Professional Documents
Culture Documents
Credit Transactions Midterms Reviewer
Credit Transactions Midterms Reviewer
flourished in the 14th to 19th centuries. By FACTS: PNB Pres. Concepcion was charged and
the 20th century, modern-day merchants found guilty of violating Sec. 35 of Act No. 2747
were translating the concepts of credit, debt which prohibited the granting of loans to board
and security into increasingly complicated
R.A. No. 3765, Sec. 3.(2) "Credit" means any loan, reposed by a lender that he will pay what he
mortgage, deed of trust, advance, or discount; any promised. A “loan” is the delivery by one party and
conditional sales contract; any contract to sell, or the receipt by the other party of a given sum of
sale or contract of sale of property or services, either money, upon an agreement, express or implied, to
for present or future delivery, under which part or repay the sum loan, with or without interest. The
all of the price is payable subsequent to the making concession of a “credit” necessarily involves the
of such sale or contract; any rental-purchase granting
of
“loans”
up
to
the
limit
of
the
amount
contract; any contract or arrangement for the hire, fixed
in
the
“credit. Thus,
Concepcion’s
act
was in
of, any obligation of claim arising out of any of the ability to borrow money by virtue of the
foregoing; and any transaction or series of confidence or trust reposed by a lender that
transactions having a similar purpose or effect. he will pay what he may promise.
Somera notes:
This definition can be related to the
dictionary definition of the word credit,
It is not the Civil Code but the Truth in which is, belief or trust, originating as it
Lending Act as abovecited that provide a does from the Latin credere, to trust or to
legal definition of credit. But such definition
the law and applicable contracts and does the present, by virtue of the trust and
do, or not to do) that arise as a consequence or adopted by a State as part of its
of such evaluation. currency.
1.Those who, having legal capacity to engage in virtue of the trust and confidence
commerce, habitually devote themselves to it; reposed
by
the
holder,
of
a
State’s
may be created in accordance with [existing Social and economic changes in the 20th
execute them be merchants or not, and stand as security was no longer valued at
whether specified in this Code or not, should be present values but on a continuing trend of
observed in each place; and in the absence of both transactions (i.e. debtor’s future worth or
rules, by those of the civil law. Those acts contained ability) was based on the same appreciating
in this Code and all others of analogous character values of security, and not on the trust and
shall be deemed acts of commerce. confidence
reposed
on
the
debtor’s
ability
engaging in commerce shall exist from the moment These resulted to 2 things:
the person who intends to engage therein 1. More debtors became eligible for
announces through circulars, newspapers, handbills, more credit under terms that
posters exhibited to the public, or in any other mirrored this trend of rising
The Code of Commerce and certain special Just as a credit transaction was the root of
laws also govern commercial credit the 21st century’s first financial meltdown
transactions since such transactions are (i.e. 2007 global credit crisis), it is also now
commercial in nature and are habitually being used as a tool for poverty alleviation
While these contracts of adhesion in Art. 1933 By the contract of loan, one of the parties
commercial credit transactions are not delivers to another, either something not
invalid, any ambiguity in its interpretation consumable so that the latter may use the same for a
will be construed against the party who certain time and return it, in which case the contract
D. The Relevance of Trust and Confidence amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or
In commodatum the bailor retains the ownership of a result, she filed a complaint for a sum of money
the thing loaned, while in simple loan, ownership against Thio. Thio counters that she should not be
passes to the borrower. made liable for said debt since it was Marilou
Santiago who actually contracted the loan and that
Art. 1305 A contract is a meeting of minds between she was merely asked by Garcia to the deliver the
two persons whereby one binds himself, with checks to Santiago. RTC found that Thio was liable
respect to the other, to give something or to render to
Garcia
for
the
money.
CA
reversed
the
RTC’s
some service. ruling declaring that there was no contract of loan
Somera notes:
A loan is an obligation that always arises HELD: Thio should be made liable to Garcia for the
from contract, the meeting of the minds of loan. A loan is a real contract that is perfected only
the creditor, who delivers the thing or upon delivery of the object of the contract. Delivery,
property, and the debtor, the party who in turn, is the act by which the res or substance
receives the property and is consequently thereof is placed within the actual or constructive
bound to return the property or pay the possession or control of another. It was undisputed
to the creditor. Thio did not physically receive the proceeds of the
A loan, whether commodatum or mutuum, checks, these instruments were placed in her control
is a contract for permissive use. and possession under an arrangement whereby she
permissive use; however, a loan is not unto her of said checks her liable for the amounts
contract.
1. Obligation to Deliver
consumable so that the latter may use the same for a
Art. 1934 An accepted promise to deliver something certain time and return it, in which case the contract
object of the contract. which case the contract is simply called a loan or
mutuum.
Commodatum is essentially gratuitous.
Somera notes:
Simple loan may be gratuitous or with a stipulation
Delivery is the formal act of transferring, In commodatum the bailor retains the ownership of
giving pr yielding possession or control of the thing loaned, while in simple loan, ownership
property by the creditor for permissive use passes to the borrower.
by the debtor.
In effect, a loan (whether commodatum or Art. 418 Movable property is either consumable or
mutuum) is considered a real contract, nonconsumable. To the first class belong those
wherein property passes from one party to movables which cannot be used in a manner
mere consent. consumed; to the second class belong all the others.
received by Thio from Garcia in 1995. According to 1. If this is the object of the loan, the
Garcia, Thio failed to pay when the loans fell due. As purpose of the delivery by the
the property by the debtor for a For use or temporary For consumption
2. This also gives rise to the obligation Bailor bears risk of loss Debtor/bailee bears risk
the very same property to the Ownership retained by Ownership passes to the
creditor. bailor debtor
1. The purpose of the delivery by the Art. 1933 By the contract of loan, one of the parties
creditor is for the permissive use of delivers to another, either something not
the property by the debtor by consumable so that the latter may use the same for a
taking ownership. certain time and return it, in which case the contract
extinguishment, the debtor is amount of the same kind and quality shall be paid, in
obliged to pay the same amount, or which case the contract is simply called a loan or
to pay interest.
Art. 1933 By the contract of loan, one of the parties In commodatum the bailor retains the ownership of
delivers to another, either something not the thing loaned, while in simple loan, ownership
consumable so that the latter may use the same for a passes to the borrower.
is called a commodatum; or money or other Art. 1232 Payment means not only the delivery of
consumable thing, upon the condition that the same
B. Contract to Loan
passes to the borrower.
primary obligation of the obligation of the debtor Contract of loan Contract to loan
debtor is to return the is to pay the same real contract that is consensual contract that
very same property amount, kind and quality perfected not by mere is perfected by mere
delivered by the to the creditor.
creditor.
consent but by the consent.
delivery of the object of
fungible
Returned in case of Returned upon Saura Import and Export Co. v. DBP (1972)
urgent need and expiration of the term
commission of any acts only FACTS: Petitioner Saura filed a loan application
loan application for P500k but due to a HELD: What was involved here was a contract of
miscommunication, money was not released in loan which is a real contract perfected by delivery of
favour of Saura. Since the first transaction failed, the the object of the contract and not by mere consent. t
negotiations between the two went back and forth It was the second release of the loan (Sept 1982)
until RFC imposed new conditions upon Saura in which perfected the contract of loan. Thus, ALS
order for the loan to be released. But Saura monthly amortization obligation should only
another loan from Prudential Bank but Saura failed Pantaleon v. American Express International
for the loan resulting to Saura’s failure to fulfil its with his wife. In Amsterdam, his wife bought a
own obligations to 3rd parties. diamond jewelry worth US$13,826 for which
Saura & RFC as there was a definitive offer and a result, Pantaleon’s tour group members became
acceptance at the beginning of this case: application irritated because they had to cancel several parts of
of Saura for a loan (offer) was approved by RFC for the tour. Upon returning to the Philippines,
P500,000 (acceptance). Since a contract to loan is Pantaleon filed a case for damages against AMEX for
perfected by mere consent,, the approval of Saura’s the humiliation they suffered because of the credit
loan application perfected the contract. But due to card company’s actions. AMEX insists that there
mutual desistance of the 2 parties (a mode of was no negligence on their part and that there was a
extinguishing obligations) the obligations arising delay in approving the purchase because the size of
from said contract to loan can no longer be imposed the transaction was different from the previous
against RFC in favor of Saura. purchases of the cardholder and that they were just
This case illustrates the importance of a HELD: In every credit card transaction, 3 contracts
definitive acceptance of an offer, as opposed are involved: (a) the sales contract between the
to a counter-offer, for the perfection of the credit card holder and the merchant or business
consensual contract to loan. establishment which accepted the credit card; (b)
My notes: and the credit card holder; and (c) the promise to
A perfected consensual contract can give pay between the credit card issuer and the merchant
rise to damages. or business establishment. When a cardholder uses
BPI Investment Corp. v. CA and ALS agreements with the card company and there is no
Management & Development Corp. (2002) obligation on the part of the card company to
approve the transactions all the time. Since AMEX
FACTS: Roa obtained a P500k loan from BPIIC to did not have an obligation to approve Pantaleon’s
construct his house and mortgaged said property to purchase request, the company cannot be held liable
BPIIC. Roa sold the house and lot to ALS for which for delay since a demandable obligation is a
ALS paid P350k in cash to Roa and assumed Roa’s requisite of such finding.
P500k debt with BPIIC. But BPIIC refused to extend
amortization from May 1981 to June 1984. ALS Art. 1933 By the contract of loan, one of the parties
contended that they were not in arrears and that delivers to another, either something not
even though the contract stipulates that monthly consumable so that the latter may use the same for a
amortizations are to begin in May 1981, they should certain time and return it, in which case the contract
not be made to pay before the actual release of the is called a commodatum; or money or other
loan in August and September 1982. consumable thing, upon the condition that the same
mutuum.
● Commodatum
In commodatum the bailor retains the ownership of permissive use of the property loaned
the thing loaned, while in simple loan, ownership - Purely personal in character
passes to the borrower. (1740a) - Death of either party results in its extinguishment
Art. 1935 The bailee in commodatum acquires the ● Compensation is to be paid by the bailee for the
used of the thing loaned but not its fruits; if any use of the property loaned
(1941a)
2. Object of Commodatum
extinguishes the contract; Art. 1936 Consumable goods may be the subject of
(2) The bailee can neither lend nor lease the object the consumption of the object, as when it is merely
of the contract to a third person. However, the for exhibition. (n)
the thing loaned, unless there is a stipulation to the Producers Bank of the Philippines v. Court of
used by the borrower and then returned undamaged already been withdrawn leaving only a balance of
to
the
lender
(Black’s
Law
Dictionary) P90k. The Vives spouses tried to withdraw the
- Entered into regularly in ordinary life amount but failed since the balance had to answer
- Roman law: considered as one of the “contracts of for certain postdated checks issued by Doronilla.
neighbourliness"
- A contract where the creditor (or bailor) HELD: Transaction between Vives and Doronilla
gratuitously delivers to the debtor (or bailee) non- was a commodatum and not a mutuum. Art. 1933 of
consumable property so that the latter may use the the CC seems to imply that if the subject of the
same for a certain time and return it contract is a consumable thing, such as money, the
UP Law Reviewer Notes: instances where a commodatum may have for its
● Two Kinds of Commodatum object a consumable thing as provided by Art. 1936.
1. Ordinary commodatum - See Art.1933 Thus, if consumable goods are loaned only for
2. Precarium – one whereby the bailor may demand purposes of exhibition, or when the intention of the
the thing loaned at will; exists in cases where: parties is to lend consumable goods and to have the
a. neither the duration of the contract nor very same goods returned at the end of the period
the use to which the thing loaned should be agreed upon, the loan is a commodatum and not a
● Object of commodatum
● Consumable property may be the object of which case the contract is simply called a loan or
commodatum mutuum.
newly minted coins or specially printed Simple loan may be gratuitous or with a stipulation
what was the relationship between Sterela - It is the bailor who retains ownership of the
and Producers Bank? property loaned.
and current deposits of money in banks are compensation is to be paid by him who acquires the
B. Parties to a Commodatum
Somera Notes: use of the fruits of the thing loaned is valid. (n)
the common law bailment (2) The bailee can neither lend nor lease the object
> Bailment is the delivery of property by of the contract to a third person. However, the
one person (the bailor) to another (the members of the bailee's household may make use of
bailee) who holds the property for a certain the thing loaned, unless there is a stipulation to the
purpose usually under an express or contrary, or unless the nature of the thing forbids
Art. 1938 The bailor in commodatum need not be ● Permissive use of the property loaned
the owner of the thing loaned. (n) - Generally acquired by the bailee
Art. 1933 By the contract of loan, one of the parties ● Permissive use of the fruits of the property loaned
delivers to another, either something not - Not usually acquired by the bailee
consumable so that the latter may use the same for a - But this may be validly stipulated by the parties so
certain time and return it, in which case the contract that the bailee could acquire it
is called a commodatum; or money or other ● General rule (due to the purely personal character
- The bailee acquires the permissive use of the house, allowed Guevarra to live in the house for free
property only for itself and can neither lend nor provided Guevarra would maintain the cleanliness
lease the object of the commodatum to a third and orderliness of the house. 9 years later, Guevarra
person. refused to
vacate
the
house
upon
Pajuya’s
demand.
as his family and those living with him, may make HELD: The Kasunduan reveals that the
> The nature of the property forbids its use did not require Guevarra to pay rent, it obligated
by anyone other than the bailee. him to maintain the property in good condition. The
Art. 1945 When there are two or more bailees to of the Kasunduan are also different from that of a
whom a thing is loaned in the same contract, they commodatum. Case law on ejectment has treated
are liable solidarily. (1748a) relationship based on tolerance as one that is akin to
a landlord-tenant relationship where the
C. Liability for Expenses and Damages withdrawal of permission would result in the
1. Ordinary Expenses
Somera Notes:
delivers to another, either something not ● Permissive use of the property loaned acquired
consumable so that the latter may use the same for a and Obligation to return the very same property
certain time and return it, in which case the contract incurred
is called a commodatum; or money or other - It is the bailee who is liable for the ordinary
consumable thing, upon the condition that the same expenses for its use and preservation.
amount of the same kind and quality shall be paid, in > This does not mean that the bailee is liable
which case the contract is simply called a loan or for the deterioration of the property loaned
Commodatum is essentially gratuitous. will suffer ordinary wear and tear that
In commodatum the bailor retains the ownership of orderliness of the property loaned was equated with
the thing loaned, while in simple loan, ownership compensation.
passes to the borrower. (1740a) > Thus the contract was was considered a
compensation is to be paid by him who acquires the ordinary expenses for use, which a bailee is liable
1941?
