LOAN (Arts.

1933 – 1961) Commodatum and mutuum (simple loan)

distinguished
General Provisions
It is relatively simple to determine whether a
Article 1933. By the contract of loan, one of
given loan is commodatum or mutuum by
the parties delivers to another, either
bearing in mind the following principal points
something not consumable so that the latter
of distinction:
may use the same for a certain time and
return it, in which case the contract is called (1) Commodatum ordinarily involves
a commodatum; or money or other something not consumable (see Art. 1936.),
consumable thing, upon the condition that while in mutuum, the subject matter is
the same amount of the same kind and money or other consumable thing;
quality shall be paid, in which case the
(2) In commodatum, ownership of the thing
contract is simply called a loan or mutuum.
loaned is retained by the lender (Art. 1933.),
Commodatum is essentially gratuitous. while in mutuum, the ownership is
transferred to the borrower;
Simple loan may be gratuitous or with a
stipulation to pay interest. (3) Commodatum is essentially gratuitous
(ibid.), while mutuum may be gratuitous or it
In commodatum the bailor retains the
may be onerous, that is, with stipulation to
ownerships of the thing loaned, while in
pay interest;
simple loan, ownership passes to the
borrower. (1740a) (4) In commodatum, the borrower must
return the same thing loaned (ibid.), while in
mutuum, the borrower need only pay the
Characteristics of the contract same amount of the same kind and quality;
The contract of loan is: (5) Commodatum may involve real or
(1) a real contract because the delivery of personal property (Art. 1937.), while
the thing loaned is necessary for the mutuum refers only to personal property;
perfection of the contract; and (6) Commodatum is a loan for use or
(2) a unilateral contract because once the temporary possession (Art. 1935.), while
subject matter has been delivered, it creates mutuum is a loan for consumption;
obligations on the part of only one of the (7) In commodatum, the bailor may demand
parties, i.e., the borrower. the return of the thing loaned before the
Cause or consideration in a contract of expiration of the term in case of urgent need
loan (Art. 1946), while in mutuum, the lender
may not demand its return before the lapse
In a contract of loan, the cause is: of the term agreed upon; and
(1) borrower - the acquisition of the thing; (8) In commodatum, the loss of the subject
and matter is suffered by the bailor since he is
the owner (Art. 1942; Art. 1174.), while in
(2) lender - the right to demand its return or
mutuum, the borrower suffers the loss even
its equivalent.
if caused exclusively by a fortuitous event
and he is not, therefore, discharged from his
duty to pay. It may also be said that while
commodatum is purely personal in
character (see Art. 1939.), mutuum is not The purpose of the contract of
so. commodatum must be the temporary use of
the thing loaned. If the bailee is not entitled
Kinds of commodatum
to the use of the thing, the contract may be
Commodatum is divided into: a deposit (see Art. 1962.) not a
commodatum. It is an essential feature of
(1) ordinary commodatum the contract of commodatum that the use of
(2) precarium. — one whereby the the property of another shall be “for a
bailor may demand the thing loaned certain time.” (Art. 1933, par. 2.)
at will.
ART. 1936. Consumable goods may be
Article 1934. An accepted promise to the subject of commodatum if the purpose
deliver something by way of commodatum of the contract is not the consumption of the
or simple loan is binding upon the parties, object, as when it is merely for exhibition.
but the commodatum or simple loan itself (n)
shall not be perfected until the delivery of
the object of the contract. (n) ART. 1937. Movable or immovable
property may be the object of
Delivery essential to perfection of loan. commodatum.
ART. 1938. The bailor in commodatum need
CHAPTER 1 – COMMODATUM not be the owner of the thing loaned.

SECTION 1. Nature of Commodatum Bailor need not be owner.

