CREDIT TRANSACTIONS

TITLE XI: LOAN

Credit
-

Belief or trust by a person in anothers ability to comply with an

obligation
The ability to borrow money or thing by virtue of the confidence or
trust reposed by a lender that the borrower will pay what he may
promise

Credit Transactions
Refers to the contracts or agreements based on said trust or credit
Scope of Credit Transactions (the subject involves:)
a.
The PRINCIPAL contracts of LOAN and DEPOSIT
b.
The ACCESSORY contracts depends on the existence of the
aforementioned contracts and which tends to strengthen said
belief or trust because of the security given:
1.
Personal guaranty persons personal credit is involved
as in guaranty proper and suretyship
2.
Real guaranty belief is strengthened with the use of
property (real: real mortgage and antichresis; personal:
contracts of pledge and chattel mortgage)
c.
Preference and concurrence of credits
Bailment defined
Bailler: means to deliver in French
The delivery of property by one person to another in trust for a
specific purpose, with a contract, express or implied, that the first
shall be faithfully executed and the property returned or duly
accounted for when the special purpose is accomplished or kept
until the bailor reclaims it
Generally, a bailment may be said to be a contractual relation.
To be legally enforceable, it must contain the essential elements of
a valid contract.
It may also be created by operation of law.
Parties in a Bailment
A. Commodatum
a.
Bailor the giver; commodatario
b.
Bailee the recipient of the thing bailed; comodante
B. Mutuum
a.
Lender the one who delivers
b.
Borrower the one who receives
Kinds of Contractual Bailment
In every bailment, there is an obligation on the part of the bailee to
restore the subject of the bailment in the same manner or in
altered form or to account thereof
Divided into three heads:
o
For the sole benefit of the bailor gratuitous deposit
and madatum (see page 3 of de leon)
o
For the sole benefit of the bailee commodatum and
gratuitous simple loan or mutuum
o
For the benefit of both parties deposit for a
compensation
Q: what is the consideration or cause in a bailment of loan?
A: borrower cause is the acquisition of the thing
Lender cause is the right to require the return of the same thing or its
equivalent
Note: if despite the issuance of a check to the prospective borrower, the
money is NOT given, there is NO contract of loan

General Provisions
Article 1933
Loan: one of the parties delivers to another something which
comprises a commodatum or mutuum; it must be in the form of
money or something circulation as money; it must be repayable
absolutely and in all events
Two kinds of loan:
o
Commodatum (loan for use) something not
consumable; gratuitous; bailor retains the ownership of
the thing loaned
o
Mutuum or Simple Loan (loan for consumption)
money or other consumable thing; may be gratuitous or
with a stipulation to pay interest; ownership passes to
the borrower
1

Note: the contract of loan is governed by the rules as to the requisites and
validity of contracts in general
Commodatum vs. Mutuum
COMMODATUM
Character Essentially gratuitous
Object
Non-fungible object (but may
be consumable; may involve
real and personal property
Purpose
Transfer its use (ownership
retained by the lendor or
bailor)
Effect
Restoration of the very thing
loaned (identical thing)
Risk

Duration

On the lender (as owner)

MUTUUM
May be gratuitous or onerous
Object is money or fungible
thing; personal property only
Transfer its ownership (to
borrower or bailee)
Restoration of an equal
quantity or quality (allow
substitution)
On the borrower (as debtor
of a generic thing)

Personal in character

Not personal in character

Referred to as loan for use or

temporary possession
May be claimed before the
end of the term if urgently
needed

Referred to as loan for

consumption
May not be claimed until the
term expires or is forfeited

Characteristics of a Loan
1.
Real Loan is perfected by the delivery of the object Loaned (Art.
1934)
2.
Unilateral only the borrower has the obligation to return.
Note: to deliver is not an obligation of the lender because it s what perfects
the contract of loan. Remember that if there is no promise then there is no
obligation. Obligation comes after the perfection of the contract
Q: when does delivery becomes an obligation?
A: In Pactum de commodatum case (agreement to constitute commodatum).
In the negotiation stage, if lender has agreed to accept a loan, a VALID
CONSENSUAL CONTRACT or a PACTUM DE COMMODATUM already exists, but
not the real contract of loan. In this case, there is an obligation to deliver the
thing
Loan vs. Discounting of a Paper (mode of loaning money)
LOAN
DISCOUNTING OF PAPER
Interest is taken at the expiration of Interest is deducted in advance
a credit
Is generally on single-name paper
Is always on double-name paper
Note: the difference between a discount and a loan or forbearance is that the
former does not have to be repaid. Further discounting is slightly more
expensive for the borrower because interest is calculated on the amount
loaned and not on the amount actually received.
Loan vs. Deposit
LOAN
Purpose to grant its USE to
borrower
Generally, the borrower pays only at
the end of period
Relationship is that of lender
(creditor) and borrower (debtor)
There can be compensation of
credits

DEPOSIT
Purpose

SAFEKEEPING
by
depository (who generally cannot
use)
The return of deposited things can
be demanded by the depositor at
any time
Relationship is that of depositor and
depositary
NO compensation of thing deposited
with each other (except by mutual
agreement)

Escalation Clause
It is a valid provision in a loan agreement provided that:
o
The increased rate imposed by the lender does not
exceed the ceiling fixed by law or the monetary board
o
The increase is made effective not earlier than the
effectivity of the law or regulation authorizing such
increase
o
The remaining maturities of the loans are more than 730
days as of the effectivity of the law or regulation
authorizing such an increase
Cause or Consideration in a Contract of Loan
1.
As to the borrower, the acquisition of the thing
angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

2.

As to the lender, the right to demand its return or its equivalent

Article 1934
Speaks of the nature of the contract of loan: real contracts
To effect either a commodatum or a mutuum, a delivery, either real
or constructive, is essential
Q: why is delivery necessary?
A: because unless there is delivery, the borrower in commodatum cannot
exercise due diligence over the thing loaned
Q: is consent necessary in perfecting a contract of loan?
A: yes. They must do so either personally or through an authorized agent, as in
every obligation founded upon a contract. However, acceptance need not be
actual but may be implied from circumstances.

(6) Purpose : The right to use is limited to the thing loaned for a certain
time or period. If the bailee is not entitled to the use of the thing, the
contract may be a DEPOSIT not a Commodatum.

Case: Mina vs. Pascual

Since there was no fixed period, the contract cannot be considered
a commodatum
Essential element of commodatum is that the use is for a certain
period
Artilce 1940
To stipulate that the bailee makes use of the fruits would not
destroy the essence of a commodatum, for liberality is still the
actual cause or consideration of the contract
Note: such stipulation cannot be presumed.

