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In a 1964 case, Bailment was described as a consignment of goods for sale BUT this is not a
comprehensive description of what a bailment is. Because if you deliver goods to another person it
DOES NOT necessarily follows that the goods are for sale because you can deliver goods to be USED
and not to be sold, to be CONSUMED, for STORAGE, as SECURITY of a principal obligation. So this old
description is not an exact definition of what a bailment is.
Who are the parties to a bailment contract?
- BAILOR (person who delivers) & BAILEE (person who the thing is delivered)
2007 BAR QUESTION: (1pt)
The parties to a bailment are the?
a. Bailor
b. Bailee
c. Comodatario bailee the agent to whom property involved in a bailment is
delivered
d. All of the above
e. A & C
ANS: D
Examples of Bailement:
1. Loan
2. Deposit
3. Lease
LOAN
-

Does not only involve the borrowing of money. In the contract of loan, a person delivers not
consumable to another so the latter can USE it for a certain period with the obligation to
return OR money so that the other person can consume it with the obligation to return the
same amount same kind and quality.
Ex. Our exam is this DEC. 15, so I deliver this laptop so you can study my notes. When I
deliver this to you we already have perfected a contract of loan. It does not involve money
but it involves a non-fungible thing with the obligation to return the same computer to me.
We call this as COMMODATUM. To distinguish this from the other that involves the
consumption of money we call the other as MUTUUM.

COMMON CHARATERISTICS of COMMODATUM & MUTUUM:

1. Real Contract
Whether commodatum or mutuum it is a REAL CONTRACT.
o REVIEW: Contract as to perfection REAL (perfected by the DELIVERY OF THE
THING), CONSENSUAL (perfected by the mere meeting of the minds as to the
subject and consideration), & FORMAL (perfected by the execution of a form).
o Ergo, the contract of commodatum & mutuum is perfected by the delivery of
the non-consumable or consumable to the buyer.
Q: is the contract of loan is a real contract, can there be a consensual contract?
- yes, there can be a consensual contract to constitute a real contract loan.
2. Unilateral Contract
- only one of the parties are obliged to perform.
- so is loan a unilateral when the bailor delivers and bailee returns? This is because the act of
the bailor in delivering the thing that PERFECTS the contract. After delivery the obligation
now pertains to the bailee to take care of the thing and to return the same thing if
commodatum and to return the same amount, kind and quality for mutuum.

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If you have a consensual contract to constitute a loan, it is the bailor who is obliged to
perform and it is the bailor who can be compelled to deliver. Not by virtue of the real
contract but by virtue of the consensual contract. In a real contract of loan there is NO
obligation to deliver because it is the act of delivery that perfects the contract and
obligations only arises after perfection not prior to perfection of contract.
DISTINGUISH COMMODATUM FROM MUTUUM:
-

I.

Distinctions
Characte
r

SUBJECT
MATTER
Purpose
Effect
Risk of
LOSS

Duration

Commodatum
Essentially gratuitous no valuable
consideration must be given for the use of
the thing.

Generally Non-fungible object (but may be

consumable); may be real or personal
property; fungible may be.
Transfer its use ; ownership retained by the
lendor or bailor
Restoration of the very thing loaned;
identical thing
On the lender (as owner) BAILOR
Res Perit Domino thing perishes with
the owner
Personal in character
Referred to as loan for use or temporary
possession
May be claimed before the end of the term
if urgently needed
Or in PRECARUIM where period is not
stipulated or where possession is merely
tolerated by the bailor he can DEMAND for
the return ANYTIME.

Mutuum
Naturally gratuitous
if there is no stipulation as to the
valuable consideration then there is
no consideration paid.
Relate to the borrowing of money,
there is no obligation to pay interest
UNLESS there is express stipulation
to pay interest and that stipulation is
in writing.
No contractual interest if not
expressly in writing but there can be
moratory interest AFTER default
even if not in writing.
Always, Object is money or fungible thing;
personal property only
Transfer its ownership to borrower or bailee
Restoration of an equal quantity and quality
(equivalent amount)
On the borrower (as debtor of a generic
thing)
Buyer who bears.
Not personal in character
Referred to as loan for consumption
May not be claimed until the term expires or
is forfeited
Exception: sa oblicon, where the buyer
losses the right to the period.

Ex. Gikan bagyo, hurot tanan bugas sa grocery, ang nabilin na bugas kay black rice nlng ug brown rice
wa nay granador. But you know nag horde inu silingan so adto ka and you say, can I borrow a kilo of
your rice? Wala name bugas cge nami wheat bread. You neighbor gave you a kilo of rice. This is a
contract of MUTUUM. Because you borrowed, nag pa bukal ka, then gi imagine nlng nimu na gi hagbong
ni ang bugas kay borrow raman. Is this the concept of mutuum? NO! you need to consume it. I huwad
na. you eat it. Just return the same AMOUNT, same KIND, & and QUALITY. You cannot eat the rice unless
you own it kay ma criminally liable ka. So there must be a TRANSFER OF OWNERSHIP in mutuum and
not like in commodatum na use ra.

COMMODATUM:
REPUBLIC vs. BAGTAS - Commodatum is essentially gratuitous

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ISSUE:
Whether or not Bagtas is relieved from the duty of returning or paying for the value of the bull.
SC RULING:
Bagtas is not relieved of his obligation. The loan by the appellee to the late defendant Bagtas of the
three bulls for breeding purposes for a period of one year, later on renewed for another year as regards
one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the
bulls. The appellant contends that the contract was commodatum and that, for that reason, as the
appellee retained ownership or title to the bull it should suffer its loss due to force majeure. A contract
of commodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the
contract would be a lease of the bull. Under the Civil Code, the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued possession of the bull after the
expiry of the contract. And even if the contract be commodatum still the appellant is liable, because
the Civil Code provides that a bailee in a contract of commodatum is liable for loss of the thing, even if
it should be through a fortuitous event:
xxx 2) If he keeps it longer than the period stipulated;
3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event.
ORALS:
Q: so what was the contract entered into if you say that Bagtas borrowed from the bureau of animals?
A: it was a lease, even if the term used was borrowing of the bulls, because there was a breeding fee to
be paid. Even if the bulls were LOANED to him, and he BORROWED the bulls, the fact that a breeding
fee was paid for the breeding of the bulls means that the contract was not a contract of commodatum
but a contract of lease because there was a consideration and it was not gratuitous. This is why the
court said here that this is a contract of LEASE and not one of loan.
CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE vs. COURT OF APPEALS, HEIRS
OF EGMIDIO OCTAVIANO AND JUAN VALDEZ - Effect of Adverse Possession for 11 years

ISSUE:
Whether or not the adverse possession of the petitioner of the subject lot for 11 years would
constitute as a valid acquisitive prescription of the lot?

SC RULING:
Petitioner was in possession as borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation purposes. When petitioner applied for
registration of Lots 2 and 3 in 1962, it had been in possession in concept of owner only for eleven
years. Ordinary acquisitive prescription requires possession for ten years, but always with just title.
Extraordinary acquisitive prescription requires 30 years. 4
The Court of Appeals found that petitioner did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The appellate court
did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and
Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.

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By the very admission of petitioner Vicar, Lots 2 and 3 were owned by Valdez and Octaviano.
Both Valdez and Octaviano had Free Patent Application for those lots since 1906. The predecessors of
private respondents, not petitioner Vicar, were in possession Private respondents were able to prove
that their predecessors' house was borrowed by petitioner Vicar after the church and the convent were
destroyed. They never asked for the return of the house, but when they allowed its free use, they
became bailors in commodatum and the petitioner the bailee. The bailees' failure to return the
subject matter of commodatum to the bailor did not mean adverse possession on the part
of the borrower. The bailee held in trust the property subject matter of commodatum. The
adverse claim of petitioner came only in 1951 when it declared the lots for taxation purposes. The
action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title.
The Court of Appeals found that the predecessors-in-interest and private respondents were
possessors under claim of ownership in good faith from 1906; that petitioner Vicar was only a bailee in
commodatum; and that the adverse claim and repudiation of trust came only in 1951.
We find no reason to disregard or reverse the ruling of the Court of Appeals in CA-G.R. No.
38830-R. Its findings of fact have become incontestable. This Court declined to review said decision,
thereby in effect, affirming it. It has become final and executory a long time ago.

ORALS:
Q: in this case, for how long was catholic vicar in possession of the property, before he applied for
registration of the property?
A: more then 30 years
Q: how long does it take for extra ordinary acquisitive prescription?
A: 30 years
Q: why couldnt vicar acquire the property by acquisitive prescription?
A: because they asserted ownership only for 11 years, the rest of the years it was only a commodatum
Q: was there a commodatum between vicar and valdezs?
A: yes there was because in the application stated that lot 2 & 3 were bought from the heirs but it was
found out that this lots were in fact just borrowed by vicar and there was no compensation for the
borrowing.
Q: now if the bailee is in possession of the property for more than 30 yrs without the bailor demanding.
Wont it that the bailee has acquired ownership by acquisitive prescription?
A: No. they were in possession but not in a concept of an owner. The concept of a baille in
commodatum. So for as long as the bailees DOES NOT REPUDIATE the trust, the character of the
possession of the bailee remains as bailee in commodatum no matter how long the possession is. So in
this case, the possession was only for 11 years from 1961 to 1962 the court ruled that vicar could not
have acquired it through acquisitive prescription.
Q: what kind of commodatum was this?
A: this was a precarium. There was no agreement to return upon demand because the possession was
merely by tolerance of the previous owners. The court said that Vicar was only allowed to use. Court
said that they only lent the property allowed the vicar to use because the convent was destroyed. The
possession of vicar was only by mere tolerance of the owners. Possession and enjoyment of the owner
in the point of view of commodatum is PRECARIUM and not an ordinary commodatum because if
ordinary commodatum there must be a PERIOD stipulated or PURPOSE must be specified. This two may
not concur either of the two, purpose or period.
Q: After of the expiration of the period, what must be done?
A: Bailee must return.

