Credit Transactions: Theory and Practice

I. Introduction
A. Meaning and scope of credit transactions

B. Meaning and kinds of security

II. Loan
A. General Principles

1. Definition (Art. 1933)

2. Types (Art. 1933)

a) Commodatum

b) Mutuum

3. Distinguished from other contracts/terms

a) Lease (Art. 1643)

b) Donation (Art. 725)

c) Barter (Art. 1954)

d) Credit

B. Commodatum

1. Concept; types of commodatum (Arts. 1933, 1935)

2. Characteristics/classification of the contract (Arts. 1316, 1933, 1934)

3. Essential requisites of the contract (Arts. 1318)

a) Consent (Arts. 37-39, 46, 1327)

b) Object (Arts. 418, 1347-1349, 1936, 1937)

c) Cause (Arts. 1350, 1933)

d) Delivery (Arts. 1316, 1933)

4. Parties to the contract (Art. 1938, 1939)

5. Form of contract (Arts. 1356, 1357, 1358)

6. Obligations of the bailee

a) Obligation to take good care of thing with the diligence of a good father of the family (Art. 1163)

b) Obligation to use thing loan loaned only for the purpose for which it was loaned and for no other
purpose (Arts. 1935, 1939, 1940)

c) Obligation to return and to not retain the thing loaned except under certain circumstances (Arts.
1944, 1946)

d) Obligation to pay ordinary expenses for the use and preservation of the thing and portion of
extra-ordinary expenses arising from the actual use of the thing (Arts. 1941, 1943, 1945, 1949,
1950)

e) Obligation to be solidary liable when there are two or more bailees to whom a thing is loaned in
the same contract (Arts. 1207, 1945)

7. Possible obligations of the bailor

a) Obligation to refund extraordinary expenses for the preservation of the thing loaned (Arts. 1949)

b) Obligation to refund portion of extraordinary expenses arising from the actual use of the thing
(Art. 1949)

c) Obligation to pay damages for known hidden flaws (Arts. 1951, 1952)

8. Risk of loss and deterioration

a) General rule (Art. 1942)

b) Exception (Art. 1943)

9. Term and extinguishment of the contract

a) General rule (Arts. 1231, 1946, 1947, 1948)

b) Exception (Art. 1287)

10. Practical considerations

C. Mutuum

1. Concept (Arts. 1933, 1953)

2. Characteristics/classification of the contract (Arts. 1316, 1933, 1934)

3. Essential requisites of the contract (Arts. 1318)

a) Consent (Arts. 37-39, 46, 1327)

b) Object (Arts. 418, 1347-1349, 1933, 1953)

c) Cause (Arts. 1350, 1933)

d) Delivery (Arts. 1316, 1933)

4. Parties to the contract

5. Form of contract

a) General rule (Arts. 1356, 1357, 1358)

b) Exceptions (Arts. 1878[7], 1956)
6. Obligations of the borrower (Art. 1955)

a) Obligation to pay to the creditor an equal amount of the same kind and quality (Arts. 1249,
1250, 1953, 1955; Arts. 1197, 1198, 1251)

b) Obligation to pay interest (if stipulated) (Arts. 1169, 1226, 1253, 1423, 1933, 1956-1961, 2154,
2209, 2212, 2213; BSP Circular No. 799, series of 2013)

7. Risk of loss and deterioration

a) General rule

b) Exception

8. Term and extinguishment of the contract (Art. 1231)

9. Distinguished from other contracts

a) Lease (Art. 1643)

b) Barter (Art. 1954)

c) Bank deposit (Art. 1980)

d) Commodatum

10. Practical considerations

III. Deposit
A. Introduction
1. Concept (Art. 1962)

2. Types (Arts. 1964, 1967)

B. Voluntary deposit

1. Concept (Art. 1968)

2. Characteristics/classification of the contract (Arts. 1316, 1963, 1965)

3. Essential requisites of the contract

a) Consent (Arts. 37-39, 46, 1327, 1963, 1970, 1971)

– depositor incapacitated (Art. 1970, 1986)

