci*a'Fs &e,au't ?% Prior &e.an& )y t+e cre&itor u*on *rinci*a' not re2uire& Surety is not e0onerate& )y ne-'ect o, cre&itor to sue *rinci*a' Strictissi.i Euris Ru'e A**'ica)'e On'y to Acco..o&ation Surety Reason: An acc!((!dati!n uret) act *it%!ut (!ti"e !& $ecuniar) #ain and %ence' %!uld 0e $r!tected a#ain t un9u t
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ,5 of 61
$ecuniar) i($!"eri %(ent 0) i($! in# !n t%e $rinci$al' dutie a2in t! t%! e !& a &iduciar). T%i rule *ill a$$l) !nl) a&ter it %a 0een de&initel) a certained t%at t%e c!ntract i !ne !& uret) %i$ !r #uarant). Strictissi.i Euris Ru'e Not A**'ica)'e to Co.*ensate& Sureties Reasons: -. C!($en ated c!r$!rate uretie are 0u ine a !ciati!n !r#aniIed &!r t%e $ur$! e !& a u(in# cla i&ied ri 2 in lar#e nu(0er ' &!r $r!&it and !n an i($er !nal 0a i . 2. T%e) are ecured &r!( all $! i0le l! 0) ade6uate c!unter-0!nd !r inde(nit) a#ree(ent . 4. Suc% c!r$!rati!n are in &act in urer and in deter(inin# t%eir ri#%t and lia0ilitie ' t%e rule $eculiar t! uret) %i$ d! n!t a$$l). INSOLDENCY LAW INSOLDENCY ; tate !& a $er !n *%! e lia0ilitie are (!re t%an %i a et . It i t%e ina0ilit) !& a $er !n t! $a) %i de0) a t%e) 0ec!(e due in t%e !rdinar) c!ur e !& 0u ine . Ba'ance S+eet Test ; relati"e c!nditi!n !& a (an> a et and lia0ilitie t%at t%e &!r(er i& all (ade i((ediatel) a"aila0le' *!uld n!t 0e u&&icient t! di c%ar#e t%e latter. E2uity Test ; a $er !n (a) 0e in !l"ent alt%!u#% %e (a) 0e a0le t! $a) %i de0t at !(e &uture ti(e !n a ettle(ent and *indin# u$ !& %i a&&air .
INSOLVENC? " . BANJRUPTC? T%e !nl) di tincti!n 0et*een in !l"enc) and 0an2ru$tc) i a (atter !& ter(in!l!#) and t%e !urce !& t%e la* relatin# t%eret!. Eit%er a 0an2ru$tc) !r in !l"enc) tatute (a) !$erate t! di c%ar#e a de0t a *ell a relea e t%e de0t!r &r!( i($ri !n(ent' and eit%er (a) !$erate !n t%e $etiti!n !& t%e de0t!r !r t%at !& %i credit!r . INSOLVENC? PRIMARIL? 8OVERNE7 B? TBE CC In !l"enc) %all 0e #!"erned 0) $ecial la* in !&ar a t+ey are not inconsistent *it% t%e CC. In !l"enc) i t%u $ri(aril) #!"erned 0) t%e CC and u0 idiaril) 0) t%e In !l"enc) La*. T%e In !l"enc) La* i intended t! c!"er t%e entire u09ect !& in !l"enc) and 0an2ru$tc) and (u t 0e treated a a c!($lete 0!d) !& la* u$!n t%e u09ect. PURPOSES OF INSOLDENCY LAW: -. T! e&&ect an e6uita0le di tri0uti!n !& t%e 0an2ru$t> $r!$ert) a(!n# %i credit!r D and 2. T! 0ene&it t%e de0t!r in di c%ar#in# %i( &r!( %i lia0ilitie and ena0lin# %i( t! tart a&re % *it% t%e $r!$ert) et a$art t! %i( a e1e($t. 4. T%e re#ulat!r) and uni&)in# in&luence !& t%e la* !n credit tran acti!n and 0u ine u a#e t%r!u#%!ut t%e c!untr). WBAT MA? BE PERMITTE7 OG A 7EBTOR B? TBE INSOLVENC? LAW
-. Petiti!n t%e c!urt t! u $end $a)(ent D 2. T! 0e di c%ar#ed &r!( %i de0t and lia0ilitie 0) "!luntar) !r in"!luntar) in !l"enc) $r!ceedin# . SUSPENSION OF PAY ENTS / $! t$!ne(ent' 0) c!urt !rder' !& t%e $a)(ent !& de0t !& !ne *%!' *%ile $! e in# u&&icient $r!$ert) t! c!"er %i de0t ' &!re ee t%e i($! i0ilit) !& (eetin# t%e( *%en t%e) re $ecti"el) &all due. PURPOSE: T! u $end !r dela) t%e $a)(ent !& de0t t%e a(!unt !& *%ic% i n!t a&&ected alt%!u#% a $! t$!ne(ent i declared. BASIS: Pr!0a0ilit) !& t%e de0t!r> ina0ilit) t! (eet %i !0li#ati!n *%en t%e) re $ecti"el) &all due' de $ite t%e &act t%at %e %a u&&icient a et t! c!"er all %i lia0ilitie . REHUISITES PAY ENTS: OF PETITION FOR SUSPENSION OF
