COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW

LYCEUM OF THE PHILIPPINES UNIVERSITY,

COLLEGE OF LAW
ATTY. LUIS ALFONSO A. LLAGUNO

2ND Semester, School Year 2018-2019

OBJECTIVE

At the end of the course, the student is expected to:

A. Know the Civil Code provisions and special laws on credit transactions and the
jurisprudence interpreting these laws and rules.
B. Enhance his/her communication skills in reciting cases and answering questions
during class sessions and examinations.
C. Develop a methodical mind that knows how to filter the essential facts and
identify the relevant issue and ruling.
D. Develop an analytical mind through the evaluation and comparison of the
evolving, or at times differing, rules and doctrines.
E. Acquaint him/her to (a) useful concepts in the actual practice of law, and (b)
concepts that frequently come out in the Bar examinations.
F. Instill in him/her the ethical responsibility to use and apply civil laws for the
common good.

SCOPE

The course shall cover the following laws:

A. Sections 1933-2139 and 2236-2251 of the Civil Code and the Personal Property
Security Act (RA 11057) (“PPSA”) covering the laws on loans, deposits,
mortgage, security interests, antichresis, and concurrence and preference of
credits.

B. Other laws and rules such as:

1. Law on Insolvency
2. Letters of Credit (Arts 567 to 572, Code of Commerce)
3. Law on credit cards
4. Truth in Lending Act
5. Financing Company Act
6. Rules on trade transactions (i.e., demand guarantees, standby letters of
credit)
7. Warehouse Receipts Law
8. General Bonded Warehouse Act
9. Pawnshop Regulations Act
10. Law on Extrajudicial Foreclosure of Mortgage
11. Ship Mortgage Decree
12. E-Commerce Law

C. Relevant case laws, implementing rules and regulations, opinions and circulars.
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 2

TEXTBOOK

Civil Code, Annotated, Book V, by Arturo Tolentino

The Law on Credit Transactions by Hector de Leon

OUTLINE IN CREDIT TRANSACTIONS LAW

I. LOAN (1933-1961)

A. NATURE

1. Definition and kinds (1933)

2. Characteristics (1933, 1934)

 BPI Investment v. CA, GR No. 133632, 15 February 2002

 Naguiat v. CA, 3 October 2003
 DBP v. COA, G.R. No. 144516. February 11, 2004

B. COMMODATUM

1. Nature – Definition and characteristics (1933, 1935, 1936, 1938, 1940)

 Producer’s Bank of the Philippines v. CA, GR 115324, 19

February 2003
 Catholic Vicar Apostolic of the Mountain Province v. CA,
165 SCRA 515
 Pajuyo v. CA, G.R. No. 147788. March 19, 2002

2. Expenses (1941, 1943, 1949, 1950, 1952)

3. Bailee’s liability for loss of the thing due to Fortuitous Event (1942)

4. Time of return of the thing to the Bailor (1946, 1947, 1948, 765)

5. Liability of two or more bailees (1945)

6. Bailee’s right to retain the thing (1944, 1951)

C. MUTUUM

1. Definition [1933,1953,1955,1249, 1250, RA 3765 (Truth in Lending Act)]

 Guingona v. City Fiscal of Manila, 128 SCRA 577

2. Characteristics (1953,1955)

2
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 3

 BPI Family Bank v. Franco, 538 SCRA 184

 Liwanag v. CA, 281 SCRA 225

3. Difference from commodatum.

4. Interest (1956, 1958)

a. Kinds of interest

- Distinguished according to base of computation

i. Simple - 1959
ii. Compound – 1959, 2212

- Distinguished according to purpose

 Republic v. Unimex Micro-Electronics GmBH, 518

SCRA 19
 Frias v. San Diego-Sison, 520 SCRA 244

i. Monetary/Regular (1956)

 Eusebio-Calderon v. People, G.R. No.

158495. October 21, 2004
 Sps. Barrera v. Sps. Lorenzo, G.R. No.
130994, September 18, 2002

- Types:

- Simple

- Compunded monetary interest (1959)

ii. Compensatory interest (1169, 2209, 1226)

- Types according to the source of the obligation to pay

interest:

- Stipulated - 2209

- Legal – 2209, 2212.

