CREDIT TRANSACTIONS

When is a deposit constituted?

A 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 same. (NCC, Art. 1962)
What may be the object of deposit?
Art. 1966 provides that only movable things may be the object of a deposit. However, Art.
2006 provides that movable as well as immovable property may be the object of
sequestration or judicial deposit. (NCC, Art. 1966, Art. 2006)
May innkeepers be held liable for the things of their guests which are not actually
delivered to the custody of the inn?
To hold innkeepers liable for the things of their guests, it is not necessary that they be
actually delivered to the custody of the inn; it is enough that these items are inside the
premises of the inn. The nature of the business of inns and hotels require supervision and
control by the management of the establishment and provide lodging and security to the
persons of the guests and their effects. (Delos Santos v. Tan Khey, 58 O.G. 7693, 1963)
May a bailee acquire both use of the thing and its fruits in commodatum?
Bailee acquires the temporary use of the thing but not its fruits since the bailor remains the
owner (NCC, Art. 1935). However, a stipulation that the bailee may make use of the fruits of
the thing loaned is valid (NCC, Art. 1940)
May consumable goods be the subject of commodatum?
Consumable goods may be the subject matter of commodatum if the purpose of the
contract is not the consumption of the object (NCC, Art. 1936)
What is the effect of death of a party in commodatum?
Commodatum is purely personal contract. Hence, the death of either party terminates the
contract (NCC, Art. 1939(1) )
May a bailee lend the thing loaned to third persons? Is there are an exception?
The bailee can neither lend nor lease the object of the contract to a third person. However,
the members of the bailee's 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. (NCC, Art.
1939 (2) )
When is the bailee liable for the loss of the thing loaned?
As a general rule, the bailee is not is liable for loss or damage due to a fortuitous event
(NCC Art. 1174). The reason is that the bailor retains ownership of the thing loaned (NCC
Art. 1933). However, the bailee is liable for the loss of the thing, even if it should be through
a fortuitous event:

(1) If he devotes the thing to any purpose different from that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use
for which the commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exemption the bailee from responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member of his household;
(5) If, being able to save either the thing borrowed or his own thing, he chose to save the
latter. (NCC, Art. 1942)
May the bailor demand the return of the thing before the expiration of the period?
The bailor cannot demand the return of the thing loaned till after the expiration of the
period stipulated, or after the accomplishment of the use for which the commodatum has
been constituted. However, if in the meantime, he should have urgent need of the thing, he
may demand its return or temporary use. In case of temporary use by the bailor, the
contract of commodatum is suspended while the thing is in the possession of the bailor.
(NCC, Art. 1946). The bailor may also demand the immediate return of the thing If the
bailee commits any act of ingratitude specified in Art 765 (NCC, Art. 1948)
(1) If The bailee should commit an offense against the person, the honor or the
property of the bailor, or of the wife or children under his parental authority
(2) If the bailee imputes to the bailor any criminal offense, or any act involving moral
turpitude, even though he should prove it unless the crime or act has been
committed against the bailee himself, his wife or children under his parental
authority
(3) If the bailee unduly refuses the bailor support when the bailee is legally or
morally bound to give support to the bailor (NCC, Art. 765)
When may the bailor be held liable to the bailee for damages for known hidden
flaws?
The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the
same, shall be liable to the latter for the damages which he may suffer by reason thereof
(NCC, Art. 1951)
In all cases, is the loan of consumable goods considered mutuum?
No. As a rule, if the subject of the contract is consumable, it would be mutuum. However,
there are some instances where a commodatum may have for its object a consumable
thing. If consumable goods are loaned only for purposes of exhibition, or when the intention
of the parties is to lend consumable goods and to have the very same goods returned at the
end of the period agreed upon, the loan is commodatum and not mutuum (Producers Bank
of the Phils v. CA, G.R. no 115324)
What is the barter?
Barter is a contract whereby one person transfers ownership of non-fungible things to
another with the obligation on the part of the latter to give things of the same kind, quality
and quantity (NCC, Art. 1954)
When is there a contract of loan with an equitable mortgage?
If the property is sold but the real intent is only to give the object as security for a debt,
as when the price is unusually inadequate, there is really a contract of loan with an
equitable mortgage (NCC, Art. 1602(1) )
Art. 1250 provides that in case an 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. What are the requisites for this provision to apply?
1. There is an official declaration of extraordinary inflation or deflation from the BSP
2. The obligation is contractual in nature; and
3. The parties expressly agreed to consider the effects of the extraordinary inflation or
deflation (Equitable PCI Bank v. Ng Sheung Ngor, G.R. No. 171545)
May a bank enforce an escalation clause at any time?
No. A valid escalation clause should provide:
(1) That the rate of interest will only be increased if the applicable maximum rate of interest
is increased by law or by the Monetary Board of BSP; and
(2) That the stipulated rate of interest will be reduced if the applicable maximum rate of
interest is reduced by law or by the Monetary Board (de-escalation clause) (Equitable PCI
Bank v. Ng Sheung Ngor, G.R. No. 171545)
Siga-an granted a loan to Villanueva in the amount of P 540, 000.00. Such
agreement was not reduced to writing. Siga-an demanded interest which was paid
by Villanueva in cash and checks. The total amount Villanueva paid accumulated to
P 1, 200, 000.00. Upon advice of her lawyer, Villanueva demanded for the return
of the excess amount of P 660, 000.00 which was ignored by Siga-an. Is the
payment of interest valid? Is solution indebiti applicable?
No, Art. 1956, Civil Code, provides that no interest shall be due unless it has been
expressly stipulated in writing.
Yes, Solutio Indebiti is applicable because Villanueva Overpaid by P600,000.00 representing
interest payment which is not due. He can, therefore, demand its return. (Siga-an v.
Villanueva, G.R. No. 173227)
When is a deposit constituted? What if deposit is not the principal purpose of the
contract?
A 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 same. If the safekeeping of the
thing delivered is not the principal purpose of the contract, there is no deposit but some
other contract. (NCC, Art. 1962)
When is there a necessary deposit?
A deposit is necessary when made in compliance with:
(1) A legal obligation
(2) On occasion of any calamity (NCC, Art. 1996)
(3) By travelers in hotels and inns (NCC, Art. 1998); or
(4) By travelers in common carriers
When is a deposit not gratuitous?
1. When there is a stipulation
2. Depositary is engaged in business of storing goods (NCC, Art. 1965)
3. Property saved from destruction without knowledge of the owner (NCC, Art. 2168)
Is deposit perfected upon consent?
No. An agreement to constitute a deposit is binding, but the deposit itself is not perfected
until the delivery of the thing. (NCC, Art 1963)
Is an oral promise of guaranty is valid and binding?

