ARTICLE 2131 -

MORTGAGE
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Remedy if mortgagor refuses to surrender mortgaged property

The mortgagee may take steps to recover the mortgaged property to enable him to
enforce or protect him foreclosure right. If he cannot obtain possession for its sale on
foreclosure, he must bring a civil action either to recover such possession as a
preliminary step to sale, or to obtain judicial foreclosure. (Uypitching vs. Quiamco)
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Injunction to prevent foreclosure.

The foreclosure of a mortgage is but a necessary consequence of the non-
payment of an obligation secured by the mortgage.
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Right of mortgagee to recover deficiency
(1) Mortgage merely a security, not a satisfaction of an obligation.
If there be a balance due to the mortgagee after
applying the proceeds of the sale,
Judicial foreclosure
Extrajudicial foreclosures
The mortgagee is entitled to recover the deficiency.
(Development Bank of the Phils. vs. Mirang, 66 SCRA
141 [1975].)
The Rules of Court specifically gives the mortgagee the
right to claim for deficiency in case deficiency exists
(Sec. 6, Rule 68.)
Does not give a mortgagee the right to recover defi
ciency after the public auction sale, neither does it
expressly or impliedly prohibit such recovery. (Act No.
3135)
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Right of mortgagee to recover deficiency

(1) Mortgage merely a security, not a satisfaction of an obligation.

Both judicial and extrajudicial foreclosures
The principle is the same, that the mortgage is but a
security and not a satisfaction of the indebtedness. It is
of no importance whether the buyer or the highest bidder
in the public auction is the creditor himself. (Phil. Bank of
Commerce vs. De Vera, 6 SCRA 1026 [1962];
Development Bank of the Phils. vs. Mirang, supra;
Development Bank of the Phils. vs. Zaragoza, 84 SCRA
668 [1978]; see Prudential Bank vs. Martinez, 189 SCRA
612 [1990].)

NOTE: In both judicial and extrajudicial foreclosure,

when a third person is the mortgagor, he is not liable for
any deficiency in the absence of a contrary stipulation.
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(2) Action for recovery of deficiency.

If the deficiency is embodied in a judgment, it is referred to as deficiency

judgment. (see Art. 2115.)

NOTE: The action prescribes ten (10) years from the time the right of action
accrues (NCC, Art. 1142(2)).

(3) Prescriptive period of action.

The mortgagee in both real and chattel mortgages has, by law, the right to claim
for the deficiency resulting from the price obtained in the sale of the property at
public auction. Correlatively, the mortgagor has the corresponding obligation
created by law to pay such deficiency.
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Nature of judicial foreclosure proceeding.

(1) An action quasi in rem. — A proceeding for

judicial foreclosure of mortgage is an action quasi in rem

(2) Result or incident of failure to pay indebtedness.

— An action for the foreclosure of mortgage seeks to reach
the property and subject it to the payment of a principal
obligation.
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Nature of judicial foreclosure proceeding.

(3) Survives death of mortgagor. — An action for the

foreclosure of a mortgage is an action which survives the
death of the mortgagor because the claim against him is not
a pure money claim but an action to enforce a mortgage
lien.
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Nature of power of foreclosure by extrajudicial sale.

(1) Conferred for mortgagee’s protection. — The power to

foreclose is not an ordinary agency that contemplates exclusively the
representation of the principal by the agent but is primarily an authority
conferred upon the mortgagee for the latter’s own protection.

(2) An ancillary stipulation. — It is an ancillary stipulation

supported by the same cause or consideration for the mortgage and
forms an essential and inseparable part of the bilateral agreement.
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Nature of power of foreclosure by extrajudicial sale.

(3) A prerogative of the mortgagee. — The power to decide to

foreclose or not is the prerogative of the mortgagee.
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ILLUSTRATIVE
CASES
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Facts: The public auction sale was held on April 11, 1961, which was the
next business day after the scheduled date of the sale on April 10, 1961, a
special public holiday.
Issue: Is the sale valid?

Held: No, it not having been carried out in accordance with Section 3 of Act No. 3135. (see
Appendix 2.) Under Section 31 of the Revised Administrative Code which ordains “Pretermission
of holiday. — Where the day, or the last day, for doing any act required or permitted by law falls
on a holiday, the act may be done on the next succeeding business day,” the pretermission applies
only when the last day of a given period for doing an act falls on a holiday. It does not apply to a
day fixed by an office or officer of the government for an act to be done, as distinguished from a
period within which an act should be done, which may be on any day within that specified period.
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2. Extrajudicial foreclosure sale of mortgaged land was conducted by

the sheriff without first effecting a levy on the mortgaged property

Facts: Upon failure of petitioners to redeem the mortgaged land within one (1) year, their TCT was
cancelled by the Register of Deeds and in lieu thereof, another TCT was issued to DBP (mortgagee)
upon presentation of a duly executed affi davit of consolidation of ownership. P, purchaser from
DBP, mortgaged the lot to PNB. Since petitioners were still in possession of the property, the
Provincial Sheriff ordered them to vacate the same.
Petitioners seek to annul the extrajudicial foreclosure sale in favor of DBP on the ground that it was
conducted by the Provincial Sheriff without fi rst effecting a levy on said property before selling the
same at the public auction sale. They maintain that the extrajudicial foreclosure being null and void
by virtue of lack of a valid levy, the certifi cate of sale issued to DBP cannot transfer ownership over
the lot in question and consequently, the deed of sale in favor of P and the real estate mortgage
constituted by the latter in favor of PNB are likewise null and void.
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Issue: Are the formalities of a levy required before an

extrajudicial foreclosure of property can be effected?
Held: No.

(1) Three different kinds of sale under the law. — “The formalities of a levy, as an essential requisite
of a valid execution sale under Section 1518 of Rule 39 and a valid attachment lien under Rule 57 of
the Rules of Court, are not basic requirements before an extrajudicially foreclosed property can be sold
at public auction. At the outset, distinction should be made of the three different kinds of sale under the
law: namely, an ordinary execution sale, a judicial foreclosure sale, and an extrajudicial foreclosure
sale, because a different set of laws applies to each class of sale mentioned. An ordinary execution sale
is governed by the pertinent provisions of Rule 39 of the Rules of Court. Rule 68 of the Rules of Court
applies in cases of judicial foreclosure sale. On the other hand, Act No. 3135, as amended by Act No.
4118, applies in cases of extrajudicial foreclosure.’’
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Issue: Are the formalities of a levy required before an

extrajudicial foreclosure of property can be effected?

2) Act No. 3135 governs extrajudicial foreclosure sale. — “The case at bar, as the facts disclose,
involves an extrajudicial foreclosure sale. In the mortgage contract, petitioners, as mortgagors had
appointed DBP, for the purpose of extrajudicial foreclosure, ‘as his attorney-in-fact to sell the property
mortgaged under Act No. 3135, as amended, to sign all documents and perform any act requisite and
necessary to accomplish said purpose x x x. In case of foreclosure, the mortgagor hereby consents to
the appointment of the mortgagee or any of his employees as receiver, without any bond, to take charge
of the mortgaged property at once, and to hold possession of the same x x x.’
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Issue: Are the formalities of a levy required before an

extrajudicial foreclosure of property can be effected?

There is no justifiable basis, therefore, to apply by analogy the provisions of Rule 39 of the Rules of
Court on ordinary execution sale, particularly Section 15 thereof as well as the jurisprudence under said
provision, to an extrajudicial foreclosure sale conducted under the provisions of Act No. 3135, as
amended. Act No. 3135, as amended, being a special law governing extrajudicial foreclosure
proceedings, the same must govern as against the provisions on ordinary execution sale under Rule 39
of the Rules of Court.’’
3. Requirement of levy not applicable.
4. Essence of a contract of mortgage indebtedness.
5. Need not be expressed in a particular form.
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Stipulation of upset price in mortgage contract void.

A stipulation in a mortgage of real property fixing a “tipo” or upset price, i.e., the minimum price at
which the property shall be sold, to become operative in the event of a foreclosure sale at public
auction, is null and void for the property must be sold to the highest bidder. Parties cannot, by
agreement, contravene the law and interfere with the lawful procedure of the courts. (Banco Español-
Filipino vs. Donaldson, Sim & Co., 5 Phil. 418 [1906]; Yangco vs. Cruz Herrera, 11 Phil. 402 [1908];
Bank of the Phil. Islands vs. Yulo, 31 Phil. 476 [1915].)
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Effect of inadequacy of price in foreclosure sale.

GR: When there is a right to redeem, inadequacy of price is immaterial because the judgment debtor
may reacquire the property easier at a low price or sell his right to redeem (PNB v. CA, G.R. No.
121739, June 14, 1999).

XPN: When the price is so inadequate as to shock the conscience of the court taking into consideration
the peculiarly circumstances attendant thereto (United Coconut Planters Bank v. CA, G.R. No. 155912,
August 17, 2007).
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Waiver of security by mortgagee.

(1) Personal action to recover indebtedness. — The mortgagee may institute either a personal
action for debt or a real action to foreclose the mortgage.

(2) Remedy alternative, not cumulative or successive. — The mortgagee cannot have both
remedies.
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Waiver of security by mortgagee.

(3) Options in case of death of debtor. — The rule is that a secured creditor holding a real
estate mortgage has three (3) distinct, independent, and mutually exclusive remedies that can be
alternatively pursued by him for the satisfaction of his credit in case the mortgagor dies,20 to wit:
(a) to waive the mortgage and claim the entire debt from the estate of the mortgagor as an ordinary
claim;
(b) to foreclose the mortgage judicially and prove any defi ciency as an ordinary claim; and
(c) to rely on the mortgage exclusively, foreclosing the same at any time before it is barred by
prescription without right to fi le a claim for any defi ciency. (Perez vs. Philippine National Bank, 17
SCRA 833 [1966]; Jacob vs. Court of Appeals, 184 SCRA 294 [1990]; Maglaque vs. Planters
Development Bank, 307 SCRA 156 [1999].)