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JAMACA-UNO|1
CHATTEL MORTGAGE
It is a conditional sale of personal property as security for payment of a debt or performance of some other
obligation specified therein, the condition being that the sale shall be viod 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 hereby divested of his title.1
1 Section 3, Act No. 1508 also known as the Chattel Mortgage Law
2 The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to sale of the thing pledged.
This sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating
the amount for which the public sale in to be held. If at the first auction, the thing is not sold, a second one with the same formalities shall
be held; and if at the second auction there is no sale either, the creditor may appropriate the thing pledged. In this case hr shall be obliged
to give an acquittance for his entire claim.
3 Section 14, Chattel Mortgage Law
4 Pledges created by operation of law, such as those referred to in Articles 546, 1731 and 1994, are governed by the foregoing articles
on the possession, care and sale of the thing as well as on termination of the pledge. However, after payment of the debt and expenses,
the remainder of the price of the sale shall be delivered to the obligor. (Article 2121, Civil Code)
5 In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following
remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee’s failure to pay cover
two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to
pay cover two or more installments. In this case, he shall have no further action against the purchases to recover any unpaid balance of
the price. Any agreement to the contrary shall be void. (Article 1484, Civil Code)
6The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale are equal to the amount
of principal obligation, interest and expenses in proper cases. If the price of the sale is more that the said amount, the debtor shall not be
entitled to the excess, unless it is otherwise provided. If the price of the sale is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulations to the contrary. (Article 2115, Civil Code)
NOTES OF JEDYL E. JAMACA-UNO|2
OWNERSHIP OF THE MORTGAGED PROPERTY
The accessory contract of chattel mortgage has no legal effect whatsoever where the mortgagor is not the absolute
owner of the property mortgaged, ownership of the mortgagor being an essential requirement of a valid mortgage
contract. The manifestations of ownership are control and enjoyment over the thing owned. (Union vs. Court of
Appeals, 361 SCRA 506)
* The mortgagor is not relieved from 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.
* The sale is valid although no written consent was obtained from the mortgagee but the mortgagpr lays
himself open to criminal prosecution.
* For purposes of the Chattel Mortgage Law, both growing crops and large cattles are personal property
and therefore, capable of being mortgaged although they would be considered as immovable property
under certain conditions9.
7Where parties had treated the “after-acquired properties” as real property by expressly agreeing that the shall automatically become
subject to the lien of the real estate mortgage, this characterization impresses upon the properties the character determined by the
properties who must be held in estoppel. (People’s Bank and Trust Co. vs Dahican Lumber, 20 SCRA 84)
8Registration is only essential in order to affect third parties. Non-compliance thereof does not affect the validity of the mortgage, as
between the parties.
9 (2)Trees, plants and growing fruits, while they are attached to the land or form an integral part of an immovable; (6) Animal houses,
pigeon-houses, beehives, fishponds or breeding places of similar nature, in case their owner has placed them or preserves them with
intention to have them permanently attached to the land, and forming a permanent part of it; the animals in these places are included.
(Article 415, Civil Code)
NOTES OF JEDYL E. JAMACA-UNO|3
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 them in the same depositary as the property originally
mortgaged, anything in the mortgage to the contrary notwithstanding. However, this does not apply to stores
open to the public for retail business where the goods are constantly sold and substituted with new stock.
EFFECTS OF REGISTRATION A chattel mortgage may be alienated or assigned to third persons but
1. Creates a real right there is no law expressly requiring the recording of the assignment
2. Adds nothing to mortgage of mortgage.
This special affidavit is required only for the purpose of transforming an already valid mortgage into “preferred
mortgage.” The absence of it vitiates a mortgage only as against third persons without notice like creditors and
subsequent encumbrances.
RIGHT OF REDEMPTION
1. When the condition of the chattel mortgage is broken, the following may redeem:
a. Mortgagor: redemption from buyer is only the purchase price
b. Person holding a subsequent mortgage
c. A subsequent attaching creditor
2. An attaching creditor whom so redeems shall be subrogated to the rights of the mortgage and entitled to
foreclose the mortgage.
3. 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.12
Where mortgagor has breached the chattel mortgage contract, the mortgagee acquires the right to possess
the chattel starting from the date of said breach. (Northern vs. Herrera, 49 SCRA 392)
Public Sale – If the mortgagor defaults in the payment of the secured debt or otherwise fails to comply
with the conditions of the mortgage, the creditor has no right to appropriate to himself the personal
property because he is only permitted to recover his credit from the proceeds of the sale of the
property at the public auction.
NOTES OF JEDYL E. JAMACA-UNO|5
Private Sale – There is nothing illegal, immoral or against public order in an agreement for the private
sale of personal properties covered by the chattel mortgage.13 The mortgagor is in estoppels to
question it except on the ground of fraud or duress.
13The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public policy. (Article 1306, Civil Code)
14The30-day period to foreclose a chattel mortgage is the minim period after violation of the mortgage condition for the mortgage
creditor to cause the sale at the public auction of the mortgage chattel with at least 10 days notice to the mortgagor and posting of
public notice.. After the sale of the chattel at the public auction, the right of redemption is no longer available to the mortgagor. (Cabral
vs. Evangelista, 28 SCRA 1000)
15However, if the proceeds from the foreclosure of the chattel mortgage should exceed the amount due to the mortgagee, excess shall
be for mortgagor’s account. (Francisco vs. Blanco, 307 SCRA 241)
16See Note 5. The remedies granted by Article 1484 are alternative, not cumulative, and exclusive, that is, the exercise of one would
bar the exercise of the others. (Borbon II vs. Servicewide Specialists, Inc., 258 SCRA 634) HOWEVER, the prohibition under the Recto
Law, does not apply to foreclosure of a chattel mortgage constituted to secure a loan and not originating from sale. (Bicol Savings and
Loan vs. Guinhawa, 188 SCRA 642)
NOTES OF JEDYL E. JAMACA-UNO|6
JUDICIAL FORECLOSURE OF MORTGAGE
1. File a suit for the purpose;
2. Court orders payment of mortgage debt within a period of not less than 90 days but not more than
120 days from the entry of judgment;
3. If mortgagor fails to pay, the court shall order the sale in public auction;
4. Confirmation of Sale: by order of the court which operates to divest the rights of all parties to the
action and to vest their rights to the buyer subject to the right of redemption
Before confirmation, the court retains control of the proceeding by exercising sound discretion
whether to confirm or not
5. Execution of judgment;
6. Application of Proceeds; and
7. Execution of Sheriff’s certificate