Definition

Mortgage (otherwise known as real estate mortgage or real mortgage) is a contract whereby the
debtor secures to the creditor the fulfi llment of a principal obligation, specially subjecting to such
security immovable property or real rights over immovable property which obligation shall be satisfi ed
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

Real

Accessory

Subsidiary

Unilateral

The essence of a contract of mortgage is that a property has been identifi ed or set apart from the mass of
the property of the debtor-mortgagor as security for the fulfi llment of his obligation, in case of default of
payment.

Possession of property mortgaged

In a contract of mortgage, the mortgagor-debtor, as a general rule, retains possession of the property
mortgaged as security for the payment of the sum borrowed from the mortgagee-creditor, because by the
mortgage, the debtor merely subjects the property to a lien but ownership thereof is not parted with. The
debtor pays the creditor a certain percent thereof as interest on his principal by way of compensation for
his sacrifi ce in depriving himself of the use of said money and the enjoyment of its fruits, in order to give
them to the mortgagor.

Cause or consideration in mortgage.

As mortgage is an accessory contract, its consideration is the same as of the principal contract from
which it receives its life, and without which it cannot exist as an independent contract, although the
obligation thereby secured is incurred by a third person and, therefore, it will be valid if the principal
obligation is valid, and cannot be avoided on the ground of lack of consideration. Being an accessory
contract, its validity would depend on the validity of the debt secured by it.

Kinds of mortgage.

A mortgage may be:

(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.

What can be mortgaged?

The inclusion of buildings under Article 415 of the Civil Code, separate and distinct from the land
means that a building is by itself an immovable property. While a mortgage of land necessarily includes,
in the absence of stipulation, the improvements thereon, a building by itself may be mortgaged apart from
the land on which it is built. Possessory rights over said property before title is vested on the grantee may
be validly transferred or conveyed as in a deed of mortgage.

Future property cannot be object of a contract of mortgage. Thus, a stipulation in a contract of mortgage
whereby the mortgagor also constituted a mortgage in favor of the mortgagee and his assignees on any
other property he then might have and those he might acquire in the future did not constitute a valid
mortgage on the properties acquired subsequent to the constitution of the mortgage because the mortgagor
could not legally mortgage any property he did not yet own. However, a stipulation subjecting to the
mortgage lien, properties (improvements) which the mortgagor may subsequently acquire, install, or use
in connection with real property already mortgaged belonging to the mortgagor is valid.

Mortgage Registration.

In addition to the requisites stated as common to pledge and mortgage, it is indispensable in order that a
mortgage may be validly constituted that it appears in a public document duly recorded in the Registry of
Property. A duly executed mortgage is presumed to be valid until the contrary is shown.

No valid mortgage is constituted where the alleged deed of mortgage is a mere private document and,
therefore, is not registered. However, an additional provision is made that if the instrument of mortgage is
not recorded, the mortgage is nevertheless binding between the parties. (Report of the Code
Commission, p. 158.) In other words, registration only operates as a notice of the mortgage to others but
neither adds to its validity nor converts an invalid mortgage into a valid one between the parties.

Mortgagee entitled to registration of mortgage as a matter of right.

Once a mortgage has been signed in due form, the mortgagee is entitled to its registration as a matter of
right. By executing the mortgage, the mortgagor is understood to have given his consent to its
registration, and he cannot be permitted to revoke it unilaterally. The reasoning that inasmuch as a
mortgage is a voluntary transaction, the Register of Deeds has no authority to register it without the
consent of both parties is fallacious. It confuses the execution of the mortgage with its registration. It is
the execution of the mortgage that is voluntary.

Proceedings for registration do not determine validity of mortgage or its effect.

Registration is a mere ministerial act by which a deed, contract or instrument is sought to be

inscribed in the records of the Office of the Register of Deeds and annotated at the back of the certifi cate
of title covering the land subject of the deed, contract or instrument.

Effect of mortgage
Article 2126 creates right in rem, a lien inseparable from the property mortgaged, which is enforceable
against the whole world. The personality of the owner is disregarded. Therefore, all subsequent
purchasers of the property must respect the mortgage, whether the transfer to them be with or without the
consent of the mortgagee.

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.

Extent of Mortgage

Extent of mortgage. A real estate mortgage constituted on immovable property is not limited to the
property itself but also extends to all its accessions, improvements, growing fruits and rents or income
(see Art. 2102.) as well as to the proceeds of insurance should the property be destroyed, or the
expropriation value of the property should it be expropriated. The law is predicated on the assumption
that the ownership of such accessions and accessories and improvements subsequently introduced also
belongs to the mortgagor is the owner of the principal. (Castro, Jr. vs. Court of Appeals, 250 SCRA 661
[1995].)

Stipulation in mortgage contract including after-acquired properties

Such stipulation is neither unlawful nor immoral, its obvious purpose being to maintain, to the extent
allowed by the circumstances, the original value of the properties given as security.

When a mortgage is made to include new or future improvements on registered land, said lien attaches
and vests not at the time said improvements are constructed but on the date of the recording and
registration of the deed of mortgage.

Right of creditor against transferee of mortgaged 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. (McCullough &
Co. vs. Veloso & Serna, 41 Phil. 1 [1921].) The mortgage on the property may still be foreclosed despite
the transfer.

Stipulation forbidding alienation of mortgaged property

The law considers void any stipulation forbidding the owner from alienating the mortgaged property.
Such a prohibition would be contrary to the public good inasmuch as the transmission of property should
not be unduly impeded. (Report of the Code Commission, p. 158.) The mortgagee can simply withhold
his consent and thereby prevent the mortgagor from selling the property. This creates an unconscionable
advantage for the mortgagee and amounts to a virtual prohibition on the owner to sell his mortgaged
property.

Meaning of foreclosure

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.

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.

Validity and effect of foreclosure

Foreclosure is but a necessary consequence of non-payment of a mortgage indebtedness. As a rule, the

mortgage can be foreclosed only when the debt remains unpaid at the time it is due. It is valid only when
the debtor is in default in the payment of his obligation. The right of foreclosure cannot be exercised by
any person other than the creditor-mortgagee or his assigns.

In a real estate mortgage, when the principal obligation is not paid when due, the mortgagee has the right
to foreclose the mortgage and to have the property seized and sold with a view to applying the proceeds to
the payment of the principal obligation. Foreclosure must be limited to the amount mentioned in the
mortgage document. As a general rule, a demand before foreclosure is essential.

Once the proceeds have been applied to the payment of the obligation, the debtor cannot anymore be
required to pay, unless, of course, there is a deficiency between the amount of the loan and the foreclosure
sale price, because the obligation has already been extinguished.

The rule is that statutory provisions governing public notice of foreclosure sales must be strictly complied
with, and even slight deviations therefrom will invalidate the sale or render it at least voidable.

The only rights which a mortgagor can legally transfer, cede and convey after the foreclosure of his
property are the right to redeem the same and the possession, use, and enjoyment of the same during the
period of redemption.

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.

Judicial Sale Rule 68, Revised Rules of Court

Extrajudicial Sale Act No. 3315

The law covers only real estate mortgages. It is intended merely to regulate
the extrajudicial sale of the property mortgaged if and when the mortgagee is
given a special power or express authority to do so in the deed itself or in a
document annexed thereto.
The authority to sell is not extinguished by the death of the mortgagor (or
mortgagee) as it is an essential and inseparable part of a bilateral
agreement.
 Statutory provisions governing publication of notice of mortgage foreclosure
sales must be strictly complied with, and that even slight deviations
therefrom will invalidate the notice and render the sale at least voidable. The
purpose of the publication of the Notice Sheriffs Sale is to inform all
interested parties of the date, time, and place of the foreclosure sale of the
real property subject thereof.
Failure to comply with the statutory requirements as to publication of notice
of auction sale constitutes a jurisdictional defect which invalidates the sale or
at least render the sale voidable. Even slight deviations therefrom are not
allowed.
A sale held after the scheduled date indicated in the notice of sale is void.
Neither does Section 3 of Act No. 3135 require posting of the notice of sale on
the mortgaged property. It merely requires that the notice of sale be posted
in at least three (3) public places in the city or municipality where the
property is situated, to wit: the Sheriffs Offi ce, the Assessors Offi ce, and
the Register of Deeds which are certainly the public places contemplated by
law as these are the places where people interested in purchasing real estate
congregate.9

Stipulation of upset price in mortgage contract void

. A stipulation in a mortgage of real property fi xing 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 Espaol-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].) It is debatable
whether the rule still applies where the purchaser happens to be the creditor or
mortgagee himself. The mortgagor can argue that the stipulation should be
binding on the mortgagee on the principle of estoppel. (\

Meaning of redemption

. Redemption may be defi ned 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. (59 C.J.S. 813.) 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. (

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; and

(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.

The equity of redemption is different from and should not be confused with the
right of redemption. The latter in relation to a mortgage understood in the
sense of a prerogative to re-acquire mortgaged property after registration of the
foreclosure sale exists only in the case of extrajudicial foreclosure of
mortgage. No such right is recognized in a judicial foreclosure except only where
the mortgagee is the Philippine National Bank or a banking institution.

Equity in redemption

A second mortgagee acquires only the equity of redemption vested in the

mortgagor, and his rights are strictly subordinate to the superior lien of the first
mortgagee.

To levy upon the mortgagors equity of redemption, it is not necessary for the
sheriff to take physical possession of the mortgaged property. Levying upon the
property is distinguishable from levying on the mortgagors interest in it