ASSIGNMENT #01 CREDIT TRANSACTIONS LAW

JOANNA MAY G. CASTRO

1.) What is deposit?

Under article 1962 of the Civil Code, a deposit is constituted from the moment a person receives a thing
belonging to another, with the obligation of safely keeping it and of returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the contract, there is no deposit but some other
contract.

2.) Who are the parties to a contract of deposit?

The parties to a contract of deposit are the depositor- the one who delivers the thing to another person for
safekeeping and the depositary – the one who is obliged to keep the thing safely and to return it when
required.

3.) What are the elements of deposit?

The elements of deposit are the following: There be a person who receives a thing belonging to another,
that the person has the obligation to safekeep and return the same thing.

4.) What are the characteristics of the contract?

It is a real contract like commodatum and mutuum because it is perfected by the delivery of the subject
matter.

When the deposit is gratuitous, it is unilateral contract because only the depositary has an obligation.

But when the deposit is for compensation, the juridical relation created becomes bilateral because it gives
rise to obligations on the part of both the depositary and depositor.

5.) Deposit distinguish from Mutuum.

In deposit, the principal purpose is safekeeping or mere custody, while in mutuum, the consumption of the
subject matter;

In deposit, the depositor can demand the return of the subject matter at will, while in mutuum, the lender
must wait until the expiration of the period granted to the debtor; and

In deposit, both movable and immovable property may be the object, while in mutuum, only money and
any other fungible thing

6.) Deposit distinguish from Commodatum.

In deposit, the principal purpose is safekeeping, while in commodatum, the transfer of the use;

Deposit may be gratuitous, while commodatum is essentially and always gratuitous; and Art. 1962 107

In (extrajudicial) deposit, only movable (corporeal) things may be the object, while in commodatum, both
movable and immovable property may be the object

7.) Deposit distinguish from Barter.

DEPOSIT SALE & BARTER

(a) ownership is not transferred (a) ownership is transferred upon delivery
(b) real contract (b) consensual (perfected by mere consent)
(c) generally gratuitous (c) always onerous

8.) Explain the provision of Article 1963.

 A deposit is a real contract and is, therefore, perfected only upon delivery of the object of the contract.
Where there has been no delivery, there is merely an agreement to deposit which, however, is binding
and enforceable upon the parties.

9.) How is deposit consituted?

As provided in article 1964, a deposit may be constituted judicially or extrajudicially.

10.) Distinguish Judicial Deposits from Extrajudicial Deposits

Judicial deposit takes place when an attachment or seizure of property in litigation is ordered. On the
other hand, extrajudicial deposits are those which made voluntarily or necessarily by the will of the
depositor.

11.) Explain Art. 538 in relation to deposit.

In article 538 possession as a fact cannot be recognized at the same time in two different personalities
except in cases of co-possession in relation to deposit where the principal purpose of the contract is only
for safekeeping of the thing delivered.

12.) What are the exceptions on deposit as a gratuitous contract?

As provided for in 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.
And where property saved from destruction without knowledge of the owner.

13.) As provided under Article 1966, what is the subject matter or object of deposit?

The subject matter or object of deposit as provided in article 1966 are only movables things.

14.) What are the kinds of extrajudicial deposit?

The kinds of extrajudicial deposit are either voluntary or necessary.

15.) What is voluntary deposit?

Under article 1968, A voluntary deposit is that wherein the delivery is made by the will of the depositor.

16.) How voluntary deposit is made?

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. (second
sentence of article 1968)

17.) Distinguish voluntary deposit from necessary deposit.

The difference between a voluntary deposit and a necessary deposit is that in the former, the depositor
has complete freedom in choosing the depositary, whereas in the latter, there is lack of free choice in the
depositor.

18.) What is the rule when there are several depositors?

Where there are two or more depositors 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.

19.) What is the form of the contract of deposit?

As provided for under article 1969 a contract of deposit may be entered into orally or in writing. general
rule that contracts shall be obligatory in whatever form they may have been entered into provided all the
 essential requisites for their validity are present. (Art. 1356.) Thus, except for the delivery of the thing,
there are no formalities required for the existence of the contract.

20.) What is the rule under Article 1970 when depositor is incapacitated?

ART. 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.

21.) If the depositor is incapable of giving consent, what is the status of the contract? Give example.

The status of the contract where the depositor is incapable of giving consent is unenforceable since with
respect to article 1329 of the civil code where the incapacity declared in article 1327 is subject to the
modifications determined by law, and is understood to be without prejudice to special disqualifications
established in the laws.

An example would be a minor, who under the law is incapable of giving consent deposited to B a sum of
money. The contract where the minor and B entered into is an unenforceable contract since under the law
the minor is unemancipated minor who cannot give consent to a contract.

22.) What is the rule if the depositary is incapacitated and the depositor capacitated?

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

23.) Since the depositary is incapable of giving consent, what is the status of the contract? Give example

The status of the contract when the depositary is incapable of giving consent is void since the
incapacitated depositary does not incur the obligation of a depositary and the law prohibits so.

An example would be an insane person enters into a contract of deposit where the insane person is the
depositary and is incapable of giving consent to contract.

24.) What are the two primary obligations of the depositary?

The two primary obligations of the depositary are to safe keep and return the thing when required, to the
depositor.

25.) What is the general rule under Article 1973? What is the exception?

The general rule under article 1973 is that unless authorized by express stipulation, the depositary is not
allowed to deposit the thing with a third person because a deposit is founded on trust and confidence and
it can be supposed that the depositor, in choosing the depositary, has taken into consideration the latter’s
qualification.

26.) If deposit with a third person is allowed, when is the depositary liable for the loss of the thing deposited?
What is the exemption from liability?

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 exemption from liability is that The depositor is not
responsible in case the thing is lost without negligence of the third person with whom he was allowed to
deposit the thing if such third person is not “manifestly careless or unfit

27.) What is the general rule under Article 1974? What is the exception? What are the requisites? What is the
exception to the requisites?

The general rule under article 1974 is that the depositary may change the way or manner of the deposit if
there are circumstances indicating that the depositor would consent to the change.
 The exception is that this requirement may not be dispensed with unless delay would cause danger.

The requisites are, the depositary should first notify the depositor and wait for the latter’s decision.

The exception to the requisites is that the depositary must take good care of the thing with the diligence of
a good father of a family.

28.) Explain Article 1975.

If the thing deposited should earn interest, the depositary is under the obligation (1) to collect the interest
as it becomes due and (2) to take such steps as may be necessary to preserve its value and the rights
corresponding to it. Thus, the depositary of a negotiable promissory note which has been dishonored by
non-payment by the maker, must give notice of dishonor to indorsers for under the law, indorsers to
whom such notice is not given are discharged from liability. (see Sec. 89, Negotiable Instrument Law [Act
No. 2031].)

Under Article 1975, the depositary is bound to collect not only the interest but also the capital itself when
due.

29.) Give the meaning of choses in action.

As provided for in lawinsider.com dictionary, choses in action means a right to receive or recover
property, debt, or damages on a cause of action, whether pending or not and whether arising in contract,
tort or otherwise.

30.) Does the provision in Article 1975 apply to safety deposit boxes?

No, because A contract for the rent of safety deposit boxes is not an ordinary contract of lease of things4
but a special kind of deposit; hence, it is not to be strictly governed by the provisions on deposit.

31.) When can the depositary commingles grain or other articles of the same kind and quality? What is the
obligation of the depositary under Article 1976? Give the exception

The depositary can commingle grain or other articles of the same kind and quality when the various
depositors of the mingled good shall own the entire mass in common and each shall be entitled to such
portion of the entire mass as the amount deposited by him bears to the whole.

The obligation of the depositary under article 1976 is not to commingle things deposited if so stipulated.

If the articles deposited which belong to the different depositors are not of the same kind and quality, it is
the duty of the depositary to keep them separate or at least identifiable as he must return to each
depositor the identical article delivered.

32.) Can a depositary makes use of the thing deposited?

No, since under article 1977, the depositary cannot make use of the thing deposited without the express
permission of the depositor.

33.) What are the exceptions to the rule that deposit is for safekeeping of the subject matter and not for its use?

The exceptions to the rule that deposit is for safekeeping of the subject matter and not for its use is that
the depositary may make use of the thing deposited even without the express permission of the depositor
where such use is necessary for its preservation but in such case the use is limited for that purpose only.

