Legal Aspects of Sale,

Mortgage & Lease

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LEGAL
ASPECTS
OF SALE
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Contract of Sale
A 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 sale
Consent or meeting of the minds
Object or subject matter
Cause or consideration
It may be absolute or conditional (Art. 1458
NCC)
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Characteristics of a contract of sale

consensual perfected by mere consent without any

further act
bilateral both parties bound to fulfill obligations toward
each other
onerous 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 given
principal does not depend for its existence/validity
upon another contract
The kinds of contract of sale are absolute and conditional.
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Sales which must be in writing:
sale of personal property at a price not less
than P500.00
sale of real property or interest therein
regardless of the price involved
sale of property not to be performed within
a year from the date thereof regardless of
the nature of the property and price
involved
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Sale distinguished from
contract to sell
Contract of Sale Contract to Sell (CTS)
1. Failure to pay is a 1. Failure to pay is a
resolutory condition positive suspensive
which puts an end to the condition
transaction 2. Ownership is retained by
2. Title passes to the the seller
vendee after compliance 3. Delivery does not affect
of his obligation loss of ownership
3. After delivery, ownership
is lost, unless it is
rescinded.
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Obligations of the Vendor
To transfer the ownership of the determinate
thing
To deliver the thing
To warrant against eviction and hidden defects
To take care of thing, pending delivery, with
proper diligence
To pay for the expenses for the execution and
registration of the deed of sale, unless there is a
stipulation to the contrary.
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Obligations of the Vendee
To accept delivery; and
To pay the price of thing sold

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Relevant Terms
Policitacion 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)
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Relevant Terms (contd.)

Option 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.
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Earnest Money vs Option Money
Earnest Money Option Money
1. earnest money is part of the 1. option money is separate and
purchase price distinct from the purchase
2. There is already a perfected price
contract of sale when earnest 2. sale is not yet perfected even if
money is paid option money is paid
3. since there is already a 3. optioner is not required to pay
perfected contract of a sale, the balance after payment of
the buyer is bound to pay the the option money
balance after payment of the
earnest money

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Pactum 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.

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Elements of Contract of Sale:
consent
object
price 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.

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Objects of a contract of sale:
things having a potential existence
thing that are existing or to be
manufactured, raised or acquired in the
future, or future goods
those whose acquisition by the seller
depends upon a contingency which may or
may not happen
things subject to a resolutory condition.
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Gross inadequacy of price

Gross inadequacy of price does not affect a

contract of sale, except
it 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.
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Unpaid seller
A seller is an unpaid seller
when the whole price has not been paid or tendered;
when a check is issued and then refused payment by the
dishonor of the instrument
Rights of an unpaid seller
a 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 resale
a right to rescind the sale
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Purchaser in good faith

Purchaser 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.

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Reliance on Torrens Certificate
of Title
A 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.
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Rule on Double Sale & Caveat
Emptor
The 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.
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Right to Repurchase
Conventional 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.

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Right 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.

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Instances 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.
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Equitable mortgage & pacto de
retro sale
The 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.
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Redemption
In 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.

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Redemption (contd.)
The 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.

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Persons who cannot acquire by
purchase
1. the guardian, with regards to the property of the person
under his guardianship;
2. agent, with respect to the property whose
administration or sale have been entrusted to him,
unless the principal was informed before the purchase.
3. 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 seller

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Persons who cannot acquire by purchase
(contd.)

4. 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;
5. 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;
6. other persons disqualified by law.
the sale is null and void because public interest is involved.

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Sale between Husband & Wife
The husband and wife cannot sell property
to each other, except:
when a separation of property was agreed
upon in the marriage settlements; or
when there has been a judicial separation of
property

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When the same immovable thing is
sold to different purchasers
Ownership 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 possession
in default thereof, to the person who present
the oldest title, provided there is good faith
(Art. 1544 NCC)
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Actions by Vendee
Accion 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.

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LEGAL
ASPECTS
OF LEASE

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Definition of Terms
Lease 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.

