Notes on Credit Transactions Article 1934 - An accepted promise to deliver

something by way of commodatum or simple loan is

LOAN binding upon the parties, but the commodatum or
1. GENERAL PROVISIONS simple loan itself shall not be perfected until the
a) Article 1933-1934 delivery of the object of the contract.
Article 1933 - By the contract of loan, one of
the parties delivers to another, either something not  Nature of the contract of loan
consummable so that the latter may use the same Commodatum and loan are real contract. They are
for a certain time and return it, in which case the perfected by the delivery of the object loaned. On
contract is called a commodatum; or money or the other hand, consensual contracts are perfected
other consumable thing, upon the condition that the by mere consent.
same amount of the same kind and quality shall be
paid, in which case the contract is simply called a  Need for delivery
loan or mutuum. To affect either a commodatum or a mutuum, a
delivery either real or constructive, is essential. This
Commodatom is essentially gratuitous. is so because unless there is delivery, the borrower
in commodatum cannot exercise due diligence over
Simple loan may be gratuitous or with a the thing loaned.
stipulation to pay interest.
 In relation to: Art. 1740 of the Civil Code
In commodatum the bailor retains the If the common carrier negligently incurs in delay in
ownership of the thing loaned, while in simple loan, transporting the goods, a natural disaster shall not
ownership passes to the borrower. free such carrier from responsibility.

 Two Kinds of Loan CATHOLIC VICAR APOSTOLIC OF THE

a. mutuum or simple loan, and MOUNTAIN PROVINCE VS. CA
b. commodatum. G.R. NO. 80294-95, SEPTEMBER 21, 1988

Distinction between mutuum and commodatum FACTS: Catholic Vicar Apostolic of the Mountain
Mutuum Commodatum Province (VICAR for brevity) filed an application
a) Equivalent amount to a) Same thing to be for registration of title over Lots 1, 2, 3, and 4, said
be returned (fungible returned (non- fungible Lots being the sites of the Catholic Church building,
things) things) convents, high school building, school gymnasium,
b) May be gratuitous or b) Essentially gratuitous school dormitories, social hall, stonewalls, etc. The
onerous (with interest) c) Ownership retained Heirs of Juan Valdez and the Heirs of Egmidio
c) Ownership goes to by lender or bailor Octaviano filed their Answer/Opposition on Lots
borrower or bailee d) May involve real or Nos. 2 and 3, respectively, asserting ownership and
d) Refers to personal personal property title thereto since their predecessors’ house was
property only e) Referred to as loan for borrowed by petitioner Vicar after the church and
e) Referred to as loan for use or the convent were destroyed. After trial on the
consumption temporary possession merits, the land registration court promulgated its
f) Borrower bears risks f) Resperit domino. Decision confirming the registrable title of VICAR
of loss Lender bears the risk of to Lots 1, 2, 3, and 4. The Heirs of Juan Valdez
g) To be paid only at the loss appealed the decision of the land registration court
end of period g) To return object at to the then Court of Appeals. The Court of Appeals
h) Not personal in end of period or return reversed the decision. Thereupon, the VICAR filed
character upon demand in proper with the Supreme Court a petition for review on
cases even before the certiorari of the decision of the Court of Appeals
end of the period dismissing his application for registration of Lots 2
h) Personal in character and 3.
ISSUE: Whether or not the failure to return the
subject matter of commodatum constitutes an Another loan was again extended (P1,000,000.00)
adverse possession. covered by four promissory notes for P250,000.00
each, but went unsettled prompting the bank to
HELD: No, The bailees’ failure to return the apply for an extrajudicial foreclosure with the
subject matter of commodatum to the bailor did not Sheriff.
mean adverse possession on the part of the
borrower. The bailee held in trust the property ISSUE: Whether it would be valid and effective to
subject matter of commodatum. The adverse claim have a clause in a chattel mortgage that purports to
of petitioner came only in 1951 when it declared the likewise extend its coverage to obligations yet to be
lots for taxation purposes. The action of petitioner contracted or incurred?
Vicar by such adverse claim could not ripen into
title by way of ordinary acquisitive prescription HELD: No. While a pledge, real estate mortgage,
because of the absence of just title. The Court of or antichresis may exceptionally secure after-
Appeals found that the predecessors-in-interest and incurred obligations so long as these future debts
private respondents were possessors under claim of are accurately described, a chattel mortgage,
ownership in good faith from 1906; that petitioner however, can only cover obligations existing at the
Vicar was only a bailee in commodatum; and that time the mortgage is constituted. Although a
the adverse claim and repudiation of trust came only promise expressed in a chattel mortgage to include
in 1951. debts that are yet to be contracted can be a binding
commitment that can be compelled upon, the
Acme Shoe Rubber vs. CA, 260 SCRA 714 security itself, however, does not come into
FACTS: Petitioner Chua Pac, the president and existence or arise until after a chattel mortgage
general manager of co-petitioner Acme executed a agreement covering the newly contracted debt is
chattel mortgage in favor of private respondent executed either by concluding a fresh chattel
Producers Bank as a security for a loan of mortgage or by amending the old contract
P3,000,000. A provision in the chattel mortgage conformably with the form prescribed by the
agreement was to this effect: Chattel Mortgage Law. Refusal on the part of the
borrower to execute the agreement so as to cover
"In case the MORTGAGOR executes subsequent the after-incurred obligation can constitute an act of
promissory note or notes either as a renewal of the default on the part of the borrower of the financing
former note, as an extension thereof, or as a new agreement whereon the promise is written but, of
loan, or is given any other kind of accommodations course, the remedy of foreclosure can only cover
such as overdrafts, letters of credit, acceptances and the debts extant at the time of constitution and
bills of exchange, releases of import shipments on during the life of the chattel mortgage sought to be
Trust Receipts, etc., this mortgage shall also stand foreclosed.
as security for the payment of the said promissory
note or notes and/or accommodations without the Navoa vs. C.A., GR No 59255 , 20 December 1995
necessity of executing a new contract and this FACTS: On December 1977 Teresita and Eduardo
mortgage shall have the same force and effect as if Domdoma filed a case with the RTC for collection
the said promissory note or notes and/or of various sums of money based on loans given by
accommodations were existing on the date thereof. them to Olivia Navoa. The case was dismissed on
This mortgage shall also stand as security for said the ground that there was no cause of action and
obligations and any and all other obligations of the that the Domdoma’s have no capacity to sue. They
MORTGAGOR to the MORTGAGEE of whatever appealed to the C.A. and was granted a favourable
kind and nature, whether such obligations have been decision.
contracted before, during or after the constitution of
this mortgage." There were 6 instances in which the Domdoma’s
gave Olivia Navoa a loan. The first instance is when
In due time, the loan of P3,000,000.00 was paid. Teresita gave Olivia a diamond ring valued at
Subsequently it obtained additional loan totalling 15,000.00 which was secured by a PCIB check
P2,700,000.00 which was also duly paid. under the condition that if the ring was not returned
within 15 days from August 15, 1977 the ring is When ALS and Litonjua failed to pay, BPIIC,
considered sold. Teresita attempted to deposit the successor to Ayala Investment, filed for foreclosure
check on November 1977 but the check was not of mortgage.
honoured for lack of funds. After this instance, there
were other loans of various amounts that were ISSUE: Whether a contract of loan is a consensual
extended by Teresita to Olivia, loans which were contract
secured by PCIB checks, which were all dated to 1
month after the loan. All these checks were not HELD: A loan contract is not a consensual contract
honoured under the same reason as the first loan. but a real contract. It is perfected upon delivery of
the object of the contract. Although a perfected
ISSUE: Was the decision of the RTC to dismiss the consensual contract can give rise to an action for
case due to having no cause of action valid? damages, it does not constitute a real contract which
requires delivery for perfection. A perfected real
HELD: NO. The Petition is Denied. A cause of contract gives rise only to obligations on the part of
action is the fact or combination of facts which the borrower.
affords a party a right to judicial interference in his
behalf. All the loans granted to petitioners are In the present case, the loan contract was only
secured by corresponding checks dated a month perfected on the date of the second release of the
after each loan was obtained. In this regard, the loan.
term security is defined as a means of ensuring the
enforcement of an obligation or of protecting some A contract of loan involves a reciprocal obligation,
interest in property. wherein the obligation or promise of each party is
the consideration for that of the other. It is a basic
It may be personal, as when an individual becomes principle in reciprocal obligations that neither party
a surety or a guarantor; or a property security, as incurs in delay, if the other does not comply or is
when a mortgage, pledge, charge, lien, or other not ready to comply in a proper manner with what is
device is used to have property held, out of which incumbent upon him. Only when a party has
the person to be made secure can be compensated performed his part of the contract can he demand
for loss. Security is something to answer for as a that the other party also fulfills his own obligation
promissory note. That is why a secured creditor is and if the latter fails, default sets in.
one who holds a security from his debtor for
payment of a debt. From the allegations in the The payment of amortization should accrue from
complaint there is no other fair inference than that the time BPIIC released the loan amount to ALS
the loans were payable one month after they were and Litonjua because it was only at that time (the
contracted and the checks issued by petitioners were delivery of the amount -- the object of the contract)
drawn to answer for their debts to private that the loan contract was perfected.
respondents.
SAURA IMPORT and EXPERT CO., INC., vs
BPI Investment corporation vs. CA, GR 133632, DBP, G.R. No. L-24968, April 27, 1972
February 15, 2002 FACTS: The application of Saura, Inc. for a loan of
FACTS: Frank Roa obtained a loan at 16 1/4% P500,000 was approved by resolution of the
interest rate per annum from Ayala Investment and defendant, and the corresponding mortgage was
Development Corporation. For security, Roa's executed namely –that the proceeds of the loan shall
house and lot were mortgaged. Later, Roa sold the be utilized exclusively for the following purposes:
house and lot to ALS and Antonio Litonjua, who for construction of factory building -P250,000; for
assumed Roa's debt to Ayala Investment. Ayala payment of balance of purchase price of machinery
Investment, however, granted a new loan to be and equipment -P240,900; for working capital
applied to Roa's debt, secured by the same property -P9,100.”
at a different interest rate of 20% per annum.
Evidently, Saura, Inc. realized that it could not meet
the conditions required by RFC. It requested RFC to
cancel the mortgage and so, on June 17, 1955, RFC
executed the corresponding deed of cancellation and absence of a principal obligation, there is want of
delivered it to Ramon F Saura itself as president of consideration in the accessory contract, which
Saura, Inc. Petitioner executed an action for consequently impairs its validity and fatally affects
damages. its very existence.

