Documente Academic
Documente Profesional
Documente Cultură
PART 1
A.
LOAN
1. GENERAL PROVISIONS
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Article 1933
By the contract of loan, one of the parties delivers to another,
either something not consummable so that the latter may use the same
for a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatom is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay
interest.
In commodatum the bailor retains the ownership of the thing
loaned, while in simple loan, ownership passes to the borrower.
COMMENT:
1.
2.
Commodatum
a) Same thing to be returned
( non- fungible things)
b) Essentially gratuitous
c) Ownership retained by lender
or bailor
d) May involve real or personal
property
a) R e f e r r e d t o a s l o a n f o r
consumption
Article 1934
An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall not be perfected until the
delivery of the object of the contract.
COMMENT:
1.
2.
2.
COMMODATUM
a)a. Nature and Effects: Art. 1935 - 1940 Civil code
Article 1935
The bailee in commodatum acquires the use of the thing loaned
but not its fruits; if any compensation is to be paid by him who acquires
the use, the contract ceases to be a commodatum.
COMMENT:
2
1.
Commodatum Defined
Commodatum is a real, principal, essentially gratuitous and personal contract
where the bailor or lender delivers to the bailee or borrower a non-consumable object, so
that the latter may use the same for a certain period and later return it.
2.
Article 1936
Consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object, as when it
is merely for exhibition.
COMMENT:
Subject Matter of Commodatum
Usually, only non-consumable goods may be the object of a commodatum for the thing
itself should not be consumed and must be returned, but consumable thing may also the object
of commodatum if the same is only for exhibition or used ad ostentationem.
commodatum.
Article 1937
Movable or immovable property may be the object of
COMMENT:
Properties that may be the object of Commodatum
a. immovable property
b. movable property
loaned.
Article 1938
The bailor in commodatum need not be the owner of the thing
COMMENT:
Reason for the law
Bailor need not be the owner because the law said: the contract of commodatum does not
transfer ownership. All that is required is that the bailor has the right to the use of the property
which he is lending, and that he be allowed to alienate this right to use.
Article 1939
Commodatum is purely personal in character. Consequently:
1)
2)
Article 1940
A stipulation that the bailee may make use of the fruits of the
thing loaned is valid.
COMMENT:
Does the Bailee have right to use the fruits?
As a rule bailee is not entitled to the fruits, otherwise the contract may be one of
usufruct. However, to stipulate that the bailee makes use of the fruits would not destroy the
essence of a commodatum, for liberality is still the actual cause or consideration of the contract.
Jose Bagtas borrowed three bulls from the Bureau of Animal Industry, for breeding
purposes but subject to a charge of breeding fee of 10% of the book value of the bulls. The
contract is from May 8, 1948 to May 7, 1949.
Upon the expiration of the contract Jose asked for a renewal for another period of one
year, the Bureau then approves such renewal but limited only to one bull and asked for the
return of the other two. Before the contract lapse Jose Bagtas make known of his desire to buy
the three bulls, subject to the approval of the Auditor General. But Bagtas later on failed to buy
three bulls and pay the book value of said bulls, and kept in his possession the bull even after the
contract lapsed.
Contention of the parties:
Republic:
Bagtas:
Issue:
Felicidad Bagtas being the administrative of the late Jose Bagtas contends that the
contract made between his husband and the Republic is a contract of
commodatum, and for that reason they are not liable for the death of the one bull
due to force majeure as against the claim of the Republic.
Ruling:
The court on its decision explained that the contract may not be that of commodatum,
but a contract of lease in consideration of the compensation gained or being gained.
Furthermore, even if the contract be that of a commodatum they are still liable for they acted in
bad faith by with holding the bulls longer than stipulated without valid reason.
Republic v. CA
November 26, 1986
Bailor: Domingo P. Baloy
Bailee: U.S. Navy
Third party claimant: Republic of the Philippines
Facts:
The land in issue has been occupied by the U.S Navy by virtue of Act 627 for 57 years,
and was later been abandoned. The said land is owned by Domingo P. Baloy and his heirs
privately, since 1894 as attested by an Informacion Possesoria Title issued by the Spanish
Government. The heirs of Domingo wishes to register the land in question in their names but
they were opposed by the Republic.
Contention of the parties:
Republic:
-
The land had become public and could not be subject to a valid registration for
private ownership.
the failure of the heirs of Domingo to comply with the 6 months period to file a
claim to the subject private land barred them of any claims in the future and said
land be ipso facto become public land as implied under Act 627 of the Philippine
Commission, pursuant to the executive order of the President of the U.S..
Issue:
Is the occupancy by the US Navy in the concept of an owner, ripen into ownership in
commodatum?
Ruling:
No. ownership is not transferred to the US Navy. The occupancy of the U.S. Navy was
not in the concept of owner but partakes of the character of a commodatum, therefore it cannot
militate against the title of Domingo Baloy and his successors-in-interest for ownership is not
transferred.
Mina v. Pascual
October 14, 1913
Bailor: Alejandra Mina through Francisco Fontanilla
Bailee: Repurta Pascual through Andres Fontanilla
Third party complainant or the buyer: Cu Joco
Facts:
5
Francisco Fontanilla (the ascendant of Alejandra Mina) is the then owner of a lot at
Laoag Ilocos Norte, which with consent allowed his brother Andres Fontanilla( ascendant of
Repurta Pascual) to build and erect a warehouse over said lot.
After which Repurta Pascual sold the warehouse with the lot to a certain Cu Joco. Hence,
Alejandra Mina filed a case to annul said sale of the lot and warehouse. Contending that said
sale is void for it is not Ruperta Pascual who is the owner of the lot and the whole of the
warehouse. Thus they have no right to sell the same.
Contention of the parties:
Cu Joco:
Issue:
Contends the legality of the sale of the land warehouse for it was done through
auction by which gives him a right over said properties.
Ruling:
The contract or agreement made between Francisco and Andres is that of a contract of
commodatum; (despite the lack of definite time of us by Andres of the lot, due to personal
motive of Francisco with respect to a certain Fructuoso Fontanilla)
By said contract under art. 1740, Civil Code a sale of land belonging to another, on which
a building of the vendors is located, is null and void, for the vendor cannot sell or transfer
property that does not belong to him.
Saura Import and Export Company Inc. v. DBP
April 27, 1972
Bailor: Rehabilitation Finance Corp. or Development Bank of the Philippines DBP.
Bailee: Saura Import and Export Company Incoporated.
Facts:
Saura Import and export Co., applied for loan to Rehabilitation Finance Corporation
(RFC) which later on converted to DBP. The said bank due to disagreement as to the laid
conditions imposed against herein Saura the said loan was then denied. Saura then filed a case
contending that the denial of the loan made by the bank is against or violates their right under
the civil code on obligation and contracts because said bank made such denial in mutual
manner. There was a breach of contract.
The DBP on the other hand contends that there was no breach of contract violated; Sauras
cause of action prescribes, and that there was a contract but it was Saura who did not comply
with the terms thereof.
Issue:
Ruling:
Yes. There was indeed a perfected consensual contract, as recognized in Art. 1934 of the
Civil Code which provides: An accepted promise to deliver something by way of commodatum or
simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be
perfected until the delivery of the object of the contract. Manresa. - mutuo disenso principle
was then applied in the extinguishment of the contract; that since mutual agreement can create
a contract, mutual disagreement by the parties can cause its extinguishment.
b)
Article 1941
The bailee is obliged to pay for the ordinary expenses for the
use and preservation of the thing loaned.
COMMENT:
Duty of the borrower to pay ordinary expenses
Reason for the law: the bailee is supposed to return the identical thing, so he is obliged
to take care of the thing with the diligence of a good father of a family. It follows necessarily that
ordinary expenses for the use and preservation of the thing loaned must be borne by the bailee.
Article 1942
The bailee is liable for the loss of the thing, even if it should be
through a fortuitous event:
1) If he devotes the thing to any purpose different from that
for which it has been loaned;
2) If he keeps it longer than the period stipulated, or after
the accomplishment of the use for which the
commodatum has been constituted;
3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee
from responsibility in case of a fortuitous event;
4) If he lends or leases the thing to a third person, who is not
a member of his household;
5) If, being able to save either the thing borrowed or his own
thing, he chose to have the latter.
COMMENT:
Liability for loss due to a fortuitous event
As a rule, debtor of a thing is not responsible for its loss thru a fortuitous event. This
Article gives the exceptions in a case of commodatum.
Article 1943
The bailee does not answer for the deterioration of the thing
loaned due only to the use thereof and without his fault.
COMMENT:
This article provides for non-liability for deterioration without fault.
Article 1944
The bailee cannot retain the thing loaned on the ground that the
bailor owes him something, even though it may be by reason of
expenses. However, the bailee has a right of retention for damages
mentioned in article 1951.
COMMENT:
Reason for the law
Bailment implies a trust that as son as the time has expired, or the purpose
accomplished, the bailed property must be restored t the bailor.
Article 1945
When there are two or more bailees to whom a thing is loaned in
the same contract, they are liable solidarily.
COMMENT:
This article provides for solidary liability of Bailees
Margarita Quintos et al. v. Beck
November 3, 1939
Bailor: Margarita Quintos
Bailee: Beck
Facts:
Beck was a tenant of Quintos at her house on M.H. Del Pilar Steet No. 1175. Upon the
novation of the contract of lease between the parties, the leassor gratuitously granted to Beck the
use of the furniture (three gas heaters and four electric lamps) subject to the condition that Beck
would return the same upon demand.
Later on, upon demand of the furniture by Quintos, Beck instead of delivering the same
to the formers house he surrendered them to the sheriff.
Contention of the parties:
Quintos:
-
Beck:
That since the contract of commodatum with condition as agreed upon was then
violated as to the condition implied by Beck, therefore he must borne all expenses
and Quintos be excluded therefrom.
Insisted that she should only return the furnitures upon the expiration of the lease.
Issue:
Is the bailor liable for the judicial or legal expenses due to act of the bailee affecting the
thing loaned?
Ruling:
The costs should be borne by Beck because Quintos is the prevailing party. Beck was the
one who breached the contract of commodatum, and without any reason he refused to return
and deliver all the furniture upon demand. It is just and equitable that he pays the legal
expenses and other judicial costs which Quintos would not have otherwise defrayed.
A contact of loan ( commodatum) of ten carabaos made between Felix De Los Santos,
bailor and Magdaleno Jimenea, bailee was made after the latter died. In said contract the said
carabaos shall be returned to the owner until the work in the formers mill would be finished, but
unluckily the bailee died, and Agustina Jarra became the administratrix of the estate of Jimenea.
Felix then presented his claim to the carabaos to the commissioner of the estate of
Jimenea, with the legal term, but his claim was then rejected. Hence he filed an action for the
recovery of the same.
Contention of the parties:
Jarra:
Issue:
contends that said carabaos were sold to Jimenea as to the 3, 4 had died due to
sickness, that only 3 carabaos had been in there possession.
Is the bailee liable for the loss of the thing loaned due to fortuitous event?
Ruling:
The bailee is at fault to any damages or losses caused thereby, for he was guilty of delay
for delivery to return the carabaos to the bailor or owner thereof.
In a contract of commodatum whereby one the parties delivers to the other a thing that is
not perishable, to be used for a certain time and afterwards return it, it is imperative duty of
the bailee, if he should unable to return the thing itself to the owner, to pay damages to the latter
if through the fault of the bailee, the thing loaned was lost or destroyed, inasmuch as the bailor
retains the ownership thereof.
Franklin upon knowing that Sterela ( the company) was no longer holding office in the
address previously given to him, he and his wife went to the Bank wherein, to verify if their
money was still intact, and they have learned that what was left is only 90,000.00 pesos, for
Doronilla had withdrawn the amount missing.
By legal means Franklin demanded the return of his money (200,000.00pesos).
The trial court and CA rendered decision in favor of Franklin. Hence this petition.
The Bank alleged that CA erred in its decision saying:
Contention of the parties:
Petitioners:
Claim that the transaction is a mutuum thus petitioner cannot be held liable for the
return of the 200,000.00.
Issues:
1) Was there a contract of loan between the parties; and
2) Is the bank liable for any damages?
Ruling:
That the contract is that of commodatum for the subject may be consumable but the
ultimate intention of the loan is not to consume the same.
Under art. 2180 of the Civil Code employers shall be held liable primarily and solidarily
liable for damages caused by their employees acting within the scope of their assigned tasks. The
said manager failed to exercise due diligence to prevent the unauthorized withdrawal.
c) The bailor: articles 1946-1952 Civil Code; in re art. 765 Civil Code.
Article 1946
The bailor cannot demand the return of the thing loaned till after
the expiration of the period stipulated, or after the accomplishment of
the use for which the commodatum has been constituted. However, if
in the meantime, he should have urgent need of the thing, he may
demand its return or temporary use.
In case of temporary use by the bailor, the contract of
commodatum is suspended while the thing is in the possession of the
bailor.
-
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Article 1947
The bailor may demand the thing at will, and the contractual
relation is called a precarium, in the following cases:
1) If neither the duration of the contract nor the use to which the
thing loaned should be devoted, has been stipulated; or
2) If the use of the thing is merely tolerated by the owner.
COMMENT:
Precarium
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Article 1948
The bailor may demand immediate return of the thing if the
bailee commits any acts of ingratitude specified in Article 765.
COMMENT:
Grounds for Ingratitude
Art. 765 of the Civil Code provides:
The donation may also be revoked at the instance of the donor, by reason of
ingratitude in the following cases:
1) If the donee should commit some offense against the person, the honor or the
property of the donor, or of his wife or children under his parental authority;
2) If the donee imputes to the donor any criminal offense, or any act involving
moral turpitude, even though he should prove it, unless the crime or the act has
been committed against the donee himself, his wife or children under his
authority;
3) If he unduly reduses him support when the donee is legally or morally bound to
give support to the donor.
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Article 1949
The bailor shall refund the extraordinary expenses during the
contract for the preservation of the thing loaned, provided the bailee
brings the same to the knowledge of the bailor before incurring them,
except when they are so urgent that the reply to the notification
cannot be awaited without danger.
If the extraordinary expenses arise on the occasion of the actual
use of the thing by the bailee, even though he acted without fault, they
shall be borne equally by both the bailor and the bailee, unless there is
a stipulation to the contrary.
COMMENT:
Extraordinary Expenses
a. As a rule, the extraordinary expenses should be paid by the bailor because it is he who
profits by said expenses, otherwise the thing borrowed would be destroyed.
b. Generally notice is required because the bailor should be given discretion as to what he
wants to do his own property.
Article 1950
If, for the purpose of making use of the thing, the bailee incurs
expenses other than those referred to in Article 1941 and 1949, he is
not entitled to reimbursement.
-
Article 1951
The bailor who, knowing the flaws of the thing loaned does not advise
the bailee of the same, shall be liable to the latter for the damages
which he may suffer by reason thereof.
COMMENT:
Reason for the law
When a person lends, he ought to confer a benefit, and not to do a mischief. If he does
not reveal the flaws, he is liable for his bad faith. The flaws referred to must be hidden defects,
not obvious ones.
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Article 1952
The bailor cannot exempt himself from the payment of expenses
or damages by abandoning the thing to the bailee.
COMMENT:
Reason for the law
The value of the thing borrowed might be less than the value of the expenses or damages.
Manzano v. Perez Sr.
August 9, 2001
Bailor: Emilia Manzano
Bailee: Nieves M. Perez
Facts:
Emilia Manzano lent her house and lot to her sister Nieves M. Perez for the latter o use it
as a collateral for a projected loan, upon the promise that she would return the property
immediately upon payment of her loan.
Pursuant to the previous agreement both parties end up executing deeds of conveyance
for the sale of subject house and lot, in favor of Nieves in consideration of 1.00 peso plus other
valuables, which was allegedly received by Emilia.
Contention of the parties:
Petitioner:
claims the subject property contending that there was no contact of sale made, that
the contract made by them is that of a commodatum, and that said property be
delivered back to her. All of which are made in oral.
Respondents:
showed or presented evidence to prove and deny all belied allegation or contention
of the petitioner. Like notarial document; two Kasulatan ng Bilihang Tulayan.
Issue:
Ruling:
The court reiterates the evidence offered by petitioner to prove the claim is sadly lacking.
Jurisprudence on the subject matter, points to the existence of a sale, not a commodatum, over
the subject house and lot.
Note: oral testimony as to a certain fact depending as it does exclusively on human
memory is not as reliable as written or documentary evidence.
The fact that the deed of sale was not notarized does not render the agreement null and
void and without any effect. The necessity of public document is only for convenience not for
validity or enforceability.
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Article 1953
A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and quality.
COMMENT:
Ownership Passes in Mutuum
Ownership passes to the barrower, but of course he must pay later.
Article 1954
A contract whereby one person transfers the ownership of nonfungible things to another with the obligation on the part of the latter
to give things of the same kind, quantity, and quality shall be
considered barter.
COMMENT:
Barter of Non-Consumable things
Here, the word non-fungible does not really mean non-fungible but non-consumable.
Reason: if the thing were really non-fungible the identical thing must be returned. Here, an
equivalent thing is returned.
Article 1955
The obligation of a person who borrows money shall be governed
by the provisions of Articles 1249 and 1250 of this Code.
If what was loaned is a fungible thing other than money, the
debtor owes another thing of the same kind, quantity and quality,
even if it should change in value. In case it is impossible to deliver the
same kind, its value at the time of the perfection of the loan shall be
paid.
COMMENT:
Liabilty of Borrower of Money
Liability is governed by Arts. 1249 and 1250.
14
Article 1249: The payment of debt in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held
in abeyance
Article 1956
No interest shall be due unless it has been expressly stipulated
in writing.
COMMENT:
1.
2.
3.
4.
15
Article 1958
In the determination of the interest, if it is payable in kind, its
value shall be appraised at the current price of the products or goods at
the time and place of payment.
COMMENT:
Determination of Interest in kind
Value should be at the time and place of PAYMENT.
Article 1959
Without prejudice to the provisions of Article 2212, interest due
and unpaid shall not earn interest. However, the contracting parties
may by stipulation capitalize the interest due and unpaid, which as
added principal shall earn new interest.
COMMENT:
1.
2.
Compound interest
Compound interest is interest on accrued interest. It is valid to charge compound
interest, but there must be a written agreement to this effect; otherwise said compound
interest should not be charged unless it is interest charged upon judicial demand.
Article 1960
If the borrower pays interest when there has been no stipulation
therefore, the provisions of this Code concerning solutio indebiti, or
natural obligation, shall be applied, as the case may be.
-
Article 1961
Usurious contracts shall be governed by the Usury Law and other
special laws, so far as they are not inconsistent with this Code.
16
a.
Definition
a. Art. 418. - movable property is either consumable or non-consumable. To the first class
belong those movables which cannot be used in manner appropriate to their nature
without their being consumed; to the second class belong all the others.
b. Obligation to pay/nature of mutuum
- As to loan: money or other fungible thing: bailee is bound to pay the equal amount of
the same kind and quality.
- Contract: non-fungible things: to give things of the same kind, quantity, and qualitybarter
- ownership: is transferred to the bailee but he is obliged to pay to the bailor/creditor
an equal amount of the same kind and quality.
c. Payment - legal mode of extinguishing an obligation by way of delivery of money, giving
of a thing, or doing of an act, or not doing of an act.
d. Trust receipts - Written document signed by the entrustee and delivered to the entrustor
for the former to comply with the obligations stated on the receipts, in the payment of
interest. Failure of which may result to criminal or civil action against the entrustee.
Colinares et al. v. CA, and People of the Philippines
September 5, 2000
Colinares and Veloso were contracted by the Carmelite Sisters of Cagayan de Oro City to
renovate the latters convent for 40,000 pesos.
In order to pursue with the construction project due to lack of budget, Colinares applied
for a commercial letter of credit with the Phil. Banking Corp. (PBC) to cover the full invoice
value of the goods. They signed a pro-formal trust receipt as security.
A case in violation of P.D. 115 (trust receipt law) in relation to Art. 315 of the RPC
(estafa), was filed against Colinares for their failure to comply with the demand made by the
Bank against them.
Issue:
Ruling:
SC court said that. - Colinares are contractors and are not importers acquiring the goods
for re-sale, but obtained the goods for their construction project.
The practice of banks of making borrowers sign trust receipts to facilitate collection of
loans and place them under the threats of criminal prosecution should they be unable to pay t
may be unjust and inequitable, if not reprehensible. Such agreement is contract of adhesion
which borrowers have no option but to sign lest their loan be disapproved.
17
e.
Interest.
- The compensation which is paid by the borrower of money to the lender
for its use, and generally by a debtor to his creditor, in recompense for
his detention of the debt.
ii.
Usury
- is contracting for or receiving interest in excess of the amount allowed by
law for the loan or use of money, goods, chattels or credits.
v.
Facts:
In 1943, Jose Grijaldo borrowed money from a bank, evidenced by five promissory notes,
and secured by a chattel mortgage on the standing crops on his land. During the war, the crops
were destroyed as a result of enemy action.
Contention of the parties:
Republic:
Grijaldo:
Issue:
Held:
Yes, for his obligation was to pay a generic thing-money representing the loan with
interest. The chattel mortgage on the crops simply stood as security for the fulfillment of his
obligation, and therefore, the loss of the crops did not extinguish his obligation to pay, because
the account can still be paid from sources other than said mortgaged crops.
18
Is Cordero entitled for the interest due to him by the Overseas Bank?
Ruling:
No, Cordero is not entitled for the payment of interest. The Overseas Bank was totally
crippled during the period of financial distressed. It must be understood that the obligation to
pay interest on deposit ceases the moment the bank is completely suspended by the duly
constituted authorities.
De Vera v. CA,
October 18, 2001
Buyer: Gregorio De Vera
Seller: Q.P. San Diego Construction Incorporated
Facts:
Gregorio De Vera entered into a Condominium Reservation Agreement with Q.P. San
Diego Construction Inc. (QPSDCI). It is worth 325, 000.00 pesos, De Vera gave a down payment
in cash and the balance of him is through Pag-ibig and Open- Housing Loan, which was later on
approved and accepted by QPSDCI.
De Vera assumed that by way of the loan and personal payment of its obligation made by
him that the subject condominium unit is already owned by him, and be entitled to its name.
QPSDCIs failure to remit De Veras payment caused the mortgage of the unit be
foreclosed by the funders (consist of the Syndicate Loan Agreement by different banks and
companies involve in selling the subject condominium property).
De Vera filed a civil case against the Funders, praying that the mortgage between them
be declared null and void; and that the condominium he had paid be titled on his name.
Contention of the parties:
19
QPSDI:
Issue:
petitioner should deal directly to Asia Trust, because they sold the property to him
and issued a DOAs thru bank.
Ruling:
The essence of financing loan is to obtain funds through an interim loan, while the main
loan is not yet available. This does not mean that the petitioner is liable to private respondent
for penalties, interest and other charges that accrued by reason of non-payment of the balance of
the purchase price.
Queano applied a loan with Naguiat , which the latter granted. Naguiat for a loan in the
amount of 200,000 pesos which Naguiat granted. To secure the loan Queano executed a Deed of
Real Estate Mortgage in favor of Naguiat, and surrendered her owners duplicate of title
covering the mortgage properties. A promissory note for the amount of 200,000 pesos with
interest of 12% was also issued.
When Naguiat demanded the settlement of the loans, Queano claims that she did not
receive the proceeds of the loan adding that checks was retained by Ruebenfeldt, Naguiats
agent. Naguiat then sseks to foreclose of the mortgage.
Contention of the parties:
Queano:
-
Issue:
Queano told that Naguiat, upon the latters demand the settlement of the loan,
Queano claims that she did not receive the proceeds of the loan adding that the
checks was retained by Ruebenfeldt who was Naguiats agent.
Held:
No, as stated by Supreme Court, a loan contract is a real contract not consensual, and
such is perfected only upon the delivery of the object of the contract. In this case the object of
the contract are the loan proceeds which has all told, that the lender did not remit and the
borrower did not receive. That being the case, Queano is not oblige to pay the principal amount
with 12% interest.
Moreover, the mortgaged which is supposed to secure the loan is null and void.
Severino Tolentino et al. v. Benito Gonzales et al.
August 12, 1927
Buyer: Tolentino and Manio
Seller: Luzon Rice Mills Incorporated
20
Facts:
Tolentino and Manio purchased a parcel of land before Luzon Rice Mills Inc., in Tarlac
to be paid by way of installment and non-payment would revolt the property to the original
owner. A transfer certificate was then given to Tolentino and Manio, despite the remaining
balance of 15,000.00 pesos.
The representative of the vendor then wrote the vendees to comply with its obligation or
else a case be filed against them, that said obligation is due and demandable. The vendee failed
to comply, hence, this cause of action and claim for the recovery of the property in question.
Contention of the parties:
Tolentino:
Sy Chian:
Issue:
Is the contract usurious on the ground that higher interest rate was imposed?
Ruling:
The Usury Law applies only to contract of loan and not to an absolute sale with right to
repurchase. It is well-settled rule that the legal interest of the contract of sale is 6% per annum if
there was stipulation and 12% per annum for contract of loan.
f.
Debtor: Rubiato
Creditor: Aguilar
Facts:
Juan Rubiato was the owner of various parcel of land at Nagcarlan, Province of
Laguna. That Manuel Vila by way of force and fraud made Rubiato to sign a power of attorney in
his favor in order to obtain a loan. That by that reason Vila and company were able to sell the
property to Hilaria Aguilar, using said document. In the contract of sale the vendor was allowed
to stay at the subject property but to pay rent, until demand be ordered by the purchaser.
Hilaria then never received any rent to Vila or Rubiato, hence this cause of action.
Contention of the Plaintiff:
That he is entitled to 60% interest per annum when the pacto de retro was
formulated until the usury law took effect and 12% PA after such date.
Contention of the Respondent
The interest is usurious.
Ruling:
Rubiato was only responsible to the plaintiff for the loan because of the inadequacy of the
price which Vila obtained for the 8 parcels of land owned by Rubiato and it failed to name a
lawful rate of interest.
The 60% is usurious, as such the plaintiff shall only recover 6% interest PA rate on the
sum of P800.
21
Repayment of the loans given in Japanese currency during the lost war of the Pacific.
Rono on October 5, 1944, received as a loan 4,000 in Japanese fiat money from Gomez
and agreed to pay said debt one year after date, in the currency then prevailing that time; this
was done by way of promissory note. On October 15, 1945 Rono failed to comply with its
obligation, hence this cause of action.
Contention of the Plaintiff:
That the contract is contrary to usury law because he only received P100 and now
he is required to discharge P4000.
Contention of Respondent:
That Rono should pay his debt amounting to P4000
Issue:
Whether or not the liability would remain in Japanese fiat not Philippine currency.
Ruling:
Rono should pay Gomez the sum of only P100 with legal interest from the date of the
filing of the complaint plus cost. Because Peso during the time of contract is somewhat valueless
than that of its equivalent during the expiration of the contact which is more in value, this fact
was then considered, and in order to give everyone its due and in fair Rono is to pay Gomez 100
pesos which is equivalent of peso on October 5, 1944.
Eastern ShippingLines vs. CA
234 SCRA 578
Facts:
Petitioner is a common carrier which brought the cargo of private respondent from
Japan to Manila. Due to bad weather, water was able to come in the cargo hold and damaged the
goods. Herein defendant brought the action to the RTC. CA ruled in favor of First National
Assurance (private respondent) and ordered ESL to pay damages with interest starting from the
judicial demand. Petitioner contended that the interest is usurious and that it should commence
upon final order.
Contention of the parties:
ESL:
FNA:
Issue:
Ruling:
The interest due on the amount should commence from the date of judicial demand. The
legal interest to be paid is 6% on the amount due computed from the decision of the court a quo.
22
A mortgage deed was executed between Jardenil and Salas whereby the latter agreed to
pay interest to the date of maturity in March 1934.
Contention of the Plaintiff:
Should be entitled for the payment of interest up to the date of full payment of the
principal.
Contention of the Respondent:
Should only be liable up to the date of the maturity of the PNB.
Issue:
Whether or not Salas is bound to pay the stipulated interest only up to the date of
maturity as fixed in the promissory note, or up to the payment is affected?
Ruling:
The contract is silent as to whether after the date, in the event of non-payment, the
debtor would continue to pay interest. No legal presumption as to such interest could be
indulged for this would be imposing upon the debtor an obligation that the parties have not
chosen to agree upon. As such, plaintiff is only entitled to the stipulated interest of 12% on the
loan. Legal interest shall accrue since judicial demand had been made.
Cu Unjeng vs.Mabalacat Sugar Co.
54 Phil 976
Surety- Siulong and Co.
Mortgagor-PNB
Facts:
23
Cu Unjieng instituted this cause of action to recover from Mabalacat Sugar Company
indebtedness, with interest and to foreclose a mortgage given by the debtor to secure the same.
Collection of debt-168,000.00 plus interest
Contention of the Plaintiff:
Collection of the debt plus interest.
Contention of the Respondent:
The extension of time of payment had the effect of abrogating the stipulation of the
original contract with respect to the acceleration of the maturity.
Issue:
Ruling:
The provision merely requires the debtor to pay interest monthly at the end of each
month, such to be computed upon the capital of the loan not already paid. Compound interest
must be eliminated. It must always be in writing or when there is judicial demand.
GSIS vs. CA
145 SCRA 311
Debtor- Spouses Medina
Creditor- GSIS
Facts:
Spouse Medina applied for a loan with the GSIS. GSIS approved said application with the
following conditions: that the rate of interest is 9% per annum compounded monthly; payable in
10 years, at monthly amortization; and that any installment or amortization that remains due
and unpaid shall bear interest of 9% to 12% per month. Medinas executed 2 real estate
mortgage as security in favor to GSIS.
That the Medinas defaulted in paying the monthly amortization on their loan, the GSIS
imposed 9% to 12% interest on all installment due and unpaid.
Contention of the Plaintiff:
The amended REM did not supersede the original document, therefore, all interest
and stipulations should be imposed.
Contention of the Respondent:
The compound interest should not be imposed since it was not in writing in the
amended REM.
Issue:
Whether or not the compounded interest as stipulated in the original mortgage contract
be enforced in the later mortgage.
Ruling:
The amendment did not replace or supersede the stipulations in the original contract.
The original mortgage contract embodies the same terms and conditions as in the additional
loan. The amendment should also be subject to the same terms and conditions.
Eastern Assurance vs. CA
322 SCRA 73
24
Vicente Tan insured his building in Dumaguete City against fire with EASCO for P250,
000.00. In June 1982, the building was destroyed by fire. EASCO was then ordered to pay Tan
for damages. EASCO was about to pay Tan with 6% interest per annum as legal interest of the
failure to pay Tan. Tan on the other hand refused to accept said payment saying that the proper
legal interest must be 12% per annum.
Note: RTC did not impose any interest to its decision.
Contention of the Plaintiff:
The applicable legal rate should be 6%per annum.
Contention of the Respondent:
The applicable rate should be 12% per annum.
Ruling:
Petitioners contentions are without merit. The judgment of the court awarding sum of
money becomes final and executor. The legal interest, whether the case falls under breach of
contract constituting sum of money,i.e. loan or forbearance, or loans constituting sum of money,
should be 12%.
Delgado vs. Valgona
44 Phil 739
Debtor-Valgona
Creditor- Delgado
Facts:
Alonso sold to Delgado 12 parcels agricultural land at Goa, in the province of Camarines
Sur. Alonso obtained or bought said land from certain Stickney, in the amount of 15,000.00
pesos. In said contract of sale between Alonso and Delgado, the latter is to give payment to the
lots in 2 semi annual installments with15% interest, which is more than what the law required 12
% per annum, within 12 years and none compliance would make the creditor possess the lot in
question.
Delagado then failed to comply with his obligation, but had already given 2,625 pesos in
the previous installments. Alonso was about to move the foreclosure of the mortgage, when by
way of Delgados lawyer he made known that the contract was usurious, hence this cause of
action. On the other hand Alonso filed a cross-complaint contending that he is the aggrieved and
that he must be reimbursed the amount of 15,000.00 pesos for the 12 parcel of land conveyed by
him in favor of Delgado, that be deducted of the amount of 2,625 pesos.
Interest: 15% per annum, Principal-P15, 000.00
Contention of the Plaintiff:
Recovery of the sum of P2, 625.00 paid upon by way of interest and P2, 500.00
attorneys fees.
Contention of the Respondent:
Special defense that the contract in question had been entered into by him
innocently and in total ignorance on his part of the existence of the Usury Law.
Moved for the setting aside of the Mortgage and payment of P15,000.00.
Issue:
25
Ruling:
The mortgage is usurious because it is in excess of that allowed by law. Interest to be
imposed should be 6% per annum.
Bataan Seedling vs. Republic
383 SCRA 590
Facts:
Bataan Seedling Association Incorporated entered into a reforestation contract with the
Republic of the Philippines, represented by DENR. It undertaken a reforestation of a 50
hectares open or detruded forest land in Liyang Pilar, Bataan with a period of 3years. When
BSAI failed to comply with its obligations, respondent sent notice of cancellation of the contract.
BSAI did not reply, respondent filed a complaint asking among others that the mobilization fond
and advance payment be refunded with 12 % interest.
Community Based Reforestation Contract with DENR with the following claims:
Principal- P56, 290.69; Interest Rate- 12%
Consideration- P975, 126.61-Reforestation-50 hectares in Pilar, Bataan for 3 years.
Contention of the Plaintiff:
The order to refund the amount of P56, 269.69 with interest at the rate of 12% per
annum representing the balance of the mobilization fund is palpable as being
contrary to the facts.
Contention of the Respondent:
The rate should be at 6% per annum.
Issue:
Ruling:
The interest rate on the P56, 290.69 shall be at the 6% PA from the decision of the CA
and 12% in lieu of the 6% shall b imposed upon finality of this decision, until full payment
thereof.
Ligutan vs. CA
376 SCRA 560
Debtor-Ligutan and Liana
Creditor-Security Bank
Facts:
Ligutan and de la Llama obtained a loan from Security bank and Trust Company.
Ligutan and Llama executed a promissory note binding themselves jointly and severally to pay
the sum borrowed with an interes of 15. 189% per annum upon maturity and to pay a penalty of
5% every month on the outstanding principal and interest in case of default. In addition, they
agreed to pay 10% of the total amount due by way of attorneys fees of a suit were instituted to
enforce payment. Despite demand, petitioners failed to pay. The filing of complaint was
instituted by the bank, where the RTC rendered decision ordering petitioners to pay the sum of
14,416 pesos of corresponding interest as agreed upon plus 2% service charge.
Contention of the Plaintiff:
The imposed interest is excessive. 15.189% PA interest and 3% per month penalty
rate are manifestly exorbitant, iniquitous and unconscionable.
26
Goyu and Sons Incorporated have fire claims against Malayan Insurance Company
Incorporated in connection with the mortgage contracts entered into by and between RCBC and
Goyu in consideration of the latters application for credit facilities and accommodation with
RCBC in consideration of a loan from RCBCs counterclaim, ordering Goyu to pay its loan
obligation with RCBC in the amount of 68, 785.069 pesos.
Surcharges and penalties are adjudged at 2% and 3% respectively per computation.
Inexplicably, the CA without even laying down the factual or legal justification for its
ruling modified the trial courts ruling and ordered Goyu to pay the principal amount.
Contention of the parties:
RCBC:
Goyu:
Issue:
claims that Goyu should pay its loan obligation as executed by them in favor of the
former.
should not pay for the interest because it is not in the contract.
Ruling:
The presence of indorsements documents give rise to a right which in this case is a claim
for insurance from the company. Goyu is still liable to pay its loan obligation with interest. Goyu
must comply with the payment of its loan obligation with the agreed interest through RCBC had
waived collection of surcharges and penalties.
Segovia vs. Dumatal
364 SCRA 159
Facts:
Segovia Devt Corp and JLDRDC entered into 3 identical contracts to sell 3 condo units
of which out of P6.05 million as purchase price, but only P4.4 million was paid. However, later
Duamtal failed to fulfill his obligation to Segonia leading to the rescission of the contract. The
case was adjudicated by the HLURB until it reached the office of the President, where it was
decided that
Dumatal should pay remaining outstanding balance of 3M plus additional 3% per month
for each delayed payment plus 50% a contract price adjustment with 6% interest per annum
from November 1990 until fully paid.
Contention of the parties:
27
Segovia
Dumatol
-
To pay for the remaining balance plus interest of 3% and 6% per annum as
damages.
3% is grossly iniquitous. There was no basis for the imposition of the 6% per
annum.
Ruling:
The 3% per month translates to 36% PA. The interest rate is reduced to 12% PA. The 6%
as compensation for damage has no statutory justification because there was neither stipulation
nor judicial demand to that effect.
First Metro Investment Corp. vs. Este Del Sol
369 SCRA 99
Facts:
Este Del Sol applied for a loan to the First Metro Investment, for an amount of 7M, for the
construction of a resort and mountain reserve. Consequently, both parties executed a loan
agreement where they stipulated that:
1) Interest on the loan was rigged at 16% P.A. based on the diminishing balance.
2) Incase of default, an acceleration clause was among others provided and the
amount due was made subject to a 20% onetime penalty on the amount due and
such amount shall bear interest at the highest rate permitted by law from the
date of default until full payment thereof plus liquidated damages at the rate of
2% p.m. compounded quarterly on the unpaid balance and accrued interest.
3) Plus attorneys fee equivalently to 20% of the sum sought to be recovered which
in no case be less than 20,000 pesos if the service of a lawyer were hired.
Later, the petitioner also imposed to the respondent that in order for the loan to be
granted, an underwriting and consultancy agreement should be made, obliging the respondent
to pay the petitioner a supervising and consulting fee of 200thousand for 4 years. Thus, the
agreement was perfected. Later, the respondent failed to fulfill his obligation. Hence, the filing
of the suit in the trial court.
Contention of the Plaintiff:
The instant collection suit against respondent to collect the alleged deficiency
balance from the loan agreement including what is due to them from the
Underwriting and Consultancy Agreement.
Contention of the Respondent:
The underwriting and consultancy agreement executed simultaneously with and as
integral part of the loan agreement and which provided for the payment, were in
reality subterfuges resorted to by FMIC to camouflage the usurious interest.
Issue:
Was the underwriting and consultancy agreement a device to cloak the usurious
transaction made by the petitioner?
Ruling:
Art. 1957: Contracts and stipulations, under any cloak device or whatsoever.
Such penalties, liquidated damages and attorneys fees are excessive, iniquitous and
unconscionable and revolting to the conscience as they hardly allow the borrower any chances of
survival in case of default.
28
Banco Filipino v. CA
332 SCRA 241
Bailor:Banco Filipino
Bailee: Arcilla et al.
Facts:
Arcilla et al. obtained a loan with the Banco Filipino at a rate of 12 % per annum. The
loan provides an escalation clause empowering the bank to increase the interest rate as may be
provided by law. The loan is payable in 19 years. Later, Central Bank circular 494 was issued
increasing the ceiling of interest on loans with maturity of more than 730 days by bank and
other financial groups engaged in banking transactions to 17% pursuant to the circular, from
12% interest it becaome 17%.
A suit was filed against the Banco Filipino for the annulment of the contract of loan; the
trial court rendered a decision in favor of the respondent finding the interest usurious.
Contention of the parties:
Petitioners claim:
respondent is not entitled to refund.
Respondents claim:
they are entitled to the refund in as much as the escalation clause and is therefore
illegal.
Ruling:
It may not although Circular Bank 494 has the force and effect of law, it is not a law and
is not the law contemplated by the parties which authorized the petitioner to unilaterally raise
the interest rate of the loan.
g. Special Cases
Soncuya vs. Azzaraga
65 Phil 635
Debtor: Soncuya
Creditor: Attorney Azzaraga
Facts:
In payment for attorneys fees, the defendant mortgaged his land to his lawyer. The
lawyer sold the credit to the plaintiff. No payment was made. Extension was made but with
express condition that 12% interest shall be paid.
Contention of the Plaintiff:
Since there was nonpayment of the property in question, ownership should be
passed to him through the contract of assignment of debt and right to repurchase.
Contention of the Respondent:
The plaintiff cannot have ownership through the assignment of credit or pacto de
retro because such was not stipulated, thus, does not have any right over the
property.
Ruling:
29
When the plaintiff agreed to extend the period of payment plus interest, the pacto de
retro contract was converted into simple loan with or without guaranty, such interest may be
demanded.
Herrera vs. Petrophil
GR No. 48349; 12/29/86
Lessor: Herrera
Lessee: Petrophil
Facts:
Herrera and Petrophil entered into a lease agreement for 20 years. Petrophil made
advance payments for the first 8 years subtracting there from the discount of 12% PA.
Contention of the Plaintiff:
The deduction is not proper because it is in violation of the Usury Law. The interest
to be deducted should be reduced to P29, 000.00.
Contention of the Respondent:
The deduction was not usurious interest but a discount for paying in advance for 8
years.
Issue:
Whether or not there is a usurious transaction.s
Ruling:
Discount is not unusual in a lease contract as long as it is not contrary to laws.
No usury because there is no money given by the defendant to plaintiff nor did it allow
him to use its money already in his possession and there was neither loan nor forbearance, but
only a mere discount which the plaintiff allowed the defendant to deduct.
Elements of Usury
1) Loan express or implied;
2) Understanding between the parties that the money shall be returned;
3) That for such loan a greater rate or interest that is allowed by law shall be paid,
agreed to be paid as the case may be;
4) Corrupt intent to take more then the legal rate for the use of money loaned.
Discount does not have to be paid.
Forbearance subject to repayment and is therefore governed by the laws on usury law.
Equitable mortgage the deposit of title of deeds, by the owner of the estate with a person from
whom her has borrowed money, with an accompanying agreement to execute a regular
mortgage or by the mere deposit without even any verbal agreement respecting regular security.
Bonnevie vs. CA (Philippine Bank of Commerce-Resp)
125 SCRA 122
Facts:
Spouses Lozano mortgaged their property to secure a loan of P75, 000.00 from PBC.
They executed a deed of sale in favor of Bonnevie with assumption of mortgage for P100,
000.00. PBC foreclosed the property and sold in public auction.
Contention of the Plaintiff:
The collection of interest on the loan up to July 12, 1968 extends the maturity
hence the foreclosure was not proper.
Contention of the Respondent:
30
The loan matured already because it was 6 months overdue, hence the foreclosure
was valid.
Ruling:
The loan matured on December 26, 1967. The payment of interest on July 12, 1968 does
not thereby make the earlier act of the bank iniquitous nor does it ipso facto result in the
renewal of the loan.
Santulan vs. Fule(Heirs of Lusin)
133 SCRA 762
Facts:
The collection of interest in the sum of P30, 000.00 as the value of improvement on the
foreshore land. The heirs of Santulan were asked by the court to reimburse cost plus legal
interest from 1955 until paid.
Contention of the Plaintiff:
The interest was not demanded by Lusin when the case was pending in the
administrative agencies and in the courts; hence there is no reason for the
collection of interest.
Contention of the Respondent:
They should be entitled to the interest applying article 2209.
Ruling:
Such case is not sanctioned by Article 2209 of the Civil code because the interest was not
demanded by Lusin when the case was pending. The decision of the Supreme Court did not
provide for interest, hence there is no reason for the trial court to add interest.
Sentinel Insurance and Nemesio Azcueta Sr. bound themselves jointly and severally, to
guarantee the compliance with the terms of the credit line granted by the private respondent in
favor of Azcueta in the amount of P180, 000.00. Azcueta failed to perform his obligation, hence
the surety was ordered to pay with 14% PA interest.
Contention of the Plaintiff:
The interest is usurious because aside from the interest, additional 2%/45 days as
penalty has been imposed.
Contention of the Respondent:
Should be entitled to the said interest and penalty.
Ruling:
Contention of the petitioner is incorrect. The damage dues do not include and are not
included in the computation of interest as the two are different and distinct which may be
demanded separately.
31
Ruiz rents a house owned by Sanggalang amounting to P650.00. Ruiz and Sanggalang
agreed that the former will buy the house and lot and will continue to pay the rental until full
payment.
Due to disagreement with the amount paid, the former demands return with 24%
interest compounded annually.
Contention of the Plaintiff:
That he is entitled to the interest of 24% compounded annually.
Contention of the Respondent:
That he should not be held liable to pay for the said rate.
Ruling:
Where the court judgment did not provide interest, there is no reason to add interest in
the judgment. Interest was not demanded by the Ruizes when the case was pending before the
lower court, hence, there is nor reason to grant.
Tio Khe Cheo vs. CA
202 SCRA 119
Facts:
Cheo imported 1000 kgs of fish meal. The goods were insured by EASCO. The goods
were found to be damaged by the seawater rendering them useless.
Contention of the Plaintiff:
Since his claimed is based on an insurance contract, the Insurance Code should
govern the interest to be applied.
Contention of the Respondent:
32
Ruling:
The Insurance Code applies only when the court finds an unreasonable delay or refusal
in the payment of the claims. The 12% in the circular refers only to loans or forbearances of
money, goods or credit and court judgments.
33
B.
DEPOSIT
Article 1962
A deposit is constituted from the moment a person receives a
thing belonging to another, with the obligation of safely keeping it and
of returning the same. If the safekeeping of the thing delivered is not
the principal purpose of the contract, there is no deposit but some
other contract. (1758a)
COMMENT:
1.
2.
3.
Kinds of Deposit:
a. Judicial (Sequestration) When an attachment or seizure of property in litigation is
ordered.
b. Extra-judicial:
1. Voluntary made by the will of depositor.
2. Necessary
a) made in compliance with a legal obligation
b) on the occasion of a calamity
c) made by travellers in hotels or inns
d) made by travellers with common carrier
4.
5.
34
Article 1964
A deposit may be constituted judicially or extra-judicially.
COMMENT:
1.
35
Article 1966
Only movable things may be the object of a deposit. (1761)
COMMENT:
1.
Article 1967
An extrajudicial deposit is either voluntary or necessary. (1762)
COMMENT:
1.
Article 1978
When the depositary has permission to use the thing deposited,
the contract loses the concept of a deposit and becomes a loan or
commodatum, except where safekeeping is still the principal purpose
of the contract.
The permission shall not be presumed, and its existence must be
proved.
-
Article 1980
Fixed savings and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple
loan.
CASE:
BPI vs. IAC
164 SCRA 630
36
Petitioner: BPI
Respondents: IAC and Rizaldy Zshomack
What Happened:
Zshornack and Commercial Bank and Trust Co. Of the Phils. (COMTRUST) were the
original parties to this case. BPI absorbed COMTRUST through a corporate merger and
substituted as party to the case. Zshornack entrusted to COMTRUST the amount of 3,000 US
dollars for safekeeping. After sometime, Zshornack ask the bank to release his money back to
him. However, the bank claimed that they do not enter into a contract of deposit, and that the
3,000 US dollars was sold and the peso proceeds were deposited in petitioners account. The
bank prayed it be totally absolved from any liability to Zshornack.
Contention of the Parties:
COMTRUST (substituted by BPI):
-
Claims that they did not enter into a contract of deposit, and that the 3000 US
dollar was sold and the peso proceeds were deposited in petitioners account.
Zshornack:
-
Claims that it is a deposit.
Supreme Court Ruling:
The transaction between Zshornack and COMTRUST is of a deposit. Since, the
agreement stated that the 3000 US dollars given to the bank were for safekeeping. Article 1962
states that a deposit is constituted the moment a person receives a thing belonging to another,
with the obligation of safely keeping it and for returning the same. The parties did not intend to
sell the US dollars to the Central Bank otherwise, the contract of deposit never had been entered
into.
But, since the mere safekeeping of the US dollars, without selling them to the Central
Bank within one business day from receipt, is prohibited, the contract of deposit is void. Thus,
both parties are in pari delicto, they have no cause of action against each other.
1.2.
a.
VOLUNTARY DEPOSIT
IN GENERAL : Articles 1968 1971
Article 1968
A voluntary deposit is that wherein the delivery is made by the
will of the depositor. A deposit may also be made by two or more
persons each of whom believes himself entitled to the thing deposited
with a third person, who shall deliver it in a proper case to the one to
whom it belongs. (1763)
COMMENT:
1.
Article 1969
A contact of deposit may be entered into orally or in writing. (n)
COMMENT:
Form of the Contract of Deposit
a. oral
b. written
Article 1970
If a person having capacity to contract accepts deposit made by
one who is incapacitated the former shall be subject to al the
obligations of a depositary and may be compelled to return the thing
by the guardian or administrator of the person who made the deposit
or by the latter himself if he could acquire capacity. (1964)
COMMENT:
1.
2.
Capacity of Depositary
-
The depositary himself must be sui juris capacitated to enter into binding
contracts. He is subject to all the obligations of a depositary. The law says
that persons who are capable cannot allege the incapacity of those with
whom they contracted. (Art. 1379, Civil Code)
Article 1971
If the deposit has been made by a capacitated person with
another who is not the depositor shall only have an action to recover
the thing deposited while it is still in the possession of the depositary
or to compel the latter to pay him the amount by which he may have
enriched or benefited himself with the thing or its price. However if a
third person who acquired the thing in bad faith the depositor may
bring an action against him for its recovery. (1765a)
COMMENT:
1.
ANS.: Yes, if C acted in bad faith. But if C acted in good faith, As only recourse would be
to compel B to give him (A) the amount by which he (B) might be enriched or benefited
himself.
2.
The contract entered into under Art. 1971 is avoidable one, in view of the
incapacity of one of the contracting parties.
2.
Duty of safekeeping:
a. If the contract does not state the diligence which is to observed in the performance,
that of a good father of a family shall be required.
b. The depositary is responsible if the loss occurs through his fault. But as a rule, not if
the loss is through a fortuitous event.
Article 1973
Unless there is a stipulation to the contrary the depositor cannot
deposit the thing with a third person. If deposit with a third person is
allowed the depositary is liable for the loss if he deposited the thing
with a person who is manifestly careless or unfit. The depositary is
responsible for the negligence of his employees. (n)
COMMENT:
General Rule:
-
A depositary is not liable for the loss if he is allowed to transfer the thing to a third
person
Exception:
-
If he deposited the thing to a person who is manifestly careless and unfit.
39
Article 1974
The depositary may change the way of the deposit if under the
circumstances he may reasonably presume that the depositor would
consent to the change if he knew of the facts of the situation.
However, before the depositary may make such change, he shall notify
the depositor thereof and wait for his decision, unless delay would
cause danger. (n)
COMMENT:
1.
General Rule:
-
Allowed to change without permission.
Exception:
-
Unless delay would cause danger.
2.
This is in accordance with the rule that generally the depositary must take care of
the thing with the diligence of a good father of a family.
Article 1975
The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter
when it becomes due, and to take such steps as may be necessary in
order that the securities may preserve their value and the rights
corresponding to them according to law.
The above provision shall not apply to contracts for the rent of
safety deposit boxes. (n)
-
Article 1976
Unless there is a stipulation to the contrary, the depositary may
commingle grain or other articles of the same kind and quality, in
which case the various depositors shall own or have a proportionate
interest in the mass. (n)
-
40
Article 1977
The depositary cannot make use of the thing deposited without
the express permission of the depositor.
Otherwise, he shall be liable for damages.
However, when the preservation of the thing deposited requires
its use, it must be used but only for that purpose.
COMMENT:
1.
Article 1978
When the depositary has permission to use the thing deposited,
the contract loses the concept of a deposit and becomes a loan or
commodatum, except where safekeeping is still the principal purpose
of the contract.
The permission shall not be presumed, and its existence must be
proved. (1768a)
COMMENT:
1.
Presumption
-
The law creates the presumption in a deposit, the permission to use it not
presumed, except when such use needed for preservation. Therefore, a person who
alleges that permission or authority to use the thing deposited has been given, has
the burden the proving the allegation.
Article 1979
The depositary is liable for the loss of the thing through a
fortuitous event:
(1)
If it is so stipulated;
(2)
If he uses the thing without the depositor's permission;
(3)
If he delays its return;
(4)
If he allows others to use it, even though he himself may
have been authorized to use the same. (n)
COMMENT:
1.
The depositary is liable for the loss of the thing through a fortuitous event:
(1)
(2)
(3)
(4)
If it is so stipulated;
If he uses the thing without the depositors permission;
If he delays its return;
If he allows others to use it, even though he himself may have been authorized to
use the same.
41
Bank Deposit
a. The relationship between the bank and the depositor is that of debtor and creditor
not depositary and depositor.
b. Current and savings deposit are loans to a bank because it can use the same.
Article 1981
When the thing deposited is delivered closed and sealed, the
depositary must return it in the same condition, and he shall be liable
for damages should the seal or lock be broken through his fault.
Fault on the part of the depositary is presumed, unless there is
proof to the contrary.
As regards the value of the thing deposited, the statement of the
depositor shall be accepted, when the forcible opening is imputable to
the depositary, should there be no proof to the contrary. However, the
courts may pass upon the credibility of the depositor with respect to
the value claimed by him.
When the seal or lock is broken, with or without the depositarys
fault, he shall keep the secret of the deposit. (1969a)
COMMENT:
The Depositary must keep the secret of the deposit.
When the thing deposited is delivered closed and sealed, the depositary must
return it in the same condition, and he shall be liable for damages should the seal or lock
be broken through his fault. When the seal or lock is broken, with or without the
depositarys fault, he shall keep the secret of the deposit. (Art. 1981, pars. 1 and 4) If the
seal or lock is broken through the depositarys fault, the presumption is that the fault is
on the part of the depositary, unless there is proof to the contrary. (Art. 1981, par. 2)
As regards the value of the thing deposited, the statement of the depositor shall
be accepted, when the forcible opening is imputable to the depositary, should there be no
proof to the contrary. However, the courts may pass upon the credibility of the depositor
with respect to the value claimed by him. (Art. 1981, par. 3)
42
Article 1982
When it becomes necessary to open a locked box or receptacle,
the depositary is presumed authorized to do so, if the key has been
delivered to him; or when the instructions of the depositor as regards
the deposit cannot be executed without opening the box or receptacle.
COMMENT:
Necessity of Opening Locked Box.
-
Article 1983
The thing deposited shall be returned with all its products,
accessories and accessions.
Should the deposit consists of money, the provisions relative to
agents in article 1896 shall be applied to the depositary. (1770)
-
Article 1984
The depositary cannot demand that the depositor prove his
ownership of the thing deposited.
Nevertheless, should he discover that the thing has been stolen
and who its true owner is, he must advise the latter of the deposit.
If the owner, in spite of such information, does not claim it
within the period of one month the depositary shall be relieved of all
responsibility by returning the thing deposited to the depositor.
If the depositary has reasonable grounds to believe that the
thing has not been lawfully acquired by the depositor, the former may
return the same. (1771a)
-
43
Article 1985
When there are two or more depositors, if they are not solidary,
and the thing admits of division, each one cannot demand more than
his share.
When there is solidarity or the thing does not admit of division,
the provisions of articles 1212 and 1214 shall govern. However, if
there is stipulation that the thing should be returned to one of the
depositors, the depositary shall return it only to the person designated.
(1772a)
COMMENT:
Two or more Depositors
a. Example of Paragraph 1:
If A and B deposit 1000 sacks of rice, A can demand 500 sacks.
b. If A and B deposited a car, the depositary can return to either, in the absence of a
contrary stipulations. (see Arts. 1212 and 1214, Civil Code)
-
Art. 1212. Each one of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to the
latter.
Art. 1214. The debtor may pay anyone of the creditors; but if any
demand, judicial or extrajudicial, has been made by one of them, payment
should be made to him.
Article1986
If the depositor should lose his capacity to contract after having
been made the deposit, the thing cannot be returned except to the
persons who may have the administration of his property and rights.
(1773)
COMMENT:
Rule of Depositor Becomes Insane
-
44
Article1987
If at the time the deposit was made a place was designated for
the return of the thing, the depositary must take the thing deposited to
such place; but the expenses for the transportation shall be borne by
the depositor.
If no place has been designated for the return, it shall be made
where the thing deposited may be, even if it should not be the same
place where the deposit was made, provided that there was no malice
on the part of the depositary. (1774)
-
Self-explanatory
Article 1988
The thing deposited must be returned to the depositor upon
demand, even though a specified period or time for such return may
have been fixed.
This provision shall not apply when the thing is judicially
attached while in the depositarys possession, or should he have been
notified of the opposition of a third person to the return or the removal
of the thing deposited. In these cases the depositary must immediately
inform the depositor of the attachment or opposition.
COMMENT:
1.
2.
COMMENT:
45
Consignation is the act of depositing the things due at the disposal of judicial
authority to relieve liability.
Article 1990
If the depositary by force majeure or government order loses the
thing and receives money or another thing in its place, he shall deliver
the sum or other thing to the depositor. (1777a)
COMMENT:
If not delivered
-
Liable as if it was lost not to a fortuitous event. And be obliged to pay charges and
the amount of the thing deposited.
Article 1991
The depositors heir who in good faith may have sold the thing which
he did not know was deposited, shall only be bound to return the price he
may have received or to assign his right of action against the buyer in case
the price has not been paid him. (1778)
CASES:
Palacio vs. Sudario
7 Phil 275
Plaintiff: Aniceta Palacio
Defendant: Dionisio Sudario
Facts:
Palacio made an agreement with Sudario., for Sudario to pasture the 81 cattles owned by
Palacio. It was stipulated in their agreement that Palacio would pay Sudario .50 cents for every
calf born during the existence of their agreement and that half of which will be awarded to
defendant. Upon demand, Sudario only returned 48 of the cattle, leading to Palacios filing of a
suit against Sudario for the recovery of the other 33.
Contention of the Parties:
Sudario
-
Palacio:
-
claimed that he is not liable for the loss of the unreturned cattle because they were
either drowned in a flood or died due to disease.
claimed that Sudario is liable.
Ruling:
The court did not specifically identify what is the nature of the contract of whether is a
contract of deposit or a contract according to local custom of pasturing, however, they stated
that either way, their obligation remains the same.
Sudario being the depositary has obligation to safekeep the thing deposited and return
the same to depositor. While the thing deposited is under his possession, he is required to
exercise diligence of that of a good father. And in other cases where loss or destruction of the
46
thing deposited happened, the depositary is presumed to be at fault and he has the burden to
prove otherwise.
In the case at bar, the burden of prooflies on Sudario to prove that the loss of the cattle is
without his fault or through fortuitous event. The court ruled that Sudario failed to overcome the
presumption and therefore, liable for the loss of the cattle.
RC Bishop of Jaro (RCBJ) vs. Dela Pena
26 Phil 144
Pena
claimed that Father Pea is liable for the amount as trust funds which was not
included as a part of the funds deposited and which were removed and confiscated
by the military authorities of the US.
Ruling:
A careful examination of the case leads us to the conclusion that said trust funds were a
part of the funds deposited and which were removed and confiscated by the military authorities
of the US. In this jurisdiction, Father dela Penas liability is determined by those portions of the
Civil Code which relates to obligations (Book 4, Title 1). The NCC provides, following the
principles of the Roman Law: No one shall be liable for events which could not be foreseen, or
which having been foreseen were inevitable, with exception of the cases expressly mentioned in
the law or those in which the obligation so declares.
By placing the money in the bank and mixing it with his personal funds, dela Pena did
not thereby assume an obligation different from that under which he would have lain of such
deposit had not been made, nor did he thereby make himself liable to repay the money at all
hazards.
Father dela Pena was not liable for its loss.
Sociedad Dalisay vs. De Los Reyes
55 Phil 542
Depositary: Dalisay
Depositor: De Los Reyes
47
Facts:
La Sociedad Dalisay is an industrial partnership located in Sta. Rosa Laguna. Prior to
May 20,1923, it received in its warehouse certain palay belonging to several persons. Early on
that morning of May 20, 1923, a fire broke in the said warehouse which at that time contained
thousands of cavans of palay, the exact number being disputed and 568 cavans outside. Only
1,052 cavans of palay plus 568 cavans outside were saved.
Contention of the Parties:
Dalisa:
-
claims that the palay was burned unintentionally and without their fault, thus they
must not be held liable for the damages.
De Los Reyes:
-
claims that Dalisay Company has not alleged that the palay burned was destroyed
without negligence on its part, thus Dalisay is liable for damages.
Ruling:
Dalisay is not liable in returning any quantity of the palay burned, except those cavans of
palays saved. It was proved that the fire was neither intentional nor caused by the fault of the
depositary, who as a matter of fact had even attempted to save the goods.
Lavadia vs. Mendoza
72 Phil 196
Depositor: Lavadia
Depositary: Mendoza (Rosario- administrator)
Facts:
Sisters Paula and Pia martina and Mateo and sisters Isabel and Engracia are surnamed
Lavadia owned and contributed jewels to decorate the image of Our Lady of Guadalupe in
Laguna. After the jewels will be placed under the custody of one for safekeeping and Paula was
designated to be the depositary. The five died except Engracia who demand the return of the
jewel from Rosario, the heir of Paula, who refused its return.
Contention of the Parties:
Engracia:
-
Rosario:
-
Ruling:
The agreement is one for deposit because the purpose is for safekeeping and that Rosario
as administrator be obliged to return the belonging to Engracia and the heirs of Martina, Mateo
and Isabel upon the latters demand.
48
Ruling:
Smith, Bell & Co. must pay the custom duties of the articles delivered into a bonded
warehouse immediately upon arrival in Manila can be shipped out of the country from such
bonded warehouse not bonded must however, pay duties whether they are shipped out of the
country or not. Therefore Smith, Bell & Co. is liable for custom duties on the 10,000 bags which
was not stored in a bonded warehouse.
As a rule, a warehouseman is entitled to reimbursement for expenses he had incurred in
the performance of the contract. But for expenses incurred in violation of the contract, he is not
entitled to reimbursement.
Under Article 1975 - the depositary holding certificates, bonds, securities or instruments
which earn interest shall be bound to collect the latter when it becomes due, and to take such
steps as may be necessary in order that the securities may preserve their value and the rights
corresponding to them according to law.
The above provision shall not apply to contracts for the rent of safety deposit boxes. (n)
CA Agro and spouses Pugao entered into an agreement whereby CA Agro purchase two
lots of Pugao, and that the titles shall only be transferred upon full payment of the purchase
price, and the owners certificate of title shall be deposited in a safety deposit box of any bank.
49
They now entered a safety deposit box from Security Bank and trust Co. and then executed a
contract of lease where spouses Pugao were given a key. Thereafter, certain Margarita Ramos
offered to buy the said lot from CA Agro and to execute a deed of sale, the certificate of title
should be presented. But when CA Agro and Pugao opened the safety deposit box, the certificate
of title was missing.
Contention of the Parties:
CA Agro:
-
claims that the contract for the rent of the safety deposit box is actually a contract
of deposit and that the bank is liable for the loss of the certificate.
Security bank:
-
claims that the contract entered into was a contract of lease.
Ruling:
It is a special kind of contact of deposit, because the full and absolute possession and
control of the safety deposit box was not given to the joint renters. In the case at bar, it is clear
that the petitioner and spouses Pugao intended to rent a safety deposit box from Security Bank,
for the bank to receive documents and other valuables for safekeeping. The security bank in turn
is required to observe reasonable diligence of a good father of a family while in possession of the
safety deposit box containing the title.
The court also ruled that since the contract is identified as a special kind of deposit and
such can be made orally or in writing, the parties in such contacts may stipulate agreements,
clauses or terms as may be deemed convenient provided not contrary to law, public policy or
morals. Therefore, the bank is liable.
Under article 1978 When the depositary has permission to use the thing deposited, the contract
loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is
still the principal purpose of the contract.
The permission shall not be presumed, and its existence must be proved. (1768a)
Jose and Ceferino Lim received from Javellana the amount of 2,686.58 on May 26,
1897. They executed and subscribed a document considered as a deposit to be returned jointly
and severally on January 20, 1898 in favour of Javellana. When the obligation became due, Lim
ask for an extension of the payment, binding themselves to pay an interest of 15% per annum on
the amount of their indebtedness to which Javellana had agreed upon.
Contention of the Parties:
Javellana:
-
Lim:
claims that the transaction was that of a loan because Lim failed to deliver the
money on the due date. Moreover, when Lim agreed to pay the interest, it was
tantamount to admittance that their transaction was a contract of aloan.
claims that the transaction between them was a deposit that only the amount they
initially received by way of the contract of deposit should be returned to the
50
appellee and since they have already paid an aggregate amount of more than 5,000
pesos, they are entitled for reimbursement of the excess amount.
Ruling:
The transaction was loan because when the depositary had permission to use the thing
deposited, the contract loses the concept of deposit and became a contract of loan or
commodatum, except if safekeeping is still the principal purpose of the deposit. The permission
shall not be presumed, and its existence must be proved.
Baron vs. David
51 Phil 2 (1927)
Depositor: Silvestra and Guillermo Baron
Depositary: Pablo David
Facts:
David was the owner of a rice mill in Pampanga. Baron delivered around 2,000cavans of
palay to him, with the understanding that David was free to convert them into rice, and dispose
of them at his pleasure. After sometime, the rice mill was burned, including its contents at
around 360 cavans of palay. This action was brought to recover the value of said cavans.
Contention of the Parties:
Baron:
David:
claims that the cavan of palays was delivered to David under a contract of sale, thus
David is liable to cover the value of the cavans of palays destroyed by fire.
claims that the delivery is under a contract of depositthat since the palays were
destroyed by fire, he is absolve from any liability.
Ruling:
The owner of the rice mill who in conformity with customs prevailing in the trade
receives palay and converts it into rice, selling the product for his own benefit, must account for
the palay to the owner at the price prevailing at the time demand is made. The destruction of the
rice mill with its contents by fire, after the palay thus deposited and been milled and marketed
does not affect the liability of the owner of the mill. Even supposing that the palay had been
delivered in the character of a deposit, subject to future sale or withdrawal at the plaintiffs
election, nevertheless, if it was understood that the defendant might mill the palay and he has in
fact appropriated it to his own use, he is off course bound to account for its value, because under
the law, such a deposit loses the concept of deposit and becomes a loan. By appropriating the
thing, the bailee become responsible for its value. The defendant should be liable for the whole
quantity delivered, without deducting the 360 that were burned.
Under Article 1980, fixed, savings and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan. (n)
Bank of the Phil. Islands vs. CA
232 SCRA 302 (1994)
Petitioner: BPI
Respondents: CA, Eastern Plywood Corporation and Benigno Lim
Facts:
Private respondents, Lim and Eastern have a joint checking account with BPI. Later, the
joint checking account was withdrawn and same was deposited to BPI in a joint account under
51
the names of Lim and Mariano Velasco. Thereafter, Eastern applied for a loan with BPI. A heldout agreement was made by the parties stating that the loan shall be secured by the joint account
of Lim and Velasco after the respective interest of the said account is established by judicial
determination. Velasco died then the trial court ordered the heirs to withdraw half of the joint
account made by Lim and Velasco and was allowed. Later, a collection suit was filed by BPI for
the payment of the loan applied by eastern.
Contention of the Parties:
Petitioner:
-
asserts that they are relieved from paying the withdrawn amount by the heirs of
Velasco in the joint account because, they are in good faith, allowed the withdrawal
by virtue of the court order in the estate settlement proceedings.
Respondents:
-
contended in their counterclaim that they, being the depositor and real owner of
the joint account, has the right to demand for the refund and the bank as
depositary, has obligation to do so.
Ruling:
Re. Article 1980, bank deposits are by its nature irregular deposits which are regarded as
a simple loan because they earn interest. Hence, the relationship between the bank and
depositor is a creditor debtor relationship in which bank deposits are payable upon demand
by the depositor. In the case at bar, it was established by the court that the joint account in
question really belongs to the private respondents notwithstanding the facts that it was under
the names of Lim and Velasco. Hence, the said account is payable upon demand by the real
owners, which is Eastern. The private respondents being the true creditors of the bank, have the
right to demand the payment of the said account. The petitioner bank cannot rely upon the
judgment in the estate proceeding of Velasco, since the judgment thereof authorizing the heirs
to withdraw half of the said account, is not final determination of ownership in the joint
account, it is provisional in nature and cannot be subjected to execution.
Thus the petitioner bank cannot be relieved from its obligation to refund the account
simply because it was withdrawn already, even if the petitioner acted in good faith. The only way
that they be relieved in such obligation is to refund the account to the person of their creditor
depositor. Therefore, it is a contract of loan.
Central bank vs. Morfe
63 SCRA 114 (1975)
Petitioner: Central Bank
Respondents: Judge Morfe and spouses Padilla and Elizes
Facts:
The Fidelity bank was declared insolvent by the Monetary Board of the petitioner Central
bank and ordered that the Fidelity bank shall halt its business transactions. After the declaration
of the banks insolvency, a judgment was rendered in favour of the private respondent spouses
Padilla and Elizes for the refund of their existing time deposits against the Fidelity Bank. A writ
of execution was then ordered by the liquidation court for the execution of the said judgment.
Controversy arose in this case in the ordered execution of the judgment by the respondent judge
in favour of the spouses which in turn refused by the bank.
Contention of the Parties:
Central bank:
-
contended that it is a contract of loan, that since the judgment in favor of the
spouses Padilla and Elizes were favourably obtained after the bank was declared
insolvent, such judgment cannot obtained preference against other depositors be
executed against Fidelity Bank.
52
Respondent Judge:
-
claims that it is a contract of deposit, that since the judgment in favour of the
spouses is not suspended, such claim is considered preferred credits pursuant to
Article 2244 of the Civil Code and therefore, be executed in preference to claims of
other depositors.
The event which we would neither foresee nor resist; as for example, the
lightning, stroke, inundation, hurricane, public enemy, attack of
robbers.Any accident due to natural causes, directly, exclusively without
human intervention, such as could not have been prevented by any kind
of oversight, pains and care reasonably to have been expected.
Fortuitous Event
-
An event
which takes place by accident and could not have been
foreseen, such as destruction of houses, unexpected fire, shipwreck,
violence of robbers.
An unexpected event act of God which could neither be foreseen nor
resisted, such as floods, torrents, shipwrecks, conflagration, lightning,
compulsion, insurrections, destruction of buildings by unforeseen
accidents on other occurrences of a similar nature.
Article 1992
If the deposit is gratuitous, the depositor is obliged to reimburse
the depositary for the expenses he may have incurred for the
preservation of the thing deposited. (1779a)
COMMENT:
If Onerous
-
Depositor is not obliged to reimburse, because the depositary is paid.
54
Article 1993
The depositor shall reimburse the depositary for any loss arising
from the character of the thing deposited, unless at the time of the
constitution of the deposit the former was not aware of, or was not
expected to know the dangerous character of the thing, or unless he
notified the depositary of the same, or the latter was aware of it
without advice from the depositor. (n)
COMMENT:
General Rule
-
If the depositary suffers because of the character of the thing deposited, the
depositor should be responsible for the loss sustained by the depositary.
Exception:
a) If at the time the deposit was made, the depositor was not aware of, or was not
expected to know the dangerous character of the thing.
b) If at the time the deposit was made, the depositor knew of the danger but he notified
the depositary of the same.
c) If at the time the deposit was made, the depositary was aware of the danger, even
though he had not been notified by the depositor.
Article 1994
The depositary may retain the thing in pledge until the full
payment of what may be due him by reason of the deposit. (1780)
COMMENT:
1.
Article 1995
A deposit is extinguished:
1) Upon the loss or destruction of the thing deposited;
2) In case of a gratuitous deposit, upon the death of either the
depositor or the depositary. (n)
In relation to Article 1231: Obligations are extinguished:
1)
2)
3)
4)
5)
By payment or performance
By the loss of the thing due
By the condonation or remission of the debt
By the confusion or merger of the rights of creditor and debtor
By compensation
55
6) By novation
7) Other causes: annulment, rescission, fulfilment of a resolutory condition,
prescription
A deposit is necessary:
Article 1996
2.
COMMENT:
1.
2.
56
Article 1998
The deposit of effects made by travelers in hotels or inns shall
also be regarded as necessary. The keepers of hotels or inns shall be
responsible for them as depositaries, provided that notice was given to
them, or to their employees, of the effects brought by the guests and
that, on the part of the latter, they take the precautions which said
hotel-keepers or their substitutes advised relative to the care and
vigilance of their effects.
COMMENT:
1.
Innkeeper defined
-
2.
The keeper of an inn for the lodging of travelers and passengers for a reasonable
compensation
3.
The occasional entertainment of travelers does not of itself make one an innkeeper
Travelers
-
4.
Refers to the transient and was certainly not meant to include ordinary or regular
boarders in any apartment, house, inn or hotel
5.
6.
Meaning of Effects
-
Article 1999
The hotel-keeper is liable for the vehicles, animals and articles
which have been introduced or placed in the annexes of the hotel.
-
57
Article 2000
The responsibility referred to in the two preceding articles shall
include the loss of, or injury to the personal property of the guests
caused by the servants or employees of the keepers of hotels or inns as
well as by strangers; but not that which may proceed from any force
majeure. The fact that the travelers are constrained to rely on the
vigilance of the keeper of the hotels or inns shall be considered in
determining the degree of care required of him.
COMMENT:
1. Rules of Liability
a. As a rule, the master is responsible for the acts of servants or employees of the
hotel provided of course that notice have been given and the proper precautions
taken.
b. The master is also liable for the acts of strangers, like malicious mischief or theft.
2. Non-liability for force majeure
The master should be exempted in case:
a. There has, for example, been robbery by intimidation of persons, or
b. A fortuitous event, like flood.
Article 2001
The act of a thief or robber, who has entered the hotel is not
deemed force majeure, unless it is done with the use of arms or
through an irresistible force.
COMMENT:
1.
The innkeeper is bound is bound to keep his house safe from the intrusion of
thieves, day and night, and if they are allowed to gain access to the house, and
specially without the use of such force as will show its marks upon the house, it is
fairly presumable that the innkeeper is at fault.
Article 2002
The hotel-keeper is not liable for compensation if the loss is due
to the acts of the guests, his family, servants or visitors, or if the loss
arises from the character of the things brought into the hotel.
COMMENT:
1.
The acts mentioned in the article be either the result of a voluntary malicious act or
simply of negligence.
2.
Examples:
a. Act of the guest himself when turning on his radio, he may have forgotten to attach
the transformer.
b. Acts of visitors of the guest.
c. Acts of the guests own servant may have appropriated the thing for himself.
Article 2003
The hotel-keeper cannot free himself from responsibility by
posting notices to the effect that he is not liable for the articles
brought by the guest. Any stipulation between the hotel-keeper and
the guest whereby the responsibility of the former as set forth in
Articles 1998 to 2001 is suppressed or diminished shall be void.
-
Article 2004.
The hotel-keeper has a right to retain the things brought into the
hotel by the guest, as a security for credits on account of lodging, and
supplies usually furnish to the guests.
COMMENT:
1.
Right to sell
-
2.
The right of retention is given to compensate the innkeeper for the extraordinary
liabilities imposed upon the law.
59
Art. 586. Should the usufructuary fail to give security in the cases in
which he is bound to give it, the owner may demand that the immovable
be placed under administration, that the movables be sold, that the public
bonds, instruments of credit payable to order or to bearer be converted
into registered certificates or deposited in a bank or public institution,
and that the capital or sums in cash and the proceeds of the sale of the
movable property be invested in safe securities.
Art. 2104. The creditor cannot use the thing pledged, without the
authority of the owner, and if he should do so, or should misuse the thing
in any other way, the owner may ask that it be judicially or extra judicially
deposited. When the preservation of the thing pledged requires its use, it
must be used by the creditor but only for that purpose.
CASE:
Goodman vs. Lichauco
71 Phil. 237
Facts:
Edward Mitchell, proprietor of New Plaza Hotel in Manila, was declared insolvent.
Lichauco was nominated a receiver of the insolvency (new proprietor). Goodman was
accommodated in the hotel, thus, depositing his personal properties. Goodman did not pay the
rent. Controversy arises when during the insolvency proceedings, Goodman wants the return of
his personal properties but the respondent Lichauco refused.
Contention of the parties
Goodman:
-
I want my personal belonging back to me. I only deposited it to you and therefore it
should be exempt from sequestration.
Lichauco:
-
We are in a true insolvency of money. Your debt is more valuable than your
personal properties. We could not return it until you pay us with your debt.
Ruling:
The court ruled that inn-keepers have the obligation to receive travelers and for the
safety of their effects. However, the law establishes a presumption that inn-keepers have the
right of pledge in the effects brought in. Hence, if one owes for the accommodation to a
proprietor of hotel, this one has a right to retain it as a token until he pays his debt for
accommodation. Also under Art.2004 of the CC states that: The hotel keeper has the right to
retain the things brought into the hotel by the guest, as security for credits on account of lodging
and supplies usually furnish to the guests.
60
Article 2005
A judicial deposit or sequestration takes place when an
attachment or seizure of property in litigation is ordered.
COMMENT:
1.
Article 2006
Movable as well as immovable property may be the object of
sequestration.
COMMENT:
Object of judicial sequestration
1. movables
2. immovables
Article 2007
The depositary of property or objects sequestrated cannot be
relieved of his responsibility until the controversy which gave rise
thereto has come to an end, unless the court so orders.
COMMENT:
1.
Only when the controversy ends, unless the Court orders otherwise.
Article 2008
The depositary of the property sequestrated is bound to comply,
with respect to the same, with all the obligations of a good father of a
family.
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Article 2009
As to matters not provided for in this Code, judicial sequestration
shall be governed by the Rules of Court.
COMMENT:
1.
Kinds of Diligence
1. Ordinary Diligence
-
Ordinary diligence is the steps or conduct observed in the fulfillment of the
obligation; taking into consideration its nature and circumstances of persons, time
and place and as a good father of a family if the obligation fails to state the conduct
required.
Example: Safety of goods or passengers transported by private carrier
2.
Extraordinary Diligence
-
3.
The diligence which an ordinary prudent man would exercise with regard to his
own property. The diligence of a good father of a family which the law requires to
avoid damage is not confined to the careful and prudent selection of subordinates
and employees but include inspection of their work and supervision of the
discharge of their duties.
Example: Diligence to be observed by the depositary in changing the
way of the deposit and on property sequestrated.
CASES:
PNB vs. Producers Warehouse Asso.
42 Phil. 108
Facts:
62
Producers Warehouse Assoc. entered into a written contract with the Producers
Company in which the latter was appointed as the general manager of the business of the
former, a warehouse business. Producer Warehouse Assoc. issued to the Produce Company its 7
negotiable quedans for 15,699.34 piculs of copra and agreed to deliver said copra to the Produce
Company or its order.
The Produce Company arranged for an overdraft payable on demand with the PNB of
P1M. To secure such overdraft, the quedans were endorsed in blank by the Produce Company
and delivered to the PNB which became the owner and holder thereof. When the bank asked for
the possession of the goods represented by quedans, the defendant said that it could not deliver
the goods because they are not in their warehouse. But on its own amended answer, they
admitted that Produce Company deposited goods to their warehouse but the two officers who
issued the warehouse receipt had no authority to do so.
Contention of the parties
PNB:
contends that the Producer Company should deliver the copra stated in the
quedans by virtue of the warehouse receipt duly negotiated in their favor of which
they became holder/endorsee.
Hedridge:
-
BPI:
The appellee banks dont have the preference over them since the warehouse
receipts they held are not negotiable instruments. This is because, while it may be
true that in the face of the warehouse receipts held by the appellee, that was
endorsed by De Poli, there is no expression in the said document to make it
negotiable because it was not indicated therein that the receipt is deliverable to (1)
specified person (2) to bearer (3) or order of specified person.
Contends that by virtue of the warehouse receipt which was endorsed by De Poli in
their favor, it conveys ownership over the merchandise and therefore they should
be given preference for the payment of De Polis credits.
In the case at bar, despite the fact that in the face of the receipt, Cagayan Tobacco was
indicated contrary to what is claimed by AFBC as Isabela Tobacco, evidenced adduced by De
Poli shows that he intended that regardless of the quality of the tobacco, be intended to use the
same as security of his overdraft. Moreover, he acknowledges the fact that in his Azcarraga
warehouse, no other kind of tobacco was stored other than Isabela Tobacco, which he intended
to use as security.
Roman vs. Asia Banking Corporation
46 Phil. 705
Facts:
An insolvency proceeding was filed concerning Umberto De Poli and 576 bales of tobacco
which were in possession of Asia Banking Corporation through a quedan issued by De Poli to the
banks. The receipt is endorsed in blank and it is not marked nonnegotiable or no negotiable.
However, the 576 bales of tobacco are part and parcel of the 2,777 bales purchased by De Poli
from appellee Felisa Roman. She claims the 576 bales of tobacco under and by virtue of an
instrument.
Contention of the parties
Felisa Roman:
-
She declares the lien upon the bales of tobacco be superior to that of the claim of
Asia Banking Corporation.
Asia Banking Corporation:
-
contended that by virtue of the warehouse receipt issued in their favor by de Poli,
transfers the ownership of the goods in their favor and therefore is preferred rather
than the claim of the appellee.
Ruling of the Supreme Court
Though the instrument states that the tobacco should remain in the warehouse of De
Poli as a deposit until the price was paid, it appears clearly from the language of the instrument
that it evidences a contract of sale and the recitals show that De Poli received from Roman 2,777
bales of tobacco of the total value of P78, 815.69, the only lien upon the tobacco which Roman
can claim is a vendors lien.
The order appealed from is based upon the theory that the tobacco was transferred to the
Asia Banking Corporation as security for a loan and that as the transfer neither fulfilled the
requirements of the Civil Code for a pledge nor constituted a Chattel Mortgage under Act No.
1508, the vendors lien of Felisa Roman should be accorded preference over it.
Lu Kian vs. Manila Railroad
19 SCRA 5
Facts:
The appellee, Lu Kian imported 2,000 cases of carnation milk. Upon delivery in the
Philippines; only 1,829 marked Lu Kian were only discharged and it was received by the Manila
Port Service, a subsidiary of the Manila Railroad. On the same date (Dec. 1959) and by the same
vessels (SS Golden Bear), 3,171 cases marked Cebu united of the same goods owned by Cebu
were discharged, over delivering of 171 cases of goods. 1,913 cases of carnation milk is then
delivered to Lu Kian as consignee then claimed that the 2000, and therefore seeks recovery of
the value of the undelivered goods.
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claims that the appellant short delivered the goods they imported; therefore they
are liable for the value of undelivered goods.
Manila Railroad:
-
claims since they in fact delivered 1,913 cases to Lu Kian, they should not be held
liable to pay for the value of the short delivered 87 cases as what was discharged in
the shipment was only 1,829, that they actually over delivered and seeks the
reimbursement of the value of the over delivered goods.
Ruling:
The legal relationship between the parties is that of a depositor and a warehouseman.
Thus, Manila Railroad being the warehouseman and custodian of the goods discharged from the
vessel, has the duty like that of an ordinary depositor to take good care of the goods and turn
them over to the party entitled to their possession.
Thus, Manila Railroad, being the warehouseman should have withheld the delivery of the
merchandise or in accordance with Art. 2137, should have conducted investigation or call the
attention of the disputing parties to file a special civil action of interpleader to determine the
rightful owner of the properties.
PNB vs. Sayo
292 SCRA 202
Facts:
Noahs Ark Sugar Refinery issued warehouse receipts. Subsequently, the warehouse
receipts were negotiated and endorsed to Luis T. Ramos and Cresencia K. Zoleta. Ramos and
Zoleta then used the quedans as security for two loan agreements obtained by them from the
PNB. Ramos and Zoleta failed to pay their loans. Consequently, the PNB wrote to Noahs Ark
Sugar Refinery demanding delivery of the sugar stocks covered by the quedans. Noahs Ark
Sugar Refinery refused to comply with the demand alleging ownership thereof for which reason
the PNB filed with the RTC of Manila a verified complaint for Specific Performance with
Damages and Application for Writ of Attachment.
Contention of the parties
Noahs Ark:
-
claimed that they were the owners of the subject quedans. Defendants agreed to
sell to RNS Merchandising and St. Therese Merchandising the total volume of
sugar. Considering that the vendees and the first endorsers of the subject quedans
did not acquire ownership thereof, the subsequent endorsers and plaintiff itself did
not acquire a better right of ownership than the original vendees/first endorsers.
Ruling:
While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery
to it shall be effected only upon payment of the storage fees. Imperative is the right of the
warehouseman to demand payment of his lien at his juncture because in accordance with the
Warehouse Receipts Law, the warehouseman loses his lien upon the goods by surrendering
possession thereof. In other words, the lien may be lost where the warehouseman surrenders the
possession of the goods without requiring payment of his lien because the warehousemans lien
is possessory in nature.
The endorsement and delivery of the warehouse receipts by Ramos and Zoleta to
petitioner was not to convey title to or ownership of the goods but to secure the loans granted to
Ramos and Zoleta by petitioner.
66
67
C.
1.
68
2.
3.
4.
SURETY
(a) primary liability
5.
6.
Parties:
Creditor: Castellvi
Debtor: Keystone
Guarantor: Sellner
Facts:
Sellner wrote John Macleod, agent of the Higgins, a letter of the following tenor: Dear
Sir: I hereby obligate and bind myself, my heir, successors and assignees that if the promissory
note executed by the Keystone Mining Co. in your favor and due six months after date for P10K
is not fully paid at maturity with interest, I will, within 15 days after notice of such default, pay
you in cash the sum of P10K and interest upon your surrendering to me the 3000 shares of stock
of Keystone Mining Co. held by you as security for the payment of said note.
Contention of the Plaintiff:
That he is a surety.
Contention of the Defendant:
That he is a guarantor.
Ruling:
We hold that Sellner is a guarantor within the meaning of the provisions of Article 2047.
It is perfectly clear that the obligation assumed by Sellner was simply that of a guarantor
whose responsibility is fixed in the CC. The letter of Sellner recites that if the promissory note is
not paid at maturity, then he will assume responsibility after notice and upon surrender to him
of the share stocks. Sellner is not bound with the principals by the same instrument executed at
the same time and on the same consideration, but his responsibility is a secondary one found in
an independent collateral agreement.
A surety and a guaranty are alike in that each promises to answer for the debt or default
of another. A surety and a guarantor are unlike in that the surety assumes liability as a regular
party to the undertaking, while the liability of the guarantor depends upon an independent
agreement to pay the obligation if the primary payer fails to do so. A surety is charged as an
original promissory; the engagement of a guarantor is a collateral undertaking. The obligation if
the surety is primary; the obligation of the guarantor is secondary.
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Machetti entered into a contract with Hospicio for the construction of a building.
Hospicio imposed a condition that Machetti should obtain the guarantee from Fidelity Bank to
the amount of P12K out of the P54K contract price. When the building was completed, Hospicio
refused to pay the balance because the specification in the contact was not complied. Machetti
filed a suit for the payment of the balance. Hospicio, by way of counterclaim, asked for damages.
Machetti was declared insolvent. Hospicio claimed to the Fidelity Bank the amount for which it
guaranteed in their contract.
Contention of the Plaintiff:
He is not liable for damages because he was declared insolvent.
Contention of the Defendants:
Hospicio de San Jose claims that the work done had not been carried in accordance
with the specification thus they are not going to pay Machetti. On the other hand,
FSCPI argues that it is bound to pay only in the event that its principal, Machetti,
cannot pay.
Ruling:
The terms of the endorsement must be given the signification, which ordinarily attaches
to them in that language. It is very true that notwithstanding the use of the words "guarantee" or
"guaranty" circumstances may be shown which convert the contract into one of suretyship but
such circumstances do not exist in the present case; on the contrary it appear affirmatively that
the contract is the guarantor's separate undertaking in which the principal does not join, that its
rests on a separate consideration moving from the principal and that although it is written in
continuation of the contract for the construction of the building, it is a collateral undertaking
separate and distinct from the latter. All of these circumstances are distinguishing features of
contracts of guaranty.
AGRO CONGLOMERATES, INC. and MARIO SORIANO v. THE COURT OF
APPEALS and REGENT SAVINGS & LOAN BANK
G.R. No. 117660; December 18, 2000; 348 SCRA 450
Parties:
Creditor: Regent Savings and Loan Bank
Debtor: Agro Conglomerates, Inc
Guarantor: Wonderland Food Industries
Accommodation Party: Mario Soriano
Facts:
Agro sold to Wonderland two parcels of land. They stipulated under a Memorandum of
Agreement that the terms of payment would
be
P1,000,000
in
cash,
P2,000,000 in shares of stock, and thebalance would be payable in monthly installments.
Thereafter, an addendum was executed between them, qualifying the cash payment. Instead of
cash payment, Wonderland authorized Agro to obtain a loan from the Regent Bank on
which Wonderland bound itself to pay for. This loan was to cover for the payment of P1,
000,000. This addendum was not notarized.
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Soriano signed as maker the promissory notes payable to the Regent Bank. However,
Agro failed to pay the obligations, as they were due. During that time, the bank was in
financial distress and this prompted it to endorse the promissory notes for collection.
The trial court held in favor of the bank. It didn't find merit to the contention that
Wonderland was the one to be held liable for the promissory notes.
Contention of the Plaintiff:
There was a novation, i.e. there was a valid substitution of debtor, and therefore
they are free from liability. Wonderland should be held liable.
Contention of the Defendants:
Agro Conglomerates is liable because the loan was under their name.
Ruling:
Agro and Soriano are liable.
A subsidiary contract of suretyship had taken effect since petitioners signed the
promissory notes as maker and accommodation party for the benefit of Wonderland. Petitioners
became liable as accommodation party. He has the right, after paying the holder, to obtain
reimbursement from the party accommodated, since the relation between them has in effect
become one of principal and surety, the accommodation party being the surety. The suretys
liability to the creditor of the principal is said to be direct, primary, and absolute; in other words,
he is directly and equally bound with the principal.
(NOTE: ACCOMMODATION PARTY a person who has signed the instrument as maker,
acceptor, or indorser, without receiving value therefore, and for the purpose of lending his name
to some other person and is liable on the instrument to a holder for value, notwithstanding such
holder at the time of taking the instrument knew [the signatory] to be an accommodation party)
FINMAN GENERAL ASSURANCE CORPORATION v.
ABDULGANI SALIK et al.;
G.R. No. 84084; August 20, 1990; 188 SCRA 740
Parties:
Creditor: Abdulgani Salik, et al
Debtor: Pan Pacific Overseas Recruiting Services
Surety: Finman General Assurance Corp.
Facts:
Salik and his four companions applied for a job abroad with Pan Pacific. They paid fees
totaling P30K in consideration thereof. Despite numerous assurances of employment abroad,
they were not employed. They filed a complaint with the POEA with claims for refund of the
P30K. POEA automatically impleaded Finman, Pan Pacifics bonding company as a party to the
case. Pan Pacific and Finman were ordered to pay jointly and severally the complainants.
Contention of the Plaintiff:
Salik should proceed directly against Pan Pacific because he is not privy to any
transaction undertaken by Pan Pacific.
Contention of the Defendants:
Finman is also liable being Pan Pacifics surety.
Ruling:
In the case at bar, it remains uncontroverted that Finman and Pan Pacific entered into a
suretyship agreement, with the FInman agreeing that the bond is conditioned upon the true and
faithful performance and observance of the bonded principal (Pan Pacific) of its duties and
obligations. It was also understood that under the suretyship agreement, Finman undertook
itself to be jointly and severally liable for all claims arising from recruitment violation of Pan
Pacific.
72
contrary.
Article 2048
A guaranty is gratuitous, unless there is a stipulation to the
Inter Resin obtained credit accommodation from Manila Bank. To secure payment, Inter
Resin executed a continuing surety agreement binding them solidarily to pay Manila Bank.
Then, Inter Resin and Willex executed a continuing guaranty in favor of Investment Corp.
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Upon demand, Investment Corp paid Manila Bank Inter Resins outstanding obligation.
Investment Corp demanded from Inter Resin and Willex reimbursement of the amount paid to
Manila Bank. No one paid so a case for collection of sum of money was filed by Investment Corp.
Contention of the Plaintiff:
The Continuing Guaranty is an accessory contract and as such cannot legally exist
because of the absence of a valid principal obligation. Its contention is because it is
not a party either to the continuing surety agreement or to the loan agreement.
Contention of the Defendant:
Willex is liable because the continuing guarantys purpose is to secure payment
for the amount it paid to Manila Bank.
Ruling:
Willex is jointly and severally liable with Inter Resin for the amount paid by Investment
Corp to Mnaila Bank.
The consideration necessary to support a surety obligation need not pass directly to the
surety, a consideration moving to the principal alone being sufficient. For a guarantor or surety
is bound by the same consideration that makes the contract effective between the principal
parties thereto.
A guaranty is gratuitous. It is never necessary that a guarantor or surety should receive
any part or benefit, if such there be, accruing to his principal
Article 2049
A married woman may guarantee an obligation without the
husband's consent, but shall not thereby bind the conjugal partnership,
except in cases provided by law.
COMMENT:
Married Woman as Guarantor
Generally, a wife-guarantor responds with her paraphernal property.
Article 2050
If a guaranty is entered into without the knowledge or consent,
or against the will of the principal debtor, the provisions of Articles
1236 and 1237 shall apply.
COMMENT:
1.
Guaranty Entered Into Without Debtors Knowledge, Consent, or Against
the Latters Will
A guarantor can recover from the debtor what the former had to pay the creditor,
even if the guaranty was without the debtors consent or against his will, but the recovery
will only be to the extent that the debtor had been benefited (See Arts. 1236 and 1237
and De Guzman v. Santos, 68 Phil. 371)
2.
Cross-References
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(a) Art. 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor, what he has paid, except
that if paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.
(b) Art. 1237. Whoever pays in behalf of the debtor without the knowledge or against the
will of the latter, cannot compel the creditor to subrogate him in his rights, such as
those arising from a mortgage, guaranty or penalty.
Article 2051
A guaranty may be conventional, legal or judicial, gratuitous, or
by onerous title.
It may also be constituted, not only in favor of the principal
debtor, but also in favor of the other guarantor, with the latter's
consent, or without his knowledge, or even over his objection.
COMMENT:
1.
2.
Sub-Guaranty
A sub-guaranty may be created. This is to guarantee an obligation of a guarantor.
Art. 2052.
A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the
performance of a voidable or an unenforceable contract. It may also
guarantee a natural obligation.
COMMENT:
1.
2.
Consideration
The consideration of the guaranty is the same as the consideration of the principal
obligation. As long as the principal debtor receives some benefit, this is all right even if
the guarantor himself has NOT received any benefit (Phil. Guaranty Co. v. Dinio, 54
O.G. 5331).
Article 2053
A guaranty may also be given as security for future debts, the
amount of which is not yet known; there can be no claim against the
guarantor until the debt is liquidated. A conditional obligation may also
be secured.
COMMENT:
1.
2.
Liquidated Debt
A debt is liquidated when it is for a price fixed in a contract for the delivery of
future goods and the seller is now ready to deliver said goods within the period
stipulated (Smith, Bell & Co. v. Nat. Bank, 42 Phil. 733).
3.
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RCBC filed a complaint for a sum of money in the sala of the respondent judge against Davao
Corp, Chua, and Go.
Contention of the Plaintiff:
By virtue of the comprehensive surety agreement, Chua is liable because said
agreement covers not merely the promissory note, but it is continuing and it
encompasses every other indebtedness of Davao Corp may from time to time incur
with RCBC.
Contention of the Defendant:
He is not liable because it was only Go who signed the promissory note and such
debt was not covered by the surety agreement because it was incurred after the
surety agreement was signed by him.
Ruling:
The comprehensive agreement was jointly executed to cover existing as well as further
obligations, which Davao Corp may incur with RCBC.
In the case at bar, there is no doubt that the agreement is by its nature a continuing
contract, and therefore remains in full force and in effect until a notice to RCBC for its
termination. Chua and Go are liable even though Chua was not a signatory in the latter
transaction.
ATOK FINANCE CORPORATION v. COURT OF APPEALS,
SANYU CHEMICAL CORPORATION et al.
G.R. No. 80078; May 18, 1993; 222 SCRA 232
Parties:
Creditor: Atok Finance Corp
Debtor: Sanyu Chemical Corp
Sureties: Sanyu Trading, Spouses Arrieta, Bermudo, Halili
Facts:
Sanyu Chemical along with its sureties executed a continuing surety agreement in favor
of Atok Finance. Sanyu assigned its trade receivables to Atok Finance. Sanyu failed to collect and
remit the amounts due under the trade receivables. Atok Finance commenced an action to
collect the sum plus penalty charges again Sanyu Chemical and its sureties.
Contention of the Plaintiff:
A continuing suretyship agreement can be effected to secure future debts and that
the agreement is valid.
Contention of the Defendant:
The continuing surety agreement could not be enforced, because this contract like
guaranty cannot exist without a valid obligation. They are not liable with Sanyu
because the continuing surety is null.
Ruling:
There is a valid surety agreement.
It is true that a serious guaranty or a suretyship agreement is an accessory contract in the
sense that it is entered into for securing the performance of another obligation that is
denominated as the principal obligation. It is also true that Article 2052 of the Civil Code states
that "a guarantee cannot exist without a valid obligation." This legal proposition is not, however,
like most legal principles, to be read in an absolute and literal manner and carried to the limit of
its logic.
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Article 2054
A guarantor may bind himself for less, but not for more than the
principal debtor, both as regards the amount and the onerous nature of
the conditions.
Should he have bound himself for more, his obligations shall be
reduced to the limits of that of the debtor.
COMMENT:
1.
2.
3.
4.
5.
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Article 2055
A guaranty is not presumed; it must be express and cannot
extend to more than what is stipulated therein.
If it be simple or indefinite, it shall compromise not only the
principal obligation, but also all its accessories, including the judicial
costs, provided with respect to the latter, that the guarantor shall only
be liable for those costs incurred after he has been judicially required
to pay.
COMMENT:
1.
2.
3.
For definite guaranty: it is limited in whole or in part to the principal debt, to the
exclusion of accessories.
For indefinite or simple guaranty: it shall comprise not only the principal
obligation, but also all its accessories, including the judicial costs, provided with respect
to the latter, that the guarantor shall only be liable for those costs incurred after he has
been judicially required to pay.
REPUBLIC OF THE PHILIPPINES v. PAL-FOX LUMBER CO., INC., et al.
G.R. No. L-26473; February 29, 1972; 43 SCRA 365
Parties:
Creditor: BIR
Debtor: PalFox Lumber Co Inc
Surety: Far Eastern Surety And Insurance Co
Facts:
PalFox was indebted to BIR for forest charges and surcharges amounting to P11, 851. Far
Eastern Surety was jointly and severally liable with PalFOx for the payment of said charges up to
P5K because of forestry bond that it executed in favor of BIR guaranteeing faithful compliance
by PalFox. Palfox failed to comply, BIR seek to recover from PalFox and Far Eastern P5K plus
interest from filing of complaint and P6, 842 from PalFox alone as balance plus legal interest.
Contention of the Plaintiff:
The surety company is liable to pay the legal interest being an accessory to the
principal obligation.
Contention of the Defendant:
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It is not liable to pay the legal interest because it is stipulated in the bond that it
was bound to pay BIR the sum of P5K only.
Ruling:
Far Eastern Surety is liable. A guaranty cannot be presumed.
If the guaranty be simple or indefinite, it shall compromise not only the principal
obligation, but also all its accessories, including the judicial costs, provided with respect to the
latter, that the guarantor shall only be liable for those costs incurred after he has been judicially
required to pay. Nevertheless, a guaranty maybe constituted to guarantee the performance of a
voidable or unenforceable contract.
ESTRELLA PALMARES v. COURT OF APPEALS
and M.B. LENDING CORPORATION
G.R. No. 126490; March 31, 1998; 288 SCRA 292
Parties:
Creditor: MB Lending Corp
Debtor: Osmena and Merlyn Azzaraga
Surety: Estrella Palmares
Facts:
MB Lending Corp extended a loan to spouses Azzaraga together with Palmares as comaker in the amount of P30K with compounded interest of 6% per annum. The Azzaragas and
Palmares paid P16, 300 leaving P13, 700. They failed to pay the balance and the spouses became
insolvent. MB Lending Corp filed a complaint for collection of money against Palmares on the
basis of her solidary liability under the promissory note.
Contention of the Plaintiff:
She can only be held liable to pay for the outstanding principal obligation excluding
the imposed interests by MB Lending Corp. This is on the ground that she cannot
be compelled to pay liabilities other that what was stipulated.
Contention of the Defendant:
Palmares is liable since she signed as co-maker, and therefore she assumes solidary
liability.
Ruling:
Palmares is a surety who is equally principally liable in accordance with Article 2055 and
thus he is liable for the payment of interest. However, the law also empowers the court to reduce
the rate of interest in cases where the obligation has been partially paid and when the rate is
found to be excessive or unconscionable.
In the case at bar, Palmares is a surety and being such, she assumed principal liability.
The creditor may proceed against her in case the principal debtor does not pay.
It is not necessary for the creditor to proceed against a principal in order to hold the
surety liable. The obligation of the surety is the same as that of the principal.
Article 2056
One who is obliged to furnish a guarantor shall present a person
who possesses integrity, capacity to bind himself, and sufficient
property to answer for the obligation which he guarantees. The
guarantor shall be subject to the jurisdiction of the court of the place
where this obligation is to be complied with.
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COMMENT:
Qualifications of Guarantor
(a) Integrity (at time of perfection)
(b) Capacity to bind (at time of perfection)
(c) Sufficient property to answer for the obligation which he guarantees (at time of
perfection; excluding his own properties that may be out of reach, or which are
under litigation)
(NOTE: The creditor can naturally WAIVE the requirements, for right in general
is waivable.)
Article 2057
If the guarantor should be convicted in first instance of a crime
involving dishonesty or should become insolvent, the creditor may
demand another who has all the qualifications required in the
preceding article. The case is excepted where the creditor has required
and stipulated that a specified person should be the guarantor.
COMMENT:
1.
2.
3.
Parties:
Surety to various debtors: K. Hemady (deceased)
Surety in the counter bonds: Luzon Surety Co Inc
Facts:
Hemady is the surety at 20 different indemnity agreements, or counterbids, each
subscribed by distinct principals. Luzon Surety guaranteed various principals in favor of
different creditors. Hemady died and left his obligation unfulfilled. Luzon Surety paid the
indemnities wherein Hemady is the guarantor. Luzon Surety seeks reimbursement. It prayed
allowance as a contingent claim of the value of the counter bonds.
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INTRODUCTORY COMMENT:
In general, the effects between the guarantor and the creditor are the following:
(1) The guarantor is entitled to the benefit of excussion (benefit of exhaustion) of the
debtors properties except in the cases mentioned under Art. 2059, and provided
the guarantor follows Art. 2060.
(2) A compromise between the creditor and the principal debtor benefits but does
not prejudice the guarantor (Art. 2063, Civil Code).
(3) If there should be several guarantors, they are in general entitled to the benefit of
division (pro-rata liability) (See Art. 2065, Civil Code).
Article 2058
The guarantor cannot be compelled to pay the creditor unless the
latter has exhausted all the property of the debtor, and has resorted to
all the legal remedies against the debtor.
COMMENT:
1.
Benefit of Excussion
The right of the guarantor to have all the properties of the debtor and all legal
remedies against him first exhausted before he can be compelled to pay the creditor.
Provided:
(a) He sets it up as defense before judgment is rendered against himself (guarantor) (See
Saavedra v. Price 68 Phil. 699);
(b) He has not pledged nor mortgaged his own property to the creditor for the
satisfaction of the principal obligation (Southern Motors, Inc. v. Barbosa, 99 Phil.
263);
(c) He does not fall in the cases enumerated in Art. 2059 (See Jaucian v. Querol, 38 Phil.
707);
(d) He complies with Art. 2060 (See Garcia v. Lianco, C.A., 50 O.G. 1145).
2.
Duty of Creditor
If a creditor wants to hold the guarantor liable, he must do the following:
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(a) Exhaust all the property of the debtor (Art. 2058) unless the guarantor is not entitled
to such benefit under Art. 2059;
(b) Resort to all the legal remedies against the debtor (Art. 2058) (including suit) (See
Wise and Co., Inc. v. Tanglao, 63 Phil. 372);
(c) Prove that the debtor is still unable to pay (See Wise and Co., Inc. v. Tanglao, 63
Phil. 372);
(d) Notify the guarantor of the debtors inability to pay (Roces Hermanos, Inc. v. China
Insurance and Surety Co., Inc., Aug. 9, 1941 issue of the Official Gazette, p. 1257).
ROMULO MACHETTI v. HOSPICIO DE SAN JOSE and FIDELITY &
SURETY COMPANY OF THE PHILIPPINE ISLANDS
G.R. No. L-16666; April 10, 1922; supra
Ruling:
Hospicio cannot proceed immediately to Fidelity and claim damages because it has not
yet exhausted all the remedies against Machetti. The debt is not yet liquidated.
Liability of Machetti to pay its principal obligation cannot be proven by mere declaration of
Machettis insolvency but by way of filing a claim against the liquidation if the estate of
Machetti.
83
Article 2059
This excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within the
Philippines unless he has left a manager or representative;
(5) If it may be presumed that an execution on the property of
the principal debtor would not result in the satisfaction of the
obligation.
COMMENT:
1.
Parties:
Creditor: Rosa, Pedro and Consolacion Reyes
Debtor: Felicisimo Reyes
Surety: Imperial Insurance
Facts:
Felicisimo Reyes failed to pay the Reyeses. The Reyeses obtained a writ of preliminary
attachment and levied upon all the properties of Felicisimo. Imperial Insurance and F. Reyes
posted a defendants bond for dissolution of attachment in the amount of P100K. RTC favored
the creditors. Writs of execution was issued but was returned unsatisfied. Creditors filed a
motion for recovery on the surety bonds. Creditors sent a letter of demand to Imperial to pay the
amount of the counter bond, which the latter opposed. Respondent judge rendered judgment
against the counter bonds.
Contention of the Plaintiff:
The creditor should exhaust all the properties of F. Reyes before going after the
surety in the counter bond.
84
Article 2060
In order that the guarantor may make use of the benefit of
excussion, he must set it up against the creditor upon the latter's
demand for payment from him, and point out to the creditor available
property of the debtor within Philippine territory, sufficient to cover
the amount of the debt.
COMMENT:
1.
2.
3.
Parties:
Creditor: BPI
Debtor: Felipe Jacinto
Guarantor: Jose Palma
Facts:
85
Jacinto obtained a promissory note from BPI and Palma was the guarantor. Jacinto
failed to pay. A complaint was filed against Jacinto and Palma. Judgment was executed against
them but all the rights of BPI were transferred to Gregorio Syquia who bought the property.
Jacinto and Palma never paid anything.
Contention of the Plaintiff:
Since the Jacintos became insolvent, guarantor Palma should pay the balance.
Contention of the Defendant:
He is not liable because he was only impleaded in the case, and, that being a
guarantor, the creditor had not demanded payment from him.
Ruling:
With reference to the entire defense available to a guarantor, Palma as guarantor is still
entitled to the benefit of excussion as the judgment creditor has made no demand on him. That
joining him in the suit against the principal debtor is not the demand intended by Article 2060.
That demand can be made only after the judgment on the debt for obviously the exhaustion of
the principals property the benefit at which the guarantor cannot begin to take place before
judgment has been obtained.
LUZON STEEL CORPORATION v. JOSE SIA and
TIMES SURETY & INSURANCE CO. INC.
G.R. No. L-26449; May 15, 1969; 28 SCRA 58
Parties:
Creditor: Luzon Steel Corp
Debtor: Jose Sia
Surety: Times Surety and Insurance Co.
Facts:
Luzon Steel Corp sued Metal Manufacturing and Sia for breach of contract and damages.
A writ of preliminary attachment was obtained. Such attachment was lifted upon a P25K counter
bond executed by Sia and Times Surety as a solidary guarantor. Parties entered into a
compromise but Sia failed to comply.
Contention of the Plaintiff:
Times Surety should pay since it bound itself to jointly and severally to pay and
that the surety cannot avail of the benefit of excussion, unless, he can point out
sufficient property of the debtor within the Philippines.
Contention of the Defendant:
It was not a party to the compromise and the writ was issued without giving the
surety notice and hearing; that the writ of execution against it is invalid because
the writ issued against its principal (Sia) had been returned satisfied and that Sias
properties must first be exhausted before the surety will be liable.
Ruling:
Excussion is not applicable to surety. The surety is therefore liable.
The suretys contention is untenable. The counter bond contemplated in the rule is
evidently an ordinary guaranty where the sureties assume a subsidiary liability. This is not the
case here, because the surety in the present case bound itself "jointly and severally" (in solidum)
with the debtor and it is prescribed in Article 2059, paragraph 2 that excussion (previous
exhaustion of the property of the debtor) shall not take place "if he (the guarantor) has bound
himself solidarily with the debtor". Moreover, even if the surety's undertaking were not solidary
with that of the principal debtor, still he may not demand exhaustion of the property of the
latter, unless he can point out sufficient leviable property of the debtor within Philippine
territory.
86
Article 2061
The guarantor having fulfilled all the conditions required in the
preceding article, the creditor who is negligent in exhausting the
property pointed out shall suffer the loss, to the extent of said
property, for the insolvency of the debtor resulting from such
negligence.
COMMENT:
Effect of Creditors Negligence
The negligent creditor suffers the loss to the extent of the value of the property
pointed out by the guarantor but not exhausted by the creditor.
Article 2062
In every action by the creditor, which must be against the
principal debtor alone, except in the cases mentioned in Article 2059,
the former shall ask the court to notify the guarantor of the action. The
guarantor may appear so that he may, if he so desire, set up such
defenses as are granted him by law. The benefit of excussion
mentioned in Article 2058 shall always be unimpaired, even if
judgment should be rendered against the principal debtor and the
guarantor in case of appearance by the latter.
COMMENT:
Procedure When Creditor Sues
The creditor must sue the principal alone. The guarantor cannot be sued together
with his principal except when the guarantor is not entitled to the benefit of excussion.
(a) Notice to the guarantor the guarantor must be notified so that he may appear, if he
so desires, and set up the defenses he may want to offer.
1) If the guarantor appears, he is still given the benefit of excussion even if
judgment should be rendered against him and the principal debtor. Voluntary
appearance does not constitute a renunciation of his right to excussion.
2) If he doesnt appear, the guarantor cannot set up the defenses, and it may
no longer be possible for him to question the validity of the judgment.
(b) Hearing before execution can be issued against guarantor.
87
Facts:
Spouses Ong owed See Hong P58, 400, which they failed to pay. Hong sued the spouses
for the collection of such plus expenses. A writ of preliminary attachment was issued. To lift
attachment, spouses Ong filed a counterbond with Towers Assurance as surety. Spouses Ong
were declared in default for failure to appear at the pre-trial. A writ of execution was issued
against spouses and Towers Assurance. Towers Assurance assailed the writ of execution.
Contention of the Plaintiff:
The issuance of the writ of execution against them was invalid because being a
surety they must first be given the opportunity to be heard.
Ruling:
The surety is entitled to be heard before an execution can be issued against him since he
is not a party in the case involving his principal. Notice and hearing constitute the essence of
procedural due process.
In order that the judgment creditor might recover from the surety on the counter bond, it
is necessary:
a. That the execution be first issued against the principal debtor and that such execution
was returned unsatisfied in whole or in part,
b. That the creditor made a demand upon the surety for the satisfaction of the judgment,
and
c. That the surety be given notice and a summary hearing in the same action as to his
liability for the judgment under his counter bond.
Article 2063
A compromise between the creditor and the principal debtor
benefits the guarantor but does not prejudice him. That which is
entered into between the guarantor and the creditor benefits but does
not prejudice the principal debtor.
COMMENT:
1.
Compromise
A compromise is a contract whereby the parties, by asking reciprocal concessions,
avoid litigation or put an end to one already commenced.
2.
Effects of Compromise
(a) Between creditor and principal debtor the guarantor BENEFITS, but is NOT
PREJUDICED
(b) Between guarantor and creditor the debtor BENEFITS, but is NOT PREJUDICED
Article 2064
The guarantor of a guarantor shall enjoy the benefit of
excussion, both with respect to the guarantor and to the principal
debtor.
88
Article 2065
Should there be several guarantors of only one debtor and for
the same debt, the obligation to answer for the same is divided among
all. The creditor cannot claim from the guarantors except the shares
which they are respectively bound to pay, unless solidarity has been
expressly stipulated.
The benefit of division against the co-guarantors ceases in the
same cases and for the same reasons as the benefit of excussion
against the principal debtor.
COMMENT:
Benefit of Division
(a) This Article speaks of the BENEFIT OF DIVISION.
(b) Should there be several guarantors of only one debtor and for the same debt, the
obligation to answer for the same is divided among all. (Liability: JOINT).
MIRA HERMANOS, INC. v. MANILA TOBACCONISTS, et al.
G.R. No. L-48979; September 29, 1949; 74 Phil. 367
Parties:
Creditor: Mira Hermanos
Debtor: Manila Tobacconists Inc
Sureties: Provident Insurance Co and Manila Compaa de Seguros
Facts:
Mira Hermanos and Manila Tobacconists entered into a contract whereby Mira agreed to
deliver to Manila Tobacconists merchandise for sale on consignment. To secure fulfillment of
the obligation of the Tobacconists, a bond of P3K was executed by Provident. An additional
bond was executed by Manila Compaa. Upon final liquidation of transactions between Mira
and Tobacconists, there was a balance still unpaid. Mira demanded the two sureties for
payment.
Contention of the Plaintiff:
The two sureties are liable to pay the amount of P2, 500 binding themselves jointly
and severally with the debtor.
Contention of the Defendants:
Manila Compaa: So long as the liability of the Tobacconists did not exceed P3K, it
was not bound to pay anything because its bond referred only to the obligation of
the Tobacconists in excess of P3K and up to P5K.
Provident:
It had already paid the sum of P1363 which is the 60% of the amount owed by the
Tobacconists to Mira alleging that the remaining 40% should be paid by the other
surety.
Ruling:
The benefit of division does not apply in this case. The two sureties did not guarantee the
same debt.
The benefit of division is only applicable where there are several guarantors or sureties of
only one debtor for the same debt.
latter.
Article 2066
The guarantor who pays for a debtor must be indemnified by the
COMMENT:
1.
Indemnity to be Paid by the Debtor for Whom the Guarantor has Paid
Keyword TIED:
T total amount of debt
I interest (legal)
E expenses
D damages, if due
2.
COMMENT:
Right of Guarantor to Subrogation
(a) Subrogation transfers to the person subrogated, the credit with all the rights thereto
appertaining, either against the debtor or against third persons, be they guarantors
or possessors of mortgages, subject to stipulation in conventional subrogation
(change in the person of the creditor by the guarantor, the obligation subsists in all
respects as before payment) (Art. 1212).
(b) Purpose of the right: To enable the guarantor to enforce the indemnity given in the
preceding article. Right of subrogation is a result by operation of law from the act of
payment and there is no necessity for the guarantor to ask the creditor to expressly
90
assign his right to action. Such right is not contractual; it is based on natural
obligation.
(c) Subrogation can be availed of only by the guarantor upon: knowledge and consent of
the principal debtor and creditor. The right of subrogation is absolute even if the
debtor refuses subrogation as long as consent to subrogation was obtained.
Article 2068
If the guarantor should pay without notifying the debtor, the
latter may enforce against him all the defenses which he could have
set up against the creditor at the time the payment was made.
COMMENT:
Reason for the Article
The liability of the guarantor being merely subsidiary he should really wait until
the debtor has tried to comply. The guarantor should not, thru his own fault or
negligence, be allowed to jeopardize the rights of the debtor. By paying the debt without
first notifying the debtor, deprives him of the opportunity to set up defenses against the
creditor.
Article 2069
If the debt was for a period and the guarantor paid it before it
became due, he cannot demand reimbursement of the debtor until the
expiration of the period unless the payment has been ratified by the
debtor.
Article 2070
If the guarantor has paid without notifying the debtor, and the
latter not being aware of the payment, repeats the payment, the
former has no remedy whatever against the debtor, but only against
the creditor. Nevertheless, in case of a gratuitous guaranty, if the
guarantor was prevented by a fortuitous event from advising the
debtor of the payment, and the creditor becomes insolvent, the debtor
shall reimburse the guarantor for the amount paid.
COMMENT:
Gratuitous Guaranty
Note that the second sentence of Art. 2070 is applicable only in case of a
gratuitous guaranty. It is clear that it should not be applied if the guaranty is onerous or
for a compensation. The law favors a gratuitous guarantor because he receives nothing
extra for his efforts and obligations, and it would be rather unfair if under the premises
given, he cannot recover from the principal debtor, who should not indeed unjustly
91
a. Total amount of debt but cannot demand more than amount paid
Engracio Palanca, while judicial administrator of the estate of Margarita Jose, executed a
bond by order of the court. To guarantee his administration, such bond was executed jointly and
severally by Engracio Palanca himself, Luis S. de Vizmanosa and four others.
On the same date, Engracio Palanca and five others executed in favor of Luis S. de
Vizmanos the following bonds: Yap Chuangco, for P20,000; Yap Chutco, for P5,000; Palanca
Yap Poco, for P5,000; Palanca Tanguinlay, for P5,000; and Lim Pongco, for P5,000. All of them
signed the bond except Yap Chuangco, who did not personally execute the bond; this was done
for him by his attorney, Yap Chengtua. An instrument was instituted for the purpose of
guaranteeing the reimbursement of the said bond or a part thereof to the executors.
The court then ordered Luis Saenz de Vizmanos Ong-Quico, as surety in solidum of the
ex-administrator Engracio Palanca, to pay to the estate the sum of P41,690.15, Philippine
currency, also the interest on the said sum at the rate of 8 per cent per annum, in which he paid
P8,000 only. Subsequently, he instituted suit against the five sureties above named who, with
Engracio Palanca, executed the bond before mentioned in his favor, praying the Court of First
Instance of the city of Manila to sentence them to pay him.
Contention of the Plaintiff:
Each one of the four should pay P5,000.
Contention of the Defendant:
Each of them should only P1,000, instead of P2,000 according to the terms of the
contract, each one of them was bound to pay to the plaintiff.
Ruling:
In the present case the plaintiff, by virtue of the contract ad cautelam, is entitled to an
action against the four defendants for recovery from each of them up to the maximum amount
of P5,000, but he cannot by such action, as surety for the principal debtor, collect more than the
sum which he himself was actually compelled to pay.
The amount to be paid is hereby fixed at P1,000, to the payment of which, in favor of the
aforesaid plaintiff, each of the four defendants mentioned were sentenced, "with legal interest at
the rate of 6 per cent per annum on the said respective sums, from March 31, 1908, the date on
which the plaintiff paid to the present administrator of the said estate the said sum of P8,000,
until its complete payment. The said four defendants shall pay the costs in equal shares." the
costs of this instance shall be assessed against the plaintiff and appellant Vizmanos.
Manila Compaia de Seguros signed a note in favor of the Universal Trading Company,
while Tuazon Company guaranteed the liability of the latter to the former for P10,000. In turn,
Universal Trading Company and Antonio Machuca, in his personal capacity as president, signed
a document, wherein they bound themselves solidarily to pay, reimburse, and refund to the
92
company all such sums or amounts of money as it upon its obligation with Manila Compaia de
Seguros.
The creditor brought an action against Tuazon to recover the value of the note obtained.
Later, Tuazon Company filed a complaint against Machuca to recover the amount which Tuazon
was obliged to pay plus attorneys fees and interest although Tuazon had not, in fact, paid the
amount of the judgment.
Contention of the Plaintiff:
The plaintiff company argues that, at all events, it is entitled to bring this action
under Article 1843 of the Civil Code, which provides that the surety may, even
before making payment, bring action against the principal debtor.
Contention of the Defendant:
Machuca challenges the propriety of the judgment of the trial court awarding the
plaintiff more than what he actually paid in favor of Manila Compaia de Seguros.
Ruling:
Our conclusion is that the plaintiff has the right to recover of the defendant the sum of
P9,663, the value of the note executed by the plaintiff in favor of "Manila Compaia de Seguros"
which the plaintiff is under obligation to pay by virtue of final judgment.
b.
Legal interests
93
c.
Expenses
TUAZON, TUAZON, INC. v. ANTONIO MACHUCA; G.R. No. L-22104;
December 2, 1924; 46 Phil. 561
Ruling:
We do not believe that the defendant must pay the plaintiff the expenses incurred by it in
the litigation between it and "Manila Compaia de Seguros." That litigation was originated by
the plaintiff having failed to fulfill its obligation with "Manila Compaia de Seguros," and it
cannot charge the defendant with expenses, which it was compelled to make due to its own fault.
It is entitled, however, to the expenses incurred by it in this action brought against the
defendant, which are fixed at P1,653.65 as attorney's fees.
d.
Damages
Article 1238 (CC) Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the debtors
consent. But the payment is in any case valid as to the creditor who has accepted it.
Article 2050 (CC) If a guaranty is entered into without the knowledge or consent,
or against the will of the principal debtor the provisions of Articles 1236 and 1237 shall
apply.
Article 1236. The creditor is not bound to accept payment of performance
by a third person who has no interest in the fulfillment of the obligation,
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he
has paid, except that if he paid without the knowledge or against the will
of the debtor, he can recover only insofar as the payment has been
beneficial to the debtor.
Article 1237. Whoever pays on behalf of the debtor without the knowledge
or against the will of the latter, cannot compel the creditor to subrogate
him in his rights, such as those arising from a mortgage, guaranty, or
penalty.
94
Article 2071
The guarantor, even before having paid, may proceed against the
principal debtor:
(1)When he is sued for the payment;
(2)In case of insolvency of the principal debtor;
(3)When the debtor has bound himself to relieve him from the
guaranty within a specified period, and this period has expired;
(4)When the debt has become demandable, by reason of the
expiration of the period for payment;
(5)After the lapse of ten years, when the principal obligation has no
fixed period for its maturity, unless it be of such nature that it
cannot be extinguished except within a period longer than ten
years;
(6)If there are reasonable grounds to fear that the principal debtor
intends to abscond;
(7)If the principal debtor is in imminent danger of becoming
insolvent.
In all these cases, the action of the guarantor is to obtain
release from the guaranty, or to demand a security that shall protect
him from any proceedings by the creditor and from the danger of
insolvency of the debtor.
COMMENT:
Rights of the Guarantor Before Payment
It should be noted that Article 2071 differs from Article 2066; Article 2071 refers
to the rights of the guarantor before payment, whereas the former refers to the rights of
the guarantor after payment. Article 2071 does not give the guarantor the right to obtain
money judgment in his favor for the simple reason that he has not yet paid, whereas in
the latter, a money judgment would be proper since in this case, there has already been a
payment. Article 2071 is of the nature of a preliminary remedy, whereas Article 2066 is a
substantive right, it gives a right of action, which without the provisions of the other
might be worthless (Kuenzle & Streiff v. Tan Sunco, 16 Phil. 670 and Perez v. Baria, 52
Phil. 197). In Art. 2071, the guarantor has either of two rights:
(a) to obtain release from the guaranty;
(b) to demand security.
Tan Sunco was a surety for Chung Chu Sing for the payment by the latter of the purchase
price of certain merchandise purchased by said Chung Chu Sing of Ed. and A. Keller and Co. The
total debt was composed of four invoices of varying amounts P395.50, P450, P565, and
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P320.20 issued in favor of Chung Chu Sing. Upon his default Tan Sunco instituted four separate
actions against the Chu Sing. Judgment was obtained in favor of the plaintiff, resulting in the
levy of the properties of Chu Sing for the satisfaction of the judgment.
Contention of the Plaintiff:
The plaintiff in this action contends that the debtor did not owe anything to Sunco
at the time the four judgments were secured, basing that contention on the fact,
that Sunco had not yet paid the sums, for which he becomes a surety.
Contention of the Defendant:
He claims that even if he is yet to pay A. Keller Inc. he has the right to proceed
against his principal debtor.
Ruling:
Sunco has the right to obtain judgment against principal debtor. Article 2071 provides
the protective or preliminary remedy in favor of surety:
a.) obtain relief from burden of his suretyship or guaranty :
b.) to defend him against any proceeding of the creditor ; and
c.) from the danger of insolvency of the debtor.
However, while it may be true that the law provides right of the guarantor to poceed
against the debtor before payment, the guarantor is not allowed to execute the secured judgment
until he has satisfied his obligation to pay the creditor.
JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA v. R & B
SURETY AND INSURANCE COMPANY, INC.;
G.R. No. L-47369; June 30, 1987; 151 SCRA 339
Parties:
Debtor: Pacific Agricultutal Supplies (PAGRICO)
Creditor: PNB
Surety: R & B Surety and Insurance Company
Facts:
PAGRICO applied for a loan with PNB in 1963. PAGRICO submitted surety bond
by the R & B Surety and s and conditions of the advance line of credit established by PNB. In
consideration of the issuance of the surety bond, R & B entered into an indemnity agreement
with CCM, in the name of Cochingyan.
When PAGRICO failed to comply with its principal obligation with PNB, R & B
demanded reimbursement from Cochingyan for the payment made to PNB and for the discharge
of its liability to PNB under the surety bond.
Contention of the Plaintiff:
R&B Surety has no cause of action because the indemnity agreement is merely a
trust agreement that the PNB will hold in abeyance any action to enforce its claims
against R & B, thus it constitutes extension of the maturity date on which the
indemnity agreement will commence.
Contention of the Defendant:
R&B maintains that even before payment the surety has the right to proceed
against the debtor.
Ruling:
The court favored the surety, mere failure on the part of the creditor to demand
payment after the debt has become due does not in itself constitute any extension of time
referred to herein. Thus, despite the fact of absence of demand from PNB to respondent-surety
for the execution of the surety bond, for as long as the liability of the respondent under the
surety has matured it is also a liability of the petitioners under the indemnity agreement.
Agreement also matures and become due and demandable in favor of the respondent. Therefore,
R&B surety has the right to proceed against the debtor even before payment in full of the
creditor because the law grants said remedy.
96
Felipe Ysmael, Jr. & Co., Inc. filed and acquired credit accommodation with Philippine
National Bank. To secure the loan, Ysmael were required to furnish a bond together with
Mercantile as his surety. It was stipulated that as long as the principal obligation to PNB is
perform, the surety bond shall be extinguish. An indemnity agreement was also entered into
among the parties stipulating among others that the payment of indemnity and compensation
maybe claimed regardless of whether or not Mercantile has actually paid its obligation to PNB.
Ysmael defaulted in paying his obligation, PNB then proceeded against Mercantile as surety, and
subsequently Mercantile filed a notice of such demand from PNB against Ysmael.
Trial Court initially ruled in favor of Mercantile, ordering Ysmael to indemnify
Mercantile and in return ordered the latter to deliver the indemnification to PNB for satisfaction
of the judgment.
Contention of the Plaintiff:
Mercantile asserts that they have the right to proceed against the debtor with the
fact that there is non-payment to the creditor.
Contention of the Defendant:
He contends that Mercantiles cause of action is pre-mature on the ground that
Mercantile is not to be indemnified for something they have not paid as surety,
otherwise unjust enrichment will set in to his prejudice.
Ruling:
The stipulation in the indemnity agreement allowing the surety to recover even before it
paid the creditor is enforceable. In accordance therewith, the surety may demand from the
indemnitors even before paying the creditors. (Cosmopolitan Ins. Co., Inc. v. Reyes, 15 SCRA
528 [1965] citing; Security Bank v. Globe Assurance, 58 Off. Gaz. 3709 [April 30, 1962]; Alto
Surety and Ins. Co., v. Aguilar, et al., G.R. No. L-5625, March 16, 1954).
Hence, appellants contention that the action of the appellee (surety company) is
premature or that the complaint fails to state a cause of action because the surety has not paid
anything to the bank, cannot be sustained (Cosmopolitan Ins. Co., Inc. v. Reyes, supra). In fact,
such contention is belied not only by the allegations in the complaint but also by the agreement
entered into between the appellants and the appellee in favor of the bank.
Article 2072
If one, at the request of another, becomes a guarantor for the
debt of a third person who is not present, the guarantor who satisfies
the debt may sue either the person so requesting or the debtor for
reimbursement.
97
Article 2073
When there are two or more guarantors of the same debtor and
for the same debt, the one among them who has paid may demand of
each of the others the share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be
borne by the others, including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the
payment has been made by virtue of a judicial demand or unless the
principal debtor is insolvent.
COMMENT:
1.
2.
Article 2074
In the case of the preceding article, the co-guarantors may set
up against the one who paid, the same defenses which would have
pertained to the principal debtor against the creditor, and which are
not purely personal to the debtor.
COMMENT:
Right of Co-Guarantors Against the Guarantors Who Paid
The Article gives the co-guarantors the SAME defenses which would have
pertained to the principal debtor. EXCEPTION: defenses purely personal to the debtor
(like fraud or force).
98
Article 2075
A sub-guarantor, in case of the insolvency of the guarantor for
whom he bound himself, is responsible to the co-guarantors in the
same terms as the guarantor.
1.
Extinguishment of Guaranty
Art. 2076. The obligation of the guarantor is extinguished at the
same time as that of the debtor, and for the same causes as all
other obligations.
COMMENT:
1.
2.
Effect of Novation
(a) If a contract is novated without the guarantors consent, the guaranty ends (Barreto
v. Albo, 62 Phil. 593; Natl Ban v. Veraguth, 50 Phil. 254).
(b) Therefore, a novation where the debtor is substituted or where the credit is
increased, releases the guarantor who did not consent thereto (Barreto v. Albo, 62
Phil. 593; Natl Ban v. Veraguth, 50 Phil. 254)
[NOTE: Consent, however on the part of the guarantor may be given expressly or
implicitly before or after the novation. (Naric v. Guillioso, et al., {C.A} 53 O.G.
4151).]
[NOTE: If the interest rates are increased without the guarantors consent, he is
not liable for the increase, but is liable still for the principal obligation and the
original rate of interest. (Bank of the P.I v. Albaledjo y Cia, 53 Phil. 141).]
ASIATIC PETROLEUM COMPANY, LTD. v. FRANCISCO
HIZON Y SINGIAN and JUSTINO DAVID;
G.R. No. L-20588; December 17, 1923; 45 Phil. 532
Parties:
Creditor: Asiatic Petroleum Co.
Debtor: Justino David
Surety: Francisco Hizon
Facts:
Asiatic Petroleum Co. made a contract with David to become a selling agent at San
Fernando Pampanga. In the original contract, Hizon will guaranty P5,000.00 of Davids
indebtedness as selling agent in San Fernando. Without Hizons knowledge, the document was
altered. The document in the possession of Asiatic shows that places Guaga, Angeles, San
Simon, Capas, Magalang and Mabalacat are included. At the end of the contract, David was
found out to be indebted to Asiatico which cause the latter to file an action to recover from his
surety Hizon.
Contention of the Defendant:
99
Hizon claims that he is not liable since the original contract was changed without
his knowledge and consent and that the surety is further extinguished.
Ruling:
The surety could not be held liable for the indebtedness incurred by the agent under the
changed contract.
Material alteration of the principal contract effected by the creditor and the principal
debtor without the knowledge and consent from all liability on the contract of suretyship.
PHILIPPINE NATIONAL BANK v. COURT OF APPEALS
and B.P. MATA and CO., INC.
G.R. No. 97995; January 21, 1993; 147 SCRA 273
Parties:
Creditor: PNB
Debtor: Marino P. Rubin
Surety: Philippine Phoenix Surety and Insurance Co.
Facts:
Rubin obtained from PNB a 1954 1955 sugar crop loan in the amount of Php
40,200.00 secured by a chattel mortgage. As additional security, Phoenix issued surety bond in
favor of PNB. Three months later, PNB increased the loan from Php 40,200 to Php 56,800
without the knowledge and consent of Phoenix. Rubin Failed to liquidate the loan. PNB
demanded Phoenix to pay.
Contention of the Plaintiff:
PNB claims that the contract in question is a continuing chattel mortgage so the
knowledge and consent of the surety is not necessary for an increase in the amount
of the principal obligation.
Contention of the Defendant:
Phoenix claims that it is not liable since the increase was done without its
knowledge and consent and therefore is released from liability as a surety.
Ruling:
The increase in the indebtedness from Php 40,200.00 to Php 56,800.00 is material and
prejudicial to private respondent phoenix. While the liability of the private respondent under the
bond is limited to Php 70,000.00, the increase in the amount of the debt proportionally
decreased the probability of the principal debtor being able to liquidate the debt thus, increasing
the risk undertaken by the surety to answer for the failure of the debtor to pay.
Material alteration of the principal contract effected by the creditor and the principal
debtor without the knowledge and consent from all liability on the contract of suretyship.
(Asiatic Petroleum Co. vs. Hizon 45 Phil. 532).
SECURITY BANK & TRUST COMPANY v. RODOLFO CUENCA
G.R. No. 138544; October 3, 2000; 341 SCRA 781
Parties:
Creditor: Security Bank and Trust Co. (SBTC)
Debtor: Sta. Inez Melate Corp. (SIMC)
Surety: Rodolfo Cuenca
Facts:
Sta. Inez is a corporation engaged in logging operations. In 1980, Security bank granted
Sta. Ines a credit line in the amount of Php 8,000,000.00 to assist in meeting the additional
100
capitalization requirements of its logging operations. To secure payment, Sta. Ines executed a
chattel mortgage over some of its machineries and equipments.
As additional security, Cuenca executed Indemnity agreement whereby he bound himself
jointly and severally with Sta. Ines for payment in favor of Security Bank. After Cuenca resigned,
Sta. Ines repeatedly availed of its credit line, obtained another Php 6,000,000.00 loan, and
executed promissory note to cover the amount of the additional loan against the credit line.
Sta. Ines had difficulty in making the amortization payments. It requested Security Bank
a complete restructure of its indebtedness, which was approved without notice to, or prior
consent of Cuenca.
Sta. Inez was not able to pay its restructured loan. Sta. Inez and Cuenca individually and
collectively refused to pay.
Contention of the Plaintiff:
The 1989 loan agreement was a mere renewal of or extension of the Php
8,000,000.00 Original accommodation and it did not change the original loan in
respect to the parties involved or the obligation incurred.
Contention of the Defendant:
The 1989 agreement extinguished the obligation obtained under the 1980 credit
accommodation, which is evident from its explicit provision to liquidate the
principal and the interest of the earlier indebtedness, and that the increase in the
loan extinguishes the liability of the surety/guarantor.
Ruling:
An essential alteration in the terms of the loan agreement without the consent of the
surety extinguishes the latters obligation.
It is fundamental in the law of suretyship that any agreement between the creditor and
the principal debtor that essentially varies the terms of the principal contract without the
consent of the surety, will release the surety from liability.
Article 2077
The creditor voluntarily accepts immovable or other property in
payment of the debt, even if he should afterwards lose the same
through eviction, the guarantor is released.
COMMENT:
Effect of Dacion En Pago
(a) Note that the dacion en pago here refers to either IMMOVABLE or OTHER
(personal) PROPERTY.
(b) Eviction revives the principal obligation, but NOT the guaranty, for the creditor here
took the risk.
Article 2078
A release made by the creditor in favor of one of the guarantors,
without the consent of the others, benefits all to the extent of the
share of the guarantor to whom it has been granted.
101
Article 2079
An extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty. The mere failure
on the part of the creditor to demand payment after the debt has
become due does not of itself constitute any extension of time referred
to herein.
COMMENT:
Release by Extension of Term Granted by Creditor to Debtor
(a) Where the release without consent of guarantor guarantor is released from his
undertaking
(b) Where obligation payable in installments where a guarantor is liable for several
payments, such as installments, an extension of time as to one or more will not affect
the liability of the surety for the others. But in case of an acceleration clause, the act
of the creditor of extending payment of said installment without guarantors consent,
discharges the guarantor because this constitutes an extension of the principal
obligation
(c) Prejudice to guarantor and period of extension is immaterial
(d) Extension must be based on new agreement
(e) Diligence on the part of the creditor to enforce his claim
RADIO CORPORATION OF THE PHILIPPINES v. JESUS ROA, et al.
and RAMON CHAVEZ, et al.
G.R. No. 42829; September 30, 1935; 62 Phil. 211
Parties:
Debtor: Jesus Roa
Creditor: Radio Corp. of the Phil.
Guarantors: Ramon, Andres and Manuel Roa
Facts:
Jesus Roa is indebted to Theatrical Enterprise in the sum of Php 28,400 payable in 712
equal monthly installment of Php 400 where Ramon, Andres and Manuel Roa were the
guarantors. It was further agreed that failure to pay one installment will make the whole amount
due and payable. Later Theatrical Enterprises assigned all its rights and interest in favor of
Radio Corporation.
Jesus Roa failed to pay one installment but Radio Corp. did not demand the whole
amount. Then Roa wrote Radio corp. without the consent of the sureties requesting to extend
the payment of installment which was also granted.
Despite the extension, Jesus Roa failed to pay hence an action for recovery against
debtor and guarantors were commenced.
Contention of the Plaintiff:
Their mere failure to demand the payment of the whole amount and instead
granted extension does not extinguish the surety and their obligation.
Contention of the Defendant:
The extension for the payment granted by Radio Corp. to Jesus Roa without their
consent extinguishes the surety and their liability not only in the installments due
but also all amounts of obligation.
Ruling:
102
A mere delay in suing for the collection of the debt does not release the sureties but an
extension granted to the debtor by the creditor without the consent of the guarantor
extinguishes the latters liability.
EULALIO PRUDENCIO v. COURT OF APPEALS, et al.
G.R. No. L-34539; July 14, 1986; 143 SCRA 7
Parties:
Guarantor: Eulalia and Elisa Prudencio
Creditor: PNB
Debtor: Conception and Tamayo Construction, Co.
Facts:
The Prudencios mortgaged their parcel of land to guaranty the loan of Conception and
Tamayo Construction, Co. (CTC) in favor of PNB (Php 10,000). After the promissory notes were
signed, Jose Toribio (Atty.-In-fact of the company) executed a deed of assignment assigning all
the payments to be tendered by the Bureau of Public Works (BPW) to CTC in favor of PNB. This
assignment of credit to the contrary notwithstanding, the bureau with the approval of PNB
conditioned however that they should be for labor and materials, made release of the three
payments directly to the company without the knowledge of the appellant. Later, BPW
rescinded the contract of construction. The petitioners then wrote PNB to cancel the real estate
mortgage.
Contention of the Plaintiff:
When PNB did not apply the initial and subsequent payments to the debt as
provided for in the deed of assignment, they were released from their obligation as
sureties and therefore, the real estate mortgaged executed by them should have
been cancelled.
Contention of the Defendant:
Prudencios liability is that of solidary co-makers since the amount released to the
construction company were used and therefore were spent for the successful
accomplishment of the work constructed. The solidary debtor cannot constitute a
valid defense on the part of the other solidary debtor.
Ruling:
Prudencios can validly set up their personal defense of release from the real estate
mortgage against PNB.
After the court ruled that by applying the payments to the promissory notes in which
CTC and petitioners signed accommodation party, after the promissory note became due, in
effect, PNB waived all the payment and extended the term of payment of the note without the
consent and knowledge of the accommodation makers who stand as sureties to the
accommodated party.
PEOPLES BANK & TRUST COMPANY v. JOSE MARIA
TAMBUNTING and FRANCISCO SANTANA
G.R. No. L-29666; October 29, 1971; 42 SCRA 119
Parties:
Creditor: Peoples Bank and Trust Company
Debtor: Jose Maria Tambunting and Maria Paz Tambunting
Guarantor: Francisco Santana
Facts:
Peoples Bank and Tambunting executed an overdraft agreement and pledge wherein
Peoples Bank granted spouses Tambunting an overdraft from time to time on their current
account with Peoples Bank not to exceed Php 200,000.00. Francisco, as guarantor, executed as
103
absolute guaranty in consideration of the overdraft agreement and pledge and bound himself
jointly and severally liable to the bank.
Later, spouses Tambunting requested for extension to the bank, who in turn granted the
same with the condition that the interest will increase and the amount of the overdraft will be
reduced. But the former failed to pay their indebtedness on the date due. A demand for payment
was made.
Contention of the Plaintiff:
Francisco is liable because of the absolute guaranty he executed.
Contention of the Defendant:
is released from his obligation because the plaintiff had extended the time of
payment without his consent.
Ruling:
The surety is not released from his obligation.
The contract of absolute guaranty expressly authorized Peoples Bank to extend the time
of payment and to release or surrender any security or part thereof held by it without notice to
or consent of the guarantor, the latter cannot complain that when the creditor released certain
securities given by the debtor or extended the duration of the loan, he was deprived of right of
subrogation.
JOSEPH COCHINGYAN, JR. and JOSE K. VILLANUEVA v. R & B
SURETY AND INSURANCE COMPANY, INC.
G.R. No. L-47369; June 30, 1987; supra
Ruling:
Cochingyan argues that the extension granted by PNB to R & B without the consent of
the guarantor extinguishes the guaranty. However, the Supreme Court held that Article 2079 is
not applicable to Cochingyan because he is a mere indemnitor of R & B Surety but not to PNB,
such that PNB could not directly demand payment from Cochingyan.
Article 2080
The guarantors, even though they be solidary, are released from
their obligation whenever by some act of the creditor they cannot be
subrogated to the rights, mortgages, and preferences of the latter.
COMMENT:
1.
2.
3.
Meaning of Act
Act should also include inaction.
104
Examples:
a. Of act when the creditor remits a mortgage or a pledge
b. Inaction when the creditor fails to register a mortgage
4.
5.
Parties:
Creditor: PNB
Guarantor: Manila Surety & Fidelity Co. Inc.
Debtor: Adams and Taguba Corp. (ATACO)
Facts:
PNB opened a letter of credit to Edgington Oil Refinery for 8,000 tons of hot asphalt.
2,000 tons worth of Php 279,000.00 were released and delivered to ATACO under trust receipt
guaranteed by Manila Surety for up to Php 75,000.00. To pay the asphalt, ATACO assigned PNB
to collect and receive from the Bureau of Public Works the amount of aforesaid funds payable to
assignor under the purchase order.
ATACO delivered to BPW the asphalt valued at Php 431,466.00. The amount was
regularly collected by PNB, until for unknown reason, the bank ceased to collect. After 4 years
investigators found that more money was payable to ATACO from Public Works office, because
the latter had allowed another creditor to collect funds due to ATACO under the same purchase
order to a total of Php 311,230.41. Later, PNB demanded to recover from ATACO and Manila
Surety the unpaid balance.
Contention of the Plaintiff:
Manila Surety is still liable for Php 75,000.00.
Contention of the Defendant:
They are no longer liable because the creditor failed to notify them when the
assigned funds were exhausted, that they were deprived at any possibility of
recoursing against that security.
Ruling:
The surety is no longer liable. By allowing the assigned funds to be exhausted without
being notifying the surety, the Bank deprived the former of any possibility of recoursing against
the security and therefore, the surety is released.
Article 2080 provides The guarantors, even though they be solidary, are released from
their obligation whenever by some act of the creditor they cannot be subrogated to the rights,
mortgages, and preferences of the latter.
105
Article 2081
The guarantor may set up against the creditor all the defenses
which pertain to the principal debtor and are inherent in the debt; but
not those that are purely personal to the debtor.
COMMENT:
Defenses Available to the Guarantor
a. Defenses inherent in the principal obligation (Art. 2081).
Examples: Prescription, res judicata, payment, illegality of cause (Chinese
Chamber or Commerce v. Pua Te Ching, 16 Phil. 406)
b. Defenses ordinarily personal to the principal debtor, but which are inherent in the
debt (Art. 2081).
Example: Vitiated consent (or intimidation, etc.) (Chinese Chamber or
Commerce v. Pua Te Ching, 16 Phil. 406)
c. Defenses of the guarantor himself.
Examples:
i.
vitiated consent on his part
ii. compensation between debtor and creditor
iii. remission of the principal obligation or of the guaranty
iv. merger of the person of the debtor and creditor
(NOTE: Reason for the last 3 examples: extinguishment of the principal
obligation extinguishes the guaranty.)
1.
Article 2082
The bondsman who is to be offered in virtue of a provision of a
law or of a judicial order shall have the qualifications prescribed in
Article 2056 and in special laws.
COMMENT:
1.
Qualification of a Bondsman
See Rule 114, Sec. 9, Revised Rules of Court.
2.
The Bond
(a) A bond merely stands as a guaranty (solidary guaranty) for a principal obligation,
which exists independently of said bond, the latter being merely an accessory
obligation (Valencia v. RFC, et al., L-10749, April 25, 1958).
(b) A bond being for the benefit for the benefit of the creditor (in some cases, the
government), it follows that the creditor can legally waive a bond requirement. This
may be done for example by extending the principal contract once or twice, despite
the expiration of the bond originally set up (Board of Liquidators v. Floro, et al.,
L-15155, December 29, 1960).
(c) If a bond is given to suspend the execution of a final decree, the object is impossible,
hence the bond is void. The surety company would therefore incur no obligation
106
under such a bond (Republic Savings Bank v. Far Eastern Surety, L- 14959, Aug. 31,
1960).
(d) Surety bonds should be signed not only by the sureties but also by the principal
obligors (the defendants in a case, for example). If not signed by the latter the surety
bonds are void, there being no principal obligation (which is of course the cause or
consideration of such surety bonds) (Singson v. Babida L-30096, Sept. 27, 1977).
3.
Right to be Heard
A bondsman or surety must be given an opportunity to be heard; otherwise the writ of
execution issued is void (Luzon Surety Co., v. Guerrero, 17 SCRA 400 [1966] and Luzon
Surety Co. v. Beson, et al., L-26865-66, Jan. 30, 1970). Even when execution is proper,
the party against whom it is directed is still entitled to a hearing if he wants to show
subsequent facts that would make the execution unjust (Luzon Surety Co. v. Beson, et
al., L-26865-66, Jan. 30, 1970 and Abellana v. Dosdos, 13 SCRA 244 [1965]) (See,
however, Sy Bang v. Mendez, Sr., 226 SCRA 770 [1993]), where the rules do not require
a hearing on the approval of the bond, provided that the Judge is satisfied with the
solvency of the surety.)
Article 2083
If the person bound to give a bond in the cases of the preceding
article, should not be able to do so, a pledge or mortgage considered
sufficient to cover his obligation shall be admitted in lieu thereof.
COMMENT:
Rule if the Bond is Not Given
Note that instead of the bond, a pledge or a mortgage may be made.
Article 2084
A judicial bondsman cannot demand the exhaustion of the
property of the principal debtor.
A sub-surety in the same case, cannot demand the exhaustion of
the property of the debtor or of the surety.
COMMENT:
a. No Right to Excussion
A judicial bondsman, being a surety, is not entitled to the benefit of excussion
granted a guarantor. The benefit is also defined as a sub-surety.
b. Liability of Surety if Creditor was Negligent in Collecting
A surety is still liable even if the creditor was negligent in collecting from the
debtor. As stated in American Jurisprudence, the contract of suretyship is not that the
obligee will see that the principal pays the debt or fulfills the contract, but that the
surety will see that the principal pay or perform (50 Am. Jur.904 and Judge Advocate
General v. Court of Appeals & Alto Surety Co., L-10671, Oct. 23, 1958).
c. Effect of Violation by Creditor of Terms of the Surety Agreement
107
A violation by the creditor of the terms of the surety agreement entitles the surety
to be released therefrom (Associated Ins. & Surety Co. v. Bacolod Murcis Milling Co.,
L-12334, May 22, 1959). However, where an assurance company has profited in the
issuance of the bond which it had furnished for a premium on the mere allegation or
ground that the release of a prisoner was unauthorized under the provisions of law
(People v. Enriquez, et al., l-13006, Feb. 29, 1960).
d. Bond Filed for Aliens Stay
If a surety bond filed for an alien stay in the country is forfeited because of
violation of its conditions, its subsequent unauthorized cancellation thru mistakes or
fraud does not relieve the surety. A bond surrendered thru mistake or fraud may,
therefore, be considered as a valid and subsisting instrument (Far Eastern Surety and
Ins. Co. v. Court of Appeals, L-12019, Oct. 16, 1958).
e. Rule When Performance is Rendered Impossible
Even when a suretys performance of the bond is rendered impossible by an act of
God, or of the obligee, or of the law, it is the suretys duty to inform the court of the
happening of the event so that it may take action or decree in the discharge of the surety.
Thus, if the surety took no such steps, it is equally chargeable with negligence in this
connection (People v. Otiak Omal & Luzon Surety Co., Inc., L-14457, June 30, 1961).
f. Obligation of Surety to Keep the Accused Under His Surveillance
It is well settled that surety is the jailer of the accused, and is responsible for the
latters custody. Therefore, it is not merely his right but his obligation to keep the
accused at all times under his surveillance (People v. Tuising, 61 Phil. 404). A trial court
has no authority to relieve the bonding company from a part of its liability under the bail
bond by ordering a mere trial confiscation of the bond, where the body of its principal
has not been surrendered to the court despite several extensions of time granted said
company to produce him. For it is the bonding companys responsibility to produce the
accused before the court whenever required. Failure to do so is indisputably complete
breach of the guaranty (People v. Gantang Kasim and Luzon Surety Co., L-12624, May
25, 1960). However, if three days after the forfeiture of the bond, the accused
immediately submitted to the jurisdiction of the court giving weighty reasons for his
failure to appear, the amount to be forfeited really may be reduced to a certain degree
(People v. Cruz & Globe Assurance, L-15214-15, Oct. 26, 1960).
PHILIPPINE NATIONAL BANK v. LUZON SURETY CO., INC.
and THE COURT OF APPEALS
G.R. No. L-29587; November 28, 1975; 68 SCRA 207, Supra
Ruling:
The surety bond executed by Luzon Surety covers the chattel mortgage executed by
Villarosa in favor of PNB. The unrefuted testimony of PNBs witness that the chattel mortgage
was the only contract executed by Villarosa evidencing the crop loan contract upon which the
Luzon Surety agreed to assume liability up to the amount of Php 10,000.00 by posting the said
surety bond that a judicial bondsman cannot demand the exhaustion of the property of the
principal debtor. Hence, despite of the execution of the chattel mortgage by the debtor on his
obligation, the surety is not entitled to the benefit of excussion because he is not a mere
guarantor but surety whose liability is primary and solidary.
Parties:
Creditor: northern Motors
Bondsman (Surety): Stronghold Insurance
Debtor: Leisure Club (Macromies)
Facts:
Pastor Quebrar is an administrator in two special proceedings for the real estate of
Chinsu and Lipa. Luzon Surety issued two administrators bond in favor of the court where the
proceedings being taken in behalf of Quebrar.
Quebrar and Kilayko executed two indemnity agreements to pay Luzon Surety the
amount of Php 300.00 in advance as premium for every 12 months. Upon the termination of the
testate proceedings, Quebrar and Kilayko prayed that bond be cancelled.
Luzon demanded the deficiency of the premium from August 9, 1951.
Contention of the Plaintiff:
The bond still subsists despite the proceeding having stopped until the full
payment of the premiums.
Contention of the Defendant:
The bond (administrator) and the indemnity agreements ceased to have any force
and effect, the former since June 6, 1957 with the approval of the project of
partition and the latter since August 9, 1955 with the non- payment of the stated
premiums.
Ruling:
109
The Administrators bond does not cease to be effective with the approval of the partition
and statement of accounts, because administration is for the purpose of liquidation of the estate
and distribution of the residue among heirs and legalities.
CENTRAL SURETY & INSURANCE COMPANY, INC. v.
HON. ALBERTO UBAY and ONG CHI;
G.R. No. L-40334; February 28, 1985; 135 SCRA 58
Parties:
Surety: Central Surety and Insurance Co.
Principal Obligator: Francisco Reyes
Creditor: Ong Chi
Facts:
Ong Chi sued for a sum of money and applied for a writ of attachment and upon filing a
bond amounting to P6K, a jeep belonging to Reyes placed on custodia legis. Reyes moved to
dissolve the writ of attachment and posted a counter bond in the amount of Php 6,465.00 with
Central Surety Insurance Co. as surety.
The condition of the counter bond states that Central Surety and Reyes will, upon
demand, pay to Ong Chi the full value of the property released. The attachment was lifted and
the jeep was made available for execution in which it was sold for Php 4,000 to satisfy the
judgment. Central surety then filed a motion to cancel the counter bond; Ong Chi opposed and
prayed for the payment of deficiency.
Contention of the Plaintiff:
Their only obligation is to redeliver the jeep.
Contention of the Defendant:
Central Surety is liable for the deficiency on the judgment to the amount of Php
5,730.00 as found by the court.
Ruling:
The suretys main obligation was to redeliver the jeep so that it could be sold in case
execution was issued against the principal debtor the amount of Php 6,000.00 was merely to fix
the limit of the suretys liability in case the jeep cannot be reached. The jeep was made available
for execution of the judgment. Therefore his obligation as a bondsman is discharged.
PHILIPPINE PHOENIX SURETY and INSURANCE INC. v.
SANDIGANBAYAN; G.R. No. L-64157-58; April 29, 1987; 149 SCRA 317
Parties:
Surety: Phil. Phoenix Surety and Insurance Co.
Accused: Rembert Castro and Winston Dulay
Facts:
Castro and Dulay were detained in Camp Crame because of an alleged economic
sabotage. Phoenix issued personal bail bonds, Castro in turn paid for premium. Castro escaped
from custody of his military escorts while en route to attend trial and left the country, Dulay
remained at large. Phoenix filed an urgent motion for cancellation of bail bond before CFI.
In due time the Sandiganbayan directed Phoenix to reproduce Castro and Dulay before
the court. Phoenix was unable to comply and so the Sandiganbayan declared the forfeiture of
Dulays bond and refused to cancel Castros bond.
Contention of the Plaintiff:
The bail bonds it posted for Castro were null and void since Castro was under
military detention of the time of his escape.
110
Special Cases
The spouse of Regala applied and obtained from the Pacific Banking Corporation a
pacific credit card. By reason thereof, the Regalas also executed a guarantors undertaking
wherein they held themselves solidarily liable for any indebtedness that may arise from the use
of the said credit card; that their undertaking is a continuing one and; that any changes or
novation in the said undertaking shall release the defendants from liabilities thereon. Later, the
Regalas wife defaulted to pay the credit line leading to a suit by the petitioners against Regala.
The trial court ruled in favor of the plaintiff. The case was appealed to the respondent court,
modifying the obligation of the defendant to only P2, 000.00 a month as averred by the
respondent.
Contention of the Plaintiff:
The liability of the defendants should not be limited to only P2,000.00 a month
since in accordance with the guarantors undertaking, the spouse held themselves
that they are solidarily liable to any indebtedness incurred in the use of the said
credit card.
Contention of the Defendant:
The defendants maintained the decision of the respondent court and contended
that they only undertook a credit line limit of P2, 000.00 a month.
Ruling:
The court ruled that the nature of the guarantors undertaking is a contract of suretyship
due to the fact that the respondent bind themselves solidarily in any indebtedness that may arise
from the use of the said card. The nature and extent of the liabilities of a guarantor or a surety is
determined by the clauses in the contract of suretyship. The court ruled that while it may be true
that a guarantor can bind himself for less but not more than that of the principal debtor, the
court however cannot agree that the liability of the respondent should not be limited to
P2,000.00 a month as contended by the respondent and ruled by the respondent court.
Liberty applied for a discounting credit line with the respondent Mercantile Financing
Corp (MFC). Later, the parties, Liberty, as principal and plaintiff spouse Abrantes, a surety, and
MFC, as creditor, executed a Continuing Suretyship Agreement. It was stipulated that the
spouse and Liberty bound themselves solidarily liable to existing and future obligations to the
MFC in line with credit accommodations. Then credit accommodation was secured by Trade
Acceptance which Builders Wood Products (BWP) assigned in favor of the MFC and shares of
stocks of the spouses to Manila Banking Corp. Controversy arose when the parties disagreed in
the amount of what has been actually paid by the plaintiff. The defendant then filed a suit
against the plaintiffs. The trial court initially ruled in favor of the defendants. The respondent
court affirmed the appealed decision.
Contention of the Plaintiff:
Liberty contended that BWP assumed the o0bligations of Liberty and spouses
Abrantes in their contract of suretyship when BWP assigned its Trade Acceptance
as security for the credit accommodation of Liberty to MFC. It was also alleged that
the spouses are not liable as surety under the suretyship agreement since it was
procured through fraud and misrepresentation.
Contention of the Defendant:
The defendant maintained the decision of the trial and respondent court that
plaintiffs are liable.
Ruling:
The court ruled that there is no merit in the contentions of the plaintiffs as they were not
corroborated by convincing evidence. The court ruled that the SC is not a trier of facts but only
of cases having questions of law and that the finding of the trial and the respondent court is
given great weight. The plaintiffs in this case only rehashed their allegations raised in both trial
and respondent court. The court ruled that it is clear in the facts and circumstances that the
Trade Acceptance assigned by the petitioner BWP is intended as additional security in favor of
the petitioner Liberty in their credit accommodation with the respondent MFC.
CORAZON VIZCONDE v. INTERMEDIATE APPELLATE COURT
G.R. No. 74231; April 10, 1987; 149 SCRA 226
Parties:
Accused: Corazon Vizconde and Pilar Pagulayan
Offended Party: Marylon Perlas
Agent: Pilar Pagulayan
Surety: Corazon Vizconde
Facts:
Vizconde was asked by the complainant Perlas to sell a ring. Pagulayan, later made
notice to Perlas that she is a sure buyer for the ring. A post-dated check was issued by Pagulayan
and the plaintiff guaranteed, jointly and solidarily, that the check is with sufficient balance to
cover the purchase price of the ring. The check was dishonored leading to a filing of a criminal
case of estafa against Vizconde and Pagulayan despite payment of P30,000.00 to Perlas. The
trial court and respondent court convicted Vizconde and Pagulayan of estafa.
Contention of the Plaintiff:
- In the Supreme Court, the Solicitor-General was asked to comment. The SolicitorGeneral then asserts that the plaintiff be acquitted on the ground that the joint and
112
several undertaking of the plaintiff merely guaranteed the civil obligation of Pagulayan to
pay Perlas the value of the ring in the event of Pagulayans failure to return the said
article. Thus, such undertaking is a mere civil liability assumed by the plaintiff and not
criminal responsibility consequent to Pagulayans failure to return the value of the thing
sold.
Contention of the Defendant:
- The respondent court maintained its decision contending that the undertaking in
question is equal to the theory that the plaintiff assumes beyond civil liability.
Ruling:
The court ruled that the contention of the Solicitor-General is correct. Such undertaking
only means that the petitioner assumes civil liability as a guarantor and not criminal
responsibility of Pagulayan in account of Pagulayans failure to return the value of the thing
sold. For a person to be convicted criminally, he at least must participate in the crime itself,
conspired with others or its omission or at least benefited from the fruits thereof. Upholding the
theory of the prosecution that the petitioner assumes criminal responsibility of Pagulayan would
counteract the very essence of a contract of surety/guaranty where it only creates civil liability
on the part of the surety/guaranty. A guarantor/surety cannot be held criminally liable in
default of another.
The plaintiff was empowered to open a credit line with the respondent bank Metrobank.
Later, the defendant Arrieta and Perez executed a Continuing Suretyship Agreement with the
plaintiff that they held themselves solidarily liable for the payment of the said credit line to
Metrobank. Defendant Arrieta and Perez obtained a loan from the creditor bank and
subsequently a promissory note was executed by both defendants binding themselves solidarily
liable to pay the respondent Metrobank up to the amount indicated in the notes. However, due
to default by the makers of the note (Perez and Arrieta), the respondent bank instituted a
collection suit against defendant Arrieta et al. The trial court initially ruled against the
respondents Arrieta. The decision was appealed, reversing the decision holding the plaintiff
liable for the outstanding balance and holding that the surety agreement, despite full payment,
is a corporate undertaking and therefore covers the deficiency of the payment of the said notes.
Contention of the Plaintiff:
- The plaintiff asserts that they should not be held liable in the outstanding balance to the
respondent bank on the ground that the promissory note executed by Arrieta and Perez
is not a corporate undertaking and that the suretyship agreement does not cover the
obligation of the note signed by Perez and Arrieta. Also, that they cannot be held liable
for the outstanding balance incurred by default of payments of the notes since the Surety
Agreement was fully paid and therefore does not cover the deficiency of the notes.
Contention of the Defendant:
- The defendant maintained the decision of the appellate court holding the plaintiff liable
for the outstanding balance and that the surety agreement, despite full payment, is a
corporate undertaking and therefore covers the deficiency of the payment of the said
notes.
Ruling:
113
The court ruled that the note signed by defendants Perez and Arrieta is a corporate
undertaking. In the case at bar, Arrieta and Perez are merely bookkeepers of the said intertrade
company and that they have signed the note without any authorizing document such as a Power
of Attorney and the said note was ratified by the Board of Directors of intertrade. In addition, it
follows that the defendants Arrieta and Perez are not authorized to transact business in behalf of
the company and therefore, the note is not a corporate undertaking. It follows that the said note
is not covered by the Continuing Surety Agreement. This is because under the law, the contract
of surety is never presumed. It must be express and cannot extend to more than what is
stipulated, it is strictly construed against the creditor, every doubt being resolved against
enlarging the liability of the surety.
RIZAL COMMERCIAL BANKING CORPORATION v. JOSE ARRO
and RESIDORO CHUA
G.R. No. L-49401; July 30, 1982; 115 SCRA 777
Parties:
Debtor: Davao Agriculture Industries Corporation (DAICOR)
Creditor: Rizal Commercial Banking Corporation (RCBC)
Surety: Residoro Chua
Facts:
The defendant Chua et el, executed a comprehensive surety agreement with the principal
debtor Davao Agriculture Industries Corporation (DAICOR) and with RCBC to guaranty among
others, the existing indebtedness of DAICOR to the petitioner bank; to induce the petitioner
bank to make loans or advance/extend the credit of DAICOR, by request or in any other
manner, with or without security, and; any loans or advances evidenced by any instruments
upon which DAICOR may be held liable. Provided, that such liability shall not exceed at any one
time the aggregate principal sum of P100, 000. A promissory note was then issued in favor of
RCBC. The said note was signed by Go Sr. in behalf of DAICOR and in his own personal
capacity. Despite several demands, the note was not paid leading to a collection suit filed in the
sala of the respondent judge, against DAICOR, Go Sr. and the private respondent. The
respondent judge absolved the liability of the respondent, hence, this case praying for the
annulment of the decision of the respondent judge.
Contention of the Plaintiff:
The surety agreement is continuing in nature. Thus, the respondent Chua can be
held liable as the said agreement covers all kinds of indebtedness that DAICOR
may incur with the petitioner bank.
Contention of the Defendant:
Respondent Chua maintains the decision of the respondent judge, arguing that he
cannot be held liable, as respondent is not a signatory in the said note. Since Go Sr.,
in behalf of DAICOR, signing in his personal capacity, the obligation is solely to the
maker of the said note.
Ruling:
The petition is meritorious. The law provides that:
Article 2053. A guaranty may also be given as security for future debts, the amount of
which is not yet known, there can be no claim against the guarantor until the debt is liquidated.
A conditional obligation may also be secured.
The provision means that it is allowed by law that a guarantor may guaranty a future
debt of the principal obligation. It is clear from the stipulation of the said agreement that Chua
and Go Sr., guarantees the payment of existing as well as indebtedness, of whatever kind, that
Daicor may incur with the petitioner. In the case at bar, there is no doubt that the agreement is
by its nature a continuing contract, and therefore remains in full and in effect until a notice to
the petitioner bank for its termination.
114
Associated Reclamation & Development (ARDC) executed a promissory note P11, 765 in
favor of Gen. Acceptance & Finance Corporation (GAFC). Later, the appellant Phil- Am executed
a surety bond to secure the payment of the promissory note. Subsequently, the appellee Ramos
and Miranda executed a counter guaranty with real estate mortgage in favor of the appellant for
the appellants liability under the surety bond. Moreover, the appellee Ramos and the debtor of
GAFC, ARDC executed an indemnity agreement in favor of the appellant whereby Ramos and
ARDC bind themselves solidarily to indemnify the appellant for whatever it may suffer because
of the surety bond and they waived their right of exhaustion. ARDC defaulted, and therefore, the
appellant Phil-Am is forced to pay its obligations in the surety bond in favor of GAFC. In turn,
the appellant sued the spouses Ramos and Miranda for indemnification and in their default, the
mortgage property be foreclosed. The trial court ruled against the appellant, holding that the
properties of ARDC be exhausted first.
Contention of the Plaintiff:
Since the principal ARDC defaulted in its obligation to GAFC and that as surety, the
appellant paid the obligation to GAFC, it is but proper to proceed against the
respondent spouses who executed indemnity agreement in their favor.
Contention of the Defendant:
They are mere guarantors in accordance with the executed counter guaranty, and
that they invoked their benefit of excussion, before the appellant can validly
proceeded against them.
Ruling:
The court ruled in favor of the contentions of the plaintiff. Under the stipulations in the
indemnity agreement, it is clear that the defendants assumed solidarily liability in favor of the
plaintiff. Thus, they are by nature assumed primarily liable, who in according to law are not
entitled to the benefit of exhaustion. Moreover, under the said agreement, the defendants
waived their right of exhaustion. Therefore, such contract should be complied with by the
defendants in good faith for the contract has the force of law between the parties.
PRUDENTIAL BANK v. INTERMEDIATE APPELLATE COURT, PHILIPPINE
RAYON MILLS, INC., and ANACLETO CHI; G.R. No. 74886; December 8,
1992; supra
Ruling:
The petitioner contented that the dismissal of the respondent court of the claims for
liabilities against Chi on the ground of principle of excussion is improper. The petitioner is
correct. While it may be true that the law provides in favor of the guarantor the benefit of
excussion, the exhaustion of the principal debtors property is not a condition precedent in filing
claims against guarantor. As held in the Southern Motors case, while the guarantor may demand
prior exhaustion, the creditor, nonetheless, has the action to secure payment by se curing
judgment against the guarantor, who0 in turn has the right to defer for the execution of the said
payment until the property of the principal debtor has been exhausted to satisfy the obligations
stated in the judgment.
115
116
PART II
A.
PLEDGE
Article 2085
The following requisites are essential to the contract of pledge
and mortgage:
(1)That they be constituted to secure the fulfillment of a principal
obligation;
(2)That the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged;
(3)That the persons constituting the pledge or mortgage have the
free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may
secure the latter by pledging or mortgaging their own property.
COMMENT:
1.
2.
Ownership
(a) Pledge or mortgage is VOID if the one making it is not the owner of the thing pledged
or mortgaged. Future property therefore cannot be mortgaged or pledged because of
the lack of ownership (Dilag v Heirs of Resurreccion, 75 Phil. 650).
(b) Agency: If the agent will pledge or mortgage the property of the principal under his
name the accessory contract is VOID, but if there is an authorization (special power
of attorney) from the principal, the agent will pledge or mortgage under the name of
the principal then it is valid (Arenas v Raymundo, 19 Phil. 46).
(c) The pledgor or mortgagor needs not to be the debtor or borrower; third parties can
pledge or mortgage his property (being the absolute owner) to accommodate
(accommodation party) the debtor or borrower to secure a loan.
(d) If a forger pledges or mortgages anothers property then it is VOID, unless the
property was transferred to the forgers name and registered in the registry of
property then it cannot affect third parties who accept it under good faith, meaning
an innocent third party should not be prejudiced (Veloso v. La Urbana, 58 Phil. 681;
Lopez v. Seva, 69 Phil. 331 and De Lara v. Ayroso, 95 Phil. 185).
117
3.
4.
5.
mortgage.
MORTGAGE
(a) same as in pledge
(b) mortgagor must be absolute
owner of property mortgaged
(c) mortgagor must have free
disposal or authorized
(d) mortgaged property may be
alienated when principal
obligation becomes due for
payment to the creditor (Art.
2087)
Article 2086
The provisions of Article 2052 are applicable to a pledge or
COMMENT:
Applicability of Art. 2052 (Guaranty of Voidable, Etc., Obligations)
(a) Even if the principal debt is voidable, unenforceable, or merely natural, the pledge or
mortgage is VALID.
(b) If the principal obligation is VOID, the accessory obligation is also VOID.
(c) Art. 2052. A guaranty cannot exist without a valid obligation.
Nevertheless, a guaranty may be constituted to guarantee the performance of a
voidable or an unenforceable contract. It may also guarantee a natural obligation.
Article 2087
It is also of the essence of these contracts that when the
principal obligation becomes due, the things in which the pledge or
mortgage consists may be alienated for the payment to the creditor.
118
COMMENT:
1.
Right to Have the Property Alienated So That the Debt May Be Paid
When the due date comes and without satisfaction of settlement of the loan was
made, the creditor has the right to alienate the property (NOT AUTOMATICALLY
APPROPRIATE) to be sold to anybody including the creditor for the payment of the
debt.
2.
3.
Price
Price of the rendered in the public auction is inadequate thus cancelling the sale,
no unless it is shocking to the conscience. (Go Letting & Sons, etc v. Leyte Land
Transportation Co., et al., L-8887, May 28 1958)
Article 2088.
The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the contrary
is null and void.
COMMENT:
1.
Pactum Commissorium
In the contract of pledge or mortgage or antichresis, stipulations stating that if
the debtor failed to pay the principal obligation on the time stipulated, the creditor will
automatically appropriate the thing placed as security for the loan, are VOID.
Example: C borrowed from D sum of money. C offered his house by way of a
mortgage. It was expressly stipulated in the contract that upon non-payment of the debt
on time, the house would belong to D. Such stated is Pactum Commissorium VOID
stipulation.
2.
119
COMMENT:
1.
2.
3.
4.
Article 2090
The indivisibility of a pledge or mortgage is not affected by the
fact that the debtors are not solidarily liable.
-
Article 2091
The contract of pledge or mortgage may secure all kinds of
obligations, be they pure or subject to a suspensive or resolutory
condition.
-
120
Article 2092
A promise to constitute a pledge or mortgage gives rise only to a
personal action between the contracting parties, which prejudice to
the criminal responsibility incurred by him who defrauds another, by
offering in pledge or mortgage as unencumbered, things which he
knew were subject to some burden, or by misrepresenting himself to
be the owner of the same.
COMMENT:
1.
2.
3.
Double Remedies
Is it inconsistent to ask in one action that: (a) the mortgage be constituted; or (b)
the indebtedness be paid?
Held: No, they are not inconsistent (Laplana v. Garchitorena Chereau, supra).
The jewelry was delivered to De Vega to sell on commission, who, in turn, delivered it to
Perello to, likewise, sell said jewelry on commission. However, the latter pledged the jewelry in
121
Raymundos pawnshop instead, and appropriated to her own use the money obtained thereby.
Perello was prosecuted and convicted for estafa. The jewelry remained under the control and
possession of the defendant.
Contention of the Petitioner:
Perello was not the lawful owner of the thing pledged nor did she have authority to
do so. Therefore, they have the authority to redeem the subject property from the
defendant.
Contention of the Respondent:
Prior to the return of the jewelry in question, he is entitled to reimbursement of the
amount loaned to embezzler.
Ruling of the Supreme Court:
Under the law, one of the essential requisites of the contract of pledge, that the thing
pledged must belong to the person who pledges or mortgages it. This being absent, the contract
is devoid of value and force as if it not had been made.
China Bank granted Lichauco a loan. He and his spouse executed, in favor of the bank, a
mortgage to secure the payment of part of the loan in the amount of 50,000.00 with interest.
The Lichaucos ratified the former document, the loan not having been paid, CBC brought the
present action to recover payment and or foreclose the mortgage.
Contention of the Respondent:
The obligation lacks consideration because what they guaranteed with this
mortgage was a debt of Lichauco Co. Inc.
Ruling:
The accessory contract is not separated from the principal obligation; the accessory
contract must in its totality guarantees the main obligation, meaning the value of the security
must be equal to the principal obligation so to speak, an accessory contract cannot stand alone;
therefore the defendants contention does not find support of the law.
ANDRES PUIG v. GEO SELLNER and B.A. GREEN
G.R. No. L-20013; October 18, 1923; 45 Phil. 826
Parties:
Debtor/Pledgor: Sellner
Creditor: Puig
Facts:
Sellner borrowed money from Puig. As a security to the same, Sellner executed a
promissory note and pledge 570 shares of stocks. A stipulation in the agreement provides that
if Sellner failed to pay; the shares of stocks pledged shall become property of Puig.
Contention of the Petitioner:
122
Villarin was the owner of six parcels of land. He then executed a debt in favor of Gomez
with an agreement that if Villarin fails to pay, the debt shall be paid with the property given as
security. When Villarin failed to pay, Gomez sold the parcels of land to Dalay. Villarin
acknowledged that the lands had been transferred to Gomez by virtue of a real and absolute sale,
but he later on contracted a debt in favor of Aquiatin. The CFI ruled in favor of herein
respondent and execution was issued and levied upon the subject property.
Contention of the Petitioner:
Dalay claims that he is the absolute owner of the lands in question and that there
was an effective transfer and absolute waiver of the title to the lands.
Contention of the Respondent:
The sale was simulated and fraudulent.
Ruling:
Two things are prohibited by the law, which are: (a) the appropriation of the creditor of
the things pledged or mortgaged; and, (b) the disposition thereof by the same creditor. The
stipulation in question does not authorize either one or the other. Therefore, the agreement does
not constitute a pactum commissorium, and, as such, is valid making Dalay the absolute owner
of the lands.
(NOTE: But many authors disagree with the holding of the court. Although it is not a
form of pactum commissorium, it has the same effect which is contrary to public moral.)
Article 2093
In addition to the requisites prescribed in Article 2085, it is
necessary, in order to constitute the contract of pledge, that the thing
pledged be placed in the possession of the creditor, or of a third person
by common agreement.
COMMENT:
123
1.
2.
3.
Symbolic Delivery
Although we have seen that symbolic delivery is not sufficient, still if the pledge,
before the pledge, had the thing already in his possession, then the requirement of the
law has been satisfied. For then, said pledgee would be in actual possession. The same
thing may be said in case the thing pledged is in the possession of a third person by
common agreement (See Art. 2093).
Article 2094
All movables which are within commerce may be pledged,
provided they are susceptible of possession.
COMMENT:
What May Be Pledged
(a) Only movables can be pledged (including incorporeal rights see Art. 2095).
(b) Real property cannot be pledged. A pledge cannot include a lien on real property
(Pac. Com. Co. v. Phil. Natl Bank, 49 Phil. 236).
(c) Certificates of stock or of stock dividends, under the Corporation Code, are quasinegotiable instruments in the sense that they may be given in pledge to secure an
obligation.
Article 2095
Incorporeal rights, evidenced by negotiable instruments, bills of
lading, shares of stock, bonds, warehouse receipts and similar
documents may also be pledged. The instrument proving the right
pledged shall be delivered to the creditor, and if negotiable, must be
indorsed.
COMMENT:
1.
2.
Pledge Certificate
124
COMMENT:
1.
2.
3.
4.
5.
125
COMMENT:
Pledgor May Alienate Thing Pledged
Example:
C pledged his diamond ring with D. C may sell the ring provided that D consents. The sale is,
however, subject to the pledge, that is, the pledge would bind third persons if Art. 2096 has been
Article 2098
The contract of pledge gives a right to the creditor to retain the
thing in his possession or in that of a third person to whom it has been
delivered, until the debt is paid.
followed. If B buys the ring, the ownership of the ring is transferred to him, as soon as D
consents to the sale but D shall continue to be in possession of the ring.
COMMENT:
1.
Creditors Right to Retain
Example:
B owes C P1 million. As security, B pledged his diamond ring with C. C has the
right to retain the ring until the P1 million debt is paid.
2.
No Double Pledge
Property that has been lawfully pledged to a creditor cannot be pledged to
another as long as the first one subsists (Mission de San Vicente v. Reyes, 19 Phil. 524).
This is so, for otherwise, how can the thing pledged be delivered to the second creditor?
It must be noted that if the first pledge or creditor gives up the possession of the property
pledged, such pledge is thereby extinguished notwithstanding the continuation of the
principal obligation guaranteed by the pledge (Art. 2110, Civil Code).
Article 2099
The creditor shall take care of the thing pledged with the
diligence of a good father of a family; he has a right to the
reimbursement of the expenses made for its preservation, and is liable
for its loss or deterioration, in conformity with the provisions of this
Code.
COMMENT:
Duty of Pledgee to Take Care of Thing Pledged
(a) When the possession of property belonging to a debtor is delivered to a creditor
simply as a guaranty for the payment of a debt, the title does not pass to the
126
temporary possessor, who has no right to damage or to destroy, and is liable for any
injury he may cause (Bonjoc v. Cuison, 13 Phil. 301).
(b) If the pledgee has exercised all the care and diligence which the law requires of her,
she cannot be held responsible for the theft of the jewelry pledged with her. Had the
theft occurred as a result of her fault or negligence, she would have been liable (San
Jose and Carlos v. Ruiz, 71 Phil. 541).
Article 2100
The pledgee cannot deposit the thing pledged with a third
person, unless there is a stipulation authorizing him to do so.
The pledgee is responsible for the acts of his agents or
employees with respect to the thing pledged.
COMMENT:
1.
2.
Generally, the pledgee cannot deposit the thing pledged with a third person.
Exception if there is a stipulation authorizing such deposit.
Responsibility of Pledgee for Subordinates Acts
The second paragraph stresses the master and servant rule.
Article 2101
The pledgor has the same responsibility as a bailor in
commodatum in the case under Article 1951.
COMMENT:
Same Responsibility as a Bailor in Commodatum
Article 1951. The bailor who, knowing the flaws of the thing loaned, does not
advise the bailee of the same, shall be liable to the latter for the damages which he may
Article 2102
If the pledge earns or produces fruits, income, dividends, or
interests, the creditor shall compensate what he receives with those
which are owing him; but if none are owing him, or insofar as the
amount may exceed that which is due, he shall apply it to the principal.
Unless there is a stipulation to the contrary, the pledge shall extend to
the interest and earnings of the right pledged.
In case of a pledge of animals, their offspring shall pertain to the
pledgor or owner of animals pledged, but shall be subject to the
pledge, if there is no stipulation to the contrary.
suffer by reason thereof.
127
COMMENT:
Rules if Pledge Produces Fruits or Interests
(a) Fruits and interests may compensate for those to which the pledgee himself is
entitled or may be applied to the principal.
(b) Generally, the pledge extends to offspring of animals, but there can be a contrary
stipulation.
Article 2103
Unless the thing pledged is expropriated, the debtor continues
to be the owner thereof.
Nevertheless, the creditor may bring the actions which pertain
to the owner of the thing pledged in order to recover it from, or defend
it against a third person.
COMMENT:
1.
2.
Despite ownership by the pledgor, the pledgee may exercise certain rights of the
Article 2104
The creditor cannot use the thing pledged, without the authority
of the owner, and if he should do so, or should misuse the thing in any
other way, the owner may ask that it be judicially or extrajudicially
deposited. When the preservation of the thing pledged requires its use,
it must be used by the creditor but only for that purpose.
Article 2105
The debtor cannot ask for the return of the thing pledged
against the will of the creditor, unless and until he has paid the debt
and its interest, with expenses in a proper case.
128
COMMENT:
When Debtor Can Demand the Return of Thing Pledged
(a) He has PAID the debt, interest, and expenses in the proper case.
(b) In an obligatioin with a term, there can be no demand of the property pledged till
after the term had arrived. The prescriptive period for recovery of the property
begins from the time the debt is extinguished by payment and a demand for the
return of the property is made. (Sarmiento v. Javellana, 43 Phil. 880)
Article 2106
If through the negligence or willful act of the pledgee, the thing
pledged is in danger of being lost or impaired, the pledgor may require
that it be deposited with a third person.
Article 2107
If there are reasonable grounds to fear the destruction or
impairment of the thing pledged, without the fault of the pledgee, the
pledgor may demand the return of the thing, upon offering another
thing in pledge, provided the latter is of the same kind as the former
and not of inferior quality, and without prejudice to the right of the
pledgee under the provisions of the following article.
The pledgee is bound to advise the pledgor, without delay, of any
danger to the thing pledged.
COMMENT:
When Destruction or Impairment is Feared, Without the Fault of the
Pledgee
This is applicable if the danger arises without fault or negligence on the part of
the pledgee. Two remedies are granted, one for the pledgor, the other for the pledge.
(a) For the pledgor- demand the return but there must be a substitute.
(b) For the pledgee- he may cause the same to be sold at a public sale. The pledge
continues on the proceeds.
(NOTE: The pledgees right is superior to that of the pledgor. The law says
the pledgor is given the right without prejudice to the right of the pledgee.)
129
Article 2108
If, without the fault of the pledgee, there is danger of
destruction, impairment, or diminution in value of the thing pledged,
he may cause the same to be sold at a public sale. The proceeds of the
auction shall be a security for the principal obligation in the same
manner as the thing originally pledged.
Article 2109
If the creditor is deceived on the substance or quality of the
thing pledged, he may either claim another thing in its stead, or
demand immediate payment of the principal obligation.
-
Article 2110
If the thing pledged is returned by the pledgee to the pledgor or
owner, the pledge is extinguished. Any stipulation to the contrary shall
be void.
If subsequent to the perfection of the pledge, the thing is in the
possession of the pledgor or owner, there is a prima facie presumption
that the same has been returned by the pledgee. This same
presumption exists if the thing pledged is in the possession of a third
person who has received it from the pledgor or owner after the
constitution of the pledge.
COMMENT:
1.
2.
or a stranger may have stolen the thing pledged, and gave it to debtor-pledgor (1st
sentence, 2nd paragraph, Art. 2110).
Article 2111
A statement in writing by the pledgee that he renounces or
abandons the pledge is sufficient to extinguish the pledge. For this
purpose, neither the acceptance by the pledgor or owner, nor the
return of the thing pledged is necessary, the pledgee becoming a
depositary.
COMMENT:
1.
When Pledgee Renounces or Abandons the Pledge
Example:
B pledged his diamond ring to C. C took possession of the ring. Later, although
the principal obligation had not been paid, C wrote on a private document that he was
renouncing the pledge. B did not accept this renunciation, and the ring remained in Cs
possession. Has the pledge been extinguished?
Answer: Yes. C in this case is no longer a pledgee, but a depositary, with the
rights and obligations of a depositary (Art. 2111).
2.
COMMENT:
1.
2.
Formalities Required
(a) The debt is due and unpaid.
(b) The sale must be made with the intervention of a notary public.
131
(c) The sale must be at a public auction (if at the first, it is not sold, a second auction
must be held with the same formalities).
(d) There must be notice to the pledgor and owner, stating the amount due.
3.
If in the contract of pledge, the pledgee is authorized to sell upon default, the requirements in
this Article (Art. 2112) must be complied with; if the conditions of the sale are set forth already
i
n
t h e
Article 2113
At the public auction, the pledgor or owner may bid. He shall,
moreover, have a better right if he should offer the same terms as the
highest bidder.
The pledgee may also bid, but his offer shall not be valid if he is
the only bidder.
contract, Art. 2112 does not have to be observed (Tan Chun Tic v. West Coast Life Ins. Co., 54
Phil. 361).
COMMENT:
Right of Pledgor and Pledgee to Bid at the Public Auction
Pledgor: He may bid; furthermore, he shall have a better right if he should offer
the same terms as the highest bidder. Reason for the preference: after all, the thing
belongs to him.
Pledgee: He may also bid but his offer shall not be valid if he is the only bidder.
Article 2114
All bids at the public auction shall offer to pay the purchase
price at once. If any other bid is accepted, the pledgee is deemed to
have been received the purchase price, as far as the pledgor or owner
is concerned.
COMMENT:
Nature of the Bids at the Public Auction
The bids must be for CASH for said bids shall offer to pay the purchase price
AT ONCE. Even if a purchase on installment is accepted by the pledgee, the sale is still
for cash- insofar as the pledgor or owner is concerned.
Article 2115
The sale of the thing pledged shall extinguish the principal
obligation, whether or not the proceeds of the sale are equal to the
amount of the principal obligation, interest and expenses in a proper
132
COMMENT:
Rules if the Price At the Sale is More or Less Than the Debt
(a) If the price at sale is MORE excess goes to the creditor, unless the contrary is
provided.
(b) If the price is LESS creditor does NOT get the deficiency. A contrary stipulation is
VOID.
Article 2116
After the public auction, the pledgee shall promptly advise the
pledgor or owner of the result thereof.
article is self-explanatory
-This
Article 2117
Any third person who has any right in or to the thing pledged
may satisfy the principal obligation as soon as the latter becomes due
and demandable.
COMMENT:
Rights of a Third Person to Pay the Debt
A third person who has a right in or to the thing pledged may pay the debt as
soon as it becomes due and demandable and the creditor cannot refuse to accept
the payment.
Article 2118
If a credit which has been pledged becomes due before it is
redeemed, the pledgee may collect and receive the amount due. He
shall apply the same to the payment of his claim, and deliver the
surplus, should there be any, to the pledgor.
COMMENT:
Pledge of a Credit That Later on Becomes Due
133
Article 2120
If a third party secures an obligation by pledging his own
movable property under the provisions of Article 2085 he shall have
the same rights as a guarantor under Articles 2066 to 2070, and
Articles 2077 to 2081. He is not prejudiced by any waiver of defense by
the principal obligor.
-
Article 2121
Pledges created by operation of law, such as those referred to in
Articles 546, 1731, and 1994, are governed by the foregoing articles on
the possession, care and sale of the thing as well as on the termination
of the pledge. However, after payment of the debt and expenses, the
remainder of the price of the sale shall be delivered to the obligor.
COMMENT:
1.
2.
Samples
(a)
(b)
(c)
(d)
(e)
134
Article 2122
A thing under a pledge by operation of law may be sold only
after demand of the amount for which the thing is retained. The public
auction shall take place within one month after such demand. If,
without just grounds, the creditor does not cause the public sale to be
held within such period, the debtor may require the return of the thing.
-
Article 2123
With regard to pawnshops and other establishments, which are
engaged in making loans secured by pledges, the special laws and
regulations concerning them shall be observed, and subsidiarily, the
provisions of this Title.
138
The ordinary pawn ticket is a document by virtue of which the property in the thing
pledged passes from hand to hand by mere delivery of the ticket, and the contract of pledge is,
therefore, absolvable to bearer. It results that one who takes a pawn ticket in pledge acquires
domination over the pledge, as it is the holder who must renew the pledge to keep it alive. The
law contemplates that the pledgee may have to undergo expenses in order to prevent the pledge
from being lost; and is entitled to reimbursement from the pledgor.
139
B.
Article 2124
Only the following property may be the object of a contract of
mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed
upon immovables.
Nevertheless, movables may be the object of a chattel mortgage.
COMMENTS
1.
Definition of Mortgage
Mortgage is a contract in which the debtor guarantees to the creditor the fulfillment of a
principal obligation, subjecting for the faithful compliance therewith a real property in case of
non-fulfillment of said obligation at the time stipulated (Paras).
Mortgage is a contract whereby the debtor secures to the creditor the fulfillment of a
principal obligation, especially subjecting to such security, immovable property or real rights
over immovable property in case the principal obligation is not complied with at the time
stipulated (De Leon).
2.
Article 2124 provides the objects of a contract of mortgage which are immovables and
alienable real rights imposed upon immovables. A real right over real property is real property.
Hence, a mortgage on real property is in itself a real property.
The object of pledge and chattel mortgage are movables.
3.
d. It is inseparable.
- The mortgage adheres to the property, regardless of who its owner may
subsequently be.
e. It is real property.
- A mortgage on real property is by itself real property. (See Article 415 of the
Civil Code, paragraph 10).
Other characteristics of real estate mortgage are: it is a limitation on ownership, it can
secure all kinds of obligation, the property cannot be appropriated and the mortgage is a lien.
4.
Kinds of Mortgage
a. Voluntary one by which is agreed to between the parties or constituted by the
will of the owner of the property on which it is created.
b. Legal one required by law to be executed in favor of certain persons.
c. Equitable one which, although it lacks the proper formalities of a mortgage,
shows the intention of the parties to make the property as a security for a debt.
PLEDGE
a) Constituted on personal property
b) Pledgor must deliver the property
to the creditor, or, by common
consent, to a third person.
c) Not valid against third person
unless a description of the thing
pledged and the date of the
pledge appear in a public
instrument.
CHATTEL MORTGAGE
a) On movables
b) C a n n o t g u a r a n t e e f u t u r e
obligations
141
Article 2125
In addition to the requisites stated in Article 2085, it is
indispensable, in order that a mortgage may be validly constituted,
that the document in which it appears be recorded in the Registry of
Property. If the instrument is not recorded, the mortgage is
nevertheless binding between the parties.
The persons in whose favor the law establishes a mortgage have
no other right than to demand the execution and the recording of the
document in which the mortgage is formalized.
COMMENTS
1.
2125 in Relation to 2085
This provision provides for the fourth essential requisite of Mortgage, added to the
requisites provided by Article 2085.
Art. 2085. The following requisites are essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of
their property, and in the absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.
It is indispensable in order that a mortgage may be validly constituted that it appears in
a public document duly recorded in the Registry of Property. An additional provision is made
that if the instrument of mortgage is not recorded the mortgage is nevertheless binding between
parties.
Hence, an order for foreclosure can not be refused on the ground that the mortgage had
not been registered.
2.
The paragraph refers to legal mortgages. It is in conformity with the rules established
under the law on Form of contracts which gives to the contracting parties the right to compel
Article 2126
The mortgage directly and immediately subjects the property
upon which it is imposed, whoever the possessor may be, to the
fulfillment of the obligation for whose security it was constituted.
142
each other to observe the form required by law like the execution of a document or other special
forms provided the contract between them is valid and enforceable.
COMMENTS
1.
Effects of Mortgage
a. Creates a real right.
- A mortgage creates what is called a real right which is enforceable against the
whole world. It follows the property wherever it goes. Therefore, if the
mortgagor sells the mortgaged property, the property remains subject to the
fulfillment of the obligations secured by it. But the mortgage must be
registered or if not, the buyer must know of its existence.
b. Creates merely an encumbrance.
- The mortgage, however, is merely an encumbrance upon the property and
does not extinguish the title of the debtor who does not lose his principal
attribute as owner, that is, the right to dispose. Indeed, the law considers void
any stipulation forbidding the owner from alienating the mortgaged
immovable.
Article 2127
The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the mortgagor, or it
passes into the hands of a third person.
COMMENT:
1.
Extent of Mortgage
A mortgage constituted on immovable property is not limited to the property itself but
also extends to all its accessions, improvements, growing fruits and rents or income as well as to
the proceeds of insurance should the property be destroyed or the expropriation value of the
property should it be expropriated.
Article 2128
The mortgage credit may be alienated or assigned to a third
person, in whole or in part, with the formalities required by law.
143
COMMENT:
1.
The mortgaged credit (the credit of the mortgagee) is real right and directly and
immediately subjects the mortgaged property to the fulfillment of the principal obligation. Such
a real right may be alienated or assigned to a third person, in whole or in par, by the mortgagee
who is the owner of said right.
The sale or assignment is valid even if it is not registered. Registration is necessary only
to affect third persons.
Article 2129
The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by
the property which said third person possesses, in the terms and with
the formalities which the law establishes.
COMMENT:
1.
The fact that the mortgagor has transferred the mortgaged property to a third person
does not relieve him from his obligation to pay the debt to the mortgage creditor in the absence
of novation.
The mortgage credit being a real right which follows the property, the creditor may
demand from any possessor the payment only of the part of the credit secured by said property.
It is necessary, however, that prior demand for payment must have been made on the debtor
and the latter failed to pay.
Article 2130.
A stipulation forbidding the owner from alienating the
immovable mortgaged shall be void.
COMMENT:
1.
The law considers void any stipulation forbidding the owner from alienating the
mortgaged property. such a prohibition would be contrary to the public good inasmuch as the
transmission of property should not be unduly impeded.
However, if the mortgagor alienates the property, the transferred is bound to respect the
encumbrance because being a real right, the property remains subject to the fulfillment of the
obligation for whose guaranty it was constituted.
144
Article 2131
The form, extent and consequences of a mortgage, both as to its
constitution, modification and extinguishment, and as to other matters
not included in this Chapter, shall be governed by the provisions of the
Mortgage Law and of the Land Registration Law.
COMMENT:
1.
2.
Foreclosure of Mortgage
It is the remedy available to the mortgagee by which he subjects the mortgaged property
to the satisfaction of the obligation to secure which the mortgage was given.
Judicial Foreclosure
a) There is court intervention
b) Decisions are appealable
c) Order of the court cuts off all
rights of the parties
impleaded
d) There is equity of redemption
except on banks which
provides for right of
redemption
e) Period of redemption starts
from the finality of judgment
until the order of
confirmation
f) No need for a special power of
attorney in the contract of
mortgage
Extrajudicial Foreclosure
a) No court intervention
b) Not appealable, it is immediate
executor
c) Foreclosure does not cut off right
of all parties involved
d) There is right of redemption
KINDS OF FORECLOSURE
1.
145
governed by Rule 68 of the Revised Rules of Court. This kind of action is quasi in rem
action which is the result or incident of the failure to pay debt and it survives death of
mortgagor. The proceeding shall be treated like an ordinary civil action.
146
governed by Act No. 3135, as amended. This kind is conferred for mortgagees
protection wherein there is an ancillary stipulation in the contract which is a
prerogative of the mortgagee.
147
The resort to the process of extra-judicial foreclosure emanates from the presence of a
stipulation that allows the creditor/mortgagee to extra-judicially foreclose and designating the
said party as the attorney-in-fact of the mortgagor to cause the same and to sell the subject
property at a foreclosure sale by an insertion into or attachment to the real estate mortgage.
If a sale is not restrained or enjoined, and is subsequently conducted, the same must be:
(a) made in the province where the property to be sold is situated. Sale outside the
province is illegal;
(b) In case the mortgage deed specified a place in a municipality in the province where
the sale would be made, such sale shall be made in such place or
(c) if the place of sale in the municipality was not stipulated, in the municipal building of
the municipality in which the property or part thereof is situated.
148
3.
As a rule, notices of sale shall be posted for not less than 20 days in at least 3 public
places in the city or municipality where the property is situated. If the property is worth more
than P400, the notice of sale shall also be published once a week for 3 consecutive weeks in a
newspaper of general circulation in the city or municipality. Unless otherwise stipulated by the
parties to the mortgage contract, the debtor/mortgagor need not be personally served a copy of
the notice of extrajudicial foreclosure.
4.
The extrajudicial foreclosure sale be conducted by public auction or bidding made
through sealed bids which must be submitted to the Sheriff who shall conduct the sale between
the hours of 9:00 a.m. and 4:00 p.m. of the date of the auction. The property mortgaged shall
be awarded to the party submitting the highest bid and, in case of a tie, an open bidding shall be
conducted between the highest bidders. Payment of the winning bid shall be made either in
cash or in managers check, in Philippine currency, within 5 days from notice (Sec. 5[a],
Guidelines)
The creditor may be barred from participating in the bidding if so provided in the
mortgage deed.
5.
The sheriff shall then sign and issue the certificate of sale, subject to the approval of the
Executive Judge, or in his absence, the Vice-Executive Judge. No certificate of sale shall be
issued in favor of the highest bidder until all fees provided for in the aforementioned sections
and in Rule 141, Section 9(l) as amended by A.M. No. 00-2-01-SC, shall have been paid;
Provided, that in no case shall the amount payable under Rule 141, Section 9(l) as amended,
exceed P100,000.00
6.
After the certificate of sale has been issued to the highest bidder, keep the complete
records, while awaiting any redemption within a period of one (1) year from date of registration
of the certificate of sale with the Register of Deeds concerned, after which, the records shall be
archived.
Grounds to Restrain or Enjoin Foreclosure:
1.
In general, formal and substantive defects in the real estate mortgage and the foreclosure
proceedings provide the legal and equitable grounds to enjoin or eventually nullify foreclosure
proceedings, if not the real estate mortgage itself.
The general basis would be Article 5, Civil Code, which provides: Acts executed against
the provisions of mandatory or prohibitory laws shall be void, except, when the law authorizes
their validity
2.
Disputes in the amount of the obligation may cause the foreclosure to be enjoined as a
bank may legally proceed with foreclosure only when the exact amount of the obligation of the
mortgagor is determined in a trial on the merits and the mortgagor cannot meet the obligation
following that determination.
Where the debtor is not given an opportunity to settle the debt at the correct amount and
without iniquitous interest imposed, no foreclosure proceedings can be instituted.
The total amount due on the mortgage is also undetermined if some of the properties are
subject to the coverage of the CARP, in which case a portion of the mortgage indebtedness will
149
mortgage is an accessory contract, its consideration is the very consideration of the principal
contract, from which it derives life, and without which it cannot exist as an independent
contract.
Further, under Article 2176 of the Civil Code, a mortgage may only be foreclosed for the
fulfillment of the obligation for whose security it was constituted. A mortgage with a dragnet
clause is a contract of adhesion that must be strictly construed as against the bank. To constitute
a real estate mortgage as security for future loans, the future loans must be agreed upon and
fixed in the mortgage deed at the time of the execution of the same. A stipulation that the
amounts named as consideration in a contract of mortgage do not limit the amount for which
the mortgage may stand as security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered is valid and binding and is known in
American Jurisprudence as the blanket mortgage clause.
5.
Issue of PD 385 prohibiting the issuance of an injunction against foreclosure by any
government financial institution is arbitrary and unreasonable. Hence, may be argued as being
unconstitutional. Hence, it cannot be sustained if there is a clear legal ground to restrain
foreclosure
6.
Issue of the right to take possession. The rule is that the purchaser still has to file a
petition for the issuance of a writ of possession to obtain possession.
The proceedings related thereto allow the mortgagor to participate although
jurisprudence provides that the hearings are ex-parte. However, with the mandate of Section 8
of Act 3135 which allow the mortgagor to set aside foreclosure in the same proceedings, it is the
better rule to actually allow the mortgagors active participation. The obligation of the court to
issue a writ of possession in favor of the purchaser in an extrajudicial foreclosure sale ceases to
be ministerial once it is shown that there is a third party in possession of the property who is
claiming a right adverse to that of the mortgagor and that such third party is a stranger to the
foreclosure proceedings in which the ex-parte writ of possession was applied for.
As a limitation on the right to possession, a writ of possession may be legally issued only
if the debtor is in possession and no third person has intervened. Order granting a writ of
possession under Act 3135 is a final order. Hence, it is appealable. In expropriation, it is
interlocutory.
7.
Grounds for the proper annulment of the foreclosure sale are the following: (a) there was
fraud, collusion, accident, mutual mistake, breach of trust or misconduct by the purchaser (b)
the sale was not fairly and regularly conducted (c) price was inadequate and the inadequacy was
so great as to shock the conscience of the court.
MATTERS ON REDEMPTION
Redemption is a transaction by which the mortgagor reacquires the property which may
have passed under the mortgage or divests the property of the lien which the mortgage may have
created.
Kinds of Redemption.
151
1.
Equity of Redemption right of the mortgagor to redeem the mortgaged property
after his default in the performance of the conditions of the mortgage but before the sale of the
mortgaged property or confirmation of sale; applies to judicial foreclosure of real mortgage and
chattel mortgage foreclosure
2.Right of Redemption right of the mortgagor to redeem the property within a certain
period after it was sold for the satisfaction of the debt; applies only to extrajudicial foreclosure of
mortgage.
DISTINGUISHING EQUITY OF REDEMPTION FROM RIGHT OF REDEMPTION
Equity of Redemption
Right of Redemption
Period of Redemption:
1.
Extra-judicial
a. Natural person 1 year from the registration of the certificate of sale with
Registry of Deeds
b. Juridical Person same rule as natural person
c. Juridical Person (mortgagee is bank) 3 moths after foreclosure or before
registration of certificate of foreclosure whichever is earlier
2.
152
1. Mortgage is not a bank (Act No. 3135 in relation to Section 28, Rule 39 of the Revised
Rules of Court)
a. Purchase price of the property
b. 1% interest per month on the purchase price
c. Taxes paid and amount of purchasers prior lien, if any, with the same rate of
interest computed from the date of registration of sale, up to the time of
redemption.
2. Mortgagee is a bank. (General Banking Law of 2000)
a. Amount due under the mortgage deed
b. Interest
c. Cost and expenses
Redemption price in this case is reduced by the income received from the property.
the Registry of Deed to be validly constituted. In the case at bar, the Contract of Mortgage
executed between Pio and Jose was in the form of a private document and not registered in the
Registry of Deeds.
Moreover, it contains a stipulation (pacto comisorio) which is null and void under Article
2088 of the Civil Code.
Even if assuming that the property was validly mortgaged to the plaintiff, his recourse
was to foreclose the mortgage, not to seek annulment of the sale.
154
the mere fact that there is as yet no compliance with the requirement that it be recorded cannot
be a bar to foreclosure.
Purpose of registration: Registration of Mortgage is necessary only to make the same valid
against third persons
155
Judgment in the foreclosure proceeding has already been issued and that the land is only for
execution. The decision cannot affect the rights of Santiago.
Since April 10, 1961 was not the day or the last day set by law for the extra judicial foreclosure
sale, nor the last day of a given period, but a date fixed by the deputy sheriff, the aforesaid sale
cannot legally be made on the next succeeding business day without the notices of the sale on
the day being posted as prescribed in Section 9, of Act 1335:
Notice shall be given by posting of the sale for not less than twenty days in at least three
public places of the municipality or city where the property is situated, and if such property is
worth more than four hundred pesos, such notice shall also be published once a week for at least
three consecutive weeks in a newspaper of a general circulation in the municipality or city.
FIESTAN VS. CA
185 SCRA 75
Mortgagor: FIESTAN AND ARCONADA
Mortgagee: DBP
Facts:
Dionesio Fiestan and Juanita Arconada mortgaged to DBP a parcel of land as security of
their P22, 000.00 loan.
Mortgagors failed to pay their obligation to DBP. The bank sought for foreclosure of the
mortgaged property. DBP acquired the property being the highest bidder at the public auction
sale. After 1 year, the mortgagor failed to redeem the property and so the bank sold said
property to Francisco Peria. Such sale was registered in the Registry of Deeds and a TCT was
issued to him.
Petitioners then filed a suit before the RTC for annulment of sale, mortgage and
cancellation of the TCT against the defendants. The court dismissed the complaint. Hence this
case.
Contentions:
FIESTAN AND ARCONADA:
the extrajudicial foreclosure of the mortgaged land is void on the ground that it was
conducted without the provincial Sheriff affecting a levy over the said property
before selling the same in the public auction.
DBP:
maintained that the extra judicial foreclosure of the mortgaged
property as valid as well as its sale afterwards to Peria.
SC Ruling:
The Court ruled that the extra judicial foreclosure is valid. A levy by a sheriff is not
necessary for the validity of an extrajudicial foreclosure of a mortgaged property. What is only
needed is to:
a. Post notices in public view; and
b. Publish such notice in a newspaper of general circulation, stating the time
and the place where the public auction will be conducted.
In the case at bar, evidence adduced show that the formalities provided for by Act 3135
has been complied with.
157
158
provided in Public Land Act, the debtor-mortgagor has the right to repurchase the same for such
right of redemption is an absolute right.
161
contended that even granting without conceding that the petitioner has the right of
redemption, it is estopped from doing so since it was raised for the first time on
appeal to the Supreme Court.
SC Ruling:
The Court ruled that the respondent court is correct in holding that the petitioner has
only an equity of redemption since the foreclosure is judicial in nature. Facts presented also
show that Huerta indeed failed to raise such issue in the earliest possible time. It did not even
invoke such right on appeal to the respondent court, for even if he did, the CA cannot entertain
the same. Hence, it is the petitioner who orchestrated his own downfall. For even if indeed it has
the right of redemption, it cannot exercise the same for his failure to invoke such right, by way of
counterclaim, when he failed to raise the issue at the outset of the case.
162
In the same year (1960), the provincial sheriff then issued a writ of possession in favor of
Lamberang. Lim then made Lamberang an offer for the redemption of the land in question,
which Lamberang refused. A case was filed by the petitioner contending that they acquired the
right of redemption after Aleman sold the land in question in their favor prior to the foreclosure
proceedings.
Contention:
Lim:
contended that they acquired the right of redemption after Aleman sold the land in
question prior to Lamberangs acquisition of the property in public auction, thus
when they offered to redeem the land within the redemption period, Lamberang is
duty bound to allow Lim to exercise their right of redemption.
Lamberang
maintained the decision of the Trial Court.
SC Ruling:
The Court ruled that the petitioner has the right of redemption in repurchasing the
property in question. It should be noted that prior to the auction sale (1960) in which
Lamberang acquired his right over the said property, the ownership of the property in question
has already transferred in favor of Lim, thus, Lim being the at the time of the redemption period
has the right to redeem the property with held by the private respondent. Thus, Lamberang
should not have allowed Lim to redeem the property in questions.
The Court ruled that the sale in favor of Lamberang could not have been valid since at
the time of the public auction, the mortgage debtor is no longer the owner of the foreclosed
property but the ownership had already been acquired by Lim.
ONG VS.CA, PREMIRE DEVELOPMENT BANK
333 SCRA 189
Mortgagee: DEVELOPMENT BANK OF THE PHILIPPINES
Mortgagor: KENLENE LABORATORIES
Facts:
Kenlene Laboratories obtained a loan from the creditor bank DBP. As security, spouses
Ong, executed a real estate mortgage in favor of the DBP. The spouses Ong defaulted, leading
to the extrajudicial foreclosure of the mortgaged properties. DPB, being the highest bidder and
upon filing the necessary bond, applied for a writ of possession which was granted by the trial
court. The said writ was challenged by the petitioners, their petition having been denied, filed an
appeal to the CA but was also denied.
Contention:
Ong:
contended that the implementation of the writ of possession would render the
judgment nugatory because there is still a pending case for the annulment of the
extrajudicial foreclosure.
PDB:
contended that prohibition does not lie since the petitioners have to two remedies
available, (1) appeal the order issuing the writ of possession under Sec. 8 of Act
3135, and (2) file a separate action for annulment of foreclosure of mortgage.
SC Ruling:
164
The case at bar falls under circumstance of Extrajudicial foreclosure of real estate,
wherein writ of possession may be issued under two conditions: 1) within one (1) year
redemption period, upon filing of the bond; 2) after the lapse of the redemption period, without
need of a bond. Moreover, it was also ruled that the contention of the petitioner that the
issuance of writ of possession is erroneous as it may run counter to the pending case of
annulment of the mortgage involving the same property is bereft of merit. The issuance of the
writ is a ministerial function, thus the enforcement of the same by the sheriff is also a ministerial
duty.
165
C.
ANTICHRESIS
Article 2132
By the contract of antichresis the creditor acquires the right to
receive the fruits of an immovable of his debtor, with the obligation to
apply them to the payment of the interest, if owing, and thereafter to
the principal of his credit.
COMMENT:
1.
Definition of Antichresis
Antichresis is a contract whereby the creditor acquires the right to receive the
fruits of an immovable of his debtor, with the obligation to apply them to the payment of
the interest, if owing, and thereafter to the principal of his credit.
2.
Characteristics
a. It is an accessory contract because it secures the performance of a principal
obligation.
b. It is a formal contract because the amount of the principal and of the interest
must both be in writing; otherwise the contract of antichresis is void.
3.
Distinctions
a) Antichresis and Real Mortgage
a. delivery/possession
ANTICHRESIS
REAL MORTAGAGE
the property is delivered to the property is NOT
the creditor
delivered to the creditor
c. subject
real property
real property
a. subject matter
ANTICHRESIS
real property
PLEDGE
personal property
b. perfection
166
Note:
1. Delivery of the property to the creditor is required only in order that the creditor may
receive the fruits and not for the validity of the contract.
2. It is not essential that the loan should earn interest in order that it can be guaranteed
with a contract of antichresis. Antichresis is susceptible of guaranteeing all kinds of
obligations, pure or conditional.
3. The fruits of the immovable which is the object of the antichresis must be appraised at
their actual market value at the time of the application (see Article 2138).
4. The property delivered stands as a security for the payment of the obligation of the
debtor in antichresis. Hence, the debtor cannot demand its return until the debt is totally
paid.
5. A stipulation authorizing the antichretic creditor to appropriate the property upon the
non-payment of the debt within the period agreed upon is void (see Article 2038).
4.
b. file petition for the sale of the real property as in a foreclosure of mortgages
under Rule 68 of the Rules of Court.
***The parties, however, may agree on an extrajudicial foreclosure in the same
manner as they are allowed in contracts of mortgage and pledge.
Respondent spouses Jesus and Anacorita Doyon obtained several loans amounting to
P10 million from petitioner Development Bank of the Philippines (DBP). As security for the
loans, respondents mortgaged their real estate properties as well as the motor vehicles of JD Bus
Lines. Respondents failed to pay their loan. Consequently, petitioner filed an application for
extrajudicial foreclosure of real estate mortgages. To forestall the foreclosure proceedings,
respondents immediately filed an action for their nullification claiming that they had already
paid the principal amount of their loans (or P10 million) to petitioner.
Contention of the Parties:
Respondents:
- claimed that the provision in the mortgage contracts allowing petitioner as mortgagee to
take constructive possession of the mortgaged properties upon respondents default was
void. The provision allegedly constituted a pactum commissorium since it permitted
petitioner to appropriate the mortgaged properties.
- Respondents also assailed the validity of the public auctions conducted by the DBP
special sheriff. The September 9, 1998 notices of sale stated that the foreclosed real
properties would be sold at public auction on "September 16, 1998 at 10:00 a.m. or soon
167
thereafter" while the foreclosed motor vehicles would be sold on "September 16, 1998 at
2:00 p.m. or soon thereafter. Section 4 of Act 3135 however, requires that public
auctions must take place from 9 a.m. until 4 p.m. or, allegedly, for seven continuous
hours.
Petitioner:
- basically asserts that it did not act in bad faith when it foreclosed on respondents real
and chattel mortgages anew. Because respondents loans were past due, it had the right
to satisfy its credit by foreclosing on the mortgages.
Ruling:
A stipulation allowing the mortgagee to take actual or constructive possession of a
mortgaged property upon foreclosure is valid. In Agricultural and Industrial Bank v.
Tambunting, the Supreme court ruled that:
A stipulation authorizing the mortgagee, for the purpose stated therein
specified, to take possession of the mortgaged premises upon the foreclosure of a
mortgage is not repugnant [to either Article 2088 or Article 2137]. On the contrary, such
a stipulation is in consonance or analogous to the provisions of Article [2132], et seq. of
the Civil Code regarding antichresis and the provision of the Rules of Court regarding the
appointment of a receiver as a convenient and feasible means of preserving and
administering the property in litigation.
The real estate and chattel mortgage contracts uniformly provided that petitioner could
take possession of the foreclosed properties upon the failure of respondents to pay even one
amortization. Thus, respondents refusal to pay their obligations gave rise to petitioners right to
take constructive possession of the foreclosed motor vehicles.
In Philippine National Bank v. Cabatingan, held that a sale at public auction held at any
time between 9:00 a.m. and 4:00 p.m. of a particular day, regardless of duration, was valid.
Since the sale at public auction of the foreclosed real properties and chattels was conducted
between 10:00 a.m. and 11:00 a.m. and between 2:00 p.m. and 3:30 p.m., respectively, the
auctions were valid.
Article 2133
The actual market value of the fruits at the time of the
application thereof to the interest and principal shall be the measure of
such application.
COMMENT:
1.
Article 2134
The amount of the principal and of the interest shall be specified
in writing; otherwise, the contract of antichresis shall be void.
COMMENT:
1.
Form of contract
168
2.
3.
Article 2134 is an instance when the law requires that a contract be in some form
in order that it may be valid and not only to affect third persons.
Must be in writing
a) amount of the principal
b) amount of the interest
*otherwise, the contract of antichresis shall be void
Effect if the antichresis is void
Even if the antichresis is void, the principal obligation, however, may still valid.
Article 2135
The creditor, unless there is a stipulation to the contrary, is
obliged to pay the taxes and charges upon the estate.
He is also bound to bear the expenses necessary for its
preservation and repair.
The sums spent for the purposes stated in this article shall be
deducted from the fruits.
COMMENT:
1.
c) Another obligation of the creditor is to apply the fruits, after receiving them to
the interest, if owing, and thereafter to the principal (Article 2132) in
accordance with the provisions of Article 2133 or 2138.
Hence, the duty of the creditor to render an account of said fruits to the
debtor and the corresponding right of the latter that the said fruits be applied
to the debt.
Article 2136
The debtor cannot reacquire the enjoyment of the immovable
without first having totally paid what he owes the creditor.
But the latter, in order to exempt himself from the
obligations imposed upon him by the preceding article, may always
compel the debtor to enter again upon the enjoyment of the
property, except when there is a stipulation to the contrary.
COMMENT:
1.
2.
Article 2137
The creditor does not acquire the ownership of the real
estate for non-payment of the debt within the period agreed upon.
COMMENT:
1.
Effect of debtors non-payment of the debt within the period agreed upon
-the creditor does not acquire the ownership of the real estate
2.
3.
*Every stipulation to the contrary shall be void. But the creditor may petition the
court for the payment of the debt or the sale of the real property.
In this case, the Rules of Court on the foreclosure of mortgages shall apply.
The right of creditor in case of non-payment of debt
If the debt is not paid, it is clear that the creditor does not acquire ownership of
the immovable since what was transferred is not the ownership but merely the
right to receive the fruits. A stipulation authorizing the antichretic creditor to
appropriate the property upon the non-payment of the debt within the period agreed
upon is void.
Remedy of the creditor in case of debtors non-payment of debt
a. to bring an action for specific performance; or
b. to petition for the sale of real property as in a foreclosure of mortgage under
RULE 68 of the Rules of Court.
Article 2138
The contracting parties may stipulate that the interest upon
the debt be compensated with the fruits of the property which is
the object of the antichresis, provided that if the value of the fruits
should exceed the amount of interest allowed by the laws against
usury, the excess shall be applied to the principal.
COMMENT:
1.
Payment preference
The antichretic creditor is under obligation to apply the fruits in satisfaction,
first, of whatever interest on the debt is due, and secondly, to non payment of the
principal.
170
Article 2139
The last paragraph of Article 2085 and Articles 2089 to 2091 are
applicable to this contract.
COMMENT:
1.
Provisions applicable to antichresis
Art. 2085, last paragraph. Third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging their own property.
Art. 2089. A pledge or mortgage is indivisible, even though the debt may be
divided among the successors in interest of the debtor or of the creditor.
Therefore, the debtors heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
completely satisfied.
Neither can the creditors heir who received his share of the debt return the
pledge or cancel the mortgage, to the prejudice of the other heirs who have not been
paid.
From these provisions is excepted the case in which, there being several things
given in mortgage or pledge, each one of them guarantees only a determinate portion of
the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specifically answerable is
satisfied.
Art. 2090. The indivisibility of a pledge or mortgage is not affected by the fact
that the debtors are not solidarily liable.
Art. 2091. The contract of pledge or mortgage may secure all kinds of
obligations, be they pure or subject to a suspensive or resolutory condition.
2.
3.
171
172
D.
CHATTEL MORTGAGE
Article 2141
The provisions of this Code on pledge, insofar as they are not in
conflict with the Chattel Mortgage Law shall be applicable to chattel
mortgages.
COMMENT:
1.
2.
3.
Registration
a. Registration shall be done in the Register of Deeds where the mortgagor resides
b. And when the property is situated somewhere else, it needs to be registered also
in the Register of Deeds of the area where the property is situated
c. Chattel mortgage would not be valid and binding as against third persons absent
any registration
d. If what is mortgaged is a car, registration with the LTO is also needed. Absent this,
again, it would not be binding and invalid as against third persons
4.
5.
173
Part of the chattel mortgage contract wherein it is stated that the chattel
mortgage has been constituted to secure a principal obligation and not meant .
It for fraud or any ill purpose is possible to defraud using mortgage.
You can take away property through mortgage from an unsecured creditor.
6.
7.
Noticeat least 10 days notice of the time, day, place, and purpose of such sale
has been posted at 2 or more public places in such municipality.
Personal
notice or mail shall also be given to the mortgagor or person holding under
him and the persons holding subsequent mortgages of the time and place of sale.
c.
Sheriff should possess the property as he needs to deliver the same to the
winning bidder. If the mortgagor refuses to do so, the mortgagee can seek the
help of the court. There could also be a stipulation in the contract as well.
But if the debtor is not willing and able, the loss is with the creditor.
d.
COMMENTS
174
a. Any person who shall knowingly remove any personal property mortgaged under
the Chattel Mortgage Law to any province or city other than the one in which it
was located at the time of the execution of the mortgage, without the written
consent of the mortgagee or his executors, administrators or assigns.
b. Any mortgagor who shall sell or pledge personal property already pledged, or any
part thereof under the terms of Chattel Mortgage Law, without the consent of the
mortgagee written on the back of the mortgage and noted on the record thereof in
the office of the register of deeds of the province where such property is located.
More on Chattel Mortgage
1.
Sec. 2 (Act No. 1508). All personal property shall be subject to mortgage,
agreeably to the provisions of this Act, and a mortgage executed in pursuance thereof
shall be termed a chattel mortgage.
A. Vessels
Vessels are considered as personal property. They may be subject of chattel
mortgage. However, mortgages on vessels are recorded in the Philippine Coast Guard of
the port of documentation.
B. Motor Vehicles
175
A chattel mortgage on a car in order to affect third persons should not only be
recorded in the chattel registry but also be recorded with the Land Transportation Office
where the vehicle is recorded, the place where the property may be found and the
residence of the owner thereof.
C. Houses
Generally, they cannot be subject of chattel mortgage because the house is a real
property. This is so even if the house belongs to person other than the owner of the land.
However, there may be such a chattel mortgage in the following instances:
- If the parties to the contract agreed and no third persons are prejudiced;
- If what is mortgage is a house intended to be demolished or removed- for here,
what is mortgaged are the materials thereof are mere personal property.
2.
Land, buildings, roads and constructions of all kinds adhered to the soil;
Trees, plants, and growing fruits, while they are attached to the land or form an
integral part of an immovable;
3. Everything attached to an immovable in a fixed manner, in such a way that it
cannot be separated therefrom without breaking the material or deterioration of
the object;
4. Statutes, reliefs, paintings or other objects for use or ornamentation, placed on
buildings or on lands by the owner of the immovable in such a manner that it
reveals the intention to attach them permanently to the tenements;
5. Machinery, receptacles, instruments or implements intended by the owner of the
tenement for an industry or works which may be carried on in a building or on a
piece of land, and which tend directly to meet the needs of the said industry or
works.
6. Animal houses, pigeon-houses, beehives, fish ponds, or breeding places of similar
nature, in case their owner has placed them or preserves them with the intention
to have them permanently attached to the land, and forming a permanent part of
it; the animals in those places are included.
7. Fertilizer actually used on a piece of land.
8. Mines, quarries, and slag damps, while the matter thereof forms part of the bed,
and waters either running or stagnant.
9. Docks, structures which though floating, are intended by the nature and object to
remain at a fixed place on a river, lake or coast.
10. Contracts for public works and servitudes and other real rights over immovable
property.
Art. 416( Civil Code). The following are deemed to be personal property:
1. Those movables susceptible of appropriation which are not included in the
preceding article;
2. Real property which by special provision of law is considered personal property;
3. Forces of nature which are brought under the control of science; and
4. In general, all things which can be transported from place to place without
impairment of the real property to which they are fixed.
176
3.
4.
5.
Registration Essential
For the chattel mortgage to be valid between the parties, the personal property
must be recorded or registered in the Chattel Mortgage Register. Registration in the Day
Book is not enough.
**see FILIPINAS vs. IAC in cases
6.
7.
The mortgage credit (the right of the mortgagee) may be alienated or assigned, in
whole or in part. This is because the mortgagee is the owner of said right.
177
Even if the alienation is not registered, it would still be valid as between the parties.
Registration is needed only to affect third parties.
**see SERVICEWIDE vs. CA in cases
8.
Foreclosure
**see PAMECA vs. CA in cases
Ship Mortgage Law
Presidential Decree No. 1521 (The Ship Mortgage Decree of 1978)
Ship Mortgage
It is a mortgage or any lien or encumbrance on a vessel and its equipment with any bank,
or other financial institutions, domestic or foreign, for the purpose of financing the construction,
acquisition, purchase of vessels or initial operation of vessels.
Purpose of 1521:
The purpose of PD No. 1521 is to accelerate the growth and development of the shipping
industry in the Philippines and to finance the acquisition, construction, purchase or initial
operation of vessels.
Who May Constitute a Ship Mortgage?
1. Any citizen of the Philippines; or
2. Any association or corporation organized under laws of the Philippines at least 60%
of the capital of which is owned by the citizens of the Philippines.
Salient Features of the Decree:
In order for a mortgage to be valid, such mortgage shall be recorded in the office of the
Philippine Coast Guard of the port of documentation of such vessel. (sec. 3)
Port of Documentation shall be deemed to mean the port of registry of the vessel. (sec.
27)
Preferred Mortgage is a valid mortgage which at the time it is made, includes the whole
of the vessel of domestic ownership, provided that:
- The mortgage is recorded;
- An affidavit of good faith is filed and without design to hinder, delay or defraud
any creditor or lienor; and
- That the mortgage does not stipulate that the mortgagee waives the preferred
status thereof.
A vessel holding a Provisional Certificate of Philippine Registry is considered a vessel of
domestic ownership and can be a subject of preferred mortgage.
Foreign vessel shall also be subject of preferred mortgage provided that such mortgage,
hypothecation, or similar charge has been duly and validly executed in accordance with the laws
178
of foreign nation under the laws of which the vessel is documented and has duly registered in
accordance with such laws in public register.
Upon the default of any term or condition of the mortgage, the mortgagee may enforce
such lien by suit, wherein the vessel itself may be made a party defendant and be arrested. (Sec.
10)
Upon the filing of the petition for judicial foreclosure, the applicant may apply ex parte
for an order for the arrest of the vessel provided that:
o Affidavit is presented; and
o Applicant must file a bond with the condition that the latter will pay costs
which may be adjudged to the adverse party and damages if the court shall finally
adjudged that the applicant is not entitled thereto.
Original Jurisdiction is granted to the courts of first instance where the applicant resides,
defendant resides or where the property is located.
Discharge of order of arrest may be done upon filing of a counterbond by the defendant
or if a cash deposit is made.
179
180
they executed a real estate mortgage over the house and lot in favor of Isabel Iya to secure a loan
of php 12,000.00 which was registered and annotated.
Due to non payment of debt to associated insurance the house was foreclosed and was
sold to associated insurance as the highest bidder. Subsequently because of nonpayment of the
debt due to Iya, the former filed a suit to foreclose the real estate mortgage. She obtained a
judgment favorable to her and the mortgaged properties were sold to her at the auction sale.
Contentions of Parties:
Associated Insurance:
The Exclusion of the house from the foreclosure of the real estate mortgage is
proper because at the time of the execution of the chattel mortgage over the house,
the house is still considered personal property because the spouses were not the
owner of the land where the properties situated.
Isabel Iya:
She has the superior right over the house and lot.
Issue:
Is the chattel mortgage executed over the house valid?
Ruling:
No. the chattel mortgage executed is not valid.
A building certainly cannot be divested of its character of realty by the fact that the land
on which it is constructed belongs to another. In the case presented personal property could
only be the subject of a chattel mortgage and that the house in question is not one. The
execution of the chattel mortgage is really invalid and the registration of the chattel mortgage
produces no effect.
Therefore has the right to foreclose both land and house.
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Contentions:
Peoples Bank:
The so called after acquired properties covered by and subject to the deeds of
mortgage can be foreclosed.
DALCO:
The mortgages are invalid and not binding on the properties because they were not
registered in accordance with the Chattel Mortgage Law.
Ruling:
Under both deeds of mortgage, it is crystal clear that all properties of every nature and
prescription taken and in exchange or replacement, as were as all buildings, machineries,
fixtures, equipment, and other properties that the mortgagor may acquire, construct, install,
attach or use in, to, upon, or in connection with the premises that is, its lumber concession
shall immediately and become subject to the lien of both mortgage in the same manner and to
the same extent as if already included therein at the time of their execution. As the language
thus used leaves no room for doubt as to the intention of the parties, we see no useful purpose in
discussing the matter extensively. Suffice it to say that the stipulation referred to is common,
and we might say logical, in all cases where the property given as collateral are perishable or
subject to inevitable wear and tear but with understanding express or implied that they
shall be replaced with others to be thereafter acquired by the mortgagor. Such stipulation is
neither unlawful nor immoral, its obvious purpose being to maintain, to the extent allowed by
the circumstances, the original value of the properties given as security.
The Chattel Mortgage Law does not apply. The deeds provide that the after acquired
properties shall immediately become subject to the lien of this mortgage in the same manner
and to the extent as if now included therein. Where the machinery and fixtures installed by a
lumber company in its concession had become immobilized and were included in the registered
real mortgage as after acquired properties, it is not necessary to register them a second time as
chattel mortgages in order to affect third persons. The fact that the lumber company is not the
owner of the land is not important since the parties to the mortgage had characterized the said
after acquired properties as the real properties. The mortgagor is estopped to contend that the
said properties had become immobilized.
Contentions:
182
Tolentino:
Baltazar:
-
denied the allegation of fraud and maintained that Tolentino had no cause of
action except against the deceased, Angel Baltazar, and that this is neither the
proper action nor the proper court to settle Tolentino's claim.
Issue:
Whether or not the present and future improvements of the land are subject to a chattel
mortgage?
Ruling:
No. Because while the homestead itself may not be encumbered or alienated within five
(5) years from the issuance of the patent, the improvements cannot be the subject of mortgage
or pledge. A mortgage constituted on said improvements must be susceptible of registration as a
real estate mortgage and on the certificate of the title to the land of which they form part,
although the land itself may not be subject to said encumbrance. If the debt guaranteed thereby
was constructed within the period stated in section 118 of the Commonwealth Act No. 191.
Otherwise, the provision authorizing the mortgage of the improvement would be defeated.
When the improvements of the land are real property which fall under article 715 of the
Civil Code are immovable property as third persons are concerned then the mortgaged
constituted thereon must be susceptible of registration as real estate mortgage.
Where Basilio, son of the homesteader Angel, secured a patent and title for the
homestead, with knowledge that the improvement thereon had been mortgaged by his father, he
must be deemed to have received to a subsisting trust. He may be compelled to execute the
proper instrument necessary for the registration of said mortgage and its annotation on the title.
1.
Petitioner:
-
The nullification of the chattel mortgage is erroneous because they (mortgagepetitioner) is not required to look further from the certificate of title over
mortgaged property. That they are mortgagee in good faith and as between two
innocent parties, the one who caused the damage by virtue of his act confidence
mustbear the loss.
Respondents:
The chattel mortgage between the petitioner and respondent is not valid because
Ong is not yet the owner of the mortgaged vessel at the time of its execution.
-
Issue:
Is the chattel mortgage valid considering that the vessel was obtained through fraud and
was mortgaged by Ong who is not the owner?
Ruling:
The chattel mortgage is valid and subsisting. It should not be viewed in such a myopic
context. The key lies in the certificate of ownership issued in Ongs name.
A mortgagee has to rely in good faith on the certificate of title of the mortgagor of the
property given as security and in the absence of any sign that might arose suspicion to under
further investigation.
Hence, even if the mortgagor is not the owner of the property, the mortgagee is entitled
to protection. An affidavit of good faith is required only for the purpose of transforming an
already valid mortgage into a preferred mortgage.
1.
184
While this relationship was subsisting, Davao Lumber Company made Jaca execute, in their
favor, a chattel mortgage, a copy of which was never furnished to Jaca. The mortgage covers any
and all obligations contracted by the mortgagor prior to the constitution of the mortgage.
Contentions:
Jaca:
the rendered judgment of foreclosure is null and void.
Davao:
Urbano Jaca and Bonifacio Jaca are the ones indebted to the defendant in the sum
of P756,236.52 and P91,651.97, respectively; that on January 24, 1961, the plaintiff
Urbano Jaca executed a chattel mortgage in favor of the defendant to secure the
payment of any and all obligations contracted by him in favor of the defendant
covering several chattels valued at P532,000.00; that said obligation of Urbano
Jaca totalling P756,236.52 is overdue and unpaid despite repeated formal demands
for settlement thereof made by defendant.
Issue:
Is there a valid mortgage considering that it covers any and all obligations prior to the
constitution of the mortgage?
SC Ruling:
The chattel mortgage is void because it provides that the security is for the payment of
any and all obligations contracted by the mortgagor in favor of the mortgagee before the
constitution of the mortgage.
A valid mortgage cannot be made to secure a debt to be thereafter contracted.
1. Registration is essential
FILIPINAS MARBLE CORPORATION VS. IAC
142 SCRA 180
Mortgagor: Filipinas Marble Corporation
Mortgagee: Development Bank of the Philippines
Facts:
Filipinas Marble Corporation applied a $ 5 million loan with Development Bank of the
Philippines, which was granted by the latter subject to onerous conditions. Such loan was
secured by the mortgages of properties of Filipinas Marble Corporation. On January 19, 1983
Filipinas Marble Corporation filed an action for nullification of the deeds and damages with
prayer for temporary restraining order. The court granted the temporary restraining order.
Contentions:
Petitioner:
That there was never a loan to be secured because the applied was never delivered
to the petitioner-mortgagor and therefore there is lack of consideration in the
185
executed deed of mortgage. The chattel mortgage is nonetheless invalid for it was
not registered.
Respondent:
That pursuant to P.D. 385, the DBPs power to foreclose is absolute in cases where
the borrower reached arrears at the total of 20% of its total obligation. That there is
a consideration in the deed of mortgage because the applied loan by the petitioner
is constructively received by the petitioners through agents acting on their behalf.
Issue:
Can Development Bank of the Philippines foreclose the mortgage under P.D. No. 385?
SC Ruling:
No. Development Bank of the Philippines cannot foreclose the mortgage although P.D.
No 385 was issued to see to it that government financial institutions are not denied substantial
inflows, which are necessary to finance development projects over the country. But the same is
not made to protect government officials and institutions that mismanaged and misappropriate
funds.
To allow foreclosure of Finance Marble Corporation Company properties would unduly
prejudice employees.
1. Effect of registration
ALLIED BANKING CORPORATION VS. SALAS
168 SCRA 414
Mortgagor: Gencor Incorporated
Mortgagee: General Bank and Trust Company
Facts:
General Bank and Trust Company granted Gencor Marketing, Inc. a time loan evidenced
by a Promissory Note executed by the latter through its President, Dr. Clarencio Yujuico. As
security for the loan, a Deed of Chattel Mortgage was executed by Gencor involving personal
properties. The Deed of Chattel Mortgage was duly recorded in the Chattel Mortgage Registry.
On maturity date, Gencor failed to pay its obligations either to General Bank or to Allied
Banking which took over the affairs and/or required all the assets and assumed the liabilities of
General Bank. Consequently, Allied extrajudicially foreclosed the Chattel Mortgage and
requested the City Sheriff of Quezon City to effect the said foreclosure. The Sheriff, through
Deputy Sheriff Tabbada levied upon the personal properties in question.
It appears however that prior to the extrajudicial foreclosure, Metropolitan Bank and
Trust Company filed an action for a sum of money with preliminary attachment against
Clarencio Yujuico and Jesus Yujuico. A writ of preliminary attachment was issued in said case
and the Sheriff of the Court of First Instance of Rizal levied upon the personal properties.
Thus upon learning of the Notice sent by Sheriff Tabbada, Metropolitan filed an Urgent
Motion to Enjoin the Sheriff of Quezon City from foreclosing and selling the properties alleging
186
that the printing machineries and equipment belonging to Clarencio Yujuico may not legally be
foreclosed and sold at auction.
Meanwhile, Metropolitan filed a Third Party Claim alleging that these same personal
properties had been previously levied upon by the Deputy Sheriff of Branch I of the Court of
First Instance of Rizal, pursuant to a Writ of Attachment issued by Judge Emilio Salas.
However, Judge Salas rendered an Order restraining the Sheriff of Quezon City from
selling at public auction the printing machineries and equipment. Allied filed the instant
petition for certiorari, prohibition and mandamus with preliminary injunction.
Contentions:
Allied:
respondent judge lacks jurisdiction over the person of petitioner and the city sheriff
of Quezon City, and that the respondent judge acted without and/or in excess of
jurisdiction and/or with grave abuse of discretion amounting to lack of jurisdiction
in acting upon the motion of respondent Metropolitan Bank and Trust Company
Salas:
Gencor Marketing Inc. had no authority to mortgage the properties in question
and, consequently, the same cannot be sold at public auction in an extra-judicial
foreclosure of the mortgage to the General Bank and Trust Co.
Issue:
Whether or not respondent judge may validly enjoin the public sale of the extrajudicially
foreclosed properties?
Ruling:
Finding the chattel mortgage to be valid, the Court takes special note of the fact that said
chattel mortgage was registered and duly recorded in the Chattel Mortgage Registry of Quezon
City on February 7, 1974, prior to April 22, 1977, the date the writ of attachment of the
properties in question was issued. This is a significant factor in determining who of two
contending claimants should be given preference over the same properties in question.
The registration of the chattel mortgage more than three years prior to the writ of
attachment issued by Judge Salas is an effective and binding notice to other creditors of its
existence and creates a real right or a lien, which being recorded, follows the chattel wherever it
goes. The chattel mortgage lien attaches to the property wherever it may be. Thus, Metropolitan
as attaching creditor acquired the properties in question subject to petitioners mortgage lien as
it existed thereon at the time of the attachment.
In this regard, it must be stressed that the right of those who so acquire said properties
should not and cannot be superior to that of the creditor who has in his favor an instrument of
mortgage executed with the formalities of law, in good faith, and without the least indication of
fraud.
Applying the foregoing principle to the case at bar, the Court finds the lien of petitioners
chattel mortgage over the mortgaged properties in question superior to the levy on attachment
made on the same by private respondent as creditor of chattel mortgagor Clarencio Yujuico.
What may be attached by private respondent as creditor of said chattel mortgagor is only the
equity or right of redemption of the mortgagor.
187
188
invoked Article 1626 of the Civil Code which provides that the debtor who, before having
knowledge of the assignment, pays his creditor shall be released from the obligation. They
argue that they were not notified of the assignment made to petitioner. This provision, however,
is applicable only where the debtor pays the creditor prior to acquiring knowledge of the latters
assignment of his credit. It does not apply, nor is it relevant, to cases of non-payment after the
debtor came to know of the assignment of credit. This is precisely so since the debtor did not
make any payment after the assignment.
1.
Foreclosure
PAMECA WOOD TREATMENT PLANT, INC. VS. COURT OF APPEALS
310 SCRA 281
balance of the price, where the vendor opts to foreclose the chattel mortgage on the thing sold,
should the vendees failure to pay cover two or more installments, this provision is specifically
applicable to a sale on installments.
To accommodate petitioners prayer even on the basis of equity would be to expand the
application of the provisions of Article 1484 to situations beyond its specific purview, and ignore
the language and intent of the Chattel Mortgage Law. Equity, which has been aptly described as
justice outside legality, is applied only in the absence of, and never against, statutory law or
juridical rules of procedure.
190
PART III
CONCURRENCE AND PREFERENCE OF CREDITS
A.
B.
C.
D.
The liens and mortgages with respect to specific movable and immovable
property have been increased.
The New Civil Code and the Insolvency Law have been brought into harmony.
Preferred claims as to the free property of the insolvent have also been
augmented.
The order of preference among claims with respect to specific personal and real
property has been abolished, except that taxes must first be satisfied.
A concurrence or preference of credit does not create a lien. It merely creates a
right of one creditor to be paid first as against other creditors. If the property is
not sufficient, creditors who concur share pro-rata.
E.
Article 2236
The debtor is liable with all his property, present and future, for
the fulfillment of his obligations, subject to the exemptions provided
by law.
COMMENTS
1.
Right of the Creditors
191
a. right to pursue the property in possession of the debtor to satisfy the debt
b. may impugn the acts which the debtor may have done to defraud them
2.
Exempt Property
a.
Present property
family home; those enumerated in Rule 39, Sec. 13 of the Rules of Court; and Sec.
118 of Public Land Act
b.
Future property
a debtor who obtains a discharge from his debts on account of insolvency is not
liable for the unsatisfied claims of his creditors with said property subject to
certain exceptions provided by law
c.
COMMENTS
1.
2.
Insolvency Proceedings
Insolvency proceedings have for their aim the conservation of all the remaining
assets of the insolvent/liquidated person/corporation for distribution to the creditors,
after payment of taxes.
Article 2238
So long as the conjugal partnership or absolute community
subsists, its property shall not be among the assets to be taken
possession of by the assignee for the payment of the insolvent debtor's
obligations, except insofar as the latter have redounded to the benefit
of the family. If it is the husband who is insolvent, the administration
of the conjugal partnership of absolute community may, by order of
the court, be transferred to the wife or to a third person other than the
assignee.
COMMENTS
192
1.
2.
Sample Problem
As finance officer of K and Co., Victorino arranged a loan of P5 Million from PNB
for the corporation. However, he was required by the bank to sign a Continuing Surety
Agreement to secure the repayment of the loan. The corporation failed to pay the loan,
and the bank obtained a judgment against it and Victorino, jointly and severally. To
enforce the judgment, the sheriff levied on a farm owned by the conjugal partnership of
Victorino and his wife Elsa. Is the levy proper or not? (BAR)
ANSWER: The levy is not proper there being no showing that the surety
agreement executed by the husband redounded to the benefit of the family. An obligation
contracted by the husband alone is chargeable against the conjugal partnership only
when it was contracted for the benefit of the family. When the obligation was contracted
on behalf of the family business, the law presumes that such obligation will redound to
the benefit of the family. However, when the obligation was to guarantee the debt of a
third party, as in the problem, the obligation is presumed for the benefit of the third
party, not the family. Hence, for the obligation under the surety agreement to be
chargeable against the partnership it must be proven that the family was benefited and
that the benefit was a direct result of such agreement (Ayala Investment v. Ching, 286
SCRA 272).
Article 2239
If there is property, other than that mentioned in the preceding
article, owned by two or more persons, one of whom is the insolvent
debtor, his undivided share or interest therein shall be among the
assets to be taken possession of by the assignee for the payment of the
insolvent debtor's obligations.
COMMENT
1. Rule on co-ownership
If there is co-ownership, the undivided share/ interest of one co-owner can be possessed
by the assignee for the payment of debtors obligation.
Article 2240
Property held by the insolvent debtor as a trustee of an express
or implied trust shall be excluded from the insolvency proceedings.
COMMENT
1.
193
CLASSIFICATION OF CREDITS
Article 2241
With reference to specific movable property of the debtor, the
following claims or liens shall be preferred:
(1) Duties, taxes and fees due thereon to the State or any
subdivision thereof;
(2) Claims arising from misappropriation breach of trust, or
malfeasance by public officials committed in the performance of
their duties, on the movables, money or securities obtained by
them;
(3) Claims for the unpaid price of movables sold, on said movables,
so long as they are in the possession of the debtor, up to the
value of the same; and if the movable has been resold by the
debtor and the price is still unpaid, the lien may be enforced on
the price; this right is not lost by the immobilization of the thing
by destination, provided it has not lost its form, substance and
identity; neither is the right lost by the sale of the thing together
with other property for a lump sum, when the price thereof can
be determined proportionally;
(4) Credits guaranteed with a pledge so long as the things pledged
are in the hands of the creditor, or those guaranteed by a chattel
mortgage, upon the things pledged or mortgaged, up to the
value thereof;
(5) Credits for the making, repair, safekeeping or preservation of
personal property, on the movable thus made, repaired, kept or
possessed;
(6) Claims for laborers' wages, on the goods manufactured or the
work done;
(7) For expenses of salvage, upon the goods salvaged;
(8) Credits between the landlord and the tenant, arising from the
contract of tenancy on shares, on the share of each in the fruits
or harvest;
(9) Credits for transportation, upon the goods carried, for the price
of the contract and incidental expenses, until their delivery and
for thirty days thereafter;
(10) Credits for lodging and supplies usually furnished to travelers
by hotel keepers, on the movables belonging to the guest as
long as such movables are in the hotel, but not for money
loaned to the guests;
(11) Credits for seeds and expenses for cultivation and harvest
advanced to the debtor, upon the fruits harvested;
(12) Credits for rent for one year, upon the personal property of the
lessee existing on the immovable leased and on the fruits of the
same, but not on money or instruments of credit;
(13) Claims in favor of the depositor if the depositary has wrongfully
sold the thing deposited, upon the price of the sale.
In the foregoing cases, if the movables to which the lien or
preference attaches have been wrongfully taken, the creditor may
demand them from any possessor, within thirty days from the unlawful
seizure.
194
COMMENT:
1. Article 2241
This is just an enumeration of the credits that enjoy preference with respect to specific
movables; no order of preference, except as regards the State.
2. Last paragraph of the article
The last paragraph applies only when the right of ownership in the specific property
continues in the debtor.
Article 2242
This is just an enumeration of the credits that enjoy preference with respect to specific
immovable; no order of preference, except as regards the State.
2.
Note
195
Rosario Cruzado obtained from Rehabilitation Finance Corporation (RFC) a loan in the
amount of P11, 000.00. She mortgaged the land issued in her name and that of her deceased
husband as security. As she failed to pay certain installments on the loan, the mortgage was
foreclosed upon a consideration totaling P11, 000.00. Upon her application, the land was sold
back to her conditionally for the amount of P14, 269.03, payable in seven (7) years.
Two years later, Rosario was authorized by the court to sell the land in question together
with the improvements, with the previous consent of the RFC. Thus, she sold it to Pina for P19,
000.00 transferring all their rights, interests, title and dominion over the land together with the
existing improvements thereon, with the exception of the sum of P11, 009.52, which the vendor
is still presently obligated to the RFC and which the vendee herein now assumes to pay to the
RFC.
Having paid in advance, Pina executed a promissory note in favor of the vendor, Rosario.
She later made an additional payment in the promissory note and was able to secure in her
name a TCT. Then, Pina mortgaged the said property to Magdalena Barretto as security for a
loan totaling P30, 000.00.
Pina failed to pay the remaining installments, thus, Rosario filed a case against her.
Pending the trial of the case, a lien was constituted upon the property in the nature of a levy in
attachment in favor of the Cruzados. Pina likewise failed to pay her indebtedness of P30,
000.00 to Barretto, thus the latter filed and action for foreclosure of mortgage.
The Barrettos filed a motion for the issuance of a writ of execution while the Cruzados
filed their Vendors Lien over the real property. RTC favored the Cruzados. On the same date,
the sheriff of Manila sold at public auction the property. As highest bidder, the Barrettos
themselves acquired the property for P49, 000.00.
Contentions:
Barretto:
-
Cruzado:
Ruling:
She argued that in asmuch as the unpaid vendors lien in this case was not
registered, it should not prejudice the said appellants registered rights over the
property.
Being an unpaid vendor, she is entitled to the unpaid balance of the purchase
price of the property.
196
The fact remains that Rosario Cruzado was an unpaid vendor for the unpaid balance of
the price of the property bought by Pina Villanueva, and that she has the right to share pro-rata
with the appellants the proceeds of the foreclosure sale. Article 2242 of the NCC enumerates the
claims, mortgage and liens that constitute an encumbrance in specific immovable property and
among them are for the unpaid price of real property sold, and mortgage credits recorded in the
Registry of Property. Article 2249 of the same Code provides that if there are two or more
credits with respect to the same specific real property, they shall be satisfied pro-rata after the
payment of the taxes and assessment upon the immovable property.
Also, it is to be noted that unlike the unpaid price of real property sold, mortgage credits,
in order to be given preference, should be recorded in the Registry of Property. The law,
however, does not make any distinction between registered and unregistered vendors lien,
which only goes to show that any lien of that kind enjoys the preferred credit status.
JL BERNARDO CONSTRUCTION vs. CA
324 SCRA 24
Parties:
JL Bernardo Construction creditor
Municipality of San Antonio thru Salonga respondent/ debtor
Facts:
The municipal government of San Antonio, Nueva Ecija approved the construction of the
San Antonio Public Market in April 1990. Bernardo Construction, thru petitioner Santiago
Sugay, submitted its bid together with qualified bidders. After evaluating the bid, the contract
was awarded to petitioners. On June 1990, a Constructive Agreement was entered into by the
Municipality of San Antonio thru Salonga and petitioner Bernardo. Under this agreement, the
municipality agreed to assume the expenses for the demolition, clearing and site filling of the
construction site in the amount of P1M and in addition, to provide cash equity of P767, 305.99
to be remitted directly to petitioner.
The cash equity and the advance expenses of Bernardo were not paid despite demand.
On July 1991, petitioners filed a complaint for breach of contract, specific performance and
collection of a sum of money, with prayer for preliminary attachment and enforcement of
contractors lien against the Municipality and Salonga.
Contention:
JL Bernardo Construction:
Article 2241 and 2242 of the NCC enumerates certain credits which enjoy
preferences with respect to specific personal/ real property of the debtor.
Specifically, the contractors lien claimed by petitioner is granted under Art. 2242
(3) which provides that the claims of contactors engaged in the construction,
reconstruction or repair of buildings/ other works shall be preferred with respect
to the specific building or other immovable property constructed.
Ruling:
Article 2242 only finds application when there is concurrence of credits, i.e., when the
same specific property of the debtor is subjected to the claims of several creditors and the value
of said property of the debtor is insufficient to pay in full all the creditors.
In such a situation, the question of preference will arise, that is, there will be a need to
determine which of the creditors will be paid ahead of the others. Fundamental tenets of due
process will dictate that this statutory lien should then only be enforced in the context of some
kind of a proceeding where the claim of all the preferred creditors may be bindingly
adjudicated, such as insolvency proceedings.
The claim filed by petitioners in the trial court does not partake of the nature of an
insolvency proceeding. It is basically for specific performance and damages.
197
A duplex apartment house was built for the Sps. Filomeno and Socorro Tabligan by
Ramos. The spouses paid Ramos the sum of P7, 139.00 only, thus, Ramos made use of his
money to finish the construction of the apartment. Meanwhile, Sps. Tabligan obtained a loan
from Philippine Savings Bank (PSB) in the amount of P35, 000.00 for the purpose of
completing the construction. The spouses executed three promissory notes and three deeds of
REM over the duplex apartment. In Dec. 1996, PSB registered the deed of REM. The
subsequent mortgages were also registered in the Registry of Deeds of Manila. At the time of the
registration of these mortgages, the TCT was free from all liens and encumbrances. Spouses
failed to pay, causing PSB to foreclose the mortgages. PSB was also the highest bidder at the
auction sale enabling it to have the certificate of sale registered in its name.
Upon the other hand, Ramos filed an action against the spouses to collect the unpaid
cost of the construction. During its pendency, Ramos obtained a writ of preliminary attachment
over the subject property. On Aug. 26, 1968, CFI OF Manila decided in favor of Ramos. The
spouses did not have property to satisfy the judgment so Ramos sent a letter to the PSB for the
delivery of his pro-rata share in the value of the duplex apartment in accordance with Art. 2242
of the NCC. PSB refused to pay.
Contentions:
Ramos:
He is entitled to his pro-rata share in accordance with Art. 2242 and that the
proceedings the lower court had before can qualify as a general liquidation of the
estate of the spouses Tabligan because the only existing property of said spouses
is the duplex apartment.
PSB:
In order that Art. 2242 will apply, an insolvency proceeding or other liquidation
proceeding of similar import must first be conducted. Also, there could have
been no insolvency proceeding as there were only two known creditors. Thus, the
spouses contractors claim did not acquire the character of a statutory lien equal
to PSBs registered mortgage.
Ruling:
Concurrence of credits occurs when the same specific property of the debtor or all of his
property is subjected to the claims of several creditors. It becomes material when said assets are
insufficient for some creditors if necessity will not be paid/ some creditors will not obtain the
full satisfaction of their claims. In this respect, the question of preference arises.
Under the system established by Art. 2242 and 2249, only taxes and assessments upon
an immovable property enjoy absolute preference. All the remaining specified classes of
preferred creditors under Art. 2242 enjoy no priority among themselves. Their credits shall be
satisfied pro-rata. Under the Barretto case, the full application of the foregoing articles
demands that there must first be some proceeding where the claims of all the preferred creditors
may be bindingly adjudicated, such as insolvency.
198
Article 2243
The claims or credits enumerated in the two preceding articles
shall be considered as mortgages or pledges of real or personal
property or liens within the purview of legal provisions governing
insolvency. Taxes mentioned in No. 1, Article 2241, and No. 1, Article
2242, shall first be satisfied.
COMMENT:
1.
2.
199
Article 2244
With reference to other property, real and personal of the debtor,
the following claims or credits shall be preferred in the order named:
(1) Proper funeral expenses for the debtor, or children under his
or her parental authority who have no property of their own,
when approved by the court;
(2) Credits for services rendered the insolvent by employees,
laborers, or household helpers for one year preceding the
commencement of the proceedings in insolvency;
(3) Expenses during the last illness of the debtor or of his or her
spouse and children under his or her parental authority, if
they have no property of their own;
(4) Compensation due the laborers or their dependents under
the law providing for indemnity for damages in cases of labor
accident, or illness resulting for the nature of the
employment;
(5)Credits and advancements made to the debtor for support of
himself or herself, and family, during the last year preceding
the insolvency;
(6) Support during the insolvency proceedings, and for three
months thereafter;
(7) Fines and civil indemnification arising from a criminal
offense;
(8) Legal expenses, and expenses incurred in the administration
of the insolvents estate for the common interest of the
creditors, when properly authorized and approved by the
court;
(9) Taxes and assessments due the national government, other
than those mentioned in Articles 2241, No. 1, and 2242, No.
1;
(10) Taxes and assessments due any province, other than those
referred in Articles 2241, No. 1, and 2242, No. 1;
(11)Taxes and assessments due any city or municipality, other
than those indicated in Articles 2241, No. 1, and 2242, No. 1;
(12) Damages for death or personal injuries caused by a quasidelict;
(13) Gifts due to public and private institutions or charity or
beneficence;
(14) Credits which, without special privilege, appear in (a) a
public instrument; or (b) in a final judgment, if they have
been the subject of litigation.
These credits shall have
preference among themselves in the order of priority of the
dates of the instruments and of the judgments, respectively.
COMMENT:
1.
Article 2244
This article enumerates the preferred credits and gives their order of preference
in the order named.
2.
200
4.
5.
Specially preferred credits, because they constitute liens, take precedence over
ordinary preferred credits insofar as the attached property is concerned
Modification of Article 2244
Art. 110 of the Labor Code modified Art.2244 of the Civil Code: it is an
ordinary preferred credit (when not falling within 2241(6) and 2242(3)) that became
first in priority, and the one-year limitation in 2244(2) is abolished.
From the provisions of the Labor Code, a declaration of bankruptcy or a
judicial liquidation must be enforced; if not, then the worker is put above the State.
6.
7.
8.
Parties:
Creditors:
USTC Association of Employees and Workers Union
Federation dela Industria Tabaquera y Otros Trabajadores de Filipinas (FOITAF)
Bureau of Internal Revenue (BIR)
Bureau of Customs
201
Sometime in 1980, Aggregate Mining Exponents (AMEX) laid off about 70% of its
employees because it was experiencing business reverses. The retained employees constituting
30% of the work force however, were not paid their wages. This non-payment of salaries went
on until 1982 when AMEX completely ceased operations and entered into an operating
agreement with T.M. San Andres Devt. Corp. whereby the latter would be leasing the equipment
and machineries of AMEX.
The unpaid employees sought redress form the Labor Arbiter who rendered a decision
finding that the claims of these employees for payment of unpaid wages and separation pay is
valid and meritorious, ordering AMEX to pay the employees. AMEX and T.M. San Andres
Devt. Corp. and PNB agreed that, should the principal obligor be unable to satisfy these awards,
202
the same can be satisfied from the proceeds/ fruits of its machineries and equipment being
operated by T.M. San Andres Devt. Corp. either by operating agreement with employer AMEX
or thru lease of the same from PNB.
Contention:
PNB as mortgagee/ creditor interposed an appeal based on the allegation that the
workers lien covers unpaid wages only and not the termination/ severance pay. It questioned
whether or not the workers lien takes precedence over other claims considering that the
Supreme Court has ruled otherwise in Republic v. Peralta, wherein tax claims of the State
prevails against workers lien.
Ruling:
Article 110 of the Labor Code provides for worker preference in case of bankruptcy. In
the event of bankruptcy or liquidation of an employees business, his workers shall enjoy first
preference as regards their unpaid wages and other monetary claims. Such unpaid wages and
monetary claims shall be paid in full before claims of the Government and other creditors may
be paid. This indicates that such preference shall prevail despite the order set forth in Arts.
2241-2245 of NCC. No exceptions were provided under the said article, henceforth, none shall
be considered. The Labor Code was signed into law decades after the NCC took effect.
DEVELOPMENT BANK OF THE PHILIPPINES vs. NLRC
242 SCRA 594
Parties:
Leonor Ang TPWIIs employee/cpmplainant
Tropical Philippines Wood Industries, Inc. (TPWII) mortgagor
Development Bank Of The Philippines (DBP) mortgagee
Facts:
Leonor Ang started employment as Executive Secretary with Tropical Philippines Wood
Industries, Inc. (TPWII), a corporation engaged in the manufacture and sale of veneer, plywood
and sawdust panel boards. In 1982, she was promoted to the position of Personal Officer. In
September 1983, DBP, as mortgagee of TPWII, foreclosed TPWIIs properties, but continued its
business operations. In 1986 DBP took possession of the foreclosed properties. As a
consequence, Ang was verbally terminated form the service.
In 1987, aggrieved by the termination of her employment, Ang filed with the Labor
Arbiter a complaint for separation pay, 13th month pay, vacation and sick leave pay, salaries and
allowances against TPWII. The Labor Arbiter found TPWII primarily liable.
The Labor Arbiter rationalized that DBP was also subsidiarily liable in the event the
company failed to satisfy the judgment.
Contentions:
DBP:
the decision of the NLRC runs counter to the consistent rulings of the Supreme
Court emphasizing that the application of Article 110 of the Labor Code is
contingent upon the institution of bankruptcy/ judicial liquidation proceedings
against the employer, and DBP further anchors its claim on a mortgage credit.
NLRC:
That the right of an employee to be paid benefits due him from the property of his
employer is superior to the right of TPWIIs mortgage.
Ang:
Under Art. 110 of the Labor Code, complainant enjoys a preference of credit over
the properties of TPWII being held in possession of DBP.
Ruling:
DBPs contention is granted. A declaration of bankruptcy or a judicial liquidation must
be present before the workers preference may be enforced. Worker preference will find
203
application when, in proceedings such as insolvency, such unpaid wages shall be paid in full
before the claims of the Government and other creditor may be paid. The preferential right of
credit attains significance only after the properties of the debtor have been inventoried and
liquidated, and the claims held by various creditors have been established.
A recorded mortgage credit is a special preference credit under Art. 2242 (5) on
classification of credits. The preference given by Art. 110 of the Labor Code, when not falling
within Art. 2241 (6) and Art. 2242 (3) of the NCC and not attached to any specific property, is an
ordinary preferred credit although its impact is to move it from second priority in the order of
preference established by Art. 2244 of the Civil Code.
Article 2245
Credits of any other kind or class, or by any other right or title
not comprised in the four preceding articles, shall enjoy no preference.
Article 2246
Those credits which enjoy preference with respect to specific
movables, exclude all others to the extent of the value of the personal
property to which the preference refers.
Article 2247
If there are three or more credits with respect to the same
specific movable property, they shall be satisfied pro rata, after the
payment of duties, taxes and fees due the State or any subdivision
thereof.
Example:
Suppose from the given example on Art.2246, the State will first be paid for taxes
on the car, how will the salvager, the repairman, and the pledgee be paid?
Answer:
204
They shall be paid through pro rata sharing (proportional sharing). The salvager,
the repairman, and the pledgee shall all be paid pro rata from the remaining value of the
car. There is no preference as among them; there is only concurrence.
Article 2248
Those credits which enjoy preference in relation to specific real
property or real rights, exclude all others to the extent of the value of
the immovable or real right to which the preference refers.
COMMENT
1.
Article 2249
If there are two or more credits with respect to the same specific real
property
or real rights, they shall be satisfied pro rata, after the
payment of the taxes and assessments upon the immovable property
or real right.
COMMENT:
1.
2.
Specific properties
If the property is specific, taxes are given first preference.
Again, it must be stressed that with the sole exception of the State, the creditors
with respect to the same specific immovable merely concur; there is no preference.
Example:
X borrowed money from Y to finance the construction of a building, mortgaging
his land and building to be constructed thereon to secure the loan. After the building was
erected, X failed to pay the laborers who worked on the building and some suppliers who
furnished materials thereon. Upon foreclosure of the mortgage, who would have a
preferential right to the proceeds of the sale the laborers, the suppliers, or the
mortgagee? Explain.
Answer:
a.) Regarding the proceeds of the sale of the land; the mortgagee has the
preferential right because the laborers and the suppliers certainly have no lien on the
land.
b.) Regarding the proceeds of the sale of the building; the mortgagee, the
laborers and the suppliers will all share pro rata after the taxes on the building
shall have been paid.
205
Article 2250
The excess , if any, after the payment of the credits which enjoy
preference with respect to specific property, real or personal, shall be
added to the free property which the debtor may have, for the payment
of the other credits.
Article 2251
Those credits which do not enjoy any preference with respect to
specific property, and those which enjoy preference, as to the amount
not paid shall be satisfied according to the following rules:
1) In the order established in Article 2244;
2) Common credits referred to in Article 2245 shall be paid pro
rata regardless of dates;
COMMENT
1.
With respect to the automobile (specific personal property), the unpaid seller shall be
preferred (art.2241).
With respect to the P160,000.00, we should apply Article 2244. The funeral parlor
comes first, then the hospital, then the pedestrian.
Here, there is no pro rata sharing; there is a preference. Therefore, the funeral parlor will
be given P100,000.00; the hospital only P60,000.00. The hospital cannot recover the deficiency
of P40,000.00 and the pedestrian cannot recover his P100,000.00.
RCBC v. IAC
213 SCRA 830
Parties:
206
BF Homes debtor
RCBC creditor
Facts:
Ruling:
While it is recognized that RCBC is a preferred creditor and likewise the highest bidder
at the auction sale, the Supreme Court have, however, stated that whenever a distressed
corporation asks the SEC for rehabilitation and suspension of payments, preferred creditors
may no longer assert such preference but as earlier stated, stand on equal footing with other
creditors. Foreclosure shall be disallowed so as not to prejudice other creditors, or cause
discrimination among them.
If foreclosure is undertaken despite that a petition for
rehabilitation is filed, the certificate of sale shall not be delivered pending rehabilitation.
Likewise, if this has also been done, no transfer of title shall be effected also within the period of
rehabilitation. The rationale behind P.D. 902-A is to effect a feasible and viable rehabilitation.
This cannot be adhered to if one of the creditors is preferred over the others.
207
208
209
210
211
212
213
214
215
216
Validity. A chattel mortgage shall not be valid against any person except the mortgagor, his
executors or administrators, unless the possession of the property is delivered to and retained by the mortgagee or
unless the mortgage is recorded in the office of the register of deeds of the province in which the mortgagor resides at
the time of making the same, or, if he resides without the Philippine Islands, in the province in which the property is
situated: Provided, however, That if the property is situated in a different province from that in which the mortgagor
resides, the mortgage shall be recorded in the office of the register of deeds of both the province in which the
mortgagor resides and that in which the property is situated, and for the purposes of this Act the city of Manila shall
be deemed to be a province.
SECTION 5.
Form. A chattel mortgage shall be deemed to be sufficient when made substantially in accordance
with the following form, and shall be signed by the person or persons executing the same, in the presence of two
witnesses, who shall sign the mortgage as witnesses to the execution thereof, and each mortgagor and mortgagee, or,
in the absence of the mortgagee, his agent or attorney, shall make and subscribe an affidavit in substance as
hereinafter set forth, which affidavit, signed by the parties to the mortgage as above stated, and the certificate of the
oath signed by the authority administering the same, shall be appended to such mortgage and recorded therewith.
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.
"This mortgage made this ____ day of ______19____ by _______________, a resident of the municipality of
______________, Province of ____________, Philippine Islands mortgagor, to ____________, a resident of
the municipality of ___________, Province of ______________, Philippine Islands, mortgagee, witnesseth:
"That the said mortgagor hereby conveys and mortgages to the said mortgagee all of the following-described personal
property situated in the municipality of ______________, Province of ____________ and now in the possession
of said mortgagor, to wit:
"This mortgage is given as security for the payment to the said ______, mortgagee, of promissory notes for the sum
of ____________ pesos, with (or without, as the case may be) interest thereon at the rate of ___________ per
217
"(If the mortgage is given for the performance of some other obligation aside from the payment of promissory notes,
describe correctly but concisely the obligation to be performed.)
"The conditions of this obligation are such that if the mortgagor, his heirs, executors, or administrators shall well and
truly perform the full obligation (or obligations) above stated according to the terms thereof, then this obligation shall
be null and void.
"Executed at the municipality of _________, in the Province of ________, this _____ day of 19_____
____________________
(Signature of mortgagor.)
"_________________
"_________________
(Two witnesses sign here.)
FORM OF OATH.
"We severally swear that the foregoing mortgage is made for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into
for the purpose of fraud."
FORM OF CERTIFICATE OF OATH.
"At ___________, in the Province of _________, personally appeared ____________, the parties who signed
the foregoing affidavit and made oath to the truth thereof before me.
"_____________________________"
(Notary public, justice of the peace, 1 or other officer, as the case may be.)
SECTION 6.
Corporations. When a corporation is a party to such mortgage the affidavit required may be made
and subscribed by a director, trustee, cashier, treasurer, or manager thereof, or by a person authorized on the part of
such corporation to make or to receive such mortgage. When a partnership is a party to the mortgage the affidavit
may be made and subscribed by one member thereof.
SECTION 7.
Descriptions of property. The description of the mortgaged property shall be such as to enable the
parties to the mortgage, or any other person, after reasonable inquiry and investigation, to identify the same.
218
Failure of mortgagee to discharge the mortgage. If the mortgagee, assign, administrator, executor,
or either of them, after performance of the condition before or after the breach thereof, or after tender of the
performance of the condition, at or after the time fixed for the performance, does not within ten days after being
requested thereto by any person entitled to redeem, discharge the mortgage in the manner provided by law, the
person entitled to redeem may recover of the person whose duty it is to discharge the same twenty pesos for his
neglect and all damages occasioned thereby in an action in any court having jurisdiction of the subject-matter thereof.
SECTION 9-12. (Repealed by Art. 367, Revised Penal Code).
SECTION 13.
When the condition of a chattel mortgage is broken, a mortgagor or person holding a subsequent
mortgage, or a subsequent attaching creditor may redeem the same by paying or delivering to the mortgagee the
amount due on such mortgage and the reasonable costs and expenses incurred by such breach of condition before the
sale thereof. An attaching creditor who so redeems shall be subrogated to the rights of the mortgagee and entitled to
foreclose the mortgage in the same manner that the mortgagee could foreclose it by the terms of this Act.
SECTION 14.
Sale of property at public auction; Officer's return; Fees; Disposition of proceeds. The mortgagee,
his executor, administrator, or assign, may, after thirty days from the time of condition broken, cause the mortgaged
property, or any part thereof, to be sold at public auction by a public officer at a public place in the municipality where
the mortgagor resides, or where the property is situated, provided at least ten days' notice of the time, place, and
purpose of such sale has been posted at two or more public places in such municipality, and the mortgagee, his
executor, administrator, or assign, shall notify the mortgagor or person holding under him and the persons holding
subsequent mortgages of the time and place of sale, either by notice in writing directed to him or left at his abode, if
within the municipality, or sent by mail if he does not reside in such municipality, at least ten days previous to the
sale.
The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same
in the office of the register of deeds where the mortgage is recorded, and the register of deeds shall record the same.
The fees of the officer for selling the property shall be the same as in the case of sale on execution as provided in Act
Numbered One hundred and ninety, 4 and the amendments thereto, and the fees of the register of deeds for
registering the officer's return shall be taxed as a part of the costs of sale, which the officer shall pay to the register of
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"SECTION 198.
Registration of chattel mortgages and fees collectible in connection therewith. Every register
of deeds shall keep a primary entry book and a registration book for the chattel mortgages; shall certify on each
mortgage filed for record, as well as on its duplicate, the date, hour, and minute when the same was by him received;
and shall record in such books any chattel mortgage, assignment, or discharge thereof, and any other instruments
relating to a recorded mortgage, and all such instruments shall be presented to him in duplicate, the original to be
filed and the duplicate to be returned to the person concerned.
"The recording of a mortgage shall be effected by making an entry, which shall be given a correlative number,
setting forth the names of the mortgagee, and the mortgagor, the sum or obligation guaranteed, date of the
instrument, name of the notary before whom it was sworn to or acknowledged, and a note that the property
mortgaged, as well as the terms and conditions of the mortgage, is mentioned in detail in the instrument filed, giving
the proper file number thereof. The recording of other instruments relating to a recorded mortgage shall be effected
by way of annotations on the space provided therefor in the registration book, after the same shall have been entered
in the primary entry book.
"The register of deeds shall also certify the officer's return of sale upon any mortgage, making reference upon the
record of such officer's return to the volume and page of the record of the mortgage, and a reference of such return on
the record of the mortgage itself, and give a certified copy thereof, when requested, upon payment of the lawful fees
for such copy; and certify upon each mortgage officer's return of sale or discharge of mortgage; and upon any other
instrument relating to such a recorded mortgage, both on the original and on the duplicate, the date, hour, and
minute when the same is received for record and record such certificate with the return itself and keep an alphabetical
index of mortgagors and mortgagees, which record and index shall be open to public inspection.
"Duly certified copies of such records and of filed instruments shall be receivable as evidence in any court.
"The register of deeds shall collect the following fees for services rendered by him under this section:
"(a)
For entry or presentation of any document in the primary entry book, one peso. Supporting papers
presented together with the principal document need not be charged any entry or presentation fee unless the party in
interest desires that they be likewise entered.
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For filing and recording each chattel mortgage, including the necessary certificates and affidavits, the
"1. When the amount of the mortgage does not exceed six thousand pesos, three pesos and fifty centavos for
the first five hundred pesos or fractional part thereof, and one peso and fifty centavos for each additional five hundred
pesos or fractional part thereof.
"2. When the amount of the mortgage is more than six thousand pesos but does not exceed thirty thousand
pesos, twenty-four pesos for the initial amount not exceeding eight thousand pesos, and four pesos for each additional
two thousand pesos or fractional part thereof.
"3. When the amount of the mortgage is more than thirty thousand pesos but does not exceed one hundred
thousand pesos, seventy-five pesos for the initial amount not exceeding thirty-five thousand pesos, and seven pesos
for each additional five thousand pesos or fractional part thereof.
"4.
When the amount of the mortgage is more than one hundred thousand pesos but does not exceed five
hundred thousand pesos, one hundred and seventy-six pesos for the initial amount not exceeding one hundred ten
thousand pesos, and ten pesos for each additional ten thousand pesos or fractional part thereof.
"5.
When the amount of the mortgage is more than five hundred thousand pesos, five hundred eighty-one
pesos for the initial amount not exceeding five hundred twenty thousand pesos, and fifteen pesos for each additional
twenty thousand pesos or fractional part thereof: Provided, however, That registration of the mortgage in the
province where the property is situated shall be sufficient registration: And provided, further, That if the mortgage is
to be registered in more than one city or province, the register of deeds of the city or province where the instrument is
first presented for registration shall collect the full amount of the fees due in accordance with the schedule prescribed
above, and the register of deeds of the other city or province where the same instrument is also to be registered shall
collect only a sum equivalent to twenty per centum of the amount of fees due and paid in the first city or province, but
in no case shall the fees payable in any registry be less than the minimum fixed in said schedule.
"(c)
For recording each instrument of sale, conveyance, or transfer of the property which is subject of a
recorded mortgage, or of the assignment of mortgage credit, the fees established in the preceding schedule shall be
collected on the basis of ten per centum of the amount of the mortgage or unpaid balance thereof: Provided, That the
latter is stated in the instrument.
"(d) For recording each notice of attachment, including the necessary index and annotations, four pesos.
"(e)
For recording each release of mortgage, including the necessary index and references, the fees
established in the schedule under paragraph (b) above shall be collected on the basis of five per centum of the amount
of the mortgage.
"(f) For recording each release of attachment, including the proper annotations, two pesos.
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For recording a power of attorney, appointment of judicial guardian, administrator, or trustee, or any
other instrument in which a person is given power to act in behalf of another in connection with a mortgage, three
pesos.
"(i)
For recording each instrument or order relating to a recorded mortgage, including the necessary index
and references, for which no specific fee is provided above, two pesos.
"(j) For certified copies of records, such fees as are allowed by law for copies kept by the register of deeds.
"(k)
For issuing a certificate relative to, or showing the existence or non-existence of, an entry in the
registration book, or a document on file, for each such certificate containing not more than two hundred words, three
pesos; if it exceeds that number, an additional fee of fifty centavos shall be collected for every one hundred words or
fractional part thereof, in excess of the first two hundred words."