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Lease of Thing vs Lease of Work or Service

Lease of Thing Lease of Work or Service

the object of the contract is the object is some work or
a thing, service
the principal obligation of the principal obligation of
the lessor is to deliver the the lessor is to perform
thing leased to the lessee, some work or service for the
where in the second, lessee
the remedies available in the only remedy available is,
case of breach are actions as a general rule, an action
for specific performance or for damages.
for damages

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Lease vs Rent
Lease 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.

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Lease vs Sale
LEASE SALE
1. Only use or enjoyment is 1. Ownership is transferred
transferred 2. Transfer is permanent
2. Transfer is temporary 3. Seller must be the owner
3. Lessor need not be the at the time the property
owner is supposed to be
4. The price of the object, delivered
distinguished from the 4. Usually, the selling price
rent, is usually not is mentioned
mentioned.

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Obligations of the lessor
to 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 contract
Lease fee estate - The right of an owner-lessor to receive the
contract rent and reversion of the property at the end of the lease

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Obligations of the lessee
to pay the price of the lease according to the terms
stipulated
to 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 lease
If 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.
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Tacit 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.

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Grounds for which the lessor may
judicially eject the lessee
when 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 contract
when 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;
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Limitations Imposed upon the Lessor in
order to protect the Lessee (PD 20)
no lessor shall increase the rental as agreed upon
no lessor may demand a deposit for any purposed of any
amount in excess of 2 months rental in advance, and
no 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.

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Requisites for Ejectment of
Tenant
Under 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; and
the lessor has given the lessee notice 3 months in
advance of lessors intention to repossess the property.
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Ejectment if lessor/lessee owns
another residential unit
Even 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.

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Ejectment (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.
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Instances where the purchaser of the thing
leased cannot terminate the lease

where the lease is recorded in the registry of

property
where 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; and
where the sale is made with right of repurchase
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Period if Duration of Lease is Not
Fixed
As regards rural land
understood 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 purpose
As 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 daily
the 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 set
the courts may likewise determine a longer period after lessee has been in
possession for over 6 months if the rent is weekly
the court may also fix a longer period after the lessee has stayed in place for over
one month in case of daily rent
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Subleasing vs assignment of lease
Contract of Sublease Assignment of Lease
1. lessee does not transmit absolutely his 1. lessee transmits absolutely his right
right and obligations to the sub lessee. and
2. the personality of the lessee does not 2. the personality of the lessee who
disappear assigns the lease disappears
3. there are 2 leases and 2 distinct 3. there only remains in the juridical
juridical relationships although relation two persons: the lessor and
intimately connected and related to the assignee, who is converted into a
each other lessee.
4. the sub lessee, generally, does not 4. the lessee (assignee) has direct action
have any direct action against the against the owner of the premises as
owner of the premises as lessor, to lessor, to require the compliance of the
require the compliance of the obligations contracted with the plaintiff
obligations contracted with the plaintiff as lessee or vice versa.
as lessee or vice versa.
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Consent of Lessor
Consent 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.

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Repairs of Leased Property
As 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.
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Peaceful & Adequate Enjoyment of
Lease
The 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.

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Non-Payment of Rentals
Even 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.

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Boarders in Leased Premises
The 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.

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Lease to Aliens
Under 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.

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Extinguishment of Lease
If 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.

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LEGAL
ASPECTS OF
MORTGAGE

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Real Estate Mortgage
Real 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 stipulated
The 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.

