Credit Transactions MICKEY INGLES Am+dg

+ Ad Majorem Dei Gloriam Security and Credit Transactions
SECURITY & CREDIT TRANSACTIONS

INTRODUCTION
Meaning and scope of credit transactions Credit transactions include all transactions involving the o Purchase or loan of goods, services, or money in the present o ith a promise to pay or deliver in the future Credit transactions are really contracts of security! T"o types# o Secured transactions or contracts of real security Supported $y a collateral or an encum$rance of property Pledge, mortgage, antichresis, etc o %nsecured transactions or contracts of personal security Secured or supported only $y a promise to pay or the personal commitment of another Guarantor or surety Meaning and &inds of security Security is something given, deposited, or serving as a means to ensure the fulfillment or enforcement of an o$ligation or of protecting some interest in property Meaning of $ailment Delivery of property of one person to another in trust for a specific purpose ith a contract, e'press or implied, that the trust shall $e faithfully e'ecuted and the property returned or duly accounted for "hen the special purpose is accomplished or &ept until the $ailor reclaims it (t may $e created $y a contractual relation or $y operation of la" Parties in $ailment )ailor * the giver, the one "ho delivers the possession of the thing $ailed )ailee * the recipient, the party "ho receives the possession or custody of the thing delivered +inds of contractual $ailment
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-or the sole $enefit of the $ailor Gratuitous deposit, mandatum Sole $enefit of the $ailee Commodatum and gratuitous simple loan or mutuum )enefit of $oth parties Deposit for a compensation, involuntary deposit, pledge, $ailments for hire The first t"o &inds are gratuitous $ailments, really no consideration! The last one involves $usiness transactions, also &no"n as mutual0 $enefit $ailments! )ut in all cases, there is an o$ligation on the part of the $ailee to restore the su$ject of the $ailment in the same or in altered form or to account therefore!
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hat are $ailments for hire1 They arise "hen goods are left "ith the $ailee for some use or service $y him Al"ays for some compensation o 2ire of things 3locatio rei4 * "here goods are delivered for the temporary use of the hirer 3lease4 o 2ire for service 3locatio operas faciendi4 * "here goods are delivered for some "or& or la$or upon it$y the $ailee 3contract for a piece of "or&4 o 2ire for carriage of goods 3locatio operas mercium vehendarum4 * "here goods are delivered either to a common carrier or to a private person for the purpose of $eing carried from place to place o 2ire for custody 3locatio custodiae4 * "here goods are delivered for storage
I LOAN GENERAL PROVISIONS

Art 1933 By the contr ct o! "o n# one o! the $ rt%e& 'e"%(er& to nother# e%ther &o)eth%n* not con&+) ,"e &o th t the " tter ) y +&e the & )e !or cert %n t%)e n' ret+rn %t# %n -h%ch c &e the contr ct %& c ""e' co))o' t+). or )oney or other con&+) ,"e th%n*# +$on the con'%t%on th t the & )e )o+nt o! the & )e /%n' n' 0+ "%ty &h "" ,e
Mic&ey (ngles Ateneo 5a" .6,. 5i$rat
$ %'# %n -h%ch c &e the contr ct %& &%)$"y c ""e' "o n or )+t++)1 Co))o' t+) %& e&&ent% ""y *r t+%to+&1 S%)$"e "o n ) y ,e *r t+%to+& or -%th &t%$+" t%on to $ y %ntere&t1 In co))o' t+)# the , %"or ret %n& the o-ner&h%$ o! the th%n* "o ne'# -h%"e %n &%)$"e "o n# o-ner&h%$ $ &&e& to the ,orro-er1 Characteristics of the loan contract ,! 7eal 3delivery of thing loaned is necessary for the perfection of the contract4 .! %nilateral 3once the su$ject matter has $een delivered, it creates o$ligations on the part of only the $orro"er4 +inds of loan 1. Commodatum )ailor 3lender4 delivers to the $ailee 3$orro"er4 a non0 consuma$le thing so that the latter ay use it for a certain time and return the identical thing .! Simple loan or mutuum 5ender delivers to the $orro"er money or other consuma$le thing upon the condition that the latter shall pay the same amount of the same &ind and 8uality A thing is consuma$le "hen it is consumed "hen used in a manner appropriate to its purpose, or nature! hat9s the difference $et"een a loan and credit1 The credit of an individual means his a$ility to $orro" money or things $y virtue of the confidence or trust reposed $y a lender that he "ill pay "hat he may promise "ithin a specified period A loan means the delivery $y one party and receipt $y another of a given sum or money other consuma$le thing, "hich has to $e repaid! The concession of a credit necessarily involves the granting of :loans9 up to the limit of the amount fi'ed in the :credit9! hat9s the difference $et"een a loan and discounting of paper1 5oan (nterest ta&en at the e'piration of a credit Discount (nterest is deducted in advance
Single0named paper 5oaned P,666 at ,;< interest, $orro"er "ould pay P,,,;6 at the end of the year
Dou$le0named paper 5oaned P,666 at ,;< interest, $orro"er gets P=>6 $ut "ould pay $ac& P,666 at the end of the year
hat9s the difference $et"een a commodatum and a mutuum1 Commodatum ?$ject ?"nership Consideratio n ?$ligation Property Purpose Demand @ot consuma$le 7etained $y lender Gratuitous )orro"er must return the same thing loaned 7eal or personal %se or temporary possession )ailor may demand the return of the thing loaned $efore the e'piration of the term in case of urgent need Suffered $y the $ailor Mutuum Money or other consuma$le thing Transferred to $orro"er Gratuitous or onerous, "ith stipulation of interest @eed only pay the same amount of same &ind and 8uality Personal 5oan for consumption 5ender may not demand its return $efore the lapse of the term agreed upon Suffered $y the $orro"er even if caused e'clusively $y a fortuitous event and he is not discharged from his duty to pay
5oss
+inds of commodatum ,! ?rdinary .! Precarium 3$ailor may demand the thing loaned at "ill4
Art 1932 An cce$te' $ro)%&e to 'e"%(er &o)eth%n* ,y - y o! co))o' t+) or &%)$"e "o n %& ,%n'%n* +$on the $ rt%e&# ,+t the co))o' t+) or &%)$"e "o n %t&e"! &h "" not ,e $er!ecte' +nt%" the 'e"%(ery o! the o,3ect o! the contr ct1 Delivery is essential to perfection of loan Delivery is necessary in vie" of the purpose of the contract "hich is to transfer either the use or o"nership of the thing loaned! )ut, an accepted promise to lend also has $inding effects! An accepted promise to ma&e a future loan is a consensual contract, and $inding upon the parties $ut it is only after delivery, "ill the real contract of loan arise! o (f an application for a loan of money "as approved and the corresponding mortgage "as e'ecuted and registered, there arises a perfected consensual contract of loan! hile a perfect contract of loan can give rise to an action for damages, said contract does not constitute the real contract of loan! 3(n this case, the money had yet to $e given4 o A lender gives a chec& to the $orro"er for a loan! The $orro"er mortgages his house! )ut the $orro"er has not encashed or deposited the chec&, there is no real contract still, as there is a need to encash the chec& to effect payment, according to the Civil Code! So lender cannot foreclose the mortgage 3@aguiat case4
A'tent of $ailee9s right of use 7ight to use is limited to the thing loaned o @ot to its fruits unless there is a stipulation to the contrary 3Art ,B>64 o As the o"ner of the thing loaned, the $ailor is naturally entitled to its fruits hat9s the purpose of a commodatum any"ay1 The purpose must $e temporary use of the thing loaned! o (f the $ailee is not entitled to the use of the thing, the contract may $e a deposit 3Art ,B;.4 (t is an essential feature of the contract of commodatum that the use of the property of another shall $e for a certain time! Art 1939 Con&+) ,"e *oo'& ) y ,e the &+,3ect o! co))o' t+) %! the $+r$o&e o! the contr ct %& not the con&+)$t%on o! the o,3ect# & -hen %t %& )ere"y !or e:h%,%t%on1 Art 193; 6o( ,"e or %))o( ,"e $ro$erty ) y ,e the o,3ect o! co))o' t+)1 General rule# Su$ject matter of commodatum is generally non0 consuma$le, "hether real or not! o A'ception# Consuma$le goods may $e the su$ject, "hen it is merely for e'hi$ition! o ?versiCed $ottle of mango juice 3gasgas na yung wine example eh.4 $orro"ed $y a museum! The $ottle of mango juice "as actually o"ned $y Dose 7iCal!
C4APTER T5O CO66ODATU6 SECTION ONE NATURE O7 CO66ODATU6

Art 1938 The , %"ee %n co))o' t+) c0+%re& the +&e o! the th%n* "o ne' ,+t not %t& !r+%t&. %! ny co)$en& t%on %& to ,e $ %' ,y h%) -ho c0+%re& the +&e# the contr ct ce &e& to ,e co))o' t+)1 Commodatum is essential gratuitous! The contract ceases to $e a commodatum if any compensation is to $e paid $y the $orro"er "ho ac8uires its use! o (n such a case, there arises a lease contract
A'ample of a commodatum involving real property A person allo"ed another to $uild a mi'ed martial arts gym on the former9s land so that the latter may use the property for a certain period "ithout any payment of rentals Art 193< The , %"or %n co))o' t+) nee' not ,e the o-ner o! the th%n* "o ne'1 )ailor need not $e o"ner )ailor need not $e the o"ner of the thing loaned since $y the loan,
o"nership does not pass to the $orro"er! The $orro"er may not lend nor lease the thing loaned to him to a third person! Sufficient that the $ailor has such possessory interest in the su$ject matter or right to its use "hich he may assert against the $ailee and the third persons although not against the rightful o"ner 314 Art 1939 Co))o' t+) %& $+re"y $er&on " %n ch r cter1 Con&e0+ent"y= 11 The 'e th o! e%ther the , %"or or the , %"ee e:t%n*+%&he& the contr ct. >1 The , %"ee c n ne%ther "en' nor "e &e the o,3ect o! the contr ct to th%r' $er&on1 4o-e(er# the )e),er& o! the , %"ee?& ho+&eho"' ) y ) /e +&e o! the th%n* "o ne'# +n"e&& there %& &t%$+" t%on to the contr ry# or +n"e&& the n t+re o! the th%n* !or,%'& &+ch +&e1 Purely personal nature of a commodatum %nli&e mutuum, commodatum is a purely personal contract, the lender having in vie" the character, credit, and conduct of the $orro"er! 2ence, the general rule# the death of either party terminates the contract o A'ception# %nless $y stipulation, the commodatum is transmitted to the heirs of either or $oth parties! o @)# (f there are t"o or more $orro"ers, the death of one does not e'tinguish the contract in the a$sence of stipulation to the contrary This article is an e'ception to the general rule that all rights ac8uired in virtue of an o$ligation are transmissi$le! 7ight of $ailee to lend thing loaned to third persons General rule# )ailee can neither lend nor lease the o$ject of the contract to a third person, in a$sence of some understanding or agreement to that effect! o A'ception# The use of the thing loaned may e'tend to the mem$ers of the $ailee9s household 3those "ho live in the same home4 A'ception to the e'ception# There is a stipulation to the contrary, or The nature of the thing for$ids such use! Art 192@ A &t%$+" t%on th t the , %"ee ) y ) /e +&e o! the !r+%t& o! the th%n* "o ne' %& ( "%'1
General rule# (n commodatum, the $ailor gets the fruits of the thing loaned! o A'ception# hen there is a stipulation that the $ailee may also ma&e use of the fruits of the thing!
SECTION II OBLIGATIONS O7 T4E BAILEE

