Commodatum, Loan & Deposit

Art. 1933 – Art. 2009

Credit Transactions – include 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. (i.e. consignment of goods for sale)

LOANS

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the latter may use the same for a certain
time and return it, in which case the contract is called a commodatum; or money or other consumable thing, upon the condition that the same amount of the
same kind and quality shall be paid, in which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous. Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the borrower.

Res Perit Domino – the rule on “thing perishes with the owner” is applicable to commodatum as bailor/lender bears the risk of loss.

Art. 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding upon parties, but the commodatum or simple loan itself
shall not be perfected until the delivery of the object of the contract.
- Pactum de commodando
- Consensual Contract to Constitute a Loan
- Consensual Contract of Future Loan

Bailment – a consignment of goods for sale; also the delivery of property by one person to another in trust for a specific purpose, with a contract, express or
implied, that the trust shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept until the
bailor reclaims it; comes from a French word “bailer”, which means to deliver

Parties: Bailor – “giver” or the party who delivers the property

Bailee – “receiver” or the party to whom the thing is delivered

Question: The parties to the bailment are the:

a. bailor
b. bailee
c. commodatorio (bailee in commodatum)
 d. all of the above
e. letters a & b

Consideration or cause in bailment of loan: Insofar as the borrower is concerned, the cause is the acquisition of the thing; insofar as the lender is concerned, it
is the right to require the return of the same thing or its equivalent.

Classes:
1. commodatum – loan for use; generally, object of commodatum is not consumable; exception if for exhibition purposes
2. mutuum – simple loan or loan of consumption

Other classification of contractual bailment:

- those for the benefit of the bailor
- those for the benefit of the bailee
- those for the benefit of both parties

Characteristics: [RPGP – Real, Principal, Gratuitous, Personal]

a. real – perfected by delivery of the object of the loan; prior to delivery, no obligation to deliver by the bailor; after delivery, obligation pertains solely to
the bailee to return the very same thing
b. unilateral – obligation pertains only to the borrower
Exception: consensual contracts – contract is constituted by mere consent of both parties; delivery is demandable but not based on the real contract of loan;
i.e. consensual contract to constitute a loan in the future.

DELIVERY: To effect either a commodatum or muttum, a delivery, either real or constructive, is essential. This is so because unless there is delivery, the
borrower in commodatum cannot exercise due diligence over the thing loaned.

Consent of the parties: The borrower and the lender must of course consent either personally or through an authorized agent, as in every obligation founded
upon a contract. However, the necessary acceptance need not be actual but may be implied from circumstances.

Consensual contract of future loans: Aside from the real contracts of commodatum and loan, there can also be a consensual contract created by an accepted
promise to deliver something by way of commodatum or simple loan,

i.e. A promised to lend 1,000 to B. The promise was accepted by B. This contract (consensual) is already binding upon the parties so that if A does not fulfill his
promise, B has the right to demand compliance thereof. But note here that the real contract of loan does not yet exist.
Distinctions:
Commodatum
Character Essentially gratuitous (do not pay
any consideration for the use of
the thing); referred to as loan for
consumption: Loan for use.
Object Non-fungible object (but may be
consumable); same thing to be
returned; may involve real and
personal property
Purpose Transfer its use; ownership
retained by lender or bailor
Effect Restoration of the very same
thing loaned
Risk of Loss On the lender (As owner); lender,
because of his ownership, bears
risk of loss
GR: Bailee does not bear the risk
of loss
Nature Personal in character
Nomenclature Referred to as loan for use or
temporary possession
Duration GR: For a fixed period
E: May be claimed before the end
of the term if urgently needed
Mutuum
Naturally gratuitous (can be
compensatory); may be
gratuitous or onerous; referred to
as loan for consumption
Note: presumption is that
contract is gratuitous;
consideration of gratuitous
contracts is pure liberality or
generosity of the bailor
Object is money or fungible
thing; equivalent amount to be
returned; refers to personal
property only..same kind and
quality to be returned
Transfer its ownership; ownership
goes to borrower or bailee
Restoration of an equal quantity
and quality (equivalent amount)
On the borrower (as debtor of a
generic thing); borrower because
of his ownership bears risk of loss
Not personal in character
Referred to as loan for
consumption
May not be claimed until the
term expires or is forfeited; can
be generally obliged to pay only
at end of period
 While generally obliged to return
object at end of period, still in
some cases the return can be
demanded even before the end
of the period
Fungible: those that can be substituted and those that cannot be used without being consumed; if the intention is to allow a substitution of the thing given
Non-fungible: if the intention is to compel a return of the identical thing given
E: Art. 1198
Art. 1198. The debtor shall lose
every right to make use of the
period:
(1) When after the obligation has
been contracted, he becomes
insolvent, unless he gives a
guaranty or security for the debt;
(2) When he does not furnish to
the creditor the guaranties or
securities which he has promised;
(3) When by his own acts he has
impaired said guaranties or
securities after their
establishment, and when through
a fortuitous event they disappear,
unless he immediately gives new
ones equally satisfactory;
(4) When the debtor violates any
undertaking, in consideration of
which the creditor agreed to the
period;
(5) When the debtor attempts to
abscond.
Consumable: a movable which cannot be used in a manner appropriate to its nature without its being consumed, i.e. gasoline

Non-consumable: a movable which can be used in a manner appropriate to its nature without its being consumed, i.e. a book

Bailor does not necessarily mean the owner of the object of commodatum.
Not all contracts of loan are secured.

CHAPTER 1 – Commodatum

Section 1 – Nature of Commodatum

Art. 1935. The bailee in commodatum acquires the use of the thing loaned but not its fruits; if any compensation is to be paid by him who acquires the use, the
contract ceases to be a commodatum.
- Jus utendi not jus fruendi

Art. 1936. Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for
exhibition.

Art. 1937. Movable or immovable property may be the object of commodatum.

Art. 1938. The bailor in commodatum need not be the owner of the thing loaned.

Art. 1939. Commodatum is purely personal in character. Consequently:

(1) The death of either the bailor or the bailee extinguishes the contract;

(2) The bailee can neither lend nor lease the object of the contract to a third person. However, the members of the bailee's household may make use of the
thing loaned, unless there is a stipulation to the contrary, or unless the nature of the thing forbids such use.

Art. 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is valid.

I. Contract of Commodatum – contract whereby one party gratuitously delivers a non-fungible thing to another for temporary use of the bailee who is under
obligation to return the very same thing
 A. Concept
1. Commodatum is essentially gratuitous

Republic vs Bagtas
The contention that the contract is commodatum and the Republic retained possession over the 3 bulls and should therefore, suffer the loss due to force
majeure is untenable. The charge of breeding fee of 10% of the book value of the bulls is considered a form of compensation which converts the
transaction into a lease.

2. Commodatum is for a certain period

Mina vs Pascual
It is an essential feature of commodatum (ordinary) that the use of the thing belonging to another shall be for a certain period. The title/ denomination
given by the parties “commodatum” is not determinative of the nature of the contract but that which is defined by the law. Since Francisco Fontanilla did
not fix any definite period, it cannot be a commodatum.

3. Effect of adverse possession for 11 years

Catholic Vicar vs CA
There was no period agreed upon and the use was merely tolerated. Bailee’s failure to return the subject matter of the commodatum is not the adverse
possession which enables the bailee to acquire the property by prescription. It must be in the concept of an owner.

4. Effect of suspension of possessory rights for more than 50 years

Republic vs CA
In the interim of 57 years, the possessory rights of Baloy were merely suspended, not lost by prescription. His possession was interrupted by the
occupation of the US Navy for recreational purposes. Such possession is not in the concept of the owner. It partakes the character of commodatum.

Kinds of Commodatum:

1. Ordinary commodatum – the possession of the bailee is more secure for he has the right to retain the thing loaned until the expiration of the period
agreed upon, or the accomplishment of the use for which the commodatum has been constituted.

2. Precarium – a kind of commodatum where the bailor may demand the thing at will. It has been defined as a “contract by which the owner of a thing,
at the request of another person, gives the latter the thing for use as long as the owner shall please; presumed that the use of the thing has been
granted subject to revocation by the bailor at any time, whether or not the use for which the thing has been loaned has been accomplished.
 - no time stipulated

Quintos vs. Beck

In the contract, neither the duration nor the use of the thing loaned was stipulated. Beck, therefore, bounds himself to return to Quintos the furniture
upon demand. Beck did not comply with this obligation when he nerely placed them @ the disposal of the sheriff, retaining the gas heaters and the
electric lamps.

- use is merely tolerated (Catholic Vicar case)

1.) If neither the duration of the contract nor the use of the thing loaned is stipulated Quintos vs Beck
2.) If the use of the thing is merely tolerated
Catholic Vicar vs CA

Pactum de Commodando – consensual contract to constitute a loan

Effect of approval of loan application

Saura Import and Export vs DBP

There was a perfected consensual contract of future loan which was an accepted promise to deliver something by way of simple loan but due to non
compliance with certain conditions and subsequent request for diversion of loan proceeds, it was extinguished by mutual desistance.

B. Requisites

a) Capacity - no special capacity required; need not be the owner of the object of commodatum; theft may be bailor; lesse may also be a bailor

b) Object – non fungible (can be used without being consumed)

* Objects of commodatum:
- Mina vs. Pascual (use of the lot by erecting a warehouse thereon)
- Quintos vs. Beck (use of the furniture)

c) Consideration – contract must be gratuitous

 3.) Effect if consideration is paid: Republic vs. Bagtas

d) Form - no special form required

C. Characteristics (as a contract)

a. Real (because perfected by delivery)

b. Principal (because it can stand alone by itself; does not depend on the existence and validity of another contract as differentiated from an accessory
contract such as pledge)
c. Gratuitous (otherwise, contract is one of lease)
d. Personal in nature (because of the trust; only the bailee can use the object of the contract and members of his family. However, members of his family
cannot use if the contract expressly so provide and the nature of the thing prohibits such use, such as laptop with a confidential information in work-
related activites)

What Bailee in Commodatum acquires: Commodatum give the right to the use and not the right to the fruits; otherwise, the contract may be one of usufruct.
But of course a stipulation that the bailee may make use of the fruits of the thing loaned is valid. In such a case, however, the right to get the fruits is merely
incidental and not the main cause of the contract.

Bailor need not be the owner: Reason – the contract of commodatum does not transfer ownership. All that is required is that the bailor has the right to use of
the property which he is lending, and that he be allowed to alienate this right to use. Hence, in lease for eample, a lessee may become a sub-lessor, unless he
has been expressly prohibited to do so in the contract of lease.

Personal nature of commodatum: The NCC considers commodatum as purely personal and this constitutes an exception to the rule that all rights acquired by
virtue of an obligation are transmissible.

Does bailee have a right to use the fruits? As a rule, the bailee is not entitled to the fruits, otherwise the contract may be one of usufruct. It should be noted
that the right to use is distinct from the right to enjoy the fruits, since under the law fruits should as a rule pertain to the owner of the thing producing the
fruits. However, to stipulate that the bailee makes use of the fruits would not destroy the essence of a commodatum, for liberality is still the actual cause or
consideration of the contract.

SECTION 2. - Obligations of the Bailee

Art. 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.

Art. 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:
 (1) If he devotes the thing to any purpose different from that for which it has been loaned;

(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been constituted;

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exemption the bailee from responsibility in case of a
fortuitous event;

(4) If he lends or leases the thing to a third person, who is not a member of his household;

(5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter.

Art. 1943. The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without his fault.

Art. 1944. The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it may be by reason of expenses. However,
the bailee has a right of retention for damages mentioned in Article 1951.

Art. 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily.

I. Rights and obligations of the parties

A. Rights and obligations of the borrower

a. Rights: to personally use the thing

b. Obligations or duties:
i. To preserve the thing or take case of it with the diligence of a good father of a family
ii. To shoulder the ordinary expenses for the use and preservation of the thing loaned
iii. To return the identical thing after the expiration of the period of the contract of commodatum or in case of precarium, upon demand
Cases: Effect of failure to return
a. Quintos vs Beck
b. Catholic Vicar Apostolic vs CA

c. De los Santos vs Jarra

The obligation of the bailee and his successor-in-interest to return either the thing loaned or its value or to pay him damages if, thru the fault of abilee,
the thing has been lost or injured. But bailee is not liable for the 4 carabaos who died due to rinderpest since they were lost due to fortuitous events.
Can the bailee retain the thing because the bailor owes him something? Generally, No, because bailment implies a trust that as soon as the time has expired, or
the purpose accomplished, the bailed property must be restored to the bailor. Exception: Art. 1951; However, the parties may agree on conventional
compensation, that is, they may agree that the object of commodatum may serve as payment for the debt of the bailor.

