Beruflich Dokumente
Kultur Dokumente
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.
Equivalent amount to be
returned ( fungible things)
May be gratuitous or
onerous ( with interest)
Ownership goes to
borrower or bailee
Refers to personal property
only
Commodatum
a)
b)
c)
d)
e)
e)
f)
f)
g)
g)
h)
h)
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. 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:
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.
Article 1937
Movable or immovable property may be the object of
commodatum.
COMMENT:
Properties that may be the object of Commodatum
a. immovable property
b. movable property
Article 1938
The bailor in commodatum need not be the owner of
the thing loaned.
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)
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.
Republic:
Bagtas:
-
Issue:
Is the contract one of commodatum?
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
1
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.
Issue:
Is there a contract of commodatum?
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:
Was there a perfected contract of loan?
Ruling:
1
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:
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.
Beck:
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.
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.
Issue:
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.
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.
COMMENT:
Precarium
-
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.
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.
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:
Whether or not the contract be that of a sale or loan.
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.
1
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.
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 non-fungible 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.
-
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.
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
1
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.
-
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
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:
Whether or not there was a breach of contract against the trustees.
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.
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:
Must the borrower still pay?
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.
Overseas Bank
Cordero
March 30, 1982
of
Manila
v.
Issue:
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
1
petitioner should deal directly to Asia Trust, because they sold the property to him
and issued a DOAs thru bank.
Issue:
Is the petitioner liable to pay interest?
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:
-
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.
Issue:
Is Queano liable to pay the principal amount with 12% interest?
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
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.
Rono vs. Gomez
83 Phil 890
Debtor: Rono
Creditor: Gomez
Facts:
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
1
FNA:
Issue:
Whether or not the contention of the petitioner (ESL) is tenable.
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.
Integrated Realty Corporation vs. PNB
174 SCRA 295
Facts:
Raul Santos was issued certificate of deposit totaling to P700, 000.00 by OBM. IRC
through Raul Santos applied a loan for P700, 000.00 with PNB . To secure the loan, he executed
a Deed of Assignment of the two Time Deposit in favor of PNB. OBM after due dates did not pay.
Contention of the Plaintiff:
That the Trial Court erred in its judgment ordering them to pay for the amount
with additional penalty interest.
Contention of the Respondent:
The plaintiff should pay additional penalty interest.
Issues:
Whether or not OBM is liable to pay the 6.5% interest
Ruling:
While it is true that under Art 1956, no interest shall be due unless it has been expressly
stipulated in writing, this applies only to interest for the use of money. It does not comprehend
interest paid as damages.
Jardenil vs. Salas
73 Phil 976
Facts:
A mortgage deed was executed between Jardenil and Salas whereby the latter agreed to
pay interest to the date of maturity in March 1934.
1
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
Insurer: Vicente Tan
Insurance company: Eastern Assurance Company
Facts:
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%.
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.
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:
-
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.
Goyu:
Issue:
Is the RCBC the rightful claimant of the insurance?
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:
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.
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:
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.
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.
Respondent was obliged to pay interest on the installment payments of the unpaid
balance even if paid on these due dates per schedule of payments.
B.
DEPOSIT
1. 1. GENERAL PROVISIONS
2.
Articles 1962 - 1967, 1978 and 1980
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.
judicially.
COMMENT:
1.
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
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.
2.
2.
VOLUNTARY DEPOSIT
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
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
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)
-
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
1
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.
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:
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
1
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
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.
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
-
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.
Palacio:
-
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
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.
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.
1
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
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.
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)
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
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
1
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
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.
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.
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.
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)
1
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)
6)
7)
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
By novation
Other causes: annulment, rescission, fulfilment of a resolutory condition,
prescription
Article 1996
A deposit is necessary:
1. When it is made in compliance with a legal
obligation;
2. When it takes place on the occasion of any calamity,
such as fire, storm, flood, pillage, shipwreck, or
other similar events.
COMMENT:
1.
2.
Article 1997
The deposit referred to in No. 1 of the preceding
article shall be governed by the provisions of the law
establishing it, and in case of its deficiency, by the rules on
voluntary deposit.
The deposit mentioned in No. 2 of the preceding article
shall be regulated by the provisions concerning voluntary
deposit and by Art. 2168.
COMMENT:
1.
2.
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
-
Refers to the transient and was certainly not meant to include ordinary or regular
boarders in any apartment, house, inn or hotel
4.
5.
6.
Meaning of Effects
-
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
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.
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.
under the jurisdiction of the court issuing a writ. It is brought into custodia legis,
under the sole control of such court. Property is in custody of the court when it as
been seized by an officer either under a writ of attachment or mesne process or
under a writ of execution. A court has no control of such property, exercises
exclusive jurisdiction over same. No court, except one having supervisory control
or superior jurisdiction in the premises has a right to interfere with and change that
possession.
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.
-
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:
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.
1
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.
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.
BPI:
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.
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.
C.
2.
3.
4.
SURETY
(a) primary liability
(b) pays if debtor DOES NOT
(c) insurer of the debt
A surety is almost the same as a solidary debtor, except that the latter is himself a
principal debtor. In all applicable provisions, the provisions of this Title also apply to a
surety (Manila Surety and Fidelity Co. v. Batu Construction & Co., et al., 53 O.G. 8836).
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
1
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.
ROMULO MACHETTI v. HOSPICIO DE SAN JOSE and FIDELITY &
SURETY COMPANY OF THE PHILIPPINE ISLANDS; G.R. No. L16666; April 10, 1922; 43 Phil. 297
Parties:
Creditor: Hospicio
Debtor: Machetti
Guarantor: Fidelity and Surety Company of the Philippine Islands (FSCPI)
Facts:
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 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.
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)
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.
Article 2048
A guaranty is gratuitous, unless there is a stipulation
to the contrary.
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
(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.
Parties:
Creditor: Rizal Commercial Banking Corp
Debtor: Davao Agricultural Industrial Corp
Surety: Residoro Chua/Enrique Go
Facts:
Chua and Go executed a comprehensive surety agreement to guaranty any existing
indebtedness of Davao Corp and to induce RCBC to grant Davao Corp loan. A promissory note
was issued in favor of RCBC signed by Go. The promissory note was not paid despite demand.
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.
1
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.
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.
Said penalty maybe demanded in the proper case even if its value is MORE than
the amount of the principal debt (General Insurance & Surety Corp. v. Republic, L13873, January 31, 1963).
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.
Article 2056
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.
Contention of the Plaintiff:
The obligation of Hemady as a guarantor was extinguished by his death. Moreover,
integrity, as a qualification of a guarantor cannot be transmitted to his heir.
Contention of the Defendant:
The obligation of Hemady is transmissible to his heirs.
Ruling:
The guarantors liability is not extinguished by his death.
The general rule is that, a partys contractual rights and obligations are transmissible to
his successor. No provision in the Civil Code states that guaranty is extinguished upon the death
of the guarantor or surety.
The supervening incapacity of the guarantor does not terminate the contract but merely
entitles the creditor to demand replacement of the guarantor, which is optional not a duty but
a right.
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:
(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).
The real estate mortgage cannot be foreclosed because Southern Motors has not yet
exhausted Brillantes property.
Ruling:
Barbosa, the guarantor, is not entitled to the benefit of excussion.
The right of the guarantor under Art 2058 to demand exhaustion of the property of the
principal debtor exists only when a pledge or a mortgage has not been given as special security
for the payment of the obligation.
Article 2059
This excussion shall not take place:
(1)
(2)
(3)
(4)
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.
Contention of the Defendant:
They can go directly after the surety without prior exhaustion of Felicisimos
properties.
Ruling:
Imperial Insurance is primarily liable to pay the counter bond.
Imperial Insurance, Inc. had bound itself solidarily with the principal, the deceased
defendant Felicisimo V. Reyes. In accordance with Article 2059, par. 2, excussion (previous
exhaustion of the property of the debtor) shall not take place "if he (the guarantor) has bound
himself solidarily with the debtor." Section 17, Rule 57 of the Rules of Court cannot be construed
that an "execution against the debtor be first returned unsatisfied even if the bond were a
solidary one, for a procedural rule may not amend the substantive law expressed in the Civil
Code, and further would nullify the express stipulation of the parties that the surety's obligation
should be solidary with that of the defendant.
