REAL MORTGAGE (2124-2131; Act 3135; Rule 68 of RoC) 2. Procedure [Secs. 114, 115 Presidential Decree 1529; Sec.

dure [Secs. 114, 115 Presidential Decree 1529; Sec. 4, Act 1508;
Section 5(a), PD 1521]
E. EXTENT OF THE CHATTEL MORTGAGE
A. TYPES
1. As to object [2124, Art. 155 (3), Family Code] 1. Future Properties (Sec 7, Act 1508)
2. As to constitution
a. Voluntary/express (Arts. 96 & 124, Family Code; Bulk Sales Law, 2. After-incurred obligation
Section 18, PD 957)
a. Affidavit of good faith (Section 5, Act 1508)
b. Equitable (1602, 1603, 1606)
3. Status of Mortgage executed prior to perfection of principal obligation F. ASSIGNMENT OF CHATTEL MORTGAGE
4. Extent of mortgage (2127)
B. RIGHTS OF THE PARTIES (2128, 2129) G. FORECLOSURE AND SALE
C. FORECLOSURE OF REAL MORTGAGE
1. Judicial foreclosure 1. Procedure (Sec. 14, Act 1508)
a. Nature
2. “Right” of redemption (Sec. 13, Act 1508)
b. Procedure (Rule 68 of Rules of court)
-difference from execution sale under Rule 39, Rules of Court 3. Deficiency Judgment (1142)
-Prescriptive period to claim deficiency judgement
G. CRIMINAL VIOLATION IN CHATTEL MORTGAGE (Art. 319, RPC)
c. When right of redemption exists (Section 47,

General Banking Law)

ANTICHRESIS (2132-2139)
2. Extrajudicial foreclosure (Act 3135, as amended; Section 47, Gen. Bank
Law) A. NATURE
3. Effect of foreclosure on second mortgages 1. Definition (2132)
D. CRIMINAL VIOLATION IN MORTGAGE [ Art. 316(1)(2), RPC] 2. Characteristic (2134, 2132, 2085, 2089 & 2091)
B. RIGHTS OF THE CREDITOR (2132, 2134, 2136, 2137)
C. OBLIGATIONS OF THE PARTIES (2135, 2136)

CHATTEL MORTGAGE (2140-2141; Act 1508;PD 1521)

A. NATURE
1. Definition [2140; Section 2, 1906 Chattel Mortgage Law (Act 1508)]
a. Is registration an element? (2140)
2. Objects [2140; Section 2, 1906 Chattel Mortgage Law or Act No. 1508; 1978
Ship Mortgage Decree(PD 1521)]
B. GOVERNING LAW [2141]
C. REGISTRATION
1. Effect

1
REAL MORTGAGE (2124-2131; Act 3135; Rule 68 of RoC) Article 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void. (n)

CHAPTER 3
Article 2131. The form, extent and consequences of a mortgage, both as to its
Mortgage
constitution, modification and extinguishment, and as to other matters not included in
this Chapter, shall be governed by the provisions of the Mortgage Law and of the Land
Article 2124. Only the following property may be the object of a contract of mortgage: Registration Law. (1880a)

(1) Immovables;

(2) Alienable real rights in accordance with the laws, imposed upon immovables.

Nevertheless, movables may be the object of a chattel mortgage. (1874a)

Article 2125. In addition to the requisites stated in article 2085, it is indispensable, in

order that a mortgage may be validly constituted, that the document in which it appears
be recorded in the Registry of Property. If the instrument is not recorded, the mortgage is
nevertheless binding between the parties.

The persons in whose favor the law establishes a mortgage have no other right than to
demand the execution and the recording of the document in which the mortgage is
formalized. (1875a)

Article 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. (1876)

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

Article 2128. The mortgage credit may be alienated or assigned to a third person, in
whole or in part, with the formalities required by law. (1878)

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

2
 RULE 68
Foreclosure of Real Estate Mortgage
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. (1a)
Section 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. (2a)
Section 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. (3a)
Section 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. (4a)
Section 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. (5a)
Section 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 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. (6a)
Section 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. (n)
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Section 8. Applicability of other provisions. — The provisions of sections 31, 32 and 34 of REPUBLIC ACT No. 3135
Rule 39 shall be applicable to the judicial foreclosure of real estate mortgages under this
Rule insofar as the former are not inconsistent with or may serve to supplement the AN ACT REVISING ACT NUMBERED THIRTY-TWO HUNDRED SIXTY-TWO, OTHERWISE
provisions of the latter KNOWN AS THE CHARTER OF THE PHILIPPINE AMATEUR ATHLETIC FEDERATION.

Section 1. Short title. This Act shall be known as the Revised Charter of the Philippine
Amateur Athletic Federation.

Section 2. Original Creation and membership of the Philippine Amateur Athletic

Federation. Manuel L. Quezon, Camilo Osias, Alejandro Albert, H. A. Bordner, R. S. Fitz,
Kenneth Rowntree, Regino R. Ylanan, Jorge R. Varga, E. S. Turner, V. Buencamino, C. J.
Bott, Joaquin Alviar, Fred O. England, C. Preysler, Gabriel Ubago Geo, R. Summers, Martin
Eiguren, Damaso Garcia Bosque, J. A. Murphy, W. N. Bartholomew, Silvestre Torres, Theo
S. Hall, C. John, R. R. Garcia, P. Dulay, H. L. Noble, J. Truitt Maxwell, Vicente Wenceslao,
Adam C. Dorkum, and their successors in interest and the National Sports' Associations
hereinafter provided are hereby created a body corporate and public in the Philippines, to
be known as the "Philippine Amateur Athletic Federation" with such corporate powers as
may be necessary to carry out the purposes of the Act.

Section 3. Purposes of the Corporation. The purposes of this corporation are: (a) to
encourage physical education and fitness; (b) to promote and improve athletic sports
among amateurs; (c) to establish and maintain a uniform test of amateur standing and
uniform rules for the government of all athletic sports; (d) to develop the spirit of
sportsmanship and fair play; and (e) to encourage and promote the establishment of
sports centers, public playgrounds and recreational facilities.

Section 4. Board of Governors; Composition. The Philippine Amateur Athletic Federation

shall have a Board of Governors to be composed of all surviving incorporators and three
representatives from each National Sports' Association recognized by the Philippine
Amateur Athletic Federation: Provided, however, That no representative of any National
Sports' Association shall represent more than one association in the Board.

Section 5. Functions, powers and duties of the Board. The Board of governors shall have
the following functions, powers and duties:

1. To adopt a constitution and by-laws;

2. To adopt a uniform set of rules to determine and govern amateur athletes and
sports in the Philippines;

4
 3. To adopt rules and regulations, consistent with administrative due process, to
govern the procedure to be observed by the National Sports' Association and the
executive committee in hearing and deciding cases before them either on initial
hearing or an appeal;
4. To suspend for cause a member-association of the federation by a vote of two-
thirds of the board and withdrawn recognition of an association by a vote of
three-fourths of the board. The reinstatement to active status of the association
affected shall be effected in the same manner;
5. To authorize the executive committee to negotiate and conclude, for and in
behalf of the federation, transactions for the acquisition, disposition, and
encumbrance of real or personal property as well as the raising of funds for the
accomplishment of the purposes of the federation.
Section 6. Meeting, quorum of the Board. The board of governors shall have an annual
general meeting at such time and place as may be provided by its constitution and by
laws. Special meetings may be called by the President either at his own initiative or upon
the request of one-third of the members of the board.
At all meetings of the board, the presence of a majority of the members thereof shall
constitute a quorum for the valid transaction of business. Each member of the Board shall
be entitled to only one vote and no vote by proxy shall be allowed.
Section 7. Officers of the Corporations. The Philippine Amateur Athletic Federation shall
have a President, a first and a second Vice-President, and an executive secretary-
treasurer. The officers shall be elected by the Board from among its members with the
exception of the President and the exclusive secretary-treasurer who may or may not be
members of the board: Provided, however, That the President and the executive
secretary-treasurer must be persons who are known for their dedication to sports in
general.
The President and Vice-Presidents shall serve for a term of two years and the executive
secretary-treasurer for a term of four years beginning on the first day of the month
following their election and until their successors shall have been elected and
qualified: Provided, however, That no officer's position shall be deemed vacated if he
ceases to be the representative of his association in the board and such vacancy may be
filled for the unexpired term by special election at a meeting of the board called for that
purpose.
Section 8. Executive committee. There shall be an executive committee which shall be
composed of the President, the two Vice-Presidents, and the executive secretary-
treasurer of the federation, one representative from each National Sports' Association to
be appointed by each association from among its representatives in the Board of
Governors, and three members-at-large to be selected by the executive committee, one
from the Senate, one from the House of Representatives and one from the Office of the
President. The executive committee may at its discretion select two additional members-
at-large from the general public.
The National Sports' Association to which the President of the Federation belongs shall
appoint another representative to represent it in the executive committee.
Section 9. Powers, functions and duties of executive committee. The executive committee
shall have the following powers, functions and duties:
1. To implement all the policies and decisions laid down by the Board of
Governors;
2. To prepare an annual budget and submit the same for the approval of the
Board of Governors at the annual meeting;
3. To coordinate and harmonize the activities of all National Sports' Associations;
4. To administer the common properties and stadia of the Philippine Amateur
Athletic Federation and assist in the maintenance of existing athletic facilities in
regional sports centers, subject to the conditions that it may impose;
5. To adopt such rules and regulations as may be necessary for the discharge of
its functions and consistent herewith;
6. To maintain, enforce, and defend the exclusive right of the federation to the
use of the work "The Olympic", Olympic shield, all Olympic insignia, and all other
Philippine Sports' insignia that it or the National Sports' Associations may design
and prescribe for use by Filipino Athletes of whatever nature, and to confine
their use to activities and publicity concerned with the Olympic games, and with
the purposes, powers, and procedures of the federation;
7. To act and decide on all appeals brought before it regarding controversies on
the amateur status of athletes and teams, as well as those arising between
members of the federation and between the associations and their members;
and
5
 8. To encourage and promote the establishment of sports centers, public
playgrounds and recreational facilities.
Section 10. Formation of Board of Governors and Executive Committee. The Board of
Governors and Executive Committee hereinbefore provided shall be formed and
organized for the effective discharge of their functions herein as soon as nine National
Sports' Associations shall have been fully organized and operating and shall assume their
rights and duties hereunder.
Section 11. National Sports' Association; organization and recognition. A National
Association shall be organized for each individual sports in the Philippines in the manner
hereinafter provided to constitute the Philippine Amateur Athletic Federation.
Applications for recognition as a National Sports' Association shall be filed with the
executive committee together with, among others, a copy of the constitution and by-laws
and a list of the members of the proposed association, and a filing fee of ten pesos.
The Executive Committee shall give the recognition applied for if it is satisfied that said
association will promote the purposes of this Act and particularly section three hereof. No
application shall be held pending for more than three months after the filing thereof
without any action having been taken thereon by the executive committee. Should the
application be rejected, the reasons for such rejection shall be clearly stated in a written
communication to the applicant. Failure to specify the reasons for the rejection shall not
affect the application which shall be considered as unacted upon: Provided, however, That
until the executive committee herein provided shall have been formed, applications for
recognition shall be passed upon by the duly elected members of the present executive
committee of the Philippine Amateur Athletic Federation. The said executive committee
shall be dissolved upon the organization of the executive committee herein
provided: Provided, further, That the functioning executive committee is charged with the
responsibility of seeing to it that the National Sports' Associations are formed and
organized within six months from and after the passage of this Act.
Section 12. Nature of Associations. The National Sports' Associations formed herein shall
be autonomous in character and shall have exclusive control over the development and
promotion of the particular sports for which they are organized.
Section 13. Membership. Each National Sports' Association shall, by its constitution and
by-laws, determine its organization and membership: Provided, however, That no team,
school, club, organization, or entity shall be admitted as a voting member of an
association unless 60% of the athletes composing said team, school, club, organization, or
entity are Filipino citizens.
Section 14. Functions, powers and duties of Associations. The National Sports' Association
shall have the following functions, powers and duties:
1. To adopt a constitution and by-laws for their internal organization and
government;
2. To raise funds by donations, benefits, and other means for their purposes;
3. To purchase, sell, lease or otherwise encumber property both real and
personal, for the accomplishment of their purpose;
4. To affiliate with international or regional sports' Association after due
consultation with the executive committee;
5. To conduct local, interport and international competitions, other than the
Olympic and Asian Games, they may deem necessary for the promotion of the
sport;
6. To render an annual report to the executive committee regarding their
finances and activities which shall be submitted at least thirty days before the
annual meeting of the Board of Governors;
7. To appoint their representatives to the Board of Governors and the executive
committee;
8. To decide, subject to appeal to the executive committee, all questions on the
amateur status and discipline of the athletes connected with the associations, as
well as the members thereof and all disputes between their members;
9. To adopt a training program for the development of athletes and their
preparation for international competitions and to defray the expenses for the
same;
10. To select the athletes, coach, and other officials for their national teams
taking into consideration not only their athletic abilities but also their moral
character.
11. To keep accurate records of all official marks attained by the athletes in the
associations in all competitions as well as all results of sports competitions,
recognize and ratify the same, and furnish copies thereof to the executive
committee;
6
 12. To qualify and license referees and umpires and other game officials who
shall officiate in competitions in their respective sports; and
13. To perform such other acts as may be necessary for the proper
accomplishment of their purposes and not inconsistent with this Act.
Section 15. Restriction on holding of office. No person shall be eligible for election as
president or as the head of more than one National Sports' Association.
Section 16. Formation of National Olympic Committee. The National Olympic Committee
shall be composed of the members of the executive committee whose sports are included
in the Olympic program, the three members representing the Senate, the House of
Representatives and the Office of the President, and the representative of the
International Olympic Committee. This committee shall function in accordance with the
rules of the International Olympic Committee.
Section 17. Business location. The Philippine Amateur Athletic Federation and all National
Sports' Association organized hereunder shall have their principal place of business either
in Manila or Quezon City.
Section 18. Properties and funds of the Philippine Amateur Athletic Federation. The
properties and funds of the Federation shall be of two kinds, namely, common and
particular.
Common funds and properties are such monies and real or personal properties that
belong to the Philippine Amateur Athletic Federation for general use by the members
thereof.
Common properties of the federation comprise the Rizal Memorial Stadia and such other
real and personal properties owned and operated by the Philippine Amateur Athletic
Federation created under Act Numbered Thirty-two hundred sixty-two, and those which
the federation may acquire hereafter. Common funds of the federation comprise the
following:
(a) The net receipts from Philippine Charity Sweepstakes races and, for this
purpose, the Philippine Amateur Athletic Federation shall be entitled to the
receipts of three sweepstakes races a year, any law to the contrary
notwithstanding.
(b) Donations, bequests and devises, as well as receipts from benefit games and
other kinds of benefits conducted by the federation.
(c) Annual dues from the National Sports' Associations.
(d) Income realized from its real and personal properties.
(e) Receipts from any other funds.
(f) Stocks, bonds, monies and other forms of credit owned by the Philippine
Amateur Athletic Federation created under Act Numbered Thirty-two hundred
sixty-two and those which the federation may subsequently acquire.
Particular properties and funds are those revised or acquired by the National Sports'
Associations for their exclusive use and the ownership and control of which shall remain
with them. Should any association be subsequently dissolved or ceased to exist its
properties and funds shall be held in trust by the federation and may be utilized as in the
case of common properties and funds until such time as they shall again be needed by the
successor of the dissolved or defunct association.
Particular properties of National Sports' Associations shall comprise such real and
personal properties as shall be owned by them by purchase, donations, bequests, or
otherwise.
Particular funds of National Sports' Association shall comprise the following:
(a) Monies raised through donations and receipts from benefit games, and
officially conducted competitions.
(b) Annual dues from their respective members, the annual dues to be paid to
the federation by each association shall be determined by the executive
committee after taking into consideration the paying capacity of the Association
concerned, while that to be paid to the National Sports' Association by their
respective members shall be determined by each association.
Section 19. Presidential Land Grant. The provisions of any existing law to the contrary
notwithstanding, the President, upon the recommendation of the Secretary of Agriculture
and Natural Resources may, by donation, sale, lease or otherwise, grant to the Philippine
Amateur Athletic Federation portions of the land of the public domain as may be
necessary to carry out the purposes of this Act.
Section 20. Expenditures of funds and uses of properties. Common funds of the federation
shall be expended for any or all of the following purposes:
7
 (a) To defray the administrative expenses of the federation.
(b) To defray the expenses for the maintenance, preservation, and improvement
of the common properties of the federation.
(c) To defray the transportation, equipment and board and lodging expenses of
Philippine Athletic delegations and participants to the Olympics and Asians
Games and other International competitions as well as the preparation for the
holding of Olympic competitions and Asian games in the Philippines: Provided,
however,That should the funds not be sufficient for the purpose, voluntary
contributions may be secured from the Associations but such contribution shall
first be applied to defray the expenses of the Association making the
contribution.
Particular funds of the National Sports' Associations shall be expended for the
accomplishment of their respective purposes.
Section 21. Use of facilities. Subject to regulations of the federation, its playgrounds and
stadia shall be available for the use of the association and their members in preference to
all others and, for such use, they shall be charged a rental to be determined by the
executive committee.
Section 22. Exemption of income and properties from taxes. Any laws to the contrary
notwithstanding, all income, properties, and importation of sports equipment and
materials by the Philippine Amateur Athletic Federation and the members shall be exempt
from amusement, real property, specific taxes and all other taxes and duties: Provided,
however, That the sports equipment and material imported herein shall be for the
exclusive use of the federation, the associations and their athlete members and are not to
be disposed of for commercial purposes or for profit.
a. Shall solicit funds for any of the purposes mentioned in this Act without being
authorized to do so hereunder or by the Philippine Amateur Athletic Federation
or its member Associations;
b. Shall, without authority, use the word "Olympic", the Olympic shield, Olympic
insignia and such other emblem designed and prescribed by the federation or
any association for the exclusive use of Filipino Athletic members.
c. Shall sell or otherwise dispose of the sports equipment and material
mentioned in section eighteen hereof for commercial purposes or for profit.
Section 25. Appropriation for the formation of National Sports' Associations. There shall
be appropriated from thousands of the National Treasury not otherwise appropriated the
sum of One hundred thousand pesos for the purpose of defraying the expenses in the
formation of National Sports' Associations as provided herein.
Section 26. Repealing clause. Act Numbered Three thousand two hundred and sixty-two
and all other Acts, Executive orders, rules and regulations or parts thereof inconsistent
herewith are hereby repealed.
Section 27. Separability clause. In the event any provision of this Act or the application of
such provision to any person or circumstance is declared unconstitutional, the remainder
of this Act or the application of said provision to other persons or circumstances shall not
be affected thereby.
Section 28. This Act shall take effect upon its approval.
Approved: June 17, 1961

