PROVISIONS COMMON TO PLEDGE AND MORTGAGE A.) Requisites: (art. 2085) 1.

Secures the fulfillment of the principal obligation 2. Pledgor or owner be the absolute owner of the thing pledged or mortgaged 3. Persons constituting have the free disposal of their property 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 Pledge - An accessory obligation - Personal property of the debtor or third person is delivered to the creditor or to a third person by common agreement - To secure the performance of a principal obligation (e.g. loan) Real Mortgage - Contract - Debtor or third person guarantees to the creditor the fulfillment of a principal obligation - Subjecting to the faithful compliance therewith a real property in case of non-fulfillment of said obligation in the time stipulated Chattel Mortgage - A contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. Constituted to secure the fulfillment of a principal obligation 1. A mortgage of pledge is an accessory contract whose consideration is the principal contract without which it cannot exist, as a independent contract 2. The deed of assignment of receivables was intended as collateral security for the bank loans of the debtor. In case of doubt whether is pledge or dation in payment, the presumption is in favor of pledge. 3. A chattel mortgage may be an accessory contract to a contract of loan, but that fact alone does not make a third-party mortgagor solidarily bound with the principal debtor. 4. Mortgages given to secure future advancements are valid and legal contracts. -it is a continuing security and is not discharged by repayment of the amount named in the mortgage, until the full amount of the advancements are paid. Absolute owner of the thing pledged or mortgaged 1. A mortgage is void if the mortgagor has no title to the land mortgaged 2. It is an essential requisite for the validity of a mortgage that the mortgagor be the absolute owner of the thing being mortgaged, and it appearing that the mortgage was constituted before the issuance of the patent to the mortgagor, the mortgage in question is void and ineffective. 3. The surviving widow cannot by herself mortgage the entire lot formerly belonging to the conjugal partnership. However, the mortgage is valid with respect to her conjugal share. 4. The questioned mortgage constituted on the property under administration, by authority of the petitioner, is valid, notwithstanding the lack of judicial approval, with respect to her conjugal share and to her hereditary rights. The fact that what had been mortgaged was in custodial egis is immaterial, insofar as her conjugal share and hereditary share in the property is concerned, for after all, she was the absolute owner thereof. 5. A co-owner may validly mortgage his one-tenth share of the property and may require another co-owner who holds the certificate of title to surrender said title to the Register so that the mortgage may be registered. 6. However, the mortgage have the right to rely upon what appears in the certificate of title and does not have to inquire further. 7. The forclosure by GSIS of the mortgage building was valid even if a portion of the building stands in another lot which is not yet titled in the name of mortgagee. However, the GSIS must pay the fair market value of the parcels of land on which the portion of the foreclosed building stands. 8. Since the disputed property was not owned by the spouses when they mortgaged it to DBP, the contract of mortgage and all subsequent legal consequences as regards the lots are null and void. Property of third persons mortgaged 1. Such property is directly and jointly liable for the fulfillment of the obligation.

In the event that after the sale of such property, and after all the guaranteed liabilities have been paid, any surplus remaining from the proceeds must be returned and distributed pro rata between the third parties whose property was sold to pay the principal obligation B.) A guaranty cannot exist without a valid obligation. Nevertheless, a guaranty may be constituted to guarantee the performance of a voidable or unenforceable contract. It may also guarantee a natural obligation. (art. 2052 of NCC; art. 2086) C.) When the principal obligation becomes due, the things in which the pledge or mortgage consists may be alienated for the payment to the creditor. (art. 2087) - the creditor does not automatically becomes the owner of the thing. He has the remedy of selling or alienating the security at public auction with the proceeds applied to the obligation secured. D.) Pactum commissorium is a stipulation in pledge, mortgage or antichresis that the debtor can appropriate the things given as security if the debt is not paid. This is expressly declared void in art. 2088 1. there is no pactum commissorium when the parties agreed to a contract of loan and a promise of sale of house and lot. 2. a promise to assign the mortgaged property in case of failure to pay is not pactum commissorium because it requires a positive act of conveyance by the promissory for which he could not be compelled, although said promisor may be liable for damages. But an automatic conveyance of property in case of failure is pactum commissorium because in that case, the obligor has no option. 3. failure of mortgagor to redeem the property does not automatically vest ownership of the property to the mortgagee which could grant the latter the right to appropriate the thing mortgaged or dispose it. 4. a decision of the lower court finding the transaction as an equitable mortgage and not a pacto de retro sale cannot likewise declare that upon failure of the mortgagor to pay within the period fixed in the judgment, absolute ownership has become consolidated in the mortgagees as this will produce the same effect as a pactum commissorium. 5. no valid mortgage has been constituted in plaintiffs favor, the alleged deed of mortgage being a mere private document and not registered; moreover, it contains a stipulation (pacto comisorio) which is null and void under art. 2088 of the CC. 6. a perusal of the terms of the questioned agreement evinces no basis for the application of the pactum commissorium provision. First, there is no identification of any contract of mortgage entered into by the parties. It is a fact that the parties agreed on the sale and purchase of trucks. Second, there is no case of automatic appropriation of the property. 7. the stipulations in the promissory notes providing that, upon failure of respondent spouses to pay interest, ownership of the property would be automatically transferred to petitioner and the deed of sale in its favor would be registered, are in substance a pactum commissorium. Art. 2089 Indivisibility of pledge or mortgage 1. A mortgage is indivisible even though the debt may be divided and such indivisibility is likewise not affected by the fact that the debtors are not solidarily liable. 2. A pledge or mortgage is indivisible. It cannot be divided among the different lots. Each and every parcel under mortgage answers for the totality of the debt. 3. A mortgage obligation is one and indivisible. The mortgagor cannot opt, much less compel the mortgagee, to apply any payment made by him on a specific portion of the mortgage property to effect release. Neither may the mortagee apply payments made to it on, and consequently release, a portion of the mortgage property and effect foreclosure on the rest. 4. A mortgage instrument contemplated not only obligations existing on the date thereof, but also future obligations or accommodations appearing in the respective book of accounts of NIDC and PNB, thus rendering it impractical for the parties to have a division of the mortgage property. Exception to indivisibility 1. An exception to indivisibility is a case in which, there being several things given in mortgage or pledge, each one of them guarantees only a determinate portion of the credit. The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which each thing is specially answerable is satisfied. 2. The rule of indivisibility does not apply in a case where out of an P80,000 loan, only P17,000 was released by the bank to the borrower. The real estate mortgage to secure the loan became unenforceable to the extent of P63,000 or 78.75% and subsists as security only for the P17,000 debt or 21.25%. 3. The rule of indivisibility will not apply where there was failure of consideration on the part of the respondent bank for the mismanagement of the affairs of petitioner corporation and where said bank is in default in complying with its obligation to release to petitioner corporation the amount of P710,000.

