VALIDITY OF REAL ESTATE MORTGAGE AND NOTARIZATION (Philippine Legal Perspective)
1. Statutory Foundations
| Source | Key Provisions on Real-Estate Mortgage (REM) | Notes |
|---|---|---|
| Civil Code (Arts. 2085-2125) | Definition, essential requisites, form (“public instrument”), inscription requirement, pactum commissorium prohibition, indivisibility | Core substantive law |
| Act 3135 (as amended by Act 4118) | Extrajudicial foreclosure procedure | Applies where the REM is recorded & contains a special power of attorney to sell |
| Rules of Court, Rule 68 | Judicial foreclosure | Alternative to Act 3135 |
| Property Registration Decree (PD 1529) | Registration mechanics, effect of registration, Torrens indefeasibility | Governs interaction of REM with Torrens system |
| 2004 Rules on Notarial Practice (as amended 2008 & 2021) | Who may notarize; venue rules; personal appearance; journal & seal; sanctions | Governs notarization itself |
| Tax Code (NIRC), §195, §196 & §232 | Documentary stamp tax (DST) & registration fees | Tax incidents of execution/registration |
2. Elements and Requisites of a Valid REM
Essential requisites of all contracts (Civil Code Art. 1318)
- Consent of mortgagor & mortgagee
- Object — specific, alienable immovable property or real rights thereon
- Cause — usually the securing of a principal obligation (loan, credit facility, future advances, etc.)
Special requisites unique to REM (Art. 2085)
- (a) Mortgagor must be the absolute owner of the property or be authorized ¹
- (b) There must be a secured obligation that is valid; if it is conditional or future, the mortgage subsists upon becoming effective
- (c) The property must be alienable (e.g., not public domain, not exempt from execution)
- (d) Form: must be constituted in a public instrument describing the property and the obligation
Registration (“inscription”) (Art. 2125)
- Not a condition of validity between the parties: A non-registered REM still binds the mortgagor and mortgagee.
- Condition of efficacy against third persons & for foreclosure: Without registration, the REM is void vis-à-vis third parties and cannot be foreclosed extrajudicially (Art. 2126; Abalos v. CA, G.R. No. 103756, 25 Jan 1993).
3. Role and Legal Effect of Notarization
| Aspect | Why It Matters |
|---|---|
| Converts private document into a public instrument | Public documents enjoy prima facie authenticity (Rule 132 §23, Rules of Court) and are self-proving. |
| Pre-condition to registration | Registry of Deeds will only accept an “acknowledged” (i.e., notarized) deed (PD 1529 §17, §51). |
| Triggers tax & fee assessments | DST is computed from the “date of execution,” which is the notarization date. |
| Foundation for extrajudicial foreclosure | Act 3135 presupposes a “deed of mortgage” duly recorded; without valid notarization the entry in the primary entry book may be refused or challenged. |
| Deterrent against fraud | Notary must personally verify identity and document signing; improper notarization exposes the notary and sometimes the mortgagee to administrative/criminal liability. |
Effect of defective notarization: The instrument is relegated to the status of a private document—admissible only upon proof of due execution and authenticity and generally unregistrable. Nonetheless, as between mortgagor and mortgagee the REM remains valid if the ordinary requisites of contracts are present. (Cavite Development Bank v. Spouses Lim, G.R. No. 171107, 14 Feb 2014.)
4. Registration, Annotation, and Prioritization
- Primary Entry Book & Day Book: The moment the notarized REM and accompanying documents are presented and the proper fees are paid, they receive an entry number and priority date.
- Memorial on the title: The REM is then annotated on the Memorandum of Encumbrances of the Transfer Certificate of Title (TCT) or Original Certificate of Title (OCT).
- Effect of registration (PD 1529 §53): The mortgage becomes a real right enforceable against the world; subsequent buyers or mortgagees take the title subject to the annotated REM unless they can prove bad faith on the part of the mortgagee and clean title procurement on their part.
- “Constructive notice” doctrine: Registration gives notice to all persons even if they never actually inspected the title.
