CREDIT TRANSACTIONS

Timoteo B. Aquino

LOAN AND DEPOSIT

CONTRACT OF LOAN
- By the contract of loan, one of the parties, called the bailor or lender delivers to
another called the borrower or bailee, either something not consumable so that the
latter may use the same for a certain time and return or money or consumable so that
he may consume it with the obligation to pay the same amount of the same kind and
quality.
a. REAL CONTRACT – Loan is a real contract because commodatum or simple loan
itself shall not be perfected until the delivery if the object of the contract.
b. UNILATERAL – Since it us a real contract, the delivery of the object is not based on
the obligation in the Contract of Loan itself because the said delivery perfects the
latter.
KINDS OF LOANS
1.Commodatum –one of the parties delivers to another something not consumable so that the
latter may use the same it for a certain time.
2. Simple loan or mutuum – one of the parties delivers to another money or other
consumable thing, upon the condition that the same amount if the same kind or quality shall
be paid.

ACCEPTED PROMISE TO LOAN

An accepted promise to deliver something by way of commodatum or simple loan is binding
upon parties. This is a consensual contract as distinguish from contract of loan itself which is
a real contract.
a. Discounting – it is a mode of loaning money with the agreement that interest is
deducted in advance.

CREDIT CARD
Every credit card transaction involves three contracts. To wit:
a. Contract of Sale between the card holder and the merchant or business establishment
that accepted the credit card;
b. The loan agreement between the credit card holder and the credit card issuer; and
c. The promise to pay between the credit card issuer and the merchant or business
establishment.

SUMMARY OF RULES AND DISTINCTIONS BETWEEN COMMODATUM, SIMPLE LOAN, AND

DEPOSIT
COMMODATUM SIMPLE LOAN OR MUTTUM DEPOSIT
The purpose is the use of the The purpose is for the The purpose is safekeeping.
thing. borrower to consume what
was borrowed
Real contract – perfected Real Contract Real Contract
upon delivery
Movable and immovable Involves movables 1. Extrajudicial Deposits
things may be borrowed - Movables only
2. Judicial Deposits
- Immovable and
movables

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Timoteo B. Aquino

Essentially gratuitous May be gratuitous or onerous May be gratuitous or onerous

The object is generally non-
consumable
Bailor retains ownership of
the thing delivered.
There is an obligation to
return the same thing.
Death of the lender
extinguishes the
commodatum because it is
purely personal
Generally, the bailor bears
the loss of the thing due to
pforuitous event.
The bailor need not to be the
owner of the thing loaned.
Generally, the lender must
wait for the expiration of the
period agreed upon or the
accomplishment if the use for
which the commodtum was
established.
Exc. In case of Urgent need;
and in Precarium
The object is money or other
fungible things.
The bailee becomes the
owner of the thing delivered.
There is no obligation to
return the same thing
Death of the lender does not
extinguish the loan.
The bailee bears the loss of
the thing delivered.
The lender must be the
owner of the thing borrowed
or at least capable of
transferring the ownership.
The bailor must wait for the
expiration of the period
agreed upon.
Consumable or non-
consumable although for
safekeeping only.
Depositor retains ownership
of the thing delivered.
The depositary must return
the same.
If gratuitous deposit, the
death of the depositary
extinguishes the deposit.
Generally, the depositor
bears he loss of the thing due
to fortuitous evetn.
The depositor need not bethe
owner of the thing deposited.
However, the depositary
CANNOT be the owner of the
thing deposited.
The depositor can demand
the return of the thing at any
time.

COMMODATUM
- The bailee in commodatum acquires the use of the thing loaned but not its fruits.

** Gratuitous – Commodatum is essentially gratuitous. If any compensation is to be paid by

him who acquires the use, the contract ceases to be a commodatum.

** Personal in Nature
– Commodatum is purely personal in character. Consequently:
a. The death of either the bailor or bailee extinguishes the contract of commodatum;
b. The bailee can neither lend nor lease the object of the contract to a third person.
However, the members of the bailee’s household may make use of the thing loaned,
unless there is a stipulation to the contrary, or unless the nature if the thing forbids
such use.

