Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-16666

April 10, 1922

ROMULO MACHETTI, plaintiff-appelle,

vs.
HOSPICIO DE SAN JOSE, defendant-appellee, and
FIDELITY & SURETY COMPANY OF THE PHILIPPINE ISLANDS, defendant-appellant
Ross and Laurence and Wolfson & Scwarzkopf for appellant.
Gabriel La O for appellee Hospicio de San Jose.
No appearance for the other appellee.
OSTRAND, J.:
It appears from the evidence that on July 17, 1916, one Romulo Machetti, by a written
agreement undertook to construct a building on Calle Rosario in the city of Manila for the
Hospicio de San Jose, the contract price being P64,000. One of the conditions of the agreement
was that the contractor should obtain the "guarantee" of the Fidelity and Surety Company of the
Philippine Islands to the amount of P128,800 and the following endorsement in the English
language appears upon the contract:
MANILA, July 15, 1916.
For value received we hereby guarantee compliance with the terms and conditions as
outlined in the above contract.
FIDELITY AND SURETY COMPANY OF THE PHILIPPINE ISLANDS.
(Sgd)
Vice-President.

OTTO

VORSTER,

Machetti constructed the building under the supervision of architects representing the Hospicio
de San Jose and, as the work progressed, payments were made to him from time to time upon
the recommendation of the architects, until the entire contract price, with the exception of the
sum of the P4,978.08, was paid. Subsequently it was found that the work had not been carried
out in accordance with the specifications which formed part of the contract and that the
workmanship was not of the standard required, and the Hospicio de San Jose therefore
answered the complaint and presented a counterclaim for damages for the partial
noncompliance with the terms of the agreement abovementioned, in the total sum of P71,350.
After issue was thus joined, Machetti, on petition of his creditors, was, on February 27, 1918,
declared insolvent and on March 4, 1918, an order was entered suspending the proceeding in
the present case in accordance with section 60 of the Insolvency Law, Act No. 1956.

The Hospicio de San Jose on January 29, 1919, filed a motion asking that the Fidelity and
Surety Company be made cross-defendant to the exclusion of Machetti and that the
proceedings be continued as to said company, but still remain suspended as to Machetti. This
motion was granted and on February 7, 1920, the Hospicio filed a complaint against the Fidelity
and Surety Company asking for a judgement for P12,800 against the company upon its
guaranty. After trial, the Court of First Instance rendered judgment against the Fidelity and
Surety Company for P12,800 in accordance with the complaint. The case is now before this
court upon appeal by the Fidelity and Surety Company form said judgment.
As will be seen, the original action which Machetti was the plaintiff and the Hospicio de San
Jose defendant, has been converted into an action in which the Hospicio de San Jose is plaintiff
and the Fidelity and Surety Company, the original plaintiff's guarantor, is the defendant, Machetti
having been practically eliminated from the case.
But in this instance the guarantor's case is even stronger than that of an ordinary surety. The
contract of guaranty is written in the English language and the terms employed must of course
be given the signification which ordinarily attaches to them in that language. In English the term
"guarantor" implies an undertaking of guaranty, as distinguished from suretyship. It is very true
that notwithstanding the use of the words "guarantee" or "guaranty" circumstances may be
shown which convert the contract into one of suretyship but such circumstances do not exist in
the present case; on the contrary it appear affirmatively that the contract is the guarantor's
separate undertaking in which the principal does not join, that its rests on a separate
consideration moving from the principal and that although it is written in continuation of the
contract for the construction of the building, it is a collateral undertaking separate and distinct
from the latter. All of these circumstances are distinguishing features of contracts of guaranty.
Now, while a surety undertakes to pay if the principal does not pay, the guarantor only binds
himself to pay if the principal cannot pay. The one is the insurer of the debt, the other an insurer
of the solvency of the debtor. (Saintvs. Wheeler & Wilson Mfg. Co., 95 Ala., 362;
Campbell, vs. Sherman, 151 Pa. St., 70; Castellvi de Higgins and Higgins vs. Sellner, 41 Phil.,
142; ;U.S. vs. Varadero de la Quinta, 40 Phil., 48.) This latter liability is what the Fidelity and
Surety Company assumed in the present case. The undertaking is perhaps not exactly that of
afianza under the Civil Code, but is a perfectly valid contract and must be given the legal effect
if ordinarily carries. The Fidelity and Surety Company having bound itself to pay only the event
its principal, Machetti, cannot pay it follows that it cannot be compelled to pay until it is shown
that Machetti is unable to pay. Such ability may be proven by the return of a writ of execution
unsatisfied or by other means, but is not sufficiently established by the mere fact that he has
been declared insolvent in insolvency proceedings under our statutes, in which the extent of the
insolvent's inability to pay is not determined until the final liquidation of his estate.
The judgment appealed from is therefore reversed without costs and without prejudice to such
right of action as the cross-complainant, the Hospicio de San Jose, may have after exhausting
its remedy against the plaintiff Machetti. So ordered.
Araullo, C.J., Malcolm, Villamor, Johns and Romualdez, JJ., concur
AGRO CONGLOMERATES V. SORIANO
348 SCRA 450

FACTS:
Petitioner sold to Wonderland Food Industries two parcels of land. They stipulated under
a Memorandum of Agreement that the terms of payment would be P1,000,000 in cash,
P2,000,000 in shares of stock, and the balance would be payable in monthly
installments.
Thereafter,
an
addendum was executed between them, qualifying the cash payment. Instead of cash
payment, the vendee authorized the vendor to obtain a loan from the financier on which the
vendee bound itself to pay for. This loan was to cover for the payment of P1,000,000. This
addendum
was
not
notarized.
Petitioner Soriano signed as maker the promissory notes payable to the bank. However,
the petitioners failed to pay the obligations as they were due. During that time, the bank
was in financial distress and this prompted it to endorse the promissory notes for collection.
The bank gave ample time to petitioners then to satisfy their obligations.
The trial court held in favor of the bank. It didn't find merit to the contention that
Wonderland was the one to be held liable for the promissory notes.

HELD:
First, there was no contract of sale that materialized. The original agreement was that
Wonderland would pay cash and petitioner would deliver possession of the farmlands.
But this was changed through an addendum, that petitioner would instead secure a loan and
the
settlement
of the same would be shouldered by Wonderland.
Petitioners became liable as accommodation parties. They have the right after paying the
instrument to seek reimbursement from the party accommodated, since the relation between
them
has
in
effect
became
one
of
principal
and
surety.
Furthermore, as it turned out, the contract of surety between Woodland and petitioner was
extinguished by the rescission of the contract of sale of the farmland. With the rescission, there
was confusion in the persons of the principal debtor and surety. The addendum thereon
likewise lost its efficacy.

SECURITY BANK AND TRUST COMPANY, Inc.

vs
RODOLFO M. CUENCA
Panganiban, J. October 3, 2003 Extinguishment of Guaranty
I. Facts
* Creditor: Sccurity Bank and Trust Co.Debtor: Sta. Ines Melale Corp.Surety: Rodolfo Cuenca
A.
Sta. Ines is a corporation engaged in logging operations. In 1980, it
w a s granted by Security Bank a credit line in the amount of Php 8M. To
securepayment, it executed a chattel mortgage over some of its machineries
andequipments. And as an additional security, its President and Chairman of
theB o a r d o f D i r e c t o r s R o d o l f o C u e n c a , e x e c u t e d a n I n d e m n i t y a g r e e m e n t i
n favor of Security Bank whereby he bound himself jointly and severally with Sta.
Ines. After Cuenca resigned, Sta. Ines obtained a Php 6M loan. Becauseof its difficulty in
making
the
amortization
payments,
in
1989
it
requestedS e c u r i t y B a n k a c o m p l e t e r e s t r u c t u r e o f i t s i n d e b t e d n e s s ,
w h i c h w a s approved without prior notice to, or prior consent of Cuenca.
S t i l l i t w a s unable to pay.
B. Contention of the Petitioner
Security Bank insists that the 1989 Loan Agreement was a mere renewal orextension of the
Php 8M original accommodation, that Cuenca waived his right tobe notified of and
to give consent to any substitution, renewal, extension, increase,amendment, conversion or
revival of the same, and that it was a continuing surety.
C. Contention of the Respondent
Cuenca argues that the 1989 agreement extinguished the obligation under the 1980
credit accommodation by novation.
II. Issues
WON the 1989 Loan Agreement novated the original credit accommodationand Cuencas
liability under the Indemnity Agreement.
III. Ruling
The 1989 Loan Agreement extinguished by novation the obligation under the1980 P8 million
credit
accommodation.
It
is
essential
in
the
law
of
suretyship
thata n y a g r e e m e n t b e t w e e n t h e c r e d i t o r a n d t h e p r i n c i p a l d e b t o r t h a t e s s e
n t i a l l y varies the terms of the principal contract without the consent of the surety,
willrelease the surety from liability. The 1989 Loan Agreement expressly
stipulatedt h a t i t s p u r p o s e w a s t o l i q u i d a t e , n o t t o r e n e w o r e x t
e n d , t h e o u t s t a n d i n g indebtedness.
M o r e o v e r , r e s p o n d e n t d i d n o t s i g n o r c o n s e n t t o t h e 1 9 8 9 L o a n Agreement,
which had allegedly extended the original P8 million credit facility. Indeed, the stipulation in the
1989 Loan Agreement providing for the suretyof respondent, without even informing him,
smacks of negligence on the part of the bank and bad faith on that of the principal debtor.
Since that Loan Agreementconstituted a new indebtedness, the old loan having been
already liquidated, thespirit of fair play should have impelled Sta. Ines to ask
somebody else to act as asurety for the new loan.

Republic vs. Pal-Fox Lumber Co., Inc., 43 SCRA 365, No. L-26473, February
29, 1972
G.R. No. L-26473 February 29, 1972
REPUBLIC
OF
THE
PHILIPPINES, plaintiff-appellee,
vs.
PAL-FOX LUMBER CO., INC. AND FAR EASTERN SURETY & INSURANCE
COMPANY, INC., defendants, FAR EASTERN SURETY & INSURANCE CO., INC.,
defendant-appellant; FAR EASTERN SURETY & INSURANCE CO., INC., thirdparty plaintiff-appellant, vs. GASPAR PALANCA & JOSEPH LEE, third-party
defendants.
MAKALINTAL, J.:p
Claiming that the Pal-Fox Lumber Co., Inc. was indebted to the Bureau of Internal
Revenue for forest charges and surcharges amounting to P11,851.56, and that the
Far Eastern Surety & Insurance Co., Inc. was jointly and severally liable with the
lumber company for the payment of said forest charges up to P5,000.00 on account
of a forestry bond which the surety company executed in favor of the plaintiff on
November 27, 1946, guaranteeing faithful compliance by the principal with all the
provisions of the Forest Law and National Internal Revenue Code, as well as the
"prompt and complete payment of all charges lawfully accruing on the forest
products cut or gathered by (Pal-Fox Lumber Co., Inc.), and of all fines and penalties
imposed in accordance with the provisions of law," the plaintiff commenced suit
before the Court of First Instance of Manila (Civil Case No. 32386) seeking to
recover, jointly and severally, from Pal-Fox Lumber Co., Inc. and the Far Eastern
Surety & Insurance Co., Inc. the sum of P5,000.00 plus interest from the filing of the
complaint, and from the Pal-Fox Lumber Co., Inc. alone the balance of P6,841.56
plus legal interest.
The Far Eastern Surety & Insurance Co., Inc. filed its answer with a cross-claim
against its co-defendant Pal-Fox Lumber Co., Inc. which, due to the latter's failure to
file an answer despite valid service of summons, was subsequently declared in
default. With leave of court, the surety company later filed a third-party complaint
against certain persons based on a separate indemnity agreement wherein said
third-party defendants appear to have bound themselves to indemnify the surety
company for all damages it may suffer by reason of the execution of the forestry
bond. In time, these third-party defendants were similarly declared in default.
After trial, the court a quo rendered a decision the dispositive portion of which
reads: .
WHEREFORE, judgment is hereby rendered ordering defendants to pay to plaintiff,
jointly and severally, the sum of P5,000.00, with legal interest thereon from the
filing of the complaint until fully paid, and defendant Pal-Fox Lumber Co., Inc. to pay
to plaintiff the further sum of P6,841.56, with legal interest thereon from the filing of
the complaint until fully paid, plus costs; and likewise ordering cross-defendant PalFox Lumber Co., Inc. and third-party defendants Gaspar G. Palanca and Joseph Lee
to pay to defendant Far Eastern Surety & Insurance Co., Inc., jointly and severally,
any amount which the latter may pay to plaintiff under his judgment, plus premium
in the amount of P3,750.00 and stipulated attorney's fees and interest at the rate of
15% and 12% per annum, respectively, on the total amount due, the said interest to
be compounded quarterly from November 22, 1946, until fully paid.

