Credit Transactions: Title XI Loan

CREDIT
TRANSACTIONS
Title XI
LOAN
GENERAL PROVISIONS
Art. 1933. By the contract of loan, one of the
parties delivers to another, either something
not consumable so that the latter may use the
same for a certain time and return it, in which
case the contract is called a commodatum; or
money or other consumable thing, upon the
condition that the same amount of the same
kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a
stipulation to pay interest.
In commodatum the bailor retains the
ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
A contract of loan is a real contract
because the delivery of the thing is
necessary for the perfection of the
contract.
A contract of loan is a unilateral contract
because once the subject matter has been
delivered, it creates obligations on the part
of only one of the parties, i.e. the
borrower.
Cause or consideration in a contract of
loan as to the borrower the acquisition of
the thing as to the lender the right to
demand its return or its equivalent
Kinds of Loan
1. commodatum where the
bailor(lender) delivers o the
bailee(borrower) a nonconsummabble
thing so hat the latter may use it for a
certain time and return the identical
thing
!. simple loan or mutuum where the
lender delivers to the borrower money
or other consumable thing upon the
condition that the latter shall pay the
same amount of the same "ind or
quality a thing is consumable when it
is consumed when used in a manner
appropriate to its purpose or nature
Commodatum & utuum distin!uis"ed
1. commodatum ordinarily involves
something not consumable while in
muttum the subject matter is money or
other consumable thing
!. in commodatum ownership of the thing
loaned is retained by the lender while in
muttuum the ownership is passed to the
borrower
#. commodatum is essentially gratuitous
while muttum may be gratuitous or it
may be onerous (e$. %tipulation to pay
interest)
&. in commodatum the borrower must
return the same thing loaned while in
muttum the borrower need only pay the
same amount of the same "ind and
quality
'. commodatum may involve real or
personal property while mutuum refers
only to personal property
(. commodatum is a loan for use while
mutuum is a loan for consumption
). in commodatum the bailor may demand
the return of the thing loaned before the
e$piration of the term in case of urgent
need while in mutuum the lender
maynot demand its return before the
lapse of the term agreed upon
*. in commodatum the loss is suffered by
the bailor since he is the owner while in
mutuum the borrower suffers the loss
Kinds of Commodatum
1. ordinary commodatum
!. prercarium one whereby the bailor
may demand the thing loaned at will
Art. 1934. n accepted promise to deliver
something by way of commodatum or simple
loan is binding upon parties, but the
commodatum or simple loan itself shall not be
perfected until the delivery of the ob!ect of the
contract.
NOTES
1. +elivery is necessary in view of the
purpose of the contract which is the
transfer either the use or ownership of
the thing loaned
!. An accepted promise to ma"e a future
loan is a consensual contract and
therefore binding upon parties but it is
only after delivery will the real contract
of loan arise.
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1
CHAPTER 1
COMMODATUM
SECTION *
Nature of Commodatum

Art. 1935. "he bailee in commodatum
acquires the used of the thing loaned but not
its fruits; if any compensation is to be paid by
him who acquires the use, the contract ceases
to be a commodatum.

NOTES
1. =ommodatum is essentially gratuitous.
!. ;he contract ceases to be a
ccommodatum if any compensation is
to be paid by the borrower who
acquires the use. >n such a case there
arises a lease contract
#. ;he right to use is limited to the thing
loaned but not to its fruits unless there
is a stipulation to the contrary
&. =ommodatum is similar to a donation
in that it confers a benefit to the
recipient
'. ;he purpose of the contract of
ccommodatum must be the use of the
thing loaned. >f the bailee is not
entitled to the use of the thing the
contract may be one of deposit.
Art. 1936. Consumable goods may be the
sub!ect of commodatum if the purpose of the
contract is not the consumption of the ob!ect,
as when it is merely for e#hibition.
Art. 1937. $ovable or immovable property
may be the ob!ect of commodatum.
NOTES
1. >n ccommodatum the subject matter is
generally nonconsumable things
whether real or personal.
!. >f the purpose of the contract is not
for consumption of the object as when
it is merely for e$hibition, consumable
goods may be the subject of
ccommodatum.
Art. 1938. "he bailor in commodatum need not
be the owner of the thing loaned.
NOTES
1. >n ccommodatum the bailor need not be
the owner of the thing loaned since by
the loan, ownership does not pass to
the borrower.
!. A lessee of the thing, or a usufructuary
may lend
#. ;he borrower or bailee himself may not
lend nor lease the thing loaned to him
to a third person
Art. 1939. Commodatum is purely personal in
character. Consequently%
&'( "he death of either the bailor or the bailee
e#tinguishes the contract;
&)( "he bailee can neither lend nor lease the
ob!ect of the contract to a third person.
*owever, the members of the bailee+s
household may make use of the thing
loaned, unless there is a stipulation to the
contrary, or unless the nature of the thing
forbids such use.
NOTES
1. =ommodatum is a purely personal
contract, the lender having in view the
character, credit and conduct of the
borrower.
!. ;he death of either party terminates the
contract unless by stipulation the
commodatum is transmitted to the heirs
or either or both parties
#. ;he use of the thing loaned may e$tend
to the members of the bailee?s
household unless there is a stipulation
contrary or the nature of the thing
forbids it
Art. 1940. stipulation that the bailee may
make use of the fruits of the thing loaned is
valid.
NOTES
1. ;he bailee is entitled only to the use of
the thing loaned and not its fruits.
!. ;he parties may stipulate that the bailee
may also ma"e tuse of the fruits of the
thing. /ut the enjoyment must only be
incidental to the use of the thing for if it
is main cause then the contract is a
usufruct
2
SECTION +
O(li!ations of t"e ,ailee

Art. 1941. "he bailee is obliged to pay for the
ordinary e#penses for the use and preservation
of the thing loaned.
NOTES
1. ;he borrower should defray the
e$penses for the use and preservation
of the thing loaned for after all he
acquires the use of the same and he
is supposed to return the identical
thing
!. ;he borrower must ta"e good care of
the thing with the diligence of a good
father of a family
Art. 1942. "he bailee is liable for the loss of
the thing, even if it should be through a
fortuitous event%
&'( If he devotes the thing to any purpose
different from that for which it has
been loaned;
&)( If he keeps it longer than the period
stipulated, or after the
accomplishment of the use for which
the commodatum has been
constituted;
&,( If the thing loaned has been delivered
with appraisal of its value, unless
there is a stipulation e#emption the
bailee from responsibility in case of a
fortuitous event;
&-( If he lends or leases the thing to a
third person, who is not a member of
his household;
&.( If, being able to save either the thing
borrowed or his own thing, he chose
to save the latter.
NOTES
1. As a general rule the bailee is not
liable for loss or damage due to
fortuitous event.
!. ;he purpose of this provision is to
punish the bailee for his improper acts
although they may not be the
pro$imate cause of the loss
#. 1o 1@ the bailee acts in bad faith
&. 1o !@ bailee incurs delay
'. 1o #@ the law presumes that the
aprties intended that the borrower
shall be liable for the loss of the thing
even if it is due to a fortuitous event
for otherwise they would not have
appraised the thing
(. 1o &@ =commodatum is purely personal
). 1o '@ the baille shows his ingratitude
Art. 1943. "he bailee does not answer for the
deterioration of the thing loaned due only to the
use thereof and without his fault.
NOTES
1. ;he thing borrowed cannot be used
without deterioration due to ordinary
wear and tear. >n the absence of
agreement to the contrary, the
depreciation is borne by the bailor.
!. ;he bailee is liable if he is guilty of fault
or negligence or if he devotes the thing
to any purpose different from that for
which it has been loaned.
Art. 1944. "he bailee cannot retain the thing
loaned on the ground that the bailor owes him
something, even though it may be by reason of
e#penses. *owever, the bailee has a right of
retention for damages mentioned in rticle '/.'.
NOTE
;he borrower has no right to retain the thing
loaned as security for claims he has against
the lender even though they may be by
reason of e$traordinary e$penses, e$cept
under 1A'1 ==.
Art. 1945. 0hen there are two or more bailees
to whom a thing is loaned in the same contract,
they are liable solidarily.
NOTES
1. ;he reason for imposing solidary liability
is to guarantee the efficacy of the rights
of the lender
!. ;he law presumes that the bailor ta"es
into account the personal integrity and
responsibility of all the bailees and that
he would not have constituted the
commodatum if there wer only one
bailee

