Loan in the Philippines – Monetary Obligation

There are two kinds of loan in the Philippines: commodatum and mutuum (simple loan). Commodatum happens when one party (called the bailor) delivers personal property to another (called the bailee), and the bailee has the obligation to return to the bailor the exact same thing delivered to him. On the other hand, mutuum or simple loan happens when one party delivers money or other consumable personal property to another, and the latter has the obligation to return the same amount of money, or personal property of the same quantity and quality.

Just like any other contracts, a contract of loan is perfected when there is a meeting of the minds between the first party and the second party; however, it only becomes consummated when the personal property is delivered by first party to the second party.

 So, for example, if Juan borrows money in the amount of P1,000.00 from John and John agrees, then the contract of loan is perfected. But it is only when John gives P1,000.00 to Juan that the contract of loan is consummated. So once it is consummated, John becomes obliged to deliver the amount to Juan. Juan, on the other hand, is obliged to return the same amount of money to John on the date agreed upon.

Contracting loan in the Philippines is very easy; it is the observance of the terms of the contract that makes it confusing and legally problematic. So, in drafting a contract of loan, lawyer’s advice may be important to make sure that the terms of the contract are lawful and nt oppressive to any of the parties.