Section 23. Effect of non-membership in the federation. From and after the date of the
approval of this Act, no individual athlete, team, club, or organization engaged in sports
activities who is not a member of an association as formed hereunder shall be allowed to
participate in the national open championships and represent the Philippines in any
competition at home or abroad or to enjoy the privileges hereunder.

Section 24. Penal Clause. A penalty of not exceeding one year imprisonment or a fine of
not more than one thousand pesos or both at the discretion of the court shall be imposed
upon any person who:

8
Real mortgage (Real estate mortgage) is a contract whereby the debtor secures to the creditor the Art. 155. The family home shall be exempt from execution, forced sale or attachment
fulfillment of a principal obligation, specially subjecting to such security immovable property except:
or real rights over immovable property which obligation shall be satisfied with the proceeds
of the sale of said property or rights in case the said obligation is not complied with at the time (1) For nonpayment of taxes;
stipulated.
Parties to a Real Mortgage (2) For debts incurred prior to the constitution of the family home;
1. Mortgagor
2. Mortgagee (3) For debts secured by mortgages on the premises before or after such
constitution; and

Characteristics of Real Mortgage: (4) For debts due to laborers, mechanics, architects, builders, materialmen
and others who have rendered service or furnished material for the
1. Real
construction of the building. (243a)
2. Accessory
3. Subsidiary
4. Unilateral because it creates only an obligation on the part of the creditor who must Subject Matter of Real Mortgage:
free the property from the encumbrance once the obligation is fulfilled. 1. Immovables
2. Alienable real rights over immovables

Kinds of Real Mortgage

1. Voluntary - one which is agreed to between the parties or constituted by the will of the Laws that govern real estate mortgage:
owner of the property on which it is created.
1. Act 3135 (Extra-Judicial Foreclosure)
2. Legal - one required by law to be executed in favor of certain persons.
2. Rule 68, Rules of Court
3. Equitable - one which, although it lacks the proper formalities of a mortgage, shows the
3. Sec. 47, General Banking Law (where mortgagee/bidder is a bank)
intention of the parties to make the property as security for the debt.

Possession remains with the mortgagor. In a contract of mortgage, the mortgagor-debtor, as a

E. TYPES general rule, retains possession of the property mortgaged as security for the payment of the sum
borrowed from the mortgagee-creditor.
5. As to object [2124, Art. 155 (3), Family Code] ✓ The mortgagor-debtor merely subjects the property to a
lien but ownership thereof is not parted with
Article 2124. Only the following property may be the object of a contract of
✓ One’s status as a mortgagee cannot be the basis of possession.
mortgage:

(1) Immovables; Payment of interest on mortgage credit. It is also not an essential requisite of the contract of
mortgage that the principal of the mortgage credit bears interest. Interest may be stipulated
(2) Alienable real rights in accordance with the laws, imposed upon without affecting the character of the mortgage contract.
immovables. ✓ If it is expressly agreed that the mortgagee-creditor shall apply the fruits of the
property, “to the payment of interest, if owing, and thereafter to the principal of his
credit,” the contract is an antichresis.

