CREDIT TRANSACTIONS

08 SEP 2020

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

In commodatum the bailor/creditor retains the ownership of the thing loaned...

ART 1935 The bailee in commodatum acquires the use of the thing loaned but not its fruits;

if any compensation is to be paid by him who acquires the use, the contract ceases to be a
commodatum.

- commodatum essentially gratuitous

- ceases to be commodatum and becomes lease if there is compensation

- right to use fruits is reserved to the bailor/creditor which is the owner of the thing borrowed.
Unless there is stipulation that bailee can use them

- Similar to donation

ARTICLE 1936. Consumable goods may be the subject of commodatum if the purpose of the
contract is not the consumption of the object, as when it is merely for exhibition

Example. A lends B expensive wine not for consumption but for display.

ARTICLE 1937. Movable or immovable property may be the object of commodatum

Example. A allows B to construct a warehouse on his land without any compensation.

ARTICLE 1938. The bailor in commodatum need not be the owner of the thing loaned.

- This is because ownership does not change in commodatum, it does not pass on to the
bailee.

ARTICLE 1939. Commodatum is purely personal in character. Consequently:

(1) The death of either the bailor or the bailee extinguishes the contract;

- Unless stipulated that the heirs of either party would be subrogated to the contract

(2) The bailee can neither lend nor lease the object of the contract to a third person.
However, the members of the bailee’s household may make use of the thing loaned,
 unless there is a stipulation to the contrary, or unless the nature of the thing forbids
such use.

ARTICLE 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is
valid.

- Right to use a thing is different from right to enjoy the fruits

- However, the parties can stipulate that bailee may enjoy such fruits provided that it is only
incidental to the use of the thing.
PRODUCER’S BANK VS. CA and FRANKLIN VIVES

FACTS Franklin Vives assisted a person named Doronilla in opening up a bank account for his
company, Sterela, by giving him 200,000 pesos to be deposited at petitioner Producer’s Bank
Branch in Buendia.

Vives was assured by his friend Sanchez that he could freely withdraw his money at any time.
However, Vives subsequently learned that Sterela company moved office hence he and his wife
panicked and inquired about their deposited money with Sterela’s account.

Thereafter, Vives learned that Doronilla opened another account and that the remaining
balance in Sterela’s account was only 91,000.

When Vives confronted Doronilla, he was handed a check for 212 thousand pesos drawn
against Producer’s Bank but this check was dishonored by the bank 3 times due to insufficient
funds.

Hence, Vives sued Doronilla, Sanchez and Producer’s Bank for recovery of payment. Both the
RTC and the CA ruled in favor of Vives and asked them to pay him.

Producer’s Bank contends that the transaction between private respondent and Doronilla is a
simple loan (mutuum) since all the elements of a mutuum are present: first, what was delivered
by private respondent to Doronilla was money, a consumable thing; and second, the
transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the check
issued by Doronilla in the amount of P212,000.00, or P12,000 more than what private
respondent deposited in Sterela's bank account.

Moreover, the fact that private respondent sued his good friend Sanchez for his failure to
recover his money from Doronilla shows that the transaction was not merely gratuitous but
"had a business angle" to it. Hence, petitioner argues that it cannot be held liable for the return
of private respondent's P200,000.00 because it is not privy to the transaction between the
latter and Doronilla.

ISSUE W/N the transaction between Vives and Doronilla was a commodatum

RULING
YES
While in general, the object of commodatum is a non-consummable thing, Art. 1936 is the
exception where when the intention of the parties is to lend consumable goods and to have the
very same goods returned at the end of the period agreed upon, it is still considered as a
commodatum

As correctly pointed out by both the Court of Appeals and the trial court, the evidence shows
that private respondent agreed to deposit his money in the savings account of Sterela
specifically for the purpose of making it appear "that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned within thirty (30) days.

Vives merely "accommodated" Doronilla by lending his money without consideration, as a favor
to his good friend Sanchez. It was however clear to the parties to the transaction that the
money would not be removed from Sterela's savings account and would be returned to private
respondent after thirty (30) days.
SECTION 2. OBLIGATIONS OF THE BAILEE / BORROWER / OBLIGOR

ART. 1941 The bailee is obliged to pay for the ordinary expenses for the use and preservation of
the thing loaned.

- This is because he is supposed to return the borrowed thing in the same state.

