Philippine Law and Jurisprudence - Excerpts

A Book By: Alberto E. Filamor, Ll.B., MBA, 1997

Acquisition and Disposition of Real Estate

ACQUISITION is the act of procuring or getting hold of a piece of real estate, and DISPOSITION is the
manner of alienationand transfer of possession and ownership thereof as prescribed by law. The
acquisition and disposition of real estate is embodiedin certain written agreements or contracts
voluntarily entered into and subscribed by the parties thereof, before a public officer designated as the
Notary Public of the City or Province where the subject property is situated. Thereafter, the instrument
embodying the particular real estate transaction is required by law to be recorded in the registry of
deed of the City or Province where the real estate involved is situated.

I. THE REAL ESTATE TRANSACTIONIn any, or all real estate transactions, the law prescribes certain
requirements that are essential to its validity and effectivity.These are:

A. Competence of the Parties

1. Citizenship.- Only Filipino citizens and associations or corporations, sixty (60%)

percent of the capital of which belong to Filipino citizens can acquire: (1) private lands, and (2) lands of
the public domain. The Philippine Constitution of 1987 prohibits the transfer or conveyance of private
lands to aliens. Thus,

Section 7, Article XII provides:

Sec. 7. Save in cases of hereditary succession no private lands shall be transferred or conveyed except
to individuals, corporations or associations qualified to acquire or hold lands of the public domain.

The word "private lands" in this Section connotes "private property" which is defined in Article 425 of
the New Civil Code, thus:

Art. 425. Property of private ownership, besides the patrimonial property of the State, provinces, cities,
and municipalities, consists of all property belonging to private persons, either individually or
collectively.

Property of private ownership means "private property" which constitutes things movable or
immovable, that are possessed by, or belong to persons, natural or judicial The word "private lands"
are those that are possessed by, or belong to natural persons, or corporations and associations "at
least sixty per centum of whose capital is owned by Filipino citizens.

Note that "private lands" is derived from "private agricultural lands" in Section 5, Article XII of the 1935
Philippine Constitution which is identical to both Section 14, Article XIV of the 1973 Philippine
Constitution, and Section 7, Article XII of the 1987 Philippine Constitution. And that, "private
agricultural lands" was interpreted to include "residential lands" in Krivenko v. Register of Deeds of
Manila where the Supreme Court held that under the Philippine Constitution of 1935, aliens may not
acquire private or public agricultural lands, including "residential lands." For this reason, the word
"agricultural" was written off in Section 14, Article XIV of the 1973 Philippine Constitution.

a. Americans as aliens -- During the American Occupation (1898-1935), the citizens of the United
States could acquire agricultural lands (public and private) including residential lands without legal
restraints.

(1) At the advent of the Philippine Commonwealth status, the United States of America sought to
maintain the same rights that Americans then enjoyed by enacting the Tydings-McDuffie Act. This law
outlined the steps to be undertaken by the Philippine Government towards the adoption of a
Constitution preparatory to the recognition of Philippine independence, and the withdrawal of
American sovereignty. Among the provisions enacted into the 1935 Philippine Constitution is embodied
under Article XVII as follows:

Section 1. Notwithstanding the provisions of foregoing Constitution, pending the final and complete
withdrawal of the sovereignty of the United States over the Philippines.

(17) Citizens and corporations of the United States shall enjoy in the Commonwealth of the Philippines
all the civil rights of the citizens and corporations, respectively, thereof.

This is the first Ordinance Appended to the 1935 Philippine Constitution that was ratified by the people
in a plebiscite held on May 24, 1935.

Thus, in Moss v. Director of Lands, Eugene Moss, an American national, acquired a coconut land in
Leyte on January 20, 1945 He applied for registration of the land, but the trial court denied the
application because he was an alien. On appeal, the Supreme Court held that Moss validly acquired the
land under Section 1, Subsection 17 of the Ordinance Appended to the 1935 Philippine Constitution.
And, that, upon proclamation of Philippine Independence on July 4, 1946, the 1935 Constitution
provides that "all existing property rights of citizens or corporations of the United States shall be
acknowledged, respected, and safeguarded to the same extent as property right of citizens of the
Philippines. "Further, the Court noted that "the instant case is not covered by Section 11 of Article XVII
of the 1973 Constitution and by Presidential Decree NO. 713, dated May 27, 1976, 71 Off Gaz 4173, re
residential lands of American citizens."

(2) On September 18, 1946, the First Congress of the Philippines adopted a Resolution of both Houses
of Congress an amendment to the 1935 Philippine Constitution known as the Parity Rights Amendment
It was approved by the people at the elections held on March 11, 1947. The Second Ordinance
Appended the Constitution reads as follows:

Notwithstanding the provisions of section one, Article Thirteen and section eight, Article Fourteen, of
the foregoing Constitution, during the effectivity of the Executive Agreement entered into by the
President of the Philippines with the President of the United States on the fourth of July nineteen
hundred and forty-six, pursuant to the provisions of Commonwealth Act Numbered Seven hundred and
thirty three, but in no case to extend beyond the third of July, nineteen hundred and seventy-four. the
disposition, exploitation, development, and utilization of all agricultural, timber. and mineral lands of
the public domain, waters, minerals, coal, petroleum, and other mineral oils, all forces and sources of
potential energy, and other natural resources of the Philippines, and the operation of public utilities,
shall, if open to any person, be open to citizens of the United States and to all forms of business
enterprises owned or controlled directly or indirectly by citizens of the United States in the same
manner as to, and under the same conditions imposed upon, citizens of the Philippines or corporations
or associations owned or controlled by citizens of the Philippines.

William R. Quasha, an American citizen, acquired, by purchase, a Parcel of land with residential
improvements thereon in Forbes Park, Makati, Rizal, on November 16, 1954. Due to the uncertainty as
to the status of his property under the Parity Amendment after July 3, 1974, Quasha sought a judicial
declaration of his rights (Republic v. Quasha, Aug. 17, 1972, 46 SCRA (1972).

The Supreme Court, in this case, remarked that Sections I and 4, Article XIII of the Constitution reveals
the intention of the framers to reserve to Filipinos the disposition, exploitation, development or
utilization of agricultural lands, public (Section I), or private (Section 5), as well as all other natural
resources;" and that "the Parity Amendment was intended to secure parity for United States citizens
only in two matters: (1) exploitation, development and utilization of public lands, and other natural
resources of the Philippines; and (2) the operation of public utilities but not the acquisition or
exploitation of private agricultural lands, about which not a word is found in the Parity Amendment."

Finally, the Court held that:

Under the "Parity Amendment" to our Constitution, citizens of the United States and corporations and
business enterprises owned or controlled by them can not acquire and own, save in case of hereditary
succession, private agricultural lands in the Philippines and that all other rights acquired by them
under said Amendment will expire on 3 July 1974.

Quasha's right to hold the property, therefore, should cease as of July 3, 1974. Prior to the expiration
date, the then President Ferdinand E. Marcos declared that, as a matter of national policy and amity
with the United States, American citizens and corporations owned and controlled by them shall
continue holding those private lands acquired by them until July 4, 1975, provided that, during the
intervening period they divest themselves thereof by transferring their ownership to qualified persons
and entities. For this purpose, the President authorized the National Development Corporation to
acquire, hold, develop, and dispose of these lands."

(3) The validity of the titles to those private lands acquired by Americans under the Parity Amendment
is recognized in Article XVII, Transitory Provisions, of the 1973 Philippine Constitution, thus:

Sec. 11. The rights and privileges granted to citizens of the United States or to corporations or
associations owned or controlled by such citizens under the Ordinance appended to the nineteen
hundred and thirty-five Constitution shall automatically terminate on the third day of July nineteen
hundred and seventy four. Titles to private lands acquired by such persons before such date shall be
valid as against other private persons only.

These titles are valid only against private persons. The State is not bound to respect these titles. In
fact, the State may institute escheat proceedings against the title holders under Section 5, Rule 1 of
the Rules of Court.

The American vendee and holders of private lands are. Therefore, required to divest themselves of
ownership thereof, and transfer the same to qualified persons and entities.

b. On Resident Americans -United States citizens (1) who were formerly Filipino citizens, or who
have continuously resided in the Philippines for twenty (20) years, as of May 27.1975 (the date of the
Decree), and (2) had acquired private residential lands. Not exceeding 5,000 square meters for family
dwelling before the Parity Amendment, was allowed to continue holding such lands. and to transfer
ownership thereof to qualified persons and entities. The same right was granted to American citizens
who had become permanent residents of the Philippines and had acquired 5,000 square meters of
residential lands for a family dwelling.

c. Other aliens - (1) The sale of residential land with improvements thereon in the City of Manila to
Dee Chian Hong & Sons, Inc. on September 10, 1936, was declared void in view of Section 6, Article
XIII of the 1935 Philippine Constitution, the vendee being a Chinese entity. The owner, however. has no
right to recover the property because both (vendor and vendee) were declared in pari delicto, i.e. both
parties knew that what they did was in violation of the Constitution.

