SIMPLE LOAN OR MUTUUM
Gratuitous – no stipulation to pay  Obligations of the borrower
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. (1753a)
 What is Simple loan or Mutuum?
A contract whereby one of the party
delivers money or other consumable
thing to another who acquires
ownership thereof with the
understanding or on condition that the
same amount of the same kind and
quality shall be paid.
 Characteristics of the contract
1. Real – delivery of the thing loaned
is necessary for the perfection of
the contract
2. Unilateral – once the subject has
been delivered, it creates
obligations on the part of only one
of the parties
3. Nominate – it has specific name
4. Principal – its existence is not
dependent on another contract
5. Informal – no particular form is
required
6.
interest; Onerous – if there is
stipulation to pay interest
 Essential requisites of the contract
1. Consent of the contracting
parties
- It is manifested by the meeting
of the offer and acceptance
upon the thing and the cause
which are to constitute the
contract
2. Object certain which is the
subject matter of the contract
- Money or other consumable
thing
- May also cover fungible thing
(Article 1953)
- Must be within commerce of
men
- Must be determinate
- Must not be impossible
3. Cause of the obligation which is
established
- Gratuitous: cause is mere
liberality of benefactor
- Onerous: if there is stipulation
to pay interest
 Parties to the contract
Borrower & Creditor
1. To pay the lender an equal amount
of the same kind and quality
2. To pay interest if expressly
stipulated in writing
 In what currency should payment be
made? (p.53)
Payment should be made in the
currency stipulated (Art 1249)
If the agreement is silent on the
currency – payment must be made in
the currency in which the money was
delivered… (Art 1933)
If it is not possible to deliver in the
relevant currency, payment must be
made in the currency which is legal
tender in the Philippines (Art 1249,
1955)
 When payment should be made?
(p.54)
If the parties agreed on a period, then
the thing borrowed must be returned
upon the end of the period
if no agreement, Article 1197 applies,
in this case, the courts may fix a period.
 Where payment must be made?  What is Trust Receipt? c. Compensation
d. Novation
If there is agreement – place stipulated Trust receipt refers to the written or
printed document signed by the  Transfer of ownership
If no place of payment was stipulated – entrustee in favor of the entruster
domicile of the debtor containing terms and conditions The borrower acquires ownership of the
substantially complying with the thing loaned. The borrower becomes
 No criminal liability for failure to pay provisions of the Decree (Trust Receipt the owner from the moment he receives
Law, PD NO. 115). the thing because of the delivery and
The borrower, being the owner, can nature of the contract
dispose of the thing borrowed and his  What are fungible things?
Article 1954
act will not be considered
misappropriation Those which are usually dealt with by A contract whereby one person transfers
number, weight, or measure such as the ownership of non-fungible things to
 Simple loan distinguished from rice, oil, sugar, etc. so that any given another with the obligation on the part
Contract of Lease unit or portion is treated as the of the latter to give things of the same
equivalent of any other unit or portion. kind, quantity, and quality shall be
Simple Loan Lease considered a barter. (n)
Signifies the One of the parties  Fungible vs Consumable
delivery of delivers to  What is Barter?
money or some another some - WON a thing is consumable depends on
other non-consumable its nature A contract whereby one person
consumable thing in order - WON a thing is fungible depends on the transfers the ownership of non-fungible
thing to another that the latter intent of the parties things to another with the obligation on
with the promise may use it during the part of the latter to give things of
to repay; not a certain period Wine is consumable by nature, but it is non- the same kind, quantity, and quality.
return the same and return it to fungible if the intention is to use it merely
thing loaned the former for display or exhibition  Mutuum and Commodatum
Obligor and Landlord and
obligee tenant distinguished from Barter
 Extinguishment of the Contract
Creditor receives Owner of the
payment for his property receives A mutuum terminates by: Mutuum Barter
loan compensation or In mutuum, Non-fungible
price Money or any things
a. Confusion (if the debtor succeeds
other fungible
the creditor in the thing loaned) things
b. Condonation of debt
 In Commodatum, Equivalent thing If the agreement is silent on the 3. Legal Interest
bailee is bound to is given in return currency – payment must be made in - That which the law directs to be
return the for what has the currency in which the money was charged in the absence of any
identical thing been received delivered… (Art 1933) agreement as to the rate
borrowed when between the parties
the time has If it is not possible to deliver in the
expired or relevant currency, payment must be 4. Lawful interest
purpose has been
made in the currency which is legal - That which the law allows or
served
tender in the Philippines (Art 1249, does not prohibit, that is the
In mutuum, it may Onerous
be gratuitous, in contract 1955) rate of interest within the
commodatum, it maximum prescribed by law
is always Loan of Fungible thing: the borrower
gratuitous is under obligation to pay the lender 5. Unlawful interest
another thing of the same kind, quality - That which is paid or stipulated
and quantity. In case it is impossible to to be paid beyond the maximum
Article 1955 do so, the borrower shall pay its value fixed by law
at the time of the perfection of the loan.
