I.
Credit Transactions
A. Credit, defined
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It
means the ability of an individual to borrow money or things by virtue of the
confidence or trust reposed by a lender that he will pay what he may promise
within a specified period
B. Credit transactions, defined
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It
includes 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.
C. Distinguished from Bailments,
Secured Transactions
Bailment
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The
delivery of property of one person to another in trust for a specific purpose,
with a contract, 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.
Security
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Something
given, deposited, or serving as a means to ensure the fulfillment or
enforcement of an obligation or of protecting some interest in property.
D. Scope of Credit Transactions
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Bailment
contracts
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Guaranty
and suretyship
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Pledge
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Mortgage
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Antichresis
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Concurrence
and preference of credits
II.
Loan
A. Definition
Article 1933. By the contract of
loan, one of the parties delivers to another, either something not consumable
so that the latter may use the same for a certain time and return it, in which
case the contract is called a commodatum; or money or other consumable thing, upon
the condition that the same amount of the same kind and quality shall be paid,
in which case the contract is simply called a loan or mutuum.
B. Kinds of loan
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Commodatum
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Simple
Loan
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Subject Matter
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Not consumable
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Money or other consumable
thing
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Gratuitous?
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Essentially gratuitous
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May be gratuitous or with
stipulation to pay interest
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ownerhsip
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Retained by the lender
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Passes to the borrower
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Obligation of borrower
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Borrower must return the same
thing loaned
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Borrower should pay the same
amount of the same kind and quality
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Kind of property
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Real or personal property
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Personal only
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Purpose
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Temporary use or possession
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Consumption
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When lender may demand
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Before the expiration of the
term in case of urgent need
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May not demand the return of
the thing before the lapse of the term agreed upon
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Loss of the thing
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Suffered by the lender
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Suffered by the borrower even
if through fortuitous event
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Punishment
(Do not return the thing)
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Estafa
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Civil liability for breach of
the obligation to pay.
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C. Characteristics of the contract of loan
1. Real contract
The delivery of the thing loaned
is necessary for the perfection of the contract.
2. Unilateral
Once the subject matter has been
delivered, it creates obligation on the part of only one of the parties
(borrower).
Nature
of commodatum
1. The bailee acquires the use of
the thing but not its fruits, unless there is a stipulation to the contrary.
2. It is essentially gratuitous
3. The purpose of the contract is
the temporary use of the thing loaned
4. The subject matter is generally
non-consumable real or personal property
5. The lender need not be the owner
of the thing loaned.
6. It is purely personal in
character.
a. The death of either party
extinguishes the contract unless there is a stipulation for commodatum to
subsist until the purpose is accomplished.
b. The borrower cannot lend or
lease the thing to a third person. However, members of the borrower’s household
may make use of the thing loaned except:
i.
If
there is a stipulation to the contrary;
ii.
If
the nature of the thing forbids it use.
Cases:
Catholic Vicar Apostolic vs CA
September 21, 1988
« The bailee’s failure to return
the subject matter of commodatum to the bailor did not mean adverse possession
on the part of the borrower. The bailee held in trust the property subject
matter of commodatum.
Republic vs Bagtas
October 25, 1962
« A contract of commodatum is
essentially gratuitous. If the breeding fee be considered compensation, then
the contract would be a lease of bull. Under Article 1671 of the Civil Code,
the lessee would be subject to the responsibilities of a possessor in bad
faith, because she had continued possession of the bull after the expiry o the
contract. And even if the contract be commodatum, still the appellant is
liable.
Saura Import & Export Co. Inc. vs Development Bank of
the Phil.
April 27, 1972
« Where an application for a loan
of money was approved by resolution of the defendant corporation and the
corresponding mortgage was executed and registered, there arises a perfected
consensual contract of loan.
« Extinguishment of obligations by
mutual desistance. Mutuo disenso (Manresa) – which is a mode of extinguishing
obligations. It is a concept that since mutual agreement can create a contract,
mutual disagreement by the parties can cause its extinguishment.
Herrera vs Petrophil Corporation
December 29, 1986
« The contract between the parties
is one of lease and not of loan.
« No usury where there was no
money given by defendant to plaintiff, nor did it allow him to use its money
already in his possession, and there was neither loan nor forbearance but a
mere discount.
