CHATTEL MORTGAGE

Definition Is that a contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for the
performance of an obligation.
Characteristics  Accessory
 Formal; and
 Unilateral Contract
Subject Matter Personal or movable property
Similarities between  Both are executed to secure performance of a principal obligation.
Chattel Mortgage and  Both are constituted only on personal property.
Pledge  Both are indivisible.
 Both constitute a lien on the property.
 In both cases, the creditor cannot appropriate the property to himself in payment of the debt.
 In both cases, when the debtor defaults, the property must be sold for the payment of the creditor.
 Both are extinguished by the fulfilmentof the principal obligation or the destruction of the property pledged or
mortgaged.
Difference between CHATTEL MORTGAGE PLEDGE
Chattel Mortgage and 1. Delivery of the personal property is not necessary; such delivery is necessary.
Pledge 2. Registration of the personal property to Chattel Mortgage such registration is not necessary.
Registry is required by law;
3. procedure for the sale of personal property mortgaged is procedure for the sale of personal property mortgaged is
different from one another: different from one another:
Section 14 of Act No. 1508 Article 2112 of the Civil Code.
4. If the personal property is foreclosed, the excess over the the debtor is not entitled to the excess unless it is otherwise
amount due goes to the debtor. agreed or in the case of legal pledge.
5. if the personal property is foreclosed and there is the creditor is not entitled to recover the deficiency
deficiency, the creditor is entitled to recover the deficiency notwithstanding any stipulation to the contrary.
from the debtor
EXCEPT: if the Chattel mortgage is a security for the
purchase of personal property in installments.
Laws governing Chattel 1. Chattel Mortgage Law (Act No. 1508 as amended)
Mortgage 2. The Civil Code
3. The Revised Administrative Code
4. The Revised Penal Code
5. The Ship Mortgage Decree
Note: The provision code on pledge shall apply to a chattel mortgage only insofar as they are not in conflict with any provision
 of the Chattel Mortgage Law; otherwise the provision of the latter shall apply.
validly constituted and to prejudice third persons, the mortgage should be recorded with the Registry of Property
Creation of a Chattel  Registration of personal property in the Chattel Mortgage Register as security for the perfomance of the obligation.
Mortgage Note: if the property is situated in a province different from that in which the mortgagor resides, the registration must be
in bith registers; Otherwise the chattel mortgage is void.
Offenses involving Under Revised Penal Code, the following acts are punishable:
Chattel Mortgage  Knowingly removing any personal property mortgaged under CML to any province or city other than the one in which it
was located at the time of the execution of the mortgage; without the written consent of the mortgagee.
 Selling or pledging personal property already pledged, or any part therof, under CML without the consent of the
mortgagee written on the back of the mortgage and duly recorded in the Chattel Mortgage Register.
Note: Common essential element present on two acts mention above is that the property removed or repledged should be the
same or identical property that was mortgaged or pledged before such removal or pledging.
Affidavit of good faith Affidavit of good faith is an oath in a contract of chattel mortgage wherein the parties severally swear that the mortgage is
Required made for the purposr of securing obligations 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.
The absence of affidavit vitiates a mortgage only as againdt third persons eithout notice like creditors and subsequent
encumbrances.
Foreclosure of Chattel  After the perfomance of the condition specified in the chattel mortgage, the mortgagee must discharge the property
Mortgage mortgaged in the manner provided by law otherwise he may be held liable for damages by any person entitled to
redeem the mortgage.
 If the mortgagor defaults in perfomance of the obligation, the creditor has no right to appropriate to himself the
personal property. he is permitted only to recover his credit from the proceeds of the sale of the property at public
auction.
Right of Mortgagee to If there is deficiency, the creditor is entitled to recover the deficiency from the debtor. (although the Chattel Mortgage Law is
recover deficiency silent on this point)
EXCEPT: if the Chattel mortgage is a security for the purchase of personal property in installments
Application of Proceeds 1. Costs and expenses of keeping and sale;
of sale 2. Payment of the obligation secured by the mortgage;
3. Claims of persons holding subsequent mortgages in their order; and
4. The balance, if any, shall be paid to the mortgagor or persons holding under him.
Right of Redemption When the condition of Chattel Mortgage is broken, the following may redeem:
 Mortgagor
 A person holding a subsequent mortgage
 A subsequent attaching creditor
> 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.