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Block 2B/SBU-COL, Manila
VII
REAL MORTGAGE
CHAPTER 3
MORTGAGE
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. (1874a)
Concept of Real Estate 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 immovables 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.
Essence of mortgage
> its essence is that a property has been identified or
set apart from the mass of the property of the debtor-
mortgagor as security for the fulfillment of his
obligation in case of default of payment.
Possession of the property mortgaged
> the mortgagor-debtor, as a general rule, retains
possession of the property mortgaged as the
payment of the sum borrowed from the mortgagee-
creditor since the mortgagee merely subjects the
property to a lien but the ownership thereof is not
parted with.
> the debtor pays the creditor a certain percent
thereof as interest on his principal by way of
compensation for his sacrifice in depriving himself of
the use of said money and the enjoyment of said
fruits, in order to give them to the mortgagor.
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 persons
c) Equitable - one which, although it lacks the proper
requisites, words, or other requisites of a
mortgage required by law, nevertheless reveals
the intention of the parties to burden real property
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CREDIT TRANSACTIONS
REAL MORTGAGE (Reference: De Leon & De Leon, 2016)
as security for an existing debt, and contains
nothing impossible contrary to law
✤ An equitable mortgage is no different from a
REM and the lien created thereby ought not
to be defeated by requiring compliance with
the formalities necessary to the validity of a
voluntary REM
✤ the practice in contracts of pacto de retro is
to draw up another contract purporting to be
a contract of lease of the property to the
supposed vendor who pays in money or in
crops as rent. However, such rent is really
interest on the money loaned.
Characteristics
> real, accessory, and subsidiary
> it is also unilateral since it creates an obligation only
on the part of the creditor who must free the property
from the encumbrance once the obligation is fulfilled.
Parties to the contract
> Mortgagor and mortgagee
> The mortgagor need not be the debtor but the
mortgagor should be the absolute owner of the thing
mortgaged and must have free disposal of their
property or legally authorized to do so for such
purpose
Essential Requisites
> aside from the 3 essential requisites of contracts,
Article 2085 requires that:
1) the mortgage be constituted for the fulfillment of
a principal obligation
2) the mortgagor must be the absolute owner of the
thing mortgaged
3) the mortgagor must have free disposal of the
property or in the absence thereof, should be
legally authorized for such purpose
NOTA BENE: it is not an essential requisite that the
property mortgaged remains in the possession of the
mortgagor. Hence, the mortgagor may deliver such
property to the mortgagee without altering the
mortgage contract.
> it is also not an essential requisite of the mortgage
contract that the principal of the mortgage credit
bears interest or that the interest as compensation for
the use of the principal and enjoyment of its fruits be
in the form of a certain percent thereof (the interest
may be in the form of fruits without the contract losing
its mortgage character, thereby subjecting the
mortgagee to the obligation of an antichresis
creditor).
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> However, if there was an express stipulation that
fruits be applied to the interest and thereafter to the
principal, the contract is that of antichresis.
Cause or consideration
> since mortgage is an accessory contract, its
consideration is the same as the principal contract
from which it receives life.
> being an accessory contract, its validity would
depend on the validity of the debt it secures, and its
enforcement will depend on whether or not there has
been a violation of the principal obligation
Subject matter
> REM: immovables and alienable real rights imposed
upon immovables since the same is also considered
as real property
> a building itself may be mortgaged apart
from the land on which it is built
> CM: movables
Future property
> cannot be the object of a mortgage contract.
> a stipulation contemplating the mortgage of any
future property is only a contract to mortgage future
properties since the properties therein are not yet in
existence
> a supplement mortgage is needed to be executed
once the mortgagor acquires ownership of the
properties when they come into existence which must
also be registered with the Register of Deeds
> as to subsequent improvements on properties
already mortgaged, such mortgage is valid.
> Under Article 2127, the mortgage extends to the
improvements of the property mortgaged. Hence, as
a practical matter, there is no need to execute
mortgage supplements to cover improvements
subsequently installed on property already
mortgaged.
Co-owned property
> in a contract of mortgage, as a rule, the mortgagor
retains possession of the property since the debtor
merely subjects the property to a lien but the
ownership thereof is not parted with
> hence, one’s status as a mortgagee cannot be the
basis of possession.
Lao v CA: being a mere mortgagee, private
respondent has no right to eject petitioner. As creditor
and mortgagee, private respondent cannot
appropriate things given by way of pledge or
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CREDIT TRANSACTIONS
REAL MORTGAGE (Reference: De Leon & De Leon, 2016)
mortgage or dispose of them. Any contrary stipulation
is void.
