CREDIT TRANSACTIONS- Atty.

Norossana Alauya Sani, CPA

MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

CREDIT TRANSACTIONS Include all transactions involving the loan of money, and
goods or the purchase or delivery of goods and services in the present, with a promise to
pay or deliver in the future

TWO TERMS OF SECURITY IN CREDIT TRANSACTIONS

1935. SECURED TRANSACTIONS Those supported by a collateral or
encumbrance of property or some other security intended to secure the fulfillment
of the principal obligation.

2. UNSECURED TRANSACTIONS Those fulfillment of which by the principal debtor

is secured or supported only by a promise to pay the personal commitment of the debtor.

SECURITY Something given, deposited, or serving as a means to ensure the fulfillment or

enforcement of an obligation

ELEMENTS OF BAILMENT

1. Bailor retains the title of the personal property

2. The possession or temporary control of the property is delivered or transferred
3. The bailee accepts possession of the property
4. The possession of the bailee is for specific purposes
5. The parties intend that identical property will be returned to the bailor at the end of the
bailment unless the bailor directs that it be given to another person or its disposal by the
bailee

BAILMENT VS CUSTODY
The element if intent to possess and control in bailment distinguishes a bailment from
custody. This element is absent in custody.

LOAN

Art. 1933. 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.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple loan,
ownership passes to the borrower. (1740a)

KINDS OF LOAN

1. COMMODATUM

The bailor delivers to the bailee a non-consummable things so that the latter
may use it for a certain time and return the identical thing.
It is loan of use, because there is a transfer of the use of the thing
borrowed.

2. SIMPLE LOAN OR MUTUUM

Where the lender delivers to the borrower money or other onsumable thing
upon the condition that the latter shall pay the same amount of the same
kind and quality.
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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

It is a loan of consumption, because there is a transfer of the ownership of

the thing, which is generally received for consumption.

Art. 1934. An accepted promise to deliver something by way of commodatum or

simple loan is binding upon parties, but the commodatum or simple loan itself shall not
be perfected until the delivery of the object of the contract. (n)

The fact that the commodatum and mutuum are real contracts which require the delivery
of the subject matter thereof for their perfection. Delivery is necessary in view of the
purpose of the contract which is transfer either their use or ownership of the thing
loaned.

COMMODATUM

Art. 1935. The bailee in commodatum acquires the used of the thing loaned but not its
fruits; if any compensation is to be paid by him who acquires the use, the contract ceases
to be a commodatum. (1941a)

 In general, a commodatum covers things that are not onsumable. If the thing is
onsumable, then the bailee will not be able to comply with the obligation to
return the thing.
 The contract ceases to be a commodatum if any compensation is to be paid by
the borrower who acquires the use. In such case, there arises a lease contract.
 If the consideration is the rendering of some service an innominate contract
will result.
 No required form for a commodatum. Since commodatum is a real contract,
delivery of the thing perfects the contract. Until delivery, there is no contract of
commodatum.
Commodatum may be made orally or in writing. In this regard, commodatum, being
gratuitous is not of type cornerstone of commercial life, it usually occurs between friends,
relatives and neighbors.
NOTE: The bailor need not be owner of the thing loaned. It is sufficient that the bailor has
the right to allow the use of the thing by the bailee. Thus, a usufructuary or a lessee can
enter into a contract of commodatum.

EXTINGUISHMENT OF THE CONTRACT OF COMMODATUM

1. Expiration of the stipulated period or accomplishment of the use
2. Return by the bailee of the thing after demand by the bailor, in the event that the bailor
has urgent need of the thing
3. Return in case of precarium or in the event the bailee commits ingratitude
4. Loss of the thing
5. The death of either the bailor or the bailee

Art. 1936. 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. (n)

Art. 1937. Movable or immovable property may be the object of commodatum. (n)
Art. 1938. The bailor in commodatum need not be the owner of the thing loaned. (n)
The bailor need not be owner of the thing loaned since ownership does not pass to the
borrower in commodatum. It is sufficient if the bailor has such possessory interest in the
subject matter or right to its use which he may assert against the bailee and third person
although not against the rightful owner. Hence a mere lessee of the thing of the thing or
the usufructuary may lend but the borrower or bailee himself may not lend nor lease the
thing loaned to him to a third person.

