Title XI. - LOAN Art. 1950.
Art. 1950. If, for the purpose of making use of the thing, the bailee incurs expenses other
GENERAL PROVISIONS
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)
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)
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)
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)
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)
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)
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)
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)
Art. 1945. When there are two or more bailees to whom a thing is loaned in the same
contract, they are liable solidarily. (1748a)
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)
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)
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)
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)
Art. 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)
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)
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)
REPUBLIC ACT No. 3765
AN ACT TO REQUIRE THE DISCLOSURE OF FINANCE CHARGES IN CONNECTION WITH
EXTENSIONS OF CREDIT.
Section 1. This Act shall be known as the "Truth in Lending Act."
Section 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect
its citizens from a lack of awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed use of credit to the
detriment of the national economy.
Section 3. As used in this Act, the term
(1) "Board" means the Monetary Board of the Central Bank of the Philippines.
(2) "Credit" means any loan, mortgage, deed of trust, advance, or discount; any
conditional sales contract; any contract to sell, or sale or contract of sale of
property or services, either for present or future delivery, under which part or
all of the price is payable subsequent to the making of such sale or contract;
any rental-purchase contract; any contract or arrangement for the hire,
bailment, or leasing of property; any option, demand, lien, pledge, or other
claim against, or for the delivery of, property or money; any purchase, or other
acquisition of, or any credit upon the security of, any obligation of claim arising
out of any of the foregoing; and any transaction or series of transactions having
a similar purpose or effect.
(3) "Finance charge" includes interest, fees, service charges, discounts, and
such other charges incident to the extension of credit as the Board may be
regulation prescribe.
(4) "Creditor" means any person engaged in the business of extending credit
(including any person who as a regular business practice make loans or sells or
rents property or services on a time, credit, or installment basis, either as
principal or as agent) who requires as an incident to the extension of credit,
the payment of a finance charge.
(5) "Person" means any individual, corporation, partnership, association, or
other organized group of persons, or the legal successor or representative of
the foregoing, and includes the Philippine Government or any agency thereof,
or any other government, or of any of its political subdivisions, or any agency
of the foregoing.
Section 4. Any creditor shall furnish to each person to whom credit is extended, prior to
the consummation of the transaction, a clear statement in writing setting forth, to the
extent applicable and in accordance with rules and regulations prescribed by the Board,
the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
1
 (3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
Section 5. The Board shall prescribe such rules and regulations as may be necessary or
proper in carrying out the provisions of this Act. Any rule or regulation prescribed
hereunder may contain such classifications and differentiations as in the judgment of the
Board are necessary or proper to effectuate the purposes of this Act or to prevent
circumvention or evasion, or to facilitate the enforcement of this Act, or any rule or
regulation issued thereunder.
Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to
any person any information in violation of this Act or any regulation issued thereunder shall
be liable to such person in the amount of P100 or in an amount equal to twice the finance
charged required by such creditor in connection with such transaction, whichever is the
greater, except that such liability shall not exceed P2,000 on any credit transaction. Action
to recover such penalty may be brought by such person within one year from the date of
the occurrence of the violation, in any court of competent jurisdiction. In any action under
this subsection in which any person is entitled to a recovery, the creditor shall be liable for
reasonable attorney's fees and court costs as determined by the court.
(b) Except as specified in subsection (a) of this section, nothing contained in
this Act or any regulation contained in this Act or any regulation thereunder
shall affect the validity or enforceability of any contract or transactions.
(c) Any person who willfully violates any provision of this Act or any regulation
issued thereunder shall be fined by not less than P1,00 or more than P5,000 or
imprisonment for not less than 6 months, nor more than one year or both.
(d) No punishment or penalty provided by this Act shall apply to the Philippine
Government or any agency or any political subdivision thereof.
(e) A final judgment hereafter rendered in any criminal proceeding under this
Act to the effect that a defendant has willfully violated this Act shall be prima
facie evidence against such defendant in an action or proceeding brought by
any other party against such defendant under this Act as to all matters
respecting which said judgment would be an estoppel as between the parties
thereto.
Section 7. This Act shall become effective upon approval.
Approved: June 22, 1963
ACT NO. 2655 – AN ACT FIXING RATES OF INTEREST UPON LOANS AND DECLARING THE
EFFECT OF RECEIVING OR TAKING USURIOUS RATES AND FOR OTHER PURPOSES
Section 1. The rate of interest for the loan or forbearance of any money goods, or credits
and the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be six per centum per annum or such rate as may be prescribed by the
Monetary Board of the Central Bank of the Philippines for that purpose in accordance with
the authority hereby granted.
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates
of interest for the loan or renewal thereof or the forbearance of any money, goods or
credits, and to change such rate or rates whenever warranted by prevailing economic and
social conditions.
In the exercise of the authority herein granted, the Monetary Board may prescribe higher
maximum rates for loans of low priority, such as consumer loans or renewals thereof as
well as such loans made by pawnshops finance companies and other similar credit
institutions although the rates prescribed for these institutions need not necessarily be
uniform. The Monetary Board is also authorized to prescribe different maximum rate or
rates for different types of borrowings, including deposits and deposit substitutes, or loans
of financial intermediaries.
Sec. 2. No person or corporation shall directly or indirectly take or receive in money or
other property, real or personal, or choses in action, a higher rate of interest or greater
sum or value, including commissions, premiums, fines and penalties, for the loan or
renewal thereof or forbearance of money, goods, or credits, where such loan or renewal
or forbearance is secured in whole or in part by a mortgage upon real estate the title to
which is duly registered, or by any document conveying such real estate or an interest
therein, than twelve per centum per annum or the maximum rate prescribed by the
Monetary Board and in force at the time the loan or renewal thereof or forbearance is
granted: Provided, That the rate of interest under this section or the maximum rate of
interest that may be prescribed by the Monetary Board under this section may likewise
apply to loans secured by other types of security as may be specified by the Monetary
Board.
Sec. 3. No person or corporation shall directly or indirectly demand, take, receive or agree
to charge in money or other property, real or personal, a higher rate or greater sum or
value for the loan or forbearance of money, goods, or credits where such loan or
forbearance is not secured as provided in Section two hereof, than fourteen per centum
per annum or the maximum rate or rates prescribed by the Monetary Board and in force
at the time the loan or forbearance is granted.
Sec. 4. No pawnbroker or pawnbroker’s agent shall directly or indirectly stipulate, charge,
demand, take or receive any higher rate or greater sum or value for any loan or
forbearance than two and one-half per centum per month when the sum lent is less than
one hundred pesos; two per centum per month when the sum lent is one hundred pesos
or more, but not exceeding five hundred pesos; and fourteen per centum per annum when
it is more than the amount last mentioned; or the maximum rate or rates prescribed by
the Monetary Board and in force at the time the loan or forbearance is granted. A
pawnbroker or pawnbroker’s agent shall be considered such, for the benefits of this Act,
only if he be duly licensed and has an establishment open to the public.
It shall be unlawful for a pawnbroker or pawnbroker’s agent to divide the pawn offered by
a person into two or more fractions in order to collect greater interest than the permitted
by this section.
It shall also be unlawful for a pawnbroker or pawnbroker’s agent to require the pawner to
pay an additional charge as insurance premium for the safekeeping and conservation of
the article pawned.
Sec. 4-a. The Monetary Board may eliminate, exempt from, or suspend the effectivity of,
interest rate ceilings on certain types of loans or renewals thereof or forbearances of
money, goods, or credit, whenever warranted by prevailing economic and social conditions.