OBLIGATIONS OF THE BAILEE

a. Expenses for the use and preservation
- The bailee is obliged to pay for the ordinary expenses for the use and preservation of
the thing loaned. hOwever, the bailee does not answer for the deterioration of the
thing loaned due only to the use thereof and without his fault.
b. Loss

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Timoteo B. Aquino

- The bailee is liable for the loss of the thing, even if it should be through a fortuitous
event in the following cases:
1. If he devotes the thing to any purpose different from that for which it has been
loaned.
2. If he keeps it longer than the period stipulated, or after the accomplishment oft
the use for which the commodatum has been constituted;
3. If the thing loaned has delivered with appraisal of its value, unless thereis a
stipulation exemption the bailee from responsibility in case of a fortuitous event;
4. If he lends or leases the thing to a third person, who is not a member if his
household.
5. If, being able to save either the thing borrowed or his own thing, he chose to save
the latter.
c. Right of retention
- The bailee cannot retain the thing loaned on the f=ground that the bailor owes him
something, even though it may be by reason of expenses. However, the bailee has a
right of retention for damages mentioned in Art. 1951.
1. Under Arty. 1951, the bailor is liable to the bailee if the the latter was damaged
because of a flaw or defect in the thing of which the bailor was aware.the bailor
cannot exempt himself from liability by abandoning the thing.

RETURN OF THE THING

In commodatum, the bailor cannot demand the return of the thing loaned till after the
expiration of the period stipulated, or after he accomplishment of the use for which the
commodatum was established.

EXCEPTIONS: The bailor may ask for the return of the thing in the following cases:
a. In case thr bailor’s urgent need;
b. Precarium;
c. Bailor commits any acts of ingratitude under Art. 765.

EXPENSES
TYPE OF EXPENSES WHO IS LIABLE
Ordinary expenses for the use and Bailee- borrower
preservation of the thing loaned.
Extraordinary expenses for the preservation Bailor - lender
Extraordinary expenses arising on the Equally by the bailor and bailee.
occasion of the actual use of the thing by the
bailee (even without the bailee’s fault)

SIMPLE LOAN OR MUTUUM

- A person who receives a loan of money or any fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.

CAUSE OF SIMPLE LOAN

a. As to the borrower – the acquisition of the thing
b. As to the lender – the right to demand the return of the thing loaned or its
equivalent (Monte de Piedad v. Javier, CA, 36 Off. Gaz. 2176).
OBJECT OF MUTUUM

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Timoteo B. Aquino

- Money or fungible and consumable things.

WHEN PERFECTED
- Real contracts, such as deposit, pledge and commodatum, are not perfected until the
delivery of the object of the obligation. (Art. 1316, NCC) While mutuum or simple loan
is not mentioned, it has the same character as commodatum. Hence, mutuum is also a
real contract which cannot be perfected until the delivery of the object.

GOVERNING RULES ON PAYMENT OF LOAN

1. Money
GENERAL RULE: Payment shall be made in the currency stipulated.

EXCEPTION: If not, that currency which is legal tender in the Philippines.

Note: In case of extraordinary inflation – value of the currency at the time of the creation
of the obligation.

2. Consumable or fungible thing

- Debtor or borrower shall pay another thing of the same kind, quality and quantity even
if it should change in value. If cannot be done, the value of the thing at the time of its
perfection (delivery) shall be the basis of the payment of the loan.

BANK DEPOSITS
- Bank deposits are governed by rules on mutuum. When a savings account or a checking
account is opened, a creditor-debtor relationship ensues with the depositor as the
creditor and the bank as the debtor.

INTEREST
- Payment of interest shall due inly if the following concurs:
1. Payment of Interest is agreed upon;
2. The stipulation to pay interest must be in writing; and
3. The rate must not be against the law or against morals and public policy.

COMPOUNDING INTEREST (INTEREST ON INTEREST)

General Rule: Interest due and unpaid shall not earn interest.
Exceptions:
a. Upon judicial demand
b. When compounding interest is agreed upon.

DEPOSIT
- There is deposit when one person delivers and the other receives a thing belonging to
another with the obligation of safely keeping it and returning the same.

GENERAL RULE: A deposit is generally, a gratuitous contract.

EXCEPTIONS:
1. When there is an agreement to the contrary or
2. When the depositary is engages in the business of storing goods.
KINDS OF DEPOSIT

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Timoteo B. Aquino

a. Extrajudicial Deposit
- Voluntary – result of voluntary agreement
- Necessary – made in compliance of a legal obligation
b. Judicial Deposit
- When the court orders the attachment or seizure of the property.

