I. INTRODUCTION A.

MEANING & SCOPE of CREDIT TRANSACTIONS Definition of credit transactions All

transactions involving the loan or purchase of goods, services, or money in the present with a promise
to pay or deliver in the future. via de Leon Sr. & de Leon Jr. Credit transactions involve: - The trust and
confidence reposed in one person (the borrower) by another (the lender) - The expectation that the
thing loaned will be returned What is the borrower’s credit? It is his ability to make a loan or purchase
goods and services based on his promise that he will pay later. - Now: Loan/delivery » money/thing, or
purchase » goods/services - Future: Promise to pay/deliver Principal vs. accessory contracts Credit
transactions such as that of loan and deposit are principal contracts, and may be accompanied by the
accessory contract of security. B. MEANING & KINDS of SECURITY Definition of security Something given,
deposited, or serving as a means to ensure the fulfillment or enforcement of an obligation or of
protecting some interest in property. via de Leon Sr. & de Leon Jr. Kinds of security 1. Personal—
Fulfillment by the principal debtor is secured only by a promise to pay or the personal commitment of
another Examples: Guaranty, surety 2. Real—Supported by a collateral or an encumbrance of property
Examples: Pledge, chattel mortgage, real estate mortgage, antichresis C. CONTRACTS of BAILMENT
Definition of bailment Delivery of property of one person to another in trust for a specific purpose, with
a contract, express or implied, that the trust shall be faithfully executed and the property returned or
duly accounted for when the special purpose is accomplished or kept until the bailor reclaims it. via de
Leon Sr. & de Leon Jr. The key elements of this definition are, therefore: 1. There is a delivery of
property; 2. Such delivery has been in trust; and 3. There is a promise to return the thing delivered.
Parties in a bailment 1. Bailor—The giver, or the party who delivers possession or custody of the thing 2.
Bailee—The recipient, or the party who receives possession or custody of the thing Parties in a bailment
Classified according to compensation: 1. For the sole benefit of the bailor Example: Gratuitous deposit 2.
For the sole benefit of the bailee Examples: Commodatum, gratuitous mutuum 3. For the benefit of both
parties Examples: Mutuum with interest, deposit for compensation, involuntary deposit, bailment for
hire (of things, of service, for carriage of goods, and of custody) Bailments for hire A bailment for hire
(location et conductio) is when goods are left with the bailee for his use or for a service by him, always
with compensation. The kinds of bailment for hire are: 1. Hire of things—Goods are delivered for the
temporary use of the hirer (location rei) Example: Lease 2. Hire of service—Goods are delivered for
some work or labor upon it (location operis faciendi) Example: Contract for a piece of work 3. Hire for
carriage of goods—Goods are delivered either to a common carrier or to a private person for the
purpose of being carried from place to place (location operis mercium vehendarum) 4. Hire of custody—
Where goods are delivered for storage (location custodiae) via de Leon Sr. & de Leon Jr. APO ESPAÑOLA
& CARLOS MARIN BLOCK A 2016 PROF. HECTOR DE LEON, JR. II. LOAN A. GENERAL PRINCIPLES 1.
Definition A R T . 1 9 3 3, C C 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. (1740a) A loan is a contract whereby a thing owned
by one person is delivered to another, with the obligation that the latter should return it. 2. Types Kinds
of loan compared Commodatum Mutuum Thing delivered Non-consumable, in general Consumable
Origin of term Commodare Mutuus, meaning “borrow;” mutare, meaning “change” Effect of contract
Borrower may use the thing (contract of use) Borrower may consume the thing (contract of
consumption) Borrower’s obligation at termination Return the identical thing Return a thing of same
kind or quality, or the value of the thing 3. Distinguished from other contracts Loans compared to other
contracts Lease Commodatum Lessee must pay rent Gratuitous; no compensation Donation
Commodatum Donor transfers ownership Bailor does not transfer ownership; the bailee has the
obligation to return the thing Barter Mutuum Involves the exchange of a non-fungible thing for another
thing of the same kind, quantity, and quality Involves the lending of a fungible thing, with an obligation
to return its value, or a thing of the same kind, quantity, and quality A R T . 1 9 5 4, C C 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.
