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I. INTRODUCTION
A. Mortgage contract defined.
A mortgage is a legal agreement that conveys the conditional right of ownership on an
asset or property by its owner (the mortgagor) to a lender (the mortgagee) as security for a loan.
It is a lien on a particular property to secure the payment of a debt or the performance of an
obligation. It is, according to Sanchez Roman, a real right constituted to secure an obligation
upon real property or rights therein to satisfy with the proceeds of the sale thereof such
obligations when the same becomes due and has not been paid or fulfilled. The lender's security
interest is recorded in the register of title documents to make it public information, and is voided
when the loan is repaid in full.
B. Types of Mortgage
Virtually any legally owned property can be mortgaged, although real property (land and
buildings) are the most common.
A real estate mortgage is a contract in which the debtor guarantees to the creditor the
fulfillment of a principal obligation, subjecting for the faithful compliance therewith a real
property in case of non-fulfillment of said obligation at the time stipulated (Manresa). It is a lien
on specific or identified immovable property. It 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. It creates a real right enforceable against the whole world. 1
When personal property (appliances, cars, jewelry, etc.) is mortgaged, it is called a
chattel mortgage. In case of equipment, real property, and vehicles, the right of possession and
use of the mortgaged item normally remains with the mortgagor but (unless specifically
prohibited in the mortgage agreement) the mortgagee has the right to take its possession (by
following the prescribed procedure) at any time to protect his or her security interest.
Real Mortgage Distinguished from Chattel Mortgage

Properties
covered
Modes of
foreclosure

On
Redemption

REAL MORTGAGE
Covers real property or real rights and
required to be constituted by means of a
public instrument
There are two modes of foreclosure
extrajudicial under Act No. 3135, as
amended or judicial under Rule 68 of
the Rules of Court
There is right of redemption in case of
extrajudicial foreclosure, and when the
mortgagee is a bank or banking
institution in case of judicial foreclosure.

CHATTEL MORTGAGE
Covers only chattels or personal
property and May be constituted in
a private document only
Only extrajudicial foreclosure
under Sec. 14 of Act No. 1508 is
now available.
No right of redemption can be
invoked after the chattels have
been sold at public auction.. The
purchaser at an auction sale
becomes the owner of the
property.

C. Nature of Mortgage
1DBP v. NLRC, 183 SCRA 328 [1990]
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Mortgage is regarded as a mere lien, and not as creating a title or estate. It is in essence a
charge on property for the purpose of security. Stated otherwise a mortgage is an accessory
undertaking for the convenience and security of the mortgage creditor, and exists independently
of the obligation to pay the debt secured by it. The mortgage can waive the mortgage security
and proceed to collect the principal debt by personal action against the original mortgagor.2
The common law theory of a mortgage is that the title of the mortgagor passes to the
mortgagee, subject to reversion upon the performance of the condition subsequent. In the
Philippines, however, common law theory is not binding, for here the owner who constitutes a
mortgage retains title to the property and does not lose his attributes as a owner. He only creates
a lien or encumbrances upon his property.
D. Standard Provisions of Mortgage
The standard provisions governing mortgage can be found in Article 2085 of the Civil
Code of the Philippines which enumerates the essential requisites of mortgage, to wit:
a. That it be constituted to secure the fulfilment of a principal obligation;
b. That the mortgagor be the absolute owner of the thing mortgaged;
c. That the person constituting the mortgage has the free disposal of the property, and in
the absence thereof, that he be legally authorized for the purpose.
Moreover, a third person who is not a debtor or party to the principal obligation may
secure the latter by mortgaging his own property.
As a further requisite, Article 2125 of our Civil Code provides that it is indispensable, in
order that a mortgage may be validly constituted, that the document in which it appears be
registered in the Office of the Registry of Deeds concerned. Failure to register, according to
the same article, does not necessarily invalidate the mortgage, but limits its binding effect to
the parties thereto only.3
E. Sample Mortgage Contract
A sample real estate and chattel mortgage contracts can be found in the Appendix.
F. Concept of a Contract Adhesion re: Mortgage Contract
A contract of adhesion is defined as one in which one of the parties imposes a readymade form of contract, which the other party may accept or reject, but which the latter cannot
modify. One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, giving no room for negotiation and depriving
the latter of the opportunity to bargain on equal footing.4
It must be borne in mind, however, that contracts of adhesion are not invalid per se.
Contracts of adhesion, where one party imposes a ready-made form of contract on the other,
are not entirely prohibited. The one who adheres to the contract is, in reality, free to reject it
entirely; if he adheres, he gives his consent.5
2Benipayo Rodriguez vs. Reyes, Benipayo, G.R. No. L 22958, Jan. 30, 1971, 67 O.G. 21, p. 3956, May
24, 1971; 37 SCRA 195.
3Registration of Land Titles and Deeds, Pea, Narciso et al., p 232, 2008 ed.
4 Radio Communications of the Philippines, Inc. v. Verchez, G.R. No. 164349, January 31, 2006, 481
SCRA 384, 401, citing Philippine Commercial International Bank v. Court of Appeals, 325 Phil. 588, 597
(1996).
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A contract of adhesion is just as binding as ordinary contracts. It is true that this Court
had, on occasion, struck down such contracts as being assailable when the weaker party is
left with no choice by the dominant bargaining party and is thus completely deprived of the
opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited
even as the courts remain careful in scrutinizing the factual circumstances underlying each
case to determine the respective claims of contending parties on their efficacy. As held in the
case of Lee v. Court of Appeals, it is presumed that a person takes ordinary care of his
concerns. The natural presumption is that one does not sign a document without first
informing himself of its contents and consequences.
II.

WHEN MORTGAGE BECOMES THE PRINCIPAL CONTRACTS

B. Default
There are three requisites necessary for a finding of default.
1. First, the obligation is demandable and liquidated;
2. Second, the debtor delays performance; and
3. Third, the creditor judicially or extrajudicially requires the debtors
performance.6
Article 1169 of the Civil Code on delay requires the following:
Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfilment of their
obligation.
However, the demand by the creditor shall not be necessary in order that
delay may exist:
(1) When the obligation or the law expressly so declares; x x x
In the case of Development Bank of the Philippines v. Licuanan, finds application
to the instant case:
The issue of whether demand was made before the foreclosure was effected is
essential. If demand was made and duly received by the respondents and the latter still
did not pay, then they were already in default and foreclosure was proper. However, if
demand was not made, then the loans had not yet become due and demandable. This
meant that respondents had not defaulted in their payments and the foreclosure by
petitioner was premature. Foreclosure is valid only when the debtor is in default in
the payment of his obligation.
C. Equitable Mortgage
1. Concept
Equitable Mortgage is a legal document that restrains the property but is not
technically a Mortgage Overview because of the existence of some legal error. An Equitable
Mortgage can arise in two different ways either as a legal mortgage which was never
perfected by conveying the underlying assets, or by specifically creating a mortgage as an

5 Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No. 176246, February
13, 2009.
6 Selegna Management and Development Corporation v. United Coconut Planters Bank, G.R. No.
165662, May 3, 2006, 489 SCRA 125, 138.
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Equitable Mortgage. A mortgage over equitable rights such as a beneficiary's interests under
a trust will necessarily exist in equity only in any event.
In Rockville Excel International Exim Corporation vs. Spouses Oligario Culla and
Bernardita Miranda7 , the Supreme Court faced the issue of whether a Deed of Absolute Sale
is really an absolute sale of real property or an equitable mortgage. The Supreme Court
explained the concept of an equitable mortgage as follows:
An equitable mortgage has been defined as one which although lacking in some
formality, or form or words, or other requisites demanded by a statute, nevertheless reveals
the intention of the parties to charge real property as security for a debt, there being no
impossibility nor anything contrary to law in this intent.
For the presumption of an equitable mortgage to arise under Article 1602, two (2)
requisites must concur: (a) that the parties entered into a contract denominated as a contract of
sale; and, (b) that their intention was to secure an existing debt by way of a mortgage. Any of
the circumstances laid out in Article 1602, not the concurrence nor an overwhelming number
of the enumerated circumstances, is sufficient to support the conclusion that a contract of sale
is in fact an equitable mortgage. In several cases, we have not hesitated to declare a purported
contract of sale to be an equitable mortgage based solely on one of the enumerated
circumstances under Article 1602. This approach follows the rule that when doubt exists on
the nature of the parties transaction, the law favors the least transmission of property rights.
In Rockville, the Supreme Court ruled that the contract between the parties was an
equitable mortgage.
What Are The Essential Requisites Of Equitable Mortgage?
Parties entered into a contract of sale.
Their intention was to secure an existing debt by way of a mortgage.
What is the rule on the presumption of an equitable mortgage?
A sale with conventional redemption is deemed to be an equitable mortgage in any of the
following cases: (Art. 1602)
1. Price of the sale with right to repurchase is unusually Inadequate
2. Seller Remains in possession as lessee or otherwise
3. Upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed
4. Purchaser Retains for himself a part of the purchase price
5. Seller binds himself to pay the Taxes on the thing sold
6. In any other case where the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation.
7. Art. 1602 shall also apply to a contract purporting to be an Absolute sale. (Art.
1604)
Note: In case of doubt in determining whether it is equitable mortgage or sale a retro
(with right of repurchase); it shall be construed as equitable mortgage.
2. Legal Effect
An Equitable Mortgage has the same effect as a perfected legal mortgage except
in two respects. Firstly, being an equitable right, it will be extinguished by a bonafide
7 G.R. No. 155716, October 2, 2009
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purchaser for value who did not have notice of the mortgage. Secondly, because the legal
title to the mortgaged property is not actually mentioned in the secured party, it means
that a necessary additional step is imposed in relation to the exercise of remedies such as
foreclosure. In this mortgage all kinds of property, real or personal, which are capable of
an absolute sale, may be the subject of a mortgage, rights in remainder and reversion,
franchises, and choses in action, may, therefore, be mortgaged.
But in cases where there is a mere possibility or expectancy, as that of an heir,
cannot be mortgaged. An Equitable Mortgage of lands is one where the mortgagor does
not convey regularly the land, but does some act by which he manifests his determination
to bind the same for the security of a debt he owes. An agreement in writing to transfer an
estate as a security for the repayment of a sum of money borrowed, or even a deposit of
title deeds, and a verbal agreement, will have the same effect of creating this Mortgage.
III.

FORECLOSURE
A. Concept
Foreclosure of mortgage is the process by which a property covered may
be subjected to sale to pay demand for which mortgages stand as security 8.
Foreclosure is the necessary consequence of non-payment of mortgage
indebtedness. The mortgage can be foreclosed only when the debt remains unpaid
at the time it is due 9 or in case of default in the payment of obligation. 10

B. Types
1. Extra-Judicial Foreclosure under Act 3135
A. Jurisdiction
When a sale is made under a special power inserted in or attached to any
real-estate mortgage made as security for the payment of money or the fulfillment
of any other obligation, the provisions of Act 3135 shall 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. 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.
B. Procedure
In Administrative Matter No. 99-10-05-0 (as further amended on 07 August
2001), the Supreme Court prescribed the following procedures in the extra-judicial
foreclosure of mortgage:
1. All applications for extra-judicial foreclosure of mortgage whether under the direction of
the sheriff or a notary public, pursuant to Act 3135, as amended, shall be filed with the
Executive Judge, through the Clerk of Court who is also the Ex-Officio Sheriff.
8Pacific Commercial Co. v. Alvarez, 38 OG 758
9Producers Bank v. CA, GR No. 111584, 17 Sept. 2001; Govt of the PI v. Espejo, 57 Phil 496
10PNB v. CA, GR No. 126908, 16 Jan. 2003; Chinabank v. CA, 265 SCRA 327 [1996]
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2. Upon receipt of an application for extra-judicial foreclosure of mortgage, it shall be the

duty of the Clerk of Court to: a) receive and docket said application and to stamp
thereon the corresponding file number, date and time of filing; b) collect the filing fees
therefore pursuant to Rule 141, Section 7(c) as amended by A.M. No. 00-2-01-SC, and
issue the corresponding official receipt; c) examine, in case of real estate mortgage
foreclosure, whether the applicant has complied with all the requirements before the
public auction is conducted under the direction of the sheriff or a notary public, pursuant
to Sec. 4 of Act 3135, as amended; d) sign and issue the certificate of sale, subject to the
approval of the Executive Judge, or in his absence, the Vice-Executive Judge. No
certificate of sale shall be issued in favor of the highest bidder until all fees provided in
the aforementioned sections and in Rule 141, Section 9(1) as amended by A.M. 00-2-01SC, shall have been paid; Provided, that in no case shall the amount payable under Rule
141, Section 9(1), as amended, exceed P100,000.00; e) after the certificate of sale has
been issued to the highest bidder, keep the complete records, while awaiting any
redemption within a period of one (1) year from date of registration of the certificate of
sale with the Register of Deed concerned, after which, the records shall be archived.
Notwithstanding the foregoing provision, juridical persons whose property is sold
pursuant to an extrajudicial foreclosure, shall have the right to redeem the property until,
but not after, the registration of the certificate of foreclosure sale which in no case shall
be more than three (3) months after foreclosure, whichever is earlier, as provided in
Section 47 of Republic Act No. 8791 (as amended, Res. of August 7, 2001) Where the
application concerns the extrajudicial foreclosure of mortgages of real estates and/or
chattels in different locations covering one indebtedness, only one filing fee
corresponding to such indebtedness shall be collected. The collecting Clerk of Court
shall, apart from the official receipt of the fees, issue a certificate of payment indicating
the amount of indebtedness, the filing fees collected, the mortgages sought to be
foreclosed, the real estates and/or chattels mortgaged and their respective locations,
which certificate shall serve the purpose of having the application docketed with the
Clerks of Court of the places where the other properties are located and of allowing the
extrajudicial foreclosures to proceed thereat.
3. The notices of auction sale in extrajudicial foreclosure for publication by the sheriff or by
a notary public shall be published in a newspaper of general circulation pursuant to
Section 1, Presidential Decree No. 1079, dated January 2, 1977, and non-compliance
therewith shall constitute a violation of Section 6 thereof.
4.

The Executive Judge shall, with the assistance of the Clerk of Court, raffle applications
for extrajudicial foreclosure of mortgage under the direction of the sheriff among all
sheriffs, including those assigned to the Office of the Clerk of Court and Sheriffs IV
assigned in the branches.

5. The name/s of the bidder/s shall be reported by the sheriff or notary public who
conducted the sale to the Clerk of Court before the issuance of the certificate of sale.

C. Essential requirements under Act 3135

Under Act 3135, as amended and settled jurisprudence, the following essential requirements
must be met:
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1. There must be a special power of attorney inserted in or attached to the real estate
mortgage authorizing the sale pursuant to the provisions of Act, 3135, as amended.11
2.

The sale must be made within the province where the property or any part thereof is
located, unless otherwise stipulated. 12

3. There must be a notice of sale to be posted in three public places of the municipality or
city where the property is situated. If the property is worth more than P400.00, the notice
shall also be published once a week for three consecutive weeks in a newspaper of
general circulation in the city or municipality
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 (now municipal judge) of the municipality in
which such sale shall be made, or a notary public of said municipality.