Art 1921 The , %"ee %& o,"%*e' to $ y !or the or'%n ry e:$en&e& !or the +&e n' $re&er( t%on o! the th%n* "o ne'1 )ailee lia$le for ordinary e'penses )orro"er is lia$le for the e'penses for the use and preservation of the thing loaned! o A'ample# Draco $orro"s Mr! easley9s car! 2e must pay for the gasoline, motor oil, "ashing, greasing and spraying! Draco can9t demand reim$ursement! As a rule, the $orro"er must ta&e good care of the thing "ith the diligence of a good father of a family! As to e'traordinary e'penses, chec& ,B>B Art 192> The , %"ee %& "% ,"e !or the "o&& o! th%n*# e(en %! &ho+"' ,e thro+*h !ort+%to+& e(ent= 11 I! he 'e(ote& the th%n* to ny $+r$o&e '%!!erent !ro) th t !or -h%ch %t h & ,een "o ne'. >1 I! he /ee$& %t "on*er th n the $er%o' &t%$+" te'# or !ter the cco)$"%&h)ent o! the +&e !or -h%ch the co))o' t+) h & ,een con&t%t+te'. 31 I! the th%n* "o ne' h & ,een 'e"%(ere' -%th $$r %& " o! %t& ( "+e# +n"e&& there %& &t%$+" t%on e:e)$t%n* the , %"ee !ro) re&$on&%,%"%ty %n c &e o! !ort+%to+& e(ent. 21 I! he "en'& or "e &e& the th%n* to th%r' $er&on# -ho %& not )e),er o! h%& ho+&eho"'. 81 I!# ,e%n* ,"e to & (e e%ther the th%n* ,orro-e' or h%& o-n th%n*# he cho&e to & (e the " tter1 5ia$ility for loss of thing loaned General rule# )ailee is not lia$le for loss or damage due to a fortuitous event! 3)ecause $ailor retains the o"nership of the thing loaned4
A'ception# E instances in Article ,B>.
Art 1923 The , %"ee 'oe& not n&-er !or the 'eter%or t%on o! the th%n* "o ne' '+e on"y to the +&e thereo! n' -%tho+t h%& ! +"t1 )ailor 5ia$le for deterioration of thing loaned (n the a$sence of agreement to the contrary, the depreciation caused $y the reasona$le and natural use of the thing is $orne $y the $ailor! Art 1922 B %"ee c nnot ret %n the th%n* "o ne' on the *ro+n' th t the , %"or o-e& h%) &o)eth%n*# e(en tho+*h %t ) y ,e ,y re &on o! e:$en&e&1 4o-e(er# the , %"ee h & r%*ht o! retent%on !or ' ) *e& )ent%one' %n Art 19811 ?$ligation to return thing loaned General rule# )ailee must return the thing loaned, even if $ailor o"es him for e'penses * "hether ordinary or e'traordinary! o A'ception# (f he has a right of retention for damages against the $ailor $ecause of the fla"s of the thing loaned 3Art ,BE,4! Art 1928 5hen there re t-o or )ore , %"ee& to -ho) %n the & )e contr ct# they re "% ,"e &o"%' r%"y1 th%n* %& "o ne'
After the accomplishment of the use for "hich the commodatum has $een constituted A'ception# )ailor can demand return of the thing "hen# ,! 2e should have an urgent need of the thing .! )orro"er commits an act of ingratitude 3Art ,B>=4
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Art 192; The , %"or ) y 'e) n' the th%n* t -%""# n' the contr ct+ " re" t%on %& c ""e' precarium# %n the !o""o-%n* c &e&= 11 I! ne%ther the '+r t%on o! the contr ct nor the +&e to -h%ch the th%n* "o ne' &ho+"' ,e 'e(ote'# h & ,een &t%$+" te'. or >1 I! the +&e o! the th%n* %& )ere"y to"er te' ,y the o-ner1 hat9s a precarium1 +ind of commodatum "here the $ailor may demand the thing at "ill! Precarium in the follo"ing cases# ,! @o duration of the contract .! @o use of thing to $e devoted has $een stipulated /! %se of the thing is merely tolerated $y the o"ner
Art 192< The , %"or ) y 'e) n' the %))e'% te ret+rn o! the th%n* %! the , %"ee co))%t& ny ct& o! %n*r t%t+'e &$ec%!%e' %n Art ;981 7ight of $ailor to demand return of thing for acts of ingratitude ,! (f the $ailee should commit some offenses against the person, the honor or the property of the $ailor, or of his "ife or children under his parental authority .! (f the $ailee imputes to the $ailor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has $een committed against the $ailee himself, his "ife or children under his authority, and /! (f the $ailee unduly refuses the $ailor support "hen the $ailee is legally or morally $ound to give support to the $ailor! Art 1929 The , %"or &h "" re!+n' the e:tr or'%n ry e:$en&e& '+r%n* the contr ct !or the $re&er( t%on o! the th%n* "o ne'# $ro(%'e' the , %"ee ,r%n*& the & )e to the /no-"e'*e o! the , %"or ,e!ore %nc+rr%n* the)# e:ce$t -hen they re &o +r*ent th t the re$"y to the not%!%c t%on c nnot ,e - %te' -%tho+t ' n*er1 I! the e:tr or'%n ry e:$en&e& r%&e on the occ &%on o! the ct+ " +&e o! the th%n* ,y the , %"ee# e(en tho+*h he cte' -%tho+t
The la" presumes that the $ailor ta&es into account the personal integrity and responsi$ility of all the $ailees and that he "ould not have constituted the commodatum if there "ere only one $ailee!
SECTION III OBLIGATIONS O7 T4E BAILOR

Art 1929 The , %"or c nnot 'e) n' the ret+rn o! the th%n* "o ne' t%"" !ter the e:$%r t%on o! the $er%o' &t%$+" te'# or !ter the cco)$"%&h)ent o! the +&e !or -h%ch the co))o' t+) h & ,een con&t%t+te'1 4o-e(er# %! %n the )e nt%)e# he &ho+"' h (e +r*ent nee' o! the th%n*# he ) y 'e) n' %t& ret+rn or te)$or ry +&e1 In c &e o! te)$or ry +&e ,y the , %"or# the contr ct o! co))o' t+) %& &+&$en'e' -h%"e th%n* %& %n the $o&&e&&%on o! the , %"or1 )ailor9s o$ligation to respect duration of loan General rule# )ailor can9t demand return thing loaned until ,! After the e'piration of the period stipulated, or
! +"t# they &h "" ,e ,orne e0+ ""y ,y ,oth the , %"or n' the , %"ee# +n"e&& there %& &t%$+" t%on to the contr ry1 Article covers e'traordinary e'penses Preservation of the thing loan Arising from the actual use of thing loaned Preservation for the thing loaned General rule# A'penses shall $e $orne $y the $ailor! As a rule, notice is re8uired $ecause it is possi$le that the $ailor may not "ant to incur the e'traordinary e'penses at all! o A'ception to the @?T(CA rule# hen the e'penses are so urgent that the reply to the notification cannot $e a"aited "ithout danger Arising from the actual use of the thing General rule Such e'penses 3caused $y fortuitous event4 arising on the occasion of the actual use of the thing loaned shall $e $orne $y $oth on a E60E6 $asis! o A'ception# Parties ho"ever may, $y stipulation, provide for a different apportionment of such e'penses, or that they shall $e $orne $y the $ailee or $ailor only! Art 198@ I!# !or the $+r$o&e o! ) /%n* +&e o! the th%n*# the , %"ee %nc+r& e:$en&e& other th n tho&e re!erre' to %n Art%c"e& 1921 n' 1929# he %& not ent%t"e' to re%),+r&)ent1 A'penses for ostentation are to $e $orne $y the $ailee $ecause they are not necessary for the preservation of thing!
The $ailee is given the right of retention until he is paid damages! here the defect is not &no"n to the $ailor, he is not lia$le $ecause commodatum is gratuitous!
Art 198> The , %"or c nnot e:e)$t h%)&e"! !ro) the $ y)ent o! e:$en&e& or ' ) *e& ,y , n'on%n* the th%n* to the , %"ee1 S+)) ry= 5ho $ y& -h tA )ailee pays for# o ?rdinary e'penses for the use and preservation of the thing o 2alf of the e'traordinary e'penses arising from actual use of the thing 3unless stipulated other"ise4 o @ot necessary for the preservation of the thing )ailor pays for# o Deterioration of the thing loaned o A'traordinary e'penses for the preservation of the thing loaned o 2alf of the e'traordinary e'penses arising from the actual use of the thing 3unless stipulated other"ise4
C4APTER T5O SI6PLE LOAN OR 6UTUU6

Art 1983 A $er&on -ho rece%(e& "o n o! )oney or ny other !+n*%,"e th%n* c0+%re& the o-ner&h%$ thereo!# n' %& ,o+n' to $ y to the cre'%tor n e0+ " )o+nt o! the & )e /%n' n' 0+ "%ty1 hat9s a simple loan or mutuum1 Contract "here$y one of the parties delivers to another money or other consuma$le thing "ith the understanding that the same amount of the same &ind and 8uality shall $e paid! (nvolves the return of the e8uivalent only and not the identical thing )orro"er ac8uires o"nership ?$ject# Money or any other fungi$le thing @o criminal lia$ility for failure to pay o @o estafa is committed $y a person "ho refuses to pay his de$t or denies its e'istence
Art 1981 The , %"or# -ho# /no-%n* the !" -& o! the th%n* "o ne'# 'oe& not '(%&e the , %"ee o! the & )e# &h "" ,e "% ,"e to the " tter !or the ' ) *e& -h%ch he ) y &+!!er ,y re &on thereo!1 5ia$ility to pay damages for &no"n hidden fla"s 7e8uisites for Art ,BE, to apply# ,! There is a hidden fla" or defect in the thing loaned .! )ailor is a"are of it /! Does not advise the $ailee of the same >! )ailee suffers damages $y reason of said fla" or defect
Simple loan distinguished from contract of rent Simple loan Contract of 7ent Delivery of money or some ?ne delivers to another some other consuma$le thing, "ith non0consuma$le thing in order promise to repay an e8uivalent that the latter may use it during amount a certain period and return it to the former! ?"ner or lessor does not lose his o"nership 7elation is that of o$ligor and 7elation is that of landlord and o$ligee tenant Creditor receives payment ?"ner receives compensation Meaning of fungi$le things Those "hich are usually dealt "ith $y num$er, "eight or measure Any given unit or portion is treated as e8uivalent of any other unit or portion Depends upon the intention of the parties 3compared to consuma$le "hich depend upon the nature of the thing itself4 Art 1982 A contr ct -here,y one $er&on tr n&!er& the o-ner&h%$ o! nonB!+n*%,"e th%n*& to nother -%th the o,"%* t%on on the $ rt o! the " tter to *%(e th%n*& o! the & )e /%n'# 0+ nt%ty# n' 0+ "%ty &h "" ,e con&%'ere' , rter1 )arter is a contract "here$y one of the parties $ind himself to give one thing in consideration of the other9s promise to give another thing! Commodatum and Mutuum )arter Su$ject matter# Money or any @on0fungi$le 3non0consuma$le4 other fungi$le thing thing Commodatum# )ailee $ound to A8uivalent thing is given in return the identical thing return for "hat has $een received May $e gratuitous 3mutuum4 ?nerous contract Al"ays gratuitous 3commodatum4
'e,tor o-e& nother th%n* o! the & )e /%n'# 0+ nt%ty n' 0+ "%ty# e(en %! %t &ho+"' ch n*e %n ( "+e1 In c &e %t %& %)$o&&%,"e to 'e"%(er the & )e /%n'# %t& ( "+e t the t%)e o! the $er!ect%on o! the "o n &h "" ,e $ %'1 -orm of payment 5oan of money o Payment must $e made in the currency stipulated, if possi$le to deliver such currency o ?ther"ise, it is paya$le in the currency "hich is legal tender in the Philippines o (n case of e'traordinary inflation or deflation, the $asis of payment shall $e the value of the currency at the time of the creation of the o$ligation Draco $orro"ed from 2arry PE66 paya$le after five years! ?n the maturity of the o$ligation, the value of PE66 dropped to P.E6 $ecause of inflation! (n this case, the $asis of payment shall $e the e8uivalent value of the currency today five years ago! 2ence, D is lia$le to pay P,666 unless there is an agreement to the contrary! Consuma$le or fungi$le o The $orr"er is under o$ligation to pay the lender another thing of the same &ind, 8uality and 8uantity o (n case it is impossi$le to do so, the $orro"er shall pay its value at the time of the perfection of the loan
Draco $orro"ed from 2arry t"o sac&s of rice of a certain &ind and 8uality! At the time the loan "as perfected, the price of each sac& "as P>66! Draco should return to 2arry t"o sac&s of rice of the same &ind and 8uality although at the time of the payment, the price had increase to PE66! (f on the due date of the o$ligation, the same &ind or rice could not $e delivered $y Draco $ecause it "as not availa$le for some reason, then Draco should pay 2arry the sum of P=66 instead, the value of the rice at the time of the perfection of the loan! Art 1989 No %ntere&t &h "" ,e '+e +n"e&& %t h & ,een e:$re&&"y &t%$+" te' %n -r%t%n*1 7e8uisites for recovery of interest ,! Payment of interest must $e e'pressly stipulated .! Agreement must $e in "riting
Art 1988 The o,"%* t%on o! $er&on -ho ,orro-& )oney &h "" ,e *o(erne' ,y the $ro(%&%on& o! Art%c"e& 1>29 n' 1>8@ o! th%& Co'e1 I! -h t - & "o ne' %& !+n*%,"e th%n* other th n )oney# the
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(nterest must $e la"ful
A'istence of stipulation to pay interest ,! (f a particular rate of interest has $een e'pressly stipulated $y the parties, that interest shall $e applied! .! (f the e'act rate of the interest is not mentioned, the legal rate of ,.< shall $e paya$le! (n this case, interest "as stipulated upon, $ut the parties just didn9t say at "hat rate! General rule# @o interest unless it has $een e'pressly stipulated in "riting! A'ception# 5ia$ility for interest comes in even in the a$sence of stipulation "hen# ,! (ndemnity for damages .! (nterest accruing from unpaid interest (nterest due shall earn interest from the time it is judicially demanded although the o$ligation may $e silent upon this point 3Art ..,.4 o Applica$le only "here interest has $een stipulated $y the parties o Art ..,. contemplates the presence of stipulated or conventional interest "hich has accrued "hen demand "as judicially made o (n cases "here no interest has $een stipulated $y the parties, no accrued conventional interest could further earn interest upon judicial demand
$e stipulated and demanded! The receipt $y the creditor of interest payment up to a certain date on a loan that has already matured does not ipso facto result in the rene"al or e'tension of maturity period of the loan up to said date! Ascalation clauses cannot depend solely on the "ill of a creditor! They should al"ays $e a reference rate upon "hich to peg such varia$le interest rates and there must al"ays $e a de0escalation clause stipulated! )an&s aren9t re8uired to pay interests at the time they "ere prohi$ited $y the Central )an&! 3?verseas )an& and 7amos v C) cases4
Art 198; Contr ct& n' &t%$+" t%on&# +n'er ny c"o / or 'e(%ce -h te(er# %nten'e' to c%rc+)(ent the " -& * %n&t +&+ry &h "" ,e (o%'1 The ,orro-er ) y reco(er %n ccor' nce -%th the " -& on +&+ry1 Parol evidence is admissi$le to sho" that a "ritten document though legal in form "as in fact a cloa& or device to cover usury A usurious contract should not $e considered void in its entirety $ut only as to the interest involved The "hole interest is void, not just the $alance a$ove the la"ful interest! 3)orro"er may recover A@T(7A interest4
Art 198< In the 'eter)%n t%on o! the %ntere&t# %! %t %& $ y ,"e %n /%n'# %t& ( "+e &h "" ,e $$r %&e' t the c+rrent $r%ce o! the $ro'+ct& or *oo'& t the t%)e n' $" ce o! $ y)ent1 Determination of interest paya$le in &ind Appraised the current price at the time and place of payment Draco $orro"ed P,66 from 2arry paya$le in palay in , year "hich shall $e appraised at the current mar&et price at the time and place of payment! hen the contract "as entered into, the price per cavan of palay "as PE6! ?n the date of the loan, the price increased to P;6! (n this case, the value of the palay shall $e appraised at P;6, the price at the time and place of payment! Art 1989 5%tho+t $re3+'%ce to the $ro(%&%on& o! Art%c"e >>1># %ntere&t '+e n' +n$ %' &h "" not e rn %ntere&t1 4o-e(er# the contr ct%n*
See %sury part for the interest computations! Doctrines on interests @o increase in interest shall $e due unless such increase has also $een e'pressly stipulated! Sales invoices or slips issued $y a store to its customers, stating interests and attorney9s fees in the usual printed forms as terms and conditions, "ithout the signature of the o$ligor, do not constitute the e'press stipulation re8uired $y Art ,BE;! Therefore, the o$ligor is not lia$le for the interest e'cept only the legal interest 3;< since not loan or for$earance4 under Art ..6B on the amount due in case of delay! (t is only in contracts of loan, "ith or "ithout security, that interest may
$ rt%e& ) y ,y &t%$+" t%on c $%t "%Ce the %ntere&t '+e n' +n$ %'# -h%ch & ''e' $r%n%$ "# &h "" e rn ne- %ntere&t1 hen unpaid interest earns interst General rule# Accrued interest 3interest due and unpaid4 shall not earn interest e'cept in t"o instances# o Dudicially demanded as provided for in Art ..,. o A'press stipulation made $y the parties that the interest due and unpaid shall $e added to the principal o$ligation and the resulting total amount shall earn interest 3must $e in "riting4 See %sury part for clearer e'planations! Art 199@ I! the ,orro-er $ y& %ntere&t -hen there h & ,een no &t%$+" t%on there!ore# the $ro(%&%on& o! th%& Co'e concern%n* solutio indebiti# or n t+r " o,"%* t%on&# &h "" ,e $$"%e'# & the c &e ) y ,e1 (f unstipulated interest is paid $y mista&e, the de$tor may recover as this "ould $e a case of unjust enrichment! )ut "here the stipulated interest, or interest stipulated, there $eing a stipulation $ut it is not in "riting, is paid voluntarily $ecause the de$tor feels morally o$liged to do so, there can $e no recovery as in the case of natural o$ligations!
in e'cess of "hat is allo"ed $y la" 7ules on interests 3Aastern Shipping 5ines v CA, ,BB> and from Atty 5erma9s lecture4 ,! .! hen an o$ligation, regardless of its source, is $reached, the contravenor can $e held lia$le for damages! (f o$ligation consists in the payment of a sum of money 3loan, for$earance of money, judgment money4 a! (nterest due is "hat has $een stipulated $y the parties $! The interest shall earn legal interest from the time of judicial demand c! (f there9s no stipulation, the rate is ,.< from default 3judicial or e'trajudicial demand4 (f o$ligation is not a loan or for$earance of money a! (nterest on the amount of damages a"arded may $e imposed at the discretion of the court at ;< $! @o interest shall $e adjudged on unli8uidated claims or damages, e'cept "hen or until the amount can $e esta$lished "ith reasona$le certainty c! here the amount is esta$lished "ith reasona$le certainty, the interest shall $egin from the time the claim is made judicially or e'trajudicially d! )ut "hen such certainty cannot $e so reasona$ly esta$lished the time the demand is made, the interest shall $egin to run only from the date the judgment of the court is made e! The actual $ase 3principal4 for the computation of the legal interest shall, in any case, $e on the amount finally adjudged! hen judgment of court a"arding a sum of money $ecomes final and e'ecutory, ,.< interest from such until its payment
/!
Art 1991 U&+r%o+& contr ct& &h "" ,e *o(erne' ,y the U&+ry L - n' other &$ec% " " -&# &o ! r & they re not %ncon&%&tent -%th th%& co'e1
II T4E USURY LA5

