CHATTEL MORTAGE Offenses involving Chattel Mortgage (Acts Punishable):

Under the Revised Penal Code, the following acts are punishable:
Article 2140:
Chattel Mortgage - is that 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 a third
person, the contract is a pledge and not a chattel mortgage.
1. Knowingly removing any personal property mortgaged under Chattel Mortgage Law
to any provinces 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; and
2. Selling or pledging 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 duly recorded in the Chattel Mortgage Register.

Characteristics: Common essential elements: the property removed or pledged

1. Accessory - because it is for the purpose of securing the performance of a principal
obligation.
2. Formal - because for its validity, registration in the Chattel Mortgage Register is
indispensable or absolutely necessary.
3. Unilateral - because it produces only an obligation on the part of the creditor to free
the thing from the encumbrance on fulfilment of the obligation.
*it should be the same or identical property that was mortgaged or pledged before
such removal or pledging
*The mortgagor is not relieved of criminal liability even if the mortgage indebtedness
is thereafter paid in full, or the mortgagor-seller informed the purchaser that the thing
sold had been mortgaged.

Distinctions: Chattel VS Pledge Subject matter of Chattel Mortgage

1. delivery Must always be personal or movable property, includes:
2. registration/formality 1. Shares of stocks, but the chattel mortgage need not be registered in the stock and
3. procedure for the sale transfer book
4. excess after foreclosure 2. Machinery
5. deficiency after foreclosure 3. Vessels
4. Motor vehicles
Similarities: Chattel VS Mortgage 5. Other movables (crops, cattle)
1. both are executed to secure performance of a principal obligation
2. both are constituted only on personal property Creation of a Chattel Mortgage
3. both are indivisible The law provides for only one way for executing a VALID chattel mortgage, and that is
4. both constitute a lien on the property the registration of the personal property in the Chattel Mortgage Register as security
5. in both cases, the creditor cannot appropriate the property to himself in payment of for the performance of an obligation.
the debt *Chattel Mortgage Law (Art. 1508) – provides that if the property is situated in a
6. in both cases, when the debtor defaults, the property must be sold in payment of province different from that in which the mortgagor resides, the registration must be in
the creditor; and both registers, or otherwise, the chattel mortgage is void.
7. both are extinguished by the fulfilment of the principal obligation or the destruction
of the property pledged or mortgaged. Affidavit of Good Faith
Affidavit of Good Faith - It is a subscribed statement in a contract of chattel mortgage
Laws Governing Chattel Mortgages wherein the parties severally swear that the mortgage is made for the purpose of
Article 2124. The provisions of this Code on pledge, insofar as they are not in conflict securing the obligation specified in conditions thereof, and for no other purpose, and
with the Chattel Mortgage Law, shall be applicable to chattel mortgages. that the same is a just and valid obligation and one not entered into for the purpose of
fraud.
The laws principally governing chattel mortgages are:
1. the Chattel Mortgage Law (Act No. 1508, as amended) It gives the mortgage a preferred status, that is, it enjoys preference of the claim of
2. the Civil Code third persons.
3. the Revised Administrative Code;
4. the Revised Penal Code; and Absent affidavit of good faith: the chattel mortgage is valid as between the parties.
5. the Ship Mortgage Decree (Pres. Decree No. 1521) However, it is not valid as to third persons including other creditors or mortgagees or
pledgee.
Extinguishment and Foreclosure of Chattel Mortgage
*Extinguished – upon payment of the debt or the performance of a principal
obligation. As a result, mortgagee must discharge the mortgage otherwise he may be
held liable for damages by any person entitle to redeem the mortgage.
*Foreclosure – If the mortgagor defaults in the payment of a secured debt, the
creditor is permitted only to recover his credit from the proceeds of the sale of the
property at public auction.
Kinds of Foreclosure of Chattel Mortgage:
a. Judicial Foreclosure – the mortgagee institutes an action in court;
b. Extra-judicial Foreclosure – The sale is made by the mortgagee himself when
authorized by the Chattel mortgage contract or by special law.

How proceeds of the foreclosure sale be applied?

The proceeds of the sale are to be applied to the payment of the following:
1. Costs and expenses of keeping and 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 in person holding under him.

Right of Redemption
*When the condition of a chattel mortgage is broken, the following may redeem:
1. the mortgagor
2. a person holding a subsequent mortgage; or
3. a subsequent attaching creditor

*an attaching creditor who so redeems 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.

*the redemption is made by paying or delivering to the mortgagee the amount due on
such mortgage and the costs and expenses incurred by such breach of condition
before the sale thereof.