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Jun 30, 2008

COMMODATUM

NATURE, PURPOSE AND CHARACTERISTICS

Simple Loan (Mutuum) Defined

Art. 1933: By a contract of loan, one of the parties delivers to another xxx 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.

Tolentino vs. Gonzalez Sy Chiam 50 Phil 558

Tolentino purchased land from Luzon Rice Mills for Php25,000 payable in three installments. Tolentino defaulted on the balance so the owner sent a letter of demand to him. To pay, Tolentino applied for loan from Gonzalez on condition that he would execute a pacto de retro sale on the property in favor of Gonzalez. Upon maturation of loan, Tolentino defaulted so Gonzalez is demanding recovery of the land. Tolentino contends that the pacto de retro sale is a mortgage and not an absolute sale.

The Supreme Court held that upon its terms, the deed of pacto de retro sale is an absolute sale with right of repurchase and not a mortgage. Thus, Gonzalez is the owner of the land and Tolentino is only holding it as a tenant by virtue of a contract of lease.

**LOAN: A contract of loan signifies the giving of a sum of money, goods or credits to another, with a promise to repay, but not a promise to return the same thing. It has been defined as an advancement of money, goods, or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance with the terms of the contract. The moment the contract is completed, the money, goods or chattels given cease to be the property of the former owner and become the property of the obligor to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same. At all events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former owner and become the sole property of the obligor.


Commodatum Defined

Art. 1933: By the contract of loan, one of the parties delivers to another 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. xxx

- the bailee acquires the use of the thing loaned but not its fruits (Art. 1935), EXCEPT if the parties stipulate use of fruits (Art. 1940)

Pajuyo v. CA, G.R. No. 146364, June 3, 2004

Pajuyo purchased the rights over a property from Pedro Perez. Thereafter, he constructed a house and he and his family lived there. Later, Pajuyo agreed to let Guevarra live in the house for free provided that Guevarra maintain cleanliness and orderliness of the house. They also agreed that Guevarra should leave upon demand. But when Pajuyo later told Guevarra that he needed the house, Guevarra refused, hence an ejectment case was filed.

Supreme Court held that the contract is not a commodatum. “In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. An essential feature of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum.”

Distinctions

RENT v. LOAN (Tolentino v. Gonzalez Sy Chiam, supra): A contract of lease of property is not a loan. A loan signifies the giving of a sum of money, goods or credit to another, with a promise to repay, but not a promise to return the same thing. In a contract of rent, the owner of the property does not lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of rent the relation between the contractors is that of landlord and tenant. In a contract of loan of money, goods, chattels, or credits, the relation between the parties is that of obligor and obligee.

COMMODATUM v. MUTUUM

  1. As to parties – commodatum: bailor and bailee; mutuum: obligor and obligee
  2. As to object – commodatum: non-consumable or non-fungible thing; mutuum: money or any consumable or fungible thing
  3. As to consideration – commodatum: use of the thing and return it; mutuum: use and own the thing and pay the same amount of the same kind and quality
  4. commodatum: gratuitous; mutuum: may be gratuitous or onerous
  5. commodatum: ownership of the thing is retained by the bailor; mutuum: ownership is transferred to the obligee
  6. commodatum: real or personal property; mutuum: personal property
  7. As to purpose – commodatum: use or temporary possession of the thing; mutuum: consumption of the thing
  8. commodatum: bailor may demand the return of the thing before expiration of term in case of urgent need or precarium; mutuum: no demand before lapse of the term
  9. commodatum: bailor suffers the loss of the thing; mutuum: obligee suffers the loss of the thing

Purpose

- to transfer either the use or possession of the thing loaned; for safekeeping of the thing delivered and returning it

Characteristics of Commodatum

  • perfected upon delivery of the thing loaned (real contract)
Q: Is there a perfected contract of commodatum before delivery?
A:
No. A contract of commodatum is a real contract and therefore requires delivery for its perfection. There can be no perfected contract of commodatum but there can be a binding accepted promise to deliver by the bailor. In which case, commodatum is a unilateral contract in that only one party, the bailor, has the obligation to deliver the object.
  • accepted promise to deliver by commodatum or mutuum is binding (unilateral contract)
  • purely personal in character: a) death of bailor or bailee extinguishes contract; b) bailee cannot lend or lease the object loaned to third parties EXCEPT if members of his household, UNLESS there is a stipulation against or the use is prohibited by nature of the thing (art. 1949)

