(2) The bailee can neither lend nor lease the object of the
PART I contract to a third person. However, the members of the
CONCEPT OF CREDIT TRANSACTIONS
Credit transactions include all transactions involving the purchase or loan
of goods, services, or money in the present with a promise to pay or deliver
in the future.
PART II
LOAN
(Articles 1933-1961)
TITLE XI
LOAN
General Provisions
Article 1933. By the contract of loan, one of the parties delivers to another,
either something not consumable so that the latter may use the same for
a certain time and return it, in which case the contract is called a
commodatum; or money or other consumable thing, upon the condition
that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while
in simple loan, ownership passes to the borrower. (1740a)
Article 1934. An accepted promise to deliver something by way of
commodatum or simple loan is binding upon parties, but the
commodatum or simple loan itself shall not be perfected until the delivery
of the object of the contract. (n)
CHAPTER 1
Commodatum
SECTION 1
Nature of Commodatum
Article 1935. The bailee in commodatum acquires the use of the thing
loaned but not its fruits; if any compensation is to be paid by him who
acquires the use, the contract ceases to be a commodatum. (1941a)
Article 1936. Consumable goods may be the subject of commodatum if the
purpose of the contract is not the consumption of the object, as when it is
merely for exhibition. (n)
Article 1937. Movable or immovable property may be the object of
commodatum. (n)
Article 1938. The bailor in commodatum need not be the owner of the
thing loaned. (n)
Article 1939. Commodatum is purely personal in character. Consequently:
(1) The death of either the bailor or the bailee extinguishes the
contract;
bailee's household may make use of the thing loaned, unless
there is a stipulation to the contrary, or unless the nature of the
thing forbids such use. (n)
Article 1940. A stipulation that the bailee may make use of the fruits of the
thing loaned is valid. (n)
SECTION 2
Obligations of the Bailee
Article 1941. The bailee is obliged to pay for the ordinary expenses for the
use and preservation of the thing loaned. (1743a)
Article 1942. The bailee is liable for the loss of the thing, even if it should
be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for
which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the
accomplishment of the use for which the commodatum has
been constituted;
(3) If the thing loaned has been delivered with appraisal of its
value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a
member of his household;
(5) If, being able to save either the thing borrowed or his own
thing, he chose to save the latter. (1744a and 1745)
Article 1943. The bailee does not answer for the deterioration of the thing
loaned due only to the use thereof and without his fault. (1746)
Article 1944. The bailee cannot retain the thing loaned on the ground that
the bailor owes him something, even though it may be by reason of
expenses. However, the bailee has a right of retention for damages
mentioned in article 1951. (1747a)
Article 1945. When there are two or more bailees to whom a thing is
loaned in the same contract, they are liable solidarily. (1748a)
SECTION 3
Obligations of the Bailor
Article 1946. The bailor cannot demand the return of the thing loaned till
after the expiration of the period stipulated, or after the accomplishment
of the use for which the commodatum has been constituted. However, if
in the meantime, he should have urgent need of the thing, he may demand
its return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is
suspended while the thing is in the possession of the bailor. (1749a)
Article 1947. The bailor may demand the thing at will, and the contractual
relation is called a precarium, in the following cases:
 (1) If neither the duration of the contract nor the use to which
the thing loaned should be devoted, has been stipulated; or
(2) If the use of the thing is merely tolerated by the owner.
(1750a)
Article 1948. The bailor may demand the immediate return of the thing if
the bailee commits any act of ingratitude specified in article 765. (n)
Article 1949. The bailor shall refund the extraordinary expenses during the
contract for the preservation of the thing loaned, provided the bailee
brings the same to the knowledge of the bailor before incurring them,
except when they are so urgent that the reply to the notification cannot
be awaited without danger.
If the extraordinary expenses arise on the occasion of the actual use of the
thing by the bailee, even though he acted without fault, they shall be borne
equally by both the bailor and the bailee, unless there is a stipulation to
the contrary. (1751a)
Article 1950. If, for the purpose of making use of the thing, the bailee incurs
expenses other than those referred to in articles 1941 and 1949, he is not
entitled to reimbursement. (n)
Article 1951. The bailor who, knowing the flaws of the thing loaned, does
not advise the bailee of the same, shall be liable to the latter for the
damages which he may suffer by reason thereof. (1752)
Article 1952. The bailor cannot exempt himself from the payment of
expenses or damages by abandoning the thing to the bailee. (n)
CHAPTER 2
Simple Loan or Mutuum
Article 1953. A person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to the creditor
an equal amount of the same kind and quality. (1753a)
Article 1954. A contract whereby one person transfers the ownership of
non-fungible things to another with the obligation on the part of the latter
to give things of the same kind, quantity, and quality shall be considered a
barter. (n)
Article 1955. The obligation of a person who borrows money shall be
governed by the provisions of articles 1249 and 1250 of this Code.
If what was loaned is a fungible thing other than money, the debtor owes
another thing of the same kind, quantity and quality, even if it should
change in value. In case it is impossible to deliver the same kind, its value
at the time of the perfection of the loan shall be paid. (1754a)
Article 1956. No interest shall be due unless it has been expressly
stipulated in writing. (1755a)
Article 1957. Contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury shall be void. The
borrower may recover in accordance with the laws on usury. (n)
Article 1958. In the determination of the interest, if it is payable in kind, its
value shall be appraised at the current price of the products or goods at
the time and place of payment. (n)
Article 1959. Without prejudice to the provisions of article 2212, interest
due and unpaid shall not earn interest. However, the contracting parties
may by stipulation capitalize the interest due and unpaid, which as added
principal, shall earn new interest. (n)
Article 1960. If the borrower pays interest when there has been no
stipulation therefor, the provisions of this Code concerning solutio indebiti,
or natural obligations, shall be applied, as the case may be. (n)
Article 1961. Usurious contracts shall be governed by the Usury Law and
other special laws, so far as they are not inconsistent with this Code. (n)
I. CONCEPT
Characteristics of a contract of loan
 A real conract, because the delivery of the thing loaned is
necessary for the perfection of the contract.
 A unilateral contract, because once the subject matter has been
delivered, it creates obligations on the part of only one of the
parties, i.e., the borrower.
Loan vs. credit
 The credit of an individual means his ability to borrow money or
things by virtue of the confidence or trust reposed by a lender
that he will pay what he may promise within a specified period.
 A loan (mutuum) means the delivery by one party, and the
receipt by the other party who become the owner, of a given
sum of money or other consumable thing upon an agreement,
express or implied, to repay the same amount of the same kind
and quality, with or without interest.
 The concession of a “credit” necessarily involves the granting of
“loans” up to the limit of the amount fixed in the “credit.”
Loan vs. discounting of paper
 In a discount, interest is deducted in advance, while in a loan,
interest is usually taken at the expiration of a credit.
 A discount is always on a double-name paper, while a loan is
generally, on a single-name paper.
 Discounting is slightly more expensive for the borrower because
interest is calculated on the amount loaned and not on the
amount actually received.
 Example: On a loan of P1000 at 16% interest, the borrower
would pay P1160 at the end of the year. If the note is
discounted, the interest is deducted from the principal in
advance. The borrower would receive P840 but would pay back
P1000 at the end of the year. The P160 is called the discount
and P840 is called the proceeds.
Commodatum vs. mutuum
 Commodatum ordinarily involves something not consumable,
while in mutuum, the subject matter is money or other
consumable thing.
 In commodatum, ownership of the thing loaned is retained by
the lender, while in mutuum, the ownership is transferred to the
borrower.
 Commodatum is essentially gratuitous, while mutuum may be
gratuitous or it may be onerous, that is, with stipulation to pay
interest.
 In commodatum, the borrower must return the same thing
loaned, while in mutuum, the borrower need only pay the same
amount of the same kind and quality.
 Commodatum may involve real or personal property, while
mutuum refers only to personal property.
 Commodatum is a loan for use or temporary possession, while
mutuum is a loan for consumption.
  In commodatum, the bailor may demand the return of the thing
loaned before the expiration of the term in case of urgent need,
while in mutuum, the lender may not demand its return before
the lapse of the term agreed upon.
 In commodatum, the loss of the subject matter is suffered by
the bailor since he is the owner, while in mutuum, the borrower
suffers the loss even if caused exclusively by a fortuitous event
and he is not, therefore, discharged from his duty to pay.
II. COMMODATUM
Kinds of commodatum:
 Ordinary commodatum (Art. 1933)
 Precarium – one whereby the bailor may demand the thing
loaned at will (Art. 1947)
Commodatum essentially gratuitous
 Commodatum is essentially gratuitous. Hence, the contract
ceases to be a commodatum if any compensation is to be paid
by the borrower who acquires the use. In such a case, there
arises a lease contract.
 If the consideration is the rendering of some service, an
innominate contract will result.
Bailor need not be owner (Art. 1938)
 In commodatum, the bailor need not be the owner of the thing
loaned since by the loan, ownership does not pass to the
borrower. Hence, a mere lessee of the thing or the usufructuary
may lend but the borrower or bailee himself may not lend nor
lease the thing loaned to him to a third person.
 It is sufficient if the bailor has such possessory interest in the
subject matter or right to its use which he may assert against
the bailee and the third persons although not against the
rightful owner.
Commodatum purely personal in character (Art. 1939)
 Hence, the death of either party terminates the contract unless
by stipulation, the commodatum is transmitted to the heirs of
either or both parties. Such stipulation is valid for paragraph 1
presupposes the absence of any contrary stipulation.
 If there are two or more borrowers, the death of one does not
extinguish the contract in the absence of stipulation to the
contrary.
 Article 1939 constitutes an exception to the general rule that all
rights acquired in virtue of an obligation are transmissible.
Obligations of the bailee:
 Liability for ordinary expenses – Art. 1941
 Liability for loss of thing loaned – Art. 1942
 Liability for deterioration of thing loaned – Art. 1943
 Obligation to return thing loaned – Art. 1944
 Liability when there are two or more bailees – Art. 1945
Liability for loss of thing loaned (Art. 1942)
 As a general rule, the bailee is not liable for loss or damage due
to a fortuitous event. The reason is that the bailor retains the
ownership of the thing loaned. Article 1942 specifies the
instances when the bailee is liable even for a loss due to
fortuitous event.
Obligations of the bailor:
 Obligation to respect duration of loan – Art. 1946
 Right to demand the thing at will (precarium) – Art. 1947
 Right of bailor to demand return of thing for acts of ingratitude
– Art. 1948
 Obligation to refund extraordinary expenses – Art. 1949
 No obligation to assume all other expenses – Art. 1950
 Liability to pay damages for known hidden flaws – Art. 1951
 No right of abandonment for expenses and damages – Art. 1952
Right of bailor to demand return of thing for acts of ingratitude (Art. 1948):
Based on Article 765 of the Civil Code, any of the following constitutes acts
of ingratitude:
 If the bailee should commit some offenses against the person,
the honor or the property of the bailor or of his wife or children
under his parental authority.
 If the bailee imputes to the bailor any criminal offense, or any
act involving moral turpitude, even though he should prove it,
unless the crime or the act has been committed against the
bailee himself, his wife or children under his authority.
 If the bailee unduly refuses the bailor support when the bailee
is legally or morally bound to give support to the bailor.
Obigation to refund extraordinary expenses (Art. 1949)
 As a rule, notice is required because it is possible that the bailor
may not want to incur the extraordinary expenses at all.
 An exception, of course, lies where they are so urgent that the
reply to the notification cannot be awaited without danger. The
right of the bailee to reimbursement is subject to the provision
of the second paragraph.
Liability to pay damages for known hidden flaws (Art. 1951)
Requisites:
 There is flaw or defect in the thing loaned.
 The flaw or defect is hidden.
 The bailor is aware thereof.
 He does not advise the bailee of the same.
 The bailee suffers damages by reason of said flaw or defect.
Note: The bailor is made liable for his bad faith. The bailee is given the
right of retention until he is paid damages. (Art. 1944).
a. Pajuyo v. CA
G.R. No. 146364
In a contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for a
certain time and return it. An essential feature of commodatum is that it is
gratuitous. Another feature of commodatum is that the use of the thing
belonging to another is for a certain period. Thus, the bailor cannot
demand the return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the commodatum
is constituted. If the bailor should have urgent need of the thing, he may
demand its return for temporary use. If the use of the thing is merely
tolerated by the bailor, he can demand the return of the thing at will, in
which case the contractual relation is called a precarium. Under the Civil
Code, precarium is a kind of commodatum.
The Kasunduan reveals that the accommodation accorded by Pajuyo to
Guevarra was not essentially gratuitous. While the Kasunduan did not
require Guevarra to pay rent, it obligated him to maintain the property in
good condition. The imposition of this obligation makes the Kasunduan a
contract different from a commodatum.
b. Producers Bank v. CA
G.R. No. 115324
Article 1933 seems to imply that if the subject of the contract is a
consumable thing, such as money, the contract would be a mutuum.
However, there are some instances where a commodatum may have for
its object a consumable thing.
Under Article 1936, if consumable goods are loaned only for purposes of
exhibition, or when the intention of the parties is to lend consumable
goods and to have the very same goods returned at the end of the period
agreed upon, the loan is a commodatum and not a mutuum.
The rule is that the intention of the parties thereto shall be accorded
primordial consideration in determining the actual character of a
contract.27 In case of doubt, the contemporaneous and subsequent acts
of the parties shall be considered in such determination.
As correctly pointed out by both the Court of Appeals and the trial court,
the evidence shows that private respondent agreed to deposit his money
in the savings account of Sterela specifically for the purpose of making it
appear “that said firm had sufficient capitalization for incorporation, with
the promise that the amount shall be returned within thirty (30) days.”
Private respondent merely “accommodated” Doronilla by lending his
money without consideration, as a favor to his good friend Sanchez. It was
however clear to the parties to the transaction that the money would not
be removed from Sterela’s savings account and would be returned to
private respondent after thirty (30) days.
Doronilla’s attempts to return to private respondent the amount of
P200,000.00 which the latter deposited in Sterela’s account together with
an additional P12,000.00, allegedly representing interest on the mutuum,
did not convert the transaction from a commodatum into a mutuum
because such was not the intent of the parties and because the additional
P12,000.00 corresponds to the fruits of the lending of the P200,000.00.
Article 1935 of the Civil Code expressly states that “[t]he bailee in
commodatum acquires the use of the thing loaned but not its fruits.”
Hence, it was only proper for Doronilla to remit to private respondent the
interest accruing to the latter’s money deposited with petitioner.
c. Mina v. Pascual
No. 8321
It is, therefore, an essential feature of the commodatum that the use of
the thing belonging to another shall be for a certain period. Francisco
Fontanilla did not fix any definite period of time during which Andres
