Part I

Question 1

Credit

Answer 1

The “CREDIT” of a borrower (an individual or entity) is the ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise.

Question 2

Credit Transactions

Answer 2

Contracts involving the purchase or loan of goods, services, or money in the present with a promise to
pay or deliver in the future.

Examples:
Loan of money (Mutuum)
Properties (Commodatum)
Deposits (Voluntary or Involuntary)
(Carriers and Hotels, Repair Shops where goods are delivered for some work or labor upon it by the Repairman, or goods are delivered for storage)

Question 3

Consumer Credit

Answer 3

Any credit extended by a creditor to a consumer for the sale or lease of any consumer product or service under which part or all of the price or payment therefor is payable at some future time, whether in full or in installments.

Question 4

Types of Credit Transactions

Answer 4

1. Unsecured transactions: the fulfillment by the debtor is supported only by a bare promise to pay (Mutuum). If the debtor dies or becomes insolvent, the creditor has no recourse to recover the debt, except to share in the remaining asset of the debtor in an insolvency proceeding
2. Secured transactions: supported by a collateral or an
   encumbrance of property. If the debtor dies or becomes insolvent, the creditor has a recourse to recover the debt.
   2a. Personal Security - when an individual becomes a
   surety or a guarantor
   2b. Real Security- when a mortgage, pledge, antichresis, charge, or lien or other device used to have property held, out of which the person to be made secure can be compensated for loss

Question 5

Intermediation Principle

Answer 5

It arises out of a mismatch between the requirements of borrowers with deficit funds and lenders with surplus funds.

The bank or financial institution (FIs) as intermediator comes in to match the needs of the borrowers with deficit funds and the lender with surplus funds.

Question 6

No person shall be imprisoned for debt or non-payment of tax. T or F.

Answer 6

True.

Art. 3, Sec. 20, 1987 Constitution.

Question 7

Is the bouncing checks law unconstitutional?

Answer 7

No. It is a valid exercise of police power.

It is within the prerogative of the lawmaking body, in the exercise of police power, to prescribe certain acts deemed pernicious and inimical to public welfare.

The making and issuance of a worthless check is deemed a public nuisance to be abated by the imposition of penal sanctions in the exercise of police power because Checks have become widely accepted as a medium of payment in trade and commerce, and if the confidence is shaken, the usefulness of checks as currency substitutes would be greatly diminished. Therefore, the acts issuing rubber checks are deemed pernicious and inimical to public welfare which can be sanctioned by the legislature in the exercise of police power.

Question 8

Trust Receipts Law

Answer 8

A declaration by the legislative authority that, as a matter of public policy, the failure of a person to turn over the proceeds of the sale of goods covered by a trust receipt or to return said goods if not sold is a public nuisance to be abated by the imposition of penal sanctions. It punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another.

Question 9

Trust Receipt Transaction

Answer 9

A trust receipt transaction, within the meaning of PD 115, is any transaction by and between a person referred to as the entruster, and another person referred to as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document called a “trust receipt” wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:

1. In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale; or
2. In the case of instruments,
   a) to sell or procure their sale or exchange; or
   b) to deliver them to a principal; or
   c) to effect the consummation of some transactions involving delivery to a depository or register; or
   d) to effect their presentation, collection or renewal

The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree.

Question 10

Access Devices Regulation Act of 1998 (RA. 8484)

Answer 10

• anyone who obtains “money or anything of value through the use of an access device, with intent to defraud or with intent to gain and fleeing thereafter” is criminally liable, punishable with a fine and imprisonment. Mere failure to pay credit card debts,” in the absence of fraud, is not a criminal act.

Question 11

Credit Card Law

Answer 11

Mere failure to pay credit card debts,” in the absence of fraud, is not a criminal act.

• It also provides that a cardholder who abandons or
  surreptitiously leaves the place of employment, business or residence stated in his application or credit card, without informing the credit card company of the place where he could actually be found, if at the time of such abandonment or surreptitious leaving, the outstanding and unpaid balance is past due for at least 90 days and is more than P10,000.00, shall be prima facie presumed to have used his credit card with intent to defraud.”

Question 12

Is Credit Card Law unconstitutional?

Answer 12

No. The use of a credit card to obtain money with intent to defraud or intent to gain and fleeing thereafter are inimical to public welfare because Credit cards have become widely accepted as a medium of payment in trade and commerce, and if the confidence in credit cards is shaken, the usefulness of credit cards as a medium of payment would be greatly diminished. Therefore, the acts obtaining money and goods with intent to defraud are deemed pernicious and inimical to public welfare which can be sanctioned by the legislature in the exercise of police power.

Question 13

Art. 1933

Answer 13

By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

Question 14

2 kinds of loans

Answer 14

1. Mutuum or simple loan: 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
2. Commodatum: where the lender delivers to the borrower a non-consumable thing so that the latter may
   use it for a certain time and return the identical thing; other term: commodate; also known as loan for use. The thing must be returned in essence, and without deterioration.

Question 15

Art. 1934

Answer 15

An accepted promise to deliver something by way of commodatum or simple loan is binding upon parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.

Question 16

A contract of loan is a real contract. T or F.

Answer 16

True.

It is not perfected until the delivery of the object of the contract.

Question 17

A contract to loan is binding upon the parties. T or F.

Answer 17

True.

Question 18

Mutuum v. Commodatum

Answer 18

(1) object
M: money or consumable
C: not consumable

(2) cause
M: may or may not be gratuitous
C: gratuitous

(3) purpose
M: consumption
C: use or temporary possession

(4) subject matter
M: only personal property
C: real or personal property

(5) ownership
M: passes to the debtor
C: retained by the bailor

(6) who bears the loss
M: borrower or debtor
C: lender

(7) things to be returned
M: equal amount of the same kind and quality
C: exact thing loaned

(8) when to return
M: only after the expiration of the term
C: in case of urgent need, even before the expiration of the term

Question 19

Borrower goes to Lender and asks if he could borrow P10K at 6% interest per annum. Lender says okay, I will lend you the money. Is there a valid contract?

Answer 19

This is an accepted promise to make a future loan. It is a consensual contract and is binding upon the parties.
However, there is no contract of loan at this point because loan is a real contract and is perfected only
upon delivery of the thing.

Question 20

Guariña Corporation (Guarina) applied for a developmental loan with DBP to finance its resort complex for P3.4 M Payable on November 3, 1988 secured by a real estate mortgage on several properties and a chattel mortgage over the personal properties and on those yet to be acquired out of the proceeds of the loan. Prior to the release of the loan, DBP required Guariña Corporation to put up a cash equity of P1,470,951.00 for the construction of the buildings and other improvements on the resort complex. The loan was released in several instalments. Only P3M was released. Guariña demanded the release of the balance but DBP refused. Instead, DBP directly paid some suppliers of Guariña over the latter’s objection. DBP found upon inspection of the resort project, its developments and improvements that Guariña had not completed the construction works. DBP thus demanded that Guariña expedite the completion of the project. Unsatisfied with the non-action and objection of Guariña Corporation, DBP extrajudicially foreclosed the mortgage.

Is the foreclosure of a mortgage valid?

Answer 20

NO, the foreclosure of the mortgage is premature and
should be nullified. The agreement between DBP and Guariña was a loan. Under the law, loan requires the delivery of money or any other consumable object by one party to another who acquires ownership thereof, on the condition that the same amount or quality shall be paid. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable.

By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guariña Corporation the latter’s compliance with its own obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its
obligation, the other party cannot be obliged to perform what is expected of it while the other’s obligation remains unfulfilled. In other words, the latter party does not incur delay.

Question 21

Consumer

Answer 21

a natural person who is a purchaser, lessee, recipient or prospective purchaser, lessor or recipient of consumer products, services or credit

Question 22

Consumer credit

Answer 22

any credit extended by a creditor to a consumer for the sale or lease of any consumer product or service under which part or all of the price or payment
therefor is payable at some future time, whether in full or in installments

Question 23

Consumer loan

Answer 23

a loan made by the lender to a person which is payable in installments for which a finance charge is or may be imposed. This term includes credit transactions pursuant to an open-end-credit plan other than a seller credit card

Question 24

Consumer products and services

Answer 24

goods, services and credits, debts or obligations
which are primarily for personal, family, household or agricultural purposes, which shall include but not limited to food, drugs, cosmetics, and devices

Question 25

Consumer transaction

Answer 25

(1) (i) a sale, lease, assignment, award by chance, or other disposition of consumer products, including chattels that are intended to be affixed to land, or of services, or of any right, title, or interest therein, except securities as defined in the Securities Act and contracts of insurance under the Insurance Code, or (ii) a grant of provision of credit to a consumer for purposes that are primarily personal, family, household or agricultural, or (2) a solicitation or promotion by a supplier with respect to a transaction referred to in clause

Question 26

Credit transaction under the Consumer Act

Answer 26

a transaction between a natural person and a creditor in which real or personal property, services or money acquired on credit and the person's obligation is payable in installment

Question 27

Basic rights of a consumer in a credit transaction under RA 7394

Answer 27

1. Right to a 10-day grace period 2. Right to pre-pay without penalties 3. Right to rebate on repayment 4. Right to demand credit cost disclosure 5. Right to defenses against the assignee of credit

Question 28

With respect to a consumer credit transaction other than one pursuant to an open-end credit plan, the parties may agree to a delinquency charge on any installment not pain in full on or before the tenth day after its scheduled or deferred due date.

