MORTGAGE

Mr. De Guzman

MORTGAGE
> Contract whereby the debtor secures to the creditor the fulfillment of a principal
obligation, specially substituting to such security immovable property or real rights over
immovable property which obligation shall be satisfied with the proceeds of sale of said
property or rights in case the said obligation is not complied with at the time stipulated.

Derived from two French words mort and gage. Mort means dead and gage means
pledge. Thus, a mortgage is dead or unproductive pledge.

OBJECTS OF REAL MORTGAGE

1. immovables
2. alienable real rights in accordance with the laws, imposed upon immovables
* future property cannot be object of mortgage
(Article 2124)1

CHARACTERISTICS OF A MORTGAGE
1. Real It requires delivery for its perfection.

2. Accessory It can only exist if there is a principal obligation, which it secures. If the
principal obligation is void, the mortgage is also void.

Art. 2124. Only the following property may be the object of a contract of mortgage;Immovables;
(2) Alienable real rights in acoordance with the laws, imposed upon immovable.
Nevertheless, movables may be the object of a chattel mortgage.

3. Subsidiary Once the obligation has been paid or satisfied, the property must be
released from the encumbrance imposed. The mortgage is answerable only if the principal
obligation is not paid.

4. Unilateral - After perfection, it creates obligation to be performed by the mortgagee.

5. Indivisible Even though the debt is divided among the debtors or their successors in
interest of the debtor, or the credit among the creditors or successors in interest, the
mortgage remains an undivided one.

6. Inseparable - The mortgage attaches to the property, regardless of who will be its
subsequent owner or possessor.

7. Comprehensive It can secure all kinds of obligations which are not void.

A mortgage does not involve a transfer, cession or conveyance of property but only
constitutes a lien thereon.

RIGHT TO POSSESSION
General rule: The mortgagee has no right or claim to the possession of the property. Such
possession is only a security for the payment of the sum borrowed. Hence, ones status as
a mortgagee cannot be the basis of possession.
Exception: If there is a stipulation to the contrary.
Note: It is not an essential requisite of a contract of mortgage that the property mortgaged
remains in the possession of the mortgagor.
KINDS OF MORTGAGE:

1. 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
2. Legal one required by law to be executed in favour of certain persons.

3. Equitable one which, although it lacks the proper formalities of a mortgage

shows the intention of the parties to make the property as a security for a
debt.
Venus

ESSENTIAL REQUISITES OF A CONTRACT OF MORTGAGE / PLEDGE

1. That they be constituted to secure the fulfillment of a principal obligation;

2. That the pledgor or mortgagor be the absolute owner of thing pledged or
mortgaged
3. That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
(Article 2085)2
4. That when the principal obligation becomes due, the things in which the pledge or
mortgage consists may be alienated for the payment to the creditor. (Article 2087)3

SPECIAL REQUISITES FOR MORTGAGE

1. It can cover only immovable property and alienable real rights imposed upon
immovable. (Article 2124)4
2 Art. 2085. The following requisites are essential to the contracts of pledge and mortgage:(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized
for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property. (1857)

3 Art. 2087. It is also of the essence of these contracts that when the principal obligation becomes due, the things in which the pledge or mortgage consists
may be alienated for the payment to the creditor. (1858)

Art. 2124. Only the following property may be the object of a contract of mortgage;Immovables;
(4) Alienable real rights in acoordance with the laws, imposed upon immovable.
Nevertheless, movables may be the object of a chattel mortgage.

Note: While a mortgage of land necessarily includes, in the absence of a stipulation, the
improvements thereon, a building itself may be mortgaged apart from the land on which it
is built.
2. It must appear in a public instrument.
Effect when mortgage is in a private document: No valid mortgage is constituted. The
creditor may recover the loan and has the right to compel the debtor to execute a contract
of mortgage in a public instrument.
3. It must be recorded in the Registry of Property. Registration in the registry of
property is necessary to bind third persons, but not for the validity of the contract.
(Article 2125)5
The persons in whose favor the law establishes a mortgage has the right to demand the
execution and the recording of the document in which the mortgage is formalized.
Order of foreclosure cannot be refused on the ground that the mortgage was not registered
provided no innocent third parties are involved.

REGISTRATION OF MORTGAGE

Once the mortgage has been signed in due form (i.e. in a public instrument), the mortgagee
is entitled to its registration as a matter of right. (Article 1357)6

SUBSEQUENT REGISTRATION OF AN ADVERSE CLAIM

5 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.

6
Art. 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties
may compel each other to observe that form once the contract has been perfected. This right may be exercised simultabeously with the action upon the
contract.

A prior registration of a lien creates a preference. Hence, the subsequent annotation of an

adverse claim cannot defeat the rights of the mortgagee or the purchaser at the auction
sale whose rights are derived from a prior mortgage validly registered.

EFFECT OF REGISTRATION AS TO THE BETTER RIGHT OF THIRD PARTIES

A registered mortgage right over property previously sold is inferior to the buyers
unregistered right.

Case: Maria Bautista Vda. De Reyes vs. Martin De Leon 20 SCRA 369
Facts: A property was sold. The sale was not recorded. Therefore, the seller mortgaged the
same property to a third person. The mortgage was recorded.

Issue: Between the unrecorded sale of prior date and a recorded mortgage thereof at a
later date, which will prevail?

Held: The unrecorded sale is preferred for the reason that if the original owner had parted
with his ownership of the thing sold, he no longer had the ownership and free disposal of
that thing so as to be able to mortgage it.

EFFECT OF AN INVALIDITY OF MORTGAGE

If the mortgage contract is void, the principal obligation which is guaranteed is not affected
at all. What is merely impaired is the mortgagees right to foreclose which is a convenient
way of satisfying the principal obligation of the debtor to the creditor.

Even then, the deed of real mortgage remains useful as evidence to prove the personal
obligation of the debtor to the creditor in an ordinary action for collection.

Mr. Chioco

EFFECTS OF MORTGAGE
1. It creates a real right. 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 is constituted. (Article 2126)
Until discharged upon payment of the obligation, it follows the property wherever it goes
and subsists notwithstanding change of ownership.
2. It creates merely an encumbrance. A mortgage is merely a security for a debt and an
encumbrance upon the property. It does not extinguish the title of the debtor. The debtor
remains the owner, i.e. he has the right to dispose.
The only right of a mortgagee in case of non-payment of a debt secured by a mortgage
would be to foreclose the mortgage and have the encumbered property sold to satisfy
outstanding indebtedness.
DOCTRINE OF MORTGAGEE IN GOOD FAITH
The doctrine provides that a mortgagee has a right to rely in good faith on the certificate of
title of the mortgagor of the property given as a security, and in the absence of any sign
that might arouse suspicion, has no obligation to undertake further investigation.
The doctrine presupposes, however, that the mortgagor, who is not the rightful owner of the
property, has already succeeded in obtaining a Torrens Title over the property.
The doctrine does not apply to a situation where the title is still in the name of the rightful
owner and the mortgagor is different from the person pretending to be the owner. The
mortgagee shall not be considered an innocent mortgagee for value and the registered
owner will not lose his title.
DILIGENCE REQUIRED OF A MORTGAGEE-BANK
If the mortgagee is a bank or a financing institution, the general rule that a purchaser or
mortgagee of land is not required to look further than what appears on the face of the
Torrens Certificate of Title does not apply.

It is settled that banks, their business being impressed with public interest are expected to
exercise more care and prudence than private individuals in their dealings, even those
involving registered lands.
Respondent Bank should have diligently conducted an investigation of the land offered as
collateral. Since the subject land was not mortgaged by the owner thereof and since the
Bank is not a mortgagee in good faith, said bank is not entitled to protection under the law
(Arguelles v. Malarayat Rural Bank, INC. G.R. No. 200468, March 19, 2014).

Ms. Laurente
EXTENT OF MORTGAGE
General Rule: Mortgage extends to the following:
1. Natural Accessions;
2. Growing fruits;
3. Rents or income not yet received when the obligation becomes due; and
4. Amount of indemnity granted or owing to the proprietor from:
a. The insurers of the property managed; or
b. Expropriation for public use7
Reason: The ownership of such accessions and accessories and improvements subsequently
introduced also belongs to the mortgagor who is the owner of the principal.
Exception:
1. An express stipulation excluding them; and
2. There is evidence sufficiently overthrowing the presumption that the mortgagor owns the
mortgaged property.

7
Art. 2127. The mortgage extends to the natural accessions, to the improvements, growing fruits, and the rents
or income not yet received when the obligation becomes due, and to the amount of the indemnity granted or owing to
the proprietor from the insurers of the property mortgaged, or in virtue of expropriation for public use, with
the declarations, amplifications and limitations established by law, whether the estate remains in the
possession of the mortgagor, or it passes into the hands of a third person. (1877)

Article 2127 of the Civil Code is irrelevant and inapplicable to mortgages and their
foreclosures if the mortgagor is later found or declared to be not the true owners of the
property.

BLANKET OR DRAGNET CLAUSE

It is specifically phrased to subsume all debts of pastor future origins. Mortgages of this
character enable the parties to provide continuous dealings, the nature of which may not be
known or anticipated at the time, and they avoid the expense and inconvenience of
executing a new security on each new transaction.
Status: Valid
A mortgage with a dragnet clause is an offer by the mortgagor to the bank to provide the
security of the mortgage for advances of and when they were made.
Exception: It can be said that the offer was not accepted by the bank when a subsequent
advance was made because of a new security. A mortgage containing a dragnet clause
will not be extended to cover future advances unless the document evidencing the
subsequent advance refers to the mortgage as providing security therefor. In this case, the
security specifically executed for subsequent loans must first be exhausted before the
mortgaged property can be resorted to.
Purpose: It operates as a convenience and an accommodation to the borrowers as it makes
available additional funds without the parties having to execute additional security
documents.
Note: Provisions of this nature are carefully scrutinized and strictly construed particularly
when the mortgage contracts one of adhesion.

Ms. Lumague
ALIENATION OF MORTGAGE CREDIT
The mortgage credit may be alienated or assigned to a third person, in whole or in part,
with the formalities required by law. (Article 2128)8

8
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)

In this case, the assignee may foreclose the mortgage in case of non-payment by the
debtor.
Note: Even if the alienation is not registered, it would still be valid as between the parties.

STIPULATIONS ON MORTGAGE CONTRACTS

1. Including after-acquired properties
Future property cannot be an object of a contract of mortgage. However, a stipulation
subjecting to the mortgage lien, properties and improvements (after-acquired properties)
added to a property already mortgaged which the mortgagor may subsequently acquire,
install, or use in connection with real property already mortgaged belonging to the
mortgagor is valid.
Status: VALID
Purpose: To maintain, to the extent allowed by the circumstances, the original values of the
property given as security.
Such stipulation is common where the properties given as collateral are perishable or
subject to inevitable wear and tear.
2. Blanket Or Dragnet Clause - already discussed
3. Forbidding Alienation Of Mortgaged Property
Status: Any stipulation forbidding the owner from alienating is VOID.
In case of alienation, the transferee is bound to respect the encumbrance because being a
real right, the property remains subject to the fulfillment of the obligation for whose
guaranty it was constituted.
4. Stipulation requiring mortgagees consent before alienation
Status: VALID and binding only in the sense that the mortgagee cannot be compelled to
recognize the sale while the loan is unpaid.
The sale of the property does not affect the right of the registered mortgagee to foreclose
on the same even if ownership has been transferred to another.
Note: Such stipulation nonetheless contravenes public policy, being an undue impediment
or interference on the transmission of property.
5. Grant of First Refusal

Status: VALID
The consideration for the loan mortgage may be said to include the consideration for the
right of first refusal.
Note: A sale made in violation of the mortgagees contractual right of first refusal is
rescissible. The buyer is presumed to have been notified thereof by the registration of the
mortgage deed containing such stipulation, which equates to notice to the whole world.
6. Acceleration Clause
A stipulation stating that on the occasion of the mortgagors default, the whole sum
remaining unpaid automatically becomes due and payable.
Status: It is VALID.
7. Stipulation to Upset Price or TIPO
An Upset Price or TIPO is the minimum price at which the property shall be sold at a public
auction.
Status: VOID
A stipulation in the mortgage of real property providing for a Upset Price, to become
operative in the event of a foreclosure sale at public auction, is null and void because
property must be sold to the highest bidder.
Parties cannot, by agreement, contravene the law and interfere with the lawful procedure of
the courts.

SPECIAL RIGHTS

Rights of a Mortgagor
To alienate the mortgaged property but the mortgage shall remain attached to the property.
(Article 2130)9

9
Art. 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be void. (n)

 Rights of a Mortgagee
To claim from a third person in possession of the mortgaged property the payment of the
part of the credit secured by the property which said third person possesses. (Article
2129)10
Prior demand must have been made on the debtor and the latter failed to pay.

INSURANCE OF THE PROPERTY

The mortgagee and the mortgagor both have insurable interest in the property. They may
insure the same.

10
Art. 2129. The creditor may claim from a third person in possession of the mortgaged property, the payment of the part of the credit secured by the
property which said third person possesses, in the terms and with the formalities which the law establishes. (1879)