Fontanilla could have the use of the lot whereon the latter was to erect a
stone warehouse of considerable value, and so it is that for the past thirty
years the lot has been used by both Andres and his successors in interest.
The present contention of the plaintiffs that Cu Joco, now in possession of
the lot, should pay rent for it at the rate of P5 a month, would destroy the
theory of the commodatum sustained by them, since, according to the
second paragraph of the aforecited article 1740, "commodatum is
essentially gratuitous," and, if what the plaintiffs themselves aver on page
7 of their brief is to be believed, it never entered Francisco's mind to limit
the period during which his brother Andres was to have the use of the lot,
because he expected that the warehouse would eventually fall into the
hands of his son, Fructuoso Fontanilla, called the adopted son of Andres,
which did not come to pass for the reason that Fructuoso died before his
uncle Andres.
d. De Los Santos v. Jarra
No. 4150
In a contract of commodatum whereby one of the parties thereto delivers
to the other a thing that is not perishable, to be used for a certain time and
afterwards returned, it is the imperative duty of the bailee, if he should be
unable to return the thing itself to the owner, to pay damages to the latter
if, through the fault of the bailee, the thing loaned was lost or destroyed,
inasmuch as the bailor retains the ownership thereof.
e. Republic of the Philippines v. Bagtas
No. L-17474
The loan by the Bureau of Animal Industry to the defendant of three bulls
for breeding purposes for a period of one year, later on renewed for
another as regards one bull, was subject to the payment by the borrower
of breeding fee of 10% of the book value of the bulls. If the breeding fee
be considered a compensation, the contract would be a lease of the bulls;
it could not be a contract of commodatum, because that contract is
essentially gratuitous.
f. Catholic Vicar v. CA
Nos. L-80294-95
Private respondents were able to prove that their predecessors’ house was
borrowed by petitioner Vicar after the church and the convent were
destroyed. They never asked for the return of the house, but when they
allowed its free use, they became bailors in commodatum and the
petitioner the bailee. The bailees’ failure to return the subject matter of
commodatum to the bailor did not mean adverse possession on the part
of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it
declared the lots for taxation purposes. The action of petitioner Vicar by
such adverse claim could not ripen into title by way of ordinary acquisitive
prescription because of the absence of just title.
g. Quintos v. Beck
No. 46240
The contract entered into between the parties is one of commodatum,
because under it the plaintiff gratuitously granted the use of the furniture
to the defendant, reserving for herself the ownership thereof; by this
contract the defendant bound himself to return the furniture to the
plaintiff, upon the latter's demand. The obligation voluntarily assumed by
the defendant to return the furniture upon the plaintiff's demand, means
that he should return all of them to the plaintiff at the latter's residence or
house. The defendant did not comply with this obligation when he merely
placed them at the disposal of the plaintiff, retaining for his benefit the
three gas heaters and the four electric lamps.
As the defendant had voluntarily undertaken to return all the furniture to
the plaintiff, upon the latter's demand, the Court could not legally compel
her to bear the expenses occasioned by the deposit of the furniture at the
defendant's behest. The latter, as bailee, was not entitled to place the
furniture on deposit; nor was the plaintiff under a duty to accept the offer
to return the furniture, because the defendant wanted to retain the three
gas heaters and the four electric lamps.
III. MUTUUM & USURY LAW
Simple loan vs. contract of rent
 A contract of loan signifies the delivery of money or some other
consumable thing to another with a promise to repay an
equivalent amount of the same kind and quality, but not a
promise to return the same thing loaned which becomes the
property of the obligor. The contract of rent is a contract by
which one of the parties delivers to another some non-
consumable thing in order that the latter may use it during a
certain period and return it to the former. In a contract of rent,
the owner or lessor of the property does not lose his ownership.
He simply loses his control over the property rented during the
period of the contract.
 In a contract of loan, the relation between the parties is that of
obligor and oblige, while in a contract of rent, the relation is that
of landlord and tenant.
 In a contract of loan, the creditor receives payment for his loan,
while in a contract of rent, the owner of the property receives
compensation or price either in money, provisions, chattels, or
labor from the occupant thereof in return for its use.
Mutuum and commodatum vs. barter
By the contract of barter or exchange, one of the parties binds himself to
give one thing in consideration of the other’s promise to give another
thing. (Art. 1638)
 The distinction between mutuum and barter lies in the subject
matter. In the former, it is money or any other fungible things;
in the latter, non-fungible (non-consumable) things.
  In commodatum, the bailee is bound to return the identical
thing borrowed when time has expired or the purpose has been
served. In barter, the equivalent thing is given in return for what
has been received.
 Mutuum may be gratuitous and commodatum is always
gratuitous. Barter, on the other hand, is an onerous contract. It
is really a mutual sale.
Liability for interest even in the absence of stipulation
Article 1956 is subject to two exceptions:
 Indemnity for damages – The debtor in delay is liable to pay legal
interest (6%/12%) as indemnity for damages even in the
absence of stipulation for the payment of interest.
 Interest accruing from unpaid interest – interest due shall earn
interest from the time it is judicially demanded, although the
obligation may be silent upon this point (Art. 1212)
When unpaid interest earns interest (Art. 1959)
As a rule, accrued interest (interest due and unpaid) shall not earn interest
except in two instances:
 When judicially demanded as provided for in Article 2212
 When there is an express stipulation made by the parties to wit:
that the interest due an unpaid shall be added to the principal
obligation and the resulting total amount shall earn interest
Usury defined
 Usury may be defined as contracting for or receiving something
in excess of the amount allowed by law for the loan or
forbearance of money, goods or chattels.
Elements of usury
 A loan or forbearance
 An understanding between the parties that the loan shall or may
be returned
 An unlawful intent to take more than the legal rate for the use
of money or its equivalent
 The taking or agreeing to take for the use of the loan of
something in excess of what is allowed by law
Kinds of interest
Interest is the compensation allowed by law or fixed by the parties for the
loan or forbearance of money, goods or credits.
 Simple interest – that which is paid for the principal at a certain
rate fixed or stipulated by the parties
 Compound interest – that which is imposed upon interest due
and unpaid
 Legal interest – that which the law directs to be charged in the
absence of any agreement as to the rate between the parties
 Lawful interest – that which the law allows or does not prohibit,
that is, the rate of interest within the maximum prescribed by
law
 Unlawful or usurious interest – that which is paid or stipulated
to be paid beyond the maximum fixed by law
a. Yong Chan Kim v. People
G.R. No. 84719
Before a person can be convicted of estafa by misappropriation or
conversion, it must be proven that he had the obligation to deliver or
return the same money, goods or personal property that he had
received.— Was petitioner under obligation to return the same money
(cash advance) which he had received? We believe not. Executive Order
No. 10, dated 12 February 1980 provides as follows: “B. Cash Advance for
Travel x x x x x x x x x “4. All cash advances must be liquidated within 30
days after date of projected return of the person. Otherwise,
corresponding salary deduction shall be made immediately following the
expiration day.” Liquidation simply means the settling of an indebtedness.
An employee, such as herein petitioner, who liquidates a cash advance is
in fact paying back his debt in the form of a loan of money advanced to him
by his employer, as per diems and allowances. Similarly, as stated in the
assailed decision of the lower court, “if the amount of the cash advance he
received is less than the amount he spent for actual travel x x x he has the
right to demand reimbursement from his employer the amount he spent
coming from his personal funds.” In other words, the money advanced by
either party is actually a loan to the other. Hence, petitioner was under no
legal obligation to return the same cash or money, i.e., the bills or coins,
which he received from the private respondent.
b. BPI v. CA
G.R. No. 133632
A loan contract is not a consensual contract but a real contract, perfected
only upon the delivery of the object of the contract.
While a perfected loan contract can give rise to an action for damages, said
contract does not constitute the real contract of loan which requires the
delivery of the object of the contract for its perfection and which gives rise
to obligations only on the part of the borrower.
A contract of loan involves a reciprocal obligation, wherein the obligation
or promise of each party is the consideration for that of the other. As
averred by private respondents, the promise of BPIIC to extend and deliver
the loan is upon the consideration that ALS and Litonjua shall pay the
monthly amortization commencing on May 1, 1981, one month after the
supposed release of the loan. It is a basic principle in reciprocal obligations
that neither party incurs in delay, if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him.
Only when a party has performed his part of the contract can he demand
that the other party also fulfills his own obligation and if the latter fails,
default sets in. Consequently, petitioner could only demand for the
payment of the monthly amortization after September 13, 1982 for it was
only then when it complied with its obligation under the loan contract.
Therefore, in computing the amount due as of the date when BPIIC
extrajudicially caused the foreclosure of the mortgage, the starting date is
October 13, 1982 and not May 1, 1981.
c. Eastern Shipping Lines v. CA
G.R. No. 97412
With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum
to be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be
imposed at the discretion of the court at the rate of 6% per annum. No
interest, however, shall be adjudged on unliquidated claims or damages
except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is
made (at which time the quantification of damages may be deemed to
have been reasonably ascertained). The actual base for the computation
of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
d. Crismina Garments v. CA
G.R. No. 128721
The case before us is “an action for the enforcement of an obligation for
payment of money arising from a contract for a piece of work.”
Private respondent maintains that the twelve percent (12%) interest
should be imposed, because the obligation arose from a forbearance of
money. This is erroneous. In Eastern Shipping, the Court observed that a
“forbearance” in the context of the usury law is a “contractual obligation
of lender or creditor to refrain, during a given period of time, from
requiring the borrower or debtor to repay a loan or debt then due and
payable.” Using this standard, the obligation in this case was obviously not
a forbearance of money, goods or credit.
e. PNB v. Ibarrola
G.R. No. 123643
The case at bench does not involve a loan, forbearance of money or
judgment involving a loan or forbearance of money as it arose from a
contract of sale whereby Ibarrola did not receive full payment for her
merchandise. When an obligation arises “from a contract of purchase and
sale and not from a contract of loan or mutuum,” the applicable rate is 6%
per annum as provided in Article 2209 of the NCC and not the rate of 12%
per annum as provided in (CB) Cir. No. 416.
The rate of 12% interest referred to in Cir. 416 applies only to: “[L]oan or
forbearance of money, or to cases where money is transferred from one
person to another and the obligation to return the same or a portion
thereof is adjudged. Any other monetary judgment which does not involve
or which has nothing to do with loans or forbearance of any money, goods
or credit does not fall within its coverage for such imposition is not within
the ambit of the authority granted to the Central Bank. When an obligation
not constituting a loan or forbearance of money is breached then an
interest on the amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per annum in accordance with Art.
2209 of the Civil Code. Indeed, the monetary judgment in favor of private
respondent does not involve a loan or forbearance of money, hence the
proper imposable rate of interest is six (6%) per cent.”
This interest according to Eastern Shipping shall be computed from the
time of the filing of the complaint considering that the amount adjudged
(P98,691.90) can be established with reasonable certainty. Said amount
being merely the uncollected balance of the purchase price covered by the
23 checks encashed and appropriated by Ibarrola’s agents. However, once
the judgment becomes final and executory, the “interim period from the
finality of judgment awarding a monetary claim and until payment thereof,
is deemed to be equivalent to a forbearance of credit.” Thus, in accordance
with the pronouncement in Eastern Shipping the rate of 12% p.a. should
be imposed, and to be computed from the time the judgment became final
and executory until fully satisfied. The actual base for the computation of
this 12% interest after the judgment in this damage suit became final shall
be the amount adjudged (P98,691.90).
f. Estores v. Spouses Supangan
G.R. No. 175139
The contract involved in this case is admittedly not a loan but a Conditional
Deed of Sale. However, the contract provides that the seller (petitioner)
must return the payment made by the buyer (respondent-spouses) if the
conditions are not fulfilled. There is no question that they have in fact, not
been fulfilled as the seller (petitioner) has admitted this. Notwithstanding
demand by the buyer (respondent-spouses), the seller (petitioner) has
failed to return the money and should be considered in default from the
time that demand was made on September 27, 2000.
Even if the transaction involved a Conditional Deed of Sale, can the
stipulation governing the return of the money be considered as a
forbearance of money which required payment of interest at the rate of
12%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals, 304 SCRA 356 (1999),
“forbearance” was defined as a “contractual obligation of lender or
creditor to refrain during a given period of time, from requiring the
borrower or debtor to repay a loan or debt then due and payable.” This
definition describes a loan where a debtor is given a period within which
to pay a loan or debt. In such case, “forbearance of money, goods or
credits” will have no distinct definition from a loan. We believe however,
that the phrase “forbearance of money, goods or credits” is meant to have
a separate meaning from a loan, otherwise there would have been no need
to add that phrase as a loan is already sufficiently defined in the Civil Code.
Forbearance of money, goods or credits should therefore refer to
arrangements other than loan agreements, where a person acquiesces to
the temporary use of his money, goods or credits pending happening of
certain events or fulfillment of certain conditions.
In this case, the respondent-spouses parted with their money even before
the conditions were fulfilled. They have therefore allowed or granted
forbearance to the seller (petitioner) to use their money pending
fulfillment of the conditions. They were deprived of the use of their money
for the period pending fulfillment of the conditions and when those
conditions were breached, they are entitled not only to the return of the
principal amount paid, but also to compensation for the use of their
money. And the compensation for the use of their money, absent any
stipulation, should be the same rate of legal interest applicable to a loan
since the use or deprivation of funds is similar to a loan.
Petitioner’s unwarranted withholding of the money which rightfully
pertains to respondent-spouses amounts to forbearance of money which
can be considered as an involuntary loan. Thus, the applicable rate of
interest is 12% per annum.
g. Pilipinas Bank v. CA
G.R. No. 97873
Note that Circular No. 416, fixing the rate of interest at 12% per annum,
deals with (1) loans; (2) forbearance of any money, goods or credit; and (3)
judgments. In Reformina v. Tomol, Jr., 139 SCRA 260 [1985], the Court held
that the judgments spoken of and referred to in Circular No. 416 are
‘judgments in litigation involving loans or forbearance of any money, goods
or credits. Any other kind of monetary judgment which has nothing to do
with nor involving loans or forbearance of any money, goods or credits
does not fall within the coverage of the said law for it is not, within the
ambit of the authority granted to the Central Bank.”
