Credit Transactions

Credit transactions include all transactions involving

purchase or loan of goods, services, or money in the
present with a promise to pay or deliver in the future.

By the use of credit, more exchanges are possible,
persons are about to enjoy a thing today but pay for it
later, and through the banking system, actual money
transfer is eliminated by cancellation of debts and
credits.
Credit Transactions
Scope of Credit Transactions:
The study of Credit Transaction is wider in scope than
Bailments, the following make up the whole credit
transactions:
1. Commodatum it is the gratuitous loan of a thing, to
be used for a certain time and for certain purpose and
with the obligation to return the same thing after the
time expires or the purpose accomplished. (Art. 1935)
2. Mutuum A contract by virtue of which one of the
contracting parties delivers to the other money or any
other consumable thing subject to the condition that
the same amount of the same kind and quality to be
paid or return (Art. 1938)
Credit Transactions
3. Deposit When a person receives a thing
belonging to another, with the obligation to
safely keeping and returning it at the instance of
the owner or depositor.
4. Pledge The deposit of personal property by a
debtor a creditor as security for payment of
debt.
5. Lease A written agreement under which
possession and use of property is granted for a
specified time, for a specified payment. The
landlord (lessor) and tenant ( lessee)
relationship.
Credit Transactions
6. Warehouse Receipt A receipt showing storage of goods
or property in a warehouse.
7. Usury Charging a rate of interest in excess of the
maximum rate allowed by law.
8. Guaranty An undertaking to be legally responsible
for the payment of a debt of another or for
performance of anothers act secondarily that is
required as a legal obligation.
9. Suretyship A contract where one party agrees to be
answerable for the debt of another solidarily in an
agreement reduced to a formal contract.
Credit Transactions
10. Mortgage the transfer of property passing
conditionally as a security for a debt. Mortgage may
be:
a. Real Estate Mortgage: I is an accessory obligation
whereby real property is offered as security for debt or
loan.
b. Chattel Mortgage: It is an accessory obligation
whereby personal property is offered as security for a
debt.
11. Antichresis- A contract by virtue of which the creditor
acquires the right to receive the fruits if an immovable
of his debtor, with the obligation to apply them to the
payment of the interest, if owing, and thereafter to
the principal of his credit. (Art. 2132)
Credit Transactions
Bailment

Etymology of the word bailment-It is derivative of the
French word bailler which means to deliver.
Bailment is defined as the delivery of goods or personal
property in trust for a specific purpose, with a contract,
express or implied, that the trust shall be faithfully
executed and the property returned.
How created? Generally bailment is created by agreement.
Bailment by operation of law may also be created.

Credit Transactions
Parties in Bailment
a) BAILOR one who delivers goods or personal
property to another in trust. The giver; and
b) BAILEE One who receives the goods or
personal property in trust with the obligation to
return them at the request of the owner of the
goods or personal property. The recipient;
Credit Transactions
Nature of contract Bailments:

Bailments create different rights and
obligations on the part of the bailor and
the bailee although different kinds are of
the same general character. There is
always obligation on the part of bailee to
restore

Credit Transactions
(1) Those for the sole benefit of the bailor
belonging to gratuitous deposit. Bailment
of goods without recompense where the
mandatory or person to whom the
property is delivered undertakes to do
some act with respect to the same as
simply to carry it or otherwise to do
something with respect to it gratuitously.

Credit Transactions
(2) Those for sole benefit of the bailee- commodatum
and gratuitous mutuum or simple loan.


(3) Those for the benefit of both: Bilateral includes
deposit for compensation,
Credit Transactions
Subjects Under the Bailments:

1. Commodatum
2. Mutuum
3. Deposit
4. Pledge
5. Lease


LOANS
Definition:
By the contract of loan, 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 a 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.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay
interest.
In commodatum the bailor retains the ownership of the thing
loaned, while in simple loan, ownership passes to the
borrower. ( Art. 1933)
LOANS
Two kinds of Loans
a) Mutuum (Simple Loan)
b) Commodatum

Loans under the Old Law
a) Civil loans governed by the old Civil Code;
and
b) Commercial Law governed by the Code of
Commerce. Under the new Civil Code this
distinction has been abolished. (Art. 2270)
LOANS
An accepted promise to deliver something by way
of commodatum or simple loan is binding upon
parties, but the commodatum or simple loan
itself shall not be perfected until the delivery of
the object of the contract. (ART. 1934)
Nature of the Contract of Law:
Commodatum and loan are real contracts. They
are perfected by the delivery of the object
loaned.