9
 Cause or Consideration in mortgage. Since mortgage is an accessory contract, its
consideration is that of the principal contract from which it receives its life, without which
it cannot exist as an independent contract.
Future property cannot be the object of mortgage. A stipulation whereby the mortgagor
constitutes a mortgage on those properties he might acquire in the future is not a valid
mortgage, because one cannot legally mortgage any property he did not yet own.
✓ However, a stipulation subjecting 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.
6. As to constitution
c. Voluntary/express (Arts. 96 & 124, Family Code;
Bulk Sales Law, Section 18, PD 957)
Section 4. Ownership, Administrative, Enjoyment and Disposition of the Community
Property
Art. 96. The administration and enjoyment of the community property shall belong to
both spouses jointly. In case of disagreement, the husband's decision shall prevail,
subject to recourse to the court by the wife for proper remedy, which must be availed
of within five years from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the common properties, the other spouse may assume sole powers
of administration. These powers do not include disposition or encumbrance without
authority of the court or the written consent of the other spouse. In the absence of
such authority or consent, the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court before the offer is
withdrawn by either or both offerors. (206a)
Section 5. Administration of the Conjugal Partnership Property
Art. 124. The administration and enjoyment of the conjugal partnership shall belong to
both spouses jointly. In case of disagreement, the husband's decision shall prevail,
subject to recourse to the court by the wife for proper remedy, which must be availed
of within five years from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the
administration of the conjugal properties, the other spouse may assume sole powers
of administration. These powers do not include disposition or encumbrance without
authority of the court or the written consent of the other spouse. In the absence of
such authority or consent, the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court before the offer is
withdrawn by either or both offerors. (165a)
BULK SALES LAW
Section 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the Authority. Such approval shall not be
granted unless it is shown that the proceeds of the mortgage loan shall be used for the
development of the condominium or subdivision project and effective measures have
been provided to ensure such utilization. The loan value of each lot or unit covered by
the mortgage shall be determined and the buyer thereof, if any, shall be notified before
the release of the loan. The buyer may, at his option, pay his installment for the lot or
unit directly to the mortgagee who shall apply the payments to the corresponding
mortgage indebtedness secured by the particular lot or unit being paid for, with a view
to enabling said buyer to obtain title over the lot or unit promptly after full payment
thereto;
NOTES:
Article 2125. In addition to the requisites stated in article 2085, it is indispensable, in
order that a mortgage may be validly constituted, that the document in which it
appears be recorded in the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties.
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The persons in whose favor the law establishes a mortgage have no other right than
to demand the execution and the recording of the document in which the mortgage is
formalized. (1875a)
❖ Question: Again, what are the essential requirements of a mortgage based on Art. 2085?
(1) Constituted to secure the fulfillment of avalid principal obligation.
(2) Mortgagor be the absolute owner of the thing pledged or mortgaged.
(3) They must have the free disposal of their property, and in the absence thereof, that
they be legally authorized for the purpose.
(4) The debtor retains the ownership of the thing given as security
(5) When the principal obligation becomes due and no payment is made by the debtor,
the things in which the pledge or mortgage consists may be alienated for the
payment.
Mortgage must appear in a public instrument duly recorded in the Registry of Property.
In addition to the requisites stated above, it is indispensable in order that a mortgage may be
validly constituted that it appears in a public document duly recorded in the Registry of Property.
✓ When the mortgage is in a private document, the creditor has the right to compel the
debtor to execute a contract of mortgage in a public instrument. No valid
mortgage is constituted where the alleged deed of mortgage is a mere private
document and not registered.
✓ When mortgage is not recorded in the Registry of Property, the mortgage is
nevertheless binding between the parties. In other words, registration only operates as
notice of the mortgage to others. Thus, an order for foreclosure cannot be refused
on the ground that the mortgage is not registered provided no innocent third parties
are involved.
✓ The mortgagee is entitled to the registration of the mortgage as a matter of right.
✓ The registration is not a declaration by the state that such an instrument is valid
and subsisting interest in land. It is merely a declaration that the record of the title
appears to be burdened with the mortgage inscribed.
✓ A registered mortgage over property previously sold is inferior to the buyer’s
unregistered right. The unrecorded sale is preferred since if the original owner
had already parted with his ownership he can no longer mortgage it.
❖ Question: What is the doctrine of “mortgagee in good faith”?
Answer: (Remember our lessons in “Land Titles and Deeds”) A mortgagee has a right to rely
in good faith on the certificate of title of the mortgagor and has no obligation to undertake
further investigation. Hence, even if the mortgagor is not the rightful owner of the property, but
the Torrens title on its face and without any indication of cloud, appears to be the real owner
with a clean title, the mortgagee in good faith is protected.
Exception: When there is something in the certificate of title to indicate any cloud or vice in
the ownership of the property, such as when the mortgagee is aware of sufficient facts to
induce a reasonably prudent man to inquire into the status of a property. Greater care and
diligence is required when the mortgagee is a bank.
❖ Question: What are the effects of the invalidity of a mortgage, on the principal
obligation?
3. The principal obligation remains valid. What is only lost is the right to foreclose the
mortgage as a special remedy to satisfy the indebtedness.
The mortgage deed remains as evidence of the principal obligation.
Article 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. (1876)
Mortgage creates a real right. It creates a right in rem, a real right, a lien inseparable from the
property mortgaged, which is enforceable against the whole world. Until discharged upon
payment of the principal obligation, it follows the property wherever it goes and subsists
notwithstanding changes of ownership.
✓ Thus, if the mortgagor sells the mortgaged property, the property remains subject to
the fulfillment of the obligation secured by it. All subsequent purchases of
the property must respect the mortgage, whether the transfer to them be with or
without the consent of the mortgagee. BUT, the mortgage must be registered or, if not
registered, the buyer must know of its existence (because actual knowledge of defect
of title is equivalent to notice of registration).
The right or lien of a innocent mortgagee for value upon the mortgaged property
must be respected and protected, even if the mortgagor obtained his title through
fraud (remember the “mortgagee in good faith doctrine!) The remedy of the persons
prejudiced is to bring an action for damages against the person who caused the
fraud and if the latter is insolvent, an action against the Treasurer of the Philippines
may be filed for the recovery of damages against the Assurance Fund.
❖ Illustration: Karla mortgaged her house to Victory Bank, this mortgage was registered.
After that, Eilleen bought Karla’s house and the sale was recorded in the Register of
Deeds. For failure of Karla to pay the mortgage debt, Victory Bank foreclosed Karla’s
house and the land was sold to Lawrence as the highest bidder. Lawrence opposed
the application for registration filed by Eilleen. In whose name should the land be
registered, Lawrence or Eilleen?
It should be registered in the name of Lawrence, but subject to Eilleen’s equitable
right of redemption which right should be exercised within 3 months (see Rule 68 of
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 the Rules of Court) from the date the decision becomes final. Eileen’s equity of
redemption is registrable but only as an encumbrance on a registered title of
ownership. Eilleen does not become the owner of the land until she has exercised the
right to redeem.
Mortgage creates merely an encumbrance. 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.
✓A mortgage does not involve a transfer, cession or conveyance of property but only
constitutes a lien thereon.
✓ The only right of the mortgagee in case of non-payment of the debt secured would be
to foreclose the mortgage and have the encumbered property sold to satisfy the
outstanding indebtedness
✓ Mortgagor’s default does not operate to vest in the mortgagee the ownership of the
encumbered property. That is a pactum commissorium and is prohibited.
✓ Subsequent mortgage over the same property during the redemption period is
valid. Since the mortgagor remains the absolute owner of the property during the
redemption period and has the free disposal of his property, there would be compliance
with Art. 2085 for the constitution of another mortgage on the property.
d. Equitable (1602, 1603, 1606)
ARTICLE 1602. The contract shall be presumed to be an equitable mortgage, in any of
the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of
the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury laws. (n)
Article 1603. In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage. (n)
Article 1606. The right referred to in article 1601, in the absence of an express
agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
However, the vendor may still exercise the right to repurchase within thirty days from
the time final judgment was rendered in a civil action on the basis that the contract
was a true sale with right to repurchase. (1508a)
7. Status of Mortgage executed prior to perfection of
principal obligation
8. Extent of mortgage (2127)
Article 2127. The mortgage extends to the natural accessions, to the improvements,
growing fruits, and the rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or owing to the proprietor
from the insurers of the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations established by law, whether
the estate remains in the possession of the mortgagor, or it passes into the hands of a
third person. (1877)
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Extent of mortgage. The following are deemed included in a mortgage of real property:
1. New plantings
2. Fruits, except those collected before the obligation falls due, and those removed and
stored when it falls due
4. Accrued and unpaid rents, as well as those which should have to be paid while the
credit remains wholly unsatisfied Buildings, machinery and accessories belonging to
the mortgaged land or building, although they may have been placed there after the
execution of the mortgage
5. All objects permanently attached to a mortgaged property, although placed there
after execution of mortgage
6. A more costly building erected in place of the mortgaged building which was torn down
by the debtor.
Stipulation in mortgage contract including after-acquired properties. Such a stipulation is valid.
The attachment of lien on such new and future properties/improvements is retroactive to the date
of the recording and registration of the deed of mortgage not to the time said improvements were
constructed.
“Dragnet clause” It is also called a “blanket mortgage clause.” It is a stipulated that the mortgage
is to secure future loans or advancements, the amount covered shall extend to such future
indebtedness. It is a clause which is specifically phrased and stipulated in a mortgage
contract to subsume all debts of past or future origin. It operates as a convenient
accommodation to debtors as it makes them borrow additional funds without having to
execute additional security documents.
✓ When there is a dragnet clause, the mortgaged property is considered as a continuing
security and the mortgage is not discharged by the repayment of the original
amount named in the mortgage, but by the payment of the full amount of all the advancements
paid.
F. RIGHTS OF THE PARTIES (2128, 2129)
Article 2128. The mortgage credit may be alienated or assigned to a third
person, in whole or in part, with the formalities required by law. (1878)
Article 2129. The creditor may claim from a third person in possession of the
mortgaged property, the payment of the part of the credit secured by the
property which said third person possesses, in the terms and with the
formalities which the law establishes. (1879)
Alienation or assignment of mortgage credit. Mortgage credit may be alienated or assigned to
third persons by the mortgagee who is the owner of the said right. Such alienation or assignment
is valid even if it is not registered. In the event of non-payment, the assignee may foreclose the
mortgage.
Right of the mortgagee-creditor against the transferee of mortgaged property. The fact that the
mortgagor-debtor has transferred the mortgaged property to a third person does not relieve him
from his obligation to pay the debt tot he mortgagee-creditor in the absence of novation. The
mortgage on the property may still be foreclosed despite the transfer.
✓ The creditor may demand from any possessor the payment only of the part of the
credit secured by said property. It is necessary, however, that prior demand for
payment must have been made on the debtor and the latter failed to pay.
Illustration: Xtine mortgaged his land worth P500,000 in favor of Victory Bank to secure her debt of
P600,000. Xtine then sold the land to Mike. In this case, the obligation of Xtine to pay the debt is not
affected by the transfer. On the due date of the obligation, Victory Bank may demand payment from
Xtine and if Xtine fails to pay, Victory Bank may foreclose the mortgage. Victory Bank has the
right to claim from Mike the payment of P500,000 which is part of the credit secured by the property
sold to Mike. Mike is not liable for any deficiency in the absence of a contrary stipulation. The
remedy of Mike is to proceed against Xtine.
NOTES:
Article 2130. A stipulation forbidding the owner from alienating the immovable
mortgaged shall be void. (n)
Stipulation forbidding alienation of mortgaged property. The mortgagor may sell the
mortgaged property even without the consent of the mortgagee. However, the buyer/
transferee of the property 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.
Stipulation granting “right of first refusal.” However, 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.
Thus, while the mortgagor has every right to sell the mortgaged property without securing the
consent of the mortgagee, he has the obligation under a right of first refusal stipulation (which is
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perfectly valid) to notify the mortgagee of his intention to sell the property and give him priority
over other buyers. A sale made in violation of the mortgagee’s 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.
G. FORECLOSURE OF REAL MORTGAGE
4. Judicial foreclosure
a. Nature
b. Procedure (Rule 68 of Rules of court)
-difference from execution sale under Rule 39,
Rules of Court
-Prescriptive period to claim deficiency
judgement
c. When right of redemption exists (Section 47,
General Banking Law)
5. Extrajudicial foreclosure (Act 3135, as amended;
Section 47, Gen. Bank Law)
6. Effect of foreclosure on second mortgages
Article 2131. The form, extent and consequences of a mortgage, both as to its
constitution, modification and extinguishment, and as to other matters not included
in this Chapter, shall be governed by the provisions of the Mortgage Law and of the
Land Registration Law. (1880a)
Foreclosure is the remedy available to the mortgagee by which he subjects the mortgaged
property to the satisfaction of the obligation to secure which the mortgage was given.
✓ Foreclosure is only valid when the debtor is in default in the payment of his obligation.
✓ The right of foreclosure cannot be exercised by any person other than the creditor-
mortgagee or his assigns.
✓ Foreclosure must be limited to the amount mentioned in the mortgage document (unless
there is a “dragnet clause”).
✓ As a general rule, demand before foreclosure is essential.
✓A mortgage contract may contain an “acceleration clause” which is a stipulation
stating that, on the occasion of the mortgagor’s default in any installment due, the
whole sum remaining unpaid automatically becomes due and payable. The failure of
the mortgagor to pay any installment will trigger the activation of the acceleration
clause and give the mortgagee the right to foreclose the mortgage against the
contention of prematurity.
Kinds of Foreclosure
1. Judicial
2. Extra-Judicial
JUDICIAL FORECLOSURE under Rule 68 of the Rules of Court
1. Judicial action for the purpose. A mortgage may be foreclosed judicially by bringing
an action for the purpose in the court which has jurisdiction over the area where the real
property involved or a portion thereof is situated
2. Order to mortgagor to pay mortgage debt. If the court finds the complaint to be well-
founded, it shall order the mortgagor to pay the amount due within a period not less than
90 days nor more than 120 days from the entry of judgment.
3. Sale to the highest bidder at public auction. Upon failure to pay during the specified
time, upon motion, the court shall order the property to be sold to the highest bidder at
public auction.
Confirmation of the sale. Mortgagee shall file a motion for the confirmation of the sale.
4.
When the sale is confirmed by the order of the court, it shall operate to divest the
rights of all parties to the action and to vest their rights in the purchaser, subject to the
right of redemption.
5. Application of proceeds of sale. The proceeds of the sale shall be applied to the
payment of the:
a. Costs of the sale
b. Amount due the mortgage
c. Claims of junior encumbrances or persons holding subsequent mortgages in the
order of their priority
d. The balance if any shall be paid to the mortgagor or his duly authorized agent
6. Execution of the sheriff’s certificate. The foreclosure is not complete until the sheriff’s
certificate is executed, acknowledged and recorded. In the absence of a certificate of
sale, no title passes by the foreclosure proceedings to the vendee.
Nature of judicial foreclosure proceedings
1. It is an action quasi in rem. It is based on a personal claim against a specific property
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 of the defendant
2. It results from failure to pay indebtedness.
3. It survives the death of the mortgagor because the claim is not pure money claim but an
action to enforce a mortgage lien.
EXTRA-JUDICIAL FORECLOSURE under Act. No. 3135
1. Express authority to sell given to mortgagee. Only when the real estate mortgagee is
given a special power or express authority to do so in the deed itself or in a document
annexed thereto.
The authority to sell is not extinguished by the death of the mortgagor (or mortgagee)
as it is an essential and inseparable part of a bilateral agreement.
Publication of notice of auction sale.
 Publication is required to give the foreclosure sale a reasonable wide publicity such
that those interested might attend the public sale.
 Publication is mandatory, failure to comply with the statutory requirements as to
publication of notice of auction sale constitutes a jurisdictional defect which invalidates
the sale.
 The object of the notice is to inform the public of the nature and condition of the property
sold, and of the time, place and terms of the sale. Unless required in the mortgage
contract, the lack of personal notice to the mortgagor is not a ground to set aside a
foreclosure sale.
 Notice of sale in at least 3 public places at the municipality/city where the property is
situated and publication in a newspaper of general circulation
2. Foreclosure sale
Payment of cash by the highest bidder. Where the highest bidder is the mortgagee and
the amount of his bid represented the total mortgage debt, it is not necessary for him
to pay cash. In case of surplus in the purchase price, the mortgagee must account for
the proceeds as if the price were paid in cash.
Surplus proceeds from foreclosure sale. They are constructively, at least, real property
and belong to the mortgagor or his assigns. Surplus money, in case of foreclosure sale,
gains much significance when there are junior encumbrances on the mortgaged property.
When there are several liens upon the property, the surplus money must be applied to
their discharge in the order of their priority.
A senior mortgagee who realized more than the amount of his credit on a foreclosure sale
is regarded as a trustee for the benefit of the mortgagor and junior encumbrancers.
3. Redemption. The debtor has the right to redeem the property sold within the term of one
year from and after the date of the sale. The reckoning date in case of registered land
is from the registration of the certificate of sale.
Nature of extra-judicial foreclosure proceedings
1. Primarily an authority conferred upon the mortgagee for his own protection.
2. It is an ancillary stipulation supported by the same cause or consideration for the
mortgage and forms an essential and inseparable part of the bilateral agreement.
3. The power to foreclose is the prerogative of the mortgagee.
Stipulation of upset price in mortgage contract void. Fixing an “upset price” (the minimum
price at which the property shall be sold) in the event of foreclosure sale at public auction is
null and void.
Effect of inadequacy of price in foreclosure sale. The general rule is that inadequacy of
price is not material because the judgment debtor may reacquire the property or sell his right
to redeem and thus recover any loss he claims to have suffered by reason of the price obtained
at the auction sale.
Exception: The sale shall be set aside if “the price is so inadequate as to shock the
conscience of the court” considering the peculiar circumstances attendant thereto.
The property may be sold at less than its fair marker value upon the theory that the lesser the
price the easier it is for the owner to effect redemption.
Waiver of security by mortgagee. The mortgagee may institute either: (a) a personal action for
debt or; (b) a real action to foreclose the mortgage. These two remedies are alternative not
cumulative. The creditor may waive the right to foreclose his mortgage and maintain instead
a personal action for recovery of the indebtedness.
✓ In either case, the creditor is entitled to obtain a deficiency judgment for whatever sum
might be due after the liquidation of the property covered by the mortgage.
❖ Question: What are the options of the mortgagee in case of death of the debtor?
Answer: The secured creditor holding a real estate mortgage has 3 distinct, independent and
mutually exclusive remedies that can be alternatively pursued by him for the satisfaction of
his credit in case the mortgagor dies:
1. Waive the mortgage and claim the entire debt from the estate of the mortgagor as an
ordinary claim
2. Foreclose the mortgage judicially and prove any deficiency as an ordinary claim
Rely on the mortgage exclusively, foreclosing the same at any time before it is barred by
prescription, without right to file a claim for any deficiency
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 Redemption in Real Mortgage
Redemption may be defined as a transaction by which the mortgagor reacquires or buys back
the property which may have passed under the mortgage or divests the property of the lien
which the mortgage may have created.
Kinds of Redemption
1. Equity of redemption - the right of the mortgagor in case of judicial foreclosure to redeem
the property after his default but before the confirmation of the sale of the mortgaged
property.
2. Right of redemption - the right of the mortgagor in case of extrajudicial foreclosure to
redeem the property within a certain period after the sale.
EQUITY OF REDEMPTION
Equity of redemption. It is simply the right of the defendant mortgagor to extinguish the mortgage
and retain ownership of the property by paying the secured debt within the 90-day period after
the judgment becomes final in accordance with Rule 98.
✓ The date of reckoning of the 90-day period is “from the date of the service of such order.”
The order referred to is the order requiring the debtor to pay the judgment
within 90 days.
✓ The period is a substantive right granted to the mortgagor as the last opportunity to
pay the debt and save his property from final disposition at foreclosure
sale. Thus, an order for the sale of the mortgaged property within the 90-day period would
be a denial of a substantive right and void.
Confirmation of court of auction sale. It is the confirmation of the court that cuts off all the
rights or interests of the mortgagor and of the mortgagee, and with them the equity of redemption
in the property and vests them in the purchaser.
✓ Confirmation retroacts to the date of sale.
✓ It is a final order, not interlocutory.
RIGHT OF REDEMPTION
Right of redemption. In all cases of extrajudicial sale, the individual mortgagor may redeem the
property at any time within the term of one year from and after the date of the sale (the date of
registration of the certificate of sale with the appropriate Registry of Deeds).
✓ The amendment by the General Banking Law of 2000 barred the juridical mortgagors
(like partnerships and corporations) from the right of redemption of mortgaged
property sold in an extrajudicial foreclosure, after the registration of the certificate of
foreclosure with the Register of Deeds. Before, they have the one year to redeem,
now, they just have 3 months to begin from the date of the foreclosure sale but not after
the registration of the certificate of foreclosure sale whichever comes first.
✓ If no redemption is made during the prescribed period, the purchaser has the absolute
right to a writ of possession. His inchoate title over the property is
consolidated. Hence, the mortgagor loses his right over the property.
Effect of exercise of right of redemption. What is actually effected where redemption is
seasonably exercised by the judgment or mortgage debtor is not the recovery of the
property sold at foreclosure because ownership was not yet lost.
The redemption by the debtor simply eliminates but from his title the lien created by the levy
or attachment or judgment or registration of the mortgage thereon. The redemption
defeats the inchoate right of the purchaser and restores the property to the same
condition as if no sale had been made. It does not give to the mortgagor a new title,
but merely restores him the title freed of the encumbrance of the lien foreclosed.
✓ When the mortgagor sells the property to a third person during the redemption period,
what is transferred is only the right to redeem and the right to possess, use and
enjoy the property during the said period.
✓ The right of redemption, as long as the exercise
of which is within the period prescribed,
may be exercised irrespective of whether or not the mortgagee has
subsequently conveyed the property to some other party. (That other party has to run
after the bank, as its remedy).
✓ Redemption is optional and not compulsory, it is entirely upon the will and discretion of
the redemptioner.
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 Requisites of valid redemption
1. The redemption must be made within one (1) year form the date of the registration
of the certificate of sale, not form the date of the foreclosure sale.
2. Payment of the purchase price of the property plus 1% interest per month together
with the taxes thereon, if any paid by the purchaser and the amount of his prior lien, if
any, with the same rate of interest computed form the date of registration of the sale,
up to the time of redemption.
Written notice of redemption must be served on the officer who made the sale and a duplicate
filed with the proper Registry of Deeds.
3. The mortgagor or his assignee is required to tender payment within the prescribed
period to make the redemption valid, or to preserve the right of redemption for future
enforcement beyond such period of redemption.
❖ Question: What if the right of redemption is exercised after the statutory period, and
the buyer at the foreclosure sale did not object and allowed it?
Answer: Redemption is valid even after the lapse of the statutory period if the buyer at the
foreclosure sale does not object but even consents to the redemption. Such amounts to
waiver of the statutory period of redemption.
Payment of redemption money.
✓ Two whom it may be made:
a. to the purchaser at the auction sale
b. for such purchaser to the officer who made the sale
c. to the sheriff
✓ Amount payable:
d. Purchase price at the auction sale
e. 1% interest per month from the date of the registration of the certificate of sale
up to the time of redemption
f. Necessary expenses incurred by the purchaser (to preserve the property during the
period of redemption)
Rights of persons with subordinate interests. A second or junior mortgagee acquires only the
equity of redemption vested in the mortgagor, and his rights are strictly subordinate to the
superior lien of the first mortgagee. Thus, a second mortgagee has to wait until after the debtor’s
obligation to the first mortgagee has been fully settled.
✓ Aside from acquiring the right to repurchase, the second mortgagee is entitled to the
payment of his credit the excess of the proceeds of the auction sale, after covering the
mortgagor’s obligations to the first mortgagee. In case the credit of the first mortgagee
has absorbed the entire proceeds of the sale, the second mortgage is extinguished
with it because said mortgage cannot be enforced by the second mortgagee beyond
the total value of the mortgaged property.
Persons entitled to exercise the right of redemption:
1. Mortgagor or one in privity of title with mortgagor
2. Mortgagor’s sucessor-in-interest. These include:
a. One to whom the judgment debtor has transferred his right of redemption
b. One to whom the debtor has conveyed his interest in the property for the purpose of
redemption
c. One who succeeds to the interest of the debtor by operation of law
d. One or more joint debtors who were joint owners of the property sold
e. Wife as regards her husband’s property
3. Those authorized under the Rules of Court
a. The judgment debtor, or his successor-in-interest
b. A creditor having a lien by attachment, judgment or mortgage on the property sold
✓ The transfer of the right of redemption need not be registered with the Register of Deeds
to enable the transferee or assignee to exercise the same.
Question: What is a “mortgagee in possession”?
Answer: A mortgagee in possession is one who has lawfully acquired actual or constructive
possession of the property mortgaged to him, standing upon his rights as mortgagee
and not claiming another title. He holds such property as an antichresis creditor.
❖ Question: What is the vendee/purchaser’s right of possession of the property sold
to him at foreclosure sale?
Answer: Before the expiration of the date of redemption, the right to possession is contingent
upon the failure of the mortgagor to redeem. After the redemption period is terminated, the
right to redeem is barred and the vendee- purchaser’s right of possession becomes final.
Upon failure to redeem, consolidation of title becomes a matter of right on the part of the
auction buyer, and the issuance of a certificate of title in favor of the purchaser becomes
ministerial upon the Register of Deeds.
Right of purchaser to writ of possession. A writ of possession is generally understood to be
an order by a court whereby the sheriff is commanded to place in possession of real or personal
property the person entitled thereto such as when a property is extrajudicially foreclosed.
Before the lapse of the redemption period. Purchaser acquires right to take possession
of the foreclosed property upon filing of an ex parte application and posting of a
17
 bond. It is ministerial upon the court to issue a writ of possession in favor of the
purchaser in a foreclosure sale provided no rights of third persons are involved.
✓ After the lapse of the redemption period. The purchaser may either ask for a writ of
possession without the necessity of filing a bond or bring an appropriate
independent action.
✓ A mortgagee who has foreclosed the mortgaged property and has purchased the same
can be granted a writ of possession despite the fact that the premises are in the
possession of a lessee and whose lease has not yet been terminated. Exception:
Unless the lease had been previously registered in the Registry of Property or unless
despite non-registration, the mortgagee had prior knowledge of the existence and
duration of the lease.
H. CRIMINAL VIOLATION IN MORTGAGE [ Art. 316(1)(2),
RPC]
Article 316. Other forms of swindling. - The penalty of arresto mayor in its
minimum and medium period and a fine of not less than the value of the
damage caused and not more than three times such value, shall be imposed
upon:
1. Any person who, pretending to be owner of any real property, shall
convey, sell, encumber or mortgage the same.
2. Any person, who, knowing that real property is encumbered, shall
dispose of the same, although such encumbrance be not recorded.
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 CHATTEL MORTGAGE (2140-2141; Act 1508;PD 1521)
CHAPTER 5
Chattel Mortgage
Article 2140. By a chattel mortgage, personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation. If the movable,
instead of being recorded, is delivered to the creditor or a third person, the contract
is a pledge and not a chattel mortgage. (n)
PRESIDENTIAL DECREE No. 1508 June 11, 1978
(repealed by R.A. 7160)
ESTABLISHING A SYSTEM OF AMICABLY SETTLING DISPUTES AT THE BARANGAY
LEVEL
WHEREAS, the perpetuation and official recognition of the time-honored tradition of
amicably settling disputes among family and barangay members at the barangay level
without judicial resources would promote the speedy administration of justice and
implement the constitutional mandate to preserve and develop Filipino culture and to
strengthen the family as a basic social institution;
WHEREAS, the indiscriminate filing of cases in the courts of justice contributes heavily
and unjustifiably to the congestion of court dockets, thus causing a deterioration in
the quality of justice;
WHEREAS, in order to help relieve the courts of such docket congestion and thereby
enhance the quality of justice dispensed by the courts, it is deemed desirable to
formally organize and institutionalize a system of amicably settling disputes at the
barangay level;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue
of the powers vested in me by the Constitution, do hereby order and decree the
following:
Section 1. Lupong Tagapayapa
a) Creation. There is hereby created in each barangay a body to be known as
Lupong Tagapayapa (hereinafter referred to as Lupon) composed of the
Barangay Captain as chairman and not less than ten (10) nor more than
twenty (20) members, to be constituted every two years in the following
manner:
1. Any suitable person actually residing or working in the barangay,
not otherwise expressly disqualified by law, and taking into account
considerations of integrity, impartiality, independence of mind,
sense of fairness, and reputation for probity, including educational
attainment, may be appointed member;
2. A notice to constitute the Lupon, which shall include the names of
proposed members who have expressed their willingness to serve,
shall be prepared by the Barangay Captain within thirty (30) days
after this Decree shall have become effective, and thereafter within
the first ten (10) days of January of every other year. Such notice
shall be posted in three (3) conspicuous places in the barangay
continuously for a period of not less than three (3) weeks;
3. The Barangay Captain, taking into consideration any opposition to
the proposed appointment or any recommendation/s for
appointment as may have been made within the period of posting,
shall within ten (10) days thereafter, appoint as members those
whom he determines to be suitable therefor;
4. Appointments shall be in writing signed by the Barangay Captain
and attested by the Barangay Secretary;
5. The list of appointed members shall be posted in three (3)
conspicuous places in the barangay for the entire duration of their
term of office;
6. When used herein:
Barangay refers not only to barrios which were declared barangays by virtue
of Presidential Decree No. 557 but also to barangays otherwise known as
citizens assemblies pursuant to Presidential Decree No. 86.
Barangay Captain refers to the Barangay Captains of the barrios which
declared barangay by virtue of Presidential Decree No. 557 and to the
19
Chairmen of barangays otherwise known as citizens assemblies pursuant to
Presidential Decree No. 86.
b) Oath and Term of Office. Upon appointment, each member shall take an
oath of office before the Barangay Captain. He shall hold office until
December 31 of the calendar year subsequent to the year of his appointment
unless sooner terminated by resignation, transfer of residence or place of
work, or withdrawal of appointment by the Barangay Captain with the
concurrence of the majority of all the members of the Lupon.
c) Vacancy, Lupon. Should a vacancy occur in the Lupon for any cause the
Barangay Captain shall as soon as possible appoint a suitable replacement.
The person appointed shall hold office only for the unexpired portion of the
term of the member whom he replaces.
d) Functions. The Lupon shall exercise administrative supervision over the
conciliation panels hereinafter provided for. It shall meet regularly once a
month (1) to provide a forum for the exchange of ideas among its members
and the public on matters relevant to the amicable settlement of disputes;
and (2) to enable the various panels to share with one another their
observation and experiences in effecting speedy resolution of disputes.
e) Secretary of the Lupon. The Barangay Secretary shall concurrently the
Secretary of the Lupon. He shall note the results of the mediation
proceedings before the Barangay Captain and shall submit a report thereon
to the proper city or municipal court. He shall also receive and keep the
records of proceedings submitted to him by the various conciliation panels.
He shall issue the certification referred to in Section 6 hereof.
f) Conciliation Panels. There shall be constituted for each dispute brought
before the Lupon a conciliation panel to be known as Pangkat ng
Tagapagkasundo (hereinafter referred to as Pangkat) consisting of three (3)
members who shall be chosen by agreement of the parties to the dispute
from the list of membership of the Lupon.
Should the parties fail to agree, they shall, in the presence of the Barangay
Captain or Secretary, make the selection in the following manner: one party,
determined by lot, shall strike out from the list one name; the other party
shall in turn strike out another; the parties shall thereafter continue
alternately to strike out names until there shall remain on the list only by
four (4), three (3) of whom shall be the members of the Pangkat, and the
fourth, to be determined by lot, shall be the alternate.
In the event any of the four (4) remaining names is, for cause to be passed
upon solely by the Barangay Captain, still objected to by any party, the
procedure provided for in paragraph (g) hereunder shall be followed.
Should there be more than one complainant or respondent, each side to the
dispute shall choose its representative to such striking-out process.
The three (3) members shall elect from among themselves the chairman and
the secretary of the Pangkat.
The secretary of the Pangkat shall keep minutes of its proceedings attested
