LEGAL ASPECT OF SALE, MORTGAGE AND LEASE

Sale - is a contract whereby a party, for consideration, Sale is a contract whereby a party, for

consideration, binds himself to transfer ownership and possession of a property binds himself to
transfer ownership and possession of a property in favor of another.in favor of another.

Who can enter into contract of sale as a general rule, all persons, whether natural or juridical,
who can bind themselves have legal capacity to buy and sell.

WHAT ARE THERULES GOVERNING THE CAPACITY TO BUY OR SELL

REALPROPERTIESANS.

The following rules govern the acquisition or sale of real properties in the Philippines:

1.As a rule, all persons, natural or juridical, who are authorized by the Constitution to own lands,
and by New Civil Code to obligate themselves, may buy or sell real estate;

2. Foreigner cannot buy real estate in the Philippines except in the following cases:
a) When the purchase refers to a condominium unit exceeding forty percent interest in the
project.
b) When the foreigner is a former natural born Filipino citizen, subject to the limitations
prescribed by Batas Pambansa 185 and R.A. 8179.

3.A Filipina married to a foreigner retains her Philippine citizenship and thus, also retains the
right to acquire land in the Philippines;

4.A Filipino citizen, who acquires citizenship of another country can retain ownership of land
acquired by him prior to his change of citizenship;

5.The husband and the wife cannot sell property to each other except;
a) When a separation of property was agreed upon in the marriage settlement, or

b) When there has been judicial separation of property.

6.Unemancipated minors, insane or demented persons, and deaf-mutes who do not know how to
write.

MACEDA LAW RA 6552

 
1. Objective - To protect buyers of real estate on installment against onerous and oppressive
conditions. Conditions
2. Applicability - Applies to sale or financing of real estate on installment payment covered by
contract to sell and not sale with mortgage, including residential condominium, apartment’s but
excluding industrial lots, commercial buildings and sales to tenants under RA 3844.

3. Rights of buyer who has paid two years or more.

a. To pay, without additional interest, any installment due within the grace period which is
equivalent to one moth for every year installment payments, provided that such right can only be
availed of once every 5 years.

b. To receive a 30-day notarial notice of cancellation before his contract can be cancelled for
delinquency.

c. To receive the cash surrender value of his total payments before his contract can be canceled
for delinquency. The refund is equivalent to 50% of total payments and, after the 5th year, and
additional 5% per year of payments but not to exceed 90% of total payments.
d. To transfer assigns his right to the contract.

e. To register and annotate his contract on the title.

f. To pay, without additional interest, the full principal balance of the price before the term of the
contract.

4. Rights of a buyer who has paid less than two years: The buyer has practically the same rights
as a buyer who has paid at least two years, except the following difference.

a. The grace period to pay without additional interest any installment due is fixed at sixty days.

b. For cancellation of contract due to delinquency, the buyer is only entitled to receive a 30-day
notarial notice of cancellation but without right to receive cash surrender value of payments.

Right to Refund under Maceda Law

1. Right to refund applies as a requisite for Cancellation of contract due to delinquency when
buyer has paid at least 2 years.
2. Refund is 50% of total payments plus additional 5% per year after the 5th year.

Right to Refund under Presidential Decree 957

1. Right to refund applies when developer fails to complete development within the reglementary
period.
2. Refund is 100% of total payments plus interest.

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.
1458NCC)

Characteristics of a contract of sale

a. consensual–perfected by mere consent without any further act.
b. bilateral–both parties bound to fulfill obligations toward each other.
c. onerous–thing sold is with a consideration
d. commutative–the thing sold is considered the equivalent of price paid and vice-versa.
e. nominate–a name is given
f. principal–does not depend for its existence/validity upon another contract.

The kinds of contract of sale are absolute and conditional.

Sales which must be in writing:

Sale of personal property at a price not less than P500.00.
Sale of real property or interest there in 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.

Sale distinguished from contract to sell

Contract of Sale
1.Failure to pay is a resolutory condition which puts an end to the transaction.
2.Title passes to the vendee after compliance of his obligation.
3.After delivery, ownership is lost, unless it is rescinded.

Contract to Sell (CTS)

1.Failure to pay is a positive suspensive condition.
2.Ownership is retained by the seller.
3.Delivery does not affect loss of ownership

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.

Obligations of the Vendee

To accept delivery; and
To pay the price of thing sold

REAL ESTATE MORTGAGE

Real estate mortgage is a contract in which specific property is hypothecated to secure the
fulfillment of a principal obligation without necessity of change of possession.

KINDS OF MORTGAGE
1. Conventional or Voluntary - one created by agreement of the parties.
2. Legal - one created by law wherein the creditor is deemed to have a lien on the property
without the necessity of stipulating it. (Example: By specific provision of law, any person who
has supplied materials in the construction of a building is deemed to have a lien on the building.

3. Judicial – once created or resulting from a court decision as when a deed of sale is declared by
the court to be a mortgage.

4. Closed mortgage – one which cannot be paid earlier than maturity, unless the mortgagor
agrees to accept early payment.

5. Open mortgage – one which can be paid off at any time before maturity.

Requisites of Mortgage

1. Must be executed to secure a principal obligation

2. Mortgagor must be the absolute owner of the property.
3. Mortgagor must have free disposal of the property.
4. To bind third persons, it must be registered.

What are included in Mortgage

1. Buildings and improvements, unless expressly excluded.

2. Rents not yet collected at the time of loan maturity.
3. Fruits not yet harvested at the time of loan maturity.

Void stipulation in Mortgage

1. Pactum Commissorium – a stipulation which authorize the mortgage to appropriate the

property as his own automatically upon default of the mortgagor.

2. Pactum de Non Aliedo - a stipulation which prohibits the mortgagor from alienating or selling
the property during the term of the mortgage.

Requisites for discharge of Mortgage

1. Payments or fulfillment of the obligation
2. Execution of Deed of Release of Mortgage
3. Registration on Deed of Release of Mortgage.

Foreclosure of Mortgage
1. Definition – It is a process instituted by the mortgagee by which the property subject of
mortgage is sold at public auction to satisfy the principal obligation.
2. General steps in Judicial Foreclosure:
a. Filling with court of complaint for foreclosure
b. Notice and Hearing
c. Court order to pay obligation within 90 days.
d. public auction of obligation is unpaid within 90 days.
e. Court approval of sale.

Right of Redemption & Equity of Redemption

1. Right of redemption applies in extra judicial foreclosure and the period is one year from
auction sale except when the property was acquired by free patent, homestead patent in which
case the redemption period is five years.

2. Equity on redemption applies in judicial foreclosure which may be exercised before the sale is
approved by the court. After the sale has been confirmed by the court. the mortgagor can no
longer redeem the property except that in cases of mortgage with Philippine National Bank or
Development Bank of the Philippines, the mortgagor is given the right of redemption either 1
year from confirmation of the sale after judicial foreclosure.

Lease

 Lease is a contract whereby a person, for consideration gives to another the possession
use, and enjoyment of a property for a period which may be fixed or not fixed.
 Lease Free Estate is the right of the owner-lessor to receive the contract rent and the
reversion of the property at the end of the lease.
 Leasehold is the right of the lessee to use the property subject to compliance with the
provision on the lease contract.

Mortgage to Alien

An alien may be the mortgagee of realty because the mortgage does not involve conveyance of
the property to the mortgagee. However, in case of foreclosure, the alien mortgagee cannot
participate in the auction sale unless he is a former natural born Filipino citizen.

Period of Lease
1. Lease period depends on the agreement of the parties which no case shall exceed.

a. 99 years, if lessee to another is a Filipino citizen (civil code)

b. 25 years renewal to another 25 years if lease is a foreigner but not an investor.
c. 50 years renewal to another 25 years is lease is a foreigner investor and the leased area shall
use solely for investment (RA 7652).

Note: Foreign investment refers to establishment of industrial estates, factories, assembly or

processing plants, agro-industrial enterprise land development for industrial or commercial use,
eco-tourism and other similarity productive enterprise.

Investing in the Philippines means making an equity investment in the Philippines through actual
remittance of foreign exchange or transfers of assets upon registration with the securities and
exchange commission.
2. In the absence of agreement as to the period, the term depends on the manner the rental is paid
in case of urban land. In case of agricultural land, the period shall be deemed up to the time to
gather the harvest.

Rent Control BP 877 as amended by RA 6643 and RA 6828

1. Applicability - The law applies to properties used for residential purpose where the monthly
rental does not exceed P480.00 as of July 1, 1985.

2. Rental Increase - The law prohibits the lessor from increasing the rental by more than 10% for
the period July 1, 1985 to December 31, 1995, not more than 20% per year thereafter.

3. Rental Deposit – The lessor is prohibited from demanding any advance rental but is allowed to
ask for deposit not exceeding 1 month rental.

4. Concept of Residential Unit - Includes not only units used solely for dwelling but also those
used for business provided that:
a. the lessee and his family actually live therein;
b. the initial capitalization does not exceed P5,000.00;
c. the operation of the business does not require the service of persons other than members of the
lessee’s family.

5. Properties exempt from rent control:

a. Motel and motel room
b. Hotel and Hotel room
c. Boarding Houses
d. Dormitories
e. Rooms and bed spaces

Improvement of Property

1. Useful improvements - If the lessee makes in good faith useful improvements suitable for the
use intended, he is entitled to fifty percent refund of the value of the improvements at the end of
the lease. If the lessor refuses to reimburse, the lessee may remove the lessee may remove the
improvements even though the premises may suffer damage.

2. Ornamental expenses - The lessee is not entitled to reimbursement but he may remove the
ornamental objects provided no damage is caused principal and the lessor does not choose to
retain them by paying their value.

Ground for ejecting tenant

1. Under civil code (when property is not subject to rent control)

a. Nonpayment of rental even for 1 month.
b. Expiration of the period
c. Violation of any provision of lease contract
d. Misuse of the property

2. Under rent control law (when property is subject to rent control)

a. Assigning of the lease of subleasing without the written consent of the lessor.
b. Nonpayment of rental for 3 months
c. Need of owner or immediate member of his family to use the property for residence, provided
that:

1. the lease has expired

2. 3 months’ notice in advance is given the lessee.
3. the owner of immediate member of his family has no other dwelling.
4. the lessor or immediate member of his family will live in the premises for at least one year.

d. Ownership by the lessee of another residential unit provided by the lessor gives 3 months
advance notice.

e. Condemnation order by appropriate authority.

Distinction between sales, mortgage, and lease

1. Sale and lease are principal contracts, while mortgage is an accessory contract.
2. In sole of possession, while in mortgage there is no transfer of possessions.
3. In sale, there is transfer of ownership, while in mortgage and lease there is no.