ART. 1935. The bailee in commodatum In commodatum, the bailor need not be the
acquires the use of the thing loaned but not owner of the thing loaned since by the loan,
its fruits; if any compensation is to be paid ownership does not pass to the borrower.
by him who acquires the use, the contract Hence, a mere lessee of the thing (see Arts.
ceases to be a commodatum. 1643, 1650.) or the usufructuary (one
Commodatum is essentially gratuitous. entitled to the use and the fruits of property
Hence, the contract ceases to be a belonging to another, see Art. 562.) may
commodatum if any compensation is to be lend but the borrower or bailee himself
paid by the borrower who acquires the use. may not lend nor lease the thing loaned
In such a case, there arises a lease to him to a third person.
contract. It is sufficient if the bailor has such
If the consideration is the rendering of some possessory interest in the subject matter or
service, an innominate contract will result. right to its use which he may assert against
the bailee and the third persons although
Extent of bailee’s right of use not against the rightful owner. Thus, a
lessee may sublet the thing leased, when
The right to use is limited to the thing loaned
there is no express prohibition in the
but not to its fruits unless there is a
contract of lease. (Art. 1650.) If the lessee,
stipulation to the contrary. (Art. 1940.) As
by a contract of sublease, may transfer to
owner of the thing loaned (Art. 1933, last
another the enjoyment of the thing leased
par.), the bailor is naturally entitled to its
for a consideration, there is no reason why
fruits.
he should be unable to cede gratuitously its
Purpose of the contract use by way of commodatum.
 As a rule, the borrower must take good care
of the thing with the diligence of a good
father of a family. (Art. 1163.) Thus, if B
ART. 1939. Commodatum is purely borrows the car of L, the former must pay
personal in character. Consequently: for the gasoline, motor oil, washing,
greasing and spraying, etc. B cannot
(1) The death of either the bailor or the demand reimbursement for the expenses.
bailee extinguishes the contract;
ART. 1942. The bailee is liable for the loss
(2) The bailee can neither lend nor lease of the thing, even if it should be through a
the object of the contract to a third fortuitous event:
person. However, the members of the
bailee’s household may make use of the (1) If he devotes the thing to any purpose
thing loaned, unless there is a stipulation to different from that for which it has been
the contrary, or unless the nature of the loaned;
thing forbids such use.
(2) If he keeps it longer than the period
ART. 1940. A stipulation that the bailee may stipulated, or after the accomplishment of
make use of the fruits of the thing loaned is the use for which the commodatum has
valid. been constituted;

