CredTrans • Commodatum, Mutuum, Interest

What is a commodatum? (Art. 1933)

One of the parties (bailor) delivers to another (bailee) something not consumable so that the latter may use the same for a certain time and return it.

Is a commodatum is essentially gratuitous?

Yes. The contract ceases to be a commodatum if any compensation (or even service) is paid by the person acquiring the use of the thing. The agreement is instead considered a contract of lease.

Rule on ownership in commodatum v. simple loan

In commodatum, the bailor retains the ownership of the thing loaned.

In simple loan, ownership passes to the borrower.

When is a simple loan/commodatum perfected? (Art. 1934)

An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract.

What rights does the bailee in commodatum have regarding the thing loaned?

The bailee in commodatum acquires the use of the thing loaned but not its fruits.

If any compensation is to be paid by the bailee, the contract ceases to be a commodatum.

Can consumable goods be subject to commodatum?

Yes, consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, such as for exhibition.

What types of property may be the object of commodatum?

Both movable and immovable property may be the object of commodatum.

Does the bailor in commodatum need to be the owner of the loaned item?

No, the bailor in commodatum need not be the owner of the thing loaned.

What is the nature of the contract of commodatum?

Commodatum is purely personal in character. Consequently, the death of either the bailor or the bailee extinguishes the contract.

Can a bailee lend or lease the object of the contract to a third person?

No, the bailee cannot lend or lease the object of the contract to a third person, although members of the bailee's household may use the thing loaned, unless stipulated otherwise.

What is the validity of a stipulation allowing the bailee to use the fruits of the thing loaned?

A stipulation that the bailee may make use of the fruits of the thing loaned is valid.

Who is liable to pay ordinary expenses in a commodatum? (Art. 1941)

The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.

Under what conditions is a bailee liable for the loss of the thing loaned? (Art. 1942)

The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been 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;
(4) If he lends or leases the thing to a third person, who is not a member of his household;
(5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter.

When is a bailee not liable for deterioration of the loaned item? (Art. 1943)

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

Right of retention under commodatum: Can a bailee retain the loaned item if the bailor owes him money? (Art. 1944)

The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it may be by reason of expenses.

However, the bailee has a right of retention for damages when 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.

What is the liability of multiple bailees under the same contract? (Art. 1945)

When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily.

What is the bailor's right regarding the return of the thing loaned? (Art. 1946)

The bailor cannot demand the return of the thing loaned until the expiration of the stipulated period or the accomplishment of the use for which the commodatum was constituted.

However, if he has an urgent need, he may demand its return or temporary use.

What happens to the contract of commodatum during temporary use by the bailor?

The contract of commodatum is suspended while the thing is in the possession of the bailor.

When can the bailor demand the return of the thing at will? (Art. 1947)

The bailor may demand the thing at will in cases where
(1) neither the duration of the contract nor the use has been stipulated, or
(2) if the use of the thing is merely tolerated by the owner.

What rights does the bailor have if the bailee commits acts of ingratitude? (Art. 1948)

The bailor may demand the immediate return of the thing if the bailee commits any act of ingratitude as specified in article 765.

(1) If the bailee should commit some offense against the person, the honor or the property of the bailor, or of his wife or children under his parental authority;

(2) If the 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;

(3) If the bailee unduly refuses the bailor support when the bailee is legally or morally bound to give support to the bailor.

Who is liable to pay extraordinary expenses in a commodatum? (Art. 1949)

The bailor shall refund extraordinary expenses during the contract for the preservation of the thing loaned, provided the bailee notifies the bailor before incurring them, unless they are urgent.

Extraordinary expenses arising from the actual use of the thing by the bailee shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary.

Is the bailee entitled to reimbursement for expenses incurred other than those specified in articles 1941 and 1949? (Art. 1950)

No, if the bailee incurs expenses for purposes other than

• ordinary expenses for the use and preservation of the thing, or
• extraordinary expenses during the contract for the preservation of the thing (provided the bailee notifies the bailor before incurring them, unless they are urgent.)

he is not entitled to reimbursement.

What is the liability of the bailor regarding known flaws in the loaned item? (Art. 1951)

The bailor who knows of the flaws in the loaned item and does not advise the bailee shall be liable for any damages suffered by the bailee.

Can the bailor exempt himself from payment of expenses or damages by abandoning the thing? (Art. 1952)

No, the bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee.

What is a barter contract?

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.

What is a simple loan or mutuum? (Art. 1933)

One of the parties (creditor/lender) delivers to another (debtor/borrower), money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid.

Simple loan may be gratuitous or with a stipulation to pay interest.

How should payment of debts in money be made? (Art. 1249)

The payment of debts in money shall be made in the currency stipulated.

If it is not possible to deliver such currency, then in the currency which is legal tender in the Philippines.

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 abeyance.

What happens to a mutuum if there is extraordinary inflation?

In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

What if the object loaned is a fungible thing other than money?

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.

How is the value of interest payable in kind appraised?

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.

What is the rule on interest on interest?

Interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest.

However, interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.

What applies if the borrower pays interest when there has been no stipulation for it? (Article 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.

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.

Assume that the Usury Law is in effect. If the monetary interest is void for being usurious, what is the debtor/borrower obliged to pay the creditor/lender if he is in delay by 1 year following extrajudicial demand?

Principal obligation + Compensatory Interest at legal rate

When an interest rate is found to be usurious, the debtor is not obliged to pay any monetary interest at all because the stipulation for that interest is considered null and void.

Under the law, a contract of loan with usurious interest is divisible, meaning the principal obligation to pay the debt remains valid and separate from the accessory stipulation to pay the interest.

Explain monetary interest in terms of basis, interest rate, and period.

BASIS
• Principal

INTEREST RATE:
1. Stipulated rate

2. Legal interest if obligation to pay interest is stipulated but the rate is not stipulated

3. No interest, if obligation to pay interest is not stipulated

PERIOD:

• Perfection of contract to date of payment

Explain compensatory interest in terms of basis, interest rate, and period.

BASIS
• Principal

INTEREST RATE:
1. Stipulated rate, if there is a CI stipulated

2. Stipulated MI rate, if no CI stipulated

3. Legal interest, if no CI or MI stipulated

PERIOD:

• Judicial demand or extrajudicial, whichever is earlier (unless no demand necessary) to date of payment

Explain interest on interest in terms of basis, interest rate, and period.

BASIS
• Monetary interest from date of perfection to date of judicial demand

INTEREST RATE:
1. Legal interest

PERIOD:

• Judicial demand to date of payment

FORMULA:

• [Principal x MI x (JD-Perf)] x LI x (Pay-JD)

What is the prevailing legal interest rate?

Prior to July 1, 2013 = 12% p.a.

From July 1, 2013, onwards: 6% p.a.