SECTION -
O(li!ations of t"e ,ailor
Art. 1946. "he bailor cannot demand the return
of the thing loaned till after the e#piration of the
period stipulated, or after the accomplishment of
the use for which the commodatum has been
constituted. *owever, if in the meantime, he
should have urgent need of the thing, he may
demand its return or temporary use.
3
In case of temporary use by the bailor, the
contract of commodatum is suspended while
the thing is in the possession of the bailor.
NOTES
1. ;he primary obligation of the bailor is
to allow the bailee the use of the
thing loaned for the duration of the
period stipulated or until
accomplishment of the purpose for
which the commodatum was
constituted
2. >f the bailor should have an urgent
need of the thing or if the borrower
commits an act of ingratitude the
bailor may demand its return or
temporary use
Art. 1947. "he bailor may demand the thing at
will, and the contractual relation is called a
precarium, in the following cases%
&'( If neither the duration of the contract
nor the use to which the thing loaned
should be devoted, has been stipulated;
or
&)( If the use of the thing is merely
tolerated by the owner.
NOTES
1. 6recarium is a "ind of commodatum
where the bailor may demand the
thing at will. >n either of the two cases
in 1A&) it is presumed that the use of
the thing has been granted subject to
revocation by the bailor at any time.
!. >n ordinary commodatum the bailee
has the right to retain the thing until
the e$piration of the period agreed
upon of the accomplishment of the use
for which the commodatum was
constituted.
Art. 1948. "he bailor may demand the
immediate return of the thing if the bailee
commits any act of ingratitude specified in rt
12..
Art. 765. "he donation may also be revoked at
the instance of the donor, by reason of
ingratitude in the following cases%
&'( If the donee should commit some
offense against the person, the honor or
the property of the donor, or of his wife
or children under his parental authority;
&)( If the donee imputes to the donor any
criminal offense, or any act involving
moral turpitude, even though he should
prove it, unless the crime or the act has
been committed against the donee
himself, his wife or children under his
authority;
&,( If he unduly refuses him support when the
donee is legally or morally bound to give
support to the donor.
NOTES@
1. Bne who has been the subject of
generosity must not turn ungrateful.
<ratitude here is a moral as well as a
legal duty
!. Acts of ingratitude in art )(( are@
a.) purely personal hence the act must
have been committed by the donee C
not by his wife or relatives. As a
general rule it is only the debtor who
can, in the proper case, bring an
action to revo"e on the ground of
ingratitude
b.) e$clusive hence those not
enumerated are deemed e$cluded
#. par 1
a.) offense includes both crimes C non
crimesD no criminal conviction is
required, C proof of the offense, by
mere preponderance of evidence, in
suit for revocation would be sufficient
b.) under parental authority refers to
those children not yet emancipated by
reaching the age of majority, or
marriage or by parental concession, or
by appointment of a general guardian.
&. 6ar !
authority should be understood to refer
to parental authority
'. par #
a.) the law says legally or morally bound
b.) the refusal to support must be undue
or unjustified (hence if there is a just
reason for refusal, there can be no
revocation)
c.) it is understood that the support given
periodically should not e$ceed the
value of the thing donated. ;he
moment this value is reached, the
duty to support also ends. ;here will
really be no more donation that can
be revo"ed.
d.) even if the donor still has relatives
who can adequately support him, it
would seem from the wording C the
intent of the article that once the
donor calls upon him for support, the
donee must give the support he is
bale to. Btherwise there would indeed
be ingratitude.
e.) one ground for revo"ing a donation
propter nuptias is ingratitude as
defined by art )('.
Art. 1949. "he bailor shall refund the
e#traordinary e#penses during the contract for
the preservation of the thing loaned, provided
the bailee brings the same to the knowledge of
4
the bailor before incurring them, e#cept when
they are so urgent that the reply to the
notification cannot be awaited without danger.
If the e#traordinary e#penses arise on the
occasion of the actual use of the thing by the
bailee, even though he acted without fault,
they shall be borne equally by both the bailor
and the bailee, unless there is a stipulation to
the contrary.
NOTES
1. e$traordinary e$penses for the
preservation of the thing are borne by
the bailor for the reason that it is the
bailor who profits by the said
e$penses. >f they are incurred by the
bailee they must be reimbursed
provided the bailee brings the same to
the "nowledge of the bailor before
incurring them
2. e$traordinary e$penses arising on the
occasion of the actual use of the thing
loaned shall be borne by the bailor
and bailee ali"e. the bailee pays one
half because the benefit derived from
the use of the thing loaned to him and
the bailor pays the other half because
he is the owner.
Art. 1950. If, for the purpose of making use of
the thing, the bailee incurs e#penses other than
those referred to in rticles '/-' and '/-/, he
is not entitled to reimbursement.
NOTES
1. all other e$penses other than those
referred to in 1A&1 and 1A&A Efor the
purpose of ma"ing use of the thingF
must be shouldered by the borrower.
2. Brdinary e$penses incurred for the
preservation of the thing are also for
the account of the bailee.
Art. 1951. "he bailor who, knowing the flaws
of the thing loaned, does not advise the bailee
of the same, shall be liable to the latter for the
damages which he may suffer by reason
thereof.
.or t"e article to a##l$@
1. there is a flaw or defect in the thing
loaned
!. the flaw or defect is hidden
#. the bailor is aware thereof
&. he does not advise the bailee of the
same
'. the bailee suffers damages by reason
of said flaw or defect
Art. 1952. "he bailor cannot e#empt himself
from the payment of e#penses or damages by
abandoning the thing to the bailee.
NOTE
;he reason is that the e$penses and
damages may e$ceed the value of the thing
loaned and it would be unfair to allow the
bailor to just abandon the thing instead of
paying for said e$penses and for damages.
CHAPTER 2
SIMPLE LOAN OR MUTUUM
Art. 1953. person who receives a loan of
money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and
quality.
NOTES
1. mutuum where the lender delivers to
the borrower money or other
consumable thing upon the condition
that the latter shall pay the same
amount of the same "ind or quality.
!. the contract of mutuum involves the
return of the equivalent only and not
the identical thing because the borrower
acquires ownership thereof
#. the law uses the word EpayF and not
EreturnF because the consumption of the
thing loaned is the distinguishing
character of the contract of mutuum
from that of commodatum
&. fungible things are those which are
usually dealt with by number, weight or
measure so that any given unit of
portion is treated as the equivalent of
any other unit or portion. (e$. <rain, oil,
sugar)
'. whether the thing is consumable or not
depends upon its nature and whether it
is fungible or not depends upon the
intention of the parties.
Art. 1954. contract whereby one person
transfers the ownership of non3fungible things to
another with the obligation on the part of the
latter to give things of the same kind, quantity,
and quality shall be considered a barter.
NOTES
1. /y the contract of barter or e$change
one of the parties binds himself to give
5
one thing in consideration of the
otherGs promise to give another thing.
!. ;he distinction between mutuum and
barter lies in the subject matter. >n
mutuum it is money or any other
fungible thing. >n barter it is non
fungible thing
#. >n commodatum the bailee is bound to
return the identical thing borrowed
when the time has e$pired or the
purpose has been served. >n barter
the equivalent thing is given in return
for hwat has been received.
&. 2utuum may be gratuitous.
=ommodatum is always gratuitous.
/arter is an onerous contract.
Art. 1955. "he obligation of a person who
borrows money shall be governed by the
provisions of rticles ')-/ and ').4 of this
Code.
If what was loaned is a fungible thing other
than money, the debtor owes another thing of
the same kind, quantity and quality, even if it
should change in value. In case it is impossible
to deliver the same kind, its value at the time
of the perfection of the loan shall be paid.
.orm of Pa$ment
Art 1250. In case an e#traordinary inflation or
deflation of the currency stipulated should
supervene, the value of the currency at the
time of the establishment of the obligation shall
be the basis of payment, unless there is an
agreement to the contrary.
NOTES
1. >n case an e$traordinary
inflation7deflation of the currency
stipulated occurs, the value of the
currency at the time the oblig was
established shall be the basis of
payment, H1-I%% there was an
agreement contrary to this.
!. ;his applies only in
contracts7agreements. I$traordinary
fluctuation means that w7c both
parties couldn?t have foreseen when
oblig was established.
#. +ebts in money are considered debts
of value. Jhen the value of the
money is devaluated due to
unforeseen circumstances, the
doctrine of unforeseen risks can apply.
;he debt shall be revalued acc. to the
principles of good faith C the intent of
the parties.
Art 1251. 5ayment shall be made in the place
designated in the obligation.
NOTES
1. 6ayment shall be made in place
designated in oblig. >f it was not
stipulated C the oblig is to deliver a
determinate thing, payment shall be
made wherever the thing is located.
Btherwise, it shall be made at the
domicile of debtor.
!. >f debtor changes domicile in bad faith
or after delay, he shall shoulder
additional e$penses.
#. ;his applies to obligs to do.
&. Jhen there?s no stipulation C the oblig
concerns delivering a determinate
thing, creditor has the duty to collect
from the debtor by going to the latter?s
domicile. ;he debtor doesn?t incur delay
if the creditor doesn?t ma"e the
collection. 9e also doesn?t shoulder the
e$penses the creditor incurs by going to
his domicile.
'. Art 1!&) doesn?t include creditor?s
e$penses mentioned herein.
Art. 1956. 6o interest shall be due unless it has
been e#pressly stipulated in writing.
7equisites for recovery of interest
'. the payment must e#pressly be stipulated
). the agreement must be in writing
,. the interest must be lawful
NOTES
1. >f the e$act rate of interest is not
mentioned, the legal rate shall be
imposed
!. I$ceptions to the rule@
a. the debtor is liable to pay legal
interest (1!K) as indemnity even in
the absence of stipulation for the
payment of interest
b. interest due shall earn legal interest
from the time it is judicially demanded
although the obligation may be silent
upon this point
Art. 1957. Contracts and stipulations, under any
cloak or device whatever, intended to circumvent
the laws against usury shall be void. "he
borrower may recover in accordance with the
laws on usury.
NOTES
6
1. Hsury is contracting for or receiving
something in e$cess of the amount
allowed by law for the loan or
forbearance of money, goods or
chattels
2. Lorbearance signifies the contractual
obligation of the creditor to forbear or
refrain during a period to require the
debtor payment of an e$isting debt
then due and payable.
3. Jhere there is no loan or forbearance
there is no usury
4. ;he usury law has not been repealed,
it is just suspended.
5. >nterest is the compensation allowed
by law or fi$ed by the parties for the
loan or forbearance of money, goods
or chattels
Kinds of interest
1. %imple interest which is paid for the
principal at a certain rate fi$ed or
stipulated by the parties
2. =ompound >nterest that which is
imposed interest due and unpaid. ;he
accrued interest is added to the
principal sum and the whole is treated
as a new principal upon which the
interest for the ne$t period is
calculated
3. -egal >nterest that which the law
directs to be charged in the absence of
any agreement as to the rate between
the parties.
4. -awful >nterest that which the laws
allow or do not prohibit
5. Hnlawful or Hsurious >nterest paid or
stipulated to be paid beyond the
ma$imum fi$ed by law
Art. 1958. In the determination of the
interest, if it is payable in kind, its value shall
be appraised at the current price of the
products or goods at the time and place of
payment.
NOTE
;he purpose of this article is to ma"e
usury harder to perpetrate
Art. 1959. 0ithout pre!udice to the provisions
of rticle ))'), interest due and unpaid shall
not earn interest. *owever, the contracting
parties may by stipulation capitali8e the
interest due and unpaid, which as added
principal, shall earn new interest.
As a general rule, accrued interest shall
not earn interest e$cept@
1. when judicially demanded as provided in
art !1!!.
!. when there is an e$press stipulation
made by the parties that the interest
due and unpaid shall be added to the
principal obligation and the resulting
total amount shall earn interest
Art. 1960. If the borrower pays interest when
there has been no stipulation therefor, the
provisions of this Code concerning solutio
indebiti, or natural obligations, shall be applied,
as the case may be.
NOTES
1. where unstipulated interest is paid by
mista"e the debot may recover as this
would be a case of solution indebiti or
undue payment
!. where the unstipulated interest is paid
voluntarily because the debtor feels
morally obliged to do so there can be no
recovery as in the case of natural
obligations
Art. 1961. 9surious contracts shall be governed
by the 9sury :aw and other special laws, so far
as they are not inconsistent with this Code.
NOTES
1. usury law fi$ the ceiling of inter#st
rates
!. only suspended by virtue of circular by
central ban"
#. there may still be unconscionable
interest if the court finds it so
&. a floating interest rate is not invalid per
se but there must be a reference point
'. 8equirements for a valid escalation
clause
. increase is provided by law7 resolution
by the monetary board
. there is a corresponding deescalation
clause
. the effectivity of the clause is on or
after the effect of increase ordered on
the ma$imum interest
CASES
REPUBLIC vs. BAGTAS
Jose V. Bagtas borrowed from the Republic of the
Philippies through the Bureau of !imal "dustr# three
bulls$ a Red %idhi with a boo& 'alue of P1(1)6.46( a
Bhagari( of P1(32*.56 ad a %ahiiwal( of P)44.46( for
a period of oe #ear from + ,a# 1-4+ to ) ,a# 1-4- for
breedig purposes sub.ect to a go'ermet charge of
breedig fee of 1*/ of the boo& 'alue of the bulls.
)
0po the e1piratio of the cotract( the borrower
as&ed for a reewal for aother period of oe #ear. the
%ecretar# of !griculture ad 2atural Resources
appro'ed a reewal thereof of ol# oe bull for
aother #ear from + ,a# 1-4- to ) ,a# 1-5* ad
re3uested the retur of the other two.
Jose V. Bagtas wrote to the 4irector of !imal "dustr#
that he would pa# the 'alue of the three bulls. the
4irector of !imal "dustr# ad'ised him that the boo&
'alue of the three bulls could ot be reduced ad that
the# either be retured or their boo& 'alue paid ot
later tha 31 5ctober 1-5*. Jose V. Bagtas failed to
pa# the boo& 'alue of the three bulls or to retur them.
6he %7 held that the cotract was a ot commodatum.
! cotract of commodatum is essetiall# gratuitous. "f
the breedig fee be cosidered a compesatio( the
the cotract would be a lease of the bull.
!d e'e if the cotract be commodatum( still the
appellat is liable( because article 1-42 of the 7i'il
7ode pro'ides that a bailee i a cotract of
commodatum is liable for loss of the thigs( e'e if it
should be through a fortuitous e'et$829 "f he &eeps it
loger tha the period stipulated: 839 "f the thig
loaed has bee deli'ered with appraisal of its 'alue(
uless there is a stipulatio e1emptig the bailee from
resposibilit# i case of a fortuitous e'et. "t was ot
stipulated that i case of loss of the bull due to
fortuitous e'et the late husbad of the appellat
would be e1empt from liabilit#.
DE LOS SANTOS vs. JARRA
Jimeea borrowed ad obtaied from de los %atos
1* first;class carabaos( to be used at the aimal;power
mill of his hacieda( without recompese or
remueratio whate'er for the use thereof( uder the
sole coditio that the# should be retured to the
ower as soo as the wor& at the mill was termiated.
Jimeea( howe'er( did ot retur the carabaos.
4efedat said that it was true that Jimeea as&ed de
los %atos to loa him te carabaos( but that he ol#
obtaied 3 secod;class aimals( which were later
sold b# him to Jimeea.
WON its a contract of sale or commodatum
commodatum!
6he alleged purchase of three carabaos b# Jimeea
from %atos is ot e'ideced b# a# trustworth#
documets such as those of trasfer( or were the
declaratios of witesses preseted b# defedat
affirmig it satisfactor#: it ca ot be cosidered that
Jimeea ol# recei'ed three carabaos o loa( ad
that he afterwards &ept them defiitel# b# 'irtue of the
purchase.
"t ca be cocluded that the carabaos loaed or gi'e
o commodatum to Jimeea were te i umber: that
the#( or at a# rate the si1 sur'i'ig oes( ha'e ot
bee retured to the ower( ad that it is ot true that
the latter sold to the former three carabaos that the
purchaser was alread# usig: therefore( as the said si1
carabaos were ot the propert# of the deceased or of
a# of his descedats( it is the dut# of the
admiistratri1 of the estate to retur them or idemif#
the ower for their 'alue.
MANZANO vs. PEREZ
2ie'es ,a<ao( sister of the petitioer =milia
,a<ao ad predecessor;i;iterest of the herei
pri'ate respodets( borrowed the aforemetioed
propert# as collateral for a pro.ected loa. 6he petitioer
acceded to the re3uest of her sister upo the latter>s
promise that she would retur the propert# immediatel#
upo pa#met of her loa.
Pursuat to their uderstadig( the petitioer e1ecuted
two deeds of co'e#ace for the sale of the residetial
lot o 22 Jauar# 1-)- ad the sale of the house
erected thereo o 2 ?ebruar# 1-)-( both for a
cosideratio of P1.** plus other 'aluables recei'ed b#
her from 2ie'es ,a<ao.
6hese heirs( respodets herei( allegedl# refused to
retur the sub.ect propert# to the petitioer e'e after
the pa#met of their loa with the Rural Ba&.
6he petitioer sought the aulmet of the deeds of sale
ad e1ecutio of a deed of trasfer or reco'e#ace of
the sub.ect propert# i her fa'or.
6he %7 held that the agreemet betwee the parties
was a ot of commodatum but a absolute sale.
Petitioer has preseted o co'icig proof of her
cotiued owership of the sub.ect propert#. 6he facts
alleged b# petitioer i her fa'or are the followig$ 819
she iherited the sub.ect house ad lot from her parets(
with her sibligs wai'ig i her fa'or their claim o'er the
same: 829 the propert# was mortgaged to secure a loa
of P3*(*** ta&e i the ames of 2ie'es ,a<ao
Pere< ad Respodet ,iguel Pere<: 839 upo full
pa#met of the loa( the documets pertaiig to the
house ad lot were retured b# Respodet ?lorecio
Pere< to petitioer: 849 three of the respodets were
sigatories to a documet trasferrig oe half of the
propert# to =milia ,a<ao i cosideratio of the sum
of te thousad pesos( although the trasfer did ot
materiali<e because of the refusal of the other
respodets to sig the documet: ad 859 petitioer
hac&ed the stairs of the sub.ect house( #et o case was
filed agaist her. 6hese matters are ot( howe'er(
co'icig idicators of petitioer>s owership of the
house ad lot. 5 the cotrar#( the# e'e support the
claim of respodets.
Respodets were able to preset two 4eeds of %ale(
which petitioer e1ecuted i fa'or of the former>s
predecessor;i;iterest. Both 4eeds ; for the residetial
lot ad for the house erected thereo ; were each i
cosideratio of P1.** plus other 'aluables. @a'ig
bee otari<ed( the# are presumed to ha'e bee dul#
e1ecuted. !lso( issued i fa'or of respodets>
predecessor;i;iterest the da# after the sale was 6a1
4eclaratio 2o. -5+-( which co'ered the propert#.
" order to cotradict the facts cotaied i a otarial
documet( such as the two Kasulatan ng Bilihang
Tuluyan i this case( as well as the presumptio of
regularit# i the e1ecutio thereof( there must be clear
ad co'icig e'idece that is more tha merel#
prepoderat.
SAURA IMPORT & EXPORT CO., INC. vs. DBP
%aura applied to R?7 8later 4BP9 for a idustrial loa
for the purpose of fiacig the maufacture of .ute
sac&s i 4a'ao. R?7 appro'ed the loa to be secured
b# a first mortgage. !fter se'eral modificatios( R?7
restored the loa with se'eral coditios. But the
egotiatios came to a stadstill sice %aura was ot
able to meet the coditios ad it istead re3uested
R?7 to cacel the mortgage.
!lmost - #ears after the mortgage was cacelled at the
re3uest of %aura( the latter commeced the preset suit
+
for damages( allegig failure of R?7 to compl# with its
obligatio to release the proceeds of the loa applied
for ad appro'ed( thereb# pre'etig the plaitiff from
completig or pa#ig cotractual commitmets it had
etered ito( i coectio with its .ute mill pro.ect.
6R"!A 750R6 ; there was a perfected cotract
betwee the parties ad that the defedat was guilt#
of breach thereof.
WON theres a perfected contract of loan YES !ut
there later "as #$T$%& 'ES(ST%N)E
Be hold that there was ideed a perfected cosesual
cotract 6here was udoubtedl# offer ad acceptace.
"t should be oted that R?7 etertaied the loa
applicatio of %aura o the assumptio that the factor#
to be costructed would utili<e locall# grow raw
materials. @owe'er( %aura was i o positio to
compl# with R?7>s coditios. %o istead of doig so
ad isistig that the loa be released as agreed
upo( %aura as&ed that the mortgage be cacelled.
6he actio thus ta&e b# both parties was i the
ature of ,060!A 4=%"%6!27= C what ,aresa
terms Dmutuo disesoDC which is a mode of
e1tiguishig obligatios. "t is a cocept that deri'es
from the priciple that sice mutual agreemet ca
create a cotract( mutual disagreemet b# the parties
ca cause its e1tiguishmet.
CEBU FINANCIAL v CA
5 !pril 25( 1--1( pri'ate respodet( Vicete !legre(
i'ested with 7"?7 7ebu "teratioal ?iace
7orporatio( fi'e hudred thousad 8P5**(***.**9
pesos( i cash.
Petitioer issued a promissor# ote to mature o ,a#
2)( 1--1. 6he ote for fi'e hudred si1tee thousad(
two hudred thirt#;eight pesos ad si1t#;se'e
ceta'os 8P516(23+.6)9 co'ered pri'ate respodet>s
placemet plus iterest at twet# ad a half 82*.5/9
percet for 32 da#s.
7"?7 issued a chec& for P514(3-*.-4 i fa'or of the
pri'ate respodet as proceeds of his matured
i'estmet plus iterest. 6he 7@=7E was draw from
petitioer>s curret accout( maitaied with the Ba&
of the Philippie "slads 8BP"9.
Pri'ate respodet>s wife deposited the 7@=7E with
Ri<al 7ommercial Ba&ig 7orp. 8R7B79. BP"
dishoored the 7@=7E with the aotatio( that the
D7hec& 8is9 %ub.ect of a "'estigatio.D
BP" too& custod# of the 7@=7E pedig a
i'estigatio of se'eral couterfeit chec&s draw
agaist 7"?7>s aforestated chec&ig accout. BP"
used the chec& to trace the perpetrators of the forger#.
Pri'ate respodet otified 7"?7 of the dishoored
7@=7E ad demaded( o se'eral occasios( that he
be paid i cash. 7"?7 refused the re3uest( ad istead
istructed pri'ate respodet to wait for its ogoig
ba& recociliatio with BP".
Pri'ate respodet( through cousel( made a formal
demad for the pa#met of his moe# mar&et
placemet. " tur( 7"?7 promised to replace the
7@=7E but re3uired a impossible coditio that the
origial must first be surredered.
?ebruar# 25( 1--2( pri'ate respodet !legre filed a
complait for reco'er# of a sum of moe# agaist the
petitioer with the Regioal 6rial 7ourt of ,a&ati.
6he %7 held that !rt 124- of the 77 cocerig
e1tictio of a obligatio applies.
!rt 124- 77 deals with a mode of e1tictio of a
obligatio ad e1pressl# pro'ides for the medium i the
Dpa#met of debts.D "t pro'ides that$
*The payment of de!ts in money shall !e made in the
currency stipulated and if it is not possi!le to deli+er
such currency then in the currency "hich is legal
tender in the ,hilippines-
The deli+ery of promissory notes paya!le to order or
!ills of e.change or other mercantile documents shall
produce the effect of payment only "hen they ha+e
!een cashed or "hen through the fault of the creditor
they ha+e !een impaired-
(n the meantime the action deri+ed from the original
o!ligation shall !e held in a!eyance-*
7osiderig the ature of a moe# mar&et trasactio(
the abo'e;3uoted pro'isio should be applied i the
preset cotro'ers#. !s held i Pere< 's. 7ourt of
!ppeals( a Dmoe# mar&et is a mar&et dealig i
stadardi<ed short;term credit istrumets 8i'ol'ig
large amouts9 where leders ad borrowers do ot deal
directl# with each other but through a middle ma or
dealer i ope mar&et. " a moe# mar&et trasactio(
the i'estor is a leder who loas his moe# to a
borrower through a middlema or dealer.
" the case at bar( the moe# mar&et trasactio
betwee the petitioer ad the pri'ate respodet is i
the ature of a loa. 6he pri'ate respodet accepted
the 7@=7E( istead of re3uirig pa#met i moe#. Fet(
whe he preseted it to R7B7 for ecashmet( as earl#
as Jue 1)( 1--1( the same was dishoored b# o;
acceptace( with BP">s aotatio$ D7hec& 8is9 sub.ect of
a i'estigatio.D
0der these circumstaces( ad after the otice of
dishoor( the holder has a immediate right of recourse
agaist the drawer( ad cose3uetl# could immediatel#
file a actio for the reco'er# of the 'alue of the chec&.
" a loa trasactio( the obligatio to pa# a sum certai
i moe# ma# be paid i moe#( which is the legal
teder or( b# the use of a chec&. ! chec& is ot a legal
teder( ad therefore caot costitute 'alid teder of
pa#met.
CU UNJIENG v MABALACAT SUGAR CO.
6his actio was istituted b# 7u 0.ieg( for the purpose
of reco'erig from ,abalacat a idebtedess
amoutig to more tha P163(**( with iterest( ad to
foreclose a mortgage gi'e b# the debtor to secure the
same( as well as to reco'er stipulated attore#>s fee ad
the sum of P1(2*6( paid b# the plaitiff for isurace
upo the mortgaged propert#( with icidetal relief.
@=A4$ 6here was a mista&e i the computatio of the
iterest( it was e1cessi'e ad should therefore be
reduced.
"t is well settled that( uder article 11*- of the 7i'il 7ode(
as well as uder sectio 5 of the 0sur# Aaw 8!ct 2o.
26559( the parties ma# stipulate that iterest shall be
compouded: ad rests for the computatio of
compoud iterest ca certail# be made mothl#( as
well as 3uarterl#( semiauall#( or auall#. But i the
absece of e1press stipulatio for the accumulatio of
compoud iterest( o iterest ca be collected upo
iterest util the debt is .udiciall# claimed( ad the the
rate at which iterest upo accrued iterest must be
computed is fi1ed at 6 per cet per aum. 6he poit
here ruled is i e1act coformit# with the decisio of this
court i Bachrach Garage ad 6a1icab 7o. +s- Goligco(
where this court held that iterest caot be allowed i
-
the absece of stipulatio( or i default thereof( e1cept
whe the debt is .udiciall# claimed: ad whe the debt
is .udiciall# claimed( the iterest upo the iterest ca
ol# be computed at the rate of 6 per cet per aum.
EASTERN ASSURANCE v CA
67 fi1ed iterest rate at 12/ for a upaid isurace
claim. 7! modified ad fi1ed the rate 6/ from date of
claim util the .udgmet became fial ad e1ecutor#
ad 12/ util from latter date util pa#met. 7! rulig
is based o the rulig i =aster %hippig ' 7! b# the
%7.
%7 agreed wH 7!. Based o 77( award of iterest i
the cocept of actual ad compesator# damages( the
rate of iterest( as well as the accrual thereof( is
imposed( as follows$
a. 5bligatio cosists i the pa#met of a sum of
moe# I iterest due is that stipulated b# the
parties. !bset stipulatio( iterest due shall be
12/.
b. 5bligatio does ot cosist i the pa#met of the
sum of moe# ; iterest imposed at the discretio
of the court at 6/.
c. 4urig iterim period 8from date .udgemet
become fial ad e1ecutor# util satisfactio9 I
iterest due is at 12/( e3ui'alet to forbearace
of credit.
B ad 7 appl# i this case.
LIGUTAN v CA
Petitioers 6olomeo Aiguta ad Aeoidas dela Alaa
obtaied o 11 ,a# 1-+1 a loa i the amout of
P12*(***.** from respodet %ecurit# Ba& ad 6rust
7ompa#.
Petitioers e1ecuted a promissor# ote bidig
themsel'es( .oitl# ad se'erall#( to pa# the sum
borrowed with a iterest of 15.1+-/ per aum upo
maturit# ad to pa# a pealt# of 5/ e'er# moth o
the outstadig pricipal ad iterest i case of
default. " additio( petitioers agreed to pa# 1*/ of
the total amout due b# wa# of attore#Js fees if the
matter were idorsed to a law#er for collectio or if a
suit were istituted to eforce pa#met.
6he obligatio matured o + %eptember 1-+1: the
ba&( howe'er( grated a e1tesio but ol# up util
2- 4ecember 1-+1.
4espite se'eral demads from the ba&( petitioers
failed to settle the debt which( as of 2* ,a# 1-+2(
amouted to P114(416.1*.
5 3* %eptember 1-+2( the ba& set a fial demad
letter to petitioers iformig them that the# had fi'e
da#s withi which to ma&e full pa#met.
%ice petitioers still defaulted o their obligatio( the
ba& filed o 3 2o'ember 1-+2( with the Regioal
6rial 7ourt of ,a&ati( a complait for reco'er# of the
due amout.
" its decisio of ) ,arch 1--6( the appellate court
affirmed the .udgmet of the trial court e1cept o the
matter of the 2/ ser'ice charge which was deleted
pursuat to 7etral Ba& 7ircular 2o. )+3. 2ot full#
satisfied with the decisio of the appellate court( both
parties filed their respecti'e motios for
recosideratio.
Petitioers pra#ed for the reductio of the 5/
stipulated pealt# for beig ucoscioable. 6he
ba&( o the other had( as&ed that the pa#met of
iterest ad pealt# be commeced ot from the date of
filig of complait but from the time of default as so
stipulated i the cotract of the parties.
5 16 2o'ember 1--+( petitioers filed a omibus
motio for recosideratio ad to admit ewl#
disco'ered e'idece(

