Anda di halaman 1dari 15

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW

| CREDIT TRANSACTIONS

card issuer and the merchant or business CREDIT TRANSACTIONS

All transactions involving the purchase or


loan of goods, services, or money in the present with a promise to pay or deliver in the future. I. Law and Jurisprudence Concept of Loan (Articles 1933-1961)

establishment. (Pantaleon vs American Express International Inc., G.R. No. 174269, Aug 25, 2010) II. Simple Loan (Articles 1953-1961)

A contract whereby one party delivers to


another, money or other consumable thing with the understanding that the same amount of the same kind and quality shall be paid. (Art. 1953) Notes:

A contract wherein one of the parties


delivers to another, either something not consumable so that the latter may use the same for a certain time and return it or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid. (Art 1933) Characteristics 1. Real Contract delivery of the thing loaned is necessary for the perfection of the contract. Note: An accepted promise to make a future loan is a consensual contract, and therefore binding upon the parties but it is only after delivery, will the real contract of loan arise. (Art 1934) 2. Unilateral Contract - once the subject matter has been delivered, it creates obligations on the part of only one of the parties (i.e. borrower). Nature of Credit Card Transaction

The mere issuance of the checks does not result


in the perfection of the contract of loan. The Civil Code provides that the delivery of bills of exchange and mercantile documents, such as checks, shall produce the effect of payment only when they have been encashed (Gerales vs. CA 218 SCRA 638). It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected.

The obligation is to pay and not to return


because the consumption of the thing loaned is the distinguishing character of the contract of mutuum from that of commodatum.

No estafa is committed by a person who refuses


to pay his debt or denies its existence. Note: If the property is sold, but the real intent is only to give the object as security for a debt as when the price is comparatively small there really is a contract of loan with an equitable mortgage. Interest

Every credit card transaction involves three


contracts, namely: (a) the sales contract between the credit card holder and the merchant or the business establishment which accepted the credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and lastly, (c) the promise to pay between the credit

The compensation allowed by law or fixed


by the parties for the loan or forbearance of money, goods or credits Requisites for Demandability 1. must be expressly stipulated Exceptions:

CREDIT TRANSACTIONS | 2014

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


a. indemnity for damages b. interest accruing from unpaid interest must be lawful must be in writing

| CREDIT TRANSACTIONS

2. 3.

damages except when or until the demand can be established with reasonable certainty. When the demand cannot be established, the interest shall begin to run only from the date of the judgment of the court is made. iii. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph i or ii above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Eastern Shipping Lines vs. CA, July 12, 1994) Notes:

Compound Interest GENERAL RULE: Unpaid interest shall not earn interest. EXCEPTIONS: 1. when judicially demanded 2. when there is an express stipulation (must be in writing in view of Art. 1956) Guidelines for the application of proper interest rates 1. If there is stipulation: that rate shall be applied 2. The following are the rules of thumb for the application or imposition of interest rates: a) When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasidelicts is breached, the contravenor can be held liable for damages. b) With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: i. When the obligation breached consists of payment of a sum of money (loan or forbearance of money), the interest shall be that which is stipulated or agreed upon by the parties. In absence of an agreement, the rate shall be the legal rate (i.e. 12% per annum) computed from default. Note: The interest due shall itself earn legal interest from the time it is judicially demanded ii. In other cases, the rate of interest shall be six percent (6%) per annum. Note: No interest, however, shall be adjudged on unliquidated claims or
CREDIT TRANSACTIONS | 2014

Central Bank Circular No. 416 fixing the rate


of interest at 12% per annum deals with loans, forbearance of any money, goods or credits and judgments involving such loans, or forbearance in the absence of express agreement to such rate

Interest as indemnity for damages is


payable only in case of default or nonperformance of the contract. As they are distinct claims, they may be demanded separately. (Sentinel Insurance Co., Inc. vs CA, 182 SCRA 517)

Central Bank Circular No. 905 (Dec. 10,


1982) removed the Usury Law ceiling on interest rates for secured and unsecured loans, regardless of maturity. Validity of unconscionable interest rate in a loan Supreme Court in Sps. Solangon vs. Jose Salazar, G.R. No. 125944, June 29, 2001, said that since the usury law had been repealed by CB Cir. No. 905 there is no more maximum rate of interest and the rate will just depend on the mutual agreement of the parties (citing Lim Law vs. Olympic Sawmill Co., 129 SCRA 439). But the Supreme Court said that nothing in said circular grants lenders carta blanche authority to raise interest rates to level which will
2

