Professional Documents
Culture Documents
DANA-Notes
F. Bailor need not be the owner of the thing loaned (Art. 1938) I. OBLIGATIONS OF THE BAILOR
F.1. It is sufficient that the bailor has: I.1. Respect the duration of the loan (Art. 1946)
F.1.1. Possessory interest I.1.1. GR: he cannot demand return before the expiration of the
F.1.2. The right to use which he may assert against the bailee or period or accomplishment of the use
third persons but not the rightful owner I.1.1.1. Exception:
G. Effects of the Principle that Commodatum is Purely Personal (Art. I.1.1.1.1. in case of urgent need of the thing; he
1939) may demand its return or temporary use
G.1. Death of either bailor or the bailee extinguishes the contract I.1.1.1.1.1. Effect: contract of Commodatum
G.1.1. Exceptions: is suspended while the thing is in
G.1.1.1. when there is a contrary stipulation that the possession of the bailor
Commodatum is transmitted to the heirs of either I.1.1.1.2. If the bailee commits any act of
or both parties ingratitude specified in Art. 765
G.1.1.2. if there are two or more borrowers, the death of I.1.1.1.2.1. Bailee should commit some
one does not extinguish the contract in the offenses against the person,
absence of stipulation to the contrary honor or property of the bailor, or
G.2. Bailee can neither lend or lease the objects of the contract to a his wife or children under his
third person parental authority
G.2.1. Exceptions: I.1.1.1.2.2. Bailee imputes to the bailor any
G.2.1.1. agreement to the contrary criminal offense, or any act
G.2.1.2. members of the household may make use of the involving moral turpitude, even
thing loaned though he should prove it, unless
G.2.1.2.1. Exception: the crime or the act has been
G.2.1.2.1.1. if there is contrary stipulation committed against the bailee
G.2.1.2.1.2. if the nature of the thing forbids himself, his wife or children
such use under his authority
H. OBLIGATIONS OF THE BAILEE I.1.1.1.2.3. Bailee unduly refuses the bailor
H.1. Take care of the thing with diligence of a good father of a family support when the bailee is legally
H.2. Return the identical thing loaned upon the expiration of the term or or morally bound to give support
upon the accomplishment of the purpose to the bailor
H.3. Pay for the ordinary expenses for the use and preservation of the I.2. Refund to the bailee extraordinary expenses for the preservation of
thing loaned (Art. 1941) the thing, provided that the bailee brings the same to the
H.4. Liable for loss even if it should be through a fortuitous event in the knowledge of the bailor before incurring them, except when the
following cases (Art. 1942) ***GR: not liable reply to the notification cannot be awaited without danger (Art.
H.4.1. When he keeps it longer than the period stipulated, or after 1949)
the accomplishment of its use I.2.1. Exception: expenses caused by fortuitous event on the
H.4.2. when he lends or leases it to third persons who are not occasion of the actual use of the thing by the bailee, even
members of his household though he acted without fault, loaned shall be borne by the
H.4.3. when the thing loaned has been delivered with appraisal of bailor and bailee
its value unless there is a stipulation exempting the bailee I.2.1.1. Exception: stipulation for a different apportionment
from responsibility in case of fortuitous event of expenses
H.4.4. when being able to save either the thing borrowed or his I.2.2. Notice is required because it is possible that the bailor may
own things, he chose to save the latter not want to incur the extraordinary expenses
H.4.5. when the bailee devoted the thing for a different use from I.3. Liable to the bailee for damages for known hidden flaws (Art.
that agreed upon 1951)
H.5. Liable for deterioration due to the use of the thing ***GR: not liable I.3.1. Requisites:
(Art. 1943) I.3.1.1. Existence of flaw or defect
H.5.1. if expressly stipulated I.3.1.2. Flaw or defect is hidden
H.5.2. if guilty of fault or negligence I.3.1.3. Bailor is aware thereof
H.5.3. if he devotes the thing to any purpose different from that for I.3.1.4. Bailee suffers damages by reason of said flaw or
which it has been loaned defect
H.5.4. if he uses the thing beyond the period stipulated I.3.2. No right of Abandonment bailor cannot exempt himself
H.6. Pay for extraordinary expenses arising from the actual use of the from the payment of expenses or damages by abandoning
thing, even though the bailee acted without fault. in this case, the the thing to the bailee
bailor and the bailee shall bear the expenses equally (Art. 1942)
H.6.1. exception: if there is a stipulation for different MUTUUM
apportionment
H.6.2. Right of retention A. A person who receives a loan of money or any other fungible thing
H.6.2.1. GR: Bailee has no right to retain the thing loaned acquires the ownership thereof, and is bound to pay to the creditor an
as security on the ground that the bailor owes him equal amount of the same kind and quality. (Art. 1953)
something, even though it may be by reason of B. Contract of Barter A contract whereby one person transfers the
expenses ownership of non-fungible things to another with the obligation on the part
H.6.2.1.1. Exception: Bailor shall be liable for of the latter to give things of the same kind, quantity, and quality shall be
damages suffered by the bailee by reason considered a barter. (Art. 1954)
therefor and right of retention ceases B.1. Commodatum/Mutuum v Barter
when the bailee is reimbursed (Art. 1951) Commodatum/ Mutuum Barter
H.6.2.2. Retention or adverse claim of bailee cannot ripen As to Subject Matter
into title by ordinary acquisitive prescription In mutuum Money or fungible Non fungible
(Catholic Vicar Apostolic of the Mt. Province v things
CA) As to Return of the Subject Matter
H.7. Pay for the expenses other than those under Art. 1941 and 1949 In Commodatum the bailee is The thing with equivalent value
Of the Civil Code for the purpose of making use of the thing (Art. bound to return the identical is given in return for what has
1950) thing borrowed been received
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CREDIT TRANSACTIONS
DANA-Notes
As to Cause or Consideration F.5. GR: accrued interest shall not earn interest
Mutuum may be gratuitous and Always onerous and is actually F.5.1. Exception:
Commodatum is essentially a mutual sale F.5.1.1. When judicially demanded as provided for in Art.
gratuitous 2212
C. Subject matter: Consumable or fungible goods F.5.1.2. when there is an express stipulation made by the
D. OBLIGATION OF BORROWER parties, to wit: that the interest due an unpaid shall
D.1. pay to the lender an equal amount of the same kind and quality be added to the principal obligation and the
D.1.1. the thing must be returned upon the end of the period. resulting total amount shall earn interest
However the borrower can lose the right to use the period F.6. If the borrower pays interest when there has been no stipulation
in the instances provided in Art. 1198. If the parties did not therefor, the provisions of this Code concerning solutio indebiti, or
agree on a period Art. 1197 applies natural obligations, shall be applied, as the case may be. (Art.
D.1.2. Creditor may demand payment and borrower can make 1960)
payment prior to the maturity date if the loan is gratuitous. F.7. Usurious contracts shall be governed by the Usury Law and other
But if it is with interest, it is otherwise special laws, so far as they are not inconsistent with this Code (Art.
