Can I refuse to return money my friend deposited with me for safekeeping by claiming he still owes me from a separate loan?

Deposits are carved out of set-off

Article 1287 opens with the exclusion: Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a depositary or of a bailee in commodatum. The reason is the nature of the arrangement. A depositary receives the thing for the owner's benefit, on the strength of personal trust, and his single duty is to keep it and give it back. Allowing him to hold it against a separate claim of his own would convert a relationship of confidence into a self-help security, and nobody would ever be able to leave anything with anyone.

But is it really a deposit?

That is the question worth testing before conceding anything. Article 1962 provides that a 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, and that if safekeeping is not the principal purpose of the contract, there is no deposit but some other contract. Money handed over with permission to use it, to lend on, or to mix with your own funds looks a great deal more like a loan. Article 1933 describes that arrangement: money or another consumable thing delivered on condition that the same amount be returned.

What the exclusion costs you

Ordinary set-off is powerful precisely because it needs nobody's cooperation. Article 1278 provides that compensation takes place when two persons, in their own right, are creditors and debtors of each other, and Article 1290 makes it operate by force of law once the requisites of Article 1279 are present, extinguishing both debts to the concurrent amount even though the parties are unaware of it. Article 1287 removes the deposit from that machinery entirely. You return the money in full, and your claim on the loan stands as an ordinary claim you have to pursue on its own footing.

The neighbouring exclusions

The same article bars compensation against a creditor with a claim for support due by gratuitous title, and Article 1288 adds that there is no compensation where one of the debts consists in civil liability arising from a penal offence. The pattern is consistent: obligations the law treats as owed for the creditor's protection cannot be quietly cancelled by the debtor's own counterclaim. So the practical course is to hand back the deposit against a receipt describing it as such, and then demand the loan in writing. Refusing to return it risks converting a straightforward collection case into an accusation about the money you held.

Related provisions

• Civil Code, Article 1287 — Debts Excluded From Compensation (Deposit, Support)
• Civil Code, Article 1278 — Compensation Defined
• Civil Code, Article 1288 — Civil Liability From a Crime
• Civil Code, Article 1962 — Deposit Defined