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VII POSSESSION OF PROPERTY MORTGAGED
REAL ESTATE MORTGAGE General Rule:
(Arts. 2124-2131) In a contract of mortgage, the mortgagor-debtor, retains
possession of the property mortgaged as security for the
Chapter 3 payment of the sum borrowed from the mortgagee-
Mortgage creditor, because by the mortgage, the debtor
merely subjects the property to a lien but
ART. 2124. Only the following property may be the ownership thereof is not parted with.
object of a contract of mortgage:
(1) Immovables; The debtor pays the creditor a certain percent thereof as
(2) Alienable real rights in accordance with the laws, interest on his principal by way of compensation for his
imposed upon immovables. sacrifice in depriving himself of the use of said money and
Nevertheless, movables may be the object of a chattel the enjoyment of its fruits, in order to give them to the
mortgage. mortgagor.
Mortgage / Real Estate Mortgage / Real Mortgage Since it is the mortgagor in a contract of mortgage who is
-is a contract whereby the debtor secures to the creditor the entitled to the possession of the subject property, it follows
fulfillment of a principal obligation, specially subjecting to that one’s status as mortgagee cannot be the basis
such security immovable property or real rights over of possession. (Recebido vs. People, 346 SCRA 881
immovable property which obligation shall be satisfied with [2000].)
the proceeds of the sale of said property or rights in case the
said obligation is not complied with at the time stipulated. It is not, however, an essential requisite of the contract of
mortgage that the property mortgaged remains in the
CHARACTERISTICS OF MORTGAGE possession of the mortgagor. (see Art. 2085.) Hence, the
1. Real mortgagor may deliver said property to the mortgagee,
2. Accessory without thereby altering the nature of the contract.
3. Subsidiary
4. Unilateral- because it creates only an obligation on PAYMENT OF INTEREST ON MORTGAGE
the part of the creditor who must free the property CREDIT
from the encumbrance once the obligation is It is not also an essential requisite of the contract of mortgage
fulfilled. that the principal of the mortgage credit bears interest, or
• essence of a contract of mortgage is that a that the interest as compensation for the use of the principal
property has been identified or set apart from the and enjoyment of its fruits be in the form of a certain percent
mass of the property of the debtor-mortgagor as security thereof.
for the fulfillment of his obligation, in case of
default of payment. The interest may be in the form of fruits of the
mortgaged property, without the contract’s losing
Facts: To secure a loan in the amount of P1,800.00, D thereby its character of a mortgage contract. In such case,
mortgaged his parcel of land to C, giving the latter the the mortgagee shall be subject to the obligation of an
option to “purchase said land absolutely on any date antichresis creditor. But if it is expressly agreed that the
within the two- year of this mortgage” at the agreed price creditor shall apply the fruits of the property, “to the
of P3,900.00. payment of interest, if owing, and thereafter to the principal
Issue: Having seasonably advised D that he had decided of his credit,” the contract is a true antichresis as defined
to buy the land in question, is C entitled to specific in Article 2132.
performance?
Held: Yes. While the stipulation is a mortgage and con- Not essential to mortgage:
tains the customary stipulation concerning redemption by Ø that the property mortgaged remains in the
the mortgagor (D), it carries the added special provision possession of the mortgagor. (see Art. 2085.)
aforequoted which renders D’s right to redeem defeasible § Hence, the mortgagor may deliver said
at the election of C. property to the mortgagee, without thereby
There is nothing illegal or immoral in this. It is simply an altering the nature of the contract
option to buy sanctioned by Article 1479.1 In this case, Ø that the principal of the mortgage credit bears
D’s promise to sell is supported by the same consideration interest
as that of the mortgage itself, which is distinct from that Ø or that the interest as compensation for the use of
which would support the sale, an additional amount the principal and enjoyment of its fruits be in the
having been agreed upon to make up the entire price of form of a certain percent thereof
P3,900.00, should the option be exercised. § it may be in the form of fruits of the mortgaged
D’s promise was in the nature of a continuing offer, non- property, without the contract losing its
withdrawable during a period of two years which upon character as a mortgage contract
acceptance by C gave rise to a perfected contract of
purchase and sale. (Soriano vs. Bautista, 6 SCRA 946 CAUSE OR CONSIDERATION IN MORTGAGE
[1962].)
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As mortgage is an accessory contract, its consideration is A real right over real property is real property.
the same as of the principal contract from which it Hence, a mortgage on real property is in itself a
receives its life, and without which it cannot exist as an real property.
independent contract, although the obligation thereby
secured is incurred by a third person and, therefore, it will The objects of pledge and chattel mortgage are movables.
be valid if the principal obligation is valid, and
cannot be avoided on the ground of lack of FUTURE PROPERTY CANNOT BE OBJECT OF
consideration. MORTGAGE.
Future property cannot be object of a contract of
Being an accessory contract, its validity would depend mortgage. (Art. 2085[2].) A mortgagor could not legally
on the validity of the debt secured by it. mortgage any property he did not yet own.
In a case, a corporate borrower was granted a loan on However, a stipulation subjecting to the mortgage
condition that its operation shall be run by the lending lien, properties (improvements) which the
bank and consultancy firm but the people designated to mortgagor may subsequently acquire, install, or
manage the corporation misspent proceeds of the loan by use in connection with real property already
taking advantage of the positions that they were mortgaged belonging to the mortgagor is valid.
occupying in the corporation which resulted in the latter’s (People’s Bank and Trust Co. vs. Dahican Lumber Co.)
devastation instead of its rehabilitation. It was held that it
is as if the loan was never delivered and thus, there was ART. 2125. In addition to the requisites stated in Article
failure on the part of the mortgagee bank to deliver the 2085, it is indispensable, in order that a mortgage may be
consideration for which the mortgage was executed. The validly constituted, that the document in which it appears
contract of a loan being invalid, the accessory be recorded in the Registry of Property. If the instrument
contract of mortgage was null and void. (Filipinas is not recorded, the mortgage is nevertheless binding
Marble Corporation vs. Intermediate Appellate Court, between the parties.
142 SCRA 180 [1986].)
The persons in whose favor the law establishes a
The mortgage must sufficiently describe the debt mortgage have no other right than to demand the
sought to be secured. An obligation is not secured execution and the recording of the document in which
by a mortgage unless it comes fairly within its the mortgage is formalized.
terms.
ESSENTIAL REQUISITES OF MORTGAGE.
KINDS OF MORTGAGE It is indispensable in order that a mortgage may be validly
A mortgage may be: constituted that it appears in a public document duly
(1) Voluntary. — one which is agreed to between the parties recorded in the Registry of Property.
or constituted by the will of the owner of the property
on which it is created A duly executed mortgage is presumed to be valid
(2) Legal. — one required by law to be executed in favor of until the contrary is shown.
certain persons (see Art. 2125, par. 2; Arts. 2082,
2083.); or To the party attacking, rests the burden of proving
(3) Equitable. — one which, although it lacks the proper its invalidity due to fraud, duress or illegality.
formalities or other requisites of a mortgage required
by law, nevertheless reveals the intention of the parties The right to attack the validity of a mortgage may
to burden real property as a security for a debt, and be lost by:
contains nothing impossible or contrary to law. 1. a waiver of defects and objections, or
» An equitable mortgage is not different from a real 2. by unreasonable delay to act amounting to
estate mortgage, and the lien created thereby ought ratification.
not to be defeated by requiring compliance with the
formalities necessary to the validity of a voluntary real (1) Where mortgage in a private document. — No
estate mortgage. valid mortgage is constituted where the alleged deed of
» provisions in the Civil Code governing equitable mortgage is a mere private document and, therefore, is not
mortgages are found in Articles 1365, 1450, 1454, registered.
1602, 1603, 1604, and 1607. The creditor may recover the loan, although
» instances when a contract regardless of its the mortgage document evidencing the loan was
nomenclature may be presumed to be an equitable non- registrable being a purely private document.
mortgage are enumerated in Article 1602. He has the right to compel the debtor to
execute a contract of mortgage in a public
SUBJECT MATTER OF MORTGAGE. instrument.
The objects of contract of mortgage are immovables and
alienable real rights imposed upon immovables. (2) Where mortgage not registered.
if the instrument of mortgage is not property, or any encumbrance thereon, the purchaser is not
recorded, the mortgage is nevertheless required to explore further than what the Torrens Title
binding between the parties. upon its face indicates in quest for any hidden defect or
In other words, registration only operates as inchoate right that may subsequently defeat his right
a notice of the mortgage to others but thereto.
neither adds to its validity nor converts an
invalid mortgage into a valid one between Exception:
the parties. 1. as where the purchaser or mortgagee has
Hence, an order for foreclosure cannot be refused knowledge of a defect or lack of title in the vendor,
on the ground that the mortgage had not been or
provided no innocent third parties are involved. 2. the mortgagee does not directly deal with the
registered owner of real property. or
(3) Where mortgage registered under Act No. 3344. 3. that he was aware of sufficient facts to induce a
— The registration of a mortgage over real property under reasonably prudent man to inquire into the status
Act No. 3344 is without prejudice to the better right of a property in litigation.
of third parties. Thus, an unregistered pacto de retro sale 4. When the purchaser or mortgagee is a bank or
over a house is superior to a recorded mortgage over the financing institution – which is required to look
same house of a later date. further than what appears on the title.
A mortgagee-bank is expected to exercise
DOCTRINE OF MORTGAGEE IN GOOD FAITH greater care and prudence before entering
» A mortgagee has a right to rely in good faith on the into a mortgage contract even those
certificate of title of the mortgagor of the property involving registered lands in its dealings than
given as security and in the absence of any sign that private individuals as their business is
might arouse suspicion, has no obligation to undertake impressed with public interest.
further investigation. It is a matter of judicial notice that
Hence, even if the mortgagor is not the rightful owner before a bank grants a loan on the
of, or does not have a valid title to, the mortgaged security of land it first undertakes a
property, the mortgagee in good faith is careful examination of title of the
nonetheless entitled to protection. This is the applicant as well as a physical and on-
doctrine of “mortgagee in good faith.” the-spot investigation of the land
Basis of the rule: that all persons dealing with the itself offered as security.
property covered by a Torrens Certificate of Title, s A bank that failed to observe due diligence
buyers or mortgagees, are not required to go beyond cannot be accorded the status of a
what appears on the face of the title. bona fide mortgagee.
The due diligence required of banks
The public interest in upholding the indefeasibility of extends even to persons regularly
a certificate of title, as evidence of lawful ownership of engaged in the business of lending
the land or of any encumbrance thereon, protects a money secured by real estate
buyer or mortgagee who, in good faith, relied upon mortgages.
what appears on the face of the certificate of title. Thus, in granting a loan, a bank should not
This doctrine presupposes, however, that the have content merely with a clean title,
mortgagor, who is not the rightful owner of the considering the presence of circumstances
property, has already succeeded in obtaining a indicating the need for a thorough
Torrens title over the property in his name investigation of the existence of buyers and
and that, after obtaining the said title, he the submission by the mortgagor of certified
succeeds in mortgaging the property to true copies of relevant-documents and
another who relies on what appears on the verification of their authenticity.
said title.
The innocent purchaser (mortgagee in this RIGHT IN CASE OF LEGAL MORTGAGES.
case) for value protected by law is one who The second paragraph refers to legal mortgages. It is in
purchases a titled land by virtue of a deed conformity with the rule established under the law on “Form
executed by the registered owner. of Contracts” which gives to the contracting parties
• The doctrine does not apply to a situation where the the right to compel each other to observe the form
title is still in the name of the rightful owner and the required by law like the execution of a document or other
mortgagor is a different person pretending to be the special forms provided the contract between them is valid
owner. In such a case, the mortgagee is not an innocent and enforceable.
mortgagee for value and the registered owner will
generally not lose his title. REGISTRATION OF MORTGAGE
(1) Mortgagee entitled to registration of mortgage
Duty of mortgagee to look beyond certificate of title. as a matter of right. —
General Rule: where there is nothing on the certificate of Once a mortgage has been signed in due form, the
title to indicate any cloud or vice in the ownership of the mortgagee is entitled to its registration as a matter of right.
Ø Reason: In a contract to sell, title is retained by
By executing the mortgage, the mortgagor is the vendor until full payment of the price.
understood to have given his consent to its registration,
and he cannot be permitted to revoke it (4) Registrability of encumbrance acquired
unilaterally. The validity or compliance of contracts subsequent to the mortgage. —
cannot be left to the will of one of the contracting Ø Where the mortgage deed has been duly registered,
parties. (see Art. 1308.) said deed forms part of the records for the
Note that consent of both parties to register the registration of the property mortgaged. So, in a
mortgage with the Register of Deeds is not proceeding for the annotation of an encumbrance (e.g.,
needed. leasehold rights) over the same property subsequently
As it is the execution of the mortgage that is acquired, which annotation is opposed by the
voluntary. mortgagee, the latter need not introduce the mortgage
deed in evidence to prove its existence.
(2) Proceedings for registration do not determine Ø Where the mortgage deed contains a prohibition
validity of mortgage or its effect. — against encumbrance of the mortgaged land,
Registration is a mere ministerial act by which a without the mortgagee’s consent, rights over the same
deed, contract or instrument is sought to be inscribed in the property, which came into existence after the
records of the Office of the Register of Deeds and annotated execution of the deed, cannot be annotated as
at the back of the certificate of title covering the land subject an adverse claim on the title of the land over
of the deed, contract or instrument. the mortgagee’s opposition.
• It is not a declaration by the state that such an
instrument is a valid and subsisting interest in land. (5) Registrability of mortgage by surviving spouse
It is merely a declaration that the record of his/her undivided share of conjugal property.
of the title appears to be burdened with The mortgage by the wife, after the death of
the mortgage described. her husband, of her rights, interest and
Registration of a mortgage does not stop any party to participation in an undivided one-half share of
it from setting up that it has no force and effect and ask the conjugal partnership (or community property)
for the avoidance of the deed and the cancellation of is legal and valid, and should, therefore, be
its registration. registered, registration being an essential requirement
But until such action is filed and decided, it in order that the mortgage may be validly constituted.
would be too dangerous to the rights of Registration will, in no way, affect the rights
the mortgagee to deny registration of his of the deceased husband’s creditors, if any, or
mortgage because his rights can easily be of his heirs, for their interest is limited to the
defeated by a transfer or conveyance of husband’s half of the estate not covered by the
the mortgaged property to an innocent mortgage.
third person. Neither would the mortgage affect the debts of the
If the purpose of registration is merely to give notice, conjugal partnership, their payment being
the questions regarding the effect or invalidity provided for by law before the one-half share
of instruments are expected to be decided of the wife-mortgagor is finally determined.
after, not before, registration.
It must follow as a necessary consequence that (6) Subsequent registration of an adverse claim. —
registration must first be allowed and its validity Settled is the doctrine that a prior registration of a lien
or effect litigated afterwards. creates a preference; hence, the subsequent annotation of
Actual knowledge of defect of title is equivalent to an adverse claim cannot defeat the rights of the mortgagee
notice of registration. or the purchaser at the auction sale whose rights were
derived from a prior mortgage validly registered.
(3) Registration without prejudice to better right of The doctrine applies with greater force in a case where
third parties. — the annotation of the notice of lis pendens was made not only
Ø A registered mortgage right over property after the registration of the mortgage but also, and much
previously sold is inferior to the buyer’s later, after the conclusion of the foreclosure sale.
unregistered right.
Ø The unrecorded sale is preferred. EFFECT OF INVALIDITY OF MORTGAGE ON
Ø Reason: that if the original owner (seller) had parted PRINCIPAL OBLIGATION.
with his ownership of the thing sold then he no longer (1) Principal obligation remains valid. — Where a
had ownership and free disposal of the thing so as to mortgage is not valid, the principal obligation
be able to mortgage it. Registration is of no which it guarantees is not rendered null and void.
moment since it is understood to be without That obligation matures and becomes demandable in
prejudice to the better right of third parties. accordance with the stipulation pertaining to it.
Ø A registered mortgage, however, is superior to
a contract to sell, subject to any liabilities the What is lost only is the right to foreclose the
owner (vendor/mortgagor) may have mortgage as a special remedy for satisfying or
incurred in favor of the buyer.
settling the indebtedness which is the principal recovery of damages against the
obligation. Assurance Fund.
(2) Mortgage deed remains as evidence of a (b) Expropriation

personal obligation. — Until an action for expropriation has been
In case of nullity, the mortgage deed remains as completed and terminated, ownership over
evidence or proof of a personal obligation of the the property being expropriated remains with the
debtor and the amount due to the creditor may be registered owner who can exercise all rights
enforced in an ordinary personal action. pertaining to an owner, including the right to
mortgage the property or even to dispose of it.
The mortgage derives its vitality from the validity of the Any person who deals with a property
principal obligation; hence, the invalidity of the stipulation subject of an expropriation does so at
on interest does not render void the ancillary mortgage his own risk, taking into account the
contract. ultimate possibility of losing it in favor of the
State through expropriation.
ART. 2126. The mortgage directly and immediately
subjects the property upon which it is imposed, whoever (c) Banking Institutions
the possessor may be, to the fulfillment of the obligation in the case of a banking institution, a
for whose security it was constituted. mortgagee must exercise a greater degree
of diligence before entering into said
EFFECT OF MORTGAGE contract.
(1) Creates real right. — Judicial notice is taken of the standard
a registered mortgage creates right in rem, a practice for banks, before approving a
real right, a lien inseparable from the loan, to send representatives to the
property mortgaged, which is enforceable premises of the land offered as collateral
against the whole world, affording specific security and to investigate who the real owner
for the satisfaction of a debt. The personality of the thereof.
owner is disregarded.
Until discharged upon payment of the obligation, (d) First mortgagee, Second mortgagee
it follows the property wherever it goes and Under ordinary circumstances, if a person is the
subsists notwithstanding changes of first mortgagee over a property which was
ownership. sold in an auction sale by the second
mortgagee, the only right left to him is to
(a) Sale of the property, subsequent purchasers, collect his mortgage credit from the purchaser
and fraud thereof during the sale conducted.
Therefore, if the mortgagor sells the mortgaged Reason: This is so because a “mortgage
property, the property remains subject to the directly and immediately subjects the
fulfillment of the obligation secured by it. property on which it is constituted
All subsequent purchasers of the property whoever the possessor may be, x x x.’’
must respect the mortgage, whether the This step need not be taken where the second
transfer to them be with or without the mortgagee is also the first mortgagee of the same
consent of the mortgagee. property given as security by the same mortgagor
But the mortgage must be: for two (2) separate loans and it purchased the
1. registered or, subject property with full knowledge that it had a
2. if not registered, the buyer must mortgage thereon. Under Article 1275 of the Civil
know of its existence his Code, obligations are extinguished by the
knowledge of the prior merger of the rights of the creditor and
unregistered mortgage having the debtor.
effect of registration as to him.
The mortgagor may not be (e) Suit to nullify a TCT with a registered mortgage
the principal debtor. In a suit to nullify an existing torrens certificate of
The right or lien of an innocent mortgagee for title (TCT) in which a real estate mortgage is
value upon the mortgaged property must be annotated, the mortgagee is an indispensable
respected and protected, even if the mortgagor party.
obtained his title through fraud. a decision cancelling the TCT and the mortgage
The remedy of the persons prejudiced annotation is subject to a petition for annulment of
is to bring an action for damages judgment, because the non- joinder of the
against the person who caused the mortgagee deprived the court of
fraud and jurisdiction to pass upon the controversy.
if the latter is insolvent, an action » In short, mortgagee must be party to the
against the Treasurer of the motion
Philippines may be filed for the
A mortgage affects the land itself and not merely Ø It is basic and fundamental that the first
the TCT covering it. The nullification of the mortgagee has superior rights over junior
TCT would adversely affect the rights of mortgagees or attaching creditors.
the mortgagee over the mortgaged Ø Article 2088 prohibits pactum commissorium.
property because they would no longer be Ø Since the mortgagor remains as the absolute
known and respected by third parties, owner of the property during the redemption
considering that a real mortgage is a real period and has the free disposal of his property,
right and a real property by itself. there would be compliance with Article 2085 of
the Civil Code for the constitution of another
(f) NO EJECTMENT by subsequent lessor/owner mortgage on the property. To hold otherwise would
Under B.P. Blg. 877 “no lessor or his create the inequitable situation wherein the mortgagor
successor-in- interest shall be entitled to would be deprived of the opportunity, which may be his
eject the lessee upon the ground that the leased last recourse, to raise funds wherewith to timely redeem
premises has been sold or mortgaged to a third his property through another mortgage thereon.
person regardless of whether the lease or mortgage Upon payment of the mortgage debt, there is no
is registered or not.’’ more mortgage, and, therefore, there is more no
basis or reason for the mortgagee’s refusal to return
Facts: P bought a parcel of land from S and the sale was the certificate of title to the mortgagor.
recorded in the Office of the Register of Deeds. Prior to Ø In a sale with assumption of mortgage, the
the sale, S had already mortgaged the land to C, which assumption of mortgage is a condition to the seller’s
mortgage was also registered. For failure of S to pay the consent so that without the approval of the mortgagee,
mortgage debt, C foreclosed the mortgage, and the land no sale is perfected (see Art. 1181.); the seller remains
was sold to D as the highest bidder. the owner and mortgagor of the property.
D opposed the application for registration filed by P. An action to compel the mortgagee to
Issue: In whose name should the land be registered, D or accept payment and for the consequent
P? cancellation of a real estate mortgage is a
Held: In D, but subject to P’s equitable right of personal action if the mortgagee has not
redemption which right should be exercised within three foreclosed the mortgage and the
months4 (see Sec. 2, Rule 68, Rules of Court.) from the mortgagor is in possession of the premises
date the decision becomes final. P’s equity of redemption since neither the mortgagor’s title to nor possession
is, of course, registerable, but only as an encumbrance on of the property is in question.
a registered title of ownership. P does not become the
owner of the land until he has exercised his right to ART. 2127. The mortgage extends to the natural
redeem. Before such redemption, the registration of the accessions, to the improvements, growing fruits, and the
land in P’s name would be subject to the objection that it rents or income not yet received when the obligation
is premature, if not altogether anomalous. becomes due, and to the amount of the indemnity
granted or owing to the proprietor from the insurers of
(2) Creates merely on encumbrance. — the property mortgaged, or in virtue of expropriation for
it is merely an encumbrance, and does not public use, with the declarations, amplifications and
extinguish the title of the debtor, which includes limitations established by law, whether the estate remains
disposal of the thing in the possession of the mortgagor, or it passes into the
The law considers void any stipulation hands of a third person.
forbidding the owner from alienating the
immovable mortgaged. (Art. 2130.) EXTENT OF MORTGAGE.
Ø A mortgage merely constitutes a lien thereon. A real estate mortgage constituted on immovable property
Ø It gives the mortgagee no right or claim to the possession extends to:
of the property, and, therefore, a mere mortgagee has no 1. Property itself
right to eject an occupant of the property 2. all its accessions,
mortgaged. 3. improvements,
A mortgage does not give a mortgagee a 4. growing fruits and
right to the possession of the property 5. rents or income
unless the mortgage should contain some 6. as well as to the proceeds of insurance should the
provision to that effect. property be destroyed,
Ø Actually, what is delimited is not the mortgagor’s jus 7. or the expropriation value of the property should
disponendi, as an attribute of ownership, but merely the it be expropriated.
rights conferred by such act of disposal which 8. The law is predicated on the assumption that the
may correspondingly be restricted. ownership of such accessions and accessories and
In case of non-payment of a debt secured improvements subsequently introduced also
by mortgage: the only right of a mortgagee belongs to the mortgagor is the owner of the
would be to foreclose the mortgage and have the principal.
encumbered property sold to satisfy the
outstanding indebtedness.
To exclude them: it is necessary that there be an express MORTGAGE WITH “DRAGNET’’ CLAUSES TO
stipulation to that effect. SECURE FUTURE ADVANCEMENTS.
(1) Stipulation necessary to secure future
Thus, the following are deemed included in a mortgage of advancements. —
real property: General Rule: an action to foreclose a mortgage must be
1. new plantings; limited to the amount mentioned in the mortgage.
2. fruits,
Exception: those collected before the Exception: the amounts named as consideration in a
obligation falls due, and those removed and contract of mortgage do not limit the amount for which the
stored when it falls due; mortgaged may stand as security, if from the four corners of
3. accrued and unpaid rents as well as those which the instrument the intent to secure future loans or
should have to be paid while the credit remains advancements and other indebtedness can be gathered or as
wholly unsatisfied well as those that the mortgagee may extend to the
4. buildings, machinery and accessories belonging to mortgagor.
the mortgage debtor installed on a mortgaged sugar Which means that the mortgage is not limited to
central just the fixed amount but also covers other credit
5. all objects permanently attached to a mortgaged accommodations in excess thereof.
land or building, although they may have been Such stipulation is valid and binding
placed there after the execution of the between the parties.
mortgage are also included and
6. a more costly building erected in place of the (2) Usefulness of mortgage with a “dragnet clause.’’
mortgaged building which was torn down by the — A mortgage given to secure future advancements enables
debtor. the parties to provide continuous dealings, the nature or
But if the mortgaged estate passes into the extent of which may not be known or anticipated at the time,
hands of a third person, the mortgage does not and they avoid the expense and inconvenience of executing
extend to any machinery, object, chattel or a new security on each new transaction.
construction which he may have brought or placed
there and which such third person may remove A “dragnet clause” aka blanket mortgage clause
whenever it is convenient for him to do so. (Art. operates as a convenience and accommodation to the
112, Spanish Mortgage Law.) borrowers as it makes available additional funds without
their having to execute additional security documents,
STIPULATION IN MORTGAGE CONTRACT thereby saving time, travel, loan closing costs, costs of extra
INCLUDING AFTER-ACQUIRED PROPERTIES. legal services, recording fees, et cetera
(1) Stipulation valid; purpose. — In a case, the deed of
mortgage contains a provision that Construction of Mortgage with a Dragnet Clause
R “all property of every nature and description taken in » It is one which is specifically phrased to subsume all
exchange or replacement, as well as all buildings, debts of past or future origin.