allegig that while the case was
pedig before the trial court( petitioer 6olomeo Aiguta
ad his wife Bie'eida Aiguta e1ecuted a real estate
mortgage o 1+ Jauar# 1-+4 to secure the e1istig
idebtedess of petitioers Aiguta ad dela Alaa with
the ba&. Petitioers coteded that the e1ecutio of
the real estate mortgage had the effect of o'atig the
cotract betwee them ad the ba&. Petitioers further
a'erred that the mortgage was e1tra.udiciall# foreclosed
o 26 !ugust 1-+6( that the# were ot iformed about it(
ad the ba& did ot credit them with the proceeds of the
sale.
6he %7 held the the subse3uet e1ecutio of the real
estate mortgage as securit# for the e1istig loa would
ot ha'e resulted i the e1tiguishmets of the origial
cotract of loa because of o'atio. ,ortgage is but a
accessor# cotract to secure the loa i the promissor#
ote.
=1ticti'e o'atio re3uires first( a 'alid obligatio:
secod( the agreemet of all the parties to the ew
cotract: third( the e1tiguishmets of the obligatio: ad
fourth the 'alidit# of the ew oe. " order that a
obligatio ma# be e1tiguished b# aother which
substitutes the same( it is imperati'e that it be so
declared i ue3ui'ocal terms( or that the old ad the
ew obligatio be o e'er# poit imcompatible with
each other.
! obligatio to pa# a sum of moe# is ot e1ticti'el#
o'ated b# the ew istrumet which merel# chages
the terms of pa#met or addig compatible co'eats or
where the old cotract is merel# supplemeted b# the
ew oe. Bhe ot e1pressed( icompatibilit# is
re3uired so as to esure that the parties ha'e ideed
iteded such o'atio despite their failure to e1press it
i categorical terms. 6he icompatibilit# should ta&e
place i a# of the essetial elemets of the obligatio$
the .uridical tie from commodatum to lease( from
egotiorum gestio to agec#( from mortgage to
atichresis( from sale to loa: the ob.ect or pricipal
coditios( such as chage of ature of the prestatio: or
the sub.ects such as the substitutio of a debtor or the
subrogatio of the creditor.
RCBC vs. HON. JOSE P. ARRO
Residoro 7hua ad =ri3ue Go( %r. e1ecuted a
comprehesi'e suret# agreemet to guarat# a#
e1istig idebtedess of 4a'ao !gricultural "dustries
7orporatio( and/or to induce the !an0 at any time or
from time to time thereafter to ma0e loans or ad+ances
or to e.tend credit in other manner to or at the re1uest
or for the account of the Borro"er either "ith or "ithout
security and/or to purchase on discount or to ma0e any
loans or ad+ances e+idenced or secured !y any notes
!ills recei+a!les drafts acceptances chec0s or other
e+idences of inde!tedness upon "hich the Borro"er is
or may !ecome lia!le pro+ided that the lia!ility shall not
e.ceed at any one time the aggregate principal sum of
,233T-
! promissor# ote i the amout of P1**6 was issued i
fa'or of R7B7. 6he ote was siged b# Go( i his
persoal capacit# ad i behalf of 4aicor. 6he
1*
promissor# ote was ot full# paid despite repeated
demads: hece( R7B7 filed a complait for a sum of
moe# agaist 4aicor( Go ad 7hua.
7hua claims that he caot be held liable uder the
promissor# ote because it was ol# Go who siged
the same i behalf of 4aicor ad i his ow persoal
capacit#.
R7B7 opposed allegig that b# 'irtue of the e1ecutio
of the comprehesi'e suret# agreemet( 7hua is liable
because said agreemet co'ers ot merel# the
promissor# ote sub.ect of the complait( but is
cotiuig: ad it ecompasses e'er# other
idebtedess the 4aicor ma# icur from time to time
wH R7B7.
WON )hua is lia!le to pay the o!ligation e+idenced !y
the promissory note "hich he did not sign in the light
of the pro+isions of the comprehensi+e surety
agreement 4 YES
6he comprehesi'e suret# agreemet was .oitl#
e1ecuted b# 7hua ad Go( Presidet ad Geeral
,aager( respecti'el# of 4aicor to co'er e1istig as
well as future obligatios which 4aicor ma# icur with
R7B7( sub.ect ol# to the pro'iso that their liabilit#
shall ot e1ceed at a# oe time the aggregate
pricipal sum of P1**6.
6he agreemet was e1ecuted ob'iousl# to iduce
R7B7 to grat a# applicatio for a loa 4aicor ma#
desire to obtai from the ba&. 6he guarat# is a
cotiuig oe which shall remai i full force ad
effect util the ba& is otified of its termiatio.
6he suret# agreemet is a accessor# obligatio(
it beig depedet upo a pricipal oe which( i this
case is the loa obtaied b# 4aicor as e'ideced b# a
promissor# ote.
6he suret# agreemet was e1ecuted to guaratee
future debts which 4aicor ma# icur wH R7B7( as is
legall# allowable uder the !2*53 77.
SEGOVIA vs. DUMATOL
%=G5V"! ad 40,!65A etered ito 3 separate but
idetical cotracts to sell i'ol'ig 3 codomiium
uits( uits )*3( )*4 ad -*4( of the @eart 6ower
7odomiium i Valero %treet( %alcedo Village( ,a&ati
7it#. 6he total cotract price for was P6.*5*,. 6he
parties had a agreed schedule of pa#met.
6he cotracts( which were i stadard form appro'ed
b# the @A0RB( cotaied the followig pro'isios$
!- )ancellation !y the Seller
5-2 . . . . Where less than 6 years of installments
"ere paid the SE&&E7 shall gi+e the B$YE7 a
grace period of 83 days !ut a penalty of 9: per
month shall !e le+ied upon unpaid installments-
...-
5ut of the total cotract price of P6.*5*,( 40,!65A
was able to pa# ol# the amout of P4.5, for the 3
uits. %=G5V"! set a 2otice of Rescissio officiall#
otif#ig 40,!65A that the cotract to sell for 0it
-*4 was beig rescided. Parties agreed that the
actio for rescissio was to be wHdraw ad 4umatol
would pa# the upaid balace but the parties agreed
as to the amout that 4umatol will pa#. %ice( the
settlemet of the outstadig balace of the purchase
price was ot materiali<ed( 40,!65A recei'ed
aother otice of cacellatio. 40,!65A cosiged
wH the @A0RB a amout which it belie'ed to be its
remaiig accoutabilit# to %=G5V"!.
WON there is +alid consignation of payment "hich
;ustified the suspension of the imposition of the 9:
penalty interest pro+ided under the contract NO !ut
9: is considered !y the court to !e unconsciona!le and
"as reduced to 2:
7osigatio to be 'alid ad effecti'e ha'e the ff
re3uisites$
8a9 6eder of pa#met ad refusal to accept without
reaso:
8b9 Pre'ious otice of cosigatio to the persos
iterested i its fulfillmet:
8c9 !fter the deposit or cosigatio has bee
made( the persos iterested shall be otified
thereof.
40,!65A e'er made a# prior teder of pa#met to
%=G5V"! 87osigmet was made to forestall
impedig rescissio9.
6he essetial re3uisites of a 'alid cosigatio must be
complied with full# ad strictl# i accordace with the
law. 6hat these !rticles must be accorded a madator#
costructio is clearl# e'idet ad plai from the 'er#
laguage of the codal pro'isios themsel'es. %ubstatial
compliace is ot eough for that would reder ol#
director# costructio of the law. 6he use of the words
KshallL ad KmustL which are imperati'e( operatig to
impose a dut# which ma# be eforced( positi'el#
idicated that all the essetial re3uisites of a 'alid
cosigatio must be complied with.
6he 3/ pealt# iterest is patetl# ii3uitous ad
ucoscioable as to warrat the e1ercise b# the %7 of
its .udicial discretio. ! close readig of the cotracts to
sell will show that the 3/ pealt# iterest o upaid
istallmets o a mothl# basis would traslate to a
#earl# pealt# iterest of 36/. 6he pa#mets
respodet made would be 'irtuall# wiped out if the 3/
pealt# iterest were imposed o the accout balace.
!d cosiderig that 40,!65A stads to lose the 3
codo uits otwithstadig the fact that it has
substatiall# complied with its cotractual obligatios.
%7 did ot remo'e iterest but reduced it to be more
cosistet with fairess ad e3uit# sice %=G5V"!
remais a upaid seller ad that it has suffered( oe
wa# or aother( from 40,!65A>s o;performace of
its cotractual obligatios. 6he %7 used the authorit#
grated b# !rt. 122- 77( ad as e3uit# dictates( to
reduce the iterest rate.
WON SE<O=(% is entitled to the 8: interest per annum
as damages 4 NO
6here is o legal basis for it. 6he cotracts to sell do ot
pro'ide for a 6/ iterest o the upaid pricipal ad
accumulated pealt# ad iterest charges. 6he iterest
was raised for the first time o appeal as a claim for 12/
iterest which was subse3uetl# reduced to 6/ b# the
@A0RB.
FIRST METRO INVESTMENT CORP vs. ESTE DEL
SOL MOUNTAIN
Jauar# 31( 1-)+( petitioer ?,"7 grated respodet
=ste del %ol a loa of %e'e ,illio 6hree @udred
=ight#;?i'e 6housad ?i'e @udred Pesos
8P)(3+5(5**.**9 to fiace the costructio ad
de'elopmet of the =ste del %ol ,outai Reser'e( a
sportsHresort comple1 pro.ect located at Barrio Pura#(
,otalba( Ri<al.
0der the terms of the Aoa !greemet( the proceeds of
the loa were to be released o staggered basis.
"terest o the loa was pegged at si1tee 816/9
11
percet per aum based o the dimiishig balace.
6he loa was pa#able i thirt#;si1 8369 e3ual ad
cosecuti'e mothl# amorti<atios to commece at
the begiig of the thirteeth moth from the date of
the first release i accordace with the %chedule of
!morti<atio.
" case of default( a acceleratio clause was( amog
others( pro'ided ad the amout due was made
sub.ect to a 2*/ oe;time pealt# o the amout due
ad such amout shall bear iterest at the highest rate
permitted b# law from the date of default util full
pa#met thereof plus li3uidated damages at the rate of
2/ per moth compouded 3uarterl# o the upaid
balace ad accrued iterests together with all the
pealties( fees( e1peses or charges thereo util the
upaid balace is full# paid( plus attore#>s fees
e3ui'alet to twet#;fi'e 825/9 percet of the sum
sought to be reco'ered( which i o case shall be less
tha 6wet# 6housad Pesos 8P2*(***.**9 if the
ser'ices of a law#er were hired.
Respodet =ste del %ol failed to meet the schedule
of repa#met i accordace with a re'ised %chedule of
!morti<atio( it appeared to ha'e icurred a total
obligatio of P12(6)-(63*.-+ per the petitioer>s
%tatemet of !ccout dated Jue 23( 1-+*.
6he %7 held that ullit# of the stipulatio o the
usurious iterest affects the leder>s right to recei'e
bac& the pricipal amout of the loa
"t is a elemetar# rule of cotracts that the laws( i
force at the time the cotract was made ad etered
ito( go'er it.
7etral Ba& 7ircular 2o. -*5 did ot repeal or i a#
wa# amed the 0sur# Aaw but simpl# suspeded the
latter>s effecti'it#. 6he illegalit# of usur# is wholl# the
creature of legislatio. ! 7etral Ba& 7ircular caot
repeal a law. 5l# a law ca repeal aother law. 6hus(
retroacti'e applicatio of a 7etral Ba& 7ircular
caot( ad should ot( be presumed.
6he 0derwritig ad 7osultac# !greemets which
were e1ecuted ad deli'ered cotemporaeousl# with
the Aoa !greemet o Jauar# 31( 1-)+ were
e1acted b# petitioer ?,"7 as essetial coditios for
the grat of the loa. ! apparetl# lawful loa is
usurious whe it is iteded that additioal
compesatio for the loa be disguised b# a
ostesibl# urelated cotract pro'idig for pa#met b#
the borrower for the leder>s ser'ices which are of little
'alue or which are ot i fact to be redered( such as
i the istat case.
" usurious loas( the etire obligatio does ot
become 'oid because of a agreemet for usurious
iterest: the upaid pricipal debt still stads ad
remais 'alid but the stipulatio as to the usurious
iterest is 'oid( cose3uetl#( the debt is to be
cosidered without stipulatio as to the iterest.
" simple loa with stipulatio of usurious iterest( the
prestatio of the debtor to pa# the pricipal debt(
which is the cause of the cotract 8!rticle 135*( 7i'il
7ode9( is ot illegal. 6he illegalit# lies ol# as to the
prestatio to pa# the stipulated iterest: hece( beig
separable( the latter ol# should be deemed 'oid(
sice it is the ol# oe that is illegal.
the ullit# of the stipulatio o the usurious iterest
does ot affect the leder>s right to recei'e bac& the
pricipal amout of the loa. Bith respect to the
debtor( the amout paid as iterest uder a usurious
agreemet is reco'erable b# him( sice the pa#met is
deemed to ha'e bee made uder restrait( rather tha
'olutaril#.
CONSOLIDATED BANK (SOLIDBANK) v CA
7otietal ad Aim obtaied from 7osolidated Ba& a
Aetter of 7redit( which was used to purchase bu&er fuel
oil from Petrophil. ! trust receipt was e1ecuted b#
7otietal( with Aim as sigator#. 0po 7otietalJs
failure to tur o'er the goods co'ered b# the trust
receipts or its proceeds( 7osolidated filed a complait
for sum of moe# with applicatio for prelimiar#
attachmet.
7otietal ad Aim a'erred that the trasactio
betwee them was a simple loa ad ot a trust receipt
trasactio. Aim also deied a# persoal liabilit# i the
sub.ect trasactios.
B52 the trasactio betwee the parties is a trust
receipt trasactio rather tha a simple loa ; A5!2
)olinares +- )%4 "asmuch as the debtor recei'ed the
goods sub.ect of the trust receipt before the trust receipt
itself was etered ito( the trasactio i 3uestio was a
simple loa ad ot a trust receipt agreemet. Prior to
the date of e1ecutio of the trust receipt( owership o'er
the goods was alread# trasferred to the debtor. 6his
situatio is icosistet with what ormall# obtais i a
pure trust receipt trasactio( wherei the goods belog
i owership to the ba& ad are ol# released to the
importer i trust after the loa is grated.
" this case( the deli'er# to 7otietal of the goods
occurred log before the trust receipt itself was
e1ecuted. 6he sub.ect trust receipt was ol# e1ecuted
earl# 2 moths after full deli'er# of the oil was made to
7otietal.
6he dager i characteri<ig a simple loa as a trust
receipt trasactio$ 6he 6rust Receipts Aaw does ot
see& to eforce pa#met of the loa( rather it puishes
the dishoest# ad abuse of cofidece i the hadlig
of moe# or goods to the pre.udice of aother regardless
of whether the latter is the ower.
%imilarl#( 7otietal caot be said to ha'e bee
dishoest i its dealigs with the ba&. 2either has it
bee show that it has e'aded pa#met of its
obligatios. "t egates a# badge of dishoest#( abuse
of cofidece or mishadlig of fuds o the part of
respodet 7orporatio( which are the gra'ame of a
trust receipt 'iolatio. ='idetl#( 7otietal was
re3uired to sig the trust receipt simpl# to facilitate
collectio of the loa.
Aim ad his spouse should ot be persoall# liable uder
the sub.ect trust receipt. 6he trasactios sued upo
were clearl# etered ito b# Aim i his capacit# as
=1ecuti'e Vice Presidet of 7otietal. 7orporate
persoalit# is a shield agaist persoal liabilit# of its
officers.
MENDOZA v CA
4ailo 4. ,edo<a was grated b# respodet
Philippie 2atioal Ba& 8P2B9 a P5**(***.** credit lie
ad a P1(***(***.** Aetter of 7reditH6rust Receipt
8A7H6R9 lie.
" a letter dated Jauar# 3( 1-+* ad siged b# Brach
,aager ?il %. 7arreo Jr.( respodet P2B ad'ised
petitioer ,edo<a that effecti'e 4ecember 1( 1-)-( the
12
ba& raised its iterest rates to 14/ per aum( i lie
with 7etral Ba&>s ,oetar# Board Resolutio 2o.
2126 dated 2o'ember 2-( 1-)-.
5 ,arch -( 1-+1( he wrote a letter to respodet
P2B re3uestig for the restructurig of his past due
accouts ito a fi'e;#ear term loa ad for a
additioal A7H6R lie of P2(***(***.**.
?erado ,aramag( P2B =1ecuti'e Vice;Presidet(
disappro'ed the proposed release of the mortgaged
properties ad reduced the proposed ew A7H6R lie
to 5e ,illio Pesos 8P1(***(***.**9.
Petitioer claimed he was forced to agree to these
chages ad that he was re3uired to submit a ew
formal proposal ad to sig two 829 bla& promissor#
otes.
the sub.ect Promissor# 2otes 2os. 12)H+2 ad 12+H+2
superseded ad o'ated the 3 1-)- promissor# otes
ad the 11 1-)- D!pplicatio ad !greemet for
7ommercial Aetter of 7reditD which the petitioer
e1ecuted i fa'or of respodet P2B.
Pursuat to the escalatio clauses of the sub.ect 2
promissor# otes( the iterest rate o the pricipal
amout i Promissor# 2ote 2o. 12)H+2 was icreased
from 21/ to 2-/ o ,a# 2+( 1-+4( ad to 32/ o
Jul# 3( 1-+4 while the iterest rate o the accrued
iterest per Promissor# 2ote 2o. 12+H+2 was
icreased from 1+/ to 2-/ o ,a# 2+( 1-+4( ad to
32/ o Jul# 3( 1-+4.
Petitioer failed to pa# the sub.ect 2 Promissor# 2otes
2os. 12)H+2 ad 12+H+2 as the# fell due.
Respodet P2B e1tra;.udiciall# foreclosed the real
ad chattel mortgages( ad the mortgaged properties
were sold at public auctio to respodet P2B( as
highest bidder( for a total of P3()-+()1-.5*.
6he %7 held that fi'e;#ear restructurig pla was ot
appro'ed b# respodet P2B.
2owhere i the letters gi'e b# petitioer is there a
categorical statemet that respodet P2B had
appro'ed the petitioerJs proposed fi'e;#ear
restructurig pla. those correspodeces ol# pro'e
that the parties had ot goe be#od the preparatio
stage( which is the period from the start of the
egotiatios util the momet .ust before the
agreemet of the parties.
6he doctrie of promissor# estoppel is a e1ceptio to
the geeral rule that a promise of future coduct does
ot costitute a estoppel. " some .urisdictios( i
order to ma&e out a claim of promissor# estoppel( a
part# bears the burde of establishig the followig
elemets$ 819 a promise reasoabl# e1pected to
iduce actio or forebearace: 829 such promise did i
fact iduce such actio or forebearace( ad 839 the
part# suffered detrimet as a result.
the doctrie of promissor# estoppel presupposes the
e1istece of a promise o the part of oe agaist
whom estoppel is claimed. 6he promise must be plai
ad uambiguous ad sufficietl# specific so that the
Judiciar# ca uderstad the obligatio assumed ad
eforce the promise accordig to its terms.
?or petitioer to claim that respodet P2B is
estopped to de# the fi'e;#ear restructurig pla( he
must first pro'e that respodet P2B had promised to
appro'e the pla i e1chage for the submissio of the
proposal.
o such promise was pro'e( therefore( the doctrie
does ot appl# to the case at bar. ! cause of actio for
promissor# estoppel does ot lie where a alleged oral
promise was coditioal( so that reliace upo it was
ot reasoable. "t does ot operate to create liabilit#
where it does ot otherwise e1ist.
SPS. CATUNGAL vs. HAO
!iaa Galag( leased a 3;store# buildig to BP" for a
period of about 15 #ears. 4urig the e1istece of the
lease( BP" subleased the groud floor of the buildig to
@ao. Galag ad @ao e1ecuted a cotract of lease o
the 2d ad 3rd floors of the buildig. 6he lease was for
4 #ears. %pouses 7atugal bought the propert# from
Galag. 6he lease agreemet betwee BP" ad Galag
e1pired. 0po e1piratio of the lease agreemets( the
spouses set demad letters to @ao for her to 'acate the
buildig. 6he demad letters were uheeded b# @ao
causig the spouses to file two complaits for e.ectmet.
R67 ruled i fa'or of the spouses ad ordered @ao to
pa# upaid ret.
WON the spouses are entitled to interest for the unpaid
rent 4 YES
" =aster %hippig Aies( "c. 's. 7!( %7 ga'e the
followig guidelies i the award of iterest$
...
(( With regard particularly to an a"ard of interest in
the concept of actual and compensatory damages
the rate of interest as "ell as the accrual thereof is
imposed as follo"s>
2-When the o!ligation is !reached and it consists in
the payment of a sum of money i-e- a loan or
for!earance of money the interest due should !e that
"hich may ha+e !een stipulated in "riting-
?urthermore the interest due shall itself earn legal
interest from the time it is ;udicially demanded- (n the
a!sence of stipulation the rate of interest shall !e
26: per annum to !e computed from default i-e-
from ;udicial or e.tra;udicial demand under and
su!;ect to the pro+isions of %rticle 228@ of the )i+il
)ode-
6he bac& retals i this case beig e3ui'alet to a loa
or forbearace of moe#( the iterest due thereo i
twel'e percet 812/9 per aum from the time of e1tra;
.udicial demad o %eptember 2)( 1-++.
TAN vs. CA
!toio 6a obtaied 2 loas from 77P e'ideced b# 2
promissor# otes. 6a defaulted but after a few partial
pa#mets he had the loas restructured b# 77P( ad
6a accordigl# e1ecuted a promissor# ote pa#able i
fi'e 859 istallmets. 6a failed to pa# a# istallmet o
the said restructured loa.
@=A4$ 6here are cotractual ad legal bases for the
impositio of the pealt#( iterest o the pealt# ad
attore#Js fees ad that iterest ma# accrue o the
pealt# or compesator# iterest without 'iolatig the
pro'isios of !rticle 1-5- of the 2ew 7i'il 7ode.
!rticle 1226. (n o!ligations "ith a penal clause the
penalty shall su!stitute the indemnity for damages
and the payment of interests in case of non4
compliance if there is no stipulation to the contrary-
Ne+ertheless damages shall !e paid if the o!ligor
refuses to pay the penalty or is guilty of fraud in the
fulfillment of the o!ligation-
6he promissor# ote e1pressl# pro'ides for the
impositio of both iterest ad pealties i case of
13
default o the part of the petitioer i the pa#met of
the sub.ect restructured loa. 6he 14/ per aum
iterest charge util full pa#met of the loa
costitutes the moetar# iterest o the ote ad is
allowed uder !rticle 1-56 of the 2ew 7i'il 7ode. 6he
2/ per moth pealt# is i the form of pealt# charge
which is separate ad distict from the moetar#
iterest o the pricipal of the loa.
"f the parties stipulate this &id of agreemet( the
pealt# does ot iclude the moetar# iterest( ad as
such the two are differet ad distict from each other
ad ma# be demaded separatel#.
6he pealt# charge of two percet 82/9 per moth i
the case at bar bega to accrue from the time of
default b# the petitioer. 6here is o doubt that the
petitioer is liable for both the stipulated moetar#
iterest ad the stipulated pealt# charge. 6he pealt#
charge is also called pealt# or compesator# iterest.
6here appears to be a .ustificatio for a reductio of
the pealt# charge. "asmuch as petitioer has made
partial pa#mets which showed his good faith( a
reductio of the pealt# charge to 2/ per moth o
the total amout due( compouded mothl#( util paid
ca ideed be .ustified uder the said pro'isio of
!rticle 122- of the 2ew 7i'il 7ode.
Petitioer coteds the cotiued mothl# accrual of
the 2/ pealt# charge o the total amout due to be
ucoscioable iasmuch as the same appeared to
ha'e bee compouded mothl#. 7osiderig
petitioerJs se'eral partial pa#mets ad the fact he is
liable uder the ote for the 2/ pealt# charge per
moth o the total amout due( compouded mothl#(
for 21 #ears sice his default i 1-+*( we fid it fair
ad e3uitable to reduce the pealt# charge to a
straight 12/ per aum o the total amout.

