Commercial Law (Atty.

Francis Borja)
JD 703 (3 UNITS)

01/24/31 (No recit)

1. Credit transactions (NCC as amended Personal Property Securities Act (PPSA))
2. Financial Rehabilitation Insolvency Act
3. Banking
4. Negotiable Instruments-1911 Law (Not in bar exam since 2020)
- only for personal education
- not included in discussions and exams

No prelim exam
April 17- Midterm Exam
May 22- Final Exam
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01/31/24
General Principles (Art. 1933-1934)

Credit transactions include all transactions involving the purchase or loan of goods, services,
or money in the present with a promise to pay or deliver in the future (contract of security)

- they encourage commercial/economic activity

- ALL credit transactions facilitates commercial transactions

● some credit transactions can be stand-alone transactions

● not all credit transactions have collateral
● Real estate mortgage is merely an accessory contract to a principal transactions

2 Types of Credit Transactions

1. Secured transactions (principal contract- supported by an accessory contract)-
supported by a collateral (secured) or an encumbrance of property
- if the principal contract is fulfilled and consummated, satisfied, and the
obligations of the parties are complied with the security are likewise extinguished
- example: Loan, Deposit
- real estate mortgage (to support loan from the bank) - loan is principal
contract, collateral as accessory contract

2. Unsecured transactions- those supported only by a promise to pay or the personal

commitment of another such as a guarantor or surety.
Security is something given, deposited or serving as a means to ensure the fulfillment or
enforcement of an obligation or of protecting some interest in the property

BAILMENT CONTRACTS- contracts or transactions that pertains to security/credit

transactions.
** (pag nakita yung word na bailment, credit transactions agad- pwede rin sa crim law- but not
oblicon/sales or others)

● If the SC could not specifically put a name on or a type of credit transaction (100% sure)
is it, then it may just call it (there is safekeeping but there is transfer of ownership)
BAILMENT

- 2 parties
- BAILOR- delivers a property to the bailee whether movable or not (consumable
or not)- most of the time movable
- so that the bailee can discharge a specific purpose agreed upon (fulfill a
specif purpose agreed upon)
- Once the purpose has been accomplished or the period agreed upon has
expired

- BAILEE- recipient of the property is duty bound to return what was delivered
- either the return of the very specific thing delivered or just to return or pay
something of the same, kind, quality or amount depending on the
bailment contract

● Most of the time actual delivery (physical delivery)

○ there is also constructive delivery
○ bailee has control of the subject matter

(ART. 1933- 1952)

Loan- specific type of credit transaction
● Delivery of a property whether consumable or not
● For specific period of time
● Bailee is duty-bound to return/pay in the same identical thing or same amount of money
● not just borrowing of money
● has 2 types

Types of Loan
1. Mutuum (simple loan)- w/ stipulation to pay interest (onerous)
● The person who delivers the property is called lender/creditor/obligee (depositor)
 ● The person who receives is called borrower/debtor/obligor (depository)
● consideration- interest?
● consumable
● ownership is transferred
● Collection suit + Estafa (if there is fraud)

2. Commodatum- always gratuitous in nature (generally non-consumable, bailee can use

it for free enjoyment)
● consideration- to accomplish a specific purpose
● for specific of time
● subject matter- same identical thing
● risk of loss is with the owner

● delivery of non-consumable thing from bailor to bailee

● may be consumable like money but the purpose must be not to consume

- Example: show money (exact bills must be returned- otherwise

noncompliance)

● if not identical thing- breach of commodatum

● what is delivered by bailor to bailee is just the possession and ownership
is not transferred (remains to the owner)
● there is TRUST AND CONFIDENCE (very personal transaction)
○ you cannot compel bailor to accept something that he did not
deliver against his will (he may forgive you or ask the court to
compel you)
○ Court may compel specific performance with interest and
damages + (estafa) (presumption of misappropriation)

● There is no compensation in commodatum

● The bailor need not be the owner- as long as the right to possess and
there is no prohibition
● Do not follow Pajuyo case

- PRECARIUM- is a kind of commodatum wherein the bailor may demand the thing on his
will.
Loss or destruction of the thing- liability depends (bailee- negligent -damages)
- otherwise- fortuitous event (no fault of bailee)
- (res perit domino- owner suffers lost)

● EXCEPT:
1. Delay
2. Different purpose
3. Leased to 3rd persons If the bailee has a choice to save the thing of
bailor and his thing, he chose his own thing
4. The thing is delivered with appraisal of its value

DOSRI Loan- is a loan incurred by an insider

● not exactly illegal but there is restrictions
● Directors, Officers, Shareholders, and Related Interests

- In substantive law- error or no filing of SALN (not automatically an error) you must be
notified before you can be liable

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02/07/24
Chapter 2- Simple Loan or Mutuum (ART 1953-1961)

● A simple loan or mutuum is a contract where the parties delivers to another, either
money or other consumable thing
● Mutuum is a REAL CONTRACT- delivery is essential for perfection of the loan (BUT a
promise to lend, being consensual, is binding upon the parties)
● CONSENSUAL CONTRACT- perfected by mere consent, meeting of the minds

● a cross check- is a check issued that may only be deposited directly in a bank.- has 2
cross lines
○ the role of 2 cross checks in mutuum

● obligations of a bailee or borrow in mutuum

○ pay the creditor an equal amount of the same kind and quality
○ pay interest, if stipulated in writing.
● Fungible thing- those that are replaceable- deals with the intention of the parties-
intention is to consume
● Non-fungible thing- consumable but the intention is for it not to consume

● Is theft bailable? yes

● qualified theft is not bailable
● Article 1980 NCC. fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loans.
● Article 1953 NCC. A person who receives a loan of money or any other fungible thing
acquires the ownership thereof, and is bound to pay to the creditor an equal amount of
the same kind and quality.
○ The depositors who place their money with the bank are considered creditors of
the bank. The bank acquires ownership of the money deposited by its clients,
making the money taken by respondents as belonging to the bank.

● 6% rate is usurious and unconscionable and is invalid

● 5-6 is 20% rate per month - excessive
● SC: 3% nga is considered usurious na e
● Concept of Solutio Indebiti shall be applied- any excess should be returned
● Legal interest rate now is 6% beginning July 1, 2013

● SC: Rules of thumb in the application of interest

○ when the obligation is breach- contravenor damages
■ payment for money is being talked/agreed upon about, interest is
stipulated in writing (as long as unconscionable and excessive)
● interest earned shall earn interest from judicial demand (during
indemnity of damages)

● if no stipulation- legal rate of 6% interest per annum from the time that
there is default

■ if claim is unliquidated- no interest

● Default- failure to pay on time without a need for demand

● Money judgment- like award of damages from crime.. will that earn interest even if it is
not mutuum? yes.. 6% interest from the time of judicial demand- judgment become final
and executory

● Commodatum and Mutuum are both real contracts perfected by the delivery of a thing
 ● Cause of action bec of failure to deliver- yes damages- there is a breach of promise of
commodatum or mutuum

Safety Deposit Box..?

● deposit the money to a bank- governed by mutuum
● ownership was transferred to the bank- has cause of action
● SDB from bank- not governed by mutuum (SC: it is a contract of bailment more akin to
deposit- ownership is not transferred to the bank)
○ this is commodatum possession is only transferred purpose is safe keeping

● When is the bank duty bound to pay you money?

○ agreed period
○ precarium

● In mutuum payable on demand by the depositor/account holder

○ When you go to branch and present the passbook to withdraw
○ Issue a check/ drawing of a check unless insufficient funds
○ Collect on demand- ATM

● Interest
○ can be collected when there is a stipulation in writing (basis: NCC)
○ no agreement in writing, only verbal arrangement- interest is unenforceable, it
can still be collected- express or implied waiver
■ implied waiver: failure to object in a judicial proceeding about the verbal
agreement of interest
○ ALLOWABLE RATE OF INTEREST
■ 6% legal rate (only when parties was not able to stipulate the interest)
● pwedeng over 6%

● if agreed to pay 10% per annum- excessive but right now the law on usury is suspended
by BSP
○ EFFECT: both parties in a mutuum have a freedom to contract on the interest in
writing.
■ can be 8% per annum
■ IF TOO EXCESSIVE: the borrower may ask the court to reduce the rates
agreed upon by the parties when the creditors sues you for collection
(interest rate stipulated must be admitted and state that it is excessive
and reason)
■ discretionary in the part of the Court (no hard and fast rule)
● economic standing of the parties
● Nacar case is very IMPORTANT- landmark case
○ application of interest
○ memorize!

● Obligation is breached- damages may be awarded

1. Award of interest in the concept of monetary interest-
cost of using money in mutuum
○ Follow the stipulated rate of interest in writing-valid
unless struck down by the court (it will begin to run
from day 1- bec that is cost of money unless
otherwise agreed upon)
○ that interest earned will also earn interest
(compounding interest) in the ff cases only
■ there is an express stipulation..?
■ when there is judicial demand (in court and
you receive the summons)

2. Mutuum is payable at the legal rate or the rate was not

stipulated- 6% legal rate
○ the interest will begin to run from the date of
maturity/default (failed to pay when due and
demandable)
■ extra-judicial demand is allowed (demand
letter, verbal demand)

3. If obligation is not mutuum (quasi-delict, torts)

○ that will earn 6% legal interest
○ it will begin to run from the time of judgment render
by the court in favor of the victim (no need to be
final and executory)- NOT ABSOLUTE
■ it may be given earlier
● if it is established with reasonable
certainty (no dispute with the
amount, may receipt)
● offender may expressly dispute the
amount (date of promulgation)

4. Money judgements- judgment rendered by the court in any

case
● it will earn interest 6% legal rate per annum
● begin to run from the date the money judgment
became final and executory (upon lapse of period
to appeal)
● in the sense of forbearance of credit