CREDIT TRANSACTION 7.
Parties may stipulate that the BORROWER may use the fruits of
BAILMENT- the delivery of property of one person to another in trust for a
specific purpose with a contract, that the trust shall be faithfully executed
and the property returned or duly accounted for when the special purpose
or keep until the bailors claim it.
PARTIES IN BAILMENT
1. BAILORS- the giver, the one who delivers the possession of thing
bailed.
2. BAILEE- the recipient, the one who receives possession or custody
of the thing delivered.
LOAN
Article 1933
- 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 (COMMODATUM); or MONEY OR OTHER
CONSUMABLE THING, upon condition that the same amount of
the same kind and quality shall be paid (LOAN/ MUTUUM).
COMMODATUM
 essentially gratuitous
 the bailor retains the ownership of the thing loaned
SIMPLE LOAN
 gratuitous or with stipulation to pay interest
 ownership passes to the borrower.
LOANS DISTINGUISHED FROM CREDIT
COMMODATUM V. MUTUUM
FORM OF LOAN
 No formal requisites for the validity of a contract of loan except if
there is a stipulation for the payment of interest which must be in
writing.
A. COMMODATUM
ART. 1935 The bailee 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 commodatum.
KINDS OF COMMODATUM
1. ORDINARY – there is period agreed upon for the return of the
thing loaned.
2. PRECARIUM – the bailor may demand the thing loaned at will.
NATURE OF COMMODATUM:
1. Bailee requires the use of the thing but not its fruits, unless there
is a stipulation the contrary.
2. Essentially gratuitous
3. Purpose of the contract is the temporary use of the thing for a
certain time
(if bailee not entitled to use the thing, it is not commodatum but deposit)
4. Subject matter is generally non-consumable real or personal
property, though consumable goods may also be the subject of
commodatum if the purpose is not the consumption of the object.
5. Lender need not be the owner of the thing loaned. It is enough
that he has possessory interest in the thing or right to use it which
he may assert against the bailee and third persons though not
against the rightful owner.
6. Purely personal in character. The consequences of this are the
following:
a. Death of either party extinguishes the contract unless there is
a contrary stipulation for the commodatum to subsist until
the purpose is accomplished.
b. The borrower cannot lend or lease the thing to a third
person. However, members of the borrower’s household
may make use of the thing loaned except:
i. If there is a stipulation to the contrary; or
ii. If the nature of the thing forbids it.
the thing, but this must only be incidental to the use of the thing
itself (because if it is the main cause, the contract may be one of
usufruct).
OBLIGATIONS OF THE BORROWER:
1. Liability for ordinary expenses- borrower should defray the
expenses for the use and preservation of the thing loaned.
2. Liability for loss of thing- GR: borrower is NOT liable for loss or
damage due to a FORTUITOUS event. The owner bears the loss.
EXCEPT in the ff. circumstances:
a. If he devotes the thing to a purpose different from that for
which it was loaned (bad faith- breach of the tenor of the
obligation)
b. Delay (longer than the period stipulated)
c. If the thing loaned has been delivered with appraisal of its
value unless rhere is stipulation exempting the bailee from
the responsibility in case of a fortuitous event (equivalent to
assumption of risk)
d. If he lends or leases the thing to a third person who is not a
member of his household (breach of tenor of the obligation.)
e. If, being able to save the thing borrowed or his own thing, he
chose to save his own (ingratitude).
3. Liability for deterioration of the thing- the borrower in NOT
liable for the ordinary deterioration or wear and tear of the thing
that comes as a natural consequence of its use.
 Borne by the lender
4. Obligation to return the thing loaned- borrower must return the
thing as soon as the period stipulated expires or the purpose has
been accomplished. He cannot keep the thing as security for
anything that the lender may owe him, except for a claim for
damages suffered because of the flaws of the thing loaned.
5. Liability of two or more bailees- when there are two or more
borrowers to whom a thing is loaned in one contract, there
liability is SOLIDARY.
OBLIGATIONS OF THE LENDER:
1. Obligation to respect the duration of the loan
 However, he may demand its return or temporary use if he should
have urgent need of the thing.
2. Precarium- a kind of commodatum where the lender may demand
the thing at will. It exists in the ff. cases:
A. if there is no stipulation as to the duration of the contract or to
the use to which the thing loaned should be devoted.
B. If the use of the thing is merely tolerated by the lender.
3. Right to demand return of thing for acts of ingratitude- if the
borrower commits any act enumerated in Art. 765 of the CC, the
lender may demand the immediate return of the thing from the
borrower.
4. Obligation to refund extraordinary expenses for the preservation
of the thing –
A. Extraordinary expenses for the preservation of the
thing- should refund extraordinary expenses for the
preservation of the thing, provided that the borrower
informs that the lender before incurring the expense,
unless the need is so urgent that the lender cannot be
notified without danger.
B. Extraordinary expenses arising from actual use of
the thing- shall be borne by the lender and borrower on
a 50-50 basis, unless there is a contrary stipulation.
5. All other expenses are for the account of the borrower
6. Liability for the damages for known hidden flaws
Requisites: (F-HADO)
a. There is a flaw or defect in the thing loaned.
b. The flaw or defect is hidden.
c. The lender is aware of the flaw.
d. The lender does not advise the borrower of the flaw
e. The borrower suffers damages by reason of the flaw or
defect.
B. SIMPLE LOAN/ MUTUUM
  A contract whereby one of the parties delivers to another
money or other consumable thing with the understanding
that the same amount of the same kind and quality shall be
paid.
