Credtrans Reviewer 4s2e54

CREDIT TRANSACTIONS Prof. Roentgen F. Bronce

I.

The Concepts of Credit and Credit Transactions

II.

Loan A.

Art. 1306. The contracting parties may establish such stipulations, clauses, and conditions as they may deem convenient provided they are not contrary to law, morals, good customs, public order, or public policy.

In General; Common Provisions Arts. 1933-1934, 1156, 1249, 1305-1306, 1316, Civil Code

1.

Title XI. – LOAN 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.

Same; Extinguishment of obligations by mutual desistance.— Where after approval of his loan, the borrower, instead of insisting for its release, asked that the mortgage given as security be cancelled and the creditor acceded thereto, the action taken by both parties was in the nature of mutual desistance—what Manresa “mutuo disenso”—which is a mode of extinguishing obligations. It is a concept that derives from, the principle that since mutual agreement can create a contract, mutual disagreement by the parties can cause its extinguishment.

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 loan, ownership es to the borrower. 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 not be perfected until the delivery of the object of the contract.

2.

OBLIGATIONS AND CONTRACTS Title I. – OBLIGATIONS Chapter 1 GENERAL PROVISIONS Art. 1156. An obligation is a juridical necessity to give, to do or not to do.

A contract of loan involves a reciprocal obligation, wherein the obligation or promise of each party is the consideration for that of the other; it is a basic principle in reciprocal obligations that neither party incurs in delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.

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 legal tender in the Philippines.

In the meantime, the action derived from the original obligation shall be held in abeyance. Title II. – CONTRACTS Chapter 1 GENERAL PROVISIONS Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

BPI Investment Corp. vs. Court of Appeals, G.R. No. 133632 (2002) A loan contract is not a consensual contract but a real contract, perfected only upon the delivery of the object of the contract. While a perfected loan contract can give rise to an action for damages, said contract does not constitute the real contract of loan which requires the delivery of the object of the contract for its perfection and which gives rise to obligations only on the part of the borrower.

Chapter 4 EXTINGUISHMENT OF OBLIGATIONS Section 1. – Payment or Performance

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.

Saura Import & Export Co., Inc. vs. DBP, G.R. No. L-24968 (1972) Civil law; Obligations and Contracts; When contract of simple loan perfected.—Where an application for a loan of money was approved by resolution of the defendant corporation and the corresponding mortgage was executed and ed, there arises a perfected-consensual contract of loan.

3.

Garcia vs. Thio, G.R. No. 154878 (2007) A loan is a real contract, not concensual, and as such is perfected only upon the delivery of the object of the contract. Upon delivery of the object of the contract of loan (in this case the money received by the debtor when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. Delivery is the act by which the res or substance thereof is placed within the actual or constructive possession or control of another. Loans; interests; Article 1956 of the Civil Code provides that “no interest shall be due unless it has been expressly stipulated in writing.” While there can be no stipulated interest, there can be

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legal interest pursuant to Article 2209 of the Civil Code. (4) 4.

Pantaleon vs. American Express International, Inc., G.R. No. 174269 (2010) Generally, the relationship between a credit card provider and its card holders is that of creditor-debtor, with the card company as the creditor extending loans and credit to the card holder, who as debtor is obliged to repay the creditor, a relationship which takes exception to the general rule that as between a bank and its depositors, the bank is deemed as the debtor while the depositor is considered as the creditor. B.

Commodatum Arts. 1935-1952, Civil Code Title XI. – LOAN Chapter 1 COMMODATUM Section 1. – Nature of Commodatum

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. Art. 1936. Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption of the object, as when it is merely for exhibition. Art. 1937. Movable or immovable property may be the object of commodatum. Art. 1938. The bailor in commodatum need not be the owner of the thing loaned. Art. 1939. Commodatum is purely personal in character. Consequently: (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. However, the of the bailee’s household may make the use of the thing loaned, unless there is a stipulation to the contrary, or unless the nature of the thing forbids such use. Art. 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is valid. Section 2. – Obligations of the Bailee Art. 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned. Art. 1942. The bailee is liable for the loss of the thing, even if it should be through a 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

(5)

bailee from responsibility in case of a fortuitous event; If he lends or leases the thing to a third person, who is not a member of his household; If, being able to save either the thing borrowed or his own thing, he chose to have the latter.

Art. 1943. The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without his fault. 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. 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily. Section 3. – Obligations of the Bailor 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. Art. 1947. The bailor may demand the thing at will, and the contractual relation is called a precarium, in the following cases: (1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated; or (2) If the use of the thing is merely tolerated by the owner. Art. 1948. The bailor may demand immediate return of the thing if the bailee commits any acts of ingratitude specified in Art. 765. 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. If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted without fault, they shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary. Art. 1950. If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in Articles 1941 and 1949, he is not entitled to reimbursement. 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. Art. 1952. The bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the bailee.

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5.