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

Art. 1939. Commodatum is purely personal in character.

Consequently:
(1) The death of either the bailor or the bailee extinguishes the contract;
(2) The bailee can neither lend nor lease the object of the contract to a third person.
However, the members of the bailee’s household may make use of the thing loaned,
unless there is a stipulation to the contrary, or unless the nature of the thing forbids such
use.

OBLIGATIONS OF THE BAILEE

Art. 1941. The bailee is obliged to pay for the ordinary expenses for the use and
preservation of the thing loaned. (1743a)
PRINCIPAL OBLIGATIONS OF THE BAILEE:
6. To take good care of the thing with the diligence of a good father of the family

6. Use the thing loaned only for the purpose for which it was loaned and for no other
purpose

6. Pay ordinary expenses for the use and preservation of the thing and a portion of
extraordinary expenses arising from the actual use of the thing

6. Return and not to retained the thing loaned except under certain circumstances.

Art. 1942. The bailee is liable for the loss of the thing, even if it should be through a
fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use
for which the commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exemption the bailee from responsibility in case of a fortuitous event;
(NOTE: It must be express)
(4) If he lends or leases the thing to a third person, who is not a member of his
household;
(5) If, being able to save either the thing borrowed or his own thing, he chose to save the
latter. (1744a and 1745)
• Manifestation on ingratitude

OBLIGATIONS OF THE BAILOR

Art. 1946. The bailor cannot demand the return of the thing loaned till after the expiration
of the period stipulated, or after the accomplishment of the use for which the
commodatum has been constituted. However, if in the meantime, he should have urgent
need of the thing, he may demand its return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is suspended while the
thing is in the possession of the bailor. (1749a)

Art. 1949. The bailor shall refund the extraordinary expenses during the contract 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.
If the extraordinary expenses arise on the occasion of the actual use of the thing by the
bailee, even though he acted without fault, they shall be borne equally by both the bailor
and the bailee, unless there is a stipulation to the contrary. (1751a)
Art. 1951. The bailor who, knowing the flaws of the thing loaned, does not advise the
bailee of the same, shall be liable to the latter for the damages which he may suffer by
reason thereof. (1752)

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

LIABILITY TO PAY DAMAGES FOR KNOWN HIDDEN FLAWS

1. There is flaw or defect in the thing loaned
2. The flaw or defect is hidden
3. The bailor is aware
4. He does not advise the bailee
5. The bailee suffers damages by reason of said flaw or defect

✓ The bailor is made liable in bad faith. The bailee is given the right to retention until he
is paid damages. The same responsibility of a bailor in commodatum is imposed on a
pledger. When the defect is unknown to the bailor, he is not liable because commodatum is
gratuitous.

Art. 1952. The bailor cannot exempt himself from the payment of expenses or damages by
abandoning the thing to the bailee. (n)

▪ The expense and damages may exceed the value of the thing loaned and it would be
unfair to allow the bailor to just abandon the thing instead of paying for said expenses or
damage.

CASES

Catholic Vicar Apostolic v. CA

Facts:
Catholic Vicar Apostolic of the Mountain Province (VICAR for brevity) filed with the
Court of First Instance of Baguio Benguet on September 5, 1962 an application for
registration of title over Lots 1, 2, 3, and 4 in Psu-194357, situated at Poblacion Central, La
Trinidad, Benguet, docketed as LRC N-91, said Lots being the sites of the Catholic Church
building, convents, high school building, school gymnasium, school dormitories, social
hall, stonewalls, etc. On March 22, 1963 the Heirs of Juan Valdez and the Heirs of
Egmidio Octaviano filed their Answer/Opposition on Lots Nos. 2 and 3, respectively,
asserting ownership and title thereto.

