Chapter 5: CHATTEL MORTGAGE

Arts. 2140-2141
I. Concept (2140 and Act 1508)

Art. 2140. By a chattel mortgage, 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 a third person, the contract is a
pledge and not a chattel mortgage. (n)

A chattel mortgage must be registered in the Chattel Mortgage Register for the validity
of the contract. (Art. 2140, Civil Code). An affidavit of good faith must be appended to
the mortgage and recorded therewith. [ Sec. 5, Act No. 1508 (The Chattel Mortgage
Law)]

II. Elements
A. Parties

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B. Object

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D. Form

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a. To bind the parties
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b. To bind third persons
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III. Effect of mortgage (Sec. 7, Act 1508)

Sec. 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
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inquiry and investigation, to identify the same

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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
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property in the mortgage shall contain the brands, class, sex, age, knots of radiated
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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,
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together with the number and place of issue of such certificates of ownership.
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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
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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
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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.

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 IV. Discharge of mortgage (Sec. 8, Act 1508)

Sec. 8. Failure of mortgagee to discharge the mortgage. — If the mortgagee, assign,

administrator, executor, or either of them, after performance of the condition before or
after the breach thereof, or after tender of the performance of the condition, at or after
the time fixed for the performance, does not within ten days after being requested
thereto by any person entitled to redeem, discharge the mortgage in the manner
provided by law, the person entitled to redeem may recover of the person whose duty it
is to discharge the same twenty pesos for his neglect and all damages occasioned
thereby in an action in any court having jurisdiction of the subject-matter thereof.

A. Requisites
B. Effect of failure to discharge

V. Redemption
A. Who may redeem
B. What must be paid

VII. Foreclosure

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A. Kinds

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Art. 2141. The provisions of this Code on pledge, insofar as they are not in conflict with

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the Chattel Mortgage Law shall be applicable to chattel mortgages. (n)
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 CHATTEL MORTGAGE
 Contract where the personal property is recorded in the chattel mortgage
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register as a security for performance of an obligation.

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 EXAMPLES
1) Shares of stocks in corporation
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2) Interests in the business

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3) Machinery vessel
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4) Motor vehicles

 VALIDITY BETWEEN THE PARTIES

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 The personal property must be recorded in the chattel mortgage register and
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must be accompanied by an affidavit of good faith

 VENUE OF REGISTRATION
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1. If he resides in the Philippines

 In the office of the register of the deeds of province in which the mortgagor
resides at time of the making of the chattel mortgage

2. If he does not reside in the Philippines

 In province in which the property is located.

3. If the property is situated in the province different from that in which the
mortgage resides
 Mortgage shall be recorded in both provinces.
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  WHEN MORTGAGE MUST BE REGISTERED IN TWO CHATTEL MORTGAGE
REGISTER?
 The chattel mortgage must be registered in the two chattel mortgages register
when the mortgagor resides in the one province but property is located in
another province. Registration must be in both, otherwise the mortgage chattel
is void.

 EFFECT OF REGISTRATION
 The registration of chattel mortgage is an effective and binding notice to the
other creditors of its existence and creates a real right or lien which, being
recorded, follows the chattel wherever it goes. The registration gives the
mortgagee symbolical possession.

CHATTEL MORTGAGE REAL MORTGAGE

Constituted on movables Constituted in immovable
Cannot guarantee future obligations May guarantee future obligations

CHATTEL MORTGAGE PLEDGE

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Delivery is not an essential element of Delivery is an essential element of

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contract contract

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In case of foreclosure, excess of amount eH w On case of foreclosure, debtor is not
due goes to debtor entitled to excess unless it is otherwise

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In case of foreclosure, creditor is entitled In case of foreclosure, creditor is not

to recover the deficiency from debtor, entitled to recover deficiency
except if the chattel mortgage is security notwithstanding ANY stipulation to
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to the purchase of the personal property contrary

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in instalments
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 AFFIDAVIT OF GOOD FAITH

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 It is an oath in contract of chattel mortgage wherein the parties severally

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swear that the mortgage is made for the purpose of securing the obligation
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specified in conditions thereof and for no other purposes and that the same is
just and valid obligation and no one not entered into for the purpose of fraud.
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 EFFECT OF ABSENCE OF AN AFFIDAVIT OF GOOD FAITH

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 The chattel mortgage is still valid as between the parties.

 FORECLOSURE OF CHATTEL MORTGAGE

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 If mortgagor defaults in the payment of the secured debt or otherwise fails to

comply with conditions of mortgage, the creditor has no right to appropriate to
himself the personal property because he is permitted only to recover his
credit from the proceeds of the sale of the property at a public auction.

 APPLICATION OF PROCEEDS OF FORECLOSURE SALE

1) Costs and expenses of keeping the property and its sale
2) Payment of 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

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  RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY
GENERAL RULE:
The creditor mortgagee may maintain an action for deficiency as the chattel mortgage
is only given as a security and not as payment for debt in case of failure of payment.

EXCEPTION:
Where the chattel mortgage is constituted as security for purchase of personal property
payable in instalments. In this case, there is no deficiency judgement and any contrary
stipulation is void.

NOTE: As between the first and second mortgages, the latter can only recover the
property from the former by paying him the mortgage debt. Even when the second
mortgagee goes through the formality of extrajudicial foreclosure, the purchaser
acquires no more than the right of redemption from the first mortgagee.

NOTE: The provision of civil code on pledge have suppletory effect.

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