CHATTEL MORTGAGE
CHATTEL MORTGAGE – contract by virtue of which personal
property is recorded in the Chattel Mortgage Register as a
security for the performance of the obligation
1. Between the parties
o The mortgage must be recorded in the
Chattel Mortgage Register of the province
where the mortgagor resides and also of the
province where the property is located, if it is
different from the residence of the mortgagor.
CHARACTERISTICS OF CHATTEL MORTGAGE
1. Accessory contract – for the purpose of securing the
performance of a principal obligation
2. Formal contract – registration in Chattel Mortgage
Register is indispensable for validity
3. Unilateral contract – obligation only on part of creditor
to free the thing from the encumbrance on fulfillment
of obligation
REQUISITES OF CHATTEL MORTGAGE
1.
principal obligation.
mortgaged.
1. That it be constituted to secure the fulfillment of a
principal obligation
2. That the mortgagor be the absolute owner of the
thing
3. That the person constituting the mortgage must have
the free disposal of his property, and in the absence
thereof, that he be legally authorized for the purpose.
4. That the document in which the mortgage appears be
recorded in the Chattel Mortgage Register.
 Required for validity of chattel mortgage
OBJECT OF CHATTEL MORTGAGE
o Only personal property may be the object of a chattel
mortgage.
The following things are deemed personal property:
Those movables susceptible of appropriation which
are not included in the list of immovables in Art. 415.
Examples: Car, laptop computer, piano, ring.
o
Real property which by any provision of law is
considered as personalty (personal, movable
property)
Example: chattel mortgage can be executed on growing crops
and large cattles
o
o Forces of nature which are brought under control by
science.
Examples: Electricity, light, gas.
In general, all things which can be transported from
place to place without impairment of the real property
to which they are fixed.
Examples: Painting hanging on the wall, machinery not
attached to land.
o
Obligations and actions which have for their objects
movables or demandable sums.
Examples: Promissory note, and the right to recover a money
debt by court action.
o
o
Shares of stock of agricultural, commercial and
industrial entities, although they may have real
estate.
FORM OF CHATTEL MORTGAGE
o
Mortgagor domiciled outside the PH mortgage must be registered in the Chattel
Mortgage Register of the province where the
property is located.
o
required for the validity of the chattel
mortgage between the parties.
Place of registration with respect to certain movables
a) Motor vehicles - Chattel Mortgage Register and Land
Transportation Office (Motor Vehicles Law)
b) Shares of stock - Chattel Mortgage Register in the
province where the corporation has its principal office
and in the domicile of the mortgagor, unless their
domicile is the same, in which case, a single
sufficient.
c) Vessel - Office of the Collector of Customs at port of
entry.
2. As regards third persons
o An affidavit of good faith must be appended to the
Deed of Chattel Mortgage and recorded in the Chattel
Mortgage Register.
o
Affidavit of good faith - a sworn statement attesting to
the fact that the mortgage is made for the purpose of
securing the obligation specified in the conditions,
and for no other purpose, and that the obligation is a
just and valid obligation, and one not entered into for
the purpose of fraud.
FORECLOSURE OF CHATTEL MORTGAGE
1) Grounds for foreclosure
a. When the principal obligation is not paid when
due.
b. When there is any violation of any condition,
stipulation or warranty by the mortgagor.
2) Kinds of foreclosure of chattel mortgage
a. Judicial foreclosure – a foreclosure made by
instituting a court action, following the provisions
of the Chattel Mortgage Law as far as
practicable.
b. Extra-judicial foreclosure - a foreclosure following
the provisions of the Chattel Mortgage Law.
Instituting a court action is necessary only to
secure possession of the thing preparatory to
extra-judicial foreclosure if the debtor refuses to
deliver the thing.
3) Distribution of proceeds of foreclosure sale
The proceeds of sale shall be distributed as follows:
a. The costs and expenses of keeping and sale.
b. Claim of the person foreclosing the
mortgage/Payment of the obligation secured by
the mortgage
c. Claims of persons holding subsequent mortgages
in their order.
d. Balance, if any, shall be paid to the mortgagor.
4) Effect of sale when there are two or more mortgages
a. On senior mortgagees - Foreclosure and sale by
a junior mortgagee do not affect the rights of
persons holding prior encumbrances.
o The purchaser acquires the property subject
to the right of foreclosure of a senior
mortgagee.
o The junior mortgagee may, however, redeem
the thing.
b. On junior mortgagees - Foreclosure and sale by
a senior mortgagee will extinguish all subsequent
mortgages.