Issue:
Whether or not there is an error in finding that petitioner had been in possession of lots 2
and 3 merely as bailee borrower in commodatum, a gratuitous loan for use.

Held:
The Court of Appeals found that petitioner did not meet the requirement of 30 years
possession for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive prescription because of the
absence of just title. The appellate court did not believe the findings of the trial court that
Lot 2 was acquired from Juan Valdez by purchase and Lot 3 was acquired also by purchase
from Egmidio Octaviano by petitioner Vicar because there was absolutely no documentary
evidence to support the same and the alleged purchases were never mentioned in the
application for registration.
There is evidence that petitioner Vicar occupied Lots 1 and 4, which are not in question,
but not Lots 2 and 3, because the buildings standing thereon were only constructed after
liberation in 1945. Petitioner Vicar only declared Lots 2 and 3 for taxation purposes in
1951. The improvements oil Lots 1, 2, 3, 4 were paid for by the Bishop but said Bishop
was appointed only in 1947, the church was constructed only in 1951 and the new convent
only 2 years before the trial in 1963.

When petitioner Vicar was notified of the oppositor’s claims, the parish priest offered to
buy the lot from Fructuoso Valdez. Lots 2 and 3 were surveyed by request of petitioner
Vicar only in 1962.

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 CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

Private respondents were able to prove that their predecessors’ house was borrowed
by petitioner Vicar after the church and the convent were destroyed. They never
asked for the return of the house, but when they allowed its free use, they became
bailors in commodatum and the petitioner the bailee. The bailees’ failure to return
the subject matter of commodatum to the bailor did not mean adverse possession on
the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots
for taxation purposes. The action of petitioner Vicar by such adverse claim could not ripen
into title by way of ordinary acquisitive prescription because of the absence of just title.

REPUBLIC VS BAGTAS
G.R. No. L-17474 October 25, 1962
Facts: Bagtas borrowed three bulls from the Bureau of Animal Industry for one year for
breeding purposes subject to payment of breeding fee of 10% of book value of the bull.
Upon expiration, Bagtas asked for renewal. The renewal was granted only to one bull.
Bagtas offered to buy the bulls at its book value less depreciation but the Bureau refused.
The Bureau said that Bagtas should either return or buy it at book value. Bagtas proved that
he already returned two of the bulls, and the other bull died during a Huk raid, hence,
obligation already extinguished. He claims that the contract is a commodatum hence, loss
through fortuitous event should be borne by the owner.

Issue:
1. WON the contract was commodatum
2. WON Bagtas should be held liable for its loss due to force majeure.

Held:
1. NO, the contract is not commodatum.
2. YES, he is liable for the loss.

Ratio: A contract of commodatum is essentially gratuitous. 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%). No stipulation that in case of loss of the bull due to
fortuitous event the late husband of the appellant would be exempt from liability.

SAURA IMPORT and EXPERT CO., INC., vs DBP

[G.R. No. L-24968, April 27, 1972] MAKALINTAL, J.

FACTS:
In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now
DBP, for an industrial loan of P500,000 to be used for the construction of a
factory building, to pay the balance of the jute mill machinery and equipment
and as additional working capital. In Resolution No.145, the loan application
was approved to be secured first by mortgage on the factory buildings, the land
site, and machinery and equipment to be installed.
The mortgage was registered and documents for the promissory note were
executed. But then, later on, was cancelled to make way for the registration of a
mortgage contract over the same property in favor of Prudential Bank and
Trust Co., the latter having issued Saura letter of credit for the release of the jute
machinery. As security, Saura execute a trust receipt in favor of the Prudential.
For failure of Saura to pay said obligation, Prudential sued Saura.
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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

After almost 9 years, Saura Inc, commenced an action against RFC, alleging
failure on the latter to comply with its obligations to release the loan applied for
and approved, thereby preventing the plaintiff from completing or paying
contractual commitments it had entered into, in connection with its jute mill
project.
The trial court ruled in favor of Saura, ruling that there was a perfected contract
between the parties and that the RFC was guilty of breach thereof.
ISSUE: Whether or not there was a perfected contract between the parties. YES.
There was indeed a perfected consensual contract.