SECTION 16. This Act shall take effect on August first, nineteen hundred and six.
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224
225
226
227
228
229
230
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Instruction: Choose the best answer. Write the answer before the number.
I. LOAN
______ 1. Referred to as loan for consumption
a. Mutuum
b. Commodatum
c. Bailments
d. Deposit
______ 2. Referred to as loan for use
a. Mutuum
b. Commodatum
c. Bailments
d. Deposit
______ 3. E borrowed P5,000 from R to be paid after three months with P150 as interest. The
contract between them is called:
a. Mutuum
b. Commodatum
c. Deposit
d. Pledge
______ 4. X borrowed the book of Y with the obligation to return the same after their exam.
The contract between them is called:
a. Mutuum
b. Commodatum
c. Deposit
d. Pledge
______ 5. Commodatum and mutuum are:
a. Real contracts
b. Consensual Contracts
c. Only Mutuum is a real contract
d. Only Commodatum is a consensual contract
______ 6. E promised to lend P1000,000 to R. The promise was accepted by the latter. The
contract is?
a. not enforceable
b. not valid
c. already binding between the parties
d. partially valid
______ 7. The subject of commodatum involves:
a. consumable goods only
b. non-consumable goods only
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______ 24. For extraordinary expenses on As car, B, the borrower spent P150,000. What is the
recourse of B against A?
a. B cannot ask for reimbursement because the expense was extraordinary
b. B cannot ask for reimbursement if there is stipulation to that effect
c. B may demand reimbursement because A cannot exempt himself from the
payment of expenses by abandoning the thing loaned.
d. B may demand reimbursement unless A abandoned the thing loaned
______ 25. A borrowed money from a bank secured by a chattel mortgage on the standing
crops on his land. During the war, the crops were destroyed. Is A still liable?
a. No, because his obligation is extinguished
b. No, because his obligation was to pay for a generic thing
c. Yes, because his obligation is not a generic thing. It cannot be paid from sources
other than the said mortgaged crops.
d. Yes, because his obligation was to pay a generic thing. The chattel mortgage on the
crops simply stood as security for the fulfillment of his obligation. The account can
still be paid from sources other than said mortgage.
______ 26. A contract whereby one person transfers the ownership of non-fungible things to
another with the obligation on the part of the latter to give things of the same
kind, quantity and quality is calleda. Mutuum
b. Sale
c. Barter
d. Commodatum
______ 27. A borrowed P1,000,000 from B. No mention was made of interest. Which of the
following is true?
a. No interest can be charged.
b. No interest can be charged, except for the legal interest.
c. Interest may be charged at 12% per annum.
d. Interest may be charged at 6% per annum.
______ 28. A borrowed P1,000,000 from B. Orally, they agreed that interest shall be charged.
Which of the following is true?
a. No interest can be charged because it was not expressly stipulated in writing.
b. No interest can be charged, except for the legal interest.
c. Interest may be charged at 12% per annum.
d. Interest may be charged at 6% per annum.
______ 29. A borrowed P1,000,000 from B. They agreed expressly in writing that interest shall
be charged. However no rate was mentioned. Which of the following is true?
a. No interest can be charged.
b. No interest can be charged, except for the legal interest.
c. Interest may be charged at 12% PA.
d. Interest may be charged at 6% PA.
______ 30. When shall interest due shall earn legal interest?
a. From the time it is judicially demanded
b. From the time the due date expires
c. There shall be no interest to accrue because it is against public policy
d. There shall be no interest to accrue if not stipulated
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______ 31. In the determination of interest, if it is payable in kind, its value shall be appraised
at:
a. the forecasted rate of the products or goods.
b. current price of the products or goods at the time and place of the perfection of
the contract.
c. current price of the products or goods at the time and place of the payment.
d. fair market value of the products or goods .
______ 32. Accrued interest shall earn interest in the following instances, except:
a. if there is stipulation to that effect in writing.
b. if it is judicially demanded.
c. if there is demand to that effect.
d. if the parties agreed to it in writing.
______ 33. A movable which cannot be used in a manner appropriate to its nature without its
being consumed is called:
a. Consumable Goods
b. Non-Consumable Goods
c. Fungible Goods
d. Non Fungible Goods
______ 34. A movable which can be used in a manner appropriate to its nature without its
being consumed is called:
a. Consumable Goods
b. Non-Consumable Goods
c. Fungible Goods
d. Non Fungible Goods
______ 35. If the intention is to allow a substitution of the thing given, the object is called:
a. Consumable Goods
b. Non-Consumable Goods
c. Fungible Goods
d. Non Fungible Goods
______ 36. If the intention is to compel the return of the identical thing given, the object is
called:
a. Consumable Goods
b. Non-Consumable Goods
c. Fungible Goods
d. Non-Fungible Goods
______ 37. If a property is sold but the real intent is only to give the object as security far a
debt as when the price is comparatively small, which of the following is the best
statement?
a. There is really a contract of loan with an equitable mortgage
b. The contract is strictly sale
c. It is partially contract of Sale and Loan
d. There is a Contract of Loan
______ 38. Which of the of the following is not a characteristic of Commodatum?
a. Real Contract
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b. Principal Contract
c. Gratuitous Contract
d. Consensual Contract
______ 39. The bailor in commodatum:
a. must be the owner of the thing loaned
b. may be the owner of the thing loaned
c. need not be the owner of the thing loaned
d. should not be the owner of the thing loaned
______ 40. The death of either the bailor or the bailee:
a. suspends the termination of the contract of loan
b. extinguishes the contract of commodatum
c. suspends the termination of the contract of loan
d. suspends the extinguishment of the commodatum
______41. In commodatum, the person who borrows the thing loaned is best called:
a. bailee
b. usufructuary
c. borrower
d. lessee
______42. In commodatum, the person who delivers to another a thing so that the latter may
use the same for a certain time and return it is best called:
a. lessor
b. bailor
c. administrator
d. creditor
______ 43. Commodatum isa. essentially gratuitous
b. necessarily onerous
c. necessary consensual
d. one with stipulation to pay interest
______ 44. Which of the following is true about simple loan?
a. It may be gratuitous or with stipulation to pay interest
b. It is essentially gratuitous
c. It is necessarily gratuitous
d. It is gratuitous
______ 45. Which of the following is true about commodatum?
a. Only movables may be the object of commodatum
b. Movables or immovables may be the object of commodatum
c. Non-consumables cannot be the object of commodatum
d. Consumables cannot be the object of commodatum
______ 45. Comodatario is referred to asa. agent
b. borrower
c. lender
d. buyer
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______ 46. The bailee is liable for the loss of the thing, even if it should be through a fortuitous
event except:
a. If the thing loaned has been delivered with appraisal of its value.
b. If he lends or leases the thing to a third person, who is not a member of his
household.
c. If being able to save either the thing borrowed or his own thing, he chose to save
the latter.
d. If the thing is lost or destroyed through the use of arms or irresistible force.
______ 47. Solutio indebiti in mutuum means
a. if the borrower pays interest when there has been no stipulation thereof.
b. if the borrower pays interest because he consider it his moral obligation to pay said
interest.
c. if the borrower pays interest upon court order.
d. if the borrower pays interest as agreed upon by the parties orally.
______ 48. Circular 416 fixing the rate of interest at 12% per annum deals with the following,
except
a. Guaranty and Suretyship
b. Loans
c. Forbearance of any money, goods or credit
d. Judgment
______ 49. It is derived from the french word bailer, meaning to deliver.
a. barter
b. deposit
c. loan
d. bailment
______ 50. The delivery of property by one person to another in trust for a specific purpose is
defined as.
a. bailment
b. barter
c. deposit
d. loan
______ 51. The ability to borrow money or thing by virtue of the confidence or trust reposed
by a lender that the borrower will pay what he may promise is called:
a. moral obligation
b. debt
c. credit
d. guaranty
______ 52. The contract of commodatum is suspended only when:
a. the object is delivered to a third person as authorized by the bailor.
b. the object is lost due to fault of the bailor.
c. the object is temporarily used and in the possession of the bailor or lender.
d. the object is delivered before a sheriff.
______ 53. In commodatum _________ expenses shall be refunded by the bailor upon
proper notice by the bailee.
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a. ordinary expenses
b. luxurious expenses
c. extraordinary expenses
d. judicial expenses
______ 54. Mutuum is similar to:
a. a compound interest
b. an abnormal usufruct
c. a barter
d. advance interest
______ 55. Consumable goods may be the subject of commodatum if
a. the object is to be consumed
b. the object is to be used adostentationem
c. agreed by the parties
d. the object be can be change by the same kind and quantity
II.
Deposit
a. the contract of deposit is not perfected unless there is symbolic delivery of the
subject matter
b. the contract of deposit is not perfected unless there is the delivery of the subject
matter
c. the contract of deposit is not perfected unless there is a consensual agreement
between the parties
d. the contract of deposit is not perfected unless there is written agreement between
the parties
______ 2. The best distinction between Extrajudicial and Judicial Deposit is:
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______ 3. Which of the following is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and returning the
same?
a. Contract of Loan
b. Mortgage Contract
c. Contract of deposit
d. Contract of Lease
______ 4. The depositary is obligated to return the thing deposited upon demand by the
depositor in_______________.
a. Deposit
b. Sequestration
c. Judicial Deposit
d. Extrajudicial Deposit
______ 5. The thing shall be delivered only upon court order in ______________.
a. Voluntary Deposit
b. Necessary Deposit
c. Extrajudicial Deposit
d. Judicial Deposit
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______ 7. The contract loses the concept of a deposit and becomes a loan or commodatum
when _____________________.
a. where use with consumption is still the principal purpose of the contract
b. where use with obligation to return is still the principal purpose of the contract
c. where safekeeping is the principal purpose of the contract
d. where safekeeping with obligation to return the thing after use is still the
principal purpose of the contract
______ 9. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning ___________.
a. Commodatum
b. Real Estate Mortgage
c. Guaranty
d. Simple Loan
a. The law provides that the depositary can demand that the depositor prove his
ownership of the thing deposited.
b. The law provides that the depositary cannot demand the depositor prove his
ownership of the thing deposited.
c. The law provides that the depositor cannot demand the depositary prove his
ownership of the thing deposited.
d. The law provides that the depositor can demand the depositary prove his
ownership of the thing deposited.
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______ 11. Article 1970 of Book 5 of the Civil code provides that If a person having capacity to
contract accepts a deposit made by one who is incapacitated, the former shall be
subject to all the obligations of a depositary, and may be compelled to return the
thing by the guardian, or administrator, of the person who made the deposit, or by
the latter himself if he could acquire capacity. The contract entered into is a:
a. Unenforceable Contract
b. Valid Contract
c. Voidable Contract
d. Enforceable Contract
______ 12. Juan deposited something with Pedro, who is insane. Pedro in turn disposed of it in
favor of Maria. Can Juan go against Maria?
a. No, if Maria acted in bad faith. But if Maria acted in good faith, Juans only
recourse would be to compel Pedro to give him the amount by which Pedro might
be enriched or benefited himself;
b. Yes, if Maria acted in bad faith. But if Maria acted in good faith, Juans only
recourse would be to compel Pedro to give him the amount by which Pedro might
be enriched or benefited himself;
c. No, if Maria acted in good faith. But if Maria acted in bad faith, Juans only
recourse would be to compel Pedro to give him the amount by which Pedro might
be enriched or benefited himself;
d. Yes, if Maria acted in good faith. But if Maria acted in bad faith, Juans only
recourse would be to compel Pedro to give him the amount by which Pedro might
be enriched or benefited himself;
______ 14. The general rule is that if deposit with a third person is allowed, the depositary is
not liable for the loss except if ___________.
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______ 15. The depositary is liable for the loss of the through a fortuitous under the following
instances. Which is not included?
a. If it is so stipulated
b. If he uses the thing with the depositors permission
c. If he delays its return
d. If he allows others to use it, even though he himself may have been authorized to
use the same
______ 16. Which of the following takes place when an attachment or seizure of property in
litigation is ordered?
a.Extra-judicial deposit
b.Judicial deposit
c.Consignation
d.Lien
______ 17. Plaintiff contracted SBC to store his 50 bags of rice in a bonded warehouse, but SBC
stored 40 bags in a bonded warehouse and the rest in the non-bonded warehouse.
As to the rest in a non-bonded warehouse, duties were levied by the government in
the amount of P2, 500 which SBC paid without the knowledge and consent of the
plaintiff. Plaintiff then demanded SBC to repay it before releasing the rice. SBC:
a.
b.
c.
d.
______ 18. If Claire and Clara deposit 1,000 sacks of rice, each of them can demand:
______ 19. If Juan and Juana deposited a car, to whom may the depositary return the car?
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______ 20. When there are two or more depositors, if they are not solidary, and the thing
admits of division, each one:
______ 23. The depositary who may have justifiable reasons for not keeping the thing
deposited may, even before the time designated, return it to the depositor, unless
the deposit is for a valuable consideration. And if the depositor should refuse to
receive it, the depositor may secure its:
______ 24. The act of depositing the things due at the disposal of judicial authority
a. Lease
b. Consignation
c. Attachment
d. Mortgage
______ 25. Depositary is liable for the loss of the thing deposited if:
a. he transfers the deposit with a third person without authority.
b. he deposits the thing with a third person who is manifestly careless or unfit
although authorized, even in the absence of negligence.
c. the thing is lost without negligence of the third person with whom he was allowed
to deposit the thing if such third person is not manifestly careless or unfit.
d. the thing is lost through the negligence of his employees whether the latter are
manifestly careless or not.
______ 26. If the deposit is gratuitous, the depositor is obliged to:
a. Reimburse the depositary for the expenses he may have incurred for the
preservation of the thing deposited.
b. Reimburse the depositary for the expenses he may have incurred for the use of
the thing deposited.
c. Reimburse the depositary for the expenses he may have incurred for the
safekeeping of the thing deposited.
d. Reimburse the depositary for the expenses he may have incurred for returning
the thing deposited.
______ 27. As a rule, if the depositary suffers because of the character of the thing deposited,
the depositor should be responsible for the loss sustained by the depositary. Which
of the following is not an exception?
a. If at the time the deposit was made, the depositor was not aware of, or was not
expected to know the dangerous character of the thing
b. If at the time the deposit was made, the depositor knew of the danger but he
notified the depositary of the same
c. If at the time the deposit was made, the depositary was aware of the danger, even
though he had not been notified by the depositor
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d. If at the time the deposit was made, the depositary was pretending as not aware
of the danger, even though he had been notified by the depositor
a. the loss is due to the acts of the guest, his family, servants or visitors
b. the loss arises from the character of the things brought into the hotel
c.
the loss is caused by the act of a thief or robber done without the use of arms and
irresistible force
a. The loss or injury is caused by force majeure like flood, fire, robbery by force or
intimidation.
b. The loss or injury is caused by his servants or employees as well as by strangers.
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c. The loss is caused by the act of a thief or robber done without the use of arms and
irresistible force.
d. The loss does not arises from the character of the things brought into the hotel.
______ 32. What will take place when an attachment or seizure of property in litigation is
ordered?
a. Extrajudicial Deposit
b. Judicial Deposit
c. Real Estate Mortgage
d. Chattel Mortgage
______ 33. The document which embodies the contract states that the $3,000 was received by
the bank for safekeeping. The subsequent acts of the parties were really for the bank
to safely keep the dollars and return it at a later time. What is the contract entered
into by the parties?
a.
b.
c.
d.
Contract of loan
Contract of deposit
Contract of commodatum
Contract of lease
______ 34. As to matters not provided for in the Civil Code, judicial sequestration shall be
governed by:
a. Code of Commerce
b. Special Proceedings
c. The Rules of Court
d. The Labor Code
______ 35. The hotel-keeper has a right to retain the things brought into the hotel by the quest,
as a:
a. Security for credits on account of lodging, and supplies usually furnish to the
guests
b. Payment for credits on account of lodging, and supplies usually furnish to the
guests
c. Depositary for the things of the guests
d. Caretaker for the things of the guests
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______ 36. The hotel-keeper cannot free himself from responsibility by:
a. posting notices to the effect that he is not liable for the articles brought by the
guest;
b. posting notices to the effect that he is liable for the articles brought by the guest
c. any stipulation between the hotel-keeper and the guest suppressing the
responsibility of the former
d. any stipulation between the hotel-keeper and the guest diminishing the
responsibility of the former
______ 37. If the deposit is onerous, the depositary is obliged to spend, without the right of
reimbursement, for the necessary expenses for preservation. What is the reason
behind?
a. He has no right to seek reimbursement because said expenses are deemed not
included in the compensation
b. He has no right to seek reimbursement because said expenses are considered
ordinary expenses
c. He has no right to seek reimbursement because said expenses are considered
luxury expenses
d. He has no right to seek reimbursement because said expenses are deemed
included in the compensation
______ 38. As a rule, the thing deposited should be returned at the will of the depositor. This is
true whether a period has been stipulated or not. An exception to the rule is:
a. When the thing is not judicially attached while in the depositarys possession
b. Should the depositary have been notified of the opposition of a third person to
the return or the removal of the thing deposited;
c. When the thing is extra judicially attached while in the depositarys possession
d. Should the depositary have not been notified of the opposition of a third person
to the return or the removal of the thing deposited;
______ 39. The depositary holding certificates, bonds, securities or instruments which earn
interest shall be bound to collect the latter when it becomes due, and to take such
steps as may be necessary in order that the securities may preserve their value and
the rights corresponding to them according to law. This provision does not apply
to:
a. Contract of loan
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b. Contract of commodatum
c. Contracts for the rent of safety deposit boxes
d. Contract of agency
a. Unless there is a stipulation to the contrary, the depositary may not commingle
grain or other articles of the same kind and quality, in which case the various
depositors shall own or have a proportionate interest in the mass.
b. Unless there is a stipulation to the contrary, the depositary may commingle grain
or other articles of the same kind and quality, in which case the various
depositors shall not own or shall not have a proportionate interest in the mass.
c. Unless there is no stipulation to the contrary, the depositary may commingle
grain or other articles of the same kind and quality, in which case the various
depositors shall own or have a proportionate interest in the mass.
d. Unless there is a stipulation to the contrary, the depositary may commingle grain
or other articles of the same kind and quality, in which case the various
depositors shall own or have a proportionate interest in the mass.
______ 41. Extra judicial deposit is generally ___________, while judicial deposit is always
____________.
a. Onerous; gratuitous
b. Gratuitous; Onerous
c. Gratuitous; Generous
d. Onerous; generous
______ 42. The document which embodies the contract states that the P300,000 was received
by the bank for safekeeping. The subsequent acts of the parties were really for the
bank to safely keep the dollars and return it at a later time. What is the contract
entered into by the parties?
a.Contract of loan
b.Contract of deposit
c.Contract of commodatum
d.Contract of lease
______ 43. Which is not included as one of the characteristics of a contract of a deposit?
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______ 44. Which of the following is not one of the distinctions between extrajudicial and
judicial deposit?
a. Extrajudicial deposit is by the will of the parties, while judicial deposit is by the
will of the court.
b. There is no contract in extrajudicial deposit, while there is a contract in judicial
deposit.
c. Extrajudicial deposit is generally gratuitous, while judicial deposit is onerous.
d. Extrajudicial deposit is in behalf of the depositor, while judicial deposit is in
behalf of the winner.
______ 45. When the thing delivered can be used by the depositary and he is obliged to pay
interest for said use, it follows that the contract cannot be considered a deposit but
a _____________.
a. Loan or mutuum
b. Commodatum
c. Irregular Deposit
d. Special kind of deposit
______ 46. What is the nature of the action of the depositor who has deposited something still
in the possession of an insane depositary?
______ 47. As a rule, the depositary may change the way of the deposit without permission
after notifying the depositor and wait for his decision unless:
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a. there is no delay.
b. delay would cause danger.
c. depositor consented with the change.
d. there was delay but does not cause danger.
______ 48. Where money, consisting of coins of legal tender, is deposited with a person, and
the latter is authorized by the depositor to use and dispose of the same, the
agreement thus entered into between the depositor and the depositary is:
a.
b.
c.
d.
Contract of loan
Contract of deposit
Contract of commodatum
Contract of lease
______ 49. When it becomes necessary to open a locked box or receptacle, the depositary is
authorized to do so if:
a. The key has been delivered to him or when the instructions of the depositor as
regards the deposit cannot be executed without opening the box or receptacle.
b. The key has not been delivered to him.
c. When the instructions of the depositor as regards the deposit can be executed
without opening the box or receptacle.
d. The key has not been delivered to him or when the instructions of the depositor
as regards the deposit can be executed without opening the receptacle.
______ 50. If the depositary by force majeure or government order loses the thing and receives
money or another thing in its place, he shall deliver the sum or other thing to the:
a. The court
b. Depositor
c. Depositary
d. Government
III.Guarantee
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______ 1. X, RG and Z are guarantors of the debt of D to C in the amount of P75, 000.00. Each
of them had guaranteed the following amount: X for P25, 000.00; RG for P30,
000.00; and Z for P20, 000.00. RG had fulfilled the entire obligation because D is
insolvent. Which of the following statement is not correct in case of co-guarantors?
a. RG may demand X for P25, 000.00 and Z for P20, 000.00
b. RG may demand X for P25, 000.00 and Z for P25, 000.00
c. In case Z is insolvent, X will accumulate P9, 000.00 and RG will accumulate
P11,000.00
d. All of the above
______ 2. In cases where there are two or more guarantors, the following are correct except:
a. A co-guarantor who has paid the entire obligation may demand each of the others
the share that is proportionally owing from him.
b. If one of the co-guarantors is insolvent his share shall be borne by the others,
including the payer, in the same proportion.
c. Co-guarantors may not set up against the one who paid the defenses which would
have pertained to the principal debtor against the creditor
d. Payment by one of the guarantors can only be made after judicial demand or after
the insolvency of the principal debtor.
______ 3. A guarantor can be indemnified by the debtor as provided by law. Among the things
which he could be indemnified are the following except:
a. The total amount of the debt
b. The legal interest after the payment even before the knowledge of the debtor,
even though it did not earn interest for the creditor
c. The expenses incurred by the guarantor after having notified the debtor that
payment had been demanded of him
d. Damages, if they are due
______ 4. Which of the following statements is not an instance when the guarantor may
proceed against the principal debtor even before his payment of the principal
obligation?
a. When the debtor has bound himself to relieve him from the guaranty within a
specified period, and this period has expired
b. When the debt has become demandable, by reason of the expiration of the period
for payment
c. After the lapse of ten years, when the principal obligation has fixed period for its
maturity, unless it is of such nature that it cannot be extinguished except within a
period longer than ten years
d. If there are reasonable grounds to fear that the principal debtor intends to
abscond
______ 5. RG is a guarantor of the P50, 000.00 indebtedness of PG to ZX, which should be
paid before August 16, 2010. RG made the payment without notifying PG.
Thereafter, PG without knowing that obligation was already fulfilled had repeated
the payment. What is the remedy of RG to recover the amount paid?
a. RG may go after ZX or PG for reimbursement
b. RG has remedy against PG only
c. RG may demand reimbursement from PG if fortuitous event had prevented him
from notifying PG of the payment, even if ZX is solvent.
d. RG may demand reimbursement from PG if ZX is insolvent and if fortuitous
event had prevented him from notifying PG of the payment.
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______ 6. A sub-guarantor, in case of the insolvency of the guarantor for whom he bound
himself, is responsible to the co-guarantors in the same terms as the:
a.
b.
c.
d.
principal debtor
creditor
co-makers
guarantor
______ 7. Z furnished a bond in favor of X Company. X was then allowed to withdraw the
cosigned goods to PNB. Thereafter PNB obligates Z to pay the debt of X Company.
Before paying the said amount Z obtained a solidary note from X Company. XX, as
president of X Company, signed a document wherein they bound themselves
solidarily to pay, reimburse, and refund to Z all such sums or amounts of money as
it, or its representative, may pay or become bound to pay, upon its obligation with Z.
X Company was declared insolvent. Which of the following statements is correct?
a.XX, as the defendant, shall not pay the plaintiff Z the expenses incurred by X
Company in the litigation between X Company and Z.
b.XX, as the defendant, shall pay the plaintiff the expenses incurred by X Co in the
litigation between X Company and Z.
c.XX, as the defendant, shall not pay the plaintiff the expenses incurred in the
litigation brought against him.
d.XX, as the defendant, shall pay the expenses incurred in the action brought
against him.
______ 8. BF and BB are friends. Unknown to BF, a contract of guaranty was entered into by
BB in an obligation to CC where BF is the principal debtor. Which of the following
statement is not correct?
a. The creditor is bound to accept payment of performance by a third person who
has no interest in the fulfillment of the obligation, unless there is a stipulation to
the contrary.
b. If he paid without the knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.
c. He can compel the creditor to subrogate him in his rights, such as those arising
from a mortgage, guaranty, or penalty.
d. None of the above
______ 9. The guarantor is to obtain release from the guaranty, or to demand a security that
shall protect him from any proceedings by the creditor and from the danger of
insolvency of the debtor when:
a. The debtor has bound himself to relieve him from the guaranty within a specified
period, and this period has not yet expired.
b. After the lapse of ten years, when the principal obligation has a fixed period for
its maturity, unless it is of such nature that it cannot be extinguished except
within a period longer than ten years.
c. There are reasonable grounds to fear that the principal debtor intends to
abscond.
d. The debt has become demandable by reason of default on the part of the principal
debtor
______ 10.The right to subrogation is available to guarantors. In relation to this concept, which
of the statements is not correct?
a. Its purpose is to enable the guarantor to enforce the indemnity provided by the
law.
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b. Right of subrogation is a result by operation of law from the act of payment and
there is no necessity for the guarantor to ask the creditor to expressly assign his
right to action.
c. The right is not contractual it is based on natural obligation.
d. Subrogation can be availed of by the guarantor even without the consent of the
creditor.
______ 11. The obligation of the guarantor is extinguished in the following except:
a.
b.
c.
d.
______ 12. Material alteration in the contract of guaranty is present in the following cases
except:
a. In the original contract, A will guaranty Bs indebtedness as selling agent in
Baguio but the document was altered. The document shows that places Guaga,
Angeles, San Simon, Capas, Magalang and Mabalacat are included.
b. The creditor increased the loan from Php 40,200 to Php 56,800 without the
knowledge and consent of the surety.
c. The guarantor executed an absolute guaranty in consideration of the overdraft
agreement and pledge and bound himself jointly and severally liable to the bank
but the creditor and debtor had extended the time of payment without his
consent.
d. The surety executed an indemnity agreement whereby he bound himself jointly
and severally with debtor for payment of loan in favor of creditor. Debtor
obtained another loan and requested creditor bank a complete restructure of its
indebtedness that was approved without notice to or prior consent of surety.
______ 13. D obtained from C a 1954- 1955 sugar crop loan in the amount of Php 40,200.00
secured by a chattel mortgage. As additional security, S issued surety bond in favor
of C. Three months later, C increased the loan from Php 40,200 to Php 56,800
without the knowledge and consent of S. D failed to liquidate the loan. What is the
implication?
a. The contract in question is a continuing chattel mortgage so the knowledge and
consent of the surety is not necessary for an increase in the amount of the
principal obligation.
b. Ss liability is that of a solidary co- maker so the knowledge and consent of the
surety is not necessary for an increase in the amount of the principal obligation.
c. S waived his right to be notified by virtue of the stipulation in the indemnity
agreement.
d. The increase in the indebtedness from Php40,200.00 to Php56,800.00 is
material and prejudicial to S.
______ 14. The following acts of the debtor extinguish the contract of guaranty except:
a. An extension to pay granted to the debtor by the creditor without the consent of
the guarantor.
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b. Failure on the part of the creditor to demand payment after the debt has become
due.
c. In case of an acceleration clause, the act of the creditor of extending
payment of an installment without guarantors consent.
d. When the creditor does not apply the initial and subsequent payments to the debt
as provided for in the deed of assignment
______15. A, B, C and D are co-guarantors of Php 1,000.00. A is released by
the creditor WITHOUT the consent of the other co- guarantors. Which of the
following statements holds true?
a. The Php1,000.00 debt will be divided among B, C and D.
b. The amount guaranteed by the released guarantor shall be divided among the
others.
c. The other guarantors will pay only their original share of the obligation, which is
Php250.00.
d. The amount guaranteed by the released debtor shall be extinguished.
______ 16. What happens if A, B, C and D are co guarantors of Php1,000.00 and A is released
by the creditor WITH the consent of the other co- guarantors?
a.The Php1,000.00 debt will be divided among B, C and D.
b.The remaining Php750.00 shall be divided among the four of them.
c.The other guarantors will pay only their original share of the obligation, which is
Php250.00.
d.The amount guaranteed by the released debtor shall be extinguished.
______ 17. CBank and D executed an overdraft agreement and pledge wherein CBank granted
D an overdraft from time to time on his current account with CBank not to exceed
Php200,000.00. G executed an absolute guaranty in consideration of the overdraft
agreement, pledged and bound himself jointly and severally liable to the bank.
Later, D requested for extension to the bank, who in turn granted with the
condition that the interest will increase and the amount of the overdraft will be
reduced but the former failed to pay their indebtedness on the date due. What is
the extent of liability of G considering the renewal of the overdraft without his
knowledge?
a. He is released from his obligation because the plaintiff had extended the time of
payment without his consent.
b. The contract of absolute guaranty expressly authorized CBank to extend the time
of payment and to release or surrender any security or part thereof held by it
without notice to or consent of guarantor, and, as such, his liability remains
unaltered.
c. The contract of absolute guaranty expressly authorized the release of the
guarantor upon extension of time for payment without notice to or his consent.
d. The contract of absolute guaranty expressly authorized CBank to extend the time
of payment and to decrease guarantors obligation if renewal was made without
notice to or consent of the guarantor.
______ 18. C Bank delivered an amount of a credit line to D guaranteed by G to purchase
asphalt, which was subsequently delivered to Department of Public Works (DPW).
D assigned C Bank to collect the value of the asphalt from DPW and in return,
apply the said value to Ds credit line as payment.
The amount was regularly collected by C Bank, until for unknown reason, the bank
ceased to collect, until after 4 years investigators found that more money were
payable to D from DPW, because the latter had allowed another creditor to collect
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funds for D. What is the implication when C Bank ceased to collect the money from
DPW?
a. It is the guarantors duty to collect the proceeds and to apply in Ds credit line
b. The power of attorney authorizing D to collect the amount is a mere security for
the credit line.
c. C Bank may go against G incase D is incapable to pay the credit line.
d. G is no longer liable by allowing the assigned funds to be exhausted without being
notified, the bank deprived the former of any possibility of recoursing against the
security.
______ 19. Who are released from their obligation even if they be solidary whenever by some
act of the creditor they cannot be subrogated to the rights, mortgages, and
preference of the latter?
a.
b.
c.
d.
Creditor
Debtor
Guarantor
Surety
______ 20. What is the effect of a surety bond that is not signed by the principal obligor?
a.
b.
c.
d.
______ 21. The following are not entitled to the benefit of exhaustion except:
a.
b.
c.
d.
Surety
Judicial bondsman
Sub- surety
Guarantor
______ 22. What is the obligation of a surety upon posting a bond for the accused?
a.
b.
c.
d.
______ 23. The benefit of excussion shall not take place when?
a.
b.
c.
d.
______ 24. A suretyship is a contract whereby one person engages to be answerable for the
debt, default, or miscarriage of the principal. The following statements are true in
relation to the nature of suretys undertaking, except:
a.
b.
c.
d.
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______ 25. A relationship which exists where one person (principal) has undertaken an
obligation, and another person is also under a direct and primary obligation or
other duty to the obligee, who is entitled to but one performance, and as between
the two who are bound, the second, rather than the first should perform.
a.
b.
c.
d.
Guaranty
Suretyship
Accommodation Surety
Pledge
______ 26. Guaranty is a subsidiary and accessory contract. A guarantor cannot bind himself
for more than the principal debtor, and even if he does, his liability shall be
reduced to the limits of that of the debtor. Nevertheless, the guarantor may bind
himself for less than that of the principal, except:
a. When the principal obligation is subject to a suspensive condition
b. When the principal obligation is subject to a resolutory condition
c. When the amount specified in a surety bond as the suretys obligation does not
limit the extent of the damages that may be recovered.
d. In relation to interests, judicial costs, and attorneys fees as part of damages
______ 27. Guaranty, being accessory, is extinguished when principal obligation is
extinguished. The causes of which are the following except:
a. The guaranty itself may be directly extinguished although the principal obligation
remains such as in the case of the release of the guarantor made by the creditor.
b. Condonation or Remission of the debt
c. Confusion or Merger of the rights of the creditor and debtor
d. Fulfillment of a resolutory condition
______ 28. Future debts, even if the amount is not yet known, may be guaranteed but there
can be no claim against the guarantor until the debt is ascertained or fixed and is
demandable in order to:
a.
b.
c.
d.
______ 29. The absence of direct consideration or benefit to guarantor in guaranty or surety
agreement is regarded as:
a. Valid. The guarantor or surety is not entitled to any consideration.
b. Valid. Despite the absence of any direct consideration received by the guarantor
or surety, such consideration need not pass directly to the guarantor or surety, a
consideration moving to the principal will suffice.
c. Invalid. A contract of guaranty is subsidiary and conditional in character, the
absence of any direct consideration will make the contract void.
d. Invalid. The absence of consideration will make the contract insufficient to
support the obligation of a guarantor or surety.
______ 30. It refers to an obligation that is not limited to a single transaction but which
contemplates a future course of dealings, covering a series of transactions generally
for an indefinite time or until revoked. It is generally prospective in its operation
and is intended to secure future transactions.
a. Continuing Guaranty
b. Continuing Suretyship
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______ 34. This provides for the enforcement of the rights of the guarantor against the debtor
after he has paid the debt.
a.
b.
c.
d.
______ 35. The benefit of division among several guarantors under Article 2065 can be availed
of if there are:
a. Two or more debtors of one debt, even if they be bound solidarily, each with
different guarantors
b. Two or more guarantors of the same debtor but not only for the same debt
c. If any of the circumstances enumerated in Art. 2059 should take place, as would
the benefit of exhaustion of the debtors property
d. If there are several guarantors of only one debtor, for the same debt
______ 36. A contract whereby the parties, by making reciprocal concessions, avoid litigation
or put an end to one already commenced.
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a.
b.
c.
d.
Compromise
Suretyship
Subrogation
Guaranty
______ 37. A classification of guaranty that, not only includes the principal obligation, but also
all its accessories including judicial costs:
a.
b.
c.
d.
Conventional
Legal
Definite
Indefinite
______ 39. Which of the following statements does not describe the differences of guaranty
and suretyship:
a. The guarantor is the insurer of the solvency of debtor while the surety is the debt.
b. The guarantor is primarily liable while the surety is secondarily liable.
c. The guarantor binds himself to pay if the principal cannot pay while the surety
undertakes to pay if the principal does not pay.
d. The guarantor can avail of the benefits of excussion and division while the surety
cannot avail of such benefits.
______ 40. When is the guarantor not entitled to the benefit of excussion?
a.
b.
c.
d.
When the pledge or mortgage has been given by him as special security.
In case of insolvency of the creditor.
When he interposes it as a defense before judgment it rendered against him.
If it maybe presumed that an execution on the property of the principal debtor
would result in the satisfaction of the obligation.
______ 43. A guaranty is not valid when the principal obligation is:
a. Natural
b. Void
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c. Voidable
d. Unenforceable
______ 44. The following are duties of the creditor if he wants to hold the guarantor liable,
except:
a.
b.
c.
d.
______ 45. The following defenses are available to the guarantor, except:
a.
b.
c.
d.
______ 47. The guarantor can still claim reimbursement from the debtor in spite of lack of
notice if the following conditions are present, except:
a.
b.
c.
d.
______ 48. Other than those enumerated in Article 2059, select an instance when the
guarantor is NOT entitled to the benefit of excussion:
a. It would be useless to exercise this right because it will not result in the
satisfaction of the obligation.
b. If Article 2061 is not complied with.
c. If the guaranty is in a judicial bond.
d. If the principal debt is void.
______ 49. Mr. X entered into a contract with Mr. Y for the importation of cotton textile. To
secure payment, Mr. X obtained a letter of credit from ABC Bank in Mr. Ys favor.
A trust receipt was issued and signed by Mr. Z where there was a solidary guaranty
clause in said receipt. When the balance of Mr. X remained unpaid, Mr. Y went
after Mr. Z, who in turn refused to pay stating that he is not a guarantor. Is Mr. Z
correct?
a. Yes. Mr. Zs liabilities as guarantor never arose for the trust receipt never bound
the Mr. Z due to its insufficiency and that even if Mr. Z is a guarantor; he is still
entitled to the benefit of excussion.
b. No. What is merely needed is that the contract of guaranty is in writing to be
effective between the parties.
c. Yes. In order that Mr. Z be liable as guarantor, the trust receipt should have been
notarized by a Notary Public.
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d. No. The solidary guaranty clause was binding with respect to Mr. X, Mr. Y and
Mr. Z; although it would not have the same effect as against third parties.
______ 50. Which among the following is not a qualification of a guarantor?
a.
b.
c.
d.
Integrity
Capacity to bind
Sufficient property
Debtor is personally known to him
IV. Pledge
______ 1. What is the purpose of a contract of pledge or mortgage?
a.
b.
c.
d.
______ 2. In order the pledge to be valid the pledgor or mortgagor must be what?
a.
b.
c.
d.
______ 5. What is the effect to the accessory contract of pledge or mortgage if the principal
obligation is voidable and unenforceable?
a.
b.
c.
d.
e.
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c. Voidable
d. Unenforceable
______ 7. A guaranty cannot exist without a?
a.
b.
c.
d.
Valid obligation
Invalid obligation
There should be no obligation
There should a valid accessory obligation
______ 8. If the principal obligation becomes due, the thing pledge or mortgage may be:
a.
b.
c.
d.
dispose
retain
alienate
enjoy
______11. What is needed before the thing pledged can be validly placed in the possession of a
third person?
a.
b.
c.
d.
Immovable things
Movable things
Real rights
Anything within the commerce of man
______ 13. What needs to be done to the thing pledged if it is a negotiable instrument?
a.
b.
c.
d.
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______ 14. If the creditor consents to the selling of the thing pledged by the debtor or pledgor,
transferring ownership to the buyer, what will happen to the thing pledged?
a.
b.
c.
d.
Extraordinary diligence
Ordinary diligence
Diligence of a good father of a family
Diligence of father of a good family
______16. If there are fruits/interest or income of the thing pledge, where will it be applied?
a.
b.
c.
d.
______18. When will the debtor or pledgor demand the thing pledged to be deposited to a third
person?
a.
b.
c.
d.
______19. When can a pledgor debtor demand the return of the thing pledged to be replaced
by another thing of the same value?
a. When the thing is in endangered of destruction due to the fault of the pledgee
b. When because without the fault of the pledge it is susceptible to be damage or
destroy
c. When the thing is taken by a third person
d. When the government expropriates it
______20. Abe acquired a loan from Gani. The former issued a promissory note for the sum
borrowed and a bill of sale for his car as security for the loan. Gani never took
possession of the car nor did he demand possession of the same. Is the pledge
valid?
a. Yes, both parties have given their consent resulting in the perfection of the
pledge.
b. Yes, the possession of Gani of the car does not have to be actual possession it can
be symbolic.
c. No, the pledge was not in writing, therefore it produces no binding effect.
d. No, the abandonment of the custody of the car by Gani constitutes a waiver of the
pledge.
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______21.What happens to the creditor-pledgee when the thing is returned by the pledge and a
written statement is given to that effect?
a.
b.
c.
d.
______22. Who wins in the public auction when the highest bidder equals the bid of the owner
of the thing pledge?
a.
b.
c.
d.
______23.When is the debtor released from his debt if the winner in the bidding paid in
installments?
a.
b.
c.
d.
______24.When the negotiable instrument is due and demandable, the pledgee can collect
from the one who issued the said negotiable instrument. If there is an excess after
offset the amount of the principal obligation, to whom must said excess be given?
a.
b.
c.
d.
The debtor-pledgor
The issuer of the negotiable instrument
The creditor-pledgee
To the government
______25. B entrusted to A his jewelry to sell on commission. A, in turn, gave it to C for the
same purpose without the knowledge of B. C, however, pledged it to XYZ pawnshop
and appropriated to himself (C) the money he acquired from the transaction. In
view of the foregoing, which of the following statements is correct?
a.
b.
c.
d.
______26. Lauro borrowed money from Renato. As security to the same, Lauro executed a
promissory note and pledged his shares of stock. A stipulation in their agreement
provides that if Lauro fails to pay, the shares of stock pledged shall become
property of Renato. Is this stipulation valid?
a.
b.
c.
d.
Yes, as long as the agreement has been duly notarized by a Notary Public.
No, this stipulation is considered contrary to public policy.
Yes, since both parties have consented and agreed to it.
No, because there was no definite number of stocks indicated in the agreement.
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______27. Which is not a formality required prior to the exercise of the creditor of his right to
sell if the credit is not satisfied?
a.
b.
c.
d.
Notice to debtor
Notice to the public
Debt is already due
Public auction
______28. Which among the following is a remedy when destruction or impairment is feared,
without fault of the pledgee?
a. The pledgor may cause the thing pledged to be sold at a public sale.
b. The pledgee can demand the return of the thing pledged but there must be a
substitute.
c. The thing pledged can be sold to a third party by common agreement of the
parties.
d. The pledgor can demand the return of the thing pledged.
______29. Based on the concept of pactum commissorium, the following are prohibited by
law, except:
a. Disposition of the things pledged by the creditor
b. Appropriation of the creditor of the things pledged or mortgaged
c. Transfer of ownership of the things pledged by the debtor to the creditor in case
of non-payment
d. Alienation of property by the debtor in favor of the creditor to satisfy the debt
______30. Which of the following cannot be pledged?
a.
b.
c.
d.
Stock dividends
Motor vehicles
Machinery
Incorporeal rights
a. Pactum commisorium
b. Precarium
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c. Antichresis
d. Precarium commisorium
______ 3. A mortgaged his land to B in a private document. Same was not registered in the
Registry of Deeds. Later, A sold same land to C. Such sale was registered. B
questioned the validity of the sale. C contended that the sale is valid because the
mortgage between A and B is not binding upon him. Is Cs contention correct?
a.
b.
c.
d.
Right of redemption
Equity of redemption
Redemption of personal property
Redemption of real property
a. It starts form the time of receipt of the notice of the extra-judicial foreclosure by
the mortgagor.
b. It starts from the filing of the petition for extra judicial foreclosure of the
mortgaged property by the mortgagee.
c. It starts form the registration of the certificate of sale by the clerk of court.
d. It starts from the time the mortgagor defaulted in fulfilling his obligation to the
mortgagee.
______ 6. Is a foreclosure valid even without prior publication and posting of notice?
266
a.
b.
c.
d.
_____ 8. Which o the following is not an essential requisite to the contracts of mortgage?
a.
b.
c.
d.
The persons constituting the mortgage have the free disposal of their property.
The mortgagor is not the absolute owner of the property mortgaged.
The document shall be recorded in the Registry of property to bind third parties.
They are constituted to secure the fulfillment of a principal obligation.
a.
b.
c.
d.
judicial creditor
any person having lien on the property sold
debtor
any person who wants to buy the property
______ 10. Pactum Commisorium is void under the following contracts except in:
a.
b.
c.
d.
______ 11. What law should govern the redemption of a land with free patent title?
a.
b.
c.
d.
______ 12. What is the rule on redemption if the land is mortgaged to a rural bank under R.A.
No. 720, as amended?
267
______ 13. At what instance when the title of ownership over the property sold in the
foreclosure sale is determined?
a. Only after a period of redemption has lapsed without the debtor-mortgagor or his
heirs performing their right of redemption.
b. Only before the period of redemption has lapsed without the debtor-mortgagor or
his heirs performing their right of redemption.
c. One year after redemption without the debtor-mortgagor or his heirs performing
their right of redemption.
d. One year before the period of redemption without the debtor-mortgagor or his
heirs performing their right of redemption
______ 14. What is the extent of the amount of consideration for the redemption?
a. judicial foreclosure
extra judicial foreclosure
b. redemption of real property
c. redemption of personal property
______ 16. Under the General Banking Law of 2000, if the mortgagee is a bank, the
redemptioner shall pay the following except:
a.
b.
c.
d.
_______ 17. This is a kind of mortgage when there is agreement between the parties or
constituted by the will of the owner of the property on which it is created.
a.Legal
b.Equitable
c.Voluntary
d.None of the above
268
a.
b.
c.
d.
It is indivisible.
It is an accessory contract.
It is a personal right.
It is real property.
a.
b.
c.
d.
