CREDIT TRANSACTIONS GENERAL PROVISIONS

ARTICLE 1933. By the contract of loan, one

Credit transactions include all transactions of the parties
involving the delivers to another, either something not
purchase or loan of goods, services, or money in consumable
the present with so that the latter may use the same for a certain
a promise to pay or deliver in the future. time and
return it, in which case the contract is called a
Security is something given, deposited, or serving commodatum;
as or money or other consumable thing, upon the
a means to ensure the fulfillment or enforcement condition
of an obligation that the same amount of the same kind and quality
or of protecting some interest in property. shall be paid, in which case the contract is simply
called a
Note: Security may be personal (surety or loan or mutuum.
guarantor) or real (mortgage, pledge, antichresis, Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a
lien)
stipulation to
Bailment - delivery of property of one person pay interest.
In commodatum the bailor retains the
to another in trust for a specific purpose, with a
ownerships of
contract, express the thing loaned, while in simple loan, ownership
or implied, that the trust shall be faithfully passes
executed and the to the borrower. (1740a)
property returned or duly accounted for when the
special Characteristics of the contract of loan.
purpose is accomplished or kept until the bailor
1. Real
reclaims it.
2. Unilateral
Kinds of contractual bailment
Kinds of loan
(1) Those for the sole benefit of the bailor
(gratuitous deposit and mandatum); (1) Commodatum. where the bailor
(2) Those for the sole benefit of the bailee (lender) delivers to the
(commodatum and gratuitous simple load or bailee (borrower) a non-consumable thing so that
mutuum); and the latter may
(3) Those for the benefit of both parties (deposit use it for a certain time and return the identical
for compensation, including involuntary deposit, thing; and
pledge and bailments for hire) (2) Simple loan or mutuum. where the
Kinds of bailment for hire lender delivers to the
borrower money or other consumable thing upon
Bailment for hire (locatio et conductio) arises the condition
when goods are left that the latter shall pay the same amount of the
with the bailee for some use or service by him same kind and
and is always for quality.
some compensation.
Commodatum and mutuum (simple loan)
(1) Hire of things (locatio rei). distinguished.

(2) Hire of service (locatio operis faciendi). (1) Commodatum ordinarily involves
something not consumable
(3) Hire for carriage of goods (locatio operis (see Art. 1936.), while in mutuum, the subject
mercium vehendarum). matter is money
or other consumable thing;
(4) Hire of custody (locatio custodiae). (2) In commodatum, ownership of the
thing loaned is retained
Title XI, Book IV, Civil Code by the lender (Art. 1933.), while in mutuum, the
LOAN ownership is
transferred to the borrower;
(Arts. 1933-1961.)
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 (3) Commodatum is essentially gratuitous
(ibid.), while
mutuum may be gratuitous or it may be onerous,
that is, with
stipulation to pay interest;
(4) In commodatum, the borrower must
return the same thing
loaned (ibid.), while in mutuum, the borrower
need only pay the
same amount of the same kind and quality;
(5) Commodatum may involve real or
personal property (Art.
1937.), while mutuum refers only to personal
property;
(6) Commodatum is a loan for use or
temporary possession
(Art. 1935.), while mutuum is a loan for
consumption;
(7) In commodatum, the bailor may
demand the return of the
thing loaned before the expiration of the term in
case of urgent
need (Art. 1946), while in mutuum, the lender
may not demand
its return before the lapse of the term agreed
upon; and
(8) In commodatum, the loss of the
subject matter is suffered
by the bailor since he is the owner (Art. 1942; Art.
1174.), while in
mutuum, the borrower suffers the loss even if
caused exclusively
by a fortuitous event and he is not, therefore,
discharged from his
duty to pay.
It may also be said that while commodatum is
purely personal
in character (see Art. 1939.), mutuum is not so.
Kinds of commodatum
(1) ordinary commodatum (Art. 1933.); and
(2) precarium. one whereby the bailor may
demand the
thing loaned at will. (see Art. 1947.)
ART. 1934. 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.
Chapter 1
COMMODATUM
SECTION 1. Nature of Commodatum
ART. 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. (1941a)
Purpose of the contract - temporary use of the
thing loaned.
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.
(n)
ART. 1937. Movable or immovable property
may be the
object of commodatum.
Subject matter of the contract - generally non-
consumable things, whether real or personal.
ART. 1938. The bailor in commodatum
need not be the
owner of the thing loaned.
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 bailees 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.
ART. 1940. A stipulation that the bailee may
make use
of the fruits of the thing loaned is valid.
SECTION 2. Obligations of the Bailee
ART. 1941. The bailee is obliged to pay for
the ordinary
expenses for the use and preservation of the thing
loaned.
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;
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 (2) If he keeps it longer than the period (1) If neither the duration of the contract
stipulated, or nor the use to
after the accomplishment of the use for which the which the thing loaned should be devoted, has
commodatum been stipulated;
has been constituted; or
(3) If the thing loaned has been delivered (2) If the use of the thing is merely tolerated
with appraisal by the
of its value, unless there is a stipulation exempting owner.
the
bailee from responsibility in case of a fortuitous Precarium is a kind of commodatum where the
event; bailor may
(4) If he lends or leases the thing to a third demand the thing at will.
person,
who is not a member of his household; ART. 1948. The bailor may demand the
(5) If, being able to save either the thing immediate return
borrowed or of the thing if the bailee commits any acts of
his own thing, he chose to save the latter. ingratitude
specifi ed in Article 765.
ART. 1943. The bailee does not answer for
the deterioration
Based on Article 765 of the Civil Code, any of the
of the thing loaned due only to the use thereof and
without his fault. following
constitutes act of ingratitude:
ART. 1944. The bailee cannot retain the (1) If the bailee should commit some
thing loaned offenses against the
on the ground that the bailor owes him something, person, the honor or the property of the bailor, or
even of his wife or
though it may be by reason of expenses. However, children under his parental authority;
the (2) If the bailee imputes to the bailor any
bailee has a right of retention for damages criminal offense, or
mentioned in
any act involving moral turpitude, even though he
Article 1951.
should prove
ART. 1945. When there are two or more it, unless the crime or the act has been committed
bailees to against the
whom a thing is loaned in the same contract, they bailee himself, his wife or children under his
are liable authority; and
solidarily. (3) If the bailee unduly refuses the bailor
support when the
bailee is legally or morally bound to give support
SECTION 3. Obligations of the Bailor to the bailor.
ART. 1946. The bailor cannot demand the ART. 1949. The bailor shall refund the
return of the extraordinary
thing loaned till after the expiration of the period expenses during the contract for the preservation
stipulated, of the
or after the accomplishment of the use for which thing loaned, provided the bailee brings the same
the commodatum has been constituted. However, to the
if in the knowledge of the bailor before incurring them,
meantime, he should have urgent need of the except
thing, he when they are so urgent that the reply to the notifi
may demand its return or temporary use. cation
In case of temporary use by the bailor, the cannot be awaited without danger.
contract of If the extraordinary expenses arise on the
commodatum is suspended while the thing is in occasion of
the possession the actual use of the thing by the bailee, even
of the bailor. though he
acted without fault, they shall be borne equally by
ART. 1947. The bailor may demand the both the
thing at will, and bailor and the bailee, unless there is a stipulation
the contractual relation is called a precarium, in to the
the following contrary.
cases:

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 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.
ART. 1951. The bailor, who, knowing the fl
aws 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.
The following are the requisites which must
concur for the
application of the above article:
(1) There is flaw or defect in the thing loaned;
(2) The flaw or defect is hidden;
(3) The bailor is aware thereof;
(4) He does not advise the bailee of the same;
and
(5) The bailee suffers damages by reason of said
flaw or
defect.
ART. 1952. The bailor cannot exempt
himself from the
payment of expenses or damages by abandoning
the thing
to the bailee.
same kind, quantity, and quality shall be
considered a barter.
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.
ART. 1956. No interest shall be due unless
it has been
expressly stipulated in writing.
Article 1956 is subject to two exceptions:
(1) Indemnity for damages
(2) Interest accruing from unpaid interest
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.

Chapter 2 ART. 1958. In the determination of the

interest, if it is
SIMPLE LOAN OR MUTUUM payable in kind, its value shall be appraised at the
current
ART. 1953. A person who receives a loan of price of the products or goods at the time and
money or place of payment.
any other fungible thing acquires the ownership
thereof, ART. 1959. Without prejudice to the
and is bound to pay to the creditor an equal provisions of Article
amount of the 2212, interest due and unpaid shall not earn
same kind and quality. interest.
However, the contracting parties may by
Simple loan or mutuum is a contract whereby one stipulation capitalize
of the the interest due and unpaid, which as added
parties deliver to another money or other principal,
consumable thing shall earn new interest.
with the understanding that the same amount of
ART. 1960. If the borrower pays interest
the same kind when there has
and quality shall be paid.1 (Art. 1933.) been no stipulation therefor, the provisions of this
Code
Obligation of borrower is to pay, not return concerning solutio indebiti, or natural obligations,
in contrast with commodatum. shall be
applied, as the case may be.
ART. 1954. A contract whereby one person
transfers ART. 1961. Usurious contracts shall be
the ownership of non-fungible things to another governed by
with the the Usury Law and other special laws, so far as
obligation on the part of the latter to give things of they are
the not inconsistent with this Code.
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OTHER TOPICS:
1. Usury law
2. Deposit
3. Warehouse receipts law
4. Guaranty and suretyship
5. Pledge
6. Real mortgage
7. Antichresis
8. Chattel mortgage
9. Concurrence and preference of credits