BUSLAW 4
CREDIT
- Means a persons ability to borrow
money by virtue of the confidence
or trust in him by the lender that he
will pay what he may promise
- The trust or belief reposed by a
person in another, of the latters
ability to comply with an obligation
CREDIT TRANSACTIONS
- Agreements based on the trust and
belief of someone on the ability of
another person to comply with his
obligations
- Includes all transactions involving
loans of money, goods or services
extended to another either
gratuitously or onerously
Gratuitous a contract where there
is no consideration or burden
imposed like commodatum
(essentially for free)
Onerous a contract where there is
a burden imposed like interest.
Interest=burden
BAILMENT
- delivery of property of one person
to another in trust for a specific
purpose with a contract, express or
implied 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
- no fiduciary relationship is created
by a bailment= not accurate to refer
to the transaction as in trust
because no trustee-beneficiary
relationship is created
bailor- the one who gives or delivers
the property bailed
bailee- the one who receives the
things delivered or bailed
LOAN
- bailor or lender delivers to another
bailee or borrower
COMMODATUM: something not
consumable
May be used for a certain time
and then returned
gratuitous
bailor retains ownership
contract of use
real or personal property
obligation to return same thing
bailor/lender=bears risk of loss,
need not to be the owner
demandable per agreement
death of either ends the C
MUTUUM: money or other consumables.
The same amount, kind and
quality should be paid
gratuitous or onerous
Ownership goes to the borrower
contract of consumption
personal property only
bailor/lender=must be the owner
bailee/borrower=bears risk of loss
death does not extinguish
demandable per agreement
DEPOSIT: for safe keeping
real contract
movables (but in juridical deposit:
movables and immovable,
consumables & non-consumable)
gratuitous or onerous
depositor retains ownership
depositor must return the same
thing
gratuitous: death of depositor or
depositary=extinguish D
onerous: death of either= does
not distinguish D
depositor=bears risk of loss, need
not be the owner
 demandable at will
PRECARIUM
The bailor may demand the thing at will:
- if neither the duration of the
contract nor the use to which the
thing loaned should be devoted has
been stipulated OR
- if the use of the thing is merely
tolerated by the owner
PERFECTION- delivery of the object of the
contract REAL CONTRACT
RES PERIT DOMINO- the thing perishes with
the owner
DEBT: an amount actually ascertained
- a claim which has been formally
passed upon by the courts or quasi-
judicial bodies to which it can be in
law be submitted and has been
declared to be a debt
CLAIM: a debt in embryo
- evidence of a debt and must pass
thru the process prescribed by law
before it develops into what is
properly called a debt
debtor in DEFAULT is only when:
- the obligation be demandable and
already liquidated
- the debtor delays performance
- the creditor requires the
performance judicially or extra
judicially
DEMAND is NOT NECESSARY:
- when there is an express stipulation
to that effect
- where the law so provides
- when the period is the controlling
motive or the principal inducement
for the creation of the obligation
- where demand would be useless
INTEREST RATES
1. the payment of interest and
penalties in loans is allowed only if
the parties expressly agreed to it
and is REDUCED IN WRITING
2. the BSP may prescribe interest rates
3. legal interest 6% per annum
4. interest rates may be invalidated or
equitably reduced when
unconscionable, iniquitous and
exorbitant
** imposition of an unconscionable rate
of interest on money debt=immoral and
unjust
CASH ADVANCES when not liquidated=
LOAN
Fail to liquidate cash advances is NOT estafa
CREDIT CARD: any card, plate, coupon book
or other credit device existing for the
purpose of obtaining money, goods,
property, labor or services or anything of
value on credit
Credit card transaction contract:
1. SALES CONTRACT- card holder and
the merchant or business
establishment
2. LOAN AGREEMENT- card issuer and
card holder
3. PROMISE TO PAY- card issuer and
merchant or business establishment
** purchase using a carda loan
agreement with the card company. After
the latter approves purchase requests=
binding loan contracts
SAFETY DEPOSIT BOX: contract for the rent
of a safety deposit box is not an ordinary
contract of lease but a special kind of
deposit
** not strictly governed by the provision on
deposit
FREE VALET PARKING depositary
 - Customer entrusts the car to the
restaurant with the expectation of
the cars safe return. Stipulation of
not liable for damages (contract of
adhesion) = void in new of the
nature of the transaction
PARKING OF A CAR IN A GARAGE: act of
parking a vehicle in a garage, upon payment
of a fixed amount == LEASE