Rights and obligations of a mortgagee in
possession
> A mortgagee in possession - is one who has lawfully
acquired actual or constructive possession of the
premises mortgaged to him, standing upon his rights
as a mortgagee and not claiming under another title,
for the purpose of enforcing his security upon such
property or making its income help to pay its debt
> his rights and obligations are similar to those of an
antichresis creditor which means that he is entitled to
retain such possession until the indebtedness is
satisfied and the property is redeemed.
> Generally, however, a mortgagee in possession of
mortgaged property who introduces improvements
thereon is not entitled to reimbursement for the value
thereof upon the redemption of the mortgage,
pursuant to Art. 2125(2)
Mortgage executed by an agent
> a mortgage executed by an authorized agent
without stating the fact of agency binds only the agent
and not the principal.
Article 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.
(1875a)
Additional requisite
> it is indispensable that the document is duly
recorded with the Registry of Property.
> Under Art. 1358, acts and contracts which have for
their object the creation of real rights over
immovables must appear in a public document.
> However, it is a settled rule that the failure to
observe the proper form prescribed does not render
the acts or contracts invalid since the same is only
essential for convenience. 

> if the mortgage is embodied in a private document,
there is no valid mortgage. Hence, the creditor may
recover the loan, although the mortgage document
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Block 2B/SBU-COL, Manila
evidencing the loan was non-registrable and may
compel the debtor to execute a contract of mortgage
in a public instrument.
> If the mortgage is not registered, it is still binding
between the parties. Registration only operates as a
notice of the mortgage to others but neither adds to
its validity nor converts an invalid mortgage to a valid
one between them.
> if the mortgage is registered under Act 3344, such is
without prejudice to the better right of a third person.
Hence, an unregistered pacto de retro sale over a
house is superior to a recorded mortgage over the
same house of a later date.
Doctrine of mortgagee in good faith (Innocent
purchaser for value; IPFV)
> the mortgagee has a right in good faith to rely on
the certificate of title in the absence of anything to
excite suspicion and is under no obligation to
investigate the title of the mortgagor appearing on
the face of the certificate.
> hence, the right or lien of an innocent mortgagee
for value upon the mortgaged property must be
respected and protected even if the mortgagor
obtained his title through fraud (remedy is an action
for damages)
Title in the name of the mortgagor, not of rightful
owner
> the doctrine, however, presupposes that the
mortgagor, who is not the rightful owner of the
property, has already succeeded in obtaining a
Torrens Title over the property in his name, and that,
after obtaining said title, he succeeds in mortgaging
the property to another who relies on what appears
on said title.
> the IPFV (mortgagee) who is protected by law is one
who purchases a titled land by virtue of a deed
executed by a registered owner
> Hence, the doctrine does not apply to a situation
where the title is still in the name of the rightful owner
and the mortgagor is a different person pretending to
be an owner since the mortgagee s not an innocent
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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CREDIT TRANSACTIONS
REAL MORTGAGE (Reference: De Leon & De Leon, 2016)
mortgagee for value and the registered owner will
generally not lose his title.
Mirror Doctrine
> GENERAL RULE: where there is nothing on the
certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance
thereon, the purchaser is not required to explore
further than what the Torrents title upon its face
indicates.
> EXCEPTIONS:
a) Where the mortgagee has knowledge of the defect
or lack of title in the vendor or that he was aware of
sufficient facts to induce a reasonably prudent man to
inquire into the status of the property in question
b) Where the mortgagee is a bank or a financing
institution which is required to observe a higher
standard diligence, as its business is impressed with
public interest. The bank must first undertake a careful
examination of the title of the applicant to verify its
genuineness, to determine the owner thereof as well
as a physical investigation of the property itself. This
diligence extends to persons regularly engaged in the
business of lending money secured by real estate
mortgages.
Second paragraph: Right in case of legal
mortgages
> such is in conformity with the rule regarding the
form of contracts which gives to the contracting
parties the right to compel each other to observe the
form required by law such as the execution of a
document or any other special form as long as the
contract is valid and enforceable between them.1
Registration of mortgage
> Registration - the ministerial act by which a deed,
contract, or instrument, is inscribed in the records of
the Office of the Register of Deeds and annotated on
the back of the Transfer Certificate of Title, creating
constructive notice to the whole world binding to
third persons.
