Legal Aspects of Sale, Mortgage & Lease

1Legal Aspects of Sale, Mortgage & Lease RODRIGO B. MALLONGA, CE, EnP, MBA, LLB, DPA REALTOR / APPRAISER / CONSULTANTREBL# XIII-ADN-001 RB REAL# XIII-ADN-001 RA RECL# XIII-ADN-001 RC 12LEGAL ASPECTS OF SALE

23Contract of SaleA contract whereby one of the parties (vendor) obligates himself to deliver something to the other (vendee) who, on his part, binds himself to pay therefor a sum of money or its equivalent.Essential requisites of a contract of saleConsent or meeting of the mindsObject or subject matterCause or considerationIt may be absolute or conditional (Art. 1458 NCC)34Characteristics of a contract of saleconsensual perfected by mere consent without any further actbilateral both parties bound to fulfill obligations toward each otheronerous thing sold is with a consideration commutative the thing sold is considered the equivalent of the price paid and vice-versa nominate a name is givenprincipal does not depend for its existence/validity upon another contractThe kinds of contract of sale are absolute and conditional.45Sales which must be in writing:sale of personal property at a price not less than P500.00sale of real property or interest therein regardless of the price involvedsale of property not to be performed within a year from the date thereof regardless of the nature of the property and price involved56Sale distinguished from contract to sellContract of SaleFailure to pay is a resolutory condition which puts an end to the transactionTitle passes to the vendee after compliance of his obligationAfter delivery, ownership is lost, unless it is rescinded.Contract to Sell (CTS)Failure to pay is a positive suspensive conditionOwnership is retained by the sellerDelivery does not affect loss of ownership67Obligations of the VendorTo transfer the ownership of the determinate thingTo deliver the thingTo warrant against eviction and hidden defectsTo take care of thing, pending delivery, with proper diligenceTo pay for the expenses for the execution and registration of the deed of sale, unless there is a stipulation to the contrary.78Obligations of the VendeeTo accept delivery; andTo pay the price of thing sold89Relevant TermsPolicitacion an unaccepted unilateral promise to buy or sell. Even if accepted by the other party, it is not binding upon the promissor and maybe withdrawn at anytime.Right of First Refusal an innovative juridical relation. If such right is incorporated in a contract, it is enforceable by specific performance. Otherwise, the injured party can only sue for damages. (Equatorial Realty, Inc. vs. Carmelo, et al)910Option contract an unaccepted unilateral promise to buy or sell a determinate thing for a price certain supported by a consideration distinct from the price. The offeror is bound to comply with his obligation or he may sue for damages only, but he cannot sue for specific performance. (Asuncion vs. CA)Earnest Money a partial payment of the purchase price and considered as proof of the perfection of a sale. An option money may become earnest money if the parties agree.Relevant Terms (contd.)1011Earnest Money vs Option MoneyEarnest Moneyearnest money is part of the purchase priceThere is already a perfected contract of sale when earnest money is paid since there is already a perfected contract of a sale, the buyer is bound to pay the balance after payment of the earnest moneyOption Moneyoption money is separate and distinct from the purchase pricesale is not yet perfected even if option money is paidoptioner is not required to pay the balance after payment of the option money

1112Pactum Reservati Domini (PRD)Pactum reservati dominii - a stipulation where parties agree that despite delivery, the ownership of the thing shall remain with the seller until the purchaser has fully paid the price.1213Elements of Contract of Sale:consentobjectprice in money or its equivalent

