CREDIT TRANSACTIONS

SIMPLE LOAN OR MUTUUM

KINDS OF INTERESTS
a. MONETARY INTEREST: Regular interest which constitutes the
price or cost of the use of money and thus until the principal sum
due is returned to the creditor, regular interest continues to
accrue since the debtor continues to use the principal amount.
1. REQUISITES FOR MONETARY INTEREST:
(1)There is an agreement
(2)Must be in writing
(3)The rate of interest is not usurious or unconscionable
- If it is payable in kind, the value shall be appraised at he current
price of the goods at he time and place of payment.
b. PENALTY INTEREST- Interest as part of the penal code, which Is
governed by Article 1226 of the NCC. It provides that in
obligations with penal cause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of
non-compliance, if there is no stipulation to the contrary.
-A penal cause is in the nature of an accessory obligation which
makes one party liable or perform another prestation if the
principal obligation is not fulfilled.
-PURPOSE: (1) Assume greater liability to ensure performance;
(2) Provide for liquidated damages; (3) Strengthen coercive force
of the obligation.
c. LEGAL INTEREST: Rate of Interest fixed by law that will be
followed if there is a
written agreement that interest will be
paid or when the law or rule provides for the payment of interest
but the rate is not stipulated.
-6% per annum that took effect on July 1, 2013.
d. WHEN AVAILABLE: Applies to : (1) Loans; (2) Goods, forebearance
of money or credits; (3) Judgment involving loans, goods, credits
or forebearance of money.
e. LEADING CASES:
(1)EASTERN AND NACAR
TYPE OF OBLIGATION
INTTEREST DUE
ADDITIONAL INTEREST
1. When the
Interest stipulated in
a. Interest due shall
obligation is breached writing
itself earn
and it consists in the
interest from the
payment of a sum of
time is
money
JUDICIALLY
DEMANDED. In

2. The obligation does

not consist in the
payment of sum of
money

An interest in the
amount of damages
awarded may be
imposed at the
discretion of the
court at 6% per
annum

the absence of
stipulation, the
rate of interest
shall be 6% per
annum to be
computed from
DEFAULT.
b. If court awards a
sum of money
and the award
becomes final
and executor, the
rate of interest
shall be 6% per
annum from such
finality until
satisfaction
Court awards a sum of
money which becomes
final and executor, the
rate of legal interest
shall be 6% per annum
from such finality until
its satisfaction, this
interim period being
deemed to be by then
an equivalent to a
forbearance of a credit.

Unliquidated claims of -No interest until final

damages
judgment
-The legal interest of
6% shall be on the
amount finally
adjudged by the
Court.
f. In PCI v Trojan, the court provided for the computation: TOTAL
AMOUNT DUE= [principal-partial payments] + [interest+interest
on interest], where:
a. Interest= remaining balance * 6% per annum*number of
years from due date (date when demand was made) until full
satisfaction/payment.
b. Interest on interest= interest computed as of filing of the
complaint * 6%* number of years until full
satisfaction/payment.

g. LOAN OR FORBEARANCE: Contractual obligation whereby a

creditor has refrained during a given period from requiring the
debtor to repay the loan due and payable
-One of the parties cannot stipulate on his own that the rate of
interest will be increased. This stipulation will violate the
mutuality of contracts.
h. INTEREST ON INTEREST
GR: Interest due and unpaid shall not earn in itself interest.
XPN: (1) Upon judicial demand
(2)When compounding of interest is agreed upon.
i. ESCALATION OF INTEREST: Generally, it is void for one of the
parties to unilaterally increase the rate of interest. However, the
Manual Regulation for Banks provided for an exception:
-ESCALATION OF INTEREST, WHEN ALLOWED
(1) In the event that the applicable maximum rate of interest is
increased by the Monetary Board, provided:
(a) Such stipulation shall be valid only if there is also a stipulation
in the agreement that the rate of interest agreed upon shall be
reduced in the event that the applicable maximum rate of
interest is reduced by law or Monetary Board
(b) Adjustment of rate of interest agreed upon shall take effect
on or after the effectivity of the increase or decrease in the
maximum rate of interest.
-The parties shall mutually agree upon any agreement in the
stipulation of interest.
-Under the Usury Law as amended by PD 1684, the parties may
agree to adjust upward or downward previously stipulated.
However, the law did not authorize to unilaterally increase or
decrease the interest.
-The borrower may not be estopped in questioning the validity of
interest.
j. EFFECT OF INVALIDITY OF ESCALATION INTEREST:
-The principal amount of the loan is subject to the original
stipulated interest and upon maturity, the amount due shall be
subject to legal interest at the rate of 6% per annum.
-The interest paid by the borrowers shall be applied first to the
payment of the stipulated or legal and unpaid interest as the
case may be and later to the principal.
k. UNCONSCIONABLE INTEREST RATE
l. WHEN SOLUTIO INDEBTI IS APPLICABLE

