Credit Transaction Chapter 3 Pma

CREDIT TRANSACTIONS –TITLE XVI - Pledge, Mortgage and Antichresis CHAPTER 2
Mortgage gages are found in Articles 1365, 1450, 1454, 1602,

1603, 1604, and 1607.
Article 2124. Only the following property may be the
object of a contract of mortgage: Article 2125. In addition to the requisites stated in
article 2085, it is indispensable, in order that a mortgage
(1) Immovables;
may be validly constituted, that the document in which
(2) Alienable real rights in accordance with the laws, it appears be recorded in the Registry of Property. If the
imposed upon immovables. instrument is not recorded, the mortgage is
nevertheless binding between the parties.
Nevertheless, movables may be the object of a chattel
mortgage. The persons in whose favor the law establishes a
mortgage have no other right than to demand the
execution and the recording of the document in which
Definition of mortgage. the mortgage is formalized.
Mortgage (otherwise known as “real estate mortgage” Article 2126. The mortgage directly and immediately
or “real mortgage’’) is a contract whereby the debtor subjects the property upon which it is imposed,
secures to the creditor the fulfillment of a principal whoever the possessor may be, to the fulfillment of the
obligation, specially subjecting to such security obligation for whose security it was constituted.
immovable property or real rights over immovable
property which obligation shall be satisfied with the
proceeds of the sale of said property or rights in case Effect of mortgage.
the said obligation is not complied with at the time
(1) Creates real right. — Article 2126 means, in other
stipulated.
words, that a registered mortgage creates right in rem,
Characteristics of mortgage. a real right, a lien inseparable from the property
mortgaged, which is enforceable against the whole
It is a real, accessory, and subsidiary contract. It is also world, affording specific security for the satisfaction of a
unilateral because it creates only an obligation on the debt. The personality of the owner is disregarded.
part of the creditor who must free the property from
the encumbrance once the obligation is fulfilled. (2) Creates merely on encumbrance. — A mortgage is
merely a security for a debt, an encumbrance upon the
property and does not extinguish the title of the debtor
Kinds of mortgage. who does not lose his principal attribute as owner, that
is, the right to dispose. Indeed, the law considers void
(1) Voluntary. — one which is agreed to between the any stipulation forbidding the owner from alienating the
parties or constituted by the will of the owner of the immovable mortgaged. (Art. 2130.)
property on which it is created (Art. 138, Spanish
Mortgage Law.); or
(2) Legal. — one required by law to be executed in favor Article 2127. The mortgage extends to the natural
of certain persons (see Art. 2125, par. 2; Arts. 2082, accessions, to the improvements, growing fruits, and
2083.); or the rents or income not yet received when the
obligation becomes due, and to the amount of the
(3) Equitable. — one which, although it lacks the proper indemnity granted or owing to the proprietor from the
formalities or other requisites of a mortgage required insurers of the property mortgaged, or in virtue of
by law, nevertheless reveals the intention of the parties expropriation for public use, with the declarations,
to burden real property as a security for a debt, and amplifications and limitations established by law,
contains nothing impossible or contrary to law. The whether the estate remains in the possession of the
provisions in the Civil Code governing equitable mort- mortgagor, or it passes into the hands of a third person.
Article 2128. The mortgage credit may be alienated or particularly Section 194, as amended by Act No. 3344,
assigned to a third person, in whole or in part, with the govern the form, extent, and consequences of a
formalities required by law. mortgage, and also its constitution, modification and
extinguishment.
Article 2129. The creditor may claim from a third person
in possession of the mortgaged property, the payment Meaning of foreclosure (of mortgage).
of the part of the credit secured by the property which
Foreclosure is the remedy available to the mortgagee by
said third person possesses, in the terms and with the
which he subjects the mortgaged property to the
formalities which the law establishes.
satisfaction of the obligation to secure which the
mortgage was given. (59 C.J.S. 482.)
EXAMPLE: It presupposes something more than a mere demand to

