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CREDIT TRANSACTIONS

Prof. Roentgen F. Bronce

I. The Concepts of Credit and Credit Transactions Art. 1306. The contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient
II. Loan provided they are not contrary to law, morals, good customs, public
order, or public policy.
A. In General; Common Provisions

Arts. 1933-1934, 1156, 1249, 1305-1306, 1316, 1. Saura Import & Export Co., Inc. vs. DBP, G.R. No. L-24968
Civil Code (1972)
Civil law; Obligations and Contracts; When contract of
Title XI. LOAN simple loan perfected.Where an application for a loan
of money was approved by resolution of the defendant
Art. 1933. By the contract of loan, one of the parties delivers to corporation and the corresponding mortgage was executed
another, either something not consumable so that the latter may and registered, there arises a perfected-consensual
use the same for a certain time and return it, in which case the contract of loan.
contract is called a commodatum; or money or other consumable
thing, upon the condition that the same amount of the same kind Same; Extinguishment of obligations by mutual
and quality shall be paid, in which case the contract is simply called desistance. Where after approval of his loan, the
a loan or mutuum. borrower, instead of insisting for its release, asked that the
mortgage given as security be cancelled and the creditor
Commodatum is essentially gratuitous. acceded thereto, the action taken by both parties was in
the nature of mutual desistancewhat Manresa terms
Simple loan may be gratuitous or with a stipulation to pay interest. mutuo disensowhich is a mode of extinguishing
obligations. It is a concept that derives from, the principle
In commodatum the bailor retains the ownership of the thing that since mutual agreement can create a contract, mutual
loaned, while in simple loan, ownership passes to the borrower. disagreement by the parties can cause its extinguishment.

Art. 1934. An accepted promise to deliver something by way of 2. BPI Investment Corp. vs. Court of Appeals, G.R. No.
commodatum or simple loan is binding upon the parties, but the 133632 (2002)
commodatum or simple loan itself shall not be perfected until the A loan contract is not a consensual contract but a real
delivery of the object of the contract.
contract, perfected only upon the delivery of the object of
the contract.
OBLIGATIONS AND CONTRACTS
Title I. OBLIGATIONS
While a perfected loan contract can give rise to an action
Chapter 1
for damages, said contract does not constitute the real
GENERAL PROVISIONS
contract of loan which requires the delivery of the object of
Art. 1156. An obligation is a juridical necessity to give, to do or not
the contract for its perfection and which gives rise to
to do.
obligations only on the part of the borrower.
Chapter 4
A contract of loan involves a reciprocal obligation, wherein
EXTINGUISHMENT OF OBLIGATIONS
the obligation or promise of each party is the consideration
Section 1. Payment or Performance
for that of the other; it is a basic principle in reciprocal
obligations that neither party incurs in delay, if the other
Art. 1249. The payment of debts in money shall be made in the
does not comply or is not ready to comply in a proper
currency stipulated, and if it is not possible to deliver such currency,
manner with what is incumbent upon him.
then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of 3. Garcia vs. Thio, G.R. No. 154878 (2007)
exchange or other mercantile documents shall produce the effect A loan is a real contract, not concensual, and as such is
of payment only when they have been cashed, or when through the perfected only upon the delivery of the object of the contract.
fault of the creditor they have been impaired.
Upon delivery of the object of the contract of loan (in this
In the meantime, the action derived from the original obligation case the money received by the debtor when the checks
shall be held in abeyance. were encashed) the debtor acquires ownership of such
money or loan proceeds and is bound to pay the creditor an
Title II. CONTRACTS equal amount.
Chapter 1 Delivery is the act by which the res or substance
GENERAL PROVISIONS thereof is placed within the actual or constructive
possession or control of another.
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give Loans; interests; Article 1956 of the Civil Code provides that
something or to render some service. no interest shall be due unless it has been expressly
stipulated in writing.
While there can be no stipulated interest, there can be

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Prof. Roentgen F. Bronce

legal interest pursuant to Article 2209 of the Civil Code. bailee from responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is
4. Pantaleon vs. American Express International, Inc., G.R. not a member of his household;
No. 174269 (2010) (5) If, being able to save either the thing borrowed or his
Generally, the relationship between a credit card own thing, he chose to have the latter.
provider and its card holders is that of creditor-debtor,
with the card company as the creditor extending loans and Art. 1943. The bailee does not answer for the deterioration of the
credit to the card holder, who as debtor is obliged to repay thing loaned due only to the use thereof and without his fault.
the creditor, a relationship which takes exception to the
general rule that as between a bank and its depositors, the Art. 1944. The bailee cannot retain the thing loaned on the ground
bank is deemed as the debtor while the depositor is that the bailor owes him something, even though it may be by
considered as the creditor. reason of expenses. However, the bailee has a right of retention
for damages mentioned in Article 1951.
B. Commodatum
Art. 1945. When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily.
Arts. 1935-1952, Civil Code

Title XI. LOAN Section 3. Obligations of the Bailor


Chapter 1
COMMODATUM Art. 1946. The bailor cannot demand the return of the thing loaned
Section 1. Nature of Commodatum till after the expiration of the period stipulated, or after the
accomplishment of the use for which the commodatum has been
Art. 1935. The bailee in commodatum acquires the use of the thing constituted. However, if in the meantime, he should have urgent
loaned but not its fruits; if any compensation is to be paid by him need of the thing, he may demand its return or temporary use.
who acquires the use, the contract ceases to be a commodatum.
In case of temporary use by the bailor, the contract of commodatum
is suspended while the thing is in the possession of the bailor.
Art. 1936. Consumable goods may be the subject of commodatum
if the purpose of the contract is not the consumption of the object,
Art. 1947. The bailor may demand the thing at will, and the
as when it is merely for exhibition.
contractual relation is called a precarium, in the following cases:
(1) If neither the duration of the contract nor the use to
Art. 1937. Movable or immovable property may be the object of
which the thing loaned should be devoted, has been
commodatum.
stipulated; or
(2) If the use of the thing is merely tolerated by the owner.
Art. 1938. The bailor in commodatum need not be the owner of the
thing loaned.
Art. 1948. The bailor may demand immediate return of the thing if
the bailee commits any acts of ingratitude specified in Art. 765.
Art. 1939. Commodatum is purely personal in character.
Consequently:
Art. 1949. The bailor shall refund the extraordinary expenses
(1) The death of either the bailor or the bailee extinguishes
during the contract for the preservation of the thing loaned,
the contract;
provided the bailee brings the same to the knowledge of the bailor
(2) The bailee can neither lend nor lease the object of the
before incurring them, except when they are so urgent that the reply
contract to a third person. However, the members of the
to the notification cannot be awaited without danger.
bailees household may make the use of the thing
loaned, unless there is a stipulation to the contrary, or
If the extraordinary expenses arise on the occasion of the actual
unless the nature of the thing forbids such use.
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
Art. 1940. A stipulation that the bailee may make use of the fruits
there is a stipulation to the contrary.
of the thing loaned is valid.
Art. 1950. If, for the purpose of making use of the thing, the bailee
Section 2. Obligations of the Bailee
incurs expenses other than those referred to in Articles 1941 and
Art. 1941. The bailee is obliged to pay for the ordinary expenses 1949, he is not entitled to reimbursement.
for the use and preservation of the thing loaned.
Art. 1942. The bailee is liable for the loss of the thing, even if it Art. 1951. The bailor who, knowing the flaws of the thing loaned,
should be through a fortuitous event: does not advise the bailee of the same, shall be liable to the latter
(1) If he devotes the thing to any purpose different from that for the damages which he may suffer by reason thereof.
for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after Art. 1952. The bailor cannot exempt himself from the payment of
the accomplishment of the use for which the expenses or damages by abandoning the thing to the bailee.
commodatum has been constituted;
(3) If the thing loaned has been delivered with appraisal of
its value, unless there is a stipulation exempting the