B. COMMODATUM 1. Concept A R T . 1 9 3 5, C C 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. (1941a) Requisites of commodatum 1. The thing given is non-
consumable; 2. The thing is given for the borrower’s use; and 3. The borrower must return the thing
after the period given or the purpose of the loan achieved. 2. Characteristics Characteristics of
commodatum (RUNP(2)IG) 1. Real 2. Unilateral 3. Nominate 4. Principal 5. Personal* 6. Informal 7.
Gratuitous a. Real A R T . 1 3 1 6, C C Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation. (n) A R T . 1 9 3 4, C C An accepted promise to
deliver something by way of commodatum or simple loan is binding upon the
A R T . 1 9 3 4, C C 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. (n) A contract of loan is thus a real contract, perfected upon
delivery of the subject matter (as opposed to a consensual contract, whereby a simple meeting of the
minds between the parties perfects the contract). Contract to loan vs. perfected contract of loan An
accepted promise to deliver something by way of commodatum is thus a contract to loan, which is
consensual—that is, perfected by mere consent. Therefore, a contract to loan is enforceable. However,
the contract of loan of either commodatum or mutuum is a real contract. This means that a contract of
commodatum or mutuum is perfected only upon delivery of the subject matter. Why is delivery
essential to perfection? The nature and purpose of a commodatum is that the borrower is entitled to
the use of the thing. Only when delivery is made does the use of the thing become available to the
borrower. Hence, only when delivery has already been made does the commodatum become perfected.
CREDIT TRANSACTIONS 4 APO ESPAÑOLA & CARLOS MARIN BLOCK A 2016 PROF. HECTOR DE LEON, JR.
b. Unilateral The bailee’s primary obligation is to return the thing after the expiration of the period or
the completion of the purpose for which the commodatum was constituted. He has several other
obligations during the duration of the commodatum (to be discussed later on). Meanwhile,
commentators describe the bailor’s obligations as merely possible, arising only under special
circumstances. It is thus the bailee who bears the obligations of the contract: a commodatum is thus
unilateral in this sense. c. Nominate It is a nominate contract, as opposed to an innominate one, because
the Civil Code specifically gives it a name. d. Principal It is a principal contract, as opposed to an
accessory one, because it can stand alone without need of relying on any other contract. e. Personal* A
R T . 1 9 3 9, C C Commodatum is purely personal in character. Consequently: (1) The death of either the
bailor or the bailee extinguishes 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.
(n) * Note: Sir discussed the personal nature of commodatum under its essential requisites, i.e. parties,
but since this characteristic is definitive of commodatum, we’ll insert the discussion here. Consequences
of being personal in character 1. As to use General rule—Only the bailee may use the thing. Exception—
The use may extend to the members of the bailee’s household (not family). Exceptions to the exception:
a. Stipulation prohibits such use b. The nature of the thing forbids such use 2. As to termination—The
contract is extinguished upon the death of either party. f. Informal A R T . 1 3 5 8, C C The following must
appear in a public document: (1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over immovable property; sales of real
property or of an interest therein are governed by Articles 1403, No. 2, and 1405; Summary of rules on
form of commodatum General rule: May be either oral or written Exception: Must appear in a public
document if it creates or transmits real rights over immovable property.1 1 Art. 1358 g. Gratuitous
Commodatum is essentially gratuitous Any compensation paid by the borrower who acquires the use of
the thing removes the contract from the ambit of a commodatum. In such case, the contract that arises
is a lease. See Arts. 1933 (parag. 2) and 1935. 3. Essential requisites a. Consent A R T . 1 3 1 9, C C
Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer. Consent by natural persons Consent must be given by one who
