Credit Transactions

Article 1933 - 1940 ARTICLES 1941-1952

Credit Transactions has two kinds OBLIGATION OF THE BAILEE

Secured - collateral Article 1941 The bailee is obliged to pay for the
ordinary expenses for the use and preservation
Unsecured guaranty and suretyship of the thing loaned.

Principal obligations of bailee (TUPR)

Bailment - bailor is not the owner but has the a. Take good care of thing with diligence of a
possessory interest good father of the family;
b. Use thing loaned for the purpose for which it
Contract of Commodatum was loan and for no other purpose;
c. Pay ordinary expenses for the use and
Owner and Bailor - preservation of the thing and a portion of
extraordinary expense arising from the actual
What may be the object use of the thing
Non consumable - real or personal property d. Return and to not retain the thing loaned
Consumable - used to appropriate for its purpose except under certain circumstances.

Can you withdraw from the contract of * if the bailee breaches any of this obligations, the
commodatum? bailee can be held liable for damages.
- yes if it is not in writing but if it is in writing * The breach of obligation for b & d will make
you can enforce it (statute of frauds), or partial the bailee liable for the loss of the thing, even if
performance. the loss should be through a fortuitous event.

Can a bailee enter into a contract of commodatum Take care of the thing
with a third person? - with the diligence of a good father of a family
- yes if that third person is a member of the - Springs from the fact that the bailee has the
household of the bailee. obligation to return the thing to the bailor.

Bailee can enjoy the fruits of the object if it is Use for specific purpose
stipulated. - the thing loaned must only be used for the
purpose for which it was loaned and for no
Is it necessary other purpose.
- Under the Roman law, if the bailee uses the
thing for a purpose other than agreed upon, the
bailee did not only commit a breach of
contract, he unlawfully appropriated to himself
a specific use of the object lent to him; under
Roman law, such stealing of use satisfied the
requirements for the crime of theft.

Q: Is the bailee liable for the deterioration of

the thing loaned?
- No, if the deterioration of the thing is caused
by the use for specific purpose and without his
fault.
Q: is the bailee liable for the deterioration of Manner of Return
the thing loaned if he devotes it for any other 1. What - must return the same thing borrowed.
purpose? 2. When - must return the thing upon the
- Yes. the bailee is liable for the loss of the thing, expiration of the period stipulated or upon the
even if it should be through fortuitous event. accomplishment of the use for which the
- His liability is compounded as he is liable for commodatum has been constituted.
his fault as well as for any fortuitous event. 1. Thing must be returned when the bailor
demands the return (Art. 1946),
** If absent of any agreement, the thing must precarium (Art. 1947), or in case bailee
be used on the account of the nature of the commits ingratitude (1949)
thing. 3. Where -
1. Mutuum - silent on the place where the
Liability for ordinary expenses payment will be made
2. Agreed place by the parties
- the borrower should cover the expenses for the 3. The place where the thing might be at the
use and preservation of the thing loaned.
moment the obligation is constituted.
- Ex. If M borrows the care of A, the former
must pay for the gasoline, motor oil, washing, Art. 1942 The bailee is liable for the loss of the
greasing and spraying. M cannot demand thing, even if it should be through fortuitous
reimbursement for the expenses. event: (DK-AV-LS)
4. If he Devotes the thing to any purpose
Return of the thing different from that for which it has been
- bailee must return the thing borrowed. loaned;
- Return of the thing borrowed is so fundamental 5. If he Keeps it longer than the period
that the CC definition of commodatum refer to stipulated, or after the accomplishment of
the return of the thing. the use for which the commadatum has
been constituted;
a. Misappropriation - the bailee can be held 6. If the thing loaned has been delivered with
criminally liable if the bailee did not return Appraisal of Value, unless there is a
the thing because he misappropriated it. stipulation exempting the bailee from
a. Ex. Swindling (Estafa) responsibility in case of a fortuitous event;
b. Retention of thing - the bailee did not return - there’s already determination of the
the thing because the bailee want to use it assessed value.
beyond the agreed period. 7. If he Lends or leases the thing to a third
- bailee commits breach of contract and person, who is not a member of his
becomes liable for the loss of the thing even household;
if through fortuitous event. 8. If being able to Save either the thing
- Can be held liable for damages that may be borrowed or his own thing, he chose to
save the latter.
suffered by the bailor as a result of the
failure to return the thing at the appropriated
time.
c. Loss of the thing
- the bailee failed to return the thing because it Risk of loss of thing loaned
was lost. He is not liable if the thing was lost GR: the bailor bears the risk of loss of or damage
without his fault. due to, the thing borrowed as a result to fortuitous
- If the thing was delivered with an appraisal of event.
its value, the bailee is liable even in case of ** bailor retains ownership of the thing loaned.
fortuitous event (unless there is stipulation to
the contrary).
** if the thing was lost due to fortuitous event, the by way of ordinary acquisitive prescription
bailor bears the risk of loss because of the absence of just title.

XPN: Art. 1942; to punish the bailee for his Right to retention for damages
improper act although they may not be the - bailee has the right to retain the thing loaned
proximate cause of the loss. until he is reimbursed for the damages he
Art. 1942 (1) - bailee acts in bad faith suffered.
Art. 1942 (2) - bailee incurs in delay - Jus retinendi that the Civil Code grants the
Art. 1942 (3) - presumed that the parties intended possessor in good faith is not granted to the
that the bailee shall be liable for the loss of the bailee except in the instance stipulated in Art.
thing even if it is due to a fortuitous event for 1951.
otherwise they would not have appraised the
thing. Art. 1945 When there are two or more bailees
Art. 1942 (4) - commodatum is purely personal to whom a thing is loan in the same contract,
Art. 1942 (5) - ingratitude after the thing it they are liable solidarily.
gratuitously loaned to him.
- to safeguard effectively the right of the lender
Art. 1943 The bailee does not answer for the - Exception by express provision of the law to
deterioration of the thing loaned due only to the GR that the concurrence of two or more
the use thereof without his fault. parties in the same obligation gives rise only to
a joint obligation.
Liability for deterioration of thing loaned
1. Due to ordinary wear and tear - in the
absence of agreement to the contrary, the OBLIGATION OF THE BAILOR
depreciation cause by reasonable and natural
use of the thing is borne by the bailor. Art. 1946 The bailor cannot demand the return
2. Due to bailee’s fault or negligence - if bailee of the thing loaned till after the expiration of
is guilty of fraud and negligence or uses the the period stipulated, or after the
thing to any purpose different from that for accomplishment of the use for which the
which it has been loaned. commodatum has been constituted. However,
if in the meantime, he should have urgent need
Art. 1944 The bailee cannot retain the thing of the thing, he may demand its return or
loaned on the ground that the bailor owes him temporary use.
something, even though it may be by reason of
expenses. However, the bailee has a right of In case of temporary use by the bailor, the
retention for damages mentioned in Art. 1951. contract of commodatum is suspended while
the thing is in the possession of the bailor.
Obligation to return the thing loaned
1. Ownership remains in bailor - acquires only
the use of the thing. Duration of loan
2. Only temporary use given to bailee - violating - contract of commodatum has a term equivalent
bailor’s trust. to the period stipulated or the period necessary
for the accomplishment of the use for which
… Adverse Possession the commodatum has been constituted.
1. Mere failure of the bailee to return the subject - If no stipulation on the duration of use of the
matter of the commodatum to the bailor does thing loaned, it is a precarium and the bailor
not constitute adverse possession on the part may demand the thing at any time.
of the bailee who holds the same in trust.
2. Declared the lots in question in its name for Obligation to respect duration of loan
taxation purposes. Could not ripen into title
- bailor must allow the bailee to use the thing himself, his wife or children under his
loaned for the stipulated period or until authority; and
accomplishment of the purpose. 3. Bailee unduly refuses the bailor support when
- The bailor is bound by the terms of the contract the bailee is legally or morally bound to give
of commodatum which is for a certain time. support to the bailor.
- Necessary consequence of the contract of ** bailee makes himself unworthy of the trust
commodatum.
reposed upon him by the bailor.**
Return or temporary use
Contractual relation: ordinary commodatum
- due to urgent need or ingratitude act of bailee,
bailor may demand its return or temporary use Art. 1949 The bailor shall refund the
- Commodatum is essentially gratuitous extraordinary expenses during the contract for
- Permanent = its return preservation of the thing loaned, provided the
- Temporary use - right and duties of the parties bailee brings the same to the knowledge of the
are suspended. bailor before incurring them, except when they
are so urgent that the reply to the notification
Art. 1947 The bailor may demand the thing at cannot be awaited without danger.
will and the contractual relation is called a
precarium, in the following cases: If the extraordinary expenses arises on the
3. If neither the duration of the contract nor occasion of the actual use of the thing by the
the use to which the thing loaned should be bailee, even though he acted without fault, they
devoted has been stipulated; or shall be borne equally by both the bailor and
4. If the use of the thing is merely tolerated bailee, unless there is stipulated to the
by the owner. contrary.

Precarium - a kind of commodatum where the - Extraordinary Expenses is solely for

bailor may demand the thing at will. preservation
- contract by which the owner of a thing, at the - One instance when the bailee can fully
request of another person, gives the latter the refund the extraordinary expenses to the
thing for use as long as the owner shall please. bailor, if he notifies the owner.
- Grantor gives the right to use a thing and may
revoke the right given at his or her discretion. Obligations of the bailor
1. Obligation to refund extraordinary expenses
Art 1948 The bailor may demand immediate for the preservation of the thing loaned; and
return of the thing if the bailee commits any 2. The obligation to pay damages for known
act of ingratitude specified in Art. 765. hidden flaws.
**accidental - as these obligations may not rise
Right of bailor to demand return of the thing
for acts of ingratitude Obligation to refund extraordinary expenses
Art 765 1. For the preservation of the thing loaned - it is
1. If the bailee should commit some offenses the bailor who profits by said expenses.
against the person, the honor or the property 1. Bailor must refund bailee of the expenses
of the bailor or of his wife or children under as long as it is brought to the knowledge
his parental authority; of the bailor before incurring them
2. Imputes any criminal offense against bailor, 2. Notice is requires because it is possible
or any act involving moral turpitude, even that the bailor may not want to incur
though he should prove it, unless the crime of extraordinary expenses. XPN: when they
the act has been committed against the bailee are urgent and the reply to the notification
cannot be awaited without danger.
 3. Reimbursement is subject to the provision
of second paragraph **bailor is liable for his bad faith.
2. Arising from actual use of the thing loaned - **bailee may retain the thing until he is paid
1. Ex. Expenses for repairing a borrowed damages.
jeep damaged in a collision. (Expenses
shall be borne by the bailor and bailee) When flaw unknown to bailor
2. By stipulation - provide for a different - bailor is not liable because commodatum is
apportionment of such expenses, or that gratuitous
they shall be borne by the bailee or bailor - Rule is different in sale and lease for in these
only. contracts, valuable consideration is received by
vendor and the lessor.
Art. 1950 if, for the purpose of making use of
the thing, the bailee incurs expenses other than Art. 1952 The bailor cannot exempt himself
those referred to in articles 1941 and 1949, he from the payment of expenses or damages by
not entitled to reimbursement. abandoning the thing to the bailee.
All expenses incurred other than stipulated in No right of abandonment for expenses and
1941 and 1949, bailee should shoulder them. damages
- it is not necessary for the preservation of thing. - the expenses and/or damages may exceed the
- Ordinary expenses incurred for the value of the thing loaned, and it would,
preservation of the thing are also for the therefore, be unfair to allow the bailor to just
account of the bailee. abandon the thing instead of paying for said
expenses and/or damages.
Summary of rules on expenses
a. Ordinary expense for the use of the thing - LECTURE 2-17-22
bailee Contract of commadatum
b. Ordinary expenses for the preservation of the Regular 1946 - if stipulation is given unless of
thing - bailee urgent need, etc., permanent or suspended
c. Extraordinary expenses for the preservation Precarium - demand for its return at will
of the thing - bailor
d. Extraordinary expenses arising from the Can the bailor demand if not in writing - can
actual use of the thing - equally by bailor demand in return crucial is delivery
and bailee
e. Other expenses for the use of the thing - Acts of ingratitude
bailee - immediate return
Art. 1951 The bailor, who, knowing the flaws
- some acts against the bailor, mere
commission of the offense. bailee commits
of the thing loaned does not advise the bailee of
offense against bailor, wife, children under
the same, shall be liable to the latter for the
parental authority.
damages which he may suffer by reason
thereof. - If the bailee imputes criminal offense, kahit
walang commission, inaaccuse lang ni bailee.
Liability to pay damages for known hidden flaws If imputed and later on proven not material
- Morally or legally bound to support.
1. There is flaw or defect in the thing loaned;
2. The flaw or defect is hidden; - You may demand immediate return. It is the
3. The bailor is aware thereof; bailor who determines whether the bailee
4. He does not advise the bailee of the same; and committed an ingratitude act.
5. The bailee suffers damages by reason of said - No obligation on the part of bailor to prove it
flaw or defect. the ingratitude act.
- No need to file complaint for ground 1 and 2 condition that the same amount of the same
- kind and quality shall be paid.
- Return of the equivalent only and not be
Expenses identical
Bailee shoulders the ostentation expenses. - Loan without interest
- Simple loan in CC - to cover loans with and
Mutuum without stipulations to pay interest.
bailee receives money or fungible thing,
obligation of bailee is to pay or any other thing Characteristics of Mutuum Contract
of the same thing. 1. Real contract - with respect to perfection, the
delivery of the thing loaned is necessary for
Fungible or non-fungible - always consumable the perfection of the contract;
2. Unilateral - with respect to persons obliged,
Fungible - you can use it by number weight once delivered it creates obligations on the
measure, always consumable part of only one of the parties (i.e. borrower)
3. Nomenclature - it has given a specific name
Non-fungible - consumable and used for by the Civil Code
exhibition, and intention. Never for 4. Principal Contract - with respect to
consumption. dependency on another contract, its existence
is not dependent on another contract
Contract of Mutuum - contract of consumption. 5. Informal contract - with respect to form, no
particular form is generally required; it is
Object - money delivery that perfects the contract;
If object is fungible the bailee will consume it. 6. Gratuitous Contract - with respect to cause,
there is no stipulation to pay interest, or an
inflation or deflation, currency stipulated, legal onerous contract, if there is stipulation to pay
tender. interest

