CREDIT TRANSACTION

Integrated RFBT
3rd Term AY 2021-2022

LOAN
It is a special contract where one of the parties delivers to
Definition another a thing in order for the latter to use the thing
delivered.(Article 1933)

KIND OF LOANS (Article 1933)

The bailor delivers to the bailee a non-consumable thing and the
Commodatum (Hiram)
bailee may use it for a certain time and return the same thing.
The bailor delivers to the bailee money or some consumable
Mutuum (Utang) thing and the latter will pay the same amount or the same kind
or quality

COMPARISONS
Commmodatum Mutuum (Simple Loan)
Object of the Contract
Non-fungible thing (Article 1933) Fungible or consumable thing. (Article 1933)

Consumable goods may be its subject if the

purpose of the contract is not the consumption of
the object, as when it merely for exhibition.
(Article 1936)

Movable or immovable property may also be its

object. (Article 1937)
Primary Obligation Created
Bailor delivers to the bailee the thing subject of Bailor delivers to the bailee the thing subject of
the agreement the agreement.
Bailee returns the exact same thing. Bailee returns the equivalent (same amount of
the same kind and quality)
Return may be demanded before the expiration Return only upon the expiration of the term.
of the term if there is an urgent need of the
thing, or at will, if the bailment is a precarium.
(Article 1947-1947)
Effects
Bailor retains ownership. (Article 1933 par.4) Bailee acquires ownership
Bailor assumes risk of loss. Bailee assumes risk of loss

COMMODATUM - RULES
Characteristics of Commodatum (Article 1935)
Essentially gratuitous Otherwise, it is a lease
Purpose: temporary use of the thing loaned No acquisitive prescription in favor of the bailee
Use is limited to the thing, but not the fruits. Exception: If stipulated otherwise. (Article 1940)
(Article 1935)
Subject matter is generally non-
consumables/fungibles.
Bailor need not be the owner
Personal contract. (Article 1939)
Bailee cannot lend or lease the subject matter of
the contract to a third person. (Article 1939)
Real contract
Obligations of the Parties
Bailor
Liable for wear and tear.
Liable for loss or damage due to fortuitous events Not liable for loss due to fortuitous event. (Article
– note exceptions. (Article 1942)
Extra Ordinary Expenses
Refund extraordinary expenses for preservation
of the thing. (Article 1949)
Refund 50% of extraordinary expenses from
actual use of thing loaned. (Article 1949)
Bailor cannot exempt himself from paying
expenses by abandonment – because the thing
may have less value than the expenses. (Article
1952)
Other Expenses
Unless the purpose of the contract is exhibition
of consumable things. (Article 1936)
As long as he has possessory interest. (Article
1938)
Exception: Member of the bailee’s household.
(Article 1939)
Exceptions to the exception:
1. Stipulated to the contrary
2. Nature of the thing forbids its use.
Perfected by the delivery of the object loaned.
Bailee
Liable for ordinary expenses for use and
preservation of the thing. (Article 1941 & 1950)
Not liable for wear and tear
Exceptions: (Article 1942)
a. If done with fault or negligence
b. Devoted the thing to a different purpose
from what was stipulated.
1942)
Exceptions:
• Bailee devoted thing to different purpose
• Bailee kept thing longer than period
stipulated
• Thing was delivered with appraisal of its
value, unless stipulated otherwise
• Bailee lent the thing to a third person
outside his household
• Bailee, given a choice to save either the
thing or his own thing, chose the latter
Shared liability for extraordinary expenses from
actual use of the thing. (Article 1949 par.2)
 Exclusive liability for other expenses not
stipulated under Articles 1941 and 1949. (1950)
Hidden Defects
Pay damages to bailee for known hidden flaws in
the thing loaned. (Article 1951)

MUTUUM
Characteristics of Mutuum (Article 1953 & 1954)
Borrower acquires ownership of the thing and
can dispose of it.
If the thing loaned is money, it must be in legal In case of extraordinary inflation or deflation,
tender. basis of payment may be value of the currency at
the time of creation of obligation.
If consumable thing is loaned, borrower must Note: Article 1954 – Here, the word non-fungible
return thing of same kind/quality. (Article 1954) does not really mean non-fungible but non-
consumable.
Reason: If the thing were really non-fungible, the
identical thing must be returned. Here, an
equivalent thing is returned.