D.1.3. No criminal liability for failure to pay borrower 1961)
acquires ownership of the money, goods, or personal
property borrowed. Being the owner, the borrower can DEPOSIT
dispose of the thing and his act will not be considered
misappropriation thereof B. Contract of deposit contract constituted from the moment a person
D.2. pay interest if expressly stipulated in writing receives a thing belonging to another, with the obligation of safely keeping
E. Forms of Payment: (Art. 1955) it and returning the same
E.1. If the thing loaned is money, payment must be made in the B.1. Purpose: Safekeeping
currency stipulated, if it is possible to deliver such currency; B.2. Characteristics
otherwise that which is legal tender in the Philippines. In case of B.2.1. Real
extraordinary inflation or deflation, payment shall be in the value of B.2.2. Unilateral
the currency at the time of the creation of the obligation B.2.3. Bilateral
E.2. If the thing loaned is other than money, the borrower is under B.3. Deposit v Mutuum
obligation to pay the lender another thing of the same kind, quality Deposit Mutuum
and quantity even if it should change in value. In case it is As to purpose
impossible to do so, the borrower shall pay its value at the time of For safekeeping or custody Consumption
the perfection of the loan As to time of return
F. INTEREST Depositor can demand return Period must be respected by
F.1. Kinds of interest anytime the lender
F.1.1. Simple interest that which is paid for the principal at a As to subject matter
certain rate fixed or stipulated by the parties Movable/ corporeal things only Money or fungible
F.1.2. Compound interest that which is imposed upon interest in case of extrajudicial deposit
due and unpaid. The accrued interest is added to the
principal sum and the whole is treated as a new principal any property in case of judicial
upon which the interest for the next period is calculated deposit
F.1.3. Legal interest that which the law directs to be charged in As to relationship
the absence of any agreement as to the rate between the Depositor and depositary Lender and borrower
parties As to compensation
F.1.4. Lawful interest that which the law allows or does not
Generally gratuitous May be gratuitous, or with a
prohibit, that is, the rate of interest within the maximum stipulation to pay interest
prescribed by law
B.4. Deposit v Commodatum
F.1.5. Unlawful or usurious interest that which is paid or
Deposit Commodatum
stipulated to be paid beyond the maximum fixed by law
F.2. No interest shall be due unless it has been expressly As to purpose
stipulated in writing. (Art. 1956) safekeeping Transfer of the use
F.2.1. Requisites for recovery of interest As to time of return
F.2.1.1. the payment of interest must be expressly Depositary can always be Borrower can use the thing for
stipulated required to return the thing at the period stipulated, and can
F.2.1.2. the agreement to pay interest must be in writing any time be required to return only in
F.2.1.3. the interest must be lawful case of urgent need or when
F.2.2. Art. 1956 is subject to 2 exceptions: the bailee has committed any of
F.2.2.1. Indemnity for damages the debtor in delay is the acts of ingratitude under
liable to pay legal interest (6%) as indemnity for Art. 765
damages even in the absence of stipulation for the As to Subject matter
payment of interest Movable/corporeal things only Both movable and immovable
F.2.2.2. Interest accruing from unpaid interest interest in case of extrajudicial deposit
due shall earn interest from the time it is judicially
demanded although the obligation may be silent Any property in case of judicial
upon this point deposit
F.3. Contracts and stipulations, under any cloak or device whatever, As to Compensation
intended to circumvent the laws against usury shall be void. The May be gratuitous Essentially gratuitous
borrower may recover in accordance with the laws on usury. (Art. B.5. Deposit v Barter/Sale
1957) Deposit Sale and barter
F.3.1. Usurious contract should not be considered void in its As to Transfer of Ownership
entirety but only as to the interest involved Ownership is not transferred Ownership is transferred upon
F.4. In the determination of the interest, if it is payable in kind, its value delivery
shall be appraised at the current price of the products or goods at As to Nature
the time and place of payment.
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CREDIT TRANSACTIONS
DANA-Notes
Real Consensual C.2. If the depositary is incapacitated, he does not incur obligation of a
As to Consideration depositary. However he is liable to:
Generally gratuitous Always onerous C.2.1. Return the thing deposited while still in his possession
B.6. GR: contract of deposit is gratuitous (Art. 1965) C.2.2. Pay the depositor the amount by which he may have
B.6.1. Exceptions: benefited himself with the thing or its price subject to the
B.6.1.1. where there is contrary stipulation right of any third person who acquired the thing in good
B.6.1.2. where depositary engaged in business of storing faith, in which case the depositor may only bring an action
goods against him for its recovery
B.6.1.3. when property saved from destruction without D. OBLIGATIONS OF THE DEPOSITARY
knowledge of the owner D.1. to keep the thing safely (Art. 1972)
B.7. Subject Matter: only movable things (Art. 1966) D.1.1. GR: Good father of a family shall be required
C. Kinds of deposit D.1.1.1. Exception: the required degree of care is greater
C.1. judicial one which takes place when an attachment or seizure of when:
property in litigation is ordered 1. it is the depositary who voluntarily offered
C.1.1. The depositary of property or objects sequestrated cannot to keep the thing
be relieved of his responsibility until the controversy which 2. the deposit is compensated
gave rise thereto has come to an end, unless the court so 3. the deposit produces benefit to the
orders. (Art. 2007) depositary
C.2. extrajudicial D.2. to return the thing (Art. 1972)
C.2.1. voluntary one wherein the delivery is made by the will of D.2.1. Persons to whom the thing must be returned:
the depositor or by two or more persons each of whom D.2.1.1. Depositor, to his heirs and successor, or the
believes himself entitled to the thing deposited person who may have been designated in the
C.2.2. necessary one made in compliance with contract (Art. 1972)
C.2.2.1. a legal obligation, or 1. if there are two or more persons, each
C.2.2.2. on the occasion of any calamity, or claiming to be entitled to a thing, the
C.2.2.3. by travelers in hotels and inns or depositary can file an action to compel the
1. When hotel-keeper is liable regardless depositors to interplead among themselves
of the amount of care exercised: D.2.1.2. Guardian or administrator of the person who made
a. The loss or injury to the personal the deposit if the latter is incapacitated at the time
property of the guests is caused of deposit or the latter himself should he acquire
by his servants or employees as capacity (Art. 1970)
well as by strangers provided that D.2.1.3. Legal representative of the depositor should the
notice has been given and proper latter subsequent lose his capacity during the
precautions taken deposit (Art. 1986)
b. The loss is caused by the act of a D.2.2. Time of Return:
thief or robber done without the GR: thing deposited must be returned to the depositor
use of arms and irresistible force, upon demand, even though a specified period or time for
for in this case, the hotel-keeper is such return may have been fixed.
apparently negligent D.2.2.1. Exception: (Art. 1988 and 1989)
2. When hotel-keeper is not liable: 1. It cannot be returned upon demand when
a. The loss or injury is caused by the thing is judicially attached while in the
force majeure, like flood, fire, theft depositarys possession there must be
by a stranger with the use of arms immediate notice to depositor of
or irresistible force, etc. unless he attachment
is guilty of fault or negligence in 2. the deposit cannot be returned upon
failing to provide against the loss demand if the depositary has been notified
or injury from his cause of the opposition of a third person to the
b. The loss is due to the acts of the return or removal of the thing deposited
guest, his family, servants, or there must be immediate notice to
visitors depositor of opposition
c. The loss arises from the character 3. If the deposit is gratuitous, the depositary
of the things brought into the hotel may return the thing deposited
3. The hotel-keeper cannot free himself from notwithstanding that a period has been
responsibility by posting notices to the fixed for the deposit if justifiable reasons
effect that he is not liable for the articles exists for its return
brought by the guest. Any stipulation If the depositor refused to receive it, the
between the hotel-keeper and the guest depositary may secure its consignation
whereby the responsibility of the former as from the court
set forth in articles 1998 to 2001 is D.2.3. What to Return:
suppressed or diminished shall be void. D.2.3.1. Thing deposited shall be returned with all its
(Art. 2003) products, accessories and accessions. (Art. 1983)
4. The hotel-keeper has a right to retain the D.2.3.2. If by force majeure or government order, the
things brought into the hotel by the guest, depositary loses the thing, and receives money or
as a security for credits on account of another thing in its place, he shall deliver the sum
lodging, and supplies usually furnished to or other thing to the depositor (Art. 1990)
hotel guests (Art. 2004) D.2.4. Where to Return:
B.1.1.1. by travelers with common carriers D.2.4.1. If at the time the deposit was made a place was
C. Effects of the incapacity of the Depositary or Depositor designated for the return of the thing, the
C.1. If the depositary is capacitated, he is subject to all the obligations depositary must take the thing deposited to such
of a depositary whether the depositor is capacitated or not (Art. place; but the expenses for transportation shall be
1970) borne by the depositor.
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CREDIT TRANSACTIONS
DANA-Notes
D.2.4.2. If no place has been designated for the return, it there is a stipulation that the thing should be returned to one of the
shall be made where the thing deposited may be, depositors, the depositary shall return it only to the person
even if it should not be the same place where the designated.
deposit was made, provided that there was no C. Depositarys Right of Retention depositor may retain the thing in
malice on the part of the depositary. pledge until full payment of what may be due him by reason of the deposit
D.3. Not to deposit the thing with a third person unless authorized by (Art. 1994)
express stipulation (Art. 1973) D. Rule when an heir of the depositor sold the thing deposited The
D.3.1. If deposit with a third person is allowed, the depositary is depositor's heir who in good faith may have sold the thing which he did
liable for the loss if he deposited the thing with a person not know was deposited, shall only be bound to return the price he may
who is manifestly careless or unfit. have received or to assign his right of action against the buyer in case the
D.3.2. The depositary is responsible for the negligence of his price has not been paid him (Art. 1991)
employees. E. OBLIGATIONS OF THE DEPOSITOR
D.3.3. In urgent cases, depositary may deposit the thing with third E.1. To pay expenses for preservation if the deposit is gratuitous
persons if such is necessary for the preservation of the (Art. 1992)
thing E.2. To pay for losses incurred by the depositary due to the character
D.4. To change the way of the deposit if under the circumstances he of the thing deposited (Art. 1993)
may reasonably presume that the depositor would consent to the E.2.1. Exception:
change if he knew of the facts of the situation. However, before the E.2.1.1. At the time of the deposit, the deposit was not
depositary may make such change, he shall notify the depositor aware of the dangerous character of the thing
thereof and wait for his decision, unless delay would cause E.2.1.2. Depositor was not expected to know the
danger. (Art. 1974) dangerous character of the thing
D.5. If the thing deposited should earn interest: E.2.1.3. Depositor notified the depository of the same
D.5.1. To collect interest and the capital itself as they fall due E.2.1.4. Depositary was aware of its without advice from
D.5.2. To take necessary steps to preserve its value and the right the depositor
with regard to it (Art. 1975) F. EXTINGUISHMENT
D.5.2.1. Art.1975 cannot apply to a depositary of F.1. Upon the loss or destruction of the thing deposited;
certificates bonds, securities or instruments, which F.2. In case of a gratuitous deposit, upon the death of either the
earn interest if such documents are kept in a depositor or the depositary.