Suspended $y C) Circular B6E hile there are no more ceilings on interests, courts can still lo"er them if they are ini8uitous Alements of usury ,! 5oan or for$earance .! %nderstanding $et"een the parties that the loan shall or may $e returned /! An unla"ful intent to ta&e more than the legal rate for the sue of money or its e8uivalent >! The ta&ing or agreeing to ta&e for the use of the loan of something
>!
A'amples
,! F sued G for nonpayment of de$t 3no stipulation on interest,4
no demand letter, only judicial demand ,.<

due date
1
,.<
final judgment
filing of case
2c applies here, Art ,,;B
+ Ad Majorem Dei Gloriam Security and Credit Transactions @o interest no interest no interest ;< due date demand decision 3of TC4 ,.< finality
with demand letter ,.<

due date demand filing of case
,.<
,.<
final judgment ;! F sued G for non0delivery of goods 3penalty clause of ,6< 0 "hich is considered HinterestI4 ,6< due date demand ,6< + ,.<; ,.< judicial demand final judgment
.! F sued G for nonpayment of de$t 3interest stipulated upon, $ut no rate specified4
J! F sued G for a loan 3,E< interest, ,=< penalty clause4
,.<
due date
,.<
demand
,.< + ,.<.
decision final judgment
,.<
,E<
,E<
,E< ,=<
judicial demand
/! F sued G for nonpayment of de$t 3stipulated interest ,6<4
,E< ,=< ,.< of ,E<J ,.< of ,=<=

final judgment
,.<
,6<
due date
,6<
demand
,6< +
,.<
,.<
final judgment
due date
demand letter
>! F sued G for nonpayment of de$t 3stipulated interest ,6< compounded4 ,6<c due date ,6<c demand ,6<c + ,.<c> final judgment ,.<
Chec& the case of 7C)C v Alfa 7T Manufacturing 3/;= SC7A ;,,4 for a good e'planation of application of charges
E! F sued G for non0delivery of goods
VBGUARANTY AND SURETYS4IP C4APTER ONE NATURE AND EDTENT O7 GUARANTY

Art >@2; By *+ r nty $er&on# c ""e' the *+ r ntor# ,%n'& h%)&e"! to the cre'%tor to !+"!%"" the o,"%* t%on o! the $r%nc%$ " 'e,tor %n c &e the " tter &ho+"' ! %" to 'o &o1 I! $er&on ,%n'& h%)&e"! &o"%' r%"y -%th the $r%nc%$ " 'e,tor# the $ro(%&%on& o! Sect%on 2# Ch $ter 3# T%t"e I o! th%& ,oo/ &h "" ,e o,&er(e'1 In &+ch c &e the contr ct %& c ""e' &+rety&h%$1
6 7 8
Reasonable certainty of amount @o interest

