San Beda College of Law
182
MEMORY AID IN CIVIL LAW
CREDIT TRANSACTIONS
CREDIT TRANSACTIONS
 All
transactions
involving
the
purchase or loan of goods, services,
or money in the present with a
promise to pay or deliver in the
future
Contracts of security
Types:
1. Secured transactions or contracts of
real security - supported by a
collateral or an encumbrance of
property
2. Unsecured transactions or contracts
of personal security - supported only
by
a
promise
or
personal
commitment of another such as a
guarantor or surety
Security
 Something given, deposited, or
serving as a means to ensure
fulfilment or enforcement of an
obligation or of protecting some
interest in property
 Types of Security
a. personal – when an individual
becomes surety or guarantor
b. real or property – 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
Bailment
 The delivery of property of one
person to another in trust for a
specific purpose, with a contract,
express or implied, that the trust
shall be faithfully executed and the
property returned or duly accounted
for when the special purpose is
accomplished or kept until the bailor
claims it.
 Parties:
1. bailor - the giver; one who delivers
property
2. bailee- the recipient; one who
receives the custody or possession of
the thing thus delivered
CIVIL LAW COMMITTEE
LOAN (Articles 1933 – 1961)

A contract wherein 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 or money
or other consumable thing, upon the
condition that the same amount of
the same kind and quality shall be
paid. (Art 1933)
Characteristics:
1. Real Contract – delivery of the thing
loaned is necessary for the
perfection of the contract
NOTE: An accepted promise to make
a future loan is a consensual
contract, and therefore binding upon
the parties but it is only after
delivery, will the real contract of
loan arise. (Art 1934)
2. Unilateral Contract - once the
subject matter has been delivered,
it creates obligations on the part of
only one of the parties (i.e.
borrower).
 Kinds:
1. Commodatum – when the bailor
(lender) delivers to the bailee
(borrower) a non-consumable thing
so that the latter may use it for a
certain time and return the identical
thing.
 Kinds of commodatum:
a. Ordinary Commodatum – use by
the borrower of the thing is for a
certain period of time
b. Precarium - one whereby the
bailor may demand the thing
loaned at will and it exists in the
following cases:
i. neither the duration nor
purpose of the contract is
stipulated
ii. the use of the thing is
merely tolerated by the
owner
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
183
MEMORY AID IN CIVIL LAW
2. Simple loan or mutuum – where the
lender delivers to the borrower
money or other consumable thing
upon the condition that the latter
shall pay the same amount of the
same kind and quality.
Commodatum
Mutuum
Key: COPS-LOTR
1. Object
Consumable
2. Cause
Gratuitous
May or may not be
gratuitous
3. Purpose
Use or temporary Consumption
possession
4. Subject Matter
Real or personal Only
personal
property
property
5. Ownership of the thing
Retained
by
the Passes to the debtor
bailor
6. Thing to be returned
Exact thing loaned
Equal amount of the
same
kind
and
quality
7. Who bears risk of loss
Bailor
Debtor
8. When to return
after
the
In case of urgent Only
need, even before expiration of the
the expiration of the term
term
Non-consumable
Loan
Credit
Delivery by one party
and the receipt of
other party of a
given sum of money
or other consumable
thing
upon
an
agreement, express
or implied, to repay
the same.
Ability of a person to
borrow money or
things by virtue of
the
trust
or
confidence reposed
by the lender that he
will pay what he
promised.
Loan
Credit
1. Interest taken at
the expiration of the
credit
2. Always on a
double name paper
(two
signatures
appear with both
parties held liable
for payment)
Interest is taken in
advance
Always on a single
name paper (i.e.
promissory note with
no
indorse-ment
other
than
the
maker)
COMMODATUM (Articles 1935 – 1952)
 Nature:
1. PURPOSE: Bailee in commodatum
acquires the temporary use of the
thing but not its fruits (unless
stipulated as an incidental part of
the contract).(Art 1935)
 Use
must
be
temporary,
otherwise the contract may be a
deposit.
2. CAUSE: Essentially gratuitous; it
ceases to be a commodatum if any
compensation is to be paid by the
borrower who acquires the use, in
such case there arises a lease
contract.
 Similar to a donation in that it
confers a benefit to the
recipient. The presumption is
that the bailor has loaned the
thing for having no need
therefor.
3. SUBJECT MATTER: Generally nonconsumable whether real or personal
but if the consumable goods are not
for consumption as when they are
merely for exhibition, consumable
goods may be the subject of the
commodatum. (Art 1936)
4. Bailor need not be the owner of the
thing owned (Art. 1938) since by the
loan, ownership does not pass to the
borrower.
 A mere lessee or usufructuary
may lend but the borrower or
bailee himself may not lend nor
lease the thing loaned to him to
a third person (Art 1932[2])
5. Purely Personal (Art 1939):
 Death of either party terminates
the
contract
unless
by
stipulation, the commodatum is
transmitted to the heirs of either
or both parties.
 Bailee can neither lend nor lease
the object of the contract to a
third person.
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
184
MEMORY AID IN CIVIL LAW
NOTE:Use of the thing loaned
may extend to members of the
bailee’s household except:
a.
contrary stipulation;
b.
nature of the thing
forbids such use
Obligations of the Bailee: (Arts 1941 –
1945)
1. To pay for the ordinary expenses for
the use and preservation of the thing
loaned. (Art 1941)
2. To be liable for the loss of the thing
even if it should be through
a
fortuitous event in the following
cases: (KLAS D)
a. when he keeps it longer than the
period stipulated, or after the
accomplishment of its use
b. when he lends or leases it to
third persons who are not
members of his household
c. when the thing loaned has been
delivered with appraisal of its
value
d. when, being able to save either
of the thing borrowed or his own
things, he chose to save the
latter; or
e. when the bailee devoted the
thing for any purpose different
from that for which it has been
loaned (Art 1942)
3. To be liable for the deterioration of
thing loaned (a) if expressly
stipulated; (b) if guilty of fault or
negligence; or (c) if he devotes the
thing to any purpose different from
that for which it has been loaned
4. To pay for extraordinary expenses
arising from the actual use of the
thing by the bailee, which shall be
borne equally by both the bailor and
the bailee, even though the bailee
acted without fault, unless there is a
stipulation to the contrary (Art 1949
par 2)
5. To return the thing loaned
 The bailee has no right to retain
the thing loaned as security for
claims he has against the bailor
even for extraordinary expenses
except for a claim for damages
suffered because of the flaws of
the thing loaned.
NOTES:
 However, the bailee’s right
extends no further than
retention of the thing loaned
until he is reimbursed for the
damages suffered by him.
 He cannot lawfully sell the
thing to satisfy such damages
without court’s approval.
 In case there are two or
more
bailees,
their
obligation shall be solidary.
Obligations of the bailor (Art 1946 – Art
1952):
1. To respect the duration of the loan
 GENERAL RULE: Allow the bailee
the use of the thing loaned for the
duration of the period stipulated or
until the accomplishment of the
purpose for which the commodatum
was instituted.
 EXCEPTIONS:
a.
In case of urgent need in
which case bailee may demand
its return or temporary use;
b.
The bailor may demand
immediate return of the thing if
the bailee commits any act of
ingratitude specified in Art. 765.
2. To
refund
to
the
bailee
extraordinary expenses for the
preservation of the thing loaned,
provided the bailee brings the same
to the knowledge of the bailor
before incurring them, except when
they are so urgent that the reply to
the notification cannot be awaited
without danger.
3. To be liable to the bailee for
damages for known hidden flaws.
 Requisites:
a. There is flaw or defect in the
thing loaned;
b. The flaw or defect is hidden;
c. The bailor is aware thereof;
d. He does not advise the bailee of
the same; and
e. The bailee suffers damages by
reason of said flaw or defect
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
185
MEMORY AID IN CIVIL LAW
NOTES:
 If the above requisites concur,
the bailee has the right of
retention for damages.
 The
bailor cannot exempt
himself from the payment of
expenses
or
damages
by
abandoning the thing to the
bailee.
3. Relationship
between the parties
is that of obligorobligee
Relationship is that
of a landlord and
tenant
4. Creditor receives
payment for his loan
Owner of the
property rented
receives
compensation or
price either in
money, provisions,
chattels, or labor
SIMPLE LOAN OR MUTUUM (Art 1953 –
1961)
 A contract whereby one party
delivers to another, money or other
consumable
thing
with
the
understanding that the same amount
of the same kind and quality shall be
paid. (Art. 1953)
NOTES:
 The mere issuance of the checks
does not result in the perfection of
the contract of loan. The Civil Code
provides that the delivery of bills of
exchange
and
mercantile
documents, such as checks, shall
produce the effect of payment only
when they have been encashed
(Gerales vs. CA 218 SCRA 638). It is
only after the checks have produced
the effect of payment that the
contract of loan may be deemed
perfected.
 The obligation is “to pay” and not to
return because the consumption of
the thing loaned is the distinguishing
character of the contract of mutuum
from that of commodatum.
 No estafa is committed by a person
who refuses to pay his debt or denies
its existence.
Simple Loan/Mutuum
Rent
1. Delivery of money
or some consumable
thing with a promise
to pay an equivalent
of the same kind and
quality
Delivery of some nonconsumable thing in
order that the other
may use it during a
certain period and
return it to the
former.
2. There is a transfer
of ownership of the
thing delivered
There is no transfer
of ownership of the
thing delivered
from the occupant
thereof in return for
its use (Tolentino vs
Gonzales, 50 Phil 558
1927)
Loan
1.
Real contract
2. Generally
unilateral because
only borrower has
obligations
Sale
Consensual contract
Bilateral
reciprocal
and
NOTE: If the property is “sold”, but the
real intent is only to give the object as
security for a debt – as when the “price”
is comparatively small – there really is a
contract of loan with an “equitable
mortgage.”