« Discount vs loan or forbearance.
Discount does not have to be repaid while loan or forbearance is subject to
repayment and is therefore governed by the laws on usury.
« Requirements to constitute
usury:
1. There must be loan or
forbearance
2. The loan must be of money or
something circulation as money
3. It must be repayable absolutely
and in all events
4. Something must be exacted for
the use of the money in excess of and in and in addition to interest allowed by
law.
« Elements of Usury
1. A loan, express or implied
2. An understanding between the
parties that the money lent shall or may be returned
3. That for such loan a greater
rate or interest that is allowed by law shall be paid, or agreed to be paid, as
the case may be
4. A corrupt intent to take more
than the legal rate for the use of money loaned.
Integrated Realty Corporation vs PNB
June 28, 1989
D. Subject Matter
Republic vs Court of Appeals
November 26, 1986
« The Occupancy of the US Navy was
not in the concept of owner. It partakes of the character of a commodatum. It
cannot therefore militate against the title of Domingo Baloy and his
successors-in-interest. One’s ownership of a thing may be lost by prescription
by reason of another’s possession if such possession be under claim of
ownership, not where the possession is only intended to be transient.
Quintos and Ansaldo vs Beck
November 3, 1939
« The contract entered into
between the parties is one of commodatum, because under it the plaintiff
gratuitously granted the use of the furniture to the defendant, reserving for
herself the ownership thereof; by this contract the defendant bound himself to
return the furniture to the plaintiff.
« Expenses for deposit of
furniture. As the defendant had voluntarily undertaken to return all the
furniture to the plaintiff, upon the latter’s demand, the court could not
legally compel her to bear the expenses occasioned by the deposit of the
furniture at the defendant’s behest. The latter, as bailee, was not entitled to
place the furniture on deposit; nor was the plaintiff under a duty to accept
the offer to return the furniture because the defendant wanted to retain the
three gas heaters and the four electric lamps.
« The defendant was the one who
breached the contract of commodatum, and without any reason he refused to
return and deliver all the furniture upon the plaintiff’s demand. In these
circumstances, it is just and equitable that he pay the legal expenses and
other judicial costs which the plaintiff would not have otherwise defrayed.
Republic vs Grijaldo
December 31, 1965
« The obligation of the appellant
under promissory notes was not to deliver a determinate thing, namely, the
crops to be harvested from his land, but to pay a generic thing – the amount of
money representing the total sum of his loans, with interest. The chattel
mortgage on the crops simply stood as a security for the fulfillment of
appellant’s obligation covered by promissory notes, and the loss of the crops
did not extinguish his obligation to pay, because the account could still be
paid from other sources aside from the mortgaged crops.
E. Rights and obligations of Bailor
and Bailee
De los Santos vs Jarra
February 10, 1910
« In a contract of commodatum whereby one of the
parties thereto delivers to the other a thing that is not perishable, to be
used for a certain time and afterwards returned, it is the imperative duty of
the bailee, if he should be unable to return the thing itself to the owner, to
pay damages to the latter if, through the fault of the bailee, the thing loaned
was lost or destroyed, inasmuch as the bailor retains the ownership thereof.
Mina vs Pascual
October 14, 1913
« A sale of a land belonging to
another, on which a building of the vendor’s is located, is null and void, for
the vendor cannot sell or transfer property that does not belong to him.
Briones vs Cammayo
October 4, 1971
F. Modes of Extinguishment
III.
Deposit
IV.
Guaranty and Suretyship
V.
Provisions common to pledge and
mortgage
Article 2085. The following
requisites are essential to the contracts of pledge:
1. That they be constituted to
secure the fulfillment of a principal obligation;
2. That the pledgor or mortgagor be
the absolute owner of the thing pledged or mortgaged;
3. That the persons constituting
the pledge or mortgage have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the purpose.
Third persons who
are not parties to the principal obligation may secure the latter by pledging
or mortgaging their own property.
VI.
Pledge
A. In General
1. Pledge
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It
is a contract by virtue of which the debtor delivers to the creditor or to
third person a movable or document evidencing incorporeal rights for the
purpose of securing the fulfillment of a principal obligation with the
understanding that when the obligation is fulfilled, the thing delivered shall
be returned with all the fruits and
accessions.
