CREDIT TRANSACTION
ATTY. GAVINO
BAILEMENT
Q: What is Bailment?
A: A situation in which one person holds personal property, the
ownership of which is in another. Ownership and possession are
separated. The person who has possession is under the obligation to
return the same goods, either in the same or in altered form to the
owner, or dispose of them for his benefit, when the purpose of the
bailment shall have been accomplished.
Q: What are the elements of a bailment?
A:
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 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.
Q: Who are the parties in bailment?
A:
1. Bailor (Comodatario) - the giver; the party who delivers the
possession or custody of the thing bailed; and
2. Bailee (Comodante)- the recipient; the party who receives the
possession or custody of the thing thus delivered.
Note: Extraordinary expenses are shouldered by the bailor.
Bailee acquires the temporary use of the thing but not its fruits since the
bailor remains the owner.
Q: Can the thing loaned be used by other person/s?
A: Yes. Unless there is a stipulation to the contrary or the nature of the
thing forbids such use.
Q: T/F- Bailee has right of redemption.
A: False. Bailee has no right to retain the thing loaned as security on the
ground that the bailor owes him something, even though it may be by
reason of expenses.
REASON:
a. Ownership remains in bailor; and
b. Temporary use.
NOTE: As the bailor does not transfer ownership of the thing loaned, the
bailor need not be the owner of the thing loaned (art. 1938). It is
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sufficient that the bailor has the right to allow the use of the thing by the f. bailments of vendor in possession after sale; and
bailee.
4. Fortuitous bailments
Usufructuary or a lesee can enter into a contract of commodatum.

 First kind: gratuitous deposit and mandatum

Q: What are the kinds of contractual bailment?
- Bailment of goods without recompense where the
A: mandatory or person to whom the property is delivered
undertakes to do some act with respect to the same.
With respect to ordinary bailments, there are four (4) types, namely:
- Gratuitously or without compensation
1. Those for the sole benefit of the bailor;
 Second kind: Commodatum and gratuitous simple loan or
2. Those for the sole benefit of the bailee;
mutuum.
3. Those for the benefit of both parties;
- The bailee is liable for damages, even in case he is guilty only
a. Bailments of mere keeping; of simple negligence since he derives the sole benefit.

e.g warehousemen agents - The bailee is required to use great care.

b. bailments fo carriage; - No consideration for they are considered more as a favor by

one party to the party benefited but the law imposes definite
e.g private carriers;
obligations upon both the bailor and the bailee.
c. bailments of hoods delivered to another to work with;
 Deposit for a compensation
e.g watch left for repair
- Including voluntary or necessary deposit pledge and
d. bailments of goods delivered to another to work with ; bailments for hire.

e.g naggage is checked - Common type: mutual-benfit bailemtns

e. bailments for security;  Miserable deposit

e.g pledges

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 - Extraordinary bailements cover businesses that peculiarly
serve the public.
Q: What are the kinds of commodatum?

A:
KINDS of bailment for hire
1. Ordinary commodatum; and
- Arises when goods are left with the bailee for some use or
2. Precarium- One whereby the bailor may demand the thing
service by him and is always for some compensation.
loaned at will.
1. Hire of things (location et conductio)- Where goods are delivered
for the temporary use of the hirer;
Q: What are the characteristics of commodatum?
2. Hire of service (location operis faciendi) – Where goods are
delivered for some work or labor upon it by the bailee; A:
3. Hire for a carriage of goods (location operis mercium 1. Real contract – The delivery of the thing loaned is necessary for
vehendarum) – Where goods are delivered either to a common the perfection of the contract.
carrier or to a private person for the purpose of being carried
from place to place; and 2. Unilateral contract- Because once the subject matter has been
delivered, it creates obligations on the part of only one of the
4. Hire of custody (location custodiae)- Where goods are delivered parties.
for storage.
3. Nominate contract- It has been given a specific name by the Civil
Code.

