CIVIL LAW

VIII. CREDIT TRANSACTIONS

A. LOANS

I. DEFINITION OF LOAN
A loan is a contract wherein one party (the lender) delivers to another party (the borrower) money or fungible goods with the obligation of the latter to return an equivalent sum of money or goods of the same kind and quality.

Relevant Articles:

Article 1933, Civil Code of the Philippines: Defines a loan (mutuum) and its essential characteristics.
Article 1953, Civil Code: Outlines that interest must be expressly stipulated.

II. CLASSIFICATIONS OF LOANS

By Nature of the Object
a. Simple Loan (Mutuum):
- Involves the delivery of money or fungible goods.
- The borrower is obligated to return the same kind or equivalent value.
b. Commodatum:
- Involves the delivery of non-fungible goods for temporary use.
- Ownership remains with the lender.
By Presence of Interest
a. Gratuitous Loan: No interest is charged.
b. Onerous Loan: Interest is stipulated and must be paid by the borrower.
By Purpose
a. Consumer Loans: For personal, family, or household purposes.
b. Commercial Loans: For business or trade purposes.

III. ESSENTIAL ELEMENTS OF LOAN

Consent:
- Mutual agreement of the parties.
- Can be oral or written.
Object:
- Must consist of money, fungible goods, or specific personal property in the case of commodatum.
- Object must be lawful, possible, and determinate.
Cause or Consideration:
- Gratuitous (mere liberality of lender) or onerous (interest as compensation).

IV. RULES AND LEGAL PRINCIPLES

Delivery as a Requisite for Perfection (Article 1934):
- A loan is perfected upon delivery of the thing or money to the borrower.
Obligation to Return (Article 1933):
- The borrower is required to return the equivalent sum of money or goods.
Interest (Articles 1956-1957):
- Express Stipulation Required:
  Interest cannot be demanded unless agreed upon in writing.
- Usury Law:
  Interest rates are governed by Republic Act No. 3765 (Truth in Lending Act) and Central Bank regulations.
  While the Usury Law ceiling has been lifted, the interest rate must still be reasonable; otherwise, courts may reduce excessive rates.
Liability for Fortuitous Events (Article 1942):
- In a simple loan, the borrower generally bears the loss of the object unless:
  - Delay in returning it has occurred.
  - The borrower has used the object for purposes other than agreed upon.
Prescriptive Period for Recovery of Loans (Article 1149):
- Actions to recover debts prescribe after ten (10) years from the time the obligation became due and demandable, unless a shorter period applies.
Gratuitous Commodatum (Articles 1935-1941):
- The lender cannot demand the return of the thing loaned until the expiration of the stipulated term or after the purpose of the loan is achieved.
- Borrower’s liability: The borrower must exercise extraordinary diligence and is liable for losses due to their negligence.
Right to Compensation (Article 1278):
- Debts arising from loans may be subject to compensation if both parties are creditors of each other, provided all conditions under Article 1279 are met.

V. COMMON TYPES OF LOANS IN THE PHILIPPINES

Personal Loans:
- Unsecured loans for personal expenses.
Mortgage Loans:
- Loans secured by real property, subject to the rules on contracts of mortgage.
Salary Loans:
- Loans offered to employees, often secured by future salaries.
Pawning (Pledge):
- Delivery of personal property as security for a loan, governed by Article 2085 et seq.
Bank Loans:
- Governed by special laws and regulations of the Bangko Sentral ng Pilipinas.

VI. OBLIGATIONS OF THE PARTIES

Obligations of the Borrower:
- To pay the principal and interest (if stipulated) on the due date.
- To exercise diligence in the use of the borrowed object (commodatum).
- To return the equivalent amount or object at the agreed-upon time.
Obligations of the Lender:
- To deliver the object of the loan.
- To allow the borrower to use the object for the agreed purpose (commodatum).

VII. REMEDIES IN CASE OF DEFAULT

Demand for Payment:
- Formal demand is necessary unless expressly waived.
Foreclosure:
- Applicable in loans secured by collateral such as mortgages or pledges.
Judicial Action:
- Lenders may file civil actions to collect the debt.
Right of Retention (Article 1912):
- In commodatum, the lender may retain the thing loaned if the borrower owes other obligations.
Legal Interest:
- In the absence of stipulation, legal interest (currently 6% per annum as prescribed by jurisprudence) may be imposed.

VIII. SPECIAL LAWS GOVERNING LOANS

Truth in Lending Act (R.A. 3765):
- Requires lenders to disclose the full cost of credit, including interest rates and other charges.
Anti-Money Laundering Act (R.A. 9160):
- Regulates large transactions, including loans, to prevent illicit activities.
Magna Carta for Micro, Small, and Medium Enterprises (R.A. 9501):
- Provides for government-backed credit facilities for MSMEs.

This comprehensive guide provides the key aspects of loan agreements under Philippine law, combining principles from the Civil Code and relevant jurisprudence.