LOANS
Consideration or Cause in a Bailment of loan
Insofar as the borrower is concerned, the
cause is the acquisition of the thing; insofar as
the lender is concerned, it is the right to
require the return of the same thing or its
equivalent.
LOANS
MUTUUM

a) Equivalent amount to
be returned (subject
matter is fungible).
b) May be gratuitous or
onerous ( with
interest)
COMMODATUM

a) Same thing to be
returned (subject
matter is non-fungible)
b) Essentially gratuitous
(if there is
compensation it cease
to be commodatum)
LOANS
MUTUUM
c. Ownership goes to
borrower or bailee.

d. Refers to personal
property only.
e. Referred to as LOAN
FOR CONSUMPTION.


COMMODATUM
c. Ownership retained by
lender or borrower.
d. May involve real or
personal property.
e. Referred to as LOAN
FOR USE OR
TEMPORARY
POSSESSION
LOANS
MUTUUM
f) Borrower, because of
his ownership bears
risk of lost.
g) Can be generally
obliged to pay only at
the end of the period.

h) Not personal in
character.
COMMODATUM
f) Lender because of his
ownership bears risk of
lost.
g) While generally obliged to
return object at the end of
period, still in some cases it
can even be demanded
before the end of the
period.
h) Personal in character
COMMODATUM
The bailee in commodatum acquires the used of the
thing loaned but not its fruits; if any compensation is
to be paid by him who acquires the use, the contract
ceases to be a commodatum. (Art. 1935)

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)
1937. Movable or immovable property may be the
object of commodatum. (Art. 1937)
CONSUMABLE VS. NON-CONSUMABLE
CONSUMABLE
A movable which cannot
be used in a manner
appropriate to its
nature without its being
consumed. Example:
Gasoline
NON CONSUMABLE
A movable which can be
used in a manner
appropriate to its
nature without its being
consumed. Example: a
book
FUNGIBLE VS. NON-FUNGIBLE
FUNGIBLE

If the intention is to
allow a substitution
of the thing given.
NON-FUNGIBLE

If the intention is to
compel the return of
the identical thing
given.
Whether a thing is consumable or not
depends on the nature of the thing; whether
it is fungible or not depends on the intention
of the parties. Hence, sugar is consumable
and ordinarily fungible, but if the intention is
merely to display the sugar for exhibition,
then it is still consumable (nature) but non-
fungible ( intention)
COMMODATUM
COMMODATUM- is a real, principal, essentially
gratuitous and personal contract where one of
the parties (called the bailor or lender) delivers
to another (called the bailee or borrower) a
non-consumable object, so that the latter may
USE the same for certain period and later
return it. The term is derived from Latin term
commodum (usefulness) or commodo
(particular usefulness to a borrower)
COMMODATUM
Commodatum gives the right to use and not the
right to the fruits otherwise the contract is
usufruct. But a stipulation that the bailee may
make use of the fruits of the thing loaned is valid
(Art. 1940). In such case the right is merely
incidental and not the main cause of the contract.
Subject Matter:
Usually, only non-consummable goods may be
object of a commodatu,m for the thing itself
should not be consumed and must be returned.
But given merely for exhibition the thing itself is
not consumed. In this example is non-fungible
though consumable/
COMMODATUM

Nature of the Object of Commodatum
a) Immovable
b) Movable

Art. 1938. The bailor in commodatum need not be
the owner of the thing loaned.
Reason: The contract of commodatum does not
transfer ownership. All that is required is that
the bailor has the right to the use of the
property which he is lending and that he is
allowed to alienate the right to use.