4. Principal contract- Its existence is not dependent on another

contract.
COMMODATUM and MUTUUM 5. Informal contract- No particular form is required for the contract

6. Gratuitous contract- As the bailee does not pay the bailor for the
use of the thing.
Q: T/F – Contract of loan is a real contract.
Q: Subject matter of commodatum?
A: False.
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A: Generally, non-consumable things, whether real or person. This but A: (RRL)
conforms to reality, for the baileee cannot use and return something
1. Respect the duration of the loan.
which is consumed when used.
EXPN:

a. In case of urgent need of the thing, he may demand its return or

Q: Duration of commodatum.
temporary use.
A:
b. If the bailee commits any act of ingratitude.
1. Certain period of time
2. Refund to the bailee extraordinary expenses incurred for the
2. At will preservation of the thing, provided that the bailee brings the
same to the knowledge of the bailor before incurring them,
except when the reply to the notification cannot be awaited
Q: Instances of precarium. without danger.

Art. 1947 of the NCC: 3. Be Liable to the bailee for damages for known hidden flaws.

The bailor may demand the thing at will, and the contractual relation is Requisites: (FHANS)
called a precarium, in the ff cases:
a. Existence of Flaws or defect;
a. If neither the duration of the contract nor the use to which the
b. The flaw or defect is Hidden;
thing loaned should be devoted. Has been stipulated; or
c. The bailor is Aware thereof;
b. If the use of the thing is merely tolerate by the owner.
d. Bailor does Not advise the bailee of the same; and
Art. 1948 of the NCC provides:
e. The bailee Suffers damages by reason of said flaw or defect.
The bailor may demand immediate return of the thing if the bailee
commits any acts of ingratitude specified in Article 765.

Q: Object or subject matter of mutuum?

Q: What are the obligations of the bailor? A: Money or consumable things or fungible goods.

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Q: What are the charcteristics of mutuum? Q: T/F- No interest is due unless it is expressly stipulated.

A: A: False.

1. Real contract- The delivery of the thing loaned is necessary for There are exceptions.
the perfection for the contract.
If the exact rate of interest in not mentioned, the legal interest rate is
2. Unilateral contract- Once the subject matter has been delivered, 6%.
it creates obligations on the part of only one of the parties.
In cases such as:
3. Nominate contract- It has been given a specific name by the Civil
1. Indemnity for damages;
Code.
2. Unpaid interest.
4. Principal contract- Its existence is not dependent on another
contract.

5. Informal contract- No particular form is generally required for the Q: T/F- Payment of unpaid or not stipulated is unrecoverable.
contract; it is delivery that perfects the contract;
A: False.
6. Gratuitous contract- If there is no stipulation to pay interest, or
Payment of unstipulated is unrecoverable.
Onerous contract- If there is a stipulation to pay interest.
Art. 1960 of the NCC provides:

If the borrower pays interest when there has been no stipulation

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

Q: What is contract of deposit?

Q: T/F- Bank deposits are strictly deposits.
A:
A: False. Because it incur interest and bank may use such for other
transactions. Art. 1962 of the NCC provides:
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A deposit is constituted from the moment a person receives a thing iv. By travellers with common carriers.
belonging to another, with the obligation of safely keeping it and of
- Movable only
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.
Q: Classifications/characteristics of deposit.

A:
Q: What object may be deposited?
1. Real contract- It is perfected by the delivery of the subject matter
A: of the contract.
1. Judicial 2. Unilateral- Gives rise to the principal obligation, on the part of
the depositary, to safely keep the thing and to return it……
Takes place when an attachment or seizure of property in
litigation is ordered. 3. Nominate contract- It has been given a specific named by the
Civil Code.
- Movable
4. Principal contract- Its existence is not dependent on another
- Immovable
contract.
2. Extrajudicial
5. Informal contract- No particular form is required for the contract.
a. Voluntary- delivery is made by the will of the depositor or by two
6. Gratuitous contract- Where the depositor does not pay
or more persons each of whom believes himself entitled to the
compensation to the depositary.
thing deposited. The depositor has complete freedom in choosing
the depositary. NOTE: But it can be an onerous contract (if there is an agreement).
b. Necessary- made in compliance with:

i. A legal obligation; Q: Obligations of a depositor.

