Notes on Credit Transactions

I. Definition of credit transactions.

 What is credit transaction?
It refers to agreement based on trust or belief of someone on the ability of another person to comply with his
obligations.

 What is credit?
It is a person’s ability to borrow money by virtue of confidence or trust reposed in him by the lender that he will
pay what he may promise.

 What is credit transaction?

It refers to agreement based on trust or belief of someone on the ability of another person to comply with his
obligations.

 What do credit transactions include?

They include all transactions involving loans of:
1. goods
2. services
3.money extended to another either gratuitously or onerously with a promise to pay or deliver in the future.

 Kinds of credit transactions

1. As contracts of security:
a. Contracts of real security (Secured Transactions) – These are contracts supported by collateral/s or
burdened by an encumbrance on property such as mortgage and pledge.
b. Contracts of personal security (Unsecured Transactions)– These are contracts where performance by the
principal debtor is not supported by collateral/s but only by a promise to pay or by the personal undertaking or
commitment of another person such as in surety or guaranty.

2. As to their existence
a. Principal contracts – They can exist alone. Their existence does not depend on the existence of another
contract.
b. Accessory contracts – They have to depend on another contract. These accessory contracts depend on the
existence of a principal contract of loan.

3. As to their consideration
a. Onerous – This is a contract where there is consideration or burden imposed like interest.
b. Gratuitous – This is a contract where there is no consideration or burden imposed. (e.g. commodatum)

II. Bailment.
 What is Bailment?
The word ―bailment‖ comes from the French word ―bailler,‖ meaning ―to deliver.‖

It is the delivery of a personal property for some particular use, or on mere deposit, upon a contract, express or
implied, that after the purpose has been fulfilled, it shall be redelivered to the person who delivered it, or
otherwise dealt with according to his directions, or kept until he reclaims it, as the case may be.

Note: Generally, no fiduciary relationship is created by bailment. No trustee‐beneficiary relationship is created.

 Creation of bailment.
In general, bailment may be said to be a contractual relation. To be legally enforceable, it must contain all the
elements of a valid contract. (see Art. 1318.)
It does not necessarily mean that an agreement is always necessary to create bailment. It may be created by
operation of law. (see Art. 1996; 8 Am. Jur. 2d 950.)

 Parties in bailment.
The parties to a bailment are the:
(1) Bailor (Comodatario). — the giver; the party who delivers the possession or custody of the thing bailed; and
(2) Bailee (Comodante). — the recipient; the party who receives the possession or custody of the thing thus
delivered.

 Kinds of contractual bailment.

(1) Those for the sole benefit of the bailor - e.g. gratuitous deposit, commodatum
(2) Those for the sole benefi t of the bailee - e.g. commodatum, mutuum
(3) Those for the benefi t of both parties (mutual‐benefit bailments):
a. e.g. deposit for compensaton, involuntary deposit, pledge and bailments for hire:
b. hire of things – temporary use
c. hire of service – for work or labor
d. hire of carriage of goods – for carriage
e. hire of custody – for storage
 Kinds of bailment for hire.
Bailment for hire (locatio et conductio) arises when goods are left with the bailee for some use or service by
him and is always for some compensation.
(1) Hire of things (locatio rei). — where goods are delivered for the temporary use of the hirer;
(2) Hire of service (locatio operis faciendi). — where goods are delivered for some work or labor upon it by the
bailee;
(3) Hire for carriage of goods (locatio operis mercium vehendarum). — where goods are delivered either to a
common carrier or to a private person for the purpose of being carried from place to place; and
(4) Hire of custody (locatio custodiae). — where goods are delivered for storage.