COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW

LYCEUM OF THE PHILIPPINES UNIVERSITY,

COLLEGE OF LAW
ATTY. LUIS ALFONSO A. LLAGUNO

2ND Semester, School Year 2016-2017

OBJECTIVE

At the end of the course, the student is expected to:

A. Know the Civil Code provisions and special laws on credit transactions and the
jurisprudence interpreting these laws and rules.
B. Enhance his/her communication skills in reciting cases and answering questions
during class sessions and examinations.
C. Develop a methodical mind that knows how to filter the essential facts and
identify the relevant issue and ruling.
D. Develop an analytical mind through the evaluation and comparison of the
evolving, or at times differing, rules and doctrines.
E. Acquaint him/her to (a) useful concepts in the actual practice of law, and (b)
concepts that frequently come out in the Bar examinations.
F. Instill in him/her the ethical responsibility to use and apply civil laws for the
common good.

SCOPE

The course shall cover the following laws:

A. Sections 1933-2139 and 2236-2251 of the Civil Code covering the laws on loans,
deposits, pledge, mortgage, antichresis, and concurrence and preference of
credits.

B. Special laws and rules such as:

1. Law on Insolvency
2. Letters of Credit (Arts 567 to 572, Code of Commerce)
3. Law on credit cards
4. Truth in Lending Act
5. Financing Company Act
6. Rules on trade transactions (i.e., demand guarantees, standby letters of
credit)
7. Warehouse Receipts Law
8. General Bonded Warehouse Act
9. Pawnshop Regulations Act
10. Law on Extrajudicial Foreclosure of Mortgage
11. Chattel Mortgage Law
12. Ship Mortgage Decree
13. E-Commerce Law

C. Relevant case laws, implementing rules and regulations, opinions and circulars.
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 2

TEXTBOOK

Civil Code, Annotated, Book V, by Arturo Tolentino

The Law on Credit Transactions by Hector de Leon

OUTLINE IN CREDIT TRANSACTIONS LAW

I. LOAN (1933-1961)

A. NATURE

1. Definition and kinds (1933)

2. Characteristics (1933, 1934)

BPI Investment v. CA, GR No. 133632, 15 February 2002

Naguiat v. CA, 3 October 2003
DBP v. COA, G.R. No. 144516. February 11, 2004

B. COMMODATUM

1. Nature Definition and characteristics (1933, 1935, 1936, 1938, 1940)

Producers Bank of the Philippines v. CA, GR 115324, 19

February 2003
Catholic Vicar Apostolic of the Mountain Province v. CA,
165 SCRA 515
Pajuyo v. CA, G.R. No. 147788. March 19, 2002

2. Expenses (1941, 1943, 1949, 1950, 1952)

3. Bailees liability for loss of the thing due to Fortuitous Event (1942)

4. Time of return of the thing to the Bailor (1946, 1947, 1948, 765)

5. Liability of two or more bailees (1945)

6. Bailees right to retain the thing (1944, 1951)

C. MUTUUM

1. Definition [1933,1953,1955,1249, 1250, RA 3765 (Truth in Lending Act)]

Guingona v. City Fiscal of Manila, 128 SCRA 577

2. Characteristics (1953,1955)

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BPI Family Bank v. Franco, 538 SCRA 184

Liwanag v. CA, 281 SCRA 225

3. Difference from commodatum.

4. Interest (1956, 1958)

a. Kinds of interest

- Distinguished according to base of computation

i. Simple - 1959
ii. Compound 1959, 2212

- Distinguished according to purpose

Republic v. Unimex Micro-Electronics GmBH, 518

SCRA 19
Frias v. San Diego-Sison, 520 SCRA 244

i. Monetary/Regular (1956)

Eusebio-Calderon v. People, G.R. No.

158495. October 21, 2004
Sps. Barrera v. Sps. Lorenzo, G.R. No.
130994, September 18, 2002

- Types:

- Simple

- Compunded monetary interest (1959)

ii. Compensatory interest (1169, 2209, 1226)

- Types according to the source of the obligation to pay

interest:

- Stipulated - 2209

- Legal 2209, 2212.

Rates of Legal interest (BSP-MB Circular No.