If it is non-fungible, the contract is considered a

It what was loaned is a fungible thing other than
money.
If what was loaned is money. (Article 1955 par.1
Article 1249 & 1250)
While mutuum may be gratuitous, a stipulation
for the payment of interest is permissible. (Article
1933 par.3)
barter. (Article 1954 in relation to 1638)
The debtor owes another thing of same kind,
quality and quantity, even if it should change in
value. In case it is impossible to deliver the same
kind, the value of the thing loaned at the time of
the perfection of the loan shall be paid. (Article
1955 par.2)
The performance of the obligation is akin to a
money debt.
No interest shall be due unless it has been
expressly stipulated in writing. (Article 1956)

Distinctions (Nacar vs Gallery Frames GR 189871, 13 August 2013)

Legal Interest Interest on Loans
Rate set by law Set by law or stipulated by the parties
May be above or beyond rate stipulated in a Limited to terms of the contract
contract
Applied when no stipulation in contract Preferred over legal interest
6% per annum Must not be unconscionable
Judicially demandable Demandability based on contract

DEPOSIT
Real Contract There must be delivery
Essentially gratuitous character • Contrary stipulation
• Depositary is in business of storing goods
 Property saved from destruction during calamity
without owner’s knowledge
Safety deposit box rentals are not contracts of
deposit. (Article 1975 par.2)
Bank deposits are not contracts of deposit.
(Article 1980)
Principal purpose
Diligence required – A good father of the family
Owner must compensate depositary. (Article
1972 in relation to Articles 1156-1304)
The bank cannot open the box without the
renter’s key. (Agro-Industrial Dev Corp vs CA GR
90027, 3 March 1993)
These are in the nature of a mutuum.
Safekeeping of the thing delivered.
The depositary is responsible if the loss occurs
through his fault. (Article 1172) but as a rule, not
if the loss is through a fortuitous event. (Article
1174)

GUARANTY AND SURETYSHIP (Article 2157)

Distinctions
Guaranty
Guarantor is secondarily or subsidiarily liable
Entitled to benefit of excussion
Guarantor binds himself to pay only when
principal cannot pay – a collateral undertaking
Guarantor is insurer of debtor’s insolvency
Usually embodied in a separate agreement
before or after the principal obligation
Not bound to take notice of non-performance of
debtor
General rule
Suretyship
Surety ia primarily liable
Not entitled to benefit of excusion
Surety assumes liability as a regular party to the
undertaking and promises to pay if the principal
does not pay-original undertaking.
Surety is an insurer of the debt
Usually embodied in the same instrument as the
principal obligation; thus the surety is a party to
the contract
Held to notice of debtor’s defailt
Never presumed

PLEDGE, MORTAGE AND ANTICHRESIS

Basic Rules
Pledges and mortgages are accessory contracts Their consideration is the same as the
consideration of the principal obligation
Right to have the property alienated so that the debt may be paid. (Article 2087)
A mortgage is indivisible, even if debtors are not solidary.
Requisites:
1. Constituted to secure the fulfillment of a principal obligation
2. Pledgor or mortgagor must be the absolute owner of the thing pledged or mortgaged.
3. Persons constituting the pledge or mortgage must have the free disposal of their property
and in the absence thereof, that they be legally authorized for the purpose.
Pledge/Chattel Mortgage/Concurrence and Preference of Credits
Article 2093-2123 Repealed by the PPSA
Articles 2140-2141 Repealed by the PPSA

