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C R E D I T T R A N S A C T I O N S | P R O F . D I M A L A N T A

introduction

MEANING AND SCOPE OF CREDIT TRANSACTIONS

It includes all transactions involving thepurchase or loan of goods, services or money inthe present with a promise to pay or deliver in thefuture.

Contracts of security:o Secured transactions (real security):

Supported by a collateral or encumbrance ofproperty (PLEDGE - placing the movable in thepossession of creditor; CHATTEL MORTGAGE -execution of the corresponding deedsubstantially in the form prescribed by law;REAL ESTATE MORTGAGE - execution of publicinstrument encumbering the real propertycovered; ANTICHRESIS - written instrumentgranting to creditor right to receive the fruitsof immovable)o Unsecured transactions (personalsecurity): Fulfillment of which by the principaldebtor is secured or supported only by apromise to pay or the personal commitment ofanother such as a guarantor or surety.

Bailment contracts, usury, guaranty,suretyship, mortgage, antichresis, concurrence andpreference of credits

MEANING AND KIND OF SECURITY

Something given, deposited or serving as ameans to ensure the fulfilment or enforcement ofan obligation or of protecting some interest inproperty.

May be PERSONAL (individual becomes suretyor guarantor) or PROPERTY/REAL (mortgage,pledge, antichresis, charge or lien used to haveproperty held out of which person to be madesecured can be compensated for loss) SECURITY.

MEANING OF BAILMENT Italian bailer, meaning to deliver.

Delivery of property of one to another in trustfor a specific purpose, with a contract (express orimplied) that the trust shall be faithfully executedand the property returned or duly accounted forwhen the special purpose is accomplished or keptuntil the bailor reclaims it.

CREATION OF BAILMENT

Contractual relation; to be legally enforceable,it must contain all elements of a valid contract. Itmay be created by operation of law.

PARTIES

Bailor (comodatario; commodans): Giver, party

who delivers possession or custody of thing bailed

Bailee (comodante; commodatarius):Recipient, party who receives the possession orcustody of the thing thus delivered.

KINDS OF CONTRACTUAL BAILMENT

In every bailment, there is an obligation onpart of bailee to restore the subject of the bailmentin the same or in altered form or to accounttherefor.

With reference to compensation:

o Sole benefit of bailor

Gratuitous deposit and mandatum(bailment of goods without recompensewhere the mandatory or person to whomthe property is delivered undertakes to dosome act with respect to the same; as tocarry it, keep it, do something withrespect to it gratuitously)

o Sole benefit of bailee

Commodatum and mutuum(gratuitous simple loan)

o Benefit of both

Deposit for compensation, includinginvoluntary deposit, pledge, bailments forhire

First 2 are GRATUITOUS bailments - NOconsideration, for they are considered more as afavor by one to the other who is benefited.

Third is MUTUAL-BENEFIT BAILMENTS - usuallyresults from bailments involving businesstransactions.

KINDS OF BAILMENTS FOR HIRE (locatio et conductio)

Such arises when goods are left with the bailee

for some use or service by him and is always forsome compensation.o Hire of things (locatio rei): Wheregoods are delivered for temporary use of hirer(lease)o Hire of service (locatio operisfaciendi): Where goods are delivered for somework or labor upon it by the bailee (contractfor piece of work)o Hire for carriage of goods (locatiooperis mercium vehendarum): Where goodsare delivered either to a common carrier orprivate person for purpose of being carriedfrom place to place.o Hire of custody (locatio custodiae):

Where goods are delivered for storage(Warehouse Receipts Law)

loanGENERAL PROVISIONS

Art. 1933

By the contract of loan, one of the parties delivers toanother, either something not consumable so thatthe latter may use the same for a certain time andreturn it, in which case the contract is called acommodatum; or money or other consumable thing,upon the condition that the same amount of thesame kind and quality shall be paid, in which casethe contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation topay interest.

In commodatum the bailor retains the ownership ofthe thing loaned, while in simple loan, ownershippasses to the borrower.

CHARACTERISTICS OF LOAN

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REAL contract: Delivery of the thing loaned isnecessary for the perfection of the contract.

