CHAPTER 3- MORTGAGE (REAL ESTATE)
note and he secured it with another REM.
Articles 2124 – 2131
I. Concept (characteristics)
A. As a right
It is a real right over immovables constituted by the
owner to guarantee an obligation which if not paid is
to be satisfied from the proceeds of the sale of such
property.
B. As a contract
It is a contract whereby the debtor guarantees the
performance of a principal obligation subjecting as
security therefor real properties or real rights in case
such obligation is not complied with, within the time
stipulated. It is a real, accessory and subsidiary
contract. It is likewise unilateral: only on the part of
the creditor who must first free the property from the
encumbrance once the obligation is fulfilled.
Judge:
Can all kinds of obligations be secured by Real Estate
Mortgage?
YES
Can a recissible obligation be secured by mortgage?
YES
What about your voidable contract?
YES
What about your void contract?
NO
Can past obligations be secured by a Real Estate
Mortgage? (a previously incurred obligation)
Can I secure by a real estate mortgage obligation that I
incurred now? Of course, in many of the instances
mortgages secures a presently incurred obligation.
Can real estate mortgage secure a future obligation? YES
How do you know that a real estate mortgage secures a
future obligation? What’s a dragnet clause? Is it similar
to your continuing guaranty?
YES, similar but guaranty is a personal security while real estate
mortgage is a real security.
Where do you usually find a dragnet clause? Is it in the
document evidencing the principal obligation?
No, it is in the MORTGAGE CONTRACT.
What is the other name for the dragnet clause?
“Blanket Mortgage Clause” (So, in the BAR it might be asked
whether the dragnet clause or the blanket mortgage clause)
Situation:
To secure his obligation to B, A constituted a REM over a
certain property; and this mortgage contains a dragnet
clause – that a mortgage likewise secures future
advancements by the debtor. Subsequently, A again
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borrowed money from B, evidenced by another promissory
Judge: By the way, if you have a REM with a dragnet clause and
subsequently the debtor obtains another loan or incur a
subsequent obligation owing to the creditor/mortgagee, is it
required that the mortgagor again executes a new contract?
NO. Just like in guaranty there is no requirement.
But in this case A executed another REM and defaults in
the payment of this first obligation. Remember they have
a dragnet clause already under the first REM and on the
second REM which does not have a dragnet clause but
which secures the particular obligation in the promissory
note 2.
Can B foreclose the mortgage considering that this
is a dragnet clause? Does this second REM secures
also the first obligation?
YES. Because of the dragnet clause.
So, If REM 1 also secures promissory note2, can B
foreclose the first mortgage without first
foreclosing the second mortgage?
According to “Reliance on Security Test”, even if you
have this dragnet clause, if an obligation secures
specifically a particular security, then this particular
security will answer for the default in this particular
obligation. It is only foreclosed if the specific REM is
insufficient to satisfy the obligation. Hence, it can still
answer but it is not the “primary security” for that
specific obligation because the primary security is the
second REM. (that’s the reliance for security test and I
have been waiting for that principle to be asked in the
BAR for the longest time so take note of that.)
II. Elements
A. Parties
a. The mortgagor (who need not be the
principal debtor) must have free disposal and
be the absolute owner of the security;
otherwise he must be properly authorized.
1. Where a mortgage is a nullity, having
been executed by an unauthorized
person, registration under the Land
Registration Act will not validate it (how
about the mortgagee in good faith
doctrine bullshit chuva? I think depende
ra sa situation and sa parties involved
on the fucking degree of diligence
required. Alien? ALIEN!)
b. The mortgagee must have capacity to
contract.
Note: As a general rule, mortgagor retains
possession because debtor merely subjects
the property to a lien but ownership is not
parted with. However, compliance with such
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 rule is not an essential requisite of the
contract
It is not also an essential requisite of the
contract of mortgage that the principal of
the mortgage credit bears interest, or that
the interest as compensation for the use of
the principal enjoyment of its fruits be in the
form of a certain percent thereof.
c. Registration of mortgage to the registry of
deeds (look at discussion in form)
COMMENTS:
Now, if the mortgage can secure future
obligations through that dragnet clause, can a
mortgagor constitute a mortgage over properties
that he may acquire in the future?
Definitely NOT. Because he is not the absolute owner of
the constituted mortgage. If there is that particular
stipulation in the mortgage contract then that stipulation
shall be declared VOID. It has no effect. In other words,
if the mortgagor subsequently acquires properties, these
properties will not be included in the foreclosure sale
because again the second requirement is that the
mortgagor must be the absolute owner of the property
subject of the mortgage. ABSOLUTE OWNER OF THOSE
PROPERTIES LISTED ON THE MORTGAGE CONTRACT.
For subsequently acquired properties the mortgagor is
not yet the owner of the property , so the rule is Real
Estate Mortgage can secure future obligations but cannot
include future properties that may be acquired by the
mortgagor.
SITUATION: (example given by judge on the board)
A executed a Deed of Absolute Sale in favor of B,
absolutely simulated because there was NO consideration
paid. There was no intention to pay. On the day that A
executed to B the Deed of Sale. B executed another Deed
of Sale in favor of C, again no consideration was given by
C to B (so again, it is an absolutely simulated contract).
Because of that Deed of Sale, C was able to transfer the
title in her name and obtain a loan from D and then
defaulted on payment on the loan.
Can D validly foreclose the mortgage?
No. When A executed that Deed of Sale to B, B did not
acquire ownership because one essential requisite of
contract is missing which is “CONSIDERATION”, so
there is no valid contract. (TN: Consent, Consideration
& Cause are the requisites for a valid contract)
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When B executed the Deed of Sale to C again
absolutely simulated, no consideration was paid.
Did B transfer any right to C?
No, because he did not have any right at all, even if C was
able to cause the transfer of transfer certificate of title to
his name. So, if C did not acquire any title to the property,
he could not constitute a valid mortgage in favor of D.
Therefore, D cannot validly foreclose the mortgage. If D
forecloses the mortgage, then the higher bidder acquires
NO VALID TITLE AT ALL over the property. If the
second requisite states that the mortgagor must be the
absolute owner of the property. We also learn before that
even if the property is subject of a contract to sell, the
seller can sill constitute a mortgage on the property. In
fact in SALES (which was discussed by your professor
before :D) the seller under a contract to sell can sell the
property to another person.
B. Object (Art. 2124)
Which may only be:
a. Immovables
b. Alienable real rights imposed upon
immovables in accordance with the law (real
property)
Right of possession can be mortgaged
Note: a building by itself may be mortgaged
apart from the land on which it is built
A mortgage may secure future obligation, BUT a
future property cannot be object of a contract of
mortgage. A mortgagor could not legally
mortgage any property he did not yet own.
However, a stipulation subjecting to the
mortgage lien, properties (improvements) which
the mortgagor may subsequently acquire, install,
or use in connection with real property already
mortgaged belonging to the mortgagor is valid.
C. Consideration – same as of the principal
contract, without which it cannot exist as an
independent contract
- Valid if the principal obligation
is valid, and cannot be avoided
on the ground of lack of
consideration
Note: mortgage must sufficiently
describe the debt sought to be secured
Case: PNB vs. RDA Ent.
- there was lack of consideration but
mortgage deal was already executed (before
application, mortgage deal was already
signed)
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 - 50T was released by the bank but the
mortgage was for 100T
- Q: is the mortgage valid?
A: Valid but unenforceable to the extent of
the failure of consideration. During the
foreclosure sale, you can only sell 50% of
the property
COMMENTS:
What is the consideration of the mortgage? Is it
required that if the mortgagor is a third party
mortgagor that he or she be paid a valuable
consideration for subjecting his property as
security for the payment of another person’s
obligation?
No.
So, what is that consideration because mortgage
has to have a consideration as a requisite of a
contract?
Consideration for the Principal Obligation
Situation: Partial Consideration (example given by
judge)
A applied for a 1 Million loan from B. So, when you apply
for a loan, the lender does not release the money first
before asking you to put up security diba? When you go to
the Bank, the bank will require you to submit the
mortgage document before it approves your application
for a loan.
So, A constituted a mortgage over certain real property to
secure the 1 Million. The bank approved only 600k. The
reason why A constituted a mortgage over this particular
property is to secure the 1 million obligation. But the loan
approved is only 600k. So, there is partial failure of the
consideration of the mortgage, because while it is
constituted to secure the 1 million, the actual obligation is
actually just 600k.
If A defaults in the payment of the obligation, can
B foreclose the mortgage?
YES.
Can B sell the entire property?
No. only 60% because of the partial failure of
consideration. If B sells the entire property that sale is
void to the extent of 40%.
D. Form – for validity
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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.
a. Between the parties –
COMMENTS:
We said that pledge is a real contract because by the
contract of pledge, the pledgor delivers a movable to the
creditor or to a third person. We said that Real Estate
Mortgage is not a real contract because real property is
merely subjected as a SECURITY. It is not delivered to the
creditor or to a third person.
Is it then a consensual contract? Or is it a formal
contract? Because definitely it is not a real contract
(we only have three kinds of contract as to
perfection – consensual, real and formal.)
Real mortgage is formal. So, a document is required.
What kind of formal document? Can a private
document validly BIND the parties in a mortgage?
Or must it be a public document to “BIND THE
PARTIES”?
So even if to bind the parties it must be in a public
document. But what does the law say? – It is essential
that in order that a mortgage be valid it must be recorded.
But you read the next sentence: Binding between the
parties but it presupposes that the document is a public
document.
Mobil Oil Phils. vs. Diocares
Re: Effect of unregistered mortgage between the parties
Facts: Diocares spouses constituted a loan with Mobil Oil
Phils. and in order to secure payment of the loan, they
mortgage their property. On top of that, they promised to
buy on cash basis their petroleum requirements in an
amount not less than 50,000 L per month. Upon failure to
pay, Mobil instituted the foreclosure proceedings. The
Diocares spouses objected to the foreclosure saying that
the mortgage was not registered.
SC: The lower court predicated its inability to order the
foreclosure in view of the categorical nature of the
opening sentence of the governing article 10 that 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." Note that it ignored
the succeeding sentence: "If the instrument is not
recorded, the mortgage is nevertheless binding
between the parties." Its conclusion, however, is that
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what was thus created was merely "a personal obligation
but did not establish a real estate mortgage."
Even if the instrument were not recorded, "the
mortgage is nevertheless binding between the
parties." The law cannot be any clearer. Effect must be
given to it as written. The mortgage subsists; the parties
are bound. As between them, the mere fact that there is
as yet no compliance with the requirement that it be
recorded cannot be a bar to foreclosure. An order for
foreclosure cannot be refused on the ground that the
mortgage had not been registered provided no innocent
third parties are involved.
b. As to strangers – the document in which
the mortgage appears must be recorded in
the Registry of Property of the province
where the land is located.
Hechanova vs. Adil
Re: Validity of private document evidencing mortgage
Facts: A private document, not registered, was
constituted as a mortgage. Thereafter, the property was
sold to the Hechanova spouses under a Deed of Sale. The
purported mortgagee objected to the sale, saying that the
seller, Jose Servando, could not possibly sell because the
property was mortgaged to him.
SC: The mortgage is not binding against 3rd persons (the
vendee Hechanova spouses), as it was embodied in a
private document and unregistered. “It is clear from the
records of this case that the plaintiff, Servando, has no
cause of action. Plaintiff has no standing to question the
validity of the deed of sale executed by the deceased
defendant Jose Servando in favor of his co-defendants
Hechanova and Masa. No valid mortgage has been
constituted plaintiff's favor, the alleged deed of mortgage
being a mere private document and not registered;
moreover, it contains a stipulation (pacto comisorio) which
is null and void under Article 2088 of the Civil Code. Even
assuming that the property was validly mortgaged to the
plaintiff, his recourse was to foreclose the mortgage, not
to seek annulment of the sale.”
COMMENT:
So it’s still binding between the parties even if not
registered. The mortgagee can still foreclose the mortgage
for as long as no rights of third persons are affected.
Cause it’s not binding against 3rd persons. In Hechanova
vs. Adille, the court said no valid mortgage constituting if
the deed of mortgage is in a private document and not
registered (of course you cannot register a private
document).
By the way, does the register of deeds has
discretion whether to accept a document for
inscription or recording?
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No. It is a purely ministerial job of the Office of the
Register of Deeds to inscribe document presented to it for
as long as you’re willing to pay the fees.
So, the mortgage I have constituted over property
not owned by me is duly registered in the office of
the register of deeds. Does that registration
validates the mortgage?
A: No. Registration does not validate a Void Mortgage. In
fact you have also learned another principle in Obligations
and Contract that you cannot ratify a void contract.
III. Classes
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. (Contractual
Mortgage)
B. Legal – one required by law to be executed in
favor of certain persons.
C. Equitable Mortgage – one which, although it
lacks the proper formalities of a mortgage
required by law nevertheless shows the intention
of the parties to burden the property as a
security for a debt. --- (pacto de retro sale)
COMMENTS:
What kind of document are we looking at in an
equitable mortgage?
1602, you are looking at a pacto de retro sale or even
an absolute sale but one of the circumstances is present
first is, unusual inadequacy of the price of gross
inadequacy of the price because mere inadequacy does
not invalidate the sale. So any of those circumstances
present will give rise to a disputable presumption that the
contract really is a mortgage, meaning there is really no
intention to transfer ownership to the purported buyer
because that property is merely offered as a security for
the fulfillment of an obligation.
So that’s equitable mortgage and we know that if the
intention of the parties is really just to subject the
property as security and not for the buyer a retro to
acquire ownership then the remedy of the vendor a retro
or the vendor in an absolute sale is to ask for the
“reformation of the document” not contract, because
you do not reform a contract because the contract is a
mortgage and the document is a sale.
IV. Effects
A. As to the property mortgaged
Art. 2126. The mortgage directly and
immediately subjects the property upon which it
is imposed, whoever the possessor may be, to
the fulfillment of the obligation for whose
security it was constituted.
a. Creation of real right (Article 2126)
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 - A registered mortgage creates right in
rem, a real right, a lien inseparable from