Bailee’s failure to return – not become the owner, but he can become owner by acquisitive prescription (adverse possession)

Liability for loss due to a fortuitous event: As a rule, a debtor of a thing is not responsible for its loss through a fortuitous event. Art. 1942 gives the exception in
a case of commodatum.

Reason for the law in Art. 1942:

Par. 1 – this amounts to bad faith or abuse of generosity considering the fact that commodatum is gratuitous

Par. 2 – he is guilty of a certain kind of default

Par. 3 – evidently, the giving of the value was made to hold the bailee liable after all this is not a sale, and neither is ownership transferred in commodatum
(Exception: when there is a stipulation to the contrary. It may in a sense be said that the appraisal converts the commodatum into a mutuum)

Par. 4 – This is prohibited by the law for it amounts to a violation of the personal character of commodatum

Par. 5 – this amounts to an act of ingratitude and to a failure to exercise due diligence, considering the fact that comodatum is gratuitous

Misuse or abuse: A misuse or abuse of the property is ordinarily a conversion for which the bailee is generally held responsible, to the full extent of the loss.

SECTION 3. - Obligations of the Bailor

Art. 1946. The bailor cannot demand the return of the thing loaned till after the expiration of the period stipulated, or after the accomplishment of the use for
which the commodatum has been constituted. However, if in the meantime, he should have urgent need of the thing, he may demand its return or temporary
use.

In case of temporary use by the bailor, the contract of commodatum is suspended while the thing is in the possession of the bailor.

Art. 1947. The bailor may demand the thing at will, and the contractual relation is called a precarium, in the following cases:
 (1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or

(2) If the use of the thing is merely tolerated by the owner.

Art. 1948. The bailor may demand the immediate return of the thing if the bailee commits any act of ingratitude specified in Article 765.

Art. 1949. The bailor shall refund the extraordinary expenses during the contract for the preservation of the thing loaned, provided the bailee brings the same
to the knowledge of the bailor before incurring them, except when they are so urgent that the reply to the notification cannot be awaited without danger.

If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne equally
by both the bailor and the bailee, unless there is a stipulation to the contrary.

Art. 1950. If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in Articles 1941 and 1949, he is not entitled to
reimbursement. (n)

Art. 1951. The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be liable to the latter for the damages which he
may suffer by reason thereof.

Art. 1952. The bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee.

I. Rights and obligations of the parties

Primary obligation of the bailor is to 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 constituted. The reason is that the bailor is bound by the terms of the contract of commodatum which is “for a certain
time”.

Exception: if bailor should have an urgent need of the thing or if bailee commits an act of ingratitude, he may demand its return or temporary use.

A. Effects as to the lender

a. To pay extraordinary expenses of preservation (Art. 1949)

As a rule, the extraordinary expenses should be paid by the bailor because it is he who profits by said expenses; otherwise, the thing borrowed would be
destroyed.
Generally, notice is required because the bailor should be given discretion as to what he wants to do with his own property.

Reason for the 2nd par. in Art. 1949 (Actual use by the bailee): This is an equitable solution. The bailee pay ½ because of the benefit derived from the use of the
thing loaned to him, and the bailor pays the other half because he is the owner and the thing will be returned to him.

b. To answer for damages to the borrower (Art. 1951)

Reason: When a person lends, he ought to confer a benefit, and not to do a mischief. If he does not reveal the flaws, he is liable for his bad faith.

Note: but the obligation of a gratuitous lender goes no further than this, he cant therefore be made liable for not communicating anything which he did not
know, whether he ought to have known it or not.

It is evident that the flaws referred to in this article are hidden defects, not obvious ones (patent, visible, apparent.)

Right of retention: for the damages spoken in this article, the bailee has the right of retention until paid of said damages. (Art. 1944)

i. The lender cannot evade liability by abandonment of the thing (Art.1952)

Reason: The value of the thing borrowed might be less than the value of the expenses or damages

II. Termination

A. Causes of extinguishment
a. Expiration of the time or use stipulated
b. Claim of the lender
c. Destruction of the thing
d. Death of the borrower
e. Ingratitude of the borrower (Art. 1948)

Art. 765. The donation may also be revoked at the instance of the donor, by reason of ingratitude in the following cases:

(1) If the donee should commit some offense against the person, the honor or the property of the donor, or of his wife or children under his parental
authority;

(2) If the donee imputes to the donor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act
has been committed against the donee himself, his wife or children under his authority;
 (3) If he unduly refuses him support when the donee is legally or morally bound to give support to the donor.

CHAPTER 2 – SIMPLE LOAN OR MUTUUM

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is bound to pay to the creditor an equal
amount of the same kind and quality.

Art. 1954. A contract whereby one person transfers the ownership 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 be considered a barter.

Art. 1955. The obligation of a person who borrows money shall be governed by the provisions of Articles 1249 and 1250 of this Code.

If what was loaned is a fungible thing other than money, the debtor owes another thing of the same kind, quantity and quality, even if it should change in value.
In case it is impossible to deliver the same kind, its value at the time of the perfection of the loan shall be paid.

Art. 1956. No interest shall be due unless it has been expressly stipulated in writing.

Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may
recover in accordance with the laws on usury.

Art. 1958. In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of the products or goods at the time and
place of payment.

Art. 1959. Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by
stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest.

Art. 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerning solutio indebiti, or natural
obligations, shall be applied, as the case may be.

Presumption: Voluntary Payment was made.

Art. 1961. Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code.

I. Simple loan (Mutuum, loan of consumption)

Mutuum is a contract whereby one of the parties delivers to another money or other consumable thing with the understanding that the same amount of the
same kind and quality shall be paid.

Commodatum vs Mutuum: Commodatum, object is non-fungible; Mutuum, object is fungible.

