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I. INTRODUCTION
The Concept of Credit
A. Credit, Debt and Security
B. Credit and Credit Transaction Defined
 Republic Act No. 3765, Sec. 3. (2)
(2) "Credit" means any loan, mortgage, deed of
trust, advance, or discount; any conditional sales
contract; any contract to sell, or sale or contract
of sale of property or services, either for present
or future delivery, under which part or all of the
price is payable subsequent to the making of
such sale or contract; any rental-purchase
contract; any contract or arrangement for the
hire, bailment, or leasing of property; any option,
demand, lien, pledge, or other claim against, or
for the delivery of, property or money; any
purchase, or other acquisition of, or any credit
upon the security of, any obligation of claim
arising out of any of the foregoing; and any
transaction or series of transactions having a
similar purpose or effect.
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People v. Concepcion GR No. L-19190 November 29,
1922
FACTS:
a. Concepcion, the president of PNB, authorized
the extension of credit in favor of the partnership
Puno y Conception, in which his wife was one of
the partners.
b. This special authorization limited the discretional
power of the local manager at Aparri, Cagayan,
to grant loans and discount negotiable
documents to P5,000, which, in certain cases,
could be increased to P10,000. The credit
aggregated to P300,000, the only security
required consisting of six demand notes.
c. A case was filed against Concepcion for the
violation of section 35 of Act No. 2747. He was
found guilty. Upon appeal, the counsel argue
that the documents of record do not prove that
the transaction amounts to a granting of loan,
only a concession of credit.
ISSUE: Did the credit extension amounted to a loan?
HELD: Yes.
a. The "credit" of an individual means his ability to
borrow money by virtue of the confidence or
trust reposed by a lender that he will pay what
he may promise. A "loan" means the delivery by
one party and the receipt by the other party of a
given sum of money, upon an agreement,
express or implied, to repay the sum loaned,
with or without interest. The concession of a
"credit" necessarily involves the granting of
"loans" up to the limit of the amount fixed in the
"credit."
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C. Commercial Credit Transactions
 Code of Commerce Arts. 1-3
ART. 1. For purposes of this Code,
merchants are:
1.Those who, having legal capacity to
engage in commerce, habitually devote
themselves to it;
2.The commercial or industrial companies
which may be created in accordance with
[this Code] existing legislation.
ARTICLE 2. Acts of commerce, whether
those who execute them be merchants or
not, and whether specified in this Code or
not, should be governed by the provisions
contained in it, in their absence, by the
usages of commerce generally observed in
each place; and in the absence of both rules,
by those of the civil law. Those acts
contained in this Code and all others of
analogous character shall be deemed acts of
commerce.
ARTICLE 3. The legal presumption of
habitually engaging in commerce shall exist
from the moment the person who intends to
engage therein announces through circulars,
newspapers, handbills, posters exhibited to
the public, or in any other manner
whatsoever, an establishment which has for
its object some commercial operation
II. LOAN, IN GENERAL
The Concept of Loan
A. General Concepts:
 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.
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.
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 Art. 1305: A contract is a meeting of minds
between two persons whereby one binds
himself, with respect to the other, to give
something or to render some service.
1. Obligation to deliver
 Art. 1934: An accepted promise to deliver
something by way of commodatum or simple
loan is binding upon parties, but the
commodatum or simple loan itself shall not
be perfected until the delivery of the object of
the contract.
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Garcia v. Thio, G.R. No. 154878, March 16, 2007, 518
SCRA 433
FACTS:
a. Petitioner alleged that the respondent Thio
borrowed from her the amount of US$100,000
and another P500,000 with interest thereon at
the rate of 3% and 4% per month respectively.
Thio received from petitioner Carolyn M. Garcia
a crossed check dated February 24, 1995 in the
amount of US$100,000 and a ₱500,000 check
dated June 29 1995, both payable to the order of
a certain Marilou Santiago. Thereafter, petitioner
received several crossed checked also payable
to Santiago.
b. For both loans, no promissory note was
executed since petitioner and respondent were
close friends at the time. Respondent paid the
stipulated monthly interest for both loans but on
their maturity dates, she failed to pay the
principal amounts despite repeated demands.
c. A complaint for sum of money and damages was
filed in the RTC of Makati seeking to collect the
sums of US$100,000, with interest thereon at
3% a month from October 26, 1995 and
₱500,000, with interest thereon at 4% a month
from November 5, 1995, plus attorney’s fees and
actual damages.
d. Respondent denied that she contracted the two
loans with petitioner and countered that it was
Marilou Santiago to whom petitioner lent the
money. She claimed she was merely asked by
petitioner to give the crossed checks to
Santiago. She issued the checks for ₱76,000
and ₱20,000 not as payment of interest but to
accommodate petitioner’s request that
respondent use her own checks instead of
Santiago’s.
e. the RTC ruled in favor of petitioner. Upon
appeal, the CA reversed the decision, reasoninh
that there is nothing in the record that shows that
respondent received money from [petitioner].