 Rates of Legal interest (BSP-MB Circular No.

799, S. 2013; Arts. 2009, 2210, 2211, 2213)

 Nacar v. Gallery Frames, G.R. No. 189871,

August 13, 2013

3
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 4

 Sps. Abella v. Sps. Abella, G.R. No. 195166,

July 8. 2015
 Pan Pacific Contractors, Inc. v. Equitable
PCI Bank, G.R. No. 169975, March 18, 2010

- Types according to base of computation:

- Simple compensatory interest

- Compounded compensatory interest (2212)

 David v. CA, 316 SCRA

b. Escalation and de-escalation clauses

 PNB v. CA, 258 SCRA 549

 Almeda v. CA, 256 SCRA 292
 Consolidated Bank and Trust Corporation v. CA, 356
SCRA 671
 New Sampaguita Builders Construction Co. v. Sps.
Dee, G.R. No. 148753, July 30, 2004
 Equitable PCI Bank v. NG Sheung Ngor, 541 SCRA 223

c. The usury law and its present status (1957)

 Security Bank and Trust Company v. RTC, 263 SCRA

D. CREDIT ACCOMMODATIONS: Other forms of Mutuum [Section X320.1 of the

Manual of Regulations for Banks; RA 8484(Access Devices Regulation Act of
1998); Arts 567 to 572, Code of Commerce; RA 5980, Financing Company Act]

- see credit card definition under CIR v. American Express,

International, Inc., G.R. No. 152609, June 29, 2005

 Beltran v. PAIC Finance Corporation, G.R. Nos. 83113 & 83256, May 19,
1992

E. CRIMINAL VIOLATIONS [Articles 317 & 318 of RPC]

II. DEPOSIT (1962-2009)

A. NATURE

1. Definition (1962)

 US v. Igpuara, 27 Phil 618

2. Characteristics (1965, 1966, 1978, 1980)

4
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 5

B. DIFFERENCE FROM OTHER CONTRACTS

1. Commodatum

2. Mutuum

 Compania Agricola de Ultramar v. Nepomuceno, 55 Phil 283

3. Lease

 CA Agro Industrial Development Corp. v. CA, 219 SCRA 426

 Sia v. CA, 222 SCRA 24

C. KINDS (1964)

1. Judicial (2005-2009)

2. Extrajudicial (1967)

a. Voluntary (1968)

i. Incapacitated parties (1970, 1986, 1971)

ii. Obligations of the depositary

- General obligations

- Level of diligence (1972)

- Rules on deposit with a third person (1973)
- Liability for a fortuitous event (1979)
- Changing the way of the deposit (1974)
- Return of thing deposited
(1988,1983,1987,1985,1984,1989)

- Specific obligations for certain kinds of deposits (1975,

1976, 1977, 1981, 1982)

iii. Obligations of the depositor (1992, 1993, 1994, 1991)

iv. Extinguishment of deposit (1995)

b. Necessary

 Types (1996,1754)

 Governing rules (1997)

 Deposit of effects in hotels/inns (1998-2004)

5
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 6

 TRIPLE-V FOOD SERVICES, INC. vs. FILIPINO

MERCHANTS INSURANCE CO., INC.(G.R. No. 160544 | 21
February 2005)

D. WAREHOUSE RECEIPTS LAW (2137) & GENERAL BONDED WAREHOUSE ACT

(ACT 3893)

III. GUARANTY AND SURETY (2047-2084)

A. NATURE AND EXTENT OF GUARANTY

1. Definition (2047)

2. Characteristics (2052, 2054, 2076, 2048, 2053, 2058, 2063, 2065)

 Severino and Vergara v. Severino, 56 Phil 185

 Garcia v. CA, 191 SCRA 493

3. Guaranty v. Surety;Solidary Obligor v. Surety

 Finman General Assurance Corp. v. NLRC, G.R. No. 94588. July 2, 1992
 Gov’t of the Philippines v. Tizon, GR No. L-22108, August 30, 1967
 Inciong v. CA, 257 SCRA 578
 Escaño v. Ortigas, G.R. No. 151953, June 29, 2007

