SIMPLE LOAN OR MUTUUM

SIMPLE LOAN OR MUTUUM – contract whereby one of the parties delivers to another money or other fungible thing w/ the understanding that the same amount of the same kind and quality shall be paid. (Art. 1933)

NATURE OF MUTUUM
a. bilateral - borrower’ promise to pay is the consideration for the lender’s obligation to
furnish the loan
b. no criminal liability upon failure to pay

SUBJECT MATTER
a. fungible or consumable-depending on the intent of the parties, that the return of the thing is equivalent only and not the identical thing
b. money
c. if the transfer of ownership is on a nonfungible thing, with the obligation of the other
to give things of the same kind, quantity and quality, it is a barter

INTEREST
GR: Interest must be expressly stipulated in writing, and it must be lawful (Art. 1956) Exceptions:
1. Indemnity for damages – the debtor in delay is liable to pay legal interest (6%/12%) as indemnity for damages even in the absence of a stipulation for the payment of interest. Interest as indemnity for damages is payable
only in case of default or non-performance of contract.
• Basis for computation for indemnity:

a. Central Bank Circular 416 – 12% p.a. in
cases of:
• Loans
• Forbearance of money, goods or credits
• Judgments involving such loans or forbearance, in the absence of the
express agreement as to such rate of interest
• During the interim period from the date judgment until actual payment

\b. Art. 2209 of the Civil Code – 6% p.a. in cases of:
• Other sources (e.g. sale)
• Damages arising from injury to persons
• Loss of property which does not involve a loan

2. Interest accruing from unpaid interest - interest due shall earn interest from the time it is judicially demanded although the obligation may be silent
upon this point.

DETERMINATION OF INTEREST 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. 1958)
Purpose: to make usury harder to perpetrate

COMPOUNDING INTEREST (Art. 1959)
GR: accrued interest (interest due and unpaid) shall not earn interest
Exceptions:
• When judicially demanded
• When there is an express stipulation made by the parties to wit: that the interest due and unpaid shall be added to the principal obligation and the resulting total amount shall earn interest Compounding interest may be availed of only when there is a written stipulation in the contract for the payment of interest.