Answer 28

Yes. Art. 134. Delinquency Charges of Consumer Act. >> right to a 10-day grace period

Question 29

The person to whom credit is extended may prepay in full or in part, at any time without penalty, the unpaid balance of any consumer credit transaction.

Answer 29

Yes. Art. 137. Right to prepay under Consumer Act >> right to pre-pay without penalties

Question 30

Upon prepayment in full of the unpaid balance of a precomputed consumer credit transaction, refinancing or consolidation, an amount not less than the unearned portion of the finance charge calculated according to this Article shall be rebated to the person to whom credit is extended.

Answer 30

Yes. Art. 138. Rebate on Prepayment of Consumer Act. >> right to rebate on prepayment

Question 31

Each creditor shall disclose, in accordance with the regulations of the implementing agency, to each person to whom consumer credit is extended, the disclosures required by this Act. If there is more than one obligor, a creditor need not furnish a statement of information required under this Act to more than one of them.

Answer 31

Art. 139. General Requirements on Credit Cost Disclosure. >> right to demand credit cost disclosure

Question 32

In cases where the instrument will be sold at a discount to a bank, financing company or other lender, the said transferee shall be subject to all claims and defenses which the debtor could assert against the seller of consumer products obtained hereto or with the proceeds thereof.

Answer 32

Art. 146. Sale of Consumer Products on installment. >> right to defenses against the assignee of credit

Question 33

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. T or F.

Answer 33

True. Art. 1934

Question 34

A contract of loan is a real contract. T or F.

Answer 34

True. It is perfected by delivery under Art. 1934

Question 35

Effects of Assignment of sale by the seller

Answer 35

Does not insulate the transaction from the coverage of the law insofar as the buyer is concerned because the assignee merely steps into the shoes of the assignor. Neither can the assignment be used as a shield against the enforcement of the buyer's rights. A buyer who is a consumer can enforce his rights notwithstanding the assignment.

Question 36

Factoring of Receivables

Answer 36

The assignment of receivables of a developer in banking parlance. This is the assignment of the sales contract which the seller generates from his sales activities in order to attain liquidity without undertaking collection of its receivables from the buyers. The assignee is called the Factor who is willing to purchase the seller's receivables at a discount.

Question 37

In a consumer credit sale other than one pursuant to an open-end credit plan, the obligation of the consumer to whom credit is being extended shall be evidenced by a single instrument which shall include, in addition to the disclosures required by this act, the signature of the seller and the person to whom credit is extended, the date it was signed, a description of the property sold and a description of any property transferred as a trade-in. The instrument evidencing the credit shall contain a clear and conspicuous typewritten notice to the person to whom credit is being extended that:

Answer 37

a. he should not sign the instrument if it contains any blank space; b. he is entitled to a reasonable return of the precomputed finance charge if the balance is prepaid; and c. he is entitled to an exact, true copy of the agreement In cases where the instrument will be sold at a discount to a bank, financing company or other lender, the said transferee shall be subject to all claims and defenses which the debtor could assert against the seller of consumer products obtained hereto or with the proceeds thereof. Art. 146 of RA 7394

Question 38

Commodatum in Tagalog

Answer 38

Hiram

Question 39

In a commodatum, the bailee acquires the use of the thing and its fruits. T or F.

Answer 39

False. In a commodatum, the bailee acquires the use of the thing but not its fruits, unless there is a stipulation to the contrary.

Question 40

What happens if in an agreement of commodatum, compensation is paid by him who acquires the use?

Answer 40

The contract ceases to be a commodatum. 1935

Question 41

Consumable goods may be the subject of commodatum.

Answer 41

Yes but ONLY IF the purpose of the contract is merely for exhibition and not for consumption. 1936

Question 42

Only movable property may be the object of commodatum. T or F.

Answer 42

False. Movable or immovable property may be the object of commodatum. 1937

Question 43

The bailor in commodatum need to be the owner of the thing loaned. T or F.

Answer 43

False. The bailor in commodatum need not be the owner of the thing loaned. 1938

Question 44

Commodatum is purely personal in nature. T or F.

Answer 44

True. 1939

Question 45

The death of either the bailor or the bailee extinguishes the contract. T or F.

Answer 45

True. Unless there is a contrary stipulation for the commodatum to subsist until the purpose is accomplished. 1939

Question 46

The bailee has the right to lend or lease the object of the contract to a third person. T or F.

Answer 46

GR: No. XPN: the members of the bailee's household may make use of the thing loaned XPN 2 XPN: if there is a stipulation to the contrary or if the nature of the thing forbids such use 1939

Question 47

A stipulation that the bailee may make use of the fruits of the thing loaned is valid. T or F.

Answer 47

True. 1940

Question 48

Who is the bailor?

Answer 48

Lender

Question 49

Who is the bailee?

Answer 49

Borrower

Question 50

Kinds of commodatum

Answer 50

1. Ordinary Commodatum: use by the borrower of the thing is for a certain period of time 2. 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

Question 51

In a commodatum, use must be temporary, otherwise the contract may be a deposit or a usufruct.

Answer 51

Oki.

Question 52

The subject matter of a commodatum may be real or personal property. T or F.

Answer 52

True.

Question 53

A mere possessor, lessee, or usufructuary may lend. T or F.

Answer 53

True. Since by the loan, ownership does not pass to the borrower. 1938 NOTE: Rule on bailee lending or leasing the thing loaned - 1932 (2)

Question 54

Deposit

Answer 54

refers to the purpose which is safekeeping

Question 55

If the bailee is not entitled to use the thing, it is not a commodatum but it may be a ______.

Answer 55

Deposit

Question 56

The usufructuary acquires rights over the fruits and it is a real right. T or F.

Answer 56

True.

Question 57

Commodatum v. Usufruct

Answer 57

(1) Right to enjoy fruits C: unless stipulated, bailee cannot enjoy fruits U: enjoys fruits (2) Transferability C: being personal, right cannot be transferred to third parties U: can transfer right (3) Use by third persons C: third persons are not allowed U: can allow third persons to use (4) Right of retention C: No right except for damages under Art. 1951 and 1944, Civil Code U: there is right of retention

Question 58

Obligations of the bailee

Answer 58

1. To pay for the ordinary expenses for use and preservation of the thing loaned (1941) 2. To be liable for the deterioration of thing loaned (a) if expressly stipulated; (b) if guilty of fault or negligence (1943) - The borrower is not liable for the ordinary deterioration or wear and tear as a natural consequence of its use. This is borne by the lender. Reasons: the lender retains ownership so he should bear the loss from ordinary deterioration; the purpose of commodatum is for the borrower to use the thing. Deterioration is a natural result of such use. 3. To be liable for the loss of the thing even if it should be through a fortuitous event IN THE FOLLOWING CASES: i. if he devotes the thing to any purpose different from that for which it has been loaned ii. if he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted iii. if the thing loaned has been delivered with appraisal for its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event iv. if he lends or leases the thing to a third person, who is not a member of his household v. if, being able to save either the thing borrowed or his own thing, he chose to save the latter (1942) 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 lender and the borrower, even though the borrower acted without fault, unless there is a stipulation to the contrary (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 under Art. 1951 (Damages arising from undisclosed flaws and defects). Right of Retention exists only in 1951. No legal pledge is constituted which does not give him a right to foreclose if he is not paid. But he can use it if necessary for maintenance. He can sue to collect.

Question 59

Art. 1951

Answer 59

The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be liable to the latter for the damages which he may suffer by reason thereof.

Question 60

The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without his fault. T or F.

Answer 60

True. 1943

Question 61

The bailee can retain the thing loaned on the ground that the bailor owes him something. T or F.

Answer 61

False. Even though it may be by reason of expenses, the bailee cannot retain the thing loaned for such reason. However, the bailee has a right of retention for damages mentioned in Article 1951. 1944

Question 62

When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. T or F.

Answer 62

True. 1945

Question 63

Obligations of the lender

Answer 63

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: In case of urgent need in which case bailee may demand its return or temporary use; 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. (No Right of Retention By Borrower) 3. To be liable to the bailee for damages for known hidden flaws. (With Right of Retention By the Borrower) Requisites: There is flaw or defect in the thing loaned; The flaw or defect is hidden; The bailor is aware thereof; He does not advise the bailee of the same; and The bailee suffers damages by reason of said flaw or defect

Question 64

Art. 765

Answer 64

The donation may also be revoked at the instance of the donor, by reason of ingratitude in the following cases: (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) 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) If he unduly refuses him support when the donee is legally or morally bound to give support to the donor.

Question 65

The bailor may demand the thing at will, and the | contractual relation is called a precarium, in the following cases:

Answer 65

a. If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or b. If the use of the thing is merely tolerated by the owner 1947

Question 66

If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne ...

Answer 66

equally by both the bailor and the bailee, unless there is a stipulation to the contrary 1949, par 2

Question 67

If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in Articles 1941 and 1949, he is not entitled to reimbursement. Article 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned. Article 1949. The bailor shall refund the extraordinary expenses during the contract 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. If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary. T or F.

Answer 67

True. 1950

Question 68

The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be liable to the latter for the damages which he may suffer by reason thereof. T or F.

