BAR QUESTIONS COMPILATION : CREDIT

I.

COMMODATUM
Q: A borrowed Bs truck. During a fire which broke out in As garage, he
had time to save only one vehicle and he saved his car instead of the
truck. Is he liable for the loss of Bs truck? Why?
A: Yes, the bailee in commodatum is liable for the loss of the thing loaned even if
through a fortuitous event where, being able to save it or his own thing, he chose
to save the latter.
Q: A, upon request, loaned his passenger Jeepney to B to enable B to
bring his sick wife from Paniqui, Tarlac to the Philippine General Hospital
in Manila for treatment. On the way back to Paniqui, after leaving his wife
at the hospital, people stopped the passenger Jeepney. B stopped for
them and allowed them to ride on board, accepting payment from them
just in case of ordinary passenger Jeepneys plying their route, As B was
crossing Bamban, there was an onrush of Lahar from Mt. Pinatubo, the
Jeep that was loaned to him was wrecked.
1. What do you call the contract that was entered into by A and B with
respect to the passenger Jeepney that was loaned by A to B to
transport the latters sick wife to Manila?
2. Is B obliged to pay A for the use of the passenger Jeepney?
3. Is B liable to A for the loss of the Jeepney?
A:
1. The contract is called commodatum. [Article 1933 of the Civil Code]
2. No, B is not obliged to pay A for the use of the passenger Jeepney because
commodatum is essentially gratuitous.
3. Yes, because B devoted the thing to a purpose different from that for which it
has been loaned (Article 1942, par. 2, Civil Code).
Q: Distinguish usufruct from commodatum and state whether these may
be constituted over consumable goods.
A: USUFRUCT is a right given to a person (usufructuary) to enjoy the property of
another with the obligation of preserving its form and substance. (Art. 562. Civil
Code)
On the other hand, COMMODATUM is a contract by which one of the parties (bailor)
delivers to another (bailee) something not consumable so that the latter may use it
for a certain time and return it.
In usufruct the usufructuary gets the right to the use and to the fruits of the same,
while in commodatum, the bailee only acquires the use of the thing loaned but not
its fruits.
Usufruct may be constituted on the whole or a part of the fruits of the thing. (Art.
564. Civil Code). It may even be constituted over consumables like money (Alunan
v. Veloso, 52 Phil. 545). On the other hand, in commodatum, consumable goods
may be subject thereof only when the purpose of the contract is not the
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consumption of the object, as when it is merely for exhibition. (Art. 1936, Civil
Code)

Q: Before he left for Riyadh to work as a mechanic, Pedro left his

Adventure van with Tito, with the understanding that the latter could use
it for one 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, he leased it to
Annabelle. Two months later, Pedro returned to the Philippines and asked
Tito to return the van. Unfortunately, while being driven by Tito, the van
was accidentally damaged by a cargo truck without his fault.
A: Tito must bear the P15,000.00 expenses for the van. Generally, extraordinary
expenses for the preservation of the thing loaned are paid by the bailor, he being
the owner of the thing loaned. In this case however, Tito should bear the expenses
because he incurred the expenses without first informing Pedro about it. Neither
was the repair shown to be urgent. Under Article 1949 of the Civil Code, bailor
generally bears the extraordinary expenses for the preservation of the thing and
should refund the said expenses if made by the bailee; Provided, The bailee brings
the same to the attention of the bailor before incurring them, except only if the
repair is urgent that reply cannot be awaited.
II.