Quintos vs. Beck, G.R. No. 46240 (1939) COMMODATUM; OBLIGATION OF THE PARTIES. —The contract entered into between the parties is one of commodatum, 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 latter's demand (Clause 7 of the contract, Exhibit "A"; articles 1740, paragraph 1, and 1741 of the Civil Code). 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 electric lamps. ID.; ID.; EXPENSES FOR DEPOSIT OF FURNITURE. —As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's behest. The latter, 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. 
 ID.; ID.; VALUE OF FURNITURE.—As to the value of the furniture. we do not believe that the plaintiff is entitled to the payment thereof by the defendant in case of his inability to return some of the furniture, because under paragraph 6 of the stipulation of facts, the defendant has neither agreed to nor itted the correctness of the said value. Should the defendant fail to deliver some of the furniture, the value thereof should be later determined by the trial Court through evidence which the parties may desire to present. 


6.

Republic vs. Bagtas, G.R. No. L-17474 (1962) Contracts; Loan of bulls for breeding purposes; Nature of contract affected by payment of fee.—The loan by the Bureau of Animal Industry to the defendant of three bulls for breeding purposes for a period of one year, later on renewed for another as regards one bull, was subject to the payment by the borrower of breeding fee of 10% of the book value of the bulls. If the breeding fee be considered a compensation, the contract would be a lease of the bulls; it could not be a contract of commodatum, because that contract is essentially gratuitous.

7.

Republic vs. Court of Appeals, G.R. No. L-46145 (1986) The occupancy of the U.S. Navy was not in the concept of owner. It partakes of the character of a commodatum. It cannot therefore militate against the title of Domingo Baloy and his successors-in-interest. One's ownership of a thing may be lost by prescription by reason of another's possession if such possession be under claim of ownership, not where the possession is only intended to be transient, as in the case of the U.S. Navy's occupation of the land concerned, in which case the owner is not divested of his title, although it cannot be exercised in the meantime.

8.

Catholic Vicar Apostolic vs. Court of Appeals, G.R. No. L80294-95 (1988) Civil Law; Credit Transactions; Commodatum; Property; Adverse Possession; Adverse Claim; Acquisitive Prescription; When petitioner borrowed the house of private respondents’ predecessors, and petitioner was allowed its free use, private respondents became bailors in commodatum, and petitioner, the bailee.—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.

9.

Manzano vs. Perez, G.R. No. 112485 (2001) To disprove claim of ownership based on a written contract of sale that is notarized whereby it is being claimed that an oral agreement of commodatum is being rasied, there must be a clear and convincing evidence that is more than merely preponderant. Proof of ownership by submitting proof of payment of real property taxes is, in this case, self-serving for the payment was made only after her Complaint had already been lodged before the trial court.

10.

Producers Bank of the Phils. vs. Court of Appeals, G.R. No. 115324 (2003) Civil Law; Contracts; Loan; Distinguished from Commodatum; Article 1933 of the Civil Code distinguishes between the two kinds of loans.—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 loan, ownership es to the borrower.

11.

Pajuyo vs. Court of Appeals, G.R. No. 146364 (2004) Same; Same; Contracts; Commodatum; Precarium; Words and Phrases; An essential feature of commodatum is that it is gratuitous, while another feature is that the use of the thing belonging to another is for a certain period; If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium; Precarium is a kind of commodatum.— In a contract of commodatum, one of the parties delivers to another something not consumable so that the latter may use the same for a certain time and return it. An essential feature

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of commodatum is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another is for a certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration of the period stipulated, or after accomplishment of the use for which the commodatum is constituted. If the bailor should have urgent need of the thing, he may demand its return for temporary use. If the use of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case the contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum.

C.

In a contract of loan of money, goods, chattels or credits, the relation between the parties is that of obligor and obligee. LOAN, CONTRACT OF; DEFINED.—A contract of "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. It has been defined as an advancement 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 of the contract. The moment the contract is completed, the money, goods or chattels given cease to be the property of the former owner and become 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 become the sole property of the obligor. A contract of "loan" differs materially and essentially from a contract of "rent."

Simple Loan/Mutuum

Arts. 1953-1955, Civil Code Chapter 1 SIMPLE LOAN OR MUTUUM

USURY; DEFINED.—Usury may be defined as contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money, goods or chattels. It is the taking of more interest for the use of money, goods or chattels or credits than the law allows. Usury has been regarded with abhorrence from the earliest times.

Art. 1953. A person who receives a loan of money or any other fungible thing requires the ownership thereof, and is bound to pay the creditor an equal amount of the same kind and quality. Art. 1954. A contract whereby one person transfers 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 shall be considered a barter. Art. 1955. The obligation of a person who borrows money shall be governed by the provision of Articles 1249 and 1250 of this Code.

12.

Tolentino vs. Gonzales Sy Chiam, G.R. No. 26085 (1927) ID.; RENTAL CONTRACTS; USURY.—A contract for the lease of property is not a "loan." Under the Usury Law the defense of usury cannot be based thereon. The Usury Law in this jurisdiction prohibits a certain rate of interest on "loans." A contract of "loan" is a 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 credit to another, with a promise to repay, but not a promise to return the same thing. In a con-tract 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 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. ID.; RENTAL CONTRACTS; USURY.—A contract for the lease of property is not a "loan." Under the Usury Law the defense of usury cannot be based thereon. The Usury Law in this jurisdiction prohibits a certain rate of interest on "loans." A contract of "loan" is a 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 credit to another, with a promise to repay, but not a promise to return the same thing. In a con-tract 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 rent the relation between the contractors is that of landlord and tenant.