Note: In an application for loan approved by corporation, there arises a

perfected consensual contract of loan. While a perfect contract of loan can
give rise to an action for damages, said contract does not constitute real
contract of loan.
Chapter 1
Commodatum

Case: Catholic Vicar vs. CA

Issue was whether the occupation of petitioner results to
acquisitive prescription
SC: Petitioner cant claim the land through adverse possession
because claim is not grounded on ownership. The use of the
property was due to commodatum and was merely tolerated by
the owner

Section 1: Nature of Commodatum

Concepts:
Article 1935 (1)
Commodatum is a contract where one of the parties (bailor/lender)
delivers to another (bailee/borrower) a non-consumable object, so
that the latter may USE the same for a certain period an later
RETURN it
Commodatum is essentially gratuitous. If compensation is present,
the contract ceases to be a Commodatum. In such a case, there
arises a lease contract.
The right to use is limited to the thing loaned but not to its fruits
(usufruct) unless there is a stipulation to the contrary.

Q: what is compensation?
A: Compensation is what you pay on top of the thing loaned. (example:
interest)

Case: Republic vs. CA

The occupation of the Americans were merely transient
If one is a holder of a possessory or information title and the
government took that property, you may restore your rights over
the property because your possessory right is merely suspended
Kinds of Commodatum
1.
ORDINARY - has a definite period stipulated.
- One of the parties delivers to another something not
consumable so that the latter may use the same for
a certain time and return it.
- the possession of the bailee is more secure for he has
the right to retain the thing loaned until the
expiration of the period agreed upon, or the
accomplishment of the use for which the
commodatum has been constituted
2.

Note: Commodatum is similar to a donation in that it confers a benefit to the

recipient
Case: Republic vs. Bagtas
Commodatum is essentially gratuitous, if you ask for payment it will
become a lease
In this case, the breeding fee destroyed the essence of
commodatum
Article 1936 (2)
Subject matter: A Commodatum is generally non-consumable
things, whether real or personal.
Consumable goods however may be the subject of a Commodatum
but only for purposes of EXHIBITION!
Article 1937 (3)
Movable or immovable property may be the object of
commodatum
Article 1938 (4)
Bailor need not be the owner: Since ownership is not transferred in
a Commodatum, the bailor need not be the owner of the thing
loaned.
It is sufficient that the bailor has such possessory interest in the
subject matter or right to its use which he may assert against the
bailee and the third persons although not against the rightful
owner.
Article 1939 (5)
Commodatum is purely personal:
o
Death of either bailor or bailee extinguishes or
terminates the contract unless, by stipulation the
Commodatum is transmitted to the heirs of either or
both parties. If there are two or more borrowers/bailee,
the death of one does not extinguish the contract in the
absence of stipulation to the contrary.
o
The bailee can neither lend nor lease the object of the
contract to a third person. However, members of the
bailees household may make use of the thing loaned,
unless there is a stipulation to the contrary, or unless
the nature of the thing forbids such use
2

PRECARIUM - no definite time or use stipulated, or use is

merely tolerated.
- One whereby the bailor may demand the thing loaned
at will (Art.1947) if neither the duration of the
contract nor the use to which the thing loaned
should be devoted has been stipulated, or if the use
of the thing is merely tolerated by the owner

Case: Quintos vs. Beck

It was a contract of precarium: in the contract of lease, he was
allowed to use the furnitures with the condition that he shall return
it upon demand
The return of the thing is upon the Bailors Demand or at his will
The Bailee should return the objects at bailors residence or house
Case: Catholic Vicar vs. CA
If occupation is merely tolerated, Bailee cannot acquire adverse
possession of the land
Pactum de Commodando
An accepted promise to deliver something by way of commodatum
It is valid but no commodatum is perfected until delivery
Requisites
1.
CAPACITY - no special capacity. Any person entitled to possession may
be the lender so long as his rights to the thing are not strictly
personal. (Lender need not be the owner; a lessee may constitute a
contract of Commodatum; a thief may even be a bailor.)
2.
OBJECT - must be non-fungible. If consumable, valid so long as the use
agreed upon will not to consume it (for exhibition purposes). It may
be real or personal
3.
CONSIDERATION - gratuitous. If not, it ceases to be a Commodatum.
(maybe a lease)
4.
FORM - no special form is required. Commodatum starts from the
moment the thing is delivered.
Features or Characteristics of Commodatum as a Contract
1.
Real perfected by delivery
2.
Principal because it can stand alone by itself; it does not depend
on the existence or validity of another contract
3.
Gratuitous otherwise, the contract is one of lease
4.
Personal in nature because of the trust
angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Section 2: Obligations of the Bailee

Section 3: Obligations of the Bailor

Right of a Bailee
A personal right to use the thing, but not to use its fruits unless
stipulated by the parties. He can neither lend nor lease the thing to
a stranger who is not a member of his household because the
contract is personal.

Article 1946 (1)

Bailor should allow the use of the bailee (not really an obligation
because he does not perform it; If bailee cannot use the object,
bailor becomes liable)
GR: bailor cannot demand immediate return of the thing loaned.
He can only do so after the expiration of the period stipulated or
after the accomplishment of the use for which the commodatum
has been constituted
EXC: he have urgent need of the thing (temporary use)

Obligations of a Bailee
Article 1941 (1)
Bailee: obliged to pay for the ordinary expenses for the use and
preservation of the thing loaned
Q: why should the bailee pay for such?
A: because he is supposed to return the identical thing, so he is obliged to take
care of the thing (diligence of a good father of a family)
Article 1942 (2)
Provides for instances when bailee is liable for the thing loss (even
if due to a fortuitous event):
o
He devotes the thing to any purpose different from that for
which it has been loaned amounts to bad faith or abuse of
generosity (badfaith)
o
If he keeps it longer than the period stipulated guilty of a
certain kind of default (incurs delay)
o
If the thing loaned has been delivered with appraisal of its
value the giving of the value was made to hold the bailee
liable (the law presumes that the parties intended that the
borrower shall be liable for the loss)
o
If he lends or leases the thing to a third person (not a member
of his household) this is prohibited by law (commodatum is
purely personal)
o
Act of ingratitude (saving you own thing) failure to exercise
due diligence (bailee shows ingratitude)
Note: a misuse or abuse of the property is ordinarily a conversion for which
the bailee is generally held responsible, to the full extent of the loss
Article 1943 (3)
Speaks of non-liability for deterioration of the thing loaned without
the fault of the bailee
Hence, in the absence of agreement to the contrary, the
depreciation caused by the reasonable and natural use of the thing
is borne by the bailor
Article 1944 (4)
To return the thing at the expiration of the contract
Reason for the law: bailment implies a trust that as soon as the
time has expired, or the purpose accomplished, the bailed property
must be restored to the bailor
The right of retention is only justified by damages mentioned in
Article 1951

Q: can the return become permanent?

