Chapter 2 ✓ Essential requisites of the contract

Simple Loan or Mutuum o Consent of the contracting parties

▪ Mutuum is a real contract hence,
Art. 1953. A person who receives a loan or
not perfected by mere consent of
money or any other fungible thing acquires the
the parties
ownership thereof, and is bound to pay the
• It requires delivery to be
creditor an equal amount of the same kind and
perfected
quality
o Object certain which is the subject
✓ Simple Loan or Mutuum – is a contract matter of the contract
whereby one party delivers money or other o Cause of the obligation established
consumable thing to another who acquires ✓ Consent of the contracting parties –
ownership thereof with the understanding manifested by the meeting of the offer and
or on condition that the borrower shall pay acceptance
same amount of the same kind and quality o Must be given by parties with capacity
o Equivalent only and not the identical to give consent
thing because the borrower acquires ✓ Object of the Contract – money or any other
ownership thereof consumable thing; it may also cover fungible
✓ Simple Loan is a loan without interest things
o As used in the Civil code o Barter – if the object of the contract is a
▪ Loans with and without stipulations non – fungible thing and the borrower
to pay interest has the obligation to give things of the
✓ Characteristics of the contract same kind, quantity and quality
o Real Contract – because the delivery of o OBJECT OF THE CONTRACT MUST BE
the thing loaned is necessary for the ▪ Within the commerce of men
protection of the contract ▪ Determinate and not impossible
o Unilateral Contract – because once the • Issue regarding this will arise
subject matter has been delivered, it only in a contract of loan
creates obligations on the part of only • After delivery such issue will be
one party moot
▪ The borrower ✓ Cause of the contract
o Nominate Contract – because it has o Gratuitous – mere liberality of the
been given a specific name by the Civil benefactor
Code ▪ No obligation to pay interest unless
o Principal Contract – because its expressly stipulated in writing
existence is not dependent on another o Onerous – there is stipulation to pay
contract the interest
o Informal Contract – because no ✓ Parties to the Contract
particular form is generally required for o Borrower
the contract o Creditor – transfers ownership of the
▪ Delivery perfects the contract thing loaned; he must be the owner of
o Gratuitous contract – if there is no such thing
stipulation to pay interest ▪ HOWEVER, if the borrower
▪ Onerous Contract – if there is a receives the thing in good faith and
stipulation to pay interest invokes the principle that
 possession of movable property • Basis: principle that the buyer
acquired in good faith is equivalent must pay “the same amount
to title, even if the creditor is not of the same kind and quality
the owner thereof, such loan of a o Amount – same amount of the
thing of another becomes valid and principal loaned
renders the borrower the owner ▪ May change due to extraordinary
thereof inflation or deflation of the
✓ Mutuum is a unilateral contract currency stipulated
o Obligations of the borrower under a ▪ Fungible thing – must pay another
mutuum arises ex uno latere and all are thing of the same kind, quantity
imposed on the borrower and quality
✓ Form of the contract • If impossible to deliver the
o GR: contracts are obligatory, in same kind – its value during the
whatever form they have been entered perfection of the loan shall be
into, provided all the essential requisites paid
for their validity are present o Period – thing borrowed must be
▪ HOWEVER, no interest shall be due returned at the end of the period
unless it has been expressly ▪ Borrower may lose the right to use
stipulated in writing the period when
o Amount involve exceeds 500 – must be • Insolvency
in writing • Failure to furnish securities
▪ For convenience and will not affect • Impairment of securities
the validity of the contract ▪ If the parties did not agree on a
o GR: Agent needs a SPA from his principal period – the court may fix the
to loan or borrow money period
▪ XPN: unless the latter act be urgent ▪ Gratuitous – borrower may pay
and indispensable for the before the maturity date
preservation of the things which are ▪ Onerous – period is established to
under administration benefit both the borrower and
✓ Obligations of the borrower creditor
o Pay the lender an equal amount of the • Borrower cannot pay before
same kind and quality the maturity date
