Loan (Art.
1933-1961) who becomes obligated to the lender not to return the very
General Provisions
ARTICLE 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 ownerships of the
thing loaned, while in simple loan, ownership passes to the
borrower. (1740a)
Definition of contract of loan
- The Civil Code treats the contract of commodatum and the
contract of mutuum together and lumps them under the
generic name “Loan”.
- Art. 1933 defines the 2 kinds of loans and gives their
characteristics.
Governing Law
- The contract of loan is governed by the rules as to the
requisites and validity of the contract
Kinds of Loan
(1) Commodatum
-I t is where the bailor (lender) delivers to the bailee
(borrower) a non-consumable thing so that the latter may
use it for a certain time and return the identical thing.
(2) Simple loan or mutuum
- It is where the lender delivers to the borrower money or
other consumable thing upon the condition that the latter
shall pay the same amount of the same kind and quality.
Note:
- Commodatum is a loan of use because there is a transfer of
the use of the thing borrowed while Mutuum is a loan of
consumption because there is a transfer of the ownership of
the thing, which is generally received for consumption.
Origin of Terms
- Commodatum and Mutuum are Roman terms.
- Commodatum is derived from the word “Commodare”,
which means to loan. In a Commodatum, the bailee returns
the same thing to the Bailor.
- According to Roman texts, “Muttum” was derived from
meum y tuum (Me and You), because under this contract, a
transfer of ownership occurs and what is mine becomes
yours.
- Others claim that the etymology of the word “Mutuum” is
“Mutare” which means to change or to swap. In Mutuum,
ownership of the object is lent or passed to the borrower,
things he had received but in the case of money, an equal
sum, or as far as other fungibles were concerned objects of
the same kind quality and quantity.
Loans distinguished from credit.
- The credit of an individual means his ability to borrow
money or things by virtue of the confidence or trust reposed
by a lender that he will pay what he may promise within a
specified period.
- A loan (mutuum) means the delivery by one party
(lender/creditor), and the receipt by the other party
(borrower/debtor) who become the owner, of a given sum of
money or other consumable thing upon an agreement,
express or implied, to repay the same amount of the same
kind and quality, 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.” (People vs. Concepcion, 44 Phil. 126 [1922].)
Meaning of credit as opposed to debt.
- The term “credit,” in its usual meaning, is a sum credited
on the books of a company to a person who appears to be
entitled to it. It presupposes a creditor-debtor relationship,
and may be said to imply ability, by reason of property or
estates, to make a promised payment. It is the correlative to
debt or indebtedness, and that which is due to any person as
distinguished from that which he owes. (Republic vs. First
National City Bank of New York, 3 SCRA 851 [1961].
- It is a debt considered from the creditor’s standpoint.
(Black’s Law Dictionary, 4th ed., p. 441.) It may consist of
money, goods, or services.
Loan distinguished from discounting of paper.
- To discount a paper is a mode of loaning money, with
these distinctions:
(1) In a discount, interest is deducted in advance while in a
loan, interest is usually taken at the expiration of a credit;
and
(2) A discount is always on a double-name paper, while a
loan is generally, on a single-name paper.(People vs.
Concepcion, 44 Phil. 126 [1922].)
Ex:
a. On a loan of P1,000.00 at 16% interest, the borrower
would pay P1,160.00 at the end of the year. If the note is
discounted, the interest is deducted from the principal in
advance. The borrower would receive P840.00 but would
pay back P1,000.00 at the end of the year. The P160.00 is
called the discount and P840.00 is called the proceeds.
Discounting is slightly more expensive for the borrower
because interest is calculated on the amount loaned
(P1,000.00) and not on the amount actually received. In
general, discount and interest rates for similar loans are
identical.3 (Principles of Economics, by C.J. James, supra,
pp. 131-132.)
b. Credit was extended by PNB to a partnership, the only
security required consisted of demand notes which were
paid, together with interest, on maturity.

Facts:
By telegrams and a letter of confirmation to the manager of
the branch of PNB (Philippine National Bank), C, President
and member of the board of directors of PNB, authorized an
extension of credit in favor of partnership X, of which the
wife of C is a partner, in the amount of P300,000.00. The
special authorization given was essential in view of prior
memorandum order of C limiting the discretional power of
the local manager to grant loans and discount negotiable
documents to P5,000.00.
Pursuant to the authorization by C, credit aggregating
P300,000.00 was granted the firm, the only security required
consisting of six (6) demand notes. The notes, together with
the interest, were taken up and paid about two (2) months
later. Under the law (Sec. 35, Act No. 2747.), the PNB
“shall not directly or indirectly grant loans to any of the
members of the board of directors of the bank nor to agents
of the branch banks.”
Issues:
(1) Was the granting of a credit of P300,000.00 to
partnership X a loan within the meaning of Section 35 or
only a concession of credit?
(2) Were the demand notes signed by the fi rm a loan or a
discount?
Held:
(1) The concession of a credit necessarily involves the
granting of “loans” up to the limit of the amount fixed in the
“credit.”
(2) The demand notes signed by the firm were not discount
papers but were mere evidences of indebtedness, because (a)
interest was not deducted from the face of the notes, but was
paid when the notes fell due; and (b) they were single-name
and not double-name paper. C violated the prohibition.
(People
vs. Concepcion, supra.)
expiration of the term in case of its return before the
urgent lapse of the term
need (Art. 1946) agreed upon
- The loss of the subject matter is - The borrower
suffered by the bailor since he is suffers the loss even
the owner (Art. 1942; Art. 1174.) if caused exclusively
by a fortuitous event
and he is not,
therefore, discharged
from his duty to pay.
- It is purely personal in character - It is not so
(see Art. 1939.)
Kinds of commodatum
(1) Ordinary Commodatum (Art. 1933)
(2) Precarium. (Art. 1947)
- One whereby the bailor may demand the thing loaned at
will.
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.
Delivery essential to perfection of loan.
- The rule contained in the above article is a necessary
consequence of the fact that commodatum and mutuum are
real contracts which require the delivery of the subject
matter thereof for their perfection.
- Delivery is necessary in view of the purpose of the contract
which is to transfer either the use or ownership of the thing
loaned.
Binding effect of accepted promise to lend.
- It does not mean that a promise to lend would be without
efficacy and judicial value. An accepted promise to make a
future loan is a consensual contract and, therefore, binding
upon the parties but it is only after delivery, will the real
contract of loan arise. Thus:

Commodatum and Mutuum (simple loan) distinguished. (1) Application for loan approved by corporation.
Commodatum Mutuum - According to jurisprudence, where an application for a
- Ordinarily involves something not - The subject matter is loan of money was approved by resolution of the
consumable (see Art. 1936.) money or other corporation (lender) and the corresponding mortgage was
consumable thing executed and registered, there arises a perfected consensual
- Ownership of the thing loaned is - The ownership is contract of loan. While a perfect contract of loan can give
retained by the lender (Art. 1933.) transferred to the rise to an action for damages, said contract does not
borrower constitute the real contract of loan.
- It is essentially gratuitous - It may be gratuitous
or it may be onerous,
that is, with (2) Mortgage executed by virtue of loan granted.
stipulation to pay - According to jurisprudence, where the mortgage deed was
interest. executed for and on condition of the loan granted to the
- The borrower must return the - The borrower need mortgagors, the fact that the latter did not collect from the
same thing loaned. only pay the same mortgagee bank the consideration of the mortgage on the
amount of the same date it was executed but six (6) days later when the
kind and quality. mortgagors and their co-maker signed the promissory note is
- May involve real or personal - It refers only to immaterial. A contract of loan being consensual, it was
property personal property perfected at the same time that the contract of mortgage was
- It is a loan for use or temporary - It is a loan for executed, the promissory note being only an evidence of an
possession consumption. indebtedness and did not indicate lack of consideration of
(Art. 1935.) the mortgage at the time of its execution.
- The bailor may demand the return - The lender may not
of the thing loaned before the demand
(3) Only partial amount released under a loan agreement
secured by mortgage.
- According to jurisprudence, where a bank and a borrower
undertook reciprocal obligations by entering an P80,000.00
loan agreement on April 28, 1965 when the borrower
executed a real estate mortgage, but the bank was able to
release only P17,000.00, the bank was held in default for
P63,000.00 to the borrower.
In reciprocal obligations, the obligation or promise of each
party is the consideration for that of the other, and when one
party has performed or is ready and willing to perform his
part of the contract, the other party who has not performed
or is not ready and willing to perform incurs in delay. (see
Art. 1169.)
Here, the promise of the borrower to pay, and he signified
his willingness to pay when he executed the real estate
mortgage, was the consideration for the obligation of the
bank to furnish the P80,000.00 loan. And the mere fact of
insolvency of a debtor (bank) is never an excuse for the non-
fulfillment of an obligation but instead it is taken as a breach
of the contract by him.
Note:
a. Art.1316 - Real Contracts, such as deposit, pledge, and
commodatum, are not perfected until the delivery of the
object of the obligation
b. Art. 1315 - Contracts are perfected by mere consent, and
from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may
be in keeping with good faith, usage and law. (1258)
Chapter I. 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)
Characteristics of the Contract of Commodatum
1. With respect to perfection, a real contract because the
delivery of the thing loaned is necessary fpr the perfection of
the contract.
2. With respect to the person obliged, a unilateral contract
because once the subject matter has been delivered, it
creates obligations on the part of only one of the parties, i.e.,
the borrower.
3. With respect to nomenclature, a nominate contract,
because it has been given a specific name by the Civil Code
(See Art. 1307)
4. With respect to dependency on another contract, a
principal contract, because its existence is not dependent on
another contract
5. With respect to form, an informal contract, because there
is no particular form required for the contract
6. With respect to cause, a gratuitous contract, as the bailee
does not pay the bailor for the use of the thing.
Essential Requisites of the Contract of Commodatum
(Art. 1318)
a. Consent of the Contracting Parties
b. Object certain which is the subject matter of the contract
c. Cause of the obligation established
Comodatum, a Real Contract
- It is a real and not a consensual contract
-It is not perfected by mere consent of the parties, by the
delivery of the thing required
- Delivery of the thing is a sine qua non requirement for the
perfection of the contract.
- An accepted promise to deliver something, but not yet
followed by delivery, will constitute a contract to loan, but
will not constitute a contract of commmodatum which is
characterized by, among others, the obligation to return the
thing received.
- Delivery of the thing is essential so that the bailee may be
able to use the thing.
Consent of the Contracting Parties
- Consent is manifested by the meeting of the offer and
acceptance upon the thing and the cause which are to
constitute the contract. (Art. 1319)
- Consent must be given by parties with capacity to give
consent. (See Arts. 37, 38, 38, 46)
Ex:
a. Minor and insane or demented persons cannot give
consent to a contract of commodatum.
Object of the Contract
1. Movable and Immoveable Property
- The subject matter of the contract is either movable or
immovable property (Art.1937)
2. Non-Consumable
- Commodatum covers things that are not consumable.
(Art.1933).
- The thing loaned must be of such nature that it can survive
the use made of it.
-The specific character of commodatum is the obligation to
return in kind and its individuality the same thing that was
loaned.
- If the thing is consumable, then the bailee will not be able
to comply with the obligation to return the thing.
3. Within the Commerce of Men
-General Contract requires the object of the contract must be
within the commerce of men. (Art.1347)
4. Determinate and Not Impossible
- The object must be Determinate and Not Impossible
(Arts.1347 & 1348)
- The view that a commodatum is an imperfectly bilateral
contract is based on the possibility that the bailor will have
obligations to the bailee if it incurred extra-ordinary
expenses and suffered damages for which the bailor can be
held liable. In other words, the bailee may have a cause of
action against the bailor for damages and losses.

-Issues regarding determinateness and impossibility will 2.

arise only in a contract of loan; after delivery, the issue of
determinateness and impossibility will be moot.

- Unless otherwise agreed upon by the parties the fruits of

the thing loaned do not form part of the object of the
contract.

- As a rule, the bailee is entitled only to the use of the thing

loaned and not to its fruits. (Art.1940)

Cause of the Contract

- Commodatum is essentially gratuitous.

- In the case of the bailor, under Art. 1350, in contract of

pure beneficence the cause is the mere liberality of the
benefactor.

- The contract ceases to be commodatum if any

compensation is to be paid by the borrower who acquires the
use. In such a case, there arises a leases contract. (See Arts.
1642, 1643, 1644)

- If the consideration is the rendering of some services, an

innominate contract will result.

Ex:
a. A asked B if he might use his case for a trip to Baguio. If
A agreed and allowed F to get his car, asking nothing in
return for the favour the contract of commodatum is created
solely to benefit A.

Parties to the Contract

- The bailor and the bailee are the parties to the contract of
commodatum. In this regard, commodatum is purely
personal in character.

Bailor need not to be owner of thing

- As the bailor does not transfer ownership of the thing
loaned, the bailor need not be the owner of the thing loaned.
(Art.1938)

- It is sufficient that the bailor has the right to allow the use
of the thing by the bailee. Thus, an usufructuary or a lessee
can enter into a contract of commodatum.

- A bailee is estopped from asserting title to the thing

received as against the bailor. (Art.1436)

Commodatum as a unilateral contract

- Commodatum is a unilateral contract. After delivery of the
thing to the bailee, the latter has no longer anything to claim
from the bailor.

- The obligation of the bailor do not arise, upon the

perfection of the contract but may arise after perfection of
the contract.

1. View that contract is bilateral