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


either enslave their borrowers or lead to a hemorrhaging of their assets (citing Almeda vs. CA, 256 SCRS 292). In Medel vs. CA, 299 SCRA 481, it was ruled that while stipulated interest of 5.5% per month on a loan is usurious pursuant to CB Circular No. 905, the same must be equitably reduced for being iniquitous, unconscionable and exorbitant. It is contrary to morals, (contra bonos mores). It was reduced to 12% per annum in consonant with justice and fair play. 1. Conventional Interest

| CREDIT TRANSACTIONS

Even if the transaction involved a


Conditional Deed of Sale, the stipulation governing the return of the money can still be considered as a forbearance of money which required payment of interest at the rate of 12%. (Estores vs Sps. Supangan, G.R. No. 175139, April 18, 2012) B. Legal Rate of Interest (Central Bank Circular No. 799, Series of 2013, effective July 1, 2013)

In the absence of an express stipulation as


to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum but will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the prevailing rate of interest when applicable. (Nacar v. Gallery Frames and/or Bordey, G.R. No. 189871, August 13, 2013) II. B. USURY

In the case of Sps. Juico v. China Bank (G.R.


No. 187678, April 10, 2013), the escalation clause in the promissory notes authorizing the respondent to adjust the rate of interest on the basis of a law or regulation issued by the Central Bank of the Philippines, should be read together with the statement after the first paragraph where no rate of interest was fixed as it would be based on prevailing market rates. The escalation clause is still void because it grants respondent the power to impose an increased rate of interest without a written notice to petitioners and their written consent. 2. Compensatory penalty or penalty interest A. Forbearance of Money

Anent the interest rate, the general rule is


that the applicable rate of interest shall be computed in accordance with the stipulation of the parties. Absent any stipulation, the applicable rate of interest shall be 12% per annum when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%). In the case of Estores vs Sps. Supangan (G.R. No. 175139, April 18, 2012), the parties did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

Constitutionality of Suspension of Usury Law

The Central Bank-Monetary Board merely


suspended the effectivity of the Usury Law when it issued CB Circular No. 905.

The power of the Central Bank to effectively


suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, citing several cases, CB Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended the latters effectivity; that a *CB+ Circular cannot repeal a law, [for] only a law can repeal another law; that by virtue of CB Circular No. 905, the Usury Law has

CREDIT TRANSACTIONS | 2014

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


been rendered ineffective; and Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon. (Advocates for Truth & Lending and Olaguer v. Banko Sentral Monetary Board, G.R. No. 192968, January 15, 2013)

| CREDIT TRANSACTIONS

latter, there is lack of free choice in the depositor.

GENERAL RULE: Contract of deposit is gratuitous (Art 1965) EXCEPTIONS: 1. 2. 3. Notes: when there is contrary stipulation depositary is engaged in business of storing goods property saved from destruction without knowledge of the owner.

III. DEPOSIT (Articles 1962-2009)

A contract constituted from the moment a


person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. Characteristics 1. 2. 3. Real Contract - contract is perfected by the delivery of the subject matter. Unilateral (gratuitous deposit) - only the depositary has an obligation. Bilateral (onerous deposit) - gives rise to obligations on the part of both the depositary and depositor.

Article 1966 does not embrace incorporeal


property, such as rights and actions, for it follows the person of the owner, wherever he goes.

A contract for the rent of safety deposit boxes is


not an ordinary contract of lease of things but a special kind of deposit; hence, it is not to be strictly governed by the provisions on deposit. The relation between a bank and its customer is that of a bailor and bailee. ( CA Agro vs CA, 219 SCRA 426) Obligations of the Depositary (Art 1972 1991): 1. To keep the thing safely (Art 1972) Exercise over the thing deposited the same diligence as he would exercise over his property. To return the thing (Art 1972) Person to whom the thing must be returned: a. Depositor, to his heirs and successors, or the person who may have been designated in the contract b. If the depositary is capacitated - he is subject to all the obligations of a depositary whether or not the depositor is capacitated. If the depositor is incapacitated, the depositary must return the property to the legal representative of the incapacitated or

Kinds of Deposit 1. Judicial (Sequestration) takes place when an attachment or seizure of property in litigation is ordered. Extra-judicial a. Voluntary one wherein the delivery is made by the will of the depositor or by two or more persons each of whom believes himself entitled to the thing deposited. (Arts. 1968 1995) b. Necessary one made in compliance with a legal obligation, or on the occasion of any calamity, or by travellers in hotels and inns (Arts 1996 - 2004), or by travellers with common carriers (Arts. 1734 1735). Note: The chief difference between a voluntary deposit and a necessary deposit is that in the former, the depositor has a complete freedom in choosing the depositary, whereas in the

2.

2.