ISSUE: Whether or not there was a perfected ISSUE: Was there a perfected contract of loan?
contract between the parties.
HELD: Yes. From the recitals of the mortgage deed
Held: Yes, there was indeed a perfected consensual itself, it is clearly seen that the mortgage deed was
contract, as recognized in Article 1934 of the Civil executed for and on condition of the loan granted to
Code. There was undoubtedly offer and acceptance the Lozano spouses. The fact that the latter did not
in this case: the application of Saura, Inc. for a loan collect from the respondent Bank the consideration
of P500,000.00 was approved by resolution of the of the mortgage on the date it was executed is
defendant, and the corresponding mortgage was immaterial. A contract of loan being a consensual
executed and registered. But this fact alone falls contract, the herein contract of loan was perfected at
short of resolving the second issue and the basic the same time the contract of mortgage was
claim that the defendant failed to fulfill its executed. The promissory note executed on
obligation and the plaintiff is therefore entitled to December 12, 1966 is only an evidence of
recover damages. The action thus taken by both indebtedness and does not indicate lack of
parties—Saura's request for cancellation and RFC's consideration of the mortgage at the time of its
subsequent approval of such cancellation—was in execution.
the nature of mutual desistance — what Manresa
terms "mutuo disenso"— which is a mode of Central Bank vs CA, G.R. No. L-45710, October 3,
extinguishing obligations. It is a concept derived 1985
from the principle that since mutual agreement can FACTS: Sulpicio Tolentino took a loan of P80,000
create a contract, mutual disagreement by the from Island Savings Bank (ISB) and mortgaged his
parties can cause its extinguishment. In view of property for the amount loaned. ISB was able to
such extinguishment, said perfected consensual deliver P17,000 of the P80,000 loan before it was
contract to deliver did not constitute a real contract declared insolvent by the Central Bank and
of loan. prohibiting it to further issue new loans and
investments. Tolentino likewise issued a promissory
Bonnevie v. CA, GR No. L-49101 October 24, note for the P17,000 with a 12% interest. When
1983 Tolentino failed to pay his mortgage, ISB filed for a
FACTS: Spouses Lozano mortgaged their property foreclosure of the mortgaged property of Tolentino.
to secure the payment of a loan amounting to 75K Both parties were in default since ISB only
with private respondent Philippine Bank of provided P17,000 and Tolentino never paid the
Communication (PBCom). The deed of mortgage P17,000 promissory note. The SC held that only
was executed on 12-6-66, but the loan proceeeds 21.25 hectares of Tolentino’s land can be foreclosed
were received only on 12-12-66. Two days after the and not the totality of 100 hectares. Tolentino is
execution of the deed of mortgage, the spouses sold likewise held to pay the P17,000 plus P41,210
the property to the petitioner Bonnevie for and in representing 12% interest per annum
consideration of 100k—25K of which payable to
the spouses and 75K as payment to PBCom. ISSUE: Whether the action of Sulpicio M.
Afterwhich, Bonnevie defaulted payments to Tolentino for specific performance prosper?
PBCom prompting the latter to auction the property
after Bonnivie failed to settle despite subsequent HELD: When Island Savings Bank and Sulpicio M.
demands, in order to recover the amount loaned. Tolentino entered into an P80,000.00 loan
The latter now assails the validity of the mortgage agreement on April 28, 1965, they undertook
between Lozano and Pbcom arguing that on the day reciprocal obligations. In reciprocal obligations, the
the deed was executed there was yet no principal obligation or promise of each party is the
obligation to secure as the loan of P75,000.00 was consideration for that of the other (Penaco vs.
not received by the Lozano spouses, so that in the Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs,
Pelarca 29 SCRA 1 [1969]); and when one party interest was excessive and violative of the Usury
has performed or is ready and willing to perform his Law. The defendant maintains that the correct
part of the contract, the other party who has not amount of the discount is not excessive.
performed or is not ready and willing to perform
incurs in delay (Art. 1169 of the Civil Code). ISSUE: Whether the contract is a loan?

The promise of Sulpicio M. Tolentino to pay was HELD: No. As its title plainly indicates, the
the consideration for the obligation of Island contract between the parties is one of lease and not
Savings Bank to furnish the P80,000.00 loan. When of loan. It is clearly denominated a "LEASE
Sulpicio M. Tolentino executed a real estate AGREEMENT." Nowhere in the contract is there
mortgage on April 28, 1965, he signified his any showing that the parties intended a loan rather
willingness to pay the P80,000.00 loan. From such than a lease. The provision for the payment of
date, the obligation of Island Savings Bank to rentals in advance cannot be construed as a
furnish the P80,000.00 loan accrued. Thus, the repayment of a loan because there was no grant or
Bank's delay in furnishing the entire loan started on forbearance of money as to constitute an
April 28, 1965, and lasted for a period of 3 years or indebtedness on the part of the lessor. On the
when the Monetary Board of the Central Bank contrary, the defendant-appellee was discharging its
issued Resolution No. 967 on June 14, 1968, which obligation in advance by paying the eight years
prohibited Island Savings Bank from doing further rentals, and it was for this advance payment that it
business. Such prohibition made it legally was getting a rebate or discount.
impossible for Island Savings Bank to furnish the
P63,000.00 balance of the P80,000.00 loan. The There is no usury in this case because no money
Prohibition on the bank to make new loans is was given by the defendant-appellee to the plaintiff-
irrelevant because it did not prohibit the bank from appellant, nor did it allow him to use its money
releasing the balance of loans previously contracted. already in his possession. 9 There was neither loan
Insolvency of debtor is not an excuse for non- nor forbearance but a mere discount which the
fulfillment of obligation. plaintiff-appellant allowed the defendant-appellee to
deduct from the total payments because they were
Herrera vs. Petrophil Corporation, G.R. No. L- being made in advance for eight years. The discount
48349, December 29, 1986 was in effect a reduction of the rentals which the
FACTS: Herrera and ESSO Standard Eastern. Inc., lessor had the right to determine, and any reduction
(later substituted by Petrophil Corporation) entered thereof, by any amount, would not contravene the
into a "Lease Agreement" whereby the former Usury Law.
leased to the latter a portion of his property for a
period of twenty (20) years with the condition that 2. COMMODATUM
the defendandt-appellee pay eight years advance a) Nature of Commodatum
rentals. Pursuant to the said contract, the defendant- Article 1935 - The bailee in commodatum
appellee paid advance rentals for the first eight acquires the use of the thing loaned but not its
years, subtracting therefrom the amount of fruits; if any compensation is to be paid by him who
P101,010.73, the amount it computed as acquires the use, the contract ceases to be a
constituting the interest or discount for the first commodatum.
eight years.
 Commodatum Defined
Thereafter, plaintiff-appellant sued the defendant- Commodatum is a real, principal, essentially
appellee for the sum of P98,828.03, with interest, gratuitous and personal contract where the bailor or
claiming this had been illegally deducted from him lender delivers to the bailee or borrower a non-
in violation of the Usury Law. Judgment on the consumable object, so that the latter may use the
pleadings was rendered for the defendant. Plaintiff- same for a certain period and later return it.
appellant now prays for a reversal of that judgment,
insisting that the lower court erred in the  Characteristics of Commodatum as a Contract
computation of the interest collected out of the a. real (perfected by delivery)
rentals paid for the first eight years; that such b. principal ( can stand alone by itself)
c. gratuitous (otherwise, the contract is one of lease)
d. personal in nature (because of the trust)  Does the Bailee have right to use the fruits?
As a rule bailee is not entitled to the fruits,
Subject Matter of Commodatum (Art. 1936, 1937, otherwise the contract may be one of usufruct.
1940) However, to stipulate that the bailee makes use of
the fruits would not destroy the essence of a
Article 1936 - Consumable goods may be commodatum, for liberality is still the actual cause
the subject of commodatum if the purpose of the or consideration of the contract.
contract is not the consumption of the object, as
when it is merely for exhibition. b) Obligations of Bailee
Article 1941 - The bailee is obliged to pay for
 Subject Matter of Commodatum the ordinary expenses for the use and preservation
Usually, only non-consumable goods may be of the thing loaned.
the object of a commodatum for the thing itself
should not be consumed and must be returned, but  Duty of the borrower to pay ordinary expenses
consumable thing may also the object of Reason for the law: the bailee is supposed to
commodatum if the same is only for exhibition or return the identical thing, so he is obliged to take
used ad ostentationem. care of the thing with the diligence of a good father
of a family. It follows necessarily that ordinary
Article 1937 - Movable or immovable property expenses for the use and preservation of the thing
may be the object of commodatum. loaned must be borne by the bailee.