UNLESS otherwise
stipulated
Pledgee may appropriate
thing pledge if it is not sold
in two public auctions
Mortgagee cannot
appropriate thing
mortgaged.
CHATTEL MORTGAGE AND PLEDGE
1. Both executed to secure performance of principal
obligation
2. Both constituted only on personal property
3. Both are indivisible
4. Both constitute a lien on property
5. Creditor cannot appropriate the property to himself
in payment of debt
6. Debtor defaults – property must be sold for the
payment of creditor
7. Both are extinguished by the fulfillment of principal
obligation/destruction of property
pledged/mortgaged
5) Deficiency judgment
o
o
o
proceeds of sale are not sufficient to satisfy the claim
of the creditor - the creditor may institute a court
action to recover the deficiency
EXCEPTION: in the case of foreclosure of a chattel
mortgage constituted on personal property which is
sold at a price payable in installments.
Any agreement to the contrary shall be VOID
NOTE: mortgagor defaults in payment – creditor has no right
to appropriate to himself the personal property (only permitted
to recover credit from proceeds of sale)
PLEDGE
Constituted on movables
Thing delivered to
creditor/third person
CONVENTIONAL:
deficiency cannot be
recovered even if stipulated
CONVENTIONAL: excess
of proceeds of sale is
retained by the pledgee
UNLESS otherwise
stipulated
Pledgee may appropriate
thing pledge if it is not sold
in two public auctions
REAL MORTGAGE
Constituted on immovables
Delivery not necessary
PLEDGE
Thing delivered to
creditor/third person
Pledge in public instrument
showing description and
date of pledge to bind
persons
CONVENTIONAL:
deficiency cannot be
recovered even if stipulated
CHATTEL MORTGAGE
Delivery not necessary
CONVENTIONAL: excess
of proceeds of sale is
retained by the pledgee
Deficiency can be
recovered
Excess of proceeds of sale
belongs to the mortgagor
even if there is no
stipulation
Mortgagee cannot
appropriate thing
mortgaged.
Chattel mortgage registered
and accompanied by an
affidavit of good faith to bind
third persons
Deficiency can be
recovered EXCEPT on
personal property sold in
installments
Excess of proceeds of sale
belongs to the mortgagor
even if there is no
stipulation
REAL MORTGAGE
Constituted on movables
Must be registered to bind
third persons
May secure future
obligations
CHATTEL MORTGAGE
Constituted on immovables
Must be accompanied by an
affidavit of good faith to bind
third persons
Cannot secure future
obligations
LAWS GOVERNING CHATTEL MORTGAGES
1. Chattel Mortgage Law (Act No. 1508)
2. Civil code
3. Revised Administrative Code
4. Revised Penal Code
5. Ship Mortgage Decree (Pres. Decree No. 1521)
CRIMINAL LIABILITY IN PLEDGE OR MORTGAGE
1. Any person who, pretending to be the owner of any
real property, shall convey, sell, encumber, or
mortgage, the same shall be guilty of estafa.
2. Any person who, knowing that real property is
encumbered, shall dispose of the same as
unencumbered, is also guilty of estafa
3. Any person who shall knowingly remove any personal
property mortgaged under the Chattel Mortgage Law
to any province or city other than that which it was
located at the time of the execution of the mortgage,
without the written consent of the mortgagee or his
executors, administrators, or assignees (punishable
under Revised Penal Code)
4. Any mortgagor who shall sell or pledge personal
property already pledged, or any part thereof, under
the terms of the Chattel Mortgage Law, without the
written consent of the mortgagee written on the back
of the mortgage and noted on the record thereof in
the office of the Register of Deeds of the province
where such property is located (punishable under
Revised Penal Code)
NOTE: mortgagor not relived of criminal liability even if
o
o
the mortgage indebtedness is thereafter paid in full or
the mortgagor-seller informed the purchaser that the
thing sold had been mortgaged
RIGHT OF REDEMPTION
1. When condition of chattel mortgage is BROKEN, the
following may redeem:
a) Mortgagor;
b) Person holding a subsequent mortgage; or
c) A subsequent attaching creditor
2. An attaching creditor who so redeems – shall be
subrogated to the rights of the mortgagee and entitled
to foreclosure same s mortgagee
3. Redemption made – by paying/delivering to
mortgagee the amount due, cost and expenses
incurred by sch breach of condition before the sale
ANTICHRESIS
ANTICHRESIS - contract whereby the creditor acquires the
right to receive the fruits of an immovable of his debtor, with
the obligation to apply them to the payment of the interest, if
owing, and thereafter to the principal of his credit
o Anti – against
o Chresis – use
o Antichresis – action of giving a credit against the use
of property
o It involves an express agreement between the parties
such that the creditor will have possession of the
debtor's fruits of the property to the interest owed by
the debtor, if any, real property given as security, and
such creditor will apply the then to the principal
amount
CHARACTERISTICS OF ANTICHRESIS
1. Accessory contract - dependent upon another for its
existence; because it secures the performance of a
principal obligation
2. Formal contract - It must be in writing; must be in
specific form to be valid
 The amount of the principal and of the
interest shall be in writing; otherwise, the
contract of antichresis is void.
