Reviewer in Credit Transactions PDF

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lOMoARcPSD|22845566 Pdfcoffee.com reviewer-in-credit-transactions-complete-pdf-free (1) business law in obligation and contract (Central Luzon State University) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA CREDIT TRANSACTIONS  The element if intent to possess and control in bailment distinguishes a bailment from custody. This element is absent  Include all transactions involving the loan of money, and goods in custody. or the purchase or delivery of goods and services in the present, with a promise to pay or deliver in the future KINDS OF CONTRACTUAL BAILMENTS TWO TERMS OF SECURITY IN CREDIT TRANSACTIONS A. ORDINARY BAILMENTS 1. SECURED TRANSACTIONS A.1. 4 TYPES OF ORDINARY BAILMENTS  Those supported by a collateral or encumbrance of property or 1. THOSE FOR THE SOLE BENEFIT OF THE BAILOR some other security intended to secure the fulfillment of the principal obligation  This kind belongs to gratuitous deposit and mutuum bailor derives the entire benefit, the bailee is liable for damages to the 2. UNSECURED TRANSACTIONS goods in his possession only in cases of gross negligence. The bailee is required to use slight care and is liable only for gross  Those fulfillment of which by the principal debtor is secured or negligence supported only by a promise to pay the personal commitment of the debtor 2. THOSE FOR THE SOLE BENEFIT OF THE BAILEE SECURITY  This kind belongs to commodatum and simple loan or mutuum. The bailee is liable for damages, even in cases he is  Something given, deposited, or serving as a means to ensure guilty only of simple negligence since he derives the sole the fulfillment or enforcement of an obligation benefit. The bailee is required to use great cate. ELEMENTS OF BAILMENT 3. THOSE FOR THE BENEFIT OF BOTH PARTIES 1. Bailor retains the title of the personal property  Bailments of mere keeping 2. The possession or temporary control of the property is  Bailments of carriage delivered or transferred  Bailments of goods delivered to another to do work upon 3. The bailee accepts possession of the property  Bailements of goods delivered to another to work with 4. The possession of the bailee is for specific purposes  Bailments for security 5. The parties intend that identical property will be returned to the  Bailments of vendor in possession after sale bailor at the end of the bailment unless the bailor directs that it be given to another person or its disposal by the bailee  This kind includes deposit for a compensation including voluntary or necessary deposit, pledge, and bailments for hire. BAILMENT VS CUSTODY These bailments are known as “mutual-benefit bailments”. It said that the bailee is required to use ordinary care, and is 1 DAVP Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA therefore liable for ordinary negligence. The rule applied is the the condition that the same amount of the same kind and quality diligence expected of a good father of a family. It is the shall be paid, in which case the contract is simply called a loan or same as ordinary diligence or care that a reasonably mutuum. prudent person customarily takes with respect to his own property. Commodatum is essentially gratuitous. 4. FORTUITOUS EVENT Simple loan may be gratuitous or with a stipulation to pay interest.  This includes miserable deposit. In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower. (1740a) B. EXTRAORDINARY BAILMENTS KINDS OF LOAN KINDS OF COMMODATUM 1. COMMODATUM 1. ORDINARY  The bailor delivers to the bailee a non-consummable things so  The possession of the bailee is more secure for he has the that the latter may use it for a certain time and return the right to retain the thing loaned until the expiration of the identical thing. period agreed upon or the accomplishment of the use for  It is loan of use, because there is a transfer of the use of the which the commodatum has been constituted thing borrowed 2. BASED ON PURPOSE (Art. 1942) 2. SIMPLE LOAN OR MUTUUM  Even if there is no stipulated time to return the thing loaned but  Where the lender delivers to the borrower money or other as long as the purpose the thing loaned is achieved, it is consummable thing upon the condition that the latter shall pay necessary that the thing must be returned. the same amount of the same kind and quality  It is a loan of consumption, because there is a transfer of the C. PRECARIUM ownership of the thing, which is generally received for consumption.  One whereby the bailor demand(absolute) the thing loaned at will COMMODATUM VS MUTUUM Not absolute: The actual act of returning the thing. Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 Not consummable Consummable Ownership of the thing loaned Ownership is transferred or delivered is retained by the lender Gratuitous Maybe gratuitous or onerous Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA The borrower must return the The borrower need only oay tge same  The contract ceases to be a commodatum if any compensation identical thing amount of the same kind and quality is to be paid by the borrower who acquires the use. In such case, there arises a lease contract. Involve real or personal Refers to personal property only property  If the consideration is the rendering of some service an Loan of use Loan of consumption innominate contract will result. Bailor may demand the Bailor may not demand its return  No required foem for a commodatum. Since commodatum is a return of the thing loaned before the lapse of the term real contract, delivery of the thing perfects the contract. Until before the expiration of the delivery, there is no contract of commodatum. term, in case of urgent need Loss of the subject matter is Loss of the subject matter is suffered by  Commodatum may be made orally or in writing. In thus regard, suffered by the bailor since the borrower even if caused exclusively commodatum, being gratuitous is not of tye cornerstone of he is the owner by a fortuitous event and he is not commercial life, it usually occurs between friends, relatives therefore, discharge from his duty to and neighbors. pay. NOTE: The bailor need not be owner of the thing loaned. It is sufficient that the bailor gas the right to allow the use of the thing by Art. 1934. An accepted promise to deliver something by way of the bailee. Thus a usufructuary or a lessee can enter into a contract of commodatum or simple loan is binding upon parties, but the commodatum. commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. (n) EXTINGUISHMENT OF THE CONTRACT OF COMMODATUM  The fact that the commodatum and mutuum are real contracts which require the delivery of the subject matter thereof for 1. Expiration of the stipulated period or accomplishment of the their perfection. Delivery is necessary in view of the purpose use of the contract which is transfer either thr use or ownership 2. Return by the bailee of the thing after demand by the bailor, of the thing loaned. in the event that the bailor has urgent need of the thing 3. Return in case of precarium or in the event the bailee COMMODATUM commits ingratitude 4. Loss of the thing Art. 1935. The bailee in commodatum acquires the used of the thing 5. The death of either the bailor or the bailee loaned but not its fruits; if any compensation is to be paid by him who acquires the use, the contract ceases to be a commodatum. (1941a) Art. 1936. Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as  In general, a commodatum covers things that are not when it is merely for exhibition. (n) consummable. If the thing is consummable, then the bailee will not be able to comply with the obligation to return the thing. Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA Illustration: OBLIGATIONS OF THE BAILEE When a person allowed another to build a warehouse on the Art. 1941. The bailee is obliged to pay for the ordinary expenses for former’s house so that the latter may use the property for a certain the use and preservation of the thing loaned. (1743a) period without any payment of rentals. If rental is paid, the contract would be one of lease. PRINCIPAL OBLIGATIONS OF THE BAILEE: A lends to B an oversized bottle of wine to be used as a sample or 6. To take good care of the thing with the diligence of a good for advertisement. If the intention of the parties is to have the father of the family consummable goods loaned returned at the end of the peroos agreed upon, the loan is commodatum not mutuum. 6. Use the thing loaned only for the purpose for which it was loaned and for no other purpose Art. 1937. Movable or immovable property may be the object of commodatum. (n) 6. Pay ordinary expenses for the use and preservation of the thing and a portion of extraordinary expenses arising from Art. 1938. The bailor in commodatum need not be the owner of the the actual use of the thing thing loaned. (n) 6. Return and not to retained the thing loaned except under  The bailor need not be owner of the thing loaned since certain circumstances. ownership does not pass to the borrower in commodatum. It is sufficient if the bailor has such possessory interest in the Art. 1942. The bailee is liable for the loss of the thing, even if it subject matter or right to its use which he may assert against should be through a fortuitous event: the bailee and third person although not against the rightful owner. Hence a mere lessee of the thing of the thing or the usufructuary may lend but the borrower or bailee himself may (1) If he devotes the thing to any purpose different from that for not lend nor lease the thing loaned to him to a third person. which it has been loaned; Art. 1939. Commodatum is purely personal in character. (2) If he keeps it longer than the period stipulated, or after the Consequently: accomplishment of the use for which the commodatum has been constituted; (1) The death of either the bailor or the bailee extinguishes the contract; (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exemption the bailee from responsibility in case of a fortuitous event; (NOTE: It must be express) (2) The bailee can neither lend nor lease the object of the contract to a third person. However, the members of the bailee's household may make use of the thing loaned, unless there is a stipulation to the (4) If he lends or leases the thing to a third person, who is not a contrary, or unless the nature of the thing forbids such use. (n) member of his household; Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA (5) If, being able to save either the thing borrowed or his own thing, Art. 1951. The bailor who, knowing the flaws of the thing loaned, does he chose to save the latter. (1744a and 1745) not advise the bailee of the same, shall be liable to the latter for the damages which he may suffer by reason thereof. (1752)  Manifestation on ingratitude LIABILITY TO PAY DAMAGES FOR KNOWN HIDDEN OBLIGATIONS OF THE BAILOR FLAWS 1. There is flaw or defect in the thing loaned Art. 1946. The bailor cannot demand the return of the thing loaned 2. The flaw or defect is hidden till after the expiration of the period stipulated, or after the 3. The bailor is aware accomplishment of the use for which the commodatum has been 4. He does not advise the bailee constituted. However, if in the meantime, he should have urgent need 5. The bailee suffers damages by reason of said flaw or defect of the thing, he may demand its return or temporary use.  The bailor is made liable in bad faith. The bailee is given the In case of temporary use by the bailor, the contract of commodatum is right to retention until he is paid damages. The same suspended while the thing is in the possession of the bailor. (1749a) responsibility of a bailor in commodatum is imposed on a pledger. When the defect is unknown to the bailor, he is not liable because commodatum is gratuitous. Art. 1949. The bailor shall refund the extraordinary expenses during the contract for the preservation of the thing loaned, provided the Art. 1952. The bailor cannot exempt himself from the payment of bailee brings the same to the knowledge of the bailor before incurring expenses or damages by abandoning the thing to the bailee. (n) them, except when they are so urgent that the reply to the notification cannot be awaited without danger.  The expense and damages may exceed the value of the thing loaned and it would be unfair to allow the bailor to just If the extraordinary expenses arise on the occasion of the actual abandon the thing instead of paying for said expenses or use of the thing by the bailee, even though he acted without fault, damage they shall be borne equally by both the bailor and the bailee, unless  there is a stipulation to the contrary. (1751a) SIMPLE LOAN OR MUTUUM SUMMARY OF RULES ON EXPENSES Art. 1953. A person who receives a loan of money or any other BAILEE BAILOR fungible thing acquires the ownership thereof, and is bound to pay Ordinary expenses for the use of extraordinary expenses for the use to the creditor an equal amount of the same kind and quality. (1753a) the thing of the thing Ordinary expenses for the extraordinary expenses farising CONTRACT OF LOAN VS CONTRACT LEASE preservation of the thing from the actual use of the thing Other expenses foor the use of the CONTRACT OF LOAN CONTRACT F LEASE thing The delivery of money or other One party delivers to another consumable thing to another with some non-consummable thing in promise to repay of the same kind order that the latter may use it and quality but not to a promise to during certain period and return it Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA return the same thing loaned to the former. He does not lose Art. 1955. The obligation of a person who borrows money shall be the ownership but loses the governed by the provisions of Articles 1249 and 1250 of this Code. control over the property. Obligor-obligee relationship Landlord-tenant relationship If what was loaned is a fungible thing other than money, the debtor Creditor receives “payment” for Owner of the property receives owes another thing of the same kind, quantity and quality, even if it his loan “compensation” or “price” in should change in value. In case it is impossible to deliver the same either in money, provisions, kind, its value at the time of the perfection of the loan shall be paid. chattels or labor (1754a)  Art. 1250. In case an extraordinary inflation or deflation of FUNGIBLE VS CONSUMMABLE the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall  Whether the thing is consumable or not depends upon its be the basis of payment, unless there is an agreement to the nature and whether it is fungible or not depends upon the contrary. (n) intention of the parties.  If the thing loaned is money, payment should be made in the currency stipulated. If the agreement is silent on the currency, Art. 1954. A contract whereby one person transfers the ownership of then payment must be made in the currency in which the non-fungible things to another with the obligation on the part of the money was delivered, based on the principle that the borrower latter to give things of the same kind, quantity, and quality shall be must pay “the same amount of the same kind and quality”. If it considered a barter. (n) is not possible to deliver in the relevant currency, payment must be made in the currency which is the legal tender in the MUTUUM VS COMMODATUM VS BARTER Philippines MUTUUM Extinguishment: C  The subject matter is money or any other fungible things  It may be gratuitous or onerous COMMODATUM Art. 1956. No interest shall be due unless it has been expressly  The bailee is bound to return the identical things borrowed stipulated in writing. (1755a) when the time has expired or the purpose has been served ESCALATION CLAUSE, is a stipulation allowing a \n increase in  It is always gratuitous the interest rate originally agreed upon by the parties. BARTER  Any increase in the rate of interest made pursuant to an  The subject matter is non-fungible things escalation clause must be the result of an agreement between the parties.  The equivalent thing is given in return for what has been received Art. 1957. Contract and stipulations, under the cloak or device  It is an onerous contract whatever, intended to circumvent the laws against usury shall be void.  It is really a mutual sale The borrower may recover in accordance with laws on usury. Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566  It is only the stipulation on usurious interest which should be treated as void so that the loan becomes without stipulation to pay interest. Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA  Interest no longer subject to ceiling. The rate will depend on ESSENTIAL REQUISITES OF CONTRACT the agreement of the parties, subject to the power of the courts 1. Consent of the contracting paries to temper the interest rate if they are found unconscionable o iniquitous considering the circumstances of each case. 2. Object certain which is the subject matter of the contract  The parties are now free to stipulate the interest to be paid on 3. Cause of th obligation which established monetary obligations and absent any evidence of fraud, undue influence or any vice of consent exercised by one party against NOTE: Deliver of the thing is also an essentialrequisite of the the other, the interest rate agreed upon is binding upon them. contract. The delivery by the depositor of the thing to the depositary. Art. 1960. If the borrower pays interest when there has been no Transfers possession of the thing in he concept of a depost. Wihout stipulation therefor, the provisions of this Code concerning solutio delivery, the depositary will not be able to comply with its obligation indebiti, or natural obligations, shall be applied, as the case may of safely keeping the thing and returning it. The delivery need to be. (n) consist of an actual delivery of the thing. The delivery must place the thing within the power of the depositary; the depositary cannot keep  This article simply means that if unstipulated interest is paid by mistake, the debtor may recover as this would be a case of and return a thing that wasnot delivered. solutio indebiti or undue payment. But where the unstipulated interest or interest stipulated, there being a OBJECT OF THE CONTRACT stipulation but it is not in writing, is obliged paid voluntarily  Only movable things capable of being delivered may be the because the debtor feels morally obliged to do so, there can be object of a deposit. There may be a contract for the custody no recovery as in the case of natural obligations. and safekeeping of immovable property, but that contract DEPOSIT would not be deemed a contract of deposit unde Article 1962. Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it CAUSE OF THE CONTRACT and of returning the same. If the safekeeping of the thing delivered is  A deposit is essential gratuitous. However, a deposit is an not the principal purpose of the contract, there is no deposit but some onerous contract when the depositrt is oaud fess or when the other contract. (1758a) * it can be a mutuum depositary is engaged in the business of sorting goods, CONTRACT OF DEPOSIT Illustraion: No contract of deposit  Has been defined as principal, real, unilateral or bilateral, gratuitous or onerous contract, whereby a person delivers to FACT: M obtained a P7.3 million loan from the DBP for the another a thing for safekeeping and custody, with the latter construction of a hotel. M entered into a building construction contract having the obligation to return the thing when claimed with BMCI. M purchased various construction materials and equipment in Mnila. MCBI, in turn, deposited them in the warehouse of C. The deposit wasfree of charge. MCBI failed to finish the construction of the hotel at the stipulated time. An action for recission Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA and damages against MCBI. Decision rescinding the contract between failed to prove that there were construction materials and equipment in MCBI and M, and awarding to the latter P445,000 as actual, moral, petitioners’ warehouse at the