SIMPLE LOAN/MUTUUM
Q: Differenitate mutuum from commodatum
A: In mutuum, the object is money or any consumable (fungible) thing; in
commodatum, the object is, as a general rule, a non-consumable (fungible) thing.
The former may or may not be gratuitous; the latter is essentially gratuitous. The
purpose of the former is consumption; the purpose of the latter is use. In the
former, ownership passes to the debtor, in the latter, ownership remains with the
bailor. In the former, the debtor must pay or return an equal amount of the same
kind or quality; in the latter, the bailee must return the specific thing loaned.
AA: In mutuum or simple loan, one of the parties delivers to another money or
consumable thing, upon the condition that the same amount of the same kind and
quality shall be paid. In commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same thing for a certain
time. The purpose of the former is to consume what was borrowed, while the
purpose of the latter is to use the thing. The former may be onerous or gratuitous,
while the latter is essentially gratuitous. In the former, the borrower becomes the
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owner of the thing delivered. In the latter, the lender retains ownership over the
thing.
Q: L borrows P50,000 from M payable 360 days after date, at 12%
interest per annum. To secure the loan, L mortgages his house nd lot in
favor of M. To protect himself from certain contingencies, M insures
the house for the full amount of the loan with Rock Insurance Company. A
fire breaks out and burns the house and M collects from the insurance
company the full value of the insurance.
Upon maturity of the loan, the insurance company demands payment
from L. the latter refuses to pay on the ground that the loan had been
extinguished by the insurance payment which M received from the
insurance company. He argues that he has not entered into any loan or
contract of whatever nature with the insurance company. He further
contends that it is bad enough to lose a house but it is worse if one has
to pay off a paid obligation to somebody who has not extended any loan
to him. Besides, he states, that the insurance payment should inure to his
benefit because he owns the house. Pass upon the merits of Ls
contentions.
A: Neither the loan of L was extinguished by the insurance payment which M
received from the insurance company; nor the insurance payment inures to Ls
benefit; what was then insured was the interest of M, the secured creditor, and not
the interest of L, so the proceeds shall be applied exclusively to the proper interest
of M.
Ls argument that he has not entered into any loan or contract of whatever nature
with the insurance company is also untenable. When the secured creditors interest
in the mortgaged property of the mortgagor, L, was insured and said property
would be burned, the insurance company had to pay the insured, M, and payment
by the insurer to the insured creates legal subrogation and makes the insurer an
assignee on equity to run after the mortgagor, L. Said right of the insurer is not
dependent upon nor does it grow out of, any privity of contract, or upon written
assignment of claim, and payment to insured makes the insurer an assignee in
equity; thus, Ls consent to said subrogation is not necessary. (Art. 2207, N.C.C.;
Firemans Fund Insurance Co. v. Jamila & Co., April 7, 1976; 70 SCRA 323)
Q: Siga-an granted a loan to Villanueva in the amount of
P540,000.00. Such agreement was not reduced to writing. Siga-an
demanded interest which was paid by Villanueva in cash and
checks. The total amount Villanueva paid accumulated to
P1,200,000.00. Upon advice of her lawyer, Villanueva demanded for
the return of the excess amount of P660,000.00 which was ignored
by Siga-an.
a. Is the payment of interest valid? Explain.
b. Is solutio indebiti applicable? Explain.
A:
a. No. Article 1956 of the NCC provides that [n]o interest shall be due unless it
has been expressly stipulated in writing.
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b. Yes. Article 2154 of the NCC provides that [i]f something is received when
there is nor right to demand it, and it was unduly delivered through mistake, the
obligation to return it arises.
Q: The law (RA 6832) creating a Commission to conduct a Thorough FactFinding Investigation of the Failed Coup detat of Dec 1989, Recommend
Measures to Prevent the Occurrence of Similar Attempts At a Violent
Seizure of Power and for Other Purposes, provides that the Commission
may ask the Monetary Board to disclose information on and/or to grant
authority to examine any bank deposits, trust or investment funds, or
banking transactions in the name of and/or utilized by a person, natural
or juridical, under investigation by the Commission, in any bank or
banking institution in the Philippines, when the Commission has
reasonable ground to believe that said deposits, trust or investment
funds, or banking transactions have been used in support or in
furtherance of the objectives of the said coup detat. Does the above
provision not violate the Law on Secrecy of Bank Deposits (RA 1405)?
A: The Law on Secrecy of Bank Deposits is itself merely a statutory enactment,
and it may, therefore, be modified, or amended (such as by providing further
exceptions therefrom), or even repealed, expressly or impliedly, by a subsequent
law. The Secrecy of Bank Deposits Act did not amount to a contract between the
depositors and depository banks within the meaning of the non-impairment clause
of the Constitution. Even if it did, the police power of the State is superior to the
non- impairment clause. RA 6832, creating a commission to conduct an
investigation of the failed 1989 coup detat and to recommend measures to
prevent similar attempts to seize power is a valid exercise of police power.
Q: Dana Gianina purchased on a 36 month installment basis the latest
model of the Nissan Sentra Sedan car from the Jobel Cars Inc. In addition
to the advertised selling price, the latter imposed finance charges
consisting of interests, fees and service charges. It did not, however,
submit to Dana a written statement setting forth therein the information
required by the Truth in Lending Act (RA 3765). Nevertheless, the
conditional deed of sale which the parties executed mentioned that the
total amount indicated therein included such finance charges.
a. Has there been substantial compliance of the aforesaid Act?
b. If your answer to the foregoing question is in the negative, what is the
effect of the violation on the contract?
c. In the event of a violation of the Act, what remedies may be availed of
by Dana?
A:
a. There was no substantial compliance with the Truth in Lending Act. The law
provides that the creditor must make a full disclosure of the credit lost. The
statement that the total amount due includes the principal and the financial
charges, without specifying the amounts due on each portion thereof would be
insufficient and unacceptable.
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b. A violation of the Truth in Lending Act will not adversely affect the validity of the
contract itself.
c. It would allow Dana to refuse payment of financial charges or, if already paid, to
recover the same. Dana may also initiate criminal charges against the creditor.
Q: Miguel, a special customs agent is charged before the Ombudsman
with having acquired property out of proportion to his salary, in violation
of the Anti-Graft and Corrupt Practices Act. The Ombudsman issued a
subpoena duces tecum to the Banco de Cinco commanding its
representative to furnish the Ombudsman records of transactions by or in
the name of Miguel, his wife and children. A second subpoena was issued
expanding the first by including the production of records of friends of
Miguel in said bank and in all its branches and extension offices,
specifically naming them.
Miguel moved to quash the subpoenas arguing that they violate the
Secrecy of Bank Deposits Law. In addition, he contends that the
subpoenas are in the nature of fishing expedition or general
warrants and are constitutionally impermissible with respect to private
individuals who are not under investigation. Is Miguels contention
tenable?
A: No. Miguels contention is not tenable. The inquiry into illegally acquired
property extends to cases where such property is concealed by being held by or
recorded in the name of other persons. To sustain Miguels theory and restrict the
inquiry only to property held by or in the name of the government official would
make available to persons in government who illegally acquire property an easy
means of evading prosecution. All they have to do would be to simply place the
property in the name of persons other than their spouses and children (Banco
Filipino Savings vs. Purisima 161 scra 576; Sec 8 Anti-Graft Law as amended by BP
195)
Q: In order to secure a bank loan, XYZ Corporation surrendered its
deposit certificate, with a maturity date of 01 September 1997 to the
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 bank disagrees. What is your opinion?
A: We submit that there is no pactum commissorium here. Deposits of money in
banks and similar institutions are governed by the provisions on simple loans (Art.
1980. Civil Code). 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 compensation are present in this case (BPI vs. CA, 232 SCRA 302).
AA: Where the security for the debt is also money deposited in a bank, it is not
illegal for the creditor to encash the time deposit certificates to pay the debtor's
overdue obligation. (Chu us. CA, et al., G.R 78519, September 26, 1989).
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Q: A buys goods from a foreign supplier using his credit line with a bank
to pay for the goods. Upon arrival of the goods at the pier, the bank
requires A to sign a trust receipt before A is allowed to take delivery of
the goods.
The trust receipt contains the usual language. A disposes of the goods
and receives payment but does not pay the bank.The bank files a criminal
action against A for violation of the Trust Receipts Law. A asserts that the
trust receipt is only to secure his debt and that a criminal action cannot
lie against him because that would be violative of his constitutional right
against imprisonment for nonpayment of a debt. Is he correct?
A: No. Violation of a trust receipt is criminal as it is punished as estafa under Art
315 of the RPC. There is a public policy involved which is to assure the entruster
the reimbursement of the amount advanced or the balance thereof for the goods
subject of the trust receipt. The execution of the trust receipt or the use thereof
promotes the smooth flow of commerce as it helps the importer or buyer of the
goods covered thereby.
Q: X, Y and Z signed a promissory note in favor of A stating: We promise
to pay A on December 31, 2001 the sum of P5,000.00 When the note fell
due, A sued X and Y who put up the defense that A should have
impleaded Z. Is the defense valid? Why? (5%)
A: The defense is not valid. The liability of X, Y, and Z under the promissory note is
joint. Such being the case, Z is not an indispensable party. The fact that A did not
implead Z will not prevent A from collecting the proportionate share of X and Y in
the payment of the loan.
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 priceless Michealangelo painting on which 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 impose with respect to both awards? Explain.
A: With respect to the collection of money or promissory note, it being a
forbearance of money, 6% legal interest will apply. As to the damages to the
painting, it is also 6% from the time of the final demand up to finality of judgment
until fully paid.
Q: The parties in a contract of loan of money agreed that the yearly
interest rate is 12% and it can be adjusted if there is a law that would
authorize the increase in interest rates. (1) Suppose OB, the lender,
would increase by 5% the rate of interest to be paid by TY, the borrower,
without a law authorizing such increase, would OBs actions be just and
valid? Why? (2) Has TY a remedy against the imposition of the rate
increase. Explain.
A:
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(1) No, OBs actions would not be just and valid. Interest shall only be due under
the following conditions, namely: (1) the stipulation to pay interest is agreed
upon, (2) the stipulation to pay interest must be in writing, and (3) the rate
must not be against the law or against morals and public policy. As stated in
the facts, it was agreed upon by both parties that an increase would only be
allowed if there is a law that would allow such increase. No such law exists
given that the Civil Code provides that the rate of interest must be previously
agreed upon. A party cannot allow the unilateral increase of interest rate. Such
stipulation will make the loan invalid.
(2) Article 1960 of the Civil Code provides that remedy in case the borrower pays
interest when there has been no stipulation thereof. It refers to the provisions of
the said code on solutio indebiti to govern such situation. Article 2154 of the
Civil Code states that if a person receives something when there is no right to
demand it, and it was unduly delivered through mistake, the obligation to return
it arises. Applying this, if TY has paid such unlawful interest rate, s/he can
demand OB to return the same.
Q: Hi Yielding Corp. filed a complaint against 5 of its officers for violation
of Sec. 31 of the Corporation Code. The corp. claimed that the said
officers were guilty of advancing their personal interests to the prejudice
of the corporation, & that they were grossly negligent in handling its
affairs. Aside from documents & contracts, the corporation also
submitted in evidence records of the officers U.S. Dollar deposits in
several banks overseas, Boston Bank, Bank of Switzerland, & Bank of
New York. For their part, the officers filed a criminal complaint against
the directors of Hi Yielding Corporation for violation of R.A. No. 6426,
otherwise known as the Foreign Currency Deposit Act of the Philippines.
The officers alleged that their bank deposits were illegally disclosed for
want of a court order & that such deposits werent even the subject of
the case against them.
a.) Will the complaint filed against the directors of Hi Yielding
Corporation prosper? Explain.
b.) Was there a violation of Secrecy of Bank Deposits Law (RA 1405)
Explain.
A:
a. No, because RA 6426 including its penal provisions, refers to foreign currency
deposits accounts constituted within the Philippines, It has no application to all
accounts, even though they are banks, opened & constituted abroad.
b. No, because the penal provisions of RA 1405 including the statutory exemptions
provided therein, arent applicable to FCDU accounts even when constituted
locally.
Q: Eduardo was granted a loan by XYZ Bank for the purpose of improving
a building which XYZ leased from him. Eduardo, executed the promissory
note ("PN") in favor of the bank, with his friend Recardo as co-signatory.
In the PN, they both acknowledged that they are "individually and
collectively" liable and waived the need for prior demand. To secure the
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PN, Recardo executed a real estate mortgage on his own property. When
Eduardo defaulted on the PN, XYZ stopped payment of rentals on the
building on the ground that legal compensation had set in. Since there
was still a balance due on the PN after applying the rentals, XYZ
foreclosed the real estate mortgage over Recardo's property. Recardo
opposed the foreclosure on the ground that he is only a co-signatory;
that no demand was made upon him for payment, and assuming he is
liable, his liability should not go beyond half the balance of the loan.
Further, Recardo said that when the bank invoked compensation between
the reantals and the amount of the loan, it amounted to a new contract
or novation, and had the effect of extinguishing the security since he did
not give his consent (as owner of the property under the real estate
mortgage) thereto. Can XYZ Bank validly assert legal compensation?
A: Yes, XYZ Bank can validly assert legal compensation. In the present case, all of
the elements of legal compensation are present: (1) XYZ Bank is the creditor of
Eduardo while Eduardo is the lessor of XYZ Bank; (2) both debts consist in a sum of
money, or if the things due are consumable, they be of the same kind, and also of
the same quality if the latter has been stated; (3) the two debts be due; (4) they be
liquidated and demandable, and (5) over neither of them there be any retention or
controversy, commenced by third persons and communicated in due time to the
debtor (Art. 1279, Civil Code).
Q: Eduardo was granted a loan by XYZ Bank for the purpose of improving
a building which XYZ leased from him. Eduardo, executed the promissory
note ("PN") in favor of the bank, with his friend Recardo as co-signatory.
In the PN, they both acknowledged that they are "individually and
collectively" liable and waived the need for prior demand. To secure the
PN, Recardo executed a real estate mortgage on his own property. When
Eduardo defaulted on the PN, XYZ stopped payment of rentals on the
building on the ground that legal compensation had set in. Since there
was still a balance due on the PN after applying the rentals, XYZ
foreclosed the real estate mortgage over Recardo's property. Recardo
opposed the foreclosure on the ground that he is only a co-signatory;
that no demand was made upon him for payment, and assuming he is
liable, his liability should not go beyond half the balance of the loan.
Further, Recardo said that when the bank invoked compensation between
the reantals and the amount of the loan, it amounted to a new contract
or novation, and had the effect of extinguishing the security since he did
not give his consent (as owner of the property under the real estate
mortgage) thereto.
Does Recardo have basis under the Civil Code for claiming that the
original contract was novated?
A: No. Recardo has no basis for claiming novation of the original contract when the
bank invoked compensation because there was simply partial compensation (Art.
1290, Civil Code) and this would not bar the bank from recovering the remaining
balance of the obligation.
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Q: Felipe borrowed $100 from Gustavo in 1998, when the Phil P - US$
exchange rate was P56 - US$1. On March 1, 2008, Felipe tendered to
Gustavo a cashier's check in the amount of P4,135 in payment of his US$
100 debt, based on the Phil P - US$ exchange rat at that time. Gustavo
accepted the check, but forgot to deposit it until Sept. 12, 2008. His bank
refused to accepted the check because it had become stale. Gustavo now
wants Felipe to pay him in cash the amount of P5,600. Claiming that the
previous payment was not in legal tender, and that there has been
extraordinary deflation since 1998, and therefore, Felipe should pay him
the value of the debt at the time it was incurred. Felipe refused to pay
him again, claiming that Gustavo is estopped from raising the issue of
legal tender, having accepted the check in March, and that it was
Gustavo's negligence in not depositing the check immediately that
caused the check to become stale.
(A) Can Gustavo now raised the issue that the cashier's check is not legal
tender?
(B). Can Felipe validly refuse to pay Gustavo again?
(C) Can Felipe compel Gustavo to receive US$100 instead?
A:
(A)No. Gustavo previously accepted a check as payment. It was his fault why the
check became stale. He is now estopped from raising the issue that a cashier's
check is not legal tender.
(B)Yes, Felipe can refuse to pay Gustavo, who allowed the check to become stale.
Although a check is not legal tender (Belisario v. Natividad. 60 Phil 156), there
are instances when a check produces the effects of payment, for example: (a)
when the creditor is in estoppel or he had previously promised he would accept
a check (b) when the check has lost its value because of the fault of the creditor
(Art. 1249, 2nd par.), as when he was unreasonably delayed in presenting the
check for payment.
(C)Felipe cannot compel Gustavo to receive US$100 because under RA 529,
payment of loans should be at Philippine currency at the rate of exchange
prevailing at the time of the stipulated date of payment. Felipe could only
compel Gustavo to receive US$ 100 if they stipulated that obligation be paid in
foreign currency (R.A. 4100).
Q: Cruz lent Jose his car until Jose finished his Bar exams. Soon after Cruz
delivered the car, Jose brought it to Mitsubishi Cubao for maintenance
check up and incurred costs of P8,000. Seeing the car's peeling and faded
paint, Jose also had the car repainted for P10,000. Answer the two
questions below based on these common facts.
After the bar exams, Cruz asked for the return of his car. Jose said he
would return it as soon as Cruz has reimbursed him for the car
maintenance and repainting costs of P 18,000. Is Jose's refusal justified?
(1%)
A:
(A) No, Jose's refusal is not justified. In this kind of contract, Jose is obliged to pay
for all the expenses incurred for the preservation of the thing loaned.
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(B) Yes, Jose's refusal is justified. He is obliged to pay for all the ordinary and
extraordinary expenses, but subject to reimbursement from Cruz.
(C) Yes, Jose's refusal is justified. The principle of unjust enrichment warrants the
reimbursement of Jose's expenses.
(D) No, Jose's refusal is not justified. The expenses he incurred are useful for the
preservation of the thing loaned. It is Jose's obligation to shoulder these useful
expenses.
AA:
(D) No, Jose's refusal is not justified. The expenses he incurred are useful for the
preservation of the thing loaned. It is Jose's obligation to shoulder these useful
expenses.
In commodatum, the bailee is obliged to pay for the ordinary expenses for the use
and preservation of the thing loaned (Art 1941, Civil Code).
The bailee, Jose, has no right of retention on the ground that the bailor owes him
something, even if it may be by reason of expenses. He can only retain it if he
suffers damages by reason of a flaw or defect in the thing loaned of which the
bailor knows (Art 1951, Civil Code).
III.