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.
Failure to comply with duty of creditor would mean that he would suffer the loss
but only to the extent of the value of said property, for the insolvency of the debtor.
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.
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.
TOWERS ASSURANCE CORP v. ORORAMA SUPERMARKET, et
al.
80 SCRA 262; 1977
Parties:
Creditor: See Hong
Debtor: Spouses Ernesto and Conching Ong
Surety: Towers Assurance Corp
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
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.
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:
1
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.
3. Effects of Guaranty Between the Guarantor and the Debtor
Article 2066
The guarantor who pays for a debtor must be
indemnified by the latter.
The indemnity comprises:
(1)
The total amount of the debt;
(2)The legal interests thereon from the time the payment
was made known to the debtor, even though it did not
earn interest for the creditor;
(3)The expenses incurred by the guarantor after having
notified the debtor that payment had been demanded
of him;
(4)Damages, if they are due.
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.
Article 2067
The guarantor who pays is subrogated by virtue
thereof to all the rights which the creditor had against the
debtor.
If the guarantor has compromised with the creditor, he
cannot demand of the debtor more than what he has really
paid.
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
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
a. Total amount of debt but cannot demand more than amount paid
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.
TUAZON, TUAZON, INC. v. ANTONIO MACHUCA; G.R. No. L22104; December 2, 1924; 46 Phil. 561
Parties:
Creditor: Manila Compaia de Seguros
Debtor: Universal Trading Company
Guarantor: Tuazon Company
Facts:
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
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
Expenses
TUAZON, TUAZON, INC. v. ANTONIO MACHUCA; G.R. No. L22104; 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.
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.
Parties:
Surety: Tan Sunco
Debtor: Chang Chu Sing
Creditor: Kuenzle and Streiff
Facts:
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
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.
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.
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
1
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).
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.
5.
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.
1
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.
1
(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.
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
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:
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.
consent and knowledge of the accommodation makers who stand as sureties to the
accommodated party.
Article 2080
The guarantors, even though they be solidary, are
released from their obligation whenever by some act of the
1
2.
3.
Meaning of Act
Act should also include inaction.
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.
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.
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.)
6.
Qualification of a Bondsman
See Rule 114, Sec. 9, Revised Rules of Court.
2.
The Bond
(a)
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
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., L12334, 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
1
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.
Special Cases
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.
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.
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.
ANTONIO GARCIA, JR. v. COURT OF APPEALS; G.R. No. 80201;
November 20, 1990; 191 SCRA 493
Parties:
Debtor: Western Minolco Corporation (WMC)
Creditor: Philippine Investments System Corporation (PISO)
Surety: Antonio Garcia
Facts:
Western Minolco Corp. (WMC) obtained two loans with Phil. Investment Systems Corp.
(PISO), P2.5M, and P1M. WMC then executed a promissory note in favor of PISO for the
payment of the said loan. Later Garcia et al. executed a surety agreement wherein they bound
themselves solidarily liable for the payment of the said loan, P2.5M only. WMC defaulted and
upon demand to the surety-petitioner, Garcia defaulted. Hence, a collection suit was filed by the
respondent Lasal against Garcia as the surety of WMC. The trial court dismissed the complaint
on the ground that there was no consideration in favor of Garcia, and therefore, no COA can be
imputed against the respondent. The CA reversed the decision.
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
1
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).
3.
4.
5.
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 mortgage.
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.
1
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.
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.
Is a mortgagee allowed, during the existence of the principal debt, to sell the
property mortgaged to him?
Answer: NO, because this would be an act of disposition. The answer would be
the same even if the contract allows the sale, for in such a case, said stipulation would be
null and void.
Article 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 heirs 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 especially answerable is
satisfied.
COMMENT:
1.
2.
3.
O.G. 1518). Similarly, if the mortgage is on two lots, the mortgagee can demand the sale
of either or both. This is because the mortgage is INDIVISIBLE (Aquino v. Macondray
and Co., 97 Phil. 731).
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.
-
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.
lien would be sufficient. A court of equity never requires an unnecessary thing, and in
this case, all the rights of the creditor will be adequately protected by declaring that the
indebtedness recognized by the debtor, constitutes a lien in the nature of a mortgage
upon the Hacienda Salvacion, it appearing that the registration of the whole has been
effected. It is a maxim of jurisprudence that equity regards that as done which ought to
be done, and in obedience to this precept, as between the parties to this record, the
property must be considered to be subject to the same lien, as if the mortgage which had
been agreed to be made had been actually executed (Laplana v. Garchitorena Chereau,
48 Phil. 163).
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).
Mortgagor: Lichauco
Facts:
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.
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:
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
A pledge certificate by itself is not a negotiable instrument and therefore, even if
delivered and endorsed to an assignee, he would have no right to redeem the property,
unless the creditor-pledgee consents (Concepcion v. Agencia Empeos de la A. Aguirre,
[C.A.] 63 O.G. 1431).
Article 2096
A pledge shall not take effect against third persons if a
description of the thing pledged and the date of the pledge
do not appear in a public instrument.
COMMENT:
1.
2.
3.
4.
5.
Article 2097
With the consent of the pledgee, the thing pledged
may be alienated by the pledgor or owner, subject to the
pledge. The ownership of the thing pledged is transmitted to
the vendee or transferee as soon as the pledgee consents to
the alienation, but the latter shall continue in possession.
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 followed. If B buys the ring, the ownership of the ring is transferred
1
to him, as soon as D consents to the sale but D shall continue to be in possession of the
ring.
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.
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
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
suffer by reason thereof.
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.
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.
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.
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.)
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.
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
1.
2.
Article 2112
The creditor to whom the credit has not been satisfied
in due time, may proceed before a Notary Public to the sale
of the thing pledged. This sale shall be made at a public
auction, and with notification to the debtor and the owner of
the thing pledged in a proper case, stating the amount for
which the public sale is to be held. If at the first auction the
thing is not sold, a second one with the same formalities
shall be held; and if at the second auction there is no sale
either, the creditor may appropriate the thing pledged. In
this case he shall be obliged to give an acquittance for his
entire claim.
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.
(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.
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.
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 case. If the price of the sale is more
than said amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed. If the price of the sale
is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary.
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 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
Example: B borrowed from C P100,000. This was secured by a negotiable promissory
note made by X in favor of B to the amount of P180,000. The negotiable promissory note
was endorsed by B in Cs favor. If the note becomes due before it is redeemed, C can
collect and receive the P180,000 from X, C should get P100,000 and deliver the surplus
of P80,000 to B.
Article 2119
If two or more things are pledged, the pledgee may
choose which he will cause to be sold, unless there is a
stipulation to the contrary. He may demand the sale of only
as many of the things as are necessary for the payment of
1
the debt.
-
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)
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.
Pledgee: E. Betita
Possessor: Jacinto
Sheriff: S. Ganzon
Buyer: C. Pedrena
Facts:
Tiburcia Buhayan was indebted to Betita for P470. The former offered four heads of
carabaos as security, which were actually in possession of Jacinto. Betita never took possession
of the carabaos, and there was no stipulation that Jacinto would act as depositary in behalf of
Betita.
De la Flor acquired a judgment against Buhayan. Despite Betitas oppositions, Ganzon,
as sheriff, executed the judgment and levied upon the subject carabaos. The same were sold at a
public auction in favor of Pedrena.
Contention of the Petitioner:
Betita insists that the carabaos were mortgaged to him as evidenced by the
document signed by Tiburcia.
Ruling:
The document does not constitute a sufficient pledge valid against third parties because
it is not in a public instrument.
The pledge is also ineffective because the plaintiff never had actual possession of the
property. The delivery of possession of the property pledged requires actual possession and a
mere symbolic delivery is insufficient. In the instant case, the animals were in the possession of
Buhayan and Jacinto before the alleged pledge was entered into. Apparently, the animals
remained with them until the execution was levied. Therefore, there was no change in
possession.
