I.
Deposit
Contract of Deposit; definition
Deposit is a contract whereby a person (depositor) delivers a thing to another (depositary), for the
principal purpose of safekeeping it, with the obligation of returning it when demanded.
A contract of deposit is constituted from the moment a person receives a thing belonging to another,
with the obligation of safely keeping it and returning the same upon demand (Art. 1962, NCC).
Parties to a Contract of Deposit
1. Depositary – to whom the thing is deposited;
2. Depositor – the one who deposits the thing
Characteristics of Deposit
1. Real contract – Because it can only be perfected by the delivery of the object of the contract
(NCC, Art. 1316).However, an agreement to constitute a future deposit is a consensual contract
and is therefore binding Such agreement shall give rise to an obligation to do and to an action
for damages in case of breach (Rabuya, 2017); or
NOTE: There is no consensual contract of deposit; there is only a consensual promise to deliver
which is binding if such is accepted.
2. Object of the contract must be a movable property. This rule applies only to extrajudicial
deposit. Thus, in cases of judicial deposit, the subject matter may be a real property;
3. Purpose is for the safekeeping of the thing deposited (NCC, Art. 1962). This must be the principal
purpose and not only secondary;
NOTE: If safekeeping is merely secondary, the contract is not a deposit but some other contract.
4. It is gratuitous, unless there is a:
a. Contrary agreement;
b. The depositary is engaged in the business of storing goods, like a warehouseman (NCC, Art.
1965); or
c. Where the property is saved from destruction without knowledge of the owner, the latter is
bound to pay the other person just compensation (as in case of involuntary deposit).
NOTE: Deposit shall be considered as a loan if there is a stipulation for the payment of
interest (Aquino v. Deala, 63 Phil. 582, October 21, 1936). The reason is that interest can
only arise from a contract of loan (mutuum).
5. The depositary cannot use the thing deposited, unless:
a. Expressly permitted by the depositor;
b. Preservation of the thing requires its use, but only for said purpose (NCC, Art. 1977).
Deposit vs. Mutuum
DEPOSIT MUTUUM
Principal Purpose Safekeeping/custody Consumption
When to return Upon demand of the depositor. Upon expiration of the term
granted to the borrower.
Subject Matter Movable (extrajudicial) or may Money or other fungible thing.
be immovable (judicial).
Relationship Depositor-depositary Lender-borrower
Compensation Generally gratuitous. No May be gratuitous or with a
compensation of things stipulation to pay interest.
deposited with each other
(except by mutual agreement).
Deposit vs. Lease
DEPOSIT LEASE
Principal Purpose Safekeeping Use of the thing
When to return Upon demand of the depositor. Upon termination of the lease
contract.
Compensation May be gratuitous or oneorus Onerous
Deposit vs. Commodatum
DEPOSIT COMMODATUM
Principal Purpose Safekeeping Transfer of use/ Use of the
thing.
Nature May be gratuitous or onerous. Always gratuitous
Object In extra-judicial deposit, only
movables may be objects
thereof. In judicial deposit, the
object is real property
Demandability Depositor can demand the thing As a rule, return of the thing
at will. cannot be demanded until the
lapse of the period.
Kinds of Deposit
1. Judicial (sequestration) (NCC, Articles 1964 and 2005) –It takes place when an attachment or
seizure of the property in litigation is ordered by the court;
2. Extrajudicial (NCC, Arts. 1968 and 2004)
a. Voluntary – The delivery is made by the will of the depositor (NCC, Art. 1968); or
b. Necessary – Made in compliance with a legal obligation, or on the occasion of any calamity,
or by travelers in hotels and inns, or by travelers with common carriers (NCC, Art. 1996).
Judicial Deposit vs Extrajudicial Deposit
Judicial Extrajudicial
Creation Will of the court; takes place Will of the contracting parties.
when an attachment or seizure
of property in litigation is
ordered, thus it is the court
order that gives rise to this kind
of deposit
As to Possession of Thing The sequestrator possesses the The depositary holds the thing
thing in virtual representation by will of the depositor (Rabuya,
of the person who by the 2017).
decision of the court should
turn out to be its owner and
proprietor (Rabuya, 2017).
