CREDIT TRANSACTIONS

2010 BAR REVIEW

ILO- ILO CITY
 RIGHTS OF AN OWNER

• 1. JUS POSSIDENDI – RIGHT TO POSSESS

• 2. JUS UTENDI – RIGHT TO USE

• 3. JUS FRUENDI – RIGHT TO THE FRUITS

• 4. JUS ABUTENDI – RIGHT TO ABUSE

• 5. JUS REIVINDICANDI – RIGHT TO RECOVER

• 6. JUS DISPONENDI – RIGHT TO DISPOSE

• CLASSIFICATION OF PROPERTY

• 1. ACCORDING TO MOBILITY

– (a) IMMOVABLE/ REAL PROPERTY –ART. 415

– (b) MOVABLE/ PERSONAL PROPERTY

• 2. ACCORDING TO OWNERSHIP

– (a) PRIVATE PROPERTY

– (b) PUBLIC PROPERTY
– (b) PUBLIC PROPERTY

• (b.1) PATRIMONIAL PROPERTY

• (b.2) PROPERTY OF PUBLIC

DOMINION
» i. PUBLIC SERVICE
» ii. PUBLIC USE
3. ACCORDING TO WHETHER IT CAN BE CONSUMED
WHEN USED.

(3.a) CONSUMABLE PROPERTY

(3.b) NON-CONSUMABLE PROPERTY

• 4. ACCORDING TO WHETHER IT CAN BE
REPLACED

(4.a) FUNGIBLE

(4.b) NON-FUNGIBLE
NOTE: DISTINCTION BETWEEN:

1. ORDINARY ≠ EXTRA-ORDINARY

2. NECESSARY≠ USEFUL ≠ LUXURY EXPENSE .

3. GOOD FAITH AND BAD FAITH

4. REAL RIGHT AND PERSONAL RIGHT

• CLASSIFICATION OF CONTRACTS BASED
ON PERFECTION

• 1. CONSENSUAL

• 2. REAL

• 3. FORMAL
 CREDIT TRANSACTIONS- AGREEMENT BASED ON
TRUST.
KINDS:

I. PRINCIPAL CONTRACTS:

1. COMMODATUM

2. MUTUUM- SIMPLE LOAN

3. DEPOSIT
II. ACCESSORY CONTRACTS:

1. PERSONAL GUARANTY

(a.) GUARANTY
(b.) SURETY

2. REAL GUARANTY

a.) REAL ESTATE MORTGAGE, ANTICHRESIS

b.) PLEDGE, CHATTEL MORTGAGE
 COMMODATUM

• I. PARTIES- BAILOR/ BAILEE

• II. OBJECT – GEN. RULE: NON-CONSUMMABLE, REAL OR

PERSONAL (ART. 1937)

• EXCEPTION: CONSUMMABLE (ART. 1936).

• III. KIND OF CONTRACT AS TO PERFECTION – REAL CONTRACT

(ART. 1934).

• IV. ESSENTIALLY GRATUITOUS (ART. 1935).

• V. RIGHTS TRANSFERRED TO BAILEE – POSSESS AND USE

• VI. PURELY PERSONAL (ART. 1939)

• VII. BAILEE LIABLE FOR ORDINARY EXPENSES (ART. 1941; BAILOR

EXTRA-ORDINARY (ART. 1949).)

• VIII. NO RIGHT OF RETENTION AS A GENERAL RULE.

– EXCEPTION – DAMAGES IN ART. 1951, KNOWLEDGE OF FLAW
BY BAILOR.

– PRECARIUM – BAILOR MAY DEMAND THE THING AT WILL (ART.

1947).
 SIMPLE LOAN/ MUTUUM

• I. PARTIES- LENDER/ BORROWER

• II. OBJECT – FUNGIBLE (ART. 1953) – PERSONAL PROPERTY

• III. KIND OF CONTRACT AS TO PERFECTION – REAL CONTRACT

(ART. 1934).

• IV. GRATUITOUS OR ONEROUS (INTEREST, ART. 1956)

• V. RIGHT TRANSFERRED TO BORROWER – OWNERSHIP (ART. 1953)

• VI. NOT PERSONAL IN CHARACTER.

 DEPOSIT

• I. PARTIES- DEPOSITOR/ DEPOSITARY

• II. OBJECT – ONLY MOVABLE OR PERSONAL PROPERTY (ART.

1966). EXCEPT- JUDICIAL SEQUESTRATION (ART. 2006).

• III. KIND OF CONTRACT AS TO PERFECTION – REAL CONTRACT

(ART. 1963).

• IV. GENERALLY GRATUITOUS (ART. 1965).

• EXCEPT: a) AGREEMENT TO THE CONTRARY;
• B.) DEPOSITARY ENGAGED IN BUSINESS OF SAFEKEEPING.
• V. RIGHTS TRANSFERRED TO DEPOSITARY – POSSESS ; USE IF
THERE IS CONSENT OR NECESSARY FOR PRESERVATION (ART.
1977).

• VI. DEPOSITOR LIABLE FOR NECESSARY EXPENSES (ART. 1992) IF

DEPOSIT IS GRATUITOUS.

• VIII. DEPOSITARY HAS RIGHT OF RETENTION (ART. 1994)

REIMBURSEMENT OF NECESSARY EXPENSES OR COMPENSATION.

• _NECESSARY DEPOSIT (ART. 1996)

• 1. HOTELS/INNS (ART. 1998)
• 2. MADE WITH COMMON CARRIERS.
• NOTE: HOTEL KEEPER HAS RIGHT OF RETENTION AS SECURITY
FOR CREDITS ON ACCOUNT OF LODGING/SUPPLIES (ART. 2004).

• GUARANTY/SURETY

• I. PARTIES- GUARANTOR/SURETY AND CREDITOR

• II. KIND OF CONTRACT AS TO PERFECTION – CONSENSUAL

CONTRACT (ART. 1934).

• III. GRATUITOUS EXCEPT CONTRARY STIPULATION (ART. 2048).

• IV. FORMAL REQUIREMENT- IN WRITING. STATUTE OF FRAUD.

• BENEFIT OF EXCUSSION – ART. 2058

• PLEDGE

• I. PARTIES- PLEDGOR/ PLEDGEE

• II. OBJECT – PERSONAL PROPERTY (ART. 2094)

INCORPOREAL RIGHTS LIKE NEGOTIABLE INSTRUMENTS,
BILL OF LADING, AND THE LIKE (ART. 2095).

• III. KIND OF CONTRACT AS TO PERFECTION – REAL

CONTRACT (ART. 2093).

• IV. ONEROUS
• V. RIGHTS TRANSFERRED TO PLEDGEE – POSSESS (ART. 2093) AND
RIGHT OF RETENTION UNTIL OBLIGATION IS PAID (ART. 2098).

• VI. FORMAL REQUIREMENT – MUST BE IN PUBLIC INSTRUMENT TO

AFFECT 3RD PERSONS (ART. 2096)

• VII. PLEDGEE HAS RIGHT TO REIMBURSEMENT OF NECESSARY

EXPENSES (ART. 2099).

NOTE: PLEDGOR HAS RIGHT TO ALIENATE THING PLEDGED WITH

CONSENT OF PLEDGEE (ART. 2097)
• VIII. RULE IF PRICE AT THE SALE IS MORE OR LESS:
• (a) PRICE IS IN EXCESS OF OBLIGATION, EXCESS GOES TO
CREDITOR UNLESS THERE IS CONTRARY AGREEMENT;
• (b) PRICE IS LESS THAN OBLIGATION, CREDITOR DOES NOT GET
DEFICIENCY (ART. 2115).

• NOTE: PLEDGEE CAN APPROPRIATE THING PLEDGED IF:

• (a) DEBT DUE;
• (b) THERE IS A NOTARY PUBLIC;
• © 1ST AND 2ND AUCTION, THING NOT SOLD. PLEDGEE SHALL GIVE
AN ACQUITTANCE (ART. 2112).

• NOTE: PACTUM COMMISSORIUM IS NULL AND VOID (ART. 2088).

• PLEDGES CREATED BY OPERATION OF LAW – REFERS TO THE
RIGHT OF RETENTION (ART. 2121) :

• 1. ART. 546 – RIGHT OF RETENTION GIVEN TO A POSSESSOR IN

GOOD FAITH.
• 2. ART. 1731 – A WORKER WHO EXECUTED WORK ON A MOVABLE.
• 3. ART. 1994 – RIGHT GIVEN TO DEPOSITARY IF ONEROUS.

• NOTE: EXCESS OF PRICE SHALL BE DELIVERED TO OBLIGOR.

 • REAL ESTATE MORTGAGE

• I. PARTIES- MORTGAGOR/ MORTGAGEE

• II. OBJECT – REAL PROPERTY (ART. 2124)

• III. KIND OF CONTRACT AS TO PERFECTION – CONSENSUAL

CONTRACT (ART. ).

• IV. ACCESSORY CONTRACT (GANZON VS. INSERTO, 208 PHIL.

630).
• V. A REAL RIGHT (MCCULLOUGH VS. VELOSO, 46 PHIL. 1).

• VI. FORMAL REQUIREMENT – MUST BE REGISTERED TO AFFECT THIRD

PERSONS.

• VII. EQUITABLE MORTGAGE – ESSENTIAL REQUISITES ARE: (1) PARTIES ENTER

INTO WHAT APPEARS TO BE A CONTRACT OF SALE; (2) BUT THEIR INTENTION IS
TO SECURE AN EXISTING DEBT BY WAY OF MORTGAGE (DORADO VDA. DE
DELFIN VS. DELLOTA, G.R. NO. 143697, JAN. 28, 2008).

• VIII. BLANKET MORTGAGE CLAUSE OR DRAGNET CLAUSE – STIPULATION THAT

MORTGAGE WILL COVER ALL DEBTS OF PAST OR FUTURE ORIGINS. AVOIDS THE
EXPENSE AND INCONVENIENCE OF EXECUTING NEW SECURITY ON EACH
TRANSACTION (REP. PLANTERS’ BANK VS. SARMIENTO, G.R. NO. 170785, OCT. 19,
2007).

•
 • CHATTEL MORTGAGE

• I. PARTIES- CHATTEL MORTGAGOR/ MORTGAGEE

• II. OBJECT - PERSONAL PROPERTY (ART. 2124)

• III. KIND OF CONTRACT AS TO PERFECTION – FORMAL CONTRACT

(ART. 2140).

• IV. ACCESSORY CONTRACT.

• V. CHATTEL MORTGAGEE HAS THE RIGHT TO RECOVER THE

DEFICIENCY (ABLAZA VS. IGNACIO, L-11460, MAY 23, 1958).

•
• QUERY: CAN A HOUSE BE AN OBJECT OF A CHATTEL MORTGAGE?
• ANS.: GEN. RULE, NO (ART. 4150

• EXCEPTIONS:
• (a) BINDING BETWEEN PARTIES BUT NOT AGAINST 3RD PERSON
(EVANGELISTA VS. ABAD, [CA] 36 O.G. 291).

(b) HOUSE INTENDED TO BE DEMOLISHED OR REMOVED

 ANTICHRESIS

• I. PARTIES- ANTICHRETIC CREDITOR AND ANTICHRETIC DEBTOR

• II. OBJECT – REAL PROPERTY (ART. 2132)

• III. KIND OF CONTRACT AS TO PERFECTION – FORMAL CONTRACT

(ART. 2134 ).

• IV. ACCESSORY CONTRACT (STA. ROSA VS. NOBLE, 35 O.G. 2724)

• V. A REAL RIGHT (STA. ROSA VS. NOBLE, SUPRA).

• VI. ANTICHRETIC CREDITOR LIABLE FOR THE TAXES AND

NECESSARY EXPENSES (ART. 2135)
 • SALE

• I. PARTIES- VENDOR/ VENDEE

• II. OBJECT - PERSONAL OR REAL PROPERTY

• III. KIND OF CONTRACT AS TO PERFECTION –

CONSENSUAL CONTRACT (ART. 1475) .

EXCEPTIONS : FORMAL/ SOLEMN

• SALE OF LARGE CATTLE (ART. 1581)
• SALE OF LAND THRU AGENT (ART. 1874)
V. CONTRACT TO SELL ≠ CONTRACT OF SALE (ART. 1592)

VI. MACEDA LAW (REAL PROPERTY – RA 6552

(a) INSTALLMENTS PAID AT LEAST 2 YEARS, GRACE PERIOD

OF 1 MONTH FOR EVERY OF INSTALLMENT MADE.

(b) IF CONTRACT IS CANCELLED, REFUND TO BUYER, 50%

OF TOTAL PAYMENTS MADE, AFTER 5 YEARS INSTALLMENT,
ADDITIONAL 5% PER YEAR, NOT TO EXCEED 90% TOTAL
PAYMENTS
 (c ) INSTALLMENTS PAID LESS THAN 2 YEARS,
BUYER GIVEN A GRACE PERIOD OF NOT LESS
THAN 60 DAYS OTHERWISE, SELLER MAY CANCEL
CONTRACT AFTER 30 DAYS FROM RECEIPT BY
BUYER OF NOTICE OF CANCELLATION OR
DEMAND FOR RESCISSION BY NOTARIAL ACT.

VII. RECTO LAW (PERSONAL PROPERTY)- ART. 1484

IN CASE OF DEFAULT, SELLER HAS THE FF.
REMEDIES:
(a) EXACT FULFILLMENT;
 (b) CANCEL SALE IF 2 OR MORE INSTALLMENTS
NOT PAID;

(C ) FORECLOSE CHATTEL MORTGAGE ON THING

SOLD, IN CASE OF DEFAULT OF 2 OR MORE
INSTALLMENTS, NO FURTHER ACTION AGAINST
THE PURCHASER.

VIII. RES PERIT DOMINO – LOSS OF THING IS BORNE

BY THE OWNEROF THE THING AT TIME OF THE
LOSS. BEFORE PERFECTION OF CONTRACT,
SELLER BEARS THE LOSS.
IX. RULE ON DOUBLE SALE (ART. 1544):

(a) FIRST RECORDED IT IN THE REGISTRY OF

PROPERTY;

(b) FIRST IN POSSESSION SHOULD THERE BE NO

INSCRIPTION.

(c ) ABSENCE THEREOF, PERSON WHO PRESENTS

OLDEST TITLE.
X. RIGHT OF LEGAL REDEMPTION – ART. 1623 GIVES
CO-OWNER 30 DAYS FROM WRITTEN NOTICE OF
SALE BY VENDOR TO EXERCISE HIS RIGHT OF
LEGAL REDEMPTION. 30 DAY PERIOD SHALL NOT
RUN UNTIL NOTICE IN WRITING OF SALE IS GIVEN.

XI. PRINCIPLE OF CAVEAT EMPTOR - REQUIRES

PURCHASER TO BE AWARE OF THE ALLEGED
TITLE OF VENDOR SUCH THAT ONE WHO BUYS
W/O CHECKING VENDOR’S TITLE TAKES ALL THE
RISKS AND LOSSES CONSEQUENT TO SUCH
FAILURE. A CERTIFICATE OF TITLE CANNOT BE
DEFEATED BY OPEN, ADVERSE, NOTORIOUS
POSSESSION BY THIRD PERSONS.
 LEASE

• I. PARTIES- LESSOR/ LESSEE

• II. OBJECT – REAL/PERSONAL PROPERTY ; SERVICES;

WORK (ART. 1713)

• III. KIND OF CONTRACT AS TO PERFECTION – CONSENSUAL

CONTRACT.

• IV. PRINCIPAL CONTRACT.

• V. FORMALITY – IF MORE THAN 1 YEAR, COVERED BY THE

STATUTE OF FRAUD
VI. IMPLIED NEW LEASE OR TACITA RECONDUCCION
(ART. 1670) EXPIRATION OF CONTRACT; LESSEE
CONTINUES IN POSSESSION FOR 15 DAYS OR
MORE; NO PRIOR DEMAND TO VACATE; LESSOR
ACCEPTS RENTALS.

VII. CONSIGNATION OF RENTALS – R.A. 9653 “NEW

RENT CONTROL LAW”
SEC. 9 (b) XXX That in the case of refusal by the lessor
to accept payment XXX, the lessee may either
deposit, by way of consignation, the amount in
court, or with the city or municipal treasurer, XXX, or
barangay chairman, or in a bank in the name of and
with notice to the lessor, within one (1)  month after
the refusal of the lessor to accept payment. The
lessee shall thereafter deposit the rent within ten
(10) days of every current month. Failure   to  
deposit   the   rent   for   three   (3)   months   shall  
constitute   a   ground   for   ejectment.XXX.
VIII. RIGHT OF LESSEE TO SUBLEASE – UNDER NEW
RENT CONTROL LAW, SUBLESSEE MAY
SUBLEASE IF THERE IS WRITTEN CONSENT ON
PART OF LESSOR.

IX. RIGHT OF FIRST REFUSAL

 • PARTNERSHIP

I. PARTIES- PARTNERS (CAPITALIST; INDUSTRIALIST)

II. OBJECT – REAL/PERSONAL PROPERTY ; SERVICES.

III. KIND OF CONTRACT AS TO PERFECTION – GEN. RULE:

CONSENSUAL CONTRACT.