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5. Quintos vs. Beck, G.R. No. 46240 (1939) 8. Catholic Vicar Apostolic vs. Court of Appeals, G.R. No. L-
COMMODATUM; OBLIGATION OF THE PARTIES. The 80294-95 (1988)
contract entered into between the parties is one of Civil Law; Credit Transactions; Commodatum; Property;
commodatum, because under it the plaintiff gratuitously Adverse Possession; Adverse Claim; Acquisitive Prescription;
granted the use of the furniture to the defendant, reserving for When petitioner borrowed the house of private respondents
herself the ownership thereof; by this contract the defendant predecessors, and petitioner was allowed its free use, private
bound himself to return the furniture to the plaintiff, upon the respondents became bailors in commodatum, and petitioner,
latter's demand (Clause 7 of the contract, Exhibit "A"; articles the bailee.Private respondents were able to prove that their
1740, paragraph 1, and 1741 of the Civil Code). The obligation predecessors house was borrowed by petitioner Vicar after
voluntarily assumed by the defendant to return the furniture the church and the convent were destroyed. They never asked
upon the plaintiff's demand, means that he should return all of for the return of the house, but when they allowed its free use,
them to the plaintiff at the latter's residence or house. The they became bailors in commodatum and the petitioner the
defendant did not comply with this obligation when he merely bailee. The bailees failure to return the subject matter of
placed them at the disposal of the plaintiff, retaining for his commodatum to the bailor did not mean adverse possession
benefit the three gas heaters and the four electric lamps. on the part of the borrower. The bailee held in trust the property
subject matter of commodatum. The adverse claim of
ID.; ID.; EXPENSES FOR DEPOSIT OF FURNITURE. As petitioner came only in 1951 when it declared the lots for
the defendant had voluntarily undertaken to return all the taxation purposes. The action of petitioner Vicar by such
furniture to the plaintiff, upon the latter's demand, the Court adverse claim could not ripen into title by way of ordinary
could not legally compel her to bear the expenses occasioned acquisitive prescription because of the absence of just title.
by the deposit of the furniture at the defendant's behest. The
latter, as bailee, was not entitled to place the furniture on 9. Manzano vs. Perez, G.R. No. 112485 (2001)
deposit; nor was the plaintiff under a duty to accept the offer to To disprove claim of ownership based on a written contract of
return the furniture, because the defendant wanted to retain sale that is notarized whereby it is being claimed that an oral
the three gas heaters and the four electric lamps. agreement of commodatum is being rasied, there must be a
clear and convincing evidence that is more than merely
ID.; ID.; VALUE OF FURNITURE.As to the value of the preponderant.
furniture. we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to Proof of ownership by submitting proof of payment of real
return some of the furniture, because under paragraph 6 of the property taxes is, in this case, self-serving for the payment
stipulation of facts, the defendant has neither agreed to nor was made only after her Complaint had already been lodged
admitted the correctness of the said value. Should the before the trial court.
defendant fail to deliver some of the furniture, the value thereof
should be later determined by the trial Court through evidence 10. Producers Bank of the Phils. vs. Court of Appeals, G.R. No.
which the parties may desire to present. 115324 (2003)
Civil Law; Contracts; Loan; Distinguished from Commodatum;
6. Republic vs. Bagtas, G.R. No. L-17474 (1962) Article 1933 of the Civil Code distinguishes between the two
Contracts; Loan of bulls for breeding purposes; Nature of kinds of loans.By the contract of loan, one of the parties
contract affected by payment of fee.The loan by the Bureau delivers to another, either something not consumable so that
of Animal Industry to the defendant of three bulls for breeding the latter may use the same for a certain time and return it, in
purposes for a period of one year, later on renewed for another which case the contract is called a commodatum; or money
as regards one bull, was subject to the payment by the or other consumable thing, upon the condition that the same
borrower of breeding fee of 10% of the book value of the bulls. amount of the same kind and quality shall be paid, in which
If the breeding fee be considered a compensation, the contract case the contract is simply called a loan or mutuum.
would be a lease of the bulls; it could not be a contract of Commodatum is essentially gratuitous. Simple loan may be
commodatum, because that contract is essentially gratuitous. 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
7. Republic vs. Court of Appeals, G.R. No. L-46145 (1986)
borrower.
The occupancy of the U.S. Navy was not in the concept of
owner. It partakes of the character of a commodatum. It cannot
11. Pajuyo vs. Court of Appeals, G.R. No. 146364 (2004)
therefore militate against the title of Domingo Baloy and his
successors-in-interest. One's ownership of a thing may be lost Same; Same; Contracts; Commodatum; Precarium; Words
by prescription by reason of another's possession if such and Phrases; An essential feature of commodatum is that it is
possession be under claim of ownership, not where the gratuitous, while another feature is that the use of the thing
possession is only intended to be transient, as in the case of belonging to another is for a certain period; If the use of the
the U.S. Navy's occupation of the land concerned, in which thing is merely tolerated by the bailor, he can demand the
case the owner is not divested of his title, although it cannot be return of the thing at will, in which case the contractual relation
exercised in the meantime. is called a precarium; Precarium is a kind of commodatum.
In a contract of commodatum, 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. An essential feature