Unable to secure, in a motion for reconsideration, a judgment absolving it from any

and all liability under Forestry Bond No. 7004, the surety company appealed to the
Court of Appeals (CA-G.R. No. 31338-R) which Court subsequently certified the case
here on a finding that the appeal involves only questions of law, to wit: .
The first legal point which arises in connection with said exhibits is: What is the
probative value of documents which were admitted only as part of the testimony of
the witness who identified them? Do they constitute evidence of the truth of their
contents or not? In other words, are they evidence of demands for payment
considering that Mr. Zalita merely testified that said exhibits are certified copies of
records and documents now in the possession of the Record Control Section of the
Bureau of Internal Revenue?
The next issue to resolve is who has the burden of proving that the claim of the
plaintiff is not yet paid?
xxx xxx xxx
In the third assigned error, appellant raises the question of prescription of action. ..."
(Court of Appeals resolution prom. on August 15, 1966 in CA-G.R. No. 31338-R, pp.
6-7).
During the pendency of this case before this Court, certain pertinent developments
have come about which practically render the resolution of appellant's assigned
errors unnecessary. Thus in a manifestation filed on February 10, 1967 the surety
company expressed its willingness to pay the sum of P5,000.00 under its forestry
bond anytime "that an order is issued (by this Court) directing the defendant surety
to so pay according to this manifestation." In a resolution dated February 22, 1967
this Court granted appellant surety company's plea, thereby allowing it to pay the
Republic of the Philippines the sum of P5,000.00, in full payment of its liability under
Forestry Bond No. 7004, and dismissing the case insofar as said appellant was
concerned.
On March 27, 1967 the plaintiff moved for reconsideration, pointing out that the
surety company's correct liability under the appealed decision was P5,000.00 plus
legal interest from the filing of the complaint. In other words, the plaintiff would
want the surety company to pay the legal interest adjudged by the trial court before
the case may finally be considered dismissed insofar as appellant surety was
concerned. Despite the opposition registered by the surety company this Court
resolved on May 10, 1967 "... to MODIFY the resolution of February 22, 1967 in that
the appellant Far Eastern Surety and Insurance Co., Inc. is further ordered to pay the
Republic of the Philippines interest on the P5,000.00 at the rate of 6% per annum
computed from April 24, 1957 when the complaint was filed until October 3, 1966
when the appellant offered to pay the appellee the sum of P5,000.00 in settlement
of its obligation but which offer was ignored by the appellee; PROVIDED, that in case
the appellant fails or refuses to pay the interest herein stated the case against him
would not be considered dismissed, thereby leaving the matter on the liability of
said appellant to pay interest subject to future orders by this Court along with the
other matters that may be resolved in this case." .
As things stand now, the contending parties are one in conceding that the decisive
issue for determination, in view of the surety company's willingness to pay the
amount of P5,000.00 under its forestry bond, is its liability for the payment of legal
interest thereon.1 The said company's denial of liability for such interest is based on
the stipulation in the bond that it was bound to the plaintiff "in the sum of
P5,000.00." .

Judgment must go to the plaintiff. In the case of National Marketing Corporation vs.
Marquez, et al., L-25553, January 31, 1969, (26 SCRA 722, 726), this Court resolved
a similar question as follows: .
On the third and last issue (on whether the surety's liability can exceed the amount
of its bond), it is enough to remark that while the guarantee was for the original
amount of the debt of Gabino Marquez, the amount of the judgment by the trial
court in no way violates the rights of the surety. The judgment on the principal was
only for P10,000.00, while the remaining P9,990.91 represent themoratory interest
due on account of the failure to pay the principal obligation from and after the same
had fallen due, and default had taken place. Appellant surety was fully aware that
the obligation earned interest, since the note was annexed to its contract, Exhibit
"C". The contract of guaranty executed by the appellant Company nowhere
excludes this interest, and Article 2055, paragraph 2, of the Civil Code of the
Philippines is clearly applicable.
If it (the guaranty) be simple or indefinite, it shall comprise not only the principal
obligation but also all its accessories, including judicial costs, provided with respect
to the latter, that the guarantor shall only be liable for those costs incurred after he
has been judicially required to pay." (Emphasis supplied)" .
WHEREFORE, the decision appealed from is affirmed, with the modification that the
appellant should pay the interest adjudged in said decision up to the date of
payment of the principal sum of P5,000.00. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Zaldivar, Castro, Fernando, Teehankee, Barredo,
Villamor and Makasiar, JJ., concur.
CONCEPCION J. VIUDA DE SYQUIA, in her capacity as administratrix of the
estate of the deceased Gregorio Syquia, Plaintiff-Appellee, v. PERFECTO
JACINTO, ET AL., Defendants. RAFAEL PALMA, Appellant.
Francisco Dominguez for Appellant.
Cardenas & Casal for Appellee.
SYLLABUS
1. EXECUTION OF JUDGMENT; REVIVAL OF JUDGMENT; SHERIFFS SALE;
EQUITABLE PRINCIPLE NOT APPLICABLE. The appellant invokes the equitable
principle that no person should enrich himself unjustly at the expense of another.
This equitable principle has no application to a legally conducted sheriffs sale. The
appellant does not question the regularity of the sale.
2. ID.; ID.; ID.; RIGHT OF REDEMPTION. In the instant case, although it was
alleged the property was sold for greatly below its value, the defendants did not
exercise any right of redemption. The judgment debt in its entirety was not
discharged before the action for the revival of the judgment was brought.
3. ID.; ID.; ID.; DEFENSES AVAILABLE TO A GUARANTOR; BENEFIT OF
EXHAUSTION. With reference to all the defenses available to a guarantor P as
guarantor is still entitled to the benefits of articles 1830, 1832 and 1852 of the Civil

Code. Up to the present, the judgment creditor has made no demand on P. Joining
him in the suit against the principal debtor is not the demand intended by article
1832 of the Civil Code. That demand can be made only after judgment on the debt,
for obviously the "exhaustion of the principals property" the benefit of which the
guarantor claims - cannot even begin to take place before judgment has been
obtained.
4. ID.; ID.; ID.; ID.; ID.; PREMATURE DEFENSE. There is no competent evidence
that the principal debtors, are insolvent even if they were now, there can be no
certainty that they may not be in funds when an execution on the revived judgment
is issued. So far as this record shows, the judgment creditor has not exhausted his
remedies against the principal debtors and he is still looking to them for payment.
It is not for the guarantor to anticipate that there will be a return of nulla bona on
the execution, when and if issued. Nor is it for him to anticipate a demand on him
under article 1832 and to offer defenses thereto which have not matured. The
occasion for these defenses may never arise.
5. ID.; ID.; ID.; ID.; ID.; ID. The present revived judgment could not be res
judicata as to such future defenses. The revived judgment does not foreclose any
defense which the guarantor may raise when "demand for payment" is made on
him. Indeed, he cannot claim the benefits of articles 1830, 1832, 1834 and 1852 of
the Civil Code before demand is made on him; they are all available to him only
after "demand for payment" (art. 1832).
6. ID.; ID.; ID.; ID.; ID.; ID. The appellants defenses may all be considered
when they are properly presented at the proper time. The case which he now
presents, in anticipation of a demand which has not yet been made, is purely
hypothetical. The courts do not undertake to decide hypothetical cases.
7. ID.; ID.; ID.; ID.; ID.; ID. Revenues collected and retained during the year of
redemption by the judgment creditor from real estate purchased by him upon an
execution sale thereof, must be credited upon the judgment debt. (Pabico v. Ong
Pauco, 43 Phil., 572; Flores v. Lim, 50 Phil., 738; Powell v. National Bank, 54 Phil.,
54.)
DECISION
BUTTE, J.:
On December 15, 1924, the Bank of the Philippine Islands obtained a judgment
against Perfecto and Felipe Jacinto and Rafael Palma on a promissory note in its
favor executed by the defendants on May 27, 1922, for the sum of P24,000 with
interest at the rate of 9 per cent per annum plus 10 per cent of the principal as
costs and attorneys fees. The dispositive part of this judgment is as
follows:jgc:chanrobles.com.ph