13.

Cebu International Finance Corp. vs. Court of Appeals, G.R. No. 123031 (1999) Civil Law; Commercial Law; Loan; In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer.— Considering the nature of a money market transaction, the above-quoted provision should be applied in the present controversy. As held in Perez vs. Court of Appeals, a “money market is a market dealing in standardized short-term credit instruments (involving large amounts) where lenders and borrowers do not deal directly with each other but through a middle man or dealer in open market. In a money market transaction, the investor is a lender who loans his money to a borrower through a middleman or dealer. Same; Same; Same; Check; A check is not a legal tender, and therefore cannot constitute valid tender of payment.—In a loan transaction, the obligation to pay a sum certain in money may be paid in money, which is the legal tender or, by the use of a check. A check is not a legal tender, and therefore cannot constitute valid tender of payment. In the case of Philippine Airlines, Inc. vs. Court of Appeals, this Court held: “Since a negotiable instrument is only a substitute for money and not money, the delivery of such an instrument does not, by itself, operate as payment (citation omitted). A check, whether a manager’s check or ordinary check, is not legal tender, and an offer of a check in payment of a debt is not a valid tender of payment and may be refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the obligation under a judgment. The obligation is not extinguished and remains suspended until the payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3.)”

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14.

Naguiat vs. Court of Appeals, G.R. No. 118375 (2003) The mere issuance of the checks did not result in the perfection of the contract of loan. For the Civil Code provides that the delivery of bills of exchange and mercantile documents such as checks shall produce the effect of payment only when they have been cashed. It is only after the checks have produced the effect of payment that the contract of loan may be deemed perfected. Art. 1934 of the Civil Code provides: “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 not be perfected until the delivery of the object of the contract.”

although the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary inflation (or deflation).— For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven: 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; and 3. that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation. Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover, although the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects of extraordinary inflation (or deflation). The RTC never mentioned that there was a such stipulation either in the promissory note or loan agreement. Therefore, respondents should pay their dollar- denominated loans at the exchange rate fixed by the BSP on the date of maturity.

A loan contract is a real contract, not concensual, and, as such, is perfected only upon the delivery of the object of the contract. 15.

Equitable PCI Bank vs. Ngor, G.R. No. 171545 (2007) Same; Escalation Clauses; Principle of Mutuality of Contracts; Escalation clauses are not void per se but one “which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement” is void—clauses of that nature violate the principle of mutuality of contracts.—Escalation clauses are not void per se. However, one “which grants the creditor an unbridled right to adjust the interest independently and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement” is void. Clauses of that nature violate the principle of mutuality of contracts. Article 1308 of the Civil Code holds that a contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. For this reason, we have consistently held that a valid escalation clause provides: 1. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or by the Monetary Board; and 2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law or by the Monetary Board (de-escalation clause). Same; Same; Where the escalation clause is annulled, the principal amount of the loan is subject to the original or stipulated rate of interest.—With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank, 435 SCRA 565 (2004), we held that, because the escalation clause was annulled, the principal amount of the loan was subject to the original or stipulated rate of interest. Upon maturity, the amount due was subject to legal interest at the rate of 12% per annum. Same; Same; Extraordinary Inflation or Deflation; Words and Phrases; “Extraordinary Inflation” and “Extraordinary Deflation,” Defined.—Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is, beyond the common fluctuation in the value of currency) and such decrease could not be reasonably foreseen or was manifestly beyond the contemplation of the parties at the time of the obligation. Extraordinary deflation, on the other hand, involves an inverse situation. Same; Same; Same; Requisites; Despite the devaluation of the peso, the Bangko Sentral ng Pilipinas (BSP) never declared a situation of extraordinary inflation. Moreover,

16.

People vs. Puig & Poitas, G.R. No. 173654-765 (2008) Same; Same; Same; Banks, where monies are deposited, are considered the owners thereof; The relationship between banks and depositors has been held to be that of creditor and debtor.— 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 jurisprudence. The relationship between banks and depositors has been held to be that of creditor and debtor.

III.

Interest Arts. 1956-1961, 2209, 2212-2213, Civil Code CHAPTER 2
 Simple Loan or Mutuum

Article 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a) Article 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury. (n) Article 1958. 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. (n) Article 1959. Without prejudice to the provisions of article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. (n) Article 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerning solutio indebiti, or natural obligations, shall be applied, as the case may be. (n)

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Article 1961. Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code. (n)

the payment of the interest agreed upon in the certificates of deposit which is six and one-half percent (6-1/2%). Such interest due or accrued shall further earn legal interest from the time of judicial demand. Banking; Interest on Deposits; The bank’s obligation to pay interest on the deposit ceases the moment its operation is completely suspended by the Central Bank.—On the issue of whether OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business, the answer is in the negative. We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, that: “It is a matter of common knowledge which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank.

