Legal Aspects Of Sales, Lease And Mortgages Flashcards
What do you call a transaction where the seller gives permission to another for the enjoyment of use of a property at a certain price? For a time period that can be definite or indefinite. (Not more that 99 years)
LEASE
What are the distinctions between sale, lease and mortgage?
- Sale and lease are principle contracts, while mortgage is an accessory contract
- In sale and lease, there is transfer of possession, while in mortgage, there is no transfer of possession
- In sale, there is transfer of ownership, while in mortgage and lease there is no transfer of ownership
Cause or consideration in the contracts of sale, lease & mortage
- Contract of sale = sale price for the vendor and property sold for the Vendee
- Contract of lease = rent for the lessor and enjoyment of leased property for the lessee
- Contract of mortgage = security or collateral for the Mortgagee and credit extended to the Mortgagor
The unconditional and unqualified agreement to the offer
ACCEPTANCE
Property belonging exclusively to the husband
CAPITAL PROPERTY
A contract whereby personal property is recorded in the chattel mortgage register as a security for the performance of a obligation
CHATTEL MORTGAGE
One that can be paid off only on the date of maturity
CLOSED MORTGAGE
Property owner in common by the husband and wife
CONJUGAL PROPERTY
The concurrence of the offer and acceptance over the thing and the case which constitutes the act
CONSENT
Is a meeting of minds between two persons whereby one binds himself with respect to the other, to give something to render some service
CONTRACT
What is the concept where contracting parties obligate themselves to transfer ownership of a thing and another party buys the item with money or its equivalent?
SALE
An agreement between the buyer and the seller whereby there is transmission of ownership on the object in the contract
CONTRACT OF SALE
An agreement whereby the seller promises to sell a thing in consideration of the buyer’s compliance with the terms and conditions of the contract and that only after the buyer’s compliance will the seller be obligated to transfer or convey the ownership of the thing subject of the contract
CONTRACT TO SELL
This happens whenever the ownership of an individual thing or right belongs to different persons
CO-OWNERSHIP
A qualified or conditional acceptance
COUNTER-OFFER
It is a judgement for the Mortgagor to may the balance of an individual obligation if the proceeds of the foreclosure sale is not sufficient to cover the principal obligation
DEFICIENCY JUDGEMENT
A process instituted by a mortgagee by which the mortgaged property is sold at a public auction to satisfy the principal obligation which the debtor failed to fulfill
FORECLOSURE
A mortgage subordinate to an earlier mortgage to appropriate the property as his own upon failure of the debtor to fulfill the principal obligation
JUNIOR MORTGAGE
Money in which a debt, or other obligation calling got money, may be lawfully paid, if the contract does not specify the medium of payment
LEGAL TENDER
A contract whereby property given as a collateral to secure the performance or fulfillment of an obligation
MORTGAGE
The lender in a mortgage, typically a bank
MORTGAGEE
The borrower in a mortgage, typically a homeowner.
MORTGAGOR
Proposal to make a contract
OFFER
A mortgage that can be paid off anytime even before the date of maturity
OPEN MORTGAGE
An agreement whereby one party concedes to the other for a determinate period and under fixed conditions, the power which is left to his sole will, to decide whether a principal contract will be celebrated
OPTION CONTRACT
Automatic appropriation by the creditor of the thing pledged or mortgaged upon the failure of the debtor to pay the principal obligation
PACTUM COMMISSORIUM
Property exclusively belonging to the wife
PARAPHERNAL PROPERTY
Is the transfer of an item of value from one party (such as a person or company) to another in exchange for the provision of goods, services or both, or to fulfill a legal obligation.
PAYMENT
A contract in which immovable property or a real right over immovable property is specially made subject to secure the performance of a principal obligation
REAL ESTATE MORTGAGE
Compensation either in money, provisions, chattels or labor received by the lessor of the soil it the property rented from the lessee
RENT
When earnest money is given in a Contract of Sale, it shall be considered as part of the price and as proof of the perfection of the contract
RULES OF EARNEST MONEY
By the contract of sale, the lessor obligated himself to transfer the ownership of and to deliver a determinate thing to the lessee to pay in money or its equivalent
SALE
A lease of a property by a tenant to a subtenant.
SUBLEASE
A judicial right which gives a means to the acquisition of real property rights but which in itself is insufficient
TITLE
The essential elements of the contract are:
- There must be consent and meeting of the minds, an agreement to transfer ownership in exchange of a price
- Agreement is based on one piece of land and cannot be exchanged for another mid contract
- A certain price in money or its equivalent
Characteristics of Sale
- Consensual: agreed by both parties
- Principal: can stand by itself and not dependent on other contracts
- Onerous: rights acquired are in exchange of a valuable consideration to be given
- Bilateral: both parties are bound to one another
- Commutative: both parties give and receive equivalent values
- Nominate: has a special designation or name under the civil code
Kinds of Contract of Sale
- Absolute: when the sale is not subject to any condition – one where the property is sold, transferred irrevocably upon the consumption of the contract and subject to no other condition whatsoever
- Conditional: Arrangement where a buyer takes possession of an item, but its title and right of repossession remains with the seller until the buyer pays the full purchase price (usually in installments stretched over months or years). Common type of agreement used in the financing of machinery and equipment, and real estate.
Perfection and Delivery
The CONTRACT OF SALE is perfected at the moment there is a meeting of minds between the seller and the buyer upon the object and the price
The OWNERSHIP of the thing sold shall be transferred to the vender upon the actual or constructive delivery thereof
Obligations of the Vendor (Seller)
- to deliver a determinate thing that may be actual or constructive
- transfer of ownership, vendor just execute all necessary documents to transfer ownership of the property sold
- warrant against eviction of hidden defects
- take care of the things pending delivery of property
- pay all expenses of the deed of sale (execution and registration expenses) and all taxes required unless stipulated in the contract
Obligations of a Vendee (Buyer)
- Vendee is bound to accept the delivery of the property sold at the time and place stipulated in the contract
- Vendee is bound to pay the price of the property sold at the time and place stipulated in the contract
Expense for the execution and registration of sale/power mortgage and sell
Expense for the execution and registration of the sale (plus attorney’s fees and documentary stamps) shall be borne by the Vendor (Seller) unless stipulated in the contract.
Execution of Special Power of Attorney
- the specific power of authority being delegated to the Attorney-in-fact
- the terms and conditions under which the property shall be sold or mortgaged
- complete description of the property
*SPA must n duly subscribed and notarized
Warranty Against Defects VS. Warranty Against Eviction
- Warranty Against Defects
Implied Warranty: that thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or made known to the buyer - Warranty Against Eviction
Implied Warranty Against Eviction: Vendee (buyer) is deprived of a whole or part of the thing purchased and due to a right prior to the sale or act input able to the vendor (seller). Seller must answer for eviction unless nothing has been said
Capacity to enter into a Contract of Sale
Only persons who may be obligated to enter into a Contract of Sale or all persons in the New Civil Code
The following persons cannot be given consent to a contract:
- Unemancipated minors
- Insane or demented person and deaf-mutes who cannot read or write
- non Filipino citizens or corporations with less than 60% companies owned by Filipinos
- people who are not qualified by the Philippine constitution and Civil Code to own/buy/sell land
- a Filipino/Filipina married to a foreigner that still retains their right to acquire lands
- Filipino citizens who become citizens of other countries: can still acquire and keep land before they change citizenship
Individuals who cannot acquire by purchase, even public or judicial auction:
- Guardians: property of the ward/guardianship
- Agents: property entrusted to them, unless principal has given permission
- Executors and Administrators: property under their care
- Public Officials and Employees: property of the state, subdivisions etc
- Justices, judges, fiscals, clerks of court and other judicial authorities: property in litigation or levied upon execution before the court within their jurisdiction
- Lawyers: property and rights which are subject to litigation and take part by virtue of their profession
Contract of Sale VS. Contract to Sell
Contract of Sale
- consummated contract in which ownership is transferred, subject to fulfillment of the conditions agreed upon
- transfer of ownership
Contract to Sell
- merely an executory contract where ownership is not transferred
- no transfer of ownership bit a mutual promise to buy and sell
Earnest money: concept, part of price, proof of perfection
Concept: payment of a sum of money or omen to bind the bargain, delivery and acceptance of which marks the final and conclusive assent of both parties to the contact
Part of price: earnest money is part of the purchase price. Aka down payment
Proof of perfection: giving and acceptance of earnest money is proof of the perfection of the Contract of Sale
