CREDIT TRANSACTIONS CREDITTRANSACTIONS Q:Whatiscredit? A: It is a person’s ability to borrow money by virtue of confidence or trust reposed in him by thelenderthathewillpaywhathemaypromise. Q:Whatiscredittransaction? A:Itreferstoagreementbasedon trustorbelief of someone on the ability of another person to complywithhisobligations. Q:Whatdocredittransactionsinclude? A:Theyincludealltransactionsinvolvingloansof: 1. goods 2. servicew 3. money extended to another either gratuitously or onerously with a promisetopayordeliverinthefuture. Q:Whatissecurity? A:Itissomethinggiven,deposited,orservingasa means to ensure the fulfillment or enforcement ofanobligation or of protectingsomeinterestin theproperty. Q:Whatarethetypesofsecurity? A: Personal: when an individual become a surety b. 3. there is consideration or burden imposedlikeinterest. Gratuitous–Thisisacontractwhere there is no consideration or burden imposed.(e.g.commodatum) Q:Whatisbailment? A: It is the delivery of a personal property for some particular use, or on mere deposit, upona contract, express or implied, that after the purposehasbeenfulfilled,itshallbe redelivered tothepersonwhodeliveredit,orotherwisedealt with according to his directions, or kept until he reclaimsit,asthecasemaybe. Note: Generally, no fiduciary relationship is created by bailment. No trustee‐beneficiary relationship is created. Q: What are the contractual bailments with referencetocompensation? A: 1. For the sole benefit of the bailor (gratuitous) e.g.gratuitousdeposit,commodatum 2. For the sole benefit of the bailee (gratuitous) e.g.commodatum,mutuum 3. Forthebenefitofbothparties(mutual‐ benefitbailments) a. e.g. depositfor compensaton, involuntary deposit, pledge andbailmentsforhire: b. hireofthings–temporaryuse c. hire of service – for work or labor d. hireofcarriage ofgoods–for carriage e. hireofcustody–forstorage oraguarantor. madeonproperty. Q:Whatarethekindsofcredittransactions? A: 1. Ascontractsofsecurity a. Contracts of real security – These 2. Astotheirconsideration a. Onerous – This is a contract where b. Real or property: when an encumbrance is b. depend on the existence of another contract. (e.g. commodatum and mutuum) Accessory contracts – They have to depend on another contract. These accessory contracts depend on the existence of a principal contract of loan. (e.g. guaranty proper, suretyship, pledge, mortgage and antichresis) are contracts supported by collateral/s or burdened by an encumbrance on property such as mortgageandpledge. Contracts of personal security – These are contracts where performance by the principal debtor is not supported by collateral/s but only by a promise to pay or by the personal undertaking or commitmentofanotherpersonsuch asinsuretyorguaranty. Astotheirexistence a. Principal contracts – They can exist alone. Their existence does not ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA Facultad de Derecho Civil EANELLE EE C. L VICECHAIRFORADMINISTRATIONAND FINANCE:J VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 375 UST GOLDEN NOTES 2011 I.LOAN Q:Whatisloan? A: It is a contract where one of the parties delivers to another, either something not consumablesothatthelatter mayuse thesame for a certain time and return it, in which case is called a commodatum; or money or other consumable things, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply calledaloanormutuum(Art.1933,NCC) Q:Whatarethekindsofloan? A: 1. Commodatum – where the bailor (lender) delivers to the bailee (borrower) a non‐consumable thing so that the latter may use it for a given timeandreturnthesamething 2. Mutuum – where the bailor (lender) deliverstothebailee(borrower)money or other consumable thing upon the conditionthatthelatter shallpaysame amountofthesamekindandquality Q:Whatmaybetheobjectofacontractofloan? A:Itdependsuponthekindofloan. 1. Commodatum – the object is generally notconsumable; 2. Mutuum–theobjectisconsumable. Q: Distinguish consumable from non‐ consumablethings. A:A thing is consumable when itcannot be used in a manner appropriate to its nature without being consumed. (Art. 418) (e.g. food, firewood, gasoline) On the other hand, a non‐consumable thing is a movable thing which can be used in a manner appropriate to its nature without it being consumed.(Art.418)(e.g.car,television,radio) Q:Distinguishfungiblefromnon‐fungiblethings. A: Fungible thing is one where the parties have agreedtoallowthesubstitutionofthethinggiven ordeliveredwithanequivalentthing(3Manresa 58). Non‐fungible thing is one where the parties have the intention of having the same identical thingreturnedaftertheintendeduse(Ibid). Note:Astowhetherathingisconsumableornot, it dependsuponthenatureofthething. 376 Astowhether it isfungibleornot, itdepends upon theintentionoftheparties. Fungiblesareusuallydeterminedbynumber,weight ormeasure. Q:Arenon‐fungiblethingsirreplaceable? A: GR: Non‐fungible things are irreplaceable. Theymustbereturnedtothelenderafter the purposeoftheloanhadbeenaccomplished. XPN:Non‐fungible thingsmaybe replacedby agreement of the parties. In such case, the contractisbarterandnotloan. Q:Distinguishloanfrom: Credit; Discount; Rentorlease;and Barter. A: CREDIT Abilitytoborrowmoney byvirtueofthe confidencereposedby thelenderuntohimthat hewillpaywhathehas promised DISCOUNT Interestisdeductedin advance Alwaysondouble‐name paper RENT Theownerofproperty doesnotlosethe ownership;heloseshis controlovertheproperty rentedduringtheperiod ofcontract Landlord‐tenant relationship BARTER Subjectmatterarenon‐ fungiblethings Alwaysonerous Thereisamutualsale resultinginthetransfer ofownershiponboth sides Thepartiesdonotreturn thethingssubjectofthe exchange LOAN Deliverybyonepartyandthe receiptbytheotherpartyofa givensumofmoney,uponan agreement,expressedorimplied, torepaythesumloaned,withor withoutinterest LOAN Interestistakenattheexpiration ofacredit Generallyonasingle‐namepaper LOAN Thethingloanedbecomesthe propertyoftheobligor Obligor‐obligeerelationship LOAN Subjectmatterismoneyorother fungiblethings Maybegratuitousoronerous inmutuum,thereistransferof ownership,thereisnosale incommodatum,thebailee returnsthethingafterthe expirationoftheperiodagreed upon CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Whatisbarter? A: It is a contract whereby one of the parties bindshimselftogiveonethinginconsiderationof the other’s promise to give another thing. (Art. 1638,NCC) Q: What is the legal effect of an accepted promisetodeliversomethingbywayofmutuum orsimpleloan? A:Itisbindingupontheparties,but themutuum or simple loan itself shall not be perfected until the delivery of the object of the contract (Art. 1934,NCC). Q: What is the effect if the loan is for an unlawfulpurpose? A:Iftheloanisexecutedfor illegalorimmoral or unlawful purposeoruse,thecontractis void.The bailor may immediately recover the thing before any illegal act is committed and provided he is innocent or in good faith (Arts. 1411 and 1412, NCC). A.COMMODATUMANDMUTUUM COMMODATUM Q:Whatiscommodatum? A:Itisacontractwhereoneoftheparties(bailor) delivers to another (bailee) something not consumablesothatthelatter mayuse thesame foracertaintimeandthereafterreturnsit. Q: What are the characteristics of a contract of commodatum? A: 1. Real contract – delivery of the thing loanedisnecessaryfortheperfectionof thecontract 2. Unilateral contract – once subject matter is delivered, creates obligations on the part of only one of the parties (theborrower) 3. Essentiallygratuitous 4. Purpose is to transfer the temporary useofthethingloaned 5. Principalcontract 6. Purelypersonalcontract Q:Whataretheelementsofcommodatum? A:Theremustbe: 1. abaileeandbailor 2. 3. thebaileeacquirestheuseofthething itmustbegratuitous Q:Whatcouldbethesubjectofcommodatum? A: GR: Under Art. 1933, the subject matter of commodatum must be non‐consumable becausethethingmustbereturned. XPN: Consumable goods may be the object of commodatum if the purpose is not to consume them such as when they were loaned merely for ad ostentationem or exhibitionpurposes.Aftertheaffair,thesame and identical goods shall be returned to the lenderorbailor(Art.1936,NCC). Q:Whatmaybetheobjectofcommodatum? A:Bothmovableandimmovablepropertymaybe theobjectofcommodatum.(Art.1937,NCC) Q:Whatarethekindsofcommodatum? A: 1. Ordinary commodatum – bailor cannot just demand the return of the thing at will, because there is a period agreed uponbytheparties. 2. Precarium – one whereby the bailor maydemandthethingloanedatwillin thefollowingcases: a. iftheduration of thecontract hadnotbeenstipulated; b. if the use to which the thing loanedshouldbedevotedhad notbeenstipulated;or c. if the use of the thing is merely by tolerance of the owner Note: The word “owner” in Art. 1947 (2) is not proper becausethebailorneed notbetheownerof the thing. (Pineda,CreditTransactionsandQuasicontracts, p.26, 2006ed) Q: What are the consequences of the purely personalcharacterofcommodatum? A: GR: Commodatum is purely personal in character hence death of either bailor orbaileeextinguishesthecontract(Art. 1939,NCC) ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA Facultad de Derecho Civil VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 377 UST GOLDEN NOTES 2011 XPN: By stipulation, the commodatum is transmitted to the heirs of either or bothparty. In case of lease of the thing subject of commodatum: GR: The bailee can neither lend nor lease the object of the contract to a thirdperson. XPN: Members of the bailee’s household may make use of the thing loaned. Note: Membersof thebailee’s household arenotconsideredasthirdpersons. XPNtotheXPN: Contrarystipulation;or Natureofthethingforbidssuchuse. Note:Householdmembersare those who permanently living or residing within the same residence including thehouseholdhelpers. Q:Distinguishcommodatumfromlease. A: COMMODATUM Realcontract Objectisanon‐ consumable(non fungible)thing Essentiallygratuitous LEASE Consensual Objectmayevenbe workorservice Onerous MUTUUM Q:Whatismutuum? A: It is a contract whereby one of the parties calledthe“lender” deliverstoanother calledthe “borrower”, money or other consumable thing subjecttotheconditionthat thesameamountof thesamekindandquantityshallbepaid. Q: What are the characteristics of a contract of mutuum? A: Borroweracquiresownershipofthething. Ifthethingloanedismoney, paymentmust be made in the currency which is legal tenderinthePhilippines andincaseof extraordinary deflation or inflation, the basis of payment shall be the value of thecurrencyat thetimeof thecreation oftheobligation. 378 Iffungiblethingwas loaned, theborroweris obliged topaythelenderanotherthing ofthesamekind,qualityandquantity. Note:Mereissuanceofchecksdoesnot perfectthe contractofloan.Itisonlyafterthecheckshavebeen encashed that the contact may be deemed perfected. Further, when the movable thing deliveredinloanisnottobereturned to thebailor, but may be substituted or replaced with another equivalentthing,itisafungiblething. Q:Distinguishcommodatumfrommutuum. A: COMMODATUM MUTUUM Object Non‐consumable(Non‐ Consumable fungible) Cause Gratuitous,otherwiseitisa Mayormaynotbe lease gratuitous Purpose Useortemporarypossession ofthethingloanedbut GR: not its fruit because the bailorremainstheowner Consumption XPNs: use of the fruits is stipulated; enjoyment of the fruits isstipulated;or enjoyment of the fruits isincidentaltoitsuse SubjectMatter Real orpersonalproperty Generallynon‐consumable Onlypersonal thingsbutmaycover property consumablesifthepurpose ofthecontractisfor exhibition. Ownershipofthething Retainedbythebailor Passestothedebtor Thingtobereturned Equalamountofthe Exactthingloaned samekindandquality Whobearsriskofloss Bailor Debtor Whentoreturn Incaseofurgentneedeven Onlyafterthe beforetheexpirationof expirationoftheterm term(thecontractisinthe meantimesuspended) Contract Contractof Contractofuse consumption CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Distinguishmutuumfrom: Lease;and Barter.(seeArticle1954) A: MUTUUM Objectismoneyorany consumable(fungible) thing Thereistransferof ownership Creditor‐debtor relationship Unilateral contract which cannot be perfected until the deliveryoftheobject. Q: Whatarethegoverningruleson paymentof loan? A: It depends on the object of the contract of loan. Money – governed by Arts. 1249 and 1250, NCC GR: Payment shall be made in the currencystipulated. XPN: Ifnot, that currencywhich is legal tenderinthePhilippines. LEASE Objectmaybeanything, whethermovableor immovable,fungibleor non‐fungible Notransferofownership Lessor‐lesseerelationship Bilateral MUTUUM Subjectmatterismoney orotherfungiblethings Maybegratuitousor onerous Whileinmutuum,there istransferofownership, thereisnosale BARTER Subjectmatterarenon‐ fungiblethings Note: In case of extraordinary inflation – value of the currency at the time of the creationoftheobligation. Alwaysonerous Thereisamutualsale resultinginthetransfer ofownershiponboth sides Consumable or fungible thing – debtor or borrowershallpayanotherthingofthe same kind, quality and quantity even if it should change in value. If cannot be done,thevalueof thethingat thetime of its perfection (delivery) shall be the basisofthepaymentoftheloan. Themoneyor consumablething Thepartiesdonotreturn loanedisnotreturned thethingssubjectofthe butthesameamount exchange ofthesamekindand quantityshallbepaid. Q:Whatisthecauseinasimpleloan? A: 1. As to the borrower – the acquisition of thething 2. As to the lender – the right to demand the return of the thing loaned or its equivalent (Monte de Piedad v. Javier, CA,36Off.Gaz.2176). Q:Whatmaybetheobjectofmutuum? A:Moneyorfungibleandconsumablethings. Q:Canloanofmoneybepayableinkind? A: Yes, if there is an agreement between the parties(Art.1958,NCC). Q:Whenisacontractofsimpleloanperfected? A: Real contracts, such as deposit, pledge and commodatum, are not perfected until the deliveryoftheobjectoftheobligation.(Art.1316, NCC) While mutuum or simple loan is not mentioned, it has the same character as commodatum. Hence, mutuum is also a real Q:Mayapersonbeimprisonedfornon‐payment ofdebt? A: No. This is because of the constitutional provision under Article III, Section 3 of the 1987 Constitution which expressly provides that no personshall beimprisonedfor non‐paymentofa debtorpolltax. Q: Can estafa be committed by a person who refusestopayhisdebtordeniesitsexistence? A: No, because the debtor in mutuum becomes the owner of the thing delivered to him. If he consumedor disposedofthething, theactwhich is an act of ownership is not misappropriation. Hence, there is no basis for a criminal prosecution. Q: Does destruction of the thing loaned extinguishone’sobligationinasimpleloan? A: The destruction of the thing loaned does not extinguish one’s obligation to pay because his obligationisnottoreturnthethingloanedbutto payagenericthing. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA Facultad de Derecho Civil VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 379 UST GOLDEN NOTES 2011 Q: Who are the parties to a commodatum? Distinguish. A: 1. Bailor/Comodatario/Commodans – the giver/ lender ‐ the party who delivers the possession or custody of the thing bailed. 2. Bailee/Comodante/Commodatarius – therecipient/borrower‐thepartywho receives the possession or custody of thethingthusdelivered. B.OBLIGATIONSOFTHEBAILORANDBAILEE BAILOR OBLIGATIONSOFTHEBAILOR Q:Whataretheobligationsofthebailor? A: Allowthe baileetheuseof thethingloaned forthedurationoftheperiodstipulated or until the accomplishment of the purpose. Refund the extraordinary expenses the bailee incurred for the preservation of thething. GR: The bailee must bring to the knowledge of the bailor such expenses beforeincurringthesame. XPN:In casethere is urgency and delay wouldcauseimminentdanger. Note: If the extraordinary expenses arise on the occasion of the actual use of the thing loaned by the bailee, the expenses shall be borne by the bailor and bailee equally,eventhoughthebaileeiswithout fault.(Art.1949,NCC) To be liable for damages for known hidden defects. Cannot exempt himself from payment of expenses or damages by abandonment ofthethingtobailee. Q:Whenisthebailorliableforhiddendefects? A:Whenthefollowingrequisitesarepresent: 1. there was a flaw or defect in the thing loaned; 2. theflawordefectishidden; 380 3. 4. 5. thebailorisawarethereof; he does not advise the bailee of the same;and thebaileesuffersdamagesbyreason of saidflawordefect. Q:Whatisthecauseofactionagainst the bailor whodidnotdisclosetheflawordefect? A: Action for recovery of damageson the ground ofquasi‐delictbecauseofnegligenceorbadfaith. RIGHTSOFABAILOR Q: Can the bailor demand the return of thing loanedanytimehepleases? A: GR:No XPNs: 1. Incaseofurgentneedbythebailor 2. Incaseofprecarium 3. If the bailee commits an act of ingratitudetothebailor(Art.1948,NCC), towit: a. If the bailee should commit some offenses against the person,honorortheproperty of the bailor, or his wife or children under his parental authority; b. If the bailee imputes to the bailoranycriminialoffense,or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committedagainstthebailee, his wife or children under his authority;or c. If the bailee unduly refuses the bailor support when the bailee is legally or morally bound to give support to the bailor. Note: The rationale for the application of Art. 765 which refers to donations is the fact that commodatum,likedonation,isgratuitousinnature. Q: If the contract of commodatum is a precarium,willArt.1942(1)and(2)stillapply? A:It depends. If there has been a demand on the part of the bailor before the loss of the thing underthecircumstancessetforthunderArt.1942 (1)and(2)andthebaileedidnotreturnthething, CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS under Articles 1207 and 1208. Solidarity is providedtosafeguardeffectivelytherightsofthe bailoroverthethingloaned. then the latter is liable. However, if there has beennodemandonthepartofthebailorandthe thingwaslost,thebailorisestoppedandcannot hold the bailee liable for under a contract of precarium, the use of the thing by the bailee depends on the pleasure of the bailor and no timeisfixedforsuchuse.Hence,demandonthe partofthebailorisneededfor thereturn ofthe thing. Without such, loss of the thing on the handsofthebaileewillnotmakehimliable. Note: The concurrence of two or more creditors or twoormoredebtorsin oneandthesameobligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is solidary liability only when the obligation expressly so states, or when the law or thenatureof theobligationrequiressolidarity.(Art. 1207) Iffromthelaw,or thenatureor thewordingofthe obligationstowhichtheprecedingarticle refers the contrarydoesnotappear,thecreditordebtshall be presumedtobedividedintoasmanyequalsharesas there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits.(Art.1208) Note:Article1942.Thebailee isliableforthelossof the thing, even if it should be through a fortuitous event: Ifhedevotesthethingtoanypurposedifferent fromthatforwhichithasbeenloaned; Ifhekeepsitlonger thantheperiodstipulated, or after the accomplishment of the use for which the commodatum hasbeen constituted; xxx Q:Mustthebailorbetheownerofthething loaned? A: No. The bailor in commodatum need not be theownerof thethingloaned.Itissufficient that he has possessory interest over subject matter (Art.1938,NCC). OBLIGATIONSOFTHEBAILEE Q:Whataretheobligationsofabailee? A: Astoordinary expenses Note: A mere lessee or usufructuary may gratuitously give the use of the thing leased or in usufruct, provided there is no prohibition against such. BAILEE Q:If therearetwoormorebaileestoacontract of commodatum, what is the nature of their liability? A: When thereare 2 or more baileestowhoma thing is loaned in the same contract, they are liablesolidarily.(Art.1945,NCC) Astothelossof thethingin caseof fortuitous event Note:Theirliabilityissolidaryinordertoprotectthe bailor’srightsoverthethingloaned. Q: Following the principle of autonomy of contracts, may the parties to a contract of commodatum validly stipulate that the liability ofthebaileesshallbejoint? A: No. Article 1245 expressly provides that in a contractofcommodatum,whenthere aretwoor more bailees to whom a thing is loaned in the same contract, they are liable solidarily. It constitutesas anexceptiontothegeneral ruleof “joint obligations” where there are two or more debtors, who concur in one and same obligation Astothe deterioration ofthething loaned Payfortheordinaryexpensesfor theuseandpreservationofthe thing Liableforlosseventhrough fortuitouseventwhen [ask‐dl]: when being able to save either of the thing borrowedorhisownthing, hechosetosavethelatter hekeepsitlongerthanthe period stipulated, or after the accomplishment of its use(indefault); the thing loaned has been deliveredwith appraisal of itsvalue when he lends or leases it to third persons who are not members of his household thereisdeviationfromthe purpose Notliableforthedeteriorationof thethingloanedcausedbythe ordinarywearandtearofthething loaned.(Art.1943) Note:Whentherearetwoormore bailees,theirliabilityissolidary. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA Facultad de Derecho Civil VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 381 UST GOLDEN NOTES 2011 RIGHTSOFABAILEE Q:Whataretherightsofabailee? A:FRUD Useofthething; Make use of the fruits of the thing when suchrightisstipulatedinthecontract; Not answerable for the deterioration of the thingloanedduetotheusethereofand withouthisfault;and Right of retention for damages due to hidden defects or flaws of the thing of whichhewasnotadvisedbythebailor. Q: Art. 1178 of the NCC provides that all rights acquired by virtue of an obligation are transmissible. Is the right to use the thing by virtue of a contract of commodatum transmissible? A:No,itisnottransmissiblefor2reasons: Art.1178providesthatthetransmissibilityof saidacquiredrightsareeithersubjectto thelawsortoacontrarysipulation;and Art. 1939 provides that a contract of commodatum is purely personal in character. Note:To rule otherwisewould be to runcounter to the purely personal character of the commodatum and to the proviso that transmissibility is subject to thelawgoverningsuchobligations. Q:Canthebaileelendorlease theobjectofthe contracttoathirdperson? A: GR:Thebaileecanneitherlendnorleasethe objectofthecontracttoathirdperson. XPN: Members of the bailee’s household maymakeuseofthethingloaned. Note: Members of the bailee’s household are notconsideredasthirdpersons. XPNtotheXPN: Contrarystipulation;or Nature of the thing forbids such use. Q:Whatisthelegaleffectifthe bailee paysfor theuseofthething? A: The contract ceases to be commodatum; it becomeslease. 382 Q:Incommodatum,doesthebaileeacquire the useofthefruitsofthething? A: No. The bailee in commodatum acquires only theuseof thethingloanedbutnotitsfruits(Art. 1935,NCC). Q:Isastipulationthatthebaileemaymakeuse ofthefruitsofthethingloanedvalid? A:Yes. Itis understood that the enjoyment of the fruits must only be incidental to the use of the thing.Itshouldnotbethemaincause;otherwise, thecontractisnota commodatum butausufruct (Art.1940,NCC). Q:Willthe stipulationthatthebaileemaymake use of the fruits of the thing loaned impair the essenceofcommodatum? A: No. It will not impair the essence of commodatum because the actual cause or considerationthereforeisstilltheliberalityof the bailororlender. Q:Isthererightofretentionincommodatum? A: GR: The bailee cannot retain the thing loaned onthegroundthatthebailorowesthebailee. XPN: The bailee has the right of retention for claims of damages which the bailee incurred orsufferedbyreasonofthehiddendefectsor flawsofthethingloaned,ofwhichhewasnot informedoradvisedbythebailor. Note: The reason for the general rule that there is norightof retentionisthat“bailmentimpliesatrust thatassoon asthe timehasexpiredor thepurpose accomplished,thebailedproperty must be returned to the bailor.” Also, Art. 1287 provides that compensation shall not be proper when one of the debts arises from the obligations of a bailee in commodatum.(Art.1287,reworded) Q: Suppose during the said retention of the bailee,thethingislostduetoafortuitousevent. Canthe bailorholdthebaileeliableforsaidloss basedonArt.1942(2)? A: No, the bailee cannot be held liable for the loss. Art. 1942 (2) contemplates wrongful retention or a situation where the bailee is not entitledtoretainthethingloaned. Note: Article 1942 (2) provides that the bailee is liable for the loss of the thing, even if it should be throughafortuitousevent ifhekeepsitlongerthan the period stipulated, or after the accomplishment CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Who shall bear the costs for the van's fuel, oil and other materials while it was with Tito? Explain. A: The costs for the fuel and other materialsare considered ordinary expenses, and consequently Tito, the bailee, shall shoulder them (Art. 1941, NCC) Does Pedro have the right to retrieve the van evenbeforethelapseofoneyear?Explain. A: No, Pedro cannot demand the return of the van until after the expiration of the one‐year periodstipulated.However,ifinthemeantimehe should have urgent need of the van, he may demanditsreturnortemporaryuse. Who shall bear the expenses for the accidental damagecausedbythecargotruck,grantingthat the truck driver and truck owner are insolvent? Explain. A: Both Tito and Pedro shall bear equally the costsoftheextraordinaryexpenses,havingbeen incurredontheoccasion ofactualuseofthevan byTito,thebailee,even though heacted without fault.