DEPOSIT

C/APTER *
DEPOSIT IN GENERAL AND ITS
DI..ERENT KINDS

*01+2 deposit is constituted from the
moment a person receives a thing belonging to
another, with the obligation of safely keeping it
and of returning the same. If the safekeeping
of the thing delivered is not the principal
purpose of the contract, there is no deposit but
some other contract.
NOTES
1.C"aracteristics of a De#osit3
a.) 8eal li"e commodatum C
mutuumD bec it?s perfected by the
delivery of the subj matter.
b.) unilateral if it?s gratuitousD bec
only the depositary has an oblig.
c.) /ilateral if it?s for a
compensationD bec it gives rise to
obligs on both the depositary C the
depositor.
!.Princi#al Pur#ose@ %afe"eeping of the
thing delivered. (;his is why if it?s only
an accessory or secondary oblig of the
recipient, deposit is not constituted but
some other contract).
#.;he depositary cannot ma"e use of the
thing deposited e$cept only in the !
instances mentioned in 1A)) ==.
&.De#osit '2 utuum
6urpose %afe"eeping
or mere
custody
=onsumpti
on of the
%ubj
2atter
+emandability +epositor
can demand
the return
of the subj
matter at
will
-ender
must wait
until the
e$piration
of the
period
granted to
the debtor
Bbject 2ay be
both
movable C
immovable
property
Bnly
money C
other
fungible
thing
'.De#osit '2 Commodatum
6urpose %afe"eeping ;ransfer of
the Hse
8emunerat
ion
2ay be
gratuitous
Issentially
C always
gratuitous
Bbject >n
e$trajudicial
deposit, only
movable
things may be
the object
/oth
movable C
immovable
property
may be the
object
*01-. n agreement to constitute a deposit is
binding, but the deposit itself is not perfected
until the delivery of the thing.
NOTES
1. /ec a deposit is a real contract, it is
perfected only upon delivery of the obj
of the contract.
!. Jhere there is no delivery, there is
merely an agreement to deposit w7c,
however, is binding C enforceable upon
the parties.
#. 9ence, a contract of future deposit is
consensual (see 1A#& ==).
*014. deposit may be constituted !udicially or
e#tra!udicially.
NOTES
14
1. A deposit may be created by virtue of
a court order or by law C not by the
will of the parties.
2. >n deposit, it is essential that the
depositary is not the owner of the
property deposited (see 1A(!).
3. Kinds of De#osit
a.) judicial ta"es place when an
attachment or sei3ure of property in
litigation is ordered
b.) e$trajudicial
1.) voluntary where the delivery
is made by the will of the
depositor or by ! or more
persons each of whom believes
himself entitled to the thing
deposited
!.) necessary made in compliance
w7 a legal oblig, or on the
occasion of any calamity, or by
travelers in hotels C inns, or by
travelers w7 common carriers.
*015. deposit is a gratuitous contract,
e#cept when there is an agreement to the
contrary, or unless the depositary is engaged in
the business of storing goods.
NOTES
I$ceptions@
a.) where there is contrary stipulation
b.) where depositary engaged in the
business of storing goods
c.) where property saved from destruction
w7o "nowledge of the owner
1966. ;nly movable things may be the ob!ect
of a deposit.
NOTES
1. Bnly movable7personal property may
be the obj of e$trajudicial deposit,
whether voluntary or necessary.
!. 4udicial deposit may cover movable as
well as immovable property, its
purpose being to protect the rights of
the parties to a suit.
#. ;his provision does not embrace
incorporeal or intangible property, li"e
rights C actions.
*016. n e#tra!udicial deposit is either
voluntary or necessary.
NOTES
1. +eposit is generally voluntary. >t
becomes necessary in the # cases in
1AA( C 1AA* ==.
!. ;he deposit of goods made by
travelers7passengers w7 common
carriers may also be regarded as
necessary.
CHAPTER 2
VOLUNTARY DEPOSIT

SECTION *
General Pro'isions
*017. voluntary deposit is that wherein the
delivery is made by the will of the depositor.
deposit may also be made by two or more
persons each of whom believes himself entitled
to the thing deposited with a third person, who
shall deliver it in a proper case to the one to
whom it belongs.
NOTES
1. Brdinarily, there are only ! persons
involved. %ometimes, however, the
depositary may be a #
rd
person.
!. ;he main difference btw a voluntary
deposit C a necessary deposit is that in
voluntary deposit, the depositor has
complete freedom in choosing the
depositary, whereas in the latter, there
is lac" of free choice in the depositor.
#. ;he depositor need not be the owner of
the thing.
&. ! or more persons, each claiming to be
entitled to the thing, may deposit it w7 a
#
rd
person who assumes the oblig to
deliver to the one to whom it belongs.
9ere 1 one the depositors is not the
owner.
*010. contract of deposit may be entered into
orally or in writing.
*068. If a person having capacity to contract
accepts a deposit made by one who is
incapacitated, the former shall be sub!ect to all
the obligations of a depositary, and may be
compelled to return the thing by the guardian, or
administrator, of the person who made the
deposit, or by the latter himself if he should
acquire capacity.
NOTE
Hnder the law, persons who are capable
cannot allege the incapacity of those w7
whom they contract (see 1#A) ==).
15
*06*. If the deposit has been made by a
capacitated person with another who is not, the
depositor shall only have an action to recover
the thing deposited while it is still in the
possession of the depositary, or to compel the
latter to pay him the amount by which he may
have enriched or benefited himself with the
thing or its price. *owever, if a third person
who acquired the thing acted in bad faith, the
depositor may bring an action against him for
its recovery.
NOTES
1. ;he incapacitated depositary does not
incur the oblig of a depositary
!. 9BJI:I8, he is liable to@
a.) return the thing deposited while
still in his possession
b.) pay the depositor the amnt by w7c
he may have benefited himself w7
the thing or its price, subj to the
right of any #
rd
person who
acquired the thing.
SECTION +
O(li!ations of t"e De#ositar$
*06+. "he depositary is obliged to keep the
thing safely and to return it, when required, to
the depositor, or to his heirs and successors, or
to the person who may have been designated
in the contract. *is responsibility, with regard
to the safekeeping and the loss of the thing,
shall be governed by the provisions of "itle I of
this Book.
If the deposit is gratuitous, this fact shall be
taken into account in determining the degree of
care that the depositary must observe.
NOTES
1. ;he safe"eeping C the return of the
thing when req?d, are the ! primary
obligs of the depositary.
!. Brdinarily, the depositary must
e$ercise over the thing deposited the
same diligence as he would e$ercise
over his property for ! reasons@
a.) bec it is an essential req?site of the
judicial relation w7c involves the
depositor?s confidence in his <L C
trustworthiness
b.) bec of the presumption that the
depositor, in choosing the
depositary, too" into acct the
diligence w7c the depositary is
accustomed w7 respect to his own
property.
#. ;he depositary cannot e$cuse himself
from liability in the event of loss by
claiming that he e$ercised the same
amnt of care toward the thing deposited
as he would toward his own if such care
is less than that req?d by the
circumstances.
&. ;he liability of the depositary for the
care C delivery of the thing was insured@
a.) he is liable if the loss occurs thru his
fault or negligence, even if the thing
was insured
b.) the loss of the thing while in his
possession, ordinarily raises the
presumption of fault on his part.
c.) ;he req?d degree of care is greater if
the deposit is for compensation than
when it is gratuitous
'. ;he thing deposited must be returned to
the depositor whnever he claims it, even
tho a specified term or time for such
may have been stipulated in the
contract.
*06-. 9nless there is a stipulation to the
contrary, the depositary cannot deposit the thing
with a third person. If deposit with a third person
is allowed, the depositary is liable for the loss if
he deposited the thing with a person who is
manifestly careless or unfit. "he depositary is
responsible for the negligence of his employees.
NOTES
1. 7eason@ bec a deposit is founded on
trust C confidence C it can be supposed
that the depositor, in choosing the
depositary, has ta"en into consideration
the latter?s qualification.
!. Hnder this provision, the depositor is
liable for the loss of the thing deposited
if@
a.) he transfers the deposit w7 a #
rd
person w7o authority altho there is no
negligence on his part C the #
rd
person
b.) he deposits the thing w7 a #
rd
person
who is manifestly careless or unfit
altho authori3ed, even in the absence
of negligenceD
c.) the thing is lost thru the negligence of
his employees whether the latter are
manifestly careless or not
#. ;he depositor is not responsible in case
the thing is lost w7o negligence of the
#
rd
person w7 whom he was allowed to
deposit the thing if such #
rd
person is
not manifestly careless or unfit.
*064. "he depositary may change the way of
the deposit if under the circumstances he may
reasonably presume that the depositor would
consent to the change if he knew of the facts of
the situation. *owever, before the depositary
may make such change, he shall notify the
16
depositor thereof and wait for his decision,
unless delay would cause danger.
*065. "he depositary holding certificates,
bonds, securities or instruments which earn
interest shall be bound to collect the latter
when it becomes due, and to take such steps
as may be necessary in order that the
securities may preserve their value and the
rights corresponding to them according to law.
"he above provision shall not apply to contracts
for the rent of safety deposit bo#es.
NOTES
1. Hnder this provision, the depositary is
bound to collect not only the interest
but also the capital itself when due.
!. A contract for the rent of safety
deposit bo$es is really a contract of
lease of things C not a contract of
deposit. ;he renter has control over
the bo$ C its contents, the ban" not
having the right to open the same.
*061. 9nless there is a stipulation to the
contrary, the depositary may commingle grain
or other articles of the same kind and quality,
in which case the various depositors shall own
or have a proportionate interest in the mass.
*066. "he depositary cannot make use of the
thing deposited without the e#press permission
of the depositor.
;therwise, he shall be liable for damages.
*owever, when the preservation of the thing
deposited requires its use, it must be used but
only for that purpose.
*067. 0hen the depositary has permission to
use the thing deposited, the contract loses the
concept of a deposit and becomes a loan or
commodatum, e#cept where safekeeping is still
the principal purpose of the contract.
"he permission shall not be presumed, and its
e#istence must be proved.
NOTES
1. >f thing deposited is nonconsumable
C the depositary has permission to use
the thing, the contract loses the
charac of a deposit C acquires that of
a commodatum despite the fact that
the parties may have denominated it
as a deposit, unless safe"eeping is still
the principal purpose of the contract.
!. >f the thing deposited money or other
consumable thing, the permission to
use it will result in its consumption C
converts the contract into a simple
loan or mutuum. /ut if safe"eeping is
still the principal purpose of the
contract, it is still a deposit but an
irregular oneD hence, it is called an
irregular deposit. /an" deposits are in
the nature of irregular deposits but they
are really loans governed by the law on
loans.
#. Irre!ular de#osit 's2 utuum
;he consumable
thing deposited
may be demanded
at will by the
irregular depositor
for whose benefit
the deposit has
been constituted
-ender is bound by
the provisions of
the contrat C
cannot see"
restitution until the
time for payment,
as provided in the
contract, has arisen
;he only benefit is
that w7c accrues to
the depositor
;he essential cause
for the transaction
is the necessity of
the borrower. (A
loan w7 a
stipulation to apy
interest is for the
benefit of both
parties)
+epositor has
preference over
other creditors w7
respect to the thing
deposited
=ommon creditors
enjoy no preference
in the distribution
of the debtor?s
property.
&. >n a deposit, the permission to use is
not presumed e$cept when such use is
necessary for the preservation of the
thing deposited, C the burden is one the
depositary to prove that permission has
been given.
*060. "he depositary is liable for the loss of the
thing through a fortuitous event%
&'( If it is so stipulated;
&)( If he uses the thing without the
depositor+s permission;
&,( If he delays its return;
(&) If he allows others to use it, even
though he himself may have been
authori8ed to use the same.
*078. <i#ed, savings, and current deposits of
money in banks and similar institutions shall be
governed by the provisions concerning simple
loan.
NOTES
1. +eposits of money in ban"s, whether
fi$ed, savings, C current, are really loan
to a ban" bec the abn" can use them for
its ordinary transactions C for the
ban"ing businesses in w7c it is engaged.
!. Accordingly, the relationship btw a
depositor C a ban" is that of a creditor
C debtor.
1)
*07*. 0hen the thing deposited is delivered
closed and sealed, the depositary must return
it in the same condition, and he shall be liable
for damages should the seal or lock be broken
through his fault.
<ault on the part of the depositary is presumed,
unless there is proof to the contrary.
s regards the value of the thing deposited, the
statement of the depositor shall be accepted,
when the forcible opening is imputable to the
depositary, should there be no proof to the
contrary. *owever, the courts may pass upon
the credibility of the depositor with respect to
the value claimed by him.
0hen the seal or lock is broken, with or without
the depositary+s fault, he shall keep the secret
of the deposit.
*07+. 0hen it becomes necessary to open a
locked bo# or receptacle, the depositary is
presumed authori8ed to do so, if the key has
been delivered to him; or when the instructions
of the depositor as regards the deposit cannot
be e#ecuted without opening the bo# or
receptacle.
NOTES
1. Bbligs of depositary@
a.) return the thing deposited when
delivered closed C sealed, in the
same condition
b.) pay for damages should the seal or
loc" be bro"en thru his fault, w7c is
presumed unless proved otherwise
c.) "eep the secret of the deposit when
the seal or loc" is bro"en, w7 or w7o
his fault
!. 7eason@ w7o this rule, irresponsible
depositaries may violate their trusts
w7 impunity. ;he depositor constituted
the deposit in reliance upon the
depositary?s fidelity.
#. ;he statement of the depositor is
prima facie evidence only
necessary in view of the natural
tendency to e$aggerate values.
*07-. "he thing deposited shall be returned
with all its products, accessories and
accessions.
Should the deposit consist of money, the
provisions relative to agents in article '=/2
shall be applied to the depositary.
NOTES
1. >f what has been deposited is money,
the depositary has no right to ma"e
use thereof C, therefore, he is not
liable to pay interest.
!. >f depositary is in delay or uses the
money w7o permission, he shall be
liable for interest as indemnity. ;he
depositary owes interest on the sums he
has applied to his own use from the day
on w7c he did so, C those w7c he still
owes after the e$tinguishment of the
deposit.
*074. "he depositary cannot demand that the
depositor prove his ownership of the thing
deposited.
6evertheless, should he discover that the thing
has been stolen and who its true owner is, he
must advise the latter of the deposit.
If the owner, in spite of such information, does
not claim it within the period of one month, the
depositary shall be relieved of all responsibility
by returning the thing deposited to the depositor.
If the depositary has reasonable grounds to
believe that the thing has not been lawfully
acquired by the depositor, the former may return
the same.
NOTES
1. ;o acquire proof of ownership may open
the door to fraud C /L, for the
depositary, on the pretense of requiring
proof of ownership, may be able to
retain the thing.
!. >f thing is returned to the depositor
after 1 month, the true owner may still
recover it thru other legal processes.
*075. 0hen there are two or more depositors, if
they are not solidary, and the thing admits of
division, each one cannot demand more than his
share.
0hen there is solidarity or the thing does not
admit of division, the provisions of rticles ')')
and ')'- shall govern. *owever, if there is a
stipulation that the thing should be returned to
one of the depositors, the depositary shall return
it only to the person designated.
NOTES
1. Jhen oblig is solidary, or if the thing is
not divisible, the rules on active
solidarity shall apply, to the effect that
each one of the solidary depositors may
do whatever may be useful to the
others but not anything w7c may be
prejudicial to the latter, C the
depositary may return the thing to any
one of the solidary depositors unless a
demand, judicial or e$trajudicial, for its
return is made by 1 of them in w7c case
delivery should be made to him.
!. >f by stipulation, the thing should be
returned to 1 of the depositors,
1+
depositary is bound to return it only to
the person designated altho he has
not made any demand for its return.
*071. If the depositor should lose his capacity
to contract after having made the deposit, the
thing cannot be returned e#cept to the persons
who may have the administration of his
property and rights.