-. T*! t%ird +234, !& t%e credit!r "!tin# u$!n t%e a(e $r!$! iti!n' *%ic% 2. Re$re ent at lea t t%ree &i&t% +43=, !& t%e t!tal lia0ilitie !& t%e de0t!r. D/1D# 0> /1#06E&1C= DOLUNTARY INSOLDENCY ; an in !l"ent de0t!r !*in# de0t e1ceedin# t%e a(!unt !& P-'000.00 (a) a$$l) t! 0e di c%ar#ed &r!( %i de0t and lia0ilitie 0) $etiti!n t! t%e RTC !& t%e $r!"ince !r cit) in *%ic% %e %a re ided &!r i1 (!nt% ne1t $recedin# t%e &ilin# !& t%e $etiti!n. 7ISTINCTIONS BETWEEN SUSPENSION OG PA?MENTS AN7 INSOLVENC? SUSPENSION OF INSOLDENCY PAY ENTS Pur*ose Su $end !r dela) 7i c%ar#e t%e t%e $a)(ent !& de0t!r &r!( t%e de0t $a)(ent !& de0t Su,,iciency o, 7e0t!r %a 7e0t!r d!e n!t *ro*erty u&&icient $r!$ert) %a"e u&&icient t! $a) %i de0t $r!$ert) t! $a) all %i de0t E,,ect on a.ount A(!unt !& T%e credit!r o, in&e)te&ness inde0tedne i n!t recei"e le t%an a&&ected t%eir credit ' and in ca e *%ere t%ere are $re&erence ' !(e credit!r (a) n!t recei"e an) a(!unt at all Nu.)er o, Nu(0er !& In ca e !&
-. Petiti!n i &iled 0) a de0t!rD 2. P! e in# u&&icient $r!$ert) t! c!"er all %i de0t D 4. G!re eein# t%e i($! i0ilit) !& (eetin# t%e( *%en t%e) re $ecti"el) &all dueD and <. Petiti!nin# t%at %e 0e declared in t%e tate !& u $en i!n !& $a)(ent RULE ON 7OUBLE MAHORIT? IN TBE MEETIN8 OG CRE7ITORS Ma9!rit) %all 0e5
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ,' of 61
cre&itors re2uire& EGGECT -. 2.
credit!r i((aterial
4. <.
OG COURT OR7ER INSOLVENT All t%e a et !& t%e de0t!r n!t e1e($t &r!( e1ecuti!n are ta2en $! e i!n !& 0) t%e %eri&& until t%e a$$!int(ent !& a recei"er !r a i#nee. T%e $a)(ent t! t%e de0t!r !& an) de0t due t! %i( and t%e deli"er) t! t%e de0t!r !r t! an) $er !n &!r %i( !& an) $r!$ert) 0el!n#in# t! %i( and t%e tran &er !& an) $r!$ert) 0) %i( are &!r0idden. All ci"il $r!ceedin# $endin# a#ain t t%e in !l"ent de0t!r %all 0e ta)ed. M!rt#a#e !r $led#e ' attac%(ent !r e1ecuti!n !n $r!$ert) !& t%e de0t!r &u'y recor&e& and not &isso'(e& are not a,,ecte& 0) t%e !rder.
in"!luntar) in !l"enc)' t%ree !r (!re credit!r are re6uired 7ECLARIN8 7EBTOR
Nu.)er
o, One credit!r i cre&itor u&&icient s W+o .ay Giled 0) t%e *etition t+e in !l"ent de0t!r *rocee&in-s Acts inso'(ency o, 7e0t!r (u t n!t 0e #uilt) !& an) !& t%e act !& in !l"enc) +Sec. 20, A.ount o, &e)t T%e a(!unt !& inde0tedne (u t e1ceed P-'000.00 Postin- o, )on& B!nd i n!t re6uired E0 *arte a&@u&ication Resi&ency &uration to (est @uris&iction in courts Re2uire.ent +earino,
T%ree !r (!re credit!r are re6uired Giled 0) t%ree !r (!re credit!r *%! $! e t%e 6uali&icati!n re6uired 0) la* 7e0t!r (u t %a"e c!((itted !ne !r (!re !& uc% act !& in !l"enc)
INDOLUNTARY INSOLDENCY ; an ad9udicati!n !& in !l"enc) (a) 0e (ade !n t%e $etiti!n !& t%ree !r (!re credit!r ' re ident !& t%e P%ili$$ine ' *%! e credit !r de(and accrued in t%e P%ili$$ine ' and t%e a(!unt !& *%ic% credit !r de(and are in t%e a##re#ate !& n!t le t%an P-'000.00 DISTINCTIONS BETWEEN DOLUNTARY AND INDOLUNTARY INSOLDENCY VOLUNTAR? INSOLVENC? INSOLDENCY
INVOLUNTAR? INSOLVENC?
A(!unt (u t n!t 0e le t%an P-'000.00 +a##re#ate, Petiti!n (u t 0e acc!($anied 0) a 0!nd An !rder !& An !rder !& ad9udicati!n (a) ad9udicati!n #ranted 0e #ranted e1 !nl) a&ter a %earin# $arte Petiti!n i &iled in Len#t% !& re idence t%e RTC !& t%e i i((aterial $r!"ince !r cit) *%ere t%e de0t!r %a re ided &!r i1 (!nt% C!urt i ue t%e T%e de0t!r i n!t !rder !& ad9udicated in !l"ent ad9udicati!n until a&ter %earin# !& declarin# t%e t%e ca e
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ,( of 61
$etiti!ner in !l"ent u$!n t%e &ilin# !& t%e "!luntar) $etiti!n ASSI4NEE ; $er !n elected 0) t%e credit!r !r a$$!inted 0) %e c!urt t! *%!( an in !l"ent de0t!r (a2e an a i#n(ent !& all %i $r!$ert) &!r t%e 0ene&it !& %i credit!r . CREDITORS NOT ENTITLED TO DOTE IN T#E ELECTION OF ASSI4NEE -. T%! e *%! did n!t &ile t%eir clai( at lea t t*! da) $ri!r t! t%e ti(e a$$!inted &!r uc% electi!n 2. T%! e *%! e clai( are 0arred 0) t%e tatute !& li(itati!n 4. Secured credit!r unle t%e) urrender t%eir ecurit) !r lien t! t%e %eri&& !r recei"er !r unle t%e) %all &ir t %a"e t%e "alue !& uc% ecurit) &i1ed <. B!lder !& clai( &!r unli6uidated da(a#e ari in# !ut !& $ure t!rt. EFFECTS OF ASSI4N ENT -. A i#nee ta2e t%e $r!$ert) in t%e $li#%t and c!nditi!n t%at t%e in !l"ent %eld it. 2. U$!n a$$!int(ent' t%e 'e-a' tit'e to a'' t+e *ro*erty !& t%e in !l"ent i (este& in t+e assi-nee' and t%e contro' o, t+e *ro*erty i (este& in t+e court. 4. All acti!n t! rec!"er all t%e e tate' de0t ' and e&&ect !& t%e in !l"ent %all 0e 0r!u#%t 0) t%e a i#nee and n!t 0) t%e credit!r . <. T%e a i#n(ent %all5 a. 7i !l"e an) attac+.ent 'e(ie& 3it+in one .ont+ ne1t $recedin# t%e c!((ence(ent !& in !l"enc) $r!ceedin# D