rented safety deposit box (CA Agro Industrial Dev. F.2.1. Deposit for compensation does not extinguish the deposit
Corp. v. CA) F.3. return of the thing by the depositary
D.6. Not to commingle things of the same kind and quality deposited if F.4. conversion of a deposit into another contract if the depositor allows
so stipulated (Art. 1976) the depositary to use the thing
D.7. Not to make use of the thing deposited unless authorized (Art. F.5. acquisition of the right to possess the thing deposited by the
1977) depositary
D.7.1. when the preservation of the thing deposited requires its
use, it must be used but only for that purpose WAREHOUSE RECEIPTS LAW
D.7.2. Irregular deposit if safekeeping is still the principal
purpose of the contract although there is a permission to A. Warehouse receipt written acknowledgement by a warehouseman that
use the consumable thing he has received and holds certain goods therein described in store for the
D.8. To be liable for loss through fortuitous event (Art. 1979) person to whom it is issued
D.8.1. If stipulated B. Issue of Warehouse Receipt law
D.8.2. If he uses the thing without the depositors permission B.1. Warehouse receipts may be issued by any warehouseman
D.8.3. if he delays its return B.2. Form and contents of the receipt:
D.8.4. if he allows others to use it, even though he himself have B.2.1. does not require any particular form, though it has provided
been authorized to use the same for certain essential terms which must be embodied in ever
D.9. Liability when the thing deposited is delivered closed and sealed warehouse receipt:
D.9.1. to return the thing deposited in the same condition B.2.1.1. Location of the warehouse
D.9.2. to pay for damages should the seal or lock be broken B.2.1.2. Date of the issue of the receipt
through his fault, which is presumed B.2.1.3. Consecutive number of the receipt
D.9.3. to keep the secret of the deposit when the seal or lock is B.2.1.4. Person to whom goods are deliverable
broken with or without his fault (Art. 1981) B.2.1.5. Rate of storage charges
D.10. To return products, accessories and accessions (Art. 1983) B.2.1.6. Description of the goods or of the packages
D.11. To pay interest on sums converted to personal use from the day of B.2.1.7. Signature of the warehouseman
conversion if the deposit consists of money (Art. 1983 and 1986) B.2.1.8. Warehousemans ownership of or interest in
D.12. To advise the true owner that a deposit has been made should he goods
discover that the thing deposited was stolen from the owner (Art. B.2.1.9. Statement of the amount of advances made and of
1984) liabilities incurred
D.12.1. Depositary cannot demand that the depositor prove his B.2.2. Effect of omission of any of essential terms
ownership of the thing deposited B.2.2.1. validity of receipt NOT affected
D.12.2. If the owner, in spite of such information, does not claim it B.2.2.2. warehouseman liable for damages
within the period of one month, the depositary shall be B.2.2.3. Negotiability of receipt NOT affected
relieved of all responsibility by returning the thing deposited B.2.2.4. Contract converted to ordinary deposit
to the depositor. B.2.3. A warehouseman may insert in a receipt issued by him any
A.1.1. If the depositary has reasonable grounds to believe that the other terms and conditions provided that such terms and
thing has not been lawfully acquired by the depositor, the conditions shall not:
former may return the same B.2.3.1. Be contrary to the provisions of this Act.
B. Rule When there are two or more depositors B.2.3.2. In any wise impair his obligation to exercise that
B.1. When there are two or more depositors, if they are not solidary, degree of care in the safe-keeping of the goods
and the thing admits of division, each one cannot demand more entrusted to him which is reasonably careful man
than his share. would exercise in regard to similar goods of his
B.2. When there is solidarity or the thing does not admit of division, the own.
provisions of Articles 1212 and 1214 shall govern. However, if C. OBLIGATIONS OF THE WAREHOUSE MAN
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CREDIT TRANSACTIONS
DANA-Notes
C.1. Principal obligations of the warehouseman C.2.8.1. While in possession of such warehouseman, the
C.1.1. to take care of the goods entrusted to his safekeeping goods cannot be attached or levied upon under an
C.1.2. to deliver them to the holder of the receipt or the depositor execution unless:
provided the conditions under Sec. 8 are fulfilled C.2.8.1.1. document be first surrendered
C.1.2.1. Warehouseman will not be liable for misdelivery, if C.2.8.1.2. its negotiation is enjoined
delivered to C.2.8.1.3. the document is impounded by the court
C.1.2.1.1. Person lawfully entitled to the possession C.2.8.2. Sec. 25 do NOT apply if the person depositing is
of the goods, or his agent; NOT the owner of the goods or one who has no
C.1.2.1.2. Person entitled to delivery under a non- right to convey title to the goods binding upon the
negotiable receipt or with written authority owner
C.1.2.1.3. Person in possession of a negotiable Neither does it apply to actions for recovery or
receipt manual delivery of goods by the real owner nor to
C.1.2.2. Where a warehouseman delivers the goods to one cases where the attachment is made before the
who is not in fact lawfully entitled to the issuance of the negotiable receipt of title
possession of them, the warehouseman shall be D. Court may order the delivery of the goods only:
liable as for conversion D.1. upon proof of the loss or destruction of the receipt
C.1.2.2.1. he shall be so liable, if prior to such D.2. upon the giving of a bond with sufficient sureties to be approved by
delivery he had either: the court
(a) Been requested, by or on behalf of the E. Warehousemans lien
person lawfully entitled to a right of E.1. Goods subject to lien
property or possession in the goods, not E.1.1. Goods belonging to depositor or his principal
to make such deliver; or E.1.2. Goods stored in fraud of true owners rights
(b) Had information that the delivery E.2. A warehouseman loses his lien upon goods:
about to be made was to one not lawfully E.2.1. By surrendering possession thereof, or
entitled to the possession of the goods. E.2.2. By refusing to deliver the goods when a demand is made
C.1.2.3. warehouseman cannot refuse to deliver the goods with which he is bound to comply under the provisions of
on the ground that he has acquired title or right to this Act.
the possession of the same unless such title or E.3. A warehouseman having a lien valid against the person
right is derived demanding the goods may refuse to deliver the goods to him until
C.1.2.3.1. directly or indirectly from a transfer made the lien is satisfied.
by the depositor at the time of the deposit E.4. Remedies of warehouseman for enforcing his lien:
for storage or subsequent thereto or E.4.1. by refusing to deliver the goods until the lien is satisfied
C.1.2.3.2. from the warehousemans lien E.4.2. by causing the extrajudicial sale of the property and
C.1.2.4. If more than one person claims the title or applying the proceeds to the value of the lien
possession of the goods, the warehouseman may, E.4.3. by filing a civil action for collection of the unpaid charges or
require all known claimants to interplead. by way of counterclaim in an action to recover the property
C.2. Other obligations of the warehouseman from him, or such other remedies allowed by law for the
C.2.1. to stamp duplicate on copies of negotiable receipt enforcement of a lien against personal property, or to a
C.2.1.1. Duplicate on the face of a receipt - creditor against his debtor, for the collection from the
warehouseman warrants: depositor of all the charges which the depositor has bound
C.2.1.1.1. that the duplicate is an accurate copy of himself to pay
the original receipt E.5. Effect of sale of goods
C.2.1.1.2. such original receipt is uncancelled at the E.5.1. sale of good warehouseman is not liable for nondelivery
date of the issue of the duplicate even if the receipt given for the goods when they were
C.2.1.2. warehouseman may not be compelled to deliver deposited be negotiated
the goods by virtue of the duplicate only unless the E.5.2. where the sale was made WITHOUT the publication
procedure provided for in Sec. 14 is followed required and before the time specified by law sale is void
C.2.2. to place non-negotiable or not negotiable on a non- and the purchaser acquires no title
negotiable receipt F. Acts for which warehouseman is liable
C.2.3. to cancel negotiable receipts upon delivery or part delivery F.1. failure to stamp duplicate on copies of a negotiable receipt
C.2.4. to honor altered receipts in appropriate cases F.2. failure to place non-negotiable or not negotiable on a non-
C.2.4.1. Effects of alteration on liability of warehouseman negotiable receipt
C.2.4.1.1. Alteration immaterial liable according to F.3. misdelivery of the goods
its ORIGINAL tenor F.4. failure to effect cancellation of a negotiable receipt upon delivery of
C.2.4.1.2. Alteration material but authorized the goods
liable according to the terms of the receipt F.5. issuing receipt for non-existing goods or misdescribed goods
as altered F.6. failure to take care of the goods
C.2.4.1.3. Material alteration innocently made but F.7. failure to give notice in case of sale of goods to satisfy his lien or
Unauthorized liable according to its because the goods are perishable or hazardous
ORIGINAL tenor
C.2.4.1.4. Material alteration fraudulently made GUARANTY
liable according to the ORIGINAL tenor
C.2.5. to not issue receipt if goods are not inexistent A. Nature
C.2.5.1. Warehouseman is not liable for issuing the receipt, A.1. Contract of guaranty a contract whereby a person called the
although the goods are not of the kind which the guarantor binds himself to the creditor to fulfill the obligation of the
marks or labels upon them indicate or of the kind principal debtor in case the latter fail to do so (Art. 2047)
they were said to be by the depositor. A.1.1. Classification of guaranty
C.2.6. to properly describe the goods covered by the receipt A.1.1.1. Guaranty in the broad sense:
C.2.7. to keep the goods separate and to not comingle the goods A.1.1.1.1. Personal credit given by the person who
C.2.8. obligation with respect to goods in case of attachment or guarantees the fulfillment of the principal
levy upon goods for which a negotiable receipt has been obligation
issued A.1.1.1.2. Real property
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A.1.1.1.2.1. movable pledge or chattel A.2.1.1.2. effect: creditor is given the right to directly
mortgage proceed against either the principal
A.1.1.1.2.2. immovable real mortgage or debtor or the surety
antichresis A.2.1.1.3. surety does not insure the solvency of the
A.1.1.2. As to its origin: debtor but rather the debt itself
A.1.1.2.1. Conventional constituted by agreement A.2.1.2. Liability is limited by terms of contract
of the parties A.2.1.2.1. contract of surety is not presumed; it
A.1.1.2.2. Legal imposed by virtue of a provision cannot extend to more than what is
of law stipulated (Visayan Surety & Insurance
A.1.1.2.3. Judicial required by a court to Corp. v. CA)
guarantee the eventual right of one of the A.2.1.2.2. Creditors may recover from the surety as
parties in a case part of their damages, interest at the legal
A.1.1.3. As to consideration: rate, even if the surety would thereby
A.1.1.3.1. Gratuitous where the guarantor does become liable to pay more than the
not receive any price or remuneration for amount stipulated
acting as such A.2.1.3. Liability arises only if principal debtor is liable
A.1.1.3.2. Onerous where the guarantor receives A.2.1.3.1. In the absence of collusion, the surety is
valuable consideration for his guaranty bound by a judgment against the principal
A.1.1.4. As to person guaranteed: even though he was not a party to the
A.1.1.4.1. Single constituted solely to guarantee or proceedings. The nature of its
secure performance by the debtor of the undertaking making it privy to all
principal obligation proceedings against its principal (Finman
A.1.1.4.2. Double or sub-guaranty constituted to General Assurance Corp. Salik)
secure the fulfillment by the guarantor of A.2.1.3.2. creditor may sue, separately or together,
a prior guaranty (differ from where several the principal debtor and the surety
guarantors concur) A.2.1.3.3. where there are several sureties, the
A.1.1.5. As to its scope and extent: oblige may proceed against any one of
A.1.1.5.1. Definite(or limited) where the guaranty them (Art. 1216)
is limited to the principal obligation only, A.2.1.4. Surety is not entitled to exhaustion
or to a specific portion thereof A.2.1.4.1. the surety assumes a solidary liability for
A.1.1.5.2. Indefinite (or unlimited) where the the fulfillment of the principal obligation as
guaranty includes not only the principal an original promissory and debtor from
obligation but also all its accessories the beginning(Towers Assurance Corp.
including judicial costs v Ororama Supermart)
A.1.1.6. may be continuing or not A.2.1.5. Undertaking is to creditor, not to debtor
A.1.2. Scope of guarantee A.2.1.5.1. principal cannot claim that there has been
A.1.2.1. Definite limited to the principal obligation only or a breach of the suretys obligation when
to a specific portion thereof the surety fails or refuses to pay the debt
A.1.2.2. Indefinite or simple includes not only the for the principals account such failure
principal obligation but also all its accessories or refusal does not have the effect of
including judicial costs relieving the principal of his obligation to
A.1.2.3. Specific pay
A.1.2.4. Continuing A.2.1.6. Surety is not entitled to notice of principals default
A.1.3. Payment by the guarantor A.2.1.6.1. Surety is bound to take notice of the
A.1.3.1. GR: payment must be made in the manner principals default and to perform the
provided in the principal contract obligation. He cannot claim that the
A.1.3.1.1. Exception: In the absence of any creditor has not notified him in the
express provision, payment must be absence of a special agreement to that
made as follows: effect in the contract of suretyship
A.1.3.1.1.1. Place of payment in the A.2.1.7. Prior demand by the creditor upon principal not
absence of an express required
stipulation, it must be at the A.2.1.7.1. as soon as the principal is in default, the
domicile of the debtor surety likewise is in default
A.1.3.1.1.2. Time of payment in general, A.2.1.7.2. proper remedy of the surety is to pay the
pay as soon the creditor was debt and pursue the principal for
unsuccessful in exhausting the reimbursement
properties of the debtor A.2.1.8. Surety is not exonerated by neglect of creditor to
A.2. Suretyship a person (surety) binds himself solidarily with the sue principal
principal debtor. Surety guarantees the performance by the A.2.1.8.1. There is nothing to prevent the creditor
principal obligor of an obligation or undertaking in favor of the from proceeding against the principal at
oblige any time (Palmares v CA)
A.2.1. Nature of suretys undertaking A.2.1.8.2. neglect of the creditor to sue the principal
A.2.1.1. Liability is contractual and accessory but direct at the time the debt falls dues does not
A.2.1.1.1. Surety is directly, primarily, and equally discharge the surety, even if such delay
bound with the principal as original continues until the principal becomes
promisor although he possess no direct or insolvent
personal interest over the latters A.3. Characteristics of Guaranty and Suretyship
obligations nor does he receive any A.3.1. Accessory
benefit therefrom, regardless of w/n the A.3.2. Subsidiary and conditional takes effect only when he
principal debtor is financially capable to principal debtor fails in his obligation
fulfill his obligations (PNB v CA) A.3.3. Unilateral -
A.3.4. Nominate
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DANA-Notes
A.3.5. Consensual B.4. A married woman may guarantee an obligation without the
A.3.6. Falls under the Statute of Frauds husband's consent, but shall not thereby bind the conjugal
A.3.7. It requires that the guarantor must be a person distinct from partnership, except in cases provided by law (Art. 2049)
the debtor because a person cannot be the personal B.5. Guarantors liability does not extinguished by his death
guarantor of himself transmissible to his successors
A.3.7.1. exception: Real guaranty like pledge and C. Acceptance of Guaranty and Notice Thereof by the Creditor
mortgage C.1. When necessary
A.3.8. Gratuitous unless there is a contrary stipulation C.1.1. When there is merely an offer of a guaranty, or merely a
A.4. Guaranty v Suretyship conditional guaranty requiring an action by the creditor
Guaranty Suretyship before the obligation becomes fixed
Undertaking that the debtor Undertaking that the debt shall C.2. When unnecessary
shall pay be paid C.2.1. Where the transaction is not merely an offer but amounts to
Liability of the guarantor Surety assumes liability as a a direct and unconditional promise of guaranty
depends upon an independent regular party to the undertaking D. RIGHTS OF A GUARANTOR
agreement to pay the obligation D.1. Benefit of excussion guarantor cannot be compelled to pay the
if the primary debtor fails to do creditor unless the latter has exhausted all the properties of the
so principal debtor, and has resorted to all of the legal remedies
Engagement o f the guarantor Surety is charged as an original against such debtor (Art. 2058)
is a collateral undertaking promisor and debtor from the D.1.1. How Exercised:
beginning D.1.1.1. He must set it up against the creditor upon the
Guarantor is secondarily or Suretys liability is direct, latters demand for payment from him
subsidiarily liable primary and absolute D.1.1.2. Point out the available property of the debtor
Guarantor is not bound to take Surety is ordinarily, held to within the Philippines, sufficient to cover the
notice of the non-performance know every default of his amount of the debt
of his principal principal D.1.2. Creditor who failed to Exhaust and Resort to all legal
Guarantor is often discharged Surety will not be discharged remedies shall suffer the loss but only to the extent of the
by the mere indulgence of the either by the mere indulgence value of the said property for the insolvency of the debtor
creditor of the principal, and is of the creditor of the principal or D.1.3. This is not applicable to a contract of suretyship
usually not liable unless notified by want of notice of the default D.1.4. Excussion shall not take place:
of the default of the principal of the principal D.1.4.1. If it may be presumed that an execution on the
Guarantor can claim release Surety cannot claim release property of the principal debtor would not result in
the satisfaction of the obligation
from his obligation from his obligation under Art.