What is evident is the fact that respondent
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received a MetroBank crossed check and a
CityTrust crossed check both payable to the
order of Marilou Santiago, both of which were
issued by petitioner. The checks received by
respondent, being crossed, may not be
encashed but only deposited in the bank by the
payee thereof, that is, by Marilou Santiago
herself.
ISSUE: Is Thio the debtor in this case and should
therefore be liable?
HELD: Yes.
a. A loan is a real contract, not consensual, and as
such is perfected only upon the delivery of the
object of the contract. This is evident in Art. 1934
of the Civil Code which provides: 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.
b. Upon delivery of the object of the contract of
loan (in this case the money received by the
debtor when the checks were encashed) the
debtor acquires ownership of such money or
loan proceeds and is bound to pay the creditor
an equal amount.
c. Delivery is the act by which the res or substance
thereof is placed within the actual or constructive
possession or control of another. Although
respondent did not physically receive the
proceeds of the checks, these instruments were
placed in her control and possession under an
arrangement whereby she actually re-lent the
amounts to Santiago.
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2. Object of a Loan - Art. 1933: “or money or other
consumable thing”
 Art. 418: 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.
3. Consideration of a Loan - Art. 1933: “upon the
condition that the same amount of the same kind
and quality shall be paid”
4. Obligation to Return or Pay - Art. 1933,
 Art. 1232: Payment means not only the
delivery of money but also the performance,
in any other manner, of an obligation.
 Art. 1233: A debt shall not be understood to
have been paid unless the thing or service in
which the obligation consists has been
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completely delivered or rendered, as the
case may be.
B. Contract To Loan
 Art. 1934: An accepted promise to deliver
something by way of commodatum or simple
loan is binding upon parties, but the
commodatum or simple loan itself shall not be
perfected until the delivery of the object of the
contract.
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Saura Import and Export v. DBP GR No. L-2968
April 27, 1972
FACTS:
a. Saura Inc. filed for an industrial loan of P500,000
to the Rehabilitation Finance Corporation (Now
DBP). The DBP approved of the loan through
Resolution 145, to be secured by a first
mortgage on the factory building to be
constructed, the land site thereof, and the
machinery and equipment to be installed.
b. A request to reduce he loan from P500,000 to
P300,000 was requested by Saura, which it later
on recanted. DBP agreed on the reinstatement
of loan for two conditions: “That the raw
materials needed by the borrower-corporation to
carry out its operation are available in the
immediate vicinity; and That there is prospect of
increased production thereof to provide
adequately for the requirements of the factory."
c. But then, later on, the mortgage was cancelled
to make way for the registration of a mortgage
contract over the same property in favor of
Prudential Bank and Trust Co., the latter having
issued Saura letter of credit for the release of the
jute machinery. As security, Saura execute a
trust receipt in favor of the Prudential. For failure
of Saura to pay said obligation, Prudential sued
Saura.
d. After almost 9 years, Saura Inc, commenced an
action against RFC, alleging failure on the latter
to comply with its obligations to release the loan
applied for and approved, thereby preventing the
plaintiff from completing or paying contractual
commitments it had entered into, in connection
with its jute mill project.
e. The trial court ruled in favor of Saura, ruling that
there was a perfected contract between the
parties and that the RFC was guilty of breach
thereof.
ISSUE: Was there a perfected contract between Saura
and DBP?
HELD: Yes.