Commodatum/
Mutuum
Barter
1. Subject matter is
money or fungible
things
Subject matter is
non-fungible, (non
consumable) things
2. In commodatum,
the bailee is bound
to return the
identical thing
borrowed when the
time has expired or
purpose served
The thing with
equivalent value is
given in return for
what has been
received
3. Mutuum may be
gratuitous and
commodatum is
always gratuitous
Onerous, actually a
mutual sale
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
186
MEMORY AID IN CIVIL LAW
 Form of Payment (Art 1955):
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
and
in
case
of
extraordinary inflation or deflation,
the basisi of payment shall be the
value of the currency at the time of
the creation of the obligation
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.
Interest
 The compensation allowed by law or
fixed by the parties for the loan or
forbearance of money, goods or
credits
 Requisites for Demandability: (ELI)
1. must be expressly stipulated
Exceptions:
a. indemnity for damages
b. interest
accruing
from
unpaid interest
2. must be lawful
3. must be in writing
Compound Interest
 GENERAL RULE: Unpaid interest shall
not earn interest.
 EXCEPTIONS:
1. when judicially demanded
2. when there is an express
stipulation (must be in writing in
view of Art. 1956)
Guidelines for the application of
proper interest rates
1. If there is stipulation: that rate shall
be applied
2. The following are the rules of thumb
for the application/imposition of
interest rates:
a) When an obligation, regardless
of its source, i.e., law,
contracts,
quasi-contracts,
delicts
or
quasi-delicts
is
breached, the contravenor can
be held liable for damages.
b) With regard particularly to an
award of interest in the concept
of actual and compensatory
damages, the rate of interest, as
well as the accrual thereof, is
imposed, as follows:
i. When
the
obligation
breached
consists
of
payment of a sum of money
(loan or forbearance of
money), the interest shall be
that which is stipulated or
agreed upon by the parties.
In absence of an agreement,
the rate shall be the legal
rate (i.e. 12% per annum)
computed from default.
NOTE: The interest due shall
itself earn legal interest
from the time it is judicially
demanded
ii. In other cases, the rate of
interest shall be six percent
(6%) per annum.
NOTE: No interest, however,
shall
be
adjudged
on
unliquidated
claims
or
damages except when or
until the demand can be
established with reasonable
certainty. When the demand
cannot be established, the
interest shall begin to run
only from the date of the
judgment of the court is
made.
iii. When the judgment of the
court awarding a sum of
money becomes final and
executory, the rate of legal
interest, whether the case
falls under paragraph i or ii
above, shall be 12% per
annum from such finality
until its satisfaction, this
interim period being deemed
to be by then an equivalent
to a forbearance of credit.
(Eastern Shipping Lines vs.
CA, July 12, 1994)
NOTES:
 Central Bank Circular No. 416 fixing
the rate of interest at 12% per
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
187
MEMORY AID IN CIVIL LAW
annum deals with loans, forbearance
of any money, goods or credits and
judgments involving such loans, or
forbearance in the absence of
express agreement to such rate
 Interest as indemnity for damages is
payable only in case of default or
non-performance of the contract. As
they are distinct claims, they may be
demanded
separately.
(Sentinel
Insurance Co., Inc. vs CA, 182 SCRA
517)
1. Real Contract - contract is
perfected by the delivery of the
subject matter.
2. Unilateral (gratutitous deposit) only the depositary has an
obligation.
3. Bilateral (onerous deposit) gives rise to obligations on the
part of both the depositary and
depositor.
 Central Bank Circular No. 905 (Dec.
1. Purpose
Principal purpose is
Principal purpose is
consumption
safekeeping or
custody
2. When to Return
The lender must wait
Depositor can
demand the return of until the expiration
the subject matter at of the period granted
to the debtor
will
3. Subject Matter
Subject matter is
Subject matter may
only money or other
be movable or
fungible thing
immovable property
4. Relationship
Relationship is that
Relationship is that
of depositor and
of lender (creditor)
depositary.
and borrower
(debtor).
10, 1982) removed the Usury Law
ceiling on interest rates for secured
and unsecured loans, regardless of
maturity.
Validity of unconscionable interest rate
in a loan
Supreme Court in Sps. Solangon
vs. Jose Salazar, G.R. No. 125944, June
29, 2001, said that since the usury law
had been repealed by CB Cir. No. 905
there is no more maximum rate of
interest and the rate will just depend on
the mutual agreement of the parties
(citing Lim Law vs. Olympic Sawmill Co.,
129 SCRA 439). But the Supreme Court
said that nothing in said circular grants
lenders carta blanche authority to raise
interest rates to level which will either
enslave their borrowers or lead to a
hemorrhaging of their assets (citing
Almeda vs. CA, 256 SCRS 292 ). In Medel
vs. CA, 299 SCRA 481, it was ruled that
while stipulated interest of 5.5% per
month on a loan is usurious pursuant to
CB Circular No. 905, the same must be
equitably reduced for being iniquitous,
unconscionable and exorbitant. It is
contrary to morals, (contra bonos
mores). It was reduced to 12% per
annum in consonant with justice and fair
play.
DEPOSIT (Articles 1962 – 2009)

A contract constituted from the
moment a person receives a thing
belonging to another, with the
obligation of safely keeping it and of
returning the same.
Characteristics:
Deposit
Mutuum
5. Compensation
NO compensation of
There can be
things deposited with
compensation of
each other (except
credits.
by mutual
agreement).
Deposit
Commodatum
1. Purpose is
Safekeeping
1. Purpose is the
transfer of the use
2. May be gratuitous
2. Essentially and
always gratuitous
3. Movable/corporeal
things only in case of
extrajudicial deposit
3. Both movable and
immovable may be
the object
 Kinds of Deposit:
1. Judicial (Sequestration) –takes place
when an attachment or seizure of
property in litigation is ordered.
2. Extra-judicial
a. Voluntary – one wherein the
delivery is made by the will of
the depositor or by two or more
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
188
MEMORY AID IN CIVIL LAW
persons each of whom believes
himself entitled to the thing
deposited. (Arts 1968 – 1995)
b. Necessary – one made in
compliance
with
a
legal
obligation, or on the occasion of
any calamity, or by travellers in
hotels and inns (Arts 1996 2004), or by travellers with
common carriers (Art 1734 –
1735).
NOTE:
The
chief
difference
between a voluntary deposit and a
necessary deposit is that in the
former, the depositor has a
complete freedom in choosing the
depositary, whereas in the latter,
there is lack of free choice in the
depositor.
Judicial
Extra-judicial
1. Creation
Will of the court
Will of the parties
or contract
2. Purpose
Security or to insure
Custody and
the right of a party
safekeeping
to property or to
recover in case of
favorable judgment
3. Subject Matter
Movables only
Movables or
immovables,
but generally
immovables
Always onerous
4. Cause
May be compensated or not, but
generally gratuitous
5. When must the thing be returned
Upon demand of
Upon order of the
depositor
court or when
litigation is ended
6. In whose behalf it is held
Person who has a
Depositor or third
right
person designated
 GENERAL RULE: Contract of deposit is
gratuitous (Art 1965)
 EXCEPTIONS:
1. when
there
is
contrary
stipulation
2. depositary is engaged in business
of storing goods
3. property saved from destruction
without knowledge of the owner
NOTES:
 Article 1966 does not embrace
incorporeal property, such as rights
and actions, for it follows the person
of the owner, wherever he goes.
 A contract for the rent of safety
deposit boxes is not an ordinary
contract of lease of things but a
special kind of deposit; hence, it is
not to be strictly governed by the
provisions on deposit. The relation
between a bank and its customer is
that of a bailor and bailee. (CA Agro
vs CA, 219 SCRA 426)
Obligations of the Depositary (Art 1972
–1991):
1. To keep the thing safely (Art 1972)
 Exercise
over
the
thing
deposited the same diligence as
he would exercise over his
property
2. To return the thing (Art 1972)
 Person to whom the thing must
be returned:
a.
Depositor, to his heirs and
successors, or the person who
may have been designated in the
contract
b. If the depositary is capacitated he is subject to all the
obligations of a depositary
whether or not the depositor is
capacitated. If the depositor is
incapacitated, the depositary
must return the property to the
legal representative of the
incapacitated or to the depositor
himself if he should acquire
capacity (Art 1970).
c. If the depositor is capacitated
and
the
depositary
is
incapacitated - the latter does
not incur the obligation of a
depositary but he is liable:
i..to
return
the
thing
deposited while still in his
possession;
ii.to pay the depositor the
amount which he may have
benefited himself with the
thing or its price subject to
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
189
MEMORY AID IN CIVIL LAW
the right of any third person
who acquired the thing in
good faith (Art 1971)

Time of return:
a. Upon demand even though a
specified period or time for such
return may have been fixed
except when the thing is
judicially attached while in the
depositary’s possession or should
he have been notified of the
opposition of a third person to
the return or the removal of the
thing deposited. (Art 1998)
b. If deposit gratuitous, the
depositary may return the thing
deposited notwithstanding that a
period has been fixed for the
deposit if justifiable reasons
exists for its return.
c.
If the deposit is for a
valuable
consideration,
the
depositary has no right to return
the thing deposited before the
expiration
of
the
time
designated even if he should
suffer
inconvenience as
a
consequence.(Art 1989)
 What
to return: product,
accessories, and accessions of
the thing deposited (Art 1983)
3. Not to deposit the thing with a third
person unless authorized by express
stipulation (Art 1973)
 The depositor is liable for the
loss of the thing deposited under
Article 1973 if:
a.
he
transfers the deposit with a third
person
without
authority
although there is no negligence
on his part and the third person;
b.
he
deposits the thing with a third
person who is manifestly careless
or unfit although authorized
even
in the absence of
negligence; or
c.
the thing
is lost through the negligence of
his employees whether the latter
are manifestly careless or not.
4. If the thing deposited should earn
interest (Art 1975):
a. to collect interest and the
capital itself as it fall due
b. to take steps to preserve its
value and rights corresponding to
it
5. Not to commingle things deposited if
so stipulated (Art 1976)
6. Not to make use of the thing
deposited unless authorized (Art
1977)
 GENERAL RULE: Deposit is for
safekeeping of the subject matter
and not for use. The unauthorized
use by the depositary would make
him liable for damages.
 EXCEPTIONS:
1. When the preservation of the
thing deposited requires its use
2. When
authorized
by
the
depositor
NOTE: The permission to use is NOT
presumed except when such use is
necessary for the preservation of the
thing deposited.
Effect if permission to use is given
(Art 1978):
1.
If thing deposited is
non-consumable, the contract
loses the character of a deposit
and
acquires
that
of
a
commodatum despite the fact
that the parties may have
denominated it as a deposit,
unless safekeeping is still the
principal purpose.
2. If thing deposited consists of
money/consumable things, the
contract is converted into a
simple loan or mutuum unless
safekeeping is still the principal
purpose in which case it is called
an irregular deposit. Example:
bank deposits are irregular
deposits in nature but governed
by law on loans.
7. When the thing deposited is
delivered sealed and closed :
a. to return the thing deposited in
the same condition
b. to pay for damages should the
seal or lock be broken through
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
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MEMORY AID IN CIVIL LAW
his fault, which is presumed
unless proved otherwise
c. to keep the secret of the deposit
when the seal or lock is broken
with or without his fault (Art
1981)
NOTE:
The
depositary
is
authorized to open the thing
deposited which is closed and
sealed when (Art 1982):
i. there is presumed authority
(i.e. when the key has been
delivered to him or the
instructions of the depositor
cannot be done without
opening it)
ii. necessity
8. To change the way of the deposit if
under the
circumstances, the
depositary may reasonably presume
that the depositor would consent to
the change if he knew of the facts of
the situation, provided, that the
former notifies the depositor thereof
and wait for his decision, unless
delay would cause danger
9. To pay interest on sums converted to
personal use if the deposit consists
of money (Art 1983)
10. To be liable for loss through
fortuitous event (SUDA): (Art 1979):
a. if 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
NOTES:
 Fixed, savings, and current deposits
of money in banks and similar
institutions shall be governed by the
provisions concerning simple loan.
(Art 1980)
 The general rule is that a bank can
compensate or set off the deposit in
its hands for the payment of any
indebtedness to it on the part of the
depositor.
In true deposit,
compensation is not allowed.
Irregular deposit
Mutuum
1. The consumable
thing deposited may
be demanded at will
by the depositor
1. Lender is bound
by the provisions of
the contract and
cannot demand
restitution until the
time for payment, as
provided in the
contract, has arisen
2. The only benefit is
that which accrues
to the depositor
2. Essential cause for
the transaction is the
necessity of the
borrower
3. The irregular
depositor has a
preference over
other creditors with
respect to the thing
deposited
3. Common creditors
enjoy no preference
in the distribution of
the debtor’s
property
Rule when there are two or more
depositors (Art 1985):
1. If thing deposited is divisible and
depositors are not solidary: Each
depositor can demand only his
proportionate share thereto.
2. If obligation is solidary or if thing is
not divisible: Rules on active
solidarity shall apply, i.e. each one
of the solidary depositors may do
whatever may be useful to the
others but not anything which may
be prejudicial to the latter, (Art.
1212) and the depositary may return
the thing to anyone of the solidary
depositors unless a demand, judicial
or extrajudicial, for its return has
been made by one of them in which
case, delivery should be made to him
(Art. 1214).
3. Return to one of depositors
stipulated. The depositary is bound
to return it only to the person
designated although he has not made
any demand for its return.
NOTES:
 The depositary may retain the thing
in pledge until full payment of what
may be due him by reason of the
deposit (Art 1994).
 The depositor’s heir who in good
faith may have sold the thing which
he did not know was deposited, shall
only be bound to return the price he
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
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MEMORY AID IN CIVIL LAW
may have received or to assign his
right of action against the buyer in
case the price has not been paid him
(Art 1991).
Obligations of the Depositor (Art 1992 –
1995):
1. To pay expenses for preservation
a. If the deposit is gratuitous, the
depositor
is
obliged
to
reimburse the depositary for
expenses incurred for the
preservation of
the thing
deposited (Art 1992)
b. If the deposit is for valuable
consideration, expenses for
preservation are borne by the
depositary unless there is a
contrary stipulation
2. To pay loses incurred by the
depositary due to the character of
the thing deposited
 GENERAL RULE: The depositor shall
reimburse the depositary for any loss
arising from the character of the thing
deposited.
 EXCEPTIONS:
1. at the time of the deposit, the
depositor was not aware of the
dangerous character of the thing
2. when depositor was not expected
to know the dangerous character
of the thing
3. when the depositor notified the
depository of the same
4. the depositary was aware of it
without advice from the depositor
Extinguishment of Voluntary Deposit
(Art 1995)
1. Loss or destruction of the thing
deposited
2. In case of gratuitous deposit, upon
the death of either the depositor or
the depositary
3. Other causes, such as return of the
thing, novation, merger, expiration
of the term fulfilment of the
resolutory condition, etc (Art 1231)
Necessary Deposits
1. Made in compliance with a legal
obligation
2. Made on the occasion of any
calamity such as fire, storm, flood,
pillage, shipwreck or other similar
events (deposito miserable)
3. Made by travellers in hotels and inns
or by travellers with common carrier
Deposit by Travellers in hotels and
inns:
 The keepers of hotels or inns shall be
responsible as depositaries for the
deposit of effects made by travellers
provided:
a. Notice was given to them or to
their employees of the effects
brought by the guest; and
b. The guests take the precautions
which said hotel-keepers or their
substitutes advised relative to
the care and vigilance of their
effects.
NOTES:
 Liability extends to vehicles, animals
and articles which have been
introduced or placed in the annexes
of the hotel.
 Liability shall EXCLUDE losses which
proceed from force majeure. The
act of a thief or robber is not
deemed force majeure unless done
with the use of arms or irresistible
force.
 The hotel-keeper cannot free
himself from the responsibility by
posting notices to the effect that he
is not liable for the articles brought
by the guest. Any stipulation to such
effect shall be void.
 Notice is necessary only for suing
civil liability but not in criminal
liability.
GUARANTY (Articles 2047 – 2084)

A contract whereby a person
(guarantor) binds himself to the
creditor to fulfil the obligation of
the principal debtor in case the
latter fail to do so.
 Classification of Guaranty:
1. In the Broad sense:
a. Personal - the guaranty is the
credit given by the person who
CIVIL LAW COMMITTEE
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 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
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MEMORY AID IN CIVIL LAW
guarantees the fulfilment of the
principal obligation.
b. Real - the guaranty is the
property,
movable
or
immovable.
2. As to its Origin
a. Conventional - agreed upon by
the parties.
b. Legal - one imposed by virtue of
a provision of a law.
c. Judicial - one which is required
by a court to guarantee the
eventual right of one of the
parties in a case.
3. As to Consideration
a. Gratuitous - the guarantor does
not receive any price or
remuneration for acting as such.
b. Onerous - the guarantor receives
valuable consideration.
4. As to the Person guaranteed
a. Single - one constituted solely to
guarantee
or
secure
performance by the debtor of
the principal obligation.
b. Double or sub-guaranty - one
constituted to secure the
fulfilment by the guarantor of a
prior guaranty.
5. As to Scope and Extent
a. Definite - the guaranty is limited
to the principal obligation only,
or to a specific portion thereof.
b. Indefinite or simple - one which
not only includes the principal
obligation but also all its
accessories including judicial
costs
SURETYSHIP


A contract whereby a person (surety)
binds himself solidarily with the
principal debtor
A relation which exists where one
person (principal) has undertaken an
obligation and another person
(surety) is also under a direct and
primary obligation or other duty to
the obligee, who is entitled to but
one performance, and as between
the two who are bound, the second
rather than the first should perform
(Agro Conglomerates, Inc. vs. CA,
348 SCRA 450)
NOTES:
 The reference in Article 2047 to
solidary obligations does not mean
that suretyship is withdrawn from
the applicable provisions governing
guaranty. A surety is almost the
same as a solidary debtor, except
that he himself is a principal debtor.
 In suretyship, there is but one
contract, and the surety is bound by
the same agreement which binds the
principal. A surety is usually bound
with the principal by the same
instrument, executed at the same
time
and
upon
the
same
consideration (Palmares vs CA, 288
SCRA 422)
 It is not for the obligee to see to it
that the principal debtor pays the
debt or fulfill the contract, but for
the surety to see to it that the
principal debtor pays or performs
(Paramount Insurance Corp vs CA,
310 SCRA 377)
Nature of Surety’s undertaking:
1. Liability
is
contractual
and
accessory but direct
NOTE: He directly, primarily and
equally binds himself with the
principal as original promisor,
although he possesses no direct or
personal interest over the latter’s
obligation, nor does he receive any
benefits therefrom. (PNB vs CA, 198
SCRA 767)
2. Liability limited by the terms of the
contract.
NOTE: It cannot be extended by
implication beyond the terms of the
contract (PNB vs CA, 198 SCRA 767)
3. Liability arises only if principal
debtor is held liable.
NOTES:
 The creditor may sue separately
or together the principal debtor
and the surety. Where there are
several sureties, the obligee may
proceed against any one of
them.
 In the absence of collusion, the
surety is bound by a judgment
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 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
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MEMORY AID IN CIVIL LAW
against the principal even
though he was not a party to the
proceedings. The nature of its
undertaking makes it privy to all
proceedings against its principal
(Finman
General
Assurance
Corp. vs. Salik, 188 SCRA 740)
4. Surety is not entitled to the benefit
of exhaustion
NOTE: He assumes a solidary liability
for the fulfilment of the principal
obligation (Towers Assurance Corp
vs. Ororama Supermart, 80 SCRA
262) as an original promissory and
debtor from the beginning.
