CREDIT TRANSACTIONS

What is “CREDIT”
• In general, the term is derived from the Latin “credere”, which means
to trust.

• Credit has been defined primarily as meaning belief, faith, reliance on

the truth, or trust given or received from one to another.

• Credit is also understood as the capacity of being trusted,

trustworthiness, or that which procures or adds to reputation or
esteem.
In its commercial application, “credit” is the antonym of
“cash”, referring to the time allowed by the creditor for
the payment of goods sold by him to the debtor; a basis
on which one may trade as he desires without payment;
the means by which a person can secure money with
which to pay his debts or to carry on his business.
Chose in action. As ordinarily used in trade or business,
“credit” suggests nothing more than a chose in action -
a thing incorporeal, consisting in the right of one person
to demand and recover from another, a sum of money or
other thing in possession.
When used in the sense of what is owing to a
person, “ credit” necessarily implies a debtor and
creditor relation. Under this circumstance, “credit”
has been understood as a claim or cause of action
for money.
SCOPE OF THE STUDY:
When we speak of “Credit Transactions”, we Refer to
transactions based on credit, that is, on “belief or trust”, or
transactions which tend to create or strengthen that “belief or
trust”.

Both the contracts of LOAN, in all its forms, and DEPOSIT

are founded on “belief or trust”. (Principal Contracts)
The contracts of security - GUARANTY, PLEDGE,
CHATTEL MORTGAGE, REAL ESTATE MORTGAGE, and
ANTICHRESIS, serve to create or strengthen belief or trust
and thus paves the way for the contract which gives rise to the
principal obligation secured. (Accessory Contracts)

When we speak of “Concurrences and Preferences of Credits”,

however, the term “Credits” is used to mean “choses in
action”, claims or causes of action for money.
THE COURSE, then, will cover the following:

1. Loan - “ARTICLE 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 or the same kind or
quality shall be paid, in which case the contract is simply
called a loan or “mutuum”.
2. Deposit - “ARTICLE 1962: A deposit is constituted from
the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and
returning the same. If the safekeeping of the thing
delivered is not the principal purpose of the contract, there
is no deposit. It some other contract”.
3. Guaranty - “ARTICLE 2047: By guaranty a person, called
the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should
fail to do so.

If a person binds himself solidarily with the principal

debtor, the provisions of Section 4, Chapter 3, Title 1 of this
Book shall be observed. In such case the contract is called a
suretyship.”
4. Pledge - (ARTICLE 2085 enumerates the essential requisites of
the contracts of pledge of mortgage instead of defining them).

Manresa: “Pledge, in the sense we are examining it, is an

accessory, real and unilateral contract made to secure a prior and
valid obligation, by virtue of which the debtor delivers to the
creditor or to a third person a movable property as security for the
performance of a specific obligation upon the fulfillment of which
the thing pledged with its fruits and accessions must be returned to
the debtor” (12 Manresa 423)
5. Chattel Mortgage - “ARTICLE 2140. By a chattel
mortgage, personal property is recorded in the Chattel
Mortgage Register as security for the performance of an
obligation. If the movable, instead of being recorded, is
delivered to the creditor or a third person, the contract is a
pledge and not a chattel mortgage.”
6. Real Estate Mortgage - (ARTICLE 2124 mentions the kinds of
property which may be the object of a real estate mortgage).

Real Estate Mortgage is a contract whereby the debtor secures to

the creditor the fulfillment of a principal obligation, specially subjecting
to such security immovable property or real rights over immovable
property which obligation shall be satisfied with the proceeds of the sale
of said property or rights in case the said obligation is not complied with
at the time stipulated” (Comments and Cases on Credit Transactions
13th ed. by Hector S. De Leon, pg. 473)
7. Antichresis - “ARTICLE 2132. By the contract of
antichresis the creditor acquires the right to receive the
fruits of an immovable of his debtor, with the obligation to
apply them to the payment of the interest, if owing, and
thereafter to the principal of his credit.”
8. Concurrence and Preference of Credits (Articles 2236 - 2251)

“Concurrence of Credits” - implies the possesssion by two or more

creditors of equal rights or privileges over the same specific
property or all of the property of a debtor. (Phil Savings Bank vs.
Hon. Lantin, 124 SCRA 476 [1983])

“Preference of Credit” - is the right held by a creditor to be

preferred in the payment of his claim above others (I.e. to be paid
first) out of the debtor’s assets.
Definition of “Credit” as applied to Loans - The ability to
borrow money or thing by virtue of the confidence or trust
reposed by the lender that the borrower will pay what he may
promise.