by the chairman and submit a copy thereof to the Lupon Secretary and to the
proper city or municipal court. He shall issue and cause to be served notices
to the parties and give certified true copies of any public record in his
custody that is not by law otherwise declared confidential.
g) Vacancy, Pangkat. Any vacancy in the Pangkat shall be filled by the
Barangay Captain from among the other members of the Lupon, to be
determined by lot.
h) Succession to or substitution for Barangay Captain. In the event the
Barangay Captain ceases to hold office or is unable to perform his duties
herein provided, the order of succession/substitution to his position as
provided by law shall be followed.
i) Character of Office. The members of the Lupon shall be deemed public
officers and persons in authority, within the meaning of the Revised Penal
Code.
j) Character of Service. The members of the Lupon or Pangkat shall serve
without any compensation or allowance whatsoever. Such service by any
Lupon or Pangkat member, whether he be in public or private employment,
shall be deemed to be on official time and no such member shall suffer any
diminution in compensation or allowances by reason thereof.
k) Legal advice. The Barangay Captain or any member of the Lupon or
Pangkat may, whenever he deems it necessary in the exercise of his functions
20
 under this Decree, seek the advice of the legal adviser of the
provincial/city/municipal government.
Section 2. Subject matters for amicable settlement. The Lupon of each barangay shall
have authority to bring together the parties actually residing in the same city or
municipality for amicable settlement of all disputes except:
1. Where on party is the government, or any subdivision or instrumentality
thereof;
2. Where one party is a public officer or employee, and the dispute relates to
the performance of his official functions;
3. Offenses punishable by imprisonment exceeding 30 days, or a fine
exceeding P200.00;
4. Offenses where there is no private offended party;
5. Such other classes of disputes which the Prime Minister may in the interest
of justice determine upon recommendation of the Minister of Justice and the
Minister of Local Government.
Section 3. Venue. Disputes between or among persons actually residing in the same
barangay shall be brought for amicable settlement before the Lupon of said barangay.
Those involving actual residents of different barangays within the same city or
municipality shall be brought inn the barangay where the respondent or any of the
respondents actually resides, at the election of the complainant. However, all
disputes which involved real property or any interest therein shall be brought in the
barangay where the real property or any part thereof is situated.
The Lupon shall have no authority over disputes:
1. involving parties who actually reside in barangays of different cities or
municipalities, except where such barangays adjoin each other; and
2. involving real property located in different municipalities.
Objections to venue shall be raised in the mediation proceedings before the Barangay
Captain as provided for in Section 4(b) hereunder; otherwise, the same shall be
deemed waived. Any legal question which may confront the Barangay Captain in
resolving objections to venue herein referred to may be submitted to the Minister of
Justice whose ruling thereon shall be binding.
Section 4. Procedure for amicable settlement.
a) Who may initiate proceedings. Any individual who has a cause of action
against another individual involving any matter within the authority of the
Lupon as provided in Section 2 may complain orally or in writing, to the
Barangay Captain of the barangay referred to in Section 3 hereof.
b) Mediation by Barangay Captain. Upon receipt of the complaint, the
Barangay Captain shall, within the next working day summon the
respondent/s with notice to the complainant/s for them and their witnesses
to appear before him for a mediation of their conflicting interests. If he fails
in his effort within fifteen (15) days from the first meeting of the parties
before him, he shall forthwith set a date for the constitution of the Pangkat
in accordance with the provisions of Section 1 of this Decree.
c) Hearing before the Pangkat. The Pangkat shall convene not later than
three (3) days from its constitution, on the day and hour set by the Barangay
Captain, to hear both parties and their witnesses, simplify issues, and explore
all possibilities for amicable settlement. For this purpose, the Pangkat may
issue summons for the personal appearance of parties and witnesses before
it.
In the event that the party moves to disqualify any member of the Pangkat
by reason of relationship, bias, interest or any other similar ground/s
discovered after constitution of the Pangkat, the matter shall be resolved by
the affirmative vote of the majority of the Pangkat whose decision shall be
final. Should disqualification be decided upon, the procedure provided for in
paragraph (g) of Section 1 shall be followed.
d) Sanctions. Refusal or willful failure of any party or witness to appear in
compliance with the summons issued pursuant to the preceding two (2)
paragraphs may be punished by the city or municipal court as for direct
contempt of court upon application filed therewith by the Lupon Chairman,
the Pangkat Chairman, or by any of the parties. Further, such refusal or
willful failure to appear shall be reflected in the records of the Lupon
Secretary or in the minutes of the Pangkat Secretary and shall bar the
21
 complainant from seeking judicial recourse for the same cause of action, and
the respondent, from filing any counterclaim arising out of or necessarily
connected therewith.
Willful failure or refusal without justifiable cause on the part of any Pangkat
member to act as such, as determined by the vote of a majority of all the
other members of the Lupon, whose decision thereon shall be final, shall
result in his disqualification from public office in the city or municipality for a
period of one year.
e) Time limit. The Pangkat shall arrive at a settlement/resolution of the
dispute within fifteen (15) days from the day it convenes in accordance with
paragraph (c) hereof. This period shall, at the discretion of the Pangkat, be
extendible for another period which shall not exceed fifteen (15) days except
in clearly meritorious cases.
Section 5. Form of settlement. All amicable settlements shall be in writing, in a
language or dialect known to the parties, signed by them and attested by the
Barangay Captain or the Chairman of the Pangkat, as the case may be. When the
parties to the dispute do not use the same language/dialect, the settlement shall be
written in the languages; dialect known to them.
Section 6. Conciliation, pre-condition to filing of complaint. No complaint, petition,
action or proceeding involving any matter within the authority of the Lupon as
provided in Section 2 hereof shall be filed or instituted in court or any other
government office for adjudication unless there has been a confrontation of the
parties before the Lupon Chairman or the Pangkat and no conciliation or settlement
has been reached as certified by the Lupon Secretary or the Pangkat Secretary,
attested by the Lupon or Pangkat Chairman, or unless the settlement has been
repudiated. However, the parties may go directly to the court in the following cases:
1. Where the accused is under detention;
2. Where a person has otherwise been deprived of personal liberty calling for
habeas corpus proceedings;
3. Actions coupled with provisional remedies such as preliminary injunction,
attachment, delivery of personal property and support pendente lite; and
4. Where the action may otherwise be barred by the Statute of Limitations.
Section 7. Arbitration. The parties may, at any stage of the proceedings, agree in
writing that they shall abide by the arbitration award of the Barangay Captain or the
Pangkat. Such agreement to arbitrate may within five (5) days from the date thereof,
he repudiated for the same grounds and in accordance with the procedure prescribed
in Section 13 hereof. The arbitration award shall be made after the lapse of the
period for repudiation and within ten (10) days thereafter.
The arbitration award shall be in writing in a language or dialect known to the parties.
When the parties to the dispute do not use the same language/dialect, the award
shall be written in languages/dialects known to them.
Section 8. Proceedings public; exception. All proceedings for settlement shall be
public and informal, Provided, that the Barangay Captain or the Pangkat, as the case
may be, may motu propio or upon request of a party exclude the public from the
proceedings in the interest of privacy, decency or public morals.
Section 9. Appearance of parties in person. In all other proceedings provided for
herein, the parties must appear in person without the assistance of
counsel/representative, with the exception of minors and incompetents who may be
assisted by their next of kin who are not lawyers.
Section 10. Admissions. Admissions made in the course of any proceedings for
settlement may be admissible for any purpose in any other proceeding.
Section 11. Effect of amicable settlement and arbitration award. The amicable
settlement and arbitration award shall have the force and effect of a final judgment
of a court, upon the expiration of ten (10) days from the date thereof unless
repudiation of the settlement has been made or a petition for nullification of the
award has been filed before the proper city or municipal court.
Section 12. Execution. The amicable settlement or arbitration award may be enforced
by execution within one (1) year from the date of the settlement. After the lapse of
such time, the settlement may be enforced by action in the appropriate
city/municipal court.
Section 13. Repudiation. Any party to the dispute may, within ten (10) days from the
date of settlement, repudiate the same by filing with the Barangay Captain a
statement to that effect sworn to before him, where the consent is vitiated by fraud,
violence or intimidation. Such repudiation shall be sufficient basis for the issuance of
the certification for filing a complaint, provided for in Section 6 hereof.
22
Section 14. Transmittal of settlement and arbitration award to court. The Secretary of
the Lupon shall transmit the settlement of arbitration award to the local city or
municipal court within five (5) days from the date of the award or from the lapse of
ten-day period for repudiating the settlement and shall furnish copies thereof to each
of the parties to the settlement and the Barangay Captain.
Section 15. Power to administer oaths. The Barangay Captain and members of the
Pangkat are hereby authorized to administer oaths in connection with any matter
relating to all proceedings provided for in this Decree.
Section 16. Administration; rules and regulations.
(a) The Minister of Local Government and Community Development shall see
to the efficient implementation and administration of this Decree. For this
purpose, he shall be empowered to promulgate rules and regulations, upon
consultation with the Minister of Justice. In the process, the Minister of Local
Government and Community Development may seek cooperation and
coordination from other departments, agencies or instrumentalities of the
National Government; and such departments, agencies or instrumentalities
are hereby directed to render assistance whenever so requested.
(b) Without prejudice to the provisions of Section (k) hereof, legal questions
arising in the administration and implementation of this laws shall be
submitted to the Minister of Justice for resolution.
Section 17. Separability Clause. If, for any reason, any provision of this Decree shall be
held to be unconstitutional or invalid, no other provision hereof shall be affected
thereby.
Section 18. Appropriations. To carry out the purposes of this Decree, there is hereby
appropriated the sum of Twenty-five Million Pesos (P25,000,000.00) from the General
Funds for the current year. Thereafter, the appropriation for such funds as may be
necessary for the purpose shall be provided for in the General Annual Appropriation
Acts.
Section 19. Effectivity. This Decree shall take effect six (6) months after its
promulgation.
DONE in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen
hundred and seventy-eight.
PRESIDENTIAL DECREE No. 1521
THE SHIP MORTGAGE DECREE OF 1978
WHEREAS, it is the declared policy of the State to accelerate the growth and
development of the shipping industry;
WHEREAS, due to the heavy capital requirement for ship acquisition and operation,
the shipping industry has turned to financial institutions, both local and foreign, for
assistance;
WHEREAS, Philippine laws on ship mortgage have not been responsive to the needs
of vessel financing such that it has deterred the extensions of needed loans to the
industry;
WHEREAS, there is a recognized need for extending the benefits accorded to overseas
shipping under Presidential Decree No. 214 to domestic shipping.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the Philippines, by virtue
of the powers vested in me by the Constitution, do hereby order the enactment of a
ship mortgage law as follows:
Section 1. Title. This Decree shall be known as "The Ship Mortgage Decree of 1978."
Section 2. Who may Constitute a Ship Mortgage. Any citizen of the Philippines, or any
association or corporation organized under the laws of the Philippines, at least sixty
per cent of the capital of which is owned by citizens of the Philippines may, for the
purpose of financing the construction, acquisition, purchase of vessels or initial
operation of vessels, freely constitute a mortgage or any other lien or encumbrance
on his or its vessels and its equipment with any bank or other financial institutions,
domestic or foreign.
Section 3. Mortgage of Vessel of Domestic Ownership; records.
(a) No mortgage, which at the time such mortgage is made includes a vessel
of domestic ownership as this term is defined in Presidential Decree No. 761,
or any portion thereof, as the whole or any part of the property mortgaged,
shall be valid, in respect to such vessel, against any person other than the
mortgagor, his heir or assign, and a person having actual notice thereof, until
23
 such mortgage is recorded in the office of the Philippine Coast Guard of the
port of documentation of such vessel.
(b) The Coast Guard District or Station Commander shall record mortgages
delivered to him, in the order of their reception, in books to be kept for that
purpose and indexed to show
1. The name of the vessel;
2. The names of the parties tot he mortgage;
3. The time and date of reception of the instrument;
4. The interest in the vessel so mortgaged;
5. The amount and date of maturity of the mortgage;
6. Name, citizenship, nationality and residence of owner, and
7. Any material change of condition in respect to any of the
preceding items.
A copy of the instrument or mortgage shall be furnished the Central Bank of the
Philippines.
Section 4. Preferred Mortgages
(a) A valid mortgage which at the time it is made includes the whole of any
vessel of domestic ownership shall have, in respect to such vessel and as of
the date of recordation, the preferred status given by the provisions of
Section 17 hereof, if
1. The mortgage is recorded as provided in Section 3 hereof;
2. An affidavit is filed with the record of such mortgage to the effect
that the mortgage is made in good faith and without any design to
hinder, delay, or defraud any existing or future creditor of the
mortgagor or any lien or of the mortgaged vessel;
3. The mortgage does not stipulate that the mortgagee waives the
preferred status thereof;
(b) Any mortgage which complies with the above conditions is hereafter
called a "preferred mortgage". For purposes of this Decree, a vessel holding a
Provisional Certificate of Philippine Registry is considered a vessel of
domestic ownership such that it can be subject of preferred mortgage. The
Philippine Coast Guard is hereby authorized to enter a vessel holding a
Provisional Certificate of Philippine Registry in the Registry of Vessels and to
record any mortgage executed thereon. Such mortgage shall have the
preferred status as of the date of recordation upon compliance with the
above conditions.
(c) There shall be endorsed upon the documents of a vessel covered by a
preferred mortgage
1. The names of the mortgagor and mortgagee;
2. The time and date the endorsement is made;
3. The amount and date of maturity of the mortgage; and
4. Any amount required to be endorsed by the provisions of
paragraphs (e) or (f) of this Section.
(d) Such endorsement shall be made (1) by the Coast Guard District or
Station Commander of the port of documentation of the mortgaged vessel,
or (2) by the Coast Guard District or Station Commander of any port in which
the vessel is found, if such Coast Guard District or Station Commander is
directed to make the endorsement by the Coast Guard District or Station
Commander of the port of documentation. The Coast Guard District or
Station Commander of the port of documentation shall give such direction by
wire of letter at the request of the mortgagee and upon the tender of the
cost of communication of such direction. Whenever any new document is
issued for the vessel, such endorsement shall be transferred to and endorsed
upon the new document by the Coast Guard District or Station Commander.
In the case of a vessel holding a provincial certificate of Philippine Registry,
the endorsement shall be made by the Philippine consul abroad upon
direction by wire or letter from the Maritime Industry Authority at the
24
 request of the mortgagee and upon tender of the cost of communication of
such direction. A certificate of such endorsement, giving the place, time and
description of the endorsement, shall be recorded with the records of
registration to be maintained at the Philippine Consulate.
(e) A mortgage which includes property other than a vessel shall not be held
a preferred mortgage unless the mortgage provides for the separate
discharge of such property by the payment of a specified portion of the
mortgage indebtedness. If a preferred mortgage so provides for the separate
discharge, the amount of the portion of such payment shall be endorsed
upon the documents of the vessel.
(f) A preferred mortgage includes more than one vessel and provides for the
separate discharge of each vessel by the payment of a portion of mortgage
indebtedness, the amount of such portion of such payment shall be endorsed
upon the documents of the vessel. In case such mortgage does not provide
for the separate discharge of a vessel and the vessel is to be sold upon the
order of a district court of the Philippines in a suit in rem in admiralty, the
court shall determine the portion of the mortgage indebtedness increased by
20 per centum (1) which, in the opinion of the court, the approximate value
of all the vessels covered by the mortgage, and (2) upon the payment of
which the vessel shall be discharged from the mortgage.
Section 5. Certified Copies of Mortgage; exhibition. The Coast Guard District or
Station Commander upon the recording of a preferred mortgage shall deliver two
certified copies thereof to the mortgagor who shall place, and use due diligence to
retain, one copy on board the mortgaged vessel notice of which shall be posted in a
conspicuous place thereat and cause such copy and the documents of the vessel to be
exhibited by the master to any person having business with the vessel, which give rise
to a maritime lien upon the vessel or to the sale, conveyance, or mortgage thereof.
The master of the vessel shall upon the request of any such person, exhibit to him the
documents of the vessel placed on board thereof. The requirement of this Section
that a copy of a preferred mortgage be placed and retained on board the mortgaged
vessel shall not apply in the case of a mortgaged vessel which is not self-propelled
(including but not limited to, barges, scors, lighters, and car floats).
If the master of the vessel willfully fails to exhibit the documents of the vessel or the
copy of any preferred mortgage thereof, the Philippine Coast Guard may suspend or
cancel the master's license.
Section 6. Prior and Subsequent Maritime Liens on Mortgaged Vessel. The mortgagor
(1) shall, upon request of the mortgagee, disclose in writing to him prior to the
execution of any preferred mortgage, the existence of any maritime lien, prior
mortgage, or other obligation or liability upon the vessel to be mortgaged, that is
known to the mortgagor, and (2) without the consent of the mortgagee, shall not
incur, after the execution of such mortgage and before the mortgagee has had a
reasonable time in which to record the mortgage and have indorsements in respect
thereto made upon the documents of the vessel, any contractual obligation creating a
lien upon the vessel other than a lien for wages of stevedores when employed
directly by the owner, operator, master, ship's husband, or agent of the vessel, for
wages of the crew of the vessel, for general average, or for salvage, including contract
salvage, in respect to the vessel, tonnage dues and all other charges (not to exceed
P20,000) of the Philippine Government in respect to the vessel.
A mortgagor, who, with intent to defraud, violates the above provision and if the
mortgagor is a corporation or association, the president or other principal executive
officer of the corporation or association, shall be punished by a fine of not, more than
P5,000 or imprisonment of not more than two years, or both. The mortgage
indebtedness shall thereupon become immediately due and payable at the election
of the mortgagee.
Section 7. Record of Notice of Claim of Lien on Mortgaged Vessel; discharge of lien
(a) The Coast Guard District or Station Commander of the port of
documentation shall, upon the request of any person, record notice of his
claim of a lien upon a vessel covered by a preferred mortgage, together with
the nature, date of creation, and amount of the lien, and the name and
address of the person. Any person who has caused notice of his claim of lien
to be so recorded shall, upon a discharge in whole or in part of the
indebtedness, forthwith file with the Coast Guard District or Station
Commander a certificate of such discharge. The Coast Guard District or
Station Commander shall thereupon record the certificate.
(b) The mortgagor upon a discharge in whole or in part of the mortgage
indebtedness, shall forthwith file with the Coast Guard District or Station
Commander for the port of documentation of the vessel, a certificate of such
discharge duly executed by the mortgagee. Such Coast Guard District or
Station Commander shall there upon record the certificate. In case of a vessel
covered by a preferred mortgage, the Coast Guard District or Station
Commander at the port of documentation shall endorse upon the documents
25
 of the vessel, or direct the Coast Guard District or Station Commander at any
port in which the vessel is found, to so endorse, the fact of such discharge.
A certificate of such endorsement, giving the time, place and description of the
endorsement, shall be recorded with the Philippine Coast Guard. Where the
endorsement is made by a person other than the Coast Guard District or Station
Commander such certificate shall be promptly forwarded to the Philippine Coast
Guard.
Section 8. Conditions Precedent to Record; interest on Preferred Mortgage
(a) No mortgage shall be recorded unless it states the interest of the
mortgagor in the vessel, and the interest so mortgaged.
(b) No mortgage, notice of claim of lien, or certificate of discharge thereof,
shall be recorded unless previously acknowledged before the Coast Guard
District or Station Commander of the port of documentation or a notary
public or other officer authorized by a law of the Philippines to take
acknowledgment of deeds or before a Philippine consul or consular agent.
(c) In case of a change in the port of documentation of a vessel of the
Philippines, no mortgage shall be recorded at the new port of documentation
unless there is furnished to the Coast Guard District or Station Commander of
such port, together with the copy of the mortgage to be recorded, a certified
copy of the record of the vessel at the former port of documentation
furnished by the Coast Guard District or Station Commander of such port.
The Coast Guard District or Station Commander at the new port of
documentation is authorized and directed to record such certified copy.
Section 9. Inspection of the Copies for Records; fees. Each Coast Guard District or
Station Commander shall permit records made under the provisions of this decree to
be inspected during office hours, under such reasonable regulation as the Philippine
Coast Guard may establish. Upon the request of any person the Coast Guard District
or Station Commander shall furnish him from the records of the Coast Guard's office
(1) a certificate setting forth the names of the owners of any vessel, the interest held
by each owner, and the material facts as to any mortgage covering, or any lien or
other encumbrance upon, a specified vessel, (2) a certified copy of any mortgage,
notice of claim of lien, or certified copy discharge in respect to such vessel, or (3) a
certified copy as required by subsection (c) of Section 8 hereof. The Philippine Coast
Guard shall collect the fees as provided for under existing laws and regulations for
any mortgage recorded, or any certificate or certified copy furnished by it.
Section 10. Lien of preferred Mortgage; foreclosure; jurisdiction; procedure A
preferred mortgage shall constitute a lien upon the mortgaged vessel in the amount
of the outstanding mortgage indebtedness secured by such vessel. Upon the default
of any term or condition of the mortgage such lien may be enforced by the
mortgagee by suit in remaining admiralty, wherein the vessel itself may be made a
partly defendant and be arrested in the manner as provided in Section 11 hereof.
Original jurisdiction of all such suits is granted to the Court of First Instance of the
Philippines exclusively. In addition to any notice by publication, actual notice of
commencement of any such suit shall direct, to (1) the master, other ranking officer,
or caretaker of the vessel, and (2) any person who has recorded a notice of claim of
an undischarged lien upon the vessel, as provided in Section 7 hereof, unless after
search by the mortgage satisfactory to the court, such mortgagor, master, other
ranking officer, caretaker, or claimant is not found within the Philippines. Failure to
give notice to any such person, as required by this Section, shall be liable to such
person for damages in the amount of his interest in the vessel terminated by the suit.
In case of judicial foreclosure as provided herein, the provisions of Rule 68 of the New
Rules of Court, if not inconsistent herewith, shall apply.
The lien of a preferred ship mortgage may also be enforced by a suit in rem in
admiralty or otherwise in any foreign country in which the vessel may be found
pursuant to the procedure of said country for the enforcement of ship mortgages
constituting maritime liens on vessels documented under the laws of said country.
Section 11. Arrest of Vessels Upon the filing of the petition for the judicial foreclosure
of a Preferred Ship Mortgage, or immediately thereafter, the applicant may apply ex-
parte for an order for the arrest of the mortgaged vessel or vessels and the judge
shall immediately issue the same, provided that it is made to appear by affidavit of
the applicant, or of some other person who personally knows the facts that a default
in the mortgage has occurred and that applicant files a bond executed to the adverse
party in an amount to be fixed by the judge, not exceeding the applicant's claim,
conditioned that the latter will pay all the costs which may be adjudged to the
adverse party and all damages which he may sustain by reason of such arrest, if the
court shall finally adjudge that the applicant was not entitled thereto.
Section 12. Discharge of Order of Arrest; Counterbond At any time after an order of
arrest has been granted, the party whose vessel or vessels had been arrested, or the
26
person appearing in his behalf, may, upon reasonable notice to the applicant, apply to
the judge who granted the order, or to the judge of the court in which the action is
pending, for an order discharging the order of arrest. That judge shall order the
discharge of the arrest if a cash deposit is made, or counterbond executed to the
creditor is filed, on behalf of the adverse party, with the clerk or judge of the court
where the application is made in an amount double the value of the claim to secure
the payment of any judgment that the creditor may recover in the action. Upon the
filing of such counterbond, copy thereof shall forthwith be served on the creditor or
his lawyer. Upon discharge of the order of arrest, the property arrested or seized shall
be delivered to the party making the deposit or giving the counterbond, or the person
appearing in his behalf, the deposit or counterbond aforesaid standing in place of the
vessel or vessels released. Should such deposit or counterbond for any reason be
found to be, or become insufficient, and the party furnishing the same fails to file an
additional co-counterbond, the attaching creditor may apply for a new order of arrest
or seizure.
Section 13. Discharge of Order of Arrest for Improper or Irregular Issuance The party
whose vessel/s has been arrested may also, at any time either before or after the
release of the arrested vessel, or before any arrest or seizure has been effected, upon
reasonable notice to the creditor, apply to the judge who granted the order, or to the
judge of the court in which the action is pending, for an order to discharge the order
of arrest or seizure on the ground that the same improperly or irregularly issued.
After hearing, the judge shall order the discharge of the order of arrest or seizure if it
appears that it was improperly or irregularly issued and the defect is not cured
forthwith.
Section 14. Extrajudicial Foreclosure The provisions of the Chattel Mortgage Law on
the remedy of extra-judicial foreclosure of mortgages in so far as they are not
inconsistent herewith shall still apply. For the purpose of taking possession of the
vessel or vessels, the foreclosing creditor may secure from a judge of the Court of
First Instance of the province where the vessel may be found or where the creditor or
debtor resides an order for the arrest or seizure of the vessel. Upon such order of
seizure or arrest being issued, the sheriff shall immediately take possession of the
vessel or vessels for the purpose of foreclosure and sale. The vessel may only be
released in accordance with the provisions of Section 13 of this Act, or when the
debtor pays the outstanding obligation.
Section 15. Foreign Ship Mortgages As used in Sections 10 to 18 hereof, the term
"preferred mortgage" shall include, in addition to a preferred mortgage made
pursuant to the provisions of this Decree, any mortgage, hypothecation, or similar
charge created as security upon any documented foreign vessel if such mortgage,
hypothecation, or similar charge has been duly and validly executed in accordance
with the laws of the foreign nation under the laws of which the vessel is documented
and has been duly registered in accordance with such laws in a public register either
at the port of registry of the vessel or at a central office; and the term "preferred
mortgage lien" shall also include the lien of such mortgage, hypothecation, or similar
charge: Provided, however, That such "preferred mortgage lien" in the case of a
foreign vessel shall be subordinate to maritime liens for repairs, supplies, towage, use
of drydock or marine railway, or other necessaries, performed or supplied in the
Philippines.
Section 16. Receiver in Foreclosure; possession by sheriff In any suit in rem in
admiralty for the enforcement of the preferred mortgage lien, the court may appoint
a receiver and, in its discretion, authorize the receiver to operate the mortgaged
vessel. The sheriff may be authorized and directed by the court to take possession of
the mortgaged vessel notwithstanding the fact that the vessel is in the possession or
under the control of any person claiming a possessory common law lien.
Section 17. Preferred Maritime Lien, Priorities, Other Liens (a) Upon the sale of any
mortgaged vessel in any extra-judicial sale or by order of a district court of the
Philippines in any suit in rem in admiralty for the enforcement of a preferred
mortgage lien thereon, all pre-existing claims in the vessel, including any possessory
common-law lien of which a lienor is deprived under the provisions of Section 16 of
this Decree, shall be held terminated and shall thereafter attach in like amount and in
accordance with the priorities established herein to the proceeds of the sale. The
preferred mortgage lien shall have priority over all claims against the vessel, except
the following claims in the order stated: (1) expenses and fees allowed and costs
taxed by the court and taxes due to the Government; (2) crew's wages; (3) general
average; (4) salvage; including contract salvage; (5) maritime liens arising prior in time
to the recording of the preferred mortgage; (6) damages arising out of tort; and (7)
preferred mortgage registered prior in time.
(b) If the proceeds of the sale should not be sufficient to pay all creditors
included in one number or grade, the residue shall be divided among them
pro rata. All credits not paid, whether fully or partially shall subsist as
ordinary credits enforceable by personal action against the debtor. The
record of judicial sale or sale by public auction shall be recorded in the
Record of Transfers and Encumbrances of Vessels in the port of
documentation.
27
Section 18. Suit in Personam in Admiralty on Default
(a) Upon the default of any term or condition of a preferred mortgage upon a
vessel, the mortgagee may, in addition to all other remedies granted by this
Decree, bring suit in personal in admiralty in a district court of the
Philippines, against the mortgagor for the amount of the outstanding
mortgage indebtedness secured by such vessel or any deficiency in the full
payment thereof.
(b) This Decree shall not be construed, in the case of a mortgage covering, in
addition to vessels, realty or personality other than vessels, or both, to
authorize the enforcement by suit in rem in admiralty of the rights of the
mortgage in respect to such realty or personality other than vessels.
Section 19. Surrender of Documents; termination of mortgagee's interest; sale of
mortgaged vessel
(a) The documents of a vessel of the Philippines covered by a preferred
mortgaged may not be surrendered (except in the case of the forfeiture of
the vessel or its sale by the order of any court of the Philippines or any
foreign country) without the approval of the Maritime Industry Authority.
The Administrator shall not grant such approval without the mortgagee's
consent.
(b) The interest of the mortgage in a vessel of the Philippines covered by a
mortgage, shall not be terminated by the forfeiture of the vessel for a
violation of any law of the Philippines, unless the mortgage authorized,
consented, or conspired to effect the illegal act, failure, or omission which
constituted such violation. Neither shall the chance by the shipowner in the
use or character of the vessel or in the business of the mortgagor, without
the consent of the mortgagee, nor the failure by the mortgagor to comply
with the provisions of Section 5 hereof affect the validity or preference of the
preferred ship mortgage as against third persons.
(c) Upon the sale of any vessel of the Philippines covered by a preferred
mortgage in any extrajudicial sale or by order of a district court of the
Philippines in any suit in rem in admiralty for the enforcement of a maritime
lien other than a preferred maritime lien, the vessel shall be sold free from all
pre-existing claims thereon; but the court shall, upon the request of the
mortgagee, the plaintiff, or any intervenor, require the purchase at such sale
to give and the mortgagee to accept a new mortgage of the vessel for the
balance of the term of the original mortgage. The conditions of such new
mortgage shall be the same, so far as practicable, as those of the original
mortgage and shall be subject to the approval of the court. If such new
mortgage is given, the mortgagee shall not be paid from the proceeds of the
sale and the amount payable as the purchase price shall be held diminished
in the amount of the new mortgage indebtedness.
(d) No vessel of domestic ownership shall be mortgaged, nor, any rights
under said mortgage shall be assigned, to any person not a citizen of the
Philippines without the approval of the Maritime Industry Authority. The
penalties and sanctions provided for under Commonwealth Act No. 606 shall
apply in case of any violation hereof.
(e) The foreclosure sale of vessels mortgaged under the provisions of this
Decree, whether judicially or extra- judicially, shall not require the approval
of the Maritime Industry Authority.
Section 20. Who May Bid in the Foreclosure Sale The following persons are qualified
to bid in the foreclosure sale of the mortgaged vessel:
(a) Citizens of the Philippines or corporations 60% of the capital of which is
owned by Filipino citizens.
(b) A foreign mortgagee or foreign national whose country has diplomatic
relations with the Philippines or whose country grants reciprocal rights to
Filipino citizens.
In case the purchaser is a foreign individual or entity, the Philippine Coast Guard shall,
upon presentation of the certificate of sale, cancel the registration of the vessel and
issue a certificate to that effect upon request.
Section 21. Maritime Lien for Necessaries; persons entitled to such lien Any person
furnishing repairs, supplies, towage, use of dry dock or marine railway, or other
necessaries to any vessel, whether foreign or domestic, upon the order of the owner
of such vessel, or of a person authorized by the owner, shall have a maritime lien on
the vessel, which may be enforced by suit in rem, and it shall be necessary to allege or
prove that credit was given to the vessel.
28
Section 22. Persons Authorized to Procure Repairs, Supplies, and Necessaries The
following persons shall be presumed to have authority from the owner to procure
repairs, supplies, towage, use of dry dock or marine railway, and other necessaries for
the vessel: The managing owner, ship's husband, master or any person to whom the
management of the vessel at the port of supply is entrusted. No person tortuously or
unlawfully in possession or charge of a vessel shall have authority to bind the vessel.
Section 23. Notice to Person Furnishing Repairs, Supplies, and Necessaries The
officers and agents of a vessel specified in Section 22 of this Decree shall be taken to
include such officers and agents when appointed by a character, by an owner pro hac
vice, or by an agreed purchaser in possession of the vessel; but nothing in this Decree
shall be construed to confer a lien when the furnisher know, or by exercise of
reasonable diligence could have ascertained, that because of the terms of a charter
party, agreement for sale of the vessel, or for any other reason, the person ordering
the repairs, supplies, or other necessaries was without authority to bind the vessel
therefor.
Section 28. Instruments and Acts Validated All mortgages of any vessel of any part
thereof, and all documentations, recordations, indorsements and indexing thereof,
and proceedings incidental thereto made or done, prior to the effectivity of this
Decree are declared valid to the extent they would have been valid if the port or
ports at which it should have been documented in accordance with law; and this
Section is declared retroactive so as to accomplish such validations: Provided, That
nothing herein contained shall be construed to deprive any person of any vested
right.
Section 29. Repealing Clause The provisions of the New Civil Code, the Code of
Commerce, the Chattel Mortgage Law, the Revised Rules of Court and of such other
laws, decrees, executive orders, rules and regulations which are in conflict or
inconsistent with the provisions of this Decree are hereby repealed, amended or
modified accordingly. If for any reason, any section, subsection, sentence, clauses or
term of this Decree is held to be unconstitutional such decision shall not affect the
validity of the other provisions of this Decree.

Section 24. Waiver of Right to Lien Nothing in this Decree shall be construed to
prevent the furnisher of repairs, supplies, towage, use of dry dock or marine railway,
or other necessaries, or the mortgagee, from waiving his right to a lien, or in the case
of a preferred mortgage lien, to the preferred status of such lien, at any time by
agreement or otherwise.
Section 30. Effectivity This Decree shall take a effect upon its approval.
Done in the City of Manila, this 11th day of June, in the year of Our Lord, nineteen
hundred and seventy-eight.

Section 25. Existing Mortgages Not Affected; exception This Decree shall not apply (1)
to any existing mortgage, or (2) to any mortgage hereafter placed at any vessel under (1)
an existing mortgage, so long as such existing mortgage remains undischarged. The
Decree shall, however, apply to mortgages executed pursuant to Presidential Decree Characteristics of Real Mortgage:
No. 214, provided, that no vested rights of third parties are affected thereby.
1.
Section 26. Rules and Regulations by Philippine Coast Guard and the Maritime
2.
Industry Authority The Philippine Coast Guard and the Maritime Industry Authority
are hereby authorized to make such rules and regulations within their respective 3.
spheres of jurisdiction, as they may deem necessary for the efficient execution of the
provisions of this Decree. 4.
5.
Section 27. Port of Documentation Whenever in the Ship Mortgage Decree of 1978
the words "port of documentation" are used, they shall be deemed to mean the port Laws governing Chattel Mortgage:
of registry of the vessel.
1.
2.
Chattel Mortgage is that contract by virtue of which personal property is recorded in the
Chattel Mortgage Register as security for the performance of an obligation.
Accessory - because it is for the purpose of securing the performance of a principal
obligation
Formal - because its validity, registration in the Chattel Mortgage Register is
indispensable
Unilateral - because it produces only obligations on the part of the creditor to free the
thing from the encumbrance on fulfillment of the obligation.
It does not convey dominion but is only a security
It creates a real right or a lien which is being recorded and follows the chattel wherever it
goes
Chattel Mortgage Law
Civil Code

29
 3. Revised Administrative Code ✓A pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred
4. Revised Penal Code obligations so long as these future debts are accurately described. A chattel
mortgage however, can only cover obligations existing at the time the mortgage is
constituted.
Subject matter of chattel mortgage
1. Shares of stock in a corporation Article 2141. The provisions of this Code on pledge, insofar as they are not in conflict
2. Interest in business with the Chattel Mortgage Law shall be applicable to chattel mortgages. (n)
3. Machinery and house of mixed materials treated by parties as personal property and no
innocent third person will be prejudiced thereby (1) Applicability of the provisions on pledge. The provisions on pledge shall apply to
4. Vessels, the mortgage of which have been recorded with the Philippine Coast Guard in chattel mortgage only insofar as they are not in conflict with any provision of the Chattel
order to be effective as to third persons Mortgage Law
5. Motor vehicles, the mortgage of which had been registered both with the Land (2) Offenses involving chattel mortgage. Under the Revised Penal Code, the following acts
Transportation Commission and the Chattel Mortgage Registry in order to affect third are punishable:
persons
1. Knowingly removing any personal property mortgaged under the Chattel Mortgage
6. House which is intended to be demolished (for what is really mortgaged are the materials
Law
thereof)
7. House built on rented land 2. Selling or pledging personal property already mortgaged, or any part thereof
8. Growing crops and large cattle without the consent of the mortgagee written o the back of the mortgage and duly
recorded in the Chattel Mortgage Register
Chattel mortgage distinguished from
(2) No absolute criterion between personal and real property. There is no absolute
criterion for discriminating between the two for purposes of the application of the Chattel Chattel Mortgage Pledge
Mortgage Law. It is undeniable that the parties to a contract may by agreement, treat as Delivery Delivery is not Delivery is necessary
personal property that which by nature would be real property; and it is a familiar necessary
phenomenon to see things classed as real property for purposes of taxation which on Registration Registration in the Registration in the
general principles might be considered as personal property. Chattel Mortgage Registry Property is
register is necessary not necessary
for its validity
Subject matter to be described and identified. Sec. 7 of the Chattel Mortgage Law only Law governing the Procedure for the Art. 2112, Civil Code
requires that the description of the mortgage property be such as to enable the parties to the sale sale of the thing given
as security (Sec. 14,
mortgaged property be such as to enable the parties to the mortgage or any other person to Act. No. 1508)
identify the same after a seasonable investigation and inquiry.
Excess If the property is If the property is sold,
foreclosed, the the debtor is not
(3) Extent of chattel mortgage. Sec. 7, par. 4 of the Chattel Mortgage law provides, “A excess goes to the entitled to the excess
debtor unless otherwise
chattel mortgage shall be deemed to cover only the property described therein and not agreed
like or substituted property thereafter acquired by the mortgagor and placed in the Recovery of The creditor is The creditor is not
same depositary as the property originally mortgaged, anything in the mortgage to the Deficiency entitled to recover the entitled to recover the
deficiency from the deficiency
contrary notwithstanding.” debtor except if the notwithstanding any
✓ Stipulation including after-acquired property. A stipulation in the mortgage, chattel mortgage is a stipulation to the
security for the contrary.
extending its scope and effect to after acquired property is valid and binding purchase of property
where the after-acquired property is in renewal of, or in substitution for, goods on hand in installments.
when the mortgage was executed, or is purchased with the proceeds of the sale of Possession Possession remains Possession is vested
with the debtor in the creditor
such goods, etc.

30
Contract Formal contract Real contract A. NATURE
3. Definition [2140; Section 2, 1906 Chattel Mortgage
Recording in a public Must be recorded in a Must be recorded in a
instrument public instrument to public instrument to
bind third persons bind third persons,
plus it must contain
description of the
Law (Act 1508)]
thing pledged and the
date
a. Is registration an element? (2140)
Article 2140. By a chattel mortgage, personal property is recorded in the Chattel
Similarities between Chattel mortgage and Pledge: Mortgage Register as a security for the performance of an obligation. If the movable,
instead of being recorded, is delivered to the creditor or a third person, the contract
1. Both are executed to secure the performance of a principal obligation is a pledge and not a chattel mortgage. (n)
2. Both are constituted only on personal property
3. Both are indivisible
4. Both constitute a lien on property 4. Objects [2140; Section 2, 1906 Chattel Mortgage Law
5. In both cases, the creditor cannot appropriate the property to himself in payment or Act No. 1508; 1978 Ship Mortgage Decree(PD
of the debt
6. In both cases, when the debtor defaults, the property must be sold for the payment 1521)]
of the creditor
Both are extinguished by the fulfillment of the principal obligation or by the
D. GOVERNING LAW [2141]
7.
destruction of the property pledged or mortgaged.

Chattel mortgage distinguished from Real Mortgage: E. REGISTRATION

1. Effect
Chattel Mortgage Real Mortgage
Subject Matter Personal Property Real Property
2. Procedure [Secs. 114, 115 Presidential Decree 1529;
Requirement of Essential for the Merely for the Sec. 4, Act 1508; Section 5(a), PD 1521]
Registration validity of the purpose of binding
contract third persons.
Registration of Chattel Mortgage
Foreclosure Procedure for the foreclosure of chattel
proceedings mortgage is different from the procedure of
foreclosure for real estate mortgage Creation of chattel mortgage. The law as it now stands, provides only one way for executing
a valid chattel mortgage, through the registration of the personal property in the Chattel
Mortgage Register.
✓ Under the special law, if the property is situated in a different province form that in
which the mortgagor resides, the registration must be in both registers,
otherwise the chattel mortgage is void.
✓ If the chattel mortgage is not recorded, it is nevertheless binding between the parties
Period within which registration should be made. The law does not provide any specific time
within which a chattel mortgage should be recorded in the Chattel Mortgage Register. It
has been held that “the law is substantially and sufficiently complied with where the
registration is made by the mortgagee before the mortgagor has complied with his principal

31
 obligation and no right of innocent third persons is prejudiced.
Effect of registration:
1. Creates a real right. The registration of the chattel mortgage is an effective and binding
notice to other creditors of its existence and creates a real right or a lien which, being
recorded, follows the chattel mortgage wherever it goes. The registration gives the
mortgagee symbolical possession.
2. Adds nothing to the mortgage. Registration adds nothing to the instrument
considered as source of title and affect nobody’s rights except as a species of notice.
Registration of assignment of mortgage not required. Applying by analogy Art. 2128 of the Civil
Code to a chattel mortgage, it appears that a chattel mortgage may be alienated or assigned
to a third person. While such assignment may be recorded, the law is permissive and not
mandatory. It is clear that the debtor is protected if he pays his creditor without actual knowledge
that the debt has been assigned.
“Affidavit of Good Faith” is an oath in a contract of chattel mortgage wherein the parties
“severally swear that the mortgage is made for the purpose of securing the obligation specified
in the conditions thereof and for no other purposes and that the same is a just and valid
obligation and one not entered into for the purpose of fraud.”
✓ The absence of the affidavit vitiates a mortgage only as against third persons without
notice like creditors and subsequent encumbrancers.
✓ This special affidavit is required only for the purpose of transforming an already valid
mortgage into a “preferred mortgage.” Thus, it is not necessary for the validity of the
chattel mortgage itself but only to give it a preferred status.
E. EXTENT OF THE CHATTEL MORTGAGE
1. Future Properties (Sec 7, Act 1508)
2. After-incurred obligation
a. Affidavit of good faith (Section 5, Act 1508)
F. ASSIGNMENT OF CHATTEL MORTGAGE
G. FORECLOSURE AND SALE
1. Procedure (Sec. 14, Act 1508)
2. “Right” of redemption (Sec. 13, Act 1508)
3. Deficiency Judgment (1142)
Foreclosure in Chattel Mortgage
❖ Question: How is chattel mortgage foreclosed?
Public sale. If the mortgagor defaults in the payment of the secured debt or otherwise fails to
comply with the conditions of the mortgage, the creditor has no right to appropriate to himself
the personal property because he is permitted only to recover his credit from the proceeds of the
sale of the property at public auction through a public officer in the manner prescribed in the
Chattel Mortgage Law.
✓ The Chattel Mortgage Law allows the mortgagee to have the property mortgaged
sold in almost the same manner as that which governs extrajudicial
foreclosure of real estate mortgage
Private Sale. There is nothing illegal, immoral or against public order in an agreement for the private
sale of the personal properties covered by the chattel mortgage. The mortgagor is in
estoppel to question a private sale if it is expressly stipulated in the contract, except on the
ground of fraud or duress.
Procedure to foreclose chattel mortgage:
(1) The mortgagee may, after thirty (30) days from the time of the condition broken, cause
the mortgaged property to be sold at public auction by a public officer. The 30- day
period to foreclose is the minimum period after violation of the mortgage condition of
the mortgage.
(2) There has to be at least ten (10) days notice to the mortgagor and posting of
public notice of time, place and purpose of such sale.
(3) Afterthe sale of the chattel at public auction, the right of redemption is no longer
available to the mortgagor.
Application of the proceeds of sale:
(1) Costs and expenses of keeping and sale
(2) Payment of the obligation secured by the mortgage
(3) Claims of persons holding subsequent mortgages in their order
(4) The balance, if any, shall be paid to the mortgagor or person holding under him.
32
Redemption in Chattel Mortgage
(1) Who may exercise the right of redemption in chattel mortgage. When the condition of
the chattel mortgage is broken, the following may redeem:
1. The mortgagor
2. A person holding a subsequent mortgage
3. A subsequent attaching creditor
✓ An attaching creditor who so redeems shall be subrogated to the rights of the
mortgagee and entitled to foreclose the mortgage in the same manner that the
mortgagee could foreclose it.
✓ The redemption is made by paying or delivering to the mortgagee the mount due on
such mortgage and the costs and expenses incurred by such breach of
condition before the sale thereof.
(2) Right acquired by second mortgagee and subsequent purchaser.
✓ Before payment of debt. After a chattel mortgage is executed, there remains in the
mortgagor a mere right of redemption and only this right passes to the second
mortgagee in case of a second mortgage. As between the first and second mortgagees,
therefore, the latter can only recover the property from the former by paying him the
mortgage debt.
✓ After payment of debt. The judgment or attaching creditor who purchased the property
at the execution sale could only acquire the right of redemption. He is
not entitled to the actual possession and delivery of the property without first paying the
mortgage debt.
(3) Right of the mortgagee to possession
✓ After default. When the default occurs and creditor desires to foreclose, the right of the
creditor to take the mortgaged property is clearly implied from the provision
which gives him the right to sell.
✓ Before default. A chattel mortgagee is not entitled to the possession of the property upon
the execution of the chattel mortgage for otherwise, the contract becomes a
pledge and ceases to be a chattel mortgage.
✓ Where mortgagor refuses to surrender possession. Where the debtor refuses to yield
the property, the creditor’s remedy is to institute an action either to effect
a judicial foreclosure directly or to secure possession as a preliminary to the sale
contemplated in Sec. 14 of the Chattel Mortgage Law.
✓ Where right of mortgagee conceded/disputed. When such is conceded, the action need
only be maintained
against him who so possesses the property. Persons having a special right of property
in the goods the recovery of which is sought, such as a chattel mortgagee, may
maintain an action for replevin therefor.
Civil action to recover credit. The mortgagee is not obligated to file an independent action
for the enforcement of his credit. A mortgagee who sues and obtains a personal judgment
against a mortgagor upon his credit waived thereby his right to enforce the mortgage securing
it.
Ordinary action to recover possession of chattel. In case of refusal of the mortgagor to
surrender the possession of the mortgaged chattel sold by the sheriff, the remedy of the
purchaser is to bring an ordinary action for recovery of possession, instead of merely
asking for a writ of possession, in order to give the mortgagor the opportunity to be heard
not only regarding possession but also regarding the obligation covered by the mortgage.
Right of mortgagee to recover deficiency. The creditor may maintain an action for the
deficiency although the Chattel Mortgage Law is silent on this point. The reason is that a
chattel mortgage is only given as a security and not as payment for the debt in case of failure
of payment. Both the Chattel Mortgage Law and the law on extrajudicial foreclosure of real
estate mortgage do not contain any provision precluding the mortgagee from recovering
deficiency of the principal obligation.
The action may be brought within ten (10) years from the time the cause of action accrues,
even if it is not upon a written contract.
F. CRIMINAL VIOLATION IN CHATTEL MORTGAGE (Art. 319,
RPC)
Chapter Seven
CHATTEL MORTGAGE
Article 319. Removal, sale or pledge of mortgaged property. - The penalty or arresto mayor or a fine
amounting to twice the value of the property shall be imposed upon:
1. Any person who shall knowingly remove any personal property mortgaged under the Chattel
Mortgage Law to any province or city other than the one in which it was located at the time of the
execution of the mortgage, without the written consent of the mortgagee, or his executors,
administrators or assigns.
2. Any mortgagor who shall sell or pledge personal property already pledged, or any part thereof,
under the terms of the Chattel Mortgage Law, without the consent of the mortgagee written on the
back of the mortgage and noted on the record hereof in the office of the Register of Deeds of the
province where such property is located.
33
 ANTICHRESIS (2132-2139) provided that if the value of the fruits should exceed the amount of interest allowed
by the laws against usury, the excess shall be applied to the principal. (1885a)
CHAPTER 4
Article 2139. The last paragraph of article 2085, and articles 2089 to 2091 are
Antichresis
applicable to this contract. (1886a)
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
payment of the interest, if owing, and thereafter to the principal of his credit. (1881)
D. NATURE
Article 2133. The actual market value of the fruits at the time of the application 3. Definition (2132)
thereof to the interest and principal shall be the measure of such application. (n)

