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182
CREDIT TRANSACTIONS
CREDIT TRANSACTIONS
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
Contracts of security
Types:
1. Secured transactions or contracts of
real security - supported by a
collateral or an encumbrance of
property
2. Unsecured transactions or contracts
of personal security - supported only
by
a
promise
or
personal
commitment of another such as a
guarantor or surety
Security
Something given, deposited, or
serving as a means to ensure
fulfilment or enforcement of an
obligation or of protecting some
interest in property
Types of Security
a. personal when an individual
becomes surety or guarantor
b. real or property when a
mortgage, pledge, antichresis,
charge or lien or other device
used to have property held, out
of which the person to be made
secure can be compensated for
loss
Bailment
The delivery of property of one
person to another in trust for a
specific purpose, with a contract,
express or implied, that the trust
shall be faithfully executed and the
property returned or duly accounted
for when the special purpose is
accomplished or kept until the bailor
claims it.
Parties:
1. bailor - the giver; one who delivers
property
2. bailee- the recipient; one who
receives the custody or possession of
the thing thus delivered
183
Loan
Credit
Ability of a person to
borrow money or
things by virtue of
the
trust
or
confidence reposed
by the lender that he
will pay what he
promised.
Loan
Credit
1. Interest taken at
the expiration of the
credit
2. Always on a
double name paper
(two
signatures
appear with both
parties held liable
for payment)
Interest is taken in
advance
Always on a single
name paper (i.e.
promissory note with
no
indorse-ment
other
than
the
maker)
184
NOTES:
However, the bailees right
extends no further than
retention of the thing loaned
until he is reimbursed for the
damages suffered by him.
He cannot lawfully sell the
thing to satisfy such damages
without courts approval.
In case there are two or
more
bailees,
their
obligation shall be solidary.
Obligations of the bailor (Art 1946 Art
1952):
1. To respect the duration of the loan
GENERAL RULE: Allow the bailee
the use of the thing loaned for the
duration of the period stipulated or
until the accomplishment of the
purpose for which the commodatum
was instituted.
EXCEPTIONS:
a.
In case of urgent need in
which case bailee may demand
its return or temporary use;
b.
The bailor may demand
immediate return of the thing if
the bailee commits any act of
ingratitude specified in Art. 765.
2. To
refund
to
the
bailee
extraordinary expenses for the
preservation of the thing loaned,
provided the bailee brings the same
to the knowledge of the bailor
before incurring them, except when
they are so urgent that the reply to
the notification cannot be awaited
without danger.
3. To be liable to the bailee for
damages for known hidden flaws.
Requisites:
a. There is flaw or defect in the
thing loaned;
b. The flaw or defect is hidden;
c. The bailor is aware thereof;
d. He does not advise the bailee of
the same; and
e. The bailee suffers damages by
reason of said flaw or defect
185
3. Relationship
between the parties
is that of obligorobligee
Relationship is that
of a landlord and
tenant
4. Creditor receives
payment for his loan
Owner of the
property rented
receives
compensation or
price either in
money, provisions,
chattels, or labor
Rent
1. Delivery of money
or some consumable
thing with a promise
to pay an equivalent
of the same kind and
quality
Delivery of some
non-consumable
thing in order that
the other may use it
during a certain
period and return it
to the former.
2. There is a transfer
of ownership of the
thing delivered
There is no transfer
of ownership of the
thing delivered
Loan
1.
Real contract
2. Generally
unilateral because
only borrower has
obligations
Sale
Consensual contract
Bilateral
reciprocal
and
Barter
1. Subject matter is
money or fungible
things
Subject matter is
non-fungible, (non
consumable) things
2. In commodatum,
the bailee is bound
to return the
identical thing
borrowed when the
time has expired or
purpose served
3. Mutuum may be
gratuitous and
commodatum is
always gratuitous
Onerous, actually a
mutual sale
186
187
Mutuum
1. Purpose
Principal purpose is
Principal purpose is
safekeeping or
consumption
custody
2. When to Return
Depositor can
The lender must wait
demand the return of until the expiration
the subject matter at of the period granted
will
to the debtor
3. Subject Matter
Subject matter may
Subject matter is
be movable or
only money or other
immovable property
fungible thing
4. Relationship
Relationship is that
Relationship is that
of lender (creditor)
of depositor and
and borrower
depositary.
(debtor).
5. Compensation
There can be
NO compensation of
compensation of
things deposited with
credits.
each other (except
by mutual
agreement).