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Essential requisites of Real Estate
Mortgage
it 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 immovables
the 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 purpose

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Essential Requisites of REM (contd)

when the principal obligation becomes due, the

property mortgaged may be alienated for the
payment of such obligation
registration 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.
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Different kinds of real estate
mortgages
voluntary or conventional mortgages - those agreed to
between the parties, or constituted by the will of the
owner of the property in which they are created
legal mortgages - those constituted by operation of law
equitable 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 law
judicial mortgage those resulting from a judgment of
the court 58
Contract of real estate mortgage vs
contract of sale with right to repurchase
contract of real estate mortgage (REM) contract of sale with right to repurchase
a REM is an accessory contract (SRTR) or pacto de retro sale

1. there is no transfer of title and 1. SRTR is a principal and independent

possession of the property contract

2. the creditor has no right to the fruits of 2. there is a transfer of title and
the property during the pendency of the possession of the property, although
mortgage conditional;

3. if the debtor fails to pay his debt, the 3. the vendee a retro is entitled to the
creditor cannot appropriate the fruits even during the period of
property mortgaged nor dispose of it redemption

4. if the debtor fail to pay within the time 4. as soon as there is a consolidation of
agreed upon the mortgage does not title in the vendee a retro, he may
acquire the property mortgaged dispose of it as absolute owner
5. if the vendor a retro does not redeem
the property within the time agreed
upon, the vendee a retro irrevocably
acquires absolute ownership thereof
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Real Mortgage vs Chattel Mortage

REAL MORTGAGE CHATTEL MORTGAGE

a) Constituted on a) Constituted on
immovables movables
b) May guaranty future b) Cannot guarantee
obligations future obligations

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Similarity of mortgage and pledge

both subjects the property to the fulfillment of the

obligation as security
both guarantee the performance of a principal obligation
in both cases, the creditor cannot appropriate the
property to himself
when the obligation is not paid, the property must be sold
and the proceeds applied to the payment of the debt

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Real Estate Mortgage vs Pledge
Real Estate Mortgage (REM) Pledge
1. real estate mortgage is a 1. pledge is a real contract
consensual contract;
2. the subject of real estate 2. the subject of pledge is personal
mortgage is real property; 3. the possession of the thing
3. the possession of the thing pledged is vested in the creditor
mortgage remains with the
debtor; 4. the pledgee has the right to
4. the mortgagee does not posses receive the fruits of the thing
the right to receive the fruits of pledged, with the obligation of
the thing pledged; applying the same to the interest
5. the foreclosure of the thing of the debt, if owing, and the
mortgaged may either be judicial balance, if any, to the principal
or extrajudicial.
5. the sale at public auction of the
thing pledged is always
extrajudicial
62
Relevant Terms
Pending 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 mortgage
Tipo 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. 63
Redemption
Redemption 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 sale
Right 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.

64
Requisites for valid redemption
the 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 sale
written notice of the redemption must be served on the
officer who made the sale and a duplicate filed with the
proper Register of Deeds.

65
Possession and Ownership
Mortgagee 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 debt
Pactum 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.

66
Defeasance Clause
The 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

67
Antichresis
Antichresis 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.

68
Mortgage vs antichresis
Real Estate Mortgage Antichresis
a mortgagor retains the debtor surrenders
possession of the possession of the
property as to fruits property to the creditor
a creditor does not the creditor generally
receive the fruits receives fruits
the debtor-mortgagor the creditor is obliged to
usually pays the property pay the property taxes
taxes

69
 MACEDA LAW
RA 6552
(Realty Installment Buyer
Protection Law)

70
Maceda 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.
Coverage
All 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.

71
Types of sale which are not
covered by Maceda Law
Sale 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.

72
Rights of the buyers in case of default in
payments of the succeeding installments
To 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; and
To have the full payment annotated in the Certificate of Title of the
property.

73
Allowable grace period
The 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.

74
Buyers who paid installments of less
than two (2) years

They 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.

75
Cancellation of Contract
In 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.

76
 SAMPLE
BOARD EXAM
QUESTIONS

77
In 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 FALSE
FALSE (there are exemptions)

A unilateral deed of sale may only be signed by the vendor.

