REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS

LAW ON CREDIT TRANSACTIONS - Title XII – DEPOSIT ART. 1962-2009

DEPOSIT
Deposit in General and its Different Kinds
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 returning the same. If the safekeeping of
the thing delivered is not the principal purpose of the contract, there is no deposit but some other
contract. (1758a)
• If the safekeeping of the thing delivered is not the principal purpose of the contract, there is no deposit
but some other contract.
• Derived from the word “depositum” of the Roman Law.
NOTE: it is essential that the depository is not the owner of the thing deposited.
Parties to a Deposit:
1. Depositary – to whom the thing is deposited.
2. Depositor – the one who deposits the thing.

Characteristics:
1. Real contract – because it can only be perfected by the delivery of the object of the contract. However,
an agreement to constitute a future deposit is a consensual contract and is therefore binding.
NOTE: There is no consensual contract of deposit; there is only a consensual promise to deliver which is
binding if such is accepted.
2. Unilateral (gratuitous deposit) only the depositary has an obligation. Unless there is:
a. Contrary agreement; or
b. The depositary is engaged in the business of storing goods, like a warehouseman.
3. Bilateral (onerous deposit) gives rise to obligations on the part of both the depositary and depositor.
Notes:
• The principal purpose is safekeeping, so that if it is only accessory or secondary obligation, deposit isn’t
constituted
• Deposit may be entered into orally or in writing. (Art. 1969)
• If person having capacity accepts a deposit made by one who is incapacitated, the former shall be subject
to all the obligations of a depositary & may be compelled to return the thing by the guardian or the person
himself if he acquired capacity. (Art. 1970)
• If deposit made by capacitated person to someone who is not, depositor shall only have action to recover
the thing while still in latter’s possession or compel latter to pay him the amount w/c he may be enriched
• However, if a 3rd person who acquired the thing acted in bad faith, the depositor may bring an action
against him for its recovery (Art. 1971)
• The depositary isn’t liable in cases of loss by force majeure or by gov’t order. HOWEVER, he has the duty to
deliver to the depositor money or another thing he receives in place of the thing. (Art. 1990)

Article 1963. An agreement to constitute a deposit is binding, but the deposit itself is not perfected
until the delivery of the thing. (n)
Binding effect of agreement to deposit.
A deposit is a real contract and is, therefore, perfected only upon delivery of the object of the contract. Where
there has been no delivery, there is merely an agreement to deposit which, however, is binding and
enforceable upon the parties. Hence, a contract of future deposit is consensual. (see Art.1934.)

Article 1964. A deposit may be constituted judicially or extrajudicially. (1759)

Kinds of Deposit (Art. 1964)
1. Judicial – takes place when an attachment or seizure or property in litigation is ordered (Arts.
2005-2008)
2. Extra-judicial (Art. 1967)
a. Voluntary – delivery is made by the will of the depositor or by 2 or more persons each of whom
believes himself entitled to the thing deposited (Art. 1968)
b. Necessary – made in compliance w/ a legal obligation, or on the occasion of any calamity, or by
travelers in hotels & inns (Arts. 1996-2004) or by travelers w/ common carriers (Arts. 1734-1735)

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)
- Contract of deposit is generally gratuitous (Art. 1965)
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 • • There is a contrary stipulation
• • Depositary is in the business of storing goods
• • Property saved from destruction during calamity w/o owner’s knowledge; just compensation should
be given the depository (Art. 1996[2] & 1997[2])

Article 1966. Only movable things may be the object of a deposit. (1761)
Subject matter of deposit.
1. Only movable or personal property may be the object of extrajudicial deposit, whether voluntary(Art.
1968.) or necessary. (Art. 1995.) Article 1966 proceeds from the object of a deposit which is safekeeping
of a thing. The possibility that the thing may disappear or may be lost or stolen is not present in real
property. Thus, the delivery of the keys of a house cannot be considered as a deposit of the same, and
entrusting its care and custody is, juridically, an agency. (11 Manresa 671.)
2. Judicial deposit (Arts. 2005-2006.), however, may cover movable as well as immovable property its
purpose being to protect the rights of parties to a suit.
Only corporeal things contemplated. Article 1966 does not embrace incorporeal or intangible property,
such as rights and actions, for it follows the person of the owner, wherever he goes, and is not, by
reason of its incorporeality, susceptible of custody in the tangible sense that deposit is juridically
understood. True it is that the deeds or documents in which those rights are contained can be the
object of deposit, but in such a case, they are only the materialized and representative expression of
the rights. (11 Manresa 671.)

