CIVIL LAW
VIII. CREDIT TRANSACTIONS
A. LOANS
1. Definition
A. Definition of Loan
Under Philippine law, a loan is a contract whereby one party, called the lender, delivers to another party, the borrower, either money or other consumable things, upon the condition that the latter shall pay an equivalent amount of money or return things of the same kind and quality at a future time. Loans are governed primarily by the Civil Code of the Philippines, particularly Articles 1933 to 1961, under the chapter on Credit Transactions.
B. Characteristics of a Loan
Principal Obligation:
- The borrower's obligation is to return the equivalent of what was received, whether in money or in kind.
- If the loan involves money, the borrower is required to pay the sum borrowed along with any stipulated interest.
Bilateral Contract:
- It is unilateral once the lender delivers the loan, as it creates an obligation only for the borrower to return the equivalent in money or goods.
Nominate Contract:
- The contract is specifically provided for under the Civil Code.
Gratuitous or Onerous:
- Gratuitous Loan: If no interest is stipulated, the loan is considered mutuum.
- Onerous Loan: If interest is agreed upon, the loan becomes an interest-bearing mutuum.
Real Contract:
- A loan is perfected only upon the delivery of the object of the loan (i.e., money or other consumable goods). This is distinct from a consensual contract, which is perfected upon mere agreement.
C. Kinds of Loans
Mutuum (Simple Loan):
- Definition: A contract where the lender delivers money or other consumable things, and the borrower is obliged to repay with the same kind, quality, and quantity.
- Gratuitous by Default: Interest is not presumed and must be expressly stipulated.
- Obligation of the Borrower:
- Return the equivalent in kind and quality, or the amount of money borrowed.
- Examples:
- Lending cash.
- Lending agricultural products, such as rice or corn.
Commodatum (Loan for Use):
- Definition: A gratuitous contract where one party delivers a non-consumable thing to another for use, with the obligation to return the same thing.
- Purpose: Unlike mutuum, where the borrower may consume the object, in commodatum the specific item itself must be returned.
- Distinguishing Feature:
- No transfer of ownership occurs in commodatum.
D. Essential Elements
Consent:
- Both parties must consent to the terms of the loan.
- Consent must be free, mutual, and voluntary.
Object:
- The object of the loan must either be money or consumable goods.
- For commodatum, the object must be non-consumable.
Cause:
- The cause is either gratuitous (no interest) or onerous (interest-bearing).
E. Stipulation of Interest
Legal Interest Rate:
- The BSP (Bangko Sentral ng Pilipinas) sets the legal interest rate in the Philippines.
- As of the latest guidelines, the legal interest for loans is 6% per annum, unless otherwise stipulated.
Usury Law:
- The Usury Law was effectively repealed by the New Central Bank Act (R.A. 7653), allowing parties to agree freely on interest rates, provided it does not contravene public policy or laws.
Requisites for Valid Interest:
- Must be expressly stipulated in writing.
- If not stipulated, the loan is considered gratuitous.
F. Obligations of the Borrower
Return of Object:
- For mutuum: Return the equivalent in money or goods.
- For commodatum: Return the specific item lent.
Payment of Interest:
- If interest is stipulated, it must be paid as agreed.
Liability for Loss:
- For mutuum: The borrower bears the risk of loss once the object is delivered.
- For commodatum: Liability for loss depends on negligence or breach of terms.
G. Special Provisions on Loans
Loan of Money (Article 1956):
- No interest shall be due unless expressly stipulated in writing.
- Any verbal agreement to pay interest is unenforceable.
Loan of Consumable Goods:
- The borrower must return the same kind and quality of goods.
- If returning goods becomes impossible (e.g., market unavailability), equivalent cash value may be returned.
H. Legal Remedies for Breach
Demand for Payment:
- The lender can demand payment of the principal amount and stipulated interest (if any).
Imposition of Penalties:
- Penalty clauses may be enforced if agreed upon by the parties.
Judicial Action:
- The lender can file a suit to recover unpaid loans or enforce penalties.
Reimbursement for Expenses:
- The lender may recover expenses incurred in enforcing the loan agreement, if stipulated or allowed by law.
I. Extinguishment of Loans
Payment or Performance:
- Fulfillment of the borrower's obligation extinguishes the loan.
Compensation:
- Mutual debts between the lender and borrower may offset each other.
Condonation or Remission:
- The lender may forgive the loan, provided it is done expressly and in writing.
Novation:
- Substitution of the original obligation with a new one agreed upon by the parties.
Loss of the Object (Commodatum):
- For commodatum, the obligation is extinguished if the object lent is lost due to fortuitous events, provided there is no fault on the part of the borrower.
This detailed exposition on Loans under the Civil Code of the Philippines captures all essential principles, obligations, remedies, and classifications. For specific cases or questions, professional legal advice should be sought.