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the contract is called a commodatum; or money or other

consumable thing, upon the condition that the same amount of
I. GENERAL PRINCIPLES: CREDIT the same kind and quality shall be paid, in which case the
contract is simply called a loan or mutuum. xxx
A. Common definition of Credit and related
transactions
B. Two kinds of loan: commodatum and simple
mutuum
B. What is a debt?
Art. 1933. By the contract of loan, one of the parties delivers
to another, either something not consumable so that the latter
C. What is a security? may use the same for a certain time and return it, in which case
the contract is called a commodatum; or money or other
Art. III, Sec. 20, Const. No person shall be imprisoned consumable thing, upon the condition that the same amount of
for debt or non-payment of a poll tax. 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
Sec. 3(2), RA 3765 1 . "Credit" means any loan, gratuitous or with a stipulation to pay interest.
mortgage, deed of trust, advance, or discount; any conditional In commodatum the bailor retains the ownership of the thing
sales contract; any contract to sell, or sale or contract of sale of loaned, while in simple loan, ownership passes to the borrower.
property or services, either for present or future delivery, under (1740a)
which part or all of the price is payable subsequent to the making
of such sale or contract; any rental-purchase contract; any
contract or arrangement for the hire, bailment, or leasing of
property; any option, demand, lien, pledge, or other claim against, C. Loan vs. credit / credit vs. debt
or for the delivery of, property or money; any purchase, or other
acquisition of, or any credit upon the security of, any obligation of
claim arising out of any of the foregoing; and any transaction or D. When may a simple loan be perfected?
series of transactions having a similar purpose or effect.
Art. 1934. An accepted promise to deliver something by way
Art. 1, Code of Commerce. For purposes of commodatum or simple loan is binding upon parties, but the
of this Code, merchants are: commodatum or simple loan itself shall not be perfected until the
(1) Those who, having legal capacity to engage in commerce, delivery of the object of the contract. (n)
habitually devote themselves to it;
(2) The commercial or industrial companies which may be
created in accordance with [this Code]existing legislation. E. When a debt is considered to have been
performed/paid
Art. 2, Code of Commerce. Acts of commerce,
whether those who execute them be merchants or not, and
whether specified in this Code or not, should be governed by the Art. 1232. Payment means not only the delivery of money but
provisions contained in it, in their absence, bythe usages of also the performance, in any other manner, of an obligation. (n)
commerce generally observed in each place; and in the absence
of both rules, by those of the civil law. Art. 1233. A debt shall not be understood to have been paid
Those acts contained in this Code and all others of analogous unless the thing or service in which the obligation consists has
character shall be deemed acts of commerce. been completely delivered or rendered, as the case may be.
Art. 3, Code of Commerce. The legal presumption (1157)
of habitually engaging in commerce shall exist from the
momentthe person who intends to engage therein announces
through circulars, newspapers, handbills, postersexhibited to the
public, or in any other manner whatsoever, an establishment III. COMMODATUM
which has for its objectsome commercial operation.
A. Definition and Features of a commodatum (Parties,
RA 11057, Personal Security Act Object, and Cause)

Art. 1933. By the contract of loan, one of the parties delivers

II. THE LOAN CONTRACT to another, either something not consumable so that the latter
may use the same for a certain time and return it, in which case
A. What is a loan – nature and object the contract is called a commodatum; xxx
Commodatum is essentially gratuitous.
 xxx
Art. 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 B. The role of the bailor and the bailee

1 Truth in Lending Act, June 22, 1963

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Art. 1933. xxx In commodatum the bailor retains the ground that the bailor owes him something, even though it may be
ownership of the thing loaned, while in simple loan, ownership by reason of expenses. However, the bailee has a right of retention
passes to the borrower. (1740a) for damages mentioned in article 1951. (1747a)

Art. 1935. The bailee in commodatum acquires the use of the Art. 1945. When there are two or more bailees to whom a
thing loaned but not its fruits; if any compensation is to be paid by thing is loaned in the same contract, they are liable solidarily.
him who acquires the use, the contract ceases to be a (1748a)
commodatum. (1941a)