due date
no interest
demand
;<
,.<
final judgment
No reasonable certainty of amount
2 3 4 5
?f the accrued interest at time of demand ?f the accrued interest at time of demand ?f the accrued interest at time of demand
of the accrued penalty amount at the time of judicial demand ,.< of the accrued interest at time of judicial demand ,.< of the accrued penalty charge at the time of judicial demand
interest shall begin to run only from the date the judgment of the court is made !at which time the "uantification of damages may be deemed to ha#e been reasonably ascertained$
10
Characteristics of the contract ,! Accessory .! Su$sidiary and conditional 3ta&es effect only "hen the principal de$tor fails in his o$ligation su$ject to limitation4 /! %nilateral >! 7e8uires that the guarantor must $e a person distinct from the de$tor $ecause a person cannot $e the personal guarantor of himself Guarantor 5ia$ility depends upon an independent agreement to pay the o$ligation if the primary de$tor fails to do so Collateral underta&ing Secondarily or su$sidiarily lia$le @ot $ound to &no" if principal de$tor9s default ?ften discharged $y the mere indulgence of the creditor of the principal, not lia$le unless notified of the default of the principal )inds himself to pay if the principal cannot or una$le to pay Surety Assumes lia$ility as a regular party Charged as an original promisor Primarily lia$le 3underta&es directly for the payment "ithout reference to the solvency of the principal4 2eld to &no" every default of his principal @ot $e discharged either $y the mere indulgence of the creditor or $y "ant of notice of the default of the principal )inds himself to pay if the principal does not pay
Contract $y "hich a person is $ound to another for the fulfillment of a promise or engagement of a third party
%nderta&ing that the title, 8uality or 8uantity of the su$ject matter of a contract is "hat is has $een represented to $e, and relates to some agreement made ordinarily $y the party "ho ma&es the "arranty
Art >@2< A *+ r nty %& *r t+%to+&# +n"e&& there %& contr ry1 General rule# Guaranty is gratuitous
&t%$+" t%on to the
Cause of contract of guaranty Cause of the contract is the same cause "hich supports the o$ligation as to the principal de$tor @ot necessary to prove any consideration as $et"een the guarantor or surety and the creitor Consideration "hich supports the o$ligation as to the principal de$tor is sufficient consideration to support the o$ligation of a guarantor or surety Kalid despite a$sence of any direct consideration received $y guarantor Art >@29 A ) rr%e' -o) n ) y *+ r ntee n o,"%* t%on -%tho+t the h+&, n'?& con&enet# ,+t &h "" not there,y ,%n' the con3+* " $ rtner&h%$# e:ce$t %n c &e& $ro(%'e' ,y " -1 Married "oman as guarantor Married "oman ordinarily $inds only her separate property She may also $ind the community or conjugal partnership property "ith her hus$and9s consent, and even "ithout the consent of her hus$and, in cases provided $y la" 3such as "hen the guaranty has redounded to the $enefit of the family4 Art >@8@ I! *+ r nty %& entere' %nto -%tho+t the /no-"e'*e or con&ent# or * %n&t the -%"" o! the $r%nc%$ " 'e,tor# the $ro(%&%on& o! Art%c"e& 1>39 n' 1>3; &h "" $$"y1 Guaranty underta&en "ithout &no"ledge of de$tor Guaranty e'ists for the $enefit of the creditor and not for the $enefit of
Assence of the o$ligation of the surety is to pay the creditor "ithout 8ualification if the principal de$tor does not pay Guarantor does not contract that the principal "ill pay, $ut simply that he is a$le to do so! Guarantor (ndorsement Contract of security Contract of transfer 5ia$ility more e'tensive May $e sued as promisor arrants the solvency of the promisor Cannot $e sued as promisor Guaranty arranty
11
the principal de$tor "ho is not a party to the contract of guaranty Creditor has every right to ta&e all possi$le measures to secure the payment of his credit
*+ r ntee
n t+r " o,"%* t%on1
7ights of third person "ho pays Against the "ill of the de$tor or "ithout the &no"ledge of the de$tor o 2e can only recover insofar as the payment has $een $eneficial to the de$tor, A@D o 2e cannot compel to creditor to su$rogate him the creditor9s rights ith &no"ledge or consent of the de$tor o Third person su$rogated $y virtue of payment to all the rights "hich the creditor had against the de$tor Draco o"es 2arry P,66! ithout the &no"ledge of Draco, Ginny agrees to guarantee the o$ligation of Draco! (f Ginny pays 2arry P,66, she can as& reim$ursement for P,66 from Draco! (f P>6 had already $een paid $y Draco, then Ginny is entitle to $e reim$ursed only P;6, that "hich "as $eneficial to Draco! Ginny can recover the P>6 from 2arry "ho should not have accepted it! Suppose the o$ligation of Draco is secured $y the chattel mortgage of his "and! Payment $y Ginny "ithout the &no"ledge or against the "ill of Draco does not give Ginny the right to foreclose $ecause Ginny has no right to su$rogation! Art >@81 A *+ r nty ) y ,e con(ent%on "# "e* " or 3+'%c% "# *r t+%to+&# or ,y onero+& t%t"e1 It ) y "&o ,e con&t%t+te'# not on"y %n ! (or o! the $r%nc%$ " 'e,tor# ,+t "&o %n ! (or o! the other *+ r ntor# -%th the " tter?& con&ent# or -%tho+t h%& /no-"e'*e# or e(en o(er h%& o,3ect%on1 According to manner of creation# legal, conventional or judicial 3one constituted $y decree of court4 Paragraph . refers to a dou$le or su$0guaranty * not to $e confused "ith several guarantors 3Art .6;E and .6J/4
A guaranty is an accessory contract (ndispensa$le condition for its e'istence that there must $e a principal o$ligation Koid principal o$ligation, void guaranty Article .6E. spea&s a$out a valid o$ligation, as distinguished from a void o$ligation, and not an e'isting or current o$ligation o %nder Article .6E/, a guaranty may also $e given as security for future de$ts, the amount of "hich is not yet &no"n o A signatory to a guaranty agreement is lia$le on a promissory note for an unpaid loan o$tained under that agreement although he did not sign the promissory note A guaranty may secure the performance of a o Koida$le contact o %nenforcea$le contract o @atural o$ligation, so that the creditor may proceed against the guarantor although he has no right of action against the principal de$tor for the reason that the latter9s o$ligation is not civilly enforcea$le
Art >@83 A *+ r nty ) y "&o ,e *%(en & &ec+r%ty !or !+t+re 'e,t&# the )o+nt o! -h%ch %& not yet /no-n. there c n ,e no c" %) * %n&t the *+ r ntor +nt%" the 'e,t %& "%0+%' te'1 A con'%t%on " o,"%* t%on ) y "&o ,e &ec+re'1 Guaranty of future de$ts * continuing guaranty or suretyship Continuing gurranty or suretyship o @ot limited to a single transaction o Contemplates a future course of dealings, covering a series of transactions generally for an indefinite time or until revo&ed o Prospective in its operation o Generally intended to provide security "ith respect to future transactions -uture de$ts, even if the amount is not yet &no"n, may $e guaranteed $ut there can $e no claim against the guarantor until the amount of the de$t is o Ascertained, or o -i'ed and demanda$le
Art >@8> A *+ r nty c nnot e:%&t -%tho+t ( "%' o,"%* t%on1 Ne(erthe"e&&# *+ r nty ) y ,e con&t%t+te' to *+ r ntee the $er!or) nce o! (o%' ,"e or n +nen!orce ,"e contr ct1 It ) y "&o
12
@)# )y no means ho"ever is it meant that in all instances a contract of guaranty or suretyship should $e prospective in application o (t "ill only $e construed as continuing "hen $y the terms thereof it is evident that the o$ject is to give a standing credit to the principal de$tor to $e used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is e'pressly reserved H-uture de$tsI may also refer to de$ts e'isting at the time of the constitution of the guaranty $ut the amount thereof is un&no"n and not to de$ts not yet incurred and e'isting at that time!
n t+re o! the con'%t%on&1 Sho+"' he h (e ,o+n' h%)&e"! !or )ore# h%& o,"%* t%on& &h "" ,e re'+ce' to the "%)%t& o! th t o! the 'e,tor1 The guarantor cannot $ind himself for more than the principal de$tor, and even if he does, his lia$ility shall $e reduced to the limits of that of the de$tor! )ut a guarantor may $ind himself for less than that of the principal! @)# Creditors suing on a surety $ond may recover from the surety as part of their damages# o (nterest, at the legal rate 7uns from the filing of the complaint or from the time demand "as made upon the surety until the principal o$ligation is paid o Dudicial costs o Attorney9s fees "hen appropriate o Aven "ithout stipulation and even in surety "ould there$y $ecome lia$le to pay more than the total amount stipulated in the $ond
Guaranty of conditional o$ligations (f principal o$ligation is su$ject to a suspensive condition, the guarantor is lia$le only after the fulfillment of the condition! (f it is su$ject to a resolutory condition, the happening of the condion e'tinguishes $oth the principal o$ligation and the guaranty! i! Draco and 2arry are partners in $usiness! Ginny may guarantee the payment $y Draco of 2arry9s share from the profit of the $usiness "hich has not yet $een ascertained! %nder Article .6E/, Ginny cannot $e lia$le to 2arry $efore such share is li8uidated! ii! 2arry sold his land to Draco "ith Ginny as guarantor for the payment of the purchase price! (t "as agreed that 2arry "ould give to Ginny the title papers sho"ing that 2arry is in fact the o"ner of the land sold! Draco $ecame insolvent! (n this case, Ginny is lia$le only after the fulfillment of the suspensive condition * the production of the proper papers! iii! Suppose, in ii, 2arry "as given t"o months "ithin "hich to arrange and complete the papers relating to the property "ith the understanding that in case of failure of 2arry to complete the title papers "ithin said period, the contract of sale shall $e deemed automatically cancelled! (n this case, the fulfillment of the condition su$se8uent * the failure to complete the title papers "ithin the period * e'tinguishes the principal o$ligation of Draco to pay the price as "ell as Ginny9s guaranty! Art >@82 A *+ r ntor ) y ,%n' h%)&e"! !or "e&&# ,+t not !or )ore th n the $r%nc%$ " 'e,tor# ,oth & re* r'& the )o+nt n' the onero+&
Draco $orro"ed from 2arry P,66! (f Ginny guarantees to ans"er for P,E6, the guaranty is rendered void $ut she can $e made to pay only P,66 $ecause her o$ligation cannot e'ceed the limits of the principal o$ligation! (f the de$t is not secured $y a mortgage, and Ginny mortgaged the )urro" in favor of 2arry, 2arry may not foreclose the mortgage othere"ise, Ginny9s lia$ility "ould $e more onerous than that of Draco, the principal de$tor! Draco $orro"ed from 2arry P,E6 "ith Ginny limiting her guarantee to P,66! Draco "as a$le to pay only P,66! (n this case, 2arry can still claim from Ginny the $alance of PE6 $y virtue of the guaranty! This is so $ecause the payment $y Draco must $e applied first to the unsecured portion of P,66 for as regards him, it is more onerous as to the unsecured amount of PE6! Art >@88 A *+ r nty %& not $re&+)e'. %t )+&t ,e e:$re&& n' c nnot e:ten' to )ore th n -h t %& &t%$+" te' there%n1 I! %t ,e &%)$"e or %n'e!%n%te# %t &h "" co)$r%&e not on"y the $r%nc%$ " o,"%* t%on# ,+t "&o "" %t& cce&&or%e&# %nc"+'%n* the 3+'%c% " co&t&# $ro(%'e' -%th re&$ect to the " tter# th t the *+ r ntor &h "" ,e "% ,"e !or tho&e co&t& %nc+rre' !ter he h & ,een 3+'%c% ""y re0+%re' to
13
$ y1 Guaranty not presumed Guaranty re8uire the e'pression of const on the part of the guarantor to $e $ound! (t cannot $e presumed $ecause of the e'istence of a contract or principal o$ligation! Guaranty must $e in "riting! (t9s covered $y the Statute of -rauds! Guaranty strictly construed, and its conse8uences Strictly interpreted against the creditor and in favor of the guarantor and is not to $e e'tended $eyond its terms or specified limits A guarantor is lia$le only for the o$ligation of the de$tor stipulated upon, and not to o$ligations assumed previous to the e'ecution of the guaranty unless an intent to $e so lia$le is clearly indicated To hold the guarantor lia$le for de$ts contracted prior to the guaranty is, in effect, to ma&e him ans"er for de$ts incurred outside of the guaranteed period, and this cannot $e done "ithout his e'press consent hen lia$ility of surety limited to a fi'ed period, the surety cannot $e $ound, unless the contract has $een rene"ed o here, ho"ever, one of the conditions of the $ond filed $y the surety provides that the latter9s lia$ility "ill e'pire on the date of the maturity of the principal o$ligation, such stipulation is unfair for it practically nullifies that nature of the surety underta&ing A contract of suretyship or guaranty is only prospective, and not retroactive in operation unless a contrary intent is clearly sho"n The e'tent of a surety9s lia$ility is determined only $y the clause of the contract of suretyship Application of strictissimi juris Applica$le only to an accommodation surety, or one "ho does so gratuitously @ot applica$le to compensated sureties A'tent of guarantor9s lia$ility here guaranty definite o ?$ligation of the guarantor under the terms of the contract is limited in "hole or in part to the principal de$t, to the e'clusion of the accessories o (f the amount to $e paid or the service to $e performed $y the person guaranteed is specified in the contract of guaranty, then
the o$ligation of the guarantor e'tends no further than the sum or services so specified here guaranty indefinite or simple o (f the terms of the contract of guaranty are general and indefinite and do not specify in clear and e'press manner that the lia$ility of the guarantor is limited to the principal o$ligation, it e'tends not only to the said principal o$ligation $ut also to all its accessories, they $eing comprehended "ithin the principal $ecause the guaranty has secured it "ith all its conse8uences o %ic&ey' So, general rule is that it9s indefinite! Since the it is needed that the terms of the contract $e limited for it to $e definite! ithout a specification that it9s limited, Manresa considers it indefinite! 3 hat do you thin&14
5ia$ility of guarantor for judicial costs Guarantor shall ans"er for such judicial costs only as have $een incurred after he has $een judicially re8uired to pay Acceptance of guaranty $y creditor and notice thereof to guarantor (n declaring that guaranty must $e e'press, the la" refers solely and e'clusively to the o$ligation of the guarantor $ecause it is he alone "ho $inds himself $y his acceptance ith respect to the creditor, no such re8uirement needs to $e prescri$ed $ecause he $inds himself to nothing hen necessary o here there is merely an offer of a guaranty, it does not $ecome a $inding o$ligation until is accepted and until notice of such acceptance $y the creditor is given to, or ac8uired $y, the guarantor, or until has notice or &no"ledge that the creditor has performed the condition and intends to act upon the guaranty o Acceptance need not $e in "riting hen not necessary o here the transaction is not merely an offer of guaranty, $ut it amounts to direct or unconditional promise of guaranty, all that is necessary to ma&e the promise $inding is that promisee 3creditor4 should act upon it, and notice of acceptance is not necessary the reason $eing that the contract of guaranty is unilateral Art >@89 One -ho %& o,"%*e' to !+rn%&h *+ r ntor &h "" $re&ent
14
$er&on -ho $o&&e&&e& %nte*r%ty# c $ c%ty to ,%n' h%)&e"!# n' &+!!%c%ent $ro$erty to n&-er !or the o,"%* t%on -h%ch he *+ r ntee&1 The *+ r ntor &h "" ,e &+,3ect to the 3+r%&'%ct%on o! the co+rt o! the $" ce -here th%& o,"%* t%on %& to ,e co)$"%e' -%th1 Art >@8; I! the *+ r ntor &ho+"' ,e con(%cte' %n !%r&t %n&t nce o! cr%)e %n(o"(%n* '%&hone&ty or &ho+"' ,eco)e %n&o"(ent# the cre'%tor ) y 'e) n' nother -ho h & "" the 0+ "%!%c t%on& re0+%re' %n the $rece'%n* rt%c"e1 The c &e %& e:ce$te' -here the cre'%tor h & re0+%re' n' &t%$+" te' th t &$ec%!%e' $er&on &ho+"' ,e the *+ r ntor1 Lualifications of a guarantor ,! Possesses integrity .! Capacity to $ind himself, and /! Sufficient property to ans"er for the o$ligation "hich he guarantees ?f course, the creditor can "aive the re8uirements! @eed only $e present at the time of the perfection of the contract Su$se8uent loss of integrity or property or supervening incapacity of the guarantor "ould not operate to e'onerate the guarantor of the eventual lia$ility he has contracted, and the contract of guaranty continues o 2o"ever, the creditor may demand another guarantor "ith the proper 8ualifications! )ut he may "aive it if he chooses and hold the guarantor to his $argain! Dudicial declaration of insolvency is not necessary in order for the creditor to have the right to demand another guarantor
Selection of guarantor here the creditor has re8uired and stipulated that a specified person should $e a guarantor, the su$stitution of guarantor may not $e demanded! Guarantor personally designated $y the creditor o here the guarantor is personally designated $y the creditor, it is $ecause he considers him to have the 8ualifications for the purpose, and the responsi$ility for the selection should, therefore, fall upon him, and not on the de$tor! Guarantor selected $y principal de$tor o here the guarantor is selected $y the principal de$tor, the latter ans"ers for the integrity, capacity, and solvency of the former $ecause the guarantor must possess the 8ualifications not only at the moment the guaranty is given, $ut also until the e'tinguishment of the de$t!
C4APTER T5O E77ECTS O7 GUARANTY SECTION I E77ECTS O7 GUARANTY BET5EEN T4E GURANTOR AND T4E CREDITOR
Art >@8< The *+ r ntor c nnot ,e co)$e""e' to $ y the cre'%tor +n"e&& the " tter h & e:h +&te' "" the $ro$erty o! the 'e,tor# n' h & re&orte' to "" the "e* " re)e'%e& * %n&t the 'e,tor1 7ight of guarantor to $enefit of e'cussion or e'haustion ,! Guarantor only secondarily lia$le .! All legal remedies against de$tor must $e first e'hausted (ncludes rescission of fraudulent alienations of property made $y the de$tor not applica$le to contracts of suretyship
Does a guarantor9s lia$ility e'tinguish upon his death1 The Civil Code contains no provision that the guaranty is e'tinguished upon the death of the guarantor or the surety -rom this article, it is immediately apparent that the supervening incapacity of the guarantor does not terminate the contract $ut merely entitles the creditor to demand a replacement of the guarantor! )ut the step remains optional in the creditor! o (t is his right, not his dutyM he may "aive it if he choose and hold the guarantor to his $argain! The contracts of suretyship entered, not $eing intransmissi$le, his eventual lia$ility thereunder necessarily passed upon his death to his heirs!
7ight of creditor to secure judgment against guarantor prior to e'haustion
15
General rule# An ordinary personal guarantor 3not a pledgor or mortgagor4, may demand e'haustion of all the property of the de$tor $efore he can $e compelled to pay! 2o"ever, the creditor may secure a judgment against the guarantor $efore the e'haustion of the de$tor9s properties! (n this case, the guarantor shall $e entitled to a deferment of the e'ecution of the judgment against him until after the properties of the de$tor have $een e'hausted! 3$ased on trial convenience4 Art >@89 Th%& e:c+&&%on &h "" not t /e $" ce= 11 >1 31 >! 81 I! the *+ r ntor h & e:$re&&"y reno+nce' %t. I! he h & ,o+n' h%)&e"! &o"%' r%"y -%th the 'e,tor. In c &e o! %n&o"(ency o! the 'e,tor. 5hen he Ede$tor4 h & ,&con'e'# or c nnot ,e &+e' -%th%n the Ph%"%$$%ne& +n"e&& he h & "e!t ) n *er or re$re&ent t%(e. I! %t ,e $re&+)e' th t n e:ec+t%on on the $ro$erty o! the $r%nc%$ " 'e,tor -o+"' not re&+"t %n the & t%&! ct%on o! the o,"%* t%on1
Art >@9@ In or'er th t the *+ r ntor ) y ) /e +&e o! the ,ene!%t o! e:c+&&%on# he )+&t &et %t +$ * %n&t the cre'%tor +$on the " tter?& 'e) n' !or $ y)ent !ro) h%)# n' $o%nt o+t to the cre'%tor ( %" ,"e $ro$erty o! the 'e,tor -%th%n Ph%"%$$%ne terr%tory# &+!!%c%ent to co(er the )o+nt o! the 'e,t1 Art >@91 The *+ r ntor h (%n* !+"!%""e' "" the con'%t%on& re0+%re' %n the $rece'%n* rt%c"e# the cre'%tor -ho %& ne*"%*ent %n e:h +&t%n* the $ro$erty $o%nte' o+t &h "" &+!!er the "o&&# to the e:tent o! & %' $ro$erty# !or the %n&o"(ency o! the 'e,tor re&+"t%n* !ro) &+ch ne*"%*ence1 Duty of creditor to ma&e prior demand for payment from guarantor ,! Demand for payment $y the creditor upon the guarantor can $e made only after judgment on the de$t! .! Actual demand must $e made! ,! Doining the guarantor in the suit against the principal de$tor is not the demand intended $y la"! Duty of guarantor to set up $enefit of e'cussion As soon as he is re8uired to pay, the guarantor must ,! Claim the $enefit of e'cussion .! Also point out to the creditor availa$le property 3not in litigation or encum$ered4 of the de$tor "ithin the Philippines Duty of creditor to resort to all legal remedies ,! A'haust all the property of the de$tor pointed out $y the guarantor .! 7esort to all legal remedies against the de$tor (f he fails to do so $ecause of negligence, he shall suffer the loss, $ut only to the e'tent of the value of said property, for the insolvency of the de$tor /! Creditor must notify the guarantor of the de$tor9s ina$ility to pay 3Art .6;.4 General rule# Guarantor, not $eing a joint contractor "ith his principal cannot $e sued "ith his principal! A'ception# Adherence to this rule is not re8uired "hen it "ould serve merely to delay the accounting of the guarantor! Art >@9> In e(ery ct%on ,y the cre'%tor# -h%ch )+&t ,e * %n&t the
A'ceptions to $enefit of e'cussion ,! those provided in Art .6EB .! if he does not comply "ith Art .6;6M /! if he is a judicial $ondsman and su$0surety 3Art .6=>4M >! "here a pledge or mortgage has $een given $y him as a special security E! if he fails to interpose it as a defense $efore judgment is rendered against him A'ceptions provided in .6EB ,! A'press renunciation .! )inds himself solidarily, as a surety /! (nsolvency of de$tor Must $e proven $y unsatisfied "rit of e'ecution Dudicial declaration of insolvency not enough >! De$tor a$sconds or cannot $e locally sued E! 7esort to all legal remedies "ould $e a useless formality (f such judicial actions including e'ecution "ould not satisfy the o$ligation, the guarantor can no longer re8uire the creditor to resort to all such remedies
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$r%nc%$ " 'e,tor "one# e:ce$t %n the c &e& )ent%one' %n Art%c"e >@89# the !or)er &h "" &/ the co+rt to not%!y the *+ r ntor o! the ct%on1 The *+ r ntor ) y $$e r &o th t he ) y# %! he &o 'e&%re# &et +$ &+ch 'e!en&e& & re *r nte' h%) ,y " -1 The ,ene!%t o! e:c+&&%on )ent%one' %n Art >@8< &h "" "- y& ,e +n%)$ %re'# e(en %! 3+'*)ent &ho+"' ,e ren'ere' * %n&t the $r%nc%$ " 'e,tor n' the *+ r ntor %n c &e o! $$e r nce ,y the " tter1 Procedure "hen creditor sues ,! Creditor must sue principal alone! .! @otice to guarantor of the action so that he may choose to appear a! (f he appears, he is still given the $enefit of e'haustion! Koluntary appearance does not constitute a renunciation of his right to e'cussion! $! (f he does not appear, he cannot set up the defenses "hich are allo"ed to him $y la" $y appearing! (t may no longer $e possi$le for him to 8uestion the validity of the judgment rendered against the de$tor! /! 2earing $efore e'ecution an $e issued against guarantor a! here he is not a party in the case involving his principle, the guarantor is entitled to $e heard $efore an e'ecution can $e issued against him! Art >@93 A co)$ro)%&e ,et-een the cre'%tor n' the $r%nc%$ " 'e,tor ,ene!%t& the *+ r ntor ,+t 'oe& not $re3+'%ce h%) E*+ r ntorF1 Th t -h%ch %& entere' %nto ,et-een the *+ r ntor n' the cre'%tor ,ene!%t& ,+t 'oe& not $re3+'%ce the $r%nc%$ " 'e,tor1 Affects of compromise A compromise is a contract "here$y the parties, $y ma&ing reciprocal concessions, avoid a litigation or put an end to one already commenced! De$tor o"es creditor P,66, "ith Dojo as guarantor! ,! De$tor and creditor agree to reduce de$t to PJ6! Dojo also lia$le for PJ6, as it $enefited him! .! De$tor and creditor agree to increase de$t to P,/6! Dojo only lia$le for P,66, as it prejudiced him! /! Creditor and Dojo agree to e'tend time! A'tension also applies to de$tor as it "as to his $enefit! >! Creditor and Dojo shortened the period of payment! @ot $inding to de$tor as it prejudiced him!
Art >@92 The *+ r ntor o! *+ r ntor &h "" en3oy the ,ene!%t o! e:c+&&%on# ,oth -%th re&$ect to the *+ r ntor n' to the $r%nc%$ " 'e,tor1 Su$0guarantors also have a right to e'cussion, $oth "ith respect to the guarantor and to the principal de$tor Art >@98 Sho+"' there ,e &e(er " *+ r ntor& o! on"y one 'e,tor n' !or the & )e 'e,t# the o,"%* t%on to n&-er !or the & )e %& '%(%'e' )on* ""1 The cre'%tor c nnot c" %) !ro) the *+ r ntor& e:ce$t the &h re& -h%ch they re re&$ect%(e"y ,o+n' to $ y# +n"e&& &o"%' r%ty h & ,een e:$re&&"y &t%$+" te'1 The ,ene!%t o! '%(%&%on * %n&t the coB*+ r ntor& ce &e& %n the & )e c &e& n' !or the & )e re &on& & the ,ene!%t o! e:c+&&%on * %n&t the $r%nc%$ " 'e,tor1 Art .6;E only applies to instances "herein ,! Several guarantors .! ?nly one de$tor /! Same de$t )enefit of division among several guarantors ,! General rule# 5ia$ility is only joint Guarantors are not lia$le to the creditor $eyond the shares "hich they are respectively $ound to pay .! A'ception# solidarity, $ut must $e stipulated and those cases in .6EB, $ut "ith respect to guarantors, not the principal de$tor Draco o"es 2arry P,66! Ginny and 7on are guarantors! ,! 2arry can only demand PE6 each from Ginny and 7on! .! (f they Ginny and 7on $ound themselves solidarily, creditor can hold either of them lia$le for P,66! Moreover, credtor can demand from Ginny or 7on the entire o$ligation in cases mentioned in .6EB as "here Ginny or 7on has e'pressly renounced the $enefit of division! De$tor Draco and de$tor Dum$ledore jointly and severally o"e creditor 2arry P,66! Ginny and 7on are their respecti#e guarantors! ,! Creditor 2arry can hold Ginny and 7on responsi$le as guarantor for the entire amount of P,66! 2ere, the de$tors are distinct and the guarantors are $ound $y distinct ties to different de$tors!
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(f the o$ligation of Draco and Dum$ledore is joint, there are actually t"o de$ts * Draco9s de$t of PE66 and Dum$ledore9s de$t of PE66! Guarantor Ginny cannot demand that the claim of creditor 2arry for PE66 against Dum$ledore $e divided $et"een guarantor Ginny and guarantor 7on! @)! (n this e'ample, as Ginny guaranteed for Draco, and 7on guaranteed for Dum$ledore, the guarantors are only lia$le for their respective principal de$tors!
/!
)enefit of e'cussion among several guarantors hile it is needed to point out to the creditor the de$tor9s availa$le property in order to set up the guarantor9s $enefit of e'haustion, this is not needed for a guarantor to $e entitled to the $enefit of division! ?$ligation of guarantor "ith co0guarantors is not su$sidiary, $ut direct and does not depend as to its origin on the solvency or insolvency of the latter! Although after"ards, if one of them should turn out to $e insolvent, his share has to $e $orne $y the others! 3Art .6J/4
>!
(mmaterial that the de$t did not earn interest for the creditor Guarantor9s right to legal interest is granted $y la" A'penses incurred $y the guarantor ?nly those that the guarantor has to satisfy in accordance "ith la" as a conse8uence of the guaranty 3Art .6EE, par . 0 judicial costs, attorney9s fees etc4M not those "hich depend upon his "ill or $y his fault 5imited to those incurred $y the guarantor after having notified the de$tor that payment has $een demanded of him $y the creditor Damages, if they are due
SECTION II E77ECTS O7 GUARANTY BET5EEN T4E DEBTOR AND T4E GUARANTOR

