Definitions Flashcards
What are credit transactions?
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
What are the types of secured transactions?
(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.
What is a security?
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.
Define bailment.
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.
Define loan.
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.
Define Simple Loan
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.
What is the consideration in a simple loan?
The promise of the borrower to pay is the
consideration for the obligation of the lender to furnish the loan.
Define Fungible things
(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.
What are consumable things?
Those which cannot be used without being consumed.
What is a barter?
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)
What is an escalation clause?
A clause which authorizes the automatic increase in interest rate.
What is a guaranty?
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.
What is the cause/consideration of a contract of guaranty?
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.
What is a Continuing Guaranty (def) –
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).
Define Benefit of Division
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.
Define Double or Sub-guaranty
constituted to secure fulfillment of a prior guaranty;
guarantees the obligation of a guarantor
Define Bondsman
A surety offered in virtue of a provision of law or judicial order
Define Bond
an undertaking that is sufficiently secured and not cash or currency
Define Compensated Sureties
sureties are business association organized for the purpose of assuming classified risks in large numbers for profit and on an impersonal basis.
Define Benefit of Excussion
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.
Define Indefinite or simple guaranty
where the guaranty included all the accessory obligations of the principal including costs and judicial costs
Explane effect of subrogation
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
Explain guaranty not presumed
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.
Define compromise
a contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced
