Module 9 Law 2 Nvsu FR Icd 05 00

Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY

Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No. LAW 2-1STSEM-2021-2022
College : Business Education

Campus: Bayombong, Nueva Vizcaya
DEGREE Bachelor of COURSE NO. LAW 2

PROGRAM Science in
Business
Administration
SPECIALIZATION Finance and COURSE TITLE Law on Sales, Agency, and Credit
Business Transactions
Economics
YEAR LEVEL 3 TIME FRAME 3 WK NO. 17 IM NO. 9
hours
I. UNIT TITLE
Mortgage
II. LESSON TITLE
1. Real Mortgage
2. Chattel Mortgage
III. LESSON OVERVIEW
This module is about the mortgage particularly real and chattel mortgage
IV. DESIRED LEARNING OUTCOMES
1. Describe real mortgage.

2. Discuss chattel mortgage.
V. LESSON CONTENT
1. Real 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, especially 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.
It is a real, accessory, and subsidiary contract. It is also unilateral because it creates an obligation
only on the part of the creditor who must free the property from the encumbrance once the obligation is
fulfilled.
Kinds of Mortgage
a. 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. (Article 138, Spanish Mortgage Law)
b. Legal- One required by law to be executed in favor of certain persons. (see Article 2125, par 2;
Articles 2082, 2083) and
“In accordance with Section 185, Fair Use of Copyrighted Work of Republic Act 8293, the copyrighted works included in this material may be reproduced for educational purposes
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NVSU-FR-ICD-05-00 (081220) Page 80 of 88
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 2082. The bondsman who is to be offered in virtue of a provision of law or of a judicial
order shall have the qualifications prescribed in article 2056 and in special laws.
ARTICLE 2083. If the person bound to give a bond in the cases of the preceding article, should
not be able to do so, a pledge or mortgage considered sufficient to cover his obligation shall
be admitted in lieu thereof.
c. Equitable- One which, although it lacks the proper formalities of a mortgage, shows the intention of
the parties to make the property as a security for a debt.
Causes or consideration in mortgage
As mortgage is an accessory contract, its consideration is that of the principal contract from which
it receives its life, and without which it cannot exist as an independent contract. This is true although the
obligation thereby secured is incurred by a third person (i.e other than the mortgagor) and, therefore, the
mortgage will be valid if the principal obligation is valid, and cannot be avoided on the ground of lack of
consideration.
Being an accessory contract, the validity of a mortgage would depend on the validity of the loan
secured it.
Subject matter of mortgage
The objects of a contract of mortgage are immovables (see Article 415) and alienable real rights
imposed upon immovables. (Article 2124). A real right over real property is real property. (Article
415[10]). Hence, a mortgage on real property is in itself a real property.
The object of pledge and chattel mortgage are movavles. (Articles 2094, 2140).
ARTICLE 415. The following are immovable property:
(1) Land, buildings, roads and constructions of all kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while they are attached to the land or form an integral part
of an immovable;
(3) Everything attached to an immovable in a fixed manner, in such a way that it cannot be
separated therefrom without breaking the material or deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use or ornamentation, placed in buildings or on
lands by the owner of the immovable in such a manner that it reveals the intention to attach them
permanently to the tenements;
(5) Machinery, receptacles, instruments or implements intended by the owner of the tenement for
an industry or works which may be carried on in a building or on a piece of land, and which tend
directly to meet the needs of the said industry or works;
(6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of similar nature, in
case their owner has placed them or preserves them with the intention to have them permanently
attached to the land, and forming a permanent part of it; the animals in these places are included;
(7) Fertilizer actually used on a piece of land;
(8) Mines, quarries, and slag dumps, while the matter thereof forms part of the bed, and waters
either running or stagnant;
(9) Docks and structures which, though floating, are intended by their nature and object to remain
at a fixed place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and other real rights over immovable property.
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.
ARTICLE 2094. All movables which are within commerce may be pledged, provided they are
susceptible of possession.
ARTICLE 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation. If the movable, instead of being
recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel
mortgage.
Right of creditor against transferee of mortgage property
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.
The mortgage credit being a real right which follows the property, the creditor may demand from
any possessor the payment only of the part 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.
Example: Dan mortgaged his land worth P 500,000.00 in favor of Carlo to secure Dan’s debt of
P600,000.00. Dan then sold the land to Xander.
In this case, the obligation of Dan to pay the debt is not affected by the transfer. On the due date
of the obligation, Carlo may demand payment from Dan and if Dan fails to pay, Carlo may forclose the
mortgage. (see Article 2131). Carlo has the right to claim from Xander the payment of P500,000.00 which
is part of the credit secured by the property sold to Xander.
Xander is not responsible for any deficiency of P100,000.00 in the absence of a contrary
stipulation. The remedy of Xander is to proceed against Dan.
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.
Foreclosure of mortgage
Foreclosure is the remedy available to the mortgage by which he subjects the mortgagee by
which he subjects the mortgaged property to the satisfaction of the obligation to secure which the
mortgage was given through the sale of the property at public auction and the application of the proceeds
thereof to the payment of his claim.
It denotes the procedure adopted by the mortgagee to terminante the rights of the mortgagor on
the property and includes the sale itself.
Kinds of foreclosure
a. Judicial foreclosure- A mortgage may be foreclosed judicially by bringing an action for that
purpose in the Regional Trial Court of the province or city where the real property or any part
thereof lies. If there be a balance due to the mortgagee after applying the proceeds of the
sale ordered by the court, the mortgage is entitled to recover the deficiency and if this is
embodied in a judgment, it is referred to as deficiency judgment (see Article 2115).
Where a third person is the 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 persons holding subsequent mortgages in the order
of their priority, and (d) the balance, if any, shall be paid to the mortgagor.
b. 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.
Kinds of Redemption
Redemption may be defined as a transaction by which the mortgagor-owner of mortgaged