Article 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per annum. (1108) Article 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. (1109a) Article 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty. 17.

Integrated Realty Corp. vs. PNB, G.R. No. 60705 (1989) Same; Same; Loans; A contract of simple loan or mutuum is created when Santos invested his money in time deposit with petitioner-bank.—Thus, when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in the performance of its obligation, OBM should be held liable for damages. When respondent Santos invested his money in time deposits with OBM, they entered into a contract of simple loan or mutuum, not a contract of deposit. Same; Obligations and Contracts; Default; Damages; Legal interest in the nature of damages for non-compliance with an obligation to pay a sum of money is recoverable even if not expressly stipulated in writing.—While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code he has the right to recover damages resulting from the default of OBM, and the measure of such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. The applicable rule is that legal interest, in the nature of damages for non- compliance with an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial demand is made, which latter mode of demand was made by PNB, after the maturity of the certificates of time deposit, on March 1, 1968. The measure of such damages, there being no stipulation to the contrary, shall be

18.

Eastern Shipping Lines vs. Court of Appeals, G.R. No. 97412 (1994) Same; Same; Same; Interests in the Concept of Actual and Compensatory Damages; In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.—With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. Same; Same; Same; Same; In case of other obligations, the interest on the amount of damages may be imposed at the discretion of the court at the rate of 6% per annum.—When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at

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the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. Same; Same; Same; Same; When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.—When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. 19.

20.

Ligutan vs. Court of Appeals, G.R. No. 138677 (2002) Same; Same; Interests; The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty, and a penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded; What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest.—Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its reasonableness and prays that the Court reduce the amount. This contention is a fresh issue that has not been raised and ventilated before the courts below. In any event, the interest stipulation, on its face, does not appear as being that excessive. The essence or rationale for the payment of interest, quite often referred to as cost of money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is not necessarily preclusive of interest, if there is an agreement to that effect, the two being distinct concepts which may separately be demanded. What may justify a court in not allowing the creditor to impose full surcharges and penalties, despite an express stipulation therefor in a valid agreement, may not equally justify the non-payment or reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a fundamental part of the banking business and the core of a bank’s existence. Frias vs. San Diego-Sison, G.R. No. 15223 (2007) Interest Rates; The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.—The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount. It has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of the loan without payment of the monetary

interest, would constitute unjust enrichment on the part of the debtor at the expense of the creditor. 21. Siga-an vs. Villanueva, G.R. No. 173227 (2009) Interest is a compensation fixed by the parties for the use or forbearance of money. This is referred to as monetary interest. Interest may also be imposed by law or by courts as penalty or indemnity for damages. This is called compensatory interest. The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the principal loan on which interest is demanded. Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for the payment of interest was reduced in writing. The concurrence of the two that collection of interest without any stipulation therefor in writing is prohibited by law. Same; Same; The interest under Arts. 2209 and 2212 of the Civil Code may be imposed only as a penalty or damages for breach of contractual obligations—it cannot be charged as a compensation for the use or forbearance of money. Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. 22.

Nacar vs. Gallery Frames and Bordey, Jr., G.R. No. 189871 (2013) Interest Rates; In the absence of an express stipulation as to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per annum — as reflected in the case of Eastern Shipping Lines vs. Court of Appeals, 234 SCRA 78 (1994), and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP- MB Circular No. 799 — but will now be six percent (6%) per annum effective July 1, 2013. The Bangko Sentral ng Pilipinas- Monetary Board may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. IV.

Usury Law Act No. 2655 Central Bank Circular No. 416, 905

23.

Advocates for Truth in Lending, Inc. vs Bangko Sentral, G.R. No. 192986 (2013) Usury Law; Central Bank (CB) Circular No. 905; Central Bank (CB) Circular No. 905 did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity; that a

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Central Bank (CB) Circular cannot repeal a law, for only a law can repeal another law; that by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective; and Usury Law has been legally non-existent in our jurisdiction.—The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, 299 SCRA 481 (1998), citing several cases, CB Circular No. 905 “did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity”; that “a [CB] Circular cannot repeal a law, [for] only a law can repeal another law”; that “by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective”; and “Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.” Same; Section 109 of R.A. No. 265 covered only loans extended by banks, whereas under Section 1-a of the Usury Law, as amended, the Bangko Sentral ng Pilipinas Monetary Board (BSPMB) may prescribe the maximum rate or rates of interest for all loans or renewals thereof or the forebearance of any money, goods or credits, including those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. 24.

Banco Filipino vs. Court of Appeals, G.R. No. 129227 (2000) Banks and Banking; Loans; Interest Rates; Escalation Clauses; Central Bank Circular 494, although it has the force and effect of law, is not a law and is not the law contemplated by the parties which authorizes the petitioner to unilaterally raise the interest rate of the loan.—In Banco Filipino Savings & Mortgage Bank vs. Navarro, which involved a similar escalation clause, we ruled that Central Bank Circular 494, although it has the force and effect of law, is not a law and is not the law contemplated by the parties which authorizes the petitioner to unilaterally raise the interest rate of the loan. Consequently, the reliance by the petitioner on Central Bank Circular 494 to unilaterally raise the interest rates on the loan in question was without any legal basis. 25. Estores vs. Spouses Supangan, G.R. No. 175139 (2012) Interest Rates; The general rule is that the applicable rate of interest “shall be computed in accordance with the stipulation of the parties.” Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).”—Anent the interest rate, the general rule is that the applicable rate of interest “shall be computed in accordance with the stipulation of the parties.” Absent any stipulation, the applicable rate of interest shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent (6%).” In this case, the parties did not stipulate as to the applicable rate of interest. The only question remaining therefore is whether the 6% as provided under Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

the principal loan obligation side by side with the invalidation of the interest rates thereupon is congruent with the rule that a usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest. Same; Same; Same; Since the mortgage contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract. V.

Truth in Lending Act

27.

United Coconut Planters Bank vs. Samuel & Beluso, G.R. No. 159912 (2007) Truth in Lending Act; Not disclosing the true finance charges in connection with the extensions of credit is a form of deception which we cannot countenance.—The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot countenance. It is against the policy of the State as stated in the Truth in Lending Act: Sec. 2. Declaration of Policy.—It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy. Same; Same; Default commences upon judicial or extrajudicial demand, and the excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. Same; Same; Interest; The Court sees sufficient basis to impose a 12% legal interest in favor of the lender in the case at bar, as what was voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn interest. Same; Same; Same; Compounded Interest; The contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest. Loans; Truth in Lending Act; Pleadings and Practice; The allegation that the promissory notes grant the lender the power to unilaterally fix the interest rates certainly also means that the promissory notes do not contain a “clear statement in writing” of “(6) the finance charge expressed in of pesos and centavos; and (7) the percentage that the finance charge bears to the amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.”

26. Carpo vs. Chua, G.R. Nos. 150773 & 153599 (2005) Usury Law; A usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest.— The Court’s ultimate affirmation in the cases cited of the validity of

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VII.

Deposits A.

In General; Common Provisions Arts. 1962-1967, Civil Code TITLE XII
DEPOSIT

CHAPTER 1
 Deposit in General and its Different Kinds Article 1962. A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. (1758a) Article 1963. An agreement to constitute a deposit is binding, but the deposit itself is not perfected until the delivery of the thing. (n) Article 1964. A deposit may be constituted judicially or extrajudicially. (1759) Article 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 of storing goods. (1760a) Article 1966. Only movable things may be the object of a deposit. (1761) Article 1967. An extrajudicial deposit is either voluntary or necessary. (1762) 28.

Bank of the Philippine Islands vs. Court of Appeals, G.R. No. L-66826 (1988) Civil Law; Obligations and Contracts; Contract of Deposit; The contract between Zshornack and the bank, as to the $3,000.00, was a contract of deposit defined under Art. 1962 of the New Civil Code.—The document which embodies the contract states that the US$3,000.00 was received by the bank for safekeeping. The subsequent acts of the parties also show that the intent of the parties was really for the bank to safely keep the dollars and to return it to Zshornack at a later time. Thus, Zshornack demanded the return of the money on May 10, 1976, or over five months later. The above arrangement is that contract defined under Article 1962, New Civil Code, which reads: 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 for returning the same. If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. 29.

Roman Catholic Bishop vs. De La Pena, G.R. No. 6913 (1913) We do not enter into a discussion for the purpose of determining whether he acted more or less negligently by depositing the money in the bank than he would if he had left it in his home; or whether he was more or less negligent by depositing the money in his personal than he would have been if he had deposited it in a separate as trustee. We regard such discussion as substantially fruitless, inasmuch as the precise question is not one of negligence. There was no law prohibiting him from depositing it

as he did and there was no law which changed his responsibility be reason of the deposit. While it may be true that one who is under obligation to do or give a thing is in duty bound, when he sees events approaching the results of which will be dangerous to his trust, to take all reasonable means and measures to escape or, if unavoidable, to temper the effects of those events, we do not feel constrained to hold that, in choosing between two means equally legal, he is culpably negligent in selecting one whereas he would not have been if he had selected the other.

30.

CA Agro-Industrial Dev. Corp. vs. Court of Appeals, G.R. No. 90027 (1993) Civil Law; Deposit; Commercial Law; Banks and Banking; A contract for the rent of a safety deposit box is not an ordinary contract of lease but a special kind of deposit.—We agree with the petitioner's contention that the contract for the rent of the safety deposi t box is not an ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil Code on deposit; the contract in the case at bar is a special kind of deposit. It cannot be characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and control of the safety deposit box Was not given to the t renters. Any stipulation exempting depository from liability for loss of thing deposited on of fraud, negligence or delay considered void for being contrary to law and public policy. Liability of lessor in contract of lease of safety deposit box can be limited by stipulation but any stipulation for exemption shall be held ineffective. B.

