CHAPTER 1

COMMODATUM
SECTION 1 - Nature of 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)

A commodatum is a type of loan where one person (the lender) lets another
person (the borrower) use something for free. However, the borrower can only
use the item itself and not benefit from any profits (or "fruits") it might produce.
If the borrower has to pay anything to use it, then it is no longer a
commodatum—it becomes a rental or lease

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)

Consumable goods (things that usually get used up, like food, fuel, or money)
can be loaned under a commodatum if the borrower is not supposed to consume.

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)

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. (n)
​
In short, commodatum is personal because it is strictly between the lender and
the borrower, based on trust, and cannot easily be transferred or extended to
others.

Art. 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is
valid. (n)
SECTION 2. - 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)

Ordinary expenses in commodatum refer to the usual and necessary costs

required to use and maintain the borrowed item in good condition. These are
expenses that naturally arise from normal use, and the bailee (borrower) is
responsible for them.

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;​
(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)

In general, a bailee (borrower) is not responsible for loss due to a fortuitous

event (an unexpected event like an earthquake, fire, or flood). However, this
article states that if the bailee does certain things, they will be held liable for the
loss—even if it was due to a fortuitous event.

Art. 1943. The bailee does not answer for the deterioration of the thing loaned due only
to the use thereof and without his fault. (1746)

Art. 1944. The bailee cannot retain the thing loaned on the ground that the bailor owes
him something, even though it may be by reason of expenses. However, the bailee has
a right of retention for damages mentioned in Article 1951. (1747a)

Normally, the bailee cannot refuse to return the borrowed item just because the
bailor owes them money—even if the debt is due to expenses the bailee paid for
the item’s maintenance. However, if the bailor caused damage to the bailee, the
bailee may have the right to hold on to the borrowed item until they are
compensated.

Art. 1945. When there are two or more bailees to whom a thing is loaned in the same
contract, they are liable solidarily. (1748a)
 When a thing is loaned to two or more bailees (borrowers) in the same contract,
they are solidarily liable. This means that each borrower is fully responsible for
the whole item, not just their share.

SECTION 3. - 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. 1947. The bailor may demand the thing at will, and the contractual relation is
called a precarium, in the following cases:

(1) If neither the duration of the contract nor the use to which the thing loaned should
be devoted, has been stipulated; or​
(2) If the use of the thing is merely tolerated by the owner. (1750a)

Art. 1948. The bailor may demand the immediate return of the thing if the bailee
commits any act of ingratitude specified in Article 765. (n)

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. 1950. If, for the purpose of making use of the thing, the bailee incurs expenses
other than those referred to in Articles 1941 and 1949, he is not entitled to
reimbursement. (n)

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)

Art. 1952. The bailor cannot exempt himself from the payment of expenses or damages
by abandoning the thing to the bailee. (n)
CHAPTER 2
SIMPLE LOAN OR MUTUUM

Art. 1953. A person who receives a loan of money or any other fungible thing acquires
the ownership thereof, and is bound to pay to the creditor an equal amount of the same
kind and quality. (1753a)

Mutuum, which is a type of loan where money or fungible (replaceable) items are
borrowed. Unlike commodatum (which is a loan for use where ownership
remains with the lender), in mutuum, the borrower becomes the owner of the
borrowed money or goods and must return an equivalent amount.

Art. 1954. A contract whereby one person transfers the ownership of non-fungible
things to another with the obligation on the part of the latter to give things of the same
kind, quantity, and quality shall be considered a barter. (n)

If someone transfers ownership of a non-fungible item (something unique or not

easily replaceable) to another person, and the receiver is obligated to return a
similar item (same kind, quantity, and quality), the contract is not a loan but a
barter (exchange).

Art. 1955. The obligation of a person who borrows money shall be governed by the
provisions of Articles 1249 and 1250 of this Code.

If what was loaned is a fungible thing other than money, the debtor owes another thing
of the same kind, quantity and quality, even if it should change in value. In case it is
impossible to deliver the same kind, its value at the time of the perfection of the loan
shall be paid. (1754a)

1. If the loan is in money - The borrower must follow the rules in Articles 1249
and 1250 of the Civil Code:

Article 1249: Debts paid in money must be settled in legal currency (e.g.,
Philippine pesos).

