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Legal Provisions

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. (1874a)

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 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)

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)

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)

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)

ARTICLE 2130. A stipulation forbidding the owner from alienating the immovable mortgaged shall be
void. (n)

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)

CHAPTER 4

Antichresis

ARTICLE 2132. By the contract of antichresis the creditor acquires the right to receive the fruits of
an immovable of his debtor, with the obligation to apply them to the payment of the interest, if owing,
and thereafter to the principal of his credit. (1881)
ARTICLE 2133. The actual market value of the fruits at the time of the application thereof to the
interest and principal shall be the measure of such application. (n)

ARTICLE 2134. The amount of the principal and of the interest shall be specified in writing;
otherwise, the contract of antichresis shall be void. (n)

ARTICLE 2135. The creditor, unless there is a stipulation to the contrary, is obliged to pay the taxes
and charges upon the estate.

He is also bound to bear the expenses necessary for its preservation and repair.

The sums spent for the purposes stated in this article shall be deducted from the fruits. (1882)

ARTICLE 2136. The debtor cannot reacquire the enjoyment of the immovable without first having
totally paid what he owes the creditor.

But the latter, in order to exempt himself from the obligations imposed upon him by the preceding
article, may always compel the debtor to enter again upon the enjoyment of the property, except
when there is a stipulation to the contrary. (1883)

ARTICLE 2137. The creditor does not acquire the ownership of the real estate for non-payment of
the debt within the period agreed upon.

Every stipulation to the contrary shall be void. But the creditor may petition the court for the payment
of the debt or the sale of the real property. In this case, the Rules of Court on the foreclosure of
mortgages shall apply. (1884a)

ARTICLE 2138. The contracting parties may stipulate that the interest upon the debt be
compensated with the fruits of the property which is the object of the antichresis, provided that if the
value of the fruits should exceed the amount of interest allowed by the laws against usury, the
excess shall be applied to the principal. (1885a)

ARTICLE 2139. The last paragraph of article 2085, and articles 2089 to 2091 are applicable to this
contract. (1886a)

CHAPTER 5

Chattel Mortgage

ARTICLE 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage
Register as a security for the performance of an obligation. If the movable, instead of being
recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel
mortgage. (n)

ARTICLE 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the
Chattel Mortgage Law, shall be applicable to chattel mortgages. (n)

Readings
Real Mortgage is a contract whereby the debtor secures to the creditor the
fulfillment of a principal obligation, specially subjecting to such security
immovable property or real rights over immovable property in case the
principal obligation is not complied with at the time stipulated.
Characteristics
1. It is an accessory and subsidiary contract.
2. 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.
3. The mortgagor, as a general rule, retains possession of the property
mortgaged as security for the payment of the sum borrowed from the
mortgagee, and pays the latter a certain percent thereof as interest on his
principal by way of compensation for his sacrifice in depriving himself of the
use of said money and the enjoyment of its fruits, in order to give them to
the mortgagor.
4. The objects of a real mortgage are immovable (Article 415) and alienable
real rights imposed upon immovables.
Note: While a mortgage of land necessarily includes, in the absence of
stipulation, the improvements thereon, a building by itself may be
mortgaged apart from the land on which it is built. Possessory rights over
said property before title is vested on the grantee may be validly transferred
or conveyed as in a deed of mortgage. 
 
