CHATTEL MORTGAGE (Articles 21402141)

A contract by virtue of which personal property is recorded in the

Chattel Mortgage Register as a security for the performance of an obligation
(Art 2140).
If not registered - PLEDGE

Characteristics
1. Accessory contract it is for the purpose of securing the performance of a
principal obligation
2. Formal contract registration in the Chattel Mortgage Register is indispensable
for its validity
3. Unilateral contract it produces only obligations on the part of the creditor to free
the thing from the encumbrance on fulfilment of the obligation.

Chattel Mortgage

VS

Pledge

1. Delivery of the personal property to the mortgage is not necessary 1. Delivery of

the thing pledged is necessary
2. registration in the Chattel Mortgage Registry is necessary for its validity 2.
registration not necessary to be valid
3. If property is foreclosed, the excess over the amount due goes to the debtor 3.
Debtor is not entitled to excess unless otherwise agreed or except in case of legal
pledge
4. If there is deficiency after foreclosure, creditor is entitled to recover the
deficiency from the debtor, except under Art. 1484
4. If there is deficiency, creditor is not entitled to recover notwithstanding any
stipulation to the contrary

SIMILARITIES
1.
2.
3.
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6.
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Secure performance
Only personal property
Indivisible
Lien on property
Creditor cannot appropriate property to himself in payment of debt
Incase of default must be sold
Extinguishment fulfilment or destruction

Offenses involving Chattel Mortgage

1. Knowingly removing the property mortgaged to any province or city other
than the one in which it was located at the time of execution of mortgage
without the consent of the mortgagee
2. Selling or pledging personal property already mortgage without the consent
of the mortgagee and duly recorded in the Chattel Mortgage Registry
Common Essential Element
1. Property removed or repledge
2. Property wall already mortgage or pledged
3.
Special Requisites (in addition to the common essential requisites):
1. It can cover only personal or movable property in general; however, the parties
may treat as personal property that which by its nature would be real property;
2. Registration of the mortgage with the Chattel Mortgage Register where the
mortgagor resides; if property is located in a different province, registration in both
provinces required;
3. Description of the property as would enable the parties or other persons to
identify the same after reasonable investigation and inquiry; and
4. Accompanied by an affidavit of good faith to bind third persons, but not for the
validity of the contract.
5. It can cover only obligations existing at the time the mortgage is constituted.
NOTE: A mortgage containing a stipulation in regard to future advances in the credit
will take effect only from the date the same are made and not from the date of the
mortgage (Jaca vs Davao Lumber Co., 113 SCRA 107)

Effect of registration:

Creates a real right

The registration of the chattel mortgage is an effective and binding
notice to other creditors of its existence and creates a real right or a lien
which, being recorded, follows the chattel wherever it goes. The registration
gives the mortgagee symbolical possession (Northern Motors, Inc. vs. Coquia,
68 SCRA 374).

Effect of failure to register chattel mortgage in the chattel mortgage registry

Article 2140 makes the recording in the Chattel Mortgage Register an
essential requisite but if the instrument is not recorded, the mortgage is
nevertheless binding between the parties. But the person in whose favour
the law establishes a mortgage has no other right than to demand the
execution and the recording of the document.
Subject matter of both is movable property
Affidavit of Good Faith Oath in a contract of chattel mortgage wherein the parti es
"severally swear that the mortgage is made for the purpose of securing the
obligation specified in the conditions thereof and for no other purposes and that the
same is a just and valid obligation and one not entered into for the purpose of
fraud. (Sec. 5, Chattel Mortgage Law)
Effect of absence The special affidavit is required only for the purpose of
transforming an already valid mortgage into preferred mortgage. Thus, it is not
necessary for the validity of the chattel mortgage itself but only to give it a
preferred status. In other words, its absence vitiates the mortgage only as against
third persons without notice like creditors and subsequent encumbrancers.
Foreclosure of Chattel Mortgage NOTES: Foreclosure sale in chattel mortgage is
by public auction under Act No. 1508, but the parties may stipulate that it be by
private sale. The mortgagee may, after thirty (30) days from the time of the
condition broken, cause the mortgaged property to be sold at public auction by a
public officer. The 30-day period is also a grace period for the mortgagor to
discharge the mortgage obligation. After the sale of the chattel at public auction,
the right of redemption is no longer available to the mortgagor (Cabral vs.
Evangelista, 28 SCRA 1000).
Application of proceed of sale:
1. Costs and expenses of keeping and sale
2. Payment of the obligation secured by the mortgage

3. Claims of persons holding subsequent mortgages in their order

4. The balance, if any, shall be paid to the mortgagor or person holding under him
NOTES: The creditor may maintain an action for the deficiency, except if the
chattel mortgage is constituted as security for the purchase of personal property
payable in instalments (Art. 1484). The action for deficiency may be brought
within ten (10) years from the time the cause of action accrues (Arts 1141 and
1142). Only equity of redemption is avail able to the mortgagor; the latter can no
longer redeem after the confirmation of the foreclosure sale.
Right of redemption When the condition of a chattel mortgage is broken the
following may redeem: a) mortgagor; b) person holding a subsequent mortgage;
or c) subsequent attaching creditor. An attaching creditor who so redeems shall
be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage
in the same manner that the mortgagee could foreclose it. The redemption is
made by paying or delivering to the mortgagee the amount due on such mortgage
and the costs, and expenses incurred by such breach of condition before the sale
thereof (Sec 13, Act No. 1508).
Right to possession of foreclosed property 1. Real mortgage After the redemption
period has expired, the purchaser of the property has the
right to a conveyance and to be placed in possession thereof.
NOTES: Purchaser is not obliged to bring a separate suit for possession. He must
invoke the aid of the courts and ask for a WRIT OF POSSESSION. Section 7 of Act
No. 3135 allows the purchaser to take possession of the foreclosed property during
the period of redemption upon filing of an ex parte application and approval of a
bond.
2. Chattel mortgage When default occurs and the creditor desires to foreclose, the
creditor has the right to take the property as a preliminary step for its sale. NOTE:
Where the debtor refuses to yield the property, the creditors remedy is to institute
an action either to effect judicial foreclosure directly or to secure possession
(REPLEVIN) as a preliminary to the sale contemplated in Section 14 or Act. No. 1508