LOAN

LAW ON CREDIT TRANSACTIONS – LOAN
(Articles 1933-1961)
• General Provisions (Arts. 1933-1934)
• Chapter 1 – Commodatum (Arts. 1935-1952)
Section 1. – Nature of Commodatum (Arts. 1935-1940)
Section 2. – Obligations of the Bailee (Arts. 1941-1945)
Section 3. – Obligations of the Bailor (Arts. 1946-1952)
• Chapter 2 – Simple Loan or Mutuum (Arts. 1953-1961)
Credit - refers to belief or trust by a person in another's ability to comply with an obligation.
Credit Transactions - refers to the contracts or agreements based on said trust or credit.
SCOPE OF CREDIT TRANSACTIONS

A. PRINCIPAL CONTRACTS OF LOAN (Both commodatum and mutuum) and deposit (these are of course founded
on "belief" or "faith" or "trust").
B. ACCESSORY CONTRACTS - which generally depend on the existence of the aforementioned contracts and which
tends to strengthen said "belief" or "trust" because of the security given:
1. personal guaranty (a person's personal credit is involved as in guaranty proper and suretyship)
2. real guaranty (here the "belief" is strengthened with the use of property) - if real property, the contracts of real
mortgage and antichresis; if personal property, the contracts of pledge and chattel mortgage).
C. PREFERENCE AND CONCURRENCE OF CREDITS.
LOAN (Art. 1933)

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; 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.
LOAN - a contract wherein 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 or money or other consumable thing (commodatum), upon the condition that
the same amount of the same kind and quality shall be paid (loan or mutuum).
Characteristics of LOAN
Real Contract - delivery of the thing loaned is necessary for the perfection of the contract.
Unilateral Contract - once the subject matter has been delivered, it creates obligations on the part of only one of the parties
(i.e. borrower).
MUTUUM COMMODATUM
a. equivalent amount to be returned (subject matter is fungible) a. same thing to be returned (subject matter is non-fungible)
b. may be gratuitous or onerous (with interest) b. essentially gratuitous (if there is compensation it ceases to
be commodatum).
c. ownership passes to borrower or bailee. c. ownership is retained by lender or bailor.
d. refers to personal property only. d. may involve real and personal property.
e. referred to as loan for consumption. e. referred to as a loan for use or temporary possession.
f. borrower, because of his ownership, bears risk of loss. f. lender, because of his ownership, bears risk of loss.
g. can be generally obliged to pay only at end of period. g. while generally obliged to return object at the end of
period, still in some cases the return can be demanded even
before the end of the period.
h. not personal in character. h. personal in character.
KINDS OF LOAN
A. Commodatum - where one of the parties (bailor) delivers to the borrower (bailee) a non-consumable thing so that the
latter may use the same for a certain time and thereafter returns it.
▪ Ordinary Commodatum - the use by the borrower of the thing is for a certain period of time (Art. 1933)
▪ Precarium - one whereby the bailor may demand the thing loaned at will (Art. 1947)
B. Simple loan or Mutuum - where money or other consumable thing is delivered by the lender to the borrower subject to
the condition that the same amount of the same kind and quality shall be paid.
COMMODATUM
Commodatum - a real, principal, essentially gratuitous and personal contract where one of the parties (called the bailor or
lender) delivers to another (called the bailee or borrower) a non-consumable object, so that the latter may USE the same for
a certain period and later return it.
The term is derived from the Latin "commodum" (usefulness) or "commodo" (particular usefulness to a borrower.)
Comodatario - bailor (lender)
Comodante - bailee (borrower)
Features or characteristics of Commodatum as a Contract
a) Real (because perfected by delivery)
b) Principal (because it can stand alone by itself)
c) Gratuitous (otherwise, the contract is one of lease)
d) Personal in Nature (because of the trust)
What Bailee (Borrower) in Commodatum Acquire

Commodatum gives the right to:
• The use (just utendi)
• And not to the fruits (jus fruendi)
Subject matter of Commodatum

Art. 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.
Art. 1937. Movable or immovable property may be the object of commodatum.
Art. 1938. The bailor in commodatum need not be the owner of the thing loaned.
Obligations of the Bailee in Commodatum

1. Take good care of the thing with the diligence of a good father of a family (Art. 1163)
2. Use the thing only for the purpose that it was loaned and for no other purpose (Art. 1935)
3. To pay for the ordinary expenses for the use and preservation of the thing loaned. (Art. 1941)
4. To pay a portion of extraordinary expenses arising from the actual use of the thing, which shall be borne by both bailor
and bailee, even though the bailee acted without fault, unless there is a stipulation to the contrary (Art. 1949, par. 2)
5. To return and not to retain the thing loaned except for damages mentioned in Art. 1951 (Arts. 1933, 1944, 1946)
Obligations of the Bailee in Commodatum

The bailee is liable for the loss of the thing, even if it should be through a fortuitous event: (Art. 1942)
o If he devotes the thing to any purpose different from that for which it has been loaned;
o If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has
been constituted;
o If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exemption the bailee from
responsibility in case of a fortuitous event;
o If he lends or leases the thing to a third person, who is not a member of his household;
o If, being able to save either the thing borrowed or his own thing, he chose to save the latter.
Obligations of the Bailor in Commodatum

1. To respect the duration of the loan (Art. 1946)
2. To refund to the bailee extraordinary expenses incurred for the preservation of the thing 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. (Art. 1949)
3. To be held liable for damages which the bailee may suffer for failure of the bailor to advise the former of flaws (hidden
defects) of the thing loaned which are known to the bailor. (Art. 1951)
SIMPLE LOAN OR MUTUUM

Simple loan or Mutuum - where money or other consumable thing is delivered by the lender to the borrower subject to the
condition that the same amount of the same kind and quality shall be paid.
Obligations of the borrower:

1. To pay to the creditor an equal amount of the same kind and quality. (Art. 1953)
2. To pay interest, if stipulated in writing (Art. 1956)
Liability of Borrower of Money

Art. 1249. 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.
Art. 1250. 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.
Kinds of Interest
Interest may be paid either as Compensation for the use of the money (monetary interest); or as Damages (compensatory
interest).
Art. 1956 refers to interest for use of the money.
Rules on Interest
Generally, interest due and unpaid shall not bear interest, except:
➢ interest due shall earn legal interest from the time it is judicially demanded, although obligation may be silent upon this
(Art. 2212)
➢ if there is an agreement to this effect (Art. 1959) Generally, no interest shall be due unless it has been expressly
stipulated in writing, except:
1. if the obligation consists in the payment of sum of money, and the debtor incurs delay, the indemnity for
damages shall be the payment of interest agreed upon or in absence thereof, the legal interest (6% p.a.)
2. interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be
silent upon this (Art. 2212)

LOAN

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LAW ON CREDIT TRANSACTIONS – LOAN

SCOPE OF CREDIT TRANSACTIONS

LOAN (Art. 1933)

What Bailee (Borrower) in Commodatum Acquire

Subject matter of Commodatum

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

Obligations of the Bailee in Commodatum

Obligations of the Bailee in Commodatum

Obligations of the Bailor in Commodatum

SIMPLE LOAN OR MUTUUM

Obligations of the borrower:

Liability of Borrower of Money

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