SECTRANS FINALS SECTRANS FINALS REVIEWER

INTRODUCTION
CREDIT TRANSACTIONS Include all transactions involving the purchase or loan of goods, services or money in the present and the promise to pay or deliver in the future !ay "e secured or unsecured SEC#RIT$ Something given, deposited or serving as a means to ensure fulfillment or enforcement of an o"ligation or of protecting some interest in property !ay "e personal or real %AI&!ENT Delivery of property to another in trust for a specific purpose 'ith a contract that the trust shall "e faithfully e(ecuted and the property returned or dully accounted for 'hen the special purpose is accomplished or )ept until the "ailor reclaims it !ay "e for the sole "enefit of the "ailor, for the sole "enefit of the "ailee, and for the "enefit of "oth parties %ailment for hire arises 'hen goods are left 'ith "ailee for some use or service, al'ays for some compensation

CO!!ODAT#! v !#T##! 1 SI!+&E &OAN Commodatum Is gratuitous Any stipulation for compensation, contract ceases to "e commodatum *enerally involves non3consuma"le things 4"ecause you have to return it5 %ut consuma"le things may "e su"6ect of commodatum - 'hen the purpose is not to consume it, "ut only to display it %ailor retains o'nership of the S! %orro'er has o"ligation to return the same thing loaned - the actual thing Real or personal property may "e su"6ect of commodatum +urpose is only for temporary use or possession &oss of the thing is suffered "y lender - "ecause he still o'ns the S! 4Res +erit Domino5 If thing is not returned - lia"le for estafa Ordinary - 'ith term "ut lender may demand if urgent need +recarium - may demand return at "ailor2s 'ill Consideration is pure li"erality Mutuum / Simple Loan Default rule is that simple loan is *ratuitous %ut there may also "e a stipulation for interest - remem"er that this must "e in 'riting S! is money or other consuma"le thing

O'nership passes to "orro'er %orro'er need only pay the same amount of the same )ind 7 .uality +ayment only of the e.uivalent Involves only personal property The purpose of the contract is to consume the thing 4Consumption5 &oss is suffered "y "orro'er - even if "y fortuitous event 4Res +erit Domino5 %orro'er not criminally lia"le - "ut only civil lia"ility for "reach of o"ligation to pay &ender may not demand return of the thing "efore lapse of the term

I. LOAN
*ENERA& +RO,ISIONS &oans are Real Contracts - Re.uire DE&I,ER$ for perfection %ut an accepted promise to deliver is "inding, although there is no contract of loan until thing is delivered There is no re.uired form - only that stipulation for INTEREST must "e in /RITIN* &oans are unilateral contracts - once the S! is delivered, it creates o"ligations on the part only of the "orro'er 0 )inds of Contracts of &oan - Commodatum and !utuum 1 Simple &oan CREDIT v &OAN v DE%T Credit - a"ility of an individual to "orro' &oan - delivery and receipt of money or consuma"le thing 'ith agreement to repay same amount of same )ind and .uality De"t - credit considered from creditor2s standpoint

Consideration is the promise of the "orro'er to pay

JEN LAYGO 2D 05

SECTRANS FINALS

4.
COMMODATUM 0 )inds of commodatum8 Ordinary - 'ith term "ut lender may demand return "efore e(piration only if there is urgent need +recarium - "ailor may demand the thing loaned at 'ill %ailee ac.uires use of thing "ut NOT ITS 9R#ITS %ut parties may stipulate that "orro'er may use fruits - only incidental to contract of commodatum If "ailee is not entitled to use the thing - contract of deposit Lender need not be the owner of the thing, enough that he has possessory interest or right to use it Is +urely +ersonal in character8 1. *R8 DEAT: of either party e(tinguishes contract E8 Contrary stipulation that commodatum su"sists until purpose is accomplished 2. *R8 %orro'er CANNOT &END to someone else E8 #se "y mem"ers of "orro'er2s household E to E8 There is stipulation to the contrary Nature of thing for"ids it 4e(ample accdg to ;+ is a dildo5 O%&I*ATIONS O9 %ORRO/ER 40&ORD5 < ORDINAR$ E=+ENSES 3 for use and preservation 3 If, for the purpose of ma)ing use of the thing, the "ailee incurs e(penses other than O+ for use or E+ for preservation and actual use, he is not entitled to reim"ursement 0 &OSS O9 T:E T:IN* 3 *R8 "orro'er not lia"le if fortuitous event E(ceptions8 'hen "orro'er lia"le for fortuitous event8 a. Bad Faith - used for different purpose 4also a "reach5

RET#RN O9 T:E T:IN* accomplished

3 as soon as term e(pires or purpose is

5.

3 *R8 cannot )eep thing as security for anything lender may o'e him 3 E8 Damages for hidden defects 0 OR !ORE %ORRO/ERS - in the same contract, lia"ility is SO&IDAR$

b. c. d. e.

Delay

3 )eeps it for longer period than stipulated

Assumption of Risk - thing delivered 'ith appraisal of value 3 E8 Stipulation e(empting "ailee Brea h 3 &end to >rd person not in "orro'er2s household

3.

!ngratitude 3 "eing a"le to save either thing "orro'ed or his o'n thing, he chose to save his o'n DETERIORATION 3 "orro'er not lia"le for ordinary deterioration or 'ear 7 tear as natural conse.uence of its use 3 must "e 'ithout his fault

O%&I*ATIONS O9 &ENDER 4DRE95 1. RES+ECT D#RATION - cannot demand return unless period e(pires or purpose is accomplished 3 E8 Return 1 temporary use if in #rgent Need contract of commodatum is deemed suspended 3 +RECARI#! e(ists 'hen8 a. No stipulation for duration or use of thing " #se is merely tolerated "y the o'ner 3 %#T lender may not 'himsically, ar"itrarily or capriciously demand, other'ise lia"le for Art<?, 0@ and 0< for a"use of right 2. DE!AND RET#RN 9OR 3 ArtABC of CC8 ACTS O9 IN*RATIT#DE A %orro'er commits offense against lender2s person, honor or property, his 'ife or children under parental authority % %orro'er imputes to lender any criminal offense or act involving moral turpitude, even if he proves it 3 E(cept8 If crime is against "orro'er, 'ife or children C %orro'er is legally and morally re.uired to support the lender "ut he refuses to > RE9#ND E=TRAORDINAR$ E=+ENSES A. E+ 9rom +reservation of thing 3 &ender should refund "orro'er 3 Notice must "e given to lender "efore incurring the e(pense 3 E8 need is urgent that lender cannot "e notified 'ithout danger B. E+ 9rom Actual #se of thing 3 "orne "y "oth on a C@3C@ "asis 3 E8 Contrary stipulation 4. 9OR DA!A*ES 9OR 3 Re.uisites for &ia"ility8 DNO/N :IDDEN 9&A/S A 9la' or defect % :idden C &ender is A'are 2

JEN LAYGO 2D 05

SECTRANS FINALS
D "orro'er E %orro'er suffers damages 3 E(ception8 /hen %uyer should have )no'n 3 %orro'er has RI*:T O9 RETENTION NOTE8 Remem"er that %orro'er is lia"le for ORDINAR$ e(penses for use and preservation 7 half of the E=TRAORDINAR$ e(penses for actual use &ender is lia"le only for E=TRAORDINAR$ e(penses Also, according to Art<?C0, &ender cannot e(empt himself from payment of such e(penses or damages "y a"andoning the thing to the "orro'er SIMPLE LOAN / MUTUUM !ay include fungi"le 4may "e su"stituted - depends on intent of parties5 or consuma"le things 4depends on nature of thing5 9OR! O9 +A$!ENT 1. O"6ect is !ONE$ &ender does not Advise As Damages for delay - rate is "ased on8 a +enalty clause stipulated " Regular interest rate stipulated c &egal interest rate of <0E B. Interest from unpaid Interest *R8 Accrued interest shall not ear interest E8 ;#DICIA&&$ DE!ANDED or CO!+O#NDED INTEREST - must "e in /RITIN* +aya"le in DIND At the C#RRENT +RICE of the products AT TI!E and +&ACE O9 +A$!ENT !ista)e in payment of interest - SO&#TION INDE%ITI or undue payment 3 %ut if de"tor pays out of a moral o"ligation, he cannot later recover !#T##! v CO!!ODAT#! v %ARTER !#T##! < party delivers to another money or other consuma"le thing 'ith understanding that the same amount1 )ind1 .uality or its e.uivalent shall "e paid !oney or other fungi"le things Return the e.uivalent *ratuitous or Onerous CO!!ODAT#! < party delivers to another something not consuma"le so that the latter may use the same for a certain time and return it Non3fungi"le things Return identical thing Al'ays *ratuitous %ARTER Contract 'here one of the parties "inds himself to give < thing in consideration of the other2s promise to give another thing Non3fungi"le things Return e.uivalent Onerous A

2.

O"6ect is 9#N*I%&E T:IN* Other than !oney

3 +ayment in currency stipulated, other'ise in legal tender in +hils 3 *R8 ,alue AT TI!E O9 +A$!ENT 3 E8 E(traordinary Inflation - AT TI!E O9 ESTA%&IS:!ENT 3 +ay same )ind, .uality and .uantity, even if it changes in value 3 In case it is impossi"le to do so, ,A&#E AT TI!E O9 +ER9ECTION O9 &OAN 3 Opt Out8 Stipulate that in case of impossi"ility, pay mar)et value at time of payment

INTEREST Re.uisites8 Rules8

< E(pressly stipulated 0 !ust "e in 'riting > !ust not "e unconsciona"le

II. GUARANTY
Definition A contract 'here"y the guarantor "inds himself to the creditor to fulfill the o"ligation of the principal de"tor in case the latter shall fail to do so Characteristics < ACCESSOR$ 0 S#%SIDIAR$ 7 CONDITIONA& > #NI&ATERA& principal de"tor 3 depends on e(istence of principal o"li2n 3 ta)es effect only upon principal2s default 3 !ay "e entered '1o intervention of

Stipulated interest governs No stipulation - <0E for loans, BE for other o"ligations Increases in interest must also "e stipulated Only in contracts of loan can interest "e stipulated Stipulation must "e mutually agreed upon, not unilaterally increased %ut parties can agree on a 9OR!#&A B Escalation clause 4automatic increase in interest5 must "e accompanied "y De3Escalation clause 4automatic decrease5 /hen still lia"le for interest even if none stipulated8 JEN LAYGO 2D 05

