Credit Transactions
the loss of the thing even if it should be through a
(Reviewer)
Credit Transactions - 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.
Characteristics and classification of Contract of
Loan:
1. Real Contract delivery of the thing loaned is
necessary for the perfection of the contract.
NOTE: An accepted promise to make a future loan
is a consensual contract, and therefore binding
upon the parties but it is only after delivery, will the
real contract of loan arise. (Art 1934)
2. Unilateral Contract - once the subject matter has
been delivered, it creates obligations on the part of
only one of the parties (i.e. borrower).
Concept of Commodatum and Mutuum
Commodatum when the bailor (lender) delivers
to the bailee (borrower) a non-consumable thing so
that the latter may use it for a certain time and
return the identical thing.
Simple loan or mutuum where the lender delivers
to the borrower money or other consumable thing
upon the condition that the latter shall pay the
same amount of the same kind and quality.
Scope of Bailees right of use: Bailee in
commodatum acquires the temporary use of the
thing but not its fruits (unless stipulated as an
incidental part of the contract).(Art 1935)
Use must be temporary; otherwise the
contract may be a deposit.
Subject of Commodatum: Generally non-
consumable whether real or personal but if the
consumable goods are not for consumption as
when they are merely for exhibition, consumable
goods may be the subject of the commodatum. (Art
1936)
Consequence of commodatum for purely personal:
Purely Personal (Art 1939):
Death of either party terminates the contract
unless by stipulation, the commodatum is
transmitted to the heirs of either or both parties.
Bailee can neither lend nor lease the object of
the contract to a third person.
Can the thing be borrowed? Can it be lend by
borrower to another? No, Bailee can neither lend
nor lease the object of the contract to a third
person.
Rule on the loss of the thing loan: To be liable for
fortuitous event in the following cases: (KLAS D)
(Art 1942)
a. when he keeps it longer than the period
stipulated, or after the accomplishment of its use
b. when he lends or leases it to third persons who
are not members of his household
c. when the thing loaned has been delivered with
appraisal of its value
d. when, being able to save either of the thing
borrowed or his own things, he chose to save the
latter; or
e. when the bailee devoted the thing for any
purpose different from that for which it has been
loaned.
When can there be a right of retention: The
bailees right extends no further than retention of
the thing loaned until he is reimbursed for the
damages suffered by him. He cannot lawfully sell
the thing to satisfy such damages without courts
approval.
Effect of the duration of the loan upon the parties:
The primary obligation of the bailor is to allow the
bailee the use of the thing loaned for the duration
of the period stipulated or until the
accomplishment of the purpose for which the
commodatum was constituted. The reason is that
the bailor is bound by the terms of the contract of
commodatum which is for
a certain time.
Concept of Precarium: one whereby the bailor may
demand the thing loaned at will.
How is extraordinary expense spent in loan?
Is there in other words any extraordinary expense
that can be incurred in the contract of loan; how is
it spent; why it is spent; what is the effect of the
extraordinary expense upod the parties? Such
expenses (caused by fortuitous event) arising on
the occasion of the actual use of the thing loaned
(e.g., expenses for repairing a borrowed jeep
damaged in a collision) shall be borne by the bailor
and bailee alike on a 50-50 basis.
Extraordinary expenses for the preservation of the
thing loaned.
The effect is that The bailor shall refund the
extraordinary expenses during the contract for the
preservation of the thing loaned, provided the
bailee brings the same to the knowledge of the
bailor before incurring them, except when they are
so urgent that the reply to the notify cation cannot
be awaited without danger.
Redhibitory defect: the nullification of a sale
because of a defect in the article sold of such
nature as to make it totally or virtually unusable or
as to have prevented the purchase if known to the
buyer.
The seller is responsible for warranty against the
hidden defects which the thing sold may have, if
they render it unfit for the use for which it is
intended, or if they diminish its fitness for such use
to such an extent that, had the vendee been aware
thereof, he would not have acquired it or would
have given a lower price for it.