D. Redemption
Right of Redemption is the right of the mortgagor to redeem the mortgage property
within a certain period (1 year) after it was sold for the satisfaction of the mortgage debt.
Requisites for valid redemption:
1. Redemption within 1 year from registration of sale;
2. Payment of purchase price plus 1% interest per month thereon if any, paid by
purchaser; AND
3. Written notice of redemption served on officer who made the sale.
(1) Who may Redeem
The following persons may redeem the property:
a. Debtor,
b. Debtors successors in interest,
c. Judicial creditors,
d. Judgment creditors of said debtor, or
e. Any person having a lien on the property subsequent to the
mortgage or deed of trust under which the property is sold.
(2) Amount of Redemption price
It shall consist of:
a. Purchase price, plus
b. 1% interest per month thereon if any.
(3) Period for redemption
General Rule: The property may be redeemed at any time within the term of one
(1) year from and after the date of the sale.
Exemption: RA 879113 limits the redemption period of juridical mortgagors to
only 3 months, to begin from the date of the foreclosure sale but not after the registration
11Paguyo v. Gatbunton, 523 SCRA 156 [2007]
12Supena v. de la Rosa, 267 SCRA 1
13 An Act Providing For The Regulation Of The Organization And Operations Of Banks, Quasi-Banks,
Trust Entities And For Other Purposes
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of the certificate of foreclosure sale whichever comes first whenever the mortgagee is a
bank.
Mortgagee
Banks
Non-Banks
Individual
1 year from registration
1 year from registration of sale
Debtors/Mortgagors
of sale
Until registration of certificate
Juridical Persons as
1 year from registration
of sale or 3 months from sale
Debtors/Mortgagors
of sale
whichever is earlier
E. Judicial Foreclosure Under Rule 68
Judicial foreclosure of real estate mortgage is governed by the provisions of Rule 68 of
the Rules of Court. It is like any ordinary civil action filed in court that shall be proven by
preponderance of evidence.
A. Procedure:
1. Preparation and filing of complaint which shall set forth the following allegations (Sec. 1,
Rule 68):
a. Date and due execution of the mortgage and its assignments, if any;
b. Names and residences of the mortgagor and mortgagee;
c. Description of the mortgaged property/ies;
d. Documentary evidence/s of the obligation/s secured by the mortgage and the
unpaid obligation;
e. Names and residences of all persons having or claiming an interest in the
mortgaged property/ies.
2. The trial court shall render a judgment based on the facts proven and shall ascertain the
amount due based on the mortgage debt or obligation, including interests, charges and
costs. The court shall then direct the defendant to pay said amount within a period of not
less than ninety (90) days nor more than one-hundred twenty (120) days (Sec. 2, Rule 68).
3. In the event of failure to pay as directed within 90 to 120 days, the mortgage realty/ies
shall be sold at an auction sale, the proceeds of which shall be applied to the mortgage
debt, pursuant to Rule 39 of the Rules of Court (Sec. 3, Rule 68).
Before the sale of the real property/ies, notice must be given:
a) By posting for 20-days in three (3) public places. If the assessed value is more than
P50,000.00, by publishing a copy of the notice once a week for two (2) consecutive
weeks in one newspaper selected by raffle (Sec. 15c, Rule 39).
b) Written notice to the judgment obligor at least three (3) daysbefore the sale (Sec. 15d,
Rule 39).
The highest bidder shall be issued a certificate of sale (Sec. 25, Rule 39).
Upon motion and after notice and hearing, the trial court will issue an order of
confirmation of the sale. 14
The final order of confirmation shall be registered with the Registry of Deeds (Sec. 7,
Rule 68).
a) 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.
b) Where a right of redemption exists, the certificate of title of the mortgagor shall not
be cancelled. Instead, the certificate of sale and order of confirmation shall be
14 Rural Bank of Oroquieta v. CA, 101 SCRA 5 [1980]
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registered with a memorandum of the right redemption. If the property is not

redeemed a final deed of sale shall be executed by the sheriff in favor of the
purchaser which shall be registered in the Register of Deeds, whereupon the title of
the mortgagor shall be cancelled and a new one issued in the name of the purchaser.
4. If the proceeds of the auction sale of the property are not sufficient, the trial court, upon
motion, shall render a deficiency judgment against the defendant (Sec. 6, Rule 68).
Equity of Redemption
Equity of redemption 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
property or the confirmation of the sale after judicial foreclosure thereof 15. This is the right of the
defendant mortgagor to extinguish the mortgage and retain ownership of the property by paying
the secured debt within a 90-day period after the judgment becomes final or after the foreclosure
sale but prior to its confirmation.
No right of redemption in judicial foreclosure.
There is no right of redemption from a judicial foreclosure of mortgage, except foreclosure
of mortgage by banks or banking institutions. 16
Equity of redemption vs. right of redemption.
The Supreme Court already ruled on the distinction between the equity of redemption and
the right of redemption as follows:
The equity of redemption is, to be sure, different from and should not be confused with
the right of redemption. The right of redemption in relation to a mortgage understood in the
sense of a prerogative to re-acquire mortgaged property after registration of the foreclosure sale
exists only in the case of the extrajudicial foreclosure of the mortgage. No such right is
recognized in a judicial foreclosure except only where the mortgagee is the Philippine National
Bank or a bank or banking institution. Where a mortgage is foreclosed extrajudicially, Act 3135
grants to the mortgagor the right of redemption within one (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, x x 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 a may be
allowed by law. Such rights exceptionally allowed by law (i.e. even after confirmation by an
order of the court) are those granted by the charter of the Philippine National Bank (Acts No.
2747 and 2938), and the General Banking Act (R.A. 337). 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
may be exercised within a period of one (1) year, counted from the date of registration of the
certificate of sale in the Registry Property. But, to repeat, no such right of redemption exists in
case of judicial foreclosure of a mortgage if the mortgagee is not the PNB or a bank or banking
institution. In such a case, the foreclosure sale, when confirmed by an order of the court. x x
shall operate to divest the rights of all the parties to the action and to vest their rights in the
15 International Services, Inc. v. IAC, 142 SCRA 467 [1986]
16GSIS v. CFI, 175 SCRA 19 [1989]; Huerta Alba Resort, Inc. v. CA, 339 SCRA 534 [2000]
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purchaser. There then exists only what is known as the equity of redemption. This is simply the
right of the defendant mortgagor to extinguish the mortgage and retain ownership of the
property by paying the secured debt within the 90-day period after the judgment becomes final,
in accordance with Rule 68, or even after judgment becomes final, in accordance with Rule 68,
or even after the foreclosure sale but prior to its confirmation. Section 2, Rule 68 provides that
xx If upon the trial xx 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 costs, and shall render judgment for the sum so found due and order the same to be paid into
court within a period of not less than ninety (90) days from the date of the service of such order,
and that in default of such payment the property be sold to realize the mortgage debt and
costs. This is the mortgagors equity (not right) of redemption which, as above stated, may be
exercised by him even beyond the 90-day period from the date of service of the order, and even
after the foreclosure sale itself, provided it be before the order of confirmation of the sale. After
such order of confirmation, no redemption can be effected any longer. 17
Extrajudicial foreclosure (EJF) vs. judicial foreclosure (JF)
Extra-judicial Foreclosure (Act 3135)
Judicial foreclosure (Rule 68)
No complaint is filed;
Complaint is filed with the courts;
There is a right of redemption. Mortgagor has a No right of redemption except when mortgagee
right of redemption for 1 year from registration is a banking institution; equity of redemption
of the sale;
only (90 to 120 days, and any time before
confirmation of foreclosure sale);
Mortgagee has to file a separate action to
Mortgagee can move for deficiency judgment
recover any deficiency;
in the same action
Buyer at public auction becomes absolute
Buyer at public auction becomes absolute
owner only after finality of an action for
owner only after confirmation of the sale;
consolidation of ownership;
Mortgagee is given a special power of attorney Mortgagee need not be given a special power
in the mortgage contract to foreclose the
of attorney.
mortgaged property in case of default.
IV.

