CIVIL LAW > VIII. CREDIT TRANSACTIONS

Credit transactions refer to agreements where one party extends a loan, gives credit, or otherwise defers payment in exchange for promises of repayment, often with interest. These transactions are governed by the Civil Code of the Philippines, specifically under Title XI, Articles 1933 to 2085. Below is a comprehensive breakdown of credit transactions.

A. GENERAL PRINCIPLES

Definition: Credit transactions are agreements wherein credit is given, either through a loan, guaranty, pledge, mortgage, or other similar arrangements.
Essential Elements:
- Consent: Voluntary agreement of the parties.
- Object: Money, goods, or credit.
- Cause: Obligation to repay the debt or fulfill the guaranty.
Types of Credit Transactions:
- Principal Contracts: Loan and deposit.
- Accessory Contracts: Guaranty, pledge, mortgage, and antichresis.

B. TYPES OF CREDIT TRANSACTIONS

1. LOAN (Articles 1933–1961)

a. Definition:

A loan is a contract where one party delivers money or consumable goods to another, who agrees to repay an equivalent amount of the same kind or quality.

b. Types of Loan:

Mutuum (Loan for Consumption): Transfer of ownership of money or goods with the obligation to return an equivalent.
Commodatum (Loan for Use): Delivery of a non-consumable thing with the obligation to return the same thing after use.

c. Characteristics:

Gratuitous or Onerous: Commodatum is always gratuitous; mutuum may be onerous (with interest).
Real Contract: Perfection upon delivery of the object.

d. Interest:

Must be expressly stipulated.
Usurious interest rates are void (Usury Law has been rendered ineffective, but courts may reduce unconscionable interest rates under principles of equity).

2. DEPOSIT (Articles 1962–2009)

a. Definition:

A contract where one party delivers a thing to another, who is obliged to keep it and return it upon demand.

b. Types:

Voluntary Deposit: By mutual agreement.
Necessary Deposit: Imposed by law or due to urgent circumstances (e.g., during a fire or disaster).

c. Obligations of the Depositary:

To preserve the thing with due diligence.
To return the thing upon demand.

d. Special Deposit:

Judicial Deposit: Pertains to objects in litigation.
Deposit of Money in Banks: Governed by banking laws (not entirely Civil Code).

3. GUARANTY (Articles 2047–2084)

a. Definition:

A contract where a guarantor binds themselves to fulfill an obligation if the debtor fails to do so.

b. Characteristics:

Accessory Contract: Cannot exist without a principal obligation.
Unilateral: Obligation is on the guarantor.

c. Types:

Simple Guaranty: Guarantor can demand exhaustion of the debtor’s properties before being held liable.
Solidary Guaranty: Guarantor is jointly and severally liable with the debtor.

d. Extinguishment:

Extinction of the principal obligation.
Express waiver by the guarantor.

4. PLEDGE (Articles 2085–2092)

a. Definition:

A contract where the debtor delivers movable property to the creditor as security for the performance of an obligation.

b. Characteristics:

Accessory Contract: Ensures performance of a principal obligation.
Real Contract: Perfected upon delivery of the pledged property.

c. Obligations of the Pledgee:

To preserve the thing pledged.
To return the thing after obligation is fulfilled.

d. Prohibition Against Sale:

Pledgee cannot appropriate or sell the pledge without proper foreclosure proceedings.

5. MORTGAGE (Articles 2085–2123)

a. Definition:

A contract where immovable property or rights are recorded as security for the performance of an obligation.

b. Characteristics:

Accessory Contract: Secures a principal obligation.
Formal Contract: Requires a public instrument and registration to bind third parties.

c. Kinds of Mortgage:

Real Estate Mortgage: Involves immovable property.
Chattel Mortgage: Involves movable property.

d. Foreclosure:

Judicial or extrajudicial foreclosure proceedings apply.

6. ANTICHRESIS (Articles 2132–2139)

a. Definition:

A contract where the debtor delivers an immovable property to the creditor, who is entitled to apply its fruits to the interest and principal of the debt.

b. Characteristics:

Delivery of property is required.
Fruits of the property offset the obligation.

7. OTHER ACCESSORY CONTRACTS

Suretyship: Similar to guaranty but the surety is primarily liable.
Trust Receipts: Governed by special laws but related to credit transactions.

C. SPECIAL LAWS RELATED TO CREDIT TRANSACTIONS

Usury Law: Although interest rates are deregulated, courts may intervene to reduce exorbitant rates.
Banking Laws: Governs deposits and trust receipts.
Foreclosure Laws: Applies to mortgages, outlining procedures for foreclosure and redemption.

D. JURISPRUDENCE

Key Supreme Court rulings on credit transactions interpret:

Validity and enforcement of stipulations on interest.
Procedures for foreclosure of mortgages.
Rights of guarantors and sureties.

This comprehensive understanding ensures adherence to the provisions of the Civil Code while accounting for relevant jurisprudence and special laws.