Deposit
Commodatum
1. Purpose is
Safekeeping
1. Purpose is the
transfer of the use
2. May be gratuitous
2. Essentially and
always gratuitous
3. Movable/corporeal
things only in case of
extrajudicial deposit
Kinds of Deposit:
1. Judicial (Sequestration) takes place
when an attachment or seizure of
property in litigation is ordered.
2. Extra-judicial
a. Voluntary one wherein the
delivery is made by the will of
the depositor or by two or more
persons each of whom believes
himself entitled to the thing
deposited. (Arts 1968 1995)
188
Extra-judicial
1. Creation
Will of the court
Will of the parties
or contract
2. Purpose
Security or to insure
Custody and
the right of a party
safekeeping
to property or to
recover in case of
favorable judgment
3. Subject Matter
Movables or
Movables only
immovables,
but generally
immovables
Always onerous
4. Cause
May be compensated or not, but
generally gratuitous
NOTES:
Article 1966 does not embrace
incorporeal property, such as rights
and actions, for it follows the person
of the owner, wherever he goes.
A contract for the rent of safety
deposit boxes is not an ordinary
contract of lease of things but a
special kind of deposit; hence, it is
not to be strictly governed by the
provisions on deposit. The relation
between a bank and its customer is
that of a bailor and bailee. (CA Agro
vs CA, 219 SCRA 426)
Obligations of the Depositary (Art 1972
1991):
1. To keep the thing safely (Art 1972)
Exercise
over
the
thing
deposited the same diligence as
he would exercise over his
property
2. To return the thing (Art 1972)
Person to whom the thing must
be returned:
a.
Depositor, to his heirs and
successors, or the person who
may have been designated in the
contract
b. If the depositary is capacitated he is subject to all the
obligations of a depositary
whether or not the depositor is
capacitated. If the depositor is
incapacitated, the depositary
must return the property to the
legal representative of the
incapacitated or to the depositor
himself if he should acquire
capacity (Art 1970).
c. If the depositor is capacitated
and
the
depositary
is
incapacitated - the latter does
not incur the obligation of a
depositary but he is liable:
i..to
return
the
thing
deposited while still in his
possession;
ii.to pay the depositor the
amount which he may have
benefited himself with the
thing or its price subject to
the right of any third person
who acquired the thing in
good faith (Art 1971)
189
190
Mutuum
1. The consumable
thing deposited may
be demanded at will
by the depositor
1. Lender is bound
by the provisions of
the contract and
cannot demand
restitution until the
time for payment, as
provided in the
contract, has arisen
3. The irregular
depositor has a
preference over
other creditors with
respect to the thing
deposited
3. Common creditors
enjoy no preference
in the distribution of
the debtors
property
191
2.
192
193
3.
4.
5.
6.
NOTES:
The guarantor cannot bind
himself for more than the
principal debtor and even if he
does, his liability shall be
reduced to the limits of that of
the debtor. But a guarantor may
bind himself for less than that of
the principal (Art 2054)
A guaranty may be given as
security for future debts, the
amount of which is not yet
known; there can be no claim
against the guarantor until the
debt is liquidated. A conditional
obligation may also be secured.
(Art 2053)
Unilateral - may be entered even
w/o the intervention of the principal
debtor, in which case Art. 1236 and
1237 shall apply and it gives rise only
to a duty on the part of the
guarantor in relation to the creditor
and not vice versa.
Nominate
Consensual
It is a contract between the
guarantor/surety and creditor.
NOTES:
Acceptance of guaranty by
creditor and notice thereof to
guarantor:
In declaring that guaranty
must be express, the law
refers solely and exclusively
to the obligation of the
guarantor because it is he
alone who binds himself by
his acceptance. With respect
to the creditor, no such
requirement
is
needed
because he binds himself to
nothing.
However, when there is
merely an offer of a
guaranty, or merely a
conditional guaranty, in the
194
Suretyship
1. Liability depends
upon an independent
agreement to pay the
obligation if primary
debtor fails to do so
1. Surety assumes
liability as regular
party
to
the
undertaking
2. Collateral
taking
2. Surety is
original promisor
an
3.
Surety
primarily liable
is
under-
3.
Guarantor
secondarily liable
is
4. Guarantor binds
himself to pay if
the
principal
CANNOT PAY
4. Surety undertakes
to pay if the principal
DOES NOT PAY
5.
Insurer of
solvency of debtor
5.
Insurer of the
debt
6.
Guarantor can
avail of the benefit
of
excussion
and
division
in
case
creditor
proceeds
against him
6.
Surety cannot
avail of the benefit
of
excussion
and
division
Indorsement
Guaranty
1.
