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CREDIT - VasquezCamille Umali

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VII. GUARANTY AND SURETYSHIP

A. General Provisions

Characteristics:1. Accessory2. Subsidiary and conditional3. Unilateral4. Personal

Classifications:1. Broad sense: personal or real2. Origin: Legal, conventional, judicial3. Consideration: Gratuitous or Onerous4. Person guaranteed: single or double5. Scope: definite or indefinite

Guaranty SuretyCollateral undertaking to pay the debt of another in case the latter cannot pay the debt (insolvent)

An accessory promise by which a person binds himself for another already bound and agrees to satisfy the obligation if the debtor does not.

Insures insolvency of debtor

Insures debt itself

Has benefit of excussion None (Art. 2080 n/a)Subsidiary liable Principally liableMay be discharged by mere indulgence of creditor

Non discharged by mere indulgence of the creditor

1. Accessory2. Subsidiary/

conditional3. Unilateral4. Personal

1. Accessory but direct2. Limited by terms of

contract3.

Entitled to notice of principal’s default

Not entitled to notice of principal’s defaut

Demand is required Demand by creditor upon principal not required

Note:1. Guaranty must not only be expressed but

must also be reduced in writing. It falls under the SOF since it is a “special promise to answer for the debt, default or miscarriage of another”

2. It is strictly construed.

Cases:

Title Year

Doctrine

Ong v. PCIB

2005

Difference: Guarantor v. Surety

Bank’s right to collect from surety is independent of its right to proceed directly against the principal debtor.

IFC v.

2005

If the agreement referred to as guarantor but the same time

ITM

specifically stated that party was “J/S liable”, further stating that it was primary obligor not a mere surety = SURETYSHIP.

The use of the word guarantee does not ipso facto make the contract one for guaranty.

Although surety contract is secondary to the principal obligation, the liability of the surety is direct, primary and absolute or equivalent to that of a regular party.

E.Zobel v. CA

1998

Art. 2080 does not apply where the liability is a surety, not as guarantor.

A creditor’s failure to register the CM did not release a guarantor from obligation where in the Continuing Guaranty the latter bound itself to the contract irrespective of the existence of collateral.

RCBC v. Cerro

1982

Person is liable under the surety agreement although he did not sign the promissory note.

Dino v. CA

1992

A guaranty may be given to secure even future debts, the amount of which may not be known at the time guaranty is executed. – CONTINUING GUARANTY OR SURETYSHIP

Continuing guaranty – not limited to a single transaction but which contemplates a future course of dealing, covering series of transactions, generally for an indefinite time or until revoked.

Willex v. CA

1996

The consideration necessary to support a surety obligation need not pass directly to the surety, a consideration moving to the principal alone being sufficient.

A guarantor is bound by the same consideration that makes the contract effective between the principal parties thereto.

Although a contract of suretyship is ordinarily not to be construed as retrospective, in the end the intention of the parties as revealed by evidence is controlling.

B. Effects


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General Rule: has benefit of excussionExceptions:

1. Art. 20592. Not comply with art. 20603. Judicial bondsman and sub-surety4. If given as special security5. Fails to interpose it as a defense

General Rule: must notify the debtor before payingException:

1. Creditor becomes insolvent2. Prevented by FE to advise the debtor3. Guaranty is gratuitous

Extinguishment of guaranty1. When principal obligation is extinguished2. 6 modes of extinguishment3. Annulment, rescission, resolutory condition,

prescription

Title Year

Doctrine

Luzon v. Sia

1969

Previous exhaustion of property of debtor does not apply where surety is bound in solidum.

Liability of surety attaches upon rendition of judgment.

Cochingyan v. R&B Surety

1987

Any extension by creditor to any 1st tier obligors cannot prejudice the 2nd tier obligors.

Theory behind Art. 2079 is that an extension given to the principal debtor without surety’s consent would deprive the latter of his right to pay the creditor and to be immediately subrogated to the creditor’s remedies against the principal debtor upon original maturity.

Peoples Bank v. Tambunting

1971

Guarantor is not released from his obligations by the creditor’s extension of the time of payment or surrender of securities given if he gave advance consent thereto.

Guarantor’s waiver of right to notice respecting release by creditor of securities given or extension of duration of loan is valid.

PNB v. Manila Surety

1965

By allowing the assigned funds to be exhausted without notifying the surety, the creditor deprives the surety of any possibility of recoursing against that security, and therefore, surety is released.

