CREDIT TRANSACTIONS –TITLE XVI - Pledge, Mortgage and Antichresis CHAPTER 2
Mortgage
Article 2124. Only the following property may be the
object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws,
imposed upon immovables.
Nevertheless, movables may be the object of a chattel
mortgage.
Definition of mortgage.
Mortgage (otherwise known as “real estate mortgage”
or “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 which obligation shall be satisfied with the
proceeds of the sale of said property or rights in case
the said obligation is not complied with at the time
stipulated.
Characteristics of mortgage.
It is a real, accessory, and subsidiary contract. 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.
Kinds of mortgage.
(1) Voluntary. — one which is agreed to between the
parties or constituted by the will of the owner of the
property on which it is created (Art. 138, Spanish
Mortgage Law.); or
(2) Legal. — one required by law to be executed in favor
of certain persons (see Art. 2125, par. 2; Arts. 2082,
2083.); or
(3) Equitable. — one which, although it lacks the proper
formalities or other requisites of a mortgage required
by law, nevertheless reveals the intention of the parties
to burden real property as a security for a debt, and
contains nothing impossible or contrary to law. The
provisions in the Civil Code governing equitable mort-
gages are found in Articles 1365, 1450, 1454, 1602,
1603, 1604, and 1607.
Article 2125. In addition to the requisites stated 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.
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
the mortgage is formalized.
Article 2126. The mortgage directly and immediately
subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the
obligation for whose security it was constituted.
Effect of mortgage.
(1) Creates real right. — Article 2126 means, in other
words, that a registered mortgage creates right in rem,
a real right, a lien inseparable from the property
mortgaged, which is enforceable against the whole
world, affording specific security for the satisfaction of a
debt. The personality of the owner is disregarded.
(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
who does not lose his principal attribute as owner, that
is, the right to dispose. Indeed, the law considers void
any stipulation forbidding the owner from alienating the
immovable mortgaged. (Art. 2130.)
Article 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits, and
the rents or income not yet received when the
obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations,
amplifications and limitations established by law,
whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.
CREDIT TRANSACTIONS –TITLE XVI - Pledge, Mortgage and Antichresis CHAPTER 2
Article 2128. The mortgage credit may be alienated or
assigned to a third person, in whole or in part, with the govern the form, extent, and consequences of a
formalities required by law.
Article 2129. The creditor may claim from a third person
in possession of the mortgaged property, the payment
of the part of the credit secured by the property which
said third person possesses, in the terms and with the
formalities which the law establishes.
EXAMPLE:
A mortgaged his land worth P500,000.00 in favor of B to
secure A’s debt of P600,000.00. A then sold the land to
C.
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
to pay, B may foreclose the mortgage. (see Art. 2131.) B
has the right to claim from C the payment of
P500,000.00 which is part of the credit secured by the
property sold to C.
C is not liable for any deficiency in the absence of a
contrary stipulation. “The spirit of the law is to let the
obligation of the debtor to pay the debt to stand
although the property mortgaged to secure the
payment of said debt may have been transferred to a
third person.” (Ibid.)
The remedy of C is to proceed against A.
Article 2130. A stipulation forbidding the owner from
alienating the immovable mortgaged shall be void.
Article 2131. The form, extent and consequences of a
mortgage, both as to its constitution, modification and
extinguishment, and as to other matters not included in
this Chapter, shall be governed by the provisions of the
Mortgage Law and of the Land Registration Law.
Laws governing mortgage.
As to other matters not included in Chapter 3 of the
Civil Code, the Land Registration Law (Act No. 496, as
amended.) and the Revised Administrative Code, more
particularly Section 194, as amended by Act No. 3344,
mortgage, and also its constitution, modification and
extinguishment.
Meaning of foreclosure (of mortgage).
Foreclosure is the remedy available to the mortgagee by
which he subjects the mortgaged property to the
satisfaction of the obligation to secure which the
mortgage was given. (59 C.J.S. 482.)
It presupposes something more than a mere demand to
surrender possession of the object of the mortgage. It
denotes the procedure adopted by the mortgagee to
terminate the rights of the mortgagor on the property
and includes the sale itself.
Kinds of foreclosure.
Foreclosure may be effected either judicially or
extrajudicially, that is, by ordinary action by the
mortgagee or by foreclosure by the mortgagee under
power of sale contained in the mortgage.
(1) Judicial action for the purpose. — A mortgage may
be fore-closed judicially by bringing an action for that
purpose, in the proper court which has jurisdiction over
the area wherein the real property involved or a portion
thereof, is situated. If there is a balance due to the
mortgagee after applying the proceeds of the sale
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
2115)
Where a third person is a mortgagor, he is not liable for
any deficiency in the absence of a contrary stipulation.
The action for the recovery of such deficiency must be
directed against the debtor.
The proceeds of the sale shall be applied to the
payment of the: (a) costs of the sale, (b) the amount
due the mortgagee, (c) claims of junior encumbrancers
or persons holding subsequent mortgages in the order
of their priority, and(d) the balance if any, shall be paid
to the mortgagor or his duly authorized agent, or to the
person entitled to it.
CREDIT TRANSACTIONS –TITLE XVI - Pledge, Mortgage and Antichresis CHAPTER 2
(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