CREDIT TRANSACTION REVIEWER – AJCG
GENERAL PROVISION
CREDIT TRANSACTION
- agreement based on the trust or belief of
someone on the ability of another
person to comply with his obligations
- includes all transaction involving loans
of money, goods or services extend to
another either gratuitously or onerously
Kinds of Credit Transaction
a) as CONTRACTS OF SURETY
1. Contracts of REAL SECURITY
(Mortgage; Pledge)
Transaction supported by a collateral or
an encumberance of property
2. Contracts of PERSONAL SECURITY
(Surety; Guaranty)
Transaction supported only by a
promise to pay or commitment of
another such as guarantor or surety
b) as to THEIR EXISTENCE
1. PRINCIPAL CONTRACTS
(Commodatum; Mutuum)
Does not depend on the existence of
another contract
2. ACCESSORY CONTRACTS
(Guaranty Proper; Suretyship; Pledge;
Mortgage; Antichresis)
Depends on the existence of another
contract
c) as to THEIR CONSIDERATION
1. ONEROUS
(Interest)
Contract where there is consideration or
burden imposed
2. GRATIUTOUS
(Commudatum)
Contract where there is
consideration or burden imposed
SECURITY
Is something promised or delivered to
ensure the fulfillment of an obligation
BAILMENT
The delivery of property of one person to
another in trust for a specific purpose, with a
contract (expressed or implied) that the trust shall
be faithfully executed and the property returned or
duly accounted for when the special purpose is
accomplished or kept until the bailor reclaims it
- Created 1) BY CONTRACT; and 2) BY
OPERATION OF LAW
BAILOR (“COMODATARIO” / “COMMODANS”)
one who gives or delivers property bailed
BAILEE (“COMODANTE” / “COMMODOTARIUS”)
One who receives the things delivered or
bailed
LETTER OF CREDIT
Trust receipt transaction arrangement, a
bank extends to a borrower a loan covered by the
letter of credit, with receipt as a security of the loan
BRIDGE FINANCING
To obtain funds through an interim loan,
while the main loan is not yet available
LOAN
CONTRACT OF LOAN
Contract where one of the partied delivers
another, either something not consumable so that
the latter may use the same for a certain time and
return it; or money, or other consumable things,
upon the condition that the same amount of the
same kinds and quality shall be paid.
Characteristics:
1. REAL CONTRACTS
Delivery of the thing loaned is necessary for
the perfection of the contract
no
2. UNILATERAL CONTRACTS
Once the subject matter has been delivered,
it creates obligations on the part of only one
of the parties
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CREDIT TRANSACTION REVIEWER – AJCG

Kinds of Contracts of Loan LOAN v DEPOSIT

1. Contracts of COMMODATUM; and LOAN DEPOSIT

2. Contracts of MUTUUM as to their PURPOSE

Lender grants the

Safekeeping of the
borrower the use of the
COMMODATUM MUTUUM thing deposited
thing
as to their SUBJECT MATTER
as to their TIME OF PAYMENT
Money or Consumable
Non-consumable thing. thing. Depositor can demand
Borrower pays at the
the return of the thing
end of the period
Same thing must be The equivalent amount deposited at any time
returned of the same kind quality
is to be returned
as to their APPLICABILITY OF COMPENSATION

as to their NATURE
Compensation not
Compensation of credits
either Gratuitous or applicable to the thing
Gratuitous applicable
Onerous deposited

as to their PURPOSE as to the RELATIONS

for use or temporary

for consumption LENDER and
possession
BORROWER
DEPOSITOR and
as to the KIND OF PROPERTY INVOVLED DEPOSITORY
CREDITOR and
DEBTOR
Any Property Personal Property

as to the RISK OF LOSS

LOAN v DISCOUNT
Bailor Debtor or Bailee

as to the TIME OF PAYMENT LOAN DISCOUNT

as to their WHEN INTERESTED IS DEDUCTED

may be RETURNABLE NOT RETURNABLE
at the end of the period until the end of the At the expiration of the
in case of urgent need period Deducted in advanced
credit

as to the CHARACTER OF THE CONTRACT as to EXPENSE

Less expensive More expensive

Purely personal in Not Personal in
character character
as to WHETHER DOUBLE/SINGLE NAME
PAPER