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Q: After the accomplishment of the purpose, what must be done?

A: Bailee must return.

QUINTOS vs. BECK

ISSUE:
Whether or not the defendant has the obligation to return the furniture upon demand of the
plaintiff?

SC RULING:
The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself to return the furniture to the
plaintiff, upon the latters demand. The obligation voluntarily assumed by the defendant to return
the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the
latter's residence or house. The defendant did not comply with this obligation when he merely placed
them at the disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric
lamps. The provisions of article 1169 of the Civil Code cited by counsel for the parties are not squarely
applicable. The trial court, therefore, erred when it came to the legal conclusion that the plaintiff failed
to comply with her obligation to get the furniture when they were offered to her.
The defendant, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff
under a duty to accept the offer to return the furniture, because the defendant wanted to retain the
three gas heaters and the four electric lamps.
The appealed judgment is modified and the defendant is ordered to return and deliver to the
plaintiff, in the residence to return and deliver to the plaintiff, in the residence or house of the latter, all
the furniture described.
ORALS:
Q: in this case, what was the original contract between quintos & beck?
A: contract of lease but midway it was novated.
Q: who was the defendant?
A: Beck
Q: What was his first name?
A:
Q: so what happened to the novation?
A: quintos upon novation allowed beck to use the furniture and fixtures upon demand.
Q: did quintos in fact demand the return of the F&F?
A: yes. And beck refused to return the furnitures to quintos. After a series of demands and replies beck
did nto return all. It was upon the end of the lease that beck deposited the f&f with the sheriff but the
sheriff did not deliver this to quintos but asked for expenses for the keeping of the furniture in the
warehouse.

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Q: who should bear the expenses for the storage of the f&f?
A: SC said that beck should bear bec. Even if he was not the owner he failed to deliver the f&f upon
quintos demand to return. She failed to return upon demand considering this was a PRECARIUM. It is
because he cause a breach that makes him liable for all of the damage that was cause by the breach
such as the storage of the furniture.
REQUISITES of COMMODATUM:
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.)
Is there a certain special capacity required for a person to enter into a contract of commodatum, aside
from the basic legal capacity to enter into a contract?
- No. 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.)
Ex. Lessor A - Lessee B; there is a prohibition to B cannot sublease the property; B enters into a
contract of commodatum with C is this a prohibition to their lease agreement? No. because what is
prohibited is a sublease and not a commodatum. So a lessee even prohibited to sublease is not
prohibited to enter into a commodatum because he does not earn anything from the commodatum. Just
allows another person to use the property for free. It is not subleasing but lending the property for free.
So LESSEE can be a BAILOR in commodatum. Even a thief can be a bailor in a commodatum
because you do not need to be the owner of the thing in the commodatum to lend because you are not
transferring ownership.
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
In the Vicar case, what was the object if commodatum? The Land. In quintos vs beck? Furniture. So can
money be an object of commodatum?
- Yes.
o A wants to form a corporation, A has no capital to form a corporation as required by
the SEC. so he ask B if he can deposit in XYZ corporation a corp in the process of
incorporation in the amount of 100K. Upon the assistance of the assistant manager of
the bank an account was opened of XYZ of the amount of 100k as paid up capital.
BUT agree sila sa bank na si B ug si C(another incorporator bali partner ni A sa
corporation) ra ang pwede mu withdraw. Pero agree sila with each other na the
money cannot be withdrawn kay SHOW MONEY rani for the SEC.
o After incorporation, the money was withdrawn and transferred to another XYZ
account. When B found out there was only 10k left. He demanded payment from A.
o The COURT ordered the the return of 110,000. They said that this is a contract of
commodatum and not one of mutuum. Gi apil sa court ang 10k not as damages not
as interest but as FRUITS of the principal. Because the law says, the bailee has the
right to use the thing BUT NOT TO THE FRUITS.
o So court said we awarded 110000. And the 10k not as compensation for the use or
interest but because it was the fruits of the principal amount and the fruits in a
commodatum belong to the bailor.
o This is an example of a FUNGIBLE object of commodatum.
o This is the ruling in the case of PRODUCERS BANK vs CA.
3.CONSIDERATION - gratuitous. If not, it ceases to be a Commodatum. (maybe a lease)
What is the consideration in a contract of commodatum?

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No consideration. That is why in the case of Rep. vs Bagtas it was not a commodatum
because there was a breeding fee.

4. FORM - no special form is required. Commodatum starts from the moment the thing is delivered.
As to Form, there is no form required because commodatum is a real contract and what perfects a
contract is delivery of the thing and not the execution of a formal requirement.
Characteristics
1. REAL
- perfected by delivery
2. PRINCIPAL
- because it can stand alone by itself; does not depend on the existence and validity of
another contract as differentiated from an accessory contract such as pledge
- you dont enter into another contract for there to be a contract of commodatum.
- ex. I borrow money from you, and to secure my obligation I put up a security as pledge. Kay
kung I cannot do my obligation then you can sell this. The proceeds you apply to the
payment of my loan. So pledge is an accessory contract. It is done to secure an obligation.
You cannot just give something as pledge just for no reason at all. Dika maka ingun na imo
nani I pledge nko. Mu ask sya for wat? Mu ana raka wah lang. NO you cant do that in pledge
there must be a principal obligation to secure. BUT in commodatum, at anytime I can deliver
this to you for your use and we dont need to enter into another contract but the contract of
commodatum alone.
3. GRATUITOUS- otherwise, contract is one of lease
4. PERSONAL IN NATURE
- because of the trust; only the bailee can use the object of the contract and members of his
family. However, members of his family cannot use if the contract expressly so provide and
the nature of the thing prohibits such use, such as laptop with a confidential information in
work-related activites
- GR: the bailee has all the right to enjoy the thing
o EXC: members of his household can enjoy the use of the thing
EXC to the EXC: if stipulated that only the bailee can use or that the nature of
the thing prohibits the use of the members of the family.
Example: wedding gown. The nature of the thing prohibits the use of the other
members of the household.
- Does the bailee have the right to lend the thing to another bailee? No you cannot.

OBLIGATIONS OF THE BAILEE:

1. To preserve the thing.
o degree of diligence: ordinary diligence of a good father of a family
2. To incur expenses required by the use and preservation of the thing, without reimbursement.
o Ordinary expenses for the use and preservation of the thing.
o Bailee will shoulder.
3. To return the thing at the expiration of the contract.
The bailee cannot retain the thing on account of the bailors obligation or bailors debt.
NO, legal compensation cannot take place because 2 obligations are not the same.

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That is why if the bailee fails to return after expiration or if we are talking of precarium
the demand of the bailor then he is liable for the expenses of the breach like what
happened in quintos vs beck.
Can the bailee refuse to return the thing on the grounds that he has a claim over the
bailor? NO. you cannot.
Exception:
1. Payment of Extraordinary Expenses
2. If the Bailor knew of the defect of the thing BUT did not communicate this
defect with the bailee and the bailee suffers damages and he claims that against
the bailor THEN he has a right to retain the thing unless he is reimbursed or he is
payed for damages for the defect.
Know what if the bailor fails to get back the thing for a very long time, does the bailee
become the owner? NO. no matter how long the possession is and there is no
repudiation of the commodatum then the bailee never becomes the owner by
acquisitive prescription. This is in the vicar case.
4. To pay for damages
Is the bailee liable for damages?
o Yes. But not at all times.He does not answer for damages not due to his fault,
but only due to use
o GR: not liable for damages due to fortuitous event like in the case of DE LOS
SANTOS vs. JARRA the court did not condemn jara to pay for dead animals
who died of the cattle plague.
o

EXCEPTION: But he is liable for fortuitous events if:

1. If the thing is devoted to a different use (amounts to bad faith or abuse of
generosity)
o I lend a computer for reviewing for the exam, you brought this to
tacloban to document the event, when you were there you slipped
and the computer was badly damaged beyond recovery but it was
not your fault. It was due to a fortuitous event. Generally you would
not be liable. But since you use it for a different purpose than that
intended. Then you will be liable for the loss.
o
2. If return of the thing is delayed
o Keep it longer than the date stipulated.
o We agreed I uli nimo dec. 14 but you kept it longer. Then tungod
adto nakawat ang laptop. Can you be liable? Even if there was no
demand? YES. The law only says mere possession BEYOND the
period stipulated remember this is a gratuitous contract.
3. If the thing bailed has been appraised (the law presumes that the parties
intend that the borrower shall be liable)
o What if I gave this to you for commodatum but I gave you an
appraisal kung pila ni. 100K. and this was loss due to fortuitous
event. Can I hold you liable? YES.
o Next instance, I gave you an appraisal BUT I said para rani
makabalo ka pila value ani but In case of loss due to fortuitous
event then you apply the general rule. Nyah na wala jud due to
fortuitous event. Can I hold you liable? NO.
o Note: when an appraisal value is given, the bailee may be held
liable in case of a fortuitous event. Exception to this if you agreed
that there is no liability.
4. If the bailee lends it to a stranger/ to a third person, not a member of the
household. (this is prohibited by law because commodatum is purely
personal)