EL BANCO ESPAOL-FILIPINO v. JAMES PETERSON et al.
G.R. No. 3088; February 6, 1907; 7 Phil. 409
Parties:
Pledgor: F. Reyes
Pledgee: El Banco Espaol-Filipino
Sheriff: J. Peterson
Depositary: R. Garcia (later on substituted by Sierra)
Facts:
Francisco Reyes pledged goods and executed a mortgage to secure the loan of P144,702
with the plaintiff bank. As agreed, the goods were delivered to Ramon Garcia, later substituted
by Luis Sierra for safekeeping. Reyes turned over the keys to the warehouseman. A judgment in
a different action was rendered against Reyes, and Peterson levied upon the pledged goods for
the satisfaction of said judgment. Reyes had not paid the amount loaned from the bank.
Contention of the Petitioner:
The Banks claim had preference over the claim of a third person not secured by a
pledge, with reference to the property pledged and the extent of its value, and
therefore such property could not have been legally levied upon by the respondent
sheriff.
Contention of the Respondent:
1
Ruling:
There was a valid contract of pledge because all the essential requisites are present. The
contract in question was a perfect contract of pledge it having conclusively shown that the
pledgee took charge and possession of the goods pledged through a depositary and a special
agent appointed by it, each of whom had a duplicate key to the warehouse and that the pledgee
itself received and collected the proceeds of the goods as they were sold.
The Bank has preference over the claim of the defendants, the latter having failed to
show that the contract of pledge was fraudulent, Banco Espaol had the preferential right over
the goods.
Parties:
Debtor-Pledgor: D. Yuliongsiu
Creditor-Pledgee: PNB
Facts:
Yuliongsiu obtained a loan from PNB, and to guarantee its payment, he pledged two
vessels and his equity in another vessel. Plaintiff effected partial payment of the loan and
executed two promissory notes for the balance, but never paid the same.
Yuliongsiu was prosecuted for estafa and was declared insolvent. PNB took possession of
the pledged properties, and executed a document of sale transferring said vessels to the
defendant bank.
Contention of the Petitioner:
The contract is a chattel mortgage, and the bank cannot take possession of the
chattels until after there has been default.
Ruling:
The contract is a contract of pledge. PNB therefore is entitled to actual possession of the
vessels as pledgee. While it is true that the plaintiff continued operating the vessels after the
pledge contract was entered into, his possession was expressly made subject to the order of the
pledgee. The pledgor is regarded as trustee of the thing pledged.
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.
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.
The consideration of the contract is the same for the principal contract
without which it cannot exist as an independent contract.
c. It is indivisible.
- It cannot be divided nor subject to partition.
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) Cannot
guarantee
obligations
future
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
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.
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.
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.
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.
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
Extrajudicial Foreclosure
a) There
is
court
intervention
b) Decisions are appealable
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.
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.
EXAMPLE: Section 47 of the Philippine General Banking Law which allows a one year
period for redemption.
3. Upon finality of the order of confirmation or upon expiration of the period of
redemption when allowed by law, the purchaser at auction is entitled to possession
unless a third party is holding it adversely to the judgment obligor, in which case, the
purchaser at the auction sale may secure a writ of possession from the Court ordering
the sale.
What is to be registered is the order of confirmation.
If there is no right of redemption, the title of the mortgagor is cancelled and a
new one issued in the name of the purchaser.
*If with right of redemption, the annotation is to await final deed of sale executed by
Sheriff (Section 7).
4. PROCEEDS OF THE SALE shall, after deducting the costs, be paid to the persons
foreclosing the mortgage. If there be a balance or residue, it shall be paid to the junior
encumbrancers, in the order of priority ascertained by the Court, if none or there still
be a balance or residue after payment, to the mortgagor.
5. If debt is not all due, as soon as a sufficient portion of the property has been sold to pay
the total amount, the sale shall terminate. Afterwards, no more shall be sold, BUT if
property cannot be sold in portions, the entire property is to be sold with rebate of
interest if proper when the full debt is paid.
6. Deficiency judgments, if there is a balance, upon motion, the court shall render
judgment against the defendant for the balance, upon which execution may issue. If
balance is due at the time of rendition of judgment OR at such time as the remaining
balance becomes due under the terms of the original contract, which time shall be
stated in the judgment.
Note that the provisions of Section 31 as to use of premises by obligor, Section 32 as to
rents still due the obligor, and Section 34 as to recovery of price if sale is not effective of Rule 39
are applicable as far as the former are not inconsistent.
2.
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.
2.
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.
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
be assumed by the government up to the amount equivalent to the landowners compensation.
Hence, until the final valuation of the lands subject to CARP is determined, the amount of the
mortgage debt is unliquidated
3.
Issue of the legality of the Floating Rate of Interest, which refers to the rate of interest
periodically fixed by a bank based on the prevailing interest rate in the market, such as the
Manila Reference Rate or Treasury Bill Rate, plus a margin as determined by the bank.
If this rate of interest is unilaterally fixed by the bank for each interest period without the
written conformity of the borrower, the interest may be declared null and void for being
potestative and for lack of mutuality based on essential equality between the parties. Its being a
potestative condition (one within the sole power of the one obligated to perform), consequently
null and void finds basis in Article 1308 of the Civil Code that provides that the fulfillment of a
condition cannot be left to the sole will of one of the contracting parties.
As held by the Supreme Court in Almeda v. Court of Appeals and PNB,256 SCRA 293:
The binding effect of any agreement between the parties to contract is premised on two settled
principles: (1) that any obligation arising from contract has the force of law between the parties;
and (2) that there must be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties is likewise invalid.
The floating rate of interest being unilaterally fixed and determined by the bank also
violates the provision of CB Circular No. 1191 that the interest rate for each re-pricing period is
subject to mutual agreement between the Borrower and the Bank.
Under Article 1956 of the Civil Code, no interest is due unless it has been expressly
stipulated in writing. The floating rate being unilaterally fixed by the Bank without the written
mutual agreement of the Borrower for each re-pricing of interest is null and void under Art.
1956 of the Civil Code, and for violation of CB Circular No. 1191 that the interest rate for each repricing period under the floating rate of interest in subject to mutual agreement.
Consequently, if the interest is declared null and void, the foreclosure sale for a higher
amount than what is legally due is likewise null and void because under the Civil Code, a
mortgage may be foreclosed only to enforce the fulfillment of the obligation for whose security it
was constituted. In fact, because there is a dispute on the amount of the interest legally due, the
Bank may legally proceed with foreclosure or consolidation only when the exact amount of the
obligations of the Mortgagor is determined after trial on the merit and the mortgagor cannot
meet the obligation following that determination.
4.
Issue of the mortgage as security for future loans. The rule is unless a continuing real
estate mortgage is involved, a real estate mortgage is not a valid security for future loans under
the so called Dragnet Clause.
This finds basis in the fact that real estate mortgage is an accessory contract, which
cannot exist independently of the principal obligation. The consideration for the mortgage is the
consideration of the contract of loan. Consequently, the amount of the loan must be specified,
otherwise the contract of loan, as well as the accessory contract of mortgage, shall not be
perfected for lack of consideration with respect to the unspecified loan in the future. The
Supreme Court has held in China Banking Corporation vs. Lichuaco, 46 Phil 460 that: a
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.
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.
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.
MOBIL:
-
It challenged the decision of the TC and contended that there was a valid mortgage
and despite non- registry of said mortgage, it has the right to foreclose the
mortgaged property and apply the proceeds thereof for the payment of mortgagors
obligation.
DIOCARES:
maintained the decision of the TC.
SC Ruling:
The SC ruled that the lower court erred in relying merely on the opening sentence of the
governing article that is indispensable, in order that a mortgage may be validly constituted, the
document in which it appears be recorded in the Registry of Property. Note that it ignored the
succeeding sentence: if the instrument is not recorded, the mortgage is nevertheless binding
between the parties.
