OUTLINE/ LECTURE ON d) Discounting.

Mode of lending money where interest is withheld

CREDIT TRANSACTIONS in advance.
e) Revolving Credit.- A credit line is “that amount of money or
By: Atty. Eduardo T. Reyes, III merchandise which a banker, merchant, or supplier agrees to supply
(Prepared for Law 4-C, to a person on credit and generally agreed to in advance. It is the fixed
Univ. of San Agustin Law School, limit of credit granted by a bank, retailer, or credit card issuer to a
SY 2016-2017)
customer, to the full extent of which the latter may avail himself of his
I. Contract of Loan. dealings with the former but which he must not exceed and is usually
intended to cover a series of transactions in which case, when the
1.1.Defined. By the contract of loan, one of the parties called the customer’s line of credit is nearly exhausted, he is expected to reduce
bailor or lender delivers to another called the borrower or bailee, either his indebtedness by payments before making any further drawings”[2].
something not consumable so that the latter may use the same for a f) Credit Card. – “The issuance of a credit card allows the holder
certain time and return it, in which case it is called a commodatum ; or thereof to obtain, on credit, goods, and services from certain
money or other consumable thing, upon the condition that the same establishments. As proof that this credit is extended by the
amount of the same kind and quality shall be paid, in which case the establishment, a credit card draft is issued. Thereafter, the company
contract is simply a loan or mutuum. issuing the credit card will pay for the purchases of the credit card
holders by redeeming the drafts. The obligation to collect from the card
1.2.Characteristics. holders and to bear the loss- in case they do not pay- rests on the
issuer of the credit card”[3].
a) Real Contract. Commodatum or simple loan is PERFECTED Three contracts. (1) Contract of sale between the card holder and the
upon delivery of the object of the contract. merchant or business establishment that accepted the credit card; (2)
b) Unilateral. There is NO contract of loan before delivery by the The loan agreement between the credit card holder and the credit card
lender. However, in Development Bank of the Phils v. Guarina issuer; and (3) The promise to pay between the credit card issuer and
Agricultural and Realty Development Corp.,[1] it was held that “x x x the merchant or business establishment”[4].
a loan requires the delivery of money or any other consumable object No Duty to Approve. “From the loan agreement perspective, the
by one party to another who acquires ownership thereof, on the contractual relationship begins to exist only upon the meeting of the
condition that the same amount or quality shall be paid. Loan is a offer and acceptance of the parties involved. In more concrete
reciprocal obligation, as it arises from the same cause where one terms, when cardholders use their credit cards to pay for their
party in a reciprocal obligation is dependent upon the obligation of the purchases, they merely offer to enter into loan agreements with
other, and the performance should ideally be simultaneous.” the credit card company. Only after the latter approves the
purchase requests that the parties enter into binding loan
1.3. Kinds of Loan contracts, in keeping with Article 1319 of the Civil Code x x x”[5].