A seller need not be the owner at the time of perfection; but he must be the owner at the time of delivery because it is only when the object is delivered that the vendee acquires ownership. It is sufficient that he be the owner at the time the obligation to deliver arises.1314Objects of a contract of sale:things having a potential existencething that are existing or to be manufactured, raised or acquired in the future, or future goodsthose whose acquisition by the seller depends upon a contingency which may or may not happenthings subject to a resolutory condition.1415Gross inadequacy of priceGross inadequacy of price does not affect a contract of sale, exceptit may indicate a defect in the consent or that the parties really intended a donation or some other act or contract. It is not material when the law gives the owner the right to redeem the property sold at the auction sale.A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.1516Unpaid sellerA seller is an unpaid sellerwhen the whole price has not been paid or tendered;when a check is issued and then refused payment by the dishonor of the instrumentRights of an unpaid sellera lien on the goods or right to retain them for the price while he is in possession of them;in case of insolvency of the buyer, a right of stopping the goods in transit after he has parted with the possession of them;a right of resalea right to rescind the sale1617Purchaser in good faithPurchaser in good faith is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of purchase or before he has notice of the claim or interest of some other person in the property.the right of innocent purchases for value must be respected and protected notwithstanding the fraud employed by the seller in securing his title. Thats why a forged or fraudulent document can vest title.1718Reliance on Torrens Certificate of TitleA person dealing with a registered land has a right to rely on the Torrens Certificate of title and to dispense with the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient fact to induce a reasonably prudent man to inquire into the status of the title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of said certificate. One who falls within the exception can neither be denominated and innocent purchaser for value or a purchaser in good faith; hence does not merit the protection of the law.1819Rule on Double Sale & Caveat EmptorThe rule on double sale giving better right to the buyer in good faith who registered his sale does not apply to unregistered land.The rule of caveat emptor is applicable to execution sales. The sheriff does not warrant the title to the property sold by him, and it is not incumbent upon him to place the purchaser in possession of such property. The buyer has to exercise due diligence.1920Right to RepurchaseConventional redemption takes place when the vendor reserves the right to repurchase the thing sold with the obligation to return the price delivered as well as the expenses of the contract and necessary and useful expenses made on the thing.The right to repurchase must be reserved in the same deed of sale. If it is reserved in a separate instrument, then the document is not a sale with right to repurchase. The same is merely a promise to sell which is discretionary on the vendee a retro.2021Right to repurchase (contd.)The essence of a sale with right to repurchase is that the tile and ownership of the property sold is immediately vested in the vendee a retro subject to the resolutory condition of repurchase by the vendor a retro within the period stipulated. Failure to perform said resolutory condition vests upon the vendee by operation of law absolute title or ownership over the property sold.The exercise of the right to repurchase is right, not an obligation. Therefore, the tender of a check is sufficient to compel redemptions, but it is not in itself a payment that relieves the redemptioner from his liability to pay the redemption price. In fact, there is no prescribed form for an offer to redeem. It may be done by a formal offer to redeem or the filing of an action in court.2122Instances that a contract is presumed to be an equitable mortgage:when the price of a sale with right to repurchase is unusually inadequate;when the vendor remains in possession as lessee or otherwise;when upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed;when the purchaser retains himself a part of the purchase price;when the vendor binds himself to pay the taxes on the thing sold;in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.2223Equitable mortgage & pacto de retro saleThe execution of a contract extending a contract of sale with right to repurchase can be construed as indicative of an equitable mortgage.The mere fact that the price in a pacto de retro sale is not the true value of the property does not justify the conclusion that the contract is one of equitable mortgage. When the terms of the contract clearly show that it is one of sale with right to repurchase, it must be interpreted according to its literal sense and held to be such a contract.2324In the absence of an agreement, the repurchase by the vendor a retro must be done within four (4) years from the date of contract. If there is an agreement, the period cannot exceed ten (10) years.In case of failure to redeem, there shall be consolidation of ownership in the vendee a retro. Consolidation is a matter of law. Such failure results in the loss of the right to repurchase. Registration of the consolidated ownership requires a judicial order after the vendor shall have been notified. The seller a retro should be notified in order to comply with the due process clause.Redemption2425The vendor cannot avail himself of the right to repurchase without returning to the vendee the price of the sale, and in addition:the expenses of the contract, and any other legitimate payments made by reason of the sale;the necessary and useful expenses made on the thing sold.Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title.Redemption (contd.)2526Persons who cannot acquire by purchasethe guardian, with regards to the property of the person under his guardianship;agent, with respect to the property whose administration or sale have been entrusted to him, unless the principal was informed before the purchase. executor and administrator, with respect to the property under their administration;The sale by persons named above, if made, is only voidable because only private interest is affected and the defect can be cured by ratification of the seller2627Persons who cannot acquire by purchase (contd.)public officers and employees, with respect to government properties entrusted to them. It shall apply to judges and government experts who take part in the sale;justices, judges, prosecuting attorneys, clerks of superior courts and other officers and employees connected with the administration of justice, with respect to the properties in litigation before the court with their jurisdiction. This prohibition shall apply to lawyers, with respect to property under litigation which they handle by virtue of their profession;other persons disqualified by law.the sale is null and void because public interest is involved.2728Sale between Husband & WifeThe husband and wife cannot sell property to each other, except:when a separation of property was agreed upon in the marriage settlements; orwhen there has been a judicial separation of property2829When the same immovable thing is sold to different purchasersOwnership shall be transferred:to the person acquiring it who in good faith recorded it in the Registry of property;in default thereof, to the person who in good faith was first in possessionin default thereof, to the person who present the oldest title, provided there is good faith (Art. 1544 NCC)2930Actions by VendeeAccion redhibitoria an action instituted by the vendee against the vendor to avoid a sale on account of some vice or defect in the thing sold which renders it unfit for the use intended or which will diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it.Accion quanti minoris an action to procure the return of a part of the purchase price paid by the vendee to the vendor by reason of such defect.3031LEGAL ASPECTS OF LEASE