Article 1967. An extrajudicial deposit is either voluntary or necessary. (1762)

Kinds of extrajudicial deposit.
Deposit is generally voluntary. It becomes necessary in the three cases mentioned in Articles 1996 and 1998,
i.e., when made in compliance with a legal obligation, on the occasion of any calamity, or by travelers in hotels
and inns. The deposit of goods made by travelers or passengers with common carriers may also be regarded
as necessary. (supra.)

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)
VOLUNTARY VS NECESSARY
• The chief difference between a voluntary deposit and a necessary deposit is that in voluntary, the depositor
has complete freedom in choosing the depositary, whereas in necessary, there is a lack of free choice in the
depositor.
Voluntary deposit Concept – It is a contract or juridical relation where a thing is delivered at the will of a
person (depositor) to another (depositary) for the purpose of safekeeping by the latter coupled with the
obligation of returning it upon demand.
There is freedom of action. The depositor is free to choose the depositary.
Depositor need not be the owner of the thing –
GENERAL RULE: Depositor be the owner of the thing deposited.
EXEMPTION:
1. Article 1968, second sentence: “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.”
2. Article 1984, first paragraph: “The depositary cannot demand that the depositor prove his ownership of
the thing deposited.”
Note: Ownership of the thing deposited is not transferred to the depositary. Hence, the depositor need not be
the owner.
Second sentence is in the nature of an interpleader – The deposit in the second sentence is made by two or
more persons.
Section 1, Rule 62 of the Revised Rules of Court provides the formal rule on Interpleader—
Section 1. When interpleader proper. Whenever conflicting claims upon the same subject matter are or may be
made against a person who claims no interest whatever in the subject matter, or an interest which in whole or

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in part is not disputed by the claimants, he may bring an action against the conflicting claimants to compel
them to interplead and litigate their several claims among themselves.
Article 1969. A contract of deposit may be entered into orally or in writing. (n)
Form of the contract of deposit – Either orally or in writing or partly oral and partly in writing. There are no
formalities required, except the delivery of the thing, to make the contract valid and enforceable.
There is no required form for deposit. A deposit may be entered into orally or in writing. Since deposit is a
real contract, delivery of the thing perfects the contract. Prior to delivery, there may be an agreement to
constitute a deposit, which is nevertheless binding upon parties.

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)
WHERE DEPOSITARY CAPACITATED AND DEPOSITOR INCAPACITATED
Incapacitated person, Concept – A person is considered incapacitated if he cannot give consent to a contract
such as minors, insane, demented persons, deaf-mutes who do not know how to write.
Capacity to act may also be modified by other circumstances like civil interdiction, insolvency, etc. Voidable
contract – Where one of the parties is incapable of giving consent to a contract, the contract is voidable.
▪ If the depositary is capacitated, he is subject to all the obligations of a depositary whether or not the
depositor is capacitated. The depositary must return the property to the legal representative of the
incapacitated or to the depositor himself if he should acquire capacity.
▪ The depositary may be compelled to return the thing by the depositor if the depositor should
acquire capacity this implies that the depositor cannot be compelled by the incapacitated depositor to return
the thing to such depositor. If the depositary learns that the depositor is incapacitated, it is best for the
depositor to contact the depositor’s guardian or administrator in relation to the return of the thing.
STATUS OF CONTRACT
1. Where one of the parties to the contract of deposit is incapacitated to give consent to the contract.
Applying the general provisions of contract of law, such contract is voidable.
2. Where both parties are incapable of giving consent to a contract, the contract is unenforceable. In this
regard, express or implied ratification by the parent or guardian, as the case may be, of one of the
contracting parties will give the contract the same effect as if one of them were incapacitated. If ratification
is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be
validated from its inception.

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)
WHERE DEPOSITARY IS INCAPACITATED AND DEPOSITOR CAPACITATED
• The incapacitated depositary (minor or an insane person) does not incur obligation of a depositary. However,
he is liable;
1. To return the thing deposited while still in his possession
2. If the thing deposited is no longer in his possession, to pay the depositor the amount by which he may have
been benefited himself with the thing or its price subject to the right of any third person who acquired the
thing good faith.
Rule in Article 1971 is the opposite of the Rule in Article 1970 – In the present article, it is the depositor
who is capacitated while the depositary is the incapacitated one.
The depositor may only recover the thing deposited if it is still in the possession of the incapacitated
depositary. If the thing is already disposed of in favor of a third persons who acted in good faith whose rights
cannot be disturbed, the only remedy of the depositor is to collect the amount by which the incapacitated
depositary had been enriched or benefited.
However, if the third person acted in bad faith, that is, he is aware of the flaw in the possession of the
incapacitated depositary, the depositor can recover the thing from him with damages.