– depositary incapacitated (Art. 1971)

b) Object (Arts. 416-417, 1347-1349, 1966)

c) Cause (Arts. 1350, 1965)

d) Delivery (Arts. 1316, 1968)

4. Parties to the contract

5. Form of the contract (Art. 1969)

6. Obligations of the depositary

a) Obligation to keep the thing (Arts. 1962, 1972, 1973)

– Obligation to keep the thing safely (Arts. 1173, 1972)

– Obligation not to transfer deposit (Art. 1973)

– Obligation not to change way of the deposit (Art. 1974)

– Obligation to collect interest on choses in action (Art. 1975)

– Obligation to not commingle if so stipulated (Art. 1976)

b) Obligation to not use the thing unless authorized (Arts. 1977, 1978)

c) Obligation to return thing (Arts. 1972, 1984, 1985, 1987, 1988, 1990, 1991, 1994)
– Obligation to return the thing with products, accessories and accessions (Art. 1983)

– Obligation to return thing closed and sealed (Art. 1981, 1982)

– what (Arts. 1962, 1972, 1976, 1983, 1990, 1991), to whom (Arts. 1212, 1214, 1972, 1984, 1985,
1986), when (Arts. 1988, 1994), where (Art. 1987)

7. Obligations of the depositor

a) Obligation to reimburse the depositary for expenses incurred (Art. 1992)

b) Obligation to reimburse the depositary for any loss arising from the character of the thing (Art.
1933)

c) Obligation to pay fees if stipulated (Art. 1965)

8. Risk of loss and deterioration

a) General rule (Arts. 1972, 1170, 1990)

b) Exception (Arts. 1979)

9. Extinguishment

a) General rule (Arts. 1287, 1988, 1989, 1995)

b) Exception (Art. 1287)

C. Necessary deposit

1. Concept (Arts. 1996, 1997)

2. Types

a) made in compliance with legal obligation

– governing law

– examples

b) depositum miserabile

– governing law

– examples
c) deposit of passengers with common carriers (Art. 1754)

d) deposit of travellers with hotels and inns (Arts. 1998-2004)

– who are liable

– what items are covered

– where the items are deposited

– rules on liability (rules and exceptions; conditions)

– hotel’s right of retention

D. Sequestration or judicial deposit

1. Concept (Arts. 2005, 2009)

– governing law

– nature and purpose

– examples

2. Object of the contract (Art. 2006)

3. Obligations of depositary

– Obligation to take care of the thing with the diligence of a good father of the family (Art. 2008)

4. Term and extinguishment (Art. 2007)

E. Deposit distinguished from other contracts

a) Distinguished from mutuum (Art. 1980)

b) Distinguished from commodatum (Art. 1978)

F. Judicial deposit distinguished from extra-judicial deposit

IV. Guaranty
A. Concept (Art. 2047)

– Classification of guaranty (Art. 2051, 2055)

B. Characteristics of the contract (Arts. 2048, 2052, 2053, 2054)

C. Essential requisites of the contract

1. Consent (Arts. 37-39, 46, 1327)

2. Object (Arts. 2052, 2053)

3. Cause (Arts. 1350, 2051)

D. Parties to the contract (Arts. 2049, 2056, 2057)

1. Persons involved

a) Creditor and guarantor

b) Debtor and guarantor, with stipulations in favor of the creditor

2. Qualifications of the guarantor (Arts. 2049, 2056, 2057)

E. Form of the contract (Arts. 1403[2][b]), 1358, 2055)

a) in writing

b) not presumed

c) strictly construed (gratuitous)

F. Obligation of the guarantor: fulfill the principal obligation (Art. 2047)

1. Types of obligations that may be secured by the guarantee

a) valid, voidable, unenforceable obligations (Art. 2052)

b) present and future debts (Art. 2053)

c) absolute and conditional obligations (Art. 2053)

2. Extent of obligations of the guarantor (Art. 2054)

a) not more than the debtor

b) consequence if guarantor assumed more

3. Items covered by the guarantee (Art. 2055)

a) principal obligations
b) accessory obligations such as judicial costs

4. Payment made without the knowledge or against the consent of the debtor (Arts. 1236, 1237,
2050)

a) amount benefited

b) no subrogation

5. Time and place of payment (Arts. 1251, 2058)

G. Effects of guaranty between the guarantor and the creditor

1. Benefit of excussion (Arts. 2058-2062)

a) concept (Arts. 2058, 2063)