CREDIT TRANSACTIONS | 2014

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


to the depositor himself if he should acquire capacity (Art 1970). c. If the depositor is capacitated and the depositary is incapacitated - the latter does not incur the obligation of a depositary but he is liable: i..to return the thing deposited while still in his possession; ii.to pay the depositor the amount which he may have benefited himself with the thing or its price subject to the right of any third person who acquired the thing in good faith (Art 1971)

| CREDIT TRANSACTIONS

b. he deposits the thing with a third person who is manifestly careless or unfit although authorized even in the absence of negligence; or c. the thing is lost through the negligence of his employees whether the latter are manifestly careless or not. 4. If the thing deposited should earn interest (Art 1975): a. b. to collect interest and the capital itself as it fall due to take steps to preserve its value and rights corresponding to it

Time of return:
a. Upon demand even though a specified period or time for such return may have been fixed except when the thing is judicially attached while in the depositarys possession or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. (Art 1998) b. If deposit gratuitous, the depositary may return the thing deposited notwithstanding that a period has been fixed for the deposit if justifiable reasons exists for its return. c. If the deposit is for a valuable consideration, the depositary has no right to return the thing deposited before the expiration of the time designated even if he should suffer inconvenience as a consequence. (Art 1989)

5. Not to commingle things deposited if so stipulated (Art 1976) 6. Not to make use of the thing deposited unless authorized (Art 1977) GENERAL RULE: Deposit is for safekeeping of the subject matter and not for use. The unauthorized use by the depositary would make him liable for damages. EXCEPTIONS: 1. 2. When the preservation of the thing deposited requires its use When authorized by the depositor

What to return: product, accessories, and


accessions of the thing deposited (Art 1983) 3. Not to deposit the thing with a third person unless authorized by express stipulation (Art 1973)

Note: The permission to use is NOT presumed except when such use is necessary for the preservation of the thing deposited.

Effect if permission to use is given (Art 1978): 1. If thing deposited is non-consumable, the contract loses the character of a deposit and acquires that of a commodatum despite the fact that the parties may have denominated it as a deposit, unless safekeeping is still the principal purpose. 2. If thing deposited consists of money/consumable things, the contract is
5

The depositor is liable for the loss of the


thing deposited under Article 1973 if: a. he transfers the deposit with a third person without authority although there is no negligence on his part and the third person;
CREDIT TRANSACTIONS | 2014

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


converted into a simple loan or mutuum unless safekeeping is still the principal purpose in which case it is called an irregular deposit. Example: bank deposits are irregular deposits in nature but governed by law on loans. 7. When the thing deposited is delivered sealed and closed: a. b. to return the thing deposited in the same condition to pay for damages should the seal or lock be broken through his fault, which is presumed unless proved otherwise to keep the secret of the deposit when the seal or lock is broken with or without his fault (Art 1981) d.

| CREDIT TRANSACTIONS

if he allows others to use it, even though he himself may have been authorized to use the same

Notes:

Fixed, savings, and current deposits of money in


banks and similar institutions shall be governed by the provisions concerning simple loan. (Art 1980)

The general rule is that a bank can compensate


or set off the deposit in its hands for the payment of any indebtedness to it on the part of the depositor. In true deposit, compensation is not allowed. Rule when there are two or more depositors (Art 1985): 1. If thing deposited is divisible and depositors are not solidary: Each depositor can demand only his proportionate share thereto. 2. If obligation is solidary or if thing is not divisible: Rules on active solidarity shall apply, i.e. each one of the solidary depositors may do whatever may be useful to the others but not anything which may be prejudicial to the latter, (Art. 1212) and the depositary may return the thing to anyone of the solidary depositors unless a demand, judicial or extrajudicial, for its return has been made by one of them in which case, delivery should be made to him (Art. 1214). 3. Return to one of depositors stipulated. The depositary is bound to return it only to the person designated although he has not made any demand for its return. Notes:

c.

Note: The depositary is authorized to open the thing deposited which is closed and sealed when (Art 1982): i. there is presumed authority (i.e. when the key has been delivered to him or the instructions of the depositor cannot be done without opening it) ii. necessity 8. To change the way of the deposit if under the circumstances, the depositary may reasonably presume that the depositor would consent to the change if he knew of the facts of the situation, provided, that the former notifies the depositor thereof and wait for his decision, unless delay would cause danger 9. To pay interest on sums converted to personal use if the deposit consists of money (Art 1983) 10. To be liable for loss through fortuitous event: (Art 1979): a. b. c. if stipulated if he uses the thing without the depositor's permission if he delays its return

The depositary may retain the thing in pledge


until full payment of what may be due him by reason of the deposit (Art 1994).

