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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 1 of 42
REAL MORTGAGE & FORECLOSURE OF REAL
ESTATE MORTGAGE Just like in pledge, a real estate mortgage is
an accessory contract. A contract whereby the debtor securing to
the creditor the fulfillment of the principal obligation specially
subjecting to such security immovable property or real rights over
the immovable property, which the obligation shall be satisfied
with the proceeds of the sale of such property or rights, in case
such obligation is not complied with at the time stipulated. It is
very clear that a real estate mortgage is an accessory contract,
and just like a pledge or even a contract of guaranty or
suretyship, it can have a separate consideration but if there is no
separate consideration, it can have the same consideration as that
of the principal obligation. As a real estate mortgage is an
accessory contract, without a valid principal contract, there can
be no valid real estate mortgage. The obligation may be secured by
a third person (refer to the last paragraph of Article 2085), and
it will be valid as long as the principal obligation is valid and
all the essential requisites are present. And of course, you cannot
question the validity of a real estate mortgage for lack of
consideration because again, it will have the same consideration as
that of the principal obligation. We have here the case of DBP vs
CA:
DBP vs CA
Q: From whom did the spouses Mangubat bought the subject land?
A: DBP Q: And they also applied for a loan, was it approved by DBP?
A: Yes Q: What was the reason why DBP refused to release part of
the loan? Q: How did the nature or classification of that land
affect the loan? Why was it relevant as to the release of the
remaining portion of the loan? Q: What is the relationship of the
land to the contract of loan? A: The land served as a security for
the loan obtained through the execution of the real estate
mortgage, wherein the subject of said REM is the land Q: The
refusal of DBP of the loan was premised on what ground? A: That the
land was not disposable as private land. Q: What did the spouses
contend? A: The spouses filed for annulment of the deed of sale. Q:
How did the court rule on the annulment of the deed of sale? A: The
court declared the sale as not valid due to the absence of a valid
subject matter as the land involved is inalienable. Q: Did the
nullity of the sale of the land affect the validity of the loan? A:
No because the contract of loan is the principal obligation and it
being separate and distinct from the accessory obligation (which is
the real estate mortgage), the invalidity of the accessory contract
(the REM) does not result to invalidity of the principal
contract.
The declaration of nullity of a contract which is void ab initio
operates to restore things to the state and condition in which they
were found before the execution. The return by DBP (to sps
Mangubat) is called for. But that is separate from the issue of the
loan wherein it was perfected upon the release (of the money) in
favor of the spouses, therefore DBP has the right to demand payment
of said loan. The fact that the annulment of the sale will also
result in the invalidity of the mortgage does not have an effect on
the validity and efficacy of the principal obligation, for even an
obligation that is unsupported by any security of the debtor may
also be enforced by means of an ordinary action. There is no valid
mortgage, but then again, the principal obligation remains valid
and not rendered null and void. Under the foregoing circumstances,
what is lost is only the right to foreclose the mortgage as a
special remedy for satisfying or settling the indebtedness which is
the principal obligation. However, the mortgage remains as evidence
or proof of a personal obligation of the debtor, and the amount due
to the creditor may be enforced in an ordinary personal action. So,
a real estate mortgage is an accessory contract. Even if it be
declared null and void, its (in)validity will not affect the
validity of the principal contract. (recall the principle:
Accessory follows the principal!) 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. Kinds of Mortgage
(1) Voluntary - Agreed to between the parties or constituted
by the will of the owner of the property on which it is
created.
(2) Legal - Required by law to be executed in favor of
certain persons
(3) Equitable - Although lacks proper formalities or other
requisites of a mortgage required by law, nevertheless reveals
the intention of the parties to burden real property as security
for a debt, and contains nothing impossible or contrary to law.
- Governed by Art 1602 of the Civil Code:
Art. 1602. The contract shall be presumed to be an equitable
mortgage, in any of the following cases: (1) When the price of a
sale with right to repurchase is unusually inadequate; (2) When the
vendor remains in possession as lessee or otherwise; (3) When upon
or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new
period is executed; (4) When the purchaser retains for himself a
part of the purchase price; (5) When the vendor binds himself to
pay the taxes on the thing sold; (6) In any other case where it may
be fairly inferred that the real intention of the parties is
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 2 of 42
that the transaction shall secure the payment of a debt or the
performance of any other obligation. In any of the foregoing cases,
any money, fruits, or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest which shall be
subject to the usury laws. (n)
What are the valid objects as to real estate mortgage?
Article 2124. Only the following property may be the object of a
contract of mortgage: (1) Immovables; (2) Alienable real rights in
accordance with the laws, imposed upon immovables. Nevertheless,
movables may be the object of a chattel mortgage.
What are immovables? (Article 415, Civil Code)
Article 415. The following are immovable property: (1) Land,
buildings, roads and constructions of all kinds adhered to the
soil; (2) Trees, plants, and growing fruits, while they are
attached to the land or form an integral part of an immovable; (3)
Everything attached to an immovable in a fixed manner, in such a
way that it cannot be separated therefrom without breaking the
material or deterioration of the object; (4) Statues, reliefs,
paintings or other objects for use or ornamentation, placed in
buildings or on lands by the owner of the immovable in such a
manner that it reveals the intention to attach them permanently to
the tenements; (5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement for an industry or
works which may be carried on in a building or on a piece of land,
and which tend directly to meet the needs of the said industry or
works; (6) Animal houses, pigeon-houses, beehives, fish ponds or
breeding places of similar nature, in case their owner has placed
them or preserves them with the intention to have them permanently
attached to the land, and forming a permanent part of it; the
animals in these places are included; (7) Fertilizer actually used
on a piece of land; (8) Mines, quarries, and slag dumps, while the
matter thereof forms part of the bed, and waters either running or
stagnant; (9) Docks and structures which, though floating, are
intended by their nature and object to remain at a fixed place on a
river, lake, or coast; (10) Contracts for public works, and
servitudes and other real rights over immovable property.
We have here the case of Soriano vs Galit:
Soriano vs Galit Q: What kind of sale took place here? A:
Execution sale Q: Was there a REM executed here? Was that the basis
of the sale? A: No
Q: What was the defect of the issuance of certificate of sale?
Q: Can a building, excluding the land, be a valid subject of REM?
A: Yes Q: How about if you have a land with building, can the land
be a valid subject of REM excluding the buildings and improvements
thereon? A: Yes
Notice in this case, there was no foreclosure sale arising from
the foreclosure of the REM, what happened here is an execution
sale. Nevertheless, this is an important case as it provides that a
notice must have a correct description of the property subject of
the REM. Note that an incorrect title number together with a
correct technical description of the property to be sold and vice
versa is deemed a substantial and fatal error which results in the
invalidation of the sale. Subsequently including properties which
have not been explicitly mentioned in the notice for registration
purposes under suspicious circumstances smacks of fraud. What was
included in the (notice of) execution sale was just the storehouse
or the bodega. The SC emphasized that the building is separate and
distinct from the parcel of land (where it is erected). While it is
true that a mortgage of land necessarily includes buildings, in the
absence of stipulation of the improvements thereon, a building by
itself may be mortgaged apart from the land on which it has been
built. Such mortgage would be still a real estate mortgage for the
building would still be considered immovable property even if dealt
with separately and apart from the land. Considering that what was
sold by virtue of the writ of execution issued by the trial court
was merely the storehouse and bodega constructed on the parcel of
land covered by Transfer Certificate of Title No. T-40785, which by
themselves are real properties of respondents spouses, the same
should be regarded as separate and distinct from the conveyance of
the lot on which they stand. Therefore, a building in itself can be
a valid subject of REM. The second object as enumerated under
Article 2124 includes alienable real rights or rights over the
immovable (such as usufruct), but not the property itself, only the
right to use it. A real right over a real property is considered a
real property and a valid object in a REM. Take note that the
subject matters listed in Article 2124 are the only valid subject
matters of a REM. Why? Because of the word only. In other words,
the list is exclusive. The third paragraph emphasizes that movables
can be valid subject of chattel mortgage, however, if it is
delivered it is a contract of pledge. Under Article 2085, it was
emphasized that the mortgagor must be the owner of the subject
parcel of land. With that: GR: Future property cannot be a valid
object of REM because at the time the mortgagor entered in to the
contract of mortgage, he still do not own the future property
EX:
Mendoza vs CA
Q: What do you mean by after-acquired chattel? A: Properties
which were not yet existent at the time of the execution of the REM
Q: Is there a chattel mortgage here or REM?
