BAREBUSX

REGULATORY
FRAMEWORK AND
LEGAL ISSUES IN
BUSINESS
Module 10 Credit Transactions
(Commodatum, Mutuum and Loan)
Source: San Beda Law Memory Aid/Business Law Reviewer
2TAY2122
COMMODATUM
(ARTS. 1935-1952)
NATURE
GEN. RULE: Bailee acquires the
temporary use of the thing but not
its fruits since the bailor remains the
owner (Civil Code, Art. 1935)
COMMODATUM
(ARTS. 1935-1952)
NATURE
RATIONALE: The right to use a thing
is distinct from the right to enjoy the
fruits. The fruits pertain to the owner
of the thing producing the fruits (Civil
Code, Art. 441).
COMMODATUM
(ARTS. 1935-1952)
NATURE
EXCEPTION: When there is a
stipulation to make use of the fruits
of the thing loaned (CC, Art. 1940).
Provided, that the use of the fruits is
merely incidental; otherwise, it is
usufruct.
COMMODATUM
(ARTS. 1935-1952)
NATURE
NOTE: Such stipulation to enjoy the
fruits cannot be presumed.
If the bailee is not entitled to the use
of the thing, the contract is a deposit
(CC, Art. 1935)
COMMODATUM
(ARTS. 1935-1952)
CONTRACT AKIN TO DONATION
Both contracts of commodatum and
donation confer benefit to the
recipient. The presumption is that
the bailor has loaned the thing for
having no need therefore. The cause
or consideration for both is pure
liberality (CC, Art. 1350).
CHARACTERISTICS OF
COMMODATUM: (RPGP)
1. Real – perfected by delivery;
2. Principal – it can stand alone by
itself;
3. Gratuitous – the cause of which
is the mere liberality of the
benefactor (CC, Art. 1350); and
4. Personal in Nature – because of
the trust.
KINDS OF COMMODATUM

1. Ordinary – use of the thing by the

bailee is for a certain period of
time (CC, Art. 1933);
2. Precarium – one whereby the
bailor may demand the thing
loaned at will.
Bailor need not be the owner of
the thing loaned. (CC, Art. 1938)
It is sufficient that the bailor has:
1. Possessory interest; or
2. The bailor has the right to allow
the use of the thing by the bailee
(e.g. lessee, usufructuary)
Reason: Commodatum does not
contemplate transfer of ownership.
Effects of the Principle that
Commodatum is Purely Personal (CC,
Art. 1939)
1. The death of either the bailor or the
bailee extinguishes the contract (CC,
Art. 1939, Par. 1).
Exceptions: a) When there is a contrary
stipulation that the commodatum is
transmitted to the heirs of either or both
parties. (CC, Art. 1306); and
b) If there are two or more borrowers, the
death of one does not extinguish the
contract in the absence of stipulation to the
contrary.
Effects of the Principle that
Commodatum is Purely Personal (CC,
Art. 1939)
2. The bailee can neither lend nor lease
the object of the contract to a third
person (CC, Art. 1939, Par. 2).
Exceptions: a) Understanding or
agreement to the contrary; and
b) Members of the household may make
use of the thing loaned.
Reason: They are not considered third
persons
Effects of the Principle that
Commodatum is Purely Personal (CC,
Art. 1939)
Exceptions to the exception in (b):
a. If there is a contrary stipulation; and
b. If the nature of the thing forbids
such use.
Note: Art. 1939 constitutes an exception
to the general rule under Art. 1178 that
all rights acquired in virtue of an
obligation are transmissible.
OBLIGATIONS OF THE BAILEE

PRINCIPAL OBLIGATIONS
1. Take care of the thing with
diligence of a good father of a
family (CC, Art. 1933)
Reason: The bailee is supposed to
return the identical thing (CC, Art.
1933)
OBLIGATIONS OF THE BAILEE

PRINCIPAL OBLIGATIONS
2. Use the thing loaned only for the
purpose for which it was loaned and for
no other purpose (CC, Arts. 1935,
1939, 1940).
3. Pay ordinary expenses for the use
and preservation of the thing and a
portion of extraordinary expenses
arising from the actual use of the thing
(CC, Arts. 1941, 1943, 1945, 1949,
1950).
LIABILITY FOR
EXTRAORDINARY EXPENSES
If extraordinary expenses arise on the
occasion of the actual use of the thing
by the bailee, even though he acted
without fault, they shall be borne
equally by both the bailor and bailee,
unless there is a stipulation to the
contrary (CC, Art. 1949, Par 2).
Exception: If there is a stipulation for
different apportionment.
OBLIGATIONS OF THE BAILEE

PRINCIPAL OBLIGATIONS
4. Return and not to retain the
identical thing loaned except under
certain circumstances (CC, Arts.
1933, 1944, 1946).
RIGHT OF RETENTION

General Rule: Bailee has no right to

retain the thing loaned as security on
the ground that the bailor owes him
something, even though it may be by
reason of expenses (CC, Art. 1944)
Reasons: a) Ownership remains in the
bailor; and
b) Only temporary use is given to the
bailee.
RIGHT OF RETENTION

Compensation shall not be proper when

one of the debts arises from a depositum
or from the obligations of a depositary or a
bailee in commodatum (CC, Art. 1287).
Exception: The bailor who, knowing the
flaws of the thing loaned, does not advise
the bailee of the same, shall be liable to
the latter for the damages which he may
suffer by reason thereof (CC, Art. 1951)
OBLIGATIONS OF THE BAILEE

OTHER OBLIGATIONS:
1. Liability for loss due to fortuitous
event (CC, Art. 1942);
General Rule: He is not liable
because ownership remains with the
bailor.
OBLIGATIONS OF THE BAILEE

OTHER OBLIGATIONS:
Exceptions: He is liable for loss even
if it should be through a fortuitous
event in the following cases (CC, Art.
1942);
a. When he keeps it longer than the
period stipulated, or after the
accomplishment of its use;
OBLIGATIONS OF THE BAILEE
OTHER OBLIGATIONS:
b) When he lenads or leases it to third
persons who are not members of his
household;
c) When the thing loaned has been
delivered with appraisal of its value
unless there is a stipulation exempting
the bailee from responsibility in case of
fortuitous event
OBLIGATIONS OF THE BAILEE

OTHER OBLIGATIONS:
d) When, being able to save either
the thing borrowed or his own
things, he chose to save the latter.
e) When the bailee devoted the
thing for a different use from that
agreed upon.
OBLIGATIONS OF THE BAILEE

OTHER OBLIGATIONS:

2. Liability for deterioration due to

the use of the thing (CC, Art. 1943);

General Rule: Bailee is not liable

OBLIGATIONS OF THE BAILEE
OTHER OBLIGATIONS:
Exceptions:
a. If expressly stipulated;
b. If guilty of fault or negligence (CC, Art.
1170);
c. If he devotes the thing to any purpose
different from that for which it has
been loaned (CC, Art. 1942 par 1); and
d. If he uses the thing beyond the period
stipulated (CC, Art. 1942, par. 2)
OBLIGATIONS OF THE BAILEE

OTHER OBLIGATIONS:
3. Liability for expenses other than
those under Arts. 1941 and 1949 of
the Civil Code for the purpose of
making use of the thing (e.g.
ordinary expenses for the
preservation and expenses for
ostentation) (CC, Art. 1950).
OBLIGATIONS OF THE BAILEE

OTHER OBLIGATIONS:
Note: In case there are two or more
bailees, their obligation shall be
solidary (CC, Art. 1945). This an
example of a solidary obligation by
operation of law or legal solidarity
where solidarity is imposed by the law.
Reason: To effectively safeguard the
rights of the bailor.
OBLIGATIONS OF THE BAILOR

1. Respect the duration of the loan

(CC, Art. 1946).
Reason: Bailor is bound by the terms
of the contract of commodatum
which is for a certain time.
General Rule: He cannot demand
return before expiration of the
period or accomplishment of the use
(CC, Art. 1946).
OBLIGATIONS OF THE BAILOR

Exceptions:
a) In case of urgent need of the thing,
he may demand its return or
temporary use (CC, Art. 1946); and
Reason: Commodatum is essentially
gratuitous.
Effect: If for a temporary use, the
contract of commodatum is suspended
while the thing is in the possession of
the bailor (CC, Art. 1946).
OBLIGATIONS OF THE BAILOR

Exceptions:
b) If the bailee commits any act of
ingratitude specified in Art. 756 of
the Civil Code:
i. Bailee should commit some
offenses against the person, honor
or property of the bailor, or of his
wife or children under his parental
authority;
OBLIGATIONS OF THE BAILOR
Exceptions:
ii. Bailee imputes to the bailor any
criminal offense, or any act involving
moral turpitude, even though he should
prove it, unless the crime or the act has
been committed against the bailee
himself, his wife or children under his
authority; and
iii. Bailee unduly refuses the bailor
support when the bailee is legally or
morally nound to give support to the
bailor (CC, Art. 1948).
OBLIGATIONS OF THE BAILOR