What then is the nature of the judgment ordering petitioner to pay private
respondent the amount of P2,300,000.00? The said amount was a portion
of the P7,776,335.69 which petitioner was obligated to pay Greatland as
consideration for the sale of several parcels of land by Greatland to
petitioner. The amount of P2,300,000.00 was assigned by Greatland in
favor of private respondent. The said obligation therefore arose from a
contract of purchase and sale and not from a contract of loan or mutuum.
Hence, what is applicable is the rate of 6% per annum as provided in Article
2209 of the Civil Code of the Philippines and not the rate of 12% per annum
as provided in Circular No. 416.
h. Medel v. CA
G.R. No. 131622
We agree with petitioners that the stipulated rate of interest at 5.5% per
month on the P500,000.00 loan is excessive, iniquitous, unconscionable
and exorbitant. However, we can not consider the rate “usurious” because
this Court has consistently held that Circular No. 905 of the Central Bank,
adopted on December 22, 1982, has expressly removed the interest
ceilings prescribed by the Usury Law and that the Usury Law is now “legally
inexistent.”
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61 the Court held that CB Circular No. 905 “did not repeal nor in
any way amend the Usury Law but simply suspended the latter’s
effectivity.” Indeed, we have held that “a Central Bank Circular cannot
repeal a law. Only a law can repeal another law.”
i. Chua v. Timan
G.R. No. 170452
The stipulated interest rates of 7% and 5% per month imposed on
respondents’ loans must be equitably reduced to 1% per month or 12%
per annum. We need not unsettle the principle we had affirmed in a
plethora of cases that stipulated interest rates of 3% per month and higher
are excessive, iniquitous, unconscionable and exorbitant. Such stipulations
are void for being contrary to morals, if not against the law. While C.B.
Circular No. 905-82, which took effect on January 1, 1983, effectively
removed the ceiling on interest rates for both secured and unsecured
loans, regardless of maturity, nothing in the said circular could possibly be
read as granting carte blanche authority to lenders to raise interest rates
to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets.
j. Toledo v. Hyden
G.R. No. 172139
After years of benefiting from the proceeds of the loans bearing an interest
rate of 6% to 7% per month and paying for the same, Jocelyn cannot now
go to court to have the said interest rate annulled on the ground that it is
excessive, iniquitous, unconscionable, exorbitant, and absolutely revolting
to the conscience of man. “This is so because among the maxims of equity
are (1) he who seeks equity must do equity, and (2) he who comes into
equity must come with clean hands. The latter is a frequently stated maxim
which is also expressed in the principle that he who has done inequity shall
not have equity. It signifies that a litigant may be denied relief by a court
of equity on the ground that his conduct has been inequitable, unfair and
dishonest, or fraudulent, or deceitful as to the controversy in issue.”
k. Prisma v. Menchavez
G.R. No. 160545
The core issue boils down to whether the parties agreed to the 4% monthly
interest on the loan. If so, does the rate of interest apply to the 6-month
payment period only or until full payment of the loan?
In the present case, the respondent issued a check for P1,000,000.00.23 In
turn, Pantaleon, in his personal capacity and as authorized by the Board,
executed the promissory note quoted above. Thus, the P1,000,000.00 loan
shall be payable within six (6) months, or from January 8, 1994 up to June
8, 1994. During this period, the loan shall earn an interest of P40,000.00
per month, for a total obligation of P1,240,000.00 for the six-month
period. We note that this agreed sum can be computed at 4% interest per
month, but no such rate of interest was stipulated in the promissory note;
rather a fixed sum equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that “no interest shall
be due unless it has been expressly stipulated in writing.” Under this
provision, the payment of interest in loans or forbearance of money is
allowed only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for the payment of interest was reduced
in writing. The concurrence of the two conditions is required for the
payment of interest at a stipulated rate. Thus, we held in Tan v.
Valdehueza, 66 SCRA 61 (1975) and Ching v. Nicdao, 522 SCRA 316 (2007)
that collection of interest without any stipulation in writing is prohibited
by law.
Applying this provision, we find that the interest of P40,000.00 per month
corresponds only to the six (6)-month period of the loan, or from January
8, 1994 to June 8, 1994, as agreed upon by the parties in the promissory
note. Thereafter, the interest on the loan should be at the legal interest
rate of 12% per annum, consistent with our ruling in Eastern Shipping
Lines, Inc. v. Court of Appeals.
l. Dio v. Spouses Japor
G.R. No. 154129
A combined interest and penalty rate at 10% per month or 120% per
annum should be deemed iniquitous, unconscionable, and inordinate.
m. Solidbank v. Permanent Homes
G.R. No. 171925
The stipulations on interest rate repricing are valid because (1) the parties
mutually agreed on said stipulations; (2) repricing takes effect only upon
Solidbank’s written notice to Permanent of the new interest rate; and (3)
Permanent has the option to prepay its loan if Permanent and Solidbank
do not agree on the new interest rate. The phrases “irrevocably authorize,”
“at any time” and “adjustment of the interest rate shall be effective from
the date indicated in the written notice sent to us by the bank, or if no date
is indicated, from the time the notice was sent,” emphasize that
Permanent should receive a written notice from Solidbank as a condition
for the adjustment of the interest rates.
Moreover, Solidbank’s range of lending rates were consistent with
“prevailing rates in the local or international capital markets.”
We rule that Solidbank’s computation of the interest due from Permanent
should be adjusted to take effect only upon Permanent’s receipt of the
written notice from Solidbank.
n. Pan Pacific v. Equitable
G.R. No. 169975
Under Article 2209 of the Civil Code, the appropriate measure for damages
in case of delay in discharging an obligation consisting of the payment of a
sum of money is the payment of penalty interest at the rate agreed upon
in the contract of the parties. In the absence of a stipulation of a particular
rate of penalty interest, payment of additional interest at a rate equal to
the regular monetary interest becomes due and payable. Finally, if no
regular interest had been agreed upon by the contracting parties, then the
damages payable will consist of payment of legal interest which is 6%, or
in the case of loans or forbearances of money, 12% per annum.34 It is only
when the parties to a contract have failed to fix the rate of interest or when
such amount is unwarranted that the Court will apply the 12% interest per
annum on a loan or forbearance of money.
The written agreement entered into between petitioners and respondent
provides for an interest at the current bank lending rate in case of delay in
payment and the promissory note charged an interest of 18%.
o. Nacar v. Gallery Frames
G.R. No. 189871
In the absence of an express stipulation as to the rate of interest that
would govern the parties, the rate of legal interest for loans or forbearance
of any money, goods or credits and the rate allowed in judgments shall no
longer be twelve percent (12%) per annum — as reflected in the case of
Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994) and
Subsection X305.1 of the Manual of Regulations for Banks and Sections
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank
Financial Institutions, before its amendment by BSP-MB Circular No. 799
— but will now be six percent (6%) per annum effective July 1, 2013. It
should be noted, nonetheless, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve percent
(12%) per annum legal interest shall apply only until June 30, 2013. Come
July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.
p. ECE Realty v. Hernandez
G.R. No. 212689
There is no doubt that ECE incurred in delay in delivering the subject
condominium unit, for which reason the trial court was justified in
awarding interest to the respondent from the filing of his complaint. There
being no stipulation as to interest, under Article 2209 the imposable rate
is six percent (6%) by way of damages, following the guidelines laid down
in the landmark case of Eastern Shipping Lines v. Court of Appeals, 234
SCRA 78 (1994).
From the finality of the judgment awarding a sum of money until it is
satisfied, the award shall be considered a forbearance of credit, regardless
of whether the award in fact pertained to one. Pursuant to Central Bank
Circular No. 416 issued on July 29, 1974, in the absence of written
stipulation the interest rate to be imposed in judgments involving a
forbearance of credit was twelve percent (12%) per annum, up from six
percent (6%) under Article 2209 of the Civil Code. This was reiterated in
Central Bank Circular No. 905, which suspended the effectivity of the Usury
Law beginning on January 1, 1983. But since July 1, 2013, the rate of twelve
percent (12%) per annum from finality of the judgment until satisfaction
has been brought back to six percent (6%). Section 1 of Resolution No. 796
of the Monetary Board of the Bangko Sentral ng Pilipinas dated May 16,
2013 provides: “The rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the absence
of an express contract as to such rate of interest, shall be six percent (6%)
per annum.” Thus, the rate of interest to be imposed from finality of
judgments is now back at six percent (6%), the rate provided in Article 2209
of the Civil Code.
q. Tan v. CA
G.R. No. 116285
The stipulated fourteen percent (14%) per annum interest charge until full
payment of the loan constitutes the monetary interest on the note and is
allowed under Article 1956 of the New Civil Code.7 On the other hand, the
stipulated two percent (2%) per month penalty is in the form of penalty
charge which is separate and distinct from the monetary interest on the
principal of the loan.
Penalty on delinquent loans may take different forms. In Government
Service Insurance System v. Court of Appeals,8 this Court has ruled that
the New Civil Code permits an agreement upon a penalty apart from the
monetary interest. If the parties stipulate this kind of agreement, the
penalty does not include the monetary interest, and as such the two are
different and distinct from each other and may be demanded separately.
Quoting Equitable Banking Corp. v. Liwanag,9 the GSIS case went on to
state that such a stipulation about payment of an additional interest rate
partakes of the nature of a penalty clause which is sanctioned by law, more
particularly under Article 2209 of the New Civil Code.
The penalty charge of two percent (2%) per month in the case at bar began
to accrue from the time of default by the petitioner. There is no doubt that
the petitioner is liable for both the stipulated monetary interest and the
stipulated penalty charge. The penalty charge is also called penalty or
compensatory interest. Having clarified the same, the next issue to be
resolved is whether interest may accrue on the penalty or compensatory
interest without violating the provisions of Article 1959 of the New Civil
Code.
According to the petitioner, there is no legal basis for the imposition of
interest on the penalty charge for the reason that the law only allows
imposition of interest on monetary interest but not the charging of interest
on penalty. He claims that since there is no law that allows imposition of
interest on penalties, the penalties should not earn interest. But as we
have already explained, penalty clauses can be in the form of penalty or
compensatory interest. Thus, the compounding of the penalty or
compensatory interest is sanctioned by and allowed pursuant to the
above-quoted provision of Article 1959 of the New Civil Code considering
that:
First, there is an express stipulation in the promissory note permitting the
compounding of interest. Second, Article 2212 of the New Civil Code
provides that “Interest due shall earn legal interest from the time it is
judicially demanded, although the obligation may be silent upon this
point.”
r. Spouses Albos v. Embisan
G.R. No. 210831
In the extant case, respondent spouses, having imposed, unilaterally at
that, the compounded interest rate, had the correlative duty of clarifying
and reducing in writing how the said interest shall be earned. Having failed
to do so, the silence of the agreement on the manner of earning interest
is a valid argument for prohibiting them from charging interest at a
compounded rate.
Even if there was such an agreement that interest will be compounded,
We agree with the petitioners that the 5% monthly rate, be it simple or
compounded, written or verbal, is void for being too exorbitant, thus
running afoul of Article 1306 of the New Civil Code, which provides: Article
1306. The contracting parties 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. As
case law instructs, the imposition of an unconscionable rate of interest on
a money debt, even if knowingly and voluntarily assumed, is immoral and
unjust. It is tantamount to a repugnant spoliation and an iniquitous
deprivation of property, repulsive to the common sense of man. It has no
support in law, in principles of justice, or in the human conscience nor is
there any reason whatsoever which may justify such imposition as
righteous and as one that may be sustained within the sphere of public or
private morals.
s. Siga-an v. Villanueva
G.R. No. 173227
Interest is a compensation fixed by the parties for the use or forbearance
of money. This is referred to as monetary interest. Interest may also be
imposed by law or by courts as penalty or indemnity for damages. This is
called compensatory interest. The right to interest arises only by virtue of
a contract or by virtue of damages for delay or failure to pay the principal
loan on which interest is demanded. Article 1956 of the Civil Code, which
refers to monetary interest, specifically mandates that no interest shall be
due unless it has been expressly stipulated in writing. As can be gleaned
from the foregoing provision, payment of monetary interest is allowed
only if: (1) there was an express stipulation for the payment of interest;
and (2) the agreement for the payment of interest was reduced in writing.
The concurrence of the two conditions is required for the payment of
monetary interest. Thus, we have held that collection of interest without
any stipulation therefor in writing is prohibited by law.
The interest under Arts. 2209 and 2212 of the Civil Code may be imposed
only as a penalty or damages for breach of contractual obligations—it
cannot be charged as a compensation for the use or forbearance of
money.—There are instances in which an interest may be imposed even in
the absence of express stipulation, verbal or written, regarding payment
of interest. Article 2209 of the Civil Code states that if the obligation
consists in the payment of a sum of money, and the debtor incurs delay, a
legal interest of 12% per annum may be imposed as indemnity for damages
if no stipulation on the payment of interest was agreed upon. Likewise,
PART III
DEPOSIT
Article 2212 of the Civil Code provides that interest due shall earn legal
(Articles 1962-2009)
interest from the time it is judicially demanded, although the obligation
may be silent on this point. All the same, the interest under these two
instances may be imposed only as a penalty or damages for breach of
contractual obligations. It cannot be charged as a compensation for the TITLE XII
use or forbearance of money. In other words, the two instances apply only DEPOSIT
to compensatory interest and not to monetary interest. The case at bar
involves petitioner’s claim for monetary interest. CHAPTER 1
Deposit in General and its Different Kinds
t. De la Paz v. L&J Development
G.R. No. 183360 Article 1962. A deposit is constituted from the moment a person receives
a thing belonging to another, with the obligation of safely keeping it and of
Time and again, it has been ruled in a plethora of cases that stipulated returning the same. If the safekeeping of the thing delivered is not the
interest rates of 3% per month and higher, are excessive, iniquitous, principal purpose of the contract, there is no deposit but some other
unconscionable and exorbitant. Such stipulations are void for being contract. (1758a)
contrary to morals, if not against the law. The Court, however, stresses that
these rates shall be invalidated and shall be reduced only in cases where
the terms of the loans are open-ended, and where the interest rates are Article 1963. An agreement to constitute a deposit is binding, but the
applied for an indefinite period. Hence, the imposition of a specific sum of deposit itself is not perfected until the delivery of the thing. (n)
P40,000.00 a month for six months on a P1,000,000.00 loan is not
considered unconscionable. In the case at bench, there is no specified Article 1964. A deposit may be constituted judicially or extrajudicially.
period as to the payment of the loan. Hence, levying 6% monthly or 72% (1759)
interest per annum is “definitely outrageous and inordinate.”
Article 1965. A deposit is a gratuitous contract, except when there is an
agreement to the contrary, or unless the depositary is engaged in the
business of storing goods. (1760a)