2080 D.1.4.2. When he has absconded, or cannot be sued within
the Philippines unless he has left a manager or
A.5. Guaranty v Warranty
representative;
Guaranty Warranty
D.1.4.3. In case of insolvency of the debtor;
A contract by which a person is An undertaking that the title, D.1.4.4. If the guarantor has expressly renounced it;
bound to another for the quality, or quantity of the D.1.4.5. If he has bound himself Solidarily with the debtor
fulfillment of a promise or subject matter of a contract is D.1.4.6. When the debt is a Natural obligation or an
engagement of a third party what it has been represented to unenforceable obligation
be, and relates to some D.1.4.7. If he is a judicial Bondsman or sub-surety
agreement made ordinarily by D.1.4.8. If he fails to interpose it as a defense before
the party who makes the judgment is rendered against him
warranty D.1.4.9. if the guarantor does not set up the benefit against
B. Qualifications the creditor upon the latters demand for payment
B.1. Qualifications of a guarantor from him
B.1.1. He possesses integrity D.1.4.10. Where the pledge or mortgage has been given by
B.1.2. He has capacity to bind himself him as Special security
B.1.3. he has sufficient property to answer for the obligation which D.1.5. In every action by the creditor, which must be against the
he guarantees principal debtor alone, except in the cases mentioned in
B.2. GR: Qualification need only be present at the time of the perfection Article 2059, the former shall ask the court to notify the
of the contract guarantor of the actionso that the guarantor may set up
B.2.1. When the guarantor is selected by the principal debtor defenses (Art. 2062)
because the latter answers for the solvency of the former. D.1.6. The guarantor of a guarantor shall enjoy the benefit of
In this case the guarantor must possess the qualifications excussion, both with respect to the guarantor and to the
prescribed not only at the moment the guaranty is given but principal debtor (Art. 2064)
also until the extinguishment of the debt D.2. Benefit of division should there be several guarantors of only
B.2.2. The creditor may demand from another guarantor with one debtor and for the same debt, the obligation to answer for the
proper qualification. But he may waive it if he chooses and same is divided among all (Art. 2065)
hold the guarantor to his bargain (Estate of K.H. Hemady D.2.1. Exception:
v Luzon Surety Co. Inc.) D.2.1.1. When solidarity is expressly stipulated
B.3. Selection of guarantor D.2.1.2. If any of the circumstances enumerated in Art.
B.3.1. Specified person stipulated as guarantor substitution of 2059 should take place
guarantor may not be demanded because the selection of D.3. Right to contribution of a guarantor who pays if there is
the guarantor is a term or condition of the agreement and solidary liability
as a party, the creditor is bound thereby D.3.1. GR: May demand of each of the others the share which is
B.3.2. Guarantor selected by the principal debtor principal proportionally owing from him, provided any of the following
debtor answers for the qualification of guarantor until the conditions are met:
extinguishment of the debt D.3.1.1. Payment has been made by virtue of a judicial
B.3.3. Guarantor personally designated by the creditor demand
responsibility for the selection should fall upon him and not D.3.1.2. Principal debtor is insolvent (Art. 2073)
on the debtor D.3.2. Exception:
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CREDIT TRANSACTIONS
DANA-Notes
D.3.2.1. The insolvent guarantor cannot be made to pay. In D.5. Right of guarantor to proceed against debtor before payment
such case, his share shall be borne by the others D.5.1. GR: Guarantor has no right to proceed against the principal
including the paying guarantor in the same joint debtor until he has actually paid the debt
proportion D.5.1.1. Exceptions:
D.3.2.2. When co-guarantors have defenses against the D.5.1.1.1. When he is sued for payment
one who paid the same which have pertained to D.5.1.1.2. Insolvency of the principal debtor
the principal debtor against the creditor and which D.5.1.1.3. Debtor has bound himself to relieve him
are not purely personal to the debtor (Art. 2074) from the guaranty within a specified
D.3.3. A sub-guarantor, in case of the insolvency of the guarantor period, and this period has expired
for whom he bound himself, is responsible to the co- D.5.1.1.4. Debt becomes demandable
guarantors in the same terms as the guarantor (Art. 2075) D.5.1.1.5. Lapse of 10 years, when theres no fixed
D.4. Right of indemnity or reimbursement period for its maturity
D.4.1. GR: The guarantor who makes payment is entitled to be D.5.1.1.6. Reasonable ground to fear that the
reimbursed by the principal debtor principal will abscond
D.4.1.1. Exceptions: D.5.1.1.7. Debtor is in imminent danger of becoming
D.4.1.1.1. Where the guaranty is constituted without insolvent (Art. 2071)
the knowledge or against the will of the D.5.1.2. Action of the guarantor is to:
principal debtor, the guarantor can D.5.1.2.1. Obtain release from the guaranty
recover only insofar as the payment had D.5.1.2.2. Demand a security that shall protect him
been beneficial to the debtor (Art. 2050) from any proceedings by the creditor and
D.4.1.1.2. Payment by a third person who does not from the danger of insolvency of the
intend to be reimbursed by the debtor is debtor (Art. 2071)
deemed to be a donation, which, D.6. Right to subrogation subrogation transfer to the person
however, requires the debtors consent. subrogated the credit with all the rights thereto appertaining either
But the payment is in any case valid as to against the debtor or against third persons, be they guarantors or
the creditor who has accepted it (Art. possessors of mortgages, subject to stipulation in conventional
1238) subrogation (Art. 1303)
D.4.1.1.3. waiver of the right to demand D.6.1. Benefit of subrogation cannot invoke where guarantor has
reimbursement no right to be reimbursed
D.4.2. Under Art. 2066, the indemnity consists of: D.6.2. Payment against the will of the debtor, cannot compel the
D.4.2.1. The total amount of the debt creditor to subrogate him in his rights, such as those
D.4.2.2. The legal interests thereon from the time the arising from a mortgage, guaranty, or penalty
payment was made known to the debtor, even D.7. If one, at the request of another, becomes a guarantor for the debt
though it did not earn interest for the creditor of a third person who is not present, the guarantor who satisfies
D.4.2.3. The expenses incurred by the guarantor after the debt may sue either the person so requesting or the debtor for
having notified the debtor that payment had been reimbursement.
demanded of him; E. Effect of Compromise
D.4.2.4. Damages, if they are due E.1. A compromise between the creditor and the principal debtor
D.4.3. Effect of Payment of guarantor benefits the guarantor but does not prejudice him.
D.4.3.1. Without notice to debtor debtor may interpose E.2. That which is entered into between the guarantor and the creditor
against the guarantor those defenses which he benefits but does not prejudice the principal debtor (Art. 2063)
could have set up against the creditor at the time F. EXTINGUISHMENT OF GUARANTY
the payment was made (Art. 2068) F.1. Causes:
D.4.3.2. Before maturity not entitled to reimbursement F.1.1. Releases in favor of one of the guarantors, without the
until the expiration of the period, unless the consent of the others, benefits all to the extent of the share
payment was made with the consent or has been of the guarantor to whom it has been granted (Art. 2078)
ratified by the debtor (Art. 2069) F.1.2. If the creditor voluntarily accepts immovable or other
D.4.3.3. After maturity the fact that payment was actually properties in payment of the debt, even if he should
made after said term is not material. What is afterwards lose the same through eviction or conveyance
controlling is that default and demand on of property (Art. 2077)
guarantor had taken place while the guarantee F.1.3. Whenever by some act of the creditor, the guarantors,
was still in force even though they are solidarily liable, cannot be
D.4.4. Repeat Payment by debtor subrogated to the rights, mortgages and preferences of the
D.4.4.1. GR: before guarantor pays the creditor, he must former (Art. 2060)
first notify the debtor, otherwise the latter may set F.1.4. For the same causes as all other obligations (Art. 2076)
up defenses he could have set up against the F.1.5. When principal obligation is extinguished
creditor (Art. 2068 and 2070) F.1.6. Extension granted to the debtor by the creditor without the
If he fails to give such notice and the debtor consent of the guarantor (Art. 2079)
repeats payment, the guarantor can only collect F.1.6.1. Mere failure on the part of the creditor to demand
from the creditor and the guarantor has no cause payment after the debt has become due does not
of action against the debtor for the return of the of itself constitute any extension of time
amount paid by guarantor even if the creditor (Hongkong & Shanghai Bank v Aldecoa & Co)
should become insolvent F.1.6.2. Such delay, however, extinguishes the guaranty
D.4.4.1.1. Exception: the guarantor can still claim F.1.6.2.1. when the delay is for such length of time
reimbursement from the debtor in spite of as to allow prescription of the action to
lack of notice if the following conditions enforce payment
are present: F.1.6.2.2. when upon maturity, the guarantor
D.4.4.1.1.1. guarantor was prevented by requires the creditor to enforce payment
fortuitous event to advise the against the debtor, but the creditor fails to
debtor of the payment act and the debtor subsequently becomes
D.4.4.1.1.2. creditor becomes insolvent insolvent
D.4.4.1.1.3. guaranty is gratuitous F.2. Guarantor is released in the following instances:
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DANA-Notes
F.2.1. Creditor did not collect from third persons B.1. The creditor cannot appropriate things given by way of pledge or
F.2.2. Obligations payable in installments mortgage, or dispose of them. Any stipulation to the contrary is null
F.2.2.1. GR: Extension of time as to one or more will not and void (Art. 2088)
affect the liability of the surety for the others B.2. Pactum Commissorium stipulation whereby the thing used as a
F.2.2.1.1. Exception: if the whole unpaid balance security shall automatically become the property of the creditor in
has become automatically due for failure the event of non-payment of the principal obligation
to pay an installment, the act of the B.2.1. GR: Pactum Commissorium is forbidden by law. Any
creditor of extending the payment without stipulation to that effect is declared null and void
the guarantors consent discharges the (Hechanova v. Adil)
guarantor B.2.1.1. Exception: The pledgee may appropriate the thing
F.2.3. Consent to extension is not waived in advance by the pledge if after the first and second auctions, the
guarantor thing is not sold (Art. 2112)
F.2.4. Extension granted by creditor on bond B.2.2. Requisites:
F.2.5. Extension granted to first-tier obligors cannot prejudice B.2.2.1. There should be a pledge, mortgage, or
second-tier parties antichresis of property
F.2.6. Material alterations, which essentially vary the terms of the B.2.2.2. There is a stipulation for an automatic
contract without consent of the surety, will release the appropriation by the creditor of the property in
surety from liability case of nonpayment of principal obligation (A.
G. Defenses available to the guarantor Francisco Realty and Dev. Corp. v. CA)
G.1. As provided in Art. 2068 B.2.3. Permissible stipulations:
G.2. Those available to co-guarantors in Art. 2074 B.2.3.1. Subsequent modification of original contract
G.3. Provided on Art. 2081 except those which are personal to the B.2.3.2. Subsequent voluntary cession of property
debtor B.2.3.3. Promise to assign or sell
H. Legal and Judicial Bonds B.2.3.4. Authority to take possession of property upon
H.1. Bond undertaking that is sufficiently secured, and not cash or foreclosure
currency C. All kinds of obligation can be secured
H.1.1. Nature of bond: contractual D. Indivisibility
H.2. Bondsman a surety offered in virtue of a provision of law or a D.1. A pledge or mortgage is indivisible, even though the debt may be
judicial order. divided among the successors in interest of the debtor or of the
H.2.1. Shall have the qualifications prescribed in Article 2056 and creditor (Art. 2089)
in special laws. (art. 2082) D.2. the fact that the debtors are not solidarily liable do not affect the
H.2.2. Qualification of a personal bondsman indivisibility of the pledge or mortgage
H.2.2.1. he possess integrity D.3. Consequences of indivisibility
H.2.2.2. he has capacity to bind himself D.3.1. Single thing every portion of the property pledge or
H.2.2.3. he has sufficient property to answer for the mortgaged is answerable for the whole obligation as it falls
obligation, which he guarantees dues
H.3. If the person bound to give a bond in the cases of the preceding D.3.2. Several things all of them are liable for the totality of the
article, should not be able to do so, a pledge or mortgage dent and the creditor does not have to divide his action by
considered sufficient to cover his obligation shall be admitted in distributing the debt, among the various things pledge or
lieu thereof (Art. 2083) mortgage
H.4. A judicial bondsman cannot demand the exhaustion of the D.3.3. Neither the debtors heir who has paid part of the debt can
property of the principal debtor. ask for proportionate extinguishment, nor creditors heir
A sub-surety in the same case, cannot demand the exhaustion of who received his share of the debt return the pledge or
the property of the debtor of the surety.(Art. 2084) cancel the mortgage as long as the debt is not completely
satisfied
COMMON PROVISION OF PLEDGE AND MORTGAGE D.4. Exceptions to the rule of indivisibility
D.4.1. where each one of several things guarantees a
A. Essential requisites (Art. 2085) determinate portion of the credit
A.1. Secures the fulfillment of a principal obligation D.4.2. where only a portion of the loan was released
A.2. Pledgor and mortgagor must be the absolute owner of the thing D.4.3. where there was a failure of consideration
pledge or mortgaged D.4.4. where there is no debtor-creditor relationship as when a
A.2.1. third person can pledge or mortgage their own property or third party is the pledgor or mortgagor
other persons property with authority and consent of the E. Possession of a mortgagee or pledgee is not in the concept of an
owner of the property pledge or mortgaged owner, thus the subject property cannot be acquired through acquisitive
A.2.2. Pledge or mortgage constituted by impostor prescription, unless they renounce their status as such
A.2.2.1. GR: pledge or mortgage is void F. Pledgor and mortgagor retains ownership of the thing given as security
A.2.2.2. Exception: If the certificate of title was already in G. Promise to constitute pledge or mortgage, if accepted, give rise only
the name of the forger or imposter when the land to a personal right binding upon the parties and creates no real right
was sold or mortgaged to an innocent purchaser In the property (Art. 2092)
or mortgagee, there being nothing to excite G.1. The accommodation pledgor or mortgagor is not solidary bound
suspicion, the vendee or mortgagee has the right with the principal obligor but his liability extends only to the
to rely on what appeared in the certificate of title of property pledge or mortgaged. In case of deficiency, the creditor
the vendor or mortgagor and acquires an recourse on the principal debtor who remains to be primarily bound
enforceable right G.2. The invalidity of a pledge or mortgage does not affect the principal
A.3. and mortgagor must have free disposal of their property, or be contract of loan. While void, it can still be considered as an
legally authorized for such purpose instrument evidencing an indebtness (PNB v. Banatao)
A.4. When the principal obligation becomes due, the subject matter of
the pledge or mortgage may be alienated for the payment to the Chattel Mortgage Pledge
creditor (Art. 2087) As to Delivery
B. Prohibition against Pactum Commissorium Delivery of the personal property to Delivery of the thing is necessary
the mortgagee is not necessary
As to registration
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CREDIT TRANSACTIONS
DANA-Notes
Registration in the Chattel Mortgage Registration is not necessary to be A.5. Extent of pledge: Unless stipulated otherwise, it extends to the
registry is necessary for its validity valid fruits, interests or earnings of the thing
As to Procedure for Sale A.6. In case of doubt as to whether a transaction is a pledge or a dation
The procedure for sale is found under The procedure for sale is found under in payment, the presumption is in favor of pledge; the latter being
Sec. 14 Act No. 1508, as amended Art. 2112 the lesser transmission of rights and interests (Manila Banking
As to Excess in Foreclosure Proceeds Corp. v. Teodoro)
If property is foreclosed, the excess Debtor is not entitled to excess unless B. RIGHTS OF PLEDGOR
over the amount due goes to the otherwise agreed upon or except in B.1. To Demand return in case of reasonable grounds to fear
debtor case of legal pledge destruction or impairment of the thing without the pledgees fault,
As to Recovery of Deficiency subject to the duty of replacement (Art. 2107)
If there is deficiency after foreclosure, If there is deficiency, creditor is not B.1.1. 2 Remedies granted to the Pledgor
creditor is entitled to recover the entitled to recover notwithstanding B.1.1.1. to demand the return of the thing pledge upon
deficiency from the debtor, except any stipulation to the contrary offering another thing in pledge
under Art. 1484 B.1.1.2. Cause the same to be sold at a public sale
As to Subject Matter B.1.2. Requisites:
B.1.2.1. Pledgor has reasonable grounds to fear the
May be constituted only over the May be constituted over any personal
destruction or impairment of the thing pledged
personal property sold in installments property
B.1.2.2. No fault on the part of the pledgee
B.1.2.3. Pledgor offers another thing which is of the same
Real Mortgage Pledge kind and quality as the former
As to Subject Matter B.1.2.4. Pledgee does not choose to exercise his right to
Constituted on immovable property Constituted on movable property cause the thing to be sold at public auction
As to Delivery of Property B.1.2.5. Pledgee advised the pledgor without delay
Not necessary Property is delivered to pledgee or by B.2. To Bid and be preferred at the public auction (Art. 2113)
consent to a third person B.3. To Alienate the thing pledged provided the pledgee consents to
As to Validity against third persons the sale (Art. 2097)
Not valid against third persons without Not valid against third persons without B.4. To Ask that the thing pledged be deposited in any of the following
knowledge, unless registered knowledge, unless a description of the cases:
thing pledge and date of the pledge B.4.1. If the creditor uses the thing without authority or misuses
appear in a public instrument the thing, he may deposit the thing judicially or extra
As to Authority to sell judicially (Art. 2104)
Mortgagor can sell the property Pledgor can sell the thing pledge only B.4.2. If the thing is in danger of being lost or impaired because of
mortgaged even without the consent with the consent of the pledgee negligence or willful act of the pledgee, he may deposit the
of the mortgagee thing with a third person (Art. 2016)
C. OBLIGATIONS OF THE PLEDGOR
PLEDGE C.1. To Advise the pledgee of the flaws of the thing (Art. 2101 and
1951)
A. Contract of Pledge contract wherein the debtor delivers to the creditor C.2. Not to demand the return of the thing until after full payment of the
or a third person a movable or document evidencing incorporeal rights for debt, including interest due thereon and expenses incurred for its
the purpose of securing fulfillment of a principal obligation with the preservation (Art. 2015)
understanding that when the obligation is fulfilled, the thing delivered shall C.2.1. Exception: Pledgor is allowed to substitute the thing pledge
be returned with all its fruits and accessions which is in danger of destruction or impairment with
A.1. Nature: Real contract another thing of the same kind and quality (Art. 2107)
A.2. Requisites: (in addition to the common essential requisites under D. RIGHTS OF THE PLEDGEE
Art. 2085) D.1. Option to Demand replacement or immediate payment of the debt
A.2.1. Possession of the thing pledge must be transferred to the in case of deception as to substance or quality (Art. 2109)
creditor or a third person by agreement (Art. 2093) D.2. To Sell at public auction in case of reasonable grounds to fear
A.2.2. All movables which are within the commerce of men, destruction or impairment of the thing without his fault (Art. 2108)
provided they are susceptible of possession (Art. 2094) D.3. To Bring actions pertaining to the owner or to defend it against
and incorporeal rights evidence by documents of title, in third persons (Art. 2103)
which case, the instruments proving the right pledged shall D.4. To Choose which of several things pledged shall be sold (Art.
