GROUP 1

CHATTEL MORTGAGE LAW

Chattel Mortgage-is an accessory contract by virtue of which personal property is recorded in
the Chattel Mortgage Register as security for the performance of an obligation.
The chattel mortgage law primarily governs chattel mortgage. The provisions of the NCC in so
far as not in conflict with the CML also govern chattel mortgages.
SUBJECT MATTER OF THE CHATTEL MORTGAGE
Personal or movable property
1. Shares of stock
2. Interest in business
3. Machinery treated as personal property subsequently installed on leased land.-Davao
sawmill v.s C astillo,61 phil.709
4. Vessels recorded in the Philippine coast guard to be effective as to the third persons;
not not necessary to be recorded in the office of the register of deeds;
5. Motor vehicles mortgage registered in the LTO- for vehicles used in public services-.
6. House of mixed materials;
7. House intended to be demolished.
8. House built on rented land-gen. rule-immovable property. Exception; treated as
movable property by estoppel of parties.
9. House of strong materials is personal property for purposes of executing a chattel
mortgage between the parties to the contract if the parties so agree and no innocent
third party will be prejudiced.
General rule; chattel mortgages cannot cover debts subsequently contracted.
Furthermore, the following must be remembered;
1. Chattel mortgage must be registered in the place where mortgagor resides and where
property is located. If the mortgagor resides abroad, it must be registered in the place where
the property is located.

2. With respect to the growing fruits, they may be secured by the chattel mortgage but they
may not be pledged.
3. With respect to the machineries placed on the plant or on building owned by another, they
can be the object of the chattel mortgage.
4. with the shares of stock the place of domicile of the corporation and shareholder. No need
for notation in books of corporation.
REQUIRISTES TO BIND THIRD PERSONS
1. AFFIDAVIT OF GOOD FAITH
2. CONTRACT MUST BE REGISTERED
Under chattel mortgage law, there can be a recovery of deficiency judgment, except when recto
law applies.
ESSENTIAL REQUISITES TO CONSTITUTE A VALID CHATTEL MORTGAGE OVER PERSONAL
PROPERTY
NOTE; all must concur.
1. It must be constituted to secure the fulfillment of the principal obligation. Art.2085,
NCC
2. The mortgagor is the absolute owner of the thing mortgage.
3. The person constituting the mortgage has the free disposal of the property and in the
absence thereof, they may be legally authorized for the purposed.
4. Must be recorded in the chattel mortgage register in order to bind third person.
The first three requirements pertain to the requirements of any valid mortgage under civil code.
REQUIREMENTS UNDER THE CHATTEL MORTGAGE LAW FOR THE VALIDITY OF THE CHATTEL
MORTGAGE.
1. Substantial compliance with the form in sec. 5
Sec. 5. Form. A chattel mortgage shall be deemed to be sufficient when made substantially in
accordance with the following form, and shall be signed by the person or persons executing the
same, in the presence of two witnesses, who shall sign the mortgage as witnesses to the
execution thereof, and each mortgagor and mortgagee, or, in the absence of the mortgagee, his
agent or attorney, shall make and subscribe an affidavit in substance as hereinafter set forth,
which affidavit, signed by the parties to the mortgage as above stated, and the certificate of the
oath signed by the authority administering the same, shall be appended to such mortgage and

recorded therewith.

FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.

"This mortgage made this ____ day of ______19____ by _______________, a resident of the
municipality of ______________, Province of ____________, Philippine Islands mortgagor, to
____________, a resident of the municipality of ___________, Province of ______________,
Philippine Islands, mortgagee, witnesseth:

"That the said mortgagor hereby conveys and mortgages to the said mortgagee all of the
following-described personal property situated in the municipality of ______________,
Province of ____________ and now in the possession of said mortgagor, to wit:

(Here insert specific description of the property mortgaged.)

"This mortgage is given as security for the payment to the said ______, mortgagee, of
promissory notes for the sum of ____________ pesos, with (or without, as the case may be)
interest thereon at the rate of ___________ per centum per annum, according to the terms of
__________, certain promissory notes, dated _________, and in the words and figures
following (here insert copy of the note or notes secured).