Earnest Money VS. Option Money
Earnest money: part of the purchase price
Aka down payment
Option money: given as distinct consideration from an option contract
Aka reservation deposit (not a guarantee of a sale)
Rules in case the land sold is different from the land stated in the contract
- If lump sum: no increase or decrease of the price
- Statement if it’s area at the rate of a certain price per sqm:
A. if area is BIGGER:- accept the area in the contract and reject the excess
- accept the whole area but must pay the excess of the contract
B. If area is SMALLER: - choose to have the proportional reduction of the price OR;
- rescind the contract provided: the lack in area be not less that 10% of what is stated in the contract or would not have bought the land if he knew it was smaller
Rule of double sale or sale of Real Estate to two or more buyers:
- The buyer who first REGISTERED the property with the Registry of Deeds
- If there is no INSCRIPTION or is not REGISTERED, buyer with first POSSESSION
- Should there be neither INSCRIPTION, REGISTRATION or POSSESSION, whoever can present the oldest title
CAVEAT EMPTOR
“Let the purchaser beware”, buyer must be in charge or the knowledge of facts which are seen on the face of the title
Sale with Mortgage vs. Sale with Assumption of Mortgage
- Sale with Mortgage: installment basis with transfer of ownership, a Contract of Sale where part of the price is paid upon execution of contract – 2 registrations are paid because it has 2 contracts
- Sale with Assumption of Mortgage: sale of a property subject to a pre-existing mortgage where the buyer pays a fixed amount and assumed the mortgage obligation – 1 registration and 1 contract
Pacto de Retro Sale or Sale with Right to Repurchase
The essence of a pacto de retro sale is that the seller can buy back the property or redeem it within an agreed period BUT cannot exceed 10 years but if nothing is mention, 4 years is the standard
- preference is contract to sell so buyer can just cancel the contract (no transfer for ownership), in the sale with mortgage buyer needs to wait for the redemption period before re-acquiring the title (transfer for ownership)
Marital Consent in a Deed of Sale
- Marital consent is REQUIRED:
a. Property is one of “Absolute Community of Property”
b. Property is one of “Conjugal Partnership” and was acquired during marriage with common fund and by inheritance or exclusive funds of the acquiring spouse - Marital consent is NOT REQUIRED
a. Property is one of “complete separation of property”
b. Property is one of “Conjugal Partnership”:- was brought into the marriage by either of the spouses as the husband’s capital property or the wife’s paraphernal property
- was acquired by either spouse by inheritance
- was acquired with the exclusive funds of either spouse
Sale of Inherited Property
The following must be presented to the Register of Deeds:
- Deed of Extra-Judicial Settlement of Estate (Affidavit of Adjudication for only one heir)
- Deed of Sale
- Affidavit of Publication from newspaper published that the Extra-Judicial Settlement was published once a week for three consecutive weeks
- BIR certificate of Estate Tax Payment
- BIR certificate of Capital Gains Tax Payment
- Municipal/City Certificate of Non-Delinquency in Real Tax
- Owner’s duplicate title
Maceda Law: Rights of Buyers under installment sale
Republic act No. 6552 or Maceda Law:
- Less than two years of payment: he is entitled to a grace period of 60 days, if payment is not made then he is still entitled to a notarial notice of at least 30 days duration is made before the seller can cancel or rescind the contract
- At least two years payment:
A. PAY without additional interest, unpaid installments due within the total grace period earned by him: one month for every year, used only once in every five years of the contract or its extension
B. REFUND is cancelled after notarial notice of cancelation or rescission of at least 30 days, cash surrender value is 50% of total payment effected during the five years but not elected 90% of the total payment
- can transfer of assign their rights in the contract
- pay in full the purchase price before the expiration of the contract term without interest
- have contract annotated on the title
LIS PENDES
Notice to the public that the property is subject to court litigation, buyers are aware of the risk when purchasing the property
Subject to Sec. 4 rule 74 of the Rules of Court
Property is subject to a pending litigation it case, a dispute in the title of the property with its heirs, creditors and any other person with lawful right can file their claim within two years
Dacion en Pago
Handing back the keys to their lender and involves signing a Deed at a Notary Public in exchange of being discharged for the remaining mortgage debt. The catch is that the property must not be in negative equity.
Struggling borrowers decide to hand the keys back to the bank in order to avoid being repossessed. Repossessed properties are usually left in negative equity, meaning you owe more money than what the property can raise in an auction. If after this you are in negative equity, the lender can actually pursue you abroad in your home country for the difference. The property itself, the collateral, was only guaranteeing the bank loan.
