CIVIL LAW REVIEWER

CREDIT TRANSACTIONS

CONTRACT OF LOAN - By the contract of loan, one of the parties called the bailor or
lender delivers to another either something not consumable so that the latter may use
the same for a certain time and return it (COMMODATUM) or money or other
consumable thing upon the condition that the same amount of the same kind and
quality shall be paid (MUTUUM)

- A loan is a real contract. It shall not be perfected until delivery

- Unilateral
- Parties: Bailor (Lender) - Bailee (borrower)

KINDS:
1. COMMODATUM - one of the parties delivers to another something NOT
CONSUMABLE so that the latter ay use it for a certain time
2. MUTUUM OR SIMPLE LOAN - One of the parties delivers to another money or other
consumable thing, upon the condition that the same amount of the same kind and
quality shall be paid.

- An accepted promise to loan is binding upon parties.

DISCOUNTING - interest is deducted in advance

COMMODATUM
- The bailee acquires the use of the thing loaned but not its fruits.
- Essentially gratuitous
- Purely personal in nature.
- Death of either bailor or bailee extinguishes the contract
- Bailee can neither lend or lease the object to third person
- 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 of the thing forbids such use.

PACTUM COMMODANDO - Agreement to extend a loan.

OBLIGATIONS OF THE BAILEE:

1. Pay ordinary expenses for the use and preservation
2. Liable for loss of the thing even if through fortuitous event if:
1. Devotes the thing to any purpose different from which it has been loaned
2. Delay in delivery
3. Delivered with appraisal of its value.
4. Lends or leases the thing to third person who is not a member of household
5. Chose to save his own thing.

3. Right of retention
4. Return of the thing
EXC: Bailor may ask for the return of the thing in:
1. Urgent need
2. Precarium

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3. Acts of ingratitude.

- In urgent need, the contract of commodatum is suspended.

PRECARIUM - Bailor may demand the thing at will in:

1. If neither the duration of the contract nor the use which the thing loaned should be
devoted has been stipulated.
2. Use of the thing is merely tolerated.

- If ordinary expenses - Bailee or borrow is liable

- If extraordinary expenses for preservation - Bailor or lender.
- Extraordinary expense for actual use - Equally

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

- If non fungible - IT IS BARTER.

- Ownership is transferred.
- Not fiduciary
- He may appropriate the thing loaned.
- Bank deposit is governed by simple loan.
- Third person who may have a right to the money deposited cannot hold the bank
responsible unless there is a court order or garnishment.
- Officers of bank cannot be held liable for estafa. It is not held in trust.
- Bank shall have the right to compensation. It can set off the deposits.
- Person cannot unilaterally increase the rate of interest

GR: The interest due and unpaid shall not earn interest.
EXC: 1. Judicial demand.
2. Agreed upon the contracting parties.

- Usury is legally non existent. BSP Lifted the ceiling on interest. No more usurious rate of
interest at this time.
- Even if there is no usury, It may still be considered void for being contrary to morals
and public policy because it is unreasonable, unconscionable and confiscatory.

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

- Safekeeping must be the principal purpose

- Agreement to constitute a deposit is binding but deposit itself is not perfected until
DELIVERY of the thing.

KINDS:
1. Extrajudicial
1. Voluntary - Result of voluntary agreement
2. Necessary - Made in compliance of legal obligation

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2. Judicial - When the court orders the attachment or seizure of property

- Generally gratuitous.

VOLUNTARY DEPOSIT - The delivery is made by the will of the depositor. It may be
entered orally or in writing.

- A contact for the rent of safety deposit box is a special type of deposit. It is not a
lease if full and absolute possession and control is not given to the renter.
- In Free valet parking, company is constituted as depositary. The stipulation in the
parking stub that they will not be liable being a contract of adhesion is void.

OBLIGATIONS OF DEPOSITARY
1. Hold the thing and keep it safe through the exercise of due diligence
2. Return the thing
3. Liable for loss through his fault and negligence
4. Not to deposit to 3rd person unless stipulated.
- If allowed, he may not deposit it to person who is manifestly unfit.
5. Not to change the way of deposit
6. Not to use the thing deposited without the express permission of the depositor.
EXC: for preservation but only for that purpose.
7. Liable even in FE if:
1. Stipulated.
2. Uses the thing without depositor’s permission
3. Delays the return
4. Allows others to use it.
8. Depositary cannot demand that the depositor prove his ownership.
- If he discovered that it was stolen and has true owner, he must advise the true
owner. He must claim within 1 month. Or else depositary may be relieved of liability by
returning it to depositor

9. If Securities, Depositary is obliged to collect to the latter when due.

- If depositor’s heir who in GF have sold the thing which he did not know to be
deposited, he shall be bound to return the price he may have received or assign his
right of action against the buyer.

OBLIGATIONS OF DEPOSITOR
1. Pay consideration
2. Reimburse to depositary expenses incurred for preservation if gratuitous
3. Reimburse for any loss incurred by the character of the deposited thing

- Depositary may retain the thing until full payment

EXTINGUISHMENT
1. Loss or destruction
2. Death of either depositor or depositary if gratuitous

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NECESSARY DEPOSIT
- because Legal obligation
- Takes place on occasion of any calamity

EX:
1. Hotels and inns
- Notice shall be given to employees
- Guests shall take the precautions
- Introduced or placed in the annexes of the place
- made by employees or STRANGERS but not from Force Majeure.
- Thief or robber is not force majeure
EXCEPT: Done with the use of arms or irresistible force.

HOTEL IS NOT LIABLE IF:

1. DUE TO ACTS OF GUESTS, FAMILY, SERVANT OR VISITORS
2. Loss because of character of the thing

- Any stipulation surpassing the responsibility of the hotel to the guests shall be void.

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

- Personal security
- Real security agreement (mortgage, pledge or antichresis) - property is given by way
of collateral.
- Accessory
- Obligation to be secured may be voidable, unenforceable, natural or conditional
- Subsidiary. He will only pay if principal debtor cannot pay
- Expressed. Not presumed.
- Covered by statute of frauds

SUB GUARANTY - Guaranty to secure the obligation of another guarantor

- The security guaranteed is the principal obligation only unless indefinite in which case
both accessory and principal.
- Unless specific period is stipulated, it shall subsist with principal
- A guarantor may bind himself for less BUT NOT FOR MORE
- In Surety and guaranty, Future debts may be secured. But no claim may be allowed
until liquidated.
- Continuing guaranty or surety - projected series of transactions. But it must be
expressly provided.

QUALIFICATIONS OF G/S
1. Integrity
2. Capacity to bind himself
3. Sufficient property to answer obligation

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- If guilty of crime involving dishonesty (even pending appeal) or becomes insolvent,

Creditor may demand another
- EXC: Creditor has required and stipulated that a specified person should be
guarantor.

BENEFIT OF EXCUSSION OR EXHAUSTION - Cannot be compelled to pay unless creditor

has exhausted all the properties of debtor or resorted to all legal remedies.

BENEFIT OF EXCUSSION IS NOT AVAILABLE IF:

1. Guarantor expressly renounced.
2. Bound himself solidarily
3. Insolvency of debtor
4. Absconded
5. Presumed that execution of the property of the debtor will not be sufficient
6. Guarantor did not set it up
7. Guarantor did not point out available properties of the debtor.

- Excussion is not available to surety

- The creditor may hold G liable after judgment has been obtained against the
principal debtor and he is unable to pay.
- The G/S must be reimbursed by the debtor.

DEBTOR SHALL NOT BE LIABLE IF:

1. Guarantor paid without notifying
2. Debtor is not aware of payment
3. Debtor repeats payment
EXCEPT: (Debtor is still liable)
1. Guaranty is gratuitous
2. Guarantor was prevented by FE from advising debtor
3. Creditor becomes insolvent.

- The G can proceed against the creditor

- The G/S who pays is surrogated by virtue thereof to all the rights
- If G/S compromised, He cannot demand to debtor what he actually paid.

GUARANTY IS EXTINGUISHED:
1. Principal is extinguished
2. Creditor voluntarily accepts immovable or other property in payment of the debt
even if he should afterwards lose the same through eviction
3. Release by the creditor in favor of one of the guarantors without the consent of
others.
4. Extension granted to the debtor by the creditor without the consent of the
guarantor.
5. By some acts of the creditor they cannot be subrogated to the rights

- The mere failure of creditor to demand payment after debt became due does not
extinguish

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SURETYSHIP - Agreement whereby a party called the surety guarantees the

performance by another party called the principal in favor of a third party.

SURETY GUARANTY

Insures the debt Insures debtor’s solvency

Solidary Subsidiary

No excussion Benefit of excussion is available

- Acceptance does not give the surety a right to intervene in the principal obligation
- Surety’s role arises only upon principal debtor’s default
- Not an indispensable party
- Demand to pay is not necessary to make the surety liable. They are not even entitled
to notice of principal debtor’s default.
- Suretyship is extinguished if there is material alteration of the principal obligation

PLEDGE/ MORTGAGE/ COMMON REQUIREMENTS

1. Constituted to secure the fulfillment of principal obligation
2. Absolute owner of the thing pledged
3. P/M must have free disposal of the property

- Debtor himself or third party may mortgage to secure principal obligation

- Real security
- Obligations secured may be valid, voidable, unenforceable, natural, pure and
conditional

PACTUM COMMISSORIUM - Agreement whereby the creditor automatically becomes

the owner of the things given by pledge or mortgage or dispose them in case of non
payment.

