A.

LOAN AND DEPOSIT

1. CONTRACT OF LOAN.

1.01. DEFINITION. By the contract of loan,

one of the
parties, called the bailor or lender delivers to
another
called the borrower or bailee, either
something not
consumable so that the latter may use the same it the
for a certain time and return or
money or consumable
so that he may consume it with the
the same amount of the same kind and
obligation to pay
quality
a) Real Contract. Loan is á real contract because
Commodatum or simple loan itself shall not be
perfected until the delivery of the object of the
Contract3
b) Unilateral. Since it is a real contract, the delivery
ofthe object is not based on the obligation in the
Contract of Loan itself because the said delivery
pertects the latter. There is no contract (ot loa
before delivery by the lender (BAILOR); arte obli-
delivery it is already unilateral because the(BAlL-
gation is only on the part of the borrower and
EE) to pay. However, delivery may be based
sep
on a
demandable as an obligation based
rate contract of accepted promise to loan.

Art. 1933, NCC.

2Art. 1934, ibid.

698
 PART XI-CREDIT TRANSACTIONS 699
A. LOAN AND DEPOSIT

1.01.01. Kinds of Loans. There are two kinds contract of loan,

namely:
(1) Commodatum. - one of the parties delivers to
another something not consumable so that the
latter may use the same it the for a certain time.
(2) Simple Loan or Mutuum. one of the parties
delivers to another money or other consumable
thing, upon the condition that the same amount
ofthe same kind and quality shall be paid."

1.02. ACCEPTED PROMISE TO LOAN. An accepted

promise to deliver something by way of commodatum
isa
or simple loan is binding upon parties This
consensual contract as distinguished from the contract
of loan itself which is a real contract. Example: When
an application for a loan with a bank is approved,
there is an accepted promise to loan that is legally
demandable.
a) Discounting. It is a mode of loaning money
with the agreement that interest is deducted in
advance
in-
1.03. CREDIT CARD. Every credit card transaction
Sale
volves three contracts, namely: (1) Contract of
merchant or busi-
between the card holder and the
ness establishment that accepted the credit card; (2)
loan agreement between the credit card holder
The
and the credit card issuer; and (3) the promise to pay
merchant
the credit card issuer and the
or
between
business establishment.

Art. 1933, NCC.

Tbid.
$Art. 1934, ibid. BPI Investment
S DBP, 44 SCRA 445 (1972);
Inc. v.
Daura Import and Export Co., 2002.
No. 133632, February 15,
COurt of Appeals, et al., G.R. L-19190, November 29,
1922.
eople v. Concepcion, G.R. No. Inc.,
International, G.R. No. 174269, August
25,
antaleon v. American Express
 OF RULES AND DIST
SIMPLESTINCTIO
S U M M A R Y

1.03. BETWEEN
COMMODATUM,
OAN AND
DEPOSIT

C O M M O D A T U M
SIMPLE LOAN

is for the
vOLUNTARYDEPOST
The purpose is
The purpose
is the use

The p u r p e
borrower to consume
safekeeping.
of the thing. what was borrowed.

the
NOTE: Use of
inciuded
truits is not
unes exprssly
provided for.
Real Contract Real Contract
Real Contract
pertarted upon
delivery
Movable and
Involves Movables (1) Extrajudicial Deposit
- Movables Only
Immovable Things
may be borrowed.
(2) Judicial Deposit-
Movable and Immovable.
Gratuitous May be Gratuitous or May be Gratuitors or
Essentially Onerous (Example: If Onerous
NOTE: If onerous or
interest is payable)
compensation is paid
then the contract may
be Lease.
Consumable or Non-
TheObject is generally The object is money or
consumable although for
non-consumable. other fungible things.
EXCEPTION: If
safekeepingonly.
the purpose is not
consumption but foor
exhibition
Bailor/Lender retains The bailee/borrower Depositor retains
Ownership of the thing | becomes the owner or
Ownership
ofthething

delivered the thing delivered. delivered.

The Depositary must
There is an
to retum the
obligation The bailee/borrower the
thirng
same

same becomes the owner return

thing. hence, there is no ob-

ligation to return the
same thing.