"Se condena a los Sres. P. y F. Jacinto y Rafael Palma a que paguen a la parte
demandante, los primeros como obligados principales y el ultimo como fiador, la
suma de veinticuatro mil pesos (P24,000) al interes de 9 por ciento al ao desde el
27 de mayo de 1923, mas el uno por ciento sobre el principal en concepto de
honorarios de abogado y costas.
"No debe expedirse ejecucion contra el demandado Sr. Rafael Palma, sino despues
de haberse hecho excusion de los bienes de los seores P. y F. Jacinto."cralaw
virtua1aw library
On August 16, 1928, the Bank of the Philippine Islands "in consideration of the sum
of P1 and other valuable considerations" assigned and transferred said judgment to
Gregorio Syquia.
On July 12, 1932, the widow of Gregorio Syquia, as administratrix of his estate,
filed suit in the Court of First Instance of Manila against Perfecto and Felipe Jacinto
and Rafael Palma reciting the aforementioned judgment and assignment and
alleging that since the date of said judgment none of the defendants had paid
anything thereon and there remains still due the sum of P24,000 with interest at 9
per cent since May 27, 1923. The plaintiff prayed that the judgment be revived and
that the defendants Perfecto and Felipe Jacinto as principal and Rafael Palma as
guarantor be adjudged to pay the sum of P24,000 with interest since May 27, 1923,
and costs. To this petition were attached a copy of the judgment of December 15,
1924, Exhibit A, and a copy of the assignment thereof to the plaintiff, Exhibit B.
The defendants filed a joint amended answer in which they admitted the judgment,
Exhibit A, and that said judgment had lapsed and it was necessary to revive the
same; but they denied the assignment to Syquia and the allegation that nothing
had been paid on said judgment and that the full amount thereof was still due.
They set up as a special defense that the judgment which the plaintiff was
attempting to revive has been fully paid; that at the time of making the assignment
to Gregorio Syquia, the bank had no right or interest under said judgment, the
same having been fully paid, and that the petition does not state facts sufficient to
constitute a cause of action.
In the same answer they set up a counter-demand to the following effect: that in
the month of April, 1925, the Bank of the Philippine Islands caused an execution to
be issued under said judgment and the sheriff on the request of the bank sold at a
public sale three properties belonging to the defendants Jacinto which had been
previously attached; that at said public sale the bank was the highest bidder
crediting the amount of its bid on the said judgment; that said parcels of land with
their improvements consisting of four houses yielded a monthly revenue of P880 or
P10,560 a year; that during the year allowed the judgment debtors for redemption
the said bank took control and possession of the said parcels of land and collected
and retained the revenues thereof as aforesaid and that Gregorio Syquia has been
receiving the same since that time, though without any right whatever; that the
said revenues during the year of redemption in the sum of P10,560 were never

applied by the bank as a credit on said judgment. The defendants prayed that they
be absolved from the demand of the petitioner and that the estate of Gregorio
Syquia be condemned to pay the sum of P10,560 with costs. The answer concludes
with a prayer for general relief.
On the trial of this cause it was shown that at the execution sale held on April 18,
1925, the bank bought two of the properties of the defendants Jacinto for the sum
of P15,045. The third property was sold to Rufino Reyes for P1,000 which was not
credited on the judgment debt pending the determination of Reyes claim of priority.
The trial court stated the judgment debt as of April 18, 1925, as follows:chanrob1es
virtual 1aw library
Loan P24,000.00
Interest from May 27, 1923 to April 17, 1925 at 9 per cent 4,083.29
Costs including sheriffs sale 657.95

Total obligation P28,741.24

from which is to be deducted P15,045 the value of the two parcels sold to the bank
on April 18, 1925, leaving a balance due of P13,696.24. On September 2, 1925, the
defendant Palma paid the bank P100 leaving thus a net balance due of P13,596.24.
The trial court entered the following judgment:jgc:chanrobles.com.ph
"Dictese sentencia condenando a los demandados, Perfecto Jacinto y Felipe Jacinto,
como obligados principales, y Rafael Palma como fiador, a pagar a la demandante la
cantidad de trece mil quinientos noventa y seis pesos con veinte y cuatro centimos
(P13,596.24), mas las costas del juicio. "Se sobresee la reconvencion de los
demandados.
"Asi se ordena.
"Manila. I. F., 25 de septiembre de 1933."cralaw virtua1aw library
From this judgment only defendant Palma appeals. He submits the following
assignments of error:jgc:chanrobles.com.ph
"1. El Juzgado erro al no apreciar que la cuenta de los deudores P. y F. Jacinto
quedo liquidada con el banco al efectuarse la venta de las fincas embargadas por
este a favor de Gregorio Syquia por la suma de P45,000 y que, por consiguiente, la
sentencia firme de diciembre 14, 1924, quedo ipso facto saldada y con creces, en
virtud de aquella venta.
"2. El Juzgado erro al no apreciar que el banco no transmitio ningun derecho,
interes o participacion en la sentencia referida al tiempo de hacerse el traspaso de

los mismos a Gregorio Syquia.

