Reviewer in Credit Transactions by DARAGBY

8/12/2019 Reviewer in Credit Transactions by DARAGBY

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Reviewer in Credit TransactionsArticle Keywords Requisites Exceptions Notes

1933 2 types of loan

Commodatum:1. delivery of non-consumablething2. such will be used byanother3. within a specified period oftime4. after which, the sameshould be returned.

Mutuum/Simple Loan:1. delivery of consumablething2. upon the condition that thesame amount, of the samekind shall be returned.

Credit - belief or trust in another person'sability to comply with an obligation.

Credit Transactions -contracts/agreements based on this trustor belief.

Two types of Loan:CommodatumMutuum

Difference Commodatum Simple Loan

Return of thing Same thing must be returned Same amount will be returned

Nature Essentially gratuitous May be gratuitous or with stipulation to pay

Ownership Ownership is retained in the bailor Ownership is passed to the borrower

Properties Included May include real or personal property Refers only to personal property

Other terms "contract of temporary possession" "contract for consumption"

Person who bears the loss lender bears the risk of loss borrower who bears the risk of loss

When is returnGenerally, return is at the end of the period, but may be

demanded to be returned before itReturn of thing is always after the period

Character Personal in character Not personal in character

Consumable Non-consumable

depends on the nature of the thing1. movable2. cannot be used in a manner for it was intended withoutbeing consumed

1. movable

2. may be used in the manner for which it was intended without beingconsumed

Fungible Non-fungible

depends on the intention of theparties

intention is to allow substitutionintention is not to allow substitution


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1934Perfection of commodatum orsimple loan

The contract of commodatumor simple loan shall only be

perfected upon the delivery ofthe object of the obligation

An accepted promise to deliver an objectby way of commodatum or mutuum isbinding upon the parties.

Contract of loans are real contracts(perfected by delivery)

Delivery is an essential element

COMMODATUM

NATURE OF COMMODATUM (1935-1940)

1935

Bailee shall acquire the use ofthe thing BUT not its fruits

If any compensation is to bepaid by him who acquires theuse, the same shall cease tobe a commodatum

Features of a commodatum: RPGP1. real (perfected by delivery)2. principal (it can stand alone)3. gratuitous (otherwise, the contract oflease)4. personal in nature (trust)

The contract of commodatum onlytransfers the object for use (jus utendi)

1936Consumable goods may bethe subject of a contract of acommodatum

Provided that the purpose ofthe contract is not the

consumption of the object orwhen it merely for exhibition

Subject matter of commodatum isusually non-consumable for the purposeof the contract is for the same thing to bereturned.

1937Movables or immovables maybe the subject of acommodatum

1938The bailor of the thing neednot be the owner of the thingloaned

Because ownership is not transferred

1939Contract of commodatum ispurely personal

Exception to par.2:However, the members of thebailee's household may make

use of the thing loaned

Exception to the aboveexception:

contrary stipulationnature of the thing forbids its

use

1. death of either the bailee or the bailorextinguishes the obligation

2. the bailee cannot lend nor lease thething loaned to a third person.


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1940There may be a stipulationthat the bailee may make useof the fruits of the thing

General Rule: The bailee only has theright to use the thing loaned, not i tsfruits (Art. 1935)

Exception: A stipulation to that effect (Art.1940)

OBLIGATIONS OF THE BAILEE (1941-1945)

1941The obligation to pay forordinary expenses for thepreservation of the thing

The bailee is obliged to pay for ordinaryexpenses for the preservation of the thingloaned.

Reason:because the bailee will thereturn the same thing; he is also obligedto take care of the thing loaned with thediligence of a good father of the family

1942The obligation to bear theloss of the thing even if it isthrough fortuitous event

1. the thing has been used fora different purpose for which

it was intended

2. it was retained by thebailee longer than the periodstipulated or after theaccomplishment of the reasonof commodatum

3. it was delivered withappraisal, except when thereis a stipulation that the baileewill be excused in case of FE

4. if he leases or lends it to

third person not a meber ofhis household

5. if, being able to save eitherthe thing borrowed or his ownthing, he chooses to save hisown

General Rule: The bailee, since therewas no transfer of ownership, does notbear the loss in fortuitous event (or anyother risks)

Exception: Art. 1942

1. bad faith or abuse2. default3. giving of appraisal only means to makethe bailee answer for loss

4. prohibited by law; violation of personalcharacter of contract5. act of ingratitude

1943Non-liability in case ofdeterioration without fault

The bailee shall not be liable for anydeterioration of the thing due to the usethereof without his fault.


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1944

Bailee do not have the right toretain the thing loaned byreason that the bailor oweshim something even if it be byreason of expenses

Bailee has the right ofretention in Art 1951

1945 Presumption of solidarity

When there are 2 or more

bailees in the same contractof commodatum

OBLIGATIONS OF THE BAILOR (1946-1951)

1946

Bailor cannot demand for thereturn of the thing loaned untilafter the expiration of theperiod agreed

If the bailor should have anurgent need to use the thingloaned, he may demand thereturn of the thing loaned

In case of temporary use by the bailor,the contract of commodatum shall besuspended while the thing is in thepossession of the bailor

General Rule: bailor cannot demand thereturn of the thing loaned before theexpiration of the period stipulated

Exception: when urgently needed by thebailor

Effect: the contract of commodatum shallbe suspended

1947Bailor may demand for thething at will: PRECARIUM

2 types of precarium:

1. neither the duration nor theuse of the thing used wasstipulated

2. the use of the thing is

merely tolerated by the owner

Precarium: special form of commodatum.The possession of the borrower isprecarious and dependent on thelender's will

1948

The bailor may demand theimmediate return of the baileeincase of acts of ingratitude(Art. 765)

Effect of ingratitude: immediate return


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1949

The bailor should reimburseany expenses forextraordinary expenses

If the extraordinary expensesarise from the ordinary useof the thing, it shall be borne

equally of the bailor andbailee

Proviso of par. 1:That the expenses forpreservation shall be broughtto the attention of the bailorbefore incurring them

Exception:

when urgent that the reply tothe notification cannot beawaited without delay

General Rule: expenses for extraordinaryuse shall be borne by the bailor becauseit is he who has profited by the saidexpenses

1950

If for the purpose of makinguse of the thing, the baileeincurs expenses not specifiedin the code, he shall not bereimbursed

1951

The bailor, knowing the flawsof the thing loaned, does notadvise the bailee of such,shall be liable for damages

1. bailor knows of the defect2. the defect is hidden3. does not advise the baileeof such4. damage has been incurredby bailee because of suchdamage

Liability for damages

Right of retention: exception to thegeneral rule of bailee not having the rightof retention

1952

The bailor cannot exempthimself from paying theexpenses or damages byabandoning the thing loaned

Reason: the thing borrowed might belesser than the value of thedamages/expenses

SIMPLE LOAN OR MUTUUM

1953Ownership is passed in thecontract of mutuum

A person who receives a loan of moneyor any other fungible things acquires theownership thereof, and is bound to paythe creditor an equal amount in the samekind and quality


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1954 Definition of Barter

A person receiving the ownership of anon-fungible thing and the other havingthe obligation to pay the equivalent withthe same kind and quality

Non-fungible does not mean non-consumable

1955

Obligation of person whoborrows money

Obligation of person whoborrows another thing

1) shall be to pay the exactamount

2) shall be to return the samekind, quantity and quality

If not able to return (2), thenits value on the time of theperfectionof the contractshall be paid

1956No interest is due unlessexpressly stipulated in thecontract

2 types of interest:Compensation for the use of MoneyCompensatory Damages (occurs duringdefault) - interest not to serve for usage

of money, but as penalty or damages forthe breach of contractual obligations.