– applies to guarantor of guarantor (Art. 2064)

b) rationale

c) requisites

– exhausted all property of the debtor

– resorted to all legal remedies against debtor

d) when benefit of excussion not available

– waiver, solidarily liability, insolvency, absconded/cannot be sued, execution will not result in
satisfaction (Art. 2058)

– failure to set it up and point out Philippine properties (Art. 2059); effect of negligence of creditor

– judicial bondsman (Art. 2084)

e) typical procedure

– suit by creditor against debtor (and in certain cases, against guarantor); notice to guarantor (Art.
2062)

– judgment against creditor

– exhaustion of properties of debtor

– demand against guarantor

– set up benefit of excussion and point out Philippine properties (Art. 2060)

2. Benefit of division among several guarantors

a) concept (Art. 2065)

b) rationale

c) when benefit of division available and not available (Art. 2065)

3. Effect of compromise (Art. 2063)

a) between the creditor and the principal debtor

b) between the guarantor and the creditor

H. Effects of guaranty between the guarantor and the debtor

1. Effect of payment (with and without the consent/knowledge of the debtor): in general

a) Right to be indemnified (Arts. 2050, 2066, 2072)

b) Right to subrogation (Arts. 1237, 1303, 2050, 2067)

2. Effect of payment without notifying the debtor (Art. 2068)

3. Effect of early payment (Art. 2069)

4. Effect of repeat payment by debtor (Art. 2070)

5. Right to proceed against debtor before payment (Art. 2071)

6. Effect of request made by a person for guarantee of debt of third person (Art. 2072)

I. Effects of guaranty among the co-guarantors

1. Effect of payment by a co-guarantor (Arts. 2073, 2074)

2. Effect of insolvency of a co-guarantor (Art. 2073)

3. Effect of insolvency of the guarantor on the sub-guarantor (Art. 2075)

J. Extinguishment of the guaranty; defenses available to the guarantor (Arts. 1397, 2076-2081)

1. Causes for extinguishment

(a) General causes for extinguishment of obligations

– Payment or performance (Art. 1231[1])

– Dacion en pago (Art. 2077)

– Loss of the thing due (Art. 1262)

– Service becomes impossible (Art. 1266)

– Consignation (Art. 1261)

– Condonation (Arts. 1273, 2078)

– Merger or confusion (Arts. 1275-1276)

– Compensation (Arts. 1279, 1280)

– Novation (Art. 1296)

(b) Special causes for extinguishment of guaranty

– Extension (Art. 2079)

– Failure of subrogation (Art. 2080)

– Release (Art. 2078)

(2) Defenses available to the guarantor

(a) Defenses derived from the principal obligation (Art. 1397)

(b) Defenses derived from the contract of guarantee

(c) Defenses derived from the conduct of the creditor (Arts. 2061, 2079, 2080)

K. Legal and judicial bonds (Art. 2082-2084)

L. Distinguished from other contracts/terms

1. Warranty

2. Suretyship (Arts. 1216-1222)

a) Definition
b) Law applicable

c) Nature of surety’s undertaking

M. Practical considerations

V. Pledge and mortgage

A. Introduction

1. Essential requisites (Arts. 2085, 2086, 2087)

a) constituted to secure fulfillment of principal obligation

– rationale

– types of obligations secured (Arts. 2052, 2086, 2091)

– debtor and third parties as pledgors/mortgagors

b) pledgor or mortgagor is absolute owner of thing pledged or mortgaged

– rationale

– consequences if pledgor/mortgagor not the owner

c) persons constituting the pledge or mortgage have the free disposal of their property

– rationale

2. Prohibition against appropriation

(a) rationale

(b) general rule and exception (Arts. 2087, 2112)