799, S. 2013; Arts. 2009, 2210, 2211, 2213)

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COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 4

Nacar v. Gallery Frames, G.R. No. 189871,

August 13, 2013
Sps. Abella v. Sps. Abella, G.R. No. 195166,
July 8. 2015

- Types according to base of computation:

- Simple compensatory interest

- Compounded compensatory interest (2212)

David v. CA, 316 SCRA

b. Escalation and de-escalation clauses

PNB v. CA, 258 SCRA 549

Almeda v. CA, 256 SCRA 292
Consolidated Bank and Trust Corporation v. CA, 356
SCRA 671
New Sampaguita Builders Construction Co. v. Sps.
Dee, G.R. No. 148753, July 30, 2004
Equitable PCI Bank v. NG Sheung Ngor, 541 SCRA 223

c. The usury law and its present status (1957)

Security Bank and Trust Company v. RTC, 263 SCRA

D. CREDIT ACCOMMODATIONS: Other forms of Mutuum [Section X320.1 of the

Manual of Regulations for Banks; RA 8484(Access Devices Regulation Act of
1998); Arts 567 to 572, Code of Commerce; RA 5980, Financing Company Act]

- see credit card definition under CIR v. American Express,

International, Inc., G.R. No. 152609, June 29, 2005

Beltran v. PAIC Finance Corporation, G.R. Nos. 83113 & 83256, May 19,
1992

E. CRIMINAL VIOLATIONS [Articles 317 & 318 of RPC]

II. DEPOSIT (1962-2009)

A. NATURE

1. Definition (1962)

US v. Igpuara, 27 Phil 618

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2. Characteristics (1965, 1966, 1978, 1980)

B. DIFFERENCE FROM OTHER CONTRACTS

1. Commodatum

2. Mutuum

Compania Agricola de Ultramar v. Nepomuceno, 55 Phil 283

3. Lease

CA Agro Industrial Development Corp. v. CA, 219 SCRA 426

Sia v. CA, 222 SCRA 24

C. KINDS (1964)

1. Judicial (2005-2009)

2. Extrajudicial (1967)

a. Voluntary (1968)

i. Incapacitated parties (1970, 1986, 1971)

ii. Obligations of the depositary

- General obligations

- Level of diligence (1972)

- Rules on deposit with a third person (1973)
- Liability for a fortuitous event (1979)
- Changing the way of the deposit (1974)
- Return of thing deposited
(1988,1983,1987,1985,1984,1989)

- Specific obligations for certain kinds of deposits (1975,

1976, 1977, 1981, 1982)

iii. Obligations of the depositor (1992, 1993, 1994, 1991)

iv. Extinguishment of deposit (1995)

b. Necessary

i. Types (1996,1754)

ii. Governing rules (1997)

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iii. Deposit of effects in hotels/inns (1998-2004)

D. WAREHOUSE RECEIPTS LAW (2137) & GENERAL BONDED WAREHOUSE ACT

(ACT 3893)

III. GUARANTY AND SURETY (2047-2084)

A. NATURE AND EXTENT OF GUARANTY

1. Definition (2047)

2. Characteristics (2052, 2054, 2076, 2048, 2053, 2058, 2063, 2065)

Severino and Vergara v. Severino, 56 Phil 185

Garcia v. CA, 191 SCRA 493

3. Guaranty v. Surety;Solidary Obligor v. Surety

Finman General Assurance Corp. v. NLRC, G.R. No. 94588. July 2, 1992
Govt of the Philippines v. Tizon, GR No. L-22108, August 30, 1967
Inciong v. CA, 257 SCRA 578
Escao v. Ortigas, G.R. No. 151953, June 29, 2007

4. Types of Guaranty

a. As to origin

b. Type of consideration

c. Beneficiary

d. Presence of debtors consent

e. Extent (2055)

f. Included debts (2053)

Dino v. CA, 216 SCRA 91

Fortune Motors Corp. v. CA, GR 112191, 7 February 1997

5. How a guaranty is construed (2055)

PNB v. CA, 198 SCRA 767

6. Qualifications of a guarantor (2056, 2057)

Estate of Hemady v. Luzon Surety Co. Inc., 100 Phil 388

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7. Liability of the conjugal funds

Security Bank and Trust Company v. Mar Tierra Corp, 508 SCRA
419

B. EFFECT OF GUARANTY BETWEEN GUARANTOR AND CREDITOR

1. Excussion (2058, 2059)

2. Procedure to make guarantor liable (2062)

3. How guarantor uses excussion. (2058, 2060, 2061)

Baylon v. CA, 312 SCRA 502

4. Excussion in Sub-guaranty (2064)

5. Compromises (2063)

6. Joint guaranty (2065)

C. EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND THE GUARANTOR

1. Indemnification (2066, 2067)

a. Effect of payment by the guarantor who failed to notify the debtor (2068,
2070)

b. Effect of payment before designated period. (2069)

c. Guarantors claim against a third party (2072)