-If the borrower pays interest when there is no stipulation to the

same, the rule on solutio indebiti is applicable. Thus, the interest
paid is recoverable.
m. TRUTH IN LENDING: Protects citizens from a lack of awareness of
the true cost of credit to the user by using a full disclosure of
such cost with a view of preventing the uniniformed use of credit
to the detriment of the National Economy.
-A disclosure statement must be furnished prior to the
consummation of the transaction.
(a) The cash price
(b) Amounts to be credited as down payment or trade in
(c) Difference between the amount of (a and b)
(d) Charges individually itemized in connection but not incident
to the transaction
(e) Total amount to be financed
(f) The finance charged
(g)Percentage of the financial bears.
-Incident to the extension of credit.

CHAPTER 4: CREDIT CARD

1.

CREDIT
CARD
DEFINED
(Access
Device)
-Any card, plate, coupon book or other credit device existing for
the purpose of obtaining money, goods, property, labor or services or
anything with value on credit.
a. ACCESS DEVICE: Any card, plate, code, account number,
electronic serial number, PIN, or other telecommunications service,
equipment or instrumental identifier or of other means of account
access that can be used to obtain money, goods, property, labor or
services or anything with value or to initiate a transfer of funds (other
than a transfer originated solely by paper instrument)
b. OPEN-END-CREDIT PLAN: Consumer credit extended on an
account pursuant to a plan under which: (1) Credit may permit that a
person may make purchases or obtain a loans directly from the creditor
or indirectly by use of credit card; (2) Person has the privilege of
paying the balance; (3) A financial charge may be computed by the
creditor for unpaid balance.
1.1 GOVERNING LAW: R.A 8484 or Access Devices Regulation Act.
-The State protects the rights and liabilities of parties in such
commercial transactions by regulating the issuance and use of access
devices.
-NCC, Obligations and Contracts
-Manual of Regulation of Banks
1.02. HISTORICAL BACKGROUND

-PANTALEON v AMERICAN EXPRESS INTERNATIONAL INC

-introduced by the Diners Club in NY followed AMEX
-In PH, Pacific Bank.
2. NATURE OF CREDIT CARD TRANSACTIONS
-Involves a TRIPARTATE RELATIONSHIP between ISSUER BANK,
CARDHOLDER and MERCHANTS
-ISSUER BANK: Establishes an account to the person and they enter
into an agreement which governs their relationship. This agreement
provides that the bank will pay for cardholders account the amount of
merchandise purchased through the card.
-CARDHOLDER: Liable to the bank for the advances made by the
bank for his purchases and his liability shall not be prejudiced by any
impairment in the cardholders purchases.
-MERCHANTS: Agrees to honor the banks credit cards. The bank
honors to pay the sales slip presented by the merchants.
-Credit cards are not limited to banks and business establishments may
extend credit sales through the use of Credit card facilities of a nonbank credit card company to avoid uncollectible amounts.
3. THREE CONTRACTS
a. CONTRACT OF SALE between the credit card holder and the
merchant that accepted the credit card.
b. LOAN AGREEMENT between the credit card holder and credit
card issuer
c. PROMISE TO PAY between the credit card issuer and the
merchant.
4. CCI AND CCH RELATIONSHIP
a. CONTRACTUAL:
-WHEN DOES RELATIONSHIP BEGIN
(1) Unilateral with no consideration. The offer may be withdrawn at
any time and it breaches no duty. Hence, each transaction is
considered a separate offer and acceptance.
(2) Novack v City Service Oil: Mere issuance did not create any
contractual relationship.
-OTHER VIEW: Gray v AMEX
-In our jurisdiction, we adhere that the relationship between the CCH
and CCI is contractual that is govern by the terms and conditions found
in the card membership agreement. This agreement creates rights and
liabilities to both parties.
4.02 SURETY OF CARDHOLDER:
-The surety of the CCH is solidary liable with the CCH. The surety is
liable if the cardholder reneged on his obligations covered by the