COMMODATUM
Commodatum is purely personal in character.
Consequently:
(1) The death of either the bailor or the bailee
extinguishes the contract;
(2) The bailee can neither lend nor lease the object
of the contract to a third person. However, the
members of the bailee's household may make
use of the thing loaned, unless there is a
stipulation to the contrary, or unless the nature
of the thing forbids such use. (Art. 1939)
COMMODATUM
Example for 1
st
paragraph:
A loaned to B the formers car by way of
commodatum. If either A or dies, the contract is
extinguished.

Example for 2
nd
paragraph:
A loaned to B a phonograph by way of commodatum.
B cannot lend or lease this to a friend. But the children
of B in his household may use the same unless there is
a stipulation to the contrary. But said phonograph
cannot be used as a chair, because the nature of thing
forbids such use.
COMMODATUM


A stipulation that the bailee may make
use of the fruits of the thing loaned is valid.
(Art. 1940)
Obligations of the Bailee
Art. 1941. The bailee is obliged to pay for the ordinary
expenses for the use and preservation of the thing
loaned.

Reason: The bailee is supposed to return the identical
thing. (Art. 1933, so he is obliged to take care of the
thing with, as a rule, the diligence of a good father of
family. It follows necessarily that ordinary expenses for
use and preservation of thing loaned must be borne by
the bailee.

Obligations of the Bailee
Art. 1942. The bailee is liable for the loss of the thing, even if
it should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that
for which it has been loaned;

As a rule, a debtor of a thing is not responsible for its lost
due to fortuitous event. Exception is if he is guilty of bad
faith and abuse of generosity the fact that commodatum is
gratuitous.

Obligations of the Bailee
(2) If he keeps it longer than the period
stipulated, or after the accomplishment of the
use for which the commodatum has been
constituted;
Reason: Bailee is guilty of certain kind of default

Obligations of the Bailee
(3) If the thing loaned has been delivered with
appraisal of its value, unless there is a stipulation
exemption the bailee from responsibility in case
of a fortuitous event;
Reason: Evidently the giving of the value was made
to hold the bailee liable for after all this is not a
sale and neither is ownership transferred in
commodatum. Exception when there is a
stipulation to the contrary. It may in a sense be
said that the appraisal converts the commodatum
to mutuum.
Obligations of the Bailee

(4) If he lends or leases the thing to a third
person, who is not a member of his
household;
Reason: This prohibited by the law for it
amounts to a violation of the personal
character of a commodatum.

Obligations of the Bailee

(5) If, being able to save either the thing
borrowed or his own thing, he chose to save
the latter.
Reason: This amounts to an act of ingratituted
and to a failute to exercise due diligence,
considering the fact that commodatum is
gratuitous.

Obligations of the Bailee
The bailee does not answer for the
deterioration of the thing loaned due only to
the use thereof and without his fault. (Art.
1943)


Obligations of the Bailee
The bailee cannot retain the thing loaned on the
ground that the bailor owes him something,
even though it may be by reason of expenses.
However, the bailee has a right of retention for
damages mentioned in Article 1951. (Art. 1944)
Generally borrower cannot retain. Bailee is not
allowed to set up compensation against the bailor.
Facultative compensation. Art. 1287 provides
Compensation shall not be proper when one of
the debts arises from a depositum or from
obligatios of a depositary or bailee in
commodatum.


Obligations of the Bailee
Reason:
Bailment implies a trust that as soon as the
time has expired, or the purpose
accomplished, the bailed property must be
resored to the bailor.
Obligations of the Bailee

When there are two or more bailees to whom a
thing is loaned in the same contract, they are
liable solidarily. (Art. 1945)

This is one of the instances when solidary
liability is imposed by law.
Obligations of the Bailor
The bailor cannot demand the return of the thing
loaned till after the expiration of the period
stipulated, or after the accomplishment of the
use for which the commodatum has been
constituted. However, if in the meantime, he
should have urgent need of the thing, he may
demand its return or temporary use.