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Because according to paras this amounts to a violation of the

personal character of the contract

5. If the bailee did not save it when he could Act of ingratitude, failure to
exercise due diligence.
Two or more borrowers are solidarily liable.
- in the obligations and contracts 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.
- Here the law provides that if there are two or more bailees the natre of their liability is
solidary.
OBLIGATIONS OF THA BAILOR
however this is not always because in a contract of commodatum it is the bailee who has the
obligation after the perfection of the contract. These are only incidental and will not arise in all
contracts of commodatum.
1. To Pay Extraordinary Expenses of Preservation
- As a rule, the extraordinary expenses should be paid by the bailor because it is he who
profits by said expenses; otherwise, the thing borrowed would be destroyed.
- BUT, NOTICE is required because the bailor should be given discretion as to what he
wants to do with his own property he may opt to abandon the property.
- EXCEPT, if there is really an urgent need to incur extra-ordinary expense to AVOID
FURTHER DAMAGE TO THE COMPUTER.
- Ex. Motherboard i change. This is not urguent. You need to notify.
- What about extra-ordinary expenses for the use of the thing, like the battery pack
sa laptop, is the battery pack necessary for the use of the thing? Yes. But it is not an
ordinary kay mahal kaayo ang battery. Who is gonna shoulder?
o The bailor and bailee shall share the extraordinary expense arising from the use.
Equally.
2. To Answer for Damages to the Borrower
- if he knew of the defective nature of the thing, not communicate that to the bailee, as a
result of the ignorance of the bailee suffered damages. Then he is liable for the damages
suffered by the bailee.
o Ex. Computer and I did not tell you na mu init kaayo sya ug kalit. Nya as a result you
suffered three degree burn. Can you hold me liable for damages that you suffered?
Because I did not notify you of the nature of the laptop? YES, because I did not notify
you of the nature of the computer.
o Pero if I did not know na mo overheat diay ni. I CANNOT BE LIABLE.
o Unlike in a contract of sale, in a contract of commodatum there is no such thing as
liability from hidden defects the liability only arises if the bailor is aware of the defect
and did not notify the bailee of the defect.
o According to paras, When a person lends, he ought to confer a benefit, and not to do
a mischief. If he does not reveal the flaws, he is liable for his bad faith.
o If you suffer damages bec. Of the defective nature of the computer and you claim
damages from the bailor. Can I just abandon the computer so I will be free from the
liability?
I Cannot do that. The Lender cannot Evade Liability by Abandonment of the
Thing Reason: The value of the thing borrowed might be less than the value
of the expenses or damages
Note: but the obligation of a gratuitous lender goes no further than this, he cant therefore be
made liable for not communicating anything which he did not know, whether he ought to have
known it or not.
- It is evident that the flaws referred to in this article are hidden defects, not obvious ones.

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Right of retention: for the damages spoken in this article, the bailee has the right of retention
until paid of said damages. (Art. 1944)
Termination
Causes of Extinguishment
1. Expiration of the time or use stipulated
- If there is 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. Does not extinguish commodatum but merely suspends the
commodatum.
- If PRECARIUM, demand from the bailor.
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.
- 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. 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 bailees fault?
A: regardless who cause the destruction, the commodatum is extinguished, but the bailee can
still be held liable for damages.
4. Death of the bailor or borrower/ bailee
- Unless there is a stipulation to the contrary.
5. Ingratitude of the bailee
The bailor may demand the return when the bailee commits an act of ingratitude:
1. If the bailee should commit an offense against the person, the honor or the
property of the bailor, or the wife or children under his parental authority
2. If the bailee imputes to the bailor 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 bailee himself, his wife, or children under his authority
3. If the bailee unduly refuses the bailor support when the bailee is legally and morally
bound to give support to the bailor
o

This is used in a universal sense, so not only men can use this also women.

MUTUUM
-

subject of mutuum is fungible goods

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.

To distinguish from commodatum in mutuum when the borrower does not return he cannot be liable for
estafa because once the fungible is transferred to you you become the owner and an owner cannot be

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10

charged of misappropriation of a thing that he owns. This was the ruling in CHEE KIONG YAM vs.
MALIK.

CHEE KIONG YAM vs. MALIK.

ISSUE:
Whether or not the petitioners in this case can be charged of estaffa when the obligation is said
to be that of simple loan.
SC Ruling:
-

We agree with the petitioners that the facts alleged in the three criminal complaints do
not constitute estafa through misappropriation.
o

The nature of simple loan is defined in Articles 1933 and 1953 of the Civil Code.

In order that a person can be convicted of estaffa, it must be proven that he has the
obligation to deliver or return the same money, goods or personal property that he
received. Petitioners had no such obligation to return the same money, i.e., the bills or
coins, which they received from private respondents. This is so because as clearly stated
in criminal complaints, the related civil complaints and the supporting sworn statements,
the sums of money that petitioners received were loans.

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

Commodatum is essentially gratuitous.

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

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

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

It can be readily noted from the above-quoted provisions that in simple loan
(mutuum), as contrasted to commodatum, the borrower acquires ownership of the
money, goods or personal property borrowed. Being the owner, the borrower can dispose
of the thing borrowed (Article 248, Civil Code) and his act will not be considered
misappropriation thereof.

In U.S. vs. Ibaez, 19 Phil. 559, 560 (1911), this Court held that it is not estafa for a person to
refuse to nay his debt or to deny its existence.

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We are of the opinion and so decide that when the relation is purely that of debtor
and creditor, the debtor can not be held liable for the crime of estafa, under said
article, by merely refusing to pay or by denying the indebtedness.

It appears that respondent judge failed to appreciate the distinction between the two
types of loan, mutuum and commodatum, when he performed the questioned acts, He
mistook the transaction between petitioners and respondents Rosalinda Amin, Tan Chu
Kao and Augusto Sajor to be commodatum wherein the borrower does not acquire
ownership over the thing borrowed and has the duty to return the same thing to the
lender.

Thus the criminal complaints against petitioners are hereby declared null and void;
respondent judge is hereby ordered to dismiss said criminal cases and to recall the warrants of
arrest he had issued in connection therewith.

Mutuum vs Barter
Now, if fungibles are delivered to a person and that person in return for those fungibles delivers to the
first giver, fungibles also not of the same kind, quantity and quality, is it a contract of mutuum? No. this
is barter because in a simple loan what must be paid is the same kind, quantity and quality. Even if it is
non-fungible then delivered to a person and in return that person return another non-fungible this is
likewise not commodatum but barter.
- Mutuum is a contract whereby one party delivers to another money or fungible thing, on
the condition of returning the same king, amount and quality. If the object loaned is not
fungible and the borrower is to return another of the same kind and quality, it is barter.
Mutuum vs. Lease
- in lease there is no transfer of ownership only temporary enjoyment and possession of the thing
to the lessee.
TOLENTINO vs. GONZALES SY CHIAM

ISSUE:
May a tenant charge his landlord with a violation of the Usury Law upon the ground that the
amount of rent he pays, based upon the real value of the property, amounts to a usurious rate of
interest?

SC RULING:
No. The value of money, goods or credits is easily ascertained while the amount of rent to be
paid for the use and occupation of the property may depend upon a thousand different conditions. It
will thus be seen that the rent to be paid for the use and occupation of property is not necessarily fixed
upon the value of the property. The amount of rent is fixed, based upon a thousand different conditions
and may or may not have any direct reference to the value of the property rented. To hold that "usury"
can be based upon the comparative actual rental value and the actual value of the property, is to
subject every landlord to an annoyance not contemplated by the law, and would create a very great
disturbance in every business or rural community. We cannot bring ourselves to believe that the
Legislature contemplated any such disturbance in the equilibrium of the business of the country.

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Act No. 2655 is "An Act fixing rates of interest upon 'loans' and declaring the effect of receiving
or taking usurious rates." It will be noted that said statute imposes a penalty upon a "loan" or
forbearance of any money, goods, chattels or credits, etc. The central idea of said statute is to prohibit
a rate of interest on "loans." A contract of "loan," is very different contract from that of "rent".
A "loan," as that term is used in the statute, signifies the giving of a sum of money, goods or credits to
another, with a promise to repay, but not a promise to return the same thing. To "loan," in general
parlance, is to deliver to another for temporary use, on condition that the thing or its equivalent be
returned; or to deliver for temporary use on condition that an equivalent in kind shall be returned with a
compensation for its use. The word "loan," however, as used in the statute, has a technical meaning. It
never means the return of the same thing. It means the return of an equivalent only, but never the
same thing loaned. A "loan" has been properly defined as an advance payment of money, goods or
credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in
accordance with the terms of the contract. Under the contract of "loan," as used in said statute, the
moment the contract is completed the money, goods or chattels given cease to be the property of the
former owner and becomes the property of the obligor to be used according to his own will, unless the
contract itself expressly provides for a special or specific use of the same. At all events, the money,
goods or chattels, the moment the contract is executed, cease to be the property of the former owner
and becomes the absolute property of the obligor.
A contract of "loan" differs materially from a contract of "rent." In a contract of "rent" the owner
of the property does not lose his ownership. He simply loses his control over the property rented during
the period of the contract. In a contract of "loan" the thing loaned becomes the property of the obligor.
In a contract of "rent" the thing still remains the property of the lessor. He simply loses control of the
same in a limited way during the period of the contract of "rent" or lease. In a contract of "rent" the
relation between the contractors is that of landlord and tenant. In a contract of "loan" of money, goods,
chattels or credits, the relation between the parties is that of obligor and obligee. "Rent" may be
defined as the compensation either in money, provisions, chattels, or labor, received by the owner of
the soil from the occupant thereof. It is defined as the return or compensation for the possession of
some corporeal inheritance, and is a profit issuing out of lands or tenements, in return for their use. It is
that, which is to paid for the use of land, whether in money, labor or other thing agreed upon. A
contract of "rent" is a contract by which one of the parties delivers to the other some nonconsumable
thing, in order that the latter may use it during a certain period and return it to the former; whereas a
contract of "loan", as that word is used in the statute, signifies the delivery of money or other
consumable things upon condition of returning an equivalent amount of the same kind or quantity, in
which cases it is called merely a "loan." In the case of a contract of "rent," under the civil law, it is
called a "commodatum."

