sectrans+reviewer 1

8/13/2019 SecTrans+Reviewer 1

1/28

+Ad Majorem Dei Gloriam

Security and Credit Transactions

SECURITY & CREDIT TRANSACTIONSINTRODUCTION

Meaning and scope of credit transactions Credit transactions include all transactions involving the

o Purchase or loan of goods, services, or money in the present

o ith a promise to pay or deliver in the future

Credit transactions are really contracts of security!

T"o types#

o Secured transactions or contracts of real security

Supported $y a collateral or an encum$rance ofproperty

Pledge, mortgage, antichresis, etco %nsecured transactions or contracts of personal security

Secured or supported only $y a promise to pay or the

personal commitment of another Guarantor or surety

Meaning and &inds of security

Security is something given, deposited, or serving as a means to ensure

the fulfillment or enforcement of an o$ligation or of protecting someinterest in property

Meaning of $ailment

Delivery of property of one person to another in trust for a specific

purpose

ith a contract, e'press or implied, that the trust shall $e faithfully

e'ecuted and the property returned or duly accounted for "hen the

special purpose is accomplished or &ept until the $ailor reclaims it (t may $e created $y a contractual relation or $y operation of la"

Parties in $ailment

)ailor * the giver, the one "ho delivers the possession of the thing

$ailed

)ailee * the recipient, the party "ho receives the possession or custody

of the thing delivered

inds of contractual $ailment

! -or the sole $enefit of the $ailor

Gratuitous deposit, mandatum

.! Sole $enefit of the $ailee

Commodatum and gratuitous simple loan or mutuum

/! )enefit of $oth parties Deposit for a compensation, involuntary deposit, pledge, $ailments

for hire

! The first t"o &inds are gratuitous $ailments, really no consideration!.! The last one involves $usiness transactions, also &no"n as mutual0

$enefit $ailments!/! )ut in all cases, there is an o$ligation on the part of the $ailee to restore

the su$ject of the $ailment in the same or in altered form or to accounttherefore!

hat are $ailments for hire1

They arise "hen goods are left "ith the $ailee for some use or service

$y him Al"ays for some compensation

o 2ire of things 3locatio rei4 * "here goods are delivered for the

temporary use of the hirer 3lease4o 2ire for service 3locatio operas faciendi4 * "here goods are

delivered for some "or& or la$or upon it$y the $ailee 3contractfor a piece of "or&4

o 2ire for carriage of goods 3locatio operas mercium

vehendarum4 * "here goods are delivered either to a commoncarrier or to a private person for the purpose of $eing carriedfrom place to place

o 2ire for custody 3locatio custodiae4 * "here goods are

delivered for storage

I LOANGENERAL PROVISIONS

Art 1933 By the contrct o! "on# one o! the $rt%e 'e"%(er to nother#e%ther o)eth%n* not con+),"e o tht the "tter )y +e the )e!or cert%n t%)e n' ret+rn % t# %n -h%ch ce the contrct % c""e' co))o't+). or )oney or other con+),"e th%n*# +$on thecon'%t%on tht the )e )o+nt o! the )e /%n' n' 0+"%ty h"" ,e

Mic&ey (nglesAteneo 5a" .6.5i$rat


2/28



$%'# %n -h%ch ce the contrct % %)$"y c""e' "on or )+t++)Co))o't+) % eent%""y *rt+%to+S%)$"e "on )y ,e *rt+%to+ or -%th t%$+"t%on to $y

%nteret

In co))o't+)# the ,%"or ret%n the o-nerh%$ o! the th%n*"one'# -h%"e %n %)$"e "on# o-nerh%$ $e to the ,orro-er

Characteristics of the loan contract! 7eal 3delivery of thing loaned is necessary for the perfection of the

contract4.! %nilateral 3once the su$ject matter has $een delivered, it creates

o$ligations on the part of only the $orro"er4

inds of loan1. Commodatum

)ailor 3lender4 delivers to the $ailee 3$orro"er4 a non0

consuma$le thing so that the latter ay use it for a certain timeand return the identical thing

.! Simple loanor mutuum

5ender delivers to the $orro"er money or other consuma$le

thing upon the condition that the latter shall pay the sameamount of the same &ind and 8uality

A thing is consuma$le "hen it is consumed "hen used in a mannerappropriate to its purpose, or nature!

hat9s the difference $et"een a loan and credit1

The credit of an individual means his a$ility to $orro" money or things

$y virtue of the confidence or trust reposed $y a lender that he "ill pay"hat he may promise "ithin a specified period

A loan means the delivery $y one party and receipt $y another of a

given sum or money other consuma$le thing, "hich has to $e repaid!

The concession of a credit necessarily involves the granting of :loans9

up to the limit of the amount fi'ed in the :credit9!

hat9s the difference $et"een a loan and discounting of paper1

5oan Discount

(nterest ta&en at the e'piration

of a credit

(nterest is deducted in advance

Single0named paper

5oaned P666 at ;< interest,

$orro"er "ould pay P,;6 atthe end of the year

Dou$le0named paper

5oaned P666 at ;< interest,

$orro"er gets P=>6 $ut "ouldpay $ac& P666 at the end of

the year

hat9s the difference $et"een a commodatum and a mutuum1

Commodatum Mutuum

?$ject

?"nership

Consideration

?$ligation

Property

Purpose

Demand

5oss

@ot consuma$le

7etained $y lender

Gratuitous

)orro"er must return

the same thing loaned

7eal or personal

%se or temporary

possession

)ailor may demand the

return of the thingloaned $efore thee'piration of the term incase of urgent need

Suffered $y the $ailor

Money or other

consuma$le thing

Transferred to $orro"er

Gratuitous or onerous,

"ith stipulation ofinterest

@eed only pay the same

amount of same &indand 8uality

Personal

5oan for consumption

5ender may not

demand its return$efore the lapse of theterm agreed upon

Suffered $y the

$orro"er even if causede'clusively $y afortuitous event and heis not discharged fromhis duty to pay

inds of commodatum! ?rdinary.! Precarium 3$ailor may demand the thing loaned at "ill4



3/28



Art 1932 An cce$te' $ro)%e to 'e"%(er o)eth%n* ,y -y o!co))o't+) or %)$"e "on % ,%n'%n* +$on the $rt%e# ,+t theco))o't+) or %)$"e "on %te"! h"" not ,e $er!ecte' +nt%" the'e"%(ery o! the o,ect o! the contrct

Delivery is essential to perfection of loan

Delivery is necessary in vie" of the purpose of the contract "hich is to

transfer either the use or o"nership of the thing loaned!

)ut, an accepted promise to lend also has $inding effects!

An accepted promise to ma&e a future loan is a consensual contract,

and $inding upon the parties $ut it is only after delivery, "ill the realcontract of loan arise!

o (f an application for a loan of money "as approved and the

corresponding mortgage "as e'ecuted and registered, therearises a perfected consensual contract of loan! hile a perfectcontract of loan can give rise to an action for damages, saidcontract does not constitute the real contract of loan! 3(n this

case, the money had yet to $e given4o A lender gives a chec& to the $orro"er for a loan! The

$orro"er mortgages his house! )ut the $orro"er has notencashed or deposited the chec&, there is no real contract still,as there is a need to encash the chec& to effect payment,according to the Civil Code! So lender cannot foreclose themortgage 3@aguiat case4

C4APTER T5OCO66ODATU6SECTION ONE NATURE O7 CO66ODATU6

Art 1938 The ,%"ee %n co))o't+) c0+%re the +e o! the th%n*"one' ,+t not %t !r+%t. %! ny co)$ent%on % to ,e $%' ,y h%) -hoc0+%re the +e# the contrct cee to ,e co))o't+)

Commodatum is essential gratuitous!

The contract ceases to $e a commodatum if any compensation is to $e

paid $y the $orro"er "ho ac8uires its use!o (n such a case, there arises a lease contract

'tent of $ailee9s right of use

7ight to use is limited to the thing loaned

o @ot to its fruits unless there is a stipulation to the contrary 3Art

B>64

o As the o"ner of the thing loaned, the $ailor is naturally entitledto its fruits

hat9s the purpose of a commodatum any"ay1

The purpose must $e temporary use of the thing loaned!

o (f the $ailee is not entitled to the use of the thing, the contract

may $e a deposit 3Art B;.4

(t is an essential feature of the contract of commodatum that the use of

the property of another shall $e for a certain time!

Art 193 Con+),"e *oo' )y ,e the +,ect o! co))o't+) %! the$+r$oe o! the contrct % not the con+)$t%on o! the o,ect# -hen%t % )ere"y !or e:h%,%t%on

Art 193; 6o(,"e or %))o(,"e $ro$erty )y ,e the o,ect o!co))o't+)

General rule# Su$ject matter of commodatum is generally non0

consuma$le, "hether real or not!o 'ception# Consuma$le goods may $e the su$ject, "hen it is

merely for e'hi$ition!o ?versied $ottle of mango juice 3gasgas na yung wine

example eh.4 $orro"ed $y a museum! The $ottle of mangojuice "as actually o"ned $y ose 7ial!

'ample of a commodatum involving real property

A person allo"ed another to $uild a mi'ed martial arts gym on theformer9s land so that the latter may use the property for a certain period"ithout any payment of rentals

Art 193< The ,%"or %n co))o't+) nee' not ,e the o-ner o! the th%n*"one'

)ailor need not $e o"ner

)ailor need not $e the o"ner of the thing loaned since $y the loan,

o"nership does not pass to the $orro"er!



4/28



The $orro"er may not lend nor lease the thing loaned to him to a third

person!

Sufficient that the $ailor has such possessory interest in the su$ject

matter or right to its use "hich he may assert against the $ailee and the

third persons although not against the rightful o"ner 314Art 1939 Co))o't+) % $+re"y $eron" %n chrcter Cone0+ent"y=

1 The 'eth o! e%ther the ,%"or or the ,%"ee e:t%n*+%hethe contrct.

> The ,%"ee cn ne%ther "en' nor "ee the o,ect o! thecontrct to th%r' $eron 4o-e(er# the )e),er o! the,%"ee? ho+eho"' )y )/e +e o! the th%n* "one'#+n"e there % t%$+"t%on to the contrry# or +n"e thent+re o! the th%n* !or,%' +ch +e

Purely personal nature of a commodatum

%nli&e mutuum, commodatum is a purely personal contract, the lender

having in vie" the character, credit, and conduct of the $orro"er!

2ence, the general rule# the death of either party terminates the contract

o 'ception# %nless $y stipulation, the commodatum is

transmitted to the heirs of either or $oth parties!o @)# (f there are t"o or more $orro"ers, the death of one does

not e'tinguish the contract in the a$sence of stipulation to thecontrary

This article is an e'ception to the general rule that all rights ac8uired in

virtue of an o$ligation are transmissi$le!

7ight of $ailee to lend thing loaned to third persons

General rule# )ailee can neither lend nor lease the o$ject of the contract

to a third person, in a$sence of some understanding or agreement tothat effect!

o 'ception# The use of the thing loaned may e'tend to themem$ers of the $ailee9s household 3those "ho live in the samehome4

'ception to the e'ception#

There is a stipulation to the contrary, or

The nature of the thing for$ids such use!

Art 192@ A t%$+"t%on tht the ,%"ee )y )/e +e o! the !r+%t o! theth%n* "one' % ("%'

General rule# (n commodatum, the $ailor gets the fruits of the thing

loaned!o 'ception# hen there is a stipulation that the $ailee may also

ma&e use of the fruits of the thing!

SECTION II OBLIGATIONS O7 T4E BAILEE

Art 1921 The ,%"ee % o,"%*e' to $y !or the or'%nry e:$ene !or the+e n' $reer(t%on o! the th%n* "one'

)ailee lia$le for ordinary e'penses

)orro"er is lia$le for the e'penses for the use and preservation of the

thing loaned!o 'ample# Draco $orro"s Mr! easley9s car! 2e must pay for

the gasoline, motor oil, "ashing, greasing and spraying! Dracocan9t demand reim$ursement!

As a rule, the $orro"er must ta&e good care of the thing "ith the

diligence of a good father of a family!

As to e'traordinary e'penses, chec& B>B

Art 192> The ,%"ee % "%,"e !or the "o o! th%n*# e(en %! ho+"' ,ethro+*h !ort+%to+ e(ent=

1 I! he 'e(ote the th%n* to ny $+r$oe '%!!erent !ro) tht!or -h%ch %t h ,een "one'.

> I! he /ee$ %t "on*er thn the $er%o' t%$+"te'# or !ter thecco)$"%h)ent o! the +e !or -h%ch the co))o't+)h ,een cont%t+te'.

3 I! the th%n* "one' h ,een 'e"%(ere' -%th $$r%" o! %t("+e# +n"e there % t%$+"t%on e:e)$t%n* the ,%"ee

!ro) re$on%,%"%ty %n ce o! !ort+%to+ e(ent.2 I! he "en' or "ee the th%n* to th%r' $eron# -ho % not

)e),er o! h% ho+eho"'.8 I!# ,e%n* ,"e to (e e%ther the th%n* ,orro-e' or h% o-n

th%n*# he choe to (e the "tter

5ia$ility for loss of thing loaned

General rule# )ailee is not lia$le for loss or damage due to a fortuitous

event! 3)ecause $ailor retains the o"nership of the thing loaned4o 'ception# E instances in Article B>.



5/28



Art 1923 The ,%"ee 'oe not n-er !or the 'eter%ort%on o! the th%n*"one' '+e on"y to the +e thereo! n' -%tho+t h% !+"t

)ailor 5ia$le for deterioration of thing loaned (n the a$sence of agreement to the contrary, the depreciation caused $y

the reasona$le and natural use of the thing is $orne $y the $ailor!Art 1922 B%"ee cnnot ret%n the th%n* "one' on the *ro+n' tht the,%"or o-e h%) o)eth%n*# e(en tho+*h %t )y ,e ,y reon o!e:$ene 4o-e(er# the ,%"ee h r%*ht o! retent%on !or ')*e)ent%one' %n Art 1981

?$ligation to return thing loaned

General rule# )ailee must return the thing loaned, even if $ailor o"es

him for e'penses * "hether ordinary or e'traordinary!o 'ception# (f he has a right of retention for damages against

the $ailor $ecause of the fla"s of the thing loaned 3Art BE4!

Art 1928 5hen there re t-o or )ore ,%"ee to -ho) th%n* % "one'%n the )e contrct# they re "%,"e o"%'r%"y

The la" presumes that the $ailor ta&es into account the personal

integrity and responsi$ility of all the $ailees and that he "ould not haveconstituted the commodatum if there "ere only one $ailee!

SECTION III OBLIGATIONS O7 T4E BAILOR

Art 192 The ,%"or cnnot 'e)n' the ret+rn o! the th%n* "one' t%""!ter the e:$%rt%on o! the $er%o' t%$+"te'# or !ter thecco)$"%h)ent o! the +e !or -h%ch the co))o't+) h ,een

cont%t+te' 4o-e(er# %! %n the )ent%)e# he ho+"' h(e +r*ent nee'o! the th%n*# he )y 'e)n' %t ret+rn or te)$orry +eIn ce o! te)$orry +e ,y the ,%"or# the contrct o!

co))o't+) % +$en'e' -h%"e th%n* % %n the $oe%on o! the,%"or

)ailor9s o$ligation to respect duration of loan

General rule# )ailor can9t demand return thing loaned until

! After the e'piration of the period stipulated, or.! After the accomplishment of the use for "hich the

commodatum has $een constituted

'ception# )ailor can demand return of the thing "hen#

! 2e should have an urgent need of the thing.! )orro"er commits an act of ingratitude 3Art B>=4

Art 192; The ,%"or )y 'e)n' the th%n* t -%""# n' the contrct+"re"t%on % c""e' precarium# %n the !o""o-%n* ce=

1 I! ne%ther the '+rt%on o! the contrct nor the +e to -h%chthe th%n* "one' ho+"' ,e 'e(ote'# h ,een t%$+"te'.or

> I! the +e o! the th%n* % )ere"y to"erte' ,y the o-ner

hat9s a precarium1

ind of commodatum "here the $ailor may demand the thing at "ill!

Precarium in the follo"ing cases#

! @o duration of the contract.! @o use of thing to $e devoted has $een stipulated

/! %se of the thing is merely tolerated $y the o"ner

Art 192< The ,%"or )y 'e)n' the %))e'%te ret+rn o! the th%n* %! the,%"ee co))%t ny ct o! %n*rt%t+'e $ec%!%e' %n Art ;8

7ight of $ailor to demand return of thing for acts of ingratitude! (f the $ailee should commit some offenses against the person, the honor

or the property of the $ailor, or of his "ife or children under his parentalauthority

.! (f the $ailee imputes to the $ailor any criminal offense, or any actinvolving moral turpitude, even though he should prove it, unless thecrime or the act has $een committed against the $ailee himself, his "ifeor children under his authority, and

/! (f the $ailee unduly refuses the $ailor support "hen the $ailee is legally

or morally $ound to give support to the $ailor!

Art 1929 The ,%"or h"" re!+n' the e:tror'%nry e:$ene '+r%n* thecontrct !or the $reer(t%on o! the th%n* "one'# $ro(%'e' the ,%"ee,r%n* the )e to the /no-"e'*e o! the ,%"or ,e!ore %nc+rr%n* the)#e:ce$t -hen they re o +r*ent tht the re$"y to the not%!%ct%on cnnot,e -%te' -%tho+t 'n*er

I! the e:tror'%nry e:$ene r%e on the occ%on o! thect+" +e o! the th%n* ,y the ,%"ee# e(en tho+*h he cte' -%tho+t!+"t# they h"" ,e ,orne e0+""y ,y ,oth the ,%"or n' the ,%"ee#



6/28



+n"e there % t%$+"t%on to the contrry

Article covers e'traordinary e'penses

Preservation of the thing loan

Arising from the actual use of thing loaned

Preservation for the thing loaned

General rule# 'penses shall $e $orne $y the $ailor! As a rule, notice is

re8uired $ecause it is possi$le that the $ailor may not "ant to incur thee'traordinary e'penses at all!

o 'ception to the @?T(C rule# hen the e'penses are so

urgent that the reply to the notification cannot $e a"aited"ithout danger

Arising from the actual use of the thing

General rule Such e'penses 3caused $y fortuitous event4 arising on the

occasion of the actual use of the thing loaned shall $e $orne $y $oth on

a E60E6 $asis!o 'ception# Parties ho"ever may, $y stipulation, provide for a

different apportionment of such e'penses, or that they shall $e$orne $y the $ailee or $ailor only!

Art 198@ I!# !or the $+r$oe o! )/%n* +e o! the th%n*# the ,%"ee %nc+re:$ene other thn thoe re!erre' to %n Art%c"e 1921 n' 1929# he %not ent%t"e' to re%),+r)ent

'penses for ostentation are to $e $orne $y the $ailee $ecause they are

not necessary for the preservation of thing!

Art 1981 The ,%"or# -ho# /no-%n* the !"- o! the th%n* "one'# 'oe

not '(%e the ,%"ee o! the )e# h"" ,e "%,"e to the "tter !or the')*e -h%ch he )y +!!er ,y reon thereo!

5ia$ility to pay damages for &no"n hidden fla"s

7e8uisites for Art BE to apply#

! There is a hidden fla" or defect in the thing loaned.! )ailor is a"are of it/! Does not advise the $ailee of the same>! )ailee suffers damages $y reason of said fla" or defect

The $aile is given the right of retention until he is paid damages!

here the defect is not &no"n to the $ailor, he is not lia$le $ecause

commodatum is gratuitous!

Art 198> The ,%"or cnnot e:e)$t h%)e"! !ro) the $y)ent o!e:$ene or ')*e ,y ,n'on%n* the th%n* to the ,%"ee

S+))ry= 5ho $y -ht

)ailee pays for#

o ?rdinary e'penses for the use and preservation of the thing

o 2alf of the e'traordinary e'penses arising from actual use of

the thing 3unless stipulated other"ise4o @ot necessary for the preservation of the thing

)ailor pays for#

o Deterioration of the thing loaned

o 'traordinary e'penses for the preservation of the thing loaned

o 2alf of the e'traordinary e'penses arising from the actual use

of the thing 3unless stipulated other"ise4

C4APTER T5OSI6PLE LOAN OR 6UTUU6

Art 1983 A $eron -ho rece%(e "on o! )oney or ny other !+n*%,"eth%n* c0+%re the o-nerh%$ thereo!# n' % ,o+n' to $y to thecre'%tor n e0+" )o+nt o! the )e /%n' n' 0+"%ty

hat9s a simple loan or mutuum1

Contract "here$y one of the parties delivers to another money or other

consuma$le thing "ith the understanding that the same amount of the

same &ind and 8uality shall $e paid! (nvolves the return of the e8uivalent only and not the identical thing

)orro"er ac8uires o"nership

?$ject# Money or any other fungi$le thing

@o criminal lia$ility for failure to pay

o @o estafa is committed $y a person "ho refuses to pay his

de$t or denies its e'istence

Simple loan distinguished from contract of rent



7/28



Simple loan Contract of 7ent

Delivery of money or some

other consuma$le thing, "ithpromise to repay an e8uivalent

amount

7elation is that of o$ligor and

o$ligee

Creditor receives payment

?ne delivers to another some

non0consuma$le thing in orderthat the latter may use it during

a certain period and return it tothe former! ?"ner or lessordoes not lose his o"nership

7elation is that of landlord and

tenant

?"ner receives compensation

Meaning of fungi$le things

Those "hich are usually dealt "ith $y num$er, "eight or measure

Any given unit or portion is treated as e8uivalent of any other unit or

portion

Depends upon the intention of the parties 3compared to consuma$le

"hich depend upon the nature of the thing itself4

Art 1982 A contrct -here,y one $eron trn!er the o-nerh%$ o!non!+n*%,"e th%n* to nother -%th the o,"%*t%on on the $rt o! the"tter to *%(e th%n* o! the )e /%n'# 0+nt%ty# n' 0+"%ty h"" ,econ%'ere' ,rter

)arter is a contract "here$y one of the parties $ind himself to give one

thing in consideration of the other9s promise to give another thing!Commodatum and Mutuum )arter

Su$ject matter# Money or any

other fungi$le thing

Commodatum# )ailee $ound to

return the identical thing

May $e gratuitous 3mutuum4

Al"ays gratuitous

3commodatum4

@on0fungi$le 3non0consuma$le4

thing

8uivalent thing is given in

return for "hat has $een

received ?nerous contract

Art 1988 The o,"%*t%on o! $eron -ho ,orro- )oney h"" ,e*o(erne' ,y the $ro(%%on o! Art%c"e 1>29 n' 1>8@ o! th% Co'e

I! -ht - "one' % !+n*%,"e th%n* other thn )oney# the'e,tor o-e nother th%n* o! the )e /%n'# 0+nt%ty n' 0+"%ty# e(en

%! %t ho+"' chn*e %n ("+e In ce %t % %)$o%,"e to 'e"%(er the )e/%n'# %t ("+e t the t%)e o! the $er!ect%on o! the "on h"" ,e $%'

-orm of payment

5oan of moneyo Payment must $e made in the currency stipulated, if possi$le

to deliver such currencyo ?ther"ise, it is paya$le in the currency "hich is legal tender in

the Philippineso (n case of e'traordinary inflation or deflation, the $asis of

payment shall $e the value of the currency at the time of thecreation of the o$ligation

Draco $orro"ed from 2arry PE66 paya$le after five years! ?n the maturity ofthe o$ligation, the value of PE66 dropped to P.E6 $ecause of inflation!(n this case, the $asis of payment shall $e the e8uivalent value of thecurrency today five years ago! 2ence, D is lia$le to pay P666 unless there

is an agreement to the contrary!

Consuma$le or fungi$le

o The $orr"er is under o$ligation to pay the lender another thing

of the same &ind, 8uality and 8uantityo (n case it is impossi$le to do so, the $orro"er shall pay its

value at the time of the perfection of the loan

Draco $orro"ed from 2arry t"o sac&s of rice of a certain &ind and 8uality! Atthe time the loan "as perfected, the price of each sac& "as P>66!Draco should return to 2arry t"o sac&s of r ice of the same &ind and 8ualityalthough at the time of the payment, the price had increase to PE66! (f on thedue date of the o$ligation, the same &ind or rice could not $e delivered $yDraco $ecause it "as not availa$le for some reason, then Draco should pay2arry the sum of P=66 instead, the value of the rice at the time of theperfection of the loan!

Art 198 No %nteret h"" ,e '+e +n"e %t h ,een e:$re"yt%$+"te' %n -r%t%n*

7e8uisites for recovery of interest! Payment of interest must $e e'pressly stipulated.! Agreement must $e in "riting/! (nterest must $e la"ful



8/28



'istence of stipulation to pay interest! (f a particular rate of interest has $een e'pressly stipulated $y the

parties, that interest shall $e applied!

.! (f the e'act rate of the interest is not mentioned, the legal rate of .


9/28



''e' $r%n%$"# h"" ern ne- %nteret

hen unpaid interest earns interst

General rule# Accrued interest 3interest due and unpaid4 shall not earn

interest e'cept in t"o instances#o udicially demanded as provided for in Art ...

o 'press stipulation made $y the parties that the interest

due and unpaid shall $e added to the principal o$ligationand the resulting total amount shall earn interest 3must $ein "riting4

See %sury part for clearer e'planations!Art 19@ I! the ,orro-er $y %nteret -hen there h ,een not%$+"t%on there!ore# the $ro(%%on o! th% Co'e concern%n*solutioindebiti# or nt+r" o,"%*t%on# h"" ,e $$"%e'# the ce )y ,e

(f unstipulated interest is paid $y mista&e, the de$tor may recover as

this "ould $e a case of unjust enrichment! )ut "here the stipulated interest, or interest stipulated, there $eing a

stipulation $ut it is not in "riting, is paid voluntarily $ecause the de$torfeels morally o$liged to do so, there can $e no recovery as in the caseof natural o$ligations!

Art 191 U+r%o+ contrct h"" ,e *o(erne' ,y the U+ry L- n'other $ec%" "-# o !r they re not %ncon%tent -%th th% co'e

II T4E USURY LA5 Suspended $y C) Circular B6E

hile there are no more ceilings on interests, courts can still lo"er themif they are ini8uitous

lements of usury

! 5oan or for$earance.! %nderstanding $et"een the parties that the loan shall or may $e

returned/! An unla"ful intent to ta&e more than the legal rate for the sue of

money or its e8uivalent>! The ta&ing or agreeing to ta&e for the use of the loan of something

in e'cess of "hat is allo"ed $y la"

7ules on interests 3astern Shipping 5ines v CA, BB> and from Atty5erma9s lecture4

! hen an o$ligation, regardless of its source, is $reached, thecontravenor can $e held lia$le for damages!.! (f o$ligation consists in the payment of a sum of money 3loan,

for$earance of money, judgment money4a! (nterest due is "hat has $een stipulated $y the parties$! The interest shall earn legal interest from the time of judicial

demandc! (f there9s no stipulation, the rate is .< from default 3judicial or

e'trajudicial demand4

/! (f o$ligation is not a loan or for$earance of moneya! (nterest on the amount of damages a"arded may $e imposed

at the discretion of the court at ;! 7e8uires that the guarantor must $e a person distinct from the de$tor$ecause a person cannot $e the personal guarantor of himself

Guarantor Surety

5ia$ility depends upon an

independent agreement to paythe o$ligation if the primaryde$tor fails to do so

Collateral underta&ing

Secondarily or su$sidiarily lia$le

@ot $ound to &no" if principal

de$tor9s default

?ften discharged $y the mereindulgence of the creditor of theprincipal, not lia$le unlessnotified of the default of theprincipal

)inds himself to pay if the

principal cannot or una$le topay

Assumes lia$ility as a regular

party

Charged as an original promisor

Primarily lia$le 3underta&es

directly for the payment "ithoutreference to the solvency of theprincipal4

2eld to &no" every default of

his principal @ot $e discharged either $y the

mere indulgence of the creditoror $y "ant of notice of thedefault of the principal

)inds himself to pay if the

principal does not pay

ssence of the o$ligation of the surety is to pay the creditor "ithout

8ualification if the principal de$tor does not pay

Guarantor does not contract that the principal "ill pay, $ut simply that

he is a$le to do so!