Article 1966. Only movable things may be the object of a deposit. (1761)

Article 1967. An extrajudicial deposit is either voluntary or necessary.

(1762)

CHAPTER 2
Voluntary Deposit

SECTION 1
General Provisions

Article 1968. A voluntary deposit is that wherein the delivery is made by

the will of the depositor. A deposit may also be made by two or more
persons each of whom believes himself entitled to the thing deposited
with a third person, who shall deliver it in a proper case to the one to whom
it belongs. (1763)

Article 1969. A contract of deposit may be entered into orally or in writing.

(n)

Article 1970. If a person having capacity to contract accepts a deposit made

by one who is incapacitated, the former shall be subject to all the
obligations of a depositary, and may be compelled to return the thing by
the guardian, or administrator, of the person who made the deposit, or by
the latter himself if he should acquire capacity. (1764)

Article 1971. If the deposit has been made by a capacitated person with
another who is not, the depositor shall only have an action to recover the
thing deposited while it is still in the possession of the depositary, or to
compel the latter to pay him the amount by which he may have enriched
or benefited himself with the thing or its price. However, if a third person
who acquired the thing acted in bad faith, the depositor may bring an
action against him for its recovery. (1765a)
 SECTION 2
Obligations of the Depositary
Article 1972. The depositary is obliged to keep the thing safely and to
return it, when required, to the depositor, or to his heirs and successors,
or to the person who may have been designated in the contract. His
responsibility, with regard to the safekeeping and the loss of the thing,
shall be governed by the provisions of Title I of this Book.
If the deposit is gratuitous, this fact shall be taken into account in
determining the degree of care that the depositary must observe. (1766a)
Article 1973. Unless there is a stipulation to the contrary, the depositary
cannot deposit the thing with a third person. If deposit with a third person
is allowed, the depositary is liable for the loss if he deposited the thing with
a person who is manifestly careless or unfit. The depositary is responsible
for the negligence of his employees. (n)
Article 1974. The depositary may change the way of the deposit if under
the circumstances he may reasonably presume that the depositor would
consent to the change if he knew of the facts of the situation. However,
before the depositary may make such change, he shall notify the depositor
thereof and wait for his decision, unless delay would cause danger. (n)
Article 1975. The depositary holding certificates, bonds, securities or
instruments which earn interest shall be bound to collect the latter when
it becomes due, and to take such steps as may be necessary in order that
the securities may preserve their value and the rights corresponding to
them according to law.
The above provision shall not apply to contracts for the rent of safety
deposit boxes. (n)
Article 1976. Unless there is a stipulation to the contrary, the depositary
may commingle grain or other articles of the same kind and quality, in
which case the various depositors shall own or have a proportionate
interest in the mass. (n)
Article 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)
Article 1978. When the depositary has permission to use the thing
deposited, the contract loses the concept of a deposit and becomes a loan
or commodatum, except where safekeeping is still the principal purpose of
the contract.
The permission shall not be presumed, and its existence must be proved.
(1768a)
Article 1979. The depositary is liable for the loss of the thing through a
fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may
have been authorized to use the same. (n)
Article 1980. Fixed, savings, and current deposits of money in banks and
similar institutions shall be governed by the provisions concerning simple
loan. (n)
Article 1981. When the thing deposited is delivered closed and sealed, the
depositary must return it in the same condition, and he shall be liable for
damages should the seal or lock be broken through his fault.
Fault on the part of the depositary is presumed, unless there is proof to
the contrary.
As regards the value of the thing deposited, the statement of the depositor
shall be accepted, when the forcible opening is imputable to the
depositary, should there be no proof to the contrary. However, the courts
may 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)
Article 1982. When it becomes necessary to open a locked box or
receptacle, the depositary is presumed authorized to do so, if the key has
been delivered to him; or when the instructions of the depositor as regards
the deposit cannot be executed without opening the box or receptacle. (n)
Article 1983. The thing deposited shall be returned with all its products,
accessories and accessions.
Should the deposit consist of money, the provisions relative to agents in
article 1896 shall be applied to the depositary. (1770)
Article 1984. The depositary cannot demand that the depositor 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)
Article 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
depositary shall return it only to the person designated. (1772a)
Article 1986. If the depositor should lose his capacity to contract after
having made the deposit, the thing cannot be returned except to the
persons who may have the administration of his property and rights.
(1773)
Article 1987. If at the time the deposit was made a place was designated
for the return of the thing, the depositary must take the thing deposited
to such place; but the expenses for transportation shall be borne by the
depositor.
If no place has been designated for the return, it shall be made where the
thing deposited may be, even if it should not be the same place where the
deposit was made, provided that there was no malice on the part of the
depositary. (1774)
Article 1988. The thing deposited must be returned to the depositor upon
demand, even though a specified period or time for such return may have
been fixed.
This provision shall not apply when the thing is judicially attached while in
the depositary's possession, or should he have been notified of the
opposition of a third person to the return or the removal of the thing
deposited. In these cases, the depositary must immediately inform the
depositor of the attachment or opposition. (1775)
Article 1989. Unless the deposit is for a valuable consideration, the
depositary who may have justifiable reasons for not keeping the thing
deposited may, even before the time designated, return it to the
depositor; and if the latter should refuse to receive it, the depositary may
secure its consignation from the court. (1776a)
Article 1990. If the depositary by force majeure or government order loses
the thing and receives money or another thing in its place, he shall deliver
the sum or other thing to the depositor. (1777a)
Article 1991. The depositor's heir who in good faith may have sold the thing
which he did not know was deposited, shall only be bound to return the
price he may have received or to assign his right of action against the buyer
in case the price has not been paid him. (1778)
SECTION 3
Obligations of the Depositor
Article 1992. If the deposit is gratuitous, the depositor is obliged to
reimburse the depositary for the expenses he may have incurred for the
preservation of the thing deposited. (1779a)
Article 1993. The depositor shall reimburse the depositary for any loss
arising from the character of the thing deposited, unless at the time of the
constitution of the deposit the former was not aware of, or was not
expected to know the dangerous character of the thing, or unless he
notified the depositary of the same, or the latter was aware of it without
advice from the depositor. (n)
Article 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)
Article 1995. A deposit its extinguished:
(1) Upon the loss or destruction of the thing deposited;
(2) In case of a gratuitous deposit, upon the death of either the
depositor or the depositary. (n)
CHAPTER 3
Necessary Deposit
Article 1996. A deposit is necessary:
(1) When it is made in compliance with a legal obligation;
(2) When it takes place on the occasion of any calamity, such as
fire, storm, flood, pillage, shipwreck, or other similar events.
(1781a)
Article 1997. The deposit referred to in No. 1 of the preceding article shall
be governed by the provisions of the law establishing it, and in case of its
deficiency, by the rules on voluntary deposit.
The deposit mentioned in No. 2 of the preceding article shall be regulated
by the provisions concerning voluntary deposit and by article 2168. (1782)
Article 1998. The deposit of effects made by travellers in hotels or inns shall
also be regarded as necessary. The keepers of hotels or inns shall be
responsible for them as depositaries, provided that notice was given to
them, or to their employees, of the effects brought by the guests and that,
on the part of the latter, they take the precautions which said hotel-
keepers or their substitutes advised relative to the care and vigilance of
their effects. (1783)
Article 1999. The hotel-keeper is liable for the vehicles, animals and articles
which have been introduced or placed in the annexes of the hotel. (n)
Article 2000. The responsibility referred to in the two preceding articles
shall include the loss of, or injury to the personal property of the guests
caused by the servants or employees of the keepers of hotels or inns as
well as strangers; but not that which may proceed from any force majeure.
The fact that travellers are constrained to rely on the vigilance of the
keeper of the hotels or inns shall be considered in determining the degree
of care required of him. (1784a)
Article 2001. The act of a thief or robber, who has entered the hotel is not
deemed force majeure, unless it is done with the use of arms or through
an irresistible force. (n)
Article 2002. The hotel-keeper is not liable for compensation if the loss is
due to the acts of the guest, his family, servants or visitors, or if the loss
arises from the character of the things brought into the hotel. (n)
Article 2003. The hotel-keeper cannot free himself from responsibility by
posting notices to the effect that he is not liable for the articles brought by
the guest. Any stipulation between the 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)
Article 2004. The hotel-keeper has a right to retain the things brought into
the hotel by the guest, as a security for credits on account of lodging, and
supplies usually furnished to hotel guests. (n)
CHAPTER 4
Sequestration or Judicial Deposit
Article 2005. A judicial deposit or sequestration takes place when an
attachment or seizure of property in litigation is ordered. (1785)
Article 2006. Movable as well as immovable property may be the object of
sequestration. (1786)
Article 2007. The depositary of property or objects sequestrated cannot be
relieved of his responsibility until the controversy which gave rise thereto
has come to an end, unless the court so orders. (1787a)
Article 2008. The depositary of property sequestrated is bound to comply,
with respect to the same, with all the obligations of a good father of a II. VOLUNTARY DEPOSIT
family. (1788)
Voluntary vs. necessary deposits
Article 2009. As to matters not provided for in this Code, judicial  In the former, the depositor has complete freedom in choosing
sequestration shall be governed by the Rules of Court. (1789a) the depositary, whereas in the latter, there is lack of free choice
in the depositor.

Obligations of the depositary

I. DEPOSIT IN GENERAL
 Obligation to keep the thing deposited and return it (Art. 1972)
AND ITS DIFFERENT KINDS
 Obligation not to transfer deposit (Art. 1973)
 Obligation not to change way of deposit (Art. 1974)
Characteristics of the contract
 Obligation to collect interest (Art. 1975)
 It is a real contract like commodatum and mutuum because it is
 Obligation not to commingle things deposited if so stipulated
perfected by the delivery of the subject matter.
(Art. 1976)
 When the deposit is gratuitous, it is a unilateral contract
 Obligation not to make use of thing deposited unless authorized
because only the depositary has an obligation. But when the
(Art. 1977)
deposit is for compensation, the juridical relation created
 Obligations where thing deposited is delivered closed and
becomes bilateral because it gives rise to obligations on the part
sealed (Art. 1981)
of both the depositary and the depositor.
 Obligation to return products, accessories, and accessions (Art.
Deposit vs. mutuum 1983)
 In deposit, the principal purpose is safekeeping or mere
Obligation to keep the thing deposited and return it (Art. 1972)
custody, while in mutuum, the consumption of the subject
The liability of the depositary for the care and delivery of the thing is
matter.
governed by the rules on obligations:
 In deposit, the depositor can demand the return of the subject
 He is liable if the loss occurs through his fault or negligence (Art.
matter at will, while in mutuum, the lender must wait until the
1170), even if the thing was insured (Art. 2207).
expiration of the period granted to the debtor.
 The loss of the thing while in his possession, ordinarily raises a
 In deposit, both movable and immovable property may be the
presumption of fault on his part (Art. 1265).
object, while in mutuum, only money and other fungible thing.
 The required degree of care is greater if the deposit is for
Deposit vs. commodatum compensation than when it is gratuitous. But even when it is
gratuitous, due care must still be exercised.
 In deposit, the principal purpose is safekeeping, while in
commodatum, the transfer of the use.
Obligation not to transfer deposit (Art. 1973)
 Deposit may be gratuitous, while commodatum is essentially
The depositor is liable for the loss of the thing deposited if:
and always gratuitous.
 He transfers the deposit with a third person without authority
 In (extrajudicial) deposit, only movable (corporeal) things may
although there is no negligence on his part and the third person.
be the object, while in commodatum, both movable and
 He deposits the thing with a third person who is manifestly
immovable property may be the object.
careless or unfit although authorized, even in the absence of
Kinds of deposit
negligence.
 Judicial or one which takes place when an attachment or seizure
 The thing is lost through negligence of his employees whether
of property in litigation is ordered (Arts. 2005-2008)
the latter are manifestly careless or not.
 Extrajudicial (Art. 1967) which may be:
Exemption from liability: The depositor is not responsible in case the
 Voluntary or one wherein the delivery is made by the
thing is lost without negligence of the third person with whom he was
will of the depositor or by two or more persons each
allowed to deposit the thing if such third person is not manifestly
of whom believes himself entitled to the things
careless or unfit.
deposited (Arts. 1968-1995)
 Necessary or one made in compliance with a legal
Effect if permission to use is given (Art. 1978)
obligation, or on the occasion of any calamity, ot by
 Thing deposited, non-consumable – If the thing deposited is
travelers in hotels and inns (Arts. 1996-2004) or by
non-consumable and the depositary has permission to use the
travelers with common carriers (Arts. 1734-1735)
thing, the contract loses the character of a deposit and acquires
that of a commodatum despite the fact that the parties may
Contract of deposit generally gratuitous (Art. 1965)
have denominated it as a deposit, unless safekeeping is still the
A contract of deposit is generally gratuitous, except:
principal purpose of the contract.
 Where there is contrary stipulation
 Thing deposited, money or other consumable thing – If the thing
 Where depositary engaged in business of storing goods
deposited is money or other consumable thing, the permission
 Where property saved from destruction without knowledge to use it will result in its consumption and converts the contract
into a simple loan or mutuum. But if safekeeping is still the
a. BPI v. IAC purpose of the contract, it is still a deposit but an irregular one,
No. L-66826 hence, it is called an irregular deposit. Bank deposits are in the
nature of irregular deposits but they are really loans governed
The document which embodies the contract states that the US$3,000.00 by the law on loans. (Art. 1980)
was received by the bank for safekeeping. The subsequent acts of the
parties also show that the intent of the parties was really for the bank to Irregular deposit vs. mutuum
safely keep the dollars and to return it to Zshornack at a later time. Thus,  In an irregular deposit, the consumable thing deposited may be
Zshornack demanded the return of the money on May 10, 1976, or over demanded at will by the irregular depositor for whose benefit
five months later. The above arrangement is that contract defined under the deposit has been constituted, while in mutuum, the lender
Article 1962, New Civil Code. is bound by the provisions of the contract and cannot seek
 restitution until the time for payment, as provided in the
contract, has arisen.
 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.
 The depositor in an irregular deposit has preference over other
creditors with respect to the thing deposited, while common
creditors enjoy no preference in the distribution of the debtor’s
property.
Obligations of depositary where thing deposited delivered closed and sealed
(Art. 1981)
 Return the thing deposited when delivered closed and sealed,
in the same condition
 Pay for damages should the seal or lock be broken through his
fault which is presumed unless proved otherwise
 Keep the secret of the deposit when the seal or lock is broken,
with or without his fault
Rights of two or more depositors (Art. 1985)
 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.
 Obligation solidary or thing deposited not divisible – If the
obligation is solidary, or if the thing is not divisible, the rules on
active solidarity shall apply, to the effect that each one of the
solidary depositors may do whatever may be useful to the
others but not anything which may prejudicial to the latter (Art.
1212), and the depositary may return the thing to any one of
the solidary depositors 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).
 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.
Right of depositary to return thing deposited (Art. 1989)
 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 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.
 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.
Obligations of the depositor
 Obligation to pay expenses of preservation (Art. 1992)
 Obligation to pay losses incurred due to character of thing
deposited (Art. 1993)
Effect of death of depositor or depositary (Art. 1995)
 Deposit gratuitous – If the deposit is gratuitous, the death of
either the depositor or depositary extinguishes the deposit.
 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.
Hence, the rights and obligations arising therefrom are
transmissible to their respective heirs. But the heirs of either
party have a right to terminate the deposit even before the
expiration of the term.
a. Chan v. Maceda
G.R. No. 142591
Specifically, in an action against the depositary, the burden is on the
plaintiff to prove the bailment or deposit and the performance of
conditions precedent to the right of action. A depositary is obliged to
return the thing to the depositor, or to his heirs or successors, or to the
person who may have been designated in the contract.
Considering that respondent failed to prove (1) the existence of any
contract of deposit between him and petitioners, nor between the latter
and Moreman in his favor, and (2) that there were construction materials
in petitioners’ warehouse at the time of respondent’s demand to return
the same, we hold that petitioners have no corresponding obligation or
liability to respondent with respect to those construction materials.
b. CA Agro-Industrial v. CA
G.R. No. 90027
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 in the Civil Code on deposit; the contract in the case at
bar is a special kind of deposit. It cannot be characterized as an ordinary
contract of lease under Article 1643 because the full and absolute
possession and control of the safety deposit box Was not given to the joint
renters.
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 pertinently provides: xxx 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.
Liability of lessor in contract of lease of safety deposit box can be limited
by stipulation but any stipulation for exemption shall be held ineffective.—
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. xxx 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.
In the instant case, the respondent Bank's exoneration cannot, contrary to
the holding of the Court of Appeals, be based on or proceed from a
characterization of the impugned contract as a contract of lease, but rather
on the fact that no competent proof was presented to show that
respondent Bank was aware of the agreement between the petitioner 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.
c. Sia v. CA
G.R. No. 102970
Contract for the use of safety deposit box is a special kind of deposit and
the relationship between the parties thereto, with respect to the contents
of the box, is that of a bailor and bailee, the bailment being for hire and
mutual benefit.