a) Commodatum
b) Mutuum
c) Accepted promise to loan (Art. 1934). This is a CONSENSUAL
contract which is preparatory to a contract of loan.
SUMMARY OF RULES AND DISTINCTIONS it is purely PERSONAL
BETWEEN COMMODATUM, SIMPLE LOAN AND DEPOSIT[6] in character.[10] If for compensation-
Death of the depositor
and or the depositary
COMMODATUM SIMPLE LOAN VOLUNTARY DEPOSIT DOES NOT extinguish
The purpose is the use The purpose is for the The purpose is safe- the deposit.
of the thing. borrower to consume keeping. Generally, the bailor The bailee-borrower Generally, the depositor
what was borrowed. bears the loss of the bears the loss of the thing bears the loss of the
NOTE: Use of the fruits thing due to fortuitous delivered. Res perit thing due to fortuitous
is not included unless event. domino. event.
expressly provided
The bailor/ lender need The lender- bailor must be The depositor need not
for.[7]
not be the owner of the the owner or at least be the owner of the thing
Real contract perfected Real Contract Real Contract thing loaned. capable of transferring deposited. However, the
upon delivery. ownership. depositary CANNOT be
Movable and Involves Movables (1) Extrajudicial the owner of the thing
Immovable Things Deposit- Movables deposited.
only[8] Generally, the lender The lender- bailor must The depositor can
(2) Judicial Deposit- must wait for the wait for the expiration of demand the return of the
Movable and Immovable expiration of the period the period agreed upon. thing at anytime.
Essentially Gratuitous May be Gratuitous or May be Gratuitous or agreed upon or the
Onerous (Example: If Onerous accomplishment of the
NOTE: If onerous or interest is payable) use for which the
compensation is paid, commodatum has been
then contract may be constituted.[12]
Lease.[9]
The object is generally The object is money or Consumable or non- Exceptions: (1) In case
non-consumable other fungible things. consumable although for of urgent need[13], (2)
safekeeping only In Precarium[14]
EXCEPTION: If the
purpose is not for
consumption but for
exhibition. II. Commodatum. The main purpose is USE of the thing
Bailor/ Lender retains Bailor/ Lender becomes Depositor retains loaned. But the right to the FRUITS is retained by the OWNER. Thus
ownership of the thing the owner of the thing ownership of the thing the distinction from USUFRUCT whereby the usufructuary gets to
delivered delivered delivered enjoy the right to use and to the fruits.
There is an obligation to The bailee/ borrower The Depositary must
return the same thing. becomes the owner; return the same thing.
hence, there is no -It is also ESSENTIALLY GRATUITOUS and TEMPORARY because
obligation to return the the agreement is subject to a term or period. Pursuant to Article
same thing. 1935, “If any compensation is to be paid by him who acquires the
Death of the lender or Death of the lender does If gratuitous deposit- use, the contract ceases to be a commodatum”.
the borrower not extinguish the loan. Death of the depositor or
extinguishes the depositary
Commodatum because extinguishes the - General rule: Object is “non-consumable goods”.
deposit.[11]
- Exception: When consumable goods is USED merely for a. As part of the duty to exercise due diligence, the bailee is obliged
exhibition. In Producers Bank of the Philippines v. Hon. Court of to pay for the ordinary expenses for the use and preservation of the
Appeals[15], the agreement to deposit respondent’s money in a thing loaned. If the thing loaned is a gasoline generator set, the bailee
savings account specifically for the purpose of making it appear that must shoulder the gasoline cost because the same cost is for the use
said firm had sufficient capitalization for incorporation, with the of the thing loaned. Similarly, the bailee is liable for the expenses for
promise that the amount shall be returned within 30 days the regular routine cleaning of the generator set because the same is
is commodatum. an expense for the preservation of the thing loaned.
b. However, the bailee does not answer for the deterioration of the
- PERSONAL IN NATURE. Commodatum is purely personal in thing loaned due only to the use thereof and without his fault. Justice
character. Consequences: a. death of either bailor or bailee J.B.L. Reyes opined that the provision should be taken to refer only to
extinguishes the contract; b. bailee cannot lease the object of the the “normal” use of the thing loaned. It should be noted that the bailee
contract to a third person. However, the members of the bailee’s is even liable for extraordinary expenses arising from the use of the
household may make use of the thing loaned, unless there is a thing.[17]”
stipulation to the contrary, or unless the nature of the thing forbids
such use.[16] LOSS. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event in the following cases:
2.1. Obligations of the Bailee.
(1) He devotes the thing to any purpose different from that for which
(1) To exercise due diligence while in possession of the thing loaned. it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
(2) To pay ordinary expenses for the use and preservation of the thing accomplishment of the use for which the commodatum has been
loaned. constituted;
(3) If the thing loaned has been delivered with appraisal of its value,
(3) To be responsible for the loss of the thing in the cases specified in unless there is a stipulation exempting the bailee from responsibility in
Article 1942 case of a fortuitous event
(4) If he lends or leases the thing to a third person, who is not a
(4) To be liable for any loss or injury caused because of the bailee’s member of his household;
fault or negligence; and, (5) If, being able to save either the thing borrowed or his own thing, he
chose to save the latter.
(5) To return the thing upon the expiration of the term of the contract.
RIGHT OF RETENTION:

Expenses for Preservation. “If a person is obliged to return a GENERAL RULE: The bailee cannot retain the thing loaned on the
determinate thing, he must exercise the diligence of a good father of ground that the bailor owes him something, even though it may be by
a family in taking care of the thing. The bailee is liable for breach of reason of expenses.
this duty, hence, the bailee is liable for any loss due to his negligence. EXCEPTION: However, the bailee has a right of retention for
damages mentioned in Article 1951, i.e., the bailor is liable to the
bailee if the bailee was damaged because of a flaw or defect in the provides for the same grounds for revocation of donation as grounds
thing of which the bailor was aware. The bailor cannot exempt himself for revocation of commodatum.
from liability by abandoning the thing.

SOLIDARY LIABILITY. – “When there are two or more bailees to 3. Simple Loan or Mutuum . A person who receives a loan of
whom a thing is loaned in the same contract, they are liable money or any other fungible thing acquires the ownership thereof, and
solidarily[18]”. is bound to pay to the creditor an equal amount of the same kind and
quality.[20]
2.2. Obligations of the Bailor
3.1. Money or Fungibles. The contract of mutuum requires the
General Rule: Bailor cannot demand the return of thing until after the receipt of money or other fungible things. Fungibility refers to the
expiration of the period stipulated or accomplishment of the use for capability of the object to be substituted by another of the same kind,
which commodatum was constituted. quantity or quality.
3.2. Transfer of Ownership. In mutuum, ownership is
Exceptions: transferred to the borrower. Hence, in simple loan, the failure of the
borrower to return the object does not give rise to estafa.
a) PRECARIUM- In precarium, the bailor may demand the thing at 3.3. Interest . requisites.
will. 1)If neither the duration of the contract nor the use to which the
thing loaned should be devoted has been stipulated; or, 2) If the use a) Payment of interest is agreed upon;
of the thing is merely tolerated by the owner. b) Stipulation to Pay Interest must be in writing;
c) Rate must not be against the law (not usurious or
“It was opined that the second case of precarium should be taken as unconscionable)
a case where the “use of the thing was understood to have been
granted subject to the revocation at anytime by the bailor. Justice
J.B.L. Reyes observed that: “Commodatum being a gratuitous loan of “In summary, the rules (on interest) may be presented in tabular form
the use of a thing, it necessarily implies toleration of such use. Unless as follows:
the term ‘tolerated’ is limited, all commodatum will be ‘precarium’
under this rule. Moreover, the use of the term ‘owner’ for ‘bailor’ is TYPE OF INTEREST DUE ADDITIONAL
improper, because Article 1938 specifies that the bailor may not be OBLIGATION INTEREST
the owner.[19]” 1. When the obligation - The interest due a. Interest due shall
is breached, and in the should be that which itself earn legal
payment of a sum of may have been interest from the time
b) URGENT NEED- Bailor may temporarily ask for the return of the money, i.e., a loan or stipulated in writing. it is judicially
forbearance of money. demanded. In the
thing in case of urgent need.
absence of
stipulation, the rate
c) ACTS OF INGRATITUDE- Commodatum being essentially of interest shall be
gratuitous it partakes of the nature of a donation. Hence, Article 1948 6% per annum to be
 computed from IV.DEPOSIT
default;
4.1.Definition. There is deposit when one person delivers and the
b. If court awards a other person receives a thing belonging to another, with the obligation
sum of money and of safely keeping it and of returning the same.[21]
the award becomes
final and executor,
the rate of legal
4.2. Characteristics.
interest, shall be 6%
per annum from such a) It is a real contract, that is, it is perfected by delivery;
finality until its b) It is a principal contract;
satisfaction. c) It can be unilateral if it is gratuitous or bilateral if it is onerous. But
2. When an obligation - an interest on the Court awards a sum GENERALLY GRATUITOUS. Per Article 1965, New Civil Code, A
not constituting a loan or amount of damages of money which contract of deposit is gratuitous save in cases of: 1) when there is an
forbearance of money is awarded may be becomes final and agreement to the contrary; or 2) the depositary is engaged in the
breached. imposed at the executor, the rate of business of storing goods.
discretion of the court legal interest shall be d) Its purpose is safekeeping
at the rate of 6% per 6% per annum from e) It involves temporary custody of the depositary as there is an
annum. such finality until its
obligation to return; and,
satisfaction, this
interim period being
f) It involves temporary custody of corporeal personal property.[22]
deemed to be by
then an equivalent to Distinguished from Lease. Read RCG Bus Lines, Inc. v. Master
a forbearance of Tours and Travel Corp.[23]
credit.
3. Unliquidated claims - no interest until final “To begin with, the cause in a contract of lease is the enjoyment
or damages judgment of the thing; in a contract of deposit, it is the safekeeping of the
-the legal interest of thing.6 They thus create essentially distinct obligations that would
6% shall be on the result in a novation only if the parties entered into one after the other
amount finally concerning the same subject matter. The turning point in this case,
adjudged by the Court. therefore, is whether or not the parties subsequently entered into an
agreement for the storage of the buses that superseded their prior
lease agreement involving the same buses. Although the buses were
described in the lease agreement as “junked and not operational,” it is
clear from the prescribed manner of payment of the rental fee
(P400,000.00 down and P200,000.00 upon completion of their
rehabilitation) that RCJ would rehabilitate such buses and use them
for its transport business.
 Now, RCJ’s theory is that the parties subsequently changed termination of the lease agreement, then brought them back to RCJ’s
their minds and terminated the lease but, rather than have Master garage, this time for safekeeping. This circumstance rules out any
Tours get back its junked buses, RCJ agreed to store them in its notion that an agreement for RCJ to hold the buses for safekeeping
garage as a service to Master Tours subject to payment of storage had overtaken the lease agreement.
fees.
Second, it did not make sense for Master Tours to pre-
Two things militate against RCJ’s theory. First, RCJ failed to terminate its lease of the junked buses to RCJ, which would earn
present any clear proof that it agreed with Master Tours to abandon Master Tours P600,000.00, in exchange for having to pay RCJ storage
the lease of the buses and in its place constitute RCJ as depositary of fees for keeping those buses just the same. As pointed out above, the
the same, providing storage service to Master Tours for a fee. The lease already implied an obligation on RCJ’s part to safekeep the
only evidence RCJ relied on is Master Tours’ letter of June 16, 1997 buses while they were being rented. Two. RCJ claims that it cannot
in which it demanded the return of the four buses which were placed be held liable to Master Tours for rental fee on the buses considering
in RCJ’s garage for “safekeeping.” The pertinent portion of the letter that these never became operational. The pertinent portions of the
reads: This is to follow up our previous discussion with you with lease agreement provide: 7
regards to the Five (5) units of Daewoo Airconditioned Motorcoaches,
which we brought to your garage at E. Rodriguez Avenue for The letter mentions five buses but the contract refers only to
safekeeping. Since we have outstanding loan with BancAsia Finance four buses; Section 1. Lease of AIRCON BUSES – The LESSOR
& Investment Corporation and BancAsia Capital Corporation that we hereby agrees and shall deliver unto the LESSEE the AIRCON
are unable to service payment, they have made final demand to us BUSES by way of a long term lease of said buses. Section 2. Term of
and are in the process of foreclosing these units. We urgently request Lease – The lease of the AIRCON BUSES shall be for a period of
from you a meeting to thresh out matters concerning the pulling of FIVE (5) years to commence on 15 February 1993 and to end
these units by the financing firms.7 automatically on 15 February 1998. x x x Section 3. Lease Fee – For
and in consideration of the lease of the AIRCON BUSES subject
For one thing, the letter does not on its face constitute an hereof, the lease fee for five years for the Four (4) units shall be in the
agreement. It contains no contractual stipulations respecting some amount of PESOS: SIX HUNDRED THOUSAND (P600,000.00). The
warehousing arrangement between the parties concerning the buses. LESSEE agrees to advance the amount of PESOS: FOUR HUNDRED
At best, the letter acknowledges that five Master Tours’ buses were THOUSAND (P400,000.00) payable upon the signing of the
“brought to your [RCJ’s] garage…for safekeeping.” But the idea of Agreement. The remaining balance of PESOS: TWO HUNDRED
RCJ safekeeping the buses for Master Tours is consistent with their THOUSAND (P200,000.00) will be payable upon completion of
lease agreement. The lessee of a movable property has an obligation rehabilitation of the 4 buses by the lessee.9
to “return the thing leased, upon the termination of the lease, just as
he received it.”8 This means that RCJ must, as an incident of the The Court finds no basis in the above for holding that RCJ’s
lease, keep the buses safe from injury or harm while these were in its obligation to pay the rents of P600,000.00 on the buses depended on
possession. For another, it is evident from the tenor of Master Tours’ the buses being rehabilitated. Apart from delivering the buses to RCJ,
letter that RCJ’s “safekeeping” was to begin from the time the buses the agreement did not require any further act from Master Tours as a
were delivered at its garage. There is no allegation or evidence that condition to the exercise of its right to collect the lease fee. Of course,
Master Tours pulled out the buses at some point, signifying the pre- the lease agreement provided for two payments: P400,000.00 upon
the signing of the agreement and P200,000.00 upon completion of which is deposited by the grantor, promisor, or obligor, or his agent
rehabilitation of the buses. But this provision is more about the mode with a stranger or third party, to be kept by the depositary until the
of payment rather than about the extinguishment of the obligation to performance of a condition or the happening of a certain event, and
pay the amounts due. The phrase “upon completion of rehabilitation” then to be delivered over to the grantee, promise, or obligee.
implies an obligation to complete the rehabilitation which, in this case, While originally, the doctrine of escrow applied to deeds by way of
wholly depended on work to be done “by the lessee.” That the buses grant, or as otherwise stated, instruments for the conveyance of land,
may have turned out to be unsuitable for use despite repair cannot under modern theories of law, the term escrow is not limited in its
prejudice Master Tours. X x x” application to deeds, but is applied to the deposit of any written
instrument with a third person. Particular instruments which have been
held to be the subject of an escrow include bonds or covenants,
4.3. Free Valet Parking. Read Triple- V Food Services, Inc. v. deeds, mortgages, oil and gas leases, contracts for the sale of land or
Filipino Merchants Insurance Co.[24] “When a restaurant offers for the purchase of personal property, corporate stocks and stock
free valet parking to its customers, the restaurant company is subscriptions, promissory notes or other commercial paper, insurance
constituted as DEPOSITARY. The customer entrusts his or her car to applications, indentures of apprenticeship, receipts assigning
the restaurant with the expectation of the car’s safe return at the end concessions and discontinuances and releases of causes of action.
of the meal. The stipulation in the “Parking stub” holding the restaurant Moreover, it is no longer open to question that money may be
not liable for any damage- being a contract of adhesion- is void in view delivered in escrow.
of the nature of the transaction.”[25]

4.4. Safety Deposit Box. - Escrow Deposit. According to Prof. Timoteo B. Aquino: “It is
submitted, however, that bank deposits that are considered “escrow
Question: Is it governed by Contract of Lease (Title VII, Book IV deposit” are not governed by the rules on the contract of deposit. The
of the Civil Code) or Deposit under (Title XII, Book IV)? law on mutuum still applies to the deposit itself. However, the bank
must perform the service of releasing of the escrow fund subject to
It is not a contract of lease. It is governed by Section 53 of the General certain conditions. For instance, if the parties in a contract of sale
Banking Law being one of the functions of a bank which is to : (5)Rent agreed to deposit the price in escrow, the release by the bank of the
out safety deposit boxes”. “The depositary’s responsibility is still funds to the seller may be subject to the condition that the seller must
found within the parameters of a contract of deposit”, I.E., the submit the title and the tax declaration in the name of the buyer. Hence
receiving in custody of the funds, securities and other effects which it the purpose of the deposit is not for safekeeping”[26].
receives duly separate from the bank’s own assets and liabilities.”

4.5. Escrow Agreements v. Escrow Deposit

- X x x An escrow fills a definite niche in the body of the law; it has

a distinct legal character. The usual definition is that an escrow is a
written instrument which by its terms imports a legal obligation and
 4.6. USE OF THE THING. Gen. Rule- Depositary cannot use the 4.7. Depositor’s Right to Sell. With respect to the depositor, his
thing because the purpose of the contract is only for SAFEKEEPING. right to sell would depend on whether or not he is the owner or is
authorized to sell the thing deposited. The depositor who is not the
Exceptions: owner must also secure the necessary authority to sell from the
owner[28].
(1) The preservation of the thing requires its use (Article 1977, New
Civil Code) 4.8. Right of Retention. The depositary may retain the thing in
(2) Irregular deposit (Article 1978, New Civil Code). pledge until the full payment of what may be due him by reason of the
deposit.