Voluntary Deposit Arts. 1968-1995, Civil Code CHAPTER 2
Voluntary Deposit

SECTION 1
General Provisions Article 1968. A voluntary deposit is that wherein the delivery is made by the will of the depositor. A 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. (1763) Article 1969. A contract of deposit may be entered into orally or in writing. (n) Article 1970. If a person having capacity to contract accepts a deposit made by one who is incapacitated, the former shall be subject to all the obligations of a depositary, and may be compelled to return the thing by the guardian, or , of the person who made the deposit, or by the latter himself if he should acquire capacity. (1764) Article 1971. If the deposit has been made by a capacitated person with another who is not, the depositor shall only have an action to recover the thing deposited while it is still in the possession of the depositary, or to compel the latter to pay him the amount by which

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he may have enriched or benefited himself with the thing or its price. However, if a third person who acquired the thing acted in bad faith, the depositor may bring an action against him for its recovery. (1765a) SECTION 2
Obligations of the Depositary Article 1972. The depositary is obliged to keep the thing safely and to return it, when required, to the depositor, or to his heirs and successors, or to the person who may have been designated in the contract. His responsibility, with regard to the safekeeping and the loss of the thing, shall be governed by the provisions of Title I of this Book. If the deposit is gratuitous, this fact shall be taken into in determining the degree of care that the depositary must observe. (1766a) Article 1973. Unless there is a stipulation to the contrary, the depositary cannot deposit the thing with a third person. If deposit with a third person is allowed, the depositary is liable for the loss if he deposited the thing with a person who is manifestly careless or unfit. The depositary is responsible for the negligence of his employees. (n) Article 1974. The depositary may change the way of the deposit if under the circumstances he may reasonably presume that the depositor would consent to the change if he knew of the facts of the situation. However, before the depositary may make such change, he shall notify the depositor thereof and wait for his decision, unless delay would cause danger. (n) Article 1975. The depositary holding certificates, bonds, securities or instruments which earn interest shall be bound to collect the latter when it becomes due, and to take such steps as may be necessary in order that the securities may preserve their value and the rights corresponding to them according to law.

through a fortuitous event: (1) If it is so stipulated; (2) If he uses the thing without the depositor's permission; (3) If he delays its return; (4) If he allows others to use it, even though he himself may have been authorized to use the same. (n) Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. (n) Article 1981. When the thing deposited is delivered closed and sealed, the depositary must return it in the same condition, and he shall be liable for damages should the seal or lock be broken through his fault. Fault on the part of the depositary is presumed, unless there is proof to the contrary. As regards the value of the thing deposited, the statement of the depositor shall be accepted, when the forcible opening is imputable to the depositary, should there be no proof to the contrary. However, the courts may upon the credibility of the depositor with respect to the value claimed by him. When the seal or lock is broken, with or without the depositary's fault, he shall keep the secret of the deposit. (1769a) Article 1982. When it becomes necessary to open a locked box or receptacle, the depositary is presumed authorized to do so, if the key has been delivered to him; or when the instructions of the depositor as regards the deposit cannot be executed without opening the box or receptacle. (n) Article 1983. The thing deposited shall be returned with all its products, accessories and accessions.

The above provision shall not apply to contracts for the rent of safety deposit boxes. (n)

Should the deposit consist of money, the provisions relative to agents in article 1896 shall be applied to the depositary. (1770)

Article 1976. Unless there is a stipulation to the contrary, the depositary may commingle grain or other articles of the same kind and quality, in which case the various depositors shall own or have a proportionate interest in the mass. (n)

Article 1984. The depositary cannot demand that the depositor prove his ownership of the thing deposited.

Article 1977. The depositary cannot make use of the thing deposited without the express permission of the depositor. Otherwise, he shall be liable for damages.

Nevertheless, should he discover that the thing has been stolen and who its true owner is, he must advise the latter of the deposit. If the owner, in spite of such information, does not claim it within the period of one month, the depositary shall be relieved of all responsibility by returning the thing deposited to the depositor.

However, when the preservation of the thing deposited requires its use, it must be used but only for that purpose. (1767a)

If the depositary has reasonable grounds to believe that the thing has not been lawfully acquired by the depositor, the former may return the same. (1771a)

Article 1978. When the depositary has permission to use the thing deposited, the contract loses the concept of a deposit and becomes a loan or commodatum, except where safekeeping is still the principal purpose of the contract.

Article 1985. When there are two or more depositors, if they are not solidary, and the thing its of division, each one cannot demand more than his share.

The permission shall not be presumed, and its existence must be proved. (1768a) Article 1979. The depositary is liable for the loss of the thing

When there is solidarity or the thing does not it of division, the provisions of articles 1212 and 1214 shall govern. However, if there is a stipulation that the thing should be returned to one of the depositors, the depositary shall return it only to the person

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designated. (1772a) Article 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 istration of his property and rights. (1773) Article 1987. If at the time the deposit was made a place was designated for the return of the thing, the depositary must take the thing deposited to such place; but the expenses for transportation shall be borne by the depositor. If no place has been designated for the return, it shall be made where the thing deposited may be, even if it should not be the same place where the deposit was made, provided that there was no malice on the part of the depositary. (1774) Article 1988. The thing deposited must be returned to the depositor upon demand, even though a specified period or time for such return may have been fixed. This provision shall not apply when the thing is judicially attached while in the depositary's possession, or should he have been notified of the opposition of a third person to the return or the removal of the thing deposited. In these cases, the depositary must immediately inform the depositor of the attachment or opposition. (1775) Article 1989. Unless the deposit is for a valuable consideration, the depositary who may have justifiable reasons for not keeping the thing deposited may, even before the time designated, return it to the depositor; and if the latter should refuse to receive it, the depositary may secure its consignation from the court. (1776a) Article 1990. If the depositary by force majeure or government order loses the thing and receives money or another thing in its place, he shall deliver the sum or other thing to the depositor. (1777a) Article 1991. 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 has not been paid him. (1778) SECTION 3
Obligations of the Depositor Article 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. (1779a) Article 1993. The depositor shall reimburse the depositary for any loss arising from the character of the thing deposited, unless at the time of the constitution of the deposit the former was not aware of, or was not expected to know the dangerous character of the thing, or unless he notified the depositary of the same, or the latter was aware of it without advice from the depositor. (n)

Article 1995. A deposit its 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. (n) 31. Sia vs. Court of Appeals, G.R. No. 102970, May 13, 1990 Civil Law; Deposit; Contract for the use of safety deposit box is a special kind of deposit and the relationship between the parties thereto, with respect to the contents of the box, is that of a bailor and bailee, the bailment being for hire and mutual benefit.—In the recent case of CA Agro-Industrial Development Corp. vs. Court of Appeals, this Court explicitly rejected the contention that a contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on deposit; it is, as We declared, a special kind of deposit. The prevailing rule in American jurisprudence—that the relation between a bank renting out safe deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment being for hire and mutual benefit has been adopted in this jurisdiction. Same; Same; Same; Conditions in a “Lease Agreement” covering a safety deposit box which exempt the bank from any liability for damage, loss or destruction of the contents thereof arising from its own or its agent’s fraud, negligence or delay are considered null and void, for being contrary to law and public policy. Same; Same; Same; Same; Although flooding could be considered a fortuitous event, failure of the bank to give notice to the renter of such fact makes it liable for damages, its negligence caused to aggravate injury or damage to the renter 32. Javellana vs. Lim, G.R. No. 4015 (1908) CONTRACT; BAILMENT OR DEPOSIT; LOAN.—Where money, consisting of coins of legal tender, is deposited with a person and the latter is authorized by the depositor to use and dispose of the same, the agreement thus entered into between the depositor and the depositary is not a contract of deposit, but a loan. 
 ID.; ID.; ID.; SUBSEQUENT AGREEMENT AS TO INTEREST; NOVATION.—A subsequent agreement between the parties as to interest on the amount said to have been deposited, because the same could not be returned at the time fixed therefor, does not constitute a renewal of an agreement of deposit, but is the best evidence that the original contract entered into between the parties therein was for a loan under the guise of a deposit. 
 33. Chan vs. Maceda, G.R. No. 142591 (2003) Civil Law; Obligations and Contracts; Deposits; In an action against the depositary, the burden is on the plaintiff to prove the bailment or deposit and the performance of conditions precedent to the right of action; A depositary is obliged to return the thing to the depositor, or to his heirs or successors, or to the person who may have been designated in the contract.

Article 1994. The depositary may retain the thing in pledge until the full payment of what may be due him by reason of the deposit. (1780)

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34. Serrano vs. Central Bank, G.R. No. L-30511 (1980) Banking; Bank deposits; nature of; Nature of relationship between a person making the time deposit and a bank; Effect of failure of a bank to honor the time deposit.—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. Current and savings deposits 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 the respondent Bank to honor the time deposit is failure to pay its obligation as a debtor and not a breach of trust arising from a depositary’s failure to return the subject matter of the deposit.

Article 2002. The hotel-keeper is not liable for compensation if the loss is due to the acts of the guest, his family, servants or visitors, or if the loss arises from the character of the things brought into the hotel. (n) Article 2003. The hotel-keeper cannot free himself from responsibility by posting notices to the effect that he is not liable for the articles brought by the guest. Any stipulation between the hotelkeeper and the guest whereby the responsibility of the former as set forth in articles 1998 to 2001 is suppressed or diminished shall be void. (n) Article 2004. The hotel-keeper has a right to retain the things brought into the hotel by the guest, as a security for credits on of lodging, and supplies usually furnished to hotel guests. (n) 35.

C.

