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 the thing, but this must only be incidental to the use of the thing
specific purpose with a contract, that the trust shall be faithfully executed itself (because if it is the main cause, the contract may be one of
and the property returned or duly accounted for when the special purpose usufruct).
or keep until the bailors claim it. OBLIGATIONS OF THE BORROWER:
PARTIES IN BAILMENT 1. Liability for ordinary expenses- borrower should defray the
1. BAILORS- the giver, the one who delivers the possession of thing expenses for the use and preservation of the thing loaned.
bailed. 2. Liability for loss of thing- GR: borrower is NOT liable for loss or
2. BAILEE- the recipient, the one who receives possession or custody damage due to a FORTUITOUS event. The owner bears the loss.
of the thing delivered. EXCEPT in the ff. circumstances:
a. If he devotes the thing to a purpose different from that for
LOAN which it was loaned (bad faith- breach of the tenor of the
Article 1933 obligation)
- One of the parties delivers to another, either something NOT b. Delay (longer than the period stipulated)
CONSUMABLE so that the latter may use the same for a certain c. If the thing loaned has been delivered with appraisal of its
time and return (COMMODATUM); or MONEY OR OTHER value unless rhere is stipulation exempting the bailee from
CONSUMABLE THING, upon condition that the same amount of the responsibility in case of a fortuitous event (equivalent to
the same kind and quality shall be paid (LOAN/ MUTUUM). assumption of risk)
COMMODATUM d. If he lends or leases the thing to a third person who is not a
 essentially gratuitous member of his household (breach of tenor of the obligation.)
 the bailor retains the ownership of the thing loaned e. If, being able to save the thing borrowed or his own thing, he
SIMPLE LOAN chose to save his own (ingratitude).
 gratuitous or with stipulation to pay interest 3. Liability for deterioration of the thing- the borrower in NOT
 ownership passes to the borrower. liable for the ordinary deterioration or wear and tear of the thing
LOANS DISTINGUISHED FROM CREDIT 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
COMMODATUM V. MUTUUM 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
FORM OF LOAN liability is SOLIDARY.
 No formal requisites for the validity of a contract of loan except if OBLIGATIONS OF THE LENDER:
there is a stipulation for the payment of interest which must be in 1. Obligation to respect the duration of the loan
writing.  However, he may demand its return or temporary use if he should
A. COMMODATUM have urgent need of the thing.
ART. 1935 The bailee acquires the USE of the thing loaned but not 2. Precarium- a kind of commodatum where the lender may demand
its FRUITS; if any compensation is to be paid by him who the thing at will. It exists in the ff. cases:
acquires the use, the contract ceases to be commodatum. A. if there is no stipulation as to the duration of the contract or to
KINDS OF COMMODATUM the use to which the thing loaned should be devoted.
1. ORDINARY – there is period agreed upon for the return of the B. If the use of the thing is merely tolerated by the lender.
thing loaned. 3. Right to demand return of thing for acts of ingratitude- if the
2. PRECARIUM – the bailor may demand the thing loaned at will. borrower commits any act enumerated in Art. 765 of the CC, the
NATURE OF COMMODATUM: lender may demand the immediate return of the thing from the
1. Bailee requires the use of the thing but not its fruits, unless there borrower.
is a stipulation the contrary. 4. Obligation to refund extraordinary expenses for the preservation
2. Essentially gratuitous of the thing –
3. Purpose of the contract is the temporary use of the thing for a A. Extraordinary expenses for the preservation of the
certain time thing- should refund extraordinary expenses for the
(if bailee not entitled to use the thing, it is not commodatum but deposit) preservation of the thing, provided that the borrower
4. Subject matter is generally non-consumable real or personal informs that the lender before incurring the expense,
property, though consumable goods may also be the subject of unless the need is so urgent that the lender cannot be
commodatum if the purpose is not the consumption of the object. notified without danger.
5. Lender need not be the owner of the thing loaned. It is enough B. Extraordinary expenses arising from actual use of
that he has possessory interest in the thing or right to use it which the thing- shall be borne by the lender and borrower on
he may assert against the bailee and third persons though not a 50-50 basis, unless there is a contrary stipulation.
against the rightful owner. 5. All other expenses are for the account of the borrower
6. Purely personal in character. The consequences of this are the 6. Liability for the damages for known hidden flaws
following: Requisites: (F-HADO)
a. Death of either party extinguishes the contract unless there is a. There is a flaw or defect in the thing loaned.
a contrary stipulation for the commodatum to subsist until b. The flaw or defect is hidden.
the purpose is accomplished. c. The lender is aware of the flaw.
b. The borrower cannot lend or lease the thing to a third d. The lender does not advise the borrower of the flaw
person. However, members of the borrower’s household e. The borrower suffers damages by reason of the flaw or
may make use of the thing loaned except: defect.
