3B 2019-2020
StratPlan for SPCL
OCTOBER 4, 2019
SHERLOCK
CHATTEL MORTGAGE LAW
Q: How come chattel mortgage law was
passed prior to the Negotiable instrument
law?
A: They already want to protect the
chattels.
Q: What is a chattel mortgage?
A: It involves personal property, only for a
security for a loan. It cannot be for any
other purpose. (Ma’ams definition)
ARTICLE 2140. Chattel mortgage is a
contract by virtue of which personal
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 creditor or third person,
the contract is pledge and NOT a chattel
mortgage.
In chattel mortgage law, it is registered
under the chattel mortgage register.
If you look into the registry of deeds, there
is title. In chattel mortgage it is only a book.
There are no titles in chattel mortgage.
Q: What is the difference between
registration of REM and CM?
A: A REM is considered registered once
recorded in the entry book. However, a
chattel mortgage must be recorded not only
in the entry book but also in the Chattel
Mortgage register.
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Q: If there is no title, why is it registrable?
A: It is registrable because of the nature of
the property itself. It is personal. When you
speak of personal property, it is capable of
being registrable. Personal property is
movable
You have your real property & personal
property. Personal property is movable.
There was a case the SC said that even
machineries are bolted to the ground, it is
chattel (personal) if the parties have
deemed it necessary to be a chattel
mortgage then let it be (This is an exception
to the principle of movable property,
because anything bolted to the ground is
actually part of parcel a real estate)
MAKATI LEASING AND FINANCE
CORPORATION VS WEAREVER
TEXTILE MILLS
“ The machinery was in effect, personal
property. In Tumalad v. Vicencio it ruled
that the subject house was that of personal
property, as such depended on the intention
of both parties considering it as personal
property and such consideration is VALID so
long as third persons were not prejudiced by
such”
Q: How is chattel mortgage constituted?
A: Chattel is in possession with the
borrower or the mortgagor. A real estate
mortgage must also be in the possession of
borrower mortgagor. These two are
collaterals.
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BUT NOT IN TRUST RECEIPTS, because in In the case of Warner Brothers company vs
trust receipts because before it goes to the Flores: The risk of loss is with the borrower-
possession of borrower entrustee, the mortgagor similar to the trust receipt where
ownership should be in the name of the the risk of loss is with the borrower-
entruster entrustee.

In the Colinares case [under trust receipts The lender’s right over the property over
law] the title itself, must be invoiced in the the account should always be paramount
name of the entruster-bank, the issuer of because it is the money of the people who
are happy but their rights and interests
the letter of credit
should never be prejudiced
The chattel mortgage must always be in the
Q: What are the elements of a valid chattel
possession of the borrower-mortgagor
mortgage?
Q: Who are the parties to a chattel
A: It is provided under Section 5 of the
mortgage?
chattel mortgage law
A: The mortgagor-borrower & The
mortgagee-lender. SECTION 5. Form. A chattel mortgage
shall be deemed to be sufficient when
In chattel mortgage, both movables must made substantially in accordance with
the following form, and shall be signed
be in the possession of the borrower- by the person or persons executing the
mortgagor. If it is with the same, in the presence of two witnesses,
lender/mortgagee it becomes a pledge. who shall sign the mortgage as
witnesses to the execution thereof, and
each mortgagor and mortgagee, or, in
CHATTEL PLEDGE the absence of the mortgagee, his
MORTGAGE agent or attorney, shall make and
subscribe an affidavit in substance as
Delivery of property is not Delivery is necessary
necessary
hereinafter set forth, which affidavit,
Registration under the Chattel Registration is not required signed by the parties to the mortgage
Mortgage register is required for it to be valid as above stated, and the certificate of
for its validity the oath signed by the authority
Procedure for sale is Procedure is governed by
governed by Section 14 of Article 2112 of the NCC
administering the same, shall be
Act. No. 1508 appended to such mortgage and
Excess of the amount goes to Excess pertains to the pledge, recorded therewith.
the debtor unless otherwise agreed
Mortgagee is entitled to Pledgee is not entitled to
recover deficiency except if recover deficiency in all 1. It must be signed by the mortgagor
the chattel mortgage is events even if there is a or his agent
constituted as security for the stipulation to that effect
purchase of personal property between the parties 2. Next it must be signed by the
payable in instalment
mortgagee/agent.
3. It must be signed by two witnesses.
There must be two witnesses.

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4. Affidavit of good faith
5. Attestation clause must be notarized
Q: What is the effect if the attestation
clause is not notarized?
A: It is not binding.
In trust receipts, the two witnesses rule is
no longer needed. This is because such is a
declaration of trust by the entrustee. You
do not need the bank to sign because it is a
declaration of trust.
In chattel mortgage it must be
bilateral/mutual reciprocal, the signature of
one should always carry with it the
signature of another. That is the mortgagor
& mortgagee
The most important aspect for there to be a
valid chattel mortgage: there must an
affidavit of good faith executed by the
mortgagor/his agent
Q: Does the absence of the affidavit of
good faith affect the validity of the
mortgage?
A: No. The purpose of complying with such
is complying with the formal requirements:
To transform an already valid mortgage to a
preferred mortgage, to give it a preferred
status.
Q: Why is there a need for an affidavit of
good faith?
A: It is carry-over from American
jurisprudence, like in the other concepts of
the negotiable instruments law as in the
case of a “holder in due course” – where in
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one of the requirements is good faith. The
principle of good faith applies in common
law jurisdiction.
AFFIDAVIT OF GOOD FAITH
It is made by the mortgagor that the
mortgage has been executed in good faith,
and that he will pay on the due date.
If there is none, you may be held liable
under ART 319 of RPC.
Article 319. Removal, sale or pledge of
mortgaged property. - The penalty
or arresto mayor or a fine amounting to
twice the value of the property shall be
imposed upon:
1. Any person who shall knowingly
remove any personal property
mortgaged under the Chattel
Mortgage Law 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, or his executors,
administrators or assigns.
2. Any mortgagor who shall sell or pledge
personal property already pledged, or any
part thereof, under the terms of the Chattel
Mortgage Law, without the consent of the
mortgagee written on the back of the
mortgage and noted on the record hereof in
the office of the Register of Deeds of the
province where such property is located
Q: CAN ARTIFICIAL PERSON EXECUTE A
CHATTEL MORTGAGE?
A: YES. Under section 6 but the signatory
must be duly authorized to represent the
corporation or partnership

SECTION 6. Corporations. When a
corporation is a party to such mortgage
the affidavit required may be made and
subscribed by a director, trustee,
cashier, treasurer, or manager thereof,
or by a person authorized on the part of
such corporation to make or to receive
such mortgage. When a partnership is a
party to the mortgage the affidavit may
be made and subscribed by one
member thereof.
If it is a partnership, it must be signed not
only by the general manager, treasurer. It
must be signed by the PARTNER because it
is only the partner who can bind the
partnership
In a corporation, it must be duly authorized
representatives/signatories
WHAT IS THE FORM of CHM?
Used as a security for the loan.
Because if it is a loan agreement is duly
subjected to risks.
To be valid as against third parties, it must
be registered in the chattel mortgage
register
Q: What happens if the CHM is not
registered. Can it be valid against third
persons?
A: No. If it is not registered. It is NOT
binding as against third persons.
Q: What if it is not registered in the
Registered of deeds?
A: The sale is valid but void as to third
persons are concerned. Most especially as
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against a third person if the third person
has subsequently registered his mortgage.
Q: What if there is no affidavit of Faith?
A: It is binding as between the mortgagor
and mortgagee only (parties only) but NOT
against third persons
Q: What are the contents?
A: Yung lima lang
Chattel mortgage executed by mortgagor to
secure the loan
OBJECT
The property should be really described
For example machineries, it must be
described. What kind of machineries? Like
for example a Honda
Can a cattle be mortgaged?
Yes. Pero only a large one, it has to be
described. A cattle: class, brand, sex age
should be indicated to be duly a valid
subject matter in a chattel mortgage
Q: What about growing crops?
A: Yes. Provided they will be taken care of.
Proceeds go to lender-mortgagee.
There are also other properties
SECTION 7. Descriptions of property. The description
of the mortgaged property shall be such as to enable the
parties to the mortgage, or any other person, after
reasonable inquiry and investigation, to identify the
same.
If the property mortgaged be large cattle,” as defined
by section one of Act Numbered Eleven and forty-seven,
2 and the amendments thereof, the description of said
property in the mortgage shall contain the brands, class,
sex, age, knots of radiated hair commonly known as
remolinos, or cowlicks, and other marks of ownership as
described and set forth in the certificate of ownership of

said animal or animals, together with the number and
place of issue of such certificates of ownership.
If growing crops be mortgaged the mortgage may
contain an agreement stipulating that the mortgagor
binds himself properly to tend, care for and protect the
crop while growing, and faithfully and without delay to
harvest the same, and that in default of the performance
of such duties the mortgage may enter upon the
premises, take all the necessary measures for the
protection of said crop, and retain possession thereof
and sell the same, and from the proceeds of such sale
pay all expenses incurred in caring for, harvesting, and
selling the crop and the amount of the indebtedness or
obligation secured by the mortgage, and the surplus
thereof, if any shall be paid to the mortgagor or those
entitled to the same.
A chattel mortgage shall be deemed to cover only the
property described therein and not like or substituted
property thereafter acquired by the mortgagor and placed
in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary
notwithstanding.
Q: Can we convert other properties not
listed in the CHM?
A: Generally no if it is not under section 7, it
is not covered by CHM, the exception is
stocks in trade.
Q: Can future assets be an object of a
chattel mortgage?
A: No. You must own the thing or has the
right to dispose such
Q: Can properties subsequently owned be
a subject of a chattel mortgage and offer
as collateral?
A: Yes. If it is covered by another CHM or
chattel mortgage agreement but if there is
no separate chm covering that
subsequently owned then you cannot add it
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except if the business itself or CHM is stock
in trade
Under the case of Belgian catholic
missionaries vs Magallanes
covered obligations are only those existing
and not future obligations. If it is actually in
default status it must be extrajudicially or
judicially foreclose, if judicially it is covered
under rule 68 of the
What is Recto Law?
Under Artcile 1484 of the New Civil Code it
introduces Recto Law or also known as
“Installment Sales Law”, it provides
remedies to a seller in a sale of personal or
movable property in installment basis:
1) Exact fulfillment of obligation, if
buyer failed to pay any of the
installments
2) Rescind the sale, if buyer failed two
or more installments
3) Foreclose the chattel mortgage if
one has been constituted, if buyer
failed to pay two or more
installments.
To proceed to the rescission or
cancellation of the sale there must be at
least two or more failure of payment of
installments.
Such remedy must not be applied
cumulatively but it is in the alternative
nature, meaning the exercise of one bars
the exercise of the other remedies.
In the cases under Trust Receipts with
respect to Vintola case and Metrobank case
– The chattels can be returned and it cannot
be riped into a suit of estafa but not in the
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case of chattel mortgage, it can be returned

however it does not wipe out the entire
obligation.

Q: Can a chattel mortgage be

mortgaged again? Double mortgage?
Isn’t it a violation of Article 319 of
the Penal Code?

A: Yes, except when it is with the consent of

the mortgagee, it does not affect the
validity of the mortgage but only the
liability of the mortgagor.

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