Delivered fungible - 10 cavans of rice, obligation Essential Requisites of a Contract

of bailee, same cavans of rice of the same kind 1. Consent
and quality. 2. Object
- if not available, pay in money at the time of 3. Cause
perfection.
Mutuum is gratuitous and it will be onerous if **since it is real contract, delivery is also an
you pay interest essential requisite of the contract so that the
borrower may be able to consume the thing.
Ex. Delivery of crossed check payable to third
SIMPLE LOAN OR MUTUUM party.

Art. 1953 A person who receives a loan of Consent of the Contracting Parties
money or any other fungible thing acquires the - manifested by the meeting of the offer and
ownership thereof, and is bound to pay to the acceptance upon the thing and the cause which
creditor an equal amount of the same kind and are to constitute the contract.
quality. - must be given by parties who have capacity to
give consent (Art. 37, 38, 39, 46).
Simple loan or mutuum
- one of the parties delivers money or other Object of the contract
consumable thing to another who acquires - object is money and any other consumable
ownership thereof with the understanding or on thing.
- It may also cover fungible thing.
- If object is non-fungible thing and the borrower GR: borrower must generally pay the same
has the obligation to give things of the same amount of the principal loaned.
kind, quantity, and quality, the contract is XPN: amount payable may change when there is
barter. extraordinary inflation or deflation of the
- object must be within the commerce of men. currency stipulated.
- Must be determinate and not impossible; issues - in case of fungible thing, the borrower must
will arise only after delivery. pay the creditor another thing of the same kind,
quality, and quantity.
- In case it’s impossible to deliver the same kind,
Cause of the contract its value at the time of the perfect of the loan
- mutuum may be gratuitous shall be paid.
- In contract of pure beneficence, the cause is the When - if parties agreed on a period, the thing
mere liberality of the benefactor
must be returned upon the end of the period.
- Mutuum may also be onerous, if there is a - borrower may lose the right to use the period in
stipulation to pay interest
the instances in Art 1198 (insolvency, failure to
- GR: it is a gratuitous contract. No obligation to furnish securities or impairment of securities)
pay interest unless express stipulated in - If no agreement on period, Art 1197 will apply;
writing.
the court may fix a period.
- Contract with more than Php500 involved, it
must appear in writing. (For the convenience of Question: can the creditor demand payment or
the parties and would not affect the validity of can the borrower make payment prior to the
the contract) maturity date?
- An agent needs a SPA from his principal to Ans: Principle in Articles 1196 and 1197 shall
loan or borrow money, unless the latter act be apply. If the loan is gratuitous, the borrower may
urgent and indispensable for the preservation of pay before the maturity date.
the things which are under administration. GR: the creditor does not suffer prejudice with
the return of the money prior to maturity date.
Obligation of the borrower
f) pay to the lender an equal amount of the same Ans: if the loan is with interest, the period
kind and quality established for the benefit of both the creditor and
g) pay interest if expressly stipulated in writing borrower. The creditor placed his capital in the
hope of obtaining income.
Obligation of borrower is to pay - creditor cannot demand payment and the
- the consumption of the thing loaned is the borrower cannot pay prior to maturity date.
distinguishing character of the contract of
mutuum from that of commodatum. Where - CC is silent on the place where payment
- The obligation to pay may include the will be made.
accessory duty to pay interest. - if the parties had an agreement, then payment
must be made in the stipulated place.
What - payment should be made in the currency - If no agreement, the place of payment will be
stipulated. the domicile of the debtor.
- if silent, the payment must be made in the
currency in which the money was delivered, ** 2Par of Art 1251 does not apply since there is
based on the principle that the borrower must no undertaking to deliver a determinate thing, the
pay the same amount of the same kind and debtor is obligated to deliver a generic thing.
quality.
- If not possible, must be made in the currency No criminal liability for failure to pay
which is legal tender in the Philippines.
- the borrower acquires ownership of the money, confidence in the handling of money or goods
goods, or personal property borrowed. to the prejudice of another regardless of
- Being the owner, the borrower can dispose of whether the latter is the owner.
the thing borrowed and his act will not be - The practice of banks of making borrowers
considered misappropriation. sign trust receipts to facilitate collection of
- No estafa is committed by a person who loans place them under the threats of criminal
refuses to pay his debt or denies its existence. prosecution should they be unable to pay it
may be unjust and inequitable, if not
reprehensible.

Meaning of fungible things

Simple loan distinguish from contract of rent Fungible things - things which are usually dealt
with by number, weight, or measure such as rice,
Simple Loan oil, sugar, etc. so that any given unit or portion is
Signifies the delivery of money or some other treated as the equivalent of any other unit or
consumable thing to another with a promise to repay an portion.
equivalent amount of the same kind and quality.
Ex. Standing crops given as security for a loan of
money were destroyed due to a fortuitous event.
Ans: No, obligation is not extinguished. The
obligation is to pay a generic thing, the amount of
money representing the loan with interest.