UNILATERAL contract: Once the subject matterhas been delivered, it creates obligations on thepart of only one of the parties (borrower)

CAUSE OR CONSIDERATION

As to BORROWER: Acquisition of the thing.

As to LENDER: Right to demand its return or its

equivalent

KINDS OF LOAN

COMMODATUM: Where the bailor (lender)delivers to the bailee (borrower) a non-consumablething so the latter may use it for a certain time andreturn the identical thing.

SIMPLE LOAN/MUTUUM: Where the lenderdelivers to the borrower money or otherconsumable thing upon the condition that thelatter shall pay the same amount of the same kindand quality.

o Thing is consumable when it is

consumed when used in a manner appropriateto its purpose or nature.

LOAN V. CREDIT

CREDIT: Ability to borrow money or things byvirtue of the confidence or trust reposed by alender that he will pay what he may promise withina specified period.

LOAN: Delivery by one (lender/creditor) andthe receipt by the other (borrower/debtor) whobecomes the owner of a given sum ofmoney/consumable upon an agreement(express/implied) to repay the same amount ofsame kind/quality, with or without interest.

*Concession of credit: Granting of loans up tolimit of amount fixed in the credit

CREDIT V. DEBT CREDIT: Presupposes creditor-debtorrelationship, implies ability to make a promisedpayment.

DEBT: Correlative of debt or indebtedness.

LOAN V. DISCOUNTING OF PAPER

DISCOUNTING: Mode of loaning money.o DISCOUNT - Interest is deducted inadvance; LOAN - Interest is usually taken atthe expiration of credit.o DISCOUNT - always on double-namepaper; LOAN - generally on single-name paper.

COMMODATUM V. MUTUUM

COMMODATUM MUTUUM

W/Nconsumable

Ordinarilyinvolvessomething notconsumable

Subject matter ismoney or otherconsumable thing

OwnershipRetained bylender

Transferred toborrower

W/Ngratuitous

Essentiallygratuitous

May be gratuitousor onerous (w/stipulation to payinterest)

What toreturn

Borrower mustreturn the same

Borrower needonly pay the same

thing loaned amount of thesame kind andquality

Real/personalMay involve realor personalproperty

Refers only topersonal property

PurposeLoan for use ortemporarypossession

Loan forconsumption

Demand toreturn

Bailor maydemand thereturn of thingloaned before theexpiration of theterm in case ofurgent need

Lender may notdemand its returnbefore the lapseof the termagreed upon

Loss

Loss of thesubject matter issuffered by thebailor since he isthe owner

Borrower suffersthe los even ifcausedexclusively byfortuitous eventand he is notdischarged fromhis duty to pay

KINDS

Ordinary

Precarium: Bailor may demand the thingloaned at will.

Art. 1934

An accepted promise to deliver something by way ofcommodatum or simple loan is binding upon parties,but the commodatum or simple loan itself shall notbe perfected until the delivery of the object of thecontract.

DELIVERY ESSENTIAL TO PERFECTION

Consequence of fact that commodatum and

mutuum are REAL contracts which require deliveryof the subject matter thereof for their perfection.

Delivery is necessary in view of purpose of thecontract (transfer the use or ownership of thingloaned)

BINDING EFFECT OF ACCEPTED PROMISE TO LEND

An accepted promise to make a future loan isa consensual contract, therefore BINDING upon theparties, but it is only AFTER delivery will the REALcontract of loan arise.

Ex. Application for loan approved bycorporation: There arises a perfected consensualcontract of loan. While it can give rise to action fordamages, said contract DOES NOT constitute REALcontract of loan. (Saura Import v. DBP)

COMMODATUMnature of commodatum

art. 1935

The bailee in commodatum acquires the used of thething loaned but not its fruits; if any compensation isto be paid by him who acquires the use, the contractceases to be a commodatum.

COMMODATUM ESSENTIALLY GRATUITOUS

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Contract ceases to be a commodatum if anycompensation is to be paid by the borrower who

acquires the use. Lease

If the consideration is rendering of some

service Innominate contract

SIMILAR TO DONATION

It confers a benefit to the recipient.

Presumption is that the bailor has loaned thething for having no need therefor.

EXTENT OF BAILEES RIGHT OF USE

Limited to the thing loaned, but NOT to itsfruits unless there is a stipulation to the contrary.

As owner of thing loaned, bailor is naturallyentitled to the fruits.

PURPOSE

Temporary use of the thing loaned. If bailee isnot entitled to the use, the contract may be adeposit.

Essential feature is that the use of theproperty of another shall be for a certain time.

Art. 1936

Consumable goods may be the subject ofcommodatum if the purpose of the contract is not theconsumption of the object, as when it is merely forexhibition.

Art. 1937

Movable or immovable property may be the object ofcommodatum.

SUBJECT MATTER OF CONTRACT

Generally NON-CONSUMABLE, whether real orpersonal. (For bailee cannot use and returnsomething consumed when used).

If the purpose is not the consumption of theobject as when it is merely for exhibition,consumable goods may be the subject of thecommodatum.

ART. 1938

The bailor in commodatum need not be the owner ofthe thing loaned.

BAILOR NEED NOT BE OWNER

By the loan, ownership does NOT pass to theborrower.

Mere lessee or usufructuary may lend, but theborrower or bailee may not lend nor lease the

thing loaned to him to a 3P. Sufficient if the bailor has such possessoryinterest in the subject matter or right to its usewhich he may assert against the bailee and 3Psalthough not against the rightful owner.

ART. 1939

Commodatum is purely personal in character.Consequently:

(1) The death of either the bailor or the baileeextinguishes the contract;

(2) The bailee can neither lend nor lease the object ofthe contract to a third person. However, themembers of the bailee's household may make use ofthe thing loaned, unless there is a stipulation to thecontrary, or unless the nature of the thing forbids

such use. (n)

COMMODATUM PURELY PERSONAL IN CHARACTER

It is a purely personal contract, lender havingin view the character, credit and conduct of theborrower.

Death of either party terminates the contractunless by stipulation, the commodatum istransmitted to the heirs of either or both parties.(Valid, because Par. 1 presupposes absence of anycontrary stipulation).

EXCEPTION to the GR that all rights acquired invirtue of an obligation are transmissible.

RIGHT OF BAILEE TO LEND THING LOANED TO 3PS

GR: Bailee can neither lend nor lease theobject of the contract to a 3P, in the absence ofsome understanding or agreement to that effect.

However, the use of the thing loaned mayextend to the members of the bailees household(not considered as 3Ps) EXCEPT in 2 cases: (1)there is a stipulation to the contrary, (2) nature ofthe thing forbids such use.

Art. 1940

A stipulation that the bailee may make use of thefruits of the thing loaned is valid.

CONTRARY STIPULATION AS TO FRUITS

Bailee entitled only to the use of thing loaned,

not to its fruits. (Right to enjoy the fruits pertain tothe owner of thing producing it)

However, parties may stipulate that the baileemay also make use of the fruits of thing(stipulation cannot be presumed)

Enjoyment of fruits must only be incidental tothe use of the thing itself (if it is main cause -USUFRUCT).

OBLIGATIONS OF BAILEE

ART. 1941

The bailee is obliged to pay for the ordinaryexpenses for the use and preservation of the thingloaned.

LIABILITY FOR ORDINARY EXPENSES

Logical - he acquires the use of the same, he issupposed to return the identical thing.

Borrower must take good care of the thingwith the diligence of a GFF.

Extraordinary expenses - Art. 1949.

Art. 1942

The bailee is liable for the loss of the thing, even if itshould be through a fortuitous event:

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(1) If he devotes the thing to any purpose differentfrom that for which it has been loaned;

(2) If he keeps it longer than the period stipulated, orafter the accomplishment of the use for which thecommodatum has been constituted;

(3) If the thing loaned has been delivered with

appraisal of its value, unless there is a stipulationexemption the bailee from responsibility in case of afortuitous event;

(4) If he lends or leases the thing to a third person,who is not a member of his household;

(5) If, being able to save either the thing borrowed orhis own thing, he chose to save the latter.

