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Dumaual Notes 2018-2019

ASSIGNMENT: - Allows more exchanges; people

are able to enjoy a thing today but
 Introduction (Meaning of pay for it later.
Scope of Credit - Through the banking system, the
Transactions) transfer of actual money is
 Loan (General Provisions: eliminated by cancellation of
Articles 1933 – 1934) debts and credits.
 Commodatum (Articles 1935
– 1952) What is the coverage of Credit
 Simple loan or mutuum Transactions?
(Articles 1953 – 1961)
- Credit Transactions cover all
Introduction bailment contracts3, contracts of
deposit4 (voluntary and
What is “credit”? necessary), guaranty 5 and
- The credit of a person means his suretyship , pledge , mortgage8,
6 7

ability to borrow money by virtue

of the confidence or trust reposed 3
Allows the delivery of property of one person to
in him by the lender that he will another in trust for a specific purpose, with a
pay what he may promise.1 contract, express or implied, that the trust shall be
- It is the trust or belief reposed by faithfully executed and the property returned or duly
accounted for when the special purpose is
a person in another, of the latter’s accomplished or kept until the bailor reclaims it.
ability to comply with an 4
Deposit is a contract where by a person (called
obligation.2 depositor) delivers a thing to another (called
depositary) for the principal purpose of safekeeping
What are “Credit Transactions”? it with the obligation of returning it when demanded
A contract of guaranty is one where a person
- Refers to agreements based on (guarantor) binds himself to another (creditor) to
fulfill the obligation of the principal debtor in case
the trust or belief of someone on the latter should fail to do so.
the ability of another person to 6
An agreement that is created whenever one party
comply with his obligations. guarantees performance of an obligation by another
- Includes all transactions 7
Pledge is an accessory contract whereby a debtor
involving loans of money, goods, delivers to the creditor or to a third person a
or services extended to another movable or personal property, or document
either gratuitously or onerously. evidencing incorporeal rights, to secure the
fulfillment of a principal obligation with the
condition that when the obligation is satisfied, the
What’s the significance of “credit”?
thing delivered shall be returned to the pledgor with
all its fruits and accessions, if any
A mortgage is a real right constituted to secure an
obligation upon real property or rights therein to
satisfy with the proceeds of the sale thereof such
obligation when the same becomes due and has not
Pineda, 2006 been paid or fulfilled, the mortgagor’s default does
Supra, 1 not operate to vest in the mortgagee the ownership

1|Credit Transactions, Atty. Bolivar

Dumaual Notes 2018-2019

antichresis9, concurrence and supported by

preference of credits. collateral/s but only by
- Credit Transactions also covers a promise to pay or by
special laws like the Usury Law, the personal
Warehouse Receipt Law, undertaking or
Insolvency Law, Financing commitment of another
Company Act, Pawnshop person such as in
Regulation Act, Consumer Act of surety or guaranty.
the Philippines, Truth in Lending - As to their existence:
Act, Ship Mortgage Decree of 1. Principal Contracts – Can
1978, Chattel Mortgage Law and exist alone such as
Extra-judicial Foreclosure of Real commodatum and mutuum.
Estate Mortgage Act. Their existence does not
depend on the existence of
What is Security? another contract.
- It is something promised or 2. Accessory Contracts – They
delivered to ensure the fulfillment have to depend on antoher
of an obligation. contract such as guaranty
proper, suretyship, pledge,
What are the Kinds of Credit mortgage, antichresis. These
Transactions? accessory contracts depend on
the existence of a principal
- Contracts of Security:
contract of loan.
1. Contracts of Real Security
- As to their consideration:
 Contracts supported by 1. Onerous – This is a contract
collateral/s or where there is consideration
burdened an or burden imposed like
encumbrance 10 on interest. The interest is the
property such as burden.
mortgage or pledge. 2. Gratuitous – This is a contract
2. Contracts of Personal Security where there is no
 Contracts where consideration or burden
performance by the imposed like commodatum
principal debtor is not which is essentially for free.

of the encumbered property, for any such effect is What is “Bailment”?

against public policy
By the contract of antichresis the creditor acquires - Is the delivery of personalty for
the right to receive the fruits of an immovable of his some particular use or on mere
debtor, with the obligation to apply them to the deposit, upon a contract, express
payment of the interest, if owing, and thereafter to
the principal of his credit.
or implied, that after the purpose
A mortgage or other charge on a property or asset has been fulfilled, it shall be
2|Credit Transactions, Atty. Bolivar
Dumaual Notes 2018-2019

redelivered to the person who case the contract is simply

delivered it, or otherwise dealt called a loan or mutuum.
with according to his directions, Commodatum is essentially
or kept until he reclaims it. gratuitous. Simple loan may be
gratuitous or with a stipulation
Is there a fiduciary relationship created to pay interest. In
through bailment? commodatum, the bailor
- Generally no fiduciary retains the ownership of the
relationship is created by a thing loaned, while in simple
bailment hence it’s not accurate loan, ownership passes to the
to refere to the transaction as “in borrower.
trust” because no trustee- Personal Note: Pag commodatum
beneficiary relationship is subject matter non-consummable
created. thing except pag yung consumable
What are the personalities in Bailment? thing loaned because of exhibition
purposes only; intention ay di
- Bailor (Comodatario or coconsume so kailangan ibalik as is;
Commodans) – The one who walang transfer ng ownership;
gives or delivers the property essentially gratuitous; Pag mutuum
bailed. money or consumable thing yung
- Bailee (Comodante or subject matter; maybe gratuitous or
Commodatatrius) – The one who onerous; ownership of the thing is
receives the things delivered or transferred to the bailee subject dun
bailed. sa condition na hindi niya babalik
yung same thing pero may ibabalik
siyang same amount of the same
Loan kind and quality.

Article 1933 – By the contract of What are the two kinds of contracts
loan, one of the parties delivers of loan?
to another, either something
- Contract of Commodatum
not consumable so that the
 Where one of the
latter may use the same for a
parties (bailor) delivers
certain time and return it in
to another (bailee)
which case the contract is called
something not
a commodatum, or money or
consumable so that the
other consumable thing upon
latter may use the same
the condition that the same
for a certain time and
amount of the same kind and
thereafter returns it.
quality shall be paid, in which

3|Credit Transactions, Atty. Bolivar

Dumaual Notes 2018-2019

(thing must be same kind

identifcal) and
- Contract of Mutuum quantity
must be
 Where money or other
consumable thing is Nature Gratuitous May be
delivered by the lender gratuitous
to the borrower subject or onerous
to the condition that (as when
the same amount of the interest is
same kind and quality agreed
shall be paid; also
Purpose It is a loan for It is a loan
called simple loan. use or for
temporary consumptio
When is a thing consumable?
possession n
- A thing is consumable when it Kind of Real or Only
property personal personal
cannot be used in a manner
Involved property property
appropriate to its nature without Risk of Lender or Ownership
it being consumed. Loss bailor retains is
ownership of transmitted
What are the kinds of commodatum? the property to the
borrower or
- Precarium – Where the bailor
may demand the thing loaned at Time of May be Not
will under the conditions set forth payment returnable at returnable
in Article 1947. The use of the the end of the until the
thing by the bailee depends on period in case end of the
the pleasure of the bailor. of urgent period
- Ordinary Commodatum – Where need
Character Purely Not
the bailor cannot just demand the
of the personal in personal
return of the thing at will because contract character
there is a period agreed upon
which must be respected. Distinctions between Loan and Deposit
Distinctions between Commodatum Basis Loan Deposit
and Mutuum Purpose Lender Safekeeping
grants the of the thing
Basis Commodat Mutuum borrower deposited.
um the use of Generally
Subject Non- Money or the thing the
Matter consumable; consumable loaned depositary
same thing thing; the cannot use
must be equivalent the thing
returned amount of