Arts. 1935 and

Art 1966, idid. 1940, NCC.
Art. 1935,
Second clause, ibii
 PART XI -CREDIT
A. LOAN AND TRANSACTIONS 701
DEPOSIT
Death of the lender
or the borrower Death of the lender does
not If gratuitous deposit
extinguishes extinguish the loan. Death of the depositor
Commodatum or the depositary
because it is
purely extinguishes the
PERSONAL in deposit.
character.2 If for compensation
Death of the depositor
and or the depositary
DOES NOT extinguish
Generally, the bailor The bailee-borrower the deposit.
bears the loss of the Generally, the depositor
bears the loss of the bears the loss of the thing
thing due to fortuitous thing delivered. Res Perit |due to fortuitous event.
event. Domino.
The bailor/lender The lender must be |The depositor need not
need not be the owner the owner or at least be the owner of the thing
of the thing loaned. capable of transferring deposited. However, the
ownership. depositary CANNOT be
the owner of the thing
|deposited.
Generally, the lender The lender-bailor must The depositor can
must wait for the ex- wait for the expiration of | demand the return of the
piration of the period the period agreed upon. thing at any time.
agreed upon or the
accomplishment of
the use for which the
commodatum has
been constituted."
Exception: (1) In case
of Urgent Need;5 (2)
In Precarium.

commodatum acquires the use

2. COMMODATUM. The bailee in
fruits.
of the thing loaned but not its
is essentially gratu-
a) Gratuitous. Commodatum
is to be paid by him
itous. If any compensation ceases to be a
the contract
who acquires the use,
commodatum.»

Art. 19391], NCC.

Art. 1995, ibid.
Art. 1946, ibid.
Slbid.
Art. 1935, ibid.
 REVIEWE
702

PERSONAL IN NATURE. Commodatum is purely

2.01.
personal in character. Consequently:
The deathof either the bailor or the bailee extin-
(1)
guishes the contract;

(2) The bailee neither lend nor lease the obiect

can
of the contract to a third person. However,
the members of the bailee's household mayv
make use of the thing loaned, unless there is a
stipulation to the contrary, or unless the nature
of the thing forbids such use.
2.02. OBLIGATIONS OF THE BAILEE.

a) Expenses for Use and Preservation. The bailee

is obliged to pay for the ordinary expenses for
the use and preservation of the thing loaned.
However the bailee does not answer for the
deterioration of the thing loaned due only to the
use thereof and without his fault."
b) Loss. The bailee is lHablefor the loss of the thing,
even if it should be through a fortuitous event in
the following cases:
(1) If he devotes the thing to
any purpose
different from that for whieh it has been
loaned;
(2) If he keeps it longer than the period stipu-
lated, 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 s
a
stipulation exemption the bailee trom
responsibility in case of a fortuitous event
17Art. 1939, NCC.
Art. 1941, ibid.
1Art. 1943, ibid.
20Art. 1941, ibid.
 PART XI-CREDIT TRANSACTIONS 703
A. LOAN AND DEPOSIT

(4) If he lends or leases the thing to a third

per-
son, who is not a member of his household;
(5) If, being able to save either the thing bor-
rowed or his own thing, he chose to save
the latter.
c) Right of Retention. The bailee cannot retain
the thing loaned on the ground that the bailor
owes hinm something, even though it may be by
reason of expenses. However, the bailee has a
right of retention for damages mentioned in Art.
1951.
(1) Under Art. 1951, the bailor is liable to the
bailee if the bailee was damaged because
of a flaw or defect in the thing of which the
bailor was aware. The bailor cannot exempt
himself from liability by abandoning the
thing
d)
d) Solidary Liability. When there are two or more
bailees to whom a thing is loaned in the samne
contract, they are liable solidarily

RETURN OF THETHING. Incommodatum, the

bailor
2.03.
till after
cannot demand the return of the thing loaned
ór after the
the expiration of the period stipulated,
accomplishment of the use for which the commodatum
has been constituted.2

the
bailor may ask for the return of
2.03.01. Exceptions: The of Bailor's
cases: (1) In case
thing in the following
Precarium; (3) The
bailor commits
urgent need; (2) under Art. 765."
of the Acts of Ingratitude
any
use by the
Need. In case of temporary
a) Urgent the contract of
because of urgent need,
bailor while the thing is
in
commodatum is suspended
possession of
the bailor.
the

Art. 1945, NCC.