OBLIGATIONS OF DEPOSITARY
1. To hold the thing and keep it safe through the exercise of diligence;
2. To return the thing when required to the depositor or the latter’s heir or successors;
3. To be liable for the loss of the thing through his fault or negligence;
4. Not to deposit the thing with a third person, unless allowed through stipulation;
5. Not to change the way of the deposit. Except, if under the circumstances he may
reasonably presume that the depositor would consent to the change if he knew of the
facts of the stipulations;
6. Not to make use of the thing deposited without express permission of the depositor.
Otherwise, he shall be liable for damages. EXCEPT, when the preservation of the thing
deposited requires it use, it must be used but only for that purpose.
7. To be liable for the loss of the thing due through a fortuitous event in the following
cases:
a. If it is so stipulated;
b. If he uses the thing without permission;
c. If he delay its return;
d. If he allows others to use it, even though he himself may have been authorized to
use the same.
8. The depositary cannot demand that the depositor prove his ownership of the thing
deposited.
9. For a depositary holding certificates, bonds, securities or instruments which earn
interest, the depositary is obliged to do the following:
a. To collect the latter when it becomes due; and
b. To take such steps as may be necessary in order that the securities may be
preserved of their value and the rights corresponding to them according to the
law.

OBLIGATIONS OF THE DEPOSITOR

1. To pay the consideration if the deposit is not gratuitous;
2. If the deposit is gratuitous, to reimburse the depositary for the expenses he may have
incurred for the preservation of the thing deposited;
3. To reimburse the depositary for any loss arising from the character of the thing
deposited, unless at the time of the constitution of the deposit the former was not
aware of, or was not expected to know the dangerous character of the thing, or unless
he notified the depositary of the same, or the latter was aware of it without advice
form the depositor.
4. RIGHT OF RETENTION – The depositary may retain the thing pledge until the full
payment of what may be due him by reason of the deposit.

EXTINGUISHMENT OF DEPOSIT
1. Upon the loss or destruction of the thing deposited;
2. In case of a gratuitous deposit, upon the death of either the depositor or depositary.

NECESSARY DEPOSIT

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A deposit is necessary when the following is present:

a. When it is made in compliance with a legal obligation;
b. When it takes place on the occasion of any calamity, such as fire, flood, pillage,
shipwreck, or other similar events.

SECURITY TRANSACTIONS

GUARANTY AND SURETYSHIP

GUARANTY
- By guaranty, a person, called guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

CHARACTERISITCS OF GUARANTY
1. Gratuitous - a guaranty is gratuitous, unless there is a stipulation to the contrary.
2. Accessory – guaranty secures the payment of obligation, hence, it cannot exist
without a principal obligation.
3. Subsidiary – The guarantor will pay only if the principal debtor cannot pay and has no
properties to answer for the obligation.
4. Conditional – Certain conditions must be complied with before the guarantor can be
made liable. (Ex. Exhaustion)
5. Unilateral – the obligation is only on the part of the creditor. The debtor need not to
prove consent.

KINDS OF GUARANTY
1. Conventional – by agreement
2. Legal – imposed by law
3. Judicial – constituted by court
4. Gratuitous
5. Onerous
6. Definite – secures the principal obligation only
7. Indefinites or simple –secures

Q: WHAT IS A SUB-GUARANTY?
ANS.: It is a guaranty to secure the obligation of another guarantor.

DEBTS TO BE GUARANTEED
- The guarantor and the surety guarantees the principal obligation only, UNLESS, it is
indefinite, in which cases, the security extends to both principal, accessory obligations
like payment of interests and charges, and judicial cost incurred after he was
judicially required to pay.
1. AMOUNT
A guarantor or surety may bind themselves for less, but not for more than the
principal debtor, both as regards the amount and the onerous nature of conditions.
2. FUTURE DEBTS
A guaranty or surety may also be given as security for future debts, the amount of
which is not yet known. However, there can be no claim against the guarantor or
surety until the debt is liquidated.
QUALIFICATIONS OF GUARANTORS

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If the debtor is obligated to furnish a guarantor or surety, he must present one with the
following characteristics:
1. The guarantor must possess integrity;
2. He must have the capacity to bind himself;
3. He must have sufficient property to answer for the obligation which he guarantees.

REPLACEMENT
If the guarantor should be convicted in the first instance of a crime involving dishonesty or
should he become insolvent, the creditor may demand another who has all the qualifications
required. EXCEPT, where the creditor has required and stipulated that a specified person
should be the guarantor.

BENEFIT OF EXCUSSION OR EXHAUSTION

The liability of the guarantor is subsidiary. The guarantor cannot be compelled to pay the
creditor unless:
a. The creditor has exhausted all the properties of the debtor; and
b. The creditor has resorted to all the legal remedies against the debtor.

WHEN BENEFIT OF AXHAUSTION IS NOT AVAILABLE

The excussion will not take place in such cases:
a. If the guarantor has expressly renounced it;
b. If he has bound himself solidary with the debtor;
c. In case of insolvency of the debtor;
d. When he has absconded, or cannot be sued within the Philippines unless he has left a
manager or representative;
e. If it may be presumed that an execution on the property of the property of the
principal debtor would not result to the satisfaction of the obligation;
f. If the guarantor did not set up against the creditor upon the latter’s demand for
payment from him; and
g. If the guarantor did not point out to the creditor available property of the debtor
within the Philippine Territory, sufficient to cover the amount of the debt.

