ART. 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.
SIMPLE LOAN OR MUTUUM DEFINED
Simple loan or mutuum is a contract whereby one of the parties delivers to another
money or other consumable thing with the understanding that the same amount of the same
kind and quality shall be paid.
It involves the return of the equivalent only and not the identical thing because the
borrower acquires ownership thereof. A loan of money, however, may be payable in kind.
OBLIGATION OF BORROWER IS TO PAY.
The law uses the word “pay” and not the word “return” because the consumption of the
thing loaned is the distinguishing character of the contract of mutuum from that of
commodatum. This obligation “to pay” may include the accessory duty to pay interes
The promise of the borrower to pay is the consideration for the obligation of the lender
to furnish the loan. A loan is thus a bilateral contract
NO CRIMINAL LIABILITY FOR FAILURE TO PAY
In simple loan or mutuum, as contrasted to commodatum, the borrower acquires
ownership of the money, goods, or personal property borrrowed. Being the owner, the
borrower can dispose of the thing borrowed and his act will not be considered
misappropriation thereof.
No estafa is committed by a person who refuses to pay his debt or denies its existence.
SIMPLE LOAN DISTINGUISHED FROM CONTRACT OF RENT
(1) A contract of loan signifies the delivery of money or some other consumable thing to
another with a promise to repay an equivalent amount of the same kind and quality, but not a
promise to return the same thing loaned which becomes the property of the obligor.
The contract of rent is a contract by which one of the parties delivers to another some
non-consumable thing in order that the latter may use it during a certain period and return it to
the former. In a contract of rent, the owner or lessor of the property does not lose his
ownership. He simply loses his control over the property rented during the period of the
contract;
(2) In a contract of loan, the relation between the parties is that of obligor and obligee,
while in a contract of “rent,” the relation is that of landlord and tenant; and
 (3) In a contract of loan, the creditor receives “payment” for his loan, while in a contract
of “rent,” the owner of the property rented receives “compensation” or “price” either in
money, provisions, chattels, or labor from the occupant thereof in return for its use
SIMPLE LOAN DISTINGUISHED FROM TRUST RECEIPT.
Under the Trusts Receipt Law (Pres. Decree No. 115.), trust receipt “shall refer to the
written or printed document signed by the entrustee in favor of the entruster containing terms
and conditions substantially complying with the provisions of [the] Decree.’’ (Sec. 3[j], thereof.)
It has also been defined as “a document in which is expressed a security transaction , where
under the lender, having no prior title in the goods on which the lien is to be given, and not
having possession which remains in the borrower, lends his money to the borrower on security
of the goods, which the borrower is privileged to sell clear of the lien on agreement to pay all or
part of the proceeds of the sale to the lender
MEANING OF FUNGIBLE THINGS.
Fungible things, are those which are usually dealt with by number, weight, or measure
such as rice, oil, sugar, etc. so that any given unit or portion is treated as the equivalent of any
other unit or portion.
For example, one cavan of “wagwag” rice of a particular quality is, to all intents and
purposes, the same as any other portion of the same kind, quality, and quantity.
DISTINCTION BETWEEN FUNGIBLE AND CONSUMABLE THINGS
The new Civil Code classifies movable property into consumable or non-consumable
thereby discarding the old classification into fungible and non-fungible however, still speaks of
fungible things. This change of classification seems to be in name only as the definition of
fungible things as those which cannot be used without being consumed under the old Civil Code
is precisely that of consumable things.
a thing is consumable or not depends upon its nature and whether it is fungible or not
depends upon the intention of the parties. Thus, while wine is consumable by its nature, it is
non-fungible if the intention is merely for display or exhibition (see Art. 1936.) because the
same wine must be returned.

ART. 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
MUTUUM AND COMMODATUM DISTINGUISHED FROM BARTER.
By the contract of barter or exchange, one of the parties binds himself to give one thing
in consideration of the other’s promise to give another thing
 (1) The distinction between mutuum and barter lies in the subject matter. In the former,
it is money or any other fungible things; in the latter, non-fungible (non-consumable) things.
(2) In commodatum, the bailee is bound to return the identical thing borrowed when
the time has expired or the purpose has been served. In barter, the equivalent thing is given in
return for what has been received.
(3) Mutuum may be gratuitous and commodatum is always gratuitous. (Art. 1933, pars.
2, 3.) Barter, on the other hand, is an onerous contract. It is really a mutual sale.