 Involves payment of the equivalent and not the identical
thing because the borrower acquires ownership of the thing
loaned.
 Term “return” is not used since the distinguishing character of
the simple loan from commodatum is the consumption of the
thing.
FUNGIBLE AND CONSUMABLE THINGS
Fungible Thing
 Those which are usually dealt with by number, weight
or measure, so that any given unit or portion is
treated as the equivalent of any other unit or portion.
 Those which may be replaced by a thing of equal
quality and quality. (rice, oil,sugar)
 If it cannot be replaced with an equivalent thing, then
it is not fungible.
Consumable things
 Those which cannot be used without being consumed.
Note:
Whether a thing is consumable or not depends upon its
nature.
Whether a thing is fungible or not depends on the intention
of the parties.
FORMS OF PAYMENT
1. If the object is MONEY
 Must be made in currency stipulated: otherwise it is
payable in the currency which is legal tender in the
Philippines.
2. If the object is a fungible thing other than money
 Must pay the lender another thing of the same kind,
quality and quantity.
 In case impossible; borrower shall pay its value at the
time of the perfection of the loan.
INTEREST
Requisites for Recovery of Interest :
1. The payment of interest must be expressly stipulated.
2. In writing
3. Must be lawful
STIPULATION OF INTEREST
1. The interest rate stipulated by the parties, not the legal rate of
interest , is applicable.
2. Default rule: if the parties do not stipulate an interest rate, the
legal rate for loans and forbearances of money is 12% (now 6%)
3. Increases in interest must also be expressly stipulated.
4. It is only in contracts of loan, with or without security, that
interest may be stipulated and demanded.
5. Stipulation of interest must be mutually agreed upon by the
parties and may not be unilaterally increased by only one of the
parties.
WHEN THE BORROWER IS LIABLE FOR INTEREST EVEN WITHOUT A
STIPULATION:
1. Indemnify for damages- the debtor in delay is liable to pay legal
interest as indemnity for damages even without stipulation for the
payment of interest.
Where to base the rate of damages:
a. Rate in the penalty clause agreed upon by parties.
b. If there is no penalty clause, additional interest based on the
regular interest rate of the loan.
c. If there is no regular interest, additional is equivalent to the legal
interest rate (12%).
2. Interest accruing from unpaid interest- interest due shall earn
interest from the time it is judicially demanded although the
obligation may be silent on this point. (Art. 2212)
 If the interest 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.
GENERAL RULE: Accrued interest shall not earn interest
EXCEPTIONS:
1. when judicially demandable. (Art.2212)
2. Express stipulation- also called compounding interest where the
parties agree that accrued interest shall be added to the principal
and the resulting total amount shall earn interest, A stipulation as
to compounding interest must be in writing.
Question: What if the borrower pays interest when there is no stipulation
providing for it?
Answer: The debtor pays unstipulated interest by mistake, he may recover,
since this is a case of solution indebiti or undue payment.
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.
PRINCIPAL PURPOSE OF THE CONTRACT OF DEPOSIT
 The safekeeping of the thing delivered
 If safekeeping is merely an accessory and secondary
obligation, it is not deposit, but another contract such as
commodatum, lease or agency..
SUBJECT MATTER OF DEPOSIT
 Only movables
Deposit vs Commodatum vs Mutuum
KINDS OF DEPOSIT
1. JUDICIAL- takes place when an attachment or seizure of
property in litigation is ordered.
2. EXTRAJUDICIAL
A. VOLUNTARY- delivery is made by the will of the
depositor or by two or more persons each of whom
believes himself entitled to the thing deposited; or
B. NECESSARY- made in compliance with a legal
obligation, or on the occasion of any calamity or by
travelers in hotels and inns or by travelers with
common carriers.
VOLUNTARY DEPOSIT (Article 1968)
 Is that wherein the delivery is made by the will of the
depositor.
 May also be made by two or mire persons each of whom
believes himself entitled to the thing deposited with a third
person, who shall deliver it in a proper case to the on to
whom it belongs.
WHEN DEPOSITOR IS INCAPACITATED:
Art. 1970. If a person having capacity to contract accepts a deposit
made by one who is incapacitated, the former shall be subject to all
the obligations of the depositary and may be compelled to return
the thing by the guardian or administrator or the person who
made the deposit or by the latter himself if he should acquire
capacity.
OBLIGATION OF THE DEPOSITARY (ARTS 1973-1991)
Primary obligations of the Depositary:
1. Safekeeping
 Diligence of a good father- if gratuitous
 Greater degree of care- if with consideration
2. Return of the thing , but only when required
3. Art. 1973
GR: The depositary cannot deposit the thing with a third
person
XPN: The parties may stipulate that the depositors may
deposit the thing with a third person. But there is a
limitation; depositary cannot choose a third person who
manifestly careless or unfit.
4. Art. 1974
GR: The depositary should not change the way or manner
of the deposit as agreed upon.
XPN: Depositary may change it if there are circumstances
indicating that the depositor would consent to the change.
However, the depositary should first notify and wait for the
decision of the depositor. If delay would cause danger, the
depositary need not wait for the consent of the depositor.
Notice to the depositor of the change is sufficient.
5. Art. 1975
The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect
the latter when it becomes due and to take such steps as
may be necessary in order that the securities may preserve
their value and the rights corresponding to them according
to law.
6. Art. 1976
GR: Depositary may co mingle grain or other article of the
same kind.
XPN: if there is a contrary stipulation
7. Art. 1977
GR: depositary cannot make use of the thing deposited
XPN: