Security and credit

transactions
Contract of Deposit
 Objectives
At the end of the lecture, the student should be able
to:
(1)understand and individually distinguish whether a
deposit is a voluntary deposit, a necessary
deposit, or a judicial deposit.
(2)Discuss the governing provisions on the different
types of deposit.
(3)Understand the obligations of the parties in a
contract of deposit.
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Contract of
deposit
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Deposit in general
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

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Characteristics of the contract
1. It is a real contract since it is perfected by the delivery of the
thing deposited
2. When the contract is gratuitous, it is a unilateral contract
because only the depositary has an obligation. But when he
deposit is for compensation, the juridical relation created
becomes bilateral because it gives rise to obligations on
both parties

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Safekeeping is the principal
purpose of the contract
An agreement to constitute a deposit is binding, but
the deposit itself is not perfected until the delivery
of the thing.

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Binding effect of agreement to
deposit
A deposit is a real contract and is
perfected only by the delivery of the thing
deposited

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Creation of deposit
Deposit may be created by virtue of a court order
or by law and not by the will of the parties

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Contract of deposit generally
gratuitous
It becomes onerous on the following cases:

1. Where there is contrary stipulation—the parties may establish

any stipulation that may deem convenient provided it is not
contrary to law, morals, good customs, public order and public policy
2. Where depositary engaged in the business of storing goods—for
compensation and not pure liberality
3. Where property saved from destruction without knowledge of the
owner—the owner is bound to pay just compensation

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Subject matter of deposit
1. Only personal property may be the subject of
extrajudicial deposit
2. Both personal and real property may be the
subject of judicial deposit

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VOLUNTARY
DEPOSIT

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General provisions
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.

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General provisions
● The depositor does not need to be the owner of the thing
deposited
● The depositary cannot dispute the title of the depositor to
the thing deposited

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Where there are several depositors
Two or more persons each claiming to be entitled
to the thing deposited, may deposit the same with a
third person.

*Interpleader

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Where there are several depositors
Two or more depositors in a single contract of deposit.

*Jointly bound – proportionate share

*Solidarily bound – return of the thing to one of the
depositors extinguishes the deposit, except in a
stipulation that the thing should be returned to a
specific depositor

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Where depositary is capacitated
and the 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 representative of the incapacitated or the
depositor himself if he should acquire capacity

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Where depositary incapacitated and
the depositor capacitated
The incapacitated depositary doesn’t incur the obligation of the
depositary.
However, he is liable to return
● To return the thing deposited while still in his possession
● To the pay the depositor the amount by which he may have
benefited himself with the thing or its price subject to the
right of a third person who acquired the thing in good faith

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Obligations of the depositary
Obligation to keep the thing deposited and return it

Degree of care — ordinarily, the depositor must exercise over

the thing deposited the same diligence as he would exercise
over his property (diligence of a good father of the family)

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Obligations of the depositary
Rules applicable
a. Art. 1163. Every person obliged to give something is also obliged to
take care of it with the proper diligence of a good father of a
family, unless the law or the stipulation of the parties requires
another standard of care (ex.: extraordinary diligence in case of a
stipulation, the depositary volunteered to constitute a deposit, the
deposit is for compensation, the depositary receives a benefit.

b. Art. 1170. Those who in the performance of their obligations are

guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages. (1101)
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Obligations of the depositary
Rules applicable
c. Art. 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault, unless there
is proof to the contrary, and without prejudice to the provisions of
article 1165. This presumption does not apply in case of earthquake,
flood, storm, orother natural calamity. (1183a)

d. The required degree of care is greater if the deposit is made

for compensation than when it is gratuitous.

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Time of return of the thing
According to the period stipulated or upon
demand by the depositor.

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Obligations of the depositary
Return the thing upon demand or after the period stipulated
The thing deposited must be returned to the depositor
whenever he claims it, even though a specified term or time
for such may have been stipulated in the contract.

Exceptions:
● Judicial attachment
● A third party opposes the return of the thing to the depositor
(depositary should notify the depositor)

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Place of return of the thing
Where the thing is located, if there is no
stipulation.
Transportation expenses are to be paid by the
depositor.

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Obligations of the depositary
Return the fruits

The thing deposited must be returned to the depositor including

its fruits, accessions, and accessories as part of rules on
ownership of the thing.

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Depositary may return the thing
before the lapse of the period
Gratuitous – depositary may return the thing to the depositor
if he has justifiable reasons

Onerous – depositary cannot return the thing even if he has

justifiable reasons

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Obligation not to transfer deposit to
a third
Liability for person
loss

a. If he deposits it with a third person without

authority even if there has been no negligence
from his part and on the third person

b. If deposit with a third person is allowed, he is liable

still if he deposited the thing with a person who is
manifestly careless or unfit
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Obligation not to transfer deposit
Exemption from liability

a. The depositor is not responsible in case the thing is

lost without negligence of the third person with
whom he was allowed to deposit the thing if such
person is not manifestly careless or unfit

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Change in the way of deposit
The depositary is obliged to notify the depositor of any
change in the way the thing is deposited EXCEPT when
cases show apparent danger in case of delay.