Art >@99 The *+ r ntor -ho $ y& !or 'e,tor )+&t ,e %n'e)n%!%e' ,y the " tter1 The %n'e)n%ty co)$r%&e&= 11 The tot " )o+nt o! the 'e,t. >1 The "e* " %ntere&t& thereon !ro) the t%)e the $ y)ent - & ) 'e /no-n to the 'e,tor# e(en tho+*h %t '%' not e rn %ntere&t !or the cre'%tor. 31 The e:$en&e& %nc+rre' ,y the *+ r ntor !ter h (%n* not%!%e' the 'e,tor th t $ y)ent h ' ,een 'e) n'e' o! h%). 21 D ) *e&# %! they re '+e1 Guaranty, a contract of indemnity ,! Total amount of de$t 3of course, he cannot collect more than "hat he paid4 .! 5egal interest thereon Starting from the time notice of payment of de$t "as made &no"n to the de$tor
A'ceptions to right to indemnity or reim$ursement ,! Guaranty constituted "ithout &no"ledge or against the "ill of the de$tor, recovery only insofar as the payment has $een $eneficial to the de$tor 3Art .6E64 .! Payment $y a third person "ho does @?T intend to $e reim$ursed $y the de$tor is deemed a donation, "hich re8uires the de$tor9s consent! 3Art ,./=4 /! 7ight to demand reim$ursement is su$ject to "aiver! Art >@9; The *+ r ntor -ho $ y& %& &+,ro* te' ,y (%rt+e thereo! to "" the r%*ht& -h%ch the cre'%tor h ' * %n&t the 'e,tor1 I! the *+ r ntor h & co)$ro)%&e' -%th the cre'%tor# he c nnot 'e) n' o! the 'e,tor )ore th n -h t he h & re ""y $ %'1 Guarantor9s right to su$rogation Su$rogation transfers to the person su$rogated, the credit "ith all the rights thereto appertaining either against the de$tor or against third persons, $e they guarantors or possessors of mortgages, su$ject to stipulation in conventional su$rogation 3Art ,/6/4! Simply said, e'cept for the change of person of the creditor $y the guarantor, the o$ligation su$sists in all respects as $efore payment! ,! 7ight of su$rogation is necessary to ena$le the guarantor to enfore the indemnity given in Art .6;;! a! Arises $y operation of la" upon payment $y the guarantor! $! @ot a contractual right c! Guarantor is su$rogated, $y virtue of the payment, to the rights of the creditor, not those of the de$tor
(f guarantor paid a smaller amount to the creditor $y virtue of a compromise,
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he cannot demand more than he actually paid! Cannot $e invo&ed in those cases "here the guarantor has not right to $e reim$ursed! Art >@9< I! the *+ r ntor &ho+"' $ y -%tho+t not%!y%n* the 'e,tor# the " tter ) y en!orce * %n&t h%) "" the 'e!en&e& -h%ch he co+"' h (e &et +$ * %n&t the cre'%tor t the t%)e the $ y)ent - & ) 'e1 Affect of payment $y guarantor "ithout notice to de$tor See codal! (f the de$tor has already paid the creditor, "hen the guarantor pays, the de$tor can set up against the guarantor the defense of previous e'tinguishment of the o$ligation $y payment! @)! Do not confuse this "ith Art .6E6! (n that article, no guaranty e'ists to $egin "ith! 2ere, there is an e'isting guaranty relationship and the guarantor goes ahead and pays! Art >@99 I! the 'e,t - & !or $er%o' n' the *+ r ntor $ %' %t ,e!ore %t ,ec )e '+e# he c nnot 'e) n' re%),+r&e)ent o! the 'e,tor +nt%" the e:$%r t%on o! the $er%o' +n"e&& the $ y)ent h & ,een r t%!%e' ,y the 'e,tor1 Art .6;B applies "hen# ,! De$t has a periodNmaturity date .! Guarantor pays the de$t $efore due date Affect of payment $y guarantor $efore maturity General rule# Guarantor not entitled to reim$ursement since there is no necessity for accelerating payment! 2e can only demand for reim$ursement upon e'piration of the period! A'ception# (f payment is ratified or "ith consent $y the de$tor 3then the guarantor can demand reim$ursement even $efore maturity4 @)# (f guarantor pays $efore due date, the interest does not run even if de$tor has $een notified! Art >@;@ I! the *+ r ntor h & $ %' -%tho+t not%!y%n* the 'e,tor# n' the " tter not ,e%n* - re o! the $ y)ent# re$e t& the $ y)ent# the !or)er h & no re)e'y# ,+t on"y * %n&t the cre'%tor1 Ne(erthe"e&&# %n c &e o! *r t+%to+& *+ r nty# %! the *+ r ntor - & $re(ente' ,y !ort+%to+& e(ent !ro) '(%&%n* the 'e,tor o! the
$ y)ent# n' the cre'%tor ,eco)e& %n&o"(ent# the 'e,tor &h "" re%),+r&e the *+ r ntor !or the )o+nt $ %'1 Art .6J6 applies "hen# ,! Guarantor pays "ithout notice to de$tor .! De$tor, "ithout &no"ledge, repeats payment to creditor General rule# Guarantor9s only remedy is to collect from the creditor! 2e has no cause of action against the de$tor even if the creditor should $ecome insolvent! (t9s his fault for not advising the de$tor that he "as going to pay! )efore the guarantor pays the creditor, he must first notify the de$tor! A'ception# Guarantor may still claim from de$tor in spite of lac& of notice if the follo"ing conditions are present# ,! Guaranty is gratuitous .! Creditor $ecomes insolvent /! Guarantor "as prevented $y fortuitous even to advise the de$tor of the payment if creditor is solvent, guarantor must still recover from him Art >@;1 The *+ r ntor# e(en ,e!ore h (%n* $ %'# ) y $rocee' * %n&t the $r%nc%$ " 'e,tor= 11 5hen he %& &+e' !or the $ y)ent. >1 In c &e o! %n&o"(ency o! the $r%nc%$ " 'e,tor. 31 5hen the 'e,tor h & ,o+n' h%)&e"! to re"%e(e h%) !ro) the *+ r nty -%th%n &$ec%!%e' $er%o'# n' th%& $er%o' h & e:$%re'. 21 5hen the 'e,t h & ,eco)e 'e) n' ,"e# ,y re &on o! the e:$%r t%on o! the $er%o' !or $ y)ent. 81 A!ter the " $&e o! ten ye r&# -hen the $r%nc%$ " o,"%* t%on h & no !%:e' $er%o' !or %t& ) t+r%ty# +n"e&& %t ,e o! &+ch n t+re th t %t c nnot ,e e:t%n*+%&he' e:ce$t -%th%n $er%o' "on*er th n ten ye r&. 91 I! there ,e re &on ,"e *ro+n'& to !e t th t the $r%nc%$ " 'e,tor %nten'& to ,&con'. ;1 I! the $r%nc%$ " 'e,tor %& %n %))%nent ' n*er o! ,eco)%n* %n&o"(ent In "" c &e&# the ct%on o! the *+ r ntor %& to o,t %n re"e &e !ro) the *+ r nty# or to 'e) n' &ec+r%ty th t &h "" $rotect h%) !ro) ny $rocee'%n*& ,y the cre'%tor n' !ro) the ' n*er o! %n&o"(ency o! the
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'e,tor1 7ight of guarantor to proceed against de$tor $efore payment General rule# The guarantor has no cause of action against the de$tor until after the former has paid the o$ligation 3Art .6;;4 A'ception# The seven instances in Art .6J,! 2ere, the guarantor may proceed against the de$tor even $efore payment! The purpose is to ena$le the guarantor to ta&e measures for the protection of his interest in vie" of the pro$a$ility that he "ould $e called upon to pay the de$t! @)# (n Art .6J, 3,4, the creditor doesn9t have to $e the one to sue the guarantor, as the la" does not distinguish! 7emedy to "hich guarantor entitled ,! ?$tain release from the guaranty .! Demand a security that shall protect him from any proceedings $y the creditor, and against the danger of insolvency of the de$tor Guarantor cannot demand reim$ursement for indemnity $ecause he has yet to pay the o$ligation! 7emedies are alternative! Guarantor has the right to choose the action to $ring! 7emem$er that there are certain cases "hen the guarantor cannot claim the $enefit of e'cussion and in such cases it is $ut proper that the guarantor $e given the right to proceed against the de$tor! 314
as is authoriCed $y .6J,! .6;; Provides for enforcement of the rights of the guarantor against the de$tor A-TA7 he has paid the de$t 7ight of action after payment Su$stantive right .6J, Provides for protection )A-?7A he has paid $ut A-TA7 he has $ecome lia$le Protective remedy $efore payment Preliminary remedy
Suit $y guarantor against creditor $efore payment Action for release can only $e e'ercised against the principal de$tor and not against the de$tor o The creditor is not compella$le to release the guarantor $efore payment of his credit against his "ill! o Aspecially should this $e the case "here the principal de$tor has $ecome insolvent, for the purpose of a guaranty is e'actly to protect the creditor against such a contingency A$sent the creditor9s consent, the principal de$tor may only proceed to protect the demanding guarantor $y a counter$ond or counter0guranty
7ecovery $y surety against indemnitor even $efore payment ,! (ndemnity agreement for $enefit of surety .! (ndemnity agreement may $e against actual loss as "ell as lia$ility a! (ndemnity agreement against loss * indemnitor "ill not $e lia$le until the person to $e indemnified ma&es payment of sustains loss $! (ndemnity agreement against lia$ility * indemnitor9s lia$ility arises as soon as the lia$ility of the person to $e indemnified has arisen "ithout regard to "hether or not he has sufferered actual loss /! A stipulation in an indemnity agreement providing that the indemniotr shall pay the surety as soon as the latter $ecomes lia$le to ma&e payments to the creditor under the terms of the $ond, regardless of "hether the surety has made payment actually or not, is valid and enforcea$le! here the principal de$tors are simultaneously the same persons "ho e'ecuted the indemnity agreement, the position occupied $y them is that of a principal de$tor and indemnitor at the same time, and their lia$ility $eing joint and several "ith the surety, the creditor may proceed against either! Art >@;> I! one# t the re0+e&t o! nother# ,eco)e& *+ r ntor !or the 'e,t o! th%r' $er&on -ho %& not $re&ent# the *+ r ntor -ho & t%&!%e& the 'e,t ) y &+e e%ther the $er&on &o re0+e&t%n* or the 'e,tor !or re%),+r&e)ent1
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Art .6J. applies "hen# ,! Person re8uests a guarantor .! To guarantee a de$t of an a$sentee Guarantor, after satisfying the de$t, can see& reim$ursement from# ,! The person "ho re8uested, or .! The de$tor
any of the guarantors! (f Ginny pays the "hole de$t of PB66 he can later demand from 7on and -red P/66 each! )ut if 7on is insolvent, his share shall $e $orne $y Ginny and -red proportionately! Thus, Ginny can demand from -red P>E6! (f the $enefit of division ceases for reasons other than the insolvency of the principal de$tor 3Art .6EB4, the right to reim$ursement granted to Ginny against 7on and -red may only $e e'ercised if Ginny ma&es payment in virtue of a judicial demand $y 2arry! Art >@;2 In the c &e o! the $rece'%n* rt%c"e# the coB*+ r ntor& ) y &et +$ * %n&t the one -ho $ %'# the & )e 'e!en&e& -h%ch -o+"' h (e $ert %ne' to the $r%nc%$ " 'e,tor * %n&t the cre'%tor# n' -h%ch re not $+re"y $er&on " to the 'e,tor1 Defenses availa$le to co0guarantors (n the action filed $y the paying guarantor against his co0guarantors for their proportionate shares in the o$ligation, the latter may avail themselves of all defenses "hich the de$tor "ould have interposed against the creditor $ut not those "hich cannot $e transmitted for $eing purely personal to the de$tor! (n the e'ample a$ove, if Ginny sues 7on and -red, the latter may raise the defense of payment $y Draco $y virtue of "hich the o$ligation "as e'tinguished! )ut if Draco "as a minor at the time the o$ligation "as contracted, the defense of minority is not availa$le to 7on and -red $ecause it is personal to Draco! Art >@;8 A &+,B*+ r ntor# %n c &e o! the %n&o"(ency o! the *+ r ntor !or -ho) he ,o+n' h%)&e"!# %& re&$on&%,"e to the coB*+ r ntor& %n the & )e ter)& & the *+ r ntor1 5ia$ility of su$0guarantor in case of insolvency of guarantor (n case of the insolvency of the guarantor for "hom he $ound himself, a su$0guarantor is lia$le to the co0guarantors in the same manner as the guarantor "hom he guaranteed! (n the e'ample a$ove, if 2ermione 3co0guarantor4 is the guarantor of 7on, and 7on $ecomes insolvent, 2ermoine is lia$le to Ginny for P/66 or P>E6 if -red is also insolvent!
SECTION III E77ECTS O7 GUARANTY AS BET5EEN COBGUARANTORS

Art >@;3 5hen there re t-o or )ore *+ r ntor& o! the & )e 'e,tor n' !or the & )e 'e,t# the one )on* the) -ho h & $ %' ) y 'e) n' o! e ch o! the other& the &h re -h%ch %& $ro$ort%on ""y o-%n* !ro) h%)1 I! ny o! the *+ r ntor& &ho+"' ,e %n&o"(ent# h%& &h re &h "" ,e ,orne ,y the other&# %nc"+'%n* the $ yer# %n the & )e $ro$ort%on1 The $ro(%&%on& o! th%& rt%c"e &h "" not ,e $$"%c ,"e# +n"e&& the $ y)ent h & ,een ) 'e %n (%rt+e o! 3+'%c% " 'e) n' or +n"e&& the $r%nc%$ " 'e,tor %& %n&o"(ent1 Applies "hen# ,! .! /! >! Several guarantors ?ne de$t ?ne guarantor has paid the de$t and is see&ing reim$ursement Payment "as made either $y a! (n virtue of a judicial demand, or $! )ecause the principal de$tor is insolvent (f any of the guarantors should $e insolvent, his share shall $e $orne $y the others including the paying guarantor in the same proportion! The right of the guarantor "ho has paid the de$t is ac8uired ipso jure $y the guarantor $y virtue of said payment "ithout the need of o$taining from the creditor any prior cession of rights to such guarantor
Ginny, 7on and -red are Draco9s guarantors of a de$t of PB66 in favor of 2arry! (f Draco $ecomes insolvent, the right of Ginny, 7on and -red to proportionate division of their o$ligation ceases as far as 2arry is concerned 3art .6;E, .6EB4! 2arry may demand payment of the entire o$ligation from
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C4APTER T4REE EDTINGUIS46ENT O7 GUARANTY

Art >@;9 The o,"%* t%on o! the *+ r ntor %& e:t%n*+%&he' t the & )e t%)e & th t o! the 'e,tor# n' !or the & )e c +&e& & "" other o,"%* t%on&1 Causes of e'tinguishment of guaranty Guaranty $eing accessory and su$sidiary, it is also terminated "hen the principal o$ligation is e'tinguished! The guaranty itself may $e directly e'tinguished although the principal o$ligation still remains as in the case of the release of the guarantor made $y the creditor 3art .6J=4 Material alteration of principal contract Affect of material alteration o Any agreement $et"een the creditor and the principal de$tor "hich essentially varies the terms of the principal contract "ithout the consent of the surety, "ill release the surety from lia$ility o Such material alteration "ould constitute a novation or change of the principal contract "hich is conse8uently e'tinguished hen alteration material o The guarantor or surety "ill not $e released $y a change in the principal contract "here such change does not have the effect of ma&ing its o$ligation more onerous o There must $e change "hich imposes ne" o$ligation or added $urden on the party promising or "hich ta&es a"ay some o$ligation already imposed, changing the legal effect of the original contract and not merely the form thereof Art >@;; I! the cre'%tor (o"+nt r%"y cce$t& %))o( ,"e or other $ro$erty %n $ y)ent o! the 'e,t# e(en %! he &ho+"' !ter- r'& "o&e the & )e thro+*h e(%ct%on# the *+ r ntor %& re"e &e'1 7elease $y conveyance of property Any su$stitute paid in lieu of money "hich is accepted $y the creditor e'tinguishes the o$ligation and in conse8uence, the guaranty!
(f the creditor accepts property in payment of a de$t from the de$tor, the guarantor is relieved from responsi$ility! This is also true even inc ase the creditor is su$se8uently evicted from the property! o Aviction revives the principal o$ligation $ut not the guaranty!
Art >@;< A re"e &e ) 'e ,y the cre'%tor %n ! (or o! one o! the *+ r ntor&# -%tho+t the con&ent o! the other&# ,ene!%t& "" to the e:tent o! the &h re o! the *+ r ntor to -ho) %t h & ,een *r nte'1 7elease of guarantor "ithout consent of others As a rule, the guarantors enjoy the $enefit of division! 2o"ever, if any of them should $e insolvent all the other guarantors must $ear his share! So, a release made $y the creditor in favor of one of the guarantors "ithout the consent of the others may thus prejudice the latter should a guarantor $ecome insolvent! Ginny, 7on and -red are guarantors for a de$t of PB66! (f Ginny is released "ithout the consent of 7on and -red, then 7on and -red "ill each $e lia$le only for P/66! They are $enefited to the e'tent of P/66, the share of Ginny! (f the release is made "ith their consent, 7on and -red "ill each $e responsi$le for P>E6! (f Ginny is released "ith the consent only of 7on, 7on is lia$le for P;66, "hile -red is lia$le for P/66! Art >@;9 An e:ten&%on *r nte' to the 'e,tor ,y the cre'%tor -%tho+t the con&ent o! the *+ r ntor e:t%n*+%&he& the *+ r nty1 The )ere ! %"+re on the $ rt o! the cre'%tor to 'e) n' $ y)ent !ter the 'e,t h & ,eco)e '+e 'oe& not o! %t&e"! con&t%t+te ny e:ten&%on o! t%)e re!erre' to here%n1 7elease $y e'tension of the term granted $y creditor to de$tor (f the creditor grants an e'tension of time to the de$tor "ithout the consent of the guarantor 3or surety4, the latter is discharged from his underta&ing! o 7eason# To avoid prejudice to the guarantor! The de$tor may $ecome insolvent during the e'tension, and guarantor loses right to $e reim$ursed! ith regard to paya$les in installments and acceleration clauses# o here a guarantor is lia$le for different payments, such as installments for rents, or upon a series of promissory notes, an
22
e'tension of time as to one or more "ill not affect the lia$ility of the surety for the others! Draco o"es 2arry PB66, paya$le $y P/66 at the end of each month! Ginny guaranteed each month9s paya$le! 2arry granted an e'tension to Draco for the first month9s payment! Ginny is discharged from lia$ility in the first month9s payment, $ut not the others! o )ut if the "hole unpaid $alance has $ecome automatically due 3acceleration clause4, the act of the creditor of e'tending the payment of said installment, "ithout the guarantor9s consent, discharges the guarantor $ecause the e'tension constitutes in fact an e'tension of the payment of the "hole amount of the inde$tedness! ?f course, the guarantor may "aive in advance his right to $e notified or to give consent to the release $y the creditor of securities given or to the e'tension of the time of payment! The $enefit of e'cussion, as "ell as the re8uirement of consent to the e'tensions of payment, are protective devices pertaining to and conferred on the guarantor "hich the latter may invo&e as defenses to $ar any un"arranted enforcement of the guarantee! 2o"ever, the guarantor may opt not to avail of these defenses $y paying the o$ligation according to the tenor of the guarantee once demand is made on him $y the creditor! here under the indemnity agreement, "here$y the indemnitors $ound themselves jointly and severally to the surety for the faithful compliance "ith the terms of the surety $ond issued $y the surety in favor of the creditor to secure a credit line e'tended to the principal de$tor, the indemnitors remained simply such $ound to the surety $ut not to the creditor! Such creditor cannot directly demand payment of the principal o$ligations from the indemnitors! o The indemnitors are second0tier parties so far as the creditor is concerned and any e'tension of time granted $y the creditor to any of the first0tier o$ligors 3principal de$tor and the surety4 cannot prejudice the second0tier parties! 3"hut14 (t is unimportant "hether the e'tension given has actually proved prejudicial or not to the guarantor or surety! The e'tension of the term must $e $ased on some ne" agreement $et"een the creditor and the principal de$tor $y virtue of "hich the creditor deprives himself of his claim!
(t should appear that the e'tension "as for a definite period, pursuant to an enforcea$le agreement $et"een the principal and the creditor, and that it "as made "ithout the consent of the surety or "ith a reservation of rights "ith respect to him! o The mere failure or neglect on the part of the creditor to enforce payment as soon as the de$t matures, does not constitute an e'tension of the term of the o$ligation, meaning the lia$ility of the guarantor is not e'tinguished! o The rule applies even if the de$tor should $ecome insolvent su$se8uent to the maturity of the de$t! The reason is that the guarantor "ould not $e prejudiced since he could avail himself of the right granted him under Art .6J,, namely, to as& the de$tor for a release or to demand a security! Draco o"es 2arry PB66, due on Danuary /,, .6,6! Ginny guaranteed the de$t! Come -e$ruary, 2arry neglected to demand from Draco! (s Ginny discharged1 @o! Supposing Draco $ecomes insolvent after the de$t matured, is Ginny discharged1 @o! She can, ho"ever, as& Draco for a release from the guaranty or demand a security! The creditor is under no o$ligation to display any diligence in the enforcement of his rights as a creditor! 2is mere inaction, indulgence, etc in proceeding against the principal de$tor, or the fact that he did not enforrce the guaranty or apply on the payment of such funds as "ere availa$le constitutes no defense at all for the surety, unless the contract e'pressly re8uires diligence and promptness on the part of the creditor! o hy1 There is nothing to prevent the creditor from proceeding against the principal at any time! At any rate, if the surety is dissatisfied "ith the degree of the activity displayed $y the creditor in the pursuit of his principal, he may pay the de$t himself and $ecome su$rogated to all the rights and remedies of the creditor!
Art >@<@ The *+ r ntor&# e(en tho+*h they ,e &o"%' ry# re re"e &e' !ro) the%r o,"%* t%on -hene(er ,y &o)e ct o! the cre'%tor they c nnot ,e &+,ro* te' to the r%*ht&# )ort* *e&# n' $re!erence& o! the " tter1 7elease "hen guarantor cannot $e su$rogated The guarantor "ho pays is entitled to $e su$rogated to all the rights of
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the creditor! (f there can $e no su$rogation $ecause of the fault of the creditor, as "hen the creditor releases or fails to register a mortgage, the guarantors are there$y released! 3Applies even if guarantors are solidary4 o hy1 The act of one cannot prejudice another! (t also avoids opportunity for collusion $et"een the creditor and the de$tor or a third person
@ot cash or currency hatever surety $onds are su$mitted are su$ject to any o$jections as to their sufficiency or as to the solvency of the $ondsman
Art >@<1 The *+ r ntor ) y &et +$ * %n&t the cre'%tor "" the 'e!en&e& -h%ch $ert %n to the $r%nc%$ " 'e,tor n' re %nherent %n the 'e,t. ,+t not tho&e th t re $+re"y $er&on " to the 'e,tor1 Defenses availa$le to guarantor against creditor Defenses availa$le to a de$t as against a guarantor are provided in Art .6;=, and those availa$le to co0guarantors in Art .6J> This article provides for the defenses, e'cept those "hich are purely personal to the de$tor, that may $e interposed $y the guarantor as against the creditor In &+)) ry# -hen %& *+ r ntor '%&ch r*e' !ro) "% ,%"%tyA ,! hen principal o$ligation is e'tinguished 3Art .6J;4 .! hen creditor accepts immova$le or other property in payment of the de$t 3Art .6JJ4 /! hen creditor releases one of the guarantors 3Art .6J=4 >! hen an e'tension is granted to the de$tor "ithout the consent of the guarantor 3Art .6JB4 E! hen, $y the act of the creditor, they cannot $e su$rogated to the rights, mortgages and preferences of the creditor 3Art .6=64
Lualifications of personal $ondsman A $ondsman is a surety offered in virtue of a provision of la" or a judicial order 2e must 8ualifications o 7e8uired of a guarantor 3Art .6E;4 o 7ules of Court 3Sec ,., ,/, 7ule ,,>4 7esident o"ner of real estate "ithin the Philippines ?nly one surety1 2is real estate must $e "orth at least the amount of the underta&ing, and T"o or more sureties1 They may justify severally in amounts less than that e'pressed in the underta&ing, if the entire sum justified to is e8uivalent to the "hole amount of $ail demanded! (n all cases, every surety must $e "orth the amount specified in the underta&ing over and a$ove all just de$ts, o$ligations and property e'empt from e'ecution! Art >@<3 I! the $er&on ,o+n' to *%(e ,on' %n the c &e& o! the $rece'%n* rt%c"e# &ho+"' not ,e ,"e to 'o &o# $"e'*e or )ort* *e con&%'ere' &+!!%c%ent to co(er h%& o,"%* t%on &h "" ,e ')%tte' %n "%e+ thereo!1 Guaranty or suretyship is a personal security! ?n the other hand, pledge or mortgage is a property or real security! (f the person re8uired to give a legal or judicial $ond should not $e a$le to do so, a pledge or mortgage sufficient to cover the o$ligation shall $e admitted in lieu thereof!
C4APTER 7OUR LEGAL AND GUDICIAL BONDS

Art >@<> The ,on'&) n -ho %& to ,e o!!ere' %n (%rt+e o! $ro(%&%on o! " - or o! 3+'%c% " or'er &h "" the 0+ "%!%c t%on& $re&cr%,e' %n Art >@89 n' %n &$ec% " " -&1 hat is a $ond1 An underta&ing that is sufficiently secured, and
Art >@<2 A 3+'%c% " ,on'&) n c nnot 'e) n' the e:h +&t%on o! the $ro$erty o! the $r%nc%$ " 'e,tor1 A &+,B&+rety %n the & )e c &e# c nnot 'e) n' the e:h +&t%on o! the $ro$erty o! the 'e,tor or o! the &+rety1 A judicial $ondsman and the su$0surety are not entitled to the $enefit of e'cussion!
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)ecause they are not mere guarantors, $ut sureties "hose lia$ility is primary and solidary! The contract of suretyship is not that the creditor "ill see that the principal de$tor pays his de$t or fulfills his contract, $ut that the surety "ill see that the de$tor pays or performs! o So, mere negligence on the part of the creditor in collecting from the de$tor "ill not relieve the surety from lia$ility! o
person o a mova$le o or document evidencing incorporeal rights, for the purpose of securing the fulfillment of a principal o$ligation "ith the understanding that "hen the o$ligation is fulfilled, the thing delivered shall $e returned "ith all its fruits and accessions! +inds of pledge ,! Koluntary or conventional .! 5egal, or created $y operation of la"
VI PLEDGE C4APTER ONE PROVISIONS CO66ON TO PLEDGE AND 6ORTGAGE

Art >@<8 The !o""o-%n* re0+%&%te& re e&&ent% " to the contr ct& o! $"e'*e n' )ort* *e= 11 Th t they ,e con&t%t+te' to &ec+re the !+"!%"")ent o! $r%nc%$ " o,"%* t%on. >1 Th t the $"e'*or or )ort* *or ,e the ,&o"+te o-ner o! the th%n* $"e'*e' or )ort* *e'. 31 Th t the $er&on& con&t%t+t%n* the $"e'*e or )ort* *e h (e the !ree '%&$o& " o! the%r $ro$erty# n' %n the ,&ence thereo!# th t they ,e "e* ""y +thor%Ce' !or the $+r$o&e1 Th%r' $er&on& -ho re not $ rt%e& to the $r%nc%$ " o,"%* t%on ) y &ec+re the " tter ,y $"e'*%n* or )ort* *%n* the%r o-n $ro$erty1 Art >@<9 The $ro(%&%on& o! rt%c"e >@8> re $$"%c ,"e to )ort* *e1 $"e'*e or
Characteristics of the contract of pledge ,! 7eal contract 3perfected $y the delivery of thing pledged4 .! Accessory /! %nilateral 3creates an o$ligation solely on the part of the creditor to return the thing upon the fulfillment of the principal o$ligation4 >! Su$sidiary 3o$ligation incurred does not arise until the fulfillment of the principal o$ligation "hich is secured4 Cause or consideration in pledge (f he 3pledgor4 is the de$tor, the cause is the principal o$ligation (f he is not the de$tor, the cause is the compensation stipulated for the pledge or the mere li$erality of the pledgor Assential re8uirements of pledge and mortgage ,! Constituted to secure fulfillment of a principal o$ligation .! Constituted $y the a$solute o"ner of the thing pledged or mortgaged ,! ?r at least $y the pledgor or mortgagor "ith the authority or consent of the o"ner of the property pledged or mortgaged .! hy1 (n anticipation of the foreclosure sale! o -uture property cannot $e pledged or mortgaged o A pledge or mortgage e'ecuted $efore the pledgor or mortgagor $ecame the o"ner of the property is void and ineffective o A mortgage of conjugal property $y one of the spouses is valid only as to O of the entire property /! Pledgor or mortgagor has free disposal of property or has legal authority -ree disposal meaning the property must not $e su$ject to any claim of a third person
Art >@<; It %& "&o o! the e&&ence o! the&e contr ct& th t -hen the $r%nc%$ " o,"%* t%on ,eco)e& '+e# the th%n*& %n -h%ch the $"e'*e or )ort* *e con&%&t& ) y ,e "%en te' !or the $ y)ent to the cre'%tor1 hat is a pledge1 Contract $y virtue of "hich the de$tor delivers to the creditor or to a third
25
>!
E!
Capacity to dispose of property means the pledgor or mortgagor has the capacity or the authority to ma&e a disposition of the property o 7ead "ith reference to special po"ers of attorney, since this an act of strict o"nership The thing pledged must $e delivered to the creditor or to a third person $y common agreement 3Art .6B/4 ithout delivery there can $e no pledge $ecause in this delivery lies the security of the pledge (n a contract of mortgage, the mortgagor, as a general rule, retains the possession of the property mortgaged! Thing pledged or mortgaged may $e alienated Gou can9t pledge your nephe", no matter ho" annoying he is hat is the doctrine of the mortgagee in good faith1 The re8uirement that the mortgagor must have the free disposal of the property or at least have legal authority to do so, does not apply "here the property involved is registered under the Torrens System! hile it is true that the mortgagor $e the a$solute o"ner of the property mortgaged, a mortgagee has the right to rely upon "hat appears in the certificate of title and does not have to in8uire further! o So if Draco mortgages his land to 2arry, and 2arry relies on the TCT given $y Draco, then the mortgage is valid * even if it turns out that the land "asn9t Draco9s, $ut is actually 7on9s! An innocent purchaser for value 3li&e mortgagee4 relying on a Torrens system title is protected! )ased on the pu$lic interest in upholding the indefeasi$ility of a certificate of title! A'ception# This rule does not apply to $an&s 3and analogously to the GS(S4 "hich should e'ercise more care and prudence in dealing "ith registered lands, than private individuals, for their $usiness is one affected "ith pu$lic interest! The $an& must o$serve due diligence in ascertaining the real o"ner of the registered land given as security for a loan!
Difference "ith mortgagesNpledges $y de$tor# Creditor is re8uired to e'ercise due care and prudence $y ma&ing proper in8uiry "here the de$tor $orro"s money Pledge Mova$les Property delivered to pledgee, or $y common consent to a third person @ot valid against third persons unless a description of the thing pledged and the date of the pledge appear in a pu$lic instrument Mortgage (mmova$les Delivery is not necessary @ot valid against third persons if not registered
Art >@<< The cre'%tor c nnot $$ro$r% te the th%n*& *%(en ,y - y o! $"e'*e or )ort* *e# or '%&$o&e o! the)1 Any &t%$+" t%on to the contr ry %& n+"" n' (o%'1 Creditor is merely entitled to move for the sale of the thing pledged or mortgaged, "ith the formalities re8uired $y la" in order to collect the amount of his claim from the proceeds! The default does not operate to vest in the pledgee or mortgagee the o"nership of the property for any such effect is against pu$lic policy!
Pledgor or mortgagor may $e a third person @ot necessary that the principal de$tor should al"ays $e the pledgor or mortgagor As long as valid consent "as given $y the pledgor or mortgagor, it9s valid, even if no $enefit redounded to the pledgor or motgagor
Pactum commissorium 7e8uisites# ,! There should $e a pledge, mortgage, antichresis of property $y "ay of security for the payment of the principal o$ligationM and .! There should $e a stipulation for an automatic appropriation $ the creditor of the property in the event of non0payment of the o$ligation "ithin the stipulated period (n the event that there is a pactum commissorium, only the stipulation is void, not the principal o$ligation Permissi$le stipulations Su$se8uent agreements 3li&e dacion en pago4
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Cession of property voluntarily ( promise to sell 3$ecause not necessarily to the creditor4 o )ut H( promise to sell to you, my creditorI is void Authority to ta&e possession 3$ut not o"nershipP4
paid a part of the de$t cannot as& for the proportionate e'tinction or mortgageM nor can the creditor9s heir "ho has received his share of the de$t return the pledge or cancel the mortgage if the de$t is not completely satisfied A'ceptions to the general rule that mortgage or pledge indivisi$le ,! here there are several things given in pledge or mortgage and each one of them guarantees only a determinate portion of the credit As many pledges or mortgages as there are things given in pledge or mortgage .! here only portion of loan "as released Case of Central )an& v CA, ,/B SC7A >; )an& approved a loan for P=6&, secured $y mortgage of property! )ut they only release P,J&! SC said they can foreclose .,< of the property! SC also said that Art .6=B presupposes several heirs of the de$tor or creditor! 3Atty! 5erma said that it9s a $ad decision and that this "asn9t the spirit of the la"! SC should have ruled on e8uity instead!! /! here there "as failure of consideration >! here there is no de$tor0creditor relationship Although a mortgage or pledge is indivisi$le as to the contracting parties, it is not so "ith respect to a third person "ho did not ta&e part in the constitution thereof either personally or through and agent! (ndivisi$ility arises only "hen there is a de$t! ,! Draco $orro"ed from 2arry P.66, and to guarantee payment, Draco pledged his $roomstic& "orth P,E6 and his "and "orth PE6! (f Draco pays P,E6, he cannot as& for the return of the $roomstic& $ecause $oth the $roomstic& and the "and are given to secure payment of the entire o$ligation of P.66! 2arry may cause the sale of either or $oth for the payment of his credit! The same is true if Draco dies leaving Dunior and )ella as his heirs and Dunior pays ,E6 to 2arry! (f the creditors are 2arry and 2ermione, and Draco pays P,E6, 2arry cannot return the $roomstic& to the prejudice of 2ermione "ho has not received her share! The same is true if 2arry is the only creditor and he dies leaving Severus and Al$us as his heirs and Draco pays Severus P,E6!
Art >@<9 A $"e'*e o! )ort* *e %& %n'%(%&%,"e# e(en tho+*h the 'e,t ) y ,e '%(%'e' )on* the &+cce&&or& %n %ntere&t o! the 'e,tor or o! the cre'%tor1 There!ore# the 'e,tor?& he%r -ho h & $ %' $ rt o! the 'e,t c nnot &/ !or the $ro$ort%on te e:t%n*+%&h)ent o! the $"e'*e or )ort* *e & "on* & the 'e,t %& not co)$"ete"y & t%&!%e'1 Ne%ther c n the cre'%tor?& he%r -ho rece%(e' h%& &h re o! the 'e,t ret+rn the $"e'*e or c nce" the )ort* *e# to the $re3+'%ce o! the other he%r& -ho h (e not ,een $ %'1 7ro) the&e $ro(%&%on& %& e:ce$te' the c &e %n -h%ch# there ,e%n* &e(er " th%n*& *%(en %n )ort* *e or $"e'*e# e ch one o! the) *+ r ntee& on"y 'eter)%n te $ort%on o! the cre'%t1 The 'e,tor# %n th%& c &e# &h "" h (e the r%*ht to the e:t%n*+%&h)ent o! the $"e'*e or )ort* *e & the $ort%on o! the 'e,t !or -h%ch e ch th%n* %& &$ec% ""y n&-er ,"e %& & t%&!%e'1 Art >@9@ The %n'%(%&%,%"%ty o! $"e'*e or )ort* *e %& not !!ecte' ,y the ! ct th t the 'e,tor& re not &o"%' r%"y "% ,"e1 Pledge or mortgage indivisi$le A pledge or mortgage is one and indivisi$le as to the contracting parties 7ule applies even if the o$ligation is joint and not solidary o Divisi$ility of the principal o$ligation is not affected $y the indivisi$ility of the pledge or mortgage Conse8uences# o Single thing pledged * every portion of the property pledged or mortgaged is ans"era$le for the "hole o$ligation as soon as it falls due! o Several things pledged * all of them are lia$le for the totality of the de$t and the creditor does not have to divide his action $y distri$uting the de$t, among the various things pledged or mortgaged! Aven "hen only a part of the de$t remains unpaid, all the things are lia$le for such $alance! o De$tor9s heirNcreditor9s heir * the de$tor9s heir "ho has
27
2o"ever, if it "as agreed that the $roomstic& "as given to secure the payment of P,E6, and the "and for the $alance of PE6, and Draco 3or his heir4 pays P,E6, Draco can demand the return of the ring! 3A'ample of e'ception ,4 .! Draco and Koldemort are jointly lia$le to 2arry in the sum of P.66 secured $y Draco9s $roomstic& and Koldemort9s "and "orth PE6! (f Draco pays P,E6, he cannot demand the return of the ring even if their lia$ility is only joint or proportionate $ecause pledge is indivisi$le! 7emem$er children, indivisi$ility is not the same as solidarity! The former refers to the o$ject or prestation of the o$ligation, "hile the latter, to the legal tie of the o$ligation!
A promise to constitute a pledge or mortgage, if accepted, gives rise only to a personal right $inding upon the parties and creates no real right in the property! hat e'ists is only a right of action to compel the fulfillment of the promise $ut there is no pledge or mortgage yet! 3(ut isn)t this an obligation to do, which can not be compelled by specific performance*$
-oreclosure of mortgage constituted on several properties The rule that real property, consisting of several lots, should $e sold separately, applies to sales in e'ecution and not to foreclosure of mortgages! A mortgage, even if constituted on t"o or more properties, is one and indivisi$le, it cannot $e divided among the different properties! The mortgagee has the right to have the properties either or $oth * jointly or singly, sold to satisfy his claim! hat if the real mortgage and chattel mortgage is in one instrument1 Does not have the effect of fusing $oth securities into an indivisi$le "hole )oth remain distinct agreements, differing not only in the su$ject matter of the contract, $ut also in the governing legal provisions! Mortgagee may legally foreclose the real estate mortgage e'trajudicially and "aive the chattel mortgage foreclosure, and maintain instead a personal action for the recovery of the unpaid $alance of the credit! Art >@91 The contr ct o! $"e'*e or )ort* *e ) y &ec+re "" /%n'& o! o,"%* t%on&# ,e they $+re or &+,3ect to &+&$en&%(e or re&o"+tory con'%t%on1 Art >@9> A $ro)%&e to con&t%t+te $"e'*e or )ort* *e *%(e& r%&e on"y to $er&on " ct%on ,et-een the contr ct%n* $ rt%e&# -%tho+t $re3+'%ce to the cr%)%n " re&$on&%,%"%ty %nc+rre' ,y h%) -ho 'e!r +'& nother# ,y o!!er%n* %n $"e'*e or )ort* *e & +nenc+),ere'# th%n*& -h%ch he /ne- -ere &+,3ect to &o)e ,+r'en# or ,y )%&re$re&ent%n* h%)&e"! to ,e the o-ner o! the & )e1
28

Credit Transactions MICKEY INGLES Am+dg

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Credit Transactions MICKEY INGLES Am+dg

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+ Ad Majorem Dei Gloriam Security and Credit Transactions

SECURITY & CREDIT TRANSACTIONS

I LOAN GENERAL PROVISIONS

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

C4APTER T5O CO66ODATU6 SECTION ONE NATURE O7 CO66ODATU6

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

SECTION II OBLIGATIONS O7 T4E BAILEE

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

A'ception# E instances in Article ,B>.

SECTION III OBLIGATIONS O7 T4E BAILOR

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

C4APTER T5O SI6PLE LOAN OR 6UTUU6

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

(nterest must $e la"ful

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

II T4E USURY LA5

no demand letter, only judicial demand ,.<

2c applies here, Art ,,;B

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

with demand letter ,.<

J! F sued G for a loan 3,E< interest, ,=< penalty clause4

/! F sued G for nonpayment of de$t 3stipulated interest ,6<4

,E< ,=< ,.< of ,E<J ,.< of ,=<=

E! F sued G for non0delivery of goods

VBGUARANTY AND SURETYS4IP C4APTER ONE NATURE AND EDTENT O7 GUARANTY

Reasonable certainty of amount @o interest

No reasonable certainty of amount

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

&t%$+" t%on to the

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

n t+r " o,"%* t%on1

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

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

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

SECTION II E77ECTS O7 GUARANTY BET5EEN T4E DEBTOR AND T4E GUARANTOR

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

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat

+ Ad Majorem Dei Gloriam Security and Credit Transactions

Mic&ey (ngles Ateneo 5a" .6,. 5i$rat