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Prof. Roentgen F. Bronce

of commodatum is that it is gratuitous. Another feature of In a contract of loan of money, goods, chattels or credits, the
commodatum is that the use of the thing belonging to another relation between the parties is that of obligor and obligee.
is for a certain period. Thus, the bailor cannot demand the
return of the thing loaned until after expiration of the period LOAN, CONTRACT OF; DEFINED.A contract of "loan," as
stipulated, or after accomplishment of the use for which the that term is used in the statute, signifies the giving of a sum of
commodatum is constituted. If the bailor should have urgent money, goods or credits to another, with a promise to repay,
need of the thing, he may demand its return for temporary use. but not a promise to return the same thing. It has been defined
If the use of the thing is merely tolerated by the bailor, he can as an advancement of money, goods or credits upon a contract
demand the return of the thing at will, in which case the or stipulation to repay, not to return, the thing loaned at some
contractual relation is called a precarium. Under the Civil Code, future day in accordance with the terms of the contract. The
precarium is a kind of commodatum. moment the contract is completed, the money, goods or
chattels given cease to be the property of the former owner
and become the property of the obligor to be used according
C. Simple Loan/Mutuum to his own will, unless the contract itself expressly provides for
a special or specific use of the same. At all events, the money,
Arts. 1953-1955, Civil Code goods or chattels, the moment the contract is executed, cease
to be the property of the former owner and become the sole
property of the obligor. A contract of "loan" differs materially
Chapter 1 and essentially from a contract of "rent."
SIMPLE LOAN OR MUTUUM
USURY; DEFINED.Usury may be defined as contracting for
Art. 1953. A person who receives a loan of money or any other or receiving something in excess of the amount allowed by law
fungible thing requires the ownership thereof, and is bound to pay for the loan or forbearance of money, goods or chattels. It is
the creditor an equal amount of the same kind and quality. the taking of more interest for the use of money, goods or
chattels or credits than the law allows. Usury has been
Art. 1954. A contract whereby one person transfers the ownership regarded with abhorrence from the earliest times.
of non-fungible things to another with the obligation on the part of
the latter to give things of the same kind, quantity, and quality shall 13. Cebu International Finance Corp. vs. Court of Appeals,
be considered a barter. G.R. No. 123031 (1999)
Civil Law; Commercial Law; Loan; In a money market
Art. 1955. The obligation of a person who borrows money shall be transaction, the investor is a lender who loans his money
governed by the provision of Articles 1249 and 1250 of this Code. to a borrower through a middleman or dealer.
Considering the nature of a money market transaction, the
above-quoted provision should be applied in the present
12. Tolentino vs. Gonzales Sy Chiam, G.R. No. 26085 (1927) controversy. As held in Perez vs. Court of Appeals, a money
ID.; RENTAL CONTRACTS; USURY.A contract for the market is a market dealing in standardized short-term credit
lease of property is not a "loan." Under the Usury Law the instruments (involving large amounts) where lenders and
defense of usury cannot be based thereon. The Usury Law in borrowers do not deal directly with each other but through a
this jurisdiction prohibits a certain rate of interest on "loans." A middle man or dealer in open market. In a money market
contract of "loan" is a very different contract from that of "rent." transaction, the investor is a lender who loans his money to a
A "loan," as that term is used in the statute, signifies the giving borrower through a middleman or dealer.
of a sum of money, goods or credit to another, with a promise
to repay, but not a promise to return the same thing. In a Same; Same; Same; Check; A check is not a legal tender, and
con-tract of "rent' the owner of the property does not lose his therefore cannot constitute valid tender of payment.In a loan
ownership. He simply loses his control over the property rented transaction, the obligation to pay a sum certain in money may
during the period of the contract. In a contract of rent the be paid in money, which is the legal tender or, by the use of a
relation between the contractors is that of landlord and tenant. check. A check is not a legal tender, and therefore cannot
In a contract of loan of money, goods, chattels or credits, the constitute valid tender of payment. In the case of Philippine
relation between the parties is that of obligor and obligee. Airlines, Inc. vs. Court of Appeals, this Court held: Since a
negotiable instrument is only a substitute for money and not
ID.; RENTAL CONTRACTS; USURY.A contract for the money, the delivery of such an instrument does not, by itself,
lease of property is not a "loan." Under the Usury Law the operate as payment (citation omitted). A check, whether a
defense of usury cannot be based thereon. The Usury Law in managers check or ordinary check, is not legal tender, and an
this jurisdiction prohibits a certain rate of interest on "loans." A offer of a check in payment of a debt is not a valid tender of
contract of "loan" is a very different contract from that of "rent." payment and may be refused receipt by the obligee or creditor.
A "loan," as that term is used in the statute, signifies the giving Mere delivery of checks does not discharge the obligation
of a sum of money, goods or credit to another, with a promise under a judgment. The obligation is not extinguished and
to repay, but not a promise to return the same thing. In a remains suspended until the payment by commercial
con-tract of "rent' the owner of the property does not lose his document is actually realized (Art. 1249, Civil Code, par. 3.)
ownership. He simply loses his control over the property rented
during the period of the contract. In a contract of rent the
relation between the contractors is that of landlord and tenant.

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14. Naguiat vs. Court of Appeals, G.R. No. 118375 (2003) although the obligation in this instance arose out of a contract,
The mere issuance of the checks did not result in the perfection the parties did not agree to recognize the effects of
of the contract of loan. For the Civil Code provides that the extraordinary inflation (or deflation). For extraordinary
delivery of bills of exchange and mercantile documents such inflation (or deflation) to affect an obligation, the following
as checks shall produce the effect of payment only when they requisites must be proven: 1. that there was an official
have been cashed. It is only after the checks have produced declaration of extraordinary inflation or deflation from the
the effect of payment that the contract of loan may be deemed Bangko Sentral ng Pilipinas (BSP); 2. that the obligation was
perfected. Art. 1934 of the Civil Code provides: contractual in nature; and 3. that the parties expressly agreed
An accepted promise to deliver something by way of to consider the effects of the extraordinary inflation or deflation.
commodatum or simple loan is binding upon the parties, but Despite the devaluation of the peso, the BSP never declared a
the commodatum or simple loan itself shall not be perfected situation of extraordinary inflation. Moreover, although the
until the delivery of the object of the contract. obligation in this instance arose out of a contract, the parties
did not agree to recognize the effects of extraordinary inflation
A loan contract is a real contract, not concensual, and, as such, (or deflation). The RTC never mentioned that there was a such
is perfected only upon the delivery of the object of the contract. stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar- denominated
15. Equitable PCI Bank vs. Ngor, G.R. No. 171545 (2007) loans at the exchange rate fixed by the BSP on the date of
Same; Escalation Clauses; Principle of Mutuality of Contracts; maturity.
Escalation clauses are not void per se but one which grants
the creditor an unbridled right to adjust the interest 16. People vs. Puig & Poitas, G.R. No. 173654-765 (2008)
independently and upwardly, completely depriving the debtor Same; Same; Same; Banks, where monies are deposited, are
of the right to assent to an important modification in the considered the owners thereof; The relationship between
agreement is voidclauses of that nature violate the principle banks and depositors has been held to be that of creditor and
of mutuality of contracts.Escalation clauses are not void per debtor. It is beyond doubt that tellers, Cashiers,
se. However, one which grants the creditor an unbridled right Bookkeepers and other employees of a Bank who come into
to adjust the interest independently and upwardly, completely possession of the monies deposited therein enjoy the
depriving the debtor of the right to assent to an important confidence reposed in them by their employer. Banks, on the
modification in the agreement is void. Clauses of that nature other hand, where monies are deposited, are considered the
violate the principle of mutuality of contracts. Article 1308 of owners thereof. This is very clear not only from the express
the Civil Code holds that a contract must bind both contracting provisions of the law, but from established jurisprudence. The
parties; its validity or compliance cannot be left to the will of relationship between banks and depositors has been held to
one of them. For this reason, we have consistently held that a be that of creditor and debtor.
valid escalation clause provides: 1. that the rate of interest will
only be increased if the applicable maximum rate of interest is III. Interest
increased by law or by the Monetary Board; and 2. that the
stipulated rate of interest will be reduced if the applicable Arts. 1956-1961, 2209, 2212-2213, Civil Code
maximum rate of interest is reduced by law or by the Monetary CHAPTER 2
Board (de-escalation clause). Simple Loan or Mutuum

Same; Same; Where the escalation clause is annulled, the Article 1956. No interest shall be due unless it has been expressly
principal amount of the loan is subject to the original or stipulated in writing. (1755a)
stipulated rate of interest.With regard to the proper rate of
interest, in New Sampaguita Builders v. Philippine National Article 1957. Contracts and stipulations, under any cloak or device
Bank, 435 SCRA 565 (2004), we held that, because the whatever, intended to circumvent the laws against usury shall be
escalation clause was annulled, the principal amount of the void. The borrower may recover in accordance with the laws on
loan was subject to the original or stipulated rate of interest. usury. (n)
Upon maturity, the amount due was subject to legal interest at
the rate of 12% per annum. 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
Same; Same; Extraordinary Inflation or Deflation; Words and or goods at the time and place of payment. (n)
Phrases; Extraordinary Inflation and Extraordinary
Deflation, Defined.Extraordinary inflation exists when there Article 1959. Without prejudice to the provisions of article 2212,
is an unusual decrease in the purchasing power of currency interest due and unpaid shall not earn interest. However, the
(that is, beyond the common fluctuation in the value of contracting parties may by stipulation capitalize the interest due
currency) and such decrease could not be reasonably and unpaid, which as added principal, shall earn new interest. (n)
foreseen or was manifestly beyond the contemplation of the
parties at the time of the obligation. Extraordinary deflation, on Article 1960. If the borrower pays interest when there has been no
the other hand, involves an inverse situation. stipulation therefor, the provisions of this Code concerning solutio
indebiti, or natural obligations, shall be applied, as the case may
Same; Same; Same; Requisites; Despite the devaluation of be. (n)
the peso, the Bangko Sentral ng Pilipinas (BSP) never
declared a situation of extraordinary inflation. Moreover,