"3. Aun suponiendo que la sentencia firme era subsistente contra los deudores y su
fiador al tiempo de hacerse el traspaso por el banco de cualquier titulo, derecho,
interes o participacion en dicha sentencia, el Juzgado erro al no apreciar que se ha
constituido una novacion de la obligacion del fiador sin su conocimiento ni
consentimiento, y, por tanto, sin eficacia juridica contra el.
"4. El Juzgado erro al no apreciar que el demandado Rafael Palma, como fiador, ha
quedado eximido de su obligacion no solo por efecto de la novacion hecha sin su
conocimiento ni consentimiento, sino tambien por efecto de la aceptacion por el
banco de los bienes inmuebles de los deudores P. y F. Jacinto, en pago de
deuda."cralaw virtua1aw library
It is to be noted that Palma filed no separate answer nor special defenses available
to him as guarantor but merely joined in the answer of his codefendants pleading
that the bank had been fully paid. It should be noted too that the execution which
was issued under the judgment of December 15, 1924, and under which said
parcels of land were sold on April 18, 1925, was directed solely against the principal
debtors, Perfecto and Felipe Jacinto, Palma not being mentioned therein.
Under his first and second assignments of error, the appellant argues that when the
bank acquired said properties at the sheriffs sale on April 18, 1925, for the sum of
P15,045, it paid much less than they were worth, in view of the fact that they
yielded an annual revenue of P10,560; and this is further established by the fact
that the bank on August 16, 1928, sold and conveyed said parcels to Gregorio
Syquia for the sum of P45,000. Exhibits 2-A and 2-B are copies of pages of the
"libro de diversas cuentas" of the bank, upon which appears the account of Perfecto
and Felipe Jacinto and Rafael Palma. From these it appears that after the sale by
the bank to Syquia, said account was marked as balanced and closed. From these
facts the appellant contends that the principal debtors, and therefore the guarantor,
were discharged from further liability on the judgment; and that being true, Syquia
acquired nothing by the assignment of the judgment to him by the bank. In strict
law, it is obvious that the plea that the defendants had paid their debt cannot be
sustained. Indeed the appellant himself in arguing his first and second assignments
of error invokes the equitable principle that no person should enrich himself
unjustly at the expense of another. Clearly this equitable principle has no
application to a legally conducted sheriffs sale. The appellant does not question the
regularity of the sale. A purchaser at a sheriffs sale, when his title has once
become vested, may dispose of the property for such consideration as he sees fit or
as he can obtain. The rule which the appellant asks us to introduce into our
jurisprudence with regard to sheriffs sales would cast such a doubt upon such sales
that bidders would abstain therefrom and even judgment creditors would offer less,
all to the prejudice of judgment debtors. The Code of Civil Procedure goes far in
protecting the judgment debtor. He may prevent the sale of the property on
execution (sec. 456); or he may redeem it from the purchaser at any time within
twelve months after the sale (sec. 465). In the instant case, although it was alleged
the property was sold for greatly below its value, the defendants did not exercise

any right of redemption. We hold, therefore, that the judgment debt in its entirety
was not discharged before the action for the revival of the judgment was brought.
However, the majority of the court are of the opinion that there should be credited
upon the judgment for the benefit of the guarantor alone the sum of P10,560, being
the revenues collected and retained during the year of redemption by Gregorio
Syquia from said properties, according to the testimony of Perfecto Jacinto (t. s. n.,
19, 20, 22). This conclusion is based on the interpretation given to the provisions of
the Code of Civil Procedure by this court in the cases of Pabico v. Ong Pauco (43
Phil., 572); Flores v. Lim (50 Phil., 738); Powell v. National Bank (54 Phil., 54). It is
the view of the writer that this defense so far as the guarantor is concerned is
premature.
In his brief and upon the oral argument the appellant has pressed upon our
attention several defences available to guarantors under our law which, he claims,
entitle him to a reversal of the judgment. With reference to all these defences, it
suffices to say that it is conceded that Palma as guarantor is still entitled to the
benefits of articles 1830, 1832 and 1852 of the Civil Code. Up to the present, the
judgment creditor has made no demand on Palma. Joining him in the suit against
the principal debtor is not the demand intended by article 1832 of the Civil Code.
That demand can be made only after judgment on the debt, for obviously the
"exhaustion of the principals property" the benefit of which the guarantor claims
cannot even begin to take place before judgment has been obtained. Only then
can the creditor "levy upon the property of the principal" only then can the
liability of the creditor begin under article 1833 of the Civil Code. It would be
absurd an futile to point out "saleable property of the debtor" at the inception of the
suit, when it cannot be seized or sold, and require the creditor to make a "levy"
upon it.
There is no competent evidence that the principal debtors, Perfecto and Felipe
Jacinto, are insolvent - even if they were now, there can be no certainty that they
may not be in funds when an execution on the revived judgment is issued. So far as
this record shows, the judgment creditor has not exhausted his remedies against
the principal debtors and he is still looking to them for payment. It is not for the
guarantor to anticipate that there will be a return of nulla bona on the execution,
when and if issued. Nor is it for him to anticipate a demand on him under article
1832 and to offer defences thereto which have not matured. The occasion for these
defences may never arise. The present revived judgment could not therefore be res
judicata as to such future defences. The revived judgment does not foreclose any
defence which the guarantor may raise when "demand for payment" is made on
him. Indeed, he cannot claim the benefits of articles 1830, 1832, 1834 and 1852 of
the Civil Code before demand is made on him; they are all available to him only
after "demand for payment" (art. 1832).
The appellants defences may all be considered when they are properly presented at
the proper time. The case which he now presents, in anticipation of a demand
which has not yet been made, is purely hypothetical. The courts do not undertake
to decide hypothetical cases.

It results that the judgment appealed from must be modified in the sense that
Rafael Palma as guarantor may be held contingently liable only in the sum of
P3,036.24 under said judgment, which is in all other respects affirmed, without
special pronouncement as to costs in this instance. So ordered.
Street, J., concurs.
TUASON VS. MACHUCA
Facts: Manila Compania de Seguros signed a note for 10,000 in favor
of Tuason, Tuason Inc. to guarantee a liability of Universal Trading Co, In turn
Universal Trading Co. and its president, Antonio Machuca, in his personalcapacity,
executed a document wherein they bound themselves solidarily toreimburse Manila Compania de
Seguros all of such sum it may pay or becomebound to pay, upon its obligation to Tuason, Tuason Inc. whether
or not it shallhave actually paid such sums or any part thereof. Universal Trading Co. wasdeclared
insolvent. Tuason, Tuason, Inc. brought action against
Manila Compania De Seguros torecover the value of the note and obtained final judgme
nt. Later, ManilaC o m p a n i a D e S e g u r o s f i l e d a c o m p l a i n t a g a i n s t M a c h u c a t o
r e c o v e r t h e amount which Manila Compania De Seguros was sentenced to pay
Tuason, Tuason, Inc, plus attorneys fees, judicial costs and sheriffs fees, and interest,although
Manila Compania De Seguros had not, in fact, paid the amount of the judgment.Issue:
a)
WON Tuason, Tuason Inc. Is entitled to the relief sought in view of theabove facts?
b)
WON Tuason, Tuason Inc. has the right to recover from Machuca morethan the value of the
note executed by Tuason, Tuason, Inc. in favor of Manila Compania de Seguros?Held:
a.
Yes. It is indispensable that Universal Trading Co. became bound byvirtue of final judgment to
pay the value of the note executed by it infavor of Manila Compania de Seguros, and according
to the
documentexecuted solidarily by Universal Trading Co. and Machuca, Machucabound
himself to pay Tuason, Tuason, Inc. as soon as the latter mayhave become bound
and liable, whether or not it shall have actually paid.
b.
Machuca must not be responsible for the expenses incurred by ManilaCompania De Seguros in
the litigation between it and Tuason, Tuason,Inc. and it cannot charge Machuca with expenses it
was compelled tomake by reason of its fault. It is entitled only to expenses incurred by itin the
action against Machuca.Art. 2071 the guarantor, even before having paid, may proceed against
theprincipal debtor:1.When he is being sued for the payment2.In the case of insolvency of
the principal debtor3.When the debtor has bound himself to relieve him from the
guarantywithin specified period, and this period has expired4.When the debt has become demandable,
by reason of the expiration of the period of the payment5.After the lapse of ten years, when
the principal obligation has
no fixedp e r i o d f o r i t s m a t u r i t y, u n l e s s i t b e s u c h n a t u r e t h a t i t c a n n o t b e exti
nguished except within a period longer than ten years6.If there are reasonable grounds to fear that the
principal debtor intendsto abscond7.If the principal debtor is in imminent danger of becoming
insolventIn all these, cases, the action of the guarantor is to obtain release from theguaranty, or to

