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Block 2B/SBU-COL, Manila REAL MORTGAGE (Reference: De Leon & De Leon, 2016)

VII as security for an existing debt, and contains


REAL MORTGAGE nothing impossible contrary to law
✤ An equitable mortgage is no different from a
CHAPTER 3 REM and the lien created thereby ought not
MORTGAGE to be defeated by requiring compliance with
the formalities necessary to the validity of a
ART. 2124. Only the following property may voluntary REM
be the object of a contract of mortgage: ✤ the practice in contracts of pacto de retro is
(1) Immovables; to draw up another contract purporting to be
(2) Alienable real rights in accordance with a contract of lease of the property to the
the laws, imposed upon immovables. supposed vendor who pays in money or in
Nevertheless, movables may be the object of crops as rent. However, such rent is really
a chattel mortgage. (1874a) interest on the money loaned.

Concept of Real Estate Mortgage Characteristics


> it is a contract whereby the debtor secures to the > real, accessory, and subsidiary
creditor the fulfillment of a principal obligation, > it is also unilateral since it creates an obligation only
specially subjecting to such security immovable on the part of the creditor who must free the property
property or real rights over immovables which from the encumbrance once the obligation is fulfilled.
obligation shall be satisfied with the proceeds of the
sale of said property or rights in case the said Parties to the contract
obligation is not complied with at the time stipulated. > Mortgagor and mortgagee
> The mortgagor need not be the debtor but the
Essence of mortgage mortgagor should be the absolute owner of the thing
> its essence is that a property has been identified or mortgaged and must have free disposal of their
set apart from the mass of the property of the debtor- property or legally authorized to do so for such
mortgagor as security for the fulfillment of his purpose
obligation in case of default of payment.
Essential Requisites
Possession of the property mortgaged > aside from the 3 essential requisites of contracts,
> the mortgagor-debtor, as a general rule, retains Article 2085 requires that:
possession of the property mortgaged as the 1) the mortgage be constituted for the fulfillment of
payment of the sum borrowed from the mortgagee- a principal obligation
creditor since the mortgagee merely subjects the 2) the mortgagor must be the absolute owner of the
property to a lien but the ownership thereof is not thing mortgaged
parted with. 3) the mortgagor must have free disposal of the
> the debtor pays the creditor a certain percent property or in the absence thereof, should be
thereof as interest on his principal by way of legally authorized for such purpose
compensation for his sacrifice in depriving himself of
the use of said money and the enjoyment of said NOTA BENE: it is not an essential requisite that the
fruits, in order to give them to the mortgagor. property mortgaged remains in the possession of the
mortgagor. Hence, the mortgagor may deliver such
Kinds of mortgage property to the mortgagee without altering the
a) Voluntary - one which is agreed to between the mortgage contract.
parties or constituted by the will of the owner of > it is also not an essential requisite of the mortgage
the property on which it is created contract that the principal of the mortgage credit
b) Legal - one required by law to be executed in bears interest or that the interest as compensation for
favor of certain persons the use of the principal and enjoyment of its fruits be
c) Equitable - one which, although it lacks the proper in the form of a certain percent thereof (the interest
requisites, words, or other requisites of a may be in the form of fruits without the contract losing
mortgage required by law, nevertheless reveals its mortgage character, thereby subjecting the
the intention of the parties to burden real property mortgagee to the obligation of an antichresis
creditor).

