legarde & mundin credtrans notes 1

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SECURITY TRANSACTIONS

FAQs OF ATTY. DE LEON-MANZANO (For midterms)

Second part of the exam may involve answering whether a statement is “Correct or Incorrect,”

not true or false. You might be ased to state why the answer is not correct. !sually, this part is

right minus wrong. I compiled the answers from the blue boos of those who got really high

grades and I included my own answers.

I. LOAN

COMMODATUM

"arties#

$ailor % one who delivers the possession or custody of the thing bailed

$ailee % one who receives the custody or possession of the thing thus delivered.

&'()# (he bailee in commodatum ac*uires the use of the thing loaned but &'( I(S+!I(S- if any compensation is to be paid by him who ac*uires the use, the contract ceases to

be commodatum /rt. 01234- it becomes a lease contract.

Wo is !i"#!e $or e%&e'ses i' ommod"tm*

In a commodatum, the bailee has the obligation to pay the '5I&/Y expenses for the

use and preservation of the thing loaned /rt. 01604 since he en7oys the use of the same.

"ayment for )8(/'5I&/Y expenses arising from the actual use of the thing shall be

borne by both the bailor and the bailee, even though the bailee acted without fault.

)8C)"(I'&# Stipulation to the contrary

Is te #"i!ee !i"#!e $or te deterior"tio' o$ te ti'+ !o"'ed*

9)&)/: !:)# &o. (he bailee does not answer for the deterioration of the thing loaned

due to ordinary wear and tear and without his fault /rt. 01624. (he depreciation caused by the

reasonable and natural use of the thing is borne by the bailor.

)8C)"(I'&# /greement to the contrary

We' m", " #"i!or #e m"de !i"#!e to &", d"m"+es $or 'o' idde' $!"s i' te

ti'+* +;/&54

0. (hing has a +:/< or defect,

=. +law is ;I55)&,

2. $ailor is /</) of such flaw,

6. $ailee is &'( aware thereof- bailor did not advise the latter of such flaw, and

3. $ailee suffers 5/>/9) by reason of said flaw or defect

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&'()# If the above re*uisites concur, the bailee has the I9;( '+ )()&(I'& for

damages. (he bailor C/&&'( exempt himself from the payment of expenses or damages by

abandoning the thing to the bailee. eason# (he expenses or damages may exceed the value

of the thing loaned.4

Does te #"i!ee "/e " ri+t o$ rete'tio' o/er te ti'+*

9)&)/: !:)# (he bailee has &' right to retain the thing loaned as security for claims

he has against the bailor even for extraordinary expenses.

)8C)"(I'&S # +or a claim of damages suffered by the bailee because of hidden flaws

nown to bailor /rts. 0166, 01304

a. ight of retention ceases when the bailee is reimbursed

b. $ailee cannot lawfully sell the thing to satisfy the damages

We' is te #"i!ee !i"#!e $or te !oss o$ te ti'+ e/e' i$ it so!d #e tro+ "

$ortitos e/e't*

9)&)/: !:)# $ailee is not liable for loss or damage due to a fortuitous event because

ownership remains with bailor.

)8C)"(I'&S # ?:/S 54

0. <hen he ?))"S it longer than the period stipulated, or after the accomplishment of its

use,

=. <hen he :)&5S or leases it to a third person not a member of his household,

2. <hen the thing is delivered with /""/IS/: of its value

/. !&:)SS there is a stipulation exempting the bailee from responsibility in case of

fortuitous event,6. <hen, having the choice of S/@I&9 the thing borrowed or his own things, he chooses to

save the latter, or

3. <hen the bailee 5)@'()S the thing for a use different from that agreed upon

We' m", te #"i!or dem"'d te retr' o$ te ti'+ "t i!!*

/rt. 016 of CC. (he bailor may demand the thing at will, and the contractual relation

called precarium arises, in the following cases /du(4#

0. /$S)&C) of stipulation as to

a. (he 5!/(I'& of the contract, or

b. (he !S) to which the thing loaned should be devoted

=. If the use of the thing is merely (':)/()5 by the owner

W"t "ts o$ i'+r"titde i!! 0sti$, te #"i!ee i' dem"'di'+ te immedi"te retr' o$

te ti'+*

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/rt. D3, CC. (he acts of ingratitude are as follows CI!r4#

0. If the bailee should C'>>I( some offenses against the person, honor or property of the

bailor, or of his wife or children under his "/,

=. If the bailee I>"!()S to the bailor any criminal offense or any act involving moral

turpitude, or

2. If the bailee !&5!:Y )+!S)S to the bailor support when the bailee is legally or morally

bound to give support to the bailor

MUTUUM

+ungible things % those which cannot be used without being consumed- hence,

consumable

Disti'+is mtm $rom ommod"tm.

C'>>'5/(!> >!(!!>'b7ect# &'&AC'&S!>/$:) >oney or other C'&S!>/$:) thing'wnership of the thing# )(/I&)5 by the

lenderEbailor

(/&S+))5 to the borrower

Cause# 9enerally 9/(!I('!S >ay be 9/(!I('!S or '&)'!S that is,

with stipulation to pay with interest4 (hing to be returned# )8/C( (;I&9 loaned )F!/: />'!&( of the same ind and *ualitySub7ectAmatter# /ny property real or

personal4

")S'&/: property

"urpose# !se or ()>"'/Y "'SS)SSI'& :oan for C'&S!>"(I'&

<hen to return# In case of urgent need andcommission of any acts of ingratitude, bailor

may demand the return of the thing loaned

$)+') the expiration of the term

:ender may &'( demand its return before thelapse of the term agreed upon

<ho bears ris of loss# $ailor owner4 5ebtorEbaileeEborrower suffers the loss even if

caused by fortuitous event and he is not

discharged from his duty to pay"urely personal in character &ot so

I$ "t "s !o"'ed is " $'+i#!e ti'+ oter t"' mo'e,1 "t does te de#tor oe*

If the thing loaned is not money, albeit consumable, the debtor owes another thing of

the same ind, *uantity and *uality, even if it should change in value. In case it is impossible to

deliver the same ind, its value at the time of the perfection of the loan shall be paid /rt.

01334.

II. INTEREST

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We' m", te i'terest #e "r+ed* Disss te e%e&tio's to te "$oreme'tio'ed

r!e.

9)&)/: !:)# &' interest shall be due and chargeable /rt. 016, CC4

)8C)"('&S # SI:4#

0. (he payment of interest is expressly S(I"!:/()5

=. (he agreement is I& <I(I&9, and

2. (he interest is :/<+!:

We' is i'terest de e/e' i' te "#se'e o$ sti&!"tio'*

0. I&5)>&I(Y for damages, or

=. Interest accruing from unpaid interest C'>"'!&5I&9 I&())S(4

a. (hat is, after a 7udicial demand has been made, in accordance with /rticle ==0=

of the Civil Code. !nder this article, even interest due and unpaid may incur

additional interests after such has been 7udicially demanded, notwithstanding

the fact that the original obligation is silent as to this point

We' does '&"id i'terest de e"r' !e+"! i'terest*

9)&)/: !:)# !npaid interest shall not earn interest.

)8C)"(I'&S #

0. <hen 7udicially demanded, and

=. <hen there the interest has been stipulated in writing,

a. In cases where no interest had been stipulated by the parties, no accruedconventional interest could further earn interest upon 7udicial demand.

2o is i'terest determi'ed i$ it is &","#!e i' i'd*

In the determination of the interest, if it is payable in ind, its value shall be appraised

at the rre't &rie of the products or goods at the time and place of &",me't /rt. 013G,

CC4

III. DE3OSIT % principal obligation is for safeeeping

?inds of deposit#

0. Hudicial Sequestration4 % taes place when an attachment or seiure of property in

litigation is '5))5

=. )xtraA7udicial /rts. 01DGA01134

a. @oluntary % 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.

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b. &ecessary % there is lac of free choice in the depositor

H!5ICI/: )8(/H!5ICI/:Cause <ill of the court <ill of parties"urpose Security and to secure the

right of a party to recover if

7udgment favorable

Custody and safeeeping

Sub7ectAmatter 9enerally, immovable. $ut

can be movable.

'nly >'@/$:)

Consideration /lways renumerated

onerous4

9enerally, gratuitous but

may be compensatedIn whose behalf "erson who, by 7udgment,

has a right

5epositor or third person

designated

&'()# 5eposit is &'( gratuitous in the following#

0. <here there is a S(I"!:/(I'&

=. 5epositary is engaged in the $!SI&)SS of storing goods

2. "roperty saved from destruction <I(;'!( the nowledge of owner

We' is de&osit &er$eted*

/n agreement to constitute a deposit is binding and enforceable upon the parties, but

the deposit itself is not perfect until the delivery of the thing /rt. 01D24. &ote# 5eposit is a real

contract. / contract of future deposit is consensual /rt. 01264.

E'mer"te i'st"'es e' de&osit #eomes 'eess"r,.

/rt. 011D. / deposit is necessary if it is made :oCC;4

0. In compliance with a :)9/: '$:I9/(I'&

a. It is governed by the provisions of such law- in case of deficiency, by the rules on

voluntary deposit /rt. 0114.

b. )xamples# 7udicial deposit of a thing the possession of which is disputed, deposit

of a thing pledged when creditor uses it without authority, etc.

=. 'n occasion of any C/:/>I(Y such as fire, storm, flood, pillage, shipwrec, etc4,

a. 5eposit by accident or fortuitous event

b. (he more immediate ob7ect is to save the property rather than safeeepingc. /..a deposito miserable, involuntary bailment, involuntary deposit

d. 9overned by the rules on voluntary deposit

2. $y travelers in ;'():S and inns, or

6. $y travelers with C'>>'& carriers

C"' " de&osit"r, ommi'+!e +oods i' its &ossessio'*

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9)&)/: !:)# (he depositary is permitted to commingle grain or other articles '+ (;)

S/>) ?I&5 ' F!/:I(Y /rt. 01D4. In such case, the various depositors of the mingled goods

shall own the entire mass in common and each depositor shall be entitled to such portion of

the entire mass as the amount deposited by him bears to the whole Sec. =D, <:4

)8C")(I'&# (he depositary cannot commingle goods, even if they are of the same ind

and *uality, if so stipulated /rt. 01D4.