BANK DEPOSITS
- All kinds of deposits whether fixed
or current are to be treated as loans
and are to be covered by the law on
loans
- A person who receives a loan of
money or any fungible thing
acquires ownership thereof and is
bound to pay to the creditor an
equal amount of the same kind and
quality
- Fixed, savings and current deposits
of money in banks and similar
institutions shall be governed by the
provisions concerning loan
TIME DEPOSIT: one the payment of which
cannot legally be required within such a
specified number of days
DEMAND DEPOSITS: all those liabilities of
the BSP and other banks which are
denominated in the PH currency and are
subject to payment in legal tender upon
demand by the presentation of the
depositors checks
HOTEL OWNERS & INNKEEPERS
- Liable as depositaries of effects
made by travelers provided:
o Notice was given to them
o Travelers took precautions as
advised
- Liability applies whether caused by:
o Servants or employees of
hotel
o Stranger (unless done with
the use of arms or through
irresistible force= force
majeure)
- NOT liable is loss is:
o Due to act of the guest, his
family, servants or visitors
o Due to the character of the
things brought into the
hotel/inn
USE OF THE THING IN DEPOSIT/IRREGULAR
DEPOSIT
- The depository cannot make use of
the thing deposited except with the
permission of the depositor or when
the preservation of the thing
requires its use but only for such
purpose
- If the depositor permits the use of
the thing if becomes commodatum
except where safekeeping is still the
principal purpose of the contract.
- Deposit=irregular deposit
DEPOSIT= INCAPACITATED
- Deposit is recognized
- The depositary shall be subject to all
the obligations of the depositary and
maybe compelled to return the thing
deposited (by guardian or the
person who made the deposit after
acquiring capacity)
- Ordinary contracts=contract is
voidable
- Depositor can recover the thing
deposited while it is still in the
possession of the depositary.
Otherwise, the depositor can only
recover/collect the amount by which
 the incapacitated had been enriched
or benefited
- If the thing is in the hands of a
person who acted in bad faith, the
depositor can recover the thing from
him with damages
REAL OR PERSONAL SECURITY
Contracts of security- either personal or real
Contracts of PERSONAL security-
(guaranty or a suretyship), the
faithful performance of the
obligation by the principal debtor is
secured by the personal
commitment of another
Contract of REAL security- (pledge) a
mortgage or an antichresis that
fulfillment is secured by an
encumbrance of property
GUARANTOR
Subsidiary liable
Pays if debtor CANNOT
Insurer of debtors solvency
Entitled to benefit of excussion
A person who pays without the
knowledge or against the will of the
debtor has the right of beneficial
reimbursement
Guarantor will only pay when the
principal is in default
SURETY
Primarily & solidarity liable
Pays if debtor DOES NOT
Insurer of debt
Not entitled to benefit of excussion
Liability of surety is direct, primary
and absolute or equivalent to a
regular party
SURETY
OBLIGOR/PRINCIPAL OBLIGEE/CREDITOR
DEBTOR
CONTRACT OF GUARANTY
- A contract where the guarantor
binds himself to the creditor to fulfill
the obligation of the principal
debtor in case the latter shall fail to
do so
CONTRACT OF SURETYSHIP
- If the person binds himself solidarily
WARRANTY
- Undertaking that the title, quality or
quantity of the subject matter of a
contract is what it has been
represented to be and relates to
some agreement made ordinarily by
the party who makes the warranty
FORM
- Not a formal contract and is valid in
whatever form it may be. It is
enforceable only if it complies with
the statute of frauds
- A guarantee agreement is a promise
to answer for the debt or default or
another, the law clearly requires
that it or some note or
memorandum thereof be in writing,
it would be unenforceable unless
ratifies, although it does not have to
appear in a public document
- Guaranty is not presumed but must
be express and cannot extend to
more than what is stipulated therein
GUARANTY LIMITATIONS
- Guarantor may bind himself for less
but not for more than the principal
debtor, both as regards the amount
and the onerous nature of the
conditions. Should he have bound
himself for more, his obligations
shall be reduced to the limits of that
of the debtor
THE GUARANTOR QUALIFICATIONS
- Must have legal capacity
 o A married woman may
guarantee an obligation
without the husbands
consent but shall not thereby
bound the conjugal
partnership except in cases
provided by law
- Integrity, capacity to bind himself,
sufficient property to answer for the
obligation which he guarantees to
be present at the time of perfection
of the contract
- The supervening incapacity of the G
will not operate to exonerate him
from eventual liability he has
contracted. The supervening
dishonesty of the G (i.e.
