Personal Notes Credit Transaction

MEANING AND SCOPE OF CREDIT TRANSACTION
Credit transactions include all transactions involving the

purchase or loan of goods, services, or money in the present with a
promise to pay or deliver in the future.
EXAMPLSE OF CREDIT TRANSACTION
1. Bailment Contracts
2. Contracts of guaranty and suretyship
3. Mortgage
4. Antichresis
5. Concurrence and preference of credits
1987 PHILIPPINE CONSTITUTION
SEC 20. No person shall be imprisoned for debt and non-payment of a poll tax.
PG. 1 SUMALINOG, ART JUN |UNC SCHOOL OF LAW |CREDIT TRANSACTIONS

TRUTH IN LENDING ACT
SEC. 3 (2)
"Credit" means any loan, mortgage, deed of trust, advance, or
discount; any conditional sales contract; any contract to sell, or sale
or contract of sale of property or services, either for present or future
delivery, under which part or all of the price is payable subsequent
to the making of such sale or contract; any rental-purchase
contract; any contract or arrangement for the hire, bailment, or
leasing of property; any option, demand, lien, pledge, or other claim
against, or for the delivery of, property or money; any purchase, or
other acquisition of, or any credit upon the security of, any
obligation of claim arising out of any of the foregoing; and any
transaction or series of transactions having a similar purpose or
effect.

TRUTH IN LENDING ACT
SECTION 4. Any creditor shall furnish to each person to whom credit is extended, prior
to the consummation of the transaction, a clear statement in writing setting forth, to the
extent applicable and in accordance with rules and regulations prescribed by the Board, the
following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed expressed as a
simple annual rate on the outstanding unpaid balance of the obligation.

TWO TYPES OF CREDIT TRANSACTIONS/ CONTRACT OF
SECURITY
1. Secured transactions or contracts of real security

-supported by a collateral or an encumbrance of
property
2. Unsecured transactions or contracts of personal
security
-fulfillment by the debtor is supported only by a
promise to pay or the personal commitment of another

MEANING OF SECURITY
What is security?
Something given, deposited, or serving as a means to ensure
the fulfillment or enforcement of an obligation or of protecting
some interest in property
KINDS OF SECURITY
1. Personal Security - when individual becomes a surety
or a guarantor
2. Property or Real Security – when a mortgage, pledge,
antichresis, charge, or lien or other device used to have
property held, out of which the person to be made
secure can be compensated for loss.

BAILMENT
What is bailment?
The delivery of property of one person to another in
trust for a specific purpose, with a contract, that the trust
shall be faithfully executed and the property returned or duly
accounted for when the special purpose is accomplished or
kept until the bailor reclaims it.
To be legally enforceable, a bailment must contain all the elements of a valid

contact, which are consent, object, and cause or consideration. However, a
bailment may also be created by operation of law.

KINDS OF BAILMENT
1. For the sole benefit of the bailor
2. For the sole benefit of the bailee
3. For the benefit of both parties
EXAMPLES:
1. My tito from the States makes padala a balikbayan box filled with
spam through another relative who’s flying to the Philippines on
vacation. It only benefits my tito (the bailor).
2. Xilca borrows my white blouse because she forgot to bring clothes
to change from her Pasay City Jail outfit. Only Xilca is benefited,
not me.
3. Ansky pawns her huge diamond earrings at Villarica Pawnshop.
The pawnshop gives her P10,000 and a pawn ticket. Both parties
benefit

BAILMENT FOR HIRE when arises?
Answer: It arises when goods are left with the bailee for some
use or service by him always for some compensation.
KINDS OF BAILMENT FOR HIRE

1. Hire of things- goods are delivered for the temporary
use of the hirer
2. Hire of Service- goods are delivered for some work
or labour upon it by the bailee
3. Hire for carriage of goods – goods are delivered
either to a common carrier or to a private person for
the purpose of being carried from one place to place.
4. Hire of Custody- goods are delivered for storage

ELEMENTS OF BAILMENT
1. The bailor retains title of the personal property;
2. The possession or temporary control of the property is
delivered or transferred to the bailee.
3. The bailee accepts possession of the property;
4. The possession of the bailee is for a specific purpose;
and;
5. The parties intend that the identical property (or
tangible goods of the same quantity and quality) will be
returned to the bailor at the end of the bailment unless
the bailor directs that it be given to another person or
its disposal by the bailee.

SUBJECT OF BAILMENT
ANSWER: A bailment involves the transfer or possession of

personal or movable property. Thus, while the owner of the
land may transfer possession of it to another for a certain
period, the transaction does not constitute bailment. Under
our law, however, both movable and immovable property may
be the subject of commodatum. (ART. 1937)
In bailment, the recipient acquires not mere custody, but
substantial measure of control over the property.

LOAN
GENERAL PROVISION
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 commodatum ; or money or other consumable
thing, upon condition that the same amount of the same kind and
quality shall be paid, in which case the contract is simply called
loan or mutuum.
Art. 1934. An accepted promise to deliver something by way of

commodatum or simple loan is binding upon the parties, but the
commodatum or simple loan itself shall be perfected until the
delivery of the object of the contract.

CHARACTERISTICS OF THE CONTRACT OF LOAN
1. Real contract- the delivery of the thing loaned is
necessary for the perfection of the contract.
2. Unilateral contract- once the object matter has been
delivered, it creates obligations on the part of only one
of the parties (the borrower)
CAUSE AND CONSIDERATION IN A CONTRACT OF LOAN
1. As to the borrower: the acquisition of the thing
2. As to the lender: the right to demand its return or its
equivalent

What is a loan?
Answer: The delivery by one party and the receipt by
the other party of a given sum of money, upon agreement,
express or implied; to repay the sum loaned with or without
interest.
ESSENTIAL ELEMENTS OF A CONTRACT IN THE CONTECT OF LOAN
Consent of the parties Borrower and Lender
Object Property
Cause or Consideration For the lender: right to demand the
return of the thing loaned
For the borrower: acquisition of the

thing.

MUTUUM
As to Purpose: The purpose of mutuum is to transfer
ownership of fungible objects.
As to Subject Matter: Fungible objects, which are items that
are consumable or replaceable by an equivalent such as
money or grains.
Characteristics: In mutuum, the borrower acquires
ownership of the object lent and is obligated to return the
same kind and quality of the object borrowed. The borrower
becomes the owner of the object lent, and the lender cannot
demand its return but only the payment of the equivalent
value.

COMMODATUM
As to Purpose: The purpose of commodatum is transfer
temporary possession or use of non-fungible objects.
As to Subject Matter: Non-fungible objects, which are items
that are unique and not interchangeable, such as car or book.
Characteristics: In commodatum, the borrower acquires the
use or possession of the object lent but not ownership. The
borrower is obligated to return the same object borrowed, in
the same condition, after the agreed-upon period. The lender
retains ownership throughout the duration of the loan.

KINDS OF LOAN
What is Commodatum?
Where the lender delivers to the borrower a non-
consumable things so that the latter may use it for a certain
time and return identical thing.
What is Mutuum?
Where the lender delivers to the borrower money or other
consumable thing upon the condition that the latter shall pay
the same amount of the same kind and quality.

LOAN DISTINGUISH FROM CREDIT
Credit means the ability of an individual to borrow
money or things by virtue of the confidence or trust reposed by
a lender that he will pay what he may promise within a
specified period.
Loan means the delivery by one party and the receipt by

the other party of a given sum of money or other consumable
thing upon an agreement to repay the same amount of the same
kind and quality, with or without interest.

DISTINCTIONS BETWEEN COMMODATUM AND SIMPLE LOAN
COMMODATUM SIMPLE LOAN
Subjct Matter Not Consumable Money or other
Consumable thing
Ownership Retained by the lender Transferred to the borrower
Nature Gratuitous Default rule is that it is
gratuitous but the parties
may stipulate interest, in
which case, it becomes
onerous
Payment by Borrower Borrower must return the Borrower need only pay the
same thing loaned same amount of the same
kind and quality.
Kind of Property Real or Personal Personal Only
When lender may demand Lender may demand return Lender may not demand
of the thing before the return of the thing before
expiration of the term in the lapse of the term
case of urgent need agreed upon.
Loss of the thing Suffered by the lender Suffered by the borrower
even if through a fortuitous
event.

NOTE:
In Commodatum, if you do not return the thing when it is

due, you will be liable for estafa because ownership of the property
is not transferred to the borrower.
In Loan, the borrower who does not pay is criminally liable

for estafa. His liability is only a civil liability for the breach of the
obligation to pay. This is because in loan, ownership of the thing is
transferred to the borrower, so there is no unlawful taking of the
property belonging to another.

ACCEPTED PROMISE TO MAKE A FUTURE LOAN
Borrower goes to Lender and asks if he could borrow P10K
at 6% interest per annum. Lender says okay, I will lend you the
money. This is an accepted promise to make a future loan. It is a
consensual contract and is binding upon the parties.
But is there a contract of loan at this point? No, because loan is a

real contract and is perfected only upon delivery of the thing
FORM OF LOAN
There are no formal requisites for the validity of a contract of
loan except if there is a stipulation for the payment of interest. A
stipulation for the payment of interest must be in writing.

Art 1935. The bailee in commodatum acquires the use of the thing loaned
but not its fruits; if any compensation is to be paid by him who acquires the
use, the contract ceases to be a commodatum.
COMMODATUM
Commodatum in simple term is hiram – A agress to lend his guard dog to his
friend B for a week for free. B is entitled to use the dog for this period. At the end
of the week, B must return the dog to A. If the dog gives birth while it is in the
custody of B, the puppies (fruits) belong to A.
KINDS OF COMMODATUM
1. Ordinary Commodatum
2. Precarium- one whereby the bailor may demand the thing
loaned at will.

NATURE OF COMMODATUM
 The bailee acquires the use of the thing but not its fruits, unless there is a
stipulation to the contrary.
 It is essentially gratuitous
 The purpose of the contract is the temporary use of the thing loaned for a certain
time. (So if the bailee is not entitled to use the thing, it is not commodatum but it
may be a deposit.
 The subject matter is generally non-consumable real or personal property,

though consumable goods may also be the subject of commodatum if the purpose
is not the consumption of the object (ex. Display of a bottle of wine).
 The lender need not be the owner of the thing loaned. It is enough that he has
possessory interest in the thing or right to use it which he may assert against the
bailee and third persons though not against the rightful owner. (Ex. A lessee may
sublet the thing leased).

NATURE OF COMMODATUM
 It is purely personal in character. The consequences of this are the
following:
a) The death of either party extinguishes the contract unless there

is a contrary stipulation for the commodatum to subsist until the
purpose is accomplished
b) The borrower cannot lend or lease the thing to a third person.
However, members of the borrower’s household may make use
of the thing loaned except:
 if there is a stipulation to the contrary; or

 if the nature of the thing forbids it
 The parties may stipulate that the borrower may use the fruits of the
thing, but this must only be incidental to the use of the thing itself
(because if it is the main cause, the contract may be one of usufruct).

OBLIGATIONS OF THE BAILEE
1. Liability for ordinary expenses- The borrower defray

the expenses for the use and preservation of the thing
loaned.
ART. 1941. The bailee is obliged to pay for the ordinary expenses for the
use and preservation of the thing loaned.
2. Liability for loss of the thing- The general rule is

that the borrower is not liable for loss or damage
due to fortuitous event.

XPN TO THE GR: Fortuitous event; borrower liable (ART.
1942)
a) if he devotes the thing to a purpose different from that for which it was
loaned (bad faith) this is a breach of the tenor of the obligation
b) if he keeps it longer than the period stipulated or after the
accomplishment of the use for which the commodatum has been
constituted (delay)
c) 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-this is equivalent to an assumption of risk;
d) if he lends or leases the thing to a third person who is not a member
of his household - also a breach of the tenor of the obligation;
e) If, being able to save either the thing borrowed or his own thing, he
chose to save his own (ingratitude).

3. Liability for the deterioration of the thing- The borrower

is not liable for the ordinary deterioration or wear and tear of
the thing that comes as a natural consequence of its use.
This is borne by the lender. Reason: Because the lender
retains ownership so he should bear the loss from ordinary
deterioration. Also, because the purpose of commodatum is
for the borrower to use the thing. Deterioration is a natural
result of such use.
ART. 1943. The bailee does not answer for the deterioration of the thing
loaned due only to the use thereof and without his fault.

4. Obligation to return the thing loaned. The borrower must
return the thing as soon as the period stipulated expires or
the purpose has been accomplished. He cannot keep the
thing as security for anything that the lender may owe him,
except for a claim for damages suffered because of the flaws
of the thing loaned.
ART. 1944. The bailee cannot retain the thing loaned on the ground that the
bailor owes him something, even though it may be by reason of expenses.
However, the bailee has a right of retention for damages mentioned in article
1951.
ART. 1951. The bailor who, knowing the flaws of the thing loaned, does not
advise the bailee of the same, shall be liable to the latter for the damages
which he may suffer by reason thereof.

5. Liability of two or more bailees – When there are two or

more borrowers to whom a thing is loaned in one contract,
there liability is solidary.
ART. 1945. When there are two or more bailees to whom a thing is loaned in the
same contract, they are liable solidarily.

OBLIGATIONS OF THE BAILOR
1. Obligations to respect the duration of the loan- The
lender cannot demand the return of the thing until after the
expiration of the period or after the accomplishment of the
use for which the commodatum was constituted. However,
he may demand its return or temporary use if he should have
urgent need of the thing.
ART. 1946. The bailor cannot demand the return of the thing loaned till after
the expiration of the period stipulated, or after the accomplishment of the
use for which the commodatum has been constituted. However, if in the
meantime, he should have urgent need of the thing, he may demand its return
or temporary use.
In case of temporary use by the bailor, the contract of commodatum is

suspended while the thing is in the possession of the bailor.

2. Precarium – Precarium is kind of commodatum where the
lender may demand the thing loaned at will. It exist in
the following cases:
 If there is no stipulation as to the duration of the contract or to the
use to which the thing loaned should be devoted
 If the use of the thing is merely tolerated by the lender
ART. 1947. The bailor may demand thing at will and the contractual
relation is called a precarium, in the following cases:
a) If neither the duration of the contract nor the use to which

the thing loaned should be devoted, has been stipulated; or
b) If the use of the thing is merely tolerated by the

owner.

3. Right to demand return of thing for acts of ingratitude-

If the borrower commits any of the acts enumerated in Art.
765 of the Civil Code, the lender may demand the immediate
return of the thing from the borrower. (This applies to
ordinary commodatum, since in precarium the lender can
demand at will, subject to the provisions against abuse of
right)
ART. 1948. The bailor may demand the immediate return of the thing of the
bailee commits any acts of ingratitude.

4. Obligation to refund extraordinary expenses-
a) Extraordinary expenses for the preservation of the thing – The
lender should refund the borrower the extraordinary expenses for
the preservation of the thing, provided that the borrower informs
the lender before incurring the expense, unless the need is so
urgent that the lender cannot be notified without danger.
b) Extraordinary expenses arising from actual use of the thing –
Extraordinary expenses arising on the occasion of the actual use
of the thing shall be borne by the lender and borrower on a 50-
50 basis, unless there is a contrary stipulation.
ART. 1949. The bailor shall refund the extraordinary expenses during the contract
for the preservation of the thing loaned, provided the bailee brings the same to the
knowledge of the bailor before incurring them, except when they are so urgent that
the reply to the notification cannot be awaited without danger.

5. All other expenses are for the account of the borrower-

All expenses other than those referred to in Article 1941 and
1949 “for the purpose of making use of the thing” that is
unnecessary for the use and preservation of the thing, must
be shouldered by the borrower.
ART. 1950. If, for the purpose of making use of the thing, the bailee incurs expenses
other than those referred to in article 1941 and 1949, he is not entitled to
reimbursement.

6. Liability for the damages for known hidden flaws-
a) There is flaw or defect in the thing loaned;
b) The flaw or defect is hidden
c) The lender is aware of the flaw
d) The lender does not advise the borrower of the
flaw
e) The borrower suffers damages by reason of the
flaw or defect
ART. 1951. The bailor who, knowing the flaws of the thing loaned, does not advise
the bailee of the same, shall be liable to the latter for the damages which he may
suffer by reason thereof.

SUMMARY OF RULES ON EXPENSES
a) Ordinary Expenses for the use of the thing – Baillee

(Art.1941)
b) Ordinary expenses for use of the thing – Bailee (Art. 1941;

1949.)
c) Extraordinary expenses to preserve the thing – Bailor (Art.
1949)
d) Extraordinary expenses arising from the actual use of the
thing – Equally by the Bailor and Bailee (Art. 1949)
e) Other expenses for the use of the thing – Bailee (Art. 1949);
f) Other expenses for the use of the thing – Bailee (Art. 1950)

ABANDONMENT OF THING BY THE LENDER
Q-Can the lender tell Borrower: I don’t want to pay for the
extraordinary expenses and damages that I owe you. Just keep the
thing, and let’s forget about my obligation.
Answer- No. The lender cannot exempt himself from the payment
of the expenses or damages by abandoning the thing to the
borrower. This is because the expenses and damages may exceed
the value of the thing loaned, and it would, therefore, be unfair to
allow the lender to just abandon the thing instead of paying for the
expenses and damages.
ART. 1952. The bailor cannot exempt himself from the payment of expenses or
damages by abandoning the thing to the bailee.

What is the purpose of commodatum?
Q-Answer: Under the New Civil Code, the purpose of commodatum
is primarily to allow the borrower to use the item for a specific
purpose or period of time without transferring ownership.
Q-Is commodatum gratuitous or onerous?

Answer: Commodatum can be either gratuitous or onerous,
depending on the agreement between the parties involved.

Q-What is the subject matter of a contract of commodatum?
Answer: The subject matter is either movable or immovable.
1. Non-consumable
2. Within the commerce of men
3. Determinate and not impossible
Q-May an immovable properties be an object of a

contract of commodatum?
Answer: Yes. Art. 1937 of the New Civil Code, Movable or
immovable property may be object of commodatum.

Q-Should the bailor be the owner of the object ate the
time of perfection of the contract?
Answer: Not necessary. Under Art. 1938 of the New Civil Code,
the bailor in commodatum need not be the owner of the thing
loaned.
Q-A contract of commodatum is personal in nature, what

are the legal consequence of this?
Answer: Under Art. 1939 of the New Civil Code, the legal consequences are the
following:
1. The death of either the bailor or the bailee extinguishes the contract;
2. The bailee can neither lend nor lease the object of the contract to a third person
XPN: However, the members of the bailee’s household may make use of the thing
loaned, unless there is a stipulation to the contrary, or unless the nature of the
thing forbids such use.

Q- Can the bailee make use of the fruits of the things
loaned?
Answer: As a general rule, No. Under Art. 1935 of the New
Civil Code, the bailee in commodatum acquires the use of
the thing loaned but not its fruits.
Q- Can this be stipulated?

Answer: Yes, this can be stipulated. Under Art. 1940 of the
New Civil Code, a stipulation that the bailee may make use
of the fruits of the thing loaned is valid.

Q- Discuss the liability if the bailee in case of loss of the
thing loaned
Answer: As a general rule, the bailor, not the bailee bears the risk of loss of, or
damage due to, the thing borrowed as a result of fortuitous event.
XPN: Art.1942 of the New Civil Code, the bailee is liable for the loss of the thing,
even if it should be through fortuitous event:
1. If he devotes the thing to any purpose different from that for which it has been
loaned;
2. If he keeps it longer than the period stipulated, or after the accomplishment of the
use for which the commodatum has been constituted;
3. If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of fortuitous even;
4. If he lends or leases the thing to a third person, who is not a member of his
household;
5. If, being able to save either the thing borrowed or his own thing, he chose to save
the latter.

Q- Is the bailee liable for the expenses in relation to
thing loaned?
Answer: Yes, the bailee is liable. Under Art.1941 of the New Civil
Code, the bailee is obliged to pay for the ordinary expenses for the
use and preservation of the thing loaned.
Q-What is the liability of the bailee in case of deterioration

of the thing loaned.?
Answer: As a general rule, under Art. 1943 of the New Civil Code,
the bailee does not answer for the deterioration of the thing loaned
due only to the use thereof and without his fault.
XPN: If the bailee is guilty of fault and negligence.

Q- Can the bailee retain the thing loaned for nonpayment
of expense by the bailor?
Answer: As a general rule, no. According to Art.1944 of the New
Civil Code, the bailee cannot retain the thing loaned on the ground
that the bailor owes him something, even though it may be by reason
of expenses.
XPN: The bailee has a right of retention for damages mentioned in ART. 1951
Q- What is the nature of liabilities in case there are two

bailees?
Answer: They are liable solidarily. According to Art. 1945 of the
new civil code, when there are two or more bailees to whom a thing
is loaned in the same contract, they are liable solidarily.

Q- As a general rule, when can the bailor demand for the
return of the thing loaned?
Answer: The bailor may demand the return of the thing loaned,
upon the expiration of the period stipulated, or after the
accomplishment of the use for which the commodatum has been
constituted. According to Art. 1946 of the New Civil Code, the
bailor cannot demand the return of the thing loaned till after the
expiration of the period stipulated, or after the accomplishment of
the use for which the commodatum has been constituted.
Q-Are there instances when immediate return can be

demanded.
Answer: Yes. Under Art. 1946 of the New Civil Code, if in the meantime, he
should have urgent need of the thing, he may demand its return or temporary
use.

Q-What is precarium?
Answer: Precarium is when the bailor demand the thing at will.
According to Art.1947 of the New Civil Code, the bailor may
demand the thing at will and the contractual relation is called
precarium.
Q-When is precarium assumed to exist?

Answer: Under Art. 1947 of the New Civil Code, there is precarium
in the following cases:
1. If neither the duration of the contract nor the use to which the
thing is loaned should be devoted, has been stipulated; or
2. If the use of the thing is merely tolerated by the owner.

Q- What is the obligation of the bailor in reimbursement
of the expenses of the thing loaned?
Answer: Accoording to Art. 1949 of the New Civil Code, the bailor
shall refund the extraordinary expenses during the contract for the
preservation of thing loaned, provided the bailee brings the same to
the knowledge of the bailor before incurring them.
Q- What is the liability of the bailor who does not inform

the bailee of the defect or flaws of the thing loaned?
Answer: The bailor shall be liable for the damages. According to Art.
1951 of the New Civil Code, the bailor, who knowing the flaws of
the thing loaned, does not advise the bailee of the same, shall be
liable to the latter for the damages which he may suffer by reason
thereof.

SIMPLE LOAN OR MUTUUM
What is Mutuum?
A contract whereby one of the parties delivers to another money
or other consumable thing with the understanding that the same
amount of the same kind and quality shall be paid.
A simple loan involves the payment of the equivalent and not the
identical thing because the borrower acquires ownership of the
thing loaned. The term “return” is not used since the distinguishing
character of the simple loan from commodatum is the consumption
of the thing.
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.

CHARACTERISTIC OF THE CONTRACT (MUTUUM)
1. With respect to perfection – a real contract, because the delivery
of the thing loaned is necessary for the perfection of the contract;
2. With respect to person obliged- a unilateral contract, because
once the subject matter has been delivered, it creates obligations on
the part of only one party;
3. With respect to nomenclature- a nominal contract, because has
been given a specific name by the Civil Code;
4. With respect to dependency on another contract- a principal
contract, because its existence is not dependent on another contract;
5. With respect to form- an informal contract, because no particular
form is generally required for the contract; delivery perfects the
contract.
6. With respect to cause- a gratuitous contract, if there is no
stipulation to pay interest, or onerous contract, if there is a
stipulation to pay interest.

Q- What is the consideration of this kind of contract
(mutuum)?
Answer: The promise of the borrower to pay is the consideration
for the obligation of the lender to furnish the loan.
Q- What are the principal obligations of the borrower?

Answer: 1. pay to the lender an equal amount of the same kind and
quality. (Art. 1953)
2. pay interest if expressly stipulated in writing. (Art.1956)

NO CRIMINAL LIABILITY FOR ESTAFA FOR FAILURE TO PAY
Reason: There is no criminal liability for failure to pay simple loan
because the borrower acquires ownership of thing

FUNGIBLE AND COMSUMABLE THINGS
Q- What is a fungible thing?
Answer: Those which are usually dealt with by number, weight, or
measure, so that any given unit or portion is treated as the equivalent
of any other unit or portion. Those which may be replace by a thing
of equal quality and quantity. (ex. Rice, oil, sugar). If it cannot be
replaced with an equivalent thing, then it is non-fungible.
Q- What is consumable thing?

Answer: Those which cannot be used without being consumed.
NOTE: Whether a thing is consumable or not depends upon its nature.
Whether a thing is fungible or not depends on the intention of the parties.

BARTER
Q- What is barter?
Answer: A contract where one of the parties binds himself to give one
thing in consideration of the other’s promise to give another thing.
(exchange of property)
According to Article 1954 of the New Civil Code, if one person
agrees to transfer the ownership of non-fungible things to
another with the obligation on the part of the latter to give things of
the same kind, quantity, and quality, the contract is a contract of
barter.

DISTINCTIONS BETWEEN MUTUUM, COMMODATUM, AND BARTER
MUTUUM COMMODATUM BARTER

SUBJECT MATTER Money or Non-fungible Non-fungible
other things things
fungible
things
OBLIGATION OF Return the Return the Return the
THE BORROWE equivalent identical thing equivalent
borrowed
NATURE May be Always Onerous

gratuitous gratuitous

FORM OF PAYMENT
Q-If the object is money?
Answer: Payment must be made in the currency stipulated;
otherwise it is payable in the currency which is legal tender in the
Philippines. According to Article 1249 of the New Civil Code, 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 legal tender in the Philippines.
NOTE: Art. 1250 of the New Civil Code, in case of extraordinary

inflation or devaluation, the value of the currency at the time of
the establishment of the obligation (not at the time of payment)
should be the basis for payment.
NOTE:Check is not a legal tender and, therefore, cannot constitute a valid tender of payment.

FORM OF PAYMENT
Q-If the object is a fungible thing other than money?
Answer: Borrower must pay lender another thing of the same
kind, quality, and quantity. In case it is impossible to do so, the
borrower shall pay its value at the time of the perfection of
the loan.
According to Art. 1955 (2) of the New Civil Code, if what was
loaned is a fungible thing other than money, the debtor owes
another thing of the same kind, quantity and quality, even if it
should change in value. In case it is impossible to deliver the
same kind, its value at the time of the perfection of the loan
shall be paid.

INTEREST
Q-What is interest?
Answer: Interest may be paid either as compensation for the use
of money (money interest) referred to in Article 1956 or imposed by
law or by courts as penalty or indemnity for damages
(compensatory interest) under Articles 2209 and 2212 for breach of
contractual obligations.
Requisites for Recovery of Interest:

1. The payment of interest must be expressly stipulated;
2. In writing; (Art.1956 of the New Civil Code)
3. And the interest must be lawful.

INTEREST
Q- What are the kinds of interest.
Answer:
1. Simple Interest- that which is paid for the principal at certain
rate fixed or stipulate by the parties.
2. Compound Interest- that which is imposed upon interest due
and unpaid.
3. Legal Interest- that which the law directs to be charged absent
any agreement as to the rate between the parties.
4. Lawful Interest – that which the law allows or does not
prohibit, that is, the rate of interest within the maximum
prescribed by law.
5. Unlawful Interest- that which is paid or stipulated to be paid
beyond the maximum fixed by law.

Stipulation of Interest
1. The interest rate stipulated by the parties, not the legal rate
of interest, is applicable.
2. Default rule: If the parties do not stipulate an interest rate,
the legal rate for loans and forbearance of money is 12%. For
other sources of obligation, such as sale and damages
arising from the injury to persons and loss of property which
do not involve a loan, the legal interest is 6%
3. Increase in interest must also be expressly stipulated.
4. It is only in contracts of loan, with or without security, that
interest may be stipulated and demanded.
5. Stipulation of interest must be mutually agreed upon by the
parties and may not be unilaterally increased by only one
parties.

ESCALATION CLAUSE
A clause which authorizes the automatic increase in

interest rate.
An escalation clause is valid when it is accompanied by a
De-Escalation Clause. A de-escalation clause is a clause
which provides that the rate of interest agreed upon will also
be automatically reduced. There must be a specified formula
for arriving at the adjusted interest rate, over which neither
party has any discretion.

Q-When the borrower is liable for interest even without a
stipulation.
Answer:
1. The debtor in delay is liable to pay legal interest as

indemnity for damages even without a stipulation for the
payment of interest.
2. Interest due shall earn interest from the time it is judicially
demanded although the obligation may be silent on this
point.

INTEREST PAYABLE IN KIND
According to Art. 1958 of the New Civil Code, in the
determination of the interest, if it is payable in kind, its value shall
be appraised at the current price of the products or goods at the
time and place of payment
GENERAL RULE: Accrued interest shall not earn interest

XPN:
1. When judicially demanded (Art 2212)
2. Express Stipulation- Also called compounding
interest where the parties agree that accrued interest
shall be added to the principal and the resulting
amount shall earn interest.
NOTE: A stipulation as to compound interest must be writing.

Q- What if the borrower pays interest when there is no
stipulation providing for it?
If the debtor pays unstipulated interest by mistake, he may
recover, since this is a case of solutio indebiti or undue payment.
But if the debtor voluntarily pays interest (either unstipulated or

stipulated by not in writing) because of some moral obligation, he
cannot later recover. The obligation to return the interest is a
natural obligation.
ART.1960. If the borrower pays interest when there has been no

stipulation therefor, the provisions of this code concerning solution
indebiti, or natural obligations, shall be applied, as the case may
be.

DEPOSIT
Art. 1962. A deposit is constituted from the moment a person

receives a thing belonging to another, with the obligation of safely
keeping it and returning the same. If the safe keeping of the thing
delivered is not the principal purpose of the contract, there is no
deposit but some other contract.
Q-What is a contract of deposit?

Answer: It is the receipt by a person of a thing belonging to another
with the obligation of safely keeping it and returning it.
NOTE: It is essential that the depositary is not the owner of the
thing deposited.

Q-What are the characteristics of the contracts of deposit?
Answer:
1. Real Contract- Deposit is perfected by the delivery of the subject
matter.
2. Unilateral – If the deposit is gratuitous- because only the depositary
has an obligation;
3. Bilateral- if the deposit is for compensation- gives rise to
obligations on the part of both the depositary and the depositor.
4. Nominate – because it has been given a specific name by the Civil
Code.
5. Principal- because its existence is not dependent on another
contract.
6. Gratuitous – where the depositor does not pay compensation to the
depositary.

Q-What is the principal purpose of the contract of deposit?
Answer: The principal purpose is the safekeeping of the thing
delivered. If safekeeping is merely an accessory or secondary
obligation, it is not a deposit, but another contract, such as
commodatum, lease, or agency.
Q-What is the subject matter in deposit?

Answer: Only movables can be the subject matter of deposit. If you
leave a kid a Gymboree or Kids at Work, it’s not a deposit, but
maybe a contract of service.

Q-Essential requisites of the contract?
Answer:
1. Consent of the contracting parties;

2. Object certain which is the subject matter of the contract.
3. Cause of the obligation which is established.
DEPOSIT AS CREDIT TRANSACTION

A deposit is a contract of confidence. The depositary places full faith
and confidence in the depositary’s probity and zeal. Before the
deposit is constituted, the depositor considers the personal
qualities of the depositary.
PARTIES TO THE CONTRACT
The DEPOSITOR and the DEPOSITARY are the parties to the cont.

Deposit distinguished from Simple Loan
DEPOSIT SIMPLE LOAN

PURPOSE Safekeeping Consumption
When Return Can Depositor can Lender must wait
Be Demanded demand return of until the expiration
the thing at will of the period
granted to the
debtor
SUBJECT MATTER Movable and Only money and

Immovable property any other fungible
( if deposit is thing
judicial)

Deposit distinguish from Commodatum
DEPOSIT COMMODATUM
PUSPOSE Safekeeping Transfer of use of

the subject matter
GRATUITOUS May be gratuitous, Always gratuitous

may be onerous
SUBJECT MATTER In extra-judicial Both movable and

deposit, only immovable
movables

Art. 1963. An agreement to constitute a deposit is binding, but the
deposit itself is not perfected until the delivery of the thing.
A deposit is a real contract and is, therefore, perfected only

upon delivery of the object of the contract. Where there has been
no delivery, there is merely an agreement to deposit which, however,
is binding and enforceable upon the parties.
Hence, a contract of future deposit is consensual.

EXAMPLE:
Chel: I will deposit my car in your garage at 8 am tomorrow.
Art: Sure! Q- Is there a contract of deposit? Answer: None

KINDS OF DEPOSIT
JUDICIAL DEPOSIT – One which takes place when an attachment

or seizure of property in litigation is ordered.
EXTRAJUDICIAL:
Voluntary – One wherein the delivery is made by the will of
the depositor or by two or more persons each of whom
believed himself entitled to the thing deposited.
Necessary- One made in compliance with a legal obligation,
or on occasion of any calamity, or by travelers in hotels and
inns or by travelers with common carriers.
Art. 1964. A deposit may be constituted judicially or extra

judicially.

Art. 1965. A deposit is a gratuitous contract, except when there is
an agreement to the contrary, or unless the depositary is engaged
in the business or storing goods.
1. Where there is contrary stipulation

2. Where depositary engaged in business of storing goods
3. Where property saved from destruction without knowledge of
the owner.

SUBJECT MATTER OF DEPOSIT
1. ONLY MOVABLE OR PERSONAL property may be the object

of extrajudicial deposit, whether voluntary or necessary
proceeds from the object or purpose of a deposit which is
safekeeping of a thing.
2. JUDICIAL DEPOSIT, however, may cover movable and

immovable property its purpose being to protect the of
parties to a suit.
Art. 1966. Only movable things may be the object of a deposit.

Art. 1967. An extrajudicial deposit is either voluntary or necessary.
Q-When it becomes necessary?
Answer: It become necessary, when made in compliance with a

legal obligation, on the occasion of any calamity, or by travellers in
hotels and inns.
The deposit of goods made by traveler or passengers with common
carriers may also be regarded as necessary.

Q-What is voluntary deposit?
Answer: A voluntary deposit is one wherein the delivery is made by
the will of the depositor.
Art. 1968. A voluntary deposit is that wherein the deposit is made

by the will of the depositor. A depositor may deposit may also be
made by two or more persons each of whom believes himself entitled
to the thing deposited with a third person, who shall deliver it in a
proper case to the one to whom it belongs.

Art. 1969. A contract of deposit may be entered into orally or in
writing.
As a rule, contracts are obligatory, in whatever form they

have been entered into, provided all the essential requisites for their
validity are present.
Thus, THERE IS NO REQUIRED FORM FOR A DEPOSIT

Art. 1970. If a person having capacity to contracts accepts a
deposit made by one who is incapacitated, the former sjall be
subject to all the obligations of a depositary, and may be compelled
to return the things by the guardian, or administrator of the person
who made the deposit, or by the latter himself if he should acquire
capacity.
If the depositor is capacitated, he is subject to all the obligations of
a depositary whether the depositor is capacitated. In the latter case,
the depositary must return the property to the legal representative
of the incapacitated, or to the depositor himself if he should acquire
capacity.
NOTE: Status of contract where one party is incapable of giving

consent to a contract is VOIDABLE. If both UNENFORCEABLE

Art. 1971. Where the depositary incapacitated and depositor
capacitated.
The incapacitated depositary does not incur the obligation of a

depositary. However, he is liable (1) to return the thing deposited
while still in his possession, and (2) if the thing deposited is no
longer in his position possession, to pay the depositor the amount
by which he may have benefited himself with the thing or its price
subject to the right of any third person acquired the thing in good
faith.

PRINCIPAL OBLIGATIONS OF THE DEPOSITARY
1. The obligations to keep the thing
2. The obligation to not use the thing
3. The obligation to return the thing
OBLIGATION TO KEEP THE THING
1. The obligation to keep the thing safely

2. The obligation not to deposit the thing with a third person
3. The obligation to not change the way of the deposit
4. The obligation to collect interest on certificates when they
become due and preserve the value of securities.
5. The obligation not to commingle grain and other articles of
the same kind and quality if there is a stipulation to the
contrary.

OBLIGATION TO RETURN THE THING
1. The obligation to return the thing with all its products,
accessions, and accessories
2. The obligation to return the thing closed and sealed if
delivered in such condition.
DEGREE OF CARE
The diligence required of the depositary is that agreed upon by the
parties, who may limit or expand the degree of diligence required.
If the contract does not state the diligence required, that which is
expected of a good father of a family is required.
NOTE: A person cannot excuse himself from liability by claiming that he
exercised the same degree of care toward the thing deposited as he would toward
his own if such care is less than that required by circumstances.

Under the New Civil Code, where there are two or more depositors,
if they are not solidary, and the thing admits of division, each
cannot demand more than his share.
When there is solidarity or the thing does not admit of division, the
depositary may deliver the thin to any of the solidary depositors;
but if any demand, judicial or extrajudicial, has been made by any
of them, delivery should be made to him.
It is only when there is solidarity, or the thing is indivisible, that a

depositor can request the return of the thing, and the depositary is
obliged to deliver thing.

Art. 1973 Obligation not to transfer deposit
The depositor is liable for the loss of the thing deposited if:
1. He transfers the deposit with a third person without

authority although there is no negligence on his part and the
third person;
2. He deposits the thing with a third person who is manifestly
careless or unfit although authorized, even in the absence of
negligence.
3. The thing is lost through the negligence of his employees
whether the latter are manifestly careless or not.

Art. 1974. Obligation not to change way of deposit.
The depositary may change the way or manner of the deposit if there
are circumstances indicating that the depositor would consent to
the change.
However, the depositary should first notify the depositor and wait
for the latter’s decision. This requirement may not be dispensed
with unless delay would cause danger. It follows the general rule
that the depositary must take good care of the thing with the
diligence of a good father of a family.

Art. 1975. Obligation to collect interest on choses in action
deposited.
If the thing deposited should earn interest, the depositary is

under the obligation (1) to collect the interest as it becomes due and
(2) to take such steps as may be necessary to preserve its value abd
the rights corresponding to it.
NOTE: The depositary is bound to collect not only the interest but
also the capital itself when due.

Art. 1976. Obligation not to commingle things deposited if so
stipulated.
As a rule, the depositary may commingle grain or other article of

the same kind and quality. In such case, the depositors of the
mingled goods shall own the entire mass in common and each
depositor shall be entitled to such portion of the entire mass as the
amount deposited by him bears to the whole.
Note: The depositary cannot commingle goods, even if they are of

the same kind and quality, if so stipulated.

Art. 1977. Obligation not to make use of the thing deposited
unless authorized.
Deposit is for safekeeping of the subject matter and not for its use.
The unauthorized use by the depositary would make him liable for
the damages. But the depositary may make use of the thing
deposited even without the express permission of the depositor
where such use is necessary for its preservation but in such case
the use is limited for that purpose only.
Thus, a depositary may wind a mechanical wall clock received in

deposit to maintain its good running condition.

Art. 1978. Except where safekeeping is still the principal
purpose of the contract.
Effect if permission to use is given.

In deposit, the permission to use is not presumed unless
such use is necessary for the preservation of the thing deposited.
The burden is on the depositary to prove the permission has been
given.
NOTE: ( Money matter) If safekeeping is still the principal purpose

of the contract, it is still a deposit but an irregular one; hence, it is
called an irregular deposit. Bank deposits are in the nature of
irregular deposits but they are loans governed by the law on loans

IRREGULAR DEPOSIT DISTINGUISHED FROM MUTUUM
Irregular Deposit MUTUUM

Consumable In an irregular The lender is bound by the the
thing deposit, the contract and cannot seek
demandable consumable thing restitution until the time for
at will by the deposited may be payment, as provided in the
depositor demanded at will by contract, has arisen;
the irregular
depositor for whose
benefit the deposit
has been
constituted.
Benefit Only benefit is that the essential cause for the
accrues to which accrues to transaction is the necessity of the
depositor the depositor borrower. A loan with a stipulation
only to pay interest benefits both
parties.

PERMISSION TO USE NOT PRESUMED
In a deposit, the permission to use is not

presumed unless such use is necessary for
the preservation of the thing deposited and
the burden is on the depositary to prove that
permission has been given.

GENERAL RULE
RES PERIT DOMINO

The owner of the thing deposited generally suffers
the risk of loss through a fortuitous event. Thus, the
depositary is not liable for loss through a fortuitous
event without his fault.

Art. 1979. The depositary is liable for the loss of thing
through a fortuitous event:
1. If it is stipulated;
2. If he uses the thing without the depositor’s permission;
3. If he delays its return;
4. If he allows others to use it, even though he himself

may have been authorized to use the same.

ART. 1981. Where thing deposited delivered closed and
sealed.
Obligation of the depositary:
1. To return the thing deposited when delivered closed and

sealed, in the same condition;
2. Pay for damages should the seal or lock be broken
through his fault which is presumed unless proved
otherwise; and
3. Keep the secret of the deposit when the seal or lock is
broken, with or without his fault.

When depositary justified to open?
The depositary is authorized to open the

thing deposited which is closed and
sealed when there is (1) presumed
authority; or (b) necessity.

Art. 1983. The thing deposited shall be returned with all its
products, accessories and accessions.
Obligation to return products, accessories, accession.
The depositor is the owner or at least represents the owner

of thing deposited. The depositary must, therefore, return not only
the thing itself but also its products, accessions and accessories
which are a consequence of ownership. Thus the young of an animal
deposited shall be returned to the depositor.
Obligation to pay interest on sums converted to personal use
If the depositary be in delay or has used the money without
permission, he shall be liable for interest as indemnity.

Art. 1984.
Depositor need not prove his ownership
The depositary who receives the thing in deposit cannot

require that the depositor prove his ownership over the thing.
Where third person appears to be owner
The depositary should take to be relieved of all responsibility

regarding the thing deposited. (owner must be informed, laps 30 D)
Effect of failure of owner to claim within one month
The depositary shall be relieved of all responsibility by

returning the thing deposited to the depositor.

Art. 1986. If the depositor should lose his capacity to contract
after having made the deposit, the thing cannot be returned
except to the persons who may have the administration of his
property rights.
1. The depositary is obliged to return the thing deposited, when

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

Art. 1987. Place of Return
The thing must be returned (1) at the place agreed upon by the
parties, and (2) absent stipulation, at the place where the thing
deposited might be even if it should not be the same place where
the original deposit was made provided the transfer was
accomplished without malice on the part of the depositary.

Art. 1987. Returned of the thing deposited.
Time to return
As a rule, the depositor can demand the return of the thing at will
and this is true whether a period has been stipulated or not. In a deposit,
whenever a period is agreed to, the same is for the benefit of the depositor,
but it may be validly waived by him. If for compensation depositary is
entitled to the compensation corresponding to the entire benefit.
When depositary not obliged to return the thing deposited
1. Two conflicting claimant- Consign the thing in court through an

action for interpleader.
2. Depositary may also retain the thing in pledge until the full
payment of what may be due him by reason of the deposit.

Art.1989. Right of depositary to return thing deposited.
1. Deposited gratuitous – the depositary may likewise return

the thing deposited notwithstanding that a period has been
fixed for the deposit if
a. The deposit is gratuitous and
b. Justifiable reasons exist for its return.
2. Deposit for a valuable consideration – if the deposit is for

valuable consideration, the depositary has no right to return
the thing deposited before the expiration of the time
designated even if he should suffer inconvenience.

Art. 1990. Liability for loss by force majeure or government
order.
The depositor is not liable for loss of the thing by force

majeure or by the government. However, if in place of the thing he
receives money or another thing, he has the duty to deliver to the
depositor what he has received; otherwise, he would enrich himself
at the expense of the depositor.
NOTE: The thing is presumed lost because of the fault of the

depositary, unless contrary is proven.

Art. 1991. Alienation in good faith by depositary’s heir.
The depositor’s heir who in good faith

may have sold the thing which he did
not know was deposited, shall only be
bound to return the price he may have
received or to assign his right of action
against the buyer in case the price not
been paid him.

ART. 1992. If the deposit is gratuitous, the depositor is obliged
to reimburse the depositary for the expenses he may have
incurred for the preservation of the thing deposited.
GRATUITOUS:
1. As the law makes no distinction, the right to reimbursement
covers all expenses for preservation, whether ordinary or
extraordinary. The law refers to necessary expenses.
2. Useful expenses and expenses for pure luxury or mere
pleasure are not covered.
COMPENSATION;
If the deposit is for valuable consideration, the expenses of preservation
are borne by the depositary because they are deemed included in the
compensation. There can, however, be contrary stipulation.
Art. 1993. Obligation to pay losses incurred due to character of
thing deposited.
GR: The depositary must be reimbursed for loss suffered by him

because of the character of the deposited.
XPN: If the depositor is not (1) aware of, or (2) was not expected to
know the dangerous character of the thing, or (3) the depositor
notified the depositary of the same, or (4) the depositary is aware of
it without advice from the depositor.
Article. 1994.
THE DEPOSITARY MAY RETAIN THE

THING IN PLEDEG UNTIL THE FULL
PAYMENT OF WHAT MAY BE DUE
HIM BY REASON OF DEPOSIT.
NOTE: In commodatum, the bailee cannot retain the thing loaned
even if the bailor owes him money by reason of expenses.
Art. 1995
A DEPOSIT IS EXTINGUISHED:
1. UPON THE LOSS OR DESTRUCTION OF THE

THING DEPOSITED;
2. IN CASE OF A GRATUITOUS DEPOSIT, UPON THE

DEATH OF EITHER THE DEPOSITOR OR THE
DEPOSITARY.
NOTE: A deposit for compensation is not extinguished by the death of

either party because, unlike a gratuitous deposit, an onerous deposit is
not a personal in nature. Hence, the rights and obligations arising
therefrom are transmissible to their respective heirs.
NECESSARY DEPOSIT
ART. 1996
When deposit is necessary?

A deposit may be voluntary or necessary.
1. A voluntary deposit is made by the free will of the depositor.
In a necessary deposit, this freedom of choice is absent.
2. KINDS OF NECESSARY DEPOSIT
1. Legal Deposit
2. Miserable Deposit
3. Deposit made by travelers in hotels or inns
4. Deposit made by passengers with common carriers.
ART. 1996. KINDS OF NECESSARY DEPOSIT
1. When it is made in compliance with a legal obligation;
2. When it takes place on the occasion of any calamity,

such as fire, storm, flood, pillage, shipwreck, or other
similar events.
DEPOSIT BY TRAVELLERS IN HOTELS AND INNS
GR: Keepers of hotels and inns are generally liable for the loss of
the effects of their guests.
The following must concur before the hotel keepers be made

responsible as depositaries regarding the effects of their guest:
1. They have been informed about the effects brought by the

guests; and
2. The latter have taken the precautions prescribed
regarding their safekeeping.
EXTENT OF LIABILITY OF KEEPERS OF HOTEL AND INNS
The liability is not limited to effects lost or damaged in the
hotel rooms which come under the term “baggage” or articles such
as clothing as are ordinarily used by travelers but include those lost
or damaged in hotel annexes such as vehicle in the hotel’s garage.
TRAVELERS- the word travelers, as used by law, are synonymous.

They refer to transients who enter hotels or inns seeking lodging,
and not to boarders in dormitories and lodging houses who select
their boarders usually for a contracted and extended period.
WHEN HOTEL-KEEPER LIABLE
In the following case, the hotel-keeper is liable regardless of the
degree of care exercised:
1. The loss or injury to the personal property of the guests
is caused by his servants or employees and by strangers
provided that notice has been given and proper
precautions taken.
2. The loss is caused by the act of a thief or robber done

without the use of arms and irresistible force, for in this
case, the hotel-keeper is apparently negligent.
WHEN HOTEL-KEEPER NOT LIABLE
The hotel keeper is not liable in the following cases:

1. The loss or injury is caused by force majeure, like flood, fire,
theft or robbery by a stranger with the use of arms or
irresistible force, etc., unless he is guilty of fault or
negligence in failing to provide against the loss or injury from
his cause.
2. The loss is due to the act of the guests, his family servants,
or visitors.
3. The loss arises from the character of the things brought into
the hotel.
ART 2003.
The hotel-keeper cannot free himself from liability by posting

notices to the effect that he is not liable for the articles brought by
the guest.
ANY STIPULATION BETWWEN THE HOTEL-KEEPER AND THE

GUEST WHEREBY THE RESPONSIBILTY OF THE FORMER AS
SET FORTH IN ARTICLES 1998 TO 2001 IS SUPPRESSED OR
DIMINISHED SHALL BE VOID.
Art. 2004. The hotel-keeper has a right to retain the things
brought into the hotel by the guest, as a security for credits on
account of lodging, and supplies usually furnished to hotel
guest.
The right if retention recognized in this article is in the nature of a

pledge created by operation of law. It is given to hotel-keepers to
compensate them for the liabilities imposed upon them by law.
The bailee in commodatum may likewise retain the thing loaned for
damages by reason of defects thereof.
JUDICIAL DEPOSIT
A deposit may be constituted judicially or extrajudicially.
What is sequestration?
A sequestration is the deposit of a thing in litigation in the
hands of a third person, during the settlement of the issues between
those who allege rights to the thing. It is either conventional or
judicial.
Conventional Sequestration- the thing in litigation can be
deposited with a sequestrator with the consent of all those who
claim a right to it. If not, it is an ordinary deposit and not a
sequestration.
Judicial Deposit- It is ordered by the court. It takes place when an

attachment or seizure of property in litigations is ordered by the
court.
NATURE AND PURPOSE OF JUDICIAL DEPOSIT
The deposit is judicial because it is auxiliary to a case pending in court. The
purpose is to maintain the status quo during the pendency of the litigation
or to insure the right of the parties to the property in case of a favorable
judgment.
1. When a thing in custodia legis- A thing is in custodia legis, when

it is shown that it has been and is subjected to the official custody
of a judicial or executive officer in pursuance of his execution of a
legal writ.
2. Power of court to issue escrow order – In our jurisdiction, an
escrow order may be issued by a court in the exercise of its intrinsic
power to issue orders and other ancillary writs and process
incidental or reasonably necessary to exercise its main jurisdiction.
OBLIGATION OF DEPOSITARY OF SEQUESTRATED PROPERTY
The depositary of sequestrated property is the person appointed by the

court. He has the obligation to take care of the property with the diligence
of a good father of a family and he may not be relieved of his responsibility
until the litigation is ended or the court so orders.
JUDICIAL AND EXTRAJUDICIAL DEPOSITS DISTINGUISED
Judicial Extra Judicial
Cause or Will of the Court Will of the parties
Origin
Purpose A security and to secure Custody and safekeeping of the thing
the right of a party to
recover in case of a
favorable judgment
Subject Either movable or Only movable property
Matter immovable
Remuneration Always remunerated May be compensated or not, but generally
gratuitous.
In whose In behalf of the person In behalf of the depositor or third person
behalf who, by the judgment, has designated
a right
Termination When controversy which Generally, when the depositor claims back
gave rise to the deposit has the thing which is then returned to the
come to an end depositor
Principles Governed by rules of NCC
applicable Courts

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MEANING AND SCOPE OF CREDIT TRANSACTION

Credit transactions include all transactions involving the

EXAMPLSE OF CREDIT TRANSACTION

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(2) the amounts, if any, to be credited as down payment and/or trade-in;

(5) the total amount to be financed;

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1. Secured transactions or contracts of real security

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To be legally enforceable, a bailment must contain all the elements of a valid

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KINDS OF BAILMENT FOR HIRE

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ANSWER: A bailment involves the transfer or possession of

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Art. 1934. An accepted promise to deliver something by way of

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For the borrower: acquisition of the

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Loan means the delivery by one party and the receipt by

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In Commodatum, if you do not return the thing when it is

In Loan, the borrower who does not pay is criminally liable

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But is there a contract of loan at this point? No, because loan is a

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 The subject matter is generally non-consumable real or personal property,

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a) The death of either party extinguishes the contract unless there

 if there is a stipulation to the contrary; or

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1. Liability for ordinary expenses- The borrower defray

2. Liability for loss of the thing- The general rule is

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3. Liability for the deterioration of the thing- The borrower

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5. Liability of two or more bailees – When there are two or

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In case of temporary use by the bailor, the contract of commodatum is

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 If the use of the thing is merely tolerated by the lender

a) If neither the duration of the contract nor the use to which

b) If the use of the thing is merely tolerated by the

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3. Right to demand return of thing for acts of ingratitude-

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5. All other expenses are for the account of the borrower-

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a) Ordinary Expenses for the use of the thing – Baillee

b) Ordinary expenses for use of the thing – Bailee (Art. 1941;