In the present case the property in question was sold. It was an absolute sale with the right only
to repurchase. During the period of redemption the purchaser was the absolute owner of the property.
During the period of redemption the vendor was not the owner of the property. During the period of
redemption the vendor was a tenant of the purchaser. During the period of redemption the relation
which existed between the vendor and the vendee was that of landlord and tenant. That relation can
only be terminated by a repurchase of the property by the vendor in accordance with the terms of the
said contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No.
2655.

ORALS:
Q: this involves a contract of lease this clear, but the court-distinguished lease from a loan or mutuum.
Why? It was not really about ownership in this case, what really was the main issue of the court?
A: the payment of rent of the lease. The defendant was Gonzales, the lessee is tolentino, he said that
the rent was usurious because it was excess of what the law provides. The court however did not find

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this with merit. Because the contract was not a loan but a lease. You only apply the usury law on
contract of loan and there is a stipulation of interest.
In a contract of lease the rental you pay is not interest but compensation for the use whereas interest is
what you pay as compensation for the use of the consumable.
Mutuum vs. Estafa
-

in a loan the borrower becomes the owner of the fungible then you cannot misappropriate. You
can only be prosecuted for estafa if the thing is delivered to you in trust. You have to do
something and account for the disposition of the goods like in a contract of agency because in
an agency ownership is not transferred to the agent but remains with the principal.
So if the agent fails to account like what happened in liwanag vs CA. Then the agent maybe
prosecuted for estafa because the defense of liwanag here was that it is a contract of loan. The
court said how can that be a contract of loan when the receipt you sign stated that you receive
the money to purchase the cigar to be sold, so that after the sale you deduct your 40%
commission and return the rest to the principal. How can that be a contract of loan if in a
contract of loan you are not entitled to a commission.
So liwanag argued cge dili contract of loan, partnership nlng ni. SC said still sayop ka, if it is a
contract of partnership, you still bind over trust because the money delivered was given to you
for a specific purpose and that pupose was not applied so still estafa. Way lusot si liwanag.

LIWANAG vs. CA
- When there is no transfer of ownership, it is not a simple loan but estafa.
- SC RULING: Liwanag alleged the contract between her and Rosales was simple loan, hence there
was no estafa. But the court held that the transaction cannot be considered loan since in a
contract of loan, once money is received, ownership over the same is transferred. Being the
owner, the borrower can dispose of it freely. Here, Liwanag could not dispose of the property
freely as it was delivered to her for the single purpose of buying cigarettes, and if this was not
possible then to return the money to Rosales. As there was no transfer of ownership of the
money delivered, Liwanag is liable for conversion under Art.315 par.1(b) of the RPC.
Kinds
1. Gratuitous Loan if no stipulation of payment of interest
2. With interest an onerous kind of mutuum
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.
Aside from legal capacity. The Lender must be owner inorder for him to
transferownership. You cannot transfer something than you do not own.
2. Object
Consumable
Muttum involves money or any other fungible things. If not fungible, the contract is
barter.
3. Consideration
Either Gratuitous (liberality) or onerous (interest).
4. Form
No special form is needed; but there must be delivery, as the contract is real.
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.
- What perfects the contract is the delivery of the money and not the execution of
the promissory note.

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TWO SAME CHARACTERISTICS OF BOTH LOAN: REAL CONTRACTS & UNILATERAL. After the delivery
of the subject matter of the contract it is when the contract is perfected and only then will the
obligations of the party arise.
In mutuum, it is only the borrower who is obliged to perform whatever obligations or duties the lender
may have or merely incidental.
OBLIGATION OF THE BORROWER:
1. To return the thing or amount borrowed at the period stipulated or fixed according to general
rules.
If the thing borrowed is money;
o Return the same numerical amount. If I borrow 10k I must return 10k.
o In what currency?
Currency stipulated in the contract.
If not available, then currency which is legal tender in the Philippines.
The currency stated is a foreign currency, but upon payment
wala na sa circulation tung currency gi sabot nto. Is my
obligation extinguished? NO. convert it to the legal tender in the
Philippines.
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.
Can parties make state that payment shall not be made at a certain
time? Yes. NEPOMOCENO vs NARCISO
o
In here the loan was obtained prior to the war, and during the
war they novated their agreement with an additional stipulation
that NO REDEMPTION SHALL BE MADE DURING THE WAR.
Remember that the value sa money gamay during kaysa after
so insist si narciso na mu pay na sya during the war and infact
gi consign pa niya ang amount.
o The court said you cannot do that. You have an express
stipulation that payment shall be made during the war so you
must wait after the war.
Can parties state that if another currency is prevailing at the time of
the maturity then that currency shall be used? Yes. RONO vs. GOMEZ
o In this case, rono was trying to appeal to the court that he was
just borrowing money from a lawyer for 4000 pesos during the
war and stipulated dayon sa lawyer na it shall be paid at the
currency prevailing after a year. Before na end ang war the
currency was new Philippine peso the mickey mouse na gamay
kaayo value which was 4000:100 pesos. After the a year ni
mature ang loan then it was period of liberation. Unfortunately,
ni revert back ang gov to the old peso. Ni insist si Rono n dapat
100 ra iya I bayad bec. That was the value when we contracted.
Argue pud ang lawyer who drafted the contract na obli con daw
dapat must be complied with good faith ang contract.
o The court said that this is the agreement of the parties and he
should comply with it. It would have worked the other way

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around if the war was ending and the government could have
still adapted the mickey mouse money.
There is an instance though that if the amount borrowed is money the
same numerical amount must be paid where the borrower maybe liable
to pay a higher numerical amount that that borrowed. I borrow 100
peso I maybe compelled to pay 1M. we are looking at here EXTRAORDINARY not ORDINARY inflation. But to apply there must be 3
Requisites:
1. that there was an official declaration of extraordinary
inflation or deflation from the Bangko Sentral ng Pilipinas
(BSP)
2. that the obligation was contractual in nature
3. that the parties expressly agreed to consider the
effects of the extraordinary inflation or deflation.
the Philippines was never in an OFFICIAL DECLEARTION OF
EXTRAORDINARY INFLATION
times 2 is not extra-ordinary. Even 1000% inflation is not
extra-ordinary. ONLY COURT CAN DECIDE.
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.
What if I borrow rice from you, one sack with obligation to return the
same amount, same kind and same quality of rice to you. At the time of
the loan a sack of rice is worth 2000. But at the time of my loan a sack
of rice is 4000 pesos. Can I insist of delivering to you one half sack of
rice? Kay 2k raman worth ako borrow from you. NO. Im still obliged to
give you A SACK OF RICE.
o What if there is no available rice? Then converted ang obligation
into a monetary obligation. How much? 2k or 4k?
2000! VALUE AT THE TIME OF PERFECTION
take note: because if int. the rule is different.

2. To Pay Interest
When it is expressly agreed in writing (Art. 1956)
The two req. must concur that it must be expressly agreed and must be in writing. As
according to, PAN PACIFIC SERVICE CONTRACTORS vs. EQUITABLE PCI BANK
In Espiritu vs Landrito, this involves a lawyer, the loan here was secured by a real estate
mortgage and it was stated in the loan that interest at the legal rate shall be payable.
what was charged was 5% a month which was 60% per anum. So every time landrito would
offer to pay, the amount would increase everytimr he would go to espiritu not only was he
laible for the 5% but also the compounded amount of interest so mas dako. The interest
likewise earns. Bec. Diman ka pay and everytime mu offer mu dako ang amount the
mortgage was foreclosed.
o The SC ruled that the interest charge was usurious, illegal, unconscionable and
iniquitous. And since the foreclosure was based on the null interest then the
court nullified the foreclosure.
What really is the legal interest? So I borrow you money on Jan. 1, 2013 payable on or before
Dec. 21, 2013. We agree in writing that I will pay int. in the legal rate.
o On MAY 15, 2013 mu bayad ko and you cannot refuse kay the obligation is to pay on
or before. What is the legal interest?
It is 12%, if the obligation arises from forbearance of money such is in a
contract of loan the interest is 12% because I borrowed the money in January
2013 and paid in may 2013
o What if I offer to pay on NOV 2013, at what rate should I pay you?

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According to the case of NACAR vs GALLERY FRAMES, where the rate is