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 3 of 42
A: Both Q: What was the ruling of the Court with respect to the
machineries and equipment, can it be valid SM in a REM? Q:
Machineries in itself, are they movable or immovable? A: Movable Q:
In this case, was it considered to be movable or immovable? A:
Immovable Q: Why? A: Immovable by destination, therefore valid
subject matter of REM
If there is a movable property and it is made as a subject
matter in a REM, the parties would nevertheless be bound to such
agreement. In this case, the said promissory notes authorized
respondent bank, in case of default, to sell things of value
belonging to the mortgagor which may be on its hands for deposit or
otherwise belonging to me/us and for this purpose. Besides the
petitioner executed not only a chattel mortgage but also a real
estate mortgage to secure his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope and effect to
after-acquired property is valid and binding where the
after-acquired property is in renewal of, or in substitution for,
goods on hand when the mortgage was executed, or is purchased with
the proceeds of the sale of such goods. With regard to the subject
matter PNB asserts that those movables were in fact "immovables by
destination" under Art. 415 (5) of the Civil Code.i It is an
established rule that a mortgage constituted on an immovable
includes not only the land but also the buildings, machinery and
accessories installed at the time the mortgage was constituted as
well as the buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof. So, immovable
by destination with regard to the machinery and accessories. Do
take note of the distinction between a REM and a pledge. Although
they have similar requisites under Article 2085:
Article 2085. The following requisites are essential to the
contracts of pledge and mortgage: (1) That they be constituted to
secure the fulfillment of a principal obligation; (2) That the
pledgor or mortgagor be the absolute owner of the thing pledged or
mortgaged; (3) That the persons constituting the pledge or mortgage
have the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose. Third
persons who are not parties to the principal obligation may secure
the latter by pledging or mortgaging their own property.
REM vs Pledge
REM Pledge
Subject matter Real property: immovable
Personal property
Possession Delivery of the subject matter to the mortgagee is
not necessary for its validity. GR is that the mortgagor
retains
It is a real contract perfected by delivery, possession is
required
possession of the property mortgaged. (EX: stipulation by the
parties)
Fruits Mortgagee does not have the rights over the fruits of the
SM
Pledgee have the right to apply the fruits of the property
delivered to him to the principal obligaiton
Foreclosure Extrajudicial and judicial
Extrajudicial in nature
Registration to bind 3rd person
Required: the fact that it is notarized is not sufficient to
bind 3rd persons
Not required: what is required is description of the thing
pledged, date of pledge, in a public instrument
Article 2125. In addition to the requisites stated in Article
2085, it is indispensable, in order that a mortgage may be validly
constituted, that the document in which it appears be recorded in
the Registry of Property. If the instrument is not recorded, the
mortgage is nevertheless binding between the parties. The persons
in whose favor the law establishes a mortgage have no other right
than to demand the execution and the recording of the document in
which the mortgage is formalized. (1875a)
Article 2125 emphasizes the requirement for registration of the
said mortgage before the registry of property, but this is only to
bind third persons. If the instrument is not recorded, the
instrument is nevertheless binding between the parties. Absent the
annotation, the mortgage cannot be binding as against third persons
as provided under the Torrens System, third parties cannot be bound
by lien not found in the title. Going back to the characteristics
of REMreal, accessory, unilateral, and subsidiary: is REM a real
contract wherein delivery is required? No. Thus, there is no basis
in saying that a REM is a real contract because again delivery is
not required for the validity of the REM. The last paragraph of
Article 2125 applies to legal or equitable mortgage under Article
1602. With regard to the validity of the REM whether it be in a
private or public document, recall the case of Hechanova vs Adil
the mortgagee can demand that the mortgage be executed in a public
instrument. The private instrument can be used as evidence wherein
the creditor can file an action for the execution of the mortgage
and subsequently the registration of said mortgage. He has the
right to compel the debtor to execute a contract of mortgage in a
public instrument. Again, to bind third persons, a mortgage must be
registered. However, you cannot go directly to the register of
deeds with a private instrument. Now if a mortgage is not
registered, the mortgage however is valid as between the parties as
registration operates only as notice to third persons but does not
add to its validity nor convert an invalid one to a valid one (ie
mortgage is duly notarized and subsequently registered before the
ROD, however it was discovered that the mortgagor is not the owner
of the property, the mortgage is still not valid).