5. In order that a mortgage may be validly constituted, it must appear in a
public document duly recorded in the Registry of Property 
Note: If the instrument of mortgage is not recorded, the mortgage is
nevertheless binding between the parties.
6. A mortgage creates a real right, a lien inseparable from the property
mortgaged, which is enforceable against the whole world. Until discharged,
it follows the property wherever it goes and subsists notwithstanding
changes of ownership.
Note:
a.) If the mortgagor sells the mortgaged property, the property remains
subject to the fulfillment of the obligation secured by it. All subsequent
purchasers of the property must respect the mortgage, whether the transfer
to them be with or without the consent of the mortgagee. But the mortgage
must be registered (Article 2125) or, if not registered, the buyer must know
of its existence. (see Phil. National Bank & Trust Corp. vs. Court of
Appeals, 193 SCRA 158 [1991]) The mortgagor may not be the principal
debtor (Article 2085, 2nd par.).
b.) The right or lien of an innocent mortgagee for value upon the mortgaged
property must be respected and protected, even if the mortgagor obtained
his title through fraud. The remedy of the persons prejudiced is to bring an
action for damages against the person who caused the fraud and if the
latter is insolvent, an action against the Treasurer of the Philippines may be
filed for the recovery of damages against the Assurance Fund (Philippine
National Bank vs. Court of Appeals, 187 SCRA 735 [1990])
KINDS
1) Voluntary
2) Legal
3) Equitable – One which, although lacking the proper formalities of a
mortgage, shows the intention of the parties to make the property as a
security for a debt. - Provisions governing equitable mortgage: Arts. 1365,
1450, 1454, 1602, 1603, 1604 and 1607.
CAUSE OR CONSIDERATION
As mortgage is an accessory contract, its consideration is the same as of
the principal contract. Therefore it will be valid if the principal obligation is
valid and cannot be avoided on the ground of lack of consideration.
Case: Filipinas Marble Corporation v. IAC
OBJECTS OF REAL MORTGAGE
1. immovables (Art. 415)
2. alienable real rights in accordance with the laws, imposed upon
immovables * future property cannot be object of mortgage
Case: People’s Bank and Trust Co. v. Dahican Lumber Co.  (Links to an
external site.)
ESSENTIAL REQUISITES (SOFVAP)
1) Constituted to secure the fulfillment of a principal obligation .
2) Mortgagor must be the absolute owner of the thing mortgaged.
3) The persons constituting the mortgage have free disposal of the
property; in the absence thereof, they should be legally authorized for the
purpose.
4) Cannot exist without a valid obligation.
5) When the principal obligation becomes due, the thing in which the
mortgage consists may be alienated for payment to the creditor.
6) Must appear in a public document duly recorded in the Registry of
Property, to be validly constituted. - In a legal mortgage, the persons in
whose favor the law establishes a mortgage have the right to demand the
execution and recording of a document formalizing the mortgage.
EFFECT OF INVALIDITY OF MORTGAGE ON THE PRINCIPAL
OBLIGATION
1) Principal obligation remains valid.
2) Mortgage deed remains evidence of a personal obligation.
EFFECTS OF MORTGAGE
1) Creates real rights, a lien inseparable from the property mortgaged,
enforceable against the whole world.
 The only right of a mortgagee in case of non-payment of a debt secured by
real mortgage would be to foreclose the mortgage and have the
encumbered property sold to satisfy the outstanding indebtedness
(Guanzon vs. Argel, 33 SCRA 474 [1970])
By mortgaging a piece of property, a debtor merely subjects it to a lien but
ownership thereof is not parted with.( Adlawan vs. Torres 233 SCRA 645)
2) Creates merely an encumbrance.
 The mortgagor’s default does not operate to vest in the mortgagee the
ownership of the encumbered property. His failure to redeem the property
does not automatically vest ownership of the property to the mortgagee
which would grant the latter the right to appropriate the property or dispose
of it for such effect is against public policy as enunciated by Article 2088.
(Reyes vs. Sierra, 93 SCRA 472 [1979]).
EXTENT OF MORTGAGE
General Rule: A mortgage constituted on immovable property is not limited
to the property itself but also extends to all its accessions, improvements,
growing fruits and rents or income (see Article 2127) as well as to the
proceeds of insurance should the property be destroyed of the
expropriation value of the property should it be expropriated.
Exception: contrary stipulation
Alienation or Assignment of Mortgage
1. Said assignment is valid and assignee may foreclose the mortgage in
case of nonpayment of the mortgage indebtedness. (Santiago vs. Pioneer
Savings and Loan Bank, 157 SCRA 100 [1988]).
2. An assignee cannot acquire greater rights than those pertaining to an
assignor (Koa vs. Court of Appeals, 219 SCRA 541).
 Case: Santiago v. Pioneer Savings and Loan Bank (Links to an external
site.)
RIGHT OF CREDITOR AGAINST TRANSFEREE
 The fact that the mortgagor has transferred the mortgaged property to a
third person does not relieve him from his obligation to pay the debt to the
mortgage creditor in the absence of novation (McCallough & Co. vs. Sierra,
41 Phil. 1 [1921]). The mortgage on the property may still be foreclosed
despite the transfer.
The mortgage credit being a real right which follows the property, the
creditor may demand from any possessor the payment of the credit
secured by said property. It is necessary, however, that prior demand for
payment must have been made on the debtor and the latter failed to pay.
(Bank of the Phil. Island vs. Concepcion & Hijos, Inc., 53 Phil. 906 [1929])
The transferee is not liable for any deficiency in the absence of a contrary
stipulation.
Stipulation Forbidding Alienation of Mortgaged Property
Such a stipulation is void. However, if the mortgagor alienates the property,
the transferee is bound to respect the encumbrance because being a real
right, the property remains subject to the fulfillment of the obligation for
whose guaranty it was constituted (Article 2126).
Exception: Right of first refusal
Case: Litonjua v. L&R Corporation, 1999 (Links to an external site.)
MEANING OF FORECLOSURE
It is the remedy available to the mortgagee by which he subjects the
mortgaged property to the satisfaction of the obligation secured by the
mortgage.
KINDS OF FORECLOSURE

RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY

1) Mortgagee is entitled to recover deficiency.
2) If the deficiency is embodied in a judgment, it is referred to as deficiency
judgment.
3) Action for recovery of deficiency may be filed even during redemption
period.
4) Action to recover prescribes after 10 years from the time the right of
action accrues.
EFFECT OF INADEQUACY OF PRICE IN FORECLOSURE SALE
1. Where there is right to redeem
GR: Inadequacy of price is immaterial because the judgment debtor may
redeem the property
Exception: the price is so inadequate as to shock the conscience of the
court taking into consideration the peculiar circumstances
2. Property may be sold for less than its fair market value upon the theory
that the lesser the price the easier for the owner to redeem
3. The value of the mortgaged property has no bearing on the bid price at
the public auction, provided that the public auction was regularly and
honestly conducted
Note: If the judgment obligor redeems he must make the same payments
as are required to effect a redemption by a redemptioner, whereupon, no
further redemption shall be allowed and he is restored to his estate. The
person to whom the redemption payment is made must execute and deliver
to him a certificate of redemption acknowledged before a notary public or
other officer authorized to take acknowledgments of conveyances of real
property. Such certificate must be filed and recorded in the registry of
deeds of the place in which the property is situated and the registrar of
deeds must note the record thereof on the margin of the record of the
certificate of sale. The payments mentioned in this and the last preceding
sections may be made to the purchaser or redemptioner, or for him to the
officer who made the sale. [Section 29, Rule 39 of ROC]
WAIVER OF SECURITY BY CREDITOR
1. Mortgagee may waive right to foreclose his mortgage and maintain a
personal action for recovery of the indebtedness. There is no statutory
provision in our jurisdiction prohibiting a personal action to recover a sum of
money even though a mortgage has been given as security for the
payment of the same. (Hijos de I. de la Rama vs. Sajo, 45 Phil. 703 [1924];
Solomon and Lachica vs. Dantes, 63 Phil. 522 [1937]).
2. Mortgagee cannot have both remedies. He has only one cause of action,
i. e., nonpayment of the mortgage debt; hence, he cannot split up his cause
of action by filing a complaint for payment of the debt and another
complaint for foreclosure. (Caltex Phils. Vs. Intermediate Appellate Court,
176 SRCA 741 [1989]).
INDEPENDENT AND MUTUALLY EXCLUSIVE REMEDIES IN CASE OF
DEATH OF DEBTOR
1. To waive the mortgage and claim the entire debt from the estate of the
mortgagor as an ordinary claim
2. To foreclose the mortgage judicially and prove any deficiency as an
ordinary claim; and
3. To rely on the mortgage exclusively, foreclosing the same at any time
before it is barred by prescription without right to file a claim for any
deficiency
 The 3rd option includes extrajudicial foreclosure which bars any
subsequent deficiency claim against the estate of the deceased.
FORECLOSURE RETROACTS TO THE DATE OF REGISTRATION OF
MORTGAGE
Case: St. Dominic Corp. v. IAC
REDEMPTION
It is a transaction by which the mortgagor reacquires the property which
may have passed under the mortgage or divests the property of the lien
which the mortgage may have created.
KINDS OF REDEMPTION
a) Equity of redemption: Right of the mortgagor to redeem the mortgaged
property after his default in the performance of the conditions of the
mortgage but before the sale of the mortgaged property or confirmation of
sale; applies to judicial foreclosure of real mortgage and chattel mortgage
foreclosure.
NOTE: redemption of the banking institutions is allowed within 1 year from
confirmation of sale