We' is te de&osit"r, !i"#!e $or te !oss o$ te ti'+ e/e' i$ it so!d #e tro+ "

$ortitos e/e't* /rt. 011 A S!5/&4

0. If there is an express S(I"!:/(I'&,

=. If he !S)S (he thing without the depositorJs permission,

2. If he incurs in 5):/Y in the return of the thing,

6. If he /::'<S others to use it though he himself had been authoried, or

3. If he is &)9:I9)&( in taing care of the thing

2o is /o!'t"r, de&osit e%ti'+ised* :& 9Ad4

/ deposit is extinguished

0. !pon the :'SS or destruction of the thing deposited, without the fault of either party

=. In case of a 9/(!I('!S deposit, upon the 5)/(; of either the depositor or

depositary /rt. 01134

2. )(!& of the thing deposited to the depositor or person designated for its return

6. &'@/(I'&, merger, fulfillment of the resolutory condition, rescission, prescription,

annulment, etc. See /rt. 0=204

Disss te e$$et o$ de"t o$ te de&ositor or de&osit"r,.

9)&)/: !:)# 5eath of the depositor or depositary does not extinguish the obligation.

In deposit for compensation, death of either party does not extinguish it as an onerous deposit

is not personal in nature /rt. 06004. ;ence, the rights and obligations arising therefrom are

transmissible to their respective heirs /rt. 00G4. $ut the heirs of either party have a right to

terminate the deposit even before the expiration of the term.4

)8C)"(I'& # In case of 9/(!I('!S 5)"'SI(S, death of either the depositor or the

depositary extinguishes the deposit. )/S'&# a gratuitous deposit is a personal

contract. It can be inferred that the depositor, in choosing the depositary, too into

account the diligence that the latter exercises over his own things. (he depositary, on

the other hand, entered into a deposit out of mere liberality. (he same cannot be

expected from the heirs on the successors of the depositary.

Does te de&osit"r, "/e " ri+t o$ rete'tio' o/er te ti'+ de&osited* ;"4

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<here to return >/4

0. "lace /9))5 !"'& by the parties, or

=. In the absence of stipulation, at the place where the thing deposited >/Y be, even if not

the same place as where deposit was made

a. "rovided there was no malice on the part of depositary /rt. 01GK=L, CC4

Disss te !i"#i!it, o$ ee&ers o$ ote!s "'d te i''s re+"rd!ess o$ te "mo't o$

"re e%erised.

(he hotelAeeper is liable regardless of the amount of care exercised ;=(w4

0. <hen loss is caused by the ;'():A?))"), his employees, servants or a stranger.

=. <hen the loss is caused by a (;I)+ or robber done <I(;'!( the use of arms and

irresistible force /rt. =BB04.

2. <hen the ;'():A?))") or his employees had been

a. &otified of the effects, and thatb. (he guests had followed the instructions of the hotelAeeper or his employees

regarding the care and vigilance over such effects.

We' "re ote!-ee&ers 'ot !i"#!e*

9)&)/: !:)# (he hotelAeeper is liable for the vehicles, animals and articles which have

been introduced or placed in the annexes of the hotel /rt. 01114.

)8C)"(I'&S # +/C(s+4

0. :oss of the thing proceeds from any %!R&E MA'EURE /rt. =BBB4.

a. (he loss arises from (;)+( by a S(/&9) not hotelAeeperJs servant oremployee4 done with the use of arms or irresistible force (force majeure).

=. (hough notice of the effects was given, the guests +/I:)5 to tae precautions which

said hotelAeeper or their substitutes advised relative to the care and vigilance of their

effects /rt. 011G4.

2. :oss is due to the /C( of the guests, his family, his servants or visitors.

6. (he loss arises from the C;//C() of the things brought into the hotel /rt. =BB=4

C"' ote!-ee&ers dis&e'se it or !imit teir !i"#i!it, #, &osti'+ 'oties t"t te,

"re 'ot !i"#!e $or "rti!es #ro+t i' #, teir +ests*

&o. (he Civil Code provides that a hotelAeeper may not free himself from liability, which

arises from the loss of articles brought by the guests, by posting signs or notices to this effect.

/rt. =BB2 provides that the hotelAeeper may not stipulate any provision which would diminish

or excuse him from liability for such losses. Such would be void as contrary to law, morals and

public policy /rt. 02BD4. $eing void, said notice or stipulation would not operate to excuse the

warehouseman from liability for loss. (his rule is similar to the rule on common carriers.

)/S'&S#

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0. ;otelAeepers and innAeepers, in offering their accommodations to the public,

practically volunteer as depositaries- as such, they should be sub7ect to an

extraordinary degree of responsibility. (ravelers have no choice but to rely on their good

faith and care.

=. InnAeepers, by the nature of their business, have supervision and control of their inns

and the premises thereof.