has capacity to do so. Thus, unemancipated minors, insane or demented persons, and deaf-mutes who
do not know how to write1 cannot give consent to a contract, and thus cannot enter into a contract of
commodatum. 1 via Art. 1327 b. Object A R T . 1 9 3 6, C C Consumable goods may be the subject of
commodatum if the purpose of the contract is not for the consumption of the object, as when it is
merely for exhibition. (n) A R T . 1 9 3 7, C C Movable or immovable property may be the object of
commodatum. (n) A R T . 4 1 8, C C Movable property is either consumable or nonconsumable. To the
first class belong those movables which cannot be used in a manner appropriate to their nature without
their being consumed; to the second class belong all the others. (337) A R T . 1 9 4 0, C C A stipulation
that the bailee may make use of the fruits of the thing loaned is valid. Requisites of valid object of
commodatum 1. Must fulfill requisites of object of a valid contract - Not outside the commerce of men1
- Not impossible2 - Determinate3 2. Must be non-consumable May also be consumable, if only for
exhibition or display—that is, if the purpose of the bailee’s use is not consumption CREDIT
TRANSACTIONS 5 APO ESPAÑOLA & CARLOS MARIN BLOCK A 2016 PROF. HECTOR DE LEON, JR. 3. May
be either movable or immovable property 4. Use must be limited to the thing which is the principal
object of the contract - Use does not extend to the thing’s fruits, although the parties may stipulate to
that effect4 - Reason: Bailor retains ownership and he is therefore entitled to the fruits of the thing -
Stipulation for enjoyment of the fruits: cannot be presumed and must only be incidental to the use of
the thing itself 1 via Art. 1347 2 via Art. 1348 3 via Art. 1349 4 via Art. 1940 c. Cause Because
commodatum is essentially gratuitous, its cause is the liberality of the bailor. d. Delivery As a real
contract, delivery is an essential requisite to perfecting commodatum. 4. Parties to the contract A R T . 1
9 3 8, C C The bailor in commodatum need not be the owner of the thing loaned. (n) The lender is called
the bailor. The borrower is called the bailee. The bailor need not be the owner of the thing loaned:
commodatum does not transfer ownership, so there is no requirement that the bailor be capable of
transferring ownership at the time the contract is constituted. Commodatum is also personal in
character. See table “Consequences of being personal in character” under Characteristics » Personal. 5.
Obligations of the bailee Summary of bailee’s obligations and liabilities in case of failure to fulfill them
Obligation Liabilities 1. Take good care of the thing with the diligence of a good father of the family
Damages to bailor 2. Use the thing loaned only for the purpose for which it was loaned, and for no other
purpose Damages to bailor Loss of thing due to fortuitous event* 3. Pay ordinary expenses for the use
and preservation of the thing, and portion of extraordinary expenses for the actual use of the thing
Damages 4. Return and not retain thing loaned, except under certain circumstances Damages Possible
liability for estafa Loss of thing due to fortuitous event* 5. Be solidarily liable when there are two or
more — bailees to whom a thing is loaned in the same contract * via Art. 1942 a. Take good care of the
thing with the diligence of a good father of the family A R T . 1 1 6 3, C C Every person obliged to give
something is also obliged to take care of it with the proper diligence of a good father of a family, unless
the law or the stipulation of the parties requires another standard of care. (1094a) The failure to take
care of the thing loaned with the diligence of a good father of a family makes the bailee liable for
damages. b. Use the thing loaned only for the purpose for which it was loaned, and for no other purpose
Art. 1935, supra Art. 1939, supra Art. 1940, supra If there is no agreement as to the purpose of the thing,
then it is presumed it shall be used according to its nature. The breach of this obligation makes the
bailee liable for damages, and also makes him liable for the loss of the thing due to fortuitous event. c.