Status No contract There is a contract
Security or to ensure the right Custody and safekeeping
of a party to property or to
recover in case of favorable
judgment
Subject Matter Movables or immovables but Movables only
generally immovable.
Cause Always onerous Generally gratuitous but may be
compensated
When must the thing be Upon order of the court or Upon demand of depositor.
returned when litigation is ended.
In whose behalf it is held Person who has a right or in Depositor or third person
behalf of the winner. designated.
II. Guaranty
Guaranty
Guaranty is a contract where a person called the guarantor binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so (NCC, Art 2047).
Parties to Contract of Guaranty
1. Guarantor
2. Creditor
Guarantor
The guarantor is the person who is bound to another for the fulfillment of a promise or undertaking of a
third person.
Qualifications of a Guarantor
1. Possesses integrity;
2. Capacity to bind himself; and
3. Has sufficient property to answer for the obligation which he guarantees.
NOTE: The qualifications need only be present at the time of the perfection of the contract. The creditor
can naturally waive the requirements, for right in general is waivable (Paras, 2008).
Loss of qualification of the guarantor
General Rule: The qualification of the guarantor is lost through conviction of a crime involving
dishonesty or insolvency
Exception: When the creditor had been selected by the creditor. The supervening loss of required
qualifications will not generally end the guaranty. However, the creditor is given the right to demand
substitution of guarantor (NCC, Art. 2057).
Extent of Guarantor’s Liability
1. Where the guaranty is definite – It is limited in whole or in part to the principal debt to the exclusion
of accessories; and
2. Where the guaranty is indefinite or simple – It shall comprise not only the principal obligation but also
all its accessories, including the judicial costs provided that the guarantor shall only be liable for those
cost incurred after he has been judicially required to pay.
Instances when a guarantor may lawfully be required to pay more than the original obligation of the
principal debtor
1. If upon demand, a guarantor fails to pay the obligation, he can be held liable for interest
2. In case of suit, creditors may recover from the guarantor, as part of their damages, legal
interest, judicial cost and attorney’s fees
3. A penalty clause may also increase the liability of the guarantor
Effect in case of death of a party
Guarantor’s death - His heirs will still liable to the extent of the value of the inheritance because the
obligation is not purely personal and is therefore transmissible (Estate of Hemady v. Luzon Surety & Ins.
Co., G.R. No. L-8437, November 28, 1956)
Debtor’s death – his obligation will survive. His estate will be answerable. If the estate has no sufficient
assets, the guarantor shall be liable.
Benefit of EXHAUSTION or EXCUSSION
The benefit of excussion is a right by which the guarantor cannot be compelled to pay the creditor
unless the latter has exhausted all the properties of the principal debtor and has resorted to all legal
remedies against such debtor (NCC, Art. 2058) (Bar).
Requisites of benefit of exhaustion or excussion
1. The guarantor must set up the right of excussion against the creditor upon the latter’s demand for
payment from him; and
2. He must point out to the creditor the available property of the debtor (not exempted from execution)
found within the Philippine territory (NCC, Art. 2060).
NOTE: Excussion may only be invoked after legal remedies against principal debtor have been expanded
Effect of the creditor’s negligence in exhausting the properties of the debtor
He shall suffer the loss to the extent of the value of the pointed property which was not exhausted by
the creditor (NCC, Art. 2061).
Benefit of DIVISION
The principle of benefit of division is when there are several guarantors of only one debtor for the same
debt, the obligation to answer for the same is divided among all (joint liability) (NCC, Art. 2065).
NOTE:
General Rule: Creditor can claim from the guarantors only up to the extent they are respectively bound
to pay (joint liability)
Exception: When solidarity has been stipulated (NCC, Art. 2047, par. 2).