EXCEPT: CONTRIBUTION IS REAL PROPERTY

IV. PRINCIPAL CONTRACT.

V. FORMALITY – GENERAL RULE – ANY FORM
EXCEPTIONS:
1. CONTRIBUTION, REAL PROPERTY or REAL RIGHTS,
PUBLIC INSTRUMENT (Art. 1771) and an INVENTORY (Art.
1773).

EFFECT OF NON-COMPLIANCE: There is no partnership.

•
• 2. CAPITAL, P3,000 or MORE, PUBLIC INSTRUMENT and
MUST BE RECORDED WITH SEC.
•
• EFFECT OF NON-COMPLIANCE: Partnership is still created
(Art. 1768) and the liability of the partnership and its
members to 3rd persons is not affected (Art. 1772).
VI. EFFECT OF A PARTNER’S PROMISE TO
CONTRIBUTE- BECOMES A DEBTOR, BOUND FOR
A WARRANTY IN CASE OF EVICTION, LIABLE FOR
THE FRUITS. FAILURE TO DELIVER MAKES HIM
LIABLE FOR DAMAGES AND INTERESTS.

VII. PARTNERS ARE OBLIGED TO GIVE ADDITIONAL

CONTRIBUTION IN CASE OF IMMINENT LOSS
EXCEPT an INDUSTRIAL PARTNER. IF PARTNER
REFUSES, HE MUST SELL INTERESTS TO OTHERS.
VIII. CAN A PARTNER ENGAGE IN ANOTHER
BUSINESS? IT DEPENDS.

AN INDUSTRIAL PARTNER IS PROHIBITED UNLESS

EXPRESSLY AUTHORIZED.
• NOTE: If industrial partner engages in business
without authority, the capitalist partner may exclude
him from the partnership and demand damages, or
avail themselves of the benefits obtained with right to
damages.
•
• A CAPITALIST PARTNER CAN ENGAGE IN OTHER
BUSINESS PROVIDED HE DOES NOT COMPETE
WITH THE PARTNERSHIP.
IX. LIMITED PARTNERSHIP (Art. 1843) – FORMED BY
TWO OR MORE PERSONS HAVING A MEMBERS
ONE OR MORE GENERAL PARTNERS AND ONE
OR MORE LIMITED PARTNERS. NOT BOUND BY
OBLIGATIONS OF PARTNERSHIP.

- NOT REALLY A PARTNE, BUT ONLY A

CONTRIBUTOR (Art. 1854).
 AGENCY

I. PARTIES- PRINCIPAL/ AGENT

II. OBJECT – SERVICES

III. KIND OF CONTRACT AS TO PERFECTION – CONSENSUAL

CONTRACT EXCEPT SALE OF REAL PROPERTY OR INTEREST
THEREIN THRU AN AGENT OTHERWISE VOID (ART. 1874 ).

IV. FORMALITY -
V. AGENCY ≠ LEASE OF SERVICES AGENT DESTINED
TO EXECUTE JURIDICAL ACTS, LEASE OF
SERVICE CONTEMPLATES MATERIAL ACTS.

VI. NATURE OF RELATIONSHIP- FIDUCIARY (Thomas

vs. Pineda, G.R. No. L-2411, June 25, 1951).
VII.QUERY: MAY THE AGENT APPOINT A
SUBSTITUTE?
GENERAL RULE: The agent must act in personam.
EXCEPTIONS: (art. 1892) 1. Principal does not
mention power to substitute, agent may appoint one
but he is responsible for the acts of the substitute.
2. Principal authorizes him to appoint but without
designating who should be appointed, agent is
responsible if person appointed is notoriously
incompetent or insolvent.
3. Principal designates who should be appointed, agent
not responsible for acts of the substitute.
DEATH OF ONE PARTY AS A MODE OF
EXTINGUISHING AGENCY:
A. Death of Principal:
- anything done by agent without the knowledge of
the death is valid and effective with respect to 3rd
persons acting in good faith (art. 1931).

B. Death of Agent: (art. 1932)

(1.) Heirs of agent cannot demand that they exercise
the agency.
(2.) Duty of heirs is to adopt measures to prevent
further damage to principal and notify the principal
of the agent’s death.