Distinction between fungible and consumable

thing
Consumable Thing Fungible
Obligation: obligor and obligee Depends on the nature of the thing Depends upo

Creditor receives payment for his loan

Ex. Wine is consumable by nature, it is non-

fungible if the intention is merely for display or
exhibition, because the wine must be returned.
Simple loan distinguished from trust receipt
Art. 1954 A contract whereby one person
Trust Receipts - refer to a written or printed transfers the ownership of non-fungible things
document signed by the entrustee in favor of to another with the obligation on the party of
entruster containing terms and conditions the latter to give things of the same kind,
substantially complying with the provisions of the quantity, and quality shall be considered
decree. barter.
- a document in which is expressed a security
transaction, whereunder the lender, having no Mutuum and commodatum distinguished from
prior title in the goods on which the lien is to barter
be given, and not having possession which By the contract of barter or exchange, one of the
remains in the borrower, the borrower is parties binds himself to give one thing in
privileged to sell clear of the lien on agreement consideration of the other’s promise to give
to pay or part of the proceeds of the sale to the another thing.
lender.
- It does not seek to enforce payment of the loan, 4. Distinction between mutuum and barter lies in
rather it punishes the dishonesty and abuse of the subject matter.
 1. Mutuum - money or any other fungible
things
2. Barter - non-fungible things

Art. 1956 No interest shall be due unless it has

5. In commodatum been expressly stipulated in writing.
1. Commodatum- bailee is bound to return
the identical thing borrowed when the Requisites for recovery of interest
time has expired or the purpose has been
served. 9. Payment of interest must be expressly
2. Barter - the equivalent thing is given in stipulated;
return for what has been received. 10. The agreement must be in writing;
6. Mutuum may be gratuitous, Commodatum is 11. The interest must be lawful.
always gratuitous, and Barter is an onerous
contract. In the absence of stipulated interest, there can be
legal interest pursuant to Art 2209.
Art. 1955 The obligation of a person who
borrows money shall be governed by the ** interest may be paid either as compensation for
provisions of Articles 1249 and 1250 of this the use of money or imposed by law or by courts
Code. as penalty or indemnity for damages.

If what was loaned is a fungible thing other ** unilateral imposition of interest do not suffice
than money, the debtor owns another thing of as proof of agreement to pay interest.
the same kind, quantity and quality, even if it
should change in value. In case it is impossible Existence of stipulation to pay interest
to deliver the same kind its value at the time of 12. If a particular rate of interest has been
the perfection of the loan shall be paid. expressly stipulated by the parties, that
interest, not the legal rate interest, shall be
applied.
Form of payment 13. If the exact rate of the interest is not
7. Loan of Money mentioned, the legal rate of 12% shall be
1. Payment must be made in the currency payable.
stipulated, if it is possible to deliver such 14. No increase in interest shall be due unless
currency; otherwise, it is payable in the such increase has also been expressly
currency which is a legal tender in the stipulated.
Philippines. 15. Sales invoices or slips issued by a store to its
2. In case of extraordinary inflation or customers stating interests and attorney’s fees
deflation, the basis of payment shall be of in the usual printed forms as terms and
value of the currency at the time of the conditions, without the signature of the
creation of the obligation. obligor, do not constitute the express
stipulation required by Art 1956.
** Check is not a legal tender, therefore, cannot 16. It is only in contracts of loan, with or without
constitute valid tender of payment. security, that interest may be stipulated and
demanded.
8. Loan of Fungible Thing 17. The receipt by the creditor or interest
1. The borrower is under obligation to pay payment up to a certain date on a loan has
the lender another thing of the same kind, already matured, does not ipso facto result in
quality, and quantity. In case it is the renewal or extension of maturity period of
impossible to do so, the borrower shall the loan up to said date.
pay its value at the time of the perfection 18. Vendor and vendee are legally free to
of the loan. stipulate for the payment of either the cash
 price of a subdivision lot or its installment Money Interest - compensation for the use of
price. money

Liability for interest even in the absence of Legal Interest - that which the law directs to be
stipulation charged absent any agreement as to the rate
19. Indemnity for damages - debtor in delay is between the parties.
liable to pay legal interest (6%/12) as
indemnity for damages even in the absence of Lawful Interest - that which the law allows or
stipulation for the payment of interest. does not prohibit, that is, the rate of interest
1. Under Art 2209 appropriate measure for within the maximum prescribed by law.
damages in case of delay in discharging
an obligation consisting of the payment of Liability for surcharges and penalties
a sum of money, is the payment of Surcharges and penalties agreed to be paid by the
penalty interest at the rate agreed upon. debtor in case of default partake the nature of
1. In the absence of stipulation of a liquidated damages.
particular rate of penalty interest, then - Liquidated damages, whether intended as an
the payment of additional interest at a indemnity or penalty, shall be equitably
rate equal to regular monetary reduced if they are iniquitous and
interest, and if no regular interest, the unconscionable.
payment of legal interest which is
6%pa or 12%pa for loans of Interest separate and distinct from surcharges
forbearances of money. and penalties
2. Central Bank Cir. No. 416 - legal rate - penalty stipulation is not necessarily preclusive
of 12%pa deals with a) loans; 2) of interest, if there is an agreement to that
forbearance of any money, goods, or effect.
credits; and 3) judgement involving
such loans and forbearances, in the
- What may justify a court in not allowing the
creditor to impose full surcharges and
absence of express agreement.
penalties, despite an express stipulation, may
1. If obligation arises from other
not equally justify non-payment or reduction of
sources or by way of damages
interest.
arising from injury to persons and
loss of property which does not
Art. 1957 Contract and stipulations, under any
involve loan the applicable rate is
cloak or device whatever, intended to
6%pa.
circumvent the laws against usury shall be
3. When judgement of court becomes
void. The borrower may recover in accordance
final and executory, the rate of legal
with laws on usury.
interest, regardless if obligations
involves loan or forbearance of
Usurious contracts declared void
money shall be 6%pa.
20. Forms of contract not conclusive - is
4. Interest as indemnity for damages is
deemed necessary to defeat the cunning
payable only in case of default or
devices of usurers.
non-performance of the contract.
1. Usurers - a person who lends money at
2. Interest accruing from unpaid interest -
unreasonably high interest rate.
interest due shall earn interest from the
2. Parol evidence is admissible to show that
time it is judicially demanded although
a written document though legal in form
the obligation is silent upon this point.
was in fact a cloak or device to cover
usury of from the construction of the
Compensatory Interest - imposed by law or by
whole transaction it becomes apparent
courts as penalty or indemnity for damages
there exists a corrupt intention to violate
the laws on usury.
21. Contract void only as to interest involved - and unpaid, which as added principal, shall
usurious contract should not be considered earn new interest.
void in its entirety but only as to the interest
involved. When unpaid interest earns interest
22. Right of debtor - the amount paid as interest GR: Accrued interest shall not earn interest
under usurious agreement is recoverable by except in to instances:
him, since the payment is deemed to have 30. When judicially demanded as provided for in
been made under restraint, rather than Art 2212.
voluntarily. 31. When there is express stipulation made by the
parties to wit: that the interest due an unpaid
Note: Interest rate are no longer subject to any shall be added to the principal obligation and
ceiling. The rate will depend on the agreement of the resulting total amount shall earn interest. -
the parties. Compounding Interest
- the compounding of not only of the monetary
interest but also of the penalty charge, also
Instances of contracts disguised to cover called penalty or compensatory interest is
usurious loans allowed.
23. Credit sale of property at exorbitant price to - Borrower may be held liable to pay the interest
loan applicant on the total amount of principal, the monetary
24. Purchase of lender’s property at an exorbitant interest and the penalty interest.
price to be take from loan ** stipulation as to compound interest must be in
25. Price of sale with right to repurchase clearly writing.
inadequate
26. Pretended lease by borrower at usurious rental Art. 1960 If the borrowers pays interest when
27. Rent free by lender of borrower’s property in there has been no stipulation therefor, the
addition to interest on loans provisions of this code concerning solutio
28. Date for repayment of loan with interest ante- indebiti, or natural obligations, shall be
dates actual transaction applied, as the case may be.
29. Payment by borrower for lender’s services as
additional compensation for loan. Recovery of unstipulated interest paid
Art 1958 In the determination of the interest, if
- if the unstipulated interest is paid by mistake,
the debtor may recover as this would be a case
it is payable in kind, its value shall be
of solutio indebiti or undue payment.
appraised at the current price of the products
or goods at the time and place of payment. - But where the unstipulated interest, or interest
stipulated there being a sitpulation but it it not
Determination of interest payable in kind in writing, is paid voluntarily because the
- to make usury harder to perpetrate. debtor feels morally obliged to do so, there can
be no recovery as in the case of natural
Ex. A borrowed Php1K to M payable in palay in 1
obligation.
year which shall be appraised at the current
market value at the time and place of payment.
- when the contract was entered into, the price Art. 1961 Usurious contracts shall be governed
per cavan of palay was P500. On the due date, by Usury Law and other special laws, so far as
the price increased to P600. they are inconsistent with this code.
Art. 1959 Without prejudice to the provisions Usurious transactions governed by special laws
of Art. 2212, interest due and unpaid shall not - usury law and other special laws apply only so
earn interest. However, the contracting parties far as they are not inconsistent with the Civil
may by stipulation capitalize the interest due Code.
Art. 1175 - usurious transactions shall be
governed by special laws.
- In case of conflict, see Sec 6 of Usury Law. DEPOSIT Articles 1962 - 2009

SEC. 6. Any person or corporation who, Deposit In General and Its Different Kinds
for any such loan or renewal thereof or
forbearance, shall have paid or delivered Art 1962 A deposit is constituted from the
a higher rate or greater sum or value than moment a person receives a thing belonging to
is hereinbefore allowed to be taken or another, with the obligation of safely keeping it
received, may recover the whole interest, and of returning the same. If the safekeeping of
commissions, premiums, penalties and the thing delivered is not the principal purpose
surcharges paid or delivered with costs of the contract, there is no deposit but some
and attorney’s fees in such sum as may other contract.
be allowed by the court in an action
against the person or corporation who Deposit is from the word depositum.
took or received them if such action is
brought within two years after such Governing Law
payment or delivery; Provided, however, - the new Civil Code abolished the classification
That the creditor shall not be obliged to of deposit under Civil Code and Code of
return the interest, commissions and Commerce.
premiums for a period of not more than - All deposits are regulated by Title XII Book IV
one year collected by him in advance of CC.
when the debtor shall have paid the
obligation before it is due, provided such Characteristics of the Deposit Contract
interest, and commissions and premiums, - it is real contract; perfected by delivery of the
do not exceed the rates fixed in this Act. subject matter
(as amended by Act No. 3998.) - If deposit is gratuitous, it is unilateral contract
because only the depositary has an obligation
Note: Usury is now legally non-existent. The
interest legally chargeable depends upon the - if the deposit is for compensation, it is bilateral
agreement between the lender and borrower. contract because it gives rise to obligations on
the part of both the depositary and depositor.
** Central Bank Cir No. 905 removed the Usury
Law ceiling on interest rates for secured and Safekeeping, principal purpose of the contract
unsecured loans, rendering it legally ineffective. 32. Effect where safekeeping only an accessory
obligation - the principal purpose of contract
** SC states that the Circular did not repeal nor in of deposit is the safekeeping of the thing
any way amend, but simply suspended the Usury delivered.
Law. 1. If safekeeping is only an accessory or
secondary obligation of the recipient, it
** The parties are now free to stipulate the not deposit but some other contract like
interest to be paid on monetary obligation, and lease, commodatum or agency.
absent any evidence of fraud, undue influence or Ex. Delivery of money to a person
any vice of consent exercised by one party against so that he may make payment or
the other, the interest rate agreed upon is binding invest the money for the
upon them. account of the giver or
records to a lawyer hired to
** when the agreed rate is found iniquitous and represent a party to a suit
unconscionable, the courts may reduce the same is an agency. (Representation not
as reason and equity demand. custody or preservation of the
thing delivered.)
2. Balance of commission account in agent’s however, is binding and enforceable upon the
possession at principal’s disposal appropriated parties.
by agent - the agent must return or restore the
commission to the latter at any time it is Art 1964 A deposit may be constituted
demanded. judicially or extrajudicially.
- may be created by virtue of court order or by law
3. Dollars deposited with bank sold by bank and not by the will of the parties.
which credited peso proceeds to depositor’s - It is essential that the depositary is not the owner of
current account - the bank must retain the dollar the property deposited
character of the dollar deposited for safekeeping,
it cannot be asserted that peso proceeds were Kinds of deposit
property credited to the depositor’s account. 33. Judicial - takes place when an attachment or
seizure of property in litigation is ordered
Deposit vs. Mutuum 34. Extrajudicial -
1. Voluntary - wherein the delivery is made by
Deposit Mutuum the will of the depositor or by two or more
Principal purpose is Principal purpose is the persons each of whom believes himself
safekeeping or mere consumption of the entitled to the thing deposited.
custody subject matter 2. Necessary - made in compliance with a legal
obligation, or on occasion of any calamity, or
Depositor can demand Lender must wait until by travellers in hotels and inns.
the return of the subject the expiration of the
matter at will period granted to the Art 1965 A deposit is a gratuitous contract, except
debtor when there is an agreement to the contrary, or
unless the depositary is engaged in business of
Object could be both Only money and any storing goods.
movable and immovable other fungible thing
property Contract of deposit generally gratuitous
35. Where there is contrary stipulation - the parties
may establish any stipulation they may deem
convenient provided it it not contrary to law,
Deposit vs. Commodatum
morals, good customs, public order or public
Deposit Commodatum policy.
36. Where depositary engaged in business of storing
Principal purpose is Principal purpose is the goods - as in the case of warehouseman; for
safekeeping or mere transfer of the use compensation and not out of pure generosity.
custody 37. Where property saved from destruction without
May be gratuitous Essentially and always knowledge of the owner - in involuntary deposit,
gratuitous where property is saved from destruction during a
calamity by another person without the knowledge
In extrajudicial deposit, The object may be both of the owner, the latter is bound to pay the former
only movable may be the movable and immovable just compensation.
object
Art 1966 Only movable things may be the object of
a deposit.
Art 1963 An agreement to constitute a deposit Subject matter of deposit
is binding, but the deposit itself is not perfect 38. Only movable or personal property may be the
until the delivery of the thing. object of extrajudicial deposit, whether voluntary
or necessary.
- it is a real contract and perfect only upon 39. Judicial deposit, however, may cover movable as
delivery of the object. well as immovable property its purpose being to
protect the rights of parties to a suit.
- Where there has been no delivery, there is
merely an agreement to deposit which, Only corporeal things contemplated
- does not embrace incorporeal or intangible property, - The depositary is in estoppel
such as rights and actions, for it follows the person Ex. A carrier, commission agent, a lessee
of the owner, wherever he goes, and it not, by
reason of its incorporeality, susceptible of custody Where there are several depositors
in the tangible sense that deposit is judicially - two or more persons each claiming to be entitled to
understood. a thing may deposit the same with a third person.
- it is that the deeds or documents in which those - The third person assumes the obligation to delivery
rights are contained can be the object of deposit, but to the one to whom it belongs
in such a case, they are only the materialized and
representative expression of the rights. ** the action to compel the depositor to settle their
conflicting claims among themselves would be in the
nature of interpleader. (One of the depositors is not
Art 1967 An extrajudicial deposit is either the owner).
voluntary or necessary

Kinds of extrajudicial deposit Art 1968 A contract of deposit may be entered into
- deposit are generally voluntary orally or in writing
- It becomes necessary in the 3 cases - i.e. when made
in compliance with a legal obligation, on the Form of contract of deposit
occasion of any calamity, or by travellers in hotels GR: contracts shall be obligator in whatever form
and inns. they may have been entered into provided all essential
requisites for their validity are present
- Deposit of goods made by travellers or passengers
with common carriers may also be regarded as - except for the delivery of the thing, there are no
necessary. formalities required for the existence of the contract.

Art 1970 if a person having capacity to contract

VOLUNTARY DEPOSIT accepts a deposit made by one who is incapacitated,
the former shall be subject to all the obligations of a
Art 1968 A voluntary deposit is that wherein the depositary, and may be compelled to return the
delivery is made by the will of the depositor. A thing by the guardian, or an administrator of the
deposit may be made by two or more person each of person who made the deposit, or by the latter
whom believes himself entitled to the thing himself if he should acquire capacity.
deposited with a third person, who shall delivery it
in a proper case to the one to whom it belongs. Where Depositary Capacitated and Depositor
Incapacitated
Voluntary deposit defined - if the depositary is capacitated, he is subject to all
- one wherein the delivery is made by the will of the the obligations of a delivery whether or not the
depositor depositor is capacitated.
- The depositary may be a third person - The depositary must return the property to the legal
representative of the incapacitated or to the
Voluntary Deposit vs Necessary Deposit depositor himself if he should acquire capacity.
Voluntary Necessary ** Art. 1397 - persons who are capable cannot allege
Principal has complete There is lack of free the incapacity of those with whom the contract.
freedom in choose the choice in the depositor.
depositary Art 1971 If the deposit had been made by a
capacitated person with another who is not, the
Depositor need not be owner of thing depositor shall only have an action to recover the
GR: depositor must be the owner of the thing thing deposited while it is still in the possession of
deposited. the depositary, or to compel the latter to pay him
BUT it may belong to a person other than the depositor the amount by which he may be enriched or
- depositary cannot dispute the title of the depositor to benefited himself with the thing or its price.
the thing deposited. However, if a third person who acquired the thing
acted in bad faith, the depositor may bring an ** the depositary cannot excuse himself from liability
action for its recovery. in the event of loss by claiming that he exercised the
same amount care toward the thing deposited as he
Where depositary is incapacitated and depositor is would toward his own if such care is less than that
capacitated required by circumstances.
- the incapacitated depositary does not incur the
obligation of a depositary. However, he is liable to 2. Rules applicable - the liability of the depositary for
40. Return the thing deposited while still in his the care and delivery of the thing is governed by the
possession rules on obligations.
41. Pay the depositor the amount by which he may h) he is liable if the loss occurs through his fault of
have been benefited himself with the thing or its negligence (Art. 1170), even if the thing was
price subject to the right of any third person who insured (Art 2207);
acquired the thing in good faith. i) The loss of the thing while in his possession
ordinarily raises a presumption of fault on his part
Ex. A deposited a watch with B, a minor who sold it to (Art. 1265);
C. j) The required degree of care is greater if the deposit
is for compensation than when it is gratuitous.
If C acted in bad faith, A may recover the watch from Similar rule in agency and common carriers. Even
him. But if C acted in good faith, A’s only recourse is when it is gratuitous, due care must still be
against B to compel him to return the price received for exercised.
the watch or the amount by which he may have
benefited himself. 3. Return before specified term - thing deposited must
be returned to the depositor whenever he claims it,
Obligation of the Depositary even though a specified term or time for such may
have been stipulated in the contract.
Art 1972 The depositary is obliged to keep the thing
safely and to return it, when required, to the Art 1973 Unless there is a stipulation to the
depositor, or to his heirs and successors, or to the contrary, the depositary cannot deposit the thing
person who may have been designated in the with a third person. If deposit with a third person is
contract. His responsibility, with regard to the allowed, the depositary is liable for the loss if he
safekeeping and the loss of the thing, shall be deposited the thing with a person who is manifestly
governed by the provisions of Title I of this Book careless or unfit. The depositary is responsible for
the negligence of his employees.
If the deposit is gratuitous, this fact shall be taken
into account in determining the degree of care that
the depositary must observe. Obligation not to transfer deposit.

GR: depositary is not allowed to deposit the thing

Obligation to keep the thing deposited and return with a third person
it. XPN: unless authorized by express stipulation

Two primary obligation of the depositary ** deposit is founded on trust and confidence and it
42. Safekeeping can be supposed that the depositor, in choosing the
43. Return of the thing when required depositary, has taken into consideration the latter’s
qualification.
44. Degree of care - exercise care over the thing
deposited the same diligence as he would exercise 45. Liability for loss - depositor is liable for the loss of
over his property the thing deposited if:
1. Essential requisite of the judicial relation 1. He transfers deposit with a third person
which involves the depositor’s confidence in without authority although there is no
his good faith and trustworthiness negligence on his part and the third person
2. The presumption that the depositor, in 2. He deposits the thing with a third person who
choosing depositary, took into account the is manifestly careless or unfit although
diligence which the depositary is accustomed authorized even in the absence of negligence.
with respect to his own property.
 3. Thing lost through negligence of his
employees whether the latter are manifestly Contract for rent of safety deposit box
careless or not. - not an ordinary contract of lease of things but a
46. Exemption from liability - the depositor is not special kind of deposit; hence, it is not to be strictly
responsible in case the thing is lost without governed by the provisions of deposit.
negligence of the third person with whom he was
allowed to deposit the thing if such third person is
- Relation between a bank renting out safe-deposit
not “manifestly careless or unfit.” boxes and its customer with respect to the contents
of the box is that of bailor and bailee.
Art 1974 The depositary may change the way of the
deposit if under the circumstances he may
reasonably presume that the depositor would DISCUSSION 3-3-22
consent to the change if he knew of the facts of the
situation. However, before the depositary may Contract of mutuum - object is money or
make such change, he shall notify the depositor fungible thing.
thereof and wait for his decision, unless delay would - The bailee becomes the owner of the thing
cause danger. loaned. His obligation is to pay money or
return of the same kind and quality.
** depositary may change the way or manner of the
deposit if there are circumstances indicating that the Fungible - anything dealt with weight, number
depositor would consent to the change.
or measure and must be consumed. Always
** depositary should first notify the depositor and wait consumable in all cases.
for the decision. This requirement may not be
dispensed with unless delay would cause danger. Intention to exhibit