(c) requisites

(d) permissible stipulations

3. Indivisibility of pledge and mortgage (Arts. 2089, 2090)

(a) general rule and exceptions

4. Promise to constitute a pledge or mortgage (Art. 2092)

B. Pledge
1. Concept (Arts. 2085, 2087, 2123); Types (Art. 2121)

2. Characteristics of the contract (Arts. 1316, 2092, 2093, 2096)

3. Essential requisites of the contract (Arts. 1318)

a) Consent (Arts. 37-39, 46)

b) Object (Arts. 416-418, 2094, 2095)

– movable property susceptible of appropriation

– incorporeal rights

– pledge of future property?

c) Cause (Art. 1350)

d) Delivery (Arts. 1316, 2093)

– nature of delivery

– to whom delivered

4. Parties to the contract (Arts. 2085, 2103; Family Code, art. 111)

5. Form of the contract (Art. 2096)

6. Principal obligations of the pledgor

a) Obligation to allow the alienation of the thing in the event the principal obligation becomes due
(Art. 2087)

b) Obligation to pay damages for known hidden flaws (Arts. 2101, 1951)

7. Principal obligations of the pledgee

a) Obligation to take care of the thing pledged (Art. 2099)

b) Obligation to not deposit the thing pledged with a third party (Art. 2100)

c) Obligation with respect to matured credits, and to fruits, income dividends, or interests (Arts.
2118, 2102)

d) Obligation to not use the thing pledged (Art. 2104)

e) Obligation to return the thing pledged (Art. 2105)

8. Special rules

a) Ownership of the thing pledged

– rules with respect to ownership of the thing pledged (Arts. 2103, 2097, 2120)

– sale of the thing while pledged (Art. 2097)

– retention of the thing pledged (Arts. 2098, 2105)

– risk of loss and deterioration

b) Thing pledged in danger of destruction

– negligence or wilful act of pledgee (Art. 2106)

– without fault of the pledgee (Arts. 2107, 2108)

c) Deception on substance and quality of thing pledged (Art. 2109)

d) Specific rules for third party pledgors

– right to satisfy principal obligation by third party pledgor (Art. 2117)

– third party pledgor’s rights as guarantors (Art. 2120)

e) Procedure for foreclosure (Arts. 2112-2117, 2119)

– right to recover excess and deficiency

f) Pawnshops (Art. 2123)

9. Extinguishment (Arts. 2110, 2111, 2115)

a) Extinguishment of the principal obligation

b) Extinguishment of the pledge

– return of the thing pledged; presumption

10. Legal pledges (Arts. 546, 1731, 1994, 2121, 2123)

11. Practical considerations

C. Real Estate Mortgage

1. Concept (Art. 2085, 2087)

2. Characteristics of the contract (Arts. 2086, 2092, 2052, 2125)

3. Essential requisites of the contract (Arts. 1318)

a) Consent (Arts. 37-39, 46, 1327)

b) Object (Arts. 415, 2124, 2127)

c) Cause (Art. 1350)

4. Parties to the contract (Art. 2085; Family Code, art. 111)

5. Form of the contract (Arts. 1879, 2125)

6. Types (Arts. 1602, 2125)

7. Obligations of the mortgagor

a) implied right to take care of the thing

b) obligation to allow foreclosure (Art. 2087)

8. Obligations of the mortgagee

– obligation to release the mortgaged property from encumbrance

9. Special rules relating to real estate mortgages

a) Ownership of property after creation of mortgage (Art. 2130)

b) Registration requirement; effects (Arts. 1312, 2125; 2126, 2129)

c) Stipulations

– pactum commisorium (Art. 2088)

– option to buy

– acceleration clause

– stipulation fixing upset price

d) Indivisibility of the mortgage (Arts. 2089, 2090)

e) Alienation of mortgage credit (Art. 2128)

f) Foreclosure (Rules of Court, Rule 68; Act No. 3135)

g) Redemption and equity of redemption

10. Risk of loss and deterioration (Art. 2103)

11. Extinguishment

12. Distinguished from an equitable mortgage (Arts. 1602, 1603, 1604, 1605)

13. Practical considerations

D. Chattel mortgage

1. Concept (Art. 2140, 2141; Chattel Mortgage Law, sec. 3)

2. Characteristics of the contract

3. Essential requisites of the contract (Arts. 1318)

a) Consent (Arts. 37-39, 46, 1327)

b) Object of the contract (Arts. 416, 417, 2124; Chattel Mortgage Law, sec. 2)

– description of the property (Chattel Mortgage Law, sec. 7)

– after acquired properties (Chattel Mortgage Law, sec. 7)

c) Cause (Art. 1350)

4. Parties to the contract

5. Form of the contract (Chattel Mortgage Law, secs. 4, 5, 6, 7, 15)

– affidavit of good faith

6. Rights and obligations of the mortgagor

8. Rights and obligations of the mortgagee

a) Right to possession
b) Right to foreclose (Chattel Mortgage Law, secs. 8, 13, 14)

– procedure

– equity of redemption (Chattel Mortgage law, secs. 13, 14)

– right to surplus or deficiency (Chattel Mortgage Law, sec. 14)

9. Special rules involving chattel mortgage

a) registration of chattel mortgage (Art. 2140; Chattel Mortgage Law, sec. 4; P.D. No. 1529, secs.
114, 115)

– effect of registration

b) offenses involving chattel mortgage (Revised Penal Code, art. 319)

10. Risk of loss and deterioration

11. Extinguishment (Chattel Mortgage Law, sec. 8, 13)

12. Practical considerations

E. Pledge, real estate mortgage and chattel mortgage distinguished

VI. Antichresis
A. Concept (Art. 2132)

B. Characteristics of the contract (Arts. 2139, 2091)

C. Essential requisites of the contract (Arts. 1318)

a) Consent (Arts. 37-39, 46, 1327)

b) Object (Art. 2132)

c) Cause (Art. 1350)

D. Parties to the contract (Arts. 2085, 2132)

E. Form of the contract (Art. 2134)

F. Obligations of the creditor

1. Obligation to apply fruits to interest and principal (Arts. 2132, 2133, 2138)
2. Obligation to pay taxes and charges upon the estate (Art. 2135)

G. Rules involving antichresis

1. Ownership (Art. 2136)

2.Creditor’s acquisition of ownership upon default (Art. 2137)

3. Indivisibility (Arts. 2139, 2089-2090)

H. Risk of loss and deterioration

I. Extinguishment

J. Distinguished from other contracts

1. Pledge

2. Mortgage

K. Practical considerations

VII. Concurrence and Preference of Credits

A. Meaning of concurrence and preference of credits

B. Nature and effect of preference

C. When rules apply

D. General rules

1. liability of debtor (Art. 2236)

2. exempt properties (Arts. 2238, 2239)

(a) family home (Family Code, arts. 153, 155);

(b) properties exempt from execution under the Rules of Court (Rules of Court, rule 39, sec. 13);

(c) right to receive support (Family Code, art. 205)

(c) assets belonging to conjugal partnership or absolute community (Art. 2238)

(d) undivided share on interest in the co-owned property (Art. 2239)

3. insolvency (Art. 2237)

(a) meaning

(b) governing law

(c) applicability to properties held in trust (Art. 2340)

(d) concurrence and preference of credits in an insolvency situation (FRIA, secs. 53(a), 53(d),
92(i), 133, 136))

E. General categories of credit

1. special preferred credits listed in Articles 2241 and 2242;

2. ordinary preferred credits listed in Article 2244;

3. common credits under Article 2245.

F. Classification of credits

1. Preferred credits with respect to specific movable property (Arts. 2241, 2243, 2246, 2247, 2250)

2. Preferred credits with respect to specific immovable property (Arts. 2242, 2243, 2248, 2249,
2250)

3. Order of preference with respect to other properties of the debtor (Art. 2244)

4. Other credits enjoying no preference (Arts. 2245, 2251)

VIII. Special Laws

A. Financial Rehabilitation and Insolvency Act (FRIA)

1. Purpose of the law (sec. 2)

2. Concepts

(a) Insolvent (sec. 4(p))

(b) Debtor (secs. 4(kk), 5)

(c) Suspension of payment (sec. 94)

(d) Rehabilitation (sec. 4(gg))

(e) Liquidation (sec. 4(u))

3. General remedies when insolvent

(a) Types of remedies

– Judicial remedies under FRIA (suspension of payment, rehabilitation)