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a. ART. 1954: 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
perferted until the delivery of the object of the
contract.
b. There was undoubtedly offer and acceptance in
this case: the application of Saura, Inc. for a loan
of P500,000.00 was approved by resolution of
the defendant, and the corresponding mortgage
was executed and registered. But this fact alone
falls short of resolving the basic claim that the
defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.
c. When an application for a loan of money was
approved by resolution of the respondent
corporation and the responding mortgage was
executed and registered, there arises a
perfected consensual contract.
d. However, it should be noted that RFC imposed
two conditions (availability of raw materials and
increased production) when it restored the loan
to the original amount of P500,000.00.
e. Saura, Inc. obviously was in no position to
comply with RFC’s conditions. So instead of
doing so and insisting that the loan be released
as agreed upon, Saura, Inc. asked that the
mortgage be cancelled. The action thus taken by
both parties was in the nature of mutual
desistance which is a mode of extinguishing
obligations. It is a concept that derives from the
principle that since mutual agreement can create
a contract, mutual disagreement by the parties
can cause its extinguishment.
BPI Investment v. CA GR No. 133632 February 15,
2002
FACTS:
a. Frank Roa obtained a loan at an interest rate of
16 1/4% per annum from Ayala Investment and
Development Corporation (AIDC), the
predecessor of BPIIC for the construction of a
house on his lot in, Muntinlupa. Said house and
lot were mortgaged to BPIIC to secure the loan.
b. In 1980, Roa sold the house and lot to ALS and
Antonio Litonjua for P850,000. They paid
P350,000 in cash and assumed the P500,000
balance of Roas indebtedness with BPIIC.
c. BPIIC was not willing to extend the old interest
rate to private respondents and proposed to
grant them a new loan of P500,000 to be applied
to Roas debt and secured by the same property.
d. Consequently, in March 1981, ALS and Litonjua
executed a mortgage deed containing the above
stipulations which shall commence on May 1,
1981.
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e. Upon failure to pay the balance of the loan,
BPIIC instituted foreclosure proceedings against
private respondents, amounting to P475,585.31.
A notice of sheriff sale was published on August
13,
f. ALS and Litonjua filed Civil Case No. 52093
against BPIIC. They alleged, among others, that
they were not in arrears in their payment, but in
fact made an overpayment as of June 30, 1984.
g. The RTC ruled in favor of ALS and Litonjua.
ISSUE: Was there a perfected contract between ALS
and BPIIC?
HELD: Yes.
a. A loan contract is not a consensual contract but
a real contract. It is perfected only upon the
delivery of the object of the contract.
b. A perfected consensual contract can give rise to
an action for damages. However, said contract
does not constitute the real contract of loan
which requires the delivery of the object of the
contract for its perfection and which gives rise to
obligations only on the part of the borrower.
c. In the present case, the loan contract between
BPI, on the one hand, and ALS and Litonjua, on
the other, was perfected only on September 13,
1982, the date of the second release of the loan.
Following the intentions of the parties on the
commencement of the monthly amortization, as
found by the Court of Appeals, private
respondents obligation to pay commenced only
on October 13, 1982, a month after the
perfection of the contract.
d. The promise of BPIIC to extend and deliver the
loan is upon the consideration that ALS and
Litonjua shall pay the monthly amortization
commencing on May 1, 1981, one month after
the supposed release of the loan. It is a basic
principle in reciprocal obligations that neither
party incurs in delay, if the other does not
comply or is not ready to comply in a proper
manner with what is incumbent upon him.
e. Only when a party has performed his part of the
contract can he demand that the other party also
fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could
only demand for the payment of the monthly
amortization after September 13, 1982 for it was
only then when it complied with its obligation
under the loan contract. Therefore, in computing
the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the
mortgage, the starting date is October 13, 1982
and not May 1, 1981.
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Pantaleon v. American Express Inc. GR No. 174269
May 8, 2009
FACTS:
a. Polo Pantaleon, a lawyer, joined an escorted
tour with his family in Western Europe in 1991.
b. Upon having a visit at the Coster Diamond
House in Amsterdam, the Pantaleon spouses
decided to purchase jewelries using their
American Express card. This purchase caused a
delay as the store manager demanded for bank
references. The spouses decided to cancel the
transaction.
c. It later emerged that Pantaleon’s purchase was
first transmitted for approval to respondent’s
Amsterdam office at 9:20 a.m., Amsterdam time,
then referred to respondent’s Manila office at
9:33 a.m, then finally approved at 10:19 a.m.,
Amsterdam time. The Approval Code was
transmitted to respondent’s Amsterdam office at
10:38 a.m., several minutes after petitioner had
already left Coster, and 78 minutes from the time
the purchases were electronically transmitted by
the jewelry store to respondent’s Amsterdam
office.
d. After their tour, Pantaleon demanded an apology
from the AmEx, which they did not suffice as
they argued that the amount charged was
beyond what was established. Pantaleon then
filed an action for damages to the RTC of
Makati.
e. RTC rendered a decision in favor of Pantaleon.
