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SECTRANSFINALSSECTRANS FINALS REVIEWERSECTRANS FINALS REVIEWER
INTRODUCTION
CREDIT TRANSACTIONSInclude all transactions involving the purchase or loan of goods, services or money in the present and the promise to pay or deliver in the future.May be secured or unsecured.SECURITYSomething given, deposited or serving as a means to ensure fulfillment or enforcement of an obligation or of protecting some interest in property.May be personal or real.BAILMENTDelivery of property to another in trust for a specific purpose with a contractthat the trust shall be faithfully executed and the property returned or dullyaccounted for when the special purpose is accomplished or kept until thebailor reclaims it.May be for the sole benefit of the bailor, for the sole benefit of the bailee,and for the benefit of both parties.Bailment for hire arises when goods are left with bailee for some use or service, always for some compensation.
I. LOAN
GENERAL PROVISIONSLoans are Real Contracts – Require DELIVERY for perfection. But anaccepted promise to deliver is binding, although there is no contract of loanuntil thing is delivered. There is no required form – only that stipulation for INTEREST must be in WRITING.Loans are unilateral contracts – once the SM is delivered, it createsobligations on the part only of the borrower.2 kinds of Contracts of Loan – Commodatum and Mutuum / Simple Loan.CREDIT v LOAN v DEBTCredit – ability of an individual to borrow.Loan – delivery and receipt of money or consumable thing with agreementto repay same amount of same kind and quality.Debt – credit considered from creditor’s standpoint.COMMODATUM v MUTUUM / SIMPLE LOAN
CommodatumMutuum / Simple Loan
Is gratuitous.Any stipulation for compensation,contract ceases to becommodatum.Default rule is that simple loan isGratuitous. But there may also be astipulation for interest – remember that this must be in writing.Generally involves non-consumablethings [because you have to returnit]. But consumable things may besubject of commodatum – when thepurpose is not to consume it, butonly to display it.SM is money or other consumablethingBailor retains ownership of the SM.Ownership passes to borrower.Borrower has obligation to returnthe same thing loaned – the actualthing.Borrower need only pay the sameamount of the same kind & quality.Payment only of the equivalent.Real or personal property may besubject of commodatum.Involves only personal property.Purpose is only for temporary useor possession.The purpose of the contract is toconsume the thing. [Consumption]Loss of the thing is suffered bylender – because he still owns theSM. [Res Perit Domino]Loss is suffered by borrower – evenif by fortuitous event [Res PeritDomino]If thing is not returned – liable for estafa.Borrower not criminally liable – butonly civil liability for breach of obligation to pay.Ordinary – with term but lender maydemand if urgent needPrecarium – may demand return atbailor’s will.Lender may not demand return of the thing before lapse of the term.Consideration is pure liberalityConsideration is the promise of theborrower to pay
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SECTRANSFINALS
COMMODATUM
2 kinds of commodatum:Ordinary – with term but lender may demand return before expirationonly if there is urgent need.Precarium – bailor may demand the thing loaned at will.Bailee acquires use of thing but NOT ITS FRUITS.But parties may stipulate that borrower may use fruits – only incidental tocontract of commodatum.If bailee is not entitled to use the thing – contract of deposit.
Lender need not be the owner of the thing 
, enough that he has possessoryinterest or right to use it.Is Purely Personal in character:
1.
GR: DEATH of either party extinguishes contractE: Contrary stipulation that commodatum subsists until purposeis accomplished.
2.
GR: Borrower CANNOT LEND to someone elseE: Use by members of borrower’s householdE to E: There is stipulation to the contraryNature of thing forbids it [example accdg to JP is adildo]OBLIGATIONS OF BORROWER [2LORD]1.ORDINARY EXPENSES - for use and preservation- If, for the purpose of making use of the thing,the bailee incurs expenses other than OP for use or EP for preservation and actual use, he isnot entitled to reimbursement.2.LOSS OF THE THING- GR: borrower not liable if fortuitous eventExceptions: when borrower liable for fortuitous event:
a.
Bad Faith
– used for different purpose [also a breach]
 b.
Delay 
- keeps it for longer period than stipulated
c.
 Assumption of Risk 
– thing delivered with appraisal of value- E: Stipulation exempting bailee
d.
Breach
- Lend to 3
rd
person not in borrower’s household
e.
Ingratitude
- being able to save either thing borrowed or hisown thing, he chose to save his own.
3.
DETERIORATION - borrower not liable for ordinary deteriorationor wear & tear as natural consequence of its use.- must be without his fault
4.
RETURN OF THE THING - as soon as term expires or purpose isaccomplished- GR: cannot keep thing as security for anythinglender may owe him- E: Damages for hidden defects
5.
