CREDIT TRANSACTIONS

All transactions involving the

purchase or loan of goods, services,
or money in the present with a
promise to pay or deliver in the
future
Contracts of security
Types:
1. Secured transactions or contracts of
real security - supported by a
collateral or an encumbrance of
property
2. Unsecured transactions or contracts
of personal security - supported only
by a promise or personal
commitment of another such as a
guarantor or surety
Security
Something given, deposited, or
serving as a means to ensure
fulfilment or enforcement of an
obligation or of protecting some
interest in property
Types of Security
a. personal when an individual
becomes surety or guarantor
b. real or property when a
mortgage, pledge, antichresis,
charge or lien or other device
used to have property held, out
of which the person to be made
secure can be compensated for
loss
Bailment
The delivery of property of one
person to another in trust for a
specific purpose, with a contract,
epress or implied, that the trust
shall be faithfully eecuted and the
property returned or duly accounted
for when the special purpose is
accomplished or !ept until the bailor
claims it.
Parties:
1. bailor - the giver" one who delivers
property
2. bailee- the recipient" one who
receives the custody or possession of
the thing thus delivered
LOAN (Articles !"" # !$%

A contract wherein 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 or money
or other consumable thing, upon the
condition that the same amount of
the same !ind and #uality shall be
paid. $Art 1%&&'
C&aracteristics:
1. Real Contract delivery of the thing
loaned is necessary for the
perfection of the contract
NOTE: An accepted promise to ma!e
a future loan is a consensual
contract, and therefore binding upon
the parties but it is only after
delivery, will the real contract of
loan arise. $Art 1%&('
2. Unilateral Contract - once the
sub)ect matter has been delivered,
it creates obligations on the part of
only one of the parties $i.e.
borrower'.
'in(s:
1. Commodatum when the bailor
$lender' delivers to the bailee
$borrower' a non-consumable thing
so that the latter may use it for a
certain time and return the identical
thing.
'in(s of commo(atum:
a. Ordinary Commodatum use by
the borrower of the thing is for a
certain period of time
b. Precarium - one whereby the
bailor may demand the thing
loaned at will and it eists in the
following cases*
i. neither the duration nor
purpose of the contract is
stipulated
ii. the use of the thing is
merely tolerated by the
owner
1 | P a g e
NOTES IN CREDIT TRANSACTIONS
2. Simple loan or mutuum where the
lender delivers to the borrower
money or other consumable thing
upon the condition that the latter
shall pay the same amount of the
same !ind and #uality.
Commo(atum )utuum
'ey: COPS*LOTR
1. Object
+on-consumable ,onsumable
2. Cause
-ratuitous .ay or may not be
gratuitous
3. Purpose
/se or temporary
possession
,onsumption
4. Subject Matter
0eal or personal
property
1nly personal
property
5. Ownership of the thing
0etained by the
bailor
2asses to the debtor
6. Thing to be returne
3act thing loaned 3#ual amount of the
same !ind and
#uality
!. "ho bears ris# of $oss
4ailor 5ebtor
%. "hen to return
6n case of urgent
need, even before
the epiration of the
term
1nly after the
epiration of the
term
Loan Cre(it
5elivery by one party
and the receipt of
other party of a
given sum of money
or other consumable
thing upon an
agreement, epress
or implied, to repay
the same.
Ability of a person to
borrow money or
things by virtue of
the trust or
confidence reposed
by the lender that he
will pay what he
promised.
Loan Cre(it
1. 6nterest ta!en at
the epiration of the
credit
6nterest is ta!en in
advance
2. Always on a
double name paper
$two signatures
appear with both
parties held liable
for payment'
Always on a single
name paper $i.e.
promissory note with
no indorse-ment
other than the
ma!er'
CO))ODAT+) (Articles !", # !,-%
Nature:
1. P+RPOSE: 4ailee in commodatum
ac#uires the temporary use of the
thing but not its fruits $unless
stipulated as an incidental part of
the contract'.$Art 1%&7'
/se must be temporary,
otherwise the contract may be a
deposit.
2. CA+SE: 3ssentially gratuitous" it
ceases to be a commodatum if any
compensation is to be paid by the
borrower who ac#uires the use, in
such case there arises a lease
contract.
Similar to a donation in that it
confers a benefit to the
recipient. The presumption is
that the bailor has loaned the
thing for having no need
therefor.
&. S+B.ECT )ATTER: -enerally non-
consumable whether real or personal
but if the consumable goods are not
for consumption as when they are
merely for ehibition, consumable
goods may be the sub)ect of the
commodatum. $Art 1%&8'
(. 4ailor need not be the owner of the
thing owned $Art. 1%&9' since by the
loan, ownership does not pass to the
borrower.
A mere lessee or usufructuary
may lend but the borrower or
bailee himself may not lend nor
lease the thing loaned to him to
a third person $Art 1%&2:2;'
,/ Purely Personal (Art !"!%:
5eath of either party terminates
the contract unless by
stipulation, the commodatum is
transmitted to the heirs of either
or both parties.
4ailee can neither lend nor lease
the ob)ect of the contract to a
third person.
2
NOTE:/se of the thing loaned
may etend to members of the
bailee<s household ecept*
a. contrary stipulation"
b. nature of the thing
forbids such use
O0li1ations of t&e Bailee: (Arts !2 #
!2,%
1. To pay for the ordinary epenses for
the use and preservation of the thing
loaned. $Art 1%(1'
2. To be liable for the loss of the thing
even if it should be through a
fortuitous event in the following
cases* $'LAS D%
a. when he 3eeps it longer than the
period stipulated, or after the
accomplishment of its use
b. when he lends or leases it to
third persons who are not
members of his household
c. when the thing loaned has been
delivered with appraisal of its
value
d. when, being able to save either
of the thing borrowed or his own
things, he chose to save the
latter" or
e. when the bailee (evoted the
thing for any purpose different
from that for which it has been
loaned $Art 1%(2'
&. To be liable for the deterioration of
thing loaned $a' if epressly
stipulated" $b' if guilty of fault or
negligence" or $c' if he devotes the
thing to any purpose different from
that for which it has been loaned
(. To pay for etraordinary epenses
arising from the actual use of the
thing by the bailee, which shall be
borne e#ually by both the bailor and
the bailee, even though the bailee
acted without fault, unless there is a
stipulation to the contrary $Art 1%(%
par 2'
7. To return the thing loaned
The bailee has no right to retain
the thing loaned as security for
claims he has against the bailor
even for etraordinary epenses
ecept for a claim for damages
suffered because of the flaws of
the thing loaned.
