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Art. 2124.

Only the following property may be the object of a • Where mortgage is not valid, or consideration is simulated or
contract of mortgage: false, principal obligation it guarantees not rendered null and void.
(1) Immovables;
• What is lost only is right to foreclose mortgage as special remedy
(2) Alienable real rights in accordance with the laws, for satisfying or settling indebtedness which is principal obligation.
imposed upon immovables.
• In case of nullity, the mortgage deed remained as evidence or
Nevertheless, movables may be the object of a chattel
proof of a personal obligation of the debtor and the amount due to
mortgage.
the creditor may be enforced in an ordinary personal action.

• Mortgage – contract where debtor secures to the creditor the • Invalidity


of stipulation on interest does not render ancillary
fulfillment of a principal obligation, specially subjecting to such mortgage contract void.
security immovable property or real rights over immovable
property which obligation shall be satisfied with the proceeds of Art. 2126. The mortgage directly and immediately subjects the
the sale of said property or rights in case the said obligation is not property upon which it is imposed, whoever the possessor may
complied with at the time stipulated. be, to the fulfillment of the obligation for whose security it was
constituted.
• Real, Accessory, Subsidiary, Unilateral (obligation on the part of
the creditor who must free the property from encumbrance once
the obligation is fulfilled) • Registered mortgage creates right in rem, real right, lien
inseparable from property mortgaged, enforceable against whole
• Mortgagor-debtor, generally, retains possession of the property world, affording specific security of the satisfaction of a debt.
mortgaged as security for the payment of the sum borrowed from
the mortgagee-creditor. The debtor merely subjects the property to • If the mortgagor sells the mortgaged property, the property
a lien but ownership thereof is not parted with. It is not, however, remains subject to the fulfillment of the obligation secured by it. All
an essential requisite to the contract of mortgage that the property subsequent purchasers of the property must respect the
mortgaged remains in the possession of the mortgagor. mortgage, whether the transfer to them be with or without the
consent of the mortgagee. But the mortgage must be registered
• Kinds of mortgage. or, if not registered, the buyer must know of its existence.
1. voluntary – agreed to between the parties or constituted by the • A mortgage does not involve a transfer, cession or conveyance of
will of the owner of the property property but only constitutes a lien thereon. It gives the mortgagee
no right or claim to the possession of the property.
2. legal – required by law to be executed for certain persons
• It is merely security for a debt, an encumbrance upon the property
3. equitable – although lacking the proper formalities of a and does not extinguish the title of the debtor who does not lose
his principal attribute as owner, that is, the right to dispose.
mortgage nevertheless shoes the intention of the parties to
burden the property as a security for a debt
• Only right of mortgagee in case of non-payment of a debt secured
• Future property cannot be object of a contract of mortgage. by mortgage would be to foreclose the mortgage and have the
encumbered property sold to satisfy the outstanding indebtedness.
Art. 2125. In addition to the requisites stated in Article 2085, it
is indispensable, in order that a mortgage may be validly • Since mortgagor remains as the absolute owner of the property
constituted, that the document in which it appears be recorded during the redemption period and has the free disposal of his
in the Registry of Property. If the instrument is not recorded, property, there would be compliance with Article 2085 of the Civil
the mortgage is nevertheless binding between the parties. Code for the constitution of another mortgage on the property.
The persons in whose favor the law establishes a mortgage
Art. 2127. The mortgage extends to the natural accessions, to
have no other right than to demand the execution and the
the improvements, growing fruits, and the rents or income not
recording of the document in which the mortgage is formalized.
yet received when the obligation becomes due, and to the
amount of the indemnity granted or owing to the proprietor
• Registration only operates as a notice of the mortgage to others from the insurers of the property mortgaged, or in virtue of
but neither adds to its validity nor converts an invalid mortgage expropriation for public use, with the declarations,
into a valid one between the parties. amplifications and limitations established by law, whether the
estate remains in the possession of the mortgagor, or it passes
• Order for foreclosure cannot be refused based on mortgage not into the hands of a third person.
being registered provided no innocent third parties involved.