0. Vacate and et a ide @u&-.ent entere& in any action co..ence& 3it+in B= &ays i((ediatel) $ri!r t! t%e c!((ence(ent !& in !l"enc) $r!ceedin# D c. Vacate and et a ide e0ecution i ued t%ere!nD d. Vacate and et a ide an) 9ud#(ent entered 0) de&ault !r c!n ent !& t%e de0t!r *it%in 40 da) $ri!r t! t%e c!((ence(ent !& in !l"enc) $r!ceedin# SER7ICEWI8E /' C9 (-*1 SCR9 2,4 : 666;! 9ssign#ent of Cre%it<Consent: A $r!"ided in Article 20@6 in relati!n t! Article 2-<- !& t%e Ci"il C!de' a t%in# $led#ed (a) 0e alienated 0) t%e $led#!r !r !*ner *it% t%e c!n ent !& t%e $led#ee. T%i $r!"i i!n i in acc!rdance *it% Act N!. -=0C *%ic% $r!"ide t%at a (!rt#a#!r !& $er !nal $r!$ert) %all n!t ell !r $led#e uc% $r!$ert)' !r an) $art t%ere!&' (!rt#a#ed 0) %i( *it%!ut t%e c!n ent !& t%e (!rt#a#ee in *ritin# !n t%e 0ac2 !& t%e (!rt#a#e and !n t%e (ar#in !& t%e rec!rd t%ere!& in t%e !&&ice *%ere uc% (!rt#a#e i rec!rded. A (!rt#a#e credit (a) 0e alienated !r a i#ned t! a t%ird $er !n. Since t%e a i#nee !& t%e credit te$ int! t%e %!e !& t%e credit!r-(!rt#a#ee t! *%!( t%e c%attel i (!rt#a#ed' it &!ll!* t%at t%e a i#nee> c!n ent i nece ar) in !rder t! 0ind %i( !& t%e alienati!n !& t%e (!rt#a#ed t%in# 0) t%e de0t!r-(!rt#a#!r T%i i tanta(!unt t! a n!"ati!n. BOND OF T#E ASSI4NEE A&ter %i electi!n' t%e a i#nee i re6uired t! #i"e a 0!nd &!r t%e &ait%&ul $er&!r(ance !& %i dutie . Pur*ose: -. T! e ta0li % %i !&&icial c%aracter
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ,+ of 61
2. T! e ta0li % %i ri#%t t! ue in t%at ca$acit) T%e 0!nd i !lel) &!r t%e 0ene&it !& t%e credit!r !& t%e in !l"ent' and t%at t%ird $er !n %a"e n! re(ed) a#ain t t%e uretie i& t%e a i#nee' $ur$!rtin# t! 0e a uc%' *r!n#&ull) ta2e $r!$ert) &r!( uc% t%ird $er !n and c!n"ert it t! %i !*n u e. PROPERTIES OF INSOLDENT T#AT PASS TO T#E ASSI4NEE -. A'' rea' an& *ersona' *ro*erty/ estate/ an& e,,ects o, t+e &e)tor/ includin# all deed ' 0!!2 ' and $a$er in relati!n t%eret!D 2% Pro*erties ,rau&u'ent'y con(eye&G 4. Ri-+t o, action &!r da(a#e t! real $r!$ert) <. T+e un&i(i&e& s+are or interest !& t%e in !l"ent de0t!r in $r!$ert) %eld under coAo3ners+i* PROPERTIES OF INSOLDENT T#AT DO NOT PASS TO T#E ASSI4NEE -. Pr!$ert) e0e.*t ,ro. e0ecutionG 2. Pr!$ert) +e'& in trustG 4. Pr!$ert) !& t%e con@u-a' *artners+i* or a)so'ute co..unity e1ce$t in !&ar a t%e de0t!r> !0li#ati!n red!unded t! t%e 0ene&it !& t%e &a(il). <. Pr!$ert) t! *%ic% a .ort-a-e or *'e&-e e0ists unle t%e credit!r urrender %i ecurit) !r lien. =. A,terAac2uire& *ro*erty e1ce$t &ruit and inc!(e !& $r!$ert) !*ned 0) t%e de0t!r 6. NonA'e(ia)'e assets li2e li&e in urance $!lic) *%ic% d! n!t %a"e an) ca % urrender "alue A. Ri-+t o, action ,or tort *%ic% i $urel) $er !nal in nature.
POWERS OF T#E ASSI4NEE -. To sue an& reco(er all t%e e tate' de0t ' and clai( 0el!n#in# t! !r due t! t%e de0t!rD 2. To ta1e into +is *ossession all t%e e tate !& t%e de0t!r e1ce$t $r!$ert) e1e($t &r!( e1ecuti!nD 4. In ca e !& nonAresi&ent or a)scon&in- or concea'e& &e)tor/ t! &e.an& an& recei(e o, e(ery s+eri,, all t%e $r!$ert) and (!ne) in %i $! e i!n 0el!n#in# t! t%e de0t!r. <. To se''/ u$!n !rder !& t%e c!urt' an) e tate !& t%e de0t!r *%ic% %a c!(e int! %i $! e i!nD =. To re&ee. a'' .ort-a-es an& *'e&-es an& to satis,y any @u&-.ent *%ic% (a) 0e an encu(0rance !n an) $r!$ert) !ld 0) %i(. 6. To sett'e a'' accounts )et3een t+e &e)tor an& +is &e)tors u09ect t! t%e a$$r!"al !& t%e c!urtD A. To co.*oun&/ under t%e !rder !