3132Definition of TermsLease is a consensual, bilateral, onerous and commutative contract by virtue of which one person binds himself to grant temporarily the use of a thing or to render some service to another who undertakes to pay some rent, compensation or price.Lease of thing one of the parties binds himself to give to another the enjoyment or use of a thing for a price certain, and for a period which maybe definite or indefinite. However, no lease for more than 99 years shall be valid.Lease of work or service one of the parties binds himself to execute a piece of work or to render to the other some service for a price certain, but the relation of principal and agent does not exist between them.3233Lease of Thing vs Lease of Work or ServiceLease of Thingthe object of the contract is a thing, the principal obligation of the lessor is to deliver the thing leased to the lessee, where in the second, the remedies available in case of breach are actions for specific performance or for damagesLease of Work or Servicethe object is some work or servicethe principal obligation of the lessor is to perform some work or service for the lesseethe only remedy available is, as a general rule, an action for damages. 3334Lease vs RentLease it is a consensual, bilateral, onerous, and commutative contract by which one person binds himself to grant temporary the use of a thing or the rendering of some service to another who undertakes to pay some rent, compensation, or price.Rent is the compensation either in money, provisions, chattels, or labor, received by the lessor from the lessee.3435Lease vs SaleLEASEOnly use or enjoyment is transferredTransfer is temporaryLessor need not be the ownerThe price of the object, distinguished from the rent, is usually not mentioned.SALEOwnership is transferredTransfer is permanentSeller must be the owner at the time the property is supposed to be deliveredUsually, the selling price is mentioned3536Obligations of the lessorto deliver the thing which is the object of the contract in such a condition as to render it fit for the use intended;to make on the same during lease all the necessary repairs in order to keep it suitable for the use to which it has been devoted, unless there is a stipulation to the contrary;to maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contractLease fee estate - The right of an owner-lessor to receive the contract rent and reversion of the property at the end of the lease 3637Obligations of the lesseeto pay the price of the lease according to the terms stipulatedto use the thing leased as a diligent father of a family, devoting it to the use stipulated; and in the absence of stipulation, to that which maybe inferred from the nature of the thing leased, according to the customs of the place;to pay the expenses for the deed of leaseIf the lessor or lessee should not comply with their respective obligations, the aggrieved party may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force.3738Tacit renewal of a contract of lease (Tacita reconduccion)it refers to the new contract of lease which is implicitly created or established if at the end of the old contract the lessee should continue enjoying the thing leased for 15 days with the acquiescence of the lessor, provided that a notice to the contrary had not been previously given by either party. The period of the implied new lease in such case shall be the legal period established but the other terms of the original contract shall be revived.3839Grounds for which the lessor may judicially eject the lesseewhen the period agreed upon, or that which is fixed for the duration of lease has expired; lack of payment of the price stipulated;violation of any of its conditions agreed upon in the contractwhen the lessee devotes the thing lease to any use or serve not stipulated which causes the deterioration thereof; or if he does not observe the requirement as regards the use thereof;3940Limitations Imposed upon the Lessor in order to protect the Lessee (PD 20)no lessor shall increase the rental as agreed uponno lessor may demand a deposit for any purposed of any amount in excess of 2 months rental in advance, andno lessor may judicially eject the lessee when the period which is fixed for the duration of leases has expired.the only effect of the said decree upon provision of Article 1673 (NCC) is to suspend partially the provision of par. (1) of Art. 1683 xxxx insofar as they refer to dwelling units or land on which anothers dwelling is located shall be suspended until otherwise provided.4041Requisites for Ejectment of TenantUnder the Rental Law (BP Blg. 25; BP Blg. 877 as amended by RA nos. 6643 and 8437), to warrant ejectment of a tenant on the ground of need for personal use of the owner or the immediate member of his family, the requisites are:the owner or lessor needs the property for his own use of for the use of any immediate member of the family;such owner or immediate member of the family is not the owner of any available residential unit;the period of lease has expired; andthe lessor has given the lessee notice 3 months in advance of lessors intention to repossess the property.4142Ejectment if lessor/lessee owns another residential unitEven if the lessor/lessee owns another residential unit, if the same is occupied, or it is not suitable for dwelling purposes, it is no obstacle to the ejectment of a tenant on the ground that the premises is needed for the use of the owner or the immediate member of his family.4243Ejectment (contd).If the tenants have not paid the rentals for no reason at all except that the case is still pending in court, or the tenant was subleasing the property without the knowledge or consent of the owners/lessors, the court, in the interest of justice, should not hesitate to suspend the rules by ordering the ejectment of such tenants although such non payment of rentals is not one of the stated grounds for the litigation. While it is the benign policy of the State to give all possible assistance to tenants, particularly those coming from the low income group and to help the landless acquire their own homes, this should not be applied to the extent of oppressing the landowners/lessors by enabling such tenants to occupy the premises when the landowner or the immediate member of his family needs the premises for his own use, or when the tenants have not paid the rentals due pending litigation, or otherwise subleased the premises without the knowledge nor consent of the owner/lessor. The court should step in to see that the scales of justice are equitably tipped the relieve the owner/lessor from his unfortunate plight.4344Instances where the purchaser of the thing leased cannot terminate the leasewhere the lease is recorded in the registry of propertywhere there is stipulation in the contract of sale that the purchaser shall respect the lease;where the purchaser knows of the existence of the lease;where the sale is fictitious; andwhere the sale is made with right of repurchase 4445Period if Duration of Lease is Not FixedAs regards rural landunderstood to have been made for the time necessary for the gathering of the fruits which the whole estate may yield in one year, or which it may yield once, although 2 or more years may have elapsed for the purposeAs regards urban property understood to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is weekly, and from day to day, if the rent is to be paid dailythe court may fix a longer term for the lease after lessee has occupied the premises for over one year even though a monthly rent is paid, and no period for the lease has been setthe courts may likewise determine a longer period after lessee has been in possession for over 6 months if the rent is weeklythe court may also fix a longer period after the lessee has stayed in place for over one month in case of daily rent4546Subleasing vs assignment of leaseContract of Subleaselessee does not transmit absolutely his right and obligations to the sub lessee. the personality of the lessee does not disappear there are 2 leases and 2 distinct juridical relationships although intimately connected and related to each otherthe sub lessee, generally, does not have any direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee or vice versa.Assignment of Leaselessee transmits absolutely his right and the personality of the lessee who assigns the lease disappears there only remains in the juridical relation two persons: the lessor and the assignee, who is converted into a lessee.the lessee (assignee) has direct action against the owner of the premises as lessor, to require the compliance of the obligations contracted with the plaintiff as lessee or vice versa.4647Consent of LessorConsent of the lessor is necessary in an assignment of lease because it involves the transfer not only of rights but also of obligations. It constitutes a substitution of one of the parties, lessee.In case of sublease, the sub lessee maybe liabe to the lessor in the following instances:all acts which refer to the use and preservation of the thing leased in the manner stipulated between the lessor and the lessee;the sub lessee is subsidiarily liable to the lessor for any rent due from the lessee. However, sub lessee shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at the time of the extrajudicial demand by the lessor.4748Repairs of Leased PropertyAs a rule, the lessor is under obligation to make necessary repairs in order to make the premises suitable for the purpose it is intended, unless there is a stipulation to the contrary. If there is a stipulation that the lessee shall be responsible for the necessary repairs, then, he must not rely upon the lessor to make such repairs because that is a binding contract.If the contract of lease is silent as to who shall bear the expenses for repairs, as to necessary or major repairs, the same shall be borne by the lessor. Minor repairs shall be borne by the lessee.If the lessor does not make the major or necessary repairs, the lessee may ask for the rescission of the contract and indemnification for damages, or only the latter, allowing the contract to remain in force.4849Peaceful & Adequate Enjoyment of LeaseThe law requires the lessor to maintain the lessee in the peaceful and adequate enjoyment of the lease for the entire duration of the contract. He must see to it that the enjoyment is not interrupted or disturbed, either by others acts or by his own. Case: The act of the lessor in padlocking the office of the lessee and of enclosing with barbed wire the leased land violated the lessors third obligation mandated by par. 3, Art. 1654 of NCC. When the lessor padlocked and fenced the leased land after 4 years from the inception of the contract of lease, and 6 more years to go in the life of the lease contract, the lessee become the aggrieved party and is entitled to file a complaint for damages and preliminary injunction.4950Even if the contract of lease does not provide for rescission in case of non-payment of rentals, the law itself grants the lessor such right. (Article 1381 and 1659 NCC). It must be recalled that the right of rescission is implied in reciprocal obligations.A payment to the lessor by the sub lessee is not payment to the sub lessor. The lessor is a stranger to the sublease agreement.If the lessor refuses to accept the rentals, the remedy of the lessee is make a proper tender of payment and consignation in order to extinguish the debt. Failure to comply with the requirements is a ground for ejectment. Delayed consignation or deposit will not extinguish the obligation of the lessee.Willingness to pay is not payment. There must be consignation.