Non-criminal liability for failure to pay:
In simple loan or mutuum, as contrasted to
commodatum, the borrower acquires ownership of
the money, goods, or personal
property borrowed. Being the owner, the borrower
can dispose of the thing borrowed and his act will
not be considered misappropriation thereof. No
estafa is committed by a person who refuses to pay
his
debt or denies its existence.
Forms of Payment: (Art 1955):
1. If the thing loaned is money - payment must be
made in the currency stipulated, if it is possible;
otherwise it is payable in the currency which is
legal tender in the Philippines and in case of
extraordinary inflation or deflation, the basisi of
payment shall be the value of the currency at the
time of the creation of the obligation.
2. If what was loaned is a fungible thing other than
money - the borrower is under obligation to pay
the lender another thing of the same kind, quality
and quantity. In case it is impossible to do so, the
borrower shall pay its value at the time of the
perfection of the loan.
When can there be no recovery of interest: (Art.
1960)where the unstipulated interest, or interest
stipulated, there being a stipulation but it is not in
writing, is paid voluntarily because the debtor feels
morally obliged to do so, there can be no recovery
as in the case of natural obligations.
Concept of Solution indebiti (unjust enrichment):
Art. 2154. If something is received when there is no
right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.
ART. 1960. If the borrower pays interest when
there has been no stipulation.
When is there perfection in a contract of deposit: it
is perfected by the delivery of the subject matter.
Kinds of deposit:
1. Judicial (Sequestration) takes place when an
attachment or seizure of property in litigation is
ordered.
2. Extra-judicial - takes place through a contract
between parties. The purpose of such is the
custody and safekeeping of the thing.
Differentiate voluntary from necessary deposit:
Voluntary deposit is one wherein the delivery is
made by the will of the depositor or by two or
more persons each of whom believes himself
entitled to the thing deposited whereas, necessary
deposit one made in compliance with a legal
obligation, or on the occasion of any calamity, or by
travellers in hotels and inns or by travellers with
common carriers.
Obligations of the Depositary:
1. to keep the thing safely.
2. to return it, when required, to the depositor, or
to his heirs and successors, or to the person who
may have been designated in the contract.
Can the borrower use the thing borrowed?
G.R. No, the depositary cannot make use of the
thing deposited without the express permission of
the depositor.
EXCEPTIONS:
1. When the preservation of the thing deposited
requires its use
2. When authorized by the depositor
Irregular deposit as distinguished from Mutuum: If
the thing deposited is money or other consumable
thing, the permission to use it will result in its
consumption and converts the
contract into a simple loan or mutuum. But if
safekeeping is still the principal purpose of the
contract, and the use of the thing is merely
secondary, it is still a deposit but an irregular one;
hence, it is called an irregular deposit.
In an irregular deposit , the consumable thing
deposited may be demanded at will by the irregular
depositor for whose benefit the deposit has been
constituted, while in mutuum, the lender is bound
by the provisions of the contract and cannot seek
restitution until the time for payment, as provided
in the contract, has arisen;
The rule on thing deposited that was delivered
closed and seal:
a. to return the thing deposited in the same
condition
b. to pay for damages should the seal or lock be
broken through his fault, which is presumed unless
proved otherwise
c. to keep the secret of the deposit when the seal
or lock is broken with or without his fault (Art 1981)
To whom must the thing deposited be return?
Return to one of depositors stipulated. The
depositary is bound to return it only to the person
designated although he has not made any demand
for its return.

Obligations of the Depositor (Art 1992 1995):
1. To pay expenses for preservation -
a. If the deposit is gratuitous, the depositor is
obliged to reimburse the depositary for expenses
incurred for the preservation of the thing deposited
(Art 1992)
b. If the deposit is for valuable consideration,
expenses for preservation are borne by the
depositary unless there is a contrary stipulation.