NOTE: This is not applicable to a Surety. Since the liability of a surety is solidary, the
surety is not entitled to the benefit of excussion.

NOTICE TO GUARANTOR
To make the guarantor liable, the creditor must:
1. File a case against the debtor alone;
2. The creditor must ask the court to notify the guarantor.

REIMBURSEMENT OF GUARANTOR AND SURETY

1. Total amount of the debt;
2. The legal interest thereon;
3. Expenses incurred;
4. Damages, if any.

EXTINGUISHMENT OF GUARANTY
The guaranty may be extinguished together with the principal obligation or even if the
principal obligation subsists in certain cases.

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Guaranty is extinguished if:

a. The principal obligation is extinguished for the same causes as all other obligations; or
b. If the guaranty is extinguished in the following cases:
1. If the creditor voluntarily accepts immovable or other property in payment of the
debt, even if he should afterwards lose the same through eviction, the guarantor is
released.
2. A release made by the creditor in favor of one of the guarantors, without consent
of the other guarantors, benefits all to the extent of the share of the guarantor to
whom it has been granted.
3. An extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty.
4. The guarantors, even though they be solidary, are released from their obligation
whenever by some act of the creditor they cannot be subrogated to the rights,
mortgages, and preference of the latter.

SURETY
- The surety binds himself solidarily to the creditor to fulfill the obligation of the
principal debtor.

CONTRACT OF SURETYSHIP
- Is an agreement whereby the party called the surety guarantees the performance by
another party called the principal of an obligation or undertaking in favor of a third
party called obligee.

SURETY VS GUARANTY
SURETY
The surety insures the debt. – the surety’s
undertaking is that the debt shall be paid.
The surety is solidary and primarily liable
The surety is not entitled to the benefit of
excussion
GUARANTY
The guarantor insures the debtor’s solvency –
and in case of non-payment, the former shall
pay the same.
The guarantor is subsidiarily liable
The guarantor is entitled to the benefit of
excussion

NATURE OF LIABILITY
Surety involves two types of relationship – the underlying principal relationship between the
creditor and debtor, and the accessory surety relationship between the principal and the
surety.

1. NO RIGHT OF EXHAUSTION
- A surety like a judicial bondsman cannot demand the exhaustion of the property of the
principal debtor.
2. NOT INDISPENSABLE PARTY
- Because of the solidary nature of its obligation the surety is not an indispensable party
in a suit against the principal.
3. DEMAND NOT NECESSARY
- Demand to pay is not necessary to make the surety liable.

EXTINGUISHMENT OF SURETYSHIP
- The obligation of the guarantor and surety are extinguished at the same time as that
of the principal and for some causes as all other obligations.

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1. Novation – the suretyship is extinguished is there is material alteration of the

principal obligation.
Example: An extension granted to the debtor by the creditor without the consent
of the surety extinguishes the suretyship.

PLEDGE, MORTGAGE, AND ANTICHRESIS

REQUIREMENTS COMMON TO PLEDGE AND MORTGAGE:

1. They must be constituted to secure the fulfillment of a principal obligation;
2. The mortgagor or pledger must be the absolute owner of the thing pledged or
mortgaged;
3. The pledger or mortgagor must have free disposal of the property.

WHO MAY PLEDGE

The debtor himself or a third person may mortgage or pledge to secure the obligation of the
debtor.

COMMON FEATURES
1. Real security
2. Consideration
3. Indivisible
4. Obligation secured

PROHBITION AGAINST PACTUM COMMISSORIUM

The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
them.

PACTUM COMISSORIUM
It is an agreement whereby the creditor automatically becomes the owner of the things given
by way of pledge or mortgage, or dispose of them in case of non-payment. This agreement is
null and void.

REQUISITES OF PACTUM COMMISSIORIUM

1. There should be a property mortgaged or pledged by way of security for the payment
of an obligation.
2. Automatic appropriation of the thing given upon failure to pay.

PLEDGE
It is an accessory contract by virtue of which personal property delivered to the creditor as a
security for an obligation with the agreement that it can be sold at public auction in case of
non-payment to answer for the unpaid obligation or for the creditor to return the same in
case the principal obligation is paid.

KINDS OF PLEDGE
1. Conventional or voluntary
2. Legal or by operation of law.

REQUIREMENTS OF PLEDGE
1. The pledge must be constituted to secure the fulfillment of a principal obligation.