Non-Payment of Rentals5051Boarders in Leased PremisesThe taking in of boarders by the lessee in the leased premises without the consent of the lessor did not violate the lease agreement, for a prohibition against subleasing may not embrace the taking in of boarders and assigning rooms or bedspaces for them in the leased premises, did not relinquish or surrender his lease to them. He did not cease to become the actual occupant and possessor of the leased premises. He did not surrender the possession and control of the leased premises or a part thereof.By accepting boarders in the apartment, the lessee did not sublease portion of the apartment to the boarders but only agreed to provide them with meals and/or lodging for a price.5152Lease to AliensUnder the NCC, the period of lease is allowed up to 99 years. PD 471 (Fixing a Maximum Period for the Duration of Leases of Private Lands To Aliens, 1974) , however, has limited the period to 25 years only, renewable for another 25 years.5253Extinguishment of LeaseIf a building is totally destroyed, the lease is extinguished. If there is only partial destruction, the lessee can choose between reduction of the rent and rescission. If the building and the land are leased and the building is burned, the lease is extinguished, unless the lease on the land is separate from the building.5354LEGAL ASPECTS OF MORTGAGE

5455Real Estate MortgageReal Estate Mortgage (REM) it is a contract in which debtor guarantees to the creditor the fulfillment of the principal obligation, subjecting for the faithful compliance therewith a real property in case of non-fulfillment of said obligation at the time stipulatedThe word mortgage is derived from the French words mort and gage. Mort means dead and gage means pledge. Thus it means a dead pledge or unproductive pledge.5556Essential requisites of Real Estate Mortgageit must be constituted to secure the performance of the principal obligation;the subject matter of the contract must be immovable property or alienable real rights upon immovablesthe mortgagor must be the absolute owner of the property mortgages;the mortgagor should have the free disposal of the property mortgaged, and in the absence thereof, he should be legally authorized for the purpose5657Essential Requisites of REM (contd)when the principal obligation becomes due, the property mortgaged may be alienated for the payment of such obligationregistration in the Registry of Property is not necessary for the validity of the contract. However, it is necessary for the purpose binding third persons. Consequently, whether registered or not, the contract is binding upon the properties.5758Different kinds of real estate mortgagesvoluntary or conventional mortgages - those agreed to between the parties, or constituted by the will of the owner of the property in which they are createdlegal mortgages - those constituted by operation of lawequitable mortgages - those which lack one or some of those formalities or other requisites prescribed by law, but show the intention of the parties to charge real property or real rights as security for the payment of a debt and contains nothing which is impossible or contrary to lawjudicial mortgage those resulting from a judgment of the court5859Contract of real estate mortgage vs contract of sale with right to repurchasecontract of real estate mortgage (REM)a REM is an accessory contractthere is no transfer of title and possession of the propertythe creditor has no right to the fruits of the property during the pendency of the mortgageif the debtor fails to pay his debt, the creditor cannot appropriate the property mortgaged nor dispose of itif the debtor fail to pay within the time agreed upon the mortgage does not acquire the property mortgaged

contract of sale with right to repurchase (SRTR) or pacto de retro saleSRTR is a principal and independent contractthere is a transfer of title and possession of the property, although conditional;the vendee a retro is entitled to the fruits even during the period of redemptionas soon as there is a consolidation of title in the vendee a retro, he may dispose of it as absolute ownerif the vendor a retro does not redeem the property within the time agreed upon, the vendee a retro irrevocably acquires absolute ownership thereof5960Real Mortgage vs Chattel MortageREAL MORTGAGEConstituted on immovablesMay guaranty future obligationsCHATTEL MORTGAGEConstituted on movablesCannot guarantee future obligations

6061Similarity of mortgage and pledgeboth subjects the property to the fulfillment of the obligation as securityboth guarantee the performance of a principal obligationin both cases, the creditor cannot appropriate the property to himselfwhen the obligation is not paid, the property must be sold and the proceeds applied to the payment of the debt6162Real Estate Mortgage vs PledgeReal Estate Mortgage (REM)real estate mortgage is a consensual contract;the subject of real estate mortgage is real property;the possession of the thing mortgage remains with the debtor;the mortgagee does not posses the right to receive the fruits of the thing pledged;the foreclosure of the thing mortgaged may either be judicial or extrajudicial.Pledgepledge is a real contractthe subject of pledge is personalthe possession of the thing pledged is vested in the creditorthe pledgee has the right to receive the fruits of the thing pledged, with the obligation of applying the same to the interest of the debt, if owing, and the balance, if any, to the principalthe sale at public auction of the thing pledged is always extrajudicial6263Relevant TermsPending fruits or those which are not yet harvested when the obligation becomes due are covered by the contract of real estate mortgage, but not those which are already harvested.Pactum de non alienado a stipulation in a contract of real estate mortgage prohibiting the owner of the mortgaged property from alienating the property during the pendency of the mortgageTipo or up set price stipulation in a mortgage of real property fixing a minimum price at which the property shall be sold, to become operative in the event of a foreclosure sale at public auction. It is, however, void for the property must be sold to the highest bidder.6364RedemptionRedemption of foreclosed property a transaction by which the mortgagor reacquires or buys back the property which may have passed under the mortgage or diverts the property of the lien which the mortgage may have created. It is allowed in case of foreclosures in favor of banking and credit institutions and in extrajudicial foreclosures.Equity of redemption a right of the mortgagor to redeem the mortgaged after his default in the performance of the conditions of the mortgage but before the sale of the mortgaged property or confirmation of the saleRight of redemption a right of the mortgagor to redeem the mortgaged property within a certain period after it was sold for the satisfaction of the mortgage debt. It is supposed to be exercised within one (1) year from registration of the sale.6465Requisites for valid redemptionthe redemption must be made within 12 months from the time of the registration of the sale;payment of the purchase price of the property plus 1% interest per month together with the taxes thereon, if any, paid by the purchases with the same rate of interest computed from the date of registration of the salewritten notice of the redemption must be served on the officer who made the sale and a duplicate filed with the proper Register of Deeds.6566Possession and OwnershipMortgagee in possession one who has lawfully acquired actual or constructive possession of the premises mortgaged to him, standing upon his rights as mortgagee and not claiming under another title, for the purpose of enforcing his security upon such property or making its income help to pay his debtPactum commissorium a stipulation in a contract of mortgage that the mortgagee shall become the owner of the thing mortgaged if the mortgagor cannot pay his obligation. Under the law, the creditor cannot appropriate the things given by way of mortgage, or dispose of them. Any stipulation to the contrary is void. (Article 2088) The remedy of the creditor in order that his credit may be satisfied is to alienate the thing mortgaged to satisfy the payment of the obligation.6667Defeasance ClauseThe provision in a mortgage contract that ends the mortgage when all payments are made, transferring title to the property back to the mortgagor or terminating the lender's interest in the property 6768AntichresisAntichresis is a contract whereby a person borrowing money of another, hands over his property to the creditor, allowing the use and occupation thereof, for the interest on the money lent. 6869Mortgage vs antichresisReal Estate Mortgagea mortgagor retains possession of the property as to fruits a creditor does not receive the fruits the debtor-mortgagor usually pays the property taxes

Antichresisthe debtor surrenders possession of the property to the creditorthe creditor generally receives fruitsthe creditor is obliged to pay the property taxes6970MACEDA LAWRA 6552(Realty Installment Buyer Protection Law)

7071Maceda Law is the law that provides protection to buyers of real estate on installment payment. It is also known as Realty Installment Buyer Protection Law.CoverageAll transactions or contracts involving the sale or financing of real estate on installment basis, including residential condominium apartments where the buyer has paid at least two (2) years installments.7172Sale of Commercial buildings;Sale of Industrial lots;Sale to tenants under RA#3844; and Installment sales covered by Sale with Mortgage and not by Contract to Sell.Types of sale which are not covered by Maceda Law7273To pay without additional interest the unpaid installment due within the total grace period earned;In case of contract cancellation, to be refunded with at least fifty percent (50%) of the cash surrender value of the installment payments made with an additional five percent (5%) thereof if installment payments are made after five years but not more than ninety percent (90%) of the total payments made;To sell or assign the rights to another person; To reinstate the contract by updating the accounts during the grace period and before the actual cancellation of the contract;To pay in advance any installment;To pay anytime the full the balance of the purchase price without any interest; andTo have the full payment annotated in the Certificate of Title of the property.Rights of the buyers in case of default in payments of the succeeding installments7374The unpaid installment payments which are due and demandable shall have a grace period of one (1) month for every one (1) year of installment payments made. Allowable grace period7475Buyers who paid installments of less than two (2) yearsThey are also protected by the Maceda Law. The buyers are entitled to a grace period of sixty (60) days to pay their amortization from the date the installment became due and demandable.

7576In case of cancellation of the contract, buyers under the Maceda Law (RA#6552) are entitled to receive refund of the cash surrender value equivalent to fifty percent (50%) of the installments made but not to exceed ninety percent (90%) of total payments made. If the contract is under Maceda Law (RA#6552), buyer who has paid two (2) years installments shall be refunded an amount equivalent to fifty percent (50%)of the total payments made and shall also be entitled to a grace period of 60 days. Cancellation of Contract7677SAMPLE BOARD EXAM QUESTIONS7778In all cases, a deed of sale titled in the name of Juan married to Maria has to be signed by both spouses. TRUE FALSE

FALSE (not in all cases; property is exclusive property if inherited or donated.)

All Filipinos who are of the age of majority can enter into a contract of sale. TRUE FALSEFALSE (there are exemptions)

A unilateral deed of sale may only be signed by the vendor. TRUE FALSETRUE7879In all kinds of foreclosure of mortgage, the mortgagor has always the right to redeem the property within a period of a one year. TRUE FALSE FALSEAn alien cannot accept a real mortgage because in case of foreclosure, he cannot participate in the public auction sale. TRUE FALSEFALSEUnder the Maceda Law, a buyer who paid more than two years of installment is entitled to a refund of all payments in case of cancellation of contract. TRUE FALSEFALSE (50 % after 5th year additional 5% per year provided total will not exceed 90%)7980The expenses for the execution and the registration of the sale of real estate shall always be borne by the vendor. TRUE FALSEFALSE (depends on agreement)A deed of sale with mortgage is covered by Maceda Law because it is in essence still an installment sale. TRUE FALSEFALSEA real estate mortgage can only secure financial obligations. TRUE FALSEFALSE (can secure all kinds of obligations)Parents have the exclusive right to be appointed guardian of the property of their minor child. TRUE FALSEFALSE8081In a judicial foreclosure of mortgage, the mortgagor has a right of redemption. TRUE FALSEFALSE (equity of redemption)Title to real estate can be transferred to another person without the consent of the registered owner. TRUE FALSETRUE (in case of involuntary conveyance such as foreclosure sale)A notice of adverse claim annotated on a title is valid only for twenty days. TRUE FALSEFALSE (30 days)8182In extrajudicial foreclosure of mortgage of real estate acquired through homestead, the redemption period is one (1) year from auction sale. TRUE FALSEFALSE (5 years)Open mortgage is a kind of mortgage which can be paid even before maturity. TRUE FALSETRUEA conditional sale is a sale of a thing having a potential existence. TRUE FALSETRUE8283Property foreclosed judicial can no longer be redeemed by the owner after the auction sale has been confirmed by the court, except when the mortgage is a bank where redemption may still be made within one year from auction sale. TRUE FALSETRUEUnder the law, the acceptance of earnest money by the seller from the buyer is not a proof of the perfection of the contract. TRUE FALSEFALSEAct 6552 is the law-governing sale of real estate on installment basis. TRUE FALSEFALSE (not Act 6552 but Republic Act 6552)8384Under R. A. 6552, the seller can refuse to accept accelerated payment in case of sale on installment basis. TRUE FALSEFALSEEarnest money shall be considered as part of the purchase price. TRUE FALSETRUEA court action to remove cloud on the title is called Petition to quit Title. TRUE FALSETRUELis Pendens is a notice that the property is subject to pending court litigation. TRUE FALSETRUE

8485A contract is a meeting of minds between two parties where by one binds himself with respect to the other to give something or render service. TRUE FALSETRUE

A unilateral promise to sell a parcel of land for a certain price that has been accepted can still be withdrawn. TRUE FALSETRUE (accepted unilateral promise to sell is binding on the promissory, if promise is supported by consideration distinct from price. Question does not state that option money was paid)

A bought the house of B a retro. There was an unrecorded lease on the house in favor of C/A can immediately terminate the lease. TRUE FALSEFALSE (Buyer a retro is not yet owner while period to repurchase has not yet expired)

8586The de facto separation of the spouses shall not affect the regime of absolute community, except when there is a formal agreement to the contrary. TRUE FALSEFALSE (agreement must be made before marriage)

The Statute of Fraud is applicable when by virtue of an oral contract of sale, the seller delivered to the buyer a parcel of land which was only partially paid. TRUE FALSEFALSE (Statute of Fraud does not apply when there is partial performance)

Both Pactum commission and Pactum de non aliendo are valid if stipulated in the mortgage contract. TRUE FALSEFALSE 8687A mortgage on real estate is a real property by analogy. TRUE FALSEAnswer: TRUE

In co-ownership, a co-owner can dispose of his share without the consent of the other co-owners. TRUE FALSEAnswer: TRUE

A Torrens Title issued on the basis of a homestead which was obtained thru fraud is as indefeasible as one which is judicially secured. TRUE FALSEAnswer: FALSE8788An unrecorded sale a retro is preferred than a subsequent registered mortgage. TRUE FALSEAnswer: FALSE

In conjugal partnership, a house intended for family use which was acquired through the use of exclusive funds remains an exclusive property. Hence, in case of sale thereof, marital consent is not necessary. TRUE FALSEAnswer: FALSE (Dissolution of family home requires consent of all beneficiaries even though with exclusive funds)

As a general rule, husband and wife can sell to each other. TRUE FALSEAnswer: FALSE8889The property relation between the spouses may be governed by stipulation in a contract freely and voluntarily entered into after the solemnization of marriage. TRUE FALSEAnswer: FALSE (agreement must been made before marriage)

Forfeiture is a process wherein a property used as collateral for a loan is sold to pay the loan in case of default by the borrower. TRUE FALSEAnswer: FALSE (foreclosure)

The right to foreclose a mortgage prescribes in ten years. TRUE FALSEAnswer: TRUE8990A TCT is null and void if the foreigners name who is married to a Filipina appears on the title. TRUE FALSEAnswer: FALSE

Consent is one of the elements of conveyance. Therefore, a deed of sale must always be signed by both the seller and buyer in order to be valid. TRUE FALSEAnswer: FALSE (not in unilateral deed of sale)

Open mortgage is a kind of mortgage which can be paid even before maturity. TRUE FALSEAnswer: TRUE9091In a sublease, the personality of the original lessee is extinguished. TRUE FALSEAnswer: FALSE

A real estate mortgage cannot be executed in favor of a foreigner except when he can show proof that he is a former natural born Filipino citizen. TRUE FALSEAnswer: FALSE ( foreigners, even not former natural born Filipinos can be mortgagee.)

A contract purporting to be an absolute sale is presumed to be equitable mortgage when the seller binds to pay taxes on the thing sold. TRUE FALSEAnswer: TRUE9192A promise to buy sell a determine thing of price certain is reciprocally demandable. TRUE FALSEAnswer: TRUE

The contract of lease provides expiration of lease of May 1, 2001. On the said date, the lessor can legally order the lessee to vacate the premises even without a prior demand to vacate. TRUE FALSEAnswer: TRUE

An undersigned mortgage is binding only to the mortgagor and mortgagee. TRUE FALSEAnswer: TRUE9293In interstate succession, the estate of the deceased person is divided among the heirs in accordance with the last will he has executed. TRUE FALSEAnswer: FALSE (in interstate succession, the decedent has no will)

A notice of adverse claim annotated on the title is valid only for 30 days. TRUE FALSEAnswer: TRUE

Usufruct is a contract where property is hypothecated to secure an obligation where the creditor is given the right to possess the property and collect the fruits thereof. TRUE FALSEAnswer: FALSE

9394Under R. A. 6552, a buyer who has paid less than two years of installment is entitled to grace period of no less than 30 days. TRUE FALSEAnswer: FALSE (60 days)

Extrajudicial foreclosure is undertaken in accordance with the provisions of Rule 68 of the Rule of Court. TRUE FALSEAnswer: FALSE (Rule 68 of the Rules of Court applies to judicial foreclosure)

Ferdinand Lopez, son of Filipino migrants in California, acquired American citizenship by virtue of his being born in USA. As such, his rights to acquire real properties in the Philippines are restricted by the prevailing laws on ownership by an alien. TRUE FALSEAnswer: FALSE (not natural born Filipino citizen)9495The lessor of an apartment in Malabon can legally increase the monthly rental from P5, 000 to P6, 000 starting January 2002 consistent with the 5-year lease contract expiring 31 December 2005. TRUE FALSEAnswer: FALSE (answer is based on rent control law which expired December 31, 2005 underwhich maximum annual increase is only 10 %)

A lessor is entitled to eject the lease upon the ground that the leased premises had been sold to a third person, if the sale is registered. TRUE FALSEAnswer: FALSE (problem does not state that lease registered, or buyer has knowledge of lease, or sales contract provides buyer should recognized the leasehold problem does not state that lease registered, or buyer has knowledge of lease, or sales contract provides buyer should recognized the leasehold)9596 There cannot be conventional redemption unless it has been stipulated in the Contract of Sale. TRUE FALSEAnswer: TRUE

Chika married Chiko in 1980. On 1987, Chikas surviving parent dies and she inherited a two hectare lot in Makati. After the settlement of estate, chika sold the property without consent and over the objection of Chico. The sale is not valid. TRUE FALSEAnswer: FALSE (Property is peripheral because inherited)

9697An illegitimate child is also a compulsory heir and entitled to one-third the share of a legitimate child. TRUE FALSEAnswer: FALSE (1/2 share of legitimate child)

In case area is different from that stated in the contract, if the sale is for a lump sum there shall be no increase or decrease in the price. TRUE FALSEAnswer: TRUE

Lease of lands and building within ECOZONE to entities owned by aliens shall not exceed fifty (50) years extendible once for a period of not more than 25 years. TRUE FALSEAnswer: TRUE9798Forfeiture is the seizure of a property by a Court order, usually done to have it available in the event of adverse judgment of appending case. TRUE FALSEAnswer: FALSE (refer to attachments)

Pactum de non aliendo is a stipulation which prohibits the mortgage from alienating the property during the period of the mortgage. TRUE FALSEAnswer: TRUE9899MULTIPLE CHOICEA buyer of real estate has already paid in 8 years of installment a total amount of P520, 000.00 inclusive of P20, 000.00 penalty interest. The cash surrender value of the property based on Maceda Law is:P200,000.00P250,000.00P325,000.00None of the above

c. P325,000.00Computation50% x P500,000 = P250,000ADD 5% per year after 5 yrs 5% x 3 yrs x P500,000= 75,000TOTAL= P325,000 99100A stipulation in a mortgage contract where the mortgagee is authorized to appropriate the property upon default or non-payment of debt is:Dacion en PagoTacita ReconductaPactum CommissoriumPactum de non AliendoNone of the above

c, Pactum Commissorium100101A contract where the property is hypotheticated to secure an obligation where the creditor is given the right to possess the property and collect the fruits thereof is:Real estate mortgageBlanket mortgageEquitable mortgageAntichresisNone of the above

d. Antichresis101102The conveyance of real estate in payment of an obligation is:Pacto en retro saleQuit claim DeedDacion en pagoDeed of waiverCession of ownership

c. Dacion en pago102103The voluntary transfer of title to real estate is:Adverse possessionQuit claim AlienationSurrenderNone of the Above

c. Alienation103104A provision in the blanket mortgage that property whose loan value has been fully paid shall be released from the mortgage:Defeasance clauseTermination clauseAutomatic redemption clauseAcceleration clause

c. Automatic redemption clause104105In the absence of a pre-nuptial agreement, the following are excluded from the community property, except:Property acquired during the marriage by gratuitous title by either spouse unless otherwise provided by the donor.Fruits as well as income of property mentioned in letter (a), unless otherwise provided by the donor.Property acquired before the marriage by either spouse who has legitimate descendants by a former marriage and the fruits as well as the income, if any, of such property.Jewelry for personal and exclusive use of either spouseProperty acquired before the marriage by either spouse who has legitimate descendants by a former marriage and the fruits as income, if any, of such property.