4. Types of Guaranty

a. As to origin

b. Type of consideration

c. Beneficiary

d. Presence of debtor’s consent

e. Extent (2055)

f. Included debts (2053)

 Dino v. CA, 216 SCRA 91

 Fortune Motors Corp. v. CA, GR 112191, 7 February 1997

5. How a guaranty is construed (2055)

 PNB v. CA, 198 SCRA 767

6
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 7

6. Qualifications of a guarantor (2056, 2057)

 Estate of Hemady v. Luzon Surety Co. Inc., 100 Phil 388

7. Liability of the conjugal funds

 Security Bank and Trust Company v. Mar Tierra Corp, 508 SCRA
419

B. EFFECT OF GUARANTY BETWEEN GUARANTOR AND CREDITOR

1. Excussion (2058, 2059)

2. Procedure to make guarantor liable (2062)

3. How guarantor uses excussion. (2058, 2060, 2061)

 Baylon v. CA, 312 SCRA 502

4. Excussion in Sub-guaranty (2064)

5. Compromises (2063)

6. Joint guaranty (2065)

C. EFFECTS OF GUARANTY BETWEEN THE DEBTOR AND THE GUARANTOR

1. Indemnification (2066, 2067)

a. Effect of payment by the guarantor who failed to notify the debtor (2068,
2070)

b. Effect of payment before designated period. (2069)

c. Guarantor’s claim against a third party (2072)

2. Subrogation (2067, 1237 & 2050)

3. Guarantor’s legal remedies against debtor before payment. (2071)

 General Indemnity Co., Inc. v. Alvarez, 100 Phil 1059

D. EFFECTS OF GUARANTY AS BETWEEN CO-GUARANTORS (2073, 2075)

E. EXTINGUISHMENT OF GUARANTY (2076–2080, 1672, 1261)

 NASSCO v. Torrento, 20 SCRA 427

 Security Bank and Trust Co. v. Cuenca, GR 138544, 03 October 2000
 Inciong v. CA, 257 SCRA 578
 Zobel Inc. v. CA, GR 113931, 06 May 1998

7
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 8

 Carodan v. CA, G.R. No. 210542, February 24, 2016

IV. REAL MORTGAGE (2085-2092)

A. DEFINITION

B. ESSENTIAL REQUISITES OF A REAL MORTGAGE (2085)

1. Acts as a security of a principal obligation

a. Principal Obligations secured. (2086, 2091)

b. How security is satisfied (2087)

c. Pactum Commissorium (2088)

 A. Francisco Realty and Development Corp. v. CA, 298 SCRA 349

 Bustamante v. Rosel, 319 SCRA 413 (1999)

2. Mortgagor must be the absolute owner.

 Vda de Bautista v. Marcos, 3 SCRA 434

 State Investment House Inc. v. CA, GR No. 115548, March 5, 1996
 Cruz v. Bancom Finance Corporation, G.R. No. 147788, March 19,
2002.

- Qualification of a domestic corporation that seeks to mortgage property.

3. Mortgagor must have free disposal of property. (Arts. 96 & 124, Family Code; Art
122, Corporation Code; Bulk Sales Law)
 Vitug v. Abuda, G.R. No. 201264, January 11,2016

C. CHARACTERISTICS OF A REAL MORTGAGE (2085, 2094, 2125, 2126, 2129,

2089, 2090)

 Central Bank v. CA, 139 SCRA 46

 PNB v. RBL Enterprises, Inc. G.R. No. 149569, May 28, 2004
 Belo v. CA, 353 SCRA 359 (2001)
 United Overseas Bank of the Philippines v. Board of
Commissioners-HLURB, G.R. No. 182133, June 23, 2015

D. PROMISE TO CONSTITUTE A MORTGAGE (2092)

 Laplana v. Gachitorena Chereau, 48 Phil 163

E. TYPES

8
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 9

1. As to object [2124, Art. 155 (3), Family Code]

2. As to constitution

a. Voluntary/express (Arts. 96 & 124, Family Code; Bulk Sales Law; Section
18, PD 957)

- Cuyco v. Cuyco, 487 SCRA 693 (2007)

b. Equitable (1602,1603,1605)

3. Status of Mortgage executed prior to perfection of principal obligation

 Central Bank v. CA, 139 SCRA 46

4. Extent of mortgage (2127)

 Sps. Paderes v. CA, GR 147074, July 15, 2005

 Philippine Bank of Communications v. CA, 253 SCRA 241
 Prudential Bank v. Adviar, G.R. No. 150197, July 28, 2005
 Castro v. CA, G.R. No. 97401, December 6, 1995
 PNB v. Sps. Maranon, G.R. No. 189316, June 1, 2013
 Asiatrust Development Bank v. Tuble, G.R. No. 183987, July 25, 2012

F. RIGHTS OF THE PARTIES (2128, 2129)

 Litonjua v. L & R Corporation, G.R. No. 130722, December 9, 1999

a) FORECLOSURE OF REAL MORTGAGE

 Asiatrust Development Bank v. Tuble, G.R. No. 183987, July 25, 2012

1. Judicial foreclosure

a. Nature

 Caltex Phils. v. IAC,74730 August 25, 1989

 Bank of America v. American Realty Corp., 321 SCRA 659

b. Procedure (Rule 68 of Rules of court)

- difference from execution sale under Rule 39, Rules of Court

- Prescriptive period to claim deficiency judgment

c. When right of redemption exists (Section 47, General Banking Law)

2. Extrajudicial foreclosure (Act 3135, as amended; Section 47, Gen. Bank. Law)

9
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 10

 San Jose v. CA, 225 SCRA 450

 Olizon v. CA, 236 SCRA 1481
 Sps.Suico v. PNB, G.R. No. 170215. August 28, 2007
 PNB v. CA, 308 SCRA 229
 Development Bank of the Philippines v. Zaragoza, 84 SCRA 668
 Limpin v. IAC, 166 SCRA 88 (1988)
 Sps. Landrito v. CA, G.R. No. 133079, August 9, 2005
 Rayo v. Metrobank, 539 SCRA 571 (2007)
 China Banking Corporation v. Spouses Ordinario, GR 121943,
March 24, 2003
 Roxas v. Buan, 167 SCRA 43
 Sps. Samson v. Rivera, G.R. 154355, May 20, 2004

3. Effect of foreclosure on second mortgages

 Tizon v. Valdez, 48 SCRA 910

b) CRIMINAL VIOLATIONS IN MORTGAGE [Art. 316(1)(2), RPC]

VI. ANTICHRESIS (2132-2139)

A. NATURE

1. Definition (2132)

2. Characteristics (2134, 2132, 2085, 2089 & 2091)

B. RIGHTS OF THE CREDITOR (2132, 2134, 2136, 2137)

C. OBLIGATIONS OF THE PARTIES (2135, 2136)

VII. PERSONAL PROPERTY SECURITIES (PPSA)

A. CONCEPTS – Sections 3 - 4 of the PPSA

B. CREATION OF SECURITY INTEREST – Sections 5 – 10 of the PPSA.
C. PERFECTION OF SECURITY INTEREST – Sections 11 – 16 of the PPSA.
D. PRIORITY OF SECURITY INTEREST – Sections 17-25 of the PPSA.
E. REGISTRATION OF SECURITY INTEREST – Sections 26 – 44 of the PPSA.
F. ENFORCEMENT OF SECURITY INTERESTS – Sections 45 – 54 of the PPSA.
G. TRANSITIONAL PROVISIONS – Sections 55 – 59 of the PPSA.

VIII. CONCURRENCE AND PREFERENCE OF CREDIT (Arts. 2236-2251 except

2243, 2246 and 2247)

1
Reiterated in Baluyut v. Poblete, 514 SCRA 370

10
COURSE SYLLABUS IN CREDIT TRANSACTIONS LAW 11

 Cordova v. Reyes Daway Bernardo Lindo Rosales Law Offices, 526 SCRA
300
 PDIC v. BIR, 511 SCRA 123

-End-

11