NOTES*
=owever, the bailee<s right
etends no further than
retention of the thing loaned
until he is reimbursed for the
damages suffered by him.
=e cannot lawfully sell the
thing to satisfy such damages
without court<s approval.
6n case there are two or
more bailees, their
obligation shall be solidary.
O0li1ations of t&e 0ailor (Art !2$ # Art
!,-%:
1. To respect the duration of the loan
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.
EXCEPTONS:
a. n case of ur!ent need in
which case bailee may demand
its return or temporary use"
b. The bailor may demand
immediate return of the thing if
t"e #ailee commits any act of
in!ratitude specified in Art$ %&'.
2. To refund to the bailee etraordinary
epenses for the preservation of the
thing loaned, provided the bailee
brings the same to the !nowledge of
the bailor before incurring them,
ecept when they are so urgent that
the reply to the notification cannot
be awaited without danger.
&. To be liable to the bailee for
damages for !nown hidden flaws.
Re4uisites:
a. There is flaw or defect in the
thing loaned"
b. The flaw or defect is hidden"
c. The bailor is aware thereof"
d. =e does not advise the bailee of
the same" and
e. The bailee suffers damages by
reason of said flaw or defect
3 | P a g e
NOTES:
6f the above re#uisites concur,
the bailee has the right of
retention for damages.
The bailor cannot eempt
himself from the payment of
epenses or damages by
abandoning the thing to the
bailee.
SI)PLE LOAN OR )+T++) (Art !," #
!$%
A contract whereby one party
delivers to another, money or other
consumable thing with the
understanding that the same amount
of the same !ind and #uality shall be
paid. $Art. 1%7&'
NOTES:
The mere issuance of the chec!s
does not result in the perfection of
the contract of loan. The ,ivil ,ode
provides that the delivery of bills of
echange and mercantile
documents, such as chec!s, shall
produce the effect of payment only
when they have been encashed
$Gerales (s$ CA )*+ SCRA &,+'. 6t is
only after the chec!s have produced
the effect of payment that the
contract of loan may be deemed
perfected.
The obligation is >to pay? and not to
return because the consumption of
the thing loaned is the distinguishing
character of the contract of mutuum
from that of commodatum.
+o estafa is committed by a person
who refuses to pay his debt or denies
its eistence.
Simple Loan5)utuum Rent
1. 5elivery of money
or some consumable
thing with a promise
to pay an e#uivalent
of the same !ind and
#uality
5elivery of some non-
consumable thing in
order that the other
may use it during a
certain period and
return it to the
former.
2. There is a transfer
of ownership of the
thing delivered
There is no transfer
of ownership of the
thing delivered
&. 0elationship
between the parties
is that of obligor-
obligee
0elationship is that
of a landlord and
tenant
(. ,reditor receives
payment for his loan
1wner of the
property rented
receives
compensation or
price either in
money, provisions,
chattels, or labor
from the occupant
thereof in return for
its use $Tolentino vs
-on@ales, 7A 2hil 779
1%2B'
Loan Sale
1. 0eal contract ,onsensual contract
2. -enerally
unilateral because
only borrower has
obligations
4ilateral and
reciprocal
NOTE: 6f the property is >sold?, but the
real intent is only to give the ob)ect as
security for a debt as when the >price?
is comparatively small there really is a
contract of loan with an >e#uitable
mortgage.?
Commo(atum5
)utuum
Barter
1. Sub)ect matter is
money or fungible
things
Sub)ect matter is
non-fungible, $non
consumable' things
2. 6n commodatum,
the bailee is bound
to return the
identical thing
borrowed when the
time has epired or
purpose served
The thing with
e#uivalent value is
given in return for
what has been
received
&. .utuum may be
gratuitous and
commodatum is
always gratuitous
1nerous, actually a
mutual sale
4
6orm of Payment (Art !,,%:
1. 6f the thing loaned is money -
payment must be made in the
currency stipulated, if it is possible"
otherwise it is payable in the
currency which is legal tender in the
2hilippines and in case of
etraordinary inflation or deflation,
the basisi of payment shall be the
value of the currency at the time of
the creation of the obligation
2. 6f what was loaned is a fun!i#le
t"in! ot"er t"an money - the
borrower is under obligation to pay
the lender another thing of the same
!ind, #uality and #uantity. 6n case it
is impossible to do so, the borrower
shall pay its value at the time of the
perfection of the loan.
Interest
The compensation allowed by law or
fied by the parties for the loan or
forbearance of money, goods or
credits
0e#uisites for 5emandability* (ELI%
1. must be epressly stipulated
3ceptions*
a. indemnity for damages
b. interest accruing from
unpaid interest
2. must be lawful
&. must be in writing
Compoun( Interest
GENERAL RULE: /npaid interest shall
not earn interest.
EXCEPTONS:
1. when )udicially demanded
2. when there is an epress
stipulation $must be in writing in
view of Art. 1%78'
7ui(elines for t&e application of
proper interest rates
1. 6f there is stipulation* that rate shall
be applied
2. The following are the rules of thumb
for the applicationCimposition of
interest rates*
a' Dhen an obligation, regardless
of its source, i.e., law,
contracts, #uasi-contracts,
delicts or #uasi-delicts is
breached, the contravenor can
be held liable for damages.
b' Dith regard particularly to an
award of interest in the concept
of actual and compensatory
damages, the rate of interest, as
well as the accrual thereof, is
imposed, as follows*
i. Dhen the obligation
breached consists of
payment of a sum of money
-loan or for#earance of
money., the interest shall be
that which is stipulated or
agreed upon by the parties.
