CREDIT TRANSACTIONS

Commodatum Mutuum
Loan (1933- 1961) The kind of property Only personal
Characteristics may be a real or property
personal property
 Real Contract The loan is only for a The loan is for
 Unilateral temporary consumption of the
 Nominal possession thing
 Principal The bailor may The lender may not
demand the return of demand the return of
 Informal
the thing loaned the thing before the
 Gratuitous before the expiration lapse of the term
Objects: of the term agreed upon
Loss of the thing is Borrower suffers the
 Immovable Property incurred by the bailee loss of the thing
 Movable Property

Cause or consideration
COMMODATUM
As to the borrower, the acquisition of the thing Kinds of Commodatum
As to the lender, the right to demand its return or its 1. Ordinary Commodatum (Article 1933)
equivalent 2. Precarium
-The bailor may demand the return of the thing
Kinds of Loan
loaned at will
1. Commodatum -the kind of commodatum where the bailor may
demand the thing at will whether or not the use
In commodatum, one of the parties deliver to another,
for which the thing has been loaned has been
something not consumable so that the latter may use the
accomplished
same for a certain time and return it
-Contract by which the owner of a thing, at the
2. Simple Loan/ Mutuum request of another person gives the latter the
thing for use as long as the owner shall please
In Mutuum, one of the parties deliver to another money
or other consumable thing upon the condition that the Purpose:
same amount of the same kind and quality shall be paid.
To use the property or the object
Commodatum Mutuum
Ex. A lends B his vehicle to bring patients to Manila, free
The object is The object is a
of charge
something non consumable
consumable Note: If the bailor transfers the property to the bailee for
Ownership is retained Ownership of the the purpose of hiding the property, it is not a contract of
by the lender thing is transferred to Commodatum but a contract of Deposit.
the borrower
The contract is The contract may be Perfection of the Contract of Commodatum and
gratuitous gratuitous or onerous Mutuum (Article 1934): requires the delivery of the
The borrower must The borrower need subject matter for they are Real Contracts
return the same thing only to pay the same
loaned amount of the same
kind and quality

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 CREDIT TRANSACTIONS
Delivery of the thing contemplates the transfer of either
the use (for commodatum) or the ownership (loan) of the
thing.
The accepted promise to lend the thing or to make a
future loan is merely a consensual contract, and is
therefore binding upon the parties. The contract will only
become a real contract after the delivery of the thing.
Nature of Commodatum
1. Essentially gratuitous (Art. 1935)
No compensation for the use of the thing, otherwise it is
a lease contract. Similar to donation, it confers benefit to
the recipient.
2. Non consumable goods are generally the subject
of commodatum, but consumable goods for the
purpose of exhibition can be the subject matter
(Art. 1936)
3. Movable or immovable properties can be the
object of commodatum (Art. 1937)
4. It is sufficient that the bailor has possessory
interest in the subject matter or right to its use
(Art. 1938)
5. Commodatum is a personal between the parties
(Art. 1939)
GR: Death of either the bailor or the bailee
extinguishes the contract.
EXPN: the parties stipulated that commodatum is
transmitted to the heirs.
In multiple parties, death of one does not extinguish
the contract.
6. Bailee can neither lease not loan the thing to
third persons, but the use can be extended to the
members of the bailee’s immediate family
members (Art. 1939)
EXPN (use of the thing by the family members):
a. There is a stipulation to the contrary; or
b. Nature of the thing forbids such use
7. Bailee may make use of the fruits of the thing
loaned if stipulated in the contract (Art. 1940)
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Obligations of Bailee
1. Pay for ordinary expenses for use and
preservation of the thing loaned (Art. 1941)
- Borrower must take good care of the thing
with the diligence of a good father of a family
2. Liable for the loss even through fortuitous event
or in the following instances:
a. Devotes the thing to any purpose other
than that intended (acts in bad faith)
b. Keeps it more than the period stipulated
(in delay)
c. Thing is delivered with appraisal of
value, except when there is a stipulation
that he is exempt from paying
(presumption: parties intended that the
borrower shall be liable for the loss of
the thing even through fortuitous event,
otherwise they will not have appraised
the thing)
d. Lends the thing to persons not a
member of his household
(commodatum is purely personal)
e. Chose to save his own thing over the
thing in commodatum (shows
ingratitude after the thing is loaned to
him gratuitously) (Art. 1942)
Rationale: punish the bailee for his improper
acts although they may not be the proximate
cause of the loss
3. Solidarily liable for the thing in case of two or
more bailees (Art. 1943)
4. Must return the thing upon the demand of the
bailor or upon the expiration of the period
- He cannot retain the thing used on the
ground that the bailor owes him, even by
reason of his expenses, except when the
Bailee is liable for damages (1944)
- The ownership is retained to the bailor and
the bailee is only given temporary use
Obligations of the Bailor
1. Respect the stipulated period (Art. 1946)
 CREDIT TRANSACTIONS
EXPN: when there is an urgent need of the thing, he
may demand its return or temporary use (Art. 1946)
Effect: contract of commodatum is suspended while
the thing is in possession of the bailor (Art. 1946)
2. Be liable for damages if, despite knowledge of
the flaw of the thing, he did not inform the bailor
of the flaw (Art. 1951)
Requisites:
a. There is a flaw or defect in the thing
loaned;
b. Flaw or defect is hidden;
c. Bailor is aware thereof;
d. He does not advise the bailee of the
same; and
e. Bailee suffers damages by reason of said
flaw or defect
3. Payment of expenses or damages for
abandoning the thing to the bailee (Art. 1952)
- May exceed the thing loaned, and it would
be unfair to allow the bailor to just abandon
the thing instead of paying for said expenses
and damages
4. Refund extraordinary expenses during the
contract for the preservation of the thing,
provided the bailee brings the same to the
knowledge of the bailor (1949)
- Bailor profits by the expenses
- Notice is required for the bailor might not
want to incur expenses at all
Rights of Bailee
1. Bailee does not answer for the deterioration of
the thing loaned due only to the use without his
fault (Art. 1943)
- Parties know that the thing borrowed cannot
be used without deterioration due to
ordinary wear and tear
- Depreciation caused by the reasonable and
natural use of the thing is borne by the bailor
2. Right of retention
a. In case of extraordinary expenses, and
those expenses not provided for in the
law which the bailee is responsible, and
bailor failed to reimburse the bailee
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b. For hidden flaws or those which the
bailee was not informed, with the
deliberate intention of the part of the
bailor to hide the defect.
Right to demand the return of the thing by the Bailor at
will (Precarium)
1. Neither the duration of the contract nor the use
to which the thing should be devoted has been
stipulated;
2. Use of the thing is merely tolerated by the owner
Right to demand the immediate return by the Bailor
When the bailee commits any act of ingratitude specified
in Art. 795 of the Civil Code (Art. 1948)
The bailee who commits any acts of ingratitude makes
himself unworthy of the trust reposed upon him by the
bailor
Acts of ingratitude:
f. Bailee should commit an offense against
the person, honor or the property of the
bailor, or of his wife or children under his
parental authority;
g. Bailee imputes to the bailor 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 bailee himself,
his wife and children under his authority;
and
h. Bailee unduly refuses to the bailor
support when the bailee is legally or
morally bound to give support to the
bailor
SIMPLE LOAN OR MUTUUM
- Involves the return of the equivalent only
and not the identical thing because the
borrower acquires ownership
- A loan of money may be payable in kind
 CREDIT TRANSACTIONS

Obligation of the borrower: to pay, and not to return. another with the obligation on the latter to give things of
This includes the accessory contract of paying interest. the same kind, quantity, and quality.

Consumption of the thing loaned is the distinguishing Barter Mutuum and

character of the contract of mutuum from Commodatum
commodatum. The subject matter is The subject matter is
nonconsumable things money and other fungible
Cause/ consideration: promise of the borrower to pay things for mutuum
for the obligation of the lender to furnish the loan (Note: An equivalent thing is In commodatum, the
a mutuum is a bilateral contract) given in return for what bailee is bound to return
has been received the identical thing
No criminal liability if the person refuses to pay or
borrowed when the time
denies the existence of the contract expired or the purpose
- Ownership is transferred to the borrower, has been served
and as such he can dispose of the thing An onerous contract Mutuum- may be
gratuitous
borrowed and his act will not be considered
Commodatum- always
as misappropriation
gratuitous
Loan Rent
Delivery of money or One of the parties
Obligation of a person who borrows money shall be
some other consumable delivers to another some
governed by the provisions of Articles 1246-1250 (Art.
thing to another with a non-consumable thing in
promise to repay the order that the latter may 1955)
equivalent amount use it during a certain Form of payment (Article 1955)
period and return it to the
former a. If a fungible thing was loaned other than money-
Ownership is transferred Ownership is not debtor owes another thing of the same kind,
transferred quantity, and quality even if it should change in
Relationship of the Relationship: landlord- value
parties: Obligee-obligor tenant - If it is impossible to deliver the same kind, its
Creditor receives Owner of the property value at the time of the perfection of the
payment for his loan receives compensation or loan shall be paid
price from the occupant b. Loan of money
for its use
GR: Legal tender in the Philippines
EXPN: Currency stipulated must be paid if it is
Fungible things- those which are usually dealt with by possible to deliver such currency
number, weight, or measure so that any given unit or For extraordinary inflation or deflation, the basis
portion is treated as the equivalent of any other unit or of payment shall be the value of the currency at
portion the time of the creation of the obligation

Whether a thing is consumable or not depends upon the Interest (Article 1956)
nature of the thing, and whether a thing is fungible or not
Requisites for recovery of interest:
depends on the intention of the parties.
a. Payment must be expressly stipulated;
Barter (Art. 1954)- contract whereby one person
b. Must be in writing; and
transfers the ownership of non-fungible things to
c. Interest must be lawful

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 CREDIT TRANSACTIONS
Rules for interest:
1. Stipulation of interest by the parties- that
interest and not the legal interest shall be
applied.
Note: the Usury Law was suspended by the
Bangko Central, and as such, there is no more
ceiling rate for the parties. They can agree upon
whatever rate subject to the court’s control.
If the court finds the interest rate
unconscionable or usurious, it shall determine
when the borrower is in default and impose a
legal interest rate of 12% or 6% respectively.
The court may also award compensatory
damages.
Ex. In a promissory note, the maker promised to
pay P10,000 on or before January 1, 2019 with
interest.
- Since there is no mention of interest rate,
the lender can ask for the imposition of the
6% per annum legal interest after the due
date.
- If no period to determine when default, it is
due on demand.
2. If the exact rate of interest is not mentioned, the
legal interest rate of 12% is payable
3. No increase in interest shall be due unless such
increase has also been expressly stipulated
Note: In credit cards, there is a stipulation that
the bank can raise the interest rates depending
on the value of peso. The SC held that the
increase of the rates is not valid. What is valid is
the escalation clause of the contract.
4. In the absence of stipulation, interest is allowed
when:
a. Indemnity for damages when the debtor
is obliged to pay legal interest (6% or
12%) in delay. Payment of 6% per annum
interest for obligations not constituting a
loan or forbearance of money at the
discretion of the court. Payment of 12%
per annum
b. Interest recovered upon unliquidated
claims or damages when the demand is
established with reasonable certainty
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c. Central Bank Circular No. 416 that fixes
12% interest rates per annum dealing
with loans, forbearance, and judgments
involving such loans or forbearance
5. Interest is separate and distinct from surcharges
and penalties.
- Penalty stipulation is not necessarily
preclusive of interest
Usurious contracts declared void (Article 1957)
Contracts and stipulations under cloak or device
whatever intended to circumvent the laws against usury
shall be void. The borrower may recover in accordance
with the laws on usury.
The form of contract is not conclusive. Parole evidence is
admissible to show that a written document though legal
in form was in fact a cloak or device to cover usury if from
construction of the whole transaction it becomes
apparent there exists a corrupt intention to violate the
laws on usury.
The contact should not be considered as void in its
entirety. The provisions as to the interest is considered
void so the loan becomes without stipulation to pay
interest.
Right of Debtor: amount paid as interest under a
usurious agreement is recoverable by him since the
payment is deemed to have been made under restraint
rather than voluntarily.
Instances of contracts disguised to cover usurious loans
 Credit sale of property at exorbitant price to loan
applicant
 Purchase of lender’s property at an exorbitant
price to be taken from loan
 Price of sale with right to repurchase clearly
inadequate
 Pretended lease by borrower at usurious rental
 Rent free by lender of borrower’s property in
addition to interest on loans
 Date for repayment of loan with interest ante-
dates actual transaction
 Payment by borrower for lender’s services as
additional compensation for loan.
 CREDIT TRANSACTIONS

Determination of interest payable in kind (Art.

1958)

- Value shall be appraised at the current price

of products or goods at the time and place of
payment
- Purpose: to make usury harder to perpetrate

Accrued interest shall not earn interest except in two

instances (Art. 1959):

1. When judicially demanded as provided in Article

2212; and
2. Compounding interest but there should be an
express stipulation (in writing) made by the
parties
- interest due an unpaid shall be added to the
principal obligation and the resulting total
amount shall earn interest
3. Compensatory interest is also allowed if parties
so stipulate in case of default of borrower.

Borrower may be liable for: interest in the total amount

of principal, monetary interest and penalty.

When there is no stipulation but the borrower paid

interest: solution indebiti, or provisions on natural
obligations shall be applied (Art. 1960)

But if there is a stipulation but not reduced to writing,

and the debtor paid voluntarily because the latter feels
he is morally obliged to do so, there can be no recovery.