[Art.1949(2),NCC](2005BarQuestion) C.INTERESTANDTHESUSPENSIONOFTHE USURYLAW Q:Whatisinterest? A:Itisnothingmorethanthecompensationtobe paid by the borrower for the use of the money lenttohimbythelender. Q:Whatistheruleoninterests? A: GR: No interest shall be due unless it is stipulatedinwriting.(Art.1956,NCC) XPN: In case of interest on damages or indemnity for damages, it need not be in writing. Q:Whatisthebasisoftherighttointerest? A: It only arises by reason of the contract (stipulation in writing) or by reason of delay or failure to pay principal on which interest is demanded (Baretto v. Santa Marina, No. 11908, feb.4,1918). Iftheobligationconsistsof thepaymentofasum of money, and the debtor incurs delay, the of the use for which the commodatum has been constituted. Q: What if the bailee is entitled to payment or reimbursementofexpensesincurredordamages sufferedandthebailoroffersthethingloanedas payment for said expenses or damages, would such offer be valid or not, in view of the prohibitionunderArt.1952whichstatesthatthe bailorcannotexempthimselffromthepayment ofexpensesordamagesbyabandoningthething tothebailee? A: The offer isnot valid. Itmay beconsideredas dationinpayment.Inthiscase,theabandonment done by the bailor was made in favor of the bailee for the payment of the expenses incurred by the latter, hence, a violation of what the law hasexpresslyprohibitedunderArticle1952. Q: When is the bailee not entitled to reimbursementfortheexpensesheincurred? A: If, for the purpose of making use and preservation of the thing, the bailee incurs expenses other than those ordinary and extraordinaryexpenses. Q: Before he left for Riyadh to work as a mechanic,PedrolefthisvanwithTito,withthe understandingthatthelattercoulduseitforone year for his personal or family use while Pedro works in Riyadh. He did not tell Tito that the brakes of the van were faulty.Tito had the van tuned up and the brakes repaired. He spent a total amount of P15,000.00. After using the vehicle for two weeks, Tito discovered that it consumed too much fuel. To make up for the expenses,heleasedittoAnnabelle.Twomonths later, Pedro returned to the Philippines and askedTitotoreturnthevan. Unfortunately, while being driven by Tito, the van was accidentally damaged by a cargo truck withouthisfault. Who shall bear the P15,000.00 spent for the repairofthevan?Explain. A:The contract between Pedroand Tito is oneof commodatum. Of the P15, 000.00 spent, Pedro, the bailor, shall bear the expenses for the repair of the faulty brakes, they being extraordinary expenses incurred due to the non‐disclosure by thebailorofthedefectorfault;Tito,ontheother hand,shallshoulder"thatpartoftheP15,000.00 spent for the tune‐up”, said expense being ordinaryfortheuseandpreservationofthevan. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA Facultad de Derecho Civil VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 383 UST GOLDEN NOTES 2011 indemnity for damages shall be the payment of legal interest (Philrock, Inc. v. Construction Industry Arbitration Commission, G.R. Nos. 132848‐49,June25,2001) Q:Cantherebeinterestinequitablemortgage? A: No. Interest could not be collected on equitable mortgage because the same is not stipulatedinwriting(Tanv.Valdehueza,G.R.No. L‐38745,Aug.6,1975). Note: One which, although it lacks the proper formalities or other requisites of a mortgage required by law, nevertheless reveals the intention of the parties to burden real property as a security for a debt, and contains nothing impossible or contrarytolaw. Q:Canpaidunstipulatedinterestberecovered? A:Ifpaidbymistakethedebtormayrecoverasin the case of solutio indebiti or undue payment. However if payment is made voluntarily, no recovery can be made as in the case of natural obligation. Q: Sabugo granted a loan to Samilin. The loan agreement was not reduced in writing. Thereafter, Sabugo demanded additional interest which was paid by Samilin in cash and checks. Upon advice of her lawyer, Samilin demanded for the return of the amount of interestpaid.Isthepaymentofinterestvalid? A: No. Payment of monetary interest is allowed onlyif: 1. therewasanexpressstipulationfor the paymentofinterest;and 2. the agreement for the payment of interestwasreducedinwriting. Theconcurrenceofthetwoconditionsisrequired for the payment of monetary interest. Thus, collection of interest without any stipulation thereforinwritingisprohibitedbylaw.(Siga‐anv. Villanueva,G.R.No.173227,Jan.20,2009.) Q: May interest be adjudged on unliquidated claims? A: GR:No. XPN:Unlessthesame can be establishedwith reasonablecertainty.(AtlanticGulfandPacific Company of Manila, Inc. v. CA, G.R. Nos. 114841‐42,Aug.23,1995) 384 Q: In case the interest may be adjudged on unliquidatedclaimbutthepleadingsincourtdid not spell out said amount with certitude, when shalllegalinterestthereonrun? A: The legal interest thereon shall run only from the promulgation of judgment of said court, it being at that stage that the quantification of damages may be deemed to have been reasonablyascertained.(Ibid) Q: What is the actual base for computing such legalinterest? A: It shall be the amount as finally adjudged by theSupremeCourt.(Ibid) Q: What is the basis for computation for indemnityfordamages? A: It shall be the interest agreed upon by the partiesandintheabsenceofstipulation,thelegal interestwhichis6%perannum(Art.2208,NCC). Note:6%becauseitisbasedondamages and ithas been said that judgments other than loans, forbearance,etc.isbasedon6%. Q:Whataretheclassesofinterest? A: 1. Simple – interest which is paid for the use of the money, at a certain rate stipulatedinwritingbytheparties. 2. Compound – interest which is imposed upon accrued interest, that is, the interestdueandunpaid. 3. Legal – that interest which the law directstobepaidintheabsenceofany agreementastotherate. Q:Whencantherebe: 1. Monetaryinterest; 2. Compensatoryinterest? A: 1. Monetary interest must be expressly stipulated in writing and it must be lawful.(Art.1956,NCC)Itispayableon thedelayoftheuseofthemoney. 2. Indemnity for damages (compensatory interest) – the debtor in delay is liable to pay legal interest (6% or 12%) as indemnity for damages even in the absence of stipulation for the payment interest. Such interest as indemnity for damages is payable only in case of defaultornon‐performanceofcontract. CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Note: If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the debtorisliablefordamages.(Art.2209,NCC) A: Back rentals being equivalent to a loan or forbearance of money, the interest rate due thereonis12%perannumfromthetimeofextra‐ judicial demand (Catungal v. Hao, G.R. No. 134972,Mar.22,2001). Q: What is the basis for the interest rate for compensatoryinterest? A: 1. Central Bank Circular 416 – 12% per annum incasesof: a. Loans b. Forbearance of money, goods and credits c. Judgement involving such loan or forbearance, in the absence of expressagreementastosuchrate ofinterest Note: Back rental is the full extended value of land letbylease,payablebytenantforlifeoryears. Q:Whatistheruleoncompoundingofinterest? A: GR: Accrued interest (interest due and unpaid)shallnotearninterest. XPN:When: 1. judiciallydemanded;or 2. thereisexpressstipulationmadebythe parties – that the interest due and unpaid shall be added to the principal obligation and the resulting total amountshallearninterest. Note: Duringtheinterim period from the date of judgment until actual payment. d. Pursuant to P.D. No. 116 amending Act No. 2655 (Usury Law), the Central Bank of the Philippines issued Circular No. 416 raising the legalrateofinterestfrom6%to12% perannum. Note:Compounding of interest may be availedonly when there is a written stipulation in the contract forthepaymentofinterest. Q:Whatisfloatinginterest? A: It is the interest stipulated by banks which is not fixed and made to depend upon the prevailing market conditions, considering the fluctuatingeconomicconditions. Q:Isastipulationforfloatinginterestvalid? A: No. While it may be acceptable for practical reasonsgiventhefluctuatingeconomicconditions forbankstostipulatethatinterestratesonaloan not be fixed and instead be made dependent on prevailing market conditions, there should be a reference rate upon which to peg such variable interestrates[ConsolidatedBankandTrustCorp. (Solid Bank) v. CA, G.R. No. 114672, Apr. 19, 2001]. Q:Whatisinterestondamages? A: Interest that which is imposed in a judgment asindemnityfordamages. e. In the absence of a stipulation as to interest, the loan due will now earn interest at the legal rate of 12% per annum.(Sulit v. CA, G.R.No.119247, Feb.17,1997). 2. 3. Art.2209,NCC–6%perannumincasesof: a. Othersources(i.e.sale) b. Damages arising from injury from person. c. Loss of property which does not involvealoan. Interest accruing from unpaid interest – interest due shall earn interest from the time it is judicially demanded although the obligationmaybesilentuponthispoint. Q:Whatisforbearance? A: It signifies the contractual obligation of the creditor to forbear during a given period of time torequirethedebtorpaymentofanexistingdebt thendueandpayable.Suchforbearance ofgiving timeforthepaymentofadebtis, insubstance,a loan(91C.J.S.598). Q: What is the interest rate imposable for back rentals? Note:Itneednotbeinwritingandcomputedfrom thetimeofthefinalityofdecision. Q: A judgment was rendered ordering the defendant Maybel to pay Vanessa with legal interestof 12% from the filing of the complaint until paid. The decision became final and executory. Maybel argues that the rate of 12% ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 385 UST GOLDEN NOTES 2011 underCentralBankCircular416wasmisapplied. How much by way of legal interest should a judgmentdebtorpaythejudgmentcreditor? A: The judgments spoken of and referred to underCentralBankCircular416arejudgmentsin litigations involving loans or forbearances of money, goods or credits. Any other kind of monetary judgments which has nothing to do with, nor involving loans or forbearance of any money goods or credits does not fall within the coverage of said law. Coming to the case at bar, thedecisionhereinsoughttobeexecutedisone rendered in an Action for Damages for injury to personsandlossofpropertyanddoesnotinvolve any loan, much less forbearances of any money, goodsorcredits. Q: Carlos sues Dino for (a) collection on a promissory note for a loan, with no agreement on interest, on which Dino defaulted, and (b) damages caused by Dino on his (Carlos') priceless Michaelangelo painting on which Dino accidentally spilled acid while transporting.it. The court finds Dino liable on the promissory note and awards damages to Carlos for the damaged painting, with interests for both awards. What rates of interest may the court imposewithrespecttobothawards?Explain. A: With respect to the collection of money or promissorynote,itbeingaforbearanceofmoney, the legal rate of interest for having defaulted on the payment of 12% will apply. With respect to the damages to the painting, it is 6% from the timeofthefinaldemanduptothetimeoffinality ofthedecisionand 12% ofthetotalamountfrom finality of judgment until judgment credit is fully paid. The court considers the latter as a forbearance of money. (Eastern Shipping Lines, Inc. v. CA, G.R. No. 97412, July 12, 1994; Arts. 2210and2211,NCC)(2002BarQuestion) Q:Musttheprincipaldebtstillbepaidin usurioustransactions? A: Yes. Under the Usury Law, notwithstanding stipulationsofusuriousinterest,thedebtormust still pay the principal debt (Lopez v. El Hogar Filipino,No.22678,Jan.12,1925). Q: What is the rationale behind the validity of unconscionableInterestrateinaloan? A:TheSupremeCourtsaidnothinginsaidcircular (Circular905)suspendingUsuryLawgrantslender authority to raise interest rates to levels which will either enslave their borrowers or lead to a 386 hemorraghingoftheirassets(Almedav.CA,G.R. No.113412,Apr.17,1996) InthecaseofMedelv.CA(G.R.No.131622,Nov. 27, 1998), the court ruled that while stipulated interestof5.5%per month on aloanisusurious pursuant to CBC No. 905, the same must be equitably reduced for being iniquitous, unconscionable and exorbitant. It is contrary to morals. It was reduced to 12% per annum in consonantwithjusticeandfairplay. Q: Samuel borrowed P300,000.00 housing loan from the bank at 18% per annum interest. However, the promissory note contained a proviso that the bank "reserves the right to increase interest within the limits allowed by law." By virtue of such proviso, over the objections of Samuel, the bank increased the interestrateperiodicallyuntilitreached48%per annum. Finally, Samuel filed an action questioningtherightofthebanktoincreasethe interest rate up to 48%. The bank raised the defensethattheCentralBankofthePhilippines had already suspended the Usury Law. Will the actionprosperornot?Why? A:Theactionwillprosper.Whileitistruethatthe interest ceilings set by the Usury Law are no longerinforce,ithasbeenheldthatPDNo. 1684 andCBCircularNo.905merelyallowcontracting parties to stipulate freely on any adjustment in the interest rate on a loan or forbearance of moneybut donotauthorizeaunilateralincrease of the interest rate by one party without the other'sconsent(PNBv.CA,G.R.No.107569,Nov. 8, 1994). To say otherwise will violate the principle of mutuality of contracts under Article 1308of theCivilCode.Tobevalid,therefore,any changeofinterestmustbemutuallyagreed upon by the parties (Dizon v. Magsaysay, G.R. No. L‐ 23399, May 31, 1974). In the present problem, the debtor not having given his consent to the increase in interest, the increase is void. (2001 BarQuestion) II.DEPOSIT Q:Whatis ? A: It is a (depositor) (depositary), for the principal purpose of it, with the obligationof Q:Whenisacontractofdepositconstituted? CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS A: From the moment a person receives a thing belongingtoanother,withtheobligationofsafely keepingitandreturningthesameupondemand. Q: What are the characteristics of contract of deposit? A: 1. Real contract – because it can only be perfectedbythedeliveryoftheobjectofthe contract. However, an agreement to constitute a future deposit is a consensual contract and is thereforebinding. borrower SubjectMatter Movable(extrajudicial)or Moneyorotherfungible maybeimmovable thing (judicial) Relationship Depositor‐depositary Lender‐borrower Compensation Nocompensationof Therecanbe thingsdepositedwith compensationofcredits eachother(exceptby mutualagreement) 2. DEPOSIT COMMODATUM PrincipalPurpose Safekeeping Transferofuse Nature Maybegratuitousor Alwaysgratuitous onerous 3. DEPOSIT AGENCY Purpose Representationofthe Safekeeping principalbytheagent Note: There is no consensual contract of deposit; there is only a consensual promise to deliver which isbindingifsuchisaccepted. 2. Object of the contract must be a movable property. However, in cases of judicial deposit, the subject matter may be a real property. 3. Reasonforcustodyofthething Purpose is for the safekeeping of the thing deposited. This must be the principal purposeandnotonlysecondary. Thecustodyofthething Itismerelyanincidental istheprincipaland obligationoftheagent essentialreasonforthe deposit Nature Itisgenerallyonerousor Essentiallygratuitous forcompensation 4. DEPOSIT LEASE PrincipalPurpose Safekeeping Useofthething Whentoreturn Upondemandofthe Uponterminationofthe depositor leasecontract. 5. DEPOSIT SALE Ownership Retainedbydepositor. Transferredtobuyer. 4. Itisgratuitous,unlessthereisa: a. Contraryagreement;or b. The depositary is engaged in the business of storing goods, like a warehouseman. 5. The depositary cannot use the thing deposited,unless: a. Permittedbythedepositor;or b. Preservation of the thing requires itsuse,butonlyforsaidpurpose. Maybemadeorallyorinwriting. Q:Distinguishdepositfrom: 1. Mutuum; 2. Commodatum; 3. Agency; 4. Lease;and 5. Sale. A: 1. Q:Whatarethekindsofdeposit? A: 1. Judicial(sequestration) 2. Extra‐judicial a. Voluntary–thedeliveryismadeby thewillofthedepositor. b. Necessary – made in compliance with a legal obligation, or on the occasion of any calamity, or by DEPOSIT MUTUUM Purpose Safekeeping/custody Consumption Whentoreturn Upondemandofthe Uponexpirationofthe depositor termgrantedtothe ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 387 UST GOLDEN NOTES 2011 travelers in hotels and inns, or by travelerswithcommoncarriers. Q: Distinguish judicial from extra‐judicial deposit? A: JUDICIAL EXTRA‐JUDICIAL Creation Willofthecontracting Willofthecourt parties Purpose Securityortoensurethe rightofapartyto propertyortorecoverin Custodyandsafekeeping caseoffavorable judgment SubjectMatter Movablesor immovablesbut Movablesonly generallyimmovables Cause Generallygratuitousbut Alwaysonerous maybecompensated Whenmustthethingbereturned Uponorderofthecourt Upondemandof orwhenlitigationis depositor ended Inwhosebehalfitisheld Depositororthird Personwhohasaright persondesignated Q: What is the nature of the rent of safety depositboxes? A:Therentofsafetydepositboxesisanordinary contractoflease of thingsandnot a special kind of deposit because the General Banking Act as revised has deleted the part where banks are expressly authorized to accept documents or papersforsafe‐keeping. The case of Sia v. CA, G.R. No. 102970, May 13, 1993 enunciating that a rent of a safety deposit box is a special kind of deposit, was decided undertheformerGeneral BankingAct.However, SC has not yet decided a case abandoning the ruling in Sia v. CA, making it conform with the newGeneralBankingAct. Fixed, savings and current deposits in banks and othersimilarinstitutionsarenottruedepositsbut are considered simple loans because they earn interest.(Art.1980,NCC) Q: Is ownership necessary in a contract of deposit? 388 A: The depositor need not be the owner of the thing deposited because the purpose of the contract is safekeeping and not transfer of ownership. Note: A deposit may also be made by two or more persons each of whom believes himself entitled to the thing deposited with a third person, who shall deliver it in a proper case to the one to whom it belongs. Q: What is the nature of advance payment in a contractofsale? A: A so called deposit of an advance payment in thecaseofasaleisnotthedepositcontemplated underArt.1962.Itisthatadvance payment upon whichownershipistransferredtotheselleronce it is given subject to the completion of payment by the buyer under an agreement. (Cruz v. AuditorGeneral,No.L‐12233,May30,1959). A.VOLUNTARYDEPOSIT Q: What are the obligations of depositary in voluntarydeposit? A: 1. Tokeepthethingsafelyandreturnit 2. Exercisesamediligenceashewouldexercise overhisownproperty rd 3. Not to deposit the thing with a 3 person unlessexpresslyauthorizedbystipulation a. b. 4. 5. 6. Note:Depositary is liable for the loss if: Hedepositsthethingtoa3rdperson without authority, even though the lossisduetofortuitousevents Deposits the thing to a 3rd person who is manifestly careless or unfit althoughthereisauthority. Ifthethingshouldearninterest: a. collectinterestasitfallsdue b. take steps to preserve the value andrightscorrespondingtoit Nottocomminglethingsifsostipulated GR:Nottomakeuseofthethingdeposited XPNs: a. When preservation of thing depositedrequiresitsuse b. Whenauthorizedbydepositor CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS c. d. 7. 8. PARTIES Q:Whoarethepartiestoacontractofdeposit? A: 1. Depositary – to whom the thing is deposited 2. Depositor – the one who deposits the thing DEPOSITARY Q:Whoisadepositary? A:The depositary is the one to whom the thing is deposited. Q:Maythedepositarychangethemannerofthe deposit? A: Yes, if he may reasonably presume that the depositorwouldconsenttothechangeifheknew ofthefacts ofthesituation.However,before the depositarymaymakesuchchange, he shallnotify the depositor thereof and wait for his decision, unlessdelaywouldcausedanger(Art.1974,NCC). Q: Is a guardian a depositary of the ward’s property? A: The guardian is not holding the funds of the ward merely for safekeeping exclusively but also intended for the latter’s maintenance and support. Losses, if any without the fault of the guardianshallbedeductedfromthefundsofthe ward (Phil. Trust Co. v. Ballesteros, No. L‐8261, April20,1956). Q: What is the effect when the depositary has permissiontousethethingdeposited? A: GR: The contract loses the concept of a deposit and becomes a loan or commodatum. XPN:Where safekeepingis still the principal purposeofthecontract(Art.1978,NCC). GR: In such case it is no longer a deposit but a contract of loan or commodatum,asthecasemaybe. XPN: Principal reason for the contract is still safekeeping, it is stilldeposit. Whenthethingdepositedisdeliveredsealed andclosed: a. return the thing in the same condition b. pay damages if seal be broken throughhisfault c. keep the secret of the deposit whensealisbrokenw/orw/ohis fault d. However, the depositary is authorizedtoopenthesealorlock when: a. there is presumed authority b. outofnecessity GR: Pay for any loss or damage that may ariseduetohisfault XPN:Liabilityoflossthroughfortuitousevent XPNs to XPN: Even in case of loss through fortuitousevent,stillliableif(USAD): a. Stipulated b. he Uses thing w/o depositor’s permission c. heDelaysitsreturn d. he Allows others to use it (even if hehimselfisauthorizedtouseit) 9. Returnthethingdepositedwithallitsfruits, accessions,andaccessories 10. Pay interest on sums converted to personal useifthedepositconsistsofmoney Q:Whenisavoluntarydepositextinguished? A: 1. Lossordestructionofthingdeposited; 2. In gratuitous deposit, upon death of eitherdepositorordepositary;or 3. Other causes (e.g. return of thing, novation, expiration of the term, fulfillmentofresolutorycondition) Note:Thepermission shallnot bepresumed,andits existencemustbeproved. Q: What is the rule with respect to the determinationofthevalueofthething? A: GR: The statement of the depositor shall be acceptedasprimafacieevidenceofthevalue ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 389 UST GOLDEN NOTES 2011 iftheforcibleopeningoftheboxorreceptacle isimputabletothedepositary. XPN:Ifthereisa clear, strong and convincing evidencetothecontrary. It is significant to know the value of the thing depositedincasewhenthere isacontroversyon the value of the thing deposited which is deliveredclosedandsealed. Q:UnderArt.1983,what isincluded intheterm “products,accessoriesandaccessions”? A: The depositor’s ownership over the thing carries with it the right to the fruits and all accessionstheretoincluding: 1. 2. 3. Naturalfruits Industrialfruits Civilfruits(Art.441,NCC) Q: When the deposit consists of money, what must be returned upon the extinguishment of contract? A: The provision of Article 1896 shall apply wherein the money deposited must be returned together with interest for the use thereof. The imposition ofinterestis intheform ofpenaltyfor the use of money there being no agreement to pay the interest at the outset, otherwise, the contractwillbeamutuum. Q: Can the depositary demand that the depositor should prove his ownership of the thingdeposited? A: GR:No. XPN: Should he discover that the thing has been stolen and who its true owner is, he mustadvisethelatterofthedeposit. Note: If the depositary has reasonable grounds to believethatthethinghasnotbeenlawfullyacquired bythedepositor,theformermayreturnthesame. Q:Whatshould thedepositarydoifhelosesthe thing through force majeure or government orderandreceivesmoneyoranotherthinginits place? A:He shall deliver the sumor other thing to the depositor. 390 Q:Whatisthedutyofthedepositary’sheir ifhe sold the thing which he did not know was deposited? A: He shall be bound to returnthe price he may have received or to assign his right of action against the buyer in case the price has not been paidbyhim(Art.1991,NCC). Note: The provision applies only when the depositary has died and left heir/s who took possession of the thing in the concept of an owner andsolditingoodfaithtoathirdperson. Q: What is the right of the depositary if he has notbeenpaidtheamountduetohim? A:The depositary may retain the thing in pledge until full payment of what may be due him by reasonofthedeposit(Art.1994,NCC). Q:Maythedepositarysellthethingretainedin pledge? A: Yes, Article 2108 provides that if, without the faultofthepledgee,thereisdanger, destruction, impairment, or diminution in value of the thing pledged, he may cause the same to be sold at publicauction. Theproceedsoftheauction shall be a security for the principal obligation in the same manner as the thing originally pledged. (Pineda,p.93,2006ed) Q:ManejaassignedandconveyedtoSerranoher time deposit. Notwithstanding series of demandsforencashmentoftheaforementioned time deposits, OBM refused to honor the time deposits. Is OBM liable to Serrano despite the fact the Central Bank declared that OBM could no longer operate due to its chronic reserve deficiencies? A: Yes. Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed, savings or current, are to be treatedasloansandaretobecoveredbythelaw on loans. Current and savings deposits are loans toabankbecauseitcanusethesame.Serrano,in makingtimedepositsthatearninterestwithOBM was in reality acreditor of the respondent bank, and not a depositor. The bank was in turn a debtor of Serrano. Failure of OBM to honor the time deposits is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary’s failure to return the subject matter ofthedeposit.(Serranov.Central Bank,G.R. No. 30511,Feb.14,1980) CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS DEPOSITOR Q:Whoisadepositor? A: The depositor is the one who deposited the thing. Q: Whatistherulewhentherearetwoormore depositors? A:Iftheyarenotsolidary,andthethingadmitsof division,eachonecannotdemandmorethanhis share. When there is solidarity or the thing does not admitofdivision,theprovisions ofArt.1212and 1214 shall govern. However, if there is a stipulation that the thing should be returned to oneofthedepositors, the depositaryshallreturn itonlytothepersondesignated(Art.1985,NCC). Q:Whataretheobligationsofdepositor? A: 1. Payment for necessary expenses for preservation a. If the deposit is gratuitous – reimbursedepositary b. With compensation – no need for reimbursement; expenses borne bydepositary 2. GR: Paylosses incurred by depositary due to thecharacterofthethingdeposited. XPNs: a. When at the time of deposit, the depositor was not aware of the dangerous character of the thing orwasnotexpectedtoknowit; b. When the depositor notified the depositary;or c. Whenthedepositarywasawareof it without advice from the depositor. 3. In case of an onerous deposit, to pay the compensationagreeduponasconsideration forthedeposit. Q: To whom should the thing deposited be returned? A: 1. To the depositor, to his heirs and successors, or to the person who may have been designated in the contract (Art.1972,NCC). 2. If the depositor was incapacitated at the time of making the deposit, to his guardian or administrator or to the depositor himself should he acquire capacity(Art.1970,NCC). 3. Evenifthedepositorhadcapacityatthe time of making the deposit but he subsequently loses his capacity during thedeposit, thethingmustbereturned to his legal representative (Art.1988, NCC). Q: Where should the thing deposited be returned? A: GR:Attheplaceagreedupon. XPN: In the absence of stipulation, at the place where the thing deposited might be, evenifitshouldnotbethesameplacewhere the original deposit was made provided the transferwasaccomplishedwithoutmaliceon thepartofthedepositary. Q: When should the thing deposited be returned? A: GR: Upon demandor at will, whether or not a periodhasbeenstipulated. XPNs: 1. Thing is 2. Depositary was (Art.1986,NCC). 3. Whenthe the depositary cannot return the thing deposited to the depositor. This is intended to protect the true owner. 4. In case of if the depositary has a . If the depositor , the depositary may secure its from the court (Art.1989,NCC). ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 391 UST GOLDEN NOTES 2011 B.NECESSARYDEPOSIT Q:Whenisdepositconsideredasnecessary? A: 1. When it is in compliance with a legal obligation; 2. It takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events; 3. Made by passengers with common carriers;or 4. Madebytravelersinhotelsorinns. Q: When can the keepers of hotels or inns be held responsible for loss of thing in case of deposit? A:Whenbotharepresent: 1. they have been previously informed by guest about the effects the latter broughtin;and 2. the guest has taken precautions prescribedfortheirsafekeeping. Note: They are liable regardless of the degreeofcareexercisedwhen: a. loss or injury is caused by his employees or even by strangers;or b. loss is caused by act of thief or robber when there is no use of armsorirresistibleforce. Q: What are the instances when the keepers of hotels or inns are not liable for loss of thing in caseofdeposit? A:Theyarenotliablewhen: 1. loss or injury is caused by force majeure; 2. lossduetotheactsofguests,hisfamily, hisemployees,orvisitors;and 3. loss arises from the character of the goods. Q:Are hotelorinnkeepers stillliableregardless of the posting of notices exempting themselves fromanyliability? A: Yes. Hotel/Inn‐keepers cannot escape or limit liability by stipulation or the posting of notices. Anystipulationbetweenthehotelkeeperandthe guest whereby the responsibility of the former (Arts. 1998‐2001) is suppressed or diminished shallbevoid. 392 Q:Whatistheextentof the liabilityofthehotel keepersincaseofloss? A: 1. It covers liability in hotel rooms which come under the term “baggage” or articlessuchasclothingasareordinarily usedbytravelers. 2. It includes lost or damages in hotels annexes such as vehicles in the hotel’s garage. Q:Canthekeepersof thehotelsorinnsexercise therightofretention? A: Yes, as security for credits incidenttothestay atthehotel(in thenatureofapledgecreatedby operationoflaw). C.JUDICIALDEPOSIT Q:Whendoesjudicialdeposit(sequestration) takeplace? A: When anattachment or seizureof propertyin litigationisorderedbyacourt.(Art.2005,NCC) Note: It is auxiliary to a case pending in court. The purpose is to maintain the status quo during the pendency of the litigation or to insure the right of the parties to the property in case of a favorable judgment.(DeLeon, Comments and caseson credit transaction,p.154,2010) Q: What may be the object of Judicial sequestration? A:Movablesandimmovables(Art.2006,NCC) Q: When will the properties sequestered cease tobeincustodialegis? A: When the insolvency proceedings of a partnership terminated because the assignee in insolvency has returned the remaining assets to the firm, said properties cease to be in custodia legis(NgCho Cio,etal.v. NgDiong&Hodges,L‐ 14832,Jan.28,1961) III.GUARANTYANDSURETYSHIP A.NATUREANDEXTENTOFGUARANTY Q:Whatisguaranty? A: It is a contract where a person called the guarantor binds himself to the creditor to fulfill theobligationof theprincipaldebtorincasethe lattershouldfailtodoso. CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Whatarethekindsofguaranty? A: 1. Generalclassification a. Personal guaranty where an Q:Whatissuretyship? A: It is a contract where a person binds himself solidarilywithprincipaldebtor. Q:Distinguishguarantyfromsuretyship. A: GUARANTY Collateralundertaking Guarantor‐secondarily liable Guarantorbindshimself topayiftheprincipal cannotpay Insurerofsolvencyof debtor Guarantorcanavailof thebenefitofexcussion anddivisionincase creditorproceedsagainst him b. SURETYSHIP Suretyisanoriginal promissory 2. Astoitsorigin a. Surety‐primarilyliable b. Suretyundertakestopay ifprincipal doesnotpay c. Insurerofthedebt 3. Suretycannotavailof thebenefitofexcussion anddivision not does receive any price or for acting as such. Q: Whatisthesimilaritybetweenguaranty and suretyship? A: Both guarantor and surety promise or undertake to answer for the debt, default or miscarriageofanotherperson. Q: Whatarethecharacteristicsofguarantyand suretyship? A:ACCUNCS 1. Accessory 2. Consensual 3. Conditional 4. Unilateral 5. Nominate 6. Cannotbepresumed 7. CoveredbytheStatuteofFrauds Q:Distinguishguarantyfromwarranty. A: acontractbywhicha personisboundto anotherforthe fulfillmentofa promiseor undertakingofathird person constituted by ftheparties Legal – imposed by virtue of a –required to guarantee the eventual right of thepartiesinacase. Astoconsideration a. Gratuitous – b. GUARANTY individual personally assumes the fulfillment of the principal obligation; – guaranty is , movable,orimmovable. 4. Astoperson a. Single – constituted b. 5. – one where the guarantor receives valuable forhisguaranty or secure performance by the debtor of theprincipalobligation. Double or subguaranty – fulfillmentoftheobligationofa ‐ Astoscopeandextent a. Definite – where the guaranty b. is limited to the principal or to a specific portionthereof. – where the guaranty included all the obligations of the e.g. costs, including judicialcosts. B.EFFECTSOFGUARANTY Q:Whataretheobligationsthatmaybesecured inacontractofguaranty? A: 1. obligations 2. obligations 3. obligations 4. obligations – When the debtor WARRANTY anundertakingthatthe title,qualityorquantityof thesubjectmatterofa contractiswhatitis representedtobe,and relatestosome agreementmade ordinarilybytheparty whomakesthewarranty himself offers a guaranty for his natural obligation, he impliedly recognizes his liability, thereby transforming the obligationfromanaturalintoacivilone. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 393 UST GOLDEN NOTES 2011 5. l obligations – only in case of suspensive condition because it gives rise to theprincipalandhence,givesrisealso totheaccessoryobligation. Note: Voidable contract is one which has all the essential elements of a valid contract, except that the element of consent is vitiated. It is valid and obligatorybetweenthepartiesbeforeitsannulment. on the other hand, is one whichcannotbeenforced byactionorcomplaintin court, unless they have been ratified by the party whodidnotgive hisconsent thereto. Sinceboth are considered valid obligations between the parties until their annulment, and subject to ratification, theycanbesecuredinacontractofguaranty. Q: Is a valid principal obligation necessary in contractofguaranty? A: Since guaranty is anaccessory contract, itis an indispensable condition for its existence that theremustbeaprincipalobligation.Hence,i . Q:Inwhatformshouldacontractofguarantybe made? A:Itmustbe (par.2,Art. 1403,NCC);otherwise,it isunenforceableunless ratified.Itneednotbeinapublicinstrument. Note: Guaranty, as a contract, requires the expression of the consent of the guarantor in order tobebound.Itcannot bepresumedbecauseofthe existenceofacontractorprincipalobligation. Q: Is acceptance necessary in a contract of guaranty? A: GR: The acceptance of the creditor is not essentialinsuchcontracts. XPN: When there is a mere offer of a guaranty or a conditional guaranty wherein theobligationdoesnotbecomebindinguntil it is accepted by the creditor and notice of suchacceptanceisgiventotheguarantor. Q: In case of doubt, in whose favor should a contractofguarantyorsuretyberesolved? A: GR: Strict construction against the creditor andliberalinfavoroftheguarantororsurety; termscannotbeextendedbeyonditsterms. XPN:Incasesofcompensatedsureties. 394 Q:Statethegeneralcharacterofguaranty. A: GR:Generallygratuitous(Art.2048,NCC) XPN:Stipulationtothecontrary. Q: Who are the parties to a contract of guaranty? A: 1. Guarantor 2. Creditor GUARANTOR Q:Whoisaguarantor? A: The guarantor is the person who is bound to another for the fulfillment of a promise or undertakingofathirdperson. Q:Whatarethequalificationsofaguarantor? A: 1. Possessesintegrity; 2. tobindhimself;and 3. Has to answer for theobligationwhichheguarantees. Note:Thequalificationsneedonlybepresentatthe timeoftheperfectionofthecontract. Q: What is the A: The subsequent loss of integrity, property or supervening incapacity of the guarantor would not operate to exonerate the guarantor or the eventual liability he has contracted, and the However, the But he maywaiveitifhechoosesandholdtheguarantor tohisbargain. Q: When is the qualification of the guarantor lost? A: Q: What is the effect of absence of direct considerationorbenefittoguarantor? A:Guarantyorsuretyagreementisregardedvalid despite the absence of any direct consideration CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q: What are the situations when a guarantor may lawfully be required to pay more than the originalobligationoftheprincipaldebtor? A: 1. Ifupondemand,aguarantorfailstopay theobligation,he canbeheldliablefor interest, even if in thus paying, the liabilitybecomesmorethan thatinthe principal obligation. The increased liability is not because of the contract but because of the default and the necessity for judicial collection. It should be noted, however, that the interest runs from the time the complaint is filed,notfromthetimethe debt becomes due and demandable (Tagawa v. Aldanese, No.18636, sept. 28,1922). 2. Creditors suing on a surety bond may recoverfromthesurety,as partoftheir damages, interest at the legal rate, judicial cost and attorney’s fees when appropriate even if the surety would therebybecomeliabletopaymorethan thetotalamountstipulatedinthe bond (Dino v. CA, G.R. No. 89775, Nov. 26, 1995). 3. A may also increase the liabilityofthesurety(GeneralInsurance SuretyCo.v.Republic,G.R.No.L‐13873, Jan.31,1963) Q:Whatisthe A: His to the ecausetheobligationis not purely personal and is therefore transmissible. Q:Whatisthe A: His obligation will survive. His Q:Whatistherulewithrespecttojurisdictionin anactionbasedonacontractofguaranty? A: The guarantor shall be subject to the jurisdiction of the court of the place where the obligationistobecompliedwith. received by the guarantor or surety, such consideration need not pass directly to the guarantor or surety; a consideration moving to theprincipalwillsuffice. Q: Whatistherulewhen amarriedwoman isa guarantor? A: GR:Bindsonlyherseparateproperty. XPNs: 1. If with her husband’s consent, it binds the community or conjugal partnership property. 2. Without husband’s consent, in cases provided for by law, such as when the guaranty has redounded to the benefit ofthefamily. Q: What are the rights of a third person who paysforthedebtguaranteed or secured? A: 1. If payment is made without the knowledge or against the will of the debtor: a. only asthe b. 2. Ifpaymentismade – had againstthedebtor. Q:Whatistheextentofguarantor’sliability? A: 1. Where the guaranty is definite – It is limited in whole or in part to the principal debt to the exclusion of accessories. 2. Where the guaranty is indefinite or simple – It shall comprise not only the principal obligation but also all its accessories, including the judicial costs provided that the guarantor shall only beliableforthosecostincurredafterhe hasbeenjudiciallyrequiredtopay. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 395 UST GOLDEN NOTES 2011 BENEFITOFEXCUSSION Q:Whatisthebenefitofexcussion? A: It is a right by which the guarantor cannot be compelledtopaythecreditorunlessthelatterhas exhausted all the properties of the principal debtor and has resorted to all legal remedies againstsuchdebtor. Q: What are the requisites of benefit of exhaustionorexcussion? A: The guarantor must set up the right of excussionagainstthecreditoruponthe latter’sdemandforpaymentfromhim; and 1. 2. 8. He must point out to the creditor the available property of the debtor (not exempted from execution) found within the Philippine territory (Art. 2060,NCC). Q: May a complaint be filed against the debtor andguarantorsimultaneouslyinonecasebefore the exhaustion of all the properties of the debtor? A: Yes. There is nothing procedurally objectionable in impleading the guarantor as a co‐defendant. As a matter of fact, the Rules of Court on permissive joinder of parties explicitly allow it. If the creditor obtained a favorable judgment against the debtor and guarantor, the latterisentitledtoadefermentoftheexecution of the said judgment against him until all properties of the debtor shall have been exhausted to satisfy the latter’s obligation involvedinthecase. Q:Whatistheeffectofdeclarationofinsolvency withrespectto the right of excussion? A: Just because the debtor has been declared insolvent in insolvency proceeding does not necessarily mean that he cannot pay, for part of the debtor’s assets may still be available to the creditor. Onegoodproofofthe debtor’sinability to pay is an unsatisfied writ of execution which has been returned by the implementing sheriff (Machetti v. Hospicio de San Jose, 43 Phil. 297, Feb.7,1920) Q:Whenistherenobenefitofexcussion? A:RJS‐AIR‐FEDS 396 3. 4. 5. 6. 7. 9. Guarantorhasexpressly it. Guarantor has himself withtheDebtor. Debtoris nsolvent. Guarantorhas bsconded, or cannot be sued within the Philippines unless he leftamanagerorrepresentative. Ifitmaybepresumedthatan xecution on the property of the Debtor cannot satisfytheobligation. Guarantor does not invoke the benefit against Creditor upon emand to him forpaymentand he does not point out availableproperty of the Debtor within the Philippines sufficient to cover the obligation(Art.2060,NCC). Guarantor is a udicial bondsman or sub‐surety. A pledge or mortgage of his own property has been given by Guarantor as pecialsecurity. Guarantor fails to interpose it as a defensebeforejudgmentisrendered. BENEFITOFDIVISION Q:Whatistheprincipleofbenefitofdivision? A: , (Joint liability) Note: GR: Creditor can claim from the guarantors only up to the extent they are respectively boundtopay. XPN:Whensolidarityhasbeenstipulated. Should any of the guarantors become insolvent, his share shall be borne by the other guarantors including the paying guarantor in the same joint proportion in accordance with the rule in solidary obligations. Therighttobereimbursedfromhisco‐guarantorsis acquiredipsojurebyvirtueofsaidpayment. Q:Distinguishbenefitofdivisionfrombenefit of contribution. A: BENEFITOF BENEFITOFDIVISION CONTRIBUTION Controversybetween Controversyisbetween andamongtheseveral theco‐guarantorsand co‐guarantors thecreditor Thereisnopayment Thereisalready CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q: What is the effect of compromise between the creditor and the guarantor to the principal debtor? A: If compromise is beneficial to the principal debtor, it is valid; otherwise, it is not binding nd upon him (2 sentence, Art. 2063, NCC). binding, it must benefit both the guarantor and thedebtor. Q:Whatistheruleontherightofindemnityand reimbursement of the guarantor who paid the debt? A: GR:Guarantor is entitledto bereimbursed by Debtorfor: 1. totalamountofthedebtpaid; 2. legal interest from the time payment wasmadeknowntothedebtor; 3. expenses incurred after notifying debtor that demand to pay was made uponhim;and 4. damagesinaccordancewithlaw. XPNs: 1. Guaranty is constituted without the knowledge or against the will of the debtor. Effect: Guarantor may only recover only somuchaswasbeneficialtothedebtor. rd 2. Payment by 3 persons who does not intendtobereimbursed. Effect: deemed a donation and as such requirestheconsentofdebtor. Q: What is the right of the guarantor after the paymentofthedebtismadetothecreditor? A: The guarantor is subrogated to all the rights which the creditor st hadagainstthedebtor(1 par.,Art.2067) Q: Whathappenswhenguarantorpayswithout noticetothedebtor? A: The debtor may interpose against the guarantor defenses available to the debtor as against the creditor at the time payment was made. paymentofdebt;the yet,butthereismerely payingco‐guarantoris aclaimpressedagainst seekingthecontribution oneormoreco‐ oftheco‐guarantors guarantors Q: Whatisthe effectofthecreditor’snegligence inexhaustingthepropertiesofthedebtor? A: He shall suffer the loss to the extent of the value of the pointed property which was not exhaustedbythecreditor(Art.2061,NCC). Note: The article applies when the guarantor has compliedwiththeconditionsofArt.2060(requisites ofbenefitofexcussion). Q: Whatistherulewithregardtoactionof the creditoragainstthedebtor? A: GR:Onlytheprincipaldebtor should be sued alone. XPN: If the benefit of excussion is not available, the guarantor can be sued jointly withthedebtor. Q:Istheguarantorentitledtobenotifiedofthe complaintagainstthedebtor? A:Yes.Iftheguarantordesirestosetupdefenses as are granted him by law, he may have the opportunitytodoso. Q: What are the consequences of the guarantor’s appearance or non‐appearance in thecaseagainstthedebtor? A: 1. If he and judgment is renderedagainstthedebtor, whichhecouldhaveset up had he appeared; moreover, he ; 2. Ifhe suchasbyfilingananswer inintervention,he .If Thereis no waiverofhisbenefit ofexcussionbyhis appearanceinthecase. Q: What is the effect of compromise between thecreditorandthedebtortotheguarantor? A: st (1 sentence,Art.2063,NCC). Note: GR: Guarantormust1 stnotify thedebtor before paying, otherwise, if the debtor pays again, the guarantorcanonlycollectfromthecreditorand insolvent. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 397 UST GOLDEN NOTES 2011 XPN: Guarantor may still recover fromdebtor ifthefollowingcircumstancesconcur: 1. Guarantyisgratuitous; 2. Guarantor was prevented by fortuitous eventfromnotifyingthedebtor;and 3. Creditorwasinsolvent. Q: Can the guarantor proceed against the principal debtor even before having paid the creditor? A: GR:No. XPNs: 1. Whenheissuedforpayment; 2. In case of insolvency of the principal debtor; 3. When the debtor has bound himself to relieve him from the guaranty within a specified period, and this period has expired. 4. When thedebthasbecomedemandable byreasonoftheexpiration oftheperiod ofpayment; 5. After the lapse of ten years, when the principal obligation has no fixed period for its maturity, unless it be of such nature that it cannot be extinguished except within a period longer than ten years; 6. If there are reasonable grounds to fear that the principal debtor intends to abscond;or 7. If the principal debtor is in imminent dangerofbecominginsolvent. Note: In all these cases, the of the guarantor is either to from the guaranty, to thatshallprotect himfromanyproceedingsbythecreditorandfrom the danger of insolvency of the debtor (Art. 2071, NCC). Q:Whatistheremedyofapersonwhobecomes a guarantor at the request of another for the debtofathirdpersonwhoisnotpresent? A: He has the option of suing either the principal debtorortherequestingparty(Art.2072,NCC). Note:Theprovision applieswhen the guarantorhas actuallypaidthedebt. 398 SUB‐GUARANTY Q:Whatisdoubleorsub‐guaranty? A: It is one constituted to guarantee the obligationoftheguarantor. Note: In case of insolvency of the guarantor for whomhe boundhimself, heisresponsibleto theco‐ guarantorsinthesametermsas theguarantors(Art. 2075,NCC). Q: Is a sub‐guarantor entitled to the right of excussion? A:Yes, both with respect to the guarantor and to theprincipaldebtor(Art.2064,NCC). CONTINUINGGUARANTY Q:Whatiscontinuingguarantyorsuretyship? A: GR:It i but , coveringaseriesoftransactionsgenerallyfor ani XPN: A chattel mortgage can only cover obligations existing at the time the mortgage is constituted and not to obligations subsequenttotheexecutionofthemortgage. XPN to the XPN: In case of stocks in departmentstores,drugstoresetc. Q:Whatisthetestofcontinuingguaranty? A: A guaranty shall be construed as continuing when by the terms thereof it is evident that the objectistogiveastandingcredit totheprincipal 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 (Dino v. CA, G.R. No. 89775, Nov. 26, 1995) Q:Mayguarantysecurefuturedebts? A: Yes. A guaranty may be given to secure even future debts, the amount of which may not be knownatthe time theguarantyisexecuted.This is the basis for contracts denominated as continuingguarantyorsuretyship.Itis onewhich covers all transactions, including those arising in the future, which are within the description or contemplation of the contract of guaranty, until theexpirationorterminationthereof.(Dinov.CA, G.R.No.89775,Nov.26,1995) CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q: PAGRICO submitted a Surety Bond issued by R&BSuretytosecureanincreaseinitscreditline with PNB.ForconsiderationoftheSuretyBond, Cochingyan and Villanueva entered into an Indemnity Agreement with R&B Surety and bound themselves jointly and severally to the termsandconditionsof theSuretyBond.When PAGRICOdefaulted,PNBdemandedpaymentto R&B Surety; R&B Surety, in turn, demanded payment to Cochingyan and Villanueva. R&B suedthem.Villanuevaarguedthatthecomplaint was premature because PNB had not yet proceeded against R&B Surety to enforce the latter's liability under the Surety Bond. Is the contentioncorrect? A: No. Indemnity Agreements are contracts of indemnification not only against actual loss but against liability as well. While in a contract of indemnity against loss an indemnitor will not be liable until the person to be indemnified makes payment or sustains loss, in a contract of indemnity against liability, as in this case, the indemnitor'sliabilityarisesassoonastheliability ofthepersontobeindemnifiedhasarisenwithout regard to whether or not he has suffered actual loss. Accordingly, R & B Surety was entitled to proceed against petitioners not only for the partial payments already made but for the full amount owed by PAGRICO to the PNB. (Cochingyan, Jr. v. R&B Surety and Ins. Co.,GR.No.L‐47369,June30,1987) C.EXTINGUISHMENTOFGUARANTY Q: What are the grounds for extinguishing a contractofguaranty? A: 1. 