i. If there is a stipulation to the contrary; or
ii. If the nature of the thing forbids it. B. SIMPLE LOAN/ MUTUUM
  A contract whereby one of the parties delivers to another 2. Interest accruing from unpaid interest- interest due shall earn
money or other consumable thing with the understanding interest from the time it is judicially demanded although the
that the same amount of the same kind and quality shall be obligation may be silent on this point. (Art. 2212)
 If the interest is payable in kind: its value shall be appraised at the
paid.
current price of the products or goods at the time and place of
 Involves payment of the equivalent and not the identical payment.
thing because the borrower acquires ownership of the thing GENERAL RULE: Accrued interest shall not earn interest
loaned. EXCEPTIONS:
 Term “return” is not used since the distinguishing character of 1. when judicially demandable. (Art.2212)
the simple loan from commodatum is the consumption of the 2. Express stipulation- also called compounding interest where the
thing. parties agree that accrued interest shall be added to the principal
FUNGIBLE AND CONSUMABLE THINGS and the resulting total amount shall earn interest, A stipulation as
Fungible Thing to compounding interest must be in writing.
 Those which are usually dealt with by number, weight
Question: What if the borrower pays interest when there is no stipulation
or measure, so that any given unit or portion is providing for it?
treated as the equivalent of any other unit or portion.
 Those which may be replaced by a thing of equal Answer: The debtor pays unstipulated interest by mistake, he may recover,
quality and quality. (rice, oil,sugar) since this is a case of solution indebiti or undue payment.
 If it cannot be replaced with an equivalent thing, then
it is not fungible. DEPOSIT
Consumable things Article 1962:
 Those which cannot be used without being consumed.  A deposit is constituted from the moment a person receives
Note: a thing belonging to another, with the obligation of safely
Whether a thing is consumable or not depends upon its keeping it and of returning the same.
nature.  If the safekeeping of the thing delivered is not the principal
Whether a thing is fungible or not depends on the intention purpose of the contract, there is no deposit but some other
of the parties. contract.
PRINCIPAL PURPOSE OF THE CONTRACT OF DEPOSIT
FORMS OF PAYMENT  The safekeeping of the thing delivered
1. If the object is MONEY  If safekeeping is merely an accessory and secondary
 Must be made in currency stipulated: otherwise it is obligation, it is not deposit, but another contract such as
payable in the currency which is legal tender in the commodatum, lease or agency..
Philippines. SUBJECT MATTER OF DEPOSIT
2. If the object is a fungible thing other than money  Only movables
 Must pay the lender another thing of the same kind, Deposit vs Commodatum vs Mutuum
quality and quantity.
 In case impossible; borrower shall pay its value at the
time of the perfection of the loan. KINDS OF DEPOSIT
INTEREST 1. JUDICIAL- takes place when an attachment or seizure of
Requisites for Recovery of Interest : property in litigation is ordered.
1. The payment of interest must be expressly stipulated. 2. EXTRAJUDICIAL
2. In writing A. VOLUNTARY- delivery is made by the will of the
3. Must be lawful depositor or by two or more persons each of whom
STIPULATION OF INTEREST believes himself entitled to the thing deposited; or
1. The interest rate stipulated by the parties, not the legal rate of B. NECESSARY- made in compliance with a legal
interest , is applicable. obligation, or on the occasion of any calamity or by
2. Default rule: if the parties do not stipulate an interest rate, the travelers in hotels and inns or by travelers with
legal rate for loans and forbearances of money is 12% (now 6%)
common carriers.
3. Increases in interest must also be expressly stipulated.
VOLUNTARY DEPOSIT (Article 1968)
4. It is only in contracts of loan, with or without security, that
interest may be stipulated and demanded.  Is that wherein the delivery is made by the will of the
5. Stipulation of interest must be mutually agreed upon by the depositor.
parties and may not be unilaterally increased by only one of the  May also be made by two or mire persons each of whom
parties. believes himself entitled to the thing deposited with a third
WHEN THE BORROWER IS LIABLE FOR INTEREST EVEN WITHOUT A person, who shall deliver it in a proper case to the on to
STIPULATION: whom it belongs.
1. Indemnify for damages- the debtor in delay is liable to pay legal WHEN DEPOSITOR IS INCAPACITATED:
interest as indemnity for damages even without stipulation for the
Art. 1970. If a person having capacity to contract accepts a deposit
payment of interest.
Where to base the rate of damages:
made by one who is incapacitated, the former shall be subject to all
a. Rate in the penalty clause agreed upon by parties. the obligations of the depositary and may be compelled to return
b. If there is no penalty clause, additional interest based on the the thing by the guardian or administrator or the person who
regular interest rate of the loan. made the deposit or by the latter himself if he should acquire
c. If there is no regular interest, additional is equivalent to the legal capacity.
interest rate (12%).
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: