Commercial Law Review
Special Laws
CHATTEL MORTGAGE:
A. Define chattel mortgage
It is an accessory contract by virtue of which
personal property is recorded in the Chattel
Mortgage Register as a security for the
performance of an obligation.
Subject Matter:
*It covers personal or movable properties
contemplated under Article 416 and 417 of the
New Civil Code including shares of stocks and
interest in business.
*Growing crops may be subject to chattel
mortgage as express provision of law.
General Rule: Buildings are not subject of
chattel mortgage.
Exception: The chattel mortgage over a building
is considered valid as between the parties on
the basis of estoppels but not against third
persons.
B. Distinguish chattel mortgage from pledge
Pledge Chattel Mortgage
Not perfected until Delivery is not
there is delivery necessary
Registration is not Registration is
necessary necessary to bind third
persons
No recovery for General Rule: There is
deficiency recovery for deficiency
Exception: In case of
sale under Recto Law
General Rule: Debtor Debtor is entitled to
is not entitled to the the excess
excess
Exceptions: there is
stipulation; and in
case of legal pledge
Pledge can secure Cannot secure after-
after-incurred incurred obligations
obligations
C. Why is registration necessary?
Registration creates a lien that follows the
property and serves as notice to third persons.
*Good faith is not a defense.
Q: If there is actual knowledge but no
registration, is the third party bound to the
mortgage?
A: YES. The registration requirement is
complied with by reason of actual knowledge.
D. Where do you register chattel mortgage?
The mortgage must be registered in the Chattel
Mortgage Register of the Register of Deeds of
the province in which the mortgagor resides at
the time of making the sane or if, he resides
within the Philippines, in the province in which
Maria Zarah Villanueva - Castro
the property is situated. If the property is
situated in different province from that in which
the mortgagor resides, that mortgage must be
recorded in the Chattel Mortgage Register of
the Register of Deeds of both the province in
which the mortgagor resides and that in which
the property is situated.
E. Is there a foreclosure sale in chattel mortgage?
YES.
Can the mortgagee recover deficiency?
YES. Except in case of sale subject to Recto Law.
Requisites:
1. Sale of personal property.
2. The personal property subject of sale is
covered by chattel mortgage
3. The payment is via instalment
F. After-incurred Obligations
*Chattel mortgage can cover only obligations
existing at the time the mortgage is constituted.
*It cannot cover after-incurred obligations
because of the execution of affidavit of good
faith.
*Drag net clause is not allowed in chattel
mortgage.
- Drag net clause is a clause in pledge, real
mortgage, or antichresis that allows the
properties subject of pledge, real mortgage or
antichresis to secure future obligations.
AN ACT TO REGULATE THE SALE OF PROPERTY UNDER
SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL
ESTATE MORTGAGE (ACT 3135):
A. Requirements for the extrajudicial foreclosure
to be effected
1. There must be a special power inserted in
or attached to any real estate mortgage
allowing the sale of property.
2. Said sale cannot be made legally outside of
the province in which the property sold is
situated; and in case the place within said
province in which the sale is to be made is
subject to stipulation, such sale shall be
made in said place or in the municipal
building of the municipality in which the
property or part thereof is situated.
3. Notice shall be given by posting notices of
the sale for not less than twenty days in at
least three public places of the municipality
or city where the property is situated, and if
such property is worth more than four
hundred pesos, such notice shall also be
published once a week for at least three
consecutive weeks in a newspaper of
general circulation in the municipality or
city.
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4. The sale shall be made at public auction,
between the hours or nine in the morning
and four in the afternoon; and shall be
under the direction of the sheriff of the
province, the justice or auxiliary justice of
the peace of the municipality in which such
sale has to be made, or a notary public of
said municipality, who shall be entitled to
collect a fee of five pesos each day of actual
work performed, in addition to his expenses.
B. In case of foreclosure sale, what are the
jurisdictional requirements?
Sec. 2 of Act 3135 provides that: “Said sale
cannot be made legally outside of the province
in which the property sold is situated; and in
case the place within said province in which the
sale is to be made is subject to stipulation, such
sale shall be made in said place or in the
municipal building of the municipality in which
the property or part thereof is situated
C. In case of foreclosure sale, what is the period
of redemption?
For Natural persons: 1 year from the date of
the registration of the certificate of sale with
the Register of Deeds.
For Juridical persons: the right to redeem the
property is until, but not after, the registration
of the certificate of foreclosure sale which in no
case shall be more than three (3) months after
foreclosure, whichever is earlier, as provided in
Section 47 of Republic Act No.
D. Is the purchaser entitled to possess the
property during the period of redemption?
YES. Sec. 47 of the GBL provides that the
purchaser at the auction sale concerned
whether in a judicial or extra-judicial
foreclosure shall have the right to enter upon
and take possession of such property
immediately after the date of the confirmation
of the auction sale and administer the same in
accordance with law. Furthermore, Sec. 7 of Act
No. 3135 provides that the purchaser may
petition the Court of First Instance of the
province or place where the property or any
part thereof is situated, to give him possession
thereof during the redemption period,
furnishing bond in an amount equivalent to the
use of the property for a period of twelve
months, to indemnify the debtor in case it be
shown that the sale was made without violating
Commercial Law Review
Special Laws
Maria Zarah Villanueva - Castro
the mortgage or without complying with the
requirements of this Act.
E. If the purchaser complied with the requisites
required by law, does the court has jurisdiction
to deny the same?
NO. Under Sec. 7 of Act No. 3135, the court
shall, upon approval of the bond, order that a
writ of possession issue, addressed to the
sheriff of the province in which the property is
situated, who shall execute said order
immediately.
BULK SALES LAW:
A. What are the transactions covered?
1. Sale, transfer, mortgage or disposition other
than in the ordinary course of trade and
business;
2. Sale, transfer, mortgage or other disposition
of all or substantially all of the business or
trade; and
3. Sale, transfer, mortgage or other disposition
of all or substantially all of the fixtures and
equipment.
B. What are the transactions not covered?
1. Sale by virtue of judicial order
2. Sale or mortgage is made in the ordinary
course of trade and business
3. When accompanied with a written waiver
by the seller/mortgagor’s creditors
4. Sale by assignee in insolvency or those
beyond the reach of creditors
5. Sale of properties exempt from attachment
or execution.
C. What are the obligations of the
seller/mortgagor/assignor?
1. The person who shall sell, mortgage,
transfer or assign stock of goods, wares,
merchandise, provisions or materials in bulk
shall give a written statement sworn of
substantially of the names and addresses of
all creditors to whom said seller or
mortgagor may be indebted, together with
the amount of indebtedness due or owing,
or to become due or owning by said seller
or mortgagor to each of said creditors to
the buyer.
2. It is also the duty of the seller, mortgagor,
transferor or assignor to make a full
detailed inventory and to preserve the
goods, wares, merchandise in bulk showing
the quantity and, so far as is possible with
the exercise of reasonable diligence, the
cost price of the seller of each article to be
included in the sale, transfer or mortgage.
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3. To notify the creditors whose name and 2. No payments may be made by the
address is set forth in the verified petitioner except in the ordinary course of
statement of the seller at least 10 days his business or industry; and
before transferring possession thereof,
3. Upon request to the court, all pending
personally by or registered mail, of the price,
terms and conditions of the sale. executions against the debtor shall be
4. The sworn statement containing the names suspended except execution against
and the addresses of all creditors must be property especially mortgaged.
registered in the Bureau of Commerce. E. What is double majority rule for proposed
5. The proceeds of the sale must be applied to schedule of liability?
all his credits pro rata. Sec. 8 (e) of the Insolvency Law provides that to
D. There is no violation of bulk sales law, can the form a majority, it is necessary that 2/3 of the
creditors may still go after the properties to creditors voting unite upon the same
enforce their claims? proposition and that the claims represented by
YES. said majority vote amount to at least 3/5 of the
Does it matter that the properties are in the total liabilities of the debtor mentioned in the
hands of the buyer? petition.
NO. F. Distinguish insolvency from suspension
*Bulk sales law applies even if there is an Suspension of Insolvency
agreement on how payment of the sale be Payment
made. The debtor has The debtor does not
*It doesn’t matter if the claim has not been sufficient property but have sufficient
reduced to judgment. he foresees the property to pay his
E. Purpose of the Bulk Sales Law: impossibility of debts
To prevent the merchants from evading in their meeting his debts as
obligations. they fall due
It seeks to prevent the defrauding of creditors The purpose is to The purpose is to
by the secret sale or disposal in bulk of all or suspend or delay discharge the debtor
substantially all of a merchant’s stock of goods. payment of debts from the payment of
certain debts
INSOLVENCY LAW:
The amount of Some of the creditors
A. What is the object of suspension of payment? indebtedness is not may receive less than
The object of suspension of payment is to seek affected their credits
postponement of the payment of debts in order The number of In case of involuntary
to provide the debtor a given period to convert creditors is immaterial insolvency, three or
some of his properties to cash. more creditors are
B. What is the financial condition of the applicant required
when he filed the petition for suspension of
payment? G. Distinguish involuntary insolvency from
The debtor has sufficient property to cover all voluntary insolvency
his debts but there is impossibility to meet Involuntary Voluntary Insolvency
them when they respectively fall due. Insolvency
C. Where do you file a petition for suspension of 3 or more creditors One creditor is
payment? are required sufficient
The petition is filed in the court of the province Filed by 3 or more Filed by the debtor
or of the city where the debtor resided for six qualified creditors
months next preceding the filing of his petition. Debtors must have No need for
D. What are the effects of the filing of a petition committed one or commissions of acts of
for suspension of payment? more acts of insolvency
1. No disposition in any manner of his insolvency
property may be made by the petitioner Indebtedness must Amount of
except insofar as concerns the ordinary not be less than indebtedness must
P1,000 exceed P1,000
operations of commerce or of industry in
Petition must be Bond is not required
which he is engaged; accompanied by a
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Special Laws
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bond

H. What are the effects of the filing of insolvency

proceeding whether involuntary or voluntary?
1. Forbid the payment to the debtor of any
debt due to him and the delivery to him of
any property belonging to him;
2. Forbid the transfer of any property by him;
3. Stay of all pending civil proceedings against
the insolvent
I. What are the debts that are not affected by
discharge?
Sec. 68 of the Insolvency Law substantially
provides that the following debts are not
discharged:
1. Taxes or assessment due to the National
Government or Local Government;
2. Debt created by fraud or embezzlement;
3. Debt created by defalcation by public
officer or while acting in fiduciary capacity;
and
4. Claims of secured creditors
J. Discharge
Sec. 69 of the Insolvency Law substantially
provides that the insolvent debtor is released
from:
1. All his debts and liabilities set forth in the
schedule; and
2. All debts, liabilities or claims which were or
might have been proved against the estate
in insolvency.