2. 3. If (even if he should D.LEGALANDJUDICIALBONDS Q:WhatisaBond? A: A bond, when required by law, is commonly understood to mean an undertaking that is sufficiently secured, and not cash or currency. Whateversurety bondsare submitted are subject to any objections as to their sufficiency or as to thesolvencyofthebondsman. Q:WhatisaBondsman? A:Abondsmanisasuretyofferedinvirtueofa provision of lawora judicial order.Hemusthave thequalificationsrequiredofaguarantorandin speciallawsliketheRulesofCourt. Q:Whatarethequalificationstoaproperty bond? A: The necessary qualifications of sureties to a propertybondshallbeasfollows: 1. Eachofthemmustbearesidentowner ofrealestatewithinthePhilippines; 2. Wherethereisonlyone surety,hisreal must be ; 3. Incasetherearetwo ormoresureties, they may justify severally in amounts lass than that expressed in the undertaking, if the entire sum justified toisequivalent tothewholeamountof bail demanded. (Sec. 12, Rule 114, RulesofCourt) Q:Whatisthenatureofabond? A: All bonds including “judicial bonds” are contractualinnature. Q:WhatisaJudicialBond? A: Q: Is the right of excussion available to a bondsman? A:No.Ajudicialbondsmanandthesub‐suretyare not entitled to the benefit of excussion because theyarenotmereguarantors,butsuretieswhose liabilitiesisprimaryandsolidary.(ART2084,NCC) afterwardslosethesame througheviction orconveyanceofproperty) 4. , benefitsalltotheextentoftheshareof the guarantor to whom it has been granted 5. by creditor withoutconsentofguarantor 6. When by some act of the creditor, the even though they are solidarilyliable t mortgages, and preferences oftheformer ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 399 UST GOLDEN NOTES 2011 Q: What is the liability of the surety if the creditorwasnegligentincollectingthedebt? A: A surety is still liable even if the creditor was negligent in collecting from the debtor. The contract of suretyship is not that the oblige will seethattheprincipalpays thedebtorfulfillsthe contract, but that the surety will see that the principalpay orperform(PNBv.ManilaSurety& FidelityCo.,Inc.,14SCRA776,1965) Q:Whatistheeffectof violationbythe creditor ofthetermsofthesuretyagreement? A:Aviolation by thecreditorof the termsof the surety entitles the surety to be released therefrom. (Associated Ins. & Surety Co. v. BacolodMurcia MillingCo.,GR.No.L‐12334,May 22,1959) Q:Whatistheeffectofasuretybondfiledforan alienstayinginthecountrywhichisforfeitedfor violatingitsterms? A: The effect of the violation is that its subsequent unauthorized cancellation thru mistake or fraud does not relieve the surety. A bond surrendered thru mistake or fraud may, therefore,beconsideredasavalidandsubsisting instrument.(FarEasternSuretyandIns.Co.,v.CA, GRNo.L‐12019,Oct16,1958) Q: What is the rule when the performance of a bondisrenderedimpossible? A:Itisthesurety’sdutytoinformthecourtofthe happening of the event so that it may take action ordecreeinthedischarge ofthesuretywhenthe performance of the bond is rendered impossible by an act of God, or the obligee, or the law. (Peoplev.OtiakOmal&LuzonCo.,Inc.,GR.No.L‐ 14457,June30,1961) PLEDGE,MORTGAGE,ANDANTICHRESIS Q:Whatispledge,mortgageandantichresis?Distinguish. A: PLEDGE MORTGAGE(Real) Definition Anaccessorycontractwherebyadebtor tothecreditororathirdperson a ,or documentevidencingincorporealrights, withtheconditionthat theobligationissatisfied,thething tothe pledgorwithallitsfruitsandaccessions, ifany. movableorpersonalproperty,or Itisacontractwherebythedebtor tothecreditorthe speciallysubjectingtosuch real rights over immovable ,incasetheprincipal obligationisnotpaidorcomplied withatthetimestipulated. Objectofthecontract immovablepropertyorrealrights property ANTICHRESIS AcontractwherebytheCR fruits of an immovable ofthe dedtor, interest,ifowing,andthereafter ofhiscredit. fruitsofanimmovable Q: What are the similarities of pledge and mortgage? A: 1. Bothareaccessorycontracts; 2. Both pledgor and mortgagor must be theabsoluteowneroftheproperty; 3. Bothpledgorandmortgagormusthave thefreedisposalof theirpropertyorbe authorizedtodoso;and 4. In both, the thing proffered as security maybesoldatpublicauction,whenthe principal obligation becomes due and nopaymentismadebythedebtor. 400 Q: Are the contracts of pledge, mortgage or antichresisindivisible? A: GR: A , or Note: Indivisibility may be waived. Indivisibility onlyappliestothecontractingparties. XPNs: 1. Where each one of several things guarantees determinate portion of the credit CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS GR: XPN: If the third party pledgor or mortgagor expressly agreed to be bound solidarily with theprincipaldebtor. 2. Where only a portion of the loan was released 3. Where there was failure of consideration Q: Whataretheobligationsthatcanbe secured bypledge,mortgageandantichresis? A: 1. Validobligations 2. Voidableobligations 3. Unenforceableobligations 4. Naturalobligations 5. Conditionalobligations Q: What rules are common to pledge and mortgage? A: Constituted to secure the fulfillment of a validprincipal obligation. Pledgor or mortgagor must be the absolute owner of the thing pledged or mortgaged. They must have the free disposal of their property, and in the absence thereof, thattheybelegallyauthorizedforsuch purpose. Q: May property acquirable in the future be mortgaged? A: No. Where the mortgagor mortgaged a property and in the contract he agreed to mortgage additional properties which he may acquire in the there was astothelatterbecausehewasnotyet the owner of the properties at the time of the mortgage (Dilag v. Heirs of Ressurrecion, No. 48941,May6,1946). Q: Is mortgage constituted to secure future advancesvalid? A: Yes. It is a continuing security and not dischargedbyrepaymentoftheamountnamedin the mortgage, until the full amount of the advances is paid. A chattel mortgage can only cover obligations existing at the time the mortgage is constituted and not to obligations subsequenttotheexecutionofthemortgage. Q:Isathirdpersonwhopledgedandmortgaged hispropertyliableforanydeficiency? A: Q: What is the right of an owner of personal propertypledgedwithoutauthority? A:HemayinvokeArt.559,NCC.Thedefensethat pawnshopowneracquiredownershipofthething ingoodfaithisnotavailable. Note:Art.559–Thepossessionofmovableproperty acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it fromthepersoninpossessionofthesame. If the possessor of a movable lost or of which the ownerhasbeenunlawfullydeprived,hasacquiredit in good faith at a public sale, the owner cannot obtain itsreturnwithout reimbursingthepricepaid therefore. Q: Whatisthenatureofanassignment ofrights toguaranteeanobligationofadebtor? A: It is in effect a mortgage and not an absolute conveyance of title which confers ownership on the assignee (Manila Banking Corp. v. Teodoro, Jr.,G.R.No.53955,Jan.13,1989) ACCOMMODATIONMORTGAGE Q:Whoisanaccommodationmortgagor? A: He is a third person who is not a party to a principal obligation and secures the latter by mortgaging or pledging his own property. Q: What is the extent of the liability of an accommodationmortgagor? A: It extends up to the loan value of their mortgaged property and not to the entire loan itself. PACTUMCOMMISSORIUM Q:Whatis ? A:Itis or subject of antichresis ‐ Such stipulationisnulland void. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 401 UST GOLDEN NOTES 2011 Q: What are the elements of ? A: 1. There is a pledge, mortgage or antichresis of a property by way of security;and 2. There is an express stipulation for the automaticappropriationbythecreditor ofthepropertyincaseofnon‐payment Note: What are prohibited are those stipulations executed or made simultaneously with the original contract,andnotthosesubsequentlyenteredinto. Q: ABC loaned to MNO P40,000 for which the latterpledged400sharesofstockinXYZ Inc.It wasagreedthatifthepledgorfailedtopaythe loanwith10%yearlyinterestwithinfour years, the pledgee is authorized to foreclose on the shares of stock. As required, MNO delivered possession of the shares to ABC with the understanding that the shares would be returnedtoMNOuponthepayment oftheloan. However, the loan was not paid on time. A month after 4 years, may the shares of stock pledged be deemed owned by ABC or not? Reason. A:The sharesof stock cannot be deemed owned by ABC upon default of MNO. They have to be foreclosed.UnderArticle2088,NCC, the creditor cannot appropriate the things given by way of pledge. And even if the parties have stipulated thatABCbecomestheownerofthesharesincase MNOdefaultsontheloan,suchstipulationisvoid for being a pactum commissorium. (2004 Bar Question) Q:Tosecurealoanobtainedfrom aruralbank, Purita assigned her leasehold rights over a stall in the public market in favor of the bank. The deed of assignment provides that in case of default in the payment of the loan, the bank shallhavetherighttosellPurita'srightsoverthe marketstallasherattorney‐in‐fact,andtoapply theproceedstothepaymentoftheloan. Was the assignment of leasehold rights a mortgageoracession?Why? Assumingtheassignmenttobeamortgage,does the provision giving the bank the power to sell Purita's rights constitute pactum commissorium ornot?Why? A: Theassignmentwasamortgage,not a cession,of the leasehold rights. A cession would have transferredownershiptothebank.However, the 402 grant of authority to the bank to sell the leaseholdrightsin case ofdefaultisproofthatno suchownershipwastransferredandthatamere encumbrancewasconstituted.Therewouldhave beennoneedforsuchauthorityhadtherebeena cession. No, the clause in question is not a pactum commissorium.Itispactumcommissoriumwhen defaultinthepaymentof theloan automatically vests ownership of the encumbered property in thebank.Intheproblemgiven,thebankdoesnot automatically become owner of the property upon default of the mortgagor. The bank has to sell the property and apply the proceeds to the indebtedness.(2001BarQuestion) Q:XborrowedmoneyfromYandgaveapieceof land as security by way of mortgage. It was expressly agreed between the parties in the mortgagecontractthatuponnonpaymentofthe debt on time by X, the mortgaged land would already belong to Y. If X defaulted in paying, would Y now become the owner of the mortgagedland?Why? A: No, Y would not become the owner of the land. The stipulation is in the nature of pactum commissorium which is prohibited by law. The propertyshouldbesoldatpublicauctionandthe proceeds thereof applied to the indebtedness. Anyexcessshallbegiventothemortgagor. Q: Suppose in the preceding question, the agreementbetweenXandYwasthatifXfailed topaythemortgagedebtontime,thedebtshall be paid with the land mortgaged by X to Y. Would your answer be the same as in the precedingquestion?Explain. A: No, the answer would not bethe same. This is avalidstipulationanddoesnotconstitutepactum commissorium. In pactum commissorium, the acquisition is automatic without need of any furtheraction.Intheinstant problemanotheract is required to be performed, namely, the conveyance of the property as payment (dacion enpago).(1999BarQuestion) Q: In order to secure a bank loan, XYZ Corporation surrendered its deposit certificate, withamaturitydateofSeptember1,1997tothe bank. The corporation defaulted on the due repayment of the loan, prompting the bank to encash the deposit certificate. XYZ Corporation questioned the above action taken by the bank as being a case of pactum commissorium. The bankdisagrees.Whatisyouropinion? CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS A:Isubmitthatthereisnopactumcommissorium here. Deposits of money in banks and similar institutions are governed by the provisions of simple loans (Art. 1980, NCC). The relationship between the depositor and a bank is one of creditor and debtor. Basically, this is a matter of compensation as all the elements of compensationarepresentinthiscase.(BPI v. CA, G.R. No. 104612, May 10, 1994) (1997 Bar Question) Q: Spouses Uy Tong purchased seven motor vehicles from Bayanihan Investment payable in installments. It was agreed that if the spouses shouldfailtopaytheirobligation,Bayanihanwill automatically be the owner of the apartment which the spouses has a leasehold right. The spousesafterpayingthedownpayment,failedto pay the balance, hence, Bayanihan filed an action for specific performance against the spouses.Thejudgment provided that in case the spouses failed to pay the obligation within 30 daysfromnotice,theyaretoexecuteaDeedof Absolute Sale over the apartment and/or leasehold rights. Is the stipulation a pactum commissorium? A: No. The questioned agreement evinces no basis for the application of pactum commissorium. There is no contract of pledge or mortgage entered into by theparties. Bayanihan sought the intervention of the court by filing an actionforspecificperformance.Hencetherewas no automatic appropriation of the property. (Uy Tongv.CA,G.R.No.77465,May21,1988) IV.PLEDGE A.DEFINITION Q:Whatispledge? A: A contract where debtor delivers to creditor or rd 3 person a movable or document evidencing incorporeal right for the purpose of securing fulfillment of a principal obligation with the understanding that when the obligation is fulfilled,the thingdeliveredshallbereturnedw/ allitsfruitsandaccessions. B.KINDSOFPLEDGE Q:Whatarethekindsofpledge? A: 1. Conventional‐byagreementofparties 2. Legal‐byoperationoflaw Note: A thing lawfully pledged to one creditor, cannot be pledged to another as long as the 1 st pledgesubsists. C.ESSENTIALREQUISITES Q: What are the essential requisites for a contractofpledge? A: 1. Constitutedto ; 2. Pledgor is the of the thingpledged; 3. Persons constituting the pledge have the , and in the absence thereof, that they be legallyauthorizedforthepurpose.(Art. 2085,NCC) Note:Acontractofpledge betweentheparties. It is valid Q: What kind of possession is required in pledge? A:Themeretakingofthepropertyisnotenough. There must be continuous possession of the thing. However, the pledgee is allowed to temporarilyentrustthephysicalpossessionofthe thingpledgedtothepledgorwithoutinvalidating the contract. But here, the pledgor would be in possessionasameretrusteeandhispossessionis subjecttotheorderofthepledgee. Q: Pablo owns a tractor which he left with his sonMikeforsafekeeping. Mikethenofferedthe saidtractortoCaliboassecurityforthepayment ofhisdebt.WhenPablocamebackandlearned thatthetractorwasinthecustodyofCalibo,he demanded its return. Calibo, however, refused. Calibo alleged that the tractor was pledged to him, and in the alternative, the tractor was left with him in the concept of deposit and he may validly hold on to it until Mike pays his obligation.IsCalibocorrect? A: No. There is no valid pledge because Mike is notthe absoluteownerof thepropertypledged. He who is not the owner or proprietor of the propertypledgedormortgagedtoguaranteethe fulfillmentofaprincipalobligation,cannotlegally constitutesuchaguarantyasmayvalidlybindthe propertyinfavorofhiscreditor,andthe pledgee or mortgagee in such a case acquires no right whatsoever in the property pledged or mortgaged. There is likewise no valid deposit, in ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 403 UST GOLDEN NOTES 2011 this case, where the principal purpose for receivingtheobjectisnotsafekeeping.(CaliboJr. v.CA,G.R.No.120528,Jan.29,2001) Q: Is constructive or symbolic delivery of the thingsufficienttoconstitutepledge? A: GR:No. XPN: Ifthe pledgeconsists of goods stored in a warehouse for purposes, of showing the pledgee’scontroloverthegoods, thedelivery to him of the keys to the warehouse is sufficient delivery of possession (constructive/symbolicdelivery). The type of delivery will depend upon the nature and peculiar circumstances of each case(Yuliongsiuv.PNB,G.R.No.L‐19227,Feb. 17,1968) Note: Constructive or symbolic delivery does not confer physical possession of the thing, but by construction of law, is equivalent to acts of real delivery. Q:Whatisthe rationalebehindtherequirement that the pledge cannot take effect against third personsifthethingisnotdescribedandthedate doesnotappearinapublicinstrument? A: To forestall fraud because a debtor may attempttoconcealhispropertyfromhiscreditors when he sees it in danger of execution by simulating a pledge thereof with an accomplice (TecBi&Co.v.CharteredBankofIndia,No.9802, Feb.5,1916/March31,1917). Q:Whatisadoublepledge? A: A double pledge is when the same thing or property subject of a first pledge will be the subjectofanotherpledge. Q:Cantherebeavaliddoublepledge? A: No. (Mission de San Vicente v. Reyes, No. 5508, Aug. 14,1911). Q: Can incorporeal rights evidenced by proper documentbepledged? A: Yes (Art. 2095, NCC). It is, however, required that the actual instrument be delivered to the pledge. More, if the instrument is a negotiable document,itmustbeindorsed. 404 D.OBLIGATIONSOFPLEDGORANDPLEDGEE Q:Whoarethepartiesinacontractofpledge? A: 1. Pledgor – the debtor; the one who delivers the thing pledged to the creditor 2. Pledgee – the creditor; the one who receivesthethingpledged Q:Whataretherightsofapledgee? A: 1. Retain thethinguntildebtispaid.(Art. 2018,NCC) 2. To be reimbursed for the expenses made for the preservation of the thing pledged.(Art.2099,NCC) 3. Creditor may bring any action pertaining to the pledgor in order to recoveritfromordefenditagainsta3rd person. Q:Whataretheobligationsofapledgee? A: 1. of thethingpledgedwith the (Art.2099,NCC) Note: Pledgee is liable for the loss or deterioration of the thing by reason of fraud, negligence, delay, or violation of thetermsofthecontract. 2. GR: XPN: Unless there is stipulation to the contract(Art.2100,NCC) Note: Pledgee is liable for the loss or deteriorationofthethingpledgedcaused bytheactsornegligence oftheagents or employeesofthepledgee. 3. 4. GR: XPNs: a. (Art.2102,NCC) If the pledgor had given him authorityorpermissiontouse it; CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS b. 5. Note: The remedies are alternative and not cumulative. Only one may be chosen. The law used the conjunctive “or”. Either one is more convenient thanannulment. If the use of the thing is necessary for its preservation butonlyforthatpurpose. Returnthethingpledgedto thepledgor whentheprincipalobligationisfulfilled orsatisfiedit. Q: What is the effect of the return of the thing pledgedtothepledgorbythepledgee? A: The pledge shall be extinguished. Any stipulation to the contrary shall be void (Art. 2110,NCC). Q: What is the presumption when the thing is found in the possession of the pledgor subsequenttotheperfectionofthepledge? A:Thereisprimafaciepresumptionthatthething pledged hasbeenreturnedbythe pledgeetothe pledgor or owner, in any of the following circumstances: 1. Ifthethingisfoundinthepossessionof the pledgor or owner after the pledge hadbeenperfected;or 2. Ifthethingisfoundinthepossessionof athirdpersonwhoreceiveditfromthe pledgororowneraftertheperfectionof nd thepledge(2 par.,Art.2110,NCC). Q:Doesthedebtorcontinue to bethe owner of thethingincasethesameisexpropriatedbythe State? A: No. Ownership is transferred to the expropriatingauthority. Note: The creditor may bring actions pertaining to theownerofthethingpledgedinorder torecoverit from,ordefenditagainstathirdperson(Art.2103, NCC). Q:Canthedebtoraskfor thereturnofthe thing pledgedagainstthewillofthecreditor? A: GR:No. XPNs: 1. If the debtor has paid the debt and its interest,withexpensesinapropercase (Art.2105,NCC). 2. If the thing is in danger of destruction or impairment provided, the pledgor offers an acceptable substitute for it which is of the same kind and not of inferiorqualityandwithoutprejudiceto the application of Art. 2108 whenever warranted. Q: Can the pledgee cause the sale of the thing pledgedinpublicauctionwheretheobligationis notyetdue? A:Yes, ifwithoutthe fault of thepledge, there is danger of destruction, impairment or diminution invalueofthethingpledged.Theproceedsofthe auction shall be security for the principal obligation in the same manner as the thing originallypledged(Art.2108,NCC). Q: What are the rights of the creditor who is deceivedonthesubstanceorqualityofthething pledged? A:Todemand: 1. from the pledgor an acceptable ofthething;or 2. the of theprincipal obligation(Art.2109,NCC). Note:Itispresumedthattheaccessoryobligationof pledge has been remitted when the thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person who ownsthething(Art.1274,NCC). Q:Whatistherequisitefortherenunciationor abandonmentofthepledgebythepledgee? A: There must be a statement in writing to that st effect(1 sentence,Art.2111,NCC). Note:Therenunciationofthepledgeisnotcontrary to law, public order, public policy, morals or good customs.Further,Art.1356oftheNCC,whichspeaks oftheformofcontracts,mustbecompliedwith. Q:Isacceptanceorreturn ofthethingnecessary for the validity of the renunciation under Art. 2111? A: No. it is not a case of donation where acceptance is necessary to make the donation valid. Q:Supposethethingwasnotreturned,isthere extinctionofthepledge? A:Yes.Evenifthethingwasnotreturned,aslong as there is an effective renunciation, ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 405 UST GOLDEN NOTES 2011 abandonment or waiver, the pledge is already extinguished. The pledgor is considered a depositor and the pledgee shall become a depositary of the thing. Accordingly,thelawondepositwillapply. Q: What is the right of the pledgee when the debthasnotbeensatisfiedinduetime? A: The pledgeehas the righttoproceedwiththe saleofthethingatapublicauctiontoraisefunds forpaymentoftheobligation(Art.2112,NCC). Q:Whataretherequisitesofpublicsale? A: 1. Theobligationmustbedueandunpaid; 2. Thesaleofthethingmustbeatapublic auction; 3. There must be notice to the pledgor and owner stating the amount for whichthesaleistobeheld;and 4. ThesalemustbeconductedbyaNotary Public. Q:Whatisdeedofacquittance? A:Itis a document of therelease ordischarge of the pledgor from the entire obligation including interestsandexpenses.Thisshallbeexecutedby thepledgeeafterappropriatingthethingincasea nosalewasmadeinasecondauction. Q: May the pledgor participate in the public auction? A:Yes.Moreover,heshallhaveabetterrightifhe offersthesametermsas thehighestbidder[Art. 2113(1),NCC]. Q:Whocanbidinthepublicauction? A: 1. Thepublic 2. Pledgor/owner/debtor – shall be preferred if same terms as the highest bidderisoffered 3. Pledgee/creditor – he must not be the only one bidder, otherwise, his bid is invalidandvoid Q: Can checks be accepted as payment as purchasepriceinapublicsale? A:No,theyarenotlegaltenders.(CFIv.CA,No.L‐ 4191,April30,1952). 406 Note:Thesameruleappliestopromissorynotes,bill of exchange and other negotiable instruments because they produce the effect of payment only whentheyhavebeenencashed. Paymentincashmustbemadeatonce. Q:Mayathirdpersonpaythepledgor’sdebt? A: Yes, ifhe has any interest inthe fulfillmentof theprincipalobligation(Art.2117,NCC). Q:Whatistherulewhenwhathasbeenpledged isa“credit”? A: The pledgee may collect and receive the amount due. He shall apply the same to the payment of his claim, and deliver the surplus, should there be any, to the pledgor (Art. 2118, NCC). Q: Santos made time deposits with OBM. IRC, through its president Santos, applied for a loan withPNB.Tosecuretheloan,Santosexecuteda DeedofAssignmentofthetimedepositsinfavor of PNB. When PNB tried to collect from OBM, the latter did not pay the CTDs. PNB then demanded payment from Santos and IRC, but the latter refused payment alleging that the obligationwasdeemedpaidwiththeirrevocable assignmentoftheCTDs. IstheliabilityofIRCdeemed paidby virtue ofthedeedofassignment? IsOBMliablefordamages A: 1. No. For all intents and purposes, the deed of assignment in this case is actually a pledge. Where a CTD in a bank, payable at a future time, was handedoverbyadebtortohiscreditor, itwasnotpayment,unlesstherewasan express agreement on the part of the creditortoreceiveitassuch. 