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2. The pledger must be the absolute owner of the thing pledged or mortgaged.
3. The pledger must have free disposal of the property.
4. The thing pledge should be placed in the possession of the creditor, or of a third
person by common agreement – actual delivery must be made.
5. To effect third persons—the description of the thing pledged and the date of the
pledge must appear in a public instrument.
SUBJECT MATTER
Only personal or movable properties contemplated under Arts. 416 and 417 of the New Civi
Code may be pledged provided they are susceptible of possession.

POSSESSION
The pledgee has the right to retain the thing until the debt is paid.

1. The pledger cannot alienate the thing pledged before the obligation becomes due
unless there is consent from the pledgee.
2. The creditor-pledgee shall take care of the thing pledged with the diligence of a good
father of a family; he has a right to reimbursement of the expenses made for its
preservation, and is liable for its loss or deterioration.
3. The pledgee cannot deposit the thing pledged with a third person, unless there is a
stipulation to do so.
4. The pledger has the same responsibility as a bailor in commodatum.
5. The creditor cannot use the thing pledged, without authority of the owner, and if he
should do so, or should misuse the thing, the owner may ask that it be judicially or
extrajudicially deposited.

PLEDGE BY OPERATION OF LAW

A thing under a pledge b operation of law may be sold only after demand of the amount for
which the thing is retained.

RETURN OF THE THING

The pledger can ask for the return of the thing only if the obligation has been paid. The
pledger must pay the debt and its interest, with expenses in proper cases.

EXTINGUISHMENT
The pledge is extinguished:
1. If the thing pledged is returned by the pledgee to the pledger or owner and any
stipulation to the contrary shall be void.
2. A statement in writing by the pledgee that he renounces or abandons the pledge is
sufficient to extinguish the pledge. For this purpose, neither the acceptance by the
pledger or owner, nor return of the thing pledged is necessary, the pledgee becoming
a depository.

REAL ESTATE MORTGAGE

SUBJECT
Only immovable properties or real right over such immovable may be the subject of a real
estate mortgage.

NATURE

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The mortgage constitutes an encumbrance on real property. The right of the mortgagee is a
right in rem.

BLANKET MORTGAGE OR DRAGNET CLAUSE

- A blanket mortgage clause is also known as a dragnet clause is one that is specifically
phrased to subsume all debts of past or future origin.
- A mortgage with a dragnet clause makes available future loans without needs
executing another set of security documents.

CHATTEL MORTGAGE
It is an accessory contract by virtue of which personal property is recorded in the chattel
mortgage register as security for the performance of an obligation.

SUBEJCT MATTER
It covers all personal property or movable property.

FORMALITIES
It must be registered in the Chattel Mortgage Registry of the registry of Deeds. An
unregistered mortgage is not binding upon third persons.

RIGHT OF REDEMPTION
There is no right of redemption after the foreclosure sale; there is only equity of redemption
before foreclosure.

ANTICHRESIS
It is an accessory agreement whereby the creditor acquires the right to receive the fruits of
an immovable of his debtor, with the obligation to apply them for payment of the principal
interest, if owing, and thereafter to the principal of his credit.

MEASURES OF APPLICATION
The actual market value of the fruits at the time of application thereof the interest and
principal shall be the measure of the application of fruits to the obligation.
a. Stipulated Interest - the contracting parties may stipulate that the interest
upon the debt be compensated with the fruits of the property which is the
object of the antichresis.
b. Effect of Usury – if the value of the fruits should exceed the amount of interest
allowed by the laws against usury, the excess shall be applied to the principal.
FORMALITIES
It is a formal contract which must be in writing. The amount of the principal and of the
interest shall be specified in writing; otherwise, the contract of antichresis is VOID.

DELIVERY OF IMMOVABLE
The property involved is an immovable that is delivered to the antichretic creditor as a
security – ownership I not transferred. The debtor cannot acquire the enjoyment of the
immovable until full payment of his obligation.

OBLIGATIONS OF AN ANTICHRETIC CREDITOR

1. To pay the taxes and charges upon the estate, unless there is a stipulation to the
contrary – to be deducted from the fruits.

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2. To bear the expenses necessary for its preservation and repair – to be deducted from
the fruits.

REMEDIES OF THE ANTICHRETIC CREDITOR

As a rule, The creditor cannot appropriate the property. – the creditor does not acquire the
ownership of the real estate for non-payment of the debt within the period agreed upon.

However, he can make use of the following remedies:

1. To abandon the security and file an action for specific performance;
2. Petition the court for the payment of the debt or the sale of the real property in
which the rules on foreclosure of mortgages under the rules of court shall apply.

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