HELD:
· Article 1934 provides: An accepted promise to deliver something by way of
commodatum or simple loan is binding upon the parties, but the commodatum or
simple loan itself shall not be perfected until delivery of the object of the contract.
There was undoubtedly offer and acceptance in the case. The application of Saura,
Inc. for a loan of P500,000.00 was approved by resolution of the defendant, and the
corresponding mortgage was executed and registered. The defendant failed to fulfill
its obligation and the plaintiff is therefore entitled to recover damages.
When an application for a loan of money was approved by resolution of the
respondent corporation and the responding mortgage was executed and registered,
there arises a perfected consensual contract.

However, it should be noted that RFC imposed two conditions (availability of raw
materials and increased production) when it restored the loan to the original amount
of P500,000.00.
Saura, Inc. obviously was in no position to comply with RFC’s conditions. So
instead of doing so and insisting that the loan be released as agreed upon, Saura,
Inc. asked that the mortgage be cancelled.The action thus taken by both parties
was in the nature of mutual desistance which is a mode of extinguishing
obligations. It is a concept that derives from the principle that since mutual
agreement can create a contract, mutual disagreement by the parties can cause
its extinguishment.
WHEREFORE, the judgment appealed from is reversed and the complaint
dismissed.

Herrera vs Petro Phil Corp 146 Scra 385

FACTS: On December 5, 1969, Herrera and ESSO Standard, (later substituted by
Petrophil Corp.,) entered into a lease agreement, whereby the former leased to the latter a
portion of his property for a period of 20yrs. Subject to the condition that monthly rentals
should be paid and there should be an advance payment of rentals for the first eight years
of the contract, to which ESSO paid on December 31, 1969. However, ESSO deducted the
amount of 101, 010.73 as interest or discount for the eight years advance rental.
On August 20, 1970, ESSO informed Herrera that there had been a mistake in the
computation of the interest and paid an additional sum of 2,182.70; thus, it was reduced to
98, 828.03. As such, Herrera sued ESSO for the sum of 98, 828.03, with interest, claiming
that this had been illegally deducted to him in violation of the Usury Law. ESSO argued
that amount deducted was not usurious interest but rather a discount given to it for paying
the rentals in advance. Judgment on the pleadings was rendered in favor of ESSO. Thus,
the matter was elevated to the SC for only questions of law was involve.
ISSUE : W/N the contract between the parties is one of loan or lease.

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

RULING :  Contract between the parties is one of lease and not of loan. It is clearly
denominated a “LEASE AGREEMENT.” Nowhere in the contract is there any showing
that the parties intended a loan rather than a lease. The provision for the payment of rentals
in advance cannot be construed as a repayment of a loan because there was no grant or
forbearance of money as to constitute an indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging its obligation in advance by paying the
eight years rentals, and it was for this advance payment that it was getting a rebate or
discount.

Republic v. CA, 146 SCRA 15 (1986)

FACTS:

The heirs of Domingo Baloy, represented by Ricardo Baloy, filed an application for land

registration with a possessory title acquired under the provisions of the Spanish Mortgage

Law. The Court of First Instance of Zambales, denied the application thus it was interposed

on appeal to the Court of Appeals. The appellate court, thru its Fifth Division reversed the

decision and approved the application for registration. The petitioners filed their Motion

for reconsideration and was denied.

A communication/letter which contains an official statement, recognizes the fact that

Domingo Baloy and/or his heirs have been in continuous possession of the said land since

1894, as attested by an “Informacion Possessoria” Title, which was granted by the Spanish

Government. And was interrupted only by the occupation of the land by the US Navy in

1945.