TRUE FALSE
78
TRUE
In all kinds of foreclosure of mortgage, the mortgagor has always the
right to redeem the property within a period of one year.
TRUE FALSE
FALSE
An alien cannot accept a real mortgage because in case of
foreclosure, he cannot participate in the public auction sale.
TRUE FALSE
FALSE
Under 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 FALSE
FALSE (50 % after 5th year additional 5% per year provided total will
not exceed 90%)

79
The expenses for the execution and the registration of the sale of
real estate shall always be borne by the vendor.
TRUE FALSE
FALSE (depends on agreement)
A deed of sale with mortgage is covered by Maceda Law
because it is in essence still an installment sale.
TRUE FALSE
FALSE
A real estate mortgage can only secure financial obligations.
TRUE FALSE
FALSE (can secure all kinds of obligations)
Parents have the exclusive right to be appointed guardian of the
property of their minor child.
TRUE FALSE
FALSE
80
In a judicial foreclosure of mortgage, the mortgagor has a right
of redemption.
TRUE FALSE
FALSE (equity of redemption)
Title to real estate can be transferred to another person without
the consent of the registered owner.
TRUE FALSE
TRUE (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 FALSE
FALSE (30 days)

81
In extrajudicial foreclosure of mortgage of real estate acquired
through homestead, the redemption period is one (1) year from
auction sale.
TRUE FALSE
FALSE (5 years)
Open mortgage is a kind of mortgage which can be paid even
before maturity.
TRUE FALSE
TRUE
A conditional sale is a sale of a thing having a potential
existence.
TRUE FALSE
TRUE

82
Property 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 FALSE
TRUE
Under the law, the acceptance of earnest money by the seller
from the buyer is not a proof of the perfection of the contract.
TRUE FALSE
FALSE
Act 6552 is the law-governing sale of real estate on installment
basis.
TRUE FALSE
FALSE (not Act 6552 but Republic Act 6552)

83
Under R. A. 6552, the seller can refuse to accept accelerated payment in
case of sale on installment basis.
TRUE FALSE
FALSE
Earnest money shall be considered as part of the purchase price.
TRUE FALSE
TRUE
A court action to remove cloud on the title is called Petition to quit Title.
TRUE FALSE
TRUE
Lis Pendens is a notice that the property is subject to pending court
litigation.
TRUE FALSE
TRUE

84
A 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 FALSE
TRUE

A unilateral promise to sell a parcel of land for a certain price that has been
accepted can still be withdrawn.
TRUE FALSE
TRUE (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 FALSE
FALSE (Buyer a retro is not yet owner while period to repurchase has not
yet expired)
85
The 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 FALSE
FALSE (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 FALSE
FALSE (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 FALSE
FALSE
86
A mortgage on real estate is a real property by analogy.
TRUE FALSE
Answer: TRUE

In co-ownership, a co-owner can dispose of his share without the consent

of the other co-owners.
TRUE FALSE
Answer: 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 FALSE
Answer: FALSE

87
An unrecorded sale a retro is preferred than a subsequent registered
mortgage.
TRUE FALSE
Answer: 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 FALSE
Answer: 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 FALSE
Answer: FALSE
88
The property relation between the spouses may be governed by
stipulation in a contract freely and voluntarily entered into after the
solemnization of marriage.
TRUE FALSE
Answer: 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 FALSE
Answer: FALSE (foreclosure)

The right to foreclose a mortgage prescribes in ten years.

TRUE FALSE
Answer: TRUE
89
A TCT is null and void if the foreigners name who is married to a
Filipina appears on the title.
TRUE FALSE
Answer: 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 FALSE
Answer: FALSE (not in unilateral deed of sale)

Open mortgage is a kind of mortgage which can be paid even before

maturity.
TRUE FALSE
Answer: TRUE
90
In a sublease, the personality of the original lessee is extinguished.
TRUE FALSE
Answer: 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 FALSE
Answer: 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 FALSE
Answer: TRUE

91
A promise to buy sell a determine thing of price certain is reciprocally
demandable.
TRUE FALSE
Answer: 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 FALSE
Answer: TRUE

An undersigned mortgage is binding only to the mortgagor and mortgagee.

TRUE FALSE
Answer: TRUE
92
In interstate succession, the estate of the deceased person is divided among the
heirs in accordance with the last will he has executed.
TRUE FALSE
Answer: 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 FALSE
Answer: 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 FALSE
Answer: FALSE

93
Under 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 FALSE
Answer: FALSE (60 days)

Extrajudicial foreclosure is undertaken in accordance with the provisions of Rule 68

of the Rule of Court.
TRUE FALSE
Answer: 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 FALSE
Answer: FALSE (not natural born Filipino citizen)

94
The 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 FALSE
Answer: 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 FALSE
Answer: 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)

95
There cannot be conventional redemption unless it has been stipulated
in the Contract of Sale.
TRUE FALSE
Answer: 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 FALSE
Answer: FALSE (Property is peripheral because inherited)

96
An illegitimate child is also a compulsory heir and entitled to one-third the share
of a legitimate child.
TRUE FALSE
Answer: 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 FALSE
Answer: 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 FALSE
Answer: TRUE

97
Forfeiture 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 FALSE
Answer: 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 FALSE
Answer: TRUE

98
MULTIPLE CHOICE
A 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:
a. P200,000.00 Computation
b. P250,000.00 50% x P500,000 = P250,000
c. P325,000.00 ADD 5% per year after 5 yrs
d. None of the above
5% x 3 yrs x P500,000 = 75,000
TOTAL = P325,000
c. P325,000.00

99
A stipulation in a mortgage contract where the
mortgagee is authorized to appropriate the property
upon default or non-payment of debt is:
a.Dacion en Pago
b.Tacita Reconducta
c.Pactum Commissorium
d.Pactum de non Aliendo
e.None of the above

c, Pactum Commissorium

100
A 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:
a.Real estate mortgage
b.Blanket mortgage
c. Equitable mortgage
d.Antichresis
e.None of the above

d. Antichresis
101
The conveyance of real estate in payment of an
obligation is:
a.Pacto en retro sale
b.Quit claim Deed
c.Dacion en pago
d.Deed of waiver
e.Cession of ownership

c. Dacion en pago

102
The voluntary transfer of title to real estate is:
a. Adverse possession
b. Quit claim
c. Alienation
d. Surrender
e. None of the Above

c. Alienation

103
A provision in the blanket mortgage that
property whose loan value has been fully
paid shall be released from the mortgage:
a. Defeasance clause
b. Termination clause
c. Automatic redemption clause
d. Acceleration clause

c. Automatic redemption clause

104
In the absence of a pre-nuptial agreement, the
following are excluded from the community property,
except:
a. Property acquired during the marriage by gratuitous title by
either spouse unless otherwise provided by the donor.
b. Fruits as well as income of property mentioned in letter (a),
unless otherwise provided by the donor.
c. 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.
d. Jewelry for personal and exclusive use of either spouse
e. Property 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 spouse

105
Title to an inherited property may be transferred
to the sole heir upon payment of estate tax and
execution and registration of a legal document:
a.Extra-judicial Settlement of Estate
b.Extra- judicial Partition of Estate
c.Affidavit of Consolidation
d.Affidavit of adjudication
e.None of the above

d. Affidavit of adjudication
106
X, 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:
a. Sublease the unit
b. Assign his rights
c. Suspend payment if X fails to make the necessary repairs.
d. Demand payment reimbursement constituting one half of the
value of the usual improvements introduced in good faith.

b. Assign his rights

107
A special power of attorney to sell a realty carries with it all the
following, except:
a. Power to find a purchaser
b. Power to sell directly
c. Power to sell only for cash
d. Power to fix the term of sale
e. None of the above

b. Power to sell directly

108
The following liens can be found at the back of the title except:
a.Real estate tax liens
b.Mechanics liens
c. Mortgage lien
d.Judgment liens
e.None of the above

b. Mechanics liens

109
It means that short of foreclosure, the mortgagor agrees to
transfer ownership of the mortgaged property to the mortgagee:
a. Dacion en pago
b. Redemption
c. Pacto de retro
d. Auction
e. None of the above