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Dumaual Notes 2018-2019

deposited What’s the difference between Credit

Time of Borrower Depositor and Rent or Lease?
Payment pays at the can demand
end of the the return - In Rent, the owner of a property
period of the thing does not lose the ownership; he
deposited at loses control over the property
any time rented during the period of the
Applicabilit Compensati Compensati
contract. There’s a landlord-
y of on of on is not
Compensati credits is applicable tenant relationship.
on applicable to things - In Loan, the thing loaned
deposited becomes the property of the
Juridical Is one of Relationshi obligor. There’s an obligor-
Relations lender and p is one of obligee relationship.
borrower or depositor
creditor and Article 1934 – An accepted
and debtor depositary promise to deliver something by
way of commodatum or simple
What’s the difference between Credit loan is binding upon the parties.
and Loan? But the commodatum or simple
loan itself shall not be perfected
- The concession of a credit until the delivery of the object of
necessarily involves the granting the contract.
of loans up to the limit of the
amount fixed in the credit. Can mere consent perfect Mutuum and
- Credit refers to the ability of an Commodatum?
individual to borrow money as - No. They are real contracts11 and
loan is the delivery by one party not consensual agreements. They
and the receipt of another of a are contracts which require the
given sum of money upon an delivery of the objects of the
agreement, express or implied to obligations. In brief, no delivery,
repay the sum loaned. no contract.
What’s the difference between Loan and What’s the legal effect of a promise to
Discount? deliver?
- In discount, interest is deducted - A promise to deliver something
in advance while in loan; interest by way of commodatum or
is taken at the expiration of a mutuum if accepted is binding
credit. upon the promissory and
- A discount is always on double-
name paper; a loan is generally 11
Article 1316 – Real contracts such as deposit,
on a single-name paper. pledge, commodatum, are not perfected until the
delivery of the object of the obligation.

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Dumaual Notes 2018-2019

promissee because contracts are - It is essentially gratuitous;

obligatory when all the essential - Its purpose is to transfer the
requisites for their validity are temporary use of the thing loaned
present. to the bailee;
- There is not special form required - The use of thing is for a “certain
for the validity of a contract of time”;
loan. In effect, the accepted - It is a real contract because it
promise to deliver something by requires delivery of the object for
way of a future loan becomes a its perfection;
consensual contract. - It is a principal contract because
- The non-fulfillment will justify its existence does not depend
the filing of an action for upon another contract;
damages. - It is a unilateral contract because
- The accepted promise does not after the object had been
constitute the real contract of delivered by the bailor (lender), it
loan which requires the delivery creates obligations to be
of the object for its perfection. performed by the bailee alone
(See Article 1479 for (borrower); and
comparison) 12 - It is purely personal because of
the trust and belief reposed on
the bailee.
Commodatum What is the effect of Usufruct in
Section 1 – Nature of Commodatum?
Commodatum - It depends. Generally, the fruits
Article 1935 – The bailee in of the property shall pertain to
commodatum acquires the use of the bailor or owner and the bailee
the thing loaned but not its fruits; does not enjoy the fruits.
if any compensation is to be paid However, if there is a stipulation
by him who acquires the use, the in the contract allowing the bailee
contract ceases to be a to enjoy the fruits of the thing
commodatum. loaned, the stipulation shall be
What are the characteristics of
Commodatum? Article 1936 – Consumable goods
may be the subject of
commodatum if the purpose of the
Art. 1479 – A promise to buy and sell a
determinate thing for a price certain is reciprocally
contract is not the consumption of
demandable. An accepted unilateral promise to buy the object, as when it is merely for
or to sell a determinate thing for a price certain is exhibition.
binding upon the promissory if the promise is
supported by a consideration distinct from the price.

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Dumaual Notes 2018-2019

Article 1937 – Movable or Article 1940 – A stipulation that

immovable property may be the the bailee may make use of the
object of commodatum. fruits of the thing loaned is valid.