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> However, if there was an express stipulation that mortgage or dispose of them. Any contrary stipulation
fruits be applied to the interest and thereafter to the is void.
principal, the contract is that of antichresis.
Rights and obligations of a mortgagee in
Cause or consideration possession
> since mortgage is an accessory contract, its > A mortgagee in possession - is one who has lawfully
consideration is the same as the principal contract acquired actual or constructive possession of the
from which it receives life. premises mortgaged to him, standing upon his rights
> being an accessory contract, its validity would as a mortgagee and not claiming under another title,
depend on the validity of the debt it secures, and its for the purpose of enforcing his security upon such
enforcement will depend on whether or not there has property or making its income help to pay its debt
been a violation of the principal obligation > his rights and obligations are similar to those of an
antichresis creditor which means that he is entitled to
Subject matter retain such possession until the indebtedness is
> REM: immovables and alienable real rights imposed satisfied and the property is redeemed.
upon immovables since the same is also considered > Generally, however, a mortgagee in possession of
as real property mortgaged property who introduces improvements
> a building itself may be mortgaged apart thereon is not entitled to reimbursement for the value
from the land on which it is built thereof upon the redemption of the mortgage,
> CM: movables pursuant to Art. 2125(2)

Future property Mortgage executed by an agent


> cannot be the object of a mortgage contract. > a mortgage executed by an authorized agent
> a stipulation contemplating the mortgage of any without stating the fact of agency binds only the agent
future property is only a contract to mortgage future and not the principal.
properties since the properties therein are not yet in
existence Article 2125. In addition to the requisites
> a supplement mortgage is needed to be executed stated in article 2085, it is indispensable, in order that
once the mortgagor acquires ownership of the a mortgage may be validly constituted, that the
properties when they come into existence which must document in which it appears be recorded in the
also be registered with the Register of Deeds Registry of Property. If the instrument is not recorded,
the mortgage is nevertheless binding between the
> as to subsequent improvements on properties parties.
already mortgaged, such mortgage is valid. The persons in whose favor the law
> Under Article 2127, the mortgage extends to the establishes a mortgage have no other right than to
improvements of the property mortgaged. Hence, as demand the execution and the recording of the
a practical matter, there is no need to execute document in which the mortgage is formalized.
mortgage supplements to cover improvements (1875a)
subsequently installed on property already
mortgaged. Additional requisite
> it is indispensable that the document is duly
Co-owned property recorded with the Registry of Property.
> in a contract of mortgage, as a rule, the mortgagor > Under Art. 1358, acts and contracts which have for
retains possession of the property since the debtor their object the creation of real rights over
merely subjects the property to a lien but the immovables must appear in a public document.
ownership thereof is not parted with > However, it is a settled rule that the failure to
> hence, one’s status as a mortgagee cannot be the observe the proper form prescribed does not render
basis of possession. the acts or contracts invalid since the same is only
essential for convenience. 

Lao v CA: being a mere mortgagee, private
respondent has no right to eject petitioner. As creditor > if the mortgage is embodied in a private document,
and mortgagee, private respondent cannot there is no valid mortgage. Hence, the creditor may
appropriate things given by way of pledge or recover the loan, although the mortgage document

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Block 2B/SBU-COL, Manila REAL MORTGAGE (Reference: De Leon & De Leon, 2016)