machineries, fixtures, tools, equipments and others » dragnet clauses are “carefully scrutinized and
that the mortgagor may acquire, construct, install, strictly construed’’ particularly where the
attach, or use in its lumber concession shall mortgage contract is one of adhesion,
immediately be and become subject to the lien of this in a case where the sole issue was whether in
mortgage in the same manner and to the extent as if the foreclosure of a real estate mortgage, the
now included therein.” penalties stipulated in two (2) promissory notes
This kind of stipulation is common and indeed, secured by the mortgage may be charged
logical, in all cases where the properties given as against the mortgagors as part of the sums
collateral are perishable or subject to inevitable secured although the mortgage contract does
wear and tear or were intended to be sold or to be not mention the said penalties, it was held that
used but with the understanding, express or construing the silence or ambiguity against the
implied, that they shall be replaced with others to petitioner bank, no penalty was intended to be
be thereafter acquired by the mortgagor. included in the amount covered by the
Purpose: being to maintain, to the extent allowed mortgage and, therefore, proceeding by the
by the circumstances, the original value of the general rule, such penalty cannot be recovered
properties given as security. on the foreclosure of the mortgage. A
mortgage must sufficiently describe the
(2) Attachment of lien retroactive. — When a debt sought to be secured, and an
mortgage is made to include new or future improvements on obligation is not secured by a mortgage
registered land, said lien attaches and vests on the date unless it comes fairly within the terms
of the recording and registration of the deed of of the mortgage.
mortgage. » Where the plain terms of the mortgage evidence the
intention of the mortgagor to secure a larger
amount, the action to foreclose may be for the
larger amount. In such case, the specific amount RIGHT OF CREDITOR AGAINST TRANSFEREE
mentioned in the mortgage is not controlling. OF MORTGAGED PROPERTY
But where the obligation is not a series of The fact that the mortgagor has transferred the
indeterminate sums incurred over a period of mortgaged property to a third person does not relieve
time but two specific amounts procured in a him from his obligation to pay the debt to the mortgage
single instance, what applies is the general rule creditor in the absence of novation.
stated above that an action to foreclose a The mortgage on the property may still be foreclosed
mortgage must be limited to the amount despite the transfer.
mentioned in the mortgage. A recorded real estate mortgage is merely an
accessory contract. It is inseparable from the
3) Mortgage, a continuing security. — property subject thereto regardless of who its
» A mortgage (or pledge) given to secure future owner may subsequently be.
advancements is a continuing security and is not The mortgage credit being a real right which
discharged by the repayment of the amount follows the property, the creditor may demand
named in the mortgage, until the full amount from any possessor the payment only of the part of the
of the advancements are paid. credit secured by said property.
Under such contracts which are common in the It is necessary that prior demand for
Philippines and elsewhere in agricultural payment must have been made on the
countries, the mortgagor (agriculturist) is debtor and the latter failed to pay.
permitted to take the money as it is needed and
thus avoid the necessity of paying interest until the EXAMPLE:
necessity for its use actually arises. A mortgaged his land worth P500,000.00 in favor of B to
» In fact, it has also been held that “where the annotation secure A’s debt of P600,000.00. A then sold the land to
on the back of a certificate of title about a first C.
mortgage states ‘that the mortgage secured the the obligation of A to pay the debt is not affected
payment of a certain sum of money plus interest plus by the transfer.
other obligations arising thereunder,’ there was no On the due date of the obligation, B may demand
necessity for any notation of the later loans on payment from A and if A fails to pay, B may
the mortgagor’s title. foreclose the mortgage.
It was incumbent upon any subsequent mortgagee B has the right to claim from C the payment of
or encumbrance of the property in question to P500,000.00 which is part of the credit secured by
examine the books and records of the the property sold to C.
bank, as first mortgagee regarding the C is not liable for any deficiency in the
credit standing of the debtor.” absence of a contrary stipulation.
The remedy of C is to proceed against A.
ART. 2128. The mortgage credit may be alienated or
assigned to a third person, in whole or in part, with the
formalities required by law. ART. 2130. A stipulation forbidding the owner from
alienating the immovable mortgaged shall be void.
ALIENATION OR ASSIGNMENT OF MORTGAGE
CREDIT
STIPULATION FORBIDDING ALIENATION OF
The mortgage credit (the right of the mortgagee) is a
MORTGAGED PROPERTY
real right and directly and immediately subjects the
Such a prohibition would be contrary to the public good
mortgaged property to the fulfillment of the
inasmuch as the transmission of property should not be
principal obligation.
unduly impeded.
Such real right may be alienated or assigned to a
STIPULATION GRANTING RIGHT OF FIRST
third person, in whole or in part, by the mortgagee who
REFUSAL
is the owner of said right and the assignee may foreclose the
» a stipulation granting the mortgagee the right of
mortgage in case of nonpayment of the mortgage
first refusal over the mortgaged property in
indebtedness.
the event the mortgagor decides to sell the same
is valid
The alienation or assignment is valid even if it is not
» The consideration for the loan-mortgage may be said
registered. Registration is necessary only to affect third
to include the consideration for the right of first refusal.
persons.
Thus, while the mortgagor has every right to sell the
mortgaged property without securing the consent of
ART. 2129. The creditor may claim from a third person the mortgagee, he has the obligation under a right of
in possession of the mortgaged property, the payment of first refusal provision which is perfectly valid, to notify
the part of the credit secured by the property which said the mortgagee of his intention to sell the property and
third person possesses, in the terms and with the give him priority over other buyers.
formalities which the law establishes. » A sale made in violation of the mortgagee’s
contractual right of first refusal is rescissible.
» Presumption: the buyer has been notified of the Principal Obligation
right to first refusal by the registration of the mortgage falls due
deed containing such stipulation, which equates to
notice to the whole world. DEMAND first IS
ESSENTIAL
A real mortgage may contain:
• Dragnet clause Failure to pay, exercise
• Right of First Refusal right to foreclose
• Acceleration Clause o Foreclosure must be limited to the amount
mentioned in the mortgage document.
What it may not contain:
• Stipulation that the mortgaged property A mortgage contract may contain an
cannot be alienated acceleration clause.
o Acceleration Clause - which is a stipulation
stating that, on the occasion of the mortgagor’s
default, the whole sum remaining unpaid
ART. 2131. The form, extent and consequences of a automatically becomes due and payable.
mortgage, both as to its constitution, modification and o The failure of the mortgagor to pay any
extinguishment, and as to the other matters not included installment will trigger the activation of
in this Chapter, shall be governed by the provisions of the the acceleration clause and give the
Mortgage Law and of the Land Registration Law. mortgagee the right to foreclose the mortgage
against the contention of prematurity
LAWS GOVERNING MORTGAGE.
As to other matters not included in Chapter 3 of the Civil The essence of a contract of mortgage indebtedness
Code, is that a property has been identified or set apart from the
- the Land Registration Law (Act No. 496, as mass of the property of the debtor-mortgagor as security for
amended.) and the the payment of money or the fulfillment of an obligation to
- Revised Administrative Code, more particularly answer the amount of indebtedness in case of default of
Section 194, as amended by Act No. 3344, payment.
govern the form, extent, and consequences of a
mortgage, and also its constitution, modification The power to foreclose a mortgage or not
and extinguishment. resides in the mortgagee.
Once the proceeds have been applied to the payment of
As to aliens becoming mortgagees, the pertinent law is the obligation and, there is a deficiency between the
Republic Act No. 4882. amount of the loan and the foreclosure sale
price, the debtor will pay the deficiency.
MEANING OF FORECLOSURE (OF MORTGAGE)
Foreclosure is the remedy available to the mortgagee by Importance of complying with the rules on public
which he subjects the mortgaged property to the satisfaction notice of foreclosure sales: The rule is that statutory
of the obligation to secure which the mortgage was given. provisions governing public notice of foreclosure sales must
- It presupposes something more than a mere demand to be strictly complied with, and even slight deviations
surrender possession of the object of the mortgage. therefrom will invalidate the sale or render it at least
- It denotes the procedure adopted by the mortgagee to voidable.
terminate the rights of the mortgagor on the property and
includes the sale itself. Rights which the mortgagor can transfer after the
foreclosure sale: The only rights which a mortgagor can
VALIDITY AND EFFECT OF FORECLOSURE legally transfer, cede and convey after the foreclosure of his
Foreclosure is but a necessary consequence of non- property are the:
payment of a mortgage indebtedness. 1. right to redeem the same and the
possession, use, and
As a rule, the mortgage can be foreclosed only when 2. enjoyment of the same during the period of
the debt remains unpaid at the time it is due. redemption.
Who exercises the right of foreclosure: creditor- Right of mortgagee to take possession of the
mortgagee or his assigns property to enforce or protect his foreclosure right:
The mortgagee may take steps to recover the mortgaged
property to enable him to enforce or protect his
foreclosure right.
If he is unable to obtain possession for its sale on
foreclosure, he must bring a civil action either:
1. recover such possession as a
preliminary step to the sale, or
2. obtain judicial foreclosure. From this standpoint, any order which neither
sets aside nor confirms the foreclosure is
Presumption: Foreclosure proceedings have in their merely interlocutory in character.
favor the presumption of regularity and the burden of
evidence to rebut the same is on the party that seeks to When the sale has been confirmed by an order of the
challenge the proceedings. court, also upon motion:
a. shall operate to divest the rights of
KINDS OF FORECLOSURE all parties to the action and
1. Judicial Foreclosure- ordinary action by the b. to vest their rights in the purchaser
mortgagee subject to such right of redemption
2. Extrajudicial Foreclosure- foreclosure by the as may be allowed by law
mortgagee under power of sale contained in the
mortgage
3. Ordinary Execution Sale- Rules of Court Rule (5) Execution of judgment. — Judgment rendered in an
39 on Execution, Satisfaction and Effect of action for foreclosure or mortgage shall be executed in
Judgments the manner prescribed by the law on mortgages. Parties
to an action are not authorized to change the procedure
P Each of these three (3) common types of forced sales which it prescribed.
arising from a failure to pay a mortgage debt, • It has been held that the proper remedy to seek
peculiarly has its own requirements. reversal of a judgment in an action for
P The parties are not precluded from imposing foreclosure of real estate mortgage is not a
additional requirements. petition for annulment of judgment but an
appeal from the judgment itself or from the order
JUDICIAL FORECLOSURE UNDER THE RULES confirming the sale of the foreclosed real estate.
OF COURT - governed by Rule 68 of the Rules of Court After failing to avail of appeal without sufficient
(1) Judicial action for the purpose. — justification, the mortgagor cannot conveniently
A mortgage may be foreclosed judicially by resort to the action for annulment for otherwise
bringing an action for that purpose, in the proper he would benefit from his own inaction and
court which has jurisdiction over the area negligence.
wherein the real property involved or a portion
thereof, is situated. (see Sec. 1, Rule 4, Rules of (6) Application of proceeds of sale. — The proceeds of
Court.) the sale shall be applied to the payment of the:
(a) costs of the sale;
Jurisdiction: area where the real property is (b) the amount due the mortgagee;
situated (c) claims of junior encumbrancers or
persons holding subsequent mortgages in
(2) Order to mortgagor to pay mortgage debt.— the order of their priority; and
If the court finds the complaint to be well- (d) the balance if any, shall be paid to the
founded, it shall order the mortgagor to pay the mortgagor or his duly authorized agent, or to
amount due upon the mortgage debt or the person entitled to it. (Sec. 4, Rule 68, Rules
obligation with interest and other charges within of Court.)
a period of not less than 90 days nor more than
120 days from the entry of judgment. (Sec. 2, If the mortgagee is retaining more of the proceeds of the sale
Rule 68, Ibid.) than he is entitled to: not affect the validity of the foreclosure
sale but simply gives the mortgagor a cause of action to
What will be paid: amount due + interest + recover such surplus.
other charges If ordered by the Court to return the surplus and fails
When: not less than 90days and not more than to do so, may be cited for contempt.
120 days from entry of judgment
(7) Execution of sheriff’s certificate. —
(3) Sale to highest bidder at public auction. — In judicial foreclosures, the “foreclosure” is not
Failure to pay at the time directed in the order: the complete until the sheriff’s certificate is executed,
court, upon motion, shall order the property to be acknowledged and recorded.
sold to the highest bidder at public auction. Effect of absence of a Certificate of Sale: no
title passes by the foreclosure proceedings to
(4) Confirmation of sale. — the vendee.
Before the confirmation of a judicial foreclosure sale, Ø It is only when the foreclosure proceedings
the court retains control of the proceedings are completed and the mortgaged
by exercising a sound discretion in regard to it, property sold to the purchaser that all
either granting or withholding confirmation as the rights and interests of the mortgagor are cut off from
interests of the parties and the ends of justice may require. the property.
Therefore, the mortgagor is liable for Where: in the province in which the property is
additional interests properly chargeable on situated, shall be made at a public auction
the balance of the mortgage indebtedness How: after the giving of proper notice which consists
during the period from the notice of in the posting of the notice of the sale in at least three (3)
sale to actual sale. public places at the municipality or city where each
This principle is applicable to mortgaged property is situated and the publication thereof in
extrajudicial foreclosures. a newspaper of general circulation in said municipality or
city. (Sec. 3, Ibid.)
Presumption: A sheriff’s report on the auction sale
is clothed with the presumption of regularity especially (4) Public sale at different places/on different dates.
where no objection has been raised against it. — The indivisibility of a real estate mortgage is not
violated by conducting two separate foreclosure
EXTRAJUDICIAL FORECLOSURE UNDER ACT proceedings on mortgaged properties located in different
NO. 3135 - governed by Act No. 3135, as amended. cities or municipalities, or for different dates as long
Ø This law prescribes a procedure which effectively as each parcel of land is answerable for the entire debt.
safeguards the rights of both debtor and
creditor. (5) Publication of notice of auction sale. —
Ø Thus, its construction (or interpretation) must Publication is required to give the foreclosure sale a
be equally and mutually beneficial to both reasonably wide publicity such that those interested might
parties. attend the public sale.