2. Yes. While it is true that no interest shallbedueunlessithasbeenexpressly stipulatedinwriting,thisappliesonlyto interest for the use of money. It does not comprehend interest paid as damages. Santos has the right to recover damages resulting from the default of OBM and the measure of such damages is interest at the legal rate of 6% per annum on the amounts dueandunpaidatthe expirationofthe periods respectively provided in the contracts. (Integrated Realty Corp. v. PNB,G.R.No.60705,June28,1989) CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Whatistherulewhentwoormorethingsare pledged? A:Thepledgeemaychoosewhichhewillcauseto be sold, unless there is a stipulation to the st contrary(1 sentence,Art.2119,NCC). Q: What is the restriction on the right of the pledgeeunderthe1 stsentenceofArt.2119? A: Hemay only demand the sale of only asmany ofthethingsas arenecessaryforthepayment of nd thedebt(2 sentence,Art.2119,NCC). E.RIGHTSOFPLEDGOR Q:Whataretherightsofthepledgor? A: 1. Right to dispose the thing pledged, provided there is consent of the pledgee(Art.2097,NCC) 2. Right to ask that the thing pledged be deposited (Art. 2104 and Art. 2106, NCC) 3. Right to substitute thing pledged (Art. 2107,NCC) Q: When may the owner ask that the thing pledged be deposited judicially or extrajudicially? A: 1. If the creditor uses the thing without authority 2. Ifhemisusesthethethinginanyother way;or 3. Ifthethingis indanger ofbeinglost or impaired because of the negligence or willfulactofthepledge(Art.2106,NCC) Q: Does the pledgor have the right to demand the return of the thing pledged against the will ofthecreditor? A: No. He cannot ask for its return until the obligation is fully paid including interest due thereon and expenses incurred for its preservation(Art.2105,NCC) Q: What are the requisites before the pledgor may substitute the thing pledged with another thing? A: 1. Pledgorhasreasonablegroundstofear the destruction or impairment of the thingpledged; 2. 3. 4. Nofaultonthepartofthepledge Pledgor isoffering inplaceofthething, another thing in pledge which is of the same kind and quality as the former; and Pledgeedoesnot choosetoexercisehis right to cause the thing pledged to be soldatpublicauction(Art.2107,NCC) F.PERFECTION Q:Howisacontractofpledgeperfected? A: A contract of pledge is perfected when the thingpledgedisplacedintheactualpossessionof or delivered to the pledgee or a third person designated by the parties by common consent. (Art.2093,NCC) Note:IfArt.2093isnotcompliedwith,thepledge isvoid. Q:FourcarabaoswerepledgedbyTtoE.Tisthe registered owner of the carabaos. The carabaos wereactuallyinthepossessionofJ.Enevertook possession of the carabaos. There is nothing in thecontract whichstatedthatJwasbycommon consentmadethe depositaryofthecarabaosin E’sbehalf.Istherealawfullyconstitutedpledge? A: None. The delivery of possession of the property pledged requires actual possession and ameresymbolicdeliveryisnotsufficient.(Betita vGanzon,49Phil.87) Q: What is the effect when possession or deliveryofthethingpledgedwasnotmade? A:Anagreementtoconstituteapledgeonlygives risetoapersonal actionbetweenthecontracting parties.Unlessthemovablegivenasasecurityby way of pledge be delivered to and placed in the possession of the creditor or of a third person designated by common agreement, the creditor acquiresnorighttothepropertybecausepledge ismerelyalienandpossessionisindispensableto therightofalien. Q: Whatistheeffect ifthepledgeefailstotake thepropertypledgedintohispossession? A: If a pledgee fails or neglects to take the property pledged into his possession, he is presumed to have waived the right granted him bythecontract.(U.S.v.Terrel,2Phil.222) ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 407 UST GOLDEN NOTES 2011 Q:Whataretherequisitestobind thirdpersons inacontractofpledge? A: To bind third persons, the pledge must be embodied in a public instrument where the followingentriesmustappear‐ Adescriptionofthethingpledged;and Statement of date when the pledge was executed.(Art.2096,NCC) Q:AisindebtedtoB.Apledgeshisdiamondring toB.The ringisdelivered toB,butinthepublic instrument executed, there is no description of the ring, and the date of the pledge does not appear. If A sells the ring to C, does C have to respectthepledgeinfavorofB? A: No. C does not have to respect the pledge since as to him, the pledge is not effective and valid. Q:Whatisthereasonbehindtherequisites? A:Thepurposeoftherequirementsis to forestall fraud, because a debtor may attempt to conceal hispropertyfrom hiscreditorswhenheseesit in danger of execution by simulating a pledge thereof with an accomplice. (Tec Bi & Co. v. CharteredBankofIndia,41Phil.576) Q: What is the effect if no public instrument is made? A:Whenthecontractofpledgeisnotrecordedin a public instrument, it is void as against third persons;thebuyerof thethingpledgedisathird person. The fact that the person claiming as pledgee has taken actual physical possession of the thing sold will not prevent the pledge from being declared void insofar as the innocent stranger is concerned. (Tec Bi & Co. v. Chartered Bank of India, Australia and China, 16 O.G. 908; Ocejo, Perez and Co. v. International Bank, 37 Phil.631) Q: What is the effect of an undated contract of pledge? A:Anundatedinstrument of pledgecannot ripen intoavalidpledge.(Betitav.Ganzon,49Phil.87) G.FORECLOSURE Q: When may a pledgee foreclose the thing pledged? 408 A:Whenthereisnopaymentofthedebtontime, theobjectof thepledgemaybealienatedfor the purposeofsatisfyingtheclaimsofthepledgee. Q:Whatistheprocedureforthepublicsaleofa thingpledged? A: 1. Theobligationmustbedueandunpaid 2. Thesaleofthethingpledgedmustbeat publicauction 3. Theremustbenoticetothepledgor andowner,statingtheamountfor whichthesaleistobeheld 4. ThesalemustbeconductedbyNotary Public. H.PLEDGEBYOPERATIONOFLAW Q:Whatisapledgecreatedbyoperationoflaw? A:Pledgebyoperationoflawor LegalPledgesare thoseconstitutedorcreatedbyoperationoflaw. Thisreferstotherightofretention. Q:Whatrulesapplytolegalpledge? A: 1. The rules governing conventional pledgeapplies. 2. There is no definite period for the paymentoftheprincipalobligation.The pledgemust,therefore,makeademand for the payment of the amount due him. Without such demand, he cannot exercise the right of sale at public auction.(DeLeon) Q:Whataretheinstancesoflegalpledgeswhere thereisrightofretention? A: 1. Art. 546 – Right of the possessor in good faith to retain the thing until refundedofnecessaryexpenses. 2. Art. 1707 – Lien on the goods manufactured or work done by a laboreruntilhiswageshadbeenpaid. 3. Art. 1731 – Right to retain of a worker who executed work upon a movable untilheispaid. 4. Art. 1914 – Right of an agent to retain the thing subject of the agency until reimbursed of his advances and damages(Arts.1912and1913,NCC). 5. Art. 1994 – Right of retention of a depositaryuntilfullpayment ofwhatis duehimbyreasonofthedeposit. CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS 6. Art.2004–Rightofthehotel‐keeperto retain things of the guest which are brought into the hotel, until his hotel billshadbeenpaid. evenifthere isastipulationthathebe soliable.Suchstipulationisvoid. Q: What is the meaning of the right of the mortgageeorpledgeetoforeclose? A: If the debtor failed to pay on maturity date, the thing pledged or mortgaged may be sold at public auction as provided by law so that the proceeds may be used for payment of the obligation. Q: What must the pledgee do before he may causesaleofthethingpledged? A: The pledgeemust first make a demandof the amountforwhichthethingis retained.Afterthe demand,thepledgeemust proceedwiththesale of the thing within thirty (30) days. Otherwise, the pledgor can require of him the return of the thingretained. Note: there is only one public auction here. (Paras) Q: To whom will the remainder of the price pertain? A: The remainder of the price of sale shall be deliveredtotheobligor.(Art.2121) Q:Whataretheinstanceswhenthepledgormay demand that the thing pledged be deposited judiciallyorextrajudicially? A: 1. Creditor uses the thing without authority 2. Creditormisusesthething 3. The thing is in danger of being lost or impaired due to the negligence or willfulactsofthepledgee. Q: What are the effects of sale of the thing pledged? A: 1. Extinguish the principal obligation even iftheproceedsofthesaledonotsatisfy thewholeamountoftheobligation. 2. If proceeds from the sale exceed the amount due, the debtor is not entitled to the excess, the excess goes to the pledgee. This is to compensate him for the eventuality where the purchase price is lesser than the amount of the debt, wherein he cannot receive any deficiency unless there is a contrary agreement or in case of legal pledge, thepledgorisentitledtotheexcess 3. If the proceeds of the sale is less than the amount due, the creditor has no right to recover the deficiency and the pledgor is not liable for the deficiency I.PLEDGEDISTINGUISHEDFROMMORTGAGE Q: Distinguish contract of pledge from chattel mortgage. A: CHATTELMORTGAGE PLEDGE Delivery Deliveryisnotnecessary Deliveryisnecessary Registration Registrationinthe Registrationinthe ChattelMortgageregister RegistryPropertyisnot isnecessaryforits necessary. validity Lawgoverningthesale Procedureforthesaleof thethinggivenas Art.2112,NCC securityisgovernedby Sec.14,ActNo.1508 Excess Ifthepropertyissold,the Ifthepropertyis debtorisnotentitledto foreclosed,theexcess theexcessunless goestothedebtor otherwiseagreed. Recoveryofdeficiency Thecreditorisentitledto Thecreditorisnot recoverthedeficiency entitledtorecoverthe fromthedebtorexceptif deficiency thechattelmortgageisa notwithstandingany securityforthepurchase stipulationtothe ofpropertyin contrary. installments Possession Possessionremains with Possessionisvested in thedebtor thecreditor Contract Formalcontract Realcontract Recordinginapublicinstrument Mustbeinapublic instrumentcontaining Mustberecordedina descriptionofthething publicinstrumenttobind pledgedandthedate thirdpersons thereoftobindthird persons ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 409 UST GOLDEN NOTES 2011 Q: Distinguish contract of pledge from real estatemortgage. A: REALESTATE MORTGAGE Consensualcontract Subjectmatterisreal property Possessionofthething mortgagedremainswith thedebtor PLEDGE Realcontract Subjectmatteris personalproperty Possessionofthething pledgedisvestedinthe creditor Pledgeehastherightto receivethefruitsofthe thingpledged,withthe obligationofapplyingthe sametotheinterestof thedebt,ifowing,and thebalance,ifany,tothe principal Saleatpublicauctionof thethingpledgedis alwaysextrajudicial Descriptionofthething andthedateofpledge mustappearinapublic instrumentotherwise,it isnotvalidastothird person Mortgageedoesnot possesssuchright Salemaybejudicialor extrajudicial Mustberegistered, otherwise,itisnotvalid againstthirdpersons althoughbinding betweentheparties V.REALMORTGAGE A.DEFINITIONANDCHARACTERISTICS Q:Whatisrealestatemortgage(REM)? A: It is a contract wherebythedebtorsecuresto the creditor the fulfillment of the principal obligation, specially subjecting to such security immovable property or real rights over immovable property in case the principal obligationisnotfulfilledatthetimestipulated Note:Registrationis necessary tobindthirdpersons butnotforthevalidityofthecontract. Beinganaccessorycontract,itsconsiderationisone andthesameasthatoftheprincipalobligation. B.ESSENTIALREQUISITES Q:Whataretherequisitesfor validconstitution ofarealmortgage? A: 410 2. 3. It covers only immovable property and alienable real rights imposed upon immovables Itmustappearinapublicinstrument Registration in the registry of property rd isnecessarytobind3 persons Q:Whatarethekindsofrealmortgages? A: 1. Conventional mortgages – constituted voluntarilybythecontractingparties. 2. Legalmortgage–requiredbylaw. 3. Equitable mortgage – intention of the parties is to make the immovable as a security for the performance of the obligation but the formalities of a real mortgagearenotcompliedwith. Q: Distinguish contract of real estate mortgage fromcontractofsalewithrightofrepurchase. A: REALESTATE MORTGAGE Accessorycontract Thereisnotransferof titleandpossessionof theproperty Realrightandreal propertybyitself Notarealright 1. Creditorhasnorightto thefruitsoftheproperty duringthependencyof themortgage Ifthedebtorfailstopay hisdebt,thecreditor cannotappropriatethe propertymortgagednor disposeofit SALEWITHRIGHTOF REPURCHASE Principaland independentcontract Thereistransferoftitle andpossessionofthe property,although conditional Thevendeearetrois entitledtothefruitseven duringtheperiodof redemption Assoonasthereisa consolidationoftitlein thevendeearetro,he maydisposeofitasan absoluteowner Q:Isregistrationofmortgageamatterofright? A:Yes.Byexecutingthemortgage,themortgagor is understood to have given his consent to its registration, and he cannot be permitted to revokeitunilaterally. Q: What is the meaning of mortgage as a real andinseparableright? A: The mortgage directly and immediately subjects the property upon which it is imposed, whoeverthepossessor maybe,to thefulfillment of the obligation for whose security it was constituted(Art.2126,NCC). CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Whatarethethingsthataredeemedincluded inthemortgage? A: 1. Naturalaccessions 2. Improvements 3. Growingfruits 4. Rents 5. Income 6. Insuranceproceeds 7. Expropriationprice(Art.2127,NCC) Q: When does the mortgage lien attach in case ofneworfutureimprovements? A:Onthedateoftheregistrationofthemortgage (Luzon Lumber and Hardware Co., Inc, v. Quiambao,G.R.No.L‐5638,Mar.20,1954). Q:Whatisdragnetclause? A: It is a mortgage provision which is specifically phrased to subsume all debts of past or future origin.Suchclausesare“carefullyscrutinizedand strictlyconstrued”.Themortgagecontractisalso one of adhesion (Philippine Bank of Communications v. CA, G.R. No. 118552, Feb. 5, 1996). Q: Is the amount stated in the contract controlling in case of mortgage securing future advancements? A: No. The amount named in the contract does not limit the amount for which the mortgage standasasecurity,if,fromthefourcornersofthe instrumenttheintenttosecurefutureandother indebtednesscanbegathered. Q: Petitioner obtained a loan of P20K from defendant Rural Bank of Kawit. The loan was secured by a REM over a parcel of land. The mortgagecontractstates thatthemortgagewill coverthepaymentof the loanofP20Kandsuch other loans or other advances already obtained or to be obtained by the mortgagors from the bank.TheloanofP20kwasfullypaid.Thereafter they again obtained a loan of P18K, secured by thesamemortgage.Thespousesdefaulted.The bank extra judicially foreclosed the mortgage. Wastheforeclosuresalevalid? A: Yes. It has long been settled that mortgages given to secure future advancements are valid and legal contracts; that the amounts named as consideration in said contract do not limit the amount for which the mortgage may stand as security, if from the four corners of the instrumenttheintenttosecurefutureandother indebtednesscanbegathered.Amortgagegiven to secure advancement is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements is paid (Mojica v. CA,G.R.No.94247,Sept.11,1991). Q: May a mortgage credit be alienated or assignedtoathirdperson? A: Yes, in whole or in part, with the formalities requiredbylaw(Art.2128,NCC). Q: What are the requisites to be followed for assignmentofcredit? A:Anassignment of a credit, rightor action shall producenoeffectasagainstthirdpersons,unless it appears in a public instrument, or the instrumentisrecorded intheRegistryofProperty incasetheassignmentinvolvesrealproperty(Art. 1625,NCC). Q:Maythecreditor claimfrom thethirdperson in possession of the property payment of the credit? A: Yes,up to theextentsecuredbytheproperty which the third party possesses, in terms and with the formalities which the law establishes (Art.2129,NCC). Q: Is a stipulation forbidding the owner from alienatingtheimmovablemortgagedvalid? A: No. The prohibition to alienate is contrary to public good inasmuch as the transmission of property should not be unduly impeded (Report, CodeCommission,p.58). Q: What are the laws that govern contract of realmortgage? A: 1. NewCivilCode 2. MortgageLaw 3. PropertyRegistrationDecree(PD1529) 4. Sec. 194,asamendedbyActNo. 3344, RevisedAdministrativeCode(Phil.Bank of Commerce v. De Vera, G.R. No. L‐ 18816,Dec.29,1962) 5. R.A. 4882 – law governing aliens who becomemortgagees. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 411 UST GOLDEN NOTES 2011 C.FORECLOSURE Q:Whatisforeclosure? A: It is a remedy available to the mortgagee in whichhesubjectsthemortgagedpropertytothe satisfactionoftheobligation. Q:Whatarethekindsofforeclosure? A: Judicial – governed by Rule 68, Rules of Court Extrajudicial – mortgagee is given a SPA to sell the mortgaged property (Act No. 3135) Q:Whatisthenatureofjudicialforeclosure? A: It is an action quasi in rem (Ocampo v. Domalanta,20SCRA1136). Q: Does an action for foreclosure of mortgage survivethedeathofmortgagor? A:Yes,becausetheclaimisnotpuremoneyclaim but an action to enforce a mortgage lien. Being so, the judgment rendered therein may be enforced by a writ of execution. The action may be prosecuted by the interested person against the executor or administrator independently of the testate or intestate proceedings of the settlement of the mortgagor’s estate “for the reason that such claims cannot in any just sense be considered claims against the estate, but the right to subject specific property to the claim arises from the contract of the debtor whereby hehasduringlifesetasidecertainpropertyforits payment, and such property does not, except in sofarasitsvaluemay exceedthedebt,belongto the estate” (Testamentaria de Don Amadeo Matute Olave v. Canlas, No. L‐12709, Feb. 28, 1962). Q: What are the options or remedies of the mortgageeincaseofdeathofthedebtor? A: 1. To waive the mortgage and claim the entire debt from the estate of the mortgagorasanordinaryclaim; 2. Toforeclosethemortgagejudiciallyand prove any deficiency as an ordinary claim;or 3. To rely on the mortgage exclusively, foreclosingthesameatany timebefore it is barred by prescription, without right to file claim for any deficiency 412 (Maglaque v. Planters Development Bank,GRNo.109472,May18,1999). Q: When is judicial foreclosure considered completed? A: A foreclosure sale is not complete until it is confirmed and before such confirmation, the court retains control of the proceedings by exercising sound discretion in regard to it either grantingorwithholdingconfirmationastherights and interests of the parties and the ends of justice may require (Rural Bank of Oroquieta v. CA,No.53466,Nov.10,1980). Q: What is the significance of confirmation in judicialforeclosure? A: Confirmation cuts off all the rights and interestsofthemortgagorand ofthemortgagee and persons holding under him, and with them the equity of redemption in the property and vests them in the purchaser. Confirmation retroactstothedateofthesale.Itisafinalorder, not interlocutory (Ocampo v. Domalanta, No. L‐ 21011,Aug.30,1967). Note:Ifthepropertyhasbeenmortgagedinfavorof thePhilippineNationalBank,redemptionis allowed within one year from the confirmation of the sale (Gonzalesv.PNB,No.24850,March1,1926). Theredemptionmustbemadewithinoneyearafter thesale,ifthemortgageeisabank,bankingorcredit institutions(Sec.78,R.A.337). Q:Whataretheeffectsofconfirmationofsale? A: There can be no redemption of the property. Such confirmation retroacts to the date of the auctionsale.Aftertheconfirmation, theprevious ownersloseanyrighttheymayhavehadoverthe property, which rights in turn vested on the Purchaser of the property (Lonzame v. Amores, No.L‐53620,Jan.31,1985). Q:Whatisthebasisofextrajudicialforeclosure? A: An extrajudicial foreclosure may only be effected if in the mortgage contract covering a realestate,aclauseisincorporatedthereingiving the mortgagee the power, upon default of the debtor, to foreclose the mortgage by an extrajudicial sale of the mortgage property (Sec. 1,ActNo.3135,asamendedbyActNo.4148). The authority to sell may be done in a separate document but annexed to the contract of mortgage. The authority is not extinguished by CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS availabletothepublicingeneral,andnotjusttoa select few chosen by the publisher. Otherwise, the precise objective of publishing the notice of sale in the newspaper will not be realized. (Metropolitan Bank and Trust Company, Inc. v. EugenioPeñafiel,G.R.No.173976,Feb.27,2009) Q: May a mortgagor enjoin the implementation ofawrit ofpossession onthegroundthat there is a pending case for annulment of the extrajudicialforeclosureoftheREM? A: No. As a rule, any question regarding the validityofthemortgage oritsforeclosurecannot be a legal ground for refusing the issuance of a writ of possession. Regardless of whether or not there is a pending suit for annulment of the mortgageortheforeclosureitself, thepurchaser is entitled to a writ of possession, without prejudice to the outcome of the case. Hence, an injunction to prohibit the issuance of writ of possession is entirely out of place. Prohibition does not lie to enjoin the implementation of a writ of possession. Once the writ of possession hasbeenissued,thetrialcourthasnoalternative buttoenforcethewritwithoutdelay.(Sps.Ongv. CA,G.R.No.121494,June8,2000) Q:Canthemortgageerecoverthedeficiency? A: If there be a balance due to the mortgagee after applying the proceeds of the sale, the mortgagee is entitled to recover the deficiency (DBPv.Mirang,G.R.No.L‐29130,Aug.8,1975). thedeathofthemortgagor ormortgageeasit is an essential and inseparable part of a bilateral agreement (Perez v. PNB, No. L‐21813, July 30, 1966). Q:Howisextrajudicialforeclosureinitiated? A:Byfilingapetitionwiththeofficeofthesheriff. It may also be initiated through a Notary Public commissionedintheplacewhere theproperty is situated. Note: Notice containing the place and date is required before an auction sale is made in extrajudicialforeclosure.(Sec.3,ActNo.3135) Q: What governs extrajudicial foreclosure by PNB? A:The sameshall be governed by Sections 29, 30 and 34 of Act No. 3135 and not by the PNB Charter(PNBv.CA, G.R. No. 60208,December5, 1985). Q: What are the requisites of notice of sheriff’s sale? A: It must contain the correct number of the certificate of title and the correct technical description of the real property to be sold (San Josev.CA,GRNo.106953,Aug.19,1993). Q:Whatisthepurposeofnoticeofsale? A: To inform the public of the nature and condition of the property sold, and of the time, placeandtermsofthesale. Q: MBTC granted a loan to spouses Peñafiel, who mortgaged their two (2) parcels of land in Mandaluyong. The spouses defaulted in the payment. MBTC instituted an extrajudicial foreclosureproceedingunderActNo.3135.The Notice of Sale was published in Maharlika Pilipinas, which has no business permit in Mandaluyong and its list of subscribers shows that there were no subscribers from Mandaluyong. Did MBTC comply with the publication requirement under Section 3, Act No.3135? A: No. Maharlika Pilipinas is not a newspaper of general circulation in Mandaluyong where the propertyislocated.Tobe anewspaperofgeneral circulation,itisenoughthatitispublishedforthe dissemination of local news and general information, that it has a bona fide subscription listofpayingsubscribers,andthat it ispublished at regular intervals. The newspaper must be Note: In judicial foreclosure, the Rules of Court specificallygivesthemortgageetherighttoclaimfor deficiencyincaseadeficiencyexists(Sec.6,Rule70). While Act No. 3135 governing extrajudicial foreclosuresof mortgage doesnotgiveamortgagee the right to recover deficiency after the public auction sale, neither does it expressly or impliedly prohibitsuchrecovery. This right to recover deficiency had been categoricallyresolvedin StateInvestment v. CA(G.R. No.101163,January11,1993).Thus,themortgagee is entitled torecover thedeficiency in case thesale proceeds are not sufficient to cover the debt in extrajudicialforeclosures. The action to recover a deficiency after foreclosure prescribes after ten (10) years from the time the rightofactionaccruesasprovidedinArticle1144(2), NCC (DBP v. Tomeldan, G.R. No. 51269, Nov. 17, 1980). ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 413 UST GOLDEN NOTES 2011 Q:Whatisstipulationofupsetprice? A: It is a stipulation of minimum price at which thepropertyshallbesoldto becomeoperativein theeventofaforeclosuresaleatpublicauction.It isnullandvoid. REDEMPTION Q:Whatisredemption? A:Transactionbywhichthemortgagorreacquires orbuysbackthepropertywhichmayhavepassed underthemortgageordiveststhepropertyofthe lienwhichthemortgagemayhavecreated. Q:Whatarethekindsofredemption? A: 1. Equity of redemption – right of mortgagor to redeem the mortgaged property after his default in the performance of the conditions of the mortgage but before the sale of the mortgaged property or confirmation of sale. It applies in case of judicial foreclosure. 2. Right of redemption – right of the mortgagor to redeem the mortgaged propertywithinone year from the date ofregistration ofthecertificate ofsale. It applies in case of extrajudicial foreclosure. Q: X and Y, judgment creditors of A, obtained the transfer of the title of the mortgaged property in their names. Earlier, A executed a mortgage over the same property in favor of FGU Insurance.The latter mortgage was registered. When A defaulted, FGU foreclosed theproperty.Acertificateofsalewasthereafter issued in FGU’s favor, which was confirmed by theRTC.However,beforethenewTCTcould be issued,XandYfiledtheirrespectivemotionfor intervention and to set aside the judgment alleging that they are the new owners of the propertyandthefailureofFGUtoimpleadXand Yintheactionforforeclosuredeprivedthelatter of due process. Is the contention of X and Y correct? A:No.Subordinatelienholdersacquireonlyalien upon the equity of redemption vested in the mortgagor, and their rights are strictly subordinate to the superior lien of the mortgagee. Such equity of redemption does not constitute a bar to the registration of the property in the name of the mortgagee. 414 Registration may be granted in the name of the mortgagee but subject to the subordinate lien holders’ equity of redemption, which should be exercised within ninety (90) days from the date the decision becomes final. This registration is merelyanecessaryconsequenceoftheexecution of the final deed of sale in the foreclosure proceedings. (Looyuko v. CA, G.R. No. 102696, July12,2001) Q: What are the requisites for valid right of redemption? A: 1. Mustbemadewithinoneyearfromthe timeoftheregistrationofthesale. 2. Payment of the purchase price of the property plus 1% interest per month togetherwiththetaxesthereon,if any, paid by the purchaser with the same rateofinterestcomputedfromthedate ofregistrationofthesale;and 3. Written notice of the redemption must beservedontheofficerwhomadethe sale and a duplicate filed with the proper Register of Deeds (Rosales v. Yboa,G.R.No.L‐42282,Feb.28,1983). Note: The redemptioner should make an actual tender in good faith of the full amount of the purchase price as provided above, i.e., the amount fixed by the court in the order of execution or the amount due under the mortgage deed, as the case maybe,withinterestthereonattheratespecifiedin the mortgage, and all the costs, and judicial and other expenses incurred by the bank or institution concerned by reason of the execution and sale and as a result of the custody of said property less the income received from the property. (Heirs of Quisimbingv.PNB,G.R.No.178242,Jan.20,2009) Q: Is the period of redemption a prescriptive period? A: No. The period of redemption is not a prescriptive period but a condition precedent providedbylawtorestricttherightof theperson exercisingredemption. Ifapersonexercisingthe rightofredemptionhas offeredtoredeemthepropertywithin theperiod fixed,heisconsideredtohavecompliedwith the condition precedent prescribed by law and may thereafter bring an action to enforce redemption. If, on the other hand, the period is allowed to lapsebeforethe rightofredemptionisexercised, then the action to enforce redemption will not CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS A:Inforeclosure proceedings,thebuyerbecomes theabsoluteownerofthepropertypurchasedifit is not redeemed during the prescribed period of redemption, which is one year from the date of registrationofthesale.TheSheriff’scertificateof sale was annotated in the certificate of titles on April 30, 1976. DBP became the absolute owner of the properties on May 1, 1977. Thus, the period to be considered in determining the amount of collection should start from May 1, 1997 up to the time when the possession of the properties are actually and completely surrendered to DBP. (La Campana Development Corporation v. DBP, G.R. No. 146157, Feb. 13, 2009) prosper, even if the action is brought within the ordinaryprescriptiveperiod. Q: D obtained a loan from C secured by a REM over a parcel of land. When D defaulted, C extrajudicially foreclosed the property. C was declared the highest bidder in the auction. On October 29, 1993, C caused the registration of the certificate of sale. On November 9, 1994 D filed a complaint for annulment of the extrajudicialforeclosureandauctionsale.CanD redeem the property beyond the one year redemptionperiod? A:No.Dlostanyrightorinterestoverthesubject property primarily because of his failure to redeem the same in the manner and within the periodprescribedbylaw.Hisbelatedattemptto question the legality and validity of the foreclosure proceedings and public auction must accordingly fail. (Sps. Landrito v. CA G.R. No. 133079,Aug.9,2005) Q: Can a mortgagor, whose property has been extrajudicially foreclosed and sold, validly execute a mortgage contract over the same property in favor of a third party during the periodofredemption? A: Yes. The purchaser at the foreclosure sale merelyacquiredaninchoaterighttotheproperty which could ripen into ownership only upon the lapseofthe redemptionperiodwithouthiscredit havingbeen discharged,it isillogicaltoholdthat during that same period of twelve months the mortgagorwas"divested"ofhis ownership,since the absurd result would be that the land will consequently be without an owner although it remainsregisteredinthenameof the mortgagor. Such mortgage does not involve a transfer, cession or conveyance of the property but only constitutesalienthereon(Medida v.CA, G.R. No. 98334,May8,1992). Q: DBP guaranteed LCD’s loan. When LCD defaulted, DBP paid it and sought reimbursement. LCD failed to reimburse DBP, hence DBP extrajudicially foreclosed the REM, where it was the highest bidder. The Sheriff’s certificate of sale was annotated in the certificateoftitlesonApril30,1976.LaCampana failed to redeem the properties. The court, amongothers,orderedLCDto paysuchsumsof money unlawfully collected or received by way of rentals and/or fruits from the subject properties to DBP. When should the period for the remittance of collected/received rentals/fruitsfromtheproperties,ofLCDtoDBP start? ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 415 UST GOLDEN NOTES 2011 Flowchart of Extra-judicial Foreclosure of Real Estate Mortgage Executionofloan+REMagreement(REM‐ withbuilt‐inSPAtosellincaseofdefault) Defaultofmortgagorfornon‐paymentor violationofthetermsoftheloanorREM agreement Filingofpetitionforsalewith Clerk of Court Publication/postingofnotice/ jurisdictionalrequirements Onceaweekfor3consecutiveweeksina newspaperofgeneralcirculation Foreclosuresale Registrationofthesale withRegistry ofDeeds Note:Theredemptionprice: Ifthemortgageeisabank: outstandingobligation Oneyearredemptionperiod +intereststipulatedintheagreement Consolidationoftitlebyfilingaffidavit withRegistryofDeeds(operative document) Cancellationoftitleofthemortgagor andissuanceofnewtitleinfavorof mortga gee Note: if after the expiration of the redemption period, Petitionforwritofpossession 416 thepetitionforwritofpossessionismandatoryor ministerial CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Flowchart for Judicial Foreclosure of Real Estate Mortgage Complaint with the court. Include subsequent lien holders, otherwise equity of redemption will not be divested. (Lampin v. IAC, No. L70987, Sept. 29, 1988)) Mortgagee to file motion for confirmation of sale Hearing Execution sale Issuance of order confirming the sale (order is appealable) (Ocampo v. Dimalanta, No. L21011, Aug. 30, 1967) Entry of j udgment Judgment Upon failure to pay, mortgagee to file motion for execution foreclosing mortgage Registration of the order confirming the sale 90 days – 120 days from entry of judgment for mortgagor to pay his debt, as determined by court Cancellation of the title of the mortgagor/issuance of new title to the mortgagee Wait for finality of order * If mortgagee/bidder is bank or credit institution, mortgagor has one more year from registration of order confirming the sale + certificate of sale to redeem the property. Secure a writ of possession, by motion, from the same court that ordered the foreclosure Note: GR: In judicial foreclosure, there is only equity of redemption. XPN: If the mortgagee is a bank or credit institution, there is one year right of redemption. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 417 UST GOLDEN NOTES 2011 VI.CHATTELMORTGAGE A.DEFINITIONANDCHARACTERISTICS Q:Whatischattelmortgage? A: It is a contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. Q: What are the characteristics of chattel mortgage? A: 1. It is a formal contract because it must beembodiedinapublicinstrumentand recorded in the Chattel Mortgage Register; 2. It is an accessory contract because its existence depends upon an existing validprincipalobligation; 3. It is a unilateral contract because the obligation is only on the part of the creditor to free the chattel from encumbranceuponthepaymentof the principalobligation; 4. It doesnotconveydominionbutisonly a security (In re: Du Tec Chuan, No. 11156,March28,1916); 5. It creates a real right or a lien which is being recorded and follows the chattel whereveritgoes(NorthernMotors,Inc. v.Coquia,No.L‐40018,Dec.15,1975). Q: What are the requisites in a chattel mortgage? A: 1. GR:Itcoversonlymovableproperty XPN: When the parties treat as personaltythatwhichisaccordingtoits naturerealty. 2. Registration with the Chattel Mortgage Register. 3. Descriptionoftheproperty. 4. Accompanied by an affidavit of good rd faithtobind3 persons. Note:Theabsence of anaffidavitof good faith does notaffectthevalidityofthecontract. 418 Q: What are the laws that govern chattel mortgages? A: 1. ChattelMortgageLaw(ActNo.1508) 2. ProvisionsoftheCivilCodeonpledge Note:In case of conflict between nos. 1 and 2,theformershallprevail. RevisedAdministrativeCode RevisedPenalCode(Art.319) Other special laws (i.e. Motor vehicle law) 6. ShipMortgageDecreeof 1978(P.D.No. 1521) Q: What may be the subject matter of chattel mortgage? A: 1. Sharesofstockinacorporation; 2. Interestinbusiness; 3. Machinery and house of mixed materialstreatedbypartiesaspersonal property and no innocent third person will be prejudiced thereby (Makati Leasing and Finance Corp. v. Weaver TextileMills,Inc.,No.L‐58469,May, 16, 1983); 4. Vessels, the mortgage of which have beenrecordedwiththePhilippineCoast Guard in order to be effective as to thirdpersons; 5. Motor vehicles, the mortgage of which hadbeenregisteredbothwiththeLand Transportation Commission and the Chattel Mortgage Registry in order to affectthirdpersons; 6. House which is intended to be demolished;or 7. Growing crops and large cattle (pars. 2 and3,Sec.7,ActNo.1508). 3. 4. 5. Note: Section 7 of the Chattel Mortgage Law does not demand specific description of every chattel mortgaged in the deed of mortgage, but only requires that the description of the mortgaged property be such as to enable the parties to the mortgage or any other person to identify the same afterareasonableinvestigationandinquiry(Saldana v. Phil. Guaranty Co., Inc., No. L‐13194, Jan. 29, 1960);otherwise,themortgageisinvalid. Q:Whatisaffidavitofgoodfaith? A: It is an oath in a contract ofchattel mortgage wherein the parties “severally swear that the mortgageismadeforthepurposeofsecuringthe obligationspecifiedintheconditionsthereofand CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q: Should the foreclosure sale in chattel mortgagebedoneinpublicauction? A:Act No.1508 providesfor the foreclosure sale in chattel mortgage be done by public auction. However,thepartiesarefreetostipulatethatthe foreclosurebedonebyprivatesale. Q: In case of foreclosure sale in chattel mortgage,maythecreditorrecoverdeficiency if the redemption price is less than the debt secured? A: GR:CRmayrecoverdeficiency. XPN: when the chattel mortgage is used to securethepurchaseofpersonalpropertyin installments(RectoLaw). Q:Whatistheeffectofanincreaseinmortgage credit? A: If the parties to a chattel mortgage take an oaththatthedebt, honestlydueandowingfrom the mortgagor to the mortgagee, it is obvious thatavalidmortgagecannotbemadetosecurea debt to be thereafter contracted (11 C.J. 448). A mortgagethatcontainsastipulationinregardto futureadvancesinthecreditwilltakeeffectonly from the date of the mortgage. The increase in the mortgage credit becomes a new mortgage (Belgian Catholic Missionaries v. Magallanes Press,No.25729,Nov.24,1926). Q: What is the effect of obtaining a personal judgmentonthemortgagelien? A:Itisdeemedabandoned. Q: What are the offenses involving chattel mortgage? A: 1. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law to any province or city other than the one in which it was located at the time of the execution of the mortgage without the written consentofthemortgagee;or 2. Selling or pledging personal property alreadymortgaged,oranypartthereof, under the terms of the Chattel Mortgage Law without the consent of the mortgagee written on the back of the mortgage and duly recorded in the fornootherpurposesand thatthesameisajust andvalidobligation andone notenteredintofor thepurposeoffraud.” Note: The absence of the affidavit vitiates the mortgage only as against third persons without noticelikecreditorsandsubsequentencumbrances. Q:Distinguishcontractofchattelmortgagefrom contractofrealestatemortgage. A: REALESTATE CHATTELMORTGAGE MORTGAGE Subjectmatter Personalproperty Realproperty Requirementofregistration Essentialforthevalidity Merelyforthepurpose ofthiscontract ofbindingthirdpersons Procedurefortheforeclosureofachattelmortgage isdifferentfromtheprocedureofforeclosurefor realestatemortgage B.REGISTRATION Q:Whatisthelegalsignificanceofregistration? A:Itistantamounttothesymbolicdeliveryofthe mortgage to the mortgagee, which is equivalent toactualdelivery(Meyersv.Thein,No.5577,Feb. 21,1910). Q: What is the difference in registration of real mortgageandchattelmortgage? A: A deed of real estate mortgage is considered registered once recorded in the entry book. However, chattel mortgage must be registered notonlyintheentrybookbutalso intheChattel Mortgage Register. (Associated Insurance and SuretyCo.v.LimAng,(CA)52Off.Gaz.5218) Q: What is the effect if the chattel mortgage is notregisteredinthechattelmortgageregister? A:Itis still bindingbetweenthepartiesbutitwill notbebindingtoinnocentthirdparties. Q: When should the registration of the chattel mortgagebemade? A: The law is silent on the time or period when registration should be made. The Court of Appeals has held though that “the law is substantiallyandsufficientlycompliedwithwhere theregistrationismade bythemortgageebefore the mortgagor has complied with his principal obligationandnorightofinnocent thirdpersons isprejudiced(Ledesmav.Perez,2C.A.Rep.126). ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 419 UST GOLDEN NOTES 2011 Chattel Mortgage Register (Art. 319, RPC). C.FORECLOSURE Q:Howischattelmortgageforeclosed? A: Publicsale Privatesale GR: If there is an express stipulation in thecontract. XPN:Fraudorduress Q: What is the procedure in foreclosure of a chattelmortgage? A:Themortgageemay,afterthirty(30)daysfrom the time of the default or from the time the condition is violated, cause the mortgaged property to be sold at public auction by a public officer(Sec.14,ActNo.1508) The30‐dayperiodtoforecloseachattelmortgage is the minimum period after violation of the mortgageconditionforthemortgage The creditor has at least ten (10) days notice servedtothemortgagor The notice of time, place and purpose of such sale,isposted Afterthesaleof the chattelatpublicauction, the right of redemption is no longer available to the mortgagor. (Cabral v. Evangelista, 28 L‐26860, July30,1969) Q: What are the legal consequences of establishing a chattel mortgage over a building erectednotbytheowneroftheland? A: A building is immovable or real property whetheritiserectedbytheowneroftheland,by a usufructuary, or by a lessee. It may be treated asamovablebythepartiestoachattelmortgage butsuchisbindingonlybetweenthemandnoton third parties. As far as third parties are concerned,thechattelmortgagedoesnotexist. Q:Viniconstructedabuildingonaparcelofland he leased from Andrea. He chattel mortgaged the land to Felicia. When he could not pay Felicia, Felicia initiated foreclosure proceedings, Vini claimed that the building he had constructedonthe leasedlandcannotbevalidly foreclosedbecausethebuildingwas,bylaw,an immovable.IsVinicorrect? 420 A:IfitwasthelandwhichVinichattelmortgaged, such mortgage would be void, or at least unenforceable,sincehewasnottheownerofthe land. Ifwhatwasmortgagedasachattelisthebuilding, the chattel mortgage is valid as between the partiesonly,ongrounds ofestoppelwhichwould preclude the mortgagor from assailing the contract on the ground that its subject‐matter is an immovable. Therefore Vini’s defense is untenable,andFeliciacanforeclosethemortgage over the building, observing, however, the procedureprescribedfor theexecutionofsale of a judgment debtor’s immovable under Rule 39, Rules of Court, specifically, that the notice of auctionsaleshouldbepublishedinanewspaper ofgeneralcirculation.(1994BarQuestion) VII.ANTICHRESIS A.DEFINITIONANDCHARACTERISTICS Q:Whatisantichresis? A: It is a contract whereby the CR acquires the rightto receive thefruitsofanimmovable ofthe debtor, with the obligation to apply them to the payment of interest, if owing, and thereafter to theprincipalofhiscredit. Q:Whatarethecharacteristicsofantichresis? A: 1. Accessorycontract. 2. Formal contract – the amount of the principalandoftheinterestmustbothbe in writing; otherwise the contract of antichresisisvoid. 3. 4. 5. 6. 7. Itdealsonlywithimmovableproperty. Itisarealright. Thecreditorhas the rightto receive the fruitsoftheimmovable. Itisarealcontract. It can guarantee all kinds of valid obligations. Note: It is not essential that the loan should earn interest in order that it can be guaranteed with a contract of antichresis. Antichresis is susceptible of guaranteeing all kinds of obligations, pure or conditional. [Javier v. Valliser, (CA) N. 2648‐R, Apr. 29,1950;Sta.Rosav.Noble,35O.G.27241] A stipulation authorizing the antichretic creditor to appropriate the property upon the non‐payment of thedebtwithintheperiodagreeduponisvoid(Art. 2038,NCC). CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q: Whatistheformofacontract ofantichresis anditscontents? A:FDA‐Pa 1. CoversonlytheFruitsofrealproperty 2. Delivery of the property necessary so that CR may receive the fruits therefrom 2. ANTICHRESIS Referstorealproperty Formal Principalandinterest mustbespecifiedin writing,otherwise contractisvoid 3. ANTICHRESIS Creditorisgiventheright toenjoythefruitsand applythemtothe paymentoftheinterest andtotheprincipalof theloan Note: Delivery of the property to the creditor is requiredonlyinorderthatthecreditormayreceive thefruitsandnotforthevalidityofthecontract. 3. 4. Amount of principal and interest must be specified in writing, otherwise, the contractshallbevoid. Expressagreement thatdebtorwillgive Possession to the CR and that CR will apply thefruitsto theinterestandthen totheprincipal. Creditoracquiresonly therighttoreceivethe fruitsoftheproperty; doesnotproduceareal rightunlessregisteredin theRegistryProperty Creditorobligedtopay thetaxesandcharges upontheestateunless stipulatedotherwise Thereisanexpress stipulationthatthe creditorshallapplythe fruitstothepaymentof theinterest,ifowing,and thereaftertothe principalofthedebt. Creditordoesnothave suchright Q: Is prescription as a mode of acquiring ownership available to the creditor in antichresis? A:No.Hispossession of the property is not in the concept of an owner but that of a mere holder during the existence of the contract (Ramirez v. CA,G.R.No.L‐38185,September24,1986). Q: How should the amount of payment in antichresisbedetermined? A: The actual market value of the fruits at the timeoftheapplicationthereoftotheinterestand the principal shall be the measure of such application(Art.2133,NCC). Q: What is the effect if the amount of the principal and of the interest is not specified in writing? A:Thecontractisvoid(Art.2134,NCC). Q: Who are the parties to a contract of antichresis? A: 1. Antichretic creditor – one who receives thefruitson theimmovablepropertyof thedebtor. 2. Antichretic debtor – one who pays his debt through the application of the fruitsofhisimmovableproperty. Q:Distinguishantichresisfrom: 1. Realestatemortgage; 2. Pledge;and 3. Pactoderetrosale. A: Propertyisdeliveredto creditor PACTODERETROSALE Note: The fruits of the immovable which is the object of the antichresis must be appraised at their actual market value at the time of the application (Art. 2138).The property delivered stands as a security for the payment of the obligation of the debtor in antichresis. Hence, the debtor cannot demanditsreturnuntilthedebtistotallypaid. ANTICHRESIS PLEDGE Personalproperty Real Neednotbeinwriting, oralevidencemaybe allowedtoprovethe same. REALESTATE MORTGAGE Debtorusuallyretains possessionofthe property Creditorhasnorightto receivefruits,but mortgagecreatesreal rightagainsttheproperty Creditorhasnosuch obligation Thereisnosuch obligationonthepartof themortgage ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 421 UST GOLDEN NOTES 2011 B.OBLIGATIONSOFANTICHRETICCREDITOR Q: What are the obligations of an antichretic creditor? A:To: paythetaxesandchargesassessableagainst the property like real estate taxes and others; bear the necessary expenses for the preservationoftheproperty; beartheexpensesnecessaryfortherepairof theproperty;and applythefruitsreceivedforpaymentof the outstanding interests, if any, and thereafteroftheprincipal. Q: When can the antichretic debtor reacquire thepossessionofhisproperty? A:The debtor can only demand the return ofthe propertyafterhavingfullypaid his obligationsto thecreditor.Itisnotfairforthe debtortoregain thepossessionof thepropertywhenhisdebt has notbeenfullypaid.Untilthereisfullpaymentof theobligation,thepropertyshallstandassecurity therefor (Macapinlac v. Gutierrez Repide, No. 18574,Sept.20,1922). Q: How can the creditor be exempted from the obligationsimposedbyArt.2135? A: The creditor may compel the debtor to re‐ enterintotheproperty. Note: Article 2135. The creditor, unless, there is a stipulation to the contrary, is obliged to pay the taxesandchargesupontheestate. He is also bound to bear the expenses necessaryforitspreservationandrepair. The sumsspent for the purposesstatedin thisarticleshallbedeductedfromthefruits. Q:Whatistheremedyof thecreditor incaseof nonpaymentofhiscredit? A:File: 1. anactionforcollection;or 2. a petition for the public sale of the property (Barretto v. Barretto, No. 11933,Dec.1,1917). VIII.QUASI‐CONTRACTS Q:WhatisaQuasi‐Contract? A: Quasi‐contracts are lawful, voluntary, and unilateralactswhichgenerallyrequireapersonto 422 reimburse or compensate another in accordance with the principle that no one shall be unjustly enriched at the expense of another. (Art. 2142, NCC) Q:Whatarethebasesforquasi‐contracts? A: 1. No one must unjustly enrich himself at another’sexpense 2. ifonebenefits,hemustreimburse 3. justiceandequity Q:Whatareexamplesofquasi‐contracts? A: NegotiorumGestio SolutioIndebiti A.NEGOTIORUMGESTIO Q:WhatisNegotiorumGestio? A:Thisisakindofquasi‐contractwheresomeone called the gestor takes the management of the businessorproperty ofanotherpersonknownas owner without the consent or authority of the latter. Q: What are the essential requisites for negostiorumgestio? A: 1. Nomeetingoftheminds 2. Taking charge of another’s business or property 3. The property or business must have beenabandonedorneglected 4. Theofficiousmanager(gestor)mustnot have been expressly or implicitly authorized 5. The officious manager (gestor) must havevoluntarilytakencharge Q:Whatareexamplesofnegotiorumgestio? A: 1. If an attorney‐in‐fact continues to manage the principal’s estate after the principal’s death, the former agent becomes a gestor (Julian, et al. v. De Antonio, [CA] 2 O.G.966, October 14, 1943). 2. Ifaco‐ownershipis illegallypartitioned, thepossessorsbecomegestorswiththe dutytorendertheaccounting(DeGala v.DeGala&Albatros,60Phil311). CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Whatareexamplesofsolutioindebiti? A: 1. Erroneous payment of interest not due (Velezv.Balzarza,73Phil.630) 2. Erroneouspaymentofrentalnotcalled forinviewoftheexpirationofthelease contract(Yansonv.Sing,C.A.382438) 3. Taxes erroneously given (Aquinena and Co.v.Muertequi,32Phil.261) Q: Can solutio indebiti be applied because of doubtfulordifficultquestionoflaw? A: Yes, there can be payment because of “doubtfulordifficultquestionoflaw”mayleadto solutio indebiti because of the mistake committed.(Art.2155,NCC) Q: GMC Corp. used to compute and pay its monthly cost of living allowance (COLA) on the basis of 30days a month ever since law mandatedthepaymentofCOLA.WageOrder6 was implemented, increasing the COLA by P3 a day. GMC however multiplied the P3 additional COLA by 22days. The Union objected arguing that the management’s unilateral act was tantamounttowithdrawalofbenefits. Istherea mistakeintheapplicationoflaw? A: GMC cannot be faulted for the erroneous applicationoflaw.Paymentmay besaidtohave been made by reason of a mistake in the construction or application of “doubtful or difficult question of law. Since it is a past error that is being corrected, no vested right may be saidtohavearisennoranydiminutionofbenefit underArt.100oftheLaborCode,may besaidto have resulted by virtue of the correction. (Globe Mackay Cable and Radio Corp. v. NLRC, GR no. 74156,June29,1988) Q:Whatistheliabilityofapayeeingoodfaith? A: 1. Incaseof impairmentorloss,liabilityis onlytotheextentofbenefit. 