Immovable property/ Real rights
- Whether Covered by chattel mortgage or pledge
 Rules are different; therefore, it requires that you know the
difference between movable and immovable property
Elements of a Contract
a) Consent
b) Object
c) Cause
Is form an element of a contract?
Not unless the rules require it. Unless the rules require that it be in a
certain form. Then this form should be absolute and indispensable.
Forms a contract
1) Oral
2) Writing
3) In a public instrument – notarization makes it in a public
instrument
When it is notarized ---- public instrument
Effect of it being in a public instrument has to do with the presumption of
regularity. Once a lawyer affixes his notarial seal, there is an attachment
of presumption of regularity. For purpose of presentation in court, the
presumption is that it is duly executed and it is authentic. Presumption
that a lawyer will not notarize a document where the parties did not
appear before him or this is not executed or sworn to.
2 documents relevant in credit transaction which should be in a
public instrument (Art. 1358)
1. Acts which have for the creation, transition and modification of
real rights over immovable properties.
Anything that creates, transmits or modifies any real right over
immovable property
4. Cession of actions or rights proceeding from an act appearing in a
public document.
Even though there is no requirement that it must be in a public
instrument, in order for it to be terminated revoked or ended, it should
also be in a public instrument
The form that created this right or obligation should also the form in
which it shall be terminated or even revoked.
Contracts for the convenience of the parties (Art. 1358)
1) Public Document
The following contracts are required to appear in a public document for
the convenience of the parties and so that they may be registered in the
proper recording office to be binding against third persons:
a) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property
e.g.
a deed of real estate mortgage and its eventual cancellation
must be in a public instrument
d) the cession of actions or rights proceeding from an act appearing in
a public document.
e.g.
D mortgaged his lot in favor of C to secure a debt. If C assigns
the debt and the mortgage, the deed of assignment must also be in a
public instrument since the mortgage itself is required to be in a
public instrument.
In WRITING
The following must be in writing to be enforceable:
1) any contract which involves an amount greater than P500.00
2) special promise to answer for the debt, default or miscarriage of
another. – Guaranty
3) agreement that by its terms is not to be performed within a year
from the making thereof.
4) Sale of real property or an interest therein (regardless of price)
5) Representation as to the credit of a third person
 - COMMODATUM
Purpose of public instrument is the PRESUMPTION OF REGULARITY
Consumable vs Non-Consumable Property
 Even if binding between both parties, it must be in a public
instrument. Consumable
 Comply with the Rules on notarial commission – in order to
protect the parties, not only sign the contract but make sure that Movable which cannot be used in a manner appropriate to its
they sign your book nature without it being consumed
o Tendency is that the seller may deny that they signed the when this good will be appropriated in order for it to be used; that
deed of sale there be destruction of it in order for it to be completely used
 Best proof: when it’s notarized, that they signed your book – it
Non-consumable
means that they appeared before you and that they are manifesting
that this is voluntarily affixed by them if it cannot be destroyed
e.g. when you borrow a book, the words do not vanish, after you
Difference: In writing vs In a public instrument
stop reading it
When you go to court and it is only in writing, you have to prove DUE
EXECUTION. This is something that you need not do if it is in a public
instrument. Consumable ≠ Fungible
*something can be consumable but may be non-fungible
Why? Because there is an attachment of presumption of regularity. The
*some may be consumable and also fungible
mere fact that a lawyer notarized it means that
1) He was satisfied with the identity of the parties
Fungible vs Non-Fungible
2) There was voluntary action on the part of the seller to dispose of
the ownership of his property. That he is willing to be bound by Fungible
this sale.
means substitution; allows substitution of the thing given
Easier to prove if it is in a public instrument. e.g.
 SIMPLE LOAN – characterized by being fungible
e.g.
 MUTUUM
Contract of Employment – need not be in a public instrument. The
Non-fungible
mere fact that it is executed by the parties, it is already binding
between the parties. COMMODATUM
does not permit substitution and in fact requires that the thing
given must also be the thing to be returned
Types of Contract according to PERFECTION: compels a return of the identical thing given;
e.g
1. Consensual Contract  if you borrowed the Spolarium, you cannot give Richard gomez’s
 Perfected by mere meeting of the minds dick painting in return

2. Real Contract
 Perfected by mere delivery
e.g. Guaranty – not only referring to loans
- DEPOSIT ( baggage counter)
- PLEDGE (pawnshops)
You cannot serve as a guarantor for B to marry A. You, as the guarantor, * it reduces risks as it will ensure payment;
cannot marry A if B does not want to. – it is involuntary servitude * As a creditor, it is more prudent to have a security
* lesser interest rate

If employees or other entities are the biggest creditors, they cannot Eg.
be preferred in the distribution of assets over the Government with Lender lends 10M to the borrower. When the obligation became due, the
respect to taxes. – Life blood doctrine borrower is unable to pay.