2. Refund to the bailee extraordinary

expenses incurred for the
preservation of the thing provided
that the bailee brings the same to
the knowledge of the bailor beofre
incurring them except when the
reply to the notification cannot be
awaited without danger (CC, Art.
1949, par. 1).
OBLIGATIONS OF THE BAILOR

Exception: If the extraordinary

expenses arise on the occasion of the
actual 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 (CC, Art. 1949,
Par. 2).
Exception to the Exception: Stipulation
providing for a differenr apportionment
of expenses, or those expenses shall
be borne by the bailee or bailor only.
OBLIGATIONS OF THE BAILOR
Requisites:
a) Existence of flaw or defect;
b) The flaw or defect is hidden;
c) The bailor is aware thereof;
d) Bailor does not advise the bailee of the
same; and
e) The bailee suffers damages by reason of
said flaw or defect.
If the above requisites concur, the bailee has
the right of retention for damages (CC, Art.
1944).
NO RIGHT OF ABANDONMENT

The bailor cannot exempt himself

from the payment of expenses of
damages by abandoning the thing to
the bailee (CC, Art. 1952).
MUTUUM
(ARTS. 1953-1955)
A bilateral contract whereby one of
the parties delivers to another
money or other consummable thing
with the understanding that the
same amount, of the same kind and
quality, shall be paid (CC, Art. 1933).
MUTUUM
(ARTS. 1953-1955)
It involves the return of the
equivalent amount only and not the
identical thing because the borrower
acquires ownership of the money or
other consumable thing loaned. This
obligation “to pay” may include the
accessory obligation pay interest.
FUNGIBLE AND NON-
FUNGIBLE:
Fungible – belongs to a common
genus which includes several
species of the same kind.
Non-fungible – specifically
determined and cannot be
substituted by others.
FUNGIBLE AND NON-
FUNGIBLE:

Note: if the borrower loses the

money or the goods, this does not
affect his obligation to repay the
creditor. This is in accordance with
the rule of res perit domino.
MUTUUM
(ARTS. 1953-1955)
No Criminal Liability for Failure to Pay –
No estafa is committed by a person
who refuses to pay his debt per se as
the borrower effectively acquires
ownership and being the owner, he can
dispose of the thing borrowed and his
act will not be considered
misappropriation thereof.
MUTUUM
(ARTS. 1953-1955)
Basis: A person who receives a loan of
money or any other fungible thing
acquires ownership thereof and is
bound to pay the creditor an equal
amount of the same kind and quality
(CC, Art. 1953).
Note: No person shall be imprisoned
for nonpayment of debt (Const. Art. III,
Sec. 20).
MUTUUM
(ARTS. 1953-1955)
Mutuum vs Lease
MUTUUM LEASE

As to Definition

Delivery of money or some consumable Delivery of some non-consumable thing

thing with a promise to repay/an in order that the other may use it
equivalent of the same kind and during a certain period and return it to
quality. the former.
As to Transfer of Ownership

There is a transfer of ownership of the There is no transfer of ownership of the

thing delivered thing delivered. Lessor simply loses his
control over the property during the
period of the contract.
MUTUUM
(ARTS. 1953-1955)
Mutuum vs Lease

MUTUUM LEASE

As to Relationship of the Parties

Relationship between the parties is Relationship is that of a landlord and

that of obligor-obligee. tenant.
As to Receipt of Payment

Creditor receives payment for his loan. Landlord receives compensation either
in money, provisions, chattels, or labor.
MUTUUM
(ARTS. 1953-1955)
Loan vs Sale
Note: If the property is “sold”, but the
real intent is only to give the object as
security for a debt – as when the
“price” is comparatively small – there
really is a contract of loan with an
“equitable mortgage” (CC, Art. 1602,
par. 6)
MUTUUM
(ARTS. 1953-1955)
Barter:
A contract whereby one person
transfer ownership of non-fungible
things to another with the obligation
on the part of the latter to give
things of the same kind, quality and
quantity (CC, Art. 1954).
MUTUUM
(ARTS. 1953-1955)
Commudatom/Mutuum vs Barter
COMMODATUM/MUTUUM BARTER

As to Subject Matter

In mutuum, the subject matter is Subject matter is non-fungible (non-

money or fungible things. consumable things).
As to Return to Subject Matter

In commudatum, the bailee is bound to The thing with equivalent value is given
return the identical thing borrowed, in return for what has been received.