Mortgagee entitled to registration as a matter of
right
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Block 2B/SBU-COL, Manila
> once a mortgage is signed in due form, the
mortgagee is entitled to its registration as a matter of
right.
> the mortgagor is understood to have given his
consent to its registration and a unilateral revocation
thereof is not permissible since the validity of a
contract cannot be left to the will of only one of the
contracting parties.
Proceedings for registration do not determine the
validity of the mortgage or its effect
> registration is not a declaration by the state that
such an instrument is valid and subsisting interest in
land. The mere fact that a mortgage is registered does
not stop any party to it from setting up that it has no
force and effect. 

> It must follow as a necessary consequence that the
registration must first be allowed and its validity or
effect be litigated afterwards.
> a registered mortgage right over property
previously sold is inferior to the buyer’s unregistered
right since if the original owner/seller had parted with
his ownership of the thing sold, then he no longer had
ownership and free disposal of the thing so as to be
able to mortgage it. 
 mortgage deed to prove its existence
> Registration is of no moment since it is understood
to be without prejudice to the better right of third
parties.
> However, a registered mortgage is superior to a
contract to sell, subject to any liabilities the
mortgagor/vendor incurred in favor of the buyer by
mortgaging the property despite his commitment
under the contract to sell where title is retained until
full payment of the price.
> where the mortgage deed has been duly registered,
the deed forms part of the records for the registration
of the mortgaged property.
> where the mortgage deed contains a prohibition
against encumbrance of mortgaged land, without the
mortgagee’s consent, rights over the same property,
which came into existence after the execution of the
deed, cannot be annotated as an adverse claim on the
title of the land over the mortgagee’s opposition.
> the mortgage of the wife, after the death of her
husband, of her rights, interest, and participation in an
undivided 1/2 share of the conjugal/community
property is legal and valid, and should therefore, be
registered and such registration will not affect the
rights of the creditors of her deceased husband or of
his heirs since the same is limited to the 1/2 of his
estate which is not covered by the mortgage.
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CREDIT TRANSACTIONS
REAL MORTGAGE (Reference: De Leon & De Leon, 2016)
Registration without prejudice to the right of third
parties
> A registered mortgage right over property
previously sold is inferior to the buyer’s unregistered
right.
> The unrecorded sale is preferred for the reason that
if the original owner had parted with his ownership of
the thing sold then he no longer had ownership and
free disposal of the thing so as to be able to
mortgage it. There is an absence of the second
requisite for a valid mortgage under Art. 2085.
> A registered mortgage, however, is superior to a
contract to sell, subject to the liabilities of the owner
towards the buyer by mortgaging the property
despite the commitment under the contract to sell.
Registrability of encumbrance acquired
subsequent to the mortgage
> Where a mortgage deed has been duly registered,
said deed forms part of the records for the
registration of the property mortgaged.
> Thus, in a proceeding for the annotation of an
encumbrance over the same property subsequently
acquired, the mortgagee need not introduce the
> Where the mortgage deed contains a prohibition
against encumbrance on the mortgaged land, without
the mortgagee’s consent, rights over the same
property, which came into existence after the deed’s
execution, cannot be annotated as an adverse claim
on the title of the land over the mortgagee’s
opposition
Subsequent registration of an adverse claim
> a prior registration of a lien creates a preference,
hence, the subsequent annotation of an adverse claim
cannot defeat the rights of the mortgagee or the
purchaser at the auction sale whose rights were
derived from a prior mortgage validly registered.
> a contrary rule will make a prior registration of a
mortgage or any lien nugatory or meaningless.
> the doctrine applies with greater force in a case
where the annotation of the notice of lis pendens was
made not only after the registration of the mortgage
but also and much later, after the conclusion of the
foreclosure sale.
Effect of invalidity of mortgage on principal
obligation
> the principal obligation remains valid.
> what is lost only is the right to foreclose the
mortgage as a special remedy for satisfying or settling
the indebtedness which is the principal obligation.
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Block 2B/SBU-COL, Manila
> the mortgage deed remains as an evidence of a
personal obligation of the debtor and the amount
due to the creditor may be enforced in an ordinary
personal action.
Article 2126. The mortgage directly
immediately subjects the property upon which
imposed, whoever the possessor may be, to
fulfillment of the obligation for whose security it
constituted. (1876)
Effect of mortgage
1) Creates a real right - a registered mortgage
creates a real right which is a lien inseparable from
the mortgaged property and enforceable against
the whole world which disregards the personality
of the owner.
> until discharged, the mortgage follows the property
wherever it goes and subsists notwithstanding
changes of ownership.