The depositors heir who in good faith may have


sold the thing which he did not know was deposited, shall only be bound to return the price he may have received or to assign his right
6

CREDIT TRANSACTIONS | 2014

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


of action against the buyer in case the price has not been paid him (Art 1991). Obligations of the Depositor (Art 1992 1995): 1. To pay expenses for preservation a. If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for expenses incurred for the preservation of the thing deposited (Art 1992) If the deposit is for valuable consideration, expenses for preservation are borne by the depositary unless there is a contrary stipulation

| CREDIT TRANSACTIONS

2. Made on the occasion of any calamity such as fire, storm, flood, pillage, shipwreck or other similar events (deposito miserable) 3. Made by travellers in hotels and inns or by travellers with common carrier Deposit by Travellers in Hotels and Inns:

The keepers of hotels or inns shall be


a. responsible as depositaries for the deposit of effects made by travellers provided: Notice was given to them or to their employees of the effects brought by the guest; and The guests take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.

b.

b.

2.

To pay loses incurred by the depositary due to the character of the thing deposited Notes:

GENERAL RULE: The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited. EXCEPTIONS: 1. At the time of the deposit, the depositor was not aware of the dangerous character of the thing; 2. When depositor was not expected to know the dangerous character of the thing; 3. When the depositor notified the depository of the same; 4. The depositary was aware of it without advice from the depositor

Liability extends to vehicles, animals and


articles which have been introduced or placed in the annexes of the hotel.

Liability shall EXCLUDE losses which proceed


from force majeure. The act of a thief or robber is not deemed force majeure unless done with the use of arms or irresistible force.

The hotel-keeper cannot free himself from


the responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation to such effect shall be void.

Notice is necessary only for suing civil


Extinguishment of Voluntary Deposit (Art 1995) 1. Loss or destruction of the thing deposited 2. In case of gratuitous deposit, upon the death of either the depositor or the depositary 3. Other causes, such as return of the thing, novation, merger, expiration of the term fulfilment of the resolutory condition, etc (Art 1231) Necessary Deposits 1. Made in compliance with a legal obligation
CREDIT TRANSACTIONS | 2014

liability but not in criminal liability.

IV. GUARANTY (Articles 2047-2084)

A contract whereby a person (guarantor)


binds himself to the creditor to fulfil the obligation of the principal debtor in case the latter fail to do so. Classification of Guaranty:

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


1. In the Broad sense: a. Personal - the guaranty is the credit given by the person who guarantees the fulfilment of the principal obligation. Real - the guaranty is the property, movable or immovable.

| CREDIT TRANSACTIONS

b.

direct and primary obligation or other duty to the obligee, who is entitled to but one performance, and as between the two who are bound, the second rather than the first should perform (Agro Conglomerates, Inc. vs. CA, 348 SCRA 450)

2.

As to its Origin Notes: a. b. c. Conventional - agreed upon by the parties. Legal - one imposed by virtue of a provision of a law. Judicial - one which is required by a court to guarantee the eventual right of one of the parties in a case.

The reference in Article 2047 to solidary


obligations does not mean that suretyship is withdrawn from the applicable provisions governing guaranty. A surety is almost the same as a solidary debtor, except that he himself is a principal debtor.

3.

As to Consideration a. Gratuitous - the guarantor does not receive any price or remuneration for acting as such. Onerous - the guarantor receives valuable consideration.

In suretyship, there is but one contract, and the


surety is bound by the same agreement which binds the principal. A surety is usually bound with the principal by the same instrument, executed at the same time and upon the same consideration (Palmares vs CA, 288 SCRA 422)

b.

4.

As to the Person guaranteed a. Single - one constituted solely to guarantee or secure performance by the debtor of the principal obligation. Double or sub-guaranty - one constituted to secure the fulfilment by the guarantor of a prior guaranty.

It is not for the obligee to see to it that the


principal debtor pays the debt or fulfill the contract, but for the surety to see to it that the principal debtor pays or performs ( Paramount Insurance Corp vs CA, 310 SCRA 377) Nature of Suretys undertaking: 1. Liability is contractual and accessory but direct Note: He directly, primarily and equally binds himself with the principal as original promisor, although he possesses no direct or personal interest over the latters obligation, nor does he rec eive any benefits therefrom. (PNB vs CA, 198 SCRA 767) 2. Liability limited by the terms of the contract. Note: It cannot be extended by implication beyond the terms of the contract (PNB vs CA, 198 SCRA 767) 3. Liability arises only if principal debtor is held liable. Notes:

b.

5.

As to Scope and Extent a. Definite - the guaranty is limited to the principal obligation only, or to a specific portion thereof. Indefinite or simple - one which not only includes the principal obligation but also all its accessories including judicial costs

b.

SURETYSHIP

A contract whereby a person (surety) binds


himself solidarily with the principal debtor

A relation which exists where one person


(principal) has undertaken an obligation and another person (surety) is also under a
CREDIT TRANSACTIONS | 2014

The creditor may sue separately or together


8

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


the principal debtor and the surety. Where there are several sureties, the obligee may proceed against any one of them.

| CREDIT TRANSACTIONS

Notes:

In the absence of collusion, the surety is


bound by a judgment against the principal even though he was not a party to the proceedings. The nature of its undertaking makes it privy to all proceedings against its principal (Finman General Assurance Corp. vs. Salik, 188 SCRA 740) 4. Surety is not entitled to the benefit of exhaustion Note: He assumes a solidary liability for the fulfilment of the principal obligation (Towers Assurance Corp vs. Ororama Supermart, 80 SCRA 262) as an original promissory and debtor from the beginning. 5. Undertaking is to creditor and not to debtor. Note: The surety makes no covenant or agreement with the principal that it will fulfil the obligation guaranteed for the benefit of the principal. Such a promise is not implied by law either; and this is true even where under the contract the creditor is given the right to sue the principal, or the latter and the surety at the same time. (Arranz vs. Manila Fidelity & Surety Co., Inc., 101 Phil. 272) 6. Surety is not entitled to notice of principals default Note: The creditor owes no duty of active diligence to take care of the interest of the surety and the surety is bound to take notice of the principals default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect. (Palmares vs CA, 288 SCRA 422) 7. Prior demand by the creditor upon principal is not required Note: As soon as the principal is in default, the surety likewise is in default. 8. Surety is not exonerated by neglect of creditor to sue principal Characteristics of Guaranty and Suretyship: 1. Accessory - It is indispensable condition for its existence that there must be a principal obligation.
CREDIT TRANSACTIONS | 2014

Guaranty may be constituted to guarantee


the performance of a voidable or unenforceable contract. It may also guarantee a natural obligation. (Art 2052)

The guarantor cannot bind himself for more


than the principal debtor and even if he does, his liability shall be reduced to the limits of that of the debtor. 2. Subsidiary and Conditional - takes effect only in case the principal debtor fails in his obligation. Notes:

The guarantor cannot bind himself for more


than the principal debtor and even if he does, his liability shall be reduced to the limits of that of the debtor. But a guarantor may bind himself for less than that of the principal (Art 2054)

A guaranty may 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. (Art 2053) 3. Unilateral - may be entered even w/o the intervention of the principal debtor, in which case Art. 1236 and 1237 shall apply and it gives rise only to a duty on the part of the guarantor in relation to the creditor and not vice versa. 4. Nominate 5. Consensual 6. It is a contract between the guarantor/surety and creditor. Notes:

Acceptance of guaranty by creditor and


notice thereof to guarantor: In declaring that guaranty must be
9

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


express, the law refers solely and exclusively to the obligation of the guarantor because it is he alone who binds himself by his acceptance. With respect to the creditor, no such requirement is needed because he binds himself to nothing. However, when there is merely an offer of a guaranty, or merely a conditional guaranty, in the sense that it requires action by the creditor before the obligation becomes fixed, it does not become binding until it is accepted and until notice of such acceptance by the creditor is given to, or acquired by, the guarantor, or until he has notice or knowledge that the creditor has performed the condition and intends to act upon the guaranty. But in any case, the creditor is not precluded from waiving the requirement of notice.

| CREDIT TRANSACTIONS

accommodation surety because the latter acts without motive of pecuniary gain and hence, should be protected against unjust pecuniary impoverishment by imposing on the principal, duties akin to those of a fiduciary Notes:

The rule will apply only after it has been


definitely ascertained that the contract is one of suretyship or guaranty. It cannot be used as an aid in determining whether a partys undertaking is that of a surety or guarantor. (Palmares vs CA, 288 SCRA 292)

It does not apply in case of compensated


sureties.

10. It is a contract which requires that the guarantor must be a person distinct form the debtor because a person cannot be the personal guarantor of himself. Note: However, in a real guaranty, like pledge and mortgage, a person may guarantee his own obligation with his personal or real properties. Notes:

The consideration of the guaranty is the


same as the consideration of the principal obligation.

A guaranty is gratuitous, unless there is a


stipulation to the contrary. The cause of the contract is the same cause which supports the obligation as to the principal debtor.