GR: depositary must take good care of the thing Commondatum - Fungible - non-consumable
with the diligence of a good father of a family. becaus the thing should be returned.

Form of payment - money

Art 1975 Depositary holding certificates, bonds, 49. Currency stipulated
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 Fungible
that the securities may preserve their value and the to return the same sacks of rice, same quantity
rights corresponding to them according to law. and kind. if unavailable, you cannot return,
required to pay in money at the time at the
The above provision shall not apply to contract for perfection of the contract.
rent or safety deposit boxes.
Gratuitous or Onerous
Obligation to collect interest on choses in action Gratuitous - without payment
deposited Onerous - with payment
If the thing deposited should earn interest, the
Loan of money - onerous
depositary is under the obligation
47. To collect the interest as it becomes due if there is an extra stipulation between the
48. To take such steps as may be necessary to preserve parties to pay interest
its value and the rights corresponding to it.
** depositary of a negotiable promissory note which Ex. Borrowed 1M and payable in 2 years and
has been dishonored by non-payment by the maker, was only paid after 3 years.
must give notice of dishonor to indorsers for under the -5 Years delay
law, indorsers to whom such notice is not given are
discharged from liability. After 2 years nag judicial demand
** depositary is bound to collect not only the interest
but also the capital itself when due.
Legal Interest - happens when there is no Depositary is capacitated depositor is
stipulation incapacitated (ex. minor)
Monetary Interest - 100K x 6% = 60K x 5 (2+3 52. Safe keep and return
years of delay) = 300K 53. Return is upon demand by guardian, agent, or
Compensatory Interest - 100K*6%=6K*3=180K the depositor upon reaching legal age
Accrued Interest - interest up to the judicial
demand Depositary is incapacitated and depositor is
1M*6%=60k*2(payable capacitated
period)=120k*6%=7200*3(years delayuntil fully 54. Thing must be returned while still in
paid)= 21,600 possession of the depositary.

Compounding Interest Can the depositary transfer it to a third person

100K x 6% = 6k +100K= even though the possession is already with him
106Kx6%=6,360.00+106K=112,360.00 GR: No.
If there was an agreement that depositary can
50. Indemnity Damages - compensatory interest, deposit the thing to third person. -third person
there must be demand acted in good faith/bad faith, if there is
51. Judicial Interest - negligence.
third person manifestly unfit
DEPOSIT
- whether it is done orally or in writing and there If no agreement kahit walang negligence and
is delivery, it is already perfected. even for fortuitous event - liable si depositary

** If contract of deposit was done orally, any of Recitation on March 10: 1974 - Necessary
the parties can withdraw. Deposit
** If contract of deposit was in writing, neither of
the parties can withdraw. Mid term - Articles 1933 -2004
Enforceability - in writing
Verbal agreement in enforceability is none unless
delivered. Art 1976 Unless there is a stipulation to the
contrary, the depositary may commingle grain
Gratuitous or Onerous Deposit or other articles of the same kind and quality,
Gratuitous - safe keep and return. in which case, the various depositors shall own
Onerous Deposit or have a proportionate interest in the mass.
1. if there is stipulation as long as the main
purpose is to safe keep and return Obligation not to commingle things deposited
2. when depositary is engaged in storing goods. if so stipulated

Kinds of Extrajudicial Deposit GR: depositary is permitted to commingle grain

1. Voluntary Deposit - when depositor delivers it or other articles of the same kind and quality.
to a person, depositor decides to whom it will be - the various depositors of the mingled goods
deposited. shall own the entire mass in common and each
depositor shall be entitled to such portion of the
2. Necessary Deposit entire mass as the amount deposited by him
There are 4 instances bears to the whole.
XPN: if it is stipulated, depositary cannot
It is possible there is more than 1 depositor. commingle goods, even if they are of the same
- action of interpleader to resolve the issue who kind and quality.
is the true owner. ** if the articles are not of the same kind and
quality, it is the duty of the depositary to keep
them separate or at least identifiable as he must
return to each depositor the identical thing 56. Thing deposited, money or other
delivered. consumable thing - the permission to use the
money or other consumable thing makes the
contract into a simple loan or mutuum.
Art 1977 The depositary cannot make use of - if safekeeping is still the principal purpose, it is
the thing deposited without the express still a deposit but an irregular one; it is called
permission of the depositor. irregular deposit.
** bank deposits are in the nature of irregular
Otherwise, he shall be liable for damages. deposit but they are really loans governed by the
law on loans.
However, when the preservation of the thing
deposited requires its use, it must be used but Irregular deposit distinguished from mutuum
only for that purpose.
Irregular Mutuum
Deposit
— deposit is for safekeeping of the subject matter
and not for its use. Consumable May be Lender is bound
thing demanded at by the
- unauthorized use by the depositary would make demandable will by the provisions of
at will by irregular the contract and
him liable for damages. depositor depositor cannot seek
- If it is necessary for the preservation of the restitution until
subject matter, the depositary may use the thing the time for
only for that purpose even without express payment
permission of the depositor.
Benefit The only Essential cause
ex. Depositary may use a radio received in deposit accrues to benefit is that for the
occasionally to prevent the accumulation of depositor only which accrues transaction is
moisture. to the depositor the necessity of
the borrower

Art 1978 When the depositary has permission Depositor has Depositor has Common
to use the thing deposited, the contract loses preference preference over creditors enjoy
the concept of a deposit and becomes a loan or over other other creditors no preference in
creditors w/ respect to the distribution
commodatum, except where safekeeping is still
the thing of debtor’s
the principal purpose of the contract. deposited property

