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Land Titles and Deeds Notes: Mortgage

1. Mortgage
  • real right constituted to secure an obligation upon real property or rights therein to satisfy w/ the proceeds of the sale thereof such obligation when the same becomes due and has NOT been paid or fulfilled (Sanchez Roman)
  • contract by which specific property is hypothecated for the performance of an act, WITHOUT the necessity of a change of possession (Civil Code of California)
  • a right granted to the creditor over the property of the debtor for the security of his debt, and gives him the power of having the property seized sold in default of payment (Civil Code of Louisiana)
  • = lien / purpose of security
    • (NOT) creating a title or estate
  • can be waived by mortgagee
    • to collect the principal debt - personal action
    • mortgage - not personal action
a. Parties
  • mortgagor - who constitutes the mortgage
  • mortgagee - whose favor a mortgage is constituted
2. Kinds of Mortgages 
a. conventional or voluntary mortgage
  • created by agreement of the parties
b. legal mortgage 
  • created by operation of law wherein the creditor is given a mortgagee on the property of his debtor, WITHOUT the necessity of the parties actually stipulating for it
  • required by express provision of law to be executed in favor of certain persons to secure the performance of a principal obligation
      • claims of laborers engaged in the construction of a building are to be considered as mortgages upon said building by operation of Art. 2243 in relation to Art. 2242 of NCC
c. judicial mortgage
  • resulting from a judgment 
    • EXAMPLE:
      • plain deed of sale may be declared to be a mortgage by a competent court
d. equitable mortgage
  • NOT a mortgage in form but in substance a mere security for a debt or obligation
  • commonly occurs in pacto de retro sales
3.  Laws governing mortgage in general 
  • Contract of Real Estate of Mortgage 
    • Articles 2085 to 2092 of the Civil Code of the Philippines
    • Articles 2124 to 2131 of the Civil Code of the Philippines
  • Foreclosure Mortgage 
    • procedure
      • judicial foreclosures
        • Rule 68 of the Rules of Court 
      • extrajudicial foreclosure
        • Act. No. 3135 as amended by Act. No. 4118
  • Aliens becoming mortgagees 
    • Republic Act 4882 approved June 17, 1967 (Republic Act. No. 133>Republic Act 4381)
4.  Essential requisites of mortgage 
  • Art. 2085 of the Civil Code of the Philippines
a. That it be constituted to secure the fulfillment of a principal obligation
b. That the mortgagor be the absolute owner of the thing mortgaged
c. That the person constituting the mortgage has the free disposal of the property, and in the absence 
         thereof, that he be legally authorized for the purpose
*A 3rd person who is not a debtor or party to the principal obligation may secure the latter by mortgaging by his own property
*must be sold at a public auction and cannot be appropriated by a creditor
  • Art. 2125 of the Civil Code
d. In order that a mortgage may be validly constituted, that the document in which it appears be registered in the Office of the Registry of Deeds concerned.  
  • Failure to register: limits its binding effect to the parties thereto only (NOT invalidate the mortgage)
Section 51. Conveyance and other dealings by registered owner. An owner of registered land may convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies.

Mortgagee in bad faith
  • ignores a significant fact that would create suspicion in an otherwise reasonable person is not an innocent purchaser for value (DBA v. CA)
      • aware of adverse claim and notice of lis pendens annotated on the title when it registered the mortgage
Who may constitute a mortgage? 
  • absolute owner of the property
    • foreclosure sale - transmission only of whatever rights seller had over the thing sold
  • NO valid real estate mortgage = NO valid foreclosure or valid auction sale
Who is mortgagee is Good Faith?  
  • innocent mortgagee for value
Consent of both parties NOT necessary to registration of mortgage
  • May be registered by mortgagee alone (even over the objection of the mortgagor)
    • Rationale: mortgage is a voluntary transaction and CANNOT be permitted to revoke unilaterally (execution = consent NOT the registration)
      • Once a mortgage has been signed in due form, the mortgage is entitled to its registration as a matter of right
  • Mortgage cannot be recorded if unregistered land
6. Special characteristics of real mortgage
 a. Realty as subject matter 
  • Real property or alienable rights or interests therein (i.e. credits or rights of the mortgagee or encumbrances)
b. Real right 
  • binding against the whole world and may be enforced by real action against all who may have existing rights or interests in the same property, NOT registered prior to the mortgage
  • Even if personal action on the debt secured has prescribed, a suit to enforce the mortgage may still lie so long as all such debt has NOT been paid
c. Accessory obligation 

d. Indivisibility
  • one and indivisible
e. Inseparability
  • follows the property to whomever it may be transferred no matter how many times it changes hands as long as the annotation is carried over
f. Retention of Possession

7. When "Pacto de retro" sale = equitable mortgage
  • where a contract of sale w/ pacto de retro is executed as security for a debt owing by the grantor from the grantee
  • may be shown by oral evidence
  • Tests:
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 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. 

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

Mortgage compared to:
  • Antichresis
  • Chattel Mortgage
10. Execution and registration of mortgage

Section 60. Mortgage or lease of registered land. Mortgage and leases shall be registered in the manner provided in Section 54 of this Decree. The owner of registered land may mortgage or lease it by executing the deed in a form sufficient in law. Such deed of mortgage or lease and all instruments which assign, extend, discharge or otherwise deal with the mortgage or lease shall be registered, and shall take effect upon the title only from time of registration.
No mortgagee's or lessee's duplicate certificate of title shall hereafter be issued by the Registers of Deeds, and those issued prior to the effectivity of this Decree are hereby deemed canceled and the holders thereof shall immediately surrender the same to the Register of Deeds concerned.
  • owner of registered land may mortgage the same by executing a mortgage deed, and such deed may be assigned, extended, discharged, released in whole or in part, or otherwise dealt with by the mortgagee by any form of deed or instrument sufficient in law for the purpose
    • BUT such mortgage deed, and all instruments assigning, extending, discharging and otherwise dealing w/ the mortgage, shall be registered, and shall take effect upon the title only from the time of registration
Section 112. Forms in conveyancing. The Commissioner of Land Registration shall prepare convenient blank forms as may be necessary to help facilitate the proceedings in land registration and shall take charge of the printing of land title forms.
Deeds, conveyances, encumbrances, discharges, powers of attorney and other voluntary instruments, whether affecting registered or unregistered land, executed in accordance with law in the form of public instruments shall be registerable: Provided, that, every such instrument shall be signed by the person or persons executing the same in the presence of at least two witnesses who shall likewise sign thereon, and shall acknowledged to be the free act and deed of the person or persons executing the same before a notary public or other public officer authorized by law to take acknowledgment. Where the instrument so acknowledged consists of two or more pages including the page whereon acknowledgment is written, each page of the copy which is to be registered in the office of the Register of Deeds, or if registration is not contemplated, each page of the copy to be kept by the notary public, except the page where the signatures already appear at the foot of the instrument, shall be signed on the left margin thereof by the person or persons executing the instrument and their witnesses, and all the ages sealed with the notarial seal, and this fact as well as the number of pages shall be stated in the acknowledgment. Where the instrument acknowledged relates to a sale, transfer, mortgage or encumbrance of two or more parcels of land, the number thereof shall likewise be set forth in said acknowledgment.
  • sufficient when 
    • made substantially in accordance w/ the forms prescribed therein,
    • signed by the person in accordance w/ the forms prescribed therein, signed by the person or persons executing the same, in the presence of 2 witnesses who shall sign the instrument as witnesses to the execution thereof, shall be acknowledged to be his or their free act and deed before a notary public or other public officer authorized by law to take acknowledge