angel - credit transactions.pdf

CREDIT TRANSACTIONS TITLE XI: LOAN Credit -

Belief or trust by a person in another’s ability to comply with an obligation The ability to borrow money or thing by virtue of the confidence or trust reposed by a lender that the borrower will pay what he may promise

Credit Transactions Refers to the contracts or agreements based on said trust or credit Scope of Credit Transactions (the subject involves:) a. The PRINCIPAL contracts of LOAN and DEPOSIT b. The ACCESSORY contracts – depends on the existence of the aforementioned contracts and which tends to strengthen said “belief” or “trust” because of the security given: 1. Personal guaranty – person’s personal credit is involved as in guaranty proper and suretyship 2. Real guaranty – “belief” is strengthened with the use of property (real: real mortgage and antichresis; personal: contracts of pledge and chattel mortgage) c. Preference and concurrence of credits Bailment defined Bailler: means to deliver in French The delivery of property by one person to another in trust for a specific purpose, with a contract, express or implied, that the first shall be faithfully executed and the property returned or duly accounted for when the special purpose is accomplished or kept until the bailor reclaims it Generally, a bailment may be said to be a contractual relation. To be legally enforceable, it must contain the essential elements of a valid contract. It may also be created by operation of law. Parties in a Bailment A. Commodatum a. Bailor – the giver; commodatario b. Bailee – the recipient of the thing bailed; comodante B. Mutuum a. Lender – the one who delivers b. Borrower – the one who receives Kinds of Contractual Bailment In every bailment, there is an obligation on the part of the bailee to restore the subject of the bailment in the same manner or in altered form or to account thereof Divided into three heads: o For the sole benefit of the bailor – gratuitous deposit and madatum (see page 3 of de leon) o For the sole benefit of the bailee – commodatum and gratuitous simple loan or mutuum o For the benefit of both parties – deposit for a compensation Q: what is the consideration or cause in a bailment of loan? A: borrower – cause is the acquisition of the thing Lender – cause is the right to require the return of the same thing or its equivalent Note: if despite the issuance of a check to the prospective borrower, the money is NOT given, there is NO contract of loan

General Provisions Article 1933 Loan: one of the parties delivers to another something which comprises a commodatum or mutuum; it must be in the form of money or something circulation as money; it must be repayable absolutely and in all events Two kinds of loan: o Commodatum (loan for use)– something not consumable; gratuitous; bailor retains the ownership of the thing loaned o Mutuum or Simple Loan (loan for consumption) – money or other consumable thing; may be gratuitous or with a stipulation to pay interest; ownership passes to the borrower 1

Note: the contract of loan is governed by the rules as to the requisites and validity of contracts in general Commodatum vs. Mutuum COMMODATUM Character Essentially gratuitous Object Non-fungible object (but may be consumable; may involve real and personal property Purpose Transfer its use (ownership retained by the lendor or bailor) Effect Restoration of the very thing loaned (identical thing) Risk

Duration

On the lender (as owner)

MUTUUM May be gratuitous or onerous Object is money or fungible thing; personal property only Transfer its ownership (to borrower or bailee) Restoration of an equal quantity or quality (allow substitution) On the borrower (as debtor of a generic thing)

Personal in character

Not personal in character

Referred to as loan for use or temporary possession May be claimed before the end of the term if urgently needed

Referred to as loan for consumption May not be claimed until the term expires or is forfeited

Characteristics of a Loan 1. Real – Loan is perfected by the delivery of the object Loaned (Art. 1934) 2. Unilateral – only the borrower has the obligation to return. Note: to deliver is not an obligation of the lender because it s what perfects the contract of loan. Remember that if there is no promise then there is no obligation. Obligation comes after the perfection of the contract Q: when does delivery becomes an obligation? A: In Pactum de commodatum case (agreement to constitute commodatum). In the negotiation stage, if lender has agreed to accept a loan, a VALID CONSENSUAL CONTRACT or a PACTUM DE COMMODATUM already exists, but not the real contract of loan. In this case, there is an obligation to deliver the thing Loan vs. Discounting of a Paper (mode of loaning money) LOAN DISCOUNTING OF PAPER Interest is taken at the expiration of Interest is deducted in advance a credit Is generally on single-name paper Is always on double-name paper Note: the difference between a discount and a loan or forbearance is that the former does not have to be repaid. Further discounting is slightly more expensive for the borrower because interest is calculated on the amount loaned and not on the amount actually received. Loan vs. Deposit LOAN Purpose – to grant its USE to borrower Generally, the borrower pays only at the end of period Relationship is that of lender (creditor) and borrower (debtor) There can be compensation of credits

DEPOSIT Purpose – SAFEKEEPING by depository (who generally cannot use) The return of deposited things can be demanded by the depositor at any time Relationship is that of depositor and depositary NO compensation of thing deposited with each other (except by mutual agreement)

Escalation Clause It is a valid provision in a loan agreement provided that: o The increased rate imposed by the lender does not exceed the ceiling fixed by law or the monetary board o The increase is made effective not earlier than the effectivity of the law or regulation authorizing such increase o The remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase Cause or Consideration in a Contract of Loan 1. As to the borrower, the acquisition of the thing angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

2.

As to the lender, the right to demand its return or its equivalent

Article 1934 Speaks of the nature of the contract of loan: real contracts To effect either a commodatum or a mutuum, a delivery, either real or constructive, is essential Q: why is delivery necessary? A: because unless there is delivery, the borrower in commodatum cannot exercise due diligence over the thing loaned Q: is consent necessary in perfecting a contract of loan? A: yes. They must do so either personally or through an authorized agent, as in every obligation founded upon a contract. However, acceptance need not be actual but may be implied from circumstances.

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(6) Purpose : The right to use is limited to the thing loaned for a certain time or period. If the bailee is not entitled to the use of the thing, the contract may be a DEPOSIT not a Commodatum.

Case: Mina vs. Pascual Since there was no fixed period, the contract cannot be considered a commodatum Essential element of commodatum is that the use is for a certain period Artilce 1940 To stipulate that the bailee makes use of the fruits would not destroy the essence of a commodatum, for liberality is still the actual cause or consideration of the contract Note: such stipulation cannot be presumed.