the property mortgaged, which is
enforceable against the whole world,
affording specific security for the
satisfaction of a debt. The personality of
the owner is disregarded. Until
discharged upon payment of the
obligation, it follows the property
wherever it goes and subsists
notwithstanding changes of ownership.
COMMENT:
What do you mean by a “real right” is created by a
mortgage? (ay kog ingnag binding against the whole
world)
Situation: (example given by judge)
A mortgaged his property to B, when he mortgaged
his property to B, does he remain to be the owner
of the property?
YES
Is he prohibited from alienating the property?
NO.
So, he sells the property to C. Does C acquire
ownership over the property?
YES. C is the owner, yet his ownership is subject to the
superior right of B to foreclose the mortgage and sell the
property in a public sale if A defaults in the payment of his
obligation. That is what is meant by a real right created by
the mortgage. It follows the property whoever the
owner or the possessor is. Of course, for as long as it
is registered because if it not registered but in a public
document then it is binding only between the parties. In
fact, the law says that the creditor may demand from the
possessor of the mortgage property payment of the
obligation. “may demand”. B may demand payment from
C. If you are C would you pay? Yes I would because risk
closing the entire property and even if I pay, it doesn’t
mean that I paid twice for the property because I can still
recover what I paid from A.
Going back to ObliCon, can a third party pay the
obligation of the debtor?
YES, and in fact, a third party can seek reimbursement
from the debtor and if he pays with the consent or with
the knowledge of the debtor, then he is subrogated with
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the rights of the creditor. Otherwise, he can only seek
beneficial reimbursement. Just like here.
If B forecloses the mortgage, can C oppose the
foreclosure and claim that he is a buyer in good
faith?
No. he cannot be a buyer in good faith because the
mortgage is registered.
Situation:
REM with a dragnet clause, sa dragnet clause these
secured the 3 obligations, 1 REM securing
obligation 1.
Can be assign his rights as a mortgagee?
YES.
Can he assign his rights without the consent of A?
YES. (assignment of credits)
Can A assign whatever rights he has under the
mortgage/property?
YES. He has the right to redeem if the mortgage is
foreclosed.
Let’s say whatever right he has, he assigned this right to
C, so this 1 defaulted. B foreclosed the mortgage, when
you foreclose you have to sell in a foreclosure sale. Let’s
just say that b is the highest bidder (Usually in a
foreclosure sale the creditor is the only bidder, nobody is
interested to bid in a foreclosure sale because of the right
of redemption, ngano gud mupalit kag property subject to
a resolutory condition). So, B is the highest bidder,
remember gi assign na ni A iyang rights over the property.
C redeemed the property. Then the second loan also
defaulted.
Can B foreclose again the mortgage and sell again
the property to C in a foreclosure sale?
YES. For as long as the obligations are secured and not
paid, pwede ra syag sigeg foreclosed-redeem-foreclose-
redeem. Balik-balik.
In the case of Tiongco vs. Metrobank, the court said,
the redemption by C shall be without prejudice to the
subsequent foreclosure of the same properties by B in
order to satisfy other obligations covered by the real
estate mortgage.
Cancellation of mortgage in lieu of surety bond (Q:
can a mortgagor compel the mortgagee to accept in lieu
of the mortgage of the security bond?
A: Case: Ganzon vs Inserto
- Mortgagor cannot compel because mortgage has
of greater value than that of a surety.
- Applying the principles underlying the nature of a
mortgage, the real estate mortgage can not be
substituted by a surety bond as ordered by the
trial court. The mortgage lien in favor of
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 Petitioner Rodolfo Ganzon is inseparable from
the mortgaged property. It is a right in rem, a
lien on the property. To substitute the mortgage
with a surety bond would convert such lien from
a right in rem, to a right in personam. This
conversion cannot be ordered for it would
abridge the rights of the mortgagee under the
mortgage contract.
Effect of sale of mortgaged property
A mortgage is merely a security for a debt, an
encumbrance upon the property and does not extinguish
the title of the debtor who does not lose his principal
attribute as owner, that is, the right to dispose. Indeed,
the law considers void any stipulation forbidding the
owner from alienating the immovable mortgaged.
What is divested from the mortgagor is only his full right
as owner thereof to dispose of and sell the property, that
is, the mortgagor does not have the unconditional power
to absolutely sell the property since the same is
encumbered by a lien of a third person.
Bonnevie v. CA
Re: Effect of sale of mortgaged property
This argument failed to consider the provision of the
contract of mortgage which prohibits the sale, disposition
of, mortgage and encumbrance of the mortgaged
properties, without the written consent of the mortgagee,
as well as the additional proviso that if in spite of said
stipulation, the mortgaged property is sold, the vendee
shall assume the mortgage in the terms and conditions
under which it is constituted. These provisions are
expressly made part and parcel of the Deed of Sale with
Assumption of Mortgage.
Another argument for the respondent Bank is that a
mortgage follows the property whoever the possessor may
be and subjects the fulfillment of the obligation for whose
security it was constituted
Finally, it can also be said that petitioners voluntarily
assumed the mortgage when they entered into the Deed
of Sale with Assumption of Mortgage. They are, therefore,
estopped from impugning its validity whether on the
original loan or renewals thereof.
Paredes v. CA
Re: Right to foreclose when land was sold after the
mortgage
Facts: At the time of the constitution of the mortgage,
the land is bare. After the mortgage, the mortgagor
constructed a house and sells the house & lot to another
person under a contract to sell. Then the mortgagor
defaults in the payment of the obligation. Can both the
house and the lot be subject to foreclosure sale? Spouses
Paderes objected to the inclusion of the house in the
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foreclosure as it was constructed after the constitution of
the mortgage.
Ruling: A purchaser is necessarily bound to acknowledge
and respect the encumbrance to which is subjected the
purchased thing and which is at the disposal of the
creditor “in order that he, under the terms of the contract,
may recover the amount of his credit therefrom.” For, a
recorded real estate mortgage is a right in rem, a lien on
the property whoever its owner may be. Because the
personality of the owner is disregarded; the mortgage
subsists notwithstanding changes of ownership; the last
transferee is just as much of a debtor as the first one; and
this, independent of whether the transferee knows or not
the person of the mortgagee. So it is, that a mortgage lien
is inseperable from the property mortgaged. All
subsequent purchasers thereof must respect the
mortgage, whether the transfer to them be with or
without the consent of the mortgagee. For, the mortgage,
until discharge, follows the property.
Jacob v. CA
Re: Effect of death of mortgagor
The power of the mortgage survives the death of the
mortgagor. It attaches to the property and not to the
person. All claims should be filed in the settlement of the
estate. In this case the mortgagee, has three options:
abandon the mortgage and file a claim in the settlement
of the estate, judicially foreclose the mortgage and
recover deficiencies from the estate or rely solely on the
mortgage.
Q: After the constitution of the mortgage, A dies
and the obligation remains unpaid. Can be
foreclose the mortgage considering that A has
died?
A: YES, mortgage survives the death of the parties. In fact
there are THREE REMEDIES available to the creditor (we
will take that up later, but for now he can claim it in the
estate proceeding, he can foreclose the mortgage and
claim the deficiency on the estate proceeding or he can
rely solely on the mortgage and waive whatever
deficiencies.
b. Extension to accessions and accessories
(Article 2127)
GR: A real estate mortgage constituted on immovable
property is not limited to the property itself but also
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 should it be
expropriated.
EXC: Unless there is an express stipulation to the effect of
excluding them.
Situation:
A constituted a property in favor B over a parcel of
land after that A constructed a house. After A
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constructed a house. A sold the land to C and A
defaults in the payment of the obligation.
If B forecloses the mortgage, can he also sell the
house which was constructed AFTER the
mortgage?
YES. Because all accessions and accessories are deemed
included in the mortgage unless expressly excluded even
if the house was constructed after the constitution of the
mortgage.
After the constitution of the mortgage, A sells the
land to C and C constructs a house on the property
and A defaults in the payment of the loan. Can B
foreclose the mortgage?
YES. Real Right created under the mortgage. (and
mortgage which is the real estate property)
In the foreclosure sale, can B include in the
foreclosure sale the house?
NO. Not anymore, because it was not introduced by the
mortgagor. It was introduced by the buyer already after
the mortgage. So, different kadto ganina because the
house was constructed by the mortgagor, here it was
constructed by the buyer already. So, that’s not included
in the mortgage.
Can the party stipulate that the mortgagor cannot
alienate the property? Or cannot subject the
property to a second mortgage in favor of another
creditor?
No. The court said, If the mortgagee cannot prohibit the
mortgagor from alienating the property the more reason
that the mortgagee cannot prohibit the mortgagor from
constituting another mortgage which is less onerous than
alienating the property.
“If the mortgagor owner is allowed to convey the
entirety of this interest in the mortgage property,
reasons dictates that a lesser right to encumber his
property with other (leads?) must also be
recognized.”
But of course the right of the subsequent mortgagee is
subordinate to the right of the first.
We said earlier that it is not required that the mortgagee
be in the possession of the property because there is no
requirement of transfer of possession. What is required is
that; it is essential that it be recorded, registered
nevertheless if not recorded still binding between the
parties. So there’s no need for transfer of possession.
But can the parties stipulate that for as long as the
mortgage is in effect the creditor shall have the
possession of the property? Is that prohibited?
NO, it’s not prohibited but if that’s the agreement of the
parties then the mortgagee shall be called now a
“mortgagee in possession”. If he is a mortgagee in
possession, he is subject to the rules on antichresis.
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Bischoff v. Pomar
Re: Effect of mortgage of hacienda on improvements
thereon
Issue: WON the machineries and tramway are included in
the mortgage
SC: It is a rule that in a mortgage of real estate, the
improvements on the same are included; therefore, all
objects permanently attached to a mortgaged building or
land, although they may have been placed there after the
mortgaged was constituted, are also included. Therefore,
the PRESUMPTION is that accessories are included in the
foreclosure. In foreclosure, the fruits NOT GATHERED AND
NOT COLLECTED are what are included in the foreclosure.
Thus, you can still collect previous rents.
Paderes v. CA
Re: Effect of mortgage of lot on houses built thereon
Facts: Mortgage was constituted over 21 parcels of land.
After the constitution, houses were constructed and sold
to several buyers. There was a default payment thus
foreclosure was filed. Buyers objected to the foreclosure
and argued that what was mortgaged are the lands and
not the houses
Issue: Can you foreclose the houses constructed after the
constitution of the mortgage?
Ruling: Yes, you can foreclose They are included unless
expressly prohibited. A purchaser is necessarily bound to
acknowledge and respect the encumbrance to which is
subjected the purchased thing and which is at the disposal
of the creditor “in order that he, under the terms of the
contract, may recover the amount of his credit
therefrom.” For, a recorded real estate mortgage is a
right in rem, a lien on the property whoever its owner may
be. Because the personality of the owner is disregarded;
the mortgage subsists notwithstanding changes of
ownership; the last transferee is just as much of a debtor
as the first one; and this, independent of whether the
transferee knows or not the person of the mortgagee. So
it is, that a mortgage lien is inseparable from the property
mortgaged. All subsequent purchasers thereof must
respect the mortgage, whether the transfer to them be
with or without the consent of the mortgagee . For, the
mortgage, until discharge, follows the property.
Note: when a mortgage is made to include new or future
improvements on registered land, said lien attaches and
vests not at the time said improvements are constructed
but on the date of the recording and registration of the
deed of mortgage.
A Mortgage with “DRAGNET” clauses to secure future
advancements (subsume all debts of past or future origin)
is valid and binding between the parties. The purpose of
such clause is that it enables the parties to provide
continuous dealings, the nature or extent of which may
not be know or anticipated at the time, and they avoid the
P a g e 7 | 30
expense and inconvenience of executing a new security on
each new transaction.
c. Pactum de non alienando
Art. 2130. A stipulation forbidding the owner from alienating the
immovable mortgaged shall be void. (n)
The mortgagee can simply withhold his consent thereby
prevent the mortgagor from selling the property. This
creates an unconscionable advantage for the mortgagee
and amounts to a virtual prohibition on the owner to sell
his mortgaged property.
Note: there is nothing wrong in a stipulation granting the
mortgagee the right of first refusal over the mortgaged
property in the even the mortgagor decides to sell the
same. The consideration for the loan-mortgage may be
said to include the consideration for the right of first
refusal. A sale made in violation of the mortgagee’s
contractual right of first refusal is rescissible.
B. Effects as to the Mortgagee
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. (1878)
A “mortgagee in possession” is subject to the rules of
antichresis in that he assumes the obligations of an
antichretic creditor.
Since the mortgaged credit is a real right such right may
be alienated or assigned to a third person, in whole or in
part, by the mortgagee who is the owner of said right and
assignee may foreclose the mortgage in case of
nonpayment of the mortgage indebtedness
Does mortgagee need the consent of mortgagor?
No. Mortgagee only needs to notify the mortgagor who
the transferee is in case the debtor opts to pay. Informing
the mortgagor is not the obligation of the transferee.
Note: the alienation or assignment is valid even if it is not
registered. Registration is necessary only to affect third
persons.
Bischoff v. Pomar
Re: Where mortgagee transferred his credit
A purchaser is necessarily bound to acknowledge and
respect the encumbrance to which is subject the
purchased thing and which is at the disposal of the
creditor in order that he, under the terms of the contract,
may recover the amount of his credit therefrom.
V. Foreclosure
Foreclosure is the remedy made available by law to the
mortgagee by which he subjects the mortgaged property
USC|CREDIT PREFI|EH403
to the satisfaction of the obligation for which the
mortgage was given.
Judge: Upon default, the creditor may opt to foreclose.
But this is not the only remedy. He may also sue for
specific performance. In fact, he can sue for specific
performance and ask for a writ of preliminary attachment
and attach this property. But in this case, he abandons his
right to foreclose the mortgage.
Modes:
A. Judicial
B. Extrajudicial
a. Taken by the sheriff
b. Taken by the notarial sheriff
A. Judicial
 Rule 68, Rules of Court
 Take note that the mortgagee does not have the
right to extrajudicially foreclose a real estate
mortgage. Meaning, every time a real estate
mortgage is constituted. The right to
extrajudicially foreclose is not always available.
This right is available only if provided in the
mortgage contract. This may also be implied in a
provision giving the mortgagee the authority to
sell at a public auction. Without this provision,
the only recourse is to judicially foreclose the
mortgage.
Rule 68, Rules of Court
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.
Sec. 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.
P a g e 8 | 30