Q: If there are two or more borrowers, would the commodatum be extinguished upon the death of one?
A:
The contract is not extinguished in the absence of a contrary stipulation. The borrowers are considered solidary debtors (art. 1945) and for this reason, the bailor or creditor has the right to demand from either one of them the thing loaned. This is an exception the general rule that the concurrence of two or more debtors gives rise only to a joint obligation. The reason is that in a commodatum, it is presumed that the bailor took into account the character of each of the bailees in lending the thing and that therefore he would not have constituted the contract if there were only one bailee.

Q: Even if death of the parties extinguishes a contract of commodatum, is it possible for the heirs to acquire rights to the obligation?
A:
Ordinarily in a contract of commodatum, the death of the parties extinguishes the contract. That is because commodatum, being essentially gratuitous, takes into account the character, credit and conduct of the bailee. However, there can be a valid stipulation stating that the contract be transmitted to the heirs of the parties.
  • bailor has the right to demand the thing at will if:
  1. he has urgent need, demand the return or its temporary use (art. 1946)
  2. (art. 1947) PRECARIUM: (1) if neither the duration or the use of thing has been stipulated; (2) if the use of the thing is by mere tolerance of the owner
  • essentially gratuitous (art. 1933)

PARTIES AND REQUIREMENTS FOR VALIDITY AND PERFECTION


Parties

- bailor and bailee

Requirements for Validity and Perfection

  • CONSENT
Art. 1315: Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law.
  • OBJECT
Art. 1937: Movable or immovable property may be the object of commodatum.

- MOVABLE: non-consumable or non-fungible EXCEPT that consumable thing may be the object if the purpose is only for exhibition

Mina v. Pascual, 25 Phil 540

Francisco is the owner of land and he allowed his brother, Andres, to erect a warehouse in that lot. Both Francisco and Andres died and their children became their respective heirs: Mina for Francisco and Pascual for Andres. Pascual sold his share of the warehouse and lot. Mina opposed because the lot is hers because her predecessor (Francisco) never parted with its ownership when he let Andres construct a warehouse, hence, it was a contract of commodatum. What is the nature of the contract between Francisco and Andres?

The Supreme Court held that it was not a commodatum. It is an essential feature of commodatum that the use of the thing belonging to another shall be for a certain period. The parties never fixed a definite period during which Andres could use the lot and afterwards return it.

NOTA BENE: It would seem that the Supreme Court failed to consider the possibility of a contract of precardium between Francisco and Andres. Precardium is a kind of commodatum wherein the bailor may demand the object at will if the contract does not stipulate a period or use to which the thing is devoted.

Producers Bank of the Philippines v. CA, 397 SCRA 651


Doronilla is in the process of incorporating his business and to comply with one of the requirements of incorporation, he caused Vives’ to issue a check which was then deposited in Doronilla’s savings account. It was agreed that Vives can withdraw his money in a month’s time. However, what Doronilla did was to open a current account and instructed the bank to debit from the savings account and deposit it in his current account. So when Vives checked the savings account, the money was gone. Is the contract a mutuum or commodatum?

Supreme Court held that the contract is a commodatum. Although in a commodatum, the object is a non-consumable thing, there are instances where a consumable thing may be the object of a commodatum, such as when the purpose is not for consumption of the object but merely for exhibition (Art. 1936). 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.


  • CONSIDERATION
Art. 1933: xxx Commodatum is essentially gratuitous.

Art. 1935: xxx if any compensation is to be paid by him who acquires the use, the contract ceases to be a commodatum.
  • DELIVERY
- perfects the contract

Central Bank of the Philippines v. CA, 139 SCRA 46 (1985)

Tolentino made a loan from Island Savings Bank secured by a mortgage. The Bank did not release the whole amount but only a portion thereof. Later, the Bank experienced liquidity problems and the Monetary Board of Central Bank prohibited it from making new loans and much later, from doing business in the Philippines. Thereafter, the Acting Superintendent of Central Bank took charge of its assets. Upon expiration of the loan term, the Bank filed extrajudicial foreclosure of the mortgage. Was there a perfected contract of loan when only a portion of the amount was delivered?