Answer 68

True. 1951

Question 69

The bailor cannot exempt himself from the payment | of expenses or damages by abandoning the thing to the bailee. T or F.

Answer 69

True. 1952

Question 70

Mutuum 1933 v. Mutuum 1953

Answer 70

The general provisions in 1933 defines Mutuum to cover money or consumables while 1953 speaks of money or fungible things. The better definition is 1953. As between a general provision and a special provision, the latter shall prevail. Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.

Question 71

Fungible things

Answer 71

Those which are usually dealt with by number, weight, or measure, so that any given unit or portion is treated as the equivalent of any other unit or portion. Those which may be replaced by a thing of equal quality and quantity. (ex. Rice, oil, sugar). If it cannot be replaced with an equivalent thing, then it is non-fungible. Fungible can be substituted.

Question 72

Consumable things

Answer 72

Those which cannot be used without being consumed. Whether a thing is consumable or not depends upon its nature. Whether a thing is fungible or not depends on the intention of the parties.

Question 73

In mutuum, a non-consummable can be a subject matter. T or F.

Answer 73

True. Provided that it is fungible.

Question 74

Example of a mutuum involving a fungible thing

Answer 74

A textbook is non-consummable but it is fungible and therefore can be a subject of mutuum. A bookstore (Bookstore 1) that run out of stock of a 2015 book on credit transaction by Atty. Timmy Aquino borrowed 1 from another bookstore (Bookstore 2) to sell it to a law student. After obtaining his orders from the printer the following day, Bookstore 1 returned 1 2015 book on credit transaction by Atty. Timmy Aquino to Bookstore 2. It is not commodatum because it is not the same thing borrowed. It is not barter because there is no exchange non-fungibles and it is gratuitous. It is submitted that this is a Mutuum involving a fungible thing.

Question 75

A contract whereby one person transfers the ownership of non-fungible things to another with the obligation on the part of the latter to give things of the same kind, quantity, and quality shall be considered a barter.

Answer 75

Okay. Barter is a promise to give another thing. (in short, exchange of property). 1954

Question 76

Commodatum/Mutuum v. Barter

Answer 76

(1) C/M: Subject matter is money or fungible things B: Subject matter is non-fungible, (non consumable) things (2) C/M: In commodatum, the bailee is bound to return the identical thing borrowed when the time has expired or purpose served B: The thing with equivalent value is given in return for what has been received (3) C/M: Mutuum may be gratuitous and commodatum is always gratuitous B: Barter is Onerous, actually a mutual sale

Question 77

Mutuum is extinguished by loss of collateral. T or F.

Answer 77

False. Mutuum is not extinguished by loss of collateral.

Question 78

Cash Advance is a loan, therefore no estafa. T or F.

Answer 78

True.

Question 79

Withdrawal from uncollected deposit (DAUD) is estafa. T or F.

Answer 79

False. Withdrawal from uncollected deposit (DAUD) is a loan - No Estafa.

Question 80

Form of payment

Answer 80

1. If the thing loaned is money - payment must be made in the currency stipulated, if it is possible; otherwise it is payable in the currency which is legal tender in the Philippines. - The obligation of a person who borrows money shall be governed by the provisions of articles 1249 and 1250 of this Code. 2. If what was loaned is a fungible thing other than money - the borrower is under obligation to pay the lender another thing of the same kind, quality and quantity. In case it is impossible to do so, the borrower shall pay its value at the time of the perfection of the loan.

Question 81

Art. 1249

Answer 81

Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines. The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired. In the meantime, the action derived from the original obligation shall be held in the abeyance.

Question 82

Art. 1250

Answer 82

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

Question 83

R.A. 529 (Prohibited foreign currency stipulation as payment) was repealed by R.A. 8183 which now allows payment by foreign currency, if stipulated.

Answer 83

Oki.

Question 84

Legal tender

Answer 84

is that which a debtor may compel a creditor to accept in payment of a debt. “all notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private.” Under its charter, the Bangko Sentral was given the sole power and authority to issue currency within the territory of the Philippines, and no other person or entity, public or private, may put into circulation notes, coins or any other object or document which, in the opinion of the Monetary Board, might circulate as currency. Otherwise, the currency is unauthorized.

Question 85

Coins as legal tender

Answer 85

a. 1-peso coins and coins of higher peso value are legal tender for obligations not exceeding P 1,000. b. 25-cents and coins of lower value are legal tender for obligations not exceeding P 100 (BSP Circular 537 series of 2006) Notes, regardless of denomination, are legal tender for any amount of obligation. Coins which show signs of filing, clipping or perforation and notes which have lost more than 2/5 of their surface or all of the signatures inscribed therein shall be withdrawn from circulation and demonetized without compensation to the bearer. (Section 56 of RA 7653) Crumpled notes which has lost its surface by less than 2/5 of the surface, is still legal tender. Banks are likewise required to accept mutilated currency notes and coins for redemption or deposit under BP Circular no 829 series of 2014.

Question 86

Demonetization

Answer 86

The process of removing the monetary value of a legal tender currency by the issuing authority. Demonetized currency shall no longer be accepted for payment of goods and services.

Question 87

Check as a medium of payment is not legal tender except in redemption in foreclosures: Javellana vs. Mirasol 40 Phil 761 ; Crystal vs. CA 62 SCRA 501 (1975) 71 SCRA 443 (1976); New Pacific vs. Seneris 101 SCRA 686 (1980); Roman Catholic vs. IAC 191 SCRA 491 (1990); Fortunado vs. CA 196 SCRA 26 (1991); Tibajia vs CA 223 SCRA 163

Answer 87

Oki.

Question 88

Credit card is a legal tender. T or F.

Answer 88

False. Credit card is not a legal tender.

Question 89

If the debtor issues a check and the Creditor impairs it by not presenting it until after 10 years and thus became stale, the check is impaired through the creditor’s fault. Therefore, it produced the effect of payment.

Answer 89

Oki.

Question 90

Virtual currency, such as bitcoin, is a legal tender. T or F.

Answer 90

False. Virtual Currency, such as bitcoin, is not legal tender. A virtual currency (VC), refer to any type of digital unit that is used as a medium of exchange or a form of digitally stored value created by agreement within the community of VC users. It is “medium of exchange” and that their usage is more by agreement among the community of users, meaning that there is no compulsion for the counterparties to accept the VCs as a payment mechanism. In such sense, bitcoins do not purport to be currency nor to be classified as legal tender. VCs are not issued or guaranteed by any jurisdiction and do not have any legal tender status. The Bangko Sentral does not intend to endorse any VC, such as bitcoin, as a currency since it is neither issued nor guaranteed by a central bank nor backed by any commodity. In December last year, the US SEC Chairman also issued an advisory that investors in such products should exercise extreme caution and be wary that the investment may be lost. This is similar to the advisory issued by the Singapore central bank also in December last year. China and Indonesia, however, went one step further by disallowing bitcoins in their respective jurisdictions. (BSP Circular No. 944 (2017)

Question 91

Art. 1250 is applicable in payments of loans. 1250 provides that in case of extraordinary inflation or devaluation, the value of the currency at the time of the establishment of the obligation (not at the time of payment) should be the basis for payment. T or F.

Answer 91

True. For 1250 to apply, there must be official government declaration. The said article may not be invoked nor applied without a proper declaration of extraordinary inflation or deflation of currency by the competent authorities.

Question 92

Extraordinary inflation exists when

Answer 92

When there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond contemplation of the parties at the time of the establishment of the obligation. An example of extraordinary inflation is the following description of what happened to the Deutschmark in 1920: More recently, in the 1920's Germany experienced a case of hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar!

Question 93

Monetary interest

Answer 93

Compensation fixed by the parties for the use or forbearance of money.

Question 94

Compensatory interest

Answer 94

May also be imposed by law or by courts as penalty or indemnity for damages. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. A borrower may be held liable for interest even without a stipulation.

Question 95

No interest shall be due unless it has been expressly stipulated in writing. T or F.

Answer 95

True. 1956

Question 96

Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. T or F.

Answer 96

True. The borrower may recover in accordance with the laws on usury. 1957

Question 97

In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment.

Answer 97

Oki. 1958

Question 98

Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.

Answer 98

Yes. 2212

Question 99

If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerning solutio indebiti, or natural obligations, shall be applied, as the case may be.

Answer 99

1960 Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor becomes the creditor who then has the right to demand the return of payment made by mistake, and the person who has no right to receive such payment becomes obligated to return the same. The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the expense of another.

Question 100

Payment of monetary interest is allowed only if:

Answer 100

1. There was an express stipulation for the payment of interest; and 2. The agreement for the payment of interest was reduced in writing. The concurrence of the two conditions is required for the payment of monetary interest. Thus, we have held that collection of interest without any stipulation therefor in writing is prohibited by law.

Question 101

Escalation clause

Answer 101

A clause which authorizes the automatic increase in interest rate. An escalation clause is valid when it is accompanied by a De-Escalation Clause. A de-escalation clause is a clause which provides that the rate of interest agreed upon will also be automatically reduced. There must be a specified formula for arriving at the adjusted interest rate, over which neither party has any discretion.