A: Yes. Because the law uses its return (meaning permanent) or temporary
use. If thing is returned permanently, then the contract of commodatum is
extinguished
Note: the contract is suspended when the lender has temporary use and
possession o the object. The period agreed will not be extended
Article 1947
Precarium: bailor may demand the thing at will (2 kinds)
o
if neither the duration of the contract nor the use to which
the thing loaned should be devoted, has been stipulated
o
If the use of the thing is merely tolerated by the owner
Note: the possession of the borrower in precarium is precarious, that is,
dependent on the lenders will.
Article 1948
Bailor may demand the IMMEDIATE RETURN of the thing if the
bailee commits any ACT OF INGRATITUDE specified in Article 765
1.
If the donee should commit some offense against the person,
the honor or the property of the donor, or of his wife or
children under his parental authority;
2.
If the donee imputes to the donor any criminal offense, or any
act involving moral turpitude, even though he should prove it,
unless the crime or the act has been committed against the
donee himself, his wife or children under his authority;
3. If he unduly refuses him support when the donee is legally or
morally bound to give support to the donor. (648a)
Article 1949 (2)
Bailor shall refund the EXTRAORDINARY expenses during the
contract for the preservation of the thing loaned
Proviso: Bailee should INFORM or NOTIFY bailor of such before
incurring the expenses EXCEPT when they are so urgent
Q: Why should the bailor be notified before incurring the expense?
A: Because he should be given the discretion as to what he wants to do with
his own property. IF bailor doesnt want to preserve the thing, then he may
not pay.
-

Case: Quintos vs. Beck

Effect of failure to return or violation of the contract makes you
liable for expenses of delivery and expenses of storage fees or
deposit to the sheriff
Failure to return he is liable to pay the legal expenses and other
judicial costs which plaintiff would not have otherwise incurred
Case: De los Santos vs. Jarra
GR: No person is liable for loss due to fortuitous event
This case is an EXCEPTION: when bailee is in delay or default
He is under the obligation to indemnify the owner of the thing
loaned by paying him the value. He should also be subjected
to indemnity or the losses and damages caused thereby
Note: Another instance when bailee is liable even if it due to fortuitous event:
Appraisal value is given. The purpose of giving the appraisal vaule is to hold
you liable for the loss. Exception to this if you agree that there is no liability
Q: what if the bailor is obligated to the bailee, can bailee retain the object?
A: No. Legal compensation cannot take place because 2 obligations are not the
same.
Article 1945 (5)
Liability of two or more bailees to whom a thing is loaned in the
same contract: SOLIDARILY LIABLE
Note: in obligations and contract the GR is that plurality of parties results to
joint obligation. It will only result to solidarity if it is (1) agreed upon, (2)
provided by law, (3) nature of the obligation requires solidarity
3

If the EXTRAORDINARY EXPENSE arise on the occasion of the actual

use of the thing by the bailee, even without his fault: expenses will
be EQUALLY borne by both bailor and bailee

Article 1950
If, for the purpose of making use of the thing, the bailee incurs
expenses other than those referred to in Article 1941 and 1949, he
is NOT entitled to reimbursement
Those expenses not necessary for the use and preservation of the
thing, or expenses for ostentation are borne by the borrower.
Article 1951 (3)
LIABILTY TO PAY DAMAGES FOR KNOWN HIDDEN DEFECTS
Requisites:
1.
There is flaw or defect in the thing loaned
2.
That the flaw or defect is hidden
3.
The bailor is aware of such flaw
4.
He does not notify or advise the bailee of the same and;
5.
The bailee suffers damage by reason of such flaw or defect
Artcie 1952
-

Bailee has the right of RETENTION until paid of said damages

Flaws referred to are hidden defects, not obvious ones

Provides for the effect of Bailors abandonment or giving of

the object to the bailee: he is NOT EXEMPT from payment of
expenses or damages

angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Q: what is the reason behind this law?

A: the value of the thing borrowed might be less than the value of the
expenses or damages

EXCEPTION: In case of urgent need in which case bailee may demand its
return or temporary use.
Reason: The right of the bailor is based on the fact that commodatum is
essentially gratuitous.
3.

4.
5.

Destruction of the thing

If the thing can no longer be used for the thing intended
Q: What if the destruction was due to the bailees fault?
A: egardless who caused the destruction, the commodatum is
extinguished. But bailee is still liable for damages
Death of the borrower or bailee unless there is a stipulation to the
contrary
Ingratitude of the bailee (refer to Artcile 1948)

Chapter 2
Simple Loan or Mutuum

The money or property received by a partner was for a specific

purpose (to buy the cigarettes) and if it was not possible to comply
with such purpose, there is the duty to return such

a.
b.

Gratuitous if no stipulation of payment of interest

With interest

Kinds

Note: if flaw is unknown to the bailor, he is not liable because commodatum is

gratuitous.
Termination: Causes of Extinguishment
1.
Expiration of the time or use stipulated
If there is an urgent need before due date, he can demand for
the return
Bailor can also temporarily borrow the thing then return the
object to the bailee if due date has not expired yet
2.
Claim of the lender
GENERAL RULE: Allow the bailee the use of the thing loaned for the
duration of the period stipulated or until the accomplishment of the
purpose for which the commodatum was instituted.

Requisites
1.
Capacity of the parties
No special capacity is required to be a lender EXCEPT
ownership. But an emancipated minor may not borrow
money without the consent of his parent or guardian.
2.
Object
Consumable
Muttum involves money or any other fungible things. If not
fungible, the contract is barter.
3.
Consideration
Gratuitous or onerous (interest).
4.
Form
No special form is needed; but there must be delivery, as the
contract is real.
o
An accepted promise to deliver something by way of
simple loan may be subject to the Statute of Frauds if
not to be performed within one year. This contract is
consensual as distinguished from loan proper which is
real.
Case: Saura Import and Export Co. vs. DBP
In this case, the failure to deliver due to MUTUAL DISAGREEMENT
absolved respondent from any liability of breach or failure to fulfill
obligation
Commodatum or Simple loan itself shall NOT be perfected until the
DELIVERY of the object of the contract
However, when bank approves your loan, there is a mere perfected
consensual contract of loan (consensual contract to constitute the
loan)
Effects: Obligation of the Borrower Only

Concept
A.
Article 1953
Simply provides that ownership passes to the borrower, but he
must pay later
Mutuum is similar to an abnormal usufruct
Note: a loan of money, however, may be payable in kind (Art. 1958)

Article 1954
It is a contract whereby one party delivers to another money or
fungible thing, on the condition of returning the same kind, amount
and quality. If the object loaned is not fungible but the borrower is
to return another of the same kind and quality, it is barter.