LOSS Double name paper Single name paper

The thing is lost when it perishes, or goes
out of commers
as to the REPAYMENT OF DISCOUNT

Discount does not have

Loan must be paid
to be repaid

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CREDIT TRANSACTION REVIEWER – AJCG

LOAN v CREDIT
1. It is essentially GRATUITOUS;
LOAN CREDIT
2. Its purpose is TO TRANSFER THE
TEMPORARY USE OF THE THING
Contract for the delivery
LOANED TO THE BAILEE;
by one party and receipt Ability to borrow money
of other party of a given by virtue of the
3. The use of thing is for a “CERTAIN
sum of money, upon confidence or trust
TIME”;
agreement, express or reposed by the lender
4. It is REAL CONTRACT because it
implied, to repay the unto him the he will pay
requires delivery of the object for its
sum loaned, with or what he has promised
perfection;
without interest
5. It is PRINCIPAL CONTRACT because its
existence does not depend upon another
contract;
LOAN v RENT
6. It is UNILATERAL CONTRACT because
LOAN RENT after the object had been delivered by the
bailor, it creates obligations to be
as to the OWNERSHIP performed by the bailee alone; and;

The owner of the 7. It is PURELY PERSONAL because of the

property does not lose trust and belief reposed on the bailee
The thing loaned his ownership. He only
becomes the property of loses his control over
the obligor the property rented Obligations of the BAILEE
during the period of the
contract 1. TAKE CARE OF THE THING with
diligence of good father;
as to JURIDICAL RELATIONS
2. RETURN THE IDENTICAL THING loaned
OBLIGOR and LANDLORD and
upon expiration of the term or upon the
OBLIGEE TENANT
accomplishment of the purpose;

COMMODATUM 3. PAY FOR THE ORDINARY EXPENSES for

the use and preservation of the thing
loaned;
Contract of COMMODATUM
4. LIABILITY FOR LOSS due to fortuitous
contract by which Bailor delivers to Bailee
event;
something not consumable so that the latter may
use it for a certain time and return
5. LIABILITY FOR DETERIORATION due to
the use of the thing; and
Kinds of Commodatum
6. PAY FOR EXTRAORDINARY EXPENSES
1. PRECARIUM
arising from actual use of the thing,
(even though the bailee acted without
Bailor may demand the thing loaned at will
fault)
under the conditions set forth in NCC Art.
1947

2. ORDINARY COMMODATUM Obligations of the BAILOR

Bailor cannot just demand the return of the 1. RESPECT THE DURATION OF THE
thing at will because there is a period LOAN;
agreed upon which must be respected
2. REFUND TO THE BAILEE
EXTRAORDINARY EXPENSES incurred
for the preservation of the thing; and

3. BE LIABLE TO THE BAILEE FOR

DAMAGES FOR KNOWN HIDDEN
FLAWS
Characteristics of COMMODATUM

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CREDIT TRANSACTION REVIEWER – AJCG

MUTUUM
INTEREST
Contract of MUTUUM
INTEREST
Where money or other consumable thing is
delivered by the lender to the borrower upon Nothing more than the compensation
the condition that the same amount of the agreed to be paid by the borrower for the
same kind and quality shall be returned use of the money lent to him by the lender

Classes of INTEREST:
FUNGIBLE
1. SIMPLE INTEREST
Belongs to common genus which includes
several species of the same kind That interest which is paid for the use of the
principal at a certain rate stipulated in writing
NON-FUNGIBLE by the parties
Specifically determined and cannot be 2. COMPOUND INTEREST
substituted
An express stipulation whereby the interest
due an unpaid shall be added to the
Forms of Payment (Mutuum): principal obligation and resulting total
amount shall earn interest
1. If the thing is loaned is money,
PAYMENT MUST BE MADE IN THE
CURRENCY STIPULATED; Requisite for Demandability of Interest:
2. If the thing loaned is other than money, 1. The AGREEMENT must be in WRITING;
THE BORROWER IS UNDER
OBLIGATION TO PAY THE LENDER 2. Must be EXPRESLLY STIPULATED; and
ANOTHER THING OF THE SAME KIND
3. Must be LAWFUL