34.) What is the effect when use by the depositary is unauthorized? Give example

The unauthorized use by the depositary would make him liable for damages as for example, Joanna, the
depositary without permission of Patrick, the depositor uses the deposited thing for project purposes. Joanna
becomes liable for the purpose of such use is not for the preservation of the thing deposited.
35.) What are the effects of authorized use under Article 1978? What is the exception?

As provided for under article 1978 the effects of authorized use are the contract loses the concept of a
deposit and becomes a loan or commodatum. Exception, is where safekeeping is still the principal
purpose of the contract.

36.) Distinguish irregular deposit from mutuum.

As to consumable thing demandable at will by depositor, in an irregular deposit the consumable thing may
be demanded at will by the irregular depositor for whose benefit the deposit has been constituted, while in
mutuum, the lender is bound by the provisions of the contract and cannot seek restitution until the time for
payment;

As to the benefit accrues to depositor only, in an irregular deposit, the only benefit is that which accrues to
the depositor, while in a loan/mutuum, the essential cause for the transaction is the necessity of the
borrower.

As to the depositor which has preference over the creditors, an irregular depositor 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.

37.)What is the rule as to the liability of the depositary for loss of the thing through fortuitous event?

Generally, the depositary is not liable for loss through a fortuitous event without his fault with the
exceptions of (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.

38.)What is the nature of bank deposits?

Bank deposits are in the nature of irregular deposits; they are really loans because they earn interest.

39.) What are the obligations of the depositary when the thing deposited is delivered closed and sealed?

As provided for under article 1981, the obligation of the depositary when the thing deposited is delivered
closed and sealed is that he must return it in the same condition, and he shall be liable for damages.

40.) When can the depositary open a locked box or receptacle?

Under article 1982, the depositary can open a locked box or receptacle when it becomes necessary.

41.) When is the depositary presumed to be authorized to do so?

A depositary is presumed to be authorized to do so if the key has been delivered to him; or when
instructions of the depositor as regards the deposit cannot be executed without opening the box or
receptacle.

42.) Explain Article 1983

As provided for under 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)

The depositor is the owner or at least represents the owner of the thing deposited. The depositary must,
therefore, return not only the thing itself but also all its products, accessions and accessories which are a
consequence of ownership.

43.) Does Article 1984 require proof of ownership?

 No, article 1984 does not require ownership, to constitute a deposit, it is not essential that the depositor
be the owner of the thing deposited. Furthermore, to acquire proof of ownership may open the door to
fraud and bad faith, for the depositary, on the pretense of requiring proof of ownership, may be able to
retain the thing

44.) To whom the thing deposited shall be returned when there are two or more depositors?

When there are two depositors, if by stipulation, the thing should be returned to one of the depositors, the
depositary is bound to 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

45.) To whom shall the thing deposited be returned in case of depositor’s loss of capacity?

Under 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.

46.) What is the rule as to the place where the thing deposited should be returned?

As provided for under article 1987, he thing must be returned (1) at the place agreed upon by the parties,
and (2) in the absence of stipulation, at the place where the thing deposited might be even if it should not
be the same place where the original deposit was made provided the transfer was accomplished without
malice on the part of the depositary.

47.)When shall the thing deposited be returned?

As a rule, the depositor can demand the return of the thing deposited at will and this is true whether a
period has been stipulated or not. In a deposit, whenever a period is agreed to, the same is for the benefit
of the depositor, but it may be validly waived by him

48.) Explain Article 1989

Article 1989 mainly provides the right of depositary to return the thing deposited. The depositary may
likewise return the thing deposited notwithstanding that a period has been fixed for the deposit if (a) the
deposit is gratuitous and (b) justifiable reasons (e.g., necessity of his going abroad) exist for its return. In
case the depositor refuses to receive the thing, the depositary may deposit the thing at the disposal of
judicial authority.

49.) Is the depositary liable when the thing deposited cannot be returned in case of force majeure?

No, the depositary has the obligation to return the thing deposited but he cannot be liable for loss of the
thing by force majeure or by government order.

50.) Where the depositary died, any obligation/ liability of the heir of the said depositary who who sold the thing
deposited in good faith?