Art. 1946, ibid.
Art. 1948, ibid.
"Art. 1946, ibid.
 REVIEWER ON CIVIL LAW
704

2.03.02. Precarium. The bailor may demand the thing at wi

and the contractual relation is called a precarium
in
the following cases:

(1) Ifneither the duration of the contract nor the

to which the loaned should use
thing be
has been stipulated; or devoted,
(2) If the use of the thing is merely tolerated by the
owner.3

2.04. EXPENSEs.

TYPE OF EXPENSES WHO IS LIABLE

Ordinary Expenses for the Bailee-Borrower
Use and Preservation of the
Thing Loaned.
Extraordinary Expenses for Bailor-Lender
Preservation
NOTE: Bailee may pay with
notice to the Bailor and
prior
subject to
the reimbursement of the later.
Extraordinary Expenses Equally by the bailor and bailee.
arising on the occasion of
the actual use of the
thing
by the bailee (even without
the bailee's fault)

PROBLEM:
Betore he left for
Adventure Riyadh to work
a mechanic, Pedro
as let
with Tito, with the
van
use it for one understanding that the latter i
year for his personal or
Riyadh. He did not tell Tito that family use while Pedro vorks
had the van tuned the brakes of the van were
up and the
brakes tau nt
of P15,000. After repaired. He spent
a
it consumed too using
the vehicle for that
much fuel. To make two weeks, Tito dIse lease sed it
to Annabelle. Two up for the
months later, Pedro
asked Tito to return the returned to the Philpexpensesines
and and

van.
Unfortunately, Tito
Tito.
the van was
accidentally damaged by a cargowhile being drive
truck without his ta

25Art. 1947, NCC.

 PARTXICREDIT TRANSACTION, 705
A. LOAN AND DEPO6IT

a)
Who shall bear the P15,000 sppent for the repair of the van?
Explain.
b) Who shall bear the costs for the van's fuel, oil and other
materials while it was with Tito? Explain.
Does Pedro have the right to retrieve the van even before the
lapse of one year? Explain.

d) Who shall bear the expenses for the accidental

damage
caused by the cargo truck, granting that the truck driver and
truck owner are insolvent? Explain. (2005 Bar Exams)
A: a) Pedro shall be liable for expenses for the faulty breaks while
Tito shall be liable for expenses
tune-up. The facts in the given
problem show that Pedro and Tito entered into a contract of
commodatum. Pedro is liable for the expenses for the
faulty
breaks because in a contract of commodatum, the bailor-lender
shall be liable for the extraordinary expenses incurred used
for the van borrowed by Tito; Pedro did not even disclose
the need for such repairs. Tito shall shoulder the amount that
was spent for the
tune-up; tune-up is an ordinary expense
for the use and preservation of the van that was borrowed.
With respect to the faulty breaks, Art. 1949 of the New
Civil
Code provides that the bailor shall refund the
extraordinary
expenses during the contract for the preservation of the thingg
loaned provided the bailee brings the same to the
of the bailor before knowledge
incurring them. The bailee needs to wait
for the reply of the bailor and
only exception is when the
repairs are so urgent that the reply to the notification cannot
be awaited without
danger. In this case, the bailor-lender
was
already aware of the faulty breaks and the van cannot bee
used without danger to the user.
b) Tito shall shoulder the cost of the fuel and other materials.
Article 1941 of the New Civil Code provides that the
borrower shall be liable for ordinary expenses. The cost of
the fules and the like are
ordinary expenses for the use of the
van.

c) No, Pedro cannot demand the return of the van betore the
expiration of the one-year period agreed upon. Article 1946 of
the New Civil Code provides that the bailor cannot demand
the return of the
thing loaned till after the expiration of the
period stipulated. The exception is if in the bailor, or Pedro in
the present case, has urgent need for the van, in which case,
Pedro may demand its return or
temporary use.
d) The cost of
repairing the van shall be divided between Tito
and Pedro. The second paragraph of Art. 1949 of the New
Civil Code provides that if extraordinary expenses arise on
the occasion of the actual use of
the thing by the bailee, even
 REVIEWER ON CIVIL LAW
706

though the bailee acted without fault, they shall be borne

equally by both the bailor and the bailee unless there isa
stipulation to the contrary. However, it the driver of the caroo
truck was at fault, the amount of damages or the expenses
argo
that they incurred can be recovered from the driver and/or
the latter's employer of the van based on quasi-delict.
or