Contracts of BARTER
ACCRUED INTEREST
Contract where one of the parties binds
himself to give one thing to another in consideration Interest due
of the latter’s promise to give another thing

LOAN v BARTER
Q’s

May the borrower recover interest he paid in a

LOAN BARTER Usurious Transaction?
as to their SUBJECT MATTER
Yes,
MONEY or other FUNGIBLE
NON-FUNGIBLE THINGS NCC, Art. 1413:
THING
“only interest paid in excess of that allowed by the
as to NATURE Usury Law may be recovered by the debtor with
interest theron”
Mutuum may be either
ONEROUS
GRATUITOUS or ONEROUS
Palileo v Cosio, 97 Phil 919:
as to EFFECT “SC held that only the amount paid in excess of the
legal rate can be recovered”
While in mutuum, there is It is in effect, a mutual sale
transfer of ownership, there is resulting in the transfer of
NO SALE ownership of both sides

as to the RETURN OF THE THING Must the principal debt still be paid in Usurios
Transactions?
if the loan is commodatum,
the borrower returns the The parties do not return the Yes,
things after the expiration of things subject of exchange
the period agreed upon
Lopez v El Hogar Filipino, 47 Phil 249:
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CREDIT TRANSACTION REVIEWER – AJCG

“Not withstanding stipulation of usurious interest, 1. PERSONAL

the debtor myst still pay the principal debt” The guaranty is the credit given by the
guarantor

FORBEARANCE 2. REAL
The guranty is the property, movable or
Signifies the contractual obligation of the immovable
creditor to forbear during a given period to require
the debtor, payment of an existing debt then due b. As TO ITS ORIGIN
and payable.
1. CONVENTIONAL
Agreed upon by the parties
Formula in Computing Interest for Loan or
Forbearance of Money 2. LEGAL
Imposed by virtue of a provision of law

TOTAL AMOUNT DUE = [principal + interest + 3. JUDICIAL

interest on interest] – partial payments made Required by a court to guarantee the
eventual right of one of the parties
INTEREST = principal x stipulated interest x
number of years from due date until finality of c. As TO CONSIDERATION
judgment
1. GRATUITOUS
INTEREST ON INTEREST = intereste computed as Guarantor does not receive anything for
of the filling of the complaint x 6% x no. of years until acting as such
finality of judgment
2. ONEROUS
The guarantor receives valuable
GUARANTY
d. As TO THE PERSON GUARANTEED
GUARANTY
1. SINGLE
Guarantor binds himself to creditor to full the Constituted solely to guarantee or
obligation of the principal debtor in case the secure performance by the debtor of the
latter should fail to do so. principal obligation
Characteristics: 2. DOUBLE or SUB-GUARANTY
Constituted to secure the fulfillment by
1. It is CONSENSUAL CONTRACT, can be the guarantor of a prior guaranty
perfected by mere consent;
e. As TO SCOPE and EXTENT
2. It is an ACCESSORY CONTRACT, its
existence depends upon an existing 1. DEFINITE
valid principal contract; Limited to the principal obligation only
3. It is a CONDITIONAL CONTRACT, it will 2. INDEFINITE or SIMPLE
only operate when the principal debtor Includes not only the principal obligation
failed to fulfill his obligations; but also all its accessories including
judicial costs
4. It is a UNILATERAL CONTRACT because
only the guarantor has the obligation to 3. SPECIFIC
indemnify the creditor in case of failure
of the principal debtor to perform his 4. CONTINUING
prestation; and

5. It is SUBSIDIARY CONTRACT as the

SURETY
guarantor becomes liable to the creditor
only when the principal debtor fails to
Merely an accessory contract and must be
pay his obligation
interpreted with its principal contract

Classification of Guaranty:
Guaranty v Surety
a. In the BROAD SENSE
GUARANTY SURETY