Primarily
transfer
of
1.
Contract
security
of
2. Failure in either or
both
of
these
particulars does not
generally work as an
absolute discharge of
a
guarantors
liability, but his is
195
discharged only to
the extent of the loss
which he may have
suffered
in
consequence thereof
3.
Guarantor
warrants the solvency
of the promisor
4. Indorser can
sued as promisor
be
4. Guarantor cannot
be sued as promisor
Guaranty
Warranty
A contract by which a
person is bound to
another for the
fulfilment of a
promise or
engagement of a
third party
An undertaking that
the title, quality, or
quantity of the
subject matter of the
contract is what it
has been represented
to be, and relates to
some agreement
made ordinarily by
the party who makes
the warranty
NOTES:
A guaranty is gratuitous, unless there
is a stipulation to the contrary. The
cause of the contract is the same
cause which supports the obligation
as to the principal debtor.
The peculiar nature of a guaranty or
surety agreement is that is is
regarded as valid despite the
absence of any direct consideration
received by the guarantor or surety
either from the principal debtor or
from the creditor; a consideration
moving to the principal alone will
suffice.
It is never necessary that the
guarantor or surety should receive
any part or benefit, if such there be,
accruing to the principal. (Willex
Plastic Industries Corp. vs. CA, 256
SCRA 478)
196
2.
3.
4.
5.
197
guaranty
without
is
the
198
199
Art. 2071
Protective remedy
before payment.
Preliminary remedy
200
201
Kinds:
1. Conventional /Voluntary created
by contract
2. Legal created by operation of law
(examples: Art. 546, 1731 and 1914
NCC)
NOTES:
If the debtor fails to comply with the
obligation at the time it falls due,
the creditor is merely entitled to
move for the sale of the thing
pledged or mortgaged in order to
collect the amount of his claim from
the proceeds.
If he wishes to secure a title to the
mortgaged property, he can buy it in
the foreclosure sale (Montevirgin vs.
CA, 112 SCRA 641)
NOTES:
The provisions of possession, care
and sale of the thing as well as on
the termination of the pledge
governing conventional pledges are
applicable to pledges created by
operation of law (Art 2121)
Unlike, however, in conventional
pledge where the debtor is not
entitled to the excess unless it is
otherwise agreed, in legal pledge,
the remainder of the price of the
sale after payment of the debt and
expenses, shall be delivered to the
debtor.
In legal pledge, there is no definite
period for the payment of the
principal obligation. The pledgee
must make a demand for the
payment of the amount due him;
otherwise he cannot exercise the
right of sale at public auction (Art
2122)
Characteristics:
1. Real contract it is perfected by
the delivery of the thing pledged by
the debtor who is called the
pledgor to the creditor who is
called the pledgee, or to a third
person by common agreement;
2. Accessory contract it has no
independent existence of its own;
3. Unilateral contract it creates an
obligation solely on the part of the
creditor to return the thing subject
thereof upon the fulfilment of the
principal obligation; and
4. Subsidiary contract the obligation
incurred does not arise until the
fulfilment
of
the
principal
obligation which is secured.
Consideration in pledge:
Insofar as the pledgor is concerned,
the cause is the principal obligation.
202
1. To advise the
pledgee of the
flaws of the thing
(Art 2101)
2. Not to demand
the return of the
thing until after
full payment of
the debt,
including interest
due thereon and
expenses incurred
for its
preservation (Art
2105)
203
MORTGAGE
(Articles
204
REAL MORTGAGE
1. Constituted on
immovables
2. Delivery is not
necessary
Extent of Mortgage:
Absent express stipulation to the
contrary, the mortgage includes the
accessions, improvements, growing
fruits and income of the property not
yet received when the obligation
becomes due and to the amount of
the indemnity granted or owing to
205
Special Rights:
1. Mortgagor - To alienate the
mortgaged
property
but
the
mortgage shall remain attached to
the property.
1. There is court
intervention
2. Decisions are
appealable
3. Order of court
cuts off all rights of
the parties
impleaded
4. There is equity
of redemption
except on banks
which provides for
a right of
redemption
5. Period of
redemption starts
from the finality of
the judgment until
order of
confirmation
6. No need for a
special power of
attorney in the
contract of
mortgage
Extrajudicial
foreclosure
1. No court
intervention
2. Not appealable
because it is
immediately
executory
3. Foreclosure does
not cut off right of
all parties involved
4. There is right of
redemption
5. Period to redeem
start from date of
registration of
certificate of sale
6. Special power of
attorney in favor of
mortgagee is
needed in the
contract
NOTES:
A foreclosure sale retroacts to the
date of registration of the mortgage
and that a person who takes a
mortgage in good faith and for
valuable consideration, the record
showing clear title to the mortgagor,
will be protected against equitable
claims on the title in favor of third
persons, of which he had no actual
or constructive notice (St. Dominic
Corporation vs. IAC 151 SCRA 577).
206
207
Redemption
It is the transaction by which the
mortgagor reacquires or buys back
the property which may have passed
under the mortgage, or divests the
property of the lien which the
mortgage may have created.
NOTES:
A sale by the mortgagor to a third
party of the mortgaged property
during the period for redemption
transfers only the right to redeem
the property and the right to
possess, use and enjoy the same
during said period.
Where sale with assumption of
mortgage not registered and made
without
the
consent
of
the
mortgagee, the buyer, thereof, was
not validly substituted as debtor
and, hence, had no right to redeem
(Bonnevie vs. CA, 125 SCRA 122).
Kinds:
1. Equity of Redemption right of
mortgagor to redeem the mortgaged
property after his default in the
performance of the conditions of the
mortgage within the 90-day period
from the date of the service of the
order of foreclosure or even
thereafter
but
before
the
confirmation of the sale. Applies to
judicial foreclosure of real mortgage
and chattel mortgage foreclosure.
NOTE: Redemption of the banking
institutions is allowed within one year
from confirmation of sale.
2. Right of Redemption right of
mortgagor to redeem the mortgaged
property within one year from the
date of registration of the certificate
of sale. Applies only to extrajudicial
foreclosure of real mortgage.
NOTE: The right of redemption, as long
as within the period prescribed, may be
exercised irrespective of whether or not
the
mortgagee
has
subsequently
conveyed the property to some other
party (Sta. Ignacia Rural Bank, Inc. vs.
CA, 230 SCRA 513)
208
1.
2.
3.
4.
Pledge
1. Refers to real
property
2. Perfected by mere
consent
1. Refers to personal
property
2.
Perfected
by
delivery of the thing
pledged
3. Consensual contract 3. Real Contract
209
Real Mortgage
1. Debtor usually
retains possession of
the property
2. Creditor does not
have any right to
receive the fruits;
but the mortgage
creates a real right
over the property
3. The creditor has
no such obligation
2. Creditor acquires
only the right to
receive the fruits of
the property, hence,
it does not produce a
real right
3. The creditor,
unless there is
stipulation to the
contrary, is obliged
to pay the taxes and
charges upon the
estate
4. It is expressly
4. There is no such
stipulated that the
obligation on part of
creditor given
mortgagee
possession of the
property shall apply
all the fruits thereof
to the payment of
interest, if owing,
and thereafter to the
principal
Subject matter of both is real property
NOTES:
The parties, however, may agree on
an extrajudicial foreclosure in the
same manner as they are allowed in
contracts of mortgage and pledge
(Tavera vs. El Hogar Filipino, Inc.,
68 Phil 712).
A
stipulation
authorizing
the
antichretic creditor to appropriate
the property upon the non-payment
of the debt within the agreed period
is void (Art 2088).
CHATTEL MORTGAGE (Articles 21402141)
A contract by virtue of
personal property is recorded
Chattel Mortgage Register
security for the performance
obligation (Art 2140).
Characteristics
1. Accessory contract it is for the
purpose of securing the performance
of a principal obligation
2. Formal contract registration in the
Chattel
Mortgage
Register
is
indispensable for its validity
3. Unilateral contract it produces only
obligations on the part of the
creditor to free the thing from the
encumbrance on fulfilment of the
obligation.
1.
2.
which
in the
as a
of an
3.
4.
210
4. If there is
4. If there is
deficiency after
deficiency,
foreclosure,
creditor is not
creditor is entitled
entitled to recover
to recover the
notwithstanding
deficiency from the any stipulation to
debtor, except
the contrary
under Art. 1484
Subject matter of both is movable
property
Pledge
1. Delivery of the
thing pledged is
necessary
2. registration not
necessary to be
valid
3. Debtor is not
entitled to excess
unless otherwise
agreed or except in
case of legal
pledge
Effect of absence
The special affidavit is required only
for the purpose of transforming an
already
valid
mortgage
into
preferred mortgage. Thus, it is
not necessary for the validity of the
chattel mortgage itself but only to
give it a preferred status. In other
words, its absence vitiates the
mortgage only as against third
persons without notice like creditors
and subsequent encumbrancers.
Foreclosure of Chattel Mortgage
NOTES:
Foreclosure sale in chattel mortgage
is by public auction under Act No.
1508, but the parties may stipulate
that it be by private sale.
The mortgagee may, after thirty (30)
days from the time of the condition
broken,
cause
the
mortgaged
property to be sold at public auction
by a public officer. The 30-day
period is also a grace period for the
mortgagor to discharge the mortgage
obligation. After the sale of the
chattel at public auction, the right
of redemption is no longer available
to the mortgagor (Cabral vs.
Evangelista, 28 SCRA 1000).
211
After
the
redemption period has expired, the
purchaser of the property has the
212
Lien
Applies only to
claims which do
not attach to
specific
properties
Creates a charge
on a particular
property
those
provided under Arts. 155 and 205
of the Family Code, Sec. 13,
Rule 39 of the Rules of Court,
and Sec. 118 of the Public Land
Act
2. Future property a debtor who
obtains a discharge from his
debts on account of his
insolvency, is not liable for the
unsatisfied
claims
of
his
creditors with said property
subject to certain exceptions
expressly provided by law. (Secs.
68, 69, The Insolvency Law [Act
No. 1956])
3. Property under legal custody and
those owned by municipal
corporations
necessary
for
governmental purposes
General Categories of Credit:
1. Special Preferred Credits - those
listed in Arts. 2241 and 2242 shall be
considered as mortgages and pledges of
real or personal property or liens (Art.
2243). Hence, they are not included in
the insolvent debtor's assets.
NOTES:
Arts. 2241 and 2242 do not give the
order of preference or priority of
payment. They merely enumerate
the credits which enjoy preference
with respect to specific movables or
immovables. With respect to the
same
specific
movables
or
immovables, creditors, with the
exception of the State (No. 1),
merely concur.
They only find application when
there is a concurrence of credits,
i.e., when the same specific
property of the debtor is subjected
to the claims of several creditors and
the value of such property is
insufficient to pay in full all the
creditors. In such a situation, the
question of preference will arise.
Article 2242 makes no distinction
between registered and unregistered
vendors lien (No. 2). Hence, any
lien of that kind enjoys the
preferred credit status. Unlike the
unpaid price of real property sold,
mortgage credits (No. 5), in order to
be given preference, should be
recorded in the Registry of Property.
But a recorded mortgage credit is
superior to an unrecorded unpaid
vendors lien (De Barretto vs.
Villanueva, 1 SCRA 288)
The priority rule applies to credits
annotated in the Registry of
Property. As to credits mentioned in
No. 7 of Article 2242, there is
preference among the attachments
or executions according to the order
of the time they were levied upon
the property. The pro rata rule in
Article 2249 does not apply;
otherwise, the result would be
absurd. The preference of a credit
annotated by an attachment or
execution could be defeated by
simply
obtaining
a
writ
of
attachment or execution, no matter
how much later (Manabat vs Laguna
Federation of Facomas, Inc., 19
SCRA 621).
The last paragraph of Article 2241
applies only when the right of
ownership in such property continues
in the debtor, and, therefore, it is
213
NOTES:
In case of bankruptcy or liquidation
of the employers business, the
unpaid wages and other monetary
claims of the employees shall be
given first preference and shall be
paid in full before the claims of the
government and other creditors may
be paid. The terms, declaration
of
bankruptcy,
or
judicial
liquidation have been eliminated,
nevertheless, according to the SC,
bankruptcy
or
liquidation
proceedings are still necessary for
the operation of the preference
accorded to workers under Art. 110
of the Labor Code. (DBP vs. NLRC
183 SCRA 328; RA No. 6715 Sec 10)
In case of rehabilitation, the
preference of credit granted to
employees under Art 110 of the
Labor Code is not applicable
(Rubberworld [Phils.] vs CA, 305
SCRA 722).
Refectionary Credit
Indebtedness incurred in the repair
or reconstruction of something
previously made, such repair or
reconstruction being made necessary
by the deterioration or destruction
of the thing as it formerly existed.
ORDER OF PREFERENCE OF CREDITS
Arts. 2241 and 2242, jointly with
Arts. 2246 to 2249 establish a twotier order of preference:
1. First tier includes taxes, duties
and fees due on specific movable or
immovable property;
2. Second tier all other special
preferred (non-tax) credits shall be
satisfied pro-rata, out of any
residual value of the specific
property to which such credits
relate.
NOTES:
The pro-rata rule does not apply to
credits annotated in the Registry of
Property by virtue of a judicial
214