Art. 1941 The bailee is obliged to pay for the
deterioration of the thing loaned due only to the use the thing loaned, provided the bailee brings the
thereof and without his fault. (1746) same to the knowledge of the bailor before incurring
though he acted without fault, they shall be borne Art. 1944 The bailee cannot retain the thing loaned
equally by both the bailor and the bailee, unless on the ground that the bailor owes him something,
there is a stipulation to the contrary. (1751a) even though it may be by reason of expenses.
● General rule (since the bailor retains the Art. 1951 The bailor who, knowing the flaws of the
ownership of the property loaned) thing loaned, does not advise the bailee of the same,
- The bailor is liable for the extraordinary expenses shall be liable to the latter for the damages which he
for the preservation of the property loaned. may suffer by reason thereof. (1752)
> Exception: If the bailee incurs these Somera Notes:
before incurring them, in which case, it is ● Primary obligation on the part of bailee
(reply of the bailor to the notification - Generally, bailee does not have this right over the
cannot be awaited without danger to the property loaned if the bailor refuses to pay for
property loaned, the general rule applies expenses and damages that pertain to it.
(bailor shall remain liable). > Right of action of the bailee
● Extraordinary expenses from actual use by the expenses and damages incurred that
may stipulate otherwise) because knowing the flaws of the property loaned,
> Bailor retains ownership of the property does not advise the bailee of the same, and
due
thing, the bailee incurs expenses other than those
referred to in Articles 1941 and 1949, he is not - Principal characteristic of right of retention
● Bailee is liable for all other expenses incurred for oblige debtor to pay
> Means of obtaining compensation for the
4. Abandonment by Bailor
Art. 1952 The bailor cannot exempt himself from delivers to another, either something not
the payment of expenses or damages by abandoning consumable so that the latter may use the same for a
the thing to the bailee. (n) certain time and return it, in which case the contract
Somera Notes: consumable thing, upon the condition that the same
Simple loan may be gratuitous or with a stipulation ● General Rule: Bailee is not liable for loss or
In commodatum the bailor retains the ownership of - Exception: Bailee is liable even for loss due to a
the thing loaned, while in simple loan, ownership fortuitous event when: (Art 1942)
from that for which it has been loaned; 3. He keeps it after the accomplishment of
(2) If he keeps it longer than the period stipulated, been constituted. (amounts to delay)
or after the accomplishment of the use for which the 4. The thing loaned has been delivered with
(3) If the thing loaned has been delivered with responsibility in case of a fortuitous event.
appraisal of its value, unless there is a stipulation (intention of the parties shifts the liability
(5) If, being able to save either the thing borrowed borrowed or his own thing, he chose to save
or his own thing, he chose to save the latter. (1744a
and 1745)
the latter. (since the consideration of
commodatum is liberality on the part of the
E. Obligation to Return
FACTS: The loan by the appellee to the late
defendant Bagtas of the 3 bulls for breeding Art. 1933 By the contract of loan, one of the parties
purposes for a period of 1 year, later on renewed for delivers to another, either something not
another year as regards one bull, was subject to the consumable so that the latter may use the same for a
payment by the borrower of breeding fee of 10% of certain time and return it, in which case the contract
the book value of the bulls. The appellant contends is called a commodatum; or money or other
that the contract was commodatum and that, for consumable thing, upon the condition that the same
that reason, as the appellee retained ownership or amount of the same kind and quality shall be paid, in
title to the bull it should suffer its loss due to force which case the contract is simply called a loan or
majeure. mutuum.
the bull. Under the Civil Code, the lessee would be Simple loan may be gratuitous or with a stipulation
contract be commodatum, still the appellant is the thing loaned, while in simple loan, ownership
liable, because (1) he kept it longer than the period passes to the borrower. (1740a)
was no stipulation exempting the bailee from the thing loaned till after the expiration of the period
responsibility in case of a fortuitous event. stipulated, or after the accomplishment of the use
need of the thing, he may demand its return or - Exceptions: (implying that the bailor may demand
of commodatum is suspended while the thing is in bailor is based on the fact that commodatum is
Art. 1947 The bailor may demand the thing at will, a. Demand the return of the property
and the contractual relation is called a precarium, in b. Demand the temporary use of the
(1) If neither the duration of the contract nor the use precarium (A kind of commodatum where the bailor
to which the thing loaned should be devoted, has may demand the thing at will. It has been defined as
Art. 1948 The bailor may demand the immediate property loaned
return of the thing if the bailee commits any act of b. Use by the bailee is merely tolerated by
ingratitude specified in Article 765. (n) the bailor.
Quintos v. Beck (1939) (Reason: the person who commits any of the acts of
Quintos gratuitously granted to Beck the use of a. If the bailee should commit an offense
furniture subject to the condition that Beck would against the person, the honor or the
return them upon her demand. Quintos sold the property of the bailor, or of the wife or
property to Sps. Lopez. They notified Beck and gave children under his parental authority
the furniture transferred to him for use. Beck said criminal offense, or any act involving moral
that he cannot give up the 3 gas heaters and the 4 turpitude, even though he should prove it,
electric lamps because he would still use them until unless the crime or the act has been
Beck deposited with the Sheriff all the furniture of wife, or children under his authority; and
plaintiff which are deposited in a warehouse and in c. If the bailee unduly refuses the bailor
custody of the Sheriff. support when the bailee is legally or
assumed by Beck was to return the furniture upon III. SIMPLE LOAN
Quintos' demand, (i.e. Beck should return all of them
to Quintos' house. Beck did not comply with this A. General Concepts
disposal, retaining for his benefit the 3 gas heaters Art. 1933 By the contract of loan, one of the parties
and the 4 eletric lamps. Beck breached the contract delivers to another, either something not
of commodatum, it is just and equitable that he pay consumable so that the latter may use the same for a
the legal expenses and other judicial costs which the certain time and return it, in which case the contract
plaintiff would not have otherwise defrayed. is called a commodatum; or money or other
consumable thing, upon the condition that the same
Somera and Ateneo Law Reviewer Notes: amount of the same kind and quality shall be paid, in
2. After the accomplishment of the use for which the Simple loan may be gratuitous or with a stipulation
commodatum was constituted. to pay interest.
In commodatum the bailor retains the ownership of obligation, whether for money or not, constitutes
the thing loaned, while in simple loan, ownership value where a receipt is taken either in satisfaction
passes to the borrower. (1740a) thereof or as security therefor.
Art. 1953 A person who receives a loan of money "Warehouseman" means a person lawfully engaged
or any other fungible thing acquires the ownership in the business of storing goods for profit.
Art. 1954 A contract whereby one person transfers whether it be done negligently or not.
money in banks and similar institutions shall be abuse of confidence, being the cashier and
governed by the provisions concerning simple loan. bookkeeper of the Bank, without knowledge or
Act No. 2137, Sec. 58 "Fungible goods" deposited therein by its clients. The employees of
Definitions. — (a) In this Act, unless the content or the bank entrusted with the possession of monies
subject matter otherwise requires: due to the confidence reposed in them occupy
"Action" includes counterclaim, set-off, and suits in banks and depositors has been held to be that of
equity as provided by law in these islands. creditor and debtor (Arts. 1953 & 1980 of CC). Thus,
from its nature by mercantile custom, treated as the FACTS: Tevesteco opened a savings and current
equivalent of any other unit. account with BPI-FB. FMIC also opened a time
or which has been or is about to be stored. with BPI-FB. The P2M used to open these accounts is
"Holder" of a receipt means a person who has both consideration of Franco’s
introduction
of
Eladio
actual possession of such receipt and a right of Teves to Jaime Sebastian (then BPI-FB
SFDM’s
property therein. Branch Mgr). The funding for the P2M check was
"Order" means an order by indorsement on the time
deposit
account
and
credited
to
Tevesteco’s
receipt. current account pursuant to an Authority to Debit
"Owner" does not include mortgagee. purportedly signed by FMIC’s officers. But
"Person" includes a corporation or partnership or Debit were forged. BPI-FB debited
Franco’s
savings
two or more persons having a joint or common and current accounts for the amounts remaining.
"Receipt" means a warehouse receipt. that his accounts were under garnishment. BPI-FB
FB’s refused to heed Franco’s demands to unfreeze a. fungible or consumable-depending on the intent
his accounts and release his deposits with the bank. of the parties, that the return of the thing is
freeze the accounts of Franco based on its mere c. if the transfer of ownership is on a non-fungible
suspicion that the funds therein were proceeds of thing, with the obligation of the other to give things
the multi-million peso scam Franco was allegedly of the same kind, quantity and quality, it is a barter
involved in. BPI-FB, as the trustee in the fiduciary
its customers. Having failed to detect the forgery in Comparison (Simple Loan)
states that if after the vendor completes the docs Thing to be Borrower must Borrower need
and vendee fails to complete the payment as per Returned return the same only pay the
agreement, a forfeiture fee of 25% or down payment thing loaned same amount
shall be applied. But if the vendor fails to complete of the same
court, be allowed upon damages awarded for breach When to Bailor may Lender may not
of
contract.” The parties did not stipulate as to the Return demand the demand its
applicable rate of interest. Petitioner’s unwarranted return of the return before
withholding of the money which rightfully pertains thing loaned the lapse of
loan. Thus, the applicable rate of interest is 12% per the term in case upon
discharged
to pay)
former
● Consumable
There is a transfer of The owner of the lessee
ownership of the thing or the lessor of the - Those whose use according to their nature
delivered property does not lose his destroys the substance of the thing or causes their
ownership. He simply loss to the owner. (ex: food)
the period of the contract contract is not the consumption of the object, as
when it is merely for exhibition.
or “price” either in
B. Obligation to Pay
Compariso (Simple Loan) Art. 1955 The obligation of a person who borrows
n
fungible (generally non- If what was loaned is a fungible thing other than
things/personal non- consumable
of bailee deliver the identical thing equivalent kind, its value at the time of the perfection of the
same kind
or quality
borrowed
when
thing is
given in
loan shall be paid. (1754a)
San Beda Law Reviewer Notes: shall produce the effect of payment only when they
In the meantime, the action derived from the San Beda Reviewer Notes:
supervene, the value of the currency at the time of ● Requisites for Demandability:
the establishment of the obligation shall be the basis - must be expressly stipulated
of payment, unless there is an agreement to the > Exceptions:
- To pay
● Compound Interest
● If object is money (the principal) - General Rule: Unpaid interest shall not earn
principal is generally determined at the time of the > when judicially demanded
establishment of the obligation (time of the delivery > when there is an express stipulation
● If object is any other consumable property ● Central Bank Circular No. 416 fixing the rate of
- borrower owes payment in kind (another property
- Value of payment in kind determined at the time of judgments involving such loans, or forbearance in
perfection (time of the delivery of the object of the the absence of express agreement to such rate.
simple loan)
- May be evidenced by a written promise to pay secured and unsecured loans, regardless of
payee) or to bearer or a written promise to Central Bank Circular No. 416 and Art. 2209 of the
pay a specified amount to a certain person Civil Code contemplate different situations and
> Bond: a written promise (by the issuer) to involving loan or forbearance of money, goods or
pay money to the holders or a written credits, as well as judgments relating to such loan or
promise issued by a government or forbearance of money, goods or credits, the Central
corporation to holders to pay the principal Bank circular applies. It is only in such transactions
amount of a loan at maturity and a specified or judgments where the Presidential Decree allowed
sum of money usually at specific intervals. the Monetary Board to dip its fingers into.
> Debenture (from the Latin word
debt secured only by the issuer’s earning damages, in connection with any delay in the
power and not by a lien or legal right or performance of an obligation other than those
interest that a creditor has on any specific
- All of these promises to pay are evidence of Court, this is the most fair, reasonable, and logical
indebtedness and are commercial forms that interpretation of the two laws. There is no conflict
contracts of simple loan take.