TACITA RECONDUCTA
If at the end of the lease period the Lessee continues to occupy in silence of the lessor and without notice to vacate, it is understood that there is in implied new Lease Contract
Essential Characteristics of a Mortgage
- Real Rights: mortgagee has the right to the exclusion of all other claimants to satisfy his claim in case the principle obligation is not paid
- Immovable: property that cannot be moved
- Accessory: mortgage subjects the property to the fulfillment of the principal obligation (i.e. Loan) for whose security (i.e. Property) which is accessory
- Indivisible: mortgage cannot be considered paid in full if only a portion is paid off
- It is real property: mortgage is attached to real property
- Inseparable: mortgage follows the property u in whatsoever possession it may be found
- Characterized by PUBLICITY to be INSCRIBED in the REGISTRY OF PROPERTY of the province where the property lies
- Limitation of ownership: gives the mortgage the right to have the property resisters for in the province where the property lies to have it validly constituted
- It is a Lien: the land will stay with the owner til the time it is either paid off in the time period, will be confiscated once the timeframe expires and they are unable to pay – putting a lien on the land
Extent of Inclusions of Mortgage
- Natural Accessions: if a land bordering a river is mortgaged and its area is increased by alluvial deposits or sediments, the increase in area is also subject to mortgage
- Improvements: present and future houses or buildings in the land mortgaged are subject to mortgage unless otherwise stipulated
- Growing fruits: all fruits mortgages upon real estate included all fruits of the property not collected when the obligation falls due
- Rents and income: not yet received when the obligation falls due
- Indemnity owning it granted to the proprietor from the insurers of the property mortgaged or by virtue of expropriation for public use
PACT COMMUSSORIUM
Authorizes the mortgage to appropriate the property as his own automatically upon the failure of the Mortgagor to fulfill the Principal obligation.
Authorizes the Mortgagee to sell property upon failure of payment
PACTUM DE NON-ALIENDO
Prohibits the Mortgagor from alienating the property within the period of the mortgage.
Two kinds of Foreclosure:
- Extrajudicial foreclosure: allows the Mortgagee to sell property in an auction of the Principal obligation is not fulfilled, it is undertaken by a sheriff, municipal judge or notary public
- one year from after the sale to redeem the property
- can only pursue a personal action in court for the deficiency
- Judicial foreclosure: no express authority in the Mortgage Deed to the Mortgagee to foreclose extra-judicially, it is undertaken through court
- redeeming the property after foreclosure is not possible (except banks: DBP and PNB)
- can ask for Deficiency Judgement to cover any part still unpaid
Procedures of Extra-judicial Foreclosure
- Mortgagee files an application with the Sheriff’s office to foreclose the mortgage
- Foreclosure was filed with the Sheriff’s office is posted in conspicuous places where the property is located and published in newspapers of general circulation
- After posting and publication of Notice of Sale, the sale itself is conducted under the direction of the Sheriff
- The Sheriff follows the proper bidding procedures – sells the property to the highest bidder
- The Sheriff issues a Certificate of Sale in favor of the highest bidder
- Certificate of Sale is annotated on the title of the property
Procedures in Judicial Foreclosures:
- Mortgagee files a petition or complaint in court with competent jurisdiction, petition or complaint he is the Plaintiff, the Mortgagor or Defendant
- The Plaintiff (Mortgagee) proves the existence of the mortgage, the amount thereof, the existence of the principal obligation and the non-payment for non-fulfillment thereof by the Defendant (Mortgagor) in a formal hearing
- If the court is satisfied, it orders the Defendant to pay the debt within 90 days otherwise it will be auctioned
- The Sheriff sells it to highest bidder and submits to the court the Certificate of Sale and the court approves the sale
Contract of Antichresis
The Creditor acquired the right to receive the fruits of a property of his Debtor to serve as payment for the interest
Requisites of Anticresis
- Constituted to secure the fulfillment of a Principal obligation
- The Debtor be the absolute owner
- The person constituting the Antichresis has free disposal of his property and in the absence thereof,that he be legally authorized for the purpose
- The amount of the Principal and the interest shall be specified in writing – without it will be void
- Stipulated in the contract that the Creditor shall have the right to receive the fruits of the property of his Debtor with the obligation to apply them to the payment of the interest and to the Principal of his credit