o Pay interest if expressly stipulated in o Reason: creditor placed his
writing capital hoping to obtain
✓ Obligation of the buyer is to pay which may income
include the accessory duty to pay interest o Place of the payment – Civil Code is
o Payment should be made in the currency silent
stipulated ▪ If the parties agreed – payment
▪ If agreement is silent on the shall be made in the place
currency – payment must be made stipulated
in the currency in which the money ▪ If no place of payment was
was delivered stipulated – the place of payment
will be the domicile of the debtor
✓ No criminal liability for failure to pay
 o No crime of estafa is committed by a ▪ Punishes the dishonesty and
person who refuses to pay his debt or abuse of confidence in the
denies its existence handling of money or goods to the
▪ Reason: lack of fiduciary prejudice of another regardless of
relationship between the parties whether the latter is the owner
which is an essential element of the ✓ Fungible things – are those which are
crime estafa. usually dealt with by number, weight, or
measure so that any given unit or portion
Contract of Loan Contract of Rent
is treated as the equivalent of any other
signifies the delivery of is a contract by which
unitor portion
money or some other one of the parties
✓ Risk of loss and deterioration – do not
consumable thing to delivers to another some
another with a promise non-consumable thing in arise in a mutuum as both ownership and
to repay an equivalent order that the latter may possession is pass on to the borrower and
amount of the same kind use it during a certain the contractual obligations do not come
and quality, but not a period and return it to into existence without the delivery taking
promise to return the the former. In a contract place
same thing loaned which of rent, the owner or
becomes the property of lessor of the property Art. 195. A contract whereby one person
the obligor does not lose his transfers the ownership of non – fungible thing
ownership. He simply to another with the obligation on the part of the
loses his control over the latter to give things of the same kind, quantity,
property rented during and quality shall be considered a barter
the period of the
contract; ✓ Contract of barter or exchange – one of the
the relation between the the relation is that of parties binds himself to give one thing in
parties is that of obligor landlord and tenant consideration of the other’s promise to give
and obligee another things
the creditor receives the owner of the
Mutuum Barter
“payment” for property
Money or any other non – fungible (non
his loan rented receives
fungible things – consumable)
“compensation” or
things
“price” either in money,
the bailee is bound to The equivalent thing
provisions, chattels, or
return the identical is given in return for
labor from the occupant
thing borrowed when what has been
thereof in return
the time has expired received.
for its use.
or the purpose has
been served.
✓ Trust Receipts – the written or printed may be gratuitous onerous contract. It
document signed by the entrustee in favor of is really a mutual
the entruster sale.
o Contains terms and conditions
substantially complying with the
provisions of PD 115
o Does not seek to enforce payment of
loan
Art. 1955. The obligation of a person who ▪ XPN: if Art. 1250 applies, the
borrows money shall be governed by the borrower bears the risk of change in
provisions of Arts. 1249 and 120 of this Code the value of the currency stipulated
o All notes and coins issued by the BSP
If what was loaned is a fungible thing other than
are legal tender in the Philippines for all
money, the debtor owes another thing of the
debts
same kind, quantity and quality, even if it
▪ Check – not a legal tender and
should change in value. In case it is impossible
cannot constitute valid tender of
to deliver the same kind, its value at the same
payment
time of the perfection of the loan shall be paid
Art. 1956. No interest shall be due unless it has
✓ Form of payment
been expressly stipulated
o If the thing loaned is money – payment
must be made in the currency ✓ In order that the interest may be
stipulated, if it is possible to deliver such chargeable, the following are the
currency requisites:
▪ OTHERWISE, it is payable in the 1. The payment must be expressly
currency which is legal tender in the stipulated
Philippines 2. The agreement must be in writing
o If what was loaned is a fungible thing 3. The interest must be lawful
other than money – the borrower is ✓ If a particular rate of interest has been