(2) In another case, a Filipino owner sold four (4) parcels of land with improvements thereon at the City
of Manila to a Filipino woman married to a Chinese citizen on August 16, 1943. The vendor sought for
the annulment of the sale on the ground that, both vendees, husband and wife, were Chinese citizens
and, therefore disqualified to acquire real properties in this country. The Court sustained the sale,
nevertheless, because (1) the 1935 Philippine Constitution was not in force during the Japanese
Occupation (1942-1945), and, further the "buyer of the property though married to a Chinese citizen at
the time of the sale, consequently recovered her Filipino citizenship after the death of her husband in
1948 during the pendency of the case. However, her repatriation to Filipino citizenship should be
accomplished by executing the oath of allegiance to the Republic of the Philippines, and by registering
the said oath in the proper civil registry pursuant to Sections 2 and 4 of Commonwealth Act NO. 33.

(3) An alien may be a lessee for 30 years, renewable for not more than 25 years. He may also grant
loans and become a mortgagee in certain cases specified by law. He is allowed to purchase a
condominium unit, or set up a condominium project on a leased land.

d. Juridical entities. - (1) Foreign embassies may acquire or lease private lands for their official use
pursuant to the Vienna Convention on Diplomatic Relations, effective August 24, 1964, ratified by the
Philippines, re Articles 21, 23 and 30, on October 11, 1965.

(2) Private corporations with sixty (60%) per cent equity for Filipino citizens and forty (40%) per cent
for aliens may acquire private lands, or lease lands of public domain for twenty-five (25) years,
containing an area of 1,000 square meters.
(3) Private corporations can acquire private lands as may be reasonably necessary to enable it to carry
out the purposes for which they are created."
(4) Alien corporations may lease private lands.

(5) A corporation sole with an alien as administrator may acquire private land which is held in trust for
the benefit of the faithful residing within its territorial jurisdiction.

e. Natural-born citizens. - An exception to the constitutional inhibition against the acquisition of

private lads by aliens is the Amendment to the 1973 Philippine Constitution that was ratified by
plebiscite on April 1, 1981. The Amendment, designated as Section 15, Article XIV, recites:

Sec. 15. Notwithstanding the provisions of Section 14 of Article, a natural-born citizen of the
Philippines who has lost his Philippine citizenship may be a transferee of private land, for use by him
as his residence, as the National Assembly shall provide.

Who is a natural-born citizen? Section 4, Article III provides:

Sec. 4. A natural-born citizen is one who is a citizen of the Philippines from birth without having to
perform any act to acquire or perfect his Philippine citizenship.

And, how does a natural-born citizen lose his Philippine citizenship? Commonwealth Act No. 63,
provides that Philippine citizenship may be lost by (1) naturalization in a foreign country, (2)
subscribing to an oath of allegiance to a foreign country, upon attaining the age of 21 years, or more,
(3) rendering service to, or accepting commission in the armed forces of a foreign country, (4)
cancellation of the certification of naturalization, and (5) deserting the Philippine armed forces in time
of war.

The 1987 Philippine Constitution restates similar provision as Section 4, Article III of the 1973
Philippine Constitution in Section 2, Article IV, thus:

Sec. 2. Natural-born citizens are those who are citizens of the Philippines from birth without having to
perform any act to acquire or perfect their Philippine citizenship. Those who elect Philippine citizenship
in accordance with paragraph (3), Section 1 hereof shall be deemed natural-born citizens.

The last sentence in this Section refers to those "born before January 17, 1973, of Filipino mothers,
who elect Philippine citizenship upon reaching the age of majority." The definition of "natural-born
citizen" has been restricted, according to a noted constitutionalist, Jose N. Nolledo, in that he is still a
natural born citizen although his election has been made after the effectivity of the 1987 Philippine
Constitution.

The natural-born citizen, under the 1987 Philippine Constitution, may be "a transferee of private lands.
subject to the limitations provided by law." The law. Batas Pambansa No. 18529 provides, among
others:

1. A transferee may acquire 1,999 square meters of urban land, OR one (1) hectare of rural land for
residence ONLY by way of -

2. Voluntary or involuntary sale, devise or donation. The involuntary sale includes that of tax
delinquency foreclosure, and execution of judgment.

3. Failure to reside permanently in the land acquired within two (2) years from acquisition, except by
force majeure, is penalized by (a) forfeiture of the land including the improvements, and (b)
deportation.

2. The age of majority, or age of emancipation, is prescribed by law at twenty-one (21) years of
age. The person of this age is qualified for all acts of civil life, except in special cases established by
the Code. The emancipation of a minor - 8 years of age -in a public instrument, executed by the parent
in authority and registered in the civil registry is irrevocable.

If the person is still a minor, or below twenty-one (21) years of age, and he/she is under parental
authority by the father and mother. In case of disagreement, the father's decision prevails. However,
the father or, in his absence or incapacity, the mother is the legal guardian of the minor's property.

The parents, as guardian of the minor, are inhibited by law to acquire the property of the minor by
purchase, either by public or judicial action, in person or through another.

3. Marriage

a. Spouses who are legally married. - The spouses may agree, prior to their marriage, in a marriage
settlement, the system of property ownership. These are: (1) absolute community, (2) conjugal
partnership of gains, (3) complete separation of property, and (4) any other system or regime. In the
absence of marriage settlement, or when the regime agreed upon is void, the absolute community of
ownership prevails.

b. The Marriage Settlement. - This must be executed in a public instrument, duly signed by the parties
(husband and wife), and registered in the (1) local civil registry and (2) registry of deeds where the
properties involved are situated. If one of the parties is a minor, the parents or guardian must be made
party to the Marriage Settlement: or when either party is subject to civil interdiction or any other
disability, the guardian appointed by the Court must be made party to the Marriage Settlement.

If the marriage does not take place, all stipulations therein including donations between the
prospective spouses are rendered void, except those that do not depend upon the celebration of
marriage.

(1) Donations by Reason of Marriage. - These are made in favor of one or both of the future spouses,
by reason of their marriage and prior to its celebration, subject to the rules of donation in the Civil
Code, as may be modified thus: (a) if the spouses agree upon a regime other than the absolute
community of property, they cannot donate to each other more than one-fifth (1/5) of their present,
property, and any excess thereof shall be considered void; (b) donations of future property shall be
governed by rules on 1 testamentary succession and formalities of wills, and (c) donations subject to
encumbrances are valid, and in case of foreclosure of the encumbrance, the property may be sold for
less than the total amount of the obligation and the donee is not liable for the deficiency, but if sold for
more than the total obligation, the donee is entitled to the excess.

The donor may revoke the following donations: (a) if the marriage is not celebrated or judicially
declared void ab initio, except those made in the marriage settlement that is governed by Article 81;
(b) when marriage takes place with proper consent required by law; (c) when the marriage is annulled,
and the donee acted in bad faith; (d) upon legal separation, the donee being the guilty spouse; (e) if
the donation is with a resolutory condition. and the condition is complied with; and (f) when the donee
has committed an act of ingratitude as specified in Articles 760 to 774 of the New Civil Code.

The donation or grant of gratuitous advantage, direct or indirect, between the spouses during the
marriage is void, except moderate gifts "on the occasion of any family rejoicing. This prohibition
applies as well to persons living as husband and wife without valid marriage.

(2) Regime of Property Ownership. - The future spouses may choose from, and agree upon, in the
marriage settlement any one of the regime of property ownership described thus

A. Absolute Community. -This regime commences upon the celebration of the marriage. It consists
of (1) all property owned by the spouses at the time of celebration of the marriage, and (2) acquired
thereafter including (3) that which is acquired during the marriage unless proven that it is one of those
expressly excluded from the community property such as that acquired (a) by gratuitous title by either
spouse including the fruits and income. (b) for personal and exclusive use of either spouse except
jewelry, or (c) prior to the marriage by either spouse who has legitimate descendants by former
marriage including the fruits and income, if any, of such property.

1. Administration. - The administration and enjoyment of the community property belong to both
spouses jointly. However, the husband's decision prevails, but the wife may seek proper remedy in
Court that must be availed of by her within five (5) years from the date of husband's decision.

a. If the husband is incapacitated, or otherwise unable to participate in the administration, the wife
assumes the administration. But, she cannot dispose or encumber the property without the husband's
consent, or authority of the Court,.which is an indispensable requirement; otherwise, the disposition or
encumbrance is void. In this case, the transaction is construed as a "continuing offer" of the
consenting spouse and third person until it becomes a binding contract when the other spouse accepts
or the Court authorizes the transaction."

b. Either spouse may dispose their share or interest in the community by will. Neither spouse may
donate the community property without the consent of the other. However. Moderate donations for
charity, or on "occasions of family rejoicing family or family distress" are excepted.

2. Termination of the Regime. -The absolute community regime terminates: (a) upon the death of
either spouse, (b) by court decree of legal separation, (c) when the marriage is annulled or declared
void by the Court, and (d) by judicial separation of property during the marriage under Chapter 5,
Articles 134 to 142, Family Code.

a. Separation-in-fact. - The husband and wife in this situation does not affect the regime of absolute
community, except that (1) the spouse who has left the conjugal home, or refuses to live therein,
without just cause, relinquishes the right to be supported; (2) judicial authorization in a summary
proceeding is required when the consent of one spouse is required in any transaction; (c) for the
support of the family, both spouses are solidarily liable when the community property is insufficient. In
the absence of either spouse, the present spouse may, by proper petition in Court, be authorized to
administer or encumber any specific separate property of the other spouse when the community
property is insufficient. If the community property is insufficient, the separate property of both spouses
shall be solidarily liable for the support of the family. The present spouse may, by proper petition in
Court, be authorized to administer or encumber any specific separate property of the other spouse,
and use the fruits or proceeds thereof to satisfy his share.

b. Abandonment. -The abandonment by a spouse without just cause, or failure to comply with his/her
family obligations. The aggrieved party may file petition in Court for: (1) receivership, (2) juridical
separation of property, or (3) authority to be the sole administrator of the community property subject
to such precautionary conditions as the Court may impose.

The spouse is deemed to have abandoned the other spouse when he/she has left the conjugal dwelling
without the intention of returning. This intention is indicated when he/she has left the conjugal
dwelling for three (3) months, or has failed within that, period to give any information of his/her
whereabouts. This is prima facie presumption of his/her intention not to return to the conjugal
dwelling.

3. The Liquidation of the Community Property. - This comprises of the (1) inventory of all properties of
the absolute community and the exclusive properties of each spouse; (2) payment of debts and
obligations of the community out of the assets which, if insufficient, the spouses are solidarily liable
with their separate properties; (3) delivery of the remaining exclusive properties of each spouse; (4)
division of the net assets, equally between the spouses unless a different division or proportion is
agreed upon in the marriage settlement, or a receiver of each share is indicated; (5) delivery of the
presumptive legitime of the common children in accordance with Article 51; (6) adjudication of the
conjugal dwelling and the lot on which it is situated to the parent with whom the common children
have chosen to stay, but for those below seven (7) years of age, the Court decides according to the
best interests of the children.
When the marriage is terminated by death, the surviving spouse must institute judicial or extra-judicial
proceedings within six (6), months from death of the deceased spouse.

In the simultaneous liquidation of the community properties of the two (2) or more marriages
contracted prior to the effectivity of the Family Code, the respective capital, fruits and income of each
community is determined according to evidence. In case of doubt, the existing properties are divided
between the different communities in proportion to the capital and duration of each.

B. Conjugal Partnership of Gains. - Under this regime the, future spouses place in a common fund
"all the proceeds, products; fruits and income from their separate property, and those acquired by
either or both spouses through their efforts, or by chance." The net gains or benefit is derived by either
or both spouses are divided equally between them, unless otherwise agreed upon in the marriage,
settlement." The rules on partnership contract applies in case of conflict."
As in the case of absolute community, conjugal partnership of gains commences at the celebration of
marriage. And, no waiver of rights, interests, shares and effects of the conjugal partnership of gains
can be made except in case of judicial separation of property. When the wavier takes place upon
judicial separation of property, or after marriage has been dissolved or annulled, it must appear in a
public instrument and duly recorded in the proper registry of property.:

C. Exclusive Property of Each Spouse. - The exclusive property of each spouse consists of that: (1)
was brought to the marriage as his/her own; (2) each has acquired during the marriage by gratuitous
title: and (3) which is acquired by the right of redemption, barter, or exchange or property belonging to
the other spouse: and (4) purchased with the exclusive money of the wife or husband. The spouse
retains ownership, possession, administration and enjoyment of his/her exclusive property. Thus, each
spouse (1) may transfer the administration of his/her exclusive property to the other by a public
instrument and recorded in the proper registry of deeds; and (2) being of legal age, may mortgage,
encumber, alienate or dispose of his/her exclusive property without the consent of the other spouse.
They may appear alone in Court to litigate with regard to their respective exclusive property.

D. Conjugal Partnership Property. - As a general rule, all property acquired during the marriage is
presumed to be conjugal partnership property unless the contrary is proved. This, notwithstanding that
it appears to have been made, contracted, or registered in the name of one or both spouses."

1. Specifically, the law designates as conjugal partnership property:

a. Those acquired by onerous title during the marriage with the common fund whether for the
partnership, or for only one of the spouses;
b. Those obtained from the labor, industry, work or profession of either or both of the spouses;
c. The fruits, natural industrial or civil, due or received during the marriage from the common property;
and the net.
d. The share of either spouse in the hidden treasure which the law awards to the finder or owner of the
property where the treasure is found;
e. Those acquired through occupation such as fishing or hunting.
f. Livestock existing upon the dissolution of the partnership in excess of the number of each kind
brought to the marriage by either spouse;
g. Those acquired by chance such as winnings from gambling or betting. The losses therefrom shall be
borne exclusively by the loser spouse.
Some other instances indicate that the property is conjugal partnership property. Thus:
h. On installment purchases. - If the installments are paid partly from (a) exclusive property of either or
both spouses, and partly from (b) conjugal funds, the property belongs to buyer if full ownership was
vested before the marriage, and to the conjugal partnership if ownership was vested during the
marriage.

The amount advanced by the partnership, or either or both spouses shall be reimbursed by the owner
or owners upon liquidation of the partnership.

i. On Credits - Those payable within a certain period to one of spouses - the sums collected during
marriage (in partial payments or installments on the principal) are exclusive property of the spouse.
Interests that, fall due during the marriage on the principal belong to the conjugal partnership.

j. On improvements. -For utility or adornment, made on separate property of spouse, at the expense of
the partnership, or through the acts or efforts of neither or both spouses, belong to conjugal
partnership, or the original owner-spouse, subject to:

When the cost of improvement made by the conjugal partnership, and the resulting increase in value
are more than the value of the property at the time it was improved, the entire property of one of the
spouses - (a) shall belong to the conjugal partnership subject to reimbursement of the value of the
property as it was improved: or (b) the owner-spouse retains ownership of the property subject to
reimbursement.
The ownership of the property shall be vested upon reimbursement at, the liquidation of the conjugal
partnership.

1. Administration and Disposition. -The administration of the conjugal partnership property belongs to
both spouses jointly, as in the case of absolute property, except that neither spouse may dispose or
donate the same without the consent of the other . Thus, the real property acquired during marriage is
sufficient basis for the legal presumption that it is conjugal, there being no sufficient evidence to
destroy the presumption. Factoran et al. v. Sabanal et. al., 81 Phil. 512 (1 94 8); v. Flores, 49 Phil. 288
(1925). However, this presumption is merely prima facie, and may be overcome by evidence that it
was acquired: (a) by inheritance from the ascendant or descendant of one spouse. Alvarez v. Marquez
11 Phil. 269 (1908); (b) by redemption of conjugal property sold on execution, Rosete v. Yap, 95 Phil.
560 (1954); or (c) with money furnished by the parents of the spouse, or that belong exclusively by the
other spouse. Hartake v. Frankel & Phil. Trust Co., 54 Phil. 156 (1929).

As a general rule, neither husband nor wife can sell property to each other, except (1) when separation
of property is agreed upon in the marriage settlement; or (2) judicially declared.

2. Dissolution and Liquidation. - The conjugal partnership system is dissolved and liquidated in the
same manner as the absolute community property system except that: (a) the support for the
surviving spouse and children must be given during the liquidation of the inventories of the property,
(b) the appraisal and sale of the conjugal property and others not covered by the Code, the Rules of
Court on the administration of estates of deceased persons shall be observed.

E. Separation of Property. - This is allowed (1) when expressly declared in the marriage settlement
or (2) in its absence, by judicial order.

1 . By Agreement. -The regime of separation of property may be agreed upon in the Marriage
Settlement. It includes all present and future property of the spouses, total or partial. And, those that
are not included in the agreement pertains to the absolute community.

Each spouse owns, possesses, enjoys, and administers his/her own separate property and disposes the
same without the consent of the other. The fruits - natural industrial or civil - due from the profession,
business or industry of the spouse, and received during the marriage is the separate property of said
spouse.

Family expenses are borne by the spouses in proportion to their respective income, or the market
value of his/her separate property. And, their liability to creditors for family expenses is solidary.

2. By judicial order.- This is pursued, upon verified petition of one, or jointly with the other spouse for
voluntary dissolution of absolute community, or conjugal partnership regime, and for judicial
separation of property. The creditors and other persons with pecuniary interests are protected by the
Court." The petition is voluntary, or for cause. And, the grounds or causes for judicial separation of
property are indicated when the spouse has been (a) sentenced and imposed a penalty with civil
interdiction, or (b) judicially declared an absentee, or (c) that he has lost parental authority by judicial
decree. Any of these causes is considered enough basis for the grant of the decree of judicial
separation of property. Additional grounds to substantiate the partition were: (d) when the spouse of
the petitioner has abandoned the latter, or failed to comply with his/her family obligations prescribed
in Article 10 of the Code; or (e) when he/she has abused the power of administration granted in the
marriage settlement; or (f) that, at the time of the petition, the spouses have been separated, in fact,
for at least one (1) year and reconciliation is highly improbable.

F. Live-in Marriage. - Those men and women who live as husband and wife without the benefit of
marriage, or under void marriages: (a) their wages and salaries belong to them in equal shares, and
(b) properties acquired by both during this period are under co-ownership rules. Neither one can
encumber or dispose of his/her share by acts inter vivos without the consent of the other until after
their conhabitation has terminated.
If either one is validly married to another person his/her share shall belong to the absolute community
or conjugal partnership existing in the valid marriage. Thus, the land acquired by the husband in 1949
by installment from Magdalena Estate, Inc. after he deserted his wife and children, belongs to the
conjugal partnership, notwithstanding the execution of the final deed of sale in 1959 in the name of
the common-law wife.

4. Absolute incapacity. - These are persons disqualified by law: (a) to give consent to a contract as
the unemancipated minors, insane or deaf-mutes who do not know how to write; and(b) to acquire by
purchase by himself or through another as the
(a) Guardian as to the wards property under his administration, although he may sell his own property
to the ward.

(b) Agents. -the property under his administration, or with authority to sell, except with the consent of
the principal.

(c) Executors and administrators-the property of the estate under his administration.

(d) Public officers and employees - the property of the State, or local government, government-owned
corporations, and institutions.

(e) Justices -judges, prosecuting attorneys, clerks of court, and other officers and employees connected
with the administration of justice - as to property and rights in litigation, or levied by an execution
order.

(f) Lawyers-as to property and rights in litigation in which they take part by virtue of their profession.

B. The Object of Transaction

Real Estate is the subject-matter in all these transactions, i.e. how it is dealt with by the parties
involved in any given business deal.

1. Real estate, defined. - For the first time in many real estate is officially defined as: "the land
and/or building or improvements attached to land including the rights and thereon . Thus, real estate
"refers to not only (1) the object which is generally known as land, buildings and other permanently
added to land, but also (2) all rights and therein.

Real estate is synonymous to "Real Property" as described in the New Civil Code, as an "immovable
property" those land, buildings, trees, plants and others that are "adhered to the soil" or "attached to
the land or form an integral part of an immovable."

The rights and interests referred to is the "real right" that a person has and exercises over a specific
thing against "a determinate person" and "the whole word." This is the right of ownership, a real right
that embraces four (4) other rights, namely: (1) the right to enjoy and use the property; (2) the right to
dispose of the property as in sale, lease, mortgage or exchange with another property; (3) the right to
exclude others from the possession of the property: and (4) the right to recover the property from
anyone who has wrongfully taken possession of it, and unlawfully detained the same against the will of
the owner.

2. Real Estate may be classified according to (a) its nature or use; such as (1) it is agricultural or
forest, one of the natural resources of the country, and (2) by conversion, it has become residential,
commercial or industrial in actual use.

And (b) by ownership, real estate (1) original belongs to the State," as of public dominion or domain, or
patrimonial which is for private use by the State. It may also (2) belong to private person and/or
associations and corporations, by virtue of the right of ownership conferred upon them by law. These
may be designated as (a) the community or conjugal partnership property, or (b) exclusive property of
each spouse, (c) the exclusive property of each spouse, (d) the property assigned to each spouse after
legal separation, or by the regime of separation of property, or due to the liquidation of any of the
regime of property ownership, and (e) the property regime under the union of man and woman without
marriage.
3. Price or Consideration. -In all real estate transactions, the price agreed upon in the transfer or
sale of the real estate involved therein is an essential element. For, in its absence, the transaction
does not "produce any effect whatsoever.

Price is meant legally as the "cause" or "consideration" of the transaction which must be distinguished
from the "motive" of the parties in being bound by the contract. For, the "motive" may be to (1) derive
there from some monetary benefits out of the sale or transfer, or (2) dispose of real property in excess
of the needs of the owner-transferee. On the other hand, the vendee-transferee may have a special
need for the property, perhaps (1) to use or develop the property into his/her home or residence, or (2)
to develop it into something productive for commercial use such as subdivision, resort, office structure,
and many others.

The price of the thing transferred and acquired must be "fixed and certain." The law describes this to
mean that "which the thing sold would have on a definite day, or in a particular exchange or market, or
when an amount is fixed above or before the price on such day, or in such exchange or market,
provided the same amount is certain.

This price concept is similar to "market value" that real estate appraisers seek in any and all appraisal
problem and project. Market value has been defined by the Supreme Court of the Philippines in the
case of Macondray & Co., Inc. vs. Sellner, 33 Phil. 370 (1916) as:

The price which the property will bring in a fair market after fair and reasonable efforts have been
made to find a purchaser who will give the highest price for it; or the price that would in all probability
result from their negotiations where the seller is willing to sell and the buyer desires to buy.

a. Earnest money. -In the negotiation for the sale of a specific real property, the buyer or vendee
offers and delivers an initial sum of money to show willingness and earnest desire to buy the property.
This is called "earnest money" which when given in a contract of sale "shall be considered as part of
the price and as proof of the perfection of the Contract." And, should the buyer or vendee fail to
pursue the sale within the period stipulated, the earnest money shall be forfeited by the owner-vendor.
On the other hand, should the vendor fail to consummate the sale, the vendee shall recover the'
earnest money plus liquidated damages.

b. Option money. -This is the sum of money or consideration that supports the offer or promise to
sell or buy in a real estate transaction. It is distinct from price which is fixed by the seller-vendor. It
may be withdrawn anytime. However, if the promise to sell is withdrawn after the buyer-vendee has
accepted, the contract: is perfected, nevertheless.

c. Contract rent. - In lease contracts, this is the payment for the use of property, as agreed upon
between the property owner and the lessee. It should be distinguished from "economic rent" which is
established after the property has undergone an appraisal study by a licensed real estate appraiser. It
is defined as "the reasonable rental expectancy if the property were available for lease," or "the base
rental justifiably payable for the right of occupancy of vacant land.

The term "rental value, " is arrived at after an appraisal of the contract rent of a given real property. It
means "the monetary amount reasonably expectable for the right to the agreed use of real estate,"
per month, per room or per square meter.

II . THE MAIN REAL ESTATE CONTRACTS

A. Purchase and Sale

The initial of real estate is by way of an agreement to buy or sell between two (2) persons or groups,
the VENDOR and VENDEE, wherein a piece of real estate (land and/or improvements) is acquired by
the VENDEE for a consideration in money and/or exchange of property paid and/or handed over unto
the VENDOR by the VENDEE by the VENDOR who thereby transmits, conveys, and warrants his right of
ownership and possession over the real estate to the VENDEE.

1. Types of Sales Agreement. - There are several types of Sales Agreement from which the
contracting parties in realty sales may choose to suit their needs and convenience, namely:

a. Absolute Sale. -This is an agreement that has no condition whatever. Rather, it imposes upon the
VENDOR the obligation to deliver the real estate, subject matter of the agreement, to the VENDEE
who, upon receipt of the property, hands over and pays the purchase price that has been previously
agreed upon to the VENDOR.

There are two (2) kinds of transaction under this category:

(1) The Deed of Absolute Sale where both parties and (VENDOR and VENDEE) agree on, and accept the
real estate to be, or be conveyed, and the price therefore that the VENDEE should pay it. This
transaction is most common where the title of the real estate subject of sale, is free from and clear of,
whatever. No other condition is necessary delivery and transfer of the property to the VENDEE without
delay. Then, the Deed of Absolute Sale is registered in the proper Registry of Deeds pursuant to the
requirement of Torrens Registration Law.

(2) Sale in Exchange, or Barter where the real property is the subject of the transaction, is deeded in
exchange of, and for, another real property that is acceptable to the VENDOR, with or without
additional monetary consideration. It is essential in this transaction that the title of both subject
properties in the exchange is valid and unencumbered, or free from any liens or encumbrances of
whatever nature.

b. Conditional Sale. - This is an agreement, to Sell and Buy real estate with certain conditions that
must be ac by either, or both, the VENDOR and VENDEE, so as to extinguish and/or create ownership
over the subject over subject property. This is merely an executory contract in contemplation of the
Civil Law, and the right of ownership is withheld in the meantime. In other, words, the certificate of
title (original or Transfer) of the real property is not turned over the VENDEE until and after certain
conditions have been accomplished by either, or both the VENDOR. Thereafter, it becomes, in fact and
law, an executed contract. This agreement may be one on:

(1) Sale on Installments. -This is commonly adopted in the sale of lots in a land subdivision, or
townhouse project. The principal features of this Agreement are:
(1-a) The purchase price is fixed at a certain amount that shall be paid in equal monthly, or yearly
installments for a period of five (5), or ten (10) years;
(l-b) The ownership and possession of the subdivision lot, condominium unit, or townhouse are
retained or withheld by the VENDOR during the period mentioned;
(l-c) Upon payment of the purchase price in full by the VENDEE anytime during, or at the end of, the
period from in the agreement or contract, the VENDOR transfers possession of the property over to the
VENDEE; and
(l-d) The VENDOR executes the proper Deed of Absolute Sale of the property to the VENDEE, and
delivers ownership over the property involved unto the VENDEE by handing over to him the Deed of
Absolute Sale and the Transfer/ Original Certificate of Title of the subdivision lot, condominium unit, or
townhouse, as the case may be.

Republic Act 6552 governs sales of real estate on installments. It recognizes the vendor's right to
cancel such contract upon failure of the vendee to comply with the terms of the sale, but imposes,
chiefly for the latter's protection certain conditions therein. The Act recognizes in residential
properties, the "vendor's right to cancel the contract to sell upon breach and non-payment of the
stipulated installments. "Thus, The vendee, having paid two (2) annual installments, is granted two (2)
months grace period to pay the final installments he failed to make such payment. He is entitled to
fifty (50%) per cent of the total payments made. The refund operates to cancel the Contract. Layug v.
Intermediate Appleate Court, 167 SCRA 627 (l988).

(2) Contract to Sell. - This is similar to Sale on installments, except that the period allowed for the final
payment of the purchase price is much shorter in duration.

(3) Pacto de Retro. - The sale in which the VENDOR is granted the right to repurchase the property sold
on a certain date fixed in the Contract. This is done by returning to the VENDEE; (a) the entire
purchase price including (b) the expenses for the preparation of the Contract, and (c) the "necessary
and useful expenses" on the property sold. (Art. 1616, New Civil Code). This transaction is termed
"conventional redemption" under Article 1691 of the New Civil Code.

c. Other forms of Conditional Sale

There are other forms of Conditional Sale where ownership and possession of subject property are
transferred to the VENDEE, upon execution of the Contract, such as:

(1) Sale with Mortgage. -A portion of the purchase price is initially paid by the VENDEE, and the
VENDOR delivers possession and ownership of subject property to the VENDOR who, thereafter,
executes a Deed of Mortgage on the same property in favor of the VENDOR to guarantee payment in
full of the balance of the purchase price.
(2) Sale with Assumption of Mortgage. -The VENDEE pays in cash a portion of subject property to the
VENDOR assumes the payment of the existing mortgage on the property represents the balance of the
purchase price.

(3) Dacion en Pago. - This is an agreement where the encumbered property of the VENDOR is sold by
the latter to his creditor or mortgagee, as VENDEE, to satisfy, or in payment of, his existing loan and
other charges.

d. Option distinguished from Sale. - An option is a mere promise or offer to buy or sell real estate.
An option to purchase, for instance, is "a right of election (of a prospective buyer) to purchase which
when exercised by him, it becomes a contract of sale.

2. Perfection and Consummation of Sale

a. Negotiation. - Sale is usually preceded by an offer to sell or buy real estate. Business
advertisements of real estate for sale by way of telephone, telegram, telecast, newspaper listings as
well as written offer to sell or buy, through brokers, are mere invitations.

The Supreme Court, in an early c as e, remarked that there is practically no difference between (1) a
contract of option to purchase land, and (2) an offer or promise to sell it. In both instances, the Court
said, the purchaser "is conferred the right to decide whether to buy the land; and if he does decide to
buy the land, either (1) he expressly exercises the right conferred upon him, or (2) by his own conduct,
he has impliedly accepted all the terms and conditions specified in the offer or promise.

The law, however, specifically requires that a "unilateral promise to buy or sell" a determinate thing or
property shall be binding only when it is supported by a consideration distinct and separate from the
stipulated price. And, this is reciprocally demandable.

b. Acceptance and Perfection.

(1) Acceptance of the offer or promise to sell may be indicated in writing by an interested buyer, and
delivered personally or through a real estate broker, to the offeror-seller. The acceptance must be
absolute, which means that the parties (offeror and offeree) must agree upon (1) the specific thing or
property offered, and (2) the certainty and reasonableness of the price or value for the sale thereof.
Meantime, the offer or promise stands.

It is not absolute if it involves a new condition which becomes a counter-offer, or that it is not in accord
with the terms of the offer. It is neither absolute if the acceptance is couple with, or subject to, a
condition.
Prior to the acceptance, the offeree-buyer may inspect and examine the property offered, and
determine the validity of (a) the possession of the offeree-seller and (b) his ownership or title over the
property.

Acceptance by letter or telegram, telephone or radiophone, telex, or through a mediator or third party
shall bind the offeror only when the acceptance is communicated to him.

(2) The acceptance of an offer to buy or sell, supported or not by any consideration distinct from the
price, that the offeror has received prior to notice of withdrawal of the offer, creates a perfected
contract to buy or sell. The offer that is "founded upon a, consideration, as something paid or
promised" creates a perfected contract when accepted. The offer cannot be withdrawn.

Thus, a contract of sale is perfected at the moment there is a meeting of the minds. And, when earnest
money is offered by the buyer, it is proof of perfection of the contract. It may be stipulated as part of
the purchase price, an initial payment, such that should the purchaser fail to pursue the sale by paying
the balance of the purchase price, the earnest money shall be confiscated as damages by the seller.
And, when the initial payment is thus given, and the balance of the purchase price is paid soon after
the deed of sale is registered, and a new title is issued in the name of the buyer, the contract of sale is
deemed valid. This constitutes delivery contemplated in the law, and the sale is considered
consummated.
Thereafter, the deed of sale is binding on both parties, and either one may demand performance of its
contents, including its enforcement by court action, provided the contract of sale is a public
instrument, that is, duly executed by the parties and acknowledged before a notary public, and
registered in the proper registry of deeds.

c . The inadequacy of the price affects the validity of the Sale:

Gross inadequate price may indicate:
(1) a defect in the consent of either or both parties, or
(2) that a donation or some other act or contract is intended by the parties.

However, in the absence of fraud, the sale in this instance is deemed valid despite the inadequacy of
the price. Nevertheless, if the price is so inadequate or low as to shock one's conscience, the court is
justified in setting aside the sale. But, if the stipulated price does not shock one's conscience because
the price paid is much higher than the assessed value of the properties, subject of the sale, and that
the sale was effected by a father to her daughter, the sale is valid.

If the price is simulated, the sale is void, the law so declares, "but it may be considered a donation or
"some other act or contract by the parties. When the purchase price that appears on the contract of
sale as paid has, in fact, never been paid by the buyer to the seller, the contract of sale is deemed null
and void.

3. Transfer of Ownership.

a. Ownership of real property is transferred to the vendee by actual or symbolic delivery. Actual
delivery is done when the property is "placed in the control and possession of the vendee. The
execution of the public instrument authorizes the buyer to use the document as proof of his ownership
This is symbolic delivery of possession of the property, or by legal fiction, the possession is transferred
although a third person is actually in possession of the property as lessee, as in the case of an existing
lease for a fixed period. Thus, constructive possession is transferred to the vendee when the vendor, at
the moment of sale executed in a public instrument and delivered to the vendee, the vendor has
actual possession of the property.

In the case of land registered under the Land Registration Law, the deed of sale, to take effect as a
conveyance and bind the property, must be registered in the registry of deeds of the city or province
where the property is located.

Constitutum possessorium is another manner of delivery tradition. This supervenes in the transfer of
ownership, by way sale executed by an owner-lessor in favor of his lessee who acquire ownership
thereof, and thereby becomes the lessor. The owner remains in material possession of the property, as
lessee, "in the name and representation of the purchaser, the lawful owner."

b. Sale by Co-Owners. - The sale by a co-owner of the entire real property affects only his share
therein. The buyer, therefore, acquires ownership only over an undivided portion of the property
involved. The co-owners who did not sell may file an action for partition to separate and segregate a
specific portion of the property that pertains to the selling co-owner. The nullification of the sale, or the
reconveyance of possession are not proper actions.
And, the joint-affidavit of the co-owners affirming the aforesaid sale may be considered the written
consent prescribed by Article 1625 (NCC) that requires the execution of a public instrument for that
purpose.

The law, however, limits the duration of co-ownership only twenty (20) years.

c. Sale to different Vendees - Where a registered owner has sold his real property to two (2) or
more different buyers, the law recognizes in the following order the priority of ownership of the buyer
or vendee who, in good faith: (1) has first recorded the sale in the proper Registry of Deeds;'" or (2) in
the absence of such: inscription, has taken possession of the property or (3) in default of both
(inscription and possession), has presented the oldest title thereto. Good faith consists "in an honest
intention to abstain from taking any unconscientious advantage of another Thus, if a vendee in a
double sale registers the sale after he has acquired knowledge that there was a previous sale, the
registration will constitute a registration in bad faith and will not confer upon him any right. Abarquez
v. Court of Appeals, 213 SCRA 414 (1992).

In another case, the Supreme Court remarked that:

A person dealing with registered land is not required to go behind the register to determine the
condition of the property. He is only charged with notice of the burdens on the property noted on the
face of the register or certificate of title. (William H. Anderson & Co. vs. Garcia, 35 O.G. 2847 (1937).
Following this principle, this Court has time and again held that a purchaser in good faith of registered
land (covered by a Torrens Title) acquires a good title as against all the transferees thereof whose
right is not, recorded in the registry of deeds at the time of the sale. (Vargas vs. Tancioco, 67 Phil. 308
(1939). but that, in dealing with a parcel of unregistered land, a different set of rules apply, Under Act
No. 3344, the registration of instruments affecting unregistered lands is "without prejudice to a third
party with a better right.." Article 1544 of the New Civil Code does not apply to unregistered lands.

d. Warranty. -The law describes certain implied warranties in a Contract of Sale namely: (1) that the
seller has a right to sell at the precise moment, when ownership has to pass, or the warranty of
ownership (2) that, the buyer thereby acquires and enjoys the legal and peaceful possession of the
property, or the warranty in case of eviction: and (3) that the property is free from (a) any hidden
faults or defects, or (b) any charge, lien or encumbrance not declared or known to the buyer, or the
warranty against hidden defects or encumbrances.

When the Government sells at a public auction or sale, it does not warrant the title, or the thing, being
free from hidden defect.

Note that the express warranty in the Deed of Absolute Sale that, the land sold is free from all liens
and encumbrances constitutes false representation or deceit who, in fact, the property is not free from
such liens or encumbrances. or defects whatever. For, FRAUD involves acts or spoken or written words
by a party that mislead another into believing a fact to be true when it, is not in fact.

e. Non-performance. -When either party in a Contract of Sale fails to comply with his obligation
prescribed in the said instrument, the aggrieved party may: (a) demand performance of the obligation
of the erring party plus damages, or (b) if this is not applicable or possible, he may apply in the proper
Court for the rescission of the Contract plus damages.

The vendor of an immovable property may likewise seek for the rescission of the sale, if he has
"reasonable grounds to fear the loss of the immovable property sold and its price.

Nevertheless, the Court may allow the erring party to comply with his obligation within a reasonable
period.

(1) Rescission is defined by law as the obligation to return: (a) the things or real property that were the
object/s of the Contract together with (a) their fruits, if any, represented by the existing rentals, if the
property is leased, and/or (b) the interests arising from the current mortgage, or similar lien, if any.

Thus, although the Contract has stipulated that upon failure to pay the price at the time agreed upon,
the rescission shall take place, as a matter of right, the vendee may still pay after the expiration of the
period provided that no demand for rescission has been made upon him either judicially, or by a
notarial act. This is applicable only to contracts of purchase and sale, and does not apply to "promise
to sell" where title remains with the vendor, and the amounts paid are considered and declared as
damages.

The law applicable to Contracts to Sell is the MACEDA LAW "to protect buyers of real estate on
installment payments against onerous and oppressive conditions." It is applicable to all transactions or
contracts that involve sale or financing of real estate on installment payments, including condominium
apartments where the buyer has paid. at least, two (2) years of installments - regular or irregular
monthly installments for two (2) years (HLURB). Sales on industrial lots, commercial buildings and
sales to tenants under special laws are excluded.

Briefly, the MACEDA LAW has established the rights of the VENDOR and VENDEE as follows:
1. Rights of VENDEE:
a. Entitled to Grace Period, computed thus:
(1) One (1) month for every one (1) year of installment payment.
Sec. 3 (a).
(2) Sixty (60) days, if less than two (2) years of installment payments. Sec. 4, first sentence.
(3) Down payments, deposits or options on the contracts are included in the computation of the total
number of installments made. Sec. 3, last paragraph. b. During the Grace Period:
(1) To pay, without additional interest. the unpaid installments within the Grace Period. This can be
availed of only once every five (5) years of the Contract and its extensions, if any. Sec. 3 (a) (2) To sell
or assign his rights to another person, by notarial act, or to reinstate the contract, by updating his
account before actual cancellation. Sec. 3. c. To pay in advance (a) any installment or (b) the full
unpaid balance of the purchase price without interest; and to have such full payment annotated on the
TCT of the property. Sec. 4.

2. Cancellation - after expiration of Grace Period:

(1) Actual cancellation shall take place after thirty (30) days from receipt of (a) notice of cancellation
by the VENDEE. or (b) demand of rescission. Sec. 3 (b), last sentence.

(2) Vendee must be refunded cash surrender value of payments made by him equivalent to: 50% of
total, payments made during the first, five (5) years, plus' (2) five (5%) per cent every year thereafter,
but not more than 90% of the total payments made. Sec. 3 (b)

3. Right of VENDOR (owner) -to cancel contract: (1) after thirty (30) days from receipt by VENDEE of
notice of cancellation or demand for rescission of Contract by notarial act; and (2) only after full
payment of cash surrender value" to VENDEE where applicable. Thus, where VENDEE has paid less
than two (2) years installment, he (VENDEE) is not entitled to be paid the "cash surrender value."

4. Extinguishment of Sale. -The sale may be extinguished by legal or conventional redemption, among
other causes or reasons.
a. Legal Redemption is defined as the right to take over ownership of real property, in place of the
BUYER who has acquired the property by purchase, dation in payment, by onerous title or substantial
consideration, monetary or otherwise. The purpose of: the law is to do away with CO-OWNERSHIP, as it
hinders the development and administration of the property. Written notice, to redeem is
indispensable.

The right of redemption may be exercised by a co-owner when, the property, of the shares of the other
co-owners thereon are sold to a third person by another co-owner. The redemptioners must reimburse
unto the buyer the price of the sale, or if it is excessive, a reasonable price only. This must be done
within one (1) month, or thirty (30) days from receipt of the written notice of the actual sale, not a
mere intention to sell by the vendor co-heir. In the latter situation, the remaining co-owners may still
redeem the property.

The deed of sale, accompanied by the affidavit of the vendor co-heir that he has served the required
notice to the other co-heirs, must be registered in the Registry of deeds during the above-stated 30-
day period.

In the case of rural land, the area of which does not exceed one (1) hectare or 10,000 square meters,
the owners of the adjoining land may redeem the land from whomsoever has acquired said land. The
redeemer, however, must be the owner of the adjoining land, regardless of its area, that is not
separated or segregated therefrom by "brooks, drains, ravines, roads, and other apparent servitudes
for the benefit of other estates.

The purpose of this law is to prevent the one (1) hectare rural land "from passing into the hands of a
person other than someone of the adjacent, owners so that the property of these latter would be
divided without benefit to the public weal and perhaps to the prejudice of the adjacent owners
themselves who are interested in preserving the integrity of their respective properties, and in using
the alienated estate for the improvement and development of their own lands."

As to urban lands, the law provides that, where the land is so small and so situated that it cannot be
used for any practical purpose, and the owner who has acquired that land only for "speculation"
intends to re-sell it, the owner of the adjoining land has a right of pre-emption. And, if the said land has
been sold, the adjoining landowner has a right of redemption. In both instances, it must be at a
reasonable price.
The purpose of the law in allowing redemption of adjoining urban land is to discourage speculation in
real estate, and the consequent aggravation of the housing problem in centers of population.

The equity of redemption should not be confused with the right of redemption. The former is exercised
before the intended sale of the Land. The proposed sale must be communicated to all redemptioners.
On the other hand, the latter is resorted to after the sale has been perfected.

b. Conventional redemption takes place when the vendor reserves the right to repurchase the property
sold by returning the purchase price, (2) the expenses of the contract and other legitimate expenses,
and (3) the necessary and useful expenses made on the property. The necessary expenses are those
for the preservation of the property, and the useful expenses are for the particular purpose the
property is intended, the Court of Appeals so declared.

The contract of sale may provide a period of repurchase within ten (10) years. However. if the contract
is silent on this, the law prescribes only four (4) years from the execution of the contract.

The contract of sale with right of repurchase - pacto de retro - should be construed as an equitable
mortgage. According to the Code Commission. Thus, Article 1602 of the New Civil Code presumes a
contract to be an equitable mortgage in any case when: (1) the price of a sale with right of repurchase
is unusually inadequate; (2) the vendor remains in possession as lessee or otherwise; (3) upon or after
the expiration of the right to repurchase another instrument extending the period of redemption or
granting a new period is executed; (4) the purchaser retains for himself a part of the purchase price;
(5) the vendor binds himself to pay the taxes on the thing sold; and (6) in any other cases where it
may be fairly inferred that real intention of the parties is that the transaction shall secure payment, of
a debt or the performance of any other obligation. Finally, any money, fruits, or other benefits, to be
received by the vendee as rent or otherwise shall be considered an interest which shall be subject to
the usury laws.

B. Mortgage.

The contract of mortgage is an accessory contract wherein a specific property, real or personal, is
pledged to secure the fulfillment or compliance of a principal obligation. Thus, for a specific sum of
money, owner A, pledges his real property -land and/or building and other improvements - to lender B
as security for the payment, of that money as loan. Upon full payment, of said loan extended to A, the
lender B release the property from the lien.

There a

re several types of mortgages, the most common are:

(1) the voluntary or conventional wherein the mortgage is constituted by the voluntary will of the
property owner; and

(2) the junior mortgage where the hen imposed is inferior or accessory to another mortgage The open
mortgage would allow full payment before maturity date, while the close mortgage provides that it be
paid in full at the maturity date.

Legal mortgages are those: (1) where the husband alienates the paraphernal property under his
administration so that the amount received by the husband is secured, as lien (mortgage) for the
unpaid price of real property.

An equitable mortgage, on the other hand is not in the form of mortgage although the parties intend
to charge the property as security for the debt. However, any contract is presumed an equitable
mortgage, if any of the circumstances mentioned in Article 1602 of the New Civil Code exists.

