I. CREDIT TRANSACTIONS A. Definition: Credit transactions are transactions involving credit.

Credit - belief or trust that the other party can actually perform; whether or not a person may perform, or their ability to perform, is another matter B. Distinguished from Bailments, Secured Transactions Bailment derived from the French word bailler which means to deliver; delivery of property of one person to another for a specific purpose, with a contract that the trust 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 (De Leon); the purpose of the delivery may be the use, possession, or ownership of a thing *Neither credit transactions nor bailments is broader than the other; they are two different things. There are some transactions that are both bailment and credit transaction at the same time. Likewise, there are credit transactions that are not bailments and there are bailments that are not credit transactions. (Uribe) 2 Types of Credit Transactions: 1. Secured transactions supported by a security or collateral; the performance of the obligation is secured by a guaranty (real security) 2. Unsecured transactions supported by a mere promise to perform (personal security) Scope: Credit transactions are made up of some bailment contracts, together with other related subjects such as usury (Act no. 2655, as amended), the contracts of guaranty and suretyship, mortgage, antichresis, and concurrence and preference of credits. (De Leon) II. LOAN A. Definition: Article 1933. By a contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the same kind and quality be paid, in which case the contract is simply called a loan or mutuum. Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest. In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

CASE: CATHOLIC VICAR APOSTOLIC VS CA Vicar did not acquire Lots 2 and 3 by acquisitive prescription because there was no adverse possession until 1951, when Vicar had the lots registered for tax purposes. There was adverse possession for only 11 years, which is far from the minimum requirement of 30 years because they did not have a just title. The first few years of possession was not in the concept of owner because they were only possessors by virtue of commodatum between them and the predecessors of respondents; ownership did not pass. CASE: SAURA IMPORT AND EXPORT VS. DBP The borrower did not acquire ownership because the mutuum (simple loan) was not perfected because there was no delivery of money. B. Kinds of Loans: 1. Commodatum (1933, NCC) 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 essentially gratuitous; the cause being the mere liberality of the bailor bailor retains ownership of the thing loaned involves property that is not fungible as to interpretation: least transmission of rights and interests (1378, NCC) 2. Mutuum or Simple Loan (1933, NCC) one of the parties delivers to another money of other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid a person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality (1953, NCC) may be gratuitous or with stipulation to pay interest; the cause being the mere liberality of the bailor (gratuitous), or the promise to pay interest to the bailor or the acquisition for the bailee (onerous) ownership passes to the borrower (1933, NCC) the provisions on simple loan shall also be applied to fixed, savings, and current deposits of money in banks and similar institutions (1980, NCC) Article 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract. Delivery is necessary to transfer either the use and possession in the case of commodatum, or ownership in the case of mutuum. (De Leon) C. Nature and Characteristics: Characteristics of Commodatum: 1. Essentially Gratuitous 2. Real Contract perfected upon delivery (1934, NCC) 3. Principal 4. Purely/Strictly Personal the death of either the bailor or bailee extinguishes the contract (1939, NCC); the bailee can neither lend nor lease the object of the contract to a third person, however, the members of the bailees household may

