credit+transaction reviewer

8/12/2019 Credit+Transaction reviewer

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San Beda College of Law182

M EMORY A ID IN C IVIL L AW

CREDIT TRANSACTIONS

All transactions involving thepurchase or loan of goods, services,or money in the present with apromise to pay or deliver in thefuture

Contracts of securityTypes:1. Secured transactions or contracts of

real security - supported by acollateral or an encumbrance ofproperty

2. Unsecured transactions or contractsof personal security - supported onlyby a promise or personalcommitment of another such as aguarantor or surety

SecuritySomething given, deposited, orserving as a means to ensurefulfilment or enforcement of anobligation or of protecting someinterest in propertyTypes of Securitya. personal when an individual

becomes surety or guarantorb. real or property when a

mortgage, pledge, antichresis,charge or lien or other deviceused to have property held, outof which the person to be madesecure can be compensated forloss

BailmentThe delivery of property of oneperson to another in trust for a

specific purpose, with a contract,e press or implied, that the trustshall be faithfully e ecuted and theproperty returned or duly accountedfor when the special purpose isaccomplished or !ept until the bailorclaims it.

Parties:1. bailor - the giver" one who delivers

property2. bailee- the recipient" one who

receives the custody or possession of

the thing thus delivered

LOAN (Articles !"" # !$ %

A contract wherein one of theparties delivers to another, eithersomething not consumable so thatthe latter may use the same for acertain time and return it or moneyor other consumable thing, upon thecondition that the same amount ofthe same !ind and #uality shall bepaid. $Art 1%&&'

C&aracteristics:1. Real Contract delivery of the thing

loaned is necessary for theperfection of the contractNOTE: An accepted promise to ma!ea future loan is a consensualcontract, and therefore binding uponthe parties but it is only afterdelivery, will the real contract ofloan arise. $Art 1%&('

2. Unilateral Contract - once thesub)ect matter has been delivered,it creates obligations on the part ofonly one of the parties $i.e.borrower'.

'in s:1. Commodatum when the bailor

$lender' delivers to the bailee$borrower' a non-consumable thingso that the latter may use it for acertain time and return the identicalthing.

'in s of commo atum:a. Ordinary Commodatum use by

the borrower of the thing is for a

certain period of timeb. Precarium - one whereby thebailor may demand the thingloaned at will and it e ists in thefollowing cases*i. neither the duration nor

purpose of the contract isstipulated

ii. the use of the thing ismerely tolerated by theowner

C IVIL L AW C OMMITTEE CHAIRPERSON : Romuald Padilla A SST .C HAIRPERSON : Vida Bocar, Joyce Vidad EDP : Alnai a Ha!!iman, Doro"#y $ayon

S %BJECT HEADS : C#ri!"oer Rey 'ara!i(an )Per!on! and *amily Rela"ion!+, Ale andro Ca!a-ar)Pro&er"y+, 'a. R#odora*errer) ill! and Succe!!ion+, Ian Dominic Pua)O-li(a"ion! and Con"rac"!+, S#a Eli a# Dumama)Sale! and /ea!e+, Jo#n S"een0uiam-ao)PAT+, C#ri!"oer Ca-i(ao)Credi" Tran!ac"ion!+, /i(aya Ali&ao)Tor"! and Dama(e!+, An"#ony Pur(anan)/TD+,'a. Rica!ion Tu(adi )Con1lic"! o1 /a2+

CREDIT TRANSACTIONS


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2. Simple loan or mutuum where thelender delivers to the borrowermoney or other consumable thingupon the condition that the latter

shall pay the same amount of thesame !ind and #uality.

Commo atum )utuum'ey: COPS*LOTR

1. Object+on-consumable onsumable

2. Causeratuitous ay or may not be

gratuitous3. Purpose

/se or temporarypossession

onsumption

4. Subject Matter 0eal or personalproperty

nly personalproperty

5. Ownership of the thing0etained by the

bailorasses to the debtor

6. Thing to be returne 3 act thing loaned 3#ual amount of the

same !ind and#uality

!. "ho bears ris# of $oss4ailor 5ebtor

%. "hen to return6n case of urgentneed, even beforethe e piration of theterm

nly after thee piration of theterm

Loan Cre it5elivery by one partyand the receipt ofother party of agiven sum of moneyor other consumablething upon anagreement, e pressor implied, to repaythe same.

Ability of a person toborrow money orthings by virtue ofthe trust orconfidence reposedby the lender that hewill pay what hepromised.

