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    A. Credit, Debt and Security: Lesson 1 The Concept of Credit

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    The document provides definitions and concepts related to credit, debt, and loans. It discusses the following key points: 1) Credit is defined as the ability to borrow money based on trust that the borrower will repay what is promised. A loan involves the delivery of a sum of money by one party and receipt by another with an agreement to repay the amount loaned. 2) There are two types of loans - commodatum, where the object is returned to the lender, and mutuum, where ownership of consumable goods like money passes to the borrower who must return an equal amount. 3) For a loan to be legally binding, there must be acceptance of a promise to deliver an object

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    A. Credit, Debt and Security: Lesson 1 The Concept of Credit

    Uploaded by

    socanyou11
    130 views5 pages
    The document provides definitions and concepts related to credit, debt, and loans. It discusses the following key points: 1) Credit is defined as the ability to borrow money based on trust that the borrower will repay what is promised. A loan involves the delivery of a sum of money by one party and receipt by another with an agreement to repay the amount loaned. 2) There are two types of loans - commodatum, where the object is returned to the lender, and mutuum, where ownership of consumable goods like money passes to the borrower who must return an equal amount. 3) For a loan to be legally binding, there must be acceptance of a promise to deliver an object

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    Concept of Loan

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    CREDIT

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    The document provides definitions and concepts related to credit, debt, and loans. It discusses the following key points: 1) Credit is defined as the ability to borrow money based on trust that the borrower will repay what is promised. A loan involves the delivery of a sum of money by one party and receipt by another with an agreement to repay the amount loaned. 2) There are two types of loans - commodatum, where the object is returned to the lender, and mutuum, where ownership of consumable goods like money passes to the borrower who must return an equal amount. 3) For a loan to be legally binding, there must be acceptance of a promise to deliver an object

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    130 views5 pages

    A. Credit, Debt and Security: Lesson 1 The Concept of Credit

    Uploaded by

    socanyou11
    The document provides definitions and concepts related to credit, debt, and loans. It discusses the following key points: 1) Credit is defined as the ability to borrow money based on trust that the borrower will repay what is promised. A loan involves the delivery of a sum of money by one party and receipt by another with an agreement to repay the amount loaned. 2) There are two types of loans - commodatum, where the object is returned to the lender, and mutuum, where ownership of consumable goods like money passes to the borrower who must return an equal amount. 3) For a loan to be legally binding, there must be acceptance of a promise to deliver an object

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    of 5

    LESSON 1

    THE CONCEPT OF CREDIT

    A. Credit, Debt and Security


    Const. Art III, Section 20, Bill of Rights
    SECTION 20. No person shall be imprisoned for debt or non-payment of a poll tax.

    B. Credit and Credit Transaction Defined


    RA 3765: Truth in Lending Act, Sec. 3 (2)
    (2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any conditional sales
    contract; any contract to sell, or sale or contract of sale of property or services, either for present or
    future delivery, under which part or all of the price is payable subsequent to the making of such sale
    or contract; any rental-purchase contract; any contract or arrangement for the hire, bailment, or
    leasing of property; any option, demand, lien, pledge, or other claim against, or for the delivery of,
    property or money; any purchase, or other acquisition of, or any credit upon the security of, any
    obligation of claim arising out of any of the foregoing; and any transaction or series of transactions
    having a similar purpose or effect.

    People v. Concepcion, G.R. No. L-19190, November 29, 1922, 44 Phil 126
    The "credit" of an individual means his ability to borrow money by virtue of the
    confidence or trust reposed by a lender that he will pay what he may promise .
    (Donnell vs. Jones [1848], 13 Ala., 490; Bouvier's Law Dictionary.)

    A "loan" means the delivery by one party and the receipt by the other party of a given
    sum of money, upon an agreement, express or implied, to repay the sum loaned,
    with or without interest. (Payne vs. Gardiner [1864], 29 N. Y., 146, 167.) The
    concession of a "credit" necessarily involves the granting of "loans" up to the limit of
    the amount fixed in the "credit.”

    Facts: By telegrams and a letter of confirmation to the manager of the branch of


    PNB (Philippine National Bank), C, President and member of the board of directors
    of PNB,
    authorized an extension of credit in favor of partnership X, of which the wife of C is a
    partner, in the amount of P300,000.00. The special authorization given was essential
    in view of prior memorandum order of C limiting the discretional power of the local
    manager to grant loans and discount negotiable documents to P5,000.00. Pursuant
    to the authorization by C, credit aggregating P300,000.00 was granted the fi rm, the
    only security required consisting of six (6) demand notes. The notes, together with
    the interest, were taken up and paid about two (2) months later. Under the law (Sec.
    35, Act No. 2747.), the PNB “shall not directly or indirectly grant loans to any of the
    members of the board of directors of the bank nor to agents of the branch banks.”

    Issues:
    (1) Was the granting of a credit of P300,000.00 to partnership X a loan within the
    meaning of Section 35 or only a concession of credit?
    (2) Were the demand notes signed by the firm a loan or a discount?