F. Obligations of the Bailor

C. Subject matter of commodatum
Art. 1946. The bailor cannot demand the return of the thing
Art. 1936. Consumable goods may be the subject of loaned till after the expiration of the period stipulated, or after the
commodatum if the purpose of the contract is not the accomplishment of the use for which the commodatum has been
consumption of the object, as when it is merely for exhibition. (n) constituted. However, if in the meantime, he should have urgent
Art. 1937. Movable or immovable property may be the object need of the thing, he may demand its return or temporary use.
of commodatum. (n) In case of temporary use by the bailor, the contract of
commodatum is suspended while the thing is in the possession of
the bailor. (1749a)
D. Limitations / Obligations in a commodatum Art. 1947. The bailor may demand the thing at will, and the
contractual relation is called a precarium, in the following cases:
Art. 1938. The bailor in commodatum need not be the owner (1) If neither the duration of the contract nor the use to which the
of the thing loaned. (n) thing loaned should be devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by the owner. (1750a)
Art. 1939. Commodatum is purely personal in character.
Consequently: Art. 1948. The bailor may demand the immediate return of
(1) The death of either the bailor or the bailee extinguishes the the thing if the bailee commits any act of ingratitude specified in
contract; article 765. (n)
(2) The bailee can neither lend nor lease the object of the contract
to a third person. However, the members of the bailee's Art. 1949. The bailor shall refund the extraordinary expenses
household may make use of the thing loaned, unless there is a during the contract for the preservation of the thing loaned,
stipulation to the contrary, or unless the nature of the thing forbids provided the bailee brings the same to the knowledge of the bailor
such use. (n) before incurring them, except when they are so urgent that the
reply to the notification cannot be awaited without danger.
Art. 1940. A stipulation that the bailee may make use of the If the extraordinary expenses arise on the occasion of the actual
fruits of the thing loaned is valid. (n) use of the thing by the bailee, even though he acted without fault,
they shall be borne equally by both the bailor and the bailee,
unless there is a stipulation to the contrary. (1751a)
E. Obligations of the Bailee
Art. 1950. If, for the purpose of making use of the thing, the
bailee incurs expenses other than those referred to in articles
Art. 1941. The bailee is obliged to pay for the ordinary 1941 and 1949, he is not entitled to reimbursement. (n)
expenses for the use and preservation of the thing loaned.
(1743a) Art. 1951. The bailor who, knowing the flaws of the thing
loaned, does not advise the bailee of the same, shall be liable to
Art. 1942. The bailee is liable for the loss of the thing, even if the latter for the damages which he may suffer by reason thereof.
it should be through a fortuitous event: (1752)
(1) If he devotes the thing to any purpose different from that for
which it has been loaned; Art. 1952. The bailor cannot exempt himself from the
(2) If he keeps it longer than the period stipulated, or after the payment of expenses or damages by abandoning the thing to the
accomplishment of the use for which the commodatum has been bailee. (n)
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; G. Precarium
(4) If he lends or leases the thing to a third person, who is not a
member of his household; Art. 1947. The bailor in commodatum need not be the owner
(5) If, being able to save either the thing borrowed or his own of the thing loaned. (n)
thing, he chose to save the latter. (1744a and 1745)

Art. 1943. The bailee does not answer for the deterioration of
the thing loaned due only to the use thereof and without his fault.
(1746)

Art. 1944. The bailee cannot retain the thing loaned on the
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Art. 1250. In case an extraordinary inflation or deflation of

the currency stipulated should supervene, the value of the
IV. SIMPLE LOAN OR MUTUUM currency at the time of the establishment of the obligation shall
be the basis of payment, unless there is an agreement to the
A. Definition and Features of a simple loan (Debtor & contrary. (n)
Creditor as Parties, Object, and Cause)

Art. 1933. By the contract of loan, one of the parties delivers E. Difference between a loan and:
to another, xxx money or other consumable thing, upon the
condition that the same amount of the same kind and quality shall Loan Credit line
be paid, in which case the contract is simply called a loan or
mutuum. xxx
Simple loan may be gratuitous or with a stipulation to pay
interest.

Art. 1980. Fixed, savings, and current deposits of money in

banks and similar institutions shall be governed by the provisions
concerning simple loan. (n)

Art. 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. Loan Barter
(1753a)

B. Fungible / Non-fungible / consumable goods in a

loan

Art. 1954. 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 shall be considered a barter. (n)
Art. 1955. The obligation of a person who borrows money Loan Promissory note
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. (1754a)

C. Payment as an obligation
Loan Trust receipt
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. (1754a)

Art. 1249. The payment of debts in money shall be made in

the currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Loan Credit card and
Philippines.
related contracts
The delivery of promissory notes payable to order, or bills of
exchange or other mercantile documents shall produce the effect
of payment only when they have been cashed, or when through the
fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation
shall be held in the abeyance. (1170)
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V. INTEREST: DEFINITION AND PRINCIPLES

INVOLVED

A. When is interest due?

Art. 1956. No interest shall be due unless it has been

expressly stipulated in writing. (1755a)


1. Other precepts that govern the imposition of interest

Art. 1306. The contracting parties may establish such

stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy. (1255a)

Art. 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)

Art. 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)

Art. 1253. If the debt produces interest, payment of the

principal shall not be deemed to have been made until the
interests have been covered. (1173)

Art. 1423. Obligations are civil or natural. Civil obligations

give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by
reason thereof. Some natural obligations are set forth in the
following articles.

Art. 2154. If something is received when there is no right to

demand it, and it was unduly delivered through mistake, the
obligation to return it arises. (1895)

2. Absence and presence of stipulations to pay interest and

effects

De Leon, p. 69-76

3. Monetary interest vis-à-vis Compensatory interest

Art. 1956. No interest shall be due unless it has been

expressly stipulated in writing. (1755a)


Art. 2209. If the obligation consists in the payment of a sum

of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
(1108)

Art. 2212. Interest due shall earn legal interest from the time
it is judicially demanded, although the obligation may be silent
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upon this point. (1109a)

Art. 1957. Contracts and stipulations, under any cloak or
device whatever, intended to circumvent the laws against usury
B. Monetary Interest shall be void. The borrower may recover in accordance with the
laws on usury. (n)
1. Kinds of interest
2. What are escalation clauses?
a. Simple
Art. 1308. The contract must bind both contracting parties;
Art. 2209. If the obligation consists in the payment of a sum its validity or compliance cannot be left to the will of one of them.
of money, and the debtor incurs in delay, the indemnity for (1256a)
damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of
Sec. 7, Usury Law. All covenants and stipulations
stipulation, the legal interest, which is six per cent per annum.
contained in conveyances, mortgages, bonds, bills, notes, and
(1108)
other contracts or evidences of debts, and all deposits of goods or
other things, whereupon or whereby there shall be stipulated,
b. Compound charged, demanded, reserved, secured, taken, or received,
directly or indirectly, a higher rate or greater sum or value for the
Art. 2212. Interest due shall earn legal interest from the time loan or renewal or forbearance of money, goods, or credits than is
it is judicially demanded, although the obligation may be silent hereinbefore allowed, shall be void: Provided, however, That no
upon this point. (1109a) merely clerical error in the computation of interest, made without
intent to evade any of the provisions of this Act, shall render a
Art. 1959. Without prejudice to the provisions of article contract void: Provided, further, That parties to a loan agreement,
2212, interest due and unpaid shall not earn interest. However, the proceeds of which may be availed of partially or fully at some
the contracting parties may by stipulation capitalize the interest future time, may stipulate that the rate of interest agreed upon at
due and unpaid, which as added principal, shall earn new the time the loan agreement is entered into, which rate shall not
interest. (n) exceed the maximum allowed by law, shall prevail
notwithstanding subsequent changes in the maximum rates that
may be made by the Monetary Board: And Provided, finally, That
c. Legal interest
nothing herein contained shall be construed to prevent the
purchase by an innocent purchaser of a negotiable mercantile
Sec. 1, Usury Law2. The rate of interest for the loan or paper, usurious or otherwise, for valuable consideration before
forbearance of any money, goods, or credits and the rate allowed maturity, when there has been no intention on the part of said
in judgments, in the absence of an express contract as to such purchaser to evade the provisions of this Act and said purchase
rate of interest, shall be six per centum per annum. was not a part of the original usurious transaction. In any case,
however, the maker of said note shall have the right to recover
d. Lawful interest from said original holder the whole interest paid by him thereon
and, in case of litigation, also the costs and such attorney’s fees
as may be allowed by the court.
Sec. 2, Usury Law. No person or corporation shall
directly or indirectly take or receive in money or greater sum or
value for the loan or forbearance of money, goods, or credits,
where such loan or forbearance is secured in whole or in part by a C. Compensatory Interest
mortgage upon real estate the title to which is duly registered, or
by any document conveying such real estate or an interest therein, 1. Precepts
than twelve per centum per annum. Mutual building and loan
societies incorporated under the Corporation Act may, however, Art. 1169. Those obliged to deliver or to do something incur
charge eighteen per centum per annum but not more, directly or in delay from the time the obligee judicially or extrajudicially
indirectly, including premiums, interest and fines. demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
Sec. 3, Usury Law. No person or corporation shall order that delay may exist:
directly or indirectly take or receive in money or other property, (1) When the obligation or the law expressly so declare; or
real or personal a higher rate or. greater sum or value for the loan (2) When from the nature and the circumstances of the obligation
or forbearance of money, goods, or credits, where such loan or it appears that the designation of the time when the thing is to be
forbearance is not secured as provided in section two hereof, than delivered or the service is to be rendered was a controlling motive
fourteen per centum per annum. for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
e. Unlawful / Usurious interest rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
Sec. 1, Usury Law. The rate of interest for the loan or does not comply or is not ready to comply in a proper manner with
forbearance of any money, goods, or credits and the rate allowed what is incumbent upon him. From the moment one of the parties
in judgments, in the absence of an express contract as to such fulfills his obligation, delay by the other begins. (1100a)
rate of interest, shall be six per centum per annum.
Art. 1226. In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment of
2 BSP circular no. 799 (2013)
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interests in case of noncompliance, if there is no stipulation to the foregoing; and any transaction or series of transactions having a
contrary. Nevertheless, damages shall be paid if the obligor similar purpose or effect.
refuses to pay the penalty or is guilty of fraud in the fulfillment of
the obligation. b. Finance Charge
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code. (1152a)
Sec. 3 (3), RA 3765. As used in this Act, the term
Art. 2209. If the obligation consists in the payment of a sum (3) "Finance charge" includes interest, fees, service charges,
of money, and the debtor incurs in delay, the indemnity for discounts, and such other charges incident to the extension of
damages, there being no stipulation to the contrary, shall be the credit as the Board may be regulation prescribe.
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum. c. Creditor
(1108)
Sec. 3 (4), RA 3765. As used in this Act, the term
Art. 2210. Interest may, in the discretion of the court, be (4) "Creditor" means any person engaged in the business of
allowed upon damages awarded for breach of contract.
 extending credit (including any person who as a regular business
practice make loans or sells or rents property or services on a
Art. 2212. Interest due shall earn legal interest from the time time, credit, or installment basis, either as principal or as agent)
it is judicially demanded, although the obligation may be silent who requires as an incident to the extension of credit, the
upon this point. (1109a) payment of a finance charge.

Art. 2213. Interest cannot be recovered upon unliquidated

claims or damages, except when the demand can be established d. Person
with reasonable certainty.
Sec. 3 (5), RA 3765. As used in this Act, the term
Art. 2226. Liquidated damages are those agreed upon by the (5) "Person" means any individual, corporation, partnership,
parties to a contract, to be paid in case of breach thereof. association, or other organized group of persons, or the legal
successor or representative of the foregoing, and includes the
Art. 2227. Liquidated damages, whether intended as an Philippine Government or any agency thereof, or any other
indemnity or a penalty, shall be equitably reduced if they are government, or of any of its political subdivisions, or any agency of
iniquitous or unconscionable. the foregoing.

2. Interest rate 2. Information to be furnished by a creditor to a person

wanting credit
Sec. 1, Usury Law. The rate of interest for the loan or
forbearance of any money, goods, or credits and the rate allowed Sec. 4, RA 3765. Any creditor shall furnish to each person
in judgments, in the absence of an express contract as to such to whom credit is extended, prior to the consummation of the
rate of interest, shall be six per centum per annum. transaction, a clear statement in writing setting forth, to the extent
applicable and in accordance with rules and regulations
prescribed by the Board, the following information:
Art. 2209. If the obligation consists in the payment of a sum (1) the cash price or delivered price of the property or service to be
of money, and the debtor incurs in delay, the indemnity for acquired;
damages, there being no stipulation to the contrary, shall be the (2) the amounts, if any, to be credited as down payment and/or
payment of the interest agreed upon, and in the absence of trade-in;
stipulation, the legal interest, which is six per cent per annum. (3) the difference between the amounts set forth under clauses (1)
(1108) and (2);
(4) the charges, individually itemized, which are paid or to be paid
by such person in connection with the transaction but which are
D. Truth in Lending Act (RA 3765) not incident to the extension of credit;
(5) the total amount to be financed;
1. Definition (6) the finance charge expressed in terms of pesos and centavos;
and
a. Credit (7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.
Sec. 3 (2), RA 3765. As used in this Act, the term
(2) "Credit" means any loan, mortgage, deed of trust, advance, or
discount; any conditional sales contract; any contract to sell, or 3. Effects of Non-disclosure of Information in Sec. 4
sale or contract of sale of property or services, either for present or
future delivery, under which part or all of the price is payable Sec. 6, RA 3765. (a) Any creditor who in connection with
subsequent to the making of such sale or contract; any rental- any credit transaction fails to disclose to any person any
purchase contract; any contract or arrangement for the hire, information in violation of this Act or any regulation issued
bailment, or leasing of property; any option, demand, lien, pledge, thereunder shall be liable to such person in the amount of P100
or other claim against, or for the delivery of, property or money; or in an amount equal to twice the finance charged required by
any purchase, or other acquisition of, or any credit upon the such creditor in connection with such transaction, whichever is the
security of, any obligation of claim arising out of any of the greater, except that such liability shall not exceed P2,000 on any
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credit transaction. Action to recover such penalty may be brought forbearances of money, goods, or credit, whenever warranted by
by such person within one year from the date of the occurrence of prevailing economic and social conditions.
the violation, in any court of competent jurisdiction. In any action
under this subsection in which any person is entitled to a recovery, Sec. 4-b, Usury Law. In the exercise of its authority to
the creditor shall be liable for reasonable attorney's fees and fix the maximum rate or rates of interest under this Act, the
court costs as determined by the court. Monetary Board shall be guided by the following:
(b) Except as specified in subsection (a) of this section, nothing 1. The existing economic conditions in the country and the general
contained in this Act or any regulation contained in this Act or any requirements of the national economy;
regulation thereunder shall affect the validity or enforceability of 2. The supply of and demand for credit;
any contract or transactions. 3. The rate of increase in the price levels; and
(c) Any person who willfully violates any provision of this Act or any 4. Such other relevant criteria as the Monetary Board may adopt.
regulation issued thereunder shall be fined by not less than P1,00
or more than P5,000 or imprisonment for not less than 6 months, Sec. 5, Usury Law. In computing the interest on any
nor more than one year or both. obligation, promissory note or other instrument or contract,
(d) No punishment or penalty provided by this Act shall apply to compound interest shall not be reckoned, except by agreement:
the Philippine Government or any agency or any political Provided, That whenever compound interest is agreed upon, the
subdivision thereof. effective rate of interest charged by the creditor shall not exceed
(e) A final judgment hereafter rendered in any criminal proceeding the equivalent of the maximum rate prescribed by the Monetary
under this Act to the effect that a defendant has willfully violated Board, or, in default thereof, whenever the debt is judicially
this Act shall be prima facie evidence against such defendant in claimed, in which last case it shall draw six per centum per annum
an action or proceeding brought by any other party against such interest or such rate as may be prescribed by the Monetary Board.
defendant under this Act as to all matters respecting which said No person or corporation shall require interest to be paid in
judgment would be an estoppel as between the parties thereto. advance for a period of more than one year: Provided, however,
That whenever interest is paid in advance, the effective rate of
interest charged by the creditor shall not exceed the equivalent of
the maximum rate prescribed by the Monetary Board.
E. The Usury Law
Sec. 9-a, Usury Law. The Monetary Board shall
promulgate such rules and regulations as may be necessary to
1. Principles
implement effectively the provisions of this Act.