2. In case of alienation, the price is to be reimbursed, or in case of credit, the sameshouldbeassigned. Q:Whatistherequireddiligencefromagestor? A: Diligence of a good father of a family (Art. 2145, NCC). Hence, a gestor is liable for the acts or negligence of his employees (MRR Co. v. CompaniaTransatlantica,38Phil.875). Note:Theliabilityfordamages,whichhowever,in certaincases,maybemitigated. Q: Whatistheeffectofratification of theowner ofthebusiness? A: Ratification produces the effect of an express agency;andthisistrueeven ifthebusiness isnot successful(Art2149,NCC). Q: What are the liabilities of the owner even if thereisnoratification? A: 1. Liability for the obligation incurred in hisinterest. 2. Liability for necessary and useful expenses and for damages. (Art 2150, NCC) Q:Whatistheruleiftheownerisaminor? A: Even if the owner is a minor, he is still liable under the article for he should not be unjustly enrichedatanother’sexpense.(Roteav.Delupio, 67Phil.330) B.SOLUTIOINDEBITI Q:WhatisSolutioIndebiti? A:Solutioindebitiisthequasi‐contractthatarises whenapersonisobligedtoreturnwhateverwas received by him through error or mistake or received by him although there was no right to demandit. Q:Whataretherequisitesforsolutionindebiti? A: 1. Receiptofsomething. 2. Therewasnorighttodemandit 3. Unduedeliverywasbecauseofmistake. Note: When the payment was not by mistake or voluntary, but was made because if the coercive process of the writ of execution, solutio indebiti does not apply (Manila Surety & Fidelity Co., Inc. v. Lim,GRno.L‐0343,December29,1959) ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 423 UST GOLDEN NOTES 2011 IX.CONCURRENCEANDPREFERENCEOFCREDITS A.MEANINGOFCONCURRENCEAND PREFERENCE Q:Whatisconcurrenceofcredits? A: Concurrence of credit implies the possession by two or more creditors of equal rights or privileges over the same property or all the propertyofadebtor. Q:Whatispreferenceofcredit? A:Preferenceofcreditisarightheldbyacreditor tobepreferredinthepaymentofhisclaimabove othersoutofthedebtor’sassets. Note: The rules apply when two or more creditors have separate and distinct claims against the same debtorwhohasinsufficientproperty. B.CLASSIFICATIONOFCREDITS Q:Whatarethegeneralcategoriesofcredit? A: 1. Specialpreferredcredits –thoselistedin 2. 3. Arts. 2241‐2242, NCC shall be considered mortgages and pledges of real and personal property or liens (Art. 2243). Hence, they are not included in the insolventdebtor’sassets. Ordinary preferred credits – those listed in Art 2244, NCC as amended by Art. 110 oftheLaborCode Commoncredits –thoselistedunderArt. 2245, NCC, which shall be paid pro rata regardlessofdates. Q:Whatistheextentofliabilityofadebtorfor hisobligations? A: The debtor is liable with all his property, present and future, for the fulfillment of his obligations, subject to the exemptions provided bylaw. C.PREFERREDCREDITSONSPECIFICMOVABLES Q:Whatarethepreferredcreditswithrespectto thespecificmovableproperty? A: 1. Duties, taxes and fees due thereon to the stateoranysubdivisionthereof; 2. Claimsarising frommisappropriation, breach of trust, or malfeasance by public officials committed in the performance of their 424 duties,onthemovables,moneyorsecurities obtainedbythem; 3. Claimsfor theunpaidpriceofmovablesold, onsaidmovables,solongastheyarein the possessionofthedebtor,upto thevalue of the same, and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereofcanbedeterminedproportionally; 4. Creditsguaranteedwithapledgeso longas the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgageuponthe thingsmortgaged,upto thevaluethereof; 5. Credits for making repairs or preservation or personal property on the movable thus made,repaired,keptorpossessed; 6. Claims for laborers wages, on the goods manufacturedortheworkdone; 7. For expenses of salvage, upon the goods salvaged; 8. Creditsbetween thelandlordand thetenant arising from the contract of tenancy on shares, on the share of each inthe fruits or harvest; 9. Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and forthirtydaysthereafter; 10. Credits for lodging and supplies usually furnished to travelers by hotelkeepers, on themovablesbelongingtotheguestas long as such movables are in the hotel, but not formoneyloanedtotheguests; 11. Credits for seeds and expenses for cultivation and harvest advanced to the debtor,uponthefruitsharvested; 12. Credits for rent for one year, upon the personal property of the lessee existing on the immovable leased on the fruits of the same, but not on money or instruments of credit; 13. Claims in favor of the depositor if the depository has wrongfully sold the thing deposited,uponthepriceofthesale. Note: In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessorwithin thirty (30) days fromthe unlawfulseizures. CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Summary: 1. taxes 2. malversationbypublicofficials 3. vendor’slien 4. pledge,chattelmortgage 5. mechanic’slien 6. laborer’swages 7. salvage 8. tenancy 9. carrier’slien 10. hotel’slien 11. croploan 12. rentals–oneyear 13. deposit 10. Credits of insurers, upon the property insured, for the insurance premium for twoyears. Summary: 1. taxes 2. vendor’slien 3. contractor’slien 4. lienofmaterialmen 5. mortgage 6. expensesofpreservation 7. recordedattachments 8. warrantyinpartition 9. conditionaldonations 10. premiumsfor2year–insurers D.PREFERREDCREDITSONSPECIFIC IMMOVABLES E.EXEMPTPROPERTIES Q: What are the exempt properties from executionandsale? A:FST‐BCF‐PLB‐ELM‐CL 1. GR: Family home constituted jointly by husbandandwifeorbyunmarriedhead ofafamily(Art.152,FC). XPNs:For: a. non‐paymentoftaxes; b. debts incurred prior to the constitution of the family home; c. debts secured by mortgages on the premises before or aftersuchconstitution;and d. debts due to laborers, mechanics, architects, builders, material men and others who have rendered service or furnished material for the construction of the building 2. Right to receive Support as well as any money or property obtained as such support.(Art.205,FC) 3. Tools and implements necessarily used byhiminhistradeoremployment; 4. Two horses, or two cows, or two carabaos or other Beasts of burden, such as the debtor may select, not exceedingonethousandpesosinvalue and necessarily used by him in his ordinaryoccupation; 5. HisnecessaryClothingandthatofallhis family. 6. Household Furniture and utensils necessary for housekeeping and used forthat purposebythedebtor,suchas Q:Whatarethepreferredcreditswithrespectto specificimmovableproperty? A: 1. Taxesdueuponthelandorbuilding; 2. For the unpaid price of real property soldupontheimmovablesold; 3. Claims of laborers. Masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the construction, reconstruction or repair of buildings, canals or other works, upon said buildings,canalsorotherworks; 4. Claimsoffurnishersofmaterialsusedin the construction, reconstruction, or repair of buildings, canals, and other works, upon said buildings, canals or otherworks; 5. Mortgage credits recorded in the Registry of Property, upon the real estatemortgage; 6. Expenses for the preservation or improvementofrealpropertywhenthe law authorizes reimbursement, upon theimmovablepreservedorimproved; 7. Credits annotated in the Registry of Property,byvirtueofajudicialorder,by attachments or executions, upon the property affected, and only as to later credits; 8. Claims of co‐heirs for warranty in the partitionofanimmovableamongthem, upontherealpropertythusdivided; 9. Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the immovabledonated; ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 425 UST GOLDEN NOTES 2011 7. 8. 9. 10. 11. 12. 13. 14. Provisions for individual or family use insufficientforthreemonths; TheprofessionalLibrariesofattorney’s, judges,physicians,pharmacists,dentist, engineers, surveyors, clergymen, teachers and other professionals, not exceeding three thousand pesos in value; OnefishingBoatandnet,notexceeding the total value of one thousand pesos, the property of any fisherman, by the lawful use of which he earns a livelihood; So much of the Earnings of the debtor for his personal services within the month preceding the levy as are necessaryforthesupportofhisfamily; Letteredgravestones; All Moneys, benefits, privileges or annuities accruing or in any manner growingoutofanylifeinsurance,ifthe annual premiums paid do not exceed five hundred pesos, and if they exceed the sum, a like exemption shall exist whichshallbearthesameproportionto the moneys, benefits privileges and annuitiessoaccruingorgrowing outof such insurance that said five hundred pesos bears to the whole premiums paid; Copyrights and other properties especially exempted by law (Sec. 12, Rule39) PropertyunderLegalcustodyandofthe publicdominion. Q:Whatistheorderofpreferencewithrespect tootherpropertiesofthedebtor? A: 1. Properfuneralexpensesfor thedebtor, or children under his or her parental authoritywhohavenopropertyoftheir own,whenapprovedbythecourt; 2. Credits for services rendered the insolvent by employees, laborers, or household helpers for one year preceding the commencement of the proceedingsininsolvency; 3. Expenses during the last illness of the debtor or of his or her spouse and children under his or her parental authority, if they have no property of theirown; 4. Compensation due to the laborers of their dependents under laws providing 426 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. for indemnity for damages in cases of labor accident or illness resulting from thenatureoftheemployment; Creditsandadvancementsmadeto the debtorforsupportof himselforherself, and family, during the last preceding insolvency; Support during the insolvency proceedings, and for three months thereafter; Fines and civil indemnification arising fromacriminaloffense; Legal expenses, and expenses incurred in the administration of the insolvent’s estate for the common interest of the creditors, when properly authorized andapprovedbythecourt; Taxesandassessmentsduethenational government, other those mentioned in Articles2241,No.1,and2242,No.1; Taxes and assessments due any province, other than those mentioned inArticles2241,No.1and2242,No.1; Taxes and assessments due any city or municipality other than those mentioned in Articles 2241, No.1 and 2242,No.1; Damages for death or personal injuries causedbyaquasi‐delict; Gifts due to public and private institutionsofcharityorbeneficence; Credits which without special privilege, appearin(a)apublicinstrument;or(b) inthefinaljudgment, iftheyhavebeen the subject of litigation. These credits shall have preference among themselves in the order of priority of thedatesof theinstrumentsandof the judgments,respectively(Art.2244). Summary: 1. funeralexpenses 2. wagesofemployees–oneyear 3. expensesoflastillness 4. workmen’scompensation 5. supportforoneyear 6. supportduringinsolvency 7. finesincrimes 8. legalexpenses–administration 9. taxes 10. tort 11. donations 12. appearing in public instrument or final judgment CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Whataretheteststodetermineinsolvency? A: 1. Equity test – A state of inability of a persontopayhisdebtsatmaturity. 2. Balance sheet test – The assets, if all made immediatelyavailable,wouldnot besufficienttodischargethebalance. Q: What are the remedies of an insolvent debtor? A: 1. Petitionthecourttosuspendpayments ofhisdebts;or 2. To be discharged from his debts and liabilities by voluntary or involuntary insolvencyproceedings.(Sec.1) Q: What is the effect of insolvency proceedings filedbyindividualdebtors? A: 1. Suitspendingincourt– a. securedobligations suspendeduntilassignee appointed b. unsecuredobligations terminatedexcepttofix amountofobligation c. foreclosuresuitspending continue 2. Suitsnotyetfiled–cannotbefiled anymorebutclaimsmaybepresented toassignee. F.ORDEROFPREFERENCEOFCREDIT Q:Whatistheorderofpreferenceofcredits? A: 1. Those credits which enjoy preference with respect to specific movable, excluded all others to the extent of the value of the personal property to which the preference refers(Article2246). 2. Iftherearetwoormorecreditswithrespect to the same specific movable property, they shall besatisfiedpro‐rata,afterthepayment of duties, taxes, and fees due the State or anysubdivisionthereof(Art.2247,NCC). 3. Those credits which enjoy preference in relation to specific real property or real rights,excludeallothersto theextentofthe valueoftheimmovableorrealrighttowhich thepreferencerefers(Art.8). 4. Iftherearetwoormorecreditswithrespect to the same specific real property or real rights, they shall be satisfied pro rata, after the payment of the taxes and assessments upon the immovable property or real right (Art.2249,NCC). 5. The excess, if any, after the payment of the credits which enjoy preference with respect tospecificproperty,realorpersonal,shallbe addedtothefreepropertywhich thedebtor may have, for the payment of the other credits(Art.2250,NCC). 6. Those credits which do not enjoy any preference with respect to specific property and those which enjoy preference, as to the amountnotpaid,shall be satisfiedaccording tothefollowingrules: a. In the order established in Article 2244; b. Common credits referred to in Article 2245 shall enjoy no preference and shall be paid pro rataregardlessofdated(Art.2251, NCC). Note: The result is different if the petitioner is a corporation because under the Revised Rules on Corporate Recovery, all claims whether secured or unsecuredarestayed. Q: If A is declared an insolvent by the court, what would be the effect, if any, of such declarationonhiscreditors?Explain. A: 1. The sheriff shall take possession of all assets of the debtor until the appointmentofareceiverorassignee; 2. Paymenttothedebtorofanydebtsdue tohimandthedeliverytothedebtorof anypropertybelongingtohim, andthe transfer of any property by him are forbidden; 3. Allcivilproceedingspendingagainstthe insolventshallbestayed;and 4. Mortgagesandpledgesarenotaffected by the order declaring a person insolvent.(Sec.59,InsolvencyLaw) X.INSOLVENCYLAW A.DEFINITIONOFINSOLVENCY Q:Whatisinsolvency? A:Thestateofapersonwhoseliabilitiesaremore than his assets. The term is frequently used in themorerestrictedsensetoexpressinabilityofa person to pay his debts as they become due in theordinarycourseofhisbusiness. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 427 UST GOLDEN NOTES 2011 Q:AssumingthatA hasguarantorsforhisdebts, are the guarantors released from their obligationsonceAisdischargedfromhisdebts? A: The guarantors are not discharged, because the discharge is limited to A only (Sec. 68). Precisely under the principle of excussion, the liability of the guarantors arises only after the exhaustion of the assets of the principal obligor. The effect of discharge merely confirms exhaustion of the assets of the obligor available tohiscreditors. Q. What remedies are available to the guarantors in case they are made to pay the creditors?Explain. A: Their remedy is to prove in the insolvency proceedingthattheypaidthedebtand thatthey substitutedforthecreditors,ifthe creditorshave notproventheirclaims(Sec.56). Under Article 2081 of the Civil Code, the guarantormaysetupagainstthecreditorallthe defensesthatpertaintotheprincipaldebtor. The dischargeobtainedbythedebtoron theprincipal obligation can now be used as a defense by the guarantors against the creditors. The guarantors arealsoentitledto indemnityunderArticle2066 oftheCivilCode. Q: X and Y were employees of ATLAS which hypothecated its certain assets to DBP. When ATLAS defaulted in its obligations, DBP foreclosedandacquiredthemortgagedassetsby virtueoftheforeclosuresale.Meanwhile,Xand YfiledanactionagainstbothATLASandDBPfor unpaidwages.TheLaborArbiterruledinfavorof XandY.IstheLAcorrectinconsideringworker’s preference under Article 110 of the Labor Code overthatofDBP’smortgagelien? A: Declaration of bankruptcy or a judicial liquidation must be present before the worker’s preferencemaybeenforced.Adistinctionshould be made between a preference of credit and a lien.Apreferenceappliesonlytoclaimswhichdo notattachtospecificproperties.Aliencreates a charge ona particularproperty.Theright offirst preference as regards unpaid wages recognized by Article 110 does not constitute a lien on the property of the insolvent debtor in favor of workers. It is but a preference of credit in their favor, a preference in application. It is a method adopted to determine and specify the order in which credits should be paid in the final distribution of the proceeds of the insolvent's assets. It is a right to a first preference in the 428 dischargeofthefunds ofthejudgmentdebtor.A recorded mortgage is a special preferred credit while the preference given to workers under Article 110 of the Labor Code is an ordinary preferred credit. (DBP v. NLRC, G.R. No. 86227, Jan.19,1994) Q: Is the power to petition for the adjudication ofbankruptcygrantedtojuridicalpersons? A:The lawgrants to a juridicalperson, as wellto natural persons, the power to petition for the adjudication of bankruptcy of any natural or juridical person provided that with respect to juridical persons, it is a resident corporation and adjoinsatleasttwoother residentsinpresenting the petition to the Bankruptcy Court. When a foreign bank alleged in its petition that it is licensed to do business in the Philippines and actually doing business in the country, it is in effect stating that it is a resident foreign corporation in the Philippines. (State Investment House v. Citibank, N.A., G.R. Nos. 79926‐27, Oct. 17,1991) B.SUSPENSIONOFPAYMENTS Q:Whatissuspensionofpayments? A: Itis the postponement,by court order, of the payment of debts of one who, while possessing sufficient property to cover his debts, foresees the impossibility of meeting them when they respectivelyfalldue. Q: When is the remedy of suspension of paymentsavailable? A: The debtor who, possessing sufficientproperty tocoverallhisdebts,foreseestheimpossibilityof meeting them when they respectively fall due, may petition that he be declared in the state of suspension of payments by the court of the province or city in which he has resided for six months next preceding the filing of his petition (Sec.2[1]). Q:Whendoessuspensiontakeeffect? A:Uponthefilingofthepetition. Q: What are the steps in suspension of payments? A: 1. Filingof thepetitionby thedebtor(Sec. 2); CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS 2. 3. 4. Q:Whataretheeffectsoffilingofthepetition? A: 1. No disposition in any manner of his propertymaybemadebythepetitioner exceptinsofarasconcernstheordinary operations of commerce or of industry inwhichheisengaged;(Sec.3[2]) 2. No payments may be made by the petitionerexceptintheordinarycourse ofhisbusinessorindustry(Ibid.);and; 3. Upon the request to the court, all pending executions against the debtor shall be suspended except execution against property especially mortgaged. (Sec.6) Q:Whoarethecreditorsaffectedbythefilingof thepetition? A: Only creditors included in the schedules filed bythedebtorshallbecitedtoappearandtotake partinthemeeting.(Sec.5)Hence,thosewhodid not appear because they were not informed of theproceedingsareunaffectedbythesame. Q: Who are the creditors not affected by order ofsuspensionofpayments? A: 1. Those having claims for personal labor, maintenance, expenses of the last illness and funeral of wife or child of debtor, incurred during the 60 days immediately preceding the filing of the petition;and 2. Those having legal or contractual mortgages.(Sec.9) Q: When is a petition for suspension of paymentsdeemedrejected? A: 1. When the number of creditors representing at least 3/5 of the liabilitiesnotattend;(Secs.8,10)or 2. When the two majorities required are notinfavorofthe proposedagreement (Sec.10). Q:Whatistheeffectofdisapprovalofpetition? A: If the decision of the meeting be negative as regardstheproposedagreementorifno decision is had in default of such number or of such Issuancebythecourtofanordercalling ameetingofcreditors(Sec.3); Publication of the order and service of summons(Sec.4); Meetings of creditors for the consideration of the debtor’s proposition(Sec.8); Note: To hold a valid meeting, the creditorsrepresentingatleast3/5of the liabilities of the debtor must be present. 5. 6. 7. 8. Approval by the creditors of the debtor’sproposition(Sec.8,[20]); The Double Majority Rule applies. To obtain a majority vote, it is necessary that: a. At least 2/3 of the creditors must vote on the same proposition,and b. Said2/3representatleast3/5 of the total liabilities of the debtor. Objections,ifany,tothedecisionmust be made within 10 days following the meeting.(Sec.11); Issuanceoforderbythecourt directing that the agreement be carried out in case the decision is declared valid, or when no objection to said decision has beenpresented. Q: What are the documents that should accompanythepetition? A: 1. Averifiedschedulecontainingafulland true statement of the debts and liabilitiesofthepetitionertogetherwith alistofcreditors;(Secs.15,2) 2. A verified inventory containing a list of creditors, an accurate description of all thepropertyof thepetitionerincluding property exempt from execution and a statement as to the value of each item of property, its location, and encumbrances thereon, if any; (Secs. 16,2) 3. Astatementofhisassetsandliabilities; (Sec.2)and 4. The proposed agreements he requests ofhiscreditors.(Ibid.) ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFOR LAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 429 UST GOLDEN NOTES 2011 majorities, the proceeding shall be terminated without recourse. In such case, the parties concernedshallbeatlibertytoenforcetherights whichcorrespondtothem.(Sec.11) PETITION FOR ORDINARY SUSPENSION OF PAYMENTS PETITIONFORCORPORATE REHABILITATION Torehabilitatethepetitioning company. Insolvency Law. Law InterimRulesonCorporate Rehabilitation Creditors Doesnot coversecured creditors. Coversallcreditors,whether securedornot. Thedebtor, naturalor juridical person Duration Suspensionvaliduntil: Dismissalofthepetition or Terminationofthe rehabilitation proceedings. Filedby Corporation,partnershipor association,or Thecreditorsholdingatleast 20%ofthedebtor’stotal liabilities. Effect Nomore Thecourt,still,hastoissueastay needforthe ordernotlaterthan5daysfrom courttoissue thefilingofthepetition. astayorder. Effectsoffilingthepetition Allclaimsagainstthedebtorare Allactionsor stayedupontheissuanceofstay claimsagainst order. the corporation pending Thecreditorsmayproceedto beforethe enforcetheirclaimagainstthe court, suretyevenifduringthependency tribunal, oftherehabilitationproceedings board,or involvingthecorporatedebtor. bodyshallbe (Phil.BloomingMills,Inc.and suspended. AlfredoChingv.CA,G.R.No. 142381,Oct.5,2003) Q: What are the modes or forms of suspension ofpayment? A: 1. Petition for ordinary suspension of paymentsunderAct1956 430 Verified petition for rehabilitation under the Interim Rules of Procedure for Corporate Rehabilitation which includessuspensionofpayments. C.VOLUNTARYINSOLVENCY Purpose Toobtain defermentin thepayment ofdebts. 180daysor3 months 2. Q:Whatisavoluntaryinsolvency? A: This is availed of a debtor who, having debts exceedingP1,000.00,cannotdischargeallofthem with all of his existing assets and who, as a consequence, voluntarily goes to court to have himselfdeclaredas aninsolventsothathisassets maybeequitably distributedamonghiscreditors. (Sec.14) Q: What is the procedure for voluntary insolvency? A: 1. Filing of the petition by the debtor prayingforthedeclarationofinsolvency (Sec.2); 2. Issuance of an order of adjudication declaring the petitioner insolvent (Sec.18); 3. Publication and service of the order (Sec.19); 4. Meeting of the creditors to elect the assigneeininsolvency(Sec.30); 5. Conveyanceofthedebtor’spropertyby the clerk of court to the assignee (Sec. 32); 6. Liquidation of the debtor’s assets and paymentofhisdebts(Sec.33); 7. Composition,ifagreedupon(Sec.63); 8. Discharge of the debtor on his application (Sec. 64), except a corporation; 9. Objection,ifany,to thedischarge(Sec. 66); 10. AppealtotheSCincertiorari. Q: X, a well‐known architect, is suffering from financial reverses. He has four creditors with a total claim of P26 Million. Despite his intention to pay these obligations, his current assets are insufficienttocoverallofthem.Hiscreditorsare about to sue him. Consequently, he was constrained to file a petition for insolvency. Since X was merely forced by circumstances to petition the court to declare him insolvent, can the judge properly treat the petition as one for involuntaryinsolvency?Explain. A: The petition cannot be treated as one of involuntary insolvency, because it was filed by X CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Whomaypetitionforvoluntaryinsolvency? A: The petition may be filed by any officer duly authorized by the vote of the board of directors ortrusteesatameetingespecially calledforthat purpose,orbyassentinwriting ofthemajority of thedirectorsortrustees,asthecasemaybe.