    Held:
    (1) The concession of a credit necessarily involves the granting of “loans” up to the
    limit of the amount fixed in the “credit.”
    (2) The demand notes signed by the firm were not discount papers but were mere
    evidences of indebtedness, because (a) interest was not deducted from the face of
    the notes, but was paid when the notes fell due; and (b) they were single-name and
    not double-name paper. C violated the prohibition. (People vs. Concepcion, supra.)

    Article 1305.
    A contract is a meeting of the minds between two persons…

    C. Commercial Credit Transactions Code of Commerce, Art. 1, Art. 2, Art. 3.


    Article 1
    The following are merchants for the purposes of this Code:
    1. Those who, having legal capacity to trade, customarily devote themselves thereto.
    2. Commercial or industrial associations which are formed in accordance with this Code.
    Article 2
    Commercial transactions, be they performed by merchants or not, whether they are specified
    in this Code or not, shall be governed by the provisions contained in the same; in the absence
    of such provisions, by the commercial customs generally observed in each place; and in the
    absence of both, by those of the common law.
    Commercial transactions shall be considered those enumerated in this Code and any others
    of a similar character.
    Article 3
    The legal presumption of a customary engagement in commerce exists from the time the person who
    desires to trade gives notice through circulars, newspapers, handbills, posters exhibited to the public ,
    or in any other manner whatsoever, of an establishment, the purpose of which is to conduct any
    commercial transaction.

    PART I. LOAN
    The Concept of Loan
    A. General Concepts
    Civil Code, Art. 1933 (Book IV: Obligations and Contracts, Title X: Loan)
    Article 1933
    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.

    B. Obligation to Deliver Art. 1934.

    Article 1934
    An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
    parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object
    of the contract. 
    Petitioner Garcia v. Thio, G.R. No. 15878, March 16, 2007, 518 SCRA 433

    FACTS
    Respondent Thio received from petitioner Garcia two crossed checks which amount
    to US$100,000 and US$500,000, respectively, payable to the order of Marilou Santiago.
    According to petitioner, respondent failed to pay the principal amounts of the loans when
    they fell due and so she filed a complaint for sum of money and damages with the RTC.
    Respondent denied that she contracted the two loans and countered that it was Marilou
    Satiago to whom petitioner lent the money. She claimed she was merely asked by petitioner
    to give the checks to Santiago. She issued the checks for P76,000 and P20,000 not as
    payment of interest but to accommodate petitioner’s request that respondent use her own
    checks instead of Santiago’s.

    The RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no
    contract of loan between the parties.

    ISSUE
    (1) Whether or not there was a contract of loan between petitioner and respondent.
    (2) Who borrowed money from petitioner, the respondent or Marilou Santiago?

    HELD
    (1) The Court held in the affirmative. A loan is a real contract, not consensual, and as
    such I perfected only upon the delivery of the object of the contract. Upon delivery of the
    contract of loan (in this case the money received by the debtor when the checks were
    encashed) the debtor acquires ownership of such money or loan proceeds and is bound to
    pay the creditor an equal amount. It is undisputed that the checks were delivered to
    respondent.

    (2) However, the checks were crossed and payable not to the order of the respondent
    but to the order of a certain Marilou Santiago. Delivery is the act by which the res or
    substance is thereof placed within the actual or constructive possession or control of
    another. Although respondent did not physically receive the proceeds of the checks, these
    instruments were placed in her control and possession under an arrangement whereby she
    actually re-lent the amount to Santiago.

    Petition granted; judgment and resolution of the CA reversed and set aside.

    C. Kinds of Loan

    1. Object of a Loan Art. 1933, Art. 418

    Article 1933
    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.

    Article 418
    Movable property is either consumable or nonconsumable. To the first class belong those movables which
    cannot be used in a manner appropriate to their nature without their being consumed; to the second class belong
    all the others.

    2. Consideration of a Loan Art. 1933

    Article 1933
    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.

    3. Obligation to return or Pay Art. 1933, Art. 1232, Art. 1233

    Article 1232
    Payment means not only the delivery of money but also the performance, in any other manner, of an
    obligation. (n)
    Article 1233
    A debt shall not be understood to have been paid unless the thing or service in which the obligation
    consists has been completely delivered or rendered, as the case may be. (1157)

    D. Contract to Loan Art. 1934

    Article 1934

    An accepted promise to deliver something by way of commodatum or simple loan is binding upon the
    parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object
    of the contract. (n)

    Saura import & Export Co. Inc. Development Bank of the Philippines, G.R. No. L-24968, April
    27, 1972, 44 SCRA 445.

    BPI Investment Corporation v. Court of Appeals & ALS Management & Development
    Corporation, G.R. No. 133632, February 15, 2002, 377 SCRA 117.

    Pantaleon v. American Express International Inc., G.R. No. 174269, August 25, 2010, 629 SCRA
    276.

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