Civil Code or any reason to hold that the former has Act No. 2655, An Act Fixing Rates Of Interest
repealed the latter by implication. (National Power Upon Loans And Declaring The Effect Of
1. Conventional Interest
Act No. 2655, Sec. 1 The rate of interest for the loan
Art. 1933 By the contract of loan, one of the parties or forbearance of any money, goods, or credits and
delivers to another, either something not the rate allowed in judgments, in the absence of
consumable so that the latter may use the same for a express contract as to such rate of interest, shall be
certain time and return it, in which case the contract fix per centum per annum or such rate as may be
is called a commodatum; or money or other prescribed by the Monetary Board of the Central
consumable thing, upon the condition that the same Bank of the Philippines for that purpose in
amount of the same kind and quality shall be paid, in accordance with the authority hereby granted.
In commodatum the bailor retains the ownership of the"Usury Law", the Monetary Board, in its
the thing loaned, while in simple loan, ownership Resolution No. 1622 dated July 29, 1974, has
passes to the borrower. (1740a) prescribed that therate of interest for the loan or
Art. 1956 No interest shall be due unless it has been rate allowed in judgments,in the absence of express
expressly stipulated in writing. (1755a) contract as to such rate of interest, shall be twelve
per cent (12%) per annum.prcdThis Circular shall
Art. 1253 If the debt produces interest, payment of take effect immediately.
payable in kind, its value shall be appraised at the Act No. 2655, Sec. 7 All covenants and stipulations
current price of the products or goods at the time contained in conveyances, mortgages, bonds, bills,
and place of payment. (n) notes and other contracts or evidences of debts, and
Art. 1960 If the borrower pays interest when there whereby there shall be stipulated, charged,
has been no stipulation therefor, the provisions of demanded, reserved, secured, taken, or received,
this Code concerning solutio indebiti, or natural directly or indirectly, a higher rate or greater sum or
obligations, shall be applied, as the case may be. (n) value for the loan or renewal or forbearance of
Art. 2154 If something is received when there is no allowed, shall be void: Provided, however, That no
right to demand it, and it was unduly delivered merely clerical error in the computation of interest,
through mistake, the obligation to return it arises. made without intent to evade any of the provisions
Art. 1423 Obligations are civil or natural. Civil proceeds of which may be availed of partially or
obligations give a right of action to compel their fully at some future time, may stipulate that the rate
performance. Natural obligations, not being based of interest agreed upon at the time the loan
on positive law but on equity and natural law, do not agreement is entered into, which rate shall not
grant a right of action to enforce their performance, exceed the maximum allowed by law, shall prevail
but after voluntary fulfillment by the obligor, they notwithstanding subsequent changes in the
authorize the retention of what has been delivered maximum rates that may be made by the Monetary
or rendered by reason thereof. Some natural Board: And Provided, finally, That nothing herein
obligations are set forth in the following articles. contained shall be construed to prevent the
purchase by an innocent purchaser of a negotiable
mercantile paper, usurious or otherwise, for constitute unjust enrichment of the debtor at the
In any case, however, the maker of said note shall FACTS: Home Savings Bank & Trust Co. (now Insular
have the right to recover from said original holder Life) granted to the Concepcions a loan amounting
the whole interest paid by him thereon and, in case to P1.4M. Concepcions in turn executed PN & REM
of litigation, also the costs and such attorney's fees over their property. PN provided that the
as may be allowed by the court. Concepcions had authorized the Bank to increase
pertaining to a loan or forbearance of money, goods member banks, and/or the int. rate on savings and
or credits may stipulate that the rate of interest time deposit, and/or the int. rate on such loans
agreed upon may be increased in the event that the and/or advances. The bank unilaterally increased
applicable maximum rate of interest is increased by the int. rate 3 times. Concepcions failed to pay. The
law or by the Monetary Board: Provided, That such bank foreclosed the REM executed by the
stipulation shall be valid only if there is also a Concepcions. Bank emerged as the highest bidder. A
stipulation in the agreement that the rate of interest Certificate of Sale was issued in favor of the bank.
agreed upon shall be reduced in the event that the The Concepcions were unable to redeem. The bank
applicable maximum rate of interest is reduced by consolidated its title and sold the property to Asaje
the increase or decrease in the maximum rate of bound by their agreement allowing an increase in
FACTS: Frias (house & lot owner) and Sison entered banks, or of the interest rate on savings and time
into a Memorandum of Agreement (MOA) over the deposit, or of the interest rate on such loans and
house & lot for 6M. Their agreement speaks of 2 advances. The notices sent to petitioners merely
was given to Sison to make up her mind WON to prevailing business and economic condition.
purchase petitioner's property. The 2nd 6-month Therefore, there is no sufficient valid justification
period was given to Frias to pay the P2M loan in the shown for the unilateral increases by private
the last 6 months only," referring to the 2nd 6-month 2. Interest on Interest
period.
Art. 1959 Without prejudice to the provisions of
HELD: The MOA executed between petitioner and Article 2212, interest due and unpaid shall not earn
respondent is the law between the parties. The interest. However, the contracting parties may by
agreement that the amount given shall bear stipulation capitalize the interest due and unpaid,
compounded bank interest for the last 6 months which as added principal, shall earn new interest.
after the 2nd 6-month period since such stipulation Art. 2212 Interest due shall earn legal interest from
was made on the logical and reasonable expectation the time it is judicially demanded, although the
that such amount would be paid within the date obligation may be silent upon this point. (1109a)
continue to use the same after maturity of the loan Art. 1169 Those obliged to deliver or to do
without payment of the monetary interest, would something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
(1994)
(1) When the obligation or the law expressly so Japan for SS Eastern Comet (owned by Eastern
the obligation it appears that the designation of the order. Mercantile Insurance contended that due to
time when the thing is to be delivered or the service the losses/damage sustained by 1 drum, the
is to be rendered was a controlling motive for the consignee suffered losses due to Eastern
Shipping’s
establishment of the contract; or fault and negligence. Because of the losses,
(3) When demand would be useless, as when the consignee, under the terms of the marine insurance
obligor has rendered it beyond his power to policy. Thus, it became subrogated to the
perform. consignee’s
right
of
action
against
Eastern
Shipping.
In reciprocal obligations, neither party incurs in HELD: (1) When an obligation, regardless of its
delay if the other does not comply or is not ready to source, i.e., law, contracts, quasi-contracts, delicts or
comply in a proper manner with what is incumbent quasi-delicts is breached, the contravenor can be
upon him. From the moment one of the parties held liable for damages. The provisions under Title
fulfills his obligation, delay by the other begins. XVIII on "Damages" of the Civil Code govern in
Art. 1226 In obligations with a penal clause, the (2) With regard particularly to an award of interest
penalty shall substitute the indemnity for damages in the concept of actual and compensatory damages,
and the payment of interests in case of the rate of interest, as well as the accrual thereof, is
noncompliance, if there is no stipulation to the imposed, as follows:
obligor refuses to pay the penalty or is guilty of a) When the obligation is breached, and it consists in
fraud in the fulfillment of the obligation. the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
The penalty may be enforced only when it is that which may have been stipulated in writing.
demandable in accordance with the provisions of Furthermore, the interest due shall itself earn legal
of a sum of money, and the debtor incurs in delay, from judicial or extrajudicial demand under and
the indemnity for damages, there being no subject to the provisions of Article 1169 of the Civil
stipulation, the legal interest, which is six per cent b) When an obligation, not constituting a loan or
unliquidated claims or damages, except when the annum. No interest, however, shall be adjudged on
demand can be established with reasonably unliquidated claims or damages except when or
Art. 2226 Liquidated damages are those agreed established with reasonable certainty, the interest
upon by the parties to a contract, to be paid in case shall begin to run from the time the claim is made
Art. 2227 Liquidated damages, whether intended as established at the time the demand is made, the
an indemnity or a penalty, shall be equitably interest shall begin to run only from the date the
reduced if they are iniquitous or unconscionable. judgment of the court is made (at which time the
quantification of damages may be deemed to have
been reasonably ascertained). The actual base for The case at bar involves petitioner’s claim for
c) When the judgment of the court awarding a sum the instant case because it was not duly proven that
of money becomes final and executory, the rate of respondent defaulted in paying the loan. Also, no
legal interest, whether the case falls under interest was due on the loan because there was no
paragraph 1 or paragraph 2, above, shall be 12% per written agreement as regards payment of interest.
interim period being deemed to be by then an As for the principle of solutio indebiti, it applies
equivalent to a forbearance of credit. where (1) a payment is made when there exists no
binding relation between the payor, who has no
Siga-an v. Villanueva (2009) duty to pay, and the person who received the
FACTS: Petitioner approached respondent and mistake, and not through liberality or some other
offered a loan of 540k. Respondent accepted cause. The SC has held that the principle of solutio
because she needed capital for her business but the indebiti applies in case of erroneous payment of
HELD: Interest is a compensation fixed by the FACTS: Petitioners obtained P120k loan from
parties for the use or forbearance of money. This is Security Bank. They executed a PN binding
referred to as monetary interest. Interest may also themselves to pay the sum borrowed with an int. of
be imposed by law or by courts as penalty or 15.189% per annum upon maturity and to pay a
indemnity for damages. This is called compensatory penalty of 5%/month on the outstanding principal
interest. The right to interest arises only by virtue of and interest in case of default. They also agree to pay
a contract or by virtue of damages for delay or 10%
of
the
total
amount
due
as
attorney’s
fees
if
a
failure to pay the principal loan on which interest is suit were instituted to enforce payment. Petitioners
Art. 1956 of the CC mandates that payment of HELD: A penalty clause is an accessory undertaking
monetary interest is allowed only if: (1) there was to assume greater liability on the part of an obligor
an express stipulation for the payment of interest; in case of breach of an obligation. Its purpose is to
and (2) the agreement for the payment of interest strengthen the coervcive force of the obligation and
was reduced in writing. The concurrence of the two to provide for what could be the liquidated damages
conditions is required for the payment of monetary resulting from such a breach.
interest without any stipulation therefor in writing The interest rate of 15.189% does not appear to be
Art. 2209 of the CC states that if the obligation money, is not exactly the same as that of a surcharge
consists in the payment of a sum of money, and the or a penalty. The interest prescribed in loan
debtor incurs delay, a legal interest of 12% per financing arrangements is a fundamental part of the
annum may be imposed as indemnity for damages if banking
business
and
the
core
of
a
bank’s
existence.
obligation may be silent on this point. An Act to Require the Disclosure of Finance
The interest under these two instances may be (Truth in Lending Act)
imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a R. A. No. 3765, Sec. 4 Any creditor shall furnish to
compensation for the use or forbearance of money. each person to whom credit is extended, prior to the
In other words, the two instances apply only to consummation of the transaction, a clear statement
compensatory interest and not to monetary interest. in writing setting forth, to the extent applicable and
in accordance with rules and regulations prescribed (d) No punishment or penalty provided by this Act
by the Board, the following information: shall apply to the Philippine Government or any
(2) the amounts, if any, to be credited as down a defendant has willfully violated this Act shall be
payment and/or trade-in; prima facie evidence against such defendant in an
(3) the difference between the amounts set forth against such defendant under this Act as to all
under clauses (1) and (2); matters respecting which said judgment would be
an estoppel as between the parties thereto.
paid or to be paid by such person in connection with United Coconut Planters Bank v. Samuel and
the transaction but which are not incident to the Beluso (2007)
extension of credit;
(5) the total amount to be financed; under a Credit Agreement whereby the sps. could
and centavos; and UCPB. UCPB applied interest rates on the different
(7) the percentage that the finance bears to the total these PNs, the spouses were able to pay P760k but
amount to be financed expressed as a simple annual they failed to pay for the interest and penalty on
rate on the outstanding unpaid balance of the their obligations. As a result, UCPB demanded that
connection with any credit transaction fails to which, by that time, already ballooned to nearly
an amount equal to twice the finance charged Lending Act is P100 or an amount equal to twice the
required by such creditor in connection with such finance charge required by such creditor in
transaction, whichever is the greater, except that connection with such transaction, whichever is
such liability shall not exceed P2,000 on any credit greater, except that such liability shall not exceed
transaction. Action to recover such penalty may be P2,000.00 on any credit transaction. As this penalty
brought by such person within one year from the depends on the finance charge required of the
date of the occurrence of the violation, in any court borrower, the borrower’s cause of action would only
of competent jurisdiction. In any action under this accrue when such finance charge is required. In the
subsection in which any person is entitled to a case at bar, the date of the demand for payment of
recovery, the creditor shall be liable for reasonable the finance charge is September 2, 1998, while the
attorney's fees and court costs as determined by the foreclosure was made on December 28, 1998. The
section, nothing contained in this Act or any In this case, civil action to recover the penalty under
regulation contained in this Act or any regulation Section 6(a) of the Truth in Lending Act had been
thereunder shall affect the validity or enforceability jointly instituted with (1) the action to declare the
of any contract or transactions. interests in the promissory notes void, and (2) the
(c) Any person who willfully violates any provision is allowed under Rule 2, Section 5 of the Rules of
of this Act or any regulation issued thereunder shall Court.
or imprisonment for not less than 6 months, nor In addition, opening a credit line does not create a
more than one year or both. credit transaction of loan or mutuum, since the
former is merely a preparatory contract to the
contract of loan or mutuum. Under such credit line, future delivery, under which part or all of the price
the bank is merely obliged, for the considerations is payable subsequent to the making of such sale or
specified therefor, to lend to the other party contract; any rental-purchase contract; any contract
amounts not exceeding the limit provided. The or arrangement for the hire, bailment, or leasing of
credit transaction thus occurred not when the credit property; any option, demand, lien, pledge, or other
line was opened, but rather when the credit line was claim against, or for the delivery of, property or
availed of. In the case at bar, the violation of the money; any purchase, or other acquisition of, or any
Truth in Lending Act allegedly occurred not when credit upon the security of, any obligation of claim
the parties executed the Credit Agreement, where no arising out of any of the foregoing; and any
interest rate was mentioned, but when the parties transaction or series of transactions having a similar
Lastly, Section 4 of the Truth in Lending Act to the extension of credit as the Board may be
transaction. The rationale of this provision is to business of extending credit (including any person
protect users of credit from a lack of awareness of who as a regular business practice make loans or
the true cost thereof, proceeding from the sells or rents property or services on a time, credit,
experience that banks are able to conceal such true or installment basis, either as principal or as agent)
cost by hidden charges, uncertainty of interest rates, who requires as an incident to the extension of
deduction of interests from the loaned amount, and credit, the payment of a finance charge.
Fees
5. Usury Service Charges
Discounts
THE TRUTH IN LENDING ACT (R.A. 3765) & THE Other Charges incident to extension of
citizens from a lack of awareness of the true cost of 3. Duty of the Creditor
(1) "Board" means the Monetary Board of the (3) the difference between the amounts set forth
Central Bank of the Philippines. under clauses (1) and (2);
(2) "Credit" means any loan, mortgage, deed of (4) the charges, individually itemized, which are
trust, advance, or discount; any conditional sales paid or to be paid by such person in connection with
contract; any contract to sell, or sale or contract of the transaction but which are not incident to the
sale of property or services, either for present or
extension of credit;
(5) the total amount to be financed; Finance charge represents the amount to
(6) the finance charge expressed in terms of pesos be paid by the debtor incident to the extension of
and centavos; and credit. The lender may provide for a penalty clause
(7) the percentage that the finance bears to the total so long as the amount or rate of the charge and the
rate on the outstanding unpaid balance of the conditions under which it is to be paid are disclosed
obligation. to the borrower before he enters into the credit
agreement.
The CREDITOR has the duty to: rigid interpretation of the Truth in Lending At that
or service to be acquired;
i. Effect of Failure to Disclose Information
under clauses (1) and (2); issued thereunder shall be liable to such person in
(4) the charges, individually itemized, which are the amount of P100 or in an amount equal to twice
paid or to be paid by such person in connection with the finance charged required by such creditor in
the transaction but which are not incident to the
extension of credit;
connection with such transaction, whichever is the
amount to be financed expressed as a simple annual person is entitled to a recovery, the creditor shall be
rate on the outstanding unpaid balance of the liable for reasonable attorney's fees and court costs
1) PhP 100
CASE: BPI v. YU
penalty charges in case of default. However, the Liability shall not exceed Php 2,000 (2000
penalty charges were indicated in the Promissory ≤x)
Note. Sps. Yu allege that BPI violated Sec. 4 of the b) Reasonable attorney’s fees and court costs: as
Penalty charges are liquidated damages be brought by such person within one year from the
resulting from breach, it falls under finance charges date of the occurrence of the violation, in any court
WHO? Person to whom credited is extended, who an estoppel as between the parties thereto.
(Borrower)
WHERE? Any Court of competent jurisdiction Notes Line under a Credit agreement whereby the
Belusos could avail from UCPB credit up to a certain
Sec. 6(b). Except as specified in subsection (a) of promissory notes and real estate mortgage over
this section, nothing contained in this Act or any parcels of lands. UCPB applied interest rates on
regulation contained in this Act or any regulation different promissory notes ranging from 18% to
thereunder shall affect the validity or enforceability 34%. From 1996 to Feb 1998, Belusos were able to
of any contract or transactions. pay the total of P763,692.03. From 28 Feb 1998 to
Lending Act
1) FINE: Php 100 ≤ AMOUNT ≤ Php 5000 determinable in BOTH choices. If either of these two
2) IMPRISONMENT: 6 months ≤ PERIOD ≤ 1 choices presents an opportunity for UCPB to fix the
contracts.
1) Philippine Government below DBD retail rate. This gives UCPB unfettered
2) Any AGENCY of the Philippine discretion in determining the interest rate. Also,
vi. Effect of final judgment rendered in any 3) Separability Clause: Separability Clause cannot
5) PRESCRIPTION: Borrower’s cause of action PURPOSE: For the protection of borrowers from the
would only accrue when such finance charge is imposition of unscrupulous lenders who take undue
Date of the demand for payment of the finance HISTORY: The taking of excessive interest for the
charge is 2 September 1998, while the foreclosure loan of money has been regarded with abhorrence
was made on 28 December 1998. The filing of the from the earliest times.
throughout history.
of the said Act gives rise to both criminal and civil -Roman law: Limitations were imposed on
liabilities. Sec. 6(c) considers a criminal offense the the rate that creditors could demand; Rate
willful violation of the Act, while Sec. 6(a) provides limitation = 12%.
for a civil cause of action for failure to disclose any -Christian law: USURY as a SIN and ground
information required. for excommunication
In this case, the civil action to recover the stranger” and a violation resulted in social
promissory notes void and the action to declare the effective May 1, 1916 declare usury as
foreclosure void. illegal. However, Central Bank Circular 905
“The rationale of Sec. 4 of the Truth in pursuant to the powers granted by the
Lending Act is to protect users of credit from a lack Usury law, which took effect on January 1,
business decisions. rate for the use of money or its equivalent; and
law.
DEFINITION
GENERAL CONCEPTS
statutory regulation and prohibition. In the Art. 1957. Contracts and stipulations, under any
absence of a statute, any rate of interest cloak or device whatever, intended to circumvent
may be charged. The restriction of the price the laws against usury shall be void. The borrower
the Usury Law and other special laws, in so far as Sec. 4-b: Monetary Board’s Guidelines in fixing
they are not inconsistent with this code. maxing rate/s of interest
interest rate.
contract.
EXCEPTION: BY AGREEMENT
OR subject to rate prescribed by Monetary Board of
Sec. 1-a: Powers of the Monetary Board -Effective rate of interest charged by the
creditor shall not exceed the equivalent of
-Prescribe the maximum rate or rates of the maximum rate prescribed by the
-Change such rate or rates whenever debt is judicially claimed it shall draw 6%
by pawnshops finance companies and other GENERAL RULE: No person or corporation shall
similar credit institutions (rates need not be require interest to be paid in advance for a period of
for different types of borrowings, including EXCEPTION: Whenever the interest is paid in
credits, regardless of maturity and whether secured Sec. 4: Prohibition against pawnbroker or
any person, whether natural or juridical, shall not be stipulate, charge, demand, take or receive
USURIOUS ACTS
P100;
Prohibition against any person or corporation to c) and 14% p.a. when it is more than the amount last
What? a HIGHER rate of interest or greater Monetary Board and in force at the time the loan or
forbearance is granted
sum/value than 12% p.a.or maximum rate
granted.
1) Duly licensed
When? Where such loan or forbearance is secured 1)To divide the pawn offered by a person into two
in whole or in part by a mortgage upon real estate or more fractions in order to collect greater interest
(w/ registered title/ document conveying real estate than the permitted by this section.
or interest therein)
Rate of interest may apply to loans secured by other as insurance premium for the safekeeping and
Remedies:
or credits than 14% p.a.or maximum rate prescribed 2) Interest of the excess interest (1) from the date of
2. Costs and attorney's fees Changes shall not affect the validity of interest rate
Note: Must be brought within 2 years after payment agreement is entered into, by parties to a loan
or delivery. agreement, the proceeds of which may be availed of
principle embodied in Article 1306 of the Civil Code, 1) No intention on the part of said purchaser to
contracting parties may establish such stipulations, evade the provisions of this Act; and
This may be invoked to annul the excessive Right to Recover: Maker of note shall have right to
Sec. 7. When stipulations are in violation of this 1) the whole interest paid by maker
Act:
Sec. 8
compensation
other contracts or evidences of debts, and all
WHERE? There shall be stipulated, charged, be made in agricultural products or seed or in any
demanded, reserved, secured, taken, or received, other kind of commodities shall be null and void.
money, goods, or credits than is hereinbefore seed or other commodities shall be appraised at the
Exceptions:
Advancing agricultural products
act a loan.
Subsequent change in the maximum rates made Exception: IF otherwise stated in a document
every 2 pesos.
otherwise shall be entitled, in case action is brought societies, or companies the manager,
administrator or gerent or the person who
DEPOSIT COMMODATUM
has charge of the management or
gratuitous
this Act
within two years after such payment or delivery, to another, with the obligation of safely keeping it and
of returning the same. If the safekeeping of the
contract.
A lender under the foregoing contracts may take Art. 1964. A deposit may be constituted judicially
Must be in writing
Roman law concept depositum - the
gratuitous deposit of goods for the benefit of the
2) Criminal Liablity
consequence of law, allowing the issuance of a
judicial order constituting a deposit
Extrajudicial
Fine: not less than P50 nor more than P500 a. Voluntary - obligation arises as a
consequence of a contract
Imprisonment: not less than 30 days nor more than b. Necessary - obligation arises as a
party aggrieved.
When the seal or lock is broken, with or without the Triple-V v. Filipino Merchants Insurance (2005)
depositary's fault, he shall keep the secret of the
deposit. FACTS: De Asis was at Kamayan Restaurant. She
availed of the valet parking service and entrusted
Art. 1982. When it becomes necessary to open a her car key to the valet counter. A parking ticket was
locked box or receptacle, the depositary is issued as receipt for the car with a provision that
presumed authorized to do so, if the key has been that the management and staff will not be
delivered to him; or when the instructions of the responsible for any loss or damage on the vehicle.
depositor as regards the deposit cannot be The car was then parked by the valet attendant at
executed without opening the box or receptacle. the designated parking area. Later, the attendant
Depositor can demand Period to return must be noticed that the car was not in its parking slot and
return at any time respected by lender its key no longer in the box where the keys of cars
Compensation is Compensation may be entrusted to them were usually kept. The car was
generally gratuitous gratuitous, or with a never recovered.
(except by mutual stipulation to pay
agreement) interest HELD: Triple-V is liable for the loss of the car.
Petitioner was constituted as a depositary of the
Any property Fungible things
same car. When De Asis entrusted the car to the
Depositor and Lender and borrower
valet attendant while eating at petitioner's
depositary relationship relationship
restaurant, she expected the car's safe return at the
end of her meal. It cannot evade liability by arguing
that neither a contract of deposit nor that of
insurance, guaranty or surety for the loss of the car
B. Voluntary Deposit
was constituted, when De Asis availed of its free
valet parking service, nor can it be allowed to use its
o General Concepts
exclusionary stipulation as shield from
responsibility.
Voluntary Deposit
Art. 1973. Unless there is a stipulation to the Art. 1990. If the depositary by force majeure or
contrary, the depositary cannot deposit the thing government order loses the thing and receives
with a third person. If deposit with a third person is money or another thing in its place, he shall deliver
allowed, the depositary is liable for the loss if he the sum or other thing to the depositor.
deposited the thing with a person who is manifestly
careless or unfit. The depositary is responsible for Art. 1993. The depositor shall reimburse the
the negligence of his employees. depositary for any loss arising from the character of
the thing deposited, unless at the time of the
Art. 1977. The depositary cannot make use of the
constitution of the deposit the former was not aware
thing deposited without the express permission of
the depositor. of, or was not expected to know the dangerous
character of the thing, or unless he notified the
Otherwise, he shall be liable for damages. depositary of the same, or the latter was aware of it
without advice from the depositor.
However, when the preservation of the thing
deposited requires its use, it must be used but only
for that purpose. (1767a) Safekeeping
• Distinguishing characteristic of contract of deposit
Art. 1978. When the depositary has permission to • Responsibility for loss and damage are subject to
use the thing deposited, the contract loses the specific rules
concept of a deposit and becomes a loan or
commodatum, except where safekeeping is still the Liability of Depositary
principal purpose of the contract.
Responsibility for loss and damage will attach to the
Art. 1981. When the thing deposited is delivered depositary if:
closed and sealed, the depositary must return it in
the same condition, and he shall be liable for 1. Depositary deposits the object with a third person,
damages should the seal or lock be broken through • unless there is a stipulation allowing it
his fault. 2. If deposit to a third person is allowed, the
depositary deposits the thing with a person
Fault on the part of the depositary is presumed, manifestly careless or unfit
unless there is proof to the contrary. 3. The employees of the depositary are negligent
4. Depositary uses the object of the deposit,
As regards the value of the thing deposited, the • unless there was express permission of the
statement of the depositor shall be accepted, when depositor
the forcible opening is imputable to the depositary, • or the use was necessary for the limited
should there be no proof to the contrary. However, purpose of preservation
the courts may pass upon the credibility of the 5. The seal or lock of a thing delivered closed and
depositor with respect to the value claimed by him. sealed is broken through the fault of the
depositary,
When the seal or lock is broken, with or without the • unless there is proof to the contrary.
depositary's fault, he shall keep the secret of the • If the forcible opening is imputable to the
deposit. depositary, the value of the thing deposited
shall be based on the statement of the
Art. 1979. The depositary is liable for the loss of the depositor, unless
thing through a fortuitous event: a. There is contrary proof, and
b. The courts determine otherwise,
(1) If it is so stipulated; based on the credibility of the depositor.