1957Contracts and stipulationsdesigned to circumvent thelaw on Usury shall be void

Usury:

1. there must beloan/forbearance2. understanding that theamount should be paid3. interest is greater thanwhat the law requires4. corrupt intent

1958In the determination ofinterest, if it is payable in kind

value is determined by the TIME &PLACE of PAYMENT


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1959Interest due and unpaid shallnot earn interest.

the contracting parties maystipulate that the interest due& unpaid, added as principal,shall earn new interest:compound interest

Compounded interest mustbe expressly stipulated

General Rule on interest: Interest dueand unpaid shall not earn interest

Exception:1. contrary stipulation2. judicial demand

Compound interest is not usurious sincethis is not an interest of the originalprincipal amount

1960If the person pays interestwithout there has nostipulation to that effect

rules on solution indebitior on naturalobligations shall apply

1961Usurious contracts shall begoverned by the Usury Law

provided they are notinconsistent with theprovisions of the civil code

1962 Definition of Deposit

1. receives a thing belongingto another

2. safely keeps it3. returns the same

if safekeeping is not principalpurpose

Characteristics:1. real contract - perfected by delivery2. unilateral - when gratutitous; bilateral -when for compensation

1963Agreement for deposit is

binding; but deposit isperfected upon delivery

1964Deposit is consituted judicially

or extrajudicially

Kinds of Deposit:

1. Judicial - takes place when attahcmentor seizure of property in litagation isordered2. Extrajudicial(a) voluntary - by will of parties(b) necessary - in compliance with law;on occasion of calamity; travelers inhotels, inns; common carriers


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1965 Deposit is gratuitous

1. when there is agreement tocontrary

2. depositary is engaged inbusiness of storing goods

Another exception :3. when property is saved fromdestruction without knowledge of owner

1966Only movable things may be

object of deposit

Exception:1. judicial deposit (Art. 2005-2006) as itmay cver movable and immovableproperties

Why movable only?Because the possibility that the thing maydisappear or may be lost or stolen is notpresent in real property. Movables can belost or stolenl that is why they needsafekeeping.

1967 Extrajudicial deposit is eithervoluntary or necessary

Article Keyword Requisites/Elements Exceptions Notes

1968

Voluntary Deposit: delivery

is made by WILL ofdepositor

Deposit may be made by 2or more persons

In a voluntary deposit, there is completefreedom in choosing depositary.

One of the two depositors, is NOT theowner.Interpleader - action to compel depositorsto settle conflicting claims.

1969Form of deposit: orally or inwriting

No formalities required - except DELIVERY


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1970Depositary is capacitated;depositor is incapacitated

Depositary is:a. subject to all obligations of depositaryb. can be compelled to return thing

Who can compel to return:1. guardian of depositor2. administrator of depositor3. depositor himself (when he acquirescapacity)

1971Depositary is incapacitated;depositor is capacitated

Depositary is NOT subject to obligations ofdepositary but must:

a. return the hingb. pay for amount by which he hasbenefited

Depositor may bring an action for recoveryagainst third person who acquired thing inbad faith.

1972Obligations to keep andreturn

1. keep safely2. return when required by:a. depositorb. a's heirs and successors

c. person deisgnated in contract

Degree of care - same diligence as hewould exercise over his property

Rules in liability of depositary:1. if loss occurs thru his fault or negligence- LIABLE (Art.1170)2. if loss of thing while in his possession -

presumption of fault (Art.1265)3. if deposit is for compensation, degree ofcare is greater

1973Depositary cannot depositthing to third person

(1) stipulation to contrary(2) if allowed by depositor(3) 3rd person not manifestly carelessor unfit

Depositor is LIABLE:a. deposits with third person withoutauthority (w or w/o negligence)b. deposits with third person who ismanifestly careless or unfit althoughauthorizedc. thing is lost thru negligence of hisemployees (whether careless or not)

Depositor is NOT LIABLE:

a. deposits with authority to third personwho is not negligent, manifestly careless orunfit

1974 Depositary can change wayof deposit

1. notify depositor2. wait for depositor's decisions

delay would cause dangerGeneral Rule: Depository cannot changeway of deposit.


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1975

Depository to collect interestof choses in action topreserve their value and

rights

CHOSES in action (such as:certificates, bonds, securities, instruments

that earns interest)

rent of safety deposit boxes

CA Agro Industrial Devt. Corp v CA (1993)Rent of safety deposit box:1. is not an ordinary contract of lease2. considered as a deposit because ofBanking Act but is essential a LEASEbecause the depositary has no full controlor use over the thing.

1976

Depositary not tocommingle things;depositors ownproportionate interest

grain or articles must be of same KINDand QUALITY

stipulation to contrary

1977Depositary not to make useof thing

1. express permission2. preservation of thing requires itsuse

1978When depositary haspermission to use, contract

not a deposit

becomes LOAN or COMMODATUM

permission must be proved

safekeeping is still principal purpose(irregular deposit)

Effect if permission to use is given:1. thing deposited is non-consumable -COMMODATUM2. thing deposited is consumable/ money -MUTUUM / LOAN / IRREGULARDEPOSIT

1979When depositary is liable forloss during fortuitous event

1. if stipulated2. uses the thing without depositor'spermission3. delays return4. allows others to use it


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1980fixed, savings and currentdeposits governed byprovisions on simple loan

1981Depositary's obligationwhen thing deliveredisclosed and sealed

1. return thing in same condition2. pay for damages if seal or lock is

broken through his fault3. keep secret the deposit if seal or lock isbroken

fault of depositary is presumed

1982Depositary presumedauthorized to open lockedbox or recptacle

1. key is delivered to him2. instructions of depositor cannot beexecuted without opening of box orreceptacle

1983Depositary must return thingwith all products,accessories and accessions

depositor is or represents the owner ofthing

products, accessories and accessions areconsequences of ownership

1984Depositary cannot demanddepositor to proveownership

he must advise true owner of deposit,if depostary discovers:

1. that thing is stolen2. true owner

depositary can return thing if:he has reasonable grounds to believe itwas unlawfully acquired

if owner does not claim within onemonth, depositor relieve ofreponsibility to return to depositor