& t%e c!urt' *it% an) $er !n inde0ted t! uc% de0t!rD C. To reco(er any *ro*erty ,rau&u'ent'y con(eye& 0) t%e de0t!r. CREDITORFS LIABILITY FOR FRAUDULENTLY ASSI4NIN4 #IS CREDIT A credit!r> tran &er !r a i#n(ent !& %i credit t! an!t%er *it%!ut t%e 2n!*led#e and at t%e 0ac2 !& !t%er credit!r !& t%e in !l"ent (a) 0e a %re* ur$ri e (!"e t%at ena0le t%e tran &er!r credit!r t! c!llect al(! t i& n!t t%e entire a(!unt !& t%e aid credit!r. Re.e&y o, t+e assi-nee: Section B7 o, t+e Inso'(ency La3: T%e credit!r c!(in# *it%in t%i $ur"ie* i lia0le t! an acti!n 0) t%e a i#nee &!r d!u0le t%e "alue !& t%e $r!$ert) ! e(0eIIled !r di $! ed !&' t! 0e recei"ed &!r t%e 0ene&it !& t%e in !l"ent> e tate.
ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page ,, of 61
Secti!n 4A c!n titute a !rt !& $enal clau e *%ic% %all 0e trictl) c!n trued. W+en Sec% B7 &oes not a**'y: N!t a$$lica0le *%ere *%at %a 0een di $! ed !& i t%e credit!r> !*n credit and n!t t%e in !l"ent> $r!$ert). DIDIDENDS IN INSOLDENCY Di(i&en&s in inso'(ency ; $arcel i& t%e &und ari in# &r!( t%e a et !& t%e e tate' ri#%t&ull) all!tted t! a credit!r entitled t! %are in t%e &und' *%et%er in t%e a(e $r!$!rti!n *it% !t%er credit!r !r in a di&&erent $r!$!rti!n. It i $aid 0) t%e a i#nee !nl) u$!n !rder !& t%e c!urt. CLASSIFICATION AND PREFERENCE OF CREDITORS PREFERENCE ; an e1ce$ti!n t! t%e #eneral rule. B) it' !ne $er !n i #i"en a u$eri!r ri#%t !r clai( !"er an!t%er. Bence' t%e la* !n $re&erence i trictl) c!n trued. +T%e #eneral rule i t%at t%e $ur$! e !& in !l"enc) $r!ceedin# i t%e e6uita0le di tri0uti!n !& t%e in !l"ent> a et a(!n# t%e de0t!r> credit!r ., RULES ON ORDER OF DISTRIBUTION -. T%e $ri!ritie &i1ed 0) la* #!"ern 2. T%e clai( *%ic% are #i"en $ri!rit) (u t 0e *ai& in ,u'' in t%e !rder !& t%eir $ri!rit)' )e,ore t+e -enera' cre&itors recei(e anyt+in-% 4. Credit!r clai(in# $re&erence (u t u&&icientl) e ta0li % t%eir credit and t%eir ri#%t t! $re&erence t! entitle t%e( t! uc% $re&erence.
ORDER OF DISTRIBUTION -. E6uita0le clai( under Sec. <CD 2. Pre&erred clai( *it% re $ect t! $eci&ic (!"a0le $r!$ert) and $eci&ic i((!"a0le $r!$ert) under Art. 22<- and 22<2 !& t%e CC. 4. Pre&erred clai( a t! unencu(0ered $r!$ert) !& t%e de0t!r *%ic% %all 0e $aid in t%e !rder na(ed in Art. 22<< !& t%e CC. <. C!((!n !r !rdinar) credit *%ic% %all 0e $aid $r! rata re#ardle !& date under Art. 22<= !& t%e CC. Wit% re&erence t! $eci&ic (!"a0le and i((!"a0le $r!$ert) !& t%e de0t!r' t%e ta0es &ue t+e State %all &ir t 0e ati &ied. T%e $re&erred clai( enu(erated in Art. 22<- and 22<2 are c!n idered a .ort-a-es an& *'e&-es o, rea' or *ersona' *ro*erty !r lien *it%in t%e $ur"ie* !& t%e In !l"enc) La*. EHUITABLE CLAI S UNDER T#E INSOLDENCY LAW Section 98 o, t+e Inso'(ency La3: An) $r!$ert) &!und a(!n# t%e $r!$ert) !& t%e in !l"ent' t%e !*ner %i$ !& *%ic% %a n!t 0een c!n"e)ed t! %i( 0) le#al and irre"!ca0le title' %all n!t 0e c!n idered t! 0e $r!$ert) !& t%e in !l"ent and %all 0e $laced at t%e di $! al !& it la*&ul !*ner ' !n !rder !& t%e c!urt !n $etiti!n !& t%e a i#nee !r an) credit!r *%! e ri#%t t! t%e e tate !& t%e in !l"ent %a 0een e ta0li %ed. -. Para$%ernal $r!$ert) 0el!n#in# t! t%e *i&e !& t%e in !l"entD 2. Pr!$ert) %eld 0) t%e in !l"ent !n de$! it' ad(ini trati!n' lea e' !r u u&ructD 4. Merc%andi e %eld 0) t%e de0t!r !n c!((i i!nD
=. 6. A. C.
<. Ne#!tia0le in tru(ent &!r c!llecti!n !r re(ittanceD M!ne) %eld 0) t%e de0t!r &!r re(ittanceD A(!unt due t%e in !l"ent &!r ale !r (erc%andi e !n c!((i i!nD Merc%andi e 0!u#%t 0) t%e in !l"ent !n credit *%ere n! deli"er) i (ade !r *%ere t%e ri#%t !& !*ner %i$ !r $! e i!n %a 0een retained 0) t%e ellerD 8!!d !r c%attel *r!n#&ull) ta2en 0) t%e in !l"ent !r t%e a(!unt !& t%e "alue t%ere!&.