Art. 1175. Usurious transactions shall be governed by special

laws. (n)

2. What are usurious acts?

Art. 1957. Contracts and stipulations, under any cloak or Sec. 2, Usury Law. No person or corporation shall
device whatever, intended to circumvent the laws against usury directly or indirectly take or receive in money or other property,
shall be void. The borrower may recover in accordance with the real or personal, or choses in action, a higher rate of interest or
laws on usury. (n) greater sum or value, including commissions, premiums, fines
and penalties, for the loan or renewal thereof or forbearance of
Art. 1961. Usurious contracts shall be governed by the Usury money, goods, or credits, where such loan or renewal or
Law and other special laws, so far as they are not inconsistent forbearance is secured in whole or in part by a mortgage upon real
with this Code. (n) estate the title to which is duly registered, or by any document
conveying such real estate or an interest therein, than twelve per
centum per annum or the maximum rate prescribed by the
Sec. 1, Usury Law. The rate of interest for the loan or Monetary Board and in force at the time the loan or renewal
forbearance of any money, goods, or credits and the rate allowed thereof or forbearance is granted: Provided, That the rate of
in judgments, in the absence of an express contract as to such interest under this section or the maximum rate of interest that
rate of interest, shall be six per centum per annum. may be prescribed by the Monetary Board under this section may
likewise apply to loans secured by other types of security as may
Sec. 1-a, Usury Law. The Monetary Board is hereby be specified by the Monetary Board.
authorized to prescribe the maximum rate or rates of interest for
the loan or renewal thereof or the forbearance of any money, Sec. 3, Usury Law. No person or corporation shall
goods or credits, and to change such rate or rates whenever directly or indirectly demand, take, receive or agree to charge in
warranted by prevailing economic and social conditions. money or other property, real or personal, a higher rate or greater
In the exercise of the authority herein granted, the Monetary sum or value for the loan or forbearance of money, goods, or
Board may prescribe higher maximum rates for loans of low credits where such loan or forbearance is not secured as provided
priority, such as consumer loans or renewals thereof as well as in Section two hereof, than fourteen per centum per annum or the
such loans made by pawnshops finance companies and other maximum rate or rates prescribed by the Monetary Board and in
similar credit institutions although the rates prescribed for these force at the time the loan or forbearance is granted.
institutions need not necessarily be uniform. The Monetary Board
is also authorized to prescribe different maximum rate or rates for Sec. 4, Usury Law. No pawnbroker or pawnbroker’s
different types of borrowings, including deposits and deposit agent shall directly or indirectly stipulate, charge, demand, take
substitutes, or loans of financial intermediaries. or receive any higher rate or greater sum or value for any loan or
forbearance than two and one-half per centum per month when
Sec. 4-a, Usury Law. The Monetary Board may the sum lent is less than one hundred pesos; two per centum per
eliminate, exempt from, or suspend the effectivity of, interest rate month when the sum lent is one hundred pesos or more, but not
ceilings on certain types of loans or renewals thereof or exceeding five hundred pesos; and fourteen per centum per
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annum when it is more than the amount last mentioned; or the paid or delivered with costs and attorneys’ fees in such sum as
maximum rate or rates prescribed by the Monetary Board and in may be allowed by the court in an action against the person or
force at the time the loan or forbearance is granted. A pawnbroker corporation who took or received them if such action is brought
or pawnbroker’s agent shall be considered such, for the benefits within two years after such payment or delivery: Provided,
of this Act, only if he be duly licensed and has an establishment however, That the creditor shall not be obliged to return the
open to the public. interest, commissions and premiums for a period of not more than
It shall be unlawful for a pawnbroker or pawnbroker’s agent to one year collected by him in advance when the debtor shall have
divide the pawn offered by a person into two or more fractions in paid the obligation before it is due, provided such interest, and
order to collect greater interest than the permitted by this section. commissions and premiums do not exceed the rates fixed in this
It shall also be unlawful for a pawnbroker or pawnbroker’s agent Act.
to require the pawner to pay an additional charge as insurance
premium for the safekeeping and conservation of the article Sec. 7, Usury Law. All covenants and stipulations
pawned. contained in conveyances, mortgages, bonds, bills, notes, and
other contracts or evidences of debts, and all deposits of goods or
3. Elements of Usury other things, whereupon or whereby there shall be stipulated,
charged, demanded, reserved, secured, taken, or received,
directly or indirectly, a higher rate or greater sum or value for the
(1) a loan, express or implied; loan or renewal or forbearance of money, goods, or credits than is
(2) an understanding between the parties that the money lent hereinbefore allowed, shall be void: Provided, however, That no
shall or may be returned; merely clerical error in the computation of interest, made without
(3) that for such loan a greater rate or interest that is allowed by intent to evade any of the provisions of this Act, shall render a
law shall be paid, or agreed to be paid, as the case may be; and contract void: Provided, further, That parties to a loan agreement,
(4) a corrupt intent to take more than the legal rate for the use of the proceeds of which may be availed of partially or fully at some
money loaned. future time, may stipulate that the rate of interest agreed upon at
(Herrera v. Petrophil Corp.) the time the loan agreement is entered into, which rate shall not
exceed the maximum allowed by law, shall prevail
4. The need to discourage usurious interest notwithstanding subsequent changes in the maximum rates that
may be made by the Monetary Board: And Provided, finally, That
nothing herein contained shall be construed to prevent the
To discourage stipulations on usurious interest, said stipulations purchase by an innocent purchaser of a negotiable mercantile
are treated as wholly void, so that the loan becomes without paper, usurious or otherwise, for valuable consideration before
stipulation as to payment of interest. It should not, however, be maturity, when there has been no intention on the part of said
interpreted to mean forfeiture even of the principal, for this would purchaser to evade the provisions of this Act and said purchase
unjustly enrich the borrower at the expense of the lender. was not a part of the original usurious transaction. In any case,
Furthermore, penal sanctions are available against a usurious however, the maker of said note shall have the right to recover
lender, as a further deterrence to usury. The principal debt from said original holder the whole interest paid by him thereon
remaining without stipulation for payment of interest can thus be and, in case of litigation, also the costs and such attorney’s fees
recovered by judicial action. as may be allowed by the court.
(Briones v. Cammayo)
Sec. 8, Usury Law. All loans under which payment is to
5. Relevance in view of Sec. 1, Central Bank Circular No. be made in agricultural products or seed or in any other kind of
905 (1982) commodities shall also be null and void unless they provide that
such products or seed or other commodities shall 6e appraised at
the time when the obligation falls due at the current local market
Section 109 of R.A. No. 265 covered only loans extended by price: Provided, That unless otherwise stated in a document
banks, whereas under Section 1-a of the Usury Law, as amended, written in a language or dialect intelligible to the debtor and
the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB) may subscribed in the presence of not less than two witnesses, any
prescribe the maximum rate or rates of interest for all loans or contract advancing money to be repaid later in agricultural
renewals thereof or the forebearance of any money, goods or products or seed or any other kind of commodities shall be
credits, including those for loans of low priority such as consumer understood to be a loan, and any person or corporation having
loans, as well as such loans made by pawnshops, finance paid otherwise shall be entitled in case action is brought within
companies and similar credit institutions. two years after such payment or delivery to recover all the
(Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary products or seed delivered as interest, or the value thereof,
Board) together with the costs and attorney’s fees in such sum as may be
allowed by the court. Nothing contained in this section shall be
6. Remedies in case of Usurious Interests construed to prevent the lender from taking interest for the money
lent, provided such interest be not in excess of the rates herein
Art. 1413. Interest paid in excess of the interest allowed by fixed.
the usury laws may be recovered by the debtor, with interest
thereon from the date of the payment. Sec. 9, Usury Law. The person or corporation sued shall
file its answer in writing under oath to any complaint brought or
filed against said person or corporation before a competent court
Sec. 6, Usury Law. Any person or corporation who, for to recover the money or other personal or real property, seeds or
any such loan or renewal thereof or forbearance, shall have paid agricultural products, charged or received in violation of the
or delivered a higher rate or greater sum or value than is provisions of this Act. The lack of taking an oath to an answer to a
hereinbefore allowed to be taken or received, may recover the complaint will mean the admission of the facts contained in the
whole interest, commissions, premiums penalties and surcharges latter.
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Sec. 9-a, Usury Law. The Monetary Board shall