What is the remedy of the borrower?

CREDIT Go to court – sue the borrower for the collection of sum of money
- belief/trust in one’s ability to pay a debt or to comply with obligations  10M (RTC)
- not the same as a LOAN  RTC – became final and executory
* LOAN – delivery of property with the expectation of it being returned  Execution – won
* Amount of loan should also be the amount of the credit o Go after the property – execute after the real estate
property
CREDIT TRANSACTION o If borrower has no real property – go after personal
-contracts based on trust or belief property
o If no personal property – GARNISHMENT OF DEPOSITS
*Credit vs. Loan
-ability to pay; contracts where money is given with guaranty that it shall
be paid with or without interest Foreclosure – auctioned at 7million
-loan is within credit of a person
B. Unsecured- only secured with a promise
SECURITY
a form of asset that will ensure repayment BAILMENT (bailor/giver & bailee/receiver)
lessen risks A rightful possession of goods by a person who is not the owner
“rightful possession” – has the authority to be holding the property in
Types of Credit Transaction behalf of another person
A. Secured- supported by a collateral; security ensure payment; to lessen
risk (usually with lower interest rates) - Characterized by a contract to deliver;
- There is only change in POSSESSION, not a change in TITLE
Types of Security: - mere possession is transferred; rightful possession of goods by a
1. Real Security- any form of asset (movable/immovable) person who is not its owner
e.g. Contracts with real security e.g.
Chattel mortgage o left property with the baggage counter
Real estate mortgage o sale – not a bailment as there is change in ownership
Pledge o donation – mode of acquiring ownership
Antichresis
Parties to a Bailment:
2. Personal- personal undertaking on behalf of a debtor (to pay on behalf) 1) BAILOR – the one that gives or delivers the property in the
e.g. possession of another
a guaranty that in case of insolvency inability to perform the obligation, 2) BAILEE – has the duty of returning the property
the guarantor will pay the obligation
e.g.
Importance of security
when you borrow a car, (consensual contract is a contract that arises from the mere consensus
bailor – one who is lending (lender) of the parties; does not require the performance of any formal or symbolic
bailee – one that you lend it to (borrower) acts to fix the obligation)
CREDIT LOAN
Requirements for BAILMENT: The delivery by one party
1. It only pertains to Personal property Ability to borrow money by and the receipt by the other
2. Mere possession is transferred, not title virtue of the confidence or trust party of a given sum of
3. Eventual return of the property reposed by a lender that he will money, upon an agreement,
pay what he may promise express or implied, to repay
KINDS OF BAILMENT: the sum loaned, with or
1. Actual Bailment- actual/constructive delivery of the thing to the bailee without interest

2. Bailment for Hire/Lucrative Bailment- bailee is compensated

e.g. SAFETY DEPOSIT BOXES
3. Bailment of Mutual Benefit- bailee is compensated while bailor enjoys
advantages (bailor enjoy additional benefit)
e.g. PLEDGE (INTEREST)
4. Gratuitous Bailment (naked bailment) - bailee receives no
compensation; bailment for the sole benefit of bailor (requirement: return
upon demand) - done on the goodness of their hearts
5. Bailment for Sale- bailee agrees to sell goods for bailor (consignment);
bailee’s obligation to return what was not sold
e.g. CONSIGNMENT
Avon, Mary Kay
Avon ladies receives the items for Avon, the obligation is to sell; if
unsold, they must return it
6. Constructive Bailment- arises when law imposes obligation on a
possessor to return property to its rightful owner;
7. Involuntary Bailment- arises from an accident but without negligence,
a person leaves property in another’s possession; when it is lost and
found, there should be a duty to return it without
Kinds of Loan
1. MUTUUM- simple loan; money
2. COMMODATUM- property; loan of something with expectation that it is
to be returned
*Consumables are products that consumers buy recurrently, i.e., items
which "get used up" or discarded.
*Fungibles are goods which are interchangeable; have no distinguishing
characteristics from others of like kind, such as grains or oils, so that they
can be easily replaced or substituted.
COMMODATUM
-loan of a property (real or personal); using it for a certain time with the
condition that it shall be returned, hence it is non-fungible and non-
consumable (except when loaned for exhibit only); gratuitous (out of
liberality, free); perfected by delivery (real contract)
-without delivery, merely a consensual contract (promise to enter into a
commodatum; binding insofar as it compels a party to deliver the thing)
-for movable, no form; for immovable, in public instrument (although the
law does not require, an act of prudence)
- diligence of a good father of a family (ordinary diligence)
-bailor retains ownership of the thing loaned, bailor need not be the owner
because mere possession is transferred

