Kinds of Loan

What are the Kinds of Loan?

1.   commodatum:  where the bailor delivers to the bailee a non-consumable thing so that the latter may use it for a certain time and return the identical thing.

- It may either be:

                                          i.    Ordinary commodatum; or

                                         ii.    Precarium (whereby the bailor may demand the thing loaned at will)

2.   mutuum or simple loan: where the lender delivers to the borrower money or other consumable thing (when it is consumed in a manner appropriate to its  purpose) upon the condition that the latter shall pay the same amount of the same kind and quality.

LOAN

What are the Characteristics of Loan?

                      1. real –delivery is essential for perfection of the loan (BUT a promise to lend, being consensual, is binding upon the parties but it is only after delivery that the real contract of loan arises)

2. unilateral – only the borrower has obligation

Commodatum vs. Mutuum

What are Differences Between the Two Kinds of Loan?

COMMODATUM	MUTUUM (SIMPLE LOAN)
Ordinarily not consumable	Money or other consumable thing
Ownership is retained by the lender	Ownership is transferred to the borrower
Essentially gratuitous	Gratuitous or onerous, that is with stipulation to pay interest
Borrower must return the same thing loaned	Borrower need only pa the same amount of the same kind and quality
May involve real or personal property	Only personal property
Loan for use or temporary possession	Loan for consumption
Bailor may demand the return of the thing loaned before the expiration of the term in case of urgent need	Lender may not demand its return before the lapse of the term agreed upon
Loss of the subject matter is suffered by the bailor since he is the owner	Borrower suffers the loss even if caused exclusively by a fortuitous event and he is not therefore discharged from his duty to pay
Purely personal	Not purely personal

Nature of Commodatum

What is the Nature of Commodatum?

1.   essentially gratuitous (otherwise, if there is compensation, it might be lease)

2.   temporary use of the thing loaned “for a certain time” (otherwise, if the bailee is not entitled to the use of the thing, it might be deposit)

3.   subject matter:

a.      consumable goods – if the purpose of the contract is not the consumption of the object, as when merely for exhibition (Article 1936)

b.      movable or immovable

4.   bailor need not be the owner (it is sufficient that he has a possessory interest

5.   purely personal

a.          death of either party terminates the contract UNLESS there is stipulation to the contrary

b.          generally, bailee can neither lend nor lease the object to a 3^rd person in the absence of some agreement to that effect

c.          use of the thing loaned may extend to the bailee’s household (who are not considered 3^rd persons) except:

1.    when  there is a contrary stipulation

2.    nature of the thing forbids such use

6.   enjoyment of fruits – a stipulation to make use of fruits is valid, but it is never presumed. PROVIDED, it must only be incidental to the use of the thing itself, for if it is the main cause, the contract may be one of usufruct.

Obligations of the Bailee

What are the Obligations of the Bailee? 

1.   to pay ordinary  expenses for the use and preservation of the thing loaned 

2.   take good care of the thing with the diligence of a good father of a family 

3.   liable for loss, even if through a fortuitous event when:

a.          he devotes the thing to any purpose different from that for which it has been loaned

b.          he keeps it longer than the period stipulated or after the accomplishment of the use for which the commodatum has been constituted

c.          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

d.          he lends or leases the thing to a third person who is not a member of his household

e.          being able to save the thing borrowed or his own thing, he chose to save the latter

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

5.   cannot retain the thing loaned on the ground that the bailor owes him something, even if it may be by reason of expenses;  however, he may have a right to retain the thing loaned until he is reimbursed for damages only when the bailor, knowing the flaws of the       thing loaned, does not advise the bailee of the same and the latter suffer damages by reason thereof

6.   when there are two or more bailees, they are liable solidarily

Obligations of the Bailor

What are the Obligations of the Bailor

DEMAND FOR RETURN:

A. cannot demand the return of the thing loaned till after:

1.    the expiration of the period stipulated or

2.    the accomplishment of the use for which the commodatum has been constituted

HOWEVER, if the bailor should have urgent need of the thing, he may demand the thing:

a.    return

b.    temporary use – in which case, the contract of commodatum is suspended

B. may demand the thing at will (PRECARIUM) in the following cases:

1.    neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated

2.    use of the thing is merely tolerated by the bailor

C. may demand the immediate return of the thing in ordinary commodatum when:

1.    if the bailee should commit some offenses 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; and

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

EXPENSES:

D. with regard to EXTRAORDINARY expenses:

1.    if for the preservation of the thing loaned, the bailor shall refund the bailee, provided the bailee brings the same to the bailor’s knowledge before incurring the, EXCEPT when they are urgent

2.    if it arises on the occasion of the actual use of the thing, with or without fault, they shall be born equally (e.g. vehicular accident) UNLESS there is a contrary stipulation

E. all other expenses, which are not necessary for the use and preservation of the thing must be shouldered by the borrower

DAMAGES:

F. bailor is liable for damages (with right of retention to the bailee until damages is paid) when the following requisites concur:

1.    there is a flaw or defect in the thing loaned

2.    the flaw or defect is hidden

3.    the bailor is aware thereof

4.    he does not advise the bailee of the same

5.    the bailee suffers damages by reason of the flaw or defect

 G. bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee

Simple Loan or Mutuum

What is Simple Loan or Mutuum?

Nature of Mutuum

a.    bilateral- borrower’ promise to pay is the consideration for the lender’s obligation to furnish the loan

b.    no criminal liability upon failure to pay

Subject Matter

a.    fungible or consumable-depending on the intent of the parties, that the return of the thing 

                                              is equivalent only and not the identical thing

b.    money

c.    if the transfer of ownership is on a non-fungible thing, with the obligation of the other to give things of the same kind, quantity and quality, it is a barter

Obligations of Debtor

What are the Obligations of a Debtor?

a.   to pay the creditor an equal amount of money or if it is a fungible thing, the same kind and quality even if it should change in value;  it is impossible to deliver the same kind, its value (monetary) at the perfection of the loans hall be paid

b.   to pay in the currency stipulated, if there is none, then in legal tender

Interest

      General Rule:  No interest shall be due unless it has been expressly stipulated in writing

    

       EXCEPTION:

                     1. indemnity for damages

                     2. interest accruing from unpaid interest if judicially demanded

Gen. Rule:  interest due and unpaid shall NOT earn interest

                  EXCEPTION:

1.       when judicially demanded

2.       when there is a stipulation as to compound interest, which must be in writing (interest due and unpaid shall be added to the principal obligation and the resulting total amount shall earn interest)

·     If the interest 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.

·     Remember, that the Usury Law is now legally inexistent such that interest rates are no longer subject to any ceiling.  The rate will depend on the agreement of the parties.

·     If interest is paid by mistake, the debtor may recover as this would be solutio indebiti.  But if interest is paid voluntarily because the debtor feels morally obligated to do so, there can be no recovery in accordance with natural obligations.