5. Undertaking is to creditor and not
to debtor.
NOTE: The surety makes no
covenant or agreement with the
principal that it will fulfil the
obligation guaranteed for the benefit
of the principal. Such a promise is
not implied by law either; and this is
true even where under the contract
the creditor is given the right to sue
the principal, or the latter and the
surety at the same time. (Arranz vs.
Manila Fidelity & Surety Co., Inc.,
101 Phil. 272)
6. Surety is not entitled to notice of
principal’s default
NOTE: The creditor owes no duty of
active diligence to take care of the
interest of the surety and the surety
is bound to take notice of the
principal’s default and to perform
the obligation. He cannot complain
that the creditor has not notified
him in the absence of a special
agreement to that effect. (Palmares
vs CA, 288 SCRA 422)
7. Prior demand by the creditor upon
principal is not required
NOTE: As soon as the principal is in
default, the surety likewise is in
default.
8. Surety is not exonerated by neglect
of creditor to sue principal
Characteristics
of
Guaranty
and
Suretyship:
1. Accessory - It is indispensable
condition for its existence that there
must be a principal obligation.
NOTES:
 Guaranty may be constituted to
guarantee the performance of a
voidable
or
unenforceable
contract. It may also guarantee
a natural obligation. (Art 2052)
 The
guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor.
2. Subsidiary and Conditional - takes
effect only in case the principal
debtor fails in his obligation.
3.
4.
5.
6.
NOTES:
 The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor. But a guarantor may
bind himself for less than that of
the principal (Art 2054)
 A guaranty may be given as
security for future debts, the
amount of which is not yet
known; there can be no claim
against the guarantor until the
debt is liquidated. A conditional
obligation may also be secured.
(Art 2053)
Unilateral - may be entered even
w/o the intervention of the principal
debtor, in which case Art. 1236 and
1237 shall apply and it gives rise only
to a duty on the part of the
guarantor in relation to the creditor
and not vice versa.
Nominate
Consensual
It is a contract between the
guarantor/surety and creditor.
NOTES:
 Acceptance of guaranty by
creditor and notice thereof to
guarantor:
 In declaring that guaranty
must be express, the law
refers solely and exclusively
to the obligation of the
guarantor because it is he
alone who binds himself by
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
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MEMORY AID IN CIVIL LAW

his acceptance. With respect
to the creditor, no such
requirement
is
needed
because he binds himself to
nothing.
However, when there is
merely an offer of a
guaranty, or merely a
conditional guaranty, in the
sense that it requires action
by the creditor before the
obligation becomes fixed, it
does not become binding
until it is accepted and until
notice of such acceptance by
the creditor is given to, or
acquired by, the guarantor,
or until he has notice or
knowledge that the creditor
has performed the condition
and intends to act upon the
guaranty.
 But in any case, the creditor
is not precluded from
waiving the requirement of
notice.
 The consideration of the
guaranty is the same as the
consideration of the principal
obligation.
 The
creditor may proceed
against the guarantor although
he has no right of action against
the principal debtor.
7. Not presumed. It must be expressed
and reduced in writing.
NOTE: A power of attorney to loan
money does not authorize the agent
to make the principal liable as a
surety for the payment of the debt
of a third person. (BPI vs. Coster, 47
Phil. 594)
8. Falls under the Statute of Frauds
since it is a “special promise to
answer for the debt, default or
miscarriage of another”.
9. Strictly interpreted against the
creditor and in favor of the
guarantor/surety and is not to be
extended beyond its terms or
specified limits. (Magdalena Estates,
Inc. vs Rodriguez, 18 SCRA 967) The
rule of strictissimi juris commonly
pertains to an accommodation surety
because the latter acts without
motive of pecuniary gain and hence,
should be protected against unjust
pecuniary
impoverishment
by
imposing on the principal, duties
akin to those of a fiduciary.
NOTES:
 The rule will apply only after it
has been definitely ascertained
that the contract is one of
suretyship or guaranty. It cannot
be used as an aid in determining
whether a party’s undertaking is
that of a surety or guarantor.
(Palmares vs CA, 288 SCRA 292)
 It does not apply in case of
compensated sureties.
10. It is a contract which requires that
the guarantor must be a person
distinct form the debtor because a
person cannot be the personal
guarantor of himself.
NOTE: However, in a real guaranty,
like pledge and mortgage, a person
may guarantee his own obligation
with his personal or real properties.
Guaranty
Suretyship
1. Liability depends
upon an independent
agreement to pay the
obligation if primary
debtor fails to do so
1. Surety assumes
liability as regular
party
to
the
undertaking
2. Collateral
taking
2. Surety is
original promisor
an
3.
Surety
primarily liable
is
under-
3.
Guarantor
secondarily liable
is
4. Guarantor binds
himself to pay if
the
principal
CANNOT PAY
4. Surety undertakes
to pay if the principal
DOES NOT PAY
5.
Insurer of
solvency of debtor
5.
Insurer of the
debt
6.
Guarantor can
avail of the benefit
of
excussion
and
division
in
case
creditor
proceeds
against him
6.
Surety cannot
avail of the benefit of
excussion and division
Indorsement
Guaranty
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 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
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MEMORY AID IN CIVIL LAW
1.
Primarily
transfer
of
1.
Contract
security
of
2. Unless the note is
promptly presented
for
payment
at
maturity and due
notice of dishonor
given to the indorser
within a reasonable
time he will be
discharged
absolutely
from
all
liability
thereon,
whether
he
has
suffered any actual
damage or not
2. Failure in either or
both
of
these
particulars does not
generally work as an
absolute discharge of
a
guarantor’s
liability, but his is
discharged only to
the extent of the loss
which he may have
suffered
in
consequence thereof
3. Indorser does not
warrant the solvency.
He is answerable on a
strict
compliance
with the law by the
holder, whether the
promisor is solvent or
not
3.
Guarantor
warrants the solvency
of the promisor
4. Indorser can
sued as promisor
4. Guarantor cannot be
sued as promisor
be
Guaranty
Warranty
A contract by which a
person is bound to
another for the
fulfilment of a
promise or
engagement of a
third party
An undertaking that
the title, quality, or
quantity of the
subject matter of the
contract is what it
has been represented
to be, and relates to
some agreement
made ordinarily by
the party who makes
the warranty
NOTES:
 A guaranty is gratuitous, unless there
is a stipulation to the contrary. The
cause of the contract is the same
cause which supports the obligation
as to the principal debtor.
 The peculiar nature of a guaranty or
surety agreement is that is is
regarded as valid despite the
absence of any direct consideration
received by the guarantor or surety
either from the principal debtor or
from the creditor; a consideration
moving to the principal alone will
suffice.
 It is never necessary that the
guarantor or surety should receive
any part or benefit, if such there be,
accruing to the principal. (Willex
Plastic Industries Corp. vs. CA, 256
SCRA 478)
Double or sub-guaranty (Art 2051 2nd
par)
 One constituted to guarantee the
obligation of a guarantor
Continuing guaranty (Art 2053)
 One which is not limited to a single
transaction but which contemplates
a future course of dealings, covering
a series of transactions generally for
an indefinite time or until revoked.
NOTES:
 Prospective in operation (Diño vs CA,
216 SCRA 9)
 Construed as continuing when by the
terms thereof it is evident that the
object is to give a standing credit to
the principal debtor to be used from
time to time either indefinitely or
until a certain period, especially if
the right to recall the guaranty is
expressly reserved (Diño vs CA, 216
SCRA 9)
 “Future debts” may also refer to
debts existing at the time of the
constitution of the guaranty but the
amount thereof is unknown and not
to debts not yet incurred and
existing at that time.
 Exception
to the concept of
continuing guaranty is chattel
mortgage. A chattel mortgage can
only cover obligations existing at the
time the mortgage is constituted and
not those contracted subsequent to
the execution thereof (The Belgian
Catholic Missionaries, Inc. vs.
Magallanes Press, Inc., 49 Phil 647).
An exception to this is in case of
stocks in department stores, drug
stores, etc. (Torres vs. Limjap, 56
Phil 141).
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
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MEMORY AID IN CIVIL LAW
Extent of Guarantor’s liability: (Art
2055)
1. Where the guaranty definite: It is
limited in whole or in part to the
principal debt, to the exclusion of
accessories.
2. Where guaranty indefinite or simple:
It shall comprise not only the
principal obligation, but also all its
accessories, including the judicial
costs, provided with respect to the
latter, that the guarantor shall only
be liable for those costs incurred
after he has been judicially required
to pay.
Qualifications of a guarantor: (Arts
2056-2057)
1. possesses integrity
2. capacity to bind himself
3. has sufficient property to answer
for the obligation which he
guarantees
NOTES:
 The qualifications need only be
present at the time of the perfection
of the contract.
 The subsequent loss of the integrity
or
property
or
supervening
incapacity of the guarantor would
not operate to exonerate the
guarantor or the eventual liability he
has contracted, and the contract of
guaranty continues.
 However, the creditor may demand
another guarantor with the proper
qualifications. But he may waive it if
he chooses and hold the guarantor to
his bargain.
Benefit of Excussion (Art 2058)
 The right by which the guarantor
cannot be compelled to pay the
creditor unless the latter has
exhausted all the properties of the
principal debtor, and has resorted to
all of the legal remedies against such
debtor.
