Real Mortgage
Do remember that with regard to real estate mortgage the
provisions that we have discussed before that were common to pledge
and mortgage are also applicable to contracts of mortgage, so don't
forget Art. 2085 and 2088 among others.
Last time we have already identified what a real mortgage is,
what are its objects or subject matter and also under Art. 2125,
even if it is not recorded the mortgage is nevertheless binding
between the parties. And also last time, we discussed the doctrine
of a mortgage lien.
The last case we discussed is the the case of Agricultural v.
Yusay wherein we emphasized that registration of a mortgage is a
matter of right and therefore, it is a ministerial act
distinguished from a discretionary act where in such registration
is by which a deed, contract or instrument is sought to be
inscribed in the records of the Register of Deeds and annotated at
the back of the certificate of title covering the land subject of
the deed of mortgage contract or instrument.
Aside from Yusay, we also discussed the case of State Investment
wherein you remember in that case you have there a registered
mortgage and also, a registered right of a buyer. If you remember
it, the one who has a preferred right over the subject matter was
the buyer even if his deed of sale was not registered. Atlhough,in
that case, if you remember, by the perfection of the sale, there is
transfer of ownership again distinguish it, it is NOT the
perfection of the contract that transfers ownership but the
delivery whether actual or constructive. So if there was delivery
then there is a subsequent mortgage executed at the time this said
mortgage was executed, the mortgagor could not be the owner of the
property and therefore, failure to conform with the requirements of
2085, there is no valid contract of mortgage.
Now, also relate contract of mortgage with Persons, remember
mortgage is an encumbrance so this means that the property
relations between the spouses is an absolute community or conjugal
partnership of gains, if you remember you have to get the written
consent of the other spouse, this applies not only to contracts of
sale but even in a contract of mortgage. I think you have Art. 124
governing conjugal partnership of gains and the other one is Art.
96, Absolute Community. Nevertheless, that provision states that
sole power to administration do not include disposition referring
to sale or encumbrance meaning mortgage without authority of the
court or the written consent of the other spouse. In the absence of
such authority or consent the disposition or encumbrance shall be
void but shall be construed as a continuing offer. So dont forget
what you have learned in Persons and Family Relations and relate it
to the execution of a real estate mortgage.
Now we have the case of Ross v. PNB.
Q: What would be the effect of such defense absence of the
consent of the spouse?A: Without the consent of the spouse, and
since it is the Civil Code which was the applicable law at the time
the mortgage was executed, since the spouses property relations is
governed by Art. 173 of the Civil Code states that any disposition
or encumbrance of a conjugal real property by the husband without
the express or implied consent of the other spouse is voidable. The
wife can question the encumbrance on the ground that she did not
consent to the same. In contrast, if the transaction is governed by
the Family Code, the absence of consent by the wife would be void
and not merely voidable.
Q: Why can you say that in this case the law applicable is the
Civil Code? How can you determine that?A: It depends on when the
transaction took place, if it is before Aug. 3, 1988 the old Civil
Code will be applicable. In this case the mortgage was executed in
1974 as such, the old Civil Code is applicable.
Now, take not with regard to this case what was applied was the
Civil Code provisions since the marriage took place during the
effectivity of the Civil Code and not during the Family Code and if
you remember in Persons the presumption there is that in the
absence of any agreement between the spouses or what we call
pre-nuptial agreement shall be considered as a conjugal partnership
of gainsaid that any property acquired during the marriage belongs
to the conjugal property of the spouses. In this case, a real
mortgage executed the wife alleged that her signature therein was
forged. However, bare allegations are not sufficient especially
when you are alleging fraud or forgery. You should show sufficient
proof to support your allegation of fraud or forgery. Moreover,
there is a presumption here that the mortgage was regularly
executed since the acknowledgment is a prima facie evidence of the
execution of the instrument of the document involved since it was
duly notarized and is considered as a public document. Now, even if
the property was to be considered as an absolute community property
wherein the property was acquired, the marriage took place within
the effectivity of the Family Code. Again the consent would be
required to be in writing which is present in this case. no
contrary thereto was shown and therefore the mortgage would still
be considered as valid. That is the case of Ros v. PNB.
Ros v. PNB: absence of consent of the other spouse in a contract
of mortgage executed under the Civil Code (before Aug. 3, 1988),
the contract of mortgage is voidable.
Now, of course if the written consent was not acquired, its only
the husband who executed the real estate mortgage and the marriage
took place under the family code, so absolute community property,
remember that was a mortgage which is considered void, the
principal obligation will be considered as valid. Where a mortgage
is not valid, the principal obligation which is guaranteed by it
will not be null and void. What is lost is only the right to
foreclose the mortgage and the mortgage can even be used while it
cannot be used to foreclose the property it can be used as an
evidence of the personal obligation.