CA reversed the awarding of damages, holding
that the respondent did not breached any
obligation.
ISSUE: Did American Express commit breach of
obligations?
HELD: Yes.
a. The culpable failure of respondent herein is not
the failure to timely approve petitioner’s
purchase, but the more elemental failure to
timely act on the same, whether favorably or
unfavorably. Even assuming that respondent’s
credit authorizers did not have sufficient basis on
hand to make a judgment, we see no reason
why respondent could not have promptly
informed petitioner the reason for the delay, and
duly advised him that resolving the same could
take some time.
b. The delay committed by defendant was clearly
attended by unjustified neglect and bad faith,
since it alleges to have consumed more than
one hour to simply go over plaintiff’s past credit
history with defendant, his payment record and
his credit and bank references, when all such
data are already stored and readily available
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from its computer. This Court also takes note of
the fact that there is nothing in plaintiff’s billing
history that would warrant the imprudent
suspension of action by defendant in processing
the purchase.
c. It should be emphasized that the reason why
petitioner is entitled to damages is not simply
because respondent incurred delay, but because
the delay, for which culpability lies under Article
1170, led to the particular injuries under Article
2217 of the Civil Code for which moral damages
are remunerative.
III. COMMODATUM
A. General Concepts
 Art. 1933
 Art. 1935: The bailee in commodatum acquires
the used 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.
 Art. 1939: 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.
1. Consideration in a Commodatum
2. Object of a Commodatum
 Art. 1937: Movable or immovable property may
be the object 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.
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Planter’s Bank v. CA GR No. 115324 February 19,
2003
FACTS:
a. Angeles Sanchez asked Franklin Vives to help
her friend and townmate, Col. Arturo Doronilla,
in incorporating his business, the Sterela
Marketing and Services by depositing a bank a
certain amount of money in the bank account of
Sterela for purposes of its incorporation. She
assured private respondent that he could
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withdraw his money from said account within a
months time.
b. Relying on the assurances and representations
of Sanchez and Doronilla, Vives isued a check in
the amount of P200,000 in favor of Sterela.
c. A savings account in the name of Sterela was
opened in Producers Bank of the Philippines.
d. Subsequently, Vives learned that Sterela was no
longer holding office in the address previously
given to him. Alarmed, he and his wife went to
the Bank to verify if their money was still
intact. The bank informed them that part of the
money in Savings Account No. 10-1567 had
been withdrawn by Doronilla, and that
only P90,000.00 remained therein. They were
likewise told them that Mrs. Vives could not
withdraw said remaining amount because it had
to answer for some postdated checks issued by
Doronilla.
e. Vives received a letter from Doronilla, assuring
him that his money was intact and would be
returned to him. Doronilla issued a postdated
check for P212,000.00, which was dishonored.
f. Vives instituted an action against Doronilla,
Sanchez, Dumagpi and Producer’s bank to the
RTC which ruled in his favor.
g. Upon appeal, Producers 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 Sterelas bank account
h. Petitioner also argues that it cannot be held
liable for the return of private respondents
P200,000.00 because it is not privy to the
transaction between the latter and Doronilla.
ISSUE: Was the transaction constitute a simple loan
(mutuum)?
HELD: No.
a. No error was committed by the Court of Appeals
when it ruled that the transaction between
private respondent and Doronilla was a
commodatum and not a mutuum. A circumspect
examination of the records reveals that the
transaction between them was a commodatum.
Article 1933 of the Civil Code distinguishes
between the two kinds of loans in this wise:
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
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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.
b. 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.
c. Thus, if consumable goods are loaned only for
purposes of exhibition, or 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, the loan is a
commodatum and not a mutuum.
d. The rule is that the intention of the parties
thereto shall be accorded primordial
consideration in determining the actual character
of a contract. In case of doubt, the
contemporaneous and subsequent acts of the
parties shall be considered in such
determination.
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B. Parties to a Commodatum
1. Ownership by the Bailor
 Art. 1938: The bailor in commodatum need not
be the owner of the thing loaned.
 Art. 1933
2. Use by Bailee
 Art. 1935: The bailee in commodatum acquires
the used 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.
 Art. 1940: A stipulation that the bailee may make
use of the fruits of the thing loaned is valid.
 Art. 1939: 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.
