The fact that there was no loan agreement does not mean it is not valid or it doesn’t exist. There is no express requirement for the debt to be in writing, except when there is a stipulation for interest.

In the case of Spouses Tan vs. Carmelito Villapaz, GR 160892 dated 22 November 2005, the Supreme Court held that although Article 1358 of the Civil Code requires all other contracts where the amount involves exceeds five hundred pesos (P500) to appear in writing, even a private one, this requirement is only for convenience and not validity. Therefore, the existence of a contract of loan cannot be denied merely because it was not in writing.

If a loan is valid, does it automaticallgly mean you can enforce it?

It depends on whether you lend someone directly or you gave the money to cover for someone’s debt.

If you give someone money as a way to cover his debt, you relatively become the debtor’s guaranty or surety.

When you are a Guaranty, you pay only for someone’s debt once his creditor establishes that the debtor can no longer pay it (Article 2047). Here, you inherently substitute the original debtor once you pay for him. Hence, your participation changes or novates the agreement between the original parties by replacing one (Article 1293).

In this scenario, the creditor risks being injured or prejudiced by entrusting the payment of his claim with you, a stranger to the original contract. This injury may be as simple as your nonperformance or delay as the new debtor due to your own financial difficulties. Hence, parties cannot just assume that the creditor agreed to the changd- he needs to expressly approve the substitution for it to take effect.

Meanwhile, you are a Surety when you bind yourself to be liable together with debtor in that the lender may immediately claim from either of you.

In a Suretyship, a creditor may go after you or the debtor at the same time without the need to establish first that the debtor is incapable to pay his debt (Article 1217).

The need to acquire the creditor’s consent is grounded on the premise that you are a direct party in the agreement. Hence, must be shown that parties understood and agreed to the contract for it to be binding.

As Contracts of Guaranty and Suretyship are promises to pay for another person’s debt, Article 1403(2) (or more commonly known as the Statute of Frauds) applies. It states, “a special promise to answer for the debt or default of another shall be unenforceable by action, unless the same, or some note or memorandum, thereof be in writing, and subscribed by the party charged or by his agent. Any evidence of the agreement cannot be received without the writing, or a secondary evidence of its contents”.

Based on this provision, a promise to pay another person’s debt must be written and signed so an injured party may resort to court action to enforce it. The purpose of the Statute of Frauds is precisely to prevent another person from fraudulently avoiding their contractual obligations based on the failure to put it in writing.

Note, however, that since Article 1403(2) states “to answer for the debt or default of another“, the requirement applies to collateral agreements only. In Reiss vs. Memije, GR L-5447 dated 1 March 1910 unequivocally establishes that principal loans do not have to be in writing to be enforceable. It held:

“However, this (the Statute of Frauds) applies only to a collateral agreement and not the original debt itself. If the promise is an original or independent one; that is, if the promisor becomes primarily liable for the payment of debt, the promise is not within the Statute. On the other hand, if the promise is collateral to the agreement of another, and the promisor becomes a surety, the promise must be in writing”.

Applying the foregoing, if you are a principal lender, you are not giving money for the purpose of paying someone’s debt; rather, you are lending with the expectation that you will be repaid for the same sum of money. As such, you are not making a promise to pay a debt– you are supplying the debt itself. Thi scenario is no longer covered by the Statute of Frauds, and your borrower cannot renege on his promise to pay you just because you didn’t have a written contract.