time he made a demnd for their return. C and liquidated damages; P20,000 representing the increase of the has. No corresponding obligtion or libility to M with respect to those construction materials; and P35,000 as attorney’s fees. MCBI construction materials interposed aan appal to the court of Appeals but the same was dismissed. MCBI elevated the case to the Supreme Court via a petition EXTINGUISHMENT OF DEPOSIT for review on certiorari. Meanwhile during the pendency of the case,  A deposit is extinguished upon the loss or destruction of the M ordered C to return to M the construction materials and equipment thing deposited. which MCBI deposited in C’s warehouse. C, however, told M that  In case of gratuitous deposit, upon the death of either the MCBI withrew those construction materils in 1977. M filed with the depositor or depositary. Regionl Tril Court, Brnch 160, Psig City, an ction for damages with an  The deposit is also extinguish by the return of the thing by the application for a writ of preliminry attchment aginst C. depositary ISSUE: Whether M has the right to demand the release of the DEPOSIT VS MUTUUM materials and the equipment or to claim damages against C? DEPOSIT MUTUUM The principal purpose is The consumption of the subject HELD: 1. contract is binding only upon the parties. Contracts are safekeeping or mere custody matter binding upon the parties who execute them. When there is no privity The depositor can demand the The lender must wait until the of contract, there is likewise no obligation or liability to speak about return of the thing at will expiration of the period granted and thus no cause of action arises. The burdenis on the plaintiff to to the debtor prove the bailment or deposit and the performance of conditions Both movable or immovable Only money or other precedent to the right of action. Depositary is obliged to return the may be the object consumable thing may be the thing to the depositor, or to his heirs or successors, or to the person object who my have been designated in the contract. DEPOSIT VS COMMODATUM 2. CONTRACT OF DEPOSIT NOT PROVEN There was indeed a contract of deposit between C and MCBI, it is still incumbent upon M to prove its existence and ht it was executed in his favior, M miserably filed to do so. The only pieces of evience M presented to prove the conract of deposit were the delivey receipts. They are usigned nd not duly receive authenticated by either MCBI, C or M. Or any of their representatives. Delivery receipts have. No probative val at all. Every cause of action excontrctu must be founde upon a cntract, oral or written, express or implied. M also Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 DEPOSIT COMMODATUM The principal purpose is It is the transfer of use safekeeping or mere custody Deposit may be gratuitous It is essentially and always gratuitous In extrjudicial deposit, only Both movable and immovable movable things may be the property may be the object object Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA Art. 1963. An agreement to constitute a deposit is binding, but the VOLUNTARY VS NECESSARY deposit itself is not perfected until the delivery of the thing.  The chief difference between a voluntary deposit and a necessary deposit is that in voluntary, the depositor has  A deposit is a real contract and is, therefore, perfected only complete freedom in choosing the depositary, whereas in upon delivery of the object of the contract. Where there has necessary, there is a lack of free choice in the depositor. been no delivery, there is merely an agreement to deposit which, however, is binding and enforceable upon the parties Art. 1969. A contract of deposit may be entered into orally or in  A contract of future deposit is consensual writing  There is no required form for deposit. A deposit may be Art. 1964. A deposit may be constituted judicially or extrajudicial entered into orally or in writing. Since deposit is a real NOTE: In a deposit, it is essential that the depositorary is not the contract, delivery of the thing perfects the contract. Prior to owner of the thing deposited. delivery, there may be an agreement to constitute a deposit, which is nevertheless binding upon parties. KINDS OF DEPOSIT 1. Judicial or one that takes place when an attachment or seizure Art. 1970. If a person having capacity to contract accepts a deposit of. Property in litigation is ordered made by one who is incapacitated, the former shall be subject to all 2. Extrajudicial the obligations of a depositary, and may be compelled to return the a. Voluntary or one wherein the delivery is made by the thing by the guardian, or administrator of the person who made will of the depositor or by two or more persons each of the deposit, or by the latter himself if he should acquire capacity. whom believes himself entitled to the thing deposited b. Necessary or one made in compliance with a legal obligation, or on occasion of calamity, or by WHERE DEPOSITARY CAPACITATED AND DEPOSITOR travellers in hotels and inns or by travellers with INCAPACITATED common carrier.  If the depositary is capacitated, he is suject to all the obligations of a depositary whether or not the depositor is VOLUNTARY DEPOSIT capacitated. The depositary must return the property to the Art. 1968. A voluntary deposit is that wherein the delivery is made legal representative of the incapacitated or to the depositor by the will of the depositor. A deposit may also be made by two or himself if he should acquire capacity. more persons each of whom believes himself entitled to the thing  The depositary may be compelled to return the thing by the deposited with a third person who shall deliver it in a proper case to depositor if the depositor should acquire capacity this implies the one to whom it belongs. that the depositor cannot be compelled by the incapacitated depositor to return the thing to such depositor. If the depositary learns that the depositor is incapacitated, it is best for the Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 depositor to contact the depositor’s guardian or administrator in subject to the right of any third person who acquired the relatio to the return of the thing. thing good faith. STATUS OF CONTRACT Illustration: A deposited a watch with B, a minor who 1. Where one of the parties to the contract of deposit is sold it to C. If C acted in bad faith, A may recover te incapacitated to give consent to te contract. Applying the watch from him. But if C acted in good faih, A’s only general provisions of contract of law, such contract is recourse is against b to compel him to return the price voidable. received for the watch or the amount by which he may 2. Where both parties are incapable of giving consent to a have benefited himself. contract, the contract is unenforceable. In this regard, express or implied ratification by the parent or guardian, as the case OBLIGATIONS OF THE DEPOSITORY may be, of one of the contracting parties will give the contract the same effect as if one of them were incapacitated. If Art. 1972. The depositary is obliged to keep the thing safely and ratification is made by the parents or guardians, as the case return it, when required, to the depositor, or to his heirs and may be, of both contracting parties, the contract shall be successors, or to the person who may have been designated in the validated from its inception. contract. His responsibility, with reagrd to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Art. 1971. If the deposit has been made by a capacitated person with Book. another who is not, the depositor shall only have an action to recover the thing deposited while it is till in possession of the depositary, or If the deposit is gratuitous, this fact shall be taken into account in to compel the latter to pay him the amount by which he may be determining the degree of care that te depositary must observe. enriched or benefited himself with the thing or its price. However, if a third person who acquired the thing acted in bad faith, the EXCEPTION: If the thing deposited is hazardous or perishable depositor may bring an action against him for its recovery. EXCEPTION TO THE EXCEPTION: The fact of good being perishable is not communicated to depositary WHERE DEPOSITARY IS INCAPACITATED AND DEPOSITOR CAPACITATED PRINCIPAL OBLIGATIONS OF THE DEPOSITARY:  The incapacitated depositary(minor or an insane person) does 1. To keep the thing not incur obligation of a depositary. However, he is liable; 2. To not use the thing 1. To retur the thing deposited while still in his possession 3. To return the thing (upon demand, upon the expiration of 2. If the thing deposited is no longer in his possessio, to agreed period) pay the depositor the amount by which he may have  The depositary may return the thing if it is making a been benefited himself with the thing or its price burdensome Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA IN RELATION TO THE OBLIGATION TO KEEP THE THING, 3. The depositary is only custodian who acts in the exclusive THE DEPOSITARY HAS THE FOLLOWING RELATED interest of the depositor and must therefore e willing at all OBLIGATIONS: times tomake the delivery to the depositor. The depositary 1. To keep the thing safely must, as a rule, return the thing deposited upon demand. 2. To not deposit the thing with a third person 4. As a rule, the depositary must return the thing t the place 3. To not change the way of the deposit designated for its return. In the absence of stipulation, at the 4. To collect interest on certificates when they become due and place where the thing deposited might be even if it should be preserve not the same place where the original deposit es made provided 5. To not commingle grain and other articles of the same kind the transfer was accomplished without malice on the part of the and quality if there is a stipulation to the contrary. depositary IN RELATION TO THE OBLIGATION TO RETURN THE THING, THE DEPOSITARY HAS THE FOLLOWING Art. 1973. Unless there is a stipulation to the contrary, the depositary RELATED OBLIGATIONS: cannot deposit the thing with a third person. If deposit with a 1. To return the thing with all its products, accessories and third person is allowed, the depositary is liable for the loss if he accessions deposited the thing with a person who is manifestly careless or 2. To return the thing closed and sealed if delivered in such unfit. The depositary is responsible for the negligence of his condition. employees. (n)  In rgent cases, the depositary may deposit the thing with a tird OBLIGATIONS TO RETURN person if such is necessary for the preservation of the thing. If 1. The depositary must return the thing received, together with all the depositary urgently needs to deposit the thing with a third its products, accessories and accessions person in order to preserve the thing and there is no more time  If the depositary y force majeure loses the thing and receives to otain the depositor’s consent, the depositary should money or another thing in its place, he must deliver the sum of generally not e liabble for the transfer of deposit, unless the money or other thing received to the depositor third person is manifestly unfit or careless.  If the depositary’s heir sells the thing sold in good faith, he is only ound to return the price he may received.  If the thing deteriorates while in the custody of the depositary, Art. 1977. The depositary cannot make use of the thing deposited the depositary will return the thing to the depositor in the without the express permission of the depositor. Otherwise, he shall deteriorated state. In the asence of fault on the part of the be liable for damages. However, when the preservation of the thing depositary, the depositary cannot e held iale for the deposited requires its use, it must be used but only for that deterioration suffered by the thing. purpose. (1767a) 2. As a rule, the depositary must return the thing to the depositor, or to his heirs and successors, or to the person designated in the  Unauthorized use by the depositary would make him liale for contract. damages. But the depositary may make use of the thing Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA deposited even without the express permission of the depositer ISSUE: Was the contract entered into by the parties where such use is necessary for its preservation, but the use is a deposit or loan? limited for that purpose only. HELD: A real loan. Notwithstanding that in the Art. 1978. When the depositary has permission to use the thing original document it was called deposit. They did not deposited, the contract loses the concept of a deposit and becomes engaged to return the same money received. For this a loan or commodatum, except where safekeeping is still the reason, the debtors were lawfully authorized to make us principal purpose of the contract. of the amount deposited, and susequently sked for an extension of thetime for the return thereof, is 1. If the thing deposited is non-consumable acknowleding that they have sujected C, as their  If the thing deposited is non-consummable and the creditor. Such conduct of A and unquestionaly showed depositary has permission to use the thing, the contract that the transaction was not a deposit but a real contract loses the character of a deposit and acquires that of a of loan. commodatum. Unless safekeeping is still the principal purpose of the contract. The