Benefit of Division; when claimed
The benefit of division must be claimed at the time demand for payment is made upon the guarantors as
provided in Art. 2060 of the Code (just like the benefit of excussion) (Pineda, 2006).
Benefit of DIVISION; Requisites
1. There are several guarantors
2. They guaranteed only one debtor
3. They guaranteed only one debt
Division is not available when:
i. Waived by the guarantor
ii. Guarantor solidarily binds himself with the principal debtor
iii. The debtor is insolvent
iv. Principal debtor has absconded
v. When it may be presumed that execution will not result in the satisfaction of the judgment
credit
Extinguishment of Guaranty
1. Same grounds as the modes of extinguishment for ordinary obligation (Payment, Loss, Condonation,
Merger, Compensation, Novation)
2. Extension of payment
3. Negligence of the creditor
4. Failure to send notice of default
5. Death
6. Creditor voluntarily accepts immovable or other property in payment of the debt, even if the creditor
should afterwards lose the same through eviction.
III. Suretyship
SURETYSHIP
Suretyship is a contract where a person bindshimself solidarily with the principal debtor. (Art.2047 par.
2)
Nature and extent of suretyship
i. The surety is primarily and absolutely liable
ii. Pays if debtor does not pay
iii. Insurer of the debt
Nature of surety’s undertaking
1. Liability is contractual and accessory butdirect:
2. Liability is limited by terms of contract
3. Liability arises only if principal debtor is held liable
4. Undertaking is to creditor, not to debtor. The surety makes no covenant or agreement with the
principal that it will fulfill the obligation guaranteed for the benefit of the principal. The surety’s
undertaking is that the principal shall fulfill his obligation and that the surety shall be relieved of liability
when the obligation secured is performed. Exception: Unless otherwise expressly provided.
NOTE: Surety is not entitled to notice of principal’s default
5. Prior demand by the creditor upon principal not required Surety is not exonerated by neglect of
creditor to sue principal.
SPS. ONG vs. PCIB | G.R. No. 160466, January 17, 2005
• There is a sea of difference in the rights and liabilities of a guarantor and a surety. A guarantor insures
the solvency of the debtor while a surety is an insurer of the debt itself. A contract of guaranty gives rise
to a subsidiary obligation on the part of the guarantor. It is only after the creditor has proceeded against
the properties of the principal debtor and the debt remains unsatisfied that a guarantor can be held
liable to answer for any unpaid amount. This is the principle of excussion
• In suretyship contract, however, the benefit of excussion is not available to the surety as he is
principally liable for the payment of the debt. As the surety insures the debt itself, he obligates himself
to pay the debt if the principal debtor will not pay, regardless of whether or not the latter is financially
capable to fulfill his obligation. Thus, a creditor can go directly against the surety although the principal
debtor is solvent and is able to pay or no prior demand is made on the principal debtor. A surety is
directly, equally and absolutely bound with the principal debtor for the payment of the debt and is
deemed as an original promissor and debtor from the beginning.
Guaranty vs Suretyship
GUARANTY SURETYSHIP
Liability depends upon an independent Assumes liability as a regular party to the
agreement to pay the obligation if the primary Undertaking.
debtor fails to do so.
Engagement is a collateral undertaking. Charged as an original Promisor.
Secondarily liable – he contracts to pay if, by the Primarily liable – undertakes directly for the
use of due diligence, the debt cannot be paid. payment without reference to the solvency of the
principal, and is so responsible at once the latter
makes default, without any demand by the
creditor upon the principal whatsoever or any
notice of default.
Only binds himself to pay if the principal cannot Undertakes to pay if the principal does not pay,
or unable to pay. without regard to his ability to do so.
Insurer of the solvency of the debtor Insurer of the debt.
Does not contract that the principal will pay, but Pay the creditor without qualification if the
simply that he is able to do so. principal debtor does not pay. Hence, the
responsibility or obligation assumed by the surety
is greater or more onerous than that of a
guarantor
