Transactions PDF

ATENEO CENTRAL BAR OPERATIONS 2007
Civil Law
SUMMER REVIEWER
CREDIT TRANSACTIONS include all transactions

involving the purchase or loan of goods, services or
money in the present with a promise to pay or deliver
in the future (contract of security)
2 TYPES OF CREDIT TRANSACTIONS:
1. secured transactions those supported by
a collateral or an encumbrance of property
2. unsecured transactions those supported
only by a promise to pay or the personal
commitment of another such as a guarantor
or surety
SECURITY is something given, deposited or serving
as a means to ensure the fulfillment or enforcement
of an obligation or of protecting some interest in the
property
2 TYPES OF SECURITY:
1. personal when an individual becomes a
surety or a guarantor
2. real or property when an emcumbrance is
made on property
BAILMENT is the delivery of property of one person
to another in trust for a specific purpose, with a
contract, express or implied, that the trust shall be
faithfully executed and the property returned or duly
accounted for when a special purpose is
accomplished or kept until the bailor reclaims it.
PARTIES IN BAILMENT
1. bailor the giver, the party who delivers
possession/custody of the thing bailed
2. bailee the recipient, the party who receives
the possession/custody of the thing delivered
KINDS OF CONTRACTUAL BAILMENT W/
REFERENCE TO COMPENSATION
1. for the sole benefit of the bailor (gratuitous)
e.g. gratuitous deposit, mandatum (do some
act w/ respect to aQuickTime
thing) and a
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2. for the sole benefit
bailee (gratuitous)
e.g. commodatum, gratuitous simple loan or
mutuum
3. for the benefit of both parties e.g. deposit for
compensation, involuntary deposit, pledge
and bailments for hire:
a. hire of things temporary use
b. hire of service for work or labor
c. hire of carriage of goods for carriage
d. hire of custody for storage
LOAN
CHARACTERISTICS
1. real contract delivery is essential for
perfection of the loan (BUT a promise to
lend, being consensual, is binding upon the
parties)
2. unilateral contract - only the borrower has
the obligation
KINDS
1. commodatum where the bailor delivers to
the bailee a non-consumable thing so that
the latter may use it for a certain time and
return the identical thing
kinds of commodatum:
a. ordinary commodatum use by the
bailee of the thing is for a certain
period of time
b. precarium one whereby the bailor
may demand the thing loaned at will;
exists in cases where:
i. neither the duration of the
contract nor the use to which
the thing loaned should be
devoted has been stipulated
ii. if the use of the thing is merely
tolerated by the owner
2. mutuum or simple loan - where the lender
delivers to the borrower money or other
consumable thing upon the condition that the
latter will pay the same amount of the same
kind and quality (when it is consumed in a
manner appropriate to its purpose)
LOAN
1. delivery by one party
and the receipt by
the other party of a
given sum of money
or other consumable
thing
upon
an
agreement, express
or implied
2. to repay the same
amount of the same
kind and quality, w/
or w/o interest
CREDIT
The
ability
of
an
individual
to
borrow
money or things by virtue
of the confidence or trust
reposed by a lender that
he will pay what he may
promise w/in a specified
period
Adviser: Dean Cynthia Roxas-Del Castillo; Heads: Joy Marie Ponsaran, Eleanor Mateo; Understudies: Joy Stephanie
Tajan, John Paul Lim; Subject Head: Sarah Lopez; Pledgee: Aiza Constantino
Civil Law Summer Reviewer

LOAN
DISCOUNTING PAPER
Interest is usually taken

at the expiration of a
credit
Always on single-name
paper
Interest is deducted in
advance
Double name paper
More expensive for the
borrower
because
interest is calculated on
the amount loaned and
not the amount actually
received
COMMODATUM
Object
Ownership
of the thing
Cause
Thing to be
returned
Subject
Matter
Purpose
When to
return
Who bears
risk of loss
Nature
Ordinarily nonconsumable
Ownership
is
retained by the
lender
Essentially
gratuitous
Borrower must
return the same
thing loaned
MUTUUM
(SIMPLE LOAN)
Money or other
consumable thing
Ownership
is
transferred to the
borrower
Gratuitous
or
onerous
(w/
stipulation to pay
interest)
Borrower
need
only pay the same
amount of the
same kind and
quality
Only
personal
property
May involve real

or
personal
property
Loan for use or Loan
for
temporary
consumption
possession
Bailor
may Lender may not
demand
the demand its return
return of the before the lapse of
thing
loaned the term agreed
before
the upon
expiration of the
term in case of
urgent need
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Loss TIFFof(Uncompressed)
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Borrower
suffers
h
are
needed
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see
t
is
picture.loss (even if
subject matter is the
suffered by the caused exclusively
bailor since he is by a fortuitous
the owner
event and he is
not
therefore
discharged from
his duty to pay)
Purely personal
Not purely
personal
COMMODATUM
(Articles 1935-1952)
1. cause: essentially gratuitous (otherwise, if
there Is compensation, it might be lease)
2. purpose: temporary use of the thing loaned
but not its fruits, unless stipulated or is
incidental (otherwise, if the bailee is not
entitled to the use of the thing, it might be
deposit)
3. subject matter: generally non-consumable
goods but if the consumable goods are not
for consumption, such may be the subject of
the commodatum, as when merely for
exhibition (Art. 1936)
4. bailor need not be the owner of the thing
loaned (Art 1938)
it is sufficient that he has a possessory
interest
a mere lessee or usufructuary may lend
but the borrower or bailee himself may
not lend not lease the thing loaned to him
to a third person (Art. 1932[2])
5. purely personal
a. death of either party terminates the
contract UNLESS there is stipulation to the
contrary
b. generally, bailee can neither lend nor
lease the object to a 3rd person in the
absence of some agreement to that effect
c. use of the thing loaned may extend to the
bailees household (who are not considered
3rd persons) except:
1. when there is a contrary stipulation
2. nature of the thing forbids such use
6. enjoyment of fruits a stipulation to make
use of fruits is valid, but it is never presumed.
The enjoyment of the fruits must only be
incidental to the use of the thing itself, for if it
is the main cause, the contract may be one
of usufruct.
OBLIGATIONS OF THE BAILEE (Arts 1941-1945)

(COOLRD2)
1. To pay for the ordinary expenses for the use
and preservation of the thing loaned (Art.
1941)
2. To pay for all other expenses other than those
referred to in Art. 1941 and 1949 (refund of
extraordinary expenses either in full or in half)
(Art. 1950)
REASON: Bailee makes use of the thing.
Expenses for ostentation are to borne by the
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3.
4.
5.
6.
7.
bailee because they are not necessary for the

preservation of the thing
To take good care of the thing with the
diligence of a good father of a family (Art.
1163)
To be liable for loss even if due to a fortuitous
event:
GR: the bailee is not liable for loss or damage
due to a fortuitous event (Art. 1174)
Reason: the bailor retains the ownership of the
thing loaned
Exceptions: (Art. 1942 punishes the bailee
for his improper acts although they
may not be the proximate cause of
the loss)
a. Bad faith if the bailee devotes the thing to
any purpose different from that for which it
has been loaned
b. Delay - he keeps it longer than the period
stipulated or after the accomplishment of the
use for which the commodatum has been
constituted
c. Has been delivered with appraisal -the thing
loaned has been delivered with appraisal of
its value, UNLESS there is a stipulation
exempting the bailee from responsibility in
case of a fortuitous event
d. Lends the subject matter to a 3rd person - he
lends or leases the thing to a third person
who is not a member of his household
e. Ingratitude - being able to save the thing
borrowed or his own thing, he chose to save
the latter
The bailee has NO RIGHT to retain the thing
loaned as security for claims he has against
the bailor, even though they may be by reason
of extraordinary expenses (Art. 1944)
Reasons:
a. Ownership remains in bailor the bailee
acquires only the use of thing, the ownership
of which remains w/ the bailor
b. Only temporary use given to bailee the
bailee would be violating the bailors trust in
him to return the thing as soon as the period
stipulated expires or the purpose has been
accomplished
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Exception: TIFF
Claim
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damages suffered
are needed to see this picture.
because the bailor doesnt advise bailee of
the flaws known to him (Art. 1951)
A bailee doesnt answer for the deterioration of
the thing loaned due only to the use thereof
and without his fault
Liability when there are 2 or more bailees: The
presumption is that they are solidarily liable
(Art. 1945)
Reason for the presumption: to safeguard

effectively the right of the bailor. The law
presumes that the bailor takes into account the
personal integrity and responsibility of all the
bailees and that, therefore, he would not have
constituted the commodatum if there were only
one bailee
OBLIGATIONS OF THE BAILOR (AD-READ-HA)

1. Primary obligation of the bailor:
GR: To allow the bailee the use of the thing loaned
for the duration of the period stipulated or until the
accomplishment of the purpose for w/c the
commodatum was constituted
Exceptions: the bailor may demand the return or
its temporary use upon:
a. bailor has an urgent need for the thing (Art.
1946) the contract is suspended
Reason: the right of the bailor is based on
the fact that commodatum is essentially
gratuitous
b. bailee commits an act of ingratitude (Art.
1948)
if the bailee should commit an offense
against the person, the honor or the
property of the bailor, or of the wife or
children under his parental authority
if the bailee imputes to the bailor any
criminal offense, or any act involving
moral turpitude, even though he should
prove it, unless the crime or the act has
been committed against the bailee
himself, his wife, or children under his
authority; and
if the bailee unduly refuses the bailor
support when the bailee is legally or
morally bound to give support to the
bailor
Reason: the person who commits any of
the acts of ingratitude makes himself
unworthy of the trust reposed upon him
by the bailor.
2. May demand the thing at will when the contract is

precarium
PRECARIUM a kind of commodatum
where the bailor may demand the thing at
will. It has been defined as a contract by
which the owner of a thing, at the request of
another person, gives the latter the thing for
use as long as the owner shall please
3. To refund the extraordinary expenses (Art. 1949)
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GR on reimbursement: Notice should be given by
the bailee to the bailor regarding such extraordinary
expenses
Reason for the rule: notice is required because it is
possible that the bailor may not want to incur the
extraordinary expense at all.
Exception: where the extraordinary expenses are
so urgent that the reply to the notification cannot be
awaited w/o danger.
4. if the extraordinary expenses arise from the actual
use of the thing and even though bailee acted
w/o fault, the expenses will be borne equally by
both the bailor and the bailee (50-50) (Art. 1949,
2nd par.)
Reasons:
a. the bailee pays because of the benefit
derived from the use of the thing loaned
to him;
b. the bailor pays the other because he is
the owner and the thing will be returned
to him
Exception: Stipulation to the contrary that provide
for a different apportionment of such expenses or
that they shall be borne by the bailee or bailor
alone
5. all other expenses which are not necessary for the
use and preservation of the thing must be
shouldered by the borrower (bailee)
6. the depreciation caused by the reasonable and
natural use of the thing is borne by the bailor (Art.
1943)
Reason: The parties to the contract know that the
thing
borrowed cannot be used without
deterioration due to ordinary wear and tear.
Exceptions:
a. when there is a stipulation to the
contrary;
b. when the bailee is guilty of fault or
negligence;
c. if he devotes the thing to any purpose
different from that for which has been
loaned
e. the bailee suffers damages by reason of

the flaw or defect
Exception: when the defect is not known to the
bailor, he is not liable because commodatum is
gratuitous.
8. The bailor has no right of abandonment for
expenses and damages (Art. 1952)
Reason: The expense and/or damages may
exceed the value of the thing loaned
SIMPLE LOAN OR MUTUUM
SIMPLE LOAN OR MUTUUM contract whereby

one of the parties delivers to another money or other
fungible thing w/ the understanding that the same
amount of the same kind and quality shall be paid.
(Art. 1933)
SIMPLE LOAN
Signifies the delivery of
money or some other
consumable thing to
another w/ a promise to
repay an equivalent
amount of the same kind
and quality
There is a transfer of
ownership of the thing
delivered
The relation between

parties is that of obligor
and oblige
The creditor receives
payment for his loan
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7. To pay damagesTIFF
for
known
hidden
flaws (Art.
are needed
to see this
picture.
1951)
Requisites: (the following must concur)
a. there is a flaw or defect in the thing
loaned
b. the flaw or defect is hidden
c. the bailor is aware thereof
d. he does not advise the bailee of the
same
RENT/LEASE
One party delivers to
another
some
nonconsumable thing in order
that the latter may use it
during a certain period
and return it to the former
The owner of the lessee
or the lessor of the
property does not lose his
ownership. He simply
loses control over the
property rented during the
period of the contract
The relation is between
landlord and tenant
The owner of the property
receives compensation
or price either in money,
provisions, chattels, or
labor from the occupant
thereof in return for its
use
Basis of
comparison
MUTUUM
COMMODATUM
BARTER
Subject
matter
Money or
any other
fungible
things/
Personal
or
real
property
(generally nonconsumable)
Nonfungible or
nonconsumabl
Page 193 of 297

personal
property
Obligation Pay
or
of bailee deliver the
same kind
or quality
loaned to
the bailee
Nature of
contract
May
be
gratuitous
e things
Return
the
identical thing
borrowed when
the time has
expired or the
purpose
has
been served
Always
gratuitous
The
equivalent
thing
is
given
in
return for
what has
been
received
Onerous
NATURE OF MUTUUM
a. bilateral - borrower promise to pay is the
consideration for the lenders obligation to
furnish the loan
b. no criminal liability upon failure to pay
SUBJECT MATTER
a. fungible or consumable-depending on the
intent of the parties, that the return of the thing
is equivalent only and not the identical thing
b. money
c. if the transfer of ownership is on a nonfungible thing, with the obligation of the other
to give things of the same kind, quantity and
quality, it is a barter
INTEREST
GR: Interest must be expressly stipulated in writing,
and it must be lawful (Art. 1956)
Exceptions:
1. Indemnity for damages the debtor in delay
is liable to pay legal interest (6%/12%) as
indemnity for damages even in the absence of
a stipulation for the payment of interest.
Interest as indemnity for damages is payable
only in case of default or non-performance of
contract.
Basis for computation for indemnity:
a. Central Bank Circular 416 12% p.a. in
cases of:
Loans
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Forbearance
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money, goods or
TIFF (Uncompressed)
credits
Judgments involving such loans or
forbearance, in the absence of the
express agreement as to such rate
of interest
During the interim period from the
date judgment until actual payment
b. Art. 2209 of the Civil Code 6% p.a. in
cases of:
Other sources (e.g. sale)

Damages arising from injury to
persons
Loss of property which does not
involve a loan
2. Interest accruing from unpaid interest - interest

due shall earn interest from the time it is judicially
demanded although the obligation may be silent
upon this point.
DETERMINATION OF INTEREST PAYABLE IN
KIND:
Its value shall be appraised at the current price of the
products or goods at the time and place of payment.
(Art. 1958)
Purpose: to make usury harder to perpetrate
COMPOUNDING INTEREST (Art. 1959)
GR: accrued interest (interest due and unpaid) shall
not earn interest
Exceptions:
When judicially demanded
When there is an express stipulation made
by the parties to wit: that the interest due and
unpaid shall be added to the principal
obligation and the resulting total amount shall
earn interest
Compounding interest may be availed of only when
there is a written stipulation in the contract for the
payment of interest.
BARTER
BARTER - A contract whereby one person transfers
the ownership of non-fungible things to another with
the obligation on the part of the latter to give things of
the same kind, quantity and quality.
DEPOSIT
DEPOSIT - A deposit is constituted from the moment
a person receives a thing belong to another, with the
obligation of safely keeping it and of returning the
same.
If the safekeeping of the thing delivered is not the
principal purpose of the contract, there is no deposit
but some other contract.
NOTE: it is essential that the depository is not the
owner of the thing deposited
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each of whom believes himself entitled to
the thing deposited;
b. necessary- made in compliance with a
legal obligation, or on the occasion of
any calamity, or by travelers in hotels
and inns or by travelers with common
carriers
CHARACTERISTICS
1. real - because it is perfected only by the
delivery of the subject matter
BUT an agreement to constitute a deposit is
binding and enforceable, since it is merely
consensual
2. unilateral - if gratuitous
3. bilateral - if with compensation
Basis of
comparison
Deposit
Mutuum
Commodatum
Creation
Purpose
Principal
Purpose
Safekeeping
or mere
custody
Consumption
Transfer of the
use
Deman
dability
Demand
return of the
thing at will
Lender must
wait until
expiration of
period
granted to
debtor
May demand
return at will
Object
Nature
of
contract
Both
movable and
immovable
may be the
object
But in
extrajudicial
deposit, only
a movable
(corporeal)
thing may be
the object
May be
gratuitous
Only money
and
any
other
fungible
thing may be
the object
May be
gratuitous
Judicial
Will of the court
Security or to
ensure the right
of a party to the
property or to
recover in case of
favorable
judgment
Generally
immovables
Always onerous
(PRECARIUM)
or only after
the expiration
of the period
or
accomplishme
nt of the use
of the thing
subject to
exceptions
Both movable
and
immovable
may be the
object
Essentially
and always
gratuitous
CREATION OF DEPOSIT (Art. 1964)

1. By virtue of a court order; or
2. By law
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3. Not by the willTIFF
of
the parties
4. It is essential that the depositary is not the
owner of the property deposited (Art. 1962)
KINDS OF DEPOSIT
1. judicial - when an attachment or seizure of
property in litigation is ordered
2. extrajudicial (Art. 1967)
a. voluntary- delivery is made by the will of
the depositor or by two or more persons
Subject
Matter
Cause
Return
thing
of
In whose
behalf it is
held
Upon order of the

court/ end of
litigation
Person who has
a right
Extrajudicial
Will
of
the
contracting parties
Custody
and
safekeeping
Movables only
May
be
compensated but
generally
gratuitious
Upon demand of
depositor
Depositor or /3rd
person designated
DEPOSIT IS GENERALLY GRATUITOUS: (Art.