I4. WARE2OUSE

M", " "reosem"' re$se to de!i/er te +oods o' te +ro'd t"t e o's tem*

&o. Sec. 0D of the <arehouse eceipts :aw provides that

9)&)/: !:)# &o title or right to the possession of the goods, on the part of the

warehouseman shall excuse the warehouseman from liability from refusing to deliver the goods

according to the terms of the receipt.

)8C)"(I'&S# !nless such title or right is derived directly or indirectly from0. / transfer made by the depositor at the time or subse*uent to the deposit for storage,

or

=. +rom the warehousemanJs liens

W"t "re te "ts $or i " "reosem"' m", #e e!d !i"#!e* &IC) ">S4

0. +ailure to S(/>" “duplicate” on copies of a negotiable receipt Sec. D4

=. +ailure to ":/C) “nonAnegotiable” or “not negotiable” on a nonAnegotiable receipt Sec.

4

2. >IS5):I@)Y of goods Sec. 0B46. +ailure to )++)C( cancellation of the negotiable receipt upon delivery of the goods Sec.

004

3. ISS!I&9 receipt for nonAexisting goods or misdescribed goods Sec. =B4

D. +ailure to tae good C/) of the goods Sec. =04

. +ailure to give &'(IC) in case of sale of goods to satisfy his lien Sec. 224 or beucase

the goods are perishable or haardous Sec. 264

Disss te !i"#i!it, o$ te "reosem"' i' "se o$ !ost or destro,ed reei&ts.

(he court before ordering the delivery of the goods when the receipt is lost or destroyed

shall Sec. 064#

0. +irst pass upon the *uestion of whether the receipt has been lost or destroyed by

re*uiring

a. Satisfactory "''+ of such loss, and

b. 9iving of a $'&5 with sufficient sureties to protect the warehouseman from any

liability or expense, which he or any person in7ured by such delivery may incur

by reason of the original receipt remaining outstanding.

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=. (he court, in its discretion, may also order the payment of the warehousemanJs

reasonable C'S(S and counsel fees.

(he warehouseman is, therefore, still liable to a holder of the receipt for value without

notice since he can secure himself of the bond given.

Disss te dt,5o#!i+"tio' o$ te "reosem"' e' tere "re se/er"! !"im"'ts.

(he warehouseman is excused from liability for nonAdelivery until he determines the

validity of the claims. If there are several claimants to the goods, the warehouseman 55I4

0. >ust 5)()>I&) within a reasonable time the validity of the conflicting claims, and

/. 5):I@) to the person whom he finds is entitled to the possession of the goods

b. &'()# (he warehouseman is &'( excused from liability in case he maes a

mistae

=. >ust bring a complaint in I&()":)/5) under the rules of court, and

/. )F!I) the different claimants to litigate among themselves. Sec. 0G4

2o is te "reosem"'6s !ie' s"tis$ied #, s"!e o$ +oods*

/ warehouseman who has an unsatisfied lien may satisfy such lien by undergoing the

following the procedure Sec. 224#

0. Sending of notice, either personally or by mail, to the depositor and any other party who

the warehouseman nows has a possessory or property interest in the goods.

=. (he notice should contain the following#

a. /n itemied list of all the charges to which the warehouseman bases his lien on,

the total amount of the charges, and the dates on which such charges occurred.

b. / brief description of the goods in his possession.c. / demand that such charges be paid on or before a specified time, not earlier

than 0B days after the notice has been personally delivered or 0B days after the

mail had been received in the regular course of the postal system.

d. / statement that unless such amount of charges be paid, the goods described

therein will be advertised for sale at a public auction or a specified time and

place.

2. /fter the expiration of the period allowed for the payment of the charges, the

warehouseman may effect the notice and advertisement of the sale of the goods in a

public auction. Such advertisement shall contain#

a. (he name of the owner or person legally entitled to the goods

b. / description of the goods

c. (he date, time and place of the sale

6. Such advertisement shall be published at least once every wee for two wees in a

newspaper published in the place where such goods are to be sold. (he sale shall not

tae place earlier than 03 days fro the date of first publication.

3. In the absence of a newspaper, notice must be posted at least 0B days prior to the sale

in at least D conspicuous places in the area where the sale is to be held.

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D. /fter such notice or advertisement, the sale of the goods may be effected at the date

indicated in the place where the lien on the goods were incurred or in the nearest

suitable place. (he sale is done through auction.

. (he warehouseman may satisfy his lien from the proceeds of the sale. ;e may also

reimburse himself from the reasonable charges and expenses for the advertising,

notice, and sale of the goods from the proceeds of the sale. (he remaining amount after

the lien and expenses have been satisfied shall be ept by the warehouseman,

deliverable upon demand of the person who was entitled to the delivery of the goods.

G. Sale of perishable or haardous goods deposited with the warehouseman may be

effected to satisfy the warehousemanJs lien, after sending notice to the depositor or

owner re*uiring him to satisfy the lien and withdraw the perishable or haardous goods.

!pon the failure of the depositor or owner to do so, the goods may be sold in a private

or public auction by the warehouseman. (he proceeds of the sale shall be applied in

accordance to number 1.

1. (he sending of notice and the subse*uent sale should be done within a reasonable time

and manner, taing into consideration the perishable or haardous nature of the goodsdeposited.

Disss te e$$ets o$ "!ter"tio' o$ " reei&t o' te !i"#i!it, o$ " "reosem"'.

(he liability of the warehouseman under a warehouse receipt which has been altered

depends on the nature of alteration#

0. Immaterial alteration# warehouseman is liable according to its original tenor.

=. >aterial alteration#

a. If authoried by warehouseman, liable according to /:())5 receiptb. If innocently made and unauthoried, liable according to original tenor

c. If fraudulently made, liable, according to the original tenor, to the

i. "urchaser of receipt for value without notice,

ii. /lterer, and

iii. Subse*uent purchasers for value

W"t is " 'e+oti"#!e "reose reei&t* Disss te "d/"'t"+es o$ " 'e+oti"#!e

"reose reei&t.

/ warehouse receipt is a written contract between the owner of the goods and the

warehouseman to pay the compensation for that service. / negotiable receipt is a receipt in

which it is stated that the goods received will be delivered to the depositor or to any other

specified person.

/ negotiable warehouse receipt is advantageous because S"/94

0. It "'()C(S a purchaser for value and in good faith

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=. (he goods covered by the receipt are not sub7ect to 9/&IS;>)&( or levy upon an

execution, !&:)SS S)I4

a. (he receipt is first S!)&5))5 to the warehouseman,

$. I>"'!&5)5 by the court, or

c. Its negotiation )&H'I&)5

2. (he person to whom a negotiable receipt is negotiated ac*uires the 5I)C( obligation

of the warehouseman to hold possession of the goods for him in accordance with the

terms of the receipt as if he had directly contracted with the warehouseman, without

need of notice to the warehouseman.

6. (he goods covered by the receipt are not sub7ect to S)::)JS lien or stoppa*e in

transitu+ /n indorseeJs right is superior to the latter. (he <arehouseman is not obliged

to deliver goods to an unpaid seller unless the receipt is first surrendered for

cancellation Sec. 614.

Disss te ri+ts o$ " &erso' to om " 'e+oti"#!e reei&t "s #ee' d!,'e+oti"ted.

9)&)/: !:)# 'ne who purchases a negotiable receipt issued by a nonAowner e.g. a

thief4 ac*uires no rights over the goods as the latter has no right to transfer, notwithstanding

that such purchaser is innocent.

)8C)"(I'&# (he purchaser ac*uires a good title where the owner by his conduct is

estopped from asserting his title.

/ccording to Sec. 60, the indorseeEpurchaser in good faith ac*uires the following rights#

(on'4

0. (he (I(:) over the goods covered by the receipt as against the

a. "erson &)9'(I/(I&9 the receipt, and

$. '<&)Edepositor person to whose order, by the terms of the receipt, the

goods were to be delivered4

=. (he direct '$:I9/(I'& of the warehouseman to hold possession of the goods for

him, as if the warehouseman directly contracted with him.

We' m", " reei&t #e tr"'s$erred*

/ receipt which is not in such form that it can be negotiated by delivery may be

transferred or assigned4 by the holder by delivery to a purchaser or donee. Indorsement of a

nonAnegotiable receipt does not give the transferee any additional rights Sec. 214.

Disss te ri+ts o$ " &erso' to om " reei&t "s #ee' tr"'s$erred.

/ccording to Sec. 6=, the transferee ac*uires the following rights# &'(4

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0. (he (I(:) over the goods covered by the receipt as against

a. (ransferor person negotiating the receipt4, and

b. 'wnerEdepositor person to whose order, by the terms of the receipt, the

goods were to be delivered4

=. If receipt is nonAnegotiable,

a. (he right to &'(I+Y the warehouseman of such transfer if the goods to him

b. ight to ac*uire the direct '$:I9/(I'& of the warehouseman to hold possession

of the goods for him, as if the warehouseman directly contracted with him

;'<)@), such rights of the transferee may be defeated if "a&4

0. "I' to notifying the warehouseman of the transfer, either by the transferee or the

transferor, the goods are /((/C;)5 or levied upon by the creditors of the transferor, or

=. (he warehouseman had been &'(I+I)5Mby the transferor or a subse*uent purchaser of

the goodsMof a subse*uent sale of the goods by the transferor.

Disss te "rr"'ties o$ " &erso' 'e+oti"ti'+ or tr"'s$erri'+ " reei&t.

/ person negotiating or transferring a receipt, including one who for value, assigns a claim

secured by a receipt, warrants that Sec. 66 A 9:I(4

0.4 (he receipt is 9)&!I&).

=.4 ;e has a :)9/: I9;( to negotiate or transfer it

2.4 ;e has no nowledge of any fact which would I>"/I the validity or worth of the receipt

6.4 ;e has a right to (/&S+) the title to the goods, and that the goods are merchantableor fit for a particular purpose, if such warranties can be implied, if the intention of the

parties was to transfer title over the goods without need of the receipt.

Disss te !i"#i!ities o$ " &erso' 'e+oti"ti'+ or tr"'s$erri'+ " reei&t.

It is the duty of every indorsee to now that all previous indorsements are genuine-

otherwise, he will not ac*uire a valid title to the instrument. (he last indorser warrants that all

previous indorsements are genuine. (he liability is limited only to a violation of the 6 warranties

set forth in Sec. 66. (hus, a person negotiating a receipt could be held liable, as when, for

example, the receipt was#

0. / forgery,

=. ;e had stolen it, or

2. ;e had nowledge that the receipt was invalid or that the goods had been damaged.

'ne who assigns for value a claim secured by a receipt of the title is also liable for the

violation of any of the four warranties enumerated, !&:)SS a contrary intention appears.

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Does i'dorseme't o$ " reei&t m"e te i'dorser !i"#!e $or "', $"i!re o' te &"rt o$

te "reosem"' or &re/ios i'dorses to $!$i!! teir res&eti/e o#!i+"tio's* W, is

"' i'dorser o$ " reei&t 'ot " +"r"'tor*

(he <arehouse eceipts :aw expressly provides that a person who indorses a

negotiable receipt shall not be treated as a guarantor of the receipt. (he indorsement of a

warehouse receipt amounts merely to a C'&@)Y/&C) $Y (;) I&5'S), not a contract of

guarantee. It shall &'( mae the indorser liable for any failure on the part of the

warehouseman or previous indorsers on the receipt to fulfill their respective obligations Sec.

634.

Such indorser shall only be liable for the receipt if he breaches any of his warranties.

<ithout such breach, the holder of the receipt may not go against the indorser if the receipt is

subse*uently dishonored for other causes not covered by the warranties of the indorser. !nlie

a guarantor who is liable for the receipt if the person primarily liable does not perform his

obligation, an indorser is only liable if he breaches his warranties and provided he has beennotified by the holder of the dishonor of the receipt within a reasonable time.

4. 7UARANTY

Disti'+is +"r"'t, $rom sret,si&.

9!//&(Y S!)(YS;I":iability depends on an independent

agreement to pay the obligation if primary

debtor fails to do so

Surety assumes liability as regular party to the

undertaing

Collateral undertaing Surety is an original promisor9uarantor is secondarily liable Surety is primarily liable9uarantor binds himself to pay if the principal

C/&&'( pay

Surety undertaes to pay if the principal 5')S

&'( payInsurer of solvency of debtor Insurer of the debt9uarantor can avail the benefit of excussion

and division in case creditor proceeds against

him

Surety cannot avail of the benefit of excussion

and division

&ot bound to tae notice of the nonA

performance of his principal

;eld to now every default of his principal

'ften discharged by the mere indulgence of

the creditor or want of notice of default

&ot discharged by the mere indulgence of the

creditor or by want of notice of default

W, is " sret, o'sidered "' i'srer o$ te de#t*

/ surety is considered an insurer of the debt because he is "I>/I:Y /&5 5I)C(:Y

:I/$:) (' (;) C)5I('. ;e undertaes to pay the debt without any *ualification. ;e does

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not insure the solvency of the principal debtor- rather, he insures that the debt shall be paid if

and when the creditor demands it from him. ;e is, in other words, a regular party to the

undertaing. (he creditor need not go against the principal debtor before going against the

surety. ;e is not even discharged by the indulgence of the creditor.

Disss te '"tre o$ te sret,6s 'dert"i'+. Does te sret, m"e o/e'"'t it

te &ri'i&"! de#tor* &o. Is e e'tit!ed to 'otie o$ &ri'i&"!6s de#tor6s de$"!t* &o.

2o so!d " sret,si& o'tr"t #e o'stred*

/ suretyJs undertaing is a primary and solidary undertaing. ;e is an original party to

the agreement, and hence, a principal obligor. (he surety undertaes that the obligation shall

be fulfilled, and that the creditor may go against him immediately for the fulfillment of such

obligation. (he suretyJs covenant is with the creditor and not with the principal debtor,

although an indemnity agreement could be entered into between the surety and the principal

debtor to fix their respective rights and obligations with each other. In the absence of any

stipulation, a surety is generally not entitled to a notice of the principal debtorJs default. /ssurety, it is his duty to see to it that the obligation is fulfilled by the principal debtor, or by

himself. ?nowledge of the principal debtorJs default is charged upon the surety, who must

immediately tae steps to ensure the fulfillment of the obligation.

/ contract of suretyship, if it is 9/(!I('!S, shall be constructed strictissimi juris

against the creditor and in favor of the surety where ambiguities are present. It should not be

construed as to expand the suretyJs liability for more than what is manifestly expressed. (he

rule of strictissimi juris commonly refers to an accommodation surety. (he rationale is that an

accommodation surety acts gratuitously and should be protected against un7ust pecuniary

impoverishment.