1 . Nature of Mortgage.

a. It is indivisible The real property mortgaged is directly responsible and liable for the fulfillment of
the obligation or full payment of the loan contracted Upon failure of the mortgagor-debtor, the
property may be alienated for the payment, of the loan contracted by the mortgagor.
When several properties are mortgaged, each one guarantees only a determinate portion of the debt.
The mortgagor has the right to extinguish the mortgage on the portion of the debt for which each
property is especially answerable is satisfied. Thus, where two or more parcels of land are constituted
in one and indivisible mortgage, the mortgagee has the right to have either or both parcels, jointly or
separately, sold to satisfy his claim.
The debt may be divided among the successors-in-interest of the debtor, but the heir of the debtor
who has paid a portion of the debt cannot ask for the proportionate extinguishment of the debt while it
has not been completely satisfied. And, the heir of the creditor who has received his share of the debt
shall return the pledge or cancel the mortgage.

b. It is a lien attached to the property whoever the possessor may be for the fulfillment of the
obligation. Thus, the sale or transfer of the mortgaged property, without the knowledge or consent of
the creditor, does affect or release the mortgage. In the sale of subdivision lot or condominium unit,
the instrument of mortgage must contain a stipulation that the mortgage shall be released as soon as
the full purchase price is paid by the buyer.

As regards second mortgagee, the second mortgagee has only the right to redeem from the first
mortgagee who retains the lien. The right to redeem may be exercised by the second mortgagee in
the foreclosure of the first mortgage. The first mortgagee may maintain an independent foreclosure
proceedings against the second mortgagee. The second mortgagee, however, may be required by the
Court to redeem the first mortgage within three (3) months, otherwise he will be barred from
exercising his right to redeem.

c. Coverage - The mortgage extends to, and covers, the natural accessions of the property, the
improvements, growing fruits including (a) the rents or income therefrom that have not yet received
when the obligation becomes due, (2) the amount of indemnity due the owner from insurers of the
property mortgaged, or in virtue of expropriation for public use, pursuant to the declarations,
amplifications and limitations established by law. This is so whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person.

d. Alienability. -The mortgage credit may be alienated or assigned to a third person, in whole or in
part. The creditor however, may claim from the third person in possession of the mortgage property
the payment of part of the credit secured by the property. Any stipulation forbidding the property
owner from alienating the immovable property mortgage is void. This clause is known as the Pactum
De Non Aliende. And, the stipulation in the Mortgage Contract - that, upon failure of the mortgagor to
fulfill his obligation, the creditor/mortgagee shall appropriate the property mortgaged as his own - is
likewise void as it is contrary to public policy.

e. Mortgage and Antichresis, distinguished - Antichresis is an agreement whereby the creditor (1)
takes over the possession of the immovable (real estate) of the debtor with (2) the right to receive the
fruits or rentals of the property and (3) the obligation to apply them in payment of (a) the interests. if
any, of the loan extended by him, and, thereafter, (b) the principal of the credit. Unless stipulated
otherwise, the creditor is also obliged to (c) pay the taxes and charges upon the property; and (d) bear
the expenses necessary for its preservation and repair.
Briefly, the distinction between these agreements is that: in Mortgage - the mortgagor (1) retains
possession of the property in pawn; (2) gathers the fruits and rentals of the property, and (3) pays all
taxes. On the other hand, in Antichresis - the creditor (1) takes possession of the property; (2) receives
the fruits and rentals with the obligation to pay the interests on the loan. if any, and the principal
obligation: and (3) pays all taxes and charges upon the property

2. Essential requisites.

a. To secure performance and payment of the principal debt.

b. The mortgagor must be the absolute owner. Otherwise, the mortgage is null and void. He
must have the free disposal of the property, or that he is legally authorized for the purpose. His
surviving spouse may constitute a mortgage with respect to the conjugal share and hereditary share
without judicial approval.

(1) Aliens as Mortgagees. - An alien may accept mortgage but he is prohibited from (1) taking
possession of the mortgaged property during the existence of the mortgage, and even after default of
the mortgage except for the purpose of (a) foreclosure of mortgage, or (b) receivership for a period of
five (5) years from actual possession; and (2) participating in the bidding, or taking part in any sale of
the property mortgaged in case of foreclosure.

(2) The mortgagee has the right to rely on what appears on the face of the certificate of title. In the
absence of anything to excite suspicion, the mortgagee is under no obligation to look beyond the
certificiate and investigate the title of the mortgagor appearing thereon. However, if the title bears the
name of the real owner and the mortgage was constituted by an impostor without the consent of the
owner, the mortgage is null and void.

c. The mortgage contract must be in a public instrument, and recorded in the Registry of
Deeds. Thus, it has been held that no valid mortgage has been constituted inasmuch as the deed of
mortgage is a mere private document and not registered.

3. Assignment of Mortgage.
The mortgage credit, may be assigned in whole or in part. But, notice must be served the creditor, and
the assignment need be registered to affect third persons.
4. Cancellation of Mortgage.
The mortgagee may execute the cancellation or release of the mortgage in a public instrument, and
register the deed of cancellation in the proper Registry of Deeds.

5. Foreclosure of Mortgage.
The proceeding by which the mortgagee creditor subjects the property mortgage to be sold at public
auction, and the proceeds of the sale is applied to the satisfaction of his credit.

a. Extra-Judicial Foreclosure. -This is resorted to by the mortgagee only when a special power of
attorney is provided in the original contract of mortgage authorizing the mortgagee to sell the
mortgaged property at public auction with the procedure prescribed in Act No. 3135, as amended by
Act No 3135, as amended by Act No. 4110.
Pursuant to this authority, the mortgagee applies for foreclosure with the sheriff who releases the
publication of the sale at a fixed date, undertakes the sale in a public auction, issues the certificate of
sale to the winning bidder, and causes the certificate of sale to be annotated at the back of the
certificate of title.

b. Judicial Foreclosure. -The mortgagee files the complaint with the proper Court which, after due
hearing, orders the mortgagor to pay the obligation within ninety (90) days thereafter. Should the
mortgagor fail to do so, the Court orders the sale of the subject property in a public auction, and the
sheriff issues the certificate of sale to the winning bidder, and the Court confirms the sale. The
mortgagor pays the balance of the obligation if the proceeds of the sale is not sufficient. Execution
follows thereafter.

6. Redemption and Equity of Redemption.

The right of redemption applies to extra-judicial foreclosure. It is the prerogative of the mortgagor to
re-acquire the mortgaged property after registration of the foreclosure sale. The mortgagor exercises
this right within one (1) year from and after the registration of the sheriff's certificate of sale in the
Registry of Deeds.

In the case of judicial foreclosure of mortgage, the equity of redemption exists. It consists of the right
to redeem the mortgaged property within ninety (90) days from the order of foreclosures, or after the
period has expired but before the Court, confirms the sale. The title of the property vests upon the
purchaser, and the confirmation retroacts to the date of sale.

Under the Charter of the Philippine National Bank (Acts 2747 and 2938), and the General Banking Act
(R.A. 337), the mortgagor, his successors-in-interest of any judgment, credit of the mortgagor is
conferred with the right to redeem the property sold on forelcosure - after confirmation by the court of
the foreclosure sale - which right may be exercised within one (1) year from the date of registration of
the certificate of sale in the Registry of Deeds.

A formal offer to redeem, accompanied by a bona-fide tender of the redemption price, although
proper, is not even essential where, as in the case, the right to redeem is exercised through the filing
of judicial action. The ends of justice would be better served by affording the respondents-mortgagors
the opportunity to redeem the subject property. The ruling is in obedience to the policy of the law to
aid, rather than to defeat, the right, of redemption.
The filing of judicial action itself, within the redemption period, is equivalent to a formal offer to
redeem.

C. Lease.

The contract, of lease is an agreement whereby one binds himself (1) to give the right, to use or enjoy
the possession of real estate, (2) for a certain price or rental, and (3) for a definite or indefinite period.
The parties to the lease are those qualified to enter into a contract of sale. But, those who must be
clothed with a special power of attorney are: (1) the husband with respect to his wife's exclusive
(paraphernal) property: 92) the father or guardian as to the property of minors: and (3) the manager or
administrator of real property.

Aliens may lease only private lands and/or improvements for not more than twenty-five (25) years,
renewable to another twenty-five (25) years.

1. Property subject to Lease.

These are:
a. Lands of the public domain that are alienable such as the agricultural lands only by (1) Filipino
citizens with an area of five hundred (500) hectares; and (2) private corporations or associations with
an area of one thousand (1,000) hectares with a duration of twenty-five (25) years, renewable for not
more than twenty-five (25) years.

b. Private lands may be leased by Filipino citizens and private corporations and
associations. Aliens may also lease private lands but only for a limited period prescribed by law.

2. Obligation of the parties:

a. The lessor must: (1) deliver the property in such condition as to render it fit for the use intended; (2)
make necessary repairs to keep it suitable for the use devoted; and (3) pay for the expenses for the
deed of lease. And, b. The Lesee must: (1) pay the rental price according to the agreed terms; (2) use
the property as a diligent father of a family, devoting it to the use stipulated: and (3) pay the expenses
for the deed of lease. (Art. 1657, New Civil Code).