Loan Cre it1. 6nterest ta!en atthe e piration of thecredit

6nterest is ta!en inadvance

2. Always on adouble name paper$two signaturesappear with bothparties held liablefor payment'

Always on a singlename paper $i.e.promissory note withno indorse-mentother than thema!er'

CO))ODAT+) (Articles !", # !,-%Nature:

1. P+RPOSE: 4ailee in commodatum

ac#uires the temporary use of thething but not its fruits $unlessstipulated as an incidental part ofthe contract'.$Art 1%&7'

/se must be temporary,otherwise the contract may be adeposit.

2. CA+SE: 3ssentially gratuitous" itceases to be a commodatum if anycompensation is to be paid by theborrower who ac#uires the use, insuch case there arises a leasecontract.

Similar to a donation in that itconfers a benefit to therecipient. The presumption isthat the bailor has loaned thething for having no needtherefor.

&. S+B.ECT )ATTER: enerally non-consumable whether real or personalbut if the consumable goods are notfor consumption as when they aremerely for e hibition, consumablegoods may be the sub)ect of thecommodatum. $Art 1%&8'

(. 4ailor need not be the owner of thething owned $Art. 1%&9' since by theloan, ownership does not pass to theborrower.

A mere lessee or usufructuarymay lend but the borrower orbailee himself may not lend norlease the thing loaned to him toa third person $Art 1%&2:2;'

,/ Purely Personal (Art !"!%:5eath of either party terminatesthe contract unless bystipulation, the commodatum istransmitted to the heirs of eitheror both parties.4ailee can neither lend nor leasethe ob)ect of the contract to athird person.




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NOTE:/se of the thing loanedmay e tend to members of thebailee


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NOTES:6f the above re#uisites concur,the bailee has the right ofretention for damages.The bailor cannot e empthimself from the payment ofe penses or damages byabandoning the thing to thebailee.

SI)PLE LOAN OR )+T++) (Art !," #!$ %

A contract whereby one partydelivers to another, money or otherconsumable thing with the

understanding that the same amountof the same !ind and #uality shall bepaid. $Art. 1%7&'

NOTES:The mere issuance of the chec!sdoes not result in the perfection ofthe contract of loan. The ivil odeprovides that the delivery of bills ofe change and mercantiledocuments, such as chec!s, shallproduce the effect of payment onlywhen they have been encashed$Gerales (s! CA )*+ SCRA &,+ '. 6t isonly after the chec!s have producedthe effect of payment that thecontract of loan may be deemedperfected.The obligation is >to pay? and not toreturn because the consumption ofthe thing loaned is the distinguishingcharacter of the contract of mutuumfrom that of commodatum.+o estafa is committed by a personwho refuses to pay his debt or denies

its e istence.

Simple Loan5)utuum Rent

1. 5elivery of moneyor some consumablething with a promiseto pay an e#uivalentof the same !ind and#uality

5elivery of some non-consumable thing inorder that the othermay use it during acertain period andreturn it to theformer.

2. There is a transferof ownership of the

thing delivered

There is no transferof ownership of the

thing delivered

&. 0elationshipbetween the partiesis that of obligor-obligee

0elationship is thatof a landlord andtenant

(. reditor receivespayment for his loan

wner of theproperty rentedreceivescompensation orprice either inmoney, provisions,chattels, or labor

from the occupantthereof in return forits use $Tolentino vs

on@ales, 7 hil 7791%2B'

Loan Sale

1. 0eal contract onsensual contract

2. enerallyunilateral becauseonly borrower hasobligations

4ilateral andreciprocal

NOTE: 6f the property is >sold?, but thereal intent is only to give the ob)ect as

security for a debt as when the >price?is comparatively small there really is acontract of loan with an >e#uitablemortgage.?

Commo atum5)utuum Barter

1. Sub)ect matter ismoney or fungiblethings

Sub)ect matter isnon-fungible, $nonconsumable' things

2. 6n commodatum,the bailee is boundto return theidentical thingborrowed when thetime has e pired orpurpose served

The thing withe#uivalent value isgiven in return forwhat has beenreceived

&. utuum may begratuitous andcommodatum isalways gratuitous

nerous, actually amutual sale




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6orm of Payment (Art !,,%:1. 6f the thing loaned is money -

payment must be made in the

currency stipulated, if it is possible"otherwise it is payable in thecurrency which is legal tender in the

hilippines and in case ofe traordinary inflation or deflation,the basisi of payment shall be thevalue of the currency at the time ofthe creation of the obligation

2. 6f what was loaned is a fun"i#let$in" ot$er t$an money - theborrower is under obligation to paythe lender another thing of the same!ind, #uality and #uantity. 6n case itis impossible to do so, the borrowershall pay its value at the time of theperfection of the loan.

