104 COMMENTS AND CASES ON CREDIT Art.

1962 DEPOSIT 105

TRANSACTIONS Deposit in General and Its Different Kinds

(see Art. 2270[2].) All deposits, whether civil or commercial, are

now primarily regulated by Title XII, Book IV of the new Civil
Code (Arts. 1962-2009.) subject to its transitional provisions.
III (Arts. 2252-2269.)

DEPOSIT* Characteristics of the contract.

(Arts. 1962-2009.)
Chapter 1
DEPOSIT IN GENERAL AND ITS
DIFFERENT KINDS
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 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)
Definition of contract of deposit.
The above article in effect gives the definition of a contract of
deposit. The term “deposit” is derived from the word “depositum”
of the Roman Law.
Governing law.
The classification of deposits into civil deposit governed
by the old Civil Code and commercial deposit governed by the
Code of Commerce has been abolished by the new Civil Code.
*Title XII, Book IV, Civil Code.
104
(1) It is a real contract like commodatum and mutuum because
it is perfected by the delivery of the subject matter.
(2) When the deposit is gratuitous, it is a unilateral contract
because only the depositary (depositorio) has an obligation. But
when the deposit is for compensation, the juridical relation
created becomes bilateral because it gives rise to obligations on
the part of both the depositary and depositor (depositante).
Safekeeping, principal purpose
of the contract.
(1) Effect where safekeeping only an accessory obligation. — The
principal purpose of the contract of deposit is the safekeeping of
the thing delivered so that if safekeeping is only an accessory or
secondary obligation of the recipient of the thing, deposit is not
constituted but some other contract like lease, commodatum, or
agency. (Art. 1868.) Thus, the delivery of money to a person so
that he may make payment or invest the money for the account
of the giver, or of documents or records to a lawyer hired to
represent a party to a suit, cannot be regarded as constituting
a deposit, but only as an agency. Here, the principal end of the
contract is representation of one by another and not the custody
and preservation of the thing delivered.
(2) Balance of commission account in agent’s possession at
principal’s disposal appropriated by agent. — Where the balance of
a commission account remains in the possession of the agent at
the principal’s disposal, the same acquires at once the character
of a deposit which the former must return or restore to the latter
at any time it is demanded. The agent undoubtedly commits the
crime of estafa if he appropriates or diverts it to his own use.
It could only become his as a loan, if so expressly agreed by its
owner who would then be obligated not to demand it until the
106 COMMENTS AND CASES ON CREDIT Art. 1962
TRANSACTIONS
expiration of the legal or stipulated period. (U.S. vs. Igpuara, 27
Phil. 619 [1913].)
(3) Dollars deposited with bank sold by bank which credited peso
proceeds to depositor’s current account. — Where the document
which embodies the contract states that U.S. dollars in cash
were received by the bank for safekeeping, and the subsequent
acts of the parties also show that the intent was really for the
bank to safely keep the dollars and return it to the plaintiff who
demanded the return of the money about five months later, the
above arrangement is the contract of deposit defined under
Article 1962. The bank violates its obligation if it sells the dollars
and it cannot defeat the plaintiff’s claim by asserting that the peso
proceeds of the sale were properly credited to the latter’s current
account. (Bank of the Phil. Islands vs. Intermediate Appellate
Court, 164 SCRA 630 [1988].)
The depositary cannot make use of the thing deposited except
only in the two instances mentioned in Article 1977.
Deposit distinguished from mutuum.
The distinctions are as follows:
(1) In deposit, the principal purpose is safekeeping or mere
custody, while in mutuum, the consumption of the subject matter;
(2) In deposit, the depositor can demand the return of the
subject matter at will, while in mutuum, the lender must wait
until the expiration of the period granted to the debtor; and
(3) In deposit, both movable and immovable property may
be the object, while in mutuum, only money and any other
fungible thing.
Deposit distinguished from commodatum.
The following are the distinctions:
(1) In deposit, the principal purpose is safekeeping, while in
commodatum, the transfer of the use;
(2) Deposit may be gratuitous, while commodatum is essen-
tially and always gratuitous; and
Arts. 1963-1964 DEPOSIT 107
Deposit in General and Its Different Kinds
(3) In (extrajudicial) deposit, only movable (corporeal)
things may be the object, while in commodatum, both movable
and immovable property may be the object.
ART. 1963. An agreement to constitute a deposit is
binding, but the deposit itself is not perfected until the de-
livery of the thing. (n)
Binding effect of agreement
to deposit.
A deposit is a real contract and is, therefore, perfected only
upon delivery of the object of the contract. Where there has been
no delivery, there is merely an agreement to deposit which,
however, is binding and enforceable upon the parties.
Hence, a contract of future deposit is consensual. (see Art.
1934.)
ART. 1964. A deposit may be constituted judicially or
extrajudicially. (1759)
Creation of deposit.
A deposit may be created by virtue of a court order or by
law and not by the will of the parties. This is the reason why
the Code employs the word “constituted” in defining (Art. 1962.)
and classifying (Art. 1964.) deposit.
In a deposit, it is essential that the depositary is not the owner
of the property deposited. (Art. 1962.)
Kinds of deposit.
Deposit is either:
(1) judicial or one which takes place when an attachment or
seizure of property in litigation is ordered (Arts. 2005-2008.); or
(2) extrajudicial (Art. 1967.) which may be;
(a) voluntary or one wherein the delivery is made by
the will of the depositor or by two or more persons each of
whom believes himself entitled to the thing deposited (Arts.
1968-1995.); or
108 COMMENTS AND CASES ON CREDIT Arts. 1965-1966
TRANSACTIONS
(b) necessary or one made in compliance with a legal obli-
gation, or on the occasion of any calamity, or by travellers in
hotels and inns (Arts. 1996-2004.) or by travellers with com-
mon carriers. (Arts. 1734-1735.)1
ART. 1965. A deposit is a gratuitous contract, except
when there is an agreement to the contrary, or unless the
depositary is engaged in the business of storing goods.
(1760a)
Contract of deposit generally gratuitous.
A contract of deposit is generally gratuitous.
(1) Where there is contrary stipulation. — The first exception is
recognized in the general rule in contracts that the parties may
establish any stipulation they may deem convenient provided
it is not contrary to law, morals, good customs, public order, or
public policy. (Art. 1306.)
(2) Where depositary engaged in business of storing goods. —
The second exception is based on the fact that the depositary
is engaged in the business of storing goods (as in the case of a
warehouseman) for compensation and not out of pure generosity.
(3) Where property saved from destruction without knowledge
of the owner. — In involuntary deposit, where property is saved
from destruction during a calamity by another person without
the knowledge of the owner, the latter is bound to pay the former
just compensation. (see Arts. 1996[2], 1997, par. 2.)
ART. 1966. Only movable things may be the object of a
deposit. (1761)
1
Art. 1734. Common carriers are responsible for the loss, destruction, or deteriora-
tion of the goods, unless the same is due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural disaster or calamity;
(2) Act of the public enemy in war, whether international or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing or in the containers;
(5) Order or act of competent public authority.
Art. 1735. In all cases other than those mentioned in Nos. 1, 2, 3, 4, and 5 of the
preceding article, if the goods are lost, destroyed or deteriorated, common carriers are
presumed to have been at fault or to have acted negligently, unless they prove that they
observed extraordinary diligence as required in Article 1733.
Art. 1967 DEPOSIT 109
Deposit in General and Its Different Kinds
Subject matter of deposit.
(1) Only movable or personal property may be the object
of extrajudicial deposit, whether voluntary (Art. 1968.) or
necessary. (Art. 1995.) Article 1966 proceeds from the object of a
deposit which is safekeeping of a thing. The possibility that the
thing may disappear or may be lost or stolen is not present in
real property. Thus, the delivery of the keys of a house cannot be
considered as a deposit of the same, and entrusting its care and
custody is, juridically, an agency. (11 Manresa 671.)
(2) Judicial deposit (Arts. 2005-2006.), however, may cover
movable as well as immovable property its purpose being to
protect the rights of parties to a suit.
Only corporeal things contemplated.
Article 1966 does not embrace incorporeal or intangible
property, such as rights and actions, for it follows the person of
the owner, wherever he goes, and is not, by reason of its incorpo-
reality, susceptible of custody in the tangible sense that deposit is
juridically understood. True it is that the deeds or documents in
which those rights are contained can be the object of deposit, but
in such a case, they are only the materialized and representative
expression of the rights. (11 Manresa 671.)
ART. 1967. An extrajudicial deposit is either voluntary
or necessary. (1762)
Kinds of extrajudicial deposit.
Deposit is generally voluntary. It becomes necessary in the
three cases mentioned in Articles 1996 and 1998, i.e., when made
in compliance with a legal obligation, on the occasion of any
calamity, or by travellers in hotels and inns.
The deposit of goods made by travellers or passengers with
common carriers may also be regarded as necessary. (supra.)
— oOo —
110 COMMENTS AND CASES ON CREDIT Arts. 1969-1970 DEPOSIT 111
TRANSACTIONS Voluntary Deposit/General Provisions

Thus, a carrier, commission agent, a lessee, etc. may deposit

goods temporarily in his possession considering that the contract
does not involve the transfer of ownership.
Chapter 2 As a matter of fact, the depositary cannot dispute the title
of the depositor to the thing deposited. (Art. 1984, par. 1.) The
VOLUNTARY DEPOSIT depositary is in estoppel. (see Art. 1436.)

Where there are several depositors.

SECTION 1. — General Provisions
ART. 1968. A voluntary deposit is that wherein the de-
livery is made by the will of the depositor. A deposit may
also be made by two or more persons each of whom be-
lieves 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)
Two or more persons each claiming to be entitled to a thing
may deposit the same with a third person. In such case, the third
person assumes the obligation to deliver to the one to whom it
belongs.
The action to compel the depositors to settle their conflicting
claims among themselves would be in the nature of an interpleader.
(Sec. 1, Rule 62, Rules of Court.1) Here, one of the depositors is
not the owner.