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 4 of 42
Tan vs Valdehueza Q: Who was in possession of the property? A:
Valdehuezas Q: What was the basis of Tan for filling the case
against the Valdehuezas so that Tan would have possession over the
said property? A: Pacto de retro sale Q: Was there an auction sale?
What was the basis of that auction sale? Q: What was the contract
entered into between the Valdehuezas and Tan? A: Equitable mortgage
because Valdehuezas remained in possession of the property which is
one of the badges under Art 1602
Notice that in this case the contract that they executed is a
Deed of Pacto de Retro Sale, which in itself does not show that it
is a REM. But the SC held that this was an equitable mortgage since
the intention here is to secure the principal obligation moreover
badges provided under Art 1602 are present: Valdehuezas remained in
possession of the land, and they even paid for the taxes of said
land. The Valdehuezas having remained in possession of the land and
the realty taxes having been paid by them, the contracts which
purported to be pacto de retro transactions are presumed to be
equitable mortgages, whether registered or not, there being no
third parties involved. Another thing that you have to consider in
a REM is the fact that it must sufficiently describe the debt or
the obligation sought to be secured.
Sps Viola vs Equitable Q: What are the contracts executed here?
A: REM Q: What obligation was secured by that REM? A: Loan premised
on the credit line agreement Q: What was included in the credit
line agreement? A: Principal obligation with interest Q: What was
included in the REM? What was the obligation secured? A: Principal
obligation, interests, bank charges Q: Since the penalty is not
included in the REM, what is the effect with respect to the
foreclosure of the real estate mortgage? A: Still valid, but does
not include the penalty
Again, a mortgage must sufficiently describe the debt sought to
be secured, which description must not be such as to mislead or
deceive, and an obligation is not secured by a mortgage unless it
comes fairly within the terms of the mortgage. The mortgage
contract here did not specifically mention (aside from the
principal loan obligation), the payment of the penalty fee of 3%
per month, which was provided for in the credit line agreement.
Since an action to foreclose must be limited to the amount
mentioned in the mortgage and the penalty fee of 3% per month of
the outstanding obligation is not mentioned in the mortgage, it
must be excluded from the computation of the amount secured by the
mortgage. Moreover, penalty fee is entirely different from bank
charges. The phrase bank charges is normally understood to refer to
compensation for services. A penalty fee is likened to a
compensation for damages in case of breach of the obligation. Being
penal in nature,
such fee must be specific and fixed by the contracting parties,
unlike in the present case which slaps a 3% penalty fee per month
of the outstanding amount of the obligation. So the penalty fee was
just excluded in the computation. Doctrine of mortgagee in good
faith A mortgagee has the right to rely in good faith on the
certificate of title of the mortgagor of the property given as
security and in the absence of any sign that might arouse
suspicion, the mortgagee has no obligation to undertake further
investigation. All persons dealing with the property are not
required to go beyond what appears on the face of the title.
However, this does not apply to a situation where the title is
still in the name of the rightful owner and the mortgagor is a
different person pretending to be the owner. The principle of
mortgage in good faith is not applicable in the following
instances:
1) Purchaser or mortgagee has knowledge of the defect of the
title
2) The mortgagee does not directly deal with the registered
owner of the real property
3) Mortgagee was aware of sufficient facts to induce a
reasonably prudent man to inquire to the status of the property in
litigation
4) When the mortgagee is a bank of financing institutionit is
required to go further than what appears on the face of the Torrens
title; it is expected to exercise greater care and prudence and
higher standard of diligence - So remember in Cavite Development
Bank
vs Lim where Cavite Development Bank was not considered to be
mortgagee in good faith.
