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A. Definition

Real Mortgage is a contract whereby the debtor secures to the creditor the fulfillment of a principal obligation,
specially subjecting to such security immovable property or real rights over immovable property in case the principal
obligation is not complied with at the time stipulated.

B. Characteristics

1. It is an accessory and subsidiary contract.

2. It is also unilateral because it creates only an obligation on the part of the creditor who must free the property
from the encumbrance once the obligation is fulfilled.

3. The mortgagor, as a general rule, retains possession of the property mortgaged as security for the payment of
the sum borrowed from the mortgagee, and pays the latter a certain percent thereof as interest on his principal by way of
compensation for his sacrifice in depriving himself of the use of said money and the enjoyment of its fruits, in order to
give them to the mortgagor.

4. The objects of a real mortgage are immovable (Article 415) and alienable real rights imposed upon immovables.

Note: While a mortgage of land necessarily includes, in the absence of stipulation, the improvements thereon, a
building by itself may be mortgaged apart from the land on which it is built. Possessory rights over said property before
title is vested on the grantee may be validly transferred or conveyed as in a deed of mortgage. ( prudential Bank vs.
Panis, 153 SCRA 390 [1967]); Nartales vs. GSIS, 156 SCRA 205 [1987]).

5. In order that a mortgage may be validly constituted, it must appear in a public document duly recorded in the
Registry of Property (see Gaotian vs. Gaffud, 24 SCRA 706 [1969])

Note: If the instrument of mortgage is not recorded, the mortgage is nevertheless binding between the parties.

6. A mortgage creates a real right (see Tuazon vs. Grosco, 5 Phil. 596 [1905]), a lien inseparable from the property
mortgaged, which is enforceable against the whole world. Until discharged, it follows the property wherever it goes and
subsists notwithstanding changes of ownership.
a.) If the mortgagor sells the mortgaged property, the property remains subject to the fulfillment of the
obligation secured by it. (see Bonnevie vs. Court of Appeals , 125 SCRA 122 [1983]) All subsequent purchasers of the
property must respect the mortgage, whether the transfer to them be with or without the consent of the mortgagee. But
the mortgage must be registered (Article 2125) or, if not registered, the buyer must know of its existence. (see Phil.
National Bank & Trust Corp. vs. Court of Appeal s, 193 SCRA 158 [1991]) The mortgagor may not be the principal debtor
(Article 2085, 2nd par.).

b.) The right or lien of an innocent mortgagee for value upon the mortgaged property must be respected
and protected, even if the mortgagor obtained his title through fraud. The remedy of the persons prejudiced is to bring
an action for damages against the person who caused the fraud and if the latter is insolvent, an action against the
Treasurer of the Philippines may be filed for the recovery of damages against the Assurance Fund ( Philippine National
Bank vs. Court of Appeals, 187 SCRA 735 [1990])

C. Effect of Mortgage

1. The only right of a mortgagee in case of non-payment of a debt secured by real mortgage would be to foreclose
the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness ( Guanzon vs. Argel, 33
SCRA 474 [1970])

2. The mortgagors default does not operate to vest in the mortgagee the ownership of the encumbered property. His
failure to redeem the property does not automatically vest ownership of the property to the mortgagee which would grant
the latter the right to appropriate the property or dispose of it for such effect is against public policy as enunciated by
Article 2088. (Reyes vs. Sierra, 93 SCRA 472 [1979]).

Adlawan vs. Torres

(233 SCRA 645)

By mortgaging a piece of property, a debtor merely subjects it to a lien but ownership thereof is
not parted with.

D. Extent of Mortgage
General Rule: A mortgage constituted on immovable property is not limited to the property itself but also
extends to all its accessions, improvements, growing fruits and rents or income (see Article 2102) as well as to the
proceeds of insurance should the property be destroyed of the expropriation value of the property should it be

Exception: contrary stipulation

E. Alienation or Assignment of Mortgage

1. Said assignment is valid and assignee may foreclose the mortgage in case of nonpayment of the mortgage
indebtedness. (Santiago vs. Pioneer Savings and Loan Bank, 157 SCRA 100 [1988]).