b) Right of redemption: Right of the mortgagor to redeem the property
within a certain period after it was sold for the satisfaction of the debt.
applies only to extrajudicial foreclosure of real mortgage
NOTE: the right of redemption, as long as within the period prescribed, may
be exercised irrespective of whether or not the mortgagee has
subsequently conveyed the property to some other party (Sta. Ignacia
Rural Bank,Inc v. CA, 230 SCRA 513 [1994])
PERIOD OF REDEMPTION
1. extra-judicial (Act No. 3135)
a. natural person – 1 year from registration of the certificate of sale with
Registry of Deeds
b. juridical person – same rule as natural person
c. juridical person (mortgagee is bank) – 3 months after foreclosure or
before registration of certificate of foreclosure whichever is earlier (Sec.
117 of General Banking Law)
2. Judicial – before confirmation of the sale by the court
NOTE: Allowing redemption after the lapse of the statutory period when the
buyer at the foreclosure sale does not object but even consents to the
redemption, will uphold the policy of the law which is to aid rather than
defeat the right of redemption (Ramirez v. CA, 219 SCRA 598 [1993])
REQUISITES FOR VALID REDEMPTION
1. The redemption must be made within 12 months from the time of the
registration of the sale.
2. Payment of the purchase price of the property plus 1% interest per
month together with the taxes thereon, if any, paid by the purchaser with
the same rate of interest computed from the date of registration of the sale;
and
3. Written notice of the redemption must be served on the officer who made
the sale and a duplicate filed with the proper Register of Deeds. (Rosales
vs. Yboa, 120 SCRA 869 [1983]).
Note: Acceptance of redemption price after the expiration of the statutory
period for redemption is deemed a waiver of the one-year period to redeem
foreclosed property. (Ramirez vs. Court of Appeals, 219 SCRA 598)
AMOUNT PAYABLE
1. Mortgagee is not a bank (Act No. 3135 in relation to Sec. 28, Rule 39 of
Rules of Court)
a. Purchase price of the property
b. 1% interest per month on the purchase price
c. taxes paid and amount of purchaser’s prior lien, if any, with the same
rate of interest computed from the date of registration of sale, up to the time
of redemption
2. Mortgagee is a bank (GBL 2000)
a. Amount due under the mortgage deed
b. Interest
c. Cost and expenses
NOTE: Redemption price in this case is reduced by the income received
from the property
Exception: DBP v. Mirang
PERSONS ENTITLED TO EXERCISE RIGHT OF REDEMPTION
1. Mortgagor or one in privity of title with mortgage
2. Successor-in-interest
3. Under the Rules of Court
a. The judgment obligor; or his successor in interest in the whole or any
part of the property;
b. A creditor having a lien by virtue of an attachment, judgment or mortgage
on the property sold, or on some part thereof, subsequent to the lien under
which the property was sold. Such redeeming creditor is termed a
redemptioner. [Section 27, Rule 39]
RIGHTS AND OBLIGATIONS OF MORTGAGEE IN POSSESSION
a. Similar to those of an antichresis creditor which is to retain such
possession until the indebtedness is satisfied and the property is
redeemed.
b. Without right to reimbursement for useful expenses.
VENDEE’S RIGHT TO POSSESSION OF MORTGAGED PROPERTY
SOLD – WRIT OF POSSESSION/INDEPENDENT ACTION
a. Contingent – Before the expiration date of the redemption period,
vendee’s right of possession is contingent upon the failure of the mortgagor
to redeem
Before lapse of redemption period, in cases of extra-judicial foreclosure of
REM, a purchaser may take possession upon filing of an ex parte
application and approval of bond.
Such duty of trial court to grant the writ of possession is ministerial upon
filing of bond.
b. Final – After the redemption period is terminated, the right to redeem is
barred, and vendee’s right of possession is final.