(Sec. 52) Q:Whatistheeffectoffilingpetition? A: Once the petition is filed, it ipso facto takes away and deprives the debtor petitioner of the righttodoorcommitanyact ofpreferenceasto creditors, pending the final adjudication. (PhilippineTrustCo.v.NationalBank,42Phil413) Q: Whataretheeffectsofcourtorderdeclaring debtorinsolvent? A: 1. Alltheassetsof thedebtor notexempt fromexecutionaretaken possessionof bythesheriffuntiltheappointmentofa receiverorassignee; 2. Thepaymenttothedebtorofanydebts due to him and the delivery to the debtorortoany personforhimofany property belonging to him, and the transfer of any property by him are forbidden; 3. Allcivilproceedingspendingagainstthe insolventdebtorshallbestayed;and 4. Mortgages or pledges, attachments, or executions on property of the debtor dulyrecordedandnotdissolvedare not affectedbytheorder.(Sec.59) himself,thedebtor,andnotbyhiscreditors(Sec. 20). To treat it as one of involuntary insolvency would unduly benefit X as a debtor, because he would not be subject to the limitation of time withinwhichheissubjectinthecaseofvoluntary insolvencyforpurposesofdischarge(Sec.65). Q: What are the requisites of petition for voluntaryinsolvency? A: The petition which must be verified (Sec.17) is tobefiled: 1. Byaninsolventdebtor 2. Owing debts exceeding in amount the sum ofP1,000.00 3. IntheRTCoftheprovinceorcityinwhichhe hasresidedfor6monthsnextprecedingthe filingofsuchpetition,and 4. Settingforthinhispetitionthefollowing: a. Hisplaceofresidence; b. The period of residence therein immediately prior to filing said petition; c. His inability to pay all his debts in full; d. His willingness to surrender all his property, estate, and effects not exempt from execution for the benefitofhiscreditors;and e. An application to be adjudged an insolvent.(Sec.14) Q: What are the documents to accompany the petition? A: 1. Averifiedschedulemustcontain: a. A full and true statement of all debts and liabilities of the insolventdebtor;and b. Anoutlineofthefactsgivingriseor whichmightgiverisetoacauseof action against such insolvent debtor;(Sec.15) 2. Averifiedinventory,whichmustcontain: a. An accurate description of all the personal and real property of the insolvent exempt or not from executionincludingastatementas to its value, location and encumbrancesthereon;and b. Anoutlineofthefactsgivingriseor which might give rise to a right of action in favor of the insolvent debtor.(Sec.16) D.INVOLUNTARYINSOLVENCY Q:Whatisaninvoluntaryinsolvency? A: Thisis availed of by the petition of 3 or more creditors, none of whom became a creditor by assignment within 30 days prior to filing of petition and whose aggregate credit is not less thanP1,000.00,becauseofcommission of oneor moreactsofinsolvency.(Sec.20) Q:Whataretheactsofinsolvency? A: 1. Such person is about to depart or has departedfromthePhilippines,with intentto defraudhiscreditors; ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFORLAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 431 UST GOLDEN NOTES 2011 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Being absent from the Philippines, with intent to defraud his creditors, he remains absent; He conceals himself to avoid the service of legal process for purpose of hindering or delayingordefraudinghiscreditors; He conceals, or is removing, any of his propertytoavoiditsbeingattachedortaken onlegalprocess; Hehassufferedhispropertytoremainunder attachment or legal process for 3 days for the purpose of hindering or delaying or defraudinghiscreditors; He has confessed or offered to allow judgmentinfavorofanycreditororclaimant for the purpose of hindering or delaying or defraudinganycreditororclaimant; He has willfully suffered judgment to be takenagainsthim bydefaultforthepurpose of hindering or delaying or defrauding his creditors; He has suffered or procured his property to betakenonlegal processwithintenttogive apreferencetooneormoreofhiscreditors and thereby hinder, delay, or defraud any oneofhiscreditors; He has made any assignment, gift, sale, conveyance, or transfer of his estate, property, rights, or credits with intent to delay,defraud,orhinderhiscreditors; He has, in contemplation of insolvency, made any payment, gift, grant, sale, conveyance, or transfer of his estate, property,rights,orcredits; Being a merchant or tradesman he has generally defaulted in the payment of his currentobligationsforaperiodof30days; For a period of 30 days he has failed after demand,topay anymoneysdepositedwith him or received by him in a fiduciary capacity;and Anexecutionhavingbeen issuedagainsthim on final judgment for money, he shall have beenfoundtobewithoutsufficientproperty subjecttoexecution tosatisfythejudgment. (Sec.20) Q: What is the procedure in involuntary insolvency? A: 1. Filing of the petition by three or more creditors(Sec.20); 2. Issuance of order requiring the debtor to show cause why he should not be adjudgedinsolvent(Sec.21); 3. Serviceofordertoshowcause(Sec.22); 432 4. Filing of answer or motion to dismiss (Sec.23); 5. Hearingofthecase(Sec.24); 6. Issuanceoforder ordecisionadjudging debtorinsolvent(Ibid.) 7. Publication and service of order (Sec. 25); 8. Meetingsofcreditorsforelection ofan assigneeininsolvency(Sec.30); 9. Conveyance of debtor’s property by clerkofcourttotheassignee(Sec.32); 10. Liquidation of the debtor’s assets and paymentofdebts(Sec.33); Note: Assets of the insolvent which are not exempt from execution will then be distributed among his creditors in accordance with the rules of concurrence and preference of credits in the Civil Code. 11. Composition,ifagreedupon(Sec.63); 12. Discharge of the debtor on his application, except a corporation (Sec. 52); 13. Objection,ifany,to thedischarge(Sec. 66);and 14. AppealtotheSupremeCourtincertain cases(Sec.62) Q:Whataretherequisitesforfilingapetitionfor InvoluntaryInsolvency? A:Thepetitionisfiledby: 1. Threeormorecreditors; 2. None of whom has become such a creditor by assignment, within 30 days priortothefilingofsaidpetition; 3. Whose credits accrued in the Philippines; 4. Thetotalamount ofwhichcreditsisnot lessthanP1,000.00;and 5. In the RTC of the province or city in which the debtor resides or has his principalplaceobusiness. 6. Thepetitionmust: 7. be verified by at least 3 of the petitioningcreditors; 8. setforthone ormoreacts ofinsolvency mentionedinthelaw;and 9. be accompanied by a bond, approved bythecourtwithatleast2sureties,in suchpenalsumasthecourtshalldirect. CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q: Can a surety institute involuntary proceedings? A: No, a surety for the debtor is not a creditor. Hence, he cannot institute involuntary proceedings.Allhecandoistoprovehisclaim. Q: Distinguish voluntary insolvency from involuntaryinsolvency. A: VOLUNTARY INSOLVENCY Filedbythedebtor. Only1creditoris required. Norequirementfor creditors. Venue:wherehe hasresided6 monthspriortothe filingofpetition. Noneedforthe commissionofany oftheactsof insolvency. Amountofdebts mustexceed P1,000.00. Debtordeemed insolventthrough anorderof adjudicationafter filingofthepetition; adjudicationmaybe grantedexparte. Bondisnot required. Q:Whoarethecreditorsnotentitledtovotein theelectionofassignee? A: 1. Those who did not file their claims at least2dayspriortothetimeappointed forsuchelection;(Sec.29) 2. Those whose claims are barred by the statuteoflimitations;(Ibid.) 3. Securedcreditorsunlesstheysurrender their security or lien to the sheriff or receiver or unless they shall first have the value of such security fixed as providedinSec.59;and 4. Holders of claims for unliquidated damagesarisingoutofpuretort. Q:Istheassigneerequiredtogiveabond? A: After his election, the assignee is required to give a bond for the faithful performance of his duties.(Secs.30,31) INVOLUNTARYINSOLVENCY Filedby3ormorecreditors. 3ormorecreditorsare required. Requirementsforcreditors: 1. Residents of the Philippines; 2. Their credits or demands must have accrued in the Philippines;and 3. Must not have been a creditor by assignment within 30 days prior to the filingofthepetition. Note:Courtshavethepowerto appointreceiversto hold the property of individuals or corporations although no insolvency proceedings are involved. A receiver appointed by a court before the institution oftheinsolvencyproceedingsmaybeappointedthe permanentassigneeinsuchproceedings. Wherethedebtorhas residenceorhashisprincipal placeofbusiness. Q:Whatisthedateofcleavage? A:Thedatewhenthepetitionisfiled,fromwhich is counted backward or forward, in determining the effects provided for under the Insolvency Law. Illustrations: 1. Acreditorbyassignmentofcreditmade within 30 days from date of cleavage shall be disqualified as petitioning creditor(Sec.20); 2. Attachmentlevieduponwithinaperiod of 30 days before the date of cleavage may be set aside by the assignee (Sec. 32); 3. Judgment on cases filed and decided within 30 days prior to the date of cleavage may be set aside by the assignee(Sec.32); 4. Judgmentsoncasesfiledbefore30days from the date of cleavage but decided within30daysbecauseofconfession of judgment or declaration of default by debtor may be set aside by action of assignee; 5. Properties acquired after date of cleavage, after discharge of debtor in Debtormusthave committedanyoftheactsof insolvency. Amountofdebtsmustnot belessthanP1,000.00. Debtorisconsidered insolventupontheissuance bythecourtofanorderafter duehearingdeclaringhim insolvent;adjudication grantedonlyafterhearing. Bondisrequired. Q:Whoisanassigneeininsolvency? A: A person elected by the creditors or appointed bythecourtto whomaninsolventdebtormakes an assignment of all his property for the benefit ofhiscreditors. Note: The assignee must be a person elected by the majority of the creditors who have proven their claims, such majority being in number and amount. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFORLAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 433 UST GOLDEN NOTES 2011 6. good faith shall not be liable for debts incurredpriortothedateofcleavage; Fraudulentpreferencesmadewithin 30 days prior to the date of cleavage may be set aside in action brought by assignee. Q:Whatisadividendininsolvency? A: A parcelof thefund arising from the assetsof theestate,rightfullyallottedtoacreditorentitled to share in the fund whether in the same proportion with other creditors or in a different proportion. It is paid by the assignee only upon orderofthecourt(Secs.43,44). Q: When may a partnership be declared insolvent? A: A partnership may be declared insolvent by a petitionofthe partnersandmaybedoneduring the continuation of the partnership business or after its dissolution and before the final settlementthereof. A partnership may be declared insolvent notwithstanding the solvency of the partners constituting the same. (Campos Rueda & Co. v. Pacific Commercial Co., G.R. No. L‐18703 Aug. 28,1922) Q: Who may petition for declaration of insolvencyofapartnership? A: 1. Voluntary insolvency – By all the partnersoranyofthem; 2. Involuntaryinsolvency–Byoneormore of the partners or three or more creditorsofthepartnership. Q: What are the properties included in the insolvencyproceedings? A: Allthepropertyofthepartnership;and All the separate of each of the partners except: Separate properties of limited partners (Art.1843,NCC) Properties which are exempt by law (Sec.51) 434 Q:Whataretheeffectsoffilingofpetition? A: 1. The proceedings are deemed to commence against the partners at the sametime; 2. Upon order of the court, all the properties of the partnership and also all the separate property of each partner, if they are liable, shall be taken;(Sec.51) 3. Allcreditors ofthepartnershipand the separatecreditorsofeachpartnershall be allowed to prove their respective claims;(Ibid.) 4. The assignee shall be chosen by the creditorsofthepartnership;and(Ibid.) 5. Pending insolvency proceedings by or against any partnership, person or corporation no statute of limitations shallrunuponaclaimof oragainstthe estateofthedebtor.(Sec.73) Q: What is the effect of insolvency of partnershiporanypartner? A: 1. A partnership may be declared insolvent notwithstanding the solvency ofthepartnersconstitutingthesame. 2. A partnership is not necessarily insolventbecauseoneofitsmembersis insolvent. The solvent members are bound to wind up the partnership affairs. 3. Under the law, a partnership is automatically dissolved by the insolvency of any partner or of the partnership Q:Whatistheeffectwhen corporationdeclared insolvent? A: Its property and assets shall be distributed to thecreditorsbut nodischargeshall begrantedto anycorporation.(Sec.52) Q:Isinsolvencylawapplicabletocorporations? A:TheInsolvencyLawexpresslyprovidesthatitis notapplicabletocorporations: 1. Engaged principally in the banking business 2. Anyothercorporationastowhichthere is a special provision of law for its liquidationincaseofinsolvency.(Ibid) CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS Q:Inthefilingofclaimsinaninsolvencyproceeding,whatdebtsmayandmaynotbeproved? A: DEBTSTHATMAYBEPROVED Thedebtswhichmaybeprovedagainstthe estateof the debtorininsolvencyproceedingsarethefollowing: 1. All debts due and payable from the debtor at the timeofadjudicationofinsolvency;(Sec.53) 2. All debts existing at the time of the adjudication of insolvency but not payable until a future time, a discountbeingmadeifnointerest ispayablebythe termsofthecontract; 3. Anydebtoftheinsolventarisingfrom hisliabilityas indorser, surety, bail or guarantor, where such liability became absolute after the adjudication of insolvency but before the final dividend shall have beendeclare;(Sec.54) 4. Other contingent debts and contingent liabilities contracted by the insolvent if the contingency shall happenbeforetheorderoffinaldividend;(Sec.55); and 5. Anydebtoftheinsolventarisingfromhisliability to any person liable as bail, surety, or guarantor or otherwise, for the insolvent, ho shall have paid the debtinfull,orinpart.(Sec.56) DEBTSTHATMAYNOTBEPROVED The following debts are not provable or allowed in insolvencyproceedings: 1. Claims barred by the statute of limitations; (Sec. 29,73) 2. Claims of secured creditors with a mortgage or pledge in their favour unless they surrender the security;(Sec.59) 3. Claims of creditors who hold an attachment or execution on the property of the debtor duly recordedandnotdissolved;(Sec.32) 4. Claims on account of which a fraudulent preferencewasmadeorgiven;(Sec.61) 5. Support, as it does not arise from any business transactionbutfromtherelationofmarriage;and 6. Aclaimforunliquidateddamagesarisingout ofa pure tort, which neither constitutes a breach of an express contract nor results in any unjust enrichment of the tortfeasor that may form the basisofanimpliedcontract. Q: What are the alternative rights of a secured creditor? A: 1. Tomaintainhisrightsunder his security or lien and ignore the insolvency proceedings,inwhichcase,itistheduty oftheassigneetosurrender tohim the propertyencumbered; 2. Towaivehis rightunderthesecurityor lien and thereby share in the distributionoftheassets ofthedebtor; or 3. To have the value of the encumbered property appraised and then share in the distribution of the assets of the debtor with respect to the balance of hiscredit. Q:Whatiscomposition? A: It is an agreement, made upon a sufficient consideration, between an insolvent or embarrassed debtor and his creditors, whereby the latter for the sake of immediate or sooner payment,agreetoacceptadividendlessthanthe whole amount of their claims, to be distributed pro rata, in discharge and satisfaction of the wholedebt. Q:Whatisacontingentclaim? A: A claim in which liability depends on some future event that may or may not happen and which makes it uncertain whether there will be anyliability. Note: After the close of the insolvency proceedings and the happening of the contingency, the creditor may pursue any available remedy for the collection ofhisclaim. Q: How are claims arising or acquired after insolvencytreated? A: 1. Claim arose after commencement of proceedings – An obligation coming in force after the initiation of the proceedings is not generally a proper claimtobeproved. 2. Claim owned by insolvent purchased after insolvency – One indebted to an insolvent will not be permitted to interposeasanoffset,aclaimownedby the insolvent which he has purchased aftertheinsolvency. ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFORLAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 435 UST GOLDEN NOTES 2011 Q:Distinguishcompositionfromaccord. A: Accord properly denotes an agreement between a debtor and a single creditor for a dischargeoftheobligationbyapart paymentor ondifferentterms. Composition, on the other hand, designates an arrangement between a debtor and the whole body of his creditors (or at least a considerable portionofthem)fortheliquidationoftheirclaims bythedividendoffered. Q:Whataretherequirementsforavalidofferof composition? A: 1. The offer of the terms of composition must be made after the filing of the schedule of the debtor’s property and the submission of the list of his creditors; 2. The offer must be accepted in writing by a majority of the creditors representing a majority of the claims whichhavebeenallowed; 3. Itmustbemadeafter thedepositingin suchplacedesignatedbythecourt, the consideration to be paid and the costs oftheproceedings;and 4. The terms of the composition must be approved or confirmed by the court. (Sec.63) Q:Whenmaythecourtconfirmacomposition? A:When: 1. It is for the best interest of the creditors; 2. Thedebtorhasnotbeenguiltyofanyof the acts, or of a failure to perform any of the duties which would create a bar tohisdischarge;and 3. Theofferanditsacceptanceareingood faith and have not been made or procuredinamannerforbiddenbythe Act. Q: What are the effects of confirmation of composition? A: 1. The consideration shall be distributed asthejudgeshalldirect; 2. The insolvency proceedings shall be dismissed; 3. The title to the insolvent’s estate shall revertinhim; 436 4. The insolventshallbereleasedfromhis debts Q:Whenmayconfirmationbesetaside? A: The court may, upon application of a party in interest within 6 months after the composition has been confirmed, set the same aside and reinstate the case if it shall be made to appear uponatrial: 1. That fraud was practiced in the procuringofsuchcomposition;and 2. Theknowledgethereofhascometo the petitioner since the confirmation of suchcomposition.(Sec.63) Q:Whatisdischarge? A: Discharge, under the Insolvency Law, is the formalandjudicialreleaseofaninsolventdebtor from his debts with the exception of those expresslyreservedbylaw. Note: Only natural persons may ask for discharge; corporations cannot ask for discharge. (Sec. 52) When granted, takes effect not from its date, but from the commencement of the proceedings in insolvency. Q: When insolvent debtor may apply for discharge? A: A debtor may apply to the RTC for adischarge atanytimeafterthe expirationof 3monthsfrom theadjudicationof insolvency,butnotlater than 1 year from such adjudication of insolvency, unlessthepropertyof the insolventhasnotbeen convertedintomoney (Sec.64) withouthisfault, thereby delaying the distribution of dividends amongthecreditorsinwhichcase thecourtmay extendtheperiod Any creditor may oppose the discharge by filing his objections thereto, specifying the grounds of his opposition. After the debtor has filed and servedhisverifiedanswer,thecourtshalltrythe issueorissuesraised.(Sec.66) Q:Whataretherequisitesfordischarge? A: 1. Compliance with statutory requirementsregardingsurrenderofhis assets for the benefit of the creditors and regarding the rendition of an accountofhisassetsandliabilities; a. Note: A discharge in insolvency is a matter of legislative grace CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0 CREDIT TRANSACTIONS 1. or favour to the debtor, to be obtained only by a strict compliance with the conditions prescribedbythestatute. 2. Applicationfordischargeshouldbefiled after the expiration of 3 months from theadjudicationofinsolvency,butnot laterthan1year;(Sec.64);and 2. 3. Insolvent debtor must not have committedanyoftheacts ofinsolvency preventingdischarge. Q: Whataretheactsof debtororgroundswhich willpreventdischarge? A: No discharge shall be granted, or if granted, shallbevalid,tothefollowingcases: 1. Falseswearing; 2. Concealmentofanypartofhisestateor effects; 3. Fraudorwillfulneglectinthecareofhis property or in the delivery thereof to theassignee; 4. Procuring hispropertiestobeattached or seized on execution within 1 month before the commencement of insolvencyproceedings; 5. Destruction, mutilation, alteration or falsification of his books, documents, andpapers; 6. Giving fraudulent preference to a creditor; 7. Non‐disclosure of the assignee of a proven false or fictitious debt within 1 monthafteracquiringknowledge; 8. Being a merchant, failure to keep properbooksoraccounts; 9. Influencingtheactionofanycreditor,at any state of the proceedings, by pecuniaryconsideration; 10. Effecting any transfer, conveyance or mortgage in contemplation of insolvency; 11. Conviction of any misdemeanor under theInsolvencyLaw: 12. In case of voluntary insolvency, he has received the benefit of insolvency within 6 years next preceding his applicationfordischarge;and 13. If insolvency proceeding in which he could have applied are pending by or against him in the RTC of any other provinceorcity.(Sec.65) Q:Whataretheeffectsofdischarge? A: 3. 4. 5. It releases the debtor from all claims, debts,liabilitiesanddemandsetforthin the schedule or which were or might have been proved against his estate in insolvency. (Sec. 69). Hence, non‐ provable debts are not affected whether or not they were properly scheduled; It operates as a discharge of the insolvent and future acquisitions, but pemits mortgagees and other lien creditors to have their satisfaction out ofthemortgageorsubjectofthelien; It is a special defense which may be pledged and be a complete bar to all suitsbroughtonany suchdebts,claims, liabilitiesordemands.(Ibid.) It does not operate to release any person liable for the same debt, for or withthedebtor,eitheraspartner,joint contractor, indorser, surety or otherwise;(Sec.68) The certificate of discharge is prima facie evidence of the fact of release, andtheregularityofsuchdischarge. Note: Where a debtor is judicially declared insolvent, the remedy of the guarantor or suretywouldbetofileacontingentclaiminthe insolvency proceeding, if his rights as such guarantor or sureties are not to be barred by the subsequent discharge of the insolvent debtorfromallhisliabilities. Q: What are the debts and obligations not affectedbydischargeofinsolvent? A: 1. Taxes or assessments due the Government,whethernationalorlocal; 2. Any debt created by the fraud or embezzlementofthedebtor; 3. Any debt created by the defalcation of the debtor as a public officer or while actinginafiduciarycapacity; 4. Debt of any person liable for the same debt, for or with the insolvent debtor, either as partner, joint contractor, inorser,suretyorotherwise;(Sec.68) 5. Debtsofacorporation(Sec.52); 6. Claimforsupport; 7. Discharged debt but revived by a subsequentnewpromisetopay; 8. Debts which have not been duly scheduled in time for proof and allowance, unless the creditors had notice or actual knowledge of the insolvency proceedings, are not dischargedastosuchcreditors; ACADEMICSC HAIR:LESTERJAY ALANE.F LORESII UNIVERSITYOFSANTOTOMAS VICEC HAIRSFORACADEMICS : KAREN J OYG.S ABUGO& JOHNHENRYC. MENDOZA F a c u l t a d d e D e r e c h o C i v iill VICECHAIRFORADMINISTRATIONAND FINANCE:J EANELLEC. LEE VICEC HAIRSFORLAY‐OUT ANDD ESIGN: E ARLLOUIE M. MASACAYAN& T HEENAC.MARTINEZ 0 0 437 UST GOLDEN NOTES 2011 9. Claimsforunliquidateddamagesarising outofapuretort; 10. Claimsofsecuredcreditors;(Sec.59) 11. Claimsnotinexistenceornotmatureat thetimeofthedischarge; 12. Claims that are contingent at the time ofdischarge. Q:Whendischargemayberevoked? A:Adischargemayberevokedbythecourtwhich granteditonpetitionofanycreditor: 1. Whose debt was proved or provable against the estate in insolvency on the ground that the discharge was fraudulentlyobtained; 2. Who has discovered facts constituting the fraud subsequent to the discharge andfraudulenttransfer;andprovided, 3. The petition is filed within 1 year after thedateofthedischarge.(Sec.69) 438 CIVILLAWTEAM: ADVISER:ATTY.ELMERT.RABUYA ;SUBJECTHEAD:ALFREDOB.DIMAFELIXII; ASST.SUBJECTHEADS:KARENFELIZG.SUPNAD,LAMBERTOL.SANTOSIII;MEMBERS:PAULELBERTE.AMON,ALSTONANARNA,OZANJ. FULLEROS,CECILIOM.JIMENO,JR.,ISMAELSARANGAYA,JR.;CONTRIBUTORS:LOISERAEG.NAVAL,MONICAJUCOM 0 0
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