Barter – object is non-fungible but with the obligation to return the same kind or quality.
Loan – only civil liability; no criminal liability
In trust or responsibility to account – guilty of estafa

Cases:

a. Mutuum vs commodatum
Chee Kiong Yam vs Malik
Facts in the complaint does not constitute estafe thru misappropriation but simple loan. The borrower acquired ownership over the money and he can
dispose of the thin borrowed. His act will not be considered a misappropriation thereof.

b. Mutuum vs lease

Tolentino vs Gonzales Sy Chiam

During the period of redemption, the vendor was the tenant of the purchaser. This is a contract of rent and not of loan.

c. Mutuum vs Estafa

Liwanag vs CA
Not a contract of loan as there was no transfer of ownership. Liwanag cannot dispose of the money as she pleases as it was delivered to her for a
specific purpose, namely, the purchase of cigarettes for their buy and sell business.
A. Kinds
a. Gratuitous or onerous
b. With interest (must be expressly stipulated and in writing)

B. Requisites

a. Capacity of the parties – basic legal capacity plus lender must be the owner of the thing
b. Object – fungible or money
 c. Consideration – liberality on the part of the lender for gratuitous kind of loan; interest on the part of the lender, use of the money on the part of
the borrower for onerous kind of loan
d. Form – in whatever form; not a formal but a real contract, thus, form is not essential for its validity

Exception: consensual contracts

Case: 1. Accepted promise to deliver something by way of simple loan – Saura Import & Export Co. Inc. vs DBP

D. Effects: Obligation of the borrower (only)

a. To return the thing or amount (same amount, kind or quality) borrowed

- When? At the period stipulated

i. Rule if the thing borrowed is money

- Return or payment of the numerical value

- If currency not stipulated – pay in legal tender
- Take into consideration extraordinary inflation

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver such currency, then in
the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce the effect of payment
only when they have been cashed, or when through the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance.

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary.

Cases:
1.) Payment in currency stipulated

Rono vs Gomez
 The agreement was to pay the debt one year after in the currency prevailing which is Philippine peso, not Japanese money. This is legal and
obligatory as the increase in the intrinsic value and purchasing power of the current money is a consequence of an event which neither party
knew would happen. (aleatory contracts)

2.) Stipulation not to pay while war ongoing

Nepomuceno vs Narciso
Valid stipulation that mortgagor, his administrators and assigns cannot redeem the property while the war is ongoing. Mortgagees apparently
did not want to be paid with Japanese military notes.

ii. If the thing borrowed is not money

- To pay another thing of the same kind, quantity and quality, even if it should change in value. In case it is impossible to deliver the same kind, its value
at the time of the perfection of the loan shall be paid.
- Example: A borrowed from B five sacks of rice. At the time the loan was perfected, each sack cost 1,800. Even if at the time of payment, the price
would change, 5 sacks of the same kind and quality of rice should be returned. However, if it is impossible to deliver the same kind, 1,800 should be
paid. Note that the value at the time of PERFECTION (not payment) applies.
- Stipulation: No payment shall be made within a period, payment shall be made after the said period – valid; for the benefit of the lender to earn
interest

b. To pay interest

- When to pay? If expressly stipulated in writing

- Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. (Legal
interest in legal delay after judicial demand is not contractual interest agreed by the parties but serves as a penalty or damage dues)
- When unpaid interest earns interest?
o GR: Accrued interest (interest due and unpaid) shall not earn interest except in 2 instances:
 When judicially demanded as provided for in Art. 2212
 When there is an express stipulation made by the parties that the interest due and unpaid shall be added to the principal obligation
and the resulting total amount shall earn interest. This practice is called compounding interest.

i. Case: Liability for contractual interest after maturity of note

Jardenil vs Solas
Stipulated interest up to date of maturity and legal interest from maturity up to date of payment.
 ii. Effect if interest is paid even if not stipulated

- If unstipulated interest (it is, therefore, not due) is paid by mistake, the debtor may recover as this would be a case of solutio indebiti or undue
payment. But when the unstipulated interest, or interest stipulated, there being a stipulation but it is not in writing, is paid voluntarily because the
debtor feels morally obliged to do so, there can be no recovery as in the case of natural obligations.
- Interest in kind – value should be determined at the time and place of payment. Example: B borrowed 1,000 from L payable in palay in 1 year which
shall be appraised at the current market price at the time and place of payment. When the contract was entered into, the price per cavan of palay was
500. On the due date of the loan, the price increased to 600. In this case, the value of the palay shall be appraised at 600 per cavan.
- In interest in kind, if the thing is not available, monetary value of the interest shall be paid.
- Unconscionable interest – too high

iii. What is not considered as interest

Cases:
1. Increase in the price when sale is on installment
2. Attorney’s fees
3. Penalty for breach

Sentinel Insurance Co. vs CA

“To pay interest on principal obligation of 14% p.a. @ rate of 2% every 45 days,” not intended by court as interest but as damage dues and therefore,
cannot be considered usurious.

E. Bank deposits

- Are not deposits in the legal sense of the word

- They are also called irregular deposits
- Are simple loans and governed by the law on mutuum
- Thus, liability is only civil in nature

Cases:
1. Nature of bank deposits

Gopoco Grocery vs Pacific Coast Biscuit

 Current & savings accounts have lost their character of being deposits and are now convertible to “simple commercial loans” because banks have
already made use of the money in the ordinary course of its business. It is proper that set-offs be made as the bank and the appellants are reciprocally
debtors and creditors of each other.

Central Bank of the Phils. vs Morfe

Assets of an insolvent bank are held in trust for the equal benefit of all its creditors. All depositors and creditors should file their claims in the
liquidation court, not secure final judgments. The effect of judgment obtained by the depositor-creditor, if any, is to fix the amount of debt. He cannot
acquire a lien which will give him preference over other creditors.

Serrano vs. central Bank of the Philippines

Bank deposits are in the nature of irregular deposits. They are really loans because they earn interest. All kinds of bank deposits, whether fixed,
savings, or current are to be treated as loans and are to be covered by the law on loans. 14 Current and savings deposit are loans to a bank because it
can use the same. The petitioner here in making time deposits that earn interests with respondent Overseas Bank of Manila was in reality a creditor of
the respondent Bank and not a depositor. The respondent Bank was in turn a debtor of petitioner. Failure of he respondent Bank to honor the time
deposit is failure to pay s obligation as a debtor and not a breach of trust arising from depositary's failure to return the subject matter of the deposit

2. Liability for failure to return savings deposit

Guingona vs City Fiscal of Manila

Promissory notes, banker’s acceptances, certificates of time deposits, savings accounts are simple loans. Liability pertaining to them are purely civil
since they partake a debtor- creditor relationship. Ownership is transferred to the bank, hence there can be no estafa through misappropriation.
Failure to return amount is only failure of a debtor to pay obligation.

3. Bank as proper party in complaint for qualified theft

People vs. Puig

Bank can sue for qualified theft. It becomes the owner of the amounts deposited to it.