2. The fact that the mortgagor has transferred the mortgaged property to a third person does not relieve him from
his obligation to pay the debt to the mortgage creditor in the absence of novation ( McCallough & Co. vs. Sierra, 41 Phil. 1

3. The mortgage credit being a real right which follows the property, the creditor may demand from any possessor
the payment of the credit secured by said property. It is necessary, however, that prior demand for payment must have
been made on the debtor and the latter failed to pay. ( Bank of the Phil. Island vs. Concepcion & Hijos, Inc., 53 Phil. 906

4. An assignee cannot acquire greater rights than those pertaining to an assignor ( Koa vs. Court of Appeals, 219
SCRA 541).
F. Stipulation Forbidding Alienation of Mortgaged Property

1. Such a stipulation is void. However, if the mortgagor alienates the property, the transferee is bound to respect
the encumbrance because being a real right, the property remains subject to the fulfillment of the obligation for whose
guaranty it was constituted (Article 2126).

G. Foreclosure of Mortgages

1. Judicial foreclosure governed by Rule 68 of the Rules of Court.

2. Extrajudicial Foreclosure governed by Act. No. 3135 as amended, if and when the mortgagee is given a specific
power or express authority to do so.

a. Public auction must be conducted in the province where the property is situated.

b. Posting of notice of sale in at least 3 public places therein

c. Publication in a newspaper of general circulation

d. Personal notice to mortgagor is not required ( Bonnevie vs. Court of Appeals , 125 SCRA 122 [1983]; GSIS
vs. Court of Appeals, 170 SCRA 533 [1989]).

e. Debtor has the right to redeem the property sold within the term of one year from and after the date of
the sale (Section 6). The reckoning date in case of registered land is from the registration of the
certificate of sale since it is only from such date that the sale takes effect as a conveyance. (Jose vs.
Blue, 42 SCRA 351, [1971]; Gorospe vs. Santos, 69 SCRA 191 [1976]; General vs. Barrameda, 60 SCRA
162 [1976]. Every conveyance of lands acquired under the free patent or homestead provisions, when
proper, shall be subject to repurchase by the applicant, his widow or legal heirs, within a period of five
years from the date of the conveyance. (Section 119, C.A. No. 141 [Public Land Law], as amended) or
foreclosure sale (Tupas vs. Damasco, 132 SCRA 593 [1984]).

Note: Cerna vs. CA (220 SCRA 517): The filing of a collection suit bars the foreclosure of mortgage.

H. Right of Mortgagee to Recover Deficiency

1. If there be a balance due to the mortgagee after applying the proceeds of the sale, the mortgagee is entitled to
recover the deficiency. (Development Bank of the Philippines vs. Mirang, 66 SCRA 141 [1975]. In judicial foreclosure,
the Rules of Court specifically gives the mortgagee the right to claim for deficiency in case a deficiency exists (Section 6,
Rule 70). While Act No. 3135 governing extrajudicial foreclosures of mortgage does not give a mortgagee the right to
recover deficiency after the public auction sale, neither does it expressly or impliedly prohibit such recovery.
Note: This right to recover deficiency had been categorically resolved in State Investment vs. Court of Appeals (217
SCRA 32 [1993]). Ergo, the mortgagee is entitled to recover the deficiency in case the sale proceeds are not sufficient to
cover the debt in extrajudicial foreclosures.

2. The action to recover a deficiency after foreclosures prescribes after ten (10) years from the time the right of
action accrues as provided in Article 1144(2) of the Civil Code (Development Bank of the Philippines vs. Tomeldan, 101
SCRA 171 [1980].

I. Waiver of Security by Creditor

1. The mortgagee may waive the right to foreclose his mortgage and maintain a personal action for recovery of the
indebtedness. There is no statutory provision in our jurisdiction prohibiting a personal action to recover a sum of money
even though a mortgage has been given as security for the payment of the same. (Hijos de I. de la Rama vs. Sajo , 45
Phil. 703 [1924]; Solomon and Lachica vs. Dantes, 63 Phil. 522 [1937]).

2. The mortgagee cannot have both remedies. He has only one cause of action, i. e., non-payment of the mortgage
debt; hence, he cannot split up his cause of action by filing a complaint for payment of the debt and another complaint
for foreclosure. (Caltex Phils. Vs. Intermediate Appellate Court, 176 SRCA 741 [1989]).