 Properties that may be the object of Article 1942 - The bailee is liable for the loss of
Commodatum the thing, even if it should be through a fortuitous
a. Immovable property event:
b. Movable property 1) If he devotes the thing to any purpose different
from that for which it has been loaned;
Article 1938 - The bailor in commodatum 2) If he keeps it longer than the period stipulated,
need not be the owner of the thing loaned. or after the accomplishment of the use for which the
commodatum has been constituted;
 Reason for the law 3) If the thing loaned has been delivered with
Bailor need not be the owner because the law appraisal of its value, unless there is a stipulation
said: the contract of commodatum does not transfer exempting the bailee from responsibility in case of
ownership. All that is required is that the bailor has a fortuitous event;
the right to the use of the property which he is 4) If he lends or leases the thing to a third person,
lending, and that he be allowed to alienate this right who is not a member of his household;
to use. 5) If, being able to save either the thing borrowed
or his own thing, he chose to have the latter.
Article 1939 - Commodatum is purely personal
in character. Consequently:  Liability for loss due to a fortuitous event
1) The death of either the bailor or the bailee As a rule, debtor of a thing is not responsible for its
extinguishes the contract; loss thru a fortuitous event. This Article gives the
2) The bailee can neither lend nor lease the object exceptions in a case of commodatum.
of the contract to a third person. However, the
members of the bailee’s household may make use of Article 1943 - The bailee does not answer
the thing loaned, unless there is a stipulation to the for the deterioration of the thing loaned due only to
contrary, or unless the nature of the thing forbids the use thereof and without his fault.
such use.
 Note - This article provides for non-liability for
Article 1940 - A stipulation that the bailee deterioration without fault.
may make use of the fruits of the thing loaned is
valid.
 Article 1944 - The bailee cannot retain the commodatum was constituted. The reason is that the
thing loaned on the ground that the bailor owes him bailor is bound by the terms of the contract of
something, even though it may be by reason of commodatum which is “for a certain time.”
expenses. However, the bailee has a right of
retention for damages mentioned in article 1951. Article 1947 - The bailor may demand the thing
at will, and the contractual relation is called a
 Reason for the law precarium, in the following cases:
Bailment implies a trust that as son as the time
has expired, or the purpose accomplished, the bailed 1) If neither the duration of the contract nor the use
property must be restored t the bailor. to which the thing loaned should be devoted, has
been stipulated; or
 Obligation to return thing loaned 2) If the use of the thing is merely tolerated by the
Except for a claim for damages suffered because of owner.
the flaws of the thing loaned (Art. 1951.), the
borrower has no right to retain the thing loaned as  Precarium - is a special form of commodatum.
security for claims he has against the lender, even In a true commodatum, the possession of the
though they may be by reason of extraordinary borrower is more secure. The possession of the
expenses. borrower in precarium is precarious, that is ,
(1) Ownership remains in bailor. — The borrower dependent on the lender’s will.
acquires only the use of the thing the ownership of
which remains in the lender. Article 1948 - The bailor may demand
(2) Only temporary use given to bailee. — immediate return of the thing if the bailee commits
Furthermore, the bailee would be violating the any acts of ingratitude specified in Article 765.
bailor’s trust in him to return the thing as soon as
the period stipulated expires or the purpose has been  Grounds for Ingratitude
accomplished. Art. 765 of the Civil Code provides: The donation
may also be revoked at the instance of the donor, by
Article 1945 - When there are two or more reason of ingratitude in the following cases:
bailees to whom a thing is loaned in the same
contract, they are liable solidarily. 1) If the donee should commit some offense against
the person, the honor or the property of the donor,
 Note - This article provides for solidary liability or of his wife or children under his parental
of Bailees authority;
2) If the donee imputes to the donor any criminal
c) Obligations of Bailor offense, or any act involving moral turpitude, even
Article 1946 - The bailor cannot demand the though he should prove it, unless the crime or the
return of the thing loaned till after the expiration of act has been committed against the donee himself,
the period stipulated, or after the accomplishment his wife or children under his authority;
of the use for which the commodatum has been 3) If he unduly refuses him support when the donee
constituted. However, if in the meantime, he should is legally or morally bound to give support to the
have urgent need of the thing, he may demand its donor.
return or temporary use.
Article 1949 - The bailor shall refund the
In case of temporary use by the bailor, the contract extraordinary expenses during the contract for the
of commodatum is suspended while the thing is in preservation of the thing loaned, provided the
the possession of the bailor. bailee brings the same to the knowledge of the
bailor before incurring them, except when they are
 Obligation to respect duration of loan so urgent that the reply to the notification cannot be
The primary obligation of the bailor is to allow awaited without danger.
the bailee the use of the thing loaned for the
duration of the period stipulated or until the If the extraordinary expenses arise on the occasion
accomplishment of the purpose for which the 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, unless  Reason for the law
there is a stipulation to the contrary. The value of the thing borrowed might be less
than the value of the expenses or damages.
 Extraordinary Expenses
a. As a rule, the extraordinary expenses should Republic v. Jose V. Bagtas, 6 SCRA 262
be paid by the bailor because it is he who profits by FACTS: Jose Bagtas borrowed three bulls from the
said expenses, otherwise the thing borrowed would Bureau of Animal Industry, for breeding purposes
be destroyed. but subject to a charge of breeding fee of 10% of
b. Generally notice is required because the the book value of the bulls. The contract is from
bailor should be given discretion as to what he May 8, 1948 to May 7, 1949.
wants to do his own property.
Upon the expiration of the contract Jose asked for a
Article 1950 - If, for the purpose of making use renewal for another period of one year, the Bureau
of the thing, the bailee incurs expenses other than then approves such renewal but limited only to one
those referred to in Article 1941 and 1949, he is not bull and asked for the return of the other two.
entitled to reimbursement. Before the contract lapse Jose Bagtas make known
of his desire to buy the three bulls, subject to the
 No obligation to assume all other expenses. approval of the Auditor General. But Bagtas later
All expenses other than those referred to in on failed to buy three bulls and pay the book value
Articles 1941 and 1949 “for the purpose of making of said bulls, and kept in his possession the bull
use of the thing” that is, not necessary for the use even after the contract lapsed.
and preservation of the thing, must be shouldered
by the borrower. ISSUE: Is the contract one of commodatum?