• Registration of mortgage over real property under Act No. 3344 is • To exclude them, there must be an express stipulation.
without prejudice to the better right of third parties.
• As a general rule, an action to foreclose a mortgage must be
• Once a mortgage has been signed in due form, the mortgagee is limited to the amount mentioned in the mortgage. But the amounts
entitled to its registration as a matter of right. named as consideration in a contract of mortgage do not limit the
amount for which the mortgaged may stand as security, if from the
• Proceedings for registration do not determine validity of mortgage four corners of the instrument the intent to secure future loans or
or its effect. advancements and other indebtedness can be gathered.
• The unrecorded sale is preferred since if the original owner (seller)
had parted with his ownership of the thing sold then he no longer • Mortgage given to secure future advancements is continuing
had ownership and free disposal of the thing so as to be able to security and is not discharged by repayment of amount named in
mortgage it. A registered mortgage, however, is superior to a the mortgage, until the full amount of the advancements are paid.
contract to sell, subject to any liabilities the owner
(vendor/mortgagor) may have incurred in favor of the buyer. Art. 2128. The mortgage credit may be alienated or assigned to
a third person, in whole or in part, with the formalities required
• As a general rule, where there is nothing on the certificate of title by law.
to indicate any cloud or vice in the ownership of the property, or
any encumbrance thereon, the purchaser is not required to • The alienation or assignment is valid even if it is not registered.
explore further than what the Torrens Title upon its face indicates Registration is necessary only to affect third persons.
in quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto. This, however, admits of an Art. 2129. The creditor may claim from a third person in
exception as where the purchaser or mortgagee has knowledge of possession of the mortgaged property, the payment of the part
a defect or lack of title in the vendor, or that he was aware of of the credit secured by the property which said third person
sufficient facts to induce a reasonably prudent man to inquire into possesses, in the terms and with the formalities which the law
the status of the property in litigation. establishes.
• Fact that the mortgagor has transferred the mortgaged property to executed, acknowledged and recorded. In absence of
a third person does not relieve him from his obligation to pay the Certificate of Sale, no title passes by foreclosure proceedings
debt to the mortgage creditor in the absence of novation. to the vendee. It is only when the foreclosure proceedings are
completed and the mortgage property sold to the purchaser
• The mortgage credit being a real right which follows the property, that all interests of the mortgagor are cut off from the property.
the creditor may demand from any possessor the payment only of Therefore, the mortgagor is liable for additional interests
the part of the credit secured by said property. It is necessary, properly chargeable on the balance of the mortgage
however, that prior demand for payment must have been made on indebtedness during the period from the notice of sale to
the debtor and the latter failed to pay. actual sale. This is applicable to extrajudicial foreclosures.