Although flooding could be considered a fortuitous event, failure of the
bank to give notice to the renter of such fact makes it liable for damages,
its negligence caused to aggravate injury or damage to the renter—SBTC’s
negligence aggravated the injury or damage to the petitioner which
resulted from the loss or destruction of the stamp collection. SBTC was
aware of the floods of 1985 and 1986; it also knew that the floodwaters
inundated the room where Safe Deposit Box No. 54 was located. In view
thereof, it should have lost no time in notifying the petitioner in order that
the box could have been opened to retrieve the stamps, thus saving the
same from further deterioration and loss. In this respect, it failed to
exercise the reasonable care and prudence expected of a good father of a
family, thereby becoming a party to the aggravation of the injury or loss.
Accordingly, the aforementioned fourth characteristic of a fortuitous
event is absent x x x The destruction or loss of the stamp collection which
was, in the language of the trial court, the “product of 27 years of patience
and diligence” caused the petitioner pecuniary loss; hence, he must be
compensated therefor.
d. Baron v. David
No. 26948
It should be stated that the palay in question was placed by the plaintiffs
in the defendant's mill with the understanding that the defendant was at
liberty to convert it into rice and dispose of it at his pleasure. Considering
the fact that the defendant had thus milled and doubtless sold the
plaintiffs' palay prior to the date of the fire, it results that he is bound to
account for its value, and his liability was not extinguished by the
occurrence of the fire.
Even supposing that the palay may have been delivered in the character of
deposit, subject to future sale or withdrawal at plaintiffs' election,
nevertheless if it was understood that the defendant 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 1768 of the Civil Code, when the
depositary has permission to make use of the thing deposited, the contract
loses the character of mere deposit and becomes a loan or a
commodatum; and of course by appropriating the thing, the bailee
becomes responsible for its value.
e. Javellana v. Lim
No. 4015
Where money, consisting of coins of legal tender, is deposited with a
person and the latter is authorized by the depositor to use and dispose of
the same, the agreement thus entered into between the depositor and the
depositary is not a contract of deposit, but a loan.
A subsequent agreement between the parties as to interest on the amount
said to have been deposited, because the same could not be returned at
the time fixed therefor, does not constitute a renewal of an agreement of
deposit, but is the best evidence that the original contract entered into
between the parties therein was for a loan under the guise of a deposit.
f. Rogers v. Smith
No. 4347
The claim of the plaintiff is that, having paid to the defendants 12,000
pesos in gold coin, he is now entitled to receive from them the value of
12,000 pesos in gold coin; that is to say, 24,000 pesos in silver. It is claimed
by the appellant, that while not a deposit in the strict sense of the word,
the document evidences what is known as an "irregular deposit."
Manresa, in his Commentaries on the Civil Code (vol. 11, p. 064), states
that there are three points of difference between a loan and an irregular
deposit. The first difference which he points out 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. The contract in question does not fulfill this requirement of
an irregular deposit. It is very apparent that it was not for the sole benefit
of Kogers. It, like any other loan of money, was for the benefit of both
parties. The benefit which Smith, Bell & Co. received was the use of the
money; the benefit which Kogers received was the interest on his money.
Nor does the contract in question fulfill the third requisite indicated by
Manresa, which is, that in an irregular deposit, the depositor can demand
the return of the article at any time, while a 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. It is apparent from the
terms of this document that the plaintiff could not demand his money at
any time. He was bound to give notice of his desire for its return and then
to wait for six months before he could insist upon payment.
The second difference which exists, according to Manresa, between an
irregular deposit and a loan lies in the fact that in an irregular deposit the
depositor has a preference over other creditors in the distribution of the
debtor's property.
g. Compania Agricola v. Nepomuceno
No. 32778
It appears from the record that on March 17, 1927, the registered
partnerships, Velasco, Sons, & Co., and Mariano Velasco & Co., Inc., were,
on petition of the creditors, declared insolvent by the Court of First
Instance of Manila.
On the 16th day of April, 1927, the Compañía Agrícola de Ultramar filed a
claim against one of the insolvents, Mariano Velasco & Co., claiming the
sum of P10,000, with the agreed interest thereon at the rate of 6 per cent
per annum from April 5, 1918, until its full payment. The company
maintained that the aforesaid sum was a deposit with said Mariano
Velasco & Co. and asked the court to declare it a preferred claim.
In the present case the transaction in question was clearly not for the sole
benefit of the Compañía Agrícola de Ultramar; it was evidently for the
benefit of both parties. Neither could the alleged depositor demand
payment until the expiration of the term of three months.
We hold that the transaction in question must be regarded as a loan,
without preference.
h. BPI v. CA
G.R. No. 104612
The Court of Appeals correctly decided on the counterclaim. The
counterclaim of Eastern and Lim for the return of the P331,261.44 was
equivalent to a demand that they be allowed to withdraw their deposit
with the bank. Article 1980 of the Civil Code expressly provides that
“[f]ixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning simple loan.”
In Serrano vs. Central Bank of the Philippines, we held that bank deposits
are in the nature of irregular deposits; they are really loans because they
earn interest. The relationship then between a depositor and a bank is one
of creditor and debtor. The deposit under the questioned account was an
ordinary bank deposit; hence, it was payable on demand of the depositor.
i. Metrobank v. BA Finance
G.R. No. 179952
The nature of the relationship between the payee of a check and the
collecting bank is one of agency—the obligation of the bank does not arise
out of a loan or forbearance of money, goods or credit, thus the legal
interest should be 6%, not 12%, per annum.— While Article 1980 of the
Civil Code provides that: Fixed savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions
concerning simple loan, said provision does not find application in this case
since the nature of the relationship between BA Finance and petitioner is
one of agency whereby petitioner, as collecting bank, is to collect for BA
Finance the corresponding proceeds from the check. Not being a loan or
forbearance of money, the interest should be 6% per annum computed
from the date of extrajudicial demand on September 25, 1992 until finality
of judgment; and 12% per annum from finality of judgment until payment,
conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.
j. Reyes v. CA
G.R. No. 118492
We now determine the degree of diligence that banks are required to exert
in their commercial dealings. In Philippine Bank of Commerce v. Court of
Appeals upholding a long-standing doctrine, we ruled that the degree of
diligence required of banks, is more than that of a good father of a family
where the fiduciary nature of their relationship with their depositors is
concerned. In other words, banks are duty bound to treat the deposit
accounts of their depositors with the highest degree of care. But the said
ruling applies only to cases where banks act under their fiduciary capacity,
that is, as depositary of the deposits of their depositors. But the same
higher degree of diligence is not expected to be exerted by banks in
commercial transactions that do not involve their fiduciary relationship
with their depositors.
Considering the foregoing, the respondent bank was not required to exert
more than the diligence of a good father of a family in regard to the sale
and issuance of the subject foreign exchange demand draft. The case at
bar does not involve the handling of petitioners’ deposit, if any, with the
respondent bank. Instead, the relationship involved was that of a buyer
and seller, that is, between the respondent bank as the seller of the subject
foreign exchange demand draft, and PRCI as the buyer of the same, with
the 20th Asian Racing Conference Secretariat in Sydney, Australia as the
payee thereof.
k. Guingona v. City Fiscal
No. L-60033
It must be pointed out that when private respondent David invested his
money on time and savings deposits with the aforesaid bank, the contract
that was perfected was a contract of simple loan or mutuum and not a
contract of deposit.
Hence, the relationship between the private respondent and the Nation
Savings and Loan Association is that of creditor and debtor; consequently,
the ownership of the amount deposited was transmitted to the Bank upon
the perfection of the contract and it can make use of the amount deposited
for its banking operations, such as to pay interests on deposits and to pay
withdrawals. 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, And, the failure of the Bank to return the
amount deposited will not constitute estafa through misappropriation
punishable under Article 315, par. 1(b) of the Revised Penal Code, but it
will only give rise to civil liability over which the public respondents have
no jurisdiction.
III. NECESSARY DEPOSIT
Necessary deposit
 Articles 1996 and 1997 mentions two kinds of necessary
deposit. The third is that made by travelers in hotels or inns (Art
1998). The fourth kind is that made by passengers with common
carriers.
Deposit by travelers in hotels and inns (Art. 1998)
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:
 They have been previously informed about the effects brought
by the guests.
 The latter have taken the precautions prescribed regarding their
safekeeping.
When hotel-keeper liable
 The loss or injury is caused by his servants or employees as well
as by strangers provided that notice has been given and proper
precautions taken.
 The loss is caused by the act of a thief or robber done without
the use of arms and irresistible force.
When hotel-keeper not liable
 The loss or injury is caused by force majeure, like flood, fire,
theft or robbery by a stranger (not by hotel-keeper’s servant or
employee) with the use of arms or irresistible force, etc., unless
he is guilty of fault or negligence in failing to provide against the
loss or injury from his cause.
 The loss is due to the acts of the guests, his family, servants, or
visitors.
 The loss arises from the character of the things brought into the
hotel.
a. Durban Apartments v. Pioneer
G.R. No. 179419
The contract of deposit was perfected when the hotel guest handed over
to the hotel’s parking attendant the keys to his vehicle, which the latter
received with the obligation of safely keeping and returning it.—Article
1962, in relation to Article 1998, of the Civil Code defines a contract of
deposit and a necessary deposit made by persons in hotels or inns. The
insured See deposited his vehicle for safekeeping with petitioner, through
the latter’s employee, Justimbaste. In turn, Justimbaste issued a claim stub
to See. Thus, the contract of deposit was perfected from See’s delivery,
when he handed over to Justimbaste the keys to his vehicle, which
Justimbaste received with the obligation of safely keeping and returning it.
Ultimately, petitioner is liable for the loss of See’s vehicle.
[The] records also reveal that upon arrival at the City Garden Hotel, See
gave notice to the doorman and parking attendant of the said hotel, x x x
Justimbaste, about his Vitara when he entrusted its ignition key to the
latter. x x x Justimbaste issued a valet parking customer claim stub to See,
parked the Vitara at the Equitable PCI Bank parking area, and placed the
ignition key inside a safety key box while See proceeded to the hotel lobby
to check in. The Equitable PCI Bank parking area became an annex of City
Garden Hotel when the management of the said bank allowed the parking
of the vehicles of hotel guests thereat in the evening after banking hours.
b. YHT Realty v. CA
G.R. No. 126780
Article 2003 was incorporated in the New Civil Code as an expression of
public policy precisely to apply to situations such as that presented in this
case. The hotel business like the common carrier’s business is imbued with
public interest. Catering to the public, hotelkeepers are bound to provide
not only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the business. The law
in turn does not allow such duty to the public to be negated or diluted by
any contrary stipulation in so-called “undertakings” that ordinarily appear
in prepared forms imposed by hotel keepers on guests for their signature.
In an early case, the Court of Appeals through its then Presiding Justice
(later Associate Justice of the Court) Jose P. Bengzon, ruled that to hold
hotelkeepers or innkeeper liable for the effects of their guests, it is not
necessary that they be actually delivered to the innkeepers or their
employees. It is enough that such effects are within the hotel or inn. With
greater reason should the liability of the hotelkeeper be enforced when
the missing items are taken without the guest’s knowledge and consent
from a safety deposit box provided by the hotel itself, as in this case.
Article 2002 of the Civil Code which exempts the hotel-keeper from liability
if the loss is due to the acts of his guest, his family, or visitors presupposes
that the hotel-keeper is not guilty of concurrent negligence or has not
contributed in any degree to the occurrence of the loss—a depositary is
not responsible for the loss of goods by theft, unless his actionable
negligence contributes to the loss.
In the case at bar, the responsibility of securing the safety deposit box was
shared not only by the guest himself but also by the management since
two keys are necessary to open the safety deposit box. Without the
assistance of hotel employees, the loss would not have occurred. Thus,
Tropicana was guilty of concurrent negligence in allowing Tan, who was
not the registered guest, to open the safety deposit box of McLoughlin,
even assuming that the latter was also guilty of negligence in allowing
another person to use his key. To rule otherwise would result in
undermining the safety of the safety deposit boxes in hotels for the
management will be given imprimatur to allow any person, under the
pretense of being a family member or a visitor of the guest, to have access
to the safety deposit box without fear of any liability that will attach
thereafter in case such person turns out to be a complete stranger. This
will allow the hotel to evade responsibility for any liability incurred by its
employees in conspiracy with the guest’s relatives and visitors.
c. Makati Shangri-La v. Harper
G.R. No. 189998
The Court agrees with the CA that petitioner failed to provide the basic and
adequate security measures expected of a five-star hotel; and that its
omission was the proximate cause of Harper’s death.
The hotel business is imbued with public interest. Catering to the public,
hotelkeepers are bound to provide not only lodging for their guests but
also security to the persons and belongings of their guests. The twin duty
constitutes the essence of the business. Applying by analogy Article 2000,
Article 2001 and Article 2002 of the Civil Code (all of which concerned the
hotelkeepers’ degree of care and responsibility as to the personal effects
of their guests), we hold that there is much greater reason to apply the
same if not greater degree of care and responsibility when the lives and
personal safety of their guests are involved. Otherwise, the hotelkeepers
would simply stand idly by as strangers have unrestricted access to all the
hotel rooms on the pretense of being visitors of the guests, without being
held liable should anything untoward befall the unwary guests. That would
be absurd, something that no good law would ever envision.
IV. SEQUESTRATION OR JUDICIAL DEPOSIT
Nature and purpose of judicial deposit
 Judicial deposit or sequestration tales place when an
attachment or seizure of property in litigation is ordered by a
court.
 The deposit is judicial because it is auxiliary to a case pending in
court.
 The purpose is to maintain the status quo during the pendency
of the litigation or to insure the right of the parties to the
property in case of a favorable judgment.
Judicial vs. extrajudicial deposits
 Cause or origin – judicial, by the will of the court; extrajudicial,
by the will of the parties; hence, there is a contract
 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
 Subject matter – judicial, either movable or immovable property
but generally immovable property; extrajudicial, only movable
property
 Remuneration – judicial, always remunerated (onerous);
extrajudicial, may be compensated or not, but generally
gratuitous
 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
a. Los Banos v. Africa
G.R. No. 143994
Petitioner further contends that respondents are not entitled to the relief
prayed for, because they caused a notice of lis pendens to be annotated at
the back of TCT No. 81519, registered in the name of Macy P. Africa; thus,
that notice provided ample protection of their rights and interests.
We are not persuaded. A notice of lis pendens serves as an announcement
to the whole world that a particular real property is in litigation and as a
warning that those who acquire an interest in the property do so at their
own risk—they gamble on the result of the litigation over it. However, the
cancellation of such notice may be ordered by the court that has
jurisdiction over it at any given time. Its continuance or removal—like the
continuance or the removal of a preliminary attachment or injunction—is
not contingent on the existence of a final judgment on the action and
ordinarily has no effect on the merits thereof. Thus, the notice of lis
pendens does not suffice to protect herein respondents’ rights over the
property. It does not provide complete and ample protection.
b. Province of Bataan v. Villafuerte
G.R. No. 129995
An escrow is a written instrument which by its terms imports a 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 condition 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 way of
grant, or as otherwise stated, instruments for the conveyance of land,
under modern 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. Particular instruments which have been
held to be the subject of an escrow include bonds or covenants, deeds,
mortgages, oil and gas leases, contracts for the sale of land or for the
purchase of personal property, corporate stocks and stock subscriptions,
promissory notes or other commercial paper, insurance applications and
policies, contracts for the settlement of will-contest cases, indentures of
apprenticeship, receipts assigning concessions and discontinuances and
releases of causes of action. Moreover, it is no longer open to question
that money may be delivered in escrow.
In our jurisdiction, an escrow order issued by a court of law may find ample
basis and support in the court’s intrinsic power to issue orders and other
ancillary writs and processes incidental or reasonably necessary to the
exercise of its main jurisdiction. The deposit of rentals in escrow with the
bank, in the name of the lower court, is only an incident in the main
proceeding—to be sure, placing property in litigation under judicial
possession, whether in the hands of a receiver, an administrator, or in a
government bank, is an ancient and accepted procedure.
 shall be plainly placed upon the face of every such receipt, except the
PART IV first one issued. A warehouseman shall be liable for all damages caused
by his failure so to do to any one who purchased the subsequent receipt
WAREHOUSE RECEIPTS LAW
for value supposing it to be an original, even though the purchase be
(Act No. 2137)
after the delivery of the goods by the warehouseman to the holder of the
original receipt.
I — THE ISSUE OF WAREHOUSE RECEIPTS
Sec. 7. Failure to mark "non-negotiable." — A non-negotiable receipt shall
Section 1. Persons who may issue receipts. — Warehouse receipts may
have plainly placed upon its face by the warehouseman issuing it "non-
be issued by any warehouseman.
negotiable," or "not negotiable." In case of the warehouseman's failure
so to do, a holder of the receipt who purchased it for value supposing it
Sec. 2. Form of receipts; essential terms. — Warehouse receipts need not
to be negotiable, may, at his option, treat such receipt as imposing upon
be in any particular form but every such receipt must embody within its
the warehouseman the same liabilities he would have incurred had the
written or printed terms:
receipt been negotiable.
(a) The location of the warehouse where the goods are stored,
This section shall not apply, however, to letters, memoranda, or written
acknowledgment of an informal character.
(b) The date of the issue of the receipt,
II — OBLIGATIONS AND RIGHTS OF WAREHOUSEMEN UPON THEIR
(c) The consecutive number of the receipt,
RECEIPTS
(d) A statement whether the goods received will be delivered to the
Sec. 8. Obligation of warehousemen to deliver. — A warehouseman, in
bearer, to a specified person or to a specified person or his order,
the absence of some lawful excuse provided by this Act, is bound to
deliver the goods upon a demand made either by the holder of a receipt
(e) The rate of storage charges,
for the goods or by the depositor; if such demand is accompanied with:
(f) A description of the goods or of the packages containing them,
(a) An offer to satisfy the warehouseman's lien;
(g) The signature of the warehouseman which may be made by his
(b) An offer to surrender the receipt, if negotiable, with such
authorized agent,
indorsements as would be necessary for the negotiation of the receipt;
and
(h) If the receipt is issued for goods of which the warehouseman is
owner, either solely or jointly or in common with others, the fact of such
(c) A readiness and willingness to sign, when the goods are delivered, an
ownership, and
acknowledgment that they have been delivered, if such signature is
requested by the warehouseman.
(i) A statement of the amount of advances made and of liabilities incurred
for which the warehouseman claims a lien. If the precise amount of such
In case the warehouseman refuses or fails to deliver the goods in
advances made or of such liabilities incurred is, at the time of the issue
compliance with a demand by the holder or depositor so accompanied,
of, unknown to the warehouseman or to his agent who issues it, a
the burden shall be upon the warehouseman to establish the existence of
statement of the fact that advances have been made or liabilities
a lawful excuse for such refusal.
incurred and the purpose thereof is sufficient.
Sec. 9. Justification of warehouseman in delivering. — A warehouseman
A warehouseman shall be liable to any person injured thereby for all
is justified in delivering the goods, subject to the provisions of the three
damages caused by the omission from a negotiable receipt of any of the
following sections, to one who is:
terms herein required.
(a) The person lawfully entitled to the possession of the goods, or his
Sec. 3. Form of receipts. — What terms may be inserted. — A
agent;
warehouseman may insert in a receipt issued by him any other terms and
conditions provided that such terms and conditions shall not:
(b) A person who is either himself entitled to delivery by the terms of a
non-negotiable receipt issued for the goods, or who has written authority
(a) Be contrary to the provisions of this Act.
from the person so entitled either indorsed upon the receipt or written
upon another paper; or
(b) In any wise impair his obligation to exercise that degree of care in the
safe-keeping of the goods entrusted to him which is reasonably careful
(c) A person in possession of a negotiable receipt by the terms of which
man would exercise in regard to similar goods of his own.
the goods are deliverable to him or order, or to bearer, or which has
been indorsed to him or in blank by the person to whom delivery was
Sec. 4. Definition of non-negotiable receipt. — A receipt in which it is
promised by the terms of the receipt or by his mediate or immediate
stated that the goods received will be delivered to the depositor or to any
indorser.
other specified person, is a non-negotiable receipt.
Sec. 10. Warehouseman's liability for misdelivery. — Where a
Sec. 5. Definition of negotiable receipt. — A receipt in which it is stated
warehouseman delivers the goods to one who is not in fact lawfully
that the goods received will be delivered to the bearer or to the order of
entitled to the possession of them, the warehouseman shall be liable as
any person named in such receipt is a negotiable receipt.
for conversion to all having a right of property or possession in the goods
if he delivered the goods otherwise than as authorized by subdivisions (b)
No provision shall be inserted in a negotiable receipt that it is non-
and (c) of the preceding section, and though he delivered the goods as
negotiable. Such provision, if inserted shall be void.
authorized by said subdivisions, he shall be so liable, if prior to such
delivery he had either:
Sec. 6. Duplicate receipts must be so marked. — When more than one
negotiable receipt is issued for the same goods, the word "duplicate"
(a) Been requested, by or on behalf of the person lawfully entitled to a
right of property or possession in the goods, not to make such deliver; or
(b) Had information that the delivery about to be made was to one not
lawfully entitled to the possession of the goods.
Sec. 11. Negotiable receipt must be cancelled when goods delivered. —
Except as provided in section thirty-six, where a warehouseman delivers
goods for which he had issued a negotiable receipt, the negotiation of
which would transfer the right to the possession of the goods, and fails to
take up and cancel the receipt, he shall be liable to any one who
purchases for value in good faith such receipt, for failure to deliver the
goods to him, whether such purchaser acquired title to the receipt before
or after the delivery of the goods by the warehouseman.
Sec. 12. Negotiable receipts must be cancelled or marked when part of
goods delivered. — Except as provided in section thirty-six, where a
warehouseman delivers part of the goods for which he had issued a
negotiable receipt and fails either to take up and cancel such receipt or to
place plainly upon it a statement of what goods or packages have been
delivered, he shall be liable to any one who purchases for value in good
faith such receipt, for failure to deliver all the goods specified in the
receipt, whether such purchaser acquired title to the receipt before or
after the delivery of any portion of the goods by the warehouseman.
Sec. 13. Altered receipts. — The alteration of a receipt shall not excuse
the warehouseman who issued it from any liability if such alteration was:
(a) Immaterial,
(b) Authorized, or
(c) Made without fraudulent intent.
If the alteration was authorized, the warehouseman shall be liable
according to the terms of the receipt as altered. If the alteration was
unauthorized but made without fraudulent intent, the warehouseman
shall be liable according to the terms of the receipt as they were before
alteration.
Material and fraudulent alteration of a receipt shall not excuse the
warehouseman who issued it from liability to deliver according to the
terms of the receipt as originally issued, the goods for which it was issued
but shall excuse him from any other liability to the person who made the
alteration and to any person who took with notice of the alteration. Any
purchaser of the receipt for value without notice of the alteration shall
acquire the same rights against the warehouseman which such purchaser
would have acquired if the receipt had not been altered at the time of
purchase.
Sec. 14. Lost or destroyed receipts. — Where a negotiable receipt has
been lost or destroyed, a court of competent jurisdiction may order the
delivery of the goods upon satisfactory proof of such loss or destruction
and upon the giving of a bond with sufficient sureties to be approved by
the court to protect the warehouseman from any liability or expense,
which he or any person injured by such delivery may incur by reason of
the original receipt remaining outstanding. The court may also in its
discretion order the payment of the warehouseman's reasonable costs
and counsel fees.
The delivery of the goods under an order of the court as provided in this
section, shall not relieve the warehouseman from liability to a person to
whom the negotiable receipt has been or shall be negotiated for value
without notice of the proceedings or of the delivery of the goods.
Sec. 15. Effect of duplicate receipts. — A receipt upon the face of which
the word "duplicate" is plainly placed is a representation and warranty by
the warehouseman that such receipt is an accurate copy of an original
receipt properly issued and uncanceled at the date of the issue of the
duplicate, but shall impose upon him no other liability.
Sec. 16. Warehouseman cannot set up title in himself . — No title or right
to the possession of the goods, on the part of the warehouseman, unless
such title or right is derived directly or indirectly from a transfer made by
the depositor at the time of or subsequent to the deposit for storage, or
from the warehouseman's lien, shall excuse the warehouseman from
liability for refusing to deliver the goods according to the terms of the
receipt.
Sec. 17. Interpleader of adverse claimants. — If more than one person
claims the title or possession of the goods, the warehouseman may,
either as a defense to an action brought against him for non-delivery of
the goods or as an original suit, whichever is appropriate, require all
known claimants to interplead.
Sec. 18. Warehouseman has reasonable time to determine validity of
claims. — If someone other than the depositor or person claiming under
him has a claim to the title or possession of goods, and the
warehouseman has information of such claim, the warehouseman shall
be excused from liability for refusing to deliver the goods, either to the
depositor or person claiming under him or to the adverse claimant until
the warehouseman has had a reasonable time to ascertain the validity of
the adverse claim or to bring legal proceedings to compel claimants to
interplead.
Sec. 19. Adverse title is no defense except as above provided. — Except
as provided in the two preceding sections and in sections nine and thirty-
six, no right or title of a third person shall be a defense to an action
brought by the depositor or person claiming under him against the
warehouseman for failure to deliver the goods according to the terms of
the receipt.
Sec. 20. Liability for non-existence or misdescription of goods. — A
warehouseman shall be liable to the holder of a receipt for damages
caused by the non-existence of the goods or by the failure of the goods
to correspond with the description thereof in the receipt at the time of its
issue. If, however, the goods are described in a receipt merely by a
statement of marks or labels upon them or upon packages containing
them or by a statement that the goods are said to be goods of a certain
kind or that the packages containing the goods are said to contain goods
of a certain kind or by words of like purport, such statements, if true,
shall not make liable the warehouseman issuing the receipt, although the
goods are not of the kind which the marks or labels upon them indicate
or of the kind they were said to be by the depositor.
Sec. 21. Liability for care of goods. — A warehouseman shall be liable for
any loss or injury to the goods caused by his failure to exercise such care
in regard to them as reasonably careful owner of similar goods would
exercise, but he shall not be liable, in the absence of an agreement to the
contrary, for any loss or injury to the goods which could not have been
avoided by the exercise of such care.
Sec. 22. Goods must be kept separate. — Except as provided in the
following section, a warehouseman shall keep the goods so far separate
from goods of other depositors and from other goods of the same
depositor for which a separate receipt has been issued, as to permit at all
times the identification and redelivery of the goods deposited.
Sec. 23. Fungible goods may be commingled if warehouseman
authorized. — If authorized by agreement or by custom, a
warehouseman may mingle fungible goods with other goods of the same
kind and grade. 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 thereof as the amount deposited by him bears to the
whole.
Sec. 24. Liability of warehouseman to depositors of commingled goods.
— The warehouseman shall be severally liable to each depositor for the
care and redelivery of his share of such mass to the same extent and
under the same circumstances as if the goods had been kept separate.
Sec. 25. Attachment or levy upon goods for which a negotiable receipt
has been issued. — If goods are delivered to a warehouseman by the
owner or by a person whose act in conveying the title to them to a
purchaser in good faith for value would bind the owner, and a negotiable
receipt is issued for them, they can not thereafter, while in the
possession of the warehouseman, be attached by garnishment or
otherwise, or be levied upon under an execution unless the receipt be
first surrendered to the warehouseman or its negotiation enjoined. The
warehouseman shall in no case be compelled to deliver up the actual
possession of the goods until the receipt is surrendered to him or
impounded by the court.
Sec. 26. Creditor's remedies to reach negotiable receipts. — A creditor
whose debtor is the owner of a negotiable receipt shall be entitled to
such aid from courts of appropriate jurisdiction, by injunction and
otherwise, in attaching such receipt or in satisfying the claim by means
thereof as is allowed at law or in equity in these islands in regard to
property which can not readily be attached or levied upon by ordinary
legal process.
Sec. 27. What claims are included in the warehouseman's lien. — Subject
to the provisions of section thirty, a warehouseman shall have a lien on
goods deposited or on the proceeds thereof in his hands, for all lawful
charges for storage and preservation of the goods; also for all lawful
claims for money advanced, interest, insurance, transportation, labor,
weighing, coopering and other charges and expenses in relation to such
goods, also for all reasonable charges and expenses for notice, and
advertisements of sale, and for sale of the goods where default had been
made in satisfying the warehouseman's lien.
Sec. 28. Against what property the lien may be enforced. — Subject to
the provisions of section thirty, a warehouseman's lien may be enforced:
(a) Against all goods, whenever deposited, belonging to the person who is
liable as debtor for the claims in regard to which the lien is asserted, and
(b) Against all goods belonging to others which have been deposited at
any time by the person who is liable as debtor for the claims in regard to
which the lien is asserted if such person had been so entrusted with the
possession of goods that a pledge of the same by him at the time of the
deposit to one who took the goods in good faith for value would have
been valid.
Sec. 29. How the lien may be lost. — A warehouseman loses his lien upon
goods:
(a) By surrendering possession thereof, or
(b) By refusing to deliver the goods when a demand is made with which
he is bound to comply under the provisions of this Act.
Sec. 30. Negotiable receipt must state charges for which the lien is
claimed. — If a negotiable receipt is issued for goods, the warehouseman
shall have no lien thereon except for charges for storage of goods
subsequent to the date of the receipt unless the receipt expressly
enumerated other charges for which a lien is claimed. In such case, there