Toh v. Solid Bank

2003

An extension of the period enforcing the indebtedness does not by itself bring about the discharge of sureties. (Unless the extra time is NOT permitted within the terms of the waiver)

Any release or impairment of the security as a primary source for the payment of a debt will discharge the surety to the extent of the value of the property released.

Autocorp v. Intra Strata

2008

The principal debtors became liable to indemnify the surety at the same time the bonds issued by the surety were placed at risk of forfeiture by the BOC for non compliance of undertaking.

Demand Is not required before an obligation becomes due and demandable. It is only necessary to put obligor in delay (ie make obligor liable for interests or damages for the period of delay)

The benefit of subrogation (an extinctive subjective novation by change of creditor) is granted by Art. 2067 CC only to guarantor or surety who payes.

The provisions of CC on Guaranty, other than benefit of excussion, is applicable to surety.


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VIII. PLEDGE, MORTGAGE and ANTICHRESIS

A. Common Provisions

Definition: contract by virtue of which the debtor delivers to the creditor or to a 3rd person a movable or document evidencing incorporeal rights for purpose of securing fulfillment of principal obligation.

Characteristics1. Real contract2. Accessory3. Unilateral4. Subsidiary

Kinds:1. Voluntary or conventional2. legal

Pledge REMMovable ImmovableDelivered Not necessaryNot valid wrt 3rd persons unless description and date appears in public instrument

Not valid wrt 3rd person unless registered

Pledge CMDelivery required NotNo need for registration Should be registered for

validityNot entitled to deficiency

Entitled

Movable

Cases:

Title Year

Doctrine

Manila Banking v. Teodoro

1989

The character of the transaction between the parties is to be determined by their intention regardless of what language was used or what the form of transfer was.

In case of doubt as to whether a transaction is a pledge or a dation, the presumption is in favor of pledge.

An assignment to guarantee an obligation is in effect a mortgage which is not an absolute conveyance which confers ownership on the assignee.

Duranv. IAC

1985

A fraudulent or forged document of sale may become the root of a valid title if the certificate of title has already been transferred from the name of the true

owner of the forger or the name indicated by the forger.

Bank v. CA

1981

A bank is required to exercise extreme care and proper inquiry where a person borrows money and mortgages another person’s property to secure it.

A consignation may be valid for reasons of equity, even where there was no prior tender of payment.

Reyes v. Sierra

1979

Pactum Commissorium is void for being contrary to morals and public policy.

Payment of taxes does not prove just title.

Once a mortgage, always a mortgage.

Olea v. CA

1995

Equitable mortgageBadges:

1. Price is inadequate2. Vendor remains in

possession3. Extend period4. Retains purchase price5. Vendor pays taxes6. Real intention of the

parties

Dayrit v. CA

1970

A mortgage directly and immediately subjects the property upon which it is imposed. It is indivisible even though the debt may be divided and indivisibility is not affected by the fact that debtors are not solidarily liable.

If there are several things pledged or mortgaged, each for a determinate portion of the debt, the P/M are considered separate from each other.

Lopez v. CA

1982

An assignment and sale of stock certificates to a bonding company which also acted as surety of the assignor ina a loan obtained by the latter from a bank is in the nature of an absolute transfer even if made based on inability of the debtor to pay the loan.

Yuliongsui v. PNB

1968

Pledgee is entitled to the actual possession of the vessel. The pledge can temporarily entrust the physical possession of the chattels pledged to the pledgor without invalidating the pledge.

Constructive delivery is


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sufficient. The type of delivery depends upon the nature and the peculiar circumstances of each case.

B. Pledge

Title Year

Doctrine

DBP v. CA

1998

Pactum Commissorium elements:

1. Property mortgaged by way of security for payment of principal debt

2. Stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-payment

Manila Surety v. Velayo

1967

Where pieces of jewelry were delivered as collateral security by way of pledge and sold at lower price than the principal obligation, the principal obligation is extinguished and the guarantor cannot recover the deficiency.

Caltex v. CA

1992

Where the holder has a lien on the instrument arising from the contract, he is deemed holder for value to the extent of his lien. As such holder of collateral security, he would be a pledge but the requirements therefore and the effects shall be governed by CC provisions on pledge of incorporeal rights.

Ong v. Roban Lending

2008

The creditor cannot appropriate the things given by way of P/M or dispose of them. Any stipulation to the contrary is void.

In true DIP, the assignment extinguishes the monetary debt.

C. Mortgage

Judicial ExtrajudicialCourt intervention NoneAppealable No, immediately

executorCuts off rights of parties NotEquity of redemption Right of redemptionStarts from finality until order of confirmation

Starts from date of registration of cert. of sale

No need for SPOA SPOA is needed

Rule 68 ROC Act 3135

1. Real Estate Mortgage

TitleYea

rDoctrine

Medida v. CA

1992

What is divested from the OR is only his full right as owner thereof to dispose and sell the lands.

OR remains as absolute owner of the property during redemption period and has the free disposal of his property (ie can mortgage the property again to another person)

It is only upon the expiration of the redemption period, when OR did not make use of his right, that the ownership of the land sole becomes consolidated with the purchaser.

What is actually effected where the redemption is seasonably exercised by the OR is not the recovery of ownership but the elimination from his title the lien.

Isaguirre v. De lara

2000

Mortgage, even if not recorded, in nonetheless binding between the parties.

As a GR, a MOR retains possession of the mortgage property since a mortgage is merely a lien and title to property does not pass to the MEE

A simple mortgage does not give possession of the property unless the mortgage should contain special provisions to that effect.

A possessor in BF is only entitled to necessary expenses and not for useful expenses.

Canlas v. CA

2000

A mortgage must be constituted only by the absolute owner of the property mortgaged.

A mortgage constituted by an impostor is void.

Suico v. PNB

2007

Notices are given for the purpose of securing bidders and to prevent a sacrifice of the property. If these objectives are attained, immaterial errors and mistakes will not affect the sufficiency of the notice. But if such deter or mislead the buyers or depreciate the value of the property, or prevent it from bringing a fair price, such mistakes will be fatal.

Disposition of the proceeds:


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1. Pay the costs2. Pay off the mortgaged

debt3. Pay junior encumbrances4. Give balance to MOR

2. Chattel Mortgage

Title Year

Doctrine

Acme Shoe Rubber v. CA

1996

While pledge, REM or antichresis exceptionally after-incurred obligations so long as they are accurately described. CM, however, can only cover obligations existing at the time the mortgage is constituted.

Tumalad v. Vicencio

1971

By ceding, selling or transferring house by way of CM, house is treated as chattel.

Makati Leasing v. Wearever

1983

Where CM is constituted on machinery permanently attached to the ground, the machinery is considered as personal property and the CM is valid regardless of who owns the land.

Dy v. CA

1991

MOR retains ownership over the property given as security and has the right to sell it with the obligation to secure written consent of the MEE. Validity of the sale is not affected if no consent was obtained by MEE.

Pameca v. CA

1999

Whereas in pledge, the sale of the thing pledged extinguishes the entire principal obligation, CML expressly entitles the MOR to the balance of the proceeds upon satisfaction of the principal obligation and costs.

3. Antichresis

IX. CONCURRENCE AND PREFERRENCE OF CREDIT CIVIL CODE

A. Common Provisions

Concurrence of credit – implies the possession by 2 or more creditors of equal rights or privileges over the same property or all of the property of debtor

Preference of credit – right held by a creditor to be preferred in the payment of his claim above others

Nature and effect:1. Strictly construed2. An exception to the general rule3. Not an interest but only a preferential right4. Not take/sell the property, only right to the

proceeds

5. Must be asserted and maintained, otherwise it is lost

When applicable:1. 2 or more creditors2. Separate and distinct claims3. Same debtor4. Debtor has insufficient property5. Credits are due

2236 General Rule: all properties of debtor are liable for the fulfillment of the obligationExceptions:1. As to present property:

Family home Sec. 13, Rule 39 ROC

2. A s to future property Debtor who has obtained a

discharge on account of his insolvency

See insolvency law3. Under legal custody4. Public dominion

2237 Civil Code prevails in case of conflict with the special law unless otherwise provided in the latter.Aim of insolvency proceedings – conserve all the remaining assets of the insolvent or liquidated person/corp for distribution to the creditors, after payment of taxes

2238 General Rule: assets of CP do not pass to the assignee in insolvency as they do not belong to the individual spouses

When applicable:1. Partnership/Community subsists2. Obligation have not redounded to

the benefit of the family2239 1. Co-ownership

2. Debtor is one of the co-owners> undivided share or interest shall be

possessed by the assignee> share of the other co-owners won’t be

taken2240 Property held in trust not included.

Trustee is not the owner of the property.