Question 102

If the escalation clause is annulled, interest rate is that which is originally stipulated until maturity. Thereafter, the rate is legal interest at

Answer 102

12% per annum (until June 30, 2013) 6% per annum na (current jurisprudence - July 1, 2013) Standard: The interests paid by petitioners should be applied first to the payment of the stipulated or legal and unpaid interest, as the case may be, and later, to the capital or principal. Respondent should then refund the excess amount of interest that it has illegally imposed upon petitioners; "[t]he amount to be refunded refers to that paid by petitioners when they had no obligation to do so."

Question 103

If the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 6% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. T or F.

Answer 103

True. 2209

Question 104

Interest may, in the discretion of the court, be allowed upon damages awarded for breach of contract. T or F.

Answer 104

True. 2210 Likewise, In crimes and quasi-delicts, interest as a part of the damages may, in a proper case, be adjudicated in the discretion of the court. (2211)

Question 105

Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty. T or F.

Answer 105

True. 2213

Question 106

Article 2209 of the Civil Code states that if the obligation consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 6% per annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon. ``` Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent on this point. ``` All the same, the interest under these two instances may be imposed only as a penalty or damages for breach of contractual obligations. It cannot be charged as a compensation for the use or forbearance of money. In other words, the two instances apply only to compensatory interest and not to monetary interest.

Answer 106

Oki.

Question 107

Accrued interest shall not earn interest. T or F.

Answer 107

This is the general rule. XPNS: 1. When judicially demanded (Art. 2212) accrued interest shall be added to the principal and the resulting total amount shall earn interest; or 2. If stipulated

Question 108

How does compounding interest work? Lender lends | P100,000 payable in 2 years at 10% interest compounded per annum. At the end of the first year, how much is due?

Answer 108

Principal plus 10% interest = 110,000. On the second year, the 110,000 becomes the new principal amount and it is what will earn the 10% interest. So at the end of the second year, how much is due? 110,000 + 10% of 110,000 = 110,000 + 11,000 = 121,000

Question 109

Mere offer to pay interest without consignation does | not stop running of period to pay interest. T or F.

Answer 109

True.

Question 110

If no interest is awarded in the judgment, no interest can be imposed.

Answer 110

Oki.

Question 111

Time Price Differential

Answer 111

Difference between cash price & installment price NOTE: This is not installment

Question 112

If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return it arises.

Answer 112

Yes. 2154

Question 113

If the payer was in doubt whether the debt was due, he may recover if he proves that it was not due.

Answer 113

Oki. 2156

Question 114

Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall be liable for fruits received or which should have been received if the thing produces fruits. He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the person who delivered the thing, until it is recovered.

Answer 114

Oki. 2159

Question 115

It is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause.

Answer 115

Oki. 2163

Question 116

The principle of solutio indebiti applies where

Answer 116

1. a payment is made when there exists no binding relation between the payor, who has no duty to pay, and the person who received the payment; and 2. the payment is made through mistake, and not through liberality or some other cause. We have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest.

Question 117

RA 3765

Answer 117

Truth in Lending Act The law provides that the disclosure statement involving the amount of the loan, downpayment, interest rate, penalty charges and other costs, among others must be provided to the debtor. It requires that the debtors must be furnished the disclosure statement prior to the consummation of the transaction (Section 4). As proof that this was complied with, the debtors must acknowledge receipt of the same. RATIONALE: Experience reveals that banks, financial institutions and other persons engaged in the lending business are able to conceal the true costs of credit, penalties and other charges to the detriment of the borrowing public. The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof, proceeding from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like. The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their loan, to enable them to give full consent to the contract, and to properly evaluate their options in arriving at business decisions.

Question 118

Effects of non-disclosure under Truth in Lending Act

Answer 118

The contract of loan is valid - The law itself states that "nothing contained in this Act or regulation issued pursuant to it, shall affect the validity of enforceability of any contract or transaction.” [Section 6(b)]

Question 119

Covered transactions under Truth in Lending Act

Answer 119

CREDIT - any loan, mortgage, deed of trust, advance, or discount; - any conditional sales contract; - any contract to sell, or sale or contract of sale of property or services, either for present or future delivery, under which part or all of the price is payable subsequent to the making of such sale or contract; - any rental-purchase contract; - any contract or arrangement for the hire, bailment, or leasing of property; - any option, demand, lien, pledge, or other claim against, or for the delivery of, property or money; - any purchase, or other acquisition of, or any credit upon the security of, any obligation of claim arising out of any of the foregoing; - and any transaction or series of transactions having a similar purpose or effect

Question 120

Covered lenders under the Truth in Lending Act

Answer 120

CREDITOR - any person engaged in the business of extending credit (including any person who as a regular business practice makes loans or sells or rents property or services on a time, credit, or installment basis, either as principal or as agent) who requires as an incident to the extension of credit, the payment of a finance charge.

Question 121

Effect of disclosure statement not being furnished to the debtor prior to the consummation of the transaction

Answer 121

Disclosure statement must be furnished to the debtor prior to the consummation of the transaction. Otherwise, interest rate is not enforceable. Substantial compliance is not a defense.

Question 122

A promissory note is an acknowledgment of a debt and commitment to repay it. It is a valid contract. T or F.

Answer 122

True.

Question 123

2 kinds of credit transactions

Answer 123

1. Unsecured 2. Secured a. Personal security - guaranty and suretyship b. Real security - pledge, mortgage (chattel or real, equitable) and antichresis

Question 124

Guaranty or suretyship

Answer 124

A personal security because of the bare commitment to the creditor by one who answers for the default of the principal debtor. There is no asset to back up the commitment to pay. If the principal debtor dies, his remedy is to run after the estate of the debtor the creditor because there is no asset to foreclose.

Question 125

A contract of real security

Answer 125

It is secured by assets, either as pledge, mortgage or antichresis. It has a lien or encumbrance on the asset of the debtor to secure his obligation to the creditor. If the principal debtor dies, the creditor can foreclose the asset. And if deficiency action is allowed by law, the creditor can collect from the estate of the debtor.

Question 126

Guaranty

Answer 126

A contract whereby a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so.

Question 127

Suretyship

Answer 127

A contract whereby a person, called the surety, binds himself solidarily with the principal debtor to fulfill the obligation of the latter in favor of the creditor. Suretyship is governed by the law on Guaranty and Articles 1207 to 1222 of the Civil Code on solidary obligations .

Question 128

Guaranty v. Suretyship

Answer 128

MAIN DIFFERENCE: A surety undertakes to pay if the principal does not pay (insurer of the debt). A guarantor binds himself to pay if the principal cannot pay (insurer of the solvency of the debtor). (1) G: Guarantor is secondarily liable S: Surety is primarily liable (2) G: Insurer of solvency of debtor. Guarantor binds himself to pay if the principal CANNOT PAY. S: Insurer of the debt. Surety undertakes to pay if the principal DOES NOT PAY (3) G: Guarantor can avail of the benefit of excussion and division in case creditor proceeds against him S: Surety cannot avail of the benefit of excussion and division

Question 129

Contract of suretyship

Answer 129

A contract of suretyship is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, stipulations, bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206.

Question 130

Liability of surety/sureties

Answer 130

The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee.

Question 131

The law on guaranty applies to suretyship except its solidary liability which is governed by Articles 1207-1222. T or F.

Answer 131

True. Guaranty and Suretyship is principally governed by Articles 2047 to 2084 of the New Civil Code. But when one binds himself solidarily, then Articles 1207 to 1222 of the New Civil Code on Solidary obligations shall be observed. (Par. 2, Art. 1247). This reference does not mean that Suretyship is withdrawn from the applicable provisions of the law on guaranty. The law on guaranty as applicable to Suretyship still governs.

Question 132

Suretyship is an accessory contract. T or F.

Answer 132

True. Thus, liability of a surety is dependent upon the liability of the principal debtor.

Question 133

A final judgment against the surety is not executory until the appeal of the principal is resolved. T or F.

Answer 133

True. Being in solidum, the liability of the Surety arises only if the principal obligor defaults. The nature of the surety's undertaking is such that it does not incur liability unless and until the principal debtor is held liable.

Question 134

Surety v. Solidary Co-maker of a promissory note

Answer 134

There is a fine distinction between a solidary co-maker of a promissory note and a surety the liability of both are solidary, both secures the debt of another person both have the right to be indemnified by the principal debtor after payment and both have no benefit of excussion. The difference is that the lender cannot go after the surety right away. There has to be default on the part of the principal debtor before the surety becomes liable. If it were mere solidarity among debtors, the creditor can go after any of the solidary debtors on due date. (1) S: governed by the law on Guaranty and Articles 1207-1222 of the New Civil Code on Solidary Obligations SCM: governed by the law on Loans and Articles 1207-222 of the New Civil Code on Solidary Obligations (2) S: defenses of a guarantor, except excussion, is available to a surety SCM: defenses of a guarantor, except excussion, is NOT available to a solidary co-maker (Examples) S: If the creditor grants the principal debtor extension of time to pay without the consent of the surety, the suretyship is extinguished (2079) SCM: If the creditor grants the principal debtor extension of time to pay without the consent of the co-maker, the co-maker’s liability is not extinguished (Examples) S: If the creditor accepts a dacion en pago of an asset from the principal debtor without the consent of the surety, the suretyship is extinguished (2077) SCM: If the creditor accepts a dacion en pago of an asset from the principal debtor without the consent of the solidary-comaker, the co-maker’s liability remains (Examples) S: If the creditor releases a co-surety without the consent of the other surety, the release benefits the latter pro-rata up to the extent of the release (2978) SCM: If the creditor releases a co-maker without the consent of the other co-maker, the release does not benefit the latter

Question 135

A guaranty may be conventional, legal or judicial, gratuitous, or by onerous title. It may also be constituted, not only in favor of the principal debtor, but also in favor of the other guarantor, with the latter’s consent, or without his knowledge, or even over his objection.