3. SIMPLE LOAN OR MUTUUM. 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*
a) When Barter. In simple loan, the object is mon-
ey and other fungible things. If the thing to be
exchanged is NON-FUNGIBLE then the con
tract is barter."
b) Transfer of Ownership. Ina contract of simple
loan, "one of the parties (creditor) delivers
or other consumable money
on
thing to another (debtor)
the condition that the same
amount of the
same kind and
quality shall be paid. Owing to
the consumable nature of
the thing loaned, the
resulting duty the borrower in a contract
of
of loan is to
pay, not to return, to the creditor
or lender the
very thing loaned. This
why the ownership of the explains
transferred to the debtor thing loaned is
contract.
Ownership
upon
of the
perfection of the
thing loaned having
transferred, the debtor enjoys
conferred to an owner of all the rights
right to use and enjoy property, including the
the thing by its use (jus utendi), to consume
(jus abutendi), and to dispose
jus disponendi), subject to such
may be provided limitations as
by law. Evidently, the
relationship between
a
a resultingn
creditor and debtor
contract of loan
cannot be
fiduciary."* characterized as
26Art. 1953, NCC.
Art. 1954, ibid.
2Republic v. Sandiganbayan (First Division), G.R. Nos
April 12, 2011. 166859, 169203, 18070
 PART XI-CREDIT TRANSACTIONS 707
A. LOAN AND DEPOSIT

(1) A debtor can appropriate the thing loaned

without any responsibility or duty to his
creditor to return the very thing that was
loaned or to report how the proceeds
were used. Nor can he be compelled to
return the proceeds and fruits of the loan,
for there is nothing under our laws that
compel a debtor in a contract of loan to
do so. As owner, the debtor can dispose of
the thing borrowed and his act will not be
considered misappropriation of the thing.
The only liability on his part is to pay the
loan together with the interest that is either
stipulated or provided under existing
laws.
What should be Paid. If what was loaned is a
c)
fungible thing other than money, the debtor
owes another thing of the same kind, quantity
value.
and quality, even if it should change in
In case itis impossible to deliver the same kind,
of the loan
its value at the time of the perfection
shall be paid.»
the
3.01. BANK DEPOSIT. A bank deposit is governed by
provisions loan.31 When a savings account
on simple
known as demand deposit)
or a checking account (also
isopened, a creditor-debtor relationship ensues with
and the bank as debtor."
the depositor as the creditor
of the
with the existence
a) Effects. Consistent the following rules
debtor-creditor relationship,
jurisprudence:"
were laid down in pertinent
use as its own the
The bank can make
(1) Said amount is not be-
money deposited."

public v. diganbayan (First Division), supra

Art. 1955, NCC.
Art. 1980, ibid. Instruments
and Negotiable
0, Vol.limoteo Aquino,
B. Ac Banking Law
Notes and Cases on
, 2010
ed., p. 4
1a., pp. 41-42.
Tan Tiong Tick 65 Phil.
414 (1938).
1ck v. American Apothecaries,
 REVIEWER ON CIVIL LAW
708

ing held in trust for the depositor nor for

safekeeping
Third persons who may have a right to the
(2)
cannot hold the bank re-
money deposited
sponsible unless there is a court order or
garnishment. The duty of the bank is to
not to
its creditor-depositor and per-
sons. If a third person has a valid right
third
over the money deposited, he must prove
the same before a court of competent juris-
diction.
(3) The officers of the bank cannot be held li-
able for estafa if they authorized the use
of
the money deposited by the deposi-
tor. There would be no liability for estafa
under Art. 315(1)(b) of the Revised Penal
Code even if the bank failed to return the
amount deposited.» The money that is de-
posited is not held in trust by the bank.
4) Bank deposits are not preferred credits
under the Civil Code
(5) The bank has the
It off the
can set
right to
compensation.
deposits with the indebt-
edness of the depositor that are due and
demandable.» It can likewise set-off the
value of dishonored checks that
pre- were
viously credited.»
3.02. INTEREST. Interest shall be due ONLYif the
ing concurs: (1) Payment of Interest is follow-
(2) The stipulation to pay interest agreed upon;
and (3) The Tate must not be
must be in writing
against the law (usu-
3Fulton Iron Works Co. v. China Banking Corp, G.R. No.
1930. 32576, November 6,
Guingona v. City Fiscal of Manila, 128 SCRA 577 (1984); Serrano v.
96 SCRA 96 (1980). Central Bank,
Central Bank v. Morfe, 63 SCRA 114 (1975).
34Gullas v. Philippine National Bank, 62 SCRA 519 (1935).
3oBank of Phil. Islands v. Court of Appeals, et al., G.R. No. 136202,
Associated Bank v. Tan, G.R. No. 156940, December 14, 2004. January 25, 2007;
 PART XI-CREDIT TRANSACTIONS
A. LOAN AND DEPOSIT
709