Note: the term non-fungible in the present provision actually means NONCONSUMABLE. an equivalent thing is returned.
Case: Chee Kiong Yam vs. Malik
Distinction between Mutuum and Commodatum
M: borrower acquires ownership; either gratuitous or onerous;
Since the borrower acquires ownership, there can be no
misappropriation because they are allowed to dispose of the thing
C: Bailor remains to be the owner; essentially gratuitous; If bailor
fails or refuse to return the object, he may be prosecuted with
Estafa
Case: Tolentino vs Gonzales
nd
rd
Distinction between Mutuum and Lease (note that the 2 and 3
distinctions are questionable as they are the same thing)
M: You dont have to return the exact thing
L: You have to return the same thing
M: Relationship of parties obligor-obligee
L: Relationship of parties landlord-tenant
M: Creditor receives payment for loan
L: owner receives compensation or price
Case: Liwanag vs. CA
Distinction between Mutuum and Agency
M: delivery of object to the bailee makes him the owner of such
A: in a contract of agency, agent may be liable for Estafa as there
was no transfer of ownership.

To return the thing or amount borrowed at the period stipulated or

fixed according to general rules

Article 1955
1.
Liability of borrower of money is governed by Article 1249 and
1250

Art.1249. the payment of debts in money shall be made in

the currency stipulated and if it is not possible to deliver
such currency then in the currency which is the legal
tender in the Philippines.
The delivery of promissory notes payable to order or bills
of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed or
when through the fault of the creditor they have been
impaired.

Art. 1250. In case of extraordinary inflation or deflation of

the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement
to the contrary.

Q: If you agree that payment will be in a particular currency but such

currency is not available at time of payment, what will be the basis of your
payment?
A: based on the legal tender
Case: Rono vs. Gomez
A stipulation providing that one should pay with the currency
prevailing at the time of payment is legal and obligatory as the
increased intrinsic value and purchasing power of the current
money is a consequence of an event which at the time of the
contract, neither party knew would certainly happen
Case: Nepomoceno vs. Narciso
A stipulation not to pay while war is going on is an equitable and
valid transaction. Mortgagee did not want to have the prewar
credit paid with Japanese military notes. Further, mortgagor
voluntary agreed with such stipulation for as long as there was a
reduction of interest
You cannot compel creditor to accept payment when payment is
not yet due
angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Case: Equitable PCI Bank vs. Ng Sheung Ngor

If extraordinary inflation or deflation is present, the value of the
currency at the time of the establishment of the obligation shall be
the basis of payment unless there is a stipulation to the contrary
Note the requisites to affect an obligation:
o
Declaration from banco central that there is
extraordinary inflation or deflation

2.

If what was loaned is a fungible thing other than money: debtor

owes another thing of the SAME kind, quantity and quality, even if
it should change in value.
In case it is impossible to deliver the same kind, its value at the
time of the PERFECTION OF THE LOAN shall be paid

Note: payment of interest in kind what is applicable is the value of the object
at the time of payment.
B.

To Pay Interest

Article 1956
Interest shall be expressly stipulated in WRITING
Kinds of Interest:
o
Compensation for the use of the money (monetary
interest)
o
Damages compensatory interest
This article speaks of the first kind of interest
When the stipulation to pay is verbal, the voluntary payment is
valid as a performance of a natural obligation. (But GR: Verbal
void; EXCP: voluntary payment)
Requisites for recovery of interest
o
Must be expressly stipulated
o
Agreement must be in writing
o
Interest must be lawful
Q: when does interest earns interest?
A: interest due shall earn legal interest from the time it is JUDICIALLY
DEMANDED, although the obligation may be silent upon this point
Note: if the exact rate of the interest is not mentioned, the legal rate of 12%
shall be payable (deals with (1) loans, (2) forbearance of any money, goods or
credits, (3) judgments involving such loans or forbearance)
No increase in interest shall be due unless such increase has also been
expressly stipulated
Article 1957
Usury law should not be circumvented
Note however, Usury law no longer exists. Thus there is no more
maximum rate of interest. The rate will just depend on the mutual
agreement of the parties
Article 1958
Determination of interest if in KIND: value should be at time and
place of PAYMENT
Article 1959
Speaks of when accrued interest (due and unpaid) earns interest:
o
GR: it will not bear interest
o
EXC: (a) if there is agreement to this effect; (b) if there is
judicial demand
If it falls under the exception, such will bear interest at eh legal rate

Case: Espiritu vs. Landrito

Stipulation for legal interest but higher rate is charged VOID
No interest shall be due unless it has been stipulated in writing
The omission of the interest rate specified in the contract is
considered as bad faith
Wrong charge of interest led to the invalidity of the sale because it
led to the wrong computation of the principal
5% a month was unconscionable and it is not what is stipulated in
the contract (note: such ruling is only applicable to this case)
Case: Jardenil vs. Solas
Interest after maturity date can only be obtained if EXPRESSLY
STIPULATED (this case is a strict interpretation of the Law)
It is only after an extrajudicial demand that mortgagee is allowed to
collect legal interest from the mortgagor
Case: Sentinel Insurance Co. vs. CA
Damages due are not included in the computation of interest as the
two are of different categories and are distinct claims which may be
demanded separately

Note: if there is no written agreement on the interest but the borrower pays,
the presumption is that he did it VOLUNTARILY (moral or natural obligation).
Exception is SOLUTION INDEBITI (payment by mistake (this defense must be
proven)
Remember: No compounding of Interest unless expressly stipulated
Article 1961
Usurious contracts shall be governed by the Usury Law and other
special laws, so far as they are not inconsistent with this Code.
Bank Deposits
You are actually extending a loan to a bank
Called an irregular deposit
In time deposit: you can pre-terminate but you are not entitled to
the agreed interest
Case: Gopoco Grocery vs. Pacific Coast Biscuit Co.
Saving deposits are converted into simple commercial loans
Bank: debtor (obtains ownership); Depositor: creditor
In a simple loan, money deposited is only an ordinary credit as it
forms the asset of the bank
Case: Central Bank of the Phil. Vs. Morfe
Deposits are considered simple loans and are not preferred credits
Even if you acquired a favorable judgment from the court, you
dont become a preferred credit. You still have to file a claim from
the liquidator or receiver
Case: Serrano vs. Central Bank of the Phil
Bank deposits are in the nature of irregular deposits. They are loans
because they earn interest and because the bank can use the same
deposited money
Case: Guingona vs. City Fiscal of Manila
Failure to return savings deposit to depositor will not constitute
Estafa through misappropriation but will only give rise to civil
liability over which public respondent has no jurisdiction

TITLE XII: DEPOSIT

Note: Compound interest is interest on accrued interest. It is valid to charge

compound interest, but there must be a written agreement to this effect
unless it be the interest charged upon judicial demand.