USURY LAW
Q: A partnership borrowed P20,000 from A at clearly usurious interest.
Can the creditor revoke anything from the debtor? Explain.
A: Yes, the creditor can recover the principal together with legal interest thereon
from the date of demand (Art. 2209) and legal interest on the interests paid in
excess of the lawful rate from the date of payment (Art. 1413).
The whole usurious interest cannot be recovered, because of Article 1413 of the
Civil Code and Section 6 of the Usury Law. However, the illegality of the stipulation
concerning the usurious interests does not affect the creditors right to recover the
principal, inasmuch as a contract of loan with usurious interest is a divisible
contract. The illegal terms can be separated from the legal ones.
Q: S, a shipowner, secure a loan on bottomry for P1 Million from T for
the repair of a vessel, payable 120 days after date (estimated time for
the return voyage), and as security for its repayment mortgages the keel
and bottom of the vessel. In addition to the usual terms and conditions
for this type of loan, T, because of the risk of losing his money,
imposes an interest rate of 30% to which S reluctantly agrees.
Could S later on question the validity of the interest rate of 30% as
being violative of the Usury Law?
A: No, S cannot question the validity of the interest rate of 30% as being violative
of the Usury Law. In usury statute, it is essential to constitute usury, that the
principal sum be repayable absolutely; and therefore, usury statute has no
application to loans on bottomry; thus the perils of marine navigation have been
always considered sufficient to take bottomry or respondentia loans out of the
usury law. Note: The Usury Law is now legally non-existent pursuant to CB Circular
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905.
IV.
V.

CREDIT CARD
CONSUMER LOANS
Q: What are the so-called "Maceda" and "Recto" laws in connection with
sales on installments? Give the most important features of each law. (5%)
A: The MACEDA LAW (R.A. 655) is applicable to sales of immovable property on
installments. The most important features are (Rillo v. CA, 247 SCRA 461): (1) After
having paid installments for at least two years, the buyer is entitled to a
mandatory grace period of one month for every year of installment payments
made, to pay the unpaid installments without interest. If the contract is cancelled,
the seller shall refund to the buyer the cash surrender value equivalent to fifty
percent (50%) of the total payments made, and after five years of installments, an
additional five percent (5%) every year but not to exceed ninety percent (90%) of
the total payments made.
(2) In case the installments paid were less than 2 years, the seller shall give the
buyer a grace period of not less than 60 days. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may cancel the
contract after 30 days from receipt by the buyer of the notice of cancellation or
demand for rescission by notarial act. The RECTO LAW (Art. 1484) refers to sale of
movables payable in installments and limiting the right of seller, in case of default
by the buyer, to one of three remedies: a) exact fulfillment; b) cancel the sale if
two or more installments have not been paid; (c) foreclose the chattel mortgage on
the things sold, also in case of default of two or more installments, with no further
action against the purchaser.

VI.

DEPOSIT

Q: Ana rented a safety deposit box at the Alto Bank, paid the rental fee
and was given the key. Ana put her jewelry and gold coins in the box.
Days after, three armed men gained entry into the Alto Bank, opening its
vault and several safety deposit boxes, including Anas and emptied them
of their contents.
Could Ana hold the Alto Bank liable for the loss of the contents of her
deposit box? Explain
A: No, because under Art. 1990 of the Civil Code, if the depository by force
majueure loses the thing and receives money or another thing in its place, he shall
deliver the sum or other thing to be depositor. There being no showing that there
was anything received in place of the things deposited, the Alto Bank is not liable
for the contents of the safety box
AA: The Alto Bank is not liable because the contract is not a deposit but a rental of
the safety deposit box. Hence, the Alto Bank is not liable for the loss of the
contents of the box.

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Q: X boarded an airconditioned Pantranco Bus bound for Baguio. X was

given notice that the carrier is not liable for baggage brought in by
passengers. X kept in his custody his attache case containing $10,000. In
Tarlac, all the passengers, including X, were told to get off and to take
their lunch, the cost of which is included in the ticket. X left his attach
case on his seat as the door of the bus was locked. After lunch and when
X returned to the bus, he discovered that his attach case was missing. A
vendor said that a man picked the lock of the door, entered the bus and
ran away with the attach case. What, if any, is the liability of the
carrier?
A: Hand-carried pieces of luggage of passengers are governed by the rules on
necessary deposit. Under Article 2000 of the Civil Code the responsibility of the
depository shall, among other cases, include the loss of property of the guest
caused by strangers but not that which may proceed from force majeure. Article
2001 of the same Code considers an act of a thief as not one of force majeure
unless done with the use of arms or through an irresistible force. Accordingly, the
carrier may, given the factual setting in the problem, still be held liable.
Q: X took the Benguet Bus from Baguio going to Manila. He deposited his
maleta in the baggage compartment of the bus common to all
passengers. He did not declare his baggage nor pay its charges contrary
to the regulations of the bus company. When X got off, he could not find
his baggage which obviously was taken by another passenger. Determine
the liability of the bus company.
A: The bus company is liable for the loss of the maleta. The duty of extraordinary
diligence in the vigilance over the goods is due on such goods as are deposited or
surrendered to the common carrier for transportation. The fact that the maleta was
not declared nor the charges paid thereon, would not be consequential so long as
it was received by the carrier for transportation.
Q: X and Y staged a daring bank robbery in Manila at 10:30 AM in the
morning of a regular business day, and escaped with their loot of two (2)
bags, each bag containing P50,000,00. During their flight to elude the
police, X and Y entered the nearby locked house of A, then working in his
Quezon City office. From A's house, X and Y stole a box containing cash
totaling P50,000.00 which box A had been keeping in deposit for his
friend B.
In their hurry, X and Y left in A's bedroom one (1) of the bags which they
had taken from the bank.
With X and Y now at large and nowhere to be found, the bag containing
P50.000.00 is now claimed by B, by the Mayor of Manila, and by the bank.
B claims that the depository. A, by force majeure had obtained the bag of
money in place of the box of money deposited by B. The Mayor of Manila,
on the other hand, claims that the bag of money should be deposited
with the Office of the Mayor as required of the finder by the provisions of
the Civil Code.
The bank resists the claims of B and the Mayor of Manila.
12

To whom should A deliver the bag of money? Decide with reasons.

A: B would have no right to claim the money. Article 1990 of the Civil Code is not
applicable. The law refers to another thing received in substitution of the object
deposited and is predicated upon something exchanged.
The Mayor of Manila cannot invoke Article 719 of the Civil Code, which requires the
finder to deposit the thing with the Mayor only when the previous possessor is
unknown.
In this case, A must return the bag of money to the bank as the previous possessor
and known owner (Arts. 719 and 1990. Civil Code.)
Q: For a cargo of machinery shipped from abroad to a sugar central in
Dumaguete, Negros Oriental, the Bill of Lading (B/L) stipulated to
shippers order, with notice of arrival to be addressed to the Central.
The cargo arrived at its destination and was released to the Central
without surrender of the B/L on the basis of the latters undertaking to
hold the carrier free and harmless from any liability.
Subsequently, a Bank to whom the central was indebted, claimed the
cargo and presented the original of the B/L stating that the Central had
failed to settle its obligations with the Bank.
Was there misdelivery by the carrier to the sugar central considering the
non-surrender of the B/L? Why?
A: There was no misdelivery by the carrier since the cargo was considered
consigned to the Sugar central per the Shippers Order (Eastern Shipping Lines v
CA 190 s 512)
AA: There was misdelivery. The B/L was a negotiable document of title because it
was to the Shippers Order. Hence, the common carrier should have delivered
the cargo to the Central only upon surrender of the B/L. The non-surrender of the
B/L will make it liable to holders in due course.
VII.

WAREHOUSE RECEIPTS LAW

Q: F obtained a loan from W, to secure the payment of which he

mortgaged his sugar crop. F delivered to W the warehouse quedans and
authorized W to sell the sugar in the event of default. The warehouse and
the sugar were burned. Who bears the loss?
A: The debtor F bears the loss of the sugar. Although F constructively delivered the
sugar to W, it was only a security for the payment of the debt. The ownership of
the sugar remained with F. by reason of the principle of res perit domino, the owner
should bear the loss.
Q: To guarantee the payment of his obligation, the defendant A
mortgaged to plaintiff B his sugar, then stored in a warehouse in San
Fernando, Pampanga authorizing said plaintiff B to sell sugar in case he
13

(A) failed to pay. During the initial days of martial rule in 1972, all of As
sugar were burned or looted in the warehouse. Plaintiff B sued defendant
A for his obligation
(1) Will the suit prosper?
(2) Who shall bear the loss? Explain
A: (1) Yes, Bs suit will prosper. As held by the Supreme Court in Martinez v. PNB,
the mortgagee-creditor B has the right to demand the fulfillment of mortgagordebtor As obligation after its security was lost due to the looting and destruction
during the initial days of martial law.
(2)A, as the mortgagor, will bear the loss consistent with the ruling of the
Supreme Court in Martinez v. PNB. The mortgagor is still the owner of the
said sugar and as such it will bear the said loss.
Q: A, owner of negotiable warehouse receipt for tobacco, sold and
indorsed it (the receipt) to B, with the understanding that B would pay
after 2 days. Thereafter, B pledged it to C by indorsement, to secure a
previous debt to C, who did not know that B had not paid A. Before B
could pay A, B died. A now sues C to recover the value of the unpaid
receipt. Decide the case with brief reason.
A: As action cannot prosper. The negotiable warehouse receipt, being duly
indorsed and negotiated, C had a perfect right to accept the said warehouse
receipt from B in security of pre-existing debts. (Sec. 47, Warehouse receipts Law;
and Siy Cong Bieng & Co., Inc. v. Hongkong & Shanghai Banking Corp., 56 Phils.
598).

Q: XYZ Warehousing Corporation receives from A 30 bales of cotton

for deposit in said warehouse for which a negotiable receipt was issued.
While the goods were stored in said warehouse, C obtains judgment
against A for the recovery of a sum of money. The sheriff proceeded to
levy upon the goods upon a writ of execution and directed the
warehouseman to deliver the goods. Is the warehouseman under
obligation to comply with the sheriffs order? Why?
A: No, the warehouseman is not under obligation to comply with the sheriffs order.
If goods are delivered to a warehouseman by the owner or by a person whose act
would bind the owner, and a negotiable receipt is issued for them, they cannot
thereafter, while in the possession of the warehouseman, be attached by
garnishment or otherwise, or be levied upon under execution, unless the receipt be
first surrendered to the warehouseman, or its negotiation enjoined. (Sec. 25,
Warehouse Receipts Law.)
Q: Last July 20, 1982, A sold to B his negotiable warehouse receipt
covering 100 sacks of rice stored in X Warehouse, Inc. In payment
thereof, B issued a check for P10,000, dated July 22, 1982, in favor of
A. On the same date, the check was dishonored by the bank for lack of
14

funds. A immediately instructed X Warehouse in writing not to

deliver the 100 sacks of rice to anyone. On July 23, 1982, an employee of
X Warehouse, unaware of the written instruction received by its
president, delivered the 100 sacks of rice to B. State the cause or
causes of action, if any, which A may have against X Warehouse and
B. Give reasons.
A: A may make X Warehouse, Inc. liable for damages, the warehouseman having
been instructed already in writing not to make delivery of the sacks of rice to
anyone. The X Warehouse, Inc. is liable for the act of his employee, its agent, and
for its negligence in not duly informing its employee/agent. B, on the other hand,
will be liable with the X Warehouse, Inc. for said rice; besides his liability for estafa,
the check having been dishonored by the drawee bank for lack of funds. (Sec. 10,
Warehouse Receipts Law; B.P. 22)
Q: A stole 5 bales of hemp from the pier and stored them in W
Warehouse. The latter issued a negotiable warehouse receipt under the
terms of which the hemp id deliverable to A or order. A indorsed the
receipt in blank to B, who paid value for it without knowing about the
theft. In the meantime, M, the owner of the hemp, with the help of the
police, was able to trace the hemp to X Warehouse and demanded
delivery of the same. X Warehouse, after being satisfied that M was the
real owner of the hemp, delivered the same to him despite the fact that
the negotiable warehouse receipt was outstanding and was not in Ms
possession, and therefore could not be surrendered or cancelled.
Subsequently, B demanded delivery of the hemp and, since he could not
obtain it, now claim damages from X warehouse on the ground that he, B,
was the only one entitled to the delivery because he was the holder for
value in good faith of the negotiable warehouse receipt covering the
hemp. Is X Warehouse liable to B for damages? Explain.
A: No, X Warehouse is not liable for such damages. Under Sec.41 of the Warehouse
Receipts Law, a person to whom a negotiable receipt has been negotiated acquires
only such title to the goods as the person negotiating the receipt to him had or had
ability to convey to a purchaser in good faith for value. Since A who negotiated the
receipt to B was a thief and thus had no title to the goods covered by the receipt,
there was no title which he could transfer to B. Therefore, B has no right to delivery
as against the true owner, M, and X Warehouse cannot be held liable to him for
failure to deliver.
Q: Mr. Bakal deposited with a warehouseman two crates of goods for
which he received two warehouse receipts (one for each crate)one
being a negotiable warehouse receipt and the other a non-negotiable
warehouse receipt. Title to both warehouse receipts were transferred on
December 1, 1985 to Mr. Tigas. The warehouseman was not notified of
the transfer of the receipts. Meanwhile, Mr. Tapang, a judgment creditor
of Mr. Bakal, served a notice of levy over the goods on the
warehouseman.
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a) Between Mr. Tigas and Mr. Bakal, who would have preference over the
goods covered by the negotiable warehouse receipt? Reasons.
b) Who would have preference over the goods covered by the nonnegotiable warehouse receipt? Reasons.
A: a) Mr. Tigas would have preference over the goods covered by the negotiable
warehouse receipt. In negotiation, the transferees rights over the goods vests
from the very moment of transfer and the transferee there upon acquires the
direct obligation of the warehouseman to hold the goods for him.
b) Mr. Tapang, in this case, would have preference over the goods since the
transferee of a non-negotiable warehouse receipt merely acquires (1) rights no
better than those of the transferor and (b) the direct obligation of the
warehouseman only upon notice to him of the transfer.
Q: X deposited 1,000 sacks of wheat flour with Luzon Warehouse
Company, for which he was issued a negotiable receipt. Y was able to get
hold of the receipt, forged the signature of X, presented the receipt to
Luzon Warehouse and was able to withdraw the wheat flour. What are the
rights of X?
A: If under the terms of the negotiable warehouse receipt, the goods are
deliverable to the depositor or to his order, X may proceed against Luzon
Warehouse and/or Y. Without the valid indorsement of X to the holder or in blank,
the warehouseman is liable to X for conversion in the misdelivery. If however, by
the terms of the negotiable warehouse receipt, the goods are deliverable to bearer
(either because it is so expressed in the warehouse receipt or because of a blank
indorsement by the person to whose order the goods are deliverable, X may only
proceed against Y. the Warehouseman is not liable for conversion where the goods
are delivered to a person in possession of a bearer negotiable warehouse receipt.
Q: Alex deposited goods for which Billy, a warehousemen, issued a
negotiable warehouse receipt wherein the good were deliverable to Alex
or order. Alex negotiated the receipt TC Caloy. Thereafter, Dario a
creditor, secured judgment against Alex and served notice of levy over
the goods on the warehouseman.
(A) To whom should the warehousemen deliver the goods upon
demand?
(B) (B) Would your answer be the same if the warehouseman issued a
non-negotiable warehouse receipt? Reason briefly.
A:
a. The warehouseman should deliver the goods upon demand to Caloy who is a
holder of the receipt in good faith and for value. The goods cannot be levied
upon by the creditor of Alex after it was negotiated to Caloy (Section 25,
Negotiable Instruments Law).
b. No, my answer would not be the same if the warehousemen issued a
nonnegotiable warehouse receipt. In such case. The warehouseman should
deliver the goods to Datio, if the notice of levy was served on the
warehouseman prior to the notification of the warehouseman by Alex or Caloy
16

