Credit Midterms Notes

7/29/2019 Credit Midterms Notes

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TITLE IX - LOANGENERALPROVISIONS

COMMODATUM MUTUUM / SIMPLE LOAN

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use thesame for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon thecondition 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.Commodatum 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.

WHAT(1933)

By the contract of loan,one of the parties delivers to another,either something not consumableso that the latter may use the same for a certain timeand return it,in which case the contract is calleda commodatum; (1933)

Example:RENTS (Tolentino)

- Compensation either in money, provisions, chattels, laborreceived by the owner of soil from the occupant thereof- Return or compensation for possession of corporealinheritance- Profit issuing out of lands/tenements in return for their use- Contract by which one of the parties delivers to the othersome non-consumable thing in order that the latter may itduring the period and return it to the former

By the contract of loan,one of the parties delivers to another,money or other consumable thing,upon the condition thatthe same amount of the same kind and qualityshall be paid,in which case the contract issimply called a loan or mutuum.

Proper Definition: (Tolentino)

An advancement of money, goods, creditsUpon a contract or stipulation to repay, not to return thething loanedAt some future day in accordance with the terms of thecontract

Legal Definition:Giving of a sum of money, goods, credits to anotherWith a promise to repay but not the promise to return thesame thing.It is not the return of the same thing but return of anequivalent.

General Definition:To deliver to another for temporary useOn condition that the thing or its equivalent be returnedWith compensation for its use.

NATURE(1933)

Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to payinterest.

Real and ReciprocalAn accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties,but the commodatum or simple loan itselfshall not be perfecteduntil the delivery of the object of the contract.

The consensual contract is perfected upon meeting of the minds BUT Real contract is perfected only upondelivery (Saura)

A Loan Contract is a Real Contract, not Consensual where Perfection is only upon the delivery of the object ofthe contract (BPI Investment)


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A Loan Contract has reciprocal obligationswhere the obligation or promise of each partyis the consideration for that of the other.Neither party incurs in delay if the other does not comply or is not ready to comply with his undertaking (BPI Investment)Commodatum is purely personal in character.Consequently:

(1) The death of either the bailor or the baileeextinguishes the contract;

(2) The bailee can neither lend nor leasethe object of the contract to a third person.However, the members of the bailee's householdmay make use of the thing loaned,unless there is a stipulation to the contrary, orunless the nature of the thing forbids such use.(1939)

OWNERSHIP OwnershipThe bailor in commodatum need not be the owner of thething loaned. (1938)

In commodatum, the bailor retains the ownership of thething loaned (1933)

While in simple loan, ownership passes to the borrower.

Art. 1953. A person who receivesa loan ofmoney or any other fungible thingacquires the ownership thereof,and is bound to pay to the creditoran equal amount of the same kind and quality.

Art. 1954. A contract whereby one persontransfers the ownership ofnon-fungible things to anotherwith the obligation on the part of the latterto give things of the same kind, quantity, and qualityshall be considered a barter.

PERFECTION(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 itselfshall not be perfecteduntil the delivery of the object of the contract.

DELIVERY OF BILLS OF EXCHANGE AND MERCANTILE DOCUMENTSProduces the effect of payment

Not upon mere issuanceBut only when they have been encashed.

Only after the checks have produced the effect of paymentThat the contract of loan is deemed perfected (Naguiat)


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CHAPTER 1COMMODATUM.SECTION 1 - Nature of Commodatum

CHAPTER 2SIMPLE LOAN OR MUTUUM

OWNERSHIP OwnershipThe bailor in commodatum need not be the owner of thething loaned. (1938)

In commodatum, the bailor retains the ownership of thething loaned (1933)

While in simple loan, ownership passes to the borrower.

Art. 1953. A person who receivesa loan ofmoney or any other fungible thingacquires the ownership thereof,and is bound to pay to the creditoran equal amount of the same kind and quality.

Art. 1954. A contract whereby one persontransfers the ownership ofnon-fungible things to anotherwith the obligation on the part of the latterto give things of the same kind, quantity, and qualityshall be considered a BARTER.

OBJECT GR: Non-ConsumablesBy the contract of loan, one of the parties delivers toanother,either something not consumable

so that the latter may use the samefor a certain time and return it,in which case the contract is called a commodatum; (1933)

E: ConsumablesConsumable goods may be the subject of commodatumif the purpose of the contract isnot the consumption of the object,as when it is merely for exhibition. (1936)

Intention governs (Producers Bank)

GR: Im/MovablesMovable or immovable property may be the object of

commodatum. (1937)

Money or ConsumablesBy the contract of loan,one of the parties delivers to another,money or other consumable thing,

upon the condition thatthe same amount of the same kind and qualityshall be paid,in which case the contract is simply called a loan ormutuum. (1933)

PURPOSE USE, NOT FRUITSBy the contract of loan, one of the parties delivers toanother,either something not consumableso that the latter may use the samefor a certain time and return it,in which case the contract is called a commodatum; (1933)

The bailee in commodatum acquires the use of the thingloaned (1935)

NOT FRUITS

if any compensation is to be paid by him who acquiresthe use,


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the contract ceases to be a commodatum. (Art. 1935)Commodatum is essentially gratuitous. (1933)

NOT TO LEND/LEASEArt. 1939. Commodatum is purely personal in character.Consequently:(2) The bailee can neither lend nor lease the object ofthe contractto a third person.However, the members of the bailee's householdmay make use of the thing loaned,unless there is a stipulation to the contrary, orunless the nature of the thing forbids such use. (1939)

OTHERWISE, the bailee is liable for the loss of thething,even if it should be through a fortuitous event:If he lends or leases the thing to a third person,who is not a member of his household (1942.4)

EXTINGUISHMENT

Commodatum is purely personal in character.Consequently:(1) The death of either the bailor or the bailee extinguishes

the contract (1939)


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OBLIGATIONS INMUTUUM

PAYMENT OF LOAN OF MONEYArt. 1955. The obligation of a person who borrows moneyshall be governed by the provisions of Articles 1249 and 1250 of this Code.

Art. 1249. The payment ofdebts in moneyshall 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 obligation to pay a sum certain in a loan transaction may be paid (Cebu International)

In money, which is the legal tender, or

By use of a check

TENDER OF PAYMENTPositive, Unconditional act by the obligorOf offering legal tender currency as payment to the oblige for the formers obligationAnd demanding that the latter accept.It cannot be presumed (Cebu International)

PAYMENT BY MERCANTILE DOCUMENTSThe delivery ofpromissory notes payable to order, or bills of exchange or other mercantile documentsshall produce the effect of paymentonly when they have been cashed,or when through the fault of the creditor they have been impaired.

Checks are not legal tender but only a substitute for moneythe delivery of which does not, by itself, operate as payment or discharge the obligation that remains(Cebu International)

In the meantime, the action derived from the original obligation shall be held in the abeyance.

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene,the value of the currency at the time of the establishment of the obligationshall be the basis of payment,unless there is an agreement to the contrary.

Existence of Inflation or Deflation is determined by NEDA

EXTRAORDINARY INFLATION OR DEFLATION (Telengtan)- When there is an unusual increase/decrease in the purchasing power of the Ph Pesowhich is beyond the common fluctuation in value of said currencysuch increase/decrease

could not have been reasonably foreseen, orwas manifestly beyond contemplation of parties at the time of establishment of obligation

- A sharp increase/decrease of money, credit, both without a corresponding increase/decrease in businesstransactions, orAn increase/decrease in the volume of money and credit relative to available goodsResulting in a substantial and continuing rise/fall in the general price level (Almeda)- It cannot be assumed- REQUISITES (Equitable PCI Bank)

That there was an official declaration of extraordinary inflation/deflation from the BSP

That the obligation was contractual in nature That the parties expressly agreed to consider the effects of the extraordinary inflation/deflation


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AGREEMENT TO THE CONTRARY (Telengtan)- In re: Basis of Payment- GR: Value of Peso at the time of the establishment of the obligation- E: Value of Peso at the time of payment by stipulation

PAYMENT FOR LOAN OF FUNGIBLE OTHER THAN MONEY(1955) 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.

PAYMENT OF INTERESTSWhenArt. 1956. No interest shall be dueunless it has been expressly stipulated in writing.

Void Stipulation: UsuriousArt. 1957. Contracts and stipulations, under any cloak or device whatever,

intended to circumvent the laws against usury shall be void.The borrower may recover in accordance with the laws on usury.

Determination of Interest if Payable In KindArt. 1958. In the determination of the interest,if it is payable in kind,its value shall be appraisedat the current price of the products or goodsat the time and place of payment.

Interests on InterestsArt. 2212. Interest due shall earn legal interestfrom the time it is judicially demanded,

although the obligation may be silent upon this point.

Art. 1959. Without prejudice to the provisions of Article 2212,interest due and unpaid shall not earn interest.However, the contracting parties may by stipulationcapitalize the interest due and unpaid, which as added principal,shall earn new interest.

Return of Unstipulated Interests PaidArt. 1960. If the borrower pays interest when there has been no stipulation therefor,the provisions of this Code concerning solutio indebiti, or natural obligations,shall be applied, as the case may be.

Governing LawsArt. 1961. Usurious contracts shall be governed by the Usury Law and other special laws,


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so far as they are not inconsistent with this Code.


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PARTIES ANDOBLIGATIONS INCOMMODATUM

SECTION 3. - Obligations of the Bailor SECTION 2. - Obligations of the Bailee- DR RELS -

(I) GR: CANNOT DEMAND RETURN;MUST RESPECT PERIOD/PURPOSEArt. 1946. The bailor cannot demand the return of thething loanedtill after the expiration of the period stipulated,or after the accomplishment of the usefor which the commodatum has been constituted.

(EXCEPTIONS)(A) URGENT NEEDHowever, if in the meantime, he should haveurgent need of the thing,he may demand its return or temporary use.In case of temporary use by the bailor,the contract ofcommodatum is suspendedwhile the thing is in the possession of the bailor.

Not for regular occurrences that couldve been

anticipated

(B) PRECARIUM: No Stipulated Duration/Use. UseOnlyToleratedArt. 1947. The bailor may demand the thing at will,and the contractual relation is called a precarium,in the following cases:

(1) Ifneither the duration of the contractnor the use to which the thing loaned should bedevoted, has been stipulated; or

(2) If the use of the thing is merely tolerated by theowner.

(C)ACT OF INGRATITUDEArt. 1948. The bailor may demand the immediate return ofthe thingif the bailee commits any act of ingratitude specified inArticle 765.

Art. 765. The donation may also be revokedat the instance of the donor,by reason of ingratitude in the following cases:(1) If the donee should commit some offenseagainst theperson, the honoror thepropertyof the donor, or of his wife orchildren under his

parental authority;(2) If the donee imputes to the donorany criminal offense, or any act involving moral turpitude,

even though he should prove it,unless the crime or the act has been committed

(A) RETURN OF THINGBy the contract of loan, one of the parties delivers toanother,either something not consumable so that the latter may usethe same for a certain time and return it (1933)

When to Return:

Upon expiration of period or purpose, or

Upon demand if no period/purpose provided(B) LIABILITY FOR EXPENSESArt. 1941. The bailee is obliged to payfor the ordinary expensesfor the use and preservation of the thing loaned.

WHY: Because of duty to return thing (M)

Art. 1949. The bailor shall refund the extraordinaryexpenses

during the contract

for the preservation of the thing loaned,PROVIDED

the bailee brings the same to the knowledgeof the bailor

before incurring them,EXCEPT when

they are so urgent

that the reply to the notification cannot beawaited 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 thebailee,unless there is a stipulation to the contrary.

Art. 1950. If, for the purpose of making use of the thing,the bailee incurs expenses other than those referred toin Articles 1941 and 1949,he is not entitled to reimbursement.

Art. 1941. The bailee is obliged to pay for the ordinaryexpenses for the use and preservation of the thing loaned.

Art. 1949. The bailor shall refund the extraordinary


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against the donee himself, his wife orchildren under hisauthority;(3) If he undulyrefuses him supportwhen the donee islegally or morally boundto give support to the donor.(648a)

(II) REFUND EXTRAORDINARY EXPENSESArt. 1949. The bailor shall refund the extraordinaryexpenses

during the contract

for the preservation of the thing loaned,PROVIDED

the bailee brings the same to the knowledge of thebailor

before incurring them,EXCEPT when

they are so urgent

that the reply to the notification cannot beawaited 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 thebailee,unless there is a stipulation to the contrary.

NO REFUND IF:Art. 1950. If, for the purpose of making use of the thing,the bailee incurs expenses other than those referred to

in Articles 1941 and 1949,he is not entitled to reimbursement.

Art. 1941. The bailee is obliged to pay for the ordinaryexpenses for the use and preservation of the thing loaned.