Note: In an application for loan approved by corporation, there arises a perfected consensual contract of loan. While a perfect contract of loan can give rise to an action for damages, said contract does not constitute real contract of loan. Chapter 1 Commodatum

Case: Catholic Vicar vs. CA Issue was whether the occupation of petitioner results to acquisitive prescription SC: Petitioner can’t claim the land through adverse possession because claim is not grounded on ownership. The use of the property was due to commodatum and was merely tolerated by the owner

Section 1: Nature of Commodatum Concepts: Article 1935 (1) Commodatum is a contract where one of the parties (bailor/lender) delivers to another (bailee/borrower) a non-consumable object, so that the latter may USE the same for a certain period an later RETURN it Commodatum is essentially gratuitous. If compensation is present, the contract ceases to be a Commodatum. In such a case, there arises a lease contract. The right to use is limited to the thing loaned but not to its fruits (usufruct) unless there is a stipulation to the contrary.

Q: what is compensation? A: Compensation is what you pay on top of the thing loaned. (example: interest)

Case: Republic vs. CA The occupation of the Americans were merely transient If one is a holder of a possessory or information title and the government took that property, you may restore your rights over the property because your possessory right is merely suspended Kinds of Commodatum 1. ORDINARY - has a definite period stipulated. - One of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. - the possession of the bailee is more secure for he has the right to retain the thing loaned until the expiration of the period agreed upon, or the accomplishment of the use for which the commodatum has been constituted 2.

Note: Commodatum is similar to a donation in that it confers a benefit to the recipient Case: Republic vs. Bagtas Commodatum is essentially gratuitous, if you ask for payment it will become a lease In this case, the breeding fee destroyed the essence of commodatum Article 1936 (2) Subject matter: A Commodatum is generally non-consumable things, whether real or personal. Consumable goods however may be the subject of a Commodatum but only for purposes of EXHIBITION! Article 1937 (3) Movable or immovable property may be the object of commodatum Article 1938 (4) Bailor need not be the owner: Since ownership is not transferred in a Commodatum, the bailor need not be the owner of the thing loaned. It is sufficient that the bailor has such possessory interest in the subject matter or right to its use which he may assert against the bailee and the third persons although not against the rightful owner. Article 1939 (5) Commodatum is purely personal: o Death of either bailor or bailee extinguishes or terminates the contract unless, by stipulation the Commodatum is transmitted to the heirs of either or both parties. If there are two or more borrowers/bailee, the death of one does not extinguish the contract in the absence of stipulation to the contrary. o The bailee can neither lend nor lease the object of the contract to a third person. However, members of the bailees household may make use of the thing loaned, unless there is a stipulation to the contrary, or unless the nature of the thing forbids such use 2

PRECARIUM - no definite time or use stipulated, or use is merely tolerated. - One whereby the bailor may demand the thing loaned at will (Art.1947) if neither the duration of the contract nor the use to which the thing loaned should be devoted has been stipulated, or if the use of the thing is merely tolerated by the owner

Case: Quintos vs. Beck It was a contract of precarium: in the contract of lease, he was allowed to use the furnitures with the condition that he shall return it upon demand The return of the thing is upon the Bailor’s Demand or at his will The Bailee should return the objects at bailor’s residence or house Case: Catholic Vicar vs. CA If occupation is merely tolerated, Bailee cannot acquire adverse possession of the land Pactum de Commodando An accepted promise to deliver something by way of commodatum It is valid but no commodatum is perfected until delivery Requisites 1. CAPACITY - no special capacity. Any person entitled to possession may be the lender so long as his rights to the thing are not strictly personal. (Lender need not be the owner; a lessee may constitute a contract of Commodatum; a thief may even be a bailor.) 2. OBJECT - must be non-fungible. If consumable, valid so long as the use agreed upon will not to consume it (for exhibition purposes). It may be real or personal 3. CONSIDERATION - gratuitous. If not, it ceases to be a Commodatum. (maybe a lease) 4. FORM - no special form is required. Commodatum starts from the moment the thing is delivered. Features or Characteristics of Commodatum as a Contract 1. Real – perfected by delivery 2. Principal – because it can stand alone by itself; it does not depend on the existence or validity of another contract 3. Gratuitous – otherwise, the contract is one of lease 4. Personal in nature – because of the trust angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Section 2: Obligations of the Bailee

Section 3: Obligations of the Bailor

Right of a Bailee A personal right to use the thing, but not to use its fruits unless stipulated by the parties. He can neither lend nor lease the thing to a stranger who is not a member of his household because the contract is personal.

Article 1946 (1) Bailor should allow the use of the bailee (not really an obligation because he does not perform it; If bailee cannot use the object, bailor becomes liable) GR: bailor cannot demand immediate return of the thing loaned. He can only do so after the expiration of the period stipulated or after the accomplishment of the use for which the commodatum has been constituted EXC: he have urgent need of the thing (temporary use)

Obligations of a Bailee Article 1941 (1) Bailee: obliged to pay for the ordinary expenses for the use and preservation of the thing loaned Q: why should the bailee pay for such? A: because he is supposed to return the identical thing, so he is obliged to take care of the thing (diligence of a good father of a family) Article 1942 (2) Provides for instances when bailee is liable for the thing loss (even if due to a fortuitous event): o He devotes the thing to any purpose different from that for which it has been loaned – amounts to bad faith or abuse of generosity (badfaith) o If he keeps it longer than the period stipulated – guilty of a certain kind of default (incurs delay) o If the thing loaned has been delivered with appraisal of its value – the giving of the value was made to hold the bailee liable (the law presumes that the parties intended that the borrower shall be liable for the loss) o If he lends or leases the thing to a third person (not a member of his household) – this is prohibited by law (commodatum is purely personal) o Act of ingratitude (saving you own thing) – failure to exercise due diligence (bailee shows ingratitude) Note: a misuse or abuse of the property is ordinarily a conversion for which the bailee is generally held responsible, to the full extent of the loss Article 1943 (3) Speaks of non-liability for deterioration of the thing loaned without the fault of the bailee Hence, in the absence of agreement to the contrary, the depreciation caused by the reasonable and natural use of the thing is borne by the bailor Article 1944 (4) To return the thing at the expiration of the contract Reason for the law: bailment implies a trust that as soon as the time has expired, or the purpose accomplished, the bailed property must be restored to the bailor The right of retention is only justified by damages mentioned in Article 1951

