Lito obtained a loan of P1,000,000 from Ferdie, payable within one year. To secure payment, Lito executed a chattel mortgage on a Toyota Avanza and a real estate mortgage on a 200-square meter piece of property.
(A) Would it be legally significant – from the point of view of validity and enforceability – if the loan and the mortgages were in public or private instruments? (6%)
(B) Lito’s failure to pay led to the extra-judicial foreclosure of the mortgaged real property. Within a year from foreclosure, Lito tendered a manager’s check to Ferdie to redeem the property. Ferdie refused to accept payment on the ground that he wanted payment in cash: the check does not qualify as legal tender and does not include the interest payment. Is Ferdie’s refusal justified? (4%)
Suggested answer only. Not an official answer and not legal advice.
(A) Form is immaterial to the loan, but public instruments bind third persons as to mortgages. (B) Ferdie's refusal is justified only for omitting interest. Under Articles 1358 and 1934, a loan is valid in any form, though interest
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Quick check
Under Articles 1358 and 2125 of the Civil Code, what is the legal effect of executing a real estate mortgage in a private instrument?
A mortgage in a private instrument is valid between the contracting parties but requires public execution and registration to bind third persons.
Under Philippine law, why is the legal tender rule not strictly applicable to the tender of payment during property redemption?
The legal tender rule does not strictly apply to redemption because exercising redemption is a statutory right rather than an obligation to pay a debt.
How does a manager's check affect the legal validity of a timely tender of redemption price?
Tendering a manager's check suffices for property redemption, and the mortgagee cannot reject it merely because it is not legal tender cash.
Why was Ferdie legally justified in refusing Lito's tender of redemption for the foreclosed real property?
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What form is required for a contract of simple loan to be valid and enforceable between the lender and borrower?
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Learn more about these topics
1. Mortgage Form Requirements
Under Articles 1358 and 2125 of the Civil Code and Act 1508, a contract of simple loan and contracts of chattel and real estate mortgage are valid and binding between the contracting parties regardless of whether they are executed in public or private instruments. However, to legally bind third persons, real estate and chattel mortgages must be embodied in a public instrument and registered in the proper Registry of Deeds. Formality requirements do not affect the underlying validity of the contract between the parties, but strictly govern its enforceability against innocent third parties.
2. Redemption Payment Tender
Under Philippine civil law, the exercise of the right of redemption is the enforcement of a statutory right rather than the discharge of an obligation or payment of a monetary debt. Consequently, the legal tender rule under Article 1249 of the Civil Code does not strictly apply to redemption tenders. A redemptioner may validly tender payment using a manager's check or certified check, and the mortgagee cannot refuse the tender solely on the ground that the check is not legal tender.
3. Redemption Amount Requisites
For a statutory or judicial redemption of foreclosed real property to be legally valid and effective, the redemptioner must tender the full redemption price, which includes the purchase price paid at the foreclosure sale plus all legal or agreed interest and allowable assessments. If the tendered amount excludes the accrued interest or falls short of the complete redemption price required by law, the mortgagee or purchaser at the foreclosure sale is legally justified in refusing the tender and denying the redemption.