J. Kinds of Redemption

1. Equity of redemption or the right of the mortgagor to redeem the mortgaged property after his default in the
performance of the conditions of the mortgagee but before the sale of the mortgaged property or confirmation of the sale
(see Top-Rate International Services, Inc. vs. Intermediate Appellate Court , 142 SRCA 467 [1986]). The mortgagors
equity of redemption is simply the right of the mortgagor to extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90-day period after the judgment becomes final, in accordance with
Section 2, Rule 68 of the Rules of Court or even after the foreclosure sale but prior to its confirmation. ( Limpin vs.
Intermediate Appellate Court, 166 SCRA 87 [1988]).

2. Right of redemption or the right of the mortgagor to redeem the mortgaged property within a certain period(1
yr) after it was sold for the satisfaction of the mortgaged debt.

K. Right of Redemption

1. In all cases of extrajudicial sale, the mortgagor may redeem the property at any time within the term of one year
from and after the date of registration of the sale (see Section 6, Act No. 3135; Reyes vs. Tolentino 42 SCRA 365

2. In judicial foreclosure of real estate mortgage, there is a right of redemption which he can exercise at any time
after service of judgment of foreclosure and within the 90-day period and even thereafter provided he does so before the
foreclosure sale is confirmed by the court. (Anderson vs. Reyes, 54 Phil 944). Confirmation of the sale of mortgaged real
property cuts off all the rights or interests of the mortgagor and of the mortgage and persons holding under him, and
with them the equity of redemption in the property and vests them in the purchaser. Confirmation retroacts to the date
of the sale. It is a final order, not interlocutory. ( Ocampo vs. Domalanta, 20 SRCA 1136 [1967]; Binalbagan Estate, Inc.
vs. Gatuslao, 76 Phil. 128 [1946]; Villar vs. Javier, 97 Phil 604 [1955]; Lonzome vs. Amores, 134 SCRA 380 [1985].

Exception: However, if the property has been mortgaged in favor of the DBP (CA 459) Philippine National Bank (RA
1300), banks, banking and credit institutions (RA 337, or the General Banking Act) or rural banks (RA
2670), redemption is allowed within one year from the registration of the sale. ( Conzales vs. Phil.
National Bank, 48 Phil. 824 [1926]). The redemption must be made within one year after the sale if the
mortgagee is a bank, banking or credit institution (Section 78, R. A. No. 337; Piano vs. Cayanog, supra).
Under the Revised charter of the PNB, the period is one year from the registration of the foreclosure sale.

L. Requisites for Valid Redemption

1. The redemption must be made within 12 months from the time of the registration of the sale.
2. Payment of the purchase price of the property plus 1% interest per month together with the taxes thereon, if
any, paid by the purchaser with the same rate of interest computed from the date of registration of the sale; and

3. Written notice of the redemption must be served on the officer who made the sale and a duplicate filed with the
proper Register of Deeds. (Rosales vs. Yboa, 120 SCRA 869 [1983]).

Ramirez vs. Court of Appeals

(219 SCRA 598)
Acceptance of redemption price after the expiration of the statutory period for redemption is
deemed a waiver of the one-year period to redeem foreclosed property.

M. Recent Jurisprudence on Real Mortgages

Noel vs. Court of Appeals

(240 SCRA 78)

In the absence of proof of gross inadequacy of the price, the fact that the sale was made with
what might appear as an inadequate consideration does not make the contract one of mortgage.

Mercado vs. Court of Appeals

(240 SCRA 616)

A co-owner does not lose his part ownership of a co-owned property where his share is
mortgaged by another co-owner without the formers knowledge and consent.

Tarnate vs. Court of Appeals

(241 SCRA 254)

It is a settled rule that a mortgagee may recover any deficiency in the mortgage account
which is not realized in a foreclosure sale and that the action for recovery of that deficiency may be filed
even during the redemption period.

Olea vs. Court of Appeals

(247 SCRA 274)

a.) A stipulation that the ownership of the property would automatically pass to the vendee in case
no redemption is effected within a stipulated period is void for being a pactum commissorium
which enables the mortgagee to acquire ownership of the mortgaged property without need of

b.) Where in a contract of sale with pacto de retro, the vendor remains in physical possession of the
land sold as lessee or otherwise, the contract should be considered an equitable mortgage.

c.) Where the contract contains a stipulation that upon payment by the vendor of the purchase price
within a certain period the document shall become null and void and have no legal force and
effect, the purported sale should be considered a mortgage contract.

d.) In case of doubt, a contract purporting to be sale with the right of purchase shall be considered
an equitable mortgage.

e.) A mortgage action prescribes after 10 years.