2. To pay loses incurred by the depositary due to
the character of the thing deposited
GENERAL RULE: The depositor shall reimburse
the depositary for any loss arising from the
character of the thing deposited.
EXCEPTIONS:
1. at the time of the deposit, the depositor was not
aware of the dangerous character of the thing
2. when depositor was not expected to know the
dangerous character of the thing
3. when the depositor notified the depository of
the same
4. the depositary was aware of it without advice
from the depositor
When does judicial deposit takes place?
Takes place when an attachment or seizure of
property in litigation is ordered by a court.
WAREHOUS RECEIPTS: Who are the parties?
Warehouse receipts may be issued by any
warehouseman.
What is its purpose or the purpose of Warehouse
Receipt?
(1) To regulate the status, rights, and liabilities of
the parties in a warehousing contract;
(2) To protect those who, in good faith and for
value, acquire
negotiable warehouse receipts by negotiation;
(3) To render the title to, and right of possession of,
property
stored in warehouses more easily convertible;
(4) To facilitate the use of warehouse receipts as
documents
of title; and
(5) In order to accomplish these, to place a much
greater
responsibility on the warehouseman.
What is the meaning of the negotiability in the
Warehouse Receipts Law? The word negotiable is
not used in the sense in which it is applied to bills
of exchange or promissory notes but only as
indicating that in the passage of warehouse
receipts through the channels of commerce, the
law regards the property which they describe as
following them and gives to their regular transfer
by indorsement the effect of manual delivery of the
things specified in them.
Obligations of the warehouseman:
(1) to take care of the goods entrusted to his
safekeeping (Sec. 21.); and
(2) to deliver them to the holder of the receipt or
the depositor
provided the conditions under Section 8 are
fulfilled.
Remedies of creditor of negotiable receipt:
A creditor whose debtor is the owner of a
negotiable receipt shall be entitled to such aid from
courts of appropriate jurisdiction, by injunction and
otherwise, in attaching such receipt or in satisfying
the claim by means thereof as is allowed at law or
in equity in these Islands in regard to property
which cannot readily be attached or levied upon by
ordinary legal process.
Against what property the lien may be enforced:
(a) Against all goods, whenever deposited,
belonging to the person who is liable as debtor for
the claims in regard to which the lien is asserted;
and
(b) Against all goods belonging to others which
have been deposited at any time by the person
who is liable as debtor for the claims in regard to
which the lien is asserted if such person had been
so entrusted with the possession of the goods that
a pledge of the same by him at the time of the
deposit to one who took the goods in good faith for
value would have been valid.
Enforcement of Warehousemans lien:
1. By refusing to deliver the goods until the lien is
satisfied
2. By causing the extrajudicial sale of the property
and applying the proceeds to the value of the lien
3. By filing a civil action for collection of the unpaid
charges or by way of counterclaim in
an action to recover the property from him
How is negotiation of receipt done?
NEGOTIATION OF NEGOTIABLE RECEIPT BY
DELIVERY
1. Where by the terms of the receipt, the
warehouseman undertakes to deliver the goods to
the bearer
2. Where by the terms of the
receipt, the warehouseman undertakes to deliver
the goods to the order of a specified person, and
such person or a subsequent indorsee of the
receipt has indorsed it in blank or to bearer
a. Where by the terms of the receipt, the goods are
deliverable to bearer or where a negotiable receipt
has been indorsed in blank or bearer, any holder
may indorse the same to himself or to any other
specified person, and in such case the receipt shall
thereafter be negotiated only by
the indorsement by such indorsee
NEGOTIATION OF NEGOTIABLE RECEIPT BY
INDORSEMENT
1. If indorsed in blank or to bearer, the documen
t becomes negotiable by delivery
2. If indorsed to a specified person, it may be
again negotiated by the indorsement of such person
in blank, to bearer or to another specified
person. Delivery alone isnt sufficient.