shall be a lien for the charges enumerated so far as they are within the
terms of section twenty-seven although the amount of the charges so
enumerated is not stated in the receipt.
Sec. 31. Warehouseman need not deliver until lien is satisfied. — A
warehouseman having a lien valid against the person demanding the
goods may refuse to deliver the goods to him until the lien is satisfied.
Sec. 32. Warehouseman's lien does not preclude other remedies. —
Whether a warehouseman has or has not a lien upon the goods, he is
entitled to all remedies allowed by law to a creditor against a debtor for
the collection from the depositor of all charges and advances which the
depositor has expressly or impliedly contracted with the warehouseman
to pay.
Sec. 33. Satisfaction of lien by sale. — A warehouseman's lien for a claim
which has become due may be satisfied as follows:
(a) An itemized statement of the warehouseman's claim, showing the
sum due at the time of the notice and the date or dates when it becomes
due,
(b) A brief description of the goods against which the lien exists,
(c) A demand that the amount of the claim as stated in the notice of such
further claim as shall accrue, shall be paid on or before a day mentioned,
not less than ten days from the delivery of the notice if it is personally
delivered, or from the time when the notice shall reach its destination,
according to the due course of post, if the notice is sent by mail,
(d) A statement that unless the claim is paid within the time specified, the
goods will be advertised for sale and sold by auction at a specified time
and place.
In accordance with the terms of a notice so given, a sale of the goods by
auction may be had to satisfy any valid claim of the warehouseman for
which he has a lien on the goods. The sale shall be had in the place
where the lien was acquired, or, if such place is manifestly unsuitable for
the purpose of the claim specified in the notice to the depositor has
elapsed, and advertisement of the sale, describing the goods to be sold,
and stating the name of the owner or person on whose account the
goods are held, and the time and place of the sale, shall be published
once a week for two consecutive weeks in a newspaper published in the
place where such sale is to be held. The sale shall not be held less than
fifteen days from the time of the first publication. If there is no
newspaper published in such place, the advertisement shall be posted at
least ten days before such sale in not less than six conspicuous places
therein.
From the proceeds of such sale, the warehouseman shall satisfy his lien
including the reasonable charges of notice, advertisement and sale. The
balance, if any, of such proceeds shall be held by the warehouseman and
delivered on demand to the person to whom he would have been bound
to deliver or justified in delivering goods.
At any time before the goods are so sold, any person claiming a right of
property or possession therein may pay the warehouseman the amount
necessary to satisfy his lien and to pay the reasonable expenses and
liabilities incurred in serving notices and advertising and preparing for the
sale up to the time of such payment. The warehouseman shall deliver
the goods to the person making payment if he is a person entitled, under
the provision of this Act, to the possession of the goods on payment of
charges thereon. Otherwise, the warehouseman shall retain the
possession of the goods according to the terms of the original contract of
deposit.
Sec. 34. Perishable and hazardous goods. — If goods are of a perishable
nature, or by keeping will deteriorate greatly in value, or, by their order,
leakage, inflammability, or explosive nature, will be liable to injure other
property , the warehouseman may give such notice to the owner or to
the person in whose names the goods are stored, as is reasonable and
possible under the circumstances, to satisfy the lien upon such goods and
to remove them from the warehouse and in the event of the failure of
such person to satisfy the lien and to receive the goods within the time so
specified, the warehouseman may sell the goods at public or private sale
without advertising. If the warehouseman, after a reasonable effort, is
unable to sell such goods, he may dispose of them in any lawful manner
and shall incur no liability by reason thereof.
The proceeds of any sale made under the terms of this section shall be
disposed of in the same way as the proceeds of sales made under the
terms of the preceding section.
Sec. 35. Other methods of enforcing lien. — The remedy for enforcing a
lien herein provided does not preclude any other remedies allowed by
law for the enforcement of a lien against personal property nor bar the
right to recover so much of the warehouseman's claim as shall not be
paid by the proceeds of the sale of the property.
Sec. 36. Effect of sale. — After goods have been lawfully sold to satisfy a
warehouseman's lien, or have been lawfully sold or disposed of because
of their perishable or hazardous nature, the warehouseman shall not
thereafter be liable for failure to deliver the goods to the depositor or
owner of the goods or to a holder of the receipt given for the goods
when they were deposited, even if such receipt be negotiable.
III — NEGOTIATION AND TRANSFER OF RECEIPTS
Sec. 37. Negotiation of negotiable receipt of delivery. — A negotiable
receipt may be negotiated by delivery:
(a) Where, by terms of the receipt, the warehouseman undertakes to
deliver the goods to the bearer, or
(b) Where, by the terms of the receipt, the warehouseman undertakes to
deliver the goods to the order of a specified person, and such person or a
subsequent indorsee of the receipt has indorsed it in blank or to bearer.
Where, by the terms of a negotiable receipt, the goods are deliverable to
bearer or where a negotiable receipt has been indorsed in blank or to
bearer, any holder may indorse the same to himself or to any other
specified person, and, in such case, the receipt shall thereafter be
negotiated only by the indorsement of such indorsee.
Sec. 38. Negotiation of negotiable receipt by indorsement. — A
negotiable receipt may be negotiated by the indorsement of the person
to whose order the goods are, by the terms of the receipt,
deliverable. Such indorsement may be in blank, to bearer or to a
specified person. If indorsed to a specified person, it may be again
negotiated by the indorsement of such person in blank, to bearer or to
another specified person. Subsequent negotiation may be made in like
manner.
Sec. 39. Transfer of receipt. — A receipt which is not in such form that it
can be negotiated by delivery may be transferred by the holder by
delivery to a purchaser or donee.
A non-negotiable receipt can not be negotiated, and the indorsement of
such a receipt gives the transferee no additional right.
Sec. 40. Who may negotiate a receipt. — A negotiable receipt may be
negotiated:
(a) By the owner thereof, or
(b) By any person to whom the possession or custody of the receipt has
been entrusted by the owner, if, by the terms of the receipt, the
warehouseman undertakes to deliver the goods to the order of the
person to whom the possession or custody of the receipt has been
entrusted, or if, at the time of such entrusting, the receipt is in such form
that it may be negotiated by delivery.
Sec. 41. Rights of person to whom a receipt has been negotiated. — A
person to whom a negotiable receipt has been duly negotiated acquires
thereby:
(a) Such title to the goods as the person negotiating the receipt to him
had or had ability to convey to a purchaser in good faith for value, and
also such title to the goods as the depositor or person to whose order the
goods were to be delivered by the terms of the receipt had or had ability
to convey to a purchaser in good faith for value, and
(b) The direct obligation of the warehouseman to hold possession of the
goods for him according to the terms of the receipt as fully as if the
warehouseman and contracted directly with him.
Sec. 42. Rights of person to whom receipt has been transferred. — A
person to whom a receipt has been transferred but not negotiated
acquires thereby, as against the transferor, the title of the goods subject
to the terms of any agreement with the transferor.
If the receipt is non-negotiable, such person also acquires the right to
notify the warehouseman of the transfer to him of such receipt and
thereby to acquire the direct obligation of the warehouseman to hold
possession of the goods for him according to the terms of the receipt.
Prior to the notification of the warehouseman by the transferor or
transferee of a non-negotiable receipt, the title of the transferee to the
goods and the right to acquire the obligation of the warehouseman may
be defeated by the levy of an attachment or execution upon the goods by
a creditor of the transferor or by a notification to the warehouseman by
the transferor or a subsequent purchaser from the transferor of a
subsequent sale of the goods by the transferor.
Sec. 43. Transfer of negotiable receipt without indorsement. — Where a
negotiable receipt is transferred for value by delivery and the
indorsement of the transferor is essential for negotiation, the transferee
acquires a right against the transferor to compel him to indorse the
receipt unless a contrary intention appears. The negotiation shall take
effect as of the time when the indorsement is actually made.
Sec. 44. Warranties of a sale of receipt. — A person who, for value,
negotiates or transfers a receipt by indorsement or delivery, including
one who assigns for value a claim secured by a receipt, unless a contrary
intention appears, warrants:
(a) That the receipt is genuine,
(b) That he has a legal right to negotiate or transfer it,
(c) That he has knowledge of no fact which would impair the validity or
worth of the receipt, and
(d) That he has a right to transfer the title to the goods and that the
goods are merchantable or fit for a particular purpose whenever such
warranties would have been implied, if the contract of the parties had
been to transfer without a receipt of the goods represented thereby.
Sec. 45. Indorser not a guarantor. — The indorsement of a receipt shall
not make the indorser liable for any failure on the part of the
warehouseman or previous indorsers of the receipt to fulfill their
respective obligations.
Sec. 46. No warranty implied from accepting payment of a debt. — A
mortgagee, pledgee, or holder for security of a receipt who, in good faith,
demands or receives payment of the debt for which such receipt is
security, whether from a party to a draft drawn for such debt or from any
other person, shall not, by so doing, be deemed to represent or to
warrant the genuineness of such receipt or the quantity or quality of the
goods therein described.
Sec. 47. When negotiation not impaired by fraud, mistake or duress. —
The validity of the negotiation of a receipt is not impaired by the fact that
such negotiation was a breach of duty on the part of the person making
the negotiation or by the fact that the owner of the receipt was induced
by fraud, mistake or duress or to entrust the possession or custody of the
receipt to such person, if the person to whom the receipt was negotiated
or a person to whom the receipt was subsequently negotiated paid value
therefor, without notice of the breach of duty, or fraud, mistake or
duress.
Sec. 48. Subsequent negotiation. — Where a person having sold,
mortgaged, or pledged goods which are in warehouse and for which a
negotiable receipt has been issued, or having sold, mortgaged, or
pledged the negotiable receipt representing such goods, continues in
possession of the negotiable receipt, the subsequent negotiation thereof
by the person under any sale or other disposition thereof to any person
receiving the same in good faith, for value and without notice of the
previous sale, mortgage or pledge, shall have the same effect as if the
first purchaser of the goods or receipt had expressly authorized the
subsequent negotiation.
Sec. 49. Negotiation defeats vendor's lien. — Where a negotiable receipt
has been issued for goods, no seller's lien or right of stoppage in transitu
shall defeat the rights of any purchaser for value in good faith to whom
such receipt has been negotiated, whether such negotiation be prior or
subsequent to the notification to the warehouseman who issued such
receipt of the seller's claim to a lien or right of stoppage in transitu. Nor
shall the warehouseman be obliged to deliver or justified in delivering the
goods to an unpaid seller unless the receipt is first surrendered for
cancellation.
IV — CRIMINAL OFFENSES
Sec. 50. Issue of receipt for goods not received. — A warehouseman, or
an officer, agent, or servant of a warehouseman who issues or aids in
issuing a receipt knowing that the goods for which such receipt is issued
have not been actually received by such warehouseman, or are not under
his actual control at the time of issuing such receipt, shall be guilty of a
crime, and, upon conviction, shall be punished for each offense by
imprisonment not exceeding five years, or by a fine not exceeding ten
thousand pesos, or both.
Sec. 51. Issue of receipt containing false statement. — A warehouseman,
or any officer, agent or servant of a warehouseman who fraudulently
issues or aids in fraudulently issuing a receipt for goods knowing that it
contains any false statement, shall be guilty of a crime, and upon
conviction, shall be punished for each offense by imprisonment not
exceeding one year, or by a fine not exceeding two thousand pesos, or by
both.
Sec. 52. Issue of duplicate receipt not so marked. — A warehouse, or any
officer, agent, or servant of a warehouseman who issues or aids in issuing
a duplicate or additional negotiable receipt for goods knowing that a
former negotiable receipt for the same goods or any part of them is
outstanding and uncanceled, without plainly placing upon the face
thereof the word "duplicate" except in the case of a lost or destroyed
receipt after proceedings are provided for in section fourteen, shall be
guilty of a crime, and, upon conviction, shall be punished for each offense
by imprisonment not exceeding five years, or by a fine not exceeding ten
thousand pesos, or by both.
Sec. 53. Issue for warehouseman's goods or receipts which do not state
that fact. — Where they are deposited with or held by a warehouseman
goods of which he is owner, either solely or jointly or in common with
others, such warehouseman, or any of his officers, agents, or servants
who, knowing this ownership, issues or aids in issuing a negotiable
receipt for such goods which does not state such ownership, shall be
guilty of a crime, and, upon conviction, shall be punished for each offense
by imprisonment not exceeding one year, or by a fine not exceeding two
thousand pesos, or by both.
Sec. 54. Delivery of goods without obtaining negotiable receipt. — A
warehouseman, or any officer, agent, or servant of a warehouseman,
who delivers goods out of the possession of such warehouseman,
knowing that a negotiable receipt the negotiation of which would
transfer the right to the possession of such goods is outstanding and
uncanceled, without obtaining the possession of such receipt at or before
the time of such delivery, shall, except in the cases provided for in
sections fourteen and thirty-six, be found guilty of a crime, and, upon
conviction, shall be punished for each offense by imprisonment not
exceeding one year, or by a fine not exceeding two thousand pesos, or by
both.
Sec. 55. Negotiation of receipt for mortgaged goods. — Any person who
deposits goods to which he has no title, or upon which there is a lien or
mortgage, and who takes for such goods a negotiable receipt which he
afterwards negotiates for value with intent to deceive and without
disclosing his want of title or the existence of the lien or mortgage, shall
be guilty of a crime, and, upon conviction, shall be punished for each
offense by imprisonment not exceeding one year, or by a fine not
exceeding two thousand pesos, or by both.
V — INTERPRETATION
Sec. 56. Case not provided for in Act. — Any case not provided for in this
Act shall be governed by the provisions of existing legislation, or in
default thereof, by the rule of the law merchant.
Sec. 57. Name of Act. — This Act may be cited as the Warehouse Receipts
Act.
Sec. 58. Definitions. — (a) In this Act, unless the content or subject
matter otherwise requires:
"Action" includes counterclaim, set-off, and suits in equity as provided by
law in these islands.
"Delivery" means voluntary transfer of possession from one person to
another.
"Fungible goods" means goods of which any unit is, from its nature by
mercantile custom, treated as the equivalent of any other unit.
"Goods" means chattels or merchandise in storage or which has been or
is about to be stored.
"Holder" of a receipt means a person who has both actual possession of
such receipt and a right of property therein.
"Order" means an order by indorsement on the receipt.
"Owner" does not include mortgagee.
"Person" includes a corporation or partnership or two or more persons
having a joint or common interest.
To "purchase" includes to take as mortgagee or as pledgee.
"Receipt" means a warehouse receipt.
"Value" is any consideration sufficient to support a simple contract. An
antecedent or pre-existing obligation, whether for money or not,
constitutes value where a receipt is taken either in satisfaction thereof or
as security therefor.
"Warehouseman" means a person lawfully engaged in the business of
storing goods for profit.
(b) A thing is done "in good faith" within the meaning of this Act when it
is in fact done honestly, whether it be done negligently or not.
Sec. 59. Application of Act. — The provisions of this Act do not apply to
receipts made and delivered prior to the taking effect hereof.
Sec. 60. Repeals. — All acts and laws and parts thereof inconsistent with
this Act are hereby repealed. PART V
TRUST RECEIPTS LAW
Sec. 61. Time when Act takes effect. — This Act shall take effect ninety
(PD No. 115)
days after its publication in the Official Gazette of the Philippines shall
have been completed.
Section 1. Short Title. This Decree shall be known as the Trust Receipts Law.