6n absence of an agreement,
the rate shall be the legal
rate $i.e. 12E per annum'
computed from default.
NOTE: The interest due shall
itself earn legal interest
from the time it is )udicially
demanded
ii. 6n other cases, the rate of
interest shall be si percent
$8E' per annum.
NOTE: +o interest, however,
shall be ad)udged on
unli#uidated claims or
damages ecept when or
until the demand can be
established with reasonable
certainty. Dhen the demand
cannot be established, the
interest shall begin to run
only from the date of the
)udgment of the court is
made.
iii. Dhen the )udgment of the
court awarding a sum of
money becomes final and
e/ecutory, the rate of legal
interest, whether the case
falls under paragraph i or ii
above, shall be 12E per
annum from such finality
until its satisfaction, this
interim period being deemed
to be by then an e#uivalent
to a forbearance of credit.
$Eastern S"ippin! Lines (s$
CA0 1uly *)0 *223'
NOTES:
Central 4an5 Circular No$ 3*& fiing
the rate of interest at 12E per
annum deals with loans, forbearance
of any money, goods or credits and
5 | P a g e
)udgments involving such loans, or
forbearance in the absence of
epress agreement to such rate
6nterest as indemnity for damages is
payable only in case of default or
non-performance of the contract. As
they are distinct claims, they may be
demanded separately. $Sentinel
6nsurance ,o., 6nc. vs ,A, 192 S,0A
71B'
Central Ban3 Circular No/ !8, $5ec.
1A, 1%92' removed the /sury Faw
ceiling on interest rates for secured
and unsecured loans, regardless of
maturity.
9ali(ity of unconsciona0le interest rate
in a loan
Supreme ,ourt in Sps$ Solan!on
(s$ 1ose Sala6ar0 G$R$ No$ *)'2330 1une
)20 )77*, said that since the usury law
had been repealed by ,4 ,ir. +o. %A7
there is no more maimum rate of
interest and the rate will )ust depend on
the mutual agreement of the parties
$citing Lim La8 (s$ Olympic Sa8mill Co$0
*)2 SCRA 3,2'. 4ut the Supreme ,ourt
said that nothing in said circular grants
lenders carta #lanc"e authority to raise
interest rates to level which will either
enslave their borrowers or lead to a
hemorrhaging of their assets $citing
Almeda (s$ CA0 )'& SCRS )2)'. 6n 9edel
(s$ CA0 )22 SCRA 3+*, it was ruled that
while stipulated interest of 7.7E per
month on a loan is usurious pursuant to
,4 ,ircular +o. %A7, the same must be
e#uitably reduced for being ini#uitous,
unconscionable and eorbitant. 6t is
contrary to morals, $contra #onos
mores'. 6t was reduced to 12E per
annum in consonant with )ustice and fair
play.
DEPOSIT (Articles !$- # -88!%
A contract constituted from the
moment a person receives a thing
belonging to another, with the
obligation of safely !eeping it and of
returning the same.
C&aracteristics:
1. Real Contract - contract is
perfected by the delivery of the
sub)ect matter.
2. Unilateral -!ratutitous deposit. -
only the depositary has an
obligation.
&. 4ilateral -onerous deposit. -
gives rise to obligations on the
part of both the depositary and
depositor.
Deposit )utuum
1. Purpose
2rincipal purpose is
safe!eeping or
custody
2rincipal purpose is
consumption
2. "hen to &eturn
5epositor can
demand the return of
the sub)ect matter at
will
The lender must wait
until the epiration
of the period granted
to the debtor
3. Subject Matter
Sub)ect matter may
be movable or
immovable property
Sub)ect matter is
only money or other
fungible thing
4. &e$ationship
0elationship is that
of lender $creditor'
and borrower
$debtor'.
0elationship is that of
depositor and
depositary.
5. Co'pensation
There can be
compensation of
credits.
+1 compensation of
things deposited with
each other $ecept
by mutual
agreement'.
Deposit Commo(atum
1. 2urpose is
Safe!eeping
1. 2urpose is the
transfer of the use
2. .ay be gratuitous 2. 3ssentially and
always gratuitous
&. .ovableCcorporeal
things only in case of
etra)udicial deposit
&. 4oth movable and
immovable may be
the ob)ect
'in(s of Deposit:
1. Gudicial $Se#uestration' ta!es place
when an attachment or sei@ure of
property in litigation is ordered.
2. 3tra-)udicial
a. Holuntary one wherein the
delivery is made by the will of
the depositor or by two or more
6
persons each of whom believes
himself entitled to the thing
deposited. $Arts 1%89 1%%7'
b. +ecessary one made in
compliance with a legal
obligation, or on the occasion of
any calamity, or by travellers in
hotels and inns $Arts 1%%8 -
2AA(', or by travellers with
common carriers $Art 1B&(
1B&7'.
NOTE: The chief difference
between a voluntary deposit and a
necessary deposit is that in the
former, the depositor has a
complete freedom in choosing the
depositary, whereas in the latter,
there is lac! of free choice in the
depositor.
.u(icial E:tra*;u(icial
1. Creation
Dill of the court Dill of the parties
or contract
2. Purpose
Security or to insure
the right of a party
to property or to
recover in case of
favorable )udgment
,ustody and
safe!eeping
3. Subject Matter
.ovables or
immovables,
but generally
immovables
.ovables only
4. Cause
Always onerous .ay be compen-
sated or not, but
generally gratuitous
5. "hen 'ust the thing be returne
/pon order of the
court or when
litigation is ended
/pon demand of
depositor
6. (n whose beha$f it is he$
2erson who has a
right
5epositor or third
person designated
GENERAL RULE: ,ontract of deposit is
gratuitous $Art 1%87'
EXCEPTONS:
1. when there is contrary
stipulation
2. depositary is engaged in business
of storing goods
&. property saved from destruction
without !nowledge of the owner
NOTES:
Article 1%88 does not embrace
incorporeal property, such as rights
and actions, for it follows the person
of the owner, wherever he goes.
