1.Secured v 1.

Secured transactions or contracts of real security - supported by a collateral or an

Unsecured encumbrance of property
2. Unsecured transactions or contracts of personal security - supported only by a
promise or personal commitment of another such as a guarantor or surety
2.Elements of The delivery of property of one person to another in trust for a specific purpose, with
Bailment a contract, express or implied, that the trust shall be faithfully executed and the
property returned or duly accounted for when the special purpose is accomplished or
kept until the bailor claims it.
Consent
Object certain (subject matter of the contract)
Cause of the obligation
3.Kinds of Loan 1. Commodatum when the bailor (lender) delivers to the bailee (borrower) a non-
consumable thing so that the latter may use it for a certain time and return the
identical thing.
2. Simple loan or mutuum where the lender delivers to the borrower money or
other consumable thing upon the condition that the latter shall pay the same
amount of the same kind and quality.
4.Commodatum v As to COPS LOTR
Mutuum
5.Validity of An accepted promise to make a future loan is a consensual contract, and therefore
Promise to lend binding upon the parties but it is only after delivery, will the real contract of loan
arise.
6.Extinguishment of 1. The death of either the bailor or the bailee extinguishes
commodatum the contract
2. Accomplishment of the obligation
3. The thing is lost
4. Precarium or the demand of the thing loaned at will
- contract is stipulated
- use of the thing is merely tolerated by the owner
7.Ownership in Retained by the lender
commodatum
8. a. Obligations of Obligations of the Bailee: (Arts 1941 1945)
the balee 1. To pay for the ordinary expenses for the use and preservation of the thing loaned.
(Art 1941)
2. To be liable for the loss of the thing even if it should be through a fortuitous
event in the following cases: (KLAS D)
a. when he keeps it longer than the period stipulated, or after the
accomplishment of its use
b. when he lends or leases it to third persons who are not members of his
household
c. when the thing loaned has been delivered with appraisal of its value
d. when, being able to save either of the thing borrowed or his own things, he
chose to save the latter; or
e. when the bailee devoted the thing for any purpose different from that for
which it has been loaned (Art 1942)
3. To be liable for the deterioration of thing loaned (a) if expressly stipulated; (b) if
guilty of fault or negligence; or (c) if he devotes the thing to any purpose
different from that for which it has been loaned
4. To pay for extraordinary expenses arising from the actual use of the thing by the
bailee, which shall be borne equally by both the bailor and the bailee, even
though the bailee acted without fault, unless there is a stipulation to the contrary
(Art 1949 par 2)
5. To return the thing loaned
The bailee has no right to retain the thing loaned as security for claims he has
against the bailor even for extraordinary expenses except for a claim for
damages suffered because of the flaws of the thing loaned.
8. b. Obligation of Obligations of the bailor (Art 1946 Art 1952):
the balor 1. To respect the duration of the loan
GENERAL RULE: Allow the bailee the use of the thing loaned for the duration of
the period stipulated or until the accomplishment of the purpose for which the
commodatum was instituted.
EXCEPTIONS:
a. In case of urgent need in which case bailee may demand its return or
temporary use;
b. The bailor may demand immediate return of the thing if the bailee
commits any act of ingratitude specified in Art. 765.

2. To refund to the bailee extraordinary expenses for the preservation of the thing
loaned, provided the bailee brings the same to the knowledge of the bailor before
incurring them, except when they are so urgent that the reply to the notification
cannot be awaited without danger.

3. To be liable to the bailee for damages for known hidden flaws.

Requisites:
a. There is flaw or defect in the thing loaned;
b. The flaw or defect is hidden;
c. The bailor is aware thereof;
d. He does not advise the bailee of the same; and
e. The bailee suffers damages by reason of said flaw or defect
9. Precarium v Kinds of commodatum:
Ordinary a. Ordinary Commodatum use by the borrower of the thing is for a certain
period of time
b. Precarium - one whereby the bailor may demand the thing loaned at will and
it exists in the following cases:
i. neither the duration nor purpose of the contract is stipulated
ii. the use of the thing is merely tolerated by the owner
10. Acts of The donation may also be revoked at the instance of the donor, by reason of
Ingratitude ingratitude in the following cases:

1) 1. If the donee should commit some offense against the person, the honor or the
property of the donor, or of his wife or children under his parental authority;

2) 2. If the donee imputes to the donor any criminal offense, or any act involving moral
turpitude, even though he should prove it, unless the crime or the act has been
committed against the donee himself, his wife or children under his authority;

3) 3. If he unduly refuses him support when the donee is legally or morally bound to give
support to the donor. (Art. 765, CC)
11. Rules on 1. ordinary expense for the use bailee
expense 2. ordinary expense for the preservation bailee
3. extraordinary expense for the preservation bailor
4. extraordinary expense for the actual use 50 .50
5. other expenses for the use bailee
12. Mutuum: Obligation of borrower is to pay.
obligations of the The law uses the word pay and not the word return
borrower because the consumption of the thing loaned is the distinguishing
character of the contract of mutuum from that of commodatum.
This obligation to pay may include the accessory duty to pay
interest. (see Article 1956.)
13. Fungible v Whether a thing is consumable or not depends upon its nature
Consumable Whether a thing is fungible or not depends upon the intention of the parties
Thus, while wine is consumable by its nature, it is non-fungible if the intention is
 merely for display or exhibition (see Art. 1936.) because the same wine must be
returned.
14. Extinguishment 1.Confusion
of mutuum 2.Condonation
3.Compensation
4.Novation
15. Risk of loss or C: Bailor ; M: Debtor
deterioration 1.if expressly stipulated
2.if guilty of fault or negligence
3.if he devotes the thing other than which it has been intended
16. Loan
terminologies
17. Rules on interest In order that interest may be chargeable, the following are the requisites:
(1) The payment of interest must be expressly stipulated
(2) The agreement must be in writing (Art. 1956.); and
(3) The interest must be lawful. (see, however, note to Arts.
1957 and 1961.)
18. Interests v The essence or rationale for the payment of interest often referred to as cost of
Surcharges / Penalty money, is separate and distinct from that of surcharges and penalties. A penalty
stipulation is not necessarily preclusive of interest, if there is an agreement to that
effect, the two being distinct concepts which may separately be demanded. What
may justify a court in not allowing the creditor to impose full surcharges and
penalties, despite an express stipulation therefor in a valid agreement, may not
equally justify non-payment or reduction of interest.
19. Rules on A rate of interest that is usually considerably above current market rates. Usury
usurious interest rates are often charged by unsecured lenders on loans. These rates can be illegal in
some countries and situations because they often take advantage of unsuspecting
individuals.
20. Principal Safekeeping.
purpose of deposit It is in the nature of trust and confidence wherein the depositary keeps the thing
deposited by the depositor with the correlative obligation of the depositary to return
the exact thing deposited upon demand.
21. Extinguishment 1. Loss or destruction of the thing deposited
of deposit 2. In case of gratuitous deposit, upon the death of either depositor or depositary
3. Expiration of the term
4. Demand at the will of depositor
5. Termination of the purpose of the deposit or fulfillment of the resolutory condition
6. Mutual withdrawal from the contract
22. Deposit v Deposit Commodatum
Commodatum 1.Purpose is safekeeping transfer of the use
2.May be gratuitious Essentially and always gratuitous
3.Movable / corporeal things only in case of extrajudicial deposit Both movable and
immovable may be the object of deposit
23. Kinds ofdeposit 1. Judicial (Sequestration) takes place when an attachment or seizure of property
in litigation is ordered.

2. Extra-judicial
a. Voluntary one wherein the delivery is made by the will of the depositor or by
two or more persons each of whom believes himself entitled to the thing
deposited. (Arts 1968 1995)
b. Necessary one made in compliance with a legal obligation, or on the
occasion of any calamity, or by travellers in hotels and inns (Arts 1996 - 2004),
or by travellers with common carriers (Art 1734 1735).
NOTE: The chief difference between a voluntary deposit and a necessary deposit
is that in the former, the depositor has a complete freedom in choosing the
depositary, whereas in the latter, there is lack of free choice in the depositor.
24. Rules when If the depositary is capacitated - he is subject to all the obligations of a depositary
parties are whether or not the depositor is capacitated. If the depositor is incapacitated, the
incapacitated depositary must return the property to the legal representative of the incapacitated
or to the depositor himself if he should acquire capacity (Art 1970).

If the depositor is capacitated and the depositary is incapacitated - the latter does
not incur the obligation of a depositary but he is liable:
i..to return the thing deposited while still in his possession;
ii.to pay the depositor the amount which he may have benefited himself with the
thing or its price subject to the right of any third person who acquired the thing in
good faith (Art 1971)
25. Obligations and Obligations of the Depositary (Art 1972 1991):
rights of depositor
and depositary
1. To keep the thing safely (Art 1972)
Exercise over the thing deposited the same diligence as he would exercise
over his property
2. To return the thing (Art 1972)
3. Not to deposit the thing with a third person unless authorized by express
stipulation (Art 1973)
The depositor is liable for the loss of the thing deposited under Article 1973 if:
a. he transfers the deposit with a third person without
authority although there is no negligence on his part and the third person;
b. he deposits the thing with a third person who is
manifestly careless or unfit although authorized even in the absence of
negligence; or
c. the thing is lost through the negligence of his employees
whether the latter are manifestly careless or not.
4. If the thing deposited should earn interest (Art 1975):
a. to collect interest and the capital itself as it fall due
b. to take steps to preserve its value and rights corresponding to it
5. Not to commingle things deposited if so stipulated (Art 1976)
6. Not to make use of the thing deposited unless authorized (Art 1977)
GENERAL RULE: Deposit is for safekeeping of the subject matter and not for
use. The unauthorized use by the depositary would make him liable for damages.
EXCEPTIONS:
1. When the preservation of the thing deposited requires its use
2. When authorized by the depositor

NOTE: The permission to use is NOT presumed except when such use is necessary
for the preservation of the thing deposited.
26. Safety deposit
box v deposit v
mutuum
27. Commingling ART. 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain
or other articles of the same kind and quality, in which case the various depositors shall own
or have a proportionate interest in the mass.