NOTE:
 Not applicable to a contract of
suretyship (Arts 2047, par. 2;
2059[2])
 Cannot even begin to take place
before judgment has been obtained
against the debtor (Baylon vs CA,
312 SCRA 502)
When Guarantor is not entitled to the
benefit of excussion: (PAIRS)
1. If it may be presumed that an
execution on the property of the
principal debtor would not result in
the satisfaction of the obligation
 Not necessary that the debtor be
judicially declared insolvent or
bankrupt
2. When he has absconded, or cannot
be sued within the Philippines unless
he has left a manager or
representative
3. In case of insolvency of the debtor
 Must be actual
4. If the guarantor has expressly
renounced it
5. If he has bound himself solidarily
with the debtor
Other grounds: (BIPS)
6. If he is a judicial bondsman or subsurety
7. If he fails to interpose it as a
defense before judgment is rendered
against him
8. If the guarantor does not set up the
benefit against the creditor upon the
latter’s demand for payment from
him, and point out to the creditor
available property to the debtor
within Philippine territory, sufficient
to cover the amount of the debt (Art
2060)
 Demand can be made only after
judgment on the debt
 Demand must be actual; joining
the guarantor in the suit against
the principal debtor is not the
demand intended by law
9. Where the pledge or mortgage has
been given by him as special security
Benefit of Division (Art 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.
 Liability: Joint
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
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MEMORY AID IN CIVIL LAW
NOTES:
 The creditor can claim from the
guarantors only the shares they are
respectively bound to pay except
when solidarity is stipulated or if
any
of
the
circumstances
enumerated in Article 2059 should
take place.
 The right of contribution of
guarantors who pays requires that
the payment must have been made
(a) in virtue of a judicial demand, or
(b) because the principal debtor is
insolvent (Art 2073).
 If any of the guarantors should be
insolvent, his share shall be borne by
the others including the paying
guarantor in the same joint
proportion following the rule in
solidary obligations.
 The above rule shall not be
applicable unless the payment has
been made in virtue of a judicial
demand or unless the principal
debtor is insolvent.
 The
right to contribution or
reimbursement
from
his
coguarantors is acquired ipso jure by
virtue of said payment without the
need of obtaining from the creditor
any prior cession of rights to such
guarantor.
 The co-guarantors may set up
against the one who paid, the same
defenses which have pertained to
the principal debtor against the
creditor and which are not purely
personal to the debtor. (Art 2074)
Procedure when creditor sues: (Art.
2062)
 The creditor must sue the principal
alone; the guarantor cannot be sued
with his principal, much less alone
except in Art. 2059.
1. Notice to guarantor of the action
 The guarantor must be NOTIFIED
so that he may appear, if he so
desires, and set up defenses he
may want to offer.
 If the guarantor appears, he is
still given the benefit of
CIVIL LAW COMMITTEE
exhaustion even if judgment
should be rendered against him
and
principal
debtor.
His
voluntary appearance does not
constitute a renunciation of his
right to excussion (see Art.
2059(1)).
 Guarantor cannot set up the
defenses if he does not appear
and it may no longer be possible
for him to question the validity
of the judgment rendered
against the debtor.
2. A guarantor is entitled to be heard
before and execution can be issued
against him where he is not a party
in the case involving his principal
(procedural due process).
Guarantor’s Right of Indemnity or
Reimbursement (Art 2066)
 GENERAL RULE: Guaranty is a contract
of indemnity. The guarantor who makes
payment is entitled to be reimbursed by
the principal debtor.
NOTE: The indemnity consists of: (DIED)
1. Total amount of the debt – no
right to demand reimbursement
until he has actually paid the
debt, unless by the terms of the
contract, he is given the right
before making payment.
He
cannot collect more than what
he has paid.
2. Legal interest thereon from the
time the payment was made
known (notice of payment in
effect a demand so that if the
debtor
does
not
pay
immediately, he incurs in delay)
to the debtor, even though it did
not earn interest for the
creditor. Guarantor’s right to
legal interest is granted by law
by virtue of the payment he has
made.
3. Expenses incurred by the
guarantor after having notified
the debtor that payment has
been demanded of him by the
creditor; only those expenses
that the guarantor has to satisfy
in accordance with law as a
consequence of the guaranty
(Art. 2055) not those which
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
198
MEMORY AID IN CIVIL LAW
depend upon his will or own acts
or his fault for these are his
exclusive personal responsibility
and it is not just that they be
shouldered by the debtor.
4. Damages if they are due in
accordance
with law.
General rules on
damages apply.
 EXCEPTIONS:
1. Where
the
guaranty
is
constituted
without
the
knowledge or against the will of
the
principal
debtor,
the
guarantor can recover only
insofar as the payment had been
beneficial to the debtor (Art.
2050).
2. Payment by a third person who
does not intend to be reimbursed
by the debtor is deemed to be a
donation,
which,
however,
requires the debtor’s consent.
But the payment is in any case
valid as to the creditor who has
accepted it (Art. 1238).
3. Waiver of the right to demand
reimbursement.
Guarantor’s right to Subrogation
(ART.2067)
 Subrogation transfers to the person
subrogated, the credit with all the
rights thereto appertaining either
against the debtor or against third
persons, be they guarantors or
possessors of mortgages, subject to
stipulation
in
conventional
subrogation.
NOTE: This right of subrogation is
necessary to enable the guarantor to
enforce the indemnity given in Art.
2066.
 It arises by operation of law upon
payment by the guarantor. It is not
necessary that the creditor cede to
the guarantor the former’s rights
against the debtor.
 It is not a contractual right. The
right of guarantor who has paid a
debt to subrogation does not stand
upon contract but upon the
principles of natural justice.
 The guarantor is subrogated by
virtue of the payment to the rights
of the creditor, not those of the
debtor.
 Guarantor cannot exercise the
right of redemption of his
principal (Urrutia & Co vs
Morena and Reyes, 28 Phil 261)
Effect of Payment by Guarantor
1. Without notice to debtor: (Art
2068)
 The
debtor may interpose
against the guarantor those
defenses which he could have
set up against the creditor at the
time the payment was made,
e.g. the debtor can set up
against the guarantor the
defense
of
previous
extinguishment of the obligation
by payment.
2. Before Maturity (Art 2069)
 Not entitled to reimbursement
unless the payment was made
with the consent or has been
ratified by the debtor
Effect of Repeat Payment by debtor:
(Art 2070)
 GENERAL RULE: Before guarantor pays
the creditor, he must first notify the
debtor (Art. 2068). If he fails to give
such notice and the debtor repeats
payment, the guarantor can only collect
from the creditor and guarantor has no
cause of action against the debtor for
the return of the amount paid by
guarantor even if the creditor should
become insolvent.
 EXCEPTION: The guarantor can still
claim reimbursement from the debtor in
spite of lack of notice if the following
conditions are present: (PIG)
a. guarantor was prevented by
fortuitous event to advise the
debtor of the payment; and
b. the creditor becomes insolvent;
c. the guaranty is gratuitous.
Right of Guarantor to proceed against
debtor before payment
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
199
MEMORY AID IN CIVIL LAW
 GENERAL RULE: Guarantor has no
cause of action against debtor until after
the former has paid the obligation
 EXCEPTION: Article 2071
NOTES:
 Article 2071 is applicable and
available to the surety. (Manila
Surety & Fidelity Co., Inc. vs Batu
Construction & Co., 101 Phil 494)
 Remedy of guarantor:
(a) obtain
release
from
the
guaranty; or
(b) demand a security that shall
protect
him
from
any
proceedings by the creditor, and
against the danger of insolvency
of the debtor
Art. 2066
Art. 2071
Provides for the
enforcement of the
rights of the
guarantor/surety
against the debtor
after he has paid the
debt
Gives a right of
action after payment
Substantive right
Provides for his
protection before he
has paid but after he
has become liable
Protective remedy
before payment.
Preliminary remedy
Extinguishment of guaranty: (RA2CE2)
1. Release in favor of one of the
guarantors, without the consent of
the others, benefits all to the extent
of the share of the guarantor to
whom it has been granted (Art
2078);
2. If the creditor voluntarily accepts
immovable or other properties in
payment of the debt, even if he
should afterwards lose the same
through eviction or conveyance of
property (Art 2077);
3. Whenever by some act of the
creditor, the guarantors even though
they are solidarily liable cannot be
subrogated to the rights, mortgages
and preferences of the former (Art
2080);
4. For the same causes as all other
obligations (Art 1231);
5. When the principal obligation is
extinguished;
6. Extension granted to the debtor by
the creditor without the consent of
the guarantor (Art 2079)
BOND
 An undertaking that is sufficiently
secured, and not cash or currency
Bondsman (Art 2082)
 A surety offered in virtue of a
provision of law or a judicial order.
He must have the qualifications
required of a guarantor and in
special laws like the Rules of Court.
NOTES:
 Judicial bonds constitute merely a
special class of contracts of guaranty
by the fact that they are given “in
virtue… of a judicial order.”
 If the person required to give a legal
or judicial bond should not be able
to do so, a pledge or mortgage
sufficient to cover the obligation
shall admitted in lieu thereof (Art
2083)
 A judicial bondsman and the subsurety are NOT entitled to the
benefit of excussion because they
are not mere guarantors, but
sureties whose liability is primary
and solidary. (Art 2084)
PLEDGE, MORTGAGE AND ANTICHRESIS
I. Common Elements of Pledge,
Mortgage, and Antichresis (Articles
2085 – 2092)
A. Essential Requisites (SOD) (Art
2085)
1. Secures the fulfillment of a principal
obligation;
2. Pledgor,
mortgagor,
antichretic
debtor must be the absolute owner
of the thing pledged or mortgaged;
and
 The reason being that in
anticipation
of
a
possible
foreclosure sale in case of
default which is still a sale, the
rule is that the seller must be
the owner of the thing sold
(Cavite Development Bank vs.
Lim, 324 SCRA 346)
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
200
MEMORY AID IN CIVIL LAW
3. Pledgor,
mortgagor,
antichretic
debtor must have free disposal of
their property, or be legally
authorized for such purpose.
NOTES:
 Third persons can pledge or
mortgage their own property to
secure the principal obligation.
 It is not necessarily void simply
because the accommodation pledgor
or mortgagor did not benefit from
the same. So long as valid consent
was given, the fact that the loan was
given solely for the benefit of the
principal debtor would not invalidate
the mortgage (GSIS vs CA, 170 SCRA
533)
 The
accommodation pledgor or
mortgagor,
without
expressly
assuming personal liability for such
debt, is not liable for the payment of
any deficiency, should the property
not be sufficient to cover the debt
(Bank of America vs. American
Realty Corporation, 321 SCRA 659).
 The accommodation pledgor or
mortgagor is not solidarily bound
with the principal obligor but his
liability extents only to the property
pledged or mortgaged. Should there
be any deficiency, the creditor has
recourse on the principal debtor who
remains to be primarily bound.
 The
law
grants
to
the
accommodation
pledgor
or
mortgagor the same rights as a
guarantor and he cannot be
prejudiced by any waiver of defense
by the principal debtor.
B. Prohibition
against
Pactum
Commissorium (Art 2088; 2137)
Pactum Commissorium
 Stipulation whereby the thing
pledged or mortgaged, or under
antichresis
shall
automatically
become the property of the creditor
in the event of non-payment of the
debt within the term fixed.
Requisites:
1. There should be a pledge, mortgage,
or antichresis of property by way of
CIVIL LAW COMMITTEE
security for the payment of the
principal obligation; and
2. There should be a stipulation for an
automatic appropriation by the
creditor of the property in event of
nonpayment of the obligation within
the stipulated period.
 GENERAL RULE: Pactum Commissorium
is forbidden by law and is declared null
and void.
The
pledgee
may
 EXCEPTION:
appropriate the thing pledged if after
the first and second auctions, the thing
is not sold. (Art 2112)
NOTE: The security contract remains
valid; only the prohibited stipulation is
void.
C. Capability to secure all kinds of
obligations,
i.e.
pure
or
conditional (Art 2091)
D. Indivisibility (Art 2089)
 GENERAL RULE: A pledge, mortgage,
or antichresis is indivisible, even though
the debt may be divided among the
successors in interest of the debtor or of
the creditor.
 Their indivisibility is not affected by
the fact that the debtors are jointly
or not solidarily liable.
Consequences of indivisibility:
1. Single thing – Every portion of the
property pledged or mortgaged is
answerable for the whole obligation
2. Several things – All of the several
things pledged or mortgaged are
liable for the totality of the debt
3. Debtor’s heir/creditor’s heir Neither the debtor’s heir who has
paid part of the debt cannot ask for
proportionate extinguishment, nor
creditor’s heir who received his
share of the debt return the pledge
or cancel the mortgage as long as
the debt is not completely satisfied.
EXCEPTIONS:
1. Where each one of several things
guarantees
a
determinate
portion of the credit
2. Where only a portion of the loan
was released
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
201
MEMORY AID IN CIVIL LAW
3. Where there was failure of
consideration.
4. Where there is no debtorcreditor
relationship
NOTES:
 The mere embodiment of a real
estate mortgage and a chattel
mortgage in one document does not
have the effect of fusing both
securities into an indivisible whole.
 The mortgagee, therefore, may
legally foreclose the real estate
mortgage extrajudicially and waive
the chattel mortgage foreclosure,
and maintain instead a personal
action for the recovery of the unpaid
balance of the credit (Phil. Bank of
Commerce vs. Macadaeg, 109 Phil
981)
E. When the principal obligation
becomes due, the things in which
the
pledge,
mortgage,
or
antichresis
consists
may
be
alienated for the payment to the
creditor. (Art. 2087)
NOTES:
 If the debtor fails to comply with the
obligation at the time it falls due,
the creditor is merely entitled to
move for the sale of the thing
pledged or mortgaged in order to
collect the amount of his claim from
the proceeds.
 If he wishes to secure a title to the
mortgaged property, he can buy it in
the foreclosure sale (Montevirgin vs.
CA, 112 SCRA 641)
F. Pledgor, mortgagor, antichretic
debtor retains ownership of the
thing given as a security
PLEDGE (Arts 2093 – 2123)

A contract wherein the debtor
delivers to the creditor or to a third
person a movable or document
evidencing incorporeal rights for the
purpose of securing fulfilment of a
principal
obligation
with
the
understanding
that
when
the
obligation is fulfilled, the thing
delivered shall be returned with all
its fruits and accessions.
Special Requisites (in addition to
the common essential requisites):
1. Possession of the thing pledged must
be transferred to the creditor or a
third person by agreement (Art
2093);
2. It can only cover movable property
and incorporeal rights evidenced by
documents of title
and the
instruments
proving
the
right
pledged shall be delivered to the
creditor, and if negotiable must be
endorsed (Art 2094); and
3. The description of the thing pledged
and the date must appear in a public
instrument to bind third persons, but
not for the validity of the contract
(Art 2096).

 Kinds:
1. Conventional /Voluntary – created
by contract
2. Legal – created by operation of law
(examples: Art. 546, 1731 and 1914
NCC)
NOTES:
 The provisions of possession, care
and sale of the thing as well as on
the termination of the pledge
governing conventional pledges are
applicable to pledges created by
operation of law (Art 2121)
 Unlike, however, in conventional
pledge where the debtor is not
entitled to the excess unless it is
otherwise agreed, in legal pledge,
the remainder of the price of the
sale after payment of the debt and
expenses, shall be delivered to the
debtor.
 In legal pledge, there is no definite
period for the payment of the
principal obligation. The pledgee
must make a demand for the
payment of the amount due him;
otherwise he cannot exercise the
right of sale at public auction (Art
2122)
Characteristics:
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
194
MEMORY AID IN CIVIL LAW

his acceptance. With respect
to the creditor, no such
requirement
is
needed
because he binds himself to
nothing.
However, when there is
merely an offer of a
guaranty, or merely a
conditional guaranty, in the
sense that it requires action
by the creditor before the
obligation becomes fixed, it
does not become binding
until it is accepted and until
notice of such acceptance by
motive of pecuniary gain and hence,
should be protected against unjust
pecuniary
impoverishment
by
imposing on the principal, duties
akin to those of a fiduciary.
NOTES:
 The rule will apply only after it
has been definitely ascertained
that the contract is one of
suretyship or guaranty. It cannot
be used as an aid in determining
whether a party’s undertaking is
that of a surety or guarantor.
(Palmares vs CA, 288 SCRA 292)
the creditor is given to, or
acquired by, the guarantor,
or until he has notice or
knowledge that the creditor
has performed the condition
and intends to act upon the
guaranty.
 But in any case, the creditor
is not precluded from
waiving the requirement of
notice.
 The consideration of the
guaranty is the same as the
consideration of the principal
obligation.
 The
creditor may proceed
against the guarantor although
he has no right of action against
the principal debtor.
7. Not presumed. It must be expressed
and reduced in writing.
NOTE: A power of attorney to loan
money does not authorize the agent
to make the principal liable as a
surety for the payment of the debt
of a third person. (BPI vs. Coster, 47
Phil. 594)
8. Falls under the Statute of Frauds
since it is a “special promise to
answer for the debt, default or
miscarriage of another”.
9. Strictly interpreted against the
creditor and in favor of the
guarantor/surety and is not to be
extended beyond its terms or
specified limits. (Magdalena Estates,
Inc. vs Rodriguez, 18 SCRA 967) The
rule of strictissimi juris commonly
pertains to an accommodation surety
because the latter acts without
 It does not apply in case of
compensated sureties.
10. It is a contract which requires that
the guarantor must be a person
distinct form the debtor because a
person cannot be the personal
guarantor of himself.
NOTE: However, in a real guaranty,
like pledge and mortgage, a person
may guarantee his own obligation
with his personal or real properties.
Guaranty
Suretyship
1. Liability depends
upon an independent
agreement to pay the
obligation if primary
debtor fails to do so
1. Surety assumes
liability as regular
party
to
the
undertaking
2. Collateral
taking
2. Surety is
original promisor
an
3.
Surety
primarily liable
is
under-
3.
Guarantor
secondarily liable
is
Guarantor binds
himself to pay if
the
principal
CANNOT PAY
4. Surety undertakes
to pay if the principal
DOES NOT PAY
5.
Insurer of
solvency of debtor
5.
Insurer of the
debt
6.
Guarantor can
avail of the benefit
of
excussion
and
division
in
case
creditor
proceeds
against him
6.
Surety cannot
avail of the benefit of
excussion and division
Indorsement
Guaranty
4.
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
195
MEMORY AID IN CIVIL LAW
1.
Primarily
transfer
of
1.
Contract
security
of
2. Unless the note is
promptly presented
for
payment
at
maturity and due
notice of dishonor
given to the indorser
within a reasonable
time he will be
discharged
absolutely
from
all
liability
thereon,
whether
he
has
suffered any actual
damage or not
2. Failure in either or
both
of
these
particulars does not
generally work as an
absolute discharge of
a
guarantor’s
liability, but his is
discharged only to
the extent of the loss
which he may have
suffered
in
consequence thereof
3. Indorser does not
warrant the solvency.
He is answerable on a
strict
compliance
with the law by the
holder, whether the
promisor is solvent or
not
3.
Guarantor
warrants the solvency
of the promisor
4. Indorser can
sued as promisor
4. Guarantor cannot be
sued as promisor
be
Guaranty
Warranty
A contract by which a
person is bound to
another for the
fulfilment of a
promise or
engagement of a
third party
An undertaking that
the title, quality, or
quantity of the
subject matter of the
contract is what it
has been represented
to be, and relates to
 It is never necessary that the
guarantor or surety should receive
any part or benefit, if such there be,
accruing to the principal. (Willex
Plastic Industries Corp. vs. CA, 256
SCRA 478)
Double or sub-guaranty (Art 2051 2nd
par)
 One constituted to guarantee the
obligation of a guarantor
Continuing guaranty (Art 2053)
 One which is not limited to a single
transaction but which contemplates
a future course of dealings, covering
a series of transactions generally for
an indefinite time or until revoked.
