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Credit Transactions
Atty. Fabella 2AA


CREDIT: 1. For sole benefit of bailor
Ability to brown money by virtue of the confidence/trust 2. For sole benefit of bailee
reposed in him by the lender that he will pay what he 3. Mutual benefit
Credit necessarily carries with it granting of a loan KINDS of Commodatum
1. Ordinary – Bailor cannot demand return at
CREDIT TRANSACTIONS: will. Period upon which the thing must be
Agreement based on the trust/belief of ability of another returned must be respected.
to comply or pay his obligation. 2. Precarium – Bailor can demand the return
Whether or not secure or not secured, it is credit of the thing at will; use of the thing depends
transaction upon the pleasure of the Bailor

Kinds of Credit Transactions: • Ownership not necessary. Only that bailor must have
capacity to transfer possession.
I. As to Security
1. Real Security – w/ Collateral 1933. Loan, Commodatum, Mutuum
Ex. Mortgage, pledge By the contract of loan, one of the parties deliver
2. Personal Security – w/ Promise to pay to the other, something either
Ex. Guarantee/surety
(1) Non-consumable so that the latter may
II. As to Existence use the same for a certain time and return it, in
1. Principal - Ex. Commodatum which case the contract is called a commodatum;
2. Accessory – or
Ex. Pledge, mortgage, antichresis (2) Money or other consumable thing, upon
the condition that the same AMOUNT of the same
III. As to Consideration KIND and QUALITY shall be paid, in which the
1. Onerous contract is simply called a loan mutuum.
2. Gratuitous
Commodatum is essentially gratuitous
Credit transaction in the constitution: Simple loan may be gratuitous or with
• Non-impairment for debt (Art III, Sec 30) stipulation to pay interest.

**Necessarily covers credit which is the ability of someone In commodatum the bailor retains the
to pay. ownership of the thing loaned, while in simple
loan, ownership passes to the borrower

LOAN: Mutuum/Simple loan Commodatum

delivery by one pay and receipt of the other of a given sum  Money or  Non-Consumable
with the agreement to repay sum loaned with or without Consumable XPN: for exhibition
interest (1936)
Interest taken at expiration of credit  Purpose is to loan,  Purpose is for the
upon the condition USE of the bailee for
SECURITY: that the same a certain time and
Something given, deposited, serving a means to ensure AMOUNT, of the return it
fulfillment or enforcement of an obligation or of same KIND and
protecting some interest in the property QUALITY shall be
BAILMENT:  Debtor-Creditor  Bailor-Bailee
Delivery of personal property for particular use or on  May be gratuitous or  Essentially
mere deposit, upon a contract, express or implied. with stipulation to gratuitous
pay interest
After purpose, it shall be delivered to the bailor

Credit Transactions
Atty. Fabella 2AA

 Ownership passes to  Bailor retains the OF LEASE because commodatum is always

the borrower ownership of the GRATUITOUS.
thing loaned
**Contract of lease (rent) – Owner does not lose
ownership but simply loses control over the thing leased.
COMMODATUM (Art 1935 – 1952) Relation between the contractors is lessor-lessee or
landlord-tenant if the object is land.
Characteristics of a commodatum:

1. Gratuitous Q: How long may the bailee use the thing loaned?
2. Use of thing is for a certain time A: It would depend upon the term of the contract.
3. Purpose is transfer use
4. Real contract (requires delivery) 1. For definite period- Upon expiration
5. Principal contract 2. No period - If parties specified the purpose for
6. Unilateral contract (obligation of bailee to return) which the thing loaned is to be used, return upon
7. Purely personal (trust and belief) the accomplishment of that purpose.

Object of commodatum (Upon expiration or upon accomplishment of purpose)

 Real or personal property
 Movable or immovable properties Q: What is transferred in a commodatum?
A: Only POSSESSION and USE, not ownership.
Q: Is it necessary for the bailor to be the owner of
the thing loaned? On the other hand, in mutuum, ownership is passed from
A: No. (Art 1938). What is only required is capacity to lender to borrowee
Such that a finder of a stolen thing can enter into a
contract of commodatum. Q: What makes commodatum purely personal?
• the characteristic of it being gratuitous, and the
Subject of commodatum characteristic that what must be returned must be the
very same thing.
• Give and return the VERY THING given for use. • Commodatum is founded on TRUST because you will
not lend something to someone whom you know will
GR: Must be non-consumable because what has not return the thing loaned.
been consumed CANNOT BE RETURNED
XPN: If consumable goods – must be for the Consequently:
purpose only or EXHIITION or DISPLAY 1. Death of either the bailor or bailee EXTINGUISHES
the contract
Q: Why must the object of commodatum be 2. The bailee can neither lend nor lease the object to a
always non-consumable? third person.
A: Because the law requires to be returned THE VERY XPN: Members of the bailee’s household may make use
THING loaned. of the thing loaned
You cannot return which cannot be used without being XPN to XPN:
consumed. • Stipulation to the contrary
• Nature of the thing forbids such use
**Bank deposits are not considered deposits but simple
loan because you cannot acquire the very bills deposited If the bailee dies, may the heirs make use of the
upon time of return. Likewise, ownership passes to the thing loaned? No. It must be under a new contract of
bank so that it can be used by 3rd persons. commodatum between the heirs and the bailor.

