Law on Credit

Transactions
(Arts. 1933-2141)
MODULE - 5
Learning Objectives

01 02 03 04 05 06
Explain the Explain the Describe Examine the Explain the Describe the
meaning and meaning and bailment. creation of parties in kinds of
scope of credit kids of security. bailment. bailment. contractual
transactions. bailment.
 • Credit transactions include all transactions
involving the purchase or loan of goods,
services, or money in the present with a promise
to pay or deliver in the future.
Meaning and
• By the use of credit, more exchanges are
Scope of possible, persons are able to enjoy a thing today
Credit but pay for it later, and through the banking
systems, actual money transfer is eliminated by
Transactions cancellation of debts and credits (see Principles
of Economics, 9th Ed., C.L. James, p. 130, Barnes
& Nobles College Outline Series)
• Credit transactions are really contracts of security. They are of two (2) types:
a) Secured transactions or contracts of real security. – Those supported by a collateral or
an encumbrance of property; and
b) Unsecured transactions or contracts of personal security. – those the fulfillment of
which by the principal debtor is secured or supported only by a promise to pay or the
personal commitment of another such as a guarantor or surety.

•Bailment contracts, together with other related subject such as usury (Act. No.
2655, as amended [The Usury Law].), the contracts of guaranty and suretyship,
mortgage, antichresis, and concurrence and preference of credits (Arts. 2236-
2251.), all make up the so called “credit transactions.”

Meaning and Scope of Credit Transactions

Meaning and Kinds of Security
The term security is something given, deposited, or serving as a means to ensure the
fulfillment or enforcement of an obligation of a person to another, or of protecting
some interest in property.

The security may be personal security, as when an individual becomes a surety or a

guarantor; or a property or real security, as when a mortgage, pledge, antichresis,
charge or lien or other device is used to have property held, out of which the
person can be compensated for loss.

Thus, a secured creditor is one who holds a security from his debtor for payment of
the latter’s debts. A promissory note is a form of security to answer for a monetary
obligation. (see Navoa vs. Court of Appeals, 251 SCRA 545 [1995].)
 • The word “bailment” comes from the
French word “bailer”, meaning “to deliver”.
• It may be defined as the delivery of
property by one person to another in trust
Meaning of for a specific purpose, with a contract,
express or implied, that the trust shall be
Bailment faithfully executed, and the property
returned or duly accounted for when the
special purpose is accomplished or kept
until the bailor reclaims it. (3 R.C.L. 73.)
 Creation of Bailment
• In general, bailment may be said to be a contractual
relation involving an agreement between the parties that
the property ultimately is to be returned by the bailee to
the bailor or is to be delivered to a designated third party.
1) It does not necessarily mean that an agreement is
always necessary to create a bailment. It may be
created by operation of law. (see Art. 1996.)
2) As a general rule, there is no requirement that the
agreement be in writing. To be legally enforceable, it
must contain all the elements of a valid contract. (see
Art. 1318.) Whether or not a bailment exists must be
determined from all the facts and circumstances of
the case.
 The parties to a bailment
are the:
• Bailor – The giver; the party
Parties in who delivers the possession or
Bailment custody of the thing bailed; and
• Bailee – The recipient; the party
who receives the possession or
custody of the thing thus
delivered.
 Bailment involves transfer or possession of
personal or movable property. Thus, while
an owner of land may transfer possession of
it to another for a certain period of time, the
transaction does not constitute bailment.
Subject Matter
of Bailment
Under our law, however, both movable or
immovable property may be the object of
commodatum.
 Kinds of Contractual Bailment
1. Different kinds but of same general character. – There are several
kinds of bailment creating different rights and obligations on the
part of the bailor and the bailee although the different kinds are of
the same general character. In every bailment, there is an
obligation on the part of the bailee to restore the subject of the
bailment in the same or in altered form or to account therefor. (6
Am. Jur. 189.)
2. Classification with reference to compensation. – The classification
is generally with reference to compensation, under which
bailments are divided into three (3) heads, namely:
a. Those for the sole benefit of the bailor;
b. Those for the sole benefit of the bailee; and
c. Those for the benefit of both parties.
Kinds of Contractual Bailment
• Under the first kind belongs gratuitous deposit (Art. 1965.)
and mandatum. The latter is a bailment of goods without
recompense where the mandatory or person to whom the
property is delivered undertakes to do some act with
respect to the same as simply to carry it or otherwise to do
something with respect to it gratuitously (see ibid., 80-181.)
• As regards the second group, we have commodatum and
gratuitous simple loan or mutuum (Art. 1933.)
• The third kind includes deposit for a compensation (Art.
1965.), pledge (Arts. 2085, 2903.), and bailments for hire. It
usually results form bailments involving business
transactions. These bailments are known as mutual-benefit
bailments.
Fin