The bailee is entitled only to the use of the (3) If the thing loaned has been delivered
thing loaned and not to its fruits. The right to with appraisal of its value, unless there is
use a thing is distinct from the right to enjoy a stipulation exempting the bailee from
the fruits since, as a rule, the fruits pertain responsibility in case of a fortuitous event;
to the owner of the thing producing the
(4) If he lends or leases the thing to a
fruits. (see Art. 441.) Thus, where an animal
third person, who is not a member of his
is the thing loaned, its young subsequently
household;
born is not included in the contract.
However, the parties may stipulate that (5) If, being able to save either the thing
the bailee may also make use of the borrowed or his own thing, he chose to
fruits of the thing. Such stipulation save the latter.
cannot be presumed.
Generally, the bailee is not liable for loss or
damage due to a fortuitous event. (see Art.
1174.) The reason is that the bailor retains
SECTION 2. Obligations of the Bailee
the ownership of the thing loaned.
ART. 1941. The bailee is obliged to pay for
Article 1942 specifies the instances when
the ordinary expenses for the use and
the bailee is liable even for a loss due to a
preservation of the thing loaned. (1743a)
fortuitous event. It would seem that the
Liability for ordinary expenses. purpose of the law is to punish the bailee for
his improper acts although they may not be
It is logical that the borrower should defray the proximate cause of the loss.
the expenses for the use and preservation
of the thing loaned for after all, he acquires ART. 1943. The bailee does not answer
the use of the same, and he is supposed to for the deterioration of the thing loaned
return the identical thing. (Art. 1933.) due only to the use thereof and without his
fault.
The parties to the contract know that the The reason is that the bailor is bound by the
thing borrowed cannot be used without terms of the contract of commodatum which
deterioration due to ordinary wear and is “for a certain time.” (see Arts. 1933,
tear. Hence, in the absence of agreement to 1935.)
the contrary, the depreciation caused by the
However, if he should have an urgent need
reasonable and natural use of the thing is
of the thing (e.g., he needs the car loaned
borne by the bailor.
by him to bring a sick member of his
Exception: household to a hospital) or if the borrower
commits an act of ingratitude (Art. 1948.),
The bailee is liable if he is guilty of fault or
he may demand its return or temporary use.
negligence (see Art. 1170.) or if he devotes
This right of the bailor is based on the fact
the thing to any purpose different from that
that commodatum is essentially gratuitous.
for which it has been loaned.
Under this article, the return may be only
ART. 1944. The bailee cannot retain the
temporary or it may be permanent because
thing loaned on the ground that the bailor
the law uses “its return” (meaning
owes him something, even though it may be
permanent) or “temporary use.” In case of
by reason of expenses. However, the bailee
temporary use of the thing by the bailor, the
has a right of retention for damages
rights and duties of the parties are likewise
mentioned in Article 1951.
temporarily suspended.
ART. 1945. When there are two or more
bailees to whom a thing is loaned in the
same contract, they are liable solidarily. ART. 1947. The bailor may demand the
thing at will, and the contractual relation is
called a precarium, in the following cases:
SECTION 3. Obligations of Bailor
(1) If neither the duration of the contract nor
ART. 1946. The bailor cannot demand the the use to which the thing loaned should be
return of the thing loaned till after the devoted, has been stipulated; or
expiration of the period stipulated, or
(2) If the use of the thing is merely tolerated
after the accomplishment of the use for
by the owner.
which the commodatum has been
constituted. However, if in the meantime, he Precarium defined.
should have urgent need of the thing, he
Precarium is a kind of commodatum where
may demand its return or temporary use.
the bailor may demand the thing at will.
In case of temporary use by the bailor, the
It has been defined as a “contract by which
contract of commodatum is suspended
the owner of a thing, at the request of
while the thing is in the possession of the
another person, gives the latter the thing for
bailor.
use as long as the owner shall please.”
Obligation to respect duration of loan.
ART. 1948. The bailor may demand the
The primary obligation of the bailor is to immediate return of the thing if the bailee
allow the bailee the use of the thing loaned commits any acts of ingratitude specified
for the duration of the period stipulated or in Article 765.
until the accomplishment of the purpose for
which the commodatum was constituted.
Based on Article 765 of the Civil Code, any (1) There is flaw or defect in the thing
of the following constitutes act of loaned; (2) The flaw or defect is hidden;
ingratitude: (3) The bailor is aware thereof;
(4) He does not advise the bailee of the
(1) If the bailee should commit some
same; and
offenses against the person, the honor or
(5) The bailee suffers damages by reason of
the property of the bailor, or of his wife or
said flaw or defect. The bailor is made liable
children under his parental authority;
for his bad faith. The bailee is given the right
(2) If the bailee imputes to the bailor any of retention until he is paid damages.
criminal offense, or any act involving moral
turpitude, even though he should prove it,
EXAMPLE: If L lends to B his car without
unless the crime or the act has been
informing the latter that its brake is not
committed against the bailee himself, his
working properly, L will be liable in case B is
wife or children under his authority; and
injured by reason thereof. The liability
(3) If the bailee unduly refuses the bailor imposed by law is a just sanction for the bad
support when the bailee is legally or faith committed by L. Of course, if the defect
morally bound to give support to the bailor. is patent or could have been known to B
after inspection or L was not aware of the
ART. 1949. The bailor shall refund the defect, L is not liable. (see Art. 1944.)
extraordinary expenses during the
contract for the preservation of the thing In the first case, it is presumed that B will
loaned, provided the bailee brings the same adopt the necessary precautions or is willing
to the knowledge of the bailor before to take the risk incident to the use of the car.
incurring them, except when they are so
In the second case, L is not liable for the
urgent that the reply to the notification
reason that commodatum is gratuitous.
cannot be awaited without danger.
Where flaw unknown to bailor.
If the extraordinary expenses arise on the
occasion of the actual use of the thing by Where the defect is not known to the bailor,
the bailee, even though he acted without he is not liable because commodatum is
fault, they shall be borne equally by both the gratuitous.
bailor and the bailee, unless there is a
ART. 1952. The bailor cannot exempt
stipulation to the contrary.
himself from the payment of expenses or
ART. 1950. If, for the purpose of making use damages by abandoning the thing to the
of the thing, the bailee incurs expenses bailee.
other than those referred to in Articles 1941
and 1949, he is not entitled to
reimbursement.
ART. 1951. 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.
Requisites:
CHAPTER 2 – SIMPLE LOAN OR thing in consideration of the other’s promise
MUTUUM to give another thing. (Art. 1638.)
ART. 1953. A person who receives a loan (1) The distinction between mutuum
of money or any other fungible thing and barter lies in the subject
acquires the ownership thereof, and is matter.
bound to pay to the creditor an equal
In the former, it is money or any other
amount of the same kind and quality.
fungible things; in the latter, non-fungible
Simple loan or mutuum is a contract (non-consumable) things.
whereby one of the parties delivers to
(2) In commodatum, the bailee is
another money or other consumable thing
bound to return the identical thing
with the understanding that the same
borrowed when the time has expired
amount of the same kind and quality shall
or the purpose has been served.
be paid. (Art. 1933.)
It involves the return of the equivalent In barter, the equivalent thing is
only and not the identical thing because given in return for what has been
the borrower acquires ownership thereof. received.
(see Art. 1978.) A loan of money, however,
(3) Mutuum may be gratuitous and
may be payable in kind.
commodatum is always gratuitous. (Art.
The obligation of the borrower is to pay, not 1933, pars. 2, 3.) Barter, on the other
return. hand, is an onerous contract. It is really
a mutual sale.
No criminal liability for failure to pay.
In simple loan or mutuum, as contrasted to
commodatum, the borrower acquires ART. 1955. The obligation of a person who
ownership of the money, goods, or personal borrows money shall be governed by the
property borrrowed. provisions of Articles 1249 and 1250 of this
Code.
Being the owner, the borrower can dispose
of the thing borrowed and his act will not be If what was loaned is a fungible thing other
considered misappropriation thereof. than money, the debtor owes another thing
of the same kind, quantity and quality, even
No estafa is committed by a person who
if it should change in value.
refuses to pay his debt or denies its
existence. In case it is impossible to deliver the same
kind, its value at the time of the perfection of
ART. 1954. A contract whereby one person
the loan shall be paid.
transfers the ownership of non-fungible
things to another with the obligation on the (1) Loan of money. — If the thing
part of the latter to give things of the same loaned is money, payment must be
kind, quantity, and quality shall be made in the currency stipulated, if it
considered a barter is possible to deliver such currency;
otherwise, it is payable in the
Mutuum and commodatum distinguished
currency which is legal tender in the
from barter.
Philippines (Art. 1249.3) and in case
By the contract of barter or exchange, of extraordinary inflation or
one of the parties binds himself to give one deflation, the basis of payment shall
 be the value of the currency at the P800.00 instead, the value of the
time of the creation of the obligation. rice at the time of the perfection of
(Art. 1250.4) the loan.