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Article 1961. Usurious contracts shall be governed by the Usury the payment of the interest agreed upon in the certificates of
Law and other special laws, so far as they are not inconsistent deposit which is six and one-half percent (6-1/2%). Such
with this Code. (n) interest due or accrued shall further earn legal interest from the
time of judicial demand.
Article 2209. If the obligation consists in the payment of a sum of Banking; Interest on Deposits; The banks obligation to pay
money, and the debtor incurs in delay, the indemnity for interest on the deposit ceases the moment its operation is
damages, there being no stipulation to the contrary, shall be the completely suspended by the Central Bank.On the issue
payment of the interest agreed upon, and in the absence of of whether OBM should be held liable for interests on the time
stipulation, the legal interest, which is six per cent per annum. deposits of IRC and Santos from the time it ceased operations
(1108) until it resumed its business, the answer is in the negative. We
have held in The Overseas Bank of Manila vs. Court of
Article 2212. Interest due shall earn legal interest from the time it Appeals and Tony D. Tapia, that: It is a matter of common
is judicially demanded, although the obligation may be silent upon knowledge which We take judicial notice of, that what enables
this point. (1109a) a bank to pay stipulated interest on money deposited with it is
that thru the other aspects of its operation it is able to generate
Article 2213. Interest cannot be recovered upon unliquidated funds to cover the payment of such interest. Unless a bank can
claims or damages, except when the demand can be established lend money, engage in international transactions, acquire
with reasonable certainty. foreclosed mortgaged properties or their proceeds and
generally engage in other banking and financing activities from
17. Integrated Realty Corp. vs. PNB, G.R. No. 60705 (1989) which it can derive income, it is inconceivable how it can carry
Same; Same; Loans; A contract of simple loan or mutuum is on as a depository obligated to pay stipulated interest.
created when Santos invested his money in time deposit with Conventional wisdom dictates this inexorable fair and just
petitioner-bank.Thus, when PNB demanded from OBM conclusion. And it can be said that all who deposit money in
payment of the amounts due on the two time deposits which banks are aware of such a simple economic proposition.
matured on January 11, 1968 and February 6, 1968, Consequently, it should be deemed read into every contract of
respectively, there was as yet no obstacle to the faithful deposit with a bank that the obligation to pay interest on the
compliance by OBM of its liabilities thereunder. Consequently, deposit ceases the moment the operation of the bank is
for having incurred in delay in the performance of its obligation, completely suspended by the duly constituted authority, the
OBM should be held liable for damages. When respondent Central Bank.
Santos invested his money in time deposits with OBM, they
entered into a contract of simple loan or mutuum, not a contract 18. Eastern Shipping Lines vs. Court of Appeals, G.R. No.
of deposit. 97412 (1994)
Same; Same; Same; Interests in the Concept of Actual and
Same; Obligations and Contracts; Default; Damages; Legal Compensatory Damages; In a loan or forbearance of
interest in the nature of damages for non-compliance with money, the interest due should be that stipulated in
an obligation to pay a sum of money is recoverable even writing, and in the absence thereof, the rate shall be 12%
if not expressly stipulated in writing.While it is true that per annum.With regard particularly to an award of interest
under Article 1956 of the Civil Code no interest shall be due in the concept of actual and compensatory damages, the rate
unless it has been expressly stipulated in writing, this applies of interest, as well as the accrual thereof, is imposed, as
only to interest for the use of money. It does not comprehend follows: 1. When the obligation is breached, and it consists in
interest paid as damages. OBM contends that it had agreed to the payment of a sum of money, i.e., a loan or forbearance of
pay interest only up to the dates of maturity of the certificates money, the interest due should be that which may have been
of time deposit and that respondent Santos is not entitled to stipulated in writing. Furthermore, the interest due shall itself
interest after the maturity dates had expired, unless the earn legal interest from the time it is judicially demanded. In
contracts are renewed. This is true with respect to the the absence of stipulation, the rate of interest shall be 12% per
stipulated interest, but the obligations consisting as they did in annum to be computed from default, i.e., from judicial or
the payment of money, under Article 1108 of the Civil Code he extrajudicial demand under and subject to the provisions of
has the right to recover damages resulting from the default of Article 1169 of the Civil Code.
OBM, and the measure of such damages is interest at the legal
rate of six percent (6%) per annum on the amounts due and Same; Same; Same; Same; In case of other obligations, the
unpaid at the expiration of the periods respectively provided in interest on the amount of damages may be imposed at the
the contracts. In fine, OBM is being required to pay such discretion of the court at the rate of 6% per annum.When
interest, not as interest income stipulated in the certificates of an obligation, not constituting a loan or forbearance of money,
time deposit, but as damages for failure and delay in the is breached, an interest on the amount of damages awarded
payment of its obligations which thereby compelled IRC and may be imposed at the discretion of the court at the rate of 6%
Santos to resort to the courts. The applicable rule is that legal per annum. No interest, however, shall be adjudged on
interest, in the nature of damages for non- compliance with an unliquidated claims or damages except when or until the
obligation to pay a sum of money, is recoverable from the date demand can be established with reasonable certainty.
judicial or extrajudicial demand is made, which latter mode of Accordingly, where the demand is established with reasonable
demand was made by PNB, after the maturity of the certificates certainty, the interest shall begin to run from the time the claim
of time deposit, on March 1, 1968. The measure of such is made judicially or extrajudicially (Art. 1169, Civil Code) but
damages, there being no stipulation to the contrary, shall be when such certainty cannot be so reasonably established at

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Prof. Roentgen F. Bronce

the time the demand is made, the interest shall begin to run interest, would constitute unjust enrichment on the part of
only from the date the judgment of the court is made (at which the debtor at the expense of the creditor.
time the quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the 21. Siga-an vs. Villanueva, G.R. No. 173227 (2009)
computation of legal interest shall, in any case, be on the
Interest is a compensation fixed by the parties for the use or
amount finally adjudged.
forbearance of money. This is referred to as monetary interest.
Interest may also be imposed by law or by courts as penalty or
Same; Same; Same; Same; When the judgment of the court
indemnity for damages. This is called compensatory interest. The
awarding a sum of money becomes final and executory,
right to interest arises only by virtue of a contract or by virtue of
the rate of legal interest shall be 12% per annum from such
damages for delay or failure to pay the principal loan on which
finality until its satisfaction, this interim period being
interest is demanded. Article 1956 of the Civil Code, which refers
deemed to be by then an equivalent to a forbearance of
to monetary interest, specifically mandates that no interest shall be
credit.When the judgment of the court awarding a sum of
due unless it has been expressly stipulated in writing. As can be
money becomes final and executory, the rate of legal interest,
gleaned from the foregoing provision, payment of monetary interest
whether the case falls under paragraph 1 or paragraph 2,
is allowed only if: (1) there was an express stipulation for the
above, shall be 12% per annum from such finality until its
payment of interest; and (2) the agreement for the payment of
satisfaction, this interim period being deemed to be by then an
interest was reduced in writing. The concurrence of the two that
equivalent to a forbearance of credit.
collection of interest without any stipulation therefor in writing is
prohibited by law.
19. Ligutan vs. Court of Appeals, G.R. No. 138677 (2002)
Same; Same; Interests; The essence or rationale for the Same; Same; The interest under Arts. 2209 and 2212 of the Civil
payment of interest, quite often referred to as cost of Code may be imposed only as a penalty or damages for breach of
money, is not exactly the same as that of a surcharge or a contractual obligationsit cannot be charged as a compensation
penalty, and a penalty stipulation is not necessarily for the use or forbearance of money.
preclusive of interest, if there is an agreement to that
effect, the two being distinct concepts which may
Under Article 1960 of the Civil Code, if the borrower of loan pays
separately be demanded; What may justify a court in not
interest when there has been no stipulation therefor, the provisions
allowing the creditor to impose full surcharges and
of the Civil Code concerning solutio indebiti shall be applied.
penalties, despite an express stipulation therefor in a valid
agreement, may not equally justify the non-payment or
reduction of interest.Anent the stipulated interest of 22. Nacar vs. Gallery Frames and Bordey, Jr., G.R. No.
15.189% per annum, petitioners, for the first time, question its 189871 (2013)
reasonableness and prays that the Court reduce the amount. Interest Rates; In the absence of an express stipulation as to the
This contention is a fresh issue that has not been raised and rate of interest that would govern the parties, the rate of legal
ventilated before the courts below. In any event, the interest interest for loans or forbearance of any money, goods or credits
stipulation, on its face, does not appear as being that and the rate allowed in judgments shall no longer be twelve percent
excessive. The essence or rationale for the payment of (12%) per annum as reflected in the case of Eastern Shipping
interest, quite often referred to as cost of money, is not exactly Lines vs. Court of Appeals, 234 SCRA 78 (1994), and Subsection
the same as that of a surcharge or a penalty. A penalty X305.1 of the Manual of Regulations for Banks and Sections
stipulation is not necessarily preclusive of interest, if there is 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for
an agreement to that effect, the two being distinct concepts Non-Bank Financial Institutions, before its amendment by BSP- MB
which may separately be demanded. What may justify a court Circular No. 799 but will now be six percent (6%) per annum
in not allowing the creditor to impose full surcharges and effective July 1, 2013.
penalties, despite an express stipulation therefor in a valid
agreement, may not equally justify the non-payment or The Bangko Sentral ng Pilipinas- Monetary Board may prescribe
reduction of interest. Indeed, the interest prescribed in loan the maximum rate or rates of interest for all loans or renewals
financing arrangements is a fundamental part of the banking thereof or the forbearance of any money, goods or credits,
business and the core of a banks existence. including those for loans of low priority such as consumer loans, as
well as such loans made by pawnshops, finance companies and
20. Frias vs. San Diego-Sison, G.R. No. 15223 (2007) similar credit institutions.
Interest Rates; The payment of regular interest
constitutes the price or cost of the use of money and IV. Usury Law
thus, until the principal sum due is returned to the
creditor, regular interest continues to accrue since the Act No. 2655
debtor continues to use such principal amount.The Central Bank Circular No. 416, 905
payment of regular interest constitutes the price or cost of
the use of money and thus, until the principal sum due is 23. Advocates for Truth in Lending, Inc. vs Bangko Sentral,
returned to the creditor, regular interest continues to accrue G.R. No. 192986 (2013)
since the debtor continues to use such principal amount. It Usury Law; Central Bank (CB) Circular No. 905; Central Bank
has been held that for a debtor to continue in possession of (CB) Circular No. 905 did not repeal nor in anyway amend the
the principal of the loan and to continue to use the same after Usury Law but simply suspended the latters effectivity; that a
maturity of the loan without payment of the monetary

ATDL + AF Notes l 7
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Prof. Roentgen F. Bronce

Central Bank (CB) Circular cannot repeal a law, for only a law the principal loan obligation side by side with the invalidation of the
can repeal another law; that by virtue of CB Circular No. 905, interest rates thereupon is congruent with the rule that a usurious
the Usury Law has been rendered ineffective; and Usury Law loan transaction is not a complete nullity but defective only with
has been legally non-existent in our jurisdiction.The power respect to the agreed interest.
of the CB to effectively suspend the Usury Law pursuant to P.D.
No. 1684 has long been recognized and upheld in many cases. As Same; Same; Same; Since the mortgage contract derives its vitality
the Court explained in the landmark case of Medel v. CA, 299 from the validity of the principal obligation, the invalid stipulation on
SCRA 481 (1998), citing several cases, CB Circular No. 905 did interest rate is similarly insufficient to render void the ancillary
not repeal nor in anyway amend the Usury Law but simply mortgage contract.
suspended the latters effectivity; that a [CB] Circular cannot
repeal a law, [for] only a law can repeal another law; that by virtue
V. Truth in Lending Act
of CB Circular No. 905, the Usury Law has been rendered
ineffective; and Usury has been legally non-existent in our
27. United Coconut Planters Bank vs. Samuel & Beluso, G.R.
jurisdiction. Interest can now be charged as lender and borrower
No. 159912 (2007)
may agree upon.
Truth in Lending Act; Not disclosing the true finance charges
in connection with the extensions of credit is a form of
Same; Section 109 of R.A. No. 265 covered only loans extended
deception which we cannot countenance.The interest rate
by banks, whereas under Section 1-a of the Usury Law, as
provisions in the case at bar are illegal not only because of the
amended, the Bangko Sentral ng Pilipinas Monetary Board (BSP-
provisions of the Civil Code on mutuality of contracts, but also, as
MB) may prescribe the maximum rate or rates of interest for all
shall be discussed later, because they violate the Truth in Lending
loans or renewals thereof or the forebearance of any money, goods
Act. Not disclosing the true finance charges in connection with the
or credits, including those for loans of low priority such as consumer
extensions of credit is, furthermore, a form of deception which we
loans, as well as such loans made by pawnshops, finance
cannot countenance. It is against the policy of the State as stated
companies and similar credit institutions.
in the Truth in Lending Act: Sec. 2. Declaration of Policy.It is
hereby declared to be the policy of the State to protect its citizens
24. Banco Filipino vs. Court of Appeals, G.R. No. 129227 from a lack of awareness of the true cost of credit to the user by
(2000) assuring a full disclosure of such cost with a view of preventing the
Banks and Banking; Loans; Interest Rates; Escalation uninformed use of credit to the detriment of the national economy.
Clauses; Central Bank Circular 494, although it has the force
and effect of law, is not a law and is not the law contemplated Same; Same; Default commences upon judicial or extrajudicial
by the parties which authorizes the petitioner to unilaterally demand, and the excess amount in such a demand does not nullify
raise the interest rate of the loan.In Banco Filipino Savings & the demand itself, which is valid with respect to the proper amount.
Mortgage Bank vs. Navarro, which involved a similar escalation
clause, we ruled that Central Bank Circular 494, although it has the Same; Same; Interest; The Court sees sufficient basis to impose a
force and effect of law, is not a law and is not the law contemplated 12% legal interest in favor of the lender in the case at bar, as what
by the parties which authorizes the petitioner to unilaterally raise was voided is merely the stipulated rate of interest and not the
the interest rate of the loan. Consequently, the reliance by the stipulation that the loan shall earn interest.
petitioner on Central Bank Circular 494 to unilaterally raise the
interest rates on the loan in question was without any legal basis.
Same; Same; Same; Compounded Interest; The contracting
parties may by stipulation capitalize the interest due and unpaid,
25. Estores vs. Spouses Supangan, G.R. No. 175139 (2012) which as added principal, shall earn new interest.
Interest Rates; The general rule is that the applicable rate of
interest shall be computed in accordance with the stipulation Loans; Truth in Lending Act; Pleadings and Practice; The allegation
of the parties. Absent any stipulation, the applicable rate of that the promissory notes grant the lender the power to unilaterally
interest shall be 12% per annum when the obligation arises fix the interest rates certainly also means that the promissory notes
out of a loan or a forbearance of money, goods or credits. In do not contain a clear statement in writing of (6) the finance
other cases, it shall be six percent (6%).Anent the interest charge expressed in terms of pesos and centavos; and (7) the
rate, the general rule is that the applicable rate of interest shall be percentage that the finance charge bears to the amount to be
computed in accordance with the stipulation of the parties. Absent financed expressed as a simple annual rate on the outstanding
any stipulation, the applicable rate of interest shall be 12% per unpaid balance of the obligation.
annum when the obligation arises out of a loan or a forbearance
of money, goods or credits. In other cases, it shall be six percent
(6%). In this case, the parties did not stipulate as to the applicable
rate of interest. The only question remaining therefore is whether
the 6% as provided under Article 2209 of the Civil Code, or 12%
under Central Bank Circular No. 416, is due.