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1985 Two or more depositors

if NOT solidary, thing is DIVISIBLE -cannot demand more than his share

if SOLIDARY, thing is INDIVISIBLE - Arts1212, 1214 governs

if with stipulation to return to one ofdepositors - return to person designated

Art. 1212 - each one of solidary depositorsmay do anything useful but not anythingprejudicial to othersArt. 1214 - may return to any one ofdepositor unless demand for its return ismade by one of them

1986Depositor loses capacity tocontract after deposit - thingcannot be returned

to persons who may haveadminstration of his property or rights

1987 Place of return

A. if place was designated - return to suchplaceB. if place not designated - return to placewhere deposited thing is

B. malice on part of depositarytransportation expenses is borne bydepositor

1988 Time of return must be returned upon DEMANDThis provision shall not apply:1. judicially attached2. opposition of a third party

1989Depositary's right to returnthing deposited

has right to return even before t imedesignated:1. deposit is gratuitous2. for justifiable reasons

if depositor refuse to receive,CONSIGNATION

deposit is for valuable consideration

1990

Depositary loss thing byforce majeure or

government order

if he receives another thing in its place, he

has to deliver sum or thing to depositor


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1991Depositary's heir has soldthing in good faith

1. bound to return price he received2. assign right of action against buyer

1992Depositor reimburse forexpenses for preservation

deposit must be gratuitous

expenses - necessary ordinary /extraordinary expenses

deposit for compensation - expenses forpreservation are borne by depositarybecause included in compensation

1993Depositor reimburse for lossarising from character ofthing

1. depositor not aware of or notexpected to know dangeoruscharacter of thing2. depositary is notified of thedangerous character of thing3. depositary was aware of thedangerous character of thing

1994Depositary may retain inpledge until full payment

1995 Extinguishment of deposit Causes:1. loss or destruction of thing2. upon death of depositor or depositary(gratuitous contract)

other modes of extinguishment:1. return

2. novation3. merger4. expiration of term5. fulfillment of resolutory condition

1996 Necessary Deposit1. in compliance with legal obligation2. occasion of calamity

1997what governs necessarydeposit

provisions of law establishing necessary

deposits; in case of deficienct rules ofvoluntary deposit

Voluntary Deposit v Necessary Deposit:1. voluntary - made by free will ofdepositor; necessary - free will is absent2. necessary deposits - Art. 1996, 1997,1998, 1754

a. travellers in hotels and innsb. passengers in common carriers

Examples of Necessary Deposit:1. judicial deposit of a thing who'spossession is disputed in a litigation2. ususfructuary does not give propersecurity for conservation3. deposit of thing pledge when creditoruses it without authority of owner4. required suits by ROC5. constituted guarantee contracts withgovernment

Deposit created by accident or fortuitous


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event - involuntary deposit or bailment;must have CAUSAL relatrion betweencalamity and constitution of deposit

1998

Responsibility of keepers ofhotels and inns

1. notice to keepers of hotels and inns2. depositor or guest took precautionsprescribed for things' safe keeping.

1999Liability of keepers foranimals, vehicles andarticles should be placed in anneexes of the hotel

2000Additional liability for loss orinjury of guests' personal

property

caused by:1. employees

2. strangers force majeure

Hotel Keeper - LIABLE:1. loss or injury to personal property ofguests caused by employees andstrangers (notice and proper precautionstaken)

2. loss is act of thief or robber without useof arms or irresistible force

Hotel Keeper - NOT LIABLE1. loss or injury due to force majeure2. loss due to acts of guests, his family,servants, visitors3. loss arises from character of thingsbrought into the hotel

2001

Act of thief or robber is notforce majeure

done with:1. use of arms; or2. irresistible force

Article/Section

Keywords Requisites/Elements Exceptions Notes

2002 Non-liability of hotelkeeper

in case of loss

If loss is:

1) Due to actsof the guess, hisfamily, servants or visitors


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2) Arises characterof the thingbought into the hotel

2003 Stipulation to non-liability:VOID/ Exemption orDiminution of Liability

Not exonerated from liabilities even ifhotelkeeper:

1) Post notice to effect that he is notliable for article brought by theguest

2) Insert any stipulations betweenhim and the guest thatdiminishes the responsibility inArt. 1998-2001 (VOID)

Reason:Such stipulations are deemed contrary toLAW, MORALS, and PUBLIC ORDER ORPOLICY

2004 The RIGHT of thehotelkeeper to RETAIN

1) Hotelkeeper retains the thingsbrought by guest

2) As security for credits on accountof lodging, and supplies usuallyfurnished to guest

See:Arts. 2121-2122 on PledgesArts: 1944, 1951: The bailee incommodatum may likewise retain thething loaned for damages by reason ofdefects thereof.Art. 315: The act of obtaining food oraccommodation in a hotel or inn withoutpaying therefor constitutes Estafa.

2005 When judicial deposit takesplace

When:1) Attachment or;

2) Seizure of property in litigation isORDERED by the COURT

The thing is in custody of the law onlywhen:

1)The thing is LAWWFULLY seized2) Placed in possession of a Public

Officer

Escrow- a written instrument w/c by itsterms imports a legal obligation and w/c is

deposited by the grantor, promisor, orobligor, or his agent w a stranger or 3

rd

party, to be kept by the deposit until theperformance of a condition or thehappening of a certain event, and then tobe delivered over to the grantee, promise,or obligee

2006 Things SUBJECT tosequestration

1) Movables2) Immovables

2007 Responsibility of theDepositary

The Depositary is relieved of his liabilitywhen:

1) The controversy which gives risethereto ends

2) Court orders2008 Degree of depositary His obligation to care of the property with

the diligence of a good father of a family

Warehouse Receipt Law1 Who May Issue ONLY a WAREHOUSEMAN can issue RECEIPT If duly authorized by the

warehouseman:1) Officer2) Agent

Warehouse-the building or place wheregoods are deposited and stored for profit

2 Form of receipts;Essential term

Every receipt must embody in its written or printed terms:a) Location of the warehouseb) Date of issue of the receiptc) Consecutive number of the receiptd) Person to whom goods are deliverable

e) Rate of storage chargesf) Description of goods or packages


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g) Signature of the warehousemanh) Warehousemans ownership of or interest in goodsi) Statements of advances made and liabilities incurred

3 What terms may beinserted

1) Warehouseman issues a receipt2) Inserts any other terms and conditions

Terms and conditionsvalid unless:1) Contrary to provisions

of this act2) Impair the obligation to

exercise the degree ofcare in thesafekeeping of thegoods entrusted to thewarehouse-man

4 Definition of non-negotiable receipt

A non negotiable receipt is a receipt in w/c it is stated that the goodsreceived will be:1) delivered to the depositor or;2) any specified person

5 Definition ofNegotiable receipt

A negotiable receipt is a receipt in w/c it is stated that the goodsreceived will be:1) delivered to the bearer or;2) to the order of any person named in such a receipt

