GIO ARVIE M.

GEROLAGA
21 OCTOBER 2016

The Credit System

1. THE CREDIT CONTRACT IS CHARACTERIZED AS FOLLOWS:

1. It is a bi-partite contract. In any credit transaction, there are two parties involved. The person
giving away things of value for the present is known as the creditor. The person receiving the
things and promising to pay in the future is known as the debtor. The creditor is given the
right to collect or compel the debtor to perform his obligation to pay. The debtor can stress his
obligation or duty to fulfill his promised.
2. It is a pecuniary contract. Although the things borrowed are goods and services, the payment
is measured in terms of monetary unit. Furthermore, the final settlement of the transaction is
in terms of money. It is also said that pecuniary contract involved monetary penalty or
entailing a fine if the payment for credit is not met.
3. It creates a legal obligation. The credit contract creates the right of the creditor to collect from
the debtor. The debtor in effect obtains possession and title to the things borrowed and
therefore obliges him to pay. The creditor then acquires a right of recourse against the debtor
upon default of payment.
4. It has the fiduciary element. The credit contract is based on trust. Furthermore, the present of
futurity and risk makes it border on uncertainties. Therefore, it is important that faith on the
borrowers ability and willingness to pay exists.

5. It is based on personal factors. Since credit is inherent in the person, the contract is perfected
based on the persons degree of moral as well as business competence. This is known as
credit standing. It might be recalled that the creditor accepts the debtors credit because he
believes that he is willing and able to pay.