Article 2126. The mortgage directly and immediately subjects the
property upon which it is imposed, whoever the possessor may be, to
the fulfillment of the obligation for whose security it was
constituted. (1876)
Remember that the registered mortgage is a real right, a right
in rem and therefore it is inseparable from the property and
therefore enforceable against the whole world. The mortgage
attaches not to the owner of the property but to the property
itself and therefore the mortgage follows the property wherever it
goes and subsists notwithstanding the change of ownership. It
disregards the personality of the owner. Whoever subsequently
acquires the property carries with it the obligation to observe the
mortgage but take note, it must be registered in order to bond
third persons. So it just means even if there is already a mortgage
the mortgagor can still sell the property to third persons but
again to bind third persons with regard to the mortgage, the
mortgage must be registered. And all subsequent purchasers must
respect the registered mortgage or that the buyer must know of its
existence. So again, there could be a valid contract of sale even
if the property has already been previously mortgaged. A mortgage
is a real right attached to the property.
Example:
Let us say that you have a real estate mortgage with Giovanni as
the debtor-mortgagor and then Ron i the creditor-mortgagee, there
is already a mortgage executed by Giovanni over his subject parcel
of land. Now, even with that mortgage, even if that obligation
still remains unpaid. Giovanni can sell the property to Jordan.
That is a valid contract of sale. A mortgage is a real right
therefore if the obligation becomes due and demandable Giovanni
fails to pay, notwithstanding that the mortgaged property has
already been bought by Jordan, Ron can still foreclose the property
and Jordan cannot raise as a defense that the he does not owe Ron
and that it was Giovanni who owed him and therefore, he cannot
foreclose the property he already bought. This defense will only be
available to a third person if the mortgage is not registered. But
if the mortgage was registered, that defense cannot apply. As we go
along, you would notice however that with regard to the obligation
itself the third person has no personal obligation which just sans
that the mortgagee can foreclose the property but if there is a
deficiency, the proceeds of the sale is not sufficient to cover the
amount of the principal obligation, Ron, the creditor-mortgagee,
can no longer collect from Jordan because it is the personal
obligation of Giovanni, the debtor-mortgagor to pay for the
deficiency. So that is the nature of a contract of mortgage being a
real right. The right attaches to the property and not to the owner
thereof.
The only instance however, that the buyer can be held liable to
pay, is when there is a novation. For instance in our example, if
Jordan becomes the debtor of the obligation of Giovanni. So if you
remember in novation there are three instances one of which is the
substitution of the person of the debtor, if that would be the
instance, then that would be the only time that Ron as
credtitor-mortgagee can collect from Jordan for the deficiency.
Article 2127. The mortgage extends to the natural accessions, to
the improvements, growing fruits, and the rents or income not yet
received when the obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the insurers of
the property mortgaged, or in virtue of expropriation for public
use, with the declarations, amplifications and limitations
established by law, whether the estate remains in the possession of
the mortgagor, or it passes into the hands of a third person.
(1877)
So this is another instance that would show that the mortgage is
indeed inseparable from the property. Article 2127 discusses the
extent of the mortgage. Remember that upon the time the obligation
becomes due and demandable the creditor can demand the payment from
the debtor. Now, the mortgage extends to all its natural
accessions, improvements, growing fruits, rents or income, even
proceeds of insurance if the property should be destroyed, and in
case the property is expropriated, the mortgage extends to the just
compensation that will received by the mortgagor.
Now, with regard to the fruits. If the fruits were already
harvested before the obligation becomes due and demandable, of
course that would not be part of the mortgage. However, if the
fruits are attached to the property when the obligation becomes
due, then they will form part of the mortgage. To exclude these
fruits, improvements, an accessions there must be an express
stipulation in the real estate mortgage. Otherwise, the following
are deemed included in the absence of an express stipulation
excluding the following they will be deemed included:1.) new
paintings
2.) fruits except for those collected before the obligation
falls due or those removed and stored when it falls due.
3.) Accrued and unpaid rents, by accrued, we mean those already
earned but not yet received.
4.) Buildings and machineries belonging to the debtor-mortgagor
installed on a mortgaged issuance central. this should be familiar
to you, one of the cases in property law. All objects or materials
permanently attached to the mortgaged building although they have
been placed after the execution of the mortgage.
5.) Another instance, if a more costly building is constructed
in place of a torned down building.
Also, we have mentioned last time the concept of an after
acquired property. In an after acquired property, this is an
exception to the rule that with regard to a mortgage, the mortgagor
must be the owner of the property. Such stipulation should include
as after acquired property subject to mortgage is valid. Usually
this refers to perishable, wear and tear or subject matters that
can be replaced with others. Such stipulation is valid.
Example:
If mortgagor Giovanni would subject his properties for instance
his groceries, where he owns the grocery store, the inventory or
stock that he subjected to the mortgage, but of course that would
be chattel mortgage, nevertheless a mortgage, there will be a
replenishment that will take place. So what happens is that at the
time of the execution of the mortgage, what the mortgagor owns is
the present inventory now later on when the obligation becomes due
and demandable those stocks that were present in the inventory at
the time of the execution of the mortgage has already been sold but
these stocks were replenished with new ones. So just the same,
those stocks which were used to replenish are subject to the
mortgage, which is known as after acquired properties.