(2) If he uses the thing without the depositor's 6. Even in case of fortuitous event, if:
permission; a. It has been stipulated
b. The depositary uses the thing without the
(3) If he delays its return; depositor’s
permission
Art. 1992. If the deposit is gratuitous, the depositor If the depositary has reasonable grounds to believe
is obliged to reimburse the depositary for the that the thing has not been lawfully acquired by the
expenses he may have incurred for the preservation depositor, the former may return the same.
of the thing deposited.
Art. 1985. When there are two or more depositors,
• If gratuitous if they are not solidary, and the thing admits of
• Depositor bears expenses for preservation division, each one cannot demand more than his
• If onerous share.
• Depositary bears expenses for preservation
When there is solidarity or the thing does not admit
o Obligation to Return of division, the provisions of Articles 1212 and 1214
shall govern. However, if there is a stipulation that
By Whom and To Whom the thing should be returned to one of the
depositors, the depositary shall return it only to the
Art. 1972. The depositary is obliged to keep the person designated.
thing safely and to return it, when required, to the
depositor, or to his heirs and successors, or to the Art. 1212. Each one of the solidary creditors may do
person who may have been designated in the whatever may be useful to the others, but not
contract. His responsibility, with regard to the anything which may be prejudicial to the latter.
safekeeping and the loss of the thing, shall be
governed by the provisions of Title I of this Book. Art. 1214. The debtor may pay any one of the
If the deposit is gratuitous, this fact shall be taken solidary creditors; but if any demand, judicial or
into account in determining the degree of care that extrajudicial, has been made by one of them,
the depositary must observe. payment should be made to him.
Art. 1970. If a person having capacity to contract Art. 1986. If the depositor should lose his capacity
accepts a deposit made by one who is incapacitated, to contract after having made the deposit, the thing
the former shall be subject to all the obligations of a cannot be returned except to the persons who may
depositary, and may be compelled to return the have the administration of his property and rights.
Right of Retention
When to Return
C. Necessary Deposit
1. General Concepts
4. Hotels or Inns
Art. 2004. The hotel-keeper has a right to retain the Art. 2006. Movable as well as immovable property
things brought into the hotel by the guest, as a may be the object of sequestration. (1786)
security for credits on account of lodging, and
supplies usually furnished to hotel guests. (n) Art. 2007. The depositary of property or objects
sequestrated cannot be relieved of his responsibility
Right of retention - the hotel keeper, as until the controversy which gave rise thereto has
depositary, is given the right of retention over the come to an end, unless the court so orders. (1787a)
property as means to obtain payment of what may
be die because of the deposit. Art. 2008. The depositary of property sequestrated
is bound to comply, with respect to the same, with
YHT Realty Corporation v Court of Appeals all the obligations of a good father of a family.
(1788)
FACTS: McLoughlin usually stayed at Sheraton
during his business trips to the Philippines. He then Art. 2009. As to matters not provided for in this
met Tan, who convinced him to transfer to Code, judicial sequestration shall be governed by the
Tropicana. Thereafter, he stayed at Tropicana Rules of Court.
during his trips, and deposited valuables (money,
documents,
and
jewelry)
at
the
hotel’s
safety deposit Judicial Deposit (or Sequestration)
box. On various occasions, some of his money and Deposit constituted by judicial order as a
jewelry had gone missing from the box. He consequence of litigation
confronted the hotel and discovered that Tan Suppletorily governed by the Rules of Court
opened the safety deposit box using the key on attachment and seizure of property
assigned to him. Tan admitted that she had stolen It is the only type of deposit that may have
McLoughlin’s
key. The hotel disclaimed liability, immovable property as object.
relying on the stipulation on the terms for use of the
safety deposit box releasing the hotel from liability
Reliance Commodities, Inc. v. Daewoo Industrial Feati Bank & Trust Company v. Court of Appeals
Co., Ltd. (1993) and Villaluz (1991)
Facts: Villaluz sold logs to Axel Christiansen, which
Facts: Daewoo (seller), a Korean company, entered then sold the logs to Handmi Trade Development, a
into a contract with Reliance (buyer), for the sale of company based in the US. Handmi opened a letter of
foundry pig iron. Pursuant to the contract, Reliance credit in its bank in California, said bank instructed
should apply for a Letter of Credit. Reliance applied Feati Bank to inform Villaluz of the existence of the
for a letter of credit (LOC) with Chinabank but the letter of credit and the documentary requirements
same was denied. It turned out that Reliance failed for recovery of payment. One of the requirements is
to meet the requirements of the government before a certification to be issued by Christiansen. However
it can import pig iron, a regulated commodity. despite demands, Christiansen refused to issue the
Daewoo, in a suit against Reliance, claimed that it is certification, thus, Villaluz cannot recover payment
entitled
for
damages
due
to
the
latter’s
failure
to
from Feati Bank. Hence, this action filed by Villaluz
secure a letter of credit. against Christiansen and Feati.
Issue: W/N failure of Reliance to open the LOC for Issue: W/N the bank should be held liable. NO
Daewoo makes him liable for damages. YES
Held: The Rule of Strict Compliance applies in this
Held: In this case, the contentious contractual case. The documents tendered by the beneficiary
relation is the contract of sale between Reliance and must strictly conform with the terms of the letter of
Daewoo. Although a contract of sale was already credit before the bank can honor the claim. A bank
perfected before the LOC application, the LOC is a which departs from the stipulation of the LOC and
condition to the delivery by Daewoo of the accepts a faulty tender acts on its own risk as it may
commodity. Because the failure of Daewoo to deliver not be able to recover from the buyer. Because
Transfield Philippines Inc. v. Luzon Hydro Presidential Decree 115 or the Trust Receipts Law
Corporation Australia (2004) (TRL)
Facts: Transfield Phil. Inc. (TPI) undertook to Elements of a Trust Receipt transaction (Section 3,
construct a hydro-electric power station for Luzon 4):
Hyrdro Corp. (LHC). The contract stipulated a target 1. Entruster – the person holding title over the
completion date but TPI may be entitled to goods, documents or instruments subject to
extensions due to force majeure or other delays. As a the transaction
security of TPI’s
obligation,
TPI
opened
in
favor
of
a. Goods – include chattels and personal
LHC two standby letters of credit from the property (other than thing in action or
respondent banks. those so affixed to the land)
TPI asked for extensions allegedly due to b. Document – written or printed
force majeure but LHC denied these requests. This evidence of title to goods
culminated to a series of legal actions leading to two c. Instrument – any negotiable instrument
arbitration proceedings. During the pendency of the as defined by the Negotiable
proceedings, TPI informed the banks that they Instrument Law (but not including
should not release the money under the LOC, documents as defined by the TRL)
otherwise, they would be liable for liquidated 2. Entrustee – the person having or taking
damages. When the banks said that they would possession of the goods, documents or
honor
LHC’s
claim,
TPI
filed a Complaint for instruments under the transaction
Injunction against the banks. 3. Trust receipt – the written or printed
document signed and delivered by the
Issue: W/N the banks should be enjoined from entruster to the entrustee (which contains
releasing the money under the Letters of Credit. NO the terms and conditions complying with
the TRL)
Held: The banks are under the obligation to pay LHC Under the trust receipt, the entruster binds
when the latter called on the securities in the Letter himself:
of Credit. The banks are not required to look into the
My notes:
My notes:
The principal obligation does not
A guaranty does not necessarily have to be necessarily have to be valid for a guaranty
reduced in writing to be valid but a written to exist, what is important is it is not void.
note or memorandum thereof is necessary
An example of a future debt is a contract to
for it to be enforceable.
loan, which could be secured by a guaranty.
C. Obligations Secured
D. Parties to a Guaranty
Art. 2050 If a guaranty is entered into without the Art. 2078 A release made by the creditor in favor of
knowledge or consent, or against the will of the one of the guarantors, without the consent of the
principal debtor, the provisions of articles 1236 and others, benefits all to the extent of the share of the
1237 shall apply. guarantor to whom it has been granted.
Art. 2073 When there are two or more guarantors Art. 2077 If the creditor voluntarily accepts
of the same debtor and for the same debt, the one immovable or other property in payment of the
among them who has paid may demand of each of debt, even if he should afterwards lose the same
the others the share which is proportionally owing through eviction, the guarantor is released.
from him.
If any of the guarantors should be insolvent, his Art. 2079 An extension granted to the debtor by the
share shall be borne by the others, including the creditor without the consent of the guarantor
payer, in the same proportion. extinguishes the guaranty. The mere failure on the
The provisions of this article shall not be applicable, part of the creditor to demand payment after the
unless the payment has been made by virtue of a debt has become due does not of itself constitute
judicial demand or unless the principal debtor is any extension of time referred to herein.
insolvent.
Art. 2080 The guarantors, even though they be
Art. 2074 In the case of the preceding article, the co- solidary, are released from their obligation
guarantors may set up against the one who paid, the whenever by some act of the creditor they cannot be
same defenses which would have pertained to the subrogated to the rights, mortgages, and preference
principal debtor against the creditor, and which are of the latter.
not purely personal to the debtor. (1845) ARTICLE
2075. A sub-guarantor, in case of the insolvency of SURETY
the guarantor for whom he bound himself, is
responsible to the co-guarantors in the same terms A. General Concepts
as the guarantor.
Art. 2047. By guaranty a person, called the
Art. 2075 A sub-guarantor, in case of the insolvency guarantor, binds himself to the creditor to fulfill
of the guarantor for whom he bound himself, is the obligation of the principal debtor in case the
responsible to the co-guarantors in the same terms latter should fail to do so.
as the guarantor.
If a person binds himself solidarily with the
Somera notes: principal debtor, the provisions of Section 4,
The right of reimbursement is the right of a Chapter 3, Title I of this Book shall be observed. In
co-guarantor who pays, as against the other such case the contract is called a suretyship.
Facts: IFC extended a loan agreement to Philippine 1. That they be constituted to SECURE the
Polyamide Industrial Corporation (PPIC) for $7M. A fulfillment of a principal obligation
guarantee agreement was executed by IFC with ITM 2. That the pledger or mortgagor be the
where
the
latter
agreed
to
guarantee
PPIC’s
ABSOLUTE OWNER of the thing
obligation to pay the loan. PPIC failed to pay the loan pledged or mortgaged
and its interests. Due to non-payment, the 3. That the persons constituting the
mortgages on the real properties were foreclosed. pledge or mortgage have the FREE
Even after the foreclosure, a balance of $2.8M DISPOSAL of their property, and in the
remained. IFC demanded defendant as guarantors of absence thereof, that they be LEGALLY
PPIC to pay the outstanding balance. The balance AUTHORIZED for the purpose
was not paid. Plaintiff filed a complaint with the RTC 4. Collateral may be ALIENATED AS
against PPIC and defendant for the payment of the PAYMENT of the principal obligation
balance.
Held: ITM liable as surety. ESSENCE OF PLEDGE AND MORTAGE (Art. 2087)
The terms of the contract govern the rights and = When the principal obligation becomes due, the
obligation of the contracting parties. When the
thing pledged or mortgaged may be alienated for the
obligation
undertakes
to
be
“jointly
and
severally”
liable, it means that the obligation is solidary. payment to the creditor.
Notwithstanding
the
use
of
the
words
“guarantee”
and
“guarantor”,
the
subject
contract
was
indeed
a
NATURE: Real security transactions
surety, because its terms were clear and left no
doubt as to the intention of the parties. PURPOSE: to secure the fulfillment of a principal
obligation
Chapter 6. PLEDGE AND MORTGAGE
WHEN CONTRACTS OF PLEDGE AND MORTGAGE
A. General Concepts (Art. 2085, 2087) ARE VOID:
Art. 2085. The following requisites are essential
to the contracts of pledge and mortgage: 1. Pledgor or mortgagor is NOT the
absolute owner of the thing pledged or
(1) That they be constituted to secure the mortgaged.
fulfillment of a principal obligation; 2. Pledgor or mortgagor has NO free
(2) That the pledger or mortgagor be the disposal of the property
absolute owner of the thing pledged or 3. In the absence of right of free
mortgaged; disposition, pledger or mortgagor is not
(3) That the persons constituting the legally authorized to constitute the
pledge or mortgage have the free pledge or mortgage
disposal of their property, and in the
absence thereof, that they be legally
1. Principal debtor
2. Third persons (third party pledgors/ Pledge or mortgage is a guarantee to:
third party mortgagors)
Third persons = Not parties to the principal 1. Performance of voidable or
obligation but may secure the latter by unenforceable contract
pledging or mortgaging their own property 2. Natural obligation
E. INDIVISIBILITY OF A PLEDGE OR
MORTGAGE General Rule: There can be no release of any
Art. 2089. A pledge or mortgage is indivisible, even
portion of the collateral unless the loan has been
though the debt may be divided among the
fully paid.
successors in interest of the debtor or of the
creditor.