Voluntary deposit defined.

A voluntary deposit is one wherein the delivery is made by the
will of the depositor.
Ordinarily, there are only two persons involved. Sometimes,
however, the depositary may be a third person. (Art. 1968, par.
2.)
Voluntary and necessary deposits
distinguished.
The chief difference between a voluntary deposit and a
necessary deposit is that in the former, the depositor has complete
freedom in choosing the depositary, whereas in the latter, there is
lack of free choice in the depositor. (see 11 Manresa 674.)
Depositor need not be owner
of thing.
Generally, the depositor must be the owner of the thing
deposited. But it may belong to a person other than the depositor.
110
ART. 1969. A contract of deposit may be entered into
orally or in writing. (n)
Form of contract of deposit.
The above article follows the general rule that contracts shall
be obligatory in whatever form they may have been entered into
provided all the essential requisites for their validity are present.
(Art. 1356.) Thus, except for the delivery of the thing, there are no
formalities required for the existence of the contract.
ART. 1970. If a person having capacity to contract ac-
cepts a deposit made by one who is incapacitated, the for-
mer 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. (1764)
1
Section 1. When interpleader proper. — Whenever conflicting claims upon the same
subject matter are or may be made against a person who claims no interest whatever in
the subject matter, or an interest which in whole or in part is not disputed by the claim-
ants, he may bring an action against the conflicting claimants to compel them to inter-
plead and litigate their several claims among themselves.
112 COMMENTS AND CASES ON CREDIT Art. 1971 Art. 1971 DEPOSIT 113
TRANSACTIONS Voluntary Deposit/General Provisions

Where depositary capacitated and EXAMPLE:

depositor incapacitated.
If the depositary is capacitated, he is subject to all the obliga-
tions of a depositary whether or not the depositor is capacitated.
In the latter case, the depositary must return the property to the
legal representative of the incapacitated2 or to the depositor him-
self if he should acquire capacity. (see Art. 1986.)
Under the law, “persons who are capable cannot allege the
incapacity of those with whom they contract.” (Art. 1397.)
A deposited a watch with B, a minor who sold it to C.
If C acted in bad faith, A may recover the watch from him.
But if C acted in good faith, A’s only recourse is against B to
compel him to return the price received for the watch or the
amount by which he may have benefited himself.
— oOo —

ART. 1971. If the deposit has been made by a capa-

citated 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 he may be 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)

Where depositary incapacitated and

depositor capacitated.
The incapacitated depositary (like a minor or an insane
person) does not incur the obligation of a depositary. However,
he is liable (1) to return the thing deposited while still in his
possession and (2) to pay the depositor the amount by which
he may have benefited himself with the thing or its price subject
to the right of any third person who acquired the thing in good
faith.