26. Carpo vs. Chua, G.R. Nos. 150773 & 153599 (2005)
Usury Law; A usurious loan transaction is not a complete
nullity but defective only with respect to the agreed interest.
The Courts ultimate affirmation in the cases cited of the validity of

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Prof. Roentgen F. Bronce

VII. Deposits as he did and there was no law which changed his responsibility be
reason of the deposit. While it may be true that one who is under
A. In General; Common Provisions obligation to do or give a thing is in duty bound, when he sees
events approaching the results of which will be dangerous to his
Arts. 1962-1967, Civil Code trust, to take all reasonable means and measures to escape or, if
unavoidable, to temper the effects of those events, we do not feel
TITLE XIIDEPOSIT constrained to hold that, in choosing between two means equally
legal, he is culpably negligent in selecting one whereas he would
CHAPTER 1 not have been if he had selected the other.
Deposit in General and its Different Kinds

Article 1962. A deposit is constituted from the moment a person 30. CA Agro-Industrial Dev. Corp. vs. Court of Appeals, G.R.
receives a thing belonging to another, with the obligation of safely No. 90027 (1993)
keeping it and of returning the same. If the safekeeping of the thing Civil Law; Deposit; Commercial Law; Banks and Banking; A
delivered is not the principal purpose of the contract, there is no contract for the rent of a safety deposit box is not an ordinary
deposit but some other contract. (1758a) contract of lease but a special kind of deposit.We agree with
the petitioner's contention that the contract for the rent of the safety
Article 1963. An agreement to constitute a deposit is binding, but deposi t box is not an ordinary contract of lease as defined in Article
the deposit itself is not perfected until the delivery of the thing. (n) 1643 of the Civil Code. However, We do not fully subscribe to its
view that the same is a contract of deposit that is to be strictly
Article 1964. A deposit may be constituted judicially or governed by the provisions in the Civil Code on deposit; the
extrajudicially. (1759) contract in the case at bar is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643
Article 1965. A deposit is a gratuitous contract, except when there because the full and absolute possession and control of the safety
is an agreement to the contrary, or unless the depositary is deposit box Was not given to the joint renters.
engaged in the business of storing goods. (1760a)
Any stipulation exempting depository from liability for loss of thing
Article 1966. Only movable things may be the object of a deposit. deposited on account of fraud, negligence or delay considered void
(1761) for being contrary to law and public policy.

Article 1967. An extrajudicial deposit is either voluntary or Liability of lessor in contract of lease of safety deposit box can be
necessary. (1762) limited by stipulation but any stipulation for exemption shall be held
ineffective.
28. Bank of the Philippine Islands vs. Court of Appeals, G.R.
No. L-66826 (1988)
B. Voluntary Deposit
Civil Law; Obligations and Contracts; Contract of Deposit; The
contract between Zshornack and the bank, as to the $3,000.00,
Arts. 1968-1995, Civil Code
was a contract of deposit defined under Art. 1962 of the New Civil
Code.The document which embodies the contract states that the
CHAPTER 2Voluntary Deposit
US$3,000.00 was received by the bank for safekeeping. The
subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to SECTION 1General Provisions
return it to Zshornack at a later time. Thus, Zshornack demanded Article 1968. A voluntary deposit is that wherein the delivery is
the return of the money on May 10, 1976, or over five months later. made by the will of the depositor. A deposit may also be made by
The above arrangement is that contract defined under Article 1962, two or more persons each of whom believes himself entitled to the
New Civil Code, which reads: Art. 1962. A deposit is constituted thing deposited with a third person, who shall deliver it in a proper
from the moment a person receives a thing belonging to another, case to the one to whom it belongs. (1763)
with the obligation of safely keeping it and for returning the same.
If the safekeeping of the thing delivered is not the principal purpose Article 1969. A contract of deposit may be entered into orally or in
of the contract, there is no deposit but some other contract. writing. (n)

Article 1970. If a person having capacity to contract accepts a


29. Roman Catholic Bishop vs. De La Pena, G.R. No. 6913
deposit made by one who is incapacitated, the former shall be
(1913)
subject to all the obligations of a depositary, and may be compelled
We do not enter into a discussion for the purpose of determining to return the thing by the guardian, or administrator, of the person
whether he acted more or less negligently by depositing the money who made the deposit, or by the latter himself if he should acquire
in the bank than he would if he had left it in his home; or whether capacity. (1764)
he was more or less negligent by depositing the money in his
personal account than he would have been if he had deposited it in Article 1971. If the deposit has been made by a capacitated person
a separate account as trustee. We regard such discussion as with another who is not, the depositor shall only have an action to
substantially fruitless, inasmuch as the precise question is not one recover the thing deposited while it is still in the possession of the
of negligence. There was no law prohibiting him from depositing it depositary, or to compel the latter to pay him the amount by which

ATDL + AF Notes l 9
CREDIT TRANSACTIONS
Prof. Roentgen F. Bronce

he may have enriched or benefited himself with the thing or its through a fortuitous event:
price. However, if a third person who acquired the thing acted in (1) If it is so stipulated;
bad faith, the depositor may bring an action against him for its (2) If he uses the thing without the depositor's permission;
recovery. (1765a) (3) If he delays its return;
(4) If he allows others to use it, even though he himself may have
SECTION 2Obligations of the Depositary been authorized to use the same. (n)

