Chattel Mortgage-Ppt - RFBT 3

CHATTEL
MORTGAGE
I. Concept (2140 and Act 1508)
• Article 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.
Section 3, Act No. 1508 (Chattel Mortgage
Law)
• Section 3. Chattel mortgage defined. A chattel mortgage is a
conditional sale of personal property as security for the payment of a
debt, or the performance of some other obligation specified therein,
the condition being that the sale shall be void upon the seller paying to
the purchaser a sum of money or doing some other act named. If the
condition is performed according to its terms the mortgage and sale
immediately become void, and the mortgagee is thereby divested of
his title.
• Definition under Section 3, Act. No. 1508 is defective. Has reference
to conditional sale but a mortgage is accessory only to the principal
obligation which maybe a sale, loan, or any contract of agreement.
• Thus, we follow Article 2140, NCC as correct definition.

• DELIVERY to the creditor required in chattel mortgage?
-NO, it is not a chattel mortgage anymore but a pledge (Art. 2140,

NCC)
II. Elements
A. Parties
• REQUISITES FOR THE FORM OF A CHATTEL MORTGAGE
1) Validity between the parties:

-must be RECORDED or REGISTERED in the Chattel Mortgage
Register (of the Register of Deeds)
-REASON: definition under Article 2140

2) Validity as against THIRD PERSONS
- must be RECORDED or REGISTERED in the Chattel Mortgage

Register (of the Register of Deeds)
- accompanied by an affidavit of good faith

• if subject is motor vehicle, it must also be registered in the Land
Transportation Office (LTO)
• If subject is a vessel- it must also be registered in the Maritime

Industry Authority (MARINA )
• If subject is a public utility i.e. jeepney or taxi- it must also be

registered in the Land Transportation Franchising & Regulatory Board
(LTFRB)
• LACK OF AFFIDAVIT OF GOOD FAITH
-mortgage is still valid but only as between the parties, not against third
persons
Two Registries required (Section 4, Act No.
1508)
• when the mortgagor resides in one province, but the property is in

another province
-register in the office of the Register of Deeds in both provinces
-if not complied, chattel mortgage is VOID

B. Object
I. MOVABLES
-growing crops
-vessel
-shares of stock
-large cattle ( cow, carabao, horse, mule, ass or other domesticated
member of the BOVINE family (swine is not included)  PD 533,
Section 3
• II. IMMOVABLES i.e. house, building, land, etc.
-by agreement of the parties
-even if the mortgage is registered, it will not bind 3rd persons
-binding only between the parties
-Debtor cannot later on contest the chattel mortgage that the subject is
not a movable but a real property under the principle of ESTOPPEL.
C. Cause
-accessory contract
-fulfilment of the principal obligation
-can secure after-incurred obligations provided that these future debts

are accurately described
D. Form
• Prescribed under Act No. 1508
• 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.
-> REASONABLE DESCRIPTION RULE
Example: “stores known as Bazar Aquila de Oro”

 insufficient identification or description
(Giberson vs. Jureidini Bros, Inc. -SC case)
III. Effect of mortgage (Sec. 7, Act 1508)
• 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.
Effect of Sec. 7, Art. 1508
• UNLIKE pledge, antichresis, or real estate mortgage, a chattel
mortgage cannot secure future obligations
-CM covers only present obligations

-pledge, antichresis and REM can have a stipulation on “continuing guaranty”
also known as a “Dragnet Clause” in the contract
IV. Discharge of mortgage (Sec. 8, Act 1508)
• Section 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.
V. Redemption
A. Who may redeem
1) Mortgagor
2) Successors-in-interest
3) Subsequent Mortgagee
Ex: A is indebted to B. The debt is secured by chattel mortgage. B decides

to foreclose the mortgage due to non-payment of debt. C, third person,
pays the obligation of A, the debtor/mortgagor to B, the creditor/first
mortgagee. C now steps into the shoes of A and can redeem the property.
B. What must be paid (Section 13, Act No. 1508)
• Section 13. When the condition of a chattel mortgage is broken, a

mortgagor or person holding a subsequent mortgage, or a subsequent
attaching creditor may redeem the same by paying or delivering to the
mortgagee the amount due on such mortgage and the reasonable costs
and expenses incurred by such breach of condition before the sale
thereof. 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 by the terms of
this Act.
VII. Foreclosure
• A. Kinds
1) Judicial foreclosure – Rules of Court, although the rules state it

applies to REM, there is no prohibition of its application to CM
• 2) Extrajudicial foreclosure –Section 14, Act No. 1508
Section 14. Sale of property at public auction; Officer’s return; Fees; Disposition of

proceeds. The mortgagee, his executor, administrator, or assign, may, after thirty days
from the time of condition broken, cause the mortgaged property, or any part
thereof, to be sold at public auction by a public officer at a public place in the
municipality where the mortgagor resides, or where the property is situated, provided at
least ten days’ notice of the time, place, and purpose of such sale has been posted at
two or more public places in such municipality, and the mortgagee, his executor,
administrator, or assign, shall notify the mortgagor or person holding under him and the
persons holding subsequent mortgages of the time and place of sale, either by notice in
writing directed to him or left at his abode, if within the municipality, or sent by mail if
he does not reside in such municipality, at least ten days previous to the sale.
• “Condition broken” – means default on the part of debtor
• DOES THE MORTGAGOR HAVE A RIGHT OF REDEMPTION

AFTER FORECLOSURE?
-No, no right of redemption exists over personal property.
-Thus, redemption of chattel mortgage only happens after default AND
prior to foreclosure

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CHATTEL

• Thus, we follow Article 2140, NCC as correct definition.

-NO, it is not a chattel mortgage anymore but a pledge (Art. 2140,

• REQUISITES FOR THE FORM OF A CHATTEL MORTGAGE

1) Validity between the parties:

-REASON: definition under Article 2140

- must be RECORDED or REGISTERED in the Chattel Mortgage

- accompanied by an affidavit of good faith

• If subject is a vessel- it must also be registered in the Maritime

• If subject is a public utility i.e. jeepney or taxi- it must also be

• when the mortgagor resides in one province, but the property is in

-register in the office of the Register of Deeds in both provinces

-if not complied, chattel mortgage is VOID

-fulfilment of the principal obligation

-can secure after-incurred obligations provided that these future debts

Example: “stores known as Bazar Aquila de Oro”

• A chattel mortgage shall be deemed to cover only the property

-CM covers only present obligations

Ex: A is indebted to B. The debt is secured by chattel mortgage. B decides

• Section 13. When the condition of a chattel mortgage is broken, a

1) Judicial foreclosure – Rules of Court, although the rules state it

Section 14. Sale of property at public auction; Officer’s return; Fees; Disposition of

• DOES THE MORTGAGOR HAVE A RIGHT OF REDEMPTION

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