Q: can the return become permanent? A: Yes. Because the law uses “its return” (meaning permanent) or temporary use. If thing is returned permanently, then the contract of commodatum is extinguished Note: the contract is suspended when the lender has temporary use and possession o the object. The period agreed will not be extended Article 1947 Precarium: bailor may demand the thing at will (2 kinds) o if neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated o If the use of the thing is merely tolerated by the owner Note: the possession of the borrower in precarium is precarious, that is, dependent on the lenders will. Article 1948 Bailor may demand the IMMEDIATE RETURN of the thing if the bailee commits any ACT OF INGRATITUDE specified in Article 765 1. If the donee should commit some offense against the person, the honor or the property of the donor, or of his wife or children under his parental authority; 2. If the donee imputes to the donor any criminal offense, or any act involving moral turpitude, even though he should prove it, unless the crime or the act has been committed against the donee himself, his wife or children under his authority; 3. If he unduly refuses him support when the donee is legally or morally bound to give support to the donor. (648a) Article 1949 (2) Bailor shall refund the EXTRAORDINARY expenses during the contract for the preservation of the thing loaned Proviso: Bailee should INFORM or NOTIFY bailor of such before incurring the expenses EXCEPT when they are so urgent Q: Why should the bailor be notified before incurring the expense? A: Because he should be given the discretion as to what he wants to do with his own property. IF bailor doesn’t want to preserve the thing, then he may not pay. -

Case: Quintos vs. Beck Effect of failure to return or violation of the contract makes you liable for expenses of delivery and expenses of storage fees or deposit to the sheriff Failure to return – he is liable to pay the legal expenses and other judicial costs which plaintiff would not have otherwise incurred Case: De los Santos vs. Jarra GR: No person is liable for loss due to fortuitous event This case is an EXCEPTION: when bailee is in delay or default He is under the obligation to indemnify the owner of the thing loaned by paying him the value. He should also be subjected to indemnity or the losses and damages caused thereby Note: Another instance when bailee is liable even if it due to fortuitous event: Appraisal value is given. The purpose of giving the appraisal vaule is to hold you liable for the loss. Exception to this if you agree that there is no liability Q: what if the bailor is obligated to the bailee, can bailee retain the object? A: No. Legal compensation cannot take place because 2 obligations are not the same. Article 1945 (5) Liability of two or more bailees to whom a thing is loaned in the same contract: SOLIDARILY LIABLE Note: in obligations and contract the GR is that plurality of parties results to joint obligation. It will only result to solidarity if it is (1) agreed upon, (2) provided by law, (3) nature of the obligation requires solidarity 3

If the EXTRAORDINARY EXPENSE arise on the occasion of the actual use of the thing by the bailee, even without his fault: expenses will be EQUALLY borne by both bailor and bailee

Article 1950 If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in Article 1941 and 1949, he is NOT entitled to reimbursement Those expenses not necessary for the use and preservation of the thing, or expenses for ostentation are borne by the borrower. Article 1951 (3) LIABILTY TO PAY DAMAGES FOR KNOWN HIDDEN DEFECTS Requisites: 1. There is flaw or defect in the thing loaned 2. That the flaw or defect is hidden 3. The bailor is aware of such flaw 4. He does not notify or advise the bailee of the same and; 5. The bailee suffers damage by reason of such flaw or defect Artcie 1952 -

Bailee has the right of RETENTION until paid of said damages Flaws referred to are hidden defects, not obvious ones

Provides for the effect of Bailor’s abandonment or giving of the object to the bailee: he is NOT EXEMPT from payment of expenses or damages

angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Q: what is the reason behind this law? A: the value of the thing borrowed might be less than the value of the expenses or damages

EXCEPTION: In case of urgent need in which case bailee may demand its return or temporary use. Reason: The right of the bailor is based on the fact that commodatum is essentially gratuitous. 3.

4. 5.

Destruction of the thing If the thing can no longer be used for the thing intended Q: What if the destruction was due to the bailee’s fault? A: egardless who caused the destruction, the commodatum is extinguished. But bailee is still liable for damages Death of the borrower or bailee – unless there is a stipulation to the contrary Ingratitude of the bailee (refer to Artcile 1948)

Chapter 2 Simple Loan or Mutuum

The money or property received by a partner was for a specific purpose (to buy the cigarettes) and if it was not possible to comply with such purpose, there is the duty to return such

a. b.

Gratuitous – if no stipulation of payment of interest With interest

Kinds

Note: if flaw is unknown to the bailor, he is not liable because commodatum is gratuitous. Termination: Causes of Extinguishment 1. Expiration of the time or use stipulated If there is an urgent need before due date, he can demand for the return Bailor can also temporarily borrow the thing then return the object to the bailee if due date has not expired yet 2. Claim of the lender GENERAL RULE: Allow the bailee the use of the thing loaned for the duration of the period stipulated or until the accomplishment of the purpose for which the commodatum was instituted.

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Requisites 1. Capacity of the parties No special capacity is required to be a lender EXCEPT ownership. But an emancipated minor may not borrow money without the consent of his parent or guardian. 2. Object Consumable Muttum involves money or any other fungible things. If not fungible, the contract is barter. 3. Consideration Gratuitous or onerous (interest). 4. Form No special form is needed; but there must be delivery, as the contract is real. o An accepted promise to deliver something by way of simple loan may be subject to the Statute of Frauds if not to be performed within one year. This contract is consensual as distinguished from loan proper which is real. Case: Saura Import and Export Co. vs. DBP In this case, the failure to deliver due to MUTUAL DISAGREEMENT absolved respondent from any liability of breach or failure to fulfill obligation Commodatum or Simple loan itself shall NOT be perfected until the DELIVERY of the object of the contract However, when bank approves your loan, there is a mere perfected consensual contract of loan (consensual contract to constitute the loan) Effects: Obligation of the Borrower Only

Concept A. Article 1953 Simply provides that ownership passes to the borrower, but he must pay later Mutuum is similar to an abnormal usufruct Note: a loan of money, however, may be payable in kind (Art. 1958)

Article 1954 It is a contract whereby one party delivers to another money or fungible thing, on the condition of returning the same kind, amount and quality. If the object loaned is not fungible but the borrower is to return another of the same kind and quality, it is barter.