2
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed
to in a state of drunkenness or during a hypnotic spell are voidable.
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications
determined by law, and is understood to be without prejudice to special disqualifications
established in the laws.
114 COMMENTS AND CASES ON CREDIT
TRANSACTIONS
SECTION 2. — Obligations of the Depositary
ART. 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
account in determining the degree of care that the deposi-
tary must observe. (1766a)
Obligation to keep the thing deposited
and return it.
The safekeeping and the return of the thing when required, are
the two primary obligations of the depositary.
(1) Degree of care. — Ordinarily, the depositary must exercise
over the thing deposited the same diligence as he would exercise
over his property for two reasons:
First, because it is an essential requisite of the judicial relation
which involves the depositor’s confidence in his good faith and
trustworthiness; and
Second, because of the presumption that the depositor, in
choosing the depositary, took into account the diligence which
the depositary is accustomed with respect to his own property.
(see 11 Manresa 683.)
The depositary cannot excuse himself from liability in the
event of loss by claiming that he exercised the same amount of
care toward the thing deposited as he would toward his own if
such care is less than that required by the circumstances.
114
Art. 1972 DEPOSIT 115
Voluntary Deposit/Obligations of the Depositary
(2) Rules applicable. — The liability of the depositary for
the care and delivery of the thing is governed by the rules on
obligations. (Arts. 1163, et seq.)
(a) He is liable if the loss occurs through his fault or
negligence (Art. 1170.), even if the thing was insured. (Art.
2207.3)
(b) The loss of the thing while in his possession, ordinarily
raises a presumption of fault on his part. (see Art. 1265.)
(c) The required degree of care is greater if the deposit is
for compensation than when it is gratuitous. This is similar
to the rule in agency (Art. 1909.) and common carriers. (Art.
1733.) But even when it is gratuitous, due care must still be
exercised.
(3) Return before specified term. — The thing deposited must
be returned to the depositor whenever he claims it, even though
a specified term or time for such may have been stipulated in the
contract.
ILLUSTRATIVE CASE:
Trust fund which trustee mixed with his own and deposited in a
bank to his personal account was lost through force majeure.
Facts: A had in his possession, as trustee or agent, the sum
of P6,000.00 belonging to B as head of the church. A mixed this
trust fund with his own and deposited the whole in a bank to
his personal account or credit. Shortly thereafter and during
the war of the revolution, A was arrested by the military
authorities as a political prisoner and the entire deposit was
confiscated by the government.
Issue: Should A be made responsible for the loss of the
money?
Held: No. By placing the money in the bank and mixing it
with his personal funds, A did not thereby assume an obligation
3
Art. 2207. If the plaintiff’s property has been insured, and he has received indem-
nity from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the amount
paid by the insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the loss or injury.
116 COMMENTS AND CASES ON CREDIT Art. 1973
TRANSACTIONS
different from that under which he would have lain if such
deposit had not been made nor did he thereby make himself
liable to repay the money at all hazards. If the money had been
forcibly taken from his pocket or from his house by the military
forces of one of the combatants during a state of war, he would
have been exempt from responsibility. The fact that he placed
the trust funds in the bank in his personal account did not add
to his responsibility.
Dissenting opinions (Trent, J.) “When A mixed the trust
fund with his own and deposited the whole in the bank to his
personal account, he stamped on the said fund his own private
marks and unclothed it of all the protection it had. If this
money had been deposited in the name of A as trustee or agent
of B, the military authorities would not have confiscated it for
the reason that they were looking for insurgent funds only.”
(Roman Catholic Bishop of Jaro vs. De La Peña, 26 Phil. 144 [1913].)
ART. 1973. Unless there is a stipulation to the contrary,
the depositary cannot deposit the thing with a third per-
son. If deposit with a third person is allowed, the deposi-
tary 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)
Obligation not to transfer deposit.
Unless authorized by express stipulation, the depositary is
not allowed to deposit the thing with a third person because a
deposit is founded on trust and confidence and it can be supposed
that the depositor, in choosing the depositary, has taken into
consideration the latter’s qualification.
(1) Liability for loss. — Under Article 1973, the depositor is
liable for the loss of the thing deposited if:
(a) he transfers the deposit with a third person without
authority although there is no negligence on his part and the
third person;
(b) he deposits the thing with a third person who is man-
ifestly careless or unfit although authorized, even in the ab-
sence of negligence; or
(c) the thing is lost through the negligence of his employ-
ees whether the latter are manifestly careless or not.
Arts. 1974-1975 DEPOSIT 117
Voluntary Deposit/Obligations of the Depositary
(2) Exemption from liability. — The depositor is not responsible
in case the thing is lost without negligence of the third person
with whom he was allowed to deposit the thing if such third
person is not “manifestly careless or unfit.”
ART. 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)
Obligation not to change way
of deposit.
The depositary may change the way or manner of the deposit
if there are circumstances indicating that the depositor would
consent to the change.
However, the depositary should first notify the depositor
and wait for the latter’s decision. This requirement may not be
dispensed with unless delay would cause danger. It follows the
general rule that the depositary must take good care of the thing
with the diligence of a good father of a family.
ART. 1975. 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 corre-
sponding to them according to law.
The above provision shall not apply to contracts for
the rent of safety deposit boxes. (n)
Obligation to collect interest on choses
in action deposited.
If the thing deposited should earn interest, the depositary is
under the obligation (1) to collect the interest as it becomes due
and (2) to take such steps as may be necessary to preserve its
118 COMMENTS AND CASES ON CREDIT
TRANSACTIONS
value and the rights corresponding to it. Thus, the depositary of
a negotiable promissory note which has been dishonored by non-
payment by the maker, must give notice of dishonor to indorsers
for under the law, indorsers to whom such notice is not given
are discharged from liability. (see Sec. 89, Negotiable Instrument
Law [Act No. 2031].)
Under Article 1975, the depositary is bound to collect not
only the interest but also the capital itself when due.
Contract for rent of safety deposit
boxes.
A contract for the rent of safety deposit boxes (second
paragraph) is not an ordinary contract of lease of things4 but a
special kind of deposit; hence, it is not to be strictly governed
by the provisions on deposit. (CA Agro-Industrial Dev. Corp.
vs. Court of Appeals, 219 SCRA 426 [1993]; see Sia vs. Court of
Appeals, 222 SCRA 24 [1993].) The prevailing rule in the United
States is 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 bailor and bailee. Thus:
“The prevailing rule appears to be that where a safe-
deposit company leases a safe-deposit box or safe and the
lessee takes possession of the box or safe and places therein
his securities or other valuables, the relation of bailee and
bailor is created between the parties to the transaction as
to such securities or other valuables; the fact that the safe-
deposit company does not know, and that it is not expected
that it shall know, the character or description of the property
which is deposited in such safe-deposit box or safe does not
change that relation. That access to the contents of the safe-
deposit box can be had only by the use of a key retained by
the lessee (whether it is the sole key or one to be used in
connection with one retained by the lessor) does not operate
to alter the foregoing rule.
4
Art. 1643. In the lease of things, one of the parties binds himself to give to another
the enjoyment or use of a thing for a price certain, and for a period which may be definite
or indefinite. However, no lease for more than ninety-nine years shall be valid.
Art. 1975 Art. 1975 DEPOSIT 119
Voluntary Deposit/Obligations of the Depositary
The argument that there is not, in such a case, a delivery
of exclusive possession and control to the deposit company,
and that, therefore, the situation is entirely different from that
of ordinary bailment, has been generally rejected by the courts
usually on the ground that as possession must be either in the
depositor or in the company, it should reasonably be considered
as in the latter rather than in the former, since the company is, by
the nature of the contract, given absolute control of access to the
property, and the depositor cannot gain access thereto without
the consent and active participation, of the company.’’ (10 Am.
Jur. 2d 440-441.)
ILLUSTRATIVE CASE:
The contents of a safety deposit box which can be opened only
with the use of one (1) of two (2) renter’s keys given to the joint
renters and by a guard key in the possession of the bank were missing.
Facts: B corporation, through its President, and spouses
H and W entered into an agreement whereby the former
purchased from the latter two (2) parcels of lands. Among the
terms and conditions of the agreement were that the titles to the
lots shall be transferred to B upon full payment of the purchase
price and that the owner’s copies of certificates of titles thereto,
shall be deposited in a safety deposit box of any bank. The
same could be withdrawn only upon the joint signatures of a
representative of B and the spouses upon full payment of the
purchase price.
B and the spouses then rented a safety deposit box of a
private bank and for this purpose they signed a contract of
lease, which contains inter alia, the following conditions. x x
x “13. The bank is not a depository of the contents of the safe
and has neither the possession nor control of the same. 14. The
bank has no interest whatsoever in said contents, except herein
expressly provided, and it assumes absolutely no liability in
connection therewith.’’
Thereafter, R offered to buy from B the property at a higher
price. When the safety box was opened in the presence of B,
the spouses, and the bank’s representative, the box yielded no
certificates of title. Because of the delay in the reconstitution of
the title, R withdrew her earlier offer to purchase the lots; as
a consequence thereof, B, petitioner, allegedly failed to realize
120 COMMENTS AND CASES ON CREDIT Art. 1975
TRANSACTIONS
his expected profits. Hence, B filed a complaint for damages
against the respondent bank. In its answer, the bank alleged
that B has no cause of action because of paragraphs 13 and 14
of the contract of lease.
The Court of Appeals affirmed the decision of the lower
court principally on the theory that the contract between B and
the bank is in the nature of a contract of lease and as such it
is governed by Article 1643 of the Civil Code. In a nutshell,
B maintains that regardless of nomenclature the contract in
question is actually a contract of deposit. Accordingly, it is
claimed that the respondent bank is liable for the loss of the
certificates of title pursuant to Article 1972. It further argues
that conditions 13 and 14 of the contract are null and void for
being contrary to law and public policy.
Issue: Is the contractual relation between a commercial bank
and another party in a contract of rent of a safety deposit box
with respect to its contents placed by the latter, one of bailor
and bailee, or one of lessor and lessee?
Held: The petition is partly meritorious.
(1) Contract 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 deposit 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 of 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 joint renters — the petitioner and the
Pugaos [H and W].
The guard key of the box remained with the respondent
Bank; without this key, neither of the renters could open the
box. On the other hand, the respondent Bank could not likewise
open the box without the renter’s key. In this case, the said key
had a duplicate which was made so that both renters could
have access to the box.
Article 1975 [cannot] be invoked by the respondent Court
as an argument against the deposit theory. Obviously, the first
paragraph of such provision cannot apply to a depositary
Art. 1975 DEPOSIT 121
Voluntary Deposit/Obligations of the Depositary
of certificates, bonds, securities or instruments which earn
interest if such documents are kept in a rented safety deposit
box. It is clear that the depositary cannot open the box without
the renter being present.’’
(2) Relation created is that of bailor and bailee. — “We observe,
however, that the deposit theory itself does not altogether find
unanimous support even in American jurisprudence. We agree
with the petitioner that under the latter, the prevailing rule is
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. (10 Am. Jur. 2d 441.) This is just the prevailing view
because:
‘There is, however, some support for the view that
the relationship in question might be more properly
characterized as that of landlord and tenant, or lessor
and lessee. It has also been suggested that it should
be characterized as that of licensor and licensee. The
relation between a bank, safe-deposit company, or storage
company, and the renter of a safe-deposit box therein, is
often described as contractual, express or implied, oral
or written, in whole or in part. But there is apparently no