Q: Purpose of commodatum?
A: For the grant of FREE USE of the thing to the bailee. If Fruits (Art 1940)
valuable consideration is given for the purpose, it loses is
character of commodatum and becomes a CONTRACT FRUITS shall pertain to bailor
XPN: usufruct authorized (must be stipulated)
Credit Transactions
Atty. Fabella 2AA

Generally, Fruits cannot be the object of commodatum.

Fruits can be used only if it is INCIDENTAL. If it is NOT Extraordinary expenses during actual use of the
incidental, it is demandable at will, therefore it is thing by bailee:
USUFRUCT. Equally borne by BE and BR
XPN: Stipulation to the contrary
stipulation that the bailee may make use of the fruits of
the thing loaned is VALID (art. 1940) Reason? Benefit for actual use is on the part of BE

Q: What if you are granted usufruct of the fruits Other expenses incurred for the purpose of
but the fruits are consumable. What should you making use of the thing by the bailee: NO
return upon expiration of the contract? REIMBURSEMENT (Art 1949) *refers to luxurious and
A: Generally, in a contract of commodatum, what is to be necessary expenses)
returned is the thing loaned together with the fruits. BUT
if the fruits cannot be used without being consumed, 1942: When Bailee is liable for loss (not
return only the thing loaned and no longer the fruits (dean deterioration)
GR: Bailee is liable if the thing gets lost through his fault.

OBLIGATIONS OF THE BAILEE If thing gets lost WITHOUT the fault of Bailee, NO
1. Return the thing loaned LIABILITY
2. To pay for ordinary expenses
3. To notify bailor in case of extraordinary expenses XPN: If the thing should get lost without the fault of the
4. Solidary lability with the BR for extraordinary bailee, if the circumstances attendant are those provided
expenses incurred while in actual use of the thing for in Art. 1942, then liability attaches.
5. Liability for loss even if it should be through a
fortuitous event Kw: (5) PDA-L3S
• Purpose - BF
1941: Ordinary expenses • Delay - Mora
• Appraisal - Presumption
Obligation to pay for ordinary expenses for the use and • Lends to 3rd person – Viol of purely personal
preservation of the thing loaned • Save - Ingratitude

• If EXTRAORDINARY EXPENSES (1) If the BE devotes the thing to any purpose different
Reqs: from that for which it has been loaned.
(1) Notification by BE before expenses are • Basis: Bad faith
(2) Reply of the BR (2) If he keeps it longer that the period stipulated, or after
(art 1949) accomplishment of the purpose for which it has been
loaned. (delay)
Why is it necessary to notify the bailor? Because the • Mere delay is ground for liability. No demand
bailor might have other means by which to reduce necessary
expenses • Basis: Mora/default

Can notification be dispensed? No. Always required! (3) If the thing has been delivered with appraisal of
its value, UNLESS there is stipulation exempting the
What can be dispensed? Reply of bailor when bailee from responsibility in case of fortuitous event
expenses are urgent that the reply cannot be awaited • Appraisal raises the presumption of
without danger. understanding that when the thing is lost,
bailee will pay value.
• BE is entitled to REFUND for advanced expenses. BR • Basis: presumption
is duty-bound to reimburse all extraordinary
expenses. (4) If he lends or leases the thing to a 3rd party not
• If BE violates the rules for advancing EO expenses, he a member of his household
will not be reimbursed.
Credit Transactions
Atty. Fabella 2AA

• Use is limited to household members (not Active: on the part of creditors

necessarily family)
• Basis: violation of purely personal • Each one of the debtors are obliged to pay the
character of commodatum entire obligation
• Without prejudice to the right to the innocent
(5) If, being able to save either the thing borrowed or his debtor to go after the guilty debtor
own thing, he chose to save the latter.
• Basis is Ingratitude Solidarity of 2 or more bailees
• In case of loss, bailor can enforce his rights
Q: When will Bailee incur delay? against any one or some of the bailees depending
A: no demand necessary. Mere delay in returning the on his convenience
object makes the bailee liable.

When can return of the thing be demanded?

1943. BE does not answer for the deterioration of (1) After expiration of the period
the thing loaned due only to the use thereof (2) After accomplishment of the use for which the
without his fault. commodatum has been constituted

Exemption from liability of BE: GR: No demand until then

(1) If the use of the thing be the cause of Otherwise: breach of contract, liable for damages
deterioration XPN: Urgent need of the thing loaned, the BR may
(2) If the bailee was not at fault for the demand return
deterioration of the object (no abuse of the thing
loaned) Effects:
(1) Demand for return: extinguishes the
GR: Ordinary war and tear borne by BAILOR commodatum
XPN: deterioration due to fault/negligence of bailee (2) Demand for Temporary use: Suspends the
period until cessation of urgent need
1944: BE Right to retention
Loan for unlawful purpose: VOID
GR: BE has no right of retention of the thing loaned on • BR may immediately recover the thing before any
the ground of DEBT illegal act be committed (provided he is an
innocent party)
XPN: when bailee has the right to claim DAMAGES
arising from claims for damages by bailee by reason of Acts of ingratitude (Art 1948)
hidden defect or flaws of the thing loaned not warned by • Bailor may demand return of the thing at any
bailor. (Art 1951) time, even before the termination of the period or
accomplishment of the purpose
• Retention is only until finally reimbursed • Reason: because commodatum is gratuitous.
• No right to SELL the thing to satisfy the claim
• Retention can never ripen into “just title” (no Precarium (1949)
ordinary prescription) • specie of commodatum.
• Grant of free use to the Bailee however:
1945: Solidarity of Bailees (1) Duration not stipulated (no period)
(2) Use to which the thing loaned should be
Solidarity arises in 3 instances devoted to, not stipulated (no purpose)
(1) When the parties require solidarity (3) Use of the thig merely by tolerance of the
(2) When the nature of the obligation requires owner (no contract)
(3) When the law so provides Liability of BR for damages suffered by BE(1951)

Solidary obligation Conditions for the liability of BE

Passive: on the part of Debtors (1) The thing loaned must be suffering from a
Credit Transactions
Atty. Fabella 2AA

(2) The bailor, at the time of the loan was aware • What the law refers to in the provision on
of such defect commodatum are Fungible things, not consumables.
(3) The bailor did not inform the bailee of such • Reason - consumables cannot be used without being
defect consumed. Fungibles are things capable of
(4) While the thing was in use by the bailee, the substitution. Therefore, the better term is
latter suffers injury and the cause was such FUNGIBLE.
defect • Whether the loan involved is commodatum or
mutuum, the object is always a PROPERTY.
• Cause of injury MUST be the defect! Otherwise,
no liability will attach to the bailor.
• When both parties are aware, assumption of
risk presumed. LOAN in general
Abandonment (1952) 1. REAL – perfected by the delivery of the object or
thing loaned such that without delivery, there can
• Against public policy! Bad faith! be no perfected contract OF loan.
• BR cannot be excused form payment of 2. UNILATERAL – Obligation is imposed on one
extraordinary expenses advanced by bailee by side i.e. bailee (Obligation to return the thing
merely abandoning the thing to the bailee borrowed wither upon expiration of the period or
• Renunciation not sufficient to satisfy the accomplishment of the purpose)
obligation for expenses incurred.
• How about the obligation of the bailor to
deliver? No. because before delivery, there is no
loan. What we are talking about here is the contract
of loan so we are assuming that there has already been
delivery. Otherwise, there is no loan.
A contract whereby one of the parties delivers to another • Once delivery has been perfected by the bailor, no
money or other consumable (fungible) thing, upon the more obligation is imposed upon him. What he has is
condition that the same amount of the same kind and the right to DEMAND the return of the thing.
quality shall be paid.
Contract TO lend Contract OF loan
A person who receives a loan of money or other fungible Perfected by mere consent Perfected upon delivery
thing acquires the ownership thereof and is bound to pay (consensual) (real contract)
the creditor an EQUAL AMOUNT of the same KIND and Promissor-promissee Bailor-bailee
QUALITY. (1953) Preparatory contract Principal contract
Not fulfilled within one Not covered by STATUTE
year it becomes subject to of FRAUDS because it is
What shall be returned? AKQ the STATUTE OF not executory contract
Same Amount of FRAUDS if in writing
Same KIND and QUALITY Upon fulfillment, it ceases Extinguished by death of
to be a contract to lend one of the parties
Characteristics and becomes a contract of
(1) Principal contract loan.
(2) Real contract
(3) Unilateral contract
Interests (1956)
(4) Onerous or gratuitous
(5) Transfers ownership
• No interests are to be charge unless by
Object of Mutuum: AGREEMENT in WRITING
• Interests are governed by civil code and other
special law
 Money ; or – obli to return the same amount
• Must be in writing to be enforceable
 Something Fungible – obli to return something of
the same KIND or QUALITY
Kinds of interests
 Personal property
(1) Moratory interests - interest for use of
money (expressly agreed by the parties)
Credit Transactions
Atty. Fabella 2AA