SECTION 2
Obligations of the Depositary

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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)
Depositary’ principal obligations –
1. To keep the thing safely;
2. To return the thing deposited when required, to the depositor or his heirs and successors in interest.
Law to govern the safekeeping of the thing – The law on Obligations and Contracts.
1. Diligence of a good father of a family in the performance of his obligations to protect and preserve the
thing deposited, unless a higher degree of diligence is stipulated by the parties.
2. If the thing is lost, the depositary is liable if the loss is due to his own fault. But not when the loss is due
to fortuitous event or force majeure.
3. Whenever a thing in the possession of the debtor is lost, the presumption is that he is at fault, unless
there is proof to the contrary.
Exceptions to the rule that the depositary is not liable when loss of the thing is due to 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.
(Art. 1979)
The owner-depositor bears the lost as long as the depositary is not at fault. Res perit domino.
Standard of care or diligence – Greater care or diligence is required if the deposit is for a compensation than
when it is for free.
Is a guardian a depositary of the ward’s property? No.

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)
Depositary prohibited from depositing the thing with a third person;
Exception – Deposit is founded on trust and confidence.
EXEMPTION: If there is a stipulation to the contrary. The stipulation will be the law between the parties.
EXEMPTION to the EXEMPTION: If the thing is deposited with a person manifestly careless and unfit.
The depositary is also liable if the loss or damage to the property is caused through the negligence of the
depositary’s employees (imputed or vicarious liability of employers).
In urgent cases, the depositary may deposit the thing with a third person if such is necessary for the
preservation of the thing. If the depositary urgently needs to deposit the thing with a third person in order to
preserve the thing and there is no more time to obtain the depositor’s consent, the depositary should
generally not be liable for the transfer of deposit, unless the third person is manifestly unfit or careless.
Way or manner of deposit cannot be changed by depositary; Exception – when he may reasonably
presume that the depositor would agree to the modification. Even then, however, the law requires that notice
be sent to the depositor and to await the latter’s decision before any change be made, unless time is of the
essence to avoid danger.

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)
Way or manner of deposit cannot be changed by depositary; Exception – when he may reasonably
presume that the depositor would agree to the modification. Even then, however, the law requires that notice
be sent to the depositor and to await the latter’s decision before any change be made, unless time is of the
essence to avoid danger.

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

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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)
Collection of principal and interests when due by depositary – If the thing deposited generates interests
like bonds, securities, etc., the depositary who has the obligation to preserve the thing, must collect the
interest as well as the principal when they become due. He must see to it that the securities and the rights
corresponding to them preserve their value.
Rent of safety deposit boxes; Character – a contract of rent of safety deposit boxes is not an ordinary
contract of lease of things but a special kind of deposit. It is not strictly governed by the provisions on deposit.
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 the 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 is a special kind of deposit. It cannot be
characterized as an ordinary contract of lease under Article 1643 because the full and absolute possession and
control of the safety deposit box was not given to the joint renters. The guard key of the box remained with
the bank; without this key, neither of the renters could open the box. On the other hand, the bank could not
likewise open the box without the renter's key. x x x
The prevailing rule is that the relation between a bank renting out safe-deposit boxes and its customer with
respect to the contents of the box is that of a bailor and bailee, the bailment being
for hire and mutual benefit. (CA AGRO-INDUSTRIAL DEVELOPMENT CORP. v. CA)

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)
Commingling of grains or articles of same kind and quality is generally allowed; Exception – when there
is a prohibition.
The different depositors shall own a proportionate share in the mass of the things deposited. Impliedly, if the
grains, etc., are not of the same kind and quality, the depositary must keep them separately.

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)
Depositary prohibited from using thing deposited – Without the permission of the depositor, the
depositary cannot use the thing deposited. If he does so, he will be liable for damages as may be determined
by the court.
If expressly allowed, the contract ceases to be a deposit and becomes a loan or commodatum. The depositor
cannot dispose of the thing deposited for the use of another person specially so when the purpose for which
the thing was deposited would be frustrated by the allowance of the use thereof.