jurisdiction in which any rule other than that applicable to
bailments governs questions of the liability and rights of
the parties in respect of loss of the contents of safe-deposit
boxes. (10 Am. Jur. 2d 442-443.)’
In the context of our laws which authorize banking
institutions to rent out safety deposit boxes, it is clear that in
this jurisdiction, the prevailing rule in the United States has
been adopted. Section 72 of the General Banking Act (R.A. No.
337, as amended.) pertinently provides:
‘SEC. 72. In addition to the operations specifically autho-
rized elsewhere in this Act, banking institutions other than
building and loan associations may perform the following ser-
vices:
(a) Receive in custody funds, documents, and valuable
objects, and rent safety deposit boxes for the safeguarding of
such effects.
xxx
122 COMMENTS AND CASES ON CREDIT
TRANSACTIONS
The banks shall perform the services permitted under
sub-sections (a), (b) and (c) of this section as depositaries or as
agents.’ x x x.5 (emphasis supplied)
(3) Conditions 13 and 14 of the contract are void. — “Note
that the primary function is still found within the parameters
of a contract of deposit, i.e., the receiving in custody of funds,
documents and other valuable objects for safekeeping. The
renting out of the safety deposit boxes is not independent from,
but related to or in conjunction with, this principal function.
A contract of deposit may be entered into orally or in writing
and, pursuant to Article 1306 of the Civil Code, the parties
thereto may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order or public
policy. The depositary’s responsibility for the safekeeping of
the objects deposited in the case at bar is governed by Title I,
Book IV of the Civil Code.
Accordingly, the depositary would be liable if, in performing
its obligation, it is found guilty of fraud, negligence, delay or
contravention of the tenor of the agreement. In the absence of
any stipulation prescribing the degree of diligence required,
that of a good father of a family is to be observed. Hence, any
stipulation exempting the depositary from any liability arising
from the loss of the thing deposited on account of fraud,
negligence or delay would be void for being contrary to law
and public policy.
In the instant case, petitioner maintains that conditions 13
and 14 of the questioned contract of lease of the safety deposit
box are void as they are contrary to law and public policy. We
find Ourselves in agreement with this proposition for indeed,
said provisions are inconsistent with the respondent Bank’s
responsibility as a depositary under Section 72(a) of the General
Banking Act. Both exempt the latter from any liability except as
contemplated in condition 8 thereof which limits its duty to
exercise reasonable diligence only with respect to who shall be
admitted to any rented safe, to wit: ‘The Bank shall use due
diligence that no unauthorized person shall be admitted to any
“Agents’’ refers to paragraphs (b) and (c) while “depositaries’’ refers to paragraph
5 that no competent proof was presented to show that respondent
(a).
Art. 1975 Art. 1975 DEPOSIT 123
Voluntary Deposit/Obligations of the Depositary
rented safe and beyond this, the Bank will not be responsible
for the contents of any safe rented from it.’
Furthermore, condition 13 stands on a wrong premise and
is contrary to the actual practice of the Bank. It is not correct
to assert that the Bank has neither the possession nor control
of the contents of the box since in fact, the safety deposit box
itself is located in its premises and is under its absolute control;
moreover, the respondent Bank keeps the guard key to the
said box. As stated earlier, renters cannot open their respective
boxes unless the Bank cooperates by presenting and using
this guard key. Clearly then, to the extent above stated, the
foregoing conditions in the contract in question are void and
ineffective.
It has been said:
‘With respect to property deposited in a safe-deposit box
by a customer of a safe-deposit company, the parties, since
the relation is a contractual one, may by special contract
define their respective duties or provide for increasing
or limiting the liability of the deposit company, provided
such contract is not in violation of law or public policy. It
must clearly appear that there actually was such a special
contract, however, in order to vary the ordinary obligations
implied by law from the relationship of the parties; liability
of the deposit company will not be enlarged or restricted
by words of doubtful meaning.
The company, in renting safe-deposit boxes, cannot
exempt itself from liability for loss of the contents by its
own fraud or negligence or that of its agents or servants,
and if a provision of the contract may be construed as an
attempt to do so, it will be held ineffective for the purpose.
Although it has been held that the lessor of a safe-deposit
box cannot limit its liability for loss of the contents thereof
through its own negligence, the view has been taken
that such a lessor may limit its liability to some extent by
agreement or stipulation. (10 Am. Jur. 2d 448.)
(4) Bank was unaware of agreement between the joint renters.
— “In the instant case, the respondent Bank’s exoneration
cannot be based on or proceed from a characterization of the
impugned contract as a contract of lease, but rather on the fact
Bank was aware of the agreement between the petitioner
124 COMMENTS AND CASES ON CREDIT Art. 1976
TRANSACTIONS
and the Pugaos to the effect that the certificates of title were
withdrawable from the safety deposit box only upon both
parties’ joint signatures, and that no evidence was submitted
to reveal that the loss of the certificates of title was due to the
fraud or negligence of the respondent Bank. This in turn flows
from this Court’s determination that the contract involved was
one of deposit.
Since both the petitioner and the Pugaos agreed that each
should have one (1) renter’s key, it was obvious that either
of them could ask the Bank for access to the safety deposit
box and, with the use of such key and the Bank’s own guard
key, could open the said box, without the other renter being
present. Since, however, the petitioner cannot be blamed for
the filing of the complaint and no bad faith on its part had been
established, the trial court erred in condemning the petitioner
to pay the respondent Bank attorney’s fee.’’ (CA Agro-Industrial
Development Corp. vs. Court of Appeals, 219 SCRA 426 [1993].)
ART. 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)
Obligation not to commingle things
deposited if so stipulated.
As a rule, the depositary is permitted to commingle grain
or other articles of the same kind and quality. In such case, the
various depositors of the mingled goods shall own the entire
mass in common and each depositor shall be entitled to such
portion of the entire mass as the amount deposited by him bears
to the whole. (see Sec. 23, Warehouse Receipts Law.)
The depositary cannot commingle goods, even if they are of
the same kind and quality, if so stipulated.
EXAMPLE:
A received from B for deposit 30 cavans of rice, from C, 20
cavans, and from D, 10 cavans, the rice being of the same kind
and quality. In the absence of any contrary stipulation, A can
commingle the 60 cavans and B, C, and D would become the
Arts. 1977-1978 DEPOSIT 125
Voluntary Deposit/Obligations of the Depositary
co-owners of the entire 60 cavans in the proportion of 1/2, 1/3,
and 1/6, respectively.
If the articles deposited which belong to the different
depositors are not of the same kind and quality, it is the duty of
the depositary to keep them separate or at least identifiable as
he must return to each depositor the identical article delivered.
ART. 1977. The depositary cannot make use of the
thing deposited without the express permission of the
depositor.
Otherwise, he shall be liable for damages.
However, when the preservation of the thing deposited
requires its use, it must be used but only for that purpose.
(1767a)
Obligation not to make use of thing
deposited unless authorized.
Deposit is for safekeeping of the subject matter and not for its
use. (see Art. 1978.)
The unauthorized use by the depositary would make him
liable for damages. But the depositary may make use of the thing
deposited even without the express permission of the depositor
where such use is necessary for its preservation but in such case
the use is limited for that purpose only. (see Art. 2104.) Thus, a
depositary may use a radio received in deposit occasionally to
prevent the accumulation of moisture.
ART. 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.
The permission shall not be presumed, and its exis-
tence must be proved. (1768a)
Effect if permission to use is given.
(1) Thing deposited, non-consumable. — If the thing deposited
is non-consumable and the depositary has permission to use the
126 COMMENTS AND CASES ON CREDIT Art. 1978
TRANSACTIONS
thing, the contract loses the character of a deposit and acquires
that of a commodatum despite the fact that the parties may
have denominated it as a deposit, unless safekeeping is still the
principal purpose of the contract.
(2) Thing deposited, money or other consumable thing. — If the
thing deposited is money or other consumable thing, the per-
mission to use it will result in its consumption and converts the
contract into a simple loan or mutuum. But if safekeeping is still
the principal purpose of the contract, it is still a deposit but an
irregular one; hence, it is called an irregular deposit. Bank deposits
are in the nature of irregular deposits but they are really loans
governed by the law on loans. (see Art. 1980.)
ILLUSTRATIVE CASE:
After failing to “return” money received “as a deposit without
interest,” debtors bound themselves to pay interest until refund was
made.
Facts: A and B received from C “as a deposit without
interest, the sum of P2,600.00, which they will return, jointly
and severally, on January 20, 1898.” When the obligation
became due, A and B begged C for an extension of time for
the payment thereof, binding themselves to pay interest at the
rate of 15% of the amount of their indebtedness, to which C
acceded.
Issue: Was the contract entered into by the parties a deposit
or a loan?
Held: In the second document, the contract was a real loan
of money with interest, notwithstanding that in the original
document it was called a deposit, so that when A and B bound
themselves to refund the P2,600.00 to C, they did not engage to
return the same money received. For this reason, the debtors
were lawfully authorized to make use of the amount deposited,
as they have done, as subsequently shown when asking for
an extension of the time for the return thereof, inasmuch as,
acknowledging that they have subjected C, their creditor, to
losses and damages, and being conscious that they had used,
for their own profit and gain, the money that they received
apparently as a deposit, they engaged to pay interest to the
creditor from the date named until the time when the refund
should be made.
Art. 1978 DEPOSIT 127
Voluntary Deposit/Obligations of the Depositary
Such conduct on the part of A and B unquestionably
showed that the transaction was not a deposit but a real
contract of loan. (Javellana vs. Lim, 11 Phil. 141 [1908].)
Irregular deposit distinguished
from mutuum.
(1) Consumable thing demandable at will by depositor. — In
an irregular deposit (supra.), the consumable thing deposited
may be demanded at will by the irregular depositor for whose
benefit the deposit has been constituted, while in mutuum, the
lender is bound by the provisions of the contract and cannot
seek restitution until the time for payment, as provided in the
contract, has arisen;
(2) Benefit accrues to depositor only. — Another point of
difference consists in the fact that in an irregular deposit, the
only benefit is that which accrues to the depositor, while in a
loan, the essential cause for the transaction is the necessity of
the borrower. A loan with a stipulation to pay interest is for the
benefit of both parties (see Compania Agricola de Ultramar vs.
Nepomuceno, 55 Phil. 283 [1930]; Rogers vs. Smith, 10 Phil. 317
[1908].); and
(3) Depositor has preference over other creditors. — The third
one is that the depositor in an irregular deposit has preference
over other creditors with respect to the thing deposited6 (see Art.
2241[13].), while common creditors enjoy no preference in the
distribution of the debtor’s property. (see Art. 2245.)
ILLUSTRATIVE CASES:
1. Amount is received “as a deposit” but debtor binds himself
to pay interest.
Facts: L brought suit on the following contract:
“Received from L the sum of P3,000, gold (3,000 pesos) as a
deposit payable in two months” notice in advance with interest
at 6% per annum with a hypothecation of the goods now owned
6
Bank deposits are not preferred credits because they are considered simple loans.
(see Art. 1980.)
128 COMMENTS AND CASES ON CREDIT Art. 1978
TRANSACTIONS
by me or which may be owned hereafter as security of the
payment.
(Signed) B”
Issue: Is the above document evidence of a deposit or of a
contract of loan?
Held: Although in the document a deposit is spoken
nevertheless, it clearly appears therefrom that the contract
was a loan and that was the intention of the parties. It is
unnecessary to resort to the cannon of interpretation to arrive at
this conclusion. The obligation of B to pay interest to L suffices
to cause the obligation to be considered a loan and makes it
likewise evident that it was the intention of the parties that B
should have a right to make use of the amount deposited, since
it was stipulated that the amount should be collected after
notice of two months in advance.
Such being the case, the contract lost the character of a
deposit and acquired that of a loan. (Gavieres vs. Tavera, 1 Phil.
71 [1901]; see also Javellana vs. Lim, 11 Phil. 141 [1908]; Delgado
vs. Bonnevie and Arandez, 23 Phil. 308 [1912]; Compania
Agricola vs. Nepomuceno, 55 Phil. 283 [1930].)
———— ———— ————
2. Depositary was allowed to mill the palay deposited and had
milled and appropriated it to his own use before his rice mill was
burned.
Facts: R delivered palay to Y, owner of rice mill, with the