Sec. 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.
Upon the finality of the order of confirmation or upon
the expiration of the period of redemption when allowed by
law, the purchaser at the auction sale or last redemptioner,
if any, shall be entitled to the possession of the property
unless a third party is actually holding the same adversely to
the judgment obligor. The said purchaser or last
redemptioner may secure a writ of possession, upon motion,
from the court which ordered the foreclosure.
Sec. 4. Disposition of proceeds of sale.
The amount realized from the foreclosure sale of the
mortgaged property shall, after deducting the costs of the
sale, be paid to the person foreclosing the mortgage, and
when there shall be any balance or residue, after paying off
the mortgage debt due, the same shall be paid to junior
encumbrancers in the order of their priority, to be
ascertained by the court, or if there be no such
encumbrancers or there be a balance or residue after
payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.
Sec. 5. How sale to proceed in case the debt is not all
due.
If the debt for which the mortgage or encumbrance was
held is not all due as provided in the judgment, as soon as a
sufficient portion of the property has been sold to pay the
total amount and the costs due, the sale shall terminate;
and afterwards, as often as more becomes due for principal
or interest and other valid charges, the court may, on
motion, order more to be sold. But if the property cannot be
sold in portions without prejudice to the parties, the whole
shall be ordered to be sold in the first instance, and the
entire debt and costs shall be paid, if the proceeds of the
sale be sufficient therefor, there being a rebate of interest
where such rebate is proper.
Sec. 6. Deficiency judgment.
If upon the sale of any real property as provided in the next
preceding section there be a balance due to the plaintiff
after applying the proceeds of the sale, the court, upon
motion, shall render judgment against the defendant for any
such balance for which, by the record of the case, he may
be personally liable to the plaintiff, upon which execution
USC|CREDIT PREFI|EH403
may issue immediately if the balance is all due at the time of
the rendition of the judgment; otherwise, the plaintiff shall
be entitled to execution at such time as the balance
remaining becomes due under the terms of the original
contract, which time shall be stated in the judgment.
Sec. 7. Registration.
A certified copy of the final order of the court confirming the
sale shall be registered in the registry of deeds. If no right of
redemption exists, the certificate of title in the name of the
mortgagor shall be cancelled, and a new one issued in the
name of the purchaser.
Where a right of redemption exists, the certificate of title in
the name of the mortgagor shall not be cancelled, but the
certificate of sale and the order confirming the sale shall be
registered and a brief memorandum thereof made by the
registrar of deeds upon the certificate of title. In the event
the property is redeemed, the deed of redemption shall be
registered with the registry of deeds, and a brief
memorandum thereof shall be made by the registrar of
deeds on said certificate of title.
If the property is not redeemed, the final deed of sale
executed by the sheriff in favor of the purchaser at the
foreclosure sale shall be registered with the registry of
deeds; whereupon the certificate of title in the name of the
mortgagor shall be cancelled and a new one issued in the
name of the purchaser.
Q: You said that sale will be made by the judgment
of the court, specifically, what is the judgement
for?
A: The judgment is for the payment of obligation and not
for the payment of the property. The payment is within
this period. This is not the period of the sale. It is only
after default of the judgment debtor (principal debtor).
The mortgagee now is the judgment creditor because he
is the one who won the case, to whom the payment is due
the judgment debtor is the part directed by the court to
pay. The judgment is for the payment of the debt which is
determined not less than 90 days nor more than 120 days
from the entry of judgment from the date of finality.
When does it become final and executory?
Rule 39. If the judgment debtor does not pay, the rule is
the property will be sold in a public sale. It is the not the
immediate sale of the property is the payment of the debt.
This period of not less than 90 days nor more than 120
days.
The debtor or any person who has interest in the property
has the chance to redeem the property by paying the
judgment debt
How are the proceeds disposed?
If the proceeds are enough to be applied for the payment
of the loan and including the interest and the cost, then it
should be applied to the judgment creditor. BUT if there
P a g e 9 | 30
are encumbrances and excesses, then proceeds will be  All applications for extra-judicial foreclosure
paid to the junior encumbrancers. Take note: it is only in of mortgage whether under the direction of
judicial foreclosure that the excess is paid to the junior the sheriff or a notary public shall be filed
encumbrancers. For extrajudicial foreclosure, there is no with the Executive Judge, through the clerk
such thing under Act 3135. So the court is clear on that, of court who is also the Ex-Officio Sheriff.
JUNIOR ENCUMBRANCERS have no right to receive the  You don’t go to the sala to file the petition.
excess. Its right is only to redeem the property You file it in the office of the clerk of court
mortgaged, and not receive the excess. where the office of the executive judge is
located.
What if there is deficiency?  You will be then assessed the correct filing
The judgment debtor will have the deficiency and upon fee and YOU MUST PAY the filing fee.
motion of the judgment creditor, and the judgment debtor
may be compelled by the court to pay for the deficiency. 2. POST NOTICES OF THE FORECLOSURE SALE
AT LEAST 3 PUBLIC PLACES 20 DAYS
Why is it that only a motion is required and not a PRIOR TO THE SALE. (3-20)
complaint to recover a deficiency?
3. PUBLISH THE NOTICE OF EXTRAJUDICIAL
Only motion is required because there is already a
FORECLOSURE IN A NEWSPAPER OF
pending action for foreclosure. So in the same foreclosure
GENERAL CIRCULATION WHERE THE
proceeding where the court will render judgment directing
PROPERTY IS LOCATED if THE VALUE IS
the debtor to pay if the proceeds from the sale of the
400 pesos
mortgage property is not sufficient to pay off, then the
 personal notice to mortgagor is not required:
judgment creditor can just file motion to recover the
there is no requirement to notify the
deficient, NOT A NEW COMPLAINT OR A NEW AND FRESH
mortgagor of the extrajudicial sale. Lack of
ACTION, because there is already a pending case. notification to the mortgagor will not nullify
the extrajudicial foreclosure sale. BUT failure
Is it possible for a junior encumbrancer to file a to comply with the strict notice requirement
judicial foreclosure of mortgage? Will it not will nullify the extrajudicial sale.
prejudice the first mortgagee considering that the
4. PUBLIC SALE
right of the junior encumbrancer is subordinate to
the right of the first mortgagee? a. WHO CONDUCTS THE SALE:
A: Although junior encumbrancers may redeem, the prior i. Sheriff
encumbrancer has no obligation to redeem, because he ii. Notary public – can only
can always foreclose the mortgage. So under section 3, it conduct extrajudicial sale
seems that the junior encumbrancer can foreclose the within the jurisdiction of his
mortgage judicially but SUBJECT to SUPERIOR RIGHT OF notarial commission.
THE PRIOR MORTGAGEE.  Example if your commission
is only for Cebu City by the
TN: The notarial commission of a lawyer is only good for RTC Cebu City you can
the territorial jurisdiction of the RTC that issued his conduct an Extra Judicial
license. Foreclosure in Cebu City,
Talisay, Minglanilla, Naga,
B. Extrajudicial
San Fernando and Carcar.
Mao na territorial jurisdiction
2 Types of Extrajudicial Foreclosure
sa RTC Cebu City.
1. Taken by the sheriff
b. WHEN
2. Taken by the notarial sheriff
 On the date set. 9 am to 4
pm.
Procedure:
A.M. No. 99-10-05-0, August 7, 2001: Procedure in c. WHERE
Extra-Judicial Foreclosure of Mortgage
i. Property located

1. FILE A PETITION TO THE OFFICE OF THE Q. The problem is if the properties are in
EXECUTIVE JUDGE AND PAY THE FILING different locations. How do you conduct
FEE it? How many obligations will you file?

USC|CREDIT PREFI|EH403 P a g e 10 | 30
 Where do you file it? Do you file 3 if the
real property is located in Cebu, Mandaue
and Lapulapu? Three distinct
jurisdictions? Do you file 3 separate
actions and pay 3 separate filing fees? Do
you conduct 3 auctions?
Judge: No. However, the law provides:
“Where the application concerns the
extrajudicial foreclosure of mortgages of
real estates and/or chattels in different
locations covering one
indebtedness, only one filing fee
corresponding to such indebtedness
shall be collected. The collecting
Clerk of Court shall, apart from the
official receipt of the fees, issue a
certificate of payment indicating the
amount of indebtedness, the filing fees
collected, the mortgages sought to be
foreclosed, the real estates and/or
chattels mortgaged and their respective
locations, which certificate shall serve
the purpose of having the
application docketed with the Clerks
of Court of the places where the
other properties are located and of
allowing the extrajudicial
foreclosures to proceed thereat”
ii. Unlike Pledge here in REM, there is a
valid foreclosure sale even if the only one
bidder is the mortgagee.
5. CERTIFICATE OF SALE IS ISSUED
o this is what is registered in the
office of the Registry of Deeds.
o If there is a right of redemption,
the 1yr period starts to run from
the date of registration of the
certificate of sale.
o During the period of redemption
and if the property is in the
possession of the MORTGAGOR.
Not the possession of a third
person like an informal settler.
The highest bidder may file a
PETITION FOR WRIT OF
POSSESSION.
o Take note that if the property is
in the possession of a third
person who is not an agent of the
mortgagor, you cannot file an
action for writ of possession.
USC|CREDIT PREFI|EH403
Even after the lapse of the
redemption period. So you have
title you have no possession, you
cannot acquire possession by
mere writ of possession because
the court said you are
circumventing the rules on
ejectment. So file paka ug
ejectment.
o Even prior to the expiration of
the period of redemption. The
mortgagor may also file an
ACTION TO NULLIFY THE
FORECLOSURE SALE in the same
proceeding by way of
counterclaim. On the grounds of:
o Mortgage was not
violated or there was
no default.
o Foreclosure sale was
not made in
accordance with the
law. There might have
been a defect in the
notice.
o What is commonly practiced is
that an action to nullify the sale is
filed after the expiration of the
period of redemption. So labi na
dili maka redeem ang mortgagor
so yang action nlng is to Annul
the Foreclosure Sale or pwede
pud if the odds are in his favor an
ACTION TO ANNUL the
MORTGAGE on the ground of
usurious interest or
unconscionable interest.
6. CONFIRMATORY DEED OF SALE
 After the lapse of the redemption period, the
buyer is now entitled to a CONFIRMATORY
DEED OF SALE. This is the basis for the
payment of the taxes (documentary stamp
tax & capital gains tax).
 This is when the title is consolidated in the
buyer, because after the foreclosure sale in
the certificate of sale the title of the buyer is
subject to the positive resolutory condition of
redemption.
What if your notarial commission is for Cebu City
and the property to be foreclosed is located in
Mandaue? Can the foreclosure sale proceed?
P a g e 11 | 30
NO. It must be by a notary public commission in Mandaue
City or which areas is within the territorial jurisdiction of
Mandaue City.
What about extrajudicial foreclosure, when is it
initiated?
It is initiated by filing to the executive judge of the Central
Office through officer the clerk of court (it is the ex officio
office of the RTC)
Gravina v. CA
Re: Procedure
The finding of the trial court, which was sustained by the
Court of Appeals, was that the DLSA did send a letter to
the petitioners informing them of the foreclosure of the
mortgage but the petitioners failed to claim the letter. The
Court also found that said notice was published in the
Evening News, a newspaper of general circulation in the
City of Manila. We are bound by those factual findings of
the Court of Appeals (Leuterio vs. CA, 197 SCRA 369).
Moreover, Section 3 of Act No. 3135 (Mortgage Law)
requires only the posting of the notices of sale in three
public places and the publication of the same in a
newspaper of general circulation. Personal notice is not
required.
Benguet Management Corporation v. CA
Re: Procedure
Under the Procedure for Extra-Judicial Foreclosure of
Mortgage, an extra-judicial foreclosure covering several
properties located in different provinces but covering only
one indebtedness requires the applicant to pay only one
filing fee. This is regardless of the number of properties to
be foreclosed. However, the venue of the extra-judicial
foreclosure proceedings is the place where each of the
mortgaged property is located. The rationale of this rule is
that an injunction order of the court is enforceable only
within its territorial limits. Therefore, those properties
subject to the same mortgage but are located in different
provinces are outside the jurisdiction of the trial court. The
remedy of the law is to allow the applicant to file separate
injunction suits with another court which has jurisdiction
over the latter properties. BMC is not guilty of forum-
shopping because the remedy provided by law is precisely
to file separate injunction suits.
Deficiency Rule
 In case of deficiency, you can recover from the debtor
any deficiency of the obligation, unlike pledge.
 You can do this by ORDINARY ACTION, not a motion
to recover deficiency because there is no pending
action. Unlike in a judicial foreclosure there is a
pending action, so kung kuwang pa sa judicial
foreclosure the mortgagee only files a motion to
recover the deficiency in the same action. But in case
USC|CREDIT PREFI|EH403
of extrajudicial, you have to file a separate ordinary
action to recover the deficiency.
What about notice to the mortgagor, principal
debtor and to other persons who have interest to
the mortgaged property?
General Rule: Personal notice is not required. Only the
posting of the notice to 3 public places is required.
XCP: It is required if there is a contractual stipulation for
notice.
If in pledge, extra judicial foreclosure through sale by a
notary public is a matter of right provided in the law. Is
extra judicial foreclosure also a matter of right of the
parties of the mortgagee if there is a violation of the
conditions of the mortgage contract yet the mortgagee
proceeds for extra judicial foreclosure?
No. It is not a vested right on the part of the Mortgagee to
extra judicially foreclose unlike in pledge. The mortgagee
can only extra judicially foreclose if it is provided in the
mortgage contract. If it is not provided, the recourse of
the mortgagee is to judicially file a special civil action for
the judicial foreclosure of the mortgage.
What is contained in the notice?
(1) The correct certificate number and correct technical
description of the real property to be sold;
(2) time, place and date of public sale and the terms of
the sale.
Do you have a technical description of the building
if it is only the building that is sold? Does it have a
transfer certificate of title?
It does not have a transfer certificate of title. It only has
tax declaration. You cannot find the technical description
in the tax declaration. But for as long as the sufficient
description of the property is contained in the notice, it is
already enough because the purpose of the notice is to
inform the public of the property that will be sold in a
public sale.
In pledge, if there is foreclosure of sale and the
only bidder is the creditor, what is the effect on the
public sale? Can there be a public sale when there
is only the creditor who is the bidder? What does
the law require in pledge?
Under the law, it provides that if the creditor is the only
bidder in a public sale, another public sale must be
scheduled.
In the foreclosure sale of a real estate mortgage, if
it is only the creditor who is the bidder, can there
be a valid foreclosure sale?
Yes. There is no requirement as to the number of bidders
for a valid foreclosure sale to be conducted. In fact, in
P a g e 12 | 30
most foreclosure sales, there is only one bidder who is the
creditor/mortgagee.
Would you be interested in taking in the extra-
judicial foreclosure sale? Where the price is usually
much lower than the market value but why are you
not interested?
No. because it is subject to a positive resolutory condition
of Redemption.
After there is a valid foreclosure sale, what would
be the evidence of that extra-judicial foreclosure
sale?
Certificate of Sale issued by the Clerk of Court subject to
the approval of the Executive Judge. The executive judge
only approves the certificate of sale and does not issue it.
If there is a right of redemption and right of
redemption is not always present if there is an
extra-judicial foreclosure, of course the property is
not yet delivered to the purchaser because it is still
subject to the resolutory condition of redemption.
What is the purchaser’s remedy?
The purchaser can actually file for a writ of possession to
the court and ask that he may be placed in possession
during the period of redemption but only on the condition
that the property must be in the possession of the
mortgagor or any person claiming rights under the
mortgagor.
 If the property is in the possession of a third
person who is claiming a right other than that of
a mortgagor, there can be no writ of possession.
 Usually, a summary action for a writ of
possession is filed after the expiration of the
period of redemption and after the purchaser has
transferred the title in its name.
 Also, usually, in a foreclosure sale, even if the
certificate of title is already transferred in the
name of the purchaser, the mortgagor remains in
possession. So that is why a summary action for
the issuance of a writ of possession is filed for as
long as the property is in the possession of the
mortgagor and not of a third person.
 If under the redemption period, no redemption is
made either by the mortgagor or debtor or any
person having interest in the property (junior
encumbrancers). A confirmatory deed of sale will
be issued. And this confirmatory deed of sale will
be the basis in transferring the registration of the
certificate of title from the name of the
mortgagor to that of the purchaser.
What if there is a deficiency because the proceeds
of the foreclosure sale are not sufficient to satisfy
USC|CREDIT PREFI|EH403
the obligation. Can the mortgagee recover the
deficiency?
In pledge, there is no right to recover the deficiency at all
although there may be an obligation to return the excess
if stipulated. But in an extra-judicial foreclosure of REM,
there is always a right to recover the deficiency because
after all, the mortgage is merely a security and not for the
payment of the obligation. Otherwise, if it is for the
payment of the obligation, it could have been dacion en
pago.
It has been discussed earlier that if there is
deficiency from the proceeds of the sale in judicial
foreclosure, a motion is filed in the same judicial
foreclosure proceeding for the recovery of the
deficiency. What about in extra-judicial
foreclosure? If the mortgagee is entitled to recover
the deficiency, how will he be able to recover the
deficiency? Can the mortgagee levy upon the
property of the principal debtor?
To file a completely new complaint for the recovery of the
deficiency. If he does that, he can pray for writ of
preliminary attachment. But prior to the filing of an action
or complaint for the recovery of the deficiency, there is no
right to attach properties of the principal debtor.
From whom does the mortgagee recover the
deficiency? Can he recover it from a third party
mortgagor?
No because the third party mortgagor is not personally
liable on the principal obligation. So the mortgagee can
only recover the deficiency from the principal debtor and
not from the third party mortgagor.
Under rule 68, if the proceeds from the sale of the
property are more than sufficient to satisfy the
judgment debt, then, the excess will be paid to the
junior encumbrances. Does it apply also in an
extra-judicial foreclosure?
No. In the case of Monzon v Relova (2008), SC ruled that
unlike Rule 68 which governs judicial foreclosure sales,
neither Act no. 3135 was amended nor AM no 99-10-5-0
grants the junior encumbrancers the right to receive the
balance of the purchase price. The only right given to
second mortgagees is the right to redeem the foreclosed
property pursuant to sec 6 of act no. 3135 as amended by
act no. 411.
DBP v. Licuanon
Re: Deficiency Rule
Facts:
Respondent spouses Licuanan were granted a piggery
loan in the amount of P4,700 by petitioner, evidenced by a
promissory note and secured by a real estate mortgage
over a 980-square meter parcel of land with a two-storey
P a g e 13 | 30
building. Petitioner granted respondents an additional loan premature. Foreclosure is valid only when the debtor is in
of P12,000 evidenced by a promissory note payable on or default in the payment of his obligation.
before the year 1980. This was secured by a real estate
mortgage over four parcels of land. On 1975, petitioner PNB v. Rocamora
granted respondent spouses another loan of P22,000 Re: Deficiency Rule
evidenced by a promissory note maturing on 1985. This PNB was not able to prove the basis for the deficiency
was secured by a real estate mortgage executed in favor judgment it seeks. The right of the mortgagee to pursue
of petitioner over another three parcels of land. the debtor arises only when the proceeds of the
foreclosure sale are ascertained to be insufficient to cover
On 1981, petitioner sent a letter by registered mail to the obligation and the other costs at the time of the sale.
respondents informing them that, since the conditions of Thus, the amount of the obligation prior to foreclosure
the mortgage had been breached, petitioner would have and the proceeds of the foreclosure are material in a claim
the mortgaged properties sold by the sheriff under Act for deficiency. Creditors cannot unilaterally increase the
3135. The total amount due from the three loans had by interest rates; it is contrary to the principle of mutuality of
then ballooned to P75,298.32. Petitioner then filed an contracts. Any increase in the rate of interest made
application for extrajudicial foreclosure. The mortgaged pursuant to an escalation clause must be the result of an
properties were sold in a public auction. Petitioner, as the agreement between the parties. The minds of all the
highest bidder, acquired them for a total of P16,340. The parties must meet on the proposed modification as this
certificate of sale was registered. modification affects an important aspect of the
agreement. Thus, any change must be mutually agreed
On 1983, petitioner consolidated its ownership over the upon, otherwise, the change carries no binding effect. For
properties. After more than a year or on 1984, petitioner the Court to grant the PNB’s deficiency claim would be to
wrote respondents by registered mail, informing them that award it for its delay and its undisputed disregard of PD
the properties (now acquired assets of the bank) would be 385.
disposed of by public auction. On 1984, petitioner
published an advertisement stating that the properties
would be sold by oral bidding. However, there were no VI. Redemption
bidders.
The first thing you should determine if there is a right to
Petitioner sent respondents a letter informing them that redemption is: who is the mortgagee?
the properties could be reacquired by negotiated sale for
MORTGAGEE: NON-BANKING INSTITUTION
cash or installment. Three days later, however, the
properties were sold through negotiated sale to one MORTGAGOR
Emelita A. Peralta. Petitioner executed a deed of
Natural Juridical
conditional sale in favor of Peralta. Respondents offered to
Extrajudicial There is a right of There is NO right of
repurchase the properties from petitioner but they had
already been sold to Peralta. Respondents then filed a Foreclosure redemption within redemption but there
complaint for recovery of real properties and damages. one year from is what we call as
registration of the Equity of Redemption
Issue: WON respondents are liable for the deficiency sale. which the mortgagor
claim of petitioner. or any redemptioner
TN: The price in which the mortgaged property was sold can exercise within a
was P104,000 which was less than the amount of period not more than
respondents’ indebtedness which is P131,642.33. 90 days from the sale
but not later than the
Ruling: registration.
No. the respondents are not responsible for the deficiency
claim. While it is true that in extrajudicial foreclosure of So if registration
mortgage, the mortgagee has the right to recover the happens one week
deficiency from the debtor this presupposes that the
after the sale, then
foreclosure must first be valid. But in this case, the
the redemptioner
foreclosure is invalid. If demand was made and duly
received by the respondents and the latter still did not cannot inisist on 90
pay, then they were already in default and foreclosure days. But if the
was proper. However, if demand was not made, then the registration happens
loans had not yet become due and demandable. This one year after the
meant that respondents had not defaulted in their sale, the
payments and the foreclosure by petitioner was redemptioner cannot
insist on one year

USC|CREDIT PREFI|EH403 P a g e 14 | 30
 because it’s limited to Writ of Possession for as long as the mortgagor is
90 days. So either 90 in possession of the property. If the property is
days or registration, with a third person who claims a superior right
whichever comes over that of the mortgagor, then the Writ cannot
first. be issued. Remember this is a Summary
Judicial There is no right of redemption. There is Proceeding. The Supreme Court said there is no
Foreclosure merely equity of redemption which the requirement for a hearing, even a summary
redemptioner can exercise within a period hearing is not required. For as long as the Court
of not less than 90 days nor more than 120 is satisfied that the property is in the possession
days from the finality of judgement of the mortgagor, then the Court can
immediately issue a Writ of Possession.

