CREDIT TRANSACTIONS

Loan Contracts

Kinds of loan

1. Commodatum (hiram) – The bailor delivers to the bailee a non-

consumable thing and the bailee may use it for a certain period of
time and there is a necessity to return the same thing.

2. Mutuum (utang) – The bailor delivers to the bailee money or

some consumable thing and the latter will pay the same amount of
the same kind/quality.

Commodatum vs. Mutuum

Commodatum Mutuum
SM is non-consumable. SM is consumable
XPN: Consumable for
exhibition.
Ownership retained by Ownership transferred to
bailor. bailee.
Essentially gratuitous. Gratuitous or onerous +
interest.
Return same thing. Pay same amount or same
kind/quality.
Real or personal property. Personal property only.
Loan for use or temporary Loan for consumption.
possession.
Right to demand return of No right to demand return
the thing in case of urgent before lapse of term agreed
need, even before expiration upon
of term.
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Loss shouldered by bailor. Loss shouldered by the bailee
even if the loss is caused by a
fortuitous event.
Purpose: Use the thing. Prupose: Consumption

Obligations of the bailee

1. Liable for ordinary expenses for use and preservation of the thing.

2. GR: not liable for ordinary wear and tear of the thing due to use.
XPN: If done with fault or negligence. Or devoted the thing to a
different purpose from what was stipulated.

3. GR: Bailee not liable for loss due to fortuitous event.

XPN:
1. Bailee devoted the thing to different purpose.
4. Bailee kept thing longer that period stipulated. (There is delay in
return)
5. Thing was delivered with appraisal of its value. (unless stipulated
otherwise)
6. Bailee lent the thing to a third person outside his household.
7. Bailee is given a choice to save either the thing or his own thing
and chose the latter.

Obligations of the bailor

1. GR: Allow the bailee the use of the thing loaned for the period
stipulated, or until accomplishment of the purpose.
XPN:
A. Urgent need, which suspends the commodatum.
B. Precarium
B1. duration not stipulated.
B2. use or purpose not stipulated.

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B3. use of thing merely tolerated by the bailor.

2. Refund extraordinary expenses for preservation of the thing. (GR:

Bailor must be notified before the expenses were incurred. XPN to
notice requirement: Urgent need for repair.)

3. GR: Refund 50% of extraordinary expenses from actual use of

thing loaned. XPN: Contrary stipulation.

4. Pay damages to bailee for known hidden flaws in the thing

loaned.

Deposit

Primary purpose – Safekeeping

Characteristics:

1. Real contract
2. If gratuitous, unilateral, if onerous, bilateral.
3. Principal Purpose is safekeeping of the thing delivered.
4. Essentially gratuitous. (GR)
XPN:
1. Contrary stipulation
2. Depositary in business of storing goods.
3. Property saved from destruction during calamity without owner’s
knowledge. (must compensate depositary.

GR: Depositary cannot use thing deposited.

XPN:
1. When authorized.
2. When it is used necessary for preservation.

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Deposit vs. Mutuum

DEPOSIT MUTUUM
Purpose is safekeeping Purpose is consumption of
SM
Depositor can demand return Lender must wait for period
at will. to expire.
SM is movables (extra- SM is money or consumable
judicial) and immovables thing.
(judicial)

Kinds of Deposit

1. Judicial
2. Extra-judicial
a. Voluntary – as agreed by depositor and depositary.
b. Necessary – no express agreement.
Ex: 1. In compliance with legal obligation.
2. Depositum Miserable – deposits during a calamity.
3. Deposits in Inns and hotels.

Obligations of the depositary

1. Keep the thing safely and return it when required, even if a

specific term was stipulated.
2. Liable for loss if through fault or negligence.
3. Cannot deposit the thing to a third person.
4. Liable for loss of the thing deposited, if:
a. Transferred to a third person without authority.
b. Transferred to a third person, with authority, but the third person
manifestly careless or unfit.
c. Thing is lost due to negligence of own employees.

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5. Notify the depositor and wait for decision if he will change the
way or manner of deposit. XPN: If delay will cause danger.
6. If the thing earns interest, must
a. Collect the interest as it becomes due
b. Take steps as may be necessary to preserve its value and the rights
corresponding to it.
7. Not to commingle things deposited if so stipulated, even if they
are the same kind/quality.
8. Not to make use of the thing, otherwise, liable for damages. XPN:
1. Express permission of depositor
2. Preservation of the thing requires its use.

Obligations of the depositor

1. Pay expenses for preservation of the thing if deposit is gratuitous.

2. Pay for losses incurred due to character of the thing deposited.
XPN: 1. Depositor w3as unaware.
2. Depositor was not expected to know the dangerous character of
the thing.
3. Depositor notified the depositary about it.
4. Depositary was aware, even without depositor’s advice.

When is there necessary deposit?

1. In compliance with legal obligation.

2. Made during a calamity.
3. By travelers, in hotels and inns.

Guaranty and Suretyship

Guaranty vs. Suretyship

GUARANTY SURETYSHIP

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Guarantor is secondarily Surety is primary liable and
liable. Has right to benefit ofnot entitled to benefit of
excussion. excussion.
Guarantor binds himself to Surety assumes liability as a
pay only when principal regular party to the
cannot pay. undertaking and promises to
pay if the principal does not
pay.
Guarantor is insurer of Surety is insurer of debt.
debtor’s insolvency.
Usually embodied in a Usually embodied in the
separate agreement before or same instrument as the
after the principal obligation. principal obligation; thus, the
surety is a party to the
contract.
Must always be in writing. If Observe the rule on Solidary
not in writing, guarantor Liability.
cannot be sued in court.
Unenforceable under the
Statute of Frauds.

GR: Guarantor has right to benefit of excussion.

XPN: (WAIVER)
1. Guarantor expressly renounced excussion.
2. Guarantor fails to set-up benefit of excussion and fails to point out
to the creditor available property of the debtor in the Philippines.
3. Guarantor fails to interpose it as defense before judgment is
rendered against him.

When is guaranty extinguished?

1. When the principal obligation is terminated.

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2. Release of one guarantor by the creditor.
3. Extension of term granted by the creditor to the debtor without
guarantor’s consent.
4. If there can be no subrogation because of the fault of the creditor.

Pledge – It is a contract by virtue of which the debtor delivers to the

creditor or third person a movable or document evidencing
incorporeal rights.

Purpose: to secure a principal obligation.

Essential Requirements of Pledge

1. Constituted to secure fulfillment of principal obligation.

2. Pledgor or mortgagor is absolute owner of the thing.
3. Person has free disposal of the property, or legally authorized to
do so.
4. Thing pledged is delivered to the creditor or third person by
common agreement.

* Pledgor: absolute owner of thing pledged. Has free disposal of

thing pledged.

* In the event of non-fulfillment of obligation, thing pledged may be

alienated to satisfy obligation. (Foreclosure Sale)

Pledge vs. REM

PLEDGE REM
Movable property. Immovable property.
Delivery of object pledged. Delivery of the thing not
necessary.
Pledge not valid against third REM not valid against third

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persons unless description of persons if not registered.
the thing pledged + date of
pledge is in a public
instrument.
Real Contract. Consensual Contract.

* If the thing pledged is sold for less, the debtor is not liable for
deficiency. (No stipulation is allowed.) In case of excess, excess
belongs to the pledge unless otherwise stipulated.

Real Estate Mortgage (REM) – A contract where the debtor

secures to the creditor the fulfillment of a principal obligation, by
subjecting to such security immovable property or real rights in case
the principal obligation is not complied with.

SM: Real property or alienable real rights.

REM along with CM, antichresis, pledge are indivisible contracts. It

attaches to the property. Not released unless principal obligation is
extinguished. (regardless if there be partial payments.)

Judicial Foreclosure under Rule 68 of the ROC

There is no redemption here but only EQUITY OF

REDEMPTION. Where the mortgagor is given the chance to pay
the debt within the 90-120 days period after the judgment becomes
final or after the foreclosure sale but before confirmation.

But there is REDEMPTION if the mortgagee is a banking

institution.

1. One year for natural person mortgagors and

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2. Three months/before registration whichever comes first for
judicial mortgagors.

Extrajudicial Foreclosure under Act No. 3135

There is right of redemption.

This applies when the mortgagee is given specific power or express

authority to foreclose. Otherwise, there can be no EJ Foreclosure.

Period of redemption
Within 1 year from date of sale. If the land is a registered property,
then from registration of certificate of sale.

But if the mortgagor is a juridical person and the mortgagee is a

bank, quasi-bank or trust entity, then redemption is ONLY within 3
months from foreclosure or registration of certificate of sale with
Register of Deeds whichever comes first.

* The mortgagee has the right to recover deficiency post-

foreclosure. Such action to recover prescribes after 10 years from
right of action.

Antichresis – A contract where the creditor acquires right to receive

the fruits of an immovable of his debtor, with the obligation to apply
the proceeds to the payment of interest (if there is) and then to the
principal of the credit.

TN: The amount of principal and interest must be stipulated in

writing otherwise antichresis is void.