now at 6% it is not applied retroactively. It is applied only at JULY 1, 2013.
Obligations with int. prior to this date shall have int. of 12%. So 12% is still
applicable to loans prior to july 1, 2013.
Now in JARDENIL vs. SOLAS, there was an express stipulation for payment of interest within
a specific period. But in their agreement there was an automatic extension of the period the
question is whether interest is also payable during the grace period. No, the court said that
in the contract the interest was only up to the period, no agreement as to extending the
interest within the extension period or grace period. No contractual interest. There maybe
compensatory interest payable after default but that is a different matter.
Now in PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION vs. MENCHAVEZ,
the loan and interest was within a 6-month period for a 1M loan. Is interest payable beyond 6
months? Court said NO. stipulation was only for 6 months.
What if I borrowed 1m from you and when I paid you because I was so grateful of your act of
lending the money without any collateral, gi pakapinan nko ug 50k. can I recover the 50k? na
to consider according to the law that if int. is not stipulated I cannot be compelled to pay? NO.
because I consider it as my natural obligation to give you therefore I cannot recover.
I borrow 1m with the verbal agreement to pay interest for the 1m, upon maturity I can bear
the 1m without the int. can you demand from me payment of int? No. not in writing.
Can there be an instance where interest is payable even if no agreement in writing and yet
the borrower is able to recover? Yes. Incase of solutio indebiti.
LET US CLEAR THIS:
GR: everytime interest is paid even if not payable it is NOT RECOVERABLE (paid
voluntarily)
Except: where it is proved that the interest was paid by error (solution indebiti)
In the case of SIGA-AN vs VILLANUEVA, Villanueva was able to prove this fact kay gi
hadlok2x mani sya sa military para mu bayad ug interest na wala gi stipulate.
What if interest is payable in KIND: (GAWAS DAW Ni. BSG UTROHON LANG ANG
FRUIT)
I borrow 10k from you payable in 2 months and interest of a kilo of grapes.
At the time of the contract a kilo of grapes is 200 pesos but after 2 months a kilo of
grapes is 400 pesos. How much grapes should I deliver to you by way of interest?
o If my promise is to deliver to you BY WAY OF INTEREST ONE KILO OF
GRAPES I must deliver to you at the time of payment one kilo of
grapes.
o If grapes ARE NOT AVAILABLE and I promise to pay one kilo of grapes by
interest then the value of the grapes at the time of payment which is
400.
I borrow 10k from you payable in 2 months and interest at the rate of 1% a
month in grapes. At the time of the contract a kilo of grapes is 200 pesos but
after 2 months a kilo of grapes is 400 pesos. How much grapes should I deliver to
you by way of interest?
o Here one half kilo nah. Different from a specific one kilo of grape. Value
Based at the time of payment
What if in a contract of loan I expressly stipulate 20% monthly interest rate in writing. The
rate is unconscionable and iniquitous. Is the contract void because of the rate? NO. only the
stipulation as to interest will be voided.
Now you say that the principal obligation survives. How about the interest? Is it converted to
payment of legal interest?
o The court is silent in the case of CARPO vs. ELEANOR CHUA and ELMA DY NG.
o Maam: I dont really know. But my opinion is that there should be no
obligation to pay interest because if an obligation is declared as void or a
contract is void you cannot modify or ratify that.
In the SENTINEL INSURANCE CO. vs. CA, the penalty charge was only after default so the
court did not considered it as monetary interest but compensatory interest for the default.
The extra interest is not chargeable at the start of the contract. The additional was charged
as by way of penalty after default.

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THERE IS NO HARD AND FAST-RULE as to what is unconscionable and iniquitous. It

is for the court to decide.
Penalty for breach of contract is not an interest and if added to contractual interest it is not
considered as usurious.
The following are not considered interest:
o Increase in the price when the sale is on installment
o Attorneys fees for cost of collection
o Penalty for breach
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)
Bank deposits, whether fixed savings or current are governed by the provisions concerning
simple loan.

BANK DEPOSIT

When we deposit money in the bank our intention is for safekeeping but what we actually enter
with the bank is a contract of loan and not a contract of deposit.
You enter into a simple contract of loan, therefore if the bank becomes insolvent, since you are
an ordinary creditor, you cannot insist that your deposit will be a preferred credit because in
insolvency the preferred creditors are paid first and since you are only an ordinary creditor you
wait until all the preferred creditors are paid and you wait sa sinsiyo mabilin.
This is what happened in both:

GOPOCO GROCERY vs. PACIFIC COAST BISCUIT

ISSUE:
What is the real nature of current account a savings deposit?
SC RULING:
The current account and savings deposit have lost their character as deposits and are converted into
simple commercial loans because in cases of such deposits, the bank has made use thereof in the
ordinary course of its transactions as an institution engaged in the banking business, not because it so
wishes but precisely because of the authority deemed to have been granted to it by the depositors to
enable him to collect the interest which they had been and they are now collecting, and by virtue
further of the authority granted to it by Section 125 of the Corporation Law and the Banking Law. The
deposits created a juridical relation of creditor and debtor. The back acquired ownership of the money
deposited.
CENTRAL BANK OF THE PHIL. vs. MORFE
ISSUE: Whether or not a final judgment for the payment of a time deposit in a savings bank which
judgment was obtained after the bank was declared insolvent, is a preferred claim
against the bank.
SC RULING:
Section 29 of Republic Act No. 265 provides:
Whenever upon examination by the Superintendent or his examiners or agents into the
condition of any banking institution, it shall be disclosed that the condition of the
same is
one of insolvency, or that its continuance in business would involve probable loss to its
depositors or creditors, it shall be the duty of the Superintendent forthwith, in writing to
inform the Monetary Board of the facts, and the Board, upon finding the statements of
the Superintendent to be true, shall forthwith forbid the institution to do business in the
Philippines and shall take charge of its assets and proceeds according to law.
xxx xxx xxx
If the Monetary Board shall determine that the banking institution cannot resume
business with safety to its creditors, it shall, by the Office of the Solicitor General, file a petition
in the Court of First Instance reciting the proceedings which have been taken and praying the

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assistance and supervision of the court in the liquidation of the affairs of the same. The
Superintendent shall thereafter, upon order of the Monetary Board and under the supervision of
the court and with all convenient speed, convert the assets of the banking institution to money.
Section 30 of the same law also provides that:
In case of liquidation of a banking institution, after payment of the costs of the
proceedings, including reasonable expenses and fees of the Central Bank to be allowed by the
court, the Central Bank shall pay the debts of such institution, under the order of the court, in
accordance with their legal priority.
The trial court or, to be exact, the liquidation court noted that there is no provision in the charter
of the Central Bank in the General Banking Law (Republic Acts Nos. 265 and 337, respectively) which
suspends or abates civil actions against an insolvent bank pending in courts other than the liquidation
court. It reasoned out that, because such actions are not suspended, judgments against insolvent
banks could be considered as preferred credits under article 2244(14)(b) of the Civil Code. It further
noted that, in contrast with the Central Act, section 18 of the Insolvency Law provides that upon the
issuance by the court of an order declaring a person insolvent "all civil proceedings against the said
insolvent shall be stayed."
On the other hand, the Central Bank argues that after the Monetary Board has declared that a
bank is insolvent and has ordered it to cease operations, the Board becomes the trustee of its assets
"for the equal benefit of all the creditors, including the depositors". The Central Bank cites the ruling
that "the assets of an insolvent banking institution are held in trust for the equal benefit of all creditors,
and after its insolvency, one cannot obtain an advantage or a preference over another by an
attachment, execution or otherwise" it is also the stand of the Central Bank is that all depositors and
creditors of the insolvent bank should file their actions with the liquidation court.
It cites the ruling that "a creditor of an insolvent state bank in the hands of a liquidator who
recovered a judgment against it is not entitled to a preference for (by) the mere fact that he is a
judgment creditor." It should be noted that fixed, savings, and current deposits of money in banks and
similar institutions are not true deposits. They are considered simple loans and, as such, are not
preferred credits
The aforequoted section 29 of the Central Bank's charter explicitly provides that when a bank is
found to be insolvent, the Monetary Board shall forbid it to do business and shall take charge of its
assets. Evidently, one purpose in prohibiting the insolvent bank from doing business is to prevent some
depositors from having an undue or fraudulent preference over other creditors and depositors.
That purpose would be nullified if, as in this case, after the bank is declared insolvent, suits by
some depositors could be maintained and judgments would be rendered for the payment of their
deposits and then such judgments would be considered preferred credits under article 2244 (14) (b) of
the Civil Code.
ARTICLE 2244. With reference to other property, real and personal, of the debtor, the following
claims or credits shall be preferred in the order named:
xxx xxx xxx
(14) Credits which, without special privilege, appear in (a) a public instrument; or (b) in a
final judgment, if they have been the subject of litigation. These credits shall have preference
among themselves in the order of priority of the dates of the instruments and of the judgments,
respectively.
xxx xxx xxx
We are of the opinion that such judgments cannot be considered preferred and that article
2244(14)(b) does not apply to judgments for the payment of the deposits in an insolvent savings bank
which were obtained after the declaration of insolvency. The Rohr case supplies some illumination on
the disposition of the instant case. The Supreme Court of Montana said:
The general principle of equity that the assets of an insolvent are to be
distributed
ratably among general creditors applies with full force to the distribution of the
assets of a bank.
A general depositor of a bank is merely a general creditor, and, as
such, is not entitled to any
preference or priority over other general creditors. xxx

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The circumstance that the Fidelity Savings Bank, having stopped operations since February 19,
1969, was forbidden to do business, and that ban would include the payment of time deposits, implies
that suits for the payment of such deposits were prohibited.
The trial court's order which contains the Bank Liquidation Rules and Regulations, indicated that,
in Step IV, the court directed the Central Bank, as liquidator, to submit a Project of Distribution which
should include "a list of the preferred credits to be paid in full in the order of priorities established in
Articles 2241, 2242, 2243, 2246 and 2247" of the Civil Code. It is important to note that Article 2244
was not mentioned. Therefore, there is no cogent reason why the Elizes and Padilla spouses should not
adhere to the procedure outlined in the said rules and regulations.

Now, you deposit in the bank. You cannot withdraw because at financial distress ang bank so
you file a case for the recovery of your deposit and you obtained a judgment in your favor. Now
in preference credit a payment for a judgment is actually a preferred credit. Can you use this as
a preferred credit to compel the bank to pay you? NO. because the basis of the judgment was an
ORDINARY CREDIT.
In same scenario, can you sue the officers of the bank and the bangko central for breach if trust?
NO. as ruled by the court in the case:

Serrano vs Central Bank of the Philippines

G.R. No. L-30511 February 14, 1980
Issue:
1. Can Central Bank be held liable to petitioner?
2. What is the nature of bank time deposits?
Held:
1. No. There is no shown clear abuse of discretion by the Central Bank in its exercise of supervision
over the other respondent Overseas Bank of Manila.
o Bank deposits are in the nature of irregular deposits. They are really loans because they
earn interest. All kinds of bank deposits, whether fixed, savings, or current are to be
treated as loans and are to be covered by the law on loans. 14 Current and savings
deposit are loans to a bank because it can use the same. The petitioner here in making
time deposits that earn interests with respondent Overseas Bank of Manila was in reality
a creditor of the respondent Bank and not a depositor. The respondent Bank was in turn a
debtor of petitioner. Failure of he respondent Bank to honor the time deposit is failure to
pay s obligation as a debtor and not a breach of trust arising from depositary's failure to
return the subject matter of the deposit.

