Macatangay, Chad R.

Assignment

C3S

Regulatory Framework and Legal Issues in Business

1. What happens when the mortgagor pays the principal obligation on or before the due date?

The mortgagor successfully fulfilled the principal obligation and it is valid because it will not be alienated
because the mortgagor paid before or on the due date of the principal obligation. Also, Mortgagor
retains ownership of the thing given as a security.

2. What happens if the mortgage is void?

If for some reason, the mortgage is void, the principal obligation subsists (remain in being, force, or
effect). What is lost is only the right of the creditor to foreclose the mortgage in order to satisfy the
principal obligation. Moreover, even if the mortgage itself is void, the mortgage deed remains as proof
of the principal obligation.

3. Mortgagor mortgages a house and lot worth 500K to Mortgagee to secure a principal obligation
of “100K and any and all future indebtedness.” The mortgage is registered. Meanwhile,
Mortgagor owes another creditor, X, 500K. The total indebtedness of Mortgagor to Mortgagee
eventually reaches 500K. On due date, Mortgagor fails to pay both X and Mortgagee. The house
and lot is his only property. X is able to obtain a writ or attachment on the house and lot. Who
has a better right to the house and lot – X or mortgagee?

Mortgagee has a better right with respect only to 1/5 of the house and lot. (100k) This is because the
mortgage was registered only to the extent of 100K, and not to the “any and all future debts” Which is
non-existent at the time of mortgage. Therefore, the mortgage is binding on third persons only with
respect to the 100K debt, or 1/5 of the house.

X can argue on two grounds: a. That Mortgagee paid doc stamp taxes based only on the 100K debt, not
on the succeeding 400K debt. So he even cheated the government of its revenues in this case.

b. at the time of the mortgage, the 400K debt was non-existent (“any and all future debts”) Therefore, X
has a better right with respect to the 4/5 which was not registered (400k).

Slide no. 10 (Credit Transactions-Pledge and Mortgage)

1. May property acquirable in the future be mortgaged?

Future property cannot be the object of a contract of mortgage. One cannot constitute a mortgage on
“any other property he might have now and those he might acquire in the future.” One of the essential
requisites of mortgage is that the mortgagor should be the absolute owner of the thing mortgaged.
2. Is a third person who pledged and/or mortgaged his property (accommodation mortgagor) liable for
the deficiency?

- Third persons may pledge or mortgage their property to secure another person's debt. However, they
can be held liable only to the extent of the value of their property. the pledgor is not liable for any
deficiency should the property be not sufficient to cover the debt.

but with respect to mortgage, they may be held liable for any deficiency in case of foreclosure only if:
the third person expressly agreed to assume the principal obligation.