Credit Transactions STUDENT Must Read

Credit Transaction Reviewer (Recitation for November 22, 2013)

A. LOAN (Article 1933- 1961)

1. Definition:

A LOANS  means a delivery by one party (Lender/ Creditor), Creditor), and the

receipts by the other party (borrower/ Debtor) who became the owner, of a given sum of money or other consumable things upon the agreement, express or implied, to repay the same amount of the same kind and quality, quality, with or or without interest. (Article 1933). 2. Characteristic of the Contract: a. Real Contract: Commodatum and Mutuum are REAL CONTRACTS; they are perfected by the delivery of the object loaned. On the other hand, Consensual Contracts are perfected by mere consent (Art. 1316 & 1934, Civil Code).

Note: To effect either a Commodatum or a Mutuum, a delivery, either REAL or CONSTRUCTIVE, is essential. This is so because unless there is delivery, the barrower in Commodatum (For Example) cannot exercise due diligence over the thing Loaned.

b. Unilateral Contract : Because only barrower has obligations. 3. Kinds of Loan: a. Commodatum:

Where the Bailor (lender) delivers to the Bailor (barrower)

a NON-CONSUMABLE thing so that latter may use it for a certain time and returns the identical thing. b. Mutuum or Simple Loan :

Where the Lenders delivers to the borrower money

or other consumable thing upon the condition that the latter shall pay the same amount of the same kind and quality. c. Commodatum vs. Mutuum Mutuum (1977, 2004) Mutuum

Commodatum

a. Equivalent amount to be returned ( subject a. Same thing to be returned ( subject matter is matter is fungible). As to object:

b. May be GRATUITOUS or ONEROUS (with B. ). As to Cause: INTEREST ).

Non- Fungible).

Essentially GRATUITOUS (If there is compensation

it

ceases

to

be

COMMODATUM). C. Ownership GOES to the BARROWER or c. Ownership RETAINED by the Lender or BAILEE. As to Transmission of Ownership:

Bailor.

d. Refers to PERSONAL PROPERTY ONLY.

D. May

involve

REAL

and

PERSONAL

PROPERTY. E. Referred to as LOAN for CONSUMPTION. e. Referred

to

as

LOAN

for

USE

or

TEMPORARY POSSESION.

As to purpose:

F. Barrower, because of his Ownership, bears f. risk of LOSS.

Lender, because of his ownership, bears risk of LOSS.

g. Can be generally obliged to pay only at G. While generally obliged to return object at END of period.

END of period, still in some cases the

h. As to what must be returned:

return can be demanded even BEFORE the END of the period.

i.

Not PERSONAL in CHARACTER.

H. PERSONAL in CHARACTER. CHARACTER.

d. Commodatum vs. Lease:

1. The first is a real contract, whereas the second is a consensual contract. 2. The object of the first is non- consumable (Non- Fungible) thing, whereas the object of the second may even be a work or service. 3. The first is essentially gratuitous, whereas the second is not gratuitous. e. Commodatum vs. Usufruct (1998):

Suggested Answers: USUFRUCT is a right given to a person (USUFRUCTUARY) (USUFRUCTUARY) TO

ENJOY the property of another with the obligation of preserving its form and substance. (Art. 562, Civil Code)

On the other Hand, COMMODATUM is a contract by which one of the parties (Bailor) delivers to another (bailee) something NOT- CONSUMABLE so that the latter may use it for a certain time and return it.

In USUFRUCT the USUFRUCTUARY gets the right to the use and to the fruits of the thing. (Art. 564, Civil Code). It may even be constituted over consumables like MONEY. On the other hand, in COMMODATUM, consumable goods maybe the subject thereof only when the purpose of the contract is NOT CONSUMPTION of the object, as when it merely for exhibition. (Art 1936, Civil Code)

Another Answer:

USUFRUCT is constituted by law, by contract, by testamentary succession, or by prescription (Art. 1933, Civil Code). USUFRUCT creates a REAL RIGHT to the fruits of another’s property.

While, COMMODATUM creates only a PURELY PERSONAL RIGHT to use another’s property, and requires a stipulation to enable the Bailee to “make use” of the fruits (Art.

1939&1940, Civil Code). USUFRUCT maybe ONEROUS while COMMODATUM is always or ESSENTIALLY GRATUITOUS. (Art. 1933 & 1935, Civil Code). The contract constituting USUFRUCT is CONSENSUAL, while COMMODATUM is a REAL CONTRACT. However, both involve the enjoyment by a person of the property of another, differing only as to the extent and scope of such enjoyment (jus fruendi in one and Jus Utendi in the other); both maybe constituted over CONSUMABLE GOODS. (Art. 574&1936, Civil Code).

A CONSUMABLE THING may be the subject matter of an ABNORMAL USUFRUCT but in a NORMAL USUFRUCT, the subject matter may be used for exhibition. A COMMODATUM of a CONSUMABLE THING may be only for the purpose of Exhibiting, not consuming. Note: What Bailee (Barrower) in Commodatum acquires is the RIGHT to the USE (jus utendi)

and not the Right to the FRUITS (jus fruendi); otherwise, the contract may be one of usufruct. But of course, a stipulation that the Bailee may make use of the fruits of the thing loaned is valid. (Article 1940). In such a case, however, the right to get the fruits is merely INCIDENTAL and no the main cause of the contract.

A1. COMMODATUM 1. Characteristic as a Contract: (PARAS) a. Real-

because perfected by delivery.

b. Unilateralc. Principal-

because it can stand alone by itself.

d. Gratuitous-

otherwise, the contract is one of lease.

e. Personal in Nature-

because of the “Trust”. (see Art. 1939)

Note: Subject Matter of Commodatum is only NON-CONSUMABLE goods may be the OBJECT

of a COMMODATUM for the thing itself not to be consumed and must be returned.

Bailor (lender) need not be the Owner: Reason for the Law: 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 this right to use. Hence, in lease for Example, a Lessee may become a Sub- Lessor, unless he has been expressly prohibited to do in the contract of lease. (Article 1650, Civil Code).

2. Obligations of the Bailee: a. Reason for the Law- 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 a F amily. (art. 1163). It follows f ollows necessarily that ordinary expenses  for the use and and preservation preservation of the thing loaned loaned must be borne borne the Bailee. Bailee. Note: The rule is different in the case of extraordinary expenses. (See Art. 1949).

3. Memorize Article 1942: The Bailee is liable for the loss of the thing, even if it should be through a fortuitous event:

a. If he devotes the thing to any purpose different from that for which it has been loaned. b. If he keeps it longer than the period stipulated, or after the accomplishment of the use for which Commodatum has been constituted; c. If the thing loaned has been delivered with appraisal of its value, unless there is stipulation exempting the Bailee from the responsibility in case of a Fortuitous Event; d. If he lends or leases the thing to a Third Person, who is not member of his Household. e. If being able to save either the thing borrowed or his own thing, he chose to save the latter. Note:  As a RULE, a Debtor of a thing is NOT responsible for its LOSS thru Fortuitous Event. This article gives the exceptions in a case of Commodatum.

Reason for the Law:

a. Par 1- This amounts to Bad Faith or abuse of generosity considering the fact that Commodatum is GRATUITOUS. b. Par 2- He is guilty guilty of a certain kind kind of default (mora). (mora). c. Par 3- Evidently, the giving of the value value was made to hold hold the Bailee liable for after all this is not a sale, and neither is ownership transferred in Commodatum. (PARAS) The Law presumes that the parties intended that the borrower shall be liable for the loss of the thing even if i f it is due to fortuitous event for otherwise they would not have appraised the thing. (DE LEON). i. Exception- When there is stipulation to the contrary. It may in a sense be said that the appraisal converts the Commodatum into a Mutuum. d. Par 4- This is prohibited by the Law for it amounts to a violation of the personal character of a Commodatum. (PARAS)- Purely Personal (DE LEON).

e. Par 5- This amounts to an act of INGRATITUDE and to a failure to exercise due diligence, considering the fact that COMMODATUM is GRATUITOUS. Obligations of the Bailor: Article 1946. 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.

Note: A Commodatum Commodatum is for certain time. (Art. 1933). This is the reason for the first sentence, first paragraph of Art. 1946. This is based on equitable grounds for otherwise; the Bailee may not be able to make proper use of the thing borrowed. A Bailor lend usually lends his property because he does not need it. Hence, the reason for such exception. 4. Memorize Article 1947: The Bailor may demand the thing at will, and the contractual

relation is called a PRECARIUM, in the following cases: i. If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or ii. If the use of the thing is merely tolerated by the owner. Note: PRECARIUM is a special form

of Commodatum.

In the true Commodatum, the

possession of the borrower is more secure. The possession of the borrower in PRECARIUM is PRECARIOUS, that is, dependent on the Lender’s Will, hence the name precarium. name  precarium.

B. Mutuum or Simple Loan Escalation Clauses  are valid stipulations in Commercial Contracts to maintain fiscal

stability and to retain the value of money in long term contracts. However, the enforceability of such stipulations is subject to certain conditions. The Escalation clause is a valid provision in a LOAN agreement provided that: 1. The Increased rate imposed by the Lender does not exceed the ceiling fixed by Law or the Monetary Board; 2. The Increase is made effective not earlier than the effectivity of the Law or Regulation authorizing such increase;

3. The Remaining maturities of the LOAN more than 730 Days as of the effectivity of the Law or regulation authorizing such an increase. (Insular Bank of Asia & America vs. Salazar, GR 82082, March 25, 1988). Note: Any increase in the rate of interest made pursuant to an ESCALATION CLAUSE must be

the result of an agreement between the parties. (PNB vs. CA, 72 SCAD 366, 258 SCRA 549). ESCALATION CLAUSE CLAUSE is valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long-term contracts. (Florencio vs. CA, 77 SCAD 429, 265 SCRA 678- 1996).