Obligations of the antichretic creditor

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 1. Pay taxes and charges to the estate and necessary expenses
on the property.
2. Apply fruits to the interest, and then the principal of the debt.

Creditor’s remedies in case of Default

1. Bring action for specific performance.

2. Petition for sale of real property in foreclosure sale under Rule 68
of the ROC, or if the parties agreed upon it, extra-judicial
foreclosure under Act. No. 3135.

Chattel Mortgage (CM)

SM: Any movable.

SM can be an immovable but binding upon the parties only and does
not bind 3rd persons.

Characteristics of a CM Contract

1. Accessory contract.
2. Formal, because it must be registered in the CM Registry to be
valid.

Unregistered CM – it is not null and void but it only binds the

parties. Valid upon the mortgagor.

CM vs. Pledge

Chattel Mortgage Pledge

Delivery is not necessary (to Delivery is necessary.
get it, one can file for
replevin.)
Registration in CM Registry Registration in the Registry

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is necessary to be valid of Pledge is not necessary for
beyond the parties. validity (just in a public
document would suffice.)
If foreclosed, excess goes to If sold, excess and deficiency
the debtor and deficiency can are not recoverable in
be recovered by the creditor. general. Unless stipulated
XPN: If Recto Law applies. otherwise.
SM is any movable property. SM is movable property
capable of possession.

* Stipulation for automatic ownership in CM/REM/Pledge is void

(PACTUM COMMISSORIUM) There must always be a
foreclosure proceedings.

Quasi-Contracts

Negotiorum Gestio – arises when one voluntarily takes charge of

the management of business or property of antoher, without any
power from the latter.

Negotiorum Gestio ends when

1. Owner repudiates it or ends it.
2. Manager withdraws from management.
3. Death, civil interdiction, insanity or insolvency of owner or
manager.

Solutio Indebiti – arises when something is received when there is

no right to demand it and it was given through mistake.

Concurrence and preference of Credits

Properties exempt from liability of obligations

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1. Survival necessities
a. Family home except for
- non-payment of taxes
- debts prior to constitution of FH
- debts secured by mortgage on premises of the FH
- debts due to laborer, mechanics, architects, etc. for the construction
of the FH
b. Clothing and necessaries of the family
c. Furniture and household things not exceeding 1k
d. Provisions for family for 3 months
2. Money received for support
a. Right to receive support and things procured from such support.
b. Earnings within the month to support the family
c. Proceeds of life insurance
d. Right to receive legal support from government or those procured
from such.
3. Employment/trade necessities
a. Tools and implements for trade/employment
b. 2 Beasts of burden used in occupation
c. Professional libraries
d. 1 fishing boat and net for fisherman
4. Specially enumerated
a. Lettered gravestones
b. Copyrights and other properties exempted by law
c. Property in custodial egis, and of public dominion

* In both movables and immovables, taxes is preferred. All others

are divided pro rata (concurrence of credits)

Prescription

Kinds of Prescription

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1. Acquisitive
Requisites for acquisitive prescription

1. Capacity to acquire by prescription.

2. Thing is capable of acquisition by prescription.
3. Possession of the thing under certain conditions.
4. Lapse of required time under the law.

2. Extinctive or statute of limitations

When does prescription not run?

1. Between H and W even if there is CSP or JSP.

2. Between parents and children during minority/insanity.
3. Between guardian and ward, during guardianship.

What can be subject to prescription

1. All things within the commerce of men – private property and

patrimonial property of the State.

Not subject to prescription

1. Property of the public domain.

2. Intransmissible rights.
3. Movables possessed through crime.
4. Registered land.

Kinds of acquisitive prescription and their requisites

1. Ordinary acquisitive
Requisites:

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1. Possession in GF
2. Just title
3. Period: Movable – 4 years
Immovable – 10 years
4. In concept of an owner
5. Public, peaceful, uninterrupted.

2. Extraordinary acquisitive
Requisites:
1. Possession in BF
2. Just title
3. Period: Movable – 8 years
Immovable – 30 years.

Prescription of Actions

Actions Period of prescription

1. Recovery of immovables 30 years
(from loss of possession)
2. Mortgage 10 years
3. Written contract
4. Obligation created by law
5. Judgment
6. Recovery of movables 8 years
(from loss of possession)
7. Oral contract 6 years
8. Quasi-contract
9. Default period 5 years
10. Injury to rights of 4 years
plaintiff
11. Quasi-delict
12.Forcible Entry/Unlawful 1 year
Detainer
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13. Demand of Right of Way Imprescriptible
14. Abate public/private
nuisance

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