account. The CCI can proceed singly against the surety without
prejudice to the action that the surety may file an action against CH.
-The surety cannot escape liability just because of the renewal of the
card if the liability for such renewal is expressly provided for in the
contract the CH signed.
-Any novation in the Credit agreement will not release the surety from
being liable.
4.03 OBLIGATION OF MERCHANT
- Merchant may be held liable if it refuses to accept the card without
following the prescribed procedure thereby causing humiliation to the
CH.
5. NO DUTY TO APPROVE: The use of credit card is mere offer to
enter into loan agreements.
-There is a difference in the existence of relationship upon the
acceptance of the CH of the terms and conditions from the contractual
relationship from creditor-debtor. The latter only arises when the CCI
has approved the CH purchase request.
-The latter involves an actual credit on loan agreement involving 3
contracts: SALES CONTRACT between the CCH and merchant; LOAN
AGREEMENT between the CCI and the Merchant and the PROMISE TO
PAY between CCI and Merchant.
-Only upon the acceptance of the CCI of the CCH purchases request
that the parties enter into a binding loan agreement. Meaning, there is
already a meeting of the offer and acceptance (art 1319)
6 . TERMS AND CONDITIONS: The relationship between CCH and CCI
is a contractual one that is governed by the terms and conditions found
in the membership card agreement.
-This rule is not applicable if the bank issued a pre-approved credit card
application from prior to the issuance of the credit card.
-The CCH is not liable if it cannot be shown that the Terms Agreement
was sent to the CH.
-Rate of Interest in an Escalation Clause may be sustained by the Court
if it is not Usurious or unconscionable
-Acceleration Clause is allowed by the MORB in case that the CH
defaulted in payment and may thus demand full payment of obligation.
6.01 CONTRACT OF ADHESION: It is such because the terms and
conditions are prepared solely by the CCI. It is offered on a take it or
leave it basis.
6.02. COMPLIANCE AND BREACH:

-CCI cannot implement conditions that are not in the terms and
conditions.
-The CCH must prove and breach of the CCI.
-CCI may be made liable for the premature cancellation of the card.
6.03 CREDIT LIMIT: The CCH is bound by the agreed limit of the
amount that can be purchased using the card.
6.04. AUTOMATIC CANCELLATIONS: The CCI shall formulate
criterias for suspension.
-If the CCH went beyond the limit the CCI may suspend the card.
-If there are still outstanding balances despite billing statements, the
card may be suspended.
-Payment of PDC are not allowed because delivery of the same does
not produce payment.
6.05 INTEREST AND CHARGES:
(1) FINANCE CHARGES: Those incident to the extension of credit
card
(2) PENALTY CHARGES- Imposed on the CH for non-payment of
account within the prescribed period.
6.06 LOSS OF CREDIT CARD: The CCH must notify the issuer of the
loss of the access device of the details and circumstances of such loss
upon knowledge of such loss.
-A provision that the CCH must wait for the issuer to notify all its
partner merchants is invalid for being contrary to public policy.
7 DUTY TO DISCLOSE TO CARDHOLDER
1. Annual Percentage Rate
2. Annual and Other Fees
3. Balance Calculation Method
4. Cash Advance Fee
5. Over the Limit Fee
6. Computations.
7.01 DISCLOSURE MAY BE OMMITTED- There are exceptions.
8. COLLECTION- The statement of account shall reflect the minimum
amount of payment required for a particular billing cycle. (1) Total
outstanding balance x Required payment percentage or a fixed amount
whichever is higher; (2) Any amount which is part of any fixed monthly
installment; (3) Any amount in excess of the credit line; (4) All past due
amounts.
-Default or delinquency means failure to pay the Minimum Payment
Required within two cycle dates.

9. CONFIDENTIALITY
-The credit card companies shall keep strictly confidential the data on
the cardholder, except:
a. Disclosure with the consent of the CH
b. Exchange of customer information with other financial institutions
c. Orders of Court
d. Disclosure to collection agencies
e. Disclosure to third party services which assist the bank in the
administration of credit card business.
f. Disclosure to insurance companies.
11. OFFSETTING- The CCI shall inform the CCH that any deposit
within the bank may be used to offset any unpaid balance in the credit
card.
12. PROHIBITED ACTS
a. Access Device fraud
b. Unlawful collection practices.

CONSUMER LOANS AND OTHER TYPES OF LOANS

1. CONSUMER CREDIT TRANSACTIONS: Governed by the
CONSUMER ACT OF THE PH or RA 7394
2. CONSUMER CREDIT AND LOAN DEFINED
a. 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 full payment is therefor payable at
some future time whether in full or installments
b. CONSUMER LOAN- loan made by the lender to a person which
is payable on installments for which a financial charge may be
imposed.
OPEN END CREDIT PLAN