Therefore,
the
debtor’s
heir
who
has
paid
a
No proportionate extinguishment of the
part of the debt cannot ask for the proportionate pledge or mortgage even if there is partial
extinguishment of the pledge or mortgage as long as payment
the debt is not completely satisfied. No partial foreclosure of only a portion of
the collateral or a number of several
Neither can
the
creditor’s
heir
who
received
his
properties pledged or mortgaged
share of the debt return the pledge or cancel the corresponding to the unpaid portion of the
debt
mortgage, to the prejudice of the other heirs who
Exception: When there are several things given in
have not been paid.
mortgage or pledge and each one of them
From these provisions is excepted the case in which, guarantees only a determinate portion of the credit
there being several things given in mortgage or
F. PACTUM COMMISSORIUM
pledge, each one of them guarantees only a Art. 2087. It is also of the essence of these contracts
determinate portion of the credit.
that when the principal obligation becomes due, the
The debtor, in this case, shall have a right to the things in which the pledge or mortgage consists may
extinguishment of the pledge or mortgage as the be alienated for the payment of the creditor.
portion of the debt for which each thing is specially
H: DBP’s
act
of
appropriating
to
itself
the
leasehold
F: The Ongs loaned from Roban Lending, which
rights is invalid because it contravenes the provision were secured by a real estate mortgage on their
on Pactum Commissorium. While the court held that parcels of land in Tarlac.
one condition in the deed of assignment did not
constitute pactum commissorium, DBP exceeded its The Ongs and the lending company executed:
authority
when
it
had
“[w]ithout
foreclosure
proceedings, whether judicial or extrajudicial,
…
It is immaterial that the Dacion and Memorandum The principle that a preexisting
commitment cannot be used as evidence to
were executed voluntarily, becasue pactum contradict or in any way modify the terms
commissorium is expressly prohibited by law. of a written agreement.
G. EQUITABLE MORTGAGE PRESUMPTION: THERE IS EQUITABLE
MORTGAGE
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases: 1. When the price of a sale with right to
repurchase is unusually inadequate;
Art. 1603. In case of doubt, a contract purporting to Art. 2141. The provisions of this Code on pledge,
be a sale with right to repurchase shall be construed insofar as they are not in conflict with the Chattel
as an equitable mortgage. Mortgage Law shall be applicable to chattel
mortgages. (n)
Art. 1604. The provisions of Article 1602 shall also CHATTEL MORTGAGE:
a real security transaction constituted to
apply to a contract purporting to be an absolute sale.
secure the fulfillment of a principal
obligation by the absolute owner
(mortgagor) of personal property, who has
free disposal of the same or is legally
Art 1605. In the cases referred to in Article 1602 authorized for the purpose
and 1604, the apparent vendor may ask for the perfected by the recording of the personal
reformation of the instrument. property in the Chattel Mortgage Register
as a security
subjects the collateral to the condition that
when the principal obligation becomes due,
PLEDGE – PHIMIE’S
PART the collateral may be alienated for payment
to the creditor (the mortgagee)
(1) Obligations and actions which have for their HELD: In Tumalad v. Vicencio, the SC held that
object movables or demandable sums; and although there is no specific statement referring to
the subject house as personal property, yet by
(2) Shares of stock of agricultural, commercial and ceding, selling or transferring a property by way of
industrial entities, although they may have real chattel mortgage defendants-appellants could only
estate. (336a) have meant to convey the house as chattel, or at
least, intended to treat the same as such, so that they
Act No. 1508, Sec. 2. All personal property shall be should not now be allowed to make an inconsistent
subject to mortgage, agreeably to the provisions of stand by claiming otherwise. The doctrine of
this Act, and a mortgage executed in pursuance estoppel therefore applies to the herein defendants-
thereof shall be termed chattel mortgage. appellants, having treated the subject house as
personality.
FACTS: Wilfredo Dy (mortgagor) purchased a farm Servicewide Specialists, Inc. v. Court of Appeals
tractor and a truck through financing extended by (1999)
Libra (mortgagee), which were mortgaged to the
latter as security for the loan. Perfecto Dy FACTS: This controversy is between a mortgagor
(petitioner) bought the tractor and assumed the who alienated the mortgaged property without the
Art. 2087. It is also of the essence of these contracts The persons in whose favor the law establishes a
that when the principal obligation becomes due, the mortgage have no other right than to demand the
things in which the pledge or mortgage consists may execution and the recording of the document in
be alienated for the payment to the creditor. which the mortgage is formalized.
REAL ESTATE MORTGAGE is a real security Art. 2131. The form, extent and consequences of a
transaction constituted to secure the fulfilment of a mortgage, both as to its constitution, modification
principal obligation by the absolute owner and extinguishment, and as to other matters not
(mortgagor) of immovable or alienable rights, which included in this Chapter, shall be governed by the
has free disposal of the property, and in the absence provisions of the Mortgage Law and of the Land
thereof, is legally authorized for the purpose; Registration Law.
subjecting the mortgaged property (collateral) to
the condition that when the principal obligation To bind 3rd parties, a real estate mortgage
becomes due, the collateral may be alienated for must be recorded in the Registry of
payment to the creditor (mortgagee). Property.
REM must be a public instrument to be
Real security transaction = encumbrance of recorded in the registry.
property given to guarantee the fulfillment of an Unrecorded REM: right to demand
obligation execution/recording
Unregistered REM: still valid, but only
REQUISITES: between the parties
1. Secure fulfillment of principal obligation
2. Mortgagor is absolute owner of the thing What right of mortgagee will be impaired if not
mortgaged recorded? Right to foreclose
3. Mortgagor has free disposal of the same or
is legally authorized for the purpose C. Obligations Secured
Obligations that are not void.
CHATTEL MORTGAGE REM May secure after-incurred
Thing mortgaged must Thing mortgaged must obligations/future debts
be personal or movable be real or immovable General rule: REM is limited to the
property property principal obligations mentioned in the
Affidavit of Good Faith Not required contract of real estate mortgage.
required Dragnet or Blanket Mortgage Clause
Mortgagor cannot Mortgagor can alienate o Specifically phrased to subsume all
alienate the thing the thing mortgaged w/o debts, whether past or future
mortgaged without consent of mortgagee o Continuing security and not
written consent of and any such prohibition discharged by repayment of the
mortgagee is void amount named in REM, until the
Can secure future Cannot secure future full amount of principal obligation
obligations obligations is paid
No right of redemption There is right of
redemption in Prudential Bank vs Alviar and Alviar
extrajudicial foreclosure FACTS: Respondents mortgaged their land for
and in judicial 250k loan. The PN that was executed had a
foreclosure by banks dragnet clause. Another PN was executed for
another loan containing another security. A 3rd
PN was executed by respondents for a loan in
B. Form of Real Estate Mortgage behalf of their company. Petitioner moved for
extrajudicial foreclosure for failure to pay the
Art. 2125. In addition to the requisites stated in obligation.
After filing of complaint, there will be a trial Whose rights are defeated? Mortgagee’s
right
to
where the court will ascertain if the foreclose
(or
assignee’s)
complaint is true.
If found to be true, the court will: d. Foreclosure Sale
o Ascertain amount due to mortgagee
o Compute the interest and other PROCEDURE:
charges, if any 1. Failure to pay within the period
Judgment will be rendered for the sum to be 2. File a complaint for foreclosure of mortgage
paid not less than 90 days nor more than indicating:
120 days from entry of judgment a. Date & due execution of the
If mortgagor failed to pay, property will be mortgage
sold at public auction b. Its assignments, if any
c. Names and residences of
Korea Exchange Bank vs Filkor Business mortgagor and mortgagee
Integrated, Inc d. Description of the mortgaged
FACTS: Filkor loaned from Korea Exhange Bank property
and executed 9 trust receipts. Filkor executed e. Statement of the date of the note or
REM as security. Filkor failed to pay so the Bank other documentary evidence of the
filed a complaint for it to be paid and the obligation secured by the mortgage
mortgage be foreclosed. f. Amount claimed to be paid thereon
g. Names and residences of all
WON the action is for a collection of a sum of persons having or claiming an
money or foreclosure of mortgage. interest in the property
subordinate to the mortgagee (they
HELD: The
Bank’s
allegations
in
the
complaint,
shall be made defendants)
and its prayer that the mortgaged property be 3. If the court finds the facts in the complaint
foreclosed and sold at public auction indicate to be true, it shall:
that it was one for foreclosure of REM. a. Ascertain amount due to plaintiff
(judgment obligee)
c. Equity of Redemption b. Order that the same be paid to the
Right of the mortgagor to extinguish the court or judgment obligee within a
mortgage and retain ownership of the period of not less than 90 days and
collateral
A. General Concepts Note: Sums spent are deducted from the fruits
Art. 2132. By the contract of antichresis the creditor
acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply
Art. 2138. The contracting parties may stipulate
them to the payment of the interest, if owing, and
that the interest upon the debt be compensated with
thereafter to the principal of his credit.
the fruits of the property which is the object of the
antichresis, provided that if the value of the fruits
Etymology: Latin - “in
place
of
interest” should exceed the amount of interest allowed by
Real security transaction that arises by laws against usury, the excess shall be applied to
contract, with the antichretic creditor the principal.
Art. 2085. Third persons who are not parties to the In this case, the debtor has a right
principal obligation may secure the latter by to extinguishment of the
[antichresis of] their own property. antichresis as the portion of the
debt corresponding to a thing is
Parties to an Antichresis satisfied
i. Creditor Note: Indivisibility of antichresis applies even if the
ii. Owner of the property subject of an debtors are not solidarily liable.
antichresis
1) Debtor in the principal Art. 2091. The contract of [antichresis] may secure
obligation all kinds of obligations, be they pure or subject to a
2) Third person securing suspensive or resolutory condition.
the principal obligation
using their own property
d. Insolvency proceedings: The statutory (bb) Party to the proceedings shall refer to the
procedures by which a debtor obtains debtor, a creditor, the unsecured creditors'
financial relief and undergoes judicially
supervised reorganization or liquidation of committee, a stakeholder, a party with an ownership
its assets for the benefit of its creditors. interest in property held by the debtor, a secured
creditor, the rehabilitation receiver, liquidator or
any other juridical or natural person who stands to
e. What law governs insolvency? FRIA be benefited or injured by the outcome of the
(Financial Rehabilitation and Insolvency proceedings and whose notice of appearance is
Act)
accepted by the court.
When liable? If they commit the acts punishable (c) if he shall knowingly violate a prohibition or
during the following periods: knowingly fail to undertake an obligation
established by this Act.
a. if they have notice of the
commencement of the proceedings, Who are liable?
or a. Owner
b. having reason to believe that the b. Partner
proceedings are about to be c. Director
commences, d. Officer
c. in contemplation of proceedings e. Other employee of debtor
the
Extent of liability? Determined by the court Acts punishable?
Note: In partnerships and corporations, the court (a)
shall consider the following in determining extent of 1. if he shall, having notice of the
liability: commencement of the proceedings, or having
reason to believe that proceedings are about to be
1. Amount of share/equity interest commented, or
2. Degree of control 2. in contemplation of the proceedings hide
3. Extent of involvement in actual or conceal, or destroy or cause to be destroyed or
management of operations hidden any property belonging to the debtor or
a. Fine
=
x≤1M
b. Imprisonment
=
3
mos
≥
x
≥
5
years 2. Classification of Credits
1. Special Preferred Credits
Chapter 2. Concurrence & Preference of Credits Article 2241. With reference to specific movable
property of the debtor, the following claims or liens
1. General Concepts
shall be preferred:
Sec. 62. Contents of a Rehabilitation Plan. – The
Rehabilitation Plan shall, as a minimum: (1) Duties, taxes and fees due thereon to the State or
any subdivision thereof;
(i) ensure that the payments made under the plan
follow the priority established under the provisions (2) Claims arising from misappropriation, breach of
of the Civil Code on concurrence and preference of trust, or malfeasance by public officials committed
credits and other applicable laws. in the performance of their duties, on the movables,
money or securities obtained by them;
Article 2242. With reference to specific immovable Taxes due upon the land
property and real rights of the debtor, the following or building
claims, mortgages and liens shall be preferred, and
Unpaid price of real Upon the immovable
Mortgage credits Upon the real estate Preference over trade-related assets
recorded in the Registry mortgaged
of Property Trade-related assets:
Article 2247. If there are two or more credits with DE BARRETO v. VILLANUEVA
respect to the same specific movable property, they Facts: There are two liens in the property of
shall be satisfied pro rata, after the payment of respondent. On the title, there was an annotation
duties, taxes and fees due the State or any stating
that
“in
case
of
sale
under
the
foreclosure
subdivision thereof. (1926a) decree,
the
vendor’s
lien
and
the
mortgage
credit
should be paid pro rata from
the
proceeds”.
The
issue in this case is whether the credit should be
paid pro rata.