LIABILITY FOR LOSS OF THING LOANED

Bailee must exercise proper diligence withregard to care and preservation of the thing loanedfor he must return the thing after its use.

GR: Bailee is NOT liable for loss or damage due

to fortuitous event (bailor retains ownership ofthing loaned).

EXC: Art. 1942. Purpose of the law is to punishbailee for his improper acts although they may notbe the proximate cause of the loss.

REASONS:o 1 - Bailee acts in BFo 2 - He incurs in delayo 3 - Law presumes that the partiesintended that the borrower be liable for theloss even if it is due to a fortuitous evento 4 - Commodatum is purely personalo 5 - Bailee shows ingratitude after thething is gratuitously loaned to him.

Art. 1943The bailee does not answer for the deterioration ofthe thing loaned due only to the use thereof andwithout his fault.

LIABILITY FOR DETERIORATION OF THING LOANED

The parties knew that the thing borrowedcannot be used without deterioration due toordinary wear and tear.

In the absence of agreement to the contrary,the depreciation caused by the reasonable andnatural use of the thing is borne by the bailor.

Bailee is liable if he is guilty of fraud ornegligence or if he devotes the thing to anypurpose different from that for which it has been

loaned.

Art. 1944 The bailee cannot retain the thing loaned on theground that the bailor owes him something, eventhough it may be by reason of expenses. However, thebailee has a right of retention for damages mentionedin Article 1951.

OBLIGATION TO RETURN THING LOANED

EXCEPT for claim for damages sufferedbecause of flaws of thing loaned, borrower has NOright to retain thing loaned as security for claims

he has against lender, even though they may beby reason of extraordinary expenses.

o Ownership remains in bailor: Borroweracquires only the use of the thing.

o Only temporary use given to bailee:

Bailee would be violating the bailors trust inhim to return the thing as soon as the periodstipulated expires or purpose has beenaccomplished. Law imposes upon him the

obligation to return the same.

EFFECT OF RETENTION OR ADVERSE CLAIM BY BAILEE

Mere failure to return does not constituteadverse possession on the part of bailee who holdsthe same in trust.

RIGHT OF RETENTION FOR DAMAGES

Exception in 1951 is of evident justice. BUT,bailees right extends no further than to retentionof the thing loaned until he is reimbursed for thedamages suffered by him. He cannot lawfully sellthe thing to satisfy said damages.

Art. 1945

When there are two or more bailees to whom a thingis loaned in the same contract, they are liablesolidarily.

LIABILITY WHEN THERE ARE 2 OR MORE BAILEES

Reason: To safeguard effectively the rights ofthe lender.

o Law presumes that bailor takes intoaccount the personal integrity andresponsibility of all bailees, and he would nothave constituted the commodatum if therewere only one bailee.

o EXC to GR that concurrence of 2 or

more parties in the same obligation gives riseto ajointobligation.

Obligations of the BailorArt. 1946

The bailor cannot demand the return of the thingloaned till after the expiration of the periodstipulated, or after the accomplishment of the use forwhich the commodatum has been constituted.However, if in the meantime, he should have urgentneed of the thing, he may demand its return ortemporary use.

In case of temporary use by the bailor, the contractof commodatum is suspended while the thing is inthe possession of the bailor.

OBLIGATION TO RESPECT DURATION OF LOAN

Primary obligation of bailor: Allow bailee theuse of the ting loaned for the duration of the periodstipulated or until the accomplishment of thepurpose for which the commodatum wasconstituted. (Bailor bound by terms ofcommodatum which is for a certain time)

If he should have an urgent need of thing or ifborrower commits an act of ingratitude, he maydemand it return or temporary use. (Commodatumis essentially gratuitous)

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Return may only be temporary or may be

permanent (its return or temporary use) Incase of temporary use by bailor, rights and dutiesof parties are suspended.

Art. 1947

The bailor may demand the thing at will, and thecontractual relation is called a precarium, in thefollowing cases:

(1) If neither the duration of the contract nor the useto which the thing loaned should be devoted, hasbeen stipulated; or

(2) If the use of the thing is merely tolerated by theowner.