disappearance of his integrity after
he has become bound) does not
terminate the contract but merely
entitles the creditor to demand a
replacement of the G
OBJECT: the promise made by the third
person to fulfill the obligation of the debtor
in case of debtors default or miscarriage
CAUSE OR CONSIDERATION
- Guaranty is gratuitous
- The cause of the contract is the
same cause which supports the
obligation as the principal debtor
- Not necessary to prove any
consideration
o Peculiar nature of G or S
GUARANTY MAY BE A SECURITY FOR
FUTURE DEBTS CONTINUINING
GUARANTY (DRAGNET CLAUSE in mortgage)
- Secure advances from time to
time, any sum, any
indebtedness, obligations that
now in force or hereafter made
- There can be no claim against G or S
until debt is liquidated
CONTINUINING BOND: no fixed expiration
date
- May be cancelled only by the oblige,
by the insurance Commisioner and
by the court
- By law and by the specific contract
involved in this case, the effectivity
of the bond required for the
obtention of a license to engage in
the business of receiving rice for
storage is determined not aline by
the payment of premiums but
principally by the Administrator of
the National Food Authority (NFA)
ACCESSROY & COLLATERAL
- A guarantee or surety contract is an
accessory contract because it is
dependent for its existence upon the
principal obligation guaranteed by it
CONTRACTS OF GUARANTEE- guarantors
obligation is merely collateral and it arises
only upon the default of the person
primarily liable
SUBSIDIARY/COLLATERAL LIABILITY OF
GUARANTOR
- The liability of the guarantor is only
subsidiary and all the properties of
the principal debtor must be first
exhausted before the guarantor may
be held answerable for the debt.
- Creditor may hold the guarantor
liable only after judgement has been
obtained against the principal
debtor and the latter is unable to
pay
- The guarantors obligation is merely
collateral and it arises only upon
default of the person primarily
liable. It an irrevocable letter of
 credit, the bank undertakes a
primary obligation
GUANATORS PAYMENT ONLY WHEN
PRINCIPAL IS IN DEFAULT
Creditor should make a demand and
Principal should default its obligation. Only
then should the guarantor pay.
When the petitioner guarantor pay against
the will of the debtor, the debtor may set
up against it defenses available against the
creditor at the time of the payment.
NOTICE TO GUARANTOR
For G to be liable: the creditor must
1. File a case against the debtor alone
2. The creditor must ask the court to
notify G
The creditor may hold the G liable
only after judgement has been
obtained against the principal
debtor and the latter is unable to
pay
G may appear to set any applicable
defenses but the benefit of
excussion is still available despite his
or her appearance.
EXCUSSION OR EXHAUSTION
Before the G can be compelled to pay the
creditor, all the properties of the principal
debtor must have been exhausted and all
remedies against him had been resorted to
by the creditor
1. G must set up excussion against
creditor in case of demand
2. G must point out to the creditor
available property/ies of the debtor
3. G does not fall under any of the
circumstances in Art. 2059
When G is not entitled to excussion
R when RENUNCIATION has been
expressly made by G
U when it would be USELESS because
execution on the property of the principal
debtor would not after all result in the
satisfaction of the obligation
S when G has bound himself SOLIDARILY
with the principal debtor
I INSOLVENCY of the debtor
A when the debtor has ABSCONDED or
cannot be sued within the Philippines,
unless he has left a manager or
representative
When G, even before having paid, may
proceed against the debtor
S G is SUED for payment
I INSOLVENCY of the principal debtor
P when the debtor bound to relieve the G
within a specified PERIOD and the period
has expired
E debt becomes demandable by reason of
the EXPIRATION of the period of payment
T after lapse of TEN YEARS when the
Principal obligation has no fixed period for
its maturity, unless it be of such nature that
it cannot be extinguished except for a
period longer than 10 years
A there are reasonable grounds to fear
That principal debtor intends to ABSCOND
I imminent INSOLVENCY of the debtor
Action in Art. 2071 is NOT for
reimbursement but for:
1. Demand for release from guaranty
2. Demand for sufficient security to
protect G from the creditor
BENEFIT OF DIVISION
1 debtor + many Gs = divide among all
the creditor cannot claim from the Gs
except the shares which they are
respectively bound to pay, unless solidarily
has been expressly stipulated.
 b. G, due to fortuitous event was
The benefit of division against co- prevented from advising D of
guarantors ceases in the same cases and for payment
the same reasons as the benefit of c. C becomes insolvent
excussion against the principal debtor.
INDEMNITY OF THE GUARANTOR
Liability of co-guarantors=JOINT T TOTAL amount paid
I legal INTEREST
BENEFIT OF CONTRIBUTION E EXPENSES incurred
Co-guarantor or co-surety being joint D DAMAGES if any
debtors, need not pay the entire obligation.
If one of the co-guarantors (one or more) COMMON REQUISITES
will pay, he or she may demand 1. Constituted as security/collateral
reimbursement from the other co- 2. Absolute owner
guarantors the latters proportional share of Pledge or mortgage on future
it property is void
1. The payment has been made by 3rd persons may pledge/mortgage
virtue of a judicial demand their property (accommodation
2. The principal debtor is insolvent party)
3. Free disposal
Effect of insolvency of any G if any of the Property is free from liens or
Gs should be insolvent, his share shall be encumbrances
borne by the other co-guarantors, including Pledge/mortgage of a property of a
payer, in the same proportion. corporation under receivership is
not valid
BENEFIT OF SUBROGATION
The G who pays is subrogated by virtue REAL ESTATE
thereof to all the rights which the creditor - Immovable/real
had against the debtor. - May secure past, present, future
If the G has compromised with the creditor, obligation
he cannot demand of the debtor more than - Registration needed only to affect
what he has really paid 3rd parties
A compromise to be binding must - As a rule, with right of redemption
benefit both the debtor and creditor - Deficiency claim possible; mortgagor
entitled to excess
REPEAT PAYMENT BY PRINCIPAL DEBTOR
If D is not aware of the payment by the G CHATTEL
also made payment to the C who accepted - Moveable/personal
the same despite the previous payment, the - Can only secure present obligation
G can go only after the C. - Registration needed to affect 3rd
EXCEPTION (when the D must reimburse parties affidavit of good parties
the G) required
If guaranty is: - No right of redemption
a. Gratuitous
 - Deficiency claim possible; mortgagor
entitled to excess
PLEDGE
- Moveable/personalmust be
delivered
- May secure past, present, future
obligation
- Description of property in a public
instrument to affect 3rd parties
- No right of redemption
- No deficiency claim; pledger not
entitled to excess unless otherwise
agreed
PACTUM COMMISSORIUM
Stipulation empowering the creditor to
appropriate the thing given as a guaranty
for the fulfillment of the obligation in the
even the obligor fails to live up to his
undertakings, without further formality,
such as foreclosure proceedings and public
sale.
The elements of pactum commisorium
(which is void) which enables the
mortgagee to acquire ownership of the
mortgaged property without the need of
any foreclosure proceedings are:
a. There should be a property
Mortgaged by way of security for the
payment of the principal obligation
b. There should be 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
APPROPRIATION OF THE THING PLEDGED
If the thing pledged is not sold in the first
and second public auctions, the creditor
may appropriate the thing pledged. In this
case, he shall be obliged to give an
acquaintance for his entire claim
DRAGNET CLAUSE/BLANKET MORTGAGE
CLAUSE/ANACONDO DOCTRINE/MOTHER
HUBBARD CLAUSE
one which is specifically phrased to
subsume all debts of past, present or future
origins
SUBSEQUENT IMPROVEMENTS/AFTER-
ACQUIRED PROPERTIES
Improvements subsequently introduced on
the encumbered property are considered to
form part of the mortgage only if so owned
by the mortgagor
When the principal property is mortgaged,
the mortgage shall include all natural or civil
fruits and improvements found thereon
when the secured obligation becomes due
as provided in Art. 2127 of the Civil Code.