Note: the term non-fungible in the present provision actually means NONCONSUMABLE. –an equivalent thing is returned. Case: Chee Kiong Yam vs. Malik Distinction between Mutuum and Commodatum M: borrower acquires ownership; either gratuitous or onerous; Since the borrower acquires ownership, there can be no misappropriation because they are allowed to dispose of the thing C: Bailor remains to be the owner; essentially gratuitous; If bailor fails or refuse to return the object, he may be prosecuted with Estafa Case: Tolentino vs Gonzales nd rd Distinction between Mutuum and Lease (note that the 2 and 3 distinctions are questionable as they are the same thing) M: You don’t have to return the exact thing L: You have to return the same thing M: Relationship of parties – obligor-obligee L: Relationship of parties – landlord-tenant M: Creditor receives payment for loan L: owner receives compensation or price Case: Liwanag vs. CA Distinction between Mutuum and Agency M: delivery of object to the bailee makes him the owner of such A: in a contract of agency, agent may be liable for Estafa as there was no transfer of ownership.

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To return the thing or amount borrowed at the period stipulated or fixed according to general rules

Article 1955 1. Liability of borrower of money is governed by Article 1249 and 1250  Art.1249. the payment of debts in money shall be made in the currency stipulated and if it is not possible to deliver such currency then in the currency which is the legal tender in the Philippines. The delivery of promissory notes payable to order or bills of exchange or other mercantile documents shall produce the effect of payment only when they have been cashed or when through the fault of the creditor they have been impaired. 

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

Q: If you agree that payment will be in a particular currency but such currency is not available at time of payment, what will be the basis of your payment? A: based on the legal tender Case: Rono vs. Gomez A stipulation providing that one should pay with the currency prevailing at the time of payment is legal and obligatory as the increased intrinsic value and purchasing power of the current money is a consequence of an event which at the time of the contract, neither party knew would certainly happen Case: Nepomoceno vs. Narciso A stipulation not to pay while war is going on is an equitable and valid transaction. Mortgagee did not want to have the prewar credit paid with Japanese military notes. Further, mortgagor voluntary agreed with such stipulation for as long as there was a reduction of interest You cannot compel creditor to accept payment when payment is not yet due angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Case: Equitable PCI Bank vs. Ng Sheung Ngor If extraordinary inflation or deflation is present, the value of the currency at the time of the establishment of the obligation shall be the basis of payment unless there is a stipulation to the contrary Note the requisites to affect an obligation: o Declaration from banco central that there is extraordinary inflation or deflation

2.

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

Note: payment of interest in kind – what is applicable is the value of the object at the time of payment. B.

To Pay Interest

Article 1956 Interest shall be expressly stipulated in WRITING Kinds of Interest: o Compensation – for the use of the money (monetary interest) o Damages – compensatory interest This article speaks of the first kind of interest When the stipulation to pay is verbal, the voluntary payment is valid as a performance of a natural obligation. (But GR: Verbal – void; EXCP: voluntary payment) Requisites for recovery of interest o Must be expressly stipulated o Agreement must be in writing o Interest must be lawful Q: when does interest earns interest? A: interest due shall earn legal interest from the time it is JUDICIALLY DEMANDED, although the obligation may be silent upon this point Note: if the exact rate of the interest is not mentioned, the legal rate of 12% shall be payable (deals with (1) loans, (2) forbearance of any money, goods or credits, (3) judgments involving such loans or forbearance) No increase in interest shall be due unless such increase has also been expressly stipulated Article 1957 Usury law should not be circumvented Note however, Usury law no longer exists. Thus there is no more maximum rate of interest. The rate will just depend on the mutual agreement of the parties Article 1958 Determination of interest if in KIND: value should be at time and place of PAYMENT Article 1959 Speaks of when accrued interest (due and unpaid) earns interest: o GR: it will not bear interest o EXC: (a) if there is agreement to this effect; (b) if there is judicial demand If it falls under the exception, such will bear interest at eh legal rate

Case: Espiritu vs. Landrito Stipulation for legal interest but higher rate is charged – VOID No interest shall be due unless it has been stipulated in writing The omission of the interest rate specified in the contract is considered as bad faith Wrong charge of interest led to the invalidity of the sale because it led to the wrong computation of the principal 5% a month was unconscionable and it is not what is stipulated in the contract (note: such ruling is only applicable to this case) Case: Jardenil vs. Solas Interest after maturity date can only be obtained if EXPRESSLY STIPULATED (this case is a strict interpretation of the Law) It is only after an extrajudicial demand that mortgagee is allowed to collect legal interest from the mortgagor Case: Sentinel Insurance Co. vs. CA Damages due are not included in the computation of interest as the two are of different categories and are distinct claims which may be demanded separately

Note: if there is no written agreement on the interest but the borrower pays, the presumption is that he did it VOLUNTARILY (moral or natural obligation). Exception is SOLUTION INDEBITI (payment by mistake (this defense must be proven) Remember: No compounding of Interest unless expressly stipulated Article 1961 Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code. Bank Deposits You are actually extending a loan to a bank Called an irregular deposit In time deposit: you can pre-terminate but you are not entitled to the agreed interest Case: Gopoco Grocery vs. Pacific Coast Biscuit Co. Saving deposits are converted into simple commercial loans Bank: debtor (obtains ownership); Depositor: creditor In a simple loan, money deposited is only an ordinary credit as it forms the asset of the bank Case: Central Bank of the Phil. Vs. Morfe Deposits are considered simple loans and are not preferred credits Even if you acquired a favorable judgment from the court, you don’t become a preferred credit. You still have to file a claim from the liquidator or receiver Case: Serrano vs. Central Bank of the Phil Bank deposits are in the nature of irregular deposits. They are loans because they earn interest and because the bank can use the same deposited money Case: Guingona vs. City Fiscal of Manila Failure to return savings deposit to depositor will not constitute Estafa through misappropriation but will only give rise to civil liability over which public respondent has no jurisdiction

TITLE XII: DEPOSIT

Note: Compound interest is interest on accrued interest. It is valid to charge compound interest, but there must be a written agreement to this effect unless it be the interest charged upon judicial demand.

