CHATTEL MORTGAGE We will have computation on the final exams on concurrence and preference of credit. MEMORIZE ARTS. 2241-2244.

CHATTEL MORTGAGE 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. Never mind the definition under Sec. 3, of Act. 1508. 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. What law governs chattel mortgage principally? The Chattel Mortgage law (Act. 1508) and supplementary the Civil Code on pledge. Chattel MORTGAGE IS NOT A CONDITIONAL SALE BECAUSE IT DOES NOT INVOLVE TRANSFER OF OWNERSHIP AND IT IS MERELY A CONTRACT OF SECURITY. What are the characteristics of Chattel Mortgage? 1. Accessory 2. Formal it requires registration in the Chattel Mortgage Register. Chattel mortgage is not a formal in the sense that it requires registration. Even if the mortgage is not registered, it is valid between the parties. But the registration distinguishes it from the contract of pledge (which is a real contract). 3. Unilateral Who has the obligation? The creditor or mortgagee because after payment of the obligation, he is required to discharge or release the mortgage lien. Study the distinction between pledge and chattel mortgage For vessels or ship of domestic ownership, what is the law governing? Ship Mortgage Decree of 1978 or PD 1521 For penal sanctions in case of violation of the mortgage contract or for certain acts prohibited by law like removing the mortgaged chattel or taking it to another place, what law governs? The Revised Penal Code: Arts. 316 and 319 What may be the subject matter or object of a chattel mortgage? Personal or movable property

Examples: Lahat ng suot nyo sa katawan, lahat nyan at mga bagay na pwede nyo isanla. College ring ni sir na panginum. (tumunog ang kanya CP: Beatles yung ring tone. Kinancel ni sir yung tawag). Certain properties were regarded by the SC as movable properties; i.e. shares of stocks (although incorporeal rights) Supposing the owner of the shares of stocks resides in QC but the corporation has its principal office in Makati. What is the requirement? There must be double registration. First the mortgage must be in the RD where the mortgagor resides. Second, in the RD of the place where corporation has its principal place of business. What is the legal effect if double registration is not complied with? The mortgage is void (Sec. 4 PD 1508). What about partnership interest? It is also considered as immovable. What about machinery? Under the law on property, a machinery is considered generally as a movable property BUT by destination is considered as an immovable if attached to an immovable. But if the parties themselves agree to treat the machinery as movable even though considered as immovable if attached to a building, then the agreement is binding. Another reason is the principle of estoppel. Vessels or ships? They are also personal or movable property. Where is the registration of mortgage of vessel? At the Philippine Coast Guard at the port of documentation of such ship. He used to work at the Remedial Management Department of a Bank. They collect and they foreclose. Dun binabato yung mga bad loans. They went anywhere in the Philippines. Properties Foreclosed by Judge Serrano while working with a Bank: 1. Fishing vessels (naka-atrako sa GenSan na nag-didischarge ng Tuna) na hi-tech; yung may sonar para manghuli ng tuna. Unahan lang ang pag-register mortgage. Dito Judicial foreclosure. Of course in order to foreclose, you need to have possession of the property. How do you get possession? Under PD 1521, you must first obtain an order of arrest. File a motion to issue an order of arrest of vessel. Hindi replevin yung remedy dito which is applicable only to chattel mortgage.

2. 2 eroplano; 1 cesna na single engine (madali lang itulak); 1 king air jet na 18 seater (1980s di pa npapatay si Ninoy), marami silang nag-tulak. Ayaw ng may-ari ibigay. What is your remedy? Tawagin mo yung sheriff kasama ang mga police. Takutan lang yan. 3. Heavy equipment 4. Receivership case (naka-dalawang kaso si sir) It is part of the provision of a standard REM in banks. There is a provision always that the mortgagee has the right to file for an action for receivership over the MORTGAGED PROPERTY EVEN IF IT IS A REAL ESTATE MORTGAGE. Facts: Sir was a third mortgagee for P6M but the assets of the corporation was for about P60-100M including goods manufacture (tile manufacturing). pag kwenta nila, if all the properties are foreclosed and sold at public auction, walang matitira sa kanila. Ubos. All properties of the mortgagee are morrgaged Ano gagawin mo ngayon? Sir filed an action for JUDICIAL FORECLOSURE WITH A PRAYER FOR THE APPOINTMENT OF A RECEIVER. Granted. NI-RECEIVER NILA SIR YUNG COMPANYA, DI WALANG MAKAGALAW NA CREDITOR NGAYON. HOLDUP KAYO. Issue: Valid? Held: Yes. By agreement; the provision in the mortgage contract that you can ask the court to appoint you as mortgagee to be the receiver of the mortgaged properties. When you become the receiver, ALL PROPERTIES OF THE MORTGAGOR BECOMES UNDER CUSTODIA LEGIS. NO PAYMENT. NO SALE. ETC. (CONCEPT OF RECEIVERSHIP) EFFECT: Ginamit ng companya na panangga yung receivership nila sir. They were not required to pay. The company subsequently was able to rehabilitate and recover after 3 or 4 years. Thus, they were paid (secret kung bakit). The company was able to restructure past due loans. Nag-pasalamat yung may-ari ng companya since in the mean time when the company was under receivership, it was not hampered by collection by the creditors. All creditors were paid. During the time after the death of Ninoy: Meron Binondo Central Bank (Black Market) dahil marami gusto pumunta sa America. Reason why sir filed a receivership suit:

Because of the 4% receivership fee. 4% of P100M; e kung tumataas pa yung asset, tumataas pa yung kikitain nyo. THE RECEIVER OF A COMPANY IS ENTITLED TO 4% RECEIVERSHIP FEE for preserving the property PROVIDED IT IS PROVIDED IN THE MORTGAGED CONTRACT. Unless the court approves, yung ibang creditor cannot do anything because the property is under receivership or in custodial egis. That is the beauty of the law, you correlate. Ganyan mag-laro ng law. 5. Motor vehicles; marami nito What is the requirement in motor vehicle chattel mortgage? Registration with the LTO not third persons not affected. A person who registers the sale in his name in good faith would have a better right than the mortgagee who does not register his chattel mortgage with the LTO. What about houses, are these considered chattel? The SC had the occasion to rule that houses may be considered chattel. But of course not all kinds of houses; yung pwede buhatin ng bayanihan. The best example is a trailer house in the US. House to be diminished, chattel? Yes. Because in this case what is really mortgaged are the materials thereof What about built on rented land? Only as between parties. What about house of strong materials? No, generally. But it may be considered as personal property for purposes of executing a chattel mortgage as long as the parties to the contract so agree and no innocent third party will be prejudiced thereby. What about building of strong materials? No. Art. 415. Because the contract is void since there is no object, the essential requisite lacking in a chattel mortgage on the ground that the object is an immovable na dapat movable. What about growing crops and large cattle? They are proper object of chattel mortgage under Sec. 7 of Act 1508. What about standing crops?

Habang nasa lupa pa yan, improvement yan, therefore it is part of the immovable. But once harvested, movable na. Sec. 7 provides for the requirement of identification and description of the mortgaged chattel: A chattel mortgage shall be deemed to cover only the property described therein and not like or substituted property there after acquired by the mortgagor and placed in the same depositary as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding. The deed of mortgage must properly describe and identify the mortgaged chattel. If not, then there is no object (see supra). Like in one case, all the goods in the botica without properly describing the contents of the botica for. Mortgaged chattel must be described in such a way as to enable its identification after a reasonable inquiry and investigation. In other words, must be at least determinable. Otherwise, the mortgage is void for LACK OF PROPER OBJECT. EXCEPTION IDENTIFICATION AND DESCRIPTION: 1. Goods in the supermarket because the business of a supermarket is to sell goods. When you inventory the goods today, iba na inventory mo next week. STOCKS IN TRADE. HERE THERE IS NO VIOLATION OF SEC. 7 OF ACT. 1508. WHAT OBLIGATIONS SECURED BY A CHATTEL MORTGAGE? ONLY obligations existing at the time of the constitution of the chattel mortgage are covered or secured. YOU DO NOT APPLY THE BLANKET MORTGAGE CLAUSE OR DRAGNET CLAUSE. WHAT IS the BASIS? The affidavit of good faith under Sec. 5. Only existing obligation at the time of the constitution of the chattel mortgage is coverd. Whatever is specified in the deed of mortgage, YUN NA YUN! It cannot include or cover future or subsequent obligations. Supposing there is a blanket mortgage clause in the chattel mortgage. What is the legal effect? It is only a commitment to execute another or a new chattel mortgage on the same property. But the future or subsequent obligations are not secured under the same chattel mortgage contract. What is your remedy if you want to cover future or subsequent obligations? Either you execute a new chattel mortgage agreement or amend the existing chattel mortgage. What are the effects of registration of a chattel parties? With respect to the parties, it is binding even without registration.

With respect to third persons, the lack of registration does not bind innocent third persons dealing with the chattel. As far as they are concerned, there is no lien covering such chattel or movable. It creates real rights. The mortgagee has symbolical possession of the mortgaged chattel and has preferential right to have physical possession of the mortgaged chattel. After registration, chattel mortgage lien is superior to the levy made on the same chattel by unsecured judgment creditor or other lien holder. The judgment creditor can attach only the equity or right of redemption of the mortgagor.

Credits or obligation secured by the chattel mortgage may also be assigned like REM. THERE IS NO NEED TO REGISTER THE ASSIGNMENT. What is the duty of the register of deeds to make registration? It is ministerial. The RD has no authority to determine the validity of the contract, the nature of the document or any other issue which require the exercise of judicial or quasi-judicial function. 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 (kaya nga existing obligations lang e!) 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 purpose of fraud. Future of obligation is not yet valid. You cannot claim that it is covered by the affidavit of good faith. Is the affidavit of good faith a requirement for the validity of the chattel mortgage? No. it is not a requirement for the validity. The special affidavit is required only the purpose of transforming an already valid mortgage into a PREFERRED MORTGAGE. So that it could not be defeated by subsequent liens on the property, like attachment, garnishment or subsequent mortgage. Memorize a the deed of chattel mortgage; memorize contents of affidavit of good faith kasi madalas lumalabas sa bar to. Effect of absence of affidavit of good faith. 36:30 It does not invalidate the chattel mortgage but it also restricts the coverage of chattel mortgage to debts that are existing at the time of the constitution of the chattel mortgage. That is why future or subsequent obligations are not covered by the chattel mortgage. Is there right of redemption in chattel mortgage? Yes. When it may it be exercised? Only before the sale not after. Unlike in REM, which may be exercised after the sale. Naka-apat na si sir.

