REAL 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.
Real Mortgage
A contract in which the debtor guarantees to the creditor the fulfillment of a
principal obligations, subjecting for the faithful compliance therewith a real
property in case of non-fulfillment of said obligation at the times stipulated.
Characteristics of a Real Mortgage
a.
b.
c.
d.
e.
f.
g.
h.
i.

It is a real right
It is an accessory contract
It is indivisible
It is inseparable
It is a real property
It is a limitation on ownership
It can secure all kinds of obligation
The property cannot be appropriated
The mortgage is a lien

Kinds of Real Mortgages

a. Voluntary or Conventional created by the parties
b. Legal Mortgage one required by law to guarantee performance
c. Equitable Mortgage one which reveals an intent to make the property a
security, even if the contract lacks the proper formalities of a real estate
mortgage

Article 2125. In addition to the requisites stated in Article 2085 1, it is

indispensible, in order that a mortgage may be validly constituted, that
the document in which it appears be recorded, the mortgage is
nevertheless binding between the parties.
The person in whose favor the law establishes a mortgage has no other
right than to demand the execution and the recording of the document in
which the mortgage is formalized.
Note:
-

Unrecorded Mortgages are binding between parties. 2

Once a mortgage has been signed in due form, the mortgagee is entitled to
its registration as a matter of right. By executing the mortgage, the
mortgagor is understood to have given his consent to its registration, and he
cannot be permitted to revoke it unilaterally.
In case of legal mortgages, the persons entitled have no other right than to
demand the execution and the recording of the document in which the
mortgage is formalized.
A mortgage when registered becomes binding against third persons.

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.
Effect of Mortgage:
1. Creates real right
A mortgage is a real right and as such it is good and binding against the whole
world, and may be enforced by real action against all persons who may have
existing rights or interests in the same property, not registered prior to the
mortgage.

1 Article 2085, Philippine Civil Code -- The following requisites are essential to the contracts
of pledge and mortgage:(1) That they be constituted to secure the fulfillment of a principal
obligation;
(2) That the pledgor or mortgagor be the absolute owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or mortgage have the free disposal of their
property, and in the absence thereof, that they be legally authorized for the purpose.
Third persons who are not parties to the principal obligation may secure the latter by
pledging or mortgaging their own property.

2 Tan v. Valdehueza, L-38745, August 5, 1975

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2. Creates merely an encumbrance

The mortgage and the property affected are inseparable, so much so that that
whoever may subsequently acquire title to the mortgaged property is bound by the
terms of the mortgage.
Note:
-

If a mortgagor sells the property, the buyer must respect the mortgage (if
registered or if he knows of its existence). If the creditor forecloses the
mortgage, the buyer will not be responsible for the deficiency. Except in the
case of a novation, where the parties consent to the buyers assumption of
personal liability.
If a mortgagor, without the creditors consent, transfers the property and the
debt to another, the mortgagor would still be liable.

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.
Extent of subject matter of mortgage

The basic object of a real mortgage is land, and as a rule the word land
includes every estate and interest in land. It therefore follows that, unless
otherwise reserved, all buildings and improvements existing thereon are
deemed included.
Future improvements
Machineries and fixtures
Fruits and rents of mortgaged property
Continuing credit secured by mortgage

Dragnet Clause is also known as blanket mortgage clause. It is a stipulation

in the mortgage contract to secure future and other indebtedness. It is one which
specifically phrased to subsume all debts of past or future origin. It operates as a
convenience and accommodation to the borrowers as it makes available additional
funds without their having to execute additional security documents, thereby saving
time, travel loan closing costs, and etc.
Notes:

Mortgage on land includes present and future houses, unless the houses are
expressly exempted.3
Growing fruits exclude those already harvested before the obligation. 4
If equipment on a mortgaged land is temporarily removed, the mortgage
continues on said equipment.5

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.
Alienation of Mortgage Credit
The mortgage credit (the right of the mortgagee) may be alienated or
assigned, in whole or in part. This is because the mortgagee is the owner of
said right.
Effect if Alienation of the Mortgage Credit is Not Registered
Even if the alienation is not registered it would still be valid as between the
parties. Registration is needed only to affect third parties.
Santiago vs. Pioneer Savings and Loan Bank
GR No. 77502 January 15, 1988
The mortgage credit (the right of the mortgagee) is a real right and directly
and immediately subjects the mortgaged property to the fulfillment of the
principal obligation. Such real right may be alienated or assigned to a third
person, in whole or in part, by the mortgagee who is the owner of the said
right and the assignee may foreclose the mortgage in case of nonpayment of
the mortgage indebtedness.
Said assignment is valid and assignee may foreclose the mortgage in case of
nonpayment of the mortgage indebtedness.
The plaintiff-appellant, therefore cannot rightfully claim that FINASIA, as the
assignee of the mortgagee, cannot extra judicially foreclose the mortgaged
property. A mortgage directly and immediately subjects the property upon
which it is imposed to the fulfillment of the obligation for whose security it
was constituted.
The assignment of receivables made by the original mortgagee, FINASIA, to
the Defendant Bank was valid, since a mortgage credit may be alienated or
3 Bischoff v. Pomar & Cia General de Tabacos, 12 Phil. 690
4 Afable v. Belando, 55 Phil. 64
5 Serra v. National Bank, 45 Phil. 907
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assigned to a third person, in whole or in part, with formalities required by

law.

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.
Right of Creditor to go against possessor of property mortgaged
The mortgaged creditor can demand from any possessor of the mortgaged property
the credit insofar as it can be obtained from the property itself, provided also that a
prior demand was made on the debtor.

Article 2130. A stipulation forbidding the owner from alienating the

immovable mortgaged shall be void.
Note:
A stipulation wherein the mortgagor is required to get the consent of the
mortgagee before subsequently mortgaging the property is valid and binding when
the land is registered under the Torrens system. 6

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.
Equity of Redemption
This is the 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.
Right of Redemption
This is the right of the mortgagor to purchase the property within a certain
period after it was sold for the purpose of paying the mortgage debt.

6 Philippine Industrial Co. v. El Hogar Filipino, 43 Phil. 336

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