CHATTEL MORTGAGE

Art. 2140

Chattel mortgage; defined

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.

Chattel mortgage and pledge; distinguished

1. In chattel mortgage, the delivery of the personal property to the mortgage is not necessary, while in
pledge, such delivery is necessary.
2. In chattel mortgage, the registration of the same in the Chattel Mortgage Registry is required by law,
while in pledge, registration in the registry of property is not necessary.
3. In chattel mortgage, if the property is foreclosed, the excess over the amount due goes to the debtor,
while in pledge, if the property is sold, the debtor is not entitled to the excess unless it is otherwise
agreed.
4. In chattel mortgage, if the property is foreclosed and there is a deficiency, the creditor is entitled to
recover the deficiency from the debtor, except if the chattel mortgage is a security for the purchase of
personal property in installments. In pledge, if the property is sold, and there is a deficiency, the creditor
is not entitled to recover the deficiency not withstanding any stipulation to the contrary (Art. 2115).

Art. 2141. See Article

Offenses involving chattel mortgage

Under the Revised Penal Code, the following acts are punishable.
1. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law to any province
or city other than the one in which it was located at the time of execution of the mortgage without the
written consent of the mortgagee.
2. Selling or pledging personal property already mortgaged, or any part thereof, under the terms of the
Chattel Mortgage Law without the consent of the mortgage written on the back of the mortgage and duly
recorded in the Chattel Mortgage Register.
An essential element common to the two acts punished under Art. 319 of the RPC is that the
property removed or repledged, as the case may be, should be the same or identical property that was
mortgaged or pledged before such removal or pledging.

Subject matter of Chattel Mortgage

1. Shares of stock in a corporation (Chua Geran vs Samahan 62 Phil. 472)
2. An interest in business
3. Machinery treated by the parties as personal property.
4. Vessels
5. Motor
6. House of mixed materials
7. House intended to be demolished
8. House built on rented land

Period within which registration should be made

The law is substantially and sufficiently complied with where the registration is made by the mortgage
before the mortgagor has complied with his principal obligation and no right of third persons is prejudiced.
 Effect of registration
The registration of the chattel mortgage is an effective and finding notice to other creditors of its existence
and creates a real right or a lien which, being recorded, follows the chattel whenever it goes. The registration
gives the mortgages symbolical possession.

Registration adds nothing to the instrument, considered as a source of title and affects nobodys rights
except as a species of notice.

Duty of Register of Deeds

Ministerial

Affidavit of good faith required

The affidavit of good faith is an oath in a contract of chattel mortgage wherein the parties severally
swear that the mortgage is made for the purpose of securing the obligation specified in the conditions
thereof and for no other purposes and that the same is a just and valid obligation and one not entered into for
the purposed of fraud.

Effect of absence of the affidavit of good faith

The absence of the affidavit vitiates a mortgage only as against third persons without notice like
creditors and subsequent encumbrances.

The affidavit is required only for the purpose of transforming and already valid mortgage into preferred
mortgage. Thus, it is not necessary for the validity of the Chattel Mortgage itself but only to give it a
preferred status.

Period to foreclose mortgage

1. Chattel Mortgage
The mortgage may, after 30 days from the time of the condition broken, cause the mortgaged
property to be sold at public auction by a public officer.

The 30 day period to foreclose a chattel mortgage is the minimum period after violation of the
mortgage condition for the mortgage creditor to cause the sale at public auction of the mortgaged chattel
with at least ten (10) day notice to the mortgagor and posting of public notice of time, place, and
purpose of suck sale, and is a period of grace for the mortgagor, to discharge the mortgage obligation.

2. Real Estate Mortgage

In case of judicial foreclosure, the grace period for the mortgagor to pay the amount due is not less than
90 days nor more than 120 days from the entry of judgment on foreclosure. In default of suck payment
the property shall be sold at public auction to satisfy the judgment.

Application of proceeds of sale

The proceeds of the sale are to be applied to the payment of the following.

1. Cost 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
4. The balance, if any, shall be paid to the mortgagor, or person holding under him

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