CREDIT TRANSACTION 
Transcriptions 
Atty. Joseph San Pedro 
Special Class E 2019 
*Updated by Block 2E 2022 
 
 
 
 
 
 
 
 September 10, 2019 
Contract of mortgage: 
● Mortgagor (absolute owner) and mortgagee   Based on the case of Vitug, it is valid. It may be invalidated at the instance of X, the 
● Consent  one who imposed the restriction and who can invoke the cancellation of the sale. 
● Cause  The court said mortgage is voidable. There will be a resolution of the sale based on 
  substantial breach. Therefore, cancelling ownership of mortgagor and there will be 
Absolute ownership  nothing to mortgage.Mortgagee did not participate in the transaction so it is 
● Combination in one person of legal title and beneficial ownership  annotated in the title. Annotation binds the mortgagee. 
   
Legal title is issued in name of mortgager w/o any qualification   Case#1 questions 
   
Example:  Do you have a valid mortgage? Because? 
  ● You have to reckon at the time of the mortgage whether the mortgagor was 
If title is issued with mortgager as a mere trustee for minor children, mortgagor is  absolute owner. So it does not matter if there was a disposition subsequent 
not absolute owner  the mortgage. What's material is absolute ownership as of the date of the 
  constitution of the mortgage. In this case, the contract of sale and deed of 
Agent is not mortgager because s/he is not absolute owner  sale were all done subsequent to the mortgage.  
 
  Dulos realty is developed in a subdivision project. Did the court say anything 
Authority of mortgagor   about that? Is that material?  
● Free disposal of property   
  Remember Dulos is a real estate developer. It developed a subdivision and sold 
lots but at the same time prior to the sale, they mortgaged the lots. Assuming 
Example:  those were the facts, Would the mortgage be invalid? Under what 
  circumstances? Was that discussed in the case? 
Mortgagor has a case against him. An injunction was issued against him against any  ● If you're a real estate developer, you're selling real estate lots in developed 
encumbrance of property. The mortgagor cannot do the mortgage because there is  subdivisions. You can mortgage the lots only with prior approval of the 
no free disposal.   HLURB. Without the approval, it will be void. Even if approved, there is a 
  mandate under pv 957 for the developer to release the lots from the 
Registration  mortgage as soon as buyers pay the price.  
● Not a requirement for validity of the mortgage   
● Necessary to make mortgage binding and enforceable against 3rd parties  As long as mortgagor is absolute owner at time of constitution of mortgage, that's 
  enough 
If there is no registration, it is only binding between the parties and there may be   
foreclosure of mortgage notwithstanding mortgage is in private instrument  Law states that mortgager shall always have the right to dispose the contrary and 
  agreement to the contrary shall be void 
 
Example  Case#2 
   
X sold property to mortgagor. Sale contained a restriction annotated on the title of  What's lis pendens? How do you do it? 
property. The restriction prohibited a mortgage within a certain period. Mortgage  ● So you have a transfer certificate of title, at the back there will be an 
was done within prohibited period. Is the mortgage Valid?  annotation of mortgage. There will be entries. The lis pendens will mention 
  the particulars of the case and make the property subject to the resolution of 
 the case. Whatever will be the decision will bind the property, that's the  agreed that the guarantee will only be verbal. Does the lender have full benefit of 
purpose of lis pendens. Whoever will deal with the property will be bound to  the guarantee? 
the decision of the court.  ● No. Because the guaranty is deficient, not in writing. Assuming the validity 
  and enforceability of the guaranty , we will assume it's valid and enforceable. 
What happened to the case?   
● X won and is now entitled to get the property back. The bank was claiming  Guarantor agreed to pay the lender the entire loan obligation immediately and 
good faith. The court made the distinction. The mortgagee was in good faith.  unconditionally. In case the borrower fails to pay, the loan is secured by a 
At the time of the mortgage, the mortgagee relied on the title of the absolute  mortgage. On due date, despite demand of lender, borrower did not pay the 
owner however there was a subsequent lis pendens which assailed the  loan so lender sued guarantor to collect payment. Can guarantor invoke 
ownership of the mortgager therefore stripped the mortgager of ownership.  discussion? 
So when mortgagor bought property subject of lis pendens, he was bound by  ● No. Because the guarantor is a surety. Because of the term immediately and 
the resolution of the case. Normally, foreclosure of mortgage will clear the  unconditionally, that's the key word.  
property of any subsequent incumbrance but not in this case because the   
very case challenges the ownership of the mortgagor.   This is an exercise of remedy. A guarantor asks for a discharge because the 
  debtor was insolvent. The debtor consented to the discharge in writing. Can the 
  creditor collect from guarantor ? 
The mortgagee was in good faith because title was clean at the time of mortgage  ● Yes because the creditor did not consent to the discharge of the guarantor. 
however was not a purchaser in good faith because it was aware at the purchase of the`   
pending litigation involving the property.    
  Guarantor 1 paid the debtor's obligation to creditors. Can guarantor collect 
In this case, the mortgagee was a bank. Is it enough that the bank relies on the  reimbursement of half of the payment from guarantor 2? 
title to be a mortgagee in good faith?  ● Yes. Because guarantor 1 paid knowing that debtor is practically insolvent. 
● General rule, you have a right to rely on the title as mortgagee and you will   
be considered a mortgagee in good faith but if the mortgagee is a bank, the  In purchase of the ring, Frodo purchased from Hans a ring worth Php120,000. 
law requires the bank to exercise a greater degree of diligence. It's not  Payable to an equal monthly instalment. After the first instalment, Frodo 
enough to do a title check, meaning you go to the register of deeds, get a  defaulted. Hans can collect interest? 
certified true copy of the title and you check if there are other incumbrance.  ● Yes at the rate of 6% per annum because it is an obligation based on a sale. 
The bank should do something more like do an ocular inspection to check if  It's interest by way of damages 
there are other claimants on the property. The underlying reason is that it's in   
the business, it's supposed to go the extra mile.   Assume that in the persisting number that the court awarded Hans the amount 
  due. Frodo did not pay immediately award after the judge made it executory(?) 
Problems:  Is Frodo liable to pay interest? 
  ● Yes at 6% because it is now a forbearance of money(?) 
On June 1, lender agreed to lend 1m to borrower with interest rate of 5% per   
annum. The loan will be payable after 1 year. Contract was signed on June 1 and  Peter borrowed 100,000 from Bryan. On due date, Peter tendered(?) Php100,000 
loan released on June 15. Is there a perfected loan contract between lender?  broken down as follows, including Php15,000 in 5 peso coins. Does Bryan have 
● Yes. June 15 is the release of the loan and June 1 was the signing of the  legal basis to do so? Bryan refused 
contract. Borrower must pay interest? No because the contract was not in  ● Yes. Payment is not legal tender. 
writing. How about the principal? yes. because there's no formal requirement   
for a loan.   In the use of cars by way of Commodatum, a palm tree fell on the car while the 
  borrower was using it. Who shall bear the cost? Can borrower refuse? 
Guarantor agreed to the loan obligation of borrower. Guarantor wants to keep  ● No because he was using the car when damaged. 
the obligation confidential and did not want any documentation. So the parties   
Can loan agreement contains the following provision: Borrower shall pay 
interest compounded monthly, lender shall have a right to adjust interest rate 
every 90 days based on changes in the following. Is provision valid? 
● No. Violates the mutually of contract. 
 
Farmer borrowed 500kilos of corn. He agreed to return the same amount quality 
of corn. After 1 year, farmers could not source the corn from a local importer. Is 
farmer opted to pay the value to corn owner(?) Can farmers do so over the 
objection of the owner? 
● No. Because farmer will violate the rule of identity of payment. It's not 
totally impossibility, farmer cannot source from a local importer. It can 
source somewhere else. 
 
This is the replacement of a guarantor. Is oscar entitled to a replacement? 
● No because Paul is yet to be convicted by the trial court. There is no 
conviction yet.