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make use of the thing loaned, UNLESS there is stipulation to the contrary, or unless the nature of the thing forbids such use 5. Unilateral only one of the parties has the obligation (the bailee is obliged upon perfection/delivery to return the thing) Characteristics of Mutuum: 1. Gratuitous or Onerous 2. Real Contract 3. Principal 4. Unilateral or Bilateral SAURA VS. DBP: one party cannot unilaterally cancel the contract; if mutual agreement can constitute a contract, it can also extinguish the contract Article 1935. The bailee in commodatum acquires the use of the thing loaned but not its fruits; if any compensation is to be paid by him who acquires the use, the contract ceases to be a commodatum. Article 1939. Commodatum is purely personal in character. Consequently: (1) The death of either the bailor or the bailee extinguishes the contract; (2) 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. Article 1939 constitutes an exception to the general rule that all rights acquired in virtue of an obligation are transmissible. (De Leon, in relation to Art. 1178 Subject to laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary) Article 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is valid. General rule is that the bailee cannot use the fruits of the thing loaned. He may use the fruits if there was a stipulation to such effect. Sample scenario: In commodatum where a carabao was borrowed and the carabao, at the time of the perfection, was pregnant, upon the birth of the offspring, who owns the offspring? The owner of the carabao will also own the offspring. Will the bailee also have the right to the use of the offspring? It will depend on the stipulation of the parties as to whether the bailee will also be able to use the offspring or fruits of the thing. Article 1938. The bailor in commodatum need not be the owner of the thing loaned. (***ownership is not an element) The consent of the owner is not required in commodatum because there is no transfer of ownership. (Uribe) The bailor may not be the owner of the thing loaned. D. Subject matter Commodatum:

movable or immovable property may be the object of Commodatum (1937, NCC) consumable goods may be the subject of Commodatum if the purpose of the contract is NOT the consumption of the object, as when it is merely for exhibition (1936, NCC) non-fungible property (cannot be replaced); presupposes that the same thing needs to be returned

Simple loan: money or any other fungible property (1953, NCC) CASE: REPUBLIC VS GRIJALDO Grijaldo availed of a crop loan, where the crops were subject to a chattel mortgage for the loan. Grijaldo is still liable to pay for the loan despite the destruction of the crops because money was the subject of the loan, not the crops. The obligation was not extinguished by the destruction of the crops because the obligation was to pay a generic thing. CASE: QUINTOS VS BECK The contract entered into between the parties is a commodatum because the bailor gratuitously granted the use of the furniture to the bailee. The bailee bound himself to return the all furniture to the bailor upon the latters demand. He offered most of it and kept a few. The deposit made by the bailee with the Sheriff was not in compliance to the obligation to return because it was less than what was given to the bailee for his use. CASE: REPUBLIC VS CA The Baloys were in continuous possession of the land. There was no adverse possession by the US Navy because their possession was not in the concept of and owner; it was in the concept of bailee in commodatum. The possession by the US Navy did not interrupt the possession of the Baloys. E. Rights and Obligations of Bailor and Bailee (Lender and Borrower) Expenses (COMMODATUM): Article 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned. Article 1949. The bailor shall refund the extraordinary expenses during the contract for the preservation of the thing loaned, provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are so urgent that the reply to the notification cannot be awaited without danger. If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary. Article 1950. If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in articles 1941 and 1949, he is not entitled to reimbursement.

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same kind and quality Rules: 1. First consider the purpose of the expenses ornamentation no reimbursement for the use and preservation depends if its was ordinary or extraordinary 2. Depends on the nature: ordinary expenses for the use and preservation no reimbursement extraordinary expenses for the use and preservation reimbursement; provided that the bailor was informed before incurring the expense, unless the expenses were urgent (1949, NCC) extraordinary expenses incurred while the thing was being used 50% reimbursement, UNLESS there was a stipulation to the contrary (1949, NCC) *(personal insight) The rules on expenses do not apply to mutuum because ownership passes and therefore, the bailor no longer has the obligation to pay for expenses incurred for the thing. Likewise, the subject matter is fungible or consumable, and therefore will not incur any expenses for the preservation. Liability for the loss: Article 1942. 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 exempting 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. Rules: 1. First consider what kind of loan it is 2. Consider the cause of the loss Fortuitous Event General Rule: The owner will bear the loss; no one will be held liable Exceptions: NCC 1942 No liability for the loss; the bailee (owner) will just bear the loss. There will be no liability as long as the bailee can pay the Fault of the Party *Party at fault will be liable to the owner, except when owner is at fault. (personal insight, not discussed) *Bailee at fault no liability for the loss as long as the bailee can pay the same kind and quality

Bailor at fault if owner, no liability, will just bear the loss; if not the owner, may be liable to owner, bailee will have no obligation. (personal insight, not discussed)