understanding that Y was at liberty to convert it into rice and
dispose of it at his pleasure. The palay was mixed with that
of others. After sometime, the rice mill was burned with its
contents. It appeared that all of R’s palay had been milled and
disposed of long prior to the fire.
Issue: Is Y bound to account for its value?
Held: Yes. Even supposing that the palay may have been
delivered in the character of deposit, subject to future sale or
withdrawal at R’s (depositor’s) election, nevertheless, if it was
understood that Y (depositary) might mill the palay and he has,
in fact, appropriated it to his own use, he is, of course, bound
to account for its value. Under Article 1978, “the contract loses
the concept of a deposit and becomes a loan.” (Baron vs. David,
51 Phil. 1 [1927].)
Art. 1979 DEPOSIT 129
Voluntary Deposit/Obligations of the Depositary
Permission to use not presumed.
In a deposit, the permission to use is not presumed except
when such use is necessary for the preservation of the thing
deposited (Art. 1977.) and the burden is on the depositary to
prove that permission has been given. (Art. 1978, 2nd par.)
ILLUSTRATIVE CASE:
Depositary appropriated to his personal benefit money deposited
which depositor failed to claim at once.
Facts: C received a sum of money from A and B as a deposit.
The document containing this obligation reads: “I have at the
disposal of A the sum of P2,498.00, the balance from B’s sugar.”
(Signed) C. C appropriated the money to his personal benefit
and was convicted of estafa in the Court of First Instance.
On appeal, C claimed that the money was delivered as a
loan. It appeared that A failed to claim at once the restitution of
the money.
Issue: Did this failure or delay imply permission to use the
money?
Held: No. In a loan, the lender transmits to the borrower
the use of the thing lent, while in a deposit, the use of the thing
is not transmitted but merely the possession for its custody or
safekeeping. That demand was not made for restitution of the
sum deposited, which could have been made on the same or
the next day after the certificate was signed, does not operate
against the depositor, or signify anything except the intention
not to press it.
Failure to claim at once or delay for some time in demanding
restitution of the thing deposited, which was immediately due,
does not imply such permission to use the thing deposited as
would convert the deposit into loan. (U.S. vs. Igpaura, 27 Phil.
619 [1913].)
ART. 1979. The depositary is liable for the loss of the
thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor’s permis-
sion;
130 COMMENTS AND CASES ON CREDIT Art. 1980
TRANSACTIONS
(3) If he delays its return;
(4) If he allows others to use it, even though he him-
self may have been authorized to use the same. (n)
Liability for loss through fortuitous
event.
Generally, the depositary is not liable for loss through a
fortuitous event without his fault (see Art. 1174; Obejera vs. Iga
Sy, 76 Phil. 580 [1946].) The rule in this article is similar to Article
1942 which mentions the instances when the bailee is liable for
loss of the thing loaned even if it should be through a fortuitous
event.
ART. 1980. Fixed, savings, and current deposits of
money in banks and similar institutions shall be governed
by the provisions concerning simple loan. (n)
Relation between bank and depositor.
(1) Contract of loan. — Deposits of money in banks, whether
fixed, savings, and current, are really loans to a bank because the
bank can use the same for its ordinary transactions and for the
banking business in which it is engaged.7 (Tian Tiong Tick vs.
American Apothecaries, 65 Phil. 417 [1938]; Castro vs. Coll. of
Internal Revenue, 4 SCRA 1093 [1962]; People vs. Ong, 204 SCRA
942 [1991].)
Bank deposits8 are in the nature of irregular deposits; they are
7
“Banks are entities engaged in the lending of funds obtained through deposits from
the public. They borrow the public’s excess money (i.e., deposits) and lend out the same.
Banks, therefore, redistribute wealth in the economy by channeling idle savings to profit-
able investments.
Banks operate (and earn income) by extending credit facilities financed primarily by
deposits from the public. They plough back the bulk of said deposits into the economy
in the form of loans. Since banks deal with the public’s money, their viability depends
largely on their ability to return those deposits on demand. For this reason, banking is un-
deniably imbued with public interest. Consequently, much importance is given to sound
lending practices and good corporate governance.’’ (Banco de Oro-EPCI, Inc. vs. JAPRL
Dev. Corp., 551 SCRA 342 [2008].)
8
Ordinarily, a time deposit is defined as “one the payment of which cannot legally be
required within such a specified number of days,’’ while demand deposits are “all those
Art. 1980 DEPOSIT 131
Voluntary Deposit/Obligations of the Depositary
really loans because they earn interest. (Bank of the Phil. Islands
vs. Court of Appeals, 232 SCRA 302 [1994]; Lucmen vs. Malaar,
511 SCRA 268 [2006].) Hence, such deposits are governed by
the provisions on mutuum or simple loan, and the rules on the
imposition of legal interest. (see Note 7, under Art. 1956.)9 While
the bank has the obligation to return the amount deposited, it
has, however, no obligation to return or deliver the same money
that was deposited. (Guingona, Jr. vs. City Fiscal of Manila, 128
SCRA 577 [1984]; see Citibank N.A. vs. Cabomongan, 488 SCRA
517 [2006].)
(2) Relation of creditor and debtor. — Accordingly, the relation
between a depositor and a bank is that of a creditor and a debtor.
The depositor (creditor) lends the bank (debtor) money and
the bank agrees to pay the depositor on demand. The deposit
agreement between the bank and the depositor determines the
rights and obligations of the parties. Consequently:
(a) A bank’s failure to honor a deposit is failure to pay
its obligation as debtor and not a breach of trust arising
from a depositary’s failure to return the subject matter of the
deposit. (Serrano vs. Central Bank, 96 SCRA 96 [1980].) It will
not constitute estafa through misappropriation punishable
liabilities of the Bangko Sentral ng Pilipinas (BSP) and of other banks which are denomi-
nated in Philippine currency and are subject to payment in legal tender upon demand
by the presentation of the depositor’s check. “Central Bank regulations do not prohibit
demand deposits from earning interest. (BPI Family Savings Bank, Inc. vs. Metro Invest-
ment Corporation, 429 SCRA 30 [2004].) It is in the nature of joint accounts that anyone of
the depositors has access to the entire funds; hence, such funds are subject to ganishment
on account of the liability of them. The deposits can sort it out amongst themselves as to
the share of each. (Fernandez vs. Aniñon, 522 SCRA 1 [2007].)
9
It has been held that the obligation of a bank to pay interest on a deposit ceases the
moment the operations of the bank is completely suspended by the Central Bank. The
deposit is not entitled to interest during the period the bank is not allowed to operate
(Overseas Bank of Manila vs. Court of Appeals, 105 SCRA 49 [1981]; The Overseas Bank
of Manila vs. Cordero, 113 SCRA 303 [1982]; The Overseas Bank of Manila vs. Court of
Appeals, 113 SCRA 778 [1982].), and during the period of the bank’s forcible closure, it is
not liable to the Central Bank for interest on loans and advances made by the latter. When
called upon to deal with commercial banks and extend to them emergency loans and ad-
vances, the Central Bank deals with them not as an ordinary creditor engaged in business
but as an ultimate monetary authority of the government charged with the supervision
and preservation of the banking system. (Ramos vs. Central Bank of the Phils. & Com-
mercial Bank of Manila, 137 SCRA 685 [1985].)
132 COMMENTS AND CASES ON CREDIT Art. 1980
TRANSACTIONS
under Article 315 (par. 1[b].) of the Revised Penal Code.
(Guingona, Jr. vs. City Fiscal of Manila, supra.)
(b) The payment by a bank of the amount of a depositor’s
check is not a loan to the latter by the former which may
be satisfied by a subsequent deposit; but a payment by the
bank as debtor to the depositor as creditor. Such payment
extinguishes so much of the obligation of the bank as is
represented by the check paid or honored by the bank out
of the latter’s deposit. (Hilado vs. De La Costa, 83 Phil. 471
[1949].)
(c) The general rule is that a bank can compensate
or set off the deposit in its hands for the payment of any
indebtedness to it on the part of the depositor.10 (Gullas vs.
Phil. National Bank, 62 Phil. 519 [1935]; Republic vs. Court
of Appeals and Cuaycong, 65 SCRA 186 [1975]; Equitable
PCI Bank vs. Ng Sheung Ngor, 541 SCRA 223 [2007].) In a
true deposit, compensation is not allowed. (see Art. 1287.)
The money received is termed a “deposit,” although it is not
strictly so, as the depositor does not expect to receive the
identical money in return but an equivalent sum. (see Art.
1953.) The money is mingled with other money, the entire
amount forming a single fund from which depositors are
paid. (2 C.J. 628.)
(d) In the performance of its obligations, the drawee
bank is bound by its internal banking rules and regulations
and is liable to the depositor for fraud, negligence, or delay.
10
Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consists in a sum of money, or if the things due are consum-
able, they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
xxx xxx xxx
Art. 1290. When all the requisites mentioned in Article 1279 are present, compen-
sation takes effect by operation of law, and extinguishes both debts to the concurrent
amount, even though the creditors and debtors are not aware of the compensation.
Art. 1980 DEPOSIT 133
Voluntary Deposit/Obligations of the Depositary
(Gempesaw vs. Court of Appeals, 218 SCRA 5682 [1993]; see
Arts. 1170, 1172.) The award of exemplary damages, howev-
er, is unjustified in the absence of malice, bad faith or gross
negligence. But moral damages may be recovered even if the
bank’s negligence may not have been attended with mal-
ice and bad faith. (Tan vs. Court of Appeals, 239 SCRA 310
[1994].)
(e) The bank is engaged in business impressed with
public interest, and it is its duty to protect in return its many
clients and depositors who transact business with it with the
highest degree of care, more than that of a good father of the
family or of an ordinary business firm. It is its obligation to
see to it that all funds invested with it are properly accounted
for and duly posted in its ledger. In every case, the depositor
expects the bank to treat his account with utmost fidelity,
whether such account consists of only a few hundred pesos
or of millions, always having in mind the fiduciary nature of
their relationship.11 (City Trust Banking Corp. vs. Intermediate
Appellate Court, 232 SCRA 559 [1994]; Far East Bank and
Trust Co. vs. Querimit, 373 SCRA 665 [2002]; Consolidated
Bank and Trust Corporation vs. Court of Appeals, 410 SCRA
562 [2003]; Citibank vs. Cabamongan, 488 SCRA 517 [2006];
BPI Family Bank vs. Franco, 538 SCRA 184 [2007].) Like
a common carrier whose business is imbued with public
interest, a bank should exercise extraordinary diligence to
negate its liability to its depositors. (Solid Bank Corporation
vs. Tan, 520 SCRA 123 [2007].)
11
The Foreign Currency Deposit Act (R.A. No. 6426, as amended by Pres. Decree
No. 1246.) govern foreign currency deposits authorized under the Act. Under the Act,
there is only a single exception to the secrecy of such deposits, that is, the disclosure is
allowed only upon the written permission of the depositor. Where the accounts are in
US dollar deposits, the applicable law is R.A. No. 6426, not R.A. No. 1405, the Secrecy of
Bank Deposits Act. (Intengan vs. Court of Appeals, 377 SCRA 63 [2002]; see China Bank-
ing Corporation vs. Court of Appeals, 511 SCRA 110 [2006].) R.A. No. 8791 is the General
Banking Act of 2000.
The term “deposits’’ used in RA No. 1405 is to be understood broadly and not lim-
ited only to accounts which give rise to a creditor-debtor relationship between the deposi-
tor and the bank. If the money deposited under an account may be used by banks for
authorized loans to third persons, them such account regardless of whether it creates a
creditor-debtor relationship between the depositor and the bank, falls under the category
of accounts which the law precisely seeks to protect for the purpose of boosting the eco-
nomic development of the country. (Ejercito vs. Sandiganbayan, 509 SCRA 190 [2006].)
134 COMMENTS AND CASES ON CREDIT Arts. 1981-1982
TRANSACTIONS
It has been held that suspension of a bank which had fallen
into a “distressed financial situation” by order of the Central
Bank cannot excuse it from its obligations to depositors who had
nothing whatever to do with the Central Bank actuations or the
events leading to the bank’s distressed state. (Overseas Bank of
Manila vs. Court of Appeals, 172 SCRA 521 [1989].) But the bank
may not be liable to pay interest on the deposit during the period
of suspension. (Integrated Realty Corp. vs. Phil. National Bank,
174 SCRA 295 [1989]; Fidelity Savings and Mortgage Bank vs.
Cenzon, 184 SCRA 141 [1990].)
ART. 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 state-
ment 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 pass 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)
ART. 1982. When it becomes necessary to open a
locked box or receptacle, the depositary is presumed au-
thorized 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)
Where thing deposited delivered
closed and sealed.
(1) Obligations of depositary. — Under Article 1981, the
depositary has the obligation to:
(a) return the thing deposited when delivered closed and
sealed, in the same condition (par. 1.);
Art. 1983 DEPOSIT 135
Voluntary Deposit/Obligations of the Depositary
(b) pay for damages12 should the seal or lock be broken
through his fault (Ibid.) which is presumed unless proved
otherwise (par. 2.); and
(c) keep the secret of the deposit when the seal or lock is
broken, with or without his fault. (par. 3.)
(2) Reason for rule. — Without the rule in this article,