under obligation to pay the lender expressly stipulated by the parties – the
another thing of the same kind, quality stipulated interest and not the legal rate
and quantity. interest shall be applied
▪ If impossible to do so – the ✓ If the exact rate of the interest is not
borrower shall pay its value at the mentioned – the legal rate of 12% shall be
time of the perfection of the loan payable
o Extraordinary inflation or deflation – ✓ GR: no increase in interest shall be due
the basis of payment shall be the value o XPN: unless such increase has also been
of the currency at the time of the expressly stipulated
creation of the obligation ✓ Sales invoices or slips issued by a store to its
▪ For inflation or deflation to affect customers, stating interests and attorney’s
an obligation, the ff requisites must fees in the usual printed forms as terms and
be proven: conditions, without the signature of the
• There was an official declaration obligor, do not constitute the express
of extraordinary inflation or stipulation required by Article 1956.
deflation from the BSP o Therefore, the obligor is not liable for
• The obligation was contractual the interest except only the legal
• The parties expressly agreed to interest (6%) under Article 2209 on the
consider the effects of the amount due in case he incurs in delay
extraordinary inflation or ✓ The receipt by the creditor of interest
deflation payment up to a certain date on a loan that
o GR: creditor bears the risk of change in has already matured does not ipso facto
the value of the currency stipulated result in the renewal or extension of
maturity period of the loan up to said date.
 o Whether or not a loan may be renewed damages may be deemed to be
does not solely depend on the debtor reasonably ascertained.
but more so on the discretion of the ✓ 12% per annum interest rate deals with:
creditor o Loans
✓ Liability for interest even in the absence of o Forbearance of any money, goods or
stipulation – 2 exceptions to Art. 1956 credits
o Indemnity for damages – the debtor in o Judgements involving such loans or
delay is liable to pay legal interest of 6% forbearance in the absence of express
or 12% as indemnity for damages even agreement as to such rate
in the absence of a stipulation for the ✓ 6% per annum interest rate
payment of interest o if the obligation arises from other
▪ The appropriate measure for sources
damages in case of delay in o by way of damages arising from injury to
discharging an obligation consisting persons and loss of property which does
of the payment of a sum or money, not involve loan
is the payment of the penalty ✓ When the judgment of the court awarding a
interest at the rate agreed upon; sum of money becomes final and executory,
▪ In the absence of a stipulation of a the rate of legal interest, regardless of
particular rate of penalty interest – whether the obligation involves a loan or
the payment of additional interest at forbearance of money shall be 12% per
a rate equal to the regular monetary annum from such finality until its
interest, satisfaction.
• if no regular interest had been o This interim period being deemed to be
agreed upon, then payment of by then an equivalent to a forbearance
legal interest which is 6% of credit
annually or, in the case of loans ✓ The interest agreed upon forms part of the
or forbearances of money, 12% consideration of the contract itself,
per annum as provided for in ✓ Interest as indemnity for damages is
Central Bank Circular No. 416 payable only in case of default or non-
o Under the provisions of Article 2213, performance of the contract.
interest “cannot be recovered upon o As they are distinct claims, they may be
unliquidated claims or damages demanded separately
▪ XPN: when the demand can be o In the absence of stipulation – rate of
established with reasonable interest where the obligation
certainty.’’ constitutes a loan or forbearance of
▪ It is axiomatic that if the suit were money shall be 12% per annum to be
for damages, unliquidated and not computed from the date of default
known until definitely assessed and ✓ Interest accruing from unpaid interest –
determined by the courts, after interest due shall earn interest from the time
proof, interest at rate of 6% per it is judicially demanded
annum should be from the date the ✓ Article 2212 of the Civil Code and Section 5
judgment of the court is made, i.e., of the Usury Law are applicable only where
at which time the qualification of interest has been stipulated by the parties.
 o Art. 2212 – contemplates the presence ✓ This provision is deemed necessary to defeat