InterestThe compensation allowed by law orfi ed by the parties for the loan orforbearance of money, goods orcredits0e#uisites for 5emandability* (ELI%1. must be e pressly stipulated

3 ceptions*a. indemnity for damagesb. interest accruing from

unpaid interest2. must be lawful&. must be in writing

Compoun Interest GENERAL RULE: /npaid interest shall

not earn interest. EXCEPT ONS:

1. when )udicially demanded2. when there is an e press

stipulation $must be in writing in

view of Art. 1%78'

7ui elines for t&e application ofproper interest rates1. 6f there is stipulation* that rate shall

be applied2. The following are the rules of thumb

for the applicationCimposition ofinterest rates*a' Dhen an obligation, regardless

of its source, i.e., law,contracts, #uasi-contracts,delicts or #uasi-delicts is

breached, the contravenor canbe held liable for damages.

b' Dith regard particularly to anaward of interest in the concept

of actual and compensatorydamages, the rate of interest, aswell as the accrual thereof, isimposed, as follows*i. Dhen the obligation

breached consists ofpayment of a sum of money-loan or for#earance ofmoney. , the interest shall bethat which is stipulated oragreed upon by the parties.6n absence of an agreement,the rate shall be the legal

rate $i.e. 12E per annum'computed from default.NOTE: The interest due shallitself earn legal interestfrom the time it is )udiciallydemanded

ii. 6n other cases, the rate ofinterest shall be si percent$8E' per annum.NOTE: +o interest, however,shall be ad)udged onunli#uidated claims ordamages e cept when oruntil the demand can beestablished with reasonablecertainty. Dhen the demandcannot be established, theinterest shall begin to runonly from the date of the)udgment of the court ismade.

iii. Dhen the )udgment of thecourt awarding a sum ofmoney becomes final ande/ecutory , the rate of legalinterest, whether the casefalls under paragraph i or iiabove, shall be 12E perannum from such finalityuntil its satisfaction, thisinterim period being deemedto be by then an e#uivalentto a forbearance of credit.$Eastern S$ippin" Lines (s!CA0 1uly *)0 *223 '

NOTES:Central 4an5 Circular No! 3*& fi ing

the rate of interest at 12E perC IVIL L AW C OMMITTEE CHAIRPERSON : Romuald Padilla A SST .C HAIRPERSON : Vida Bocar, Joyce Vidad EDP : Alnai a Ha!!iman, Doro"#y $ayon



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annum deals with loans, forbearanceof any money, goods or credits and)udgments involving such loans, orforbearance in the absence of

e press agreement to such rate6nterest as indemnity for damages ispayable only in case of default ornon-performance of the contract. Asthey are distinct claims, they may bedemanded separately. $Sentinel6nsurance o., 6nc. vs A, 192 S 0A71B'Central Ban3 Circular No/ !8, $5ec.1 , 1%92' removed the /sury Fawceiling on interest rates for securedand unsecured loans, regardless ofmaturity.

9ali ity of unconsciona0le interest ratein a loan

Supreme ourt in Sps! Solan"on(s! 1ose Sala6ar0 G!R! No! *)'2330 1une)20 )77* , said that since the usury lawhad been repealed by 4 ir. +o. % 7there is no more ma imum rate ofinterest and the rate will )ust depend onthe mutual agreement of the parties$citing Lim La8 (s! Olympic Sa8mill Co!0*)2 SCRA 3,2 '. 4ut the Supreme ourt

said that nothing in said circular grantslenders carta #lanc$e authority to raiseinterest rates to level which will eitherenslave their borrowers or lead to ahemorrhaging of their assets $citing

Almeda (s! CA0 )'& SCRS )2) '. 6n 9edel(s! CA0 )22 SCRA 3+* , it was ruled thatwhile stipulated interest of 7.7E permonth on a loan is usurious pursuant to

4 ircular +o. % 7, the same must bee#uitably reduced for being ini#uitous,unconscionable and e orbitant. 6t iscontrary to morals, $ contra #onos

mores '. 6t was reduced to 12E perannum in consonant with )ustice and fairplay.

DEPOSIT (Articles !$- # -88!%

A contract constituted from themoment a person receives a thingbelonging to another, with theobligation of safely !eeping it and ofreturning the same.

C&aracteristics:

1. Real Contract - contract isperfected by the delivery of thesub)ect matter.

2. Unilateral -"ratutitous deposit. -

only the depositary has anobligation.&. 4ilateral -onerous deposit. -

gives rise to obligations on thepart of both the depositary anddepositor.