1965)
GR: A deposit is generally gratuitous.
Exceptions:
a. when there is a contrary stipulation
b. where depositary is engaged in the business
of storing goods
c. where property is saved without knowledge
of the owner
SUBJECT MATTER OF DEPOSIT (Art. 1966)
GR: only movable or personal property may be the
object of deposit, whether voluntary or necessary.
Exception: In judicial deposit, it may cover both
movable and immovable property.
DEPOSITOR NEED NOT BE THE OWNER OF THE

THING:
GR: The depositor must be the owner of the thing
deposited.
Page 195 of 297

Exceptions: It may belong to another person than
the depositor.
a. when two or more persons claiming to be
entitled to a thing may deposit the same with
a third person. In such case, the third person
assumes the obligation to deliver to the one
to whom it belongs.
b. Interpleader the action to compel the
depositors to settle their conflicting claims.
Here one of the depositors is not the owner.
FORM OF CONTRACT OF DEPOSIT:
GR: A contract of deposit may be entered into orally
or in writing. (Art. 1969)
Exception: Delivery of the thing deposited. (It is a
real contract, hence, delivery is required for
perfection.)
Depositary
capacitated
Depositor
incapacitated
Depositary is subject to
ALL the obligations of a
depositary
Depositary must return the
property either to:
a) the legal representative
of the incapacitated, OR
b) the depositor himself if
he
should
acquire
capacity
Basis of
Comparison
Demandability
Benefit
Preference
credit
of
Depositary incapacitated
Depositor capacitated
Depositary does not
incur the obligations of a
depositary
Depositary, however is
liable to:
a) return the thing
deposited while still in his
possession; AND
b) pay the depositor the
amount by which he may
have benefited himself
with the thing or its price
subject to the right of any
3rd person who acquires
the thing in good faith
Irregular
Mutuum
deposit
Demandable at Lender
is
will
of
the bound by the
irregular
provisions
of
depositor
for the
contract
whose
benefit and
cannot
the deposit has seek restitution
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TIFF
(Uncompressed) decomuntil
pressor the time of
been
constituted
payment
as
provided in the
contract
has
arisen
Benefit accrues Necessity
of
to the depositor
the borrower
Depositor
has Enjoy
no
preference over preference
in
other
creditors the distribution
with respect to
the
thing
deposited
of the debtors
property.
OBLIGATIONS OF THE DEPOSITARY (SRT-CCCULC-RITT-RPT-TL-HR)

1. Two primary obligations (Art. 1972)
a. safekeeping of the object;
b. Return of the thing when required even
though a specified term or time for such may
have been stipulated in the contract.
Degree of Care same diligence as he
would exercise over his property.
Reasons:
i.
Essential requisite of judicial relation
which involves the depositors
confidence in his good faith and
trustworthiness;
ii.
The presumption that the depositor
took into account the diligence which
the depositary is accustomed with
respect to his own property.
The depositary cannot excuse himself from
liability in the event of loss by claiming that
he exercised the same amount of care
toward the thing deposited as he would
towards his own if such care is less than that
required by the circumstances.
2. Obligation not to transfer deposit (Art. 1973)
GR: the depositary is not allowed to deposit
the thing with a third person.
Reason: A deposit is founded on trust and
confidence and it can be supposed that the
depositor, in choosing the depositary, has
taken into consideration the latters
qualification.
Exception: The depositary is authorized by
express stipulation.
Liabilities: Depositary is liable for loss of the
thing deposited when:
a. He transfers the deposit with a third
person without authority although there is
no negligence on his part and the third
person;
b. He deposits the thing with a third person
who is manifestly careless or unfit
although authorized, even in the absence
of negligence; or
c. The thing is lost through the negligence
of his employees whether the latter are
manifestly careless or not.
Exemption from liability: The thing is lost
without the negligence of the third person
with whom he was allowed to deposit the
Page 196 of 297

thing if such third person is not manifestly
careless or unfit.
Exception: When there is a stipulation to the

contrary.
3. Obligation not to change the way of deposit

(Art. 1974)
GR: Depositary may not change the way of
the deposit
Exception: If there are circumstances
indicating that the depositor would consent to
the change. This is a situation wherein the
depositary would reasonably presume that
the depositor would agree to the change if he
knows of the facts of the situation.
Requisites:
a. The depositary must notify the depositor
of such change and
b. Must wait for the reply of the depositor to
such change.
Exception: If the delay of the reply would
cause danger.
6. Obligation not to make use of the things

deposited (Art. 1977)
GR: Deposit is for safekeeping of the subject
matter and not for its use.
Exceptions:
a. Expressly authorized by the depositor;
b. Such use is necessary for its
preservation but limited for the purpose
only.
Effect of unauthorized use: Liability for
damages
Effects of authorized use: (Art. 1978)
a. If the thing deposited is non-consumable:
GR: The contract loses the character of a
deposit and acquires that of a
commodatum despite the fact that the
parties may have denominated it as a
deposit.
Exception: Safekeeping is still the
principal purpose of the contract.
b. If the thing deposited is money or other
consumable thing:
GR: Converts the contract into a simple
loan or mutuum.
Exception: Safekeeping is still the
principal purpose of the contract, but it
becomes an irregular deposit. Bank
deposits are in the nature of irregular
deposits but they are really loans
governed by the law on loans.
4. Obligation to collect on the choses in action

deposited (Art. 1975)
If the thing deposited should earn interest,
the depositary is under the obligation to:
a. Collect the interest as it becomes due;
b. Take such steps as may be necessary to
preserve its value and the right
corresponding to it.
The depositary is bound to collect the capital,
as well as the interest, when due.
Contract of rent of safety deposit boxes
(Art. 1975)
A contract for the rent of safety deposit boxes
is not an ordinary contract of lease of things,
but a special kind of deposit; hence, it is not
to be strictly governed by the provisions on
deposit. The prevailing rule in the US is that
the relation between a bank renting out
safety deposit boxes and its customer with
respect to the contents of the box is that of
bailor and bailee.
5. Obligation not to commingle things if so
stipulated (Art. 1976) QuickTime and a
GR: The TIFF
depositary
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commingle grain or other articles of the same
kind and quality.
Effects:
a. The various depositors of the mingled
goods shall own the entire mass in
common.
b. Each depositor shall be entitled to such
portion of the entire as the amount
deposited by him bears the whole.
7. Liability for loss through fortuitous event (Art.

1979)
GR: The depositary is not liable for loss
through fortuitous event without his fault.
Exceptions:
a. If it is so stipulated;
b. If he uses the thing without the
depositors permission
c. If he delays in its return;
d. If he allows others to use it, even though
he himself may have been authorized to
use the same.
Note: Liability for loss without fortuitous event:
Depositary presumed at fault (Art. 1265)
- in possession
8. Relation between bank and depositor (Art.
1980)
Fixed, savings, and current deposits of
money in banks and similar institutions shall
be governed by the provisions concerning
simple loan.
Page 197 of 297

a. Contract of loan deposits in banks are

really loans because the bank can use
the same for its ordinary transactions
b. Relation of creditor and debtor the
relation between a depositor and a bank
is that of a creditor and a debtor.
9. Obligation when the thing deposited is closed
and sealed (Art. 1981)
The depositary has the obligation to:
a. return the thing deposited when delivered
closed and sealed in the same condition;
b. pay for damages should the seal or lock
be broken through his fault, which is
presumed unless proven otherwise;
c. Keep the secret of the deposit when the
seal or lock is broken, with or without his
fault.
10. When depositary justified in opening closed
and sealed subject matter (Art. 1982)
a. The depositary is presumed authorized
to do so if the key has been delivered to
him;
b. When the instructions of the depositor as
regards the deposit cannot be executed
without opening the box or receptacle.
(Necessity)
11. Obligation to return products, accessories
and accessions (Art. 1983)
12. Obligation to pay interest on sums converted
for personal use (Art. 1983)
13. The depositary who receives the thing in
deposit cannot require that the depositor
prove his ownership over the thing (Art. 1984)
14. Where third person appears to be the owner
(Art. 1984)
The depositary may be relieved from liability
when:
a. He advised the true owner of the thing of
the deposit.
b. If the owner, is spite
of such information,
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it
within
the period of one
month (30 days)
15. Obligation of the depositary when there are
two or more depositors. (Art. 1985)
a. Divisible thing and joint depositors
each one of the depositors can demand
only his share proportionate thereto.
b. Indivisible thing and solidary depositors
rules on active solidarity
c.
GR: Each one of the depositors may

do whatever may be useful to the
others. (Art. 1212)
Exception: Anything which may be
prejudicial to the other depositors.
GR: The depositary may return the
thing to any one of the solidary
depositors
Exception: When a demand, judicial
or extrajudicial, for its return has
been made by one of them in which
case delivery should be made to him.
Return to one of the depositors stipulated
if by stipulation, the thing should be
returned to one of the depositors, the
depositary is bound to return it only to the
person designated although he has not
made any demand for its return.
16. Obligation to return to the person to whom

return must be made. (Art. 1986)
a. The depositary is obliged to return the
thing deposited, when required, to:
The depositor;
To his heirs or successors; or
To the person who may have
been designated in the contract.
b. If the depositor was incapacitated at the
time of making the deposit, the property
must be returned to:
His guardian or administrator;
To the person who made the
deposit;
To the depositor himself should
he acquire capacity.
c. Even if the depositor had capacity at the
time of making the deposit but he
subsequently loses his capacity during
the deposit, the thing must be returned to
his legal representative.
17. Obligation to return at the place of return (Art.
1987) same as the general rule of law
regarding the place of payment. (Art. 1251)
GR: At the place agreed upon by the parties,
transportation expenses shall be borne by
the depositor.
Exception: In the absence of stipulation, at
the place where the thing deposited might be
even if it should not be the same place where
the original deposit was made.
18. Obligation to return upon the time of return.
(Art. 1988)
Page 198 of 297

GR: The thing deposited must be returned to
the depositor upon demand, even though a
specified period or time for such return may
have been fixed.
Exceptions:
a. When the thing is judicially attached
while in the depositarys possession
b. When notified of the opposition of a third
person to the return or the removal of the
thing deposited.
19. Right of the depositary to return the thing
deposited. (Art. 1989)
NOTE: in this case, it is the depositary who is
returning the deposit WITH OR WITHOUT THE
DEMAND of the depositor
GR: The depositary may return the thing
deposited notwithstanding that a period has
been fixed for the deposit if:
a. The deposit is gratuitous;
b. The reason is justifiable.
Remedy if depositor refuses to receive the
thing: The depositary may deposit the thing
at the disposal of the judicial authority.
Exception: When the deposit is for a
valuable consideration, the depositary has no
right to return the thing before the expiration
of the time designated even if he should
suffer inconvenience as a consequence.
20. Depositarys liability in case of loss by force
majeure or government order. (Art. 1990)
Depositary is not liable in cases of loss by
force majeur or by government order.
However, he has the duty to deliver to the
depositor money or another thing he receives
in place of the thing.
21. Liability in case of alienation of the
depositarys heir. (Art. 1991)
When alienation is done in GOOD FAITH:
a. Return the value of the thing deposited
b. Assign the right to collect from the buyer.
The heir does not need to pay the
actual price of the thing deposited.
When alienation is done
in BAD FAITH:
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a. Liable forTIFF
damages;
b. Pay the actual price of the thing
deposited.
22. Depositary may retain the thing in pledge
until the full payment of what may be due him
by reason of the deposit. (Art. 1994)
The thing retained serves as security for the
payment of what may be due to the
depositary by reason of the deposit. (see Art.

1965, 1992, 1993).
Note: The debt must be prior to the deposit.
Irregular Deposit
May be demanded at will
by the irregular depositor
for whose benefit the
deposit
has
been
constituted
Only benefit is that which
accrues to the depositor
Depositor has preference
over other creditors
Mutuum
Lender is bound by the
provision of the contract
and
cannot
seek
restitution until the time
for payment, as provided
in the contract has arisen
If with interest, benefit if
both parties
No preference
OBLIGATIONS OF THE DEPOSITOR (PLD)

1. Obligation
to
pay
preservation. (Art. 1992)
expenses
of
2. Obligation to pay losses incurred due to

character of thing deposited. (Art. 1993)
GR: The depositary must be reimbursed for
loss suffered by him because of the
character of the thing deposited.
Exceptions:
a. Depositor was not aware of the danger;
b. Depositor was not expected to know the
dangerous character of the thing;
c. Depositor notified the depositary of such
dangerous character;
d. Depositary was aware of the danger
without advice from the depositor.
3. Effect of death of depositor or depositary.
(Art. 1995)
a. Deposit gratuitous death of either of the
depositor or depositary extinguishes the
deposit (personal in nature). By the word
extinguished, the law really means that
the depositary is not obliged to continue
with the contract of deposit.
b. Deposit for compensation not
extinguished by the death of either party.
Other Matters Concerning a Depositor
1. Depositary has a right to retain the thing in
pledge until full payment of what may be due
him by reason of the deposit
2. A deposit is extinguished:
a. upon the loss or deterioration of the thing
deposited;
Page 199 of 297

b. upon the death of the depositary, ONLY in
gratuitous deposits;
c. other provisions in the Civil Code
(novation, merger, etc.)
When hotel-keeper not liable:

a. The loss or injury is cause by force
majeure, like flood, fire, theft or robbery
by a stranger (not the hotel-keepers
servant or employee) with the use of
firearms or irresistible force.
Exception: Unless the hotel-keeper is
guilty of fault or negligence in failing to
provide against the loss or injury from his
cause.
b. The loss is due to the acts pf the guests,
his family, servants, visitors.
c. The loss arises from the character of the
things brought into the hotel.
Exemption or diminution of liability:
The hotel-keeper cannot free himself
from responsibility by posting notices
to the effect that he is not liable for
the articles brought by the guest.
(Art. 2003)
Effect: Any stipulation between the
hotel-keeper and the guest whereby
the responsibility of the former (as
set forth in Art. 1998-2001) is
suppressed or diminished shall be
VOID.
Hotel-keepers right to retain
The hotel-keeper has a right to retain
the things brought into the hotel by
the guest, as a security for credits on
account of:
a. lodging;
b. supplies usually furnished to
hotel guests.
Reason: It is given to hotel-keepers
to compensate them for the liabilities
imposed upon them by law. The right
of retention recognized in this article
is in the nature of a pledge created
by operation of law.
NECESSARY DEPOSIT
A deposit is necessary when:
1. It is made 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.
*There must be a causal relation
between the calamity and the constitution
of the deposit.
3. Made by passengers with common
carriers.
as to those baggage the passengers
or their agents carry
4. Made by travelers in hotels or inns. (Art.
1998)
Before keepers of hotels or inns may be held
responsible as depositaries with regard to the
effects of their guests, the following must
concur:
Elements:
a. They have been previously informed
about the effects brought by the guests;
and
b. The latter have taken the precautions
prescribed regarding their safekeeping.
Extent of liability:
a. Liability in hotel rooms which come under
the term baggage or articles such as
clothing as are ordinarily used by
travelers
b. Include those lost or damages in hotel
annexes such as vehicles in the hotels
garage.
When hotel-keeper liable: (Art. 2000
2002)
NOTE: In the following
cases, the hotelQuickTime and a
keeper is liable
REGARDLESS
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amount of care exercised:
a. The loss or injury to personal property is
caused by his servants or employees as
well as by strangers (Art. 2000).
b. The loss is caused by the act of a thief or
robber done without the use of arms and
irresistible force. (Art. 2001)
Reason: Hotel-keeper is apparently
negligent.
In compliance with a legal obligation

(governed by the law establishing it, and in
case of deficiency, the rules on voluntary
deposit e.g. Arts. 538, 586 and 2104)
Made on the occasion of any calamity
(governed by the rules on voluntary deposit
and Art. 2168)
SEQUESTRATION OR JUDICIAL DEPOSIT

When judicial deposit takes place: Judicial deposit
takes place when an attachment or seizure of
property in litigation is ordered by a court. (Art. 2005)
Nature: Auxiliary to a case pending in court.
Page 200 of 297

Purpose: 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.
Depositary of sequestered property: person
appointed by the court. (Art. 2007)
Obligations:
a. To take care of the property with the diligence of
a good father of the family. (Art. 2008)
b. He may not be relieved of his responsibility until
the litigation is ended or the court so orders. (Art.
2007)
Applicable law: The law on judicial deposit is
remedial or procedural in nature. Hence, the Rules of
Court are applicable. (Art. 2009)
Basis of
Comparison
Cause
or
origin
Judicial
Deposit
By will of the
courts
Purpose
Security;
Secure
the
right of a party
to recover in
case
of
favorable
judgment.
Either movable
or immovable
property
but
generally,
immovable
Always
remunerated
(onerous)
Subject Matter
Remuneration
In
whose
behalf it is held
In behalf of the
person who, by
the judgment,
has a right
Extra-judicial
Deposit
By will of the
parties. Hence,
there
is
a
contract
Custody;
Safekeeping of
the thing
Only movable
property
Generally
gratuitous, but
may
be
compensated
In behalf of the
depositor
or
third
person
designated
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WAREHOUSE
RECEIPTS
LAW
Scope:
all warehouses, whether public or private,

bonded or not
Application: applies to warehouse receipts issued by

a warehouseman as defined in Sec. 58(a),
while the Civil Code, to other cases where
receipts
are
not
issued
by
a
warehouseman.
The Issue of Warehouse Receipts

WHO MAY ISSUE?
1. a warehouseman - a person lawfully
engaged in the business of storing goods
for profit
2. a duly authorized officer or agent of a
warehouseman
NOTE:
receipts
not
issued
by
a
warehouseman although in the form of
warehouse receipts are not warehouse
receipts
FORM AND CONTENTS: need not be in particular
form, but certain essential terms must be present:
1. Location of warehouse -because the
warehouseman may have other warehouses
2. Date of issue and receipt - indicates prima
facie the date when the contract of deposit is
perfected and when the storage charges
shall begin
3. Consecutive number of receipt - to identify
each receipt with the goods for which it was
issued
4. Person to whom goods are deliverable determines the person or persons who shall
prima facie be entitled lawfully to the
possession of the goods deposited
5. Rate of storage charges - consideration for
the contract from the view of the
warehouseman
6. Description of goods or packages - for
identification
7. Signature of warehouseman - best evidence
of the fact that the warehouseman has
received the goods and has bound himself to
assume all obligations in connection
therewith
8. Warehousemans ownership of or interest in
the goods - purpose is to prevent abuses in
the past when warehouseman issued receipt
on their goods
9. Statement of advances made and liabilities
incurred (if present) - purpose is to preserve
the lien of the warehouseman over the goods
stores or the proceeds thereof in his hands
NOTE: Effect of omission of any of the
essential terms:
a. validity and negotiability of receipt is NOT
affected
b. warehouseman will be liable for damages
c. the contract will be converted to an
ordinary deposit
Page 201 of 297

