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I. What is Mortgage?

It is a contract whereby the debtor secures to the creditor the fulfillment

of a principal obligation, specially subjecting to such security
immovable property or real rights over immovable property which
obligation shall be satisfied with the proceeds of the sale of said
property or rights in case the said obligation is not complied with at the
time stipulated.

II. What are the kinds of mortgage?

a. Voluntary- one which is agreed to between the parties or constituted
by the will of the owner of the property on which it is created.
b. Legal- one required by law to be executed in favor of certain
c. Equitable- one which lacks the proper formalities, words, or other
requisites of a mortgage required by law, nevertheless reveals the
intention of the parties to burden real property as a security for an
existing debt, and contains nothing impossible or contrary to law

III. What is the Doctrine of mortgagee in good faith?

Reliance in good faith on certificate of title of mortgagor. – A mortgagee
has a right to rely in good faith on the certificate of title of the mortgagor
of the property given as security and in the absence of any sign that
might arouse suspicion, has no obligation to undertake further

IV. Who are the parties in a contract of mortgage?

a. Mortgagor- need not to be the debtor, however, he must be the
absolute owner of the thing and must also have free disposal of
the property and in the absence thereof, he must bel legally
authorized for the purpose.
b. Mortgagee- Lender

VI. What is the effect of the invalidity of mortgage on the principal

It does not render the principal obligation void. The obligation matures
and becomes demandable in accordance with the stipulation to it.

What is lost is the right to foreclose the mortgage as a special remedy

for satisfying or settling the indebtedness which is the principal

VII. Distinguish judicial foreclosure from extra judicial

X obtained a loan for Php50Million from SSS Bank. The collateral is his
vacation house in Baguio City under a real estate mortgage. X needed
more funds for his business so he again borrowed another Php10Million,
this time from BBB Bank, another bank, using the same collateral. The loan
secured from SSS Bank fell due and X defaulted.
(A) If SSS Bank forecloses the real estate mortgage, what rights, if any, are
left with BBB Bank as mortgagee also?
SUGGESTED ANSWER: BBB Bank, as junior mortgagee, would have a
right to redeem the foreclosed property, together with X, his successors in
interest, any judicial or judgement creditor of X, or any other person or
entity having a lien on the vacation house subsequent to the real estate
mortgage in favour of SSS Bank (i.e., other junior mortgagees, if any) (Sec.
6, Act 3135)
(B) If the value of the Baguio property is less than the amount of loan, what
would be the recourse of SSS Bank? BBB Bank?
SUGGESTED ANSWER: In case of a deficiency, SSS bank could file suit
to claim for the deficiency. BBB Bank could file an ordinary action to collect
its loan from X. if it does so, it would be deemed to have waived its
mortgage lien. If the judgement in the action to collect is favorable to BBB
Bank, and it becomes final and executory , BBB Bank could enforce the
said judgement by execution. It could even levy execution on the same
mortgaged property, but it would not have priority over the latter. (Caltex
Philippines v. IAC, et al., G.R. No. 74730, August 25, 1989)
(C) If the value of the property is more that the amount of the loan, who will
benefit from the excess value of the property?
SUGGESTED ANSWER: If the value of the property is more that the
amount of the loan, the excess could benefit and be claimed by BBB Bank,
any judicial or judgement creditor of X, any other junior mortgagee, and X.
(D) If X defaulted with its loan in favor of BBB Bank but fully paid his loan
with SSS Bank, can BBB Bank foreclose the real mortgage executed in its
SUGGESTED ANSWER: If X defaulted in respect of his loan from BBB
Bank but fully paid his loan from SSS Bank, BBB Bank could now foreclose
the mortgaged property as it would be the only remaining mortgagee of the
(E) Does X have any legal remedy after the foreclosure in the event that
later on he has the money to pay for the loan?
SUGGESTED ANSWER: Yes, X could redeem the property within one (1)
year from the date of registration of the sheriff’s certificate of foreclosure
(F) If SSS Bank and BBB Bank abandon their rights under the real estate
mortgage, is there any legal recourse available to them?
SUGGESTED ANSWER: SSS Bank and BBB Bank could each file an
ordinary action to collect its loan from X.

Primetime Corporation (the Borrower) obtained a P10 Million, five-year
term loan from Universal Bank (the Bank) in 1996. As security for the loan
and as required by the Bank, the Borrower gave the following collateral
security in favor of the Bank: 1) a real estate mortgage over the land and
building owned by the Borrower and located in Quezon City; 2) the joint
and several promissory note of Pr. Primo Timbol, the President of the
Borrower; and 3) a real estate mortgage over the residential house and lot
owned by Mr. Timbol, also located in Quezon City.Because of business
reverses, neither the Borrower nor Mr. Timbol was able to pay the loan. In
June 2001, the Bank extrajudicially foreclosed the two real estate
mortgages, with the Bank as the only bidder in the foreclosure sale. On
September 16, 2001, the certificates of sale of the two properties in favor of
the Bank were registered with the Register of Deeds of Quezon City. Ten
months later, both the Borrower and Mr. Timbol were able to raise sufficient
funds to redeem their respective properties from the Bank, but the Bank
refused to permit redemption on the ground that the period for redemption
had already expired, so that the Bank now has absolute ownership of both
properties. The Borrower and Mr. Timbol came to you today, September
15, 2002, to find out if the position of the Bank is correct. What would be
your answer? State your reasons.
SUGGESTED ANSWER: 1 With respect to the real estate mortgage over
the land and building owned by the Borrower, Primetime Corporation, a
juridical body, the period of redemption is only three (3) months, which
period already expired. 2 As to the real estate mortgage over the residential
house and lot owned by Mr. Timbol, the period of redemption is one (1)
year from the date of registration of the certificate of sale, which period has
not yet expired in this case.

A contract in antichresis is always:
A. A written contract;
B. A contract, with a stipulation that the debt will be paid through receipt of
the fruits of an immovable;
C. Involves the payment of interests, if owing;
D. All of the above
E. Numbers 1 and 2
What are the characteristics of antichresis contract?
XI. Compare antichresis and mortgage.
XII. Compare antichresis and pledge.
XIII.What are the obligations of the antichretic debtor?
XIV.What are the remedies of the antichretic creditor in case of non-
payment of the debt?
XV. Olivia owns a vast mango plantation which she can no longer
properly manage due to a lingering illness. Since she is indebted to
Peter in the amount of P500.000.00 she asks Peter to manage the
plantation and apply the harvest to the payment of her obligation to
him, principal and interest, until her indebtedness shall have been fully
paid. Peter agrees.
1) What kind of contract is entered into between Olivia and Peter? Explain.
2) What specific obligations are imposed by law on Peter as a consequence
of their contract?
3) Does the law require any specific form for the validity of their contract?
4) May Olivia re-acquire the plantation before her entire indebtedness shall
have been fully paid? Explain.

Armando, a resident of Manila, borrowed P3-million from Bernardo,
offering as security his 500 shares of stock worth P1.5-million in Xerxes
Corporation, and his 2007BMW sedan, valued at P2-million. The mortgage
on the shares of stock was registered in the Office of the Register of Deeds
of Makati City where Xerxes Corporation has its principal office. The
mortgage on the car was registered in the Office of the Register of Deeds of
Manila. Armando executed a single Affidavit of Good Faith, covering both
mortgages. Armando defaulted on the payment of his obligation; thus,
Bernardo foreclosed on the two chattel mortgages. Armando filed suit to
nullify the foreclosure and the mortgages, raising the following issues:
(A) The execution of only one Affidavit of Good Faith for both mortgages
invalidated the two mortgages;
(B) The mortgage on the shares of stocks should have been registered in
the office of the Register of Deeds of Manila where he resides, as well
as in the stock and transfer book of Xerxes Corporation. Rule on the
foregoing issues with reasons.
(C) Assume that Bernardo extrajudicially foreclosed on the mortgages, and
both the car and the shares of stocks were sold at public auction. If the
proceeds from such public sale should be 1-million short of Armando’s
total obligation, can Bernardo recover the deficiency? Why or why not?

On January 1, 2008, Al obtained a loan of P10,000 from Bob to be paid
on January 30, 2008, secured by a chattel mortgage on a Toyota motor car.
OnFebruary 1, 2008, Al obtained another loan of P10,000 from Bob to be
paid on February 15, 2008. He secured this by executing a chattel mortgage
on a Honda motorcycle. On the due date of the first loan Al failed to pay. Bob
foreclosed the chattel mortgage but the car was bidded for P6,000 only. Al
also failed to pay the second loan due on February 15, 2008. Bob filed an
action for collection of sum of money. Al filed a motion to dismiss claiming
that Bob should first foreclose the mortgage on The Honda motorcycle before
he can file the action for sum of money. Decide with reasons.

How long can the equity of redemption be exercised in the foreclosure
of chattel mortgage?

Is there a recovery of deficiency in the foreclosure of chattel mortgage?

X and Y entered into a contract of chattel mortgage. In the deed of
mortgage, the mortgaged property was described as: "1. A store No. 79 on
Magallanes Street, municipality of Cebu, formerly belonging to T. Thakurdas,
with all the merchandise, effects, wares, and other bazar goods contained
on the said store. 2. A store No. 19 on Real Street, Iloilo, Panay, P. I.,
formerly belonging to Guillermo Asayas, with all the merchandise, effects,
wares and other bazar goods contained in the said store." The document
contains no oath.
(A) Was the contract of chattel mortgage entered into by X and Y valid?
Why or why not?
(B) What is required as proper description of mortgaged property under
the Chattel Mortgage Law?

Is a stipulation in the mortgage extending its scope and effect to after-
acquired property valid?

Distinctions between a Chattel Mortgage and a Pledge.

A, about to leave the country on a foreign assignment, entrusted to B
his brand new car and its certificate of registration. Falsifying A's signature.
B sold A's car to C for P200,000.00. C then registered the car in his name.
To complete the needed amount, C borrowed P100.000.00 from the savings
and loan association in his office, constituting a chattel mortgage on the car.
For failure of C to pay the amount owed, the savings and loan association
filed in the RTC a complaint for collection with application for issuance of a
writ of replevin to obtain possession of the vehicle so that the chattel
mortgage could be foreclosed. The RTC issued the writ of replevin. The car
was then seized from C and sold by the sheriff at public auction at which the
savings and loan association was the lone bidder. Accordingly, the car was
sold to it. A few days later, A arrived from his foreign assignment. Learning
of what happened to his car, A sought to recover possession and ownership
of it from the savings and loan association. Can A recover his car from the
savings and loan association? Explain your answer.

Lawrence, a retired air force captain, decided to go into the air transport
business. He purchased an aircraft in cash except for an outstanding balance
of P500,000.00. He incurred an indebtedness of P300,000.00 for repairs with
an aircraft repair company. He also borrowed P1 Million from a bank for
additional capital and constituted a chattel mortgage on the aircraft to secure
the loan. While on a test flight the aircraft crashed causing physical injuries
to a third party who was awarded damages of P200,000.00. Lawrence's
insurance claim for damage to the aircraft was denied thus leaving him
nothing else but the aircraft which insolvent. Assuming that the aircraft was
sold for Pl Million, give the order of preference of the creditors of Lawrence
and distribute the amount of P1 Million.
Vini constructed a building on a parcel of land he leased from Andrea.
He chattel mortgaged the land to Felicia. When he could not pay Felicia,
Felicia initiated foreclosure proceedings. Vini claimed that the building he
had constructed on the leased land cannot be validly foreclosed because the
building was, by law, an immovable. Is Vini correct?

XXVI. Define Concurrence of Credits

This implies the possession by two or more creditors of equal rights
or privileges over the same property or all of the property of the

XXVII. Define Preference of Credits

This is the right held by the creditor to be preferred in the payment of
his claim above the others out of the debtor’s assets. It is a right to be
paid first

XXVIII. When does the rule of preference apply?

a) There are two or more creditors;
b) With separate and distinct claims;
c) Against the same debtor; and
d) Who has insufficient property.

XXIX Preference of Credit versus Lien

Preference of credit applies only to claims which do not attach to
specific properties.
Lien, on the other hand, creates a charge on a particular property.

Lien shall refer to the statutory or contractual claim or judicial charge

on real or personal property for payment of the claim or debt secured
by such lien.

XXX. What are the properties exempted from debtor’s liability in

the fulfillment of his obligations?
General Rule:
Debtor is liable with all his property, present and future, for the
fulfillment of his obligations.

Exempted properties are the following:

1. Present property
2. Future property
3. Property under legal custody and those owned by municipal
corporations necessary for governmental purposes

XXXI. Explain the two-tier order of preference of credit

a. The first-tier includes only taxes, duties and fees due on a specific
movable of immovable property.
b. Second-tier- All other special preferred (non-tax) credits. These
credits are to be satisfied pari passu (equally) and pro rata, out of any
residual value of the specific property to which such other credits relate.

XXXII. Enumerate the classifications of credits and briefly explain

a. Specified preferred credits
i. Considered as mortgages or pledges or real or
personal property or liens within the purview of legal
provisions governing insolvency.
ii. Taxes due to the State shall first be satisfied
b. Ordinary preferred credits – preferred in the order given by
c. Common credits- Credits of any other kind or class, or by
any other right or title not comprised under Art. 2241-2244
shall enjoy no preference.