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3. Solidary Liability of the Bailees
 Art. 1945: hen there are two or more bailees to
whom a thing is loaned in the same contract,
they are liable solidarily.
C. Liability for Expenses and Damages
1. Ordinary Expenses
 Art. 1933
 Art. 1935
 Art. 1941: The bailee is obliged to pay for the
ordinary expenses for the use and preservation
of the thing loaned.
 Art. 1943: The bailee does not answer for the
deterioration of the thing loaned due only to the
use thereof and without his fault.
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Pajuyo v. Court of Appeals, G.R. No. 146364, June 3,
2004
FACTS:
a. Colito T. Pajuyo paid P400 to a certain Pedro
Perez for the rights over a 250-square meter lot
in Barrio Payatas, Quezon City. Pajuyo then
constructed a house made of light materials on
the lot where he resided with his family from
1979 to 1985.
b. In 1985, Pajuyo and private respondent
Guevarra executed an agreement, wherein
Pajuyoallowed Guevarra to live in the house for
free provided Guevarra would maintain the
cleanliness and orderliness of the house.
Guevarra promised that he would voluntarily
vacate the premises on Pajuyos demand.
c. In September 1994, Pajuyo informed Guevarra
of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused,
prompting Pajuyo to file an ejectment case.
d. In his Answer, Guevarra claimed that Pajuyo
had no valid title or right of possession over the
lot where the house stands because the lot is
within the 150 hectares set aside by
Proclamation No. 137 for socialized housing.
Guevarra pointed out that from December 1985
to September 1994, Pajuyo did not show up or
communicate with him. Guevarra insisted that
neither he nor Pajuyo has valid title to the lot.
e. MTC rendered its decision in favor of Pajuyo.
RTC affirmed.
f. The Court of Appeals reversed the MTC and
RTC rulings, which held that the Kasunduan
between Pajuyo and Guevarra created a legal
tie akin to that of a landlord and tenant
relationship. The Court of Appeals ruled that the
Kasunduan is not a lease contract but a
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commodatum because the agreement is not for
a price certain.
ISSUE: Was the Kasunduan voluntarily entered into by
the parties was in fact a commodatum, instead of a
Contract of Lease?
HELD: No. – kasunduan not gratuitous
a. In a contract of commodatum, one of the parties
delivers to another something not consumable
so that the latter may use the same for a certain
time and return it.
b. An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is
that the use of the thing belonging to another is
for a certain period. Thus, the bailor cannot
demand the return of the thing loaned until after
expiration of the period stipulated, or after
accomplishment of the use for which the
commodatum is constituted. If the bailor should
have urgent need of the thing, he may demand
its return for temporary use.
c. If the use of the thing is merely tolerated by the
bailor, he can demand the return of the thing at
will, in which case the contractual relation is
called a precarium. Under the Civil Code,
precarium is a kind of commodatum.
d. 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. Case
law on ejectment has treated relationship based
on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of
permission would result in the termination of the
lease. The tenants withholding of the property
would then be unlawful. This is settled
jurisprudence.
e. Even assuming that the relationship between
Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to
turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return
the thing received attaches to contracts for
safekeeping, or contracts of commission,
administration and commodatum. These
contracts certainly involve the obligation to
deliver or return the thing received.
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2. Extraordinary Expenses
 Art. 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.
3. Other Expenses
 Art. 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.
4. Abandonment by Bailor
 Art. 1952: The bailor cannot exempt himself from
the payment of expenses or damages by
abandoning the thing to the bailee.
5. Right of Retention by the Bailee
 Art. 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.
 Art. 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.
D. Liability for Loss
 Art. 1933:
 Art. 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;
(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 exemption 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;
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(5) If, being able to save either the thing
borrowed or his own thing, he chose to save the
latter.
------------------
Republic v. Bagtas, G.R. No. L-17474, October 25,
1962
FACTS:
a. Jose V. Bagtas borrowed from the Republic of
the Philippines through the Bureau of Animal
Industry three bulls for a period of one year from
8 May 1948 to 7 May 1949 for breeding
purposes subject to a government charge of
breeding fee of 10% of the book value of the
bulls.
b. Upon the expiration on 7 May 1949 of the
contract, Bagtas asked for a renewal for another
period of one year. However, the Secretary of
Agriculture and Natural Resources approved a
renewal thereof of only one bull for another year
and requested the return of the other two.
c. Bagtas wrote to the Director of Animal Industry
that he would pay the value of the three bulls at
a value with a deduction of yearly depreciation.
