S1L59 – The Paradox of Loans
Tonight, class, I want everybody to get a firm grip of their understanding of the concept of a LOAN. And I don’t just mean your ordinary ‘commodity loan’ like some money you borrow from a bank to pay for the purchase of a new car, or to construct a new house. I don’t want you contributing to the dumbing of this nation by perpetuating that idea that you get a loan to buy a car, or house, etc. Those are not loans. Those are mortgages. People always get into trouble when they insist on applying the rules meant for one upon the other. Enough of that. As students of law, you should know better,” I began the class session by announcing the agenda for the evening’s lecture.
“First of all, I need somebody tell us the two general classifications of contracts. Miss Deema, can you start the evening for us by answering that?”
“Yes, sir Contracts are either NOMINATE or INNOMINATE. The contracts of loan, sale, lease, employment, agency, partnership, insurance, common carriage, etc. are all NOMINATE contracts because they have names. That makes it possible to locate a particular set of provisions in the Civil Code that governs them.” Deema said.
“What about INNOMINATE contracts, Miss Grippa Baligtaran?”
“These are any other contracts that don’t have a specific name and whose terms and conditions are left to the imagination of the parties, sir,” Grippa said, blinking her eyelids on every syllable.
“That’s right, Miss Grippa. They make their own law. The contract becomes the principal law between them. Sometimes, they can refer to the Civil Code, if they can find an analogous contract. But otherwise, in innominate contracts, the parties are on their own, so to speak. Sometimes these are called the ‘do-and-give’ combination contracts. Can you tell us why?”
“Yes, sir. The four INNOMINATE contracts are the four combinations of the acts of one party doing something in exchange for the other party giving something.”
“So what are those four contract combinations?” I followed up.
“Sir, they are ‘I give, you do’… ‘I give, you give’… ‘I do, you give’ … ‘and I do, you do’ and those four combinations cover all possible contracts you can imagine. Isn’t that amazing, sir?” Grippa enthused.
“It is, Miss Grippa. Not everybody knows this, people think you need to be a lawyer to draw up a special contract that’s not in the books. In fact, all you have to do is describe the act to be done, and the nature of the thing to be given, and—voila!—you’ve got a contract. Give me one example, Miss Kata.”
“Uuuh..what about this sir: I will encode all our assigned reading cases on his laptop if Jack will bring me home on his motorbike every night’ that’s an ‘I do, you do’ contract, sir.” Kata said.
“Uuuuh…I don’t know if I’d trust Mr. Makataruz that much, but, yes that is a valid ‘do-and-do’ contract,” I said.
“What about this sir: pay me a thousand pesos and I’ll paint your kitchen PINK! That’s an ‘I do, you give’ contract, sir!” Deema butted in—without being called, as usual.
“Wow. You just inspired me to invent a FIFTH innominate contract, Miss Deema,” I said, “It’s called an ‘I give, please DON’T DO’ contract.” The whole class laughed.
“But you people get the idea,” I said, “the next time you’re looking at a contract that seems very complicated, just remember that if you strip it down to the basics, you will find it’s just one of those four innominate contracts—if it is not a nominate contract to begin with.”
The class smile, I know it when they are satisfied with a point of pure knowkedge sinking in their minds They look around and give each other high-fives. They love to do that. It annoys me.
“Now let me get back to LOANS. It is a nominate contract, there are lots of Civil Code provisions governing loans. Let’s start with the most basic of them. Miss Palindrome, can you read for us Article 1953 of your Civil Code.”
Hannah Maala jumped to her feet and read, “Article 1953, sir: a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.”
“ACQUIRES THE OWNERSHIP THEREOF!!!” I bellowed and banged on the blackboard so hard, it startled the whole class.
“I want you to take note of that! ACQUIRES THE OWNERSHIP THEREOF!!! When you take out a loan, you ACQUIRE OWNERSHIP OVER THE MONEY. THE MONEY IS YOURS, IT NO LONGER BELONGS TO THE CREDITOR! THAT’S WHY HE IS CALLED A CREDITOR! BECAUSE ALL HE OWNS IS JUST CREDIT NOW, NOT THE PROCEEDS OF THE LOAN, DID YOU ALL GET THAT??” ” I continued to bang the blackboard and yell aloud. Then I went silent, catching my breath.
“Are…are you okay, sir?” Deema said softly.
“I brought ziptie,” Jack whispered to her. “Ssshh!!!” Deema shushed him.
I gathered my composure and began to speak normally again, “I’m sorry class…it’s just that…uh… recently I have read the news about this…this…useless government agency called NEA,” I stopped to compose the rest of my thoughts first.
“…and this NEA stole P56-million belonging to a cooperative that was part of a LOAN obtained earlier by that cooperative,” I recited the facts.
“That’s us! That’s the electric cooperative I work for!” Laarnee Iwasan jumped to her feet. “Just what I‘ve been telling my classmates about!”
“We’re familiar with the case, sir” Juan Dimacaawat chimed in, “we’ve been brainstorming about it over the holiday break–Deema, Jack, Kata, Hannah, Joanna, Laarnee, Grippa, Julyrain and myself.”
“According to a dormant lady lawyer, sir, they didn’t steal the money, they just transferred it to a safer account that no one can touch so that the money would be safe,” Grippa said.
“Give me your cellphone, Miss Grippa.”
“Sir??”
“Your cellphone, give it to me,” I said. Gingerly the girl handed over to me her Samsung A12.
