PART III.

LAW ON CREDIT
TRANSACTIONS
Articles 1933 to 2141 of the
Civil Code of the Philippines
 WEEK 10

V. MORTGAGE
 V. MORTGAGE
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.
 OBJECTS OF
REAL MORTGAGE
1. Immovables
2. Alienable real rights in accordance with the
laws, imposed upon immovables
 Future property cannot be the object of
mortgage
 KINDS OF MORTGAGE
1. VOLUNTARY – agreed to between by the parties
2. LEGAL – one required by the law to be executed in
favor of certain persons.
3. EQUITABLE – One which, although lacking the
proper formalities of a mortgage, shows the
intention of the parties to make the property as a
security for a debt.
 ESSENTIAL REQUISITES
1. Constituted to secure the fulfillment of a principal
obligation
2. Mortgagor must be the absolute owner of the thing
mortgaged
3. The persons constituting the mortgage have free
disposal of the property; in the absence thereof, they
should be legally authorized for the purpose
 ESSENTIAL REQUISITES
4. Cannot exist without a valid obligation
5. When the principal obligation becomes due, the thing in
which the mortgage consists may be alienated for
payment to the creditor
6. Must appear in a public document duly recorded in the
Registry of Property, to be validly constituted. (if
unregistered, binding between parties)
EFFECT OF INVALIDITY OF MORTGAGE ON
THE PRINCIPAL OBLIGATION

1. Principal obligation remains valid

2. Mortgage deed remains evidence of a personal
obligation
 FORECLOSURE
OF MORTGAGE
Remedy available to the mortgagee by which he
subjects the mortgaged property to the satisfaction
of the obligation secured by the mortgage
 KINDS OF FORECLOSURE
1. JUDICIAL
- Bringing an action in the proper court which has jurisdiction over the area
wherein the real property involved or a portion thereof is situated
- Court shall order the mortgagor to pay the amount due with interest and
other charges within a period of not less than 90 days nor more than 120
days from the entry of judgment
- If the mortgagor fails to pay at the time directed, the court, upon motion,
shall order the property to be sold to the highest bidder at a public auction.
(Rule 68, Rules of Court)
 JUDICIAL FORECLOSURE
Before the confirmation of the sale, the court retains control of the proceedings

The proceeds of the sale shall be applied to the payment of the:

- Costs of the sale
- Amount due the mortgagee
- Claims of junior encumbrancers or persons holding subsequent mortgages
in the order of their priority; and
- Balance, if any shall be paid to the mortgagor. Sheriff’s certificate is
executed, acknowledged and recorded to complete the foreclosure
 KINDS OF FORECLOSURE
2. EXTRAJUDICIAL
Act No. 3135, as amended:
A.Express authority to sell is given to the mortgagee
B. Authority is not extinguished by death of mortgagor or
mortgagee
C. Public sale should be made after proper notice
 EXTRAJUDICIAL FORECLOSURE

D. Surplus proceeds of foreclosure sale belong to the

mortgagor
E. Debtor has the right to redeem the property sold within
1 year from and after the date of sale
F. Remedy of party aggrieved by foreclosure is a petition
to set aside sale and cancellation of writ of possession
 REDEMPTION
It is a transaction by which the mortgagor
reacquires the property which may have passed
under the mortgage or divests the property of the
lien which the mortgage may have created
 KINDS OF REDEMPTION
EQUITY OF REDEMPTION RIGHT OF REDEMPTION
Right of the mortgagor to Right of the mortgagor to
redeem the mortgaged redeem the property within a
property after his default in the certain period after it was sold for
performance of the conditions the satisfaction of the debt
of the mortgage but before the
sale of the mortgaged property
or confirmation of sale
 CHATTEL MORTGAGE
It is a transaction by which the mortgagor
reacquires the property which may have passed
under the mortgage or divests the property of the
lien which the mortgage may have created
 CHATTEL MORTGAGE:
AFFIDAVIT OF GOOD FAITH
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 purposes and that the
same is a just and valid obligation and one not entered into
for the purpose of fraud” (Sec. 5, Act No. 1508)
 FORECLOSURE OF
CHATTEL MORTGAGE
1. PUBLIC SALE
2. PRIVATE SALE

PERIOD TO FORECLOSE:
A. After 30 days from the time of the condition is broken
B. The 30-day period is the minimum period after violation of the mortgage condition for the
creditor to cause the sale at public auction with at least 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 obligation.
C. After the sale at public auction, the right of redemption is no longer available to the mortgagor
 FORECLOSURE OF
CHATTEL MORTGAGE
RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY
1. Where mortgage foreclosed: Creditor may maintain action for deficiency
2. Where mortgage constituted as security for purchase of personal property
payable in installments: No deficiency judgment can be asked and any
contrary agreement shall be void
3. Where mortgaged property subsequently attached and sold: Mortgagee is
entitled to deficiency judgment in an action for specific performance
 FORECLOSURE OF
CHATTEL MORTGAGE
APPLICATION OF PROCEEDS OF SALE
1. Costs and expenses of keeping and sale
2. Payment of the obligation
3. Claims of persons holding subsequent mortgages in their
order
4. Balance, if any, shall be paid to the mortgagor, or person
holding rights under him