CASE: REPUBLIC VS BAGTAS Bagtas was claiming that it was a commodatum because if the loss was due to a fortuitous event, he would not be held liable for the loss (1174, NCC). SC held that the contract between Republic and Bagtas was one of lease, because of the consideration in the form of the breeding fee. However, even if it was a commodatum, Bagtas would still be liable for the loss because the thing loaned (bull) was delivered with an appraised value (1942(3), NCC) and because he was in delay (1942(2), NCC) Article 1943. The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without his fault. The thing borrowed cannot be used without deterioration due to normal wear and tear. In the absence of an agreement to the contrary, this depreciation is borne by the bailor. (De Leon) Article 1944. The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it may be by reason of expenses. However, the bailee has a right of retention for damages mentioned in article 1951. Article 1951. 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.

Article 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. COMMODATUM; BAILOR: Article 1946. 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. Article 1947. The bailor may demand the thing at will, and the contractual relation is called a precarium, in the following cases: (1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or (2) If the use of the thing is merely tolerated by the owner.

Commodatum

Mutuum

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General rule: The bailor cannot demand return of the thing before the expiration of the period stipulated or the accomplishment of the purpose for which the thing was borrowed. Exceptions: The commodatum will be suspended when the bailor has urgent need for the thing and the thing will be in his possession. When it is a precarium a special kind of commodatum o when there is no stipulation as to the period or the use which the thing loaned shall be devoted to o if the use of the thing is merely tolerated by the owner Article 1948. The bailor may demand the immediate return of the thing if the bailee commits any act of ingratitude specified in article 765. Article 765. The donation may also be revoked at the instance of the donor, by reason of ingratitude in the following cases: (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.

If what was loaned is a fungible thing other than money, the 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. Article 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 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. In the meantime, the action derived from the original obligation shall be held in the abeyance. Article 1250. 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.

CASE: LOTTO RESTAURANT CORP VS. BPI FAMILY SAVINGS BANK The escalation clause needs to be based on a valid and reasonable standard such as the prevailing market rate. Interest Stipulations Article 1956. No interest shall be due unless it has been expressly stipulated in writing. Requisites for interest to be chargeable (De Leon): The payment of interest must be expressly stipulated. The agreement must be in writing. The interest must be lawful Article 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury. Article 1958. In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and place of payment. Article 1959. Without prejudice to the provisions of article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. Article 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.

Article 765 is applicable in commodatum because like a donation, a commodatum is essentially gratuitous. Acts of ingratitude makes one unworthy of the trust given by the bailor. (De Leon) Article 1951. 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. Requisites that must concur for Article 1951 to apply (De Leon): There is a flaw or defect in the thing loaned. The flaw or defect is hidden. The bailor is aware of the flaw or defect. The bailor does not advise the bailee of the flaw or defect. The bailee suffers damages by reason of the flaw or defect. However, when the bailor is not aware of the defect, he is not liable because commodatum is gratuitous. (De Leon) Article 1952. The bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee. SIMPLE LOAN/MUTUUM; BORROWER: Article 1955. The obligation of a person who borrows money shall be governed by the provisions of articles 1249 and 1250 of this Code.

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Sample scenario: In a contract of simple loan, A borrowed P100,000 from B and they agreed that A will have to pay interest at the rate of 5% per month. Assuming that the loan will be payable in a year, how much can A be compelled to pay? Rules: 1. Consider the form if it was verbal: after one year, A can only be compelled to pay the principal amount because the interest stipulation is void (1956, NCC) if it was in writing: depends on the interest rate 2. Consider the interest rate: if it was within the maximum set by law, which is 12% per annum for loans: after one year, A can be compelled to pay the principal plus the interest stipulated if it was beyond the maximum set by law: after one year, A can only be compelled to pay the principal plus 12% interest 3. Consider other circumstances action was filed judgment was due date (1yr circumstances (1yr after due made (1yr after after) date) action was filed) P112,000 P125,440 verbal; P100,000; (principal + 12% (112,000 + 12% 5% interest per P100,000 legal interest rate interest; 1959, month due to delay) 2212 NCC) P125,440 P140,492.80 written; (principal + 12% (125,440 + 12% P100,000; 5% P112,000 legal interest rate interest; 1959, interest per month due to delay) 2212 NCC) * take note that the legal rate of interest for loans and forebearances is subject to change (I think it's at 6% now) Article 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerning solutio indebiti, or natural obligations, shall be applied, as the case may be. 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. Article 1175. Usurious transactions shall be governed by special laws. Article 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.