Article 1250: If there is an extraordinary inflation or deflation of the currency,

the court may adjust the debt amount to ensure fairness.

2. If the loan is in fungible goods (not money) - The borrower must return the
same kind, quantity, and quality, even if its market value changes over time.

If it is impossible to return the same kind of item, the borrower must pay its
value at the time the loan agreement was made.

Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury shall be void. The borrower may recover in
accordance with the laws on usury. (n)

Art. 1958. In the determination of the interest, 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. (n)

Art. 1959. Without prejudice to the provisions of Article 2212, interest due and unpaid
shall not earn interest. However, the contracting parties may by stipulation capitalize
the interest due and unpaid, which as added principal, shall earn new interest. (n)

As a general rule, interest does not earn more interest (no “interest on
interest”). Exception: The lender and borrower can agree to capitalize unpaid
interest, meaning it is added to the principal amount and will then earn new
interest.

Art. 1960. If the borrower pays interest when there has been no stipulation therefor,
the provisions of this Code concerning solutio indebiti, or natural obligations, shall be
applied, as the case may be. (n)

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. (n)​

Title XII. - DEPOSIT

CHAPTER 1
DEPOSIT IN GENERAL AND ITS DIFFERENT KINDS

Art. 1962. A deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the same.
If the safekeeping of the thing delivered is not the principal purpose of the contract,
there is no deposit but some other contract. (1758a)

This article defines deposit as a contract where: A person receives something

belonging to another. They must safely keep it. They must return the exact same
item. If the main purpose of the agreement is not safekeeping, then it is not a
deposit but a different type of contract.

Art. 1963. An agreement to constitute a deposit is binding, but the deposit itself is not
perfected until the delivery of the thing. (n)

Art. 1964. A deposit may be constituted judicially or extrajudicially. (1759)

Art. 1965. A deposit is a gratuitous contract, except when there is an agreement to the
contrary, or unless the depositary is engaged in the business of storing goods. (1760a)
Art. 1966. Only movable things may be the object of a deposit. (1761)

Art. 1967. An extrajudicial deposit is either voluntary or necessary. (1762)

CHAPTER 2
VOLUNTARY DEPOSIT
SECTION 1. - General Provisions

Art. 1968. A voluntary deposit is that wherein the delivery is made by the will of the
depositor. A deposit may also be made by two or more persons each of whom believes
himself entitled to the thing deposited with a third person, who shall deliver it in a
proper case to the one to whom it belongs. (1763)

A voluntary deposit happens when the depositor chooses to leave an item for
safekeeping. When multiple people claim ownership, a third party can hold the
item until ownership is settled. The depositary must return the item to the
rightful owner once the issue is resolved.

Art. 1969. A contract of deposit may be entered into orally or in writing. (n)

Art. 1970. If a person having capacity to contract accepts a deposit made by one who is
incapacitated, the former shall be subject to all the obligations of a depositary, and may
be compelled to return the thing by the guardian, or administrator, of the person who
made the deposit, or by the latter himself if he should acquire capacity. (1764)

The capable depositary (receiver of the item) must fulfill all deposit obligations –
Even though the depositor is incapacitated, the deposit remains valid, and the
depositary must safely keep and return the item. The guardian or legal
representative of the incapacitated person can demand the return of the item. If
the incapacitated depositor later gains legal capacity, they can personally
demand the return of the item.

Art. 1971. If the deposit has been made by a capacitated person with another who is
not, the depositor shall only have an action to recover the thing deposited while it is
still in the possession of the depositary, or to compel the latter to pay him the amount
by which he may have enriched or benefited himself with the thing or its price.
However, if a third person who acquired the thing acted in bad faith, the depositor may
bring an action against him for its recovery. (1765a)

This article explains what happens when a legally capable person (depositor)
entrusts an item to someone who is legally incapacitated (e.g., a minor, a
mentally ill person, or someone disqualified by law). Since the depositary is not
legally capable, the depositor has limited options for recovering the item.