A mortgage may be foreclosed extrajudicially Ø Publication mandatory. —

where there is inserted in the contract a clause giving General Rule: Failure to comply with the statutory
the mortgagee the power, upon default of the debtor, requirements as to publication of notice of auction sale
to foreclose the mortgage by an extrajudicial sale of the constitutes a jurisdictional defect which invalidates the sale
mortgaged property. (Sec. 1, Act No. 3135, as or at least render the sale voidable. Even slight deviations
amended by Act No. 4148.) therefrom are not allowed.
A sale held after the scheduled date indicated in
(1) Express authority to sell given to mortgagee.— the notice of sale is void.
Ø The law covers only real estate mortgages. Exception: Justified exceptions such as immaterial errors
Ø It is intended merely to regulate the not calculated to deter or mislead bidders
extrajudicial sale of the property mere discrepancy between the amount of the
mortgaged if and when the mortgagee is obligation as reflected in the notice of sale and the
given a special power or express authority amount actually due and collected during the
to do so in the deed itself or in a document bidding does not constitute a substantial error that
annexed thereto. should invalidate the notice.
Ø It is a special law that governs particularly
extrajudicial foreclosure sales which are Ø Question of non-compliance with notice of publication
proper only when so provided in the real requirements is a factual issue.
estate mortgage contract as the title itself of
the Act suggests and as provided in Section 1 Ø Contents of notice. —
thereof. 1. correct number of the certificate of title and the
2. correct technical description of the real property to
(2) Authority not extinguished by death of be sold.
mortgagor or mortgagee. —The authority to sell is not
extinguished by the death of the mortgagor (or mortgagee) Purpose of notice: to inform the public generally of the
as it is an essential and inseparable part of a bilateral nature and condition of the property sold, and of the time,
agreement. place and terms of the sale. Notices are given for the purpose
of securing bidders and to prevent a sacrifice of the property.
(3) Public sale after proper notice. — Statutory Ø If these objects are attained, immaterial errors and
provisions governing publication of notice of mistakes will not affect the sufficiency of the notice.
mortgage foreclosure sales must be strictly Ø Publication in a newspaper of general circulation is
complied with, and that even slight deviations therefrom required to achieve a “reasonably wide publicity’’ of
will invalidate the notice and render the sale at least voidable. the auction sale.
The purpose of the publication of the Notice Sheriff’s Ø Personal notice to mortgagor not generally
Sale: is to inform all interested parties of the date, time, and required. —
place of the foreclosure sale of the real property subject General Rule: Section 3 of Act No. 3135 which contains
thereof. the requirement on notice in extrajudicial foreclosure sales,
does not require personal notice or any particular notice on
What: sale of the mortgaged property extrajudicially the mortgagor much less on his successors- in-interest
Exception: if there is a contractual stipulation therefor. circulation, especially where there is no showing
Ø Notice to executing mortgagee-creditor not that the property was sold for a price far below its
provided by law. — because it is he who causes the value, or of collusion between the sheriff who
mortgaged property to be sold and the date of sale is fixed conducted the sale and the mortgagee.
upon his instruction because it is he who causes the sale and Ø When newspaper of general circulation. —
controls its details. 1. published for the dissemination of local news and
Ø Posting of notice on mortgaged property not general information,
required. —It merely requires that the notice of sale be 2. it has a bona fide subscription list of paying
posted in at least three (3) public places in the city or subscribers, and
municipality where the property is situated, to wit: the 3. it is published at regular intervals.
Sheriff’s Office, the Assessor’s Office, and the 4. (additional) the newspaper must be available to the
Register of Deeds which are certainly the public places public in general, and not just to a select few
contemplated by law as these are the places where people chosen by the publisher, otherwise the precise
interested in purchasing real estate congregate. objective of publishing the notice of sale in the
Ø Certificate of posting not required. — newspaper will not be realized
A certificate of posting is significant only when it becomes 5. not be devoted to the interests or published for the
necessary to prove compliance with the required notice of entertainment of a particular class, profession,
posting. Thus, in a case, the absence of the affidavit of trade, calling, race or religious denomination.
publication was considered fatal because no equally 6. need not have the largest circulation as long as it is
convincing and competent proof of compliance was offered of general circulation in the place where the
to compensate for its non-presentation. property to be foreclosed is located, whether
Ø Burden of proving non-compliance with notice- conducted by a sheriff or a notary public.
posting requirement upon mortgagor. — 7. Need not be a daily newspaper.
Foreclosure proceedings have in their favor the Ø Formalities of levy not required. — The formalities of
presumption of regularity. a levy are not required before an extrajudicially foreclosed
Finding by the lower court that there was property can be sold at public auction.
compliance with the statutory requirements is Ø Notice to bidder of all bids offered at auction sale
binding upon the Supreme Court the question of not required.
non-compliance with the notice and publication Ø Section 4 of Act No. 3135 provides that the sale must take
requirements being a factual issue. place “between the hours of nine in the morning and four in
Ø Publication of notice of sale in newspaper of the afternoon.’’ A sale at public auction held within the
general circulation sufficient compliance. — intervening period provided by the law (i.e., at any time from
The statutory requirements of posting and 9:00 a.m. until 4:00 p.m.) is valid without regard to the
publication are mandated not for the duration or length of time it took the questioner to conduct
mortgagor’s benefit, but for the public or third the proceeding.
persons.
As such, they are imbued with public policy (6) Payment of cash by highest bidder. —
considerations and any waiver thereon Where the highest bidder is the mortgagee and the amount
would be inconsistent with the intent and of his bid represented the total mortgage debt, it is not
letter of Act No. 3135. necessary for him to pay cash although Section 5 of Act No.
To allow the parties to waive the posting and 3135 requires that the creditor must bid “under the same
publication requirements, would result in condition as any other bidder.” It would serve no purpose for
converting into a private sale what ought to be a the sheriff to go through the ceremony of receiving the
public auction. money and paying it back to the creditor.
It has been held, however, that the failure to
post a notice is not per se a ground for In case of a surplus in the purchase price, the mortgagee
invalidating a foreclosure sale provided must account for the proceeds as if the price were
that the notice thereof is duly published in paid in cash, and in an action against the mortgagee to
a newspaper of general circulation. The recover the surplus, the latter cannot raise the defense that
publication of the notice of sale in a newspaper of no actual cash was received.
general circulation alone is more than sufficient
compliance with the notice-posting requirement of (7) Surplus proceeds from foreclosure sale. —
the law considering that such newspaper, which is By their very nature, surplus money arising from a sale of
distributed nationwide, has a readership of more real property like land under foreclosure stands in the same
people than notice posted in a public bulletin place of the land itself with respect to liens thereon or vested
board, no matter how strategic its location may be, right therein. They are constructively, at least, real
which caters only to a limited few. Hence, a property and belong to the mortgagor or his
foreclosure sale cannot be annulled for alleged assigns.
failure to comply with the notice requirement (a) Surplus money, in case of foreclosure sale, gains
where what is lacking is only the posting of the much significance when there are junior
notice in three (3) public places, and not the encumbrancers on the mortgaged property. When
publication thereof in a newspaper of general there are several liens upon the property, the
surplus money must be applied to their (c) The price was inadequate and the inadequacy was
discharge in the order of their priority. The so great as to shock the conscience of the court.
lien of the junior mortgagee on the property, after
satisfying any prior mortgage, is transferred to the 10) Republication. —
surplus fund. • Republication in the manner prescribed by Act
(b) A senior mortgagee who realizes more than the No. 3135 is necessary for the validity of a
amount of his debt on a foreclosure sale is postponed extrajudicial foreclosure
regarded as a trustee for the benefit of the sale.
mortgagor and junior encumbrancers. • Another publication is required in case
(c) A mortgagee who exercises the power of sale the auction sale is rescheduled
contained in a mortgage is considered a • absence of such republication
custodian of the fund and, being bound to apply invalidates the foreclosure sale
it properly, is liable to the persons entitled thereto. • The parties have no right to waive the
He is under obligation to return the excess of the publication requirement.
bid price to the mortgagor.
RIGHT OF MORTGAGEE TO RECOVER
(8) Redemption of property sold. — DEFICIENCY
1. Debtor is a natural person (1) Mortgage merely a security, not a satisfaction of
The debtor has the right to redeem the an obligation. —
property sold within the term of one In judicial foreclosure: the Rules of Court specifically gives
year from and after the date of the the mortgagee the right to claim for deficiency in
sale (Sec. 6, Act No. 3135.) case deficiency exists (Sec. 6, Rule 68.)
The reckoning date in cases of registered
land is from the registration of the In Extrajudicial foreclosures of mortgage: Act No. 3135
certificate of sale since it is only from does not give a mortgagee the right to recover
the date that the sale takes effect as a deficiency after the public auction sale, neither
conveyance. does it expressly or impliedly prohibit such
recovery. To recover deficiency, the extrajudicial
2. When the debtor is a juridical person (corporations foreclosure must be valid.
and partnerships),
• they have the right to redeem the property Where a third person is the mortgagor, he is not liable for
until, but not after the registration of any deficiency in the absence of a contrary stipulation. The
the certificate of foreclosure sale action for the recovery of such deficiency must be
which in no case shall be more than directed against the debtor.
three (3) months after foreclosure,
which ever is earlier, as provided in (2) Action for recovery of deficiency. —
Section 47 of R.A. No. 8791, the General Deficiency Judgment - if the deficiency is embodied in a
Banking Law of 2000. judgment
An independent civil action for the recovery of
Rule 39 of the Rules of Court is a rule of procedure with deficiency may be filed even during the period of
general application; to ordinary foreclosure sale. While Act redemption.
No. 3135 is a specific legislative enactment particularly a. Once the auction sale of the mortgaged property is
applicable to extrajudicial foreclosure sale. If at all, Rule 39 effected and
applies to extrajudicial foreclosure sale but only on the b. the resulting deficiency is ascertained,
manner of redemption and computation of interest. c. the mortgagee-creditor is then and there entitled to
secure a deficiency judgment which may
(9) Remedy of party aggrieved by foreclosure. — immediately be executed, whether or not the
Under Section 8, of Act No. 3135, the debtor may, in the mortgagor is still entitled to redeem the property
proceedings in which possession was requested, petition sold.
that the sale be set aside and the writ of possession
cancelled, because the mortgage was not violated 3) Prescriptive period of action. — The action to
or the sale was not made in accordance with the recover a deficiency after foreclosure prescribes after ten
provisions thereof. (10) years from the time the right of action accrues
as provided in Article 1144(2) of the Civil Code.
He may ask for the annulment of the foreclosure sale • The mortgagee in both real and chattel mortgages has,
on the ground that: by law, the right to claim for the deficiency resulting
(a) There was fraud, collusion, accident, mutual from the price obtained in the sale of the property at
mistake, breach of trust or misconduct by the public auction. Correlatively, the mortgagor has the
purchaser; or corresponding obligation created by law to pay such
(b) The sale had not been fairly and regularly deficiency.
conducted; • It can also be said that the action can be governed by
Article 1144(1) if the mortgagee, in suing for the
deficiency, is merely seeking to enforce the written inseparable part of the bilateral
promissory note secured by the mortgage. Finally, the agreement.
suit is in the nature of a mortgage action because its • The sale proscribed by a special power to
purpose is precisely to enforce the mortgage contract. mortgage under Article1879 is a voluntary and
Such being the case, Article 1142 of the Civil Code is independent contract, and not an auction sale
likewise applicable. resulting from extrajudicial foreclosure which is
precipitated by the default of the mortgagor.
NATURE OF JUDICIAL FORECLOSURE • The extrajudicial foreclosure is proper
PROCEEDING only when so provided under a special
(1) An action quasi in rem. — A proceeding for judicial power inserted in or attached to the
foreclosure of mortgage is an action quasi in rem. It is based mortgage contract. (Sec. 1, Act No. 3135, as
on a personal claim against a specific property of amended.)
the defendant. • The duty to examine an application for
Purpose: is to have the property seized and sold by court extrajudicial foreclosure to determine
order to the end that the proceeds thereof be applied to the whether it incorporates a special power
payment of plaintiff’s claim. authorizing the mortgagee to extrajudicially
foreclose a mortgage in the event non-payment of
A judgment ordering a foreclosure sale is conditioned upon the debt devolves upon the clerk of court.
a finding on the correct amount of the unpaid mortgage debt • The act of the auctioning sheriff is governed by the
and the failure of the mortgagor to pay the said amount. provisions of Act No. 3135, as amended, and not
by the instructions of the mortgagee.
(2) Result or incident of failure to pay indebtedness.
—The principal obligation is money indebtedness, and not
Illustrative case:
the foreclosure of the property which is only the result or an
Facts: The public auction sale was held on April 11, 1961,
incident of the failure to pay the indebtedness. which was the next business day after the scheduled date
of the sale on April 10, 1961, a special public holiday.