Warranties on sale of receipt:
1. That the receipt is genuine
2. That he has a legal right to negotiate or transfer
it
3. That he has knowledge of no fact which would
impair the validity of the worth of the receipt
4. That he has a right to transfer the title to
the goods and that the goods are merchantable
or fit for a particular
purpose, whenever such warranties would have
been implied, if the contract of the parties had
been to transfer without a receipt of the goods
represented thereby
Concept of guaranty and suretyship
GUARANTY (Articles 2047 2084)
A contract whereby a person (guarantor) binds
himself to the creditor to fulfil the obligation of the
principal debtor in case the latter fail to do so.
SURETYSHIP
A contract whereby a person (surety) binds
himself solidarily with the principal debtor
Who are the parties: Guarantor, Creditor and the
principal Debtor
Guaranty of future debts
It is one which is not limited to a single transaction
but which contemplates a future
course of dealings, covering a series of transactions
generally for an indefinite time or until revoked. It
covers all transactions, including those arising in
the future, which are within the description or
contemplation of the contract of guaranty, until the
expiration or termination thereof.
Future debts, even if the amount is not yet known,
may be guaranteed but there can be no claim
against the guarantor until the amount of the debt
is ascertained or fixed and demandable. The reason
is that a contract of guaranty is subsidiary.
Continuing guaranty (Art 2053)
One which is not limited to a single transaction
but which contemplates a future course of
dealings, covering a series of transactions generally
for an indefinite time or until revoked.
Extent of Guarantors liability: (Art 2055)
1. Where the guaranty definite: It is limited in
whole or in part to the principal debt, to the
exclusion of accessories.
2. Where guaranty indefinite or simple: It shall
comprise not only the principal obligation, but also
all its accessories, including the judicial costs,
provided with respect to the latter, that the
guarantor shall only be liable for those costs
incurred after he has been judicially required to
pay.
Qualifications of a guarantor: (Arts 2056-2057)
1. possesses integrity
2. capacity to bind himself
3. has sufficient property to answer for the
obligation which he guarantees
NOTES:
The qualifications need only be present at the
time of the perfection of the contract.
The subsequent loss of the integrity or
property or supervening incapacity of the
guarantor would not operate to exonerate the
guarantor or the eventual liability he has
contracted, and the contract of guaranty continues.
However, the creditor may demand another
guarantor with the proper qualifications. But he
may waive it if he chooses and hold the guarantor
to his bargain.
Benefit of Excussion (Art 2058)
The right by which the guarantor cannot be
compelled to pay the creditor unless the latter has
exhausted all the properties of the principal debtor,
and has resorted to all of the legal remedies against
such debtor.
When Guarantor is not entitled to the benefit of
excussion: (PAIRS)
1. If it may be presumed that an execution on the
property of the principal debtor would not result in
the satisfaction of the obligation
Not necessary that the debtor be judicially
declared insolvent or bankrupt
2. When he has absconded, or cannot be sued
within the Philippines unless he has left a manager
or representative
3. In case of insolvency of the debtor
Must be actual
4. If the guarantor has expressly renounced it
5. If he has bound himself solidarily with the debtor
Extinguishment of guaranty: (RA2CE2)
1. Release in favor of one of the guarantors,
without the consent of the others, benefits all to
the extent of the share of the guarantor to whom it
has been granted (Art 2078);
2. If the creditor voluntarily accepts immovable or
other properties in payment of the debt, even if he
should afterwards lose the same through eviction
or conveyance of property (Art 2077);
3. Whenever by some act of the creditor, the
guarantors even though they are solidarily liable
cannot be subrogated to the rights, mortgages and
preferences of the former (Art 2080);
4. For the same causes as all other obligations (Art
1231);
5. When the principal obligation is extinguished;
6. Extension granted to the debtor by the creditor
without the consent of the guarantor (Art 2079)