or forbearance. The said circular should not be made to apply to any other transactions aside from those mentioned. CASE: MACALINAO VS BPI Macalinao was not ordered to pay the stipulated interest of 3% per month plus 3% penalty because the Court said that the interest rate was unconscionable (usury is legally non-existent). The Court reduced the interest to 1% interest and 1% penalty charge per month. F. Modes of Extinguishment Article 1231. Obligations are extinguished: (1) By payment or performance; (2) By the loss of the thing due; (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. Article 1939. Commodatum is purely personal in character. Consequently: (1) The death of either the bailor or the bailee extinguishes the contract; (2) XXX

CASE: BRIONES VS CAMMAYO SC held that it does not mean that if the interest is usurious, the principal would also be void. It would not affect the validity of the loan but will only render the interest stipulation void. CASE: REFORMINA VS. TOMOL CB Circular No. 416 fixes the legal rate of interest at 12% per annum for loans, forbearance of any money, goods or credits, and for judgments involving such loans

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III. DEPOSIT A. Definition Article 1962. 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. Article 1962 does not bear the definition of a deposit, it merely states when it is constituted. A deposit is a transaction or juridical relationship wherein a thing is delivered for safekeeping. (Uribe) It cannot and should not be defined as a contract because a deposit may be constituted without a contract (by law or court order). Article 1963. An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing. There can be a perfected consensual contract before the delivery of the thing, and the depositary can demand the delivery of the thing. B. Kinds of Deposit Article 1964. A deposit may be constituted judicially or extrajudicially. Article 1967. An extrajudicial deposit is either voluntary or necessary. 2 Kinds of Deposit: 1. Judicial Article 2005. A judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered. 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 2009. As to matters not provided for in this Code, judicial sequestration shall be governed by the Rules of Court. 2. Extrajudicial a) Voluntary Article 1968. A voluntary deposit is that wherein the delivery is made by the will of the depositor. A deposit may also be made by two or more persons each of whom believes himself entitled to the thing deposited with a third person, who shall deliver it in a proper case to the one to whom it belongs. Article 1969. A contract of deposit may be entered into orally or in writing. Additional Obligations in Voluntary Deposit: Article 1970. If a person having capacity to contract accepts a deposit made by one who is incapacitated, the

former shall be subject to all the obligations of a depositary, and may be compelled to return the thing by the guardian, or administrator, of the person who made the deposit, or by the latter himself if he should acquire capacity. Article 1971. If the deposit has been made by a capacitated person with another who is not, the depositor shall only have an action to recover the thing deposited while it is still in the possession of the depositary, or to compel the latter to pay him the amount by which he may have enriched or benefited himself with the thing or its price. However, if a third person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery.

Rules for Article 1971: If the thing is still in the possession of the depositary, the depositor may institute an action for recovery against the depositary. However, if the depositary alienated the thing to a third person, one must consider whether the third person acquired it in good faith or bad faith. o If the third person acquired it in good faith, the depositor may ask the depositary to pay for the amount of the thing or how much the latter got for it. o If the third person acquired it in bad faith, the depositor has the right to recover the thing from the third person. b) Necessary Article 1996. A 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. The deposit referred to in No. 1 of the preceding article shall be governed by the provisions of the law establishing it, and in case of its deficiency, by the rules on voluntary deposit. The deposit mentioned in No. 2 of the preceding article shall be regulated by the provisions concerning voluntary deposit and by article 2168. Article 2168. When during a 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.