ARTICLE 1942. The bailee is liable for the loss of the thing, even if it should be through a
fortuitous event:

(1) If he devotes the thing to any purpose different from that for which it has been loaned; (BAD
FAITH)

(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for
which the commodatum has been constituted; (INCURS DELAY)

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event; (INTENTION
OF THE PARTIES TO MAKE BAILEE LIABLE OTHERWISE WHY WOULD THEY EVEN APPRAISE IT)

(4) If he lends or leases the thing to a third person, who is not a member of his household;
(COMMODATUM IS PURELY PERSONAL)

(5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter.
(EXPLICIT INGRATITUDE OF THE BAILEE)

^ These instances are the exceptions to the general rule that the obligor is not liable when
there is loss due to fortuitous event.

ARTICLE 1943. The bailee does not answer for the deterioration of the thing loaned due only to
the use thereof and without his fault.

- Unless there is stipulation that bailee is liable for the deterioration

- Or if he was proven to be negligent

ARTICLE 1944. The bailee cannot retain the thing loaned on the ground that the bailor owes
him something, even though it may be by reason of expenses. However, the bailee has a right
of retention for damages mentioned in article 1951.

- Even if the bailor owes him, he cannot treat the object of commodatum as a SECURITY.
- Law imposes bailee the obligation to return.
ARTICLE 1945. When there are two or more bailees to whom a thing is loaned in the same
contract, they are liable solidarily.
PAJUYO VS. COURT OF APPEALS

FACTS Pajuyo entered into a Kasunduan agreement with private reposndent Guevara wherein
Guevara would occupy the house of Pajuyo located in Payatas without any consideration,
provided that Guevara would pay for the cleanliness and orderliness of the house.

A few years later, Pajuyo demanded that Guevara vacate the property but Guevara refused
hence Pajuyo filed an ejectment case against him. Both the MeTc and the RTC ruled in favor of
Pajuyo and ordered for the ejectment of Guevara.

However, the CA reversed the decision and ruled that Pajuyo’s title is not valid which makes
him and Guevara squatters (informal settlers). Moreover the CA ruled that the agreement was
by nature a commodatum and not a lease contract.

ISSUE W/N The Kasunduan between Pajuyo and Guevara is a commodatum.

RULING NO.
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated
him to maintain the property in good condition.

The imposition of this obligation makes the Kasunduan a contract different from a
commodatum. The effects of the Kasunduan are also different from that of a commodatum.

Hence, the SC said that their contractual relationship is of a landlord tenant.

SECTION 3 – OBLIGATIONS OF THE BAILOR / LENDER / CREDITOR

ARTICLE 1946 The bailor cannot demand the return of the thing loaned till after the expiration
of the period stipulated, or after the accomplishment of the use for which the commodatum
has been constituted. However, if in the meantime, he should have urgent need of the thing, he
may demand its return or temporary use.

In case of temporary use by the bailor, the contract of commodatum is suspended while the
thing is in the possession of the bailor.

- Obligation of the bailor to respect the duration of loan

ARTICLE 1947 The bailor may demand the thing at will, and the contractual relation is called a
precarium, in the following cases:

(1) If neither the duration of the contract nor the use to which the thing loaned should be
devoted, has been stipulated; or

(2) If the use of the thing is merely tolerated by the owner.

PRECARIUM – kind of commodatum where the bailor may demand the thing at will.
- bailor has right of termination at any time.

ARTICLE 1948. The bailor may demand the immediate return of the thing if the bailee commits
any act of ingratitude specified in article 765.

these are : 1. When bailee commits an offense against the bailor or his property, wife, or
children.

2. if bailee wrongfully imputes a crime against the bailor

3. when bailee refuses to give bailor support when he is morally bound to do so.

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.

OBLIGATION TO REFUND EXTRAORDINARY EXPENSES

1. For the preservation of the object, it should be borne by the bailor.
but if the cost is incurred by the bailee, he should first notify the bailor for the purpose of
reimbursement unless it it urgent.

2. Extraordinary expenses arising on the actual use of the thing loaned. (FORTUITOUS EVENTS)
- borne 50/50 by the bailor and bailee.
- unless there is express stipulation on who would pay.

ARTICLE 1950. 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.

No obligation by the bailor to assume all other expenses not provided by art. 1941 and 1949.
Ex. Expenses for ostentation and ordinary expenses.

ARTICLE 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.

Liability to pay damages incurred by bailee for known hidden flaws.

- Bailor did not inform bailee of flaws

ARTICLE 1952. The bailor cannot exempt himself from the payment of expenses or damages by
abandoning the thing to the bailee.

No right of abandonment for the bailor for expenses and damages.

- Reason is that the expenses incurred may exceed the value of the thing loaned.
REPUBLIC VS BAGTAS

FACTS Respondent Bagtas loaned three Indian bulls from the Bureau of Animal Industry for the
purpose of breeding them. When the contract period of one year had lapsed, Bagtas wrote to
the Bureau asking for a renewal of the contract but only one of the bulls was granted for
extension.

The Bureau demanded the return of the two bulls but Bagtas offered to buy them at a reduced
price but the Bureau rejected his offer and required him to either pay the full value of the bulls
or return them completely.

When Bagtas failed to pay the book fee, the Republic commenced an action for recovery
against Bagtas where both the trial court and the CA ordered Bagtas to pay the booking fee
with interests.

Upon appeal Bagtas contends that since the contract between him and the Bureau was a
commodatum, the fortuitous event relieved him of the duty to return the bulls.

ISSUE W/N the contract of loan between Bagtas and the Bureau of Animal Industry
considered a commodatum

RULING NO.

This is for the reason that during the contractual period, Bagtas was required to pay the
monthly booking fee for the bulls. This is not the nature of a commodatum which is essentially
gratuitous. With there were payments rendered, the contract took on the nature of a lease and
not a commodatum.

Moreover, even if the contract was a commodatum, Art. 1942 still provides that since the bailor
kept the object longer than the period stipulated, he would be liable even if there was a
fortuitous event.
CHAPTER 2 SIMPLE LOAN / MUTUUM

ARTICLE 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.

Mutuum – contract whereby one of the parties deliver to another a consumable thing with the
understanding that the same amount of the same kind or quality shall be paid.

Obligation of borrower is to pay. (not return)

FUNGIBLE THINGS – are those which are usually measured in units and that a given unit is
treated as an equivalent of any other unit or portion.

ARTICLE 1954. 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.

BARTER (as defined by Art. 1638)

- Is a contract wherein one of the parties binds himself to give one thing in consideration of
the other’s promise to give another thing.

!Difference between barter and mutuum is that in Mutuum, the subject matter is money or
other fungible things.

In Barter, non-fungible things.

!Difference between barter and commodatum – in commodatum, bailee is bound to return the
same thing borrowed

Wherein, in Barter, an equivalent thing is exchanged in return for what has been borrowed.
- Commodatum: always gratuitous
- Mutuum: sometimes gratuitous
- Barter: onerous contract
PEOPLE VS. PUIG AND PORRAS

FACTS The Rural Bank of Pototan filed 112 cases of Qualified theft against the defendants Puig
and Porras which were its employees serving as a cashier and Bookkeeper.

However, the trial court dismissed the complaint for lack of probable cause and ruled that the
element of Qualified theft which is the taking without the consent of the owner was lacking.
Hence, this petition for certiorari filed by the prosecutor.

ISSUE Whether or not the element of taking without the consent of the owners is present in
this case?

RULING yes

Article 1953 of the same Code provides that "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."

Thus, it posits that the depositors who place their money with the bank are considered
creditors of the bank. The bank acquires ownership of the money deposited by its clients,
making the money taken by respondents as belonging to the bank.
BPI Family Bank v Franco
__________________________________________________
FACTS:
BPI Family Bank filed separate civil and criminal cases against respondent Franco for his alleged
involvement in a multi-million peso scam. In the criminal case, Franco was acquitted of the
crime of Estafa while the civil case remains to be resolved.

While the case was still pending, Franco demanded BPI to unfreeze his account and release his
deposits but the bank refused insisting that they had better rights to the funds in Franco’s
amount which consists of money that was allegedly traceable to the multi-million peso scam.

Hence, Franco filed a petition with the RTC which ordered BPI to release Franco’s funds. The CA
affirmed the judgement.

ISSUE: w/n BPI-FB has ownership rights to the funds deposited by Franco?

RULING: NO.

As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Franco’s deposits, but such ownership is coupled with a corresponding
obligation to pay him an equal amount on demand.

Although BPI-FB owns the deposits in Franco’s accounts, it cannot prevent him from demanding
payment of BPI-FB’s obligation by drawing checks against his current account, or asking for the
release of the funds in his savings account.

Thus, when Franco issued checks drawn against his current account, he had every right as
creditor to expect that those checks would be honored by BPI-FB as debtor.