Article 1972. The depositary is obliged to keep the thing safely and Article 1980. Fixed, savings, and current deposits of money in
to return it, when required, to the depositor, or to his heirs and banks and similar institutions shall be governed by the provisions
successors, or to the person who may have been designated in the concerning simple loan. (n)
contract. His responsibility, with regard to the safekeeping and the
loss of the thing, shall be governed by the provisions of Title I of Article 1981. When the thing deposited is delivered closed and
this Book. sealed, the depositary must return it in the same condition, and he
shall be liable for damages should the seal or lock be broken
If the deposit is gratuitous, this fact shall be taken into account in through his fault.
determining the degree of care that the depositary must observe.
(1766a) Fault on the part of the depositary is presumed, unless there is
Article 1973. Unless there is a stipulation to the contrary, the proof to the contrary.
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 As regards the value of the thing deposited, the statement of the
he deposited the thing with a person who is manifestly careless or depositor shall be accepted, when the forcible opening is imputable
unfit. The depositary is responsible for the negligence of his to the depositary, should there be no proof to the contrary.
employees. (n) However, the courts may pass upon the credibility of the depositor
with respect to the value claimed by him.
Article 1974. The depositary may change the way of the deposit if
under the circumstances he may reasonably presume that the When the seal or lock is broken, with or without the depositary's
depositor would consent to the change if he knew of the facts of fault, he shall keep the secret of the deposit. (1769a)
the situation. However, before the depositary may make such
change, he shall notify the depositor thereof and wait for his Article 1982. When it becomes necessary to open a locked box or
decision, unless delay would cause danger. (n) receptacle, the depositary is presumed authorized to do so, if the
key has been delivered to him; or when the instructions of the
Article 1975. The depositary holding certificates, bonds, securities depositor as regards the deposit cannot be executed without
or instruments which earn interest shall be bound to collect the opening the box or receptacle. (n)
latter when it becomes due, and to take such steps as may be
necessary in order that the securities may preserve their value and Article 1983. The thing deposited shall be returned with all its
the rights corresponding to them according to law. products, accessories and accessions.

The above provision shall not apply to contracts for the rent of Should the deposit consist of money, the provisions relative to
safety deposit boxes. (n) agents in article 1896 shall be applied to the depositary. (1770)

Article 1976. Unless there is a stipulation to the contrary, the Article 1984. The depositary cannot demand that the depositor
depositary may commingle grain or other articles of the same kind prove his ownership of the thing deposited.
and quality, in which case the various depositors shall own or have
a proportionate interest in the mass. (n) Nevertheless, should he discover that the thing has been stolen
and who its true owner is, he must advise the latter of the deposit.
Article 1977. The depositary cannot make use of the thing
deposited without the express permission of the depositor. 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
Otherwise, he shall be liable for damages. responsibility by returning the thing deposited to the depositor.

However, when the preservation of the thing deposited requires its If the depositary has reasonable grounds to believe that the thing
use, it must be used but only for that purpose. (1767a) has not been lawfully acquired by the depositor, the former may
return the same. (1771a)
Article 1978. When the depositary has permission to use the thing
deposited, the contract loses the concept of a deposit and becomes Article 1985. When there are two or more depositors, if they are
a loan or commodatum, except where safekeeping is still the not solidary, and the thing admits of division, each one cannot
principal purpose of the contract. demand more than his share.

The permission shall not be presumed, and its existence must be When there is solidarity or the thing does not admit of division, the
proved. (1768a) provisions of articles 1212 and 1214 shall govern. However, if there
is a stipulation that the thing should be returned to one of the
Article 1979. The depositary is liable for the loss of the thing depositors, the depositary shall return it only to the person

ATDL + AF Notes l 10
CREDIT TRANSACTIONS
Prof. Roentgen F. Bronce

designated. (1772a) Article 1995. A deposit its extinguished:


(1) Upon the loss or destruction of the thing deposited;
Article 1986. If the depositor should lose his capacity to contract (2) In case of a gratuitous deposit, upon the death of either the
after having made the deposit, the thing cannot be returned except depositor or the depositary. (n)
to the persons who may have the administration of his property and
rights. (1773) 31. Sia vs. Court of Appeals, G.R. No. 102970, May 13, 1990
Civil Law; Deposit; Contract for the use of safety deposit box
Article 1987. If at the time the deposit was made a place was is a special kind of deposit and the relationship between the
designated for the return of the thing, the depositary must take the parties thereto, with respect to the contents of the box, is that
thing deposited to such place; but the expenses for transportation of a bailor and bailee, the bailment being for hire and mutual
shall be borne by the depositor. benefit.In the recent case of CA Agro-Industrial Development
Corp. vs. Court of Appeals, this Court explicitly rejected the
If no place has been designated for the return, it shall be made contention that a contract for the use of a safety deposit box is a
where the thing deposited may be, even if it should not be the same contract of lease governed by Title VII, Book IV of the Civil Code.
place where the deposit was made, provided that there was no Nor did We fully subscribe to the view that it is a contract of deposit
malice on the part of the depositary. (1774) to be strictly governed by the Civil Code provision on deposit; it is,
as We declared, a special kind of deposit. The prevailing rule in
Article 1988. The thing deposited must be returned to the American jurisprudencethat the relation between a bank renting
depositor upon demand, even though a specified period or time for out safe deposit boxes and its customer with respect to the
such return may have been fixed. contents of the box is that of a bailor and bailee, the bailment being
for hire and mutual benefit has been adopted in this jurisdiction.
This provision shall not apply when the thing is judicially attached
while in the depositary's possession, or should he have been Same; Same; Same; Conditions in a Lease Agreement covering
notified of the opposition of a third person to the return or the a safety deposit box which exempt the bank from any liability for
removal of the thing deposited. In these cases, the depositary must damage, loss or destruction of the contents thereof arising from its
immediately inform the depositor of the attachment or opposition. own or its agents fraud, negligence or delay are considered null
(1775) and void, for being contrary to law and public policy.
Article 1989. Unless the deposit is for a valuable consideration, the
Same; Same; Same; Same; Although flooding could be considered
depositary who may have justifiable reasons for not keeping the
a fortuitous event, failure of the bank to give notice to the renter of
thing deposited may, even before the time designated, return it to
such fact makes it liable for damages, its negligence caused to
the depositor; and if the latter should refuse to receive it, the
aggravate injury or damage to the renter
depositary may secure its consignation from the court. (1776a)

Article 1990. If the depositary by force majeure or government 32. Javellana vs. Lim, G.R. No. 4015 (1908)
order loses the thing and receives money or another thing in its CONTRACT; BAILMENT OR DEPOSIT; LOAN.Where money,
place, he shall deliver the sum or other thing to the depositor. consisting of coins of legal tender, is deposited with a person and
(1777a) the latter is authorized by the depositor to use and dispose of the
same, the agreement thus entered into between the depositor and
Article 1991. The depositor's heir who in good faith may have sold the depositary is not a contract of deposit, but a loan.
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
ID.; ID.; ID.; SUBSEQUENT AGREEMENT AS TO INTEREST;
action against the buyer in case the price has not been paid him.
NOVATION.A subsequent agreement between the parties as to
(1778)
interest on the amount said to have been deposited, because the
same could not be returned at the time fixed therefor, does not
SECTION 3Obligations of the Depositor
constitute a renewal of an agreement of deposit, but is the best
evidence that the original contract entered into between the parties
Article 1992. If the deposit is gratuitous, the depositor is obliged to therein was for a loan under the guise of a deposit.
reimburse the depositary for the expenses he may have incurred
for the preservation of the thing deposited. (1779a)
33. Chan vs. Maceda, G.R. No. 142591 (2003)
Article 1993. The depositor shall reimburse the depositary for any Civil Law; Obligations and Contracts; Deposits; In an action against
loss arising from the character of the thing deposited, unless at the the depositary, the burden is on the plaintiff to prove the bailment
time of the constitution of the deposit the former was not aware of, or deposit and the performance of conditions precedent to the right
or was not expected to know the dangerous character of the thing, of action; A depositary is obliged to return the thing to the depositor,
or unless he notified the depositary of the same, or the latter was or to his heirs or successors, or to the person who may have been
aware of it without advice from the depositor. (n) designated in the contract.