evidencing the loan was non-registrable and may mortgagee for value and the registered owner will
compel the debtor to execute a contract of mortgage generally not lose his title.
in a public instrument.
Mirror Doctrine
> If the mortgage is not registered, it is still binding > GENERAL RULE: where there is nothing on the
between the parties. Registration only operates as a certificate of title to indicate any cloud or vice in the
notice of the mortgage to others but neither adds to ownership of the property, or any encumbrance
its validity nor converts an invalid mortgage to a valid thereon, the purchaser is not required to explore
one between them. further than what the Torrents title upon its face
indicates.
> if the mortgage is registered under Act 3344, such is > EXCEPTIONS:
without prejudice to the better right of a third person. a) Where the mortgagee has knowledge of the defect
Hence, an unregistered pacto de retro sale over a or lack of title in the vendor or that he was aware of
house is superior to a recorded mortgage over the sufficient facts to induce a reasonably prudent man to
same house of a later date. inquire into the status of the property in question
b) Where the mortgagee is a bank or a financing
Doctrine of mortgagee in good faith (Innocent institution which is required to observe a higher
purchaser for value; IPFV) standard diligence, as its business is impressed with
> the mortgagee has a right in good faith to rely on public interest. The bank must first undertake a careful
the certificate of title in the absence of anything to examination of the title of the applicant to verify its
excite suspicion and is under no obligation to genuineness, to determine the owner thereof as well
investigate the title of the mortgagor appearing on as a physical investigation of the property itself. This
the face of the certificate. diligence extends to persons regularly engaged in the
> hence, the right or lien of an innocent mortgagee business of lending money secured by real estate
for value upon the mortgaged property must be mortgages.
respected and protected even if the mortgagor
obtained his title through fraud (remedy is an action Second paragraph: Right in case of legal
for damages) mortgages
> such is in conformity with the rule regarding the
Title in the name of the mortgagor, not of rightful form of contracts which gives to the contracting
owner parties the right to compel each other to observe the
> the doctrine, however, presupposes that the form required by law such as the execution of a
mortgagor, who is not the rightful owner of the document or any other special form as long as the
property, has already succeeded in obtaining a contract is valid and enforceable between them.1
Torrens Title over the property in his name, and that,
after obtaining said title, he succeeds in mortgaging Registration of mortgage
the property to another who relies on what appears > Registration - the ministerial act by which a deed,
on said title. contract, or instrument, is inscribed in the records of
> the IPFV (mortgagee) who is protected by law is one the Office of the Register of Deeds and annotated on
who purchases a titled land by virtue of a deed the back of the Transfer Certificate of Title, creating
executed by a registered owner constructive notice to the whole world binding to
> Hence, the doctrine does not apply to a situation third persons.
where the title is still in the name of the rightful owner
and the mortgagor is a different person pretending to Mortgagee entitled to registration as a matter of
be an owner since the mortgagee s not an innocent right

1 Article 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the

contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously
with the action upon the contract. (1279a)
Article 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property;
sales of real property or of an interest therein are governed by articles 1403, No. 2, and 1405;
xxx

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Block 2B/SBU-COL, Manila REAL MORTGAGE (Reference: De Leon & De Leon, 2016)

> once a mortgage is signed in due form, the Registration without prejudice to the right of third
mortgagee is entitled to its registration as a matter of parties
right. > A registered mortgage right over property
> the mortgagor is understood to have given his previously sold is inferior to the buyer’s unregistered
consent to its registration and a unilateral revocation right.
thereof is not permissible since the validity of a > The unrecorded sale is preferred for the reason that
contract cannot be left to the will of only one of the if the original owner had parted with his ownership of
contracting parties. the thing sold then he no longer had ownership and
free disposal of the thing so as to be able to
Proceedings for registration do not determine the mortgage it. There is an absence of the second
validity of the mortgage or its effect requisite for a valid mortgage under Art. 2085.
> registration is not a declaration by the state that > A registered mortgage, however, is superior to a
such an instrument is valid and subsisting interest in contract to sell, subject to the liabilities of the owner
land. The mere fact that a mortgage is registered does towards the buyer by mortgaging the property
not stop any party to it from setting up that it has no despite the commitment under the contract to sell.
force and effect. 