4. Once the mortgage is extinguished by a complete foreclosure thereof, said doctrine of indivisibility of mortgage ceases to apply since, with the full payment of the debt, there is nothing more to secure.

Chapter 5 PLEDGE 1. Requisites: a.) Constituted to secure the fulfillment of a principal obligation b.) That the pledgor be the absolute owner of the thing pledged c.) That the person constituting the pledge has the free disposal of the property, and in the absence thereof, that he be legally authorized for the purpose d.) That the thing pledged be placed in the possession of the creditor, or of a third person by common agreement 2. It is the essence of these contracts that when the principal obligation becomes due, the thing pledged may be alienated for the payment to the creditor. 3. In a case where the carabaos which were pledged were not actually delivered to the creditor, the alleged pledge becomes ineffective. 4. However, it has been held earlier that the symbolical transfer by means of the delivery of the keys of the premises in which are stored the goods pledged is sufficient to consider the creditor in legal possession of the same. 5. The stock assignment, considered together with the indemnity agreement, fulfilled all the requirements of a pledge and is therefore a pledge and not a sale nor a dation in payment. 6. The pledge can temporarily entrust the physical possession of the chattels (in this case, the vessels) to the pledgor without invalidating the pledge. The pledgor is regarded as holding the property merely as trustee for the pledge. Art. 2094 2095 1. In the very nature of things, a pledge or mortgage is confined and limited to personal property, and it cannot be extended or made to apply to real property. 2. Incorporeal rights, including share of stocks may also be pledged. 3. Pledged stock certificated may also stand as security for any future advancement. 4. A warehouse receipt or quedan may be pledged. Art. 2096 1. The purported pledge contract not being in a public document, is not valid as against third parties. Art. 2097 2105 1. It is essential in pledge that upon payment of the debt, the pledgor can demand the return of the goods pledged. The period of prescription of the action is ten years from the expiration of the term for payment. Art. 2106 2110 1. Art. 2110 is not applicable where the pledge entrusts temporarily to the pledgor certain vessels subject to the order of the pledge Art. 2111 2112 1. This article provides for the steps to be undertaken by the creditor in case of non-payment of the debt as to the chattels pledged. The steps are: a. The creditor proceeds before the Notary Public to the sale of the thing pledged. b. The sale shall be made at the a public auction c. The creditor notifies the debtor and the owner of the thing pledged of the public auction stating the amount for which the public sale is made d. If at the first auction the thing is not sold, a second one with the same formalities shall be held e. If at the second auction there is still no sale, the creditor may appropriate the things pledged and give an acquittance for his entire claim. Art. 2113 2115 1. If the price of the sale is more than the debt plus expenses, the debtor is not entitled to the excess, unless it is otherwise agreed. 2. If the price is less, neither shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. This distinguishes pledge from chattel mortgage which allows recovery of deficiency. 3. The creditor may sue on the principal obligation instead of selling the thing pledged. If he elects the latter, the creditor waives any other remedy and no deficiency is recoverable. Art. 2116 2122 1. The legal pledges or pledges by operation of law are: a.) Art. 546 b.) Art. 1731

c.) Art. 1994 2. In these pledges, after payment of the debt and expenses, the remainder of the price of the sale shall be delivered to the obligor. Also, the thing pledged may be sold only after demand of the amount for which the thing is retained. The auction shall take place within one month after such demand. If the creditor does not hold the auction within such period, the debtor may require the return of the thing pledged. Art. 2123 1. PD No. 114 regulates the establishment and operation of pawnshops 2. The pawnbroker has a certain duty in case the jewelry pawned is stolen