Therefore, the fact that the property mortgaged is Issue: Is the sale valid?
destroyed is not a ground to reduce the
Held: No, it not having been carried out in accordance
indebtedness secured. with Section 3 of Act No. 3135. (see Appendix 2.) Under
Section 31 of the Revised Administrative Code which
(3) Survives death of mortgagor. — ordains “Pretermission of holiday. — Where the day, or the
• An action for the foreclosure of a mortgage is an action last day, for doing any act required or permitted by law falls on
which survives the death of the mortgagor because the a holiday, the act may be done on the next succeeding
claim against him is not a pure money claim but an business day,” the pretermission applies only when the
action to enforce a mortgage lien. last day of a given period for doing an act falls on a
• Being so, the judgment rendered therein may be holiday. It does not apply to a day fixed by an office or
enforced by a writ of execution. officer of the government for an act to be done, as
• The action may be prosecuted by the interested person distinguished from a period of time within which an act
against the executor or administrator should be done, which may be on any day within that
independently of the testate or intestate specified period.
proceedings for the settlement of the
mortgagor’s estate “for the reason that such claims STIPULATION OF UPSET PRICE IN MORTGAGE
cannot in any just sense be considered claims against CONTRACT VOID
the estate, but the right to subject specific property to • A stipulation in a mortgage of real property fixing a
the claim arises from the contract of the debtor “tipo” or upset price, i.e., the minimum price at which
whereby he has during life set aside certain property the property shall be sold, to become operative in the
for its payment, and such property does not, except in event of a foreclosure sale at public auction, is null
so far as its value may exceed the debt, belong to the and void for the property must be sold to the
estate.” highest bidder.
Parties cannot, by agreement, contravene the law and
NATURE OF POWER OF FORECLOSURE BY interfere with the lawful procedure of the courts.
EXTRAJUDICIAL SALE • It is debatable whether the rule still applies where the
(1) Conferred for mortgagee’s protection. — The purchaser happens to be the creditor or mortgagee
power to foreclose is not an ordinary agency that himself. The mortgagor can argue that the
contemplates exclusively the representation of the principal stipulation should be binding on the
by the agent but is primarily an authority conferred upon the mortgagee on the principle of estoppel.
mortgagee for the latter’s own protection.
EFFECT OF INADEQUACY OF PRICE IN
(2) An ancillary stipulation. — FORECLOSURE SALE
• It is an ancillary stipulation supported by Where there is a right to redeem, inadequacy of
the same cause or consideration for the price is not material because the judgment debtor
mortgage and forms an essential and may reacquire the property or else sell his right to
redeem and thus recover any loss he claims to have As to extrajudicial foreclosure, the mortgagee is deemed to
suffered by reason of the price obtained at the have elected such remedy upon filing with the proper office
auction sale. of the sheriff of the petition for the sale of the property in
accordance with Act No. 3135, as amended.
General Rule: Mere inadequacy of the price obtained at
the sheriff’s sale will not be sufficient to annul or set aside the (3) Options in case of death of debtor. — The rule is
foreclosure sale that a secured creditor holding a real estate mortgage has
three (3) distinct, independent, and mutually exclusive
Exception: unless “the price is so inadequate as to shock remedies that can be alternatively pursued by him for the
the conscience of the court” taking into consideration the satisfaction of his credit in case the mortgagor dies, to wit:
peculiar circumstances attendant thereto. (a) to waive the mortgage and claim the entire debt from
the estate of the mortgagor as an ordinary claim;
Less than its fair market value. — In fact, the property may be (b) to foreclose the mortgage judicially and prove
sold for less than its fair market value upon the theory that any deficiency as an ordinary claim; and
the lesser the price the easier for the owner to effect the (c) to rely on the mortgage exclusively, foreclosing
redemption so that the low price even works to his the same at any time before it is barred by
advantage. In several cases where the mortgaged properties prescription without right to file a claim for
were sold for even less than one-third (1/3) of their value, our any deficiency.
Supreme Court has seen fit not to disturb such sales. • The third option includes extrajudicial
foreclosure which bars any subsequent
Section 29 of Rule 39 of the Rules of Court provides that the deficiency claim against the estate of the
redemption price should be equivalent to the deceased.
amount of the purchase price + 1% interest per
month up to the time of redemption A mortgagee-creditor is not synonymous to a judgment creditor.
While the law expects a mortgagee-creditor to inquire as a
Bid price at the public auction. — reasonably prudent man would regarding the encumbrances
General Rule: The value of the mortgaged property has on the property in question, no such knowledge is imputed
no bearing on the bid price at the public auction, provided to a judgment creditor who merely seeks the satisfaction of
that the public auction was regularly and honestly the judgment awarded in his favor.
conducted.
Exception: any irregularity in the foreclosure proceedings FORECLOSURE RETROACTS TO DATE OF
REGISTRATION OF MORTGAGE
In the absence of any irregularity in the foreclosure • The character of being an innocent mortgagee
proceeding, the sale cannot be nullified on the mere continues up to the date of actual foreclosure and sale
allegation of a disparity in the bid price and the property’s at public auction.
fair market value. • A foreclosure sale retroacts to the date of the
registration of the mortgage and that a person who
The fact that the mortgagee eventually acquired the takes a mortgage in good faith and for valuable
mortgaged property and that the bid price was low consideration, the record showing clear title to the
is not a valid reason for the mortgagor to refuse to mortgagor, will be protected against equitable claims
pay the remaining balance of the obligation for on the title in favor of third persons of which he had no
settled is the rule that a mortgage is simply a surety and not actual or constructive notice.
a satisfaction of indebtedness. • Accordingly, a notice of adverse claim by a third
party annotated after the registration of the
WAIVER OF SECURITY BY MORTGAGEE. mortgage but before the foreclosure and sale
(1) Personal action to recover indebtedness. — at public auction of the property subject
The mortgagee may institute either: thereto cannot affect the rights of the
1. a personal action for debt or mortgagee. The fact that the foreclosure of the
2. a real action to foreclose the mortgage. mortgage and the consequent public auction may have
He may waive the right to foreclose his mortgage and been effected long after the annotation of the adverse
maintain a personal action for recovery of the indebtedness. claim is of no moment, because the foreclosure
sale retroacts to the date of registration of the
In either case, he is entitled to obtain a deficiency mortgage
judgment for whatever sum might be due after the
• Simply put, it no longer matters that the annotation of
liquidation of the property covered by the
the sheriff’s certificate of sale and the affidavit of
mortgage.
consolidation of ownership was made subsequent to
the annotation of the notice of lis pendens.
(2) Remedy alternative, not cumulative or
successive. — The mortgagee cannot have both remedies.
MEANING OF REDEMPTION (OF FORECLOSED
He has only one cause of action. PROPERTY)
Redemption - 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 mortgagor’s equity of redemption can be levied
the mortgage may have created. upon by means of a writ of execution, with the result that this
interest will pass to the purchaser at the execution sale.
The concept of redemption is to allow the owner to
repurchase or buy back, within a certain period and for a (5) Remedy of mortgagee to obtain possession. —
certain amount, a property that has been sold due to debt, If a mortgagee cannot obtain possession of the mortgaged
tax, or encumbrance. property for its sale on foreclosure, he must bring a civil
action either:
It is allowed in cases of foreclosures in favor of 1. to recover such possession as a preliminary step to
banking and credit institutions and in extrajudicial the sale or
foreclosures. 2. to obtain judicial foreclosure.
KINDS OF REDEMPTION Replevin is the appropriate action to recover possession

1. Equity of redemption - the right of the mortgagor preliminary to the extrajudicial foreclosure of a chattel
in case of judicial foreclosure to redeem the mortgaged mortgage. It is not only the owner but a person “entitled to
property after his default in the performance of the the possession’’ of the property can institute a replevin suit.
conditions of the mortgage but before the confirmation
of the sale of the mortgaged property A mortgagee becomes a transferee only after acquiring the
property in the foreclosure sale and subsequently
2. Right of redemption - the right of the mortgagor in consolidates his title to it. A mortgagee in bad faith, being
case of extrajudicial foreclosure to redeem the aware of the title of the mortgagor, is a transferee in pendente
mortgaged property within a certain period from and lite who stands exactly in the shoes of the transferor, and his
after it was sold for the satisfaction of the mortgage title is subject to the incidents and results of the pending
debt. litigation involving the property.
EQUITY OF REDEMPTION RIGHT OF REDEMPTION

(1) Exercised before confirmation of sale. — (1) Period within which to exercise right. —
In judicial foreclosure, the mortgagor may exercise his equity In all cases of extrajudicial sale, the (individual) mortgagor
of redemption before but not after the sale is may redeem the property at any time within the term of
confirmed by the court. one year from and after the date of the sale (Sec. 6,
Act No. 3135.), i.e., date of registration of the certificate of sale
It is simply the right of the defendant mortgagor to with the appropriate Registry of Deeds.
extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90- (a) The filing of an action by the redemptioner to enforce
day period after the judgment becomes final in his right to redeem does not suspend the running of
accordance with Rule 68, or even after the foreclosure the statutory period to redeem the property, nor
sale but prior to its confirmation. bar the purchaser at public auction from
procuring a writ of possession after the period
Where the foreclosure is judicially effected, no equivalent had lapsed, without prejudice to the final
right of redemption exists. outcome of the action to enforce the right of
redemption. Neither is the period suspended by the
(2) Acquired by second mortgagee. — institution of an action to annul the foreclosure sale.
A second mortgagee acquires only the equity of
redemption vested in the mortgagor, and his rights Art. 13, NCC –
are strictly subordinate to the superior lien of the 1 year = 365 days
first mortgagee. • where the CT was registered Sept. 2, 1968, last
day of redemption is Sept. 3
(3) Taking physical possession not necessary for • where the CT was registered Aug. 24, 1983 (the
levy. — year next was a leap year), then Aug. 23.
To levy upon the mortgagor’s equity of redemption, it is not
necessary for the sheriff to take physical possession of the (b) By an amendment by the General Banking Law of
mortgaged property. 2000 (R.A. No. 8791.), enacted on May 23, 2000,
juridical mortgagors like partnerships and
Levying upon the property is distinguishable from levying on corporations are barred from the right of
the mortgagor’s interest in it. redemption of mortgaged property sold
pursuant to an extrajudicial foreclosure, after
Being an incorporeal or intangible right, the value of the registration of the certificate of foreclosure
an equity of redemption can neither be quantified nor with the applicable Register of Deeds.
equated with the actual value of the property upon which it
may be exercised. (2) Effect of failure to exercise right. — Title to the
property sold under a mortgage foreclosure
(4) Levy by means of a writ of execution. — remains with the mortgagor or his grantee until the
expiration of the redemption period. The right of the whether the mortgagor should repurchase from the bank or
purchaser at the foreclosure sale is merely inchoate until after the purchaser.
the period of redemption has expired without the right being
exercised. A: It was held that the mortgagor is entitled to repurchase
(a) If no redemption is made = the purchaser from the mortgagee bank and the amount to be paid therefor
becomes the absolute owner of the property. should be only “such amount as may correspond to the
He has the absolute right to a writ of possession principal obligation and the accumulated interest up to and
which is the final process to carry out or consummate the including the time of actual repurchase. The high tribunal
extrajudicial foreclosure. Henceforth, the mortgagor rationalized that a different ruling would render it easy for
loses his right over the property. the buyer at the foreclosure sale to render nugatory the right
(b) The one-year period for the exercise of the right of to repurchase granted by law to the mortgagor by making a
redemption is subject to the provisions of special laws. conveyance of the property for an amount beyond the
The statutory period of redemption is only capacity of the mortgagor to pay. The right of redemption,
directory and can be extended by agreement of as long as within the period prescribed, may be exercised
the parties but two requisites must be established: irrespective of whether or not the mortgagee has
(a) voluntary agreement of the parties to extend the subsequently conveyed the property to some other party.
redemption period; and
(b) the debtor’s commitment to pay the redemption (5) Where sale not registered and made without
price on a fixed date. consent of mortgagee. — Where the mortgagor, two
days after the execution of the mortgage to a bank, executed
(3) Effect of exercise of right of redemption: in favor of a third party a Deed of Sale with Assumption of
elimination of a lien from his title Mortgage, no consent having been secured from the bank to
the sale which was not registered so that the title remained in
What actually is effected where redemption is seasonably the name of the mortgagor, it was held that the buyer was
exercised is not the recovery of the property which not validly substituted as debtor, and hence, had no
ownership is never lost, but the elimination from his title the right to redeem. The mortgagee-bank was charged with
lien created by the levy or attachment or judgment or the obligation to recognize the right of redemption only of
registration of the mortgage thereon. The redemption the mortgagor.
defeats the inchoate right of the purchaser and
restores the property to the same condition as if no (6) Where extrajudicial foreclosure effected with
sale had been made. It does not give to the mortgagor a fraud: null and void ab initio.
new title, but merely restores to him the title freed of the Consequently, the consolidation of ownership of the
encumbrance of the lien foreclosed. subject property to the mortgagee as the highest bidder and
its subsequent resale to a third party (who was a buyer in bad
The exercise of the right of redemption is an implied faith) are also without legal force and effect. The mortgagor
admission of the regularity of the foreclosure sale and estops is entitled to the equitable remedy of redemption.
the mortgagor from later impugning its validity on that
ground. Redemption is inconsistent with the claim of the CONFIRMATION BY COURT OF AUCTION SALE
invalidity of the sale. IN JUDICIAL FORECLOSURE
(4) Where mortgaged property sold to a third party (1) Equity of redemption v. Right of Redemption. —
during the redemption period; effect of sale: transfers EQUITY OF RIGHT OF
only the right to redeem the property and the right to REDEMPTION REDEMPTION
possess, use and enjoy the same during said period. - No such right is - understood in the sense
recognized in a of a prerogative to re-
Under the Rules of Court (Rule 39, Sec. 31.), the judicial foreclosure acquire mortgaged
judgment debtor remains in possession of the except only where the property after
property foreclosed and sold, during the period of mortgagee is the registration of the
redemption, but he cannot make a conveyance of the Philippine National foreclosure sale
ownership of the property as said ownership belongs to the Bank or a banking - exists only in the case
purchaser at the foreclosure sale. institution. of extrajudicial
Right of Possession, Use, Enjoy = judgment debtor - the right of the foreclosure of
Right of Ownership = Purchaser at the foreclosure sale mortgagor to mortgage.
extinguish the
Q: Suppose, the mortgaged property is sold by the mortgage and retain
mortgagee after foreclosure? In a case, the question to ownership of the
be determined is whether the mortgagor should redeem or property by paying
repurchase the mortgaged property from the mortgagee the secured debt
bank, the highest bidder in the foreclosure sale, or from the within the 120-day
purchaser of the property which was sold by the bank period from the
because the amount to be paid by the mortgagor as entry of judgment
consideration for the repurchase would depend upon in accordance with
Section 2, Rule 68 of (5) Requirement of notice and hearing. —
the Rules of Court, or In order that a foreclosure sale may be validly confirmed by
even after the the court, it is necessary that a hearing be given the interested
foreclosure sale parties, at which they may have an opportunity to show
but prior to its cause why the sale should not be confirmed. Notice and
confirmation. hearing of a motion for confirmation of sale are
essential to the validity of the order of
(2) Procedure. —The procedure can be modified by confirmation, not only to enable the interested
a valid agreement of the parties, such as in a parties to resist the motion but also to inform them
compromise agreement, wherein the parties specifically of the time when their right of redemption is cut off.
agree on the amounts to be paid, when they should be paid, An order of confirmation, void for lack of notice and
and the effects of non- payment or violation of the terms of hearing, may be set aside anytime and the
their agreement. mortgagor may still redeem the mortgaged
property.