Consequently, in case of nonpayment of the
secured debt, foreclosure proceedings shall
cover not only the hypothecated property
but all its accessions and accessories as well
STIPULATIONS OF THE PARTIES;
LIMITATIONS
1. Pacto de non aliendo
2. Pactum commissorium
3. Stipulation in mortgage to take
actual or constructive possession of
mortgaged property upon
foreclosure is valid
4. Mortgage and iniquitous or
unconscionable interests
5. Mortgagor is allowed to take
subsequent mortgage
6. Notice of writ of possession (WOP)
and extra judicial foreclosure (EJF)
PACTO DE NON ALIENDO: a stipulation
forbidding the owner from alienating the
immovable mortgaged is void
The sale by the mortgagor of a mortgaged
property to a third person is valid
notwithstanding the lack of written consent
by the mortgagee and the 3rd person has
the right to redeem the foreclosed property
MORTGAGEE IN GOOD FAITH EXCEPTION
TO ABSOLUTE OWNERSHIP IN MORTGAGE
- The mortgagor who is not the
rightful owner of the property, has
already succeeded in obtaining a
Torrens Title over the property in his
name and that, after obtaining the
said title, he succeeds in mortgaging
the property to another who relies
on what appears on the said title
- The doctrine of mortgagee in good
faith assumes that the title to the
subject property had already been
transferred or registered in the
name of the imposter who
thereafter transacts with a
mortgagee who acted in good faith
- Does NOT apply to a situation where
the title is still in the name of the
rightful owner and mortgagor is
different person pretending to be
the owner
- Mortgagee is not in good faith
where the mortgaged title contains
an adverse claim
- Banks should not rely solely on the
certificate of title
BID PRICE IN EXTRA JUDICIAL FORECLOSURE
1. Surplus money arising from
foreclosure auction sale belongs to
the mortgagor
2. Inadequacy of price in foreclosure
auction sale is not sufficient to set
aside foreclosure sale
UNLESS price is grossly shocking to
the conscience or revolting to the
mind
3. Bid price in excess of mortgage debt
may be a ground to set aside
foreclosure sale
4. tipo or upset price
5. mortgaged property sold at an
auction sale lower than the actual
market value
6. change of bid after foreclosure
7. act 3135 has no requirement for the
determination of the mortgaged
properties appraised value as basis
for the bid price
tipo or upset price
the price which is set by the parties as
the amount at which the property will be
sold at public auction.
stipulation is null and void because it
contravenes Rule 68 of rules of court which
provides the property mortgaged shall be
sold to the highest bidder
if such stipulation, the sale of the
property shall take place in accordance with
the requirements of the law and the
property sold to the highest bidder
FORECLOSURE & REDEMPTION OF REAL
ESTATE MORTGAGE
EXTRA JUDICIAL
- venue: RTC where property
mortgaged is located
- with right of redemption: one year
from registration of certificate of
sale
- if mortgagor is a judicial person,
until, but not after, the registration
of the certificate of foreclosure sale
with the application register of
deeds which in no case shall be
more than three months after the
foreclosure, whichever is earlier
JUDICIAL
 - RTC where the property or one of
the properties mortgaged is located
- NO right of redemption; only equity
of redemption
- UNLESS mortgagee is a bank or
financial institution, in which case
the redemption shall be one year
from registration of the certificate of
sale and confirmation of sale
EQUITABLE MORTGAGE one which
although lacking in some formality, or form
or words or other requisites demanded by a
statute, nevertheless reveals the intention
of the parties to change real property as
security for a debt , there being no
impossibility nor anything contrary to law in
this intent
CONTRACT OF SALE IS PREMUSED TO BE AN
EQUITABLE MORTGAGE
Art. 1602, Civil Code: the contract shall be
presumed to be an equitable mortgage in
any of the following cases:
1. When the price of a sale with right
to repurchase in unusually
inadequate
2. When the vendor remains in
possession as lessee or otherwise
3. When upon or after the expiration
of the right to repurchase another
instrument extending the period of
redemption or granting a new
period is executed
4. When the purchaser retains for
himself a part of the purchase price
5. When the vendor binds himself to
pay the taxes on the thing sold
6. In any other case where it may be
fairly inferred that the real intention
of the parties is that transaction
shall secure the payment of a debt
or the performance of any other
obligation
In any of the following cases, any money,
fruits, or benefit to be received by the
vendee as rent or otherwise shall be
considered as interest which shall be
subject to the usury laws
This provision shall also apply to a contract
purporting to be an absolute sale
For the presumption of an equitable
mortgaged to arise under article 1602, 2
requisites must concur:
a. That the parties entered into a
contract denominated as a contract
of sale
b. That their intention was to secure an
existing debt by way of a mortgage
Any circumstances laid out in art. 1602, not
the concurrence nor an overwhelming
number of the enumerated circumstances.,
is sufficient to support the conclusion that a
contract of sale is in fact an equitable
mortgage. In several cases we have no
hesitated to declare a purported contract of
sale to be an equitable mortgage based
solely on one of the enumerated
circumstances under art. 1602. This
approached follows the rule that when
doubt exists on the nature of parties
transaction, the law favors the least
transmission of property rights.
ANTICHRESIS a contract whereby 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 the interest and thereafter to
the principal of his credit
** it must be in writing: the amount of the
principal and the interest OR ELSE VOID