Also last time, we emphasized that the general rule that with
regard to foreclosing a mortgage it must be limited to the amount
mentioned in the mortgage however, as an exception, the amount
given as consideration of the contract is not really the amount of
which the mortgage may stand as security for as long as there is an
intention on the part of the partied to secure future loans or
advancements and other indebtedness wherein we have the concept of
a blanket mortgage or a dragnet clause.
Producers Bank v. Excelsa
Q: What is the basis for the action to annul?A: According to
Excelsa, the real estate mortgage only covered the loan and not the
drafts.
Q: So what if it covers only the loan?A: This means that
whatever the liabilities from the drafts of the respondent, the
real estate mortgage should not answer for such or stand as a
security to the same.
Q: Was the loan already paid?A: No.
Q: However, what was the basis for the foreclosure of the
mortgage? The drafts?A: Yes.
Q: What was the ruling of the curt? was the foreclosure valid?A:
The SC held in this case that the foreclosure is valid in saying
that the real state mortgage here also secures the drafts since the
real state mortgage contains a blanket mortgage clause or a dragnet
mortgage clause.
Q: What do you mean by dragnet clause?A: A dragnet clause is one
which is specifically phrased as to subsume all debts of past and
future origins. It is strictly construed and operates as a
convenience and accommodation to the borrower as it makes available
additional funds without their having to execute additional
security documents, thereby saving time, travel, loan closing
costs, costs of extra legal services, recording fees, et
cetera.
Q: How was the Supreme Court able to conclude that the real
estate mortgage here includes a dragnet clause?A: It was the clause
which states For and in consideration of those certain loans,
overdraft and/or other credit accommodations on this date obtained
from the MORTGAGEE, and to secure the payment of the same, the
principal of all of which is hereby fixed at FIVE HUNDRED THOUSAND
PESOS ONLY (P500,000.00) Pesos, Philippine Currency, as well as
those that the MORTGAGEE may hereafter extend to the MORTGAGOR,
including interest and expenses or any other obligation owing to
the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way
of mortgage unto the MORTGAGEE, its successors or assigns, the
parcel(s) of land which is/are described in the list inserted on
the back of this document, and/or appended hereto, together with
all the buildings and improvements now existing or which may
hereafter be erected or constructed thereon, of which the MORTGAGOR
declares that he/it is the absolute owner, free from all liens and
encumbrances.
Q: With that, is the foreclosure valid or not?A: The SC held
that the Respondent executed a real estate mortgage containing a
"blanket mortgage clause," also known as a "dragnet clause." It has
been settled in a long line of decisions that mortgages given to
secure future advancements are valid and legal contracts, and the
amounts named as consideration in said contracts do not limit the
amount for which the mortgage may stand as security if from the
four corners of the instrument the intent to secure future and
other indebtedness can be gathered.
So we have here the concept of a blanket mortgage clause also
known as a dragnet clause. Mortgages which includes this dragnet
clause is given to secure future advancements are valid and legal
contracts, and the amounts named as consideration in said contracts
do not limit the amount for which the mortgage may stand as
security if from the four corners of the instrument the intent to
secure future and other indebtedness can be gathered. If you look
at the provision in the real estate mortgage while it says there
the principal of all of which is hereby fixed at 500,000, you would
see that the intention of the parties here that the mortgage is to
secure other obligations, the 500,000 pesos as well as those which
the mortgagee hereafter may extend to the mortgagor including
interests and expenses or any other obligation owing to the
mortgagee. So if you compare it to contracts of guaranty or
suretyship, its akin to that of a continuing guaranty or
suretyship. Again, the same purpose, it enables the parties to
provide continuous dealings when the extent of which may not be
known or unliquidated at that time, and therefore, they avoid the
expense or inconvenience of executing a new security of each
transaction. It operates as a convenience and accommodation to the
borrower as it makes available additional funds without their
having to execute additional security documents, thereby saving
time, travel, loan closing costs, costs of extra legal services,
recording fees, et cetera.
Also it is stated here that petitioner was not precluded from
seeking the foreclosure of the real estate mortgage based on the
unpaid drafts drawn by respondent. And with regard to notice in
their agreement, petitioner was merely required to furnish
respondent a notice but no obligation to ensure that respondent
actually receive the same. in other words, the petitioner,
producers bank here complied with all the requirements both under
the law as well as their agreement.
Prudential Bank v. Alviar
Q: With regard to the 250,000 was it already paid?A: No.
Q: Do you have here a dragnet clause?A: Yes.
