G.R. No.

4015            August 24, 1908

ANGEL JAVELLANA, plaintiff-appellee,

vs.
JOSE LIM, ET AL., defendants-appellants.

FACTS

Angel Javellana filed an amended complaint with the CFI Iloilo, praying that the defendants,
Jose Lim and Ceferino Domingo Lim, be sentenced to jointly and severally pay the sum of
P2,686.58, with interest thereon at the rate of 15 % pa.

The complaint alleged that the defendant executed a document in favor of the plaintiff, whereby
they acknowledged their receipt of the sum of P2,686 and undertook to return the same to Angel
on the January 20, 1898. When the obligation became due, the defendants asked for, and were
granted, an extension of time to pay the sum on the condition that they would pay interest at the
rate of 15% of the indebtedness. On the 15th of November 1902, the debtors paid on account of
interest due the sum of P1,000 pesos.

In their answer, the defendants admitted that they made a payment of P1, 102.16 to the plaintiff,
but such payment was for the principal, and not interest, denying any agreement as to an
extension of the time for payment.

CFI: in favor of Angel Javellana

ISSUE W/N the defendants are liable to pay the sum of P2,686.58 with interest

HELD YES

The document of indebtedness inserted in the complaint states that the plaintiff left on deposit
with the defendants a given sum of money which they were jointly and severally obliged to
return on a certain date fixed in the document. When the document was executed, it was
acknowledged that the amount deposited had not yet been returned to the creditor, and the return
was again stipulated with the further agreement that the amount deposited should bear interest at
the rate of 15 per cent per annum.

It must be understood that the debtors were lawfully authorized to make use of the amount
deposited, as they have done so. When Jose Lim went to the office of the creditor asking for an
extension of one year, since neither he nor the other defendant was able to return the amount
deposited, it was because he did not have in his possession the amount deposited, he having
made use of the same in his business and for his own profit. The creditor, by granting them the
extension, evidently confirmed the express permission previously given to use and dispose of the
amount deposited, which, in accordance with the loan, to all intents and purposes gratuitously.
Such conduct on the part of the debtors is unquestionable evidence that the transaction entered
into between the interested parties was not a deposit, but a real contract of loan.

Articles. The depository cannot make use of the thing deposited without the express permission
of the depositor. Otherwise he shall be liable for losses and damages. When the depository has
permission to make use of the thing deposited, the contract loses the character of a deposit and
becomes a loan or bailment. The permission shall not be presumed, and its existence must be
proven.

As a matter of course, it may be inferred here that there was no conversion of the deposit into a
loan, because the defendants received said amount by virtue of real loan contract under the name
of a deposit, since the so-called bailees were forthwith authorized to dispose of the amount
deposited. This they have done, as has been clearly shown.