After lapse of redemption period, with greater reason could such writ of
possession be issued by filing a petition for issuance of the writ.
REMEDY OF MORTGAGOR
The only remedy of the mortgagor is to question the validity of the sale by a
petition to set aside the sale and to cancel the writ of possession (summary
procedure).
WHERE MORTGAGED PROPERTY CLAIMED BY A THIRD PERSON
a. Claimants with interest adverse to mortgagor – The possession of the
property sold may be given to the purchaser by the sheriff after the period
of redemption had expired, unless a third person is actually holding the
property adversely to the mortgagor or judgment debtor in which case an
ordinary action is necessary to recover possession from such third person.
b. Successor-in-interest of mortgagor – The purchaser is entitled to the
possession of the property bought and cannot be excluded therefrom by
one who merely claims tot be a successor-in-interest of the mortgagor and
whose possession is, therefore, not adverse to the mortgagor unless it is
adjudged that the alleged successor has a better right to the property than
the purchaser.
c. Lessee of agricultural land – The agricultural lessee’s pre-emptive right
to buy the land he cultivates and his right to redeem the land if sold to a
third person without his knowledge, is superior to the mortgagee of land.
Remedy of mortgagee is against the mortgagor-landowner.
d. Buyer of condominium unit – Even with a valid mortgage on the lot, the
seller is still bound to redeemed said mortgage. 
CHATTEL MORTGAGE
LAWS GOVERNING CHATTEL MORTGAGE
1) Chattel Mortgage Law8 (Act.1508, as amended).
2) Civil Code.
3) Revised Administrative Code.
4) Revised Penal Code.
5) Ship Mortgage Decree of 1978 (PD 1521) governs mortgage of vessels
of domestic ownership.
SUBJECT MATTER OF CHATTEL MORTGAGE
1. Shares of stock in a corporation
2. Interest in business
3. Machinery and house of mixed materials treated by parties as personal
property and no innocent third person will be prejudiced thereby (Makati
Leasing and Finance Corporation vs. Weaver Textile Mills, Inc., 122 SCRA
296 [1983].
4. Vessels, the mortgage of which have been recorded with the Philippine
Coast Guard in order to be effective as to third persons
5. Motor vehicles, the mortgage of which had been registered both with the
Land Transportation Commission and the Chattel Mortgage Registry in
order to affect third persons
6. House which is intended to be demolished
7. Growing crops and large cattle (section 7, paragraphs 2 and 3, Act No.
1508)
CHATTEL MORTGAGE is a contract by virtue of which a personal property
is recorded in the Chattel Mortgage Register as security for the
performance of an obligation.
CHARACTERISTICS
A chattel mortgage is
1. an accessory contract because it is for the purpose of securing the
performance of a principal obligation;
2. a formal contract because for its validity, registration in the Chattel
Mortgage Register is indispensable.
3. a unilateral contract because it produces only obligations on the part of
the creditor to free the thing from the encumbrance upon fulfillment of the
obligation.
 A mortgage is a mere accessory contract and thus, its validity would
depend on the validity of the loan secured by it. We however, reject the
petitioner’s argument that since the chattel mortgage involved was not
registered, the same is null and void. Article 2125 of the Civil Code clearly
provides that the non-registration of the mortgage does not affect the
immediate parties. It states: ―Article 2125. In addition to the requisites 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. xxx xxx xxx The petitioner
cannot invoke the above provision to nullify the chattel mortgage it
executed in favor of respondent DBP. (Filipinas Marble Corporation vs.
Intermediate Appellate Court, 142 SCRA 180)