The creditor may proceed against the


guarantor although he has no right of action against the principal debtor. 7. Not presumed. It must be expressed and reduced in writing. Note: A power of attorney to loan money does not authorize the agent to make the principal liable as a surety for the payment of the debt of a third person. (BPI vs. Coster, 47 Phil. 594) 8. Falls under the Statute of Frauds since it is a special promise to answer for the debt, default or miscarriage of another. 9. Strictly interpreted against the creditor and in favor of the guarantor/surety and is not to be extended beyond its terms or specified limits. (Magdalena Estates, Inc. vs Rodriguez, 18 SCRA 967) The rule of strictissimi juris commonly pertains to an

The peculiar nature of a guaranty or surety


agreement is that is is regarded as valid despite the absence of any direct consideration received by the guarantor or surety either from the principal debtor or from the creditor; a consideration moving to the principal alone will suffice.

It is never necessary that the guarantor or


surety should receive any part or benefit, if such there be, accruing to the principal. (Willex Plastic Industries Corp. vs. CA, 256 SCRA 478) Double or Sub-Guaranty (Par. 2, Art. 2051)

CREDIT TRANSACTIONS | 2014

10

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW

| CREDIT TRANSACTIONS

One constituted to guarantee the obligation


of a guarantor Continuing Guaranty (Art. 2053)

costs, provided with respect to the latter, that the guarantor shall only be liable for those costs incurred after he has been judicially required to pay. Qualifications of a Guarantor: (Arts 2056-2057) 1. possesses integrity 2. capacity to bind himself 3. has sufficient property to answer for the obligation which he guarantees Notes:

One which is not limited to a single


transaction but which contemplates a future course of dealings, covering a series of transactions generally for an indefinite time or until revoked. Notes:

Prospective in operation (Dio vs CA, 216 SCRA


9)

The qualifications need only be present at


the time of the perfection of the contract.

Construed as continuing when by the terms


thereof it is evident that the object is to give a standing credit to the principal debtor to be used from time to time either indefinitely or until a certain period, especially if the right to recall the guaranty is expressly reserved (Dio vs CA, 216 SCRA 9)

The subsequent loss of the integrity or


property or supervening incapacity of the guarantor would not operate to exonerate the guarantor or the eventual liability he has contracted, and the contract of guaranty continues.

Future debts may also refer to debts existing


at the time of the constitution of the guaranty but the amount thereof is unknown and not to debts not yet incurred and existing at that time.

However, the creditor may demand another


guarantor with the proper qualifications. But he may waive it if he chooses and hold the guarantor to his bargain. Benefit of Excussion (Art 2058)

Exception to the concept of continuing guaranty


is chattel mortgage. A chattel mortgage can only cover obligations existing at the time the mortgage is constituted and not those contracted subsequent to the execution thereof (The Belgian Catholic Missionaries, Inc. vs. Magallanes Press, Inc., 49 Phil 647). An exception to this is in case of stocks in department stores, drug stores, etc. (Torres vs. Limjap, 56 Phil 141). Extent of Guarantors liability: (Art 2055) 1. Where the guaranty definite: It is limited in whole or in part to the principal debt, to the exclusion of accessories. Where guaranty indefinite or simple: It shall comprise not only the principal obligation, but also all its accessories, including the judicial

The right by which the guarantor cannot be


compelled to pay the creditor unless the latter has exhausted all the properties of the principal debtor, and has resorted to all of the legal remedies against such debtor. Notes:

Not applicable to a contract of suretyship (Arts


2047, par. 2; 2059[2])

Cannot even begin to take place before


judgment has been obtained against the debtor (Baylon vs CA, 312 SCRA 502) When Guarantor is not entitled to the benefit of
11

2.

CREDIT TRANSACTIONS | 2014

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


excussion:

| CREDIT TRANSACTIONS

Liability: Joint
1. If it may be presumed that an execution on the property of the principal debtor would not result in the satisfaction of the obligation Not necessary that the debtor be judicially declared insolvent or bankrupt When he has absconded, or cannot be sued within the Philippines unless he has left a manager or representative In case of insolvency of the debtor Must be actual If the guarantor has expressly renounced it If he has bound himself solidarily with the debtor Notes:

The creditor can claim from the guarantors only


the shares they are respectively bound to pay except when solidarity is stipulated or if any of the circumstances enumerated in Article 2059 should take place.

2.

The right of contribution of guarantors who pays


requires that the payment must have been made (a) in virtue of a judicial demand, or (b) because the principal debtor is insolvent (Art 2073). If any of the guarantors should be insolvent, his share shall be borne by the others including the paying guarantor in the same joint proportion following the rule in solidary obligations.

3.

4. 5.