NOTES
6ersons to whom return must be made@
a.) when req?d@ to the depositor, his heirs
C successors, or to the person who
may have been designated in
contractD
b.) when depositor was incapacitated at
the time of ma"ing the deposit@ his
guardian or administrator or the
person who made the deposit or to the
depositor himself should he acquire
capacity
c.) if depositor lost his capacity during the
deposit@ his legal representative
*076. If at the time the deposit was made a
place was designated for the return of the
thing, the depositary must take the thing
deposited to such place; but the e#penses for
transportation shall be borne by the depositor.
If no place has been designated for the return,
it shall be made where the thing deposited may
be, even if it should not be the same place
where the deposit was made, provided that
there was no malice on the part of the
depositary.
NOTES
1. >n 1
st
case, e$penses of transpo borne
by depositor bec the deposit is
constituted for the benefit of the
depositor C not the depositary who
assumes no more than the
safe"eeping C return of the thing.
!. ;he rule herein is similar to the gen
rule of law regarding place of
payment.
*077. "he thing deposited must be returned to
the depositor upon demand, even though a
specified period or time for such return may
have been fi#ed.
"his provision shall not apply when the thing is
!udicially attached while in the depositary+s
possession, or should he have been notified of
the opposition of a third person to the return or
the removal of the thing deposited. In these
cases, the depositary must immediately inform
the depositor of the attachment or opposition.
NOTES
1. As a rule, the depositor can demand the
return of the thing deposited at will C
this is true whether a period has been
stipulated or not.
!. >n deposit, the designated period may
be validly waived by the depositor, altho
the period is generally binding upon the
depositary.
#. >f deposit is for a compensation, the
depositary is entitled to the
compensation corresponding to the
entire period (here, the pd is also for
the benefit of the depositary).
*070. 9nless the deposit is for a valuable
consideration, the depositary who may have
!ustifiable reasons for not keeping the thing
deposited may, even before the time
designated, return it to the depositor; and if
the latter should refuse to receive it, the
depositary may secure its consignation from
the court.
NOTES
1. ;he depositary may also return the
thing notwithstanding that a period has
been fi$ed, if (a) deposit is gratuitous, C
(b) justifiable reasons e$ist for its
return.
!. >n case the depositor refuses to receive
the thing, the depositary may deposit
the thing at the disposal of judicial
authority.
#. >f deposit is for a valuable
consideration, depsotary has no right to
return the thing deposited before the
e$piration of the time designated, even
if he should suffer inconvenience as a
consequence. 9e is bound by the pd C
restitution before its e$piration
constitutes a breach of his oblig.
*008. If the depositary by force ma!eure or
government order loses the thing and receives
money or another thing in its place, he shall
deliver the sum or other thing to the depositor.
*00*. "he depositor+s heir who in good faith
may have sold the thing which he did not know
was deposited, shall only be bound to return the
price he may have received or to assign his right
of action against the buyer in case the price has
not been paid him.
1-
NOTES
1. 8ule is based on considerations of
equity.
!. >f the buyer acquired the thing in /L,
the depositor may bring an action
against him for its recovery.
#. >f the heir acts in /L, he is liable for
damages. ;he sale7appropriation of
the thing deposited constitutes estafa.
SECTION -
O(li!ations of t"e De#ositor
*00+. If the deposit is gratuitous, the
depositor is obliged to reimburse the depositary
for the e#penses he may have incurred for the
preservation of the thing deposited.
NOTES
1. ;he provision rests on equity.
!. J7o the duty of reimbursement, the
depositor would be enriching himself
at the e$pense of the depositary.
#. /ec the law ma"es no distinction, the
right to reimbursement covers all
e$penses for preservation, whether
ordinary or e$traordinaryD so long as a
necessary e$penses.
&. >f deposit is for a valuable
consideration, e$penses of
preservation are borne by the
depositary bec they are deemed
included in the compensation. ;here
can however be contrary stipulation.
*00-. "he depositor shall reimburse the
depositary for any loss arising from the
character of the thing deposited, unless at the
time of the constitution of the deposit the
former was not aware of, or was not e#pected
to know the dangerous character of the thing,
or unless he notified the depositary of the
same, or the latter was aware of it without
advice from the depositor.
*004. "he depositary may retain the thing in
pledge until the full payment of what may be
due him by reason of the deposit.
NOTES
1. ;his provision gives an e$ample of a
pledge created by the operation of
law.
!. ;he thing retained serves as security for
the payment of what may be due to the
depositary by reason of the deposit.
#. ;he right granted here is similar to that
granted to the agent.
*005. deposit its e#tinguished%
&'( 9pon the loss or destruction of the thing
deposited;
&)( In case of a gratuitous deposit, upon the
death of either the depositor or the
depositary.
NOTES
1. ;he causes here are not e$clusive (see
1!#1).
!. >f deposit is gratuitous, the death of
either the depositor or depositary
e$tinguishes the deposit.
#. >f deposit for compensation, it is not
e$tinguished by the death of either
party bec, unli"e a gratuitous deposit,
an onerous deposit is not personal in
nature. 9ence, the rights C obliges
arising therefrom are transmissible to
their respective heirs altho the latter
have the right to terminate the deposit
even before the e$piration of the term.
CHAPTER 3
NECESSARY DEPOSIT
*001. deposit is necessary%
&'( 0hen it is made in compliance with a
legal obligation;
&)( 0hen it takes place on the occasion of
any calamity, such as fire, storm, flood,
pillage, shipwreck, or other similar events.
*006. "he deposit referred to in 6o. ' of the
preceding article shall be governed by the
provisions of the law establishing it, and in case
of its deficiency, by the rules on voluntary
deposit.
"he deposit mentioned in 6o. ) of the preceding
article shall be regulated by the provisions
concerning voluntary deposit and by rticle )'2=.
NOTES
1. 1AA( C 1AA) mention ! "inds of
necessary deposit. ;he #rd "ind is made
by travellers in hotels7inns (1AA* ==).
;he &
th
"ind is made by passengers w7
common carriers (1)'&).
!. I$amples of 1ecessary +eposit in
compliance w7 legal oblig@
2*
a.) 4udicial deposit of a thing the
possession of w7c is being disputed
in a litigation by ! or more
personsD
b.) deposit w7 a ban"7pub institution
of pub bonds7insruments of credit
payable to order7bearer given in
usufruct when the usufructary does
not give proper security for their
conservation
c.) deposit of a thing pledged when
the creditor uses the same w7o the
authority of the owner or misuses
it in any other way
d.) those made in suits as provided in
the 8B=
e.) those constituted to guarantee
contracts w7 the gov?t. (9ere
deposit arises from an oblig of
pub7admin character).
#. 1ecessary +eposit made on the
occasion of any calamity@
a.) possession of movable property
passes from 1 person to another by
accident or fortuitously thru force of
circumstances C w7c the law
imposes on the recipient the obligs
of a bailee.
b.) 2ore immediate obj is to save the
property rather than its safe"eeping.
c.) ;his quasibailment is ordinarily
distinguished by the name
Einvoluntary bailment or
Einvoluntary deposit.F ;here must be
a casual relation btw the calamity C
the constitution of the deposit. (also
"nown as deposito miserable)
d.) Aside from the provisions on
voluntary deposit, this "ind shall
also be governed by !1(* ==.
*007. "he deposit of effects made by the
travellers in hotels or inns shall also be
regarded as necessary. "he keepers of hotels
or inns shall be responsible for them as
depositaries, provided that notice was given to
them, or to their employees, of the effects
brought by the guests and that, on the part of
the latter, they take the precautions which said
hotel3keepers or their substitutes advised
relative to the care and vigilance of their
effects.
*000. "he hotel3keeper is liable for the
vehicles, animals and articles which have been
introduced or placed in the anne#es of the
hotel.
NOTES
1. Ilements that must concur in order for
"eepers of hotels7inns may be held
responsible as depositaries@
a.) they have been previously informed
about the effects brought by the
guests
b.) the guests have ta"en the precautions
prescribed regarding their safe"eeping
!. -iability is not limited to effects
lost7damaged in the hotel rooms w7c
comes under the term EbaggageF or
articles such as clothing as are
ordinarily used by travelers /H; include
those lost7damaged in hotel anne$es
(e$. vehicles in the hotel?s garage.
#. ;he responsibility e$tends to all who
offer lodging for compensation,
whatever may be their character.
&. ;ravellers7guests synonymousD refers
to transients C not to boarders. 1on
transients are governed by the rules on
lease.
+888. "he responsibility referred to in the two
preceding articles shall include the loss of, or
in!ury to the personal property of the guests
caused by the servants or employees of the
keepers of hotels or inns as well as strangers;
but not that which may proceed from any force
ma!eure. "he fact that travellers are constrained
to rely on the vigilance of the keeper of the
hotels or inns shall be considered in determining
the degree of care required of him.
+88*. "he act of a thief or robber, who has
entered the hotel is not deemed force ma!eure,
unless it is done with the use of arms or through
an irresistible force.
+88+. "he hotel3keeper is not liable for
compensation if the loss is due to the acts of the
guest, his family, servants or visitors, or if the
loss arises from the character of the things
brought into the hotel.
NOTES
1. =ases where hotel"eeper is liable
regardless of the amnt of care
e$ercises@
a.) loss7injury caused by his
servants7employees as well as by
strangers, provided that notice has
been given C proper precautions
ta"en
b.) loss caused by act of a thief7robber
done w7o the use of arms C
irresistible force (here hotel"eeper is
apparently negligent)
!. =ases where hotel"eeper is not liable@
a.) loss7injury caused by force majeure,
theft or robbery by a stranger w7 the
use of arms or irresistible force, etcD
unless he is guilty of fault7negligence
21
in failing to provide against the
loss7injury from his cause
b.) loss due to acts of the guest, his
family, servants or visitors
c.) loss arising from the character of the
things brought into the hotel.
+88-. "he hotel3keeper cannot free himself
from responsibility by posting notices to the
effect that he is not liable for the articles
brought by the guest. ny stipulation between
the hotel3keeper and the guest whereby the
responsibility of the former as set forth in
articles '//= to )44' is suppressed or
diminished shall be void.
+884. "he hotel3keeper has a right to retain
the things brought into the hotel by the guest,
as a security for credits on account of lodging,
and supplies usually furnished to hotel guests.
NOTES
1. ;he right of retention recogni3ed in
this article is in the nature of a pledge
created by operation of law.
!. 8ight is given to compensate hotel
"eepers for the liabilities imposed
upon them by law.
#. Act of obtaining food7accommodation
in a hotel7inn w7o paying therefore
constitutes estafa.
CHAPTER 4
SEQUESTRATION OR
JUDICIAL DEPOSIT

+885. !udicial deposit or sequestration takes
place when an attachment or sei8ure of
property in litigation is ordered.
+881. $ovable as well as immovable property
may be the ob!ect of sequestration.
+886. "he depositary of property or ob!ects
sequestrated cannot be relieved of his
responsibility until the controversy which gave
rise thereto has come to an end, unless the
court so orders.
+887. "he depositary of property sequestrated
is bound to comply, with respect to the same,
with all the obligations of a good father of a
family.
NOTES
1. +eposit is judicial bec it is au$iliary to a
case pending in court.
2. 6urpose@ ;o 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.
3. ;he depositary of sequestrated property
is the person appointed by the court.
4. 9udicial '2 E)tra:udicial De#osits
=ause7
Brigin
Jill of the
court
Jill of the
parties
6urpose As security C to
secure the right
of a party to
recover in case
of a favorable
judgment
=ustody C
safe"eeping
of the thing
%ubj
2atter
movables or
immovablesD
altho
immovables
generally
2ovables
only
8emuner
ation
onerous <enerally
gratuitous
>n
whose
behalf it
is held
6erson who, by
judgment, has
a right
+epositor or
#
rd
person
designated
+880. s to matters not provided for in this
Code, !udicial sequestration shall be governed
by the 7ules of Court.
NOTE
;he law on judicial deposit is
remedial7procedural in nature. 9ence 8ules
of =ourt are applicable.
CASES
THE ROMAN CATHOLIC BISHOP OF JARO vs. DE
LA PEA
6he Bishop of Jaro is the trustee of a charitable be3uest
made for the costructio of a leper hospital ad that
?ather !gusti de la PeMa was the dul# authori<ed
represetati'e of the bishop to recei'e the legac#. !s
trustee( ?ather de la PeMa showed that he had o had
as trustee P6(641. " the same #ear he deposited i his
persoal accout P1-6 i @%B7;"loilo.
%hortl# after ad durig the war of the re'olutio( ?ather
4e la PeMa was arrested b# the militar# authorities as a
political prisoer( ad while detaied made a order o
said ba& i fa'or of the 0% !rm# officer uder whose
charge he the was for the sum deposited i @%B7.
6he arrest of ?ather 4e la PeMa ad the cofiscatio of
the fuds i the ba& were the result of the claim of the
militar# authorities that he was a isurget ad that the
22
fuds thus deposited had bee collected b# him for
re'olutioar# purposes. 6he moe# was ta&e from
the ba& b# the militar# authorities b# 'irtue of such
order( was cofiscated ad tured o'er to the
Go'ermet.
WON ?ather de la ,eAa can !e held lia!le for the loss
of the funds4 NO
!lthough the 77 states that Da perso obliged to gi'e
somethig is also boud to preser'e it with the
diligece pertaiig to a good father of a famil#D 8art.
1*-49( it also pro'ides( followig the priciple of the
Roma law( ma.or casus est cui humana infirmitas
resistere non potest( that Do oe shall be liable for
e'ets which could ot be foresee( or which ha'ig
bee foresee were ie'itable( with the e1ceptio of
the cases e1pressl# metioed i the law or those i
which the obligatio so declares.D 8!rt. 11*5.9
B# placig the moe# i the ba& ad mi1ig it with his
persoal fuds 4e la PeMa did ot thereb# assume a
obligatio differet from that uder which he would
ha'e lai if such deposit had ot bee made( or did
he thereb# ma&e himself liable to repa# the moe# at
all ha<ards. "f the moe# had bee forcibl# ta&e from
his poc&et or from his house b# the militar# forces of
oe of the combatats durig a state of war( it is clear
that uder the pro'isios of the 7i'il 7ode he would
ha'e bee e1empt from resposibilit#. 6he fact that he
placed the trust fud i the ba& i his persoal
accout does ot add to his resposibilit#. %uch
deposit did ot ma&e him a debtor who must respod
at all ha<ards.
6here was o law prohibitig him from depositig it as
he did ad there was o law which chaged his
resposibilit# b# reaso of the deposit. Bhile it ma# be
true that oe who is uder obligatio to do or gi'e a
thig is i dut# boud( whe he sees e'ets
approachig the results of which will be dagerous to
his trust( to ta&e all reasoable meas ad measures
to escape or( if ua'oidable( to( temper the effects of
those e'ets( %7 caot sa# that( i choosig
betwee two meas e3uall# legal( he is culpabl#
egliget i selectig oe whereas he would ot ha'e
bee if he had selected the other.
CA AGRO!INDUSTRIAL DEV. CORP. v CA
5 3 Jul# 1-)-( petitioer 8through its Presidet(
%ergio !guirre9 ad the spouses Ramo ad Paula
Pugao etered ito a agreemet whereb# the former
purchased from the latter two 829 parcels of lad for a
cosideratio of P35*(625.**. 5f this amout(
P)5()25.** was paid as dowpa#met while the
balace was co'ered b# three 839 postdated chec&s.
Petitioer( through %ergio !guirre( ad the Pugaos
the reted %afet# 4eposit Bo1 2o. 144+ of pri'ate
respodet %ecurit# Ba& ad 6rust 7ompa#( a
domestic ba&ig corporatio hereiafter referred to
as the respodet Ba&.
!fter the e1ecutio of the cotract( two 829 reter>s
&e#s were gi'e to the reters ; oe to !guirre 8for the
petitioer9 ad the other to the Pugaos. ! guard &e#
remaied i the possessio of the respodet Ba&.
6he safet# deposit bo1 has two 829 &e#holes( oe for
the guard &e# ad the other for the reter>s &e#( ad
ca be opeed ol# with the use of both &e#s.
Petitioer claims that the certificates of title were
placed iside the said bo1.
,rs. ,argarita Ramos offered to bu# from the
petitioer the two 829 lots at a price of P225.** per
s3uare meter which( as petitioer alleged i its
complait( traslates to a profit of P1**.** per s3uare
meter or a total of P2+*(5**.** for the etire propert#.
!guirre( accompaied b# the Pugaos( the proceeded to
the respodet Ba& o 4 5ctober 1-)- to ope the
safet# deposit bo1 ad get the certificates of title.
@owe'er( whe opeed i the presece of the Ba&>s
represetati'e( the bo1 #ielded o such certificates.
Because of the dela# i the recostitutio of the title(
,rs. Ramos withdrew her earlier offer to purchase the
lots: as a cose3uece thereof( the petitioer allegedl#
failed to reali<e the e1pected profit of P2+*(5**.**.
6he %7 held that the cotractual relatio betwee a
commercial ba& ad aother part# i a cotract of ret
of a safet# deposit bo1 is oe of deposit
the pre'ailig rule is that the relatio betwee a ba&
retig out safe;deposit bo1es ad its customer with
respect to the cotets of the bo1 is that of a bailor ad
bailee( the bailmet beig for hire ad mutual beefit.
6he retig out of the safet# deposit bo1es is ot
idepedet from( but related to or i co.uctio with(
this pricipal fuctio. ! cotract of deposit ma# be
etered ito orall# or i writig ad( pursuat to !rticle
13*6 of the 7i'il 7ode( the parties thereto ma# establish
such stipulatios( clauses( terms ad coditios as the#
ma# deem co'eiet( pro'ided the# are ot cotrar# to
law( morals( good customs( public order or public polic#.
6he depositar#>s resposibilit# for the safe&eepig of the
ob.ects deposited i the case at bar is go'ered b# 6itle
"( Boo& "V of the 7i'il 7ode. !ccordigl#( the depositar#
would be liable if( i performig its obligatio( it is foud
guilt# of fraud( egligece( dela# or cotra'etio of the
teor of the agreemet. " the absece of a# stipulatio
prescribig the degree of diligece re3uired( that of a
good father of a famil# is to be obser'ed. @ece( a#
stipulatio e1emptig the depositar# from a# liabilit#
arisig from the loss of the thig deposited o accout of
fraud( egligece or dela# would be 'oid for beig
cotrar# to law ad public polic#.
JAVELLANA v. LIM ET AL.
Ja'ellaa ga'e Jose N 7eferio 4omigo Aim P2(6+6.5*
as a deposit "/o interest. 6he amt was to be retured
o a later date. 6his was put ito writig. Bhe the oblig
became due( the Aims as&ed for a e1tesio for the
pa#met. 6his time( the# boud themsel'es to pa#
iterest O a rate of 15/. Ja'ellaa agreed. 6his 2
d
agreemet was also put ito writig. 6he Aims paid
P1(*** to Ja'ellaa. Bec o other pa#met was
tedered b# the Aims( Ja'ellaa sued them. 6he Aims( i
defese( alleged that the the# actuall# paid P1(1*2.16 to
Ja'ellaa !24 that it was ot as pa#met of iterest( but
rather( of the pricipal ad 4=2"=4 that there e'er was
a agreemet as to a e1tesio of the time for pa#met
N that there was goig to be a pa#met of a 15/
iterest.
Was the contract a deposit or a loan 444 a &O%N!
"t is true that the 1
st
docu e'idecig the agreemet of
the parties e1pressl# stated that it was a deposit. "t
stated that the Aims were gi'e a sum of moe# o
deposit wHc the# were .oitl# N se'erall# obliged to retur
o a certai fi1ed date.
6he 2
d
docu( @5B=V=R( shows that the agreemet
was i fact a A5!2 of moe#: ol# that from that time o
8e1ecutio of the 2
d
docu9( the loa was alread# sub. to
a 15/ iterest per aum.
Reaso$ 1)6) 77( a depositar# 7!2256 ma&e use of
the thig deposited wHo the e1press permissio of the
23
depositor. 1)6+ 77 also states that whe the
depositar# has permissio to ma&e use of the thig
deposited( the cotract A5%=% the character of a
deposit N becomes a A5!2 or B!"A,=26.
@=R=( the coduct performed b# the Aims clearl#
showed that the agreemet the# etered ito was a
A5!2$ whe the# boud themsel'es to refud the
moe#( the# 4"4 256 egage to retur the %!,=
cois the# recei'ed: hece( the# could ha'e
accomplished such retur b# simpl# deli'erig a sum
=P0!A to the 1 the# recei'ed: the# were lawfull#
authori<ed to ma&e use of the amt deposited ;;; wHc
the# did( as pro'e b# the fact that the# as&ed for a
e1tesio for the retur of the moe#
?0R6@=R,5R=( Ja'ellaa( b# gratig the
e1tesio( e'idetl# cofirmed the e1press permissio
he had pre'iousl# gi'e to the Aims so that the# ma#
use N dispose of the amt stated to ha'e bee
KdepositedL i their care.
Title XV
GUARANTY
CHAPTER 1
NATURE AND EXTENT OF
GUARANTY

Art. 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.
If a person binds himself solidarily with the
principal debtor, the provisions of Section -,
Chapter ,, "itle I of this Book shall be
observed. In such case the contract is called a
suretyship.
Nature
=onsensual, accessory to a principal
obligation, gives rise to a subsidiary
obligation on the part of the guarantor, a
unilateral contract
Guarantor and suret$ distin!uis"ed3
Suret$ Guarantor
Iach promises for the debt or default of
another
A surety assumes
liability as a regular
party to the
underta"ing
;he liability of the
guarantor depends
upon an independent
agreement to pay the
obligation if the payor
fails to do so
6rimary obligation %econdary obligation
Hnderta"es to pay if
principal does not
pay
Hnderta"es to pay if the
principal cannot pay
>nsurer of debt >nsurer of the solvency
of the debtor
A guarantor who binds himself in solidum
with the principal debtor under the
provisions of the !
nd
par. does not become a
solidary codebtor. ;he surety, outside of
the liability he assumes to pay the debt
before the property of the principal debtor
has been e$hausted, retains all rights,
actions and benefits which pertain to him by
reason of the surety.
Art. 2048. guaranty is gratuitous, unless there
is a stipulation to the contrary.
Art. 2049. married woman may guarantee an
obligation without the husband+s consent, but
shall not thereby bind the con!ugal partnership,
e#cept in cases provided by law.
Art. 2050. If a guaranty is entered into without
the knowledge or consent, or against the will of
the principal debtor, the provisions of rticles
'),2 and '),1 shall apply.
NOTE
;he principal debtor is legally bound to pay
what his guarantor had advanced to the
creditor, notwithstanding that the guaranty
had been given w7out his "nowledge.
Art. 2051. guaranty may be conventional,
legal or !udicial, gratuitous, or by onerous title.
It may also be constituted, not only in favor of
the principal debtor, but also in favor of the other
guarantor, with the latter+s consent, or without
his knowledge, or even over his ob!ection.
NOTE
<uaranty is conventional when it is created
by agreement of the parties. >t is legal when
it is required by law, such as that required
of a usufructuary. >t is judicial when it is
required by the court, such as that required
in the lifting of an attachment or a
preliminary injunction.
Art. 2052. guaranty cannot e#ist without a
valid obligation.
6evertheless, a guaranty may be constituted to
guarantee the performance of a voidable or an
unenforceable contract. It may also guarantee a
natural obligation.
NOTES
24
1. /eing an accessory contract, a
contract of guaranty is deemed bound
by the same consideration that ma"es
the principal contract effective
between the principal parties. >t is not
necessary that that a guarantor or
surety should receive any part of the
benefit.
!. ;he guaranty of the obligations
mentioned in the !
nd
par. must be
considered binding only if the
guarantor "new of the defective
character of the principal obligation.
Hpon paying, he cannot enforce the
obligation against the debtor, because
he merely steps into the shoes of the
creditor.
#. ;he guarantor who pays a natural
obligation has no recourse against the
principal debtor, who cannot be
obliged to pay such obligation.
Art. 2053. guaranty may also be given as
security for future debts, the amount of which
is not yet known; there can be no claim against
the guarantor until the debt is liquidated.
conditional obligation may also be secured.
Art. 2054. guarantor may bind himself for
less, but not for more than the principal debtor,
both as regards the amount and the onerous
nature of the conditions.
Should he have bound himself for more, his
obligations shall be reduced to the limits of that
of the debtor.
Art. 2055. guaranty is not presumed; it
must be e#press and cannot e#tend to more
than what is stipulated therein.
If it be simple or indefinite, it shall compromise
not only the principal obligation, but also all its
accessories, including the !udicial costs,
provided with respect to the latter, that the
guarantor shall only be liable for those costs
incurred after he has been !udicially required to
pay.
NOTES
1. ;he law requires that a guaranty be
e$press, w7out providing that it be in
writing. 9owever because of Art 1&M#,
it is unenforceable unless ratified.
!. ;he obligation of the surety is strictly
construed and cannot be e$tended by
implication beyond its specified limit.
Art. 2056. ;ne who is obliged to furnish a
guarantor shall present a person who
possesses integrity, capacity to bind himself, and
sufficient property to answer for the obligation
which he guarantees. "he guarantor shall be
sub!ect to the !urisdiction of the court of the
place where this obligation is to be complied
with.
NOTES
1. ;he law requires that the qualities
required of guarantors to be present
only at the time of the perfection of the
contract of guaranty.
!. Bnce the contract has become perfected
and binding, the supervening incapacity
of the guarantor would not operate to
e$onerate him of the eventual liability
he has contracted.
#. >n determining the sufficiency of the
property of the guarantor, the
properties which are in litigation, or
which are so far that the court cannot
properly appreciate their value, shall not
be ta"en into account.
&. =reditor may waive the qualifications.

Art. 2057. If the guarantor should be convicted
in first instance of a crime involving dishonesty
or should become insolvent, the creditor may
demand another who has all the qualifications
required in the preceding article. "he case is
e#cepted where the creditor has required and
stipulated that a specified person should be the
guarantor.
NOTES
1. ;he demand for replacement of the
guarantor, after the loss of integrity, is
optional w7 the creditor. 9e may waive
it if he chooses and hold the guarantor
to his bargain.
!. <aurantor?s liability is not e$tinguished
by his death, and in such event, the
obligee has the right to file against the
estate, a contingent claim for
reimbursement.
CHAPTER 2
EFFECTS OF GUARANTY

SECTION *
Effects of Guarant$
,et&een t"e Guarantor
and t"e Creditor

Art. 2058. "he guarantor cannot be compelled
25
to pay the creditor unless the latter has
e#hausted all the property of the debtor, and
has resorted to all the legal remedies against
the debtor.
NOTES
1. ! rights of guarantor in simple
guaranty@
.) the benefit of e$cussion and
.) the benefit of division.
2. 1o action will lie against the guarantor
unless the creditor has e$hausted all
legal remedies against the debtor.
3. ;he right to the benefit of e$haustion
should be interposed as a defense
before judgment is rendered against
the guarantor.
Art. 2059. "he e#cussion shall not take place%
'.( If the guarantor has e#pressly
renounced it;
).( If he has bound himself solidarily with
the debtor;
,.( In case of insolvency of the debtor;
-.( 0hen he has absconded, or cannot be
sued within the 5hilippines unless he
has left a manager or representative;
..( If it may be presumed that an
e#ecution on the property of the
principal debtor would not result in the
satisfaction of the obligation.
Ot"er cases
1. natural or unenforceable obligations,
since the creditor has no right of
action against the principal debtor
!. judicial bond.
Art. 2060. In order that the guarantor may
make use of the benefit of e#clusion, he must
set it up against the creditor upon the latter+s
demand for payment from him, and point out
to the creditor available property of the debtor
within 5hilippine territory, sufficient to cover
the amount of the debt.
NOTES
*2 Re;uisites for e)ercise of t"e
(enefit of e)"austion3
.) <uarantor must require it of the
creditor as soon as the creditor
ma"es demand of paymentD
.) <uarantor must point out to the
creditor property of the debtor which
is salable w7in the 6hilippines and
sufficient to cover the amount of the
debt.
!. >t is not sufficient that the guarantor
claim the benefit of e$haustion in
time, he must also designate property
of the debtor to satisfy the debt.

Art. 2061. "he guarantor having fulfilled all the
conditions required in the preceding article, the
creditor who is negligent in e#hausting the
property pointed out shall suffer the loss, to the
e#tent of said property, for the insolvency of the
debtor resulting from such negligence.
Art. 2062. In every action by the creditor, which
must be against the principal debtor alone,
e#cept in the cases mentioned in rticle )4./,
the former shall ask the court to notify the
guarantor of the action. "he guarantor may
appear so that he may, if he so desire, set up
such defenses as are granted him by law. "he
benefit of e#cussion mentioned in rticle )4.=
shall always be unimpaired, even if !udgment
should be rendered against the principal debtor
and the guarantor in case of appearance by the
latter.
NOTES
1. Hnder this article, notice to the
guarantor is mandatory in the action
against the principal debtor. ;he
guarantor, however, is not duty bound
to appear in the case, and his non
appearance shall not constitute default,
w7 its consequential effect.
!. ;he purpose of notification is to give the
guarantor the opportunity to allege and
substantiate whatever defenses he may
have against the principal obligation,
and chances to set up such defenses as
are afforded him by law if he so desires.
Art. 2063. compromise between the creditor
and the principal debtor benefits the guarantor
but does not pre!udice him. "hat which is
entered into between the guarantor and the
creditor benefits but does not pre!udice the
principal debtor.
Art. 2064. "he guarantor of a guarantor shall
en!oy the benefit of e#cussion, both with
respect to the guarantor and to the principal
debtor.
Art. 2065. Should there be several guarantors
of only one debtor and for the same debt, the
obligation to answer for the same is divided
among all. "he creditor cannot claim from the
guarantors e#cept the shares which they are
respectively bound to pay, unless solidarity has
been e#pressly stipulated.
26
"he benefit of division against the co3
guarantors ceases in the same cases and for
the same reasons as the benefit of e#cussion
against the principal debtor.
NOTES
1. ;he benefit granted to the guarantor
under this art is "nown as the benefit
of division and entitles him to as" for a
division of the liability among his co
guarantors and pay only his aliquot
part of the debt in case the debtor
defaults in the payment of his
obligation.
2. ;his is similar to the benefit of
e$haustion in that it should be claimed
at the time demand for payment is
made (Art !M(M), and in that it ceases
to e$ist under circumstances in Art
!M'A.
SECTION +
Effects of Guarant$
,et&een t"e De(tor
and t"e Guarantor
Art. 2066. "he guarantor who pays for a
debtor must be indemnified by the latter.
"he indemnity comprises%
'.( "he total amount of the debt;
).( "he legal interests thereon from the
time the payment was made known to
the debtor, even though it did not
earn interest for the creditor;
,.( "he e#penses incurred by the
guarantor after having notified the
debtor that payment had been
demanded of him;
-.( >amages, if they are due.
Art. 2067. "he guarantor who pays is
subrogated by virtue thereof to all the rights
which the creditor had against the debtor.
If the guarantor has compromised with the
creditor, he cannot demand of the debtor more
than what he has really paid.
A guarantor who pays the debt is entitled
to every remedy which the creditor has
against the principal debtor, to enforce
every security and all means of paymentsD
to stand in the place of the creditor not
only through the medium of the contract,
but even by means of the securities
entered into w7out the "nowledge of the
suretyD having the right to have those
securities transferred to him though there
was no stipulation for it, and to avail himself
of all securities against the debtor
Art. 2068. If the guarantor should pay without
notifying the debtor, the latter may enforce
against him all the defenses which he could have
set up against the creditor at the time the
payment was made.
Art. 2069. If the debt was for a period and the
guarantor paid it before it became due, he
cannot demand reimbursement of the debtor
until the e#piration of the period unless the
payment has been ratified by the debtor.
Art. 2070. If the guarantor has paid without
notifying the debtor, and the latter not being
aware of the payment, repeats the payment, the
former has no remedy whatever against the
debtor, but only against the creditor.
6evertheless, in case of a gratuitous guaranty, if
the guarantor was prevented by a fortuitous
event from advising the debtor of the payment,
and the creditor becomes insolvent, the debtor
shall reimburse the guarantor for the amount
paid.
Art. 2071. "he guarantor, even before having
paid, may proceed against the principal debtor%
'.( 0hen he is sued for the payment;
).( In case of insolvency of the principal
debtor;
,.( 0hen the debtor has bound himself to
relieve him from the guaranty within a
specified period, and this period has
e#pired;
-.( 0hen the debt has become demandable,
by reason of the e#piration of the period
for payment;
..( fter the lapse of ten years, when the
principal obligation has no fi#ed period for
its maturity, unless it be of such nature
that it cannot be e#tinguished e#cept
within a period longer than ten years;
2.( If there are reasonable grounds to fear
that the principal debtor intends to
abscond;
1.( If the principal debtor is in imminent
danger of becoming insolvent.
In all these cases, the action of the guarantor is
to obtain 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.
;his article constitutes en e$ception to the
general rule that the guarantor can sue the
debtor only after he has paid the debt. >t
must be restrictively construed and cannot
2)
be e$tended to cases not e$pressly
enumerated.
;his article is li"ewise applicable to a
surety.
Art. 2072. If one, at the request of another,
becomes a guarantor for the debt of a third
person who is not present, the guarantor who
satisfies the debt may sue either the person so
requesting or the debtor for reimbursement.

SECTION -
Effects of Guarant$ as
,et&een Co<Guarantors

Art. 2073. 0hen there are two or more
guarantors of the same debtor and for the
same debt, the one among them who has paid
may demand of each of the others the share
which is proportionally owing from him.
If any of the guarantors should be insolvent,
his share shall be borne by the others,
including the payer, in the same proportion.
"he provisions of this article shall not be
applicable, unless the payment has been made
by virtue of a !udicial demand or unless the
principal debtor is insolvent.
;his article deals with the situation which
arises when one guarantor has paid the
debt to the creditor and is see"ing
contribution from his coguarantors. >t is
required that the guarantor paying the
debt should have made payment by virtue
of judicial proceedings or when the
principal debtor should have become
solvent or ban"rupt.
Art. 2074. In the case of the preceding article,
the co3guarantors may set up against the one
who paid, the same defenses which would have
pertained to the principal debtor against the
creditor, and which are not purely personal to
the debtor.
Art. 2075. sub3guarantor, in case of the
insolvency of the guarantor for whom he bound
himself, is responsible to the co3guarantors in
the same terms as the guarantor.

CHAPTER 3
EXTINGUISHMENT OF
GUARANTY

Art. 2076. "he obligation of the guarantor is
e#tinguished at the same time as that of the
debtor, and for the same causes as all other
obligations.
Art. 2077. If the creditor voluntarily accepts
immovable or other property in payment of the
debt, even if he should afterwards lose the same
through eviction, the guarantor is released.
Art. 2078. release made by the creditor in
favor of one of the guarantors, without the
consent of the others, benefits all to the e#tent
of the share of the guarantor to whom it has
been granted.
Art. 2079. n e#tension granted to the debtor
by the creditor without the consent of the
guarantor e#tinguishes the guaranty. "he mere
failure on the part of the creditor to demand
payment after the debt has become due does not
of itself constitute any e#tention of time referred
to herein.
Reason
;o avoid prejudice to the guarantor.
;he mere fact that the creditor does not
demand fulfillment of the obligation upon
the same becoming due does not release
the guarantor. >n the ff cases, however,
such a delay e$tinguishes the guaranty@ (1)
when delay is for such length of time as to
allow prescription of the action to enforce
paymentD (!) when upon maturity the
guarantor requires the creditor to enforce
payment against the debtor, but the creditor
fails to act and the debtor subsequently
becomes insolvent.
;his article applies to sureties.
Art. 2080. "he guarantors, even though they be
solidary, are released from their obligation
whenever by some act of the creditor they
cannot be subrogated to the rights, mortgages,
and preference of the latter.
NOTES
1. >f the difficulty or impossibility of the
subrogation by the guarantor to the
rights of the creditor is attributable to
the guarantor, he cannot be released
from the obligation.
!. >f the guarantor has already paid the
creditor when the latter allows his liens
and preferences to be e$tinguished, said
2+
creditor will have to indemnify the
guarantor for the damages which he
may suffer thereby.
Art. 2081. "he guarantor may set up against
the creditor all the defenses which pertain to
the principal debtor and are inherent in the
debt; but not those that are personal to the
debtor.
NOTE
>nherent to the debt are all those
connected w7 the obligation secured by the
bond, all those which contribute to wea"en
or destroy the vinculum juris e$isting
between the creditor and principal debtor,
all means of defense which may invalidate
the original contract from which right of
action of the creditor arises against the
surety, such as defenses of fraud or
violence, which annul consent, that of sine
action agis founded on payment already
made, that of res adjudicate, that of
prescription, that of nullity of the loan
made to a minor child, and others of the
same class.
CHAPTER 4
LEGAL AND JUDICIAL
ONDS