DBP vs. Court of Appeals

(249 SCRA 331)

The fact that the annulment of the sale will also result in the invalidity of the mortgage does not
have an effect on the validity and efficacy of the principal obligation, for even an obligation that is
unsupported by any security of the debtor may also be enforced by means of an ordinary action. Where
a mortgaged is not valid, as where it is executed by one who is not the owner of the property, or the
consideration of the contract is simulated or false, the principal obligation which it guaranteed is not
thereby rendered null and void. That obligation matures and becomes demandable in accordance with
the stipulations pertaining to it.

Gabonseng vs. Court of Appeals

(246 SCRA 472)

The application for foreclosure of mortgage is premature where the debtors have not yet
defaulted on the payment of either the principal or the interest on their loans.

Ajax Marketing & Development

Corporation Vs. Court of Appeals
(248 SCRA 222)
An action to foreclose a mortgage is usually limited to the amount mentioned in the mortgage
but where the intent of the contracting parties is manifest that the mortgaged property shall also answer
for future loans or advancements then the same in not improper as it is valid and binding between the

Filinvest Credit Corporation

Vs. Court of Appeals
(248 SCRA 549)

a.) If the mortgagee cannot obtain possession of a mortgaged property for its sale on foreclosure, it
must bring a civil action either to recover such possession as a preliminary step to the sale or to
obtain judicial foreclosure.

b.) Replevin is the appropriate action to recover possession preliminary to the extrajudicial
foreclosure of a chattel mortgage.

Philippine Bank of Communications

Vs. Court of Appeals
(253 SCRA 241)

Issue: The mortgage contract provides:

This mortgage is given as security for the payment to the MORTGAGEE on demand or at maturity, as the
case may be, of all promissory notes, letters of credit, trust receipts, bills of exchange, drafts, overdrafts
and all other obligations of every kind already incurred or which hereafter may be incurred .

Can the bank charge penalty based on said provision?

1. The obligation in this case was not a series of indeterminate sums incurred over a period of time,
but two specific amounts procured in a single instance. Thus, the inapplicability of the ruling in Lim
Julian vs. Lutero (49 Phil. 703) which pertains only to mortgages securing future advancements. Instead,
what applies here is the general rule that an action to foreclose a mortgage must be limited to the
amount mentioned in the mortgage.

2. The mortgage provision relied upon by the petitioner is known in American Jurisprudence as a
dragnet clause, which is specifically phrased to subsume all debts of past or future origin. Such
clauses are carefully scrutinized and strictly construed.

3. The mortgage contract is also one of adhesion as it was prepared solely by the petitioner and the
only participation of the other party was the affixing of his signature or adhesion thereto. Being a
contract of adhesion, the mortgage is to be strictly construed against the petitioner, the party which
prepared the agreement.

4. A reading, not only of the earlier quoted provision, but of the entire mortgage contract yields no
mention of penalty charges. Construing this silence strictly against the petitioner, it can fairly be
concluded that the petitioner did not intend to include the penalties on the promissory notes in the
secured amount. This explains the finding by the trial court, as affirmed by the Court of Appeals, the
penalties and charges are not due for want of stipulation in the mortgage contract.

5. Indeed, a mortgage must sufficiently describe the debt sought to be secured, which description
must not be such as to mislead or deceive, and an obligation is not secured by a mortgage unless it
comes fairly within the terms of the mortgage. In this case, the mortgage contract provides that it
secures notes and other evidences of indebtedness. Under the rule of ejusdem generis, where a
description of things of a particular class or kind is accompanied by words of a generic character, the
generic words will usually be limited to things of a kindred nature with those particularly enumerated.
A penalty charge does not belong to the species of obligations enumerated in the mortgage, hence, the
said contract cannot be understood to secure the penalty.

6. A mortgage and a note secured by it are deemed parts of one transaction and are construed
together, thus, an ambiguity is created when the notes provide for the payment of a penalty but the
mortgage contract does not Construing the ambiguity against the petitioner, it follows that no penalty
was intended to be covered by the mortgage.

DBP vs. Court of Appeals

(253 SCRA 414)
Issue: Whether the land in dispute could have been validly mortgaged while still the subject of a Free
Patent Application with the government.

1. Petitioner bank did not acquire valid title over the land in dispute because it was public land when
mortgaged to the bank. We cannot accept petitioners contention that the lot in dispute was no longer
public land when mortgaged to it since the Olidiana spouses had been in open, continuous, adverse and
public possession thereof for more than thirty (30) years. In Visayan Realty, Inc. vs. Meer (86 Phil. 515),
we ruled that the approval of a sales application merely authorized the applicant to take possession of
the land so that he could comply with the requirements prescribed by law before a final patent could be
issued in his favor. Meanwhile the government still remained the owner thereof, as in fact the application
could still be canceled and the land awarded to another applicant should it be shown that the legal
requirements had not been complied with. What divests the government of title to the land is the
issuance of the sales patent and its subsequent registration with the Register of Deeds. It is the
registration and issuance of the certificate of title that segregate public lands from the mass of public
domain and convert it into private property. Since the disputed lot in the case before us was still the
subject of a Free Patent Application when mortgaged to petitioner and no patent was granted to the
Olidiana spouses, Lot No. 2029 (Pls-61) remained part of the public domain.

2. With regard to the validity of the mortgage contracts entered into by the parties, Art. 2085, par.
2 of the New Civil Code specifically requires that the pledgor or mortgagor be the absolute owner of the
thing pledged or mortgaged. Thus, since the disputed property was not owned by the Olidiana spouses
when they mortgaged it to petitioner, the contracts of mortgage and all their subsequent legal
consequences as regards Lot No. 2029 (Pls-61) are null and void. In a much earlier case ( Vda. De
Bautista vs. Marcos, 3 SCRA 434), we held that it was an essential requisite for the validity of a mortgage
that the mortgagor be the absolute owner of a property mortgaged , and it appearing that the mortgage
was constituted before the issuance of the patent to the mortgagor, the mortgage in question must of
necessity be void and ineffective. For the law explicitly requires an imperative for the validity of a
mortgage that the mortgagor be the absolute owner of what is mortgaged.

State Investment House, Inc.

vs. Court of Appeals
(254 SCRA 368)

1. STATEs registered mortgage right over the property is inferior to that of respondent-spouses
unregistered right. The unrecorded sale between respondents-spouses and SOLID is preferred for the
reason that if the original owner (SOLID, in this case) had parted with his ownership of the thing sold
then he no longer had ownership and free disposal of that thing so as to be able to mortgage it again.
Registration of the mortgage is of no moment since it is understood to be without prejudice to the better
right of third parties.

2. As a general rule, where there is nothing in the certificate of title to indicate any cloud or vice in
the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore
further than what the Torrens Title upon its face indicates in quest for any hidden defect or inchoate right
that may subsequently defeat his right thereto. This rule, however, admits of an exception as where the
purchaser or mortgagee has knowledge of a defect or lack of title in his vendor, or that he was aware of
sufficient facts to induce a reasonably prudent man to inquire into the status of the title of the property in
litigation. In this case, petitioner was well aware that it was dealing with SOLID, a business entity
engaged in the business of selling subdivision lots. In fact, the OAALA found that at the time the lot was
mortgaged, respondent State Investment House, Inc., (now petitioner) has been aware of the lots
location and that said lot formed part of Capital Parks/Homes Subdivision. In Sunshine Finance and
Investment Corp. vs. Intermediate Appellate Court (203 SCRA 210), the Court, noting petitioner therein
to be a financing corporation, deviated from the general rule that a purchaser or mortgagee of a land is
not required to look further than what appears on the face of the Torrens Title.

3. The above-enunciated rule should apply in this case as petitioner admits of being a financing
institution. We take judicial notice of the uniform practice of financing institutions to investigate, examine
and assess the real property offered as security for any loan application especially where, as in this case,
the subject property is a subdivision lot located at Quezon City, M. M. It is a settled rule that a purchaser
or mortgagee cannot close its eyes to facts which should put a reasonable man upon his guard, and then
claim that he acted in good faith under the belief that there was no defect in the title of the vendor or
mortgagor. Petitioners constructive knowledge of the defect in the title of the subject property, or lack
of such knowledge due to its negligence, takes the place of registration of the rights of respondents
spouses. Respondent court thus correctly ruled that petitioner was not a purchaser or mortgagee in good
faith hence, petitioner can not solely rely on what merely appears on the face of the Torrens Title.