State Investment vs CA
Q: Which is superior between a contract to sell and mortgage? A:
Registered CTS Q: Why? A: Because State Investment was not
considered as mortgagee in good faith because it being a financing
institution, it cannot rely upon the face of the title Q: What are
the other reasons why State Investment was not considered to be
mortgagee in good faith? A: It had knowledge of the defect Q: Is
there already transfer of ownership? A: There was no transfer of
ownership as there was no delivery
In this case you have here a registered mortgage and
unregistered right under the CTS. STATEs registered mortgage right
over the property is inferior to that of respondents-spouses
unregistered right. As a general rule, where there is nothing in
the certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance thereon, the
purchaser is not required to explore further than what the Torrens
Title upon its face indicates in quest for any hidden defect or
inchoate right that may subsequently defeat his right thereto. This
rule, however, admits of an exception as where the purchaser or
mortgagee, has knowledge of a defect or lack of title in his
vendor, or that he was aware of sufficient facts to induce a
reasonably prudent man to inquire into the status of the title of
the property in litigation. In this case, petitioner (State) was
well aware that it was dealing with SOLID, a business entity
engaged in the business of selling subdivision lots. In fact, the
OAALA found that at the time the lot was mortgaged, State
Investment House, Inc., had been aware of the lots
-
CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 5 of 42
location and that said lot formed part of Capital Park/Homes
Subdivision. As petitioner is a financing institution, it is to
investigate, examine and assess the real property offered as
security for any loan application. It is a settled rule that a
purchaser or mortgagee cannot close its eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted
in good faith under the belief that there was no defect in the
title of the vendor or mortgagor. Petitioner was not a purchaser or
mortgagee in good faith; hence petitioner cannot solely rely on
what merely appears on the face of the Torrens Title.
PNB vs Corpuz Q: Who was the registered owner? Was there a title
issued to Bondoc? A: Yes Q: How about the subsequent sale issued to
Palaganas? A: Yes Q: Why would it be important to determine whether
the bank is a mortgagee in GF? Q: Was the mortgage entered into by
the Songcuans here valid? A: No Q: Nevertheless, does this mean
that PNB is a mortgagee in GF? A: No, aside from the period, the
price for which it was sold was too small as to be considered as
realistic sale
Take note here that even if the mortgage was considered as void
for not having complied with the requirements under the law,
mortgagee in good faith is protected. As emphasized, an exception
to this mortgagee in good faith are banks and financing
institutions. Banks are expected to be more cautious than ordinary
individuals in dealing with lands, even registered ones, since the
business of banks is imbued with public interest. It is of judicial
notice that the standard practice for banks before approving a loan
is to send a staff to the property offered as collateral and verify
the genuineness of the title to determine the real owner or owners
of the property. Petitioner PNB was informed of the previous TCTs
covering the subject property. And the PNB has not categorically
contested this finding. It is evident from the faces of those
titles that the ownership of the land changed from Corpuz to
Bondoc, from Bondoc to the Palaganases, and from the Palaganases to
the Songcuans in less than three months and mortgaged to PNB within
four months of the last transfer. This should have driven the PNB
to look at the deeds of sale involved. It would have then
discovered that the property was sold for ridiculously low prices:
Corpuz supposedly sold it to Bondoc for just P50,000.00; Bondoc to
the Palaganases for just P15,000.00; and the Palaganases to the
Songcuans also for just P50,000.00. Yet the PNB gave the property
an appraised value of P781,760.00. Anyone who deliberately ignores
a significant fact that would create suspicion in an otherwise
reasonable person cannot be considered as an innocent mortgagee for
value.
Canlas vs CA Q: Wasnt it that a SPA was executed to authorize
Manosca to mortgage the property? A: There was intervention of
impostor, and it was not through the SPA that the land was
mortgaged Q: Can the bank here be considered as mortgagee in good
faith? What was the negligence on the part of the
bank? How was it discovered that they were impostors?