Article 1951 - The bailor who, knowing the HELD: The court on its decision explained that the
flaws of the thing loaned does not advise the bailee contract may not be that of commodatum, but a
of the same, shall be liable to the latter for the contract of lease in consideration of the
damages which he may suffer by reason thereof. compensation gained or being gained.

 Reason for the law Furthermore, even if the contract be that of a

When a person lends, he ought to confer a commodatum they are still liable for they acted in
benefit, and not to do a mischief. If he does not bad faith by withholding the bulls longer than
reveal the flaws, he is liable for his bad faith. The stipulated without valid reason.
flaws referred to must be hidden defects, not
obvious ones. Republic v. CA, 146 SCRA 15, November 26, 1986
FACTS: The land in issue has been occupied by the
 Liability to pay damages for known hidden U.S Navy by virtue of Act 627 for 57 years, and
flaws. was later been abandoned. The said land is owned
The following are the requisites which must concur by Domingo P. Baloy and his heirs privately, since
for the application of the above article: 1894 as attested by an Informacion Possesoria Title
(1) There is flaw or defect in the thing loaned; issued by the Spanish Government. The heirs of
(2) The flaw or defect is hidden; Domingo wishes to register the land in question in
(3) The bailor is aware thereof; their names but they were opposed by the Republic.
(4) He does not advise the bailee of the same; and
(5) The bailee suffers damages by reason of said ISSUE: Is the occupancy by the US Navy in the
flaw or defect. concept of an owner, ripen into ownership in
commodatum?
Article 1952 - The bailor cannot exempt
himself from the payment of expenses or damages HELD: No. ownership is not transferred to the US
by abandoning the thing to the bailee. Navy. The occupancy of the U.S. Navy was not in
the concept of owner but partakes of the character
of a commodatum, therefore it cannot militate relationship of Pajuyo and Guevara was that of a
against the title of Domingo Baloy and his commodatum.
successors-in-interest for ownership is not
transferred. ISSUE: Is the contractual relationship of Pajuyo
and Guevara that of a commodatum?
Mina v. Pascual, 25 Phil. 540, October 14, 1913
FACTS: Francisco Fontanilla (the ascendant of HELD: No. The Court of Appeals’ theory that the
Alejandra Mina) is the then owner of a lot at Laoag Kasunduan is one of commodatum is devoid of
Ilocos Norte, which with consent allowed his merit. In a contract of commodatum, one of the
brother Andres Fontanilla( ascendant of Repurta parties delivers to another something not
Pascual) to build and erect a warehouse over said consumable so that the latter may use the same for a
lot. certain time and return it. An essential feature of
commodatum is that it is gratuitous. Another feature
After which Repurta Pascual sold the warehouse of commodatum is that the use of the thing
with the lot to a certain Cu Joco. Hence, Alejandra belonging to another is for a certain period. Thus,
Mina filed a case to annul said sale of the lot and the bailor cannot demand the return of the thing
warehouse. Contending that said sale is void for it is loaned until after expiration of the period stipulated,
not Ruperta Pascual who is the owner of the lot and or after accomplishment of the use for which the
the whole of the warehouse. Thus they have no right commodatum is constituted. If the bailor should
to sell the same. have urgent need of the thing, he may demand its
return for temporary use. If the use of the thing is
ISSUE: Is there a contract of commodatum? merely tolerated by the bailor, he can demand the
return of the thing at will, in which case the
HELD: The contract or agreement made between contractual relation is called a precarium.
Francisco and Andres is that of a contract of
commodatum; (despite the lack of definite time of Under the Civil Code, precarium is a kind of
us by Andres of the lot, due to personal motive of commodatum. The Kasunduan reveals that the
Francisco with respect to a certain Fructuoso accommodation accorded by Pajuyo to Guevarra
Fontanilla) was not essentially gratuitous. While the Kasunduan
did not require Guevarra to pay rent, it obligated
By said contract under art. 1740, Civil Code a sale him to maintain the property in good condition. The
of land belonging to another, on which a building of imposition of this obligation makes the Kasunduan
the vendor’s is located, is null and void, for the a contract different from a commodatum. The
vendor cannot sell or transfer property that does not effects of the Kasunduan are also different from that
belong to him. of a commodatum. Case law on ejectment has
treated relationship based on tolerance as one that is
Pajuyo v. CA, GR No. 146364 June 3, 2004 akin to a landlord-tenant relationship where the
FACTS: Pajuyo entrusted a house to Guevara for withdrawal of permission would result in the
the latter's use provided he should return the same termination of the lease. The tenant’s withholding
upon demand and with the condition that Guevara of the property would then be unlawful.
should be responsible of the maintenance of the
property. Upon demand Guevara refused to return Producers Bank of the Philippines v. CA, 397
the property to Pajuyo. The petitioner then filed an SCRA 651
ejectment case against Guevara with the MTC who FACTS: Franklin was asked by a friend Angeles
ruled in favor of the petitioner. On appeal with the Sanches to deposit 200,000.00 pesos in favor of his
CA, the appellate court reversed the judgment of the friend Doronilla and Estrella Dumagpi to be used in
lower court on the ground that both parties are incorporating a business. Franklin later on agreed to
illegal settlers on the property thus have no legal give or lend the amount with the assurance that the
right so that the Court should leave the present same be delivered back to him after the lapse of 30
situation with respect to possession of the property days or a month.
as it is, and ruling further that the contractual
Franklin upon knowing that Sterela ( the company) respectively payable to the order of certain Marilou
was no longer holding office in the address Santiago. Although the respondent did not
previously given to him, he and his wife went to the physically receive the proceeds of the checks, these
Bank wherein, to verify if their money was still instruments were placed in her control and
intact, and they have learned that what was left is possession under an arrangement whereby she
only 90,000.00 pesos, for Doronilla had withdrawn actually re-lent the amounts to Santiago who, the
the amount missing. respondent admitted she did not know of personally.