Deposit )utuum1. Purpose

rincipal purpose issafe!eeping orcustody

rincipal purpose isconsumption

2. "hen to &eturn

5epositor candemand the return ofthe sub)ect matter atwill

The lender must waituntil the e pirationof the period grantedto the debtor

3. Subject Matter Sub)ect matter maybe movable orimmovable property

Sub)ect matter isonly money or otherfungible thing

4. &e$ationship0elationship is thatof lender $creditor'and borrower$debtor'.

0elationship is thatof depositor anddepositary.

5. Co'pensationThere can becompensation ofcredits.

+ compensation ofthings deposited witheach other $e ceptby mutualagreement'.

Deposit Commo atum

1. urpose isSafe!eeping

1. urpose is thetransfer of the use

2. ay be gratuitous 2. 3ssentially andalways gratuitous

&. ovableCcorporealthings only in case ofe tra)udicial deposit

&. 4oth movable andimmovable may bethe ob)ect

'in s of Deposit:1. Gudicial $Se#uestration' ta!es place

when an attachment or sei@ure ofproperty in litigation is ordered.

2. 3 tra-)udiciala. Holuntary one wherein the

delivery is made by the will of

the depositor or by two or moreC IVIL L AW C OMMITTEE CHAIRPERSON : Romuald Padilla A SST .C HAIRPERSON : Vida Bocar, Joyce Vidad EDP : Alnai a Ha!!iman, Doro"#y $ayon



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persons each of whom believeshimself entitled to the thingdeposited. $Arts 1%89 1%%7'

b. +ecessary one made in

compliance with a legalobligation, or on the occasion ofany calamity, or by travellers inhotels and inns $Arts 1%%8 -2 (', or by travellers withcommon carriers $Art 1B&( 1B&7'.

NOTE: The chief differencebetween a voluntary deposit and anecessary deposit is that in theformer, the depositor has acomplete freedom in choosing thedepositary, whereas in the latter,

there is lac! of free choice in thedepositor.

.u icial E tra*;u icial1. Creation

Dill of the court Dill of the partiesor contract

2. PurposeSecurity or to insurethe right of a partyto property or torecover in case offavorable )udgment

ustody andsafe!eeping

3. Subject Matter ovables or

immovables,but generallyimmovables

ovables only

4. CauseAlways onerous ay be compen-

sated or not, butgenerally gratuitous

5. "hen 'ust the thing be returne /pon order of thecourt or whenlitigation is ended

/pon demand ofdepositor

6. (n whose beha$f it is he$ erson who has a

right5epositor or thirdperson designated

GENERAL RULE: ontract of deposit isgratuitous $Art 1%87'

EXCEPT ONS:1. when there is contrary

stipulation2. depositary is engaged in business

of storing goods

&. property saved from destructionwithout !nowledge of the owner

NOTES:

Article 1%88 does not embraceincorporeal property, such as rightsand actions, for it follows the personof the owner, wherever he goes.A contract for the rent of safet)

eposit bo*es is not an ordinarycontract of lease of things but aspecial 5ind of deposit " hence, it isnot to be strictly governed by theprovisions on deposit. The relationbetween a ban! and its customer isthat of a bailor and bailee. $ A Agrovs A, 21% S 0A (28'

O0li1ations of t&e Depositary (Art !


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the right of any third personwho ac#uired the thing ingood faith $Art 1%B1'

Time of return:a / Upon demand even though aspecified period or time for suchreturn may have been fi ede cept when the thing is)udicially attached while in thedepositary&at to return: product,accessories, and accessions ofthe thing deposited $Art 1%9&'

&. +ot to deposit the thing with a thirdperson unless authori@ed by e pressstipulation $Art 1%B&'

The depositor is liable for theloss of the thing deposited underArticle 1%B& if*a. hetransfers the deposit with a thirdperson without authority

although there is no negligenceon his part and the third person"b. hedeposits the thing with a thirdperson who is manifestly carelessor unfit although authori@edeven in the absence ofnegligence" orc. the thingis lost through the negligence ofhis employees whether the latterare manifestly careless or not.

(. 6f the thing deposited should earninterest $Art 1%B7'*a. to collect interest and the

capital itself as it fall due

b. to ta!e steps to preserve itsvalue and rights corresponding toit

7. +ot to commingle things deposited ifso stipulated $Art 1%B8'

8. +ot to ma!e use of the thingdeposited unless authori@ed $Art1%BB'

GENERAL RULE: 5eposit is forsafe!eeping of the sub)ect matterand not for use. The unauthori@eduse by the depositary would ma!ehim liable for damages.

EXCEPT ONS:1. Dhen the preservation of the

thing deposited re#uires its use2. Dhen authori@ed by the

depositor

NOTE: The permission to use is + Tpresumed e cept when such use isnecessary for the preservation of thething deposited.

Effect if permission to use is 1i?en(Art !


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his fault, which is presumedunless proved otherwise

c. to !eep the secret of the depositwhen the seal or loc! is bro!en

with or without his fault $Art1%91'NOTE: The depositary isauthori@ed to open the thingdeposited which is closed andsealed when $Art 1%92'*i. there is presumed authority

$i.e. when the !ey has beendelivered to him or theinstructions of the depositorcannot be done withoutopening it'

ii. necessity

9. To change the way of the deposit ifunder the circumstances, thedepositary may reasonably presumethat the depositor would consent tothe change if he !new of the facts ofthe situation, provided, that theformer notifies the depositor thereofand wait for his decision, unlessdelay would cause danger

%. To pay interest on sums converted topersonal use if the deposit consistsof money $Art 1%9&'

1 . To be liable for loss throughfortuitous event (S+DA%* $Art 1%B%'*a. if stipulatedb. if he uses the thing without the

depositorIs permissionc. if he elays its returnd. if he a llows others to use it,

even though he himself mayhave been authori@ed to use thesame

NOTES:Ji ed, savings, and current deposits

of money in ban!s and similarinstitutions shall be governed by theprovisions concerning simple loan!$Art 1%9 'The general rule is that a ban! cancompensate or set off the deposit inits hands for the payment of anyindebtedness to it on the part of thedepositor. 6n true deposit,compensation is not allowed.

Irre1ular eposit )utuum

1. The consumablething deposited maybe demanded at willby the depositor

1. Fender is boundby the provisions ofthe contract andcannot demandrestitution until thetime for payment, asprovided in thecontract, has arisen

2. The only benefit isthat which accruesto the depositor

2. 3ssential cause forthe transaction is thenecessity of theborrower

&. The irregulardepositor has apreference overother creditors withrespect to the thingdeposited

&. ommon creditorsen)oy no preferencein the distribution ofthe debtor


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may have received or to assign hisright of action against the buyer incase the price has not been paid him$Art 1%%1'.

O0li1ations of t&e Depositor (Art !!- #!!,%:

1. To pay e penses for preservationa. f t$e deposit is "ratuitous , the

depositor is obliged toreimburse the depositary fore penses incurred for thepreservation of the thingdeposited $Art 1%%2'

b. f t$e deposit is for (alua#leconsideration , e penses forpreservation are borne by the

depositary unless there is acontrary stipulation

2. To pay loses incurred by thedepositary due to the character ofthe thing deposited

GENERAL RULE: The depositor shallreimburse the depositary for any lossarising from the character of the thingdeposited.

EXCEPT ONS:1. at the time of the deposit, the

depositor was not a8are of thedangerous character of the thing

2. when depositor was not e/pectedto 5no8 the dangerous characterof the thing

3. when the depositor notified thedepository of the same

4. the depositary 8as a8are of it8it$out ad(ice from the depositor

E tin1uis&ment of 9oluntary Deposit(Art !!,%1. Foss or destruction of the thing

deposited2. 6n case of gratuitous deposit, upon

the death of either the depositor orthe depositary

3. ther causes, such as return of thething, novation, merger, e pirationof the term fulfilment of theresolutory condition, etc $Art 12&1'

Necessary Deposits1. ade in compliance with a legal

obligation2. ade on the occasion of any

calamity such as fire, storm, flood,

pillage, shipwrec! or other similarevents $ deposito misera#le '

3. ade by travellers in hotels and innsor by travellers with common carrier

Deposit 0y Tra?ellers in &otels aninns:

The !eepers of hotels or inns shall beresponsible as depositaries for thedeposit of effects made by travellers

pro(ided *a. +otice was given to them or to

their employees of the effectsbrought by the guest" and

b. The guests ta!e the precautionswhich said hotel-!eepers or theirsubstitutes advised relative tothe care and vigilance of theireffects.

NOTES:Fiability e tends to vehicles, animalsand articles which have beenintroduced or placed in the anne esof the hotel.Fiability shall 3K F/53 losses whichproceed from force ma)eure. The

act of a thief or robber is notdeemed force ma)eure unless donewith the use of arms or irresistibleforce.The hotel-!eeper cannot freehimself from the responsibility byposting notices to the effect that heis not liable for the articles broughtby the guest. Any stipulation to sucheffect shall be void.+otice is necessary only for suingcivil liability but not in criminalliability.

7+ARANT (Articles -82< # -8@2%

A contract whereby a person$guarantor' binds himself to thecreditor to fulfil the obligation ofthe principal debtor in case t$elatter fail to do so .

Classification of 7uaranty:1. 6n the 4road sense *

a. ersonal - the guaranty is the

credit given by the person whoC IVIL L AW C OMMITTEE CHAIRPERSON : Romuald Padilla A SST .C HAIRPERSON : Vida Bocar, Joyce Vidad EDP : Alnai a Ha!!iman, Doro"#y $ayon



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guarantees the fulfilment of theprincipal obligation.

b. 0eal - the guaranty is theproperty, movable or

immovable.

2. As to its Ori"ina. onventional - agreed upon by

the parties.b. Fegal - one imposed by virtue of

a provision of a law.c. Gudicial - one which is re#uired

by a court to guarantee theeventual right of one of the

parties in a case.&. As to Consideration

a. ratuitous - the guarantor doesnot receive any price orremuneration for acting as such.

b. nerous - the guarantor receivesvaluable consideration.

(. As to the Person "uaranteed a. Single - one constituted solely to

guarantee or secureperformance by the debtor ofthe principal obligation.

b. 5ouble or sub-guaranty - oneconstituted to secure thefulfilment by the guarantor of aprior guaranty.

7. As to Scope and E/tenta. 5efinite - the guaranty is limited

to the principal obligation only,or to a specific portion thereof.

b. 6ndefinite or simple - one whichnot only includes the principalobligation but also all itsaccessories including )udicialcosts

S+RET S IP

A contract whereby a person $surety'binds himself solidarily with theprincipal debtorA relation which e ists where oneperson $principal' has underta!en anobligation and another person$surety' is also under a direct andprimary obligation or other duty tothe obligee, who is entitled to butone performance, and as between

the two who are bound, the second

rather than the first should perform$ A"ro Con"lomerates0 nc! (s! CA0,3+ SCRA 3'7 '

NOTES:

The reference in Article 2 (B tosolidary obligations does not meanthat suretyship is withdrawn fromthe applicable provisions governingguaranty. A surety is almost thesame as a solidary debtor, e ceptthat he himself is a principal debtor.6n suretyship, there is but onecontract, and the surety is bound bythe same agreement which binds theprincipal. A surety is usually boundwith the principal by the sameinstrument, e ecuted at the sametime and upon the sameconsideration $ Palmares (s CA0 )++SCRA 3)) '6t is not for the obligee to see to itthat the principal debtor pays thedebt or fulfill the contract, but forthe surety to see to it that theprincipal debtor pays or performs$Paramount nsurance Corp (s CA0,*7 SCRA ,%% '

Nature of Surety s un erta3in1:1. Lia#ility is contractual and

accessory #ut directNOTE: =e directly, primarily ande#ually binds himself with theprincipal as original promisor,although he possesses no direct orpersonal interest over the latter


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against the principal eventhough he was not a party to theproceedings. The nature of itsunderta!ing ma!es it privy to all

proceedings against its principal$ inman General AssuranceCorp! (s! Sali50 *++ SCRA %37 '

4. Surety is not entitled to t$e #enefitof e/$austionNOTE: =e assumes a solidary liabilityfor the fulfilment of the principalobligation $ To8ers Assurance Corp(s! Ororama Supermart0 +7 SCRA)&) ' as an original promissory anddebtor from the beginning.

5. Underta5in" is to creditor and not

to de#tor!NOTE: The surety ma!es nocovenant or agreement 8it$ t$e

principal that it will fulfil theobligation guaranteed for the benefitof the principal. Such a promise isnot implied by law either" and this istrue even where under the contractthe creditor is given the right to suethe principal, or the latter and thesurety at the same time. $ Arran6 (s!9anila idelity ; Surety Co!0 nc!0*7* P$il! )%) '

6. Surety is not entitled to notice of principal


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his acceptance. Dith respectto the creditor, no suchre#uirement is neededbecause he binds himself to

nothing.=owever, when there ismerely an offer of a

"uaranty , or merely aconditional "uaranty , in thesense that it re#uires actionby the creditor before theobligation becomes fi ed, itdoes not become bindinguntil it is accepted and untilnotice of such acceptance bythe creditor is given to, orac#uired by, the guarantor,or until he has notice or!nowledge that the creditorhas performed the conditionand intends to act upon theguaranty.4ut in any case, the creditoris not precluded fromwaiving the re#uirement ofnotice.

The consideration of theguaranty is the same as theconsideration of the principal

obligation.The creditor may proceedagainst the guarantor althoughhe has no right of action againstthe principal debtor.

B. +ot presumed. 6t must be e pressedand reduced in writing.NOTE: A power of attorney to loanmoney does not authori@e the agentto ma!e the principal liable as asurety for the payment of the debtof a third person. $ 4P (s! Coster0 3%P$il! '23 '

9. Jalls under the Statute of Jraudssince it is a >special promise toanswer for the debt, default ormiscarriage of another?.

%. Strictly interpreted against thecreditor and in favor of theguarantorCsurety and is not to bee tended beyond its terms orspecified limits. $ 9a"dalena Estates0

nc! (s Rodri"ue60 *+ SCRA 2&% ' Therule of strictissimi >uris commonlypertains to an accommodation surety

because the latter acts without

motive of pecuniary gain and hence,should be protected against un)ustpecuniary impoverishment byimposing on the principal, duties

a!in to those of a fiduciary.

NOTES: The rule will apply only after ithas been definitely ascertainedthat the contract is one ofsuretyship or guaranty. 6t cannotbe used as an aid in determiningwhether a party


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1. rimarily oftransfer

1. ontract ofsecurity

2. /nless the note ispromptly presentedfor payment atmaturity and duenotice of dishonorgiven to the indorserwithin a reasonabletime he will bedischarged abso-lutely from allliability thereon,whether he hassuffered any actualdamage or not

2. Jailure in either orboth of theseparticulars does notgenerally wor! as anabsolute discharge ofa guarantorarrantyA contract by which aperson is bound toanother for thefulfilment of apromise orengagement of athird party

An underta!ing thatthe title, #uality, or#uantity of thesub)ect matter of thecontract is what ithas been representedto be, and relates tosome agreementmade ordinarily bythe party who ma!esthe warranty

NOTES:A guaranty is gratuitous, unless thereis a stipulation to the contrary. The

cause of the contract is the samecause which supports the obligationas to the principal debtor.The peculiar nature of a guaranty orsurety agreement is that is isregarded as valid despite theabsence of any direct considerationreceived by the guarantor or suretyeither from the principal debtor orfrom the creditor" a considerationmoving to the principal alone willsuffice.

6t is never necessary that theguarantor or surety should receiveany part or benefit, if such there be,accruing to the principal. $Dille

lastic 6ndustries orp. vs. A, 278S 0A (B9'

Dou0le or su0*1uaranty (Art -8, -npar%

ne constituted to guarantee theobligation of a guarantor

Continuin1 1uaranty (Art -8,"%ne which is not limited to a single

transaction but which contemplatesa future course of dealings, coveringa series of transactions generally foran indefinite time or until revo!ed.

NOTES: rospective in operation $ ?i@o (s CA0

)*& SCRA 2 'onstrued as continuing when by the

terms thereof it is evident that theob)ect is to give a standing credit tothe principal debtor to be used fromtime to time either indefinitely oruntil a certain period, especially ifthe right to recall the guaranty ise pressly reserved $ ?i@o (s CA0 )*&SCRA 2 '>Juture debts? may also refer todebts e isting at the time of theconstitution of the guaranty but theamount thereof is un!nown and notto debts not yet incurred ande isting at that time.3 ception to the concept of

continuing guaranty is c$attelmort"a"e . A chattel mortgage canonly cover obligations e isting at thetime the mortgage is constituted andnot those contracted subse#uent tothe e ecution thereof -T$e 4el"ianCat$olic 9issionaries0 nc! (s!9a"allanes Press0 nc!0 32 P$il &3%.!An e ception to this is in case ofstoc!s in department stores, drugstores, etc. -Torres (s! Lim>ap0 '&P$il *3*.!