The above rule shall not be applicable unless the


Other grounds: 6. If he is a judicial bondsman or sub-surety 7. If he fails to interpose it as a defense before judgment is rendered against him 8. If the guarantor does not set up the benefit against the creditor upon the latters demand for payment from him, and point out to the creditor available property to the debtor within Philippine territory, sufficient to cover the amount of the debt (Art 2060) Demand can be made only after judgment on the debt Demand must be actual; joining the guarantor in the suit against the principal debtor is not the demand intended by law 9. Where the pledge or mortgage has been given by him as special security Benefit of Division (Art 2065) 1. payment has been made in virtue of a judicial demand or unless the principal debtor is insolvent.

The right to contribution or reimbursement from


his co-guarantors is acquired ipso jure by virtue of said payment without the need of obtaining from the creditor any prior cession of rights to such guarantor.

The co-guarantors may set up against the one


who paid, the same defenses which have pertained to the principal debtor against the creditor and which are not purely personal to the debtor. (Art 2074) Procedure when creditor sues: (Art. 2062)

The creditor must sue the principal alone;


the guarantor cannot be sued with his principal, much less alone except in Art. 2059. Notice to guarantor of the action The guarantor must be NOTIFIED so that he may appear, if he so desires, and set up defenses he may want to offer. If the guarantor appears, he is still given the
12

Should there be several guarantors of only


one debtor and for the same debt, the obligation to answer for the same is divided among all.
CREDIT TRANSACTIONS | 2014

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


benefit of exhaustion even if judgment should be rendered against him and principal debtor. His voluntary appearance does not constitute a renunciation of his right to excussion (see Art. 2059(1)). Guarantor cannot set up the defenses if he does not appear and it may no longer be possible for him to question the validity of the judgment rendered against the debtor.

| CREDIT TRANSACTIONS

1. Where the guaranty is constituted without the knowledge or against the will of the principal debtor, the guarantor can recover only insofar as the payment had been beneficial to the debtor (Art. 2050). 2. Payment by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which, however, requires the debtors consent. But the payment is in any case valid as to the creditor who has accepted it (Art. 1238). 3. Waiver of the right to demand reimbursement. Guarantors right to Subrogation (Art. 2067)

2.

A guarantor is entitled to be heard before and execution can be issued against him where he is not a party in the case involving his principal (procedural due process).

Guarantors Right of Indemnity or Reimbursement (Art 2066) GENERAL RULE: Guaranty is a contract of indemnity. The guarantor who makes payment is entitled to be reimbursed by the principal debtor. Note: The indemnity consists of: 1. Total amount of the debt no right to demand reimbursement until he has actually paid the debt, unless by the terms of the contract, he is given the right before making payment. He cannot collect more than what he has paid. 2. Legal interest thereon from the time the payment was made known (notice of payment in effect a demand so that if the debtor does not pay immediately, he incurs in delay) to the debtor, even though it did not earn interest for the creditor. Guarantors right to legal interest is granted by law by virtue of the payment he has made. 3. Expenses incurred by the guarantor after having notified the debtor that payment has been demanded of him by the creditor; only those expenses that the guarantor has to satisfy in accordance with law as a consequence of the guaranty (Art. 2055) not those which depend upon his will or own acts or his fault for these are his exclusive personal responsibility and it is not just that they be shouldered by the debtor. 4. Damages if they are due in accordance with law. General rules on damages apply. EXCEPTIONS:
CREDIT TRANSACTIONS | 2014

Subrogation transfers to the person


subrogated, the credit with all the rights thereto appertaining either against the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in conventional subrogation. Note: This right of subrogation is necessary to enable the guarantor to enforce the indemnity given in Art. 2066.

It arises by operation of law upon payment by


the guarantor. It is not necessary that the creditor cede to the guarantor the formers rights against the debtor.

It is not a contractual right.

The right of guarantor who has paid a debt to subrogation does not stand upon contract but upon the principles of natural justice.

The guarantor is subrogated by virtue of the


payment to the rights of the creditor, not those of the debtor. Guarantor cannot exercise the right of redemption of his principal (Urrutia & Co vs Morena and Reyes, 28 Phil 261) Effect of Payment by Guarantor 1. Without notice to debtor: (Art 2068) The debtor may interpose against the
13