So of you cannot sue the officers for breach of trust, so more that you cannot sue the officers for
estafa. Because there is no trust relationship but only an ordinary lender-borrower relationship
with the bank.
However, if money is delivered to an officer of the bank for safekeeping, not as deposit but only
for safekeeping. And that officer fails to return that money for safekeeping to you. The officer
can then be charged for estafa.
Another effect of the relationship between the depositor and the bank is that if employees or
officers of the bank steal the money deposited. The bank is the proper party to file the case for
qualified theft. This is because once money is deposited by the bank it becomes the owner. As
the owner the bank is the proper party to file the complaint of qualified theft.

People v. Puig
ISSUE: WON Rural bank was the proper party to file a case against the respondents.

HELD: YES. It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who
come into possession of the monies deposited therein enjoy the confidence reposed in them by their
employer. Banks, on the other hand, where monies are deposited, are considered the owners
thereof. This is very clear not only from the express provisions of the law, but from established

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jurisprudence. The relationship between banks and depositors has been held to be that of creditor and
debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner,
provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning loan.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of
possession by the Bank of the money deposits therein, and the duties being performed by its
employees who have custody of the money or have come into possession of it. The Court has
consistently considered the allegations in the Information that such employees acted with grave abuse
of confidence, to the damage and prejudice of the Bank, without particularly referring to it as owner of
the money deposits, as sufficient to make out a case of Qualified Theft.
In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of
the Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed
in them, occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft
So sa pacquiao na situation, it is not the money of pacquiao that was froze but the his authority
to withdraw from the bank.

DEPOSIT

A contract where a movable is delivered to another person for safekeeping not to allow this
other person to use the thing but if he should use, it is only incidental to the primary use which
is preservation contract of deposit.
Just like loan, deposit is a real contract, it is perfected by the delivery of the thing to the
depositary by the depositor. Just like mutuum its either onerous or gratuitous but if the contract
is silent about consideration the presumption is that it is gratuitous.
The purpose must be primarily for deposit otherwise it can be other contract.
In the contract of deposit a movable is delivered to the delivered to the depositary right? In US
vs Igpuara was there a delivery of money to Veraguth? Was there a delivery? If there was, from
whom to whom?
o Montilla owns some sugar. He must have been a sugar planter. Ramirez and company
was the commission agent tasked with the sale of sugar and the Ramirez and company
was entitled to a commission and Igpuara must have been a partner of the entity. And
there was a sale from the sugar owned by Montilla and Ramirez and company was
entitled to a commission. Igpuara acknowledged that there was a balance after the
deducting the commission of the sale of the sugar. Theres a balance of sum of 2,000
pesos that he acknowledged to be holding himself, to be holding for and behalf of
Veraguth who was the agent of Montilla. And then Veraguth acting for and behalf of
Montilla demanded for the return of the money could not return. What was his answer?
Im not obliged to return to you because I already issued to you a negotiable instrument.
And of course the Court said, NO its not a negotiable instrument because it is payable to
bearer for it to be negotiable it must be payable to order. Even looking at the
acknowledgement receipt, signed by Igpuara, it could not be a negotiable instrument. NIL
already took effect that time. But it did not comply with the definition of what a
negotiable instrument is. It was not an unconditional promise to pay a sum certain in
money nor was it an unconditional order to pay a sum certain in money. The court said

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that he was holding it as a depositary and must therefore account to Montilla if he could
not return then he could be prosecuted for estafa.
When we were discussing about mutuum, we discussed that the transaction between a bank
and depositor is that of debtor and creditor because the contract between them is a loan and
therefore the bank and its officers cannot be held liable if the bank could not return the deposit
right? Is there an instance when a bank officer could be held liable criminally for failure to return
money incurred to the bank through him or through her?
o If the bank officer is guilty of fraud or negligence.
If you take away the CB Circular No. 20, what valid perfected contract would have been entered
into?
o Deposit. The money was accepted by Garcia for safekeeping and were it not for that
particular circular which requires all greenbacks should be should to central bank and not
kept, then he could have been successfully prosecuted for misappropation because they
sold the dollars.
If I deliver to you three thousand US dollars for safekeeping and you converted that US dollar to
Ph Peso, could I successfully prosecute you for misappropriation/estafa?
o The depositary could be held liable I already converted the dollar account into a different
kind of currency. Because what is material is that you should be able to return the same
amount of the same kind of what was delivered.
In the case of BIR vs IAC, Garcia recived 3,000 converted into Philippine Peso because he sold
the foreign currency and credited the peso equivalent to the account of Zhornack and he could
have been successfully prosecuted. What prevented the prosecution is the CB Circular. Without
that Circular, Garcia would have been liable.
Why is the rental of the safety deposit box not a lease?
o Because the payment of the rent is only incidental to the primary purpose of the contract
which is to receive and keep funds and documents and other valuables. The contract is
the contract of depositary.
o You would deliver the thing to me to allow me to use the thing thats the essence of the
contract of lease.
o In commodatum, when you deliver the movable to me so that I could use it I dont pay
you anything but in lease I pay you something which we call it a rent.
o In the rental of the safety deposit box, the safety deposit box is not delivered to the
lessee; this is not a lease contract.
o In the rental of the safety deposit box who has the absolute control of the safety deposit
box? The lessee. How about the control? Both the lessor (bank) and the lessee have
control. The bank has no absolute control because it cannot open the box. The
lessee/renter on the other has not absolute control because it is not in his possession, it
is with the bank. This is a kind of a special deposit because it was not delivered directly
to the bank because the bank has no absolute control over the box because there are
two keys to the box, one the master key which is held by the bank and the other is the
renters key which is held by the renter.
o That transaction is not strictly a contract of lease because absolute control over the thing
is not transferred to the lessee neither is it strictly a deposit because the bank has no
absolute control over the valuables placed inside the box because the bank cannot even
access it without the renters key. Thats why the court described it only as a special kind
of deposit.
If that is the special kind of deposit and in the written agreement there is a disclaimer by the
bank that it is not liable for any loss of valuables placed inside the box would there be an
instance that the bank can be still held liable for such loss? In the case of CA Agro-Industrial the
documents of titles were disappeared from the box was the bank held liable?
o The bank was held liable here for the loss of the titles because the Supreme Court held
that the bank can be liable if it is guilty of fraud or negligence.

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Why cant you attribute negligence on the part of the bank here when it could be
opened without the participation of the bank, the master key is with the bank? Both of
the depositors were given rental keys. There was an agreement that both of the parties
must be both represented when they go to the bank and the bank was not informed
about the agreement. One of the renters went to the bank told the bank officer that he is
going to open the safety deposit box he presented the depositors key, so the bank
allowed him to withdraw the documents from the box.
o Can give us an example when the bank can be held liable for negligence in relation to the
rental of the safety deposit box? If the bank was informed about the stipulation that the
bank should not allow the other depositor withdraw the contents of the safety deposit
box without informing the other depositor, if they violate the stipulation, meaning they
allow the other depositor to withdraw without informing the other depositor, the bank can
be held liable.
In another, case a client went to the bank rented safety deposit box, what was assigned to him
was the bottom box, what he placed it on the box were two albums of his stamp collection. The
vault was flooded, with the usual stipulations that the bank is not liable for damage or loss on
the goods or things placed inside the box. The bank did not notify the client the vault was
flooded. When the renter went to the bank to inspect his treasures, the albums were completely
destroyed. The court held the bank liable for negligence. The court said that, if the bank had
notified the client immediately then this items would have, probably have been saved. But the
bank did not.
In another case, here is this business and philanthropist, he was befriended by a lady who
convinced him to transfer from one hotel to another hotel when he comes to the Philippines and
the checks into that particular hotel he would rent a safety deposit box and he would place his
money and his other documents inside the box. While he is sleeping, his friend would go to the
vault to the bank and ask the hotel staff that he is going to the safety deposit box. She has the
renters key. She went there in three instances. Of course, she could not open the safety deposit
box without the participation of the bank just like a bank safety deposit box, a deposit box that
you rented in a hotel has two keys one for the renter, one for the hotel. And the hotel allowed
her to open, on several occasions that Mr. McLaughlin get the envelopes containing his money,
containing 5000 USD, 2000 USD is missing. One time he took an envelope which he thinks
contains a 1000USD but when he opened it, it only contains 5000USD. He confronted the hotel
staff and they admitted that they allowed Ms. Tan to access and open the box.
o And the court said that well, we can attribute negligence to Mr. McLaughlin for making it
appear to the hotel staff that Ms. Tan was his spouse. More negligence is attributed to the
hotel because the renter was Mr. McLaughlin and not the friend or spouse. The court
held that the hotel is liable.
A matter of deposit could either be unilateral or bilateral. Bilateral is onerous. But of course,
because the essense of deposit for safekeeping the depositary has no right to use, if ever you
use the thing that is only for purposes of preservation or it is allowed by the depositor. But the
consent to use the thing must not be the primary purpose of the contract otherwise it not a
contract of deposit anymore but it is another contract. But if a money is delivered to you in a
deposit, and the depositor demands the return of the money after a certain period and you ask
an extension to return the money, was the initial contract a deposit alone? Was a deposit
converted into a contract of loan? Or was it initially a contract of loan?
o In the case of Javellana vs Lim, the court said, from the start it was a loan. Why would
you extend the period if you did not allow the depositary to use the money in the first
place. Initially a loan from the start. No conversion. Because if it is a deposit, you could
have demanded for the return of the money anytime. And there will be no occasion to
ask for an extension for the return.
What can be object of the contractual deposit?
o