Guarantor (ndorsement Contract of security

5ia$ility more e'tensive

arrants the solvency of the

promisor

Cannot $e sued as promisor

Contract of transfer

May $e sued as promisor

Guaranty arranty

Contract $y "hich a person is %nderta&ing that the title, 8uality

$ound to another for thefulfillment of a promise orengagement of a third party

or 8uantity of the su$ject matterof a contract is "hat is has $eenrepresented to $e, and relatesto some agreement made

ordinarily $y the party "homa&es the "arranty

Art >@2< A *+rnty % *rt+%to+# +n"e there % t%$+"t%on to thecontrry

General rule# Guaranty is gratuitous

Cause of contract of guaranty

Cause of the contract is the same cause "hich supports the o$ligation

as to the principal de$tor

@ot necessary to prove any consideration as $et"een the guarantor or

surety and the creitor Consideration "hich supports the o$ligation as to the principal de$tor is

sufficient consideration to support the o$ligation of a guarantor or surety

Kalid despite a$sence of any direct consideration received $y guarantor

Art >@29 A )rr%e' -o)n )y *+rntee n o,"%*t%on -%tho+t theh+,n'? conenet# ,+t h"" not there,y ,%n' the con+*"$rtnerh%$# e:ce$t %n ce $ro(%'e' ,y "-

Married "oman as guarantor

Married "oman ordinarily $inds only her separate property

She may also $ind the community or conjugal partnership property "ith

her hus$and9s consent, and even "ithout the consent of her hus$and, in

cases provided $y la" 3such as "hen the guaranty has redounded tothe $enefit of the family4

Art >@8@ I! *+rnty % entere' %nto -%tho+t the /no-"e'*e orconent# or *%nt the -%"" o! the $r%nc%$" 'e,tor# the $ro(%%on o!Art%c"e 1>3 n' 1>3; h"" $$"y

Guaranty underta&en "ithout &no"ledge of de$tor

Guaranty e'ists for the $enefit of the creditor and not for the $enefit of

the principal de$tor "ho is not a party to the contract of guaranty



12/28



Creditor has every right to ta&e all possi$le measures to secure the

payment of his credit

7ights of third person "ho pays

Against the "ill of the de$tor or "ithout the &no"ledge of the de$tor

o 2e can only recover insofar as the payment has $een

$eneficial to the de$tor, A@Do 2e cannot compel to creditor to su$rogate him the creditor9s

rights

ith &no"ledge or consent of the de$tor

o Third person su$rogated $y virtue of payment to all the rights

"hich the creditor had against the de$tor

Draco o"es 2arry P66! ithout the &no"ledge of Draco, Ginny agrees toguarantee the o$ligation of Draco!(f Ginny pays 2arry P66, she can as& reim$ursement for P66 from Draco!(f P>6 had already $een paid $y Draco, then Ginny is entitle to $e

reim$ursed only P;6, that "hich "as $eneficial to Draco! Ginny can recoverthe P>6 from 2arry "ho should not have accepted it!

Suppose the o$ligation of Draco is secured $y the chattel mortgage of his"and! Payment $y Ginny "ithout the &no"ledge or against the "ill of Dracodoes not give Ginny the right to foreclose $ecause Ginny has no right tosu$rogation!

Art >@81 A *+rnty )y ,e con(ent%on"# "e*" or +'%c%"# *rt+%to+#or ,y onero+ t%t"e

It )y "o ,e cont%t+te'# not on"y %n !(or o! the $r%nc%$"'e,tor# ,+t "o %n !(or o! the other *+rntor# -%th the "tter?conent# or -%tho+t h% /no-"e'*e# or e(en o(er h% o,ect%on

According to manner of creation# legal, conventional or judicial 3one

constituted $y decree of court4

Paragraph . refers to a dou$le or su$0guaranty * not to $e confused

"ith several guarantors 3Art .6;E and .6J/4

Art >@8> A *+rnty cnnot e:%t -%tho+t ("%' o,"%*t%onNe(erthe"e# *+rnty )y ,e cont%t+te' to *+rntee the

$er!or)nce o! (o%',"e or n +nen!orce,"e contrct It )y "o*+rntee nt+r" o,"%*t%on

A guaranty is an accessory contract

(ndispensa$le condition for its e'istence that there must $e a principal

o$ligation

Koid principal o$ligation, void guaranty Article .6E. spea&s a$out a valid o$ligation, as distinguished from a

void o$ligation, and not an e'isting or current o$ligationo %nder Article .6E/, a guaranty may also $e given as security

for future de$ts, the amount of "hich is not yet &no"no A signatory to a guaranty agreement is lia$le on a promissory

note for an unpaid loan o$tained under that agreementalthough he did not sign the promissory note

A guaranty may secure the performance of a

o Koida$le contact

o %nenforcea$le contract

o @atural o$ligation, so that the creditor may proceed against the

guarantor although he has no right of action against the

principal de$tor for the reason that the latter9s o$ligation is notcivilly enforcea$le

Art >@83 A *+rnty )y "o ,e *%(en ec+r%ty !or !+t+re 'e,t# the)o+nt o! -h%ch % not yet /no-n. there cn ,e no c"%) *%nt the*+rntor +nt%" the 'e,t % "%0+%'te' A con'%t%on" o,"%*t%on )y "o,e ec+re'

Guaranty of future de$ts * continuing guaranty or suretyship

Continuing gurranty or suretyship

o @ot limited to a single transaction

o Contemplates a future course of dealings, covering a series of

transactions generally for an indefinite time or until revo&edo Prospective in its operationo Generally intended to provide security "ith respect to future

transactions

-uture de$ts, even if the amount is not yet &no"n, may $e guaranteed

$ut there can $e no claim against the guarantor until the amount of thede$t is

o Ascertained, or

o -i'ed and demanda$le

@)# )y no means ho"ever is it meant that in all instances a contract of



13/28



guaranty or suretyship should $e prospective in applicationo (t "ill only $e construed as continuing "hen $y the terms

thereof it is evident that the o$ject is to give a standing credit tothe principal de$tor to $e used from t ime to time either

indefinitely or until a certain period, especially if the right torecall the guaranty is e'pressly reserved

H-uture de$tsI may also refer to de$ts e'isting at the time of the

constitution of the guaranty $ut the amount thereof is un&no"n and notto de$ts not yet incurred and e'isting at that time!

Guaranty of conditional o$ligations

(f principal o$ligation is su$ject to a suspensive condition, the guarantor

is lia$le only after the fulfillment of the condition!

(f it is su$ject to a resolutory condition, the happening of the condion

e'tinguishes $oth the principal o$ligation and the guaranty!

i! Draco and 2arry are partners in $usiness! Ginny may guarantee the

payment $y Draco of 2arry9s share from the profit of the $usiness "hich hasnot yet $een ascertained!%nder Article .6E/, Ginny cannot $e lia$le to 2arry $efore such share isli8uidated!

ii! 2arry sold his land to Draco "ith Ginny as guarantor for the payment ofthe purchase price! (t "as agreed that 2arry "ould give to Ginny the titlepapers sho"ing that 2arry is in fact the o"ner of the land sold! Draco$ecame insolvent!(n this case, Ginny is lia$le only after the fulfillment of the suspensivecondition * the production of the proper papers!

iii! Suppose, in ii, 2arry "as given t"o months "ithin "hich to arrange andcomplete the papers relating to the property "ith the understanding that in

case of failure of 2arry to complete the title papers "ithin said period, thecontract of sale shall $e deemed automatically cancelled!(n this case, the fulfillment of the condition su$se8uent * the failure tocomplete the title papers "ithin the period * e'tinguishes the principalo$ligation of Draco to pay the price as "ell as Ginny9s guaranty!

Art >@82 A *+rntor )y ,%n' h%)e"! !or "e# ,+t not !or )ore thnthe $r%nc%$" 'e,tor# ,oth re*r' the )o+nt n' the onero+nt+re o! the con'%t%on

Sho+"' he h(e ,o+n' h%)e"! !or )ore# h% o,"%*t%on h"",e re'+ce' to the "%)%t o! tht o! the 'e,tor

The guarantor cannot $ind himself for more than the principal de$tor,

and even if he does, his lia$ility shall $e reduced to the limits of that ofthe de$tor!

)ut a guarantor may $ind himself for less than that of the principal!

@)# Creditors suing on a surety $ond may recover from the surety as

part of their damages#o (nterest, at the legal rate

7uns from the filing of the complaint or from the timedemand "as made upon the surety until the principalo$ligation is paid

o udicial costs

o Attorney9s fees "hen appropriate

o ven "ithout stipulation and even in surety "ould there$y

$ecome lia$le to pay more than the total amount stipulated in

the $ond

Draco $orro"ed from 2arry P66! (f Ginny guarantees to ans"er for PE6,the guaranty is rendered void $ut she can $e made to pay only P66$ecause her o$ligation cannot e'ceed the limits of the principal o$ligation!(f the de$t is not secured $y a mortgage, and Ginny mortgaged the )urro" infavor of 2arry, 2arry may not foreclose the mortgage othere"ise, Ginny9slia$ility "ould $e more onerous than that of Draco, the principal de$tor!

Draco $orro"ed from 2arry PE6 "ith Ginny limiting her guarantee to P66!Draco "as a$le to pay only P66!(n this case, 2arry can still claim from Ginny the $alance of PE6 $y virtue ofthe guaranty! This is so $ecause the payment $y Draco must $e applied first

to the unsecured portion of P66 for as regards him, it is more onerous as tothe unsecured amount of PE6!

Art >@88 A *+rnty % not $re+)e'. %t )+t ,e e:$re n' cnnote:ten' to )ore thn -ht % t%$+"te' there%n

I! %t ,e %)$"e or %n'e!%n%te# %t h"" co)$r%e not on"y the$r%nc%$" o,"%*t%on# ,+t "o "" %t cceor%e# %nc"+'%n* the +'%c%"cot# $ro(%'e' -%th re$ect to the "tter# tht the *+rntor h"" ,e"%,"e !or thoe cot %nc+rre' !ter he h ,een +'%c%""y re0+%re' to$y



14/28



Guaranty not presumed

Guaranty re8uire the e'pression of const on the part of the guarantor to

$e $ound! (t cannot $e presumed $ecause of the e'istence of a contract

or principal o$ligation! Guaranty must $e in "riting! (t9s covered $y the Statute of -rauds!

Guaranty strictly construed, and its conse8uences

Strictly interpreted against the creditor and in favor of the guarantor and

is not to $e e'tended $eyond its terms or specified limits

A guarantor is lia$le only for the o$ligation of the de$tor stipulated upon,

and not to o$ligations assumed previous to the e'ecution of theguaranty unless an intent to $e so lia$le is clearly indicated

To hold the guarantor lia$le for de$ts contracted prior to the guaranty is,

in effect, to ma&e him ans"er for de$ts incurred outside of theguaranteed period, and this cannot $e done "ithout his e'press consent

hen lia$ility of surety limited to a fi'ed period, the surety cannot $e

$ound, unless the contract has $een rene"edo here, ho"ever, one of the conditions of the $ond filed $y the

surety provides that the latter9s lia$ility "ill e'pire on the date ofthe maturity of the principal o$ligation, such stipulation is unfairfor it practically nullifies that nature of the surety underta&ing

A contract of suretyship or guaranty is only prospective, and not

retroactive in operation unless a contrary intent is clearly sho"n

The e'tent of a surety9s lia$ility is determined only $y the clause of the

contract of suretyship

Application of strictissimi juris

Applica$le only to an accommodation surety, or one "ho does so

gratuitously

@ot applica$le to compensated sureties

'tent of guarantor9s lia$ility

here guaranty definite

o ?$ligation of the guarantor under the terms of the contract is

limited in "hole or in part to the principal de$t, to the e'clusionof the accessories

o (f the amount to $e paid or the service to $e performed $y the

person guaranteed is specified in the contract of guaranty, thenthe o$ligation of the guarantor e'tends no further than the sum

or services so specified

here guaranty indefinite or simple

o (f the terms of the contract of guaranty are general and

indefinite and do not specify in clear and e'press manner that

the lia$ility of the guarantor is limited to the principal o$ligation,it e'tends not only to the said principal o$ligation $ut also to allits accessories, they $eing comprehended "ithin the principal$ecause the guaranty has secured it "ith all its conse8uences

o %ic&ey' So, general rule is that it9s indefinite! Since the it is

needed that the terms of the contract $e limited for it to $edefinite! ithout a specification that it9s limited, Manresaconsiders it indefinite! 3hat do you thin&14

5ia$ility of guarantor for judicial costs

Guarantor shall ans"er for such judicial costs only as have $een

incurred after he has $een judicially re8uired to pay

Acceptance of guaranty $y creditor and notice thereof to guarantor (n declaring that guaranty must $e e'press, the la" refers solely and

e'clusively to the o$ligation of the guarantor $ecause it is he alone "ho$inds himself $y his acceptance

ith respect to the creditor, no such re8uirement needs to $e

prescri$ed $ecause he $inds himself to nothing

hen necessary

o here there is merely an offer of a guaranty, it does not

$ecome a $inding o$ligation until is accepted and until noticeof such acceptance $y the creditor is given to, or ac8uired $y,the guarantor, or until has notice or &no"ledge that the creditorhas performed the condition and intends to act upon theguaranty

o

Acceptance need not $e in "riting hen not necessary

o here the transaction is not merely an offer of guaranty, $ut it

amounts to direct or unconditional promise of guaranty, all thatis necessary to ma&e the promise $inding is that promisee3creditor4 should act upon it, and notice of acceptance is notnecessary the reason $eing that the contract of guaranty isunilateral

Art >@8 One -ho % o,"%*e' to !+rn%h *+rntor h"" $reent



15/28



$eron -ho $oee %nte*r%ty# c$c%ty to ,%n' h%)e"!# n'+!!%c%ent $ro$erty to n-er !or the o,"%*t%on -h%ch he *+rnteeThe *+rntor h"" ,e +,ect to the +r%'%ct%on o! the co+rt o! the$"ce -here th% o,"%*t%on % to ,e co)$"%e' -%th

Art >@8; I! the *+rntor ho+"' ,e con(%cte' %n !%rt %ntnce o! cr%)e %n(o"(%n* '%honety or ho+"' ,eco)e %no"(ent# the cre'%tor)y 'e)n' nother -ho h "" the 0+"%!%ct%on re0+%re' %n the$rece'%n* rt%c"e The ce % e:ce$te' -here the cre'%tor h re0+%re'n' t%$+"te' tht $ec%!%e' $eron ho+"' ,e the *+rntor

Lualifications of a guarantor! Possesses integrity.! Capacity to $ind himself, and/! Sufficient property to ans"er for the o$ligation "hich he guarantees

?f course, the creditor can "aive the re8uirements!

@eed only $e present at the time of the perfection of the contract

Su$se8uent loss of integrity or property or supervening incapacity of the

guarantor "ould not operate to e'onerate the guarantor of the eventuallia$ility he has contracted, and the contract of guaranty continues

o 2o"ever, the creditor may demand another guarantor "ith the

proper 8ualifications!

)ut he may "aive it if he chooses and hold the guarantor to his

$argain!

udicial declaration of insolvency is not necessary in order for the

creditor to have the right to demand another guarantor

Does a guarantor9s lia$ility e'tinguish upon his death1

The Civil Code contains no provision that the guaranty is e'tinguished

upon the death of the guarantor or the surety -rom this article, it is immediately apparent that the supervening

incapacity of the guarantor does not terminate the contract $ut merelyentitles the creditor to demand a replacement of the guarantor! )ut thestep remains optional in the creditor!

o (t is his right, not his duty he may "aive it if he choose and

hold the guarantor to his $argain!

The contracts of suretyship entered, not $eing intransmissi$le, his

eventual lia$ility thereunder necessarily passed upon his death to hisheirs!

Selection of guarantor

here the creditor has re8uired and stipulated that a specified person

should $e a guarantor, the su$stitution of guarantor may not $e

demanded! Guarantor personally designated $y the creditor

o here the guarantor is personally designated $y the creditor, it

is $ecause he considers him to have the 8ualifications for thepurpose, and the responsi$ility for the selection should,therefore, fall upon him, and not on the de$tor!

Guarantor selected $y principal de$tor

o here the guarantor is selected $y the principal de$tor, the

latter ans"ers for the integrity, capacity, and solvency of theformer $ecause the guarantor must possess the 8ualificationsnot only at the moment the guaranty is given, $ut also until thee'tinguishment of the de$t!

C4APTER T5OE77ECTS O7 GUARANTY

SECTION I E77ECTS O7 GUARANTY BET5EENT4E GURANTOR AND T4E CREDITOR

Art >@8< The *+rntor cnnot ,e co)$e""e' to $y the cre'%tor +n"ethe "tter h e:h+te' "" the $ro$erty o! the 'e,tor# n' h reorte'to "" the "e*" re)e'%e *%nt the 'e,tor

7ight of guarantor to $enefit of e'cussion or e'haustion

! Guarantor only secondarily lia$le.! All legal remedies against de$tor must $e first e'hausted

(ncludes rescission of fraudulent alienations of property made

$y the de$tor

not applica$le to contracts of suretyship

7ight of creditor to secure judgment against guarantor prior to e'haustion



16/28



General rule# An ordinary personal guarantor 3not a pledgor or mortgagor4,may demand e'haustion of all the property of the de$tor $efore he can $ecompelled to pay!

2o"ever, the creditor may secure a judgment against the guarantor $eforethe e'haustion of the de$tor9s properties! (n this case, the guarantor shall $eentitled to a deferment of the e'ecution of the judgment against him untilafter the properties of the de$tor have $een e'hausted! 3$ased on trialconvenience4

Art >@89 Th% e:c+%on h"" not t/e $"ce=

1 I! the *+rntor h e:$re"y reno+nce' %t.> I! he h ,o+n' h%)e"! o"%'r%"y -%th the 'e,tor.3 In ce o! %no"(ency o! the 'e,tor.>! 5hen he de$tor4h ,con'e'# or cnnot ,e +e' -%th%n the

Ph%"%$$%ne +n"e he h "e!t )n*er or re$reentt%(e.8 I! %t ,e $re+)e' tht n e:ec+t%on on the $ro$erty o! the

$r%nc%$" 'e,tor -o+"' not re+"t %n the t%!ct%on o! theo,"%*t%on

'ceptions to $enefit of e'cussion! those provided in Art .6EB.! if he does not comply "ith Art .6;6/! if he is a judicial $ondsman and su$0surety 3Art .6=>4>! "here a pledge or mortgage has $een given $y him as a special

securityE! if he fails to interpose it as a defense $efore judgment is rendered

against him

'ceptions provided in .6EB

! 'press renunciation.! )inds himself solidarily, as a surety/! (nsolvency of de$tor

Must $e proven $y unsatisfied "rit of e'ecution

udicial declaration of insolvency not enough

>! De$tor a$sconds or cannot $e locally suedE! 7esort to all legal remedies "ould $e a useless formality

(f such judicial actions including e'ecution "ould not satisfy the

o$ligation, the guarantor can no longer re8uire the creditor to resortto all such remedies

Art >@@ In or'er tht the *+rntor )y )/e +e o! the ,ene!%t o!e:c+%on# he )+t et %t +$ *%nt the cre'%tor +$on the "tter?'e)n' !or $y)ent !ro) h%)# n' $o%nt o+t to the cre'%tor (%","e

$ro$erty o! the 'e,tor -%th%n Ph%"%$$%ne terr%tory# +!!%c%ent to co(er the)o+nt o! the 'e,t

Art >@1 The *+rntor h(%n* !+"!%""e' "" the con'%t%on re0+%re' %nthe $rece'%n* rt%c"e# the cre'%tor -ho % ne*"%*ent %n e:h+t%n* the$ro$erty $o%nte' o+t h"" +!!er the "o# to the e:tent o! %'$ro$erty# !or the %no"(ency o! the 'e,tor re+"t%n* !ro) +chne*"%*ence

Duty of creditor to ma&e prior demand for payment from guarantor! Demand for payment $y the creditor upon the guarantor can $e made

only after judgment on the de$t!.! Actual demand must $e made!

! oining the guarantor in the suit against the principal de$tor is not

the demand intended $y la"!

Duty of guarantor to set up $enefit of e'cussionAs soon as he is re8uired to pay, the guarantor must

! Claim the $enefit of e'cussion.! Also point out to the creditor availa$le property 3not in litigation

or encum$ered4 of the de$tor "ithin the Philippines

Duty of creditor to resort to all legal remedies! 'haust all the property of the de$tor pointed out $y the guarantor.! 7esort to all legal remedies against the de$tor

(f he fails to do so $ecause of negligence, he shall suffer the loss,

$ut only to the e'tent of the value of said property, for the

insolvency of the de$tor/! Creditor must notify the guarantor of the de$tor9s ina$ility to pay 3Art

.6;.4

General rule# Guarantor, not $eing a joint contractor "ith his principal cannot$e sued "ith his principal!'ception# Adherence to this rule is not re8uired "hen it "ould serve merelyto delay the accounting of the guarantor!