ii. On occasion of any calamity; A: Art. 1992 of the NCC provides:
iii. By travellers in hotels and inns; or

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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.
Q: Who are the parties?
A: Depositor and depositary.
Art. 1972 of the NCC provides:
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 safe-keeping and the loss of the
thing, shall be governed by the provisions of Title I of this Book.
Art. 1992 of the NCC provides:
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.
Q: What are the rules when the depositor is incapacitated?
A: Art. 1970 of the NCC provides:
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 administrator, of the person who made the deposit, or
by the latter himself if he should acquire capacity.
Art. 1971 of the NCC provides:
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 fthe depositary, or
to compel the latter to pay him the amount by which it is still in the
possession of the depositary, or to compel the latter to pay him the
amount by which 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.
Q: If there is ratification?
A: Becomes valid from the time of ratification.
Q: Degree of care of the depositary?
A: Based on the stipulations.
Onerous- higher degree
Gratuitous- lower degree
Q: What must be returned by the depositary?
A: (Paa-Cs)
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1. The obligation to return the thing with all its Products, accessions
and accessories;
2. Obligation to return the thing closed and sealed if delivered in
such condition.
Q: What if there are two or more depositors?
A: Art. 1985 of the NCC provides:
When there are two or more depositors, if they are not solidary, and
the thing admits of division, each one cannot demand more than his
share.
When there is solidarity or the thing does not admit 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
designated.
Q: When should the thing be returned?
A: Art. 1988 of the NCC provides:
The thing deposited must be returned to the depositor upon demand,
even though a specified period of time for such return may have been
fixed.
EXPN:
Art. 1984, par. 2, par.3
Par.2- Nevertheless, should he discover that the thing has been stolen
and who its true owner is, he must advise the latter of the deposit.
Par.3- 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.
Art. 1989 of the NCC provides:
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.
Q: T/F- The thing may be commingled.
A: False.
Art. 1976 of the NCC provides:
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.
TAKE NOTE OF THE EXCEPTION (UNLESS THERE IS A STIPUALTION TO
THE CONTRARY)
Q: T/F- Depositary may use the thing deposited.
A: False.
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 WAREHOUSE RECEIPT

EXPN: Art. 1977 of the NCC provides: Unless the deposit is for a valuable consideration, the depositary who
may have justifiable reasons for not keeping the thing deposited may,
The depositary cannot make use of the thing deposited without the
even before the time designated, return it to the depositary and if the
express permission of the depositor. Otherwise, he shall be liable for
latter should refuse to receive it, the depositary may secure its
damages.
consignation from the court.
However, when the preservation of the thing deposited requires its
use, it must be used but only for that purpose.

Q: T/F- Depositary is not liable if the thing is lost due to fortuitous

event.

A: False. Documents of title- It is a document issued by a carrier or

warehouseman reciting the receipt of goods for carriage or keeping
Art. 1979 of the NCC provides:
and the terms and conditions thereof. It sets forth the contract
The depositary is liable for the loss of the thing through a fortuitous between the bailor and the bailee. It is also the symbol of the goods
event: themselves whereby they may be transferred.

1. If it is so stipulated; Warehouseman- A person lawfully engaged in the business of storing

goods for profit. Only a warehouseman may issue warehouse
2. If he uses the thing without the depositor’s permission; receipts.
3. If he delays its return; Draft warehouse receipt.
4. If he allows others to use it, even though he himself may have NOTE: Follow sec.2
been authorized to use the same.
Sec. 2 Forms of receipts, essential terms. Warehouse receipts need not
be in any particular form but every such receipt must embody within its
Q: Depositary’s right to return the thing. written or printed terms:

A: Art. 1989 of the NCC provides: a. The location of the warehouse where the goods are stored;

b. The date of issue of the receipt;

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c. The consecutive number of the receipt;
d. A statement whether the goods received will be delivered or the
bearer, to a specified person or to a specified person or his order;
e. The rate of storage charges;
f. A description of the goods or of the packages containing them;
g. The signature of the warehouseman which may be made by his
authorized agent;
h. If the receipt is issued for goods of which the warehouseman is
owner, either solely or jointly or in common with others, the fact
of such ownership; and
i. A statement of the amount of advances made and of liabilities
incurred for which the warehouseman claims as lien. If the
precise amount of such advances made or of such liabilities
incurred is, at the same time of the issue of the receipt, unknown
to the warehouseman or to his agent who issues it, a statement
of the fact that advances have been made or liabilities incurred
and the purpose thereof is sufficient.
NOTE: Words of negotiability must also be stated.
Non negotiable and negotiable receipt
Sec.4 Definition of non-negotiable receipt
A receipt in which it is stated that the foods received will be
delivered to the depositor or to any other specified person, is a
non-negotiable receipt.
Sec. 5 Definition of negotiable receipt
A receipt in which it is stated that the goods received will be
delivered to the bearer or to the order of any person named in
such receipt is a negotiable receipt.
Effect of failure to mark “negotiable” or “non-negotiable”
- Failure to mark “negotiable” does not render it non-
negotiable if it contains words of negotiability.
- Failure to mark them “non-negotiable” or “not negotiable”,
they will be considered negotiable provided the holder of
such unmarked receipt purchased it for value supposing it to
be negotiable.
Obligations of the warehouseman
(DNCH-IDSA)
a. Obligation to stamp “ Duplicate” on copies of negotiable receipt;
b. Obligation to place “ Non-negotiable” or “ not negotiable” on a
non-negotiable receipt;
c. Obligation to Cancel negotiable receipts upon delivery or part
deliver;
d. Obligation to Honor altered receipts in appropriate cases;
e. Obligation not to Issue receipt if goods are not existent;
f. Obligation to properly Describe the goods covered by the receipt
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 g. Obligation to keep the goods Separate and to not comingle the
goods; and
h. Obligation with respect to the goods in case of Attachment or
levy upon goods for which a negotiable receipt has been issued.
Warehouseman’s lien
A warehouseman having a lien valid against the person demanding the
goods may refuse to deliver the goods to him until the lien is satisfied. He
loses his lien upon the goods by surrendering possession thereof.
The offer to satisfy the warehouseman’s lien is, therefore, required
before the warehouseman is bound to deliver or return the goods. When,
however, an offer is vain or useless, a formal tender is not required.
Extent of his lien
The warehouseman’s lien over the goods deposited with him is his
security, just like a pledge, or mortgage, for the payment of the charges,
money advances, and other expenses enumerated in sec. 27.
Altered receipts
The alteration of a receipt shall not excuse the warehouseman who
issued it from any liability if such alteration was:
(I-AM)
1. Immaterial;
2. Authorized; or
3. Made without fraudulent intent.
Negotiation of negotiable receipt by delivery and negotiation of
negotiable receipt by indorsement
Sec. 37. Negotiable receipt by delivery.
A negotiable receipt may be negotiated by deliver:
a. Where, by the terms of the receipt, the warehouseman
undertakes to deliver the goods to the order of a specified
person, and such person or a subsequent indorsee of the receipt
has indorsed it in blank or to bearer; or
b. Where, y the terms of the receipt, the warehouseman undertakes
to deliver the goods to the order of a specified person, and such
person or a subsequent indorsee of the receipt has indorsed it in
blank or to bearer.
c. Where, by the terms of a negotiable receipt, the goods are
deliverable to bearer or where a negotiable receipt has been
indorsed in blank or to bearer, nay holder may indorse the same
to himself or to any other specified person, and in such case the
receipt shall thereafter be negotiated only by the indorsement by
such indorsee.
Sec. 48. Negotiation of negotiable receipt by indorsement.
A negotiable receipt may be negotiated by the indorsement of the person
to whose order the foods are, by the terms of the receipt, deliverable.
Such indorsement may be in blank, to bearer, or to a specified person. If
indorsed to a specified person, it may be again negotiated by the
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indorsement of such person in blank, to bearer or to another specified
person. Subsequent negotiation may be made in like manner.

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