Definitions

Question 1

What are credit transactions?

Answer 1

Credit transactions include all transactions involving the
purchase or loan of goods, services, or money in the present with
a promise to pay or deliver in the future

Question 2

What are the types of secured transactions?

Answer 2

(a) Secured transactions or contracts of real security. — Those
supported by a collateral or an encumbrance of property;1

and
(b) Unsecured transactions or contracts of personal security.
— Those the fulfi llment of which by the principal debtor is
secured or supported only by a promise to pay or the personal
commitment of another such as a guarantor or surety.

Question 3

What is a security?

Answer 3

security is something given, deposited, or serving as
a means to ensure the fulfi llment or enforcement of an obligation
or of protecting some interest in property.

Question 4

Define bailment.

Answer 4

The delivery of property of one person to another in trust for a specific purpose,
with a contract, that the trust shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept until the bailor reclaims it.

Question 5

Define loan.

Answer 5

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 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.

Question 6

Define Simple Loan

Answer 6

A contract whereby one of the parties delivers to another money or other
consumable thing with the understanding that the same amount of the same kind and quality
shall be paid.

A simple loan involves the payment of the equivalent and not the identical thing because the
borrower acquires ownership of the thing loaned. The term “return” is not used since the
distinguishing character of the simple loan from commodatum is the consumption of the thing.

Question 7

What is the consideration in a simple loan?

Answer 7

The promise of the borrower to pay is the

consideration for the obligation of the lender to furnish the loan.

Question 8

Define Fungible things

Answer 8

(def). Those which are usually dealt with by number, weight, or measure, so that
any given unit or portion is treated as the equivalent of any other unit or portion. Those which may
be replaced by a thing of equal quality and quantity. (ex. Rice, oil, sugar). If it cannot be replaced
with an equivalent thing, then it is non-fungible.

Question 9

What are consumable things?

Answer 9

Those which cannot be used without being consumed.

Question 10

What is a barter?

Answer 10

A contract where one of the parties binds himself to give one thing in consideration of
the other’s promise to give another thing. (in short, exchange of property)

Question 11

What is an escalation clause?

Answer 11

A clause which authorizes the automatic increase in interest rate.

Question 12

What is a guaranty?

Answer 12

A contract whereby the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

Question 13

What is the cause/consideration of a contract of guaranty?

Answer 13

The cause of a contract of guaranty is the same cause which supports the principal obligation of
the principal debtor. There is no need for an independent consideration in order for the contract of
guaranty to be valid. The guarantor need not have a direct interest in the obligation nor receive any
benefit from it. It is enough that the principal obligation has consideration.

Question 14

What is a Continuing Guaranty (def) –

Answer 14

A guaranty that is not limited to a single transaction but which
contemplates a future course of dealings, covering a series of transactions generally for an
indefinite time or until revoked.
A continuing guaranty is generally prospective in its operation and is intended to secure future
transactions (generally does not include past transactions).

Question 15

Define Benefit of Division

Answer 15

Art. 2065. Should there be several guarantors of only one debtor and for the same debt, the
obligation to answer for the same is divided among all. The creditor cannot claim from the
guarantors except the shares which they are respectively bound to pay, unless solidarily has been
expressly stipulated.
The benefit of division among the co-guarantors ceases in the same cases and for the same reasons
as the benefit of excussion against the principal debtor.

Question 16

Define Double or Sub-guaranty

Answer 16

constituted to secure fulfillment of a prior guaranty;

guarantees the obligation of a guarantor

Question 17

Define Bondsman

Answer 17

A surety offered in virtue of a provision of law or judicial order

Question 18

Define Bond

Answer 18

an undertaking that is sufficiently secured and not cash or currency

Question 19

Define Compensated Sureties

Answer 19

sureties are business association organized for the purpose of assuming classified risks in large numbers for profit and on an impersonal basis.

Question 20

Define Benefit of Excussion

Answer 20

A guarantor is only secondary liable and all legal remedies against the debtor to be first exhausted. To warrant recourse against the guarantor for payment, it may not be sufficien that the debtor appears insolvent.

Question 21

Define Indefinite or simple guaranty

Answer 21

where the guaranty included all the accessory obligations of the principal including costs and judicial costs

Question 22

Explane effect of subrogation

Answer 22

When the guarantor pays, he becomes subrogated to the rights of the creditor against the debtor.
What happens really is just a change in creditor. The guarantor becomes the creditor, but the
obligation subsists in all other aspects. He may, for example, foreclose a mortgage in case of failure
of the debtor to reimburse him.
The right of subrogation is given to the guarantor so that he can enforce his right to indemnity/ to be
reimbursed.
It arises by operation of law upon payment by the guarantor. The creditor need not formally cede his
rights to the guarantor.
But the right of subrogation is given only to the guarantor if he has the right to

Question 23

Explain guaranty not presumed

Answer 23

RULE: Guaranty is never presumed. It must be express.
Reason for the rule: Because a guarantor assumes an obligation to pay for another’s debt without
any benefit to himself. Thus, it has to be certain that he really intends to incur such an obligation and
that he proceeds with consciousness of what he is doing.

Question 24

Define compromise

Answer 24

a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced

Question 25

Define Commodatum

Answer 25

Commodatum – when the bailor (lender) delivers to the bailee (borrower) a non-consumable thing so that the latter may use it for a certain time and return the identical thing.

Question 26

What is the purpose of a commodatum?

Answer 26

1. PURPOSE: Bailee in commodatum acquires the temporary use of the thing but not its fruits (unless stipulated as an incidental part of the contract).(Art 1935)

Question 27

What is interest?

Answer 27

 The compensation allowed by law or fixed by the parties for the loan or forbearance of money, goods or credits

Question 28

What is a deposit?

Answer 28

 A contract constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same.

Question 29

What is a judicial deposit?

Answer 29

1. Judicial (Sequestration) –takes place when an attachment or seizure of property in litigation is ordered.

Question 30

Define a voluntary extrajudicial deposit

Answer 30

one wherein the delivery is made by the will of the depositor or by two or more persons each of whom believes himself entitled to the thing deposited. (Arts 1968 – 1995)

Question 31

Define a necessary extrajudicial deposit

Answer 31

– one made in compliance with a legal obligation, or on the occasion of any calamity, or by travellers in hotels and inns (Arts 1996 - 2004), or by travellers with common carriers (Art 1734 – 1735).

Question 32

What is the form of payment in loan?

Answer 32

 Form of Payment (Art 1955):

1. If the thing loaned is money - payment must be made in the currency stipulated, if it is possible; otherwise it is payable in the currency which is legal tender in the Philippines and in case of extraordinary inflation or deflation, the basisi of payment shall be the value of the currency at the time of the creation of the obligation
2. If what was loaned is a fungible thing other than money - the borrower is under obligation to pay the lender another thing of the same kind, quality and quantity. In case it is impossible to do so, the borrower shall pay its value at the time of the perfection of the loan.