1. Definition

Antichresis is a contract whereby the creditor acquires the right to receive the fruits of an immovable of his
debtor, with the obligation to apply them to the payment of the interest, if owing and thereafter to the principal of his

B. Characteristics

1. It is an accessory contract because it secures the performance of a principal obligation.

2. It is a formal contract because the amount of the principal and of the interest must both be in writing, otherwise
the contract of antichresis is void.

1. Delivery of the property to the creditor is required only in order that the creditor may receive the fruits and not
for the validity of the contract.

2. It is not essential that the loan should earn interest in order that it can be guaranteed with a contract of
antichresis. Antichresis is susceptible of guaranteeing all kinds of obligations, pure or conditional. (Javier vs. Valliser,
(CA) N. 2648-R, April 29, 1950; Sta. Rosa vs. Noble, 35 O.G. 27241).

3. The fruits of the immovable which is the object of the antichresis must be appraised at their actual market value
at the time of the application. (see Article 2138)

4. The property delivered stands as a security for the payment of the obligation of the debtor in antichresis. Hence,
the debtor cannot demand its return until the debt is totally paid.

5. A stipulation authorizing the antichretic creditor to appropriate the property upon the non-payment of the debt
within the period agreed upon is void. (see Article 2038).

C. Distinctions between Antichresis and Pledge

Antichresis Pledge

1. Refers to real property 1. Refers to personal property

2. Perfected by mere consent 2. Perfected by delivery

3. Consensual contract 3. Real contract

D. Distinctions between Antichresis and Real Mortgage

Antichresis Real Mortgage

1. Property is delivered to the 1. Debtor usually retains the possession

creditor of the property

2. Creditor requires only the right to 2. Creditor does not have any right to
receive the fruits of the property; receive the fruits, but mortgage
hence it does not produce a real creates a real right over the property
right which is enforceable against the
whole world

3. Creditor, unless there is stipulation 3. Creditor has no such obligation

to the contrary, is obliged to pay
the taxes and charges upon the
estate (Article 2135)

4. Creditor given possession of the 4. Mortgagee has no such obligation

property shall supply the fruits
thereof to the payment of interest,
if owing, and thereafter to the
principal of the credit
E. Obligations of Antichretic Creditor

1. The creditor is obliged, unless there is a stipulation to the contrary, to pay the taxes and charges upon the estate.
If he does not pay the taxes, he is, by law (Article 1170), required to pay indemnity for damages to the debtor. ( Pando
vs. Gimenez, 54 Phil. 459 [1930]).

2. Another obligation of the creditor is to apply the fruits, after receiving them to the interest, if owing, and
thereafter to the principal (Article 2132) in accordance with the provisions of Article 2133 or 2138. Hence, the duty of the
creditor to render an account of said fruits to the debtor and the corresponding right of the latter that the said fruits be
applied to the debt. (Barretto vs. Barretto, 37 Phil. 234 [1917]; Diaz and Rubillos vs. De Mendezona, 48 Phil. 666 [1926];
Macapilac vs. Gutierrez Recipe 43 Phil. 770 [1922]).

F. Remedy of Creditor in Case of Default

1. To bring an action for specific performance

2. To petition for the sale of the real property as in a foreclosure of mortgages under Rule 68 of the Rules of Court.
The parties, however, may agree on an extrajudicial foreclosure in the same manner as they are allowed in contracts of
mortgage and pledge (see Article 1307; Tavera vs. El Hogar Filipino, Inc. 68 Phil. 712 [1939]).


A. Definition

A chattel mortgage is

1. an accessory contract because it is for the purpose of securing the performance of a principal obligation;

2. a formal contract because for its validity, registration in the Chattel Mortgage Register is indispensable.

3. a unilateral contract because it produces only obligations on the part of the creditor to free the thing from the
encumbrance upon fulfillment of the obligation.

Filipinas Marble Corporation vs.

Intermediate Appellate Court
(142 SCRA 180)

A mortgage is a mere accessory contract and thus, its validity would depend on the validity of the
loan secured by it. We however, reject the petitioners argument that since the chattel mortgage
involved was not registered, the same is null and void. Article 2125 of the Civil Code clearly provides that
the non-registration of the mortgage does not affect the immediate parties. It states:

Article 2125. In addition to the requisites in Article 2085, it is indispensable, in order that a mortgage
may be validly constituted that the document in which it appears be recorded in the Registry of Property.
If the instrument is not recorded, the mortgage is nevertheless binding between the parties .
xxx xxx xxx
The petitioner cannot invoke the above provision to nullify the chattel mortgage it executed in
favor of respondent DBP.