It is already settled that the banks and financial institutions
are required to exert more diligence as compared to other
mortgagees. Respondent bank did not observe the requisite diligence
in ascertaining or verifying the real identity of the couple who
introduced themselves as the spouses Osmundo Canlas and Angelina
Canlas. It is worthy to note that not even a single identification
card was exhibited by the said impostors to show their true
identity; and yet, the bank acted on their representations simply
on the basis of the residence certificates bearing signatures which
tended to match the signatures affixed on a previous deed of
mortgage to a certain Atty. Magno, covering the same parcels of
land in question. The efforts exerted by the bank to verify the
identity of the couple posing as Osmundo Canlas and Angelina Canlas
fell short of the responsibility of the bank to observe more than
the diligence of a good father of a family. The negligence of
respondent bank was magnified by the fact that the previous deed of
mortgage (which was used as the basis for checking the genuineness
of the signatures of the suppose Canlas spouses) did not bear the
tax account number of the spouses, as well as the Community Tax
Certificate of Angelina Canlas. But such fact notwithstanding, the
bank did not require the impostors to submit additional proof of
their true identity. The SC also applied here the doctrine of last
clear chance in Torts and Damages, the Court finds that it cannot
be denied that the bank had the last clear chance to prevent the
fraud, by the simple expedient of faithfully complying with the
requirements for banks to ascertain the identity of the persons
transacting with them. Under the attendant facts and circumstances,
Osmundo Canlas was undoubtedly negligent, which negligence made
them (petitioners) undeserving of an award of Attorneys fees.
However, it cannot be denied that the bank is not considered to be
mortgagee in GF. The mortgage here is considered void as it was
constituted by an impostor and for failing to exercise the
negligence required of banks, the bank cannot be considered
mortgagee in GF.
Agricultural vs Yusay Q: Registration is a ministerial act, what
do you mean by that? A: The ROD does not exercise discretion in
registering mortgages, as it is a ministerial act Atty Sarona: As
long as the requirements are duly complied with, the ROD must
register the mortgage without exercise of its discretion. Q: In
case you have a void mortgage, does the registration thereof cure
the invalidity of the mortgge? A: No
Registration is a mere ministerial act, the ROD has no
discretion and can refuse as long as the requirements are complied
with. 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 certificate of title covering the land subject of the deed,
contract or instrument. The registration of a lease or mortgage, or
the entry of a memorial of a lease or mortgage on the register, is
not a declaration by the state that such an instrument is a
valid
-
CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 6 of 42
and subsisting interest in land; it is merely a declaration that
the record of the title appears to be burdened with the lease or
mortgage described, according to the priority set forth in the
certificate. The mere fact that a lease or mortgage was registered
does not stop any party to it from setting up that it now has no
force or effect. In registration and annotation of the mortgage it
does not pass on its invalidity or effect. As the mortgage is
admittedly an act of the registered owner, all that the judge below
did and could do, as a registration court, is to order its
registration and annotation on the certificate of title covering
the land mortgaged. By said order the court did not pass upon the
effect or validity of the mortgage these can only be determined in
an ordinary case before the courts, not before a court acting
merely as a registration court, which did not have the jurisdiction
to pass upon the alleged effect or validity. Even if it is
registered, one can still go to court to have it declared as void
through annulment of REM, and then pray for the cancellation of the
REM. 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. 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.
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 note 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 and Family Relations, 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 Ross v. PNB. Ross 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, it is 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
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 7 of 42
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 torn 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.
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 8 of 42
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. 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.
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. 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
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 9 of 42
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 provides:
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. 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
Vega.
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 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 such 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
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 10 of 42
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, Vegas 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 the 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 debtor. 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 estafa 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
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 11 of 42
the first mortgage secures a principal obligation lesser than
that of the value of the property. So if the 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. NOTA BENE: 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.
Judicial vs Extrajudicial foreclosure:
Extrajudicial
Judicial
As to right of redemption of debtor-mortgagor
has a right of redemption no right of redemption but only equity
of redemption ion
no right of redemption but only equity of redemption
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 12 of 42
As to the law applicable
Act 3135 Rule 68 of the Rules of Court
As to period of redemption
1 yr. period from date of registration Debtor mortgagor is a
juridical entity: 3 months from the
90-120 days from date of entry of judgment ; even after the
90-120 period but before the confirmation of sale Mortgagee is is a
banking institution 1 yr. from the date of entry judgment
Spouses Rosales v. 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, Rule 68. 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. Judicial Foreclosure
under Rule 68
1.) The mortgagee would file a a petition for judicial
foreclosure in the court which has jurisdiction over the area where
the property is situated.
