Part I Flashcards
Credit
The “CREDIT” of a borrower (an individual or entity) is the ability to borrow money by virtue of the confidence or trust reposed by a lender that he will pay what he may promise.
Credit Transactions
Contracts involving the purchase or loan of goods, services, or money in the present with a promise to
pay or deliver in the future.
Examples: Loan of money (Mutuum) Properties (Commodatum) Deposits (Voluntary or Involuntary) (Carriers and Hotels, Repair Shops where goods are delivered for some work or labor upon it by the Repairman, or goods are delivered for storage)
Consumer Credit
Any credit extended by a creditor to a consumer for the sale or lease of any consumer product or service under which part or all of the price or payment therefor is payable at some future time, whether in full or in installments.
Types of Credit Transactions
- Unsecured transactions: the fulfillment by the debtor is supported only by a bare promise to pay (Mutuum). If the debtor dies or becomes insolvent, the creditor has no recourse to recover the debt, except to share in the remaining asset of the debtor in an insolvency proceeding
- Secured transactions: supported by a collateral or an
encumbrance of property. If the debtor dies or becomes insolvent, the creditor has a recourse to recover the debt.
2a. Personal Security - when an individual becomes a
surety or a guarantor
2b. Real Security- when a mortgage, pledge, antichresis, charge, or lien or other device used to have property held, out of which the person to be made secure can be compensated for loss
Intermediation Principle
It arises out of a mismatch between the requirements of borrowers with deficit funds and lenders with surplus funds.
The bank or financial institution (FIs) as intermediator comes in to match the needs of the borrowers with deficit funds and the lender with surplus funds.
No person shall be imprisoned for debt or non-payment of tax. T or F.
True.
Art. 3, Sec. 20, 1987 Constitution.
Is the bouncing checks law unconstitutional?
No. It is a valid exercise of police power.
It is within the prerogative of the lawmaking body, in the exercise of police power, to prescribe certain acts deemed pernicious and inimical to public welfare.
The making and issuance of a worthless check is deemed a public nuisance to be abated by the imposition of penal sanctions in the exercise of police power because Checks have become widely accepted as a medium of payment in trade and commerce, and if the confidence is shaken, the usefulness of checks as currency substitutes would be greatly diminished. Therefore, the acts issuing rubber checks are deemed pernicious and inimical to public welfare which can be sanctioned by the legislature in the exercise of police power.
Trust Receipts Law
A declaration by the legislative authority that, as a matter of public policy, the failure of a person to turn over the proceeds of the sale of goods covered by a trust receipt or to return said goods if not sold is a public nuisance to be abated by the imposition of penal sanctions. It punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another.
Trust Receipt Transaction
A trust receipt transaction, within the meaning of PD 115, is any transaction by and between a person referred to as the entruster, and another person referred to as entrustee, whereby the entruster, who owns or holds absolute title or security interests over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latter’s execution and delivery to the entruster of a signed document called a “trust receipt” wherein the entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:
- In the case of goods or documents, (a) to sell the goods or procure their sale; or (b) to manufacture or process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain its title over the goods whether in its original or processed form until the entrustee has complied fully with his obligation under the trust receipt; or (c) to load, unload, ship or tranship or otherwise deal with them in a manner preliminary or necessary to their sale; or
- In the case of instruments,
a) to sell or procure their sale or exchange; or
b) to deliver them to a principal; or
c) to effect the consummation of some transactions involving delivery to a depository or register; or
d) to effect their presentation, collection or renewal
The sale of goods, documents or instruments by a person in the business of selling goods, documents or instruments for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, documents or instruments, or who sells the same to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of this Decree.
Access Devices Regulation Act of 1998 (RA. 8484)
- anyone who obtains “money or anything of value through the use of an access device, with intent to defraud or with intent to gain and fleeing thereafter” is criminally liable, punishable with a fine and imprisonment. Mere failure to pay credit card debts,” in the absence of fraud, is not a criminal act.
Credit Card Law
Mere failure to pay credit card debts,” in the absence of fraud, is not a criminal act.
- It also provides that a cardholder who abandons or
surreptitiously leaves the place of employment, business or residence stated in his application or credit card, without informing the credit card company of the place where he could actually be found, if at the time of such abandonment or surreptitious leaving, the outstanding and unpaid balance is past due for at least 90 days and is more than P10,000.00, shall be prima facie presumed to have used his credit card with intent to defraud.”
Is Credit Card Law unconstitutional?