of the transfer of the non-negotiable receipt. In such case, the title of Caloy
would be defeated by the notice of levy by Dario (Section 42, Warehouse
Receipts Law).
Q: True or False. Under the Warehouse loses his lien upon the goods
when he surrenders possession thereof.
A: True. A lien is dependent on possession. When a warehouseman surrenders
possession, he thereby loses his lien on the goods over which hi no longer has
possession (Sec.29 (a), Warehouse Receipts Law).
VIII. GUARANTY
Q: A, as guarantor, executed a real estate mortgage in the amount of
P50,000.00 to secure payment of the indebtedness of XYZ Transit Co. for
the purchase of two GM trucks with a total value of P152,000.00. XYZ
Transit Co. paid BMC Motors Co., the seller of the trucks, the sum of
P92,000.00, thus leaving a balance of P60,000.00. The obligation
guaranteed is further secured by a deed of chattel mortgage on the
trucks executed by XYZ Transit Co., in favor of BMC Motors Co. To collect
the balance of P60,000.00, BMC Motors Co. later filed an action against
XYZ Transit Co. with CFI, Manila to foreclose the chattel mortgage. The
suit resulted in the sale of the trucks at public auction in the amount of
P50,000.00. A, the real estate mortgagor, filed an action for the
cancellation of the real estate mortgage above-mentioned. Will the action
prosper? Give reasons.
A: Yes, As action for the cancellation of the real estate mortgage will prosper. The
foreclosure of the chattel mortgage bars further recovery by the vendor of any
unpaid balance of the price.
Q: FF and GG executed a promissory note binding themselves, jointly and
severally, tp pay X Bank P10,000 within 90 days from January 10, 1979,
FF signed the note as principal and GG as guarantor. Upon failure to pay
the note on due date X bank sued FF and GG for payment. GG interposed
that he was just a guarantor and the Bank must first exhaust all the
remedies against the principal FF.
Is GGs defense tenable?
A: GGs defense is untenable. Had he not bound himself solidarily with FF to pay
the obligation, he could have availed of the defense of benefit of excussion. In
other words, he cannot be compelled to pay the creditor unless the latter has
exhausted all the property of the debtor and he resorted to all the legal remedies
against the said debtor. But then in the promissory note, he bound himself jointly
and severally with FF to pay the obligation to the creditor. According to the law,
such a defense now invoked by GG is no longer available.
Q: On June 1, 1990, A obtained a loan of P100th from B, payable not later
than 20Dec1990. B required A to issue him a check for that amount to be
17

dated 20 Dec 1990. Since he does not have any checking account, A, with
the knowledge of B, requested his friend, C, President of Saad Banking
Corp (Saad) to accommodate him. C agreed, he signed a check for the
aforesaid amount dated 20Dec 1990, drawn against Saads account with
the ABC Commercial Banking Co. The By-laws of Saad requires that
checks issued by it must be signed by the President and the Treasurer or
the Vice-President. Since the Treasurer was absent, C requested the VicePresident to co-sign the check, which the latter reluctantly did. The check
was delivered to B. The check was dishonored upon presentment on due
date for insufficiency of funds.
a) Is Saad liable on the check as an accommodation party?
b) If it is not, who then, under the above facts, is/are the accommodation
party?
A:
a.) Saad is not liable on the check as an accommodation party. The act of the
corporation in accommodating a friend of the President, is ultra vires (CrisologoJose v CA GR 80599, 15Sep1989). While it may be legally possible for the
corporation, whose business is to provide financial accommodations in the
ordinary course of business, such as one given by a financing company to be an
accommodation party, this situation, however, is not the case in the bar
problem.
b.) Considering that both the President and Vice-President were signatories to the
accommodation, they themselves can be subject to the liabilities of
accommodation parties to the instrument in their personal capacity (CrisologoJose v CA 15Sep1989)
Q: Aaron, a well-known architect, is suffering from financial reverses. He
has 4 creditors with a total claim of P26 million. Despite his intention to
pay these obligations, his current assets are insufficient to cover all of
them. His creditors are about to sue him. Consequently he was
constrained to file a petition for insolvency.
a. Assuming, that Aaron has guarantors for his debts, are the guarantors
released from their obligations once Aaron is discharged from his
debts? Explain.
b. What remedies are available to guarantors in case they are made to
pay the creditors? Explain.
A:
a. Yes. Under Art. 2076 of the Civil Code provides: The obligation of the guarantor
is extinguished as the same as that of the debtor, & for the same causes as all
other obligations.
b. Under Art. 2081, the guarantor may set up against the creditor all the defenses
that pertain to the principal debtor. The discharge obtained by Aaron on the
principal obligation can now be used as a defense by the guarantors against the
creditors. The guarantors are also entitled to indemnity under Art. 2066 of the
Civil Code.
Q: True or False. An oral promise of guaranty is valid and binding.
18