rious if applicable) or against morals and public nol

cy (unconscionable).
a) Payable In Kind. In the
determination
of the
interest, if it is payable in kind, its
value shall be
appraised at the current price of the products
goods at the time and place of
payment.
or

b)Legal
b Interest. If there is a
written agreement
that interest will be but paid the rate is not
lated, stipu
legal interest is the controlling rate.
c)Escalation Clause. A party cannot unilateral
increase the rate of interest. Any
stipulation that
allows one of the parties to unilaterally increase
the interest rate is not valid.
d) Payment by Mistake. If the borrower pays inter-
est when there has been no stipulation therefor,
the-provisions of the New Civil Code concern-
ing solutio indebiti, or natural obligations, shall
be applied, as the case may be."

PROBLEMS:
. T h e parties in a contract of loan of money agreed that the yearly
increased if there is a law that
nterest rate is 12% and it can be
the
interest rates. Suppose OB,
would authorize the increase of
rate of interest to be paid by
lender, would increase by 5% the
TY, the borrower, without a law authorizing
suchincrease,
the
would
and valid? Why? Has TY a remedy against
action be just
OB's (2004 Bar Exams)
imposition of the rate increase? Explain.
and valid. Unilateralincrease or
A: increase of interest is notjust of OB violates
he law. The act
allowed under the and conditions
interestby 5% is not
contracts;
the terms be
the of mutuality of and cannot
principlk
of he contract must be agreed upon by
the parties

changed except by mutual agreement the bank

at 18% per
from
loan proviso
P300,000 housing
L a
Samuel orrowed note
contained

thelim
annum
annum iinterest. owever,
the promissory
increase
interest
within
objections
to the
at the bank "reserves the right
over

proviso,
of such
its
allowed by law." By virtue

Art. 1958, NCC.

At1960. ihid
 REVIEWER ON CIVIL LAW
710

the bank increased the interest rate

periodically
of Samuel,
reached 48% per annum. Finally, Samuel filed an action question
unsT
it
the right of the bank to increase the interest rate up to 48% T
bank raised the defense that the Central Bank of the Philippine
nad already suspended the Usury Law. Will the action prosper
or
not? Why? (5%)
A: The action of Samuel will prosper. The increase of interest to 48
is void for two reasons. The bank cannot unilaterally increase the
rate of interest. The unilateral increase violates the rule on mutual
ity of contract. Any increase in the rate of interest should be with
the consent of Samuel. Secondly, even if there is an agreement, the
48% interest is unconscionable, hence, it is void for being contrary
morals and public policy.
3. In a contract of loan payable in five years, the parties agreed in
writing that the interest for the first three years is 12% per annum
and while the interest for the last two
years is 15% per annum. Is the
agreement regarding the increase of interest valid?
A: Yes, the agreement that the interest rate will increase to 15% is val-
id. This rate was fixed
by mutual agreement of the parties when
they entered into the contract of law. This is nota case
of unilateral
increase of the rate of interest. In
of interest is reasornable and not
addition, it appears that the rate
unconscionable.

3.03. INTEREST ON INTEREST

INTEREST). The general rule(COMPOUNDING
OF
is that interest due and
unpaid shall not earn interest.« EXCEPTIONS: Interest
due shall interest in the following
earn
cases:
(1) Uponjudicial demaned;"
(2) When
compounding
of interest is
contracting parties may byagreed
-

the upon
capitalize the interest due and unpaid,stipulation
which as
added principal, shall earn
3.02.01. Usury. Usury is legally non-existent
new
interest.
although Act No. 2622 as amended isnow because
the BSP lifted the still good law
is no more usurious ceiling on interest. Hence, there
rate of interest at this time.

42Art. 1959, NCC.