An a#ree(ent' (ade u$!n a u&&icient c!n iderati!n' 0et*een an in !l"ent !r e(0arra ed de0t!r and %i credit!r ' *%ere0) t%e latter &!r t%e a2e !& i((ediate !r !!ner $a)(ent' a#ree t! acce$t a di"idend le t%an t%e *%!le a(!unt !& t%eir clai( ' t! 0e di tri0uted $r! rata' in di c%ar#e and ati &acti!n !& t%e *%!le de0t. COMPOSITION 7e i#nate an arran#e(ent 0et*een a de0t!r and t%e *%!le 0!d) !& %i credit!r +!r at lea t a c!n idera0le $!rti!n !& t%e(, &!r t%e li6uidati!n !& t%eir clai( 0) t%e di"idend !&&ered. ACCOR7 An a#ree(ent 0et*een a de0t!r and a in#le credit!r &!r a di c%ar#e !& t%e !0li#ati!n 0) a $art $a)(ent !r !n di&&erent ter( .
ALTERNATIDE RI4#TS OF SECURED CREDITOR -. To .aintain +is ri-+t un&er +is security or 'ien an& i-nore t+e inso'(ency *rocee&in-s ; it i t%e dut) !& t%e a i#nee t! urrender t! %i( t%e $r!$ert) encu(0eredD 2. To 3ai(e +is ri-+t un&er t+e security or 'ien ; t%ere0)' %are in t%e di tri0uti!n !& t%e a et !& t%e de0t!rD B% To +a(e t+e (a'ue o, t+e encu.)ere& *ro*erty a**raise& an& t+en s+are in t+e &istri)ution o, t+e assets o, t+e &e)tor 3it+ res*ect to t+e )a'ance o, +is cre&it% Wai(er ; relea e !r urrender !& t%e clai( t! t%e recei"er' %eri&&' !r a i#nee. T+e ,o''o3in- &o not constitute 3ai(er: -. Mere rec!((endati!n t%at t%e a i#nee 0e a$$!intedD 2. V!tin# !& a ecured clai(. CO POSITION
REHUIRE ENTS FOR A DALID OFFER OF CO POSITION -. T%e !&&er !& t%e ter( !& c!($! iti!n (u t 0e (ade a&ter t%e &ilin# in c!urt !& t%e c%edule !& $r!$ert) and u0(i i!n !& %i li t !& credit!r D 2. T%e !&&er (u t 0e acce$ted in *ritin# 0) a (a9!rit) !& t%e credit!r re$re entin# a (a9!rit) !& t%e clai( *%ic% %a"e 0een all!*edD 4. It (u t 0e (ade a&ter de$! itin# in uc% $lace de i#nated 0) t%e c!urt' t%e c!n iderati!n t! 0e $aid and t%e c! t !& t%e $r!ceedin# D and <. T%e ter( !& t%e c!($! iti!n (u t 0e a$$r!"ed !r c!n&ir(ed 0) t%e c!urt. W#EN COURT AY CONFIR A CO POSITION
-. I& it i in t%e 0e t intere t !& t%e credit!r D 2. T%e de0t!r %a n!t 0een #uilt) !& an) !& t%e act ' !r !& a &ailure t! $er&!r( an) !& t%e dutie *%ic% *!uld create a 0ar t! %i di c%ar#eD and 4. T%e !&&er and it acce$tance are in #!!d &ait% and %a"e n!t 0een (ade !r $r!cured in a (anner &!r0idden 0) t%e Act. EFFECTS OF CONFIR ATION OF CO POSITION -. T%e c!n iderati!n %all 0e di tri0uted a t%e 9ud#e %all directD 2. T%e in !l"enc) $r!ceedin# %all 0e di (i edD 4. T%e title t! t%e in !l"ent> $r!$ert) %all re"e t in %i(D and <. T%e in !l"ent %all 0e relea ed &r!( %i de0t . =. T%e u0 tituti!n' in a certain en e' c!($! iti!n &!r t%e in !l"enc) $r!ceedin# . 6. A la*&ul c!($! iti!n and it $er&!r(ance 0) t%e in !l"ent %a t%e a(e e&&ect !& a *ritten di c%ar#e' alt%!u#% n! *ritten di c%ar#e i #ranted. A. G!r all le#al and $ractical $ur$! e ' t%e in !l"enc) ended !n t%e date !& t%e c!n&ir(ati!n !& c!($! iti!n and t%e &ir( *a re t!red t! it tatu 6u!. It reac6uired it $er !nalit). It $r!$ertie cea ed t! 0e in cu t!dia le#i . W#EN CONFIR ATION AY BE SET ASIDE -. An) ti(e *it%in i1 (!nt% a&ter t%e c!($! iti!n %a 0een c!n&ir(edD 2. Graud *a $racticed in $r!curin# uc% c!($! iti!nD 4. Jn!*led#e t%ere!& %a c!(e t! t%e $etiti!ner a&ter t%e c!n&ir(ati!n !& uc% c!($! iti!n.
DISC#AR4E T%e &!r(al and 9udicial relea e !& an in !l"ent de0t!r &r!( %i de0t *it% t%e e1ce$ti!n !& t%! e e1$re l) re er"ed 0) la*. W#EN AN INSOLDENT DEBTOR DISC#AR4E AY APPLY FOR A
4enera' ru'e: A de0t!r (a) a$$l) t! t%e RTC &!r a di c%ar#e at t%ree (!nt% t! !ne )ear a&ter t%e ad9udicati!n !& in !l"enc). Exception: T%e $r!$ert) !& t%e in !l"ent %a n!t 0een c!n"erted int! (!ne) *it%!ut %i &ault' t%ere0) dela)in# t%e di tri0uti!n !& di"idend a(!n# t%e credit!r in *%ic% ca e t%e c!urt (a) e1tend t%e $eri!d. DEBTS RELEASED BY A DISC#AR4E -. All clai( ' de0t ' and lia0ilitie ' and de(and et &!rt% in t%e c%eduleD and 2. All clai( ' de0t ' lia0ilitie and de(and *%ic% *ere !r (i#%t %a"e 0een $r!"ed a#ain t t%e e tate in in !l"enc) DEBTS NOT RELEASED BY DISC#AR4E -. Ta1e !r a e (ent due t%e 8!"ern(entD 2. An) de0t created 0) t%e &raud !r e(0eIIle(ent !& t%e de0t!rD 4. An) de0t created 0) t%e de&alcati!n !& t%e de0t!r a a $u0lic !&&icer !r *%ile actin# in a &iduciar) ca$acit)D
=. 6. A. C.
<. 7e0t !& an) $er !n lia0le &!r t%e a(e de0t' &!r !r *it% t%e in !l"ent de0t!r' eit%er a a $artner' 9!int c!ntract!r' ind!r er' uret) !r !t%er*i eD 7e0t !& a c!r$!rati!n +Reason: C!r$!rati!n i n!t #ranted a di c%ar#e, Clai( &!r u$$!rt +Reason: It *ill (a2e t%e la* a (ean !& a"!idin# t%e en&!rce(ent !& t%e !0li#ati!n, 7i c%ar#ed de0t 0ut re"i"ed 0) a u0 e6uent ne* $r!(i e t! $a) +Reason: 7i c%ar#e d!e n!t end t%e (!ral !0li#ati!n t! $a), 7e0t *%ic% %a"e n!t 0een dul) c%edule in ti(e &!r $r!!& and all!*ance. E0ce*tion: T%e credit!r %ad n!tice !r actual 2n!*led#e !& t%e in !l"enc) $r!ceedin# &!r5 Unli6uidated da(a#e D Secured credit!r D N!t in e1i tence !r n!t (ature at t%e ti(e !& t%e di c%ar#eD d. C!ntin#ent at t%e ti(e !& t%e di c%ar#ed.
4. It i a $ecial de&en e *%ic% (a) 0e $leaded and 0e a c!($lete 0ar t! all uit 0r!u#%t !n an) uc% de0t ' clai( ' lia0ilitie !r de(and . <. It d!e n!t !$erate t! relea e an) $er !n lia0le &!r t%e a(e de0t ' &!r !r *it% t%e de0t!r' eit%er a $artner' 9!int c!ntract!r' ind!r er' uret)' !r !t%er*i e. =. T%e certi&icate !& di c%ar#e i $ri(a &acie e"idence !& t%e &act !& relea e' and t%e re#ularit) !& uc% di c%ar#e. Re.e&y o, -uarantor or surety 3+en &e)tor &ec'are& @u&icia''y inso'(ent: Gile a c!ntin#ent clai( in t%e in !l"enc) $r!ceedin#' i& %i ri#%t a uc% #uarant!r !r uret) are n!t t! 0e 0arred 0) t%e u0 e6uent di c%ar#e !& t%e in !l"ent de0t!r &r!( all %i lia0ilitie . W#EN DISC#AR4E AY BE REDO!ED
@. Clai( a. 0. c.
7i c%ar#e (a) 0e re"!2ed 0) t%e c!urt *%ic% #ranted it u*on *etition o, any cre&itor: -. W%! e de0t *a $r!"ed !r $r!"a0le a#ain t t%e e tate in in !l"enc)' on t+e -roun& t+at t+e &isc+ar-e 3as ,rau&u'ent'y o)taine&D and $r!"ided' 2. T%e $etiti!n i &iled *it%in !ne )ear a&ter t%e date !& t%e di c%ar#e. FRAUDULENT PREFERENCES AND TRANSFERS TRANSFER ; include t%e ale and e"er) !t%er and di&&erent (!de !& di $! in# !& !r $artin# *it% $r!$ert)' !r t%e $! e i!n !& $r!$ert)' a0 !lutel) !r c!nditi!nall)' a a $a)(ent' $led#e' (!rt#a#e' #i&t' !r ecurit).
LE4AL EFFECTS OF DISC#AR4E 7i c%ar#e ta2e e&&ect &r!( t%e c!((ence(ent !& t%e $r!ceedin# in in !l"enc). -. Relea e t%e de0t!r &r!( all clai( ' de0t ' lia0ilitie and de(and et &!rt% in t%e c%edule !r *%ic% *ere !r (i#%t %a"e 0een $r!"ed a#ain t %i e tate in in !l"enc). 2. O$erate a a di c%ar#e !& t%e in !l"ent and &uture ac6ui iti!n 0ut $er(it (!rt#a#e and !t%er lien
W#EN PREFERENTIAL TRANSFER EJISTS -. 2. 4. <. T%ere (u t 0e a $artin# !& t%e in !l"ent> $r!$ert)D G!r t%e 0ene&it !& t%e credit!rD C!n e6uent di(inuti!n !& t%e in !l"ent> e tateD Wit% t%e re ult t%at uc% credit!r recei"e a #reater $r!$!rti!n !& %i clai( t%an !t%er credit!r !& t%e a(e cla .
4enera' ru'e: A de0t!r i n!t $r!%i0ited &r!( $a)in# !ne credit!r in $re&erence t! an!t%er Exception: In ca e (enti!ned in t%e In !l"enc) La* De*osit o, .oney to oneFs cre&it on a )an1 &oes not create any *re,erence% Reason: T%e e tate !& t%e de$! it!r i n!t di(ini %ed &!r t%ere i an !0li#ati!n !n t%e $art !& t%e 0an2 t! $a) t%e a(!unt !& t%e de$! it a !!n a t%e de$! it!r (a) ee &it t! dra* a c%ec2 a#ain t it. W#EN FRAUDULENT PREFERENCE EJISTS Frau&u'ent *re,erence ; *%en t%e de0t!r $r!cure an) $art !& %i $r!$ert) t! 0e attac%ed' e6ue tered' !r eiIed !n e1ecuti!n !r (a2e an) $a)(ent' $led#e' (!rt#a#e' a i#n(ent' tran &er' ale !r c!n"e)ance !& an) $art !& %i $r!$ert)' *%et%er directl) !r indirectl)' a0 !lutel) !r c!nditi!nall)' t! an) !ne under t%e &!ll!*in# circu( tance 5