The Supreme Court held that there was only partial delivery. As such, the contract is deemed perfect only in so far as what has been delivered. The mortgage cannot be entirely foreclosed, except for up to the amount of the actual amount released, but the Bank can recover the interest of the partial loan. Tolentino cannot anymore demand the remaining amount of the loan from the Bank because he defaulted on his payment. His liability offsets the liability of the Bank to him.


RIGHTS AND OBLIGATIONS OF THE PARTIES

Obligations of the Bailee

- to return the object

  • pay for the ordinary expenses for the use and preservation of the thing loaned
- no reimbursement for ordinary expenses
  • liable for loss of the thing even if fortuitous if:
  1. he devotes the thing for a different purpose
  2. he keeps it longer than the period stipulated or after the accomplishment of the use for which the commodatum has been constituted
  3. thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting bailee from fortuitous event
  4. lends or leases the thing to a third person not a member of the household
  5. being able to save either the thing borrowed or his own thing, he chose to save his
  • not answer for the deterioration of the thing loaned due to use thereof and without fault
  • bailee cannot retain on ground that the bailor owes him something, even if expenses
- but if bailor knew of defect and did not advise the bailee about it, then bailee has the right of retention but only to recover damages
  • bailee is not entitled to the fruits of the thing loaned, EXCEPT if there is a stipulation to the contrary
  • bailee must take care good care of the thing with the diligence of a good father of the family (art. 1163)

Q: If the parties in a commodatum can stipulate that the bailee may make use of the fruits, wouldn’t that make the contract one of usufruct?
A:
A usufruct is a contract by which the usufructuary is allowed by the owner to enjoy the fruits. By that, it means that the main cause of the usufruct is to enjoy the fruits. In a contract of commodatum, the consideration is the use of the thing and if there is a stipulation for the enjoyment of the fruits, it must only be incidental to the use of the thing itself.

Republic v. Bagtas, 6 SCRA 262 (1962)

Bagtas borrowed three bulls from the Bureau of Animal Industry for a period of one year with breeding charge at 10% of book value. After one year, the contract was renewed only for one bull but Bagtas did not return the two, one of which died because of gunshot wound during the Huk raid. Is Bagtas liable for the loss of the bull?

Supreme Court held that Bagtas was liable for the loss of the bull even though it was caused by a fortuitous event. If the contract was one of lease, then the 10% breeding charge is compensation (rent) for the use of the bull and Bagtas, as lessee, is subject to the responsibilities of a possessor. He is also in bad faith because he continued to possess the bull even though the term of the contract has already expired. If the contract was one of commodatum, he is still liable because: (1) he kept the bull longer than the period stipulated; and (2) the thing loaned has been delivered with appraisal of its value (10%).


Obligations of the Bailor

  • respect the duration of the loan, EXCEPT if there is urgent need or precarium
  • demand immediate return if the bailee commits acts of ingratitude
- Art. 765: a) bailee commits offenses against the person, honor or property of the bailor or that of his wife and children under his parental authority; b) bailee imputes any criminal offense or any act involving moral turpitude on the bailor, even if he should prove it, EXCEPT if the act was committed against the bailee or his family; and c) bailee unduly refuses to give support to the bailor when he was morally bound to do so
  • refund extraordinary expenses
- provided that the bailee informs the bailor about it before incurring them, EXCEPT if the need is urgent; HOWEVER, if extraordinary expenses arise on the occasion of actual use of the thing, whether bailee is at fault or not, they shall be borne by both bailor and bailee EXCEPT if there is a contrary stipulation (art. 1949)
  • no right of abandonment for expenses and damages
- because the expenses and damages may exceed the value of the thing loaned

  • liable for damages if he knew of the flaws of the thing loaned and did not inform the bailee, who incurs damages by reason thereof
- REQUISITES:
  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 such flaw or defect
- liability is by reason of bailor’s bad faith so if bailor is not aware of the defect, he is not liable