CHATTEL MORTAGE

COVERAGE OF DISCUSSION:
• REQUISITES OF CHATTEL MORTGAGE
• OBJECT OF CHATTEL MORTGAGE
• FORM OF CHATTEL MORTAGE
• FORECLOSURE OF CHATTEL MORTAGE
• DISTINCTION BETWEEN PLEDGE, REAL MORTGAGE AND CHATTEL MORTAGE
• CRIMINAL LIABILITY IN PLEDGE OR MORTGAGE
Requisites of Chattel Mortgage

1. That it to constituted to secure the fulfillment of a principal obligation

2. That the mortgagor be the absolute owner of the thing mortgaged.
3. That the person constituting the mortgage must have the free disposal of his property, and
in the absence thereof, that he be legally authorized for the purpose (Art. 2085)
4. That the document in which the most appears be recorded in the Chattel Mortgage
Register (Art 2140)
 This requirement is necessary for the validity of chattel mortgage since registration thereof is
part of the definition of the contract
Object of chattel mortgage

 Only personal property may be the object of a chatter mortgage. The following things are deemed personal
property
1. Those movables susceptible of appropriation which not included in the list of immovables in Art. 415. (Examples:
Car, laptop computer, piano, ring)
2. Real property which by any provision of law is considered as personalty. Under Sec 6 of the Chattel Mortgage Law,
a chattel mortgage can be executed on growing crops which, under Art. 415 of the Civil Code, are real property.
3. Forces of nature which are brought under control by science. (Examples: Electricity, light, gas.)
4. In general, all things which can be transported from place to place without impairment of the real property to which
they are fixed. (Art. 416) (Examples: Painting hanging on the wall machinery not attached to land.)
5. Obligations and actions which have for their objects movables or demandable sums. (Examples: Promissory note,
and the right to recover a money debt by court action.)
6. Shares of stock of agricultural, commercial and industrial entities, although they may have real estate. (Art. 417)
Form of chattel mortgage

 Between the parties

 The mortgage must be recorded in the Chattel Mortgage Register of the province where the
mortgagor resides and also of the province where the property is located, if it is different from
the residence of the mortgagor.
 If the mortgagor is domiciled outside the Philippines, the mortgage must be registered in the
Chattel Mortgage Register of the province where the property is located. (Act 1508, Chattel
Mortgage Law.)
 The above registration is required for the validity of the chattel mortgage between the parties.
(Standard Oil vs. Jaramillo, 44 Phil 630)
 Place of registration with respect to certain movables
 Motor vehicles - Chattel Mortgage Register and Land Transportation Office (Motor Vehicles Law)
 Shares of stock - Chattel Mortgage Register in the province where the corporation has its principal office and in the domicile of the
mortgagor, unless their domicile is the same, in which case, a single registration is sufficient.
 Vessel - Office of the Collector of Customs at port of entry.
 As regards third persons
 An affidavit of good faith must be appended to the Deed of Chattel Mortgage and recorded therewith in the Chattel Mortgage
Register. (Act No 1508)
 An affidavit of good faith, concept
 This is a sworn statement attesting to the fact that the mortgage is made for the purpose of securing the obligation specified in the conditions
thereof, and for no other purpose, and that the obligation is a just and valid obligation, and one not entered into for the purpose of fraud.
 Notes:
1. 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. (Art. 2140)
2. The provisions on pledge, insofar as they are not in conflict with the Chattel Mortgage Law shall be applicable to Chattel Mortgage.
Foreclosure of chattel mortgage