WHAT TERMS MAY BE INSERTED?
ANY other terms or condition
EXCEPT:
a. those contrary to this Act (e.g. exemption
from liability for misdelivery in Sec. 10,
not giving statutory notice in case of sale
of goods in Sec. 33 and 34)
b. an exemption from liability and
negligence
c. those contrary to law, morals, good
customs, public order or public policy
DEFINITIONS
a. negotiable receipt - receipt in which it is
stated that the goods received will be
delivered to the bearer or to the order of
any person named in such receipt
b. non-negotiable receipt - receipt in which
it is stated that the goods received will be
delivered to the depositor or to any other
specified person
NOTE:
1. a provision in a negotiable receipt that it is nonnegotiable is VOID
2. a negotiable warehouse receipt is not a
negotiable instrument in the same sense as in
the NIL.
Duplicate receipts (applies ONLY) to negotiable
warehouse receipts.
Whenever more than one negotiable receipt
is issued for the same goods, the word
DUPLICATE shall be placed on the face of
the receipt except the one 1st issued.
Effect: the warehouseman shall be liable for
damages for failing to do this to anyone who
purchased the subsequent receipt (1) for
value, and (2) supposing it to be an original;
even though the purchase be after delivery of
the goods by the warehouseman to the
holder of the original receipt.
Failure to make non-negotiable (applies only to
non-negotiable warehouse receipts)
a. A non-negotiable receipt must contain
the word: non-negotiable
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who purchased it for value supposing it
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negotiable
CONSTRUCTION OF WAREHOUSE RECEIPTS:
Liberal construction of the law in favor of bona fide
holders. This has no application to actions against
any party other than a warehouseman.
OBLIGATION AND RIGHTS OF A

WAREHOUSEMAN UPON THEIR RECEIPTS
PRINCIPAL OBLIGATIONS WAREHOUSEMAN:
1. To take care of the goods, and be liable for failure
to exercise care
BUT he is not liable for loss or injury which could
not have been avoided
UNLESS there is a stipulation to the contrary
2. To deliver the goods to the holder of the receipt or
the depositor upon DEMAND accompanied with:
a. an offer to satisfy the warehousemans lienbecause a warehouseman may refuse
delivery until his lien is satisfied
b. an offer to surrender the receipt- for the
protection of the warehouseman and to
avoid criminal liability; this is subject to
waiver
c. an offer to sign when the goods are
delivered, an acknowledgment that they
have been delivered
BUT a warehouseman may still refuse

delivery on the grounds of some lawful
excuse like:
1. Sec. 10
a. He has been requested by the
person lawfully entitled to the
goods not to make delivery
b. He has information that the
delivery about to be made was
not to one lawfully entitled to the
goods
2. Sec. 16: He has acquired title to the
goods which was delivered from:
a. Transfer made by the depositor
at the time of the deposit for
storage or subsequent thereto
b. The warehousemans lien
3. Sec. 18: If there are several claimants to
the goods
4. Sec. 21: If goods were lost and he had
no fault
5. Sec. 36: He has already lawfully sold the
goods
PERSONS TO WHOM THE GOODS MUST BE

DELIVERED
1. Persons lawfully entitled to the possession of the
goods or its agent
2. Persons entitled to deliver under:
a. a non-negotiable receipt; or
b. with written authority
3. person in possession of a negotiable receipt
(which was lawfully negotiated)
Page 202 of 297

NOTE: a warehouseman does NOT have a
cause of action against a person to whom he
misdelivered the thing UNLESS the depositor
sues him.
ACTS FOR
LIABLE:
WHICH
WAREHOUSEMAN
IS
1. Failure to stamp duplicate on copies of a

negotiable receipt (Sec. 6 and 15)
When more than one negotiable receipts are
issued for the same goods, the word
duplicate must be plainly placed by the
warehouseman upon the face of every such
receipt except the 1st. In such case, the
warehouseman warrants:
a. that the duplicate is an accurate copy of
the original receipt
b. such original receipt is uncancelled at the
date of the issue of the duplicate
NOTE: The duplicate imposes no other
liability upon the warehouseman.
2. Failure to place non-negotiable on a nonnegotiable receipt (Sec. 7)
3. Misdelivery of the goods (Sec. 10)
To one not lawfully entitled to possession:
Liable
for
conversion
(unauthorized
assumption and exercise of the right of
ownership over goods belonging to another
through alteration or the exclusion of the
owners right)
To a person entitled to delivery under a nonnegotiable receipt or written authorization OR
person in possession of a negotiable receipt
Still liable for conversion if:
a. prior to delivery, he had been requested
NOT to make such delivery
b. he had received notice of the adverse
claim or title of a 3rd person
4. Failure to effect cancellation of a negotiable
receipt upon delivery of the goods (Sec. 11)
This is applicable ONLY to negotiable receipts
but NOT to a situation
whereandthere
was a valid
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sale in accordance
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Sec.
36
a. When the goods are delivered already:
Failure to cancel will make him liable to
any one who purchased for value in good
faith such receipt
b. When only some of the goods were
delivered: Failure to cancel or to state
plainly in the receipt that some goods
were delivered will make him liable to
any one who purchased for value in good

faith such receipt
5. Issuing receipt for non-existing goods or
misdescribed goods (Sec. 20):
GR: a warehouseman is under obligation
to deliver the identical property stored
with him and if he fails to do so, he is
liable.
Exception: if the description consists
merely of marks or labels upon the goods
or upon the packages containing them,
etc., the warehouseman is NOT liable
even if the goods are not of the kind as
indicated in the marks or labels
6. In case of lost or destroyed receipts (Sec. 14)
Remember that a warehouseman must deliver
to the one who has the receipt but if such was
lost, a competent court may order the delivery
of the goods only:
a. upon proof of the loss or destruction of
the receipt; AND
b. upon giving of a bond with sufficient
securities
NOTE: the warehouseman is still liable to
a holder of the receipt for value without
notice since the warehouseman can
secure himself in the bond given.
7. Failure to take care of the goods (Sec. 12)
8. Failure to give notice in case of sales of
goods to satisfy his lien (Sec. 33) or because
the goods are perishable and hazardous (Sec.
34)
EFFECTS OF ALTERED RECEIPTS:
1. Alteration immaterial: whether fraudulent or
not, authorized or not, the warehouseman is
liable on the altered receipt according to its
original tenor;
2. Alteration material: but it was authorized,
the warehouseman is liable according to the
terms of the receipts as altered;
3. Material alteration innocently made:
though unauthorized, the warehouseman is
liable on the altered receipt according to its
original term;
4. Material alteration fraudulently made:
warehouseman is liable according to the
original tenor to a:
a. purchaser of the receipt for value
without notice; and
b. to the alterer and subsequent
purchasers with notice ( BUT his
Page 203 of 297

liability is limited only to delivery as
he is excused from any other liability)
* Even a fraudulent alteration cannot divest the title of
the owner of stored goods and the warehouseman is
liable to return them to the owner. BUT a bona fide
holder acquires no right to the goods under a
negotiable receipt which has been stolen or lost or
which the indorsement has been forged.
WITH REGARD TO OWNERSHIP

1. Ownership is not a defense for refusal to deliver
The warehouseman cannot refuse to deliver
the goods on the ground that he has
acquired title or right to the possession of it
unless such is derived:
a. directly or indirectly from a transfer made by
the depositor at the time of the deposit for
storage or subsequent thereto;
b. from the warehousemans lien
2. Adverse title of a 3rd person is not a defense for
refusal to deliver by a warehouseman to his
bailor on demand EXCEPT:
a. To persons to whom the goods must be
livered (Sec. 9)
b. To the person who wins in the interpleader
case (Sec. 17)
c. To the person he finds to be entitled to the
possession after investigation (Sec. 18)
d. To the buyer in case there was a valid sale of
the goods (Sec. 36)
DUTY OF WAREHOUSEMAN WHEN THERE ARE

SEVERAL CLAIMANTS
The warehouseman may either:
1. Investigate
and
determine
within
a
reasonable time the validity of the claims,
and deliver to the person whom he finds is
entitled to the possession of the goods
Effect: He is NOT excused from liability in
case he makes a mistake
2. He may bring a complaint in interpleader
Effect:
a. he will be relieved
from liability in
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court finds to have better right;
b. he is liable for refusal to deliver to the
rightful claimant when it is required to have
an interpleader;
3. He may not do (a) and (b)
Effect: He will be liable after a lapse of a
reasonable time, of conversion as of the date
of the original demand for the goods.
NOTE: This does NOT apply to cases where the

warehouseman himself makes a claim to the
goods.
COMMINGLING OF DEPOSITED GOODS
GR: A warehouseman may not mingle goods
belonging to different depositors.
Exception: In case of fungible goods of the
same kind and grade provided:
a. he is authorized by agreement
b. he is authorized by custom
Effects:
a. each depositor shall own the entire mass in
common and entitled to his portion
b. warehouseman is severally liable to each
depositor for the care and redelivery of
their portion as if the goods had been kept
separate
ATTACHMENT OR LEVY OF NEGOTIABLE
RECEIPTS
A warehouseman has the obligation to hold
the goods for the owner or for the person to
whom the negotiable receipt has been duly
negotiated. Therefore, the goods cannot be
attached or levied upon under an execution
UNLESS:
a. the document be first surrendered; or
b. the negotiation is enjoined, or
c. the document is impounded by the
court
The warehouseman cannot be compelled to
deliver the goods until:
a. the receipt is surrendered to him;
b. it is impounded by the court
NOTE: This provision does NOT apply if the
person depositing is NOT the owner of the goods
or one who has not the right to convey title to the
goods binding upon the owner.
REMEDY OF CREDITOR WHOSE DEBTOR OWNS
A NEGOTIABLE RECEIPT
Attachment of the negotiable receipt (NOT the goods)
NOTE: the goods themselves cannot readily be
attached or levied upon by ordinary legal process
EXTENT OF WAREHOUSEMANS LIEN
1. lawful charges for
a. storage, and
b. preservation of the goods
2. lawful claims for
a. money advanced
b. labor
c. interest
d. weighing
e. insurance
Page 204 of 297

f. cooperating
g. transportation
3. other charges and expenses in relation to
such goods
4. reasonable charges and expenses for notice
and advertisements of sale
5. sale of the goods where defaults has been
made in satisfying the lien
EXTENT OF THE LIEN WHEN A NEGOTIABLE
RECEIPT HAS BEEN ISSUED
1. charges for storage and preservation of the
goods
2. other charges expressly enumerated (from b,
c, d and e above) although the amount is
NOT stated
NOTE:
For claims not specified, the
warehouseman shares pro rata with the other
creditors of the depositor the balance of the
proceeds of the sale for the satisfaction of the
claims.
GOODS SUBJECT TO LIEN
1. goods of the depositor who is liable to the
warehouseman as debtor wherever such
goods are deposited;
2. goods of other persons stored by the
depositor who is liable to the warehouseman
as debtor with authority to make a valid
pledge
NOTE: A warehouseman has NO lien on goods
belonging to another and stored by a stranger in
fraud of the true owners right.
THE LIEN MAY BE LOST THROUGH:
1. voluntarily surrendering possession of
goods
constitutes a waiver or
abandonment
A warehouseman may NOT claim a
lien on other goods of the same
depositor for unpaid charges on the
goods surrendered if the goods were
delivered to him under different
receipts.
2. wrongfully refusing to deliver the goods
to a person who holds
the receipt or the
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depositor upon
DEMAND
accompanied
with:
a. an offer to satisfy the warehousemans
lien (because a warehouseman may
refuse delivery until his lien is satisfied)
b. an offer to surrender the receipt
i. for the protection of the warehouseman
and to avoid criminal liability
ii. this is subject to waiver
3.
an offer to sign when the goods are

delivered, an acknowledgment that they
have been delivered
REMEDIES FOR A WAREHOUSEMAN

1. Even if without lien, all remedies allowed by
law to a creditor against his debtor for
collection of charges;
2. By refusing to deliver the goods until his lien is
satisfied;
3. All remedies allowed by law for the
enforcement of a lien against personal property
and recovery of any deficiency in case it exists
after the sale of the property;
4. By causing the extrajudicial sale of the property
and applying the proceeds to the value of the
lien
PROCESS OF EXTRAJUDICIAL SALE:
1. Written notice to the person on whose account
the goods are held or to persons who claim an
interest in the goods containing:
a. itemized statement of warehousemans
lien showing the sum due and when it
became due
b. brief description of the goods
c. a demand that a claim be paid on or
before a day mentioned, not less than 10
days from:
1. delivery of notice if personally
delivered
2. time when notice should reach its
destination if sent by mail
d. statement that if the claim is not paid, the
goods will be advertised for sale and then
sold at a specified time and place
2.
After the time for payment of the claim if the
notice has elapsed, the sale will be advertised
stating:
a. a description of the goods to be sold
b. the name of the owner or person on
whose account the goods were held
c. time and place of the sale
3. Publication:
a. if there is a newspaper published in the
place of sale: once a week for 2
consecutive weeks and the sale not held
less than 15 days from the time of the 1st
publication
b. if there is no newspaper: posted at least
10 days before the sale in not less than 6
conspicuous places in the place of sale
4. Sale itself in:
a. place where the lien was acquired
b. if such place is manifestly unsuitable for
the purpose, at the nearest suitable place
Page 205 of 297

5. From the proceeds of the sale:
a. the warehouseman shall satisfy his lien
b. including the reasonable charges of notice,
advertisement and sale
c. the balance shall be held by the
warehouseman and delivered on demand
to the person to whom he should deliver it
6. Any time before the goods are sold, any person
may pay the warehouseman for his lien and the
other expenses. The warehouseman shall deliver
the goods to that person if he is entitled under this
Act, to the possession of the goods on payment of
the charges. Otherwise, the warehouseman shall
retain ownership of the goods.
With regard to perishable and hazardous
goods
Warehouseman will give notice to owner or
person in whose name the goods are stored:
a. to satisfy his lien
b. to remove the goods
c. failure to do a &b will give the
warehouseman authority to sell the
goods without advertising
d. if sale is not possible, he may
dispose of the goods in any lawful
manner without liability
Proceeds of the sale shall be disposed of in
accordance with the PROCESS in the sale of
the goods.
Effects of sale
a. warehouseman is NOT liable for nondelivery even if the receipt was given for
the goods when they were deposited be
negotiated
b. when the sale was made without the
publication required and before the time
specified by law, such sale is void and the
purchaser of the goods acquires no title in
them
NEGOTIATION AND TRANSFER OF RECEIPTS
Negotiable receipts negotiable by delivery
1. if the goods are deliverable to the bearer;
or
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2. when indorsed
in blank;
are needed
to see thisor
picture.
3. person to whose order the goods are
delivered or by a subsequent indorsee
indorsed it to bearer
GUARANTY AND SURETYSHIP
GUARANTY (2047) - By guaranty, a person called

the guarantor, binds himself to the creditor, to fulfill
the obligation of the principal debtor in case the latter
should fail to do so. It is a contract between the
guarantor and the creditor.
CHARACTERISTICS OF THE CONTRACT

1. Accessory dependent for its existence
upon the principal obligation guaranteed by
it;
2. Subsidiary and conditional takes effect
only when the principal debtor fails in his
obligation subject to limitation
3. Unilateral
a. It gives rise only to a duty on the part of
the guarantor in relation to the creditor
and not vice versa
b. It may be entered into even without the
intervention of the principal debtor.
4. Guarantor must be a person distinct from
the debtor a person cannot be the
personal guarantor of himself
CLASSIFICATION OF GUARANTY
1. Guaranty in the broad sense:
a. Personal guaranty is the credit
given by the person who guarantees
the fulfillment of the principal
obligation; or
b. Real guaranty is property,
movable, or immovable
i. Real
mortgage
(2124)
or
antichresis (2132) guaranty is
immovable
ii. Chattel mortgage (2140) or
pledge (2093) guaranty is
movable
2. As to its origin:
a. Conventional constituted by
agreement of the parties (2051[1])
b. Legal imposed by virtue of a
provision of law
c. Judicial required by a court to
guarantee the eventual right of one
of the parties in a case.
3. As to consideration:
a. Gratuitous guarantor does not
receive any price or remuneration for
acting as such (2048)
b. Onerous one where the guarantor
receives valuable consideration for
his guaranty
4. As to person guaranteed:
Page 206 of 297

a. Single constituted solely to
guarantee or secure performance by
the debtor of the principal obligation;
b. Double
or
sub-guaranty
constituted to secure the fulfillment

by the guarantor of a prior guaranty
5. As to its scope and extent:
a. Definite where the guaranty is
limited to the principal obligation
only, or to a specific portion thereof;
b. Indefinite or simple where the
guaranty included all the accessory
obligations of the principal, e.g.
costs, including judicial costs.
GUARANTY GENERALLY GRATUITOUS (2048)
GR: Guaranty is gratuitous
Exception: When there is a stipulation to the
contrary
Cause of contract of guaranty
1. Guaranty is unilateral exists for the

benefit of the creditor and not for the benefit
of the principal debtor
2. Creditor has every right to take all
possible measures to secure payment of
his credit guaranty can be constituted
even against the will of the principal debtor
Rights of third persons who pay:
1. Payment without the knowledge or
against the will of the debtor:
a. Guarantor can recover only insofar
as the payment has been beneficial
to the debtor
b. Guarantor cannot compel the
creditor to subrogate him in his rights
2. Payment with knowledge or consent of
the debtor: Subrogated to all the rights
which the creditor had against the debtor
GUARANTY BY REASON OF ORIGIN (2051[1])
1. Presence of cause which supports

principal obligation: Cause of the
contract is the same cause which
supports the obligation as to the principal
debtor. The consideration which supports
the obligation as to the principal debtor is
a sufficient consideration to support the
obligation of a guarantor or surety.
2. Absence of direct consideration or
benefit to guarantor: Guaranty or surety
agreement is regarded valid despite the
absence of any direct consideration
received by the guarantor or surety, such
consideration need not pass directly to
the guarantor or surety; a consideration
moving to the principal will suffice.
MARRIED WOMAN AS GUARANTOR (2049)
1. Conventional;
2. Judicial;
3. Legal
DOUBLE OR SUB-GUARANTY (2051[2])
One constituted to guarantee the obligation of a
guarantor. It should not be confounded with guaranty
wherein several guarantors concur.
NECESSITY OF VALID PRINCIPAL OBLIGATION

(2052[1])
Guaranty is an accessory contract: It is an
indispensable condition for its existence that there
must be a principal obligation. Hence, if the
principal obligation is void, it is also void.
GR: Married woman binds only her separate property

GUARANTY OF VOIDABLE, UNENFORCEABLE,
AND NATURAL OBLIGATIONS (2052[2])
Exceptions:
1. With her husbands consent, bind the
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community orTIFF
conjugal
partnership
(Uncompressed)
decompressor property
2. Without husbands consent, in cases
provided by law, such as when the guaranty
has redounded to the benefit of the family.
GUARANTY
UNDERTAKEN
KNOWLEDGE OF DEBTOR (2050)
WITHOUT
A guaranty may secure the performance of a:

1. Voidable contract such contract is
binging, unless it is annulled by a proper
court action
2. Unenforceable contract because such
contract is not void
3. Natural obligation the creditor may
proceed against the guarantor although he
has not right of action against the principal
Page 207 of 297

debtor for the reason that the latters
obligation is not civilly enforceable.
When the debtor himself offers a guaranty for
his natural obligation, he impliedly recognizes
his liability, thereby transforming the
obligation from a natural into a civil one.
GUARANTY OF FUTURE DEBTS (2053)

Continuing Guaranty or Suretyship:
1. Not limited to a single transaction but which
contemplates a future course of dealings,
covering a series of transactions generally for
an indefinite time or until revoked.
2. It is prospective in its operation and is
generally intended to provide security with
respect to future transactions.
3. Future debts, even if the amount is not yet
known, may be guaranteed but there can be
no claim against the guarantor until the
amount of the debt is ascertained or fixed
and demandable.
Reason: A contract of guaranty is subsidiary.
a. To secure the payment of a loan at
maturity surety binds himself to
guarantee the punctual payment of a
loan at maturity and all other obligations
of indebtedness which may become due
or owing to the principal by the borrower.
b. To secure payment if any debt to be
subsequently incurred a guaranty
shall be construed as continuing when by
the terms therof it is evident that the
object is to give a standing credit to the
principal debtor to be used from time to
time either indefinitely or until a certain
period, especially if the right to recall the
guaranty is expressly reserved.
c. To secure existing unliquidated debts
refer to debts existing at the time of the
constitution of the guaranty but the
amount thereof is unknown and not to
dents not yet incurred and existing at that
time. The surety agreement itself is valid
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and binding
even
before
the principal
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decompressor
obligation intended to be secured thereby
is born, any more than there would be in
saying that obligations which are subject
to a condition precedent are valid and
binding before the occurrence of the
condition precedent
GUARANTY OF CONDITIONAL OBLIGATIONS: A
guaranty may secure all kinds of obligations, be they
pure or subject to a suspensive or resolutory

condition.
1. Principal
obligation
subject
to
a
suspensive condition the guarantor is
liable only after the fulfillment of the
condition.
2. Principal
obligation
subject
to
a
resolutory condition the happening of the
condition extinguishes both the principal
obligation and the guaranty
GUARANTORS LIABILITY CANNOT

PRINCIPAL OBLIGATION (2054)
EXCEED
GR: Guaranty is a subsidiary and accessory

contract guarantor cannot bind himself for more
than the principal debtor and even if he does, his
liability shall be reduced to the limits of that of the
debtor. But the guarantor may bind himself for less
than that of the principal.
Exceptions:
1. Interest, judicial costs, and attorneys fees as
part of damages may be recovered creditors
suing on a suretyship bond may recover from the
surety as part of their damages, interest at the
legal rate, judicial costs, and attorneys fees
when appropriate, even without stipulation and
even if the surety would thereby become liable to
pay more than the total amount stipulated in the
bond.
Reason: Surety is made to pay, not by
reason of the contract, but by reason of his
failure to pay when demanded and for
having compelled the creditor to resort to
the courts to obtain payment.
Interest runs from:
a. Filing of the complaint (upon judicial
demand); or
b. The time demand was made upon
the surety until the principal
obligation is fully paid (upon extrajudicial demand)
2. Penalty may be provided a surety may be
held liable for the penalty provided for in a
bond for violation of the condition therein.
Principals
liability
guarantors obligations
may
exceed
The amount specified in a surety bond as the

suretys obligation does not limit the extent of
the damages that may be recovered from the
Page 208 of 297

principal, the latters liability being governed
by the obligations he assumed under his
contract.
GUARANTY NOT PRESUMED (2055)

Guaranty requires the expression of consent on the
part of the guarantor to be bound. It cannot be
presumed because of the existence of a contract or
principal obligation.
unfair and unreasonable for it practically

nullifies the nature of the undertaking it had
assumed.
Reason: The liability of the surety attaches
as soon as the principal debtor defaults, and
notice thereof is given the surety within a
reasonable time to enable it to take steps to
protect its interest.
Remedy of surety: Foreclose the counterbond put
up by the principal debtor (if there is any)
Reasons:
1. There be assurance that the guarantor had
the true intention to bind himself;
2. To make certain that on making it, the
guarantor proceeded with consciousness of
what he was doing.
GUARANTY COVERED BY THE STATUTE OF
FRAUDS
Guaranty must not only be expressed but
must so be reduced into writing.
Hence, it shall be unenforceable by action,
unless the same or some note or
memorandum thereof be in writing, and
subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement
cannot be received without the writing, or a
secondary evidence of its contents.
It need not appear in a public document.
GUARANTY STRICTLY CONSTRUED
Strictly construed against the creditor in favor of the
guarantor and is not be extended beyond its terms or
specified limits.
If there is any doubt on the terms and conditions of
the guaranty or surety agreements, the doubt should
be resolved in favor of the guarantor or surety.
1. Liability for obligation stipulated
guarantor is liable only for the obligation of
the debtor stipulated upon, and not to
obligations assumed
previous to the
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decompressor
execution of the
guaranty
unless an intent to
be so liable is clearly indicated.
2. Liability of surety limited to a fixed period
the surety must only be bound in the
manner and to the extent, and under the
circumstances which are set forth or which
may be inferred from the contract of guaranty
or suretyship, and no farther.
3. Liability of surety to expire on maturity of
principal obligation such stipulation is
GUARANTY DISTINGUISHED FROM WARRANTY

GUARANTY
WARRANTY
Contract by which a
person is bound to
another
for
the
fulfillment
of
a
promise
or
engagement of a third
party
An undertaking that the title,

quality, or quantity of the
subject matter of a contract
is what it has been
represented to be, and
relates to some agreement
made ordinarily by the party
who makes the warranty
GUARANTY DISTINGUISHED FROM SURETYSHIP

GUARANTY
SURETYSHIP
Liability depends upon

an
independent
agreement to pay the
obligation if the primary
debtor fails to do so
Assumes liability as a
regular party to the
undertaking
Engagement
is
a
collateral undertaking
Charged as an original
promisor
Secondarily liable he
contracts to pay if, by
the
use
of
due
diligence,
the
dent
cannot be paid
Primarily
liable
undertakes directly for

the payment without
reference to the solvency
of the principal, and is so
responsible at once the
latter makes default,
without any demand by
the creditor upon the
principal whatsoever or
any notice of default
Only binds himself to

pay if the principal
cannot or unable to pay
Undertakes to pay if the

principal does not pay,
without regard to his
ability to do so
Insurer of the solvency
Insurer of the debt
Page 209 of 297

of the debtor
Does not contract that
the principal will pay,
but simply that he is
able to do so
Pay the creditor without

qualification
if
the
principal debtor does not
pay.
Hence,
the
responsibility
or
obligation assumed by
the surety is greater or
more onerous than that
of a guarantor
QUALIFICATIONS OF GUARANTOR (2056-2057)

1. He possesses integrity;
2. He has capacity to bind himself;
3. He has sufficient property to answer for
the obligation which he guarantees.
Exception: The creditor waives the requirements
Effect of Subsequent Loss of Required

Qualifications: The qualifications need only be
present at the time of the perfection of the
contract. The subsequent loss of integrity or property
or supervening incapacity of the guarantor would not
operate to exonerate the guarantor of the eventual
liability he has contracted, and the contract of
guaranty continues.
Remedy of creditor: Demand another guarantor
with the proper qualifications
Exception: Creditor may waive it if he chooses and
hold the guarantor to his bargain.
Article 2057:
1. Requires conviction in the first instance of a
crime involving dishonesty to have the right
to demand another.
2. Judicial declaration of insolvency is not
necessary in order for the creditor to have a
right to demand another guarantor.
SELECTION OF GUARANTOR:
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1. Specified person
stipulated
are
needed
to see this picture.
Substitution of guarantor
may not be
demanded
Reason: The selection of the guarantor is:
a. Term of the agreement;

b. As a party, the creditor is, therefore,
bound thereby.
2. Guarantor selected by the principal
debtor: Debtor answers for the integrity,
capacity, and solvency of the guarantor.
3. Guarantor personally designated by the

creditor: Responsibility of the selection
should fall upon the creditor because he
considered the guarantor to have the
qualifications for the purpose.
RIGHT OF GUARANTOR TO BENEFIT
EXCUSSION OR EXHAUSTION (2058)
OF
Reasons:
1. Guarantor only secondarily liable the
guarantor binds himself to the creditor to
fulfill the obligation of the principal debtor
only in case the latter should fail to do so. If
the principal debtor fulfills the obligation
guaranteed, the guarantor is discharged from
any responsibility.
2. All legal remedies against the debtor to be
first exhausted to warrant recourse
against the guarantor for payment, it may not
be sufficient that the debtor appears
insolvent. Such insolvency may be simulated.
Right of Creditor to Secure Judgment against
Guarantor prior to Exhaustion
GR: An ordinary personal guarantor (NOT a pledgor
or mortgagor), may demand exhaustion of all the
property of the debtor before he can be compelled to
pay.
Exception: The creditor may, prior thereto, secure a
judgment against the guarantor, who shall be entitled,
however, to a deferment of the execution of said
judgment against him, until after the properties of the
principal debtor shall have been exhausted, to satisfy
the latters obligation.
EXCEPTIONS TO THE BENEFIT OF EXCUSSION
(2059)
The guarantor is not entitled to the benefit of
excussion:
1. As provided in Art. 2059:
a. If the guarantor has expressly
renounced it Waiver
i. Waiver is valid but it must be made
in express terms.
b. If he has bound himself solidarily with
the debtor liability assumed that of a
surety
i. Guarantor becomes primary liable
as a solidary co-debtor. In effect, he
renounces in the contract itself the
benefit of exhaustion.
c. In case of insolvency of the debtor
guarantor guarantees the solvency of
the debtor
Page 210 of 297

i. If the debtor becomes insolvent, the
liability of the guarantor as the
debtor cannot fulfill his obligation
d. When he (debtor) has absconded, or
cannot be sued within the Philippines
the creditor is not required to go after a
debtor who is hiding or cannot be sued
in our courts, and to incur the delays
and expenses incident thereto.
Exception: Debtor has left a
manager or representative;
2.
3.
4.
5.
e. If it may be presumed that an execution

on the property of the principal debtor
would not result in the satisfaction of the
obligation if such judicial action
including execution would not satisfy the
obligation, the guarantor can no longer
require the creditor to resort to all such
remedies against the debtor as the
same would be but a useless formality.
It is not necessary that the debtor be
judicially declared insolvent.
If he does not comply with Art. 2060: In
order that the guarantor may make use of the
benefit of excussion, he must:
a. Set it up against the creditor upon the
latters demand for payment from him;
b. Point out to the creditor:
i. Available property of the debtor
the guarantor should facilitate the
realization of the excussion since he
is the most interested in its benefit.
ii. Within the Philippine territory
excussion of property located
abroad would be a lengthy and
extremely difficult proceeding and
would not conform with the purpose
of the guaranty to provide the
creditor with the means of obtaining
the fulfillment of the obligation.
iii. Sufficient to cover the amount of the
debt.
If he is a judicial bondsman and subsurety (2084)
Where a pledge or mortgage has been
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as(Uncompressed)
a special
security.
decompressor
If he fails to interpose it as a defense
before judgment is rendered against him.
DUTY OF CREDITOR TO MAKE PRIOR DEMAND

FOR PAYMENT FROM GUARANTOR (2060)
1. When demand to be made only after
judgment on the debt for obviously the
exhaustion of the principals property cannot

even begin to take place before judgment
has been obtained.
2. Actual demand to be made joining the
guarantor in the suit against the principal
debtor is not the demand intended by law
DUTY OF THE GUARANTOR TO SET UP BENEFIT
OF EXCUSSION (2060)
As soon as he is required to pay, guarantor must also
point out to the creditor available property (not in
litigation or encumbered) of the debtor within the
Philippines.
DUTY OF THE CREDITOR TO RESORT TO ALL

LEGAL REMEDIES (2061)
1. After the guarantor has fulfilled the conditions
required for making use of the benefit of
exhaustion, it becomes the duty of the
creditor to:
2. Exhaust all the property of the debtor pointed
out by the guarantor;
3. If he fails to do so, he shall suffer the loss but
only to the extent of the value of the said
property, for the insolvency of the debtor.
JOINDER OF GUARANTOR AND PRINCIPAL AS
PARTIES DEFENDANT
GR: The guarantor, not being a joint contractor with
his principal, cannot be sued with his principal.
Exception: Where it would serve merely to delay the
ultimate accounting of the guarantor or if no different
result would be attained if the plaintiff were forced to
institute separate actions against the principal and
the guarantors.
PROCEDURE WHEN CREDITOR SUES (2062)

1. Sent against the principal as a rule, the
creditor may hold the guarantor only after
judgment has been obtained against the
principal debtor and the latter is unable to
pay.
2. Notice to guarantor of the action
guarantor must be notified so that he may
appear, if he so desires, and set up defenses
he may want to offer
a. Guaranty
appears
voluntary
appearance does not constitute a
renunciation of his right to excussion.
b. Guaranty does not appear
Page 211 of 297

i. He cannot set up the defenses
which, by appearing are allowed to
him by law; and
ii. It may no longer be possible for him
to question the validity of the
judgment rendered against the
debtor
3. Hearing before execution can be issued
against the guarantor a guarantor is
entitled to be heard before an execution can
be issued against him where he is not a party
in the case involving his principal.
EFFECTS OF COMPROMISE (2063)
Compromise a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or
put an end to one already commenced.
1. Compromise between creditor and principal
debtor benefits the guarantor but does not
prejudice him.
2. Compromise between guarantor and the
creditor benefits but does not prejudice the
principal debtor.
SUB-GUARANTORS RIGHT TO EXCUSSION
(2064)
Sub-guarantor enjoys the benefit of excussion
with respect to:
1. Principal debtor; and
2. Guarantor
Reason: He stands with respect to the guarantor
on the same footing as the latter does with
respect to the principal debtor
BENEFIT OF DIVISION AMONG SEVERAL

GUARANTORS (2065)
1. In whose favor applicable
a. Several guarantors;
b. Only one debtor;
c. For the same debt
Cannot be availed of if there are:
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are needed
to see thisof
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b. Two or more
debtors
one debt, even
if they be bound solidarily, each with
different guarantors; or
c. Two or more guarantors of the same
debtor but not only for the same debt
d. If any of the circumstances enumerated
in Art. 2059 should take place, as would
the benefit of exhaustion of the debtors
property.
2. Extent of liability of several guarantors

joint obligation: the obligation to answer for
the debt is divided among all of them. The
guarantors are not liable to the creditor
beyond the shares which they are
respectively bound to pay.
Exceptions: When solidarily has been
expressly stipulated
BENEFIT OF EXCUSSION AMONG SEVERAL

GUARANTORS:
In order that the guarantor may be entitled to the
benefit of division, it is not required that he point out
the property of his co-guarantors.
Reason: Obligation of the guarantor with respect to
his co-guarantors is not subsidiary but direct and
does not depend as to its origin on the solvency or
insolvency of the latter.
GUARANTORS RIGHT TO SUBROGATION (2067)

SUBROGATION transfers to the person
subrogated, the credit with all the rights thereto
appertaining either against the debtor or against third
persons, be they guarantors or possessors of
mortgages, subject to stipulation in conventional
subrogation.
1. Accrual, basis, and nature of right right
of subrogation is necessary to enable the
guarantor to enforce the indemnity given in
Art. 2066
a. Arises by operation of law upon
payment by the guarantor
b. It is not a contractual right
c. The guarantor is subrogated, by
virtue of the payment, to the right of
the creditor, not those of the debtor.
2. When right not available since
subrogation is the means of effectuating the
right of the guarantor to be reimbursed. It
cannot therefore be invoked in those
cases where the guarantor has no right to
be reimbursed.
EFFECT OF PAYMENT BY GUARANTOR
WITHOUT NOTICE TO DEBTOR (2068)
If the debtor has already paid the creditor, when the
guarantor pays, the debtor can set up against the
guarantor the defense of previous extinguishments of
the obligation by payment. Hence, guarantor must
notify the debtor before making payment.
Page 212 of 297

Reason: The guarantor cannot be allowed, through
his own fault or negligence to prejudice or impair the
rights or interests of the debtor.
REMEDY TO WHICH THE GUARANTOR

ENTITLED
EFFECT OF PAYMENT BY GUARANTOR BEFORE

MATURITY (2069)
Exceptional remedies:
Debtors obligation with a period demandable

only when the day fixed comes.
1. The guarantor who pays before maturity is
not entitled to reimbursement since there is
no necessity for accelerating payment.
2. A contract of guaranty being subsidiary in
character, the guarantor is not liable for the
debt before it becomes due.
Exception: The debtor will be liable if the
payment was made:
a. With his consent; or
b. Subsequently ratified by him (ratification
may be express or implied)
RIGHT OF GUARANTOR TO PROCEED AGAINST
DEBTOR BEFORE PAYMENT (2071)
GR: Guarantor has no cause of action against the
debtor until after the former has paid the obligation.
Exceptions: 2071 enumerates instances when the
guarantor may proceed against the debtor even
before the payment.
1. When he is sued for the payment;
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 the debt has become demandable, by
reason of the expiration of the period for
payment;
5. After the lapse of 10 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 10 years;
6. If there are reasonable grounds to fear that
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the principal debtor
intends
to abscond;
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7. If the principal debtor is in imminent danger
of becoming insolvent.
Purpose: To enable the guarantor to take measures
for the protection of his interest in view of the
probability that he would be called upon to pay the
debt.
GR: The guarantor cannot demand reimbursement

for indemnity because he has not paid the obligation.
1. To obtain release from the guaranty; or

2. To demand security that shall protect him
from:
a. Any proceedings by the creditor; and
b. Against the insolvency of the debtor.
Guarantors remedies are alternative. He has the
right to choose the action to bring.
SUIT BY GUARANTOR AGAINST CREDITOR

BEFORE PAYMENT
The guarantys or suretys action for release can only
be exercised against the principal debtor and not
against the creditor.
Reason: Release of the guarantor imports an
extinction in the obligation to the creditor; it connotes
therefore, either a remission or novation by
subrogation, and either operation requires the
creditors assent for its validity.
2066 AND 2071 DISTINGUISHED

2066
2071
(Right of Guarantor to
Reimbursement after
Payment)
(Right of Guarantor to
Proceed against Debtor
even before payment)
Provides
for
the
enforcement of the rights
of the guarantor against
the debtor after he has
paid the debt gives a
right of action after
payment
Provides
for
the
protection before he has
paid but after he has
become liable gives a
protective remedy before
payment
Substantive right
Preliminary remedy
Gives a right of action,

which,
without
the
provisions of the other
might be worthless
Remedy given seeks to

obtain from the guarantor
release
from
the
guaranty or to demand a
security that shall protect
him from any proceedings
by the creditor and from
the danger of insolvency
of the debtor.
Page 213 of 297