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 refers to an irregular deposit; Permission to use property; Effect – If the depositary is permitted to
make use of the thing deposited, the deposit ceases to be one. It is converted to a contract of loan unless the
principal reason for the contract is still the safekeeping of the property. In such a situation, the use of the thing
is merely secondary. But the contract is still a deposit, however, it is called irregular deposit.
Permission to use thing not presumed – the burden of proof to establish that permission to use the thing
was granted is on the depositary. When the use of the thing is necessary to preserve it, the depositary may use
the same but only for such purpose. He is not liable for damages. In case of controversy, the depositary must
prove that the use was necessary to preserve the thing deposited in order to avoid any liability for damages.

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)
When depositary is liable for loss of thing due to fortuitous event – Fortuitous event is an unforeseen
happening arising from acts of God such as storms, earthquakes, lightning, etc.

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GENERAL RULE: An obligor (depositary) is not liable for non-fulfillment of an obligation by reason of a
fortuitous event or force majeure. (Art. 1174)
EXEMPTION: Article 1979. Under any of the above circumstances, the depositary is rendered responsible for
the loss of the thing deposited. Loss, which is generally total, includes partial destruction or depreciation of the
value of the thing deposited.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be
governed by the provisions concerning simple loan. (n)
Deposit in banks are considered simple loans – Fixed, savings, and current deposits of money in banks and
similar institutions are not true deposits. They are considered simple loans.

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)
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)
• • It involves envelope
• • It absolute not to open the closed and sealed thing deposited. An exception is Art. 1982

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)
Closed and sealed deposit – the same must be returned in the same condition by the depositary. If the seal
or lock be broken due to the fault of the depositary, he shall be liable for damages suffered by the depositor
by reason of such breaking. It is presumed that the depositary is at fault, unless the contrary is proved.
Value of the thing deposited; Estimate of [depositor] is prima facie evidence – If there is a controversy on
the value of the thing deposited which is delivered closed and sealed, the statement of the depositor shall be
accepted as prima facie evidence of the value if the forcible opening of the box or receptacle is imputable to
the depositary, unless there is a clear, strong and convincing evidence to the contrary. The court may now
decide according to the weight or credibility of the evidence adduced by the parties.
When breaking of seal or lock is not due to depositary’s fault – he still has the duty to keep secret the
contents thereof.
If in the keeping of the sealed or locked deposit, the depositor has some instructions which could not be
performed by the depositary without opening the box or receptacle, the latter is presumed to be authorized to
do so. If the depositor has left the key to the box or receptacle to the depositary, there is a presumption of
authority to open the same. If there is no such intention, there is no reason to leave the key to the depositary.

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)
Other things to be returned in contract of deposit—When the depositary returns the thing in deposit, he
must also return all its products, accessories and accessions. The depositor’s ownership
over the thing carries with it the right to the fruits and all accessions thereto— Art. 441. To the
owner belongs:
(1) The natural fruits;
(2) The industrial fruits;
(3) The civil fruits.

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When the deposit consists of money—the first paragraph of the Article does not cover deposit of money but
other fungible things. If the deposit consists of money it is Article 1896 which is applicable. The word “agent”
should be read as “depositary”.

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)

Depositor cannot be required by depositary to prove his ownership—the depositary may not accept a
thing for the purpose of safekeeping. He is under no obligation to do so.
However, once he accepts a thing for deposit and actual possession is placed in his hands, he cannot demand
that the depositor proves his ownership over the thing. The reasons behind this rule are—
1. It is not necessary because there is no transfer of ownership in contract of deposit;
2. A bailee (depositary) is stopped from asserting title to the thing received as against the bailor (Art.
1436);
3. To require proof of ownership, the depositary, on the pretext that he needs to know the nature and
mode of acquisition of the thing by the depositor, may be able to retain the thing until the issue is settled.
Fraud may thus be committed against the depositor.
When thing appears to be unlawfully acquired; Duty of depositary—if the depositary has learned or
received reliable information that the thing he accepted in deposit is not lawfully acquired by the depositor, he
may return the thing to the depositor to avoid possible liability.
When thing is a stolen property—if the identity of the true owner cannot be ascertained, the depositary may
return the thing to the depositor; if the true owner is identified, the depositary must advise the latter of the
deposit so that he may take the necessary precautions or actions to retrieve it. The depositary is not
authorized to return the thing unceremoniously to the alleged owner without the knowledge of the depositor.
HIS DUTY IS MERELY TO ADVISE THE OWNER OF THE DEPOSIT. If the depositor insists on his ownership as
against the true owner, the depositary may file an interpleader suit against both of them to avoid
responsibility.
Failure of the owner to claim thing within 30 days from advisement—the depositary shall be relieved from
responsibility by returning the thing to the depositor.
If before the lapse of the 30 days, the depositor must have learned of the advice made, is now demanding the
immediate return of the thing, may the depositary retain the thing until the lapse of 1 month from the advice?
YES, but inform the depositor of the legal reason for the retention.

