Articles 2124 to 2131

Art. 2124. Only the following property may

be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance
with the laws, imposed upon
immovables.

Nevertheless, movables may be the

object of a chattel mortgage.
REAL MORTGAGE
It is a contract in which the debtor
guarantees to the creditor the
fulfillment of a principal obligation,
specially subjecting to such security,
immovable property or real rights over
the immovable property in case the
principal obligation is not paid or
complied with at the time stipulated.
(Manresa)
MORTGAGE is derived from two
French words “MORT” meaning
‘DEAD” and “GAGE” meaning
“PLEDGE”.

Literally, a mortgage is a dead or

unproductive pledge.
 CHARACTERISTICS OF REAL
MORTGAGE
1. It is a real right – A recorded real estate
mortgage is a right in rem, a lien inseparable
from the property mortgaged.

What if, it is not recorded, is it not a real right?

 ESSENTIAL REQUISITES
1. To secure the fulfillment of a principal obligation
2. The mortgagor should be the absolute owner of
thing mortgaged
3. The mortgagor should have free disposal of the thing
4. When the principal obligation becomes due, the
thing mortgaged may be alienated to secure payment
5. For a mortgage to be validly constituted and to
prejudice
third persons, the mortgage should be recorded with
the Registry of Property, now the Register of Deeds.
(Article 2125)
REAL RIGHT VS. PERSONAL RIGHT
A personal right is the power of one person
to demand of another, as a definite passive
subject, the fulfillment of a prestation to
give, to do, or not to do. On the other hand,
a real right is the power belonging to a
person over a specific thing, without a
passive subject individually determined,
against whom such right may be personally
exercised.
 Art. 2125. In addition to the requisites
stated in Article 2085, it is indispensable, in
order that a mortgage may be validly
constituted, that the document in which it
appears be recorded in the Registry of
Property. If the instrument is not recorded,
the mortgage is nevertheless binding
between the parties.
The persons in whose favor the law
establishes a mortgage have no other right
than to demand the execution and the
recording of the document in which the
mortgage is formalized.
2. It is an accessory contract.
3. It is a real property by analogy (Article 415,
par. 10)
4. It is indivisible - Art. 2089. A pledge or
mortgage is indivisible, even though the debt
may be divided among the successors in
interest of the debtor or of the creditor.
5. Inseparable – adheres to the property
regardless of who its owner may subsequently
be. (Article 2126)
6. It is a subsidiary contract.
7. It is comprehensive – It can secure all kinds of
obligations which are not void. (Article 2091)
Can you mortgage a future
property?
Future property cannot be the object of
a contract of mortgage.
A stipulation however subjecting the
mortgage lien, properties which the
mortgagor may subsequently acquire,
install, or use in connection with
real property already mortgaged
belonging to the mortgagor is valid
Can mortgage be given to secure
future advancements?
As a general rule, a mortgage liability is usually
limited to the amount mentioned in the contract.
However, the amounts named as consideration in a
contract of mortgage do not limit the amount for which
the mortgage may stand as security if from the four corners
of the instrument the intent to secure future and other
indebtedness can be gathered.
Alternatively, while a real estate mortgage may
exceptionally secure future loans or advancements, these
future debts must be specifically described in the mortgage
contract. An obligation is not secured by a mortgage unless
it comes fairly within the terms of the mortgage contract.
KINDS OF MORTGAGE
➢VOLUNTARY OR CONVENTIONAL
➢LEGAL MORTGAGE – one required by
law to guarantee performance
➢EQUITABLE MORTGAGE – one which
reveals an intent to make the property a
security, even if the contract lacks the
formalities of a real estate mortgage.
BLANKET MORTGAGE CLAUSE
OR DRAGNET CLAUSE
The stipulation extending the
coverage of a mortgage to
advances or loans other than
those already obtained or
specified in the contract.
A “blanket mortgage clause,” also known as a
“dragnet clause” in American jurisprudence, is one
which is specifically phrased to subsume all debts
of past or future origins. Such clauses are “carefully
scrutinized and strictly construed.” Mortgages of
this character enable the parties to provide
continuous dealings, the nature or extent of which
may not be known or anticipated at the time, and
they avoid the expense and inconvenience of
executing a new security on each new transaction.
A “dragnet clause” operates as a convenience and
accommodation to the borrowers as it makes
available additional funds without their having
to execute additional security documents, thereby
saving time, travel, loan closing costs, costs of extra
legal services, recording fees, et cetera.
Waiver of Mortgage
The rule is now settled that a mortgage creditor
may elect to waive his security and bring, instead,
an ordinary action to recover the indebtedness
with the right to execute a judgment thereon on
all the properties of the debtor, including the
subject matter of the mortgage, subject to the
qualification that if he fails in the remedy by him
elected, he cannot pursue further the remedy he
has waived. (Manila Trading and Supply Co. vs. Co
Kim, et al., 71 Phil. 448)
 PACTO A RETRO SALE
The essence of a pacto de retro sale is that title
and ownership of the property sold is immediately
vested in the vendee a retro, subject to the
restrictive condition of repurchase by the vendor a
retro within the period provided in Article 1606 of
the New Civil Code, to wit:

The failure of the vendee a retro to repurchase

the property vests upon the latter by operation of
law the absolute title and ownership over the
property sold. (Cruz vs. Leis, G.R. No. 125233, March
9, 2000; 327 SCRA 570).
Case 1
Paterno sold a retro his house and lot to
Kevin for a very low price with the
stipulation that if not redeemed within 6
months, the ownership of the house and lot
would automatically pass to the buyer.
During the stipulated period, Paterno
mortgaged his house and lot to Nigel who
immediately registered the mortgage.
Who between Kevin and Nigel has a
better right over the house and lot?
 Nigel has a better right over Kevin.

The transaction between Paterno and Kevin is

actually an equitable mortgage because of the
grossly inadequate price and the pactum
commissorium. Between the two mortgages, the
mortgage with Nigel should prevail because it was
recorded while the equitable mortgage was not.
The law provides that a registered mortgage
is a real right which is inseparable from the
property mortgage until the discharge of the loan.
In this case, as long as the loan of Paterno is
not yet extinguished, the mortgage with Nigel will
subsist.
Case 2
Virgilio mortgaged his property to Edsel.
Virgilio executed a Real Estate Mortgage but Edsel
failed to register the same with the Register of
Deeds. When Virgilio failed to pay his loan, Edsel
foreclosed the property. Virgilio opposed because
the REM was not validly constituted because it was
not registered.

Is Virgilio correct?
 Virgilio is not correct.

The mortgage between Virgilio and Edsel is

binding notwithstanding its non-registration with the
Register of Deeds.

Although the law requires registration as

indispensable to make the Real Estate Mortgage validly
constituted, the mortgage is nevertheless binding
between the parties. Registration is only material so as
to enforce the mortgage against third persons and does
not affect validity of the mortgage.

In this case, since there is no innocent third party

involved, Edsel has the right to foreclose the property.
Art. 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits,
and the rents or income not yet received when the
obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from
the insurers of the property mortgaged, or in virtue
of expropriation for public use, with the
declarations, amplifications and limitations
established by law, whether the estate remains in
the possession of the mortgagor, or it passes into
the hands of a third person.
Why?
The law is predicated on the assumption
that the ownership of such accessions,
accessories and improvements
subsequently introduced into the
property also belongs to the mortgagor
being the owner of the principal. (Castro ,
Jr. vs. CA, 250 SCRA 661)
Illustrative cases:
• All objects permanently attached to a mortgaged land
or building, although they may have been placed there
after the execution of the mortgage are also included
in the mortgage. (Bischoff vs. Pomar, 12 Phil. 690)
• The stipulation that the buildings, machineries,
fixtures, tools, etc acquired by the mortgagor after the
mortgage was executed would be subject to the
mortgage lien was declared valid. (PBTC vs. Dahican
Lumber Co., 20 SCRA 84
 The mortgage extends to the rents or income not
yet received when the obligation falls due
(Republic vs. De Los Angeles, 98 SCRA 103)
 Where in a mortgage of land and building, the
debtor erected a new building more costly that the
old one, and there was no stipulation that the new
building would be excluded from the mortgage,
the mortgage included the new building. (Phil.
Sugar Estates Development Co. vs. Camps, 36 Phil.
85)
 Growing fruits naturally exclude those
already harvested before the obligation falls
due. (Afable vs. Belando, 55 Phil. 64)

 NOTE: TO EXCLUDE DIFFERENT THINGS

DEEMED INCLUDED IN THE MORTGAGE,
THERE MUST BE AN EXPRESS STIPULATION
EXCEPTING OR EXLCUDING THEM FROM
THE COVERAGE OF THE MORTGAGE
CONTRACT.
 Art. 2128. The mortgage credit may be
alienated or assigned to a third person, in
whole or in part, with the formalities
required by law.
 Art. 2129. The creditor may claim from a
third person in possession of the mortgaged
property, the payment of the part of the
credit secured by the property which said
third person possesses, in the terms and
with the formalities which the law
establishes.
Art. 2130. A stipulation
forbidding the owner
from alienating the
immovable mortgaged
shall be void.
 FORCED SALE
➢Extrajudicial Foreclosure Sale
(Act No. 3135)
➢Judicial Foreclosure Sale (Rule
68 of the Rules of Court)
➢Execution Sale (Rule 39 of the
Rules of Court)
 FORECLOSURE OF REAL
MORTGAGE
Foreclosure is the remedy made available
by law to the mortgagee by which he
subjects the mortgaged property to the
satisfaction of the obligation for which the
mortgage was given.

The procedure adopted by the mortgagee

to terminate the rights of the mortgagor on
the property and includes the sale itself.
 KINDS OF FORECLOSURE
Judicial
Extrajudicial
The general rule that mere inadequacy
of price is not sufficient to set aside a
foreclosure sale is based on the theory
that the lesser the price the easier it will
be for the owner to effect the
redemption. (Sulit vs. CA, 268 SCRA
441)
 JUDICIAL FORECLOSURE
A proceeding for judicial foreclosure of
mortgage is an action quasi in rem. It is
based on a personal claim against a specific
property of the defendant. Its purpose is to
have the property seized and sold by court
order to the end that the proceeds thereof
be applied to the payment of plaintiff’s
claim. (Ocampo vs. Domalanta, 20 SCRA
1136)
Can you recover deficiency in
judicial foreclosure?

Yes. Section 6,
Rule 68.
How initiated?
By filing a complaint
Section 1. Complaint in action for foreclosure. — In an action
for the foreclosure of a mortgage or other encumbrance upon
real estate, the complaint shall set forth the date and due
execution of the mortgage; its assignments, if any; the names
and residences of the mortgagor and the mortgagee; a
description of the mortgaged property; a statement of the
date of the note or other documentary evidence of the
obligation secured by the mortgage, the amount claimed to
be unpaid thereon; and the names and residences of all
persons having or claiming an interest in the property
subordinate in right to that of the holder of the mortgage, all
of whom shall be made defendants in the action.
Where do you file the complaint?
Sec. 1, Rule 4 of the Rules of Court
Actions affecting title to or possession
of real property, or interest therein, shall
be commenced and tried in the proper
court which has jurisdiction over the area
wherein the real property involved, or a
portion thereof is situated.
Payment or Sale
Section 2. Judgment on foreclosure for payment or sale.
— If upon the trial in such action the court shall find
the facts set forth in the complaint to be true, it shall
ascertain the amount due to the plaintiff upon the
mortgage debt or obligation, including interest and
other charges as approved by the court, and costs, and
shall render judgment for the sum so found due and
order that the same be paid to the court or to the
judgment obligee within a period of not less than ninety
(90) days nor more than one hundred twenty (120) days
from the entry of judgment, and that in default of such
payment the property shall be sold at public auction to
satisfy the judgment.
When is Judicial Foreclosure
considered complete?
It is the settled rule that a foreclosure sale is
not complete until it is confirmed, and
before said confirmation, the court retains
control of the proceedings by exercising a
sound discretion in regard to it, either
granting or withholding confirmation as the
rights and interests of the parties and the
ends of justice may require. (Salazar vs. Torres,
108 Phil. 209, 214-5).
When is the sale confirmed?
 Section 3. Sale of mortgaged property; effect. — When the
defendant, after being directed to do so as provided in the
next preceding section, fails to pay the amount of the
judgment within the period specified therein, the court,
upon motion, shall order the property to be sold in the
manner and under the provisions of Rule 39 and other
regulations governing sales of real estate under execution.
Such sale shall not affect the rights of persons holding prior
encumbrances upon the property or a part thereof, and
when confirmed by an order of the court, also upon
motion, it shall operate to divest the rights in the property
of all the parties to the action and to vest their rights in the
purchaser, subject to such rights of redemption as may be
allowed by law.
What is the effect of confirmation
of sale?
 After the confirmation of the sale, made after hearing
and with due notice to the mortgagor, the latter cannot
redeem anymore the mortgaged lot (unless the
mortgagee is a banking institution) (Piano vs.
Cayanong 117 Phil. 415).
 It is after the confirmation of the sale that the
mortgagor loses all interest in the mortgaged property
(Clemente vs. H. E. Heacock Co., 106 Phil. 1163;
Clemente vs. Court of Appeals, 109 Phil. 798; Clemente
vs. H.E. Heacock Co., L-23212, May 18, 1967, 20 SCRA
115).
EXTRAJUDICIAL FORECLOSURE
May only be effected if in the mortgage
contract covering a real estate, a clause is
incorporated therein giving the
mortgagee, the power, upon default of
the debtor, to foreclose the mortgage by
an extrajudicial sale of the mortgaged
property. (Section 1 of Act 3135)
How initiated?
By filing a PETITION
TO THE OFFICE OF
THE SHERIFF
When completed?
Upon issuance of the
certificate of sale by the
Sheriff.
TIPO/FIXING UPSET PRICE
A stipulation in a mortgage property fixing a
“tipo” or upset price – minimum price at which
the property shall be sold, to become operative
in the event of the foreclosure sale at public
auction, is null and void for the property must
be sold to the highest bidder. Parties cannot, by
agreement, contravene the law and interfere
with the lawful procedure of the courts. (Banco
Espanol Filipino vs. Donaldson, Sim & Co., 5
Phil. 418)
SURPLUS/EXCESS IN THE PRICE
It belongs to the
MORTGAGOR or his
ASSIGNS
 REDEMPTION
 A transaction by which the mortgagor reacquires or
buys back the property which may have passed under
the mortgage or divest the property of the lien which
the mortgage may have created.
 The right of the debtor, and sometimes of a debtor’s
creditors, to repurchase from a buyer at a forced sale
property of the debtor that was seized and sold on
satisfaction of a judgment or other claim against the
debtor, which right is usually limited to forced sale of
real proeprty.
Right of Redemption is the right which is specifically
granted by law to the mortgagor. Equity of
Redemption, however, is merely being recognized by
law as there is no law covering the same.
Equity of Redemption is the right of the defendant
mortgagor to extinguish and retain ownership of the
property by paying the amount fixed in the decision of
the court within ninety (90) days to one hundred
twenty (120) days after entry of judgment or even after
the sale but prior to its confirmation. Right of
Redemption, on the other hand, is the right granted to
the debtor-mortgagor, his successor in interest or any
judicial creditor of said debtor-mortgagor or any
person having a lien in the property subsequent to its
mortgagor deed of trust under which the property is
sold to redeem the property within one (1) year from
registration of the sheriff’s certificate of sale.
 After the execution of a real estate mortgage, the
mortgagor has an equity of redemption exercisable within
the period stipulated in the mortgage deed. In case of
judicial foreclosure, that equity of redemption subsists
after the sale and before it is confirmed by the court
(Raymundo vs. Sunico, 25 Phil. 365; Benedicto vs. Yulo, 26
Phil. 160; Grimalt vs. Velasquez and Sy Quio 36 Phil. 936;
Sun Life Assurance Co. vs. Gonzales Diez, 52 Phil. 271; La
Urbana vs. Belando 54 Phil. 930; Villar vs. Javier de
Paderanga 97 Phil. 604; Piano vs. Cayanong 117 Phil. 415).
 However, in case of a judicial foreclosure of a mortgage in
favor of a banking institution, section 78 of the General
Banking Law grants the mortgagor a right of redemption
which may be exercised within one year from the sale.