EFFECT OF REGISTRATION
1) Creates real rights.
2) Adds nothing to mortgage.
Note: Registration of assignment of mortgage is not required
DESCRIPTION OF MORTGAGED PROPERTY
Section 7 of the Chattel Mortgage Law does not demand a minute and
specific description of every chattel mortgaged in the deed of mortgage, but
only requires that the description of the mortgaged property be such as to
enable the parties to the mortgage or any other person to identify the same
after a reasonable investigation and inquiry (Saldana vs. Phil. Guaranty
Co., Inc., 106 Phil. 919 [1960]); otherwise, the mortgage is invalid.
REMEDIES UNDER CHATTEL MORTGAGE
1. When the condition of a chattel mortgage is broken, the following may
exercise redemption:
a. Mortgagor.
b. Person holding a subsequent mortgage.
c. Subsequent attaching creditor.
2. An attaching creditor who so redeems shall be subrogated to the rights
of the mortgagee and entitled to foreclose the mortgage in the same
manner as a mortgagee.
3. Redemption is made by paying or delivering to the mortgagee the
amount due on such mortgage and the costs and expenses incurred by
such breach of condition before the sale.
RIGHTS ACQUIRED BY SECOND MORTGAGEE AND SUBSEQUENT
PURCHASER
1. Before payment of debt
 There remains in the mortgagor a mere right of redemption and only his
right passes to the second mortgagee in case of a second mortgage.
 As between the first and second mortgagees, the latter can only recover
the property from the former by paying him the mortgage debt.
 Even through extrajudicial foreclosure, the purchaser acquires no more
than the right of redemption from the first mortgagee
2. After payment of debt
 Judgment or attaching creditor who purchased the property at the
execution sale could not acquire anything except such right of redemption.
 He is not entitled to the actual possession and delivery of the property
without first paying the mortgage debt.
RIGHT OF MORTGAGEE TO POSSESSION
1. After default
 When default occurs and the creditor desires to foreclose, the right of the
creditor to take the mortgaged property is clearly implied from the provision
which gives him the right to sell
2. Before default
 A chattel mortgagee is not entitled to the possession of the property upon
the execution of the chattel mortgage for otherwise, the contract becomes a
pledge and ceases to be a chattel mortgage.
FORECLOSURE OF CHATTEL MORTGAGE
1. public sale 
 If the mortgagor defaults in the payment of the secured debt or otherwise
fails to comply with the conditions of the mortgage, the creditor has no right
to appropriate to himself the personal property (Article 2141, 2088)
because he is permitted only to recover his credit from the proceeds of the
sale of the property at public auction through a public officer in the manner
prescribed in Section 14 of Act No. 1508. (Mahoney vs. Tuason, 39 Phil.
951 [1919]); Esguerra vs. Court of Appeals, 173 SCRA 1 [1989]).
2. private sale
 If there is an express stipulation in the contract. o Exception: fraud or
duress  there is nothing illegal, immoral or against public order in an
agreement for the private sale of the personal properties covered by chattel
mortgage
PERIOD TO FORECLOSE
1. After 30 days from the time of the condition is broken
2. The 30-day period is the minimum period after violation of the mortgage
condition for the creditor to cause the sale at public auction with at least 10
days notice to the mortgagor and posting of public notice of time, place,
and purpose of such sale, and is a period of grace for the mortgagor, to
discharge the obligation.
3. After the sale at public auction, the right of redemption is no longer
available to the mortgagor.
ACTION FOR REPLEVIN
In case of refusal of the mortgagor to surrender the possession of the
mortgaged chattel sold by the sheriff, the remedy of the purchaser is to
bring an ordinary action for recovery of possession.
When the mortgagee seeks a replevin in order to effect the eventual
foreclosure of the mortgage, it is not only the existence of, but also the
mortgagor’s default on, the chattel mortgage that, among other things, can