DEPOSIT

Title XII. - DEPOSIT

CHAPTER 1
DEPOSIT IN GENERAL AND ITS DIFFERENT KINDS

Art. 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the
same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract.

Art. 1963. An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing.

Art. 1964. A deposit may be constituted judicially or extrajudicially.

Art. 1965. A deposit is a gratuitous contract, except when there is an agreement to the contrary, or unless the depositary is engaged in the business of storing
goods. (Warehouse – warehouseman – warehouse receipt)

Art. 1966. Only movable things may be the object of a deposit.

Art. 1967. An extrajudicial deposit is either voluntary or necessary.

I. Concept

Deposit – a contract whereby a person (depositor) delivers a movable property to another person (depositary) exclusively for safe keeping and with the
obligation of returning the same upon demand.

II. Characteristics (as a contract)

A. Real contract – perfected by delivery of the subject matter

B. Naturally or generally gratuitous – no consideration; deposit presumed to be gratuitous; unless there is an agreement to the contrary or unless the
depositary is engaged in the business of storing goods
C. Purpose is primarily for custody

Cases:
a. Effect if balance of commission retained by agent

US vs Igpuara
In loan, ownership and use is transferred but in deposit only possession is transferred for safekeeping. If it be used, the consent of the depositor must
be acquired. A person who uses the deposit without such consent may be charged with estafa if it be proven that he was not able to return the thing
deposited and he misappropriated
 b. Effect if foreign currency deposited is sold by the bank

BPI vs IAC
The mere keeping of foreign exchange, without selling them to Central Bank within 1 business day from receipt is a transaction which not authorized
by CB Circular No. 20 which makes it a prohibited transaction. When the nullity proceeds from the illegality of the cause/object, both parties are in pari
delicto and will have no cause of action against each other.

c. Nature of rental of safety deposit box

CA Agro-Industrial Dev.’t Corp. vs CA

Rental of a safety deposit box is not purely deposit and not purely lease but a special kind of deposit. Normally, banks can be held liable as a
depositary even if with stipulations to the contrary but this case is an exception since bank was not aware of the agreement between the plaintiffs as
to the keys and the agreement of the intended sale to Ramos.

D. Either unilateral or bilateral – when the deposit is gratuitous, it is a unilateral contract because only the depositary has an obligation. But when the
deposit is for compensation, the juridical relation created becomes bilateral because it gives rise to obligations on the part of both the depositary and
the depositor.

E. Non-use by depositary of the thing deposited

- He can’t make use of the thing unless there is a stipulation or when the preservation of the thing deposited requires its use, it must be used but only
for that purpose but main purpose should be for safekeeping only. Of course, if safekeeping is not the principal purpose, there is no deposit but some
other contract, like one of lease or commodatum.
- Example for “its use is to preserve the thing”: car – engine must be turned on in order to preserve it

Case:
a. Effect of agreement to extend payment of money deposited and to pay interest –

Javellana vs Lim

F. Only movables can be object thereof

- Can intangibles (shares of stock) be the object of a deposit? No, but evidence (the paper) of shares of stock may be the subject of deposit
III. Kinds

A. a) Extrajudicial – maybe voluntary (constituted by consent or mutual consent of the parties); or necessary (constituted in compliance with a legal
obligation or on the occasion of a calamity or made by travelers in inns, hotels or made by travelers with common carriers)
b) Judicial (sequestration) – when an attachment or seizure of property in litigation is ordered

B. a) Regular – can’t use the thing

b) Irregular – may use the thing deposited, such as bank deposits

4.) Difference between deposit and sale/barter

o Effect: Deposit, ownership is not transferred; sale/barter, ownership is transferred upon delivery
o Consideration: Deposit is naturally gratuitous; sale/barter is always onerous
o Deposit, real contract; sale/barter, consensual contract

5.) Difference between deposit and commodatum

o Purpose: Deposit is for safekeeping or mere custody; commodatum is to use
o Consideration: Deposit may be gratuitous; commodatum is essentially and always gratuitous

6.) Difference between deposit and mutuum

o Purpose: Deposit is for safekeeping or mere custody; mutuum is the consumption of the subject matter
o Demand: Depositor can demand the return of the subject matter at will; mutuum, lender must wait until the expiration of the period granted
to the debtor
o Object: Deposit must be movable property; mutuum, only money and any other fungible thing

IV. Irregular deposit vs simple loan

Cases:
1. Deposit with interest
2. Extension of time for payment

Javellana vs Lim
Since the debtors asked for the extension of the time for the return of the money, they were therefore, lawfully authorized to make use of the amount
deposited.
 3. Deposit of palay with permission to mill

CHAPTER 2
VOLUNTARY DEPOSIT

SECTION 1. - General Provisions

Art. 1968. A voluntary deposit is that wherein the delivery is made by the will of the depositor. A deposit may also be made by two or more persons each of
whom believes himself entitled to the thing deposited with a third person, who shall deliver it in a proper case to the one to whom it belongs.

Art. 1969. A contract of deposit may be entered into orally or in writing.

Art. 1970. If a person having capacity to contract accepts a deposit made by one who is incapacitated, the former shall be subject to all the obligations of a
depositary, and may be compelled to return the thing by the guardian, or administrator, of the person who made the deposit, or by the latter himself if he
should acquire capacity.

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

I. Voluntary deposit
A. Kinds

1. Where the depositor has complete freedom in choosing the depositary

2. Where two or more persons each claiming to be entitled to a thing may deposit the same with a third person. In such case, the third person
assumes the obligation to deliver to the one to whom it belongs.

- The action to compel the depositors to settle their conflicting claims among themselves would be in the nature of an interpleader. Here, one of the
depositors is not the owner.

B. Requisites

a. Capacity of the parties – depositor need not be the owner of the thing
 - Where depositary capacitated and depositor incapacitated: If the depositary is capacitated, he is subject to all the obligations of a depositary whether
or not the depositor is capacitated. In the latter case, the depositary must return the property to the legal representatives of the incapacitated or to
the depositor himself if he should acquire capacity.

Example: A accepted a deposit from B, an insane individual. As long as B is insane, he cannot by himself compel the return of the thing. He must act
through his guardian or administrator. Should B be of sound mind again, he can by himself compel the return of what has been deposited.