(2) Compensatory interests - interest which arises Gratuitous/onerous Onerous

from delict – paid in form of penalty or punishment Transfer of ownership – In effect – a mutual sale
which commences upon JUDICIAL DEMAND. no sale because of the transfer of
(3) Simple - certain rate as stipulated in writing ownership on both sides
In commodatum, return Parties do not own the
(4) Compound - accrued interest is added to
after expiration of the things subject of the
principal - resulting sum is treated as new principal period or accomplishment exchange
in which the interest for the next period is based of purpose to which the
(interest over interest) contract has been
(5) Legal - interest imposed by law in the absence constituted
of agreement (6%)
(1) Money • Obligation of the BE shall be
Q May interest be charged even if not put into governed by 1249-50
• Return the same amount
Yes. In case of default incurred in payment of (2) Consumable • Return the same KIND or
principal obligation. Default interest rate is 6% legal or fungible QUALITY or QUANTITY
interest even if it should change in
Q What if interest have been paid without • If return becomes
stipulation therefor? Interests pad by mistake. IMPOSSIBLE – value of the
thing at the time of
Solutio indebiti (Art 1960)
perfection (delivery) shall
be the basis of payment
Q Is compound interest legal?
GR: No. Accrued interest shall not earn
compound interest ***law on usury suspended (1957)
XPN: Yes. Provided:
Agreement (Art 1959)
Judicial demand
• Floating rate of interest: VOID
• No interests on unliquidated claims unless 1962: A deposit is constituted from the moment a
certain person receives a thing belonging to another,
• No interest in EQUITABLE MORTGAGE – with the obligation of safely keeping it and or
because not stipulated in writing returning the same. If the safekeeping of the
thing delivered is not the principal purpose of
INTEREST PAYABLE IN KIND (1958) the contract, there is no deposit but some other
• Value shall be APPRAISED at the current price of contract.
the products or goods at the time and place of
payment (actual market value at T&P of Payment) Deposit:
(1) Contract whereby a person receives a thing belonging
BARTER to another
(2) With the obligation of SAFELY KEEPING it
• Results when there is obligation to deliver something (3) And returning the same
non-fungible in exchange for the delivery of the bailee
of another non-fungible
• If what would be given in exchange is a fungible thing,  No future things because it requires delivery
it becomes a LOAN.  Perfected upon delivery (real contract)
 Depositor need not be the owner. It is sufficient
In other words: that he is capable of delivering the thing or
Barter is a contract wherein a person (bailor) delivers to transferring possession.
another (bailee) one thing in consideration of the latter’s  Depositary need not prove his title over the thing
promise to give another thing. deposited

LOAN BARTER 2 duties of a Depositary

Money/other fungibles Non-fungibles (1) To safely keep
Credit Transactions
Atty. Fabella 2AA

(2) To return the thing

 Main purpose must always be for safekeeping,
otherwise, it is not a contract of deposit.

Characteristics of a deposit

(1) Real contract

(2) Movable/personal property
XPN: land by judicial deposit
(3) Primary intention: safekeeping
(4) Generally gratuitous
(5) depositary cannot use the thing deposited
XPN: permission

Classes of deposits

(1) Judicial – by attachment or seizure of thing subject

of litigation
(2) Extra-judicial –
 Voluntary – upon will of the DR
 Necessary – in compliance with legal obligation


(1) Purpose if (1) Purpose is USE (1) Purpose is for
safekeeping (2) Cannot be consumption
(2) DR can demand the demanded until (2) Lender cannot
thing at will lapse of period or demand until
(3) Gratuitous/onerous accomplishment expiration of
(4) Movables (XPN: (3) Always gratuitous period
attachment of land) (4) Moveable or (3) Only
(5) Depositor- immovable money/fungible
depositary (5) Bailor-bailee (4) Bailor-bailee