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If the thing deposited should
earn interest, the depositary is
1.under thetheobligation
To collect interest as it becomes due
2. To take steps as may be necessary to preserve
its value and the rights corresponding to it

EXCEPT for safety deposit boxes

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SAFETY DEPOSIT BOXES
● The contract for rent of safety deposit boxes is not an
ordinary contract of lease of things because the full
and absolute possession and control of the safety deposit
box is not given to the party renting.
● It is actually a special kind of deposit. It is a contractual
relation between the parties. The liability rules are
governed by the Civil Code provisions on obligations
and contracts, and not on donations as it is treated as a
contract of bailment.
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Stipulation which exempts the
bank from liability for the things
contained
● The stipulation isin void.the
Evensafety deposit
if as a rule, box
the Bank may
limit its liability to some extent by agreement or
stipulation, the agreement or stipulation must not be
contrary to law and public policy.

● The law on deposit provides that the depositary is liable for loss
due to fraud, negligence, delay, or contravention of the
tenor of the agreement. Any contrary stipulation would be
void. 31
Obligation not to use the thing

Principal obligation is for safekeeping, thus, the depositary is

prohibited from using the thing EXCEPT:
1. If it has to be used for preservation.
2. If there is express permission by the depositor (not
presumed)

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Use of the thing deposited
The principal purpose of deposit is safekeeping, not use of
the thing. If the purpose is use, it is not deposit anymore. If
the depositary uses the thing deposited without
permission of the depositor, he shall be liable for damages.
In addition, if the thing is lost even through fortuitous
event, the depositary shall bear the loss.

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If the depositary is given permission
to
1. If use
the purpose of the contract is still for safekeeping, then
it retains its concept as a deposit

2. If the purpose has become for the use or consumption

of the thing
a. Commodatum—if the purpose is for a non-
consumable thing

b. Mutuum—if the purpose is for a consumable thing or

money
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Obligation to pay interest on
sums converted to personal use
● If what has been deposited is money, the depositary has no right to
make use thereof and therefore, he is not liable to pay interest
● If the depositary be in delay or has used the money without
permission, he shall be liable for interest as indemnity
● The depositary owes interest on the sums he has applied to his own use
from the day on which he did so, and those which he still owes after the
extinguishment of the deposit

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Depositor need not prove ownership
The depositary who receives the thing in deposit cannot
require that the depositor prove his ownership over the thing

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Where third person appears to be
thetrueowner
● Should he discover that the thing has been stolen and who its
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

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Person to whom return must be
made
1. The depositary is obliged to return the thing deposited when required,
to the depositor, to his heirs and successors, or to the person who
may have been designated in the contract
2. If the person was incapacitated at the time of making the deposit, the
property must be returned to his guardian or administrator or the person who
made the deposit or to the depositor himself should he acquire capacity
3. Even if the depositor had capacity at the time of making the deposit
but he subsequently loses his capacity during the deposit, the thing must
be returned to his legal representative

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Comingling of fungible goods
In case deposit of fungible goods (example: rice), the depositary may comingle
the fungible goods provided that they are of the same kind and quality.

Depositors become owners in common of the mass or they own a proportionate

share of the mass.

Except when the parties stipulated otherwise.

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Loss of the thing due to a fortuitous
event is liable:
Depository
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.

5. If there is fraud or negligence on the part of the

depositary. 40
Obligations of the depositor
Obligation to pay expenses of preservation
1. Deposit gratuitous— (DEPOSITOR) The depositor would have incurred just the
same had the thing remained with him. Without the duty of reimbursement imposed
by the article, the depositor would be enriching himself at the expense of the
depositary.

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Obligations of the depositor
Obligation to pay expenses of preservation
Deposit for compensation— (DEPOSITARY) if the deposit is for valuable
consideration, the expenses of preservation are borne by the depositary because
they are deemed included in the compensation. There can however be a
contrary stipulation.

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Obligations of the depositor
In case of losses caused to the depositary by reason of preservation of the thing, the
depositor should reimburse the depositary of such, EXCEPT:
● When the depositor was unaware of the nature of the thing that it could cause loss to
the depositary
● The depositor is not expected to know of the dangerous character of the thing
● When the depositary was notified of the character of the thing
● Even without notification, the depository knew of the apparent danger that the thing
could cause losses.

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Depositary’s right of retention
● He has the right as to legal pledge
● The thing retained serves as security for payment of what may
be due to the depositary by reason of the deposit (ex.:
compensation, damages, losses)
● Depositary may foreclose through public auction

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Causes of extinguishment of deposit
● Common modes such as return of the thing, Novation,
merger, expiration of term, fulfillment of resolutory
condition, loss of the thing

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Effect of death of depositor or
depositary
Deposit gratuitous
—if the deposit is gratuitous, the death of either the
depositor or depositary extinguishes the deposit.