surrender possession of the object of the mortgage. It
A mortgaged his land worth P500,000.00 in favor of B to
denotes the procedure adopted by the mortgagee to
secure A’s debt of P600,000.00. A then sold the land to
terminate the rights of the mortgagor on the property
C.
and includes the sale itself.
In this case, the obligation of A to pay the debt is not
affected by the transfer. On the due date of the
obligation, B may demand payment from A and if A fails Kinds of foreclosure.
to pay, B may foreclose the mortgage. (see Art. 2131.) B
Foreclosure may be effected either judicially or
has the right to claim from C the payment of
extrajudicially, that is, by ordinary action by the
P500,000.00 which is part of the credit secured by the
mortgagee or by foreclosure by the mortgagee under
property sold to C.
power of sale contained in the mortgage.
C is not liable for any deficiency in the absence of a
(1) Judicial action for the purpose. — A mortgage may
contrary stipulation. “The spirit of the law is to let the
be fore-closed judicially by bringing an action for that
obligation of the debtor to pay the debt to stand
purpose, in the proper court which has jurisdiction over
although the property mortgaged to secure the
the area wherein the real property involved or a portion
payment of said debt may have been transferred to a
thereof, is situated. If there is a balance due to the
third person.” (Ibid.)
mortgagee after applying the proceeds of the sale
The remedy of C is to proceed against A. ordered by the court, the mortgagee is entitled to
recover the deficiency and if this is embodied in a
judgment, it is referred to as deficiency judgment. (Art
Article 2130. A stipulation forbidding the owner from 2115)
alienating the immovable mortgaged shall be void.
Where a third person is a mortgagor, he is not liable for
Article 2131. The form, extent and consequences of a any deficiency in the absence of a contrary stipulation.
mortgage, both as to its constitution, modification and The action for the recovery of such deficiency must be
extinguishment, and as to other matters not included in directed against the debtor.
this Chapter, shall be governed by the provisions of the
Mortgage Law and of the Land Registration Law.
The proceeds of the sale shall be applied to the
payment of the: (a) costs of the sale, (b) the amount
Laws governing mortgage. due the mortgagee, (c) claims of junior encumbrancers
or persons holding subsequent mortgages in the order
As to other matters not included in Chapter 3 of the of their priority, and(d) the balance if any, shall be paid
Civil Code, the Land Registration Law (Act No. 496, as to the mortgagor or his duly authorized agent, or to the
amended.) and the Revised Administrative Code, more person entitled to it.
(2) Extrajudicial Foreclosure – A mortgage may be
foreclosed extrajudicially where there is inserted in the
contract, a clause giving the mortgagee the power,
upon default of the debtor, to foreclose the mortgage
by an extrajudicial sale of the mortgaged property. (Sec.
1, Act No. 3155, as amended by Act No. 4148)
Meaning of redemption (of foreclosed property).
Redemption may be defined as a transaction by which

the mortgagor reacquires or buys back the property
which may have passed under the mortgage or divests
the property of the lien which the mortgage may have
created. In general, the concept of redemption is to
allow the owner to repurchase or buy back, within a
certain period and for a certain amount, a property that
has been sold due to debt, tax, or encumbrance. It is
allowed in cases of foreclosures in favor of banking and
credit institutions and in extrajudicial foreclosures.
Kinds of redemption.
(1) Equity of redemption or the right of the mortgagor

in case of judicial foreclosure to redeem the mortgaged
property after his default in the performance of the
conditions of the mortgage but before the confirmation
of the sale of the mortgaged property. In judicial
foreclosure, the mortgagor may exercise his equity of
redemption before but not after the sale is confirmed
by the court.
(2) Right of redemption or the right of the mortgagor in

case of extrajudicial foreclosure to redeem the
mortgaged property within a certain period from and
after it was sold for the satisfaction of the mortgage
debt. In all cases of extrajudicial sale, the mortgagor
may redeem the property at any time within the term of
1 year from and after the date of the registration of the
sale. In judicial foreclosure, the general rule is that the
mortgagor cannot exercise his right of redemption after
the sale is confirmed

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CREDIT TRANSACTIONS –TITLE XVI - Pledge, Mortgage and Antichresis CHAPTER 2

Mortgage gages are found in Articles 1365, 1450, 1454, 1602,

EXAMPLE: It presupposes something more than a mere demand to

Meaning of redemption (of foreclosed property).

Redemption may be deﬁned as a transaction by which

(1) Equity of redemption or the right of the mortgagor

(2) Right of redemption or the right of the mortgagor in

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