ISSUE: Was there a contract of loan between the According to petitioner, respondent failed to pay the
parties, and is the bank liable for any damages? principal amounts of the loans when they fell due.
RTC ruled there was a contract of loan, the Court of
HELD: That the contract is that of commodatum Appeals ruled on the contrary.
for the subject may be consumable but the ultimate
intention of the loan is not to consume the same. ISSUE: Who borrowed money from petitioner
-Respondent or Santiago?
Under Article 2180 of the Civil Code employers
shall be held liable primarily and solidarily liable HELD: The court ruled that it was Respondent who
for damages caused by their employees acting borrowed money from petitioner. The court held
within the scope of their assigned tasks. The said that delivery is the act by which the res or substance
manager failed to exercise due diligence to prevent thereof is placed within the actual or constructive
the unauthorized withdrawal. possession or control of another.

Quintos v. Beck, 69 Phil 108, November 3, 1939 Here, the court held that once the respondent
FACTS: Beck was a tenant of Quintos at her house received the checks, the latter had possession and
on M.H. Del Pilar Steet No. 1175. Upon the control of them such that she had the choice to
novation of the contract of lease between the either forward them to Santiago (who was already
parties, the leassor gratuitously granted to Beck the her debtor), to retain them or to return them to
use of the furniture (three gas heaters and four petitioner.
electric lamps) subject to the condition that Beck
would return the same upon demand. Spouses Abella v. Spouses Abella, G.R. No.
195166, July 08, 2015
Later on, upon demand of the furniture by Quintos, FACTS: Petitioners Spouses Salvador and Alma
Beck instead of delivering the same to the formers Abella filed a Complaint for sum of money and
house he surrendered them to the sheriff. damages against respondents Spouses Romeo and
Annie Abella wherein it was alleged that
ISSUE: Is the bailor liable for the judicial or legal respondents obtained a loan from them in the
expenses due to act of the bailee affecting the thing amount of P500K. The loan was evidenced by an
loaned? acknowledgment receipt dated March 22, 1999 and
was payable within one (1) year. Petitioners added
HELD: The costs should be borne by Beck because that respondents were able to pay a total of P200K
Quintos is the prevailing party. Beck was the one —P100K paid on two separate occasions leaving an
who breached the contract of commodatum, and unpaid balance of P300K.
without any reason he refused to return and deliver
all the furniture upon demand. It is just and In their Answer, respondents alleged that the
equitable that he pays the legal expenses and other amount involved did not pertain to a loan but was
judicial costs which Quintos would not have part of the capital for a joint venture involving the
otherwise defrayed. lending of money when respondents that they were
approached by petitioners, who proposed that if
GARCIA V. THIO, 518 SCRA 433 (2007) respondents were to "undertake the management of
FACTS: Respondent Thio received from petitioner whatever money [petitioners] would give them,
Garcia a crossed check dated February 24, 1995, in [petitioners] would get 2.5% a month with a 2.5%
the amount of USD100,000 and P500,000 service fee to [respondents]." Moreover, they
claimed that the entire amount of P500,000.00 was
disposed of in accordance with their agreed terms
and conditions and that petitioners terminated the
joint venture, prompting them to collect from the
joint venture's borrowers. They were, however, able
to collect only to the extent of P200,000.00; hence,
the P300,000.00 balance remained unpaid.

ISSUE: What contract was entered into by the

parties?

HELD: Respondents entered into a simple loan or

mutuum, rather than a joint venture, with
petitioners.

Respondents' claims, as articulated in their

testimonies before the trial court, cannot prevail
over the clear terms of the document attesting to the
relation of the parties. "If the terms of a contract are
clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its
stipulations shall control.”