of stipulated or conventional interest the cunning devices of usurers
which has accrued when demand was o The form of the contract is not
judicially made. conclusive.
✓ In cases where no interest had been o Parol evidence is admissible to show
stipulated by the parties – no accrued that a written document though legal in
conventional interest could further earn form was in fact a cloak or device to
interest upon judicial demand cover usury if from a construction of the
✓ Court’s judgement which do not provide for whole transaction it becomes apparent
the payment of interest has already been there exists a corrupt intention to violate
final – no interest may be awarded the laws on usury
✓ Liability for surcharges and penalties ✓ A usurious contract should not be
o Surcharges and penalties agreed to be considered void in its entirety but only as to
paid by the debtor in case of default the interest involved
partake of the nature of liquidated o It is only the stipulation on usurious
damages interest which should be treated as void
▪ Liquidated damages, whether so that the loan becomes without
intended as an indemnity or penalty, stipulation to pay interest.
shall be equitably reduced if they are ✓ In a simple loan with stipulation of usurious
iniquitous and unconscionable interest, the prestation of the debtor to pay
the principal debt which is the cause of the
Interest Surcharges and
contract is not illegal.
Penalties
o The nullity of the stipulation on the
not necessarily
usurious interest does not affect the
preclusive of interest.
If there is an lender’s right to receive back the
agreement, it may be principal amount of the loan
separately demanded ✓ With respect to the debtor, the amount
from interest paid as interest under a usurious
The charging of What may justify the agreement is recoverable by him
interest for loans a court in allowing o Reason: since the payment is deemed
forms a very essential the creditor to to have been made under restraint,
and fundamental impose full rather than voluntarily.
element of the surcharges and ✓ Interest rates are no longer subject to any
banking business, penalties may not ceiling. The rate will depend on the
which may truly be equally justify non agreement of the parties.
considered to be at payment or reduction
the very core of its of interest Art. 1958. In the determination of the interest,
existence or being. if it 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
Art. 1957. Contracts and stipulations, under any
cloak or device whatever, intended to ✓ Purpose of this article – to make usury
circumvent the laws against usury shall be void. harder to perpetrate
The borrower may recover in accordance with
the laws on usury Art. 1959. Without prejudice to the provisions
of Art. 2212, interest due and unpaid shall not
earn interest. However, the contracting parties ✓ In case of conflict between Art. 1961 and Art.
may by stipulation capitalize the interest due 1175 which states that usurious transactions
and unpaid which as added principal shall earn shall be governed by special laws ______
new interest. shall govern ***Sorry di ko din alam **
✓ GR: accrued interest (interest due and
unpaid) shall not earn interest
o XPNs:
1. When judicially demanded as
provided for in Article 2212
2. When there is an express stipulation
made by the parties that the interest
due an unpaid shall be added to the
principal obligation and the resulting
total amount shall earn interest
✓ Parties may stipulate on the imposition of
both interest and penalty in case of default
on the part of the borrower
o Compounding of the monetary interest
and the penalty charge or penalty or
compensatory interest is allowed.

Art. 1960. If the borrower pays interest when

there has been no stipulation therefor, the
provisions of this Code concerning solution
indebiti, or natural obligations shall be applied,
as the case may be

✓ This article simply means that if

unstipulated interest (it is, therefore, not
due) is paid by mistake, the debtor may
recover as this would be a case of solutio
indebiti or undue payment.
✓ Where the unstipulated interest, or interest
stipulated, there being a stipulation but it is
not in writing, is paid voluntarily because
the debtor feels morally obliged to do so –
there can be no recovery as in the case of
natural obligations.

Art. 1961. Usurious contracts shall be governed

by the Usury Law and other special laws, so far
as they are not inconsistent with this Code.

✓ The usury law and other special laws apply

only so far as not inconsistent with the Civil
Code