"(If the mortgage is given for the performance of some other obligation aside from the payment
of promissory notes, describe correctly but concisely the obligation to be performed.)

"The conditions of this obligation are such that if the mortgagor, his heirs, executors, or
administrators shall well and truly perform the full obligation (or obligations) above stated
according to the terms thereof, then this obligation shall be null and void.

"Executed at the municipality of _________, in the Province of ________, this _____ day of 19
_____

____________________
(Signature of mortgagor.)

"In the presence of

"_________________
"_________________
(Two witnesses sign here.)

FORM OF OATH.
"We severally swear that the foregoing mortgage is made for the purpose of securing the
obligation specified in the conditions thereof, and for no other purpose, and that the same is a
just and valid obligation, and one not entered into for the purpose of fraud."

FORM OF CERTIFICATE OF OATH.

"At ___________, in the Province of _________, personally appeared ____________, the
parties who signed the foregoing affidavit and made oath to the truth thereof before me.

"_____________________________"
(Notary public, justice of the peace, 1 or other officer, as the case may be.)
2. The deed of mortgage must be signed by at least two witnesses.
3. The deed must contain an affidavit of good faith.
4. The deed must be accompanied by the certificate of oath.
CONTENTS REQUIRED IN THE AFFIDAVIT OF GOOD FAITH
1. Where the parties severally swear that the mortgage is made for the purpose of
securing the obligation specified and for no other purpose and that the same is a just

and valid obligation and not one entered into for fraud; and
2. Property given in chattel mortgage must be described to enable the parties or any other
person after reasonable inquiry and investigation.
Future property may not be covered by the chattel mortgage.
Except; future property that maybe subject or a chattel mortgage when;
1. When such property is a renewal of or in substitution for goods on hand when the
mortgage was executed, or
2. Such property was purchased with proceeds of said goods.
ACTS WHICH PROVIDE FOR CRIMINAL LIABILITY UNDER THE CHATTEL MO RTGAGE LAWART.319 RPC1. Removal of chattel to another city or province without written consent of mortgagee;
2. Selling property already pledge, or mortgaged without written consent of the
mortgagee
.
EQUITY OF REDEMTION
There is not right of redemption in the chattel mortgage. There is only equity redemption.
1. The following may redeem if the condition of the mortgage is broken;
a. Mortgagor
b. A person holding subsequent mortgage
c .A subsequent attaching creditor-sec.13 of act 15082. An attaching creditor who so redeems shall subrogated to the rights of the mortgagee and
entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it.
3. the of the redemption is made by paying or delivering to the mortgagee the amount due on
such mortgage and the cost and expenses incurred by such breach of the condition of sale.

FORECLOSURE OF CHATTEL MORTGAGE

1. Public sale
2. Private sale- there is nothing illegal, immoral or against public order in an agreement for
the private sale of personal properties covered by chattel mortgage.
PERIOD TO FORECLOSE
1. After 30 days from the time the condition is broken.
2.

The 30-day period is the minimum period after violation of the mortgage condition for
the creditor to cause the sale at public auction with at least 10 days notice to the
mortgagor and posting of public notice of time, place and purpose of such sale, and a
period of grace for mortgagor to discharge the obligation.

3. After the sale at public auction, the right of redemption is no longer available to the
mortgagor.

RULE ON THE RECOVERY OF DEFICIENCY AFTER FORECLOSURE.

-THERE IS RECOVERY OF DEFICIENCY IN ALL MORTGAGES-CHATTEL OR REAL-Reason; Mortgages is an accessory contracts serve only as securities and not for the
satisfaction of the principal obligation.
-Prescriptive period; 10 years- under art. 1142, NCC. DBP vs. Tomelda, 101 SCRA 171.
EXCEPTION;when the transaction secured is sale of personal property on installment under
article 1484 of NCC otherwise known as recto law.
Bicol Savings and Loan Association vs. Guinhawa
A chattel mortgage is just a security, foreclosure thereof will not prevent mortgagee from
recovering any deficiency that may cause result after applying the proceeds of the foreclosure
sale to the obligation.
Recto law-art. 1484 and 1485 of NCC.
In the contract of sale of personal property, the price of which is payable in installments, the
vendor may exercise any of the following;
1. EXACT FULLFILLMENT OF THE OBLIGATION SHOULD THE VENDEE FAIL TO PAY.
2. Cancel the sale, should the vendees failure to pay cover two or more installment.
3. Foreclosure the chattel mortgage on the thing sold, if one has been constituted, should
the vendees failure to pay cover two or more installments. In case, he shall have no

further action against the purchaser to recover any unpaid balance of the price. The
agreement to the contrary shall be void.
Art. 1484- The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.
Applicability;
1. Sale on personal property, the price of which is payable on installment.
2. Contracts purporting to be a leases on personal property with an option to buy.
SELLERS ALTERNATIVE AND EXCLUSIVE REMEDIES IN CASES OF BUYERS DEFAULT.
1. Exact fulfillment of the obligation, should the vendee fail to pay-action for specific
performance-.
2. Cancel the sale should the vendees failure to pay cover two or more installmentsrescission- or
3. Foreclosure of the chattel mortgage on the thing sold, should the vendees failure to
pay cover 2 or more installments. He cannot recover any unpaid balance of the price.
Any agreement to the contrary shall be void.
RECOVERY OF DEFICIENCY AFTER FORCLOSURE
1. In case there is no other security actual foreclosure.
2. Bars an action for specific performance
3. In case there is an additional security other than chattel mortgage not covered by recto
law;
a. 1st foreclosure is on the main chattel mortgage covered by recto law.
b. 2nd foreclosure on the additional security is prohibited- Cruz v. Filipinas InvestmentSPOUSES de VERA vs. AGLORO
If the mortgagor fails to redeem the property the buyer at public auction may file with the RTC
in the province or place where the property or portion thereof is located, an ex parte motion
for an issuance of the writ of possession within one year from the registration of the sheriffs
certificates of sale, and the court shall grant the said motion upon petitioners posting of a bond
in an amount equivalent to the use of the property for the period of 12 months.
APPLICATION OF PROCEEDS OF SALE

1. COST AND EXPENSES OF KEEPING AND SALE

2. PAYMENTS OF THE OBLIGATION
3. CLAIMS OF PERSON HOLDING SUBSEQUENT MORTGAGES IN THEIR ORDER
4. BALANCE, IF ANY, SHALL BE PAID TO THE MORTGAGOR, OR PERSON HOLDIN UNDER
HIM.
RIGHT OF MORTGAGEE TO RECOVER DEFICIENCY
1. Where mortgage foreclosed; creditor may maintain action for deficiency
2. Where mortgage property subsequently attached and sold; the mortgagee is entitle to
deficiency judgment through specific performance.

DIFFERENCES OF THE CHATTEL MORTGAGES WITH;

CHATTEL MORTGAGE

PLEDGE

Delivery of the property to the mortgagee is not

necessary
Registration in the CMR is necessary for validity

Delivery of the property to the pledge is necessary

Procedure of sale is found in sec.14 act. No.1508

Registration in the registry of property is not

necessary
Procedure found in 2112 of NCC

If the property is foreclosed, the excess over the

amount due goes to the debtor

Debtor is not entitled to the excess unless it is

otherwise agreed upon or in case of legal pledge

Creditor may recover after the deficiency

Cannot secure future obligation

Creditor cannot recover t deficiency even if agreed

upon
Can secure future obligation

Chattel mortgage

Pacto de retro sale

Accessory contract

Principal contract

Title to the thing mortgaged is not transferred

Title to the subject matter is transferred to the

vendee a retro but subject to the redemption by the
vendor
Not required

Affidavit in good faith is required

Chattel mortgage

Real estate mortgage

Thing mortgaged must be a personal or movable

property
Affidavit of good faith required

Thing must be real or immovable property

Mortgagor cannot alienate the thing mortgaged

without the written consent of the mortgagee
No right of redemption
Cannot secure future obligation

Not required
Mortgagor can alienate the thing mortgaged
without the consent of the mortgagee and any such
prohibition is void.
There can be right of redemption in extrajudicial
foreclosure and judicial foreclosure by banks
Can secure future obligation