A contract for the rent of safet)
eposit bo*es is not an ordinary
contract of lease of things but a
special 5ind of deposit" hence, it is
not to be strictly governed by the
provisions on deposit. The relation
between a ban! and its customer is
that of a bailor and bailee. $,A Agro
vs ,A, 21% S,0A (28'
O0li1ations of t&e Depositary (Art !<-
#!!%:
1. To !eep the thing safely $Art 1%B2'
3ercise over the thing
deposited the same diligence as
he would eercise over his
property
2. To return the thing $Art 1%B2'
Person to =&om t&e t&in1 must
0e returne(:
a. 5epositor, to his heirs and
successors, or the person who
may have been designated in the
contract
b. 6f the depositary is capacitated -
he is sub)ect to all the
obligations of a depositary
whether or not the depositor is
capacitated. 6f the depositor is
incapacitated, the depositary
must return the property to the
legal representative of the
incapacitated or to the depositor
himself if he should ac#uire
capacity $Art 1%BA'.
c. 6f the depositor is capacitated
and the depositary is
incapacitated - the latter does
not incur the obligation of a
depositary but he is liable*
i..to return the thing
deposited while still in his
possession"
ii.to pay the depositor the
amount which he may have
benefited himself with the
thing or its price sub)ect to
7 | P a g e
the right of any third person
who ac#uired the thing in
good faith $Art 1%B1'
Time of return:
a/ Upon demand even though a
specified period or time for such
return may have been fied
ecept when the thing is
)udicially 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. $Art 1%%9'
b. f deposit !ratuitous, the
depositary may return the thing
deposited notwithstanding that a
period has been fied for the
deposit if )ustifiable reasons
eists for its return.
c. f t"e deposit is for a
(alua#le consideration, the
depositary has no right to return
the thing deposited before the
epiration of the time
designated even if he should
suffer inconvenience as a
conse#uence.$Art 1%9%'
>&at to return: product,
accessories, and accessions of
the thing deposited $Art 1%9&'
&. +ot to deposit the thing with a third
person unless authori@ed by epress
stipulation $Art 1%B&'
The depositor is liable for the
loss of the thing deposited under
Article 1%B& if*
a. he
transfers the deposit with a third
person without authority
although there is no negligence
on his part and the third person"
b. he
deposits the thing with a third
person who is manifestly careless
or unfit although authori@ed
even in the absence of
negligence" or
c. the thing
is lost through the negligence of
his employees whether the latter
are manifestly careless or not.
(. 6f the thing deposited should earn
interest $Art 1%B7'*
a. to collect interest and the
capital itself as it fall due
b. to ta!e steps to preserve its
value and rights corresponding to
it
7. +ot to commingle things deposited if
so stipulated $Art 1%B8'
8. +ot to ma!e use of the thing
deposited unless authori@ed $Art
1%BB'
GENERAL RULE: 5eposit is for
safe!eeping of the sub)ect matter
and not for use. The unauthori@ed
use by the depositary would ma!e
him liable for damages.
EXCEPTONS:
1. Dhen the preservation of the
thing deposited re#uires its use
2. Dhen authori@ed by the
depositor
NOTE: The permission to use is +1T
presumed ecept when such use is
necessary for the preservation of the
thing deposited.
Effect if permission to use is 1i?en
(Art !<@%:
1. 6f thing deposited is
non-consumable, the contract
loses the character of a deposit
and ac#uires that of a
commodatum despite the fact
that the parties may have
denominated it as a deposit,
unless safe!eeping is still the
principal purpose.
2. 6f thing deposited consists of
moneyCconsumable things, the
contract is converted into a
simple loan or mutuum unless
safe!eeping is still the principal
purpose in which case it is called
an irregular deposit. 3ample*
ban! deposits are irre!ular
deposits in nature but governed
by law on loans.
B. Dhen the thing deposited is
delivered sealed and closed *
a. to return the thing deposited in
the same condition
b. to pay for damages should the
seal or loc! be bro!en through
8
his fault, which is presumed
unless proved otherwise
c. to !eep the secret of the deposit
when the seal or loc! is bro!en
with or without his fault $Art
1%91'
NOTE: The depositary is
authori@ed to open the thing
deposited which is closed and
sealed when $Art 1%92'*
i. there is presumed authority
$i.e. when the !ey has been
delivered to him or the
instructions of the depositor
cannot be done without
opening it'
ii. necessity
9. To change the way of the deposit if
under the circumstances, the
depositary may reasonably presume
that the depositor would consent to
the change if he !new of the facts of
the situation, provided, that the
former notifies the depositor thereof
and wait for his decision, unless
delay would cause danger
%. To pay interest on sums converted to
personal use if the deposit consists
of money $Art 1%9&'
1A. To be liable for loss through
fortuitous event (S+DA%* $Art 1%B%'*
a. if stipulated
b. if he uses the thing without the
depositorIs permission
c. if he (elays its return
d. if he allows others to use it,
even though he himself may
have been authori@ed to use the
same
NOTES:
Jied, savings, and current deposits
of money in ban!s and similar
institutions shall be governed by the
provisions concerning simple loan$
$Art 1%9A'
The general rule is that a ban! can
compensate or set off the deposit in
its hands for the payment of any
indebtedness to it on the part of the
depositor. 6n true deposit,
compensation is not allowed.
Irre1ular (eposit )utuum
1. The consumable
thing deposited may
be demanded at will
by the depositor
1. Fender is bound
by the provisions of
the contract and
cannot demand
restitution until the
time for payment, as
provided in the
contract, has arisen
2. The only benefit is
that which accrues
to the depositor
2. 3ssential cause for
the transaction is the
necessity of the
borrower
&. The irregular
depositor has a
preference over
other creditors with
respect to the thing
deposited
&. ,ommon creditors
en)oy no preference
in the distribution of
the debtor<s property
Rule =&en t&ere are t=o or more
(epositors (Art !@,%:
1. f t"in! deposited is di(isi#le and
depositors are not solidary* 3ach
depositor can demand only his
proportionate share thereto.
2. f o#li!ation is solidary or if t"in! is
not di(isi#le* 0ules on active
solidarity shall apply, i.e. each one
of the solidary depositors may do
whatever may be useful to the
others but not anything which may
be pre)udicial to the latter, $Art.
1212' and the depositary may return
the thing to anyone of the solidary
depositors unless a demand, )udicial
or etra)udicial, for its return has
been made by one of them in which
case, delivery should be made to him
$Art. 121('.
&. Return to one of depositors
stipulated. The depositary is bound
to return it only to the person
designated although he has not made
any demand for its return.
NOTES:
The depositary may retain the thing
in pledge until full payment of what
may be due him by reason of the
deposit $Art 1%%('.
The depositor<s heir who in good
faith may have sold the thing which
he did not !now was deposited, shall
only be bound to return the price he
9 | P a g e
may have received or to assign his
right of action against the buyer in
case the price has not been paid him
$Art 1%%1'.
O0li1ations of t&e Depositor (Art !!- #
!!,%:
1. To pay epenses for preservation
a. f t"e deposit is !ratuitous, the
depositor is obliged to
reimburse the depositary for
epenses incurred for the
preservation of the thing
deposited $Art 1%%2'
b. f t"e deposit is for (alua#le
consideration, epenses for
preservation are borne by the
depositary unless there is a
contrary stipulation
2. To pay loses incurred by the
depositary due to the character of
the thing deposited
GENERAL RULE: The depositor shall
reimburse the depositary for any loss
arising from the character of the thing
deposited.
EXCEPTONS:
1. at the time of the deposit, the
depositor was not a8are of the
dangerous character of the thing
2. when depositor was not e/pected
to 5no8 the dangerous character
of the thing
3. when the depositor notified the
depository of the same
4. the depositary 8as a8are of it
8it"out ad(ice from the depositor
E:tin1uis&ment of 9oluntary Deposit
(Art !!,%
1. Foss or destruction of the thing
deposited
2. 6n case of gratuitous deposit, upon
the death of either the depositor or
the depositary
3. 1ther causes, such as return of the
thing, novation, merger, epiration
of the term fulfilment of the
resolutory condition, etc $Art 12&1'
Necessary Deposits
1. .ade in compliance with a legal
obligation
2. .ade on the occasion of any
calamity such as fire, storm, flood,
pillage, shipwrec! or other similar
events $deposito misera#le'
3. .ade by travellers in hotels and inns
or by travellers with common carrier
Deposit 0y Tra?ellers in &otels an(
inns:
The !eepers of hotels or inns shall be
responsible as depositaries for the
deposit of effects made by travellers
pro(ided*
a. +otice was given to them or to
their employees of the effects
brought by the guest" and
b. The guests ta!e the precautions
which said hotel-!eepers or their
substitutes advised relative to
the care and vigilance of their
effects.
NOTES:
Fiability etends to vehicles, animals
and articles which have been
introduced or placed in the annees
of the hotel.
Fiability shall 3K,F/53 losses which
proceed from force ma)eure. The act
of a thief or robber is not deemed
force ma)eure unless done with the
use of arms or irresistible force.
The hotel-!eeper cannot free
himself from the responsibility by
posting notices to the effect that he
is not liable for the articles brought
by the guest. Any stipulation to such
effect shall be void.
+otice is necessary only for suing
civil liability but not in criminal
liability.
>AREAO+SE RECEIPTS LA>
(>RL%
(Act No/ -"<%
P+RPOSES O6 TAE LA>:
1. To regulate the status, rights and
liabilities of the parties in a
warehousing contract.
2. To protect those who, in good
faith and for value, ac#uire
10
negotiable warehouse receipts
by negotiation.
&. To render the title to, and right
of possession of, property stored
in warehouses more easily
convertible.
(. To facilitate the use of
warehouse receipts as
documents of title.
7. 6n order to accomplish these, to
place a much greater
responsibility on the
warehouseman.
Section I/
Section I.2 T&e >RL applies to
=are&ouse receipts issue( 0y a
=are&ouseman as (efine( in Section
,@(a% of t&e ActB an( in all ot&er cases
=&ere receipts are not issue( 0y a
=are&ousemanB t&e CI9IL CODE (ART/
,8<*,-8% applies/
>AREAO+SE)AN
A person lawfully engaged in the
business of storing goods for profit $Sec
79:a;'.
>AREAO+SE
The building or place where goods are
deposited and stored for profit
Section 6.&
>AREAO+SE RECEIPT
>ritten ac3no=le(1ement 0y a
=are&ouseman t&at &e &as recei?e(
an( &ol(s certain 1oo(s t&erein
(escri0e( in store for t&e person to
=&om it is issue(/
Simple written contract between the
owner of the goods and the
warehouseman to pay the compensation
for that service.
4ilateral contract" imports that goods
are in the hands of a warehouseman and
is a symbolical representation of the
property itself.
+ot a negotiable instrument although it
is negotiable as provide by the act.
6OR)S AND CONTENTS O6 TAE RECEIPT
1. LOCATION O6 >AREAO+SE- to
enable the holder to determine
where the goods are deposited.
2. DATE O6 ISS+E O6 RECEIPT-
indicates the date of perfection
of contract of deposit and when
the storage charges shall begin.
3. CONSEC+TI9E N+)BER O6
RECEIPT- to identify each
receipt with the goods for which
it was issued.
4. PERSON TO >AO) 7OODS ARE
DELI9ERABLE- determines the
person or persons who shall
prima facie be entitled lawfully
to the possession of the goods
deposited.
5. RATE O6 STORA7E CAAR7ES-
states the consideration for the
contract from the view of the
warehouseman.
6. DESCRIPTION O6 7OODS OR
PAC'A7ES-general ob)ect is for
identification so that the
identical property may be
returned.
7. SI7NAT+RE O6
>AREAO+SE)AN- best evidence
that the warehouseman has
received the goods described in
the receipt and has bound
himself to assume all obligations
in connection therewith.
8. >AREAO+SE)ANCS O>NERSAIP
O6 OR INTEREST IN 7OODS- to
prevent abuses.
9. STATE)ENT O6 AD9ANCES )ADE
AND LIABILITIES INC+RRED- to
preserve the lien of the
warehouseman over the goods
stored or the proceeds thereof in
his hands.
Section 6.(
Effects of omission of any of t&e
essential terms:
1. Halidity of receipt not affected
2. Darehouseman liable for
damages
&. +egotiability of receipts not
affected
(. ,ontract converted to ordinary
deposit
a% TER)S TAAT CANNOT BE
INCL+DED
1. Those contrary to the provisions
of the D0F.
2. Those which may impair his
obligation to eercise that
degree of care in the
safe!eeping of the goods
entrusted to him which a
reasonably careful man would
11 | P a g e
eercise in regard to similar
goods of his own.
&. Those contrary to law, morals,
good customs, public order or
public policy.
(. Those eempting the
warehouseman from liability for
misdelivery.
7. Those eempting the
warehouseman from liability for
negligence.
'in(s:
1. Ne!otia#le where the goods
are deliverable to bearer or to
the order of the person
specified. $Sec. 7'
6t is negotiated by either delivery
or indorsement.
2ersons who may negotiate a
warehouse receipt*
a. 1wner thereof, or
b. Any person to whom the
possession or custody of the
receipt has been entrusted
by the owner, if, by the
terms of the receipt, the
goods are deliverable to the
person to whom the
possession or custody of
receipt has been entrusted
or in such a form that it may
be negotiated by delivery.
$Sec (A'
+o provision shall be inserted in a
negotiable receipt that it is non-
negotiable. Such provision, if
inserted, shall be void. $Sec. 7'
Dhen more than one negotiable
receipt is issued for the same goods,
the word >5uplicate? shall be plainly
placed upon the face of every such
receipt, 3K,32T the first one issued.
A warehouseman shall be liable for
all damages caused by his failure to
do so to any one who purchased the
subse#uent receipt for value
supposing it to be an original, even
though the purchase be AJT30 the
delivery of the goods by the
warehouseman to the holder of the
original receipt. $Sec 8'
)$ Non:ne!otia#le the goods
received will be delivered to the
depositor or to any specified person.
$Sec. ('
The receipt should be stamped on
its face >non-negotiable?, otherwise
a holder believing it to be negotiable
may treat the receipt as negotiable.
$Sec. B'
6t is transferred by its delivery to
the transferee accompanied by a
deed of assignment, donation or
other form of transfer.
3JJ3,T 1J JA6F/03 T1 .A0L
M+3-1T6A4F3< 10 M+1+-+3-1T6A4F3<
/ 6ailure to mar3 Dne1otia0leC
(oes not ren(er it non*
ne1otia0le if it contains =or(s
of ne1otia0ility/
-/ 6ailure to mar3 Dnon*
ne1otia0leC s&all ma3e it
ne1otia0le (if t&e &ol(er
purc&ase( it for ?alue
supposin1 it to 0e ne1otia0le%/
NE7OTIABLE
INSTR+)ENT
NE7OTIABLE
>AREAO+SE
RECEIPT
Sub)ect
.oney .erchandise
1b)ect of value
6nstrument itself -oods deposited
Fiability of intermediate parties
Secondary $+6F' +one $for failure to
deliver the goods'
3ffect of deliberate alteration
+ull and void Halid, but enforceable
only in accordance
with its original tenor
,onversion from bearer to order
A originally bearer
instrument will
always be such
,onverted to an order
D0 if specially
endorsed
Significance of holder in due course
.ay obtain a
better title
1btains only the title
which the party
negotiating had over
the goods
NE7OTIABLE >R NON*NE7OTIABLE
>R
.ay be ac#uired
through negotiation
.ay be ac#uired
through transfer or
assignment
0ights of the person
to whom it is
negotiated $holder'*
1. Title to the goods
0ights of the
transferee*
1. Title of the
goods, as against
12
of the person
negotiating the
receipt and title of
the person to
whose order the
goods were to be
delivered.
2. 5irect obligation
of the
warehouseman to
hold possession of
the goods for him,
as if the
warehouseman
directly contracted
with him.
the transferor
$merely steps into
the shoes'"
2. 0ight to notify
the warehouseman
of the transfer and
ac#uire the direct
obligation of the
warehouseman to
hold the goods for
him.
+egotiation defeats
the lien of the seller
of the goods $Sec.
(%'

-oods represented
cannot be sub)ect to
attachment or levy
by eecution, unless
in proper
circumstances $Sec.
27'
-oods represented
can be sub)ect to
attachment or levy
by eecution $Sec.
(2'
>ARRANTIES
a. That receipt is genuine
b. Fegal right to negotiate
c. +o !nowledge of defects that
may impair receipt
d. 0ight of transfer to title over
goods and that the goods are
merchantable
Note: The indorser does not
guarantee that the warehouseman
will comply with his duties $Sec.(7'
F1ST 10 53ST01N35 03,362TS
If t&e receipt is lost or (estroye(B it is
essential t&at t&e court s&all pass upon
t&e 4uestion an( ma3e sure t&at t&e
receipt is really lost or (estroye(
0efore t&e 1oo(s are (eli?ere( or a
ne= receipt is issue(/
A court may or(er (eli?ery only:
/ +pon proof of t&e loss or
(estruction of t&e receipt
-/ +pon 1i?in1 of a 0on( =it&
sufficient sureties to 0e
appro?e( 0y t&e court
RI7ATS AND OBLI7ATIONS O6 TAE
>AREAO+SE)AN
RI7ATS OBLI7ATIONS
1. To be paid
2. 6n case of non-
payment, to
eercise his lien on
the goods
deposited
&. To refuse
delivery in proper
legal circumstances
1. To issue a D0 in
the re#uired form for
goods received
2. To ta!e care of the
goods deposited with
ordinary and reasonable
diligence
&. To deliver the
goods to the person
lawfully entitled
(. +ot to commingle
the goods deposited,
unless goods are
fungible and of the
same !ind and grade,
giving rise to co-
ownership over
commingled mass
7. To insure the goods
in proper circumstances
8. To mar! a non-
negotiable D0 as such
B. To mar! as such the
duplicates of a
negotiable D0
9. To give the proper
notice in case of sale of
the1 goods as provided
in the D0F
%. To ta!e up and
cancel the D0 when
the goods are delivered
D+TE TO DELI9ER
1. ;"en: /pon a demand made by the
holder of a receipt or by the depositor,
unless there is a legal ecuse" if such
demand is accompanied with*
a. 1ffer to satisfy the
warehouseman<s lien.
b. 1ffer to surrender the receipt, if
negotiable, with such
endorsement as would be
necessary for the negotiation of
the receipt. and
c. 0eadiness and willingness to sign
an ac!nowledgment when the
goods are delivered, if such
signature is re#uested by the
warehouseman. $Sec. 9'
-enerally, a 53.A+5 should be made
on the warehouseman in order that the
duty to deliver the goods will arise.
3K,32T when the warehouseman has
13 | P a g e
rendered it beyond his power to deliver
the goods, demand may be dispensed
with. $Art. 118%:&;, ,6H6F ,153'
230S1+ T1 D=1. -115S ./ST 43
53F6H3035
/ Person la=fully entitle( to
possession of 1oo(s or &is a1ent
(person to =&om a competent
court &as or(ere( (eli?ery of
1oo(sF attac&in1 cre(itorF
purc&aser%
-/ Person entitle( to (eli?ery un(er a
non*ne1otia0le receipt or =it&
=ritten aut&ority
"/ Person in possession of a ne1otia0le
receipt
INSTANCES >AEN >AREAO+SE)AN )AE
LE7ALLE RE6+SE TO DELI9ER 7OODS
1. Dhen the holder of the receipt does
not satisfy the conditions prescribed
in Section 9 of the Act.
2. Dhen the warehouseman has legal
title in himself on the goods, such
title or right being derived directly
or indirectly from the transfer made
by the depositor at the time or
subse#uent to the deposit for
storage, or from the warehouseman<s
lien $Sec. 18'.
&. a. 6f he had been re#uested by a
person lawfully entitled to a right of
property or possession in the goods
not to ma!e delivery to any person"
b. 6f he had information that the
delivery to be made was to one not
lawfully entitled to the possession of
the goods" $Sec. 1A'
(. Dhere the goods have already been
lawfully sold to third persons to
satisfy the warehouseman<s lien or
disposed of because of their
perishable nature. $Sec &8'
7. 6n case of adverse claimantCs $Secs.
1B O 19'
8. 6n the valid eercise of the
warehouseman<s lien. $Sec. &1'
0% E66ECTS O6
ALTERATION
1. AFT30AT61+ 6..AT306AF*
(=&et&er frau(ulent or notF
aut&oriGe( or not%
=are&ouseman is lia0le on t&e
altere( receipt accor(in1 to its
ori1inal tenor/
2. AFT30AT61+ .AT306AF 4/T
A/T=106P35* t&e
=are&ouseman is lia0le
accor(in1 to its terms as
altere(/
3. .AT306AF AFT30AT61+
6++1,3+TFN .A53* lia0le
accor(in1 to its ori1inal tenor/
4. .AT306AF AFT30AT61+
J0A/5/F3+TFN .A53* lia0le
accor(in1 to t&e ori1inal tenor
to a purc&aser of receipt for
?alue =it&out notice an( e?en
to t&e alterer an( su0se4uent
purc&asers =it& notice (e:cept
t&at lia0ility is limite( only to
(eli?ery as &e is e:cuse( from
any lia0ility%/
A frau(ulent alteration cannot (i?est
t&e title of t&e o=ner of t&e store(
1oo(s an( =are&ouseman is lia0le to
return t&em to t&e o=ner/
A 0ona fi(e &ol(er ac4uires no ri1&t
to 1oo(s un(er a lost or stolen
ne1otia0le receipt or to =&ic& t&e
in(orsement of t&e (epositor &as 0een
for1e(/
>AREAO+SE)ANCS LIEN
A$ E/tent
1. Fawful charges for storage and
preservation of the goods"
2. Fawful claims for money
advanced" and
&. 0easonable charges and
epenses for notice and
advertisement of the sale, and
the sale of goods. $Sec. 2B'
6n case of a +3-1T6A4F3 receipt,
the charges that are present at the
time of the issuance of the receipt
must be so stated in the receipt with
the amounts thereof specified. 6f the
eisting charges are +1T stated, the
warehouseman shall have no lien
thereon, 3K,32T only for charges for
storage of those goods subse#uent to
the date of the receipt
4$ Remedies for enforcement:
1. 0efuse delivery of the goods
until his lien is satisfied" $Sec.
&1'
14
2. Sale of the goods and applying
the proceeds to the value of the
lien" $Secs. && O &('
3. 4y the other means allowed by
law to a creditor against his
debtor $Sec. &2'F or such other
remedies allowed by law for the
enforcement of a lien against
personal property. $Sec. &7'
C$ A!ainst 8"at property lien may #e
enforced:
1. Against the goods of the
depositor who is liable to the
warehouseman as debtor
whenever such goods are
deposited" and
2. Against goods of other persons
stored by the depositor who is
liable to the warehouseman as
debtor with authority to ma!e a
valid pledge.
<$ Loss of t"e lien:
1. 4y surrendering possession
thereof" or
2. 4y refusing to deliver the goods
when a demand is made with
which he is bound to comply.
$Sec. 2%'
The warehouseman<s lien is
possessory in nature. $2+4 v.
Gudge Se'
D=AT DA03=1/S3.A+ ,A+ 51 6+ ,AS3
1J A5H30S3 ,FA6.A+TS $S3,S. 1B O 19'
1. 0efuse to deliver the goods to
anyone of them until he has had
reasonable time to ascertain the
validity of the various claims"
2. 1riginal action or counterclaim for
interpleader, whichever is
appropriate.

