Obligations of the Bailor (Art 1946 Art 1952)

1. To respect the duration of the loan

General rule:
Allow the bailee the use of the thing loaned for the
duration of the period stipulated or until the
accomplishment of the purpose for which the
commodatum was instituted.

Exceptions:
a. In case of urgent need in which
demand its return or temporary use;

case bailee may

b. The bailor may demand immediate return of the

thing if
the bailee commits any act of ingratitude
specified in Art. 765.
2.To extraordinary expenses for the preservation of the
thing loaned, provided the bailee brings the same to
the knowledge of the bailor before incurring them,
except when they are so urgent that the reply to the
notification cannot be awaited without danger.
3. To be liable to the bailee for damages for known
hidden flaws.
Requisites:

Code provides that the delivery of bills of exchange

and mercantile documents, such as checks, shall
produce the effect of payment only when they have
been encashed. It is only after the checks have
produced the effect of payment that the contract of
loan may be deemed perfected.
The obligation is to pay and not to return because
the consumption of the thing loaned is the
distinguishing character of the contract of mutuum
from that of commodatum.
No estafa is committed by a person who refuses to
pay his debt or denies its existence.

Form of Payment (Art 1955):

If the thing loaned is money - payment must be
made in the currency stipulated, if it is possible;
otherwise it is payable in the currency which is
legal tender in the Philippines and in case of
extraordinary inflation or deflation, the basis of
payment shall be the value of the currency at the
time of the creation of the obligation.
If what was loaned is a fungible thing other than
money - the borrower is under obligation to pay the
lender another thing of the same kind, quality and
quantity. In case it is impossible to do so, the
borrower shall pay its value at the time of the
perfection of the loan.

a. There is flaw or defect in the thing loaned;

b.The flaw or defect is hidden;

Interest

c. The bailor is aware thereof;

The compensation allowed by law or fixed by the parties

for the loan or forbearance of money, goods or credits

d.He does not advise the bailee of the same; and

e. The bailee suffers damages by reason of said flaw or
defect
Notes:

If the above requisites concur, the bailee has the

right of retention for damages.
The bailor cannot exempt himself from the payment
of expenses or damages by abandoning the thing to
the bailee.

Requisites for Demandability:

1. Must be expressly stipulated
Exceptions:
a. Indemnity for damages
b. Interest accruing from unpaid interest
c. Must be lawful
d. Must be in writing
Compound Interest

SIMPLE LOAN OR MUTUUM (Art 1953 1961)

General rule:

A deliver to another, money or other consumable thing

with the understanding that the same amount of the same
kind and quality shall be paid. (Art. 1953)

Unpaid interest shall not earn interest.

Notes:
The mere issuance of the checks does not result in
the perfection of the contract of loan. The Civil

Exceptions:
When judicially demanded
When there is an express stipulation (must be in writing
in view of Art. 1956)

Guidelines for the application of proper interest rates:

1. If there is stipulation: that rate shall be applied.
2. The following are the rules of thumb for the
application/imposition of interest rates:

iii.

a) When an obligation, regardless of its source, i.e.,

law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for
damages.
b) With regard particularly to an award of interest in
the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is
imposed, as follows:
i.

ii.

When the obligation breached consists of

payment of a sum of money (loan or
forbearance of money), the interest shall be
that which is stipulated or agreed upon by the
parties. In absence of an agreement, the rate
shall be the legal rate (i.e. 12% per annum)
computed from default. NOTE: The interest
due shall itself earn legal interest from the
time it is judicially demanded
In other cases, the rate of interest shall be six
percent (6%) per annum. NOTE: No interest,
however, shall be adjudged on unliquidated

claims or damages except when or until the

demand can be established with reasonable
certainty. When the demand cannot be
established, the interest shall begin to run only
from the date of the judgment of the court is
made.
When the judgment of the court awarding a
sum of money becomes final and executory,
the rate of legal interest, whether the case falls
under paragraph i or ii above, shall be 12% per
annum from such finality until its satisfaction,
this interim period being deemed to be by then
an equivalent to a forbearance of credit.

NOTES:
Central Bank Circular No. 416 fixing the rate of
interest at 12% per annum deals with loans,
forbearance of any money, goods or credits and
judgments involving such loans, or forbearance
in the absence of express agreement to such rate

Interest as indemnity for

damages is payable only in case of
default or non-performance of the
contract. As they are distinct claims,
they may be demanded separately.

Central Bank Circular

No. 905 (Dec. 10, 1982) removed the
Usury Law ceiling on interest rates for
secured and unsecured loans, regardless
of maturity.