Why is Writ of Possession not issued if the property

MORTGAGEE: BANKING INSTITUTION
MORTGAGOR
Natural Juridical
Extrajudicial Same rules as Same rules as above.
Foreclosure above. There is a No right
right of redemption
redemption for juridical persons.
natural
mortgagors.
Judicial There is a right of redemption. The General
Foreclosure Banking Law did not distinguish whether
the mortgagor is a natural person or
juridical person for judicial foreclosure. So
this is the exception to the general rule
that for judicial foreclosure there is no right
of redemption.
What about if there is no redemption exercised?
Remember within the period from the sale and even after
registration, up to one year from the date of registration.
The purchaser in the foreclosure sale is not placed in
possession of the property. The property may still be in
the possession of the mortgagor or of a third person.
What’s the right of the purchaser? He is entitled to a Writ
of Possession.
Where does the purchaser go to get the Writ of
Possession?
 If the mode of foreclosure is judicial foreclosure,
by motion in the same case or in the same
judicial proceeding.
 If it is extrajudicial foreclosure, then the
purchaser has to file a summary action for the
issuance of a writ of possession. The issuance of
the writ is a ministerial duty of the Court. The
Court has no discretion to deny issuance of a
is in the possession of a third person? What is the
remedy of the purchaser if the property is in the
possession of a third person not the mortgagor nor
any person claiming a right under the Mortgage
Law?
Remedy of the purchaser: You cannot just summarily
deprive the third-party possessor through an issuance of a
writ of possession. The purchaser has to file a separate
civil action for EJECTMENT. Not just a petition for a writ of
possession because the possessor of the property has to
of
be allowed his day in Court. It is part of due process.
for
(Why are you not sure of your answers?? You’ll be lawyers THREE
YEARS FROM NOW! You’ll be calling me Panyera already.
*Believe lang mga bes!*)
A. Rules
a. Judicial foreclosure
No right of redemption but only equity of redemption
which should be exercised within a period of not less than
90 days but not more than 120 days from the entry of
judgment (Sec. 2, Rule 68) (But see the General Banking
Act of 2000)
TN: The period will be set by the court depending on its
discretion. The 90 day period is reckoned from foreclosure
and not entry of judgment.
b. Extrajudicial foreclosure
1. For natural debtor – within 1 year from date of
registration of certificate of sale
2. For juridical debtor – within 3 months from foreclosure
but not after the registration of the certificate of sale
except when the creditor is a bank wherein it has 1 year
period from date of registration of certificate of sale to
redeem.
Huerta Alba Resort v. CA
Re: Right of redemption vs. equity of redemption
The right of redemption in relation to a mortgage –
understood in the sense of a prerogative to re-acquire
mortgaged property after registration of the foreclosure

USC|CREDIT PREFI|EH403 P a g e 15 | 30
sale – exists only in the case of the extrajudicial
foreclosure of the mortgage. No such right is recognized in
a judicial foreclosure except only where the mortgagee is
the Philippine National Bank or a bank or banking
institution. Petitioner failed to seasonably invoke its
purported right under Section 78 of R.A. No. 337. Indeed,
the facts show that it was only on May 2, 1995 when, in
opposition to the Motion for Issuance of Writ of
Possession, did petitioner file a Motion to Compel Private
Respondent to Accept Redemption, invoking for the very
first time its alleged right to redeem subject properties
under to Section 78 of R.A. No. 337. In light of the
aforestated facts, it was too late in the day for petitioner
to invoke a right to redeem under Section 78 of R.A. No.
337. Petitioner failed to assert a right to redeem in several
crucial stages of the proceedings.
B. How done
a. Formal offer to redeem
1. To whom notice to redeem is given
aa) Officer who made the sale
bb) Register of Deeds
b. Action together with consignation of redemption price
within the period
TN: The notice must be in writing and must be
accompanied by the tender of the price which must be the
full amount. It must be done within the period to redeem.
Banco Filipino v. CA
Re: How done
Clearly, the right of redemption should be exercised within
the specified time limit, which is one year from the date of
registration of the certificate of sale. The redemptioner
should make an actual tender in good faith of the full
amount of the purchase price as provided above, i.e., the
amount fixed by the court in the order of execution or the
amount due under the mortgage deed, as the case may
be, with interest thereon at the rate specified in the
mortgage, and all the costs, and judicial and other
expenses incurred by the bank or institution concerned by
reason of the execution and sale and as a result of the
custody of said property less the income received from the
property. In case of disagreement over the redemption
price, the redemptioner may preserve his right of
redemption through judicial action which in every case
must be filed within the one-year period of redemption.
The filing of the court action to enforce redemption, being
equivalent to a formal offer to redeem, would have the
effect of preserving his redemptive rights and "freezing"
the expiration of the one-year period. In this case, the
period of redemption expired on January 21, 1992. The
complaint was filed on December 20, 1992. Moreover,
while the complaint alleges that private respondent made
an offer to redeem the subject property on August 6,
1991, which was within the period of redemption, it is not
alleged in the complaint that there was an actual tender of
USC|CREDIT PREFI|EH403
payment of the redemption price as required by the rules.
It was alleged that private respondent merely made an
offer of P700,000.00 as redemption price, which however,
as stated under paragraph 13 of the same complaint, the
redemption money was the total bank claim of
P925,448.17 plus lawful interest and other allowable
expenses incident to the foreclosure proceedings. Thus,
the offer was even very much lower than the price paid by
petitioner as the highest bidder in the auction sale.
C. What is to be paid
a. Purchase price
b. 1% monthly interest
c. Taxes, if any
d. Necessary expenses for preservation
Judge: Generally, the repurchase price or the redemption
price consists of the purchase price, interest which is 1%
a month and the redemptioner cannot invoke Nacar v.
Gallery because this is specifically provided by law so the
redemptioner cannot invoke the 6% per annum (legal
interest). Taxes, if paid by the purchaser, that’s 1% (one
percent) a month. And the necessary expenses for the
preservation. But if the mortgagee is a Banking institution,
it’s not just the purchase price that will be paid BUT the
entire debt secured by the mortgage. The entire debt
which is DUE under the mortgage deal. So it can be more
than the purchase price actually. And the redemptioner
cannot insist on redeeming the property and paying the
installment because the offer to pay must be in cash.
China Banking Corp. v. CA
Re: What is to be paid
Expectedly, petitioner refutes these, saying that the
amounts paid by Paulino were grossly disproportionate to
the right to redeem the property, which is a residential
house and lot located in North Greenhills, San Juan, Metro
Manila. But as correctly pointed out by private
respondents, the amount of P100,000.00 paid by Paulino
to Alfonso was not for the property itself, but merely for
the right to redeem the same. As a matter of fact, Paulino
still had to pay Metrobank the redemption price of
P1,463,375.39. Whether or not the latter amount was
adequate is beyond the scope of this inquiry. Suffice it to
state that Metrobank accepted the same and reconveyed
the property to Paulino. Moreover, only Alfonso’s conjugal
share in the property was affected, and the determination
of its value was still subject to liquidation of debts and
charges against the conjugal partnership.
BPI v. Sps. Veloso
Re: Effect of tender of less than the purchase price
In several cases decided by the Court where the right to
repurchase was held to have been properly exercised,
there was an unequivocal tender of payment for the full
amount of the repurchase price. Otherwise, the offer to
redeem is ineffectual. Bona fide redemption necessarily
P a g e 16 | 30
implies a reasonable and valid tender of the entire
repurchase price, otherwise the rule on the redemption
period fixed by law can easily be circumvented.
Consequently, in this case, the offer by respondents on
July 24, 1986 to redeem the foreclosed properties for
P1,872,935 and the subsequent consignation in court of
P1,500,000 on August 27, 1986, while made within the
period of redemption, was ineffective since the amount
offered and actually consigned not only did not include the
interest but was in fact also way below the P2,782,554.66
paid by the highest bidder/purchaser of the properties
during the auction sale.

What if the purchaser refuses to allow redemption?

What is the remedy of the redemptioner?
Remedy: Consignation which is preceded by tender of
payment of the FULL purchase price because the
purchaser in the foreclosure sale can refuse if there is no
tender of the full purchase price like if the redemptioner
tenders to pay in installments. For example, during the 8 th
month of the redemption period, the redemptioner sends
notice of his intention to redeem and offers to redeem and
pay within one year. The redemptioner cannot insist on
paying on installments. The paying on installments will in
effect extend the period of redemption.

D. Effect of death of mortgagor

The mortgagee may avail of the following alternative
remedies:
a. Waive the mortgage and claim the entire debt from
the estate of the mortgagor as an ordinary claim
b. Foreclose the mortgage judicially and prove the
deficiency as an ordinary claim; and
c. Rely on the mortgage exclusively, or other security
and foreclose the same at anytime, before it is
barred by prescription, without the right to file a
claim for any deficiency

E. Remedies of mortgagor in equitable mortgage

a. Action for reformation of the instrument into a loan
with equitable mortgage
b. Alleging as defense that the real intention of the
parties was a loan with equitable mortgage
which, in effect, is an action for reformation of
the instrument
c. Judicial objection or opposition to the registration
of the affidavit of consolidation of ownership on
the ground that the real intention of the parties
was a loan with equitable mortgage