Kinds of Deposit (in sum): 1. Judicial (Sequestration) when an attachment or seizure of property in litigation is ordered 2. Extrajudicial Voluntary will of the parties Necessary o when in compliance with a legal obligation

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when on the occasion of any natural calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events the deposit made by travellers in hotels or inns

DEPOSITARY Article 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book. (the provisions on obligations) If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must observe. Generally, the degree of diligence required as far as the safekeeping of the goods is concerned is subject to the stipulation of the parties. Absent any stipulation by the parties, the depositary shall exercise extraordinary diligence as what the law may require. (Uribe) The degree of diligence or obligations with regard to judicial deposit would be that of a good father of a family. (2008, NCC) Article 1973. Unless there is a stipulation to the contrary, the depositary cannot deposit the thing with a third person. If deposit with a third person is allowed, the depositary is liable for the loss if he deposited the thing with a person who is manifestly careless or unfit. The depositary is responsible for the negligence of his employees. Article 1974. The depositary may change the way of the deposit if under the circumstances he may reasonably presume that the depositor would consent to the change if he knew of the facts of the situation. However, before the depositary may make such change, he shall notify the depositor thereof and wait for his decision, unless delay would cause danger. Article 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law. The above provision shall not apply to contracts for the rent of safety deposit boxes. Generally, the depositary is liable if he did not obtain the dividend or interest from such stock certificates or bonds because the law provides for that obligation. The only exception is when the agreement merely provides for the rent of a safety deposit box. The rent of safety deposit boxed has been considered by the Supreme Court as a special kind of deposit because the depositary does not have the obligation stated in the first paragraph of Article 1975. It cannot be considered a lease because the depositary does not have the control/access to the boxes or the contents. (Uribe)

C. Nature/Characteristics Characteristics 1. Real it is a real contract because it is perfected upon delivery of the thing (1963, NCC) However, before the delivery, there can still be a perfected consensual contract and the parties may still have rights as against each other. The Depositary may demand the delivery of the thing. 2. Unilateral when gratuitous (because only the depositary has an obligation); bilateral when for compensation The compensation in an onerous contract of deposit is called rental or storage fee because you rent the space where the thing will be kept. 3. Principal 4. Personal (if gratuitous, because death of either extinguishes the deposit) 5. Gratuitous or Onerous Article 1965. A deposit is a gratuitous contract, except when there is an agreement to the contrary, or unless the depositary is engaged in the business of storing goods. D. Subject Matter Article 1966. Only movable things may be the object of a deposit. Article 2006. Movable as well as immovable property may be the object of sequestration. A contract of deposit involving a licit thing may be void as it is prohibited by law. (Uribe) CASE: BPI VS IAC Foreign exchange (dollars) cannot be a valid subject of deposit because according to CB Circular No. 281, all receipts of foreign exchange by any resident person shall be sold to authorized Central Bank agents within one business day following the receipt. The contract entered into by COMTRUST and by Rizaldy Zshornack is one of deposit because the primary purpose was safekeeping. They had no intention to sell it to the Central Bank. The transaction between Zshornack and COMTRUST was a prohibited one. Ordinarily, the thing that is the subject of deposit is a nonfungible thing because the thing delivered must be returned. When the law says return, it implies that it is the same thing. The exception is in the deposit of grains or other fungible thing, where the thing which may be delivered may no longer be the same thing, but of the same kind and quality as what was delivered. (as in the case in 1976, NCC) Incorporeal things may also be subject of deposit through the deposit of certificates as evidence of such rights. (Uribe) E. Rights and Obligations of Depositor and Depositary