Art. 2130. A stipulation forbidding the owner from alienating the • EXTRAJUDICIAL FORECLOSURE UNDER ACT NO. 3135
immovable mortgaged shall be void. 1. Law covers only real estate mortgages. It is intended merely
to regulate extrajudicial sale of property mortgaged if and
• There is nothing wrong in a stipulation granting the mortgagee the when mortgagee is given a special power or express authority
right of first refusal over the mortgaged property in the event the to do so in the deed itself or in a document annexed thereto.
mortgagor decides to sell the same.
2. Mortgage may be foreclosed extrajudicially where there is
• He has to notify the mortgagee of his intention to sell the property inserted in contract a clause giving mortgagee power, upon
and give him priority over other buyers. default of debtor, to foreclose the mortgage by an extrajudicial
sale of the mortgaged property. The authority to sell is not
• Foreclosure – remedy available to the mortgagee by which he extinguished by death of the mortgagor (or mortgagee).
subjects the mortgaged property to the satisfaction of the
obligation to secure which the mortgage was given. 3. Sale, which cannot be made legally outside of the province in
which the property is situated, shall be made at public auction
• It denotes procedure adopted by the mortgagee to terminate the after the giving of proper notice of the sale in at least three
rights of the mortgagor on the property and includes the sale itself. public places at the municipality or city where the property is
situated and the publication thereof in a newspaper of general
• Mortgage can be foreclosed only when debt remains unpaid at
circulation in said municipality or city. Publication is required to
time it is due.
give the foreclosure sale a reasonably wide publicity such that
• In real estate mortgage, when principal obligation is not paid when those interested might attend the public sale.
due, mortgagee has right to foreclose mortgage and to have the
Failure to comply with statutory requirements as to publication
property seized and sold with a view to applying the proceeds to
of notice of auction sale constitutes a jurisdictional defect
the payment of the principal obligation. Foreclosure is valid where
which invalidates the sale or at least render the sale voidable.
the debtor is in default in the payment of his obligation. It must be
limited to the amount mentioned in the mortgage document.
a. Contents of notice. – the notice of sheriff’s sale to be valid,
• Once proceeds have been applied to payment of obligation, must contain the correct number of the certificate of title
debtor cannot anymore be required to pay, unless, of course, and the correct technical description of the real property to
there is a deficiency between amount of loan and the foreclosure be sold. Under normal conditions, failure to advertise a
sale price, because the obligation has already been extinguished. mortgage foreclosure sale in compliance with statutory
requirements constitutes a jurisdictional defect invalidating
• Statutory provisions governing public notice of foreclosure sales the sale, and a substantial error or omission in a notice of
must be strictly complied with, and even slight deviations sale will render the notice insufficient and vitiate the sale.
therefrom will invalidate sale or render it at least voidable.
b. Object of notice. – to inform the public generally of the
• Kinds of foreclosure: Foreclosure may be effected either judicially nature and condition of the property sold, and of the time,
(ordinary action) or extrajudicially (foreclosure under power of sale place and terms of the sale.
contained in the mortgage)
c. Personal notice to mortgagor not generally required
• JUDICIAL FORECLOSURE UNDER RULE 68, ROC unless there is no contractual stipulation.
1. Mortgage may be foreclosed judicially by bringing action for d. Notice to executing mortgagee-creditor not required.
that purpose, in proper court which has jurisdiction over area
wherein real property involved or a portion thereof, is situated. e. Posting of notice of sale on the mortgaged property not
required. It merely requires that the notice of sale be
2. If court finds complaint well-founded, it shall order mortgagor posted in at least three public places in the city or
to pay amount due upon mortgage debt or obligation with municipality where the property is situated (Sheriff’s
interest and other charges within a period of not less than 90 Office, Assessor’s Office, Register of Deeds)
days nor more than 120 days from entry of judgment.
3. If mortgagor fails to pay at the time directed in order, court,
f. Certificate of posting not required. It is only significant
upon motion, shall order property to be sold to highest bidder when it becomes necessary to prove compliance with
at public auction. required notice of posting. What law requires is posting of
notice of sale and not execution of certificate of posting.
4. The sale when confirmed by an order of the court, also upon
motion, shall operate to divest the rights of all parties to the g. Statutory requirements of posting and publication are
action and to vest their rights in the purchaser subject to such mandated for public or third persons. Failure to post notice
right of redemption as may be allowed by law. is not ground for invalidation foreclosure sale provided that
notice is duly published in a newspaper of general circular.
5. Proper remedy to seek reversal of judgment in action for
foreclosure of real estate mortgage is not petition for h. General circulation. – published for dissemination of local
annulment of judgment but appeal from judgment itself or from news and general information, has bona fide subscription
the order confirming the sale of the foreclosed real estate. list of paying subscribers, published at regular intervals.
6. Proceeds of the sale shall be applied to the payment of the : i. Formalities of levy not required.
a. Costs of the sale;
j. Notice to bidder of all bids offered at auction sale not
b. The amount due the mortgagee; required
c. Claims of junior encumbrancers or persons holding
subsequent mortgages in the order of their priority; and 4. Payment of cash by highest bidder. – Where the highest
bidder is the mortgagee and the amount of his bid
d. The balance, if any, shall be paid to the mortgagor or his represented the total mortgage debt, it is not necessary for
duly authorized agent, or to the person entitled to it. him to pay cash although it is requires that the creditor must
bid “under the same condition as any bidder”
7. “foreclosure” is not complete until sheriff’s certificate is
In case of surplus in the purchase price, the mortgagee must
account for the proceeds as if the price were paid in cash.

5. Nature of surplus proceeds from foreclosure sale. – belong


to the mortgagor or his assigns.
6. The debtor (natural person) has the right to redeem the
property sold within the term of one year from and after the
date of the sale.
In the case of juridical persons, they have the right to redeem
the property until, but not after the registration of the
certificate of foreclosure sale which shall be no more than
three months after foreclosure, whichever is earlier.
7. Rule 39 applies to ordinary foreclosure sale. If at all, Rule 39
applies to extrajudicial foreclosure sale but only on the
manner of redemption and computation of interest.

8. Remedy of party aggrieved by foreclosure. – the debtor may,


in the proceeding in which possession was requested,
petition that the sale be set side and a writ of possession
cancelled, because the mortgage was not violated or the sale
was not made in accordance with the provisions thereof.

9. Republication. – necessary for the validity of a postponed


extrajudicial sale. Another in case auction sale is
rescheduled, and the absence of such republication
invalidates the foreclosure sale. The parties have no right to
waive the publication requirement.