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CREDIT TRANSACTIONS
As to the Not liable for the deterioration of the Subject Real or personal Only personal
deteriorati thing loaned caused by the ordinary Matter Property property
on of the wear and tear of the thing loaned
thing (Art. 1943, NCC). Generally
loaned nonconsumable
things but may
Rights of a bailee cover
consumables if the
1. Use of the thing; purpose of the
2. Make use of the fruits of the thing when such contract is for
right is stipulated in the contract; exhibition.
3. Not answerable for the deterioration of the Ownership Retained by the Passes to the
thing loaned due to the use thereof and without of the bailor debtor
thing
his fault; and Thing to Exact thing loaned Equal amount of
4. Right of retention for damages due to hidden be the same kind
defects or flaws of the thing of which he was not returned and quality
advised by the bailor. Who bears Bailor Debtor
risk of
loss
Mutuum When to In case of urgent Only after the
It is a contract whereby one of the parties called return need even before expiration of the
the “lender” delivers to another called the the expiration of term
“borrower”, money or other consumable thing term (the contract
subject to the condition that the same amount of is in the meantime
suspended)
the same kind and quantity shall be paid.
Interest
Characteristics of a contract of mutuum
It is the compensation to be paid by the borrower
1. Borrower acquires ownership of the thing (Art
for the use of the money lent to him by the lender.
1953, NCC).
2. If the thing loaned is money, payment must be
Classes of interest
made in the currency which is legal tender in the
1. Simple – Interest which is paid for the use of
Philippines
the money, at a certain rate stipulated in writing
3. If fungible thing was loaned, the borrower is
by the parties.
obliged to pay the lender another thing of the
2. Compound – Interest which is imposed upon
same kind, quality and quantity even if it should
accrued interest, that is, the interest due and
change in value.
unpaid.
3. Legal – That interest which the law directs to
Commodatum v. Mutuum
be paid in the absence of any agreement as to the
rate.
BASIS COMMODATUM MUTUUM
Object Non-consumable Money or
and Non- fungible consumable Rules on interest
thing GR: No interest shall be due unless it is stipulated
Cause Gratuitous, May or may not in writing (Art. 1956, NCC).
otherwise it is a be gratuitous
lease
Purpose Use or temporary
XPN: In case of interest on damages or indemnity
possession of the for damages, it need not be in writing.
thing loaned but
Deposit
GR: not its fruit Deposit is a contract whereby a person (depositor)
because the bailor
remains the owner delivers a thing to another (depositary), for the
principal purpose of safekeeping it, with the
XPNs: obligation of returning it when demanded.
use of the fruits is
stipulated;
A contract of deposit is constituted from the
enjoyment of the
fruits is moment a person receives a thing belonging to
stipulated; or another, with the obligation of safely keeping it
enjoyment of the and returning the same upon demand.
fruits is incidental
to its use
CREDIT TRANSACTIONS
preservation of the thing pledged (Art. 2099, 3. Registration in the Registry of Property is
NCC). necessary to bind third persons
3. Creditor may bring any action pertaining to the
pledgor in order to recover it from or defend it Chattel Mortgage
against a third person (Legal Subrogation) (Art. Chattel mortgage is a contract by virtue of which
2103, NCC). personal property is recorded in the Chattel
Mortgage Register as a security for the
Obligations of a pledgee performance of an obligation.
1. Take care of the thing pledged with the
diligence of a good father of a family (Art. 2099, Requisites in a chattel mortgage
NCC). 1. GR: It covers only movable property
2. GR: Pledgee cannot deposit the thing pledged
to a third person. XPN: When the parties treat as personalty that
which is according to its nature realty.
XPN: Unless there is stipulation to the contract
(Art. 2100, NCC). 2. Registration with the Chattel Mortgage
Register.
3. Apply the fruits, income, dividends, or interests 3. Description of the property.
produced or earned by the property, to interests 4. Accompanied by an affidavit of good faith to
or expenses first, then to the principal (Art. 2102, bind third persons.