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Article 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain or other articles of the same kind and quality, in which case the various depositors shall own or have a proportionate interest in the mass. Generally, the depositary may comingle grains (other fungible things) because the law grants him that right. It is only when the depositor prohibits the comingling that the depositary cannot comingle. Article 1977. The depositary cannot make use of the thing deposited without the express permission of the depositor. Otherwise, he shall be liable for damages. However, when the preservation of the thing deposited requires its use, it must be used but only for that purpose. Article 1978. When the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract. The permission shall not be presumed, and its existence must be proved. Irregular Deposit is one where the depositary is allowed to use the thing, not just for its preservation. But the primary purpose must still be the safekeeping of the thing. CASE: JAVELLANA VS LIM Despite the fact that the document is called a deposit, it is in fact a loan because the bailees had the authority to dispose of the amount deposited. The bailees did not engage themselves to return the same coins received. For this reason, it was understood that the bailees were lawfully authorized to make use of the money. And thereafter asking for an extension, being conscious that they had used the money for their own profit and gain, and engaging themselves to pay interest makes it clearer that the transaction was a loan. CASE: BARON VS DAVID The owner of a rice mill who, in conformity with custom prevailing in the trade, receives palay and converts it into rice, selling the product for his own benefit, must account for the palay to the owner at the price prevailing at the time demand is made. Article 1979. The depositary is liable for the loss of the thing through a fortuitous event: (1) If it is so stipulated; (2) If he uses the thing without the depositor's 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 1174 states that no person shall be responsible for those events which, could not be foreseen, or which, though foreseen, were inevitable. This article also states

the exceptions by which a person may be held liable: when it is provided by law, by stipulation of the parties, or when the nature of the obligation requires an assumption of risk. Generally, the depositary cannot be held liable for the loss due to a fortuitous event. However, the depositary will be liable under the exceptions stated in Article 1979 because the law so provides. (Uribe) Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. CASE: SERRANO VS CENTRAL BANK Fixed, savings, and current deposits are in facts loans because the banks are allowed to use the money. The relationship created by these deposits is that of debtor-creditor, not depositor-depositary. They are only in the nature of irregular deposits because the banks are allowed to use the money. Article 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages should the seal or lock be broken through his fault. Fault on the part of the depositary is presumed, unless there is proof to the contrary. 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. However, the courts may pass upon the credibility of the depositor with respect to the value claimed by him. When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit. Article 1982. When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him; or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle. Where the thing deposited is closed and sealed, the obligations of a depositary are the ff (1981, NCC): to return the thing deposited in the same condition (closed and sealed) pay for damages should the seal or lock be broken through his fault; that the seal or lock was broken through the fault of the depositary is merely a presumption which can be proven to be otherwise to keep the secret of the deposit when the seal or lock is broken, with or without his fault The reason behind this article is that the most elementary sense of delicacy should move the depositary to respect the secrets which the depositor desires to keep and guard. Article 1982 gives circumstances when the depositary may open the thing deposited, or the box or receptacle where the thing is placed. The depositary may

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open the thing only when necessary and he is presumed to have the authority to do so when: the key is delivered to him the instructions given by the depositor cannot be executed without opening the box or receptacle Article 1983. The thing deposited shall be returned with all its products, accessories and accessions. Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary. Article 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those which he still owes after the extinguishment of the agency. If what has been deposited is money, the depositary has no right to make use of it and therefore, he is not liable for interest; except when he is in delay (after the extinguishment of the deposit) or used the money without permission Article 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited. Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit. If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor. If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same. Ownership is not essential (the depositor need not be the owner of the thing deposited). There is no need to prove the ownership of the depositor. Article 1985. When there are two or more depositors, if they are not solidary, and the thing admits of division, each one cannot demand more than his share. When there is solidarity or the thing does not admit of division, the provisions of articles 1212 and 1214 shall govern. However, if there is a stipulation that the thing should be returned to one of the depositors, the depositary shall return it only to the person designated. Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him. When two or more depositors are solidarily liable:

If the thing does not admit of division, the thing may be returned to any one of the depositors. But if one depositor demands the return of the thing, the thing should be returned to him.

When not solidary, and the thing admits of division, each depositor cannot demand more than his share. Article 1986. If the depositor should lose his capacity to contract after having made the deposit, the thing cannot be returned except to the persons who may have the administration of his property and rights. General rule: The thing deposited must be returned to the depositor Exception: When the depositor loses his capacity to contract after making the deposit, it will be returned to the persons who may have the administration of his property and rights. This is in line with Article 1970. Article 1987. If at the time the deposit was made a place was designated for the return of the thing, the depositary must take the thing deposited to such place; but the expenses for transportation shall be borne by the depositor. If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not be the same place where the deposit was made, provided that there was no malice on the part of the depositary.

The thing deposited must be returned: at the place agreed upon by the parties o in this case, the expenses for transportation will be borne by the depositor in the absence of stipulation, at the place where the thing is deposited, provided there is no malice on the part of the depositary This rule is in line with the general rule regarding place of payment in Article 1251. Article 1251. Payment shall be made in the place designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever the thing might be at the moment the obligation was constituted. In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to venue under the Rules of Court. Article 1988. 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.

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This provision shall not apply when the thing is judicially attached while in the depositary's possession, or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. In these cases, the depositary must immediately inform the depositor of the attachment or opposition. 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; and if the latter should refuse to receive it, the depositary may secure its consignation from the court. Right of depositary to return thing deposited Deposit gratuitous o may return the thing notwithstanding the period if: ! deposit was gratuitous ! there was justifiable reason for the return o IF depositor refuses to receive: depositary may deposit it with court Deposit for a valuable consideration o depositary has no right to return the thing before the expiration of the time designated even if he suffers inconvenience o bound by the period o restitution before the expiration of the period is a breach of obligation (De Leon) Article 1990. If the depositary by force majeure or government order loses the thing and receives money or another thing in its place, he shall deliver the sum or other thing to the depositor. Article 1991. The depositor's heir who in good faith may have sold the thing which he did not know was deposited, shall only be bound to return the price he may have received or to assign his right of action against the buyer in case the price has not been paid him. There was a typo in Article 1991; it should be the depositarys heir instead of the depositors heir. In that case, if the depositarys heir was in good faith when he sold the thing to another person, the depositor will only be entitled to the sum collected by the heir of the depositary. If the depositarys heir was in bad faith, the depositor can claim damages from the heir of the depositary. (Tolentino) DEPOSITOR Article 1992. If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for the expenses he may have incurred for the preservation of the thing deposited. Article 1993. The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited, unless at the time of the constitution of the deposit the former was not aware of, or was not expected to know the dangerous character of the thing, or unless he notified the depositary of the same, or the latter was aware of it without advice from the depositor.

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. The depositor is obliged to reimburse when: in a gratuitous deposit: when the depositary incurred expenses for the preservation of the thing. (however, there can be a stipulation to the contrary De Leon) there is loss arising from the character of the thing deposited o except when the depositor was not aware or was not expected to know the dangerous character of the thing o except when the depositor informed the depositary of the dangerous character o except when the depositary was aware of it even without advice from the depositor RIGHTS AND OBLIGATIONS IN NECESSARY DEPOSIT Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotelkeepers or their substitutes advised relative to the care and vigilance of their effects. Article 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel. The following elements must concur for keepers of hotels and inns to be held responsible as depositaries: they have been previously informed about the effects brought by the guests the guests have taken the precautions prescribed regarding their safekeeping This responsibility extends to all those who offer lodging for compensation. (De Leon) Article 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as strangers; but not that which may proceed from any force majeure. The fact that travellers are constrained to rely on the vigilance of the keeper of the hotels or inns shall be considered in determining the degree of care required of him. 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.