NOTES:
 Prospective in operation (Diño vs CA,
216 SCRA 9)
 Construed as continuing when by the
terms thereof it is evident that the
object is to give a standing credit to
the principal debtor to be used from
time to time either indefinitely or
until a certain period, especially if
the right to recall the guaranty is
expressly reserved (Diño vs CA, 216
some agreement
made ordinarily by
the party who makes
the warranty
NOTES:
 A guaranty is gratuitous, unless there
is a stipulation to the contrary. The
cause of the contract is the same
cause which supports the obligation
as to the principal debtor.
 The peculiar nature of a guaranty or
surety agreement is that is is
regarded as valid despite the
absence of any direct consideration
received by the guarantor or surety
either from the principal debtor or
from the creditor; a consideration
moving to the principal alone will
suffice.
SCRA 9)
 “Future debts” may also refer to
debts existing at the time of the
constitution of the guaranty but the
amount thereof is unknown and not
to debts not yet incurred and
existing at that time.
 Exception
to the concept of
continuing guaranty is chattel
mortgage. A chattel mortgage can
only cover obligations existing at the
time the mortgage is constituted and
not those contracted subsequent to
the execution thereof (The Belgian
Catholic Missionaries, Inc. vs.
Magallanes Press, Inc., 49 Phil 647).
An exception to this is in case of
stocks in department stores, drug
stores, etc. (Torres vs. Limjap, 56
Phil 141).
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
196
MEMORY AID IN CIVIL LAW
Extent of Guarantor’s liability: (Art
2055)
1. Where the guaranty definite: It is
limited in whole or in part to the
principal debt, to the exclusion of
accessories.
2. Where guaranty indefinite or simple:
It shall comprise not only the
principal obligation, but also all its
accessories, including the judicial
costs, provided with respect to the
latter, that the guarantor shall only
be liable for those costs incurred
after he has been judicially required
to pay.
Qualifications of a guarantor: (Arts
2056-2057)
1. possesses integrity
2. capacity to bind himself
3. has sufficient property to answer
for the obligation which he
guarantees
NOTES:
 The qualifications need only be
present at the time of the perfection
of the contract.
 The subsequent loss of the integrity
or
property
or
supervening
incapacity of the guarantor would
not operate to exonerate the
guarantor or the eventual liability he
has contracted, and the contract of
guaranty continues.
 However, the creditor may demand
another guarantor with the proper
qualifications. But he may waive it if
he chooses and hold the guarantor to
his bargain.
Benefit of Excussion (Art 2058)
 The right by which the guarantor
cannot be compelled to pay the
creditor unless the latter has
exhausted all the properties of the
principal debtor, and has resorted to
all of the legal remedies against such
debtor.
NOTE:
 Not applicable to a contract of
 Cannot even begin to take place
before judgment has been obtained
against the debtor (Baylon vs CA,
312 SCRA 502)
When Guarantor is not entitled to the
benefit of excussion: (PAIRS)
1. If it may be presumed that an
execution on the property of the
principal debtor would not result in
the satisfaction of the obligation
 Not necessary that the debtor be
judicially declared insolvent or
bankrupt
2. When he has absconded, or cannot
be sued within the Philippines unless
he has left a manager or
representative
3. In case of insolvency of the debtor
 Must be actual
4. If the guarantor has expressly
renounced it
5. If he has bound himself solidarily
with the debtor
Other grounds: (BIPS)
6. If he is a judicial bondsman or subsurety
7. If he fails to interpose it as a
defense before judgment is rendered
against him
8. If the guarantor does not set up the
benefit against the creditor upon the
latter’s demand for payment from
him, and point out to the creditor
available property to the debtor
within Philippine territory, sufficient
to cover the amount of the debt (Art
2060)
 Demand can be made only after
judgment on the debt
 Demand must be actual; joining
the guarantor in the suit against
the principal debtor is not the
demand intended by law
9. Where the pledge or mortgage has
been given by him as special security
Benefit of Division (Art 2065)
 Should there be several guarantors
of only one debtor and for the same
debt, the obligation to answer for
suretyship
2059[2])
(Arts
2047,
par.
2;

the same is divided among all.
Liability: Joint
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
197
MEMORY AID IN CIVIL LAW
NOTES:
 The creditor can claim from the
guarantors only the shares they are
exhaustion even if judgment
should be rendered against him
and
principal
debtor.
His
voluntary appearance does not
constitute a renunciation of his
respectively bound to pay except
when solidarity is stipulated or if
any
of
the
circumstances
enumerated in Article 2059 should
take place.
 The right of contribution of
guarantors who pays requires that
the payment must have been made
(a) in virtue of a judicial demand, or
(b) because the principal debtor is
insolvent (Art 2073).
 If any of the guarantors should be
insolvent, his share shall be borne by
the others including the paying
guarantor in the same joint
proportion following the rule in
solidary obligations.
 The above rule shall not be
applicable unless the payment has
been made in virtue of a judicial
demand or unless the principal
debtor is insolvent.
 The
right to contribution or
reimbursement
from
his
coguarantors is acquired ipso jure by
virtue of said payment without the
need of obtaining from the creditor
any prior cession of rights to such
guarantor.
 The co-guarantors may set up
against the one who paid, the same
defenses which have pertained to
the principal debtor against the
creditor and which are not purely
personal to the debtor. (Art 2074)
Procedure when creditor sues: (Art.
2062)
 The creditor must sue the principal
alone; the guarantor cannot be sued
with his principal, much less alone
except in Art. 2059.
1. Notice to guarantor of the action
 The guarantor must be NOTIFIED
so that he may appear, if he so
desires, and set up defenses he
may want to offer.
 If the guarantor appears, he is
still given the benefit of
CIVIL LAW COMMITTEE
right to excussion (see Art.
2059(1)).
 Guarantor cannot set up the
defenses if he does not appear
and it may no longer be possible
for him to question the validity
of the judgment rendered
against the debtor.
2. A guarantor is entitled to be heard
before and execution can be issued
against him where he is not a party
in the case involving his principal
(procedural due process).
Guarantor’s Right of Indemnity or
Reimbursement (Art 2066)
GENERAL RULE: Guaranty is a contract
of indemnity. The guarantor who makes
payment is entitled to be reimbursed by
the principal debtor.
NOTE: The indemnity consists of: (DIED)
1. Total amount of the debt – no
right to demand reimbursement
until he has actually paid the
debt, unless by the terms of the
contract, he is given the right
before making payment.
He
cannot collect more than what
he has paid.
2. Legal interest thereon from the
time the payment was made
known (notice of payment in
effect a demand so that if the
debtor
does
not
pay
immediately, he incurs in delay)
to the debtor, even though it did
not earn interest for the
creditor. Guarantor’s right to
legal interest is granted by law
by virtue of the payment he has
made.
3. Expenses incurred by the
guarantor after having notified
the debtor that payment has
been demanded of him by the
creditor; only those expenses
that the guarantor has to satisfy
in accordance with law as a
consequence of the guaranty
(Art. 2055) not those which
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
198
MEMORY AID IN CIVIL LAW
depend upon his will or own acts
or his fault for these are his
exclusive personal responsibility
and it is not just that they be
shouldered by the debtor.
4. Damages if they are due in
accordance
with law.
General rules on
damages apply.
EXCEPTIONS:
1. Where
the
guaranty
is
constituted
without
the
knowledge or against the will of
the
principal
debtor,
the
guarantor can recover only
insofar as the payment had been
beneficial to the debtor (Art.
2050).
2. Payment by a third person who
does not intend to be reimbursed
by the debtor is deemed to be a
donation,
which,
however,
 The guarantor is subrogated by
virtue of the payment to the rights
of the creditor, not those of the
debtor.
 Guarantor cannot exercise the
right of redemption of his
principal (Urrutia & Co vs
Morena and Reyes, 28 Phil 261)
Effect of Payment by Guarantor
1. Without notice to debtor: (Art
2068)
 The
debtor may interpose
against the guarantor those
defenses which he could have
set up against the creditor at the
time the payment was made,
e.g. the debtor can set up
against the guarantor the
defense
of
previous
extinguishment of the obligation
by payment.
requires the debtor s consent.
But the payment is in any case
valid as to the creditor who has
accepted it (Art. 1238).
3. Waiver of the right to demand
reimbursement.
Guarantor’s right to Subrogation
(ART.2067)
 Subrogation transfers to the person
subrogated, the credit with all the
rights thereto appertaining either
against the debtor or against third
persons, be they guarantors or
possessors of mortgages, subject to
stipulation
in
conventional
subrogation.
NOTE: This right of subrogation is
necessary to enable the guarantor to
enforce the indemnity given in Art.
2066.
 It arises by operation of law upon
payment by the guarantor. It is not
necessary that the creditor cede to
the guarantor the former’s rights
against the debtor.
 It is not a contractual right. The
right of guarantor who has paid a
debt to subrogation does not stand
upon contract but upon the
principles of natural justice.
2. Before Maturity (Art 2069)
 Not entitled to reimbursement
unless the payment was made
with the consent or has been
ratified by the debtor
Effect of Repeat Payment by debtor:
(Art 2070)
GENERAL RULE: Before guarantor pays
the creditor, he must first notify the
debtor (Art. 2068). If he fails to give
such notice and the debtor repeats
payment, the guarantor can only collect
from the creditor and guarantor has no
cause of action against the debtor for
the return of the amount paid by
guarantor even if the creditor should
become insolvent.