The obligation of a person who borrows - Requisites for recovery of interest
money shall be governed by the Article 1956
provisions of articles 1249 and 1250 of 1. The payment of interest must be
this Code. No interest shall be due unless it has
been expressly stipulated in writing. expressly stipulated
(1755a) 2. The agreement to pay interest must
If what was loaned is a fungible thing be in writing
other than money, the debtor owes  Kinds of Interest 3. The interest must be lawful
another thing of the same kind, quantity
and quality, even if it should change in
1. Simple Interest  Existence of stipulation to pay
value. In case it is impossible to deliver
the same kind, its value at the time of the - That which is paid for the interest
perfection of the loan shall be paid. principal at a certain rate fixed
(1754a) or stipulated by the parties 1. If a particular rate of interest has
been expressly stipulated by the
 Form of Payment 2. Compound Interest parties in writing, that interest, not
- That which is imposed upon the legal rate shall be applied.
Loan of money: payment should be interest due and unpaid 2. If the exact rate of the interest is not
made in the currency stipulated. mentioned, the legal rate of 6% shall
be payable
 3. No increase in interest shall be due
unless such increase has also been
expressly stipulated
4. Sales invoice or slips issued by a
store to its customers, stating
interests and attorney’s fees in the
usual printed forms as terms and
conditions, without the signature of
the obligor, do not constitute the
express stipulation required by Art
1956. Therefore, the obligor is not
liable for the interest except only
the legal interest under Art 2209 on
the amount due in case he incurs in
delay
5. The receipt by the creditor of
interest payment up to a certain
date on a loan that has already
matured does not ipso facto result
in the renewal or extension of
maturity period of the loan up to
said date.
6. The vendor and vendee are legally
free to stipulate for the payment of
either the cash price of a
subdivision lot or its installment
price.
 Liability for interest even in the
absence of stipulation
Article 1965 has two exceptions:
1. Indemnity for damages (pay 6% as
indemnity for damages)
2. Interest accruing from unpaid
interest (interest due shall earn
interest from the time it is judicially
demanded although the obligation
may be silent upon this point)
 Liability for surcharges and penalties
Surcharges and penalties agreed to be
paid by the debtor in case of default
partake of the nature of liquidated
damages (Sec. 4, Chapter 3, Title XVIII
of the Civil Code)
Liquidated damages shall be equitably
reduced if they are iniquitous and
unconscionable.
 Interest separate and distinct from
surcharges and penalties
In obligations with a penal clause, the
penalty will generally substitute for
damages and the payment of interest in
case of noncompliance, unless there is
a stipulation to the contract.
 Escalation & De-escalation clause
An escalation clause is a stipulation
allowing an increase in the interest rate
originally agreed upon by the parties.
A de-escalation clause is a stipulation
allowing a decrease in the interest
originally agreed upon by the parties.
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. (n)
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. (n)
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. (n)
 When unpaid interest earns interest
Accrued interest shall not earn interest
except:
1. When judicially demanded as
provided for in Article 2212
2. When there is an express stipulation
made by the parties, to wit: that the
interest due an unpaid shall be
added to the principal obligation
 and the resulting total amount shall
earn interest.
 Stipulation to pay both interest and
penalty in case of default
The parties may stipulate on the
imposition of both interest and penalty
in case of default on the part of the
borrower.
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. (n)
 Recovery of unstipulated interest
paid
If unstipulated interest is paid by
mistake, the debtor may recover as this
would be the case of solution indebiti.
But where the unstipulated interest,
there being a stipulation but not in
writing, is paid voluntarily because the
debtor feels morally obliged to do so,
there is no recovery.
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. (n)
Notes during class discussion:
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