RECOVERY OF SURETY AGAINST INDEMNITOR
EVEN BEFORE PAYMENT
1. Indemnity agreement for the benefit of
surety indemnity agreement is not for the
benefit of the creditor but for the benefit of
the surety.
2. Indemnity agreement may be against
actual loss as well as liability such
agreement is enforceable and not violative of
any public policy
a. Indemnity against loss indemnitor
will not be liable until the person to be
indemnified makes payment or sustains
loss;
b. Indemnity
against
liability
indemnitors liability arises as soon as

the liability of the person to be
indemnified has arisen without regard to
whether or not he has suffered actual
loss.
Where
the
principal
debtors
are
simultaneously the same persons who
executed the indemnity agreement, the
position occupied by them is that of a
principal debtor and indemnitor at the same,
and their liability being joint and several.
GUARANTOR OF A THIRD PERSON AT REQUEST

OF ANOTHER (2072)
The guarantor who guarantees the debt of an
absentee at the request of another has a right to
claim reimbursement, after satisfying the debt from:
1. The person who requested him to be a
guarantor;
2. The debtor
BETWEEN CO-GUARANTORS
RIGHT TO CONTRIBUTION OF GUARANTOR
WHO PAYS (2073)
Presumption of joint liability
guarantors when there are:
1.
2.
3.
Effect:
share.
of
several
Two or more guarantors;

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Same debtor;TIFFar(Uncompressed)
e needed to see this picture.
Same debt
Each is bound to pay only his proportionate
When Art. 2073 Applicable:

1. When one guarantor has paid the debt to the
creditor;
2. Payment by such guarantor must have been
made:
a. By virtue of a judicial demand; or

b. Because the principal debtor is
insolvent;
3. Guarantor
who
paid
is
seeking
reimbursement from each of his coguarantors the share which is proportionately
owing him.
Effect of Insolvency of Any Guarantor:
Follows the rule on solidary obligations :The
share of the insolvent guarantor shall be borne by the
others including the paying guarantor in the same
joint proportion.
Accrual and Basis of Right:
The right of reimbursement is acquired ipso jure
without need of any prior cession from the creditor by
the guarantor.
DEFENSES AVAILABLE TO CO-GUARANTORS
(2074)
GR: All defenses which the debtor would have
interposed against the creditor.
Exception: Those which cannot be transmitted for
being purely personal to the debtor.
LIABILITY OF SUB-GUARANTOR IN CASE OF
INSOLVENCY OF GUARANTOR (2075)
Sub-guarantor is liable to the co-guarantors in the
same manner as the guarantor whom he guaranteed
in case of the insolvency of the guarantor for whom
he bound himself as sub-guarantor.
CAUSES OF EXTINGUISHMENT OF GUARANTY
(2076) (PL3CN-ARFP)
GR: Guaranty being accessory, it is extinguished
when principal obligation is extinguished, the causes
of which are:
1.
2.
3.
4.
Payment or performance;
Loss of the thing due;
Condonation or remission of the debt;
Confusion or merger of the rights of the
creditor and debtor;
5. Compensation; and
6. Novation
7. Other causes:
a. Annulment;
b. Rescission;
c. Fulfillment of a resolutory condition;
d. Prescription
Exception: The guaranty itself may be directly
extinguished although the principal obligation still
remains such as in the case of the release of the
guarantor made by the creditor.
Page 214 of 297

Material Alteration of Principal Contract any
agreement between the creditor and the principal
debtor which essentially varies the terms of the
principal contract without the consent of the surety,
will release the surety from liability.
Such material alteration would constitute a novation
or change of the principal contract, which is
consequently
extinguished.
Upon
such
extinguishments, the accessory contract to guaranty
is also terminator and the guarantor cannot be held
liable on the new contract to which he has not given
his consent.
When Alteration Material where such change will
have the effect of making the obligation more
onerous.
Imposes a new obligation or added burden on the
party promising; or
1. Takes away some obligation already
imposed, changing the legal effect of the
original contract and not merely the form
thereof.
RELEASE BY CONVEYANCE OF PROPERTY
(2077)
GR: Payment is made in money.
Exception: Any substitute paid in lieu of money
which is accepted by the creditor extinguishes the
obligation and in consequence, the guaranty.
In case of eviction: Eviction revives the principal
obligation but not the guaranty.
Reason: The creditors action against the debtor is
for eviction and this is different from what the
guarantor guaranteed.
RELEASE OF GUARANTOR WITHOUT CONSENT

OF OTHERS (2078)
Effect: The release benefits all to the extent of the
share of the guarantor released.
Reason: A release made by the creditor in favor of
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one of the guarantors
without the
consent of the
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others may prejudice the others should a guarantor
become insolvent.
RELEASE BY EXTENSION OF TERM GRANTED

BY CREDITOR TO DEBTOR (2079)
Release Without Consent of Guarantor: Creditor
grants an extension of time to the debtor without the
consent of the guarantor.
Effect: Guarantor is discharged from his undertaking.

Reason: Necessity of avoiding of prejudice to the
guarantor. The debtor may become insolvent during
the extension, thus depriving the guarantor of his
right to reimbursement.
It is unimportant whether the extension given has
actually proved prejudicial or not to the guarantor or
surety. Nor does it matter for how short a period the
time of payment has been extended.
Extension must be based on some new agreement
between the creditor and the principal debtor by
virtue of which the creditor deprives him of his claim.
1. Where obligation payable in installments:
where a guarantor is liable for different
payments:
GR: An extension of time to one or more will
not affect the liability of the surety for the
others.
Exception: When the unpaid balance has
become automatically due by virtue of an
acceleration clause for failure to pay an
installment.
Effect of exception: The act of the creditor
extending the payment of said installment,
without the guarantors consent, discharges
the guarantor.
Reason: The extension constitutes an
extension of the payment of the whole
amount of the indebtedness
2. Where consent to an extension is waived
in advance by the guarantor: Such waiver
is not contrary to law, nor to public policy
Effect: Amounts to the suretys consent to all
the extensions granted.
RELEASE WHEN GUARANTOR CANNOT BE

SUBROGATED (2080)
If there can be no subrogation because of the fault of
the creditor, the guarantors are thereby released,
even if the guarantors are solidary.
Reason: The act of one cannot prejudice another. It
also avoids collusion between the creditor and the
debtor or a third person.
DEFENSES
AVAILABLE
AGAINST CREDITOR (2081)
TO
GUARANTOR
GR: All defenses, which pertain to the principal

debtor and are inherent in the debt.
Page 215 of 297

Exception: Those, which are purely personal to the
debtor.
LEGAL AND JUDICIAL BONDS

MEANING AND FORM OF BOND (2082)
BOND an undertaking that is sufficiently secured,
and not cash or currency.
Bondsman a surety offered in virtue of a provision
of law or a judicial order.
Qualifications of personal bondsman:
1. He possesses integrity;
2. He has capacity to bind himself;
3. He has sufficient property to answer for
the obligation which he guarantees.
PLEDGE OR MORTGAGE IN LIEU OF BOND
(2083)
Guaranty or suretyship is a personal security.
Pledge or mortgage is a property or real security.
If the person required to give a legal or judicial bond
should not be able to do so, a pledge or mortgage
sufficient to cover the obligation shall be admitted in
lieu thereof.
BONDSMAN NOT ENTITLED TO EXCUSSION
(2084)
A judicial bondsman and the sub-surety are not
entitled to the benefit of excussion.
Reason: They are not mere guarantors, but sureties
whose liability is primary and solidary.
Effect of negligence of creditor: Mere negligence
on the part of the creditor in collecting from the debtor
will not relieve the surety from liability.
SURETYSHIP a relation which exists where one

person (principal) has undertaken an obligation and
another person (surety) is also under a direct and
primary obligation or other duty
to the obligee, who is
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entitled to but one performance,
as between the
two who are bound, the second, rather than the first
should perform.
If a person binds himself solidarily with the principal
debtor, the contract is called suretyship and the
guarantor is called a surety.
NATURE OF SURETYS UNDERTAKING
1. Liability is contractual and accessory but

direct:
2. Liability is limited by terms of contract
3. Liability arises only if principal debtor is
held liable
a. In the absence of collusion, the
surety is bound by a judgment
against the principal event though he
was not a party to the proceedings;
b. The creditor may sue, separately or
together, the principal debtor and the
surety;
c. A demand or notice of default is not
required to fix the suretys liability
Exception: Where required by the
provisions of the contract of
suretyship
d. A surety bond is void where there is
not principal debtor because such an
undertaking presupposes that the
obligation is to be enforceable
against someone else besides the
surety, and the latter can always
claim that it was never his intention
to be the sole person obligated
thereby.
NOTE: Surety is not entitled to exhaustion
4. Undertaking is to creditor, not to debtor:
The surety makes no covenant or agreement
with the principal that it will fulfill the
obligation guaranteed for the benefit of the
principal. The suretys undertaking is that the
principal shall fulfill his obligation and that the
surety shall be relieved of liability when the
obligation secured is performed.
Exception: Unless otherwise expressly
provided.
NOTE: Surety is not entitled to notice of
principals default
5. Prior demand by the creditor upon
principal not required
Surety is not exonerated by neglect of
creditor to sue principal
STRICTISSIMI JURIS RULE APPLICABLE ONLY

TO ACCOMMODATION SURETY
Reason: An accommodation surety acts without
motive of pecuniary gain and hence, should be
protected against unjust pecuniary impoverishment
by imposing on the principal, duties akin to those of a
fiduciary.
Page 216 of 297

This rule will apply only after it has been definitely
ascertained that the contract is one of suretyship or
guaranty.
5.
6.
STRICTISSIMI JURIS RULE NOT APPLICABLE TO

COMPENSATED SURETIES
7.
Reasons:
8.
1. Compensated
corporate
sureties
are
business association organized for the
purpose of assuming classified risks in large
numbers, for profit and on an impersonal
basis.
2. They are secured from all possible loss by
adequate counter-bonds or indemnity
agreements.
3. Such corporations are in fact insurers and in
determining their rights and liabilities, the
rules peculiar to suretyship do not apply.
PROVISIONS COMMON TO PLEDGE AND

MORTGAGE (Art 2085-2123)
ESSENTIAL REQUISITES TO CONTRACTS OF
PLEDGE AND MORTGAGE:
1. constituted to secure the fulfillment of a
principal obligation
2. pledgor or mortgagor be the absolute owner
of the thing pledged or mortgaged
3. the persons constituting the pledge or
mortgage have the free disposal of their
property, and in the absence thereof, that
they be legally authorized for the purpose
4. cannot exist without a valid obligation
5. debtor retains the ownership of the thing
given as a security
6. when the principal obligation becomes due,
the thing in which the pledge or mortgage
consists may be alienated for the payment to
the creditor.
IMPORTANT POINTS
1. future property cannot be pledged or
QuickTime and a
mortgaged TIFF (Uncompressed)
decompressor
are
needed
to see thisby
picture.
2. pledge/mortgage executed
one who is not
the owner of the property pledged or
mortgaged is without legal existence and
registration cannot validate it.
3. mortgage of a conjugal property by one of
the spouses is valid only as to of the entire
property
4. in case of property covered by Torrens title, a
mortgagee has the right to rely upon what
appears in the certificate of title and does not

have to inquire further.
pledgor or mortgagor has free disposal of
property
thing pledged or mortgaged
may be
alienated.
creditor not required to sue to enforce his
credit
pledgor or mortgagor may be third person
PLEDGE
Constituted on movables
Property is delivered to
the pledgee, or by
common consent to a 3rd
person
Not valid against 3rd
persons
unless
a
description of the thing
pledged and the date of
the pledge appear in a
public instrument
MORTGAGE
Constituted
on
immovables
Delivery not necessary
Not valid against 3rd

persons if not registered
RIGHT OF CREDITOR WHERE DEBTOR FAILS TO

COMPLY WITH HIS OBLIGATION
1. creditor is merely entitled to move for the
sale of the thing pledged or mortgaged with
the formalities required by law in order to
collect
2. creditor cannot appropriate to himself the
thing nor can he dispose of the same as
owner.
PROHIBITION AGAINST PACTUM
COMMISSORIUM
1. stipulation is null and void - stipulation
where thing or mortgaged shall automatically
become the property of the creditor in the
event of nonpayment of the debt within the
term fixed
2. Requisites of pactum commissorium:
a. there should be a pledge or
mortgage
b. there should be a stipulation for an
automatic appropriation by the
creditor of the property in the event
of nonpayment
3. Effect on Security Contract
-nullity of the stipulation does not affect
validity and efficacy of the principal contract
Page 217 of 297

IMPORTANT POINTS
1. debtor -owner bears the risk of loss of the
property
2. pledge or mortgage is indivisible
EXCEPTIONS to the rule of indivisibility:
a. where each one of several things
guarantees determinate portion of
credit
b. where only portion of loan was
released
c. where
there
was
failure
of
consideration
3. rule that real property, consisting of several
lots should be sold separately, applies to
sales in execution, and not to foreclosure of
mortgages
4. the mere embodiment of a real estate
mortgage and a chattel mortgage in one
document does not have the effect of fusing
both securities into an indivisible whole
5. contract of pledge or mortgage may secure
all kinds of obligation, be they pure or subject
to a suspensive or resolutory condition
6. a promise to constitute pledge or mortgage
creates no real right, only a personal right
biding upon the parties, only right of action to
compel the fulfillment of the promise but
there is no pledge or mortgage yet
7. under RPC, estafa is committed by a person
who, pretending to be the owner of any real
property, shall convey, sell, encumber or
mortgage the same knowing that the real
property is encumbered shall dispose of the
same as unencumbered. It is essential that
fraud or deceit be practiced upon the vendee
at the time of the sale.
PLEDGE: A contract by virtue of which the debtor
delivers to the creditor or to a third person a movable
or document evidencing incorporeal rights for the
purpose of securing the fulfillment of a principal
obligation with the understanding that when the
obligation is fulfilled, the thing delivered shall be
returned with all its fruits and accessions.
QuickTime and a
KINDS OF PLEDGE: are needed to see this picture.

1. Voluntary or conventional- created by
agreement of the parties
2. Legal- created by operation of law
CHARACTERISTICS OF PLEDGE:
1. real- perfected by delivery
2. accessory- has no independent existence of
its own
3. unilateral- creates obligation solely on the

part of the creditor to return the thing subject
upon the fulfillment of the principal obligation
4. subsidiary- obligation incurred does not
arise until the fulfillment of the principal
obligation
CAUSE OR CONSIDERATION IN PLEDGE
1. principal obligation in so far as the
pledgor is concerned
2. compensation stipulated for the pledge or
mere liberality of the pledgor- if pledgor is
not the debtor
PROVISIONS APPLICABLE ONLY TO PLEDGE
1. transfer of possession to the creditor or to
third person by common agreement is
essential in pledge
- ACTUAL DELIVERY is important
- CONSTRUCTIVE
delivery
or
symbolic delivery of the key to the
warehouse is sufficient to show that
the depositary appointed by common
consent of the parties was legally
placed in possession.
2. all movables within commerce of men may
be pledged as long as susceptible of
possession
3. incorporeal right may be pledged. The
instruments pledged shall be delivered to the
creditor and if negotiable, must be indorsed.
4. pledge shall take effect against 3rd persons
only if the ff appears in a public instrument:
a. description of the thing pledged
b. date of the pledge
5. thing pledged may be alienated by the
pledgor or owner only if with the consent of
the pledgee. Ownership of the thing pledged
is transmitted to the vendee or transferee as
soon as the pledgee consents to the
alienation, butt he latter shall continue in
possession
6. contract of pledge gives right to the creditor
to retain the thing in his possession or in that
of a third person to whim it has been
delivered, until the debt is paid
7. creditor :
a. shall take care of the thing pledged
with the diligence of a good father of
a family
b. has the right to the reimbursement of
the
expenses
made
for
its
preservation is liable for its loss or
deterioration by reason of fraud,
negligence, delay or violation of the
Page 218 of 297

terms of the contract, and not due to
fortuitous event
c. may bring the actions which pertain to
the owner of the thing in order to
recover it from, or defend it against a
3rd person
d. cannot use the thing without the
authority of the owner, and if he
should do so, or misuse the thing, the
owner may ask that it be judicially or
extrajudicially deposited
e. may use the thing if it is necessary for
the preservation of the thing
f. may either claim another thing in
pledge
or
demand
immediate
payment of the principal obligation if
he is deceived on the substance or
quality of the thing
8. pledgee:
a. cannot deposit the thing pledged with
a third person, unless there is a
stipulation authorizing him to do so
b. is responsible for the acts of his
agents or employees with respect to
the thing pledged
c. has no right to use the thing or to
appropriate the fruits without the
authority of the owner
d. may cause public sale of the thing
pledged if, without fault on his part,
there is danger of destruction,
impairment or diminution in value of
the thing. The proceeds of the
auction shall be a security for the
principal obligation.
9. pledgor :
a. has the responsibility for flaws of the
thing pledged.
b. cannot ask for the return of the thing
against the will of the creditor, unless
and until he has paid the debt and its
interest, with expenses in a proper
case
c. is allowed to substitute the thing
which is in danger of destruction or
impairment QuickTime
withoutandany
fault on the
a
decompressor
part TIFF
ofare(Uncompressed)
the
pledgee,
with
another
needed to see this picture.
thing of the same kind and quality
d. may require that
the thing be
deposited with a 3rd person if through
the negligence or willful act of the
pledgee the thing is in danger of
being lost or impaired
EXTINGUISHMENT OF PLEDGE (RRPP3A)

If the thing pledged is returned by the pledgee to
the pledgor or owner, pledge is extinguished.
A statement in writing by the pledgee that he
renounces or abandons the pledge is sufficient to
extinguish. For this purpose, neither the
acceptance by the pledgor o owner, nor the return
of the thing pledged is necessary, the pledgee
becoming a depositary.
If subsequent to the perfection of the pledge, the
thing is in the possession of the pledgor or owner,
there is prima facie presumption that the thing has
been returned by the pledgee.
If the thing is in the possession of 3rd person who
has received it from the pledgor or owner after the
constitution of the pledge, there is prima facie
presumption that the thing has been returned by
the pledgee
Payment of the debt
Sale of the thing pledged at public auction
FORMALITIES REQUIRED IN SALE BY A
CREDITOR IF CREDIT NOT PAID IN DUE TIME:
1. the debt is due and unpaid
2. the sale must be at a public auction
3. there must be notice to the pledgor and
owner, stating the amount due, and
4. the sale must be made with the intervention
of a notary public
EFFECT OF THE SALE OF THE THING PLEDGED
1. extinguishes the principal obligation whether
the price of the sale is more or less than the
amount due
2. if the price is more than amount due, the
debtor is not entitled to the excess unless the
contrary is provided
3. if the price of the sale is less, neither is the
creditor entitled to recover the deficiency.
Contrary stipulation is void.
LEGAL PLEDGES
1. Necessary expenses shall be refunded to
every possessor, but only possessor in good
faith may retain the thing until he has been
reimbursed
Useful expenses shall be refunded only
to the possessor in good faith with the
same right of retention, the person who
has defeated him in the possession
having the option of refunding the
amount of the expenses or of paying the
increase in value which the thing may
have acquired and by reason thereof (art
546)
Page 219 of 297