(3) Effect and nature. —
General Rule: the mortgagor cannot exercise his right of NATURE OF MORTGAGOR’S RIGHT OF
redemption after the sale is confirmed. REDEMPTION
After foreclosure and sale of the mortgaged property, the
Effect of Confirmation of the sale of mortgaged real mortgage indebtedness is extinguished except to the
property: cuts off all the rights or interests of the mortgagor extent that there is a deficiency. What remains is the right
and of the mortgagee and persons holding under him, and vested by law in favor of the mortgagor to redeem the
with them the equity of redemption in the property and vests property within the prescribed period.
them in the purchaser. (1) An absolute privilege. — This right of redemption is
Confirmation retroacts to the date of the sale. It is final an absolute privilege, the exercise of which is entirely
order, not interlocutory. dependent upon the will and discretion of the redemptioner.
Redemption being optional and not
Exception: However, if the property has been mortgaged compulsory on the judgment debtor.
in favor of the Philippine National Bank, redemption is A formal offer to redeem, accompanied by a bona fide
allowed within one year from the confirmation of tender of the redemption price within the prescribed
the sale. period of redemption is only essential to preserve the
right of redemption for future enforcement even
(4) Control of court over proceedings before beyond such period.
confirmation. — But where the right to redeem is exercised thru
A foreclosure sale is not complete until it is confirmed the filing of judicial action, within the period of
before such confirmation, the court retains control of redemption, such filing is equivalent to a formal offer
the proceedings by exercising sound discretion in to redeem and have the effect of preserving the right of
regard to it either granting or withholding redemption.
confirmation as the rights and interests of the parties
and the ends of justice may require. (2) A mere statutory privilege. — The right of
Thus, the court may grant the judgment debtor redemption is a mere statutory privilege; hence, it must be
or mortgagor an opportunity to pay the exercised in the mode and within the period
proceeds of the sale and thereby refrain prescribed by the statute.
from confirming it.
The subsequent sale by the purchaser to a third General Rule: in redemption, in making a repurchase,
person of the mortgaged property does not prevent formal offer AND accompanied by an actual and
the court from granting the mortgagor a period simultaneous tender of payment of the full amount
within which to redeem the property by paying the of the repurchase price, which constitutes the legal use
judgment debt and the expenses of the sale and costs. of exercise of the right to repurchase.
The acceptance of a bid at the foreclosure
sale confers no title on the purchaser who is Exception: is where the right to redeem is exercised
nothing more than a preferred bidder, until the sale through the filing of a judicial action.
has been validly confirmed by the court. The filing of an action to enforce redemption
But in case where the statutory one-year period for within the period of redemption is equivalent to a
exercising the right of redemption has expired and formal offer to redeem and should the court allow
the mortgaged property was sold by the mortgagee- the redemption, the redemptioner should then pay
bank (as the only bidder in the auction sale) to a third the amount already determined.
person who was not a party in the foreclosure
proceeding, it was held that the trial court should Construction: the right on redemption is liberally
give such third person a chance to be heard construed in favor of the original owner of the
before allowing the mortgagor to redeem the property.
property. Policy of the law:
1. to aid rather than to defeat him in the exercise of (5) The mortgagor or his assignee is required to tender
his right of redemption, regardless of whether the payment within the prescribed period to make
redemptioner is a co-owner or mortgagor although said redemption valid, or to preserve the right of
perhaps with unequal force and effect since each is redemption for future enforcement beyond such
given a fixed but different period and period of redemption.
2. to look upon redemption with favor and interpret (ibid.) In judicial foreclosure, the filing of a court
liberally the rule on redemption. action to enforce redemption, being equivalent to
a formal offer to redeem, would have the effect of
EXAMPLE: “freezing’’ the expiration of the one-year period.
Thus, in a case, inasmuch as the tender of the The tender of payment must be for the full amount
redemption price (P337,580.00) based on the of the purchase price; otherwise, to allow payment
computation of the sheriff was timely and in by installments would be to allow the indefinite
good faith, and the deficiency (P8,500.00) in said extension of the redemption period.
price (P346,080.00) is not substantial, the Redemption within the period allowed by
Supreme Court gave the debtor-mortgagor, in law is not a matter of intent but a question
the interest of justice, 15 days from the time the of payment or valid tender of the full
decision became final, to complete the redemption price within the said period.
redemption as provided in Section 26, Rule 39 Although it is required that full payment of the
of the Rules of Court. redemption price be made within the redemption
period, the rule on redemption is actually liberally
A dacion en pago was executed by the mortgagors in favor construed in favor of the original owner of the
of the mortgagee in lieu of the foreclosure of the property property.
mortgaged when the former failed to pay their loan
obligations, held: By executing a dacion, the sellers PAYMENT OF REDEMPTION MONEY
(mortgagors) effectively waived the redemption (1) To whom it may be made:
period normally given a mortgagor. a. purchaser or redemptioner, or
b. to the officer who made the sale
(3) Involves title to foreclosed property. — An action
to redeem by the mortgage debtor affects his title to the (2) Medium of payment. — Article 1249 of the Civil
foreclosed property. If the action is seasonably made, it seeks Code which expressly provides for the medium in the
to erase from the title of the judgment or mortgage debtor the “payment of debts” is not applicable.
lien created by registration of the mortgage and sale. If not
made seasonably, it may seek to recover ownership to the General Rule: Money
property since the purchaser’s inchoate title to the property Exception: the redemption is not invalid if made by check
becomes consolidated after expiration of the redemption and accepted by the Sheriff. It merely makes the Sheriff
period. Either way, redemption involves the title to the liable to the purchaser at the public auction if any
foreclosed property. It is a real action. damage has been suffered by the latter as a result of the
medium in which payment was made.
REQUISITES FOR VALID REDEMPTION. No importance may thus be attached to the
Pursuant to Section 28, Rule 39 of the Rules of Court and circumstance that a stop-payment order was issued
subject to the provisions of special laws the requisites for valid against said check the day following the deposit, for the
redemption are: same will not militate against the right to redeem, in
(1) The redemption must be made within one (1) the same manner that a withdrawal of the redemption
year from the date of the registration of the money being deposited cannot be deemed to have
certificate of sale, not from the date of the forfeited the right to redeem, such redemption
foreclosure sale. being optional and not compulsory.
(2) Payment of the purchase price of the property The Supreme Court has already sanctioned
plus 1% interest per month together with the redemption by check.
taxes thereon, if any, paid by the purchaser and the
amount of his prior lien, if any, with the same rate of AMOUNT PAYABLE
interest computed from the date of registration of the (1) Purchase price at the auction sale.
sale, up to the time of redemption; and Attorney’s fees awarded by the trial court
(3) Written notice of the redemption must be shall not be added to the redemption price
served on the officer who made the sale and a because the amount payable is no longer the
duplicate filed with the proper Register of judgment debt but that which is stated in Section
Deeds. 30, Rule 39 of the Rules of Court.
(4) In judicial foreclosure, the general rule is that the If there was an excess to the purchase price
mortgagor of real estate can no longer exercise his right and the debt it was for, and the excess was
of redemption after the sale is confirmed by the court. not received by the mortgagor, then
waiver of the statutory period for redemption is purchase price less balance.
valid
special protection given to government lending In case the credit of the first mortgagee has absorbed the
institutions is not accorded to judgment entire proceeds of the sale, the second mortgage is
creditors in ordinary civil actions extinguished with it because said mortgage cannot be
The ruling in DBP vs. Mirang (66 SCRA 141 [1975]), enforced by the second mortgagee beyond the total value of
wherein the mortgagor was ordered to pay his entire the mortgaged property. Consequently, the property passes
indebtedness before the redemption was allowed is not to the purchaser free from the second mortgage.
controlling because of the different factual settings. The
charter of the mortgagee (DBP) requires the payment of (4) Where persons with subordinate interest not
such amount. In the redemption of the mortgaged made defendants. —
property, no charter requires the payment of sums of All persons having or claiming an interest in the
money other than those provided for under Section 30 mortgaged property subordinate in right to that of the holder
of Rule 39. Redemption of properties mortgaged of the mortgage should be made defendants in the action for
with the Philippine National Bank and the the foreclosure of the mortgage. The requirement, however,
Development Bank of the Philippines and for joinder of the person claiming an interest subordinate to
foreclosed either judicially or extrajudicially the mortgage sought to be foreclosed is not mandatory in
are governed by special laws which provide for the character but merely directory, in the sense that failure to
payment of all the amounts owed by the debtor. comply therewith will not invalidate the (judicial) foreclosure
proceedings. A subordinate lien holder is a proper, even a
(2) One percent (1%) interest per month from the necessary, but not an indispensable, party to a foreclosure
date of registration of the certificate sale up to the proceeding.
time of redemption rather than the interest stipulated in (a) The effect of the failure of the mortgagee to
the contract of loan. implead a subordinate lien-holder or
subsequent purchaser or both is to render
(4) Necessary expenses incurred by the the foreclosure ineffective as against them,
purchaser/taxes: with the result that there remains in their
a. reasonable cost of improvements made by him to favor the unforeclosed equity of redemption.
preserve the property during the period of (Sec. 2, Rule 68, Rules of Court.)
redemption
b. amount of any assessments or taxes which the The lien on the equity of redemption is not
purchaser may have paid on the property after the affected by the decree of foreclosure.
purchase (b) The proper foreclosure of the first mortgage
gives not only the first mortgagor, but also
(5) Rentals received by purchaser. subsequent lien holders, the right to redeem
the property within the statutory period.
RIGHTS OF PERSONS WITH SUBORDINATE
INTEREST The failure of the registered second mortgagee to
(1) Mortgagor’s equity of redemption before exercise his equity of redemption on property
foreclosure. — A second or junior mortgagee acquires foreclosed by the first mortgagee divests him of his
only the equity of redemption vested in the right to claim title against an unrecorded assignee of
mortgagor, and his rights are strictly subordinate to the right of redemption of the first mortgagee who
superior lien of the first mortgagee. Thus, a second redeemed the same.
mortgagee has to wait until after the debtor’s obligation to (c) A separate foreclosure proceeding should be brought
the first mortgagee has been fully settled. to require the junior lien-holders to redeem from the
first mortgagee within 90 days under penalty of
(2) Mortgagor’s right of redemption after losing that prerogative to redeem. But the
foreclosure. —In an extrajudicial sale, any person foreclosure is valid as between the parties.
having a lien on the property subsequent to the
mortgage may redeem the same at any time within (5) Where irregularities attended foreclosure. —
the term of one year from and after the date of sale. Upon a proper foreclosure of a first mortgage, all liens
After the foreclosure sale, there remains in the second subordinate to the mortgage are likewise foreclosed, and the
mortgagee a mere right of redemption; and only this right purchaser at public auction held pursuant thereto
passes to him by virtue of the second mortgage. His acquires title free from the subordinate liens.
remedy is limited to the right to redeem by paying Ordinarily, the Register of Deeds is authorized, even
off the debt secured by the first mortgage. without court order, to issue the new title without
An attaching creditor may succeed to the incidental carrying over the annotations of subordinate liens.
rights to which the debtor was entitled by reason of his (a) This does not prejudice, however, the right, if any, of
ownership of the property such as a right to redeem from a inferior lien holders to question, in an appropriate
prior mortgagee. ordinary action, the legality of the foreclosure
proceedings or the effect of the alleged lack of notice
(3) Payment of his credit from excess of proceeds of to them of such foreclosure.
auction sale. — (b) Even in instances of this nature, it has been held that
the failure to so notify or include inferior lienholders does
not invalidate the foreclosure proceedings but at most
will leave the equity of redemption unforeclosed (2) Successor-in-interest. — The right of
as against such lienholders. redemption, like any other property right, may be
transferred or assigned by its owner. The transferee
(6) Unpaid seller of property. — It has been held that of such right stands in the position of a successor-in- interest
the mortgagee’s act of including in the foreclosure the unpaid of the mortgagor within the purview of Section 29, Rule 39
goods and merchandise earlier sold on credit and delivered of the Rules of Court which is also applicable to redemption
to the mortgagor and which the mortgagee acquired at the of real property sold on extrajudicial foreclosure of mortgage
foreclosure sale, does not make said mortgagee an by virtue of said Section 6 of Act No. 3135.
obligor to pay for such unpaid goods, ownership of
which has been acquired by the mortgagor. The The term “successor-in-interest” includes:
seller has no cause of action against the mortgagee because (a) one to whom the debtor has transferred his
the obligation to pay for the goods remains with the right of redemption; or
mortgagor as buyer. (b) one to whom the debtor has conveyed his
interest in the property for the purpose of
This ruling can very well apply where the subject redemption; or
matter of the mortgage is real property. (c) one who succeeds to the interest of the debtor by
operation of law; or
EQUITY OF REDEMPTION IN JUDICIAL (d) one or more joint debtors who were joint owners
FORECLOSURE. of the property sold; or
(1) Period for exercise. —There is no right of (e) one with a joint interest in the property, or his
redemption after the judicial sale is confirmed. spouse, or heirs.