– Extra-judicial

(b) Benefits

– Judicial (see secs. 16(k), 17(b), 71, 69(a), 86)

– Extra-judicial

4. Suspension of payment

(a) Concept (sec. 94)

(b) To whom available (sec. 94)

(c) Procedure

– Filing of petition (secs. 94, 96)

– Action on petition (secs. 95, 96)

– Creditors’ meeting (secs. 97, 98, 99)

– Approval of agreement and objections (sec. 100-102)

– Court order (sec. 101)

5. Rehabilitation

(a) Concept (sec. 4(gg))

(b) Types

– Court supervised rehabilitation (secs. 12, 13)

– Pre-negotiated rehabilitation (sec. 76)

– Out of court or informal restructuring agreements or rehabilitation plans (sec. 83)

(c) Who may file petition (secs. 12, 13, 76, 83)

(d) Procedure for court-supervised rehabilitation

– Filing of petition for rehabilitation (voluntary/involuntary)(secs. 12, 13, 14)

– Court action on the petition (Art. 15)

– Issuance of commencement order/stay or suspension order, including appointment of

receiver (secs. 16, 17, 18, 21, 31)

– Publication of commencement order (sec. 16(f))

– Filing of creditors’ claim (sec. 16(i))

– Initial hearing (secs. 22, 23)

– Creditors comment on petition and rehabilitation plan (sec. 22)

– Submission of report by rehabilitation receiver (sec. 24)

– Grant of due course to, or dismissal of, the petition; convert into liquidation proceedings (secs.
25, 26, 27, 92)

– Preparation of rehabilitation plan by receiver; consultation with debtors and creditors; formation
of creditors’ committee (secs. 42, 43, 63, 64)

– Creditors’ meeting to approve rehabilitation plan (sec. 64)

– Submission of Rehabilitation Plan to the court (secs. 62, 65)

– Filing of objections to rehabilitation plan (sec. 66)

– Hearing on objections (sec. 67)

– Confirmation of rehabilitation plan (sec. 68, 69, 72, 92)

– Submission of final report; accounting and discharge of receiver (sec. 73)

– Termination proceedings (secs. 74-75, 92)

(e) Procedure for pre-negotiated rehabilitation

– Filing of petition (sec. 76)

– Issuance of order by the court (sec. 77)

– Publication of order and creditor notification (sec. 77)

– Filing of objections (sec. 79)

– Hearing on objections (sec. 80)

– Approval of rehabilitation plan (secs. 81-82)

(f) Procedure for out of court or informal restructuring agreements or rehabilitation plans

– Parties negotiation workout agreement/standstill agreement (secs. 84, 85)

– Execution of work-out agreement/standstill agreement (secs. 84-89)

(g) Governance provisions

– Management committee (secs. 36, 37, 47)

– Use, disposition or sale of assets (secs. 48-53)

– Post-commencement order loans, obligations and interest (sec. 54-55)

– Treatment of employee claims (sec. 56)

– Treatment of contracts (secs. 57-59)

6. Liquidation

(a) Concept (secs. 4(u), 4(v), 4(w))

(b) Types (secs. 92, 103, 105)

– Voluntary

– Involuntary

(c) Who may file (secs. 90, 103, 105)

(d) Procedure for voluntary liquidation

– Filing of verified petition (secs. 90, 103)

– Issuance of liquidation order (sec. 104, 112)

(e) Procedure for involuntary liquidation

– Filing of petition (secs. 91, 105)

– Publication of petition (sec. 91)

– Issuance of a show cause-order (secs. 91, 106)

– Hearing

– Issuance of liquidation order (secs. 91, 112, 113, 114)

– Appointment of liquidator and preparation of liquidation plan (sec. 129)

– Implementation of liquidation plan and sale of assets (sec. 131)

– Order removing debtor from list of registered entities

– Termination order (sec. 134, 135)

(f) Other matters relating to liquidation

– Right of set-off (sec. 124)

– Avoidance proceedings (secs. 127-128)

– Concurrence and preference of credits (secs. 130, 133)

– Liquidation of securities market participant (sec. 136)

7. Treatment of secured creditors (secs. 4(jj), 4(kk),4(ll), 51, 53, 60, 61, 62(j), 96, 101, 106, 114)

B. Truth in Lending Act (R.A. No. 3765)

1. Purpose (sec. 2)

2. Coverage (sec. 3)

3. Disclosure required (sec. 4)

4. Penalties for violation (sec. 6)

C. Letters of credit (Code of Commerce, arts. 567, 568)

1. Letters of credit

2. Governing Law

3. Concept

4. Parties
5. Types

– revocability: revocable and irrevocable

– payment terms: sight and term/usance

– purpose: commercial and stand by

6. Principles applicable

– strict compliance

– independence

D. Usury Law

1. Interest

(a) concept

(b) kinds

(c) fixing of interest rates/escalation clause/de-escalation clause

2. Usury

(a) concept

(b) form of transaction (Civil Code, art, 1957)

3. The Usury Law (Civil Code, arts. 1175, 1961)

(a) purpose, theory and nature

(b) construction of the law

(c) transactions to which the Usury Law apply and do not apply

(d) the Usury law and CB Circular No. 905

4. Power of BSP Monetary Board to prescribe rates of interest (Usury Law, secs. 1, 1-, 4-A, 4-B, 9-
A)

5. Interest under the Usury Law and BSP Circular No. 799, s. 2013 (secs. 1, 2, 3, 5)

(a) Rates of interest under the Usury Law (Usury Law, secs. 2, 3, 4)
– legal rate

– maximum rate for loans secured by real estate mortgage

– maximum rate for other loans

– maximum rates for pawnshops

(b) Calculation of interest

– commissions, premiums, fines and penalties (Usury Law, secs. 2, 3)

– attorney’s fees

– compound interest (Usury Law, sec. 6)

– interest paid in advance (Usury Law, sec. 6)

– interest payable in kind (Art. 1958; Usury Law, sec. 8)

6. Effect on contract if parties stipulated an usurious interest

(a) Rule (Art. 1957; Usury Law, sec. 7)

(b) Effect of clerical error

(c) Purchase by innocent purchase or negotiable mercantile paper

7. Prohibited acts (Usury Law, secs. 2, 3, 4, 10)

(a) taking or receiving usurious interest under section 2 of the Usury Law

(b) agreeing to charge usurious interest under section 3 of the Usury Law

(c) agreeing to charge or receiving usurious interest under section 4 of the Usury Law; dividing
pawn; payment of insurance premium under section 4 of the Usury Law

8. Remedies (Civil Code, art. 1413)

(a) recovery of usurious interest (Civil Code, arts. 1413, 1957; Usury Law, sec. 6)

(b) recovery of commissions, premiums, penalties and surcharges (Usury Law, sec. 6)

9. Penalties and prescription of action (Usury Law, sec. 10)

E. Warehouse Receipts Law

1. Governing Law (sec. 57)

– interpretation and definitions (secs. 56, 58)

2. Concepts

(a) Warehouse

(b) Warehouseman (sec. 58[a])

– meaning of goods (sec. 58[a])

(c) Warehouse receipts

– meaning of warehouse receipts

– who may issue receipts (sec. 1)

– form of receipts; essential terms effect of omission of essential terms (sec. 2)

– other terms (sec. 3)

3. Types of warehouse receipts (secs. 4, 5, 6, 7)

(a) Negotiable

– definition (sec. 5)

– who may negotiate (sec. 40)

– manner of negotiation: delivery (sec. 37) and indorsement (sec. 38)

– rights of person to whom a receipt was duly negotiated (sec. 41)

– rights of persons to whom negotiable instrument was transferred but not negotiated (secs. 39,
42)

– rights of person to whom negotiable receipt was transferred without indorsement (sec. 43)

(b) Non-negotiable

– definition (sec. 4)

– who may transfer

– manner of transfer: delivery (sec. 39)

– rights of persons to whom a receipt was transferred (sec. 42)

4. Various rules relating to warehouse receipts

(a) warranties on sale of receipts (sec. 44)

(b) liability of person negotiating or transferring receipt (sec. 45)

(c) representation of mortgagee and pledgee (sec. 46)

(d) effect when there is fraud, mistake or duress (sec. 47)

(e) negotiation of goods pledged or mortgaged (sec. 48)

(f) stoppage in transitu (sec. 49)

5. Obligations of warehouseman

(a) Obligation to take care of the goods (sec. 21)

(b) Obligation to deliver

– when (sec. 8)

– to whom (sec. 9, 10, 14, 17, 25, 33);

– grounds for refusal to deliver (secs. 10, 16, 17, 18, 25, 26, 36)

– adverse title as a ground for refusal of delivery (sec. 16, 19)

(c) Obligation to stamp “duplicate” on copies of negotiable receipt (secs. 6, 15, 52)

(d) Obligation to place “non-negotiable” or “not negotiable” on a non-negotiable receipt (sec. 7);

(e) Obligation to cancel negotiable receipts upon delivery or part delivery (secs. 11, 12, 14, 36, 54)

(f) Obligation to honor altered receipts in appropriate cases (sec. 13)

(g) Obligation to not issue receipt if goods are not existent (secs. 20, 50)

(h) Obligation to properly describe the goods covered by the receipt (sec. 20)

(i) Obligation to keep the goods separate and to not comingle the goods (secs. 22-24; Civil Code,
art. 1976)

– meaning of fungible goods (sec. 58[a])

6. Warehouseman’s right of lien

(a) right of lien (secs. 27, 30)

(b) goods subject to the lien (secs. 28, 30)

(c) effect of lien (sec. 31)

(d) when lien lost (sec. 29)

(e) remedies available to the warehouseman (sec. 31, 32, 33, 34, 35, 36)

7. Criminal offenses (secs. 50-55)

(a) issuance of receipts for goods not received (sec. 50)

(b) issuance of receipts containing false statements (sec. 51)

(c) issuance of duplicate receipts not so marked (sec. 52)

(d) issuance of receipts that do not say that warehouseman is the owner (sec. 53)

(e) delivery of goods without obtaining negotiable receipt (sec. 54)

(f) negotiation of receipt for mortgaged foods (sec. 55)

F. Trust Receipts Law

1. Concept and purpose of the law (secs. 1, 2, 4, 5)

2. Characteristics/classification of the contract

3. Essential requisites of the contract

(a) Consent

(b) Object (secs. 3[a], 3[d], 3[e], 3[h], 4)

(c) Cause

(d) Delivery (sec. 4)

4. Parties to the contract

(a) Entrustor (sec. 3[c])

(b) Entrustee (sec. 3[b)

5. Form of contract (secs. 3[j], 5)

6. Obligations of the entrustee

(a) Obligation hold the designated goods, documents or instruments in trust for the entruster
(secs. 4, 9)

(b) Obligation to sell or otherwise dispose of the goods, documents or instruments strictly in
accordance with the trust receipts (secs. 4, 9)

– entrustor not responsible on sale by entrustee (sec. 8)

– purchaser for value and in good faith acquires property free from lien (sec. 11)

– enstruster’s security interest valid against creditors of entrustee (sec. 12)

(c) Obligation to receive the proceeds in trust for the entruster and turn over the same to the
entruster to the extent of the amount owing to the entruster or as appears on the trust receipt
(secs. 4, 9)

– rules on currency (sec. 5)

– breach of obligation (sec. 13)

(d) Obligation to insure the goods for their total value against loss from fire, theft, pilferage or other
casualties (sec. 9)

(e) Obligation to keep said goods or proceeds thereof whether in money or whatever form,
separate and capable of identification as property of the entruster (sec. 9)

(f) Obligation to return the goods, documents or instruments in the event of non-sale or upon
demand of the entruster (sec. 9)

(g) Obligation to observe all other terms and conditions of the trust receipt not contrary to the
provisions of the Trust Receipts Law (sec. 9)

7. Rights of the entrustor (sec. 7)

(a) Right to proceeds of the sale

(b) Right to return in case of non-sale

(c) Right to cancel the trust and take possession upon default of entrustee
(d) Right to avail of other remedies

8. Risk of loss and deterioration (sec. 10)

9. Term and extinguishment of the contract