The provision is clear and explicit. Even if the instrument was not recorded, the
mortgage is nevertheless binding between the parties. The law cannot be any clearer. Effect
must be given to it as written. The mortgage subsists; the parties are bound as between them,
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
Contended that it is required by rules that all parties having interest in a land
subject to foreclosure, including those who are purchasers of a mortgaged land,
shall be impleaded for the decision of the foreclosure proceeding to be binding unto
them, otherwise, it cannot affect their rights.
SC Ruling:
The Court ruled that while it may be true that the sale in the foreclosure proceeding is
valid between the parties therein so as to register the land in question under the name of
Dionesio, but subject however to Santiagos equitable right of redemption which she can
exercise within a period of three months.
Furthermore, under the law, all parties having claiming rights over the land subject to
foreclosure proceedings should be impleaded for the decision in the case to be binding upon the
parties. In the case at bar, Santiago, being the purchaser was not impleaded in the foreclosure
proceedings. While it may true that she intervened with the registration of the land under the
name of Dionisio, it does not mean that she was made party to the foreclosure proceedings since
her intervention is only subject to the opposition in the conformance of the sale to Dionesio.
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.
maintained the decision of the respondent court; the extra judicial foreclosure is
invalid since she was not notified of the extra judicial foreclosure sale conducted on
April 11 after scheduled sale on April 10 was declared holiday.
SC Ruling:
The Court affirmed the decision of the CA. Evidence adduced shows that that the spouses
Valencia defrauded Castro in making her sign the promissory notes and the real estate
mortgage. The spouses Valencia also misrepresented the bank by modifying the qualifications of
Castro for the bank to grant the loan. The result of such fraud upon Castro and
misrepresentation to the bank, both Castro and the bank committed mistake in consenting the
contract of REM and since their consent was vitiated, it follows that the promissory note is
invalidated in so far as its effect to Castros liability on the bank.; and that the REM is only valid
up to the extent of P3, 000.00 representing the principal obligation of Castro.
As to the validity of the extra judicial foreclosure sale, the Court ruled that such
foreclosure conducted on April 11 after April 10 has been declared holiday is invalid. If the trial
court fixes the trial of a case on a certain day but the said date us subsequently declared a public
holiday, the trial thereof is not automatically transferred to the next succeeding business day.
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:
maintained the decision of the CA that the five year period as prescribed by the
Public Land Act should be applied in the case at bar. The Rural Banks Act cannot
be applied because the subject land is acquired through Public Land Act and has a
Free Patent Title.
SC Ruling:
The court held that the law that should be applied is the Public Land Act. This is because
it is clear from the record that the mortgaged land of the private respondent to the petitioner
bank is a land covered by Free Patent Title. Thus, it is not within the operation of the Rural
Banks Act because it covers those lands which are not covered by Torrens title, homestead or
free patent title.
Hence, when the title of the land was issued under the name of the bank on November
1981, from this day, the respondent spouses has two years to exercise their right of redemption
as provided by public Land Act.
If the respondent spouses failed within said period, they still have five years counted
from the expiration of one year period of repurchase under Act 3135.
that a hearing for the application of injunctive writ should be first conducted before
its issuance, thus the issuance of preliminary injunction by the trial court without
conducting any hearing for the petitioner bank to present its case is void.
The private respondent:
in the other hand contended that the insistence of the petitioner to have a hearing
is a mere delaying tactic to force the lapse of one year within which the respondents
can exercise their right of redemption. Moreover, the respondent never posted any
issue of ownership in question because in the first place, the property of the
decedent is clearly owned by the surviving spouse of Jesus Ang.
SC Ruling:
The court ruled that the issuance of the injunctive writ is proper and that a need for
joinder of issues in a case is not a requisite for the validity of issuance of preliminary injunction.
Such writ can be issued at any stage of the proceeding but before final judgment, ordering a
party or a court, agency or a person to refrain from performing particular act or acts.
Furthermore, the court ruled that the ownership of the land sold in a foreclosure sale
becomes consolidated in the purchaser only when upon expiration of the redemption period,
without judgment debtor having made use of his right of redemption. Thus, the contention of
the petitioner that the issuance of preliminary injunction is in effect an adjudication of
ownership of the properties in question in favor of the surviving spouse of the decedent is
misplaced.
to and including the time of the actual interest. Moreover, the CA ordered the petitioner bank to
reimburse the expenses incurred by Yabes in purchasing the land in question from them.
Contentions:
Petitioner bank:
contended among other that they are purchasers in good faith, not knowing that
the mortgage property was acquired by the private respondent through homestead
patent.
Private respondent
maintained the decision of the respondent court, invoking his right as provided by
the Public Land Act.
SC Ruling:
The court ruled that the respondent Court is correct in ruling that the land should be
repurchased by Landeta from the bank and that the consideration for the repurchase be only up
to such amount as may correspond to the principal obligation and the accumulated interest up
to and including the time of actual repurchase.
The reason for this ruling is to avoid the bank to render the right of repurchase by the
debtor-mortgagor useless by conveying the property upon to an amount which is beyond the
capability of the owner to pay.
Moreover, the court also ruled that regardless of whether the bank has sold the property
to a third person even before the prescription of the debtor-mortgagor right of repurchase as
provided in Public Land Act, the debtor-mortgagor has the right to repurchase the same for such
right of redemption is an absolute right.
Sarmiento, instead of redemption, filed two separate actions for relitigation. SC, after knowing
that Sarmiento attempted to relitigate the same issues already adjudged by the court, issued a
resolution finding Sarmiento and his counsel guilty of contempt. After nine months, the order of
the SC has become final and executory and thus the period within which he can exercise his
right of equity of redemption has prescribed (the sale was already confirmed by virtue of the
order of the SC), Sarmiento offered Ponce a redemption price, signifying that he now wanted to
exercise his equity of redemption.
Contentions:
Petitioner:
contended that when SC made an order, this did not mean that the period within
which he can exercise his equity of redemption has been cut off. Moreover he
prayed that he be given a year counting from the date of confirmation of title in
Ponces favor because in the first place, he was not notified as to when the period
within which he can exercise his equity of redemption will prescribe.
Respondent Ponce:
contended that the judgment of the court has become final and executory and that
the period within which he can exercise his equity of redemption has prescribed.
SC Ruling:
The court ruled that the contention of the petitioner with prayer of allowing him a year to
which he can exercise his equity of redemption is misplaced. Equity of redemption is different
from right of redemption.
A right of redemption exists in extrajudicial foreclosure or mortgage. It is a prerogative
vested by law in favor of the debtor-mortgagor, to re-acquire or redeem his property within a
period of one year after registration of foreclosure. On the other hand, equity of redemption
exists only in judicial foreclosure proceedings. This is the right of the debtor-mortgagor to
extinguish the mortgage and retain ownership of the property by paying the secured debt within
90 day period after judgment has become final under Rule 68 of the Revised Rules of Court, or
even after the foreclosure sale but prior to its confirmation.
In the case at bar, records show that what was instituted for the consolidation of title by
Ponce is judicial foreclosure of the mortgaged properties. Thus, what the petitioner has in the
case at bar is equity, not right of redemption.
invoked his right of redemption 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 of one year.
Contention:
Huerta:
contended that the predecessor in interest of the SMG, Intercon, is a credit
institution, and therefore, despite the fact that the mortgaged properties were
judicially foreclosed, the petitioners have, nonetheless, a one year period within
which to exercise their right of redemption pursuant to the General Banking Act.
SMG:
-
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.
SC Ruling:
The Court ruled that the jurisprudence wherefrom the petitioners anchored their
contention cannot be applied in the case at bar. The court ruled that what the petitioners
acquired only after the buying of the foreclosed land is a personal right to demand their status as
co-owners of the said foreclosed land, by virtue of the following reasons: 1) their deed of sale was
not registered; 2) that the portion of the conveyed land was not surveyed as to segregate their
respective lands to Lagdameos property. However, having the right to be recognized as coowners of the said land, they may have the right to redeem the whole and as a co- owners as in
the law of co- owners, it is akin to a trust relationship wherein the act of one benefits all. Thus,
even if the petitioners succeeded to redeem the property in question, they will be recognized as
co-owners of the land and that Lagdameo will have the right of partition the said land
segregating Lagdameos land to that of the petitioners.