< 0 > F C

SECTRANS FINALS
3 O"ligation of guarantor only as to creditor and not vice3verse DISTINCT +ERSON 3 *uarantor must "e distinct from principal de"tor %ut in real guaranty, person may guaranty his o'n o"ligation 'ith his o'n properties A +ersonal and Real Conventional, &egal, ;udicial *ratuitous and Onerous Single 4principal o"li5 and Dou"le 1 Su"3*uaranty Definite 4principal o"li only5 and !ndefinite / Simple 4no stipulation that guaranty is on principal de"t only, lia"ility includes accessory o"lis5 G RULES ON GUARANTY < 0 > *uaranty is *RAT#ITO#S 3 E8 Onerous only if stipulated Same Cause as principal o"ligation 3 *uarantor need not have a direct interest in the o"ligation nor receive any "enefit from it !arried 'oman may guarantee 3 *R8 %ut if '1o the hus"and2s consent, she only "inds her separate properties She can2t "ind the AC+ 3 E8 /hen it redounds to the "enefit of the family /ith principal de"tor2s consent 3 S#%RO*ATED in Rights of Creditor 3 If entered '1o )no'ledge1consent or against the 'ill of the de"tor8 3 Effect is li)e payment "y a >rd person8 < *uarantor can only recover insofar as payment "enefited the principal de"tor 0 *uarantor cannot compel the creditor to su"rogate him in the creditor2s rights such as those arising from a mortgage, guaranty or penalty !ay "e on a ,OIDA%&E, #NEN9ORCEA%&E D or a NAT#RA& O%&I 3 In natural o"ligations, even if the principal o"ligation is not civilly enforcea"le, creditor may still go after the guarantor 3 A conditional o"ligation may also "e su"6ect of guaranty !ay "e given to secure 9#T#RE DE%TS, amount of 'hich is not yet )no'n %ut there can "e no claim against the guarantor until the de"t is li.uidated 3 Continuing *uaranty 3 3 Remem"er that there must "e an e(isting principal o"li /hat is allo'ed is the guaranty for a principal o"li in e(istence +&#S future de"t *uaranty cannot "e constituted on a future de"t only Conditional O"ligations - If principal o"li is su"6ect to a suspensive condition, guarantor lia"le only upon happening of the condition

Classifications In *eneral8 Origin8 Consideration8 +rincipal De"t8 4guaranty5 Scope8

*uarantor may "ind himself 9OR &ESS "ut not for more than the principal o"li 3 %oth as to amount and the onerous nature of the conditions 3 If he "ound himself for more, shall "e reduced to the limits of the principal de"tor2s lia"ility 3 Opt Out8 Separate Contract 'here lender 'ould render service to guarantor in e(change for the additional amount 3 :o'ever, if creditor sues guarantor, latter may "e lia"le for costs, attorney2s fees 7 penalties *uaranty is NOT +RES#!ED 3 must "e e(press and limited to terms 3 Strictly construed against creditor, in favor of guarantor if gratuitous 3 must "e in /RITIN* 4SO95 3 +rospective application 4not past de"t5 3 E8 if guarantor merely offers to guaranty 3 E to E8 unconditional promise 3 Creditor CAN /AI,E re.uirements 3 *uarantor su"6ect to 6urisdiction of court 'here o"li is to "e complied '1 3 Hualifications need only "e present < Conviction in <st instance of a crime involving dishonesty1 moral turpitude 0 *uarantor "ecomes insolvent - no need for 6udicial dec of insolvency

No need for Creditor to Accept

4.

<@ Hualifications of a *uarantor A. !ntegrity the B. Capa ity to Bind "imself

C.

Suffi ient property upon perfection of contract

11. Creditor may Demand Another

#$% ept when reditor re&uired spe ified person as 'uarantor

<0 *uaranty S#R,I,ES death of *uarantor <> +roperty of *uarantor IS NOT Su"6ected to a &IEN "y virtue of the guaranty EFFECTS OF GUARANTY

I.

To compel guarantor to pay, creditor must EXHAUST all properties of debtor and must have Resorted to all legal remedies against the debtor [EX USS!"#$% 4

JEN LAYGO 2D 05

SECTRANS FINALS
%enefit of E(haustion Shall NOT ta)e place8 < /hen E(cussion shall not ta)e place 0 If guarantor 'aives or fails to set3up the "enefit and point properties of the de"tor to the creditor > If guarantor is a 6udicial "ondsman and su"3surety F /here pledge or mortgage has "een given "y him as special security C 9ails to interpose it as a defense "efore 6udgment is rendered against him %enefit of E(cussion Shall NOT ta)e place8 1. *uarantor e(pressly RENO#NCED it 0 :e has "ound himself SO&IDARI&$ 3. In case of INSO&,ENC$ of de"tor 4+ractical Insolvency5 F De"tor has A%SCONDED, or cannot "e sued '1in +hilippines, unless he has left a manager or representative C #SE&ESS - 'hen it may "e presumed that e(ecution on property of principal de"tor 'ould not satisfy 'hole o"ligation Opt Out - *et guarantor to sign a /AI,ER of the "enefit or ma)e him SO&IDARI&$ lia"le +ayment "y *uarantor constitutes /aiver of "enefit !!% &uarantor must set'up the benefit against the creditor and point to properties of the debtor in the (hils sufficient to ans)er the debt 3 To collect from guarantor, creditor must ma)e prior demand for payment from guarantor8 !ade after 6udgment on the de"t and must "e actual demand, not merely 6oining * in the suit 3 Once guarantor sets3up and points to properties, creditor 'ho is negligent in e(hausting the property pointed out suffers the loss to the e(tent of the value of the property Every action by creditor must be against the principal debtor alone% reditor must as* court to notify the guarantor% 3 Creditor can only sue the guarantor together 'ith the principal de"tor in the instances 'hen the "enefit of e(cussion does not ta)e place 3 *uarantor must "e notified so that he can set3up his defenses The benefit of e,cussion shall al)ays be unimpaired, even if -udgment is rendered against the principal debtor and the guarantor% 3 If guarantor appears in the action, he is still given the "enefit of E(haustion even after 6udgment is rendered against the principal de"tor !X% 3 3 3 +% If guarantor does not appear, 6udgment is not "inding on him &ender must separately sue guarantor to claim from him +ro"lem8 Time lag "et'een 6udgment against de"tor 7 against * Opt Out8 %an) guaranty or &C 'here only need to inform the "an)

!f a compromise is made, )hoever is not party to the compromise benefits but is not pre-udiced% 3 If guarantor compromises 'ith creditor - he cannot demand more from the de"tor than 'hat he really paid The sub'guarantor en-oys the benefit of e,cussion )ith respect to the guarantor and the principal debtor .E#E/!T "/ 0!+!S!"#1 Several co'guarantors, 2 debtor, 2 debt 3 obligation divided among all% reditor can only claim respective share of each guarantor% 3 *R8 6oint lia"ility 3 E8 In cases 'here no "enefit of e(cussion 4R#SIA5 and 'hen solidarity has "een stipulated 0ebtor must indemnify guarantor if the latter pays% !ndemnity includes1 < Total amount of de"t - only 'hat he has actually paid #nless stipulation of right to demand reim"ursement as soon as lia"le, even 'ithout having paid 0 Interest - interest from the time notice of payment of the de"t "y * is made )no'n to de"tor *uarantor can collect interest on amount paid even if principal o"li has no stipulation for interest %asis of the right is delay of de"tor in reim"ursing > E(penses - those that guarantor must satisfy in accordance 'ith la' &imited to those incurred after notifying de"tor that payment has "een demanded from guarantor F Damages - only if they are due E,ceptions1 4here & has no right to be reimbursed < *uaranty constituted '1o )no'ledge or against 'ill of de"tor 3 can only claim "eneficial reim"ursement 2. +ayment "y >rd person '1o intention to "e reim"ursed is Donation, re.uiring consent of donee %ut payment is valid as to creditor > /aiver "y guarantor of right to "e reim"ursed &uarantor )ho pays is subrogated to all rights of creditor against debtor 3 Right of su"rogation only given to guarantor if he has a right to "e reim"ursed No right - no su"rogation

+!% +!!%

VIII.

!!!%

!+%

X%

JEN LAYGO 2D 05

SECTRANS FINALS
X!% !f & pays )5o notifying debtor, debtor may enforce against him all defenses he could have set up against the creditor at time of payment% !f debt )as for a period and & paid before period ended, he cannot demand reimbursement from debtor until period ends% 3 E(ception8 if de"tor ratified1consents to such payment "F due date !f & paid )5o notifying debtor, then debtor also pays 3 & can6t go after the debtor but must go after the creditor% 3 E(ception8 * may claim from clueless de"tor if8 < gratuitous guaranty 0 * prevented from informing de"tor of payment "y fortuitous event > Creditor "ecomes insolvent !nstances )hen &uarantor may proceed against principal 0ebtor even .E/"RE payment 1. /hen * is S#ED for payment

3
3 3

X!!%

XIII.

If < pays for the 'hole o"ligation, he can demand shares of others Instance 'hen 6oint o"ligation has effect of solidary o"ligation8 If any of co3guarantors are insolvent, his share shall "e "orne "y the others, including the one 'ho paid In case < co3guarantor pays 'hole o"ligation - co3guarantors may set up against the paying * the same defenses of principal de"tor against the creditor and are not purely personal to the de"tor

XVII.

A sub'guarantor is responsible to the co'guarantors in the same terms as the guarantor, if the latter becomes insolvent%

XIV.

De"t "ecome DE!ANDA%&E "y lapse of period F payment C After lapse of <@$RS if no fi(ed due date 4accdg to nature5 B Reasona"le ground to 9ear principal de"tor 'ill A%SCOND A +rincipal de"tor in imminent danger of "eing INSO&,ENT #nder these A instances, * has ff rights "efore he ma)es payment A Right to "e released if creditor1lender agrees % Right to demand security

2. 3. 4.

If principal de"tor is INSO&,ENT If guaranty is for a +ERIOD and period has e(pired

XV.

!f & guarantees debt of 7rd person not present, at the re8uest of another, he may sue either the person re8uesting or the debtor%

EXTINGUISHMENT OF GUARANTY < E(tinguishment of Contracts 3 payment or performanceI loss of the thing dueI condonation or remissionI confusion or mergerI compensationI novationI annulmentI rescissionI fulfillment of resolutory conditionI and prescription 3 any agreement "et'een creditor and principal de"tor 'hich varies terms of principal contract '1o consent of surety e(tinguishes surety2s lia"ility Alteration must impose ne' o"ligation or added "urden to e(tinguish * 0 Creditor accepts other +rop2y 3 even if creditor should after'ards lose the same through eviction, * is released DACION > Release "y Creditor of < of the co3guarantors '1o their consent "enefits all to e(tent of share of released co3guarantor F E(tension granted "y Creditor to De"tor '1o *2s consent e(tinguishes * 3 !ere failure of creditor to demand payment after de"t has "ecome due does not constitute e(tension 3 E(ception8 If * consents to e(tension or 'aives e(tinguishment C *s, even if solidary, are released 'hen "y some act of CREDITOR, they cannot "e S#%RO*ATED to the rights, mortgages and preference of the latter B *uarantor may set up against creditor all defenses pertaining to principal de"tor and inherent in the de"t, "ut not those personal to the de"tor J;udicial and &egal %onds are sureties No "enefit of e(cussion SURETY +erson "inds himself SO&IDARI&$ 'ith the principal de"tor

X+!%

9oint :iability bet)een several co'guarantors 3 3 *R8 Creditor cannot collect 'hole amount from < co3guarantor 3 E8 In cases of ;#DICIA& DE!AND and /hen principal de"tor is INSO&,ENT

JEN LAYGO 2D 05

SECTRANS FINALS
Dispenses 'ith all legal re.uirements or conditions for proceeding against a guarantor SO&IDARIT$ A!ON* DE%TORS v S#RET$S:I+ %oth stand for some other person %oth may demand reim"ursement Difference is that in solidarity among de"tors, the reim"ursement involves only the amount of the share of the other de"tors In suretyship, the surety is reim"ursed for the 'hole amount &ender cannot go after surety right a'ay, there must "e default "y the principal de"tor first In solidarity of de"tors, creditor can go after any solidary de"tor on due date NAT#RE O9 S#RET$2S #NDERTADIN* 1. CONTRACT#A& 7 ACCESSOR$ %#T DIRECT *#ARANT$
*uarantor promises to ans'er for de"t, default or miscarriage of the principal &ia"ility of guarantor depends upon independent agreement to pay the o"ligation if de"tor fails to do so Engagement of guarantor is a collateral1accessory underta)ing *uarantor is se ondarily liable) %enefit of E(haustion, E(cussion 7 Division *#ARANTOR %INDS :I!SE&9 TO +A$ I9 T:E +RINCI+A& DE%TOR CANNOT +A$ 4INS#RER O9 T:E SO&,ENC$ O9 T:E DE%TOR5

S#RET$S:I+
Surety promises to ans'er for de"t, default or miscarriage of principal Surety assumes lia"ility as a regular party to the underta)ing Surety is charged as an original promisor A surety is primarily liable No "enefit of E(cussion S#RET$ #NDERTADES TO +A$ I9 T:E +RINCI+A& DOES NOT +A$ 4INS#RER O9 DE%T5 3 !ore onerous

2. 3.