Chapter 1 Deposit in General and its Different Kinds Concept

Article 1960 Interest paid even if not stipulated, is not recoverable, it being proof of a tacit contract or a natural obligation. a. Except where it is proved that the interest was paid by error (solution indebiti) b. Interest payable in kind, it is appraised at the current price at the time of payment (Art. 1958) c. Interest due shall not earn interest (no compounding) in the absence of agreement and without prejudice to Art 2212 (interest after judicial demand) (Art. 1595) d. The following are not considered interest: - Increase in the price when the sale is on installment - Attorneys fees for cost of collection - Penalty for breach

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Article 1962 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 safe Deposit is a real contract thus is perfected by DELIVERY, but an agreement to constitute a deposit is merely consensual, and is therefore binding upon mere consent Q: Can a depositary use the thing deposited? A: GR is No. But he can use it in two instances: a. With the express permission of the depositor b. When the preservation of the thing deposited requires its use, it must be used but only for that purpose

angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Note: the principal purpose should be the safekeeping of the thing. If otherwise, it is but some other contract like lease or commodatum Q: what is the degree of care needed in safekeeping? A: Same diligence as he would exercise over his property (good father)

Characteristics of the Contract of Deposit 1. Real – perfected by delivery 2. Naturally gratuitous – it can either be gratuitous or onerous; note that there is no presumption of payment or compensation unless stipulated 3. Principal purpose is the safekeeping of the thing delivered Case: US vs. Igpuara If an agent receives money from another agent of his principal which is the balance of a commission, such transaction becomes a deposit, thus he can be liable for Estafa if misappropriated Agent does not become owner nor does it imply a permission to sue the thing deposited Case: BPI vs. IAC Based on Central Bank Circular No. 20, when foreign currency is deposited, it should be sold to central bank. Doing otherwise makes one liable for the violation of said circular Case: CA Agro-Industrial Devt. Corp vs. CA Rental of safety deposit box is in the form of SPECIAL DEPOSIT. It is not a lease because the full and absolute possession and control of the safety deposit box was not given to the joint renters. It is not a deposit because bank has no control over the content 4. 5.

Either Unilateral or Bilateral, according to whether it is gratuitous or compensated Depositary cannot use the thing deposited (except for two instances)

Case: Javellana vs. Lim In this case, the fact that they were allowed to use the amount deposited, the court considered it as a contract of loan 6.

Only movable things can be the object of a deposit

Article 1963 An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing Where there has been no delivery, there is merely an agreement to deposit, a person obligation to do (contract of future deposit: consensual – this however is binding) Note however: an offer to constitute a deposit in the future is binding only when said offer is accepted Kinds of Deposit Article 1964 2 ways of constituting a deposit:  Judicial (sequestration) – when an attachment or seizure of property in litigation is ordered  Extrajudicial o Voluntary o Necessary Judicial vs. Extra-Judicial Deposit JUDICIAL Creation Will of the court Purpose To insure the right of a party to property or to recover in case of favorable judgment Subject Matter Immovable (generally) or movables Cause Always onerous When to return

In whose behalf held

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Upon order of the court or when litigation has ended Person who has a right

EXTRA-JUDICIAL Will of the parties Custody and safekeeping

Movables only Gratuitous (generally) or compensated Upon demand of depositor

When a deposit becomes a loan or commodatum:  If thing deposited is non-consumable, the contract loses the character of a deposit and acquires that of a commodatum despite the fact that the parties may have denominated it as a deposit, unless safekeeping is still the principal purpose.  If thing deposited consists of money/consumable things, the contract is converted into a simple loan or mutuum unless safekeeping is still the principal purpose in which case it is called an irregular deposit. Example: bank deposits are irregular deposits in nature but governed by law on loans Case: Compania Agricola de Ultamar vs. Nepomoceno IRREGULAR DEPOSIT SIMPLE LOAN The only benefit is that which accrues The essential cause for the to the depositor transaction is the necessity of the buyer The depositor can ask for the return A lender is bound by the provisions of of the article at anytime the contract and cannot seek restitution until the time for payment Depositor in irregular deposit has Common creditors enjoy no preference over other creditors with preference in the distribution of the respect to the thing deposited debtor’s property Deposit vs. Sale and Barter DEPOSIT Ownership is not transferred Real contract Generally gratuitous

SALE AND BARTER Ownership is transferred delivered Consensual Always Onerous

Deposit vs. Commodatum DEPOSIT May be gratuitous Principal purpose is safekeeping

COMMODATUM Essentially and always gratuitous Principal purpose is use

Deposit vs. Mutuum DEPOSIT Principal purpose is safekeeping or mere custody Depositor can demand the return of the subject matter at will Both movable and immovable property may be the object

upon

MUTUUM Purpose is for the consumption of the subject matter The lender must wait until the expiration of the period granted to the debtor Only money and any other fungible thing

Article 1965 Generally, deposit is gratuitous Exceptions: o When there is a contrary agreement o When the depositary is engaged in the business of storing goods o Involuntary deposit, where property is saved from destruction during a calamity by another person without the knowledge of the owner, the latter is bound to pay the former just compensation Q: If compensation was agreed but the rate was not fixed, how much should be given? A: the compensation should be fixed according to the current rates in the place where the deposit was constituted. If the goods were delivered in one place but actually deposited in another place, the rate of compensation shall be that of the place where the things were delivered, because that would be the place where the contract was perfected. Note: when the thing delivered can be used by the depositary and he is obliged to pay interest for said use, it follows that the contract cannot be considered a deposit but a loan or mutuum. Article 1966 Object of extrajudicial deposit are movable things, whether voluntary or necessary Judicial deposit , however, may cover both movable or immovable property, its purpose being to protect the rights of parties to a suit This article does not embrace incorporeal or intangible property, such as rights and actions

rd

Depositor or 3 person designated

Q: why only movables? A: because the purpose of deposit is for safekeeping. An immovable cannot be lost, disappear or be stolen.

angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Article 1967 Extrajudicial deposit is either: o Voluntary – there is mutual consent; made by the will of the depositor o Necessary – made in compliance with a legal obligation, on the occasion of calamity (depositum miserable), made by travelers in hotels or inns, made by travelers with common carriers

Note: if you allow the use – it should not be the primary purpose Article 1972 (a – to preserve the thing or safekeeping) If the degree of diligence is not specified, one should observe the diligence of a good father of a family Note however that more care is required if the deposit is for a compensation than if it is gratuitous Note: in case of non-fault on the part of the depositary, the depositor-owner bears the loss because of the maxim “res perit domino”.

Chapter 2 Voluntary Deposit Section 1: General Provisions Article 1968 Voluntary deposit is that wherein the delivery of the object is made by the will of the depositor

Article 1973 (a – delegation of custody) GR: depositary cannot deposit the thing with a third person (Why? Because deposit is founded on the fact that the depositor has precisely chosen a particular depositary by virtue of the latter’s qualification, and because of the trust and confidence on him by the depositor EXC: stipulation to the contrary Liabilities: The depositary is liable for loss of the thing deposited when:

Q: should the depositor be the owner? A: Generally yes. But second sentence of the said article admits the validity of a deposit which has not been made by the true owner. The law even provides that the “depositary cannot demand that the depositor prove his ownership of the thing deposited.” Further, depositor does not transfer ownership over the subject matter

a. b. c.

He transfers the deposit with a third person without authority although there is no negligence on his part and the third person He deposits the thing with a third person who is manifestly careless or unfit although authorized, even in the absence of negligence; or The thing is lost through the negligence of his employees whether the latter are manifestly careless or not.

Kinds a. b.

Where the deposit is by the will of the depositor (complete freedom) Where the deposit is by two claimants, and the thing is to be delivered to the one found to be entitled to it (conflicting adversarial claims)

Interpleader – depositary may compel two conflicting claimants of the thing deposited to interplead and litigate their several claims among themselves. Requisites Article 1969 (1 - Formalities) Except for delivery, no other form is required A contract of deposit may be entered into ORALLY or in WRITING Article 1970 (2 – Capacity of the Parties) No special capacity is required, the depositor need not be the owner of the thing and may even be incapacitated When the depositor is incapacitated and the depositary is capacitated The incapacitated depositor cannot compel the depositary to return the thing deposited However, the depositary may be compelled to return the thing by the guardians or by the depositor himself if he should acquire capacity Note: Capacity is required in the depositor for claiming the return but not for making a deposit. A capacitated depositary is subject to all the obligations of a depositary. He cannot therefore allege the incapacity of those with whom they contracted. Article 1971 (2 – Capacity of the Parties) When the depositor is capacitated and the depositary is incapacitated Depositor shall only have an action to recover the thing deposited while it is still in the possession of the depositary Depositor may compel the incapacitated depositary to pay him the amount by which the depositary have enriched or benefited himself with the thing or its price If the third person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery 3 – Object It must be corporeal and movable In extrajudicial deposit, the purpose of the contract is to insure restoration of the thing that may disappear In judicial deposit (receivership) , real or personal property may be included Section 2: Obligation of Depositary Principal Obligation of the depositary a. Preserve the thing b. Return the Thing 7

Exemption from liability: The thing is lost through the negligence of the third person with whom he was allowed to deposit the thing if such person is not manifestly careless or unfit. Article 1974 (a – change of the manner of deposit) GR: depositary may NOT change the manner of deposit EXC: there are circumstances where depositary may reasonable presume that depositor would consent to the change (note however that before making the change, NOTIFICITAION and REPLY from the depositor is necessary) EXC to the EXC: notification may be disregarded if delay would cause danger Article 1975 (a – preservation of the value) If the thing deposited should earn interest, the depositary is under obligation to: a. to collect interest as it fall due b. to take steps to preserve its value and rights corresponding to it according to law The depositary is bound to collect the capital, as well as the interest, when due. Example: encash the check so that the value will remain Article 1976 Speaks of comingling of grain or other articles of the same kind and quality (General Rule) EXC: unless there is a stipulation to the contrary Note: if objects are comingled, the various depositors shall own or have a proportionate interest in the mass Article 1977 (a – agreement that the depositary may use the thing deposited) GR: The depositary may not to make use of the thing deposited unless authorized. Deposit is for safekeeping not for use. Exceptions: a. Expressly authorized by the depositor b. Such use is necessary for its preservation but limited for the purpose only Effect of unauthorized use: Liability for damages Effects of authorized use: (article 1978) Article 1978 (a – agreement that the depositary may use the thing deposited) GR1 if the thing deposited is a non-consumable thing: The contract loses the character of a deposit and acquires that of a commodatum despite the fact that the parties may have denominated it as deposit. EXC1: Safekeeping is still the principal purpose of the contract. GR2 if the thing deposited is money or other consumable thing: The contract is converted into a simple loan or mutuum. EXC2: Safekeeping is still the principal purpose of the contract, but it now becomes an irregular deposit. Note: permission shall not be presumed, and its existence must be proved.

angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Q: Can the right to demand the return of the thing deposited prescribe? A: No. In deposit, there is no transfer of ownership. What is transferred is simply the custody of the thing. In order to ripen into prescription possession must be in the concept of an owner, public, peaceful and uninterrupted. Article 1979 GR: depositary is not liable for loss due to fortuitous event This article provides for the EXCEPTIONS: 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 Article 1980 Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loans Note: a bank can COMPENSATE a debtor’s debt with a debtor’s deposit because insofar as the deposit is concerned, the relationship between them is that of debtor and creditor. Article 1981 (a – secrecy of deposit) The depositary has the obligation to: a. Return the thing deposited when delivered closed and sealed in the same condition b. Pay for damages should the seal or lock be broken through his fault, which is presumed unless proven otherwise c. Keep the secret of the deposit when the seal or lock is broken with or without his fault. Note: As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be no proof to the contrary Article 1982(a – secrecy of deposit) The depositary is authorized to open the thing deposited which is closed and sealed when there is: a. Presumed authority (i.e. when the key has been delivered to him or the instructions of the depositor cannot be done without opening it) b. Necessity Article 1983 (b – what is to be returned) If specific thing: the thing deposited shall be returned with all its products, accessories and accessions If money: obligation to pay interest on sums converted for personal use If generic thing: article 1976 Case: Roman Catholic Bishop of Jaro vs. de la Pena SC majority: Commingling of funds does not make the depositary responsible if it is taken or confiscated by the government as this is a case of force majeure Dissent: by mixing it with his account, he stamped his own marks and unclothed it of all the protection it had Article 1984 (b – to whom) The depositary is obliged to return the thing deposited when required to (article 1972 codal provision): 1. The depositor 2. To his heirs or successors 3. To the person who may have been designated in the contract This article Provides for 4 rules: 1. Depositary cannot demand proof of ownership 2. If Depositary discover that the thing has been STOLEN and he KNOWS who the TRUE OWNER is, he must ADVISE the latter of the deposit 3. If the owner, in spite of such information, does not claim it within the period of ONE(1) MONTH the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor 4. If the depositary has reasonable grounds to believe that the thing has NOT BEEN LAWFULLY ACUQUIRED by the depositor, the former may return the same (even before the stipulated time) Q: what is the difference between rule 2 and 4? A: in rule 2, the depositary knows who the owner of the stolen property is, in rule 4, he does not Note: that the law uses the word STOLEN. Hence, if LOST, the provisions appertaining to stolen property SHOULD NOT apply. 8

Article 1985 (b – Form or manner of return) Speaks of an instance when there is two or more depositors Joint depositor and the thing is capable of division: each one cannot demand more than his share Solidary depositor and the thing is incapable of division: return to any of the depositor (exception: if there is a stipulation that the thing should be returned to one of the depositors, depositary shall return it only to the person designated) Article 1986 (b – to whom) Even if the depositor had the 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 Article 1987 (b – place of return) GR: At the place agreed upon by the parties, transportation expenses shall be borne by the depositor. Exception: In the absence of stipulation, at the place where the thing deposited might be even if it should not be the same place where the original deposit was made, provided that there was no malice on the part of the depositary Article 1988 (b – Time of return) GR: The thing deposited must be returned to the depositor upon demand, even though a specified period or time for such return may have been fixed. Exceptions: 1. When the thing is judicially attached while in the depositary’s possession (why? The property will be subject to judicial orders) 2. When depositary is notified of the opposition of a third person to the return or the removal of the thing deposited (why? Oppositor may claim to be the owner) Note: if deposit is for compensation and there is a fixed period, depositary can’t refuse to return the object if demanded by the depositor. However depositor should pay for the entire period stipulated (EQUITY DEMANDS) Article 1989 Unless the deposit is for a valuable consideration, the depositary who may have JUSTIFIABLE REASONS for not keeping the thing deposited may, even BEFORE the time designated, return it to the depositor If Depositor refuse to receive: depositary may secure its CONSIGNATION from the court Article 1990 Speaks of loss thru Force Majuere or Government Order and depositary receives money or another thin in its place: he shall deliver the sum or other thing to the depositor Article 1991 Contemplates of an incident when an heir of the depositary sold the thing deposited: 1. he shall be bound to return the PRICE he may have received (if buyer has paid him) 2. assign his right of action against the buyer to the depositor (if buyer has not paid yet) Note: the heir should be in good faith or else he is liable for damages. Further if the buyer is in bad faith, the depositor can recover the thing deposited from him. Summary: When there is demand, instances when the depositary an refuse to return 1. When he exercise his right of retention due to claims for damages, expenses or agreed compensation (note: in commodatum, you can retain the thing only if there is damages) 2. When the thing is stolen and depositary knows the real owner 3. When notified of the opposition of another person (notify the depositor of the adverse claim and demand that they go for interpleader) 4. When the thing is attached while it is in his possession (note: if the good are under a negotiable instrument, the goods can’t be attached) Set Off -

GR: The bank can set-off the deposits in its hands for the payment of any indebtedness to it on the part of the depositor. However, if the depositor is a mere indorser of a check which was later dishonoured, the right of action does not accrue until a notice of dishonour is given to him.

angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Q: when is legal compensation possible (requisites)? A: a. Both are creditors and debtors of each other b. Sum of money or delivery of consumable goods c. Must be due d. Must be liquidated and demandable e. No controversy Case: Gullas vs. PNB GR: set-off can be done because bank and client have a creditor-debtor relationship EXC: With regards to an indorser, notice should be given to him before set-off to protect his interest Case: Associated Bank (Westmont Bank) vs. Tan Bank generally has a right to set-off over the deposits therein for payment of any withdrawals on the part of a depositor. However, the bank should exercise extraordinary diligence, thus notification is required before set-off may happen Bank’s Failure to Return Amount Claims for recovery of time deposits plus interest from an insolvent bank shall be filed before the liquidation proceedings in the proper court. Failure of bank to honor the time deposit is not a breach of trust arising from a depositary’s failure to return the subject matter but a mere failure to pay its obligation as a debtor. Case: Guingona vs. City Fiscal of Manila Failure to Return bank deposit will NOT constitute Estafa, but will only give rise to civil liability When Bank Officials may be guilty of Estafa GR: Failure of bank to return the amount deposited will not constitute estafa through misappropriation. Exception: Case: Guingona vs. City Fiscal of Manila If the bank entered in its record or books a different amount form that of the real amount deposited, officials of the bank may be guilty of estafa Earnest Money If a sale did not materialize, the earnest money is considered to be a deposit Case: Compania Maritima vs. CA if sale did not materialize, then the money should be returned