Chapter 1
Deposit in General and its Different Kinds
Concept

Article 1960
Interest paid even if not stipulated, is not recoverable, it being
proof of a tacit contract or a natural obligation.
a. Except where it is proved that the interest was paid by error
(solution indebiti)
b. Interest payable in kind, it is appraised at the current price at
the time of payment (Art. 1958)
c. Interest due shall not earn interest (no compounding) in the
absence of agreement and without prejudice to Art 2212
(interest after judicial demand) (Art. 1595)
d. The following are not considered interest:
- Increase in the price when the sale is on installment
- Attorneys fees for cost of collection
- Penalty for breach

Article 1962
Deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of
returning the safe
Deposit is a real contract thus is perfected by DELIVERY, but an
agreement to constitute a deposit is merely consensual, and is
therefore binding upon mere consent
Q: Can a depositary use the thing deposited?
A: GR is No. But he can use it in two instances:
a.
With the express permission of the depositor
b.
When the preservation of the thing deposited requires its use, it
must be used but only for that purpose

angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Note: the principal purpose should be the safekeeping of the thing. If

otherwise, it is but some other contract like lease or commodatum
Q: what is the degree of care needed in safekeeping?
A: Same diligence as he would exercise over his property (good father)

Characteristics of the Contract of Deposit

1.
Real perfected by delivery
2.
Naturally gratuitous it can either be gratuitous or onerous; note
that there is no presumption of payment or compensation unless
stipulated
3.
Principal purpose is the safekeeping of the thing delivered
Case: US vs. Igpuara
If an agent receives money from another agent of his principal
which is the balance of a commission, such transaction becomes a
deposit, thus he can be liable for Estafa if misappropriated
Agent does not become owner nor does it imply a permission to
sue the thing deposited
Case: BPI vs. IAC
Based on Central Bank Circular No. 20, when foreign currency is
deposited, it should be sold to central bank. Doing otherwise makes
one liable for the violation of said circular
Case: CA Agro-Industrial Devt. Corp vs. CA
Rental of safety deposit box is in the form of SPECIAL DEPOSIT.
It is not a lease because the full and absolute possession and
control of the safety deposit box was not given to the joint renters.
It is not a deposit because bank has no control over the content
4.
5.

Either Unilateral or Bilateral, according to whether it is gratuitous

or compensated
Depositary cannot use the thing deposited (except for two
instances)

Case: Javellana vs. Lim

In this case, the fact that they were allowed to use the amount
deposited, the court considered it as a contract of loan
6.

Only movable things can be the object of a deposit

Article 1963
An agreement to constitute a deposit is binding, but the deposit
itself is not perfected until the delivery of the thing
Where there has been no delivery, there is merely an agreement to
deposit, a person obligation to do (contract of future deposit:
consensual this however is binding)
Note however: an offer to constitute a deposit in the future is binding only
when said offer is accepted
Kinds of Deposit
Article 1964
2 ways of constituting a deposit:

Judicial (sequestration) when an attachment or seizure of

property in litigation is ordered

Extrajudicial
o
Voluntary
o
Necessary
Judicial vs. Extra-Judicial Deposit
JUDICIAL
Creation
Will of the court
Purpose
To insure the right of a
party to property or to
recover in case of
favorable judgment
Subject Matter
Immovable (generally)
or movables
Cause
Always onerous
When to return

In whose behalf held

Upon order of the court

or when litigation has
ended
Person who has a right

EXTRA-JUDICIAL
Will of the parties
Custody and
safekeeping

Movables only
Gratuitous (generally)
or compensated
Upon
demand
of
depositor

When a deposit becomes a loan or commodatum:

If thing deposited is non-consumable, the contract loses the

character of a deposit and acquires that of a commodatum despite
the fact that the parties may have denominated it as a deposit,
unless safekeeping is still the principal purpose.

If thing deposited consists of money/consumable things, the

contract is converted into a simple loan or mutuum unless
safekeeping is still the principal purpose in which case it is called an
irregular deposit.
Example: bank deposits are irregular deposits in nature but governed by law
on loans
Case: Compania Agricola de Ultamar vs. Nepomoceno
IRREGULAR DEPOSIT
SIMPLE LOAN
The only benefit is that which accrues The essential cause for the
to the depositor
transaction is the necessity of the
buyer
The depositor can ask for the return A lender is bound by the provisions of
of the article at anytime
the contract and cannot seek
restitution until the time for payment
Depositor in irregular deposit has Common
creditors
enjoy
no
preference over other creditors with preference in the distribution of the
respect to the thing deposited
debtors property
Deposit vs. Sale and Barter
DEPOSIT
Ownership is not transferred
Real contract
Generally gratuitous

SALE AND BARTER

Ownership is transferred
delivered
Consensual
Always Onerous

Deposit vs. Commodatum

DEPOSIT
May be gratuitous
Principal purpose is safekeeping

COMMODATUM
Essentially and always gratuitous
Principal purpose is use

Deposit vs. Mutuum

DEPOSIT
Principal purpose is safekeeping or
mere custody
Depositor can demand the return of
the subject matter at will
Both movable and immovable
property may be the object

upon

MUTUUM
Purpose is for the consumption of
the subject matter
The lender must wait until the
expiration of the period granted to
the debtor
Only money and any other fungible
thing

Article 1965
Generally, deposit is gratuitous
Exceptions:
o
When there is a contrary agreement
o
When the depositary is engaged in the business of storing
goods
o
Involuntary deposit, where property is saved from
destruction during a calamity by another person without
the knowledge of the owner, the latter is bound to pay the
former just compensation
Q: If compensation was agreed but the rate was not fixed, how much should
be given?
A: the compensation should be fixed according to the current rates in the
place where the deposit was constituted. If the goods were delivered in one
place but actually deposited in another place, the rate of compensation shall
be that of the place where the things were delivered, because that would be
the place where the contract was perfected.
Note: when the thing delivered can be used by the depositary and he is
obliged to pay interest for said use, it follows that the contract cannot be
considered a deposit but a loan or mutuum.
Article 1966
Object of extrajudicial deposit are movable things, whether
voluntary or necessary
Judicial deposit , however, may cover both movable or immovable
property, its purpose being to protect the rights of parties to a suit
This article does not embrace incorporeal or intangible property,
such as rights and actions

rd

Depositor or 3 person
designated

Q: why only movables?

A: because the purpose of deposit is for safekeeping. An immovable cannot be
lost, disappear or be stolen.

angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Article 1967
Extrajudicial deposit is either:
o
Voluntary there is mutual consent; made by the will of the
depositor
o
Necessary made in compliance with a legal obligation, on
the occasion of calamity (depositum miserable), made by
travelers in hotels or inns, made by travelers with common
carriers

Note: if you allow the use it should not be the primary purpose
Article 1972 (a to preserve the thing or safekeeping)
If the degree of diligence is not specified, one should observe the
diligence of a good father of a family
Note however that more care is required if the deposit is for a
compensation than if it is gratuitous
Note: in case of non-fault on the part of the depositary, the depositor-owner
bears the loss because of the maxim res perit domino.

Chapter 2
Voluntary Deposit
Section 1: General Provisions
Article 1968
Voluntary deposit is that wherein the delivery of the object is made
by the will of the depositor

Article 1973 (a delegation of custody)

GR: depositary cannot deposit the thing with a third person (Why?
Because deposit is founded on the fact that the depositor has
precisely chosen a particular depositary by virtue of the latters
qualification, and because of the trust and confidence on him by
the depositor
EXC: stipulation to the contrary
Liabilities: The depositary is liable for loss of the thing deposited when:

Q: should the depositor be the owner?

A: Generally yes. But second sentence of the said article admits the validity of
a deposit which has not been made by the true owner. The law even provides
that the depositary cannot demand that the depositor prove his ownership of
the thing deposited. Further, depositor does not transfer ownership over the
subject matter

a.
b.
c.

He transfers the deposit with a third person without authority

although there is no negligence on his part and the third person
He deposits the thing with a third person who is manifestly careless
or unfit although authorized, even in the absence of negligence; or
The thing is lost through the negligence of his employees whether
the latter are manifestly careless or not.

Kinds
a.
b.

Where the deposit is by the will of the depositor (complete

freedom)
Where the deposit is by two claimants, and the thing is to be
delivered to the one found to be entitled to it (conflicting
adversarial claims)

Interpleader depositary may compel two conflicting claimants of the thing

deposited to interplead and litigate their several claims among themselves.
Requisites
Article 1969 (1 - Formalities)
Except for delivery, no other form is required
A contract of deposit may be entered into ORALLY or in WRITING
Article 1970 (2 Capacity of the Parties)
No special capacity is required, the depositor need not be the
owner of the thing and may even be incapacitated
When the depositor is incapacitated and the depositary is capacitated
The incapacitated depositor cannot compel the depositary to
return the thing deposited
However, the depositary may be compelled to return the thing by
the guardians or by the depositor himself if he should acquire
capacity
Note: Capacity is required in the depositor for claiming the return but not for
making a deposit.
A capacitated depositary is subject to all the obligations of a depositary. He
cannot therefore allege the incapacity of those with whom they contracted.
Article 1971 (2 Capacity of the Parties)
When the depositor is capacitated and the depositary is incapacitated
Depositor shall only have an action to recover the thing deposited
while it is still in the possession of the depositary
Depositor may compel the incapacitated depositary to pay him the
amount by which the depositary have enriched or benefited
himself with the thing or its price
If the third person who acquired the thing acted in bad faith, the
depositor may bring an action against him for its recovery
3 Object
It must be corporeal and movable
In extrajudicial deposit, the purpose of the contract is to insure
restoration of the thing that may disappear
In judicial deposit (receivership) , real or personal property may be
included
Section 2: Obligation of Depositary
Principal Obligation of the depositary
a.
Preserve the thing
b. Return the Thing
7

Exemption from liability: The thing is lost through the negligence of the third
person with whom he was allowed to deposit the thing if such person is not
manifestly careless or unfit.
Article 1974 (a change of the manner of deposit)
GR: depositary may NOT change the manner of deposit
EXC: there are circumstances where depositary may reasonable
presume that depositor would consent to the change (note
however that before making the change, NOTIFICITAION and REPLY
from the depositor is necessary)
EXC to the EXC: notification may be disregarded if delay would
cause danger
Article 1975 (a preservation of the value)
If the thing deposited should earn interest, the depositary is under
obligation to:
a. to collect interest as it fall due
b. to take steps to preserve its value and rights corresponding
to it according to law
The depositary is bound to collect the capital, as well as the
interest, when due.
Example: encash the check so that the value will remain
Article 1976
Speaks of comingling of grain or other articles of the same kind and
quality (General Rule)
EXC: unless there is a stipulation to the contrary
Note: if objects are comingled, the various depositors shall own or have a
proportionate interest in the mass
Article 1977 (a agreement that the depositary may use the thing deposited)
GR: The depositary may not to make use of the thing deposited
unless authorized. Deposit is for safekeeping not for use.
Exceptions:
a.
Expressly authorized by the depositor
b.
Such use is necessary for its preservation but limited for the
purpose only
Effect of unauthorized use: Liability for damages
Effects of authorized use: (article 1978)
Article 1978 (a agreement that the depositary may use the thing deposited)
GR1 if the thing deposited is a non-consumable thing: The contract
loses the character of a deposit and acquires that of a
commodatum despite the fact that the parties may have
denominated it as deposit.
EXC1: Safekeeping is still the principal purpose of the contract.
GR2 if the thing deposited is money or other consumable thing:
The contract is converted into a simple loan or mutuum.
EXC2: Safekeeping is still the principal purpose of the contract, but
it now becomes an irregular deposit.
Note: permission shall not be presumed, and its existence must be proved.

angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Q: Can the right to demand the return of the thing deposited prescribe?
A: No. In deposit, there is no transfer of ownership. What is transferred is
simply the custody of the thing. In order to ripen into prescription possession
must be in the concept of an owner, public, peaceful and uninterrupted.
Article 1979
GR: depositary is not liable for loss due to fortuitous event
This article provides for the EXCEPTIONS:
1.
If it is so stipulated
2.
If he uses the thing without the depositors permission
3.
If he delays its return
4.
If he allows others to use it, even though he himself may
have been authorized to use the same
Article 1980
Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple
loans
Note: a bank can COMPENSATE a debtors debt with a debtors deposit
because insofar as the deposit is concerned, the relationship between them is
that of debtor and creditor.
Article 1981 (a secrecy of deposit)
The depositary has the obligation to:
a.
Return the thing deposited when delivered closed and sealed
in the same condition
b.
Pay for damages should the seal or lock be broken through his
fault, which is presumed unless proven otherwise
c.
Keep the secret of the deposit when the seal or lock is broken
with or without his fault.
Note: As regards the value of the thing deposited, the statement of the
depositor shall be accepted, when the forcible opening is imputable to the
depositary, should there be no proof to the contrary
Article 1982(a secrecy of deposit)
The depositary is authorized to open the thing deposited which is
closed and sealed when there is:
a.
Presumed authority (i.e. when the key has been delivered to
him or the instructions of the depositor cannot be done
without opening it)
b.
Necessity
Article 1983 (b what is to be returned)
If specific thing: the thing deposited shall be returned with all
its products, accessories and accessions
If money: obligation to pay interest on sums converted for
personal use
If generic thing: article 1976
Case: Roman Catholic Bishop of Jaro vs. de la Pena
SC majority: Commingling of funds does not make the depositary
responsible if it is taken or confiscated by the government as this is
a case of force majeure
Dissent: by mixing it with his account, he stamped his own marks
and unclothed it of all the protection it had
Article 1984 (b to whom)
The depositary is obliged to return the thing deposited when
required to (article 1972 codal provision):
1. The depositor
2. To his heirs or successors
3. To the person who may have been designated in
the contract
This article Provides for 4 rules:
1. Depositary cannot demand proof of ownership
2. If Depositary discover that the thing has been STOLEN and he
KNOWS who the TRUE OWNER is, he must ADVISE the latter of
the deposit
3. If the owner, in spite of such information, does not claim it within
the period of ONE(1) MONTH the depositary shall be relieved of
all responsibility by returning the thing deposited to the
depositor
4. If the depositary has reasonable grounds to believe that the thing
has NOT BEEN LAWFULLY ACUQUIRED by the depositor, the
former may return the same (even before the stipulated time)
Q: what is the difference between rule 2 and 4?
A: in rule 2, the depositary knows who the owner of the stolen property is, in
rule 4, he does not
Note: that the law uses the word STOLEN. Hence, if LOST, the provisions
appertaining to stolen property SHOULD NOT apply.
8