As to Cause to Consideration

Mutuum may be gratuitous and Always onerous, and is actually a

commodatum is essentially gratuitous. mutual sale.
MUTUUM
(ARTS. 1953-1955)
Forms of Payment:
1. If the thing loaned is money, payment must be
made in the currency stipulated, if it is possible to
deliver such currency; otherwise, that which is legal
tender in the Philippines. In case of extraordinary
inflation or deflation, payment shall be in the value of
the currency at the time of the creation of the
obligation (CC, Arts. 1249,1250 and 1955, par. 1).
MUTUUM
(ARTS. 1953-1955)
Forms of Payment:
2. If the thing loaned is a fungible other than
money, the borrower is under obligation to pay
the lender another thing of the same kind,
quality and quantity even if it should change
in value. In case it is impossible to do so, the
borrower shall pay its value at the time of the
perfection of the loan (CC, Art. 1955, par. 2)
LOAN
(ARTS. 1933-1961)
A contract wherein 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 it is called commodatum; or
mone, or other consumable things upon the
condition that the same amount of the same kind
and quality shall be paid, in which case it is simply
called a loan or mutuum (CC, Art. 1933).
LOAN
(ARTS. 1933-1961)
Kinds of Loan
1. Commodatum - Bailor delivers to
the bailee a non-consumable thing
so that the latter may use it for a
certain time and return the identical
thing; and
LOAN
(ARTS. 1933-1961)
Kinds of Loan
2. Simple Loan (mutuum) - lenders
deliver to the borrower money or
other consumable thing upon the
condition that the latter shall return
the same amount of the same kind
and quality.
LOAN
(ARTS. 1933-1961)
Consumables
Are those things which cannot be
used in a manner appropriate to
their nature without their being
consumed (CC, Art. 418).
MUTUUM
(ARTS. 1953-1955)
Commudatom vs Mutuum
COMMODATUM MUTUUM

As to object

Gen. Ruel: Non-consumable/Non- Consumable/fungible

fungible Corelate with Art. 418 of the Civil Code.
Exception: if the purpose of the
contract is not the consumption of the
object (CC, Art. 1936
As to Cause

Essentially gratuitous. Generally gratuitous although it may

also be onerous for there may be
stipulation of interest.
MUTUUM
(ARTS. 1953-1955)
Commudatom vs Mutuum
COMMODATUM MUTUUM

As to Purpose

Use for temporary possession. Consumption

As to Subject Matter

Any property. Personal property.

As to Ownership of the Thing

Retained by bailor. Passes to the debtor.

MUTUUM
(ARTS. 1953-1955)
Commudatom vs Mutuum
COMMODATUM MUTUUM

As to Return of the Thing

Exact thing loaned. Equal amount of the same kind and

quality.
As to return of the thing

Exact thing loaned. Equal amount of the same kind and

quality
As to Risk of Loss

Bailor. Debtor or bailee

MUTUUM
(ARTS. 1953-1955)
Commudatom vs Mutuum
COMMODATUM MUTUUM

As to Time of Return

In case of urgent need and Upon the expiration of the

commission of any acts of term only.
ingratitude, even before the
expiration of the term.
LOAN
(ARTS. 1933-1961)
Characteristics
1. Real Contract - delivery of the
thing loaned is necessary for the
perfection of the contract is to
transfer either the use or the
ownership of the thing loaned (CC,
Art. 1316).
LOAN
(ARTS. 1933-1961)
Characteristics
1. Real Contract
Note: An accepted promise to make a future
loan is a consensual contract, and therefor
binding upon the parties. However, it is only
after delivery of the subject matter will the
real contract of loan arise (CC, Art. 1934).
LOAN
(ARTS. 1933-1961)
Characteristics
2. Unilateral Contract - once the
subject matter has been delivered, it
creates obligations on the part of
only one of the parties.(i.e. borrower)
LOAN
(ARTS. 1933-1961)
Characteristics
3. Nominate Contract - it has been
given a specific name by the Civil
Code.
4. Principal Contract - its existence is
not dependent on another contract.
LOAN
(ARTS. 1933-1961)
Characteristics
5. Informal Contract - no particular
form is required for the contract.
6. Gratuitous Contract - the bailee
does not pay the bailor for the use of
the thing.