Chapter 6 REAL MORTGAGE Art. 2124 2127 Being exclusively payable to RCBC by reason of the endorsement, the eight policies cannot be attached by Goyus other creditors up to the extent of Goyus outstanding obligation in RCBCs favor. Art. 2128 2131 Requisite of registration 1. In order that a mortgage may be validly constituted, the document must be recorded in the registry of property. Of not so recorded, the mortgage is nevertheless binding between the parties. 2. When the buyer purchased the land from the mortgagor the same was not burdened by the mortgagee because of its non-registration. The buyer has a better right than that of the mortgagee. Requirement of ownership in properties mortgaged 1. A mortgagor cannot legally mortgage property he might acquire in the future or property he does not own yet. 2. However, where the original properties mortgaged are perishable or subject to inevitable wear and tear were intended to be sold, or to be used, thus becoming subject to the inevitable wear and tear, but with the understanding that they be replaced with others to be thereafter acquired by the mortgagor, these after-acquired properties can validly be covered and subject to the mortgage. Mortgage follows the property whoever the possessor may be. 1. The mortgage subsists notwithstanding changes of ownership. A mortgage lien is inseparable from the property mortgaged. Therefore, a real mortgage on a property cannot be ordered by the court to be substituted by a surety bond. 2. The filling of bonds by the mortgagors in a case to declare the mortgage void does not release the mortgage previously constituted. 3. A mortgage follows the property whoever the possessor may be and subjects it to the fulfillment of the obligation for whose security it was constituted. 4. The obligation of the debtor to pay the debt to the mortgagee stands although the property mortgages to secure the debt may have been transferred to a third person. 5. The mortgagee does not lose its right to extrajudicially foreclose the mortgage even after the death of the mortgagor. 6. Panlilios motion to enjoin foreclosure with the Sandiganbayan was anchored on GSISs lack of authority to take hold of the assets in question not because PVIH owed it nothing but because these assets were then in the custody of the Sandiganbayan, and hence, beyond the control of anybody else. Of course, PVHI was mistaken, because foreclosure was possible even if the Sandiganabyan had custody of the properties. To be sure, a foreclosure will not divest the Sandiganbayan of its jurisdiction over those properties, and they remain under cusodia legis subject to the resolution of that court as to whether or not they constitute ill-gotten wealth. Also, the buyer acquires them subject to the risk of losing them later to the real owner, should they be found to be indeed ill-gotten. Be that as it may, PVHIs objection was based on contentions, although erroneous, that foreclosure was not permissible because the Sandiganbayan had control over the properties. 7. The law provides that a stipulation forbidding the owner from alienating the immovable mortgage shall be void. D. Mortgage extends to the natural accessions, improvements and fruits 1. even though no mention was made of the machineries and tramway in question, the mortgage is understood by law to extend to them as well as to other improvements. 2. the residential building, although not expressly mentioned in the mortgage is deemed included in the deed of mortgage as improvements found on the mortgage parcels of land. 3. the mortgage extends to the rents or income not yet received by the mortgagor / owner when the debt becomes due. The mortgagee can therefore secure said rents from the third parties. E. Mortgagors interest in mortgaged property is merely an equity of redemption.

