Comparison Between Pertinent Provisions of Relevant Laws on Chattel Mortgage and Pledge
New Civil Code Chattel Mortgage Law
Definition:
Pledge- Contract by virtue of which
the debtor delivers to the creditor or
to a third person a movable, or
document evidencing incorporeal rights,
for the purpose of securing the
fulfillment of a principal obligation
with the understanding that when the
obligation is fulfilled, the thing
delivered shall be returned with all its
fruits and accessions.
Art. 2140. By a chattel mortgage, pers
onal property is recorded in the Chattel
Mortgage Register as a security for the
performance of an obligation. If the
movable, instead of
being recorded, is delivered to the cred
itor or a third person, the contract is a
pledge and not a chattel mortgage.
Requisites for Validity Article 2085. The following requisites are
essential to the contracts of pledge and
mortgage:
(1) That they be constituted to secure the
fulfillment of a principal obligation;
(2) That the pledgor or mortgagor be the
absolute owner of the thing pledged or
mortgaged;
(3) That the persons constituting the
pledge or mortgage have the free disposal
of their property, and in the absence
Personal Property Security
Sec. 3. Chattel mortgage defined. —
A chattel mortgage is a conditional
sale of personal property as security
for the payment of a debt, or the
performance of some other obligation
specified therein, the condition being
that the sale shall be void upon the
seller paying to the purchaser a sum of
money or doing some other act named.
If the condition is performed according
to its terms the mortgage and sale
immediately become void, and the
mortgagee is thereby divested of his
title.
Sec. 4. Validity. — A chattel
mortgage shall not be valid against any
person except the mortgagor, his
executors or administrators, unless the
possession of the property is delivered
to and retained by the mortgagee or
unless the mortgage is recorded in the
office of the register of deeds of the
province in which the mortgagor
resides at the time of making the same,
or, if he resides without the Philippine
Act
Sec. 3, (J) Security
interest – a property right in
collateral that secures
payment or other
performance of an obligation,
regardless of whether the
parties have denominated it
as a security interest, and
regardless of the type of
asset, the status of the grantor
or secured creditor, or the
nature of the secured
obligation; including the
right of a buyer of accounts
receivable and a lessor under
an operating lease for not
less than one (1) year;
Section 5. Creation of a
Security Interest.—
(a) A security interest shall
be created by a security
agreement,
(b) A security agreement
may provide for the creation
of a security interest in a
future property, but the
security interest in that
property is created only when
Comparison Between Pertinent Provisions of Relevant Laws on Chattel Mortgage and Pledge
thereof, that they be legally authorized for
the purpose.
Third persons who are not parties to the
principal obligation may secure the latter
by pledging or mortgaging their own
property.
No prescribed form.
When Binding to Article 2096. A pledge shall not take
Third Parties effect against third persons if a description
of the thing pledged and the date of the
pledge do not appear in a public
instrument.
Islands, in the province in which the
property is situated: Provided,
however, That if the property is
situated in a different province from
that in which the mortgagor resides,
the mortgage shall be recorded in the
office of the register of deeds of both
the province in which the mortgagor
resides and that in which the property
is situated, and for the purposes of this
Act the city of Manila shall be deemed
to be a province.
Sec. 5. Form. — A chattel mortgage
shall be deemed to be sufficient when
made substantially in accordance with
the following form, and shall be signed
by the person or persons executing the
same, in the presence of two witnesses,
who shall sign the mortgage as
witnesses to the execution thereof, and
each mortgagor and mortgagee, or, in
the absence of the mortgagee, his agent
or attorney, shall make and subscribe
an affidavit in substance as hereinafter
set forth, which affidavit, signed by the
parties to the mortgage as above stated,
and the certificate of the oath signed
by the authority administering the
same, shall be appended to such
mortgage and recorded therewith.
Registration in substantially compliant
with Sec. 5.
the grantor acquires rights in
it or the power to encumber
it.
Section 6. Security
Agreement.— A security
agreement must be
contained in a written
contract signed by the
parties. It may consist of one
or more writings that, taken
together, establish the intent
of the parties to create a
security interest.
The security agreement shall
likewise provide for the
language to be used in
agreements and notices. The
grantor shall be given the
option to have the agreement
and notices in Filipino. The
Department of Finance
(DOF) shall prepare model
agreements in plain English
and Filipino.
Section 11. Perfection of
Security Interest.—
(a) A security interest shall
be perfected when it has been
created and the secured
Comparison Between Pertinent Provisions of Relevant Laws on Chattel Mortgage and Pledge
Requirements for Article 2112. The creditor to whom the
foreclosure and how credit has not been satisfied in due time,
made may proceed before a Notary Public to
the sale of the thing pledged. This sale
shall be made at a public auction, and
with notification to the debtor and the
owner of the thing pledged in a proper
case, stating the amount for which the
public sale is to be held. If at the first
auction the thing is not sold, a second one
with the same formalities shall be held;
and if at the second auction there is no
sale either, the creditor may appropriate
the thing pledged. In this case he shall be
obliged to give an acquittance for his
entire claim.
Sec. 14. Sale of property at public
auction; Officer's return; Fees;
Disposition of proceeds. — The
mortgagee, his executor,
administrator, or assign, may, after
thirty days from the time of condition
broken, cause the mortgaged property,
or any part thereof, to be sold at public
auction by a public officer at a public
place in the municipality where the
mortgagor resides, or where the
property is situated, provided at least
ten days' notice of the time, place, and
purpose of such sale has been posted
at two or more public places in such
municipality, and the mortgagee, his
executor, administrator, or assign,
shall notify the mortgagor or person
creditor has taken one of the
actions in accordance with
Section 12.
(b) On perfection, a security
interest becomes effective
against third parties.
Section 12. Means of
Perfection.— A security
interest may be perfected by:
(a) Registration of a notice
with the Registry;
(b) Possession of the
collateral by the secured
creditor; and
(c) Control of investment
property and deposit account.
Section 49. Right to Dispose
of Collateral.—
(a) After default, a secured
creditor may sell or
otherwise dispose of the
collateral, publicly or
privately, in its present
condition or following any
commercially reasonable
preparation or processing.
(b) The secured creditor may
buy the collateral at any
public disposition, or at a
private disposition but only if
the collateral is of a kind that
is customarily sold on a
recognized market or the
Comparison Between Pertinent Provisions of Relevant Laws on Chattel Mortgage and Pledge
Article 2113. At the public auction, the
pledgor or owner may bid. He shall,
moreover, have a better right if he should
offer the same terms as the highest bidder.
The pledgee may also bid, but his offer
shall not be valid if he is the only bidder.
Article 2114. All bids at the public
auction shall offer to pay the purchase
price at once. If any other bid is accepted,
the pledgee is deemed to have been
received the purchase price, as far as the
pledgor or owner is concerned.
Article 2115. The sale of the thing
pledged shall extinguish the principal
obligation, whether or not the proceeds of
the sale are equal to the amount of the
principal obligation, interest and expenses
in a proper case. If the price of the sale is
more than said amount, the debtor shall
not be entitled to the excess, unless it is
otherwise agreed. If the price of the sale is
less, neither shall the creditor be entitled
to recover the deficiency, notwithstanding
any stipulation to the contrary.
Article 2116. After the public auction, the
pledgee shall promptly advise the pledgor
or owner of the result thereof.
holding under him and the persons subject of widely distributed
holding subsequent mortgages of the standard price quotations.
time and place of sale, either by notice
in writing directed to him or left at his
abode, if within the municipality, or
sent by mail if he does not reside in
such municipality, at least ten days
previous to the sale.
The officer making the sale shall,
within thirty days thereafter, make in
writing a return of his doings and file
the same in the office of the register of
deeds where the mortgage is recorded,
and the register of deeds shall record
the same. The fees of the officer for
selling the property shall be the same
as in the case of sale on execution as
provided in Act Numbered One
hundred and ninety, 4 and the
amendments thereto, and the fees of
the register of deeds for registering the
officer's return shall be taxed as a part
of the costs of sale, which the officer
shall pay to the register of deeds. The
return shall particularly describe the
articles sold, and state the amount
received for each article, and shall
operate as a discharge of the lien
thereon created by the mortgage. The
proceeds of such sale shall be applied
to the payment, first, of the costs and
expenses of keeping and sale, and then
to the payment of the demand or
obligation secured by such mortgage,
and the residue shall be paid to persons
Comparison Between Pertinent Provisions of Relevant Laws on Chattel Mortgage and Pledge
Effect of Foreclosure/ Article 2115. The sale of the thing
Application of pledged shall extinguish the principal
Proceeds obligation, whether or not the proceeds of
the sale are equal to the amount of the
principal obligation, interest and expenses
in a proper case. If the price of the sale is
more than said amount, the debtor shall
not be entitled to the excess, unless it is
otherwise agreed. If the price of the sale
is less, neither shall the creditor be
entitled to recover the deficiency,
notwithstanding any stipulation to the
contrary.
holding subsequent mortgages in their
order, and the balance, after paying the
mortgages, shall be paid to the
mortgagor or person holding under
him on demand. xxx
The excess goes to the debtor/
mortgagor. Creditor/ mortgagee can
recover from the debtor/ mortgagor,
except if covered by Recto Law.
Section 52. Application of
Proceeds.—
(a) The proceeds of
disposition shall be applied
in the following order:
(1) The reasonable expenses
of taking, holding, preparing
for disposition, and disposing
of the collateral, including
reasonable attorneys’ fees
and legal expenses incurred
by the secured creditor;
(2) The satisfaction of the
obligation secured by the
security interest of the
enforcing secured creditor;
and
(3) The satisfaction of
obligations secured by any
subordinate security interest
or hen in the collateral if a
written demand and proof of
the interest are received
before distribution of the
proceeds is completed.
(b) The secured creditor shall
account to the grantor for any
surplus, and, unless
otherwise agreed, the debtor
is liable for any deficiency.
Comparison Between Pertinent Provisions of Relevant Laws on Chattel Mortgage and Pledge
On appropriation by Article 2088. The creditor cannot
the creditor of the appropriate the things given by way of
thing mortgaged or pledge or mortgage, or dispose of them.
pledged; Limitations Any stipulation to the contrary is null and
(Pactum void.
Commissorium)
Article 2097. With the consent of the
pledgee, the thing pledged may be
alienated by the pledgor or owner, subject
to the pledge. The ownership of the thing
pledged is transmitted to the vendee or
transferee as soon as the pledgee consents
to the alienation, but the latter shall
continue in possession.
Prohibition in the NCC applies.
Section 49. Right to Dispose
of Collateral.—
(a) After default, a secured
creditor may sell or
otherwise dispose of the
collateral, publicly or
privately, in its present
condition or following any
commercially reasonable
preparation or processing.
(b) The secured creditor may
buy the collateral at any
public disposition, or at a
private disposition but only if
the collateral is of a kind that
is customarily sold on a
recognized market or the
subject of widely distributed
standard price quotations.
Section 10. Contractual
Limitation on the Creation
of a Security Interest.—
(c) Any stipulation limiting
the grantor’s right to create
a security interest shall be
void.