properly uphold the right to replevy the property.
CIVIL ACTION TO RECOVER CREDIT
1. independent action not required
2. mortgage lien deemed abandoned by obtaining a personal judgment
RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY
1. Where mortgage foreclosed: Creditor may maintain action for deficiency
although the Chattel Mortgage Law is silent on this point, because a chattel
mortgage is given only as a security and not as payment of the debt.
2. Where mortgage constituted as security for purchase of personal
property payable in installments: No deficiency judgment can be asked and
any contrary agreement shall be void.
3. Where mortgaged property subsequently attached and sold: Mortgagee
is entitled to deficiency judgment in an action for specific performance.
APPLICATION OF PROCEEDS OF SALE
1. Costs and expenses of keeping and sale.
2. Payment of the obligation.
3. Claims of persons holding subsequent mortgages in their order.
4. Balance, if any, shall be paid to the mortgagor, or person holding rights
under him.
EXCEPTION:
Under the Recto Law (Arts.1484 & 1485)
Applies in cases of:
1. sale of movables in installment
2. lease of personal property
-with option to buy
-when the lessor has deprived the lessee of the possession or enjoyment of
the thing
-When the seller assigns his credit to another person, the assignee is
likewise bound by the same law. (Borbon II v. Servicewide Specialists, Inc.,
1996)
 Stipulation that the installments or rents paid shall not be returned to the
buyer or lessee VALID insofar as the same may not be unconscionable
(Art. 1486)
Sale of movables in installment
-The Recto law does NOT apply to a straight term sale in which the
balance, after payment of the initial sum, should be paid in full at the time
specified, because the law attempts to protect improvident buyers from the
great temptation of buying beyond their means. In a straight term sale, the
partial payments are not so small as to place buyers off their guard and
delude them to a miscalculation of their ability to pay. (Levy Hermanos, Inc.
v. Gervacio, 1939)
Lease of personal property with option to buy
- The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Art. 1485 is fulfilled when
the lessor files a complaint for replevin to recover possession of the
movable property. By virtue of the writ of seizure, the lessee is deprived of
the use of the property. (Elisco Tool Manufacturing Corp., v. CA, 1999)
-The Recto law does not apply to a financial leasing agreement which, by
definition under RA 855615, does not give the lessee an option to buy.
(Sing, Jr. v. FEB Leasing and Finance Corp., 2007)
           BUT when a contract purporting to be a financial leasing agreement
is in reality a contract of lease with option to buy, the Recto law applies.
When the lessor, in its demand letter, gives the defaulting lessee the option
of either returning the movable property or keeping it by paying the
outstanding balance, the lessee is in effect given an option to buy, even if
the ―lease agreement‖ does not contain a ―purchase option‖ clause.(PCI
Leasing and Finance, Inc. v. Giraffe-X Creative Imaging, Inc., 2007)
The Recto law does not apply to a creditor-mortgagee in a loan secured by
a chattel mortgage on the property purchased with the proceeds of the
loan, absent proof that:
          o the agreement was in fact a consumer loan agreement (i.e., the
mortgagee in fact bought the property from the original seller and in turn,
sold it to the mortgagor) (Superlines Transportation Company, Inc. v.
Lavides, 2003); or
          o the seller assigned to the creditor the right to collect the balance of
the purchase price from the buyer. (Rosario v. PCI Leasing and Finance,
Inc., 2005) 
 Alternative remedies under the Recto law:
1. Specific performance
2. Cancellation of sale, IF the buyer fails to pay 2 or more installments
3. Foreclosure of chattel mortgage on the thing sold, if one has been
constituted, IF the buyer fails to pay 2 or more installments.
Nature of the remedies: ALTERNATIVE, NOT CUMULATIVE- the exercise
of one bars the exercise of the others (Cruz v. Filipinas Investment &
Finance Corp., 1968)