Article 1985 (b Form or manner of return)

Speaks of an instance when there is two or more depositors
Joint depositor and the thing is capable of division: each one
cannot demand more than his share
Solidary depositor and the thing is incapable of division: return to
any of the depositor (exception: if there is a stipulation that the
thing should be returned to one of the depositors, depositary shall
return it only to the person designated)
Article 1986 (b to whom)
Even if the depositor had the capacity at the time of making the
deposit but he subsequently loses his capacity during the deposit,
the thing must be returned to his legal representative
Article 1987 (b place of return)
GR: At the place agreed upon by the parties, transportation
expenses shall be borne by the depositor.
Exception: In the absence of stipulation, at the place where the
thing deposited might be even if it should not be the same place
where the original deposit was made, provided that there was no
malice on the part of the depositary
Article 1988 (b Time of return)
GR: The thing deposited must be returned to the depositor upon
demand, even though a specified period or time for such return
may have been fixed.
Exceptions:
1.
When the thing is judicially attached while in the depositarys
possession (why? The property will be subject to judicial
orders)
2.
When depositary is notified of the opposition of a third
person to the return or the removal of the thing deposited
(why? Oppositor may claim to be the owner)
Note: if deposit is for compensation and there is a fixed period, depositary
cant refuse to return the object if demanded by the depositor. However
depositor should pay for the entire period stipulated (EQUITY DEMANDS)
Article 1989
Unless the deposit is for a valuable consideration, the depositary
who may have JUSTIFIABLE REASONS for not keeping the thing
deposited may, even BEFORE the time designated, return it to the
depositor
If Depositor refuse to receive: depositary may secure its
CONSIGNATION from the court
Article 1990
Speaks of loss thru Force Majuere or Government Order and
depositary receives money or another thin in its place: he shall
deliver the sum or other thing to the depositor
Article 1991
Contemplates of an incident when an heir of the depositary sold
the thing deposited:
1.
he shall be bound to return the PRICE he may have
received (if buyer has paid him)
2.
assign his right of action against the buyer to the
depositor (if buyer has not paid yet)
Note: the heir should be in good faith or else he is liable for damages. Further
if the buyer is in bad faith, the depositor can recover the thing deposited from
him.
Summary: When there is demand, instances when the depositary an refuse
to return
1. When he exercise his right of retention due to claims for damages,
expenses or agreed compensation (note: in commodatum, you can
retain the thing only if there is damages)
2. When the thing is stolen and depositary knows the real owner
3. When notified of the opposition of another person (notify the
depositor of the adverse claim and demand that they go for
interpleader)
4. When the thing is attached while it is in his possession (note: if the
good are under a negotiable instrument, the goods cant be
attached)
Set Off
-

GR: The bank can set-off the deposits in its hands for the payment
of any indebtedness to it on the part of the depositor.
However, if the depositor is a mere indorser of a check which was
later dishonoured, the right of action does not accrue until a notice
of dishonour is given to him.

angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Q: when is legal compensation possible (requisites)?

A:
a.
Both are creditors and debtors of each other
b.
Sum of money or delivery of consumable goods
c.
Must be due
d.
Must be liquidated and demandable
e.
No controversy
Case: Gullas vs. PNB
GR: set-off can be done because bank and client have a
creditor-debtor relationship
EXC: With regards to an indorser, notice should be given to
him before set-off to protect his interest
Case: Associated Bank (Westmont Bank) vs. Tan
Bank generally has a right to set-off over the deposits therein for
payment of any withdrawals on the part of a depositor. However,
the bank should exercise extraordinary diligence, thus notification
is required before set-off may happen
Banks Failure to Return Amount
Claims for recovery of time deposits plus interest from an insolvent
bank shall be filed before the liquidation proceedings in the proper
court. Failure of bank to honor the time deposit is not a breach of
trust arising from a depositarys failure to return the subject matter
but a mere failure to pay its obligation as a debtor.
Case: Guingona vs. City Fiscal of Manila
Failure to Return bank deposit will NOT constitute Estafa, but will
only give rise to civil liability
When Bank Officials may be guilty of Estafa
GR: Failure of bank to return the amount deposited will not
constitute estafa through misappropriation.
Exception:
Case: Guingona vs. City Fiscal of Manila
If the bank entered in its record or books a different amount form
that of the real amount deposited, officials of the bank may be
guilty of estafa
Earnest Money
If a sale did not materialize, the earnest money is considered to be
a deposit
Case: Compania Maritima vs. CA
if sale did not materialize, then the money should be returned

Security of the Depositary

Article 1994
The depositary may retain the thing in pledge until the full payment
of what may be due him by reason of the deposit (including
remuneration stipulated)
Note however: obligations arising from deposit are not extinguished by
compensation
Q: if the depositary has returned the thing to the depositor even if the latter
has not yet fully paid him, can he still bring an action to recover fees,
compensation or expenses?
A: Yes. The depositary only lost the right of retention but he did not lose the
right to recover what may be due him.
Termination of the Contract
Article 1995
A deposit is extinguished:
1.
Upon the loss or destruction of the thing deposited
2.
In case of gratuitous deposit, upon the death of either the
depositor or the depositary
Other causes provided for by law (1995 is not an exclusive):
1.
By claim of the deposit by the depositor at any time
2.
Expiration of the term
3.
Termination of the purpose of the deposit or fulfillment of
a resolutory condition
4.
By renunciation of the depositary unless deposit is for
consideration (you can only renounce if you have
reasonable grounds or you have a reasonable assumption
that the thing was not lawfully acquired by the depositor)
5.
Mutual withdrawal from the contract

Chapter 3
Necessary Deposit
Kinds
Article 1996 (1 and 2)
Deposit is necessary:
1.
When it is made in compliance with a legal obligation
2.
When it takes place on the occasion of any calamity,
such as fire, storm, flood, pillage, shipwreck, or other
similar events
Article 1997
Speaks of Governing Rules

Section 3: Obligations of the Depositor

a.
Obligations of the Depositor
Article 1992
Gratuitous Deposit: depositor is obliged to reimburse the
depositary for the expenses he may have incurred for the
preservation of the thing deposited
Onerous Deposit: to pay the compensation
Q: why is this article not applicable to Onerous Deposit?
A: Because expenses for preservation are deemed included in the
compensation
Note: in this article, the law talks merely of necessary expenses and not the
useful ones or those for mere luxury or pleasure
Article 1993
GR: if the depositary suffers because of the character of the thing
deposited, the depositor should be responsible for the loss
sustained by the depositary
EXC:
1.
Depositor was not aware of , or was not expected to
know the dangerous character of the thing
2.
Depositor knew of the danger but he notified the
depositary of the same (depositary have assumed the
risk)
3.
Depositary was aware of the danger, even though he
had not been notified by the depositor (also an
assumption of risk)

Those made in compliance with a legal Obligation

1. First, the law creating said deposits
2. Suppletorily, the rule on voluntary deposit
Example: A borrowed P100,000. 00 from B, and as security thereof,
pledged his diamond ring. If B uses the ring without the authority of
A, A may ask that the ring be judicially or extrajudicially deposited.
(Article 2104, Civil Code the creditor cannot use the thing
pledged, without the authority of the owner, and if he should do
so, or should misuse the thing in any other way, the owner may ask
that it be judicially or extrajudicially deposited." When the
preservation of the thing pledged requires its use, it must be used
by the creditor but only for that purpose.

b. Deposits made because of a Calamity

1. First, the rules on Voluntary Deposits
2. Also, Article 2168 of the Civil Code when during fire, flood, storm,
or other calamity, property is saved from destruction by another
person without the knowledge of the owner; the latter is bound
to pay the former just compensation. NEGOTIORUM
GESTIUM (quasi-contract)
Article 1998 (3)
The deposit of effects made by travelers in hotels or inns shall also
be regarded as necessary
Requisites before the hotel or inn can be held liable:
1. Notice was given to the hotel or inns about the objects
2. That the depositor took the precautions (may be given
orally or in written form) which said hotel-keepers or
their substitutes advised relative to the care and
vigilance of their effects

angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion

Note: travelers refer to TRANSIENT and do not include ordinary or regular

boarders in any apartment, house, inn or hotel. Guest is synonymous to
travelers. Non-transient are governed by the rules on lease
-

Article 2006
movable as well as immovable property may be the object of
sequestration

The liability or responsibility by the hotel or inn keeper commences

as soon there is an evident intention on the part of the travelers to
avail himself of the accommodations of the hotel or inn. It does not
matter whether compensation has already been paid or not, or
whether the guest has already partaken of food and drink or not.

Article 2007
The depositary of property or objects sequestrated cannot be
relieved of his responsibility until the controversy which gave rise
thereto has come to an end, unless the court so orders

Article 1999
The liability of hotel or inn keeper includes:
1.
For the vehicles, animals and articles which have been
introduced or placed in the annexes of the hotel;

Article 2008
The depositary of property sequestrated is bound to comply, with
respect to the same, with all the obligations of a good father of a
family

Article 2000
The liability of hotel or inn keeper includes:
2.
Damages to good by their servants or employees as well
as strangers but not that which may proceed from any
force majeure (ex. Flood) or if there has been robbery
by intimidation of persons;

Article 2009
As to matters not provided for in this Code, judicial sequestration
shall be governed by the Rules of Court

Article 2001
The act of a thief or robber, who has entered the hotel is not
deemed force majeure, UNLESS it is done with the USE OF ARMS
OR THROUGH AN IRRESISTIBLE FORCE
Note: if the person who robbed the hotel with the use of arms or irresistible
force is an employee of the hotel, the hotel is still liable because article 2001
refers to a stranger. The hotel will thus be liable under article 2000.

Special Rule
1.
Examples of an attachment or seizure of property by judicial order:
a.
Under Rule 57, Revised Rules of Court: a proper party may, at
the commencement of the action or at any time thereafter,
have the properties of the adverse party attached as security
for the satisfaction of any judgment that may be recovered.
b.
Under Rule 60, a sheriff may be ordered to seize personal
property in suits for the delivery of personal property.
c.
In PCGG sequestration cases pending before the Sandiganbayan.

Article 2002
Speaks of an instance when hotel-keeper is not liable
The hotel-keeper is not liable for compensation if the loss is due to
o
the acts of the guest, his family, servants or
visitors,
o
or if the loss arises from the character of the things
brought into the hotel.
Note: the law does NOT distinguish what kind of acts are referred to. Acts
therefore may either be the result of voluntary malicious act or simply of
negligence.
Article 2003
The hotel-keeper cannot free himself from responsibility by posting
notices to the effect that he is not liable for the articles brought by
the guest. Any stipulation between the hotel-keeper and the guest
whereby the responsibility of the former as set forth in articles
1998 to 2001 is suppressed or diminished shall be void.
Case: YHT Realty Corp. vs. CA
Hotel cannot free itself from responsibility by posting notices to the
effect that he is not liable for articles brought by gusts
It is not necessary that the thing should actually be delivered to the
innkeepers, it is sufficient that the effects are within the hotel or
inns
Article 2004
The hotel-keeper has a right to retain the things brought into the
hotel by the guest, as a security for credits on account of lodging,
and supplies usually furnished to hotel guests.
Note: this right of retention is in the nature of a pledge created by operation
of law, and thus, the hotel-keeper is allowed to power of sale.
Note however that the lien or the right of retention does not exist when the
debtor is not a guest of the hotel.
(4) In common Carriers
Chapter 4
Sequestration or Judicial Deposit
Article 2005
A Judicial deposit or sequestration takes place when an attachment
or seizure of property in litigation is ordered by a court
Garnishment of property is to satisfy a writ of executions
The property is brought into CUSTODIA LEGIS, under the sole
control of the court
Note: the purpose of a judicial deposit is to maintain the status quo during the
pendency of the litigation or to insure the right of the parties to the property
in case of a favorable judgment
10

angels notes
CREDIT TRANSACTIONS
Paras, de Leon, Assigned Cases, Class Discussion