Article 1938 – The bailor in When can the bailee make use of the
commodatum need not be the fruits of the thing loaned?
owner of the thing loaned.
- If there is a stipulation to that
Article 1939 – Commodatum is effect, the bailee may make use of
purely personal in character. the fruits of the thing.
Consequently: - The enjoyment of the fruits must
only be incidental to the use of
1. The death of either the bailor the thing. It should not be the
or the bailee extinguishes main cause otherwise the
the contract; contract is not commodatum but
2. The bailee can neither lend a usufruct.
nor lease the object of the
contract to a third person. Section 2 – Obligations of the
However the members of the Bailee
bailee’s household may
make use of the thing Article 1941 – The bailee is obliged
loaned, unless there is a to pay for the ordinary expenses
stipulation to the contrary, for the use and preservation of the
or unless the nature of the thing loaned.
thing forbids such use. Article 1942 – The bailee is liable
Are members of the household of a for the loss of the thing, even if it
bailee considered as third persons? should be through a fortuitous
- No. If thing borrowed is a van,
the members of the household 1. If he devotes the thing to any
may ride on it together with the purpose different from that
bailee or use the same for the which it has been loaned;
purpose for which it was 2. If he keeps it longer than the
borrowed. If it was loaned for period stipulated, or after
fetching children from school it the accomplishment of the
CANNOT be used as a delivery use for which the
truck for construction materials. commodatum has been
- Household members are an constituted;
exception to the general rule that 3. If the thing loaned has been
the use of the object cannot be delivered with appraisal of
ceded to third persons. its value, unless there is
stipulation exempting the

7|Credit Transactions, Atty. Bolivar

Dumaual Notes 2018-2019

bailee from responsibility in leases it to third persons who are

case of a fortuitous event; not members of his household
4. If he lends or leases the (REASON: Commodatum is a
thing to a third person who purely personal contract) (e)
is not a member of his There is deviation from the
household; purpose. (REASON: Bailee acts in
5. If being able to save either bad faith).
the thing borrowed or his - As to the deterioration of the
own thing, he chose to save thing loaned: Bailee is not liable
the latter. for the deterioration of the thing
loaned caused by the ordinary
When is the article applicable? wear and tear of the same.
- The article only applies to (NOTE: When there are two or
ordinary expenses. If the more bailees, their liability is
expenses incurred by the bailee solidary).
are extraordinary, the bailor must What are the rights of a bailee?
reimburse the bailee provided
that before incurring them, he - Use of the thing;
informs the bailee about it. - Make use of the fruits of the thing
when such right is stipulated in
What are the obligations of a bailee? the contract;
- As to extraordinary expenses: Pay - Not answerable for the
for the ordinary expenses for the deterioration of the thing loaned
use and preservation of the thing. due to the use thereof and
- As to the loss of the thing in case without his fault; and
of fortuitous event: Liable for the - Right of retention for damages
loss even through fortuitous due to hidden defects or flaws of
event when (a) being able to save the thing of which he was not
either of the thing borrowed or advised by the bailor.
his own thing, he chose the latter CASE:
(REASON: Bailee’s ingratitude)
(b) He keeps it longer than the LOAN
period stipulated, or after the
accomplishment of its use. Republic v. Bagtas
(REASON: Bailee incurs delay)
(c) The thing loaned has been Facts: Bagtas borrowed three bulls from
delivered with appraisal of its the Bureau of Animal Industry for one
value (REASON: Otherwise, the year for breeding purposes subject to
parties would not have appraised payment of breeding fee of 10% of book
value of the bull. Upon expiration,
the thing) (d) When he lends or Bagtas asked for renewal. The renewal

8|Credit Transactions, Atty. Bolivar

Dumaual Notes 2018-2019

was granted only to one bull. Bagtas the Catholic Church, building, convents,
offered to buy the bulls at its book value high school building, school gymnasium,
less depreciation but the Bureau dormitories, social hall and stonewalls.
refused. The Bureau said that Bagtas
- 1963: Heirs of Juan Valdez and Heirs
should either return or buy it at book
value. Bagtas proved that he already of Egmidio Octaviano claimed that they
returned two of the bulls, and the other have ownership over lots 1, 2 and 3. (2
bull died during a Huk raid, hence, separate civil cases)
obligation already extinguished. He - 1965: The land registration court
claims that the contract is a confirmed the registrable title of Vicar to
commodatum hence, loss through lots 1 , 2, 3 and 4. Upon appeal by the
fortuitous event should be borne by the
private respondents (heirs), the decision
of the lower court was reversed. Title for
lots 2 and 3 were cancelled.
- VICAR filed with the Supreme Court a
Issue: WON Bagtas is liable for the petition for review on certiorari of the
death of the bull.
decision of the Court of Appeals
dismissing his application for
Held: Yes. Commodatum is essentially registration of Lots 2 and 3.
gratuitous. However, in this case, there - During trial, the Heirs of Octaviano
is a 10% charge. If this is considered presented one (1) witness, who testified
compensation, then the case at bar is a
on the alleged ownership of the land in
lease. Lessee is liable as possessor in bad
faith because the period already question (Lot 3) by their predecessor-in-
lapsed.Even if this is a commodatum, interest, Egmidio Octaviano; his written
Bagtas is still liable because the demand to Vicar for the return of the
fortuitous event happened when he held land to them; and the reasonable rentals
the bull and the period stipulated for the use of the land at P10,000 per
already expired and he is liable because month. On the other hand, Vicar
the thing loaned was delivered with
presented the Register of Deeds for the
appraisal of value and there was no
contrary stipulation regarding his Province of Benguet, Atty. Sison, who
liability in case there is a fortuitous testified that the land in question is not
event. covered by any title in the name of
Egmidio Octaviano or any of the heirs.
Vicar dispensed with the testimony of
Catholic Vicar vs Court of Appeals
Mons. Brasseur when the heirs admitted
Facts: that the witness if called to the witness
- 1962: Catholic Vicar Apostolic of the stand, would testify that Vicar has been
Mountain Province (Vicar), petitioner, in possession of Lot 3, for 75 years
filed with the court an application for continuously and peacefully and has
the registration of title over lots 1, 2, 3 constructed permanent structures
and 4 situated in Poblacion Central, thereon.
Benguet, said lots being used as sites of

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Dumaual Notes 2018-2019

Issue: WON Vicar had been in Valdez by purchase and Lot 3 was
possession of lots 2 and 3 merely as acquired also by purchase from Egmidio
bailee borrower in commodatum, a Octaviano by petitioner Vicar because
gratuitous loan for use. there was absolutely no documentary
evidence to support the same and the
Held: YES. alleged purchases were never mentioned
in the application for registration.
Private respondents were able to prove
that their predecessors' house was
borrowed by petitioner Vicar after the QUINTOS VS BECK 69 PHIL 108
church and the convent were destroyed.
They never asked for the return of the Facts: Quintos and Beck entered into a
contract of lease, whereby the latter
house, but when they allowed its free
occupied the former’s house. On Jan 14,
use, they became bailors in 1936, the contract of lease was novated,
commodatum and the petitioner the wherein the QUintos gratuitously
bailee. granted to Beck the use of the furniture,
subject to the condition that Beck should
The bailees' failure to return the subject return the furnitures to Quintos upon
demand. Thereafter, Quintos sold the
matter of commodatum to the bailor did
property to Maria and Rosario Lopez.
not mean adverse possession on the part Beck was notified of the conveyance and
of the borrower. The bailee held in trust given him 60 days to vacate the
the property subject matter of premises. IN addition, Quintos required
commodatum. The adverse claim of Beck to return all the furniture. Beck
petitioner came only in 1951 when it refused to return 3 gas heaters and 4
declared the lots for taxation purposes. electric lamps since he would use them
until the lease was due to expire.
The action of petitioner Vicar by such
Quintos refused to get the furniture
adverse claim could not ripen into title since Beck had declined to return all of
by way of ordinary acquisitive them. Beck deposited all the furniture
prescription because of the absence of belonging to QUintos to the sheriff.
just title.
ISSUE: WON Beck complied with his
The Court of Appeals found that obligation of returning the furnitures to
Quintos when it deposited the furnitures
petitioner Vicar did not meet the
to the sheriff.
requirement of 30 years possession for
acquisitive prescription over Lots 2 and RULING: The contract entered into
3. Neither did it satisfy the requirement between the parties is one
of 10 years possession for ordinary of commadatum, because under it the
acquisitive prescription because of the plaintiff gratuitously granted the use of
absence of just title. The appellate court the furniture to the defendant, reserving
for herself the ownership thereof; by this
did not believe the findings of the trial
contract the defendant bound himself to
court that Lot 2 was acquired from Juan return the furniture to the plaintiff,