2. He who has executed work upon a movable
has a right to retain it by way of pledge until
he is paid. (art 1731)
3. The agent may retain the things which are
the objects of agency until the principal
effects the reimbursement and pays the
indemnity. (art 1914)
4. The laborers wages shall be a lien on the
goods manufactured or the work done. (art
1707)
Special
Laws
apply
to
pawnshops
and
establishments which are engaged in making loans
secured by pledges. Provisions of the Civil Code
shall apply subsidiarily.
MORTGAGE
REAL MORTGAGE (Arts. 2124-2131)
It is a contract whereby the debtor secures to the
creditor the fulfillment of a principal obligation,
specially subjecting to such security immovable
property or real rights over immovable property in
case the principal obligation is not complied with at
the time stipulated.
OBJECTS OF REAL MORTGAGE:
1. immovables
2. alienable real rights in accordance with the
laws, imposed upon immovables
* future property cannot be object of
mortgage
IMPORTANT POINTS
1. As a general rule, the mortgagor retains
possession of the property he may deliver
said property to the mortgagee without
altering the nature of the contract of
mortgage.
2. It is not an essential requisite that the
principal of the credit bears interest, or that
the interest as compensation for the use of
the principal and the enjoyment of its fruits be
in the form of a certain percent thereof.
KINDS OF MORTGAGE: QuickTime and a
1. voluntary
2. legal
3. equitable one which, although it lacks the
proper formalities of a mortgage shows the
intention of the parties to make the property
as a security for a debt
(provisions governing equitable mortgage arts 1365, 1450, 1454, 1602, 1603, 1604 and
1607)
ESSENTIAL REQUISITES OF MORTGAGE:

1. constituted to secure the fulfillment of a
principal obligation
2. mortgagor be the absolute owner of the thing
pledged or mortgaged
3. the persons constituting the pledge or
mortgage have the free disposal of their
property, and in the absence thereof, that
they be legally authorized for the purpose
4. cannot exist without a valid obligation
5. when the principal obligation becomes due,
the thing in which the pledge or mortgage
consists may be alienated for the payment to
the creditor.
6. appears in a public document duly recorded
in the Registry of Property to be validly
constituted
LEGAL MORTGAGE: the persons in whose favor
the law establishes a mortgage have on other right
than to demand the execution and the recording of
the document in which the mortgage is formalized.
INCIDENTS OF REGISTRATION OF MORTGAGE
1. Mortgagee entitled to registration of
mortgage as a matter of right
2. Proceedings for registration do not determine
validity of mortgage or its effect
3. Registration is without prejudice to better
right of third parties
4. Mortgage deed once duly registered forms
part of the records for the registration of the
property mortgaged
5. Mortgage by surviving spouse of his/her
undivided share of conjugal property can be
registered
EFFECT OF INVALIDITY OF MORTGAGE ON
PRINCIPAL OBLIGATION
1. principal obligation remains valid
2. mortgage deed remains as evidence of a
personal obligation
EFFECT OF MORTGAGE
1. creates real rights, a lien inseparable from
the property mortgaged, enforceable against
the whole world
2. creates merely an encumbrance
LAWS GOVERNING MORTGAGE
1. New Civil Code
2. PD 1952
3. Revised Administrative Code
4. RA 4882, as regards aliens becoming
mortgages
Page 220 of 297

FORECLOSURE OF MORTGAGE: It is the remedy
available to the mortgagee by which he subjects the
mortgaged property to the satisfaction of the
obligation to secure which the mortgage was given.
KINDS OF FORECLOSURE
1. judicial
2. extrajudicial
Both should be distinguished from execution sale
governed by Rule 39 of the Rules of Court.
Judicial foreclosure
There
is
court
intervention
Decisions are appealable
Order of the court cuts off
all rights of the parties
impleaded
There is equity of
redemption except on
banks which provides for
a right of redemption
Period of redemption
starts from the finality of
the judgment until order
of confirmation
No need for a special
power of attorney in the
contract of mortgage
Extrajudicial
foreclosure
No court intervention
Not appealable, it is
immediately executory
Foreclosure does not cut
off right of all parties
involved
There
is
right
of
redemption
Period to redeem start

from date of registration
of certificate of sale
Special power of attorney
in favor of mortgagee is
needed in the contract
NOTES
A foreclosure sale retroacts to the date of
registration of the mortgage and that a
person who takes a mortgage in good faith
and for valuable consideration, the record
showing clear title to the mortgagor, will be
protected against equitable claims on the title
in favor of third persons of which he had no
actual or constructive notice (St. Dominic
Corporation v. IAC, 151 SCRA 577 [1987])
Mere inadequacy of the price obtained at the
sheriffs sale will notQuickTime
be sufficient
to set aside
and a
the sale unless
the
price
is picture.
so inadequate as
are
needed
to see this
to shock the conscience of the court taking
into consideration the peculiar circumstances
attendant thereto (Sulit v. CA, 268 SCRA
441)
The action to recover a deficiency after
foreclosure prescribes after 10 years from
the time the right of action accrues (Arts
1142 & 1144)
JUDICIAL FORECLOSURE (governed by Rule 68 of

Rules of Court) (B-PACE-PC)
1. May be availed of by bringing an action in the
proper court which has jurisdiction over the
area wherein the real property involved or a
portion thereof is situated
2. If the court finds the complaint to be wellfounded, it shall order the mortgagor to pay
the amount due with interest and other
charges within a period of not less than 90
days nor more than 120 days from the entry
of judgment
3. If the mortgagor fails to pay at time directed,
the court, upon motion, shall order the
property to be sold to the highest bidder at a
public auction.
4. Upon confirmation of the sale by the court,
also upon motion, it shall operate to divest
the rights of all parties to the action and to
vest their rights to the purchaser subject to
such rights of redemption as may be allowed
by law
5. Before the confirmation, the court retains
control of the proceedings; execution on
judgment
6. The proceeds of the sale shall be applied to
the payment of the:
a. costs of the sale;
b. amount due the mortgagee;
c. claims of junior encumbrancers or
persons holding subsequent
mortgages in the order of their priority;
and
d. the balance, if any shall be paid to the
mortgagor
7. Sheriffs
certificate
is
executed,
acknowledged and recorded to complete the
foreclosure
NATURE OF JUDICIAL FORECLOSURE
PROCEEDINGS
1. quasi in rem action
2. foreclosure is only the result or incident of the
failure to pay debt
3. survives death of mortgagor
EXTRAJUDICIAL FORECLOSURE (governed by
Act No, 3135, as amended)
1. express authority to sell is given to the
mortgagee.
2. authority is not extinguished by death of
mortgagor or mortgagee
3. public sale should be made after proper
notice
4. surplus proceeds of foreclosure sale belong
to the mortgagor
Page 221 of 297

5. debtor has the right to redeem the property
sold within 1 year from and after the date of
sale
6. remedy of party aggrieved by foreclosure is a
petition to set aside sale and cancellation of
writ of possession.
2. If the deficiency is embodied in a judgment, it

is referred to as deficiency judgment.
3. Action for recovery of deficiency may be filed
even during redemption period.
4. Action to recover prescribes after 10 years
from the time the right of action accrues
PROCEDURE FOR EXTRAJUDICIAL

FORECLOSURE OF BOTH REAL ESTATE
MORTGAGE UNDER ACT NO. 3135 AND
CHATTEL MORTGAGE UNDER ACT NO. 1508
(A.M. N0. 99-10-05-0; January 15, 2000) (ARC-DINREA)
1. Filing of application before the Executive
Judge through the Clerk of Court
2. Clerk of Court will examine whether the
requirement of the law have been complied
with, that is, whether the notice of sale has
been posted for not less than 20 days in at
least 3 public places of the municipality or
city where the property is situated, and if the
same is worth more than P400.00, that such
notice has been published once a week for at
least 3 consecutive weeks in a newspaper of
general circulation in the city or municipality
3. the certificate of sale must be approved by
the Executive Judge
4. in extrajudicial foreclosure of real mortgages
in different locations covering one
indebtedness, only one filing fee
corresponding to such debt shall be collected
5. the Clerk of Court shall issue certificate of
payment indicating the amount of
indebtedness, the filing fees collected, the
mortgages sought to be foreclosed, the
description of the real estates and their
respective locations
6. the notice of sale shall be published in a
newspaper of general circulation
7. the application shall be raffled among all
sheriffs
8. after the redemption period has expired, the
Clerk of Court shall archive the records
9. no auction sale shall be held unless there are
at least 2 participating bidders, otherwise the
sale shall be postponed
to another date. If on
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(Uncompressed)
decompressor
the new date TIFF
there
shall
not
be at least 2
bidders, the sale shall then proceed. The
names of the bidders shall be reported to the
Sheriff of the Notary Public, who conducted
the sale to the Clerk of Court before the
issuance of the certificate of sale.
NATURE OF POWER OF FORECLOSURE BY

EXTRAJUDICIAL SALE
1. conferred for mortgagees protection
2. an ancillary stipulation
3. a prerogative of the mortgagee
Note: Stipulation of upset price in mortgage contract
is void
RIGHT
OF
MORTGAGEE
TO
RECOVER
DEFICIENCY
1. Mortgagee is entitled to recover deficiency
EFFECT OF INADEQUACY OF PRICE IN

FORECLOSURE SALE
1. Where there is right to redeem
GR: Inadequacy of price is immaterial because
the judgment debtor may redeem the
property
Exception: the price is so inadequate as to
shock the conscience of the
court taking into consideration
the peculiar circumstances
2. Property may be sold for less than its fair
market value upon the theory that the lesser
the price the easier for the owner to redeem
3. The value of the mortgaged property has no
bearing on the bid price at the public auction,
provided that the public auction was regularly
and honestly conducted
WAIVER OF SECURITY BY CREDITOR
1. Mortgagee may waive right to foreclose his
mortgage and maintain a personal action for
recovery of the indebtedness
2. Mortgagee cannot have both remedies
Note: Foreclosure retroacts to the date of registration
of mortgage
STIPULATION OF UPSET PRICE OR TIPO
A stipulation of minimum price at which the property
shall be sold to become operative in the event of a
foreclosure sale at public auction is NULL and VOID
REDEMPTION - It is a transaction by which the
mortgagor reacquires the property which may have
passed under the mortgage or divests the property of
the lien which the mortgage may have created.
KINDS OF REDEMPTION
1. equity of redemption: right of the mortgagor
to redeem the mortgaged property after his
default in the performance of the conditions
of the mortgage but before the sale of the
Page 222 of 297

mortgaged property or confirmation of sale;
applies to judicial foreclosure of real
mortgage and chattel mortgage foreclosure
NOTE: redemption of the banking institutions is
allowed within 1 year from confirmation of sale
2. right of redemption: right of the mortgagor
to redeem the property within a certain period
after it was sold for the satisfaction of the
debt; applies only to extrajudicial foreclosure
of real mortgage
NOTE: the right of redemption, as long as within
the period prescribed, may be exercised
irrespective of whether or not the mortgagee has
subsequently conveyed the property to some
other party (Sta. Ignacia Rural Bank,Inc v. CA,
230 SCRA 513 [1994])
PERIOD OF REDEMPTION
1. extra-judicial (Act No. 3135)
a. natural person 1 year from
registration of the certificate of sale
with Registry of Deeds
b. juridical person same rule as natural
person
c. juridical person (mortgagee is bank)
3 months after foreclosure or before
registration of certificate of
foreclosure whichever is earlier (Sec.
117 of General Banking Law)
2. Judicial before confirmation of the sale by
the court
NOTE: Allowing redemption after the lapse of the
statutory period when the buyer at the
foreclosure sale does not object but even
consents to the redemption, will uphold the policy
of the law which is to aid rather than defeat the
right of redemption (Ramirez v. CA, 219 SCRA
598 [1993])
AMOUNT OF THE REDEMPTION PRICE:
1. Mortgagee is not a bank (Act No. 3135 in
relation to Sec. 28, Rule 39 of Rules of
Court)
a. Purchase price of the property
b. 1% interest per month on the
purchase price
QuickTime and a
(Uncompressed)
decompressor
c. taxes TIFF
paid
and amount
of purchasers
prior lien, if any, with the same rate
of interest computed from the date of
registration of sale, up to the time of
redemption
2. Mortgagee is a bank (GBL 2000)
a. Amount due under the mortgage deed
b. Interest
c. Cost and expenses
NOTE: Redemption price in this case is

reduced by the income received from the
property
ANTICHRESIS (Articles 2132-2139) A contract
whereby the creditor acquires the right to receive the
fruits of an immovable of the debtor, with the
obligation to apply then to the payment of the
interest, if owing, and thereafter to the principal of the
credit (Art 2132)
CHARACTERISTICS
1. Accessory contract it secures the
performance of a principal obligation
2. formal contract it must be in a specified
form to be valid (Art. 2134)
SPECIAL REQUISITES:
1. it can cover only the fruits of an immovable
property
2. delivery of the immovable is necessary for
the creditor to receive the fruits and not that
the contract shall be binding
3. amount of principal and interest must be
specified in writing
4. express agreement that debtor will give
possession of the property to creditor and
that the latter will apply the fruits to the
interest, if any, then to the principal of his
credit
5. NOTE: The obligation to pay interest is not of
the essence of the contract of antichresis;
there being nothing in the Code to show that
antichresis is only applicable to securing the
payment of interest-bearing loans. On the
contrary, antichresis is susceptible of
guaranteeing all kinds of obligations, pure or
conditional
Antichresis
Refers to real property
Perfected by mere
consent
Consensual contract
Antichresis
Property is delivered to
creditor
Creditor acquires only
the right to receive the
fruits of the property,
hence, it does not
produce a real right
Pledge
Refers to personal
property
Perfected by delivery
of the thing pledged
Real contract
Real Mortgage
Debtor usually retains
possession
of
the
property
Creditor does not have
any right to receive the
fruits, but the mortgage
creates a real right
over the property
Page 223 of 297

The creditor, unless
there is stipulation to
the contrary, is obliged
to pay the taxes and
charges
upon
the
estate
It
is
expressly
stipulated
that
the
creditor
given
possession
of
the
property shall apply all
the fruits thereof to the
payment of interest, if
owing, and thereafter
to the principal
Subject matter of both
is real property
The creditor has no

such obligation
There is no such
obligation on part of
mortgagee
OBLIGATIONS OF ANTICHRETIC CREDITOR

(FAT-P)
1. to pay taxes and charges on the estate,
including necessary expenses
NOTE: Creditor may avoid said obligation
by:
a. compelling debtor to reacquire
enjoyment of the property
b. by stipulation to the contrary
2. to apply all the fruits, after receiving
them, to the payment of interest, if
owing, and thereafter to the principal
3. to render an account of the fruits to the
debtor
4. to bear the expenses necessary for its
preservation and repair
REMEDIES OF CREDITOR IN CASE OF NONPAYMENT OF DEBT
1. action for specific performance
2. petition for the sale of the real property as in
a foreclosure of mortgages under Rule 68 of
the Rules of Court
NOTES:
the parties, however, may agree on an
extrajudicial foreclosure in the same
manner as they are allowed in contracts
QuickTime
and a (Tavera v. El
of mortgage
and
pledge
are
needed
to
see
this
picture.
Hogar Filipino, Inc. 68 Phil
712)
a stipulation authorizing the antichretic
creditor to appropriate the property upon
the non-payment of the debt within the
agreed period is void (Art. 2088)
CHATTEL MORTGAGE (Arts. 2140-2141)
It is a contract by virtue of which a personal property

is recorded in the Chattel Mortgage Register as
security for the performance of an obligation.
NOTE: If the movable, instead of being recorded is
delivered to the creditor, it is pledge and not
chattel mortgage.
CHATTEL MORTGAGE
Involves
movable
property
Delivery of the personal
property
is
NOT
necessary
Registration is necessary
for validity
Procedure: Sec 14 of Act
no 1508, as amended
If
the
property
is
foreclosed, the excess
over the amount due
goes to the debtor
Creditor is entitled to
deficiency
from
the
debtor EXCEPT if it is a
security for the purchase
of personal property in
installments
PLEDGE
Involves
movable
property
Delivery of the personal
property is necessary
Registration
is
NOT
necessary for validity
Procedure: Art 2112 of
Civil Code
If the property is sold, the
debtor is not entitled to
the
to
the
excess
UNLESS it is otherwise
agreed or in case of legal
pledge
Creditor is not entitled to
recover
deficiency
notwithstanding
any
stipulation to the contrary
LAWS GOVERNING CHATTEL MORTGAGE

1. Chattel Mortgage Law, Act No. 1508, as
amended
2. Civil Code
3. Revised Administrative Code
4. Revised Penal Code
5. Ship Mortgage Decree of 1978 (PD 1521)
governs mortgage of vessels of domestic
ownership
AFFIDAVIT OF GOOD FAITH - An oath in a contract
of chattel mortgage wherein the parties "severally
swear that the mortgage is made for the purpose of
securing the obligation specified in the conditions
thereof and for no other purposes and that the same
is a just and valid obligation and one not entered into
for the purpose of fraud.
EFFECT OF REGISTRATION
1. creates real rights
2. adds nothing to mortgage
Note: Registration of assignment of mortgage is not
required
Page 224 of 297

RIGHT OF REDEMPTION
1. when the condition of a chattel mortgage is
broken, the ff may redeem:
a. mortgagor;
b. person holding a subsequent
mortgage;
c. subsequent attaching creditor.
2. an attaching creditor who so redeems shall
be subrogated to the rights of the mortgagee
and entitled to foreclose the mortgage in the
same manner that the mortgagee could
foreclose it
3. the redemption is made by paying or
delivering o the mortgagee the amount due
on such mortgage and the costs and
expenses incurred by such breach of
condition before the sale
FORECLOSURE OF CHATTEL MORTGAGE
1. public sale
2. private sale there is nothing illegal, immoral
or against public order in an agreement for
the private sale of the personal properties
covered by chattel mortgage
PERIOD TO FORECLOSE
1. After 30 days from the time of the condition is
broken
2. The 30-day period is the minimum period
after violation of the mortgage condition for
the creditor to cause the sale at public
auction with at least 10 days notice to the
mortgagor and posting of public notice of
time, place, and purpose of such sale, and is
a period of grace for the mortgagor, to
discharge the obligation.
3. After the sale at public auction, the right of
redemption is no longer available to the
mortgagor.
CIVIL ACTION TO RECOVER CREDIT
1. independent action not required
2. mortgage lien deemed abandoned
obtaining a personal judgment
by
RIGHT OF MORTGAGEE TO
RECOVER
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DEFICIENCY
1. where mortgage foreclosed: creditor may
maintain action for deficiency although
Chattel Mortgage Law is silent on this point.
Reason is chattel mortgage is only given as a
security and not as payment of the debt.
2. where mortgage constituted as security
for purchase of personal property payable
in installments: no deficiency judgment can
be asked and any contrary agreement shall

be void
3. where mortgaged property subsequently
attached and sold: mortgagee is entitle to
deficiency judgment in an action for specific
performance
APPLICATION OF PROCEEDS OF SALE
1. costs and expenses of keeping and sale
2. payment of the obligation
3. claims of persons holding subsequent
mortgages in their order
4. balance, if any, shall be paid to the
mortgagor, or person holding under him
CONCURRENCE AND PREFERENCE OF

CREDITS
(Arts. 2236-2251)
CONCURRENCE OF CREDIT: It implies possession

by two or more creditors of equal right or privileges
over the same property or all of the property of a
debtor.
PREFERENCE OF CREDIT: It is the right held by a
creditor to be preferred in the payment of his claim
above other out of the debtors assets.
GENERAL PROVISIONS:
1. the debtor is liable with all his property,
present and future, for the fulfillment of his
obligations, subjects to exemptions provided
by law
- exempt property:
a. present property
1. family home (Arts 152, 153 and 155,
NCC)
2. right to receive support as well as
money or property obtained by such
support shall not be levied upon on
attachment or execution (Art 205,
NCC)
3. Sec 13, Rule 39, Rules of Court
4. Sec 118, the public Land Act,( CA No.
141, as amended)
b. future property
a debtor who obtains a discharge from
his debts on account of insolvency, is
not liable for the unsatisfied claims of
his creditors with said property (Secs.
68 and 69, Insolvency Law, Act No.
1956)
c. property in custodia legis and of public
dominion
Page 225 of 297

2. insolvency shall be governed by the
Insolvency Law (Act No. 1956, as amended)
3. Exemption of conjugal property or absolute
community or property provided that:
a. Partnership or community subsists
b. Obligations of the insolvent spouse
have not redounded to the benefit of
the family
4. if there is co-ownership, and one of the coowners is the insolvent debtor, his undivided
share or interest in the property shall be
possessed by the assignee in insolvency
proceedings because it is part of his assets
5. property held by the insolvent debtor as a
trustee of an express or implied trust, shall
be excluded from the insolvency proceedings
CLASSIFICATION OF CREDITS
1. special preferred credits (Arts 2241 and 2242
of NCC)
a. considered as mortgages or pledges of real
or personal property or liens within the
purview of legal provisions governing
insolvency
b. taxes due to the State shall first be
satisfied
2. ordinary preferred credits (Art 2244) preferred in the order given by law
3. common credits (Art 2245) - credits of any
other kind or class, or by any other right or title
not comprised in Arts 2241-2244 shall enjoy
no preference
ORDER OF PREFERENCE OF CREDIT
1. credits which enjoy preference with respect to
specific movables, exclude all others to the
extent of the value of the personal property to
which the preference refers.
2. if there are 2 or more credits with respect to the
same specific movable property, they shall be
satisfied pro rata, after the payment of duties,
taxes and fees due the State or any subdivision
thereof
3. those credits which enjoy preference in relation to
specific real property or real rights, exclude all
others to the extent of the
value of the immovable
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decompressor
or real right to which
the
preference
refers.
4. if there are 2 or more credits with respect to the
same specific real property or real rights, they
shall be satisfied pro rata, after the payment of
the taxes and assessment of the taxes and
assessments upon the immovable property or
real right.
5. the excess, if any, after the payment of the
credits which enjoy preference with respect to
specific property, real or personal, shall be added
to the free property which the debtor may have,

for the payment of other credits.
6. those credits which do not enjoy any preference
with respect to specific property, and those which
enjoy preference, as to the amount not paid, shall
be satisfied according to the following rules:
order established by Art 2244
common credits referred to in Art 2245 shall
be paid pro rata regardless of dates.
INSOLVENCY LAW
INSOLVENCY state of a person whose liabilities
are more than his assets. It is the inability of a person
to pay his debys as they become due in the ordinary
course of business.
BALANCE SHEET TEST relative condition of a
mans assets and liabilities that the former if all made
immediately available, would not be sufficient to
discharge the latter.
EQUITY TEST a person may be insolvent although
he may be able to pay his debts at some future time
on a settlement and winding up of his affairs.
INSOLVENCY vs. BANKRUPTCY

The only distinction between insolvency and
bankruptcy is a matter of terminology and the source
of the laws relating thereto.
Either a bankruptcy or insolvency statute may
operate to discharge a debt as well as release the
debtor from imprisonment, and either may operate on
the petition of the debtor or that of his creditors.
INSOLVENCY PRIMARILY GOVERNED BY THE CC
Insolvency shall be governed by special laws insofar
as they are not inconsistent with the CC. Insolvency
is thus primarily governed by the CC and subsidiarily
by the Insolvency Law.
The Insolvency Law is intended to cover the entire
subject of insolvency and bankruptcy and must be
treated as a complete body of law upon the subject.
PURPOSES OF INSOLVENCY LAW:
1. To effect an equitable distribution of the
bankrupts property among his creditors; and
2. To benefit the debtor in discharging him from
his liabilities and enabling him to start afresh
with the property set apart to him as exempt.
3. The regulatory and unifying influence of the
law on credit transactions and business
usage throughout the country.
Page 226 of 297

WHAT MAY BE PERMITTED OF A DEBTOR BY

THE INSOLVENCY LAW
1. Petition the court to suspend payments;
2. To be discharged from his debts and
liabilities by voluntary or involuntary
insolvency proceedings.
SUSPENSION OF PAYMENTS 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 respectively fall due.
PURPOSE:
To suspend or delay the payment of debts the
amount of which is not affected although a
postponement is declared.
BASIS:
Probability of the debtors inability to meet his
obligations when they respectively fall due, despite
the fact that he has sufficient assets to cover all his
liabilities.
REQUISITES OF PETITION FOR SUSPENSION OF
PAYMENTS:
1. Petition is filed by a debtor;
2. Possessing sufficient property to cover all his
debts;
3. Foreseeing the impossibility of meeting them
when they respectively fall due; and
4. Petitioning that he be declared in the state of
suspension of payments
RULE ON DOUBLE MAJORITY IN THE MEETING
OF CREDITORS
Majority shall be:
1. Two thirds (2/3) of the creditors voting upon
the same proposition, which
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TIFFleast
(Uncompressed)
2. Represents at
threedecompressor
fifths (3/5) of the
total liabilities of the debtor.
KINDS OF INSOLVENCY:
VOLUNTARY INSOLVENCY an insolvent debtor
owing debts exceeding the amount of P1,000.00 may
apply to be discharged from his debts and liabilities
by petition to the RTC of the province or city in which
he has resided for six months next preceding the
filing of the petition.
DISTINCTIONS BETWEEN SUSPENSION OF

PAYMENTS AND INSOLVENCY
SUSPENSION
INSOLVENCY
OF PAYMENTS
Purpose
Suspend
or Discharge the
delay
the debtor from the
payment
of payment
of
debts
debts
Sufficiency of Debtor
has Debtor does not
property
sufficient
have sufficient
property to pay property to pay
his debts
all his debts
Effect
on Amount
of The
creditors
amount
of indebtedness is receive
less
indebtedness
not affected
than
their
credits, and in
case
where
there
are
preferences,
some creditors
may not receive
any amount at
all
Number
of Number
of In
case
of
creditors
creditors
is involuntary
required
immaterial
insolvency,
three or more
creditors
are
required
EFFECT OF COURT ORDER DECLARING
DEBTOR INSOLVENT (ADCM)
1. All the assets of the debtor not exempt from
execution are taken possession of by the
sheriff until the appointment of a receiver or
assignee.
2. The payment to the debtor of any debts due to
him and the delivery to the debtor or to any
person for him of any property belonging to
him and the transfer of any property by him
are forbidden.
3. All civil proceedings pending against the
insolvent debtor shall be stayed.
4. Mortgages or pledges, attachments or
executions on property of the debtor duly
recorded and not dissolved are not affected
by the order.
INVOLUNTARY INSOLVENCY an adjudication of
insolvency may be made on the petition of three or
more creditors, residents of the Philippines, whose
credits or demands accrued in the Philippines, and
the amount of which credits or demands are in the
aggregate of not less than P1,000.00
Page 227 of 297

DISTINCTIONS
BETWEEN
VOLUNTARY
INSOLVENCY AND INVOLUNTARY INSOLVENCY
Number
creditors
of
VOLUNTARY
INSOLVENCY
One creditor is
sufficient
Who
may
petition the
proceedings
Filed
by
the
insolvent debtor
Acts
of
insolvency
Debtor must not be

guilty of any of the
acts of insolvency
(Sec. 20)
The amount of
indebtedness must
exceed P1,000.00
Amount
debt
of
Posting
bond
of
Bond
is
required
not
Ex
parte
adjudication
An
order
of
adjudication
may
be granted ex parte
Residency
duration to
vest
jurisdiction
in courts
Petition is filed in
the RTC of the
province or city
where the debtor
has resided for six
months
Court issues the
order
of
adjudication
declaring
the
petitioner insolvent
upon the filing of
the
voluntary
petition
Requirement
of hearing
INVOLUNTARY
INSOLVENCY
Three or more
creditors
are
required
Filed by three or
more
creditors
who possess the
qualifications
required by law
Debtor must have
committed one or
more of such acts
of insolvency
Amount must not
be
less
than
P1,000.00
(aggregate)
Petition must be
accompanied by a
bond
An
order
of
adjudication
granted only after
a hearing
Length
of
residence
is
immaterial
The debtor is not

adjudicated
insolvent
until
after hearing of
the case
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ASSIGNEE person
the creditors or
TIFF elected
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appointed by he court to whom an insolvent debtor
makes an assignment of all his property for the
benefit of his creditors.
CREDITORS NOT ENTITLED TO VOTE IN THE

ELECTION OF ASSIGNEE
1. Those who did not file their claims at least
two days prior to the time appointed for such
election
2. Those whose claims are barred by the

statute of limitations
3. Secured creditors unless they surrender their
security or lien to the sheriff or receiver or
unless they shall first have the value of such
security fixed
4. Holders of claims for unliquidated damages
arising out of pure tort.
EFFECTS OF ASSIGNMENT
1. Assignee takes the property in the plight and
conditions that the insolvent held it.
2. Upon appointment, the legal title to all the
property of the insolvent is vested in the
assignee, and the control of the property is
vested in the court.
3. All actions to recover all the estate, debts,
and effects of the insolvent shall be brought
by the assignee and not by the creditors.
4. The assignment shall:
a. Dissolve any attachment levied
within one month next preceding the
commencement
of
insolvency
proceedings;
b. Vacate and set aside judgment
entered in any action commenced
within 30 days immediately prior to
the commencement of insolvency
proceedings;
c. Vacate and set aside execution
issued thereon;
d. Vacate and set aside any judgment
entered by default or consent of the
debtor within 30 days prior to the
commencement
of
insolvency
proceedings
*SERVICEWIDE v. CA (320 SCRA 478 [1999])

ASSIGNMENT OF CREDIT/CONSENT: As provided
in Article 2096 in relation to Article 2141 of the Civil
Code, a thing pledged may be alienated by the
pledgor or owner with the consent of the pledgee.
This provision is in accordance with Act No. 1508
which provides that a mortgagor of personal property
shall not sell or pledge such property, or any part
thereof, mortgaged by him without the consent of the
mortgagee in writing on the back of the mortgage and
on the margin of the record thereof in the office
where such mortgage is recorded.
A mortgage credit may be alienated or
assigned to a third person. Since the assignee of the
credit steps into the shoes of the creditor-mortgagee
Page 228 of 297

to whom the chattel is mortgaged, it follows that the
assignees consent is necessary in order to bind him
of the alienation of the mortgaged thing by the
debtor-mortgagor This is tantamount to a novation.
BOND OF THE ASSIGNEE
After his election, the assignee is required to give a
bond for the faithful performance of his duties.
Purpose:
1. To establish his official character
2. To establish his right to sue in that capacity
The bond is solely for the benefit of the creditors of
the insolvent, and that third persons have no remedy
against the sureties if the assignee, purporting to be
as such, wrongfully takes property from such third
persons and converts it to his own use.
PROPERTIES OF INSOLVENT THAT PASS TO
THE ASSIGNEE: (AFRU)
1. All real and personal property, estate, and
effects of the debtor, including all deeds,
books, and papers in relation thereto;
2. Properties fraudulently conveyed;
3. Right of action for damages to real property
4. The undivided share or interest of the
insolvent debtor in property held under coownership
PROPERTIES OF INSOLVENT THAT DO NOT
PASS TO THE ASSIGNEE; (ET-CMANT)
1. Property exempt from execution;
2. Property held in trust;
3. Property of the conjugal partnership or
absolute community except insofar as the
debtors obligations redounded to the benefit
of the family.
4. Property to which a mortgage or pledge
exists unless the creditor surrenders his
security or lien.
5. After-acquired property except fruits and
income of property owned by the debtor
6. Non-leviable assets like life insurance policy
which do not have any cash surrender value
7. Right of action for tort which is purely
personal in nature.
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POWERS OF THE ASSIGNEE

1. To sue and recover all the estate, debts,
and claims belonging to or due to the debtor;
2. To take into his possession all the estate
of the debtor except property exempt from
execution;
3. In case of non-resident or absconding or
concealed debtor, to demand and receive
4.
5.
6.
7.
8.
of every sheriff all the property and money

in his possession belonging to the debtor.
To sell, upon order of the court, any estate of
the debtor which has come into his
possession;
To redeem all mortgages and pledges and
to satisfy any judgment which may be an
encumbrance on any property sold by him.
To settle all accounts between the debtor
and his debtors subject to the approval of
the court;
To compound, under the order of the court,
with any person indebted to such debtor;
To recover any property fraudulently
conveyed by the debtor.
CREDITORS LIABILITY FOR FRAUDULENTLY

ASSIGNING HIS CREDIT
A creditors transfer or assignment of his credit to
another without the knowledge and at the back of
other creditors of the insolvent may be a shrews
surprise move that enables the transferor creditor to
collect almost if not the entire amount of the said
creditor.
REMEDY OF THE ASSIGNEE: Section 37 of the
Insolvency Law: The creditor coming within this
purview is liable to an action by the assignee for
double the value of the property so embezzled or
disposed of, to be received for the benefit of the
insolvents estate.
Section 37 constitutes a sort of penal clause
which shall be strictly construed.
When Sec. 37 does not apply: Not applicable where
what has been disposed of is the creditors own credit
and not the insolvents property.
DIVIDENDS IN INSOLVENCY
DIVIDENDS IN INSOLVENCY parcel if the fund
arising from the assets of the estate, rightfully allotted
to a creditor entitled 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 order of the court.
CLASSIFICATION AND PREFERENCE OF
CREDITORS
PREFERENCE an exception to the general rule. By
it, one person is given a superior right or claim over
another. Hence, the law on preferences is strictly
construed. (The general rule is that the purpose of
insolvency proceeding is the equitable distribution of
the insolvents assets among the debtors creditors.)
Page 229 of 297

RULES ON ORDER OF DISTRIBUTION

1. The priorities fixed by law govern
2. The claims which are given priority must be
paid in full in the order of their priority,
before the general creditors receive
anything.
3. Creditors
claiming
preference
must
sufficiently establish their credits and their
right to preference to entitle them to such
preference.
ORDER OF DISTRIBUTION (EPPC)
1. Equitable claims under Sec. 48;
2. Preferred claims with respect to specific
movable property and specific immovable
property under Art. 2241 and 2242 of the CC.
3. Preferred claims as to unencumbered
property of the debtor which shall be paid in
the order named in Art. 2244 of the CC.
4. Common or ordinary credits which shall be
paid pro rata regardless of dates under Art.
2245 of the CC.
With reference to specific movable and immovable
property of the debtor, the taxes due the State shall
first be satisfied.
The preferred claims enumerated in Art. 2241 and
2242 are considered as mortgages and pledges of
real or personal property or liens within the purview of
the Insolvency Law.
EQUITABLE CLAIMS UNDER THE INSOLVENCY

LAW (PD-MN-RCW)
Section 48 of the Insolvency Law: Any property
found among the property of the insolvent, the
ownership of which has not been conveyed to him by
legal and irrevocable title, shall not be considered to
be property of the insolvent and shall be placed at the
disposal of its lawful owners, on order of the court on
petition of the assignee or any creditor whose right to
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the estate of the insolvent
has
been
established.
TIFF (Uncompressed)
decompressor
1. Paraphernal property belonging to the wife of

the insolvent;
2. Property held by the insolvent on deposit,
administration, lease, or usufruct;
3. Merchandise held by the debtor on
commission;
4. Negotiable instruments for collection or
remittance;
5. Money held by the debtor for remittance;
6. Amounts due the insolvent for sales or

merchandise on commission;
7. Merchandise bought by the insolvent on
credit where no delivery is made or where
the right of ownership or possession has
been retained by the seller;
8. Goods or chattels wrongfully taken by the
insolvent or the amount of the value thereof.
ALTERNATIVE RIGHTS OF SECURED CREDITOR
1. To maintain his right under his security or lien
and ignore the insolvency proceedings it is
the duty of the assignee to surrender to him
the property encumbered;
2. To waive his right under the security or lien
thereby, share in the distribution of the
assets of the debtor;
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 his credit.
WAIVER release or surrender of the claim to the
receiver, sheriff, or assignee.
THE FOLLOWING
WAIVER:
DO
NOT
CONSTITUTE
1. Mere recommendation that the assignee be

appointed;
2. Voting of a secured claim.
COMPOSITION - 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,
agree to accept a dividend less than the whole
amount of their claims, to be distributed pro rata, in
discharge and satisfaction of the whole debt.
COMPOSITION
ACCORD
Designates
an
arrangement between a
debtor and the whole body
of his creditors (or at least
a considerable portion of
them) for the liquidation of
their claims by the dividend
offered.
An agreement between
a debtor and a single
creditor for a discharge
of the obligation by a
part payment or on
different terms.
REQUIREMENTS FOR
COMPOSITION (FADA)
VALID
OFFER
Page 230 of 297
OF