CONSOLIDATION OF OWNERSHIP
A. Concept
The concept of consolidation of ownership under Art. 1607, Civil Code, has its
origin in the substantive provisions of the law on sales. Under the law, a contract of sale
may be extinguished either by legal redemption (Art. 1619) or conventional
redemption (Art. 1601). Legal redemption (retracto legal) is a statutory mandated
redemption of a property previously sold. For instance, a co-owner of a property may
exercise the right of redemption in case the shares of all the other co-owners or any of
them are sold to a third person (Art. 1620). The owners of adjoining lands shall have the
right of redemption when a piece of rural land with a size of one hectare or less is
alienated (Art. 1621). Conventional redemption (pacto de retro) sale is one that is not
mandated by the statute but one which takes place because of the stipulation of the parties
to the sale. The period of redemption may be fixed by the parties in which case the period
cannot exceed ten (10) years from the date of the contract. In the absence of any
agreement, the redemption period shall be four (4) years from the date of the

17Huerta Alba Resort, Inc. v. CA, 339 SCRA 534 [2000] citing Limpin v. IAC, 166 SCRA 87
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contract (Art. 1606). When the redemption is not made within the period agreed upon, in
case the subject matter of the sale is a real property, Art. 1607 provides that the
consolidation of ownership in the vendee shall not be recorded in the Registry of Property
without a judicial order, after the vendor has been duly heard.
The action brought to consolidate ownership is not for the purpose of
consolidating the ownership of the property in the person of the vendee or buyer but for
the registration of the property. The lapse of the redemption period without the seller a
retro exercising his right of redemption, consolidates ownership or title upon the person
of the vendee by operation of law. Art. 1607 requires the filing of the petition to
consolidate ownership because the law precludes the registration of the consolidated title
without judicial order. 18
B. Foreclosure under Act 3135
a. Requirements
Section 7 of Act 3135 states that 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 ninety-four 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.
[Note: It is settled that the buyer in a foreclosure sale becomes the absolute owner of the property
purchased if it is not redeemed during the period of one year after the registration of sale. Hence,
he is entitled to the possession of the property and can demand it at any time following the
consolidation of ownership in his name and the issuance to him of a new transfer certificate of
title. In such a case, the bond required in Section 7 of Act No. 3135 is no longer
necessary. Possession of the land then becomes an absolute right of the purchaser as confirmed
owner. Upon proper application and proof of title, the issuance of the writ of possession becomes
a ministerial duty of the court.]19
b. Legal Effect
The right to foreclose the mortgage and to have the property seized and sold with
a view to applying the proceeds to the payment of the principal obligation.

18Cruz vs. Leis, 327 SCRA 570

19 Lzk Holdings And Development Corp. Vs. Planters Development Bank, G.R. No. 167998

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A mortgage contract may contain an acceleration clauseon occasion of the

mortgagors default, the whole sum remaining unpaid automatically becomes due and
payable.
Essence of mortgage contractproperty has been identified and separated
from a mass of the property of the mortgagor to secure the payment of a
principal obligation.
Once the proceeds have been applied to the payment of the principal obligation,
the debtor cannot anymore be asked to pay unless there is deficiency.
C. Foreclosure Under Rule 68
a. Requirement
A real estate mortgage is an accessory contract executed by a debtor in favor of a creditor as
security for the principal obligation. This principal obligation is a simple loan
or mutuum described in Art. 1953, Civil Code. To be a real estate mortgage, the contract must be
constituted on either immovables (real property) or inalienable real rights. If constituted on
movables, the contract is a chattel mortgage (Art. 2124, CC).
A mortgage contract may have a provision in which the mortgage is a security for past,
present and future indebtedness. This clause known as a dragnet clause or blanket mortgage
clause has its origins in American jurisprudence. The Supreme Court ruled that mortgages given
to secure future advancements are valid and legal contracts. 20
B. Legal Effect
The equity of redemption of the mortgagor or redemptioner is cut-off and there will be no
further redemption, unless allowed by law (as in the case of banks as mortgagees). The equity of
redemption starts from the ninety-day period set in the judgment of the court up to the time
before the sale is confirmed by an order of the court. Once confirmed, no equity of redemption
may further be exercised.
The order of confirmation is appealable and if not appealed within the period for appeal
becomes final. 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 and he may secure a writ
of possession, upon, motion, from the court which ordered the foreclosure unless a third party is
actually holding the same adversely to the judgment obligor (Sec. 3).
V.

PETITION FOR WRIT OF POSSESSION

A. Concept

A writ of possession is "a writ of execution employed to enforce a judgment to

recover the possession of land. It commands the sheriff to enter the land and give possession
of it to the person entitled under the judgment. 21
The issuance of a writ of possession is not a judgment on the merits. A writ of
possession is generally understood to be an order whereby the sheriff is commanded to place
a person in possession of a real or personal property, [Moreno, Philippine Law Dictionary,
1972] such as when a property is extra-judicially foreclosed. [Sec. 7 of Act 3135, as
amended] In this regard, the issuance of a writ of possession to a purchaser in an extra20(Prudential Bank vs. Alviar, 464 SCRA 353).
21 ."Blacks Law Dictionary, 5th ed., p. 1444.
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judicial foreclosure is merely a ministerial function. As such, the Court neither exercises its
official discretion nor judgment.22In other words, the issuance of the writ of possession is
summary in nature,23hence the same cannot be considered a judgment on the merits which is
defined as one rendered after a determination of which party is right, as distinguished from a
judgment rendered upon some preliminary or formal technical point. 24
B. Jurisdiction
In order to obtain this type of order, the party must file a motion in the jurisdiction in
which the property is located and the court must find that the circumstances meet the
requirements for its issuance. In the event the person on whom the writ of possession is served
wants to fight its issuance, he or she may file an emergency motion to stay the writ in the court in
which the writ was issued.
A writ of possession may be issued under the following instances:25
land registration proceedings under Sec. 17 of Act 496;26
judicial foreclosure, provided the debtor is in possession of the mortgaged realty and no
third person, not a party to the foreclosure suit, had intervened;27 and
3. extrajudicial foreclosure of a real estate mortgage under Sec. 7 of Act 3135 as amended
by Act 4118.
1.
2.

C. Independent proceeding
In the procedure for the issuance of a writ of possession, no complaint is
necessary, the filing of an ex parte motion being enough. [Sec. 7, Act 3135, as amended]
Indeed, the term action does not include non-judicial proceedings, although they are
before a court, as in cases where the court does not act in a judicial capacity. 28There is
also another consideration that supports this conclusion since an extra-judicial foreclosure
only requires the posting and publication of the notices to effect the same. [Sec. 3, Act
3135, as amended] It has been held that a proceeding to foreclose a mortgage by
advertisement is not an action. 29

22 Lamb v. Philipps, 22 Phil 456 (1912)

23 Tabios, Problems Involving A Writ of Possession, 218 SCRA 585 (1993)
24 Santos v. IAC, 145 SCRA 238 (1986)
25Gatchalianv. Arlegui, 75 SCRA 234, 244 (1977)
26Estiponav. Navarro, 69 SCRA 285, 291 (1976)
27 Ramos v. Manalac, 89 Phil. 270, 275 (1951); Riverav. Court of First Instance, 61 Phil. 201 (1935)
28 Patterson v. Murray, 53 NC 278
29 Golcher v. Brisbin, 20 Minn. 453
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D. Legal Effect
The right of the purchaser to the possession of the foreclosed property becomes
absolute upon the expiration of the redemption period. The basis of this right to
possession is the purchaser's ownership of the property. After the consolidation of title in
the buyer's name for failure of the mortgagor to redeem, the writ of possession becomes a
matter of right and its issuance to a purchaser in an extrajudicial foreclosure is merely a
ministerial function.30
After the lapse of the redemption period, a writ of possession may be issued in
favor of the purchaser in a foreclosure sale as the mortgagor is now considered to have
lost interest over the foreclosed property. Consequently, the purchaser, who has a right to
possession after the expiration of the redemption period, becomes the absolute owner of
the property when no redemption is made. The purchaser can demand possession at any
time following the consolidation of ownership in his name and the issuance to him of a
new TCT. After consolidation of title in the purchasers name for failure of the mortgagor
to redeem the property, the purchasers right to possession ripens into the absolute right
of a confirmed owner. At that point, the issuance of a writ of possession, upon proper
application and proof of title, to a purchaser in an extrajudicial foreclosure sale becomes
merely a ministerial function. Effectively, the court cannot exercise its discretion.31
After the one-year period, however, the mortgagor loses all interest over it. The
purchaser, who has a right to possession that extends after the expiration of the
redemption period, becomes the absolute owner of the property when no redemption is
made. Thus, the posting of a bond is no longer needed.32
VI.
ANNULMENT OF FORECLOSURE
A. Jurisdiction and Venue
An action to annul the foreclosure of mortgage may be commenced and tried in the city
or province where the property or any part thereof lies. However, by the agreement of the
parties, the venue of an action may be changed or transferred from one province to another.
Besides, when improper venue is not objected to prior to the trial, it is deemed waived.
B. Common Ground for Annulment
a. Substantive
Under the substantive aspect of the law, a foreclosure may be annulled due to the
following:
1. Unilateral Interest
A third party can register any interest on a particular property or estate, and notify the
other party of this existence. A third party to a property is defined as any person other than the
owner. This may include banks, loan companies, credit cards and other private individuals.
30Edmundo vs. Dizon, G.R. No. 183027, 26 July 2010
31Saguan vs. Philippine Bank of Communications, G.R. No. 159882, 23 November 2007
32Espiridion vs. Court of Appeals, G. R. No. 146933, 8 June 2006; See also Saguan vs. Philippine Bank of
Communications, G.R. No. 159882, 23 November 2007

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However, unilateral interests have a very minimal effect; this is because the unilateral charge on
the charges register protects only the most important interest in any property which is ranked by
the most important being first registered as a notice.
2. Prescription
Prescription, which is a mode of acquiring ownership and other real rights through the
lapse of time in the manner and under the conditions laid down by law, is a bar to the foreclosure
of properties. If at the course of foreclosure proceedings and a claimant had clearly, definitely,
and unequivocally notify the owner of his (claimants) intention to avert an exclusive ownership
in himself then termination of the foreclosure is feasible.
b. Procedural
In the procedural aspect, a foreclosure proceeding may be annulled should the
following are not met in accordance to the standards stipulated by law:
1. Notice
Where mortgage has been constituted over a real estate property, the said property may
be alienated for the payment of the creditor (Article 2087, Civil Code) through the process of
extrajudicial foreclosure where the same shall be sold at public auction under the direction of the
sheriff or notary public. Before the public auction, it is necessary that the notice requirement
under Act. 3135, as amended, is complied with. Accordingly, notice shall be given by posting
notices of the sale for not less than twenty (20) days in at least three (3) public places of the
municipality or city where the property is situated, and if such property is worth more than four
hundred pesos (P400.00), such notice shall also be published once a week for at least three (3)
consecutive weeks in a newspaper of general circulation in the municipality or city (Section 3,
Act No. 3135, as amended).
An extra-judicial foreclosure sale is an action in rem and thus requires only notice by
publication and posting to bind the parties in the foreclosed property. No personal notice is
necessary. 33 A single act of posting the notice of auction sale satisfies the requirements of law.
The burden of proving that the posting requirement was not complied with is shifted to the one
who alleges non-compliance. 34
Note: The object of a notice of sale is to inform the public of the nature and
condition of the property to be sold, and inform of the time, place and terms of the sale.
2. Publication
In a line of cases, the Supreme Court declared that publication of the extra-judicial sale
in a newspaper of general circulation is more than sufficient compliance with the noticeposting requirement of the law.35 PD 1079 and Act 3135 do not require that the
newspaper which publishes judicial notices should be a daily newspaper. 36
33 Langkaan Realty Devt., supra; Bohanan v. CA, supra; Fortune Motors, 265 SCRA 72
34 Bonnevie v. CA, 125 SCRA 122 [1983]
35 Fortune Motors v. Metrobank, 265 SCRA 72; Cristobal v. CA, 328 SCRA 256; Concepcion v. CA, 274 SCRA
614; Bohanan v. CA, 256 SCRA 355; Olizon v. CA, 236 SCRA 148; Gravina v. CA 220 SCRA 178

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In Olizon at 156, it was ruled that:

x x x the publication of the notice of sale in the newspaper of general circulation
alone is more than sufficient compliance with the notice-posting requirement of the law.
By such publication, a reasonably wide publicity had been effected such that those
interested might attend the public sale, and the purpose of the law had thereby subserved.
A certificate of posting is not required, much less considered indispensable, for
the validity of a foreclosure sale under Act 3135 it is significant only in the matter of
providing compliance with the required posting of notice. 37 The failure to post a notice is
not per se a ground for invalidating the sale provided that the notice thereof is duly
published in a newspaper of general circulation. 38
The affidavit of publication executed by the publisher, business/advertising manager
that a newspaper is a newspaper of general circulation constitutes prima facie evidence of
compliance with the requisite publication. 39Notices are given for the purpose of securing
bidders and to prevent a sacrifice of the property.40 Publication, therefore, is required to
give the foreclosure sale a reasonably wide publicity such that those interested might
attend the public sale. 41
The notice and publication requirement are mandatory and failure to comply is a
jurisdictional defect that vitiates the foreclosure auction sale. Non-compliance with the
notice and publication requirement in Act 3135, as amended is a jurisdictional defect that
vitiates the auction sale. 42
Statutory provisions governing publication of notice of mortgage foreclosure sales
must be strictly complied with and slight deviations there from will invalidate the notice
and render the sale at the very least voidable. 43
In (PNB v. Nepomuceno, the Court ruled that the right of a bank to foreclose a
mortgage upon the mortgagors failure to pay his obligation must be exercised according
to its clear mandate and every requirement of the law must be complied with, lest the
36 Fortune Motors, 265 SCRA 72