> It must follow as a necessary consequence that the Registrability of encumbrance acquired
registration must first be allowed and its validity or subsequent to the mortgage
effect be litigated afterwards. > Where a mortgage deed has been duly registered,
> a registered mortgage right over property said deed forms part of the records for the
previously sold is inferior to the buyer’s unregistered registration of the property mortgaged.
right since if the original owner/seller had parted with > Thus, in a proceeding for the annotation of an
his ownership of the thing sold, then he no longer had encumbrance over the same property subsequently
ownership and free disposal of the thing so as to be acquired, the mortgagee need not introduce the
able to mortgage it. 
 mortgage deed to prove its existence
> Registration is of no moment since it is understood > Where the mortgage deed contains a prohibition
to be without prejudice to the better right of third against encumbrance on the mortgaged land, without
parties. the mortgagee’s consent, rights over the same
> However, a registered mortgage is superior to a property, which came into existence after the deed’s
contract to sell, subject to any liabilities the execution, cannot be annotated as an adverse claim
mortgagor/vendor incurred in favor of the buyer by on the title of the land over the mortgagee’s
mortgaging the property despite his commitment opposition
under the contract to sell where title is retained until
full payment of the price. Subsequent registration of an adverse claim
> a prior registration of a lien creates a preference,
> where the mortgage deed has been duly registered, hence, the subsequent annotation of an adverse claim
the deed forms part of the records for the registration cannot defeat the rights of the mortgagee or the
of the mortgaged property. purchaser at the auction sale whose rights were
> where the mortgage deed contains a prohibition derived from a prior mortgage validly registered.
against encumbrance of mortgaged land, without the > a contrary rule will make a prior registration of a
mortgagee’s consent, rights over the same property, mortgage or any lien nugatory or meaningless.
which came into existence after the execution of the > the doctrine applies with greater force in a case
deed, cannot be annotated as an adverse claim on the where the annotation of the notice of lis pendens was
title of the land over the mortgagee’s opposition. made not only after the registration of the mortgage
but also and much later, after the conclusion of the
> the mortgage of the wife, after the death of her foreclosure sale.
husband, of her rights, interest, and participation in an
undivided 1/2 share of the conjugal/community Effect of invalidity of mortgage on principal
property is legal and valid, and should therefore, be obligation
registered and such registration will not affect the > the principal obligation remains valid.
rights of the creditors of her deceased husband or of > what is lost only is the right to foreclose the
his heirs since the same is limited to the 1/2 of his mortgage as a special remedy for satisfying or settling
estate which is not covered by the mortgage. the indebtedness which is the principal obligation.

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Block 2B/SBU-COL, Manila REAL MORTGAGE (Reference: De Leon & De Leon, 2016)

> the mortgage deed remains as an evidence of a > an action to compel the mortgagee to accept
personal obligation of the debtor and the amount payment and for the consequent cancellation of a
due to the creditor may be enforced in an ordinary REM is a personal action if the mortgagee has not
personal action. foreclosed the mortgagor is in possession of the
premises since neither the mortgagor’s title to nor
Article 2126. The mortgage directly and possession of the property in question.
immediately subjects the property upon which it is
imposed, whoever the possessor may be, to the Ownership rights of mortgagor
fulfillment of the obligation for whose security it was 1) Right to sell - the mortgagor may sell the property.
constituted. (1876) Under Art. 2130, a stipulation forbidding the
owner from alienating the mortgaged property is
Effect of mortgage void.
1) Creates a real right - a registered mortgage > what is divested from the mortgagor is only his full
creates a real right which is a lien inseparable from right as owner thereof to dispose and sell his
the mortgaged property and enforceable against property, the right to dispose is restricted, and not the
the whole world which disregards the personality entire jus disponendi
of the owner. 2) Right of possession - the mortgagee cannot claim
> until discharged, the mortgage follows the property to the possession of the property, hence, he
wherever it goes and subsists notwithstanding cannot eject an occupant of the mortgaged
changes of ownership. property.
> all subsequent purchasers of the property must > a mortgage does not give a mortgagee a right toto
respect the mortgage, whether the transfer to them the possession of the property unless the mortgage
be with or without the consent of the mortgagee, but should contain some provision to that effect, much
the mortgage should be registered or the buyer must less vest title upon the mortgagee unless he buys the
at least know of its existence. property at a public auction and the same is not
> if a person is the first mortgagee over a property redeemed within the required period.
which was sold in an auction sale by the second 3) Right to mortgage - a mortgagor is allowed to take
mortgagee, the only right left to him is to collect the a second or subsequent mortgage on a property
mortgage credit from the purchaser thereof during already mortgaged subject to the prior rights of
the sale conducted since a mortgage directly and the previous mortgagee.
immediately subjects the property on which it is > a subsequent mortgage is recognized as valid by
constituted whoever the possessor may be. law and by commercial practice, subject tot eh prior
> such step need not be taken where the rights of previous mortgages.
second mortgagee is also the first mortgagee > if the mortgagor-owner is allowed to convey the
of the same property given as security by the entirety of his interests in the mortgaged property,
same mortgagor for two separate loans and it reason dictates that the lesser right to encumber his
purchased the subject property with full property with other liens must also be recognized.
knowledge that it had a mortgage thereon. > to deprive the mortgagor of such right would
deprive him of a means to raise funds to timely
2) Creates merely an encumbrance - a mortgage is redeem his property through the constitution of
merely a security for a debt and does not affect nor another mortgage thereon.
extinguish the title or ownership of the mortgagor > it is basic that the first mortgagee has superior
who does not lose his principal attribute as owner (i.e., rights over junior mortgagees and attaching creditors.
the right to dispose)
> the only right of the mortgagee n case of non-
payment of a debt would be to foreclose the
mortgage and have the encumbered property sold to
satisfy the outstanding indebtedness.
> the mortgagor’s default does not vest in the
mortgagee the ownership of the encumbered
property for otherwise, the effect of which would be
tantamount to a pactum commissorium which is
prohibited by law.