C. Distinction between Chattel Mortgage and Pledge

Chattel Mortgage Pledge

1 Delivery of personal property to the 1 Delivery is necessary

mortgagee is not necessary

2 Registration in the Chattel Mortgage 2 Registration in the Registry of

Register is necessary for its validity Property is not necessary for its

3 Procedure for sale of the mortgaged 3 Procedure for sale of pledged thing is
property is found in Section 14 of RA found in Article 2112 of the Civil Code
1508, as amended

4 If property is foreclosed, the excess 4 If property is sold, the debtor is not

over the amount due goes to the entitled to the excess
debtor Exceptions:
a.) contrary stipulation
(Article 2125)
b.) legal pledge (Article 2121)

5 If property is foreclosed, creditor is 5 If property is sold, creditor is not entitled

entitled to recover the deficiency from to recover the deficiency notwithstanding
the debtor any stipulation to the contrary (Article
Exception: if chattel mortgage is a 2115).
security for the purchase of personal
property in installments (Article 1484)

D. Offenses Involving Chattel Mortgage

1. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law to any province
or city other than the one in which it was located at the time of the execution of the mortgage without the
written consent of the mortgagee; and

2. Selling or pledging personal property already mortgaged, or any part thereof, under the terms of the
Chattel Mortgage Law without the consent of the mortgagee written on the bank of the mortgage and duly
recorded in the Chattel Mortgage Register (Article 319, Revised Penal Code).
Note: The mortgagor is not relieved of criminal liability even if the mortgage indebtedness is thereafter
paid in full (U.S. vs. Kilayko, 32 Phil. 61 [1915]), or the mortgagor-seller informed the purchaser that the thing
sold had been mortgaged. (People vs. Alvares, 45 Phil. 472 [1923]). But the sale is valid although no written
consent was obtained from the mortgagee but the mortgagor lays himself open to criminal prosecution.
(Servicewide Specialists, Inc. vs. Intermediate Appellate Court, 174 SCRA 80 [1989]; Dy, Jr. vs. Court of Appeals ,
198 SCRA 826 [1981]).

E. Subject Matter of Chattel Mortgage

1. Shares of stock in a corporation

2. Interest in business
3. Machinery and house of mixed materials treated by parties as personal property and no innocent
third person will be prejudiced thereby (Makati Leasing and Finance Corporation vs. Weaver
Textile Mills, Inc., 122 SCRA 296 [1983].
4. Vessels, the mortgage of which have been recorded with the Philippine Coast Guard in order to
be effective as to third persons
5. Motor vehicles, the mortgage of which had been registered both with the Land Transportation
Commission and the Chattel Mortgage Registry in order to affect third persons
6. House which is intended to be demolished
7. Growing crops and large cattle (section 7, paragraphs 2 and 3, Act No. 1508)

Note: Section 7 of the Chattel Mortgage Law does not demand a minute and specific description of
every chattel mortgaged in the deed of mortgage, but only requires that the description of the mortgaged
property be such as to enable the parties to the mortgage or any other person to identify the same after a
reasonable investigation and inquiry ( Saldana vs. Phil. Guaranty Co., Inc ., 106 Phil. 919 [1960]); otherwise, the
mortgage is invalid.

F. Creation of Chattel Mortgage

1. The law as it now stands provides for only one way for executing a valid chattel mortgage, i.e., the
registration of the personal property in the Chattel Mortgage Register as security for the performance of an
obligation. (Article 2140; see Article 2085). Under the Chattel Mortgage Law, if the property as situated in a
different province from that in which the mortgagor resides, the registration must be in both registers (Section 4,
Act No. 1508); otherwise, the chattel mortgage is void.

2. It has been ruled however that if the chattel mortgage is not recorded, it is nevertheless binding
between the parties. (Filipinas Marble Corporation vs. Intermediate Appellate Court , 142 SCRA 180 [1986];
Article 2125).