promulgate such rules and regulations as may be necessary to VI. DEPOSIT
implement effectively the provisions of this Act.
A. Definition and features
Sec. 10, Usury Law. Without prejudice to the proper
civil action violation of this Act and the implementing rules and
Art. 1962. A deposit is constituted from the moment a person
regulations promulgated by the Monetary Board shall be subject
receives a thing belonging to another, with the obligation of safely
to criminal prosecution and the guilty person shall, upon
keeping it and of returning the same. If the safekeeping of the
conviction, be sentenced to a fine of not less than fifty pesos nor
thing delivered is not the principal purpose of the contract, there
more than five hundred pesos, or to imprisonment for not less
is no deposit but some other contract. (1758a)
than thirty days nor more than one year, or both, in the discretion
of the court, and to return the entire sum received as interest from
Art. 1963. An agreement to constitute a deposit is binding,
the party aggrieved, and in the case of non-payment, to suffer
but the deposit itself is not perfected until the delivery of the
subsidiary imprisonment at the rate of one day for every two
thing. (n)
pesos: Provided, That in case of corporations, associations,
societies, or companies the manager, administrator or gerent or
Art. 1965. A deposit is a gratuitous contract, except when
the person who has charge of the management or administration
there is an agreement to the contrary, or unless the depositary is
of the business shall be criminally responsible for any violation of
engaged in the business of storing goods. (1760a)
this Act.
Art. 1966. Only movable things may be the object of a
deposit. (1761)

B. Kinds of Deposit

Art. 1964. A deposit may be constituted judicially or

extrajudicially. (1759)

Art. 1967. An extrajudicial deposit is either voluntary or

necessary. (1762)

1. Extrajudicial deposit
2. Judicial deposit

1. Extrajudicial Deposit

a. Voluntary deposit in general

Art. 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. (1758a)

Art. 1963. An agreement to constitute a deposit is binding,

but the deposit itself is not perfected until the delivery of the
thing. (n)

Art. 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. (1760a)

Art. 1966. Only movable things may be the object of a

deposit. (1761)

Art. 1968. A voluntary deposit is that wherein the delivery is

made by the will of the depositor. A deposit may also be made by
two or more 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 one to whom it belongs. (1763)

Art. 1969. A contract of deposit may be entered into orally or

in writing. (n)
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proved. (1768a)
Art. 1970. If a person having capacity to contract accepts a
deposit made by one who is incapacitated, the former shall be Art. 1979. The depositary is liable for the loss of the thing
subject to all the obligations of a depositary, and may be through a fortuitous event:
compelled to return the thing by the guardian, or administrator, of (1) If it is so stipulated;

the person who made the deposit, or by the latter himself if he (2) If he uses the thing without the depositor's permission;

should acquire capacity. (1764) (3) If he delays its return;

(4) If he allows others to use it, even though he himself may have
Art. 1971. If the deposit has been made by a capacitated been authorized to use the same. (n)
person with another who is not, the depositor shall only have an
action to recover the thing deposited while it is still in the Art. 1980. Fixed, savings, and current deposits of money in
possession of the depositary, or to compel the latter to pay him banks and similar institutions shall be governed by the provisions
the amount by which he may have enriched or benefited himself concerning simple loan. (n)
with the thing or its price. However, if a third person who acquired
the thing acted in bad faith, the depositor may bring an action Art. 1981. When the thing deposited is delivered closed and
against him for its recovery. (1765a) sealed, the depositary must return it in the same condition, and
he shall be liable for damages should the seal or lock be broken
i. Obligations of the depositary through his fault.
Fault on the part of the depositary is presumed, unless there is
proof to the contrary.
Art. 1972. The depositary is obliged to keep the thing safely As regards the value of the thing deposited, the statement of the
and to return it, when required, to the depositor, or to his heirs depositor shall be accepted, when the forcible opening is
and successors, or to the person who may have been designated imputable to the depositary, should there be no proof to the
in the contract. His responsibility, with regard to the safekeeping contrary. However, the courts may pass upon the credibility of the
and the loss of the thing, shall be governed by the provisions of depositor with respect to the value claimed by him.
Title I of this Book. When the seal or lock is broken, with or without the depositary's
If the deposit is gratuitous, this fact shall be taken into account in fault, he shall keep the secret of the deposit. (1769a)
determining the degree of care that the depositary must observe.
(1766a) Art. 1982. When it becomes necessary to open a locked box
Art. 1973. Unless there is a stipulation to the contrary, the or receptacle, the depositary is presumed authorized to do so, if
depositary cannot deposit the thing with a third person. If deposit the key has been delivered to him; or when the instructions of the
with a third person is allowed, the depositary is liable for the loss depositor as regards the deposit cannot be executed without
if he deposited the thing with a person who is manifestly careless opening the box or receptacle. (n)
or unfit. The depositary is responsible for the negligence of his
employees. (n) Art. 1983. The thing deposited shall be returned with all its
products, accessories and accessions.
Art. 1974. The depositary may change the way of the deposit Should the deposit consist of money, the provisions relative to
if under the circumstances he may reasonably presume that the agents in article 1896 shall be applied to the depositary. (1770)
depositor would consent to the change if he knew of the facts of
the situation. However, before the depositary may make such Art. 1984. The depositary cannot demand that the depositor
change, he shall notify the depositor thereof and wait for his prove his ownership of the thing deposited.
decision, unless delay would cause danger. (n) Nevertheless, should he discover that the thing has been stolen
and who its true owner is, he must advise the latter of the deposit.
Art. 1975. The depositary holding certificates, bonds, If the owner, in spite of such information, does not claim it within
securities or instruments which earn interest shall be bound to the period of one month, the depositary shall be relieved of all
collect the latter when it becomes due, and to take such steps as responsibility by returning the thing deposited to the depositor.
may be necessary in order that the securities may preserve their If the depositary has reasonable grounds to believe that the thing
value and the rights corresponding to them according to law. has not been lawfully acquired by the depositor, the former may
The above provision shall not apply to contracts for the rent of return the same. (1771a)
safety deposit boxes. (n)
Art. 1985. When there are two or more depositors, if they are
Art. 1976. Unless there is a stipulation to the contrary, the not solidary, and the thing admits of division, each one cannot
depositary may commingle grain or other articles of the same kind demand more than his share.
and quality, in which case the various depositors shall own or have When there is solidarity or the thing does not admit of division, the
a proportionate interest in the mass. (n) provisions of articles 1212 and 1214 shall govern. However, if
there is a stipulation that the thing should be returned to one of
Art. 1977. The depositary cannot make use of the thing the depositors, the depositary shall return it only to the person
deposited without the express permission of the depositor. designated. (1772a)
Otherwise, he shall be liable for damages.
However, when the preservation of the thing deposited requires its Art. 1986. If the depositor should lose his capacity to
use, it must be used but only for that purpose. (1767a) contract after having made the deposit, the thing cannot be
returned except to the persons who may have the administration
Art. 1978. When the depositary has permission to use the of his property and rights. (1773)
thing deposited, the contract loses the concept of a deposit and
becomes a loan or commodatum, except where safekeeping is Art. 1987. If at the time the deposit was made a place was
still the principal purpose of the contract. designated for the return of the thing, the depositary must take
The permission shall not be presumed, and its existence must be the thing deposited to such place; but the expenses for
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transportation shall be borne by the depositor. (2) When it takes place on the occasion of any calamity, such as
If no place has been designated for the return, it shall be made fire, storm, flood, pillage, shipwreck, or other similar events.
where the thing deposited may be, even if it should not be the (1781a)
same place where the deposit was made, provided that there was
no malice on the part of the depositary. (1774) Art. 2168. When during a fire, flood, storm, or other calamity,
property is saved from destruction by another person without the
Art. 1988. The thing deposited must be returned to the knowledge of the owner, the latter is bound to pay the former just
depositor upon demand, even though a specified period or time compensation.
for such return may have been fixed.
This provision shall not apply when the thing is judicially attached iii. Rules governing deposit in compliance of a legal obligation/
while in the depositary's possession, or should he have been calamity
notified of the opposition of a third person to the return or the
removal of the thing deposited. In these cases, the depositary
must immediately inform the depositor of the attachment or Art. 1997. The deposit referred to in No. 1 of the preceding
opposition. (1775) article shall be governed by the provisions of the law establishing
it, and in case of its deficiency, by the rules on voluntary deposit.
Art. 1989. Unless the deposit is for a valuable consideration, The deposit mentioned in No. 2 of the preceding article shall be
the depositary who may have justifiable reasons for not keeping regulated by the provisions concerning voluntary deposit and by
the thing deposited may, even before the time designated, return article 2168. (1782)
it to the depositor; and if the latter should refuse to receive it, the
depositary may secure its consignation from the court. (1776a) iv. Deposits made by travelers in hotels or inns/ Responsibilities
of Hotel keeper
Art. 1990. If the depositary by force majeure or government
order loses the thing and receives money or another thing in its Art. 1998. The deposit of effects made by travellers in hotels
place, he shall deliver the sum or other thing to the depositor. or inns shall also be regarded as necessary. The keepers of hotels
(1777a) or inns shall be responsible for them as depositaries, provided
that notice was given to them, or to their employees, of the effects
Art. 1991. The depositor's heir who in good faith may have brought by the guests and that, on the part of the latter, they take
sold the thing which he did not know was deposited, shall only be the precautions which said hotel-keepers or their substitutes
bound to return the price he may have received or to assign his advised relative to the care and vigilance of their effects. (1783)
right of action against the buyer in case the price has not been
paid him. (1778) Art. 1999. The hotel-keeper is liable for the vehicles, animals
and articles which have been introduced or placed in the annexes
ii. Obligations of the depositor of the hotel. (n)

Art. 1992. If the deposit is gratuitous, the depositor is v. Other respobsibilities of Hotel/ Hotel Keeper / Hotel servants &
obliged to reimburse the depositary for the expenses he may have employees / Strangers
incurred for the preservation of the thing deposited. (1779a)
Art. 2000. The responsibility referred to in the two preceding
Art. 1993. The depositor shall reimburse the depositary for articles shall include the loss of, or injury to the personal property
any loss arising from the character of the thing deposited, unless of the guests caused by the servants or employees of the keepers
at the time of the constitution of the deposit the former was not of hotels or inns as well as strangers; but not that which may
aware of, or was not expected to know the dangerous character of proceed from any force majeure. The fact that travellers are
the thing, or unless he notified the depositary of the same, or the constrained to rely on the vigilance of the keeper of the hotels or
latter was aware of it without advice from the depositor. (n) inns shall be considered in determining the degree of care
required of him. (1784a)
Art. 1994. The depositary may retain the thing in pledge until
the full payment of what may be due him by reason of the deposit. Art. 2001. The act of a thief or robber, who has entered the
(1780) hotel is not deemed force majeure, unless it is done with the use
of arms or through an irresistible force. (n)
Art. 1995. A deposit its extinguished:

(1) Upon the loss or destruction of the thing deposited;
 Art. 2002. The hotel-keeper is not liable for compensation if
(2) In case of a gratuitous deposit, upon the death of either the the loss is due to the acts of the guest, his family, servants or
depositor or the depositary. (n) visitors, or if the loss arises from the character of the things
brought into the hotel. (n)
b. Necessary deposit
Art. 2003. The hotel-keeper cannot free himself from
i. Deposit in compliance of a legal obligation responsibility by posting notices to the effect that he is not liable
for the articles brought by the guest. Any stipulation between the
Art. 1996 (1). A deposit is necessary: hotel-keeper and the guest whereby the responsibility of the
(1) When it is made in compliance with a legal obligation; former as set forth in articles 1998 to 2001 is suppressed or
diminished shall be void. (n)
ii. Deposit due to a calamity Art. 2004. The hotel-keeper has a right to retain the things
brought into the hotel by the guest, as a security for credits on
Art. 1996 (2). A deposit is necessary: account of lodging, and supplies usually furnished to hotel guests.
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(n)

2. Judicial Deposit

i. Definition, Object, Responsibility, Rules governing

sequestration

Art. 1964. A deposit may be constituted judicially or

extrajudicially. (1759)

Art. 2005. A judicial deposit or sequestration takes place

when an attachment or seizure of property in litigation is ordered.
(1785)

Art. 2006. Movable as well as immovable property may be

the object of sequestration. (1786)


Art. 2007. The depositary of property or objects sequestrated

cannot be relieved of his responsibility until the controversy which
gave rise thereto has come to an end, unless the court so orders.
(1787a)

Art. 2008. The depositary of property sequestrated is bound

to comply, with respect to the same, with all the obligations of a
good father of a family. (1788)

Art. 2009. As to matters not provided for in this Code, judicial

sequestration shall be governed by the Rules of Court. (1789a)