5. Foreclosure: Preconditions & Procedural Links to Validity
| Mode | Key Requirements | Relevance of Validity/Notarization |
|---|---|---|
| Extrajudicial (Act 3135) | 1. REM must be recorded; 2. REM must contain a special power of attorney authorizing sale; 3. 30-day publication/posting notice; 4. Public auction; 5. Right of redemption (1 yr) | REM must be notarized and registered; otherwise auction is voidable and certificate of sale may be canceled (Spouses Toring v. Ganzon, G.R. No. 190706, 27 Nov 2013). |
| Judicial (Rule 68) | Complaint filed in RTC; decree of sale; confirmation; 90-day equity of redemption | Court will first determine the REM’s validity; notarization defects may still be cured by evidence aliunde of execution. |
6. Selected Doctrinal Themes & Jurisprudence
| Case / Citation | Doctrine / Holding |
|---|---|
| Abalos v. CA (1993) | Unregistered REM not binding on third persons; loan may still be collected as an unsecured credit. |
| Spouses Abella v. Spouses Ramos, G.R. No. 196528, 17 Jan 2018 | Deed notarized outside notary’s territorial commission renders notarization void; mortgage remains a private document. |
| Cavite Dev. Bank v. Spouses Lim (2014) | REM signed in blank then later filled is void for being simulated and for lack of consent. |
| Spouses Toring v. Ganzon (2013) | Annotation alone, absent book entry, does not ripen into registration; foreclosure sale annulled. |
| RBC v. Luna, G.R. No. 170594, 4 Dec 2009 | Failure to describe the secured obligation with particularity does not necessarily void the REM where the parties’ intent can be ascertained. |
| DBP v. PNB, G.R. No. 200858, 13 Oct 2020 | Mortgagee in good faith who relies on a clean TCT is protected even if mortgagor’s title is later nullified, provided the REM is validly notarized & registered. |
7. Notarial Compliance Checklist for REM Drafting Counsel
Confirm ownership & authority (latest certified true copy of TCT/OCT; board resolutions or SPA if juridical person).
Draft Deed of REM with:
- Complete description (Lot/Blk/Plan/Area; technical description)
- Clear statement of the secured loan/credit line (amount, interest, maturity)
- Pactum commissorium disclaimer (e.g., “without prejudice to Art. 2088”)
- Acceleration & omnibus clauses, if any
- Special Power of Attorney to sell under Act 3135
Due execution: All signatories appear before the notary; valid government IDs recorded.
Notary’s obligations:
- Proper venue (office or authorized place)
- Matching of signature on instrument and ID
- Thumbmarks if signatory cannot write
- Correct Notarial Register entry number & page
- Tax & registration computation, BIR DST form, SEC Stamp attached if corporation
Registry presentation: pay fees, obtain Entry No./Date/Time; follow up annotation on TCT.
Return of Owner’s Duplicate Title to mortgagor; retention of copy in creditor’s file.
8. Consequences of Invalidity or Irregular Notarization
| Defect | Typical Result |
|---|---|
| No notarization / void notarization | REM relegated to private instrument; unregistrable; but still valid inter partes. |
| Forgery of signatures | REM absolutely void; cannot be ratified; registration does not validate (but may create issue of mortgagee in good faith). |
| Lack of authority (e.g., corporate officer w/o board resolution) | REM unenforceable; possible ratification by the board before assertion of invalidity. |
| Pactum commissorium | Automatic nullity of the forfeiture clause; the mortgage itself may survive minus the illegal stipulation. |
| Failure to describe property or obligation | May be void for uncertainty (Art. 2085); courts liberally construe if intent apparent and third parties not prejudiced. |
9. Interplay with Related Doctrines
- Equitable Mortgage (Arts. 1602-1605): Courts may treat a purported Sale with Right to Repurchase as an equitable REM if badges of an REM appear (e.g., inadequate price, vendor remains in possession, pactum commissorium).
- Chattel Mortgage vs. REM: Fixtures & “machinery permanently attached to realty” are immobilized; error in classifying may imperil enforceability.
- Future Obligations & Dragnet/Blanket Clauses: Valid, but construed contra proferentem; secondary mortgagees must inspect the charter.
- Doctrine of “After-Acquired Title”: Once mortgagor later secures ownership, the mortgage automatically attaches (Art. 2086) if intent is clear.
10. Practical Tips & Common Pitfalls
| Do | Avoid |
|---|---|
| Conduct title verification and CENRO/LMB checks for untitled lands. | Accepting owner’s duplicate TCT alone as proof of title. |
| Secure board/partnership resolution and Secretary’s Certificate. | Notarizing for a juridical person without corporate authority. |
| Review the notary’s authority & seal; ensure within commission area. | “Mobile notarization” outside notary’s commission radius. |
| Use full technical description or attach approved survey plan. | Reference to “the property described in TCT No.----” alone when title covers more than one parcel. |
| Keep signed original in fire-proof custody. | Reliance on photocopies for foreclosure filing. |
11. Take-Away Framework
- Intrinsic validity (consent, object, cause) determines whether the REM exists between the parties.
- Notarization transforms the deed into a public instrument: a gateway to registration, self-authentication, and use in foreclosure.
- Registration perfects the REM as a real right erga omnes and fixes lien priority.
- Defects in notarization/registration generally do not defeat the mortgagor-mortgagee relationship but do impair enforceability against third parties and foreclosing remedies.
- Due diligence by counsel and notaries is the first line of defense against transactional failure, administrative sanctions, and tort liability.
Bottom-line: In the Philippine setting, the validity of a Real Estate Mortgage is a multi-layered question. Between the parties, the mortgage lives or dies on basic contractual requisites. Against the world, its public instrument character (notarization) and registration under the Torrens system are indispensable. Mastery of both substantive rules and notarial regulations is therefore critical for practitioners, lenders, buyers, and landowners alike.
¹ Agency must itself be contained in a public instrument if the REM will be registered (Civil Code Art. 1874).