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This article was originally published on June 1, 2022 and has been updated to reflect recent legal developments.

The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of a lawyer or you may directly contact and consult Alburo Alburo and Associates Law Offices to address your specific legal concerns, if there is any.

Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.

AT A GLANCE:

Under the Civil Code of the Philippines, a contract of loan has two kinds, namely, commodatum and simple loan (mutuum).

Loan is commonly understood as the lending of money by one individual, entity or corporation to another party in exchange for repayment. However, under the Civil Code of the Philippines, a contract of loan is broader, encompassing both commodatum and simple loan (mutuum).

Article 1933 of the Civil Code provides that:

“By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.xxx.”

Commodatum

A commodatum is essentially gratuitous and the bailor retains the ownership of the thing loaned. (Article 1933, Civil Code)

Simple Loan

A simple loan may be gratuitous or with a stipulation to pay interest and ownership passes to the borrower. (Article 1933)

In Producers Bank of the Philippines v. Court of Appeals, G.R. No. 115324, February 19, 2003, the Supreme Court held that consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of the parties is to lend consumable goods and to have the very same goods returned at the end of the period agreed upon, the loan is a commodatum and not a mutuum.

For example, when one borrows a book and promises to return the same item to the owner at a specific time, the lender/owner and the borrower enters a contract of loan, specifically Commodatum.

Perfection of Contract

An accepted promise to deliver something by way of Commodatum or Mutuum is binding upon the parties, but the Commodatum or Mutuum itself shall not be perfected until the delivery of the object of the contract.(Article 1934, Civil Code)

Related Articles:

• Commodatum vs. Mutuum

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Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries regarding legal services, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/ 09175772207/ 09778050020.

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