2.) The court will conduct a trial. If, after trial, the court
finds merit in the petition, it will render judgment ordering the
mortgagor/debtor to pay the obligation within a period not less
than 90 nor more than 120 days from the finality of judgment.
3.) Within this 90 to 120 day period, the
mortgagor has the chance to pay the obligation to prevent his
property from being sold. This is called the EQUITY OF REDEMPTION
PERIOD.
4.) If mortgagor fails to pay within the 90-120 days
given to him by the court, the property shall be sold to the
highest bidder at public auction to satisfy the judgment.
5.) There will be a judicial confirmation of the sale.
After the confirmation of the sale, the purchaser shall be
entitled to the possession of the property, and all the rights of
the mortgagor with respect to the property are severed or
terminated. The equity of redemption period actually extends until
the sale is confirmed. Even after the lapse of the 90 to 120 day
period, the mortgagor can still redeem the property, so long as
there has been no confirmation of the sale yet. Therefore, the
equity of redemption can be considered as the right of the
mortgagor to redeem the property BEFORE the confirmation of the
sale.
6.) The confirmation of the sale is a hearing where the parities
will appear and the mortgagor can
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CREDIT TRANSACTIONS Real Mortgage to Concurrence &
Preference of Credits
Atty. Jazzie M. Sarona, CPA 2 Manresa Roman 2ND sem, AY
2014-2015
For the use of ALL students under Atty Sarona Bagundang, Ching,
Dayhon, Garcia, Harun, Lopez, Montefolca, Rodriguez, Uy, Tan,
Villacampa Page 13 of 42
assail the validity of the option or question the legality
thereof.
7.) There will be execution of the judgment, application of the
proceeds and the issuance or execution of the sheriff
certificate.
8.) 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?
1.) The mortgagor 2.) One who is in privity of the mortgagor 3.)
The successors in interest of the mortgagor. 4.) A person whom the
debtor has transferred his
right 5.) A person whom the debtor has contained his
interest in the subject matter 6.) One who succeeds to the
interest of the debtor 7.) 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 General Rule: 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. Act 3135 Extrajudicial Foreclosure Procedure: 1.) File
an application with the executive judge who has the jurisdiction
over the property. 2.) Requisite posting of notice of the sale; if
the 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. Judicial foreclosure is under special civil action. Extra
judicial foreclosure is under Act 3135. Act 3135 is an act to
regulate the sale of property under special powers inserted in or
annexed to real estate mortgages. We have here an extrajudicial
foreclosure.
SECTION 1. When a sale is made under a special power inserted in
or attached to any real-estate mortgage hereafter made as security
for the payment of money or the fulfillment of any other
obligation, the provisions of the following election shall govern
as to the manner in which the sale and redemption shall be
effected, whether or not provision for the same is made in the
power.
For you to be able to promptly advance an execution foreclosure
of real estate mortgage, make sure that in the same contract of
real estate mortgage or attached thereto there is a special power
or authority given by the mortgagor to the mortgagee to foreclose
or sell the subject property in case the debtor fails to pay. In
the absence of that authority you cannot apply for extrajudicial
foreclosure. The only remedy would be by judicial foreclose or an
action for sum of money.
SECTION 2. Said sale cannot be made legally outside of the
province in which the property sold is situated; and in case the
place within said province in which the sale is to be made is
subject to stipulation, such sale shall be made in said place or in
the municipal building of the municipality in which the property or
part thereof is situated.
Section 3 provides for the notice and publication requirement.
This must be strictly complied otherwise, failure to comply with
this provision would result to the nullity of the foreclosure
proceeding.
SECTION 3. Notice shall be given by posting notices of the sale
for not less than twenty days in at least three public places of
the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three consecutive
weeks in a newspaper of general circulation in the municipality or
city.
Evidence there will be Affidavit of publication as well issues
with regard to this notice. Section 4 with regard to the time of
the public auction under the direction of the sheriff, justice or
auxiliary justice but usually sheriff.
SECTION 4. The sale shall be made at public auction, between the
hours or nine in the morning and four in the afternoon; and shall
be under the direction of the sheriff of the province, the
justice
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CREDIT