Sale of Mortgaged Property to Creditor Per Se Is Not Prohibited

When dealing with mortgaged properties, many people assume that selling such assets to the creditor is legally prohibited. However, this is not necessarily the case. Under the right legal framework, the sale of a mortgaged property to the creditor is allowed, provided that it does not violate laws on foreclosure, dation in payment, or the prohibition against pactum commissorium.

How Mortgages Can Be Paid

A mortgage is a security interest granted over a property to secure the performance of an obligation, typically the repayment of a loan. The debtor can satisfy the mortgage in several ways:

1. Full Payment of the Loan – The most straightforward way to release the mortgage is by repaying the debt in full. Once the debt is fully paid, the creditor must execute a release of mortgage, which should then be registered with the relevant land registry.

2. Foreclosure Sale – If the debtor fails to pay, the creditor may initiate a foreclosure process to sell the property, either through a judicial or extrajudicial foreclosure proceeding. The proceeds from the sale are then used to settle the outstanding debt.

3. Dation in Payment (Dacion en Pago) – Instead of paying in cash, the debtor may transfer ownership of the mortgaged property to the creditor in satisfaction of the debt. This is a voluntary arrangement between both parties and is valid as long as it does not constitute a disguised pactum commissorium.

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Relationship Between Dation in Payment and Pactum Commissorium

Dation in Payment (Dacion en Pago)

Dation in payment occurs when the debtor transfers ownership of the mortgaged property to the creditor in exchange for the extinguishment of the debt. This is a negotiated and consensual agreement between both parties. The key difference between dation in payment and a foreclosure sale is that in dation, the debtor willingly conveys ownership as an alternative means of settling the obligation.

For the dation to be valid, it must be agreed upon by both parties and must not be forced upon the debtor. It is a lawful and commonly used method of settling obligations when cash payment is not feasible.

Pactum Commissorium: The Prohibited Clause

Pactum commissorium, on the other hand, is an illegal provision in a mortgage or pledge that allows the creditor to automatically appropriate the mortgaged property in case of non-payment. This is prohibited because it is considered oppressive and inequitable to the debtor, as it bypasses the due process of foreclosure or voluntary dation.

For a transaction to be considered a prohibited pactum commissorium, two elements must be present:

1. A security arrangement (such as a mortgage or pledge).

2. An automatic transfer clause in favor of the creditor upon default.

Unlike dation in payment, which is voluntarily agreed upon after default, pactum commissorium is a pre-arranged forfeiture mechanism that is deemed invalid under the law.

Conclusion

The sale of a mortgaged property to the creditor is not inherently prohibited. It can be done through legitimate means, such as dation in payment or foreclosure. However, what is illegal is the automatic appropriation of the property by the creditor without due process, as seen in pactum commissorium. Understanding these legal concepts helps ensure that mortgage transactions remain fair and within the bounds of the law.

Source: Ziggurat Real Estate

Nuisance Per Accidens Cannot Be Summarily Abated

Legal Framework and Application

In the realm of property and environmental law, the concept of "nuisance" plays a crucial role in balancing individual rights with public welfare. One of the key distinctions in nuisance law is between nuisance per se and nuisance per accidens. While nuisance per se—an act or condition inherently illegal or harmful—can be summarily abated by authorities, nuisance per accidens (or nuisance in fact) cannot be removed without due process. This blog post explores the legal framework governing nuisance per accidens and its practical applications.

Understanding Nuisance Per Accidens

A nuisance per accidens is an act, structure, or use of property that becomes a nuisance due to its circumstances or effects rather than its inherent nature. For instance, a factory producing loud noise and pollution might not be illegal in itself but can be deemed a nuisance based on its impact on the surrounding community.

Because the classification of nuisance per accidens depends on factual determinations, it requires judicial evaluation before any enforcement action can be taken. Unlike nuisance per se, which can be summarily abated due to its inherent unlawfulness, nuisance per accidens necessitates proper legal proceedings to ensure fairness and prevent arbitrary government actions.

Legal Framework: Due Process and Judicial Determination

1. Constitutional Protections

The principle that nuisance per accidens cannot be summarily abated stems from constitutional due process rights. In the Philippines, the right to property is protected under the 1987 Constitution, specifically under Article III, Section 1, which states that "No person shall be deprived of life, liberty, or property without due process of law." Similar protections exist in other jurisdictions, ensuring that government actions affecting property rights follow legal procedures.

2. Judicial Precedents

Philippine jurisprudence has consistently held that a nuisance per accidens must be determined by a competent court before any abatement measures are undertaken. Courts evaluate factors such as the nature of the alleged nuisance, its impact on public welfare, and potential remedies. In contrast, nuisance per se, such as illegal structures blocking public roads, may be abated without court intervention.

3. Legislative and Local Government Authority

Under the Local Government Code (Republic Act No. 7160), local governments are empowered to regulate nuisances within their jurisdictions. However, this authority does not extend to summarily abating nuisance per accidens without a proper hearing. Any attempt to do so may be challenged as a violation of due process.

Practical Applications: How Courts Handle Nuisance Per Accidens Cases

Given the need for judicial determination, parties affected by a nuisance per accidens must file a complaint before the courts. The process typically involves:

1. Filing a Case – Affected parties must present evidence demonstrating that a specific activity or property use constitutes a nuisance based on its effects.

2. Court Evaluation – The court examines whether the nuisance claim is valid, taking into account expert testimony, environmental studies, and community impact.

3. Remedies and Enforcement – If the court determines that a nuisance exists, it may order remedies such as fines, restrictions, or even closure of operations, depending on the severity of the nuisance.

Conclusion

The distinction between nuisance per se and nuisance per accidens is crucial in protecting property rights while maintaining public order. While authorities can summarily abate nuisance per se, they must follow due process in addressing nuisance per accidens. This ensures that actions taken against property owners are justified and legally sound, preventing arbitrary government interference. Understanding these legal principles is essential for property owners, businesses, and local government units navigating nuisance-related disputes.

Source: Ziggurat Real Estate

PHL upper middle-income status by 2026 seen requiring 6% growth

The Philippines needs to sustain 6% growth until next year to achieve upper middle-income status by 2026, according to National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan.

“I think the upper middle-income status is challenging, but I think if we get 6% this year, 6% next year, we should achieve that upper middle-income status next year,” Mr. Balisacan told reporters during a briefing last week.

The Marcos administration is hoping to be reclassified as an upper middle-income economy this year or by 2026.

Growth of 6% matches the lower end of the government’s 6-8% growth target band for 2025-2028. It would exceed the 5.7% gross domestic product (GDP) posted in 2024, and the 5.5% in 2023.

The World Bank classifies countries by their gross national income (GNI). The four categories are low income, lower middle income, upper middle income and high income.

The Philippines is currently a lower middle-income country with GNI per capita of $4,230 in 2023, up from $3,950 in 2022.

Upper middle-income status is expected to require GNI per capita of between $4,516-$14,005.

Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc. said upper middle-income status by next year is “still possible.”

“But it became more difficult as the economy takes a hit from heightened geopolitical risks especially in trade, remittances, and foreign investment,” he said.

US President Donald J. Trump on April 9 paused his new reciprocal tariffs for 90 days, although the baseline 10% tariff on almost all US imports remains in effect.

The Philippines faced a 17% reciprocal tariff, the second lowest in Southeast Asia.

Mr. Erece said Philippine GDP must expand by 6-7% annually, though he expects growth to be at the lower end of the target.

Peter Lee U, dean of the University of Asia and the Pacific’s School of Economics, said should the tariffs cause a global recession, it could prevent the Philippines from moving up the income category.

Such a recession can “cause our GDP/gross national product to shrink and our GNI per capita to fall. It’s anybody’s guess whether that will happen. Also, if a global economic slowdown happens, it may take until 2026 before we feel the full effect,” he said via Viber.

JP Morgan estimates a 60% probability of the world economy going into recession by year’s end, up from 40% in March.

Jose Enrique A. Africa, executive director at think tank IBON Foundation said even if Mr. Trump backtracks on the tariffs, inflation is expected to slow growth this year and the next.

“The reputational damage to the US has been done and countries will start adjusting to a world of even more uncertain supply chains, fiscal austerity to accommodate security spending from the vacuum being left by the US, and more volatile finances from a shaken dollar,” he said via Viber.

“These make it unlikely for the Philippines to rise to upper middle income this year — the only question really being how long this reclassification is going to be delayed,” he added.

Before the tariff announcement, World Bank Country Director for the Philippines, Malaysia, and Brunei Zafer Mustafaoğlu said in February that the Philippines is likely to reach upper middle-income status by 2026.

However, Mr. Balisacan said instead of the fixation on income status, the more significant indicators are employment, poverty, literacy and hunger and living standards, rather than GDP or GNI.

Mr. Africa said the Marcos administration instead should prepare to cushion the economic disruption on the vulnerable members of society.

“It should expand public education, health, housing and social protection services, and give redoubled support to domestic food production to moderate prices. The backsliding on the sustainable development goals… risks getting even worse,” he said.

Source: Business World