Q: Why can you say that we have a dragnet clause here?A: This
case the agreement between the parties which states that to secure
the payment of the same and those that may hereafter be obtained,
the principal or all of which is hereby fixed at Two Hundred Fifty
Thousand (P250,000.00) Pesos, Philippine Currency, as well as those
that the Mortgagee may extend to the Mortgagor and/or DEBTOR,
including interest and expenses or any other obligation owing to
the Mortgagee, whether direct or indirect, principal or
secondary
Just take note of this case, the Court again, emphasizes the
concept of a dragnet mortgage clause is valid. Again, it is
specifically phrased to subsume all debts of past and future
origins. In this case, again, there was an amount stated or fixed
to 250,000 but it also includes all hose that the Mortgagee may
extend to the Mortgagor and/or DEBTOR, including interest and
expenses or any other obligation owing to the Mortgagee, whether
direct or indirect, principal or secondary.
However, take note that such clauses are carefully scrutinized
and strictly construed. Mortgages of this character enable the
parties to provide continuous dealings, the nature or extent of
which may not be known or anticipated at the time, and they avoid
the expense and inconvenience of executing a new security on each
new transaction.
The real estate mortgage secures or covers not only the 250,000
but also future credit facilities. However, while the dragnet
clause is valid, we have here other loans which were covered by
another security other than this real estate mortgage with a
dragnet clause. In other words, with regard to preference the
specific property mortgaged to cover the other two obligations
would have been first applied or foreclosed before availing of what
is present in the blanket mortgage clause. Again, take note of how
these clauses should be carefully interpreted and construed
strictly and carefully scrutinized.
More often than not, these real estate mortgage is a contract of
adhesion, banks or financial institutions already have a pro forma
mortgage contract and you would just fill in the blanks as in the
case of prudential vs. alviar. While contracts of adhesion are also
considered as strictly construed and carefully scrutinized, again,
just because it is a contract of adhesion it does not mean that
there is vitiated consent on the part of the mortgagor.
Article 2128. The mortgage credit may be alienated or assigned
to a third person, in whole or in part, with the formalities
required by law. (1878)
Mortgaged credit, this refers to the right of the mortgagee. The
right of the mortgagee over the property mortgaged may be alienated
or assigned to a third person in whole or in part.
Example:
Ron here assigned his rights creditor-mortgagee in favor of
Julian. So what do we have here? If Giovanni fails to pay the
obligation then Julian being the assignee of the rights of Ron can
foreclose the property even if he is not the original creditor.
That right is provided under Article 2128 wherein the assignee
can foreclose the property subject to the mortgage since the right
of the mortgagee has already been assigned to him. The alienation
or assignment is valid even if it is not registered. The assignment
between Ron and Julian. Registration again, is only necessary to
affect third persons.
Now on the part of the mortgaged property again, on the part of
Giovanni as mortgagor, he can sell it to third person. He can
alienate the property because again in a mortgage there is no
transfer of ownership. A stipulation saying that upon non-payment
of the obligation that the property shall automatically be
appropriated or forfeited in favor of the creditor- mortgagee is
not valid, it is void being contrary to public policy and law. And,
we have discussed that under Art. 2128 the concept of pactum
commisorium. If the debar cannot pay and there was a mortgage
executed, follow the procedures outlined by law with respect to the
foreclosure of the mortgage.
Vega v. SSS
Q: What is Article 1237?A: Article 1237, Whoever pays on behalf
of the debtor without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in his rights,
such as those arising from a mortgage, guaranty, or penalty.
(1159a)
Q: Can we apply that article to the facts of this case?A: No.
Article 1237 cannot apply in this case since Reyes consented to the
transfer of ownership of the mortgaged property to the Vegas. Reyes
also agreed for the Vegas to assume the mortgage and pay the
balance of her obligation to SSS.
Even if paragraph 4 of the mortgage contract covering the
property required Reyes to secure SSS consent before selling the
property is a stipulation that is valid and binding, in the sense
that the SSS cannot be compelled while the loan was unpaid to
recognize the sale, it cannot however, be interpreted as absolutely
forbidding her, as owner of the mortgaged property, from selling
the same while her loan remained unpaid. Such stipulation
contravenes public policy, being an undue impediment or
interference on the transmission of property.
Q: What was the nature or basis of that public auction? Why was
the property sold by the sheriff?A: RTC issued a writ of execution
against Reyes and its Sheriff levied on the property in Pilar
Village.
Q: So what is a foreclosure sale by virtue of a real estate
mortgage? Was the sale considered as an extrajudicial foreclosure
of property? Did Reyes execute a real estate mortgage in favor of
PDC?A: No, Reyes did execute a real estate mortgage in favor PDC.
She acquired the property through the loan she obtained from SSS
and to secure said loan, it was the property acquired from PDC
which was mortgaged in favor of SSS.
Q: So with that, there was a sale in favor of PDC in a public
auction by virtue of an execution sale not extrajudicial
foreclosure sale? And then on the other hand, we have here Vega
occupying the property in the concept of an owner. Now, between PDC
and Vega, who has a better right to the property?A: The spouses
Vegas has a better right to the property over PDC because they
already became owners of the property when the said property was
sold to them by the Reyes.