A: FALSE. An oral contract of guaranty, being a special promise to answer for the
debt of another, is unenforceable unless in writing (Article 1403 [2] b, NCC ).
AA: TRUE. An oral promise of guaranty is valid and binding. While the contract is
valid, however ,it is unenforceable because it is not writing . Being a special
promise answer for the debt, or miscarriage of another, the Statute of Frauds
requires it to be in writing to be enforceable (Article 1403 [2] b, NCC).The validity
of the contract should be distinguished from its enforceability.
Q: Ozamis Paper Corporation secured loans from ABC Universal Bank in
the aggregate principal amount of P100 million, evidenced by several
promissory notes, and secured by a continuing guaranty of its principal
stockholder Menandro Marquez; a pledge of Marquezs shares in the
corporation valued at P45 million; and a real estate mortgage over
certain parcels of land owned by Marquez.
The corporation defaulted and the bank extra-judicially foreclosed on the
real estate mortgage. The bank which was the sole bidder for P75 million,
won the award.
(a) Can the bank sue Marquez for the Deficiency of P25 million? Explain.
(b) If the bank opts to file an action for collection against the corporation,
can it afterwards institute a real action to foreclose the mortgage?
Explain
(c) Can the bank foreclose on the pledged shares of Marquez and recover
the deficiency from the corporation? Explain.
A:
(a) Yes, the bank can sue Marquez for the deficiency of P25million. In extrajudicial
foreclosure of a real estate mortgage, if the proceeds of the sale are insufficient
to pay the debt, the mortgagee has the right to sue for the deficiency (Suico
Rattan and Buri Interiors, Inc. v. Court of Appeals, 490 SCRA 560 (2006)).
(b)No, the bank can no longer file an action to foreclose the real estate mortgage.
When it filed a collection case, it was deemed to have abandoned the real
estate mortgage (Bank of America, NT and SA v. American Realty Corporation,
321 SCRA 659(1999)).
(c) If the bank forecloses the pledge, it cannot recover the deficiency because the
foreclosure extinguishes the principal obligation, whether or not the proceeds
from the foreclosure are equal to the amount of the principal obligation (Art.
2115, Civil Code).
IX.

SURETY

Q: What is the difference between guaranty and suretyship?

A:
a.) The obligation in guaranty is secondary; whereas, in suretyship, it is primary.
19

b.) In guaranty, the undertaking is to pay if the principal debtor cannot pay;
whereas, in suretyship, the undertaking is to pay if the principal debtor does not
pay.
c.) In guaranty, tha guarantor is entitled to the benefit of excussion; whereas, in
suretyship the surety is not entitled.
d.) Liability in guaranty depends upon an independent agreement to pay the
obligations of the principal if he fails to do so; whereas, in suretyship, the surety
assumes liability as a regular party.
e.) The Guarantor insures the solvency of the principal debtor; whereas, the surety
insures the debt.
f.) In a guaranty, the guarantor is subsidiarily liable; whereas, in a suretyship, the
surely binds himself solidarity with the principal debtor (Art 2047, Civil Code.)
Q: Gary is a tobacco trader and also a lending investor. He sold tobacco
leaves to Homer for delivery within a month, although the period for
delivery was not guaranteed. Despite Gary's efforts to deliver on time,
transportation problems and government red tape hindered his efforts
and he could only deliver after 30 days. Homer refused to accept the late
delivery and to pay on the ground that the agreed term had not been
complied with.
As lending investor, Gary granted a Pl,000,000 loan to Isaac to be paid
within two years from execution of the contract. As security for the loan,
Isaac promised to deliver to Gary his Toyota Innova within seven (7) days,
but Isaac failed to do so. Gary was thus compelled to demand payment
for the loan before the end of the agreed two-year term.
(l) Was Homer justified in refusing to accept the tobacco leaves? (1%)
(2) Can Gary compel Isaac to pay his loan even before the end of the twoyear period? (1%)
A:
(1)
(A) Yes. Homer was justified in refusing to accept the tobacco leaves. The delivery
was to be made within a month. Gary's promise of delivery on a "best effort" basis
made the delivery uncertain. The term, therefore, was ambiguous.
(B) No. Homer was not justified in refusing to accept the tobacco leaves. He
consented to the terms and conditions of the sale and must abide by it. Obligations
arising from contract have the force of law between the contracting parties.
(C) Yes. Homer was justified in his refusal to accept the delivery. The contract
contemplates an obligation with a term. Since the delivery was made after 30
days, contrary to the terms agreed upon, Gary could not insist that Homer accept
the tobacco leaves.
(D) No. Homer was not justified in refusing to accept the tobacco leaves. There was
no term in the contract but a mixed condition. The fulfillment of the condition did
not depend purely on Gary's will but on other factors, e.g., the shipping company
and the government. Homer should comply with his obligation.
20

(2)
(A) Yes, Gary can compel Isaac to immediately pay the loan. Non-compliance with
the promised guaranty or security renders the obligation immediately demandable.
Isaac lost his right to make use of the period.
(B) Yes, Gary can compel Isaac to immediately pay the loan. The delivery of the
Toyota Innova is a condition for the loan. Isaac's failure to deliver the car violated
the condition upon which the loan was granted. It is but fair for Gary to demand
immediate payment.
(C) No, Gary cannot compel Isaac to immediately pay the loan. The delivery of the
car as security for the loan is an accessory contract; the principal contract is still
the P 1,000,000 loan. Thus, Isaac can still make use of the period.
(D) No, Gary cannot compel Isaac to immediately pay the loan. Equity dictates that
Gary should have granted a reasonable extension of time for Isaac to deliver his
Toyota Innova. It would be unfair and burdensome for Isaac to pay the P1,000,000
simply because the promised security was not delivered.
AA:
(1)
(B)No. Homer was not justified in refusing to accept the tobacco leaves. He
consented to the terms and conditions of the sale and must abide by it. Obligations
arising from contract have the force of law between the contracting parties.
It is clear under the facts that the period of delivery of the tobacco leaves was not
guaranteed. Gary anticipated other factors which may prevent him from making
the delivery within a month. True enough, transportation problems and
government red tape did. Such slight delay was, thus, excusable. Obligations
arising from contract have the force of law between the contracting parties and
should be complied with in good faith (Art. 1160, Civil Code)
(2)
(A) Yes, Gary can compel Isaac to immediately pay the loan. Non- compliance with
the promised guaranty or security renders the obligation immediately demandable.
Isaac lost his right to make use of the period.
Under Art 1198 (2) of the Civil Code, the debtor shall lose every right to make use
of the period when he does not furnish to the creditor the guaranties or securities
which he has promised.

21