The loan in the Civil Code: what is handed over and what comes back

They are Articles 1324 to 1326 of the Civil Code of 2020, opening Chapter V of Title II of Book Five: the definition of the loan, the stipulations that do not strip it of its character, and what the borrower may do if the lender fails to deliver.

Anyone lending or borrowing fungible goods — money included — under a contract governed by the Puerto Rico Civil Code.

• That what is lent be fungible goods in a determined quantity: that is how Article 1324 describes it.Verified against the official source
• That delivery be in ownership: what is lent passes to the borrower, who returns as much again.Verified against the official source
• That the borrower restore that same quantity of goods, of the same kind and quality.Verified against the official source
• For the lender validly to refuse delivery to a compliant borrower: to prove a change in their patrimonial situation making payment or restitution uncertain.Verified against the official source

• The contract recording the quantity lent, the kind and quality of the goods and, if any, the stipulation on the money’s use.
• If the lender does not deliver, proof of the borrower’s demand and of the time agreed for delivery.

1. 1

   Step 1: What a loan is, in the Code’s words

   Article 1324: the lender binds itself to deliver to the borrower, in ownership, a determined quantity of fungible goods, and the borrower binds itself to restore that same quantity of goods, of the same kind and quality.

2. 2

   Step 2: "In ownership" changes who owns it

   The phrase is not decorative: what is lent becomes the borrower’s. That is why what comes back is as much again of the same kind and quality, not the very units received.

3. 3

   Step 3: It is not only money

   The article speaks of fungible goods, not of money exclusively. Money is the commonest case, but not the only one the definition covers.

4. 4

   Step 4: Interest tied to profits or at a variable rate

   Article 1325(a) says a money loan does not lose its character even if the interest is a part or share of the profits of a business or activity, or is calculated at a variable rate.

5. 5

   Step 5: Collecting only from one business’s profits

   Subsection (b): nor does it lose its character if the lender is entitled to receive interest or recover its capital only from the profits of a given business, and not from any other asset or business of the borrower.

6. 6

   Step 6: Money with a determined use

   Subsection (c) allows binding the borrower to put the money to a determined use, and adds the consequence: breach allows the lender to require the immediate return of all the money lent and its interest.

7. 7

   Step 7: If it is the lender who fails

   Article 1326: if the lender does not deliver the promised good at the agreed time or when the borrower requires it, the borrower may require specific performance or rescission, with whatever compensation lies in either case.

8. 8

   Step 8: The only valid excuse for not delivering

   The same article writes it with conditions: where the borrower has complied with all the clauses of the contract, the lender may validly refuse delivery only where it proves a change in the borrower’s patrimonial situation that makes payment or restitution uncertain. The burden of proof is the lender’s, and the article does not say how much of a change suffices.

9. 9

   Step 9: If the loan bears interest, there is another article

   These three articles set no rate and no cap. Interest has its own article, 1328, with its own guide here; and the presumption that a loan is interest-free unless otherwise agreed is in Article 1327, also with its own guide.

A loan is agreed between the parties; the Code orders no trip to any agency for it to exist. If the lender is a licensed financial institution, that activity is regulated by the Office of the Commissioner of Financial Institutions with its own statutes and regulations, which we did not read here. Contract disputes are decided by the Court of First Instance.

• Expecting the very units lent to come back: the same quantity, kind and quality is returned.
• Believing a loan is only of money: the article speaks of fungible goods.
• Thinking interest tied to a business’s profits strips the loan of its character.
• Thinking the same of a variable rate.
• As the borrower, putting the money to a use other than the agreed one: the lender may require immediate return of it all, with interest.
• As the lender, refusing delivery without proving the patrimonial change Article 1326 requires.
• As the borrower, assuming there is no remedy for non-delivery: specific performance or rescission lie, with compensation.
• Looking for an interest rate in these articles: they carry none.

These are the government pages this guide is based on.

• Poder Judicial de Puerto Rico

  Poder Judicial

  bvirtualogp.pr.gov