1
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.
The essence of a contract of mortgage
- is that a property has been identified or set apart
- from the mass of the property of the debtor-
mortgagor
- as security for the fulfillment of his obligation,
in case of default of payment.
Possession of property mortgaged.
GenRule:
In a contract of mortgage, the mortgagor-debtor
retains possession of the property mortgaged
as security for the payment of the sum borrowed
from the mortgagee-creditor,
bec. 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 sacrifice in
depriving himself of the use of said money and the enjoyment of
its fruits, in order to give them to the mortgagor.
Since it is the mortgagor in a contract of mortgage who is entitled
to the possession of the subject property, it follows that ones
status as mortgagee cannot be the basis of possession. (Recebido vs.
People, 346 SCRA 881 [2000].)
XPN:
It is not, however, an essential requisite of the contract of
mortgage that the property mortgaged remains in the possession
of the mortgagor. (see Art. 2085.)
Hence, the mortgagor may deliver said property to the
mortgagee, without thereby altering the nature of the contract.
Payment of interest on mortgage credit.
 2

It is not also an essential requisite of the contract of mortgage

- that the principal of the mortgage credit bears - Being an accessory contract, its validity would
interest, depend on the validity of the debt secured by it.

- or that the interest as compensation for the use of the

principal and enjoyment of its fruits The mortgage must sufficiently describe the debt sought to be
be in the form of a certain % thereof. secured.

The interest may be in the form of fruits of the mortgaged
property, without the contracts losing thereby its character of a
mortgage contract.
In such case, the mortgagee shall be subject to the obligation of an
antichresis creditor.
But if it is expressly agreed that the creditor shall apply the fruits
of the property, to the payment of interest, if owing, and
thereafter to the principal of his credit, the contract is a true
antichresis as defined in Art 2132.
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,
An obligation is not secured by a mortgage unless it comes fairly
within its terms. (Viola vs. Equitable PCI Bank, Inc., 572 SCRA 245 [2008].)
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

- and without which it cannot exist as an independent

(3) Equitable. one which, although it lacks the proper
contract,
formalities or other requisites of a mortgage required by law,

- although the obligation thereby secured is incurred

nevertheless reveals the intention of the parties to burden real
by a third person and, therefore, it will be valid if the
property as a security for a debt, and contains nothing impossible
principal obligation is valid, and cannot be avoided
or contrary to law.
on the ground of lack of consideration. (China Banking
Corp. vs. Lichauco, 46 Phil. 460 [1924]
 3

An equitable mortgage is not different from a real estate the purchase price;
mortgage, and the lien created thereby ought not to be defeated
by requiring compliance with the formalities necessary to the
validity of a voluntary real estate mortgage. (Rosales vs. Suba, 408 SCRA (5) When the vendor binds himself to pay the taxes
664 [2003].) on the thing sold;

The provisions in the Civil Code governing equitable mortgages

are found in ArTs 1365, 1450, 1454, 1602, 1603, 1604, and 1607.
(6) In any other case where it may be fairly inferred that
The instances when a contract regardless of its nomenclature may
the real intention of the parties is that the transaction
be presumed to be an equitable mortgage are enumerated in
shall secure the payment of a debt or the performance
Article 1602.
of any other obligation.

MEMORIZE:
In any of the foregoing cases, any money, fruits, or other benefit
to be received by the vendee as rent or otherwise shall be
Art. 1602. The contract shall be presumed to be an equitable
considered as interest which shall be subject to the usury laws.
mortgage, in any of the following cases:

(1) When the price of a sale with right to repurchase

Art. 1603. In case of doubt, a contract purporting to be a sale with
is usually inadequate;
right to repurchase shall be construed as an equitable mortgage.

(2) When the vendor remains in possession

as lessee or otherwise; Art. 1604. The provisions of Article 1602 shall also apply to a
contract purporting to be an absolute sale.

(3) When upon or after the expiration It has been held that an arrangement where the ownership of the
of the right to repurchase land is supposedly transferred to the buyer who provides for the
funds to redeem the property from the bank but nonetheless
another instrument extending allows the seller to later on buy back the property is in the nature
the period of redemption or granting a new period of an equitable mortgage governed by Arts 1602 and 1604.
(Bacugan vs. Court of Appeals, 574 SCRA 642 [2008].)
is executed;
(4) When the purchaser retains for himself a part of

Judicial foreclosure under the Rules of Court.
This is governed by Rule 68 of the Rules of Court.
(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. (see Sec. 1, Rule 4,
Rules of Court.)
(2) Order to mortgagor to pay mortgage debt.
If the court finds the complaint to be well-founded,
it shall order the mortgagor to pay the amount due upon
the mortgage debt or obligation with interest and other charges
within a period of not less than 90 days nor more than 120 days
from the entry of judgment. (Sec. 2, Rule 68, Ibid.)
(3) Sale to highest bidder at public auction.
If the mortgagor fails to pay at the time directed in the order,
the court, upon motion, shall order the property to be sold to the
highest bidder at public auction. (Sec. 3, Ibid.)
(4) Confirmation of sale.
The sale when confirmed
by an order of the court, also upon motion,
4
shall operate to divest the rights of all parties to the action
and to vest their rights in the purchaser
subject to such right of redemption
as may be allowed by law.
Before the confirmation of a judicial foreclosure sale,
the court retains control of the proceedings
by exercising a sound discretion in regard to it,
either granting or withholding confirmation
as the rights and interests of the parties
and the ends of justice may require.
From this standpoint, any order which neither sets aside nor
confirms the foreclosure is merely interlocutory in character. (Salazar
vs. De Torres, 108 Phil. 209 [1960].)
(5) Execution of judgment. No judgment rendered in an action
for foreclosure or mortgage can be executed otherwise than in the
manner prescribed by the law on mortgages, because parties to an
action are not authorized to change the procedure which it
prescribed. (Piano vs. Cayanong, 7 SCRA 397 [1963].)
It has been held that the proper remedy to seek reversal of a
 5

judgment in an action for foreclosure of real estate mortgage is Therefore, the mortgagor is liable for additional interests properly
not a petition for annulment of judgment but an appeal from the chargeable on the balance of the mortgage indebtedness during
judgment itself or from the order confirming the sale of the the period from the notice of sale to actual sale. This principle is
foreclosed real estate. After failing to avail of appeal without applicable to extrajudicial foreclosures. (Development Bank of the
sufficient justification, the mortgagor cannot conveniently resort Phils. vs. Zaragoza, 84 SCRA 668 [1978].)
to the action for annulment for otherwise he would benefit from A sheriffs report on the auction sale is clothed with the
his own inaction and negligence. (Agbada vs. Inter-Urban Developers, Inc., 389 presumption of regularity especially where no objection has been
SCRA 430 [2002].) raised against it. (Sayson vs. Luna, 433 SCRA 502 [2004].)
(6) Application of proceeds of sale. 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. (Sec. 4, Rule 68,
Rules of Court.)
If the mortgagee is retaining more of the proceeds of the sale than
he is entitled to, this fact alone will not affect the validity of the
foreclosure sale but simply gives the mortgagor a cause of action
to recover such surplus. The mortgagee who has been ordered by
the court to return the surplus, but fails to do so, may be cited for
contempt. (Sulit vs. Court of Appeals, 268 SCRA 441 [1997].)

(7) Execution of sheriffs certificate. In judicial foreclosures, the

foreclosure is not complete until the sheriffs certificate is
executed, acknowledged and recorded. In the absence of a
Certificate of Sale, no title passes by the foreclosure proceedings
to the vendee. It is only when the foreclosure proceedings are
completed and the mortgaged property sold to the purchaser that
all interests of the mortgagor are cut off from the property.
Olizon has not actually dispensed with the posting requirement:
What prompted the Court to dispense with the posting
requirement is the unusual nature of the attend- ant facts and the
peculiarity of the confluent circumstances involved in said case
where the extrajudicial foreclosure sought to be annulled was
conducted more than 15 years ago, thus, even on the equitable
 6

ground of laches, the Olizons action for annulment of foreclosure

proceedings and certificate of sale was bound to fail.