B. Classification

General Categories1. Special preferred credits (Art. 2241 and 2242)2. Ordinary preferred credits (Art. 2243)3. Common credits (Art. 2245)

Note:1. 2241 and 2242 do not give the order of

preference but just enumerates the credits which enjoy preference with respect to specific property

2. Credit of a mortgagee of motor vehicle cannot be considered preferred until it has been recorded in the LTO

2241 Last paragraph applies only when the right to ownership continues in the debtor and not applicable when debtor has already parted with the ownership.


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2242 Recorded mortgages credits Directly and immediately subjects

the property upon which it is imposed to the fulfillment of the obligation

Creates a real right which is enforceable against the whole world

Refectionary credit – an indebtedness incurred in the repair or reconstruction of something previously made (ie for deterioration or destruction)

2243 Provisions on pledge and mortgage are also applicable. In case of insolvency, such claims or credits shall be considered as liens within the purview of insolvency law. They are not included in the insolvent debtor’s asset.

2244 Preference of credits evidenced by public instruments or final judgments are placed in the same order of preference. Preference among themselves = PRIORITY IN TIME.

Not applicable to the State2245 Other credits (not included in the

preceding articles) enjoy no preference.

Cases:

Title Year Doctrine

DBPv.

NLRC1989

The preference given to workers by Art. 110 LC when not falling within Art. 2241(6) and Art. 2241(3) and not attached to any specific property, is an ORDINARY PREFERRED CREDIT although the impact is to move it from 2nd to 1st priority (Art. 2244).

EEs should file their claims in proceeding in bankruptcy on their ER.

RA 6715 expanded “worker preference” to cover money claims of laborers to which claims of Government must be deemed subordinate. It has prospective application.

Barettov.

Villanueva

1961 Mortgage credits over real property, in order to be given preference, must be recorded in the ROP. But a recorded mortgage credit is superior to an unrecorded unpaid vendor’s lien.

In the absence of insolvency proceeding, the conflict must be decided pursuant to the well-established principle re registered lands (purchaser in good faith)

There being no insolvency

proceeding, the claim on an unpaid vendor did not require character and a rank of a recorded mortgage and must remain subordinate to the latter.

Atlanticv.

Herbal Cove

2003

Annotation also applies to suits seeking to establish a right to or an equitable estate or interest in an SRP, to enforce a lien, charge or an encumbrance.

A complaint for collection and damages is not the proper mode for the enforcement of contractor’s lien.

Annotation of a notice of LP on titles to properties is not proper in cases where in the proceedings are actions in personam.

Art. 2242 does not apply because the case is not an insolvency proceeding or an action in which the adjudication of claims of preferred creditors could be ascertained.

Consuelo Metal

v.Planters

Bank

2008

While SEC has jurisdiction to order the dissolution of a juridical entity, jurisdiction over the liquidation now pertains to RTCs.

If rehabilitation is no longer feasible and the assets of the corporation are finally liquidated, secured creditors shall enjoy preference over unsecured creditors, subject only to the provisions of CC on concurrence and preference of credits.

Creditor-mortgagee has right to foreclose the mortgage over a SRP whether the debtor-OR is under insolvency or liquidation proceeding or not.

DBPv.CA

2001

In the absence of liquidation proceedings, the vendor’s lien on the unpaid purchases cannot be enforced against the transferee of such purchases.

Ruling Barretto v. Villanueva also applies to SMPs.

Gateway elec.

v. Asianba

nk

2008 The issuance of an order declaring the petitioner insolvent after the insolvency court finds the corresponding petition for insolvency to be meritorious shall stay all pending civil actions against the property.

Once an order of insolvency


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was issued, all civil proceedings against the property are automatically stayed.

C. Order of Preference2246 Those that enjoy preference over specific

movable, exclude all others2247 2 or more credits wrt same SMP, satisfied

PRO RATA (after payment of duties and taxes)

2248 Those that enjoy preference over specific real, exclude all others

2249 2 or more credits wrt same SRP, satisfied PRO RATA (after payment of duties and taxes)

2250 Excess → free property for payment of other credits

2251 Other credits:1. In order established in Art. 22442. Common credits – pro rata –

regardless of date2 tier order of preference

1. 1st tier – taxes, duties, and fees due on SMP/SRP

2. 2nd tier – special preferred non-tax credits (pari passu or pro rata)

Note: Pro rata rule does not apply to credits

annotated in the ROP in virtue of judicial order, attachment or execution which are preferred to as “later credits” – rule is still priority in ORDER OF TIME

Proceeding required for adjudication of claims of preferred creditors (Insolvency or similar proceeding)

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