irresponsible depositaries may violate their trusts with impunity.
The depositor having constituted the deposit in reliance upon
the depositary’s fidelity, the most elementary sense of delicacy
should move the depositary to respect the secrets which the
depositor desires to keep and guard. (11 Manresa 700-701.)
Under paragraph 3, the courts may pass upon the credibility
of the depositor with respect to the value of the thing deposited.
In other words, the statement of the depositor is prima facie
evidence only. This is necessary in view of the natural tendency
to exaggerate values.
(3) When depositary justified to open. — The depositary is
authorized by Article 1982 to open the thing deposited which is
closed and sealed when there is (a) presumed authority; or (b)
necessity.
ART. 1983. The thing deposited shall be returned with
all its products, accessories and accessions.
Should the deposit consist of money, the provisions
relative to agents in Article 1896 shall be applied to the
depositary. (1770)
Obligation to return products, accessories,
and accessions.
The depositor is the owner or at least represents the owner
of the thing deposited. The depositary must, therefore, return
not only the thing itself but also all its products, accessions and
accessories which are a consequence of ownership. (see Art.
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff,
12
which has been violated or invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff for any loss suffered by him.
136 COMMENTS AND CASES ON CREDIT Art. 1984
TRANSACTIONS
1975.) Thus, the young of an animal which was deposited shall
be returned to the depositor.
Obligation to pay interest on sums
converted to personal use.
If what has been deposited is money, the depositary has no
right to make use thereof (Art. 1978.) and, therefore, he is not
liable to pay interest.
If the depositary be in delay or has used the money without
permission, he shall be liable for interest as indemnity. The
depositary owes interest on the sums he has applied to his own
use from the day on which he did so, and those which he still
owes after the extinguishment of the deposit.13
ART. 1984. The depositary cannot demand that the de-
positor prove his ownership of the thing deposited.
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.
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)
Depositor need not prove
his ownership.
The depositary who receives the thing in deposit cannot
require that the depositor prove his ownership over the thing.
To constitute a deposit, it is not essential that the depositor be
the owner of the thing deposited. Furthermore, to acquire proof
13
Based on Article 1896, “agent’’ and “agency’’ are changed to “depositary’’ and
“deposit,’’ respectively.
Art. 1984 DEPOSIT 137
Voluntary Deposit/Obligations of the Depositary
of ownership may open the door to fraud and bad faith, for the
depositary, on the pretense of requiring proof of ownership, may
be able to retain the thing. (see 11 Manresa 706.)
Where third person appears
to be owner.
In such a case, Article 1984 (pars. 2, 3, 4.) states the steps the
depositary should take to be relieved of all responsibility with
respect to the thing deposited.
Paragraphs 2 and 4 are similar except that for the application
of paragraph 2, two conditions must exist:
(1) the thing deposited must have been stolen; and
(2) the depositary knows who its true owner is. (see Art. 559,
par. 1.)
Effect of failure of owner to claim
within one month.
The period of one month provided in paragraph 3 is intended
merely for the protection of the depositary. If the thing is returned
to the depositor after one month, the true owner of the thing may
still recover it through other legal processes. In this connection,
the following observation has been made:
“It is not enough to declare the depositary exempt from
responsibility if the true owner does not claim the property
within 30 days. Suppose the depositary discovers the true owner
and notifies him, but the maker of the deposit demands its return
before the 30 days expire, can the depositary refuse to return the
thing deposited if the true owner has made no claim as yet?
Such course would be not only contrary to the nature of
deposit but also risky, because if for some other reason the owner
is precluded from claiming the thing as against the depositor, the
depositary who refuses to return will be liable for conversion.
Or is it intended that he should not be so liable.” (Justice J.B.L.
Reyes, “Observation on the new Civil Code,” XVI L.J. 138 [1951].)
Article 1984 is not clear on this point.
138 COMMENTS AND CASES ON CREDIT Arts. 1985-1986
TRANSACTIONS
ART. 1985. 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 deposi-
tary shall return it only to the person designated. (1772a)
Right of two or more depositors.
(1) Thing deposited divisible and depositors not solidary. — If the
thing deposited is divisible and there are two or more depositors
who are not solidary, each one can demand only his share
proportionate thereto. Thus, if A and B deposited 150 and 300
cavans of rice, respectively, A can demand only 150 cavans.
(2) Obligation solidary or thing deposited not divisible. — If the
obligation is solidary (i.e., the depositary can return the thing
deposited to any of the depositors), or if the thing is not divisible,
the rules on active solidarity (solidarity among creditors) shall
apply, to the effect that each one of the solidary depositors
(creditors) may do whatever may be useful to the others but
not anything which may be prejudicial to the latter (Art. 1212.),
and the depositary (debtor) may return the thing to any one of
the solidary depositors (creditors) unless a demand, judicial or
extrajudicial, for its return has been made by one of them in
which case delivery should be made to him. (Art. 1214.)
(3) Return to one of depositors stipulated. — If by stipulation the
thing should be returned to one of the depositors, the depositary
is bound to return it only to the person designated although he
has not made any demand for its return. In the example above,
if A and B are solidary or the thing deposited is a car which does
not admit of division, the depositor can return to either, in the
absence of a contrary stipulation.
ART. 1986. If the depositor should lose his capacity to
contract after having made the deposit, the thing cannot
be returned except to the persons who may have the
administration of his property and rights. (1773)
Art. 1987 DEPOSIT 139
Voluntary Deposit/Obligations of the Depositary
Person to whom return must
be made.
(1) The depositary is obliged to return the thing deposited,
when required, to the depositor, to his heirs and successors, or to
the person who may have been designated in the contract. (Art.
1972.)
(2) If the depositor was incapacitated at the time of making
the deposit, the property must be returned to his guardian or
administrator or the person who made the deposit or to the
depositor himself should he acquire capacity. (Art. 1970.)
(3) Even if the depositor had capacity at the time of making
the deposit but he subsequently loses his capacity during the
deposit, the thing must be returned to his legal representative.
(Art. 1986.)
ART. 1987. If at the time the deposit was made a place
was designated for the return of the thing, the depo-
sitary 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)
Place of return.
The thing must be returned (1) at the place agreed upon by the
parties, and (2) in the absence of stipulation, at the place where
the thing deposited might be even if it should not be the same
place where the original deposit was made provided the transfer
was accomplished without malice on the part of the depositary.
Note that in the first case, the expenses for the transportation
shall be borne by the depositor. This is just because the deposit is
constituted for the benefit of the depositor and not the depositary
who assumes no more than the safekeeping and the return of the
thing. (Art. 1972.)
The rule in this article is similar to the general rule of law
regarding the place of payment. (see Art. 1251.)
140 COMMENTS AND CASES ON CREDIT Art. 1988
TRANSACTIONS
EXAMPLE:
Suppose the deposit was made in the residence of A in
Manila and A transfers his residence to Pateros, Metro Manila
and he has to bring the thing deposited to his new place of
residence.
In the absence of a contrary stipulation, the place of return
is the residence of A in Pateros, Metro Manila, provided there
was no malice on the part of A.
ART. 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 judi-
cially 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)
Time of return.
As a rule, the depositor can demand the return of the thing
deposited at will and this is true whether a period has been
stipulated or not. In a deposit, whenever a period is agreed to,
the same is for the benefit of the depositor, but it may be validly
waived by him. (11 Manresa 687-688.) But the period is generally
binding upon the depositary.
If the deposit is for a compensation, the depositary is entitled
to the compensation corresponding to the entire period. In this
case, the period is also for the benefit of the depositary.
The rule in commodatum is different. (see Art. 1946.)
When depositary not obliged to return
thing deposited.
The right to immediate restitution is subject to the two cases
provided in the second paragraph. (see also Art. 1984, par. 2.)
In the first case, if the depositor returns the thing, he would
be disobeying the judicial order of attachment. In connection
with the second case, the following observation has been made:
Arts. 1989-1990 DEPOSIT 141
Voluntary Deposit/Obligations of the Depositary
“To permit the depositary to refuse to return the thing depos-
ited simply because of the opposition of another, is a power very
prone to abuse and mischief. If at all, the depositary should only
be authorized in case of conflicting claims to consign the thing
in court through an action of interpleader.’’ (Justice J.B.L. Reyes
“Observations on the new Civil Code,” XVI L.J. 138 [1951].)
ART. 1989. Unless the deposit is for a valuable consid-
eration, 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)
Right of depositary to return thing
deposited.
(1) Deposit gratuitous. — The depositary may likewise return
the thing deposited notwithstanding that a period has been fixed
for the deposit if (a) the deposit is gratuitous and (b) justifiable
reasons (e.g., necessity of his going abroad) exist for its return.
In case the depositor refuses to receive the thing, the depositary
may deposit the thing at the disposal of judicial authority. (see
Art. 1258, par. 1.)
(2) Deposit for a valuable consideration. — If the deposit is for a
valuable consideration, the depositary has no right to return the
thing deposited before the expiration of the time designated even
if he should suffer inconvenience as a consequence. He is bound
by the period and restitution before its expiration constitutes a
breach of his obligation.
ART. 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)
Liability for loss by force majeure
or government order.
The depositary has the obligation to return the thing depo-
sited. (Art. 1972.) But he is not liable for loss of the thing by force
142 COMMENTS AND CASES ON CREDIT Art. 1991
TRANSACTIONS
majeure or by government order. However, if in place of the thing
he receives money or another thing, he has the duty to deliver to
the depositor what he has received otherwise, he would enrich
himself at the expense of the depositor.
ART. 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)
Alienation in good faith by depositary’s
heir.
The above article envisions a situation where the depositary
dies and the object of the deposit is left with his heir who, in good
faith, sells it. The obligation of the heir is limited to the return of
the price received or to assign the right to collect the same if it
has not been paid and not the real value of the thing. The rule is
based on considerations of equity. If the purchaser who acquired
the thing acted in bad faith, the depositor may bring an action
against him for its recovery.
If the heir acts in bad faith, he is liable for damages. The sale
or appropriation of the thing deposited constitutes estafa. (Art.
315, par. 1[b], Revised Penal Code.)
Note: The word “depositor’s” should be read as “depositary’s.”
EXAMPLE:
Believing in good faith that the thing deposited by A with
B, worth P10,000.00 belonged to B, C, heir of B, sold the thing
to D who paid him P8,000.00.
Under Article 1991, C is bound to return to A P8,000.00,
the price he received, and not P10,000.00 or C may assign to
A the right to collect from D the P8,000.00 if it has not been
paid. If C acted in bad faith, he is liable to pay A P10,000.00
plus damages which A may have suffered. C is also criminally
liable for estafa.
— oOo —
143
SECTION 3. — Obligations of the Depositor
ART. 1992. If the deposit is gratuitous, the depositor is
obliged to reimburse the depositary for the expenses he
may have incurred for the preservation of the thing depos-
ited. (1779a)
Obligation to pay expenses
of preservation.
(1) Deposit gratuitous. — The above article applies only if
the deposit is gratuitous. It rests on equity. The depositor would
have incurred them just the same had the thing remained with
him. Without the duty of reimbursement imposed by the article,
the depositor would be enriching himself at the expense of the
depositary. The rule is different in commodatum. (see Art. 1941.)
As the law makes no distinction, the right to reimbursement
covers all expenses for preservation, whether ordinary or
extraordinary. The law refers to necessary expenses. Useful
expenses or those for pure luxury or mere pleasure are not
covered.
(2) Deposit for compensation. — If the deposit is for a
valuable consideration, the expenses of preservation are borne
by the depositary because they are deemed included in the
compensation. There can, however, be a contrary stipulation.
ART. 1993. The depositor shall reimburse the depo-
sitary 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)
143
144 COMMENTS AND CASES ON CREDIT Arts. 1994-1995 Art. 1995 DEPOSIT 145
TRANSACTIONS Voluntary Deposit/Obligations of the Depositor

Obligation to pay losses incurred due
to character of thing deposited.
As a rule, the depositary must be reimbursed for loss suffered
by him because of the character of the thing deposited. Under
the four (4) exceptions enumerated, the depositor is freed from
responsibility.
ART. 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)
(No. 2.) By the word “extinguished,” the law really means that
the depositary is not obliged to continue with the contract of
deposit.
(2) Deposit for compensation. — A deposit for a compensation
is not extinguished by the death of either party because, unlike
a gratuitous deposit, an onerous deposit is not personal in
nature. (see Art. 1411.) Hence, the rights and obligations arising
therefrom are transmissible to their respective heirs. (Art. 1178.)
But the heirs of either party have a right to terminate the deposit
even before the expiration of the term.

Depositary’s right of retention. — oOo —

This article gives an example of a pledge created by the
operation of law. (see Art. 2121.) The thing retained serves as
security for the payment of what may be due to the depositary
by reason of the deposit. (see Arts. 1965, 1992, 1993.) The right
granted in this article is similar to that granted to the agent. (see
Art. 1914.)
The rule is different in commodatum. (see Arts. 1944, 1951.)

ART. 1995. A deposit is extinguished:

(1) Upon the loss or destruction of the thing depos-
ited;
(2) In case of a gratuitous deposit, upon the death of
either the depositor or the depositary. (n)

Causes of extinguishment of deposit.

The causes mentioned in Article 1995 are not exclusive. There
are other causes such as return of the thing, novation, merger,
expiration of the term, fulfillment of the resolutory condition,
etc. (see Art. 1231.)

Effect of death of depositor

or depositary.
(1) Deposit gratuitous. — If the deposit is gratuitous, the death
of either the depositor or depositary extinguishes the deposit.
146 COMMENTS AND CASES ON CREDIT
TRANSACTIONS
Chapter 3
NECESSARY DEPOSIT
ART. 1996. A deposit is necessary:
(1) When it is made in compliance with a legal obliga-
tion;
(2) When it takes place on the occasion of any calam-
ity, such as fire, storm, flood, pillage, shipwreck, or other
similar events. (1781a)
ART. 1997. The deposit referred to in No. 1 of the pre-
ceding 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)
When deposit is necessary.
A deposit may be voluntary (Art. 1968.) or necessary.
(1) A voluntary deposit is made by the free will of the
depositor. (Art. 1968.) In a necessary deposit, this freedom of
choice is absent.
(2) Articles 1996 and 1997 mention two kinds of necessary
deposit. The third kind is that made by travellers in hotels or
inns. (Art. 1998.) The fourth kind is that made by passengers
with common carriers. (see Art. 1754.)
146
Arts. 1996-1997 DEPOSIT 147
Necessary Deposit
Necessary deposit in compliance
with a legal obligation.
The following are examples of such deposit:
(1) The judicial deposit of a thing the possession of which is
being disputed in a litigation by two or more persons (Art. 538.);
(2) The deposit with a bank or public institution of public
bonds or instruments of credit payable to order or bearer given
in usufruct when the usufructuary does not give proper security
for their conservation (Art. 586.);
(3) The deposit of a thing pledged when the creditor uses
the same without the authority of the owner or misuses it in any
other way (Art. 2104.);
(4) Those required in suits as provided in the Rules of Court;
and
(5) Those constituted to guarantee contracts with the gov-
ernment. In this last case, the deposit arises from an obligation of
public or administrative character.
A deposit made in compliance with law is governed primarily
by the provisions of such law, and in default thereof, by the rules
on voluntary deposit. (Art. 1997, par. 1.)
Necessary deposit made on the occasion
of any calamity.
(1) Deposit created by accident or fortuitous event. — In this type
of necessary deposit, the possession of movable property passes
from one person to another by accident or fortuitously through
force of circumstances and which the law imposes on the recipient
the obligations of a bailee. Here, the more immediate object is to
save the property rather than its safekeeping. Thus, if X saves Y’s
television set in a fire, X is supposed to be its depositary.
Such a quasi-bailment is ordinarily distinguished by the name
involuntary bailment or involuntary deposit. (see 6 Am. Jur. 177.)
There must be a causal relation between the calamity and the
constitution of the deposit. Another name given to it is “deposito
miserable.”1 (11 Manresa, 732.)
1
Depositum miserabile in Roman Law.
148 COMMENTS AND CASES ON CREDIT Arts. 1998-1999
TRANSACTIONS
(2) Governing rules. — Aside from the provisions concerning
voluntary deposit, this kind shall be governed by Article 2168
(Art. 1997, par. 2.) which reads: “When during a fire, flood, storm
or other calamity, property is saved from destruction by another
person without the knowledge of the owner, the latter is bound
to pay the former just compensation.” Article 2168 establishes a
quasi-contract.2
ART. 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 rela-
tive to the care and vigilance of their effects. (1783)
ART. 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)
Deposit by travellers in hotels
and inns.
Before keepers of hotels or inns may be held responsible
as depositaries with regard to the effects of their guests, the
following elements must concur:
(1) They have been previously informed about the effects
brought by the guests; and
(2) The latter have taken the precautions prescribed regarding
their safekeeping.3
2
By implication, the finder of lost personal property becomes the depositary (bailee)
of the property and holds it for the true owner. (see Arts. 719, 720, 7171; also Art. 438.) A
similar relationship exists when a person comes into possession of stolen property (see
Art. 559.) or of property by mistake. (see Arts. 2154, 2143.)
3
Art. 102. Subsidiary civil liability of innkeepers, tavernkeepers and proprietors of estab-
lishments. — In default of the persons criminally liable, innkeepers, tavernkeepers, and
any other persons or corporations shall be civilly liable for crimes committed in their
establishments, in all cases where a violation of municipal ordinances or some general or
special police regulations shall have been committed by them or their employees.
Innkeepers are also subsidiarily liable for the restitution of goods taken by robbery
Arts. 1998-1999 DEPOSIT 149
Necessary Deposit
Extent of liability of keepers of hotels
and inns.
The liability is not limited to effects lost or damaged in the
hotel rooms which come under the term “baggage” or articles
such as clothing as are ordinarily used by travellers but include
those lost or damaged in hotel annexes such as vehicles in the
hotel’s garage.
The responsibility imposed extends to all those who offer
lodging for a compensation, whatever may be their character. (11
Manresa 759.)
Terms explained.
(1) The words “travellers” and “guests,” as used by law, are
synonymous. It refers to transients and not to boarders. Non-
transients are governed by the rules on lease.
(2) The terms “hotel-keeper” and “inn-keeper” are also syn-
onymous.
(a) Hotel. — It has been defined as “a building of many
rooms chiefly for overnight accommodation of transients
and several floors served by elevators, usually with a large
open street-level lobby containing easy chairs, with a variety
of compartments for eating, drinking, dancing, exhibitions,
and group meetings, with shops having both inside and
street-side entrances and offering for sale items of particular
interest to a traveller, or providing personal services, and
with telephone booths, writing tables, and wash rooms freely
available.” (Webster’s Third New Int. Dictionary, p. 1095.)
(b) Inn. — It has been defined as “a public house for the
lodging of travellers for compensation and until capacity is
reached; a place of public entertainment that does not provide
lodging.” (Ibid., p. 1165.)
or theft within their houses from guests lodging therein, or for the payment of the value
thereof, provided that such guests shall have notified in advance the innkeeper himself,
or the person representing him, of the deposit of such goods within the inn; and shall fur-
thermore have followed the directions which such innkeeper or his representative may
have given them with respect to the care of and vigilance over such goods. No liability
shall attach in case of robbery with violence against or intimidation of persons unless
committed by the inn-keeper’s employees. (Revised Penal Code.)
150 COMMENTS AND CASES ON CREDIT Arts. 2000-2002
TRANSACTIONS
(c) Motel. — It has been defined as “an establishment
which provides lodging and parking and in which the rooms
are usually accessible from an outdoor parking area.” (Ibid.,
p. 1474.)
ART. 2000. The responsibility referred to in the two pre-
ceding 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 by
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 hotel or inn shall be con-
sidered in determining the degree of care required of him.
(1784a)
ART. 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)
ART. 2002. The hotel-keeper is not liable for compensa-
tion if the loss is due to the acts of the guests, his family,
servants or visitors, or if the loss arises from the character
of the things brought into the hotel. (n)
When hotel-keeper liable.
In the following cases, the hotel-keeper is liable regardless of
the amount of care exercised:
(1) The loss or injury is caused by his servants or employees
as well as by strangers (Art. 2000.) provided that notice has been
given and proper precautions taken (Art. 1998.); and
(2) The loss is caused by the act of a thief or robber done
without the use of arms and irresistible force. (Art. 2001.) for in
this case, the hotel-keeper is apparently negligent.
When hotel-keeper not liable.
The hotel keeper is not liable in the following cases:
(1) The loss or injury is caused by force majeure, like flood,
fire (Art. 2000.), theft or robbery by a stranger (not by hotel-
keeper’s servant or employee) with the use of arms or irresistible
force (Art. 2001.), etc., unless he is guilty of fault or negligence in
Arts. 2003-2004 DEPOSIT 151
Necessary Deposit
failing to provide against the loss or injury from his cause (see
Arts. 1170, 1174.);
(2) The loss is due to the acts of the guests, his family,
servants, or visitors (Art. 2002.); and
(3) The loss arises from the character of the things brought
into the hotel. (Ibid.)
ART. 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 stipula-
tion between the hotel-keeper 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)
Exemption or diminution of liability.
The rule in this article is similar to the rule on common carriers
which does not allow a common carrier to dispense with or limit
his responsibility by stipulation or by posting of notices. (see Art.
1760.) Such stipulation is deemed contrary to law, morals, and
public policy. (Art. 1306.)
(1) Hotel-keepers and inn-keepers in offering their accom-
modations to the public, practically volunteer as depositaries,
and as such, they should be subject to an extraordinary degree
of responsibility for the protection and safety of travellers who
have no alternative but rely on the good faith and care of those
with whom they take lodging. (Art. 2000.)
(2) Furthermore, inn-keepers, by the very nature of their
business, have supervision and control of their inns and the
premises thereof. As a matter of fact, authorities are to the effect
that it is not necessary in order to hold an inn-keeper liable
that the effects of the guests be actually delivered to him or his
employees; it is enough that they are within the inn. (De Los
Santos vs. Tan Khey, [CA] 580 O.G. 7693; 29 Am. Jur. 89-90.)
ART. 2004. The hotel-keeper has a right to retain the
things brought into the hotel by the guest, as a security
for credits on account of lodging, and supplies usually fur-
nished to hotel guests. (n)
152 COMMENTS AND CASES ON CREDIT Art. 2004 153
TRANSACTIONS