Article 2248. Those credits which enjoy preference
Held: No. Only taxes enjoy a similar absolute
in relation to specific real property or real rights,
preference among creditors. All the remaining
exclude all others to the extent of the value of the
thirteen classes of preferred creditors under Article
immovable or real right to which the preference
2242 enjoy no priority among themselves but must
refers.
be paid pro rata or in proportion to the amount of
the respective credit. Under Art. 2249, if there are
two or more credits with respect to specific real
Article 2249. If there are two or more credits with property or real rights, they shall be satisfied pro
respect to the same specific real property or real rata, after the payment of the taxes and assessments
rights, they shall be satisfied pro rata, after the upon the immovable property or real right. The
payment of the taxes and assessments upon the preferred creditors enumerated in Art. 2241 (2-14)
immovable property or real right. (1927a) must necessarily be convened and their claims
ascertained. To determine the proportion, a
Among the special preferred credits proceeding
is
necessary
to
adjudicate
the
creditors’
enumerated in Art. 2241-2242, only taxes claims.
enjoy preference.
Those enumerated in 2241 (2) to (13) &
DBP v. CA
2242 (2) to (10) are liens, they are not
preferred over any another inter se. THERE Facts: Marinduque Mining obtained loans from PNB
IS ONLY CONCURRENCE OF CREDIT. and DBP. Upon default, the banks foreclosed the
properties mortgaged. Meanwhile, Marinduque
Mining bought construction materials from
Two-tier order of preference Remington which the former failed to pay,
Issue: Does Remington have a preferred credit over
TIER 1: Taxes, duties, and fees due on specific
DBP considering that it has a prior lien over the
movable or immovable property
materials? NO
TIER 2: All other special preferred credits Held: Only taxes enjoy an absolute preference in the
application of preferred credit. There is no hierarchy
Satisfied pari passu and pro rata out of any residual among the other preferred creditors in Art. 2242.
value of specific property to which other credits Instead, they must be paid their due in proportion to
relate the
amount
of
credit.
According
to
ARTICLE
2249
“If
there are two or more credits with respect to the
3. Common Credits
P.D. No. 442, Article 110. Worker preference in
Article 2245. Credits of any other kind or class, or
case of bankruptcy. In the event of bankruptcy or
by any other right or title not comprised in the four
liquidation
of
an
employer’s
business,
his
workers
preceding articles, shall enjoy no preference. (1925)
shall enjoy first preference as regards their wages
and other monetary claims, any provisions of law to
the contrary notwithstanding. Such unpaid wages
and monetary claims shall be paid in full before Article 2251. Those credits which do not enjoy any
claims of the government and other creditors may preference with respect to specific property, and
be paid. (As amended by Section 1, Republic Act No. those which enjoy preference, as to the amount not
6715, March 21, 1989) paid, shall be satisfied according to the following
rules:
1. Creditors having claims for: (f) prohibiting the individual debtor from making
a. Personal labor any payment outside of the necessary or legitimate
b. Maintenance
c. Expense of last illness expenses of his business or industry, so long as the
d. Funeral of the wife or children of proceedings relative to the suspension of payments
the debtor incurred in the 60 days are pending
immediately prior to the filing of
petition
2. Secured creditors
Injunction against debtor against:
C. CREDITORS’
MEETING
Sec.
97.
Creditors’
Meeting. – The presence of
creditors holding claims amounting to at least three- WHEN PROPOSED AGREEMENT IS DEEMED
fifths (3/5) of the liabilities shall be necessary for REJECTED:
holding a meeting. The commissioner appointed by
the court shall preside over the meeting and the 1. No quorum
clerk of court shall act as the secretary thereof, 2. Double-majority in Sec. 97 not in favor of
subject to the following rules: the proposed agreement
(a) The clerk shall record the creditors present and Effect of Rejection of Proposed Agreement =
amount of their respective claims; Proceedings terminated Parties shall be at liberty
(b) The commissioner shall examine the written
to enforce the rights which may correspond to them
evidence of the claims. If the creditors present hold
at least three-fifths (3/5) of the liabilities of the
individual debtor, the commissioner shall declare
the meeting open for business;
Sec. 100. Objections. - If the proposal of the
(c) The creditors and individual debtor shall discuss
individual debtor, or any amendment thereof made
the propositions in the proposed agreement and put
during the creditors' meeting, is approved by the
them to a vote;
majority of creditors in accordance with Section 97
(d) To form a majority, it is necessary:
hereof, any creditor who attended the meeting and
(1) that two-thirds (2/3) of the creditors voting
who dissented from and protested against the vote
unite upon the same proposition; and
of the majority may file an objection with the court
(2) that the claims represented by said majority vote
within ten (10) days from the date of the last
amount to at least three-fifths (3/5) of the total
creditors' meeting. The causes for which objection
No creditor shall sue or institute proceedings to Sec. 4 (kk) Secured creditor shall refer to a creditor
collect his claim from the debtor from the time of the with a secured claim.
filing of the petition for suspension of payments and
(jj) Secured claim shall refer to a claim that is
for as long as proceedings remain pending except:
secured by a lien.
(a) those creditors having claims for personal labor,
(t) Lien shall refer to a statutory or contractual claim
maintenance, expense of last illness and funeral of
or judicial charge on real or personal property that
the wife or children of the debtor incurred in the
legality entities a creditor to resort to said property
sixty (60) days immediately prior to the filing of the
for payment of the claim or debt secured by such
petition; and
lien.
(b) secured creditors.
a. The claims of secured creditors are not
covered by the automatic stay of all suits
and proceedings for he collection of claims
against the debtor.
Sec. 98. Persons Who May Refrain From Voting. –
b. The property held as security is not covered
Creditors who are unaffected by the Suspension by any suspension order that may be issued
Order may refrain from attending the meeting and against pending executions against the
from voting therein. Such persons shall not be debtor.
bound by any agreement determined upon at such c. Secured creditors need not attend or vote
meeting, but if they should join in the voting they during
the
creditors’
meeting
and
are
not
shall be bound in the same manner as are the other bound by the proposed agreement
approved during the meeting, unless they
creditors.
waive this right by voting during the
meeting.
d. Secured creditors are not bound by the
proposed agreement confirmed by the
Persons who may refrain from voting: Creditors court, unless they waive this right by voting
who are unaffected by the Suspension Order during the meeting.
R.A. No. 10142, Sec. 16. Commencement of (k) prohibit the debtor's suppliers of goods or
Proceedings and Issuance of a Commencement services from withholding the supply of goods and
(p) state that any creditor or debtor who is not the Against Against the Against the debtor
petitioner, may submit the name or nominate any whom creditor
other qualified person to the position of
rehabilitation receiver at least five (5) days before Effect 1. Suspending all 1. Prohibiting the
the initial hearing; actions or sale,
proceedings, in encumbrance,
(q) includes Stay or Suspension Order which shall: court or transfer or
otherwise, for the disposal in any
(1) suspend all actions or proceedings, in court or enforcement of manner of any of
otherwise, for the enforcement of claims against claims against the its properties
the debtor; debtor; and except in the
ordinary course of
(2) suspend all actions to enforce any judgment, 2. Suspending all business; and
attachment or other provisional remedies against actions to enforce
the debtor; any judgment, 2. Prohibiting any
attachment or payment of its
(3) prohibit the debtor from selling, encumbering, other provisional liabilities
transferring or disposing in any manner any of its remedies against outstanding as of
properties except in the ordinary course of the debtor. the
business; and commencement
date except as
(4) prohibit the debtor from making any payment provided in the
of its liabilities outstanding as of the FRIA
commencement date except as may be provided
herein. Purpose - To enable the - To ensure that
receiver to the debtor will not
R.A. No. 10142, Sec. 20. Application of Stay or effectively commit any act
Suspension Order to Government Financial exercise its that defrauds its
Institutions. - The provisions of this Act powers free from creditors or
concerning the effects of the Commencement any judicial or results in an
Order and the Stay or Suspension Order on the extrajudicial undue preference
suspension of rights to foreclose or otherwise interference that of creditors.
pursue legal remedies shall apply to government might unduly
financial institutions, notwithstanding provisions hinder or prevent
The complaint filed by Sobrejuanite is a claim as (d) to any form of action of customers or clients of
defined under the Interim Rules of Procedure on a securities market participant to recover or
Corporate Rehabilitation. Even under the rulings in otherwise claim moneys and securities entrusted
the two aforementioned cases, the complaint for to the latter in the ordinary course of the latter's
rescission of contract to sell, refund of payments and business as well as any action of such securities
damages would fall under the category of claim market participant or the appropriate regulatory
considering that it is for pecuniary considerations. agency or self-regulatory organization to pay or
settle such claims or liabilities;
Lecture Notes:
(e) to the actions of a licensed broker or dealer to
● Sobrejuanite v. ASBDC (2005) sell pledged securities of a debtor pursuant to a
- Decided under P.D. 902-A and the Interim Rules securities pledge or margin agreement for the
of Procedure on Corporate Rehabilitation settlement of securities transactions in accordance
(2000) with the provisions of the Securities Regulation
- If the case were decided under the FRIA, the Code and its implementing rules and regulations;
outcome would have been the same since the
FRIA’s
definition
of
“claims”
is
broader. (f) the clearing and settlement of financial
- FRIA’s
definition
of
“claims”
is
similar
to
but
transactions through the facilities of a clearing
broader than that of the interim rules agency or similar entities duly authorized,
> Reason: The FRIA further elaborates on the registered and/or recognized by the appropriate
types of claims: regulatory agency like the Bangko Sentral ng
>>
“liquidated
or
unliquidated,
fixed
Pilipinas (BSP) and the SEC as well as any form of
or contingent, matured or actions of such agencies or entities to reimburse
unmatured, disputed or themselves for any transactions settled for the
undisputed” debtor; and
The court also noted that Congress has now enacted (d) the petition should be dismissed; and
R.A. No. 10142 (Financial Rehabilitation and
Insolvency Act of 2010), Section 18 of which (e) the debtor should be dissolved and/or
explicitly provides that criminal actions against the liquidated.
individual officer of a corporation are not subject to
the Stay or Suspension Order in rehabilitation R.A. No. 10142, Sec. 25. Giving Due Course to or
proceedings. Dismissal of Petition, or Conversion of
Proceedings. - Within ten (10) days from receipt
c. Subsequent Actions of the report of the rehabilitation receiver
mentioned in Section 24 hereof the court may:
R.A. No. 10142, Sec. 22. Action at the Initial
Hearing. - At the initial hearing, the court shall: (a) give due course to the petition upon a finding
that:
(a) determine the creditors who have made timely
and proper filing of their notice of claims; (1) the debtor is insolvent; and
(b) hear and determine any objection to the (2) there is a substantial likelihood for the debtor
qualifications of the appointment of the to be successfully rehabilitated;
rehabilitation receiver and, if necessary appoint a
new one in accordance with this Act; (b) dismiss the petition upon a finding that:
(c) direct the creditors to comment on the petition (1)debtor is not insolvent;
and the Rehabilitation Plan, and to submit the
same to the court and to the rehabilitation (2) the petition i8 a sham filing intended only to
receiver within a period of not more than twenty delay the enforcement of the rights of the
(20) days; and creditor/s or of any group of creditors;
R.A. No. 10142, Sec. 27. Dismissal of Petition. - Other
qualifications
and
disqualification’s
of
the
If the petition is dismissed pursuant to paragraph rehabilitation receiver shall be set forth in
(b) of Section 25 hereof, then the court may, in its procedural rules, taking into consideration the
discretion, order the petitioner to pay damages to nature of the business of the debtor and the need
any creditor or to the debtor, as the case may be, to protect the interest of all stakeholders
who may have been injured by the filing of the concerned.
petition, to the extent of any such injury.
R.A. No. 10142, Sec. 30. Initial Appointment of
the Rehabilitation Receiver. - The court shall
d. Rehabilitation Receiver initially appoint the rehabilitation receiver, who
may or may not be from among the nominees of
1) General Concepts the petitioner, However, at the initial hearing of
the petition, the creditors and the debtor who are
R.A. No. 10142, Sec. 4. not petitioners may nominate other persons to the
(hh) Rehabilitation receiver shall refer to the position. The court may retain the rehabilitation
person or persons, natural or juridical, appointed receiver initially appointed or appoint another
as such by the court pursuant to this Act and who may or may not be from among those
which shall be entrusted with such powers and nominated.
duties as set forth herein.
In case the debtor is a securities market
R.A. No. 10142, Sec. 28. Who May Serve as a participant, the court shall give priority to the
(c) Illegal acts or conduct in the performance of his (a) he is a creditor, owner, partner or stockholder
duties and powers; of the debtor;
(d) Lack of qualification or presence of any (b) he is engaged in a line of business which
disqualification; competes with that of the debtor;
(e) Conflict of interest that arises after his (c) he is, or was, within five (5) years from the
appointment; and filing of the petition, a director, officer, owner,
partner or employee of the debtor or any of the
(f) Manifest lack of independence that is creditors, or the auditor or accountant of the
detrimental to the general body of the debtor;
stakeholders.
(d) he is, or was, within two (2) years from the
R.A. No. 10142, Sec. 33. Compensation and filing of the petition, an underwriter of the
Terms of Service. - The rehabilitation receiver outstanding securities of the debtor;
and his direct employees or independent
contractors shall be entitled to compensation for (e) he is related by consanguinity or affinity within
reasonable fees and expenses from the debtor the fourth civil degree to any individual creditor,
according to the terms approved by the court after owners of a sale proprietorship-debtor, partners
notice and hearing. Prior to such hearing, the of a partnership- debtor or to any stockholder,
rehabilitation receiver and his direct employees director, officer, employee or underwriter of a
shall be entitled to reasonable compensation corporation-debtor; or
based on quantum meruit. Such costs shall be
considered administrative expenses. (f) he has any other direct or indirect material
interest in the debtor or any of the creditors.
