2013 Midterms No.
The contract of chattel mortgage as security for the
IA (10/10)
The two kinds of loan as provided for in Article 1933 of
the New Civil Code are Contracts of commodatum and
contracts of mutuum.
The two contracts of loan can be distinguished in the
following ways:
a. As to the object, the contract of commodatum involves
non-consumable things while contract of mutuum involve
consumable things;
b. The contract of commodatum is essentially gratuitous,
while mutuum may or may not be gratuitous;
c. In the contract of commodatum, the purpose if for the
use or temporary possession of the thing loaned, while
in mutuum the purpose is the consumption of the thing;
d. In the contract of commodatum, the ownership of the
thing loaned does not pass to the bailee, while in
mutuum ownership of the thing loaned is transferred to
the debtor;
e. In commodatum the thing loaned may be returned
even before the expiration of the contract or term like in
the case of urgent need by the bailor, while in mutuum
the thing of the same kind and quality may be paid or
given only after the expiration of the term.
IB
The consequences of the purely personal nature of a
contract of commodatum are the following:
1. Upon the death of any of the party, either bailee or
bailor or both the contract will be extinguished. Hence, it
can not be transferred to the heirs of any of the party.
Except if there is a stipulation in the contract to the
contrary.
2. The thing loaned can neither be lend or lease to a
third person. Exceptions are the members of the
household of the bailee which is not considered third
person in the contract of commodatum. However, the
parties may make a stipulation to the contrary or if the
nature of the thing loaned forbids such use.
II (10/10)
The acts of ingratitude committed by the bailee that
would allow the bailor to demand the immediate return of
the object of commodatum as specified in Article 756 of
the New Civil Code, are as follows:
a. If the bailee make or incur damage against the
person, honor, or property of the bailor, or his wife or
children under his parental authority;
b. If the bailee imputes any acts of criminal offenses
involving moral turpitude against the bailor, even if he
must prove the same, unless if the acts or offenses are
made against the person, honor, or property of the
bailee, his wife or children under his authority; and
c. If the bailee unduly refuses to extend support to the
bailor if the former is morally and legally bound to give
support to the latter.
The rationale behind this provisions on donations as
applied in commodatum is that both the donation and
commodatum are gratuitous in nature.
IIIA (9/10)
loan is only an accessory contract and subsidiary.
Hence, even if the object of the chattel mortgage is lost
or destroyed due to a fortuitous event, the contract of
loan still subsists being a principal contract. A contract of
loan does depend on the existence of a chattel
mortgage, although the latter may be made a
consideration in the perfection of the former.
It is a provided in the law, that the existence of a
principal contract does not depend on the accessory
contract. It is the latter that depends its existence on the
validity of the principal contract.
In the case at bar, the chattel mortgage being a security
to the contract of loan is only an accessory contract.
Hence, the obligation of A to pay the loan is not
extinguished.
IIIB
In case of obligations to pay money, the following rules
will govern:
The payment of money in any borrowings or contract of
loan shall be paid in the currency stipulated by the
parties, or any currency which is a legal tender in the
Philippines.
In case of payment through the delivery of a promissory
note, bill of exchange or any mercantile documents the
payment does extinguished the obligation until the same
is encashed, or if through the acts of the creditor the
value of the said document is impaired.
In case of extraordinary inflation or deflation, the value of
the currency at the time of the perfection of the contract
shall be the basis or be made the value of the currency.
IV (20/20)
In the case at bar, the action for the collection of
P20,000, the principal amount is no doubt will prosper.
The issue on interest that was verbally agreed to by A