Q: Is it possible for PDC to considered as a purchaser in good
faith?A: No since at that time that PDC filed an action for a sum
of money against the Reyes they already had a notice of the adverse
claim of the spouses vegas.
So what do you have here? We have here Reyes who borrowed money
from SSS and mortgaged their property subsequently sold to Spouses
Vegas but apparently the Reyes still has a debt to PDC or Pilar
Development Corporation. And thereafter, PDC filed an action for
sum of money. Since Reyes cannot pay, her properties were sold at a
public auction. Remember here that the mortgage in favor of SSS,
the mortgagor was Reyes. And even if it was annotated remember that
it was subsequently released by SSS by virtue of the payment made
by Vegas. Now, in other words, when PDC looked at the title, the
right of spouses Vegas was not annotated therein. Nevertheless, PDC
cannot be considered as purchaser in good faith or cannot take
comfort in the fact that the property remained in the spouses Reyes
name when PDC bought the same in the sheriff sale. PDC cannot
assert that it is a buyer in good faith since it had notice of the
Vegas claim on the property prior to such sale. Therefore, even if
the the deed between Reyes and Vega was not registered, Vega would
nevertheless have a better right over PDC.
This is one thing you have to consider in the execution of a
real estate mortgage, a deed of assignment with an assumption of
mortgage, deed of sale with assumption of real estate mortgage. You
purchase a real estate property but you still have a debt to
financial institutions, PAGIBIG, SSS etc. Now, any transaction, or
sich deed of assignment with assumption of real estate mortgage is
valid between the parties who executed the same. On other words,
the owner sells the property to the buyer and if there is still a
remaining balance the buyer will pay for the same.
However, one thing you should take note of here is, ask the
mortgagee, in this case it was SSS. Remember what was the rule here
of SSS? They will not recognize assignment of mortgage. What do you
mean by that? The assignment is valid between the parties but in
the record of SSS they will not recognize it, in the sense that
when the mortgaged property is already released they have then have
the obligation to release the property to the buyer who bought it
from the original debtor-mortgagor. For their part they are
concerned that the loan be paid by the owner-mortgagor. There may
be other financial institutions or real estate developers which
would acknowledge such documents. For instance, in some cases, if
the buyer still has not paid for the property and is till paying,
and the one who pays for the property is the one who assumes the
debt so that there would only be one transfer, which is directly to
the buyer. So you have to ask, for practicality reasons, ask the
mortgagee, what are the terms or requirement with regard to such
arrangement. Now regardless of the procedure or arrangement on the
part of the mortgagee, it is better on the part of the subsequent
buyers to have that deed of assignment or deed of sale with
assumption of mortgage registered in the title. In this case, Vgeas
was just lucky that when PDC purchased the property it already had
knowledge prior to the sale. What if PDC had no knowledge of the
same? And let us say that Vega was not in possession of the
property, then you could have PDC as an innocent purchaser for
value. It would be Vega who would be financially disadvantaged
because they were the ones who paid the debt of Reyes to SSS. So as
the third person being the innocent purchaser for value would have
a better right. The only remedy available here to the subsequent
buyer is to go after the original owner. The problem here Reyes is
no longer in the Philippines. How can you recover from Reyes? The
subsequent buyer would have no recourse against Reyes unless Reyes
has other properties. So you should consider this, there are a lot
of assumption of mortgage that happens, so you have to make sure to
ask the if it will be acknowledged by the mortgagee or the
financial institution and then aside from that, make sure that you
register it. As in this case, the assignment or the deed of sale
with assumption of mortgage was not registered then third persons
can be considered as innocent purchaser for value consequently,
they would be considered to have a better right.
Article 2129.The creditor may claim from a third person in
possession of the mortgaged property, the payment of the part of
the credit secured by the property which said third person
possesses, in the terms and with the formalities which the law
establishes. (1879)
Remember for a valid contract of mortgage there is no
requirement for the delivery of the possession to the
creditor-mortgagee. However, there is nothing that would prohibit
the parties from turning over the possession.
General Rule: It is not required that the possession be
transferred to the creditor-mortgagee.
Exception: Stipulation by the parties that possession be
transferred to the creditor-mortgagee.
Now, with that this also means in our example, Giovanni could
sell th property to Jordan, deliver the property to Jordan and
Jordan will be in possession of the subject property. Under Art.
2129, the creditor may claim the payment of the credit to secure
the property even if it is already in possession of a third person
it may be proceeded against by the creditor as payment of the
obligation. So what does this mean?
The illustration there in your book, the obligation of the
debtor there is 600,000. The value of the property is 500,000 the
creditor can try to collect from the third person the value of the
property which is 500,000. However, prior demand is required of the
ebtor. The creditor has to first demand debtor-mortgagor before
proceeding against the third person who purchased the mortgaged
property. Now, if you demanded payment from the third person and
the third person pays, this third person can seek reimbursement
from the principal debtor. If there was a foreclosure proceeding,
debtor did not pay, Jordan tells the third person that he will also
not pay, the property is foreclosed and the deficiency will not be
the obligation of the third person but rather the creditor can
demand the deficiency to the principal debtor. The third person
cannot be held for the deficiency unless again, there is a novation
in the contract wherein there is a substitution in the person of
the debtor.
Article 2130. A stipulation forbidding the owner from alienating
the immovable mortgaged shall be void. (n)
Remember the ownership remains with the debtor-mortgagor and
2130 is clear that any stipulation prohibiting the mortgagor from
alienating the immovable mortgaged is void. Do recall the case of
Vega v. SSS. There was a stipulation there in the mortgage,
requiring Reyes to secure SSS consent before selling the property.
What was the ruling of the court? Although such stipulation is
valid and binding, in the sense that SSS cannot be compelled while
the loan is unpaid to recognize the sale, it cannot be interpreted
as absolutey forbidding her otherwise, it would be in contravention
to Article 2130. As owner of mortgaged property requiring the
consent of SSS to the sale while her loan was remain unpaid, such
stipulation contradicts public policy and is deemed as an undue
impediment or interference on the transmission of the property.
In other words, if such consent would be required before the
mortgagor could sell it to third persons while it may be valid, it
must not be used in contravention of Art. 2130 wherein what would
happen the mortgagee can always withhold its consent and in effect,
it would be forbidding the owner from alienating the immovable
mortgages. Therefore, that would be considered as void. In
addition, if the mortgagor wishes to sell the property and it is
required the he secures the consent of the mortgagee, otherwise he
can be liable for estaffa which is why the mortgagor cannot be
prevented from having the right to sell the property mortgaged.
How about executing a second or subsequent mortgage? It is also
valid to secure a second mortgage over a property already
mortgaged. For example, Giovanni already mortgaged his property in
favor of Ron, what if Giovanni also mortgaged the same property
after this mortgage to Ron, in favor of Nikki? Is it valid? Yes.
But what we have here, we have the first mortgagee Ron and the
second mortgagee, Nikki and therefore the rights of the second
mortgagee will be subordinate to the rights of the first mortgagee.
If the debtor cannot pay his debts and in the order of payment the
first mortgagee is preferred. The proceeds of the property would be
used to pay whatever is due to the first mortgagee any excess can
be paid to the second mortgagee and so on and so forth. Usually
what would happen here? it Is possible that the second mortgagee
here, Nikki, the property will be foreclosed by Ron as the first
mortgagee. It is possible that Nikki will redeem the property or
pay the obligation of Giovanni because he has an interest in the
obligation. And that would be included in the obligation of
Giovanni which can be part of the security of the second mortgage.
Under the law on obligations and contracts that the creditor is not
bound to accept payment from a third person but if Nikki offers to
pay the obligation of Giovanni just so that the property will not
be foreclosed in favor of Ron, then that would be one of the
instances wherein Ron would be compelled to accept payment from
Nikki because Nikki here has an interest in the obligation. the
first mortgagee cannot refuse payment by a second mortgagee because
the second mortgagee is interested in the extinguishment of the
obligation. Is it really possible to have two mortgages over one
property? Yes, but on your part, as the second mortgagee, you
already have notice of the first mortgage. And what happens? If the
principal obligation of the first mortgage becomes due and
demandable and there would be foreclosure proceedings, if the
proceeds of the foreclosure sale is merely enough or insufficient
to cover the obligation, the second mortgagee no longer has a
security. that is the disadvantage on the part of the second
mortgagee. Probably what would happen here, the property subject to
the first mortgage secures a principal obligation lesser than that
of the value of the property. So if the second second mortgagee
looks at the 1st mortgage, it would be okay on his part because
again if the property would be foreclosed only a portion thereof
can cover the payment of the principal obligation.
What about the right of first refusal? Before Giovanni can sell
it to Jordan, Ron will have a right of first refusal in which
Giovanni must first offer the sale to Ron under the same terms and
conditions. Such stipulation is valid and will not affect the
contract of mortgage. It is also not in contravention of Article
2130. Mortgagor has every right to sell the mortgaged property even
without securing the consent of the mortgagee and therefore, if
there is a right of first refusal, that right of first refusal will
also be valid. A sale made in violation of the mortgagees right of
first refusal is considered as a rescissible contract. Do take note
that for mortgage to be valid as against third persons as provided
in the Civil Code the said mortgage must be registered and such
registration serves as a constructive notice to the whole world
that the has a lien or has been encumbered. and a person dealing
with a property has the obligation to look at the title and see for
himself whether or not the property is encumbered. Some people
would no longer opt to have it annotated on the title because there
are subsequent expenses to have it annotated. Nevertheless,
although it is not required for validity, it should be done because
it is also for your protection as your right can bind third
persons.However, do take note that even if the mortgage lien was
not annotated on the title but the buyer has knowledge of the
existence of such lien, that actual knowledge is deemed a
constructive notice and binds the third person, the buyer can no
longer be considered as a buyer in good faith.
Another situation, Giovanni sold the property to Jordan and the
sale was duly notarized but not yet registered. So in the title,
the property still belongs to Giovanni.Thereafter, Giovanni
mortgages the property to Ron, since in the title Giovanni appears
to be the owner of the property, Ron accepted the offer of the said
mortgage. But in this instance a sale duly notarized over the
mortgaged property already took place. If Giovanni fails to pay his
obligation to Ron and Ron proceeds to foreclose the property. What
is the effect here? Can Jordan oppose the foreclosure of the
property? Remember, as what I have emphasized earlier, sale itself
does not transfer ownership, since ownership is not required for
the perfection thereof we have to take not here that there was
already a deed of sale duly notarized, execution of a public
document which constitutes constructive delivery so therefore at
the time Giovanni mortgaged the property in favor of Ron, Giovanni
was no longer the owner of the subject property as a result, there
is no valid mortgage in favor of Ron to speak of. But, the
principal obligation subsists. Take note that in this case, the
deed of sale in favor Jordan was not even registered. Even if the
mortgage in favor of Ron was registered, there is still no valid
contract of mortgage because at the time the mortgage was executed,
the mortgagor is no longer the owner of the property.
Take note again, the concept of after acquired properties. As a
general rule, after acquired properties cannot be the subject of a
contract of mortgage because at the time of the mortgage you have
to be the owner of the property, in this case the mortgagor
acquires the property after the mortgage was executed. But, as
mentioned earlier, if you are talking of inventories which are to
be replenished as in the ordinary course of business then that
would be allowed as a valid object in a contract of chattel
mortgage.
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. (1880a)
In fact we have the Chattel Mortgage Law and the Land
Registration Law.
Governing laws:
a.) Act 3135 for Real Estate Mortgage
b.) Act 1508 for Chattel Mortgage
c.) PD 1529 for Land Registration
d.) General Banking Law of 2000 where some provisions therein
involves the foreclosure of mortgages
e.) Rule 68 of the Rules of Court- Extrajudicial foreclosure of
property
Take note of those rules in relation to the foreclosure of
properties.
What are the remedies available to a creditor if the debtor
cannot pay him?
1.) File an action for collection of a sum of money.
In this case he abandons the mortgage. Remember the debtor who
executed a real estate mortgage, he cannot compel the creditor to
foreclose the property as the creditor can opt for a collection of
sum of money therefore he abandons the mortgage. Here however,
while the creditor files an action for collection of sum of money,
the creditor can pray for the issuance for a writ of attachment
mortgaged.
2.) He can institute foreclosure proceedings on the mortgaged
property.
*But the remedies available to the creditor are alternative and
not cumulative nature. therefore, he can only opt to exercise
either of the remedies but at no instance can he exercise both.
FORECLOSURE PROCEEDINGS
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 mortgagee was given where the
mortgagor is in default in the payment of said obligation.
Foreclosure proceedings has in their favor the presumption of
regularity and therefore, the burden of evidence to rebut the same
is on the party that seeks to challenge the proceedings.
Two kinds of foreclosure proceedings:
(1) Extrajudicial- foreclosure done without the aid of the
court; governed by Act 3135(2) Judicial- is a foreclosure filed
before the court and governed by Rule 68 of the Rules of Court.
Distinctions between Judicial and Extrajudicial foreclosure:
1.) As to right of redemption. (a) Judicial- debtor-mortgagor
has a right of redemption (b) Extrajudicial- no right of redemption
but only equity of redemption
Spouses Rosales vs Spouses Suba
Q: Why was the property here considered to be subject to a
judicial foreclosure? Was there a mortgage?A: There was an
equitable mortgage.
Q: Why was it considered as an equitable mortgage? What was the
contract executed between the parties?A: The parties executed a
deed of sale but the court considered said deed to be an equitable
mortgage. The Court defined an equitable mortgage as one which
although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to law.
An equitable mortgage is not different from a real estate
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.[6] Since the parties
transaction is an equitable mortgage and that the trial court
ordered its foreclosure, execution of judgment is governed by
Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure, as
amended and not under Act 3135 on extrajudicial foreclosure.
Q: Why do we have to determine whether what we have here is a
judicial foreclosure or an extrajudicial foreclosure?A: It is
important to determine because the right of the redemption of the
debtor-mortgagor would depend on whether or not what exists is a
judicial foreclosure or extrajudicial foreclosure over the
property.
Q: What do you mean by equity of redemption under judicial
foreclosure?A: As provided under Rule 68 of the Rules of Court, the
mortgagor is provided not less than 90 days and no more than 120
days from the entry of judgment to retain ownership over the
property and extinguish the obligation and as long as there is no
confirmation of sale by the court. However, in this case, there was
already confirmation of the judicial foreclosure sale in favor of
Spouses Suba therefore, the Spouses Rosales can no longer redeem
the property.
Here we have an equitable mortgage under Article 1602,
provisions regarding sale. And an equitable mortgage is not any
different from a real estate mortgage because the intention of the
parties is to secure a principal obligation. Since the transaction
between the parties is an equitable mortgage the trial court
ordered its foreclosure and execution of judgment as provided under
Rule 68. Right of redemption is not recognized under a judicial
foreclosure. In a right of redemption, the mortgagor has a one year
period from the date of the registration of sale to redeem the
property. Here, since it was a judicial foreclosure, you only have
equity of redemption. Right to redemption is not recognized in a
judicial foreclosure except when the mortgagee is a banking
institution. Where the foreclosure is judicially effected no
equivalent right of redemption exists, what we have here is only an
equity of redemption wherein it gives the mortgagor 90 from the
date of entry of judgment or even after the foreclosure sale but
prior to its confirmation, to extinguish the obligation and retain
the property.
Section 2. Judgment on foreclosure for payment or sale. If upon
the trial in such action the court shall find the facts set forth
in the complaint to be true, it shall ascertain the amount due to
the plaintiff upon the mortgage debt or obligation, including
interest and other charges as approved by the court, and costs, and
shall render judgment for the sum so found due and order that the
same be paid to the court or to the judgment obligee within a
period of not less than ninety (90) days nor more than one hundred
twenty (120) days from the entry of judgment, and that in default
of such payment the property shall be sold at public auction to
satisfy the judgment. (2a)
General Rule: No right of redemption in judicial foreclosure
after the confirmation of the sale mortgagor can no longer redeem
the property
Exception: Mortgagee is a banking institution as provided under
the banking laws, even if it is a judicial foreclosure as long as
the mortgagee is a bank the mortgagor has the right to redeem the
property within one year reckoned from the date of registration of
the foreclosure sale.
Just an overview of the procedure under a judicial
foreclosure.
1.) Essentially, you would file an action with RTC which has
jurisdiction over the location of the subject matter.
2.) Thereafter, the court would order the payment of the debt
within 90-120 days from the entry of judgment, after which, one can
already exercise the equity of redemption.
3.) If the mortgagor does not pay, the court orders the sale of
the property to the highest bidder and then the court calls the
parties for the confirmation of the sale.
4.) The confirmation of the sale is a hearing where the parities
will appear and the mortgagor can assail the validity of the option
or question the legality thereof.
5.) Afterwhich, there will be execution of the judgment,
application of the proceeds and the issuance or execution of the
sheriff certificate.
6.) Thereafter, a registration of the certified true copy of the
final order of the court confirming the sale.
* Remember the equity of redemption in a judicial foreclosure
will not stop on the 120th day, even if it is not within the 90-120
day period for as long as there is no confirmation of the sale, the
mortgagor can redeem the property by paying the amount of the debt
and not the purchase price of the sale.
Who can redeem the property? The mortgagor, or one who is in
privity of the mortgagor, or the successors in interest of the
mortgagor. He can be a person whom the debtor has transferred his
right, a person whom the debtor has contained his interest in the
subject matter, one who succeeds to the interest of the debtor, one
who is a joint debtor or joint owner of the subject matter.
In case of deficiency in a judicial foreclosure, the
creditor-mortgagee can recover within ten years from the time the
right of action accrues. In fact you can also recover within the
90-120 period. The deficiency must be incorporated in the
deficiency judgment in a judicial foreclosure. In other words, you
have to look at the judgment of the court with respect to the
deficiency judgment, the proceeds there is still a balance which
shall be paid by the debtor-mortgagor.
In summary:
Judicial foreclosure: equity of redemption; 90-120 from date of
entry of judgment AND as long as the there is no confirmation
sale.
Exception: right of redemption if the mortgagee is a bank (1
year from registration of sale)
Extrajudicial foreclosure
General Rule: Right of redemption (1 year period from
registration of sale)Exception: equity of redemption applicable if
the mortgagor is a juridical entity; 1 year period of redemption
will not apply, the juridical entity can pay the obligation within
but not after registration until registration but not more than 3
months after foreclosure.
> covered by Act 3135
Act 3135
Procedure:
1.) File an application with the executive judge who
jurisdiction over the property.
2.) Requisite posting of notice of the sale if property is
valued at 400 pesos; if more than 400 pesos publication of the
notice of sale once a week for at least three consecutive weeks in
a newspaper of general circulation.
3.) Clerk of court issues a certificate of payment and the
application is raffled among the sheriff.
4.) 1st sale, there must be at least two bidders. If there is
only one bidder or no one bids, the sale will be postponed.
5.) In the 2nd sale, one who emerges as the highest bidder the
certificate of sale will be approved by the executive judge or the
vice executive judge in his absence and is issued to the winning
bidder.
6.) Registration of the sale and from this date will the 1 year
redemption period will run; or if a mortgagor is a juridical entity
three months.
7.) If the redemption period expires, the clerk will archive the
records.
*this is why I mentioned before, in an extrajudicial
foreclosure, it does not technically mean that there is no court
intervention since you still you have to file a petition with the
judge. It is only that there is no longer a hearing but mainly
summary procedures to be followed.