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Effect of death of depositor or
depositary
Deposit for compensation
—a deposit for a compensation is not extinguished by the death of
either party because unlike a gratuitous deposit, an onerous deposit isn’t
personal in nature. Hence, the rights and obligations arising therefrom
are transmissible to their respective heirs. But the heirs of either party
have a right to terminate the deposit even before the expiration of the
term.

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Alienation in good faith by
depositary’s heir a situation where the depositary dies
● This above article envisions
and the object of the deposit is left with his heir who, in good faith, sells it
● The obligation of the heir is limited to the return of the price received
or to assign the right to collect the same if it hasn’t been paid and not the real
value of the thing
● If the purchaser who acquired the thing acted in bad faith, the depositor
may bring an action against him for its recovery
● If the heir acts in bad faith, he is liable for damages. The sale or
appropriation of the thing constitutes estafa.

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NECESSARY DEPOSIT
When 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

3. Travelers in hotels or inns

4. Made by passengers with common carriers

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Necessary deposit in compliance with a
1.legal obligation
The judicial deposit of a thing the possession of which is being disputed in a
litigation by two or more persons
2. 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
doesn’t give proper security for their conservation
3. The deposit of a thing pledged when the creditor uses the same without the
authority of the owner or misuses it in any other way
4. Those required in suits as provided for in the Rules of Court
5. Those constituted to guarantee contracts with the government. In this last
case, the deposit arises from an obligation of a public or administrative character.

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Deposit in hotels and inns
1. Travelers or guests—it refers to transients and not to boarders. Non-
transients are governed by the rules on lease.
2. Hotel-keeper and inn-keeper—
a. Hotel—a house or large building that supplies rooms and food
for pay to travelers and others;
b. Inn—a place where travelers and others can get meals and a room
to sleep in. Hotels have largely taken the place of the old inns.
c. Motel—a roadside hotel or group of furnished cottages or
cabins providing overnight lodging for motorists; motor court.

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Deposit by travellers in hotels and
inns
1. They have been previously informed (notified) about the
effects brought by their guests

2. The guests have taken the precautions prescribed regarding

their safekeeping

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Extent of liability of keepers of
hotels and underinns
1. The liability is not limited to effects lost or damaged in the hotel rooms
which come the term “baggage” or articles such as clothing as are
ordinarily used by travelers but include those lost or damaged in hotel
annexes such as vehicles in the hotel’s garage

2. The responsibility extends to all those who offer lodging for a

compensation, whatever may be their character

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When hotel-keeper is liable
1. The loss or injury is caused by his servants or employees as
well as by strangers provided that notice has been given
and proper precautions taken
2. The loss is caused by the act of the thief or robber done
without the use of arms and irresistible force for in this
case, the hotel-keeper is apparently negligent.

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When hotel-keeper is not liable
1. The loss or injury is caused by force majeure, theft or robbery by a
stranger with the use of arms or irresistible force, unless he is guilty
of fault or negligence in failing to provide against the loss or injury from
his cause

2. The loss is due to the acts of the guests, his family, servants, or
visitors

3. The loss arises from the character of the things brought into the hotel

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Exemption or dimunition of liability
1. The rule in this article is similar to the rule on common carriers
which does not allow a common carrier to dispense with or limit his
responsibility by stipulation or by posting of notices

2. Such stipulations is deemed contrary to law, morals, and public policy

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Exemption or dimunition of liability
1. Hotel-keepers and inn-keepers in offering their accommodations
to the public, practically volunteer as depositaries, and as such, they
should be subject to an extraordinary degree of responsibility for the
protection and safety of travelers who have no alternative but rely on good
faith and care of those with whom they take lodging

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Exemption or dimunition of liability
2. Inn-keepers by the nature of their business, have supervision and
control of their inns and the premises thereof. As a matter of fact,
authorities are to the effect that it is not necessary in order to hold an inn-
keeper liable that the effects of the guests be actually delivered to him or his
employee, it is enough that they are within the inn.

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Stipulation exempting liability for
gross negligence
Liability for gross negligence cannot be waived as this would
be tantamount to waiving liability for fraud.

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Hotel-keeper’s right to retain

● Nature of a pledge created by operation of law

● Incidentally, the act of obtaining food or accommodation in a
hotel or inn without paying thereof constitutes estafa.

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SEQUESTRATION OR JUDICIAL
DEPOSIT
A deposit may be constituted judicially or extrajudicially. Judicial
deposit takes place when an attachment or seizure of property in
litigation is ordered by the court.

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Nature and purpose of judicial
deposit
● Judicial deposit is auxiliary to a case pending in court
● Purpose is to maintain the status quo during the pendency of the
litigation or to insure the rights of the parties to the property in
case of a favorable judgment

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Obligation of depositary of
sequestrated property
The depositary of sequestered property is the person appointed
by the court. He has the obligation to take care of the
property with diligence of a good father of a family and he
may not be relieved of his responsibility until the termination of
case proceedings, litigation is ended or the court so orders .

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