Necessary Deposit Arts. 1996-2004, Civil Code CHAPTER 3
Necessary Deposit

Article 1996. A deposit is necessary: (1) When it is made in compliance with a legal obligation; (2) When it takes place on the occasion of any calamity, such as fire, storm, flood, pillage, shipwreck, or other similar events. (1781a) Article 1997. The deposit referred to in No. 1 of the preceding article shall be governed by the provisions of the law establishing it, and in case of its deficiency, by the rules on voluntary deposit. The deposit mentioned in No. 2 of the preceding article shall be regulated by the provisions concerning voluntary deposit and by article 2168. (1782) Article 1998. The deposit of effects made by travellers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. (1783) Article 1999. The hotel-keeper is liable for the vehicles, animals and articles which have been introduced or placed in the annexes of the hotel. (n) Article 2000. The responsibility referred to in the two preceding articles shall include the loss of, or injury to the personal property of the guests caused by the servants or employees of the keepers of hotels or inns as well as strangers; but not that which may proceed from any force majeure. The fact that travellers are constrained to rely on the vigilance of the keeper of the hotels or inns shall be considered in determining the degree of care required of him. (1784a) Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force majeure, unless it is done with the use of arms or through an irresistible force. (n)

Durban Apartments vs. Pioneer Insurance, G.R. No. 179419 (2011) Contract of Deposit; Hotels and Inns; The contract of deposit was perfected when the hotel guest handed over to the hotel’s parking attendant the keys to his vehicle, which the latter received with the obligation of safely keeping and returning it.—Article 1962, in relation to Article 1998, of the Civil Code defines a contract of deposit and a necessary deposit made by persons in hotels or inns: 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 safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit but some other contract. Art. 1998. The deposit of effects made by travelers in hotels or inns shall also be regarded as necessary. The keepers of hotels or inns shall be responsible for them as depositaries, provided that notice was given to them, or to their employees, of the effects brought by the guests and that, on the part of the latter, they take the precautions which said hotel-keepers or their substitutes advised relative to the care and vigilance of their effects. Plainly, from the facts found by the lower courts, the insured See deposited his vehicle for safekeeping with petitioner, through the latter’s employee, Justimbaste. In turn, Justimbaste issued a claim stub to See. Thus, the contract of deposit was perfected from See’s delivery, when he handed over to Justimbaste the keys to his vehicle, which Justimbaste received with the obligation of safely keeping and returning it. Ultimately, petitioner is liable for the loss of See’s vehicle. 36.

YHT Realty Corp. vs. Court of Appeals, G.R. No. 126780 (2005) Hotels and Inns; Deposits; Safety Deposit Boxes; Mere close companionship and intimacy are not enough to warrant the conclusion that a hotel guest and his companion are husband and wife—it is no excuse for the hotel to have allowed the latter to open the safety deposit box of the former.—The management contends, however, that McLoughlin, by his act, made its employees believe that Tan was his spouse for she was always with him most of the time. The evidence on record, however, is bereft of any showing that McLoughlin introduced Tan to the management as his wife. Such an inference from the act of McLoughlin will not exculpate the petitioners from liability in the absence of any showing that he made the management believe that Tan was his wife or was duly authorized to have access to the safety deposit box. Mere close companionship and intimacy are not enough to warrant such

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conclusion considering that what is involved in the instant case is the very safety of McLoughlin’s deposit. If only petitioners exercised due diligence in taking care of McLoughlin’s safety deposit box, they should have confronted him as to his relationship with Tan considering that the latter had been observed opening McLoughlin’s safety deposit box a number of times at the early hours of the morning. Tan’s acts should have prompted the management to investigate her relationship with McLoughlin. Then, petitioners would have exercised due diligence required of them. Failure to do so warrants the conclusion that the management had been remiss in complying with the obligations imposed upon hotel-keepers under the law.

37.

Triple-V vs. Filipino Merchants Insurance Corp., G.R. No. 160544 (2005) Specious is petitioner's insistence that the valet parking claim stub it issued to De Asis contains a clear exclusion of its liability and operates as an explicit waiver by the customer of any right to claim indemnity for any loss of or damage to the vehicle. The parking claim stub embodying the and conditions of the parking, including that of relieving petitioner from any loss or damage to the car, is essentially a contract of adhesion, drafted and prepared as it is by the petitioner alone with no participation whatsoever on the part of the customers, like De Asis, who merely adheres to the printed stipulations therein appearing. While contracts of adhesion are not void in themselves, yet this Court will not hesitate to rule out blind adherence thereto if they prove to be one-sided under the attendant facts and circumstances. Petitioner must not be allowed to use its parking claim stub's exclusionary stipulation as a shield from any responsibility for any loss or damage to vehicles or to the valuables contained therein. D.

Judicial Deposit Arts. 2005-2009, Civil Code CHAPTER 4 Sequestration or Judicial Deposit

Article 2005. A judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is ordered. (1785) Article 2006. Movable as well as immovable property may be the object of sequestration. (1786) Article 2007. The depositary of property or objects sequestrated cannot be relieved of his responsibility until the controversy which gave rise thereto has come to an end, unless the court so orders. (1787a) Article 2008. The depositary of property sequestrated is bound to comply, with respect to the same, with all the obligations of a good father of a family. (1788) Article 2009. As to matters not provided for in this Code, judicial sequestration shall be governed by the Rules of Court. (1789a)

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