No. The use of a credit card to obtain money with intent to defraud or intent to gain and fleeing thereafter are inimical to public welfare because Credit cards have become widely accepted as a medium of payment in trade and commerce, and if the confidence in credit cards is shaken, the usefulness of credit cards as a medium of payment would be greatly diminished. Therefore, the acts obtaining money and goods with intent to defraud are deemed pernicious and inimical to public welfare which can be sanctioned by the legislature in the exercise of police power.
Art. 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.
2 kinds of loans
- Mutuum or simple loan: where the lender delivers to the borrower money or other consumable thing upon the condition that the latter shall pay the same amount of the same kind and quality
- Commodatum: where the lender delivers to the borrower a non-consumable thing so that the latter may
use it for a certain time and return the identical thing; other term: commodate; also known as loan for use. The thing must be returned in essence, and without deterioration.
Art. 1934
An accepted promise to deliver something by way of commodatum or simple loan is binding upon parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.
A contract of loan is a real contract. T or F.
True.
It is not perfected until the delivery of the object of the contract.
A contract to loan is binding upon the parties. T or F.
True.
Mutuum v. Commodatum
(1) object
M: money or consumable
C: not consumable
(2) cause
M: may or may not be gratuitous
C: gratuitous
(3) purpose
M: consumption
C: use or temporary possession
(4) subject matter
M: only personal property
C: real or personal property
(5) ownership
M: passes to the debtor
C: retained by the bailor
(6) who bears the loss
M: borrower or debtor
C: lender
(7) things to be returned
M: equal amount of the same kind and quality
C: exact thing loaned
(8) when to return
M: only after the expiration of the term
C: in case of urgent need, even before the expiration of the term
Borrower goes to Lender and asks if he could borrow P10K at 6% interest per annum. Lender says okay, I will lend you the money. Is there a valid contract?
This is an accepted promise to make a future loan. It is a consensual contract and is binding upon the parties.
However, there is no contract of loan at this point because loan is a real contract and is perfected only
upon delivery of the thing.
Guariña Corporation (Guarina) applied for a developmental loan with DBP to finance its resort complex for P3.4 M Payable on November 3, 1988 secured by a real estate mortgage on several properties and a chattel mortgage over the personal properties and on those yet to be acquired out of the proceeds of the loan. Prior to the release of the loan, DBP required Guariña Corporation to put up a cash equity of P1,470,951.00 for the construction of the buildings and other improvements on the resort complex. The loan was released in several instalments. Only P3M was released. Guariña demanded the release of the balance but DBP refused. Instead, DBP directly paid some suppliers of Guariña over the latter’s objection. DBP found upon inspection of the resort project, its developments and improvements that Guariña had not completed the construction works. DBP thus demanded that Guariña expedite the completion of the project. Unsatisfied with the non-action and objection of Guariña Corporation, DBP extrajudicially foreclosed the mortgage.
Is the foreclosure of a mortgage valid?
NO, the foreclosure of the mortgage is premature and
should be nullified. The agreement between DBP and Guariña was a loan. Under the law, loan requires the delivery of money or any other consumable object by one party to another who acquires ownership thereof, on the condition that the same amount or quality shall be paid. The obligation of one party in a reciprocal obligation is dependent upon the obligation of the other, and the performance should ideally be simultaneous. This means that in a loan, the creditor should release the full loan amount and the debtor repays it when it becomes due and demandable.
By its failure to release the proceeds of the loan in their entirety, DBP had no right yet to exact on Guariña Corporation the latter’s compliance with its own obligation under the loan. Indeed, if a party in a reciprocal contract like a loan does not perform its
obligation, the other party cannot be obliged to perform what is expected of it while the other’s obligation remains unfulfilled. In other words, the latter party does not incur delay.