Yes. An oral promise of guaranty is valid and binding. While the contract is valid, however ,it
is unenforceable because it is not writing . Being a special promise answer for the debt, or
miscarriage of another, the Statute of Frauds requires it to be in writing to be enforceable
( Article 1403 [2] b, NCC).
What is the difference between "guaranty" and "suretyship"?
Guaranty and Suretyship distinguished
(1)The obligation in guaranty is secondary; whereas, in suretyship, it is primary.
(2) In guranty, the undertaking is to pay if the principal debtor cannot pay; whereas, in
suretyship, the undertaking is to pay if the principal debtor does not pay .
(3) In guranty, the guarantor is entitled to the benefit of excussion; whereas, in suretyship
the surety is not entitled.
(4) Liability in guaranty depends upon an independent agreement to pay the obligations of
the principal if he fails to do so; whereas, in suretyship, the surety assumes liability as a
regular party.
(5)The Guarantor insures the solvency of the principal debtor; whereas, the surety insures
the debt.
(6)In a guaranty, the guarantor is subsidiarlty liable; whereas, in a suretyship, the surety
binds himself solidarity with the principal debtor (Art 2047, Civil Code).
Rosario obtained a loan of P100,000.00 from Jennifer, and pledged her diamond
ring. The contract stipulates that upon failure of Rosario to redeem the ring on due
date, Jennifer may immediately sell the ring and appropriate the entire proceeds
thereof for herself as full payment of the loan. Is the stipulation valid?
No. While the contract of pledge is valid, the stipulation authorizing the pledgee to
immediately sell the thing pledged is void. Jennifer cannot immediately sell by herself the
thing pledged. The creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them. (NCC, Art. 2088)
What are the elements of pactum commissorium?
(1) There should be a property mortgaged by way of security for the payment of the
principal obligation; and
(2) There should be a stipulation for automatic appropriation by the creditor of the thing
mortgaged in case of non-payment of the principal obligation within the stipulated period
(Garcia v. Villar, G.R. No. 158891)
Does the pactum commissorium stipulation invalidate the whole contract of
pledge, mortgage or antichresis?
No. The pactum commissorium stipulation does not automatically invalidate a contract of
pledge, mortgage or antichresis. The security remains valid, only the prohibited stipulation
is void. It is as if the parties have not agreed as to the manner the creditor can recover his
credit in case the debtor fails to comply with his obligation (Mahoney v. Tuason)
Is a real estate mortgage constituted on a building erected on the land of another
valid?Prudential Bank v. Panis:
Yes. While it is true that a mortgage of land necessarily includes, in the absence of
stipulation of the improvements thereon, buildings, still a building by itself may be
mortgaged apart from the land on which it has been built. Such a mortgage would be still a
real estate mortgage for the building would still be considered immovable property even if
dealt with separately and apart from the land (Prudential Bank v. Panis, G.R. No. L-50008)

May a foreclosure of a mortgage go beyond the amount mentioned? Is there an

exception?
The rule is well settled that an action to foreclose a mortgage must be limited to the amount
mentioned in the mortgage. (BPI Savings Bank v. Vda. De Coscoluela, G.R. No. 167724)
However, an exception would be the presence of a Dragnet Clause which is one which is
specifically phrased to subsume all debts of past and future origins (Union Bank of the
Philippines v. Court of Appeals, G.R. No. 164910)