Presently, all notes and coins issued ART. 1956. No interest shall be
by the Bangko Sentral ng Pilipinas due unless it has been expressly
are legal tender in the Philippines for stipulated in writing.
all debts, both public or private. A
check is not a legal tender and, Requisites for recovery of interest.
therefore, cannot constitute valid (1) The payment of interest must be
tender of payment. expressly stipulated;
(2) The agreement must be in
EXAMPLE: D borrowed from C writing;
P5,000.00 payable after five years. (3) The interest must be lawful
On the maturity of the obligation, the
value of P5,000.00 dropped to ART. 1957. Contracts and
P2,500 because of inflation. In this stipulations, under any cloak or
case, the basis of payment shall be device whatever, intended to
the equivalent value of the currency circumvent the laws against usury
today five years ago. Hence, D is shall be void. The borrower may
liable to pay C P10,000.00 unless recover in accordance with the laws
there is an agreement to the on usury.
contrary.
ART. 1958. In the determination of
(2) Loan of fungible thing. — If what the interest, if it is payable in kind, its
was loaned is a fungible thing other value shall be appraised at the
than money, the borrower is under current price of the products or
obligation to pay the lender another goods at the time and place of
thing of the same kind, quality, and payment.
quantity. In case it is impossible to
do so, the borrower shall pay its EXAMPLE: B borrowed P1,000.00
value at the time of the perfection of from L payable in palay in one (1)
the loan. year which shall be appraised at the
current market price at the time and
EXAMPLE: D borrowed from C two place of payment. When the contract
sacks of rice of a certain kind and was entered into, the price per
quality. At the time the loan was cavan of palay was P500.00. On the
perfected, the price of each sack due date of the loan, the price
was P400.00. D should return to C increased to P600.00. In this case,
two sacks of rice of the same kind the value of the palay shall be
and quality although at the time of appraised at P600.00 per cavan.
payment, the price had increased to
P500.00. If on the due date of the ART. 1959. Without prejudice to the
obligation, the same kind of rice provisions of Article 2212, interest
could not be delivered by D because due and unpaid shall not earn
it was not available for some reason, interest. However, the contracting
then D should pay C the sum of parties may by stipulation capitalize
the interest due and unpaid, which
as added principal, shall earn new ART. 1961. Usurious contracts shall
interest. (n) When unpaid interest be governed by the Usury Law and
earns interest. other special laws, so far as they are
not inconsistent with this Code.
As a general rule, accrued interest
(interest due and unpaid) shall not
earn interest except in two
instances:

(1) When judicially demanded as

provided for in Article 2212 (supra.);
and
(2) When there is an express
stipulation made by the parties to
wit: that the interest due an unpaid
shall be added to the principal
obligation and the resulting total
amount shall earn interest. This
practice is called compounding
interest and it is allowed by the
Usury Law if there is express
stipulation.

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.

Recovery of unstipulated interest

paid.

This article simply means that if

unstipulated interest (it is, therefore,
not due) is paid by mistake, the
debtor may recover as this would be
a case of solutio indebiti or undue
payment. (Art. 2154.9) But where
the unstipulated interest, or interest
stipulated, there being a stipulation
but it is not in writing, is paid
voluntarily because the debtor feels
morally obliged to do so, there can
be no recovery as in the case of
natural obligations.