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:
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.
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
the property is delivered
to the creditor
REAL MORTAGAGE
the property is NOT
delivered to the creditor
the debtor usually
retains possession of the
property
c. subject
real property
real property
a. subject matter
ANTICHRESIS
real property
PLEDGE
personal property
b. perfection
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.
DBP vs. SPS. JESUS and ANACORITA DOYON
G.R. No. 167238
March 25,
2009
Parties:
DBP petitioner; creditor/mortgagee
Sps. Doyon respondent; debtor/mortgagor
Facts:
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
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.
2.
3.
Form of contract
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
1
upon
there
except
when
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.
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.
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 not 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.
Macapinlac vs. Gutierrez Repide
43 Phil. 770
Parties:
Macapinlac - petitioner; transferor
EM Bachrach Co. - transferee
Gutierrez Repide - respondent; transferees successor
Facts:
The petitioner Macapinlac is the owner of Hacienda Dolores, which was registered under
Act 496. He made several promissory notes for the payment of his debt to EM Bachrach Co. and
as security. He executed a deed of sale with right of repurchase, which includes several parcels of
land including the Hacienda Dolores. In the said deed of sale with pacto de retro, it was
annotated that the same is subject to the interest of EM Bachrach as transferee, instead of a real
estate creditor. Later, the respondent, Gutierrez Repide, acquired all the rights of EM Bachrach
with respect to the said property conveyed by the plaintiff to Bachrach Co. Repide has
knowledge of the prior transactions between EM Bachrach and Macapinlac. He then filed a
petition to register the certificate of the said properties under his name, which the trial court
granted. Thus, the petitioner filed an action to challenge and nullify the registration of the
defendant in the said properties with a prayer for declaratory relief.
Contention of the Parties:
Petitioner Macapinlac:
- contended that the registration was obtained through fraud and collusion with EM
Bachrach Co. The petitioner also prayed for relief for declaratory rights.
Respondent Repide:
- contended that the certificate of title of the properties is unimpeachable; therefore, he
has a valid title over the acquired through EM Bachrach.
Ruling:
It is a cardinal rule that, a party who acquired any interest in property with notice of an
existing equity takes subject to that equity; thus, if a purchaser of a property or interest even
valuable consideration, with notice of any existing claims, right or interest of the same property
or interest held by third person, is liable in equity to the same extent and in same manner as the
person from whom he made the purchase. In such case, the rights and interest of transferee of a
property or interest is subject to the rights or interest of the transferor.
In the case at bar, Repide, prior to his acquisition of the properties, is aware to the prior
arrangement between Bachrach and Plaintiff Macapinlac that is the deed of conveyance with
pacto de retro is executed as security of a debt by Macapinlac. Thus, Repides relation with
petitioner Macapinlac after acquisition of the properties stands the same ground as would have
been occupied by EM Bachrach.
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.
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
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
1
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.
1
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.
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
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.
contended that the CA erred in its decision by holding that the machineries in the
house of the respondents is a personal and not a real property, therefore, there is
no valid constitution chattel mortgage, on the ground that:
a. The respondents-mortgagor is estopped from claiming that the machineries
are real properties because of the constitution of a chattel mortgage.
Respondent-mortgagor:
on the other hand contented among others that:
a. The machineries are real property and not personal property; therefore it is
not suitable to be a subject of a chattel mortgage.
b. That the same are real properties because the machineries are firmly placed
in the concrete floor of the house and the only way to remove the same is to
drill the floor, causing substantial damage to the real property where the
machineries was attached.
c. Lastly, private respondent contends that estoppel cannot apply against
because it had never represented nor agreed that the machinery in suit be
considered as personal property but was not merely required and dedicated
on by herein petitioner to sign a printed form of chattel mortgage which was
in a blank form at the time of signing.
Issue:
Is the chattel mortgage null and void because the subject of which (machineries) is a real
property and not a personal property?
Held:
No. The chattel mortgage in question is valid.
It is a well-engraved rule that when an immovable, like a house of strong materials, or a
machinery maybe considered as a personal property for purposes of executing a chattel
mortgage as long as parties to the contract so agreed and no innocent third party will be
prejudiced thereby.
Thus, in the case at bar, the machinery, which is movable by its nature and only became
immobilized only by destination (purpose) maybe also treated as a movable property and the
parties agreed to such contract is estopped from denying its nature and the existence of a
chattel mortgage. Moreover, the characterization of the subject machinery as chattel by the
private respondent is indicative of intention and impresses upon the property the character
determined by the parties.
Spouses Valino executed a chattel mortgage in favor of Associated Insurance, which was
duly registered. When spouses Valino became the registered owner of both the house and lot,
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.
ordered the sale of the after acquired properties and ordered DALCO to pay Peoples Bank.
DALCO appealed.
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:
Tolentino:
Basilio Baltazar had acquired the land through fraud
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.
3.
Contentions:
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.
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.
5. 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
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.
6. 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
1
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.
1
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.
8.
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.
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
1
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
1
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.
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;
1
COMMENT:
1.
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
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) There is a preference among the credits mentioned in 2242 (7) according to the
order of the time they were levied upon the property.
e) Pro-rata rule in 2249 does not apply; otherwise a preference of credit could be
defeated by a writ of attachment or execution even if such was obtained much later.
BARRETTO vs. VILLANUEVA
1 SCRA 288
Parties:
Rosario Cruzado debtor/ vendor
Rehabilitation Finance Corporation (RFC) creditor
Pina Villanueva vendee/ mortgagor
Magdalena Baretto mortgagee
Facts:
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:
-
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.
Ruling:
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,
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.
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.
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
Article 2244
This article enumerates the preferred credits and gives their order of preference
in the order named.
2.
3.
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
Quality Tobacco Corp. debtor/ employer
Facts:
In the involuntary insolvency proceedings commenced in May 1977 by private
respondent Quality Tobacco Corp., the following claims of creditors were filed:
1. P2, 806, 729.92 by the USTC Association of Employees and Workers Union
PTGWO (USTC), as separation pay for their members. This amount plus attorneys
fees of P280, 672.99.
2. P53, 805.05 by the Federation dela Industria Tabaquera y Otros Trabajadores de
Filipinas (FOITAF) as separation pay for their members.
1
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, 13 th 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
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
1
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:
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.
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.
RCBC v. IAC
213 SCRA 830
Parties:
1
BF Homes debtor
RCBC creditor
Facts:
BF Homes filed a Petition for Rehabilitation and for Declaration or Suspension of
Payments with the Securities and Exchange Commission (SEC). One of the creditors listed in its
inventory of creditors and liabilities was RCBC. RCBC requested the Provincial Sheriff of Rizal
to extra judicially foreclose its REM on some properties of BF Homes. On motion of BF Homes,
the SEC issued a TRO for 20 days enjoining RCBC and the sheriff from proceeding with the
public auction. The sale was re-scheduled from Nov. 29, 1984 to Jan. 29, 1985. On Jan. 29,
1985, despite the bond filed by BF Homes for the issuance of a writ of preliminary injunction,
the sheriff proceeded with the public auction. RCBC was the highest bidder.
BF Homes filed in the SEC a consolidated motion to annul the sale and to cite RCBC in
contempt. SEC issued a writ of preliminary injunction. However, despite such issuance, RCBC
filed an action for mandamus to compel the provincial sheriff to execute a certificate of sale of
the properties auctioned.
Contentions:
BF Homes:
RCBC cannot assert payment because of its Petition for Rehabilitation and
Suspension of Payments filed with the SEC, and since the properties involved one
asset of a distressed firm, SEC is fully justified in issuing the corresponding TRO
against the consolidation of title in RCBC, pursuant to Sec. 3, P.D. 902-A as
amended.
RCBC:
-
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.
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
"(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."
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.
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
"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.
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.
For recording each sheriff's return of sale, including the index and references, three pesos.
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.
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
______ 14. Where two or more bailees to whom a thing is loaned, they are liable:
a. Severally
b. Jointly
c. Equally
d. Proportionately
______ 15. A and B borrowed the horse of Z. What can Z do?
a. He may demand the return from either A or B.
b. He may demand return from both A and B.
c. He may demand return at anytime from both A and B.
d. He may demand return at due time from either A or B.
______ 16. The bailor cannot demand the return of the thing loaned in the following cases,
except:
a. Until the expiration of the period stipulated
b. After the accomplishment of the use for which it has been constituted
c. If the use is not urgent
d. If the use is urgent
______ 17. In case of temporary use by the bailor, the contract of commodatum
a. continues until expiration of the period stipulated
b. suspended while the thing is in the possession of the bailor
c. suspended if returned by the bailor
d. suspended until the expiration of the period stipulated
______ 18. H borrowed the computer of K for one week of which K agreed to it. Which of the
following is correct?
a. K cannot demand the return of the thing loaned until the expiration of the period
stipulated if there is urgent need to it.
b. H can be demanded for the return if K should have urgent need of the thing loaned
c. H cannot be demanded after the expiration of the period
d. K can demand return if the period stipulated did not expire.
______ 19. If H returned the thing loaned, what will happen?
a. In case of temporary use by the bailor, the contract of commodatum is suspended.
b. The contract of commodatum continues until it expires.
c. The contract of commodatum is revoked.
d. The contract of commodatum ceases.
______ 20. If the neither the duration of the contract nor the use to which the thing loaned
should be devoted has been stipulated,
a. the bailor cannot demand the return of the thing at will
b. the bailor can demand return at will
c. the bailor can demand if agreed upon
d. the bailor cannot demand even if agreed upon.
______ 21. If the use of the thing is merely tolerated by the owner,
______ 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
______ 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
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
______ 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
1
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.
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
______ 1. A contract of deposit is considered a real contract because___________.
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:
a. extrajudicial deposit refers to movable property while Judicial deposit refers to
either movable or immovable property.
b. extrajudicial deposit refers to immovable property while Judicial deposit refers to
movable or immovable property.
c. extrajudicial deposit refers to movable property while Judicial deposit refers to
immovable property.
d. extrajudicial deposit refers to movable property while Judicial deposit refers to
non-movable property.
______ 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.
b.
c.
d.
Contract of Loan
Mortgage Contract
Contract of deposit
Contract of Lease
______ 4. The depositary is obligated to return the thing deposited upon demand by the
depositor in_______________.
a.
b.
c.
d.
Deposit
Sequestration
Judicial Deposit
Extrajudicial Deposit
______ 5. The thing shall be delivered only upon court order in ______________.
a.
b.
c.
d.
Voluntary Deposit
Necessary Deposit
Extrajudicial Deposit
Judicial Deposit
where use with consumption is still the principal purpose of the contract
where use with obligation to return is still the principal purpose of the contract
where safekeeping is the principal purpose of the contract
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.
b.
c.
d.
Commodatum
Real Estate Mortgage
Guaranty
Simple Loan
Unenforceable Contract
Valid Contract
Voidable Contract
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;
______ 13. The two principal obligations of the depositary are:
a.
b.
c.
d.
______ 14. The general rule is that if deposit with a third person is allowed, the depositary is
not liable for the loss except if ___________.
a.
b.
c.
d.
______ 15. The depositary is liable for the loss of the through a fortuitous under the following
instances. Which is not included?
a.
b.
c.
d.
If it is so stipulated
If he uses the thing with 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
______ 16. Which of the following takes place when an attachment or seizure of property in
litigation is ordered?
a.
b.
c.
d.
Extra-judicial deposit
Judicial deposit
Consignation
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. should pay the amount of P2, 500 because it is unlawful.
b. violated the contract; hence they are not entitled to reimbursement.
______ 19. If Juan and Juana deposited a car, to whom may the depositary return the car?
a.
b.
c.
d.
______ 20. When there are two or more depositors, if they are not solidary, and the thing
admits of division, each one:
a.
b.
c.
d.
______ 21. Which of the following best describe a necessary deposit in compliance with a legal
obligation?
a.The deposit with a bank or public bonds or instruments if credit payable to order or
to bearer given in usufruct when the usufructuary does not give proper security
for their conservation.
b. The thing deposited is non-consumable and the depositary has permission to use
the thing.
c. The judicial deposit of a thing, the possession of which is being disputed in a
litigation by two or more persons.
d. Those required in suits as provided in the Rules of Court.
______ 22. Jane deposits a car with John in Baguio. John later on resided in La Union,
bringing the car along with her. In the absence of stipulation, where must the car
be returned?
a.
b.
c.
d.
______ 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:
a.
b.
c.
d.
______ 24. The act of depositing the things due at the disposal of judicial authority
a.
b.
c.
d.
Lease
Consignation
Attachment
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
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
______ 28. Which of the following is not a mode of extinguishing deposit?
a.
b.
c.
d.
Extrajudicial Deposit
Judicial Deposit
Real Estate Mortgage
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.
b.
c.
d.
Code of Commerce
Special Proceedings
The Rules of Court
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
______ 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.
b.
c.
d.
Contract of loan
Contract of commodatum
Contracts for the rent of safety deposit boxes
Contract of agency
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.
b.
c.
d.
Onerous; gratuitous
Gratuitous; Onerous
Gratuitous; Generous
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.
b.
c.
d.
Contract of loan
Contract of deposit
Contract of commodatum
Contract of lease
______ 43. Which is not included as one of the characteristics of a contract of a deposit?
a.
b.
c.
d.
______ 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.
b.
c.
d.
Loan or mutuum
Commodatum
Irregular Deposit
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?
a. His is an owners action to recover or vindicate a thing. The insane depositary,
because of the insanity, does incur the obligations of a depositary.
there is no delay.
delay would cause danger.
depositor consented with the change.
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.Contract of loan
b. Contract of deposit
c.Contract of commodatum
d. 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.
b.
c.
d.
The court
Depositor
Depositary
Government
III. Guarantee
______ 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. co-makers
d. 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.
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.
1
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.
b. Failure on the part of the creditor to demand payment after the debt has become
due.
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______ 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. Liability is contractual and accessory but direct.
b. Liability is limited by terms of contract.
c. Liability arises only if principal debtor is held liable.
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
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Continuing Guaranty
Continuing Suretyship
Continuing Suretyship Agreement
Suretyship Agreement
______ 31. The following statements are exceptions to the right to indemnity of the guarantor,
except:
a. Where the guaranty is constituted without the knowledge or against the will of
the debtor, the guarantor can only recover insofar as the payment had been
beneficial to the debtor.
b. The legal interest thereon from the time the payment was made known to the
creditor, even though it did not earn interest for the creditor.
c. Payment by a third person who does not intend to be reimbursed by the debtor is
deemed a donation, which requires the debtors consent. But the payment is valid
with respect to the creditor.
d. Waiver on the part of the guarantor.
______ 32. The following statements are exceptions to the general rule that guarantor has the
right to the benefit of excussion or exhaustion of the debtors property, except:
a. If it may be presumed that an execution on the debtors property will not satisfy
the obligation
b. If guarantor does not set up the benefit of excussion and fails to point out to the
creditor available property of the debtor within the Philippines
c. Where a pledge or mortgage has been given by the guarantor as a special security
d. If guarantor has interpose it as a defense before judgment is rendered against
him.
______ 33. The surety must only be bound in the manner and to the extent, and under the
circumstances which are set forth or which may be inferred from the contract of
guaranty or suretyship, and no further.
a.
b.
c.
d.
______ 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
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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.
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.
a.
b.
c.
d.
______ 43. A guaranty is not valid when the principal obligation is:
a.
b.
c.
d.
Natural
Void
Voidable
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
1
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.
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.
Valid
Void
Voidable
Unenforceable
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.
______ 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
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______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.
______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
Pactum commisorium
Precarium
Antichresis
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. Yes, because the contract of mortgage between A and B is executed in a private
instrument and is not duly registered making it invalid against third persons.
Therefore, the sale is valid.
b. No, because even if the instrument is unregistered, the mortgage is nevertheless
binding upon third persons. Therefore, the sale is invalid.
c. Yes, because the registration of the instrument will not validate the sale.
d. No, because the registration of the instrument is not necessary for the same to be
duly constituted. Therefore, the mortgage is valid.