- Under the law, persons who are capable cannot allege the incapacity of those with whom they contract.
- Return of the depositary extinguishes the obligation under oblicon
- Where depositary incapacitated and depositor capacitated: The incapacitated depositary does not incur the obligation of a depositary. However, he is
liable (1) to return the thing deposited while still in his possession and (2) to pay the depositor the amount by which he may have benefited himself
with the thing or its price subject to the right of any third person who acquired the thing in good faith

Example: A deposited a watch with B, a minor who sold it to C. If C acted in bad faith, A may recover the watch from him. But if C acted in good faith,
A’s only recourse is against B to compel him to return the price received for the watch or the amount by which he may have benefited himself.

b. Object – not intangibles and immovable but only movable or corporeal

c. Formalities – no form required because it is a real contract

SECTION 2. - Obligations of the Depositary

Art. 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person
who may have been designated in the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the provisions
of Title I of this Book.

If the deposit is gratuitous, this fact shall be taken into account in determining the degree of care that the depositary must observe.

Art. 1973. Unless there is a stipulation to the contrary, the depositary cannot deposit the thing with a third person. If deposit with a third person is allowed, the
depositary is liable for the loss if he deposited the thing with a person who is manifestly careless or unfit. The depositary is responsible for the negligence of his
employees.

Art. 1974. The depositary may change the way of the deposit if under the circumstances he may reasonably presume that the depositor would consent to the
change if he knew of the facts of the situation. However, before the depositary may make such change, he shall notify the depositor thereof and wait for his
decision, unless delay would cause danger.
Art. 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due,
and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law.

The above provision shall not apply to contracts for the rent of safety deposit boxes.

Art. 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain or other articles of the same kind and quality, in which case the
various depositors shall own or have a proportionate interest in the mass.

Art. 1977. The depositary cannot make use of the thing deposited without the express permission of the depositor.

Otherwise, he shall be liable for damages.

However, when the preservation of the thing deposited requires its use, it must be used but only for that purpose.

Art. 1978. When the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum,
except where safekeeping is still the principal purpose of the contract.

The permission shall not be presumed, and its existence must be proved.

Art. 1979. The depositary is liable for the loss of the thing through a fortuitous event:

(1) If it is so stipulated;

(2) If he uses the thing without the depositor's permission;

(3) If he delays its return;

(4) If he allows others to use it, even though he himself may have been authorized to use the same.

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan.

Art. 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages
should the seal or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there is proof to the contrary.
As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should
there be no proof to the contrary. However, the courts may pass upon the credibility of the depositor with respect to the value claimed by him.

When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit.

Art. 1982. When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him;
or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle.

Art. 1983. The thing deposited shall be returned with all its products, accessories and accessions.

Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary.

Art. 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited.

Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit.

If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the
thing deposited to the depositor.

If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same.

Art. 1985. When there are two or more depositors, if they are not solidary, and the thing admits of division, each one cannot demand more than his share.

When there is solidarity or the thing does not admit of division, the provisions of Articles 1212 and 1214 shall govern. However, if there is a stipulation that the
thing should be returned to one of the depositors, the depositary shall return it only to the person designated.

Art. 1986. If the depositor should lose his capacity to contract after having made the deposit, the thing cannot be returned except to the persons who may have
the administration of his property and rights.

Art. 1987. If at the time the deposit was made a place was designated for the return of the thing, the depositary must take the thing deposited to such place;
but the expenses for transportation shall be borne by the depositor.

If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not be the same place where the deposit
was made, provided that there was no malice on the part of the depositary.
Art. 1988. The thing deposited must be returned to the depositor upon demand, even though a specified period or time for such return may have been fixed.

This provision shall not apply when the thing is judicially attached while in the depositary's possession, or should he have been notified of the opposition of a
third person to the return or the removal of the thing deposited. In these cases, the depositary must immediately inform the depositor of the attachment or
opposition.

Art. 1989. Unless the deposit is for a valuable consideration, the depositary who may have justifiable reasons for not keeping the thing deposited may, even
before the time designated, return it to the depositor; and if the latter should refuse to receive it, the depositary may secure its consignation from the court.

Art. 1990. If the depositary by force majeure or government order loses the thing and receives money or another thing in its place, he shall deliver the sum or
other thing to the depositor.

Art. 1991. The depositor's heir who in good faith may have sold the thing which he did not know was deposited, shall only be bound to return the price he may
have received or to assign his right of action against the buyer in case the price has not been paid him.

I. Rights and obligations of the parties

A. Obligations of the depositary

a. To preserve the thing

1. Agreement that the depositary may use the thing deposited: May agree that the depositary may use the thing deposited for purposes of
preservation; and if depositary uses the thing not for preservation purposes, he may be liable for damages

2. Delegation of custody: Can’t delegate custody, if delegate – then liable

Exception: If with consent or permission of the depositor – not liable
Exception to the exception: If 3rd person to whom custody is delegated is manifestly careless, negligent or unfit – liable
Exception to the exception to the exception: If such third person is chosen or nominated by the depositor – not liable

3. Change of the manner of deposit: Can’t change the manner of deposit unless there are circumstances that he may reasonably presume that
the depositor would consent to the change if he knew of the facts of the situation. However, before the depositary may make such change, he
shall notify the depositor thereof and wait for his decision, unless delay would cause danger.
 4. Preservation of the value: The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect
the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the
rights corresponding to them according to law.

Such rule shall not apply to contracts for the rent of safety deposit boxes.

* Pawn ticket – duty is to renew

5. Secrecy of deposit: When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he
shall be liable for damages should the seal or lock be broken through his fault.

Fault on the part of the depositary is presumed, unless there is proof to the contrary.

As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the
depositary, should there be no proof to the contrary. However, the courts may pass upon the credibility of the depositor with respect to the
value claimed by him.