Pay ordinary expenses for the use & preservation of the thing, and portion of extraordinary expenses for
the actual use of the thing A R T . 1 9 4 1, C C The bailee is obliged to pay for the ordinary expenses for
the use and preservation of the thing loaned. (1743a) A R T . 1 9 5 0, C C 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. (n) Who between the parties is liable for expenses Use Preservation
Ordinary Bailee Extraordinary Bailee & bailor, in 50:50 proportion Bailor; also refunds to bailee
extraordinary expenses for preservation that have been duly brought to bailor’s attention All other
expenses for the thing’s use are borne by the bailee. d. Return and not retain thing loaned, except under
certain circumstances A R T . 1 9 4 4, C C The bailee cannot retain the thing loaned on the CREDIT
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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 (1747a). A R T . 1 9 4 6, C C 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 the 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. (1749a) This obligation to essential to commodatum: the obligation to return is
part of its definition. Further, failure to return would be a violation of the trust reposed by the bailor in
the bailee. Breach of this obligation makes the bailee liable for damages, loss as a result of fortuitous
event, and even estafa under Art. 315 RPC. The general rule is also that the bailee has no right of
retention. e. Be solidarily liable when there are two or more bailees to whom a thing is loaned in the
same contract A R T . 1 9 4 5, C C When there are two or more bailees to whom a thing is loaned in the
same contract, they are liable solidarily. (1748a) A R T . 1 2 0 7, C C The concurrence of two or more
creditors or of two or more debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to render, entire compliance with
the prestations. There is a solidary liability only when the obligation expressly so states, or when the law
or the nature of the obligation requires solidarity. (1137a) This is not actually an obligation by itself, but
only goes to the nature of the liability. 6. (Possible) obligations of the bailor These obligations are
described as possible, because they only arise under special circumstances. Obligation to respect
duration of loan Pursuant to Art. 1946, the bailor has the obligation to respect the period or purpose for
which the commodatum was constituted. The de Leons call this the “primary obligation of the bailor.”
Summary of bailor’s obligations 1. Refund extraordinary expenses for the preservation of the thing
loaned 2. Refund portion of extraordinary expenses arising from the actual use of the thing 3. Pay
damages for known hidden flaws a. Refund extraordinary expenses for the preservation of the thing
loaned A R T . 1 9 4 9, C C 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. (1751a) The bailee is required to give notice
to the bailor of extraordinary expenses incurred for the preservation of the thing. The decision,
however, is to be made by the owner of the thing, i.e. the bailor. There is no required form for the
notice—it may be oral or written. The notice is however not required if the expense to be incurred is
urgent, i.e. if waiting for the response of the bailor may endanger the thing or cause its loss. b. Refund
portion of extraordinary expenses arising from the actual use of the thing Art. 1949, supra Extraordinary
expenses for the use of the thing shall be borne by the bailor and the bailee on a 50-50 basis. This is
because the bailor is the owner, and the thing will be returned to him, while the bailee has derived
benefit from the thing. c. Pay damages for known hidden flaws A R T . 1 9 5 1, C C 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. (1752) A R T . 1 9 5 2, C C The bailor
cannot exempt himself from the payment of expenses or damages by abandoning the thing to the
bailee. (n) Requisites for damages to be paid to bailee 1. Flaw must be hidden from bailee 2. Bailor is
aware of the flaw/defect 3. Bailor neglects to advise bailee of flaw/defect 4. Bailee suffers damage due
to hidden flaw/defect Though generally a bailee has no right of retention, the exception is that when he
has incurred damages under Art. 1951, he may retain the thing until he has been paid. CREDIT
TRANSACTIONS 7 APO ESPAÑOLA & CARLOS MARIN BLOCK A 2016 PROF. HECTOR DE LEON, JR. 7. Risk of
loss & deterioration A R T . 1 9 4 2, C C 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; (2) If he keeps it longer than the period stipulated, or after the accomplishment of the use
for which the commodatum has been constituted; (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; (4) If he lends or leases the thing to a third person, who is not a member of his
household; (5) If, being able to save either the thing borrowed or his own thing, he chose to save the
latter. (1744a and 1745) Summary of rules on liability for risk of loss General rule: Bailor is liable for loss
or damage due to fortuitous event. Exception: If the following circumstances are present, the bailee will
be liable for loss or damage due to fortuitous event. Exception Basis for liability 1. The bailee uses the
thing for a different purpose other than that for which it was loaned Bailee is deemed to have acted in
bad faith 2. The bailee keeps it beyond the stipulated period/after the purpose has been accomplished
Bailee incurs in delay 3. The bailee lends/leases the thing to a third person not a member of his
household Commodatum is purely personal 4. The bailee was able to save either the thing borrowed or
