LOAN

• Article 1933. By the contract of loan,

• Commodatum - 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. Is gratuitous. bailor retains the
ownership

• Mutuum - money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid. Either gratuitous or with a stipulation to pay interest.
Ownership passes to the borrower.

• Distinctions between Commodatum and Mutuum

• Article 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.

Commodatum

• If accepted promise to deliver = is binding upon parties

Commodatum and Mutuum

• No perfection until delivery of the object

Notes:

• No perfection by consent because these are real contracts. No delivery, no contract.

• LOAN TYPE 1: COMMODATUM

• Article 1935. 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.

• Bailee = does not acquire the use of the fruits. Only the object.

• The article talks about the fact that commodatum is gratuitous and is for free.

• Bailee does not enjoy the fruits. But if authorized to enjoy the fruits, it is called usufruct.
Exception: Art. 1940 – if there is a stipulation in the contract.

• Article 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.

• Gen. rule: If money or consumable, it is mutuum (Art. 1933).

• Exception: This Article; whereby money or consumable thing is the object of commodatum for
purposes of exhibition or ad ostentationem.

• Art. 1937 – Commodatum object may be real or personal a.k.a movable or immovable.

- If there was no time fixed for the use of the land, it is precarium.

• Art. 1938 – The bailor (in commodatum) need not to be the owner of the object or thing.

- hence, the lessee may sublease and transfer the enjoyment of the thing to another even with
consideration so long no prohibition for subleasing in the contract.

• Article 1939. Commodatum is purely personal in character. Hence:

(1) Death of either the bailor or bailee = extinguishes the contract;

(2) The bailee = cannot lend nor lease the object of the contract to a third persons.

Exception: Members of the bailee's household may make use of the thing loaned.

Exception to Exception: A stipulation to the contrary, or unless the nature of the thing forbids
such use.

• Article 1941. The bailee is obliged to pay for the ordinary expenses for the use and
preservation of the thing loaned.

- Ordinary = bailee must shoulder

- Extraordinary = bailor must reimburse the bailee but bailee must first notify bailor

- Extraordinary during actual use = bailor and bailee equally shoulder the expenses
 • Article 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 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.

• Article 1944

Gen. rule: Bailee cannot retain the thing on the ground that bailor owes him something (i.e.
extraordinary expenses)

Exception: Bailee can retain the thing (YES HE CAN) until reimbursed by bailor for claims of damages
because of hidden defects or flaws of the thing or those not warned or advised by the bailor. (relate to
Art. 1951)

• Article 1945. When there are two or more bailees to whom a thing is loaned in the same
contract, they are liable solidarily.

2 or more bailees in 1 contract = solidarily liable

• Article 1946 – Gen. rule: When may the bailor demand the return of the thing:

(1) After the expiration of the stipulated period.

(2) After the accomplishment of the use for which the commodatum has been constituted.

Exception:

• In case of urgent need = Bailor may demand its return or temporary use for the meantime

• In case of temporary use by the bailor = the contract of commodatum is suspended while the
thing is in the possession of the bailor.
 • Article 1947. The bailor may demand the thing at will (a.k.a Precarium) in the following cases:

(1) No stipulation as to the duration of the contract

(2) No stipulation as to the use to which the thing should be devoted

(2) The use of the thing is merely tolerated by the bailor.

• Article 1948. The bailor may demand the immediate return of the thing if the bailee commits
any act of ingratitude specified in article 765.

• 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;

• (3) If he unduly refuses him support when the donee is legally or morally bound to give support
to the donor.

• Article 1949. Who shall shoulder/refund expenses?

- Ordinary expenses = bailee

- Extraordinary expenses = bailor must refund the bailee provided that bailee notified him before
expenses were incurred (except there’s urgency)

- - Extraordinary expenses = divided eqally between bailor and bailee on the occasion of the
actual use of the thing

• Article 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.

• Article 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.

- There is tort or quasi-delict.

- If bailor not aware = cannot be made liable

 - If both parties are aware of the defects = bailee is deemed to have assumed the risk

- Can the bailee retain the thing for damages he suffered? YES. Art. 1944 provides so.

• Article 1952. The bailor cannot exempt himself from the payment of expenses or damages by
abandoning the thing to the bailee.