When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit.

b. To return the thing

1. To whom?

- Depositor, or to his heirs and successors or third person designated in the contract
- If depositor was incapacitated at the time of making the deposit, to his guardian or administrator or the person who made the deposit or to the
depositor himself should he acquire capacity
- If depositor subsequently loses capacity– persons who may have the administration of his property and rights or legal representative.
- If the thing belongs to a third person, depositary knows but does not know owner, depositary cant compel depositor to prove his ownership of the
thing
- However, if stolen and depositary knows the owner – depositary can refuse to return the thing and notify the owner and give him 30 days to claim, if
owner doesn’t claim, then he may return the deposit to the depositor
- Thing deposited divisible and depositors not solidary – each one can demand only his share proportionate thereto
- Obligation solidary or thing deposited not divisible – obligation is solidary, depositary can return the thing deposited to any of the depositors, if the
thing is not divisible, the rules on active solidarity shall apply, to the effect that each one of the solidary depositors may do whatever may be useful to
 the others butvnot anything which may be prejudicial to the latter, and the depositary may return the thing to any one of the solidary depositors
unless a demand, judicial or extrajudicial, for its return has been made by one of them in which case delivery should be made to him
- Return to one of depositors stipulated – return only to the person designated

2. What is to be returned?

i. If money – numerical value of the money

Instances to pay interest:

1.) guilty of default

2.) use w/o permission
ii. If specific thing – the thing itself and its products, accessions and accessories. Thus, the young of an animal which was deposited
shall be returned to the depositor.

- If replacement is given, replacement must be delivered to the depositor

- Proceeds in expropriation must be given to the depositor
- The depositor's heir who in good faith may have sold the thing which he did not know was deposited, shall only be bound to return the price he may
have received or to assign his right of action against the buyer in case the price has not been paid him.
iii. If generic thing – depositary can commingle funds of depositor; Unless there is a stipulation to the contrary, the depositary may
commingle grain or other articles of the same kind and quality, in which case the various depositors shall own or have a
proportionate interest in the mass; co-owner is interested only to the extent of the amount deposited

Case: Commingling of funds

Roman Catholic Bishop of Jaro vs De la Pena

Fr. De la Pena is exempt from liability even with the placing of the trust money in the bank and the mixing of it with his personal funds since the money
was forcibly taken from the bank by armed forces of US military during war/insurrection.

3. Form or manner of return

- If sealed and locked – return sealed and locked; presumed open

- Basis for determining value – statement of the depositor
- When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him;
or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle.
 4. Place or return

- Place stipulated, if none, place where the thing is at the time it is claimed
- If at the time the deposit was made a place was designated for the return of the thing, the depositary must take the thing deposited to such place; but
the expenses for transportation shall be borne by the depositor.

If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not be the same place where the deposit
was made, provided that there was no malice on the part of the depositary.

5. Time of return

Case: Obligation for money taken by force majeure – Roman Catholic Bishop of Jaro vs De la Pena

- At any time claimed by depositor even if there is stipulation , unless when the deposit is judicially attached while in the depositary’s possession or
should the depositary have been notified of the opposition of a third person to the return or the removal of the thing deposited
- As a rule, the depositor can demand the return of the thing deposited at will and this is true whether a period has been stipulated or not. In a deposit,
whenever a period is agreed to, the same is for the benefit of the depositor, but may be validly waived by him. But the period is generally binding upon
the depositary.
- If the deposit is for compensation, depositary still cant refuse to return, but he is entitled to the compensation corresponding to the entire period.
- Deposit gratuitous – the depositary may likewise return the thing deposited nothwithstanding that a period has been fixed for the deposit if (a) the
deposit is gratuitous and (b) justifiable reasons (e.g. necessity of his going abroad) exist for its return. In case the depositor refuses to receive the thing,
the depositary may deposit the thing at the disposal of judicial authority.
- Deposit for a valuable consideration – depositary has no right to return the thing deposited before the expiration of the time designated even if he
should suffer inconvenience as a consequence. He is bound by the period and restitution before its expiration constitutes a breach of his obligation.

6. Set-off

- Bank deposits can be set-off with the obligation of the depositor to the bank
o A (depositor) – B (bank): A deposited 100,000 to the bank and A also loaned 100,000 to the bank. In effect, there are 2 contracts of loan.
- Bank cannot demand payment of the loan until maturity
- This is legal compensation – by operation of law even without the parties knowing it; no need of consent by the depositor

Cases: Right of bank to apply a deposit to the debt of a depositor

 Gullas vs PNB
No legal (automatic) compensation should be made between money and treasury warrant which is a form of negotiable instrument since the latter
requires a notice of dishonor if not accepted. The premature action of the bank was prejudicial to Gullas.

Associated Bank (Now Westmont Bank) vs Tan

The bank’s right to debit the account of the client for a check deposit dishonored by the drawee bank should be done with highest degree of care. The
bank’s act of premature authorization of the withdrawal, by way of accommodation, resulted in the falling of the account balance to insufficient levels
and the subsequent dishonor of the checks of the client.

7. Bank’s failure to return amount

- Liability of bank and its employees is only civil in nature; money is not misappropriated since nature of bank deposits is a contract of loan

Case: Liability for failure to return bank deposit – Guingona vs City Fiscal of Manila

8. When bank officials may be guilty of estafa

- Ledger: not credited the exact amount – misappropriated the money – bank officer liable for estafa

Case: Guingona vs City Fiscal of Manila

9. Earnest money

- Money given to the seller as part of the purchase price

- Manifestation to buy
- Seller is obliged to return the earnest money of sale to the buyer if sale did not materialize on account of the seller; in this case, seller would only
become a depositary

Case: Obligation if sale did not materialize

Compania Maritima vs CA
The buyer may still recover the earnest money as this downpayment merely becomes a deposit which must be returned by the government-seller.

SECTION 3. - Obligations of the Depositor

Art. 1992. If the deposit is gratuitous, the depositor is obliged to reimburse the depositary for the expenses he may have incurred for the preservation of the
thing deposited.

Art. 1993. The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited, unless at the time of the constitution of
the deposit the former was not aware of, or was not expected to know the dangerous character of the thing, or unless he notified the depositary of the same,
or the latter was aware of it without advice from the depositor.

Art. 1994. The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit.

Art. 1995. A deposit its extinguished:

(1) Upon the loss or destruction of the thing deposited;

(2) In case of a gratuitous deposit, upon the death of either the depositor or the depositary.

I. Rights and obligations of the parties

A. Obligations of the depositor

- If the deposit is gratuitous, no obligation to pay compensation

- If engaged in the business of storing goods or if there is stipulation to pay compensation – onerous; to pay compensation
- No expenses for the use – because depositary is not allowed to use
- Gratuitous contracts – depositor liable for preservation of the deposit, whether necessary or extraordinary
- Onerous – depositary liable for preservation because deemed included in the compensation
- Depositor may indemnify the depositary damages for any loss arising from the character of the thing deposited, unless at the time of the constitution
of the deposit the former was not aware of, or was not expected to know the dangerous character of the thing, or unless he notified the depositary of
the same, or the latter was aware of it without advice from the depositor.

