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Typical Contracts: Loan

I. Loan There are two types of loan acknowledged in our legal system (art. 1740 Cc): - Loan of non fungible things: one person gives a certain thing to another for the latter to use it over a certain time (e.g., a loan by Museo Reina Sofa of a painting by Picasso to the center Pompidou in Paris). This type of loan is commonly referred to as loan for use (comodato in Spanish) (art. 1740 Cc). - Loan of fungible things: one person gives a certain thing to another with the condition that the latter returns as much of the same species and amount (e.g., a simple loan of money from a bank). This type of loan is commonly referred to as loan to consume or simple loan (simple prstamo or mutuo in Spanish) (art. 1740 Cc). 1.1. Main characteristics of the contract - - Real contract: it is perfected upon delivery of the thing. Unilateral contract: obligations arise only for the person receiving the loan

1.2.

Loan to Use - Concept: the loan for use is a contract by virtue of which one person (comodante in Spanish) gives to another (comodatario) a non fungible thing for free to be used over a certain period of time, with the obligation to return such thing as received. As in the previous example, think of a museum giving one specific painting to another for the latter to use it. However, please note that it is essential that the loan to use is made for free. Suppose that the first museum charged a fee for the use of the Picasso painting: it would be a rental contract! - Main obligation: the main obligation of the borrower is to return the thing lent. Similarly to what happens in the rental contract, the obligation to return the thing implies that it must be well preserved, art. 1743 Cc (i.e., in the same shape as it was received). Such obligation to preserve the thing can be naturally translated into assuming any and all expenses derived from such preservation (art. 1743 Cc).

Typical Contracts: Loan


The moment for returning the thing is such as agreed by the parties, or, if no agreement, whenever the use for which the thing was lent is finished. However, please note that the borrower must return the thing earlier if the lender so required with urgent need, art. 1749 Cc. If there was no agreement as to the term of the loan for use or the use to be given to the thing, the lender may claim it at will. (e.g., John lends to Mary his car with no defined term; since the use of the car is presumably not to be ever finished, John could claim it back when he so desired). - Fruits: according to art. 1741 Cc, the borrower obtains the right to use the thing lent, but no right whatsoever over the fruits of the thing (art. 1741 Cc). This obviously implies that the borrower would have to return such fruits together with the thing, and all rules applicable to the return of the thing itself apply thereto. Please remember that the obligation to return the fruits means that the person receiving the loan is also obliged to conserve them (i.e., to bear whatever expenses derive from the conservation of the fruits). 1.3. Loan to Consume (Simple Loan) - Concept: the simple loan or loan for consume is a contract by virtue of which one person (lender) gives to another a fungible thing or money to be enjoyed by the borrower. In turn, the borrower must return to the lender an equal amount of the same kind and quality (art. 1753 and ss). This contract may or may not be made for free, i.e., the loan may or may not include an agreement to pay interests. (Please note that unless expressly agreed, such interests would not be due, art. 1755 Cc). Interests are generally dependant on the duration of the loan contract, and have the absolute limits imposed by the usury law (Ley de Usura, of 1908). - The ownership of the thing lent is transferred to the borrower (art. 1753 Cc). Main obligation: borrower must return to lender an equal amount of the same kind and quality as the lent thing. o Money: the return must be done in legal tender (moneda de curso legal). I.e., a loan made in euros may not be returned in UK sterling pounds or Moroccan dirhams, it can only be returned in euros or whichever the legal tender is at the

Typical Contracts: Loan


moment of returning the loan. Arts. 1170 and 1754 Cc. That is, the nominal value is what counts. o Any other fungible thing: borrower must return an amount equal to that which he received of the same kind, irrespective of the nominal value thereto. That is, imagine that the loan was made of three kg. of apples which are worth 3/Kg at the date in which the loan was made; by the time the return of the apples is due, they are worth only 2/Kg. Even when the lender is losing value, he would have to accept the three kg. of apples from the borrower (art. 1754 Cc).