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CIVIL LAW REVIEWER TABLE of CONTENTS CREDIT TRANSACTIONS Table of Contents Chapter I. General Principles ......................307 Chapter VIII. Concurrence and Preference of I. Types of Credit Transactions ............307 Credits........................................................... 338 II. S...

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CIVIL LAW REVIEWER

TABLE of CONTENTS

CREDIT TRANSACTIONS Table of Contents

Chapter II. Loan (Arts. 1933-1961, CC).......309 I. Definition ...........................................309 II. Characteristics of a Loan ..................309 III. Kinds of Loan: In General .................309 IV. Commodatum....................................309 V. Obligations of the Bailee in Commodatum ............................................310 VI. Obligations of the Bailor in Commodatum ............................................311 VII. Mutuum or Simple Loan................311 VIII. Interests ........................................312 IX. The Usury Law ..................................312 Chapter III. Deposit ......................................314 I. Definition ...........................................314 II. Kinds of Deposit ................................314 III. Characteristics of Deposit .................314 IV. Deposit Distinguished From Mutuum and Commodatum .....................................314 V. Obligations of the Depositary............314 VI. Obligations of the Depositor..............317 VII. Extinguishment of Deposit (Art. 1995) 317 VIII. Necessary Deposit........................317 IX. Judicial Deposit .................................318 Chapter IV. Guaranty ...................................319 I. Definition ...........................................319 II. Characteristics ..................................319 III. Classification .....................................319 IV. Rules Governing Guaranty ...............319 V. Guaranty Distinguished from Others.322 VI. The Guarantor (Arts. 2056-2057)......322 VII. Effects of Guaranty .......................322 VIII. Extinguishment of Guaranty .........325 Chapter V. Legal and Judicial Bonds.........326 Chapter VI. Suretyship.................................327 Chapter VII. Pledge, Mortgage, Antichresis .......................................................................328 I. Essential Requisites Common to Pledge and Mortgage (Art. 2085)...........................328 II. Pledge ...............................................329 III. Mortgage ...........................................332 IV. Foreclosure of Mortgage (Art. 2085).334 V. Antichresis.........................................336 VI. Chattel Mortgage...............................336

Chapter VIII. Concurrence and Preference of Credits........................................................... 338 I. General Provisions............................ 338 II. Classification of Credits .................... 338 III. Preference of Credits ........................ 338

306 CREDIT TRANSACTIONS

Chapter I. General Principles ......................307 I. Types of Credit Transactions ............307 II. Security .............................................307 III. Bailment ............................................307

Prof. Roberto N. Dio Faculty Editor

Katrina Elena Guerrero Lead Writer

Diana Gervacio Patricia Andrea Hernandez Mark Luciano Ixara Maroto Writers

CIVIL LAW Kristine Bongcaron Patricia Tobias Subject Editors

ACADEMICS COMMITTEE Kristine Bongcaron Michelle Dy Patrich Leccio Editors-in-Chief

PRINTING & DISTRIBUTION Kae Guerrero

DESIGN & LAYOUT Pat Hernandez Viktor Fontanilla Rusell Aragones Romualdo Menzon Jr. Rania Joya

LECTURES COMMITTEE Michelle Arias Camille Maranan Angela Sandalo Heads

Katz Manzano Mary Rose Beley Sam Nuñez Krizel Malabanan Arianne Cerezo Marcrese Banaag Volunteers

MOCK BAR COMMITTEE Lilibeth Perez

BAR CANDIDATES WELFARE Dahlia Salamat

LOGISTICS Charisse Mendoza

SECRETARIAT COMMITTEE Jill Hernandez Head Loraine Mendoza Faye Celso Mary Mendoza Joie Bajo Members

Chapter I. General Principles I. TYPES OF CREDIT TRANSACTIONS II. SECURITY III. BAILMENT

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)

I.

Types of Credit Transactions

Secured transactions or contracts of real security – Those supported by collateral or an encumbrance of property Unsecured transactions or contracts of personal security – Those the fulfillment of which by the principal debtor is secured or supported only by a promise to pay or the personal commitment of another such as a guarantor or surety

II. Security SECURITY - something given, deposited or serving as a means to ensure the fulfillment or enforcement of an obligation or of protecting some interest in property. 2 TYPES OF SECURITY 1. Personal Security – as when an individual becomes a surety or a guarantor 2. Real Security - as 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. Thus, a secured creditor is one who holds a security from his debtor for payment of the latter’s debts.

III. Bailment 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 reclaims it. [NOTE: The word “bailment” comes from the French word “bailer,” meaning “to deliver”]

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Chapter I. GENERAL PRINCIPLES

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Chapter I. GENERAL PRINCIPLES

PARTIES IN BAILMENT 1. Bailor – the giver, the party who delivers possession/custody of the thing bailed 2. Bailee – the recipient, the party who receives the possession/custody of the thing delivered

Contract where one of the parties (Seller) obligates himself to:  

Transfer ownership of and to deliver a determinate thing;

and the other (Buyer) to pay a price certain in money or its equivalent.

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KINDS OF CONTRACTUAL BAILMENT (With Reference to Compensation) 1. Those for the sole benefit of the bailor, e.g. gratuitous deposit (Art.1965) and mandatum, i.e., where the mandatory or person to whom the property is delivered undertakes to do some act with respect to the same 2. Those for the sole benefit of the bailee, e.g. commodatum and gratuitous simple loan or mutuum (Art.1933) 3. Those for the benefit of both parties, e.g. deposit for a compensation, involuntary deposit, pledge and bailments for hire a. Hire of things – for the temporary use of the hirer (i.e. lease, Arts.1642-1643) b. Hire of service – for work or labor upon the goods delivered (i.e. contract for piece of work, Art.1713) c. Hire for carriage of goods – for goods delivered to be carried from place to place by a common carrier (Art.1732) or private person d. Hire of custody – for storage of goods delivered (Arts.1507-1520, Warehouse Receipts Law)

Chapter II. LOAN

Chapter II. Loan (Arts. 1933-1961, CC) I. II. III. IV. V.

DEFINITION CHARACTERISTICS OF A LOAN KINDS OF LOAN: IN GENERAL COMMODATUM OBLIGATIONS OF THE BAILEE IN COMMODATUM VI. OBLIGATIONS OF THE THE BAILOR IN COMMODATUM VII. MUTUUM OR SIMPLE LOAN VIII. INTERESTS IX. THE USURY LAW

I.

Definition

LOAN - a contract by which one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum. (Art.1933)

Borrower must return the same thing loaned (Art.1933) May involve real or personal property (Art.1937) Loan for use or temporary possession (Art.1935) Bailor may demand the return of the thing loaned before the expiration of the term in case of urgent need (Art.1946) Bailor suffers the loss of the subject matter since he is the owner (Art.1942; Art.1174)

Not purely personal in character

Borrower need only pay the same amount of the same kind and quality Refers only to personal property Loan for consumption

Lender may not demand its return before the lapse of the term agreed upon

Borrower suffers the loss even if caused exclusively by a fortuitous event and he is not, therefore, discharged from his duty to pay Purely personal in character

A thing is consumable when it is used in a manner appropriate to its purpose or nature. (Art 418)

II. Characteristics of a Loan

GENERAL RULE: If the subject of the contract is a consumable thing, such as money, the contract would be a mutuum.

Real contract 1. delivery is essential for perfection of the contract of loan. 2. An accepted promise to loan, is nevertheless binding on the parties, it being a consensual contract.

EXCEPTION: Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. (Art.1936) [Producer’s v. CA, 397 SCRA 651]

Unilateral contract 1. creates obligations on only one party, i.e., the borrower 2. In a contract of loan, the cause is, as to the borrower, the acquisition of the thing, and as to the lender, the right to demand its return or its equivalent. (Monte de Piedad v. Javier)

III. Kinds of Loan: In General Commodatum Ordinarily involves something not consumable* (Art.1936)

Mutuum Involves money or other consumable thing

Ownership of the thing loaned is retained by lender (Art.1933) Essentially gratuitous (Art.1933)

Ownership is transferred to the borrower Maybe gratuitous or it maybe onerous, i.e. with stipulated interest

IV. Commodatum 2 KINDS OF COMMODATUM 1. Ordinary commodatum - See Art.1933 2. Precarium – one whereby the bailor may demand the thing loaned at will; exists in cases where: a. neither the duration of the contract nor the use to which the thing loaned should be devoted has been stipulated b. if the use of the thing is merely tolerated by the owner (Art 1947) GENERAL RULE: In a commodatum, the right to use is limited to the thing loaned, and not to its fruits EXCEPTION: When there is stipulation to the contrary (Art.1940). In cases where there is such a stipulation, enjoyment of the fruits must

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Chapter II. LOAN

be incidental to the use of the thing itself. Otherwise, if the use of the fruits is the main cause, the contract may be one of usufruct. (Art.562)

6. Solidary obligation where there are 2 or more bailees to whom a thing was loaned in the same contract (Art.1945) _______

What is the effect of an accepted promise to deliver by way of commodatum or mutuum? It is binding upon the parties, but the contract of loan shall not be perfected until delivery of the contract. (Art.1934)

GENERAL RULE: Bailee is not liable for loss or damage due to a fortuitous event (Art.1174), since the bailor retains ownership of the thing

Who may be bailor in commodatum? 1. Anyone. The bailor in commodatum need not be the owner of the thing loaned. (Art.1938) 2. But the bailee himself may not lend nor lease the thing loaned to him to a third person (Art 1939(2)) _______ GENERAL RULE: Commodatum is purely personal in character (Art.1939) such that: 1. Death of either party extinguishes the contract 2. Bailee can neither lend nor lease the thing lent to him to a third person EXCEPTION: Members of the bailee’s household may make use of the thing loaned

EXCEPTION: Bailee is liable even for loss due to a fortuitous event when: (Art 1942) 1. He devotes the thing to any purpose different from that for which it was loaned 2. He keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted 3. The thing loaned has been delivered with appraisal of its value, unless there is stipulation exempting the bailee from responsibility in case of a fortuitous event 4. He lends or leases the thing to a third person who is a not a member of his household 5. Being able to save either the thing borrowed or his own thing, he chose to save the latter. _______ GENERAL RULE: Bailee deterioration of thing loaned.

is

liable

for

EXCEPTION TO EXCEPTION: Bailee’s household may NOT use it when: 1. There is stipulation to the contrary, or 2. The nature of the thing forbids such use

EXCEPTION: The deterioration of the thing is due only to the use thereof and without his fault (Art.1943) _______

V. Obligations of Commodatum

GENERAL RULE: Bailee has no right of retention of the thing loaned, on the ground that the bailor owes him something.

the

Bailee

in

OBLIGATIONS OF THE BAILEE 1. Obligation to pay for the ordinary expenses for the use and preservation of the thing loaned (Art.1941) 2. Obligation to take good care of the thing with the diligence of a good father of a family (Art.1163) 3. Liability for loss, even if loss through fortuitous event, in certain circumstances (Art.1942) 4. Liability for deterioration of thing loaned, except under certain circumstances (Art.1943) 5. Obligation to return the thing upon expiration of term or upon demand in case of urgent need

EXCEPTION: Bailee has a right of retention for damages for known hidden flaws mentioned in Art 1951. (Art.1944) REQUISITES FOR THE APPLICATION OF ART.1951 1. There is a flaw or defect in the thing loaned 2. The flaw or defect is hidden 3. The bailor is aware thereof 4. He does not advise the bailee of the same 5. The bailee suffers damages by reason of said flaw or defect

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the

Bailor

in

1. To allow the bailee the use of the thing loaned for the duration of period stipulated or until the accomplishment of the purpose for which commodatum was constituted. EXCEPTIONS: a. Urgent need during which time the commodatum is suspended (Art.1946) b. Precarium (Art.1947)  If duration of the contract has not been stipulated  If use or purpose of the thing has not been stipulated  If use of thing is merely tolerated by the bailor c. Bailee commits an act of ingratitude specified in Art. 765 (Art.1948):  Commission of offenses against the person, the honor, or the property of the bailor, or of his wife or children under his parental authority  Imputing to the bailor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the bailee himself, his wife, or children under his authority  Undue refusal to give the bailor support when the bailee is legally or morally bound to [NOTE: Article 765 is applicable, because like donation, commodatum is essentially gratuitous. (Art.1933, par.2)] 2. To refund extraordinary expenses for the preservation of the thing loaned provided bailor is notified before the expenses were incurred. (Art.1949)  EXCEPTION: Urgent need hence no notice is necessary. 3. To refund 50% of the extraordinary expenses arising from actual use of bailee of the thing loaned (Art.1949)  EXCEPTION: Contrary stipulation 4. To pay damages to bailee for known hidden flaws in the thing loaned. [NOTE: Bailor has no right of abandonment; he cannot exempt himself from payment of expenses to bailee by abandoning the thing to the latter. (art. 1952)]

VII. Mutuum or Simple Loan A mutuum or simple loan is a contract by which a person (creditor) delivers to another (debtor) money or other consumable thing with the understanding that the same amount of the same kind and quality shall be paid. (Art.1953) MUTUUM AND LEASE DISTINGUISED MUTUUM Object is money or any consumable (fungible) thing Thing loaned becomes property of debtor Relationship created is that of creditor and debtor

LEASE Object may be any thing, whether movable or immovable, fungible or non-fungible Owner does not lose his right of ownership Relationship created is that of landlord and tenant or lessor and lessee (Tolentino v. Gonzales, 50 Phil 558)

MUTUUM AND COMMODATUM DISTINGUISHED FROM BARTER 1. In mutuum, subject matter is money or any other fungible things; in barter, non-fungible (non-consumable) things. 2. In commodatum, the bailee is bound to return the identical thing borrowed when the time has expired or the purpose has been served. In barter, the equivalent thing is given in return for what has been received. 3. Mutuum may be gratuitous and commodatum is always gratuitous. Barter on the other hand is an onerous contract. It is really a mutual sale. [NOTE: BARTER – contract where by one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing. (Art.1968)] CONSUMABLE AND FUNGIBLE DISTINGUISHED  Whether a thing is consumable or not depends on its nature and whether it is fungible or not depends on the intention of the parties.  Example: Wine is consumable by nature, but it may be non-fungible if the intention is merely for display or exhibition. [NOTE: Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. (Art.1980)]

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VI. Obligations of Commodatum

Chapter II. LOAN

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Interests

INTEREST – is the compensation allowed by law or fixed by the parties for the loan or forbearance of money, goods or credits KINDS OF INTEREST 1. Simple interest – Paid for the principal at a certain rate fixed or stipulated by the parties. 2. Compound Interest – that which is imposed upon interest due and unpaid. 3. Legal Interest – that which the law directs to be charged in the absence of any agreement as to the rate between the parties. 4. Lawful Interest – that which the laws allow or do not prohibit 5. Unlawful or Usurious Interest – paid or stipulated to be paid beyond the maximum fixed by law. However, by virtue of CB Circular 905, usury has become “legally inexistent.” When is compound interest allowed? 1. When there is an express written stipulation to that effect (Art.1959) 2. Upon judicial demand. HOWEVER, debtor is not liable to pay compound interest even after judicial demand when there is no stipulation for payment of interest. (Art.2212) REQUISITES FOR INTEREST TO BE CHARGEABLE 1. Must be expressly stipulated 2. Agreement must be in writing (Art.1956) 3. Must be lawful EXCEPTIONS TO REQUISITE OF EXPRESS STIPULATION 1. The debtor in delay is liable to pay legal interest (6% or 12%) as indemnity for damages (Art.2209) 2. Interest accruing from unpaid interest – Interest demanded shall earn interest from the time it is judicially demanded (Art.2212) or where there is an express stipulation (Art.1959) RULES FOR AWARD OF INTEREST IN THE CONCEPT OF ACTUAL & COMPENSATORY DAMAGES (Eastern Shipping Lines v. CA, 234 SCRA 78) 1. When obligation is breached consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest

from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Art.1169. 2. When an obligation, not constituting a loan or forbearance of money, is bre...