F. Rights and obligations of subsequent mortgagees. 1. to pay the first and superior lien of the first mortgagee. 2. if sold at public auction, the obligation of the first mortgagee shall be paid first. Any excess shall be paid to the subsequent mortgagee. Further excess shall be given to the mortgagor. 3. each mortgagee had the right to foreclose the mortgage. But the second mortgagees right was inferior and subordinate to the first. 4. any subsequent lien or encumbrances annotated at the back of the certificates of title cannot in anyway prejudice the mortgage previously registered G. Remedies of a mortgage creditor 1. either a.) personal action for debt b.) real action to foreclose the real estate mortgage 2. in case of default in payment on the part of the mortgagor, mortgagee may choose either a.) foreclosure of the mortgage (must be limited to the amount mentioned in the mortgage) b.) ordinary suit for collection H. Jurisdiction over foreclosure of mortgage 1. an action for the nullification of the mortgage document is a real action as the action affects the title to a property. I.Rights of innocent mortgagees 1. a forged deed of mortgage even if registered does not give any right to the mortgagee. It is a different case where a deed of sale was forged first and a new title was issued which was mortgaged. 2. a.)the bank had the right to rely upon regular certificated of title presented to it by the mortgagors. b.) fraudulent or forged document of sale may become the root of a valid title if the certificate of title has been transferred from the name of the true owner to the name of the forger or the name indicated by the forger. A mortgagee has the right to rely on what appears in the certificate of title and, in the absence of anything to excite suspicion, he is under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of said certificate. c.) where the Torrens title of the land was in the name of the mortgagor and later given as security for a bank loan, the subsequent declaration of said title as null and void is not a ground for nullifying the mortgage rights of the Bank, which had acted in good faith. d. ) the bank had every right to rely on the TCT as it was sufficient evidence of ownership of the mortgagor. The bank at that time had no way of knowing the existence of another genuine title covering the land in question. The bank, being an innocent mortgagee for value, must be paid the mortgage credit by an innocent purchaser for value. 4. when the property is registered in the name of a spouse only and there is no showing as to when the property was acquired by said spouse, this is an indication that the property belongs exclusively to said spouse. The presumption of conjugality cannot prevail when the title is in the name of only one spouse and the rights of innocent third parties are involved. 5. the notice of lis pendens which antedated the foreclosure and sale at public auction of subject property could not affect the rights of respondent bank because the foreclosure sale retroacts to the date of registration of the mortgage. Its character of being an innocent mortgagee continues up to the date of factual foreclosure and sale at public auction. 6. as between two innocent persons, the mortgagee and the owner of the mortgage property, one whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss. The mortgagee bank who fails to send representatives to the premises of the land or to make inquiry on circumstances apparent on the face of the title, being inconsistent with bad faith, shall bear the loss. 7. a. failure to duly investigate who are the true owners of the land offered as collateral, was considered as constitutive of negligence on the part of the bank. b. facts which should put a reasonable man on guard c. under no obligation to look beyond the certificate and investigate the title of the mortgagor appearing on the face of the certificate 8. the rights of the purchaser cannot prevail over the rights of the mortgagee which have been annotated on the property. J. Rules on equitable mortgage Equitable mortgage - Although it lacks formality, form of words or other requisites prescribed by a statute, the agreement shows the intention of the parties to charge a real property as security for a debt and contains nothing impossible or contrary to law

Equitable mortgage, remedies of mortgagee 1. Bringing an action for reformation of the instrument into a loan with equitable mortgage 2. Alleging as a defense that the real intention of the parties was a loan with equitable mortgage, which in effect, is for the reformation of the instrument. 3. Judicial objection or opposition to the registration of the affidavit of consolidation of ownership on the ground that the real intention of the parties was a loan with equitable mortgage. Equitable mortgage - Funds were loaned by the vendees to the vendor and the vendor shall have the right to possess, use and build on the property during the period of redemption - The deed of sale and the document of repurchase were prepared, signed and notarized on the same day and the vendor remained in actual possession and enjoyed the fruits of the land - The price of a sale with right to repurchase is unusually inadequate - The vendor remains in possession as lessee or otherwise - Upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed - The purchaser retains for himself a part of the purchase price - The vendor binds himself to pay the taxes on the thing sold - 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 - The contract contains a stipulation that upon payment by the vendor of the purchase price within a certain period the document shall become null and void and have no force or legal effect. Pacto de retro - The actuations of both parties after the agreement where the vendee immediately entered into the possession of the land, paid taxes thereon and enjoyed its fruits Equitable, rights of the creditor / mortgagee a.) Where an unregistered pacto de retro sale is construed to be an equitable mortgage, the court can order the sale of the land in case of non-payment of the debt after a prescribed period to satisfy the debt. b.) But mortgagee / creditor who is in possession of the property and who introduces improvements therein is not entitled to reimbursement for the value of said improvements upon the redemption of the mortgage. c.) Inadequacy in not sufficient to set aside a sale unless it is purely shocking to the conscience. K. ACT NO. 3135 - AN ACT TO REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES 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. Sec. 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. a.) Three types of sales 1. Ordinary execution sale (rule 39 of RC) 2. Judicial foreclosure sale (rule 68 of RC) 3. Extrajudicial foreclosure sale (act no. 3135) Sec. 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. 1. Since the date was fixed by the deputy sheriff, the sale cannot legally be made on the next succeeding business day without notices of the sale on that day being posted as prescribed in Sec 3. 2. Sec 3 does not require any particular notice to the mortgagors much less to their alleged successor-ininterest 3. The successors were permitted to redeem since the bank failed and neglected to give notice notice of foreclosure 4. The publication of the notice of extrajudicial foreclosure and sale at public auction, in the society page instead of the legal notices or classified ads sections, entitles the mortgagor to moral damages 5. In a sale of property acquired by a rural bank through foreclosure proceedings, notice of foreclosure sale to the mortgagor is required

6. Statutory requirements governing publication of notice of mortgage foreclosure sales must be strictly complied with. Even slight deviations therefrom will invalidate the notice and render the sale at least voidable. 7. No personal notice of the extrajudicial foreclosure was ever sent to petitioners prior thereto. This omission, by itself, rendered the foreclosure defective and irregular for being contrary to express provisions of the mortgage contract 8. A certificate of posting is not a statutory requirement but significant only in the manner of proving compliance with the required posting of notice Sec. 4. The sale shall be made at public auction, between the hours of nine in the morning and four in the afternoon; and shall be under the direction of the sheriff of the province, the justice or auxiliary justice of the peace of the municipality in which such sale has to be made, or a notary public of said municipality, who shall be entitled to collect a fee of five pesos each day of actual work performed, in addition to his expenses. 1. Formalities of a levy as an essential requisite of a valid execution of sale and a valid attachment lien are not basic requirements before an extrajudicially foreclosed property can be sold a public auction. Sec. 5. At any sale, the creditor, trustee, or other persons authorized to act for the creditor, may participate in the bidding and purchase under the same conditions as any other bidder, unless the contrary has been expressly provided in the mortgage or trust deed under which the sale is made. Sec. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the debtor, his successors in interest or any judicial creditor or judgment creditor of said debtor, or any person having a lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the same at any time within the term of one year from and after the date of the sale; and such redemption shall be governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act. A. Right of Redemption 1. redemption should be reckoned from the date of registration of the certificate of sale and not from the date of the auction sale 2. The five-year period of redemption fixed in the Public Land Law of homestead sold at extrajudicial foreclosure begins to run from the day after the expiration of the one-year period of repurchase allowed in an extrajudicial foreclosure. (within which to exercise their right to repurchase under the Public Land Act) 3. The right of redemption like any other property right, may be transferred or assigned by its owner. The transferee of such right stands in the position of a successor-in-interest of the mortgagor. 4. A. there is substantial compliance with the requirements of the law to effect a valid redemption, with the mortgagors tender of payment of the purchase price and the interest thereon with 12 months from the date of the registration of the sale. B. to avail the right of redemption, what is essential is to make an offer to redeem within the prescribed period, either through a formal tender with consignation of the redemption price within the prescribed period 5. Redemption of properties mortgaged with the Philippine National Bank and the Devt Bank of the Phil. and foreclosed either judicially or extrajudicially are governed by special laws which provide for the payment of all the amounts owed by the debtor 6. The redemptioner mortgagor would be bound to pay only for the amount of the purchase price with interest thereon at the rate of one per centum per month in addition 7. The amount at which the subject property is redeemable is the amount due under the mortgage deed, or the outstanding obligation, plus interest and expenses 8. Redemption money may be paid to the purchaser or redemptioner or for him to the officer who made the sale. The amount tendered should be equivalent to the amount of the purchase price plus one percent monthly interest up to the time of redemption 9. The debtor, not the owner of the mortgaged property, may exercise the right of redemption 10. A. There is no more right to redeem or to repurchase after the period of redemption B. Allowing a redemption after the lapse of the statutory period, when the buyer at the foreclosure does nt object but even consents to the redemption, will uphold the policy of the law which is to aid rather that defeat the right of redemption 11. The mortgagor remains as the absolute owner of the property during the redemption period and has the free disposal of his property B. Right to Recover Deficiency

1. Once the auction sale of the mortgaged property is effected and the resulting deficiency in the mortgage debt is ascertained, the mortgage creditor is then and there entitled to secure a deficiency judgment which maybe immediately executed, whether or not the mortgagor is still entitled to redeem the property sold 2. In extrajudicial foreclosure of mortgage, where the proceeds of the sale is insufficient to cover the debt, the mortgagee is entitled to claim the deficiency from the debtor 3. Period for the mortgagee to recover deficiency after extrajudicial foreclosure sale is 10 years The following actions must be brought within 10 years: a. Upon a written contract b. Upon an obligation created by law c. Upon a judgement 4.A suit for the recovery of the deficiency after the foreclosure of a mortgage is in the nature of a mortgage action because its purpose is precisely to enforce the mortgage contract. It is upon a written contract and upon an obligation of the mortgagor to pay the deficiency which is created by law. Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance of the province or place where the property or any part thereof is situated, to give him possession thereof during the redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months, to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case of property registered under the Mortgage Law or under section one hundred and ninetyfour of the Administrative Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition, collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is situated, who shall execute said order immediately. A. Purchaser at public auction entitled to possession 1. The court has power on the ex parte application of the purchaser, to issue a writ of possession during the period of redemption. It also has the same power after the expiration of that period, especially where a new title has already been issued in the name of the purchaser. 2. The purchaser at the auction sale, in this instance, the petitioner-mortgagee, is entitled to a writ of possession pending the lapse of the redemption period upon a simple motion and upon posting of a bond. In such a case, no discretion is left to the court. Furthermore, such petition shall be in the form of an ex parte motion This was the recourse in fact taken by the petitioner. There is accordingly no necessity for the petitioner to file an ejectment case. The remedy of the mortgagors-respondents is to have the sale set aside and the writ of possession cancelled. 3. The pendency of the civil case for annulment of the mortgage does not constitute a bar or a legal impediment to the writ of possession 4. A mortgagee can secure possession of the foreclosed property despite the fact that the premises are in the possession of a lessee thereof and whose lease has not as yet been terminated unless: a.) the lease had been previously registered in the Registry of Property b.) despite non-registration, the mortgagee had prior knowledge of the existence and duration of the lease 5. Third parties that derive their rights to the possession of the property exclusively from the mortgagor, in virtue of verbal agreement of lease, cannot be deemed as actually holding the property adversely to the mortgagor. Upon the cessation of their lessors rights over the property, their own also ceased. The writ of possession was therefore properly enforceable against them 6. The purchaser at an extra-judicial foreclosure sale has a right to the possession of the property even during the one-year period of redemption provided he files an indemnity bond. After the lapse of the said period with no redemption having been made, that right becomes absolute and may be demanded by the buyer even without the posting of a bond. Sec. 8. The debtor may, in the proceedings in which possession was requested, but not later than thirty days after the purchaser was given possession, petition that the sale be set aside and the writ of possession cancelled, specifying the damages suffered by him, because the mortgage was not violated or the sale was not made in accordance with the provisions hereof, and the court shall take cognizance of this petition in accordance with the summary procedure provided for in section one hundred and twelve of Act Numbered Four hundred and ninetysix; and if it finds the complaint of the debtor justified, it shall dispose in his favor of all or part of the bond furnished by the person who obtained possession. Either of the parties may appeal from the order of the judge in accordance with section fourteen of Act Numbered Four hundred and ninety-six; but the order of possession shall continue in effect during the pendency of the appeal.