1. Grounds for foreclosure

A. When the principal obligation is not paid when due.
B. When there is any violation of any condition, stipulation or warranty by the mortgagor
2. Kinds of foreclosure of chattel mortgage
A. Judicial foreclosure - This is a foreclosure made by instituting a court action, following the provisions of the Chattel Mortgage Law as far as practicable
B. Extra-judicial foreclosure - This is a foreclosure following the provisions of the Chattel Mortgage Law. Instituting a court action is necessary only to
secure possession of the thing preparatory to extra-judicial foreclosure if the debtor refuses to deliver the thing.
3. Distribution of proceeds of foreclosure sale
 The proceeds of sale shall be distributed as follows:
A. The costs of sale.
B. Claim of the person foreclosing the mortgage.
C. Claims of persons holding subsequent mortgages in their order
D. Balance, if any, shall be paid to the mortgagor. (Act 1508, Sec. 14)
4. Effect of sale when there are two or more mortgages
A. On senior mortgagees – Foreclosure and sale by a junior mortgagee do not affect the rights of
persons holding prior encumbrances. The purchaser acquires the property subject to the right of
foreclosure of a senior mortgagee. The junior mortgagee may, however, redeem the thing. (Act
1508, Sec. 13)
B. On junior mortgagees – Foreclosure and sale by a senior mortgagee will extinguish all subsequent
mortgages
5. Deficiency judgment
 If the proceeds of sale are not sufficient to satisfy the claim of the creditor, the creditor may institute
a court action to recover the deficiency, except in the case of foreclosure of a chattel mortgage
constituted on personal property which is sold at a price payable in installments. (See Art. 1484.)
Distinctions between Pledge, Real Mortgage
and Chattel Mortgage

 Pledge and real mortgage distinguished

1. Pledge is constituted on movables. Real' mortgage is constituted on immovables.
2. In pledge, the thing is delivered to the creditor or a third person by common agreement. In real mortgage, the thing is not required
to be delivered to the creditor.
3. A pledge must be in a public instrument showing a description of the thing pledged and the date of the pledge to bind third persons.
A real mortgage must be registered to take effect against third persons.
4. In pledge (conventional), the deficiency cannot be recovered even if there is a stipulation to that effect. In real mortgage, the
deficiency can be recovered.
5. In pledge (conventional), the excess of the proceeds of sale is retained by the pledgee unless there is a stipulation that it shall be
given to the pledgor. In real mortgage, the excess of the proceeds of sale belongs to the mortgagor even if there is no stipulation to
that effect.
6. In pledge, the pledgee may appropriate the thing pledged if the same is not sold in two public auctions. In real mortgage, the
mortgagee cannot appropriate the thing mortgaged.
 Pledge and chattel mortgage distinguished
1. In pledge, the thing is delivered to the creditor or a third person by common agreement. In chattel mortgage, the thing is not
required to be delivered to the creditor.
2. A pledge must be in a public instrument showing a description of the thing pledged and the date of the pledge to bind third
persons. A chattel mortgage must be registered and accompanied by an affidavit of good faith to take effect against third persons.
3. In pledge (conventional), the deficiency cannot be recovered even if there is a stipulation to that effect. In chattel mortgage, the
deficiency can be recovered, except in the case of personal property sold in installments.
4. In pledge, the excess of the proceeds of sale is retained by the pledgee unless there is a stipulation that it shall be given to the
pledgor and in the case of legal pledge. In chattel mortgage, the excess of the proceeds of sale belongs to the mortgagor even if
there is no stipulation to that effect
5. In pledge, the pledgee may appropriate the thing pledged if the same is not sold in two public auctions. In chattel mortgage, the
mortgagee cannot appropriate the thing mortgaged.
 Real mortgage and chattel mortgage distinguished
1. Real mortgage is constituted on Immovables. Chattel mortgage is constituted on movables.
2. A real mortgage must be registered to bind third persons. A chattel mortgage must be
accompanied by an affidavit of good faith to take effect against third persons.
3. A real mortgage may secure future obligations. A chattel mortgage cannot secure future
obligations.
Criminal Liability in pledge or mortgage

1. Any person who pretending to be the owner of any real property, shall convey, sell, encumber, or
mortgage the same shall be guilty of estafa. (Art. 316, par. 1. Revised Penal Code)
2. Any person who, knowing that property is encumbered, shall dispose of the same as unencumbered, is
also guilty of estafa. (Art. 316, par. 2, Revised Penal Code.)
3. Any person who shall knowingly remove any personal property mortgaged under the Chattel
Mortgage Law to any province or city other than that 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
assignees. (Art. 319, par. 1, Revised Penal Code)
4. 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 written consent of the mortgagee written on the
back of the mortgage and noted on the record thereof in the office of the Register of Deeds of the
province where such property is located. (Art. 319. par. 2. Revised Penal Code)