Javellana vs. Lim

When a depository is given express permission to use the deposited money, the contract loses its character as a deposit and becomes a loan. The debtors' use of the funds and subsequent agreement to pay interest confirmed this conversion, obligating them to repay the principal with the stipulated interest.

The case involves a dispute over the nature of a financial obligation documented as a "deposit without interest." The core legal question was whether the transaction was a true deposit (where the depository must keep the item intact) or a loan (where the borrower can use the money).

• Filed in the Court of First Instance of Iloilo (now RTC).
• The RTC rendered judgment in favor of the plaintiff, Angel Javellana.
• The defendants appealed directly to the Supreme Court via a bill of exceptions.

• On May 26, 1897, defendants Jose Lim and Ceferino Domingo Lim executed a document acknowledging they received P2,686.58 from Angel Javellana as a "deposit without interest," with joint and several liability to return it on January 20, 1898.
• When the obligation fell due, the defendants could not pay and requested an extension, promising to pay 15% annual interest on the debt. Javellana agreed.
• On May 15, 1902, the defendants paid P1,000 on account of the interest due.
• The defendants had used the money for their own business purposes.

• The P1,102.16 payment (which included the P1,000) was made on account of the principal, not as interest.
• There was no valid agreement to pay 15% interest or to extend the payment period.
• They counterclaimed, alleging they had overpaid a total of P5,602.16 and that the plaintiff owed them P2,915.58.

• The contract was a loan, not a deposit, as evidenced by the defendants' use of the money and their request for an extension with interest.
• The P1,000 payment was explicitly for interest, as documented.
• The defendants' counterclaim for overpayment was not proven by credible evidence (e.g., receipts).

• Procedural Issues: N/A
• Substantive Issues:
  1. Whether the contract between the parties was a deposit or a loan.
  2. Whether the defendants were liable to pay 15% annual interest on the principal amount.

• Procedural: N/A
• Substantive:
  1. The contract was a loan. The SC found that the defendants' use of the money for their own profit, with the implied (later express) permission of the creditor, converted the deposit into a loan under Articles 1767 and 1768 of the Civil Code.
  2. The defendants were liable for the principal plus 15% annual interest from January 20, 1898, until full payment, with the P1,000 payment deducted from the accrued interest. The agreement to pay interest was valid and proven.

• Conversion of Deposit into Loan — Under Article 1768 of the Civil Code, if the depository has permission to use the thing deposited, the contract ceases to be a deposit and becomes a loan or bailment. This permission is not presumed and must be proven.
• Application: The SC inferred permission from the defendants' conduct: they used the money in their business, could not return it on the due date, and explicitly negotiated an interest rate for an extension. This proved the permission, converting the "deposit" into a loan.

• "When the depository has permission to make use of the thing deposited, the contract loses the character of a deposit and becomes a loan or bailment." — Citing Article 1768 of the Civil Code.
• "Such conduct on the part of the debtors is unquestionable evidence that the transaction entered into between the interested parties was not a deposit, but a real contract of loan." — The SC's conclusion based on the defendants' actions.

• N/A (The decision does not cite prior case law, relying directly on statutory provisions.)

• Article 1767, Civil Code — Provides that a depository cannot make use of the deposited thing without the depositor's express permission, otherwise liable for losses and damages.
• Article 1768, Civil Code — Provides that when the depository has permission to use the thing, the contract becomes a loan or bailment. Permission must be proven, not presumed.
• Article 1173, Civil Code — Referenced regarding the obligation to pay interest.

• N/A (All justices concurred.)