&IA%I&IT$ &I!ITED TO TER!S O9 T:E CONTRACT &IA%I&IT$ ARISES ON&$ I9 +RINCI+A& DE%TOR IS &IA%&E

3 lia"ility is merely collateral to principal o"ligation "ut direct, primary and a"solute o"ligation to creditor 3 lia"ility is determined "y terms of D

III. PLEDGE
ESSENTIA& REH#ISITES O9 +&ED*E 1. +urpose 3 to Secure the fulfillment of a +rincipal O"ligation 0 Real 3 Re.uires delivery of the thing 3 Agreement to pledge, 'hen "reached, gives rise to damages > Alienation 3 'hen +O "ecomes due and de"tor defaults, thing pledged may "e alienated to satisfy the principal o"li 3 A direct lien on the property, no need for litigation to alienate F Disposal 3 9ree Disposal of property or legal authority to do so 3 not su"6ect to any claim "y a >rd person 5. O'nership 3 +ledgor "e the A"solute O'ner of thing, "ears the loss 3 &oss8 !ust replace thing or lose "enefit of the period 3 9uture property CANNOT "e pledged 3 !ust have "oth %ENE9ICIA& 7 &E*A& TIT&E 3 In suspensive condition - o'nership retroacts B Third persons not parties to principal o"li may "e pledgor Definition of +ledge Contract De"tor delivers to creditor or >rd person a mova"le or document involving incorporeal rights for the purpose of securing the fulfillment of a principal o"ligation 'ith the understanding that 'hen the o"ligation is fulfilled, the thing delivered shall "e returned 'ith all its fruits and accessions DINDS8 ,oluntary 1 Conventional and &egal

4. 5.

3 $ffe ts( < Surety is "ound "y a 6udgment against the principal even if he is not party to the proceedings 0 Creditor may sue, separately or together, the principal de"tor and the surety > *enerally, a demand or notice of default is not re.uired to fi( the surety2s lia"ility 4K5 F An accommodation party is a surety C A +romise to pay signed "y 0 de"tors is solidary 4not surety5 B Surety "ond 'here there is no principal de"tor is ,OID NOT ENTIT&ED TO E=:A#STION 3 of properties of principal de"tor, since he assumes solidary lia"ility #NDERTADIN* IS TO CREDITOR 3 de"tor cannot claim that surety "reached its o"ligation to pay "ecause there is no o"ligation "et'een surety and de"tor

JEN LAYGO 2D 05

SECTRANS FINALS
C:ARACTERISTICS Real 3 "y delivery, !#ST % IN +#%&IC INSTR#!ENT Accessory 3 no independent e(istence #nilateral 3 o"li of creditor to return thing Su"sidiary 3 o"li of creditor arises only upon fulfillment of +O J!ay "e on a ,OIDA%&E, #NEN9ORCEA%&E D or a NAT#RA& o"ligation 0 > F R#&ES ON +&ED*E 1. reditor A##"T A((R"(R!ATE thing pledged or dispose of them 3 contrary stipulation is ,OID 3 Stipulation of +actum Commissorium is ,OID A /hen there is a pledge or mortgage % A Stipulation for A#TO!ATIC appropriation of the thing in case of default "y the de"tor 3 $% eption to *a tum Commissorium8 /hen thing is not sold after 0 pu"lic auctions, creditor may appropriate for himself 3 #pon default, creditor moves for sale of the pledged thing 3 If he 'ants to ac.uire it for himself, creditor may "id in pu"lic auction 3 :o' to Opt Out of +actum Commissorium +rohi"ition8 A Enter into another contract outside the pledge B. De"tor can voluntarily cede property to creditor - Novation C Stipulation 'here de"tor merely promises to sell, non3 compliance 'ill give rise to damages D. Stipulation granting creditor authority to ta)e possession and not o'nership of property upon foreclosure ;% (romise to constitute a pledge gives rise only to a personal action bet)een parties% 3 /1o pre6udice to criminal lia"ility of party 'ho defrauds another "y offering a thing in pledge as unencum"ered, )no'ing it 'as su"6ect to some "urden or representing himself to "e the o'ner

1.

+RO,ISIONS A++&ICA%&E ON&$ TO +&ED*E

1.
0

Delivery must "e to CREDITOR or >rd person agreed upon S! 3 All mova"les 'ithin the commerce of man 'hich are suscepti"le of possession, and 3 Incorporeal rights evidenced "y documents - must "e indorsed if negotia"le !ust "e in a +#%&IC INSTR#!ENT, 'ith a description of the thing pledged and the date of the pledge, in order to affect >rd persons A&IENATION - Thing pledged may "e alienated "y the o'ner "ut must "e 'ith consent of pledgee O'nership is transferred only upon consent of pledgee, "ut latter continues to possess RI*:T O9 CREDITOR TO RETAIN - in his possession or in >rd person until +rincipal O"ligation is paid Creditor shall ta)e care 'ith Diligence of a *ood 9ather of the 9amily 3 Creditor has a right to "e reim"ursed for e(penses due to preservation 3 Creditor also lia"le for &OSS or Deterioration +ledgee cannot deposit thing to a >rd person 3 E(ception8 contrary stipulation 3 +ledgee responsi"le for acts of his employees1agents 3 Remedy of +ledgor8 E(tra6udicial deposit or deposit 'ith a >rd person 4Arts 0<@F 7 0<@B5 or Resolution for %reach +ledgor 'ho )no's of hidden defects and does not disclose them to pledge, the latter suffering damages, is lia"le If Thing earns 9ruits, Income, Dividends or Interests, creditor shall compensate 'hat he receives 'ith those 'hich are o'ing to him 3 If none are o'ing to him, or if amount e(ceeds 'hat is due to him, apply e(cess to principal 3 #nless contrary stipulation, pledge e(tends to interest and earnings of right pledged 3 +ledge of Animals - offspring o'ned "y pledgor1o'ner "ut su"6ect to the pledge

3.
F

5.
B

7.

2.

(ledge is !#0!+!S!.:E 3 :eirs of either de"tor or creditor cannot as) for proportionate e(tinguishment or return of the thing pledged 3 E=CE+TIONS8 < Several things given in pledge, each one ans'ering for a determinate portion of the credit 0 Only partial release of the loan 4Central %an) v CA5 3. 9ailure of Consideration - creditor too) over management "ut the "usiness failed 3 Indivisi"ility of +ledge is NOT A99ECTED "y the fact that the de"tors are NOT SO&IDARI&$ &IA%&E ontract of (ledge may secure all *inds of obligations 3 +ure or Su"6ect to a Suspensive or Resolutory Condition 3 ,alid, ,oida"le or #nenforcea"le Contracts

G ?

7%

JEN LAYGO 2D 05

SECTRANS FINALS
3 If period is for "enefit of pledge, even if o"li is not due, he may compensate against the interest or principal 3 If thing pledged is retuned to o'ner or pledgor, pledge is E=TIN*#IS:ED Contrary Stipulation is ,OID If after to perfection of pledge, the thing pledged is possessed "y the pledgor, there is +RI!A 9ACIE presumption that the same has been returned by the pledge Same presumption if >rd person possesses thing, receiving it from the pledgor or o'ner E=CE+TION8 pledgor acts as agent of pledgee

<@ #nless e(propriated "y State, pledgor retains o'nership of thing 3 %ut creditor may "ring actions pertaining to o'ner, in order to recover it from or defend it against a >rd person

3 3
3

11. Creditor cannot #SE the thing 'ithout authority of the +ledgor 3 If he uses it or misuses it in any 'ay, o'ner may as) that
3 it "e +udi ially or e%tra,+udi ially deposited /hen preservation re.uires use, creditor must use "ut only for that purpose

<B Statement in 'riting "y pledge that he RENO#NCES or A%ANDONS pledge is sufficient to e(tinguish pledge 3 No need for acceptance of pledgor or o'ner 3 Also no need for delivery of thing pledged to pledgor or o'ner

<0 +ledgor can only as) for return of thing if he has paid principal and interest of the o"ligation - as 'ell as e(penses <> In DAN*ER O9 &OSS OR I!+AIR!ENT A Due to negligence or 'illful act of pledgee, 3 +&ED*OR may re.uire thing to "e deposited to -rd person % /1o fault of pledgee8 0 options of +&ED*EE i +ledgee may demand return of thing upon offering another thing in pledge, provided that same )ind as former and not of inferior .uality ii +ledgee may cause thing to "e sold at a +u"lic Sale /hen there is danger of loss, destruction or dimunition of value +roceeds of sale shall "e security for principal o"ligation in same manner as the thing originally pledged #pon due date, if cash value ac.uired in +u"lic Sale is less than principal o"ligation, creditor CAN STI&& recover deficiency %ut pledgor can .uestion sale, alleging he could have o"tained a "etter price 3 *ledgee.s right takes pre eden e o/er pledgor.s right <F If Creditor DECEI,ED on S#%STANCE or H#A&IT$ 3 +ledgee may either8 A Claim another thing % Demand immediate payment of o"ligation 3 Instance 'hen de"tor loses "enefit of the period <C T:IN* +&ED*ED IS RET#RNED JEN LAYGO 2D 05 9