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Does not include immovables. It only includes movables because it requires that you
physically deliver the possession of the thing to the depositary.
Various kinds of deposit:
o Extrajudicial Deposit
Voluntary Deposit constituted by the will of the parties by mutual consent.
Necessary Deposit constituted in compliance with a legal obligation or in
occasion of a legal calamity; one which is made my travelers in inns, hotels and
common carriers.
o Judicial Deposit - constituted by a virtue of a judicial order or court order.
o Regular Deposit where the depositary is not allowed to use
o Irregular Deposit where the depositary is allowed to use
In some cases decided by the court, several decades back, the court would describe the bank
deposit as an irregular deposit. But of course, thats clearly defined now under the NCC, that
contract between the bank and the depositor is a contract of loan.
How is deposit distinguished from the sale and barter?
o In deposit, ownership is NOT depositary while in sale and barter ownership is transferred
to the other party.
o Deposit may be gratuitous but sale and onerous.
o Deposit is a real contract perfected only from the moment of the delivery of the movable
to the depositary while sale and barter are consensual contracts.
How is deposit distinguished from commodatum?
o Deposit is naturally gratuitous. Commodatum is essentially gratuitous.
o Purpose of Deposit is for safekeeping. Purpose of commodatum is for use of the thing by
the bailee.
o

VOLUNTARY DEPOSIT

No particular capacity required for the both parties to constitute a contract of deposit. Special
capacity of the depositor is not required and also the depositary.
o There is a perfected contract of deposit even If one of the parties is incapacitated.
If fact, if the depositor is incapacitated, and the depositary is capacitated, the
depositor can demand for the return only when he acquires legal capacity or when
he acquires.
If the depositary returns the thing to the incapacitated depositor, if we go back to
ObliCon, does payment to an incapacitated to an incapacitated person extinguish
an obligation? NO. It extinguishes the obligation only to the extent that he was
benefited. We can apply that rule here because the law is silent.
If the depositary is incapacitated and the depositor is capacitated, there is still a
perfected and valid contract of deposit, but voidable. Because one of the parties
is incapable of giving a consent.
Can the depositor here demand the return of the thing? (not answered by
maam all I hear are whispers and murmurs. Cant comprehend)
What if the depositary alienated the thing? Can he be compelled to return
the thing? He can be compelled to return if the thing is still with him. If the
third person to whom the thing was alienated, acted in bad faith, the
depositor can go after him. If that person acted in good faith then the
depositors action can only be against the depositary for the return of the
price or the amount to which he was benefited.
What if the depositary in bad faith? Can you impute bad faith on an
incapacitated person?
What are the two main obligations of the depositary?
1. To preserve the thing
He cannot use the thing unless the use if for purposes of preservation.

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GR: He shall be liable for loss, even if fortuitous if he delegates the custody of the
thing to a third person.
Exception: not liable for loss, if he delegates and so allowed by the
depositor to do so.
Exception to the exception: even if allowed to delegate, still liable to the
loss, if the third person is manifestly careless or unfit.

Can we change the manner/way of deposit?

o GR: The depositary may not change the way/manner of deposit.
o *Exception: If there are circumstances indicating that the depositor would consent to
the change.
o Requisites:
The depositary must notify the depositor of such change
The depositary must wait for the reply of the depositor to such change
o Exception: If the delay of the reply would cause danger.
o How about transfer of the thing stored?
Example there is a storm, and the warehouse where the deposited goods are located is
along the coastal area of the locality and theres a threat of a storm surge and so the
depositary wanted to transfer the goods from that particular warehouse to the higher
area of the same locality. He tried to contact the depositor who is in Malapascua island
and he has only a sun cellular phone and theres no signal of sun at Malapascua. And
theres an urgency to transfer the goods, so he did not wait for the consent of the
depositor and transferred the goods to the safer warehouse. Unfortunately, that safer
warehouse was also destroyed. Can the depositor held the depositary liable for damages
for changing the manner or way of the deposit?
Defenses of depositary. You have to prove the two requirements to the exception
(*above)
o In relation to the obligation to preserve the thing, if what is deposited consists of stamps,
certificates and securities, what is expected of the depositary?
(murmurs, kamu pangita answer please)
o What if the security matures during the period of deposit?
Collect the proceeds from the securities. Otherwise it might go stale.
o If the object deposited is placed in a locked receptacle or any locked, sealed inside the box,
accidentally opened without the fault of the depositary? What is the obligation of the
depositary?
Keep the secret of the deposit! Unless if keeping the secret would make him an
accessory to the crime like what is sealed in the receptacle is a kilo of shabu, you
are not obliged to keep it as a secret.
2. To return the thing
o The return must be returned to the depositor; it can be returned to the person designated,
assignees of the depositor.
o But if the depositor loses the capacity after contracting the deposit, return must be made
to the guardian or legal representative.
o If the thing belongs to a third person, the depositor cannot demand the depositor to prove
his ownership before he can return the thing because ownership of the depositor over the
thing is not required in the contract of deposit.
o But if the depositary knows that the thing is stolen and he knows who the owner is then he
can refuse to return the thing but he is obliged to inform the owner that he holding the
thing that is stolen. He cannot refuse to return the thing indefinitely to the depositor. He
only has one month for notification to the owner. If the owner notified does not collect
the thing stolen after one month, then he can return it to the depositor.
o If the depositary has reasonable ground to believe that the depositor did not lawfully
acquire the thing? Can he refuse to return the thing?
No. But he may return the thing even if without the demand by the depositor.
Diba the obligation to return arises from the time it was demanded to
return by the depositor.

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o If somebody claims ownership over the thing or if the thing is attached by a virtue of a
court order, can the depositary refuse to return the thing to the depositor?
The obligation of the depositary is to immediately notify the depositor of
such third-party claim of such fact of attachment.
o If the deposit is gratuitous, and there is a valid for him (depositary) not to keep the
deposit, because he is migrating to Canada he can return the thing even prior to the
demand of the depositor. And if the depositor refuses to accept the return, make
consignation.
o What must be returned?
MONEY Same numerical value. Same serial number, same bills! Dili nimu
hilabtan ang kwarta oi! (haha taka2x kog answer sa recording, shame!)
Court said you can comingle funds, as allowed in the case of Archbishop of
Jaro vs de la Pea case. (not assigned)
SPECIFIC THING must be returned, also include the accessory and fruits because
they do not belong to the depositary.
What if what was deposited CERTAIN VOLUME OF GALVANIZED IRON SHEETS and
the locality was recently hit by a supertyphoon and the government wants to
rehabilitate the locality and there was a scarcity of supply of GI sheets and
exercising Police Power, the government seized the GI Sheets, the warehouseman
(depositor) can demand for compensation for taking the of GI sheets and he has
turn over the payment to the depositor. If the thing is lost and it was compensated
by the third person responsible for the loss the depositary cannot keep the money
and must turn over the money to the depositor.
o If the depositary dies and he is survived by an heir and the heir not knowing that this
particular computer was delivered to the deceased by way of deposit, sells the computer
to another person, the obligation of the heir is to deliver the price to the depositor and if
he cant collect the money, then assign the right to collect to the depositor; if the heir
acted in bad faith, heir is liable for damages; the third person is in bad faith, then apply
by analogy the depositor can recover the thing from the third person knowing that the
thing sold to him is owned by the heir but was or inherited but the an asset by the
predecessor in interest by deposit, not as an owner.
o If the returned thing which is locked or sealed receptacle deposit is opened, the
presumption is that it is with the fault of the depositary.
If that locked object which was opened, what is the basis for the value?
Depositors declaration will be the basis in determining the contents and the value
of the thing object. That is a disputable presumption.
o GR: Returned must be made at the place agreed by the parties.
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.
(Applying by analogy the rule on ObliCon).
o Return must be made upon demand even if there is a period stipulated by the depositary
because the deposit is primarily for the benefit of the depositor.
What if there is a contract for storage for one year? The depositary still cannot
refuse to return the thing upon demand by the depositor (even if earlier).
Equity demands that still the depositary should still pay for the storage of one
year.
o Is there another instance where the depositary can refuse to return the thing upon demand
by the depositor?
Yes, if the depositary has claims arising from the deposit against the depositor.
Such as claims for storage fees, transportation fees, insurance of the thing
deposited fees.
If the claim is not arising from the deposit, the depositor cannot claim
compensation; cannot refuse to return the object deposited.
o Can the bank off set the bank deposit against a claim by the bank against the depositor?
Example, I deposited 1million to PNB and I also owe PNB a 500K does my
obligation 500K despite demands I failed to pay the loan. Can the bank deduct the
amount from the deposit? YES. The requisites for legal compensation are all

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present here. Legal compensation takes place under the operation of the law. The
parties will not have to agree about the compensation; as long as the requisites
for legal compensation are complete then legal compensation takes place. BUT if
the bank should set off, its claims against the depositor, against his bank deposit,
it must be so exercising highest degree of diligence, otherwise it can be held
liable as what happened in the case of Gullas vs PNB.
In these two cases, the court recognized the right of the bank to set off. The court
also emphasized that the bank must also exercise a highest degree of diligence.

If in a contract of sale, earnest money is paid and the sale does not materialize because of the
fault of the seller, what happens to the earnest money?
o The earnest money must be returned to the buyer because when the sale is not
materialized, the earnest money partakes the nature of a deposit.

OBLIGATIONS OF THE DEPOSITOR:

1. To pay compensation if it is an onerous deposit
2. If it is a gratuitous deposit, to reimburse the depositary for the expenses in the preservation of
the thing.
3. To indemnify the depositary for the loss and damage suffered by the depositary by the defective
nature of the thing unless
The depositor was not aware, or
The depositary was notified, or
The depositary knew without notice.
Can now claim damages from the depositor.

NECESSARY DEPOSIT

Can you give us an example of a necessary deposit that which is in compliance with a legal
obligation?
o When I borrowed money from you and as a security for the money that I borrowed from
you. I pledge my diamond ring; without my authority, you used my ring. With that, I can
ask you to deposit the object (ring) not necessarily the court but a neutral person.
Can you also give us an example of a necessary deposit constituted on the occasion of a natural
calamity?
o A car is found in possession of another person because of the storm surge; found by Mr.
A, in a place other than my residence. It is as if he is holding my car. As if I am depositing
my car.
A necessary deposit is governed by the rules on voluntary deposit then does Mr. A have
obligation with respect to the car that he found?
o He has the obligation to safe keep the car.
o Obligations of the necessary depositary:
To safe keep the thing
To return the thing
o Obligations of the necessary depositor:
To pay for just compensation for the necessary expenses that Mr. A had incurred
in safekeeping the car.
Would there be an instance where you can hold Mr. A liable for damages?
o If he keeper of the thing uses the thing other than for the purposes of safekeeping.
o What else? Not answered by Maam.
When does the hotel can become liable as a depositary with respect to personal effects of its
guests?
o The hotel becomes liable from the moment that there has been notice by the with
regards to the object and such object has been given in accordance with the proper
packaging.
o When there is already an evident intent to avail of the obligations to the depositary (not
sure but this was how I construed the recording :D)

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Is it necessary that the guest should physically turn over his personal effects to the hotel staff in
order to hold the hotel liable for the loss?
o Not necessarily as long as the object is within the premises of the hotel, including the
annexes of the hotel, hotel area.
Does the hotel become automatically liable the moment the hotel guests lose property within
the hotels premises? I lost my laptop inside the hotel and then I write to the manager of the
hotel asking for a reimbursement; is that all I need to do in order to recover damages from the
hotel?
o There must be a notice to the hotel that I am bringing a valuable such as laptop with me
and I must exercise proper precaution with my laptop.
o What if hotel staff would tell you that they will the ones who would keep your laptop
while you go out of the hotel room and you said that your room is safe and you could just
leave your laptop under your pillowcase (under the comfortable) inside your room, is that
a proper precaution? Can I make the hotel liable?
The guest here did not exercise a proper precaution with regards to the laptop
hence the hotel is not liable.
Is the hotel liable if the loss is caused by the persons who are not employees of the hotel?
o Yes, the law provides even by a mere stranger or visitors or relatives, the hotel staff is
still liable.
o YHT Realty vs CA, can you impute negligence on Mr. McLaughlin (Mr. Lol next time para
shortcut :D)?
(Maam asked for an opinion here.) Mr. McLol is not negligent, it was the hotel who
was negligent. According to the court, the hotel is guilty of negligence. But the
hotel is also guilty of concurrent negligence with Mr. McLol.
o What is expected of the hotel the first time that Ms. Tan opened the safety deposit box?
The hotel should have verified if Ms. Tan is authorized by Mr. McLol to open the
safety deposit box. This is the negligence that was imputed to the Hotel
Tropicana they failed to verify Mr. McLol.
In the Durban Apartments case, from what point in time was deposit constituted.
o From the point that the keys were given and he was given a stub, between Mr. Sy and the
other party. Mr. Justeng Baste was not included because he was the employee of the
hotel and he only acts in behalf of the hotel. The act of the employee is the act of the
corporation.
o Pioneer (third party) which paid Mr. Sys lost car, subrogated into the rights of Mr. Sy
because Mr. Sys right was to claim against the Durban Apartments; thats why Pioneer
Insurance now is claiming reimbursement from Durban.
Do you think that a necessary deposit is constituted by passengers with common carriers right?
o Unanswered.
Just review your notes on warehouse receipts law, documents of title on your notes and the
slides.

Warehouse Receipts Law

Act 2137 ( You can review SALES PRE-FINAL TRANSCRIPT PAGE 4 to 8) sorry dili nko
ma add dri kay na reformat ako laptop nawala ako word doc file last sem. Pdf ra naa
sa group nto sauna.

Concept:
It is a written acknowledgment by a warehouseman that he has received and holds certain
goods therein described in store for the person to whom it is issued.
Also, a simple written contract between the owner (depositor) of the goods and the
warehouseman to pay the compensation for that service.
Functions of a warehouse receipt:
1.
It is proof of the possession or control of the goods described therein; and

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2.

It authorizes or purports to authorize the possessor of the receipt to transfer or receive,

either by indorsement or by delivery, the goods represented by such receipt.

Warehouse receipt vs. Negotiable instrument:

a)
In negotiable instruments, the subject is money; in warehouse receipts, the subject is
merchandise (or goods)
b)
In negotiable instruments, the instrument itself is the object of value; in warehouse
receipts, the goods are the objects of value
c)
In negotiable instruments, intermediate parties become secondarily liable; in warehouse
receipts, intermediate parties are not liable for the warehousemans failure to deliver the
good
Kinds:
1.
2.

Non-negotiable
effect of failure to mark non-negotiable
Negotiable
effect of marking non-negotiable

Rules when goods are covered by a negotiable receipt:

1.
The warehouseman cannot be compelled to deliver up the actual possession of the goods
until the receipt is surrendered to him or impounded by the court
2.
Receipt must be cancelled when goods are delivered
3.
Receipt must be cancelled or marked when part of the goods are delivered
4.
The goods cannot be attached by garnishment or be levied upon under an execution
May goods covered by a negotiable receipt be attached or levied on execution? No.
Exception: Unless
a)
the receipt is first surrendered;
b)
its negotiation is enjoined; or
c)
the document is impounded by the court
Exception to the exception:
a)
if the person depositing the goods is not the owner or is one who has no right to
convey title to the goods binding upon the owner; or
b)
actions for recovery or manual delivery of the goods by the real owner; or
c)
where the attachment is made before the issuance of the negotiable receipt
Rights acquired by a person to whom a negotiable receipt is properly negotiated:
He acquires:
a)
not only the title of the transferor to the goods, but also the title of the depositor; and
b)
the direct obligation of the warehouseman to hold possession of the goods for him
without need of notice
Rights acquired by a person to whom an order receipt is delivered without indorsement:
He acquires:
a)
title to the goods as against the transferor; and
b)
the right to compel the transferor to indorse the receipt, but the effects of negotiation
shall take place upon actual indorsement
Warranties of person negotiating a receipt:
1.
that the receipt is genuine;
2.
that he has legal right to negotiate or transfer it;
3.
that he has no knowledge of any fact which would impair the validity or worth of the
receipt; and
4.
that he has a right to transfer the title to the goods and that he has no knowledge of any
fact which would impair the validity of the receipt and that the goods are merchantable or fit for a
particular purpose, if such warranties have been implied
Is indorser liable for failure of warehouseman or previous indorsers to fulfill their obligations?
No.

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Validity of negotiation against real owner:

a)
If receipt is acquired from the real owners agent purchaser acquires title
b)
If receipt is stolen or lost purchaser does not acquire title
On vendors lien?
a)
No sellers lien or stoppage in transitu against purchaser in good faith and for value
b)
No delivery to unpaid seller without surrender of receipt
Rights of transferee of non-negotiable receipt:
1.
the title to the goods as against the transferor;
2.
the right to notify the warehouseman of the transfer thereof; and
3.
the right, thereafter, to acquire the obligation of the warehouseman to hold the goods for
him
Obligations of the warehouseman:
1.
To take care of the goods
2.
To deliver the goods upon demand
Pursuant to the Bonded Warehouse Act:
1.
To secure a license from the DTI
2.
To file a bond equivalent to 1/3 of the market value of the maximum quantity of goods to
be received
3.
Not to discriminate and must open his warehouse to the public
4.
To be liable for double the market value of goods
5.
To insure the goods against fire
What must accompany the demand?
1.
An offer to satisfy the warehousemans lien;
2.
An offer to surrender the negotiable warehouse receipt, properly indorsed, if necessary;
and
3.
A readiness and willingness to sign an acknowledgement receipt of the fact of delivery if
so requested by the warehouseman
What constitutes warehousemans lien:
a)
All lawful charges for storage and preservation
b)
All lawful claims for money advanced, interest, insurance, transportation, labor,
weighing, cooperating, etc. in relation to the goods
c)
All reasonable charges and expenses for notice and advertisements of sale, and for sale
of the goods in case of default in satisfying the warehousemans lien
Remedies available to a warehouseman to enforce his lien:
a)
To refuse to deliver the goods until his lien is satisfied (Sec. 31)
b)
To sell the goods and apply the proceeds thereof to the value of the lien (Secs. 33 & 34)
c)
By other means allowed by law to a creditor against his debtor, for the collection from
the depositor of all charges and advances which the depositor expressly or impliedly contracted with
the warehouseman to pay (Sec. 32)
d)
Such other remedies allowed by law for enforcement of a lien against personal property
(Sec. 35)
To whom must delivery be made?
1.
To the person lawfully entitled to the goods or his agent
person to whom a competent court has ordered the delivery of the goods
attaching creditor
purchaser in case of sale of the goods to enforce the warehousemans lien or
where the goods are perishable or hazardous
2.
To the person entitled to delivery under a non-negotiable receipt or with written authority
3.
To the person in possession of the negotiable receipt
Misdelivery:
1.
Delivery to one who is not in fact lawfully entitled to the possession of the goods

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2.
Delivery after he had been requested, by the person lawfully entitled to possession, not
to make delivery
3.
Delivery after he had information that the delivery about to be made was to one not
lawfully entitled to possession, i.e., notice of adverse claim of a third person
Liability for misdelivery:
Warehouseman is liable as for conversion.

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