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CREDIT TRANSACTION REVIEWER – AJCG

obligation to answer for the same is divided

as to their SIMILARITY
among all
BOTH promise to answer for the debt, default or
3. Right to CONTRIBUTION of guarantor
miscarriage of another person
who pays if there is solidary liability;
as to LIABILITY
may demand of each of the others the share
Liability depens upon an
which is proportionally owing for him,
independent agreement He assumes the liability
provided: 1) PAYMENT HAS BEEN MADE
to pay the obligation of as a regular party to the
BY VIRTUE OF A JUDICIAL DEMAND; or
the principal if he fails to contract
2)PRINCIPAL DEBTOR IS INSOLVENT
do so
as to OBLIGATION 4. Right of INDEMNITY or
REIMBURSEMENT;
Is secondary Is Primary
the guarantor who makes payment is
as to the PURPOSE entitled to be reimbursed by the principal
debtor
To pay if the principal To pay if the principal
debtor cannot pay does not pay 5. Right of guarantor TO PROCEED
AGAINST DEBTOR BEFORE PAYMENT;
as to the WHAT IS INSURED
guarantor has no right to proceed against
Insurer of solvency of the principal debtor until he has actually paid
Insurer of the debt the debt
debtor

6. Right to SUBROGATION

Characteristics of Guaranty and Suretyship: subrogation transfers to the person

subrogated the credit with all the rights
1. ACCESSORY thereto appertaining either against the
it cannot exist by itself. There must be a debtor or against third persons, be they
valid principal obligation guarantors or possessors of mortgages,
subject to stipulation in conventional
2. SUBSIDIARY and CONDITIONAL subrogation
takes effect only when the principal debtor
fails in his obligation, subject to a limitation
Extinguishment of Guaranty:
(PLCCMN – FRAPIC – RVSEE)
Qualifications of Guarantor:
1. PAYMENT or PERFORMANCE of
1. Has SUFFICIENT PROPERTY to answer services;
the obligation which he guarantees;
2. LOSS OF THE THING DUE;
2. POSSESSES INTEGRITY; and
3. CONDONATION or remission of the debt;
3. CAPACITY TO BIND HIMSELF
4. COMPENSATION;

Rights of Guarantor 5. MERGER or confusion of the rights the

creditor and debtor;
1. Benefit of EXCUSSION;
6. NOVATION;
which the guarantor cannot be compelled to
pay the creditor unless the latter has 7. ANNULMENT
exhausted all the properties of the principal
debtor, and has resoted to all of the legal 8. RESCISSION;
remedies against such debtor
9. FULFILLMENT OF RESOLUTORY
CONDITION;

2. Benefit of DIVISION; 10. PRESCRIPTION

should there be several guarantors of only 11. CONSIGNATION;

one debtor and for the same debt, the
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CREDIT TRANSACTION REVIEWER – AJCG

12. IMPOSSIBILITY OF SERVICE;

Xpn:
13. RELEASE in favor of one guarantor;
1. the CREDITOR becomes INSOLVENT;
14. VOLUNTARY ACCEPTANCE of the
creditor OF IMMOVABLE or OTHER 2. guarantor was prevented by
PROPERTIES FOR PAYMENT OF THE FORTUITOUS EVENT;
DEBT;
3. guarantry is GRATUITOUS
15. FAILURE OF SUBROGATION;

16. WHEN PRINCIPAL OBLIGATION IS

EXTINGUISHED; and

17. EXTENSION GRANTED TO THE DEBTOR

BY THE CREDITOR WITHOUT THE
CONSENT OF THE GUARANTOR

BOND

An undertaking that is sufficiently secured

and not cash or currency

* merely stands as a guranty

* contractual in nature

BONDSMAN

A surety offere in virtue of a provision of law

or a judicial order. He must have the qualifications
required of a guarantor.

Qualifications of PERSONAL BONDSMAN

1. He POSSESSES INTEGRITY;

2. He has CAPACITY TO BIND HIMSELF;

and

3. He has SUFFICIENT PROPERTY TO

ANSWER FOR TH OBLIGATION, which
he guarantees

RULE WHEN PERFORMANCE IS RENDERED

IMPOSSIBLE

It is the surety’s duty to inform the court of

the happening of the event so that it may take action
or issue a decree in the discharge of the surety

REPEAT PAYMENT RULE:

(ART. 2070 NCC)

If the guarantor pays to the creditor without

notifying the debtor, and the latter not being aware
of the payment, REPEATS THE PAYMENT, the
former has no remedy whatever against the debtor,
but only to the creditor.
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