43Arts. 1959 and 2212, ibid.
4Art. 1959, ibid.
 PART XI-CREDIT TRANSACTIONS 711
A. LOAN AND DEPOSIT

a) Legal Interest. The legal rate of interest is now

6% per annum even for loans or forbearance of

money, goods, or credit.s

b) Unconscionable. Even if there is no usury, the

agreement with respect to the rate of interest
may be considered void for being contrary to
morals and public policy because the rate is
unreasonable, unconscionable and confiscatory.
For example, an interest of 80% per annum
is unconscionable and the agreement to pay
interest is therefore void (See Part IV [A] Note
4.03.02).
4. DEPOSIT.
4.01. DEFINITION. There is deposit when one person de-
livers and the other person receives a thing belong-
ingto another, with the obligation of safely keepingit
and.of returning the same."

a) When Not Deposit. If thé safekeeping of the

thing delivered is not the principal purpose of
the contract, there is no deposit but some other
contract like commodatum. \o

b) Agreement to Constitute. An agreemernt to con-

stitute a deposit is binding, but the deposit itself
is not perfected until the delivery of the thing.
4.02. KINDS OF DEPOSIT.
a) Extrajudicial Deposit which can either be:
(1) Voluntaryresultofvoluntary agreement.
(2) Necessary made in compliance with a
legal obligation.
b) Judicial Deposit.-when the Court orders the
attachment or seizure of property.

BSP Circular.
Art. 1962, NCC.
712 REVIEWER ON CIVIL LAW

4.03. GENERALLY GRATuITOUS." A

deposit is a gra.
tuitous contract. EXCEPTIONS? (1) when
re is
there is aan
agreement to the contrary, or (2) the depositary is
gaged in the business of storing goods. en-

4.04. VOLUNTARY DEPOSIT. A

that wherein the delivery is made
voluntary
depositis
by the will of the
depositor." A contract of deposit may be entered into
orally or in writing.
a) Safety Deposit Box. A Contract for the Rent of
Safety Deposit Boxes is a special type of
it is not
lease if the full and absolute deposit;
and control is not possession
given to the "renter."s
b) Free Valet
free valet
Parking. When restaurant offers
a
parking to its customers, the restaurant
company is constituted
as
DEPOSITARY. The
customer entrusts his or her car
to the restaurant
with the
expectation the car's safe return at the
end of the meal.
of
Stub" The stipulation in the "Parking
holding the restaurant not liable for
damage-being contract of adhesion any
a
void
in view of the nature of
the
is
4.04.01. CAPACITY. transaction.
STATUS OF PARTIES
RIGHTS AND
Depositor- Incapacitated OBLIGATIONS
Depositary's duties remain but
Depositary-Capacitated the Legal Representative may
ask for the return of the thing
Depositor- Capacitated
Depositor has the right: (1)
demand the return of the thing
Art. 1965, NCC.
Art. 1968, ibid.
50 Art. 1969, ibid.
51CA
Agro-Industrial Development Corporation
No. 90027, March 3, 1993.
Court of Appeals, et al G.R.
v.

S2Triple-V Food Services, Inc. Filipino

v.
al
February 21, 2005. Merchants Insurance Co., G.R. No. I60544,
S3Art. 1970, NCC. 1u
 PART XI-CREDIT TRANSACTIONS
A. LOAN AND 713
DEPOSIT

WHILE still in
depositary's
possession; (2) to demand from
Incapacitated the
D e p o s i t a r y

depositary the amount

by which he was benefitted
or enriched;
(3) recover the
thing from a third person who
acquired the same.*

404.02. Obligations of Depositary.

(1) To hold the
thing and keep it safe through
the exercise of due
diligence;
(2) To return the thing when
required to the
depositor or the latter's heirs or successors;
The thing deposited shall be returned
with all its products, accessories and
accessions.s
(3) To be liable forthe loss of the thing through
his fault or
negligence;
(4) Not to deposit the thing with a third
person
unless allowed through stipulation
)
(i) Even if allowed -

the depositary
should not deposit it with a
person
who is manifestly careless or untit
otherwise he or she is still liable.
(5) Not to change
the way of the deposit.
EXCEPTION: 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.
(6) Notmake use of the thing deposited without
the express permission of the depositor.
Otherwise, he shall be liable tor damages.

"Art. 1971, NCC.

Art. 1983, ibid.
Art. 1973, ibid.
"Art. 1974, ibid.
 LAW
REVIRWRRON CIVIL.
714

EXCEPTION: When the preservation

of
the thing deposited requires its use, it must
be used but only for that purpose
(i) Effect of Permission to Use. 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 pur-
pose of the contract, The permission
shall not be presumed, and its exis-
tence must be proved.