37 Bohanan v. CA, 256 SCRA 355; Olizon v. CA, 256 SCRA 355; Cristobal v. CA, 328 SCRA 256 [2000]; DBP v.
CA, GR No. 125838, 10 June 2003

38 DBP v. Aguirre, GR No. 144877, 07 September 2001

39 Bonnevie v. CA, 125 SCRA 122 [1983]; Sadang v. GSIS, 18 SCRA 491
40 Olizon v. CA, 236 SCRA 148
41 Ouano v. CA, 129279, 04 March 2003
42 Tambunting v. CA, 167 SCRA 16
43 PNB v. Nepomuceno Productions, Inc., GR No. 139479, 27 December 2002; Ouano v. CA, GR No. 129279, 04
March 2003; Lucena v. CA, 313 SCRA47, [1999]

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valid exercise of the right end. The valid exercise of the right ends when the right
disappears, and it disappears when it is abused especially to the prejudice of others.
[Note: The parties have no right to waive the notice and publication requirements. There is
no estoppel in case of an agreement to dispense with the notice and publication
requirements. ]
The parties have absolutely no right to waive the posting and publication requirements. 44
Foreclosure auction sale is imbued with public policy considerations and any waiver on the
notice and publication requirements would be inconsistent with the intent and letter of Act 3135,
as amended.
Publication, therefore, is required to give the foreclosure sale a reasonably wide publicity
such that those interested might attend the public sale. To allow the parties to waive this
jurisdictional requirement would result in converting into a private sale what ought to be a public
auction. 45
In the case of DPB v. CA, GR No. 125838, 10 June 2003, the Supreme Court clarified
that:
The form of the notice of extrajudicial sale is now prescribed in Circular No. 7-2002
issued by the Office of the Court Administrator on 22 January 2002. Section 4(a) of Circular
No. 7-2002 provides that: x x x The last paragraph of the prescribed notice of sale allows the
holding of a rescheduled auction sale without reposting or republication of the notice. However,
the rescheduled auction sale will only be valid if the rescheduled date of auction is clearly
specified in the prior notice of sale. The absence of this information in the prior notice of sale
will render the rescheduled auction sale void for lack of reposting or republication. If the notice
of auction sale contains this particular information, whether or not the parties agreed to such
rescheduled date, there is no more need for the reposting or republication of the notice of the
rescheduled auction sale.

3. Demand
Demand is essential for default. Demand, however, is necessary for default to exist and
which gives the right to collect debt and foreclose the mortgage. The maturity dates in the
promissory notes or the acceleration clause ([i]n case of non-payment of this note or any
portion of it on demand, when due, on account of this note, the entire obligation shall become
due and demandable. . .) therein stated only indicate when payment can be demanded. It is the
refusal to pay after demand that gives the creditor a cause of action against the debtor.46 Default

44 PNB v. Nepomuceno Productions, Inc., GR No. 139479, 27 December 2002; Ouano v. CA, GR No. 129279, 04
March 2003

45 Ouano v. CA, GR No. 129279, 04 March 2003

46 DBP v. Licuanan, GR No. 150097, 26 February 2007
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commences upon judicial or extrajudicial demand.47 Demand, however, is not necessary where
the law or the obligations expressly declare it unnecessary.48
Notice and publication under PD 1079 and Act 3135, as amended.
Section 1 of PD 1079, as amended provides:
All notices of auction sales in extra-judicial foreclosure of real estate mortgage under Act
3135, as amended x x x required by law to be published in a newspaper of general circulation in
particular provinces and/or cities shall be published in newspapers or publications published,
edited and circulated in the same city and/or province where the requirement of general
circulation applies: Provided, That the province or city where the publications principal office is
located shall be considered the place where it is edited and published x x x.
Section 3 of Act 3135, as amended, reads:
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 three consecutive weeks in a newspaper of general circulation in the municipality or city.
A reading of the above provisions gives us the impression that the publication of extrajudicial sales under Act, 3135, if the property is worth more than four hundred pesos, shall be in
a newspaper of general circulation in the city or municipality where the property lies. Hence, if
the property in question is located in Tuguegarao City, it logically follows that the auction sale of
said property should be published in a newspaper of general circulation that is edited and
published in Quezon City.
4. Proper Public Auction
Time when to conduct auction sale.
Issue: Whether a sale a public auction, to be valid, must be conducted the whole day
from 9:00 a.m. until 4:00 p.m. of the scheduled auction day.
Section 4 of Act 3135 provides that the sale must take place between the hours
of nine in the morning and four in the afternoon. The word between ordinarily
means in time interval that separates. Thus, between the hours of nine in the morning
and four in the afternoon merely provides a time frame within which an auction sale
may be conducted. Therefore, a sale at public auction held within the intervening period
provided by law (i.e., at any time from 9:00 a.m. until 4:00 p.m.) is valid, without regard
to the duration or length of time it took the auctioneer to conduct the proceedings. 49 Act
3135 regulates the extrajudicial sale of mortgaged real properties by prescribing a
procedure which effectively safeguards the rights of both debtor and creditor

47 UCPB vs. Beluso, G.R. No. 159912, August 17, 2007

48 Premiere Devt. Bank v. Central Surety & Insurance Company, Inc., 579 SCRA 359, 13 February 2009
49 PNB v. Cabatingan, 557 SCRA 426 [2008]
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