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW


guarantor those defenses which he could have set up against the creditor at the time the payment was made, e.g. the debtor can set up against the guarantor the defense of previous extinguishment of the obligation by payment. 2. Before Maturity (Art 2069) Not entitled to reimbursement unless the payment was made with the consent or has been ratified by the debtor

| CREDIT TRANSACTIONS

from any proceedings by the creditor, and against the danger of insolvency of the debtor Extinguishment of Guaranty: 1. Release 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 (Art 2078); If the creditor voluntarily accepts immovable or other properties in payment of the debt, even if he should afterwards lose the same through eviction or conveyance of property (Art 2077); Whenever by some act of the creditor, the guarantors even though they are solidarily liable cannot be subrogated to the rights, mortgages and preferences of the former (Art 2080); For the same causes as all other obligations (Art 1231); When the principal obligation is extinguished; Extension granted to the debtor by the creditor without the consent of the guarantor (Art 2079)

Effect of Repeat Payment by debtor: (Art 2070) GENERAL RULE: Before guarantor pays the creditor, he must first notify the debtor (Art. 2068). If he fails to give such notice and the debtor repeats payment, the guarantor can only collect from the creditor and guarantor has no cause of action against the debtor for the return of the amount paid by guarantor even if the creditor should become insolvent. EXCEPTION: The guarantor can still claim reimbursement from the debtor in spite of lack of notice if the following conditions are present: a) guarantor was prevented by fortuitous event to advise the debtor of the payment; and b) the creditor becomes insolvent; c) the guaranty is gratuitous. Right of Guarantor to proceed against debtor before payment GENERAL RULE: Guarantor has no cause of action against debtor until after the former has paid the obligation EXCEPTION: Article 2071 Notes:

2.

3.

4.

5. 6.

BOND

An undertaking that is sufficiently secured,


and not cash or currency Bondsman (Art 2082)

A surety offered in virtue of a provision of


law or a judicial order. He must have the qualifications required of a guarantor and in special laws like the Rules of Court. Notes:

Article 2071 is applicable and available to the


surety. (Manila Surety & Fidelity Co., Inc. vs Batu Construction & Co., 101 Phil 494)

Judicial bonds constitute merely a special class


of contracts of guaranty by the fact that they are given in virtue of a judicial order.

Remedy of guarantor:
(a) obtain release from the guaranty; or (b) demand a security that shall protect him
CREDIT TRANSACTIONS | 2014

14

PHILIPPINE CHRISTIAN UNIVERSITY COLLEGE OF LAW

| CREDIT TRANSACTIONS

If the person required to give a legal or judicial


bond should not be able to do so, a pledge or mortgage sufficient to cover the obligation shall admitted in lieu thereof (Art 2083)

Right to deficiency Heirs of the late Sps. Maglasang vs Manila Banking Corp., G.r. 171206, Sept 23, 2013 Right to Possession Chu et al., vs Lacqui & PBCom, G.r. 169190, Feb 11, 2010 Nagtalon vs United Coconut Planters Bank, G.r. 172504, July 31, 2013 VI. Insolvency R.A. 10142; sec.2, sec.4, sec. 146 to 148 VII. Concurrence & Preference of credit R.A. 10142; sec.62, sec.133 Classification of credit 1. Special Preferred, sec.136 2. Ordinary Preferred, sec.133 VIII. Rehabilitation Stay or Suspension order (Town & Country Ent., vs Quisumbing et al., G.r. 173610, Oct. 1, 2012) (Situs Development Corp., vs AsiaTrust Bank et al., G.r. 180036, July 25, 2012) Exception to Stay or Suspension Order Panlilio et al., vs RTC Br.51, Manila, G.r. 173846, Feb 2, 2011 Cram Down Effect BPI vs Sarabia Manor Hotel, G.r. 175844, July 29, 2013 Liquidation Treatment of secured creditor claims (Yngson vs PNB, G.r. 171132, Aug 15, 2012)

A judicial bondsman and the sub-surety are NOT


entitled to the benefit of excussion because they are not mere guarantors, but sureties whose liability is primary and solidary. (Art 2084) III. Security Transactions R.A. 10142, sec.4 (p), (ll), (kk), (jj), (qq), (pp), (t) IV. Chattel Mortgage Distinguished from financial leasing* (PCI leasing and finance Inc., vs Trojan metal Industries, G.r. 176381, Dec 15, 2010) V. Real Estate Mortgage Effect and Extent Star two Inc., vs Paper City corp., G.r. 169211, March 6, 2013 Right to alienate collateral Garcia vs Villar, G.r. 158891, June 27, 2012 Extra-judicial foreclosure of Real Estate Mortgage Conduct of Sale

(Sps. Rabat vs PNB, G.r. 158755, June 18, 2012) Right of Redemption Statutory rights (Golden Merchandising vs Equitable PCI, G.r. 195540, March 13, 2013) How to redeem Sps Yap vs Sps. Dy et al., G.r. 171991 and 171868, July 27, 2011

CREDIT TRANSACTIONS | 2014

15