NCC).
NOTE: The absence of an affidavit of good faith
4. GR: Cannot use the thing pledged without does not affect the validity of the contract.
authority (Art. 2104, NCC).
Insolvency
XPNs: Insolvency is the state of a person whose
a. If the pledgor had given him authority or liabilities are more than his assets. The term is
permission to use it; frequently used in the more restricted sense to
b. If the use of the thing is necessary for its express inability of a person to pay his debts as
preservation but only for that purpose. they become due in the ordinary course of his
business.
5. Return the thing pledged to the pledgor when
the principal obligation is fulfilled or satisfied it. Tests to determine insolvency
1. Equity test – A state of inability of a person to
Rights of the pledgor pay his debts at maturity.
1. Right to dispose the thing pledged, provided 2. Balance sheet test – The assets, if all made
there is consent of the pledgee (Art. 2097, NCC) immediately available, would not be sufficient to
2. Right to ask that the thing pledged be deposited discharge the balance.
(Art. 2104 and Art. 2106, NCC)
3. Right to substitute thing pledged (Art. 2107, Remedies of an insolvent debtor
NCC) 1. Petition the court to suspend payments of his
debts; or
Real Estate Mortgage 2. To be discharged from his debts and liabilities
Real estate mortgage (REM) is a contract whereby by voluntary or involuntary insolvency
the debtor secures to the creditor the fulfillment proceedings (Sec. 1)
of the principal obligation, specially subjecting to
such security immovable property or real rights Suspension of payments
over immovable property in case the principal Suspension of payments is the postponement, by
obligation is not fulfilled at the time stipulated. court order, of the payment of debts of one who,
while possessing sufficient property to cover his
Requisites for a valid constitution of a real debts, foresees the impossibility of meeting them
mortgage when they respectively fall due.
1. It covers only immovable property and
alienable real rights imposed upon immovables
2. It must appear in a public instrument
CREDIT TRANSACTIONS
in the articles of incorporation, is where issuance of the stay order; For payment of new
rehabilitation proceedings are to be had. If a loans or other forms of credit accommodations
group of companies is concerned, venue lies in obtained for the rehabilitation with prior court
the RTC which has jurisdiction over the parent approval
company. There are trial courts specially
designated by the Supreme Court as ‘commercial The Rehabilitation Plan
courts’ and hear such petitions. Proceedings are A rehabilitation plan shall be drawn up and shall
to be summary and non-adversarial, thus certain include the desired business targets or goals and
pleadings are prohibited. the duration and coverage of the rehabilitation,
the terms and conditions of such rehabilitation,
The Rehabilitation Receiver and the and the means for the execution of the
Management Committee rehabilitation plan, i.e., debt to equity conversion,
restructuring of the debts, dacion en pago, or sale
Aside from the debtor, its creditor/s, and the exchange or any disposition of assets or of the
rehabilitation Court, there are other parties interest of the shareholders.
involved in the proceeding.
Once approved, the rehabilitation plan shall be
The Rehabilitation Receiver is a person appointed binding upon the debtor and all persons who may
by the Court to closely oversee and monitor the be affected thereby, including the creditors,
operations of the debtor, ensure that the value of whether or not such persons have participated in
the debtor’s property is reasonably maintained the proceedings or opposed the plan or whether
during the pendency of the proceedings, and to or not their claims have been scheduled.
implement the rehabilitation plan once approved. However, the plan may be revoked, upon motion,
on the ground that it was secured through fraud.
The receiver, however, shall not take over the
management and control of the debtor. Instead,
he may recommend the appointment of a
Management Committee when there is
(1) imminent danger of waste or
dissipation, loss, wastage, or destruction
of assets or
(2) paralyzation of business operations (of
the debtor) which may be prejudicial to
the interest of minority stockholders,
parties-litigants, or the general public.