-. T%e de0t!r i in !l"ent !r in c!nte($lati!n !& in !l"enc)D 2. T%e tran acti!n in 6ue ti!n i (ade *it%in 40 da) 0e&!re t%e &ilin# !& a $etiti!n 0) !r a#ain t t%e de0t!rD 4. It i (ade *it% a "ie* t! #i"in# $re&erence t! an) credit!r !r $er !n %a"in# a clai( a#ain t %i(D and <. T%e $er !n recei"in# a 0ene&it t%ere0) %a rea !na0le cau e t! 0elie"e5 a. T%at t%e de0t!r i in !l"entD 0. T%at t%e tran &er i (ade *it% a "ie* t! $re"ent %i $r!$ert) &r!( c!(in# t! %i a i#nee in in !l"enc)' !r t! $re"ent t%e a(e &r!( 0ein# di tri0uted rata0l) a(!n# %i credit!r ' !r t! de&eat t%e !09ect !& !r an) *a) %inder t%e !$erati!n !r e"ade t%e $r!"i i!n !& t%e In !l"enc) La*. M7ate !& re#i trati!n !& ale !& real $r!$ert) %!uld deter(ine *%et%er t%e ale *a $r!%i0ited 0) t%e In !l"enc) La* !r n!t. W#EN PRESU PTION OF FRAUD EJISTS -. I& uc% $a)(ent' $led#e' (!rt#a#e' c!n"e)ance' ale' a i#n(ent !r tran &er i n!t (ade in t%e u ual and !rdinar) c!ur e !& 0u ine !& t%e de0t!rD !r 2. I& uc% eiIure i (ade under a 9ud#(ent *%ic% t%e de0t!r %a c!n&e ed !r !&&ered t! all!*' t%at &act %all 0e $ri(a &acie e"idence !& &raud. EHUAL EJC#AN4E NOT A PREFERENCE An e1c%an#e !& ecuritie *it%in t%e t%irt)-da) $eri!d i n!t a &raudulent $re&erence under t%e la*' e"en *%en 0!t% $artie 2n!* t%at t%e de0t!r i in !l"ent' i&5
-. T%e ecurit) #i"en u$ i a "alid !ne at t%e ti(e t%e e1c%an#eD 2. O& e6ual "alue *it% t%e !ne recei"ed in e1c%an#e. Reason: E1c%an#e ta2e n!t%in# a*a) &r!( t%e !t%er credit!r E2ua' (a'ue: N!t nece ar) t%at t%eir "alue %!uld 0e (at%e(aticall) e6ual' 0ut it i u&&icient i& t%e) are u0 tantiall) e6ual. W#EN FRAUDULENT TRANSFER EJISTS -. An) $a)(ent' $led#e' (!rt#a#e' c!n"e)ance' ale' a i#n(ent' !r tran &er !& $r!$ert) !& *%ate"er c%aracterD 2. Made 0) t%e in !l"entD 4. Wit%in !ne (!nt% 0e&!re t%e &ilin# !& t%e $etiti!n in in !l"enc) a#ain t %i( E0ce*tion: Tran &er &!r a "alua0le $ecuniar) c!n iderati!n in #!!d &ait% E,,ect o, ,rau&u'ent trans,er: Suc% tran &er i VOI7 RI4#T OF ASSI4NEE TO RECODER PROPERTY OR ITS DALUE T%e credit!r !& t%e in !l"ent are n!t aut%!riIed t! in titute an inde$endent acti!n. In all acti!n !r $r!ceedin# t! et a ide !r nulli&) &raudulent $re&erence !r tran acti!n a VOI7' t%e assi-nee a$$ear &!r' and re$re ent t%e #eneral credit!r . EFFECT OF DEAT# OF INSOLDENT DEBTOR
-. Deat+ a,ter t+e or&er o, a&@u&ication ; t%e $r!ceedin# %all 0e c!ntinued and c!ncluded in li2e (anner and *it% li2e "alidit) and e&&ect a i& %e %ad li"ed. 2. Deat+ )e,ore t+e or&er o, a&@u&ication ; t%e $r!ceedin# %all 0e di c!ntinued. Re.e&y: Gile clai( in t%e $r!$er te tate !r inte tate $r!ceedin# W#EN RECEIDER AY BE APPOINTED
An)ti(e 0e&!re t%e electi!n !& an a i#nee' *%en it a$$ear 0) t%e "eri&ied $etiti!n !& a credit!r5 -. T%at t%e a et !& t%e in !l"ent !r a c!n idera0le $!rti!n t%ere!& %a"e 0een $led#ed' (!rt#a#ed' tran &erred' a i#ned' c!n"e)ed' !r eiIed !n le#al $r!ce in "i!lati!n !& Sec. A0D 2. T%at it i nece ar) t! c!((ence an acti!n t! rec!"er t%e a(eD T%e recei"er %all deli"er all t%e $r!$ert)' a et ' !r e&&ect re(ainin# in %i %and t! t%e a i#nee *%! %all 0e u0 tituted &!r %i( in all $endin# acti!n !r $r!ceedin# . W#EN PETITION AY BE DIS ISSED
At an)ti(e 0e&!re t%e a$$!int(ent !& an a i#nee5 -. Do'untary *etition ; u$!n t%e a$$licati!n !& t%e de0t!r' i& n! credit!r &ile *ritten !09ecti!n D 2% In(o'untary *etition ;
a. U$!n t%e a$$licati!n !& t%e $etiti!nin# credit!r D !r 0. B) *ritten c!n ent !& all credit!r &iled in c!urt' in *%ic% ca e' t%e $r!ceedin# (a) 0e di (i ed at an) ti(e. A&ter t%e a$$!int(ent !& an a i#nee' di (i al i n!t all!*ed *it%!ut t%e c!n ent !& all $artie intere ted in !r a&&ected t%ere0). W#EN APPEAL COURT AY BE TA!EN TO T#E SUPRE E
Gr!( an !rder #rantin# !r re&u in#5 -. An ad9udicati!n in in !l"enc) and in t%e latter ca e' &r!( t%e !rder &i1in# t%e a(!unt !& c! t ' e1$en e ' da(a#e ' and att!rne)> &ee all!*ed t%e de0t!rD 2. A credit!r> clai( *%en t%e a(!unt in di $ute e1ceed P400.00 4. A clai( &!r $r!$ert) n!t 0el!n#in# t! t%e in !l"ent' $re ented under Sec. <C +e6uita0le clai( , <. Settlin# an acc!unt !& an a i#neeD =. Settin# a$art %!(e tead !r !t%er $r!$ert) clai(ed a e1e($t &r!( e1ecuti!n. 6. A di c%ar#e t! t%e de0t!r.