- No foreclosure. It is void

REQUISITES:
1. Property mortgaged
2. Stipulation for automatic appropriation by the creditor of the thing given as security

- In Dacion en pago - The assignment of property extinguishes the debt. In Pactum, The
property is initially given as security but later appropriated without foreclosure.

- Promise to transfer property in case of non payment - NOT PACTUM COMMISSORIUM

PLEDGE - 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 the unpaid obligation.

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REQUISITES OF PLEDGE:
1. Constituted to secure the fulfillment of principal obligation
2. Absolute owner
3. Free disposal
4. Placed in the possession of the creditor or of a third person. Actual delivery must be
made not symbolic delivery
5. Take effect against third persons. It must appear in a public instrument

- Only personal or movable properties.

- Incorporeal rights may be pledged
- If thing produces fruits, The credit shall compensate what he receives.
- If animals, The offspring shall pertain to the owner of the animal and shall be subject
to pledge except when stipulated to contrary
- After incurred obligations may be secured provided that they are accurately
described.
- The pledge has right to retain until debt is paid
- Pledgee has the right of reimbursement of the expenses made in preservation
- Pledgee cannot use the thing pledged without the authority of the owner. If he
should misuse the thing, the owner may ask that it be judicially or extrajudicially
deposited.
- The creditor may proceed before the notary public to the sale of the thing pledged.
It must be in public auction.
- If in the first auction the thing is not sold, a second one with the same formalities must
be held. If no sale also, The creditor may appropriate the thing pledged.
- The pledgor has no right to redeem the property after public auction. However there
is EQUITY OF REDEMPTION - Owner may satisfy the obligation after it becomes due
and before public sale.

- Deficiency cannot be recovered in pledge notwithstanding any stipulation to the

contrary

- In LEGAL PLEDGE OR PLEDGE BY OPERATION OF LAW - Remainder of the price of the

sale shall be delivered to the obligor.
- A thing pledged by operation of law may be sold only after demand of the amount
for which the thing is retained. Public auction shall take place WITHIN one month
after such demand.

EXTINGUISHMENT
1. Thing is returned to the owner
2. Renounces and abandons

REAL ESTATE MORTGAGE

- only immovable properties or real right.

- Certain movables may be treated as real property by estoppel.

- No right of possession
- First registered mortgage has superior right over junior mortgages or attaching
creditors.
- An unregistered mortgage is valid between parties.

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- Banks cannot merely rely on titles

- After acquired properties or future obligations may be included by stipulation

BLANKET MORTGAGE OR DRAGNET CLAUSE - Specifically phrased to subsume all debts

of past or future origin. It is a continuing security and makes future loans without the
need of executing another set of security documents.

CHATTEL MORTGAGE - Accessory contract by virtue of which personal property is

recorded in the Chattel mortgage register as security to the performance of obligation

- Covers personal and movable

- Chattel mortgage over a building is considered valid as between the parties by
estoppel
- CM shall be deemed to cover only the property described therein and not like or
substituted property thereafter acquired.
- It cannot cover after acquired obligations
- CM must be registered in ROD where the mortgagor resides or in the place where the
property is situated.
- An unregistered mortgage is binding between the parties.
- There is no right of redemption after foreclosure. Only equity of redemption
- May generally recover any deficiency
- EXCEPT: Recto law is applied

ANTICHRESIS - 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 as
payment of the interest if owning or to the principal.

- Actual market value of the fruits at the time of the application

- FORMAL CONTRACT. It must be in writing
- Immovable is delivered to the antithetic creditor as a security
- The debtor cannot reacquire the enjoyment until full payment
- Amount of principal and interest must be specified in writing or else void

OBLIGATIONS OF CREDITOR:
1. Pay the taxes and charges upon the estate unless stipulation to contrary which are
deducted from the fruits
2. Bear the expenses necessary for its preservation and repair

REMEDIES IF NON PAYMENT AND FRUITS ARE NOT ENOUGH:

1. Abandon the security and file an action for specific performance
2. Petition the court for the payment of debt or sale of real property

CONCURRENCE AND PREFERENCE OF CREDITS

- applies only if there is an insolvency and liquidation proceeding involving an insolvent
debtor.

LIQUIDATION - process where the assets of an insolvent debtor are disposed and
proceeds are divided among the creditors.

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RULES:
1. Claims or credits with respect to specific properties should be satisfied first
2. The excess of the specific property after the payment of credits which enjoy
preference shall be added to free property
3. If there is excess, all other common credits shall be satisfied pro rata

- For specific personal properties, real preference is only to taxes. others will be paid
pro rata.

- Preference with respect to immovable real properties:

- Taxes shall be paid first. Others will be paid pro rata.

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Sorry for all the typographical errors. Good luck and God bless you! Kindly pass
this or pay it foward! In God's perfect timing I know you will be the person you
aspire to be.
- Edward Arriba

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