R+LES ON ATTACA)ENT5EHEC+TION O6
7OODS DEPOSITED
1. Ne!otia#le receipt: the goods cannot
be attached or levied in eecution
/+F3SS*
a. The receipt is first surrendered"
or
b. 6ts negotiation is en)oined" or
c. The receipt is impounded by the
court. $Sec. 27'
,reditor<s remedies* see! for
the attachment of the receipt or
see! aid from courts to compel
the debtor to satisfy claims by
means allowed by law in regard
to property which cannot readily
be attached or levied upon by
ordinary process. $Sec 28'
Not applica0le:
/ If t&e (epositor is not t&e
o=ner of t&e 1oo(s (t&ief% or
one =&o &as no ri1&t to con?ey
title to t&e 1oo(s 0in(in1 upon
t&e o=ner/
-/ Actions for reco?ery or manual
(eli?ery of 1oo(s 0y t&e real
o=ner
&. Dhere attachment is made prior
to the issuance of receipt
2. Non:ne!otia#le receipt: the goods can
be attached, provided it is done prior to
the notification of the warehouseman of
the transfer, $Sec. (2'
0eason* Absent such notice,
both the warehouseman and the
sheriff have a right to assume
that the goods are still owned by
the person whose name appears
in the receipt.

D+TE TO INS+RE TAE 7OODS
1. Dhere the law provides
2. Dhere it was an inducement for the
depositor to enter into the contract
&. 3stablished practice
(. Dhere the D0 contains a
representation to that effect
LIABILITIES
CI9IL CRI)INAL
Darehouseman or his agent
Jor damages
suffered by
reason of
failure to
comply with
legal duties
1. 6ssuance of
receipts for goods not
received
2. 6ssuance of
receipt containing false
statement
&. 6ssuance of
duplicate negotiable D0
not mar!ed as such
(. 6ssuance of a
negotiable D0 for goods
of which he is an owner
without stating such fact
of ownership
7. 5elivery of goods
15 | P a g e
without obtaining
negotiable D0
Third persons
+egotiation of D0 issued
for mortgaged goods with
intent to deceive
,06.6+AF 1JJ3+S3S
/ Issuance of receipt for 1oo(s not
recei?e( (Sec/ ,8%
-/ Issuance of a receipt containin1
false statement (Sec/ ,%
"/ Issuance of a (uplicate receipt not
so mar3e( (Sec/ ,-%/ +*cept, if t&e
ori1inal is (eclare( lost or
(estroye( 0y t&e court/
2/ Issuance of a receipt in?ol?in1
=are&ousemanCs 1oo(s =&ic& (oes
not state suc& fact (Sec/ ,"%
,/ Deli?ery of 1oo(s =it&out o0tainin1
ne1otia0le receipt (Sec/ ,2%
$/ Ne1otiation of receipt for
mort1a1e( 1oo(s (Sec/ ,,%
C/ 7ENERAL BONDED >AREAO+SE ACT
(7B>A%
(Act No/ "@!"B as amen(e( 0y R/A/ -2<%

P+RPOSES:
1. To protect depositors by giving
them a direct recourse against
the bond filed by the
warehouseman in case of the
latter<s insolvency"
2. To regulate the business of
receiving commodities for
storage"
&. To encourage the establishment
of more warehouses.
>RL 9IS*I*9IS 7B>A -4ar Re(ie8
9aterials in Commercial La80 1or!e
9ira(ite0 )77) ed$.
Section 6.7 D0F Section 6.8 -4DA
Section I/< Pres
cri0es t&e mutual
(uties an( ri1&ts
of a
=are&ouseman
=&o issues
=are&ouse
receiptsB an( &is
(epositorB an(
co?ers all
=are&ouses
=&et&er 0on(e(
or not
Section I/@ Re1ulat
es an( super?ises
=are&ouses =&ic&
put up a 0on(
APPLICABILITE
The -4DA applies to a warehouseman
engaged in the business of receiving
commodity for storage, including
contracts or transactions*
a' Dherein the warehouseman is
obligated to return the very
same commodity delivered to
him or to pay its value"
b' Dherein the commodity
delivered is to be milled for and
on account of the owner thereof"
c' Dherein commodity delivered is
commingled with commodity
delivered by or belonging to
other persons, and the
warehouseman is obligated to
return commodity of the same
!ind or to pay its value. $Sec. 2'
The !inds of commodity to be
deposited must be those, which may be
traded or dealt in openly and legally.
Thus, illegal and prohibited goods may
not be validly received. $Sec. 2'
I)PORTANT 6EAT+RES:
1. +ecessity of a license to operate
andCor manage a warehouse
from the 4ureau of 5omestic
Trade
2. +ecessity of filing a bond
&. 5irect recourse by the depositor
against the bond filed by the
warehouseman
(. ,ompulsory insurance against
fire upon the goods deposited for
their full value
7. 0egulation by the 4ureau of
5omestic
,ompliance with the D0F is not
mandatory and indispensable. A mere
formal defect or absence of a warehouse
receipt in accordance with the D0F does
not preclude the application of the
-4DA. =owever, it is desirable that a
bonded warehouseman issue a
warehouse receipt which conforms to
provisions of the D0F. $-on@ales vs. -o
Tiong, August &A, 1%79'

D+TIES O6 A CO9ERED >AREAO+SE)AN
1. Secure the re#uired license" $Sec. &'
2. -ive the necessary bond in an amount
at least && 1C&E of the mar!et value of
16
the maimum #uantity of commodity to
be received" $Sec. ('
&. 6nsure against fire the commodity
received" $Sec. 8'
(. 0eceive, without discrimination, any
commodity for storage as far as his
license and the capacity of his
warehouse may permit" $Sec. 9'
2enalty* Jine for double the
mar!et value of the commodity so
received in ecess of the authori@ed
#uantity. $Sec.12'
7. Leep a complete record of all
commodities received by him, of the
receipts issued therefor, of the
withdrawals, of the li#uidation, and of
all receipts returned to and canceled by
him"
8. 1bserve rules and regulations of the
4ureau of 5omestic Trade. $Sec. %'
LIABILITIES
CI9IL CRI)INAL
4reach of
obligations
secured by the
bond
1. 3ngaging in business
covered by the -4DA in
violation of the license
re#uirement
2. ,onnivance with a
warehouseman for the
purpose of evading the
license re#uirement
&. 0eceiving a #uantity
of commodity greater
than its capacity or that
specified in the license,
if the goods deposited
are lost or destroyed
17 | P a g e