demand a security that shall protect him from any proceedingsby the creditor and from the danger of the
insolvency of the debtor.

G.R. No. L-26118 December 31, 1926

PHILIPPINE NATIONAL BANK, Plaintiff-Appellant, vs. MARIANO ESCUETA,
CIRILO B. SANTOS and TEOFILO VILLONGCO, Defendants-Appellants.
Dionisio de Leon and Carlos B. Hilado for plaintiff-appellant.
Eusebio Orense and Victorino Yamson for defendants-appellants.
OSTRAND, J.:
In its complaint the plaintiff alleges "that on February 14, 1919, and to secure the
payment of any obligation the Island Trading Co., a corporation duly organized
under the laws of the Philippine Islands, might contract with the Philippine National
Bank, the plaintiff, Mariano Escueta, Cirilio B. Santos, Teofillo Villongco, the
defendants and Wm. Kennedy and Rafael Villanueva, signed jointly and severally, a
surety agreement in favor of said bank, copy of which is hereto attached and made
a part hereof as Exhibit A. Wm. Kennedy is now dead and Rafael Villanueva
withdraw from said agreement on April 6, 1920 and for these reasons they are not
made parties defendants in the complaint. That the present indebtedness of the
principal, the Island Trading Co., to the plaintiff, the Philippine National Bank and for
which the above surety agreement was executed, amounts to P26,736.10, with
interest at the rate of 6 per cent per annum from January 1, 1924," all of which
is due and unpaid.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff therefore asks judgment against the defendants, jointly and severally,
for said sum and interest with costs. The surety agreement referred to in the
complaint and made a part thereof reads as follows:
This surety agreement, executed at the City of Manila, P. I., on this 14th day of
February, 1919, by Mariano Escueta, Rafael Villanueva, Cirilo B. Santos, Wm.
Kennedy and Teofilo Villongco, all of the lawful age and residents of the City of
Manila, P. I. herein referred to as the Guarantors, and the Philippine National Bank
herein referred to as the Creditor, bears witness that: chanrobles virtual law library
Whereas, the Island Trading Co., Inc., of Manila, P. I., herein referred to as the
principal, desires to obtain credits loans, overdrafts, discounts, etc., from the
Creditor, for all of which the Creditor requires security; and the Guarantors, on
account valuable consideration received from the Principal, are desirous of assisting
the Principal in obtaining such credits, etc., and of becoming such
security; chanrobles virtual law library
Now, therefore, for the purpose above-mentioned, the Guarantors, jointly and
severally, hereby guarantee and warrant to the Creditor, its successors or assigns,

the prompt payment at maturity of all the notes, drafts, bill of exchange, overdrafts
and other obligations of every kind, on which the Principal may now be indebted, or
may hereafter become indebted to the Creditor, plus the interest thereon at the rate
of six and one-half (6 ) per cent per annum, and the costs and expenses of the
Creditor incurred in connection therewith.chanroblesvirtualawlibrary chanrobles
virtual law library
In case of default by the Principal in the payment at maturity of any of the
obligations above mentioned, or in case of the Principal's failure promptly to
respond to any other lawful demand made by the Creditor, the Guarantors, jointly
and severally, agree to pay to the Creditor, its successors or assigns, upon demand,
all outstanding obligations of the Principal whether due or not due, and whether
held by the Creditor as principal or agent; and it is agreed that a certified
statement by the Creditor as to the amount due from the shall be accepted as
correct by the Guarantors without questions, and may be admitted by any court as
conclusive evidence.chanroblesvirtualawlibrary chanrobles virtual law library
The Guarantors expressly waive all rights to demand of payment and notice of
nonpayment and protest, and agree that the securities of every kind, that are now
and may hereafter be left with Creditor, its successors, endorsees or assigns, as
collateral to any evidences of debt or obligation or upon which a lien may exist
therefor, may be withdrawn or surrendered at any time, and the time of payment
thereof extended, without notice to, or consent by the guarantors, and that the
liability on this guaranty shall be direct and immediate and not contingent upon the
pursuit by the Creditor, its successors, endorsees or assigns, of whatever remedies
it or they have against the Principal or the securities or lien it or they may possess,
and the guarantors will at any time on demand, whether due or not due, pay to the
Creditor any overdraft of the Principal.chanroblesvirtualawlibrary chanrobles virtual
law library
This instrument is intended to be a complete and perfect indemnity to the Creditor
for any indebtedness or liability of any kind owning the Principal to the Creditor
from time to time, and to be valid and cotinuous without further notice to the
Guarantors, and may be revoked by the Guarantors at any time, but only after
forty-eight hours' notice in writing to the Creditor, and such revocation shall not
operate to relieve the Guarantors from the responsibility for obligations incurred by
the Principal prior to the termination of such period.
(Sgd.) MARIANO ESCUETA chanrobles virtual law library
RAFAEL VILLANUEVA chanrobles virtual law library
CIRILO B. SANTOS chanrobles virtual law library
WM. KENNEDY chanrobles virtual law library
TEOFILO VILLONGCO chanrobles virtual law library