If the contract of surety is '&)'!S or one for compensation, such rule does not apply.Compensated surety agreements are construed against the surety company, as they are the

ones who drafted the agreement. (he rule of strictissimi juris does not apply to such onerous

surety contracts, especially if it would unduly and un7ustly give benefit to the surety company

to the detriment of the principal debtor or the creditor. Such companies are already protected

by subAsureties and subAguaranties.

Is te +"r"'tor6s !i"#i!it, !imited o'!, to te &ri'i&"! o#!i+"tio'*

&o. /rt =B33.

0. +or definite guaranty, the obligation is limited in whole or in part to the principal debt, to

the exclusion of the accessories.

=. +or simple or indefinite guaranty % if the terms of the contract of guaranty are general

and indefinite and do not specify in clear and express manner that the liability of the

guarantor is limited to the principal obligation, in whole or part,

It extends not only to the said the principal obligation but also all its accessories,

including the 7udicial costs

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a. (hey are being comprehended within the principal because the guaranty has

secured it wilt all its conse*uences

b. "'@I5)5, with respect to 7udicial costs, the guarantor shall only be liable for

those costs incurred after he has been 7udicially re*uired to pay

W"t is te $orm o$ +"r"'t,* W"t &er$orm"'e does te +"r"'t, sere*

/ guaranty is not presumed- it must be express and cannot extend to more than what is

stipulated therein /rt. =B334. It falls under the Statute of +rauds- hence, it must be reduced in

writing and subscribed by the party charged, otherwise, it is unenforceable.

/ guaranty cannot exist without a valid obligation. &evertheless, it may be constituted

to guarantee the performance of /rt. =B3= A @!&4

0. @'I5/$:) contracts /rt. 021B# vitiated consent or incapacitated contracting party- may

be ratified- binding until annulled4 inasmuch as such is binding, unless it is annulled by

a proper action in court=. !&)&+'C)/$:) contracts /rt. 06B2# acts of agent without "Js authority, Statute of

+rauds, etc- ratifiable4 because such contract is not void

2. &/(!/: '$:I9/(I'&S /rt. 06=2# not based on positive law but on e*uity and natural

law- do not grant a right of action to enforce their performance, but after voluntary

fulfillment by the obligor, they authorie the retention of what has been delivered or

rendered by reason thereof4

a. ationale# So that the creditor may proceed against the guarantor although he

has no right of action against the principal debtor for the reason that the latterJs

obligation is not enforceable

b. If the debtor himself offers a guaranty for his natural obligation, he impliedlyrecognies his liability, thereby transforming the obligation from natural into a

civil one civil obligations give a right of action to compel their performance

K/rt. 06=2L4.

We' m", te +"r"'tor &roeed "+"i'st te &ri'i&"! de#tor e/e' #e$ore "/i'+

&"id te de#t*

(his is allowed when such right is expressly stipulated in the agreement between the

guarantor and the debtor. /rt. =B0 of the Civil Code also provides for seven instances when

the guarantor may proceed against the debtor even before payment. (he purpose is to enable

the guarantor to tae measures to protect his interest in view of the probability that he would

be called upon to pay the debt. SI:I5$/4

0. If he is S!)5 for payment

=. I&S':@)&CY of the principal debtor

2. <hen he has $'!&5 himself to relieve him from the guaranty within a specified period,

and the period has expired

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Disss te #e'e$it o$ e%ssio'.

(he benefit of excussion is the right in which the guarantor cannot be compelled to pay

the creditor, !&:)SS

0. Creditor has exhausted all the properties of the principal debtor, and

=. esorted to all of the legal remedies against such debtor.

;ow exercised#

0. 5emand for payment upon the guarantor only /+() 7udgment upon the debt

=. "oint out the available property not in litigation or encumbered4 of the debtor <I(;I&

the "hilippines

(he benefit cannot begin to tae place before 7udgment has been obtained against the

debtor ($alon - &A)+ (he creditor shall suffer the loss if he failed to exhaust and resort to alllegal remedies, but the loss is only to the extent of the value of said property of the insolvency

of the debtor.

W"t "re te e%e&tio's to te #e'e$it o$ e%ssio'* +" /I&S, SH

I. /(. =B31. In the following cases, the guarantor is &'( entitled to the benefit of

excussion /I&S4#

0. If the guarantor expressly )&'!C&)5 it waiver4

a. (he benefit of excussion is a personal right- hence, its waiver is validb. Such waiver should be made in express terms

=. If he has bound himself S':I5/I:Y with the debtor

a. ;e becomes a surety with primary liability as a solidary coAdebtor

b. In effect, he renounces in the contract itself the benefit of excussion

2. I&S':@)&CY of debtor

a. (he liability of the guarantor arises as the debtor cannot fulfill his obligation

b. Insolvency must be actual, proven by unsatisfied writ of execution

6. <hen he has /$S'C&5)5 or cannot be sued within the "hilippines, !&:)SS he has left

a manager or representative

a. If the debtor absconded or left the country, he cannot fulfill his obligation

b. Creditor cannot be expected to go after a debtor who is in hiding

3. If it may be presumed that an execution on the property of the principal debtor would

&'( be sufficient to satisfy the obligation

a. &ot necessary that he debtor be 7udicially declared insolvent or banrupt

b. If the creditor wants to hold the guarantor liable, he must resort to all legal

remedies against the debtor and exhaust his properties

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c. $ut if such 7udicial action cannot satisfy the obligation, the guarantor can no

longer re*uire the creditor to resort to all such remedies useless formality4

II. If guarantor fails to S)( !" the benefit of excussion against the creditor upon the latterJs

demand for payment from him

a. /nd he also fails to point out available property of the debtor sufficient to cover

the amount of the debt

III. If he is a H!5ICI/: bondsman and subAsurety

I@. If he gives a ":)59) or mortgage as special security

@. If he +/I:S to interpose as a defense of excussion on a suit filed against him for collection