Answer 135

Oki. 2051

Question 136

A guaranty is gratuitous, unless there is a stipulation to the contrary. T or F.

Answer 136

True. 2048

Question 137

Benefit is material in a guaranty or suretyship. T or F.

Answer 137

False.

Question 138

Where a surety bond has been accepted by the obligee, it becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety. T or F.

Answer 138

True.

Question 139

A married woman cannot enter into contract of guaranty or suretyship without the husband's consent. T or F.

Answer 139

False. A married woman can enter into contract of guaranty or suretyship without the husband's consent. (Art. 2049, Art. 94, FC, Sec. 5, RA 7192). But she cannot bind the conjugal partnership unless the latter benefitted. GR: To bind the absolute community, the consent of both spouses is necessary. Otherwise, the absolute community is not liable. XPN: unless the obligation redounded to the benefit of the community.

Question 140

Unconsented guaranty is treated as payment by 3rd persons. T or F.

Answer 140

True.

Question 141

A contract of guaranty can be constituted without the knowledge or against the will of the debtor. T or F.

Answer 141

True. A contract of guaranty is between the guarantor and the creditor. The effect is like payment by a third person under Art. 1236 and 1237. If the guarantor pays, he can only recover insofar as the payment has been beneficial to the debtor. The guarantor cannot compel the creditor to subrogate him in the creditor’s rights such as those arising from a mortgage, guaranty or penalty. If the guaranty was entered into with the consent of the principal debtor, the guarantor is subrogated to all the rights which the creditor had against the debtor once he pays for the obligation.

Question 142

If a guaranty is entered into without the knowledge or consent, or against the will of the principal debtor, the provisions of Articles 1236 and 1237 shall apply.

Answer 142

Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary. Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty.

Question 143

Obligations secured are past, present and future debts. T or F.

Answer 143

True.

Question 144

A guaranty is an accessory contract and cannot exist without a valid principal obligation. So if the principal obligation is void, the guaranty is also void. BUT, a guraranty may be constituted to guarantee the following defective contracts and natural obligations:

Answer 144

a. Voidable (Art. 1390, NCC): The contract is binding unless it is annulled; b. Unenforceable (Art. 1403,NCC): An unenforceable contract is not void.; c. Natural obligations (Arts. 1423-1430, NCC): Even if the principal obligation is not civilly enforceable, the creditor may still go after the guarantor if one is constituted The law does not include void and rescissible obligations.

Question 145

Natural obligation

Answer 145

A natural obligation is an obligation that has no legal basis to enforce its performance. It is based on equity, morality, and natural law, and should be voluntary. Thus, the performance of civil obligation by the debtor which has prescribed can be secured by a guaranty. Example: D voluntarily pays C with the knowledge that his obligation to pay has prescribed. G, as guarantor can validly secure the loan with his guaranty.

Question 146

Future debts can be secured. T or F.

Answer 146

True. A guaranty or surety may also be given as security for future debts, the amount of which is not yet known. However, there can be no claim against the guarantor or surety until the debt is liquidated.

Question 147

Comprehensive or continuing surety agreements are quite commonplace in present day financial and commercial practice. A bank or financing company which anticipates entering into a series of credit transactions with a particular company, normally requires the projected principal debtor to execute a continuing surety agreement along with its sureties. By executing such an agreement, the principal places itself in a position to enter into the projected series of transactions with its creditor; with such suretyship agreement, there would be no need to execute a separate surety contract or bond for each financing or credit accommodation extended to the principal debtor.

Answer 147

Oki.

Question 148

Liability of a guarantor or surety may exceed that of the principal. T or F.

Answer 148

False. Guaranty or suretyship is by nature, a subsidiary and accessory contract. His liability cannot exceed that of the principal. If the guarantor binds himself for more than the liability of the principal debtor, his liability shall be reduced. However, if the creditor sues the guarantor, the guarantor may be made to pay costs, attorney’s fees, and penalties even if this will make his liability exceed that of the principal. A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and the onerous nature of the conditions. Should he have bound himself for more, his obligations shall be reduced to the limits of that of the debtor. (2054)

Question 149

A conditional obligation may be secured. T or F.

Answer 149

True. 2053

Question 150

Guaranty may be presumed. T or F.

Answer 150

False. RULE: Guaranty is never presumed. It must be express. Reason for the rule: Because a guarantor assumes an obligation to pay for another’s debt without any benefit to himself. It must also be in writing.

Question 151

A contract of guaranty, to be enforceable, must be in writing pursuant to Art. 2055, and Art. 1403 (2.b) of the New Civil Code (Statute of Frauds) as a “special promise to answer for the debt, default or miscarriage of another.”

Answer 151

Ooooh

Question 152

Construction of Guaranty

Answer 152

A guaranty is strictly construed against the creditor and in favor of the guarantor and is not to be extended beyond its terms or specific limits. In case of doubt, it should be resolved in favor of the guarantor or surety.

Question 153

A suretyship agreement may not be in writing, unlike guaranty. T or F.

Answer 153

False. A suretyship agreement must be in writing.

Question 154

Effect of death of guarantor

Answer 154

Creditor can demand a replacement under Art. 2057

Question 155

Excussion

Answer 155

The process or proceedings whereby a creditor must proceed against a principal debtor before proceeding against a surety or subsidiary debtor. It is a benefit which the guarantor can avail of to defeat a creditors claim until the latter exhausts the assets of, and the legal remedies against, the principal debtor. The guarantor can raise the benefit of excussion against a pursuing creditor. (Art. 2058). Excussion consists of: 1. Exhaust all the property of the debtor; and 2. Resort to all the legal remedies against the debtor.

Question 156

When excussion is not available

Answer 156

1. EXPRESS RENUNCIATION: Express waiver by the guarantor 2. SOLIDARY LIABILITY: Guarantor’s liability is solidary as in surety or judicial bondsman 3. INSOLVENCY OF THE DEBTOR: Declaration of insolvency is not enough. The inability to pay must be actua 4. DEBTOR ABSCONDED OR CANNOT BE SUED: A debtor who left his residence without any forwarding address and known asset is proof that he has absconded to the prejudice of his creditor and the guarantor 5. EXECUTION OF JUDGMENT AGAINST DEBTOR IS FUTILE: Presumption that an action on the asset of the debtor will produce no result shall be supported by other facts such as when he absconds and left no asset.

Question 157

Duties of the guarantor when debtor defaults

Answer 157

1. Raise the benefit of excussion to the creditor upon extrajudicial demand (2060). Upon receipt of a demand letter from the creditor, the benefit of excussion shall be raised in the reply; 2. Point to the creditor assets of the debtor within the Philippine territory sufficient to pay the debt; 3. When sued with the debtor, raised the benefit of excussion in the answer as a defense. Additionally, if the creditor is negligent in levying on the asset of the debtor and the debtor becomes insolvent, raise Art. 2016 as a defense. If the property pointed out by the guarantor is very valuable that it could have satisfied the debt and the creditor did not move to seize it, and the debtor becomes insolvent, then the guaranty is extinguished.

Question 158

Benefit of excussion

Answer 158

1. Exhaust all property of debtor | 2. Resort to legal remedies against debtor - sue the debtor and the guarantor jointly

Question 159

In order that the guarantor may make use of the benefit of exclusion, he must

Answer 159

set it up against the creditor upon the latter's demand for payment from him, and point out to the creditor available property of the debtor within Philippine territory, sufficient to cover the amount of the debt (2060)

Question 160

Return of write of execution unsatisfied is proof of exhaustion of both debtors asset and legal remedies. T or F.

Answer 160

True. When a writ of execution is returned by the Sheriff that no asset is leviable and the writ is returned unsatisfied, this is a sufficient proof that the guarantor can be held liable. The benefit of excussion can no longer be raised by him.

Question 161

In availing the remedy of excussion, the property pointed out must be unencumbered and unlitigated, and must be available within Philippine territory. T or F.

Answer 161

True. The guarantor must also point out to the creditor available property (not in litigation or encumbered) of the debtor within the Philippines. It must be within the Philippine territory (Art. 2060). The same thing may be said of property which is not easily available. As the one most interested in the benefit of excussion, the guarantor should facilitate its realization and the payment of the debt, whereby he will be freed of his subsidiary obligation. The rule takes into account only the interests of the guarantor but also those of the creditor, for without it, guaranty might become almost illusory.

Question 162

The claim that the guarantor cannot be compelled to pay the Creditor because the debtor has sufficient assets is not valid. T or F.

Answer 162

True. Reason: The guarantor did not controvert the return of the Sheriff who affirmed that, after exerting diligent efforts, he was not able to locate any property belonging to the debtor except for a bank deposit with the Planter’s Bank at Buendia, in the amount of P20,242.23. It is axiomatic that the liability of the guarantor arises when the insolvency or inability of the debtor to pay the amount of debt is proven by the return of the writ of execution that had not been unsatisfied.

Question 163

The issue has been raised as to whether in a suit to collect a debt against the principal debtor, the guarantor must be joined as a party defendant in the light of Article 2062. Article 2062. In every action by the creditor, which must be against the principal debtor alone, except in the cases mentioned in article 2059, the former shall ask the court to notify the guarantor of the action. The guarantor may appear so that he may, if he so desire, set up such defenses as are granted him by law. The benefit of excussion mentioned in article 2058 shall always be unimpaired, even if judgment should be rendered against the principal debtor and the guarantor in case of appearance by the latter.

Answer 163

The inclusion of the guarantor in a suit against the principal debtor is not an infringement of the provisions of this article of the Code. On the contrary, the citation under the new Code is obligatory, and by his inclusion, he is accorded an occasion to plead and support his defense against the judicial vitality and effectivity of the principal obligation and is not left to venture on the possible inaction, indifference, or negligence of the principal obligor.

Question 164

Excussion is a pre-requisite to secure judgment against a guarantor. T or F.

Answer 164

False.

Question 165

The creditor may, prior thereto, secure a judgment against the guarantor, who shall be entitled, however, to a deferment of the execution of said judgment against him, until after the properties of the principal debtor shall have been exhausted, to satisfy the latter’s obligation."

Answer 165

Oki.

Question 166

There is nothing procedurally objectionable in impleading the guarantor as a co-defendant. As a matter of fact, the Rules of Court on __________ (Rule 3, Sec. 6 thereof.) explicitly allows it. This equity rule is based on trial convenience and is designed to permit the joinder of plaintiffs or defendants whenever there is a common question of law or fact, saving the parties unnecessary work, trouble and expense."

Answer 166

Permissive Joinder of parties

Question 167

The obligation of two or more guarantors for the same debt is

Answer 167

joint because it is divided among themselves. The following requisites concur: 1. There are several guarantors of only one debtor; 2. They are guarantors of the same debt. Thus, if 2 guarantors secure a debt of a borrower worth P20,000, each guarantor is liable at P10,000 because they have the benefit of division. The benefit of division against the co-guarantors ceases in the same cases and for the same reasons as the benefit of excussion against the principal debtor.

Question 168

Should there be several guarantors of only one debtor and for the same debt, the obligation to answer for the same is divided among all. The creditor cannot claim from the guarantors except the shares which they are respectively bound to pay, unless solidarity has been expressly stipulated. The benefit of division against the co-guarantors ceases in the same cases and for the same reasons as the benefit of excussion against the principal debtor.

Answer 168

Oki 2065

Question 169

A release made by the creditor 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. T or F.

Answer 169

True. 2078

Question 170

If there is agreement that their liability is solidary, the benefit of division cannot be raised by a guarantor against the creditor. T or F.

Answer 170

True. However, he can raise it against the co-guarantor because it is presumed that they have equal shares in the obligation unless there is a different stipulation. If there are 2 debts of 1 debtor which is guaranteed by 2 guarantors, the benefit of division does not apply. Thus, if 1 guarantor secures the 1st debt of the debtor for P3,000 and the 2nd guarantor secures the debt of the debtor beyond first P3,000, and the remaining unpaid loan is only P2,500, the 1st guarantor cannot be joined as a co-defendant on the ground that their liability is joint under Article 2065. There are 2 debts separately guaranteed. Article 2065. Should there be several guarantors of only one debtor and for the same debt, the obligation to answer for the same is divided among all. The creditor cannot claim from the guarantors except the shares which they are respectively bound to pay, unless solidarity has been expressly stipulated. The benefit of division against the co-guarantors ceases in the same cases and for the same reasons as the benefit of excussion against the principal debtor.

Question 171

3 Rights of the Guarantor

Answer 171

1. Indemnity (2066) 2. Subrogation (2067) - This right is inherently necessary to enforce the right of indemnity and it takes place, by operation of law, upon payment. The surety is subrogated to the rights of the Creditor and not to the rights of the debtor. In a case where the debtor and the surety were held liable for a money judgment and the debtor’s asset was sold in an execution sale, the surety has no right directly to take the property of his principal whose debt he has paid or assisted in paying unless he is expressly authorized to do so by law or has pursued the courses necessary under the law to that end. 3. Protection (2071) Generally, the first 2 rights accrue to the guarantor or surety only after payment. However, if there is a stipulation that the guarantor can demand indemnity even before actual payment, the guarantor can legally do so. Thus, in one case, if there is a stipulation that the guarantor can demand payment from the debtor when he becomes bound to pay the creditor, he can demand payment even before actually paying the debtor. The 3rd right (Protection) accrues before payment but is limited to an action for specific performance and not for sum of money.

Question 172

The guarantor who pays for a debtor must be indemnified by the latter. The indemnity comprises:

Answer 172

a. total amount of the debt; b. legal interests thereon from the time the payment was made known to the debtor, even though it did not earn interest for the creditor; c. expenses incurred by the guarantor after having notified the debtor that payment had been demanded of him; d. damages, if they are due 2066

Question 173

The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against the debtor. If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what he hasreally paid.

Answer 173

2067

Question 174

Guarantor's right to compromise with the creditor

Answer 174

If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what he has really paid (Art. 2067) because that is the essence of indemnity. Otherwise, there would be unjust enrichment.

Question 175

If the guarantor should pay without notifying the debtor, the latter may enforce against him all defenses which he could have set up against the creditor at the time the payment was made. T or F.

Answer 175

True. 2068

Question 176

If the debt was for a period and the guarantor paid it before it became due, he cannot demand reimbursement of the debtor until the expiration of the period unless the payment has been ratified by the debtor. T or F.

Answer 176

True. 2069

Question 177

If the guarantor has paid without notifying the debtor and the latter not being aware of the payment, repeats the payment, the former has no remedy whatever against the debtor, but only against the creditor. Nevertheless, in case of a gratuitous guaranty, if the guarantor was prevented by a fortuitous event from advising the debtor of the payment, and the creditor becomes insolvent, the debtor shall reimburse the guarantor for the amount paid.

Answer 177

Ok. 2070

Question 178

It is the duty of the guarantor that before any payment is made, he should notify the debtor to ensure that there is a rightful payment. Otherwise, he will be subject to defenses such as, payment or prescription and other grounds extinguishing the principal obligation. T or F.

Answer 178

True. 2068

Question 179

Prepayment by guarantor

Answer 179

If the guarantor prepays or pays before the maturity of the loan, his right of reimbursement accrues only when the obligation becomes due. (Art. 2069) However, he should still notify the debtor of the prepayment to avoid double payment.

Question 180

Remedy in case of overpayment or double payment

Answer 180

In the event of an overpayment by the guarantor, without notifying the debtor, his remedy is against the creditor on the ground ofsolutio indebiti.

Question 181

The debtor is still liable in case of overpayment if all of the following are present:

Answer 181

1. The guaranty is gratuitous; 2. The guarantor was prevented by a fortuitous event from advising the debtor of the payment; and 3. The creditor becomes insolvent Art. 2070

Question 182

If the debt was for a period and the guarantor paid it before it became due, he cannot demand reimbursement of the debtor until the expiration of the period unless the payment has been ratified by the debtor.

Answer 182

2069

Question 183

The guarantor may proceed against the principal debtor either:

Answer 183

1. to obtain release from the guaranty; or 2. to demand a security that shall protect him from any proceedings by the creditor and from the danger of insolvency of the debtor, in the following cases: a. when he is SUED for the payment; b. in case of INSOLVENCY of the principal debtor; c. when the debtor has bound himself to relieve him from the guaranty within a specified PERIOD, and this period has expired; d. when the debt has become demandable, by reason of the expiration of the PERIOD for payment; e. after the LAPSE OF TEN YEARS, when the principal obligation has no fixed period for its maturity, unless it be of such nature that it cannot be extinguished except within a period longer than ten years; f. If there are reasonable grounds to fear that the principal debtor intends to ABSCOND; g. If the principal debtor is in imminent danger of becoming INSOLVENT The action of the guarantor shall be filed against the debtor and not for sum of money but for specific performance. The case is not against the creditor. The surety can ask the principal debtor for relief but cannot compel the principal creditor to release him from his surety obligation.

Question 184

If one, at the request of another, becomes a guarantor for the debt of a third person who is not present, the guarantor who satisfies the debt may sue either the person so requesting or the debtor for reimbursement.

Answer 184

Oki 2072

Question 185

Benefit of contribution

Answer 185

When a co-guarantor pays the debt to the creditor, he can demand contribution of the proportionate share from his co-guarantors. The co-guarantors enjoy the benefit of division under Article 2065 whereby each only pays his proportionate share. However, in case of insolvency of one of them, the remaining co-guarantor/s must assume the insolvent’s share thereby increasing their risks because the share of the insolvent guarantor shall be borne by the others.(Article 2073). This is the same rule in solidary obligations in the case of sureties. (Article 1217). Thus, if initially a co- guarantor’s share is P40,000 in a P120,000 guaranteed loan and one of them becomes insolvent, the remaining two guarantors now bear the insolvent’s share and thereby increasing their liabilities to P60,000 each. If, prior to insolvency, one of them is released by the creditor without the consent of the others, the remaining co-guarantors are liable at P40,000 each only. If after the said release, one of the remaining co-guarantors becomes insolvent, the remaining co- guarantor is liable for P80,000 because he assumes the share of the insolvent co-guarantor (Article 2073). Art. 2074. In the case of the preceding article, the co-guarantors may set up against the one who paid, the same defenses which would have pertained to the principal debtor against the creditor, and which are not purely personal to the debtor. (1845)

Question 186

A sub-guarantor, in case of the insolvency of the guarantor for whom he bound himself, is responsible to the co-guarantors in the same terms as the guarantor.