_____ 21. A applied and obtained a loan from B, a credit institution. To secure the
payment of the obligation, A executed a deed of mortgage. A failed to comply
with the obligation, B judicially foreclosed the mortgage. A invoke his right of
redemption. Is As contention is correct?
a. Yes, A is correct pursuant to the General Banking Act, wherein, even if the
foreclosure of the mortgaged properties is judicial in nature, nonetheless it has
the right of redemption for one year.
b. No, A is not correct because according to the decided cases of the Supreme Court
they held that A only have an equity of redemption since the foreclosure is
judicial in nature.
c. Yes, A is correct because B is a credit institution and even if it is judicially
foreclosed, A has a one (1) year period within which to exercise the right of
redemption.
d. No, A is not correct because there is no right of redemption at all.
269
270
Movables
Immovables and inalienable right
Movables and alienable rights
Immovables only
______ 29. What is the PRESCRIPTION PERIOD of a mortgagee to recover the deficiency?
a. The action to cover a deficiency after foreclosure prescribes after 6 months after
the foreclosure or before the registration of the certificate of foreclosure.
b. The action to cover a deficiency after foreclosure prescribes after 3 months after
the foreclosure or before the registration of the certificate of foreclosure.
c. The action to cover a deficiency after foreclosure prescribes after 2 months after
the foreclosure or before the registration of the certificate of foreclosure
whichever earlier.
d. The action to cover a deficiency after foreclosure prescribes after ten (10) years
from the time the right of action accrues.
______ 30. Mere inadequacy of the price obtained at the Sherriffs sale will not be sufficient to
set aside the sale unless:
a. The price deficiency cannot be recovered within 10 years from the time the right
of action accrues.
b. The price is so inadequate so as to shock the conscience of the court taking into
consideration the peculiar circumstances attendant thereto.
c. The price is not consistent with applicable laws and jurisprudence.
d. The price is not enough to cover all the expenses in the foreclosure of the
property including attorneys fees and necessary expenses.
271
______ 31. A foreclosure sale retroacts to the date of registration of the mortgage and that a
person who takes a mortgage in good faith and for valuable consideration, the
record showing clear title to the mortgagor, will be protected against equitable
claims on
the title in favor of third persons of which he had no actual or constructive notice.
a.
b.
c.
d.
______ 32. Allowing redemption after the lapse of the statutory period when the buyer at the
foreclosure sale does not object but even consents to the redemption:
a.
b.
c.
d.
______ 33. Which is not a ground for the authority to motu proprio or upon verified complaint
filed by a buyer of a subdivision project or condominium, revoke the registration
and the license to sell any unit, if upon examination into the affairs there is
satisfactory evidence that the said dealer or owner?
a.Is insolvent
b.Is a good person but of bad business repute.
c.Has made any misrepresentation in any prospectus, brochure, circular or other
literature about the subdivision
d.Has been engaged or about to engage in fraudulent transactions
______ 34. No mortgage on any unit or lot shall be made by the owner or developer without
prior written approval of the authority and :
a. Such approval shall not be granted unless it is shown that the proceeds of the
mortgage loan shall be used for the development of the condominium.
b. The buyer shall register his title to the Registry of Deeds.
c. The loan value of each lot or unit covered by the mortgage shall be determined
and the buyer thereof, shall be notified before the release of the loan.
d. The buyer may, at his option pay his installment directly to the mortgagee who
shall apply the payments to the corresponding mortgage indebtedness secured by
the particular lot.
______ 35. The fact of extrajudicial settlement or adjudication is published once a week
for three consecutive weeks in a newspaper of general circulation in the
province and proof thereof is filed with the Register of Deeds. Which of the
272
a.The proof must necessarily consist of the certification of the sale, prize, the foreman
or principal clerk, or of the editor, business or advertising manager of the
newspaper concerned, or a copy of each week's issue of the newspaper wherein
the publication appeared.
b.The proof must consist of the affidavit of the publisher, printer, his foreman or
principal clerk, or of the editor, business or advertising manager of the
newspaper concerned.
c.The proof shall consist of the certification of the publisher, printer, his foreman or
principal clerk, or of the editor, business or advertising manager of the
newspaper concerned, or a copy of each week's issue of the newspaper wherein
the publication appeared.
d.The proof shall consist of contract of sale, prize, the foreman or principal clerk, or
of the editor, business or advertising manager of the newspaper concerned.
______ 36. The following are the powers and the functions vested to the Board except:
a.Provide comprehensive policy guidelines for the promotion and development of the
real estate industry;
b.Conduct licensure examinations for the practice of the real estate service profession
and prescribe the appropriate, syllabi of the subjects for examination
c.Issue, suspend, revoke or reinstate, without due notice and hearing, certificates of
registration or professional identification cards for the practice of real estate
service.
d.Maintain a comprehensive and updated register of licensed real estate service
professionals;
______ 37. Every applicant seeking to be registered and licensed as a real estate service
practitioner, except a real estate salesperson, shall undergo an examination as
provided for in this Act. Examinations for the practice of real estate service in the
Philippines shall be given by the Board at least __________ in such places and
dates as the Commission may designate.
a.
b.
c.
d.
Thrice a year
Once a year
Twice a year
Every six months
______ 38. When the property is redeemed after the purchaser has been given possession, the
redeemer shall be entitled to deduct from the price of redemption any rentals that
said purchaser may have collected in case the property or any part thereof was
rented; if the purchaser occupied the property as his own dwelling, it being town
property, or used it gainfully, it being rural property, the redeemer may deduct
from the price the interest of one per centum per month provided for in section
four hundred and sixty-five of the Code of Civil Procedure.
a.
b.
c.
d.
______ 39. In accordance of Act 3135, the venue of the action shall be:
a.
b.
c.
d.
______ 40. Rule 68 requires that the action for judicial foreclosure of a land shall be filed in:
a. In the residence of the mortgagor
b. In the place where the property is located or in the place where the parties had
agreed upon
c. In the residence of the mortgagee
d. Either in the residence of the mortgagor or mortgagee, at the option of the
mortgagee.
V. Chattel Mortgage
______ 1. It is a conditional sale of personal property as security for the payment of a
debt, or the performance of some other obligation specified therein, the condition
being that the sale shall be void upon the seller paying to the purchaser a sum of
money or doing some other act named.
a.
b.
c.
d.
Chattel mortgage
Real mortgage
Pledge
Mortgage Law
Corporation
Firm
Association
Partnership
______ 3. An act providing for the mortgage of personal property and the registration
of the mortgages so executed.
a.
b.
c.
d.
______ 4. A chattel mortgage shall not be valid against any person except:
a.
b.
c.
d.
274
15 days
10 days
25 days
5 days
275
with any bank, or other financial institutions, domestic or foreign, for the purpose
of financing the construction, acquisition, purchase of vessels or initial operation of
vessels.
a.
b.
c.
d.
276
third persons?
a. It should be registered in the Chattel Mortgage Register.
b. It should be registered in the Motor Vehicles Office.
c. It should be registered in the Chattel Mortgage Register and the Motor Vehicles
Office.
d. It does not need any registration at all.
______ 18. Under the old law, a chattel mortgage was considered a conditional sale.
The Code Commission considered the old definition:
a.
b.
c.
b.
valid
not binding
correct
defective
______ 20. What happens if the alienation of the mortgage credit is not registered?
a.
b.
c.
b.
______ 21. In ship mortgages, the following must be contained therein except:
a.
b.
c.
d.
______ 22. The Coast Guard District or Station Commander upon the recording of a
preferred mortgage shall deliver _________________ thereof to the
mortgagor.
a.
b.
c.
b.
______ 23. The following are conditions precedent to record in a ship mortgage except:
a. No mortgage shall be recorded unless it states the interest of the mortgagee.
b. No mortgage shall be recorded unless it states the interest of the mortgagor in
the vessel.
c. No mortgage shall be recorded unless previously acknowledged before the
Coast Guard District.
d. No mortgage shall be recorded at the new port of documentation unless there
is furnished to the Coast Guard District.0
277
______ 24. Original jurisdiction of al suits involving the default of the mortgagor in
ship mortgages is granted to the:
a.
b.
c.
b.
______ 25. In ship mortgages, the preferred mortgage lien shall have priority over all
claims against the vessel, except the following claims:
a.
b.
c.
d.
crews wages
specific average
salvage but not including contract salvage
damages arising out of a crime
______ 29. It is the transaction by which the mortgagor reacquires or buys back the
property which may have passed under the mortgage.
a.
b.
c.
b.
______ 30.
a.
b.
c.
d.
______ 31.
act of redemption
equity of redemption
right of redemption
period of redemption
These are things deemed to be real property except:
Fertilizer actually used on a piece of land
Paintings inside the St. Vincent Church
Animal houses
A house intended to be demolished
It is a mortgage or lien or encumbrance on a vessel and its equipment
with any bank or other financial institution, domestic or foreign, for
278
Ship mortgage
Chattel Mortgage
Real Estate Mortgage
Pledge
A chattel mortgage is:
Indivisible
Formal
Accessory
In good faith
______ 34. A preferred mortgage is a valid mortgage whenever the following instances
are done except:
a. The mortgage is recorded.
b. An affidavit of good faith is filed
c. That the mortgage does not stipulate that the mortgagee waives the preferred
status thereof
d. The mortgaged property is appropriated.
______ 35. The penalty for removal, sale or pledge of a mortgaged property is:
a.
b.
c.
d.
Prision menor
Prision mayor
Arresto mayor or fine
Arresto
______ 36. A chattel mortgage on car in order to affect third persons should not only be
recorded in the chattel mortgage register but also with the:
a.
b.
c.
d.
______ 37. It is a mortgage or lien or encumbrance on a vessel and its equipment with
any bank or other financial institution, domestic or foreign, for purpose of
financing the construction, acquisition, purchase or initial operation of vessels.
a. Ship mortgage
279
b. Chattel Mortgage
c. Real Estate Mortgage
d. Pledge
______ 38. A chattel mortgage is:
a. A contract in which the debtor guarantees to the creditor the fulfillment of a
principal obligation, subjecting for the faithful compliance thereof a real property
in case of non-Fulfillment of said obligation at the time stipulated.
b. A contract by which the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the
interest, if owing, and thereafter to the principal.
c. A contract by which a personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation.
d. A contract by which one of the parties delivers to another, either something not
consumable so that the latter may use the same for a certain time and return it.
______ 39. A preferred mortgage is a valid mortgage whenever the following instances
are done except:
a. The mortgage is recorded.
b. An affidavit of good faith is filed
c. That the mortgage does not stipulate that the mortgagee waives the preferred
status thereof
d. The mortgaged property is appropriated.
______ 40. The penalty for removal, sale or pledge of a mortgaged property is:
a.
b.
c.
d.
Prision menor
Prision mayor
Arresto mayor or fine
Arresto
VI. Antichresis
______ 1. It is a contract by which the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of the
interest, if owing and thereafter to the principal of his credit.
a.
b.
c.
d.
antichresis
pledge
mortgage
equity
real property
personal property
personal and real proper
none of the above
______ 3. In a contract of antichresis must be in specified to be valid in writing this refers to:
a. a formal contract
b. a unilateral contract
c. accessory contract
280
a unilateral contract
an accessory contract
a formal contract
a real contract
______ 5. Which of the following is not a correct comparison of antichresis and real
mortgage?
a. In antichresis, the property is delivered to the creditor; while in mortgage, the
debtor usually retains possession of the property.
b. In antichresis, the creditor acquires the right to receive the fruits of the property;
whereas in mortgage, the creditor does not have any right to receive the fruits.
c. Both must be in a form of a public instrument.
d. Both are similar that the subject is real property.
______ 6. Which of the following is a proper distinction of antichresis and pledge?
a. Antichresis is a real contract while pledge is a formal contract.
b. Antichresis requires symbolic delivery whereas pledge need not.
c. Antichresis is perfected by mere consent while pledge is perfected by the delivery
of the thing pledge.
d. Antichresis refers to both real and personal property while pledge refers to
personal property.
______ 7. Which of the following statement is not true?
a. It is essential that the loan should earn interest in order that it can be guaranteed
with a contract of antichresis. Antichresis is susceptible of guaranteeing all kinds
of obligations, pure or conditional.
b.
The fruits of the immovable which is the object of the antichresis must be
appraised at their actual market value at the time of the application.
c. The property delivered stands as a security for the payment of the obligation of
the debtor in antichresis. Hence, the debtor cannot demand its return until the
debt is totally paid.
d. A stipulation authorizing the antichretic creditor to appropriate the property
upon the non-payment of the debt within the period agreed upon is void.
______ 8. How shall the object of antichresis be appraised?
a.
b.
c.
d.
______ 9. What is the remedy of creditor in case of non payment of debt by the debtor?
a.
b.
c.
d.
______ 10. What is the effect if the creditor does not pay the proper taxes?
281
a.
b.
c.
d.
______ 11. The following are the obligations of the antichretic creditor except:
a. to return to the debtor the fruits of the property delivered, if owing
b. to pay the taxes and charges upon the estate
c. to bear the expenses necessary for its preservation and repair
d. to apply the fruits after receiving them to the interest if owing and thereafter to
the principal
______ 12. The sums spent by the creditor in fulfillment of the obligations under Art. 2135
shall be charged:
a. against the actual market value of the property
b. against the fruits of the property
c. against the liens and encumbrances of the property
d. against the debtors property
______ 13. An antichretic creditor is deemed to be:
a. a possessor in the concept of an owner
b. a co-owner
c. a mere holder placed in possession of the property
d. a mortagee or pledge
______ 14. If a contract of antichresis is void, the principal obligation:
a. is also void
b. may still be valid
c. is voidable only
d. is always valid
______ 15. It is a legal and procedural rule, including doctrines by virtue of which, aids or
overrides and statue law protect rights and enforce duties fixed by substantive law.
a.
b.
c.
d.
antchresis
pledge
mortgage
equity
______16. The ___________ stands as a security for the payment of the obligation of the
debtor in antichresis.The debtor cannot demand its return until the debt is totally
paid.
a. property delivered
b. object of the contract
282
demand against
special power of attorney in favor
promissory note in favor
demand letter against
______ 18. The following are default rules to be followed in antichresis except:
a. The creditor advances for the taxes, charges, as well as the necessary expenses
for the preservation of the property
b. The law uses the term advances as the fruits of the immovable may be
applied to the expenses and charges. If the creditor doesn't want to
advance, he may just surrender the immovable to the debtor
c. The debtor may reacquire the enjoyment of the thing until full payment of the
obligation.
d. The creditor does not acquire ownership of the immovable for nonpayment of the
debt within the period agreed upon. Every stipulation to the contrary is void.
The creditor may petition the court to foreclose the property.
______ 19. What can the creditor do if he does not want to pay taxes and incur the expenses
necessary for the preservation and repair of the property?
a.
He may compel the debtor to reacquire the enjoyment of the property except
when there is contrary stipulation.
b. He may retain possession of the property provided he will pay the amount due
upon demand
c. He may lend the property to a third party provided the latter will pay the taxes
and expenses due
d. He may return the property
______ 20. What is the object of a contract of antichresis?
a.
b.
c.
d.
Immovable property
The fruits of the immovable
The interest of the property
Movable and immovable property
283
Preference of credit
Concurrence of credit
Contract of Antichresis
Right of Excussion
______ 2. It is the right held by a creditor to be preferred in the payment of his claim above
others (to be paid first) out of the debtors assets?
a.
b.
c.
d.
Preference of credit
Concurrence of credit
Contract of Antichresis
Right of Excussion
______ 5. If there is co-ownership, the undivided share/ interest of one co-owner can be
possessed by the _______ for the payment of debtors obligation.
a.
assignee
b. administrator
c. creditor
d. assignee
______6. So long as the conjugal partnership or absolute community subsists, its property
shall not be among the assets to be taken possession of by the assignee for the
payment of the insolvent debtor's obligations, except insofar as the latter have
redounded to the benefit of the family. If it is the husband who is insolvent, the
administration of the conjugal partnership of absolute community may, by order of
the court, be transferred to the _______ or to a third person other than the
assignee.
a. legal heirs
b. legitimate children
284
c. wife
d. compulsory heirs
______ 7. In concurrence and preference, what happens to the property held by the insolvent
debtor as a trustee of an express or implied trust?
a.
b.
c.
d.
______ 8. In Article 2241, with reference to specific movable property of the debtor; the
following claims or liens shall be preferred except:
a. Duties, taxes and fees due thereon to the State or any subdivision thereof.
b. Claims arising from misappropriation, breach of trust, malfeasance by public
official committed in the performance of his duties, on the movables, money or
securities obtained by them.
c. Credits for rent for one year, upon personal property of the lessee existing on the
movable leased and on the fruits of the same, but on money or instruments of
credit.
d. Claims for laborers wages, on the goods manufactured or the work done.
______ 9. What must be considered in terms of preference of credit over specific personal
properties?
a.If there are three or more credits with respect to the same specific movable
property, they shall be satisfied pro rata, after the payment of duties, taxes and
fees due the State or any subdivision thereof.
b.Those credits which enjoy preference with respect to specific movables exclude all
others to the extent of the value of the personal property to which the preference
refers.
c.If there are three or more credits with respect to the same specific movable
property, they shall be satisfied solidarily, after the payment of duties, taxes and
fees due the State or any subdivision thereof.
d.Those credits which enjoy preference with respect to specific movables include all
others to the extent of the value of the personal property to which the preference
refers.
______ 10. Sonia has one car, the taxes on which have not yet been paid. Once, the car fell into
the sea, was salvaged, was repaired, and has now been pledged with a creditor. If
Sonia is insolvent and has not paid for any of the acts done on her car, the State,
the person who salvaged it, the repairer and the pledge will be paid through the
following except:
a.All said four credits have preference over the car to the exclusion of all other
creditors.
b.The State will first be paid for taxes on the car.
c.The salvage, the repairman and the pledge will all be paid pro rata from the
remaining value of the car.
d.All said four credits have preference over the car to the einclusion of all other
creditors.
______ 11. The claims on credits enumerated in Art. 2241 are considered as the
following except:
285
286
a.accion publiciana
b.accion subrogatoria
c.accion reinvindicatoria
d.accion paulina
______ 19. It is the impugn or rescind acts or contracts done by the debtor to
defraud the creditors.
a.accion pauliana
b.accion subrogatoria
c.accion publiciana
d.accion reinvindicatoria
______ 20. It refers to assignment in favor of creditors.
a.
b.
c.
d.
287
c.If there are two credits with respect to the different specific real property or real
rights, they shall be satisfied pro rata, after the payment of the taxes and
assessments upon the movable property or real right.
d.If there are two or more credits with respect to the different specific real property or
real rights,. they shall be satisfied pro rata, after the payment of the taxes and
assessments upon the immovable property or real right.
______ 25. It is a credit for the repair or reconstruction of something that had
previously been made.
a.Mortgage credits
b.Refectionary credits
c.Credits of insurers
d.Debtor credits
______ 26. Under Art.2244, taxes (duties, assessments) are placed only as nos. 9, 10, 11. This
rule applies to property other than specific. What if the taxes are specific?
a.taxes are given first preference.
b.duties are given first preference.
c.Taxes are given the last preference
d.Duties are given the last preference
______ 27. What happens when an ordinary credit evidence by a public instrument and a final
judgment are placed on an equal plane, hence, both are of the same date?
a.there will be no pro rate sharing.
b.there will be a pro rata sharing.
c.It is within the option of the creditor, either pro rata or not
d.None of the above
______ 28. The following properties are exempt from attachment except:
a.
b.
c.
d.
______ 29. The exemption of properties of the conjugal partnership or of the absolute
community applies provided that:
a. The conjugal partnership or the absolute community subsists and the obligation
did not redound to the benefit of the family;
b. The conjugal partnership or the absolute community subsists
c. The obligation did not redound to the benefit of the family;
d. The obligation redounded to the benefit of the family
______ 30. The following statements on preference of credit are true except:
a. A recorded mortgage credit is a special preferred credit.
b. Unrecorded sale is superior to a recorded mortgage, since execution in a public
instrument is equivalent to delivery.
c. Registered mortgage of a latter date is superior to a prior unregistered mortgage.
d. Pro-rata rule applies
288
KEY ANSWER
I. Loan
1. A
2. B
3. A
4. B
5. A
6. C
7. C
8. C
9. B
10. C
11. C
12. B
13. B
14. A
15. A
16. D
17. B
18. B
19. A
20. B
21. B
22. D
23. B
24. C
25. D
26. A
27. A
28. A
1. C
2. A
3. C
4. C
5. A
6. B
7. C
8. D
9. A
10. D
11. A
12. B
13. A
14. B
15. A
16. A
17. B
18. C
19. A
20. A
21. D
22. A
23. C
24. C
25. C
26. B
27. B
II. Deposit
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
B
A
C
D
D
A
B
C
D
B
C
C
B
A
B
B
B
B
D
A
C
A
C
B
C
1. A
2. D
3. C
4. B
5. C
6. A
7. B
8. B
9. C
10. A
11. A
12. D
13. B
14. C
15. D
16. B
17. B
18. C
19. B
20. A
21. D
22. B
23. A
24. A
25.B
III. Guarantee
1. B
2. C
3. B
4. C
5. D
6. D
7. D
8. D
9. C
10. D
11. C
12. C
13. D
14. B
15. C
16. A
17. B
18. D
19. C
20. B
21. D
22. C
23. B
24. D
25. B
1. D
2. A
3. D
4. B
5. A
6. B
7. D
8. B
9. B
10. B
11. A
12. D
13. C
14. B
15. A
16. B
17. C
18. B
19. C
20. A
21. B
22. B
23. C
24. B
25. D
VII. Antichresis
IV. Pledge
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
C
D
B
C
C
B
A
A
D
B
A
A
C
A
C
1. B
2. C
3. D
4. B
5. D
6. A
7. C
8. A
9. A
10. B
11. B
12. B
13. D
14. D
15. C
289
APPENDIX I
ANSWERS TO BAR EXAMINATIONS
(Secured Transactions)
1975
A.
A partnership borrowed PhP20,000.00 from A at clearly usurious interest. Can the creditor recover
anything from the debtor? Explain.
Answer
Yes, the creditor can recover the principal together with legal interest thereon from the date of demand
(Art. 2209), and legal interest on the interests paid in excess of the lawful rate from the date of payment
(Art. 1413).
The usurious interest, that is to say, the whole usurious interest can not be recovered, because of Article
1413 of the Civil Code and Section 6 of the Usury Law. However, the illegality of the stipulation concerning
the usurious interests does not affect the creditors right to recover the principal, inasmuch as a contract
of loan with usurious interest is a divisible contract. The illegal terms can be separated from the legal ones
(Art. 1420). [Angel Jose v. Chelda, 23 SCRA 119; Briones v. Cammayo, 41 SCRA 404]
B.
A debtor pledged to his surety pieces of jewelry to indemnify the latter in case the surety would be
obliged to pay the creditor. The surety paid PhP2,800.00 to the creditor. To recover the amount, the
surety sold at public auction the jewelry but realized only PhP500.00. May the surety recover the
deficiency from the debtor? Explain.
Answer
No, the surety is not entitled to recover the deficiency. Article 2115 of the Civil Code provides that
in a foreclosure of a pledge, if the price of the sale is less than the indebtedness secured by the pledge, the
creditor shall not be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. By
electing to sell the articles pledged, the creditor waived any other remedy, and must abide by the results of
the sale. No deficiency is recoverable. [Manila Surety v. Velayo, 21 SCRA 515]
1976
A.
A sells his 1976 Colt Lancer Sedan to B, a compadre. If A and B fix the price at PhP50,000.00
payable in installment, secured by a chattel mortgage on the car and a real estate mortgage by a third
party, upon foreclosure of the chattel mortgage, may A foreclose the real estate mortgage for the unpaid
balance? Explain.
Answer
No, according to the decided cases of Cruz and Reyes v. Filipinas Investment and Financing
Corporation and Pascual v. Universal Motors, the seller cannot recover the deficiency by foreclosing the
real estate mortgage given by the third party because the latter would have a right to be indemnified by B
and therefore indirectly the seller would be recovering the deficiency from B which is prohibited by law
(Art. 1484).
B.
May it be stipulated that in a foreclosure of the chattel mortgage to secure the purchase of a car on
installment, the installments paid will not be refunded? Explain.
Answer
Yes, such a stipulation may be construed as a penalty clause and shall be held valid insofar as the sum is
not unconscionable (Art. 1486).
1977
290
(2)
D can recover from C the entire interest paid by him to the latter with interest thereon
from the date of payment. This is expressly directed by the Civil Code (Art. 1413). True,
the Usury Law (Sec. 6) merely states that he can recover only the whole interest paid, but
the Civil Code (Art. 1413) adds that the same can be recovered with interest thereon from
the date of payment (Angel Jose Warehousing Co. v. Chelda Enterprises, 23 SCRA 119).
No, D cannot. According to the Civil Code (Art. 1420), in case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced. In a simple
contract of a loan with usurious interest, the prestation of the debtor to pay the principal
debt is not illegal; what is illegal is to pay the stipulated interest. Hence, being separable,
the latter only should be deemed void (Angel Jose v. Chelda, supra, Briones v.
Cammayo, 41 SCRA 404).
B.
R borrowed PhP5,000.00 from H and he authorized his bank to pay the loan. The bank agreed.
Eventually, the bank paid only PhP2,550.00. H sued both R and the bank. Discuss the banks liability.
Answer
The bank cannot be held liable for the remaining PhP2,500.00. Even assuming that H gave his
consent to Rs proposal that the bank shall pay his indebtedness of PhP5,000.00, in reality, there was no
substitution of debtor by delegacion resulting in a novation of the obligation. There was merely an
authorization, which was accepted by the bank, that the latter shall pay Rs debt. As it turned out, the bank
paid only PhP2,500.00 to H. Beyond that amount, the bank cannot be held liable (Hodges v. Rey, 111 Phil.
219).
C.
Answer
In mutuum, the object is money or any consumable (fungible) thing; in commodatum, the object
is, as a general rule, a non-consumable (non-fungible) thing.
The former may or may not be gratuitous; the latter is essentially gratuitous.
The purpose of the former is consumption; the purpose of the latter is use.
In the former, ownership passes to the debtor; in the latter, ownership remains with the bailor.
In the former, the debtor must pay or return an equal amount of the same kind or quality; in the
latter, the bailee must return the specific thing loaned.
1978
A.
A signed a promissory note dated July 25, 1960 in favor of B, which reads: For value received I
promise to pay B at his residence at 43 Caledonia St., Malate, the sum of ten thousand pesos
(PhP10,000.00) with interest at twelve per cent (12%) per annum upon demand. Twelve (12) years later
on August 15, 1972, B brought an action to collect the sum due under the promissory note. A interposed
the defense of prescription as more than ten (10) years had transpired. Decide the case with reasons.
Answer
The action brought by B against A to collect the sum due under the promissory note has already
prescribed more than ten years had already elapsed from the time of the execution of the promissory note.
291
292
Alternative Answer
Normally, before an action for collection may be maintained by the creditor against the latter
asking the court to fix the duration of the term or period for payment (Art. 1197, Civil Code). However, an
action combining such action with that of an action for collection may be allowed if it can be shown that a
separate action for collection would be a mere formality because no additional proofs other than the
admitted facts will be presented and would serve no purpose other than to delay. Here, there is no legal
obstacle to such course of action (Borromeo v. Court of Appeals, 47 SCRA 65).
293
294
Answer:
No, because under Article 1990 of the Civil Code, if the depository by force majeure loses the
thing receives money or another thing in its place, he shall deliver the sum or other thing to be depositor.
There being no showing that there was anything received in place of the things deposited, the Alto Bank is
not liable for the contents of the safety box.
Alternative Answer:
The Alto Bank is not liable because the contract is not a deposit but a rental of the safety deposit
box. Hence, the Alto Bank is not liable for the loss of the contents of the box.
295
1992
A.
On 20 December 1970, Juliet, a widow, borrowed from Romeo P4,000.00 and, as security
therefore, she executed a deed of mortgage over one of her two (2) registered lots which has a market
value of P15,000.00. The document and the certificate of title of the property were delivered to Romeo.
296
297
298
299
C.
In 1982, Steve borrowed P400,000.00 from Danny, collateralized by a pledge of shares of stock of
Conception corporation worth P800,000.00. In 1983, because of the economic crisis, the value of the
shares pledged fell to only P100,000.00. Can Danny demand that Steve surrender the other shares worth
P700,000.00?
ALTERNATIVE ANSWERS
a) No. Bilateral contracts cannot be changed unilaterally. A pledge is only a subsidiary contract,
and Steve is still indebted to Danny for the amount of P400,000.00 despite the fall in the value of the
stocks pledged.
b) No. Dannys right as pledgee is to sell the pledged shares at a public sale and keep the proceeds
as collateral for the loan. There is no showing that the fall in value of the pledged or property was
attributable to the pledgers fault or fraud. On the contrary, the economic crisis was the culprit. Had the
pledgee been deceived as to the substance or quality of the pledged shares of stock, he would have had the
right to claim another thing in their place or to the immediate payment of the obligation. This is not the
case here.
1995
A. Olivia owns a vast mango plantation which she can no longer properly manage due to a lingering
illness. Since she is indebted to Peter in the amount of P500,000.00 she asks Peter to manage the
plantation and apply the harvest to the payment of her obligation to him, principal and interest, until
her indebtedness shall have been fully paid. Peter agrees.
a.
What kind of contract is entered into between Olivia and Peter? Explain.
300
A contract of antichresis was entered into between Olivia and Peter. Under Article 2132 of the
new Civil Code, by a contract of antichresis the creditor acquires the right to receive the fruits
of an immovable of his debtor, with the obligation to apply them to the payment of the
interest, and thereafter to the principal of his credit.
b. Peter must pay taxes and charges and interest must be specified in writing, otherwise the
antichresis will be void. (Art. 2134, NCC)
c.
No. Art. 2136 specifically provides that the debtor cannot re-acquire the enjoyment of the
immovable without first having totally paid what he owes the creditor. However, it is
potestative on the part of the creditor to do so in order.
B.In 1983 PHILCREDIT extended loans to Rivett-Strom Machineries, Inc. (RIVETT-STROM), consisting
of US$10 Million for the cost of machineries imported and directly paid by PHILCREDIT, and 5 Million in
cash payable in installments over a period of ten (10) years on the basis of the value thereof computed at
the rate of exchange of the U.S. dollar vis--vis the Philippine peso at the time of payment.
RIVETT-STROM made payments on both loans which if based on the rate of exchange in 1983
would have fully settled the loans.
PHILCREDIT contends that the payments on both loans should be based on the rate of exchange
existing at the time of payment, which rate of exchange has been consistently increasing, and for
which reason there would still be a considerable balance on each loan.
Is the contention of PHILCREEDIT correct? Discuss fully.
ANSWER
As regards the loan consisting of dollars, the contention of PHILCREDIT is correct. It has to be
paid in Philippine currency computed on the basis of the exchange rate at the time of payment of each
installment, as held in Kalao v. Luz, 34 SCRA 337. As regards the P5 Million loan in Philippine pesos,
PHILCREDIT is wrong. The payment thereof cannot be measured by the peso-dollar exchange rate. That
will be violative of the Uniform Currency Act (R.A. 529) which prohibits the payment of an obligation
which, although to be paid in Philippine currency, is measured by a foreign currency. (Palanca v. CA, 238
SCRA 593).
1996
A.
In the province, a farmer couple borrowed money from the local merchant. To guarantee payment,
they left the Torrens Title of their land with the merchant, for him to hold until they pay the loan. Is there
aa. contract of pledge,
b. contract of mortgage,
c. contract of antichresis, or
d. none of the above?
ANSWER
None of the above. There is no pledge because only movable property may be pledged (Art. 2094,
NCC). If at all, there was a pledge of the paper or document constituting the Torrens Title, as a movable by
itself, but not of the land which the title represents. There is no mortgage because no deed or contract was
executed in the manner required by law for a mortgage (Arts. 2085 to 2092, NCC; 2124 to 2131, NCC).
301
1998
A.Distinguish usufruct from commodatum and state whether these may be constituted over consumable
goods.
ANSWER
Usufruct is a right given to a person (usufructuary) to enjoy the property of another with the
obligation of preserving its form and substance (Art. 562, Civil Code)
On the other hand, commodatum is a contract by which one of the parties (bailor) delivers to
another (bailee) something not consumable so that the latter may use it for a certain time and return it. In
usufruct the usufructuary gets the right to the use and to the fruits of the same, while in commodatum, the
bailee only acquires the use of the thing loaned but not its fruits.
302
303
2000
A.Ambrocio died, leaving his three daughters, Belen, Rosario and Sylvia hacienda which was mortgaged
to the Philippine National Bank. Due to the failure of the daughters to pay the bank, the latter foreclosed
the mortgaged and the hacienda was sold to it as the highest bidder. Six months later, Sylvia won the
grand prize at the lotto and used part of it to redeem the hacienda from the bank. Thereafter, she took
possession of the hacienda and refused to share its fruits with her sisters, contending that it was owned
exclusively by her, having bought it from the bank with her own money. Is she correct or not?
SUGGESTED ANSWER:
Sylvia is not correct. The 3 daughters are the co-owners of the hacienda being the only heirs of
Ambrosio. When the property was foreclosed, the right of redemption belongs also to the 3 daughters.
When Sylvia redeemed the entire property before the lapse of the redemption period, she also exercised
the right of redemption of her co-owners on their behalf. As such she is holding the shares of her two
sisters in the property, and all the fruits corresponding thereto, in trust for them. Redemption by one coowner inures to the benefit of all (Adille v. CA, 157 SCRA 455). Sylvia, however, is entitled to be
reimbursed the shares of her two sisters in the redemption price.
304
C.
Kristina brought her diamond ring to a jewelry shop for cleaning. The jewelry shop undertook to
return the ring by February 1, 1999." When the said date arrived, the jewelry shop informed Kristina that
the Job was not yet finished. They asked her to return five days later. On February 6, 1999, Kristina went
to the shop to claim the ring, but she was informed that the same was stolen by a thief who entered the
shop the night before. Kristina filed an action for damages against the jewelry shop which put up the
defense of force majeure. Will the action prosper or not?
SUGGESTED ANSWER:
The action will prosper. Since the defendant was already in default not having delivered the ring
when delivery was by plaintiff at due date, the defendant is liable for the loss of the thing and even when
the loss was due to force majeure.
2001
A.
Samuel borrowed P300,000.00 housing loan from the bank at 18% per annum interest. However,
the promissory note contained a proviso that the bank "reserves the right to increase interest within the
limits allowed by law," By virtue of such proviso, over the objections of Samuel, the bank increased the
interest rate periodically until it reached 48% per annum. Finally, Samuel filed an action questioning the
right of the bank to increase the interest rate up to 48%. The bank raised the defense that the Central
Bank of the Philippines had already suspended the Usury Law. Will the action prosper or not? Why?
SUGGESTED ANSWER:
The action will prosper. While it is true that the interest ceilings set by the Usury Law are no
longer in force, it has been held that PD No. 1684 and CB Circular No. 905 merely allow contracting
parties to stipulate freely on any adjustment in the interest rate on a loan or forbearance of money but do
not authorize a unilateral increase of the interest rate by one party without the other's consent (PNB v.
CA, 238 SCRA 2O [1994]]). To say otherwise will violate the principle of mutuality of contracts under
Article 1308 of the Civil Code. To be valid, therefore, any change of interest must be mutually agreed upon
by the parties (Dizon v, Magsaysay, 57 SCRA 25O [1974]). In the present problem, the debtor not having
given his consent to the increase in interest, the increase is void.
B.
To secure a loan obtained from a rural bank, Purita assigned her leasehold rights over a stall in
the public market in favor of the bank. The deed of assignment provides that in case of default in the
305
2002
A.
Carlos sues Dino for (a) collection on a promissory note for a loan, with no agreement on interest,
on which Dino defaulted, and (b) damages caused by Dino on his (Carlos) priceless Michaelangelo
painting on which Dino is liable on the promissory note and awards damages to Carlos for the damaged
painting, with interests for both awards. What rates of interest may the court impose with respect to both
awards? Explain.
SUGGESTED ANSWER:
With respect to the collection of money or promissory note, it being a forbearance of money, the
legal rate of interest for having defaulted on the payment of 12% will apply. With respect to the damages
to the painting, it is 6% from the time of the final demand up to the time of finality of judgment until
judgment credit is fully paid. The court considers the latter as a forbearance of money. (Eastern Shipping
Lines, Inc. v. CA, 234 SCRA 78 [1994]; Art 2210 and
2211, CC)
2003
A.
X constructed a house on a lot which he was leasing from Y. Later, X executed a chattel mortgage
over said house in favor of Z as security for a loan obtained from the latter. Still later, X acquired
ownership of the land where his house was constructed, after which he mortgaged both house and land in
favor of a bank, which mortgage was annotated on the Torrens Certificate of Title. When X failed to pay
his loan to the bank, the latter, being the highest bidder at the foreclosure sale foreclosed the mortgage
and acquired Xs house and lot. Learning of the proceedings conducted by the bank, Z is now demanding
that the bank reconvey to him Xs house or pay Xs loan to him plus interests. Is Zs demand against the
bank valid and sustainable? Why?
SUGGESTED ANSWER:
No, Zs demand is not valid. A building is immovable or real property whether it is erected by the
owner of the land, by a usufructuary, or by a lessee. It may be treated as a movable by the parties to
chattel mortgage but such is binding only between them and not on third parties (Evangelista v. Alto
Surety Col, inc. 103 Phil. 401 [1958]). In this case, since the bank is not a party to the chattel mortgage, it
is not bound by it, as far as the Bank is concerned, the chattel mortgage, does not exist. Moreover, the
chattel mortgage does not exist. Moreover, the chattel mortgage is void because it was not registered.
Assuming that it is valid, it does not bind the Bank because it was not annotated on the title of the land
mortgaged to the bank. Z cannot demand that the Bank pay him the loan Z extended to X, because the
Bank was not privy to such loan transaction.
306
SUGGESTED ANSWER:
In MUTUUM, the object borrowed must be a consumable thing, the ownership of which is
transferred to the borrower who incurs the obligation to return the same consumable to the lender in an
equal amount, and of the same kind and quality. In COMMODATUM, the object borrowed is usually a
non-consumable thing, the ownership of which is not transferred to the borrower who incurs the
obligation to return the very thing to the lender.
B.
The parties in a contract of loan of money agreed that the yearly interest rate is 12% and it can be
increased if there is a law that would authorize the increase of interest rates. Suppose OB, the lender,
would increase by 5% the rate of interest to be paid by TY, the borrower, without a law authorizing such
increase, would OBs action be just and
valid? Why? Has TY a remedy against the imposition of the rate increase? Explain.
SUGGESTED ANSWER:
OB's action is not just and valid. The debtor cannot be required to pay the increase in interest,
there being no law authorizing it, as stipulated in the contract. Increasing the rate in the absence of such
law violates the principle of mutuality of contracts.
ALTERNATIVE ANSWER:
Even if there was a law authorizing the increase in interest rate, the stipulation is still void
because there is no corresponding stipulation to decrease the interest due when the law reduces the rate
of interest.
C.
ABC loaned to MNO P40,000 for which the latter pledged 400 shares of stock in XYZ Inc. It was
agreed that if the pledgor failed to pay the loan with 10% yearly interest within four years, the pledgee is
307
2005
A.
Before he left for Riyadh to work as a mechanic, Pedro left his Adventure van with Tito, with the
understanding that the latter could use it for one year for his personal or family use while Pedro works in
Riyadh. He did not tell Tito that the brakes of the van were faulty. Tito had the van tuned up and the
brakes repaired. He spent a total amount of P15,000.00. After using the vehicle for two weeks, Tito
discovered that it consumed too much fuel. To make up for the expenses, he leased it to Annabelle. Two
months later, Pedro returned to the Philippines and asked Tito to return the van. Unfortunately, while
being driven by Tito, the van was accidentally damaged by a cargo truck without his fault.
a) Who shall bear the P15,000.00 spent for the repair of the van? Explain.
ALTERNATIVE ANSWER:
Tito must bear the P15,000.00 expenses for the van. Generally, extraordinary expenses for the
preservation of the thing loaned are paid by the bailor, he being the owner of the thing loaned. In this case
however, Tito should bear the expenses because he incurred the expenses without first informing Pedro
about it. Neither was the repair shown to be urgent. Under Article 1949 of the Civil Code, bailor generally
bears the extraordinary expenses for the preservation of the thing and should refund the said expenses if
made by the bailee; Provided, The bailee brings the same to the attention of the bailor before incurring
them, except only if the repair is urgent that reply cannot be awaited.
ALTERNATIVE ANSWER:
The P15,000.00 spent for the repair of the van should be borne by Pedro. Where the bailor
delivers to the bailee a non-consummable thing so that the latter may use it for a certain time and return
the identical thing, the contract perfected is a Contract of Commodatum. (Art. 1933, Civil Code) The bailor
shall refund the extraordinary expenses
during the contract for the preservation of the thing loaned provided the bailee brings the same to the
knowledge of the bailor before incurring the same, except when they are so
urgent that the reply to the notification cannot be awaited without danger. (Art. 1949 of the Civil Code) In
the given problem, Pedro left his Adventure van with Tito so that the latter could use it for one year while
he was in Riyadh. There was no mention of a consideration. Thus, the contract perfected was
commodatum. The amount of P15,000.00 was spent by Tito to tune up the van and to repair its brakes.
Such expenses are extra-ordinary expenses because they are necessary for the preservation of the van.
Thus, the same should be borne by the bailor, Pedro.
b) Who shall bear the costs for the van's fuel, oil and other materials while it was with Tito?
SUGGESTED ANSWER:
Tito must also pay for the ordinary expenses for the use and preservation of the thing loaned. He
must pay for the gasoline, oil, greasing and spraying. He cannot ask for reimbursement because he has the
obligation to return the identical thing to the bailor. Under Article 1941 of the Civil Code, the bailee is
obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.
308
2007
1.
2.
3.
309
2008
A.
Eduardo was granted a loan by XYZ Bank for the purpose of improving a building which XYZ
leased from him. Eduardo, executed the promissory note ("PN") in favor of the bank, with his friend
Recardo as co-signatory. In the PN, they both acknowledged that they are "individually and collectively"
liable and waived the need for prior demand. To secure the PN, Recardo executed a real estate
mortgageon his own property. When Eduardo defaulted on the PN, XYZ stopped payment of rentals on
the building on the ground that legal compensation had set in. Since there was still a balance due on the
PN after applying the rentals, XYZ foreclosed the real estate mortgage over Recardo's property. Recardo
opposed the foreclosure on the ground that he is only a co-signatory; that no demand was made upon him
for payment, and assuming he is liable, his liability should not go beyond half the balance of the loan.
Further, Recardo said that when the bank invoked compensation between the rentals and the amount of
the loan, it amounted to a new contract or novation, and had the effect of extinguishing the security since
he did not give his consent (as owner of the property under the real estate mortgage) thereto.
Can Recardo's property be foreclosed to pay the full balance of the loan?
Suggested Answer
Yes Recardo's property can be foreclosed to pay the full balance of the loan because he is cosignatory to the PN. As a co-signatory, he is considered as surety, hence,he is solidarily liable for the loan
obtained by Eduardo from XYZ Corp. As laid down by the Supreme Court, a surety is bound equally and
absolutely with the principal, and as such is deemed an original promisor and debtor from the
beginning. This is because in suretyship there is but one contract, and the surety is bound by the same
agreement which binds the principal.
2009
A.
TRUE OR FALSE
An oral promise of guaranty is valid and binding.
ANSWER
TRUE. Since the law only requires that the contract of guaranty be express but does not provide
that it be in writing, then an oral promise of guaranty is valid. However, under the Statute of Frauds, a
promise to answer for the debt, default or miscarriage of another (which includes guaranty) must be in
writing; otherwise, it is unenforceable unless ratified.
B.
Rosario obtained a loan of P100,000.00 from Jennifer, and pledged her diamond ring. The
contract signed by the parties stipulated that if Rosario is unable to redeem the ring on due date, she will
execute a document in favor of Jennifer providing that the ring shall automatically be considered full
payment of the loan.
[a] Is the contract valid? Explain.
[b] Will your answer to [a] be the same if the contract stipulates that upon failure of Rosario to
redeem the ring on due date, Jennifer may immediately sell the ring and appropriate the entire proceeds
thereof for herself as full payment of the loan? Reasons?
ANSWER
310
Suretyship
Surety is primarily liable and it therefore not
entitled to the benefit of excussion
Guarantor binds himself to pay only when the
Surety assumes liability as a regular party and
principal cannot pay
undertakes to pay if the principal does not pay.
Guarantor is an insurer of the debtors insolvency Surety is an insurer of the debt
The engagement of the guarantor is a collateral A surety is charged as an actual promissory
undertaking
A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the
debtor. A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the
debtor shall pay. Stated differently, a surety promises to pay the principal's debt if the principal will not
pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed
against the guarantor if the principal is unable to pay. A surety binds himself to perform if the principal
does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the
principal will pay, but simply that he is able to do so. In other words, a surety undertakes directly for the
payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to
pay if, by the use of due diligence, the debt cannot be made out of the principal debtor (Palmares vs. CA
March 21, 1998).
311