Art. 2082. "he bondsman who is to be offered
in virtue of a provision of law or of a !udicial
order shall have the qualifications prescribed in
rticle )4.2 and in special laws.
Art. 2083. If the person bound to give a bond
in the cases of the preceding article, should not
be able to do so, a pledge or mortgage
considered sufficient to cover his obligation
shall be admitted in lieu thereof.
Art. 2084. !udicial bondsman cannot
demand the e#haustion of the property of the
principal debtor.
sub3surety in the same case, cannot demand
the e#haustion of the property of the debtor of
the surety.
CASES
E. ZOBEL, INC. v CA
%pouses Raul ad =lea 7la'eria( doig busiess uder
the ame D!gro Bro&ers(D applied for a loa wH
7osolidated Ba& ad 6rust 7orporatio 8ow
%5A"4B!2E9 to fiace the purchase of 2 maritime
barges ad 1 tugboat which would be used i their
molasses busiess. 6he loa was grated sub.ect to the
coditio that the spouses e1ecute a chattel mortgage
o'er the 3 'essels to be ac3uired ad that a cotiuig
guaratee be e1ecuted b# =. Qobel( "c.( i fa'or of
%5A"4B!2E. 6he spouses agreed. 7ose3uetl#( a
chattel mortgage ad a 7otiuig Guarat# were
e1ecuted. %pouses defaulted i the pa#met of the
etire obligatio upo maturit#. %5A"4B!2E filed a
complait for sum of moe# with a pra#er for a writ of
prelimiar# attachmet( agaist spouses ad = Qobel. =.
Qobel mo'ed to dismiss the complait o the groud that
its liabilit# as guarator of the loa was e1tiguished
pursuat to !rt 2*+* 77. "t argued that it has lost its
right to be subrogated to the first chattel mortgage i
'iew of %5A"4B!2E>s failure to register the chattel
mortgage with the appropriate go'ermet agec#.
%5A"4B!2E opposed the motio cotedig that !rt
2*+* is ot applicable because petitioer is ot a
guarator but a suret#.
WON E- Bo!el under the *)ontinuing <uaranty*
o!ligated itself to SO&('B%NK as a guarantor or a
surety 4 S$7ETY
! cotract of suret# is a accessor# promise b# which a
perso bids himself for aother alread# boud( ad
agrees with the creditor to satisf# the obligatio if the
debtor does ot.
! cotract of guarat#( o the other had( is a collateral
uderta&ig to pa# the debt of aother i case the latter
does ot pa# the debt.
Guarat# ad suret# are earl# related( ad ma# of the
priciples are commo to both. @owe'er( uder our ci'il
law( the# ma# be "#s$#%&'#s()" thus$
%uret# I isurer of the debt ad obligates himself to
pa# if pricipal does ot pa#
0suall# boud wH his pricipal b# the same
istrumet( e1ecuted at the same time( ad o
the same cosideratio.
! origial promissor ad debtor from the
begiig( ad is held( ordiaril#( to &ow e'er#
default of his pricipal.
2ot discharged b# the mere idulgece of the
creditor to the pricipal or b# wat of otice of
the default of the pricipal( o matter how much
he ma# be i.ured thereb#.
Guarat# I isurer of the isol'ec# of the debtor
thus bids himself if pricipal if uable to pa#
Guarator>s ow separate uderta&ig( i which
the pricipal does ot .oi.
0suall# etered ito before or after that of the
pricipal
5fte supported o a separate cosideratio
5rigial cotract of Guarator>s pricipal is ot
his cotract( ad he is ot boud to ta&e otice of
its o;performace.
Guarator>s ofte discharged b# the mere
idulgece of the creditor to the pricipal( ad is
usuall# ot liable uless otified of the default of
the pricipals.
Based o the aforemetioed defiitios( it appears that
the cotract e1ecuted b# petitioer i fa'or of
%5A"4B!2E( albeit deomiated as a D7otiuig
Guarat#(D is a cotract of suret#. 6he terms of the
cotract categoricall# obligates petitioer as Dsuret#D to
2-
iduce %5A"4B!2E to e1ted credit to the spouses.
6his ca be see i the followig stipulatios. 6he
cotract clearl# disclosed that =. Qobel assumed
liabilit# to %5A"4B!2E( as a regular part# to the
uderta&ig ad obligated itself as a origial
promissor. "t boud itself .oitl# ad se'erall# to the
obligatio with the spouses. " fact( %5A"4B!2E
eed ot resort to all other legal remedies or e1haust
spouses> properties before it ca hold =. Qobel liable
for the obligatio. 6he use of the term DguarateeD
does ot ipso facto mea that the cotract is oe of
guarat#. !uthorities recogi<e that the word
DguarateeD is fre3uetl# emplo#ed i busiess
trasactios to describe ot the securit# of the debt
but a itetio to be boud b# a primar# or
idepedet obligatio. 6he iterpretatio of a
cotract is ot limited to the title aloe but to the
cotets ad itetio of the parties.
TOCAO v CA
Belo itroduced 2eita !a# to petitioer ,ar.orie
6ocao ad the# all agreed to eter ito a .oit 'eture
importig ad distributig &itche coo&wares from
Best Bed 7ompa# i the 0%!.
Belo would be the fiacier( !a# would be assiged
to mar&etig ad sales ad 6ocao would be presidet
ad maager. 6he parties agreed that BeloJs ame
would ot appear i a# documet relatig to Best
bed.
the parties further agreed that !a# would be etitled
to$ 1* / aual et profits( o'erridig commissio of 6
/ of the o'erall wee&l# productio( 3* / of the sales
she would ma&e ad 2 / for her demostratio
ser'ices.the agreemet was ot reduced to writig o
the stregth of BeloJs assuraces that he was sicere(
depedable ad hoest.
Belo siged a memo etitlig !a# to her 3) /
commissio for her persoal sales which were said to
be part of her 1*/ share of profits.
o oct -( 1-+) !a# leared that she was remo'ed as
'ice presidet of the compa#. %he was also barred
from holdig office i their ma&ati ad cubao offices.
!a# attempted to cotact Belo demadig her
o'erridig commissio ad a audit to determie her
share of the profits.
Belo asserted that !a# was ot supposed to recei'e
a share of the profits. But he admitted that he had
agreed to gi'e !a# 3;4/ share i the gross sales of
the coo&ware. @e deied cotributig capital to the
busiess ad said he was merel# a guarator of 6ocao
who was ew i the busiess.
the %c held that Belo is a ot guarator.
BeloJs deial that he fiaced the partership is
uteable sice it was established that he presided
o'er meetigs ad he himself authori<ed that !a#
should recei'e her 3)/ commissio. "t shows that he
had a proprietar# iterest i the busiess. BeloJs claim
that he was a guarator is belied b# that act of
proprietorship.
if Belo were ideed a guarator of future debts of
6ocao he should ha'e preseted documetar#
e'idece. Bhile art 2*55 pro'ides that guarat# must
be e1press( art 14*3 o the statute of frauds re3uires
that Ka special promise to aswer foe debt( default or
miscarriage of aotherL be i writig.
SPOUSES TOH v SOLIDBANK
%5A"4B!2E !GR==4 65 =R6=24 a Domibus lieD
credit facilit# worth P1*, i fa'or of ?BP7. !mog the
documets essetial for the credit facilit# was a
7otiuig Guarat# for a# ad all amouts siged b#
Auis 87hair9 ad Vic&# 6a 6oh 8VP9( Eeeth 8Pres9
ad ,a. Victoria 2g Ai 8G,9. 6he 7otiuig Guarat#
set forth o ma1imum limit o the idebtedess that
?BP7 ma# icur ad for which the sureties ma# be
liable( statig that the credit facilit# *co+ers any and all
e.isting inde!tedness of and such other loans and
credit facilities "hich may hereafter !e granted to
?B,)-* 6he effecti'it# of the 7otiuig Guarat# was
ot cotiget upo a# e'et or cause other tha the
writte re'ocatio of it with otice to the Ba& that ma#
be e1ecuted b# the sureties.
?BP7 started to a'ail of the credit facilit# ad procure
letters of credit. @owe'er( the Ba& recei'ed iformatio
that spouses 2g Ai had frauduletl# departed from their
co.ugal home. 6he Ba& ser'ed a demad letter upo
?BP7 ad Auis 6oh ad also i'o&ed the 7otiuig
Guarat#. Ba& filed a complait for sum of moe#
agaist ?BP7( spouses 2g Ai( ad spouses 6oh.
6oh spouses allege that the# were made to sig papers
i bla& ad the 7otiuig Guarat# could ha'e bee
oe of them. %pouses 6oh asserted( it was impossible
ad absurd for them to ha'e freel# ad cosciousl#
e1ecuted the suret# sice the# had alread# di'ested
their shares i ?BP7.
B52 the 7otiuig Guarat# is ot legall# 'alid ad
bidig agaist the spouses for ha'ig bee e1ecuted
log after the# had withdraw from ?BP7 ; V!A"4.
6here is o basis for spouses to limit their resposibilit#
o the cotract so log as the# were corporate officers
ad stoc&holders of ?BP7. 2othig i the 7otiuig
Guarat# restricts their cotractual uderta&ig to such
coditio or e'etualit#. " fact the obligatios assumed
b# them therei subsist *upon the undersigned the
heirs e.ecutors administrators successors and assigns
of the undersigned and shall inure to the !enefit of and
!e enforcea!le !y you your successors transferees
and assigns* ad that their commitmet *shall remain in
full force and effect until "ritten notice shall ha+e !een
recei+ed !y Cthe Ban0D that it has !een re+o0ed !y the
undersigned-D
6he# are persoall# boud. 6here is o law that prohibits
a corporate officer from bidig himself persoall# to
aswer for a corporate debt. Bhile the limited liabilit#
doctrie is iteded to protect the stoc&holder b#
immui<ig him from persoal liabilit# for the corporate
debts( he ma# e'ertheless di'est himself of this
protectio b# 'olutaril# bidig himself to the pa#met
of the corporate debts.
B52 the suret# agreemet has bee e1tiguished b#
the material alteratios made b# the Ba& ; F=%
6he stipulatio i the 7otiuig Guarat# that the Ba&
*may at any time or from time to time in CitsD discretion .
. . e.tend or change the time payment* e'e if
uderstood as a wai'er is cofied per se to the grat of
a e1tesio ad does ot surreder the prere3uisites
madated i the Dletter;ad'ise.D " other words( the
authorit# of the Ba& to defer collectio cotemplates
ol# authori<ed e1tesios( that is( those that meet the
terms of the Dletter;ad'ise.D
0der !rt. 2*55 of the 77( the liabilit# of a suret# is
measured b# the terms of his cotract( ad while he is
liable to the full e1tet thereof( his accoutabilit# is
strictl# limited to that assumed b# its terms. 6he
3*
e1tesios of the letters of credit made b# the Ba&
wHout obser'ig the rigid restrictios for e1ercisig the
pri'ilege are ot co'ered b# the wai'er stipulated i
the 7otiuig Guarat#. ='idetl#( the# costitute
illicit e1tesios prohibited uder !rt. 2*)- 77( *CaDn
e.tension granted to the de!tor !y the creditor "ithout
the consent of the guarantor e.tinguishes the
guaranty-*
6he cose3uece of omissios committed b# the Ba&
is to discharge the suret#( petitioers herei( uder !rt.
2*+* of the 77( or at the 'er# least( mitigate the
liabilit# of the suret# up to the 'alue of the propert# or
lie released I (f the creditor . . . has ac1uired a lien
upon the property of a principal the creditor at once
!ecomes charged "ith the duty of retaining such
security or maintaining such lien in the interest of the
surety and any release or impairment of this security
as a primary resource for the payment of a de!t "ill
discharge the surety to the e.tent of the +alue of the
property or lien released . . . . CforD there immediately
arises a trust relation !et"een the parties and the
creditor as trustee is !ound to account to the surety for
the +alue of the security in his hands-
6he omissio or egligece of the Ba& i failig to
safe;&eep the securit# pro'ided b# the margial
deposit ad the 25/ re3uiremet results i the
material alteratio of the pricipal cotract ad
cose3uetl# releases the suret#. 6his iferece was
admitted b# the Ba& through the testimo# of its loe
witess that *C"Dhene+er this o!ligation !ecomes due
and demanda!le e.cept "hen you roll it o+er EsoF
there is no+ation there on the original o!ligations-* !s
has bee said( Dif the suretyship contract "as made
upon the condition that the principal shall furnish the
creditor additional security and the security !eing
furnished under these conditions is after"ards
released !y the creditor the surety is "holly
discharged "ithout regard to the +alue of the
securities released for such a transaction amounts to
an alteration of the main contract-*
SEVERINO v. SEVERINO
6he plaitiff ?abiola %e'erio is the recogi<ed atural
daughter of ,elecio %e'erio. 0po the death of
,elecio %e'erio he left cosiderable propert# ad
litigatio esued betwee his widow( ?elicitas
Villaue'a( ad ?abiola %e'erio ad other heirs of
the deceased o the other part.
a compromise was effected b# which Guillermo
%e'erio( a so of ,elecio %e'erio( too& o'er the
propert# pertaiig to the estate of his father at the
same time agreeig to pa# P1**(*** to ?elicitas
Villaue'a ad ?abiola %e'erio.
6his sum of moe# was made pa#able( first( P4*(***
i cash upo the e1ecutio of the documet of
compromise( ad the balace i three se'eral
pa#mets of P2*(*** at the ed of oe #ear( two
#ears( ad three #ears respecti'el#. 6o this cotract
the appellat =ri3ue =chaus affi1ed his ame as
guarator.
5f the remaiig P6*(***( all as #et upaid( ?abiola
%e'erio is etitled to the sum of P2*(***.
"t was stipulated that the last P2*(*** correspodig
to ?abiola ad the last P5(*** correspodig to
?elicitas Villaue'a should be retaied o deposit util
the defiite status of ?abiola %e'erio as atural
daughter of ,elecio %e'erio should be established.
?abiola %e'erio istituted a actio for the purpose of
reco'erig the sum of P2*(*** from Guillermo %e'erio
ad =ri3ue =chaus( the latter i the character of
guarator for the former.
6he %7 held that =ri3ue =chaus is boud as a
guarator.
! guarator or suret# is boud b# the same
cosideratio that ma&es the cotract effecti'e betwee
the pricipal parties thereto.
6he compromise ad dismissal of a lawsuit is
recogi<ed i law as a 'aluable cosideratio: ad the
dismissal of the actio which ?elicitas Villaue'a ad
?abiola %e'erio had istituted agaist Guillermo
%e'erio was a ade3uate cosideratio to support the
promise o the part of Guillermo %e'erio to pa# the
sums of moe# stipulated i the cotract which is the
sub.ect of this actio.
6he promise of the appellat =chaus as guarator is
therefore bidig.
"t is e'er ecessar# that a guarator or suret# should
recei'e a# part of the beefit( if such there be( accruig
to his pricipal.
RCBC v ARRO
Residoro 7hua ad =ri3ue Go( %r. e1ecuted a
comprehesi'e suret# agreemet to guarat#( amog
others( a# e1istig idebtedess of 4a'ao !gricultural
"dustries 7orporatio( and/or to induce the !an0 at any
time or from time to time thereafter to ma0e loans or
ad+ances or to e.tend credit in other manner to or at
the re1uest or for the account of the Borro"er either
"ith or "ithout security and/or to purchase on discount
or to ma0e any loans or ad+ances e+idenced or secured
!y any notes !ills recei+a!les drafts acceptances
chec0s or other e+idences of inde!tedness upon "hich
the Borro"er is or may !ecome lia!le pro+ided that the
lia!ility shall not e.ceed at any one time the aggregate
principal sum of ,233T-
! promissor# ote i the amout of P1**6 was issued i
fa'or of R7B7. 6he ote was siged b# Go( i his
persoal capacit# ad i behalf of 4aicor. 6he
promissor# ote was ot full# paid despite repeated
demads: hece( R7B7 filed a complait for a sum of
moe# agaist 4aicor( Go ad 7hua.
WON )hua is lia!le to pay the o!ligation e+idenced !y
the promissory note "hich he did not sign in the light of
the pro+isions of the comprehensi+e surety agreement 4
YES
6he comprehesi'e suret# agreemet was .oitl#
e1ecuted b# 7hua ad Go( Presidet ad Geeral
,aager( respecti'el# of 4aicor to co'er e1istig as well
as future obligatios which 4aicor ma# icur with R7B7(
sub.ect ol# to the pro'iso that their liabilit# shall ot
e1ceed at a# oe time the aggregate pricipal sum of
P1**6.
6he agreemet was e1ecuted ob'iousl# to iduce R7B7
to grat a# applicatio for a loa 4aicor ma# desire to
obtai from the ba&. 6he guarat# is a cotiuig oe
which shall remai i full force ad effect util the ba&
is otified of its termiatio.
!t the time the loa of P1**6 was obtaied from R7B7
b# 4aicor( for the purpose of ha'ig a additioal capital
for bu#ig ad sellig coco;shell charcoal ad
importatio of acti'ated( carbo( the comprehesi'e
suret# agreemet was admittedl# i full force ad effect.
6he loa was( therefore( co'ered b# the said agreemet(
ad 7hua( e'e if he did ot sig the promissor# ote( is
31
liable b# 'irtue of the suret# agreemet. 6he ol#
coditio that would ma&e him liable uder the
agreemet is that 4aicor *is or may !ecome lia!le as
ma0er endorser acceptor or other"ise-* 6here is o
doubt that 4aicor is liable o the( promissor# ote
e'idecig( the idebtedess.
6he suret# agreemet is a accessor# obligatio( it
beig depedet upo a pricipal oe which( i this
case is the loa obtaied b# 4aicor as e'ideced b# a
promissor# ote.
DIO vs. CA
06=?%( thru its represetati'e 0# 6iam( applied for
ad obtaied credit accommodatios from ,etroba&
i the sum of P)**(***.**. 6o secure the credit
accommodatios 2orberto 0# ad Jacito 0# 4iMo
e1ecuted separate 7otiuig %uret#ships( dated 25
?ebruar# 1-)).
" 1-)) N 1-)+( 06=?% obtaied ad full# settled
credit accommodatio from ,=6R5B!2E. " 1-)-( a
irre'ocable letter of credit was applied for ad obtaied
b# 06=?%. @owe'er( 4io was ot as&ed to e1ecute
a# suret#ship to guaratee pa#met of the 1-)- letter
of credit. 2either did ,=6R5B!2E or 06=?% iform
them that the 1-)- Aetter of 7redit has bee opeed
ad the 7otiuig %uret#ships e1ecuted i ?ebruar#(
1-)) shall guaratee its pa#met. But 06=?% did ot
ac3uiesce to the obligator# stipulatios i the trust
receipt. ,=6R5B!2E set letters to 06=?% ad its
sureties( 2orberto 0# ad Jacito 0# 4iMo( demadig
pa#met of the amout due.
4iMo( thru cousel( deied his liabilit# for the amout
demaded ad re3uested ,=6R5B!2E to sed him
copies of documets showig the source of his liabilit#.
6he ba& iformed him that the source of his liabilit# is
the 7otiuig %uret#ship which he e1ecuted o
?ebruar# 25( 1-)). 4iMo maitaied that he caot be
held liable for the 1-)- credit accommodatio because
it is a ew obligatio cotracted without his
participatio. Besides( the 1-)) credit accommodatio
which he guarateed has bee full# paid.
@=A4$ 6he petitioers ma# be held liable as sureties
for the obligatio cotracted b# 0# 6iam with
,=6R5B!2E o 3* ,a# 1-)- uder ad b# 'irtue of
the 7otiuig %uret#ship !greemets siged i 1-)).
0der the 7i'il 7ode( a guarat# ma# be gi'e to
secure e'e future debts( the amout of which ma#
ot &ow at the time the guarat# is e1ecuted. 6his is
the basis for cotracts deomiated as cotiuig
guarat# or suret#ship.
! cotiuig guarat# is oe which is ot limited to a
sigle trasactio( but which cotemplates a future
course of dealig( co'erig a series of trasactios(
geerall# for a idefiite time or util re'o&ed. "t is
prospecti'e i its operatio ad is geerall# iteded
to pro'ide securit# with respect to future trasactios
withi certai limits( ad cotemplates a successio of
liabilities( for which( as the# accrue( the guarator
becomes liable.
! cotiuig guarat# is oe which co'ers all
trasactios( icludig those arisig i the future(
which are withi the descriptio or cotemplatio of
the cotract( of guarat#( util the e1piratio or
termiatio thereof. ! guarat# shall be costrued as
cotiuig whe b# the terms thereof it is e'idet that
the ob.ect is to gi'e a stadig credit to the pricipal
debtor to be used from time to time either idefiitel# or
util a certai period( especiall# if the right to recall the
guarat# is e1pressl# reser'ed.
Bhere the cotract of guarat# states that the same is to
secure ad'aces to be made Dfrom time to timeD the
guarat# will be costrued to be a cotiuig oe.
6he stipulatios i the suret#ship agreemet re'eal that
the suret#ship agreemet i the case at bar are
cotiuig i ature. Petitioers do ot de# this: i fact(
the# cadidl# admitted it. 2either ha'e the# deied the
fact that the# had ot re'o&ed the suret#ship
agreemets.
Bhe the "rre'ocable Aetter of 7redit was obtaied from
appellat ba&( the suret#ships were i full force ad
effect. ='e if sureties did ot sig the D7ommercial
Aetter of 7redit ad !pplicatio( the# are still liable as
the credit accommodatio 8letter of creditHtrust receipt9
was co'ered b# the said suret#ships. Bhat ma&es them
liable thereuder is the coditio which pro'ides that the
Borrower Dis or ma# become liable as ma&er( edorser(
acceptor or otherwise.D !d sice 06=?% was liable as
pricipal obligor for ha'ig failed to fulfill the obligator#
stipulatios i the trust receipt( the# as isurers of its
obligatio( are liable thereuder.
TAEDO vs. ALLIED BANKING CORPORATION
!llied filed a complait with prelimiar# attachmet to
reco'er sums of moe# from 7heg Ba Fe& 7o.( "c.
o its ) past due promissor# otes with pricipal
amouts totalig P1*,( from !lfredo 7hig ad =milio
6aMedo uder a 7otiuig Guarat# pro'idig for .oit
ad se'eral liabilit# relati'e to the said promissor# otes.
6he prelimiar# attachmet sought was grated upo
the re3uired bod ad was maitaied despite !lliedJs
efforts to ha'e it discharged.
Both !llied Ba&ig 7orporatio ad 7heg Ba Fe& N
7o.( "c. appealed from the summar# .udgmet.
!lliedJs appeal is limited to the portio which declared
!ldredo 7hig ad =milio 6aMedo as free from a#
liabilit# uder the 7otiuig Guarat#.
B52 the e1ecutio b# the Ba& of the ?ourth
!medator# !greemet e1tiguished 6aedoJs
obligatios as suret# ; 25
6he amedator# agreemet betwee !llied Ba&ig
7orporatio ad 7heg Ba Fe& N 7o.( "c. e1teded
the maturit# of the promissor# otes wHout otice or
coset of 6aedo as suret# of the obligatios.
@owe'er( the Kcotiuig guarateeL e1ecuted b#
6aedo pro'ided that he cosets ad agrees that the
ba& ma#( at a# time or from time to time e1ted or
chage the time of pa#mets adHor the maer( place
or terms of pa#met of all such istrumets( loas(
ad'aces( credits or other obligatios guarateed b# the
suret#. @ece( the e1tesios of the loas did ot
release the suret#.
Bhether the Kcotiuig guarateeL e1ecuted b# 6aedo
is a cotract of 8suret#9 adhesio I F=% but V!A"4
='e if the Kcotiuig guarateeL were cosidered as
oe of adhesio( we fid the cotract of Ksuret#L 'alid
because 6aedo was Kfree to re.ect it etirel#L. 6aedo
was a stoc&holder ad officer of 7heg Ba Fe& ad
7o.( "c. ad it was commo busiess ad ba&ig
practice to re3uire KsuretiesL to guaratee corporate
obligatios.
SOUTHERN MOTORS, INC. v BARBOSA,
32
Plaitiff( %outher ,otors( "c.( brought this actio
agaist =liseo Barbosa( to foreclose a real estate
mortgage( costituted b# the latter i fa'or of the
former( as securit# for the pa#met of the sum of
P2(++-.53 due to said plaitiff from oe !lfredo
Brillates( who had failed to settle his obligatio i
accordace with the terms ad coditios of the
correspodig deed of mortgage.
4efedat =liseo Barbosa filed a aswer admittig
the allegatios of the complait ad allegig( b# wa# of
Dspecial ad affirmati'eD defese$
D6hat the defedat herei has e1ecuted the deed of
mortgage !e1 ! for the ol# purpose of
guarateeig ; as suret# adHor guarator ; the
pa#met of the abo'e metioed debt of ,r. !lfredo
Brillates i fa'or of the plaitiff.
D6hat the plaitiff util ow has o right actio agaist
the herei defedat o the groud that said plaitiff(
without moti'e whatsoe'er( did ot itet or itet to
e1haust all recourses to collect from the true debtor
,r. !lfredo Brillates the debt cotracted b# the latter
i fa'or of said plaitiff( ad did ot resort or iteds
to resort all the legal remedies agaist the true debtor
,r. !lfredo Brillates( otwithstadig the fact that
said ,r. !lfredo Brillates is sol'et ad has ma#
properties withi the Pro'ice of "loilo.D
6he %7 held that the mortgage i 3uestio could be
foreclosed although plaitiff had ot e1hausted( ad
did ot ited to e1haust( the properties of his pricipal
debtor( !lfredo Brillates.
6he right of guarators( uder !rticle 2*5+ of the 7i'il
7ode of the Philippies( to demad e1haustio of the
propert# of the pricipal debtor( e1ists ol# whe a
pledge or a mortgage has ot bee gi'e as special
securit# for the pa#met of the pricipal obligatio.
"t has bee held alread# that a mortgagor is ot
etitled to the e1haustio of the propert# of the
pricipal debtor.
!lthough a ordiar# persoal guarator ; ot a
mortgagor or pledgor ; ma# demad the
aforemetioed e1haustio( the creditor ma#( prior
thereto( secure a .udgmet agaist said guarator(
who shall be etitled( howe'er( to a defermet of the
e1ecutio of said .udgmet agaist him util after the
properties of the pricipal debtor shall ha'e bee
e1hausted to satisf# the obligatio i'ol'ed i the
case.
*ISE & CO. v TANGLAO
Bise N 7o. istituted a ci'il case agaist 7orelio 7.
4a'id( its aget( for the reco'er# of a certai sum of
moe#. 6he amout claimed from him was the result
of a li3uidatio of accouts showig that he was
idebted i said amout. Bise as&ed ad obtaied a
prelimiar# attachmet of 4a'id>s propert#. 6o a'oid
e1ecutio( 4a'id succeeded i ha'ig his !ttore#
6aglao e1ecute a power of attore# i his fa'or$ To
sign for me as guarantor for himself in his
inde!tedness to Wise G )ompany and to mortgage
my lot to guarantee the said o!ligations to the Wise G
)ompany-
6he parties came up with a compromise agreemet
where 4a'id cofessed .udgmet which he boud
himself to pa# b# mothl# istallmet. !s securit# for
the pa#met( 4a'id bids i fa'or of( ad pledges to
the plaitiff( real real properties which iclude a house(
apartmets( parcel of lad which 4a'id holds a %P!
to pledge the same i fa'or of Bise as a guaratee for
the pa#met of the claim agaist him. @owe'er( 4a'id
was ot able to completel# pa#. Bise ow files a case
agaist 6aglao for the reco'er# of the balace.
@=A4$ 6!2GA!5 256 ! %0R=6F. 6here is o doubt
that 6aglao empowered 4a'id( i his ame( to eter
ito a cotract of suret#ship ad a cotract of mortgage
of the propert# with Bise. @owe'er( 4a'id used said
power of attore# ol# to mortgage the propert# ad did
ot eter ito cotract of suret#ship. 2othig is stated to
the effect that 6aglao became 4a'id>s suret# for the
pa#met of the sum i 3uestio. 2either is this iferable
from a# of the clauses thereof( ad e'e if this
iferece might be made( it would be isufficiet to
create a obligatio of suret#ship which( uder the law(
must be e1press ad caot be presumed.
6aglao could ot ha'e cotracted a# persoal
resposibilit#. 6he ol# obligatio created o the part of
6aglao is that resultig from the mortgage of a propert#
belogig to him to secure pa#met. @owe'er( a
foreclosure suit is ot istituted i this case agaist
6aglao( but a purel# persoal actio for the reco'er# of
the amout still owed b# 4a'id.
!t a# rate( e'e gratig that 6aglao ma# be
cosidered as a suret#( the actio does ot #et lie
agaist him o the groud that all the legal remedies
agaist the debtor ha'e ot pre'iousl# bee e1hausted.
6he plaitiff has i its fa'or a .udgmet agaist debtor
4a'id for the pa#met of debt. "t does ot appear that
the e1ecutio of this .udgmet has bee as&ed for ad
4a'id has two pieces of propert# the 'alue of which is i
e1cess of the balace of the debt the pa#met of which
is sought of 6aglao i his alleged capacit# as suret#.
S+,UIA v JACINTO
6he Ba& of the Philippie "slads obtaied a .udgmet
agaist Perfecto ad ?elipe Jacito ad Rafael Palma
o a promissor# ote i its fa'or e1ecuted b# the
defedats o ,a# 2)( 1-22( for the sum of P24(***
with iterest at the rate of - per cet per aum plus 1*
per cet of the pricipal as costs ad attore#>s fees.
the Ba& of the Philippie "slads Di cosideratio of
the sum of P1 ad other 'aluable cosideratiosD
assiged ad trasferred said .udgmet to Gregorio
%#3uia.
6he widow of Gregorio %#3uia( as admiistratri1 of his
estate( filed suit i the 7ourt of ?irst "stace of ,aila
agaist Perfecto ad ?elipe Jacito ad Rafael Palma
recitig the aforemetioed .udgmet ad assigmet
ad allegig that sice the date of said .udgmet oe of
the defedats had paid a#thig thereo ad there
remais still due the sum of P24(*** with iterest at -
per cet sice ,a# 2)( 1-23.
6he plaitiff pra#ed that the .udgmet be re'i'ed ad
that the defedats Perfecto ad ?elipe Jacito as
pricipal ad Rafael Palma as guarator be ad.udged to
pa# the sum of P24(*** with iterest sice ,a# 2)(
1-23( ad costs. 6o this petitio were attached a cop# of
the .udgmet of 4ecember 15( 1-24( ad a cop# of the
assigmet thereof to the plaitiff.
6he defedats filed a .oit ameded aswer i which
the# admitted the .udgmet ad that said .udgmet had
lapsed ad it was ecessar# to re'i'e the same: but the#
deied the assigmet to %#3uia ad the allegatio that
othig had bee paid o said .udgmet ad that the full
amout thereof was still due.
33
6he# set up as a special defese that the .udgmet
which the plaitiff was attemptig to re'i'e has bee
full# paid: that at the time of ma&ig the assigmet to
Gregorio %#3uia( the ba& had o right or iterest
uder said .udgmet( the same ha'ig bee full# paid(
ad that the petitio does ot state facts sufficiet to
costitute a cause of actio.
6he %7 held that Rafael Palma as guarator ma# be
held cotigetl# liable ol# i the sum of P3(*36.24
uder said .udgmet(
" the istat case( although it was alleged the
propert# was sold for greatl# below its 'alue( the
defedats did ot e1ercise a# right of redemptio.
Be hold( therefore( that the .udgmet debt i its
etiret# was ot discharged before the actio for the
re'i'al of the .udgmet was brought.
the ma.orit# of the court are of the opiio that there
should be credited upo the .udgmet for the beefit of
the guarator aloe the sum of P1*(56*( beig the
re'eues collected ad retaied durig the #ear of
redemptio b# Gregorio %#3uia from said properties(
accordig to the testimo# of Perfecto Jacito.
"t is coceded that Palma as guarator is still etitled
to the beefits of articles 1+3*( 1+32 ad 1+52 of the
7i'il 7ode.
0p to the preset( the .udgmet creditor has made o
demad o Palma. Joiig him i the suit agaist the
pricipal debtor is ot the demad iteded b# article
1+32 of the 7i'il 7ode.
6hat demad ca be made ol# after .udgmet o the
debt( for ob'iousl# the De1haustio of the pricipal>s
propert#D the beefit of which the guarator claims
caot e'e begi to ta&e place before .udgmet has
bee obtaied. 5l# the ca the creditor Dle'# upo
the propert# of the pricipalD ol# the ca the liabilit#
of the creditor begi uder article 1+33 of the 7i'il
7ode. "t would be absurd a futile to poit out
Dsaleable propert# of the debtorD at the iceptio of the
suit( whe it caot be sei<ed or sold( ad re3uire the
creditor to ma&e a Dle'#D upo it.
6here is o competet e'idece that the pricipal
debtors( Perfecto ad ?elipe Jacito( are isol'et ;
e'e if the# were ow( there ca be o certait# that
the# ma# ot be i fuds whe a e1ecutio o the
re'i'ed .udgmet is issued.
6he .udgmet creditor has ot e1hausted his remedies
agaist the pricipal debtors ad he is still loo&ig to
them for pa#met. "t is ot for the guarator to
aticipate that there will be a retur of ulla boa o
the e1ecutio( whe ad if issued. 2or is it for him to
aticipate a demad o him uder article 1+32 ad to
offer defeses thereto which ha'e ot matured. 6he
occasio for these defeses ma# e'er arise.
6he preset re'i'ed .udgmet could ot therefore be
res .udicata as to such future defeses. 6he re'i'ed
.udgmet does ot foreclose a# defese which the
guarator ma# raise whe Ddemad for pa#metD is
made o him. "deed( he caot claim the beefits of
articles 1+3*( 1+32( 1+34 ad 1+52 of the 7i'il 7ode
before demad is made o him: the# are all a'ailable
to him ol# after Ddemad for pa#metD 8art. 1+329.
LUZON STEEL CORP. v SIA
Au<o %teel sued ,etal ,aufacturig ad Jose 5.
%ia( the former>s maager( for breach of cotract ad
damages. "t obtaied a writ of prelimiar# attachmet
of the properties of the defedats( but the attachmet
was lifted upo a couterbod e1ecuted b# %ia( as
pricipal( ad the 6imes %uret# N "surace 7o. 8suret#9(
as solidar# guarator. 6he# etered ito a compromise
whereb# %ia agreed to settle the claim. Bhe %ia failed
to compl#( Au<o mo'ed for ad obtaied a writ of
e1ecutio agaist defedat ad the couterbod. 6he
suret#( howe'er( mo'ed to 3uash the writ of e1ecutio
agaist it( a'errig that it was ot a part# to the
compromise( ad that the writ was issued without gi'ig
the suret# otice ad hearig.
WON the ;udgment upon the compromise discharged
the surety from its o!ligation under its attachment
counter!ondH WON the "rit of e.ecution could !e issued
against the surety "ithout pre+ious e.haustion of the
de!torIs properties- YES YES-
)ounter!ond filed to discharge a le'# o attachmet.
Rule 5)( sectio 12( specifies that a attachmet ma# be
discharged upo the ma&ig of a cash deposit or filig a
couterbod Di a amout e3ual to the 'alue of the
propert# attached as determied b# the .udgeD: that
upo the filig of the couterbod Dthe propert# attached
... shall be deli'ered to the part# ma&ig the deposit or
gi'ig the couterbod( or the perso appearig o his
behalf( the deposit or counter!ond aforesaid standing in
place of the property so releasedD.
!# .udgmet ma# be made effecti'e upo the propert#
released: ad sice the couterbod merel# stads i
the place of such propert#( there is o reaso wh# the
.udgmet should ot be made effecti'e agaist the
couterbod regardless of the maer how the .udgmet
was obtaied.
6he bod filed for the discharge of a attachmet is Dto
secure the pa#met to the plaitiff of a# .udgmet he
ma# reco'er i the actio(D ad stads Di place of the
propert# so releasedD. Judgmet had alread# bee
redered i the ci'il case setecig defedat to pa#.
6here is o poit i the cotetio of the respodet
%uret# 7ompa# that the compromise was etered ito
without its &owledge ad coset( thus becomig as to
it essetiall# fraudulet. 6he %uret# is ot a part# to the
ci'il case ad( therefore( eed ot be ser'ed with otice
of the petitio for .udgmet.
7outerbods posted to obtai the liftig of a writ of
attachmet are securit# for the pa#met of a# .udgmet
that the attachig part# ma# obtai: the# are thus mere
replacemets of the propert# formerl# attached( ad .ust
as the latter ma# be le'ied upo after fial .udgmet i
the case i order to reali<e the amout ad.udged( so is
the liabilit# of the coutersureties ascertaiable after the
.udgmet has become fial. 5 the other had( sureties
i i.uctio couterbods merel# uderta&e Dto pa# all
damages that the plaitiff ma# suffer b# reaso of the
cotiuace ... of the acts complaied ofD ad ot to
secure pa#met of the .udgmet reco'ered.
=rror o the part of the 67 to ha'e ordered the suret#
bod cacelled( o the theor# that the parties>
compromise discharged the obligatio of the suret#. 6he
liabilit# of the sureties was fi1ed ad coditioed o the
fialit# of the .udgmet redered regardless of whether
the decisio was based o the coset of the parties or
o the merits. ! .udgmet etered o a stipulatio is
oetheless a .udgmet of the court because coseted
to b# the parties.
19 6he suret# i the preset case boud itself
D.oitl# ad se'erall#D 8in solidum9 with the
defedat: ad e.cusion 8pre'ious e1haustio of
the propert# of the debtor9 shall ot ta&e place Dif
he 8the guarator9 has boud himself solidaril#
34
with the debtorD. 6he rule caot be costrued
as re3uirig that a e1ecutio agaist the
debtor be first retured usatisfied e+en if the
bod were a solidar# oe.
29 ='e if the suret#>s uderta&ig were ot
solidar# with that of the pricipal debtor( still he
ma# ot demad e1haustio of the propert# of
the latter( uless he ca poit out sufficiet
le'iable propert# of the debtor withi Philippie
territor#.
39 6he couter;bod is ol# coditioed upo the
reditio of the .udgmet. Pa#met uder the
bod is ot made to deped upo the deli'er#
or a'ailabilit# of the propert# pre'iousl#
attached. Bhere uder the rule ad the bod
the uderta&ig is to pa# the .udgmet( the
liabilit# of the suret# or sureties attaches upo
the reditio of the .udgmet.