(7) To be liable for the loss of the

thing through
a fortuitous event in the
following cases:
(i) If it is só
stipulated;
(ii) If he uses the thing without the de-
positor's permission;
(ii) If he delays its return;
(iv) If he allows others to use it, even
though himself may have been au-
he
thorized to use the same.
(8) The depositary cannot demand
that the
depositor prove his ownership of the
deposited.* thing
)
Nevertheless, should he
the discover that
thing has been stolen and who its
true owner
is, he must advise the lat-
ter of the
of such deposit. If the owner, in
spie
information, does not claim
within the
period of one
depositary shall be relievedmonth,
tne
of all re
sponsibility by returning the thin
deposited to the depositor.
SArt. 1977, NCC.
Art. 1978, ibid.
Art. 1979, ibid.
1 Art. 1984, ibid.
 PART XI-CREDIT TRANSACTIONS 715
A. LOAN AND DEPOSIT

(ii) If the depositary has reason-

able grounds to believe that
the thing has not been
lawfully
acquired by the depositor, the
tormer may return the same.

(9) Foradepositary holding certificates, bonds,

securities or instruments which earn inter-
is obliged: (i) to collect
est,the depositary
the latter when it becomes due, and (ii) to
take such steps as may be necessary in or-
der that the securities may preserve their
value and the rights corresponding to them
according to law.
If Sold by Mistake. The depositor's heir who
a)
in good faith may have sold the thing which
he did not know was deposited, shall only be
received
bound to return the price he may have
or to assign his right of action against the buyer
in case the price has not been paid him."
404.03. Obligations of the Depositor.
the deposit is
(1) To pay the consideration if
not gratuitous;
to reimburse
(2) If the deposit is gratuitous,
he may
the depositary for the expenses the
have incurred for the preservation of
thing deposited."
for any
the depositary
(3) To reimburse character of the
from the
loss arising of the
unless at the time
thing deposited, deposit the former w a s
c o n s t i t u t i o n of the know
expected to
or was
not
not aware of, the thing, o r
character of
the dangerous the
notified the
depositary of
unless he

Art. 1975, NCC

Art. 1991, ibid.
Art. 1992, ibid.
 REVIEWER ON CIVIL
LAW
716

same, or the latter was aware of it without

advice from the depositor.

a) Right of Retention. The depositary may retain

the thing in pledge until the full payment of
what may be due him by reason of the deposits

4.03.04. Extinguishment. A deposit is extinguished:

(1) Upon the loss or destruction of the thing depo-
sited;
(2) In case of a gratuitous deposit, upon the death of
either the depositor or the depositary.
NECESSARY DEPOSIT. A deposit is necessary:
4.05
(1) When it is made in compliance with a legal obli-
gation
(2) When it takes place on the occasion of any ca-
lámity such as fire, storm, flood, pillage, ship-
wreck, or other similar events.
4.05.01. Hotels and Inns. 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:

(1) that notice was given to them, or to their

employees, of the effects brought by the
guests and (2) that, on the part of the
guests, they take the precautions which
said hotel-keepers or their substitutes ad-
vised relative to the care and vigilance o
their effects.
a) Vehicles. The hotel-keeper is liable for the
vehicles, animals and articles which have been
introduced or placed in the annexes of the
hotel.

65Art. 1993, NCC.

6 Art. 1994, ibid.
57Art. 1996, ibid.
Art. 1998, ibid.
Art. 1999, ibid.
 PART XICREDIT TRANSACTIONS 717
A. LOAN AND DEPOSIT

b) Liability for Acts of Servants and Employees.

The hotel or inn keepers shall be liable for 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 às well as stranger
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."
Thief
c) and Robber. The act of a thief or robber,
who has entered the hotel is not deemed force
majeure.
(1) Exception: The act of a thief or robber is a
defense if it is done with the use of arms
or
through an irresistible force. Hence,
the depositary is not liable under this
exception.
d) Not Liable for Acts of Guests. The hotelkeeper
is not liable for
compensation if the loss is:
(1) due to the acts of the guest, his
family,
servants or visitors, or
(2) if the loss arises from the character ot the
things brought into the hotel."
e) Prohibited Acts. The hotelkeeper cannot tree
himself from responsibility by posting notices
to the effect that he is not liable for the articles
brought by the guest.
(1)
(1) Any stipulation between the hotelkeeper
and the guest whereby the responsibility
of the former is suppressed or diminished
shall be void The reason for this is that

Art. 2000, NCC.

