LOAN CONTRACT: CHARACTERISTICS, ELEMENTS, EXAMPLES - ARTE - 2024

The loan agreement describes a common law legal relationship in which the physical possession of personal property is transferred from one person, called the lender, to another person called the borrower, who subsequently has possession of the property on a temporary basis.

It arises when a person gives property to another person for safekeeping. It is a free loan, a concession without economic retribution of anything movable or immovable, which is given for a certain period of time, with the condition of restoring it again to the same individual after a certain time.

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Therefore, it is a type of loan agreement, but with a difference: the loan is free and ownership is not transferred.

The thing borrowed must be returned in its essence, without deterioration. For this reason, the things that are consumed to be used, or over time, cannot be subject to a loan, but rather a loan, since although they can be returned as a species, they cannot be returned with their same identity.

characteristics

The loan agreement is a typical common law concept, although there are similar concepts in civil law.

It is distinguished from a contract of sale or a gift of property, since it only involves the transfer of possession, but not of its property. It is characterized by the type of relationship that gave rise to the loan.

Volunteer vs. involuntary

In a voluntary loan, the borrower agrees to accept responsibility for the possession of the property. In an involuntary loan, the borrower has possession of the property without intending to do so.

A situation that generates a voluntary loan occurs, for example, when a person leaves an asset with someone to do a service. For example, pet grooming or car repair.

The borrower must keep the assets safe so that the lender can claim them within a reasonable time.

An involuntary bailment occurs when a person takes possession of property by mistake or accidentally, such as when someone finds lost car keys.

By consideration vs. gratuitous

If a person agrees to accept a fee to maintain possession of the goods, they are subject to a higher standard of care than a person who does so without receiving a payment.

Fixed term vs. indefinite term

A lender who leaves a property for a fixed period of time is considered to have abandoned the property if he does not withdraw it at the end of the period.

For example, a property left in a bank safe will eventually become the property of the bank.

However, if there is no clearly agreed term of loan, the goods cannot be considered abandoned.

Elements of a loan agreement

The goods must be placed in the legal possession of the borrower. The delivery must be made for some purpose. Generally, the purpose is to serve as collateral for the payment of a loan.

The delivery is subject to a contract that indicates how the return of the goods delivered by the lender will be made.

Consent

Interest in entering into the corresponding contract must be expressed, either tacitly or expressly. That is, it is necessary that the consent that the parties express is effective and valid.

It should be reviewed if the contract originates valid or debatable legal effects between the parties. This is achieved by verifying that there are no defects in consent.

Object

Any real or movable thing can be loaned. The object of the contract is made up of non-expendable goods, which are not consumed with their use.

The purpose of the contract corresponds to establishing the reciprocal benefits assumed by each of the parties to the contract.

Capacity

It is the disposition to contract duties and acquire rights. There are two types of capacity: legal or legal, and de facto or acting.

The legal is the suitability to be the holder of a right. That of acting is the ability of individuals to act in civil life for themselves.

If the borrower is incapable, the loan will be considered void. You can then demand that the borrower return the goods before the agreed term. The capable borrower cannot face the nullity of the incapable borrower.

What is it for

For the benefit of the borrower and the borrower

A loan is created for the mutual benefit of the two parties when there is an exchange of performances between the parties.

For example, this occurs in the loan given for the repair of an item, when the owner of the item is paying for the repair to be carried out.

For the sole benefit of the borrower

A borrower receives the exclusive benefit of a loan when the borrower performs for free.

For example, the owner leaves a high-value item, such as a car or piece of jewelry, under the safekeeping of a trusted friend, while the owner travels abroad without reaching any agreement to compensate the friend with a payment.

For the sole benefit of the borrower

A loan is created for the exclusive benefit of the borrower when the borrower works for free.

For example, the loan of a book to a client, who is the borrower, by a library, which would be comfortable.

Examples

The loan arises in many situations, such as in the storage of products, or the transport of goods.

Free loan

The lender delivers the goods for his exclusive benefit and the borrower does not obtain any benefit from it.

For example, "A" leaves his pets with "B", who is his neighbor, and who will have to attend to them during the physical absence of A. In this case, only A benefits from the loan.

In another case, the lender delivers the merchandise to the borrower for the sole benefit of the latter, without the lender obtaining anything from the contract.

For example, when someone loans their book to a friend for a week, free of charge or favor. In this case, the borrower of the book is the sole beneficiary of this loan transaction.

Non-free loan

In this case, the delivery of goods is made for the mutual benefit of both parties. For example, "A" hires a car from "B". Here B is the borrower and receives the rental payment, and A is the borrower and enjoys the use of the car.

Similarly, when "A" gives his laptop to a technician for repair, both "A" and the technician will benefit from this contract as the computer is repaired and the technician gets paid for his work.

References

1. Wikipedia, the free encyclopedia (2019). Be comfortable. Taken from: en.wikipedia.org.
2. Wikipedia, the free encyclopedia (2019). Bailment. Taken from: en.wikipedia.org.
3. Law Notes (2019). Contract of Bailment. Taken from: lawnotes.in.
4. Venezuelan Law (2019). The loan. Taken from: Derechovenezolano.wordpress.com.
5. Law Teacher (2018). A Real Bailment Contract. Taken from: lawteacher.net.