ISSUES:

1. Whether or not there is a need for a court order for a private land to be deemed to have
become public land.

2. Whether or not the private respondents’ rights by virtue of their possessory information
title was lost by prescription.

HELD:

The appealed decision is AFFIRMED.

RULING:

1. Under Sec 3 Act 827. Private land could be deemed to have become public land by
virtue of a judicial declaration after due process and hearing. Without a judgement or
order declaring the land to be public, its private character and the possessory
information title over it must be respected.

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

2. During the interim of 57 years from November 26, 1902 to December 17, 1959 the
possessory rights of Baloy or his heirs were merely suspended and not lost by
prescription. The occupancy of the US Navy was not in the concept of owner. It
partakes of the character of a commodatum. One’s ownership of a thing may be lost by
prescription by reason of another’s possession if such possession be under claim of
ownership, not where the possession is only intended to be transient, in which case the
owner is not divested of his title, although it cannot be exercised in the meantime.

MARGARITA QUINTOS v. BECK, GR No. 46240, 1939-11-03

Facts:
Plaintiff brought this action to compel the defendant to return to her certain furniture which
she lent him for his use.
Defendant was a tenant of the plaintiff and as such occupied the latter’s house… upon the
novation of the contract of lease between the plaintiff and the defendant, the former
gratuitously granted to the latter the… use of the furniture subject to the condition that the
defendant would return them to the plaintiff upon the latter’s demand.
The plaintiff sold the property to Maria Lopez and Rosario Lopez these three notified the
defendant of the conveyance, giving him sixty days to vacate the premises under one of the
clauses of the contract of lease.
There after the plaintiff required the defendant to return all the furniture transferred to him
for his use.
The defendant answered that she may call for them in the house where they are found.
The defendant wrote a letter to the plaintiff informing her that he could not give up the
three gas heaters and the four electric lamps because he would use them until the lease is
due to expire.
The plaintiff refused to get the furniture in view of the fact that the defendant had declined
to make delivery of all of them.
Before vacating the house, the defendant deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on deposit in the warehouse
Issues:
Whether the defendant complied with his obligation to return the furniture upon the
plaintiff’s demand
Whether the latter is bound to bear the deposit fees thereof
Ruling:
The contract entered into between the parties is one of commodatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself
the ownership thereof; by this contract the defendant bound himself to return the furniture
to the plaintiff, upon the latter’s demand
The obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff’s demand, means that he should return all of them to the plaintiff at the latter’s
residence or house. The defendant did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his benefit the three gas heaters
and the four electric lamps.

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon
the latter’s demand, the Court could not legally compel her to bear the expenses occasioned
by the deposit of the furniture at the defendant’s behest. The latter, as bailee, was not
entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept the
offer to return the furniture, because the defendant wanted to retain the three gas heaters
and the four electric lamps.
The costs in both instances should be borne by the defendant
The defendant was the one who breached the contract of commodatum, and without any
reason he refused to return and deliver all the furniture upon the plaintiff’s demand. In
these circumstances, it is just and equitable that he pay the legal expenses and other
judicial costs which the plaintiff would not have otherwise defrayed.

DE LOS SANTOS VS JARRA G.R. No. L-4150 February 10, 1910

Facts: The Plaintiff Felix delos Santos filed this suit against Agustina Jarra. Jarra was the
administratix of the estate of Jimenea. Plaintiff alleged that he owned 10 1 st class carabaos
which he lent to his father-in-law Jimenea to be used in the animal-power mill without
compensation. This was done on the condition of their return after the work at the latter’s
mill is terminated. When delos Santos demanded the return of the animals Jimenea refused,
hence this suit.
Issue: W/N the contracts is one of a commodatum
Ruling: YES. The carabaos were given on commodatum as these were delivered to be used
by defendant. Upon failure of defendant to return the cattle upon demand, he is under the
obligation to indemnify the plaintiff by paying him their value. Since the 6 carabaos were
not the property of the deceased or of any of his descendants, it is the duty of the
administratrix of the estate to either return them or indemnify the owner thereof of their
value.