When a provision isinserted in a negotiablereceipt that is non-negotiable such provisionis VOID

A warehouse receipt is in no sense anegotiable instrument because it does notcomply with Sec 1(b) of Act. No. 2031Negotiable Instrument Law w/c requiresan unconditional promise or order to pay asum certain in money

6 Duplicate Receiptsmust be marked

Paragraph 11) More than one receipt is issued for the same goods2) The word dupl icateshall be plainly placed on the face of the

receiptParagraph 21) Fails to place word duplicate2) Warehouseman is liable for all the damages3) That there be a subsequent purchaser for value who suppose it

to be the original

Par.1The first receipt issued(original)Par. 2WM still liable eventhough the purchase isafter the delivery of thegoods of the WM to theholder of the original

7 Failure to mark notnegotiable

WM:Shall plainly place non-negotiable or not negotiable upon a non-negotiable receipt

Failure to do so:The holder who purchased it for value supposing it to be negotiablemay impose upon the WM the same liabilities he would have if thereceipt was negotiable

Not applicable to:LettersMemoranda

Written acknowledgementof an informal character

Constructions:Liberal construction in favor of the bonafide holder

8 Obligation to deliver WHs obligation:1) To deliver the good upon demand by the holder of receipt or

depositorHolder/Depositors Obligation:1) Offer to satisfy the WM lien2) Offer to surrender receipt, with endorsements3) Readiness and willingness to sign, when goods are delivered,

acknowledge that the goods have been delivered if requestedby the warehouseman

In case of failure to deliverupon demand:WM should carry theburden to establish thatthe delay was because ofthe existence of a lawfulexcuse for refusal

Applicable only to Negotiable receipt

9 Justification in WM is justified if goods were delivered to:


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delivering 1) Person lawfully entitled to posses of the goods, or his agent2) Person entitled to delivery under a non-negotiable receipt with

written authority3) Person in possession of the negotiable receipt

10 Liability forMisdelivery

WM delivers the good to ones who are not lawfully entitled to thepossession of them; those provided in 2 and 3 above.He is liable:1)Similar to a bank paying a forged check2)For Conversion

Though he delivered thegoods as authorized by(b) and (c) of Sec 9 he stillis liable if:a)been requested, by orbehalf of the personlawfully entitled to a rightof property or possession Ithe goods, not to deliverb)he had information thatthe delivery about to bemade was one not lawfullyentitled to the possessionof the goods

11 Cancellation ofnegotiable receiptswhen whole isdelivered

If WM fails to take up or cancel the negotiable receipt issued by him,he shall be liable for failure to deliver the goods to any one whopurchases for value in good faith such receipt regardless whethersuch purchaser acquired title before or after the delivery of goods

Except as provided inSec. 36

12 Cancellation or

marking of negotiablewhen partiallydelivered

Where parts of goods have been delivered by WM, his failure to

take up and cancel such receipt or place plainly upon it a statementof what goods have been delivered,He is liable to purchaser for value in good faith for failure to deliver

Except as provided in

Sec. 36

13 Altered receipts No excused from liability if alterations are:a)immaterialb)authorizedc)made without fraudulent intent

Purchaser for value w/o notice of the alteration shall have rightsagainst WM he would have acquired had the receipt not beenaltered

If authorized:WM is liable according toterms of receipt as alteredIf unauthorized but w/ofraud:WM is liable according toterms as they were before

Material and fraudulentalteration:

WM is NOT excused fromliability according to theoriginal terms of receiptBUT excuses him fromliabilities to person whoaltered and to those whotook notice

14 Lost or DestroyedReceipts

Negotiable receipt is lost or destroyed.

The court may order delivery of the goods upon 1)satisfactory proofof such loss and destruction2)giving bond by the holder w/ sufficient sureties

WM is not excused topersons to whom thereceipt has beennegotiated for value andhave no notice of the

proceedings or delivery


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goods

15 Duplicate receiptseffect

WM warrants:1)the duplicate is an accurate copy of the original receipt2)such original receipt is uncancelled at the date of the issue of theduplicate

Imposes no other liability on the WM

Except for breach ofwarranty by the WM

16 No title or right ofwarehouseman

WM has no title or right to the goods Unless:1)Derives directly orindirectly the title fromtransfer made by thedepositor at the time ofthe deposit2)from WM lienWM is excused fromliability for refusing todeliver the goodsaccording to terms ofreceipt

17 Interpleader ofadverse claims

If more than 1 person claims the title or possession of goods,WM may require claimants to interplead.WM may use this as

1)Defense against his non delivery2)As original suit

18 Reasonable time todetermine validity ofclaims

WM is excused from liabilities in refusing to deliver until he hasreasonable time to ascertain validity of the adverse claim, bringlegal proceeding or after interpleader if:1)someone other than depositor claims title to possession of thegoods and2)WM has information to such claim

19 Adverse title not adefense

Warehouseman cannot set up the defense of the right and title ofthe third person for his failure to deliver the goods

Except provided in 17 and18 and Sec. 36

20 Liability ofWarehouseman fornon existence or

misdescription ofgoods

WM is liable to holder of a receipt for damages in case of nonexistence of goods or by his failure to correspond the description ofthe goods in the receipt

Not applicable whengoods are:1)described by statement

of marks or labels2)packages containingthem3)statement that goodsare goods of a certain kind4)words of like import

21 Liability for care ofgoods

WM shall exercise the care as a reasonable careful owner of thegoods

Not liable in the absenceof agreements when lossand injury could not havebeen avoided despite thedegree of care

22 Goods must be keptSEPARATE

WM shall keep the goods separate as to permit at all times theidentification and redelivery of the goods deposited

23 Fungible goodsmaybe comingled of

If authorized by agreement or custom:WM may mingle fungible goods with others of the same kind and


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WM is authorized grade.

Depositors will be 1)co-owners of the entire mass 2)entitled to eachportion as deposited

24 Liability of WM todepositors ofcommingled goods

WM is SEVERALLY liable to the each depositor for the care andredelivery of his share in the mass to the extent like the good werekept separately

25 Attachment or levyupon goods for whicha negotiable receipthas been issued

Goods after delivery to WM cannot be 1)attached by garnishment or2)levied upon under an execution

WM cannot be compelled to deliver up the actual possession ofgoods

Unless:1)Receipt was firstsurrendered to WM2)negotiation is enjoined

26 Creditors remedies toreach negotiablereceipts

Creditor may seek the help of the court to satisfy his claims againsthis debtor if his debtor is the owner of the goods deposited

27 Claims included inWM lien

Subject to Sec. 33WM has lien on the goods for:1)lawful charges for storage and preservation of goods2)lawful claims for money advanced, interest, insurance,transportation, labor, weighing, cooperating and other charges andexpenses in relation to such goods3)reasonable charges for notice and advertisements of sale and for

sale of the goods where default had been made in satisfying the lien

Sec28

Against what property the lien may be enforced1. All goods deposited by debtor2. Goods stored in fraud of true owner's rights3. Goods of persons stored by the depositor who isliable to the WHM as debtor with authority to make avalid pledge