3. Nominate contract - It has a special name under the
law.
4. Real right - It creates a lien on immovable property.
5. Real property - It is a real property by itself.
6. Indivisible - It subsists as long as the principal
obligation remains unpaid.
REQUISITES OF ANTICHRESIS
1. That it be constituted to principal obligation
 may secure all kinds of obligations, be they
pure or subject to a resolutory or suspensive
condition.
2. That the debtor be the absolute owner of the
immovable property.
3. That the debtor must have the free disposal of such
immovable property, and in the absence thereof, that
he be duly authorized for the purpose.
4. That the amount of the principal and the interest must
be in writing; otherwise, the antichresis is void (the
principal obligation, however, may still be valid)
MEASURE OF APPLICATION OF FRUITS TO INTEREST
AND PRINCIPAL
 The actual market value of the fruits at the
time of application thereof to the interest and
principal shall be the measure of such
application. (Contract does not cover the
immovable BUT ONLY its fruits)
OBLIGATIONS OF ANTICHRETIC CREDITOR
1. To pay the taxes and charges upon the immovable,
unless there is a stipulation to the contrary
 required to pay indemnity for damages to the
debtor if creditor does not pay taxes
2. To bear the expenses necessary for its preservation
and repair
APPLICATION OF THE FRUITS OF THE IMMOVABLE
Another obligation of creditor is to apply the fruits after
receiving them to the:
1. The taxes and charges upon the immovable.
2. The expenses for preservation and repair.
3. Interest on the principal obligation.
4. Principal obligation
NOTE: the sums spent by creditor in fulfillment of the
obligations shall be charged against the fruits of the property
WHEN DEBTOR CAN REACQUIRE ENJOYMENT OF
PROPERTY
1. Upon full payment of his obligation to the creditor.
2. When he is compelled by the creditor to enter into the
enjoyment of the property, unless there is stipulation
to the contrary (it is when creditor does not want to
pay taxes and expenses incurred for the preservation
and repair)
EFFECT OF NON-PAYMENT OF THE DEBT WITHIN THE
PERIOD AGREED UPON
The creditor does not acquire ownership of the immovable for
non-payment of the debt within the period agreed upon. Any
stipulation to the contrary is void.
In case of non-payment, the creditor shall have the
following remedies:
1. To petition the court for the payment of the debt.
2. To sell the immovable.
The provisions of the Rules of Court on foreclosure of
mortgages shall apply. In case of any deficiency in the
foreclosure sale, the creditor can recover the deficiency.
Article 2085. The following requisites are essential to the
contracts of pledge and mortgage:
pledge, that the thing pledged be placed in the possession of
the creditor, or of a third person by common agreement.
(1) That they be constituted to secure the fulfillment
of a principal obligation;
(2) That the pledgor or mortgagor be the absolute
owner of the thing pledged or mortgaged;
(3) That the persons constituting the pledge or
mortgage have the free disposal of their property, and in the
absence thereof, that they be legally authorized for the
purpose.
Third persons who are not parties to the principal
obligation may secure the latter by pledging or mortgaging
their own property.
Article 2094. All movables which are within commerce may
be pledged, provided they are susceptible of possession.
Article 2086. The provisions of article 2952 are applicable to
a pledge or mortgage.
Article 2087. It is also of the essence of these contracts that
when the principal obligation becomes due, the things in
which the pledge or mortgage consists may be alienated for
the payment to the creditor.
Article 2088. The creditor cannot appropriate the things given
by way of pledge or mortgage, or dispose of them. Any
stipulation to the contrary is null and void.
Article 2089. A pledge or mortgage is indivisible, even though
the debt may be divided among the successors in interest of
the debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of
the debt cannot ask for the proportionate extinguishment of
the pledge or mortgage as long as the debt is not completely
satisfied.
Neither can the creditor's heir who received his share
of the debt return the pledge or cancel the mortgage, to the
prejudice of the other heirs who have not been paid.