R.A. No. 10142, Sec. 34. Oath and Bond of the
Rehabilitation Receiver. - Prior to entering upon Any rehabilitation receiver, member of the
his powers, duties and responsibilities, the management committee or persons employed or
rehabilitation receiver shall take an oath and file a contracted by them possessing any conflict of
bond, in such amount to be fixed by the court, interest shall make the appropriate disclosure
R.A. No. 10142, Sec. 24. Report of the (e)To take possession, custody and control, and to
Rehabilitation Receiver. - Within forty (40) days preserve the value of all the property of the
from the initial hearing and with or without the debtor;
comments of the creditors or any of them, the
rehabilitation receiver shall submit a report to the (f)To sue and recover, with the approval of the
court stating his preliminary findings and court, all amounts owed to, and all properties
recommendations on whether: pertaining to the debtor;
(a) the debtor is insolvent and if so, the causes (g) To have access to all information necessary,
thereof and any unlawful or irregular act or acts proper or relevant to the operations and business
committed by the owner/s of a sole proprietorship of the debtor and for its rehabilitation;
partners of a partnership or directors or officers of
a corporation in contemplation of the insolvency (h) To sue and recover, with the. approval of the
of the debtor or which may have contributed to court, all property or money of the debtor paid,
the insolvency of the debtor; transferred or disbursed in fraud of the debtor or
its creditors, or which constitute undue preference
(b) the underlying assumptions, the financial goals of creditor/s;
and the procedures to accomplish such goals as
stated in the petitioner's Rehabilitation Plan are (i) To monitor the operations and the business of
realistic, feasible and reasonable; the debtor to ensure that no payments or transfers
of property are made other than in the ordinary
(c) there is a substantial likelihood for the debtor course of business;
to be successfully rehabilitated;
(j) With the court's approval, to engage the
(d) the petition should be dismissed; and services of or to employ persons or entities to
assist him in the discharge of his functions;
(e) the debtor should be dissolved and/or
liquidated. (k) To determine the manner by which the debtor
may be best rehabilitated, to review) revise
R.A. No. 10142, Sec. 41. Immunity. - The (a) Secured creditors;
rehabilitation receiver and all persons employed
by him, and the members of the management (b) Unsecured creditors;
committee and all persons employed by it, shall
not be subject to any action. claim or demand in (c) Trade creditors and suppliers; and
connection with any act done or omitted to be
done by them in good faith in connection with the (d) Employees of the debtor.
exercise of their powers and functions under this
Act or other actions duly approved by the court. In the election of the creditors' representatives,
the rehabilitation receiver or his representative
shall attend such meeting and extend the
R.A. No. 10142, Sec. 9. Creditors R.A. No. 10142, Sec. 36. Displacement of
Representatives. - Creditors may designate Existing Management by the Rehabilitation
representatives to vote or otherwise act on their Receiver or Management Committee. – Upon
behalf by filing notice of such representation with motion of any interested party, the court may
the court and serving a copy on the rehabilitation appoint and direct the rehabilitation receiver to
receiver or liquidator. assume the powers of management of the debtor,
or appoint a management committee that will
R.A. No. 10142, Sec. 4. undertake the management of the debtor. upon
(ll) Secured party shall refer to a secured creditor clear and convincing evidence of any of the
or the agent or representative of such secured following circumstances:
creditor.
(a) Actual or imminent danger of dissipation, loss,
(kk) Secured creditor shall refer to a creditor with wastage
or
destruction
of
the
debtor’s
assets
or
a secured claim. other properties;
(jj) Secured claim shall refer to a claim that is (b) Paralyzation of the business operations of the
secured by a lien. debtor; or
(qq) Unsecured creditor shall refer to a creditor (c) Gross mismanagement of the debtor. or fraud
with an unsecured claim. or other wrongful conduct on the part of, or gross
or willful violation of this Act by existing
(pp) Unsecured claim shall refer to a claim that is management of the debtor Or the owner, partner,
not secured by a lien. director, officer or representative/s in
management of the debtor.
(t) Lien shall refer to a statutory or contractual
claim or judicial charge on real or personal In case the court appoints the rehabilitation
property that legality entities a creditor to resort receiver to assume the powers of management of
to said property for payment of the claim or debt the debtor. the court may:
secured by such lien.
(j) direct Bureau of internal Revenue (BIR) to file R.A. No. 10142, Sec. 44. Registry of Claims. -
and serve on the debtor its comment on or Within twenty (20) days from his assumption into
opposition to the petition or its claim/s against the office, the rehabilitation receiver shall establish a
debtor under such procedures as the Supreme preliminary registry of claims. The rehabilitation
Court provide; receiver shall make the registry available for
public inspection and provide publication notice
(k) prohibit the debtor's suppliers of goods or to the debtor, creditors and stakeholders on where
services from withholding the supply of goods and and when they may inspect it. All claims included
services in the ordinary course of business for as in the registry of claims must be duly supported by
long as the debtor makes payments for the sufficient evidence.
services or goods supplied after the issuance of the
Commencement Order; R.A. No. 10142, Sec. 45. Opposition or
Challenge of Claims. – Within thirty (30) days
(l) authorize the payment of administrative from the expiration of the period stated in the
expenses as they become due; immediately preceding section, the debtor,
creditors, stakeholders and other interested
(m) set the case for initial hearing, which shall not parties may submit a challenge to claim/s to the
be more than forty (40) days from the date of court, serving a certified copy on the rehabilitation
filing of the petition for the purpose of receiver and the creditor holding the challenged
determining whether there is substantial claim/so Upon the expiration of the thirty (30)-
likelihood for the debtor to be rehabilitated; day period, the rehabilitation receiver shall submit
to the court the registry of claims which shall
(n) make available copies of the petition and include undisputed claims that have not been
rehabilitation plan for examination and copying by subject to challenge.
any interested party;
R.A. No. 10142, Sec. 46. Appeal. - Any decision of
(o) indicate the location or locations at which the rehabilitation receiver regarding a claim may
documents regarding the debtor and the be appealed to the court.
proceedings under Act may be reviewed and
copied;
● Determination of claims
(p) state that any creditor or debtor who is not the - The
Rehabilitation
Receiver
will
“clean
up”
all
petitioner, may submit the name or nominate any the claims (one side of the equation).
other qualified person to the position of > The other side of the equation is the
rehabilitation receiver at least five (5) days before assets, which will be used to pay for the
the initial hearing; claims.
- The Rehabilitation Receiver will fix all the claims
(q) includes Stay or Suspension Order which shall: and assets (complete and stable condition) for
The court, upon motion or recommendation of the ● The treatment of secured creditors during the
rehabilitation receiver, may allow a secured rehabilitation proceeding is as follows:
creditor to enforce his security or lien, or foreclose - Note: Headings (those in quotation marks) of the
upon property of the debtor securing his/its claim, following enumeration were not provided in the book.
if the said property is not necessary for the They’re
only
used
to
emphasize
the
important
terms
rehabilitation of the debtor. The secured creditor and phrases of each item.
and/or the other lien holders shall be admitted to - 1. “Equality
is
equity
by
issuance
of
the
the rehabilitation proceedings only for the balance Commencement
Order”
of his claim, if any. > Upon the issuance of the Commencement
Order, all creditors, including secured
R.A. No. 10142, Sec. 61. Lack of Adequate creditors, are precluded, by virtue of the
Protection. - The court, on motion or motu Stay or Suspension Order, from obtaining
proprio, may terminate, modify or set conditions an advantage or preference over another.
(l) authorize the payment of administrative R.A. No. 10142, Sec. 23. Effect of Failure to File
expenses as they become due; Notice of Claim. - A creditor whose claim is not
listed in the schedule of debts and liabilities and
(m) set the case for initial hearing, which shall not who fails to file a notice of claim in accordance
be more than forty (40) days from the date of with the Commencement Order but subsequently
filing of the petition for the purpose of files a belated claim shall not be entitled to
determining whether there is substantial participate in the rehabilitation proceedings but
likelihood for the debtor to be rehabilitated; shall be entitled to receive distributions arising
therefrom.
(n) make available copies of the petition and
rehabilitation plan for examination and copying by
any interested party; h. Treatment of Assets
(o) indicate the location or locations at which R.A. No. 10142, Sec. 47. Management. - Unless
documents regarding the debtor and the otherwise provided herein, the management of the
proceedings under Act may be reviewed and juridical debtor shall remain with the existing
copied; management subject to the applicable law/s and
agreement/s, if any, on the election or
(p) state that any creditor or debtor who is not the appointment of directors, managers Or managing
petitioner, may submit the name or nominate any partner. However, all disbursements, payments or
other qualified person to the position of sale, disposal, assignment, transfer or
rehabilitation receiver at least five (5) days before encumbrance of property , or any other act
the initial hearing; affecting title or interest in property, shall be
subject to the approval of the rehabilitation
(q) includes Stay or Suspension Order which shall: receiver and/or the court, as provided in the
following subchapter.
(1) suspend all actions or proceedings, in court or
otherwise, for the enforcement of claims against
the debtor; ● Sec. 47. Management
- “However,
all
disbursements,
payments
or
sale,
(2) suspend all actions to enforce any judgment, disposal, assignment, transfer or encumbrance of
attachment or other provisional remedies against property , or any other act affecting title or
the debtor; interest in property, shall be subject to the
approval of the rehabilitation receiver and/or the
(3) prohibit the debtor from selling, encumbering, court,
as
provided
in
the
following
subchapter.”
transferring or disposing in any manner any of its > Important part of this provision
(b) in order to provide a substitute lien, mortgage (c) serve as the legal basis for rendering null and
or pledge of property under this Act; void any setoff after the commencement date of
any debt owed to the debtor by any of the debtor's
(c) for payments made to meet administrative creditors;
expenses as they arise;
(d) serve as the legal basis for rendering null and
(d) for payments to victims of quasi delicts upon a void the perfection of any lien against the debtor's
showing that the claim is valid and the debtor has property after the commencement date; and
insurance to reimburse the debtor for the
payments made; (e) consolidate the resolution of all legal
proceedings by and against the debtor to the court
(e) for payments made to repurchase property of Provided. However, That the court may allow the
Somera Book:
i. Treatment of Contracts Confirmation – effected by notice to the
contractual counter-party, within 90 days
1) Confirmation or Termination of from the commencement of the proceedings
Contracts Termination – effected by the lapse of the
90-day deadline without a notice of
Section 57.Treatment of Contracts. - Unless confirmation, subject to a claim for actual
cancelled by virtue of a final judgment of a court of damages arising as a result of the
termination.
competent jurisdiction issued prior to the
issuance of the Commencement Order, or at Notes:
anytime thereafter by the court before which the Default – valid and subsisting contracts
rehabilitation proceedings are pending, all valid shall continue to be in force, PROVIDED that
and subbsisting contracts of the debtor with within 90 days following the
creditors and other third parties as at the commencement of proceedings, a
commencement date shall continue in notification of confirmation would be sent
to notify the counter-party with the consent
force: Provided, That within ninety (90) days
of the rehabilitation receiver
following the commencement of proceedings, the
debtor, with the consent of the rehabilitation Confirmed contracts – considered
receiver, shall notify each contractual counter- administrative expenses
party of whether it is confirming the particular Terminated contracts (Contracts not
contract. Contractual obligations of the debtor confirmed) – claims arising from these
arising or performed during this period, and contracts shall be considered a pre-
commencement claim against the debtor
afterwards for confirmed contracts, shall be
considered administrative expenses. Contracts not
confirmed within the required deadline shall be 2) Avoidance Proceedings
considered terminated. Claims for actual damages,
if any, arising as a result of the election to Section 58.Rescission or Nullity of Certain Pre-
terminate a contract shall be considered a pre- commencement Transactions. Any transaction
commencement claim against the debtor. Nothing occurring prior to commencement date entered
into by the debtor or involving its funds or assets
contained herein shall prevent the cancellation or
may be rescinded or declared null and void on the
termination of any contract of the debtor for any ground that the same was executed with intent to
ground provided by law. defraud a creditor or creditors or which constitute
undue preference of creditors. Without limiting
the generality of the foregoing, a disputable
Section 16. Commencement of Proceedings and presumption of such design shall arise if the
Issuance of a Commencement Order. - The transaction:
rehabilitation proceedings shall commence upon (a) provides unreasonably inadequate
Somera Book:
Standstill Agreement – consensual contract
between the insolvent debtor and its
creditors that allows the debtor not to pay
its liabilities as they fall due and prevent
creditors from taking further actions
o Approved by creditors
representing more than 50% of the
total liabilities of the debtor
o Notice of the agreement is
published in a newspaper of
general circulation once a week for
two weeks, inviting creditors to
participate in the negotiation for
the Out-of Court Restructuring
Agreement and informing them
that if the minimum required vote,
the agreement would bind all
creditors
o Does not extend 120 days from
date of effectivity