be delivered to the creditor, and if negotiable, must be 2119)
endorsed D.5. To Collect and receive amount due on credit pledged (Art. 2118)
A.2.3. Description of the thing pledged and the date must appear D.6. To Bid at the public auction, unless he is the only bidder (Art.
in a public instrument to bind third persons, but not for the 2113)
validity of the contract (Art. 2096) D.7. To Appropriate the thing in case of failure of the second public
A.3. Kinds of Pledge auction (Art. 2112)
A.3.1. Conventional or Voluntary D.8. To Apply the fruits, interests or earnings of the pledge to the
A.3.2. Legal interest, if any, then to the principal of the credit (Art. 2102)
A.3.2.1. provisions on the possession, care, and sale of the D.9. To Retain excess value received on the public auction
thing pledged governing conventional pledges are D.10. To Retain the thing until after full payment of the debt
applicable to pledges created by operation of law D.11. To be Reimbursed for the expenses made for the preservation of
(Art. 2121) the thing pledged (Art. 2099)
A.3.2.2. A thing under Legal pledge may be sold only after D.12. To Object to the alienation of the thing
demand of the amount for which the thing is D.13. To Possess the thing (Art. 2098)
retained. The public auction shall take place within D.14. To Sell at public auction in case of non-payment of debt at maturity
1 month after such demand (Art. 2122) E. OBLIGATIONS OF THE PLEDGEE
A.4. Characteristics E.1. To Take care of the thing with diligence of a good father of a family
A.4.1. Real and be liable for the loss or deterioration of such (Art. 2099)
A.4.2. Accessory E.2. Not to Use the thing unless authorized by the owner or its
A.4.3. Unilateral preservation requires its use (Art. 2104)
A.4.4. Subsidiary
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E.3. Not to Deposit the thing with a third person unless so stipulated B.1.4.1. the insurers of the property managed
(Art. 2100) B.1.4.2. Expropriation for public use (Art. 2127)
E.4. Responsibility for Acts of agents and employees as regards the B.2. Reason: The ownership of such accession, accessories, and
thing (Art. 2100) improvements subsequently introduced also belongs to the
E.5. To Advise pledgor of the danger of the thing mortgagor who is the owner of the principal (Castro, Jr. v. CA)
E.6. To Advise the pledgor of the result of the public action (Art. 2116) B.3. Exceptions:
E.7. To Return the thing upon payment of debt B.3.1. An express stipulation excluding them
F. Double Pledge is prohibited B.3.2. There is evidence sufficiently overthrowing the presumption
G. Third person who has any right in or interest to the thing pledged may pay that the mortgagor owns the mortgaged property
the debt as soon as it becomes due and demandable. The creditor cannot B.4. Art. 2127 is irrelevant and inapplicable to mortgages and their
refuse to accept payment (Art. 2117) foreclosures if the mortgagor is later found or declared to be not
H. EXTINGUISHMENT OF PLEDGE the true owners of the property (PNB v. SPs. Maraon)
H.1. Same Causes as all other obligations C. Effects of Mortgage
H.2. Return of the thing pledged by the pledgee to the pledgor C.1. It create real rights
H.3. Statement in writing by the pledgee that he renounces or C.1.1. The mortgage directly and immediately subject the property
Abandons the pledge (Art. 2111) upon which it is imposed, whoever the possessor may be,
H.4. Payment of the debt to the fulfillment of the obligation for whose security it is
H.5. Sale of the thing pledged at public auction constituted (Art. 2126)
H.5.1. Requirements for sale of the thing pledge at public C.1.2. Until discharged upon payment of the obligation, it follows
auction the property wherever it goes and subsists notwithstanding
H.5.1.1. Debt is due and unpaid changes of ownership
H.5.1.2. Sale must be at public auction C.2. It create merely an encumbrance
H.5.1.3. there must be notice to the pledgor and owner C.2.1. A mortgage is merely a security for a debt and an
stating the amount due encumbrance upon the property. It does not extinguish the
H.5.1.4. Sale must be with the intervention of a notary title of the debtor who remains the owner (McCullough v.
public Veloso & Serna)
H.5.2. Nature of the Bids: must be for Cash (Art. 2114) D. STIPULATIONS ON MORTGAGE CONTRACTS
H.6. Appropriation under Art. 2112 D.1. Valid
D.1.1. Including After-Acquired Properties
REAL MORTGAGE D.1.2. Blanket or Dragnet Clause phrased to subsume all debts
of past or future origins
A. Contract of Real Mortgage a contract whereby the debtor secures to D.1.2.1. A mortgage with a dragnet clause is an offer by
the creditor the fulfillment of a principal obligation, specially subjecting to the mortgagor to the bank to provide the security
such security immovable property or real rights over immovable property of the mortgage for advances of an when they
in case the principal obligation is not complied with at the time stipulated were made
A.1. Characteristics D.1.2.1.1. Exception: It can be said that the offer
A.1.1. Real was not accepted by the bank when a
A.1.2. Accessory subsequent advance was made because
A.1.3. Subsidiary of a new security. A mortgage containing
A.1.4. Unilateral a dragnet clause will not be extended to
A.1.5. Indivisible cover future advances unless the
A.1.6. Inseparable document evidencing the subsequent
A.2. Cause or consideration in Mortgage: same as of the principal advances refers to the mortgage as
contract providing security therefor.