PRECARIUM DEFINED

Kind of commodatum where bailor maydemand the thing at will.

Contract by which the owner of a thing, at therequest of another person, gives the latter thething for use as long as the owner shall please.

CASES WHEN CONTRACT IS PRECARIUM In either case in Art. 1947, it is presumed thatthe use of the thing has been granted subject torevocation by bailor at any time, w/n the use forwhich the thing was loaned has beenaccomplished.

In ordinary commodatum - possession ofbailee is more secure for he has the right to retainthe thing loaned until expiration of thing loaned oraccomplishment of use for which it is constituted.

De Leon: Use of owner is inaccurate.

Art. 1948

The bailor may demand the immediate return of thething if the bailee commits any act of ingratitude

specified in Article 765.

RIGHT OF BAILOR TO DEMAND RETURN OF THING FORACTS OF INGRATITUDE

o If the bailee should commit some

offense against the person, the honor or theproperty of the bailor, or of his wife or childrenunder his parental authority;

o If the bailee imputes to the bailor any

criminal offense, or any act involving moralturpitude, even though he should prove it,unless the crime or the act has beencommitted against the bailee himself, his wifeor children under his authority;

o If the bailee unduly refuses him

support when the donee is legally or morallybound to give support to the bailor.

Like donation, commodatum is essentiallygratuitous. Bailee who commits said acts makeshimself unworthy of the trust reposed upon him bythe bailor.

HERE: Ordinary commodatum.

Art. 1949

The bailor shall refund the extraordinary expensesduring the contract for the preservation of the thingloaned, 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 thenotification cannot be awaited without danger.

If the extraordinary expenses arise on the occasionof the actual use of the thing by the bailee, eventhough he acted without fault, they shall be borneequally by both the bailor and the bailee, unlessthere is a stipulation to the contrary.

OBLIGATION TO REFUND EXTRAORDINARY EXPENSES

For preservation of thing loaned: Borne bybailor.

o REASON: It is bailor who profits by

said expenses. If they are incurred by bailee,bailor must refund them provided the baileebrings the same to knowledge of bailor before

he incurs them. NOTICE is required. (Bailormust have discretion as to what must be donewith his property.o EXCEPTION: Expenses are so urgentthat the reply to the notification cannot beawaited without danger.

Arising from actual use of thing loaned: Borne

by bailor and bailee alike (50-50 basis)o Bailee pays because of benefitderived from the use of thing loaned to him,bailor pays because he is the owner and thething will be returned to him.o Parties MAY stipulate a differentapportionment of such expenses or that theyshall be borne by only one of them.

Art. 1950

If, for the purpose of making use of the thing, thebailee incurs expenses other than those referred toin Articles 1941 and 1949, he is not entitled toreimbursement.

NO OBLIGATION TO ASSUME ALL OTHER EXPENSES All expense not necessary for use andpreservation of the thing must be shouldered bythe borrower.

Ordinary expense incurred for the preservationof the thing are also for the account of the bailee.

Art. 1951

The bailor who, knowing the flaws of the thingloaned, does not advise the bailee of the same, shallbe liable to the latter for the damages which he maysuffer by reason thereof.

LIABILITY TO PAY DAMAGES FOR KNOWN HIDDENFLAWS

Requisites:o There is flaw or defect in the thingloaned.o It is hidden.o Bailor is aware thereof.o He does not advise the bailee of thesame.o Bailee suffers damages by reason ofsaid flaw or defect.

Bailor is made liable for his bad faith. Bailee isgiven the right of retention until he is paiddamages.

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WHERE FLAW UNKNOWN TO BAILOR

He is NOT liable because commodatum isgratuitous.

Rule is different in sale and lease becausevaluable consideration is received by vendor andlessor.

Art. 1952The bailor cannot exempt himself from the paymentof expenses or damages by abandoning the thing tothe bailee.

NO RIGHT OF ABANDONMENT FOR EXPENSES ANDDAMAGES

REASON: Expenses and or damages mayexceed the value of thing loaned (unfair)

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