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)
Respective rights of two or more depositors—
1. If joint depositors—each one may only demand the return of his proportionate share in the divisible
thing/s deposited.
2. If solidary depositors—and the thing deposited is no capable of division, being indivisible in law, the
depositary may return the thing to anyone of the solidary depositors.
Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything
which may be prejudicial to the latter. (1141a)
Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has
been made by one of them, payment should be made to him. (1142a)
Stipulation to return thing to one of the depositors—the depositary shall return the thing only to said
designated depositor, unless subsequently the agreement has been duly modified with the consent of all the
parties concerned.

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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)
Applicability—the Article applies only after the deposit had already been made and that the depositor was
capacitated at the time of the making of the deposit but became incapacitated before the return of the thing
to him.
If the depositor is already incapacitated at the time of the making of the deposit, Article 1970 applies.
To whom should depositary return the thing?—the depositary shall not deliver or return the thing to anyone
except to the person who has the administration of the depositor’s property and rights. As the depositor is still
alive, the administrator may be a guardian appointed by the court, or the spouse who is given the power of
administration by the court or the representative in case the depositor is declared an absentee.

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)
In what place shall the thing be returned?— 1. Place designated in the contract of deposit;
2. If no place is designated, in the place where the things may be, even if this place is different from the place
of deposit but there must be no bad faith on the part of the depositary in changing the place.
Expenses for transportation—shall be borne by the depositor unless the depositary acted with malice in
changing the place of returning or retrieval.

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)
Time to return thing deposited; Reason—upon demand—whether or not a period is fixed for the return—
because the term or period if agreed upon, is for the benefit of the depositor.
EXEMPTION: If the deposit is for compensation, the depositary must still be paid for his services.
“Return upon demand” rule is subject to exceptions—
GENERAL RULE: The depositary shall return the thing deposited upon demand by the depositor.
EXEMPTION:
1. When the thing in the possession of the depositary is subjected to a writ of attachment in which event
it is placed in custodial egis and therefore under the control of the court;
2. When there is an opposition to the return of the thing to the depositor and the depositary is duly
notified thereof;
3. When there is an opposition to the removal of the thing deposited and the depositary is duly notified
thereof;
4. When the thing is stolen and the period of thirty days from notice to the true owner for him to claim it
had not yet elapsed, the depositary cannot return the thing to the depositor. This is to protect the true owner.
Note: Depositary must immediately notify the depositors of the attachment or opposition so that he can
timely take steps to protect his rights and interests. Should the depositary return the thing despite the
attachment, opposition, non-lapse of 30-day period, he may be held liable for damages caused to the
offended party.
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)
Applicability—This Article applies only if the deposit is gratuitous.
Remedy of depositary in case of depositor’s refusal to accept the thing—may resort to judicial
consignation to be relieved from responsibility if despite the tender to deliver back the thing, the depositor
unjustifiably refused to accept the same.

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Rule when deposit is for valuable consideration—unless the reason for not continuing with the deposit
constitutes a force majeure, he cannot just return the thing until the arrival of the period designated in the
contract. Otherwise, he will be liable for damages for breach of contract.

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)
No liability for loss due to force majeure or government order—
GENERAL RULE: If the thing deposited is lost or confiscated by the government, the depositary is not liable
for failure to return the thing upon demand of the depositor.
EXEMPTION: If the depositary had received money or an equivalent thing for the property, he must deliver
the same to the depositor, for that belongs to the latter as it is merely the substitute for the property
deposited.

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)
Applicability—The article applies only when the depositary has died and left heir/s who took possession of the
thing in the concept of an owner and sold it in good faith to a third person.
Heir/s must be in good faith—the heirs must have already succeeded to the estate of the deceased
depositary. This means, there was already a partition where the thing deposited was adjudicated to certain
particular heir/s. These heir/s sold the thing in good faith, not knowing that the thing did not belong to their
predecessor-in-interest it being merely a deposited property which must be returned to the depositor.
Duty of the heir/s—the heir/s must return the purchase price received to the depositor. If the buyer has not
yet paid the price, the right of action must be assigned to the depositor so he can pursue the appropriate
action for collection or cancellation of the contract.
Right of depositor if heir/s are in bad faith—
1. The depositor may sue them for recovery of the price with damages
2. He may seek the annulment of the contract of sale on the basis of fraud (Art. 1388) 3. He may file a
criminal case for estafa for the appropriation of the thing under deposit.