Legal Pledges
• Possessor in good faith exercising right of retention for necessary and useful expenses
 • Usufructuary exercising right of retention for taxes paid on the capital and for extraordinary
expenses (Article 612)
• Mechanic’s lien (Article 1731)
• Agent exercising right of retention for necessary expenses for execution of agency and for
damages which the execution of agency caused him. (Article 1912)
• Bailee exercising right of retention for damage caused by flaws in the thing loaned where the
bailor knew about it but did not inform the bailee. (Article 1951)
• Depositary existing right of retention for necessary expenses if deposit is gratuitous, or for
fortuitous damages caused him by the character of the thing deposited. (Article 1994)
• Hotel-keeper, over guest’s things for unpaid board and lodging. (Article 2004)

PACTUM COMMISORIUM (Article 2087-2088, 2115, 1454)

Elements
a. A property mortgaged by way of security for the payment of the principal obligation, and
b. A stipulation for automatic appropriation by the creditor of the thing mortgaged in case of
non-payment of the principal obligation within the stipulated period.

REAL ESTATE MORTGAGE ( Articles 2124-2131, Act 3135)

Kinds of Real Mortgages
Created by the parties (Article 138, Mortgage
Voluntary or Conventional
Law)
One required by law to guarantee performance
Legal Mortgage
(Article 169, Mortgage Law)
One which reveals an intent to make the
property a security, even if the contract lacks the
Equitable Mortgage
proper formalities of a real estate mortgage.
(Article 1602)
Requisites of a Real Estate Mortgage
Mortgagor retains possession of the property in Pactum non alienado is void (prohibition for the
general mortgagor to dispose the property. (Article 2130)
Over immovable or alienable real rights over
immovables. (Article 2124)
Must appear in a public document recorded in If not registered, just binding between the
the Registry of Properties parties. (Article 2125)
Is both a real right and real property by itself.
(Article 415(10))
The mortgage adheres to the property. Regardless of who its owner may subsequently
be. (Article 1312)

Effect: It subsists until after payment of

obligation.
Mortgagor must be the absolute owner of the Otherwise, it is void.
property.
 Equity of Redemption
This is the right of the mortgagor to redeem the
mortgage property after his default in the
performance of the conditions of the mortgage
but before the sale of the mortgaged property.
Right of Redemption
This is the right of the mortgagor to purchase the
property within a certain period after it was sold
for the purpose of paying the mortgage debt.

RULES
Within one year from date of sale.
Period to redeem
If the land is registered property, then from
registration of certificate of sale.
If the mortgagor is a juridical person and the
mortgagee is a bank, quasi-bank, trust entity,
then redemption is only within three months
from foreclosure or registration of certificate of
sale with ROD, whichever is first.
Mortgagee has the right to recover deficiency
post-foreclosure: The action to recover the
Recovery of Deficiency
deficiency prescribed after ten (1) years from
right of action.
Three mutually exclusive options of the
mortgagee:
a. Waive mortgage and pursue claim
against estate as an ordinary claim
Effect of Death of Mortgagor b. Judicial foreclosure of the mortgage and
recover deficiency, if any, as an ordinary
claim against the estate.
c. Rely on the mortgage exclusively, without
right to file claim for deficiency

ANTICHRESIS
A formal contract where the creditor acquires
right to receive the fruits of an immovable of his
Definition debtor, with the obligation to apply the proceeds
to the payment of interest (if any) and then to
the principal of the credit.
Formal contract- because the amount of the
Form principal and of the interest must be in writing or
else the antichresis contract is void.
Not a requisite: the delivery is only to allow the
Treatment of Fruits creditor to receive the fruits and apply them, and
not to make the contract valid.
Debtor cannot demand return of the property
Return of property
until obligation is paid.
Obligations of the Antichretic Creditor
Pay taxes and charges of the estate and Failure to do so – damages in favor of the debtor.
necessary expenses on the property
 Apply fruits to the interest, and then the principal
of the debt.

END OF TOPIC CREDIT TANSACTION

By Prof. JV ABUEL
LPT MBA CPA Juris Doctor