the

principal

SECTRANS FINALS
9OREC&OS#RE O9 +&ED*E 9OR!A&ITIES REH#IRED < De"t is due and unpaid 0 Sale must "e at pu"lic auction > Notice to pledgor and o'ner, stating the amount due F !ust "e 'ith intervention of Notary +u"lic +ROCESS < 0 > F C B De"t "ecomes due and de"tor defaults Creditor proceeds to Notary +u"lic and as)s to conduct a Notarial Sale Sale shall "e a pu"lic auction supervised "y Notary "ut in class, ;+ said creditor has control and determines details of the sale Notice of sale must "e given to pledgor and o'ner No specified period for notification If not sold on 0 pu"lic auctions, creditor may appropriate for himself "y giving an ac.uittance for his entire claim After auction, pledge shall advise o'ner or pledgor of result G If credit pledged "ecomes due "efore it is redeemed, +&ED*EE may collect and receive the amount due 3 pledge shall apply the proceeds to payment of the principal o"ligation 3 S#R+&#S should "e delivered to +&ED*OR If 0 or more things are pledged, +ledgee may choose 'hich to sell, unless contrary stipulation as guarantor 3 >rd party pledgor is entitled to8 a Indemnity " Su"rogation c. +ledgor released if creditor accepts property in payment of de"t DACION d Release of < pledgor '1o consent "enefits all e E(tension granted to de"tor e(tinguished pledge f +ledgors are released from o"li if no su"rogation "y act of creditor g +ledgor may set up defenses inherent in the de"t CON,ENTIONA& +&ED*E De"tor1O'ner1+ledgor is not entitled to e(cess "ut may stipulate De"tor is also not lia"le for deficiency and cannot stipulate De"tor need only default and notarial intervention for sale to "e held No re.uired period to hold auction sale &E*A& +&ED*E E(cess1Remainder of the price of the sale shall "e delivered to the de"tor !ay only "e sold after DE!AND of the A!O#NT for 'hich the thing is retained +u"lic Auction shall "e held ONE !ONT: after such demand If '1o 6ust grounds, creditor does not cause pu"lic sale to "e held '1in such period, de"tor may re.uire return of the thing

10. If a >rd party pledges his o'n mova"le property, he has same rights

R#&ES < At auction, pledgor or o'ner may "id and shall have a "etter right if same terms as highest "idder 0 > F +ledgee may also "id "ut invalid if he is only "idder All "ids must offer to pay price at once If other "id is accepted, pledgee is deemed to have received purchase price SA&E E=TIN*#IS:ES /:O&E O%&I*ATION 3 principal, interest, and e(penses DE%TOR NOT ENTIT&ED TO E=CESS, !A$ STI+#&ATE DE%TOR NOT &IA%&E 9OR DE9ICIENC$ 3 contrary stipulation is ,OID 3 opt out8 set a minimum "id, or 6ust file collection suit instead of foreclosing, or stipulate that if pledge goes under certain amount, de"tor must pledge additional securities Any person 'ho has a right to thing pledged may satisfy +O as soon as it "ecomes due and demanda"le 3 creditor cannot refuse payment "y interested >rd person 3 can "e a "uyer of the thing, or someone 'ith a 6unior lien

5. 6.

R#&ES 9OR &E*A& +&ED*E +ossesor in *9 may retain thing on .'hich he spent for necessary e(penses until reim"ursed :e 'ho 'or)s on a mova"le may retain the same until paid for the 'or) 10

JEN LAYGO 2D 05

SECTRANS FINALS
Depositary may retain the thing until paid for the deposit Agent may retain o"6ects of agency until reim"ursed "y principal &a"orer2s 'ages are considered a lien on goods manufactured or 'or) done E(ecute document of mortgage *o to a notary pu"lic 'ho 'ill notariLe document +ay documentary stamp ta( *o to RD to register, must "e updated in ta( payments

IV. REAL MORTGAGE

DE9INITION A real estate mortgage is a contract 'here"y the de"tor secures to the creditor the fulfillment of a principal o"ligation, specially su"6ecting to such security immova"le property or real rights over immova"le property in case the principal o"ligation is not complied 'ith at the time stipulated C:ARACTERISTICS Real Accessory Su"sidiary R#&ES1E99ECTS The mortgage 0irectly and !mmediately sub-ects the property upon )hich it is imposed, )hoever the possessor may be, to the fulfillment of the obligation for )hose security it )as constituted% 3 3 3 O'nership is retained "y mortgagor, may even mortgage it again The portion of the mortgage registered creates a preference in favor of creditor over the land Opt Out8 do a credit line arrangement 'ith a ceiling price or e(ecute a ne' document everytime funds are released

3 "y delivery, !#ST "e RE*ISTERED 3 no independent e(istence 3 o"li of creditor arises only upon fulfillment of +O

!ay "e on a ,OIDA%&E, #NEN9ORCEA%&E D or a NAT#RA& o"ligation DINDS8 ,oluntary 1 &egal and E.uita"le !ortgage As a *eneral Rule, the !ORT*A*OR RETAINS +OSSESSION, ho'ever this is not essential and mortgagee may have possession and it 'ould still "e a mortgage and some other contract S!8 Immova"les and Aliena"le Rights over Immova"les

<ortgage e,tends to1 a natural accessions " Improvements c gro'ing fruits, d rents or income not yet received 'hen o"li is due e Insurance indemnity f Compensation for e(propriation 3 3 !ortgage over future property invalid "ut future improvements, valid To e(clude these things, there must "e an e(press stipulation /hen e(propriated, the cash given "y the gov2t as indemnity "ecomes the security #pon default, !2ee can apply cash to o"ligation

9#T#RE +RO+ERT$ CANNOT %E O%;ECT O9 D o !ORT*A*E !ust "e a"solute o'ner %ut future improvements are valid REH#ISITES +urpose Real Alienation Disposal O'nership

The <ortgage credit may be A:!E#ATE0 5 ASS!&#E0 by the creditor to a 7rd person 3 to secure a +rincipal O"ligation 3 must "e registered in Registry of +roperty to pre6udice >rd persons 3 /hen +O "ecomes due, may "e alienated for payment 3 9ree Disposal or &egally AuthoriLed to do so 3 A"solute o'nership of thing mortgaged 3 3 Assignee may also foreclose mortgage in case of default Alienation or assignment is valid even if not registered

4hen the property is alienated to a 7rd person, the creditor can claim from such 7rd person the part of the credit secured by the property in the latter6s possession

JEven '1o registration, there is already a valid mortgage "et'een parties :O/ TO ENTER JEN LAYGO 2D 05

There must "e prior demand to de"tor and the latter failed to pay, "efore going after the property possessed >rd person 4must "e possession in concept of an o'ner5

11

SECTRANS FINALS

%ut >rd person is not lia"le for deficiency unless contrary is stipulated :e cannot "e lia"le for more than value of property alienated to him o)ner from alienating immovable

Stipulation forbidding the mortgaged shall be void% 3 3

%ut the mortgage can stipulate that property 'ill not "e further encum"ered - valid stipulation as mere regulation Stipulation that mortgagor must notify m2ee "efore alienating is valid

9OREC&OS#RE O9 REA& !ORT*A*E Default rule8 ;udicial 9oreclosure E8 E(tra6udicial foreclosure only if S+OA stipulated E8 +arties may also stipulate a private sale 9oreigner can "e mortgagee, governed "y RA<>> RA<>> Applies 'hen mortgagee or his successor in interest is dis.ualified to ac.uire or hold lands of the pu"lic domain8 = :e shall not ta)e possession of the mortgaged property during the e(istence of the mortgage $% ept after default and only for the purpose of fore losure0 re ei/ership0 enfor ement or other pro eedings and = In no case e(ceeding Cyears from actual possession = Shall not "id or ta)e part in any sale of such real property in foreclosure 9oreigner mortgagee, ;#DICIA& 9OREC&OS#RE under Act<>> S+OA, E=TRA;#DICIA& 9OREC&OS#RE according to Act><>C No stipulation, ;#DICIA& 9OREC&OS#RE under RuleBG of the RoC !ortgagee %AND, Act><>C applies 7 SecFA of the *eneral %an)ing Act JUDICIAL FORECLOSURE UNDER RULE 68 OF RULES OF COURT +ROCESS !2ee files petition for 6udicial foreclosure in court 'here prop2y situated Court 'ill conduct trial EH#IT$ O9 REDE!+TION +ERIOD Court 'ill promulgate 6udgment 7 order mortgagor to pay de"t '1in ?@3<0@ days from NOTICE of ;udgment 4%oo) says From entry of +udgment5 If mortgagor fails to pay 'ithin period, property shall "e auctioned

;udicial Confirmation of Sale 4Registration of certified copy of final order of the court confirming the sale5 Even after ?@3<0@ day period, E.uity of redemption period actually e(tends to "efore the sale is confirmed After confirmation of sale, purchaser shall "e entitled to possession and all rights of mortgagor are severed !ortgagor cannot redeem anymore *eneral Rule is that there is no redemption after confirmation in ;udicial Sales E(ception is 'hen it comes to %ANDS +roceeds of Sale 'ill "e Disposed8 Costs1E(penses of Sale +rincipal O"ligation and Interests ;unior Encum"rances E(cess M mortgagor Deficiency M !OTION for deficiency 6udgment, may "e on other properties, no need for another court action EXTRA-JUDICIAL FORECLOSURE UNDER ACT 3135 +ROCESS

1. 2.

CO!+&AINT NOTICE O9 SA&E

3 '1 e(ecutive 6udge in prov 'here prop2y situated

3.

4. 5.

- description, date, time, place and principal o"li a +osting in at least > pu"lic places 0@ days "efore sale " +u"lication in Ne'spaper of general circulation ONCE a /EED for ar) east > CONSEC#TI,E /EEDS if value e(ceeds +F@@ +#%&IC A#CTION 3 Time8 ?3Fpm 3 #nder Sheriff16ustice of peace2s direction or N+ 3 Anyone may "id unless e(ceptions stipulated 3 Even if !2ee only "idder, valid, may still redeem 3 !ust "e at least 0 "idders 3 :ighest "idder, "ut if ceiling price stipulated and creditor highest "idder, estopped +ROCEEDS 3 Inade.uacy of price is immaterial, right to redeem 3 E(cess goes to !ortgagor 3 Deficiency must "e collected via court action +OSSESSION 3 if !2or in possession, 'ill retain possession during redemption period of <year from date of sale 3 if purchaser 'ants immediate possession, must file "ond e.ual to <0months rent 3 E(ception8 in %an)s, purchaser may immediately posses upon confirmation of sale In this case, !2or petition the sale to "e set aside and 'rit of possession "e cancelled 12

JEN LAYGO 2D 05

SECTRANS FINALS
REDE!+TION 3 !2or may redeem 'ithin <$EAR from date of e(ecution of Certificate of Sale 3 E(ception8 9oreclosing %an) and !ortgagor is a 6uridical person, right to redeem "efore registration of the certificate of sale "ut not e(ceeding ?@days from foreclosure 3 De"tor, Successor in interest or any 6udgment creditor of de"tor, or any person having 6unior encum"rance on property may redeem 4Sec0G Rule>? ROC5 7. REDE!+TION +RICE3 +urchase price plus interest of <E per month 3 E(cept8 if foreclosing "an), ORI*INA& O%&I plus INETERST at ORI*INA& RATE plus COSTS 3 if !2or sells property to >rd person '1in redemption period, >rd person only "ought the right to redeem the property and the right to possess '1in the redemption period Right of redemption may "e 'aived only if there is fair e(change of value and information "et'een parties !ortgagor can e(ercise right of redemption in same terms even if property is su"se.uently sold to a >rd party EXCEPTIONS UNDER SEC47 OF GENERAL BANKING LAW Applies 'hen foreclosing mortgagee is a %AND Same procedures as 6udicial or e(tra36udicial "ut 'ith ff e(ceptions8 RI*:T TO REDEE! *R8 No right to redeem in ;udicial 9oreclosures E8 9or %an)s, there is still a right to redeem w/in 1 year from registration of the sale REDE!+TION +RICE *R8 In e(tra36udicial foreclosure, the Redemption price is the purchase price plus <E monthly interest E8 In "an)s, redemption price consists of8 principal o"ligation interest on loan at the rate stipulated in mortgage Costs of Sale A#TO!ATIC RI*:T O9 +OSSESSION *R8 mortgagor retains possession '1in redemption period E8 in "an)s, purchaser automatically has right of possession IN;#NCTION JEN LAYGO 2D 05

6.