Art. 2001, ibid.
Art 2002, ibid.
laryArt.
17, 2003,
2005 ibid; YHT Realty Corporation v. Court of Appeals, G.R. No. 126780,
 REVIEWER ON CIVIL LAW
718

the hotel business is imbued with puhl:

interest"Catering to the public, hotelkee
ers are bound to provide not only
for hotel guests and security to their
lodgings
per-
sons and belongings. The twin duty cCOn.
stitutes the essence of the business. The
law in turn does not allow such duty to the
public to be negated or diluted by any co
trary stipulation."a Thus, the hotelkeeper
is liable even if it made its guest sign an
"Undertaking" to release and hold free and
blameless the hotelkeeper from any liabil-
ity from any loss of the deposit box where
the properties of the guest was kept (the
contents of which were taken by unauthor-
ized persons).73
Security: Right to Retain. The hotelkeeper 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."

B. SECURITY TRANSACTION

1. GUARANTY AND SURETYSHIP

1.01. DEFINITION OF GUARANTY. By guaranty, a

person, called the guarantor, binds himself to the
creditor to fulfill the obligation of the principal debtor
in case the latter should fail
to do so.7
1.01.01. Personal Security Agreement. The contracts or
guaranty and suretyship are both
personal secu
transaction that secures a principal
is the
obligation
personal obligation of the natural or
or juridical
juriaa
entity.

74YHT Realty Corporation v. Court of

75Tbid.
Appeals, supra.
76Art. 2004, NCC.
Art. 2047, ibid.
 PART XI-CREDIT TRANSACTIONS 719
B. SECURITY TRANSACTION

a) This should be distinguished from a Real Se-

curity Agreement like mortgage, pledge and
antichresis where property is given by way of
collateral.

b) Accessory. Both personal security agreements

and real security agreements are accessory con-
tracts because they secure the principal obliga-
tion.

1.02. CHARACTERISTICS OF GUARANTY.

(1) Gratuitous. A_guaranty is gratuitous, unless
there is a stipulation to the contrary
(2) Accessory. Guaranty secures the paymernt of ob-
ligation, hence, it cannot exist without a princi-
pal obligation.
(i) The obligation to be secured may however
be (1) voidable, (2) únenforceable, or (3)
natural obligation, or (4) conditional
obligations."
3) Subsidiary. The guarantor will pay only if the
principal debtor cannet pay and has no proper-
ties to answer for the obligation.
4) Conditional. Certain conditions (Example:
exhaustion) must be complied with before the
guarantor can be made liable.
(5) Unilateral- The obligation is only the
on
of the guarantor in favor of the creditor. The
part
debtor need not even consent.
i) If the debtor DID NOT CONSENT to the
guaranty- apply Arts. 1236 and 1237 on

payment by third persons."

"Art. 2048, NCC.

"Art. 2052, ibid.
Art o
 REVIEWER ON
720

(6) Express. A guaranty is not presumed; it must be

express and cannot extend to more than what is
stipulated therein.s

(7) Covered by Statutes of Fraud. Guaranty, as well

as suretyship, is a promise to answer for a debt
hence, it must be in writing

1.03.
KINDS. Guaranty may be: (1) Conventional-by
agreement; (2) Legal>imposed by law; (3)Judicial
- constituted by court; (4) Gratuitous; (5) Onerous;
(6) Definite- secures the principal obligation only:
(7) Indefinite or Simple- secures.
a) Sub-Guaranty. It is a guaranty to secure the
obligation of another guarantor.
1.04. DEBTS TO BE GUARANTEED. The guarantor and
the surety guarantees the principal obligation only
UNLESS it is indefinite, in which case, the security
extends to both the principal, accessory obligations
like payment of interest and charges, and judicial
costs incurred after he was
judicially required to pay"
a) Unless a specific period is fixed in the contract
or the bond, the
obligation of the surety subsists
so long as the principal obligation subsists.
1.04.01. Amount. Aguarantor or surety may bind himself tor
LESS, but NOT FOR MORE than the principal debtor
both as regards the
amount and the onerous nature
of the conditions. Should
he have bound himselt
more, his obligations shall bé reduced to the limitsfor
Or
that of the debtor.
a) How to Determine Extent. The extent of a
surety's liability is determined by the lan8ua
of the
guaranty or suretyship contract itsel.
cannot be extended by implication beyona

8Art. 2055, NCC.

8Art. 1403{2], ibid.; Aglibot Santia, 687 SCRA 283
v.
Art. 2055, ibid. (2012).
85Art. 2054, ibid.