CREDIT TRANSACTIONS

NOTE: Once the obligation has been paid or

satisfied, the property must be released from
A. LOANS the encumbrance imposed. The mortgage is
B. DEPOSIT answerable only if the principal obligation is not
paid.
C. GUARANTY AND
SURETYSHIP Kinds of Real Mortgages
D. REAL ESTATE MORTGAGE
1. Voluntary or Conventional mortgage –
E. ANTICHRESIS It is constituted voluntarily by the contracting
parties or by the will of the owner of the
property on which it was created;
D. REAL ESTATE MORTGAGE
2. Legal mortgage – It is required by law to
Real estate mortgage (REM) is a contract whereby
be executed in favor of certain persons; and
the debtor secures to the creditor the fulfillment of
(Arts. 2125(2), 2082 and 2083, NCC) and
the principal obligation, specially subjecting to such
security immovable property or real rights over
immovable property in case the principal obligation 3. Equitable mortgage – a contract that
is not fulfilled at the time stipulated. appears to be a sale with a right of repurchase
or an absolute sale which in reality is a contract
Characteristics whereby no transfer of ownership is intended
1. It is a real right; but the real intention is only to constitute a
security. (Aquino, 2021)
2. It is an accessory contract; NOTE: If the
principal obligation is void, the mortgage is also
void. (Reyes v. Gonzales, 45 O.G. No. 2, p. 831) Requisites of an equitable mortgage
But if a mortgage is void because it was not 1. The parties enter into what appears to be a
made by the owner of the property, the principal contract of sale; and
contract of loan may still be valid. (PNB v.
Rocha, G.R. No. L-332260, 29 Dec. 1930) 2. Their intention is to secure an existing debt
by way of mortgage.
3. Unilateral; it creates only an obligation on
the part of the creditor who must free the Instances when the sale is presumed to
property from encumbrance once the be an equitable mortgage
obligation is fulfilled.
1. When the price of a sale with right to
4. It is indivisible; repurchase is unusually inadequate;

5. It is inseparable; 2. When the vendor remains in possession as

lessee or otherwise;
NOTE: The mortgage adheres to the
property, regardless of who its owner 3. When upon or after the expiration of the
may subsequently be. (McCullough v. right to repurchase another instrument
Veloso, G.R. No. L-21455, 05 Apr. 1924) extending the period of redemption or granting
a new period is executed;
6. It is real property; and
4. When the purchaser retains for himself a
7. It is subsidiary. part of the purchase price;
 property to a lien but the ownership thereof is
5. When the vendor binds himself to pay the not parted. (De Leon, 2013)
taxes on the thing sold; and
Registration of Mortgage Registration of
6. In any other case where it may be fairly mortgage is a matter of right.
inferred that the real intention of the parties is By executing the mortgage, the mortgagor is
that the transaction shall secure the payment of understood to have given his consent to its
a debt or the performance of any other registration, and he cannot be permitted to
obligation. (Art. 1602, NCC) revoke it unilaterally. Registration operates as a
notice of the mortgage to others, but neither
adds to its validity nor converts an invalid
Requisites for a Valid Constitution of a mortgage into a valid one between the parties.
Real Estate Mortgage
The following requisites are essential to the Mortgage as a Real and Inseparable Right
contract of a real estate mortgage: Mortgage is a real and inseparable right.
The mortgage directly and immediately subjects
1. That it be constituted to secure the fulfillment the property upon which it is imposed, whoever
of a principal obligation; the possessor may be, to the fulfillment of the
obligation for whose security it was constituted.
2. That the mortgagor be the absolute owner of (Art. 2126, NCC)
the thing mortgaged;
Effect of registration as to better right of
3. That the person constituting the mortgage third parties
have the free disposal of their property, and in A registered mortgage right over property
the absence thereof, that they be legally previously sold is inferior to the buyer’s
authorized for the purpose; unregistered right.

4. It must appear in a public instrument; and Mortgagee in Good Faith

(Art. 2125, NCC) and A mortgagee has a right to rely in good faith on
the certificate of title of the mortgagor of the
5. Recording in the Registry of Property is property given as security and in the absence of
necessary to bind third persons. any sign that might arouse suspicion, has no
obligation to undertake further investigation.
Rights of a Mortgagor Hence, even if the mortgagor is not the rightful
To alienate the mortgaged property but the owner of, or does not have a valid title to the
mortgage shall remain attached to the property. mortgaged property, the mortgagee in good
(Art. 2130, NCC) faith is nonetheless entitled to protection.

Rights of a Mortgagee Alienation or Assignment of Mortgage

To claim from a third person in possession of the Credit
mortgaged property the payment of the part of The mortgage credit may be alienated or
the credit secured by the property which said assigned to a third person, in whole or in part,
third person possesses. with the formalities required by law.

Right to Possession NOTE: Even if the alienation is not registered,

The mortgagee has no right or claim to the it would still be valid as between the parties.
possession of the property. Such possession is (Lopez v. Alvarez, G.R. No. L-3438, 12 Oct.
only a security for the payment of the sum 1907) There is no need to obtain the
borrowed. The debtor merely subjects the consent of the debtor/mortgagor.
 4. Confirmation of the sale, which operates to
Foreclosure divest the rights of all parties to the action and
Foreclosure is a remedy available to the vest their rights to the purchaser;
mortgagee by which he subjects the mortgaged
property to the satisfaction of the obligation. It Requirements:
is a proceeding to terminate the rights of the a. Motion for confirmation is filed; and
mortgagor of the property. b. Notice of hearing of motion.

Causes of Action of Mortgage-Creditor 5. Execution of judgment in the manner

Mortgage-creditor has a single cause of action provided by law on mortgages, the parties not
against the mortgage-debtor, which is to being authorized to change the procedure
recover the debt, but he has the option to prescribed;
either:
1. File a personal action for collection of NOTE: The proper remedy to seek
sum of money; or reversal of a judgment in an action for
2. Institute a real action to foreclose on the foreclosure is an appeal from the
mortgaged property. judgment itself or from the order
confirming the sale of the foreclosed real
NOTE: If he elects to foreclose, he waives the estate. (Sps. Agbada v. Inter-Urban
action for the collection of the unpaid debt, Developers, Inc., G.R. No. 144029, 19
except only for the recovery of whatever Sept. 2002)
deficiency may remain in the outstanding
obligation of the debtor-mortgagor after 6. Application of the proceeds of the sale; and
deducting the old price in the public auction a. Costs of sale;
sale. The remedies are alternative, not b. Amount due the mortgagee;
cumulative, (Bank of America, NT and SA v. c. Claims of junior encumbrancers or
American Realty Corp. G.R. No. 133876, 29 Dec. persons holding subsequent mortgages
1999) each remedy is complete by itself. in the order of priority; and
d. The balance, if any, shall be paid to
Kinds of Foreclosure the mortgagor, or his duly authorized
1. Judicial – Governed by Rule 68, Rules of agent, or the person entitled to it.
Court; and
2. Extrajudicial – The mortgagee is given a 7. Execution of sheriff’s certificate.
SPA to sell the mortgaged property. (Act 3135)
Action for Foreclosure of Mortgage
Steps in Judicial Foreclosure Survive the Death of Mortgagor
1. Judicial action brought to the proper court An action for foreclosure of mortgage survives
having jurisdiction; the death of mortgagor because the claim is not
a pure money claim but an action to enforce a
2. Order by the court for mortgagor to pay mortgage lien. Being so, the judgment rendered
mortgage debt if the court finds the complaint therein may be enforced by a writ of execution.
to be well-founded, within a period of not less The action may be prosecuted by the interested
than 90 days nor more than 120 days from the person against the executor or administrator
entry of judgment; independently of the testate or intestate
proceedings of the settlement of the
3. Sale to the highest bidder at a public auction mortgagor’s estate “for the reason that such
if the mortgagor fails to pay at the time directed claims cannot in any just sense be considered
in the court order; claims against the estate, but the right to
subject specific property to the claim arises from
the contract of the debtor whereby he has 2. Judicial – within the period of 90-120 days
during life set aside certain property for its from the date of the service of the order of
payment, and such property does not, except in foreclosure or even thereafter but before the
so far as its value may exceed the debt, belong order of the confirmation of the sale. (Sec. 2&3,
to the estate.” Rule 28, ROC)