The Director of Animal Industry advised him that
the book value of the three bulls could not be
reduced and that they either be returned or their
book value. Bagtas failed to pay the book value
of the three bulls or to return them.
d. Republic of the Philippines commenced an
action against Bagtas praying that he be ordered
to return the three bulls loaned to him or to pay
their book value in the total sum of P3,241.45
and the unpaid breeding fee in the sum of
P199.62, both with interests, and costs; and that
other just and equitable relief be granted in.
e. The Trial Court sentenced Bagtas to pay for the
total value of the three bulls plus breeding fees.
f. Bagtas during the pendency of the issuance of
the writ of execution for the judgement. His wife
Felicidad was assigned administratix of his
estate.
g. In a motion, she alleged that the 2 bulls have
already been returned, but perished due to a
Huk raid. She further states that because the
loss was due to fortuitous event, Bagtas is
exempt from liability.
ISSUE: Was the transaction a commodatum? Is Bagtas
liable for the loss?
HELD: No. Yes.
a. The appellant contends that the contract was
commodatum and that, for that reason, as the
appellee retained ownership or title to the bull it
should suffer its loss due to force majeure. A
8
contract of commodatum is essentially
gratuitous. If the breeding fee be considered a
compensation, then the contract would be a
lease of the bull. Under article 1671 of the Civil
Code the lessee would be subject to the
responsibilities of a possessor in bad faith,
because she had continued possession of the
bull after the expiry of the contract. And even if
the contract be commodatum, still the appellant
is liable, because article 1942 of the Civil Code
provides that a bailee in a contract of
commodatum —
. . . is liable for loss of the things, even if it
should be through a fortuitous event:
(2) If he keeps it longer than the period
stipulated . . .
(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;
------------------
E. Obligation to Return
 Art. 1933
 Art. 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.
 Art. 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.
 Art. 1948: The bailor may demand the
immediate return of the thing if the bailee
commits any act of ingratitude specified in Article
765.
*Art. 765: The donation may also be revoked at the instance of
the donor, by reason of ingratitude in the following cases:
(1) If the donee should commit some offense against the
person, the honor or the property of the donor, or of his wife or
children under his parental authority;
(2) If the donee imputes to the donor 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
donee himself, his wife or children under his authority;
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 9

(3) If he unduly refuses him support when the donee is legally
or morally bound to give support to the donor.
------------------
Quintos v. Beck, G.R. No. L-46240, November 3, 1939
applicable. The trial court, therefore, erred when
it came to the legal conclusion that the plaintiff
failed to comply with her obligation to get the
furniture when they were offered to her.

FACTS:

a. Beck was a tenant of Quintos and as such

occupied the latter's house. Upon the novation
of the contract of lease between the plaintiff and
the defendant, Quintos gratuitously granted to
the Beck the use of the furniture described in the
third paragraph of the stipulation of facts, subject
to the condition that the defendant would return
them to upon demand.
b. Quintos sold the property to the Lopezes, who
notified Beck of the conveyance, giving him sixty
days to vacate the premises under one of the
clauses of the contract of lease. Quintos
required Beck to return all the furniture
transferred to him for them in the house where
they were found.
c. Beck wrote to the plaintiff reiterating that she
may call for the furniture in the ground floor of
the house. Consequently, Beck wrote another
letter informing Quintos that he could not give up
the three gas heaters and the four electric lamps
because he would use them until the 15th of the
same month when the lease in due to expire.
d. Quintos refused to get the furniture in view of the
fact that the defendant had declined to make
delivery of all of them. Before vacating the
house, Becl deposited with the Sheriff all the
furniture belonging to the Quintos.

ISSUE: Was there a commodatum in this case? Should

Beck be liable for non-delivery of the furniture?

HELD: Yes.

a. The contract entered into between the parties is

one of commadatum, because under it the
plaintiff gratuitously granted the use of the
furniture to the defendant, reserving for herself
the ownership thereof; by this contract the
defendant bound himself to return the furniture
to the plaintiff, upon the latters demand.
b. The obligation voluntarily assumed by the
defendant to return the furniture upon the
plaintiff's demand, means that he should return
all of them to the plaintiff at the latter's residence
or house. The defendant did not comply with this
obligation when he merely placed them at the
disposal of the plaintiff, retaining for his benefit
the three gas heaters and the four eletric lamps.
The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely
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