Is te #e'e$it "&&!i"#!e to " o'tr"t o$ sret,si&*

&o. /rts. =B6 par. =- =B31 K=L4. (his is available only to guarantors in case the

creditors go against them. / suretyJs undertaing is a primary and solidary undertaing. /s an

original party to the agreement principal obligor4, a surety pays when the debtor 5')S not

pay. (here is no need to exhaust all the properties of the principal debtor or to resort to all legal

remedies before a surety can pay.

Is " 0dii"! #o'dsm"' e'tit!ed to te #e'e$it o$ e%ssio's* Re"so's.

/ 7udicial bondsman and the subAsurety are not entitled to the benefit of excussion

because they are not merely guarantors but sureties whose liability is primary and solidary /rt.=BG64.

W"t is te #e'e$it o$ di/isio'* I' ose $"/or is it "&&!i"#!e*

9)&)/: !:)# Should there be se-eral *uarantors of only one debtor and for the same

debt , the obligation to answer for the same is divided among all /rt. =BD34- liability is 7oint.

(he benefit of division applies in favor of the guarantors sureties not included4. (he creditor

can demand from the guarantors only the shares they are respectively bound to pay.

)8C)"(I'&S#

0. )xpress stipulation

=. If any of the circumstances enumerated in /rt. =B31 /I&S4 tae place.

Disss te e$$et o$ &",me't #, " +"r"'tor #e$ore te m"trit, o$ te &ri'i&"!

o#!i+"tio'.

0. If the debtorJs obligation is with a period, it becomes demandable only when the day

fixed comes /rt. 0012K0L4.

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(he guarantor who pays before maturity is &'( entitled to reimbursement since there is

no necessity for accelerating payment. / contract of guaranty being subsidiary in

character, the guarantor is not liable for the debt before it becomes due.

)8C)"(I'&# (he debtor will be liable if the payment was made with

a. ;is C'&S)&(, orb. If the payment was subse*uently /(I+I)5 by him. (he ratification may be

express or implied.

In any case, the guarantor can recover what he has paid upon the expiration of the

period /rt. =BD14.

=. If the demand on the guarantor was made during the term of the guarantee, the fact

that payment was made after said term is not material. <hat is controlling is that

default and demand on guarantor had taen place while the guarantee was still in force

H& 5ev. Corp. v "hil )xport and +oreign :oan 9uarantee Corp4.

Disss te e$$et o$ &",me't #, te +"r"'tor itot 'otie to te de#tor.

If the guarantor should pay without notifying the debtor, the debtor may interpose

against the guarantor those defenses which he could have set up against the creditor at the

time the payment was made /rt. =BDG4. (hus, if the debtor has already paid the creditor, when

the guarantor pays, the debtor can set up against the guarantor the defense of previous

extinguishment of the obligation by payment.

(he guarantor cannot be allowed, through his own fault or negligence, to pre7udice or

impair the rights or interests of the debtor See /rts. =BD1, =BB, =B64.

We' is " +"r"'tor NOT e'tit!ed to i'dem'it, or reim#rseme't*

9)&)/: !:)# 9uaranty is a contract of indemnity. (he guarantor who maes the

payment is entitled to be reimbursed by the debtor. (he indemnity consists of 5I)54

0. (otal amount of the 5)$( he has paid, unless there is a contrary stipulation

=. :egal I&())S( from the time payment was made nown &otice of payment N

demand4

2. :egal )8")&S)S he incurred as a conse*uence of the guaranty /rt. =B334, after

notifying the debtor that payment is demanded

6. 5/>/9)S if due according to law

)8C)"(I'&S #

0. <here the guaranty is constituted <I(;'!( the nowledge or against the will of the

principal debtor, the guarantor can recover only insofar as the payment has been

beneficial to the debtor.

=. "ayment by a (;I5 person who does not intend to be reimbursed by the debtor is

deemed to be a donation.

a. e*uires the debtorJs consent

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b. $ut payment in any case is valid as to the creditor who has accepted it

/rt.0=2G4

Correct or incorrect#

/ stipulation in an indemnity agreement providing that the indemnitor shall pay the surety as

soon as the latter becomes liable to mae payment to the creditor under the terms of the bond,

regardless of whether the surety has made payment actually or not, is invalid and

unenforceable.

If deposit is for a valuable consideration, the expenses or preservation are still borne by the

depositor.

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legarde & mundin credtrans notes 1

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