WRL = Warehouse Receipts LawWHM - WarehousemanWHR = Warehouse Receipt

Sec

29

How a WHM may lose his lien:

1. surrendering possession2. refusing to deliver goods when demand is madewith which he is bound to comply under this act

See notes for the valid reasons for

the refusal of the WHM to deliverthe goods

Valid reasons for refusing delivery of

goods:1. holder of receipt does not comply withSec 8 (satisfy WHM lien, surrenderreceipt, acknowledgement that the goodshave been delivered)2. that the WHM has legal title in himself3. WHM has legally set up the title aslawful defense4. WHM has lien valid against thedepositor5. failure was not due to WHM (fire,earthquake, theft, robbery)


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Sec30

A negotiable receipt MUST state charges for whichthe lien is claimed

Charges must be stated inaccordance to Sec 27. The lienexists only in so far as the othercharges EXPRESSLY stated

Except charges for storageand preservation of goods

If claims are not specified, the WHMshares PRO RATA with other creditorsthe balance of the claims

Sec31

WHM may REFUSE delivery until lien is satisfied Please note that by delivery, the WHMloses his lien

Sec32

WHM lien is not the only remedy nor it bars any otherremedies for satisfaction of the lien

WHM is entitled to all remedies allowedby law to a creditor against a debtor incollecting the lien

Sec33

A WHM lien may be satisfied thru sale of goods of thedepositor

A written notice must be sent tothe depositor containing thefollowing:1. ITEMIZED STATEMENT of theWHM claim2. DESCRIPTION of goodsagainst which the claim exists

3. A DEMAND of the amount ofthe claim which is to be paid on aDATE mentioned4. A STATEMENT that if the claimis NOT PAID, the goods will beadvertised for sale at a publicauction at a specific date and time

Notice of auction is to be published atleast once a week for two weeks

WHM may charge for the notice,advertisement of the sale from theproceeds thereof

Sec34

If there exists a lien on goods which perishable,leakage, noxious, explosive, liable to injure otherproperty, WHM may DISPOSE of said goods inaccord to Sec 33

SAME AS SEC 33 Sale maybe made publicly or privately(NOT NECESSARILY IN AN AUCTION)

Sec35

If the proceeds of the sale is insufficient to satisfy thelien, WHM is STILL entitled for the balance against thedepositor

Sec36

Effect of sale: WHM is NOT LIABLE for non-delivery Except if under Sec 33,the sale was madeWITHOUT PUBLICATION,the sale is VOID!


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Sec37

Negotiable Receipt may be negotiated by DELIVERY 1. If the receipt is a BEARERinstrument2. If the receipt is made to theorder if a SPECIFIED person andthat person indorses it in blank

A NEGOTIABLE BEARER WHR ISNEGOTIATED BY DELIVERY

Sec38

Negotiation of Negotiable Receipt may be made byINDORSEMENT

SEE SEC 37

Sec39

A receipt which cannot be negotiated by delivery maybe transaferred by holder by delivery to a purchaser

A non - negotiable receipt cannot be negotiated

If a non-negotiable receipt is indorsed,the transferee acquires no better right

Rights are discusse in Sec 42

ADVANTAGES OF WHR1. Protects purchaser for value and ingood faith (Sec 41)2. Goods cannot be subject togarnishment except: if WHR issurrendered or impound or if itsnegotiation is impounded (Sec 25)3. In negotiating it, holder acquires directobligation of the WHM to deliver (Sec 41)4. The goods it covers are not subject tosellers lien or stoppage in transitu (Sec49)

Sec40

A negotiable receipt may be negotiated by:1. The owner thereof2. Any person entrusted by the owner of thepossession of the receipt3. Any person holding the negotiable receipt whichmay be negotiated by delivery

Sec41

Rights of a person to whom a receipt has beennegotiated are:1. The TITLE of the person negotiating the receiptover the goods covered by the receipt2. The TITLE of the person to whose order by theterms of the receipt of the goods were to be delivered3. The DIRECT OBLIGATION of the WHM to hold thegoods in possession for him


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Sec42

Rights of a person to whom a receipt has beenTRANSFERRED:1. The title to the goods as against the transferor2. The right to inform the WHM of the transfer thereof3. The right to acquire the obligation of the WHM tohold the goods for him

EFFECTS OF TRANSFER WITHREGARD TO ATTACHMENT OR LEVYIf the WHR is non-negotiable, the right ofthe transferee may be DEFEATED by alevy

If the WHR is negotiable, the goodsCANNOT be attached or levied against

Sec43

If WHR is negotiable and is transferred for value bydelivery, the transferee has the following rights:1. Right to goods as against the transferor2. Right to COMPEL the transferor to INDORSE theWHR.

If the INTENTION of theparies is that the receiptshould only beTRANSFERRED, thetransferee has no right tocompel the transferor toindorse the WHR

Sec44

Any person who, on SALE, INDORSEMENT,NEGOTIATION of WHR warrants the following:1. That the WHR is genuine2. He has legal right to negotiate or transfer it3. He has knowledge of no fact that may impair thevalidity of the WHR

4. That he has the right to transfer the goods and andthat the goods are merchantable or fit for a particularpurpose

Sec45

The INDORSER is not liable for the failure of theWHM in the fulfillment of his obligation

It must be a VALID, NEGOTIABLEWHR

Sec46

A holder for security of a receipt who in good faithaccepts payment of the debt from a person does notthereby warrat the genuineness of the WHR


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Sec47

The validity of a negotiation of a WHR is not impairedby PREVIOUS fraud, duress, mistake, if the person towhom the negotiation was made, paid value therefor,without notice of the breach of the duty or fraud ormistake or duress

Sec48

Subsequent negotiation of WHR which was alreadysold, mortaged, pledged, in good faith and for value,shall have the same effect as the first purchaser

Sec49

Negotiation defeats vendor's lien See Roman vs Asia Banking Corporation

Sec50

Criminal offense:Issuance of a receipt knowing that the goods for sucha receipt was not received by the WHM or are notunder his control

Persons who may commit thecrime:1. Warehouseman2. Any of his officers3. Any of his Agents

4. Servant of a WHM

Sec51

Criminal offense:Fraudulently issues or aids in the fraudulant issue of aWHR which contains ANY false statement

Persons who may commit thecrime:1. Warehouseman2. Any of his officers3. Any of his Agents4. Servant of a WHM

Sec

52

Issuance of another WHR for goods already received

and was issued prior WHR, without indicating therein"DUPLICATE"

Persons who may commit the

crime:1. Warehouseman2. Any of his officers3. Any of his Agents4. Servant of a WHM

Double issuance of WHR for the same

goods


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Sec53

Issuance if WHR, of which the WHM is owner, ownerin part, jointly or severally, without indicating the fact

Persons who may commit thecrime:1. Warehouseman2. Any of his officers3. Any of his Agents4. Servant of a WHM

WHM must indicate such ownership ofgoods that were deposited andsubsequently issued a WHR

Sec

54

Delivery of goods without obtaining the Negotiable

Receipt

Persons who may commit the

crime:1. Warehouseman2. Any of his officers3. Any of his Agents4. Servant of a WHM

Sec55

Deposit of goods of which one has no title over orupon which there is a lien or mortgage

Persons who may commit thecrime: ANY PERSON

Sec56

Case not provided for in Act

Sec57

This act may be cited as the Warehouse Receipts Act The name of this Act is the WarehouseReceipts Act. It shall not bear any othername except Warehouse Receipts Act.

Article Keyword Requisites/Elements Exceptions Notes

2047 By guaranty, a person called theguarantor, binds himself to thecreditor to fulfill the obligation of theprincipal debtor

Capacity to act

Sufficient property to guaranteethe debt

NOTE:A guarantor is the insurer of theSOLVENCY of the debtor while asurety is the insurer of the DEBTitself

Note: A suretyship is therelation which exists whichone person binds himselfunder direct and solidary

obligation with a principaldebtor

Surety vs Guaranty1. Surety assumes liabilityas a REGULAR party to theundertaking while guarantordepends on anINDEPENDENTAGREEMENT

2. Surety is an originalpromisor while theguarantor is in a collateral

undertaking

A guaranty is: accessory, subsidiary andconditional and unilateral.

Nature of surety's undertaking

1. Liability is contractual and accessorybut direct2. Liability is limited by the terms of thecontract3. Liability only arises when principaldebtor is held liable4. Surety is not entitled to exhaustion5. Undertaking is to creditor, not debtor6. Surety is not entitled to notice ofprincipal's default7. Prior demand upon principal is notrequired8. Surety is not exonerated by neglect ofcreditor to sue the principal


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3. The surety is primarilyliable while the guarantor issubsidiarily liable

4. A surety will not bedischarged by mereindulgance of the creditorwhile a guarantor may bedischarged by mere

indulgence2048 A guaranty is gratuitious, unless

there is a stipulation to the contraryThis Article is self explanatory -Paras

The lack of consideration for a guaranty isnot a ground to excuse the guarantor'sliability

2049 A married woman may guarantee anobligation without her husbandsconsent

But shall not bind the conjugalpartnership, except in casesprovided for by law (Benefitredounded to the family)

2050 If a guaranty is entered into withoutknowledge or consent or against thewill of the principal, THEGUARANTOR WILL NOT BESUBROGATED THE RIGHTS OF

THE CREDITOR, even after he pays

But the guarantor may recover theamount with which the principal debtormay have benefitted from

Art. 2051: A guaranty may be conventional, legal or judicial, gratuitous or by

onerous title.

It may also be constituted, not only in favor of the principal debtor, but also in

favor of the other guarantor, with the latters consent, or without his

knowledge, or even over his objection.

Art. 2052: A guaranty cannot exist without a valid obligation.

Nevertheless, a guaranty may be constituted to guarantee the performance of a

voidable or unenforceable contract. It may also guarantee a natural obligation.

If the principal is void, it follows that the guaranty/surety is also void.

A guaranty may secure the performance of a voidable contract (unless it was

annulled), unenforceable contract (this isnt void), or natural obligation (so that the

creditor may proceed against the guarantor, although he has no right of action against

the principal debtor)

Art. 2053: A guaranty may also be given as security for FUTURE DEBTS, the

amount of which is not yet known; there can be no claim against the guarantor

until the debt is liquidated. A conditional obligation may also be secured.

This refers to a Continuing Guaranty or Continuing Suretyship. This isnt limited to

a single transaction, but which contemplates a future course of dealings, covering a

series of transactions generally for an indefinite time or until revoked.

Future debts, even if the amount is not yet known, may be guaranteed but there can

be no claim against the guarantor until the amount of the debt is ascertained or fixed

and demandable.

Continuing Guaranty/Suretyship is prospective, and generally intended to provide

security with respect to future transactions for an indefinite time or until a certain

period.

[ THIS IS A RECOGNIZED EXCEPTION TO THE GENERAL RULE THAT AN

ACTION TO FORECLOSE A MORTGAGE MUST BE LIMITED TO THE AMOUNT

MENTIONED IN THE MORTGAGE CONTRACT]

A guaranty shall be construed as continuing when by the terms thereof it is evident

that the object is to give a standing credit to the principal to be used from time to time,

either indefinitely or until a certain period, especially if the right to recall the guaranty

is expressly reserved.

A conditional obligation may also be secured, since it is valid and binding.


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Art. 2054: A guarantor may bind himself for less, but not more than the

principal debtor, both as regards the amount and onerous nature of the

conditions.

Should he have bound himself for more, his obligations shall be reduced to the

limits of that of the debtor.

The measure of guarantor or suretys obligation is not the measure of the principals

obligation.

Art. 2055: A guaranty is not presumed; it must be express and cannot extend to

more than what is stipulated therein.

If it be simple or indefinite, it shall comprise not only the principal obligation,

but also all its accessories, including judicial costs, provided with respect the

latter, that the guarantor shall only be liable for those costs incurred after he

has been judicially required to pay.

The reason for this rule is consideration of prudence in the interest of the guarantor

who in many cases finds himself under the harsh necessity o f paying anothers debt

without benefit whatsoever for himself.

Guaranty falls under SOF. It is also strictly construed against the creditor.

The rule of st r ic t iss imi jur isis applicable to accommodation surety, for an AS acts

without motive of pecuniary gain; hence, should be protected against unjust pecuniary

impoverishment by imposing on the principal duties akin to those of a fiduciary. This

shall only apply if it has been ascertained that the contract truly is one of suretyship or

guaranty.

- Exception: not applicable in case of compensated sureties (those who are

engaged in the business of being sureties) since they are already

compensated and are in the purpose of assuming classified risk for profit,

and secured from possible loss.

If the guaranty is definite, the obligation of the guarantor under the terms of the

contract is limited in whole or in part to the principal debt the accessories are

excluded.

- However, if the guaranty is indefinite or simple (par. 2 of Art. 2055), if the

terms of the contract of guaranty are general and indefinite and do not

specify in clear and express manner the liability of the guarantor is limited to

the principal obligation, it extends not only from the principal obligation but to

all its accessories.

o The reason for this rule is that the guarantor shouldve fixed the

limits of his responsibility, pero kay gin pabay-an ya, te mirisi.

Notice is necessary: Where there is merely an offer of a guaranty or a conditional

guaranty (in the sense that it requires action by the creditor before the obligation

becomes fixed), it does not become a binding obligation until it is: accepted and until

notice of such acceptance by the creditor is given to, or acquired by the

guarantor; or until guarantor has knowledge or notice that the creditor has

performed the condition and intends to act upon the guaranty.