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)
Does the depositor have to reimburse the depositary for the latter’s expenses to preserve the
property?—it depends. If for compensation, the depositor is not required to pay the depositary for the latter’s
expenses for the preservation of the property. (Reason: expenses are included in the compensation paid to the
depositary; necessary expense)
If the deposit is gratuitous, the depositor must reimburse the depositary for the latter’s expenses incurred for
the preservation of the thing deposited. (Reason: even if the thing is not deposited with the depositary, the
depositor would still spend, as the good father of the family for the necessary expenses to maintain and
preserve the thing he owns)
Other expenses not included—useful and luxurious expenses are not included within the coverage of the
Article. The depositor is, therefore, under no obligation to reimburse the depositary for useful or luxurious
expenses the latter incurred.

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)
Depositor liable for losses or damages suffered by depositary; Exceptions—
GENERAL RULE: If the depositary suffers loss or damages arising from the character of the thing deposited,
the depositor is liable therefor and must reimburse the depositary for such loss or damages.
EXEMPTION: At the time of the constitution of the deposit:
1. The depositor was not aware of such character;
2. The depositor was not expected to know such dangerous character of the thing;
3. The depositor has notified the depositary of such character; and

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4. The depositary was independently aware of it without need of advice from the depositor.
5.
6. 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)
Obligations of the depositor—
1. To reimburse the depositary for necessary expenses incurred by the latter (Art. 1992);
2. To pay the compensation agreed upon as consideration for the deposit (Art. 1965);
3. To indemnify the depositary for any loss or damages arising from the character of the thing deposited (Art.
1993).
Right of depositary to retain thing in pledge—if the depositary has not been paid by the depositor for what
may be due to him, until he is fully reimbursed.
The deposit may be gratuitous (#s 1 and 3) or for compensation (#s 2 and 3). When it is gratuitous, the
depositary is entitled to the reimbursement of necessary expenses incurred for the preservation of the thing. If
it is for compensation and the agreed consideration has not been paid, the depositary has the right to retain
the thing.
Pledge is created by operation of law—such pledge is also known as legal pledge.
Art. 2121. Pledges created by operation of law, such as those referred to in Articles 546, 1731, and 1994, are
governed by the foregoing articles on the possession, care and sale of the thing as well as on the termination
of the pledge. However, after payment of the debt and expenses, the remainder of the price of the sale shall
be delivered to the obligor. (n)
May the depositary sell the thing retained in pledge? Yes.
Art. 2108. If, without the fault of the pledgee, there is danger of destruction, impairment, or diminution in
value of the thing pledged, he may cause the same to be sold at a public sale. The proceeds of the auction
shall be a security for the principal obligation in the same manner as the thing originally pledged. (n)
After payment of the expenses, the remainder of the price of the sale, if any, shall be delivered to the obligor.
Depositary’s right to retain is similar to that referring to an agent—
Art. 1914. The agent may retain in pledge the things which are the object of the agency until the principal
effects the reimbursement

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)
Grounds for extinguishment of deposit mentioned in the article are not limitative—there are other causes
for termination of deposit, such as:
1. Expiration of the period agreed upon;
2. Demand at the will of the depositor;
3. Mutual withdrawal from the contract;
4. Fulfillment of the purpose of the deposit; and 5. Fulfillment of the resolutory condition agreed upon.
Loss or destruction of the thing—there is nothing more to return. Hence, the deposit is extinguished.
Nevertheless, if the depositary is at fault, or is rendered liable despite fortuitous event or force majeure (Art,
1979), he shall pay for the value of the thing to the depositor.
Death of either party; Effects—if the deposit is gratuitous, the death of either party extinguishes the
contract. But if the deposit is for a compensation (onerous) the death of the either party shall not extinguish
the contract because the rights and liabilities arising therefrom are transmissible to their respective heirs
unless there is a contrary agreement (Art. 1178)

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.

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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 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 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 travelers 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 family. (1788)

Article 2009. As to matters not provided for in this Code, judicial sequestration shall be governed by the
Rules of Court. (1789a)

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