Guarantor"
In their answer, the defendants make a general denial of the allegations of the
complaint and, in substance, set up as special defenses that the aforesaid surety
agreement was never accepted by the plaintiff; that the plaintiff had unduly and
without the consent of the defendants, extended the time for the payment of the
debt by the principal, the Island Trading Co., Inc. and thereby relieved the
defendants from their liabilities as sureties; that the plaintiff without the knowledge
and consent of the defendants released the surety, Rafael Villanueva from his
obligations under the agreement, and that the plaintiff should have presented its
claim against the estate of the surety, Wm. Kennedy, deceased, but have failed to
do so and that, consequently, the defendants cannot be held liable for the shares of
these two sureties.chanroblesvirtualawlibrary chanrobles virtual law library
Upon trial, the court below found that the defendants were liable for the sum of
P26,736.10, less one-fifth said one-fifth representing the liability of the deceased
surety, Wm. Kennedy, but should be credited with the sum of P17,076.68, the value
of certain merchandise sent by the Island Trading Co., Inc., through the plaintiff to
Shanghai, China, to be there disposed of by the Shanghai branch of the plaintiff
corporation and of which transaction no account had been rendered by the plaintiff.
Judgment was therefore rendered in favor of the plaintiff and against the
defendants for the sum of P7,727.54, with legal interest from April 5, 1924, and
without costs. From this judgment both the plaintiff and the defendants
appealed.chanroblesvirtualawlibrary chanrobles virtual law library
Under its first assignment of error, the plaintiff - appellant argues that the court
below erred in finding that from the sum of P26,736.10 prayed for by the plaintiffappellant in its complaint, there should be deducted the amount of P17,076.68
supposed value of certain goods which are alleged to have been sent by the Island
Trading Co., Inc., to the Pongee & Produce Co., Shanghai, thru the branch office of
the plaintiff-appellant in Shanghai." chanrobles virtual law library
The only evidence as to the transaction referred to in this assignment of error is the
testimony of the defendant Escueta in which the following question and answers are
found:
Q. Aside from all that, do you know if some goods outside of the Philippines and in
foreign countries were sold by the bank, which goods were also the property of the
Island Trading Co., Inc., and of which the bank had also taken possession? - A. Yes
sir.chanroblesvirtualawlibrary chanrobles virtual law library
Q. What are those goods? - A. In May, 1921, the Island Trading Co., Inc., thought of
sending certain goods to Shanghai, to a firm the Pongee & Produce Co. to be sold in
the amount of P17,076.68 as per invoice copy which . . . .
Mr. Orese: Copy of which we ask should marked Exhibit
8.chanroblesvirtualawlibrary chanrobles virtual law library

(Witness continuing.) When these goods were already packed up came Mr. Wilson,
son, who was also working in the National Bank. As it was custom to go often to our
office to transact business with the manager, when he saw the box containing the
said goods, furious he said to the manager: Why do you send those goods to
Shanghai without the consent of the bank? Then Goldenberg, in my presence, said:
I had your permission. - Alright, but you must send those goods to Shanghai thru
the bank and that the firm Pongee & Produce Co. cannot sell said goods without the
authority of the Manager of the Bank's branch in Shanghai.
Q. Were those sent to Shanghai thru the bank? - A. Yes
sir.chanroblesvirtualawlibrary chanrobles virtual law library
Q. And after said goods were sent to Shanghai, do you know if they were sold there
and who sold them? - A. Up to the year 1923, said goods were not sold and
afterwards ultimately the bank has ignored it completely and we do not know what
has been done by the Bank with those goods.chanroblesvirtualawlibrary chanrobles
virtual law library
Q. What was the value of those goods at the time they were sent to Shanghai thru
the bank? - A. It appears in this invoice,
P17,076.68.chanroblesvirtualawlibrarychanrobles virtual law library
Q. That amount or the proceeds of this goods if they were sold in Shanghai by the
branch of the bank, do you know if they were credited to the account of the Island
Trading Co., Inc., with the Philippine National Bank? - A. I think, not, because it
seems not that nobody in the bank knows about these goods which were sent to
Shanghai.
In the opinion the writer, the testimony quoted is hardly sufficient to charge the
plaintiff with the responsibility for the disposal of the merchandise alleged to have
been shipped to Shanghai. The Island Trading Co., was a commercial organization
and presumably kept records of its transactions, but there seems to be no
document or book entry showing that the good were shipped to Shanghai through
the plaintiff bank or any of its branches. If the shipping documents were
transmitted or delivered to the bank, there should have been a letter of transmittal,
of which the Island Trading Co., must have retained a copy; but no such letter or
copy has been offered in evidence; the invoice referred to in the testimony is, if
anything, in favor of the plaintiff inasmuch as it may be construed to indicate that
the invoiced goods were shipped to the Pongee & Produce Co., Shanghai. The
majority of the members of the court are, however, of the opinion that the
uncontradicted testimony of Mr. Escueta must be accepted as true and that it shows
sufficiently that the bank assumed control over the merchandise that it was its duty
to account therefor, and that having failed to do so, it must be charged with the
value of the goods.chanroblesvirtualawlibrary chanrobles virtual law library
The plaintiff-appellant's second assignments of error is to the effect that the court
below erred in finding that the surety, Rafael Villanueva, had been released from
responsibility by the plaintiff-appellant and in deducting, for that reason, one-fifth

from the amount due the plaintiff.chanroblesvirtualawlibrary chanrobles virtual law

library
This assignment, is, we think, well taken. There is absolutely no evidence in the
record showing that the plaintiff gave its consent to Villanueva's withdrawal from
the surety agreement, or that it released him from responsibility. The fact that he
was not made a defendant in this action is not sufficient to show such consent or
release; the sureties were jointly and severally bound and the action might be
brought against either of them without joining the cosureties. It is further to be
noted that the defendants made no motion in the court below to have Villanueva
included as a party defendant.chanroblesvirtualawlibrary chanrobles virtual law
library
The defendants-appellants present seven assignments of error, none of which can
be sustained. Under the first three and the fifth, it is argued that it has not been
shown that the plaintiff accepted the surety agreement. This is a question of fact,
which in our opinion was correctly determined by the trial court. The document
evidencing the agreement was delivered to the plaintiff bank and retained by it
without objection. It also appears that the bank, on the strength of the agreement,
extended credit to the Island Trading Co. These facts sufficiently indicated the
acceptances. Such acceptances need not necessarily be express or in
writing.chanroblesvirtualawlibrary chanrobles virtual law library
The fourth assignment of error has reference to the fact that the plaintiff, in its
transaction with the Island Trading Co., charged a higher rate of interest that fixed
in the surety agreement and the defendants argue that one of the principal
conditions of the agreement thereby violated and altered by the plaintiff and
sureties consequently released. This contention cannot successfully be maintained.
Whatever interest the plaintiff may have charged the Island Trading Co., in its
accounts the fact remains that as against the sureties, it is demanding only the rate
of interest specified in the agreement, which still remains unchanged and in
force.chanroblesvirtualawlibrary chanrobles virtual law library
The defendants-appellants other assignments of error are so clearly untenable as to
require no discussion.chanroblesvirtualawlibrary chanrobles virtual law library
For the reasons stated, the appealed judgment is hereby modified by increasing the
plaintiff's recovery to the full sum of P9,659.42, with interest at the rate of 6 per
cent per annum from April 3, 1924. In all other respects, the judgment is affirmed
without costs. So ordered.chanroblesvirtualawlibrary chanrobles virtual law library
Avancea, C. J., Street, Malcolm, Johns, Romualdez and Villa-Real, JJ., concur.
1. X borrowed money from Y and gave a piece of land as security by way of mortgage. It
was agreed between the parties that upon nonpayment of the loan, the land would
already belong to Y. If X failed to pay the debt, would Y now become the owner of the
land?