Hotel-keeper’s right to retain.

The right of retention recognized in this article is in the nature
of a pledge created by operation of law. (see Arts. 2121-2122.) It
is given to hotel-keepers to compensate them for the liabilities
imposed upon them by law. The bailee in commodatum may
likewise retain the thing loaned for damages by reason of defects
thereof. (Arts. 1944, 1951.)
Incidentally, the act of obtaining food or accommodation in
a hotel or inn without paying therefor constitutes estafa. (Arts.
315, Sec. 2[e], Revised Penal Code.)
— oOo —
Chapter 4
SEQUESTRATION OR JUDICIAL DEPOSIT
ART. 2005. A judicial deposit or sequestration takes
place when an attachment or seizure of property in litiga-
tion is ordered. (1785)
ART. 2006. Movable as well as immovable property
may be the object of sequestration. (1786)
ART. 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)
ART. 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)

When judicial deposit takes place.

A deposit may be constituted judicially or extrajudicially.
(Art. 1964.)
Judicial deposit or sequestration takes place when an attachment
or seizure of property in litigation is ordered by a court.1 (Art.
2005.) For example, properties may be attached by the sheriff
upon the filing of a complaint (Rule 57, Rules of Court.), or a

1
A notice of lis pendens is an announcement to the whole world that a particular real
property is in litigation and serves as a warning that one who acquires an interest over
said property does so at his own risk, or that he gambles on the result of the litigation. The
property subject of the litigation is not by that fact alone in custodia legis. It is only when
property is lawfully taken by virtue of legal process that it becomes in custodia legis, and
not otherwise. (Los Baños Rural Bank, Inc. vs. Africa, 384 SCRA 535 [2002]; Ladanga vs.
Aseneta, 471 SCRA 381 [2005].)

153
154 COMMENTS AND CASES ON CREDIT Arts. 2005-2008 Art. 2009 DEPOSIT 155
TRANSACTIONS Sequestration or Judicial Deposit

receiver (a disinterested party) may be appointed by the court Judicial and extrajudicial deposits
to administer and preserve the property in litigation2 (Rule 59, distinguished.
ibid.), or personal property may be seized by the sheriff in suits of The differences between judicial and extrajudicial deposits
replevin or manual delivery of personal property. (Rule 60, ibid.) are:

Nature and purpose of judicial deposit.
The deposit is judicial because it is auxiliary to a case pending
in court.3
The purpose is to maintain the status quo during the pendency
of the litigation or to insure the right of the parties to the property
in case of a favorable judgment.
Obligation of depositary of sequestrated
property.
The depositary of sequestrated property is the person
appointed by the court. (Art. 2007.) He has the obligation to take
care of the property with the diligence of a good father of a family
(Art. 2008.) and he may not be relieved of his responsibility until
the litigation is ended or the court so orders. (Art. 2007.)
(1) Cause or origin. — judicial, by the will of the court;
extrajudicial, by the will of the parties; hence, there is a contract;
(2) Purpose. — judicial, as security and to secure the right of
a party to recover in case of a favorable judgment; extrajudicial,
custody and safekeeping of the thing;
(3) Subject matter. — judicial, either movable or immovable
property but generally immovable property; extrajudicial, only
movable property;
(4) Remuneration. — judicial, always remunerated (onerous);
extrajudicial, may be compensated or not, but generally
gratuitous; and
(5) In whose behalf it is held. — judicial, in behalf of the person
who, by the judgment, has a right; extrajudicial, in behalf of the
depositor or third person designated.

ART. 2009. As to matters not provided for in this Code,

judicial sequestration shall be governed by the Rules of
Court. (1789a)
2
Property subject of litigation is not by that fact alone in custodia legis. A thing is in
custodia legis, when it is shown that it has been and is subjected to the official custody of
a judicial or executive officer in pursuance of his execution of a legal writ. Only when Applicable law.
property is lawfully taken by virtue of legal process is it considered in the custody of the
law, and not otherwise. (Bagalihog vs. Fernandez, 108 Phil. 560 [1960]; Superline Trans- The law on judicial deposit is remedial or procedural in nature.
portation Co., Inc. vs. Phil. National Construction Co., 519 SCRA 432 [2007].) Hence, the Rules of Court are applicable. The relevant provisions
3
In our jurisdiction, an escrow order may be issued by a court in the exercise of
its intrinsic power to issue orders and other ancillary writs and processes incidental or of the Rules of Court are Rule 57 (Preliminary Attachment), Rule
reasonably necessary to the exercise of its main jurisdiction. Thus, the deposit of rentals 59 (Receivership), and Rule 60 (Replevin).
in escrow with a bank, receiver, or administrator, in the name of the court, is only an in-
cident in the main proceeding — placing property in litigation under judicial possession. The Rules of Court provide also for attachment in criminal
The usual definition is that an escrow is a written instrument which by its terms imports a cases. (Rule 127 thereof.)
legal obligation and which is deposited by the grantor, promisor, or obligor, or his agent
with a stranger or third party, to be kept by the depositary until the performance of a con-
dition or the happening of a certain event, and then to be delivered over to the grantee,
promisee, or obligee. While originally, the doctrine of escrow applied only to deeds by — oOo —
way of grant, or as otherwise stated, instruments for the conveyance of land, under mod-
ern theories of law, the term “escrow’’ is not limited in its application to deeds, but is
applied to the deposit of any written instrument with a third person. It is no longer open
to question that money may be delivered in escrow. (Province of Bataan vs. Villafuerte,
Jr., 367 SCRA 620 [2001].)