Article 2132. By the contract of antichresis the creditor acquires the right to receive
Article 2134. The amount of the principal and of the interest shall be specified in
the fruits of an immovable of his debtor, with the obligation to apply them to the
writing; otherwise, the contract of antichresis shall be void. (n)
payment of the interest, if owing, and thereafter to the principal of his credit. (1881)
Article 2135. The creditor, unless there is a stipulation to the contrary, is obliged to
Antichresis is a contract whereby the creditor acquires the right to receive the fruits of an
pay the taxes and charges upon the estate.
immovable of the debtor, with the obligation to apply them to the payment of interest,
if owing, and thereafter to the principal of his credit.
He is also bound to bear the expenses necessary for its preservation and repair.
✓ It is not essential that the loan should earn interest in order that it can be guaranteed
with a contract of antichresis. Antichresis is susceptible of guaranteeing
The sums spent for the purposes stated in this article shall be deducted from the all kinds of obligations, pure or conditional.
fruits. (1882) ✓ A stipulation authorizing the antichretic creditor to appropriate the property upon the
non-payment of the
Article 2136. The debtor cannot reacquire the enjoyment of the immovable without debt within the period agreed upon is void. Pactum Commissorium.
first having totally paid what he owes the creditor.
Characteristics of Antichresis
But the latter, in order to exempt himself from the obligations imposed upon him by 1. Accessory contract
the preceding article, may always compel the debtor to enter again upon the 2. Formal contract
enjoyment of the property, except when there is a stipulation to the contrary. (1883) 3. It deals only with immovable property
4. It is a real right
5. The creditor has the right to receive the fruits of the immovable
Article 2137. The creditor does not acquire the ownership of the real estate for non-
6. It is a real contract
payment of the debt within the period agreed upon.
7. It can guarantee all kinds of valid obligations

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)
Article 2138. The contracting parties may stipulate that the interest upon the debt be
compensated with the fruits of the property which is the object of the antichresis,
Delivery of property. Antichresis requires the delivery by the debtor of the property given as
security to the creditor. But such delivery is required only in order that the creditor may receive
the fruits and not in order that the contract shall be binding. The contract does not cover the
immovable but only its fruits.

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Right of the creditor to the fruits. Antichresis normally covers all the fruits of the encumbered ✓ Both antichresis and pledge are similar in that the debtor loses control of the subject
property, but the law gives the parties the freedom to stipulate otherwise. matter of the contract.

Difference between Antichresis and Real Estate Mortgage Application of the fruits to interest and then to principal. To be an antichresis, it must be
expressly agreed between creditor and debtor that the former, having been given possession of
Antichresis Real Estate the properties given as security, is to apply their fruits to the payment of interest, if owing, and
Mortgage thereafter to the principal of his credit.
Delivery Property is delivered Debtor usually retains
to the creditor possession of the
property
Thus, if a contract of loan with security does not stipulate the payment of interest
The right to receive Creditor acquires Creditor does not but provides for the delivery to the creditor by the debtor of the real property constituted
fruits, and real rights only the right to have any right to
receive the fruits of receive the fruits, but as security for the payment therefor, in order that the creditor may administer the same
the property; does
not produce a real
mortgage creates a
real right over the
and avail himself of its fruits, without stating that said fruits are to be applied to the
right unless property which is payment of the interest, if any, and afterwards to that of the principal of the credit,
registered enforceable against
the whole world
the contract shall b considered to be one of mortgage and not of antichresis.
Obligation to apply There is an express There is no such
fruits stipulation that the obligation on the part Article 2133. The actual market value of the fruits at the time of the application
creditor shall apply of the mortgagee
the fruits to the thereof to the interest and principal shall be the measure of such application. (n)
payment of the
interest, if owing, and
thereafter to the Measure of application of fruits to interest and principal. The fruits of the immovable which is
principal of the debt. the object of the antichresis must be appraised at their actual market value at the time of the
Obligation to pay Creditor, unless there Creditor has no such application. This rule is intended to forestall the use of antichresis for purposes of usury.
taxes and charges is a stipulation to the obligation
contrary, is obliged to
pay the taxes and
charges upon the 4. Characteristic (2134, 2132, 2085, 2089 & 2091)
estate

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
Difference between Antichresis and Pledge payment of the interest, if owing, and thereafter to the principal of his credit. (1881)

Article 2134. The amount of the principal and of the interest shall be specified in
Antichresis Pledge writing; otherwise, the contract of antichresis shall be void. (n)
Kinds of property Real property Personal property
Perfection Perfected by mere Perfected by the
Article 2085. The following requisites are essential to the contracts of pledge and
consent (consensual delivery of the thing mortgage:
contract) pledged (real
contract)
In writing Principal and interest Need not be in
(1) That they be constituted to secure the fulfillment of a principal obligation;
must be specified in writing, oral evidence
writing, otherwise the may be allowed to
contract is void prove the same (2) That the pledgor or mortgagor be the absolute owner of the thing
pledged or mortgaged;

35
 (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. E. RIGHTS OF THE CREDITOR (2132, 2134, 2136, 2137)
Third persons who are not parties to the principal obligation may secure the latter by
Article 2132. By the contract of antichresis the creditor acquires the right to receive
pledging or mortgaging their own property. (1857)
the fruits of an immovable of his debtor, with the obligation to apply them to the
payment of the interest, if owing, and thereafter to the principal of his credit. (1881)
Article 2089. A pledge or mortgage is indivisible, even though the debt may be
divided among the successors in interest of the debtor or of the creditor.
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)
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the
proportionate extinguishment of the pledge or mortgage as long as the debt is not
Article 2136. The debtor cannot reacquire the enjoyment of the immovable without
completely satisfied.
first having totally paid what he owes the creditor.
Neither can the creditor's heir who received his share of the debt return the pledge or
Article 2137. The creditor does not acquire the ownership of the real estate for non-
cancel the mortgage, to the prejudice of the other heirs who have not been paid.
payment of the debt within the period agreed upon.
From these provisions is excepted the case in which, there being several things given
Every stipulation to the contrary shall be void. But the creditor may petition the court
in mortgage or pledge, each one of them guarantees only a determinate portion of
for the payment of the debt or the sale of the real property. In this case, the Rules of
the credit.
Court on the foreclosure of mortgages shall apply. (1884a)
The debtor, in this case, shall have a right to the extinguishment of the pledge or
mortgage as the portion of the debt for which each thing is specially answerable is F. OBLIGATIONS OF THE PARTIES (2135, 2136)
satisfied. (1860)
Article 2135. The creditor, unless there is a stipulation to the contrary, is obliged to
Article 2091. The contract of pledge or mortgage may secure all kinds of obligations, pay the taxes and charges upon the estate.
be they pure or subject to a suspensive or resolutory condition. (1861)
He is also bound to bear the expenses necessary for its preservation and repair.
Form of the contract. Art. 2134 is an instance when the law requires that a contract be in some
form in order that it may be valid and not only to affect third persons The sums spent for the purposes stated in this article shall be deducted from the
fruits. (1882)
Characteristics of Antichresis
1. Accessory contract Article 2136. The debtor cannot reacquire the enjoyment of the immovable without
2. Formal contract first having totally paid what he owes the creditor.
3. It deals only with immovable property
4. It is a real right
NOTES:
5. The creditor has the right to receive the fruits of the immovable
6. It is a real contract
2135
7. It can guarantee all kinds of valid obligations
(2) Obligations of the antichretic creditor. The creditor acquires, by virtue of the contract

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 of antichresis, the right to enjoy the fruits of the property delivered to him. This right carries
with it two obligations which are the necessary consequences of the contract because
they arise from its very nature.
1. Payment of taxes and charges upon the estate. The creditor is obliged, unless there
is a stipulation to the contrary, to pay the taxes and charges upon the estate.
✓ If he does not pay the taxes, he is by law (Art. 1170) requires to pay indemnity
for damages to the debtor.
✓ Where the debtor has paid for the taxes on the property which the creditor
should have paid, the amount is to be applied to the payment of the debt
and the debtor is entitled to the return of the property free form all encumbrances
if he, in effect, by advancing the taxes, has already discharged the debt.
Acquisition by creditor of property by prescription. The creditor and his successors-in-interest
cannot ordinarily acquire by prescription the land given to him, any agreement to the contrary
being void. Possession, for the purpose of acquisitive prescription, must be in the concept of an
owner. The possession of an antichretic creditor is not in the concept of an owner. He cannot
acquire the ownership of the real estate subject of the antichresis unless he repudiates his status as
an antichretic creditor.
2138
✓ The rate of interest on loan or forbearance of money, goods, or credit is no longer
subject to any ceiling prescribed under the Usury Law.

2. Application of the fruits of the estate. To apply the fruits to the interest, if owing,
and thereafter to the principal in accordance with the provisions of Art. 2133 or Art.
2138. Hence, the duty of the creditor to render an account of said fruits to the debtor,
and the corresponding right of the latter to apply said fruits to the debt.
2136
2139
Last paragraph of Art. 2085 says, “Third persons who are not parties to the principal obligation
may secure the latter by pledging or mortgaging their own property.” Thus, in antichresis,
third persons may also have their properties serve in a contract of antichresis in favor of
a debtor and creditor.

Right of the antichretic debtor to reacquire enjoyment of property. The property delivered
stands as security for the payment of the obligation of the debtor in antichresis. Hence, the
debtor cannot demand its return until the debt is totally paid.
✓ However, if the creditor does not want to pay the taxes and incur the expenses
necessary for the preservation and repair of the property, he may compel the debtor to
reacquire the enjoyment of the same except when there is a contrary stipulation.
Arts. 2089 and 2090 is about indivisibility of pledge or mortgage. Thus, antichresis is
likewise one and indivisible as to the contracting parties even if the obligation is joint and not
solidary. Generally, the divisibility of the principal obligation is not affected by the indivisibility
of the pledge or mortgage.
Art 2091 speaks, “The contract of pledge or mortgage may secure all kinds of obligations, be
they pure or subject to a suspensive or resolutory condition.”

2137

Remedy of the creditor in case of nonpayment of debt. If the debt is not paid, it is clear enough
that the creditor does not acquire ownership of the real estate since what was transferred is not the
ownership but merely the right to receive the fruits. A stipulation authorizing the antichretic creditor
to appropriate the property upon the nonpayment of the debt within the period agreed upon is void.
The remedies of the creditor are:

1. To bring an action for specific performance

2. To petition for the sale of the real property as in a foreclosure of mortgages under
Rule 68

The parties, however, may agree on an extrajudicial foreclosure in the same manner
as they are allowed in contracts of mortgage and pledge

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