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.
(1780)

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CREDIT TRANSACTIONS
Prof. Roentgen F. Bronce

34. Serrano vs. Central Bank, G.R. No. L-30511 (1980) Article 2002. The hotel-keeper is not liable for compensation if the
Banking; Bank deposits; nature of; Nature of relationship loss is due to the acts of the guest, his family, servants or visitors,
between a person making the time deposit and a bank; Effect or if the loss arises from the character of the things brought into the
of failure of a bank to honor the time deposit.Bank deposits hotel. (n)
are in the nature of irregular deposits. They are really loans
because they earn interest. All kinds of bank deposits, whether Article 2003. The hotel-keeper cannot free himself from
fixed, savings, or current are to be treated as loans and are to be responsibility by posting notices to the effect that he is not liable for
covered by the law on loans. Current and savings deposits are the articles brought by the guest. Any stipulation between the hotel-
loans to a bank because it can use the same. The petitioner here keeper and the guest whereby the responsibility of the former as
in making time deposits that earn interests with respondent set forth in articles 1998 to 2001 is suppressed or diminished shall
Overseas Bank of Manila was in reality a creditor of the respondent be void. (n)
Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of the respondent Bank to honor the Article 2004. The hotel-keeper has a right to retain the things
time deposit is failure to pay its obligation as a debtor and not a brought into the hotel by the guest, as a security for credits on
breach of trust arising from a depositarys failure to return the account of lodging, and supplies usually furnished to hotel guests.
subject matter of the deposit. (n)

35. Durban Apartments vs. Pioneer Insurance, G.R. No.


179419 (2011)
C. Necessary Deposit
Contract of Deposit; Hotels and Inns; The contract of deposit
Arts. 1996-2004, Civil Code was perfected when the hotel guest handed over to the hotels
parking attendant the keys to his vehicle, which the latter
CHAPTER 3Necessary Deposit received with the obligation of safely keeping and returning
it.Article 1962, in relation to Article 1998, of the Civil Code
defines a contract of deposit and a necessary deposit made by
Article 1996. A deposit is necessary:
persons in hotels or inns: Art. 1962. A deposit is constituted from
(1) When it is made in compliance with a legal obligation;
the moment a person receives a thing belonging to another, with
(2) When it takes place on the occasion of any calamity, such as
the obligation of safely keeping it and returning the same. If the
fire, storm, flood, pillage, shipwreck, or other similar events.
safekeeping of the thing delivered is not the principal purpose of
(1781a)
the contract, there is no deposit but some other contract. Art. 1998.
The deposit of effects made by travelers in hotels or inns shall also
Article 1997. The deposit referred to in No. 1 of the preceding
be regarded as necessary. The keepers of hotels or inns shall be
article shall be governed by the provisions of the law establishing
responsible for them as depositaries, provided that notice was
it, and in case of its deficiency, by the rules on voluntary deposit.
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
The deposit mentioned in No. 2 of the preceding article shall be
which said hotel-keepers or their substitutes advised relative to the
regulated by the provisions concerning voluntary deposit and by
care and vigilance of their effects. Plainly, from the facts found by
article 2168. (1782)
the lower courts, the insured See deposited his vehicle for
safekeeping with petitioner, through the latters employee,
Article 1998. The deposit of effects made by travellers in hotels or
Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus,
inns shall also be regarded as necessary. The keepers of hotels or
the contract of deposit was perfected from Sees delivery, when he
inns shall be responsible for them as depositaries, provided that
handed over to Justimbaste the keys to his vehicle, which
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 Justimbaste received with the obligation of safely keeping and
the precautions which said hotel-keepers or their substitutes returning it. Ultimately, petitioner is liable for the loss of Sees
advised relative to the care and vigilance of their effects. (1783) vehicle.

Article 1999. The hotel-keeper is liable for the vehicles, animals 36. YHT Realty Corp. vs. Court of Appeals, G.R. No. 126780
and articles which have been introduced or placed in the annexes (2005)
of the hotel. (n) Hotels and Inns; Deposits; Safety Deposit Boxes; Mere close
companionship and intimacy are not enough to warrant the
Article 2000. The responsibility referred to in the two preceding conclusion that a hotel guest and his companion are husband and
articles shall include the loss of, or injury to the personal property wifeit is no excuse for the hotel to have allowed the latter to open
of the guests caused by the servants or employees of the keepers the safety deposit box of the former.The management contends,
of hotels or inns as well as strangers; but not that which may however, that McLoughlin, by his act, made its employees believe
proceed from any force majeure. The fact that travellers are that Tan was his spouse for she was always with him most of the
constrained to rely on the vigilance of the keeper of the hotels or time. The evidence on record, however, is bereft of any showing
inns shall be considered in determining the degree of care required that McLoughlin introduced Tan to the management as his wife.
of him. (1784a) Such an inference from the act of McLoughlin will not exculpate the
petitioners from liability in the absence of any showing that he made
Article 2001. The act of a thief or robber, who has entered the hotel the management believe that Tan was his wife or was duly
is not deemed force majeure, unless it is done with the use of arms authorized to have access to the safety deposit box. Mere close
or through an irresistible force. (n) companionship and intimacy are not enough to warrant such

ATDL + AF Notes l 12
CREDIT TRANSACTIONS
Prof. Roentgen F. Bronce

conclusion considering that what is involved in the instant case is


the very safety of McLoughlins deposit. If only petitioners
exercised due diligence in taking care of McLoughlins safety
deposit box, they should have confronted him as to his relationship
with Tan considering that the latter had been observed opening
McLoughlins safety deposit box a number of times at the early
hours of the morning. Tans acts should have prompted the
management to investigate her relationship with McLoughlin. Then,
petitioners would have exercised due diligence required of them.
Failure to do so warrants the conclusion that the management had
been remiss in complying with the obligations imposed upon
hotel-keepers under the law.

37. Triple-V vs. Filipino Merchants Insurance Corp., G.R. No.


160544 (2005)
Specious is petitioner's insistence that the valet parking claim stub
it issued to De Asis contains a clear exclusion of its liability and
operates as an explicit waiver by the customer of any right to claim
indemnity for any loss of or damage to the vehicle.

The parking claim stub embodying the terms and conditions of the
parking, including that of relieving petitioner from any loss or
damage to the car, is essentially a contract of adhesion, drafted
and prepared as it is by the petitioner alone with no participation
whatsoever on the part of the customers, like De Asis, who merely
adheres to the printed stipulations therein appearing. While
contracts of adhesion are not void in themselves, yet this Court will
not hesitate to rule out blind adherence thereto if they prove to be
one-sided under the attendant facts and circumstances. Petitioner
must not be allowed to use its parking claim stub's exclusionary
stipulation as a shield from any responsibility for any loss or
damage to vehicles or to the valuables contained therein.

D. Judicial Deposit

Arts. 2005-2009, Civil Code


CHAPTER 4
Sequestration or Judicial Deposit

Article 2005. A judicial deposit or sequestration takes place when


an attachment or seizure of property in litigation is ordered. (1785)

Article 2006. Movable as well as immovable property may be the


object of sequestration. (1786)

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.
(1787a)

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. (1788)

Article 2009. As to matters not provided for in this Code, judicial


sequestration shall be governed by the Rules of Court. (1789a)

ATDL + AF Notes l 13