G. Effect of Registration

The registration of the chattel mortgage is an effective and binding notice to other creditors of its
existence and creates a real right or a lien which being recorded follows the chattel wherever it goes. The
registration gives the mortgagee the symbolical possession. (Northern Motors, Inc. vs. Coquia, 68 SCRA 374

H. Registration of Assignment and Mortgage Optional

1. There is no law expressly requiring the recording of the assignment of a mortgage. While such
assignment may be recorded, the law is permissive and not mandatory.

2. The assignee is subrogated to the rights and obligations of the assignor-mortgagee with respect to the
chattel mortgage constituted in favor of the latter. Consequently, the assignee is bound by the terms and
conditions of the chattel mortgage executed between the mortgagor and the mortgagee. ( BA Finance
Corporation vs. Court of Appeals, 201 SCRA 157 [1991]).

I. Affidavit of Good Faith

1. The affidavit of good faith is an oath in a contract of chattel mortgage wherein the parties severally
swear that the mortgage is made for the purpose of securing the obligation specified in the conditions thereof
and for no other purpose and that the same is just and valid obligation and one not entered into for the purpose
of fraud.

2. Under Section 5 of the Chattel Mortgage Law, in describing what shall be deemed sufficient to constitute
a good chattel mortgage, includes the requirement of an affidavit of good faith appended to the mortgage and
recorded therewith. But the absence of the affidavit vitiates a mortgage only as against third persons without
notice like creditors and subsequent encumbrances . (Lilius vs. Manila Railroad Co., 62 Phil. 50 [1935]; Phil.
Refining Co. vs. Jarque, 61 Phil. 229 [1935]; Giberson vs. A. N. Jurreidini Bros., 44 Phil. 216 [1922]).

3. A deed of chattel mortgage is void where it provides that the security stated therein is for the payment
of any and all obligations hereinbefore contracted and which may hereafter be contracted by the mortgagor in
favor of the mortgagee. A mortgage that contains a stipulation in regard to future advances in the credit will
take effect only from the date the same are made and not from the date of the mortgage. (Jaca vs. Davao
Lumber Co., 113 SCRA 107 [1982]).

J. Foreclosure of Chattel Mortgage

1. Public Sale if the mortgagor defaults in the payment of the secured debt or otherwise fails to comply
with the conditions of the mortgage, the creditor has no right to appropriate to himself the personal property
(Article 2141, 2088) because he is permitted only to recover his credit from the proceeds of the sale of the
property at public auction through a public officer in the manner prescribed in Section 14 of Act No. 1508.
(Mahoney vs. Tuason, 39 Phil. 951 [1919]); Esguerra vs. Court of Appeals, 173 SCRA 1 [1989]).

2. Private Sale if there is an express stipulation in the contract.

Exception: fraud or duress

1. The mortgagee may, after thirty (30) days from the time of the condition broken, cause the mortgaged
property to be sold at public auction by a public officer (Section 14, Act No. 1508)

2. The 30-day period to foreclose a chattel mortgage is the minimum period after violation of the mortgage
condition for the mortgage creditor with at least ten (10) days notice to the mortgagor and posting of public
notice of time, place and purpose of such sale, and is a period of grace for the mortgagor, to discharge the
mortgage obligation. After the sale of the chattel at public auction, the right of redemption is no longer available
to the mortgagor. (Cabral vs. Evangelista, 28 SCRA 1000 [1969])
K. Right of Mortgagee to Recover Deficiency

1. The creditor may maintain an action for the deficiency although the Chattel Mortgage Law is silent on this
point (Ablaza vs. Ignacio, (unrep) 103 Phil. 1151 [1958]; Garrido vs. Tuason, 24 SCRA 727 [1968] Phil. National
Bank vs. Manila Investment & Construction, Inc., supra; Bank of the Philippine Isalnd vs. Olutanga Lumber Co .,
47 Phil. 20 [1924]). The action may be sought within ten (10) years from the time the cause of action accrues.

2. If the chattel mortgage is constituted, whether by the debtor-vendee or a third person, as security for the
purchase of personal property payable in installments, no deficiency judgment can be asked and any agreement
to the contrary shall be void (Article 1484).

3. The chattel mortgagee is entitled to deficiency judgment in an action for specific performance (Article
1484 [1]) where the mortgaged property is subsequently attached and sold. The execution sale in such case is
not a foreclosure sale. (Industrial Finance Corporation vs. Ramirez, 77 SCRA 152 [1977]).