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LEGAL ASPECTS OF SALE, MORTGAGE AND LEASE

CONTRACT OF SALE – an agreement where one of the parties (seller or vendor) obligates himself to
deliver something to the other (buyer or vendee) who, in return, binds himself to pay a sum of money or
its equivalent (price).

CHARACTERISTICS OF A CONTRACT OF SALE

1. CONSENSUAL – it is perfected by mere consent without any further act.

2. BILATERAL – both contracting parties are bound to fulfill obligations towards each other, the
seller, to deliver and transfer ownership of the thing sold and the buyer, to pay the price.

3. ONEROUS – the thing sold is conveyed in consideration of the price and vice versa.

4. COMMUTATIVE – the thing sold is considered the equivalent of the price paid and vice versa.

5. NOMINATE – it is given a special name or designation in the Civil Code.

6. PRINCIPAL – it does not depend for its existence and validity upon another contract.

ESSENTIAL REQUISITES OF A CONTRACT OF SALE

1. Consent or meeting of the mind

2. Object or subject matter - determinate thing

3. Cause or consideration - price

TWO KINDS OF CONTRACT OF SALE

1. ABSOLUTE – not subject to any condition and title passes to buyer upon delivery of the thing
sold.

2. CONDITIONAL – when the sale contemplates a contingency and the contract is subject to
certain conditions.

DISTINCTIONS BETWEEN A CONTRACT OF SALE AND A CONTRACT TO SELL

CONTRACT OF SALE CONTRACT TO SELL

transfer of title
payment of price
ownership of seller
title passes to the buyer upon
delivery of the thing sold
non-payment of the price is a
negative resolutory condition
seller lost ownership of the thing
sold
not to pass until the full payment
of the purchase price
full payment is a positive
suspensive condition
ownership stays with the seller
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SALES DISTINGUISHED FROM AGENCY TO SELL

SALES AGENCY TO SELL

buyer receives goods as owner
buyer pays the price
buyer cannot return goods
seller guarantees the thing sold
buyer can do whatever he wants on the goods
agent receives goods but ownership remains with
principal
agent accounts proceed of sale in behalf of the
principal
agent can return goods in case it was not sold
agent assumes no personal liability on things sold
agent must follow instruction of the principal

SALE DISTINGUISHED FROM DATION IN PAYMENT (DATION EN PAGO)

SALE DATION IN PAYMENT

no pre-existing debt before the agreement
obligation to pay is created after the agreement
the cause of the contract is the price paid
the price is not fixed prior to the agreement
buyer had to pay the price after the contract
there is pre-existing debt
obligation to pay is satisfied
the cause of the contract is the payment of the
debt
the price is already determined which is the debt
payment is already received in the form of the
loan

OPTION CONTRACT OR PLAIN OPTION – An agreement which gives a person the right to buy a
certain specified property from another person within the agreed period and agreed price. It is distinct
from the contract the parties may later enter into upon the consummation of the option. A consideration
of an option contract is just as important as that of any other contract. An option without consideration is
void.

OFFER TO BUY OR SELL – When an offer is made, and accepted by the offeree within the stipulated
period before it was withdrawn by the offerer, there is a constituted binding contract of sale although the
option is given without consideration.

EARNEST MONEY – Money given by the buyer or the seller, as a proof of the perfection of the contract.
Actually, it is a partial payment of the purchase price and it must be deducted therefrom.

EARNEST MONEY AND OPTION MONEY DISTINGUISHED

EARNEST MONEY EARNEST MONEY

given as distinct consideration for an option
1. part of the purchase price contract
2. given only when there is already a sale sale not yet perfected
buyer not yet required to buy, but seller is
3. buyer must pay the balance required to sell
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SALES MUST BE IN WRITING

1. Sale of personal property at a price not less than P500.00;

2. Sale of real property or an interest therein regardless of the price involved; and

3. Sale of property not to be performed within a year from the date thereof regardless of the
nature of the property and the price involved.

CAPACITY TO BUY OR SELL

Art. 1490. The husband and the wife cannot sell property to each other; except:
1. When a separation of property was agreed upon in the marriage settlements; or
2. When there has been judicial separation of property.

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;

4. Public officers and employees, with respect to government properties entrusted to them; this
provision 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 within their jurisdiction; this prohibition shall apply to lawyers, with
respect to the property under litigation which they handle by virtue of their profession;

6. Other persons disqualified by law.

For # 1 to 3, the sale, if made, is only voidable because only private interest is affected and the defect
can be cured by ratification of the seller.
For # 4 to 6, the sale is null and void because public interest is involved.

REAL ESTATE MORTGAGE

MORTGAGE - from French words "mort" and "gage", "mort" means dead and "gage" means pledge,
thus it means dead pledge or unproductive pledge.

- a contract in which the debtor guarantees the fulfillment of a principal obligation to the
creditor, secured by a real property in case of non-fulfillment of said obligation within the agreed period
of time.

- a real right created upon real property of another or alienable property rights affecting
real estate to secure an obligation. the proceeds from the sale of the mortgaged property will satisfy
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such obligation if not paid when due.

ESSENTIAL CHARACTERISTICS OF REAL ESTATE MORTGAGE

1. It is a real right – The mortgage has the right to have the property sold to
satisfy his claim in case the obligation is not paid.

2. It is an accessory contract – It cannot exist without a principal obligation.

The mortgage property serves as a security to the satisfaction of an obligation.

3. It is indivisible – It creates a lien on the whole or all of the properties

mortgaged and continues as such even if the obligation is partially or almost
paid.

4. It is a real property – It is a real right and considered as an immovable

property.

5. It is inseparable – A mortgage always refer to the property even if the

ownership was transferred by the mortgagor to another party.

6. It is characterized by publicity – It must be registered with the Register of

Deed to be validity constituted.

7. It is a limitation of ownership – It gives to the mortgagee the right to have

the property sold, however, the mortgagor retains the right to sell the property.

8. It is lien – A mortgage is only a lien upon the property. The title to the
property, together with the right of possession remains with the owner until
foreclosed.

9. The property cannot be appropriated – The mortgagee cannot appropriate

to himself the mortgaged property. Any stipulation that the mortgagee can do
so is against public policy and is contrary to law.

10. It can secure all kinds of obligation – Mortgage may secure all kinds of
obligations.

ESSENTIAL REQUISITES OF REAL ESTATE MORTGAGE

1. That it guarantees the fulfillment of a principal obligation.

2. That the mortgagor must be the absolute owner of the property mortgaged.

3. That the mortgagor is the absolute owner of the property, if not, he must be
legally authorized.

4. That it must be registered with the Register of Deeds.

5. That when the obligation becomes due, the property mortgaged may not be
appropriated by the reditor, but must be sold in accordance with the procedure
prescribed by law.
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KINDS OF MORTGAGES

1. Voluntary or Conventional Mortgage – One which agreed to by the parties

or constituted by the will of the owner of the property on which it is created.

2. Legal Mortgage – One required by express provision of law to be executed in

favor of certain persons, to secure the performance of a principal obligation.

3. Judicial Mortgage – One resulting from a judgement of the court.

4. Equitable Mortgage – One which, although it lacks some formality, form of

words or other requisites prescribed by a statute, shows the intention of the
parties to charge real property as security for a debt and contains nothing
impossible or contrary to law. This commonly occurs in “pacto de retro” sales.

WHEN IS A CONTRACT PRESUMED TO BE AN EQUITABLE MORTGAGE?

a) Price of a sale, with right to repurchase, is unusually inadequate;

b) The vendor remains in possession as lessee or otherwise;
c) Upon or after the expiration of the right to repurchase, another instrument extending the period of
redemption or granting a new period is executed.
d) The purchaser retains for himself a part of the purchase price;
e) The vendor binds himself to pay the taxes of the thing sold; and
f) In any other case where it may fairly be 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.

MORTGAGE DISTINGUISHED FROM PLEDGE

MORTGAGE
mortgage is constituted on real property
mortgagor retains the possession and use of the
property
mortgages must be registered
deficiency judgment may occur
if foreclosed, mortgagor have equity of
redemption
PLEDGE
pledge on personal property
the thing pledged must be delivered to the
creditor
a pledge may be oral, yet effective against third
person. No need to register
the thing pledged is sufficient to pay the debt
no redemption period after foreclosure sale

SIMILARITY OF MORTGAGE AND PLEDGE

a) Both subjects the property to the fulfillment of the obligation as security

b) Both guarantee the performance of a principal obligation
c) Both are indivisible as securities
d) In both cases, the creditor cannot appropriate the property to himself
e) When the obligation is not paid, the property must be sold and the proceeds applied to the
payment of the debt

MORTGAGE DISTINGUISHED WITH ANTICHRESIS

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As to possessions
As to fruits
As to t of taxes
MORTGAGE
debtor surrenders possessions of
the property to the creditor
creditor does not receive the fruits
debtor-mortgagor usually pays the
taxes
ANTICHRESIS
mortgagor retains possession of
the property
creditor generally receives fruits
creditor is obliged to pay the
taxes

MORTGAGE DISTINGUISHED WITH "PACTO DE RETRO"

MORTGAGE PACTO DE RETRO

As to nature
As to title
As to possession
As to right to appropriate
As to payment of taxes
As to loss of interest
As to retention of money in
consideration
As to extension of period of
redemption
As to object
mortgage is an accessory
contract
title is retained by the mortgagor
retained by the mortgagor
creditor cannot appropriate
property to himself
mortgagor is obliged to pay
taxes
mortgagor does not lose his
interest in the property if he fails
to pay. It is the duty of the
mortgagee to foreclose
mortgage and before
foreclosure, the mortgagor may
still redeem the property
mortgagee may retain part of
the money loaned to be applied
to payment of interest in
advance
extension of the period of
redemption may be granted any
number of times
the obligation is indivisible
only immovable property
principal and independent
contract
title passes to the vendee
possession is delivered to the
vendee
may dispose of the same as
absolute owner
vendee is obliged to pay taxes
if the seller does not
repurchase the property on the
day named in the contract, he
loses, all his interest therein
purchaser cannot retain for
himself any part of the
purchase price
extension of the period of
redemption is not allowed
partial redemption permissible
the object may be either
movable or immovable

MORTGAGE WITHOUT MARITAL CONSENT

A. FOR WIFE:
1. Paraphernal Property
2. Administrator (for wife)
a) guardian of her husband
b) when she asks for the declaration of his
absence
c) in case of civil interdiction of husband
3. Complete separation of property