In case of temporary use by the bailor, the contract
of commodatum is suspended while the thing is
in the possession of the bailor. (Art. 1946)
Obligations of the Bailor
Reasons:
1
st
paragraph
Generally, bailor cannot demand immediate
return. A commodatum is for a certain time
(Art. 1933) This is the reason for the 1
st

sentence of Art. 1946. This is based on
equitable grounds for otherwise the bailee
may not be able to make proper use of the
thing.
Obligations of the Bailor

2
nd
paragraph:
A bailor usually lends his property because he
does not need it. Hence the reason for the
exception. Note that the return may not only
temporary but also permanent. This is sob
because the law uses its retun ( meaning
permanent) or temporary use.
The gratuitous use by the borrower must yield to
the necessity of the lender. This follows naturally
from the gratuitous nature of a commodatum.
Obligations of the Bailor
The bailor may demand the thing at will, and the
contractual relation is called a precarium, in the
following cases:
(1) If neither the duration of the contract nor the use to
which the thing loaned should be devoted, has been
stipulated; or
(2) If the use of the thing is merely tolerated by the
owner.(Art. 1947)
Precarium is a special form of commodatum. In a true
commodatum, the possession of the borrower is more
secured. The possession of the borrower in precarium
is precarious, that is borrower on the lenders will,
hence the name is precarium.
Above relates to two (2) kinds of precarium.
Obligations of the Bailor
Art. 1948. The bailor may demand the
immediate return of the thing if the bailee
commits any act of ingratitude specified in
Article 765.

Obligations of the Bailor
Art. 765. The donation may also be revoked at the
instance of the donor, by reason of ingratitude in the
following cases:
(1) If the donee should commit some offense against
the person, the honor or the property of the donor, or
of his wife or children under his parental authority; (2)
If the donee imputes to the donor 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 donee himself, his
wife or children under his authority;
(3) If he unduly refuses him support when the donee
is legally or morally bound to give support to the
donor.

Obligations of the Bailor
The bailor shall refund the extraordinary
expenses during the contract 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.
If the extraordinary expenses arise on the
occasion of the actual use of the thing by the
bailee, even though he acted without fault, they
shall be borne equally by both the bailor and the
bailee, unless there is a stipulation to the
contrary. (Art. 1949)
As a rule, extraordinary expenses should be paid by
the bailor because it he who profits by said
expenses otherwise the thing borrowed would be
destroyed.
Generally notice is required because the bailor
should be given discretion as to what he wants to
do with his own property.

In the second paragraph, this is most equitable
solution. The bailee pays one half because of the
benefit derived from the use of the thing loaned
to him and the bailor pays the other half because
he is the owner of the thing.
EXAMPLE:
A borrowed a bicycle from B. While A was
riding on it, he met with an accident which
greatly damaged the bicycle. A was nto at
fault for he was driving carefully. Both A and B
should share equally in the extraordinary
expenses unless there is a stipulation to the
contrary.
OBLIGATION OF THE BAILOR
Art. 1950. If, for the purpose of making use of
the thing, the bailee incurs expenses other
than those referred to in Articles 1941 and
1949, he is not entitled to reimbursement.
Example : The borrower of the car buys extra
jack to be used as a reserve on a trip. Here,
he is not entitled to reimbursement.
OBLIGATION OF THE BAILOR
The bailor who, knowing the flaws of the thing
loaned, does not advise the bailee of the
same, shall be liable to the latter for the
damages which he may suffer by reason
thereof. (Art. 1951)
The bailor cannot exempt himself from the
payment of expenses or damages by
abandoning the thing to the bailee. (Art.
1952)
OBLIGATION OF THE BAILOR
Reason for Article 1951
When a person lends, he ought to confer a
benefit and not to do a mischief. If he does not
reveal the flaws, he is liable for bad faith.
Right of retention or legal pledge. For the damages
suffered by the bailee on the given instance, he
can retain the thing borrowed until paid of said
damages.
The flaws referred to herein are hidden defects and
not the obvious ones.
OBLIGATION OF THE BAILOR
Bailor cannot exempt himself from paying the
expenses or damages by abandoning the thing
to the bailee because the value of the thing
borrowed might be less than the value of the
expenses or damages.