Mutuum | Kinds of Loans | Loans | CREDIT TRANSACTIONS

CIVIL LAW: CREDIT TRANSACTIONS – MUTUUM

Definition and Nature

Mutuum is a contract of loan whereby one of the parties, referred to as the lender or creditor, delivers to another, referred to as the borrower or debtor, consumable goods or money, with the condition that the borrower shall repay the lender an equivalent amount of the same kind and quality. It is governed by the Civil Code of the Philippines, particularly under Title XI, Chapter 1.

  • Essential Characteristics:
    1. Real Contract – Mutuum is perfected by the delivery of the object (consumable goods or money). Mere agreement without delivery does not create a binding obligation.
    2. Unilateral Contract – Once perfected, it creates an obligation only on the part of the borrower to return what was borrowed.
    3. Gratuitous or Onerous – It can be gratuitous (no interest is charged) or onerous (interest is charged).

Distinction from Commodatum

It is essential to distinguish mutuum from commodatum, as they are both types of loans:

  1. Object:

    • Mutuum involves consumable goods (money, rice, oil, etc.) that cannot be used without being consumed.
    • Commodatum involves non-consumable goods (vehicles, books, etc.) where the borrower returns the exact same item.

  2. Ownership:

    • In mutuum, ownership of the goods passes to the borrower upon delivery, giving them the right to dispose of the goods as they see fit.
    • In commodatum, ownership remains with the lender.

  3. Purpose:

    • Mutuum is for consumption.
    • Commodatum is for use and return.

Requisites of Mutuum

  1. Delivery of Consumable Goods or Money:

    • The lender must physically or constructively deliver the object of the loan.
    • Without delivery, the contract is not perfected.

  2. Obligation to Return the Equivalent:

    • The borrower must return the same amount and kind of goods or money loaned, with no requirement to return the specific items delivered.

  3. Agreement on Terms:

    • The parties must agree on the essential terms, particularly whether the loan is gratuitous or bears interest.

Rules on Interest

The imposition of interest on a loan is strictly regulated to prevent usury:

  1. Stipulation Required:

    • Interest is not presumed; it must be expressly stipulated in writing under Article 1956 of the Civil Code.
    • Oral agreements regarding interest are void.

  2. Rate of Interest:

    • The agreed rate must comply with the Usury Law as amended by Bangko Sentral ng Pilipinas (BSP) circulars.
    • In the absence of agreement, no interest may be charged.

  3. Penalties for Excessive Interest:

    • Agreements charging usurious interest rates are void as to the interest, although the principal obligation remains enforceable.

Obligations of the Borrower

  1. Return the Equivalent:

    • The borrower must return the equivalent amount and quality of the consumable goods or money loaned, as agreed.
    • If repayment involves money, the legal tender of the Philippines must be used unless otherwise stipulated.

  2. Payment of Interest (if agreed):

    • If there is a stipulation for interest, it must be paid at the agreed rate.

  3. Timely Compliance:

    • Repayment must be made at the time and place agreed upon. In the absence of an agreement, the rules on obligations and payment under Articles 1244 to 1251 of the Civil Code apply.

Extinguishment of Mutuum

  1. Fulfillment of Obligation:

    • When the borrower returns the equivalent amount and quality of the goods or money.

  2. Novation:

    • When the original contract is replaced by a new contract.

  3. Compensation:

    • When the borrower and lender become each other’s creditors and the debts are set off against one another.

  4. Loss of Object:

    • If the object of the loan is lost before delivery or when the obligation to return becomes impossible, the contract may be extinguished.

  5. Prescription:

    • The right to enforce repayment of a loan may prescribe under the rules of Article 1149 (10 years for written contracts) or Article 1150 (6 years for oral contracts).

Case Law and Applications

  1. Loan vs. Donation:

    • In Lopez vs. Court of Appeals (1995), the Supreme Court emphasized that loans (mutuum) involve the obligation to return the equivalent, while donations lack this obligation.

  2. Interest Without Stipulation:

    • In Sps. Go vs. The Philippine National Bank (2016), it was reiterated that in the absence of a written stipulation, no interest can be demanded from the borrower.

  3. Forbearance and Delay:

    • If a borrower fails to repay on time, the lender may collect legal interest for delay as provided under Bangko Sentral ng Pilipinas Circular No. 799, setting the rate at 6% per annum unless otherwise agreed.

Practical Considerations

  1. Documentation:

    • It is advisable to execute a written agreement for clarity, especially when interest is charged.
    • Proper acknowledgment of receipt by the borrower safeguards the lender's rights.

  2. Legal Recourse:

    • In case of non-repayment, the lender may file a collection suit in court.

  3. Tax Implications:

    • Interest income derived from loans may be subject to income tax under the Tax Code.

This comprehensive understanding of mutuum provides a robust framework for navigating issues in civil credit transactions, ensuring legal compliance and safeguarding the rights of parties involved.

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