2 OR MORE BORROWERS – in the same contract, liability is SOLIDARYOBLIGATIONS OF LENDER [DREF]
1.
RESPECT DURATION– cannot demand return unless period expires or purpose is accomplished- E: Return / temporary use if in Urgent Need –contract of commodatum is deemed suspended- PRECARIUM exists when:
a.
No stipulation for duration or use of thingb.Use is merely tolerated by the owner 
-
BUT lender may not whimsically, arbitrarily or capriciously demand, otherwise liable for Art19,20 and 21 for abuse of right
2.
DEMAND RETURN FOR - Art765 of CC:ACTS OF INGRATITUDE A. Borrower commits offense againstlender’s person, honor or property, hiswife or children under parental authorityB. Borrower imputes to lender any criminaloffense or act involving moral turpitude,even if he proves it.- Except: If crime is against borrower,wife or childrenC. Borrower is legally and morally requiredto support the lender but he refuses to.3.REFUND EXTRAORDINARY EXPENSES
A.
EP From Preservation of thing - Lender should refund borrower - Notice must be given to lender beforeincurring the expense- E: need is urgent that lender cannotbe notified without danger 
B.
EP From Actual Use of thing - borne by both on a 50-50 basis- E: Contrary stipulation
4.
FOR DAMAGES FOR - Requisites for Liability:KNOWN HIDDEN FLAWSA. Flaw or defectB. HiddenC. Lender is Aware
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SECTRANSFINALS
D. Lender does not Adviseborrower E. Borrower suffers damages- Exception: When Buyer should have known- Borrower has RIGHT OF RETENTIONNOTE: Remember that Borrower is liable for ORDINARY expenses for use andpreservation & half of the EXTRAORDINARY expenses for actual use. Lender is liable only for EXTRAORDINARY expenses.Also, according to Art1952, Lender cannot exempt himself from payment of such expenses or damages by abandoning the thing to the borrower.
SIMPLE LOAN / MUTUUM
May include fungible [may be substituted – depends on intent of parties] or consumable things [depends on nature of thing].FORM OF PAYMENT
1.
Object is MONEY- Payment in currency stipulated, otherwisein legal tender in Phils.- GR: Value AT TIME OF PAYMENT- E: Extraordinary Inflation – AT TIME OFESTABLISHMENT
2.
Object is FUNGIBLE THING - Pay same kind, quality and quantity, even if Other than Moneyit changes in value.- In case it is impossible to do so, VALUE ATTIME OF PERFECTION OF LOAN- Opt Out: Stipulate that in case of impossibility, pay market value at time of paymentINTERESTRequisites:1. Expressly stipulated2. Must be in writing3. Must not be unconscionableRules:1.Stipulated interest governs2.No stipulation – 12% for loans, 6% for other obligations3.Increases in interest must also be stipulated4.Only in contracts of loan can interest be stipulated5.Stipulation must be mutually agreed upon, not unilaterallyincreased. But parties can agree on a FORMULA.6.Escalation clause [automatic increase in interest] must beaccompanied by De-Escalation clause [automatic decrease]When still liable for interest even if none stipulated:A.As Damages for delay – rate is based on:a.Penalty clause stipulatedb.Regular interest rate stipulatedc.Legal interest rate of 12%
B.
Interest from unpaid InterestGR: Accrued interest shall not ear interestE: JUDICIALLY DEMANDED or COMPOUNDED INTEREST – must be in WRITINGPayable in KINDAt the CURRENT PRICE of the products AT TIME and PLACE OFPAYMENTMistake in payment of interest – SOLUTION INDEBITI or undue payment- But if debtor pays out of a moral obligation,he cannot later recover.MUTUUM v COMMODATUM v BARTERMUTUUMCOMMODATUMBARTER1 party delivers toanother money or other consumable thing withunderstanding that thesame amount/ kind/quality or its equivalentshall be paid.1 party delivers toanother something notconsumable so that thelatter may use thesame for a certain timeand return it.Contract where one of the parties bindshimself to give 1 thingin consideration of theother’s promise to giveanother thing.Money or other fungiblethingsNon-fungible thingsNon-fungible thingsReturn the equivalentReturn identical thingReturn equivalentGratuitous or OnerousAlways GratuitousOnerous
II. GUARANTY
DefinitionA contract whereby the guarantor binds himself to the creditor to fulfill theobligation of the principal debtor in case the latter shall fail to do so.Characteristics1.ACCESSORY- depends on existence of principal obli’n2.SUBSIDIARY & CONDITIONAL- takes effect only upon principal’s default3.UNILATERAL - May be entered w/o intervention of principal debtor 
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