4.6.1. Irregular Deposit v. Loan.

4.9. Necessary Deposits.
In Rogers v. Smith Bell & Co.,[27] it was held that:
4.9.1. Hotels and Inns. Read Durban Apartments Corp. v. Pioneer
“Manresa, in his Commentaries on the Civil Code (vol. 11, p. 664), states Insurance and surety Corp.[29]
that there are three points of difference between a loan and an irregular
deposit. The first difference which he points out consists in the fact that in an “Article 1962, in relation to Article 1998, of the Civil Code defines a
irregular deposit the only benefit is that which accrues to the depositor, while contract of deposit and a necessary deposit made by persons in hotels
in a loan the essential cause for the transaction is the necessity of the or inns:
borrower. The contract in question does not fulfill this requirement of an
irregular deposit. It is very apparent that it was not for the benefit of Rogers.
Art. 1962. A deposit is constituted from the moment a person receives
It, like any other loan of money, was for the benefit of both parties. The
benefit which Smith, Bell & Co., received was the use of the money; the a thing belonging to another, with the obligation of safely keeping it
benefit which Rogers received was the interest on his money. In the letter in and returning the same. If the safekeeping of the thing delivered is not
which Smith, Bell & Co., on the 30th of June, 1888, notified the plaintiff of the the principal purpose of the contract, there is no deposit but some
reduction of the interest, they said: “We call your attention to this matter in other contract.
order that you may if you think best employ you money in some other place”.
Art. 1998. The deposit of effects made by travelers in hotels or inns
Nor does the contract in question fulfill the third requisite indicated by shall also be regarded as necessary. The keepers of hotels or inns
Manresa, which is, that in an irregular deposit, the depositor can demand the shall be responsible for them as depositaries, provided that notice was
return of the article at anytime, while the lender is bound by the provisions of given to them, or to their employees, of the effects brought by the
the contract and cannot seek restitution until the time for payment, as guests and that, on the part of the latter, they take the precautions
provided in the contract, has arisen. It is apparent from the terms of this
which said hotel-keepers or their substitutes advised relative to the
documents that the plaintiff could not demand his money at anytime. He was
bound to give notice of his desire for its return and then to wait for six months care and vigilance of their effects.
before he could insist upon payment”.
Plainly, from the facts found by the lower courts, the insured See
deposited his vehicle for safekeeping with petitioner, through the
latters employee, Justimbaste. In turn, Justimbaste issued a claim
stub to See. Thus, the contract of deposit was perfected from Sees liability. The innkeeper is said to be liable as an insurer of the goods
delivery, when he handed over to Justimbaste the keys to his vehicle, which have been intrusted to him.
which Justimbaste received with the obligation of safely keeping and
returning it. Ultimately, petitioner is liable for the loss of Sees vehicle. This rule is of almost universal application, but some jurisdictions
apply the rule of measuring liability by the negligence of the innkeeper
or his servants, a very high degree of care being demanded, and a
Vehicles. “The hotel-keeper is liable for the vehicles, animals and presumption of negligence arising from the fact of loss. Such a rule is,
articles which have been introduced or placed in the annexes of the in effect, an application of the res ipsa loquitur doctrine, and to avoid
hotel.[30] liability the innkeeper must show that the loss was due to some other
cause than his own or his servant’s or agent’s fault.
Liability for Acts of Servants and Employees- Art. 2000
Even under the prevailing rule that he is an insurer, the innkeeper
Thief and Robber. The act of a thief or robber who has entered the is not bound to establish, in order to escape liability, that the loss of
hotel is not deemed force majeure. the plaintiff’s property was caused by inevitable accident or an
irresistible force. The rule has been thus stated in a leading case: “The
Exception: The act of a thief or robber is a defense if it is done with the general doctrine deducible from the authorities, ancient and modern,
USE OF ARMS or through IRRESTIBLE FORCE. Hence the is that keepers of public inns are bound well and safety to keep the
depositary is not liable under this exception. property of their guests accompanying them at the inn; and in case of
such property is lost of injured, the innkeeper can only absolve himself
NOT LIABLE FOR ACTS OF GUESTS. If loss is caused from liability by showing that the loss or injury occurred without any
fault on his part, or by the fault of the guest, his companions or
(1) due to acts of guest, his family, servants or visitors, or servants or by superior force; and the burden of proof to exonerate the
(2) if the loss arises from the character of the things brought innkeeper is upon him, for in the first instance the law will attribute the
into the hotel[31] loss injury to his fault.”