his own thing, and he chose to save his own Bailee shows his ingratitude 5. The thing was delivered to
the bailee with an appraisal of its value—unless there is a stipulation exempting the bailee from liability
for fortuitous event Law presumes that parties intend that bailee be liable A R T . 1 9 4 3, C C The bailee
does not answer for the deterioration of the thing loaned due only to the use thereof and without his
fault. (1746) Deterioration arising from use is for the bailor’s account, provided that: 1. Deterioration is
due only to use; and 2. It was without the bailee’s fault. 8. Term & extinguishment A R T . 1 2 8 7, C C
Compensation shall not be proper when one of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in commodatum. Neither can compensation be set up against a
creditor who has a claim for support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of Article 301. (1200a) Art. 1942, supra Art. 1946, supra A R T . 1 9 4 7, C C 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. (1750a) A R T . 1 9 4 8, C C The
bailor may demand the immediate return of the thing if the bailee commits any act of ingratitude
specified in Article 765. (n) Definition of “term” Period agreed upon by the parties, or period required
for the accomplishment of the purpose, for which the thing will be loaned Summary of rules on term of
commodatum General rule: If a term has been constituted, the bailor must respect it Exceptions: 1. If
the bailor has urgent need of the thing, he may demand its return temporarily or permanently;1 or 2. If
the contract is one of precarium. 1 via Art. 1946 Definition of “precarium” A commodatum where no
period has been agreed upon, or no purpose has been established, or the use of the thing is merely
tolerated by its owner. In these cases, the thing may be demanded at the bailor’s will. A R T . 1 2 3 1, C C
Obligations are extinguished: (1) By payment or performance: (2) By the loss of the thing due: (3) By the
condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and
debtor; (5) By compensation; (6) By novation. Summary of ways to extinguish commodatum Under the
general provisions1 on extinguishment: 1. Loss of thing 2. Condonation 3. Confusion/merger 4. Novation
Specific to commodatum: 1. Return of the thing 2. Death of either party1 As per Art. 1287,
compensation does not apply to commodatum. PAJUYO v. CA (2004) The contract of commodatum is
esCREDIT TRANSACTIONS 8 APO ESPAÑOLA & CARLOS MARIN BLOCK A 2016 PROF. HECTOR DE LEON,
JR. gratuitous. As per the CC, payment of compensation or the imposition of any condition will change
the contract from one of commodatum to another kind of contract—in this case a contract of rent.* *
However, this ruling is flawed in that the condition to keep the thing in good condition is part and parcel
of commodatum. Facts: Pajuyo allowed Guevarra to stay in his house rent-free with the sole condition
that he will vacate upon demand. Upon demand, however, Guevarra failed to leave. The CA ruled that
the agreement was in the nature of a commodatum—Guevarra hence had the better right because he
was in rightful possession thereof. Issue: WON the contract they entered into was a loan or
commodatum—LOAN Ratio: Being that it was not essentially gratuitous because of the obligation, it was
in the nature of a loan QUINTOS v. BECK (1939) The obligation of the bailee to return the property of the
bailor in a contract of commodatum covers all of what was lent without exception. Further, actual
physical return is required—depositing the same to a sheriff will constitute breach of the obligation to
return. Facts: Beck rented a house owned by Quintos. The latter gratuitously lent the use of some
furniture to Beck. Quintos sold the property and subsequently demanded the return of the furniture.
Beck refused to return three gas heaters and subsequently deposited the other pieces of property with
the sheriff. Issue: WON Beck was in breach of his obligation to return the property of Quintos – YES
Ratio: Being that the contract entered into was one of commodatum, the obligation of beck mean that
he should return all of what was lent to Quintos at the latter’s residence or house. REPUBLIC v. BAGTAS
(1962) While the general rule is that the bailee in a contract of commodatum will not be liable for the
loss of the thing when it was caused by a fortuitous event, he will be liable in such an instance if: 1. The
thing is devoted to a purpose not contemplated; 2. Keeps it longer than the period stipulated/after the
accomplishment of the use for which it was lent; 3. The thing been delivered with an appraisal of its
value, unless there is a stipulation that exempts the bailee; 4. Lends or leases the thing to a third person
who is not a member of his household; 5. If the bailee chooses to save his property instead of what was
borrowed. Facts: Bagtas had three bulls that he borrowed from the Bureau of Animal Industry for one
year. Note that they had corresponding appraised values. Upon the expiry of the one-year period, he
tried to keep them despite demand being made for their return. He was able to return two while one
was shot in a Huk raid. Issue: WON Bagtas’s estate is liable for the cost of the bull – YES Ratio: The case
falls under situations 2 and 3 of Art. 1942. [see doctrine] C. MUTUUM 1. Concept A R T . 1 9 5 3, C C A
person who receives a loan of money or any other fungible thing acquires ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality. (1753a) A mutuum is thus a
loan for consumption, whereby a transfer of ownership occurs. 2. Characteristics Art. 1934, supra
Characteristics of commodatum (RUNPIGO) 1. Real 2. Unilateral 3. Nominate 4. Principal 5. Informal 6.