Sec. 4-b. In the exercise of its authority to fix the maximum rate or rates of interest under
this Act, the Monetary Board shall be guided by the following:
1. The existing economic conditions in the country and the general requirements of the
national economy;
2. The supply of and demand for credit;
3. The rate of increase in the price levels; and
4. Such other relevant criteria as the Monetary Board may adopt.
Sec. 5. In computing the interest on any obligation, promissory note or other instrument
or contract, compound interest shall not be reckoned, except by agreement: Provided,
That whenever compound interest is agreed upon, the effective rate of interest charged
by the creditor shall not exceed the equivalent of the maximum rate prescribed by the
Monetary Board, or, in default thereof, whenever the debt is judicially claimed, in which
last case it shall draw six per centum per annum interest or such rate as may be prescribed
by the Monetary Board. No person or corporation shall require interest to be paid in
advance for a period of more than one year: Provided, however, That whenever interest is
paid in advance, the effective rate of interest charged by the creditor shall not exceed the
equivalent of the maximum rate prescribed by the Monetary Board.
Sec. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance,
shall have paid or delivered a higher rate or greater sum or value than is hereinbefore
allowed to be taken or received, may recover the whole interest, commissions, premiums
penalties and surcharges paid or delivered with costs and attorneys’ fees in such sum as
may be allowed by the court in an action against the person or corporation who took or
received them if such action is brought within two years after such payment or delivery:
Provided, however, That the creditor shall not be obliged to return the interest,
commissions and premiums for a period of not more than one year collected by him in
advance when the debtor shall have paid the obligation before it is due, provided such
interest, and commissions and premiums do not exceed the rates fixed in this Act.
Sec. 7. All covenants and stipulations contained in conveyances, mortgages, bonds, bills,
notes, and other contracts or evidences of debts, and all deposits of goods or other things,
whereupon or whereby there shall be stipulated, charged, demanded, reserved, secured,
taken, or received, directly or indirectly, a higher rate or greater sum or value for the loan
or renewal or forbearance of money, goods, or credits than is hereinbefore allowed, shall
be void: Provided, however, That no merely clerical error in the computation of interest,
made without intent to evade any of the provisions of this Act, shall render a contract void:
Provided, further, That parties to a loan agreement, the proceeds of which may be availed
of partially or fully at some future time, may stipulate that the rate of interest agreed upon
at the time the loan agreement is entered into, which rate shall not exceed the maximum
allowed by law, shall prevail notwithstanding subsequent changes in the maximum rates
that may be made by the Monetary Board: And Provided, finally, That nothing herein
contained shall be construed to prevent the purchase by an innocent purchaser of a
negotiable mercantile paper, usurious or otherwise, for valuable consideration before
maturity, when there has been no intention on the part of said purchaser to evade the
provisions of this Act and said purchase was not a part of the original usurious transaction.
In any case, however, the maker of said note shall have the right to recover from said
original holder the whole interest paid by him thereon and, in case of litigation, also the
costs and such attorney’s fees as may be allowed by the court.
Sec. 8. All loans under which payment is to be made in agricultural products or seed or in
any other kind of commodities shall also be null and void unless they provide that such
products or seed or other commodities shall 6e appraised at the time when the obligation
falls due at the current local market price: Provided, That unless otherwise stated in a
document written in a language or dialect intelligible to the debtor and subscribed in the
presence of not less than two witnesses, any contract advancing money to be repaid later
in agricultural products or seed or any other kind of commodities shall be understood to
be a loan, and any person or corporation having paid otherwise shall be entitled in case
action is brought within two years after such payment or delivery to recover all the
products or seed delivered as interest, or the value thereof, together with the costs and
attorney’s fees in such sum as may be allowed by the court. Nothing contained in this
section shall be construed to prevent the lender from taking interest for the money lent,
provided such interest be not in excess of the rates herein fixed.
Sec. 9. The person or corporation sued shall file its answer in writing under oath to any
complaint brought or filed against said person or corporation before a competent court to
recover the money or other personal or real property, seeds or agricultural products,
charged or received in violation of the provisions of this Act. The lack of taking an oath to
an answer to a complaint will mean the admission of the facts contained in the latter.
2
Sec. 9-a. The Monetary Board shall promulgate such rules and regulations as may be
necessary to implement effectively the provisions of this Act.