Section 2. Declaration of Policy. It is hereby declared to be the policy of the

state (a) to encourage and promote the use of trust receipts as an
additional and convenient aid to commerce and trade; (b) to provide for
the regulation of trust receipts transactions in order to assure the
protection of the rights and enforcement of obligations of the parties
involved therein; and (c) to declare the misuse and/or misappropriation of
goods or proceeds realized from the sale of goods, documents or
instruments released under trust receipts as a criminal offense punishable
under Article Three hundred and fifteen of the Revised Penal Code.

Section 3. Definition of terms. As used in this Decree, unless the context

otherwise requires, the term

(a) "Document" shall mean written or printed evidence of title

to goods.

(b) "Entrustee" shall refer to the person having or taking

possession of goods, documents or instruments under a trust
receipt transaction, and any successor in interest of such person
for the purpose or purposes specified in the trust receipt
agreement.

(c) "Entruster" shall refer to the person holding title over the
goods, documents, or instruments subject of a trust receipt
transaction, and any successor in interest of such person.

(d) "Goods" shall include chattels and personal property other

than: money, things in action, or things so affixed to land as to
become a part thereof.

(e) "Instrument" means any negotiable instrument as defined in

the Negotiable Instrument Law; any certificate of stock, or bond
or debenture for the payment of money issued by a public or
private corporation, or any certificate of deposit, participation
certificate or receipt, any credit or investment instrument of a
sort marketed in the ordinary course of business or finance,
whereby the entrustee, after the issuance of the trust receipt,
appears by virtue of possession and the face of the instrument
to be the owner. "Instrument" shall not include a document as
defined in this Decree.

(f) "Purchase" means taking by sale, conditional sale, lease,

mortgage, or pledge, legal or equitable.

(g) "Purchaser" means any person taking by purchase.

(h) "Security Interest" means a property interest in goods,

documents or instruments to secure performance of some
obligations of the entrustee or of some third persons to the
entruster and includes title, whether or not expressed to be
absolute, whenever such title is in substance taken or retained
for security only.

(i) "Person" means, as the case may be, an individual, trustee,

receiver, or other fiduciary, partnership, corporation, business
trust or other association, and two more persons having a joint
or common interest.
 (j) "Trust Receipt" shall refer to the written or printed document
signed by the entrustee in favor of the entruster containing
terms and conditions substantially complying with the
provisions of this Decree. No further formality of execution or
authentication shall be necessary to the validity of a trust
receipt.
(k) "Value" means any consideration sufficient to support a
simple contract.
Section 4. What constitutes a trust receipt transaction. A trust receipt
transaction, within the meaning of this Decree, is any transaction by and
between a person referred to in this Decree as the entruster, and another
person referred to in this Decree as entrustee, whereby the entruster, who
owns or holds absolute title or security interests over certain specified
goods, documents or instruments, releases the same to the possession of
the entrustee upon the latter's execution and delivery to the entruster of
a signed document called a "trust receipt" wherein the entrustee binds
himself to hold the designated goods, documents or instruments in trust
for the entruster and to sell or otherwise dispose of the goods, documents
or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as
appears in the trust receipt or the goods, documents or instruments
themselves if they are unsold or not otherwise disposed of, in accordance
with the terms and conditions specified in the trust receipt, or for other
purposes substantially equivalent to any of the following:
1. In the case of goods or documents, (a) to sell the goods or
procure their sale; or (b) to manufacture or process the goods
with the purpose of ultimate sale: Provided, That, in the case of
goods delivered under trust receipt for the purpose of
manufacturing or processing before its ultimate sale, the
entruster shall retain its title over the goods whether in its
original or processed form until the entrustee has complied fully
with his obligation under the trust receipt; or (c) to load, unload,
ship or tranship or otherwise deal with them in a manner
preliminary or necessary to their sale; or
2. In the case of instruments,
a) to sell or procure their sale or exchange; or
b) to deliver them to a principal; or
c) to effect the consummation of some transactions
involving delivery to a depository or register; or
d) to effect their presentation, collection or renewal
The sale of goods, documents or instruments by a person in the
business of selling goods, documents or instruments for profit
who, at the outset of the transaction, has, as against the buyer,
general property rights in such goods, documents or
instruments, or who sells the same to the buyer on credit,
retaining title or other interest as security for the payment of
the purchase price, does not constitute a trust receipt
transaction and is outside the purview and coverage of this
Decree.
Section 5. Form of trust receipts; contents. A trust receipt need not be in
any particular form, but every such receipt must substantially contain (a) a
description of the goods, documents or instruments subject of the trust
receipt; (2) the total invoice value of the goods and the amount of the draft
to be paid by the entrustee; (3) an undertaking or a commitment of the
entrustee (a) to hold in trust for the entruster the goods, documents or
instruments therein described; (b) to dispose of them in the manner
provided for in the trust receipt; and (c) to turn over the proceeds of the
sale of the goods, documents or instruments to the entruster to the extent
of the amount owing to the entruster or as appears in the trust receipt or
to return the goods, documents or instruments in the event of their non-
sale within the period specified therein.
The trust receipt may contain other terms and conditions agreed upon by
the parties in addition to those hereinabove enumerated provided that
such terms and conditions shall not be contrary to the provisions of this
Decree, any existing laws, public policy or morals, public order or good
customs.
Section 6. Currency in which a trust receipt may be denominated. A trust
receipt may be denominated in the Philippine currency or any foreign
currency acceptable and eligible as part of international reserves of the
Philippines, the provisions of existing law, executive orders, rules and
regulations to the contrary notwithstanding: Provided, however, That in
the case of trust receipts denominated in foreign currency, payment shall
be made in its equivalent in Philippine currency computed at the prevailing
exchange rate on the date the proceeds of sale of the goods, documents
or instruments held in trust by the entrustee are turned over to the
entruster or on such other date as may be stipulated in the trust receipt or
other agreements executed between the entruster and the entrustee.
Section 7. Rights of the entruster. The entruster shall be entitled to the
proceeds from the sale of the goods, documents or instruments released
under a trust receipt to the entrustee to the extent of the amount owing
to the entruster or as appears in the trust receipt, or to the return of the
goods, documents or instruments in case of non-sale, and to the
enforcement of all other rights conferred on him in the trust receipt
provided such are not contrary to the provisions of this Decree.
The entruster may cancel the trust and take possession of the goods,
documents or instruments subject of the trust or of the proceeds realized
therefrom at any time upon default or failure of the entrustee to comply
with any of the terms and conditions of the trust receipt or any other
agreement between the entruster and the entrustee, and the entruster in
possession of the goods, documents or instruments may, on or after
default, give notice to the entrustee of the intention to sell, and may, not
less than five days after serving or sending of such notice, sell the goods,
documents or instruments at public or private sale, and the entruster may,
at a public sale, become a purchaser. The proceeds of any such sale,
whether public or private, shall be applied (a) to the payment of the
expenses thereof; (b) to the payment of the expenses of re-taking, keeping
and storing the goods, documents or instruments; (c) to the satisfaction of
the entrustee's indebtedness to the entruster. The entrustee shall receive
any surplus but shall be liable to the entruster for any deficiency. Notice of
sale shall be deemed sufficiently given if in writing, and either personally
served on the entrustee or sent by post-paid ordinary mail to the
entrustee's last known business address.
Section 8. Entruster not responsible on sale by entrustee. The entruster
holding a security interest shall not, merely by virtue of such interest or
having given the entrustee liberty of sale or other disposition of the goods,
documents or instruments under the terms of the trust receipt transaction
be responsible as principal or as vendor under any sale or contract to sell
made by the entrustee.
Section 9. Obligations of the entrustee. The entrustee shall (1) hold the
goods, documents or instruments in trust for the entruster and shall
dispose of them strictly in accordance with the terms and conditions of the
trust receipt; (2) receive the proceeds in trust for the entruster and turn
over the same to the entruster to the extent of the amount owing to the
entruster or as appears on the trust receipt; (3) insure the goods for their
total value against loss from fire, theft, pilferage or other casualties; (4)
keep said goods or proceeds thereof whether in money or whatever form,
separate and capable of identification as property of the entruster; (5)
return the goods, documents or instruments in the event of non-sale or
upon demand of the entruster; and (6) observe all other terms and
conditions of the trust receipt not contrary to the provisions of this Decree.
Section 10. Liability of entrustee for loss. The risk of loss shall be borne by
the entrustee. Loss of goods, documents or instruments which are the
subject of a trust receipt, pending their disposition, irrespective of whether
or not it was due to the fault or negligence of the entrustee, shall not
extinguish his obligation to the entruster for the value thereof.
Section 11. Rights of purchaser for value and in good faith. Any purchaser
of goods from an entrustee with right to sell, or of documents or
instruments through their customary form of transfer, who buys the
goods, documents, or instruments for value and in good faith from the
entrustee, acquires said goods, documents or instruments free from the
entruster's security interest.
Section 12. Validity of entruster's security interest as against creditors. The
entruster's security interest in goods, documents, or instruments pursuant
to the written terms of a trust receipt shall be valid as against all creditors
of the entrustee for the duration of the trust receipt agreement.
Section 13. Penalty clause. The failure of an entrustee to turn over the
proceeds of the sale of the goods, documents or instruments covered by a
trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or
instruments if they were not sold or disposed of in accordance with the
terms of the trust receipt shall constitute the crime of estafa, punishable
under the provisions of Article Three hundred and fifteen, paragraph one
(b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. If the violation or
offense is committed by a corporation, partnership, association or other
juridical entities, the penalty provided for in this Decree shall be imposed
upon the directors, officers, employees or other officials or persons therein
responsible for the offense, without prejudice to the civil liabilities arising
from the criminal offense.
Section 14. Cases not covered by this Decree. Cases not provided for in this
Decree shall be governed by the applicable provisions of existing laws.
Section 15. Separability clause. If any provision or section of this Decree or
the application thereof to any person or circumstance is held invalid, the
other provisions or sections hereof and the application of such provisions
or sections to other persons or circumstances shall not be affected
thereby.
Section 16. Repealing clause. All Acts inconsistent with this Decree are
hereby repealed.
Section 17. This Decree shall take effect immediately.
a. Rosario Textile v. Home Bankers
G.R. No. 137232
Petitioners theorize that when petitioner RTMC imported the raw
materials needed for its manufacture, using the credit line, it was merely
acting on behalf of the bank, the true owner of the goods by virtue of the
trust receipts. Hence, under the doctrine of res perit domino, the bank
took the risk of the loss of said raw materials. RTMC’s role in the
transaction was that of end user of the raw materials and when it did not
accept those materials as they did not meet the manufacturing
requirements, RTMC made a valid and effective tender of the goods to the
bank. Since the bank refused to accept the raw materials, RTMC stored
them in its warehouse. When the warehouse and its contents were gutted
by fire, petitioners’ obligation to the bank was accordingly extinguished.
It is, however, clear that the principal transaction between petitioner
RTMC and the bank is a contract of loan. RTMC used the proceeds of this
loan to purchase raw materials from a supplier abroad. In order to secure
the payment of the loan, RTMC delivered the raw materials to the bank as
collateral. Trust receipts were executed by the parties to evidence this
security arrangement. Simply stated, the trust receipts were mere
securities.
In Samo vs. People, we described a trust receipt as “a security transaction
intended to aid in financing importers and retail dealers who do not have
sufficient funds or resources to finance the importation or purchase of
merchandise, and who may not be able to acquire credit except through
utilization, as collateral, of the merchandise imported or purchased.” In
Vintola vs. Insular Bank of Asia and America, we elucidated further that “a
trust receipt, therefore, is a security agreement, pursuant to which a bank
acquires a ‘security interest’ in the goods. It secures an indebtedness and
there can be no such thing as security interest that secures no obligation.”
Petitioners’ insistence that the ownership of the raw materials remained
with the bank is untenable. In Sia vs. People, Abad vs. Court of Appeals,
and PNB vs. Pineda, we held that: “If under the trust receipt, the bank is
made to appear as the owner, it was but an artificial expedient, more of
legal fiction than fact, for if it were really so, it could dispose of the goods
in any manner it wants, which it cannot do, just to give consistency with
purpose of the trust receipt of giving a stronger security for the loan
obtained by the importer. To consider the bank as the true owner from the
inception of the transaction would be to disregard the loan feature
thereof.”
Thus, petitioners cannot be relieved of their obligation to pay their loan in
favor of the bank.
b. Land Bank v. Perez
G.R. No. 166884
There are two obligations in a trust receipt transaction. The first is covered
by the provision that refers to money under the obligation to deliver it
(entregarla) to the owner of the merchandise sold. The second is covered
by the provision referring to merchandise received under the obligation to
return it (devolvera) to the owner. Thus, under the Trust Receipts Law,
intent to defraud is presumed when (1) the entrustee fails to turn over the
proceeds of the sale of goods covered by the trust receipt to the entruster;
or (2) when the entrustee fails to return the goods under trust, if they are
not disposed of in accordance with the terms of the trust receipts.
In all trust receipt transactions, both obligations on the part of the trustee
exist in the alternative—the return of the proceeds of the sale or the return
or recovery of the goods, whether raw or processed. When both parties
enter into an agreement knowing that the return of the goods subject of
the trust receipt is not possible even without any fault on the part of the
trustee, it is not a trust receipt transaction penalized under Section 13 of
P.D. 115; the only obligation actually agreed upon by the parties would be
the return of the proceeds of the sale transaction. This transaction
becomes a mere loan, where the borrower is obligated to pay the bank the
amount spent for the purchase of the goods.
Based on these premises, we cannot consider the agreements between
the parties in this case to be trust receipt transactions because (1) from
the start, the parties were aware that ACDC could not possibly be obligated
to reconvey to LBP the materials or the end product for which they were
used; and (2) from the moment the materials were used for the
government projects, they became public, not LBP’s, property.
Since these transactions are not trust receipts, an action for estafa should
not be brought against the respondents, who are liable only for a loan.
 c. Hur Tin Yang v. People of the Philippines
G.R. No. 195117

A trust receipt transaction is one where the entrustee has the obligation
to deliver to the entruster the price of the sale, or if the merchandise is not
sold, to return the merchandise to the entruster. There are, therefore, two
obligations in a trust receipt transaction: the first refers to money received
under the obligation involving the duty to turn it over (entregarla) to the
owner of the merchandise sold, while the second refers to the
merchandise received under the obligation to “return” it (devolvera) to the
owner. A violation of any of these undertakings constitutes Estafa defined
under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115.

When both parties enter into an agreement knowing fully well that the
return of the goods subject of the trust receipt is not possible even without
any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Sec. 13 of PD 115 in relation to Art. 315, paragraph 1(b)
of the Revised Penal Code, as the only obligation actually agreed upon by
the parties would be the return of the proceeds of the sale transaction.
This transaction becomes a mere loan, where the borrower is obligated to
pay the bank the amount spent for the purchase of the goods.

The fact that the entruster bank, Metrobank in this case, knew even before
the execution of the alleged trust receipt agreements that the covered
construction materials were never intended by the entrustee (petitioner)
for resale or for the manufacture of items to be sold would take the
transaction between petitioner and Metrobank outside the ambit of the
Trust Receipts Law.

d. Consolidated Bank v. CA
G.R. No. 114286

A stipulation for a floating rate of interest in a letter of credit in which there

is no reference rate set either by it or by the Central Bank, leaving the
determination thereof to the sole will and control of the lender bank is
invalid. While it may be acceptable, for practical reasons given the
fluctuating economic conditions, for banks to stipulate that interest rates
on a loan not be fixed and instead be made dependent upon prevailing
market conditions, there should always be a reference rate upon which to
peg such variable interest rates.

Where the debtor received the goods subject of the trust receipt before
the trust receipt itself was entered into, the transaction in question is a
simple loan and not a trust receipt agreement.