permission shall not be presumed, and its existence must be 2. If the thing deposited id money or other consumable thing proved. (1768a)  If the thing deposited is money or other consummable and the depositary has permission to use the thing, it Art. 1979. The depositary is liable for the loss of the thing through will result in its consumption nd converts the contract a fortuitous event: in a simple loan or mutuum. Unless safekeeping is still the principal purpose of the contract. (1) If it is so stipulated; Illustration: (2) If he uses the thing without the depositor's permission; FACTS: A and B received from C: (3) If he delays its return; “As a deposit withou interest, the dum of P2,600, which they will return, jointly and severally, on (4) If he allows others to use it, even though he himself may January 20, 1898” have been authorized to use the same. (n) When the obligation became due, A and B begged C for an extension of time for the payment thereof, binding  The owner of the thing deposited generally suffers the risk of themselves to pay interest at the rate of 15% of the loss through a fortuitous event. Thus, the depositary is not liale amount of their indetedness, to which C acceded. for loss through a fortuitous event without his fault. Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA Art. 1981. When the thing deposited is delivered closed and sealed,  The young of an animal which was deposited shall be returned the depositary must return it in the same condition, and he shall to the depositor. be liable for damages should the seal or lock be broken through his fault. Art. 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited. Fault on the part of the depositary is presumed, unless there is proof to the contrary. Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit. As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to If the owner, in spite of such information, does not claim it within the the depositary, should there be no proof to the contrary. However, the period of one month, the depositary shall be relieved of all courts may pass upon the credibility of the depositor with respect responsibility by returning the thing deposited to the depositor. to the value claimed by him. If the depositary has reasonable grounds to believe that the thing has When the seal or lock is broken, with or without the depositary's not been lawfully acquired by the depositor, the former may return the fault, he shall keep the secret of the deposit. (1769a) same. (1771a)  It involves envelope  The depositary cannot require that the depositor prove his  It absolute not to open the closed and sealed thing ownership over the thing. deposited. An exception is Art. 1982  To constitute a deposit, it is not essential that the depositor e the owner of the thing deposited, and to acquire proof of Art. 1982. When it becomes necessary to open a locked box or ownership may open the door to fraud and ad faith, for the receptacle, the depositary is presumed authorized to do so, if the depositary, on the pretense of requiring proof of ownership key has been delivered to him; or when the instructions of the may be able to retain the thing depositor as regards the deposit cannot be executed without opening the box or receptacle. (n) Art. 1985. When there are two or more depositors, if they are not solidary, and the thing admits of division, each one cannot demand  Exception to art. 1981 more than his share. Art. 1983. The thing deposited shall be returned with all its When there is solidarity or the thing does not admit of division, the products, accessories and accessions. provisions of Articles 1212 and 1214 shall govern. However, if there is a stipulation that the thing should be returned to one of the depositors, Should the deposit consist of money, the provisions relative to agents the depositary shall return it only to the person designated. (1772a) in article 1896 shall be applied to the depositary. (1770) Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA OBLIGATIONS OF DEPOSITOR (2) In case of a gratuitous deposit, upon the death of either the depositor or the depositary. (n) Art. 1992. If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for the expenses he may have incurred for the  The deposit is also extinguish upon the: preservation of the thing deposited. (1779a) 1. loss or destruction;  It rest on equity 2. in case of gratuitous deposit, upon the death of either the  Without the duty to reimbursement imposed by the article, the depositary; depositor would be enriching himself at the expense of the 3. The return of the thing by the depositary; depositary. 4. The conversion of a deposit into another contract if the  The right to reimbursement covers all expenses for deposit allows the depositary to use the thing preservation, whether ordinary or extraordinary. The law refers to necessary expenses NOTE: compensation as a mode of extinguishment of obligations is  Useful expenses and expenses for pure luxury and mere not applicale to deposit. Under art. 1287, compensation is not proper pleasure are not covered when one of the debts arises from a deposit or from the obligations of a depositary or of a ailee in commodatum Art. 1993. The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited, unless at the time of NECESSARY DEPOSIT the constitution of the deposit the former was not aware of, or was not expected to know the dangerous character of the thing, or unless he Art. 1996. A deposit is necessary: notified the depositary of the same, or the latter was aware of it without advice from the depositor. (n) (1) When it is made in compliance with a legal obligation; Art. 1994. The depositary may retain the thing in pledge until the full (2) When it takes place on the occasion of any calamity, such payment of what may be due him by reason of the deposit. (1780) as fire, storm, flood, pillage, shipwreck, or other similar events. (1781a)  It will include the expenses incurred under Article 1992, the indemnification for any loss suffered pursuant to Art. 1993,  The more immedite object is to save the property rather than its and any agreed remuneration in case of onerous deposits safekeeping. Art. 1995. A deposit its extinguished: Illustration: Thus if X saves Y’s television in case of fire, X is supposed to be its depositary (1) Upon the loss or destruction of the thing deposited Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA Art. 1997. The deposit referred to in No. 1 of the preceding article employees as well as by strangers, provided that notice has shall be governed by the provisions of the law establishing it, and in been given and proper precautions taken case of its deficiency, by the rules on voluntary deposit.  