NOTE: Allowing redemption after the lapse of

Extrajudicial Foreclosure the statutory period, when the buyer at the
An extrajudicial foreclosure may only be foreclosure sale does not object but even
effected if in the mortgage contract covering a consents to the redemption, will uphold the
real estate, a clause is incorporated therein policy of the law which is to aid rather than
giving the mortgagee the power, upon default defeat the right of redemption. (Ramirez v. CA,
of the debtor, to foreclose the mortgage by an G.R. No. 98147, 05 Mar. 1993)
extrajudicial sale of the mortgage property.
(Sec. 1, Act 3135, as amended by Act 4148)
E. ANTICHRESIS
Steps in Extrajudicial Foreclosure of Real Estate
Mortgage Antichresis
It is a contract whereby the creditor acquires the
right to receive the fruits of an immovable of the
Redemption Period debtor, with the obligation to apply them to the
payment of interest, if owing, and thereafter to
1. Extrajudicial (Act 3135) the principal of his credit.

a. Natural Person - one (1) year from Stipulation authorizing for appropriation
registration of the certificate of sale of property upon non-payment of the debt
with the Registry ofDeeds; A stipulation authorizing the antichretic creditor
to appropriate the property upon the non-
NOTE: The statutory period of payment of the debt within the period agreed
redemption is only directory and can upon is void.
be extended by agreement of the
parties provided:
Form of a contract of antichresis and its
i. The agreement to extend is contents
voluntary; and 1. Covers only the fruits of real property but not
ii. iThe debtor commits to pay the the immovable itself;
redemption price on a fixed
date. 2. Delivery of the immovable is necessary for the
creditor to receive the fruits and not that the
b. Juridical Person – same rule as contract shall be binding. Amount of principal
natural person. and interest must be specified in writing; (Art.
2134, NCC) and
c. Juridical Person (mortgagor) and
Bank (mortgagee) – three (3) 3. Express agreement that debtor will give
months after foreclosure or before possession to the creditor and that the creditor
registration of certificate of will apply the fruits to the interest and then to
foreclosure whichever is earlier. (Sec. the principal. (Art. 2134, NCC)
47, R.A. No. 8791)
Parties to a contract of antichresis
1. Antichretic creditor – one who receives the automatically become the property of the
fruits on the immovable property of the debtor. creditor in the event of non-payment of the debt
within the term fixed. Such stipulation is null and
2. Antichretic debtor – one who pays his debt void. (Art. 2085, NCC)
through the application of the fruits of his
immovable property. Elements of Pactum Commissorium

1. There is a pledge, mortgage or antichresis of

Rule on the application of the fruit upon a property by way of security; and
the debt
The application of the fruit upon the debt must 2. There is an express stipulation for the
be expressly agreed between the creditor and automatic appropriation by the creditor of the
the debtor that the former, having been given property in case of non- payment of the
possession of the properties given as security, is principal obligation.
to apply their fruits to thepayment of interest,if
owing, and thereafter to the principal of his NOTE: What are prohibited are those
credit. stipulations executed or made
simultaneously with the original contract,
When the Antichretic Debtor Can Demand and not those subsequently entered into.
the Return of Their Property
The antichretic debtor can only demand the Pactum Commissorium when allowed
return of the property after having fully paid his While the law prohibits the creditor from
obligations to the creditor. It is not fair for the appropriating to himself the things pledged or
debtor to regain the possession of the property mortgaged, and from disposing them, this does
when his debt has not been fully paid. Until not mean that a stipulation if prohibited
there is full payment of the obligation, the whereby the creditor is authorized, in case of
property shall stand as security therefor. nonpayment within the term fixed by the
parties, to sell the thing mortgaged at public
Remedy of the Creditor In Case of Non- auction, or to adjudicate the same to himself in
Payment case of failure of said sale, nor is there any
Creditor does not acquire ownership of the real reason to prevent it; on the contrary, Art. 2112
estate for non-payment of the debt within the of the NCC expressly authorizes this procedure
period agreed upon. Every stipulation to the in connection with pledge, even if it may not
contrary is void. (Art. 2137, NCC) have been expressly stipulated.

The remedies of the creditor in case of non- This is not against the law, since what the law
payment of the debt within the period agreed prohibits is only the acquisition by the creditor
when the fruits are not enough to pay for the of the property mortgaged after non-payment of
obligations are as follows: debt, and the above stated article simply
authorizes him to sell it with the aforesaid
1. To abandon the security and file an action for conditions, which authorization is inherent in the
specific performance; or ownership, and is not against morals and public
order. (Aquino, 2021)
2. Petition the court for the payment of the debt
or the sale of the real property

Pactum Commissorium
It is a stipulation whereby the thing pledged or
mortgaged or subject of antichresis shall