Answer 186

Yes 2075

Question 187

Benefit of contribution can only be demanded if:

Answer 187

1. The payment has been made by virtue of a judicial demand; or 2. The principal debtor is insolvent

Question 188

Grounds of extinguishment of obligations which applies to guaranty and suretyship

Answer 188

1. Payment or performance 2. Loss of the thing due 3. Condonation or remission of the debt 4. Confusion or merger of the rights of creditor and debtor 5. Compensation 6. Novation 7. Annulment 8. Rescission 9. Fulfillment of a resolutory condition 10. Prescription 11. Expiration of a resolutory condition 12. Compromise 13. Release (guaranty)?? >> to protect the remaining guarantors in case of insolvency of one of them 14. Extension of time to perform the obligation 15. Unconsented extension in accelerated installments (guaranty) 16. Denial of the right of subrogation

Question 189

Dacion en pago as a mode of extinguishment of guaranty or suretyship

Answer 189

In dacion en pago, property is alienated to the creditor in satisfaction of a debt in money. (Art. 1245, New Civil Code). It "extinguishes the obligation to the extent of the value of the thing delivered, either as agreed upon by the parties or as may be proven, unless the parties by agreement, express or implied, or by their silence, consider the thing as equivalent to the obligation, in which case the obligation is totally extinguished. Article 1245 of the New Civil Code provides that the law on sales shall govern an agreement of dacion en pago. A contract of sale is perfected at the moment there is a meeting of the minds of the parties thereto upon the thing which is the object of the contract and upon the price.

Question 190

If the creditor voluntarily accepts immovable or other property in payment of the debt, even if he should afterwards lose the same through eviction, the guarantor is released. T or F.

Answer 190

True. 2077

Question 191

Dacion en pago extinguishes the guaranty or surety unless stipulated otherwise. T or F.

Answer 191

True. If the creditor voluntarily accepts immovable or other property in payment of the debt, even if he should afterwards lose the same through eviction, the guarantor is released. (Art. 2077). Even if the creditor loses the property later by way of eviction, only the debt is restored. The guaranty is released because it considers his obligation so onerous that it should not be restablished once he has been legitimately freed from the undertaking. The parties including the surety or guarantor however can stipulate otherwise . This not contrary to public policy, because the right is purely personal, and does not affect public interest nor does it violate any public policy. Similarly, if the dacion was authorized by the guarantor or the surety and it is clear that it is only a partial payment, this benefits the guarantor or the surety up to the extent of the partial payment but does not extinguish the whole obligation. Therefore, the guarantor is still liable for the balance if the debtor fails to pay. The law does not prohibit the creditor and the principal debtor from stipulating that a dacion en pago shall not release the guaranty or surety without notice to the guarantor to ensure payment of the obligation. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation." It is therefore submitted that the guaranty or suretyship agreement shall contain this stipulation to provide the creditor leeway in accepting payments by way of dacion en pago.

Question 192

Release as a mode of extinguishment of guaranty

Answer 192

The co-guarantors enjoy the benefit of division under Article 2065 whereby each only pays his proportionate share. However, in case of insolvency of one of them, the remaining co-guarantor/s must assume the insolvent’s share thereby increasing their risks. (Article 2073). This is the same rule in solidary obligations in the case of sureties. (Article 1217). Thus, if initially a co-guarantor’s share is P40,000 in a P120,000 guaranteed loan and one of them becomes insolvent, the remaining two guarantors now bear the insolvent’s share and thereby increasing their liabilities to P60,000 each. If, prior to insolvency, one of them is released by the creditor without the consent of the others, the remaining co-guarantors are liable at P40,000 each only. If after the release, one of the remaining co-guarantors becomes insolvent, the remaining co-guarantor is liable for P80,000 because he assumes the share of the insolvent co-guarantor (Article 2073).

Question 193

RELEASE G1, G2 and G3 are guarantors of C for P120,000. C, the creditor releases G1 without the consent of G2 and G3. The release should benefit G2 and G3 up to P40,000. Therefore, they are liable for P40,000 each. However, if C , the creditor releases G1 with the consent of G2 and G3, their liability as guarantors remain at P120,000 or at P60,000 each. If G3 becomes insolvent, GI and G2 are liable for P60,000 each because they assume the insolvent’s share. If G3 was released by the Creditor without the consent of G1 and G2, G1 and G2 are liable for P40,000 each because they assume G3’s share under Article 2073. If later, G2 becomes insolvent, G1 becomes liable for P80,000.

Answer 193

Oki

Question 194

Stipulation consenting the release

Answer 194

The law does not prohibit the parties from stipulating to the release of any security without notice to the guarantor to assure payment of the obligation. The waiver is not contrary to public policy, because the right is purely personal, and does not affect public interest nor does it violate any public policy. To protect the creditor in a loan transaction, this stipulation should be in the guaranty or surety agreement.

Question 195

Extension of time to perform the obligation as a mode of extinguishing guaranty or suretyship

Answer 195

REASON FOR THE LAW - To avoid prejudice to the guarantor. If payment is delayed due to the extension of time to pay granted by the creditor to the debtor, it is possible that during the extended period the debtor may become insolvent. This will deprive the guarantor of the opportunity to obtain a reimbursement. Besides, an extension constitutes a material alteration without the consent of the guarantor which is a ground for extinguishment due to a novation. EXTENSION MUST BE BASED ON NEW AGREEMENT – This agreement must be such that would deprive the creditor of his right to sue to enforce his original claim.

Question 196

An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty. T or F.

Answer 196

True. The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension of time referred to herein. 2079 The raison d’être for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor. However, if the contract requires that the creditor exercise diligence in prosecuting his claim, his neglect can discharge the guaranty.

Question 197

If installments are accelerated, unconsented extension extinguishes guaranty. T or F.

Answer 197

True. The act of creditor in extending the payment of said installment without G’s consent discharges G because the extension constitutes an extension of the whole amount of indebtedness.

Question 198

The indemnitors of a surety are second tier parties so far as the creditor is concerned. T or F.

Answer 198

True. They bound themselves solidarily to (not with) the surety and no the creditor. Extension granted by the creditor to first tier parties (surety) cannot prejudice the second tier parties.

Question 199

Denial of the right of subrogation as a ground to extinguish guaranty or suretyship

Answer 199

The rights, mortgages and preferences of the creditor referred to by this article, are only those existing before the contract of guaranty. It is presumed that the guarantor agreed to be bound because of them. Hence, if by some act of the creditor, the guarantor cannot enjoy them, as when the creditor cancels a mortgage or returns the thing pledged before the debt is paid, the guarantor is released from responsibility. The loss of rights or liens which were acquired by the creditor subsequent to the contract of guaranty, does not release the guaranty.

Question 200

The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor they cannot be subrogated to the rights, mortgages, and preference of the latter. T or F.

Answer 200

True. 2080

Question 201

The guarantor may set up against the creditor all the defenses which pertain to the principal debtor and are inherent in the debt; but not those that are purely personal to the debtor. T or F.

Answer 201

True. 2081

Question 202

A guarantor may be placed in a more onerous position. T or F.

Answer 202

False. Guarantor should not be placed in a more onerous position. A guarantor proceeded against by the creditor takes the place of the debtor because a guarantor is only subsidiarily liable and should not be put in a worse position than the debtor, the one primarily liable.

Question 203

Defenses available to the guarantor

Answer 203

1. Defenses inherent in the debt - prescription - res adjudicate - payment - illegality of the cause - nullity of loan made to a minor 2. Defenses of the guarantor himself - vitiated consent on his part - compensation between the debtor and the creditor - remission of the principal obligation or of the guaranty - merger of the person of the debtor and creditor

Question 204

A guarantor's or surety's defense is not available to a solidary debtor. T or F.

Answer 204

True. A solidary debtor cannot use the defense of his co-debtor such as minority or vitiated consent because he is a co-maker and these defenses did not occur to him.

Question 205

Material alteration of principal contract sans consent of guarantor releases the guaranty. T or F.

Answer 205

True. Any agreement between Debtor and the Creditor which essentially varies the terms of the contract without G’s consent will release the guarantor.