USC|CREDIT PREFI|EH403 P a g e 17 | 30
 CHAPTER 4- ANTICHRESIS
Arts. 2132-2139
I. Concept
Antichresis also involves real property but unlike
mortgage, the essence of antichresis is to grant the
creditor the right to receive the fruits from an immovable
so the fruits can be applied to the payment of interest and
the excess will be applied to the payment of the principal.
If REM is a formal contract, is antichresis is a real
contract?
NO. It’s still a formal contract because the agreement to
allow the creditor to receive the fruits must be in writing.
While the creditor has the right to receive the fruits, it is
not required that he must have possession of the
property. So the owner of the property can still have
possession as long as the fruits or the income are
delivered to the creditor.
Can the parties stipulate that the creditor can have
possession of the property?
Yes, that is not prohibited. Just like it is not prohibited in
REM that the mortgagee be placed in possession of the
property.
II. Elements
a. Parties: the contract of antichresis may be
established by one having the right to encumber
property, either the debtor or a third person.
b. Object: it may be constituted only on
immovables giving fruits.
c. Causa: same as the other contracts of security.
d. Formalities: Article 2134. The amount of the
principal and of the interest shall be specified in
writing; otherwise, the contract of antichresis
shall be void. (n)
TN: It must be in a public instrument to affect third
persons or recorded if the property involved is registered.
However, it may only be in a private instrument to be
binding between the parties.
III. Effects
Rights of the antichretic creditor
A. To receive the fruits
B. Right of Foreclosure
A. To receive the fruits
Article 2132. By the contract of antichresis the creditor
acquires the right to receive the fruits of an immovable of
his debtor, with the obligation to apply them to the
USC|CREDIT PREFI|EH403
payment of the interest, if owing, and thereafter to the
principal of his credit. (1881)
Article 2133. The actual market value of the fruits at the
time of the application thereof to the interest and principal
shall be the measure of such application. (n)
A provision in a contract that the full amount of the
indebtedness must be returned to the lenders, despite
their receipt of the fruits, before the borrowers could
demand the return of the property is contrary to an
antichretic contract. Hence, it is void for being contrary to
law, morals, and public policy (Verzosa vs. Bucag, L-8031,
Oct. 29, 1955).
B. Right of foreclosure
Article 2137. The creditor does not acquire the
ownership of the real estate for non-payment of the debt
within the period agreed upon.
Every stipulation to the contrary shall be void. But the
creditor may petition the court for the payment of the
debt or the sale of the real property. In this case, the
Rules of Court on the foreclosure of mortgages shall
apply. (1884a)
Obligations of the antichretic creditor
A. To bear necessary expenses
B. To pay taxes
A. To bear necessary expenses
Article 2135. The creditor, unless there is a stipulation to
the contrary, is obliged to pay the taxes and charges upon
the estate.
He is also bound to bear the expenses necessary for its
preservation and repair.
The sums spent for the purposes stated in this article shall
be deducted from the fruits. (1882)
B. To pay taxes
Article 2135. The creditor, unless there is a stipulation to
the contrary, is obliged to pay the taxes and charges upon
the estate.
He is also bound to bear the expenses necessary for its
preservation and repair.
The sums spent for the purposes stated in this article shall
be deducted from the fruits. (1882)
P a g e 18 | 30
If we have an antichresis contract, it is the right of the
creditor to receive the fruits and apply the fruits to the
payment of interest and apply the excess to the principal,
it is likewise his obligation to pay Real Property or Real
Estate Tax.
What is the risk of the creditor not paying the
taxes?
The Government will sell the property in a public sale to
satisfy the tax.
properties mortgaged during the time they were in
appellee's possession, the latter, like an antichretic
creditor, must account for the value of the fruits received
by him, and deduct it from the loan obtained by appellant.
As such mortgagee in possession, his rights and
obligations are, as pointed out by this Court in
Macapinlac vs. Gutierrez Repide (43 Phil., 770), similar to
those of an antichretic creditor.

If the creditor feels that it is too much of a burden

for him to pay taxes, to shoulder the expenses for
the preservation of the property because he is
living in Canada and the property is in Cebu, what
must he do if he refuses to be burdened with these
obligations?
Let the debtor re-enter the property. If he (creditor)
refuses to discharge his obligations then he will not be
entitled to the fruits anymore.

TN: The tax that to be paid is real property tax to the

LGU, not to the BIR.

Can the antichretic creditor cause the extrajudicial

foreclosure sale of the property?
No, he cannot. He can only resort to judicial sale of the
property. And by that, he has to go to Court to allow the
sale of the property because he is judicially foreclosing the
property.

1. Reason
Otherwise, the debtor could deprive the creditor of the
security by not paying taxes and causing its forfeiture.

2. Exception
Article 2136. The debtor cannot reacquire the enjoyment
of the immovable without first having totally paid what he
owes the creditor.

But the latter, in order to exempt himself from the

obligations imposed upon him by the preceding article,
may always compel the debtor to enter again upon the
enjoyment of the property, except when there is a
stipulation to the contrary. (1883)

TN: Also, when the contrary is stipulated and if he refuses

to receive the fruits.

3. Effect of non-fulfillment
The creditor is liable for damages.

Diego v. Fernando
Re: Antichresis
In the present case, the parties having agreed that the
loan was to be without interest, and the appellant not
having expressly waived his right to the fruits of the

USC|CREDIT PREFI|EH403 P a g e 19 | 30
 CHAPTER 5- CHATTEL MORTGAGE obligation, and one not entered into for the purpose of
fraud.” makes it obvious that the debt referred to in the
Arts. 2140-2141 law is a current, not an obligation that is yet merely
contemplated.
I. Concept (Art. 2140 and Act. 1508)
III. Elements
Article 2140. By a chattel mortgage, personal property is A. Parties: the personal property mortgaged must be
recorded in the Chattel Mortgage Register as a security for owned by the mortgagor at the time of its constitution.
the performance of an obligation. If the movable, instead The exception is with regard to revolving stocks.
of being recorded, is delivered to the creditor or a third
person, the contract is a pledge and not a chattel
mortgage. (n) Judge: Mortgagor must be the absolute owner of the
property and must have free disposal of such. Why?
Judge: According to Act 1508, it’s a conditional sale of Because of the probability that the property may be sold
personal property. The condition being that the sale in a public sale to satisfy the principal obligation.
should be voided if the principal obligation is vague (?).
B. Object: must be personal properties which may
But what does the civil code say? It is the recording of the
include:
personal property in the chattel mortgage register as the
(1) interest in a business, (2) ungathered crops, (3)
security of the performance of an obligation. Now just like vessels but subject to special rules, (4) certificates of
pledge and real estate mortgage, it is constituted to stock, (5) large cattle, and (6) stock in trade.
secure a principal obligation.
A chattel mortgage over immovables is generally void. The
exception is when the parties are in estoppel because of
II. Nature and characteristics
their prior agreement. However, such is only binding
between the parties and cannot prevail over a subsequent
A. Obligations that may be secured
REM over such real property.
Cannot secure future obligations. The oath there, under
Sec. 5 of Act 1508, states that the mortgage secures the
Manarang v. Ofilada
obligation stated herein. Meaning that only present
Re: Object of antichresis
obligations can be secured by chattel mortgage. While
We, therefore, hold that the mere fact that a house was
pledge and REM can secure future obligations, chattel
the subject of a chattel mortgage and was considered as
mortgage cannot secure future obligations.
personal property by the parties does not make said house
personal property for purposes of the notice to be given
Acme Shoe, Rubber & Plastic Corp. v. CA
for its sale at public auction. This ruling is demanded by
Re: Obligations that may be secured
the need for a definite, orderly and well- defined
While a pledge, real estate mortgage, or antichresis may
regulation for official and public guidance and which would
exceptionally secure after-incurred obligations so long as
prevent confusion and misunderstanding. We, therefore,
these future debts are accurately described, a chattel
declare that the house of mixed materials levied upon on
mortgage, however, can only cover obligations existing at
execution, although subject of a contract of chattel
the time the mortgage is constituted. Although
mortgage between the owner and a third person, is real
a promise expressed in a chattel mortgage to include
property within the purview of Rule 39, section 16, of the
debts that are yet to be contracted can be a binding
Rules of Court as it has become a permanent fixture on
commitment that can be compelled upon, the security
the land, which is real property.
itself, however, does not come into existence or arise until
after a chattel mortgage agreement covering the newly
Tumalad v. Vicencio
contracted debt is executed either by concluding a fresh
Re: Object of Antichresis
chattel mortgage or by amending the old contract
Certain deviations have been allowed from the
conformably with the form prescribed by
general doctrine that buildings are immovable property
the Chattel Mortgage Law.
such as when through stipulation, parties may agree to
treat as personal property those by their nature would be
Judge: While pledge, REM and antichresis, may
real property. This is partly based on the principle of
exceptionally secure after incurred obligations so long as
estoppel wherein the principle is predicated on statements
these debts are accurately described, a chattel mortgage
by the owner declaring his house as chattel, a conduct
obligations existing at the time the mortgage is
that may conceivably stop him from subsequently claiming
constituted. That the statute has provided that the parties
otherwise. In the case at bar, though there be no specific
to the contract must execute an oath that — “. . . (the)
statement referring to the subject house as personal
mortgage is made for the purpose of securing the
property, yet by ceding, selling or transferring a property
obligation specified in the conditions thereof, and for no
through chattel mortgage could only have meant that
other purpose, and that the same is a just and valid