2. Kinds of Pledge
a. Voluntary or conventional
It is created by the agreement
of the parties.
b. Legal
It is created by operation of
law.
3. Characteristics of pledge
a. Real contract
It is perfected by the delivery
of the thing pledged by the debtor/pledgor to the creditor/pledge, or to a
third person by common agreement.
b. Accessory contract
It has no independent existence
of its own.
c. Unilateral contract
It creates an obligation solely
on the part of the creditor to return the thing subject thereof upon the
fulfillment of the principal obligation
d. Subsidiary
The obligation incurred does not
arise until the fulfillment of the principal obligation which is secured.
4. Extent of Pledge
Unless there is stipulation to
the contrary, the pledge shall extend to the interest and earnings of the right
pledged. (Art 2102)
B. Essential Requisites
1. Article 2085
2. That the thing pledged be placed
in the possession of the creditor, or of third person by common agreement
Formal Requisites
No form but a pledge shall not take
effect against third persons if a description of the thing pledged and the date
of the pledge do not appear in a public instrument. (Art 2096)
Yuliongsu vs PNB
February 17, 1968
« The pledge can temporarily
entrust the physical possession of the chattels pledged to the pledgor without
invalidating the pledge. In this case, the pledgor is regarded as holding the
pledge property merely as trustee for the pledge.
« Constructive delivery is
sufficient. The type of delivery will depend upon the nature and circumstances
of each case.
Manila Surety & Fidelity vs Velayo
October 26, 1967
« Sale of the thing pledged. If
the price of the sale is less, neither shall the creditor be entitled to
recover the deficiency notwithstanding any stipulation to the contrary. By electing
to sell the articles pledged, instead of suing on the principal obligation, the
creditor has waived any other remedy, and must abide by the results of the
sale.
C. Rights and Obligations of the
Pledgor (debtor or third person)
Rights of the Pledgor
1. To demand the return in case of
reasonable grounds to fear destruction or impairment of the thing without the
pledgee’s fault, subject to duty of replacement
Requisites:
a. Pledgor has reasonable grounds
to fear destruction or impairment of the thing pledged;
b. No fault on the part of the
pledgee;
c. Pledgor offers another thing
which is of the same kind and quality as the former;
d. Pledgee does not choose to
exercise his right to cause the thing to be sold at public auction.
2. To bid and be preferred at the
public auction (Art 2113).
3. To alienate the thing pledged
provided the pledgee consents to the sale (Art 2097).
4. To ask the thing pledged be
deposited in one of the following cases:
a. If the creditor uses the thing
without authority (Art 2104).
b. He misuses the thing
c. The thing is in danger of being
lost or impaired because of negligence or willful act of the pledge (Art 2106).
Pactum Commissorium
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Stipulation
whereby the thing used as security shall automatically become the property of
the creditor in the event of non-payment of the principal obligation in due
time.
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The
creditor would be able to acquire ownership of the property given as security
without need of public sale or foreclosure required by law.
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Requisites:
a. There should be a pledge,
mortgage or antichresis of property.
b. There is a stipulation for an
automatic appropriation by the creditor of the property in the event of
nonpayment of principal obligation.
GR: Pactum commissorium is forbidden by law
and any stipulation to that effect is declared null and void.
Reason: The amount of the loan is ordinarily
less than the real value of the thing pledged or mortgaged.
XPN: The pledgee may appropriate the thing
pledged if after the first and second auctions, the thing is not sold
(Art2112).
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The
creditor shall be obliged to give an acquittance to his entire claim and be
considered as full payment of the claim.
Permissible stipulations:
1. Subsequent modification of
original contract
2. Subsequent voluntary cession of
property (Novation)
3. Promise to assign or sell
4. Authority to take possession of
property upon foreclosure.
Obligations of the pledgor
1. To advise the pledgee of the
flaws of the thing.
2. Not to demand the return of the
thing until after full payment of the debt, including interest due thereon and
expenses incurred for its preservation.
D. Rights and Obligations of the
Pledgee (Creditor)
Rights of the Pledgee
1. Option to demand replacement or
immediate payment of the debt in case of deception as to substance or quality.
2. To sell at public auction in
case of reasonable grounds to fear destruction or impairment of the thing
without his fault (Art 2108)
3. To bring actions pertaining to
the owner or to defend it against third persons (Art 2103.2)
4. To choose which of the several
things pledged shall be sold
5. To collect and receive amount
due on credit pledged
6. To bid at the public auction,
unless he is the only bidder (Art 2113.2)
7. To appropriate the thing in case
of failure of the second public auction (Art 2112)
8. To apply said fruits, interests
or earnings to the interest, if any, then to the principal of the credit
9. To retain excess value received
in the public sale
10. To retain the thing until full
payment of the debt
11. To be reimbursed for the
expenses made for the preservation of the thing pledged
12. To object to the alienation of
the thing
13. To possess the thing
14. To sell at public auction in
case of non-payment of debt
Obligations of the pledgee
1. Take care of the thing with the
diligence of a good father of a family and be liable for the loss or
deterioration of such (Art 2099)
2. Not to use the thing unless
authorized by the owner or its preservation requires its use.
3. Not to deposit the thing with a
third person unless so stipulated
4. Responsibility for acts of
agents and employees as regards the thing
5. To advise pledgor of danger to
the thing
6. To advise the pledgor of the
result of the public auction
7. To return the thing upon payment
of debt
E. Modes of Extinguishment of
pledge
1. Payment of the debt
2. Sale of the thing pledge at
public auction
3. Appropriation (Art 2112)
4. Return of the thing pledged by
the pledgee to the pledgor (Art 2110)
5. Statement in writing by the
pledge that he renounces or abandons the pledge (Art 2111)
Indivisibility of pledge (Art
2089)
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A
pledge or mortgage is indivisible, even though the debt may be divided among
the successors in interest of the debtor or of the creditor.
VII.
Chattel Mortgage
A. In General
1. Definition and Purpose
Article 2140. By a chattel
mortgage, personal property is recorded in the Chattel Mortgage Register as a
security for the performance of an obligation. If the movable, instead of being
recorded, is delivered to the creditor or a third person, the contract is
pledge and not a chattel mortgage.
2. Characteristics of Chattel
Mortgage
a. Accessory contract
It is for the purpose of
securing the performance of a principal obligation.
b. Formal Contract
Registration in the Chattel
mortgage Register is indispensable for its validity.
c. Unilateral contract
It produces only obligations on
the part of the creditor to free the thing from the encumbrance upon
fulfillment of the obligation.
3. Extent of Mortgage
a. Coverage extends only to
property described therein.
b. Stipulation including after-acquired
property
Where the after acquired
property is in renewal of, or in substitution for, goods on hand when the
mortgage was executed, or is purchased with the proceeds of the sale of such
goods.
B. Essential Requisites
Formal Requisites
Affidavit of Good Faith
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Oath
in a contract of chattel mortgage wherein the parties severally swear that the
mortgage is made for the purpose of securing the obligation specified in the
condition thereof and for no other purposes and that the same is a just and
valid obligation and one not entered into for purpose of fraud.
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Purpose:
Transforming an already valid
mortgage into preferred mortgage.
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Effect
of absence:
Its absence vitiates the
mortgage only as against third persons without notice like creditors and
subsequent encumbrances.
Not necessary for the validity
of the chattel mortgage
Piansay vs David
October 30, 1964
« Where the chattel mortgage and
sale in favor of a party had been annulled in the decision in one case, which
order became final and executor, it is held that said party is now barred from
asserting against the same adverse party in another case that the said chattel
mortgage and sale are valid.
« Chattel mortgage on a house
cannot bind third persons not parties to said contract.
Makati Leasing and Finance Corp vs Wearever Textile
May 16, 1983
« Where the chattel mortgage is
constituted on machinery permanently attached to the ground the machinery is to
be considered as personal property and the chattel mortgage constituted thereon
is not null and void, regardless of who owns the land.
« The parties to a contract may by
agreement treat as personal property that which by nature would be real
property, as long as no interest of third parties would be prejudiced thereby.
« Execution of chattel mortgage on
machinery permanently attached to the ground is only an equitable ground for
rendering the contract voidable provided that the mortgagor has not been
benefited by the contract.