The permission shall be presumed and its

existence must be proved.
Permission to use not presumed
Effect if permission to use is given - permission to use is not presumed except when
55. Thing deposited, non-consumable - It such use is necessary for the preservation of the
becomes commodatum if the thing deposited thing deposited, and the burden is on the
is non-consumable and the depositary has depositary to prove that permission has been
permission to use the thing, because it loses given.
the character of deposit even though the
parties may have denominated it as deposit, ** failure to claim at once or delay for some time
unless safekeeping is still the principal in demanding restitution of the thing deposited,
purpose of the contract. which was immediately due, does not imply such
permission to use the thing deposited as would
convert the deposit into loan.
 any indebtedness to it on the part of the
depositor.
Art 1979 The depositary is liable for the loss of 1. In a true deposit, compensation is not
the thing through fortuitous event: allowed.
57. If it is so stipulated; 4. In the performance of its obligations, the
58. If he uses the thing without the depositor’s drawee bank is bound by its internal
permission; banking rules and regulations and is liable
59. If he delays its return; to the depositor for fraud, negligence, or
60. If he allows others to use it even though he delay.
himself may been authorized to use the 1. To award exemplary damages there
same. must be malice, bad faith or gross
negligence.
Liability for loss through fortuitous event 2. Moral damages may be recovered
- depositary is not liable for loss through a even if the bank’s negligence may not
fortuitous event without his fault. have been attended with malice and
bad faith.
5. The bank is engaged in business
Art 1980 Fixed, savings, and current deposits impressed with public interest, and it is its
of money in banks and similar institutions shall duty to protect in return its many client
be governed by the provisions concerning and depositors who transact business with
simple loan. it with the highest degree of care, more
than that of a good father of the family or
Relation between bank and depositor an ordinary business firm.
61. Contract of loan- deposits of money in banks, 1. Suspension of a bank which had
whether fixed, savings, and current, are really fallen into a distressed financial
loans to a bank because the bank can use the situation is not an excuse from its
same for its ordinary transactions and for the obligation to depositors
banking business. 2. Banks are not liable to pay interest on
1. Bank deposits are in the nature of the deposit during the suspension.
irregular deposit; they are really loans
because they earn interest. Art 1981 when the thing deposited is delivered
62. Relation of creditor and debtor - relation closed and sealed, the depositary must return it
between a depositor and bank is that of in the same condition, and he shall be liable for
creditor and a debtor. The depositor damages should the seal or lock be broker
(creditor) lend the bank (debtor) money and through his fault.
the bank agrees to pay the depositor on
demand. Fault on the part of the depositary is presumed
1. A bank’s failure to honor a deposit is unless there is proof to the contrary.
failure to pay its obligation as debtor and
not a breach of trust arising from a As regards the value of the thing deposited, the
depositary’s failure to return the subject statement of the depositor shall be accepted,
matter of the deposit. when the forcible opening is imputable to the
2. The payment by a bank of the amount of depositary, should there be no proof to the
a depositor’s check is not a loan to the contrary. However, the courts may pass upon
latter by the former which may be the credibility of the depositor with respect tot
satisfied by a subsequent deposit; but a he value claimed by him.
payment by the bank as debtor to the
depositor as creditor. When the seal or lock is broker, with or
3. GR: bank can compensate or set off the without the depositary’s fault, he shall keep the
deposit in its hands for the payment of secret of the deposit.
 - if what has been deposited is money, the
Art 1982 when it becomes necessary to open a depositary has no right to make use thereof and
locked box or receptacle, the depositary is therefore, he is not liable to pay interest.
presumed authorized to do so, the if the key - If the depositary be in delay or has used the
has been delivered to him; or when the money without permission, he shall be liable
instructions of the depositor as regards to the for interest as indemnity. The depositary owes
deposit cannot be executed without opening the interest on the sums he has applied to his own
box or receptacle. use from the day on which he did so, and those
which he stills owes after the extinguishment
of the deposit.
Where thing deposited delivered closed and
sealed.
63. Obligation of depositary Art 1984 The depositary cannot demand that
k. Return the thing deposited when delivered the depositor prove his ownership of the thing
closed and sealed, in the same condition deposited.
l. Pay for damages should the seal or lock be
broker through his fault which is presumed Nevertheless, should he discover that the thing
unless proved otherwise; and has been stolen and who its true owner is, he
m. Keep the secret of the deposit when the seal must advise the latter of the deposit.
or lock is broken, with or without his fault
If the owner, in spite of such information, does
2. Reason for rule - irresponsible depositors may not claim it within the period of one month, the
violate their trusts with impunity. depositary shall be relieved of all responsibility
by returning the thing deposited to the
3. When depositary justified to open - depositor
depositary is authorized by Art. 1982 to open the
thing deposited which is closed and sealed when If the depositary has reasonable grounds to
there is a) presumed authority; or b) necessity. believe that the thing has not been lawfully
acquired by the depositor, the former may
return the same.
Art 1983 The thing deposited shall be returned
with all its products, accessories and Depositor need not prove his ownership.
accessions.
- Depositary cannot require depositor to prove
ownership.
Should the deposit consist of money, the
provisions relative to agents in Article 1896 - It is not essential that the depositor be the
shall be applied to the depositary. owner of the thing deposited. To require proof
of ownership may open the door to fraud and
Obligation to return products, accessories, and bad faith.
accessions
- the depositor is the owner or at least represents When third persons appears to be owner
the owner of the thing deposited/ the depositary - Pars. 2,3,4 states the steps the depositary
must, therefore, return not only the thing itself should take to be relieved of all responsibility
but also all its products, accessions and with respect to the thing deposited.
accessories which are a consequence of - Par 2 and 4 are similar except for par 2 because
ownership. such conditions exist: 1) thing deposited must
be stolen; and 2) depositary knows who its true
Obligation to pay interest on sums converted to owner is.
personal use
Effect of failure of owner to claim within one 67. Return the thing deposited to the depositor, to
month his heirs and successors or to the person who
- period of one month is intended for the may have been designated in the contract
protection of the depositary. If the thing is 68. If depositor was incapacitated at the time of
returned to the depositor after one month, the the making the deposit, the property must be
true owner of the thing may still recover returned to his guard or administrator or the
through other legal processes. person who made the deposit or the depositor
himself should he acquire capacity.
69. Even if the depositor had capacity at the time
Art 1985 when there are two or more of making the deposit but he subsequently
depositors, if they are not solidary, and the loses his capacity during the deposit, the ting
thing admits of division, each one cannot must be returned to his legal representative.
demand more than his share.
Art 1987
When there is solidarity or the thing does not
admit of division, the provisions of Art 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.

Right of two or more depositors

64. The thing deposited divisible and
depositors or solidary - if the thing
deposited is divisible and there are two or
more depositors who are not solidary, each
one can demand only his share his share
proportionate thereto.
65. Obligation solidary of thing deposited not
divisible - if the obligation is solidary or 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 others but not
anything which may be prejudicial to the
latter.
66. Return to one of depositors stipulated - if
by stipulation the thing should be returned to
one of the depositors, the depositary is bound
to return it only to the person designated
although he has not made any demand for its
return.

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.

Persons to whom return must be made