Hotel-keeper is liable if the loss caused by the act of thief or robber done without the use of arms and irresistable force, in The deposit mentioned in No. 2 of the preceding article shall be this case, the hotel-keeper is negligent regulated by the provisions concerning voluntary deposit and by Article 2168. (1782) Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the Art. 1998. The deposit of effects made by the travellers in hotels or loss arises from the character of the things brought into the hotel. (n) inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that Art. 2003. The hotel-keeper cannot free himself from responsibility by notice was given to them, or to their employees, of the effects posting notices to the effect that he is not liable for the articles brought brought by the guests and that, on the part of the latter, they take by the guest. Any stipulation between the hotel-keeper and the guest the precautions which said hotel-keepers or their substitutes whereby the responsibility of the former as set forth in articles 1998 to advised relative to the care and vigilance of their effects. (1783) 2001 is suppressed or diminished shall be void. (n) Art. 1999. The hotel-keeper is liable for the vehicles, animals and Art. 2004. The hotel-keeper has a right to retain the things brought articles which have been introduced or placed in the annexes of the into the hotel by the guest, as a security for credits on account of hotel. (n) lodging, and supplies usually furnished to hotel guests. (n) Art. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests SEQUESTRATION OR JUDICIAL DEPOSIT caused by the servants or employees of the keepers of hotels or inns as well as strangers; but not that which may proceed from any force Art. 2005. A judicial deposit or sequestration takes place when an majeure. The fact that travellers are constrained to rely on the attachment or seizure of property in litigation is ordered. (1785) vigilance of the keeper of the hotels or inns shall be considered in determining the degree of care required of him. (1784a) Art. 2006. Movable as well as immovable property may be the object of sequestration. (1786) Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or Art. 2007. The depositary of property or objects sequestrated cannot through an irresistible force. (n) be relieved of his responsibility until the controversy which gave rise thereto has come to an end, unless the court so orders. (1787a)  Hotel-keeper is liale provided that the losss or injury to the personal property of te guests is caused y his servants or Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA Art. 2008. The depositary of property sequestrated is bound to  The person who caused the storage of goods with the comply, with respect to the same, with all the obligations of a good warehouseman or otherwise claims to be the person father of a family. (1788) entitled to the delivery of goods while being in possession of a warehouse receipt. BANK DEPOSIT NO PARTICULAR FORM REQUIRED  Bank deposits consist of money placed into banking Terms Included: institutions for safekeeping. These deposits are made to Location of the warehouse deposit accounts such as savings accounts, checking accounts and money market accounts. The account holder has Date of Issue the right to withdraw deposited funds, as set forth in the terms and conditions governing the account agreement. Receipt Number WAREHOUSE RECEIPTS Statement whether the goods shall be delivered to BEARER, to a ACT NO. 2137 – THE WAREHOUSE RECEIPTS LAW SPECIFIED PERSON, or to a SPECIFIED PERSON OR HIS ORDER What is a Warehouse Receipt? Rate of Storage Charges  A document issued by the warehouseman in favor of the owner of goods stored or caused to be stored in a Description of GOODS or the warehouse as proof of ownership of said goods and as PACKAGE containing them proof of storage. Signature of the Warehouseman or Warehouseman his agent Other Terms:  The person who is in charge of managing and/or Fact of ownership by Warehouseman of maintaining the warehouse in which goods are goods, if that is the case stored. Statement of advances made and of  The person who keeps the goods stored in a warehouse. liabilities incurred for which the  A person engaged in the warehouse business – storing warehouseman claims a lien, IF ANY goods for profit. Function of Terms: Owner 1.Identifies the LOCATION where the goods are stored Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA 2.Sets the date from which the storage started  General Rule: The WAREHOUSEMAN is liable for 3.Identifies the PARTIES to the storage transaction; loss or damage to the owner’s goods. (A warehouse 4.Identifies the PARTIES liable on the document transaction is similar to an onerous deposit – the 5.Identifies the GOODS stored or the warehouseman has the obligation to SAFEKEEP the PACKAGEcontaining them goods stored.) 6. Sets the COST storage  The extent of liability of the warehouseman is defined by LAW but may be limited by the POINTS TO REMEMBER: agreement of the parties, but in no case shall the warehouseman be allowed to exercise a IDENTITY OF GOODS degree of diligence less than ordinary diligence.  General Rule: The OWNER MUST DECLARE the  Exceptions: identity of the goods 1.The OWNER misdeclared the identity of his  Exception: The owner may DECLINE from goods. 2.The OWNER was negligent in the identifying his goods but he must IDENTIFY the packaging of his CONTAINER or the PACKAGE in which his goods goods. are stored 3.The loss or damage is PURELY due to a fortuitous event. EFFECT OF NON-DECLARATION: The warehouseman 4.The loss or damage was done by authority of law. will not be liable for deterioration of the goods, loss, damage or substitution by third persons for as long as due POINTS TO REMEMBER: diligence is observed. The warehouseman will not be liable for violation of law in case the goods stored are WAREHOUSEMAN’S LIEN CONTRABAND.  General Rule: The OWNER must pay the warehouseman his FEES and the expenses of POINTS TO REMEMBER: storage, BEFORE the goods may be released.  If the owner refuses to pay storage fees and LOSS OR DAMAGE TO GOODS expenses, the warehouseman may REFUSE to release the goods. Fees and expensesshall be constituted as a LIEN on the goods. Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA delivered to the bearer or to the order of any person named in the receipt. (Section 5, WRL)  A negotiable receipt shall NOT be marked “non- POINTS TO REMEMBER: negotiable.” Query: When is a warehouse receipt non-negotiable? NEGOTIABILITY OF A WAREHOUSE RECEIPT Answer: A warehouse receipt is non-negotiable when it states that the goods received by the warehouseman will be Query: Is a warehouse receipt a negotiable instrument? delivered to the depositor or a specified person. (Section 4, Answer: Under Act No. 2031 (Negotiable Instruments WRL) Law), a warehouse receipt is NOT a negotiable  A non-negotiable receipt shall be marked “non- instrument because it does not contain a promise or negotiable” otherwise the holder for value may treat order to pay a sum certain in money. it as negotiabl Under Act No. 2137 (Warehouse Receipts Law), a POINTS TO REMEMBER: warehouse receipt is considered a negotiable instrument provided it has satisfied the requirements for it to be NEGOTIABILITY OF A WAREHOUSE RECEIPT capable of negotiation. Query: How may a negotiable receipt be negotiated? POINTS TO REMEMBER: Answer: By SIMPLE DELIVERY or by INDORSEMENT WITH DELIVERY NEGOTIABILITY OF A WAREHOUSE RECEIPT BY SIMPLE DELIVERY Query: What determines the negotiability of a warehouse  Where by the terms of the receipt, the receipt? warehouseman undertakes to deliver the goods to the Answer: The terms (tenor) of the receipt determines bearer of the receipt; OR whether a warehouse receipt is negotiable or non-  Where by the terms of the receipt, the warehouseman negotiable. undertakes to deliver the goods to the order of a specified person AND such specified person indorsed Query: When is a warehouse receipt negotiable? the receipt in blank or INDORSED IT TO Answer: A warehouse receipt is negotiable when it states BEARER (e.g. “pay to bearer”) that the goods received by the warehouseman will be Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA  If the receipt, DELIVERABLE TO BEARER is If a person binds himself solidarily with the principal debtor, the indorsed and negotiated, the receipt may be provisions of Section 4, Chapter 3, Title I of this Book shall be observed. FURTHER NEGOTIATED ONLY BY In such case the contract is called a suretyship. (1822a) INDORSEMENT WITH DELIVERY. POINTS TO REMEMBER: NEGOTIABILITY OF A WAREHOUSE RECEIPT Query: How may a negotiable receipt be negotiated? Answer: By SIMPLE DELIVERY or by INDORSEMENT WITH DELIVERY BY INDORSEMENT WITH DELIVERY  Where the goods are deliverable to the bearer of the receipt and it indorsed (e.g. ordered by the bearer to be deliverable to a specified person)  The indorsement may be an INDORSEMENT IN BLANK, an INDORSEMENT TO BEARER or an INDORSEMENT TO A SPECIFIED PERSON. GUARANTY AND SURETYSHIP Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566  In its broader sense, the guaranty includes pledge and mortgage because the purpose of guaranty may be accomplished not only by securing the fulfillment of an obligation contracted by the principal debtor through the personal guaranty of a third person but also by furnishing to the creditor for his security, property with auhority to collect the debt from proceeds of the same in case of default CHARACTERISTICS OF THE CONTRACT 1. It is a consensual contract, because it is perfected by mere consent subjec to Statute of Fraud 2. It is generally unilateral contract 2.1. It give rise only to a duty on the part of the guarantor in relation to the creditor and not vice versa although after its fulfillment, the principal debtor becomes liable to indemnify the guarantor but this is merely an incident of the cotnract. 2.2. It may be entered into even without the intervention of the principal debtor 3. It is an accessory contract, because it is dependent for its existence upon the principal obligation guaranteed by it. It is also subsidiary and conditional because it takes effect only when the principal debtor fails in his obligation, subject to certain limitations. 4. It is formal contract, because it is governed by the Statute of Frauds 5. It is generally a gratuitous contract but it may be an onerous contract. SOURCE OF THE GUARANTOR’S OBLIGATIONS Downloaded by Kikaru Plays ([email protected])  lOMoARcPSD|22845566 REVIEWER IN CREDIT TRANSACTIONS UNIVERSITY OF CORDILLERAS NOTES BY: HECTOR DE LEON COLLEGE OF LAW LECTURE BY: ATTY. VERGARA  As a rule, the obligations of the guarantor arise from the SURETYSHIP contract entered into y the creditor and the guarantor. In addition, the guarantor’s obligations may arise from a contract  A relaion which exists where one person has undertaken an entered into by the debtor and the guarantor, in which the obligation and another person (surety) is also under a direct guarantor binds himself to fulfill the debtor’s obligation if the and primary obligation or other duty to a third person (obligee), latter should fail to do so. who is entitled to but one performance, and as between the two  The creditor may demand its fulfillment provided the creditor who are bound, the one rather than the other should perform communicated his acceptance to the guarantor before its  Surety is a contractual relation resulting from an revocation. agreement whereby one person, the surety, engages to be answerable to a third person, the obligee/creditor, for the SCOPE OF GUARANTEE debt, default, or miscarriage of another known as the principal or obligor/debtor 1) The principal obligations of the debtor  It invovlves two(2) relationship; the principal relationship 2) The accessory obligations pertaining to the principal between the obligee and the obligor, and the accessory obligations relationship between the principal and the surety 3) The obligations that arise as a matter of law from the guaranteed obligations, such as the payment of interest in case LAW APPLICABLE TO CONTRACT OF SURETYSHIP of delay 4) The obligation to pay judicial costs incurred after the guarantor 1) If a person binds himself solidarily with the principal debtor, has been judicially required to pay. the contract is called suretyship and the guarantor is called a surety. In a suretyship agreement, the surety guarantees PAYMENT BY THE GUARANTOR the performance by the principal obligor of n obligation or undertaking in favor of the obligee.  The guarantor must pay in the a mnner provided in the 2) The Supreme Court has applied the following provisions on principal contract. In the absence of any express provision in guarantee to a suretyship: the principal contract or in the contract of guarantee, payment a. Art. 2066. The guarantor who pays for a debtor must be must be made as follows: indemnified by the latter. The indemnity comprises: A. Place of payment, in the absence of an express (1) The total amount of the debt; stipulation on place of payment, the place of payment (2) The legal interests thereon from the time the must be at the domicile of the debtor payment was made known to the debtor, even though it B. Time of payment, in general, the guarantor must pay did not earn interest for the creditor; as soon the creditor was unsuccessful in exhausting th