EXCEPTION: The guarantor can still
claim reimbursement from the debtor in
spite of lack of notice if the following
conditions are present: (PIG)
a. guarantor was prevented by
fortuitous event to advise the
debtor of the payment; and
b. the creditor becomes insolvent;
c. the guaranty is gratuitous.
Right of Guarantor to proceed against
debtor before payment
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
199
MEMORY AID IN CIVIL LAW
GENERAL RULE: Guarantor has no
cause of action against debtor until after
the former has paid the obligation
EXCEPTION: Article 2071
NOTES:
 Article 2071 is applicable and
available to the surety. (Manila
Surety & Fidelity Co., Inc. vs Batu
Construction & Co., 101 Phil 494)
 Remedy of guarantor:
(a) obtain
release
from
the
guaranty; or
(b) demand a security that shall
protect
him
from
any
proceedings by the creditor, and
against the danger of insolvency
of the debtor
Art. 2066
Art. 2071
Provides for the
enforcement of the
rights of the
guarantor/surety
against the debtor
after he has paid the
debt
Gives a right of
action after payment
Substantive right
Provides for his
protection before he
has paid but after he
has become liable
Protective remedy
before payment.
Preliminary remedy
Extinguishment of guaranty: (RA2CE2)
1. Release in favor of one of the
guarantors, without the consent of
the others, benefits all to the extent
of the share of the guarantor to
whom it has been granted (Art
2078);
2. If the creditor voluntarily accepts
immovable or other properties in
payment of the debt, even if he
should afterwards lose the same
6. Extension granted to the debtor by
the creditor without the consent of
the guarantor (Art 2079)
BOND
 An undertaking that is sufficiently
secured, and not cash or currency
Bondsman (Art 2082)
 A surety offered in virtue of a
provision of law or a judicial order.
He must have the qualifications
required of a guarantor and in
special laws like the Rules of Court.
NOTES:
 Judicial bonds constitute merely a
special class of contracts of guaranty
by the fact that they are given “in
virtue… of a judicial order.”
 If the person required to give a legal
or judicial bond should not be able
to do so, a pledge or mortgage
sufficient to cover the obligation
shall admitted in lieu thereof (Art
2083)
 A judicial bondsman and the subsurety are NOT entitled to the
benefit of excussion because they
are not mere guarantors, but
sureties whose liability is primary
and solidary. (Art 2084)
PLEDGE, MORTGAGE AND ANTICHRESIS
I. Common Elements of Pledge,
Mortgage, and Antichresis (Articles
2085 – 2092)
A. Essential Requisites (SOD) (Art
2085)
1. Secures the fulfillment of a principal
through eviction or conveyance of
property (Art 2077);
3. Whenever by some act of the
creditor, the guarantors even though
they are solidarily liable cannot be
subrogated to the rights, mortgages
and preferences of the former (Art
2080);
4. For the same causes as all other
obligations (Art 1231);
5. When the principal obligation is
extinguished;
obligation;
2. Pledgor,
mortgagor,
antichretic
debtor must be the absolute owner
of the thing pledged or mortgaged;
and
 The reason being that in
anticipation
of
a
possible
foreclosure sale in case of
default which is still a sale, the
rule is that the seller must be
the owner of the thing sold
(Cavite Development Bank vs.
Lim, 324 SCRA 346)
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
200
MEMORY AID IN CIVIL LAW
3. Pledgor,
mortgagor,
antichretic
debtor must have free disposal of
their property, or be legally
authorized for such purpose.
NOTES:
 Third persons can pledge or
mortgage their own property to
secure the principal obligation.
 It is not necessarily void simply
because the accommodation pledgor
or mortgagor did not benefit from
the same. So long as valid consent
was given, the fact that the loan was
given solely for the benefit of the
principal debtor would not invalidate
the mortgage (GSIS vs CA, 170 SCRA
533)
 The
accommodation pledgor or
mortgagor,
without
expressly
assuming personal liability for such
debt, is not liable for the payment of
any deficiency, should the property
not be sufficient to cover the debt
(Bank of America vs. American
Realty Corporation, 321 SCRA 659).
 The accommodation pledgor or
mortgagor is not solidarily bound
with the principal obligor but his
liability extents only to the property
pledged or mortgaged. Should there
be any deficiency, the creditor has
recourse on the principal debtor who
remains to be primarily bound.
 The
law
grants
to
the
accommodation
pledgor
or
mortgagor the same rights as a
guarantor and he cannot be
prejudiced by any waiver of defense
by the principal debtor.
B. Prohibition
against
Pactum
Commissorium (Art 2088; 2137)
Pactum Commissorium
 Stipulation whereby the thing
pledged or mortgaged, or under
antichresis
shall
automatically
become the property of the creditor
in the event of non-payment of the
debt within the term fixed.
Requisites:
1. There should be a pledge, mortgage,
or antichresis of property by way of
CIVIL LAW COMMITTEE
security for the payment of the
principal obligation; and
2. There should be a stipulation for an
automatic appropriation by the
creditor of the property in event of
nonpayment of the obligation within
the stipulated period.
GENERAL RULE: Pactum Commissorium
is forbidden by law and is declared null
and void.
The
pledgee
may
EXCEPTION:
appropriate the thing pledged if after
the first and second auctions, the thing
is not sold. (Art 2112)
NOTE: The security contract remains
valid; only the prohibited stipulation is
void.
C. Capability to secure all kinds of
obligations,
i.e.
pure
or
conditional (Art 2091)
D. Indivisibility (Art 2089)
GENERAL RULE: A pledge, mortgage,
or antichresis is indivisible, even though
the debt may be divided among the
successors in interest of the debtor or of
the creditor.
 Their indivisibility is not affected by
the fact that the debtors are jointly
or not solidarily liable.
Consequences of indivisibility:
1. Single thing – Every portion of the
property pledged or mortgaged is
answerable for the whole obligation
2. Several things – All of the several
things pledged or mortgaged are
liable for the totality of the debt
3. Debtor’s heir/creditor’s heir Neither the debtor’s heir who has
paid part of the debt cannot ask for
proportionate extinguishment, nor
creditor’s heir who received his
share of the debt return the pledge
or cancel the mortgage as long as
the debt is not completely satisfied.
EXCEPTIONS:
1. Where each one of several things
guarantees
a
determinate
portion of the credit
2. Where only a portion of the loan
was released
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)
San Beda College of Law
201
MEMORY AID IN CIVIL LAW
3. Where there was failure of
consideration.
4. Where there is no debtorcreditor
relationship
NOTES:
 The mere embodiment of a real
estate mortgage and a chattel
mortgage in one document does not
have the effect of fusing both
securities into an indivisible whole.
 The mortgagee, therefore, may
delivered shall be returned with all
its fruits and accessions.
Special Requisites (in addition to
the common essential requisites):
1. Possession of the thing pledged must
be transferred to the creditor or a
third person by agreement (Art
2093);
2. It can only cover movable property
and incorporeal rights evidenced by
documents of title
and the

legally foreclose the real estate
mortgage extrajudicially and waive
the chattel mortgage foreclosure,
and maintain instead a personal
action for the recovery of the unpaid
balance of the credit (Phil. Bank of
Commerce vs. Macadaeg, 109 Phil
981)
E. When the principal obligation
becomes due, the things in which
the
pledge,
mortgage,
or
antichresis
consists
may
be
alienated for the payment to the
creditor. (Art. 2087)
NOTES:
 If the debtor fails to comply with the
obligation at the time it falls due,
the creditor is merely entitled to
move for the sale of the thing
pledged or mortgaged in order to
collect the amount of his claim from
the proceeds.
 If he wishes to secure a title to the
mortgaged property, he can buy it in
the foreclosure sale (Montevirgin vs.
CA, 112 SCRA 641)
F. Pledgor, mortgagor, antichretic
debtor retains ownership of the
thing given as a security
PLEDGE (Arts 2093 – 2123)

A contract wherein the debtor
delivers to the creditor or to a third
person a movable or document
evidencing incorporeal rights for the
purpose of securing fulfilment of a
principal
obligation
with
the
understanding
that
when
the
obligation is fulfilled, the thing
instruments
proving
the
right
pledged shall be delivered to the
creditor, and if negotiable must be
endorsed (Art 2094); and
3. The description of the thing pledged
and the date must appear in a public
instrument to bind third persons, but
not for the validity of the contract
(Art 2096).
 Kinds:
1. Conventional /Voluntary – created
by contract
2. Legal – created by operation of law
(examples: Art. 546, 1731 and 1914
NCC)
NOTES:
 The provisions of possession, care
and sale of the thing as well as on
the termination of the pledge
governing conventional pledges are
applicable to pledges created by
operation of law (Art 2121)
 Unlike, however, in conventional
pledge where the debtor is not
entitled to the excess unless it is
otherwise agreed, in legal pledge,
the remainder of the price of the
sale after payment of the debt and
expenses, shall be delivered to the
debtor.
 In legal pledge, there is no definite
period for the payment of the
principal obligation. The pledgee
must make a demand for the
payment of the amount due him;
otherwise he cannot exercise the
right of sale at public auction (Art
2122)
Characteristics:
CIVIL LAW COMMITTEE
 CHAIRPERSON: Romuald Padilla  ASST.CHAIRPERSON: Vida Bocar, Joyce Vidad  EDP: Alnaiza Hassiman, Dorothy Gayon
 SUBJECT HEADS: Christopher Rey Marasigan (Persons and Family Relations), Alejandro Casabar(Property), Ma. Rhodora
Ferrer(Wills and Succession), Ian Dominic Pua(Obligations and Contracts), Sha Elijah Dumama(Sales and Lease), John Stephen
Quiambao(PAT), Christopher Cabigao(Credit Transactions), Ligaya Alipao(Torts and Damages), Anthony Purganan(LTD),
Ma. Ricasion Tugadi (Conflicts of Law)