May be either gratuitous or onerous a. Real Delivery of the money subject of the mutuum is essential to
its perfection. However, delivery either actual or constructive: it need not be actually put in the
borrower’s hands, e.g. deposit in the debtor’s account. A contract to loan, however, is consensual,
perfected by the parties’ mere consent. It is thus demandable at once. b. Unilateral The debtor is the
one who is mainly obliged in a mutuum, and the obligation is to return the equivalent of the amount
borrowed. c. Nominate It is nominate, because the Civil Code provides a name for it. Yes indeed! d.
Principal It is principal, because it can stand alone as a contract, without dependence on the existence
and/or validity of any other contract. CREDIT TRANSACTIONS 9 APO ESPAÑOLA & CARLOS MARIN BLOCK
A 2016 PROF. HECTOR DE LEON, JR. e. Informal The Civil Code does not provide a form in which a
mutuum need be constituted: it may be either written or oral. An interest, however, must be stipulated
in writing in order to be demandable. f. Gratuitous or onerous The mutuum is gratuitous if without a
stipulated interest, but if the parties agree upon an interest, then it is onerous. 3. Essential requisites a.
Consent Consent to the contract must be given by parties with capacity to do so, i.e. not incapacitated
by minority, insanity, etc. b. Object Art. 418, supra Art. 1953, supra The object of a mutuum must be
money, or other fungible things. By fungible things are meant those usually dealt with by number,
weight, or measure, such that units may be treated as equivalents. If a non-fungible thing is given, but
the obligation is to give something of the same value, then the contract is of barter. c. Cause If
gratuitous, i.e. without interest, the cause is the mere liberality of the creditor. If onerous, the payment
of interest is the cause. d. Delivery Mutuum being a real contract, delivery must first be made before it
can be deemed perfected. 4. Parties to the contract The lender is called the creditor. The borrower is
called the bailee. The creditor must have the capacity to transfer ownership of the thing to the debtor at
the time that the mutuum is constituted. 5. Form of the contract A R T . 1 8 7 8, C C Special powers of
attorney are necessary in the following cases: (7) To loan or borrow money, unless the latter act be
urgent and indispensable for the preservation of the things which are under administration; A R T . 1 9 5
6, C C No interest shall be due unless it has been expressly stipulated in writing. (1755a) Summary of
rules on form of mutuum General rule: May be either oral or written Exceptions: 1. Interest—Must be
stipulated in writing1 2. Agency—An agent borrowing in behalf of his principal must have a special
power of attorney, unless the things in his control must be urgently preserved 1 via Art. 1956 2 via Art.
1878 8. Obligations of the debtor Summary of obligations of the debtor 1. Pay the creditor an equal
amount of the same kind and quality 2. Pay interest, if stipulated in writing A R T . 1 9 5 5, C C 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 debtor owes another thing of
the same kind, quantity and quality, even if it should change in value. In case it is impossible to deliver
the same kind, its value at the time of the perfection of the loan shall be paid. (1754a) a. Pay the creditor
an equal amount of the same kind A R T . 1 2 4 9, C C 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 abeyance. (1170) A R T . 1 2 5 0, C C 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. (n) Art. 1953, supra Art. 1955, supra How payment must be made 1. Loan of money—Must be
made in the currency stipulated, if it is possible; otherwise, it must be made in the currency that is legal
tender in the Philippines. In case of extraordinary inflation/deflation, the value of the currency must be
computed at the time the obligation was created, i.e. at the time the money lent was delivered to the
debtor.