Sec. 9. When the property is redeemed after the purchaser has been given possession, the redeemer shall be entitled to deduct from the price of redemption any rentals that said purchaser may have collected in case the property or any part thereof was rented; if the purchaser occupied the property as his own dwelling, it being town property, or used it gainfully, it being rural property, the redeemer may deduct from the price the interest of one per centum per month provided for in section four hundred and sixty-five of the Code of Civil Procedure. Sec. 10. This Act shall take effect on its approval. Approved: March 6, 1924

RULE 68 FORECLOSURE OF REAL ESTATE MORTGAGE SECTION 1. Complaint in action for foreclosure.In an action for the foreclosure of a mortgage or other encumbrance upon real estate, the complaint shall set forth the date and due execution of the mortgage; its assignments, if any; the names and residences of the mortgagor and the mortgagee; a description of the mortgaged property; a statement of the date of the note or other documentary evidence of the obligation secured by the mortgage, the amount claimed to be unpaid thereon; and the names and residences of all persons having or claiming an interest in the property subordinate in right to that of the holder of the mortgage, all of whom shall be made defendants in the action. (1a) SEC. 2. Judgment on foreclosure for payment or sale.If upon the trial in such action the court shall find the facts set forth in the complaint to be true, it shall ascertain the amount due to the plaintiff upon the mortgage debt or obligation, including interest and other charges as approved by the court, and costs, and shall render judgment for the sum so found due and order that the same be paid to the court or to the judgment obligee within a period of not less than ninety (90) days nor more than one hundred twenty (120) days from the entry of judgment, and that in default of such payment the property shall be sold at public auction to satisfy the judgment. (2a) SEC. 3. Sale of mortgaged property; effect.When the defendant, after being directed to do so as provided in the next preceding section, fails to pay the amount of the judgment within the period specified therein, the court, upon motion, shall order the property to be sold in the manner and under the provisions of Rule 39 and other regulations governing sales of real estate under execution. Such sale shall not affect the rights of persons holding prior encumbrances upon the property or a part thereof, and when confirmed by an order of the court, also upon motion, it shall operate to divest the rights in the property of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. Upon the finality of the order of confirmation or upon the expiration of the period of redemption when allowed by law, the purchaser at the auction sale or last redemptioner, if any, shall be entitled to the possession of the property unless a third party is actually holding the same adversely to the judgment obligor. The said purchaser or last redemptioner may secure a writ of possession, upon motion, from the court which ordered the foreclosure. (3a) SEC. 4. Disposition of proceeds of sale.The amount realized from the foreclosure sale of the mortgaged property shall, after deducting the costs of the sale, be paid to the person foreclosing the mortgage, and when there shall be any balance or residue, after paying off the mortgage debt due, the same shall be paid to junior encumbrancers in the order of their priority, to be ascertained by the court, or if there be no such encumbrancers or there be a balance or residue after payment to them, then to the mortgagor or his duly authorized agent, or to the person entitled to it. (4a) SEC. 5. How sale to proceed in case the debt is not all due. If the debt for which the mortgage or encumbrance was held is not all due as provided in the judgment, as soon as a sufficient portion of the property has been sold to pay the total amount and the costs due, the sale shall terminate; and afterwards, as often as more becomes due for principal or interest and other valid charges, the court may, on motion, order more to be sold. But if the property cannot be sold in portions without prejudice to the parties, the whole shall be ordered to be sold in the first instance, and the entire debt and costs shall be paid, if the proceeds of the sale be sufficient therefor, there being a rebate of interest where such rebate is proper. (5a) SEC. 6. Deficiency judgment.If upon the sale of any real property as provided in the next preceding section there be a balance due to the plaintiff after applying the proceeds of the sale, the court, upon motion, shall render judgment against the defendant for any such balance for which, by the record of the case, he may be personally liable to the plaintiff, upon which execution may issue immediately if the balance is all due at the time of the