Anyone 'ho 'ants to en6oin foreclosure instituted "y a "an) may file a "ond to satisfy damage may "e suffered "y in6unction +ERIOD O9 RED!E+TION 9OR ;#RIDICA& +ERSONS *R8 in e(tra36udicial foreclosure, mortgagor may redeem after < year from e(ecution of certificate of sale No distinction "et'een 6uridical and natural persons E8 "an), same rule applies to natural persons %ut 6uridical persons must redeem8 i %efore Registration of Sale ii Not later than ?@DA$S from date of sale RIGHTS OF JUNIOR MORTGAGEE 1. %efore <st !2ee sells, ;! may e(ercise e.uity of redemption vested in !ortgagor Effect8 0 la's govern a Sec0G Rule>? ROC - !2or1De"tor has B@dayts to reim"urse ;! If he fails to do so, ;! o'ns property b. O"licon - rules on payment "y >rd person, ;! only su"rogated in right of first mortgagee 0 /hen e(tra36udicial sale is made, ;! may redeem '1in < year from sale ;+ says ;! should pay price at 'hich property 'as sold 3. +roceeds in e(cess of +O of <st ! shall "e applied to ;! %ut if there is no e(cess, the 0nd !ortgage is E(tinguished F ;! may foreclose on the right of redemption so that he 'ill "e the only one to e(ercise the right 'hen the time comes

V. CHATTEL MORTGAGE
DE9INITION Chattel !ortgage is the contract "y virtue of 'hich personal property is recorded in the Chattel !ortgage Registry as a security for the performance of an o"ligation If the mova"le, instead of "eing recorded, is delivered to the creditor or a >rd person, the contract is a +&ED*E C:ARACTERISTICS < Accessory 0 9ormal > #nilateral 3 secures performance of a principal o"ligation 3 re.uires registration in C! Register for validity 3 produces only o"ligations on creditor to free thing from encum"rance on fulfillment of +O

REH#ISITES < +RINCI+A& O%&I*ATION 13

SECTRANS FINALS
0 > F C A%SO&#TE O/NER 9REE DIS+OSA& or A#T:ORIT$ A&IENATION /:EN +O D#E RECORDED IN C:ATTE& !ORT*A*E RE*ISTR$ a RD 'here mortgagor resides at the time of ma)ing " Resides outside +hils - 'here prop2y situated c If prop2y situated in different province different from 'here !2or resides, RD of %OT: province 'here resides and 'here property is situated - !ust "e signed "y 0 'itnesses C:ATTE& !ORT*A*E +ersonal or mova"le prop2y Not necessary Necessary to "ind >rd persons, in all proper RDs Sec<F of Chattel !ortgage &a' *oes to de"tor1mortgagor +&ED*E +ersonal or mova"le prop2y Necessary for validity +u"lic Document is enough to "ind >rd persons Art0<<0 4intervention of N+ 7 pu"lic auction5 *oes to pledge1creditor unless stipulated Cannot recover even if 'ith stipulation F *eneral rule is you can2t mortgage future property E(ception is inventory of retail stores "ec SC treats it as actually rene'al or replenishment of goods on hand at constitution of C! /hen mortgagor pays principal o"ligation, he gets a DISC:AR*E from mortgagee and can cancel lien on mova"le

S! Delivery Registration +rocedure for Sale E(cess Deficiency

#+ON DE9A#&T < RI*:T O9 REDE!+TION 3 In case of default, the ff may redeem8 i !ortgagor ii Su"se.uent !ortgagee 4;unior Encum"rances5 iii Su"se.uent Attaching Creditor 3 If attaching creditor redeems, he is S#%RO*ATED to rights of the mortgagor, he can foreclose mortgage 3 +O P COSTS 7 E(penses M su"rogated 3 3o redemption on e property is sold0 must redeem before sale) 0 RI*:T O9 !ORT*A*EE TO +OSSESSION 3 !2ee has implied right to foreclose 3 If !2or refuses to give possession, creditor may file action for RE+&E,IN or action for ;#DICIA& 9OREC&OS#RE

Ca" recover e(cept if covered "y Recto &a' CHATTEL MORTGAGE LAW < 0

Even if not registered in C! Registry, still "inding "et'een parties Registration creates a real right or lien, 'herever property goes It gives mortgagee sym"olic possession FORM OF OATH / AFFIDAVIT OF GOOD FAITH 2e se/erally swear that the foregoing mortgage is made for the purpose of se uring the obligation spe ified in the onditions thereof0 and for no other purpose0 and that the same is a +ust and /alid obligation0 and one not entered into for the purpose of fraud)

>

9OREC&OS#RE < 9I&E CO!+&AINT 9OR 9OREC&OS#RE 0 NOTICE O9 SA&E i +osting at 0 or more pu"lic places in municipality ii. +ersonal Notice to !2or and ;unior !2ees at least <@ days "efore the sale +#%&IC A#CTION i. !ust "e >@ days after default ii No ma( time for holding sale iii If !2or sells '1in >@days '1o consent of !2ee, he is lia"le for deceits, a)in to estafa iv Anyone may "id, unless stipulated v Even if !2ee is sole "idder - "ec of redemption +ROCEEDS i Applied to8 < Costs 0 O"ligation > Su"se.uent mortgages F %alance given to mortgagor 14

>

3
3 >

If '1o affidavit of *9, still "inding "et'een parties "ut not to > rd persons "ecause of lac) of formality %ut mortgage 'ill not "e preferred against >rd persons +urpose of A*9 is to hold parties criminally lia"le for per6ury in case of misrepresentation

C! cannot "e constituted on future o"ligations !ust "e e(isting principal o"ligation A*9 says Nfor no other purpose O 3 ;+ says "inding "et'een parties "ut not to >rd persons 3 They should e(ecute a ne' C! Contract

JEN LAYGO 2D 05

SECTRANS FINALS
ii iii C E(cess8 6unior liens and encum"rances then !2or Deficiency8 9ile separate Action for Deficiency It is not essential that interest must "e stipulated in the principal contract 4here must be an e%press stipulation that the reditor is to A**L5 4"$ FR6!4S to the payment of interest then prin ipal) Mere gi/ing of possession is not indi ati/e of anti hresis R#&ES8 < Actual !ar)et ,alue of the fruits at TI!E O9 A++&ICATION to interest and principal shall "e the measure of such application 3 Can stipulate "et'een mar)et value at time of application or value at time of constitution - no more #sury &a' Amount of +rincipal and of Interest shall "e specified in /RITIN*, other'ise the D of A is ,OID 3 Re.2t is necessary for validity, not merely to "ind >rd persons 3 If antichresis void, principal o"ligation still valid Creditor is o"liged to pay8 a Ta(es and charges " E(penses necessary for preservation and repair c Sums spent for such e(penses shall "e deducted from 9R#ITS 3 3 if creditor does not pay ta(es, he has to pay Indemnity for Damages to de"tor If de"tor pays ta(es 'hich creditor must pay, the amount is to "e applied to the payment of the de"t If the amount paid e(ceeds the principal o"li, "oth the loan and antichresis are e(tinguished and creditor has to return property to de"tor

+OSSESSION i +ossession retained "y !2or during redemption ii If purchaser 'ants possession, 'rit of possession plus "ond for <0months rent REDE!+TION E.uity of Redemption i <$EAR from date of registration of certificate of sale ii /ho may redeemK !ortgagor, Su"se.uent !ortgagee and Su"se.uent Attaching Creditor

6.

Implied Trust - 'hen deed of assignment made over shares of stoc) and lender 'ill reconvey upon payment of loan ;+ says implied trust "ecause Art<FCF says conveyance of property made to secure o"ligation is a trust If there2s default, ;+ says o'nership passes to lender1trustee As "et'een a pledge 'ith a deficiency and a guaranty, creditor should collect on the de"t, not as a pledgor Then he should attach the properties pledged The shares can "e sold at an ordinary e(ecution sale, not a foreclosure sale In this 'ay, deficiency can "e recovered "y )inder After e(ecution, lender can go after guarantor for deficiency

>

VI. ANTICHRESIS
DE9INITION %y the contract of antichresis, the creditor ac.uires the right to receive the 9R#ITS of an immova"le of his de"tor, 'ith the o"ligation to apply them to the payment of the INTEREST, if o'ing, then to the +RINCI+A& C:ARACTERISTICS < Accessory 0 9ormal 3 secures performance of a principal o"ligation 3 must "e in /RITIN* 3 Delivery is not re.uired for validity %ut is re.uired in order that creditor may receive the fruits F

De"tor CANNOT reac.uire property '1o first having TOTA&&$ +AID 'hat he o'es creditor 3 If creditor does not 'ant to pay the ta(es and charges8 A Stipulate % :e may Compel de"tor to enter again upon en6oyment of property E(cept 'hen8 contrary stipulation has effect of E=TIN*#IS:IN* ANTIC:RESIS Creditor DOES NOT ACH#IRE O/NERS:I+ of the real estate for non3 payment of the de"t 'ithin the period agreed upon 3 Every stipulation to the contrary is ,OID 3 In case of default, creditor has the ff remedies8 A specific performance 1 collection % sale of property in 6udicial foreclosure 3 ROC

NOTES &a' does not re.uire possession Only on I!!O,A%&E property %oth interest and principal must "e in /RITIN* *R8 antichresis covers A&& 9R#ITS of the encum"ered property E8 Stipulate JEN LAYGO 2D 05

15

SECTRANS FINALS
3 *R8 Creditor cannot ac.uire property "y antichresis - not held in concept of an o'ner E(ception8 if creditor repudiates antichresis B +arties may stipulate that interest "e compensated 'ith fruits of property o"6ect of antichresis a Actual mar)et value of the fruits at time of application b. 9orm of interest in )ind value at date of payment Other characteristics of Antichresis a. A >rd person, not party to the +O, may offer his immova"le under the contract of antichresis for the de"t of another " Contract is INDI,ISI%&E c Indivisi"ility is not affected "y 6oint lia"ility of de"tors d !ay secure all )inds of o"ligations - pure or conditional 4resolutory or suspensive5 R#&ES < A de"tor is lia"le 'ith A&& his property, present and future, for the fulfillment of his o"ligations E8 Su"6ect to e(emptions provided "y la' 4future support, home5 As long as AC+ or C+* su"sists, its property shall not "e among assets ta)en "y assignee for payment of insolvent de"tor2s o"ligations E8 Redounded to the "enefit of the family /hen insolvent de"tor is a co3o'ner 'ith an undivided share in any property, his undivided share shall "e among the assets ta)en for payment of his o"ligations 3 Right "ecomes significant only if properties of de"tor already li.uidated and inventoried and claims of creditors have "een esta"lished

3.

VI. CONCURRENCE AND PREFERENCE OF CREDITS

DE9INITION Concurrence implies possession "y 0 or more creditors of e.ual rights or privileges over the same property or all of the properties of de"tor +reference is the right held "y a creditor to "e preferred in the payment of his claim out of the de"tor2s assets a"ove others NAT#RE 7 E99ECT < An e(ception to *R of payment so strictly construed 0 Does not create an interest in property - preference of app of proceeds > Creditor doesn2t have right to ta)e property or sell it - applies after sale F !ust "e asserted C !ust "e maintained REH#ISITES < 0 or !ORE CREDITORS 0 SE+ARATE AND DISTINCT C&AI!S 3. A&& C&AI!S1DE%TS ARE D#E F SA!E DE%TOR 3 E(cept if natural person gets a discharge under insolvency la's C INS#99ICIENT +RO+ERT$ 3 "ut must "e a"solute o'ner of properties B +ROCEEDIN* /:EREIN CREDITOR CAN 9I&E C&AI!S 3 &i)e insolvency proceedings JEN LAYGO 2D 05

ANTICHRESIS REAL MORTGAGE Same S! Same S! +roperty is delivered to creditor De"tor usually retains possession Creditor only has right to receive Creditor has no right to receive fruits fruits, not a real right "ut has real right over the property 4%ut may "e a real right if registered5 *R8 creditor must pay for ta(es and Creditor has no o"ligation to pay charges upon the estate ta(es and charges E8 contrary stipulation E(pressly stipulated that creditor No o"ligation on part of mortgagee shall apply fruits to payment of to apply fruits to interest then interest, if o'ing, then to principal principal F +roperty held "y insolvent de"tor as a trustee of an e(press or implied TR#ST shall "e e(cluded from insolvency proceedings CLASSIFICATION OF CREDITS I. SPECIAL PREFERRED CREDITS A Spe ifi Mo/able *roperty < D#TIES, TA=ES on the property itself, and 9EES D#E TO T:E STATE !ISA++RO+RIATION, %REAC: O9 TR#ST or !A&9EASANCE "y +#%&IC O99ICIA&S committed in the performance of their duties, on mova"les, money or securities o"tained "y them #N+AID +RICE O9 !O,A%&ES SO&D, on said mova"les, so long as they are in the possession of the de"tor, up to the value of the sameI and if the mova"le has "een resold "y the de"tor and the price is still unpaid, the lien 16

SECTRANS FINALS
may "e enforced on the priceI this right is not lost "y the immo"iliLation of the thing "y destination, provided it has not lost its form, su"stance and identityI neither is the right lost "y the sale of the thing together 'ith other property for a lump sum, 'hen the price thereof can "e determined proportionallyI Credits guaranteed 'ith a +&ED*E so long as the things pledged are in the hands of the creditor, or those guaranteed "y a C:ATTE& !ORT*A*E, upon the things pledged or mortgaged, up to the value thereofI 3 In the foregoing cases, if the mova"les to 'hich the lien or preference attaches have "een 'rongfully ta)en, the creditor may demand them from any possessor, 'ithin >@DA$S from the unla'ful seiLure 3 E(cept for ta(es, no preference among those enumerated 3 9or ta(es to "e preferred, must "e on mova"le itself 3 9or misappropriation, must still "e 'ith the +O and not innocent purchaser 3 +&ED*E - pu"lic instrumentI C:ATTE& ! - C! registry B) Spe ifi !mmo/ables and Real Rights < TA=ES D#E upon the land or "uildingI #N+AID +RICE O9 REA& +RO+ERT$ SO&D, upon the immova"le soldI !ORT*A*E CREDITS recorded in the Registry of +roperty, upon the real estate mortgagedI CREDITS ANNOTATED IN T:E RE*ISTR$ O9 +RO+ERT$, in virtue of a 6udicial order, "y ATTAC:!ENTS or E=EC#TIONS, upon the property affected, and only as to later creditsI 3 E(cept for real property ta(, does not create preference, merely enumerates 3 #npaid price for prop2y sold cannot "e enforced v I+9,, governed "y +D<C0? 3 Credits annotated "y 6udicial order are preferred over credits of the same nature 'hich are registered later #nli)e other special preferred credits, these credits do not share proportionately in the property upon 'hich they are imposed To determine priority among several credits of this )ind, their DATES should "e the "asis The first one to "e registered is prioritiLed JThe claims or credits enumerated in the 0 preceding articles shall "e considered as mortgages or pledges of real or personal property or liens 'ithin the purvie' of legal provisions governing insolvency II. ORDINARY PREFERRED CREDITS JEN LAYGO 2D 05 17 Q<R Credits for services rendered the insolvent "y employees, la"orers, or household helpers for one year preceding the commencement of the proceedings in insolvencyI Q?R Ta(es and assessments due the national government, other than those mentioned in Articles 00F<, No <, and 00F0, No <I Q<@R Ta(es and assessments due any province, other than those referred to in Articles 00F<, No <, and 00F0, No <I Q<<R Ta(es and assessments due any city or municipality, other than those indicated in Articles 00F<, No <, and 00F0, No <I Q<FR Credits 'hich, 'ithout special privilege, appear in QaR a pu"lic instrumentI or Q"R in a final 6udgment, if they have "een the su"6ect of litigation These credits shall have preference among themselves in the order of priority of the dates of the instruments and of the 6udgments, respectively Q<?0FaR 3 Esta"lishes a +RE9ERENCE 3 If there are deficiencies in special preferred credits, must find a heading under Art00FF 'here applica"le Other'ise, it 'ill not "e preferred and 'ill "e treated as a common credit 3 Once the special preferred claims under Art00F< and 00F0 are satisfied, property remaining constitute de"tor2s 9REE +RO+ERT$ This 'ill then "e used to ans'er for claims under ordinary credits 00FF esta"lished a preference, unli)e 00F< and 00F0 3 Also, in 00F< and 00F0, the preference is only as to T:AT S+ECI9IC +RO+ERT$ In 00FF, the preference is 'ith respect to the mass of properties of de"tor remaining after the special preferred claims are satisfied III. COMMON CREDITS Credits of any other )ind or class, or "y any other right or title not comprised in the preceding articles shall en6oy NO +RE9ERENCE

R#&ES < Those under special preferred credits are preferred as to the specific property they pertain to 2. If there are 0 or more credits 'ith respect to the same specific property, they shall "e satisfied pro rata, after payment of duties, ta(es and fees to the State 3. Common credits shall "e paid pro rata regardless of dates

SECTRANS FINALS

VII. INSOLVENCY LAW

> RE!EDIES8 < Suspension of +ayments 0 ,oluntary Insolvency 3 discharge > Involuntary Insolvency 3 discharge JSecurity creditors 1 secured claims are not covered "y Insolvency la', they have option of foreclosing securities instead SUSPENSION OF PAYMENTS +ostponement, "y court order, of the payment of de"ts of one 'ho, 'hile possessing sufficient property to cover his de"ts, foresees the impossi"ility of meeting them 'hen they respectively fall due Solvent "ut not &i.uid
/:O !A$ REH2TS UNDER 90 !A A corporation UNDER INSOLVENCY LAW Natural or ;uridical +erson SO&,ENT - sufficient prop2y NOT &IH#ID - foresee impossi"ility of meeting all 'hen they fall due +etitioning he "e declared in state of suspension of payment RTC 'here de"tor resided for Bmonths prior < No disposition of property may "e made "y the de"tor e(cept in ordinary course of "usiness 0 No payments may "e made "y de"tor e(cept in ordinary course of "usiness > #pon re.uest to the court, all pending e(ecutions against de"tor shall "e suspended e(cept e(ecution against prop2y especially mortgaged < De"tor must "e solvent "ut not li.uid 0 Creditors have a say > Secured creditors are not suspended and may foreclose

" c d

DE%TS AND &IA%I&ITIES STATE!ENT O9 ASSETS 7 &IA%I&ITIES +RO+OSED A*REE!ENT

2. 3. 4.

Court 'ill issue ORDER calling for the meeting of all creditors !eeting shall ta)e place 03G 'ee)s from date of order Order 'ill "e +#%&IS:ED and NOTICE sent to all creditors of de"tor !EETIN* of Creditors 3 H#OR#! REH#IRE!ENT - to have a valid meeting, creditors present must represent at least B@E of the total lia"ilities of de"tor Creditors 'ill A++RO,E the proposition 3 !A;ORIT$ REH#IRED 9OR A++RO,A& 3 A DO#%&E !A;ORIT$ consisting of8 a 01> of the num"ers of creditors voting " The 01> must represent at least B@E of the total lia"ilities O%;ECTIONS must "e made 'ithin <@ days after the meeting Court issues order directing agreement to "e CARRIED O#T

1.
0

Solvent "ut not li.uidI or Insolvent 7 under receivership

B A

/:ERE Incidents

RTC < 0 De"tor has continued access to properties *ives de"tor leverage or frame'or) for negotiation

CREDITORS NOT A99ECTED Those 'ho did not appear shall not "e "ound +ersons 'ith claims for personal la"or, maintenance, e(pense of last illness and funeral of the 'ife or children of the de"tor incurred in the B@days immediately preceding to filing +ersons having legal or contractual mortgages They can foreclose upon default *RO#NDS 9OR H#ESTIONIN* !EETIN* < +rocedural Defects 0 > 9raudulent Connivance - legal to give incentives "ut not "ri"es 9raudulent Conveyance

Advantages

< 0 >

!ore lenient Even if under receivership only, may file Only the court decides Even secured creditors are suspended

*R7C$D6R$ F7R S6S*$3S!73 7F *A5M$34 63D$R !3S7L8$3C5 LA2

1.

9ile +ETITION in RTC 'here de"tor resides Bmonths prior +etition shall "e accompanied "y8 a ,ERI9IED &IST O9 A&& CREDITORS

VOLUNTARY INSOLVENCY An insolvent de"tor 'hose lia"ilities e(ceed +<@@@ may apply to "e discharged from his de"ts and lia"ilities "y filing a petition for voluntary 18

JEN LAYGO 2D 05

SECTRANS FINALS
insolvency in the RTC 'here he has resided for the last Bmonths prior to filing In involuntary insolvency, the de"tor himself is the petitioner
INSO&,ENC$ +urpose Solvency of De"tor Effect on Amount of Inde"tedness Num"er of Creditors To discharge the de"tor from the payment of de"ts De"tor does not have sufficient property to pay his de"ts Amount is affected Creditors receive less than their creditsI and 'here there are preferences, some creditors may not receive anything at all There must "e > or more creditors if it is involuntary insolvency S#S+ENSION O9 +A$!ENTS To suspend or delay payment of de"ts De"tor has sufficient property to pay his de"ts The amount of inde"tedness is not affected The num"er of creditors is immaterial

Effects of Order8 Sheriff ta)es possession of all assets not e(empt +rohi"ited acts8 +ayment to de"tor of de"ts due to him Delivery to de"tor or to any person for him, any property "elonging to him Transfer of any property "y him All civil proceedings against de"tor are stayed !ortgages, pledges, attachments or e(ecutions on property of de"tor duly recorded and not dissolved are not affected "y order INVOLUNTARY INSOLVENCY +urpose is to impound all of the non3e(empt properties of the de"tor, to distri"ute it e.uita"ly among his creditors and to release him from further lia"ility
Num"er of Creditors +etitioner Acts of Insolvency Amount of Inde"tedness %ond :earing Residency Re.uirement Issuance of Order of Ad6udication declaring De"tor Insolvent VOLUNTARY < creditor is sufficient Insolvent de"tor De"tor must not "e guilty of any act of insolvency !ust "e greater than +<@@@ Not re.uired Not necessary, may "e granted e( parte 9iled 'ith RTC 'here de"tor resided Bmonths prior #pon the filing of the voluntary petition INVOLUNTARY > or more creditors > or more creditors 'ho possess .ualifications De"tor must have committed < or more of <> acts !ust "e +<@@@ or more +etition must "e accompanied "y a "ond +etition granted only after hearing RTC 'here de"tor resides or his place of "usiness, no residency re.uirement #pon hearing of the case

+ROCED#RE 1. 9iling of +ETITION, containing8 a De"tor2s place of residence and period of residence " :is ina"ility to pay all his de"ts in full c /illingness to surrender all his property, estate and effects not e(empt from e(ecution for the "enefit of his creditors d An application to "e ad6udged insolvent 0 +etition shall "e accompanied "y8 a A verified SC:ED#&E containing8 i 9ull and true statement of all de"ts and lia"ilities ii. 9acts 'hich give rise or 'hich may give rise to cause of action against insolvent de"tor " A verified IN,ENTOR$ containing8 i Description of all personal and real properties, 'hether e(empt or not, value, location and encum"rance ii. 9acts 'hich give rise to action in fa/or of insolvent de"tor

3. 4. 5.
B A G ? <@ <<

Court issues and ORDER O9 AD;#DICATION - no hearing, voluntary +#%&ICATION AND SER,ICE of order to creditors !EETIN* of Creditors to elect ASSI*NEE CON,E$ANCE of de"tor2s property "y Cler) of Court to Assignee &IH#IDATION of de"tor2s assets and payment of hid de"ts CO!+OSITION DISC:AR*E, e(cept if de"tor is a corporation O%;ECTION A++EA& to SC

REH#IRE!ENTS +ETITIONERS < At least > creditors of < de"tor 0 Creditors are residents of the +:I&S > Credits accrued in the +hils F Aggregate amount is at least +<@@@ 19

JEN LAYGO 2D 05

SECTRANS FINALS
C Should not have accrued '1in >@ days prior to filing of petition +ETITION < ,erified "y the petitioners 0 Sets forth < or more acts of insolvency > Accompanied "y a %OND approved "y court 'ith at least 0 sureties > Dinds of Acts of Insolvency < %y de"tor to ensure that de"tor 'ill not "e a"le to pay 0 %y de"tor in fraud of creditors > %y de"tor, giving preference to < creditor against other creditors PROCEDURE 9ile petition "y > or more creditors in RTC 'here de"tor resides or place of "usiness Issuance of order re.uiring de"tor to sho' cause Service to de"tor of order 9iling of de"tor2s ans'er or motion to dismiss :earing Issuance of order or decision ad6udging de"tor as insolvent 3 So that pending 6udgment, de"tor cannot dissipate his assets, creditors should as) the court for an in6unction or for a receiver 'ho 'ill hold the properties +u"lication and Service of Order - must attach1garnish assets !eeting of creditors for E&ECTION of assignee 3 elected 'ithin 03G 'ee)s from date of order Conveyance of de"tor2s property &i.uidation of assets and payment of de"ts Composition Discharge O"6ection Appeal to SC ASSIGNEES +erson elected "y creditors or appointed "y the court to 'hom an insolvent de"tor ma)es an assignment of all his property for the "enefit of the creditors The assignment vests title to all the assets of the de"tor in favor of assignee 2ho an parti ipate in $le tion Creditors 'ho have filed their claims in the Cler) of Court at least 0 days prior to scheduled election *eneral rule8 secured creditors cannot, e(cept if they8 < As) for the fi(ing of the value of the security 0 Surrender the security to the sheriff or the receiver Creditors meet and a !A;ORIT$ of %OT: IN N#!%ER AND IN T:E A!O#NT O9 CREDIT they represent should vote for the same assignee If this fails, court 'ill appoint 2hat Assignee should do /ithin Cdays from election, assignee should file %OND '1 0 or more sureties Assignee gets AE for <st +<@@@, CE for greater than +<@@@ "ut less than +<@,@@@, FE for sums e(ceeding +<@,@@@ $ffe ts of Assignment < Assignee ta)es property in same conditions as insolvent held it 2. #pon appointment, legal title to all property is vested in the assignee, and the control of the property is vested in court %ut title of assignee retroa ts to the date of filing for insolvency > All actions shall "e "rought assignee an not "y creditors F Attachment or 6udgment against de"tor >@days "efore filing of insolvency shall "e set aside NOTES8 If any person )no'ing the pending insolvency proceedings, em"eLLles or disposes of any of the insolvent2s property is lia"le for e.ual to dou"le the value of the property em"eLLled1 PARTNERSHIPS AND CORPORATIONS +RO+ERTIES CO,ERED8 < All properties of partnership 0 Separate properties of each of the general partners, E=CE+T8 a Separate properties of limited partners " +roperties 'hich are e(empt "y la' NOTES +artnership may "e declared insolvent even if individual partners are solvent Creditors, after first e(hausting its assets, may proceed against the solvent general partners 'ho are proportionally lia"le 'ith heir separate property +artnership is automatically dissolved "y insolvency of < partner +artners get a discharge, corporations don2t Distribution of 3et *ro eeds of *roperties of *artnership < +artnership property 3 De"ts of partnership 0 Individual property 3 Individual de"ts > Surplus in property of general partner, a proportionate share of such shall "e added to partnership assets and used to pay partnership de"ts 20

JEN LAYGO 2D 05

SECTRANS FINALS
F Surplus in partnership assets shall "e added to assets of individual partners in proportion to their interest in the partnership 0 > F PROOF OF DEBTS DE%TS /:IC: !A$ %E +RO,ED1CO&E&CTED All de"ts due and paya"le at time of ad6udication All de"ts e(isting at time "ut not paya"le until a future time Any de"t of insolvent arising from his lia"ility as indorser, surety, "ailor or guarantor 'here such lia"ility "ecame a"solute after the ad6udication of insolvency "ut "efore the final dividend shall have "een declared Other contingent de"ts 7 lia"ilities contracted "y the insolvent if the contingency shall happen "efore the order of final dividend Any claim for reim"ursement of a person 'ho has ans'ered, in 'hole or in part, for the insolvent2s de"t as "ail, surety or guarantor or other'ise CONTIN*ENT C&AI! A lia"ility 'hich depends on a future and uncertain event A claim "ase don a contingency 'hich has not happened at time of the proceedings cannot "e proved since there is no real claim yet %ut if it happens after the proceedings, creditor can still claim fro de"tor DE%TS /:IC: CANNOT %E +RO,ED < "arred "y prescription 0 secured creditors, unless 'aived > claims of creditors 'ho hold an attachment or e(ecution issued >@days "efore institution F fraudulent preference C Support B Damages from tort 3 3 The discharge granted to the de"tor does not cover those de"ts that could not have "een proved Compensation can "e set up against insolvent only for de"ts arising at least >@days "efore filing DISCHARGE De"tor must as) for discharge 'ithin > months to < year from time he is ad6udicated insolvent It is not automatic Only those de"ts set forth in schedule and those 'hich 'ere or might have "een proved against estate in proceedings are released "y discharge +etition for discharge can "e denied if he is in "ad faith or does acts to pre6udice creditors Discharge can "e revo)ed if creditor can prove it 'as fraudulently o"tained Creditor must file action 'ithin <year from date of discharge FRAUDULENT PREFERENCES & TRANSFERS A parting 'ith the property of insolvent for "enefit of a creditor 'ith result that estate of insolvent is diminished, to pre6udice of other creditors Fraudulent *referen e( disposition by debtor under onditions( < he is Insolvent or in contemplation of insolvency 0 made 'ithin >@days from filing of petition > 'ith a vie' to giving preference to any creditor F person receiving "enefit has reason to "elieve that de"tor is insolvent and transfer is made to defeat rights of other creditors Fraudulent Con/eyan e / 4ransfer Any disposition made "y insolvent >@days "efore filing, E=CE+T 9OR ,A&#A%&E CONSIDERATION AND IN *OOD 9AIT: Status of 9raudulent Conveyance /ithin >@days from filing ,OID After filing RESCISSI%&E !ay file criminal complaint +resumption of 9RA#D < Not made in usual and ordinary course of "usiness of de"tor 0 !ade under a confession of 6udgment Offer accepted in 'riting "y a DO#%&E !A;ORIT$ of creditors !ade after depositing the consideration to "e paid and the cost of proceedings Court must approve terms of compensation

COMPOSITIONS An agreement made upon sufficient consideration "et'een insolvent and all creditors 'here"y the creditors agree to accept a dividend less than the amount of their claims, for the sa)e of getting paid sooner REH#ISITES < offer of the terms of composition made after filing of the schedule and list of creditors JEN LAYGO 2D 05

21

SECTRANS FINALS
Art <?A@ If a person having capacity to contract accepts a deposit made "y one 'ho is incapacitated, the former shall "e su"6ect to all the o"ligations of a depositary, and may "e compelled to return the thing "y the guardian, or administrator, of the person 'ho made the deposit, or "y the latter himself if he should ac.uire capacity Q<ABFR

VIII. DEPOSIT
C:A+TER < DE+OSIT IN *ENERA& AND ITS DI99ERENT DINDS Art <?B0 A deposit is constituted from the moment a person receives a thing "elonging to another, 'ith the o"ligation of safely )eeping it and of returning the same If the safe)eeping of the thing delivered is not the principal purpose of the contract, there is no deposit "ut some other contract Q<ACGaR Art <?B> An agreement to constitute a deposit is "inding, "ut the deposit itself is not perfected until the delivery of the thing QnR Art <?BF A deposit may "e constituted 6udicially or e(tra6udicially Q<AC?R Art <?BC A deposit is a gratuitous contract, e(cept 'hen there is an agreement to the contrary, or unless the depositary is engaged in the "usiness of storing goods Q<AB@aR Art <?BB Only mova"le things may "e the o"6ect of a deposit Q<AB<R Art <?BA An e(tra6udicial deposit is either voluntary or necessary Q<AB0R C:A+TER 0 ,O&#NTAR$ DE+OSIT SECTION < 3 *eneral +rovisions Art <?BG A voluntary deposit is that 'herein the delivery is made "y the 'ill of the depositor A deposit may also "e made "y t'o or more persons each of 'hom "elieves himself entitled to the thing deposited 'ith a third person, 'ho shall deliver it in a proper case to the one to 'hom it "elongs Q<AB>R Art <?B? A contract of deposit may "e entered into orally or in 'riting QnR

Art <?A< If the deposit has "een made "y a capacitated person 'ith another 'ho is not, the depositor shall only have an action to recover the thing deposited 'hile it is still in the possession of the depositary, or to compel the latter to pay him the amount "y 'hich he may have enriched or "enefited himself 'ith the thing or its price :o'ever, if a third person 'ho ac.uired the thing acted in "ad faith, the depositor may "ring an action against him for its recovery Q<ABCaR SECTION 0 3 O"ligations of the Depositary Art <?A0 The depositary is o"liged to )eep the thing safely and to return it, 'hen re.uired, to the depositor, or to his heirs and successors, or to the person 'ho may have "een designated in the contract :is responsi"ility, 'ith regard to the safe)eeping and the loss of the thing, shall "e governed "y the provisions of Title I of this %oo) If the deposit is gratuitous, this fact shall "e ta)en into account in determining the degree of care that the depositary must o"serve Q<ABBaR Art <?A> #nless there is a stipulation to the contrary, the depositary cannot deposit the thing 'ith a third person If deposit 'ith a third person is allo'ed, the depositary is lia"le for the loss if he deposited the thing 'ith a person 'ho is manifestly careless or unfit The depositary is responsi"le for the negligence of his employees QnR Art <?AF The depositary may change the 'ay of the deposit if under the circumstances he may reasona"ly presume that the depositor 'ould consent to the change if he )ne' of the facts of the situation :o'ever, "efore the depositary may ma)e such change, he shall notify the depositor thereof and 'ait for his decision, unless delay 'ould cause danger QnR

Art <?AC The depositary holding certificates, "onds, securities or instruments 'hich earn interest shall "e "ound to collect the latter 'hen it "ecomes due, and to ta)e such steps as may "e necessary in order that the securities may preserve their value and the rights corresponding to them according to la' The a"ove provision shall not apply to contracts for the rent of safety deposit "o(es QnR

JEN LAYGO 2D 05

22

SECTRANS FINALS
Art <?AB #nless there is a stipulation to the contrary, the depositary may commingle grain or other articles of the same )ind and .uality, in 'hich case the various depositors shall o'n or have a proportionate interest in the mass QnR Art <?AA The depositary cannot ma)e use of the thing deposited 'ithout the e(press permission of the depositor Other'ise, he shall "e lia"le for damages :o'ever, 'hen the preservation of the thing deposited re.uires its use, it must "e used "ut only for that purpose Q<ABAaR Art <?AG /hen the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and "ecomes a loan or commodatum, e(cept 'here safe)eeping is still the principal purpose of the contract The permission shall not "e presumed, and its e(istence must "e proved Q<ABGaR Art <?A? The depositary is lia"le for the loss of the thing through a fortuitous event8 Q<R If it is so stipulatedI Q0R If he uses the thing 'ithout the depositorSs permissionI Q>R If he delays its returnI QFR If he allo's others to use it, even though he himself may have "een authoriLed to use the same QnR Art <?G@ 9i(ed, savings, and current deposits of money in "an)s and similar institutions shall "e governed "y the provisions concerning simple loan QnR Art <?G< /hen the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall "e lia"le for damages should the seal or loc) "e "ro)en through his fault 9ault on the part of the depositary is presumed, unless there is proof to the contrary As regards the value of the thing deposited, the statement of the depositor shall "e accepted, 'hen the forci"le opening is imputa"le to the depositary, should there "e no proof to the contrary :o'ever, the courts may pass upon the credi"ility of the depositor 'ith respect to the value claimed "y him /hen the seal or loc) is "ro)en, 'ith or 'ithout the depositarySs fault, he shall )eep the secret of the deposit Q<AB?aR Art <?G0 /hen it "ecomes necessary to open a loc)ed "o( or receptacle, the depositary is presumed authoriLed to do so, if the )ey has "een delivered to himI or 'hen the instructions of the depositor as regards the deposit cannot "e e(ecuted 'ithout opening the "o( or receptacle QnR Art <?G> The thing deposited shall "e returned 'ith all its products, accessories and accessions JEN LAYGO 2D 05 Should the deposit consist of money, the provisions relative to agents in article <G?B shall "e applied to the depositary Q<AA@R Art <?GF The depositary cannot demand that the depositor prove his o'nership of the thing deposited Nevertheless, should he discover that the thing has "een stolen and 'ho its true o'ner is, he must advise the latter of the deposit If the o'ner, in spite of such information, does not claim it 'ithin the period of one month, the depositary shall "e relieved of all responsi"ility "y returning the thing deposited to the depositor If the depositary has reasona"le grounds to "elieve that the thing has not "een la'fully ac.uired "y the depositor, the former may return the same Q<AA<aR Art <?GC /hen there are t'o or more depositors, if they are not solidary, and the thing admits of division, each one cannot demand more than his share /hen there is solidarity or the thing does not admit of division, the provisions of Articles <0<0 and <0<F shall govern :o'ever, if there is a stipulation that the thing should "e returned to one of the depositors, the depositary shall return it only to the person designated Q<AA0aR Art <?GB If the depositor should lose his capacity to contract after having made the deposit, the thing cannot "e returned e(cept to the persons 'ho may have the administration of his property and rights Q<AA>R Art <?GA If at the time the deposit 'as made a place 'as designated for the return of the thing, the depositary must ta)e the thing deposited to such placeI "ut the e(penses for transportation shall "e "orne "y the depositor If no place has "een designated for the return, it shall "e made 'here the thing deposited may "e, even if it should not "e the same place 'here the deposit 'as made, provided that there 'as no malice on the part of the depositary Q<AAFR Art <?GG The thing deposited must "e returned to the depositor upon demand, even though a specified period or time for such return may have "een fi(ed This provision shall not apply 'hen the thing is 6udicially attached 'hile in the depositarySs possession, or should he have "een notified of the opposition of a third person to the return or the removal of the thing deposited In these cases, the depositary must immediately inform the depositor of the attachment or opposition Q<AACR Art <?G? #nless the deposit is for a valua"le consideration, the depositary 'ho may have 6ustifia"le reasons for not )eeping the thing deposited may, even "efore the time designated, return it to the depositorI and if the latter should refuse to receive it, the depositary may secure its consignation from the court Q<AABaR 23

SECTRANS FINALS
Art <??@ If the depositary "y force ma6eure or government order loses the thing and receives money or another thing in its place, he shall deliver the sum or other thing to the depositor Q<AAAaR Art <??< The depositorSs heir 'ho in good faith may have sold the thing 'hich he did not )no' 'as deposited, shall only "e "ound to return the price he may have received or to assign his right of action against the "uyer in case the price has not "een paid him Q<AAGR SECTION > 3 O"ligations of the Depositor Art <??0 If the deposit is gratuitous, the depositor is o"liged to reim"urse the depositary for the e(penses he may have incurred for the preservation of the thing deposited Q<AA?aR Art <??> The depositor shall reim"urse the depositary for any loss arising from character of the thing deposited, unless at the time of the constitution of deposit the former 'as not a'are of, or 'as not e(pected to )no' dangerous character of the thing, or unless he notified the depositary of same, or the latter 'as a'are of it 'ithout advice from the depositor QnR the the the the Art <??G The deposit of effects made "y the travellers in hotels or inns shall also "e regarded as necessary The )eepers of hotels or inns shall "e responsi"le for them as depositaries, provided that notice 'as given to them, or to their employees, of the effects "rought "y the guests and that, on the part of the latter, they ta)e the precautions 'hich said hotel3)eepers or their su"stitutes advised relative to the care and vigilance of their effects Q<AG>R Art <??? The hotel3)eeper is lia"le for the vehicles, animals and articles 'hich have "een introduced or placed in the anne(es of the hotel QnR Art 0@@@ The responsi"ility referred to in the t'o preceding articles shall include the loss of, or in6ury to the personal property of the guests caused "y the servants or employees of the )eepers of hotels or inns as 'ell as strangersI "ut not that 'hich may proceed from any force ma6eure The fact that travellers are constrained to rely on the vigilance of the )eeper of the hotels or inns shall "e considered in determining the degree of care re.uired of him Q<AGFaR Art 0@@< The act of a thief or ro""er, 'ho has entered the hotel is not deemed force ma6eure, unless it is done 'ith the use of arms or through an irresisti"le force QnR Art 0@@0 The hotel3)eeper is not lia"le for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things "rought into the hotel QnR Art 0@@> The hotel3)eeper cannot free himself from responsi"ility "y posting notices to the effect that he is not lia"le for the articles "rought "y the guest Any stipulation "et'een the hotel3)eeper and the guest 'here"y the responsi"ility of the former as set forth in articles <??G to 0@@< is suppressed or diminished shall "e void QnR Art 0@@F The hotel3)eeper has a right to retain the things "rought into the hotel "y the guest, as a security for credits on account of lodging, and supplies usually furnished to hotel guests QnR C:A+TER F SEH#ESTRATION OR ;#DICIA& DE+OSIT Art 0@@C A 6udicial deposit or se.uestration ta)es place 'hen an attachment or seiLure of property in litigation is ordered Q<AGCR

Art <??F The depositary may retain the thing in pledge until the full payment of 'hat may "e due him "y reason of the deposit Q<AG@R Art <??C A deposit its e(tinguished8 Q<R #pon the loss or destruction of the thing depositedI Q0R In case of a gratuitous deposit, upon the death of either the depositor or the depositary QnR C:A+TER > NECESSAR$ DE+OSIT Art <??B A deposit is necessary8 Q<R /hen it is made in compliance 'ith a legal o"ligationI Q0R /hen it ta)es place on the occasion of any calamity, such as fire, storm, flood, pillage, ship'rec), or other similar events Q<AG<aR Art <??A The deposit referred to in No < of the preceding article shall "e governed "y the provisions of the la' esta"lishing it, and in case of its deficiency, "y the rules on voluntary deposit The deposit mentioned in No 0 of the preceding article shall "e regulated "y the provisions concerning voluntary deposit and "y Article 0<BG Q<AG0R JEN LAYGO 2D 05

24

SECTRANS FINALS
Art 0@@B !ova"le as 'ell as immova"le property may "e the o"6ect of se.uestration Q<AGBR

Art 0@@A The depositary of property or o"6ects se.uestrated cannot "e relieved of his responsi"ility until the controversy 'hich gave rise thereto has come to an end, unless the court so orders Q<AGAaR Art 0@@G The depositary of property se.uestrated is "ound to comply, 'ith respect to the same, 'ith all the o"ligations of a good father of a family Q<AGGR Art 0@@? As to matters not provided for in this Code, 6udicial se.uestration shall "e governed "y the Rules of Court Q<AG?R

9 $3D 9

JEN LAYGO 2D 05

25