Mina v. Pascual, 25 Phil 540 1913

Facts: 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?
Ruling: 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.

PAJUYO VS. CA

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

FACTS: In June 1979, petitioner Pajuyo paid P400 to a certain Perez for the rights over a
250-square meter lot in Quezon City. Pajuyo then constructed a house on the lot and he and
his family lived in the house from 1979 to 1985.
On 8 December 1985, Pajuyo and private respondent Guevarra executed a Kasunduan or
agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free
provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra
promised that he would voluntarily vacate the premises on Pajuyos demand.
In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused. Pajuyo filed an ejectment case against
Guevarra with the MTC.
Guevarra claimed that Pajuyo had no valid title or right of possession over the lot because
the lot is within the 150 hectares set aside by Proclamation No. 137 for socialized housing.
Guevarra pointed out that from December 1985 to September 1994, Pajuyo did not show
up or communicate with him. Guevarra insisted that neither he nor Pajuyo has valid title to
the lot (both were squatters).
MTC rendered its decision in favor of Pajuyo. Pajuyo allowed Guevarra to use the house
only by tolerance. Thus, Guevarras refusal to vacate the house on Pajuyos demand made
Guevarras continued possession of the house illegal. RTC affirmed the MTC decision in
toto.
CA reversed the MTC and RTC rulings and declared that Pajuyo and Guevarra illegally
occupied the contested lot which the government owned. CA also declared that Pajuyo and
Guevarra are in pari delicto or in equal fault. Moreover, the Kasunduan is not a lease
contract but a commodatum because the agreement is not for a price certain.

ISSUE: Whether or not the contractual relationship between Pajuyo and Guevarra was that
of a commodatum.

HELD: No. 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.
Essential features of commodatum:
 it is gratuitous.
 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, which is a kind of
commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra
was not essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent,
it obligated him to maintain the property in good condition. The imposition of this
obligation makes the Kasunduan a contract different from a commodatum.

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

The effects of the Kasunduan are also different from that of a commodatum. Case law on
ejectment has treated relationship based on tolerance as one that is akin to a landlord-tenant
relationship where the withdrawal of permission would result in the termination of the
lease. The tenants withholding of the property would then be unlawful. Even assuming
that the relationship between Pajuyo and Guevarra is one of commodatum, Guevarra
as bailee would still have the duty to turn over possession of the property to Pajuyo,
the bailor. The obligation to deliver or to return the thing received attaches to contracts for
safekeeping, or contracts of commission, administration and commodatum.
Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the
Kasunduan after he had benefited from it. The Kasunduan binds Guevarra.
The Kasunduan is not void for purposes of determining who between Pajuyo and
Guevarra has a right to physical possession of the contested property. The Kasunduan
is the undeniable evidence of Guevarras recognition of Pajuyos better right of physical
possession. Guevarra is clearly a possessor in bad faith. The absence of a contract
would not yield a different result, as there would still be an implied promise to vacate.