B. Security of the depositary

- Depositary has claims against the depositor arising out of the deposit for:
o Compensation not paid
o For expenses of preservation not reimbursed
o For damages not indemnified
 - Depositary has a right to retain or exercise possessory lien until he is paid of the above cases, unless agreed upon for conventional compensation;
however, such right is lost if thing is returned but claims are not lost; in this case, there is a pledge created by operation of law
- No right of lien if claim arises from another contract, i.e. Depositor deposits a determinate thing to the bank, then depositor also loaned money worth
100,000 from the bank. In this case, there is a contract of deposit and contract of loan.
- In commodatum, bailee’s only right to retain is claim for damages

II. Termination of the contract

A. Extinguishment

1. General causes

- Loss or destruction
- If depositor claims or demands for the thing
- If depositary renounces the deposit in case he has justifiable reasons or reasonable grounds to believe that the thing was obtained illegally
- Expiration of the term
- Termination of the purpose of the deposit or fulfillment of the resolutory condition
- Mutual withdrawal from the contract
- For gratuitous contracts, death of either party, contract is extinguished
o For onerous contracts, deposit is not extinguished due to death of either parties. Deposit is extinguished only when deposit is terminated by
the heirs of the depositor.

2. Other causes

Art. 1231. Obligations are extinguished:

(1) By payment or performance:

(2) By the loss of the thing due:

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation;
 (6) By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in
this Code.

CHAPTER 3
NECESSARY DEPOSIT

Art. 1996. A deposit is necessary:

(1) When it is made in compliance with a legal obligation;

(2) When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events.

Art. 1997. The deposit referred to in No. 1 of the preceding article shall be governed by the provisions of the law establishing it, and in case of its deficiency, by
the rules on voluntary deposit.

The deposit mentioned in No. 2 of the preceding article shall be regulated by the provisions concerning voluntary deposit and by Article 2168.

Art. 1998. The deposit of effects made by the travellers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible
for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter,
they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects.

Art. 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel.

Art. 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the
servants or employees of the keepers of hotels or inns as well as strangers; but not that which may proceed from any force majeure. The fact that travellers are
constrained to rely on the vigilance of the keeper of the hotels or inns shall be considered in determining the degree of care required of him.

Art. 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible
force.

Art. 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the
character of the things brought into the hotel.
Art. 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or diminished
shall be void.

Art. 2004. The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of lodging, and supplies
usually furnished to hotel guests.

I. Necessary deposit

- Difference between necessary deposit and voluntary deposit

o A voluntary deposit is made by the free will of the depositor. In a necessary deposit, this freedom of choice is absent.

A. Kinds

1. In compliance with legal obligations – governed by the law establishing them and in default thereof, by the rules on voluntary deposit

- The judicial deposit of a thing the possession of which is being disputed in a litigation by 2 or more persons (Art. 538)
- The deposit with a bank or public institution of public bonds or instruments of credit payable to order or bearer given in usufruct when the
usufructuary does not give proper security for their conservation (Art. 586)
- The deposit of a thing pledged when the creditor uses the same without authority of the owner or misuses it in any other way (Art. 2104)
- Those required in suits as provided in the Rules of Court
- Those constituted to guarantee contracts with government.

2. Made on the occasion of any calamity such as fire, storm, food, pillage, shipwreck, or other similar events – regulated by the provisions
concerning voluntary deposit

3. Transients in inns, hotels and motels (motorist hotels) – Not applicable to boarding houses; refers not to boarders; non-transients are
governed by the rules on lease

- There Evident intention to avail of the services of the hotel-----where the obligation of the innkeeper starts.

- Obligations of the transients:

 o To notify the hotel keeper of the goods – doesn’t need to enumerate them
o Take necessary precautions prescribed regarding their safekeeping
- The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel.
- The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any
stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or
diminished shall be void.
- The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible
force – thus, use of force must be by strangers, not by employees, if employees, hotel keeper is liable
- Hotel keeper is liable for the acts of its employees regardless of the manner but not that which may proceed form any force majeure
- When liability commences? From the time the guests manifest their evident intention to avail the accommodations of the hotel
- The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of lodging, and supplies usually
furnished to hotel guests.

4. Passengers with common carriers

- Same rules for transients but such rules is applicable only to hand-carry baggages; ordinary diligence is required
- Provisions on common carrier will apply with respect to those baggages not in personal custody or hand-carry
- The provisions of Articles 1733 to 1753 shall apply to the passenger's baggage which is not in his personal custody or in that of his employee. As to
other baggage, the rules in Articles 1998 and 2000 to 2003 concerning the responsibility of hotel-keepers shall be applicable.
- Contributory negligence if guest negligent in not observing necessary precautions – a situation of constructive or active negligence

Case:
YHT Realty vs. CA
The responsibility of the hotel keeper shall extend to the loss or injury to the property of the guests even if caused by servants, employees, as well as
strangers except as it may proceed from force majeure. In this case, Tropicana Inn was guilty of concurrent negligence due to its employees’ act of allowing
Tan (companion) in opening McLoughin’s safety deposit box.

CHAPTER 4
SEQUESTRATION OR JUDICIAL DEPOSIT

Art. 2005. A judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered.

Art. 2006. Movable as well as immovable property may be the object of sequestration.
Art. 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.

Art. 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.

Art. 2009. As to matters not provided for in this Code, judicial sequestration shall be governed by the Rules of Court.

I. Judicial deposit (sequestration of property in litigation)

- Judicial deposit – takes place when an attachment or seizure of property in litigation is ordered by a court
- Examples:
o Properties attached by the sheriff upon the filing of a complaint
o A receiver (disinterested party) may be appointed by the court to administer and preserve the property in litigation
o In suits of replevin or manual delivery of personal property
o Garnishment
o Levy

A. Special Rule

- The depositary of sequestrated property is the person appointed by the court.

- Obligations:
o Take care of the property with the diligence of a good father of a family
o May not be relieved of his responsibility until the litigation is ended or the court so orders
B. Distinguished from extrajudicial deposit

Judicial Deposit Extrajudicial Deposit

As to source By court order By the will of the parties
As to purpose To secure the owner’s right For safe-keeping
As to object May be real or personal property Personal property
As to cause Remuneratory Generally gratuitous
As to possession For the benefit of the owner For the benefit of the depositor