1. Loan

Loan

It is a contract where 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 is called a commodatum; or money or other consumable things, 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. (NCC, Art. 1933) (BAR AREA)

Cause or Consideration in a contract of loan

• As to the borrower, the acquisition of the thing; and
• As to the lender, the right to demand its return or its equivalent.

Recto Law does NOT cover a contract to sell of movables

There will be nothing to rescind if the suspensive condition (payment of full purchase price) upon which the contract is based fails to materialize.

Q: Palces purchased a Hyundai Starex through a loan granted by Equitable Savings Bank (ESB). In connection therewith, Palces executed a Promissory Note with Chattel Mortgage in favor of the ESB. Eventually, Palces failed to pay the monthly installments prompting ESB to demand for the payment of the entire balance which remained unheeded. Thus, ESB filed a case for Recovery of Possession with Replevin with Alternative Prayer for Sum of Money.

In order to update her installment payments, Palces paid ESB P70,000 on March 8, 2007 and P33,000 on March 20, 2007 (March 2007 payments). Despite the aforesaid payments, ESB filed the instant complaint, resulting in the sheriff taking possession of the subject vehicle. The RTC ruled in favor of ESB. The CA affirmed the RTC ruling; however, it ordered ESB to return the amounts paid on March 2007 by Palces. It ruled that, under Article 1484 of the Civil Code, ESB had already waived its right to recover any unpaid installments when it sought a writ of replevin in order to regain possession of the subject vehicle. As such, petitioner is no longer entitled to receive respondent’s late partial payments. Is the CA’s ruling correct?

A: NO. In this case, there was no vendor-vendee relationship between respondent and petitioner. A judicious perusal of the records would reveal that respondent never bought the subject vehicle from petitioner but from a third party, and merely sought financing from petitioner for its full purchase price. Indubitably, a loan contract with the accessory chattel mortgage contract - and not a contract of sale of personal property in installments - was entered into by the parties with respondent standing as the debtor-mortgagor and petitioner as the creditor-mortgagee.

Thus, ESB is justified in filing his Complaint before the RTC seeking for either the recovery of possession of the subject vehicle so that it can exercise its rights as a mortgagee, i.e., to conduct foreclosure proceedings over said vehicle; or in the event that the subject vehicle cannot be recovered, to compel respondent to pay the outstanding balance of her loan. Since it is undisputed that ESB had regained possession of the subject vehicle, it is only appropriate that foreclosure proceedings be commenced in accordance with the provisions of “The Chattel Mortgage Law,” as intended. Otherwise, Palces will be placed in an unjust position where she is deprived of possession of the subject vehicle while her outstanding debt remains unpaid, either in full or in part, all to the undue advantage of petitioner – a situation which law and equity will never permit. (Equitable Savings Bank v. Palces, G.R. No. 214752, March 9, 2016)

Unlawful purpose of the contract of loan

A loan is void if its cause or object is unlawful; an intended unlawful use alone does not establish this. If the illegality constitutes a criminal offense, an innocent party may claim what that party has given and is not bound to comply with the promise. If it does not constitute a criminal offense, recovery is governed by Article 1412. A bailor is the lender in commodatum; in mutuum, ownership passes to the borrower. (NCC, Articles 1933, 1409, 1411 and 1412)

Obligation of the Borrower to Pay

• What?
• Money
• General Rule: Same amount
• Exception: may change under certain circumstances, such as when there is an extraordinary inflation or deflation of the currency stipulated.
• Fungible thing other than money: another thing of the same kind, quantity and quality. In case it is impossible, its value at the time of perfection of the loan.
• When?
• If one is provided, the period agreed upon.
• If none is provided, payable immediately; if the parties intended a period but the same was not specified, the court may fix the period. (Art. 1197)
• Payable immediately when the debtor loses the right to make use of the period under Article 1198
• When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;
• When he does not furnish to the creditor the guaranties or securities which he has promised;
• When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory;
• When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
• When the debtor attempts to abscond.

What is a usury?

It may be defined as contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels. (De Leon, citing Tolentino v. Gonzales, 50 Phil. 558 (1927)).