property reacquires of buys back the property within a certain period and for a certain amount after his
default or after the foreclosure sale of the property for the satisfaction of the mortgaged debt.
a. Equity of redemption is the right of the mortgagor to redeem the mortgaged property after his
default in the performance of the conditions of the mortgage but before the sale of the mortgaged
property.
b. Right of redemption is the right of the mortgagor to redeem the mortgaged property within a
certain period 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 one (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.
2. Chattel Mortgage
Chattel mortgage is that contract by virtue of which personal property is recorded in the Chattel
Mortgage Register as a security for the performance of an obligation.
a. A chattel mortgage is an accessory contract because it is for the purpose of securing the
performance of a principal obligation.
b. It is a formal contract because for its validity, registration in the Chattel Mortgage Register is
indispensable.
c. It is a unilateral contract because it produces only an obligation on the part of the creditor to
free the thing from the encumbrance on fulfillment of the obligation.
Laws Governing Chattel Mortgages
a. The Chattel Mortgage Law (Act No. 1508, as amended)

b. The Civil Code
c. The Revised Administrative Code
d. The Revised Penal Code
e. The Ship Mortgage Decree (Pres. Decree No. 1521)
Offenses involving chattel mortgage
a. Acts punishable- Under the Revised Penal Code, the following acts are punishable
i. Knowingly removing any personal property mortaged under the Chattelo Mortgage
Law to any province of 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
ii. Selling or pledging personal property already pledged, or any part thereof, under the
terms of the Chattel Mortgage Law without the consent of the mortgagee written on
the back of the mortgage and duly recorded in the Chattel Mortgage Register (Article
319, Revised Penal Code)
b. Common essential elements- An essential element common to the two (2) acts punished
under Article 319 of the Revised Penal Code is that the property removed or repledge, as the
case may be, should be the same or identical property that was mortgaged or pledge before
such removal or pledging. The mortgagor is not relieved of criminal liability even if the
mortgage indebtedness is thereafter paid in full, or the mortgagor-seller informed the
purchaser that the thing sold had been mortgaged.
Subject matter of chattel mortgage
The subject matter of chattel mortgage must always be personal or movable property. (Article
2140; Sec 2, Article No. 1508)
For puroses of the Chattel Mortgage Law, both growing crops and large cattle (Sec. 7, pars. 2
and 3, Act. No. 1508) are personal property and, therefore, capable of being mortgaged although they
would be considered as immovable property under the conditions stated in Article 415, Nos. (2) of the
Civil Code classifies as personal property “Real property which by any special provision of law is
considered as personalty”.
ARTICLE 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation. If the movable, instead of being
recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel
mortgage.
Foreclosure of chattel mortgage
After payment of the debt of the performance of the condition specified in the chattel mortgage,
the mortgagee must discharge the mortgage in the manner provided by law otherwise he may be held
liable for damanges by any person entitled to redeem the mortgage.
If the mortgagor defaults in the payment of the secured debt o otherwise fails to comply with the
conditions of the mortgage, the creditor has no right to appropriate to himself the personal property
(Articles 2141, 2088) because he is permiited 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.
ARTICLE 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the
Chattel Mortgage Law, shall be applicable to chattel mortgages.
ARTICLE 2088. The creditor cannot appropriate the things given by way of pledge or mortgage,
or dispose of them. Any stipulation to the contrary is null and void.
Right of mortgage to recover deficiency
a. The creditor may maintain an action for the deficiency although the Chattel Mortgage Law is
silnet on this point.
b. If the chattel mortgage is constituted as security for the purchase of personal property (not for
a loan) payable in installments, no deficiency judgment can be asked and any agreement to
the contrary shall be void. (see Article 1484)
ARTICLE 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee’s failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s
failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
VI. LEARNING ACTIVITIES

Module 9
Name:_________________________________ Score:____________
Section:_______________ Date:_____________
Dan, debtor/mortgagor and Carlo, creditor/mortgagee. The subject matter of the mortgage
is a parcel of land with a market value of P180,000.00 to secure a debt of P 200,000.00. Dan sold
the property to Tristan for P 160,000.00. Subsequently Carlo foreclosed the mortgage. The land
was sold for P 180,000.00 at the foreclosure sale. Is Tristan liable to Carlo for the deficiency of P
200,000.00? Why?
VII. ASSIGNMENT
Module 9
Name:_________________________________ Score:____________
Section:_______________ Date:_____________
1. Discuss real mortgage.
2. Describe chattel mortgage.

VIII. EVALUATION (Note: Not to be included in the student’s copy of the IM)
IX. REFERENCES
De Leon, H. and De Leon Jr. H. (2016). The Law on Sales, Agency, and Credit Transactions. Manila,
Philippines: Rex Book Store.
Republic Act 386. An Act to Ordain and Institute the Civil Code of the Philippines. Retrieved April 19,
2021 from https://www.officialgazette.gov.ph/1949/06/18/republic-act-no-386/

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Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

College : Business Education

DEGREE Bachelor of COURSE NO. LAW 2

II. LESSON TITLE

III. LESSON OVERVIEW

IV. DESIRED LEARNING OUTCOMES

1. Describe real mortgage.

Causes or consideration in mortgage

Subject matter of mortgage

ARTICLE 415. The following are immovable property:

(7) Fertilizer actually used on a piece of land;

Nevertheless, movables may be the object of a chattel mortgage.

Right of creditor against transferee of mortgage property

b. Extrajudicial foreclosure- A mortgage may be foreclosed extrajudicially where there is

Redemption may be defined as a transaction by which the mortgagor-owner of mortgaged

Laws Governing Chattel Mortgages

a. The Chattel Mortgage Law (Act No. 1508, as amended)

Offenses involving chattel mortgage

Subject matter of chattel mortgage

Foreclosure of chattel mortgage

Right of mortgage to recover deficiency

VI. LEARNING ACTIVITIES

1. Discuss real mortgage.

2. Describe chattel mortgage.

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