rendition of the judgment; otherwise, the plaintiff shall be entitled to execution at such time as the balance remaining becomes due under the terms of the original contract, which time shall be stated in the judgment. (6a) SEC. 7. Registration.A certified copy of the final order of the court confirming the sale shall be registered in the registry of deeds. If no right of redemption exists, the certificate of title in the name of the mortgagor shall be cancelled, and a new one issued in the name of the purchaser. Where a right of redemption exists, the certificate of title in the name of the mortgagor shall not be cancelled, but the certificate of sale and the order confirming the sale shall be registered and a brief memorandum thereof made by the registrar of deeds upon the certificate of title. In the event the property is redeemed, the deed of redemption shall be registered with the registry of deeds, and a brief memorandum thereof shall be made by the registrar of deeds on said certificate of title. If the property is not redeemed, the final deed of sale executed by the sheriff in favor of the purchaser at the foreclosure sale shall be registered with the registry of deeds; whereupon the certificate of title in the name of the mortgagor shall be cancelled and a new one issued in the name of the purchaser. (n) SEC. 8. Applicability of other provisions.The provisions of sections 31, 32 and 34 of Rule 39 shall be applicable to the judicial foreclosure of real estate mortgages under this Rule insofar as the former are not inconsistent with or may serve to supplement the provisions of the latter. (8a) . A. Equity of redemption in judicial foreclosure 1. In an action for foreclosure of mortgage, all persons having or claiming an interest in the mortgage premises subordinate in right to that of the holder of the mortgage should be made defendants in the action. The effect of failure to implead a subordinate lien holder, or subsequent purchaser or both is to render the foreclosure ineffective as against them, with the result that there remains in their favor the unforeclosed equity of redemption. B. No right of redemption in judicial foreclosure under Rule 70 of RC 1. There is only the equity of redemption in favor of the mortgagor consisting in the right to redeem the mortgaged property within the 90 day period from the order of foreclosure or even thereafter but before the confirmation of the sale 2. Where a mortgage is foreclosed extrajudicially, Act 3135 grants to the mortgagor the right of redemption within 1 year from the registration of the Sheriffs certificate of foreclosure sale. Where the foreclosure is judicially effected, however, no equivalent right of redemption exists. The law declares that a judicial foreclosure sale, when confirmed by an order of the court, shall operate to divest the rights of all the parties to the action and to vest their rights in the purchaser, subject to such rights of redemption as may be allowed by law. These laws confer on the mortgagor, his successors in interest or any judgment creditor of the mortgagor, the right to redeem the property sold on foreclosure after confirmation by the court of the foreclosure sale which right may be exercised within a period of 1 year, counted from the date of registration of the certificate of sale in the Registry of Property. 3. There is no right of redemption from a judicial foreclosure sale after the confirmation of the sale, except those granted by banks or banking institutions as provided by the General Banking Act. C. Notice and hearing required for judicial confirmation of foreclosure sale 1. A hearing should be held for the confirmation of the sale. The mortgagor should be notified of that hearing. Lack of notice vitiates the confirmation of the sale. The mortgagor may still redeem the mortgaged lot after the rendition of the order confirming the sale which is void for lack of hearing and notice to the mortgagor.

Chapter 7 CHATTEL MORTGAGE Art. 2140 1. While a pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred obligations so long as these future debts are accurately described, a chattel mortgage, however, can only cover obligations existing at the time the mortgage is constituted. Art. 2141 ACT. NO. 1508 Sec 1, 2 A. Subject of chattel mortgage 1. There can be no question that a building of mixed materials may be the subject of a chattel mortgage, in which case it is considered as between the parties as personal property. But this does not make said house personal property for purposes of the notice to be given for its sale at public auction. 2. The parties to a contract may by agreement treat as personal property that which by nature would be real property, as long as no interest of third parties would be prejudiced thereby. 3. A real estate mortgagee has a better right over a chattel mortgage of the same building. Sec 3, 4 Registration requirement 1. The CML expressly provides for the specific case where the property is situated in a province different and distinct from that in which the mortgagor resides. The deed of the chattel mortgage must be registered in the respective Register of Deeds of Rizal, where mortgagor resides, and Manila, where the property is situated. Failure to register in one or both would nullify the effects of the chattel mortgage. Registration is an essential requisite for the validity of a chattel mortgage. 2. A mortgage in order to affect third persons should not only be registered in the CM Registry, but the same should also be recorded in the MVO as required by Sec. 5 (e) of RMVL. Failure of respondent mortgage to report the mortgage executed in its favor had the effect of making said mortgage ineffective against the petitioner, who had his purchase registered in the MVO. Petitioners right to the vehicle as against the previous and prior mortgagee-respondent should be upheld. 3. A mortgagee has a right to rely in good faith on the certificate of title of the mortgagor specially that shipowners are likewise required by law to register their vessel with the Philippine Coast Guard. Chattel Mortgagees rights superior to judgment creditor 1. The chattel mortgagees lien over the mortgaged properties in question is superior to the levy on attachment made on the same by the creditor of the chattel mortgagor. What may be attached by the creditor of said chattel mortgagor is only the equity or right to redemption of the mortgagor. 2. A chattel mortgage lien attaches to the property wherever it may be. Private respondent as attaching creditor acquired the properties subject to petitioners mortgage lien as it existed thereon at the time of the attachment. 3. As assignee, B.A. Finance Corporation is bound by the terms and conditions of the chattel mortgage executed between the Cuadys and Supercars, Inc. Sec. 5 Form of chattel mortgage and affidavit 1. The Chattel Mortgage was invalid because the oath (affidavit in good faith) required by law did not appear therein, and because the subject-matter was not described therein with sufficient particularity. 2. Where the statute provides that the parties to a chattel mortgage must take oath that the debt is a just debt, honestly due and owing from the mortgagor to the mortgagee, it is obvious that a valid mortgage cannot be made to secure a debt to be thereafter contracted. Sec 6, 7 Description of mortgaged property 1. Sec 7 of CML does not demand minute and specific description of every chattel mortgaged in the deed of mortgage but only requires that the description of the properties be such as to enable the parties in the mortgage or any other person, after reasonable inquiry and investigation to identify the same. Sec. 8, 13, 14 Ordinary action to secure possession of foreclosed chattel mortgage

1. The creditor cannot merely file a petition for a writ of possession. The remedy is to file an ordinary action for recovery of possession in order that the debtor may be given an opportunity to be heard not only regarding possession but also regarding the obligation covered by the mortgage. 2. The law does not allow the creditor himself to possess the mortgaged property through violence and against the will of the debtor because the creditors right of possession is conditioned upon the fact of default. 3. Replevin is the appropriate action to recover possession preliminary to the extrajudicial foreclosure of a chattel mortgage. However, for employing subterfuge in seizing the truck by misrepresenting its employees as deputy sheriffs and then hiding and cannibalizing it, Filinvest committed bad faith. Right to enforce the mortgage waived 1. A mortgagee who sues and obtains a personal judgment against a mortgagor upon his credit waives thereby his right to enforce the mortgage securing it. Recovery of deficiency 1. Although the Chattel Mortgage Law contains no provision allowing the mortgagee to recover the deficiency, previous court decisions have allowed recovery. The Chattel Mortgage Law therefore read in the light of these decisions, allows such recovery. Therefore, the new Civil Code provision on pledge prohibiting recovery do not apply. 2. An exception to the rule allowing recovery of deficiency may be found in Art. 1484 (Recto Law) which speaks of a chattel mortgage as security for the purchase of personal property payable in installments. Here, no deficiency judgment can be asked. Any agreement to the contrary shall be void. 3. The provisions on pledge shall be applicable to chattel mortgages insofar as they are not in conflict with the Chattel Mortgage Law. Art. 2115 (prohibiting recovery of deficiency in pledge) of the CC is inconsistent with the provisions of the Chattel Mortgage Law and that, accordingly the Chattel Mortgage creditor may maintain an action for the deficiency. 4. In case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action for the deficiency, if any should occur. Sec. 15, 16

THE RECTO LAW (ART. 1484, NCC) in relation to chattel mortgage Art. 1484, NCC 1. The rule is that in installment sales, if the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage. Hence, the seller creditor is entitled to a deficiency judgment. 2. The remedies provided are considered alternative, not cumulative such that the exercise of one would bar the exercise by the others. Since the petitioner has not availed itself of the remedy of cancelling the sale of the truck in question or of foregoing the chattel mortgage on said truck, petitioner is still free to avail to the remedy of exacting fulfillment of the obligation of respondent. 3. The delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only operate to extinguish appellants liability if the appellee had actually caused the foreclosure sale of the mortgaged property when it recovered possession thereof. If the vendor desisted, on his own initiative, from consummating the auction sale, such desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still sue for specific performance. 4. Having chosen to foreclose the chattel mortgage, and bought the purchased vehicles at the public auction as the highest bidder it submitted itself to the consequence of the law as specifically mentioned, by which it is deemed to have renounced any and all rights which it might otherwise have under the promissory note and the chattel mortgage as well as the payment of the unpaid balance. 5. The obligation contracted by the principal debtor with a solidary co-maker, was one of loan secured by a chattel mortgage, executed by the principal debtor, and not a sale where the price is payable on installments and where a chattel mortgage on the thing sold was constituted by the buyer and, further, the obligation to pay the installments having been guaranteed by another. THE REVISED PENAL CODE in relation to chattel mortgage Art. 319 1. In offenses consisting of selling or disposing of mortgaged property it is essential that there be a valid and subsisting mortgage. 2. The chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same. However, he is obliged under pain of penal liability, to secure the written consent of the mortgage. 3. The absence of written consent of the mortgagee to the sale of the mortgaged property in favor of a third person, therefore, affects not the validity of the sale but only the penal liability of the mortgagor under

the Revised Penal Code and the binding effect of such sale on the mortgagee under the Deed of Chattel Mortgage.