Security of the Depositary Article 1994 The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit (including remuneration stipulated) Note however: obligations arising from deposit are not extinguished by compensation Q: if the depositary has returned the thing to the depositor even if the latter has not yet fully paid him, can he still bring an action to recover fees, compensation or expenses? A: Yes. The depositary only lost the right of retention but he did not lose the right to recover what may be due him. Termination of the Contract Article 1995 A deposit is extinguished: 1. Upon the loss or destruction of the thing deposited 2. In case of gratuitous deposit, upon the death of either the depositor or the depositary Other causes provided for by law (1995 is not an exclusive): 1. By claim of the deposit by the depositor at any time 2. Expiration of the term 3. Termination of the purpose of the deposit or fulfillment of a resolutory condition 4. By renunciation of the depositary unless deposit is for consideration (you can only renounce if you have reasonable grounds or you have a reasonable assumption that the thing was not lawfully acquired by the depositor) 5. Mutual withdrawal from the contract

Chapter 3 Necessary Deposit Kinds Article 1996 (1 and 2) 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 Article 1997 Speaks of Governing Rules

Section 3: Obligations of the Depositor a. Obligations of the Depositor Article 1992 Gratuitous Deposit: depositor is obliged to reimburse the depositary for the expenses he may have incurred for the preservation of the thing deposited Onerous Deposit: to pay the compensation Q: why is this article not applicable to Onerous Deposit? A: Because expenses for preservation are deemed included in the compensation Note: in this article, the law talks merely of necessary expenses and not the useful ones or those for mere luxury or pleasure Article 1993 GR: if the depositary suffers because of the character of the thing deposited, the depositor should be responsible for the loss sustained by the depositary EXC: 1. Depositor was not aware of , or was not expected to know the dangerous character of the thing 2. Depositor knew of the danger but he notified the depositary of the same (depositary have assumed the risk) 3. Depositary was aware of the danger, even though he had not been notified by the depositor (also an assumption of risk)

9

Those made in compliance with a legal Obligation 1. First, the law creating said deposits 2. Suppletorily, the rule on voluntary deposit Example: A borrowed P100,000. 00 from B, and as security thereof, pledged his diamond ring. If B uses the ring without the authority of A, A may ask that the ring be judicially or extrajudicially deposited. (Article 2104, Civil Code – “the creditor cannot use the thing pledged, without the authority of the owner, and if he should do so, or should misuse the thing in any other way, the owner may ask that it be judicially or extrajudicially deposited." When the preservation of the thing pledged requires its use, it must be used by the creditor but only for that purpose.

b. Deposits made because of a Calamity 1. First, the rules on Voluntary Deposits 2. Also, Article 2168 of the Civil Code “when during fire, flood, storm, or other calamity, property is saved from destruction by another person without the knowledge of the owner; the latter is bound to pay the former just compensation.” – NEGOTIORUM GESTIUM (quasi-contract) Article 1998 (3) The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary Requisites before the hotel or inn can be held liable: 1. Notice was given to the hotel or inns about the objects 2. That the depositor took the precautions (may be given orally or in written form) which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects

angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion

Note: travelers refer to TRANSIENT and do not include ordinary or regular boarders in any apartment, house, inn or hotel. Guest is synonymous to travelers. Non-transient are governed by the rules on lease -

Article 2006 movable as well as immovable property may be the object of sequestration

The liability or responsibility by the hotel or inn keeper commences as soon there is an evident intention on the part of the travelers to avail himself of the accommodations of the hotel or inn. It does not matter whether compensation has already been paid or not, or whether the guest has already partaken of food and drink or not.

Article 2007 The depositary of property or objects sequestrated cannot be relieved of his responsibility until the controversy which gave rise thereto has come to an end, unless the court so orders

Article 1999 The liability of hotel or inn keeper includes: 1. For the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel;

Article 2008 The depositary of property sequestrated is bound to comply, with respect to the same, with all the obligations of a good father of a family

Article 2000 The liability of hotel or inn keeper includes: 2. Damages to good by their servants or employees as well as strangers but not that which may proceed from any force majeure (ex. Flood) or if there has been robbery by intimidation of persons;

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

Article 2001 The act of a thief or robber, who has entered the hotel is not deemed force majeure, UNLESS it is done with the USE OF ARMS OR THROUGH AN IRRESISTIBLE FORCE Note: if the person who robbed the hotel with the use of arms or irresistible force is an employee of the hotel, the hotel is still liable because article 2001 refers to a stranger. The hotel will thus be liable under article 2000.

Special Rule 1. Examples of an attachment or seizure of property by judicial order: a. Under Rule 57, Revised Rules of Court: a proper party may, at the commencement of the action or at any time thereafter, have the properties of the adverse party attached as security for the satisfaction of any judgment that may be recovered. b. Under Rule 60, a sheriff may be ordered to seize personal property in suits for the delivery of personal property. c. In PCGG sequestration cases pending before the Sandiganbayan.

Article 2002 Speaks of an instance when hotel-keeper is not liable The hotel-keeper is not liable for compensation if the loss is due to o the acts of the guest, his family, servants or visitors, o or if the loss arises from the character of the things brought into the hotel. Note: the law does NOT distinguish what kind of acts are referred to. Acts therefore may either be the result of voluntary malicious act or simply of negligence. Article 2003 The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotel-keeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void. Case: YHT Realty Corp. vs. CA Hotel cannot free itself from responsibility by posting notices to the effect that he is not liable for articles brought by gusts It is not necessary that the thing should actually be delivered to the innkeepers, it is sufficient that the effects are within the hotel or inns Article 2004 The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on account of lodging, and supplies usually furnished to hotel guests. Note: this right of retention is in the nature of a pledge created by operation of law, and thus, the hotel-keeper is allowed to power of sale. Note however that the lien or the right of retention does not exist when the debtor is not a guest of the hotel. (4) In common Carriers Chapter 4 Sequestration or Judicial Deposit Article 2005 A Judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered by a court Garnishment of property is to satisfy a writ of executions The property is brought into CUSTODIA LEGIS, under the sole control of the court Note: the purpose of a judicial deposit is to maintain the status quo during the pendency of the litigation or to insure the right of the parties to the property in case of a favorable judgment 10

angel‘s notes CREDIT TRANSACTIONS Paras, de Leon, Assigned Cases, Class Discussion