Question 206

Material Alteration Requisite

Answer 206

Change must be substance not in form The change must impose new obligation or add more burden or take away obligations already imposed which changes the legal effect of the original contract, not only the form. Thus: 1. Credit of P40M was increased to P70,000. O 2. If it is decreased to P30M, there is none. X 3. When the principal debtor is substituted. O 4. G’s liability was only P10M. C increased the loan from P40M to P50M without G’s consent. O (even if his liability is only up to P10M because the “increase in the amount of the debt proportionately decreased the probability of the principal debtor being able to liquidate the debt, thus increasing the risk undertaken by G to answer for the failure of B to pay.) 5. Increase in interest rate, no novation if interest is not demanded. Increase in interest rate without the guarantors consent does not release the guarantor where the creditor is demanding only the original and not the increased rate. 6. Assignment by the creditor without the consent of the guarantor is not material. 7. Change in the technical specifications of the items purchased (diameter of steel bars) but their amount, length and quality remained unchanged, and, the period of payment and amount of liability of the debtor and G were unchanged, is immaterial. 8. C attached D’s assets. S posted a P2,000 bond to release the attached asset. The condition of S bond is: If C wins, S will return the released asset and if he fails, to pay the value. C & D agreed, without S’s consent, that D return the asset to C and sold in auction. C was highest bidder. C sued S for P2,000. ---- S is released. Material alteration compliance by S is impossible by C’s own act.

Question 207

The bondsman who is to be offered in virtue of a provision of law or of a judicial order shall have the qualifications prescribed in article 2056 and in special laws.

Answer 207

Ok. Article 2056. One who is obliged to furnish a guarantor shall present a person who possesses integrity, capacity to bind himself, and sufficient property to answer for the obligation which he guarantees. The guarantor shall be subject to the jurisdiction of the court of the place where this obligation is to be complied with.

Question 208

If the person bound to give a bond in the cases of the preceding article, should not be able to do so, a pledge or mortgage considered sufficient to cover his obligation shall be admitted in lieu thereof.

Answer 208

Oki. 2083

Question 209

A judicial bondsman cannot demand the exhaustion of the property of the principal debtor. T or F.

Answer 209

True. A sub-surety in the same case, cannot demand the exhaustion of the property of the debtor or of the surety. 2084

Question 210

One who is obliged to furnish a guarantor shall present a person who possesses integrity, capacity to bind himself, and sufficient property to answer for the obligation which he guarantees. The guarantor shall be subject to the jurisdiction of the court of the place where this obligation is to be complied with.

Answer 210

Oki. 2056

Question 211

2 kinds of bond

Answer 211

A. Legal Bonds They are bonds that are submitted “in virtue of a provision of law.” (Art. 2082). Example: 1. “License and Permit Bonds” issued by Local governments which are bonds imposed by law to guarantee that the persons concerned will comply with the provisions of the license or permit issued to him; 2. “Deployment bonds” which require Corporations that deploy workers abroad to post a bond with the Philippine Overseas Employment Administration; 3. Similarly, the Corporation Code requires the filing of a bond if a foreign corporation will secure a license to do business in the Philippines; and 4. Legal Bonds likewise include Customs and Internal Revenue Bonds. B. Judicial Bonds. They are bonds that are issued in virtue of judicial orders and/or pursuant to the Rules of Court. (Art. 2082). Examples are: (1) Replevin Bond; (2) Injunction Bond; (3) Attachment Bond; (4) Counter-Bond to lift the Attachment; 5. Indemnity Bond in Third Party Claims(5) Supersedeas Bond in ejectment cases; (6) Administrator’s Bond; or (7) Bail bond in criminal cases. The rules on the issuance of the Certificates of Accreditation and Authority for corporate surety bonds are embodied in Circular No. 04-970-SC entitled Guidelines on Corporate Surety Bond issued by the Supreme Court on August 6, 2004.

Question 212

In the subject of judicial deposit or those constituted by judicial order such as assets seized and placed in custodia legis by virtue of the provisional remedies of replevin, attachment, injunction or receivership, the court requires the posting of a bond to answer for the potential damages that may be incurred by the defendant as a result of the issuance and seizure of his assets before a judgment is rendered. Normally, these bonds are issued by insurance companies which are licensed by the Insurance Commission to engage in the surety business. Instead of posting a cash bond, Litigants opt to obtain these bonds and pay a minimal premium because this is more practical than posting a cash bond. Being a surety, these insurance companies do not have the benefit of excussion because this benefit is available only to guarantors: - Article 2059. The excussion shall not take place: xxx (2) If he has bound himself solidarily with the debtor; - Article 2084. A judicial bondsman cannot demand the exhaustion of the property of the principal debtor. A sub-surety in the same case, cannot demand the exhaustion of the property of the debtor or of the surety.

Answer 212

:)

Question 213

Classification of the Insurance Commission

Answer 213

In the Rules and Regulations Governing the Issuance of Bonds in the Philippines issued by the Insurance Commission, bonds are classified into: (1) Judicial Civil Bonds; (2) Judicial Criminal Bonds; (3) Firearms Bonds; (4) Internal Revenue Bonds; (5) Customs Bonds; (6) Guaranty Bonds; (7) Fidelity Bonds; (8) Promissory Notes; and (9) Immigration Bonds.

Question 214

Where should proceedings against a surety bond be filed?

Answer 214

Proceedings against a surety bond shall be filed in the court where the bond was filed

Question 215

Deposit

Answer 215

A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Question 216

An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing. T or F.

Answer 216

True. 1963

Question 217

A deposit may be constituted judicially or extrajudicially. T or F.

Answer 217

True. 1964

Question 218

A deposit is a gratuitous contract, except when there is an agreement to the contrary, or unless the depositary is engaged in the business of storing goods. T or F.

Answer 218

True. 1965

Question 219

Only movable things may be the object of a deposit. T or F.

Answer 219

True. 1966

Question 220

2 kinds of extrajudicial deposit

Answer 220

1. Voluntary - A voluntary deposit is that wherein the delivery is made by the will of the depositor. A deposit may also be made by two or more persons each of whom believes himself entitled to the thing deposited with a third person, who shall deliver it in a proper case to the one to whom it belongs. 2. Necessary

Question 221

A contract of deposit may be entered into orally or in writing. T or F.

Answer 221

True. 1969

Question 222

If a person having capacity to contract accepts a deposit made by one who is incapacitated, the former shall be subject to all the obligations of a depositary, and may be compelled to return the thing by the guardian, or administrator, of the person who made the deposit, or by the latter himself if he should acquire capacity.

Answer 222

Yas 1970

Question 223

If the deposit has been made by a capacitated person with another who is not, the depositor shall only have an action to recover the thing deposited while it is still in the possession of the depositary, or to compel the latter to pay him the amount by which he may have enriched or benefited himself with the thing or its price. However, if a third person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery.

Answer 223

Oooh 1971

Question 224

Obligations of the Depositary

Answer 224

1. to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person who may have been designated in the contract (1972) 2. the depositary cannot deposit the thing with a third person unless there is a stipulation to the contrary (1973) 3. to notify the depositor of any changes and wait for his decision unless delay would cause danger (1974) 4. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law (1975) >> shall not apply to contracts for the rent of safety deposit boxes 5. to be liable for the loss of the thing through a fortuitous event: a) If it is so stipulated; b) If he uses the thing without the depositor's permission; c) If he delays its return; d) If he allows others to use it, even though he himself may have been authorized to use the same.

Question 225

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

Answer 225

Oki. Otherwise, he shall be liable for damages. However, when the preservation of the thing deposited requires its use, it must be used but only for that purpose. 1976

Question 226

hen the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum.

Answer 226

General rule. XPN: where safekeeping is still the principal purpose of the contract The permission shall not be presumed, and its existence must be proved.

Question 227

When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages should the seal or lock be broken through his fault. Fault on the part of the depositary is presumed, unless there is proof to the contrary. As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility of the depositor with respect to the value claimed by him. When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit.

Answer 227

Oksss 1981

Question 228

When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him; or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle.

Answer 228

Yas 1982

Question 229

The thing deposited shall be returned with all its products, accessories and accessions.

Answer 229

1983 Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary.

Question 230

The depositary can demand that the depositor to prove his ownership of the thing deposited. T or F.

Answer 230

False. The depositary cannot demand that the depositor prove his ownership of the thing deposited. Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit. If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor. If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same. 1984

Question 231

If at the time the deposit was made a place was designated for the return of the thing, the depositary must take the thing deposited to such place; but the expenses for transportation shall be borne by the

Answer 231

depositor If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not be the same place where the deposit was made, provided that there was no malice on the part of the depositary. 1987

Question 232

Obligations of the Depositor

Answer 232

1. to reimburse the depositary for the expenses he may have incurred for the preservation of the thing deposited (if gratuitous) (1992) 2. to reimburse the depositary for any loss arising from the character of the thing deposited, unless at the time of the constitution of the deposit the former was not aware of, or was not expected to know the dangerous character of the thing, or unless he notified the depositary of the same, or the latter was aware of it without advice from the depositor (1993)

Question 233

The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. T or F.

Answer 233

True. 1994

Question 234

Extinguishment of deposit

Answer 234

1. Upon the loss or destruction of the thing deposited; 2. In case of a gratuitous deposit, upon the death of either the depositor or the depositary 1995

Question 235

A deposit is necessary:

Answer 235

1. When it is made in compliance with a legal obligation; 2. When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events 1996 The deposit of effects made by travellers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. (1998)

Question 236

The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things brought into the hotel. T or F.

Answer 236

True. 2002

Question 237

The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void.

Answer 237

Yup. 2003

Question 238

The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of lodging, and supplies usually furnished to hotel guests.

Answer 238

Oki. 2004

Question 239

Judicial deposit or sequestration

Answer 239

takes place when an attachment or seizure of property in litigation is ordered

Question 240

Movable as well as immovable property may be the object of sequestration. T or F.

Answer 240

True. 2006