"t is true that reco'er# from the suret# or sureties
should be Dafter otice ad summar# hearig i the
same actioD. But this re3uiremet has bee
substatiall# complied with from the time the suret#
was allowed to mo'e for the 3uashal of the writ of
e1ecutio ad for the cacellatio of their obligatio.
TO*ERS ASSURANCE CORP. v ORORAMA
SUPERMART
%ee @og( the proprietor of 5rorama %upermart i
7aga#a de 5ro 7it#( sued the spouses =resto 5g
ad 7ochig 5g i the 7ourt of ?irst "stace for the
collectio of the sum of P5+(4** plus litigatio
e1peses ad attore#>s fees.
the lower court issued a order of attachmet. 6he
deput# sheriff attached the properties of the 5g
spouses i Valecia( Bu&ido ad i 7aga#a de 5ro
7it#.
6o lift the attachmet( the 5g spouses filed o ,arch
11( 1-)6 a couterbod i the amout of P5+(4** with
6owers !ssurace 7orporatio as suret#. the 5g
spouses ad 6owers !ssurace 7orporatio boud
themsel'es to pa# solidaril# to %ee @og the sum of
P5+(4**.
the lower court redered a decisio( orderig ot ol#
the 5g spouses but also their suret#( 6owers
!ssurace 7orporatio( to pa# solidaril# to %ee @og
the sum of P5+(4**. 6he court also ordered the 5g
spouses to pa# P1*(*** as litigatio e1peses ad
attore#>s fees.
6he writ of e1ecutio was issued o ,arch 14 agaist
the .udgmet debtors ad their suret#.
6owers !ssurace 7orporatio filed the istat petitio
for certiorari where it assails the decisio ad writ of
e1ecutio.
6he %7 held that the 67 erred i issuig a writ of
e1ecutio agaist the suret# without first gi'ig it a
opportuit# to be heard
0der sectio 1)( Rule 5) of the Rules of 7ourt( i
order that the .udgmet creditor might reco'er from the
suret# o the couterbod( it is ecessar# 819 that
e1ecutio be first issued agaist the pricipal debtor
ad that such e1ecutio was retured usatisfied i
whole or i part: 829 that the creditor made a demad
upo the suret# for the satisfactio of the .udgmet(
ad 839 that the suret# be gi'e otice ad a summar#
hearig i the same actio as to his liabilit# for the
.udgmet uder his couterbod.
6he first re3uisite metioed abo'e is ot applicable to
this case because 6owers !ssurace 7orporatio
assumed a solidar# liabilit# for the satisfactio of the
.udgmet.
! suret# is ot etitled to the e1haustio of the
properties of the pricipal debtor 8!rt. 2-5- 779.
But certail#( the suret# is etitled to be( heard before a
e1ecutio ca be issued agaist him sice he is ot a
part# i the case i'ol'ig his pricipal. 2otice ad
hearig costitute the essece of procedural due
process.
PNB vs. CA
Rubi obtaied from P2B;Bialbaga a 1-54;1-55
sugar crop loa( secured b# a chattel mortgage
e1ecuted b# Rubi as debtor;mortgagor ad Jose !.
7ampos as mortgagor. !s additioal securit#( Phoei1
issued a suret# bod. Aiabilit# uder said bod was to
e1pire 1 #ear from the date thereof( uless withi 1*
da#s from its e1piratio( the suret# is otified of a#
e1istig obligatios thereuder.
Ba& icreased the loa without the &owledge ad
coset of Phoei1. Rubi failed to li3uidate said loa.
Ba& demaded of Phoei1 that it ma&e good its
uderta&ig as suret# for Rubi. Phoei1 deied liabilit#(
resultig i a collectio case agaist Rubi( his
guarators ad sureties( icludig Phoei1.
@=A4$ 6he discharge of Phoei1 from liabilit# uder the
suret# bod is correct.
6he cotract i 3uestio is ot a cotiuig chattel
mortgage for which coset ad &owledge of the suret#
is uecessar# for a icrease i the amout of the
pricipal obligatio. 6he uderta&ig uder said cotract
was Dfor the purpose of securig their pa#met icludig
the iterest thereo( the cost of collectio ad other
obligatios owig b# the 4ebtor;,ortgagor to the
mortgagee( whether direct or idirect( pricipal or
secodar# as appears i the accouts( boo&s ad
records of the mortgagee .
6he term Dother obligatiosD must be limited to such as
are of the same ature as iterest ad costs of
collectio. 6he term caot be elarged to iclude future
additioal ad'aces to debtor;mortgagor( much less be
iterpreted as a pre'ious authori<atio from the suret# to
icrease the pricipal amout fi1ed i the cotract.
6he icrease i the idebtedess is material ad
pre.udicial to Phoei1. Bhile its liabilit# uder the bod is
limited to P1*(***( the icrease i the amout of the
debt proportioall# decreased the probabilit# of the
pricipal debtor beig able to li3uidate the debt: thus(
icreasig the ris& uderta&e b# the suret# to aswer
for the failure of the debtor to pa#.
! material alteratio of the pricipal cotract( effected b#
the creditor ad pricipal debtor without the &owledge
ad coset of the suret#( completel# discharges the
suret# from all liabilit# i the cotract of suret#ship.
PEOPLES BANK AND TRUST CO. v TAMBUNTING
appellee Peoples Ba& N 6rust 7ompa# ad !ppellat
?racisco 4. %ataa ad other appellats e1ecuted a
cotract deomiated >o'erdraft agreemet ad pledge>
wherei the appellee grated to the spouses Jose ,aria
6ambutig ad ,aria Pa< 6ambutig a o'erdraft
from time to time o their curret accout with the
appellee ba& ot to e1ceed P2**(***.**( with iterest
at the rate of -/ per aum util %eptember 1*( 1-64(
the proceeds of which were to be used b# the
6ambutigs i their loggig operatios.
35
!ppellat ?racisco 4. %ataa( as guarator( ad the
spouses 6ambutigs( co'e#ed to the ba& shares of
capital stoc& of the "teratioal %ports 4e'elopmet
7orporatio as collateral securit# for the pa#met of
a# ad all idebtedess icurred or arisig from the
o'erdraft( ad all e1tesios( reewals( amedmets
or applicatios thereof.
appellat ?racisco 4. %ataa e1ecuted a documet
deomiated as absolute guarat# i which( i
cosideratio of the >o'erdraft agreemet ad pledge(>
he boud himself to the ba&( .oitl# ad se'erall#(
with the 6ambutig spouses for the full ad prompt
pa#met of all the idebtedess icurred or to be
icurred b# said spouses o accout of the o'erdraft
lie.
!ppellee ba& grated the 6ambutig spouses a
e1tesio of the o'er( draft lie for si1 869 moths from
%eptember 1*( 1-64( but reducig the o'erdraft lie to
P1+5(***.** with the uderstadig that other terms
ad coditios of the o'erdraft agreemet would be i
full force ad effect.
Before the e1piratio of the si1 869 moths period( or
o ,arch 5( 1-65( Jose ,aria 6ambutig as&ed for
aother reewal of the o'erdraft lie for aother #ear.
"t was grated.
the ,aager of the 7redit 4epartmet ad'ised Jose
,aria 6ambutig that the Board of 4irectors of the
appellee ba& appro'ed his re3uest for a e1tesio
of the o'erdraft lie i the amout of P1+5(***.** for
aother #ear( or util ,arch 1*( 1-65( but with iterest
at the rate of 1*/ per aum( that i the same
meetig( the Board also appro'ed the release of the
pledge of 135 shares of stoc&s of the "teratioal
%ports 4e'elopmet 7orporatio.
6he appellats failed to pa# the idebtedess o the
date due ad demad for pa#met was made upo
?racisco %ataa ad 6ambutig as per letters
dated 4ecember 14( 1-65( Jauar# 24( 1-66 ad
,arch 4(1-66
!ppellat ?racisco 4. %ataa was sued b# appellee(
Peoples Ba& N 6rust 7ompa#( alog with the other
appellats( Jose ,aria 6ambutig ad ,aria Pa<
6ambutig( his so;i;law ad his daughter( for the
reco'er# of the sum of moe# due i a o'erdraft
agreemet( with the 6ambutig couple as pricipal
debtors ad appellat as suret#.
6he 67 foud for the appellee ba&.
the cotract of absolute guarat# e1ecuted b#
appellat %ataa is the measure of his rights ad
duties. !s it is with him( so it is with the appellee ba&.
Bhat was therei stipulated had to be complied with
b# both parties.
2or could appellat ha'e a# 'alid cause for
complait. @e had gi'e his word: he must li'e up to it.
5ce the 'alidit# of its terms is coceded( he caot
be idulged i his uilateral determiatio to disregard
his commitmet. ! promise to which the law accords
bidig force must be fulfilled. "t is as simple as that.
%o the 7i'il 7ode e1plicitl# re3uires$ D5bligatios
arisig from cotracts ha'e the force of law betwee
the cotractig parties ad should be complied with i
good faith.D
"t could ha'e bee differet if there were o such
cotract of absolute guarat# to which appellat was a
part# uder the aforesaid !rticle 2*+*.
@e would ha'e bee freed from the obligatio as a
result of appellee releasig to the 6ambutigs without
his coset the 135 shares of the "teratioal %ports
4e'elopmet 7orporatio pledged to appellee ba& to
secure the o'erdraft lie. ?or thereb# subrogatio
became meaigless.
%uch a pro'isio is iteded for the beefit of a suret#.
6hat was a right he could a'ail of. @e is ot precluded
howe'er from wai'ig it. 6hat was what appellat did
precisel# whe he agreed to the cotract of absolute
guarat#.
PNB v. MANILA SURET+
P2B opeed a letter of credit ad ad'aced
S12*(***.** to =dgigto 5il Refier# for +(*** tos of
hot asphalt. 5f this amout( 2(*** tos were released
ad deli'ered to !dams N 6aguba uder a trust receipt
guarateed b# ,aila %uret# up to the amout of
P)5(***.**. 6o pa# for the asphalt( !6!75 costituted
the Ba& its assigee ad attore#;i;fact to recei'e ad
collect from the Bureau of Public Bor&s out of fuds
pa#able to the assigor. 6he Ba& regularl# collected
from the Bureau from !pril to 2o'ember. 6he Ba&
ceased to collect( util i 1-52 its i'estigators foud
that more moe#s were pa#able to !6!75 from the
Public Bor&s office( because the latter had allowed
mother creditor to collect fuds due to !6!75 uder the
same purchase order. "ts demads o the pricipal
debtor ad the %uret# ha'ig bee refused( the Ba&
sued to reco'er the balace.
@=A4$ 6he power of attore# obtaied from !6!75 was
ot additioal securit# i its fa'or.
6he Ba&>s power to collect was e1pressl# made
irre+oca!le( so that the Bureau of Public Bor&s could
'er# well refuse to ma&e pa#mets to the pricipal
debtor itself( ad a fortiori re.ect a# demads b# the
suret#.
='e if the assigmet with power of attore# from the
pricipal debtor were cosidered as mere additioal
securit# still( b# allowig the assiged fuds to be
e1hausted without otif#ig the suret#( the Ba&
depri'ed the former of a# possibilit# of recoursig
agaist that securit#.
36

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