G.R. No. L-6, November 14, 1901
MANUEL GARCIA GAVIERES, plaintiff-appellant, vs. T.H. PARDO DE TAVERA, defendant-appellee.

FACTS:
The plaintiff, Manuel Garcia Gavieres, as successor-in-interest of Doña Ignacia de Gorricho, filed an action against the defendant, T.H. Pardo de Tavera, as universal heir of Don Felix Pardo de Tavera, for the collection of an alleged unpaid balance of 1,423 pesos and 75 centavos from an original obligation of 3,000 pesos. The obligation was based on a document dated January 31, 1859, wherein Don Felix Pardo de Tavera acknowledged receipt of 3,000 pesos from Doña Ignacia de Gorricho, describing it as a “deposit” payable upon two months’ notice and bearing interest at 6% per annum, with a hypothecation clause on his present and future property as security. The defendant contended that the document evidenced a contract of loan, not a deposit, and raised the defenses of payment and prescription of the action.

ISSUE:
Whether the contract evidenced by the document dated January 31, 1859, is a contract of deposit or a contract of loan.

RULING:
The Supreme Court ruled that the contract was a loan, not a deposit. The Court held that the stipulation for the payment of interest at 6% per annum and the requirement of a two-month notice for repayment were incompatible with the essential nature of a deposit. Under the Civil Code (Article 1768), a contract loses its character as a deposit and becomes a loan when the depositary is granted the use of the amount deposited. Consequently, the prescriptive period applicable to personal actions arising from a loan governed the case. The Court found that the action, having been filed decades after the obligation was incurred, had already prescribed. Furthermore, the Court considered evidence of a payment made in 1869 as supporting the defense of payment. The judgment of the Court of First Instance dismissing the complaint was affirmed.