“Listen, everybody, I am not stealing Miss Grippa’s cellphone here,” I said, “I’m just going to keep it safe someplace none of you knows where. That way, nothing bad would happen to this phone. And this is such a nice gesture on my part, because I am such a nice guy. Can I get a little applause here, please?”
The class stayed silent.
“It’s just wrong, sir,” Deema said, “that phone is her property, she owns that and for you to take it from her possession and control with nothing she can do to retrieve it—” I didn’t let Deema finish.
“Oh, well, then how about this: Miss Grippa if you score better than 95% in your Final Exam this coming February 14, you can have your phone back. So as soon as you find out your score, call me right away!” I said.
“It’s still wrong, sir” Kata said, “why should Grippa have to meet a certain performance standard just to get her own property back? And how can she call you if you’re keeping her phone?”
“Well, why don’t you ask NEA the same question?” I asked back, “why should their giving back the cooperative’s P56-million be dependent on some performance achievement? And how can the cooperative attain those achievements if you hold the P56-million it’s supposed to use to make those achievements?”
“I read on Facebook, sir, that NEA is saying it is a regulatory body—” Jack started but I interrupted him.
“NOT when it signs a contract of loan! It goes down to the level of a creditor, where it is on equal footing with the obligor. It has the exact same burden and duty to comply in good faith with what is incumbent upon it under that contract!” I said emphatically, banging the blackboard the whole time.
“I’m a lawyer, a saxophone player and a teacher. You people wouldn’t like it if I started playing the saxophone in class. I wear three hats but I have to be mindful what hat I’m wearing at any given time. NEA wears many hats, too. Yes, it is a regulator, sometimes it even acts like a court. But it should not act like either one when it is wearing the hat of a creditor. Like I have to be, it must also be mindful of what hat it is wearing at any given time,” I explained.
“What contract is it when A gives something if B does something, again??” I asked the whole class.
“An ‘I give, you do’ innominate contract, sir” the class said feebly.
“WRONG!!!” I shouted, “Aren’t you people listening? I said strip down a contract to its basics, describe the action required of one party, describe the nature of what the other party is supposed to give and THEN look at what’s left of the barebones elements, that is the innominate contract, only if it is not a nominate contract to begin with,” I said.
“Analyze it well,” I said, “What is NEA supposed to do?” I asked the class.
“Give P56-million, sir.”
“P56-million WHAT?? VIRUSES??”
“P56-million pesos, sir.”
“Ah, so MONEY! And what is the cooperative supposed to do? Eat the money??” I asked.
“No, sir. Spend it in some manner and then pay it back to NEA.”
“Read Article 1953 again, Miss Grippa,” I ordered.
“A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor—” I didn’t let her finish.
“What contract is THAT?” I asked.
“A CONTRACT OF LOAN, sir,” the class answered.
“Is that an innominate contract?”
“No, sir.”
“And if it is NOT an innominate contract, are the parties free to dictate the terms and conditions in any way their imagination permits?”
“No, sir.”
“Why not? Why can’t they call it a ‘NEA-style loan contract’ where they RETAIN OWNERSHIP OF THE PROCEEDS OF A LOAN AFTER THEY HAVE GRANTED A LOAN? Why can’t they do that?” I asked.
This time only Deema answered, “Because that would be contrary to law, sir. The law is clear, all nominate contracts are governed by the Civil Code provisions regarding those contracts. So if it involves the nominate contract of loan, the law does not give them the freedom to reinvent the concept of a loan.”
“What can the parties customize only in their contract of loan, Miss Deema?”
“Only the concept’s variables, sir–like the interest rate, mode of payment, period of payment, default provisions, all those elements which are uniform for all contracts of loan.”
“What can they NOT change?”
“The essential meaning of the loan concept, sir. It remains A delivers money to B, the money ceases to be A’s property, the money becomes B’s property and after some time B must pay it back.”
I let a brief spell of silence pass.
Then slowly I said, “You know class, NEA is playing a game called ‘monkey-see-monkey-do’ They have no originality, they’re copying what they’re seeing. These people are looking at financial institutions like the IMF-World Bank, or the EU Economic Council, the UNDP, ADB etc. When these banks lend money to the Philippines—money which we will pay back every dollar of—they come over here and tell our government what our interest rate should be, what our liquidity should be, how much money should be in circulation, what laws we should pass, what laws we should repeal, what our import duties and tariff restrictions should be, what our GDP and growth rates should be—they give us these economic targets. And they’re not contented with us aiming for these targets, they want to handpick the economic managers who will oversee that we hit the targets they want. They’d try to handpick our president if they could.”
“You see a parallel, sir?” Jack asked.
“I see a carbon copy,” I said, “when world banks lend us money, they don’t just want their money back. They want to own the country.”
“When NEA lends the cooperative money, they don’t just want their money back, they want to own the cooperative,” Laarnee said softly.
Deema stepped up, “But this time it will be different sir, this time they’re messing with the people’s cooperative. This time the people will not take it sitting down. And this time we have social media.”
“Good luck, Miss Deema,” I said, “good luck to all of you…class dismissed.”
“Here’s your phone back, Miss Grippa,” I handed back the girl’s cellphone, “Did you learn anything tonight?”
“Yes, sir. You are not NEA!”
About the Author
The author is a writer and lawyer based in Baguio City, Philippines. Former editor of the Gold Ore and Baguio City Digest, professor of journalism, political science and law at Baguio Colleges Foundation (BCF). He is a photographer and video documentarist. He has a YouTube channel called “Parables and Reason”
About Images: Some of the images used in the articles are from the posts in Atty. Joel Rodriguez Dizon’s Facebook account, and/or Facebook groups and pages he manages or/and member of.