« Return by mortgage creditor of
property seized on replevin does not make moot and academic the action for
judicial foreclosure where the return was expressly made to be without
prejudice.
C. Rights and Obligations of the
Mortgagor (Debtor or Third person)
D. Rights and Obligations of the
Mortgagee (Creditor)
Northern Motors vs Coquia
December 15, 1975
«
E. Modes of Extinguishment
VIII.
Real Estate Mortgage
Lanuza vs De Leon
June 6, 1967
« A conveyance of conjugal real
property made by the husband without the wife’s consent is merely voidable.
« Preference of credits:
Unrecorded mortgage is inferior to recorded mortgage of a later date.
While a pacto de retro sale of a
house, which is in reality an equitable mortgage, is valid between the parties,
it cannot prevail over a subsequent recorded mortgage over the same property.
Preference of mortgage credits
is determined by the priority of registration, following the maxim prior
tempore, potior jure.
IX.
Antichresis
Article 2132. By the contract of
antichresis the creditor acquires the right to receive the fruits of an
immovable of his debtor, with the obligation to apply them to the payment of
interest, if owing, and thereafter to the principal of his credit.
A. Characteristics o the contract
1. Accessory
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It
secures the performance of a principal obligation.
2. Formal contract
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It
must be in writing to be valid.
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Antichresis
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Pledge
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Real property
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Personal property
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Perfected by mere consent
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Perfected by the delivery of
the thing pledged
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Consensual contract
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Real contract
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Debtor loses control of the
subject matter of the contract
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Debtor loses control of the
subject matter of the contract
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Antichresis
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Real
Mortgage
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The property is delivered to
the creditor
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The debtor usually retains
possession of the property
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The creditor acquires only the
right to receive fruits of the property
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The creditor has a real right
over the property
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The creditor is obliged to pay
the taxes and charges upon the estate
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The creditor has no such
obligation
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Application of the fruits to
the payment of interest
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None
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Real Property
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Real Property
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Obligation of the antichretic creditor
1. Payment of taxes and charges
upon the estate
2. Application of the fruits of the
estate
Right of the antichretic debtor
1. To comple the creditor to
reacquire the property
Remedy of creditor in case of nonpayment of debt
1. Action for specific performance
2. Foreclosure of mortgage (R68)
X.
Concurrence and Preference of
Credit
A. General Provisions
Concurrence of
credits
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Implies
the possession by two or more creditors of equal rights and privileges over the
same property or all of the property of the debtor.
Preference of credit
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It
is the right held by a creditor to be preferred in the payment of his claim
above others out of the debtor’s assets.
Article 2236. The debtor is liable with all his property,
present and future, for the fulfillment of his obligations, subject to the
exemptions provided by law.
Exempt property
1. Present property
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Family
home
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The
right to receive support
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R39.13
2. Future property
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On
account of the debtor’s insolvency
3. Property in custodia legis and
of public dominion
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Those
owned by municipal corporations necessary for governmental purposes
Article 2237. Insolvency shall be governed by special laws
insofar as they are not inconsistent with this code.
By
virtue of the above provisions, the Civil Code prevails in case of conflict
with special laws on insolvency (Act No 1956, The Insolvency Law) unless
otherwise provided.
Article 2238.
Exemption of conjugal partnership or absolute community of
property
1. The partnership or community
subsists; and
2. The obligations of the insolvent
spouse have not redounded to the benefit of the family
Article 2239.
Rule involving undivided share or interest of a co-owner
One of
the co-owners is the insolvent debtor, his undivided share or interest in the
property shall be possessed by the assignee in insolvency proceedings because
it is part of his assets.
Article 2240.
Rule involving property held in trust
Property
held in trust by the insolvent debtor should be excluded from the insolvency
proceedings.
B. Classification of credits
General categories of credit
1. Special preferred credits (Art
2241 and 2242)
2. Ordinary preferred credits (Art
2244)
3. Common credits (Art 2245)
Refectionary credit
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It
is primarily an indebtedness incurred in the repair or reconstruction of
something previously made, such repair or construction being made necessary by
the deterioration or destruction of the thing as it formerly existed.