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Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things brought into the hotel. Hotel-Keeper is liable when: the loss or injury is caused by his servants or employees, as well as by stranger; provided that notice was given and proper precautions were taken loss is caused by the act of a thief or robber done without the use of arms and irresistible force; this is due to the apparent negligence of the hotelkeeper Hotel-Keeper is not liable when: the loss or injury is caused by force majeure theft or robbery by a stranger with the use of arms or irresistible force the loss is due to the acts of the guest, his family, servants, or visitors the loss arises from the character of the thing brought into the hotel 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. 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. Article 2168. When during a 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. RIGHTS AND OBLIGATIONS IN JUDICIAL 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 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. The depositary in sequestration is appointed by the court. He has the obligation to take care of the property with the diligence of a good father of a family and will be relieved of his responsibility until the litigation is ended or until the court so orders. JURISPRUDENCE ON THE WAREHOUSE RECEIPTS LAW CASE: LUA KIM VS MANILA RAILROAD The legal relationship between an arrastre operator and the consignee is akin to that of a depositor and warehouseman, where the arrastre operator is the depositary. It is the duty of the arrastre operator to take good care of the goods and to turn them over to the party entitled to their delivery. Where there is a

discrepancy between the markings on the goods and what is stated in the bills of lading, and there needs to be determination of ownership, the arrastre operator should either have conducted their own investigation to that effect or called upon the parties to determine the rightful owner, as is stated in the Warehouse Receipts Law. CASE: GONZALES VS GO TIONG AND LUZON SURETY Any deposit made with a bonded warehouseman must be governed by the Bonded Warehouse Act. The lack of issuance of a warehouse receipt pursuant to the Warehouse Receipts Act does not take the deposit out of the scope of the Bonded Warehouse Act; the provisions of the Civil Code will not be applicable or will be merely suppletory to such transaction. As such, the absence of a receipt issued in accordance to the Warehouse Receipts Law cannot be construed as to release the surety from his obligation to secure the transaction. CASE: CONSOLIDATED TERMINALS INC VS ARTEX DEVELOPMENT It is true that according to the Warehouse Receipts Law, "where a warehouseman delivers the goods to one who is not in facts lawfully entitled to the possession of them, the warehouseman shall be liable as for conversion to all having a right of property or possession in the goods. However, a warehouseman has no cause of action for repossession and damages against a person to whom it delivered deposited articles on the basis of an alleged falsified delivery permit where the real parties interested in the articles have not yet sued the warehouseman for damages on account of said wrong delivery. The warehouseman cannot institute an action for recovery of possession because it was not the owner of the goods deposited. JURISPRUDENCE ON TRUST RECEIPTS LAW CASE: VINTOLA VS INSULAR BANK OF ASIA AND AMERICA (IBAA) Pursuant to the Trust Receipts Law, the holder of trust receipt (entruster - IBAA) does not make one the owner of the goods but merely the holder of a security title for advances made under the Letter of Credit. The trust receipt arrangement does not convert the entruster into an investor, he remains to be a creditor/bailor. The entrustee (the Vintolas), despite surrendering the goods to IBAA, and subsequently depositing them with the court, does not release them from the obligation to pay their loan. CASE: SIA VS PEOPLE The trust receipt arrangement involves not only the loan, but also a security feature. It provides financial assistance wherein the goods or merchandise are used as collateral for the advancements made by the entruster-bank. The Trust Receipts Law punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner or not. F. Modes of Extinguishment Article 1231. Obligations are extinguished: (1) By payment or performance; (2) By the loss of the thing due; (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation;

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(6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. Article 1995. A deposit its extinguished: (1) Upon the loss or destruction of the thing deposited; (2) In case of a gratuitous deposit, upon the death of either the depositor or the depositary. In cases of Judicial Deposit: 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. Generally, the death of either the depositor or depositary does not extinguish the contract of deposit. It will only be extinguished if it was a gratuitous deposit. CASE: ROMAN CATHOLIC BISHOP VS DE LA PENA One who possesses trust funds and deposits them in his personal account in a bank and mixes them with his own funds becomes liable as a depositary. He cannot be made liable for the funds that he lost due to force majeure. Instead, the deposit is extinguished.

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