______ 4. This pertains when the mortgagor can redeem the property within a certain period
after it was sold for the satisfaction of his debt.
a.
b.
c.
d.
Right of redemption
Equity of redemption
Redemption of personal property
Redemption of real property
_____ 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.
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?
a. The mortgagor has no right to redeem at all.
b. The mortgagor may redeem the property within two years from the date of
foreclosure or registration of the sheriffs certificate of title.
c. The mortgagors right to redeem does not prescribe. He can redeem at any time
he wants.
d. The mortgagor may redeem the property within one year from the date of
foreclosure or registration of the sheriffs certificate of title.
______ 13. At what instance when the title of ownership over the property sold in the
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_______ 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.
b.
c.
d.
Legal
Equitable
Voluntary
None of the above
______ 19. Which of the following is not a characteristic of a real estate mortgage?
a.
b.
c.
d.
It is indivisible.
It is an accessory contract.
It is a personal right.
It is real property.
_____ 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.
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.
______ 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
following constitutes a complete proof of publication?
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
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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
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.
sought by the borrower(s) or any third party or parties, except after due hearing in
which it is established by the borrower and admitted by the government financial
institution concerned that twenty percent (20%) of the outstanding arrearages has
been paid after the filing of:
a.
b.
c.
d.
15 days
10 days
25 days
5 days
a.
b.
c.
d.
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. It would still be valid as between the parties.
b. It would still be valid as against third parties.
c. It would still be valid as between the parties and as against third parties.
b.
It would not be valid.
______ 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
______ 24. Original jurisdiction of al suits involving the default of the mortgagor in
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______ 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
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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.
1
a.
b.
c.
d.
Ship mortgage
Chattel Mortgage
Real Estate Mortgage
Pledge
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:
1
a.
b.
c.
d.
a formal contract
a unilateral contract
accessory contract
formal and accessory contract
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. to rescind the contract
b. to bring an action for collection of sum of money
1
______ 11. The following are the obligations of the antichretic creditor except:
a.
b.
c.
d.
______ 12. The sums spent by the creditor in fulfillment of the obligations under Art. 2135
shall be charged:
a.
b.
c.
d.
is also void
may still be valid
is voidable only
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.
b.
c.
d.
property delivered
object of the contract
fruit of the property
real property conveyed
______ 17. In the absence of a contract of antichresis, the debtor could just issue a
___________ the creditor for the collection of the fruits of the immovable.
a.
b.
c.
d.
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
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.
b.
c.
d.
legal heirs
legitimate children
wife
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:
a.
b.
c.
d.
______ 12. As liens, they are considered charges; generally unless otherwise
stated:
a.
b.
c.
d.
______ 14. In the unpaid price of movables sold, there are two liens referred except the one:
a. ordinary lien on the price (not a possessory lien) if the property has not been
resold and still unpaid.
b. possessory lien (as long as the property is still in the possession of the debtor).
c. ordinary lien on the price (not a possessory lien) if the property has been resold
and still unpaid.
d. possessory lien of whatever nature.
______ 15. In terms of Laborers Wages, the laborer must have been employed by the:
a.
b.
c.
d.
______ 16. In Article 2242, with reference to specific immovable property and real rights of the
debtor, the following claims, mortgages and liens shall be preferred, and shall
constitute an encumbrance on the immovable or real right except the one:
a. taxes due upon the land or building.
b. for the unpaid price of real property sold, upon the immovable sold.
c. claims of co-heirs for warranty in the partition of an immovable among then, upon
the real property thus divided.
d. credits of insurer, upon the property insured, for the insurance premium for three
years.
______ 17. The order of preference in Article 2244 refers to:
a.
b.
c.
d.
other property.
specific or personal property.
Specific or real property
Real property only
______ 18. It is the right to exercise all rights and actions except those inherent in the person.
1
a.
b.
c.
d.
accion publiciana
accion subrogatoria
accion reinvindicatoria
accion paulina
______ 19. It is the impugn or rescind acts or contracts done by the debtor to
defraud the creditors.
a.
b.
c.
d.
accion pauliana
accion subrogatoria
accion publiciana
accion reinvindicatoria
Laborers
Mortgagee
Suppliers
Motgagor
______ 23. Regarding the proceeds of the sale of the building, which statement is correct?
a. Both laborers and suppliers will share prop rata after the taxes on the building
shall have been paid.
b. Only the mortgagee will share pro rata after the taxes on the building shall have
been paid.
c. Mortgagee, laborers and suppliers will all share pro rata after the taxes on the
building shall have been paid.
d. a and b
______ 24. The reason for the pro rata sharing:
a. If there are two 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 movable property or real right.
1
b. 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.
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.
b.
c.
d.
Mortgage credits
Refectionary credits
Credits of insurers
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.
b.
c.
d.
______ 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.
b.
c.
d.
______ 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.
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
29. C
30. A
31. C
32. C
33. A
34. B
35. C
36. D
37. A
38. D
39. A
40. B
41. A
42. B
43. A
44. A
45. B
46. C
47. A
48. A
49. D
50. A
51. C
52. C
53. C
54. B
55. B
V. Real Estate
Mortgage
1. B
2. A
3. A
4. A
5. C
6. B
7. C
8. B
9. D
10. C
11. A
12. B
13. A
14. C
15. A
16. D
17. C
18. D
19. C
20. A
21.
B
22.
C
23.
D
24.
D
25.
C
26.
D
27.
D
28.
B
29.
D
30.
B
31.
B
32.
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
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
III. Guarantee
A
D
C
B
C
A
B
B
C
A
A
D
B
C
D
B
B
C
B
A
D
B
A
A
B
1.
A
2. A
3. D
4. A
5. C
6. A
7. D
8. C
9. C
10. B
11. D
12. D
13. A
14. C
15. D
16. A
17. B
18. D
19. B
20. A
21.
D
22.
23.
A
24.
A
25.
D
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
A
C
B
A
D
A
C
A
D
C
A
A
C
D
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
26. D
27. A
28. D
29. B
30. A
31. B
32. D
33. B
34. B
35. B
36. A
37. D
38. C
39. B
40. A
41. B
42. C
43. B
44. C
45. A
46. B
47. B
48. C
49. B
50. D
VII. Antichresis
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
A
A
A
B
C
C
A
C
C
A
11. A
12. B
13. C
14. B
15. D
16. A
17. B
18. C
19. A
20. B
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
16. B
17. C
18. D
19. B
20. D
21. A
22. C
23. A
24. A
25. B
26. B
27. B
28. D
29. D
30. C
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
B
A
B
A
A
C
B
C
B
B
B
B
C
A
A
16. D
17. A
18. B
19. A
20. B
21. B
22. A
23. C
24. B
25. B
26. A
27. B
28. D
29. A
30. D
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).
(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.
1989
A.
Distinguish between a contract of real estate mortgage and a contract of sale with right of
repurchase.
Answer:
1. Real Estate Mortgage is an accessory contract. A contract of sale with right of repurchase is a
principal contract.
2. Real Estate Mortgage involves no transfer of title. A contract of sale involves a condition transfer
of title.
3. Real Estate Mortgage involves no transfer of possession. A contract of sale involves a conditional
transfer of possession.
4. In a Real Estate Mortgage the creditor has no rights to the fruits. In a contract of sale, the vendee
is entitled to the fruits.
5. In a real estate mortgage, upon default the creditor is not the owner. In a contract of sale, upon
consolidation, the vendee is the owner.
B.
What do you understand by ANTICHRESIS? How is it distinguished from pledge and mortgage?
Answer:
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 interest if owing and
thereafter to the principal.
Pledge is an accessory and real contract whereby the debtor delivers to the creditor movable
property as security for the performance of a principal obligation upon the fulfillment of which the thing
pledged shall be returned to the debtor.
A real estate mortgage is an accessory contract whereby the debtor guarantees the performance of
the principal obligation by subjecting real property or real right as security for the performance of such
obligation.