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ATENEO CENTRAL BAR OPERATIONS 2006 Security Transactions SUMMER REVIEWER - page 1 of 61

CO ODATU Ordinaril) c!n u(a0le

DISCOUNTIN4 PAPER Intere t i deducted ad"ance 7!u0le na(e $a$er

deli"er t%e a(e 2ind !r 6ualit) l!aned t! t%e 0ailee

Nature !& c!ntract

Ma) 0e Al*a) #ratuit!u #ratuit!u

e6ui"alent t%in# i #i"en in return &!r *%at %a 0een recei"ed Oner!u

an& a'3ays -ratuitous

Ba i !& C!($ari !n 7e(anda0ilit)

%a 0een c!n tituted

SEHUESTRATION OR EUDICIAL DEPOSIT Re(unerati!n

ON TO PLED4E AND 5Art 2=8?A2$2B6

4UARANTY 4ENERALLY 4RATUITOUS 52=986 4R: 8uarant) i #ratuit!u

a c!llateral C%ar#ed $r!(i !r

E0ce*tions: W%en ti$ulated

DEFENSES ADAILABLE CREDITOR 52=8$6

BOND ; an underta2in# t%at i ca % !r currenc).

cre&itors re2uire& EGGECT -. 2.

in"!luntar) in !l"enc)' t%ree !r (!re credit!r are re6uired 7ECLARIN8 7EBTOR

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