Article 1991 provides that the obligation of the heir is limited to the return of the price received or to assign
the right to collect the same if it has not been paid and not the real value if the thing.

51.) When the heir of the deceased depositary sold the thing deposited and the purchaser acted in bad faith, what
is the remedy of the depositor in such situation?

If the purchaser who acquired the thing acted in bad faith, the depositor may bring an action against him
for its recovery. If the heir acts in bad faith, he is liable for damages. The sale or appropriation of the thing
deposited constitutes estafa.

52.) What is the obligation of the depositor under Article 1992? Give example.

Under article 1992, the depositor has the obligation to pay expenses he may have incurred for the
preservation of the thing deposited. For example, depositor has to pay for a thing which helps for the
preservation of the thing deposited.
53.) What is the general rule provided in Art. 1993? What are the exceptions?

The general rule under article 1993 is that 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.

54.)Explain the right of retention of the depositary as provided under Article 1994.

As article 1994 provides, the depositary may retain the thing in pledge until the full payment of what may
be due him by reason of the deposit. The depositary’s right of retention, the thing retained serves as
security for the payment of what may be due to the depositary by reason of the deposit.

55.) What are the causes for the extinguishment of deposit?

Under article 1195, a deposit is extinguished upon 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)

56.) What is the effect of the death of the depositor if the deposit is gratuitous?

If the deposit is gratuitous, the death of either the depositor or depositary extinguishes the deposit. By the
word “extinguished,” the law really means that the depositary is not obliged to continue with the contract
of deposit.

57.)What is the effect of the death of the depositary or depositor if the deposit is for compensation?

A deposit for a compensation is not extinguished by the death of either party because, unlike a gratuitous
deposit, an onerous deposit is not personal in nature. (see Art. 1411.) Hence, the rights and obligations
arising therefrom are transmissible to their respective heirs. (Art. 1178.) But the heirs of either party have
a right to terminate the deposit even before the expiration of the term.

58.) When is a deposit necessary?

Article 1996 of the Civil Code provides that 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.

59.) What are the necessary deposits in compliance with a legal obligation?

The necessary deposits in compliance with a legal obligation are the following
(1) The judicial deposit of a thing the possession of which is being disputed in a litigation by two or more
persons;
2) The deposit with a bank or public institution of public bonds or instruments of credit payable to order or
bearer given in usufruct when the usufructuary does not give proper security for their conservation;

(3) The deposit of a thing pledged when the creditor uses the same without the authority of the owner or
misuses it in any other way (Art. 2104.);

(4) Those required in suits as provided in the Rules of Court; and

(5) Those constituted to guarantee contracts with the government. In this last case, the deposit arises
from an obligation of public or administrative character.

60.) What is meant by “deposito miserable?”

A “deposito miserable” is another term given to where a deposit is created by accident or fortuitous event.
61.)What shall govern a deposit in compliance with law?

Aside from the provisions concerning voluntary deposit, this kind shall be governed by Article 2168 (Art.
1997, par. 2.) which reads: “When during a fi re, fl ood, storm or other calamity, property is saved from
destruction by another person without the knowledge of the owner, the latter is bound to pay the former
just compensation.”

62.) What shall govern necessary deposit made on the occasion of any calamity?

Necessary deposit made on the occasion of any calamity shall govern by the deposit mentioned in no (2)
of article 1996 and shall be regulated by the provisions concerning voluntary deposit by article 2168 of the
civil code.

63.)What are the elements that must concur before keepers of hotels or inns may be held responsible as
depositaries with regard to the effects of their guests?

The elements that must concur before keepers of hotels or inns may be held responsible as depositaries
with regard to the effects of their guests are there must that notice given to them or to their employees of
the effects brought by the guests 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.

64.) What is the liability imposed on hotel keeper for objects placed in the annexes of the hotel?

The liability imposed in hotel keeper for objects placed in the annexes of the hotel is that they shall be
liable for the vehicles, animals and articles.

65.) What is the extent of the liability of keepers of hotels and inns?

The extent as to the liability of keepers of hotels and inns is not limited to the effects lost or damaged in
the hotel rooms which come under term “baggage” or articles such as clothing as are ordinarily used by
travelers but b include those lost or damaged in hotel annexes such as vehicles in the hotel’s garage. The
responsibility imposed extends to all those who offer lodging for a compensation, whatever may be their
character.

66.) Explain the following terms:

 Hotel It has been defi ned as “a building of many rooms chiefl y for overnight accommodation of transients
and several fl oors served by elevators, usually with a large open street-level lobby containing easy
chairs, with a variety of compartments for eating, drinking, dancing, exhibitions, and group meetings, with
shops having both inside and street-side entrances and offering for sale items of particular interest to a
traveller, or providing personal services, and with telephone booths, writing tables, and wash rooms freely
available.” (Webster’s Third New Int. Dictionary, p. 1095.)

 Hotel-keeper /Inn keeper-.the terms “hotel-keeper” and “inn-keeper are also synonymous as used by law.
It refers to any person who owns or operates a hotel or lodging house as proprietor and includes a person
managing or operating the affairs of a hotel or lodging house (lawinsider dictionary)

 Travellers/ guests- The words “travellers” and “guests,” as used by law, are synonymous. It refers to
transients and not to boarders

 Motel- It has been defi ned as “an establishment which provides lodging and parking and in which the
rooms are usually accessible from an outdoor parking area.

67.) When does the hotel-keeper liable?

The hotel-keeper becomes liable regardless of the amount of care exercised; when

(a) The loss or injury is caused by his servants or employees as well as by strangers (Art. 2000.) provided
that notice has been given and proper precautions taken (Art. 1998.); and
 (b) The loss is caused by the act of a thief or robber done without the use of arms and irresistible force.
(Art. 2001.) for in this case, the hotel-keeper is apparently negligent

68.) When is the hotel-keeper not liable?

The hotel keeper is not liable in the following cases:

a. The loss or injury is caused by force majeure, like flood, fi re (Art. 2000.), theft or 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.);

b. The loss is due to the acts of the guests, his family, servants, or visitors (Art. 2002.); and

c. The loss arises from the character of the things brought into the hotel. (Ibid.

69.) Explain the provision of Article 2003.

The provision of article 2003 provides that 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.

70.) What is the effect of notice by hotel-keeper exempting himself from liability?

The effect of notice by hotel-keeper exempting himself from liability is that he shall not be liable for the
articles brought by the guest.

71.)Explain the hotel-keepers “right to retain”

The hotel-keepers “right to retain” as provided for under article 2004, he has right to retain the things
brought into the hotel by the guests, as security for credits on account of lodging, supplies usually
furnished to hotel guests.

72.) Distinguish Judicial and Extrajudicial deposits.

Judicial and extrajudicial deposits distinguished. The differences between judicial and extrajudicial
deposits are:

(1) Cause or origin. — judicial, by the will of the court; extrajudicial, by the will of the parties; hence, there
is a contract;

(2) Purpose. — judicial, as security and to secure the right of a party to recover in case of a favorable
judgment; extrajudicial, custody and safekeeping of the thing;

(3) Subject matter. — judicial, either movable or immovable property but generally immovable property;
extrajudicial, only movable property;

(4) Remuneration. — judicial, always remunerated (onerous); extrajudicial, may be compensated or not,
but generally gratuitous; and

(5) In whose behalf it is held. — judicial, in behalf of the person who, by the judgment, has a right;
extrajudicial, in behalf of the depositor or third person designated.

73.) When does a judicial deposit or sequestration take place?

Judicial deposit or sequestration takes place when an attachment or seizure of property in litigation is
ordered by a court.

74.) What is the nature of a judicial deposit?

 The deposit is judicial because it is auxiliary to a case pending in court.

75.) What is the purpose of a judicial deposit?

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.

76.)What are the object of judicial deposit?

ART. 2006. Movable as well as immovable property may be the object of sequestration.

77.) As provided in Art. 2007, who is regarded as the depositary of sequestered property?

Those persons which the court appointed are regarded as the depositary of a sequestrated property.

78.)What are the obligations of the depositary of sequestered property?

He has the obligation to take care of the property with the diligence of a good father of a family (Art.
2008.) and he may not be relieved of his responsibility until the litigation is ended or the court so orders.

79.) What shall govern judicial deposit or judicial sequestration?

The law on judicial deposit is remedial or procedural in nature. Hence, the Rules of Court are applicable
and shall govern judicial deposit or judicial sequestration.