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E tent of 7uarantor s lia0ility: (Art-8,,%1. Dhere the guaranty definite * 6t is

limited in whole or in part to the

principal debt, to the e clusion ofaccessories.2. Dhere guaranty indefinite or simple *

6t shall comprise not only theprincipal obligation, but also all itsaccessories, including the )udicialcosts, provided with respect to thelatter, that the guarantor shall onlybe liable for those costs incurredafter he has been )udicially re#uiredto pay.

ualifications of a 1uarantor: (Arts

-8,$*-8,


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NOTES:The creditor can claim from theguarantors only the shares they arerespectively bound to pay e/cept8$en solidarity is stipulated or ifany of t$e circumstancesenumerated in Article )7'2 s$ouldta5e place!The right of contribution ofguarantors who pays re#uires thatthe payment must have been made$a' in virtue of a )udicial demand, or$b' because the principal debtor isinsolvent $Art 2 B&'. 6f any of the guarantors should be

insolvent, his share shall be borne bythe others including the payingguarantor in the same )ointproportion following the rule insolidary obligations.The above rule shall not beapplicable unless the payment hasbeen made in virtue of a )udicialdemand or unless the principaldebtor is insolvent.The right to contribution orreimbursement from his co-guarantors is ac#uired ipso >ure byvirtue of said payment without theneed of obtaining from the creditorany prior cession of rights to suchguarantor.The co-guarantors may set upagainst the one who paid, the samedefenses which have pertained tothe principal debtor against thecreditor and which are not purelypersonal to the debtor. $Art 2 B('

Proce ure =&en cre itor sues: $Art.

2 82'The creditor must sue the principalalone" the guarantor cannot be suedwith his principal, much less alonee cept in Art. 2 7%.

*! Notice to "uarantor of t$e actionThe guarantor must be + T6J635so that he may appear, if he sodesires, and set up defenses hemay want to offer.6f the guarantor appears, he is

still given the benefit of

e haustion even if )udgmentshould be rendered against himand principal debtor. =isvoluntary appearance does not

constitute a renunciation of hisright to e cussion $see Art.2 7%$1''.

uarantor cannot set up thedefenses if he does not appearand it may no longer be possiblefor him to #uestion the validityof the )udgment renderedagainst the debtor.

2. A guarantor is entitled to be heardbefore and e ecution can be issuedagainst him where he is not a partyin the case involving his principal$procedural due process'.

7uarantor s Ri1&t of In emnity orReim0ursement (Art -8$$%

GENERAL RULE: uaranty is a contractof indemnity . The guarantor who ma!espayment is entitled to be reimbursed bythe principal debtor.

NOTE: The indemnity consists of* (DIED%1. Total amount of t$e e#t no

right to demand reimbursementuntil he has actually paid thedebt, unless by the terms of thecontract, he is given the rightbefore ma!ing payment. =ecannot collect more than whathe has paid.

2. Le"al interest thereon from thetime the payment was made!nown $notice of payment ineffect a demand so that if thedebtor does not payimmediately, he incurs in delay'to the debtor, even though it did

not earn interest for thecreditor. uarantor


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depend upon his will or own actsor his fault for these are hise clusive personal responsibilityand it is not )ust that they be

shouldered by the debtor.4. , ama"es if they are due inaccordancewith law. eneral rules ondamages apply.

EXCEPT ONS:1. Dhere the guaranty is

constituted without the!nowledge or against the will ofthe principal debtor, theguarantor can recover onlyinsofar as the payment had beenbeneficial to the debtor $Art.2 7 '.

2. ayment by a third person whodoes not intend to be reimbursedby the debtor is deemed to be adonation, which, however,re#uires the debtorit&out notice to e0tor: (Art

-8$@%The debtor may interposeagainst the guarantor thosedefenses which he could haveset up against the creditor at the

time the payment was made,e.g. the debtor can set upagainst the guarantor thedefense of previouse tinguishment of the obligationby payment.

-/ Before )aturity (Art -8$!%+ot entitled to reimbursementunless the payment was madewith the consent or has beenratified by the debtor

Effect of Repeat Payment 0y e0tor:(Art -8


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GENERAL RULE: uarantor has nocause of action against debtor until afterthe former has paid the obligation

EXCEPT ON:Article 2 B1

NOTES:Article 2 B1 is applicable andavailable to the surety. $ 9anilaSurety ; idelity Co!0 nc! (s 4atuConstruction ; Co!0 *7* P$il 323 '0emedy of guarantor*$a' obtain release from the

guaranty" or$b' demand a security that shall

protect him from anyproceedings by the creditor, and

against the danger of insolvencyof the debtor

Art/ -8$$ Art/ -8later credits?. 6n satisfyingseveral credits annotated byattachments or e ecutions, the ruleis still preference according to thepriority of the credits in the order oftime.6n order to ma!e the pro ratingprovided in Art 22(% fully effective,the preferred creditors enumeratedin +os. 2 to 1( of Art 22(2 mustnecessarily be convened, and theimport of their claims ascertained.There must be first some proceedingwhere the claims of all the preferredcreditors may be bindingly

ad)udicated, e.g. insolvency,settlement of decedent


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of dates.

C IVIL L AW C OMMITTEE

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