Depositary’s right of retention

Art. 1994:
The depositary has the right to retain the thing in pledge until full
payment of what may be due him by reason of the deposit.
Who: Depositary
Requisite: There be payment due onto him by reason of the deposit
Causes for extinguishment (Part 1)
[Return, General]
Art. 1988:
The thing deposited must be returned to the depositor upon demand, even
though a specified period or time for such return may be fixed.
Who: Depositor
Requisite: Either:
a. before fixed date, upon demand, or
b. on date fixed
i. specific
ii. resolutory condition
Causes for extinguishment (Part 1.1)
[Return, Exception]
Art. 1988:
... The thing is judicially attached while in the depositary’s possession;
... The depositary was notified of the opposition of a third person to the
return or the removal of the thing deposited;
Causes for extinguishment (Part 2)
[Return, General]
Art. 1989:
..., the depositary who may have justifiable reasons for not keeping the
thing deposited may, even before the time designated, return it to the
depositor
Who: Depositary
Requisite: Justifiable reason for not keeping deposit
Causes for extinguishment (Part 3)
Art. 1231:
Obligations are extinguished:
... (4) Confusion or merger of the rights of creditor and debtor
Who: Either
Requisite: Confusion on character
... (6) Novation
Who: Either
Requisite: Reformation of contract extinguishing original
Causes for extinguishment (Part 4)
Art. 1995:
(1) Upon loss or destruction of thing deposited
Who: Depositary
Requisite: Exercised due diligence of a good father or as required
(2) In case of a gratuituous deposit, upon the death of either the
depositor or the depositary.
Who: Either
Requisite: Death of Either
Effect of death or depositor or depositary
(Part 1)
Art 1995:
A deposit is extinguished:
... (2) In case of a gratuituous deposit, upon the death of either the
depositor or the depositary.
Who: Either
Requisite: Death of Either
Effect of death or depositor or depositary
(Part 2)
Deposit for compensation:
Rights and obligations arising therefrom are transmissible to their
respective heirs.
Who: Either
Requisite: There be an onerous deposit (no longer personal)

https://batasnatin.com/law-library/civil-law/obligations-and-contracts/872-voluntary-deposit.html
Effect of death or depositor or depositary
Jurisprudence:
Bank of the Philippine Islands v. Intermediate Appellate Court, 164
SCRA 630

Doctrine:
Deposit of foreign exchange, with intent for safekeeping and not to sell
to CB is invalid.
Effect of death or depositor or depositary:
To whom it must be returned (Part 1)
Art. 1970, 1986:
If the depositor was incapacitated at the time of making the deposit, to
his guardian or administrator or to the depositor himself should he
acquire capacity
Who: Depositor's guardian; Depositor
Requisite: Incapacitated; Reacquires capacity
Art. 1972:
The depositor, to his heirs and successors, or to the person who may
have been designated in the contract
Who: Depositor's successors or as designated by contract
Effect of death or depositor or depositary:
To whom it must be returned (Part 2)
Sec. 1, Rule 62, Rules of Court (Interpleader):
Two or more persons each claiming to be entitled to a thing may
deposit the same with a third person. In such case, the third person
assumes the obligation to deliver to the one to whom it belongs.
Who: Drawee (Third person)
Requisite: Two or more claimants
Effect of death or depositor or depositary:
Where it must be returned
Art. 1987:
If at the time of deposit was made a place was disgnated ... such
place, ... expenses for transportation ... born by the depositor.
If no place ..., where the thing deposited may be, ... provided no
malice ... .
Who: Either
Requisite: Either of the following:
a. Designated - on the place
b. No designation - where thing deposited is
Effect of death or depositor or depositary:
Proving the ownership of the thing deposited
Art. 1984:
The depositary cannot demand that the depositor should prove his
ownership of the thing deposited.
Prohibited transaction
Art. 1962:
Safekeeping of the thing; if safekeeping is NOT the principal purpose, or
is only an accessory obligation, there is NO DEPOSIT but some other
contract.
What: Depositary
Requisite: Safekeeping is NOT the principal purpose
(BPI vs IAC)
Prohibited transaction
Jurisprudence:
Bishop of Jaro v. De la Pena, G.R. No. 6913. November 21, 1913, 26 Phil.
14

Doctrine:
Depositary is not liable for Deposit lost due to Force de Majure
Prohibited transaction
Jurisprudence:
Triple-V Food Services, Inc. v. Filipino Merchants Insurance Company,
Inc.,

Doctrine:
Waiver of responsibility, contrary to laws, public policy and moral, is
invalid
Deposit may be constituted even without
any consideration (Part 1)
Art. 1965:
A deposit is a gratuitous contract, except when there is an
agreement to the contrary, or unless the depositary is engaged in
the business of storing goods.
Who: Either
Requisite: Generally gratuituous
Deposit may be constituted even without
any consideration (Part 2)
Art. 1968:
A voluntary deposit is that wherein the delivery is made by the will of
the depositor.
Who: Depositor
Requisite: Freedom in the part of depositor
Deposit may be constituted even without
any consideration
Jurisprudence:
CA Agro-Industrial Development Corp. v. CA, G.R. No. 90027 March 3,
1993, 219 SCRA 426

Doctrine
Safety deposits boxes are Contracts of Deposit
EPOSIT BY TRAVELLERS IN HOTELS AND INN

The deposit of effects made by travelers in hotels

or inns shall also be regarded as necessary. The
keepers of hotels or inns shall be responsible for
them as depositaries, provided that notice was
ART. 1998 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.
The hotel-keeper is liable for the
vehicles, animals and articles which
have been introduced or placed in ART. 1999
the annexes of the hotel.

Before keepers of hotels or inns may be held responsible as depositaries, the

following elements must concur:
They have been previously informed about the effects brought by the guests; and
The latter have taken the precautions prescribed regarding their safekeeping
EXTENT OF LIABILITY
The liability is NOT
TERMS EXPLAINED
limited to effects lost or
damaged in the hotel
rooms which come under
the term “baggage” or
articles such as clothing as
travelers & guests
are ordinarily used by
travellers but INCLUDE ✔ transient × boarders
those lost or damaged in
hotel annexes such as
vehicles in the hotel’s
The responsibility
garage.
imposed extends to all
those who offer lodging
Nontransients
for a compensation,
whatever may be their
- governed by the rules on lease
character.
 hotels
• a building of many rooms
• several floors served by elevators
• with a large open street-level lobby containing easy chairs
• with a variety of compartments for eating, drinking, dancing,
exhibitions, and group meetings
• with shops having both inside and street-side entrances
• offering for sale items of particular interest to a traveler
• providing personal services, and with telephone booths, writing tables,
and wash rooms freely available.
 a public house for the lodging of travelers
inn-keeper for compensation and until capacity is
reached; a place of public entertainment
that does not provide lodging.

an establishment which provides

lodging and parking and in which the
rooms are usually accessible from an motel
outdoor parking area.
 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
ART. 2000 keepers of hotels or inns as well as by strangers;
but not that which may proceed from any force
majeure. The fact that travellers are constrained
to rely on the vigilance of the keeper of the hotel
or inn shall be considered in determining the
degree of care required of him.
 The act of a thief or robber, who has
entered the hotel is not deemed force
majeure, unless it is done with the use ART. 2001
of arms or through an irresistible force.

The hotel-keeper is not liable for

compensation if the loss is due to the acts
ART. 2002 of the guests, his family, servants or
visitors, or if the loss arises from the
character of the things brought into the
hotel.
WHEN HOTEL-KEEPER LIABLE:
*regardless of the amount of care exercised

The loss or injury is caused by his servants or

employees as well as by strangers (Art. 2000.)
1 provided that notice has been given and proper
precautions taken (Art. 1998.)

The loss is caused by the act of a thief or robber

done without the use of arms and irresistible force.
2 (Art. 2001.) for in this case, the hotel-keeper is
apparently negligent
WHEN HOTEL-KEEPER NOT LIABLE
The loss or injury is caused by force majeure, like flood, fire (Art. 2000.), theft or

1 robbery by a stranger (not by hotelkeeper’s servant or employee) with the use of arms or
irresistible force (Art. 2001.), etc., unless he is guilty of fault or negligence in failing to
provide against the loss or injury from his cause (see Arts. 1170, 1174.)

The loss is due to the acts of the guests,

2 his family, servants, or visitors (Art.
2002.)
The loss arises from the character of the things brought
3 into the hotel.
 The hotel-keeper cannot free
himself from responsibility by
posting notices to the effect that he
is not liable for the articles
ART. 2003 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
EXEMPTION OR DIMUNITION OF LIABLITY:

Hotel-keepers and inn-keepers in offering their accommodations to the

public, practically volunteer as depositaries, and as such, they should be

1 subject to an extraordinary degree of responsibility for the protection and

safety of travellers who have no alternative but rely on the good faith and
care of those with whom they take lodging. (Art. 2000.)

Furthermore, inn-keepers, by the very nature of their business, have

supervision and control of their inns and the premises thereof. As a matter

2 of fact, authorities are to the effect that it is not necessary in order to hold
an inn-keeper liable that the effects of the guests be actually delivered to
him or his employees; it is enough that they are within the inn.
 The hotel-keeper has a right to retain the
things brought into the hotel by the guest,
ART. 2004 as a security for credits on account of
lodging, and supplies usually furnished to
hotel guests.

HOTEL-KEEPER’S RIGHT TO RETAIN:

• in the nature of a pledge created by operation of law.
• The bailee in commodatum may likewise retain the thing loaned for damages by reason of defects
thereof
• Incidentally, the act of obtaining food or accommodation in a hotel or inn without paying therefor
constitutes estafa
YHT REALTY CORPORATION V CA
FACTS:
Private respondent McLoughlin used to stay at Sheraton Hotel
during his trips to the Philippines then he met Tan. Tan convinced
McLoughlin to transfer from Sheraton Hotel to Tropicana Lopez
served as manager of the hotel while Lainez and Payam had
custody of the keys for the safety deposit boxes of Tropicana. He
rented a safety deposit box as it was his practice to rent a safety
deposit box every time he registered at Tropicana in previous trips.
As a tourist, McLoughlin was aware of the procedure observed by
Tropicana relative to its safety deposit boxes.
McLoughlin allegedly placed the following in his safety deposit box: a sum of money,
two (2) envelopes containing letters and credit cards; bankbooks; and a checkbook
Private respondent discovered that he had lost some of his belongings. When
McLoughlin discovered the loss, he immediately confronted Lainez and Payam who
admitted that Tan opened the safety deposit box with the key assigned to him. Tan
admitted that she had stolen McLoughlin's key and was able to open the safety deposit
box with the assistance of Lopez, Payam and Lainez.

Lopez requested Tan to sign the promissory note which the latter did and Lopez also
signed as a witness. Despite the execution of promissory note by Tan, McLoughlin
insisted that it must be the hotel who must assume responsibility for the loss he
suffered. However, Lopez refused to accept the responsibility relying on the
conditions for renting the safety deposit box entitled "Undertaking For the Use Of
Safety Deposit Box,"
 2. To release and hold free and blameless TROPICANA APARTMENT HOTEL
from any liability arising from any loss in the contents and/or use of the said
deposit box for any cause whatsoever, including but not limited to the
presentation or use thereof by any other person should the key be lost;
...
4. To return the key and execute the RELEASE in favor of TROPICANA
APARTMENT HOTEL upon giving up the use of the box.

ISSUE:
whether the "Undertaking For The Use of Safety Deposit Box"
admittedly executed by private respondent is null and void
HELD:
Art. 2003. The hotel-keeper cannot free himself from responsibility
by posting notices to the effect that he is not liable for the articles
brought by the guest. Any 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.

Paragraphs (2) and (4) of the "undertaking" manifestly contravene

Article 2003 of the New Civil Code for they allow Tropicana to be
released from liability arising from any loss in the contents and/or
use of the safety deposit box for any cause whatsoever.
 JUDICIAL DEPOSIT
A judicial deposit or
sequestration takes place when
ART. 2005 an attachment or seizure of
property in litigation is
ordered.
Attachment by
a plaintiff or any proper party may have the property of the adverse party
sheriff
attached as security for the satisfaction of any judgment that may be recovered
Judicial deposit or sequestration takes place when an
attachment or seizure of property in litigation is ordered by a
court.

J UD I CI A L D E P O S I T
PRELIMINARY ATTACHMENT
PRELIMINARY ATTACHMENT
• seize the property of the debtor in advance of final judgment
and to hold it for purposes of satisfying said judgment

• enable the court to acquire jurisdiction over the action by the

actual or constructive seizure of the property in those
instances where personal service of summons on the creditor
cannot be affected
RECEIVERSHIP
 RECEIVERSHIP
• A receiver (a disinterested party) may be appointed by the
court to administer and preserve the property in litigation.

• A court order whereby all the property subject to dispute in a

legal action is placed under the dominion and control of an
independent person known as a receiver.
REPLEVIN
 REPLEVIN
• Personal property may be seized by the sheriff in suits of
replevin or manual delivery of personal property.