ART. 1955. 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
FORM OF PAYMENT.
(1) Loan of money. — If the thing loaned is money, payment must be made in the
currency stipulated, if it is possible to deliver such currency; otherwise, it is payable in the
currency which is legal tender in the Philippines and in case of extraordinary inflation or
deflation, the basis of payment shall be the value of the currency at the time of the creation of
the obligation
Presently, all notes and coins issued by the Bangko Sentral ng Pilipinas are legal tender
in the Philippines for all debts, both public or private. A check is not a legal tender and,
therefore, cannot constitute valid tender of payment
(2) Loan of fungible thing. — If what was loaned is a fungible thing other than money,
the borrower is under obligation to pay the lender another thing of the same kind, quality, and
quantity. In case it is impossible to do so, the borrower shall pay its value at the time of the
perfection of the loan.

ART. 1956. No interest shall be due unless it has been expressly stipulated in writing.
REQUISITES FOR RECOVERY OF INTEREST.
(1) The payment of interest must be expressly stipulated
(2) The agreement must be in writing
(3) The interest must be lawful.
EXISTENCE OF STIPULATION TO PAY INTEREST.
(1) If a particular rate of interest has been expressly stipulated by the parties, that
interest, not the legal rate of interest, shall be applied
(2) If the exact rate of the interest is not mentioned, the legal rate of 12% shall be
payable.
(3) No increase in interest shall be due unless such increase has also been expressly
stipulated.
(4) Sales invoices or slips issued by a store to its customers, stating interests and
attorney’s fees in the usual printed forms as terms and conditions, without the signature of the
obligor, do not constitute the express stipulation required by Article 1956. Therefore, the
obligor is not liable for the interest except only the legal interest (6%) under Article 2209 (infra.)
on the amount due in case he incurs in delay.
(5) It is only in contracts of loan, with or without security, that interest may be
stipulated and demanded.
(6) The receipt by the creditor of interest payment up to a certain date on a loan that
has already matured does not ipso facto result in the renewal or extension of maturity period of
the loan up to said date. Whether or not a loan may be renewed does not solely depend on the
debtor but more so on the discretion of the creditor.
(7) Vendor and vendee are legally free to stipulate for the payment of either the cash
price of a subdivision lot or its installment price. Should the vendee opt to purchase a
subdivision lot via the installment payment system, he is, in effect, paying interest on the cash
price, whether the fact and rate of such interest payment are disclosed in the contract or not.
The contract for the purchase and sale of a piece of land on the installment plan is not only
lawful; it also reflects a very widespread usage or custom in our present day commercial life
LIABILITY FOR INTEREST EVEN IN THE ABSENCE OF STIPULATION
Article 1956 is subject to two exceptions
(1) Indemnity for damages. — The debtor in delay is liable to pay legal interest
(6%/12%) as indemnity for damages even in the absence of stipulation for the payment of
interest
(a) Under Article 2209,6 the appropriate measure for damages in case of delay in
discharging an obligation consisting of the payment of a sum or money, is the
payment of penalty interest at the rate agreed upon; and in the absence of a
stipulation of a particular rate of penalty interest, then the payment of additional
interest at a rate equal to the regular monetary interest, and if no regular
interest had been agreed upon, then payment of legal interest which is 6%
 annually or, in the case of loans or forbearances of money, 12% per annum as
provided for in Central Bank Circular No. 416, infra
(b) Under the provisions of Article 2213, interest “cannot be recovered upon
unliquidated claims or damages except when the demand can be established
with reasonable certainty.’
(c) Central Bank Circular No. 416 fixing the legal rate of interest at 12% per
annum, deals with 1) loans; 2) forbearance of any money, goods or credits; and
3) judgments involving such loans or forbearance, in the absence of express
agreement as to such rate of interest
(d) When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, regardless of whether the obligation
involves a loan or forbearance of money shall be 12% per annum from such
finality until its satisfaction. This interim period being deemed to be by then an
equivalent to a forbearance of credit
(e) While the interest agreed upon forms part of the consideration of the
contract itself, interest as indemnity for damages is payable only in case of
default or non-performance of the contract. As they are distinct claims, they may
be demanded separately.
(2) Interest accruing from unpaid interest. — Interest due shall earn interest from the
time it is judicially demanded although the obligation may be silent upon this point.
Where the court’s judgment which did not provide for the payment of interest has
already become final, no interest may be awarded

ART. 1957. Contracts and stipulations, under any 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
USURIOUS CONTRACTS DECLARED VOID.
(1) Form of contract not conclusive. —Parol 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 a
construction of the whole transaction it becomes apparent there exists a corrupt intention to
violate the laws on usury
(2) Contract void only as to interest involved. — A usurious contract should not be
considered void in its entirety but only as to the interest involved. (see Sec. 7, Usury Law, infra.)
It is only the stipulation on usurious interest which should be treated as void so that the loan
becomes without stipulation to pay interest.
 (3) Right of debtor. — With respect to the debtor, the 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
(1) Credit sale of property at exorbitant price to loan applicant. — When a credit sale
of property is made to an applicant for a loan at an exorbitant price to be paid at a future day in
order to enable the purchaser to sell it immediately for cash and thus obtain the money of
which he is in need, and the purchaser’s obligation is for a greater sum than the fair value of
the property sold and lawful interest.
(2) Purchase of lender’s property at an exorbitant price to be taken from loan. —
When the lender corruptly requires of the borrower as a condition for securing the loan, the
purchase of the lender’s property at an exorbitant price to be taken out of the loan, or payable
at a subsequent date and takes the borrower’s obligation for the sum loaned, or for both the
loan and purchase price; or as a condition for extending time in which to pay a debt, the
purchase of the lender’s property at an exorbitant price. In such case, the principal debt is the
amount of the loan plus the fair value of the property at the time of the receipt by the buyer.
All in excess of that sum is usury
(3) Price of sale with right to repurchase clearly inadequate. — When a vendor sells a
property at a clearly inadequate price, reserving an option to repurchase at a price greater than
the original price with lawful interest as such contract is in effect to be a mortgage to secure a
usurious loan
(4) Pretended lease by borrower at usurious rental. — Where the borrower wishes to
borrow money to enable him to purchase property and the lender furnishes the money taking
title in himself, and puts the borrower in possession under a pretended lease at a usurious
rental
(5) Rent free by lender of borrower’s property in addition to interest on loans. —
Where the lender, in addition to interest on the sum loaned, is to have the privilege of
occupying rent-free, certain property of the borrower. Where other circumstances are present,
showing that the purchase and lease are bona fi de and not colorable, the transaction will, of
course, be perfectly valid
(6) Date for repayment of loan with interest ante-dates actual transaction. — Where
an obligation for the repayment of money bearing interest from its date, ante-dates the actual
transaction and receipt of the money loaned to hide a usurious contract.
(7) Payment by borrower for lender’s services as additional compensation for loan. —
An apparently lawful loan is usurious when it is intended that additional compensation for loan
be disguised by an ostensibly unrelated contract providing for payment by the borrower for the
lender’s services which are of little value or which are not, in fact, to be rendered
 ART. 1958. In the determination of the interest, if it is payable in kind, its value shall
be appraised at the current price of the products or goods at the time and place of payment.
(n
DETERMINATION OF INTEREST PAYABLE IN KIND.
This article has the same purpose: to make usury harder to perpetrate

ART. 1959. Without prejudice to the provisions of Article 2212, interest due and
unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize
the interest due and unpaid, which as added principal, shall earn new interest.
WHEN UNPAID INTEREST EARNS INTEREST.
(1) When judicially demanded as provided for in Article 2212
(2) When there is an express stipulation made by the parties to wit: that the interest due
an unpaid shall be added to the principal obligation and the resulting total amount shall earn
interest.

ART. 1960. If the borrower pays interest when there has been no stipulation therefor,
the provisions of this Code concerning solutio indebiti, or natural obligations, shall be
applied, as the case may be
RECOVERY OF UNSTIPULATED INTEREST PAID.
if unstipulated interest (it is, therefore, not due) is paid by mistake, the debtor may
recover as this would be a case of solutio indebiti or undue payment. But where the
unstipulated interest, or interest stipulated, there being a stipulation but it is not in writing, is
paid voluntarily because the debtor feels morally obliged to do so, there can be no recovery as
in the case of natural obligations

ARTICLE 1953- SIMPLE LOAN OR MUTUUM DEFINED

OBLIGATION OF BORROWER IS TO PAY.

NO CRIMINAL LIABILITY FOR FAILURE TO PAY
SIMPLE LOAN DISTINGUISHED FROM CONTRACT OF RENT
SIMPLE LOAN DISTINGUISHED FROM TRUST RECEIPT.
MEANING OF FUNGIBLE THINGS.
DISTINCTION BETWEEN FUNGIBLE AND CONSUMABLE THINGS
ARTICLE 1954- MUTUUM AND COMMODATUM DISTINGUISHED FROM BARTER

ARTICLE 1955- FORM OF PAYMENT

ARTICLE 1956- REQUISITES FOR RECOVERY OF INTEREST

EXISTENCE OF STIPULATION TO PAY INTEREST.

LIABILITY FOR INTEREST EVEN IN THE ABSENCE OF STIPULATION
ARTICLE 1957- USURIOUS CONTRACTS DECLARED VOID.

INSTANCES OF CONTRACTS DISGUISED TO COVER USURIOUS LOANS

KINDS OF INTEREST
USURY DEFINED
ARTICLE 1958- DETERMINATION OF INTEREST PAYABLE IN KIND.

ARTICLE 1959- WHEN UNPAID INTEREST EARNS INTEREST

ARTICLE 1960- RECOVERY OF UNSTIPULATED INTEREST PAID.

PAYMENT OF INTEREST WITHOUT STIPULATION