Consumer
a natural person who is a purchaser, lessee, recipient or prospective purchaser, lessor or recipient of consumer products, services or credit
Consumer credit
any credit extended by a creditor to a consumer for the sale or lease of any consumer product or service under which part or all of the price or payment
therefor is payable at some future time, whether in full or in installments
Consumer loan
a loan made by the lender to a person which is payable in installments for which a finance charge is or may be imposed. This term includes credit transactions pursuant to an open-end-credit plan other than a seller credit card
Consumer products and services
goods, services and credits, debts or obligations
which are primarily for personal, family, household or agricultural purposes, which shall include but not limited to food, drugs, cosmetics, and devices
Consumer transaction
(1)
(i) a sale, lease, assignment, award by chance, or other disposition of consumer products, including chattels that are intended to be affixed to land, or of services, or of any right, title, or interest therein, except securities as defined in the Securities Act and contracts of insurance under the Insurance Code, or
(ii) a grant of provision of credit to a consumer for purposes that are primarily personal, family, household or agricultural, or
(2)
a solicitation or promotion by a supplier with respect to a transaction referred to in clause
Credit transaction under the Consumer Act
a transaction between a natural person and a creditor in which real or personal property, services or money acquired on credit and the person’s obligation is payable in installment
Basic rights of a consumer in a credit transaction under RA 7394
- Right to a 10-day grace period
- Right to pre-pay without penalties
- Right to rebate on repayment
- Right to demand credit cost disclosure
- Right to defenses against the assignee of credit
With respect to a consumer credit transaction other than one pursuant to an open-end credit plan, the parties may agree to a delinquency charge on any installment not pain in full on or before the tenth day after its scheduled or deferred due date.
Yes. Art. 134. Delinquency Charges of Consumer Act.
> > right to a 10-day grace period
The person to whom credit is extended may prepay in full or in part, at any time without penalty, the unpaid balance of any consumer credit transaction.
Yes. Art. 137. Right to prepay under Consumer Act
> > right to pre-pay without penalties
Upon prepayment in full of the unpaid balance of a precomputed consumer credit transaction, refinancing or consolidation, an amount not less than the unearned portion of the finance charge calculated
according to this Article shall be rebated to the person to whom credit is extended.
Yes. Art. 138. Rebate on Prepayment of Consumer Act.
> > right to rebate on prepayment
Each creditor shall disclose, in accordance with the regulations of the implementing agency, to each person to whom consumer credit is extended, the disclosures required by this Act.
If there is more than one obligor, a creditor need not furnish a statement of information required under this Act to more than one of them.
Art. 139. General Requirements on Credit Cost Disclosure.
> > right to demand credit cost disclosure
In cases where the instrument will be sold at a discount to a bank, financing company or other lender, the said transferee shall be subject to all claims and defenses which the debtor could assert against the seller of consumer products obtained hereto or with the proceeds thereof.
Art. 146. Sale of Consumer Products on installment.
> > right to defenses against the assignee of credit
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. T or F.
True. Art. 1934
A contract of loan is a real contract. T or F.
True. It is perfected by delivery under Art. 1934
Effects of Assignment of sale by the seller
Does not insulate the transaction from the coverage of the law insofar as the buyer is concerned because the assignee merely steps into the shoes of the assignor.
Neither can the assignment be used as a shield against the enforcement of the buyer’s rights. A buyer who is a consumer can enforce his rights notwithstanding the assignment.
Factoring of Receivables
The assignment of receivables of a developer in banking parlance. This is the assignment of the sales contract which the seller generates from his sales activities in order to attain liquidity without undertaking collection of its receivables from the buyers.
The assignee is called the Factor who is willing to purchase the seller’s receivables at a discount.
In a consumer credit sale other than one pursuant to an open-end credit plan, the obligation of the consumer to whom credit is being extended shall be evidenced by a single instrument which shall include, in addition to the disclosures required by this act, the signature of the seller and the person to whom credit is extended, the date it was signed, a description of the property sold and a description of any property transferred as a trade-in. The instrument evidencing the credit shall contain a clear and conspicuous typewritten notice to the person to whom credit is being extended that:
a. he should not sign the instrument if it contains any blank space;
b. he is entitled to a reasonable return of the precomputed finance charge if the balance is prepaid; and
c. he is entitled to an exact, true copy of the agreement
In cases where the instrument will be sold at a discount to a bank, financing company or other lender, the said transferee shall be subject to all claims and defenses which the debtor could assert against the seller of consumer products obtained hereto or with the proceeds thereof.
Art. 146 of RA 7394
Commodatum in Tagalog
Hiram
In a commodatum, the bailee acquires the use of the thing and its fruits. T or F.
False.
In a commodatum, the bailee acquires the use of the thing but not its fruits, unless there is a stipulation to the contrary.
What happens if in an agreement of commodatum, compensation is paid by him who acquires the use?
The contract ceases to be a commodatum.
1935
Consumable goods may be the subject of commodatum.
Yes but ONLY IF the purpose of the contract is merely for exhibition and not for consumption.
1936
Only movable property may be the object of commodatum. T or F.
False. Movable or immovable property may be the object of commodatum.
1937
The bailor in commodatum need to be the owner of the thing loaned. T or F.
False.
The bailor in commodatum need not be the owner of the thing loaned.
1938
Commodatum is purely personal in nature. T or F.
True.
1939
The death of either the bailor or the bailee extinguishes the contract. T or F.
True.
Unless there is a contrary stipulation for the commodatum to subsist until the purpose is accomplished.
1939
The bailee has the right to lend or lease the object of the contract to a third person. T or F.
GR: No.
XPN: the members of the bailee’s household may make use of the thing loaned
XPN 2 XPN: if there is a stipulation to the contrary or if the nature of the thing forbids such use
1939
A stipulation that the bailee may make use of the fruits of the thing loaned is valid. T or F.
True.
1940
Who is the bailor?
Lender
Who is the bailee?
Borrower
Kinds of commodatum
- Ordinary Commodatum: use by the borrower of the thing is for a certain period of time
- Precarium: one whereby the bailor may demand the thing loaned at will and it exists in the following cases:
i. neither the duration nor purpose of the contract is stipulated
ii. the use of the thing is merely tolerated by the owner
In a commodatum, use must be temporary, otherwise the contract may be a deposit or a usufruct.
Oki.
The subject matter of a commodatum may be real or personal property. T or F.
True.
A mere possessor, lessee, or usufructuary may lend. T or F.
True. Since by the loan, ownership does not pass to the borrower. 1938
NOTE: Rule on bailee lending or leasing the thing loaned - 1932 (2)
Deposit
refers to the purpose which is safekeeping
If the bailee is not entitled to use the thing, it is not a commodatum but it may be a ______.
Deposit
The usufructuary acquires rights over the fruits and it is a real right. T or F.
True.
Commodatum v. Usufruct
(1) Right to enjoy fruits
C: unless stipulated, bailee cannot enjoy fruits
U: enjoys fruits
(2) Transferability
C: being personal, right cannot be transferred to third parties
U: can transfer right
(3) Use by third persons
C: third persons are not allowed
U: can allow third persons to use
(4) Right of retention
C: No right except for damages under Art. 1951 and 1944, Civil Code
U: there is right of retention
Obligations of the bailee
- To pay for the ordinary expenses for use and preservation of the thing loaned (1941)
- To be liable for the deterioration of thing loaned (a) if expressly stipulated; (b) if guilty of fault or negligence (1943)
- The borrower is not liable for the ordinary deterioration or wear and tear as a natural consequence of its use. This is borne by the lender. Reasons: the lender retains ownership so he should bear the loss from ordinary deterioration; the purpose of commodatum is for the borrower to use the thing. Deterioration is a natural result of such use. - To be liable for the loss of the thing even if it should be through a fortuitous event IN THE FOLLOWING CASES:
i. if he devotes the thing to any purpose different from that for which it has been loaned
ii. if he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted
iii. if the thing loaned has been delivered with appraisal for its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event
iv. if he lends or leases the thing to a third person, who is not a member of his household
v. if, being able to save either the thing borrowed or his own thing, he chose to save the latter (1942) - To pay for extraordinary expenses arising from the actual use of the thing by the bailee, which shall be borne equally by both the lender and the borrower, even though the borrower acted without fault, unless there is a stipulation to the contrary (1949 par 2)
- To return the thing loaned. The bailee has no right to retain the thing loaned as security for claims he has against the bailor even for extraordinary expenses except for a claim for damages suffered because of the flaws of the thing loaned under Art. 1951 (Damages arising from undisclosed flaws and defects). Right of Retention exists only in 1951. No legal pledge is constituted which does not give him a right to foreclose if he is not paid. But he can use it if necessary for maintenance. He can sue to collect.
Art. 1951
The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be liable to the latter for the damages which he may suffer by reason thereof.
The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without his fault. T or F.
True.
1943
The bailee can retain the thing loaned on the ground that the bailor owes him something. T or F.
False. Even though it may be by reason of expenses, the bailee cannot retain the thing loaned for such reason. However, the bailee has a right of retention for damages mentioned in Article 1951.
1944
When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. T or F.
True.
1945
Obligations of the lender
- To respect the duration of the loan
GENERAL RULE: Allow the bailee the use of the thing loaned for the duration of the period stipulated or until the accomplishment of the purpose for which the commodatum was instituted.
EXCEPTIONS: In case of urgent need in which case
bailee may demand its return or temporary use; The bailor may demand immediate return of the thing if the bailee commits any act of ingratitude specified in Art. 765. - To refund to the bailee extraordinary expenses for the preservation of the thing loaned, provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are so urgent that the reply to the notification cannot be awaited without danger. (No Right of Retention By Borrower)
- To be liable to the bailee for damages for known hidden flaws. (With Right of Retention By the Borrower)
Requisites:
There is flaw or defect in the thing loaned;
The flaw or defect is hidden;
The bailor is aware thereof;
He does not advise the bailee of the same; and
The bailee suffers damages by reason of said
flaw or defect
Art. 765
The donation may also be revoked at the instance of the donor, by reason of ingratitude in the following cases:
(1) If the donee should commit some offense against the person, the honor or the property of the donor, or of his wife or children under his parental authority;
(2) If the donee imputes to the donor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the donee himself, his wife or children under his authority;
(3) If he unduly refuses him support when the donee is legally or morally bound to give support to the donor.
The bailor may demand the thing at will, and the
contractual relation is called a precarium, in the following cases:
a. If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or
b. If the use of the thing is merely tolerated by the owner
1947
If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne …
equally by both the bailor and the bailee, unless there is a stipulation to the contrary
1949, par 2
If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in Articles 1941 and 1949, he is not entitled to reimbursement.
Article 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.
Article 1949. The bailor shall refund the extraordinary expenses during the contract for the preservation of the thing loaned, provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are so urgent that the reply to the notification cannot be awaited without danger.
If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary.
T or F.
True.
1950
The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be liable to the latter for the damages which he may suffer by reason thereof. T or F.
True.
1951
The bailor cannot exempt himself from the payment
of expenses or damages by abandoning the thing to the bailee. T or F.
True.
1952
Mutuum 1933 v. Mutuum 1953
The general provisions in 1933 defines Mutuum to cover money or consumables while 1953 speaks of money or fungible things. The better definition is 1953. As between a general provision and a special provision, the latter shall prevail.
Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
Fungible things
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. Fungible can be substituted.
Consumable things
Those which cannot be used without being consumed. Whether a thing is consumable or not depends upon its nature. Whether a thing is fungible or not depends on the intention of the parties.
In mutuum, a non-consummable can be a subject matter. T or F.
True. Provided that it is fungible.
Example of a mutuum involving a fungible thing
A textbook is non-consummable but it is fungible and therefore can be a subject of mutuum. A bookstore (Bookstore 1) that run out of stock of a 2015 book on credit transaction by Atty. Timmy Aquino borrowed 1 from another bookstore (Bookstore 2) to sell it to a law student. After obtaining his orders from the printer the following day, Bookstore 1 returned 1 2015 book on
credit transaction by Atty. Timmy Aquino to Bookstore 2. It is not commodatum because it is not the same thing borrowed. It is not barter because there is no exchange non-fungibles and it is gratuitous. It is submitted that this is a Mutuum involving a fungible thing.
A contract whereby one person transfers the ownership of non-fungible things to another with the
obligation on the part of the latter to give things of
the same kind, quantity, and quality shall be considered a barter.
Okay. Barter is a promise to give another thing. (in short, exchange of property).
1954
Commodatum/Mutuum v. Barter
(1)
C/M: Subject matter is money or fungible things
B: Subject matter is non-fungible, (non consumable) things
(2)
C/M: In commodatum, the bailee is bound to return the identical thing borrowed when the time has expired or purpose served
B: The thing with equivalent value is given in return for
what has been received
(3)
C/M: Mutuum may be gratuitous and commodatum is always gratuitous
B: Barter is Onerous, actually a mutual sale
Mutuum is extinguished by loss of collateral. T or F.
False. Mutuum is not extinguished by loss of collateral.
Cash Advance is a loan, therefore no estafa. T or F.
True.
Withdrawal from uncollected deposit (DAUD) is estafa. T or F.
False. Withdrawal from uncollected deposit (DAUD) is a loan - No Estafa.
Form of payment
- 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.
- The obligation of a person who borrows money shall be governed by the provisions of articles 1249 and 1250 of this Code. - 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.
Art. 1249
Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the abeyance.
Art. 1250
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.
R.A. 529 (Prohibited foreign currency stipulation as payment) was repealed by R.A. 8183 which now allows payment by foreign currency, if stipulated.
Oki.
Legal tender
is that which a debtor may compel a creditor to accept in payment of a debt.
“all notes and coins issued by the Bangko Sentral shall be fully guaranteed by the Government of the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both public and private.”
Under its charter, the Bangko Sentral was given the sole power and authority to issue currency within the territory of the Philippines, and no other person or entity, public or private, may put into circulation notes, coins or any other object or document which, in the opinion of the Monetary Board, might circulate as currency. Otherwise, the currency is unauthorized.
Coins as legal tender
a. 1-peso coins and coins of higher peso value are legal
tender for obligations not exceeding P 1,000.
b. 25-cents and coins of lower value are legal tender
for obligations not exceeding P 100 (BSP Circular 537 series of 2006)
Notes, regardless of denomination, are legal tender for any amount of obligation.
Coins which show signs of filing, clipping or perforation and notes which have lost more than 2/5 of their surface or all of the signatures inscribed therein shall be withdrawn from circulation and demonetized without compensation to the bearer. (Section 56 of RA 7653)
Crumpled notes which has lost its surface by less than 2/5 of the surface, is still legal tender. Banks are likewise required to accept mutilated currency notes
and coins for redemption or deposit under BP Circular no 829 series of 2014.
Demonetization
The process of removing the monetary value of a legal tender currency by the issuing authority. Demonetized currency shall no longer be accepted for payment of goods and services.
Check as a medium of payment is not legal tender
except in redemption in foreclosures:
Javellana vs. Mirasol 40 Phil 761 ;
Crystal vs. CA 62 SCRA 501 (1975) 71 SCRA 443 (1976);
New Pacific vs. Seneris 101 SCRA 686 (1980);
Roman Catholic vs. IAC 191 SCRA 491 (1990);
Fortunado vs. CA 196 SCRA 26 (1991);
Tibajia vs CA 223 SCRA 163
Oki.
Credit card is a legal tender. T or F.
False. Credit card is not a legal tender.
If the debtor issues a check and the Creditor impairs it
by not presenting it until after 10 years and thus became stale, the check is impaired through the
creditor’s fault. Therefore, it produced the effect of
payment.
Oki.
Virtual currency, such as bitcoin, is a legal tender. T or F.
False.
Virtual Currency, such as bitcoin, is not legal tender. A virtual currency (VC), refer to any type of digital unit that is used as a medium of exchange or a form of digitally stored value created by agreement within the community of VC users. It is “medium of exchange” and that their usage is more by agreement among the community of users, meaning that there is no compulsion for the counterparties to accept the VCs as a payment mechanism. In such sense, bitcoins do not purport to be currency nor to be classified as legal tender. VCs are not issued or guaranteed by any jurisdiction and do not have any legal tender status.
The Bangko Sentral does not intend to endorse any VC, such as bitcoin, as a currency since it is neither issued nor guaranteed by a central bank nor backed by any commodity. In December last year, the US SEC Chairman also issued an advisory that investors in such products should exercise extreme caution and be wary that the investment may be lost. This is similar to the advisory issued by the Singapore central bank also in December last year. China and Indonesia, however, went one step further by disallowing bitcoins in their respective jurisdictions. (BSP Circular No. 944 (2017)
Art. 1250 is applicable in payments of loans. 1250 provides that in case of extraordinary inflation or devaluation, the value of the currency at the time of the establishment of the obligation (not at the time of payment) should be the basis for payment. T or F.
True.
For 1250 to apply, there must be official government
declaration. The said article may not be invoked nor applied without a proper declaration of extraordinary inflation or deflation of currency by the competent authorities.
Extraordinary inflation exists when
When there is a decrease or increase in the purchasing power of the Philippine currency which is unusual or beyond the common fluctuation in the value said currency, and such decrease or increase could not have been reasonably foreseen or was manifestly beyond contemplation of the parties at the time of the
establishment of the obligation.
An example of extraordinary inflation is the following description of what happened to the Deutschmark in 1920: More recently, in the 1920’s Germany experienced a case of hyperinflation. In early 1921, the value of the German mark was 4.2 to the U.S. dollar. By May of the same year, it had stumbled to 62 to the U.S. dollar. And as prices went up rapidly, so that by October 1923, it had reached 4.2 trillion to the U.S. dollar!
Monetary interest
Compensation fixed by the parties for the use or forbearance of money.
Compensatory interest
May also be imposed by law or by courts as penalty or indemnity for damages. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded.
A borrower may be held liable for interest even without a stipulation.
No interest shall be due unless it has been expressly stipulated in writing. T or F.
True.
1956
Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. T or F.
True.
The borrower may recover in accordance with the laws on usury.
1957