Sec. 10. Without prejudice to the proper civil action violation of this Act and the
implementing rules and regulations promulgated by the Monetary Board shall be subject
to criminal prosecution and the guilty person shall, upon conviction, be sentenced to a fine
of not less than fifty pesos nor more than five hundred pesos, or to imprisonment for not
less than thirty days nor more than one year, or both, in the discretion of the court, and to
return the entire sum received as interest from the party aggrieved, and in the case of non-
payment, to suffer subsidiary imprisonment at the rate of one day for every two pesos:
Provided, That in case of corporations, associations, societies, or companies the manager,
administrator or gerent or the person who has charge of the management or
administration of the business shall be criminally responsible for any violation of this Act.
Sec. 11. All Acts and parts of Acts inconsistent with the provisions of this Act are hereby
repealed.
Sec. 12. This Act shall take effect on the first day of May, nineteen hundred and sixteen.
ENACTED, February 24,1916.

PRESIDENTIAL DECREE No. 1684 September 18, 1980

AMENDING THE NATIONAL INTERNAL REVENUE CODE OF 1977, AS AMENDED, BY ADDING
NEW SECTIONS TO TITLE VII AND TITLE VIII THEREOF
WHEREAS, mineral and forest products have been greatly affected by changes in
international market conditions; and
WHEREAS, in order to provide a mechanism which is responsive to such changes in
international market conditions, and which could also be a tool for economic and industrial
policies, it is necessary that the National Internal Revenue Code of 1977, as amended, be
further amended accordingly.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines by virtue of the
powers vested in me by the Constitution, do hereby decree and order:
Section 1. A new Section 259-A is hereby added to Title VII of the National Internal Revenue
Code of 1977, as amended, which shall read as follows:
"Sec. 259(a). Flexibility Clause. In the interest of the national economy and general welfare,
the President, upon recommendation of the Minister of both the Ministries of Finance and
Natural Resources, is hereby empowered to revise the rates of tax on and classification of
mineral products, as well as to prescribe the rates of tax in cases of marginal mines
requiring protection, assistance or incentives.
"The foregoing authority may be exercised by the President if any of the following
conditions exist:
"(a) Where, in the interest of economic development, it is
necessary to redirect expenditures or consumption patterns;
"(b) Whenever by reason of fluctuation of currency values and/or
inflation or deflation, the existing taxable base and rate levels are
no longer realistic or consistent with the current price levels;
"(c) When it is necessary to counter adverse action on the part of
another country or adverse international market conditions; or
"(d) When there is need to obviate unemployment and economic
and social dislocation.
"Before any recommendation is submitted to the President by the Minister of Finance and
the Minister of Natural Resources pursuant to the provisions of this section, a public
hearing shall, whenever practicable, be held and interested parties afforded a reasonable
opportunity to be heard."
Section 2. A new Section 281-A is hereby added to Title VIII of the same Code which shall
read as follows:
"Sec. 281(a) Flexibility Clause. In the interest of the national economy and general welfare,
the President, upon recommendation of the Minister of both the Ministries of Finance and
Natural Resources, is hereby empowered to revise the rates of tax on and classification of
forest products.
"The foregoing authorities may be exercised by the President if any of the following
conditions exist:
"(a) Where, in the interest of economic development, it is
necessary to redirect expenditures or consumption patterns;
"(b) Whenever by reason of fluctuation of currency values and/or
inflation or deflation, the existing taxable base and rate levels are
no longer realistic or consistent with the current price levels;
"(c) When it is necessary to counter adverse action on the part of
another country or adverse international market conditions; or
"(d) When there is need to obviate unemployment and economic
and social dislocation.
"Before any recommendation is submitted to the President by the Minister of Finance and
the Minister of Natural Resources pursuant to the provision of this section, a public hearing
shall, whenever practicable, be held and interested parties afforded a reasonable
opportunity to be heard."
Section 3. This Decree shall take effect immediately.
Done in the City of Manila, this 18th day of September, in the year of Our Lord, nineteen
hundred and eighty.