3. Lease period is not fixed.

As to urban land, the lease term is from year to year. if the agreed rent is per annum: and from month
to month, if the rent is stipulated monthly (Art. 1687, ibid.) As regards rural land, the lease period is
one (1) year, two (2) years or more, if the yield of the fruits thereof is annually or once during the
stated period. (Art. 1682, ibid.)

4. Registration of the lease contract.

The lease contract must be registered in the local Registry of Deeds. For, unless this is done, the lease
shall not be binding upon third persons. (Art. 1648 ibid.) Thus, the purchaser of a piece of land which is
under lease that is not recorded in the Registry of Property may terminate the lease, save when (1)
there is a stipulation to the contrary in the contract of sale, or (2) when the purchaser knows of the
existence of the lease. (Art.1676, ibid.)

The new owner may rescind the lease or the sublease for any of the causes in Article 1873, New Civil
Code, since neither the lease, nor the sublease was recorded on the title (Art. 1648, New Civil Code).
The property being commercial and the rent, is more than the set in Batas Pambansa Blg. 25, the
lease is not protected by law.

5. The assignment of lease cannot be accomplished without the consent of the Lessor,
unless stipulated to the contrary in the Lease Contract, for it involves the transfer of rights and
obligations of the Lessee to the third person. (Art. 1650, New Civil Code). In sublease, the consent of
the Lessor is not, necessary should the Lesee sublease the property held by him, unless the Lease
Contract so prohibits. The Lessor, in this situation, becomes the Lessor.
6. Expiration and Renewal of the Lease.
The lease terminates on the day fixed without need of demand.

a. The lessor has the right not only to terminate the lease at its expiration but also to
demand a new rate of rent. Unless the lessee will pay the lessor the increased rent. no contract of
lease is created.

b. A verbal lease contract on a month-to-month basis expires upon the lapse of a three (3)
month notice to vacate the property. Where in a verbal agreement, the rentals are to be paid on a
monthly basis, the period of the lease is considered to be from month to month. (Art. 1487, New Civil
Code) upon receipt of the notice to vacate the promises, the contract of lease is deemed to have
expired as of the end of the month. Thus, a month-to-month lease under Article 186'7, New Civil Code,
is a lease with a definite period, the expiration of which upon previous demand by the Lessor to
vacate, can justify ejectment.

c. Renewal or extension of the lease. - The renewal of the lease is the prerogative of both the
Lessor and the Lessee. The court of justice has no authority to order the renewal of the lease, and
prescribe the terms and conditions of the contract for the parties. The Lessee must, exercise the
option to renew by notifying the Lessor thereof before, or at least, at the time of expiration of the
original lease. And, as the lessee failed to exercise the option or to express their choice whether the
contract would be renewed or not, the contract expired (on November 1, 1952). Their occupancy of the
premises thereafter, therefore, was only upon the acquiescence of the lessor and this produced, under
Article 1670 of the New Civil Code. merely an implied new lease, not, for the period of the original
contract.. but from month-to-month. The rent being paid monthly, was validly terminated when the
lessor notified the lessees to vacate the premises. (Mercy's Inc. v. Verde, 18 SCR.4 171 (1966).

d. Implied New Lease. - Where (a) after the expiration of the lease, (2) the lessee continues enjoying
the lease for fifteen (15) days thereafter, (3) with the acquiescence of the lessor, and (4) without
previous notice to vacate has been served upon him prior to the expiration of the lease, a new IMPLIED
LEASE is created for a period of time other than that of the original contract, but for the term
established by law. (Arts. 1670, 1682 & 1687, New Civil Code).

And, should the lessee go on enjoying the lease of the property after the expiration of the contract
over the lessor's objection, the lessee shall be subject to the responsibilities of a possessor in bad
faith. (Art. 1671, New Civil Code). Where, after notice to vacate, the lessor proposed an increase in
rental which the lessee rejected, latter is obliged to vacate because of the expiration of the lease.
From that date, lessee is deemed to be in illegal possession of the leased premises.

The renewal of a terminated lease of five (5) years would be on a month to month lease since the
rentals (under the original contract) were payable on a monthly basis.

The proof of alleged verbal assurance of a lease renewal cannot allowed both under the Parol Evidence
Rule, and the Statute of Frauds for failure of lessee to put in writing the alleged stipulation.

e. Extendible or renewable. - If the stipulation in the contract states thus: "said period of time being
extendible for another period of 20 years," it is clear that the intention is not to automatically extend
the lease contract. The assent of both parties is essential for another contract. Thus, the words
"extendible" or "renewable" in the contract of lease must be deemed to have been agreed upon for the
benefit of both the Lessor and Lessee. There is no presumption that the term of the lease is for the
benefit of the Lessee alone. The ruling in Koh v. Ongsiako, and Cruz v. Alberto are overruled.

The law (Art. 1687, N.C.C.) allows the extension of period even if defendants are in default in payment
of rentals. The rate increases under the Rent Control Law is computed and indicated in the decision.

7. Lease of private lands by foreign investors.

Republic Act No. 7652 declares the policy of the State to encourage foreign investments consistent
with constitutional mandate to conserve and develop national patrimony. Towards this end, the law
would allow any foreign investor "investing in the Philippines" to lease private lands (1) for a period not
exceeding fifty (50) years, renewable for a period not more than twenty-five (25) years.
The law defines the phrase "investing in the Philippines" to mean making an equity investment in the
Philippines through actual remittance of foreign exchange or transfer of assets, whether in the form of
capital goods, patents, formulas, or other technological rights or processes, upon registration with the
Securities and Exchange Commission.

a. Conditions -The law prescribes that: (1) the leased area shall be used "solely for the purpose of the
investment" upon mutual agreement of the parties; (2) the land leased shall comprise such area as
may reasonably be required for the purpose of the investment subject to the Comprehensive Agrarian
Reform and the Local Government Code; (3) the leasehold right may be sold, transferred, or assigned,
and should the buyer, transferee, or assignee be a foreigner or foreign-owned enterprise, "the
conditions and limitations as regards the use of the leased provided by law, shall continue to apply."

b. Limitations - (1) Foreign investors, corporations or associations or partnership not covered by

Republic Act 7652 shall be covered by Presidential Decree No. 471 (2) the renewal of the lease
agreement, at the option of the lessee, subject to the terms and conditions of the original contract,
shall be interpreted to mean as renewable upon agreement of the parties; (3) as an additional
condition for the renewal of the lease agreement after fifty (50) years, the foreign leasee must show
that "it has made social and economic contribution to the country;" and (4) the lease for tourism
projects shall be limited to projects with an investment of not less than Five Million (5M) U.S. dollars,
and that seventy (70%) per cent of which "shall be infused in said project within three years from the
of the lease contract.

c. Termination o/the lease contract. - (1) If the investment project is not initiated within three (3)
years from the signing of lease contract, the Secretary of Trade and Industry shall terminate the lease
contract; and (2) the withdrawal of the approved investment within the period of the lease agreement,
or use of the leased area for the purpose other than that authorized shall warrant the ipso facto
termination of the lease without prejudice to damage as the lessor may have suffered.

D. Rent Control Law.

Dwelling places where the rent was only P300 per month was the subject of rent control under
Presidential Decree No. 20 in 1972. It amended the provisions Act No. 6359 (1971) that expired on
June 14, 1972. Prior to the latter law was Act 6126 that was effective only for one (1) year from March
31, 1970 Presidential Decree No. 20 had no fixed period effectivity.

On April 10, 1979, Presidential Decree No. 25 was issued prescribing, as one of the grounds for judicial
ejectment, the need the owner or lessor to repossess the property for his own use, or his family. The
period of its effectivity was fixed for five (5) years from its approval, terminating in 1984. This law did
not prohibit the lessee from accepting roomers, bad spacers, or boarders in the leased premises. And,
the expiration of the period of lease contract was ground for judicial ejectment.

Batas Pambansa Blg. 877 was approved on June 6, 1985 covering all residential units then being
leased for P480 or less a month each unit as of June 12, 1985, and authorizing 10% increase from July
1985 to December 31, 1985, and a yearly increase of 20% for 1 and 1987. As grounds for judicial
ejectment, it prescribed: (a) the assignment of lease, or subleasing without the consent of the lessor,
including acceptance of boarders or bedspacers, without the written consent of the owner/lessor; (b)
arrears in payment of rent for three (3) months; (c) legitimate need of owner/lessor to reposses the
property for his own use, or for that of any immediate member of his family, provided they are not
owners of any available residential unit within the same city or municipality; (d) absolute ownership by
the lessee of another dwelling unit in the same city or municipality: (e) need of lessor to make
necessary repairs pursuant to an existing order of condemnation by appropriate authorities; and (f)
expiration of the leased period pursuant to the lease contract.

The sale or mortgage of the leased premises does not entitle the lessor or his successor in interest to
eject the lessee, regardless of whether the sale or mortgage is registered or not. And, except when the
lease is for a definite period, Article 1673 of the New Civil Code in so far as it refers to residential units
covered by the law, shall be suspended during the effectivity of Batas Pambansa Blg. 877.

This law remained in force until December 31, 1987.