28. Irregular deposit v 1. The consumable thing deposited may be
demanded at will by the depositor
mutuum
2. The only benefit is that which accrues to the
depositor
3. The irregular depositor has a preference over
other creditors with respect to the thing
deposited
. Lender is bound by the provisions of the
contract and cannot demand restitution until the
time for payment, as provided in the contract,
has arisen
2. Essential cause for the transaction is the
necessity of the borrower
3. Common creditors enjoy no preference in the
distribution of the debtors property
29. Closed and When the thing deposited is delivered sealed and closed :
sealed a. to return the thing deposited in the same condition
b. to pay for damages should the seal or lock be broken through his fault, which
is presumed unless proved otherwise
c. to keep the secret of the deposit when the seal or lock is broken with or
without his fault (Art 1981)
NOTE: The depositary is authorized to open the thing deposited which is
closed and sealed when (Art 1982):
i. there is presumed authority (i.e. when the key has been delivered to him or
the instructions of the depositor cannot be done without opening it)
ii. necessity
30. When deposit is 1. Made in compliance with a legal obligation
necessary 2. Made on the occasion of any calamity such as fire, storm, flood, pillage,
shipwreck or other similar events (deposito miserable)
3. Made by travellers in hotels and inns or by travellers with common carrier
31. Judicial and Judicial Extra-judicial
extra judicial 1. Creation
Will of the court Will of the parties or contract
2. Purpose
Security or to insure the right of a party to property or to recover in case of favorable
judgment Custody and safekeeping
3. Subject Matter
Movables or immovables,
but generally immovable Movables only
4. Cause
Always onerous May be compen-sated or not, but generally gratuitous
5. When must the thing be returned
Upon order of the court or when litigation is ended Upon demand of depositor
6. In whose behalf it is held
Person who has a right Depositor or third person designated
32. Classification of 1. In the Broad sense:
guaranty a. Personal - the guaranty is the credit given by the person who guarantees the
fulfillment of the principal obligation.
b. Real - the guaranty is the property, movable or immovable.
2. As to its Origin
a. Conventional - agreed upon by the parties.
b. Legal - one imposed by virtue of a provision of a law.
c. Judicial - one which is required by a court to guarantee the eventual right of
one of the parties in a case.
3. As to Consideration
a. Gratuitous - the guarantor does not receive any price or remuneration for
acting as such.
b. Onerous - the guarantor receives valuable consideration.
4. As to the Person guaranteed
a. Single - one constituted solely to guarantee or secure performance by the
debtor of the principal obligation.
b. Double or sub-guaranty - one constituted to secure the fulfilment by the
guarantor of a prior guaranty.
5. As to Scope and Extent
a. Definite - the guaranty is limited to the principal obligation only, or to a
specific portion thereof.
b. Indefinite or simple - one which not only includes the principal obligation but
also all its accessories including judicial costs
33. Statute of frauds
34. Strictissism juris Strictly interpreted against the creditor and in favor of the guarantor/surety and is
not to be extended beyond its terms or specified limits. (Magdalena Estates, Inc. vs
 Rodriguez, 18 SCRA 967) The rule of strictissimi juris commonly pertains to an
accommodation surety because the latter acts without motive of pecuniary gain and
hence, should be protected against unjust pecuniary impoverishment by imposing on
the principal, duties akin to those of a fiduciary
35. Extent of 1. Where the guaranty definite: It is limited in whole or in part to the principal
guarantors liability debt, to the exclusion of accessories.
2. Where guaranty indefinite or simple: It shall comprise not only the principal
obligation, but also all its accessories, including the judicial costs, provided with
respect to the latter, that the guarantor shall only be liable for those costs
incurred after he has been judicially required to pay.
36. Qualification of 1. possesses integrity
guarantor 2. capacity to bind himself
3. has sufficient property to answer for the obligation which he guarantees
37. Benefit of The right by which the guarantor cannot be compelled to pay the creditor unless the
excussion latter has exhausted all the properties of the principal debtor, and has resorted to all
of the legal remedies against such debtor.
38. Benefit of Should there be several guarantors of only one debtor and for the same debt, the obligation
division to answer for the same is divided among all.
Liability: Joint
39. Effect of repeat GENERAL RULE: Before guarantor pays the creditor, he must first notify the debtor
payment (Art. 2068). If he fails to give such notice and the debtor repeats payment, the
guarantor can only collect from the creditor and guarantor has no cause of action
against the debtor for the return of the amount paid by guarantor even if the creditor
should become insolvent.

EXCEPTION: The guarantor can still claim reimbursement from the debtor in spite
of lack of notice if the following conditions are present: (PIG)
a. guarantor was prevented by fortuitous event to advise the debtor of the
payment; and
b. the creditor becomes insolvent;
the guaranty is gratuitous
40. 2066 v 2071 Art. 2066 Art. 2071
Provides for the enforcement of the rights of the guarantor/surety against the
debtor after he has paid the debt - Provides for his protection before he has paid
but after he has become liable
Gives a right of action after payment - Protective remedy before payment.
Substantive right Preliminary remedy
41. Extinguishment Extinguishment of guaranty: (RA2CE2)
of guaranty 1. Release in favor of one of the guarantors, without the consent of the others,
benefits all to the extent of the share of the guarantor to whom it has been
granted (Art 2078);
2. If the creditor voluntarily accepts immovable or other properties in payment of
the debt, even if he should afterwards lose the same through eviction or
conveyance of property (Art 2077);
3. Whenever by some act of the creditor, the guarantors even though they are
solidarily liable cannot be subrogated to the rights, mortgages and preferences of
the former (Art 2080);
4. For the same causes as all other obligations (Art 1231);
5. When the principal obligation is extinguished;
6. Extension granted to the debtor by the creditor without the consent of the
guarantor (Art 2079)