Prohibited Acts. The hotelkeeper cannot free himself form The rule of strict liability does not apply to the loss or to the damage
responsibility by posting notices to the effect that he is not liable for of the goods of permanent boarders and other parties who have a
the articles brought by the guest. special contract as to board.”[33]

“Any stipulation between the hotelkeeper and the guest whereby

the responsibility of the former is suppressed or diminished.[32]” V.GUARANTY. By guaranty, a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal debtor in
Burden of Evidence. “One who, while a guest at an inn or hotel, has case the latter should fail to do so.[34]
lost his goods, is not bound, in an action against the innkeeper, to
prove negligence on the part of the defendant or his servants. Proof 5.1. Guaranty & Suretyship v. Mortgage, Pledge & Antichresis
of the loss suffices to make out a prima facie case, and casts upon the
defendant the burden of showing facts which will exonerate him of
v The contracts of guaranty and suretyship are both PERSONAL 7.2. Who may pledge or mortgage. The debtor himself or a Third
SECURITY TRANSACTION that secures a principal obligation – it is Person (who are not parties to the principal obligation) may mortgage
the personal obligation of the natural or juridical entity. They should be or pledge to secure the obligation of the debtor.
distinguished from REAL SECURITY AGREEMENT like mortgage,
pledge and antichresis where property is given by way of 7.3. PACTUM COMMISSORIUM. The debtor may waive the security
collateral.[35] and just file an action for specific performance for the payment of the
v Excussion. The liability of the guarantor is SUBSIDIARY. The obligation. However, if he wants to reply on the security, he must
guarantor cannot be compelled to pay the creditor unless: foreclose or have the property sold for the payment of the debt. The
creditor cannot appropriate the things given by way of pledge or
a. The creditor has EXHAUSTED all the property of the debtor; and mortgage, or dispose of them.[36]
b. The creditor has resorted to all the legal remedies against the
debtor. 7.3.1. Requisites.

VI.SURETYSHIP a) There should be a property mortgaged or pledged by way of

security for the payment of the principal obligation; and
SURETY GUARANTY b) There should be a stipulation for automatic appropriation by the
The surety insures the debt- The guarantor insures the creditor of the thing given as secutiry in case of non-payment of the
the surety’s undertaking is that debtor’s solvency- the principal obligation within the stipulated period.
the debt shall be paid. guarantor’s undertaking is that
the debtor shall pay.
The surety is solidarily and The guarantor is subsidiarily 7.3.2. A promise to transfer a property in favor of the creditor in case
primarily liable liable. of non payment is not pactum commissorium because there is no
The surety is not entitled to the The guarantor is entitled to the automatic transfer. “The mortgagor is free to sell or not to sell the
benefit of excussion. benefit of excussion. property.”[37]
- There is also no pactum commissorium if the principal obligation is
extinguished by dacion en pago, novation or cession.[38]
VII.PLEDGE AND MORTGAGE - An AUTHORITY TO SELL and the appointment of the mortgagee as
attorney-in-fact to sell and dispose of real rights does not, by itself,
7.1. Requirements COMMON to Pledge and Mortgage constitute pactum commissorium. Such authority is consistent with
Article 2087.[39]
a) They must be constituted to secure the fulfillment of a principal
obligation
b) The mortgagor or pledger must be the absolute owner of the thing
pledged or mortgaged
c) The pledger or mortgagor must have free disposal of the property.
VIII.REAL ESTATE MORTGAGE v. IX.CHATTEL MORTGAGE property described in the
written mortgage contract.[42]
Deficiency Judgment Deficiency Judgment. Unless:
REAL ESTATE MORTGAGE CHATTEL MORTGAGE covered by Recto Law.
Object: Immovable Property Object: Movable Property Right of redemption; equity No right of redemption over
Blanket Mortgage or Dragnet After-incurred obligations. of redemption personal property. Only equity
Clause- specifically phrased to of redemption (before sale of
SUBSUME ALL DEBTS OF Section 5 of Chattel Mortgage Note: Rural Banks: 2 years property in judicial
PAST OR FUTURE ORIGIN; Law requires an “Affidavit of redemption period foreclosure).[43]
After-incurred obligations Good Faith” which states that Act 3135- Rules on Act 1508
“ We severally swear that the Foreclosure
foregoing mortgage is made for
the purpose of securing the
obligation specified in the
conditions thereof, and for no Foreclosure; writ of possession. “the proceeding in a petition and/
other purpose, and that the or motion for issuance of writ of possession, after the lapse of the
same is a just and valid statutory period for redemption, is summary in nature. The trial court
obligation, and not entered into is mandated to issue a writ of possession upon a finding of the lapse
for the purpose of fraud”. of the one-year statutory period for redemption without the
- “While a pledge, real estate redemptioner having redeemed the property.[44]
mortgage, or antichresis may
exceptionally secure after- HOWEVER, The right of the mortgagor to annul the foreclosure
incurred obligations so long as proceedings and recover possession pursuant to sections 7 & 8 of Act
these future debts are 3135 as amended, is limited only to the “redemption period”[45].
accurately described, a chattel
mortgage, however, can only “
cover obligations existing at the PRESENT LAW ON REMEDY AFTER LAPSE OF REDEMPTION
time the mortgage is PERIOD. Section 111 of Act 496 is no longer good law. Act 496 was
constituted.[40] enacted way back on January 1, 1903. It is already deemed
Concept of Mortgagee in Good superseded by The Property Registration Decree (PD 1529) which
Faith and In Bad became effective on June 11, 1978.
Faith- Exception: Banks and Instead, the applicable law is Section 75 of PD 1529 which states:
other Financial Institutions
cannot merely rely on face of “SEC. 75. Application for new certificate upon expiration of
title[41] redemption period. – Upon the expiration of the time, if any,
After-Acquired Properties Chattel mortgage shall be allowed by law for redemption after registered land has been sold
deemed to cover only the on execution taken or sold for the enforcement of a lien of any
description, except a mortgage lien, the purchaser at such sale
or anyone claiming under him may petition the court for the entry The document specifically authorizes [the Magtalas sisters] to receive the
of a new certificate of title to him. fruits of the subject landholding with the obligation to apply them as payment
to his [P]600,000.00 principal loan for a period of six (6) years. The
Before the entry of a new certificate of title, the registered instrument provides no accessory stipulation as to interest due or owing the
creditors x x x . No mention of interest was ever made by the creditors when
owner may pursue all legal and equitable remedies to impeach or they testified in court. This could only be interpreted that the [Magtalas
annul such proceedings.” sisters] have no intention whatsoever to charge Benjamin of interest for his
loan. We note also that the Kasulatan is silent as to the transfer of
possession of the subject property. However, [the Magtalas sisters] admitted
X.ANTICHRESIS taking possession of Benjamin’s landholding after his death on September
29, 2006 and that they have been cultivating it since then. They rationalize
REQUISITES. In Spouses Charito M. Reyes and Roberto Reyes that their action is in accord with their agreement with Benjamin when the
etc. v. Heirs of Benjamin Malance etc.[46] it was held that: latter was still alive. They assure the return of the subject property upon full
payment of Benjamin’s loan [the Malance Heirs], the successors-in-interest
of Benjamin. While the Kasulatan did not provide for the transfer of
“Notably, the purpose indicated for the Malance heirs’ formal offer of the possession of the subject land, the contemporaneous and subsequent acts
records and receipts of hospitalization, medicines, and burial expenses of of the parties show that such possession was intended to be transferred.
Benjamin was merely “to show proof of expenses incurred by x x x Benjamin Atty. Navarro testified that while the Kasulatan only shows that the harvest
x xx relative to his sickness and x x x where he spent the loan he obtained and the fruits shall answer for Benjamin’s indebtedness, the parties agreed
from the Magtalas sisters. The Court, however, concurs with the RTC’s among themselves that the lenders would be the one to take possession of
finding, as affirmed by the CA, that the Kasulatan is a contract of antichresis. the subject land in order for them to get the harvest. Indeed, such
Article 2132 of the Civil Code provides: arrangement would be most reasonable under the premises since at that
time, Banjamin’s medical condition necessitated hospitalization, hence, his
Art. 2132. By the contract of antichresis the creditor acquires the physical inability to cultivate and harvest the fruits thereon. As antichretic
right to receive the fruits of an immovable of his debtor, with the creditors, the Magtalas sisters are entitled to retain enjoyment of the subject
obligation to apply them to the payment of the interest, if owing and land until the debt has been fully paid.
thereafter to the principal of his credit.
Xxx
Thus, antichresis involves an express agreement between the parties
whereby: (a) the creditor will have possession of the debtor’s real property The debt not having been totally paid, petitioners are entitled to retain
given as security; (b) such creditor will apply the fruits of the said property to enjoyment of the subject land. Consequently, the Malance heirs’ complaint
the interest owed by the debtor, if any, then to the principal amount; ( c ) the for recovery possession, declaration of nullity of the Kasulatan, and damages
creditor retains enjoyment of such property until the debtor has totally paid against petitioners must be dismissed.”
what he owes; and (d) should the obligation be duly paid, then the contract
is automatically extinguished proceeding from the accessory character of
the agreement.

Until when is Antichretic Creditor entitled to possession?

Xxx