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Article 2127. The mortgage extends to the > its obvious purpose is to maintain, to the extent
natural accessions, to the improvements, growing allowed by the circumstances, the original value of the
fruits, and the rents or income not yet received when properties given as security
the obligation becomes due, and to the amount of the > Retroactive; when a mortgage is made to include a
indemnity granted or owing to the proprietor from the new or future improvements on registered land, said
insurers of the property mortgaged, or in virtue of lien attaches on the date of the recording or
expropriation for public use, with the declarations, registration of the mortgage deed.
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 Mortgage with dragnet clauses to secure future
person. (1877) advancements
> as a general rule, an action to foreclose a mortgage
Extent of mortgage must be limited to the amount mentioned in the
> A REM is not limited to the property itself but mortgage, but the amounts named as consideration
extends to all its accessions, improvements, growing in a mortgage contract does not limit the amount for
fruits and rents or income as well as to the proceeds which the mortgaged may stand as security if it can be
of insurance should the property be destroyed, or the deduced that there is intent to secure future loans or
expropriation value of the property in the event of advancements in addition to those already obtained.
expropriation.
> This provision is predicated on the presumption that > a mortgage given to secure future advancements or
the ownership of accessions and accessories also loans enables the parties to provide continuous
belongs to the mortgagor/owner. dealings, and they avoid the expense and
> any evidence sufficiently overthrowing such inconvenience of executing a new security in each
presumption precludes the application of such transaction.
provision.
> a dragnet clause operates as a convenience and
The following are deemed included in a mortgage of accommodation to the borrowers since it makes
real property: available additional funds without their having to
1) new plantings; execute additional security documents.
2) fruits, except those collected before the obligation
falls due, and those removed and stored when it > construction; such are carefully scrutinized and
falls due strictly construed especially where the mortgage
3) accrued and unpaid rents as well as those which contract is a contract of adhesion
should have to be paid while the credit remains
wholly unsatisfied > a mortgage or pledge given to secure future
4) buildings, machinery, and accessories belonging advancements is a continuing security and is not
to the mortgage debtor installed on the property discharged by the repayment of the amount named in
5) improvement constructed by the mortgagor on the mortgage, until the full amount of all the loans or
the mortgaged parcel of land. advancements obtained are paid.
6) objects permanently attached to a mortgaged
land or building, although they have been placed Article 2128. The mortgage credit may be
thereafter at the execution of the mortgage alienated or assigned to a third person, in whole or in
**but if the mortgaged estate passes into the hands of part, with the formalities required by law. (1878)
a third person, the mortgage does not extend to any
machinery, object, chattel or construction which may Alienation or assignment or assignment of
have brought or placed there which such third person mortgage credit
may remove whenever it is convenient for him to do > the mortgage credit/right of mortgagee is a real
so. right and directly and immediately subjects the
mortgaged property to the fulfillment of the principal
Stipulation including subsequently acquired obligation
properties > such may be alienation/assigned to a third person,
> Such stipulation is valid. wholly or partly, by the mortgagee since he is the

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Block 2B/SBU-COL, Manila REAL MORTGAGE (Reference: De Leon & De Leon, 2016)

owner of such and the assignee may foreclose the Stipulation requiring mortgagee’s consent before
mortgage in case of nonpayment of the debt alienation of the property
> such alienation/assignment need not be registered > violative of Art 2130 since it achieves what it does
not outrightly prohibit.
Article 2129. The creditor may claim from a > for all intents and purposes, the stipulation
third person in possession of the mortgaged property, practically gives the mortgagee the sole prerogative
the payment of the part of the credit secured by the to prevent the mortgagor to sell the property
property which said third person possesses, in the > however, the mortgagor-owner’s sale of the
terms and with the formalities which the law property does not affect the right of the registered
establishes. (1879) mortgagee to foreclose on the same even if its
ownership had been transferred to another person
Right of creditor against transferee of mortgaged who is bound by the registered mortgage.
property
> the fact that the mortgagor has transferred the Stipulation granting the right of first refusal
mortgaged property to a third person does not > there is nothing wrong with such stipulation in the
relieve him from his obligation to pay the debt to the event the mortgagor decides to sell the mortgaged
mortgage creditor in the absence of novation, and property.
hence, the mortgage may still be foreclosed despite > the right of first refusal has long been recognized as
the transfer. valid.
> the mortgage credit being a real right which follows > the consideration for the loan-mortgage may be
the property, the creditor may demand only the part said to include the consideration for the right of first
of the credit secured by said property. refusal. Hence, while the mortgagor has every right to
> however, it is necessary that prior demand for sell the mortgaged property without securing the
payment must have been made on the debtor and the consent of the mortgagee, he has the obligation
latter failed to pay. under a right of first refusal to notify the mortgagee of
his intention to sell the property and give him priority
Example: over the buyers.
> A mortgaged his land worth P500k to B as security > A sale made in violation of the mortgagee’s
for the former’s debt of P600k. A then sold the land to contractual right of first refusal is rescissible since the
C. buyer is presumed to have been notified thereof by
> The obligation of A in this case to pay is not affected the registration of the mortgage deed containing
by such transfer. B, when the due date arrives, may such stipulation, which equates to notice of the whole
demand payment from A and if A fails to pay, B may world.
foreclose the mortgage. B can claim from C the
payment of P500k since the same is part of the credit Article 2131. The form, extent and
secured by the property sold to C. consequences of a mortgage, both as to its
> C is not liable for any deficiency in the absence of a constitution, modification and extinguishment, and as
contrary stipulation. The remedy of C is to proceed to other matters not included in this Chapter, shall be
against A. governed by the provisions of the Mortgage Law and
of the Land Registration Law. (1880a)
Article 2130. A stipulation forbidding the
owner from alienating the immovable mortgaged Laws governing mortgage
shall be void. (n) > as to other matters not included in this Chapter of
the Code, PD 1529 and Administrative Code govern
> such a prohibition would be contrary to public good the form, extent, and consequences of a mortgage, as
inasmuch as the transmission of property should not w e l l a s i t s c o n s t i t u t i o n , m o d i fi c a t i o n a n d
be unduly impeded. extinguishment
> however, if the mortgagor alienates the property,
the transferee is bound to respect the encumbrance > PD 892 discontinued the Spanish mortgage system
because being a real right, the property remains of registration, as reiterated by PD 1529
subject to the fulfillment of the obligation for whose
guaranty it was constituted.

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