a. Dacion en pago

110
The right of an owner-lessor to receive the contract rent and
reversion of the property at the end of the lease is called:
a. Fee simple
b. Leasehold
c. Lease fee estate
d. Net lease
e. None of the above

c. Lease fee estate

111
A mortgage which covers two or more properties is called:
a. Open mortgage
b. Close mortgage
c. Equitable mortgage
d. Blanket mortgage
e. Conventional mortgage

d. Blanket mortgage

112
A 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:
a. Defeasance clause
b. Parole clause
c. Statute of Fraud
d. Enforceability clause
e. Evidentiary clause

c. Statute of Fraud

113
In the absence of any stipulation on the period, the
vendor in a pacto de retro sale may repurchase the
property within:
a. 4 years
b. 6 years
c. 8 years
d. 10 years
e. None of the above

a. 4 years

114
The maximum period that a foreigner may lease land in the
Philippines is:
a. Fifty years
b. Sixty years
c. Seventy-five years
d. Ninety years

a. Seventy-five years

115
If a contract of sale is to deed of sale, contract to sell is to:
a. Pacto de retro sale
b. Deed of conditional sale
c. Deed of sale with mortgage
d. Daction en pago

b. Deed of conditional sale

116
Registration 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:
a. Notice of Adverse claim
b. Notice of Lis Pendens
c. Writ of attachment
d. All of the above
e. None of the above

d. All of the above

117
Special power of attorney is necessary in the following cases,
except:
a. To perform acts of administration
b. To lease real property for more than one year
c. To convey real rights on immovable property
d. To cancel any obligation gratuitously

a. To perform acts of administration

118
In 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.
a. 3 years
b. 4 years
c. 10 years
d. 20 years
e. None of the above

c. 10 years

119
Seizure of a property by court order, usually done
to have it available in the event of adverse
judgment in a pending suit, is:
a. Escheat
b. Forfeiture
c. Foreclosure
d. Attachments
e. Conveyance

d. Attachments
120
In the absence of a valid pre-nuptial agreement, the governing
property relations of a married couple is:
a. Conjugal property
b. Absolute community of property
c. complete separation of property
d. regime of separation of property

b. Absolute community of property

121
Under the Rent Control Law, the lessor may ask for a deposit
rental not exceeding:
a. 1 month
b. 2 months
c. 3 months

b. 2 months
Note: Answer is base on rent control law which expired December 31,
2004.

122
Conjugal partnership can be dissolved by:
a. Legal separation
b. Annulment of marriage
c. Judicial separation of property
d. Any of the above

Any of the above

123
A provision in a mortgage contract which releases the
property from the encumbrance when the obligation is fully
paid:
a. Automatic redemption clause
b. Non-liability clause
c. Defeasance clause
d. Exculpatory clause

c. Defeasance clause

124
A 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 within
a. 2 years
b. 4 years
c. 6 years
d. 10 years
e. None of the above

a. 2 years

125
The following are types of property descriptions ordinarily used
in deeds, contracts, offer to sell, except:
a. Rectangular survey
b. Lot number
c. Monuments
d. Metes and bounds

a. Rectangular survey

126
In 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:
a. Court
b. City/ Municipal treasurer
c. Bank in the name of and with notice of the lessor
d. Any of the above
e. None of the above

d. Any of the above

127
 The sale of a piece of land which was made
through an agent whose authority is verbal is:
a. Voidable
b. Unenforceable
c. Rescindable
d. Void
e. None of the above

d. Unenforceable

128
Husband and wife can sell property to each other in the following
circumstances, except when:
a. A separation of property was agreed upon in the prenuptial
agreement
b. There has been a judicial separation of property
c. There has been a legal separation
d. Spouses have been separated for more than 10 years.

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

129
Essential requirements of a contract to sale:
a. Consent or meeting of minds of buyer and seller
b. Object or subject matter
c. Cause of consideration
d. All of the above
e. None of the above

d. All of the above

130