> all subsequent purchasers of the property must
respect the mortgage, whether the transfer to them
be with or without the consent of the mortgagee, but
the mortgage should be registered or the buyer must
at least know of its existence.
> if a person is the first mortgagee over a property
which was sold in an auction sale by the second
mortgagee, the only right left to him is to collect the
mortgage credit from the purchaser thereof during
the sale conducted since a mortgage directly and
immediately subjects the property on which it is
constituted whoever the possessor may be.
> such step need not be taken where the
second mortgagee is also the first mortgagee
of the same property given as security by the
same mortgagor for two separate loans and it
purchased the subject property with full
knowledge that it had a mortgage thereon.
2) Creates merely an encumbrance - a mortgage is
merely a security for a debt and does not affect nor
extinguish the title or ownership of the mortgagor
who does not lose his principal attribute as owner (i.e.,
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.
Page 5 of 7
CREDIT TRANSACTIONS
REAL MORTGAGE (Reference: De Leon & De Leon, 2016)
> an action to compel the mortgagee to accept
payment and for the consequent cancellation of a
REM is a personal action if the mortgagee has not
foreclosed the mortgagor is in possession of the
premises since neither the mortgagor’s title to nor
and possession of the property in question.
it is
the Ownership rights of mortgagor
was 1) Right to sell - the mortgagor may sell the property.
Under Art. 2130, a stipulation forbidding the
owner from alienating the mortgaged property is
void.
> what is divested from the mortgagor is only his full
right as owner thereof to dispose and sell his
property, the right to dispose is restricted, and not the
entire jus disponendi
2) Right of possession - the mortgagee cannot claim
to the possession of the property, hence, he
cannot eject an occupant of the mortgaged
property.
> a mortgage does not give a mortgagee a right toto
the possession of the property unless the mortgage
should contain some provision to that effect, much
less vest title upon the mortgagee unless he buys the
property at a public auction and the same is not
redeemed within the required period.
3) Right to mortgage - a mortgagor is allowed to take
a second or subsequent mortgage on a property
already mortgaged subject to the prior rights of
the previous mortgagee.
> a subsequent mortgage is recognized as valid by
law and by commercial practice, subject tot eh prior
rights of previous mortgages.
> if the mortgagor-owner is allowed to convey the
entirety of his interests in the mortgaged property,
reason dictates that the lesser right to encumber his
property with other liens must also be recognized.
> to deprive the mortgagor of such right would
deprive him of a means to raise funds to timely
redeem his property through the constitution of
another mortgage thereon.
> it is basic that the first mortgagee has superior
rights over junior mortgagees and attaching creditors.
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Block 2B/SBU-COL, Manila
Article 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. (1877)
Extent of mortgage
> A REM is not limited to the property itself but
extends to all its accessions, improvements, growing
fruits and rents or income as well as to the proceeds
of insurance should the property be destroyed, or the
expropriation value of the property in the event of
expropriation.
> This provision is predicated on the presumption that
the ownership of accessions and accessories also
belongs to the mortgagor/owner.
> any evidence sufficiently overthrowing such
presumption precludes the application of such
provision.
The following are deemed included in a mortgage of
real property:
1) new plantings;
2) fruits, except those collected before the obligation
falls due, and those removed and stored when it
falls due
3) accrued and unpaid rents as well as those which
should have to be paid while the credit remains
wholly unsatisfied
4) buildings, machinery, and accessories belonging
to the mortgage debtor installed on the property
5) improvement constructed by the mortgagor on
the mortgaged parcel of land.
6) objects permanently attached to a mortgaged
land or building, although they have been placed
thereafter at the execution of the mortgage
**but if the mortgaged estate passes into the hands of
a third person, the mortgage does not extend to any
machinery, object, chattel or construction which may
have brought or placed there which such third person
may remove whenever it is convenient for him to do
so.
Stipulation including subsequently acquired
properties
> Such stipulation is valid.
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CREDIT TRANSACTIONS
REAL MORTGAGE (Reference: De Leon & De Leon, 2016)
> its obvious purpose is to maintain, to the extent
allowed by the circumstances, the original value of the
properties given as security
> Retroactive; when a mortgage is made to include a
new or future improvements on registered land, said
lien attaches on the date of the recording or
registration of the mortgage deed.
Mortgage with dragnet clauses to secure future
advancements
> as a general rule, an action to foreclose a mortgage
must be limited to the amount mentioned in the
mortgage, but the amounts named as consideration
in a mortgage contract does not limit the amount for
which the mortgaged may stand as security if it can be
deduced that there is intent to secure future loans or
advancements in addition to those already obtained.
> a mortgage given to secure future advancements or
loans enables the parties to provide continuous
dealings, and they avoid the expense and
inconvenience of executing a new security in each
transaction.
> a dragnet clause operates as a convenience and
accommodation to the borrowers since it makes
available additional funds without their having to
execute additional security documents.
> construction; such are carefully scrutinized and
strictly construed especially where the mortgage
contract is a contract of adhesion
> a mortgage or pledge given to secure future
advancements is a continuing security and is not
discharged by the repayment of the amount named in
the mortgage, until the full amount of all the loans or
advancements obtained are paid.
Article 2128. The mortgage credit may be
alienated or assigned to a third person, in whole or in
part, with the formalities required by law. (1878)
Alienation or assignment or assignment of
mortgage credit
> the mortgage credit/right of mortgagee is a real
right and directly and immediately subjects the
mortgaged property to the fulfillment of the principal
obligation
> such may be alienation/assigned to a third person,
wholly or partly, by the mortgagee since he is the
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Block 2B/SBU-COL, Manila
owner of such and the assignee may foreclose the
mortgage in case of nonpayment of the debt
> such alienation/assignment need not be registered
Article 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. (1879)
Right of creditor against transferee of mortgaged
property
> the fact that the mortgagor has transferred the
mortgaged property to a third person does not
relieve him from his obligation to pay the debt to the
mortgage creditor in the absence of novation, and
hence, the mortgage may still be foreclosed despite
the transfer.
> the mortgage credit being a real right which follows
the property, the creditor may demand only the part
of the credit secured by said property.
> however, it is necessary that prior demand for
payment must have been made on the debtor and the
latter failed to pay.
Example:
> A mortgaged his land worth P500k to B as security
for the former’s debt of P600k. A then sold the land to
C.
> The obligation of A in this case to pay is not affected
by such transfer. B, when the due date arrives, may
demand payment from A and if A fails to pay, B may
foreclose the mortgage. B can claim from C the
payment of P500k since the same is part of the credit
secured by the property sold to C.
> C is not liable for any deficiency in the absence of a
contrary stipulation. The remedy of C is to proceed
against A.
Article 2130. A stipulation forbidding the
owner from alienating the immovable mortgaged
shall be void. (n)
> such a prohibition would be contrary to public good
inasmuch as the transmission of property should not
be unduly impeded.
> however, if the mortgagor alienates the property,
the transferee is bound to respect the encumbrance
because being a real right, the property remains
subject to the fulfillment of the obligation for whose
guaranty it was constituted.
Page 7 of 7
CREDIT TRANSACTIONS
REAL MORTGAGE (Reference: De Leon & De Leon, 2016)
Stipulation requiring mortgagee’s consent before
alienation of the property
> violative of Art 2130 since it achieves what it does
not outrightly prohibit.
> for all intents and purposes, the stipulation
practically gives the mortgagee the sole prerogative
to prevent the mortgagor to sell the property
> however, the mortgagor-owner’s sale of the
property does not affect the right of the registered
mortgagee to foreclose on the same even if its
ownership had been transferred to another person
who is bound by the registered mortgage.
Stipulation granting the right of first refusal
> there is nothing wrong with such stipulation in the
event the mortgagor decides to sell the mortgaged
property.
> the right of first refusal has long been recognized as
valid.
> the consideration for the loan-mortgage may be
said to include the consideration for the right of first
refusal. Hence, while the mortgagor has every right to
sell the mortgaged property without securing the
consent of the mortgagee, he has the obligation
under a right of first refusal to notify the mortgagee of
his intention to sell the property and give him priority
over the buyers.
> A sale made in violation of the mortgagee’s
contractual right of first refusal is rescissible since the
buyer is presumed to have been notified thereof by
the registration of the mortgage deed containing
such stipulation, which equates to notice of the whole
world.
Article 2131. The form, extent and
consequences of a mortgage, both as to its
constitution, modification and extinguishment, and as
to other matters not included in this Chapter, shall be
governed by the provisions of the Mortgage Law and
of the Land Registration Law. (1880a)
Laws governing mortgage
> as to other matters not included in this Chapter of
the Code, PD 1529 and Administrative Code govern
the form, extent, and consequences of a mortgage, as
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
extinguishment
> PD 892 discontinued the Spanish mortgage system
of registration, as reiterated by PD 1529
“That in all things, God may be glorified!”