a. Y would become the owner because it was agreed upon by them based on the principle of
autonomy of contracts.
b. Y would not become the owner because the agreement that he would become the owner
upon default of X is against the law.
c. Y would now become the owner but with right of redemption by X.
d. Y would not become the owner if X annuls the voidable agreement.
ANSWER: B

2. Not an essential requisite of real estate mortgage:

a. Mortgagee should have free disposal of the property mortgaged, and in the absence thereof,
he should be legally authorized for the purpose.
b. Subject matter of a contract must be immovable property or alienable real rights upon
immovables.
c. Mortgagor is the absolute owner of the property mortgaged.
d. Constituted to secure the performance of the principal obligation.
ANSWER: A

3. A contract by virtue of which personal property is recorded

Chattel Mortgage Register as a security for the performance of an obligation.
a. Pledge
b. Real Mortgage
c. Antichresis
d. Chattel Mortgage
ANSWER: D

4. Chattel is distinguished from pledge.

a. The excess over the amount due after foreclosure goes to the debtor.
b. The sale of the object in an auction distinguishes the obligation.
c. The delivery of the personal property is necessity.
d. The registration of the property in the Registry of Property is necessary.

in

the

ANSWER: A

5. Which of the following is not correct?

a. If the thing pledged will be returned by the pledgee, the contract of pledge is extinguished.
b. Any stipulation allowing the pledgee or mortgagee to appropriate the thing pledged or
mortgaged is void.
c. In case the creditor foreclosed the chattel mortgage, he cannot recover any deficiency in case
the proceeds of the foreclosure sale are less than the unpaid obligation.
d. A public document containing a clear and complete description of the property mortgaged
must be registered in the Chattel MortgageRegister, otherwise, the mortgage is not void.
ANSWER: C

6. A stipulation whereby the pledgee or mortgagee automatically becomes the owner of

the thing pledged or mortgaged.
a. Pactum commissorium
b. Consolidation of ownership
c. Conventional redemption
d. Consignation
ANSWER: A

7. Which of the following statements is true and correct?

a. Pledge and mortgage are accessory contracts because they cannot exist by themselves.
b. In both pledge and mortgage, the creditor is entitled to deficiencyjudgment.
c. Where an obligation is secured by a pledge or mortgage and it is not paid when due, the
pledgee or mortgagee may dispose of the thing pledged or mortgaged if there is an agreement
to that effect between the parties.
d. Unless otherwise agreed upon by the parties, the sale of the mortgaged property
extinguishes in full the obligation of the mortgagor to the mortgagee.
ANSWER: A

8. The price stipulated by the parties to a mortgage contract below which the property
shall not be sold at public auction.
a. Market price
b. Current price
c. "Tipo" or Upset price
d. Selling price
ANSWER: C

9. The written abandonment of the pledge produces which the of the following effects?
a. The principal obligation is extinguished.
b. The pledge remains unless the thing pledged is returned.
c. The pledge remains unless the debtor/pledgor has accepted abandonment in writing.
d. The pledgee becomes a depositary until he gives back the possession of the thing pledged to
the debtor/pledgor.
ANSWER: D

10. A sworn statement attesting to the fact that the chattelmortgage is made for the
purpose of securing the obligation specified in the conditions thereof, and for no other
purpose, and that the obligation is just and valid, and one not entered into for the
purpose of fraud.
a. Affidavit of good moral character
b. Affidavit of merit
c. Affidavit of good faith
d. Affidavit of trust
ANSWER: C

a. Real contract
b. Pledgor or mortgagor
c. Thing pledged may be appropriated if debtor cannot pay
d. Pledgor or mortgagor must have a free disposal of the thing pledged

ANSWER: C

12. The rule on pactum commissorium does not apply to

a. Antichresis
b. Pledge
c. Real mortgage
d. Commodatum
ANSWER: D

13. It is also the essence of the contracts of pledge andmortgage that when the
principal obligation becomes due, the things in which the pledge or mortgage consists
may be
a. Appropriated by the creditor
b. Disposed of by the creditor
c. Alienated by the creditor
d. Deposited with the third person prior to foreclosure
ANSWER: C

14. Real estate mortgage

a. Has for its object movables as well as immovables
b. Is perfected the moment the contract is registered with theRegistry of Property
c. Is inseparable because the mortgage directly and immediately subjects the property upon
which it is imposed, whoever the possessor may be, to the fulfillment of the obligation for whose
security it was constituted
d. Entitles the mortgagee to the fruits of the thing mortgaged
ANSWER: C

15. Effect of sale on the thing pledged if it is less than the principal obligation
a. Creditor cannot recover the deficiency unless there is a stipulation
b. Creditor cannot recover the deficiency

c. Creditor cannot recover the deficiency even if there is a stipulation

d. Creditor can recover the deficiency even if there is no stipulation
ANSWER: C

16. If the proceeds of the sale is more than the obligation, the creditor is entitled to the
excess unless otherwise stipulated, while if it is less, the creditor cannot recover the
deficiency even if there is no stipulation. This is applicable to
a. Pledge
b. Chattel mortgage
c. Real estate mortgage
d. Mutuum
ANSWER: A

17. Which of the following is not a required formality in an auction sale?

a. The pledgor or the owner and the pledgee must bid
b. It must be made with the help of a notary public
c. The debt was already due but was not paid on time
d. Notice to the debtor and the owner of the thing pledged before and after the public auction
ANSWER: A

18. Which of the following is not an obligation of the pledgor?

a. To participate in the public auction of the thing pledged
b. To inform the pledgee of the flaws, of the thing if known to him
c. To pay the principal obligation including the interest, and expenses in a proper case
d. To reimburse the pledgee for the expenses incurred for the preservation of the thing pledged
ANSWER: A

19. One of the following is a right of the pledgor

a. Reimbursement for the preservation of the thing pledged

b. Demand return of the thing pledged upon payment of the principalobligation

c. Recover or defend the thing pledged against a third person
d. Continue to have a lien on the thing pledged even if it is alienated
ANSWER: B

20. Not a valid object of pledge

a. Certificate of stock
b. Stock dividends
c. Warehouse receipts
d. Timberland
ANSWER: D