and B is questionable. The law provides that the
inclusion of interest in any contract should be expressly
made in writing in order to be valid. Hence, the interest
of 12% verbally agreed to by A and B is void. The action
for the collection of interest will not prosper.
However, the law provides that in case there is default in
payment by the debtor, without stipulation to the
contrary, the indemnity for damages shall be in the form
of legal interest. Hence it cannot be said that there is no
interest that can be collected whatsoever. In the case at
bar, when B demanded payment from A on Jan. 5, 2012
when the obligation became due which A defaulted, the
legal interest may be collected on that very day.
The law further provides that an interest may be accrued
on the legal interest from the time it is judicially
demanded. Thus, when B filed a complaint against A for
the recovery of the loan plus interest at 12% on Jan. 5,
2014, an interest may be computed on that day based
on the legal interest to be computed from Jan. 5, 2012
up to Jan. 5, 2014 when B made the judicial demand.
V (8/10)
The rules on the things deposited that is delivered
closed and sealed are the following:
When the thing deposited delivered closed and sealed
has been broken or forcibly opened, the depositary is
presumed to be liable, unless there is a proof to the
contrary.
The statement made by the depositor on the value of the
things deposited shall be accepted by the court unless
the contrary is provided by the depositary. The credibility
of the depositor will be considered by the court as to the
amount being claimed by the depositor on the value of
the thing.
In case there is damage or thing delivered closed and
sealed is found to be open with or without the fault of the
depositary, the secret of the things inside must be kept
safely by the depositary.
VI (4/)
If the creditor wants to hold the guarantor liable, he must
first file a complaint for the collection of the loan against
the principal debtor. The liability of the guarantor being
only solidary to that of the principal debtor. Hence, the
guarantor can only be held liable when the principal
debtor fails to pay.
Upon default of the debtor, the creditor now can proceed
against the guarantor so that the latter may exercise his
right of excecession and be made aware of the non-
payment of the principal debtor.
VIIA (10/10)
The guarantor even before having paid, may proceed
against the principal debtor in the following:
1. When the guarantor is being sued for payment;
2. When the principal debtor is insolvent;
3. If the principal debtor bound himself to relieve the
guarantor of his liability for a specified time and the
specified period has elapsed;
4. If the obligation became demandable and the principal
debtor does not pay the same; and
5. If there is an imminent danger that the principal debtor
may absond.
In the case at bar, B neglected to sure or attempt to
collect from A, the principal debtor, when his obligation
fell due. Thusly, B must suffer the consequences of his
negligence. B should have made a demand before A’s
insolvency occurs. The guarantor, C, if there is demand
made to A may have been able to exercise his right to
succession and the right to be notified of the non-
payment of A in case the later fails to pay.
IX (2/10)
It is true that S, being the surety, is solidary liable to the
creditor with the debtor. Hence, if S paid the obligation of
the principal debtor he will have the right of subrogation
as to all the rights what the creditor may have against
the debtor. This right can only be exercised if the
principal debtor does not pay his obligation to the
creditor.
In the case at bar, the property of was sold under
execution in order for the proceeds to be applied as
payment to his obligation to C. Hence, B in this case can
not be considered as not paying his obligation or in
default. The right of subrogation as alleged by S can’t be
merited. At most, S can only be indemnified or refunded
by the amount which the principal debtor D has been
benefited. S cannot be allowed to redeem the said
property in execution. It would be unjust if he will be
allowed to redeem such property which D still owns
pending execution. D is clearly not yet in default.

VIIB
The rights of the guarantor, after he has paid the
obligations of the principal debtor are the following:
1. The right to be indemnified of the following:
a. The total amount paid by the guarantor;
b. The legal interest that maybe collected from the time
the guarantor informed the debtor of the payment;
c. The expenses incurred in informing the debtor of the
said payment; and
d. Any damages that may be provided by law.
2. The right to be subrogated to all the right of the
creditor against the principal debtor.

VIII (2/10)
As guarantor, C is subsidiary liable in case the principal
debtor fails to pay his obligation. He guaranteed the
ability of the principal debtor to pay his obligation.
Hence, if upon due demand for payment of his obligation
and the debtor fails to pay, the liability now of the
guarantor to pay the obligation exist. Therefore, there
must be a collection or demand first on the part of the
principal debtor before the guarantor can be made liable.
 2014 Midterms
I (10/10)
The New Civil Code provides that:
In a contract of commodatum, the bailor can demand the
return of the object even prior to the end of its term or
completion of its use when the bailor has the urgent
need of the thing. The bailor can demand its return or
temporary use. The bailor can also demand the return of
the object even prior to the end of its term or completion
of its use when the bailee has committed an act of
ingratitude.
The following are considered acts of ingratitude:
1. When the bailee commits any offense against
the person, the honor or the property of the bailor, his
wife or children under his parental authority;
2. When the bailee imputes to the bailor any
criminal offense or an act involving moral turpitude, even
if he should prove it, unless the criminal offense or act
involving moral turpitude was committed against the
bailee himself, or his wife or children under his parental
authority;
3. When the bailee refuses to support the bailor
when the bailee is legally or morally bound to support
the bailor.
The bailor can also demand the return of the thing at will,
and the contractual relation is called precarium in the
following cases:
1. Neither the use or purpose of thing nor the
period of its use has been stipulated
2. The use of the thing is merely tolerated by the
bailor.
IIA (5/5)
Francisco should bear the P50,000.00 spent for the
repairs. The repairs are considered extraordinary
expenses. As a rule, if the bailee incurs extraordinary
expenses during the contract, the bailor shall reimburse
the bailee for such expenses. However, the bailee
should inform the bailor before incurring the expenses
unless the reply to the notification cannot be awaited
without danger. In this case, Francisco did not inform
first Ignacio the he will tune-up and repair the car. The
prior notification to the bailor is required by law before
the bailee can demand reimbursement.
IIB (5/5)
Francisco should bear the costs for the SUV’s fuel, oil
and other materials while it was with him. The law
provides that ordinary expenses during the contract for
the preservation of the thing loaned, shall be borne by
the bailee. Here, the fuel, oil are considered ordinary
expenses for the preservation of the thing.
IIC (2/5)
Yes, Ignacio has the right to retrieve the van before the
lapse of one year. The law provides that the bailee
cannot lend nor lease the thing loaned to a third person,
except with the members of the bailee’s household.
Here, the bailee leased the car to a third person. The
bailee committed breach of contract. The contract of
commodatum is based upon the trust and confidence of
the bailor to the bailee. When the bailee has committed
a breach of contract, the bailor can demand the return of
the thing loaned even before the stipulated period.
IID (5/5)
Francisco and Ignacio shall bear the expenses for the
accidental damages by the cargo truck. The law
provides that in expenses which arise from the actual
use of the thing, shall with or without the fault of the
bailee, the bailor and the bailee shall both bear such
expenses unless there is a stipulation to the contrary. In
this case, the accident happened during the actual use
of the bailee. Francisco and Ignacio should bear the
expenses because there is no stipulation to the contrary.
III (12/20)
The action will prosper. However, with respect to the
interest, A cannot be compelled to pay the interest
because their agreement was not reduced in writing. The
law provides that no interest shall be due and
demandable if it is not reduced in writing. In this case,
the contract is not evidenced by any writing. Thus, B
cannot claim the 12% interest P.A. However, A is liable
to pay the loan plus the interest in the form of damages.
This damages is not the interest for the use of money.
This interest is imposed by law because of the delay of
the payment. This interest need not be reduced in
writing.
IV (10/10)
In a contract of mutuum, an accrued interest earn
interest when:
1. If it is stipulated
2. There is a judicial demand made by the creditor.
V (7/10)
The New Civil Code provides that:
When the thing deposited is delivered closed/locked and
sealed, the depositary shall return it in the same
condition. The statement of the depositor shall be
accepted and the depositary shall be liable if the forcible
opening is imputable to the depositary, unless there is a
proof to the contrary. However, the court shall pass upon
the credibility of the depositor with respect to the amount
claimed by him. The fault of the depositary is presumed
unless the contrary is proven.
If the depositary is authorized by the depositor, or when
the depositary cannot make the request of depositor
without opening the locked box or receptacle, he may
open such locked box or receptacle.
If the locked box or receptacle has been opened with or
without the fault of the depositary, the depositary shall
keep the secrets thereof.
VI (10/10)
C’s liability is to pay the price of the watch to A. The law
provides that when the depositary died, and his heirs,
not knowing that the thing has been merely deposited
and sold it to a third person is liable to the depositor for
the price received. If the third person has not yet paid
the price, the heir may assign to the depositor his right to
collect the price. But if the third person is in bad faith, the
depositor can demand the return of the thing from the
third person. In this case, C is liable to pay A the price of
the watch.

VII (16/20)
Rights of the guarantor against the principal debtor
before payment:
The guarantor can demand his release in the guaranty,
or to demand for the protection of his rights against the
principal debtor in any of the following cases:
1. If the principal debtor is insolvent
2. If the principal debtor is planning to abscond
3. If the principal debtor bound the release of the
guarantor at the end of the specified period and such
period has already expired
4. If after the lapse of 10 years, the principal
obligation has not been extinguished or no time has
been specified for its maturity unless it is in the nature of
the obligation that it is not extinguished for the period of
10 years.
5.

Rights of the guarantor after payment:

If the guarantor has already paid the obligation, the
principal debtor shall reimburse him. The reimbursement
shall include:
1. The total amount of the debt
2. The legal interest from the moment the principal
debtor has knowledge about the payment even if no
interest has been paid to the creditor
3. The expenses incurred by the guarantor after
the payment to the creditor for informing the principal
debtor about the payment
Damages, if due.