Who may redeem? The mortgagor, persons holding subsequent mortgages, and subsequent attaching creditors. How redeemed? By paying the obligation. That is their obligation. The right of redemption may be exercised when the conditions of the mortgage is violated or when default occurs. The following may redeem: the mortgagor, persons holding subsequent mortgages, and subsequent attaching creditors. If the attaching creditor redeems the mortgaged chattel, then he is subrogated to the rights of the mortgagee. When his credit is not paid, then he may also foreclose the mortgage. Why? Because he acquires the right of the mortgagee by redeeming the mortgaged chattel. Is the mortgagee entitled to the possession of the mortgaged chattel before the sale? It is depends. Before the principal debtor incurs in delay, there is no right of possession of the mortgaged chattel. But after default, then the mortgagee has the right of possession of the mortgaged chattel. Bases of obligation: 1. Fact of default; 2. Purposes of foreclosure The right of possession in favor of the mortgagee may implied from the law which gives the mortgagee THE RIGHT TO SELL the mortgaged chattel. Also because possession of the mortgaged chattel by the mortgagee because OWNERSHIP OF THE CHATTEL MUST BE TRANSFERRED TO THE BUYER AT THE AUCTION SALE. Illustration REASON: What is the object of the chattel mortgage? Movable How is ownership transferred over movable? Tradition or delivery of possession of the movable (this is the mode). If the mortgagee does not have possession, how can he transfer possession to the buyer, therefore transfer ownership.? E di hindi pwed. That is why that is another legal reason why the mortgagee is entitled to the possession of the mortgaged chattel

What are the remedies of the mortgagee in case the mortgagor refuses to surrender possession of the mortgaged chattel? Alternative remedies: 1. Judicial action for foreclosure of chattel mortgage; 2. Action for recovery of possession (replevin); meron sina sir na cliente na nag-bebenta ng mga motor. Package deal: he filed the petition, once replevin is received, bahala na yung cliente; bayad na si sir ng attorneys fees. Sa mga hindi nag-babayad, file lang ng file ng replevin. In the US, simply lang e. pwede nila i-repossess yung mortgage. Kinkuha ng ng repo men. Replevin may be filed even against third persons in possession of the mortgaged chattel BECAUSE the mortgagee is constituted AS AN AGENT OF THE MORTGAGOR, and mortgagee has a preferred right over the mortgage chattel. Foreclosure of a chattel mortgage If it is redeemed, then di na ipo-foreclose. After payment of the debt then the mortgagee must discharge or release the mortgage chattel. PROCEDURE OF FORECLOSURE: Sec. 14(Read) Note: It must be sold at the public auction with the intervention with a public officer. When may foreclosure be initiated? It must be done after 30 days from the time the conditions in the chattel mortgage is broken or violated and at least 10 days notice to the mortgagor and posting of the public notice of the time, place and purpose of the public sale. The 10 day period provided in the law is actually the grace period for the mortgagor to pay the principal obligation and discharge the mortgage. An independent action is not required to enforce the mortgage lien. Foreclosure of the chattel mortgage may be extrajudicial only. File ka lang ng petition sa sheriff at tsaka sa clerk of court. The chattel mortgage contract may also be abandoned or waived by filing a COLLECTION CASE INSTEAD OF FORECLOSING THE CHATTEL MORTGAGE. Does the mortgagee have the right to recover deficiency? AS a rule, YES. The reason is that a chattel mortgage is a contract of security not as payment of the debt secure by the debtor. The creditor who forecloses the chattel mortgage is still entitled to deficiency if there is any. Exception:

Recto law Art. 1484 Options: 1. Sue on the note 2. Cancel the contract 3. Foreclosure no more deficiency parang din sa maceda law on real estate APPLICATION OF PROCEEDS OF THE FORECLOSURE SALE 1. 2. 3. 4. Costs and expenses Obligations secured by the chattel mortgage Claims of persons holding subsequent mortgages and liens in the order of priority Paid to mortgagor if there is balance remaining

End of Chattel Mortgage Read Insolvency Law and Concurrence and Preference of Credit Rehabilitation of corporations Unahan sa attachment banks lend to the same debtors; banks a b c; phil blooming mills; on the question of preference of credit. If you have not collateral, how do you get a lien over the property? Attachment, levy on execution, receivership, etc. PD 902-A once a corporation is a distressed corporation, it can file a petition with the SEC and ask for suspension of payment or rehabilitation. Tigil ang singilan. Magandang practice daw to. The law governing rehabilitation is PD 902A. There are also rules regarding the dissolution and liquidation of banks. During the liquidation or winding up process of banks, you also apply the rules on insolvency on concurrence and preference of credits.