PRODUCERS BANK VS. CA

FACTS: Sometime in 1979, private respondent Vives was asked by his neighbor and
friend Sanchez to help her friend, Col. Doronilla, in incorporating his business (Sterela).
Sanchez asked Vives to deposit in a bank a certain amount of money in the bank account of
Sterela for purposes of its incorporation. She assured Vives that he could withdraw his
money from said account within a months time.
Vives, Sanchez, Doronilla and a certain Dumagpi, Doronillas private secretary, met and
discussed the matter. Relying on the assurances and representations of Sanchez and
Doronilla, Vives issued a check in the amount of P200k in favor of Sterela which was
subsequently deposited under Sterela’s account.
Subsequently, Vives learned that Sterela was no longer holding office in the address
previously given to him. He went to the Bank to verify if their money was still intact.
Atienza, the assistant manager, informed them that part of the money had been withdrawn
by Doronilla, and that only P90k remained therein. He likewise told them that they could
not withdraw the remaining amount because it had to answer for some postdated checks
issued by Doronilla.
Sterela, through Doronilla, obtained a loan of P175k from the Bank. To cover payment,
Doronilla issued 3 postdated checks, all of which were dishonored.
Vives received a letter from Doronilla assuring him that his money was intact and would
be returned to him. Doronilla issued a postdated check for P212k in favor of Vives.
However, upon presentment to the drawee bank, the check was dishonored. Doronilla
requested Vives to present the same check on a later date but it was again dishonored.
Vives referred the matter to a lawyer, who made a written demand upon Doronilla for the
return of his clients money. Doronilla issued another check but was again dishonored for
insufficiency of funds.
Vives instituted an action for recovery of sum of money in the RTC against Doronilla,
Sanchez, Dumagpi and Producers Bank. He also filed criminal actions against Doronilla,
Sanchez and Dumagpi in the RTC.
RTC rendered a decision in favor of Vives. CA affirmed the decision of the RTC in Toto.
Petitioner contends that the transaction between private respondent and Doronilla is a
simple loan (mutuum) since all the elements of a mutuum are present: first, what was
delivered by private respondent to Doronilla was money, a consumable thing; and second,
the transaction was onerous as Doronilla was obliged to pay interest, as evidenced by the
check issued by Doronilla in the amount of P212k, or P12k more than what Vives
deposited in Sterelas bank account.
ISSUE: Whether or not the transaction between Doronilla and Vives was one of simple
loan or mutuum.

HELD: No, it was a commodatum.

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

Article 1933 of the Civil Code distinguishes between the two kinds of loans in this wise:
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.

Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation

to pay interest. In commodatum, the bailor retains the ownership of the thing loaned, while
in simple loan, ownership passes to the borrower.
The foregoing provision seems to imply that if the subject of the contract is a consumable
thing, such as money, the contract would be a mutuum. However, there are some
instances where a commodatum may have for its object a consumable thing.

Article 1936 of the Civil Code provides:

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.
The rule is that the intention of the parties thereto shall be accorded primordial
consideration in determining the actual character of a contract. The evidence shows that
Vives agreed to deposit his money in the savings account of Sterela for the purpose of
making it appear that said firm had sufficient capitalization for incorporation, with the
promise that the amount shall be returned within 30 days.
Vives merely accommodated Doronilla by lending his money without consideration, as a
favor to Sanchez. It was however clear to the parties to the transaction that the money
would not be removed from Sterelas savings account and would be returned to Vives after
30 days.
Doronillas attempts to return the amount did not convert the transaction from a
commodatum into a mutuum because such was not the intent of the parties and
because the additional P12k corresponds to the fruits of the lending of the P200k.
Article 1935 of the Civil Code expressly states that the bailee in commodatum acquires the
use of the thing loaned but not its fruits. Hence, it was only proper for Doronilla to remit
the interest.

Neither does the Court agree with petitioners contention that it is not solidarily liable for
the return of private respondents money because it was not privy to the transaction between
Doronilla and Vives.

Under Article 2180 of the Civil Code, employers shall be held primarily and solidarily
liable for damages caused by their employees acting within the scope of their assigned
tasks.

Atienzas acts of helping Doronilla, a customer of the petitioner, were obviously done in
furtherance of petitioners interests. It was established that the transfer of funds from
Sterelas savings account to its current account could not have been accomplished by
Doronilla without the invaluable assistance of Atienza, and that it was their connivance
which was the cause of private respondents loss.
Under Article 2180 of the Civil Code, petitioner is liable for private respondents loss and is
solidarily liable with Doronilla and Dumagpi for the return of the P200k since it is clear
that petitioner failed to prove that it exercised due diligence to prevent the unauthorized
withdrawals from Sterela’s savings account.

-NOTHING FOLLOWS-

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CREDIT TRANSACTIONS- Atty. Norossana Alauya Sani, CPA
MINDANAO STATE UNIVERSITY- COLLEGE OF LAW

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