USC|CREDIT PREFI|EH403 P a g e 20 | 30
defendant conveys the house as chattel, or at least,
intended to treat the same as such, so that they should
not now be allowed to make an inconsistent stand by
claiming otherwise.
Makati Leasing and Finance Corp. v. Wearever
Textile Mills, Inc.
Re: Object of Antichresis
If a house of strong materials, like what was involved in
Tumald vs. Vicencio 41 SCRA 143, may be considered as
personal property for purposes of executing a chattel
mortgage thereon as long as the parties to the contract so
agree and no innocent third party will be prejudiced
thereby there is absolutely no reason why a machinery,
which is movable in its nature and becomes immobilized
only by destination or purpose, may not be likewise
treated as such. This is really because one who has
agreed is stopped from denying the existence of the
chattel mortgage.
Jaca v. Davao Lumber Co.
Re: Object of Antichresis
The defendant’s proof of interest in the property is the
deed of chattel mortgage executed by the plaintiff in its
favor on January 24, 1964. This deed of chattel
mortgage is void because it provides that the security
stated therein is for the payment of any and all
obligations herein before contracted and which may
hereafter be contracted by the mortgagor in favor of the
mortgagee.
Judge: This deed of chattel mortgage is void because it provides
that the security stated therein is for the payment of any and all
obligations herein before contracted and which may hereafter be
contracted by the Mortgagor in favor of the Mortgagee.
C. Causa: same as the other contracts of security.
D. Form
a. To bind the parties: it must be in a public
document because of the requirement in Art.
2140 that it must be registered in the Chattel
Mortgage Register.
b. To bind third persons –
additional requirements:
1. Affidavit of good faith
2. Description of the property
3. Registration
1. Affidavit of good faith
According to Section 5, of Act No. 1508, the oath is
actually your affidavit of good faith. Specifically the
part there that states, “We severally swear that the
foregoing mortgage is made for the purpose of
securing the obligations specified in the conditions
thereof and for no other purpose and that is made
just for a valid application and not entered into for
the purpose of fraud”.
USC|CREDIT PREFI|EH403
What does the SC has to say about this requirement
for an oath? Is it required for validity?
In the old case of Giberson, 44 Phil Reports, it has
been held that the absence of an affidavit vitiates the
mortgage as against the creditors and any
subsequent encumbrances. Creditors here do not
refer to mortgagee. And in the more recent case of
CIFC, suspension of affidavit is required only for the
purpose of transforming an already valid mortgage
into a preferred mortgage. It is not necessary for the
validity of the chattel mortgage.
So take away the oath, what do you have there in
section 5? Do you still have a public document if you
take away the oath?
It would seem that the private document would be
sufficient to bind the parties but I have not yet seen a
chattel mortgage which is only in a private document
and I have not also seen jurisprudence yet specifically
addressing this issue.
2. Description of the property
Judge: The law says there is no requirement for a
detailed description for as long as the description
must be such as to enable the parties to the
mortgage as well as other/third person after
reasonable inquiry and investigation, so to identify the
same.
3. Registration
GR: Registration is at the Register of Deeds where
the property is located and where the mortgagor
resides.
XC:
Vessels - office of the Coast Guard of the port of
documentation (PD 1512 – Ship Mortgage Decree)
Motor vehicles – register of deeds where the property
is located and where the mortgagor resides and also
in the Land Transportation Office
Shares of stocks – register of deeds where the
principal office of the corporation is located
Judge: Registration is only required to bind third
persons even if the law says that in chattel mortgage,
personal properties is recorded in the chattel
mortgage register as a security to the payment of
principal obligation. Again, jurisprudence states that
registration is only required to bind third person just
like real estate mortgage.
Now if the law says that by chattel mortgage,
personal property is recorded in the chattel mortgage
register where must the registration or recording be
made? Because when you talk of a real estate
mortgage it is recorded or registered where the
property is located right? But how about movable?
P a g e 21 | 30
 In the place where the mortgagor resides and where
the property is located. If the mortgagor resides in
Cebu City and the property is located in Cebu City,
then you go to the Registry of Deeds in Cebu City.
If the property is located in Cebu City and the
mortgagor is residing in San Fernando Cebu, where
must the mortgage be registered?
Office of the Registy of Deeds of the Province of Cebu
because the mortgagor resides in San Fernando and
also in the Registry of Deeds of City of Cebu where
the property is located.
Can share of stocks be a subject of chattel mortgage?
Yes. Then where do you register the mortgage? In
the principal place/office of business as registered in
the SEC, that’s where the records of the corporation –
the stock transfer books, minutes of the meetings,
are kept.
Then how about in SEC? Are you required to also
register the mortgage of stock in SEC?
No, there is no requirement for the registration of the
mortgage to the Securities and Exchange
Commission. In fact, if you personally bring your
document, di na nila dawaton, nag daghan daghan
rana sa ilang papel.
Now what about vessels, where do you register the
mortgage of vessel?
The place where the mortgagor resides and the office
of the Philippine Coast Guard and the port of
documentation.
What about motor vehicles?
In the Land Transportation Office (LTO) where the
vehicle is registered.
Giberson v. Jureidini Bros.
Re: Affidavit of good faith
The trial court held, and properly, that Exhibit 1 was
invalid because the oath required by law did not appear
therein, and because the subject-matter was not
described therein with sufficient particularity. The Chattel
Mortgage Law, in its section 5, in describing what shall be
deemed sufficient to constitute a good chattel mortgage,
includes the requirement of an affidavit of good faith
appended to the mortgage and recorded therewith. It has
been held by reputable courts that the absence of the
affidavit vitiates a mortgage as against creditors and
subsequent encumbrancers.
Jaca v. Davao Lumber Co.
Re: Affidavit of good faith
USC|CREDIT PREFI|EH403
The defendant’s proof of interest in the property is the
deed of chattel mortgage executed by the plaintiff in its
favor on January 24, 1964. This deed of chattel
mortgage is void because it provides that the security
stated therein is for the payment of any and all
obligations herein before contracted and which may
hereafter be contracted by the mortgagor in favor of the
mortgagee.
Cebu Int’l Finance Corp. v. CA
Re: Affidavit of good faith
The prevailing jurisprudence is that a mortgagee has a
right to rely in good faith on the certificate of title of the
mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion, has no
obligation to undertake further investigation. Hence, even
if the mortgagor is not the rightful owner of or does not
have a valid title to the mortgaged property, the
mortgagee or transferee in good faith is nonetheless
entitled to protection. Although this rule generally pertains
to real property, particularly registered land, it may also
be applied by analogy to personal property, in this case
specifically, since ship owners are, likewise, required by
law to register their vessels with the Philippine Coast
Guard. The chattel mortgage constituted on a vessel by
the buyer who was able to register the vessel in his name
despite the agreement with the seller that the vessel
would not be so registered until after full payment of the
price which do not appear in the buyer’s copy of the deed
of sale is VALID, for the mortgagee has the right to rely in
good faith on the certificate of registration. The special
affidavit of good faith, on the other hand, is required only
for the purpose of transforming an already valid mortgage
into a "preferred mortgage.'' Thus, the abovementioned
affidavit it is not necessary for the validity of the chattel
mortgage itself but only to give it a preferred status.
Saldana v. Phil. Guaranty Co.
Re: Description of the property
Section 7 of the Chattel Mortgage Law does not demand
a minute and specific description of every chattel
mortgaged in the deed of mortgage but only requires that
the description of the properties be such “as to enable the
parties in the mortgage or any other person, after
reasonable inquiry and investigation to identify the
same”. Gauged by this standard, general descriptions
have been held valid by this court. The specification in the
last paragraph of the deed in the instant case is in
substantial compliance with the “reasonable description
rule” fixed by the Chattel Mortgage Law.
Judge: Supposing last Jan. 1, 2016, A constituted a
chattel mortgage over a real property to B, duly
registered. A year after, A constituted a real estate
mortgage over the same real property in favor C, another
creditor, duly registered.
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Does the Register of Deeds have the discretion to reject
the registration of this second mortgage? No, because
recoding is a purely ministerial duty of the Register of
Deeds.
When the obligation secured by the REM fell due, C
foreclosed the mortgage. Remember that C is a
subsequent mortgagee. Of course, B opposes the
foreclosure because B is the first mortgagee.
Who has a better right to foreclose the mortgage? B or C?
C has a better right.
General rule: REM over movable property is void. BUT if
the parties intended or agreed or consented to constitute
a chattel mortgage over a real property then it is binding
between the parties. They are estopped from questioning
the validity of the mortgage. However, that mortgage
will not prejudice third persons. Is C a third person? Yes.
Is he considered a mortgagee in bad faith considering that
he is aware of the previous mortgage? No, because the
chattel mortgage does not bind him even if he is duly
notified or charged with notice because it is registered.
There is no problem if there is no other lien on the
property. B can foreclose the mortgage because in this
case, no third person/party is affected. But if a third party
is affected, then the third party will not be prejudiced with
the chattel mortgage.
Judge: Now we said earlier that interest in business can
also be the object of chattel mortgage and stock and trade
can also be the object of mortgage. Supposing I own a
school supplies store just across USC, and I owe you
PhP100,000 to so it would look like a mortgage on the
stock and trade inside my store, what is required again?
There must be description of the property. Because the
property describe will be the property to be sold in the
public sale, right? Now what about stock and trade? If I
constitute a chattel mortgage over stock and trade, found
now, currently existing inside of office supplies store, does
it mean to say I can no longer sell my inventory stocks?
So if I default after say 6 months, are the stock still the
very same stocks at the time of the chattel mortgage?
How can you foreclose if it’s no longer the same stocks
described in the chattel mortgage?
This is the exception. We call this a revolving stocks, so
there can be a valid mortgage over a stock and trade even
if at the time of the foreclosure is that is not the very
same stock at the time of the constitution of the
mortgage.
IV. Effect of mortgage
A. What it covers
GR: The mortgage covers only the property described in
the contract and excludes like or substituted property
thereafter acquired, anything in the contract to the
contrary notwithstanding.
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XCP: In case of stock contained in stores, drugstores, or
similar business of a “revolving or floating” nature
V. Discharge of mortgage (Sec. 8, Act. 1508)
Requisites
a. That there has been a performance or tender of
performance of the condition
b. That there has been a request (for the discharge)
made by the person entitled to redeem
Upon compliance of which, the mortgagee must give a
written discharge.
Effect of failure to discharge
The mortgagee is liable to pay twenty pesos (P20.00) and
all damages occasioned thereby
Act. 1508, Sec. 8. Failure of mortgagee to discharge the
mortgage. – If the mortgagee, assign, administrator, executor,
or either of them, after performance of the condition before or
after the breach thereof, or after tender of the performance of
the condition, at or after the time fixed for the performance, does
not within ten days after being requested thereto by any person
entitled to redeem, discharge the mortgage in the manner
provided by law, the person entitled to redeem may recover of
the person whose duty it is to discharge the same twenty pesos
for his neglect and all damages occasioned thereby in an action in
any court having jurisdiction of the subject-matter thereof.
Judge: I constituted a chattel mortgage over my vehicle
duly registered in the Local Registry and in the LTO, as
stamped in the Certificate of Registration. When I pay my
obligation to you, I received a receipt (O.R.) as full
payment of the obligation. And then I go to LTO to cancel
the encumbrance upon presentation of the Receipt, do
you think the LTO will do that? Or I go to the Office of the
Registry of Deeds and I showed the receipt to cancel the
same. Will they accept that?
No. They will require me to present an affidavit of
discharge. So in short, I am entitled to an affidavit of
discharge so that I can use this document to cancel the
mortgage in the Office of the Registry and in the LTO. So,
I demand from you issuance of the Affidavit of Discharge,
and you did not timely provide. What’s the consequence?
You are liable to pay the fine of PhP20.00 (twenty pesos)
plus damages. Remember this is Act 1508. Twenty pesos
in the early 1900 is already a huge amount.
VI. Redemption (before foreclosure) (Sec.13, Act.
1508)
A. Who may redeem
a. The mortgagor
b. Subsequent mortgagees
c. Subsequent attaching creditors
B and C will then be subrogate into the rights of the
mortgagee.
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B. What must be paid
a. The principal obligation and interests thereon
b. Costs and expenses incurred by any breach, before the
sale
C. Effects of redemption
The redemptioner is subrogated to the rights of the
mortgagee. He may, therefore, foreclose the mortgage in
the same manner.
Judge: Suppose I failed to pay my obligation to you as
secured by X through a chattel mortgage, and you have
not yet started foreclosure proceedings. X can redeem the
property by paying the unpaid obligation. So that’s
redemption prior to foreclosure. I want you to take note of
this because this is the only instance where there is
redemption of the property. So after default before
foreclosure, the third party mortgagor or any person who
has interest in the mortgaged property may redeem the
property by paying the mortgage debt. So if the third
party mortgagor or a subsequent encumbrancer pays the
obligation to you, is my obligation to you extinguished?
Ans: No, my obligation is not extinguished because I have
not paid it yet. Go back to Oblicon.
Question: Granting that this third party mortgagor paid
with my full knowledge and consent because there is
danger of the property being sold in a public sale and Mr.
X would tend to lose the property, so he (X, as a third
party mortgagor) pays the mortgage debt , Can he now
foreclosed the mortgage in case of your nonpayment?
Ans: No, how can he (X) foreclose his own property. So
the mortgage is extinguished but the principal obligation,
subsist. However if it’s a subsequent encumbrancer who
redeems then the subsequent encumbrance can foreclose
the mortgage. In the case of X as a third party mortgagor,
there is already a merger or confusion, go back to oblicon.
Q: What if no redemption made prior to foreclosure so you
proceed to the foreclosure of the mortgage. Remember,
the creditor/mortgagee cannot foreclose the mortgage
unless he has possession of the thing mortgaged, because
unlike in the foreclosure of the real estate mortgage, in
foreclosure of a chattel mortgage, immediately after the
conclusion of the foreclosure share, the movable is
immediately delivered to the buyer. So if the property is in
the possession of the mortgagor/debtor, before initiating
the foreclosure proceedings, the creditor has to take
possession of the property. So like what vehicle assignees
are doing, such as banks, if the buyer does not voluntarily
surrender the vehicle then the bank will file for an action
of repliven, recovery of possession of a personal property
as a prelude to foreclosure.
Q: Is an extra-judicial foreclosure a right granted to the
creditor?
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A: Unlike in real state mortgage where it is not a right but
can only be availed of if it is provided in the mortgage
contract, in chattel mortgage, even if it not stipulated in
the mortgage deal, the creditor can still avail of extra-
judicial foreclosure as it is so provided for by law.
So we still follow the procedure laid down by the
administrative matter. But the auction sale shall be
conducted after 30 days.
VII. Foreclosure
Since possession of the personal property is in the
mortgagor, the mortgagee may institute a case for
replevin against the mortgagor.
A. Kinds
a. Judicial
b. Extra-judicial
This is a matter of right unlike in REM where only if it is
stipulated.
1) Procedure (See A.M. No. 99-10-05-0, Aug. 7,
2001)
Only a notice is required which must not be less than 10
days in 2 public places. The public sale is conducted 30
days from default. The notice must not only be given to
the mortgagor but also to the subsequent encumbrancers
and subsequent attaching creditors unlike in REM where
only if it is stipulated. This is in order to give them a
second chance to redeem by participating in the public
sale.
Ownership is transferred upon delivery to the purchaser.
2) Disposition of proceeds
i) Application
a) Costs and expenses of the sale
b) The principal obligation and interests
c) Claims of subsequent mortgagees
d) The balance, if any, to the mortgagor.
The excess must be returned
ii) In case of deficiency
Deficiencies may be recovered by ordinary
action. However, when the chattel mortgage
is constituted on the thing very sold, the
deficiency cannot be recovered pursuant to
the Recto Law.
Pameca Wood Treatment Plant, Inc. v. CA
Re: In case of deficiency
It is clear from the above provision that the effects of
foreclosure under the Chattel Mortgage Law run
inconsistent with those of pledge under Article 2115.
Whereas, in pledge, the sale of the thing pledged
extinguishes the entire principal obligation, such that the
pledgor may no longer recover proceeds of the sale in
P a g e 24 | 30
excess of the amount of the principal obligation, Section property. Act No. 1508, or the Chattel Mortgage Law,
14 of the Chattel Mortgage Law (Act. 1508) expressly ostensibly could have served as the vehicle for any
entitles the mortgagor to the balance of the proceeds, legislative intent to bestow a right of redemption over
upon satisfaction of the principal obligation and costs. personal property, since that law governs the extrajudicial
Since the Chattel Mortgage Law bars the creditor- sale of mortgaged personal property, but the statute is
mortgagee from retaining the excess of the sale proceeds definitely silent on the point. And Section 39 of the 1997
there is a corollary obligation on the part of the debtor- Rules of Civil Procedure, extensively relied upon by the
mortgagee to pay the deficiency in case of a reduction in Court of Appeals, starkly utters that the right of
the price at public auction. redemption applies to real properties, not personal
properties, sold on execution. Tellingly, this Court, as early
as 1927, rejected the proposition that personal property
PNB v. Rocamora may be covered by the right of redemption. In Sibal v.
Re: In case of deficiency Valdez, the Court ruled that sugar cane crops are personal
PNB was not able to prove the basis for the deficiency property, and thus, not subject to the right of redemption.
judgment it seeks. The right of the mortgagee to pursue No countervailing statute has been enacted since then
the debtor arises only when the proceeds of the that would accord the right of redemption over personal
foreclosure sale are ascertained to be insufficient to cover property, hence the Court can affirm this decades-old
the obligation and the other costs at the time of the sale. ruling as effective to date.
Thus, the amount of the obligation prior to foreclosure
and the proceeds of the foreclosure are material in a claim
for deficiency. Creditors cannot unilaterally increase the
interest rates; it is contrary to the principle of mutuality of
contracts. Any increase in the rate of interest made
pursuant to an escalation clause must be the result of an
agreement between the parties. The minds of all the
parties must meet on the proposed modification as this
modification affects an important aspect of the
agreement. Thus, any change must be mutually agreed
upon, otherwise, the change carries no binding effect. For
the Court to grant the PNB’s deficiency claim would be to
award it for its delay and its undisputed disregard of PD
385.

iii) In case of sale of personal property on

installment (Art. 1484)

Article 1484. In a contract of sale of personal property the price

of which is payable in installments, the vendor may exercise any
of the following remedies:
(1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be void.
(1454-A-a)

B. Right of Redemption
There is no right of redemption.

Paray v. Rodriguez
Re: Right of Redemption
The right of redemption over mortgaged real property sold
extrajudicially is established by Act No. 3135, as amended.
The said law does not extend the same benefit to personal
property. In fact, there is no law in our statute books
which vests the right of redemption over personal

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As to Pledge Chattel Mortgage Real Mortgage Antichresis
Object On movables On movables On immovables On immovables
Possession By the creditor By the debtor By the debtor By the debtor
Perfection Real contract Formal contract Formal contract Formal contract
Form to bind Public instrument Recorded public Recorded public Recorded public instrument
containing description instrument instrument
of the thing pledged
and the date thereof

VIII. Distinctions

a. An oral mortgage (chattel or real) is invalid ab initio; an oral pledge is valid inter parte
b. Pledge is perfected by delivery (real contract); mortgage (chattel or real) is perfected by execution of the writing

USC|CREDIT PREFI|EH403 P a g e 26 | 30
 TITLE XIX-
CONCURRENCE AND PREFERENCE OF CREDITS
CHAPTER 1- GENERAL PROVISIONS
Chapter 1 – General Provisions
Articles 2236 – 2240
I. Concept and General Theory
A. Concurrence
- Possession by two or more creditors of
equal rights or privileges over the same
property or all of the property of the
debtor.
B. Preference
- Right held by a creditor to be preferred in
the payment of his claim above others out
of the debtor’s assets.
- The rules apply when two or more
creditors have separate and distinct claims
against the same debtor who has
insufficient property.
Judge: So when we talk about concurrence and
preference of credit, we’re actually talking about a
scenario where we have an insolvent debtor. And
who is an insolvent as described or defined in the
FRIA?
One who is generally unable to pay his liability as
they fall due. Now a person is unable to pay his
liabilities as they fall due not because he has
insufficient assets but may because his assets
contains only fixed assets. So he is suffering only
from liquidity problems, but under FRIA he’s
considered insolvent already.
The other kind of insolvent is one whose liabilities
are greater than his assets. Now this is the kind of
debtor that we’re looking at when we’re talking
about concurrence and preference of credit because
there’s no point in discussing about concurrence and
preference of credit if the debtor has enough assets
to pay off his obligation.
Now what is concurrence of credits?
Possession by two or more creditors of equal rights
or privileges over the same property or all of the
property of the debtor
Now what is preference of credits?
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Right held by a creditor to be preferred in the
payment of his claim above others out of the
debtor’s assets.
So not all creditors are preferred creditors. In fact
there are four types of creditors, or four kinds of
credits.
a. Absolutely preferred credit
b. Specially preferred credit
c. Ordinary preferred credit
d. Common creditor or the unsecured credits
Are absolutely preferred credit always paid first
because they are absolutely preferred? What are
examples of absolutely preferred credit? There are
only three actually: claims payable to the state on
taxes and duties (Art. 2241), taxes on the property
(Art. 2242) and unpaid wages (Art. 2244). All these
three must be paid first, but not all the time,
because under Art 2241, the duties and taxes are
absolutely preferred only with respect to the specific
movable property.
Art. 2241. With reference to specific movable property of
the debtor, the following claims or liens shall be preferred:
(1) Duties, taxes and fees due thereon to the State or any
subdivision thereof;
(2) Claims arising from misappropriation, breach of trust,
or malfeasance by public officials committed in the
performance of their duties, on the movables, money or
securities obtained by them;
(3) Claims for the unpaid price of movables sold, on said
movables, so long as they are in the possession of the
debtor, up to the value of the same; and if the movable
has been resold by the debtor and the price is still unpaid,
the lien may be enforced on the price; this right is not lost
by the immobilization of the thing by destination, provided
it has not lost its form, substance and identity; neither is
the right lost by the sale of the thing together with other
property for a lump sum, when the price thereof can be
determined proportionally;
(4) Credits guaranteed with a pledge so long as the things
pledged are in the hands of the creditor, or those
guaranteed by a chattel mortgage, upon the things
pledged or mortgaged, up to the value thereof;
(5) Credits for the making, repair, safekeeping or
preservation of personal property, on the movable thus
made, repaired, kept or possessed;
P a g e 27 | 30

(6) Claims for laborers' wages, on the goods
manufactured or the work done;
(7) For expenses of salvage, upon the goods salvaged;
(8) Credits between the landlord and the tenant, arising
from the contract of tenancy on shares, on the share of
each in the fruits or harvest;
(9) Credits for transportation, upon the goods carried, for
the price of the contract and incidental expenses, until
their delivery and for thirty days thereafter;
(10) Credits for lodging and supplies usually furnished to
travellers by hotel keepers, on the movables belonging to
the guest as long as such movables are in the hotel, but
not for money loaned to the guests;
(11) Credits for seeds and expenses for cultivation and
harvest advanced to the debtor, upon the fruits harvested;
(12) Credits for rent for one year, upon the personal
property of the lessee existing on the immovable leased
and on the fruits of the same, but not on money or
instruments of credit;
(13) Claims in favor of the depositor if the depositary has
wrongfully sold the thing deposited, upon the price of the
sale.
In the foregoing cases, if the movables to which the lien
or preference attaches have been wrongfully taken, the
creditor may demand them from any possessor, within
thirty days from the unlawful seizure. (1922a)
Art. 2242. With reference to specific immovable property
and real rights of the debtor, the following claims,
mortgages and liens shall be preferred, and shall
constitute an encumbrance on the immovable or real
right:
(1) Taxes due upon the land or building;
(2) For the unpaid price of real property sold, upon the
immovable sold;
(3) Claims of laborers, masons, mechanics and other
workmen, as well as of architects, engineers and
contractors, engaged in the construction, reconstruction or
repair of buildings, canals or other works, upon said
buildings, canals or other works;
(4) Claims of furnishers of materials used in the
construction, reconstruction, or repair of buildings, canals
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or other works, upon said buildings, canals or other
works;
(5) Mortgage credits recorded in the Registry of Property,
upon the real estate mortgaged;
(6) Expenses for the preservation or improvement of real
property when the law authorizes reimbursement, upon
the immovable preserved or improved;
(7) Credits annotated in the Registry of Property, in virtue
of a judicial order, by attachments or executions, upon the
property affected, and only as to later credits;
(8) Claims of co-heirs for warranty in the partition of an
immovable among them, upon the real property thus
divided;
(9) Claims of donors or real property for pecuniary
charges or other conditions imposed upon the donee,
upon the immovable donated;
(10) Credits of insurers, upon the property insured, for the
insurance premium for two years. (1923a)
Art. 2244. With reference to other property, real and
personal, of the debtor, the following claims or credits
shall be preferred in the order named:
(1) Proper funeral expenses for the debtor, or children
under his or her parental authority who have no property
of their own, when approved by the court;
(2) Credits for services rendered the insolvent by
employees, laborers, or household helpers for one year
preceding the commencement of the proceedings in
insolvency;
(3) Expenses during the last illness of the debtor or of his
or her spouse and children under his or her parental
authority, if they have no property of their own;
(4) Compensation due the laborers or their dependents
under laws providing for indemnity for damages in cases
of labor accident, or illness resulting from the nature of
the employment;
(5) Credits and advancements made to the debtor for
support of himself or herself, and family, during the last
year preceding the insolvency;
(6) Support during the insolvency proceedings, and for
three months thereafter;
P a g e 28 | 30
(7) Fines and civil indemnification arising from a criminal
offense;
(8) Legal expenses, and expenses incurred in the
administration of the insolvent's estate for the common
interest of the creditors, when properly authorized and
approved by the court;
(9) Taxes and assessments due the national government,
other than those mentioned in Articles 2241, No. 1, and
2242, No. 1;
(10) Taxes and assessments due any province, other than
those referred to in Articles 2241, No. 1, and 2242, No. 1;
(11) Taxes and assessments due any city or municipality,
other than those indicated in Articles 2241, No. 1, and
2242, No. 1;
(12) Damages for death or personal injuries caused by a
quasi-delict;
(13) Gifts due to public and private institutions of charity
or beneficence;
(14) Credits which, without special privilege, appear in (a)
a public instrument; or (b) in a final judgment, if they
have been the subject of litigation. These credits shall
have preference among themselves in the order of priority
of the dates of the instruments and of the judgments,
respectively. (1924a)
EXAMPLE 1: Granting this is a movable and you own
it. This is a car, and you have an insolvent debtor
here (A) who is placed under liquidation, and he has
a car imported which has unpaid duties 100K, so the
government has a claim has of unpaid duties of A’s
car.
A has not paid the purchase price. He still owes the
seller 500K. He also secured an obligation thru a
mortgage over his car for 500K. This credits concur
over this particular.
All credit here is preferred credits. But one is
absolutely preferred.
So this car is sold for 1M. is this distributed
proportionately or equally among the preferred
credits? How will this be distributed or disposed of?
How much is the balance 900?
How will the 900 be distributed.
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Will the unpaid seller be paid first or the balance be
paid to the mortgagee? Or are they paid
proportionately or equally?
If the car sold was sold for 3M, are all the preferred
creditors who have preferred credit over the car
paid? YES.
Is there balance? Yes.
EXAMPLE 2: You have an immovable, there are paid
taxes-realty taxes. And mortgage also. 2M. This is
sold for 1M. Is 1M paid proportionately to the
government and the mortgagee? So they are not
proportionately. Tax will be paid first because it
enjoys absolute preference. How much is the
balance for 1M? 950,000. 2M? Balance?
How will it be treated?
The preference of the mortgagee is only with
respsect to this particular problem. So the unpaid
portion here goes to common credit.
EXAMPLE 3: These are other claims by the
government not claims over specific property of the
insolvent. This is number 9 actually, and in fact
when you remember when we discussed deposit,
the uninsured portion of the bank deposits also is
considered ordinary preferred under number 9
together with the claims by the (PDIC?) against the
insolvent.
Do they concur? No. They DO NOT.
These Creditors concur (points to board). When you
say concurs credit. How would you describe the
equal claims over specific property. They do not
have equal claims over this (points to board) plus
other assets if there are other assets of the
insolvent. The excess form the sale of the specific
property over this plus the other assets will be used
to pay the ordinary preferred credits. Again they do
not concur they are paid in the order that they listed
in the article.
Except that, what’s the exception in your labor?
But this unpaid pages must not be for work done
here, because if its work done here then it’s paid
from this specific property and the unpaid portion or
P a g e 29 | 30
the unpaid balance be considered “common credit”
not ordinary preferred credit.

So, the unpaid credits that concur here will be

treated as common credits. If not fully satisfied they
do not go to the ordinary preferred credit. So kung
unpaid wages, wages paid, funeral expenses, take
note of number 9 etc. cause those are claims by the
national government these includes claims by PDIC
against the insolvent bank as well as claims by the
depositors for the uninsured portion of the deposit.

If there’s a balance, then that common creditor are

paid. If there’s no balance then they will not be paid
and in most instances there is not enough left to
satisfy all the common creditors and the common
credits are paid proportionately because there is no
order anymore to common creditors if we talk about
liquidation of an insolvent debtor, common creditors
are not paid in full.

Judge: Excess are used to pay the ordinary

preference. And the unpaid portion goes to the
common credit.

Article 2244 specifically stated that wages which are

not otherwise.

Note: If there is no insolvency, these articles under

preference of credits are irrelevant.

-FIN-

God bless!

Exam: March 19, 2017, Sunday

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