From these provisions is excepted the case in which,
there being several things given in mortgage or pledge, each
one of them guarantees only a determinate portion of the
credit.
The debtor, in this case, shall have a right to the
extinguishment of the pledge or mortgage as the portion of
the debt for which each thing is especially answerable is
satisfied.
Article 2090. The indivisibility of a pledge or mortgage is not
affected by the fact that the debtors are not solidarily liable.
Article 2091. The contract of pledge or mortgage may secure
all kinds of obligations, be they pure or subject to a
suspensive or resolutory condition.
Article 2092. A promise to constitute a pledge or mortgage
gives rise only to a personal action between the contracting
parties, without prejudice to the criminal responsibility
incurred by him who defrauds another, by offering in pledge
or mortgage as unencumbered, things which he knew were
subject to some burden, or by misrepresenting himself to be
the owner of the same.
Article 2093. In addition to the requisites prescribed in article
2085, it is necessary, in order to constitute the contract of
Article 2095. Incorporeal rights, evidenced by negotiable
instruments, bills of lading, shares of stock, bonds,
warehouse receipts and similar documents may also be
pledged. The instrument proving the right pledged shall be
delivered to the creditor, and if negotiable, must be indorsed.
Article 2096. A pledge shall not take effect against third
persons if a description of the thing pledged and the date of
the pledge do not appear in a public instrument.
Article 2097. With the consent of the pledgee, the thing
pledged may be alienated by the pledgor or owner, subject to
the pledge. The ownership of the thing pledged is transmitted
to the vendee or transferee as soon as the pledgee consents
to the alienation, but the latter shall continue in possession.
Article 2098. The contract of pledge gives a right to the
creditor to retain the thing in his possession or in that of a
third person to whom it has been delivered, until the debt is
paid.
Article 2099. The creditor shall take care of the thing pledged
with the diligence of a good father of a family; he has a right
to the reimbursement of the expenses made for its
preservation, and is liable for its loss or deterioration, in
conformity with the provisions of this Code.
Article 2100. The pledgee cannot deposit the thing pledged
with a third person, unless there is a stipulation authorizing
him to do so.
The pledgee is responsible for the acts of his agents
or employees with respect to the thing pledged.
Article 2101. The pledgor has the same responsibility as a
bailor in commodatum in the case under article 1951.
Article 2102. If the pledge earns or produces fruits, income,
dividends, or interests, the creditor shall compensate what he
receives with those which are owing him; but if none are
owing him, or insofar as the amount may exceed that which is
due, he shall apply it to the principal. Unless there is a
stipulation to the contrary, the pledge shall extend to the
interest and earnings of the right pledged.
In case of a pledge of animals, their offspring shall
pertain to the pledgor or owner of animals pledged, but shall
be subject to the pledge, if there is no stipulation to the
contrary.
Article 2103. Unless the thing pledged is expropriated, the
debtor continues to be the owner thereof.
Nevertheless, the creditor may bring the actions
which pertain to the owner of the thing pledged in order to
recover it from, or defend it against a third person.
Article 2104. The creditor cannot use the thing pledged,
without the authority of the owner, and if he should do so, or
should misuse the thing in any other way, the owner may ask
that it be judicially or extrajudicially deposited. When the
preservation of the thing pledged requires its use, it must be
used by the creditor but only for that purpose.
Article 2105. The debtor cannot ask for the return of the thing
pledged against the will of the creditor, unless and until he
has paid the debt and its interest, with expenses in a proper
case.
Article 2106. If through the negligence or willful act of the
pledgee, the thing pledged is in danger of being lost or
impaired, the pledgor may require that it be deposited with a
third person.
Article 2113. At the public auction, the pledgor or owner may
bid. He shall, moreover, have a better right if he should offer
the same terms as the highest bidder.
The pledgee may also bid, but his offer shall not be
valid if he is the only bidder.
Article 2114. All bids at the public auction shall offer to pay
the purchase price at once. If any other bid is accepted, the
pledgee is deemed to have been received the purchase price,
as far as the pledgor or owner is concerned.
Article 2107. If there are reasonable grounds to fear the
destruction or impairment of the thing pledged, without the
fault of the pledgee, the pledgor may demand the return of
the thing, upon offering another thing in pledge, provided the
latter is of the same kind as the former and not of inferior
quality, and without prejudice to the right of the pledgee under
the provisions of the following article.
Article 2115. 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 the principal obligation,
interest and expenses in a proper case. If the price of the sale
is more than said amount, the debtor shall not be entitled to
the excess, unless it is otherwise agreed. If the price of the
sale is less, neither shall the creditor be entitled to recover the
deficiency, notwithstanding any stipulation to the contrary.
