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Credit Transactions, First Semestre (AY 2014 – 2015), Saturday (7PM – 9PM), Atty. Crisostomo A. Uribe Benítez, Montilla, San Andres, Sia, Uyson

Angel Javellana v Jose Lim, et al; GR 4015, 24 August 1908 En banc, Torres, J.

Facts:

 

(1) On 26 May 1897, Jose and others executed a document in favor of Angel, wherein it stated that they had received a sum of PhP 2,600.86 as a “deposit” without interest from the latter. The document also stipulated that they would return the same amount jointly and severally on 20 January 1898.

(2) Upon the stipulated due date, however, Jose and others asked for an extension to pay and bound themselves to pay 15% interest per annum on the amount of their indebtedness, to which the Angel acceded. Despite the extension, Jose and others still failed to pay the full amount of their indebtedness. Consequently, this prompted Angel to file a civil action before the CFI of Iloilo. The CFI of Iloilo subsequently ruled in favor of Angel to recover the amount due plus the payment of 15% interest per annum.

Issue:

 

Whether or not the contract executed by Angel and Jose and others was that of a deposit.

Ruling:

 

No, the contract executed by Angel and Jose and others was not a deposit. Instead, it was a contract of simple loan or mutuum.

Ratio:

(1) It must be understood that Jose and others were lawfully authorized to make use of the amount deposited, which they have done as subsequently shown when they asked for an extension of the time for the return thereof. They were conscious that they had used, for their own profit and gain, the money which they apparently received as a “deposit”. Moreover, they engaged to pay interest to Angel from the stipulated date until the time when the refund should have been made.

(2) Where money, consisting of coins of legal tender, is deposited with a person and the latter is authorized by the depositor to use and dispose of the same, the agreement is not a contract of deposit, but a loan. Moreover, Article 1768 of the old Civil Code (now Article 1978 of the New Civil Code) provides that when the depository has per- mission to make use of the thing deposited, the contract loses the character of a de- posit and becomes a loan or bailment.

(3) A subsequent agreement between the parties as to interest on the amount said to have been deposited, because the same could not be returned at the time fixed therefore, does not constitute a renewal of an agreement of deposit, but it is the best evidence that the original contract entered into between them was for a loan under the guise of a deposit.