d. Jewelry for personal and exclusive use of either spouse105106Title to an inherited property may be transferred to the sole heir upon payment of estate tax and execution and registration of a legal document:Extra-judicial Settlement of EstateExtra- judicial Partition of EstateAffidavit of ConsolidationAffidavit of adjudicationNone of the above

d. Affidavit of adjudication106107X, owner of a 10- door apartment rented a unit to Y for a period of one year. Under the law on lease, Y, without the consent of X, may perform any of the following acts, except:Sublease the unitAssign his rightsSuspend payment if X fails to make the necessary repairs.Demand payment reimbursement constituting one half of the value of the usual improvements introduced in good faith.

b. Assign his rights107108A special power of attorney to sell a realty carries with it all the following, except:Power to find a purchaserPower to sell directlyPower to sell only for cashPower to fix the term of saleNone of the above

b. Power to sell directly108109The following liens can be found at the back of the title except:Real estate tax liensMechanics liensMortgage lienJudgment liensNone of the above

b. Mechanics liens109110It means that short of foreclosure, the mortgagor agrees to transfer ownership of the mortgaged property to the mortgagee:Dacion en pagoRedemptionPacto de retroAuctionNone of the above

a. Dacion en pago110111The right of an owner-lessor to receive the contract rent and reversion of the property at the end of the lease is called:Fee simpleLeaseholdLease fee estateNet leaseNone of the above

c. Lease fee estate

111112A mortgage which covers two or more properties is called:Open mortgageClose mortgageEquitable mortgageBlanket mortgageConventional mortgage

d. Blanket mortgage112113A legal provision which requires agreement for the sale of real estate to be in writing and subscribed to by the parties to be enforceable by action:Defeasance clauseParole clauseStatute of FraudEnforceability clauseEvidentiary clause

c. Statute of Fraud113114In the absence of any stipulation on the period, the vendor in a pacto de retro sale may repurchase the property within:4 years6 years8 years10 yearsNone of the above

a. 4 years114115The maximum period that a foreigner may lease land in the Philippines is:Fifty yearsSixty yearsSeventy-five yearsNinety years

a. Seventy-five years115116If a contract of sale is to deed of sale, contract to sell is to:Pacto de retro saleDeed of conditional saleDeed of sale with mortgageDaction en pago

b. Deed of conditional sale

116117Registration of a real estate instrument can be given due course even without the presentation of the owners duplicate certification of title when the document is:Notice of Adverse claimNotice of Lis PendensWrit of attachmentAll of the aboveNone of the above

d. All of the above117118Special power of attorney is necessary in the following cases, except:To perform acts of administrationTo lease real property for more than one yearTo convey real rights on immovable propertyTo cancel any obligation gratuitously

a. To perform acts of administration118119In a sale retro where it is stipulated that the vendor has the right to repurchase the property when he has the means, he has ___________to redeem it.3 years4 years10 years20 yearsNone of the above

c. 10 years119120Seizure of a property by court order, usually done to have it available in the event of adverse judgment in a pending suit, is:EscheatForfeitureForeclosureAttachmentsConveyance

d. Attachments120121In the absence of a valid pre-nuptial agreement, the governing property relations of a married couple is:a. Conjugal propertyb. Absolute community of propertyc. complete separation of propertyd. regime of separation of property

b. Absolute community of property121122Under the Rent Control Law, the lessor may ask for a deposit rental not exceeding:1 month2 months3 months

b. 2 monthsNote: Answer is base on rent control law which expired December 31, 2004.122123Conjugal partnership can be dissolved by:Legal separationAnnulment of marriageJudicial separation of propertyAny of the above

Any of the above123124A provision in a mortgage contract which releases the property from the encumbrance when the obligation is fully paid:Automatic redemption clauseNon-liability clauseDefeasance clauseExculpatory clause

c. Defeasance clause124125A TCT has an annotation that says subject to sec.4, Rule 74 of the Rules of Court. It means that the property is subject to claim by any heir unduly deprived of lawful participation in the settlement of the decedents estate within2 years4 years6 years10 yearsNone of the above

a. 2 years125126The following are types of property descriptions ordinarily used in deeds, contracts, offer to sell, except:Rectangular surveyLot numberMonumentsMetes and bounds

a. Rectangular survey126127In case of refusal of the lessor to accept payment of the rental agreed upon, the lessee may either deposit by way of consignation, the amount in:CourtCity/ Municipal treasurerBank in the name of and with notice of the lessorAny of the aboveNone of the above

d. Any of the above127128The sale of a piece of land which was made through an agent whose authority is verbal is:VoidableUnenforceableRescindableVoidNone of the above

d. Unenforceable128129Husband and wife can sell property to each other in the following circumstances, except when:A separation of property was agreed upon in the prenuptial agreementThere has been a judicial separation of propertyThere has been a legal separationSpouses have been separated for more than 10 years.

d. Spouses have been separated for more than 10 years.

129130Essential requirements of a contract to sale:Consent or meeting of minds of buyer and sellerObject or subject matterCause of considerationAll of the aboveNone of the above

d. All of the above

130