• Bailor cannot be exempted from payment of expenses and damages to the bailee just by
abandoning of the thing.

• Renunciation of one’s right over the property is not sufficient to satisfy an obligation for
expenses incurred.

• LOAN TYPE 2: SIMPLE LOAN OR MUTUUM

• Article 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.

• Article 1954. Barter - 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.

• Article 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.

• Article 1956. No interest shall be due unless it has been expressly stipulated in writing.

- In the absence of a stipulation as to interest, the loan due will now earn interest at the legal rate of
12% per annum.

• Article 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 .

- Relate to CB 905, PD 1684

- Usury Law is legally non-existent by virtue of CB 905

 - CB 905=removed the ceiling on interest rates for secured and unsecure loans regardless of
maturity.

• Medel vs. CA (Art. 1957, Art. 1961)

“We find that the interest at 5.5% per month or 66% per annum as stipulated in the P.N. is iniquitous or
unconscionable, hence contrary to morals. The stipulation hence is void. The courts shall reduce
equitably liquidated damages…”

• Article 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.

• Article 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.

• Article 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.

- This article applies when the borrower paid interest for the money loaned without any written
stipulation.

- Without the written stipulation, borrower cannot be compelled to pay interest.

- If borrower paid by mistake = he can recover what he has paid under the principle of solutio in
debiti. (No one shall be enriched at the expense of another.

• Article 1961. Usurious contracts shall be governed by the Usury Law and other special laws, so
far as they are not inconsistent with this Code.

- C.B. 905=abolished the ceilings on interests.

- P.D. 1684=Central Bank was empowered to prescribe the max. rates of interest for loans and
forbearance.

- Forbearance – signifies the contractual obligation of the creditor to the debtor to forebear
during a given period to require the debtor of payment of an existing debt then due and
payable. Such forbearance of giving time for the payment of a debt is a loan.

Take Note:
 - If interest agreed upon is unconscionable, the court may reduce the same under Article 21 of
the New Civil Code:

 Article 21. Any person who willfully causes loss or injury to another in manner that is contrary
to morals, good customs or public policy shall compensate the latter for the damage.

- If the borrower does not put in issue the unreasonableness of the interest rate which he has
agreed to pay, the court will not extend him any help because Usury Law is presently ineffective.

- It is necessary though that the borrower has agreed to the payment of the interest. Remember
that the lender CANNOT unilaterally increase the interest rate to an iniquitous level.

•
DEPOSIT

• Article 1962. A deposit is constituted from the moment a person receives a thing belonging to
another, with the obligation of safely keeping it and of returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the contract, there is no deposit but
some other contract.

Classes of Deposits:

(1) Judicial deposit or sequestration

(2) Extra-judicial deposit (voluntary or necessary)

Characteristics of Deposit:

1. Real Contract – perfected upon delivery if the thing

2. Principal Purpose – For safekeeping

3. Nature – Gen. rule: Essentially gratuitous

Exception: There is a contrary agreement.

4. Object – Movable things (if extrajudicial). Movable or immovable things (if judicial).

5. Demandability – Depositor can demand the thing at will.

6. Ownership – Not transferred to the depositary.

 • Article 1963. An agreement to constitute a deposit is binding, but the deposit itself is not
perfected until the delivery of the thing.

- This article applies only to voluntary deposits because there is an agreement.

- Article does not apply to necessary or involuntary deposits where no agreement between
parties.

• Article 1964. A deposit may be constituted judicially or extrajudicially.

(1) Judicially – when there is court order.

 May be movable or immovable things.

(2) Extra-judically – when it is voluntary or necessary/involuntary

 ONLY movable things.

• Article 1965. A deposit is a gratuitous contract, except when there is an agreement to the
contrary, or unless the depositary is engaged in the business of storing goods.

- Gen. Rule: Deposit is essentially gratuitous.

- Exceptions:

(1) If parties have agreed that compensation be paid;

(2) If the depositary is engaged in the business of storing goods.

• Article 1966. Only movable things may be the object of a deposit.

- This Article only talks about Extra-judicial deposit.

• Article 1967. An extrajudicial deposit is either voluntary or necessary.

Classes:

(1) Voluntary (Art. 1968)

(2) Necessary or involuntary (Art. 1996)