10 | C r e d i t T r a n s a c t i o n s , A t t y . B o l i v a r
Dumaual Notes 2018-2019

upon the latters demand (clause 7 of the the Court should leave the present
contract, Exhibit A; articles 1740, situation with respect to possession of
paragraph 1, and 1741 of the Civil Code). the property as it is, and ruling further
The obligation voluntarily assumed by that the contractual relationship of
the defendant to return the furniture Pajuyo and Guevara was that of a
upon the plaintiff's demand, means that commodatum.
he should return all of them to the
plaintiff at the latter's residence or Issue: Is the contractual relationship of
house. The defendant did not comply Pajuyo and Guevara that of a
with this obligation when he merely commodatum?
placed them at the disposal of the
plaintiff, retaining for his benefit the Held: No. The Court of Appeals’ theory
three gas heaters and the four eletric that the Kasunduan is one of
lamps. commodatum is devoid of merit. In a
contract of commodatum, one of the
As the defendant had voluntarily parties delivers to another something
undertaken to return all the furniture to not consumable so that the latter may
the plaintiff, upon the latter's demand, use the same for a certain time and
the Court could not legally compel her to return it. An essential feature of
bear the expenses occasioned by the commodatum is that it is gratuitous.
deposit of the furniture at the Another feature of commodatum is that
defendant's behest. The latter, as bailee, the use of the thing belonging to another
was nt entitled to place the furniture on is for a certain period. Thus, the bailor
deposit; nor was the plaintiff under a cannot demand the return of the thing
duty to accept the offer to return the loaned until after expiration of the
furniture, because the defendant wanted period stipulated, or after
to retain the three gas heaters and the accomplishment of the use for which the
four electric lamps. commodatum is constituted. If the
bailor should have urgent need of the
Pajuyo v. CA thing, he may demand its return for
GR No. 146364 June 3, 2004 temporary use. If the use of the thing is
merely tolerated by the bailor, he can
Facts: Pajuyo entrusted a house to demand the return of the thing at will, in
Guevara for the latter's use provided he which case the contractual relation is
should return the same upon demand called a precarium. Under the Civil
and with the condition that Guevara Code, precarium is a kind of
should be responsible of the commodatum. The Kasunduan reveals
maintenance of the property. Upon that the accommodation accorded by
demand Guevara refused to return the Pajuyo to Guevarra was not essentially
property to Pajuyo. The petitioner then gratuitous. While the Kasunduan did not
filed an ejectment case against Guevara require Guevarra to pay rent, it
with the MTC who ruled in favor of the obligated him to maintain the property
petitioner. On appeal with the CA, the in good condition. The imposition of this
appellate court reversed the judgment of obligation makes the Kasunduan a
the lower court on the ground that both contract different from a commodatum.
parties are illegal settlers on the The effects of the Kasunduan are also
property thus have no legal right so that different from that of a commodatum.

11 | C r e d i t T r a n s a c t i o n s , A t t y . B o l i v a r
Dumaual Notes 2018-2019

Case law on ejectment has treated

relationship based on tolerance as one
that is akin to a landlord-tenant
relationship where the withdrawal of
permission would result in the
termination of the lease. The tenant’s
withholding of the property would then
be unlawful.

12 | C r e d i t T r a n s a c t i o n s , A t t y . B o l i v a r