2. Subrogation (2067, 1237 & 2050)

3. Guarantors legal remedies against debtor before payment. (2071)

General Indemnity Co., Inc. v. Alvarez, 100 Phil 1059

D. EFFECTS OF GUARANTY AS BETWEEN CO-GUARANTORS (2073, 2075)

E. EXTINGUISHMENT OF GUARANTY (20762080, 1672, 1261)

NASSCO v. Torrento, 20 SCRA 427

Security Bank and Trust Co. v. Cuenca, GR 138544, 03 October 2000
Inciong v. CA, 257 SCRA 578
Zobel Inc. v. CA, GR 113931, 06 May 1998
Carodan v. CA, G.R. No. 210542, February 24, 2016

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IV. PROVISIONS COMMON TO PLEDGE AND MORTGAGE (2085-2092)

A. DEFINITION

1. Pledge

2. Mortgage

B. ESSENTIAL REQUISITES COMMON TO PLEDGE AND MORTGAGE (2085)

1. Acts as a security of a principal obligation

a. Principal Obligations secured. (2086, 2091)

b. How security is satisfied (2087)

c. Pactum Commissorium (2088)

A. Francisco Realty and Development Corp. v. CA, 298 SCRA 349

Bustamante v. Rosel, 319 SCRA 413 (1999)

2. Mortgagor or pledgor must be the absolute owner.

Vda de Bautista v. Marcos, 3 SCRA 434

State Investment House Inc. v. CA, GR No. 115548, March 5, 1996
Cruz v. Bancom Finance Corporation, G.R. No. 147788, March 19,
2002.

- Qualification of a domestic corporation that seeks to mortgage property.

3. Mortgagor or pledgor must have free disposal of property. (Arts. 96 & 124,
Family Code; Art 122, Corporation Code; Bulk Sales Law)

C. CHARACTERISTICS COMMON TO CONTRACTS OF PLEDGE AND MORTGAGE

(2085, 2094, 2125, 2126, 2129, 2089, 2090)

Central Bank v. CA, 139 SCRA 46

PNB v. RBL Enterprises, Inc. G.R. No. 149569, May 28, 2004
Belo v. CA, 353 SCRA 359 (2001)
United Overseas Bank of the Philippines v. Board of
Commissioners-HLURB, G.R. No. 182133, June 23, 2015

D. PROMISE TO CONSTITUTE A PLEDGE OR MORTGAGE (2092)

Laplana v. Gachitorena Chereau, 48 Phil 163

V. PLEDGE (2093-2123)

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COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 9

A. TYPES

1. Pledge by will of the parties

2. Pledge by operation of law (546, 612, 1731, 1994, 1914, 2004, 1707, 2121)

B. CHARACTERISTICS DISTINCT TO A CONTRACT OF PLEDGE (1316, 2093, 2098,

2094, 2095, 2140, 2096)

C. RIGHTS IN A CONTRACT OF PLEDGE

1. Pledgor (2097, 2106, 2107, 2105)

2. Accomodation Pledgor

3. Pledgee (2098, 2105, 2102, 2103, 2108, 2109, 2118)

4. Third Persons (2117)

D. OBLIGATIONS IN A CONTRACT OF PLEDGE

1. Pledgee (2099, 2107, 2100, 2104, 2099)

2. Pledgor (2101, 2099, 2097)

E. EXTINGUISHMENT OF PLEDGE
1. Return of the thing pledged (2110)

2. Renunciation or abandonment (2111)

3. Foreclosure of the thing pledged

a. Requisites (2112)

b. Procedure

i. pledge by will of the parties (2119, 2113, 2114, 2112, 2116)

ii. Pledge by operation of law (2122)

c. Effect of sale (2115, 2121)

Sps. Paray v. Rodriguez, G.R. No. 132287, January 24, 2006

F. CRIMINAL VIOLATIONS IN PLEDGE [Arts 317, 319(2), RPC]

G. PAWNSHOP REGULATIONS ACT (PD 114)

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VI. REAL MORTGAGE(2124-2131; Act 3135;Rule 68 of RoC)

A. TYPES

1. As to object [2124, Art. 155 (3), Family Code]

2. As to constitution

a. Voluntary/express (Arts. 96 & 124, Family Code; Bulk Sales Law; Section
18, PD 957)

- Cuyco v. Cuyco, 487 SCRA 693 (2007)

b. Equitable (1602,1603,1605)

3. Status of Mortgage executed prior to perfection of principal obligation

Central Bank v. CA, 139 SCRA 46

4. Extent of mortgage (2127)

Sps. Paredes v. CA, GR 147074, July 15, 2005

Philippine Bank of Communications v. CA, 253 SCRA 241
Prudential Bank v. Adviar, G.R. No. 150197, July 28, 2005
Castro v. CA, G.R. No. 97401, December 6, 1995
PNB v. Sps. Maranon, G.R. No. 189316, June 1, 2013
Asiatrust Development Bank v. Tuble, G.R. No. 183987, July 25, 2012

