Kinds of Loans | Loans | CREDIT TRANSACTIONS

CIVIL LAW: CREDIT TRANSACTIONS > LOANS > KINDS OF LOANS

Under Philippine law, particularly under the Civil Code of the Philippines, a loan is a contract where one party (the lender) delivers to another (the borrower) either a sum of money or other consumable thing with the agreement that the borrower will return an equivalent amount or kind (Article 1933). Loans are broadly categorized into commodatum and mutuum, which are further differentiated based on their subject matter, nature, and purpose.

---

I. COMMODATUM

Commodatum is a gratuitous contract wherein the lender delivers a non-consumable thing to the borrower (called the bailee) for the borrower’s temporary use, and the borrower is obliged to return the same thing after use.

A. Characteristics of Commodatum:

1. Gratuitous:
   • Commodatum is essentially without compensation. If the contract involves compensation, it is not a commodatum but another contract (e.g., lease).
2. Non-consumable Things:
   • The subject matter of commodatum is a non-consumable thing, which means it cannot be used up or consumed through its normal use (e.g., tools, furniture, vehicles).
3. Transfer of Use:
   • Only the use of the object is transferred, not its ownership.
4. Return of the Same Thing:
   • The exact same object loaned must be returned to the lender after the agreed period or purpose.

B. Types of Commodatum:

1. Ordinary Commodatum:
   • The thing is loaned for the borrower’s general use and is returned after the expiration of the term or upon demand.
2. Precarium:
   • The lender may demand the return of the thing at will. This applies when no specific term or purpose is agreed upon, or when the purpose has been fulfilled.

C. Obligations of the Bailee (Borrower):

1. Use the thing only for the purpose stipulated and with due diligence (Articles 1939–1940).
2. Return the thing upon the expiration of the term or fulfillment of the purpose (Article 1941).
3. Be liable for loss or deterioration caused by negligence or unauthorized use (Articles 1942–1943).

D. Obligations of the Bailor (Lender):

1. Allow the borrower to use the thing for the agreed purpose or term.
2. Reimburse the borrower for necessary expenses incurred for the preservation of the thing (Article 1948).

---

II. MUTUUM

Mutuum is a contract of simple loan where the lender delivers to the borrower money or other consumable things, and the borrower is obligated to return an equivalent amount of the same kind and quality.

A. Characteristics of Mutuum:

1. Real Contract:
   • Mutuum is perfected upon the delivery of the thing loaned.
2. Consumable Things:
   • The subject matter is typically consumable things such as money, grain, oil, or other items that are exhausted upon use.
3. Ownership Transfers:
   • Ownership of the consumable thing passes to the borrower, who may use it as they see fit.
4. Obligation to Return:
   • The borrower must return the equivalent of the thing loaned, not the exact same thing.

B. Kinds of Mutuum:

1. Ordinary Mutuum:
   • The borrower is obligated to return the equivalent of the thing loaned at the agreed time or upon demand.
2. Mutuum with Interest:
   • The borrower pays interest in addition to returning the principal amount. Interest must be expressly stipulated in writing (Article 1956); otherwise, the loan is presumed interest-free.

C. Interest Rules (Mutuum with Interest):

1. Conventional Interest:
   • Must be agreed upon in writing; otherwise, the loan bears no interest (Article 1956).
2. Usury:
   • Although the Usury Law has been rendered ineffective by Central Bank Circular No. 905 (1982), the court retains discretion to reduce iniquitous or unconscionable interest rates (Article 1229).
3. Legal Interest:
   • In the absence of an agreement, interest may only be charged as legal interest under applicable laws (e.g., 6% per annum under Bangko Sentral ng Pilipinas guidelines for monetary obligations).

---

III. DISTINCTIONS BETWEEN COMMODATUM AND MUTUUM

Aspect	Commodatum	Mutuum
Subject Matter	Non-consumable things	Consumable things
Nature	Gratuitous	May be gratuitous or onerous (with interest)
Ownership Transfer	Ownership remains with lender	Ownership is transferred to borrower
Obligation to Return	Exact same thing must be returned	Equivalent of the thing must be returned
Perfection	By mere consent	Upon delivery of the thing loaned

---

IV. SPECIAL RULES ON LOANS

1. Requisites of Loans:

   • Consent of the parties.
   • Delivery of the thing loaned (real contract for mutuum; commodatum perfected by consent).
   • Borrower’s obligation to return the same (commodatum) or equivalent (mutuum).

2. Liability for Loss or Damage:

   • In commodatum, the borrower is liable for loss even due to fortuitous events if:
     • The borrower delayed in returning the thing.
     • The borrower used the thing for unauthorized purposes.
     • The thing loaned was delivered with undertaking of safekeeping (Article 1942).
   • In mutuum, the borrower is not liable for loss of the thing loaned due to fortuitous events, as ownership has already passed.

3. Nullity of Loan Agreements:

   • Loans with an unconscionable or illegal interest rate may be declared null and void as to the interest component, while the principal remains demandable.

4. Stipulations in Writing:

   • To charge interest, the agreement must be written, otherwise the court presumes a zero-interest loan (Article 1956).

---

This summary provides a meticulous breakdown of the kinds of loans under Philippine Civil Law, focusing on the rules governing commodatum and mutuum, their distinctions, and specific obligations.