Alternative Extended Answer:
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.
Antichresis distinguished from pledge:
1. Antichresis is consensual, pledge is a real contract.
2. Antichresis involves real property, pledge involves personal property.
3. In antichresis, the principal and the interest must be provided in writing for validity. In pledge,
the date and description of the pledge must be in a public instrument to affect third persons.
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.
On 2 June 1971, Juliet obtained a additional sum of P3,000.00 from Romeo. On this date,
however, Romeo cause the preparation of a deed of absolute sale of the above property to which Juliet
affixed her signature without first reading the document. The consideration indicated is P7,000.00. She
thought that this document was similar to the first she signed. When she reached home, her son X, after
reading the duplicate copy of the deed, informed her that what she signed was not a mortgage but a deed
of absolute sale. On the following day, 3 June 1971, Juliet, accompanied by X, went back to Romeo and
demanded the reformation of it, Romeo prepared and signed a document wherein, as vendee in the deed
of sale above mentioned, he obligated and bound himself to resell the land to Juliet or her heirs and
successors for the same consideration as reflected in the deed of sale (P7,000.00) within a period of two
(2) years, or until 3 June 1973. It is further stated therein that should the Vendor (Juliet) fail to exercise
her right to redeem within the said period, the conveyance shall be deemed absolute and irrevocable.
Romeo did not take possession of the property. He did not pay the taxes thereon.
Juliet died in January 1973 without having repurchased the property. Her only surviving heir, her
son X, failed to purchase the property on or before 3 June 197. In 1975, Romeo sold the property to Y for
P50,000.00. Upon learning of the sale, X filed an action for the nullification of the sale and for the
recovery of the property on the ground that the so-called deed of absolute sale executed by his mother was
merely an equitable mortgage, taking into account the inadequacy of the price and the failure of Romeo to
take possession of the property and to pay the taxes thereon. Romeo and Y maintain that there was a valid
absolute sale and that the document signed by the former on 3 June 1973 was merely a promise to sell.
(a) If you were the judge, would you uphold the theory of X?
(b) If you decide in favor of Romeo and Y, would you uphold the validity of the promise to sell?
ANSWER
a) I will not uphold the theory of X for the nullification of the sale and for the recovery of the
property on the ground that the so-called sale was only an equitable mortgage. An equitable
mortgage may arise only if, in truth, the sale was one with the right of repurchase. The facts of
the case state that the right to repurchase was granted after the absolute deed of sale was
executed. Following the rule in Cruzo vs. Carriaga (174 SCRA 330), a deed of repurchase
executed independently of the deed of sale where the two stipulations are found in two
instruments instead of one document the right of repurchase would amount only to one
option granted by the buyer to the seller. Since the contract cannot be upheld as a contract of
sale with the right to purchase, Art. 1602 of the Civil Code on equitable mortgage will not
apply. The rule could have been different of both deeds were executed on the same occasion
or date, in which, under the ruling in spouses Claravall v. CA (190 SCRA 439), the contract
may still be sustained as an equitable mortgage, given the circumstances expressed in Art.
1602. The reserve right to purchase is then deemed an original intention.
b) If I were to decide in favor of Romeo and Y, I would not uphold the validity of the promise to
sell, so as to enforce it by action for specific performance. The promise to sell would only
amount to a mere offer and, therefore, it is not enforceable unless it was sought to be
exercised before a withdrawal or denial thereof. Even assuming the facts given at the end of
the case, there would have been no separate consideration for such promise to sell. The
contract would at most amount to an option which again may not be the basis for an action
for specific performance.
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?
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
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.
Usufruct may be constituted on the whole or a part of the fruits of the thing. (Art. 564, Civil
Code). It may even be constituted over consumables like money (Alunan v. Veloso, 52 Phil. 545). On the
other hand, in commodatum, consumable goods may be subject thereof only when the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition. (Art. 1936, Civil Code)
ANOTHER ANSWER
There are several points of distinction between usufruct and commodatum. Usufruct is
constituted by law, by contract, by testamentary succession, or by prescription (Art. 1933, Civil Code).
Usufruct creates a real right to the fruits of anothers property, while commodatum creates only a purely
personal right to use anothers property, and requires a stipulation to enable the bailee to make use of
the fruits (Arts. 1939 & 1940, Civil Code). Usufruct may be onerous while commodatum is always or
essentially gratuitous (Arts. 1933 & 1935, Civil Code). The contract constituting usufruct is consensual,
while commodatum is a real contract (perfected only by delivery of the subject matter thereof). However,
both involve the enjoyment by a person of the property of another, differing only as to the extent and
scope of such enjoyment (jus fruendi in one and jus utendi in the other); both may have as subject matter
either an immovable or a movable; and, both may be constituted over consumable goods (Arts. 574 &
1936, Civil Code).
A consumable thing may be the subject-matter of an abnormal usufruct but in a normal
usufruct, the subject-matter may be used only for exhibition. A commodatum of a consumable thing may
be only for the purpose of exhibiting, not consuming it.
B.
Joey, Jovy and Jojo are solidary debtors under a loan obligation of P300,000.00 which has fallen
due. The creditor has, however, condoned Jojos entire share in the debt. Since Jovy has become
insolvent, the creditor makes a demand on Joey to pay the debt How much, if any, may Joey be complied
to pay?
(a) To what extent, if at all, can Jojo be compelled by Joey to contribute to such payment?
ANSWER
(a)
Joey can be compelled to pay only the remaining balance of P200,000, in view of the
remission of Jojos share by the creditor. (Art. 1219, Civil Code)
(b)
Jojo can be compelled by Joey to contribute P50,000. Art. 1217, par. 3, Civil Code
provides, When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the
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.
B.
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?
SUGGESTED 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)
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?
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
payment of the loan, the bank shall have the right to sell Purita's rights over the market stall as her
attorney-in-fact, and to apply the proceeds to the payment of the loan.
1)
2)
SUGGESTED ANSWER:
1) The assignment was a mortgage, not a cession, of the leasehold rights. A cession would have transferred
ownership to the bank. However, the grant of authority to the bank to sell the leasehold rights in case of
default is proof that no such ownership was transferred and that a mere encumbrance was constituted.
There would have been no need for such authority had there been a cession.
2) No, the clause in question is not a pactum commissorium. It is pactum commissorium when default in
the payment of the loan automatically vests ownership of the encumbered property in the bank. In the
problem given, the bank does not automatically become owner of the property upon default of the
mortgagor. The bank has to sell the property and apply the proceeds to the indebtedness.
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:
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
authorized to foreclose on the shares of stock. As required, MNO delivered possession of the shares to
ABC with the understanding that the shares would be returned to MNO upon the time. A month after 4
years, may the shares of stock pledged be deemed owned by ABC or not? Reason.
SUGGESTED ANSWER:
The shares of stock cannot be deemed owned by ABC upon default of MNO. They have to be
foreclosed. Under Article 2088 of the Civil Code, the creditor cannot appropriate the things given by way
of pledge. And even if the parties have stipulated that ABC becomes the owner of the shares in case MNO
defaults on the loan, such stipulation is void for being a pactum commissorium.
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.
2007
1.
2.
3.
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?
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
a. No, the contract is not valid. In accordance with Art. 2088, the creditor may not appropriate
the thing given by way of pledge, nor can he dispose of the same, and any stipulation to the contrary is
void. Furthermore, the thing pledged is merely a security for the loan, and not payment.
b. Yes the anwswer would be the same. The creditor is not allowed to appropriate the thing to
himself the thing held as pledge or under mortgage, nor can he dispose of the same as owner. He is
merely entitled, after the principal becomes due, to move for the sale of the things pledged, in order to
collect the amount of the claim from the proceeds (Ranjo vs. Salmon 15 Phil. 436).
2010
What is the difference between "guaranty" and "suretyship"?
Guaranty
Guarantor is secondarily liable
Guarantor binds himself to pay only when the
principal cannot pay
Suretyship
Surety is primarily liable and it therefore not
entitled to the benefit of excussion
Surety assumes liability as a regular party and
undertakes to pay if the principal does not pay.