• A legal action to recover the possession of items of

personal property
ATTACHMENT IN CRIMINAL CASES
 ATTACHMENT IN
CRIMINAL CASES
• An offended party may have the property of the accused
attached as security for the satisfaction of any judgment that
may be recovered from the accused
 NATURE &
J UDPURPOSE
I CI A L D E P O S I T
 NATURE &
PURPOSE
• 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.
 OBLIGATION OF
DEPOSITARY
ART. 2008. The depositary of property sequestrated is bound
to comply, with respect to the same, with all the obligations of
a good father of a family.

suggests the kind of diligence that we should all

practice when we are dealing with others and
conducting our affairs
JUDICIAL VS.
EXTRA JUDICIAL
DEPOSIT D I STI N CTI O N
CAUSE OR ORIGIN
JUDICIAL EXTRAJUDICIAL
• by the will of the court • by the will of
the
parties;

hence,

there

is
a contract
 PURPOSE
JUDICIAL EXTRAJUDICIA
L
• as security and to secure the
right of a party to recover in • custody and
case of a favorable safekeeping of the
judgment thing
 SUBJECT MATTER
JUDICIAL EXTRAJUDICIAL
• either movable or • only movable property
immovable property but
generally immovable
property
 REMUNERATION
JUDICIAL EXTRAJUDICIAL
• always remunerated • may be compensated or not,
(onerous) but generally gratuitous
 IN WHOSE BEHALF IT IS HELD
JUDICIAL EXTRAJUDICI
AL
• in behalf of the person who, • inbehalf the
by the judgment, has a right of
depositor or third
person designated
 APPLICABLE LAW
J UD I CI A L D E P O S I T

A r t . 2009 . As to m a t te r s n ot p r ovi de d f or in th i s c
ode , jud ic ial se qu es t r a t i on sh al l be g ove r ned by th
e r u l es of c ou r t . ( 1789 a)
 A letter requesting one person to make advances to
a third person on the credit of the writer

LETTERS OF CREDIT
TRANSFIELD VS. LHC
• Petitioner Transfield enter into a turn-key contract under
which the latter is the turn-key constructor to construct hydro-
electric plants in Benguet and Ilocos.

• To secure performance of petitioner's obligation on or before

the target completion date, petitioner opened in favor of LHC
two (2) standby letters of credit with the local branch of
respondent Australia and New Zealand Banking Group
Limited and with Security Bank Corporation, each in the
amount of US$8,988,907.00.
TRANSFIELD VS. LHC
• Petitioner sought various extension of time to complete the
project, but LHC denied the requests and later on declared
petitioner in default/delay in the performance of its obligations
under the Turnkey Contract and demanded from petitioner the
payment of US$75,000.00 for each day of delay beginning 28
June 2000 until actual completion of the Project pursuant to
Clause 8.7.1 of the Turnkey Contract.
TRANSFIELD VS. LHC
ISSUE:

Whether the "independence principle" on letters of credit may

be invoked by a beneficiary thereof where the beneficiary's call
thereon is wrongful or fraudulent. Yes.
TRANSFIELD VS. LHC
• In commercial transactions, a letter of credit is a financial
device developed by merchants as a convenient and relatively
safe mode of dealing with sales of goods to satisfy the
seemingly irreconcilable interests of a seller, who refuses to
part with his goods before he is paid, and a buyer, who wants
to have control of the goods before paying.
TRANSFIELD VS. LHC
• To say that the independence principle may only be invoked
by the issuing banks would render nugatory the purpose for
which the letters of credit are used in commercial transactions.
As it is, the independence doctrine works to the benefit of
both the issuing bank and the beneficiary.
 A signed document in favor of
the entruster containing terms
and conditions substantially
complying with the provisions
of the Trust Receipts Law

TRUST RECEIPTS

Bank as entruster releases goods to the possession of the entrustee but retains
ownership while entrustee may sell goods and apply proceeds for full
payment of the bank.
COLINARES & VELOSO VS. C.A.
• Petitioners were contracted for a consideration of
₱40,000 by the Carmelite Sisters of Cagayan de Oro City to
renovate the latter’s convent at Camaman- an, Cagayan de
Oro City.

• Colinares applied for a commercial letter of credit with the

Philippine Banking Corporation, Cagayan de Oro City branch
(hereafter PBC) in favor of CM Builders Centre. PBC
approved the letter of credit for P22,389.80 to cover the full
invoice value of the goods. Petitioners signed a pro-forma
trust receipt as security.
COLINARES & VELOSO VS. C.A.
• PBC debited P6,720 from Petitioners’ deposit as marginal
partial payment of the loan. initial payment, the After the
spouses defaulted.

• Instead of complying with PBC’s demand, Veloso confessed

that they lost P19,195.83 in the Carmelite Monastery Project
and requested for a grace period of until 15 June 1980 to
settle the account.

• Petitioners continually endeavored to meet their obligations,

as shown by several receipts issued by PBC acknowledging
payment of the loan.
COLINARES & VELOSO VS. C.A.
• Petitioners were charged with the violation of P.D. No. 115
(Trust Receipts Law) in relation to Article 315 of the Revised
Penal Code.

• Petitioner Veloso insisted that the transaction was a “clean

loan” as per verbal guarantee of Cayo Garcia Tuiza, PBC’s
former manager. He and petitioner Colinares signed the
documents without reading the fine print, only learning of the
trust receipt implication much later.
COLINARES & VELOSO VS. C.A.
• ISSUE:

• Whether the loan was an ordinary loan, not a trust receipt

agreement under the Trust Receipts Law.
• Ordinary loan.
COLINARES & VELOSO VS. C.A.
• On the day the petitioners received the merchandise from CM
Builders Centre, ownership over the merchandise was already
transferred to petitioners who were to use the materials for
their construction project. It was only a day later that they
went to the bank to apply for a loan to pay for the
merchandise.

• This situation belies what normally obtains in a pure trust

receipt transaction where goods are owned by the bank and
only released to the importer in trust subsequent to the grant
of the loan
COLINARES & VELOSO VS. C.A.
• The bank acquires a "security interest" in the goods as holder of a
security title for the advances it had made to the entrustee.

• Trust receipts partake of the nature of a conditional sale where the

importer becomes absolute owner of the imported merchandise as
soon as he has paid its price.

• To secure that the bank shall be paid, it takes full title to the goods
at the very beginning and continues to hold that title as his
indispensable security until the goods are sold and the vendee is
called upon to pay for them; hence, the importer has never owned
the goods and is not able to deliver possession.
COLINARES & VELOSO VS. C.A.
• The Trust Receipts Law does not seek to enforce payment of
the loan, rather it punishes the dishonesty and abuse of
confidence in the handling of money or goods to the prejudice
of another regardless of whether the latter is the owner.
 Protects debtor from effects of
misrepresentation or concealment

Allowsdebtor to evaluate the real cost of

his borrowing

TRUTH IN LENDING ACT

Helps avoid circumvention of the Usury Law

 UCPB VS. BELUSO
• Spouses Beluso constituted other than promissory notes, a real
estate mortgage over parcels of land in favor of UCPB.

• Three of their promissory notes were renewed several times.

Subsequently, spouses failed to deliver payment upon
UPCB’s demand. As a result, their mortgage was foreclosed.

• Spouses filed Petition for Annulment, Accounting

and Damages against UCPB.
 UCPB VS. BELUSO
• UCPB applied interest rates on the different promissory notes
ranging from 18% to 34% which interest rate shall be
determined by petitioner’s head office.

• ISSUE

Whether the stipulation of interest is valid. No.

 UCPB VS. BELUSO
• The interest rate provisions in the case at bar are illegal not only
because of the provisions of the Civil Code on mutuality of
contracts, but also, as shall be discussed later, because they violate
the Truth in Lending Act. Not disclosing the true finance charges in
connection with the extensions of credit is, furthermore, a form of
deception which we cannot countenance.

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

policy of the State to protect its citizens from a lack of awareness of
the true cost of credit to the user by assuring a full disclosure of
such cost with a view of preventing the uninformed use of credit to
the detriment of the national economy.
 Protection from borrowers from
unscrupulous lenders who take undue
advantage of necessity of others

USURY LAW

Legally inexistent due to promulgation of CB Circular 905

NACAR VS. GALLERY FRAMES
• Dario Nacar filed a labor case against Gallery Frames and its owner
Felipe Bordey, Jr. for alleged illegal dismissal.

• Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal

hence the Arbiter awarded Nacar P158,919.92 in damages
consisting of backwages and separation pay.

• After the finality of the SC decision affirming LA’s decision, Nacar

filed a motion for recomputation alleging that his backwages should
be computed from the time of his illegal dismissal until the finality
of the SC decision with interest.
NACAR VS. GALLERY FRAMES
• The LA denied the motion as he ruled that the reckoning point
of the computation should only be from the time Nacar was
illegally dismissed until the decision of the LA.

• The LA reasoned that the said date should be the reckoning

point because Nacar did not appeal hence as to him, that
decision became final and executory.
NACAR VS. GALLERY FRAMES
ISSUE

Whether the 12% rate of interest shall be applied. No.

• Backwages computed from the time petitioner was illegally

dismissed up to when the Resolution of the SC became final and
executory shall be applied.

• Likewise, since there is an 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
NACAR VS. GALLERY FRAMES
• 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. Thus,
interest of twelve percent (12%) per annum of the total
monetary awards, computed from May 27, 2002 to June 30,
2013 and six percent (6%) per annum from July 1, 2013 until
their full satisfaction shall be applied.