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
CHARACTERISTICS OF CHATTEL MORTGAGE
Accessory Contract
Formal Contract: registration is indispensable
Unilateral Contract: obligation on the creditor to free the thing mortgaged from the encumbrance
Chattel Mortgage
Delivery of the personal property is necessary
Registration is necessary for validity
Procedure for sale if found in Sec. 14 of Act No. 1508
If the property is foreclosed, the excess over the amount due goes
to the debtor.3
If property is foreclosed and there is deficiency, the creditor is
entitled to recover the deficiency from the debtor except if the
mortgage is a security for the purchase of a personal property on
installments.5
LAWS GOVERNING CHATTEL MORTGAGE
1. Chattel Mortgage Law (Act No. 1508, as amended);
2. Civil Code;
3. Revised Administrative Code; and
4. Revised Penal Code
Pledge
Delivery is a requisite
Registration is not necessary
Procedure is found in Article 2112 of the Civil Code2
Debtor is not entitled to the excess UNLESS otherwise provided or
except in case of a legal pledge4.
If the property is sold and there is a deficiency, the creditor is not
entitled to recover the deficiency notwithstanding any stipulation to
the contrary.6
Section 3, Act No. 1508 also known as the Chattel Mortgage Law
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
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 vendees failure to pay cover two or more
installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees 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)
6
The 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)
Where 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. (Peoples Bank and Trust Co. vs Dahican Lumber, 20 SCRA 84)
8
Registration 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, pigeonhouses, 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)
10
11
Acme Shoe Rubber and Plastic Corp vs. Court of Appeals 260 SCRA 714
13
The 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)
14
The30-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)
15
However, if the proceeds from the foreclosure of the chattel mortgage should exceed the amount due to the mortgagee, excess shall be for
mortgagors account. (Francisco vs. Blanco, 307 SCRA 241)
16
See 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)