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rescinded.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
1. earnest money is part of the
purchase price
2. There is already a perfected
contract of sale when earnest
money is paid
3. since there is already a
perfected contract of a sale,
the buyer is bound to pay the
balance after payment of the
earnest money
Option Money
1. option money is separate and
distinct from the purchase
price
2. sale is not yet perfected even if
option money is paid
3. optioner is not required to pay
the balance after payment of
the option 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. That’s 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
the 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 damages
Lease of Work or Service
the object is some work or
service
the principal obligation of
the lessor is to perform
some work or service for the
lessee
the only remedy available is,
as a general rule, an action
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 month’s 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 another’s 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 lessor’s 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
1. lessee does not transmit absolutely his
right and obligations to the sub lessee.
2. the personality of the lessee does not
disappear
3. there are 2 leases and 2 distinct
juridical relationships although
intimately connected and related to
each other
4. the 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 Lease
1. lessee transmits absolutely his right
and
2. the personality of the lessee who
assigns the lease disappears
3. there only remains in the juridical
relation two persons: the lessor and
the assignee, who is converted into a
lessee.
4. 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.
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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
other’s 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 lessor’s 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)
a REM is an accessory contract
1. there is no transfer of title and
possession of the property
2. the creditor has no right to the fruits of
the property during the pendency of the
mortgage
3. if the debtor fails to pay his debt, the
creditor cannot appropriate the
property mortgaged nor dispose of it
4. if 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 sale
1. SRTR is a principal and independent
contract
2. there is a transfer of title and
possession of the property, although
conditional;
3. the vendee a retro is entitled to the
fruits even during the period of
redemption
4. as soon as there is a consolidation of
title in the vendee a retro, he may
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)
1. real estate mortgage is a
consensual contract;
2. the subject of real estate
mortgage is real property;
3. the possession of the thing
mortgage remains with the
debtor;
4. the mortgagee does not posses
the right to receive the fruits of
the thing pledged;
5. the foreclosure of the thing
mortgaged may either be judicial
or extrajudicial.
Pledge
1. pledge is a real contract
2. the subject of pledge is personal
3. the possession of the thing
pledged is vested in the creditor
4. the 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 principal
5. the sale at public auction of the
thing pledged is always
extrajudicial
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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.

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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.

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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.

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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

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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.

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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

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 MACEDA LAW
RA 6552
(Realty Installment Buyer
Protection Law)

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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.

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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.

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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.

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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.

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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.

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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.

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