Art. 1949. The bailor shall refund the extraordinaryexpenses during the contract for the preservation of thething loaned, provided the bailee brings the same to theknowledge of the bailor before incurring them, exceptwhen they are so urgent that the reply to the notificationcannot be awaited without danger.If the extraordinary expenses arise on the occasion of theactual use of the thing by the bailee, even though heacted without fault, they shall be borne equally by boththe bailor and the bailee, unless there is a stipulation to

the contrary.

expenses during the contract for the preservation of thething loaned, provided the bailee brings the same to theknowledge of the bailor before incurring them, exceptwhen they are so urgent that the reply to the notificationcannot be awaited without danger.If the extraordinary expenses arise on the occasion of theactual use of the thing by the bailee, even though heacted without fault, they shall be borne equally by boththe bailor and the bailee, unless there is a stipulation tothe contrary.

(C) LIABILITY FOR LOSSArt. 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 purposedifferentfrom that for which it has been loaned;

(2) If he keeps it longer than the period stipulated,or after the accomplishment of the usefor which the commodatum has been constituted;

(3) If the thing loaned has beendelivered with appraisal of its value,unless there is a stipulation exempting the baileefrom 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 borrowedor his own thing,he chose to save the latter.

(D)LIABILITY FOR DETERIORATIONArt. 1943. The bailee does not answerfor the deterioration of the thing loaneddue only to the use thereof and without his fault.

(E) RIGHT OF RETENTION: Damages, NOT ExpensesArt. 1944. The bailee cannot retain the thing loanedon 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 damagesmentioned in Article 1951.

Art. 1951. The bailor who, knowing the flaws of the thingloaned, does not advise the bailee of the same, shall beliable to the latter for the damages which he may sufferby reason thereof.

(F) SOLIDARY LIABILITYArt. 1945. When there are two or more baileesto whom a thing is loaned in the same contract,

they are liable solidarily.


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(III) REIMBURSE DAMAGESArt. 1951. The bailor who, knowing the flaws of the thingloaned,does not advise the bailee of the same,shall be liable to the latter for the damageswhich he may suffer by reason thereof.

(IV) NO ABANDONMENT

Art. 1952. The bailor cannot exempt himselffrom the payment ofexpenses or damagesby abandoning the thing to the bailee.


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INTERESTS, SURCHARGES, and PENALTIESEssence and Rationale They are separate and distinct.Implication What may justify a court in not allowing the creditor to charge surcharges and penaltiesdespite express stipulation

may not equally justify non-payment of interestsESPECIALLY WHERE Charging of interests for loans form a very essential and fundamental element of the banking business

It is inconceivable for a bank to grant loans for which it will not charge any interest at all (RCBC)

>> INTERESTS


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loan or renewal or forbearance is securedin whole or in part by a mortgage upon real estate the title to which is duly registered, or by any document conveying such realestate or an interest therein, than twelve per centum per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewalthereof or forbearance is granted: Provided, That the rate of interest under this section or the maximum rate of interest that may be prescribed by the Monetary Board underthis section may likewise apply to loans secured by other types of security as may be specified by the Monetary Board.

Loan or Forbearance of Money, Goods, Credits NOT SECURED by Mortgage: Cannot stipulate more than 14% PASECTION 3. No person or corporation shall directly or indirectly demand, take, receive or agree to charge in money or other property, real or personal, a higher rate orgreater sum or value for the loan or forbearance of money, goods, or credits where such loan or forbearance is not secured as provided in Section two hereof, than fourteen

per centum per annum or the maximum rate or rates prescribed by the Monetary Board and in force at the time the loan or forbearance is granted.

Loan or Forbearance by Pawnbroker: 2.5% PM IF x P500SECTION 4. No pawnbroker or pawnbroker's agent shall directly or indirectly stipulate, charge, demand, take or receive any higher rate or greater sum or value for any loanor forbearance than two and one-half per centum per month when the sum lent is less than one hundred pesos; two per centum per month when the sum lent is onehundred pesos or more, but not exceeding five hundred pesos; and fourteen per centum per annum when it is more than the amount last mentioned; or the maximumrate or rates prescribed by the Monetary Board and in force at the time the loan or forbearance is granted. A pawnbroker or pawnbroker's agent shall be considered such, forthe benefits of this Act, only if he be duly licensed and has an establishment open to the public.It shall be unlawful for a pawnbroker or pawnbroker's agent to divide the pawn offered by a person into two or more fractions in order to collect greater interest than the

permitted by this section.It shall also be unlawful for a pawnbroker or pawnbroker's agent to require the pawner to pay an additional charge as insurance premium for the safekeeping andconservation of the article pawned.

COMPOUNDED INTERESTS: Only when stipulated

GR No interest can be collected upon interest until the debt is judicially claimed (the rate of which shall be 6%)E Expressly stipulated that interest shall be compounded (Cu Unjieng)SECTION 5. In computing the interest on any obligation, promissory note or other instrument or contract,compound interestshall not be reckoned, except byagreement: Provided, That whenever compound interest is agreed upon, the effective rate of interest charged by the creditor shall not exceed the equivalent of themaximum rateprescribedby the Monetary Board, or, in default thereof, whenever the debt is judicially claimed, in which last case it shall draw six per centum per annuminterest or such rate as may be prescribed by the Monetary Board. No person or corporation shall require interest to be paid in advance for a period of more thanone year: Provided, however, That whenever interest is paid in advance, the effective rate of interest charged by the creditor shall not exceed the equivalent ofthe maximum rate prescribedby the Monetary Board.

REMEDIES / EFFECT OF USURIOUS INTERESTS (First Metro)

The Unpaid Principal Debt remains valid BECAUSE the Prestation to pay the principal debt is not illegal but the illegal prestation to payinterests

The Stipulation as to Usurious Interests isVOID thus the debt is to be considered as without stipulation as to interests

The Amount Paid by the Debtor as interest is recoverable because it is deemed to have been paid under restraint, rather than voluntary

(i) Recovery of InterestsEffect of Payment of Interest Improperly Charged at Unlawful Rate: Voluntary Payment is not binding to the debtor (Cu Unjieng)

SECTION 6. Any person or corporation who, for any such loan or renewal thereof or forbearance, shall have paid or delivered a higher rate or greater sum or value than ishereinbefore allowed to be taken or received, may recover the whole interest, commissions, premiums penalties and surcharges paid or delivered with costs andattorneys' fees in such sum as may be allowed by the court in an action against the person or corporation who took or received them if such action is brought within two

years after such payment or delivery: Provided, however, That the creditor shall not be obliged to return the interest, commissions and premiums for a period of not morethan one year collected by him in advance when the debtor shall have paid the obligation before it is due, provided such interest, and commissions and premiums do notexceed the rates fixed in this Act.