B. RIGHTS OF THE PARTIES (2128, 2129)

Litonjua v. L & R Corporation, G.R. No. 130722, December 9, 1999

C. FORECLOSURE OF REAL MORTGAGE

Asiatrust Development Bank v. Tuble, G.R. No. 183987, July 25, 2012

1. Judicial foreclosure

a. Nature

Caltex Phils. v. IAC,74730 August 25, 1989

Bank of America v. American Realty Corp., 321 SCRA 659

b. Procedure (Rule 68 of Rules of court)

- difference from execution sale under Rule 39, Rules of Court

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- Prescriptive period to claim deficiency judgment

c. When right of redemption exists (Section 47, General Banking Law)

2. Extrajudicial foreclosure (Act 3135, as amended; Section 47, Gen. Bank. Law)

San Jose v. CA, 225 SCRA 450

Olizon v. CA, 236 SCRA 1481
Sps.Suico v. PNB, G.R. No. 170215. August 28, 2007
PNB v. CA, 308 SCRA 229
China Banking Corporation v. Spouses Ordinario, GR 121943,
March 24, 2003
Development Bank of the Philippines v. Zaragoza, 84 SCRA 668
Limpin v. IAC, 166 SCRA 88 (1988)
Sps. Landrito v. CA, G.R. No. 133079, August 9, 2005
Uypitching v. Quiamco, 510 SCRA 172
Rayo v. Metrobank, 539 SCRA 571 (2007)
Roxas v. Buan, 167 SCRA 43
Sps. Samson v. Rivera, G.R. 154355, May 20, 2004

3. Effect of foreclosure on second mortgages

Tizon v. Valdez, 48 SCRA 910

D. CRIMINAL VIOLATIONS IN MORTGAGE [Art. 316(1)(2), RPC]

VII. CHATTEL MORTGAGE (2140-2141; Act 1508;PD 1521)

A. NATURE

1. Definition [2140; Section 2, 1906 Chattel Mortgage Law (Act 1508)]

a. Is registration an element? (2140)

Filipinas Marble Corporation v. Intermediate Appellate Court (142

SCRA 180)

2. Objects [2140; Section 2, 1906 Chattel Mortgage Law or Act No. 1508; 1978 Ship
Mortgage Decree(PD 1521)]

Navarro v. Pineda, 9 SCRA 631 (1963)

B. GOVERNING LAW [2141]

C. REGISTRATION.

1
Reiterated in Baluyut v. Poblete, 514 SCRA 370

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COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 12

1. Effect (Filipinas Marble)

Northern Motors, Inc. v. Coquia, 68 SCRA 374(1975).

2. Procedure [Secs. 114, 115 Presidential Decree 1529; Sec. 4, Act 1508;
Section 5(a), PD 1521]

D. EXTENT OF THE CHATTEL MORTGAGE

1. Future Properties (Sec 7, Act 1508)

Tsai v. CA, 366 SCRA 324

2. After-incurred obligations

a. Affidavit of good faith (Section 5, Act 1508)

Cebu International Finance Corp. v. CA, 268 SCRA 178)

Lilius v. Manila Railroad Co., 62 Phil. 50 (1935)
Acme Shoe, Rubber & Plastic Corp. v. CA, 260 SCRA 714

E. ASSIGNMENT OF CHATTEL MORTGAGE

Servicewide Specialists v. Court of Appeals, GR 116363, December 10,

1999

F. FORECLOSURE AND SALE

1. Procedure (Sec. 14, Act 1508)

2. Right of Redemption (Sec. 13, Act 1508)

3. Deficiency Judgment (1142)

Pascual v. Universal Motors Corporation, 61 SCRA 121 (1974)

G. CRIMINAL VIOLATIONS IN CHATTEL MORTGAGE (Art. 319, RPC)

Servicewide Specialists, Inc. v. IAC 174 SCRA 80

VIII. ANTICHRESIS (2132-2139)

A. NATURE

1. Definition (2132)

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2. Characteristics (2134, 2132, 2085, 2089 & 2091)

B. RIGHTS OF THE CREDITOR (2132, 2134, 2136, 2137)

C. OBLIGATIONS OF THE PARTIES (2135, 2136)

IX. CONCURRENCE AND PREFERENCE OF CREDIT (Arts. 2236-2251)

Cordova v. Reyes Daway Bernardo Lindo Rosales Law Offices, 526 SCRA
300
PDIC v. BIR, 511 SCRA 123

-End-

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