Art >@> In e(ery ct%on ,y the cre'%tor# -h%ch )+t ,e *%nt the



17/28


18/28



.! (f the o$ligation of Draco and Dum$ledore is joint, there are actually t"ode$ts * Draco9s de$t of PE66 and Dum$ledore9s de$t of PE66!Guarantor Ginny cannot demand that the claim of creditor 2arry forPE66 against Dum$ledore $e divided $et"een guarantor Ginny and

guarantor 7on!@)! (n this e'ample, as Ginny guaranteed for Draco, and 7onguaranteed for Dum$ledore, the guarantors are only lia$le for theirrespective principal de$tors!

)enefit of e'cussion among several guarantors

hile it is needed to point out to the creditor the de$tor9s availa$le

property in order to set up the guarantor9s $enefit of e'haustion, this isnot needed for a guarantor to $e entitled to the $enefit of division!

?$ligation of guarantor "ith co0guarantors is not su$sidiary, $ut direct

and does not depend as to its origin on the solvency or insolvency of thelatter!

Although after"ards, if one of them should turn out to $e insolvent, his

share has to $e $orne $y the others! 3Art .6J/4

SCT(?@ (( * --CTS ?- G%A7A@T )T@T2 D)T?7 A@D T2 G%A7A@T?7

Art >@ The *+rntor -ho $y !or 'e,tor )+t ,e %n'e)n%!%e' ,ythe "tter

The %n'e)n%ty co)$r%e=1 The tot" )o+nt o! the 'e,t.> The "e*" %nteret thereon !ro) the t%)e the $y)ent

- )'e /no-n to the 'e,tor# e(en tho+*h %t '%' notern %nteret !or the cre'%tor.

3 The e:$ene %nc+rre' ,y the *+rntor !ter h(%n*

not%!%e' the 'e,tor tht $y)ent h' ,een 'e)n'e'o! h%).

2 D)*e# %! they re '+e

Guaranty, a contract of indemnity! Total amount of de$t 3of course, he cannot collect more than "hat he

paid4.! 5egal interest thereon

Starting from the time notice of payment of de$t "as made &no"n

to the de$tor

(mmaterial that the de$t did not earn interest for the creditor

Guarantor9s right to legal interest is granted $y la"

/! 'penses incurred $y the guarantor

?nly those that the guarantor has to satisfy in accordance "ith la"

as a conse8uence of the guaranty 3Art .6EE, par . 0 judicial costs,attorney9s fees etc4 not those "hich depend upon his "ill or $y hisfault

5imited to those incurred $y the guarantor after having notified the

de$tor that payment has $een demanded of him $y the creditor>! Damages, if they are due

'ceptions to right to indemnity or reim$ursement! Guaranty constituted "ithout &no"ledge or against the "ill of the de$tor,

recovery only insofar as the payment has $een $eneficial to the de$tor3Art .6E64

.! Payment $y a third person "ho does @?T intend to $e reim$ursed $ythe de$tor is deemed a donation, "hich re8uires the de$tor9s consent!

3Art ./=4/! 7ight to demand reim$ursement is su$ject to "aiver!

Art >@; The *+rntor -ho $y % +,ro*te' ,y (%rt+e thereo! to ""the r%*ht -h%ch the cre'%tor h' *%nt the 'e,tor

I! the *+rntor h co)$ro)%e' -%th the cre'%tor# he cnnot'e)n' o! the 'e,tor )ore thn -ht he h re""y $%'

Guarantor9s right to su$rogationSu$rogation transfers to the person su$rogated, the credit "ith all the rightsthereto appertaining either against the de$tor or against third persons, $ethey guarantors or possessors of mortgages, su$ject to stipulation inconventional su$rogation 3Art /6/4! Simply said, e'cept for the change ofperson of the creditor $y the guarantor, the o$ligation su$sists in all respects

as $efore payment!

! 7ight of su$rogation is necessary to ena$le the guarantor to enfore theindemnity given in Art .6;;!

a! Arises $y operation of la" upon payment $y the guarantor!$! @ot a contractual rightc! Guarantor is su$rogated, $y virtue of the payment, to the rights

of the creditor, not those of the de$tor

(f guarantor paid a smaller amount to the creditor $y virtue of a compromise,



19/28



he cannot demand more than he actually paid!Cannot $e invo&ed in those cases "here the guarantor has not r ight to $ereim$ursed!

Art >@< I! the *+rntor ho+"' $y -%tho+t not%!y%n* the 'e,tor# the"tter )y en!orce *%nt h%) "" the 'e!ene -h%ch he co+"' h(eet +$ *%nt the cre'%tor t the t%)e the $y)ent - )'e

ffect of payment $y guarantor "ithout notice to de$torSee codal! (f the de$tor has already paid the creditor, "hen the guarantorpays, the de$tor can set up against the guarantor the defense of previouse'tinguishment of the o$ligation $y payment!

@)! Do not confuse this "ith Art .6E6! (n that article, no guaranty e'ists to$egin "ith! 2ere, there is an e'isting guaranty relationship and the guarantorgoes ahead and pays!

Art >@9I! the 'e,t - !or $er%o' n' the *+rntor $%' %t ,e!ore %t

,ec)e '+e# he cnnot 'e)n' re%),+re)ent o! the 'e,tor +nt%" thee:$%rt%on o! the $er%o' +n"e the $y)ent h ,een rt%!%e' ,y the'e,tor

Art .6;B applies "hen#! De$t has a periodNmaturity date.! Guarantor pays the de$t $efore due date

ffect of payment $y guarantor $efore maturityGeneral rule# Guarantor not entitled to reim$ursement since there is nonecessity for accelerating payment! 2e can only demand for reim$ursementupon e'piration of the period!'ception# (f payment is ratified or "ith consent $y the de$tor 3then the

guarantor can demand reim$ursement even $efore maturity4

@)# (f guarantor pays $efore due date, the interest does not run even ifde$tor has $een notified!

Art >@;@ I! the *+rntor h $%' -%tho+t not%!y%n* the 'e,tor# n' the"tter not ,e%n* -re o! the $y)ent# re$et the $y)ent# the !or)erh no re)e'y# ,+t on"y *%nt the cre'%torNe(erthe"e# %n ce o! *rt+%to+ *+rnty# %! the *+rntor -$re(ente' ,y !ort+%to+ e(ent !ro) '(%%n* the 'e,tor o! the

$y)ent# n' the cre'%tor ,eco)e %no"(ent# the 'e,tor h""re%),+re the *+rntor !or the )o+nt $%'

Art .6J6 applies "hen#! Guarantor pays "ithout notice to de$tor.! De$tor, "ithout &no"ledge, repeats payment to creditor

General rule# Guarantor9s only remedy is to collect from the creditor! 2e hasno cause of action against the de$tor even if the creditor should $ecomeinsolvent! (t9s his fault for not advising the de$tor that he "as going to pay!)efore the guarantor pays the creditor, he must first notify the de$tor!

'ception# Guarantor may still claim from de$tor in spite of lac& of notice ifthe follo"ing conditions are present#

! Guaranty is gratuitous.! Creditor $ecomes insolvent/! Guarantor "as prevented $y fortuitous even to advise the de$tor of

the payment

if creditor is solvent, guarantor must still recover from him

Art >@;1 The *+rntor# e(en ,e!ore h(%n* $%'# )y $rocee' *%ntthe $r%nc%$" 'e,tor=

1 5hen he % +e' !or the $y)ent.> In ce o! %no"(ency o! the $r%nc%$" 'e,tor.3 5hen the 'e,tor h ,o+n' h%)e"! to re"%e(e h%) !ro) the

*+rnty -%th%n $ec%!%e' $er%o'# n' th% $er%o' he:$%re'.

2 5hen the 'e,t h ,eco)e 'e)n',"e# ,y reon o! thee:$%rt%on o! the $er%o' !or $y)ent.

8 A!ter the "$e o! ten yer# -hen the $r%nc%$" o,"%*t%on hno !%:e' $er%o' !or %t )t+r%ty# +n"e %t ,e o! +ch nt+re tht

%t cnnot ,e e:t%n*+%he' e:ce$t -%th%n $er%o' "on*er thnten yer.

I! there ,e reon,"e *ro+n' to !et tht the $r%nc%$" 'e,tor%nten' to ,con'.

; I! the $r%nc%$" 'e,tor % %n %))%nent 'n*er o! ,eco)%n*%no"(ent

In "" ce# the ct%on o! the *+rntor % to o,t%n re"ee !ro)the *+rnty# or to 'e)n' ec+r%ty tht h"" $rotect h%) !ro) ny$rocee'%n* ,y the cre'%tor n' !ro) the 'n*er o! %no"(ency o! the



20/28



'e,tor

7ight of guarantor to proceed against de$tor $efore paymentGeneral rule# The guarantor has no cause of action against the de$tor untilafter the former has paid the o$ligation 3Art .6;;4

'ception# The seven instances in Art .6J! 2ere, the guarantor mayproceed against the de$tor even $efore payment!The purpose is to ena$le the guarantor to ta&e measures for the protectionof his interest in vie" of the pro$a$ility that he "ould $e called upon to paythe de$t!

@)# (n Art .6J 34, the creditor doesn9t have to $e the one to sue theguarantor, as the la" does not distinguish!

7emedy to "hich guarantor entitled! ?$tain release from the guaranty.! Demand a security that shall protect him from any proceedings $y the

creditor, and against the danger of insolvency of the de$tor

Guarantor cannot demand reim$ursement for indemnity $ecause he has

yet to pay the o$ligation!

7emedies are alternative! Guarantor has the r ight to choose the action

to $ring!

7emem$er that there are certain cases "hen the guarantor cannot

claim the $enefit of e'cussion and in such cases it is $ut proper that theguarantor $e given the right to proceed against the de$tor! 314

Suit $y guarantor against creditor $efore payment

Action for release can only $e e'ercised against the principal de$tor andnot against the de$tor

o The creditor is not compella$le to release the guarantor $efore

payment of his credit against his "ill!o specially should this $e the case "here the principal de$tor

has $ecome insolvent, for the purpose of a guaranty is e'actlyto protect the creditor against such a contingency

A$sent the creditor9s consent, the principal de$tor may only proceed to

protect the demanding guarantor $y a counter$ond or counter0guranty

as is authoried $y .6J!

.6;; .6J

Provides for enforcement of the

rights of the guarantor againstthe de$tor A-T7 he has paidthe de$t

7ight of action after payment

Su$stantive right

Provides for protection )-?7

he has paid $ut A-T7 he has$ecome lia$le

Protective remedy $efore

payment

Preliminary remedy

7ecovery $y surety against indemnitor even $efore payment! (ndemnity agreement for $enefit of surety.! (ndemnity agreement may $e against actual loss as "ell as lia$ility

a! (ndemnity agreement against loss * indemnitor "ill not $elia$le until the person to $e indemnified ma&es payment ofsustains loss

$! (ndemnity agreement against lia$ility * indemnitor9s lia$ilityarises as soon as the lia$ility of the person to $e indemnifiedhas arisen "ithout regard to "hether or not he has suffereredactual loss

/! A stipulation in an indemnity agreement providing that the indemniotrshall pay the surety as soon as the latter $ecomes lia$le to ma&epayments to the creditor under the terms of the $ond, regardless of"hether the surety has made payment actually or not, is valid andenforcea$le!

here the principal de$tors are simultaneously the same persons

"ho e'ecuted the indemnity agreement, the position occupied $ythem is that of a principal de$tor and indemnitor at the same time,and their lia$ility $eing joint and several "ith the surety, the creditormay proceed against either!

Art >@;> I! one# t the re0+et o! nother# ,eco)e *+rntor !or the'e,t o! th%r' $eron -ho % not $reent# the *+rntor -ho t%!%ethe 'e,t )y +e e%ther the $eron o re0+et%n* or the 'e,tor !orre%),+re)ent

Art .6J. applies "hen#



21/28



! Person re8uests a guarantor.! To guarantee a de$t of an a$sentee

Guarantor, after satisfying the de$t, can see& reim$ursement from#! The person "ho re8uested, or.! The de$tor

SCT(?@ ((( * --CTS ?- G%A7A@T AS)T@ C?0G%A7A@T?7S

Art >@;3 5hen there re t-o or )ore *+rntor o! the )e 'e,torn' !or the )e 'e,t# the one )on* the) -ho h $%' )y 'e)n'o! ech o! the other the hre -h%ch % $ro$ort%on""y o-%n* !ro) h%)

I! ny o! the *+rntor ho+"' ,e %no"(ent# h% hre h"" ,e,orne ,y the other# %nc"+'%n* the $yer# %n the )e $ro$ort%on

The $ro(%%on o! th% rt%c"e h"" not ,e $$"%c,"e# +n"ethe $y)ent h ,een )'e %n (%rt+e o! +'%c%" 'e)n' or +n"e the

$r%nc%$" 'e,tor % %no"(ent

Applies "hen#

! Several guarantors.! ?ne de$t/! ?ne guarantor has paid the de$t and is see&ing reim$ursement>! Payment "as made either $y

a! (n virtue of a judicial demand, or$! )ecause the principal de$tor is insolvent

(f any of the guarantors should $e insolvent, his share shall $e $orne $y

the others including the paying guarantor in the same proportion!

The right of the guarantor "ho has paid the de$t is ac8uired ipso jure$y

the guarantor $y virtue of said payment "ithout the need of o$tainingfrom the creditor any prior cession of r ights to such guarantor

Ginny, 7on and -red are Draco9s guarantors of a de$t of PB66 in favor of2arry!(f Draco $ecomes insolvent, the right of Ginny, 7on and -red toproportionate division of their o$ligation ceases as far as 2arry is concerned3art .6;E, .6EB4! 2arry may demand payment of the entire o$ligation fromany of the guarantors! (f Ginny pays the "hole de$t of PB66 he can later

demand from 7on and -red P/66 each! )ut if 7on is insolvent, his shareshall $e $orne $y Ginny and -red proportionately! Thus, Ginny can demandfrom -red P>E6!

(f the $enefit of division ceases for reasons other than the insolvency of theprincipal de$tor 3Art .6EB4, the right to reim$ursement granted to Ginnyagainst 7on and -red may only $e e'ercised if Ginny ma&es payment invirtue of a judicial demand $y 2arry!

Art >@;2 In the ce o! the $rece'%n* rt%c"e# the co*+rntor )y et+$ *%nt the one -ho $%'# the )e 'e!ene -h%ch -o+"' h(e$ert%ne' to the $r%nc%$" 'e,tor *%nt the cre'%tor# n' -h%ch re not$+re"y $eron" to the 'e,tor

Defenses availa$le to co0guarantors

(n the action filed $y the paying guarantor against his co0guarantors for

their proportionate shares in the o$ligation, the latter may availthemselves of all defenses "hich the de$tor "ould have interposed

against the creditor $ut not those "hich cannot $e transmitted for $eingpurely personal to the de$tor!

(n the e'ample a$ove, if Ginny sues 7on and -red, the latter may raise thedefense of payment $y Draco $y virtue of "hich the o$ligation "ase'tinguished!)ut if Draco "as a minor at the time the o$ligation "as contracted, thedefense of minority is not availa$le to 7on and -red $ecause it is personal toDraco!

Art >@;8 A +,*+rntor# %n ce o! the %no"(ency o! the *+rntor !or-ho) he ,o+n' h%)e"!# % re$on%,"e to the co*+rntor %n the)e ter) the *+rntor

5ia$ility of su$0guarantor in case of insolvency of guarantor

(n case of the insolvency of the guarantor for "hom he $ound himself, a

su$0guarantor is lia$le to the co0guarantors in the same manner as theguarantor "hom he guaranteed!

(n the e'ample a$ove, if 2ermione 3co0guarantor4 is the guarantor of 7on,and 7on $ecomes insolvent, 2ermoine is lia$le to Ginny for P/66 or P>E6 if-red is also insolvent!

Mic&ey (ngles

Ateneo 5a" .6.5i$rat


22/28



C4APTER T4REEETINGUIS46ENT O7 GUARANTY

Art >@; The o,"%*t%on o! the *+rntor % e:t%n*+%he' t the )et%)e tht o! the 'e,tor# n' !or the )e c+e "" othero,"%*t%on

Causes of e'tinguishment of guaranty

Guaranty $eing accessory and su$sidiary, it is also terminated "hen the

principal o$ligation is e'tinguished!

The guaranty itself may $e directly e'tinguished although the principal

o$ligation still remains as in the case of the release of the guarantormade $y the creditor 3art .6J=4

Material alteration of principal contract

ffect of material alteration

o Any agreement $et"een the creditor and the principal de$tor

"hich essentially varies the terms of the principal contract"ithout the consent of the surety, "ill release the surety fromlia$ility

o Such material alteration "ould constitute a novation or change

of the principal contract "hich is conse8uently e'tinguished

hen alteration material

o The guarantor or surety "ill not $e released $y a change in the

principal contract "here such change does not have the effectof ma&ing its o$ligation more onerous

o There must $e change "hich imposes ne" o$ligation or added

$urden on the party promising or "hich ta&es a"ay someo$ligation already imposed, changing the legal effect of theoriginal contract and not merely the form thereof

Art >@;; I! the cre'%tor (o"+ntr%"y cce$t %))o(,"e or other $ro$erty%n $y)ent o! the 'e,t# e(en %! he ho+"' !ter-r' "oe the )ethro+*h e(%ct%on# the *+rntor % re"ee'

7elease $y conveyance of property

Any su$stitute paid in lieu of money "hich is accepted $y the creditor

e'tinguishes the o$ligation and in conse8uence, the guaranty!

(f the creditor accepts property in payment of a de$t from the de$tor, the

guarantor is relieved from responsi$ility! This is also true even inc asethe creditor is su$se8uently evicted from the property!

o viction revives the principal o$ligation $ut not the guaranty!

Art >@;< A re"ee )'e ,y the cre'%tor %n !(or o! one o! the*+rntor# -%tho+t the conent o! the other# ,ene!%t "" to the e:tento! the hre o! the *+rntor to -ho) %t h ,een *rnte'

7elease of guarantor "ithout consent of others

As a rule, the guarantors enjoy the $enefit of division!

2o"ever, if any of them should $e insolvent all the other guarantors

must $ear his share! So, a release made $y the creditor in favor of oneof the guarantors "ithout the consent of the others may thus prejudicethe latter should a guarantor $ecome insolvent!

Ginny, 7on and -red are guarantors for a de$t of PB66! (f Ginny is released"ithout the consent of 7on and -red, then 7on and -red "ill each $e lia$leonly for P/66! They are $enefited to the e'tent of P/66, the share of Ginny!

(f the release is made "ith their consent, 7on and -red "ill each $eresponsi$le for P>E6! (f Ginny is released "ith the consent only of 7on, 7onis lia$le for P;66, "hile -red is lia$le for P/66!

Art >@;9 An e:ten%on *rnte' to the 'e,tor ,y the cre'%tor -%tho+t theconent o! the *+rntor e:t%n*+%he the *+rnty The )ere !%"+reon the $rt o! the cre'%tor to 'e)n' $y)ent !ter the 'e,t h,eco)e '+e 'oe not o! %te"! cont%t+te ny e:ten%on o! t%)e re!erre'to here%n

7elease $y e'tension of the term granted $y creditor to de$tor

(f the creditor grants an e'tension of time to the de$tor "ithout the

consent of the guarantor 3or surety4, the latter is discharged from hisunderta&ing!

o 7eason# To avoid prejudice to the guarantor! The de$tor may

$ecome insolvent during the e'tension, and guarantor losesright to $e reim$ursed!

ith regard to paya$les in installments and acceleration clauses#

o here a guarantor is lia$le for different payments, such as

installments for rents, or upon a series of promissory notes, ane'tension of time as to one or more "ill not affect the lia$ility of

Mic&ey (ngles



23/28



the surety for the others!

Draco o"es 2arry PB66, paya$le $y P/66 at the endof each month! Ginny guaranteed each month9spaya$le! 2arry granted an e'tension to Draco for thefirst month9s payment! Ginny is discharged fromlia$ility in the first month9s payment, $ut not theothers!

o )ut if the "hole unpaid $alance has $ecome automatically due

3acceleration clause4, the act of the creditor of e'tending thepayment of said installment, "ithout the guarantor9s consent,discharges the guarantor $ecause the e'tension constitutes infact an e'tension of the payment of the "hole amount of theinde$tedness!

?f course, the guarantor may "aive in advance his right to $e notified or

to give consent to the release $y the creditor of securities given or to thee'tension of the time of payment!

The $enefit of e'cussion, as "ell as the re8uirement of consent to the

e'tensions of payment, are protective devices pertaining to andconferred on the guarantor "hich the latter may invo&e as defenses to$ar any un"arranted enforcement of the guarantee! 2o"ever, theguarantor may opt not to avail of these defenses $y paying theo$ligation according to the tenor of the guarantee once demand is madeon him $y the creditor!

here under the indemnity agreement, "here$y the indemnitors $ound

themselves jointly and severally to the surety for the faithful compliance"ith the terms of the surety $ond issued $y the surety in favor of thecreditor to secure a credit line e'tended to the principal de$tor, theindemnitors remained simply such $ound to the surety $ut not to thecreditor! Such creditor cannot directly demand payment of the principalo$ligations from the indemnitors!

o The indemnitors are second0tier parties so far as the creditor is

concerned and any e'tension of time granted $y the creditor toany of the first0tier o$ligors 3principal de$tor and the surety4cannot prejudice the second0tier parties! 3"hut14

(t is unimportant "hether the e'tension given has actually proved

prejudicial or not to the guarantor or surety!

The e'tension of the term must $e $ased on some ne" agreement

$et"een the creditor and the principal de$tor $y virtue of "hich thecreditor deprives himself of his claim!

(t should appear that the e'tension "as for a definite period, pursuant to

an enforcea$le agreement $et"een the principal and the creditor, andthat it "as made "ithout the consent of the surety or "ith a reservationof rights "ith respect to him!

o The mere failure or neglect on the part of the creditor to

enforce payment as soon as the de$t matures, does notconstitute an e'tension of the term of the o$ligation, meaningthe lia$ility of the guarantor is not e'tinguished!

o The rule applies even if the de$tor should $ecome insolvent

su$se8uent to the maturity of the de$t! The reason is that theguarantor "ould not $e prejudiced since he could avail himselfof the right granted him under Art .6J, namely, to as& thede$tor for a release or to demand a security!

Draco o"es 2arry PB66, due on anuary /, .66!Ginny guaranteed the de$t! Come -e$ruary, 2arryneglected to demand from Draco! (s Ginnydischarged1 @o!

Supposing Draco $ecomes insolvent after the de$tmatured, is Ginny discharged1 @o! She can, ho"ever,as& Draco for a release from the guaranty or demanda security!

The creditor is under no o$ligation to display any diligence in the

enforcement of his rights as a creditor! 2is mere inaction, indulgence,etc in proceeding against the principal de$tor, or the fact that he did notenforrce the guaranty or apply on the payment of such funds as "ereavaila$le constitutes no defense at all for the surety, unless the contracte'pressly re8uires diligence and promptness on the part of the creditor!

o hy1 There is nothing to prevent the creditor from proceeding

against the principal at any time! At any rate, if the surety isdissatisfied "ith the degree of the activity displayed $y thecreditor in the pursuit of his principal, he may pay the de$thimself and $ecome su$rogated to all the rights and remedies

of the creditor!

Art >@


24/28



(f there can $e no su$rogation $ecause of the fault of the creditor, as

"hen the creditor releases or fails to register a mortgage, theguarantors are there$y released! 3Applies even if guarantors aresolidary4

o

hy1 The act of one cannot prejudice another! (t also avoidsopportunity for collusion $et"een the creditor and the de$tor ora third person

Art >@4

7esident o"ner of real estate "ithin the Philippines

?nly one surety1 2is real estate must $e "orth atleast the amount of the underta&ing, and

T"o or more sureties1 They may justify severally inamounts less than that e'pressed in the underta&ing,if the entire sum justified to is e8uivalent to the "holeamount of $ail demanded!

(n all cases, every surety must $e "orth the amountspecified in the underta&ing over and a$ove all justde$ts, o$ligations and property e'empt frome'ecution!

Art >@


25/28



o )ecause they are not mere guarantors, $ut sureties "hose

lia$ility is primary and solidary!

The contract of suretyship is not that the creditor "ill see that the

principal de$tor pays his de$t or fulfills his contract, $ut that the surety

"ill see that the de$tor pays or performs!o So, mere negligence on the part of the creditor in collecting

from the de$tor "ill not relieve the surety from lia$ility!

VI PLEDGE

C4APTER ONEPROVISIONS CO66ON TO PLEDGE AND

6ORTGAGEArt >@@8> re $$"%c,"e to $"e'*e or)ort**e

Art >@


26/28



claim of a third person

Capacity to dispose of property means the pledgor or mortgagor

has the capacity or the authority to ma&e a disposition of theproperty

o

7ead "ith reference to special po"ers of attorney, sincethis an act of strict o"nership>! The thing pledged must $e delivered to the creditor or to a third person

$y common agreement 3Art .6B/4

ithout delivery there can $e no pledge $ecause in this delivery

lies the security of the pledge

(n a contract of mortgage, the mortgagor, as a general rule, retains

the possession of the property mortgaged!E! Thing pledged or mortgaged may $e alienated

ou can9t pledge your nephe", no matter ho" annoying he is

hat is the doctrine of the mortgagee in good faith1

The re8uirement that the mortgagor must have the free disposal of the

property or at least have legal authority to do so, does not apply "herethe property involved is registered under the Torrens System!

hile it is true that the mortgagor $e the a$solute o"ner of the property

mortgaged, a mortgagee has the right to rely upon "hat appears in thecertificate of title and does not have to in8uire further!

o So if Draco mortgages his land to 2arry, and 2arry relies on

the TCT given $y Draco, then the mortgage is valid * even if itturns out that the land "asn9t Draco9s, $ut is actually 7on9s!

An innocent purchaser for value 3li&e mortgagee4 relying on a Torrens

system title is protected!

)ased on the pu$lic interest in upholding the indefeasi$ility of a

certificate of title!

'ception# This rule does not apply to $an&s 3and analogously to the

GS(S4 "hich should e'ercise more care and prudence in dealing "ithregistered lands, than private individuals, for their $usiness is oneaffected "ith pu$lic interest! The $an& must o$serve due diligence inascertaining the real o"ner of the registered land given as security for aloan!

Pledgor or mortgagor may $e a third person

@ot necessary that the principal de$tor should al"ays $e the pledgor or

mortgagor

As long as valid consent "as given $y the pledgor or mortgagor, it9s

valid, even if no $enefit redounded to the pledgor or motgagor

Difference "ith mortgagesNpledges $y de$tor#

Creditor is re8uired to e'ercise due care and prudence $y ma&ing

proper in8uiry "here the de$tor $orro"s money

Pledge Mortgage

Mova$les

Property delivered to

pledgee, or $y commonconsent to a third person

@ot valid against third

persons unless adescription of the thingpledged and the date of thepledge appear in a pu$licinstrument

(mmova$les

Delivery is not necessary

@ot valid against third

persons if not registered

Art >@


27/28



Cession of property voluntarily

( promise to sell 3$ecause not necessarily to the creditor4

o )ut H( promise to sell to you, my creditorI is void

Authority to ta&e possession 3$ut not o"nership4

Art >@


28/28



2o"ever, if it "as agreed that the $roomstic& "as given to secure thepayment of PE6, and the "and for the $alance of PE6, and Draco 3or hisheir4 pays PE6, Draco can demand the return of the ring! 3'ample ofe'ception 4

.! Draco and Koldemort are jointly lia$le to 2arry in the sum of P.66secured $y Draco9s $roomstic& and Koldemort9s "and "orth PE6! (fDraco pays PE6, he cannot demand the return of the ring even if theirlia$ility is only joint or proportionate $ecause pledge is indivisi$le!7emem$er children, indivisi$ility is not the same as solidarity! Theformer refers to the o$ject or prestation of the o$ligation, "hile the latter,to the legal tie of the o$ligation!

-oreclosure of mortgage constituted on several properties

The rule that real property, consisting of several lots, should $e sold

separately, applies to sales in e'ecution and not to foreclosure ofmortgages!

A mortgage, even if constituted on t"o or more properties, is one and

indivisi$le, it cannot $e divided among the different properties! Themortgagee has the right to have the properties either or $oth * jointly orsingly, sold to satisfy his claim!

hat if the real mortgage and chattel mortgage is in one instrument1

Does not have the effect of fusing $oth securities into an indivisi$le

"hole

)oth remain distinct agreements, differing not only in the su$ject matter

of the contract, $ut also in the governing legal provisions!

Mortgagee may legally foreclose the real estate mortgage e'trajudicially

and "aive the chattel mortgage foreclosure, and maintain instead apersonal action for the recovery of the unpaid $alance of the credit!

Art >@91 The contrct o! $"e'*e or )ort**e )y ec+re "" /%n' o!o,"%*t%on# ,e they $+re or +,ect to +$en%(e or reo"+torycon'%t%on

Art >@9> A $ro)%e to cont%t+te $"e'*e or )ort**e *%(e r%e on"yto $eron" ct%on ,et-een the contrct%n* $rt%e# -%tho+t $re+'%ceto the cr%)%n" re$on%,%"%ty %nc+rre' ,y h%) -ho 'e!r+' nother# ,yo!!er%n* %n $"e'*e or )ort**e +nenc+),ere'# th%n* -h%ch he/ne- -ere +,ect to o)e ,+r'en# or ,y )%re$reent%n* h%)e"! to,e the o-ner o! the )e

A promise to constitute a pledge or mortgage, if accepted, gives rise

only to a personal right $inding upon the parties and creates no realright in the property!

hat e'ists is only a right of action to compel the fulfillment of thepromise $ut there is no pledge or mortgage yet! 3(ut isn)t this anobligation to do, which can not be compelled by specific performance*$

Mic&ey (ngles


sectrans+reviewer 1

Documents