There is only the equity of redemption in favor of Such successor-in-interest is subrogated to the position of
the mortgagor consisting in the right to redeem the the debtor-mortgagor and is bound by exactly the same
mortgaged property within the ninety-day period conditions that bound the latter. A compulsory heir to the
from the order of foreclosure or even thereafter but judgment debtor qualifies as a successor-in-interest who can
before confirmation of the sale redeem property sold on execution.
(2) Reckoning of ninety-day period. — The ninety-day (3) Under the Rules of Court. —
period granted the mortgage debtor within which to pay the When real property is sold on execution of a judgment, the
amount of the mortgage in Section 2, Rule 68 of the Rules same may be redeemed by the following persons:
of Court, is counted “from the date of the service of such (a) the judgment debtor, or his successor-in-interest in
order.” the whole or any part of the property; or
Ø This provision cannot be literally complied with in (b) a creditor having a lien by attachment, judgment or
case the mortgagor appeals from the lower court’s mortgage on the property sold or some part thereof,
judgment. subsequent to the judgment under which the
Ø It would seem that the period for the payment to the court of property was sold. Such a redeeming creditor is
the mortgage debt should be reckoned from “the date of the termed a redemptioner. (Sec. 29, Rule 39, Rules of
entry of judgment.” Court.)
(c) by one acting in behalf of the judgment debtor as
(3) Where period never began to run. — Where the long as the latter does not oppose the former’s
original judgment of the court required payment within capacity to act as such.
ninety days but this same judgment was expressly held Ø The policy of the law is to aid rather than to
in abeyance, the ninety- day period never began to run. defeat the right of redemption. To give due
course to such redemption would better serve
The remedy of the mortgage creditor: is to seek the ends of justice.
another order of the court directing the payment of the
judgment within ninety days therefrom and the sale of the REGISTRATION OF TRANSFER OF RIGHT OF
property mortgaged in case of failure of the mortgagor to REDEMPTION
comply therewith. The transfer of the right of redemption from the
original debtor-mortgagor need not be registered
(4) Period given, a substantive right. — It may not be with the Register of Deeds to enable the transferee
omitted. An order for the sale of mortgaged property within or assignee to exercise the same.
the ninety-day period would be a denial of a substantial right (1) Where redemption is proper, the purchaser at the
and void. foreclosure sale cannot refuse to allow the same, considering
that his right over the property is purely inchoate until after
PERSONS ENTITLED TO EXERCISE RIGHT OF the period of redemption has elapsed without the right being
REDEMPTION exercised by those allowed by law.
(1) Mortgagor or one in privity of title with (2) Besides, public policy demands that the original debtor-
mortgagor. — If one is in privity of title with the mortgagor or his successor-in-interest should, as much as
mortgagor, and he has such an interest that he would be a possible, be allowed to redeem a foreclosed property.
loser by the foreclosure, he may redeem.
RIGHTS AND OBLIGATIONS OF MORTGAGEE IN was subsequent to the judgment against R, rendered on
POSSESSION June 18, 1956. (Lim vs. Court of Appeals)
A mortgagee in possession is “one who has lawfully
acquired actual or constructive possession of the premises VENDEE’S RIGHT TO POSSESSION OF
mortgaged to him, standing upon his rights as mortgagee and MORTGAGED PROPERTY SOLD.
not claiming under another title, for the purpose of enforcing (1) Contingent. — Before the expiration date of the
his security upon such property or making its income help to redemption period, the vendee’s right to possession (or
pay his debt.’’ continued possession) of the property sold is contingent
upon the failure of the mortgagor to redeem.
(1) Similar to those of an antichresis creditor. — As (2) Final. — After the redemption period is terminated,
such mortgagee in possession, his rights and obligations are the right to redeem is barred, the mortgagor is divested
similar to those of an antichresis creditor. (Art. 2132.) He is of his rights to the mortgaged property sold, and the
entitled to retain such possession until the vendee’s right of possession of the property becomes
indebtedness is satisfied and the property final.
redeemed.
Thus, a creditor with a lien on real property who takes In case of non-redemption, the purchaser at the
possession thereof with the consent of the debtor holds it as foreclosure sale shall file with the Register of Deeds
an “antichresis creditor with the right to collect the credit either a final deed of sale executed by the person
with interest from the fruits, returning to the antichretic authorized by virtue of the power of attorney
debtor, the balance, if any, after deducting the expense.” The embodied in the deed of mortgage or his sworn
mortgagee has to account for the fruits received. statement attesting to the fact of non-redemption.
(2) Without right to reimbursement for useful The Register of Deeds shall thereupon issue a new
expenses. — Generally, a mortgagee in possession of certificate in favor of the purchaser after the
mortgaged property who introduces improvements thereon owner’s duplicate certificate shall have been
is not entitled to reimbursement for the value thereof upon previously delivered and cancelled. (Pres. Decree No.
the redemption of the mortgage, for according to Article 1529, Sec. 63[b].)
2125 (par. 2.), “the persons in whose favor the law establishes
a mortgage have no other right than to demand execution Thus, upon failure to redeem the foreclosed realty,
and the recording of the document in which the mortgage is consolidation of title becomes a matter of right on the part of
formalized.” the auction buyer, and the issuance of a certificate of title in
favor of the purchaser becomes ministerial upon the Register
Ratio: To hold otherwise would render redemption of Deeds.
oppressive, if not nugatory, as a scheming mortgagee could
then put so much improvements thereon, until the debtor- RIGHT OF PURCHASER TO WRIT OF
mortgagor is “improved out” of his property by his failure to POSSESSION
pay the increased redemption costs. A writ of possession is an order by a court whereby the
sheriff is commanded to place in possession of real or
ILLUSTRATIVE CASE: personal property the person entitled thereto such as when a
Facts: On February 1, 1957, R mortgaged two parcels of property is extrajudicially foreclosed.
land to E to secure a loan. The mortgage was foreclosed
on anuary 19, 1959, after which E took possession of the (1) The issuance of the writ to a purchaser in an
property. On March 3, 1980, R sold the property to E. In extrajudicial foreclosure is merely a ministerial
the meanwhile, on February 29, 1959, the disputed function. Both during and after the period of
property was levied upon and sold at public auction to redemption, the purchaser at the foreclosure sale is
satisfy a judgment for money against R, in favor of X, entitled as of right to a writ of possession, regardless of
rendered on June 18, 1956. The highest bidder was Y. whether or not there is a pending suit for annulment of the
On February 27, 1960, within one year after the auction mortgage or the foreclosure itself (without prejudice, of
sale, E offered to redeem the property but Y refused to course, to the eventual outcome of said case.)
accept the amount deposited with the sheriff. E withdrew
the deposit on March 11, 1960 after R had sold the (2) As a rule, any question regarding the validity of
property to her. On March 14, 1960, the sheriff issued a the mortgage or its foreclosure is not a legal ground
deed of conveyance to Y who obtained a writ of for refusing the issuance of the writ.
possession on April 11, 1960.
Issue: Who has a better right to the property, E or Y? (3) Any objection on the validity of the sale and the writ
Held: E. The mortgage was foreclosed on January 1959 issued pursuant thereto should be threshed out in a
after which E took possession of the property. When it subsequent proceeding under Section 8 of Act No. 3135
was sold at public auction on February 28, 1959, R as before the Regional Trial Court. Even then, under Section
judgment debtor was no longer the owner; ownership 8, the order of possession shall continue in effect
having been acquired by E on January 19, 1959. At the during the pendency of appeal
very best, E should have been allowed to redeem the
property. The mortgage executed on February 1, 1957
(4) The right of the applicant or a subsequent purchaser to1. To obtain possession, the vendee or purchaser may either:
request for the issuance of a writ of possession never (1) ask for a writ of possession or
prescribes. (2) bring an appropriate independent action, such as a
suit for ejectment
RIGHT BEFORE LAPSE OF REDEMPTION2. Upon the expiration of the redemption period, without the
PERIOD mortgagor having made use of his right of redemption,
In cases of extrajudicial foreclosure sales of real estate ownership of the property becomes consolidated in the
mortgages, the issuance of a writ possession is governed by purchaser.
Section 730 of Act No. 3135.
(3) Right of purchaser to aid of court. —
(1) Said provision allows the purchaser to take The purchaser of the property sold is entitled to the
possession of the foreclosed property during the aid of the court in effecting its delivery.
period of redemption upon filing of an ex parte (a) Upon proper application and proof of title, the
application and approval of a bond. issuance of the writ of possession becomes a
ministerial duty of the court, and the relief is
The duty of the trial court to grant the writ is granted ex parte without giving the person against
ministerial. Such writ issues as a matter of course whom the relief is sought an opportunity to be heard.
upon the filing of the proper motion and the (b) The purchaser is not obliged to bring a separate and
approval of the corresponding bond. independent suit for possession. But to give effect
to his right of possession, he must invoke the
(2) Any question regarding the regularity and validity of the aid of the courts and ask for a writ of
writ shall, as well as the consequent cancellation of the writ, possession. He cannot simply take the law into his
is to be determined in a subsequent proceeding as outlined own hands and enter the property without judicial
in Section 8 of Act No. 3135. Such question cannot be authorization.
raised to oppose the issuance of the writ, since the (c) As adverted to earlier, the pendency of an action
proceeding is ex parte. questioning the validity of a mortgage or its
foreclosure cannot bar the issuance of the writ of
Purpose of requiring a bond: to protect the rights of the possession particularly after title to the property has
mortgagor so that he may be indemnified in case it be shown been consolidated in the mortgagee as the purchaser
that the foreclosure sale was not justified at the public auction, without prejudice to the
outcome of the action.
RIGHT AFTER LAPSE OF REDEMPTION PERIOD (d) The motion for issuance of the writ can
The purchaser at public auction has only to file a petition for proceed independently. Its issuance does not
issuance of the writ pursuant to Section 33 Rule 39 of the bar a separate case for annulment of
Rules of Court. mortgage and foreclosure sale and, therefore,
the ex parte nature of the proceeding does not
(1) Nature of petition/motion for issuance of writ: deny due process to the mortgagor.
summary in nature and a non-litigious proceeding (e) No bond is required of the purchaser after the
authorized in an extrajudicial foreclosure of mortgage redemption period if the property is not redeemed.
pursuant to Act No. 3135, as amended.
(4) Suspension of implementation of writ. —
1. It is brought for the benefit of one party only, and without 3. Accordingly, where a writ of possession has been
notice to, or consent by, any person adversely interested. issued by a court, it is the inescapable duty of
2. There is no necessity of giving notice to the mortgagor who the sheriff to enforce the writ.
had lost all interests in the mortgaged property when he 4. The sheriff has no authority to give a grace
failed to redeem the same. period, and it would be gross error for the court
3. The order for the issuance of the writ is simply an which is mandated by law to give effect to such
incident in the transfer of title in the name of the right, to suspend the implementation of the writ of
petitioner. possession which should issue as a matter of course.
4. The trial court is mandated and it is its ministerial 5. Once the writ of possession has been
duty to issue the writ upon a finding of the lapse of issued, the court has no alternative but to
the statutory period for redemption, the effect of enforce the writ without delay.
which is to make the right of the purchaser to the
possession of the property absolute. (5) Where mortgaged property under lease. —
5. The possession of the property becomes an absolute A mortgagee who has foreclosed upon the mortgaged real
right of the purchaser as confirmed owner. property and has purchased the same at the foreclosure sale
can be granted a writ of possession over the
(2) Right of purchaser to a conveyance and to property despite the fact that the premises are in
possession. — After the redemption period has the possession of a lessee thereof and whose lease
expired, the purchaser of the property has the right has not as yet been terminated, unless: (1) the lease had
to a conveyance and to be placed in possession been previously registered in the Registry of Property or (2)
thereof. The posting of a bond is no longer needed. unless despite non- registration, the mortgagee had prior
knowledge of the existence and duration of the lease, actual cancel the writ of possession, which should be
knowledge being equivalent to registration. disposed of in accordance with the summary procedure
prescribed in Section 112 of Act No. 496, the Land
(6) Where mortgagor refuses to surrender property Registration Act,33 provided the petition is filed
sold. — Incase of refusal to surrender the possession of the “not later than thirty days after the purchaser
property sold by the sheriff on the part of the debtor or was given possession.”
mortgagor, the purchaser cannot merely file petition for a (b) Section 8 of Act No. 3135 lists the exclusive
writ of possession. grounds for the petition:
1. The remedy is to file an ordinary action for the 1) that the mortgage was not violated, and,
recovery of possession in order that the debtor may be 2) that the sale was not made in accordance with
given an opportunity to be heard not only regarding the provisions of Act No. 3135.
possession but also regarding the obligation covered by the (c) Section 8 of Act No. 3135 is clear that the purchaser
mortgage. must first be placed in possession of the
2. The purchaser cannot take possession of the property by mortgaged property pending proceedings
force either directly or through the sheriff. assailing the issuance of the writ of possession.
3. Ratio: is that the creditor’s right of possession is conditioned If the trial court later finds merit in the petition to set
upon the fact of default, and the existence of this fact may aside the writ, it shall dispose in favor of the mortgagor
naturally be the subject of controversy. the bond furnished by the purchaser.
(7) Where third party in actual possession. — Thereafter “either of the parties may appeal from
General Rule: the possession of the mortgaged property the order of the judge in accordance with Section 14
may be awarded to a purchaser in the extrajudicial of Act No. 496’’ which provides that “every order,
foreclosure. decision, and decree of the Court of the Land
Exception: unless a third party is actually holding the Registration may be reviewed . . . . in the same manner
property adversely to the judgment debtor. as an order, decision, decree or judgment of a Court of
First Instance might be reviewed.’’
Under Article 433 of the Civil Code, one who claims to be the owner of
a property possessed by another must bring the appropriate judicial action Ratio: is to allow the purchaser to have possession of the
for its physical recovery. foreclosed property without delay such possession being
“judicial process” could mean no less than an founded on his right of ownership.
ejectment suit or reivindicatory action in which
ownership claims of the contending parties may be properly (d) Section 8 of Act No. 3135 mandates that even if an
heard and adjudicated. appeal is interposed from an order granting a petition for
An ex parte petition for issuance of a possessory writ under a writ of possession, such order shall continue to be
Section 7 of Act 3135, as amended, is not, strictly speaking, in effect during the pendency of the appeal.
a “judicial process” as contemplated in Article 433. The Remedy is an ordinary appeal, unless with grave abuse
reason for the limitation is that the writ does not of discretion, then petition on certiorari.
issue in case of doubt.
e) Section 8 of Act No. 3135 affords both parties an
ISSUANCE OF WRIT BEFORE LAPSE OF expeditious way to resolve any conflict regarding the writ
REDEMPTION PERIOD of possession alone issued by reason of an extrajudicial
(1) Where bond filed by purchaser. — foreclosure. It should be distinguished from those cases
But where a lease agreement is subsequently entered into by which involved writs of possession issued in the course of
the mortgagor and the mortgagee after the expiration of the the execution of judgment.
redemption period and the consolidation of title in the name
of the latter, a case for ejectment or unlawful WHERE RIGHTS OF THIRD PERSONS
detainer, not a motion for a writ of motion for a writ of INVOLVED
possession is the proper remedy in order to evict (1) Claimants with interest adverse to mortgagor. —
from the questioned premises a mortgagor-turned- (ibid.) In case of an extrajudicial foreclosure of a real estate
lessee. What applies is no longer the law on foreclosure mortgage, the possession of the property sold may be
but the law on lease. given to the purchaser by the sheriff after the
period of redemption had expired, unless a third
(2) Remedy of mortgagor. — Any question regarding the person is actually holding the property adversely to the
regularity and validity of the sale as well as the consequent mortgagor or judgment debtor in which case an ordinary
cancellation of the writ of possession is to be determined in a action is necessary to recover possession from such third
subsequent proceeding as outlined in Section 8 of Act No. person.
3135. It cannot be raised as a justification for opposing the
issuance of the writ of possession since, under the Act, the (a) It is implicit in Section 7 of Act No. 3135 that it is
proceeding for this is ex parte. ministerial upon the court to issue an ex parte
(a) The only remedy of the mortgagor is to question writ of possession in favor of the purchaser in a
the validity of the sale as provided in Section 8 of Act No. foreclosure sale of a mortgaged property
3135, by a petition to set aside the sale and to provided no rights of third persons are involved.
Ø Both remedies are cumulative and may be
(b) Section 16, Rule 39 of the Rules of Court, bestows upon availed of independently of or separately
third parties claiming rights to properties under execution from the other.
the right to protect their interests by interposing a third-
party claim in the same case, or by instituting a separate (f) No discretion is left to the judge. Any question regarding
reinvindicatory action against the executing creditor. the cancellation of the writ or in respect of the validity and
Proceedings to resolve the possession of third- regularity of the public sale, should be determined in a
party claimants may proceed independently of subsequent proceeding as outlined in Section 8 of Act No.
the action which said claimants may bring to enforce or 3135.
protect their claim of ownership over the property.
(g) An ordinary civil action may be consolidated
(c) The actual possession under claim of with a petition for a writ of possession although the
ownership raises a disputable presumption of latter is an ex parte proceeding to thresh out thoroughly all
ownership. The true owner must resort to judicial related issues in the interest of a more expeditious and less
process for the recovery of the property. expensive resolution of the controversy.
(d) Such petition, in the form of an ex parte motion, in (h) (ibid) A purchaser or mortgagee cannot close his
which the court only hears one side; it is a non-litigious eyes to facts which should put a reasonable man
proceeding and summary in nature as well authorized in upon his guard, and then claim that he acted in
an extrajudicial foreclosure of mortgage pursuant to Act good faith under the belief that there was no
3135, as amended. defect in the title of the vendor or mortgagor.
Unlike a judicial foreclosure of real estate mortgage under Banks, their business being impressed with
Rule 68 of the Rules of Court, any property brought within public interest, are expected to exercise more
the ambit of the Act is foreclosed by the filing of a petition, care and prudence than private individuals in
not with any court of justice, but with the office of the their dealings, even those involving registered
sheriff of the province (or city) where the sale is to lands. Hence, for merely relying on the certificate of title
be made. and for its failure to ascertain the status of the mortgaged
property as is the standard operating procedure in the
(e) Section 16, Rule 39, reserves to adverse third parties the operation of a bank, it cannot be said that a bank is a
remedies of: mortgagee in good faith.
1) terceria to determine whether the sheriff has rightly
or wrongly taken hold of the property not (2) Successor-in-interest of mortgagor. — The
belonging to the judgment debtor or obligor and purchaser is entitled to the possession of the property bought
2) an independent “separate action” to vindicate and cannot be excluded therefrom by one who merely claims
their claim of ownership and/ or possession over to be a successor-in-interest of the mortgagor and whose
the foreclosed property. possession is, therefore, not adverse to the mortgagor unless
it is adjudged that the alleged successor has a better
Ø Under Section 16, a third party claimant or right to the property than the purchaser.
stranger to the foreclosure suit, like
respondents herein, can opt to file a remedy (3) Lessee of agricultural land. — The agricultural
known as terceria against the sheriff or lessee’s pre-emptive right to buy the land he cultivates, as
officer effecting the writ by serving on him well as his right to redeem the land, if sold to a third person
an affidavit of his title and a copy thereof without his knowledge, under Sections 11 and 12,
upon the judgment creditor. respectively, of the Code of Agrarian Reforms, is statutory in
Ø By the terceria, the officer shall not be bound character and attaches to the particular landholding
to keep the property and could be by operation of law. It is superior to the mortgagee
answerable for damages. of land. The remedy of the mortgagee is not against the
Ø A third-party claimant may also resort to an land nor the agricultural lessee but against the mortgagee-
independent “separate action,” the object of landowner.
which is the recovery of ownership or possession of
the property seized by the sheriff, as well as damages (4) Buyer of condominium unit. — Under the
arising from wrongful seizure and detention of the Subdivision and Condominium Buyers’ Protective Decree.
property despite the third-party claim. (Sec. 25, Pres. Decree No. 957.), upon full payment by the
Ø If a “separate action” is the recourse, the third-party buyer, the seller is duty- bound to deliver the title of the unit
claimant must institute in a forum of competent to the buyer. Even with a valid mortgage on the lot,
jurisdiction an action, distinct and separate from the the seller is still bound to redeem said mortgage
action in which the judgment is being enforced, even without any cost to the buyer apart from the
before or without need of filing a claim in the court balance of the purchase price if any, and
that issued the writ. registration fees. Where the condominium buyer is found
to have superior right to the unit over the loan funder’s and
the mortgage in favor of the latter which foreclosed the
mortgage, is found to be contrary to said law (Sec. 18 Llego and his Attorney-in-Fact Ceferino Tan by filing the
thereof.). appropriate action to recover the unpaid indebtedness.’’
(3) MB acted in bad faith. — Petitioner insists that it is not a
Proper Remedy: is to annul mortgage foreclosure sale and transferee pendente lite because it was a purchaser for value
the condominium certificate of title issued in favor of the long before the case for specific performance was filed.
highest bidder The contention is without merit. Even if it is not a
transferee pendente lite, petitioner nevertheless cannot
ILLUSTRATIVE CASE: claim a right superior to that of private respondents
Facts: Notwithstanding the absence of a deed of sale, because petitioner acted in bad faith when it foreclosed
private respondents AL and PA entered into and took and acquired the property. As the Court of Appeals
possession of a parcel of land sold to him by DL. AL and pointed out, petitioner was aware of the charge of fraud
PA later paid the balance of the purchase price of the lot. against Demetrio Llego in mortgaging the property to it
Subsequently in 1982, DL mortgaged the property to despite the previous sale thereof to private respondent
petitioner MB. As DL failed to pay his indebtedness, the Agustin Lagrama. The trial court found the existence of
mortgage was foreclosed and the property was sold with fraud in the transaction and declared private respondents
MB as the highest bidder. DL failed to redeem the to be the absolute owners of the property. x x x’’
property. (4) Petitioner’s reliance in case of St. Dominic Corp. vs. Intermediate
In 1983, AL and PA filed a complaint for specific Appellate Court (151 SCRA 577 [1987]) misplaced. — “The
performance to compel DL to execute the necessary deed facts of that case are different from those of the case at
of absolute sale in their favor. Impleaded were it attorney bar. xx x
in fact of DL, and MB who alleged that it was a mortgagee In the case of St. Dominic, when the property in question
in good faith. was mortgaged to Manufacturer’s Bank, the title showed
Issue: Whether or not petitioner bank may be compelled that it was valid, regular, and free from any lien or
to execute a deed of reconveyance transferring the parcel encumbrance. When it was later foreclosed and sold at
of land mortgaged to petitioner in favor of private public auction and a new transfer certificate of title was
respondents. issued to the buyer, the notice of lis pendens was not carried
Held: Yes. (1) MB took title to the mortgaged property pendente lite. over to the new title. And, when the property was sold to
— “Both the trial court and the Court of Appeals petitioner St. Dominic Corp., which was again issued
correctly held that petitioner bank was a transferee TCT No. 22337, no notice of any lien or encumbrance
pendente lite whose title was subject to the incidents and appeared on the title. These factual circumstances led the
results of the pending litigation. Petitioner bank contends Court to conclude that the mortgagee bank and its
that it constituted the mortgage more than a year before subsequent transferrees had acted in good faith. It is
the private respondents’ action for specific performance obvious that the case of St. Dominic Corp. vs. Intermediate
was filed and the fact that the foreclosure and public Appellate Court cannot be invoked in this case where both
auction sale took place after the institution of the case is the trial court and the Court of Appeals found that
immaterial since the foreclosure sale retroacts to the date petitioner bank did not act in good faith in acquiring title
of the constitution of the mortgage. to the property.’’ (Malayan Bank vs. Lagrama, 357 SCRA 429
Petitioner bank argues that it was a purchaser for value [2001].)
long before the filing of the case and, therefore, it cannot
be considered a transferee pendente lite. This argument is
specious. Petitioner acquired the property only after the
filing of private respondents’ case for specific
performance. When the mortgage was constituted,
petitioner was not yet, properly speaking, a transferee,
being a mere mortgagee of the property. Only when
petitioner acquired the property in the foreclosure sale
and subsequently consolidated its title did it become the
transferee of the property. Thus, petitioner bank is a
transferee pendente lite of the property in litigation within
the contemplation of Rule 39, Sec. 47(b). As such, it is
bound by the decision against Demetrio Llego.’’
(2) Transferee pendente lite stands in shoes of transferor. — “A
transferee pendente lite stands exactly in the shoes of the
transferor and is bound by any judgment or decree which
may be rendered for or against the transferor; his title is
subject to the incidents and results of the pending
litigation, and his transfer certificate of title will, in that
respect, afford him no special protection. Petitioner bank
may thus be properly ordered to execute the necessary
deed of reconveyance in favor of private respondents.
The remedy left to petitioner is to pursue its claim against

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Notes on De Leon’s Credit Transaction (2010) “Dream, though your beginnings may be humble,

may the end be prosperous.”

(2) Mortgage deed remains as evidence of a (b) Expropriation

A mortgage may be foreclosed extrajudicially Ø Publication mandatory. —

KINDS OF REDEMPTION Replevin is the appropriate action to recover possession

EQUITY OF REDEMPTION RIGHT OF REDEMPTION

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