(ii) Void StipulationsSECTION 7. All covenants and stipulations contained in conveyances, mortgages, bonds, bills, notes, and other contracts or evidences of debts, and all deposits of goods orother things, whereupon or whereby there shall be stipulated, charged, demanded, reserved, secured, taken, or received, directly or indirectly, a higher rate or greater sum

or value for the loan or renewal or forbearance of money, goods, or credits than is hereinbefore allowed, shall be void: Provided, however, That no merely clerical error in thecomputation of interest, made without intent to evade any of the provisions of this Act, shall render a contract void: Provided, further, That parties to a loan agreement, the


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proceeds of which may be availed of partially or fully at some future time, may stipulate that the rate of interest agreed upon at the time the loan agreement is entered into,which rate shall not exceed the maximum allowed by law, shall prevail notwithstanding subsequent changes in the maximum rates that may be made by the MonetaryBoard: And Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usuriousor otherwise, for valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of this Act and said purchasewas not a part of the original usurious transaction. In any case, however, the maker of said note shall have the right to recover from said original holder the whole interest

paid by him thereon and, in case of litigation, also the costs and such attorney's fees as may be allowed by the court.SECTION 8. All loans under which payment is to be made in agricultural products or seed or in any other kind of commodities shall also be null and void unless they providethat such products or seed or other commodities shall 6e appraised at the time when the obligation falls due at the current local market price: Provided, That unlessotherwise stated in a document written in a language or dialect intelligible to the debtor and subscribed in the presence of not less than two witnesses, any contract

advancing money to be repaid later in agricultural products or seed or any other kind of commodities shall be understood to be a loan, and any person or corporation havingpaid otherwise shall be entitled in case action is brought within two years after such payment or delivery to recover all the products or seed delivered as interest, or the valuethereof, together with the costs and attorney's fees in such sum as may be allowed by the court. Nothing contained in this section shall be construed to prevent the lenderfrom taking interest for the money lent, provided such interest be not in excess of the rates herein fixed.

ANSWER: In Writing and Under OathSECTION 9. The person or corporation sued shall file its answer in writing under oath to any complaint brought or filed against said person or corporation before acompetent court to recover the money or other personal or real property, seeds or agricultural products, charged or received in violation of the provisions of this Act. The lackof taking an oath to an answer to a complaint will mean the admission of the facts contained in the latter.SECTION 9-a. The Monetary Board shall promulgate such rules and regulations as may be necessary to implement effectively the provisions of this Act.SECTION 10. Without prejudice to the proper civil action violation of this Act and the implementing rules and regulations promulgated by the Monetary Board shall besubject to criminal prosecution and the guilty person shall, upon conviction, be sentenced to a fine of not less than fifty pesos nor more than five hundred pesos, or toimprisonment for not less than thirty days nor more than one year, or both, in the discretion of the court, and to return the entire sum received as interest from the partyaggrieved, and in the case of non-payment, to suffer subsidiary imprisonment at the rate of one day for every two pesos: Provided, That in case of corporations, associations,

societies, or companies the manager, administrator or gerent or the person who has charge of the management or administration of the business shall be criminallyresponsible for any violation of this Act.SECTION 11. All Acts and parts of Acts inconsistent with the provisions of this Act are hereby repealed.SECTION 12. This Act shall take effect on the first day of May, nineteen hundred and sixteen.

RULES ON COMPUTING INTERESTS in EASTERN SHIPPING LINES v. CA

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delict, is breached,the contravenor can be held liable for damages.

The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept ofactual and compensatory DAMAGES,the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,

the interest due should be that which may have been stipulated in writing.

Furthermore, the interest due shall itselfearn legal interest from the time it is judicially demanded .

In the absence of stipulation, the rate of interest shall be 12% PER ANNUM to be computed from default, i.e., from judicial orextrajudicial demandunder and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money , is breached,an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of6% PER ANNUM.

No interest, however, shall be adjudged on unliquidated claims or damagesexcept when or until the demand can be established with reasonable certainty.

Accordingly, where the demand is established with reasonable certainty,the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)

but when such certainty cannot be so reasonably established at the time the demand is made,the interest shall begin to run only from the date the judgment of the court is made

(at which time the quantification of damages may be deemed to have been reasonably ascertained).The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.


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3. When thejudgment of the court awarding a sum of money becomes final and executory,the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,shall be 12% PER ANNUM from such finality until its satisfaction, this interim period being deemed to be by then an equivalentto a forbearance of credit.

*Application of Art. 1956. No interest shall be due unless it has been expressly stipulated in writing>> Only for interest for the use of sum of money and not for interests as damages (Integrated Realty)


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HOW TO DETERMINE USURIOUS INTERESTS (First Metro)- An apparently lawful loan is usurious

When it is intended that additional compensation for the loan be disguisedBy an ostensibly unrelated contract providing for payment by the borrower of the lenders servicesWhich are of little value or not in fact to be rendered

- The form of a contract is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form,If from a construction of the whole transactionIt becomes apparent that there exists a corrupt intention to violate the Usury Law.

- The Courts will permit no scheme, however ingenious, to becloud the crime of usury

EFFECT OF CB CIRCULAR 905 (Trade&Investment)GR: Valid Stipulation on Interests

Absent any evidence of fraud, undue influence, or any vice of consent exercised by one party against the other,The interest rate agreed upon is binding upon them

By the suspension of the Usury Law and the removal of the interest ceilingParties are free to stipulate the interest to be imposed on monetary obligations

Usury has been legally non-existent and interests can now be charged as lender and borrower may agree upon (Bacolor)E:The Court has the power to temper interest rates

Stipulated Interests are illegal if they are unconscionable

While the Court recognizes the rights of parties to enter into contracts, such right is not absoluteo

The Court is allowed to temper interest rates when necessaryo The Court has the power to determine what is iniquitous and unconscionable according to the circumstances of each case

>> LIQUIDATED DAMAGES


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TITLE XII - DEPOSITWHAT AND WHEN CONSTITUTED: Receipt of Thing of Another for Safekeeping and ReturningArt. 1962. A deposit is constitutedfrom the moment a person receives a thing belonging to another,with the obligation ofsafely keeping it and ofreturning 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.

PERFECTION: Upon DeliveryArt. 1963. An agreement to constitute a deposit is binding,but the deposit itselfis not perfected until the delivery of the thing.

KINDS OF DEPOSIT:

Judicial

Extrajudicialo Voluntary

o Necessary

Art. 1964. A deposit may be constitutedjudicially or extrajudicially.Art. 1967. An extrajudicial deposit is either voluntary or necessary.

NATURE: Gratuitous UNLESS Stipulated or BusinessArt. 1965. A deposit is a gratuitous contract,except when there is an agreement to the contrary, orunless the depositary is engaged in the business of storing goods.

OBJECT: MovablesArt. 1966. Only movable things may be the object of a deposit.


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>> VOLUNTARY DEPOSIT


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observe.

2. UseWith Express PermissionArt. 1977. The depositary cannot make use of the thing depositedwithout the express permission of the depositor.Otherwise, he shall be liable for damages.

For Principal Purpose of SafekeepingArt. 1978. When the depositary has permission to use the thingdeposited,the contract loses the concept of a deposit andbecomes a loan or commodatum,EXCEPT where safekeeping is still the principal purpose of thecontract.The permission shall not be presumed, and its existence must beproved.

For Preservation OnlyHowever, when the preservation of the thing depositedrequires its use, it must be used but only for that purpose.

(1977)

3. Return upon Depositors Demand(WHAT) Art. 1983. The thing deposited shall be returnedwith all its products, accessories and accessions.Should the deposit consist ofmoney,the provisions relative to agents in article 1896shall be applied to the depositary.

Art. 1896. The agent owes intereston the sums he has applied to his own usefrom the day on which he did so, andon those which he still owes after the extinguishment ofthe agency.

Art. 1990. If the depositary by force majeure or governmentorderloses the thing and receivesmoney or another thing in its place,he shall deliver the sum or other thing to the depositor.

(TO WHOM)

Art. 1972. The depositary is obliged to return itto the depositor, orto his heirs and successors, orto the person who may have been designated in thecontract.

Art. 1984. The depositary cannot demandthat the depositor prove his ownership of the thing

deposited.

the latter was aware of it without advice from the depositor.


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Nevertheless, should he discoverthat the thing has been stolen and who its true owneris,he must advise the latter of the deposit.

If the owner, in spite of such information, does not claim itwithin the period ofone month,the depositary shall be relieved of all responsibility

by returning the thing deposited to the depositor. Art. 1985. When there are two or more depositors,

if they are not solidary, and the thing admits ofdivision,each one cannot demand more than his share.When there is solidarity or the thing does not admit ofdivision,the provisions of Articles 1212 and 1214 shall govern.However, if there is a stipulation that the thing should bereturnedto one of the depositors,the depositary shall return it only to the persondesignated.

Art. 1986. If the depositor should lose his capacity to

contractafter having made the deposit,the thing cannot be returned except to the persons whomay have the administration of his property and rights.

(WHERE): Designated Place, IF NONE, Where it isArt. 1987. Ifat the time the deposit was madea place was designated for the return of the thing,the depositary must take the thing deposited to such place;but the expenses for transportation shall be borne by thedepositor.Ifno 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 wasmade,provided that there was no malice on the part of the depositary.

(WHEN): (GR) Upon DemandArt. 1972. The depositary is obliged to return it when requiredArt. 1988. The thing deposited must be returned to the depositorupon demand,even though a specified period or time for such return may havebeen fixed.(E) Judicially Attached or Notified of OppositionThis provision shall not applywhen the thing isjudicially attached while in the depositary'spossession, orshould he have been notified of the opposition of a third


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personto the return or the removal of the thing deposited.In these cases, the depositary must immediately inform thedepositorof the attachment or opposition.

4. Return at Depositarys InstanceUnlawfully acquired

If the depositary has reasonable grounds to believethat the thing has not been lawfully acquired by the depositor,the former may return the same. (1983)

Justifiable Reasons UNLESS Valuable ConsiderationArt. 1989. Unless the deposit is for a valuable consideration,the depositary who may havejustifiable reasonsfor not keeping the thing depositedmay, even before the time designated, return it to the depositor;and if the latter should refuse to receive it,the depositary may secure its consignation from the court.(1776a)

5. RetainArt. 1994. The depositary may retain the thing in pledgeuntil the full payment of what may be due him by reason of thedeposit.

6. Deposit to Third Person (1973)GR: NOT ALLOWEDUnless there is a stipulation to the contrary,

the depositary cannot deposit the thing with a third person.E: STIPULATED BUT Liable for Loss IF Manifestly Careless or UnfitIf deposit with a third person is allowed,the depositary is liable for the lossif he deposited the thing with a person who is manifestly carelessor unfit.The depositary is responsible for the negligence of hisemployees.

7. Liable for Employees NegligenceThe depositary is responsible for the negligence of hisemployees. (1973)

8. Change Way of DepositArt. 1974. The depositary may change the way of the deposit IF


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under the circumstances he may reasonably presumethat the depositor would consent to the change if heknew of the facts of the situation.However, before the depositary may make such change,

he shall notify the depositor thereof and

wait for his decision,

UNLESS delay would cause danger.

9. Collect Interests of Instruments and Preserve Valueand Rights

Art. 1975. The depositary holding certificates, bonds, securitiesor instruments which earn interestshall be bound to collect the latter when it becomes due,and to take such steps as may be necessary in orderthat the securities may preserve their value and the rightscorresponding to them according to law.The above provision shall not applyto contracts for the rent of safety deposit boxes.

> Special Kind of Deposit, NOT Lease THUS Bank liable asdepositary (Sia)

> General Banking Act, Sec. 72: In addition to the operationsspecifically authorized elsewhere in this Act, bankinginstitutions other than building and loan associations mayperform the following services: (a) Receive in custody finds,documents, and valuable objects, and rent safety deposit boxesfor the safeguarding of such effects. The bank shall perform theservices permitted under (a) as depositaries or as agents> Limitation of Liability by Bank: Only by Special Contract (CA-Agro)

10. CommingleArt. 1976. Unless there is a stipulation to the contrary,

the depositary may comminglegrain or other articles of the same kind and quality,in which case the various depositorsshall own or have a proportionate interest in the mass.

11. Liable for Loss Thru FortuitousArt. 1979. The depositary is liable for the loss of the thingthrough a fortuitous event:(1) If it is so stipulated;(2) If he uses the thing without the depositor's permission;(3) If he delays its return;(4) If he allows others to use it,even though he himself may have been authorized to use the same.

12. Keep the Seal and Secret


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Keep it closed and sealedArt. 1981. When the thing deposited is delivered closed andsealed,the depositary must return it in the same condition

Liability for DamagesHe shall be liable for damagesshould the seal or lock be broken through his fault.

Presumed Fault: Fault on the part of the depositary ispresumed,unless there is proof to the contrary.

Value of the Thing: As regards the value of the thingdeposited,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 thedepositor with respect to the value claimed by him.

Keep it Secret RegardlessWhen the seal or lock is broken, with orwithout the

depositary's fault,he shall keep the secret of the deposit.

Exception: Necessary with AuthorityArt. 1982. When it becomes necessary to open a locked box orreceptacle,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 thedepositcannot be executed without opening the box orreceptacle.

13. Effect of GF Sale by HeirArt. 1991. The depositor's heir who in good faithmay have sold the thing which he did not know was deposited,shall only be boundto return the price he may have received orto assign his right of action against the buyerin case the price has not been paid him.

>> NECESSARY DEPOSIT


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WHATArt. 1996. A deposit is necessary:(1) When it is made in compliance with a legal obligation;

GOVERNED BY Art. 1997. The deposit referred to in No. 1 of the preceding article shall be governed bythe provisions of the law establishing it, and in case of its deficiency, by the rules on voluntary deposit.

(2) When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events.GOVERNED BY Art. 1997. The deposit mentioned in No. 2 of the preceding article shall be regulated by the provisions concerning

voluntary deposit and by Article 2168.Art. 2168. When during a fire, flood, storm, or other calamity, property is saved from destruction by another person without the knowledgeof the owner,the latter is bound to pay the former just compensation.

(3) Hotels or InnsOf EffectsArt. 1998. The deposit ofeffects made by the travellers in hotels or inns shall also be regarded as necessary.The keepers of hotels or inns shall be responsible for them as depositaries,PROVIDED that notice was given to them, or to their employees, of the effects brought by the guests and

that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advisedrelative to the care and vigilance of their effects.

Of Vehicles, Animals, Articles in Annexes

Art. 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel.

Caused ByArt. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guestsCAUSED BYthe servants or employees of the keepers of hotels or inns as well as strangers;BUT NOTthat which may proceed from any force majeure.

The fact that travellers are constrained to rely on the vigilance of the keeper of the hotels or inns shall be considered in determining thedegree of care required of him.

Art. 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 ofarms orthrough an irresistible force.

Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or

if the loss arises from the character of the things brought into the hotel.

Void Waiver of LiabilityArt. 2003. The hotel-keeper cannot free himselffrom responsibilityby 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 ordiminished shall be void.

Right of RetentionArt. 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 furnished to hotel guests.

>> SEQUESTRATION OR JUDICIAL DEPOSIT


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Art. 2005. A judicial deposit or sequestration takes placewhen an attachment or seizure ofproperty in litigation is ordered.

OBJECTArt. 2006. Movable as well as immovable property may be the object of sequestration.

WHENIssue of Co-Possession

Art. 538. Possession as a fact cannot be recognized at the same time in two different personalities except in the cases ofco-possession.Should a question arise regarding the fact of possession, the present possessor shall be preferred;if there are two possessors, the one longer in possession;if the dates of the possession are the same, the one who presents a title; andif all these conditions are equal, the thing shall be placed injudicial deposit pending determination of its possession or ownership through properproceedings.

Pending Security by UsufructuaryArt. 586. Should the usufructuary fail to give security in the cases in which he is bound to give it,the owner may demandthat the immovables 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, andthat the capital or sums in cash and the proceeds of the sale of the movable property be invested in safe securities.The interest on the proceeds of the sale of the movables and that on public securities and bonds, and the proceeds of the property placed underadministration,shall belong to the usufructuary.Furthermore, the owner may, if he so prefers, until the usufructuary gives security or is excused from so doing,retain in his possession the property in usufruct as administrator,subject to the obligation to deliver to the usufructuary the net proceeds thereof, after deducting the sums which may be agreed upon or judicially allowedhim for such administration.

Use by Creditor of Thing PledgedArt. 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.

Art. 559. The possession of movable property acquired in good faith is equivalent to a title.Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same.If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale,the owner cannot obtain its return without reimbursing the price paid therefor.

LIABILITY OF DEPOSITARYRelieved Upon End of Litigation or Court OrderArt. 2007. The depositary of property or objects sequestrated cannot be relieved of his responsibilityuntil the controversy which gave rise thereto has come to an end,unless the court so orders.

DEGREE OF CARE


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Art. 2008. The depositary of property sequestrated is bound to comply, with respect to the same, with all the obligations of a good father of a family .

GOVERNING LAWArt. 2009. As to matters not provided for in this Code, judicial sequestration shall be governed by the Rules of Court.


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TITLE XV - GUARANTY AND SURETYSHIPWHATArt. 2047. By GUARANTYa person, called the guarantor, binds himself to the creditorto fulfill the obligation of the principal debtor in case the latter should fail to do so.If a person binds himselfsolidarily with the principal debtor,the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a SURETYSHIP. (Joint and Solidary

Obligations)

Zobel GUARANTY SURETY An insurer of the SOLVENCY OF THE DEBTOR,binding himself to pay if the principal is unable to pay.

An undertaking that the debtor shall pay. (Palmares)

An insurer of the DEBT,binding himself to pay if the principal does not pay.

An undertaking that the debt shall be paid. (Palmares)

BUT the undertaking to pay upon default of the principal debtor does notautomatically remove it from the ambit of a contract of suretyship IF No othercondition is imposed for the enforcement of the liability (Palmares)

Nature A collateral undertaking to pay the debt of anotherin case the latter does not pay the debt (Zobel)

The use of the term Guarentee does not ipso facto mean that the contractis one of guaranty because the term is frequently employed in businesstransactions to describe not the security of the debtbut an intention to be bound by a primary or independent obligation.

An accessory promise by which a personbinds himself for another already bound, and

agrees with the creditorto satisfy the obligation if the debtor does not (Zobel)

BindingContract

It is usually entered into before or after that of the principal,and is often supported on a separate considerationfrom that supporting the contract of the principal.

The original contract of his principal is not his contract,and he is not bound to take notice of its non-performance.

Guarantor does not contract that the principal will pay

but simply that he is able to do so (Palmares)

A surety is usually bound with his principalBy the same instrument, Executed at the same time, and On the sameconsideration

In suretyship, there is but one contract and the surety is boundby the same agreement which binds the principal.In essence, the contract of a surety starts with the agreement(Palmares)

ACCOMMODATION SURETIES received nothing out of the securitycontract they signed (Toh)

Surety binds himself to perform if the principal does not,without regard to his ability to do so (Palmares)

Extent ofLiability

SUBSIDIARYGuaranty is the guarantors own separate undertakingin which the principal does not join.

He is often discharged by the mere indulgence of the creditor to theprincipal and is usually not liable unless notified of the default of theprincipal.

Guarantor contracts to pay if, by the use ofdue diligence,the debt cannot be made out of the principal debtor (Palmares)

*RULE ON STRICTISSIMI JURIS

When the meaning of a contract of indemnity or guaranty has once

ORIGINAL, IMMEDIATE, DIRECT, EQUAL, ABSOLUTEHe is an original promissor and debtor from the beginning (M:Dangerous)He is held, ordinarily, to know every default of his principal. (+Palmares)

Usually, he will not be discharged eitherBy the mere indulgence of the creditor to the principal, orBy want of notice of the default of the principalNo matter how much he may be injured thereby

> Demand on the Sureties is not necessary beforebringing suit against them, since the commencement of thesuit is a sufficient demand (Palmares)> Surety is not even entitled, as a matter of right,

to be given notice of the principals default (Palmares)> Creditors mere failure to voluntarily give info to the surety


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beenjudicially determined under the rule of reasonableconstruction applicable to all written contracts

Then the liability of the surety, under his contract, as thusinterpreted and construed, is not to be extended beyond its strictmeaning

APPLICABLE Only after it has been definitely ascertained that thecontract is one of suretyship and not a contract of guaranty. It cannotbe used as an aid in determining whether a partys undertaking is

that of a surety or guarantor (P)

of the default of the principal does not have the effect ofdischarging the surety because he owes no duty of activediligence to take care of the interest of the surety(Palmares)> The surety is bound to take notice of the principalsdefault and to perform the obligation. He cannot complainthat the creditor has not notified him in the absence of aspecial agreement to that effect in the contract ofsuretyship (Palmares)

He undertakes directly for the payment and is so responsible at onceif the principal debtor makes default (Palmares).He is an original debtor and his liability is immediate and direct (Palmares)A Suretyship is a direct contract to pay the debt of another (Palmares)

One lends his credit by joining in the principal debtors obligation,so as to render himselfdirectly and primarily responsible with him, andwithout reference to the solvency of the principal. (Palmares)

The surety is bound equally and absolutely with the principalHe is liable as much as his principal is liable andabsolutely liable as soon as default is made,without any demand upon the principal whatsoever or any notice ofdefault. (Palmares)

EXCEPTION TO ABSOLUTE, PRIMARY LIABILITY:Statute or Agreement providing otherwise (Palmares)

Creditors Right toProceed

A creditors right to proceed against the surety exists independentlyof his right to proceed against the principal (Palmares)

Art. 1216. The creditor may proceed against any one of the solidarydebtors or some or all of them simultaneously. The demand madeagainst one of them shall not be an obstacle to those which maysubsequently be directed against the others, so long as the debt hasnot been fully collected.

A creditor can refrain from proceeding against the principal withoutexonerating the surety (Palmares)

Mere want of diligence or forbearance does not affect the creditors rights

vis--vis the suretyWHETHER

Given at the principals requestYielded by the creditor thru sympathy or from an inclinationto favor the principalOnly a result of passiveness

EVEN IF The delay in the neglect of the creditor to sue the principalat the time the debt falls due continues until the principal becomesinsolvent,and remedies against the principal may be lost by lapse of time.UNLESS the surety requires him by appropriate notice to sue on the obligation(P)

There is nothing to prevent the creditor from proceeding against the principalat any time

EVEN IF He said that he will not look to surety and that latter need not trouble


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himself (P)RemedyofObligor

Pay the debt andPursue the principal for reimbursement (Palmares)

If the surety is dissatisfied with the degree of activitydisplayed by the creditor in the pursuit of his principal,he may pay the debt himself and become subrogatedto all the rights and remedies of the creditor (P)


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GUARANTY

KINDSArt. 2051. A guaranty may be conventional, legal orjudicial, 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.

NATURE> GratuitousArt. 2048. A guaranty is gratuitous, unless there is a stipulation to the contrary.

> Prospective

A contract of suretyship is not retrospective and no liability attaches for defaults occurring before it is entered intoUNLESS an intent to be so liable is indicated (El Vencedor in Willex)

By its very nature, a continuing suretyship contemplates a future course of dealing.

o It is prospective in i ts operation and is generally intended to provide security with respect to future transactions. (Dino in Willex).

By no means, however, was it meant in that case (Dino) that in all instances a contract of guaranty or suretyship should be prospective inapplication.

BECAUSE although a contract of suretyship is ordinarily not to be construed as retrospective,

in the end, the INTENTION OF THE PARTIES as revealed by the evidence is controlling. (Willex)

CONSENT OF DEBTORArt. 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 and1237 shall apply.

Art. 1236. The creditor is not bound to accept payment or performanceby 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.

Art. 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.

OBJECTValid, Voidable or Unenforceable, Natural ObligationArt. 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.

Future Debts and Conditional ObligationsArt. 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.

> Basis for Contracts denominated as Continuing Guaranty or Suretyship (Dino)


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> CONTINUING GUARANTY>> one which is not limited to a single transaction,but which contemplates a future course of dealing,covering a series of transactions, generally for an indefinite time or until revoked (Dino)

> It is prospective in its operation and is generally intended to provide security with respect to future transactions within certain limits andcontemplates a succession of liabilities, for which, as they accrue, the guarantor becomes liable (Dino)

>> one which covers all transactions, including those arising in the future, which are within the description and contemplation of the contract ofguaranty

until the expiration or termination thereof>> when by the terms thereof it is evident that the object is to give a standing credit to the principal debtorto be used from time to time, either indefinitely or until a certain period, especially if a right to recall the guaranty is expressly reserved>> Indications: from time to time any debt any indebtedness any deficiency any sum any transaction at any time on such time

CONSIDERATION OF CONTRACT OF GUARANTY/SURETY IS THE SAME AS THE PRINCIPAL CONTRACT

A Guarantor or Surety is bound by the same consideration that makes the contract effective between the principal and parties thereto.(Severino)

o It is never necessary that a guarantor or surety should receive any part of the benefit, if such there be, accruing to the principal.

o It is immaterial that no benefit may have accrued either to the principal or his guarantor (Severino)

The consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alonebeing sufficient. (Willex)

EXTENT OF LIABILITYLess BUT Not MoreArt. 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 theconditions.Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor.

Art. 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 thejudicial 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.

> Liability of a Surety (Toh):

Measured by the Terms of the Contract

Liable to the full extent

Accountability is strictly limited to that assumed by its terms

WHO MAY BE GUARANTORSArt. 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.

Art. 2056. One who is obliged to furnish a guarantor shall presenta person who possesses integrity, capacity to bind himself, and sufficient property to answer for the obligation which he guarantees.The guarantor shall be subject to the jurisdiction of the court of the place where this obligation is to be complied with.

Art. 2057. If the guarantor should be convicted in first instance of a crime involving dishonesty or should become insolvent,the creditor may demand another who has all the qualifications required in the preceding article.The case is excepted where the creditor has required and stipulated that a specified person should be the guarantor.


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EFFECTS OF GUARANTY>> BETWEEN THE GUARANTOR AND THE CREDITOR

1. Obligation to PayGR: ExcussionArt. 2058. The guarantor cannot be compelled to pay the creditorUNLESS the latter has exhausted all the property of the debtor, and has resorted to all the legal remedies against the debtor.

How Availed ofArt. 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.

Art. 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.

By Whom: Guarantor and His Guarantor; Not a Mortgagor; Not Surety BEC He is principally liable (Ong)Art. 2064. The guarantor of a guarantor shall enjoy the benefit of excussion, both with respect to the guarantor and to the principaldebtor.

Mortgagors are not entitled to exhaustion of the property of the principal debtor (Ph Refining)Art. 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.

Art. 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.

When AvailableNot when Guarantor is Also MortgagorThe right of the guarantors, under Art. 2058, to demand exhaustion of the property of the principal debtor existsonly when a pledge or a mortgage has not been given as special security for the payment of the principal obligation (Ph Refining)

Guarantees without any such pledge or mortgage are governed by Title XVPledges and Mortgages fall under Title XVI >> Mortgagors are not entitled to exhaustion of the property of the principal debtor

Creditor can Secure Judgment Prior theretoThe creditor may, prior to exhaustion, secure ajudgment against a guarantor, who shall be entitled, however,to a deferment of the execution of said judgment against himuntil after the properties of the principal debtor shall have been exhausted to satisfy the obligation involved in the case (Ph Refining).

E: Art. 2059. The excussion shall not take place:(1) If the guarantor has expressly renounced it;(2) If he has bound himselfsolidarily with the debtor;(3) In case ofinsolvency of the debtor;(4) When he has absconded, or cannot be sued within the Philippines unless he has left a manager or representative;(5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation.

Art. 2062...The benefit of excussion mentioned in Article 2058 shall always be unimpaired, >> BUT Right is Waivable (Willex)


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even if judgment should be rendered against the principal debtor and the guarantor in case of appearance by the latter. By allowing creditorto directly proceed and

By taking on a solidary liability

2. Obligation to NotifyArt. 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.

3. Effect of Compromise >> AVAILABLE ONLY TO Guarators, NOT Sureties (Ong)Art. 2063. A compromise between the creditor and the principal debtorbenefits the guarantor but does not prejudice him.That which is entered into between the guarantor and the creditorbenefits but does not prejudice the principal debtor.

4. Extent of LiabilityArt. 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,

UNLESSsolidarity 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 principaldebtor.

Art. 2059. The excussion shall not take place:(1) If the guarantor has expressly renounced it;(2) If he has bound himselfsolidarily with the debtor;(3) In case ofinsolvency of the debtor;(4) When he has absconded, or cannot be sued within the Philippines unless he has left a manager or representative;(5) If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation.


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>> BETWEEN THE DEBTOR AND THE GUARANTOR

1. Obligation to Indemnify the GuarantorArt. 2066. The guarantor who pays for a debtor must be indemnified by the latter.(WHAT) 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.

2. Right to Proceed Against DebtorArt. 2071. The guarantor, even before having paid, may proceed against the principal debtor:(1) When he is sued for the payment;(2) In case ofinsolvency 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 often 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, orto demand a security that shall protect him from any proceedings by the creditor and from the danger of insolvency of the debtor.

3. Right to Proceed Against Requestor or DebtorArt. 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.

Effects of Irregular Payment by the Guarantor1. Subrogation to the Creditor

Art. 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.

2. Defenses of DebtorArt. 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.

3. Demand upon Expiration of Period Only UNLESS RatifiedArt. 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 periodUNLESS the payment has been ratified by the debtor.

4. Reimburse Double Payment from CreditorArt. 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.


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>> BETWEEN CO-GUARANTORS

1. Demand Proportional Share from Co-GuarantorsArt. 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 ajudicial demand or unless the principal debtoris insolvent.

2. Right to Set Up Defenses against Paying GuarantorArt. 2074. In the case of the preceding article, the co-guarantors may set up against the one who paid,the same defenses which would have pertained to the principal debtor against the creditor, and which are not purely personal to the debtor.

3. Extent of Liability of Sub-GuarantorArt. 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.

EXTINGUISHMENT OF GUARANTYManner: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.

Release by the Creditors Actsa. Accepts Property in Payment of the Debt

Art. 2077. If 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.

b. Releases one guarantor without others consentArt. 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.

c. Extends debt in favor of Debtor without Guarantors consentArt. 2079. An extension granted to the debtor by the creditor without the consent of the guarantorextinguishes the guaranty.The mere failure on the part of the creditor to demand payment after the debt has become due does not of itselfconstitute any extension of timereferred to herein.

> For Sureties:It should appear that the extension was

for a definite period,

pursuant to an enforceable agreement between the principal and the creditor and

that it was made without the consent of the surety or with a reservation of rights with respect to him (Palmares)> It must preclude or hinder the creditor from enforcing the principal contract within the period during which he could otherwise have enforcedit,

and which precludes the surety from paying the debt (P)


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> Not mere failure or delay to demand after the debt has become due but an illicit, conscious, separate, binding agreement on extension (Toh)

d. Prevents subrogation of rights by the GuarantorsArt. 2080. The guarantors, even though they be solidary, are released from their obligationwhenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preference of the latter.

> NOT AVAILABLE To Sureties, BUT ONLY TO Guarantors (Zobel)

e. Material alteration of the principal contract(Toh)

Defenses against Creditor>> AVAILABLE ONLY TO Guarators, NOT Sureties (Ong)Art. 2081. The guarantor may set up against the creditorall the defenses which pertain to the principal debtor and are inherent in the debt;but not those that are personal to the debtor.

LEGAL AND JUDICIAL BONDSArt. 2082. The bondsman who is to be offered in virtue of a provision of law or of a judicial ordershall have the qualifications prescribed in Article 2056 and in special laws.

Art. 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.

Art. 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 of the surety.

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