1. The offer of the terms of composition must be
made after the filing in court of the schedule
of property and submission of his list of
creditors;
2. The offer must be accepted in writing by a
majority of the creditors representing a
majority of the claims which have been
allowed;
3. It must be made after depositing in such
place designated by the court, the
consideration to be paid and the costs of the
proceedings; and
4. The terms of the composition must be
approved or confirmed by the court.
WHEN COURT MAY CONFIRM A COMPOSITION
1. If it is in the best interest of the creditors;
2. The debtor has not been guilty of any of the
acts, or of a failure to perform any of the
duties which would create a bar to his
discharge; and
3. The offer and its acceptance are in good faith
and have not been made or procured in a
manner forbidden by the Act.
EFFECTS OF CONFIRMATION OF COMPOSITION
1. The consideration shall be distributed as the
judge shall direct;
2. The insolvency proceedings shall be
dismissed;
3. The title to the insolvents property shall
revest in him; and
4. The insolvent shall be released from his
debts.
5. The substitution, in a certain sense,
composition for the insolvency proceedings.
6. A lawful composition and its performance by
the insolvent has the same effect of a written
discharge, although no written discharge is
granted.
7. For all legal and practical purposes, the
insolvency ended on the date of the
confirmation of composition and the firm was
restored to its status
quo.andIta reacquired its
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ceased to be in
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custodia legis.
WHEN CONFIRMATION MAY BE SET ASIDE
1. Any time within six months after the
composition has been confirmed;
2. Fraud was practiced in procuring such
composition;
3. Knowledge thereof has come to the petitioner

after the confirmation of such composition.
DISCHARGE - The formal and judicial release of an
insolvent debtor from his debts with the exception of
those expressly reserved by law.
WHEN AN INSOLVENT DEBTOR MAY APPLY

FOR A DISCHARGE
GR: A debtor may apply to the RTC for a discharge
at three months to one year after the adjudication of
insolvency.
Exception: The property of the insolvent has not
been converted into money without his fault, thereby
delaying the distribution of dividends among the
creditors in which case the court may extend the
period.
DEBTS RELEASED BY A DISCHARGE

1. All claims, debts, and liabilities, and demands
set forth in the schedule; and
2. All claims, debts, liabilities and demands
which were or might have been proved
against the estate in insolvency
DEBTS NOT RELEASED BY DISCHARGE (TEDLICS-REST-SEC)
1. Taxes or assessments due the Government;
2. Any debt created by the fraud or
embezzlement of the debtor;
3. Any debt created by the defalcation of the
debtor as a public officer or while acting in a
fiduciary capacity;
4. Debt of any person liable for the same debt,
for or with the insolvent debtor, either as a
partner, joint contractor, indorser, surety or
otherwise;
5. Debts of a corporation (Reason: Corporation
is not granted a discharge)
6. Claim for support (Reason: It will make the
law a means of avoiding the enforcement of
the obligation)
7. Discharged debt but revived by a subsequent
new promise to pay (Reason: Discharge
does not end the moral obligation to pay)
8. Debts which have not been duly scheduled in
time for proof and allowance.
Exception: The creditors had notice or
actual knowledge of the insolvency
proceedings
Page 231 of 297

9. Claims for:
a. Unliquidated damages arising out of
pure tort
b. Secured creditors;
c. Not in existence or not mature at the
time of the discharge;
d. Contingent at the time of the
discharged.
LEGAL EFFECTS OF DISCHARGE
Discharge takes effect from the commencement of
the proceedings in insolvency.
1. Releases the debtor from all claims, debts,
liabilities and demand set forth in the
schedule or which were or might have been
proved against his estate in insolvency.
2. Operates as a discharge of the insolvent and
future acquisitions but permits mortgages
and other lien
3. It is a special defense which may be pleaded
and be a complete bar to all suits brought on
any such debts, claims, liabilities or
demands.
4. It does not operate to release any person
liable for the same debts, for or with the
debtor, either as partner, joint contractor,
indorser, surety, or otherwise.
5. The certificate of discharge is prima facie
evidence of the fact of release, and the
regularity of such discharge.
Remedy of guarantor or surety when debtor
declared judicially insolvent: File a contingent
claim in the insolvency proceeding, if his rights as
such guarantor or surety are not to be barred by the
subsequent discharge of the insolvent debtor from all
his liabilities.
WHEN DISCHARGE MAY BE REVOKED

Discharge may be revoked by the court which
granted it upon petition of any creditor:
1. Whose debt was proved
orandprovable
against
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a
the estate in insolvency,
the ground that
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the discharge was fraudulently obtained;
and provided,
2. The petition is filed within one year after the
date of the discharge.
FRAUDULENT PREFERENCES AND TRANSFERS
TRANSFER includes the sale and every other and
different modes of disposing of or parting with
property, or the possession of property, absolutely or

conditionally, as a payment, pledge, mortgage, gift, or
security.
WHEN PREFERENTIAL
(PCDG)
TRANSFER
EXISTS
1. There must be a parting of the insolvents

property;
2. For the benefit of the creditor;
3. Consequent diminution of the insolvents
estate;
4. With the result that such creditor receives a
greater proportion of his claim than other
creditors of the same class.
GR: A debtor is not prohibited from paying one
creditor in preference to another
Exception: In cases mentioned in the Insolvency
Law
Deposit of money to ones credit on a bank does
not create any preference.
Reason: The estate of the depositor is not
diminished for there is an obligation on the part of the
bank to pay the amount of the deposit as soon as the
depositor may see fit to draw a check against it.
WHEN FRAUDULENT PREFERENCE EXISTS

Fraudulent preference when the debtor procures
any part of his property to be attached, sequestered,
or seized on execution or makes any payment,
pledge, mortgage, assignment, transfer, sale or
conveyance of any part of his property, whether
directly or indirectly, absolutely or conditionally, to
any one under the following circumstances:
1. The debtor is insolvent or in contemplation of
insolvency;
2. The transaction in question is made within 30
days before the filing of a petition by or
against the debtor;
3. It is made with a view to giving preference to
any creditor or person having a claim against
him; and
4. The person receiving a benefit thereby has
reasonable cause to believe:
a. That the debtor is insolvent;
b. That the transfer is made with a view
to prevent his property from coming
to his assignee in insolvency, or to
prevent the same from being
distributed
ratably
among
his
creditors, or to defeat the object of or
any way hinder the operation or
Page 232 of 297

evade the provisions of the
Insolvency Law.
*Date of registration of sale of real property should
determine whether the sale was prohibited by the
Insolvency Law or not.
WHEN PRESUMPTION OF FRAUD EXISTS
1. If such payment, pledge, mortgage,
conveyance, sale, assignment or transfer is
not made in the usual and ordinary course of
business of the debtor; or
2. If such seizure is made under a judgment
which the debtor has confessed or offered to
allow, that fact shall be prima facie evidence
of fraud.
EQUAL EXCHANGE NOT A PREFERENCE
An exchange of securities within the thirty-day period
is not a fraudulent preference under the law, even
when both parties know that the debtor is insolvent,
if:
1. The security given up is a valid one at the
time the exchange;
2. Of equal value with the one received in
exchange.
Reason: Exchange takes nothing away from the
other creditor
Equal value: Not necessary that their value should
be mathematically equal, but it is sufficient if they are
substantially equal.
WHEN FRAUDULENT TRANSFER EXISTS

1. Any
payment,
pledge,
mortgage,
conveyance, sale, assignment, or transfer of
property of whatever character;
2. Made by the insolvent;
3. Within one month before the filing of the
petition in insolvency against him
Exception: Transfer for a valuable pecuniary
consideration in good faith
Effect of fraudulent transfer: Such transfer is VOID
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RIGHT OF ASSIGNEE
TO RECOVER
TIFF (Uncompressed)
decompressorPROPERTY
OR ITS VALUE
The creditors of the insolvent are not authorized to
institute an independent action. In all actions or
proceedings to set aside or nullify fraudulent
preferences or transactions as VOID, the assignee
appears for, and represents the general creditors.
1. Death after the order of adjudication the

proceedings shall be continued and
concluded in like manner and with like
validity and effects as if he had lived.
2. Death before the order of adjudication
the proceedings shall be discontinued.
Remedy: File claims in the proper testate or
intestate proceedings
WHEN RECEIVER MAY BE APPOINTED

Anytime before the election of an assignee, when it
appears by the verified petition of a creditor:
1. That the assets of the insolvent or a
considerable portion thereof have been
pledged, mortgaged, transferred, assigned,
conveyed, or seized on legal process in
violation of Sec. 70;
2. That it is necessary to commence an action
to recover the same;
The receiver shall deliver all the property, assets, or
effects remaining in his hands to the assignee who
shall be substituted for him in all pending actions or
proceedings.
WHEN PETITION MAY BE DISMISSED

At anytime before the appointment of an assignee:
1. Voluntary petition upon the application of
the debtor, if no creditor files written
objections;
2. Involuntary petition
a. Upon the application of the
petitioning creditors; or
b. By written consent of all creditors
filed in court, in which case, the
proceedings may be dismissed at
any time.
After the appointment of an assignee, dismissal is not
allowed without the consent of all parties interested in
or affected thereby.
WHEN APPEAL MAY
SUPREME COURT
BE
TAKEN
TO
THE
From an order granting or refusing:

1. An adjudication in insolvency and in the latter
case, from the order fixing the amount of
costs, expenses, damages, and attorneys
fees allowed the debtor;
2. A creditors claim when the amount in dispute
exceeds P300.00
EFFECT OF DEATH OF INSOLVENT DEBTOR

Page 233 of 297

3. A claim for property not belonging to the
insolvent, presented under Sec. 48 (equitable
claims)
4. Settling an account of an assignee;
5. Setting apart homestead or other property
claimed as exempt from execution.
6. A discharge to the debtor.
2006 JURISPRUDENCE ON SECURITY TRANSACTIONS
Acol v. Philippine Commercial Credit Card
Incorporated, GR No. 135149 (25 July 2006):
[1] Contracts of Adhesion, [2] Obligations and
Contracts on Provisions Against Public Policy.
it was held that the said stipulation is null and void for
being contrary to public policy. Prompt notice by the
cardholder to the credit card company of the loss or
theft of his card should be enough to relieve the
former of any liability occasioned by the unauthorized
use of his stolen card.
Under the said stipulation, Acol could have
theoretically done everything in his power to give
respondent the required written notice, but if the bank
took its time to include the card in its Cancellation
Bulletin, it could still hold Acol liable for whatever
unauthorized transaction incurred during such
intervening period. This is iniquitous and against
public policy under Art. 1306 of the Civil Code. The
court then, strikes down the said provision.
FACTS:
Acol procured from respondent a bankard
credit card and an extension, which he used for
several years. One day, he discovered that it was
missing, and so, on the following day, he called up
the card company and made a report; the
representative spoke to him and told him that his card
would be included in the circular of lost cards.
He called again the day thereafter inquiring
as to what else he must do in connection with the
loss. The representative told him that he should put
the report in writing and submit it, together with his
wifes and daughters extension cards. He then
promptly sent the said letter which the company
received 2 days thereafter. Unfortunately, someone
had already used his credit card (with purchases
amounting to P76,067.28 ) on the date that he called
in the loss and the day thereafter. Acol said that he
would not pay for accounts incurred after the date he
reported the loss, and after investigation and review,
the bank, through its EVP and GM, that it was not
Acol who used his card during the dates in question.
Nonetheless, the bank still decided to collect the said
amounts within 15 days from notice, citing the Terms
and Conditions Governing the Issuance of a Bankard,
provision no. 1 [which basically says that the holder
of the card will still be liable in case of loss, until a
written notice of the loss is given to the bank and
such loss be included in the Cancellation Bulletin].
The bank then filed for collection with the RTC. The
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RTC ruled in favor of Acol;
the and
CAa reversed the
same.
ISSUE:
Whether provision no. 1 in the Terms and
Conditions is binding on Acol, considering that the
contract was one of adhesion.
HELD:
Not binding. In Ermitao v. CA, where a
provision identical to the one at hand was contested,
Citibank v. Spouses Cabamongan and Sons, GR

No. 146918 (02 May 2006):
[1] Simple Loan, [2] Interest Rates, and [3]
Oblicon Concept of Diligence; Diligence Required
on Banks
FACTS:
The spouses Cabamongan [hereinafter
Spouses] opened a foreign currency time deposit
with Citibank, in the amount of $55,216.69 for a term
of 182 days. Prior to the maturity of the said deposit,
a person claiming to be Carmelita Cabamongan [the
wife] pre-terminated the said deposit. Said person
presented a Bank of America Versatele Card, and
ATM Card, and a Mabuhay Credit Card. She filled up
the required documents for pre-termination [from
which a discrepancy in signatures was apparent],
with the assistance of the banks Acct. Officer, who
also interviewed her casually during the said
transaction. She failed to bring the original certificate
of deposit, so the bank had her execute a release
and waiver document in favor of Citibank; the said
document was not notarized on the same day, but
nevertheless, the money was given to the person
withdrawing, with the transaction lasting onlu for 40
minutes.
The person withdrawing left an ID with the
bank, prompting the said bank to call Carmelita at her
listed address. The wife of the Spouses son received
the call and was surprised to hear that Carmelita preterminated the deposit because the Spouses were
then in the US. She immediately called them and
informed them of what happened. Previously,
someone broke into the Spouses home in the US,
where they reported that only a jewelry box went
missing; after the phone call, they discovered that
Page 234 of 297

their passports and bank deposit certificates were
also gone.
Carmelita called Citibank to report the
incident, but the bank relented to refund the said
amount taken for the reason that the said deposit
was pre-terminated and released to one Carmelita
after proper identification. A case was filed by the
Spouses in the RTC, which ruled in their favor. The
CA affirmed the finding of the CA that the Bank was
negligent, hence this appeal.
ISSUES:
1. Whether the decision of the RTC and the CA,
finding respondent bank negligent, is correct.
2. What is the correct interest rate to be charged?
HELD:
Negligence
The Court agrees with the observation of the
CA that Citibank, through the Acct. Officer was
negligent; even with discrepancies in the pictures and
signatures, and the failure to surrender the original of
the certificate of time deposit, the pre-termination was
allowed. Even the waiver document was not
notarized; a procedure meant to protect the bank.
Since banking institutions are impressed with
public interest, the highest degree of diligence is
expected; by nature of its functions, banks are under
the obligation to treat the accounts of its depositors
with meticulous care, always having in mind the
fiduciary nature of their relationship. Citibank is liable
for damages.
12%, regardless if it falls within [1] or [2] from such

finality until satisfaction, with this interim period being
considered a forbearance of money.
In a loan of forbearance of money, the
interest due should be that stipulated in writing, and
in the absence thereof, a rate of 12% / annum
counted from the time of demand.
Thus, the rate of 2.564% shall apply for the
contract period of the deposit [182 days], and the rate
of 12% shall apply from the demand. In the
intervening period [after 182 but before demand], the
interest chargeable shall be interest rate granted by
Citibank, since the time deposit provided for roll over
upon the maturity of the principal and interest.
Damages
Moral damages are also owed under Art.
2220 of the Civil Code, because of the gross
negligence of the banks officer amounting to bad
faith.
Interests Chargeable
The time Article 1980 provides that a contract
between a bank and a depositor shall be governed by
the provisions on simple loans. Thus, the said time
deposit constitutes a simple loan for which, the
interest rate on the actual damages of $55,216.69
should be in accordance with the guidelines set in
Eastern Shipping Lines v. CA:
[1] Obligation breached is a loan or
forbearance of money : (a) stipulated interest, or (b)
12% from time of demand, if no interest is stated.
[2] If the obligation
is not a loan or a
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TIFF an
(Uncompressed)
decompressor
forbearance of money,
interest
on the amount of
damages may be imposed at the discretion of the
court at the rate of 6%. No rate on uniquidated claims
until demand can be established with reasonable
certainty. If demand is certain, it shall run from that
time, if not, from the time of judgment; interest shall
be based on the amount finally adjudged in any case.
[3] Upon finality of the judgment of the court
awarding a sum of money, the legal rate shall be
Page 235 of 297

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ATENEO CENTRAL BAR OPERATIONS 2007

CREDIT TRANSACTIONS include all transactions

Civil Law Summer Reviewer

Interest is usually taken

May involve real

OBLIGATIONS OF THE BAILEE (Arts 1941-1945)

Civil Law Summer Reviewer

bailee because they are not necessary for the

Reason for the presumption: to safeguard

OBLIGATIONS OF THE BAILOR (AD-READ-HA)

2. May demand the thing at will when the contract is

Page 192 of 297

Civil Law Summer Reviewer

e. the bailee suffers damages by reason of

SIMPLE LOAN OR MUTUUM

SIMPLE LOAN OR MUTUUM contract whereby

The relation between

Page 193 of 297

Civil Law Summer Reviewer

Other sources (e.g. sale)

2. Interest accruing from unpaid interest - interest

Page 194 of 297

Civil Law Summer Reviewer

CREATION OF DEPOSIT (Art. 1964)

Upon order of the

DEPOSIT IS GENERALLY GRATUITOUS: (Art.

DEPOSITOR NEED NOT BE THE OWNER OF THE

Page 195 of 297

Civil Law Summer Reviewer

OBLIGATIONS OF THE DEPOSITARY (SRT-CCCULC-RITT-RPT-TL-HR)

Page 196 of 297

Civil Law Summer Reviewer

Exception: When there is a stipulation to the

3. Obligation not to change the way of deposit

6. Obligation not to make use of the things

4. Obligation to collect on the choses in action

7. Liability for loss through fortuitous event (Art.

Civil Law Summer Reviewer

a. Contract of loan deposits in banks are

GR: Each one of the depositors may

16. Obligation to return to the person to whom

Page 198 of 297

Civil Law Summer Reviewer

depositary by reason of the deposit. (see Art.

OBLIGATIONS OF THE DEPOSITOR (PLD)

2. Obligation to pay losses incurred due to

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When hotel-keeper not liable:

In compliance with a legal obligation

SEQUESTRATION OR JUDICIAL DEPOSIT

Civil Law Summer Reviewer

all warehouses, whether public or private,

Application: applies to warehouse receipts issued by

The Issue of Warehouse Receipts

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OBLIGATION AND RIGHTS OF A

BUT a warehouseman may still refuse

PERSONS TO WHOM THE GOODS MUST BE

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1. Failure to stamp duplicate on copies of a