As to Fruits:
*Loan is a bailment because there is delivery (loan is a real contract- General Rule- not subject of commodatum (Art. 441, NCC. To the owner
consent, object, consideration and delivery; perfected only upon delivery belongs: (1) The natural fruits; (2) The industrial fruits; (3) The civil
which may be actual or constructive) fruits)

Exception- (Art. 1940, NCC. A stipulation that the bailee may make use of
the fruits of the thing loaned is valid) vs. (Art. 1935, NCC. The bailee in
 commodatum acquires the used of the thing loaned but not its fruits; if Extraordinary
any compensation is to be paid by him who acquires the use, the expense because of
contract ceases to be a commodatum) actual use, without X X
*use of fruits if with compensation is usufruct fault (1949)

Personal (Not Transmissible) Other expenses other

Art. 1939, NCC. Commodatum is purely personal in character. than from Art. 1941
Consequently: X
and Art. 1949 (1950)
(1) The death of either the bailor or the bailee extinguishes the contract;
Damages suffered by
(2) The bailee can neither lend nor lease the object of the contract to a bailee for non-
third person. However, the members of the bailee's household may make disclosure of flaws X
use of the thing loaned, unless there is a stipulation to the contrary, or (1951)
unless the nature of the thing forbids such use.

As to Expenses: Bailee’s Liability for Loss of Thing Even if Due to Fortuitous Event
1. Ordinary Expense- bailee does not answer for deterioration of the 1. Devoted thing to another purpose not intended- manifest abuse of
thing loaned due only to its use and without his fault generosity
2. Extraordinary Expense- ultimately benefits the bailor; bailor refunds 2. Kept longer than period stipulated or after accomplishment of
bailee, given the following requirements: stipulated purpose
a) For preservation 3. Loaned with appraisal value- manifestation that bailee shall be
b) Bailee notifies bailor, unless it is so urgent to prevent danger liable in case of loss even if arising from fortuitous event
*bailee shall bear expenses if it is for pure luxury or mere pleasure; for 4. Lends or leases it to 3rd person other than members of the
bailee’s benefit household
*bailor liable for damages incurred by bailee if flaws known by bailor and 5. Saves own thing instead of the thing borrowed- failure to observe
did not disclose the same due diligence
*bailor cannot exempt himself from paying expenses by abandoning thing
to bailee
Time of Return
EXPENSES BAILOR BAILEE
Ordinary Expenses for 1. Expiration of period stipulated
the use and 2. After accomplishment of use for which commodatum was constituted
X
preservation (1941)
3. Bailor has urgent need of the thing; for temporary use (commodatum
Deterioration due to is suspended)
the use (1943) NONE 4. Upon demand of bailor (Precarium- kind of commodatum where there
is no stipulation as to duration or devoted use; merely tolerated)
Extraordinary
expenses for the
preservation of the X Acts of Ingratitude (the same with donation)
thing loaned (1949) Art. 765, NCC. The donation may also be revoked at the instance of the
donor, by reason of ingratitude in the following cases:
 (1) If the donee (bailee) should commit some offense against the
person, the honor or the property of the donor (bailor), or of his
wife or children under his parental authority;
(2) If the done (bailee) imputes to the donor (bailor) any criminal
offense, or any act involving moral turpitude, even though he
should prove it, unless the crime or the act has been committed
against the done (bailee) himself, his wife or children under his
authority;
(3) If he unduly refuses him support when the done (bailee) is legally
or morally bound to give support to the donor (bailor)

MUTUUM (simple loan)

-involves consumable and fungible thing (same kind, quality and quantity,
even if it shall change in value; value at the time of the perfection is the
basis)
-it is barter/exchange if it involves return of a non-consumable thing of the
same kind, quality and quantity
-may be gratuitous or with stipulation of interest
-real contract
-not personal
-ownership passes to the bailee
-loss of thing does not extinguish obligation

Extinguishment of Mutuum (money)

 Payment- currency stipulated, legal tender
 Extraordinary Inflation or Deflation- payment of the value at the
establishment of the obligation

*Inflation is the unusual inability of the Philippine Peso to purchase goods,

requires the official announcement from the BSP