- Exception: Waiver of notice

Notice is not necessary: If the transaction is not merely an offer of guaranty butamounts to a direct or unconditional promise of guaranty, all that is necessary to

make the promise binding is that the creditor should act upon it. Notice is not

necessary because contract is unilateral.

- Exception: Notice of acceptance is made a condition of the guaranty

Art. 2056: One who is obliged to furnish a guarantor shall present a person who

possesses INTEGRITY, CAPACITY TO BIND HIMSELF, and SUFFICIENT

PROPERTY to answer for the obligation which he guarantees. The guarantor

shall be subject to the jurisdiction of the court of the place where this

obligation is to be complied with.

Art. 2057: If the guarantor should be convicted in first instance of a crime

involving DISHONESTY or should become INSOLVENT, the creditor may

demand another who has all the qualifications required in the preceding article.

The case is EXCEPTED where the creditor has required and stipulated that a

specified person should be the guarantor.

Take note of the exception!

The qualifications (found in 2056) need only be present at the time of the perfection of

the contract.

Selection of the guarantor: If the creditor has required and stipulated that a specificperson should be the guarantor, the substitution of guarantor may not be demanded

(2057). If the guarantor is selected by the principal, the latter answers for the

requirements of the former. If the guarantor is personally designed by the creditor, the

responsibility for the selection thereof shall fall upon him.

EFFECTS OF GUARANTY

Art. 2058: The guarantor cannot be compelled to pay the creditor unless the

latter has exhausted all of the property of the debtor, and has resorted to legal

remedies against the debtor.


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Benefit of Excussion The creditor needs to first exhaust all of the property of the

principal debtor and to resort to all legal remedies against the debtor before he can

proceed against the guarantor. (n/a to surety)

Art. 2059: Excussion shall not take place:

1. If the guarantor has expressly renounced it;

2. If he has bound himself solidarily with the debtor;

3. In case of insolvency of the debtor;

4. When he has absconded, or cannot be sued within the Philippinesa. Exception: He left a manager or representative

5. If it may be presumed that an execution on the property of the principal

would not result in the satisfaction of the obligation.

The article refers to exceptions to the benefit of excussion.

Art. 2060: In order that the guarantor may make use of the benefit of excussion,

he must set it up against the creditor upon the latters demand for payment

from him, and point out to the creditor available property of the debtor within

Philippine territory, sufficient to cover the amount of the debt.

Art. 2061: The guarantor having fulfilled all the conditions required in 2060, thecreditor who is negligent in exhausting the property pointed out shall suffer the

loss to the extent of the said property for the insolvency of the debtor resulting

from such negligence.

General Rule (joinder of guarantor and principal as parties defendant): The guarantor,

not being a joint contractor with his principal, cannot be sued with his principal.

Exception: Where it would serve merely to delay the ultimate accounting of the

guarantor, adherence to the general rule is not required.

Art. 2062: In every action by the creditor, which must be against the principal

alone, [except in the case mentioned in Art. 2059], the former shall ask theCourt to notify the guarantor of the action. The guarantor may appear so that he

may, if he so desire, to set up such defenses as are granted to him by law. The

benefit of excussion shall always be unimpaired, even if judgment should be

rendered against the principal and the guarantor (in case of appearance of the

latter).

The guarantor cannot be sued along with his principal, MUCH LESS ALONE.

However, he must be notified so that he may appear and set up defenses he may

want to offer.

Art. 2063: A compromise between the creditor and the principal benefits the

guarantor, but does not prejudice him. That which is entered into between the

guarantor and the creditor benefits, but does not prejudice, the principal

debtor.

A compromise is a contract whereby the parties, by making reciprocal concessions,

avoid litigation or put an end to one already commenced.

Art. 2064: The guarantor of a guarantor shall enjoy the benefit of excussion,

both with respect to the guarantor and to the principal debtor.

Art. 2065: Should there be several guarantors of only one debtor and for thesame debt, the obligation to answer shall be DIVIDED among all. The creditor

cannot claim from the guarantors except the shares which they are respectively

bound to pay, UNLESS solidarity has been expressly stipulated.

The BENEFIT OF DIVISION against the co-guarantors ceases in the same cases

and for the same reasons as the benefit of excussion against the principal

debtor.

The article refers to the Benefit of Division, wherein several guarantors of only one

debtor and for the same debt may divide the debt amongst themselves in case it is

joint. This doesnt apply to solidary obligations.

The benefit of excussion is also be available, provided that Art. 2060 is followed.

EFFECT OF GUARANTY BETWEEN PRINCIPAL DEBTOR AND GUARANTOR

Art. 2066: The guarantor who pays for a debtor must be indemnified by the

latter. The indemnification comprises:

1. The total amount of the debt;

2. The legal interests thereon from the time the payment was made

known to the debtor, even though it did not earn interest for the

creditor;

3. The expenses incurred by the guarantor after having notified thedebtor that the payment has been demanded of him;

4. Damages, if any.

This article states that a guarantor is entitled to indemnity for the expenses, total

amount of debt, and damages, if there are any.

Exceptions: Arts. 2068, 2069, 2070, 2081; Sec. 68 & 69 of Insolvency Law; Art.

2050; Art. 1238, and WAIVER

Art. 2067: The guarantor who pays is subrogated by virtue thereof to all rights

which the creditor had against the debtor.


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If the guarantor has compromised with the creditor, he cannot demand of the

debtor more than what he has really paid.

Effect of subrogation: Guarantor becomes the new creditor, in case he paid debtors

debt.

The basis of the right is the necessity to enable the guarantor to enforce the

indemnity given in 2066.

Art. 2068: If the guarantor should pay without notifying the debtor, the lattermay enforce against him all the defenses which he could have set up against

the creditor at the time the payment was made.

Guarantor may not pay without debtors consent. Guarantor cannot be allowed,

through his own fault or negligence, to prejudice or impair the rights and interests of a

debtor.

Art. 2069: If the debt was for a period and the guarantor paid it before it became

due, he cannot demand reimbursement of the debtor until the expiration of the

period UNLESS the payment has been ratified by the debtor.

The guarantor who pays the obligation before it becomes due is NOT entitled toreimbursement EXCEPT if payment was ratified by debtor.

What is controlling is the default and demand on guarantor had taken place while the

guarantee was still in force.

Art. 2070: If the guarantor has paid without notifying the debtor, and the latter

not being aware of the payment, repeats the payment, the former has no

remedy whatsoever against the debtor, but only against the creditor.

NEVERTHELESS, in case of a gratuitous guaranty, if the guarantor was

prevented by a FORTUITOUS EVENT from advising the debtor of the payment,

and the creditor becomes INSOLVENT, the debtor shall reimburse the

guarantor for the amount paid.

General Rule: Before the guarantor pays the creditor, he must first notify the debtor

(2068). If he fails to give such notice and the debtor repeats the payment, the

guarantors only recourse is to go after the creditor, and he may not go after the

debtor, even if subsequently the creditor becomes insolvent.

Exception: The guarantor may still claim from the debtor if:

- The creditor becomes insolvent -> The guarantor has not notified the debtor

because he was prevented by fortuitous event, and the guaranty was

gratuitous

This is because in gratuitous guaranty, the guarantor receives nothing and it would be

unfair to deny him the right to recover from principal debtor.

Art. 2071 [Important!]: The guarantor, even before having paid, may proceed

against the principal debtor:

1. When he is sued for the payment;

2. In case of insolvency of the principal debtor;

3. When the debtor has bound himself to relieve him from the guaranty

within a specified period, and this period has expired;4. When the debt has become demandable, by reason of the expiration of

the period of payment;

5. After a lapse of 10 years, when the principal obligation has no fixed

period for its maturity, UNLESS it be of such nature that it cannot be

extinguished except within a period longer than 10 years;

6. If there are reasonable grounds to fear that principal intends to

abscond;

7. If the principal is in imminent danger of becoming insolvent;

In all these cases, the action of the guarantor is to obtain release from the

guaranty, or to demand a security that shall protect him from any proceedings

by the creditor and from the danger of insolvency of the debtor.

The article cites 7 instances when the guarantor may proceed against the debtor

even before payment, and specified the remedy to which the guarantor is entitled. Its

purpose is to enable the guarantor to take measures for the protection of his interest

in view that he is probably going to be called upon to pay the debt.

(In perfect harmony w/ 2066)

Art. 2072: If one, at the request of another, becomes a guarantor for the debt of

a 3rd

person who is not present, the guarantor who satisfies the debt may sue

either the person so requesting or the debtor for reimbursement.

The guarantor who guarantees the debt of an absentee at the request of another has

a right to claim reimbursement, after satisfying the debt, from the DEBTOR or the

PERSON WHO REQUESTED HIM TO BE A GUARANTOR.

EFFECTS OF GUARANTY AS BETWEEN CO-GUARANTORS

Art. 2073: Where there are two or more guarantors of the same debtor and for

the same debt, the one among them who has paid may demand of each of the

others the share which proportionally owes from him.

If any of the guarantors should be insolvent, his share shall be borne by the

others, including the payer, in the same proportion.


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The provisions of this article shall not be applicable, UNLESS the payment has

been made in virtue of a judicial demand OR the principal is insolvent.

Each guarantor is only bound to pay his proportionate share. Without the

requirement, the guarantor who pays the debt under the circumstances giving him the

right to contribution may proceed directly against his co-guarantors for their

respective shares, with the latter having to incur the trouble and expense of claiming

afterwards from the debtor what they have paid. If one of them is insolvent, that

guarantors share shall be borne by the co-guarantors, including the paying one.

Art. 2074: In the case of the preceding article, the co-guarantors may set up

against the one who paid, the same defenses which would have pertained to

the principal against the creditor, and which are not purely personal to the

debtor.

The article refers to the defenses available to the co-guarantors.

Art. 2075: A sub-guarantor, in case of the insolvency of the guarantor for whom

he bound himself, is responsible to the co-guarantors in the same terms as the

guarantor.

In case of guarantors insolvency, a sub-guarantor is liable to the co-guarantors in thesame manner as the guarantor.

EXTINGUISHMENT OF GUARANTY

Art. 2076: The obligation of the guarantor is extinguished at the same time as

that of the debtor, and for the same causes as all other obligations.

Causes:

1. Payment/performance

2. Loss of thing due

3. Condonation or remission4. Confusion or merger of the rights of the creditor and debtor

5. Compensation

6. Novation

7. Annulment

8. Rescission

9. Fulfillment of resolutory condition

10. Prescription

The guaranty itself may be directly extinguished although the principal obligation still

remains, as in the case of the RELEASE of the guarantor made by the creditor.

If there is material alteration of the principal contract, the surety or guarantor isreleased or no longer liable, UNLESS he has consented to such.

Art. 2077: If the creditor voluntarily accepts immovable or other property in

payment of the debt, even if he should afterwards lose the same through

eviction, the guarantor is released.

While payment is usually made in money, it can also be done through otherstuff.

The acceptance of the creditor usually signifies the extinguishment of the obligation.

However, if there is EVICTION, the PRINCIPAL obligation is revived, but it does NOT

revive the guaranty.

Art. 2078: A release made by the creditor in favor of one of the guarantors,without the consent of the others, benefits all to the extent of the share of the

guarantor to whom it has been granted.

The release benefits ALL to the extent of the share of the released guarantor.

Art. 2079: An extension granted to the debtor by the creditor without the

consent of the guarantor extinguishes the guaranty. The mere failure on the

part of the creditor to demand payment after the debt shall become due does

not of itself constitute any extension of time referred herein.

This applies to guaranty, not suretyship.

If the creditor grants an extension of time to the debtor without guarantors consent,

the latter is discharged from his obligationthis is to avoid prejudice to the guarantor.

The rule applies even if the debtor should become insolvent subsequent to the

maturity of the debt.

However, in the matter of suretyship, the creditor is under NO obligation to display

any diligence in the enforcement of his right as a creditor.

Art. 2080: The guarantors, even though they be solidary, are released from their

obligation whenever by some act of the creditor they cannot be subrogated to

the rights, mortgages and preferences of the latter.

The act of one cannot prejudice the others. It also prevents the collusion between

creditors and debtors and 3rd

persons.

Art. 2081: The guarantor may set up against creditors all the defenses which

pertain to the principal debtor and are inherent in the debt; but not those that

are purely personal to the debtor.

The defenses available to a debt as a guarantor are provided in Art. 2068, and those

available to co-guarantors in Art. 2074. 2081 provides for the defenses that may be

interposed by the guarantor as against the creditor this does not apply to personal

rights.


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LEGAL AND JUDICIAL BONDS

Art. 2082: The bondsman who is to be offered in virtue of a provision of law or

of a judicial order shall have the qualifications prescribed in 2056 and special

laws.

A bond is commonly understood to mean an undertaking that is sufficiently secured

not cash or currency.

Qualifications:

A bondsman is a surety offered in virtue of a provision of law or a judicial order. He

must have the qualifications of a guarantor.

Art. 2083: If the person bound to give a bond in the cases of the preceding

article should not be able to do so, a pledge or a mortgage considered

sufficient to cover his obligation shall be admitted in lieu thereof.

Art. 2084: A judicial bondsman cannot demand the exhaustion of the property

of a principal debtor.

A sub-surety of the same case cannot demand the exhaustion of the property

of the debtor or of the surety.

They are not mere guarantors, but sureties whose liability is primary and solidary.

In case of negligence, the contract of suretyship is not that the creditor will see that

debtor must pay the obligation, but that the surety will see that the debtor pays orperforms. Mere negligence on creditors part in collecting from debtor will not relieve

surety from liability.

Documents

Reviewer in Credit Transactions by DARAGBY