A.3. Special Requisites In this case, the security specifically
A.3.1. It can cover only immovable property and alienable real executed for subsequent loans must first
rights imposed upon immovable (Art. 2124) be exhausted before the mortgaged
A.3.1.1. Future property cannot be an object of a contract property can be resorted to (Prudential
of mortgage (Art. 2085) Bank v. Alviar)
However, a stipulation subjecting to the mortgage D.1.3. Requiring Mortgagees Consent Before Alienation
lien, properties and improvements (After-acquired D.1.3.1. valid and binding but only in the sense that the
properties) added to a property already mortgaged mortgagee cannot be compelled to recognize the
which the mortgagor may subsequently acquire, sale while the loan is still unpaid
install, or use in connection with real property D.1.4. Grant of First Refusal
already mortgaged is valid D.1.4.1. A sale made in violation of the mortgagees
A.3.2. It must appear in a public instrument (Art. 2125) contractual right of first refusal is rescissible. The
A.3.2.1. When mortgage is in private document, no valid buyer is presumed to have been notified thereof
mortgage is constituted (Hechanova v. Adil) by the registration of the mortgagee deed
A.3.3. It must be recorded in the Registry of Property (Art. 2125) containing such stipulation, which equates to
to bind third persons notice to the whole world (litonjua v. L&R Corp)
A.4. Kinds of Mortgage D.1.5. Acceleration Clause stipulation stating that on the
A.4.1. Voluntary occasion of the mortgagors default, the whole sum
A.4.2. Legal remaining unpaid automatically becomes due and payable
A.4.3. Equitable D.1.5.1. (Luzon Dev. Bank v. Conquilla)
B. Extent of Mortgage D.2. Void
B.1. Mortgage extends to the following: D.2.1. Forbidding Alienation of Mortgaged Property (Art. 2131)
B.1.1. Natural Accessions D.2.2. Upset Price or TIPO minimum price at which the
B.1.2. Growing fruits property shall be sold at a public auction
B.1.3. Rents or income not yet received when the obligation D.2.2.1. To become operative in the event of a foreclosure
becomes due sale at public auction, is null and void for property
B.1.4. Amount of Indemnity granted or owing to the proprietor must be sold to the highest bidder
from: E. RIGHTS
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A.2.1. After the auction sale is effected and the resulting A.3.5. Persons entitled to exercise right of redemption:
deficiency is ascertained, the mortgagee-creditor is entitled A.3.5.1. Mortgagor or one in privity of title with mortgagor
to secure a deficiency judgment which may immediately be A.3.5.2. Successors in interests
executed, whether or not the mortgagor is still entitled to A.3.6. Payment of Redemption
redeem the property sold A.3.6.1. To Whom: purchaser or redemptioner, or for him
A.2.2. Judicial Foreclosure mortgagee is specifically given the to the officer who made the sale
right to claim for deficiency A.3.6.2. Medium of Payment: cash or in check
A.2.3. Extrajudicial Foreclosure No such right is given A.3.7. Amount of Redemption Price
A.2.4. In both judicial and extrajudicial foreclosure, when a third A.3.7.1. When mortgagee is not a bank
person is the mortgagor, he is not liable for any deficiency A.3.7.1.1. Purchase price of the property
in the absence of a contrary stipulation A.3.7.1.2. 1% interest per month on the purchase
A.2.5. Action prescribes after 10 years from the time the right of price from the date of registration of the
action accrues certificate up to the time of redemption
A.3. Redemption transaction by which the mortgagor reacquires or A.3.7.1.3. Necessary expenses incurred by the
buys back the property which may have passed under the purchaser for the improvements made by
mortgage, or divest the property of the lien which the mortgage him to preserve the property during the
may have created period of redemption
A.3.1. Kinds of Redemption A.3.7.1.4. Taxes paid and amount of purchasers
A.3.1.1. Equity Redemption right of the defendant to prior lien, if any, with the same rate of
extinguish the mortgage and retain ownership of interest computed from the date of
the property by paying the secured debt within the registration of sale, up tothe time of
period provided by law redemption
A.3.1.1.1. Exception: there is not right of redemption A.3.7.2. When mortgagee is a bank
from judicial foreclosure sale after the A.3.7.2.1. Amount fixed by the Court or amount due
confirmation of the sale, except those under the Mortgage deed
granted by banks and financial institution A.3.7.2.2. Interest
as provided by the General Banking Act A.3.7.2.3. Costs and Expenses
A.3.1.2. Right of Redemption right of a mortgagor to A.4. Right to Possession of Third Persons as purchaser
redeem the mortgaged property in an extrajudicial A.4.1. Both during and after the period of redemption, the
foreclosure of real mortgage purchaser at the foreclosure sale is entitled as of right to a
A.3.2. Requisites of a valid exercise of the Right of writ of possession, regardless of whether or not there is a
Redemption: pending suit for annulment of the mortgage or the
A.3.2.1. must be made within 12 months from the date of foreclosure itself
registration of the sale in the Office of the Registry A.4.2. Writ of Possession an order whereby a sheriff is
A.3.2.2. Payment of the purchase price of the property commanded to place in possession of real or personal
involved, plus 1% interest per month thereon, property, the person entitled thereto such as when a
together with the amounts of assessments of property is extrajudicially foreclose
taxes thereon, if any, paid by the purchaser and A.4.3. Right for the issuance of a writ of possession never
the amount of his prior lien, if any, with the same prescribes
rate of interest computed from the date of A.4.4. When writ of possession is not available:
registration of the sale, up to the time of A.4.4.1. where mortgaged property under lease previously
redemption registered in the Registry of Property or despite
A.3.2.3. Writ of notice of the redemption must be served on non-registration, the mortgagee has prior
the officer who made the sale, and a duplicate knowledge of the existence and duration of the
filed with the Registry of Property of the Province lease
A.3.2.4. Tender of payment within the prescribed period to A.4.4.2. Where mortgagor refuses to surrender property
make the redemption valid or preserved the right sold. The remedy is to file an ordinary action for
of redemption for future enforcement the recovery of possession
A.3.3. Effect of Failure to Redeem: title over the property A.4.4.3. When third party is in actual possession adverse
consolidates in the purchaser to the judgment debtor
A.3.4. Period of redemption: A.5. Options in case of death of debtor
A.3.4.1. Extrajudicial A.5.1. GR: A secured creditor holding a real estate mortgage has
A.3.4.1.1. Natural person 1 year from registration 3 distinct, independent, and mutually exclusive remedies
of the certificate of sale with Registry of that can be alternatively pursued in case the mortgagor
Deeds dies
A.3.4.1.2. Juridical Person same as natural A.5.1.1. To waive the mortgage and claim the entire debt
person from the estate of the mortgagor as an ordinary
A.3.4.1.3. Juridical Person AND Bank 3 months claim
after foreclosure or before registration of A.5.1.2. To foreclose the mortgage judicially and prove any
certificate of foreclosure whichever is deficiency as an ordinary claim
earlier A.5.1.3. To rely on the mortgage exclusively, foreclosing
A.3.4.2. Judicial the same at any time before it is barred by
A.3.4.2.1. within the period of 90 to 120 days from prescription without a right to file a claim for any
the date of the service of the order of deficiency
foreclosure or even thereafter, but before
the order of confirmation of the sale CHATTEL MORTGAGE
A.3.4.3. Allowing redemption after the lapse of the
statutory period, when the buyer at the foreclosure A. Contract of Mortgage a contract by virtue of which personal property is
sale does not object but even consents to the recorded in the Chattel Mortgage register as a security for the
redemption, will uphold the policy of law which is performance of an obligation (Art. 2140)
to aid rather than defeat the right of redemption A.1. Characteristics
(Ramirez v. CA) A.1.1. Accessory
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C.1.2. Where mortgage is constituted as security for purchase of A. Concurrence of Credits this implies the possession by two or more
personal property payable in installments: No deficiency creditors of equal rights or privileges over the same property or all of the
judgment can be asked and any agreement to the contrary property of the debtor
shall be void B. Preference of Credits It is the right to be paid first
C.1.3. Where mortgaged property is subsequently attached and B.1. Rules on Preference Applicable when:
sold: the mortgagee is entitled to deficiency judgment in an B.1.1. there are two or more creditors
action for specific performance B.1.2. with separate and distinct claims
C.2. To the Possession of the Foreclosed Property B.1.3. against the same debtor
C.2.1. After default: right of the creditor to take the mortgaged B.1.4. who has insufficient property
property is implied from the provision (Art. 2087) which B.2. There must be a proceeding such as an insolvency proceeding
gives him the right to sell wherein the creditors can file their claims. The right becomes
C.2.2. Before default: he is not entitled to possession. Otherwise, significant only after the properties of the debtor have been
the contract becomes a pledge inventoried and liquidated, and the claims of the various creditors
C.3. To Institute an action either to effect judicial foreclosure directly or have been established (Barretto v. Villanueva; Phil Savings
to secure possess as preliminary to the sale when mortgagor Bank v. Lantin; DBP v. NLRC)
refuses to yield property C. 3 general Categories of Credit
D. Offenses involving Chattel Mortgage C.1. Special preferred credits listed in Articles 2241 and 2242
D.1. Knowingly removing any personal property mortgaged under the C.2. Ordinary preferred credits listed in Art. 2244
Chattel Mortgage Law to any province or city other than the one in C.3. Common credits listed under Art. 2245
which it was located at the time of the execution of the mortgage D. 2 Tier Order of Preference
without the written consent of the mortgagee D.1. First-Tier includes only taxes, duties and fees due on a specific
D.2. Selling or pledging personal property already mortgaged, or any movable or immovable property
part thereof, under the term of the Chattel Mortgage Law without D.2. Second-Tier all other special preferred (non-tax) credits. These
the consent of the mortgagee written on the back of the mortgage credits are to be satisfied pari passu and pro rata out of any
and duly recorded in the Chattel Mortgage Register residual value of the specific property to which such other credits
relate
ANTICHRESIS
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