The pledgee is bound to advise the pledgor, without
delay, of any danger to the thing pledged.
Article 2116. After the public auction, the pledgee shall
promptly advise the pledgor or owner of the result thereof.
Article 2108. If, without the fault of the pledgee, there is
danger of destruction, impairment, or diminution in value of
the thing pledged, he may cause the same to be sold at a
public sale. The proceeds of the auction shall be a security for
the principal obligation in the same manner as the thing
originally pledged.
Article 2117. Any third person who has any right in or to the
thing pledged may satisfy the principal obligation as soon as
the latter becomes due and demandable.
Article 2109. If the creditor is deceived on the substance or
quality of the thing pledged, he may either claim another thing
in its stead, or demand immediate payment of the principal
obligation.
Article 2110. If the thing pledged is returned by the pledgee
to the pledgor or owner, the pledge is extinguished. Any
stipulation to the contrary shall be void.
If subsequent to the perfection of the pledge, the
thing is in the possession of the pledgor or owner, there is a
prima facie presumption that the same has been returned by
the pledgee. This same presumption exists if the thing
pledged is in the possession of a third person who has
received it from the pledgor or owner after the constitution of
the pledge.
Article 2111. A statement in writing by the pledgee that he
renounces or abandons the pledge is sufficient to extinguish
the pledge. For this purpose, neither the acceptance by the
pledgor or owner, nor the return of the thing pledged is
necessary, the pledgee becoming a depositary.
Article 2112. The creditor to whom the credit has not been
satisfied in due time, may proceed before a Notary Public to
the 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 is 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 he shall be obliged to give an acquittance for his
entire claim.
Article 2118. If a credit which has been pledged becomes
due before it is redeemed, the pledgee may collect and
receive the amount due. He shall apply the same to the
payment of his claim, and deliver the surplus, should there be
any, to the pledgor.
Article 2119. If two or more things are pledged, the pledgee
may choose which he will cause to be sold, unless there is a
stipulation to the contrary. He may demand the sale of only as
many of the things as are necessary for the payment of the
debt.
Article 2120. If a third party secures an obligation by
pledging his own movable property under the provisions of
article 2085 he shall have the same rights as a guarantor
under articles 2066 to 2070, and articles 2077 to 2081. He is
not prejudiced by any waiver of defense by the principal
obligor.
Article 2121. 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 the 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 2122. A thing under a pledge by operation of law may
be sold only after demand of the amount for which the thing is
retained. The public auction shall take place within one month
after such demand. If, without just grounds, the creditor does
not cause the public sale to be held within such period, the
debtor may require the return of the thing.
Article 2123. With regard to pawnshops and other
establishments, which are engaged in making loans secured
by pledges, the special laws and regulations concerning them
shall be observed, and subsidiarily, the provisions of this Title.
Article 2124. Only the following property may be the object of
a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws,
imposed upon immovables.
Nevertheless, movables may be the object of a
chattel mortgage.
Article 2134. The amount of the principal and of the interest
shall be specified in writing; otherwise, the contract of
antichresis shall be void.
Article 2135. The creditor, unless there is a stipulation to the
contrary, is obliged to pay the taxes and charges upon the
estate.
He is also bound to bear the expenses necessary for
its preservation and repair.
Article 2125. In addition to the requisites stated in article
2085, it is indispensable, in order that a mortgage may be
validly constituted, that the document in which it appears be
recorded in the Registry of Property. If the instrument is not
recorded, the mortgage is nevertheless binding between the
parties.
The sums spent for the purposes stated in this article
shall be deducted from the fruits. (1882)
The persons in whose favor the law establishes a
mortgage have no other right than to demand the execution
and the recording of the document in which the mortgage is
formalized.
But the latter, in order to exempt himself from the
obligations imposed upon him by the preceding article, may
always compel the debtor to enter again upon the enjoyment
of the property, except when there is a stipulation to the
contrary.
Article 2126. The mortgage directly and immediately subjects
the property upon which it is imposed, whoever the possessor
may be, to the fulfillment of the obligation for whose security it
was constituted.
Article 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits, and the
rents or income not yet received when the obligation
becomes due, and to the amount of the indemnity granted or
owing to the proprietor from the insurers of the property
mortgaged, or in virtue of expropriation for public use, with the
declarations, amplifications and limitations established by law,
whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.
Article 2128. The mortgage credit may be alienated or
assigned to a third person, in whole or in part, with the
formalities required by law.
Article 2129. The creditor may claim from a third person in
possession of the mortgaged property, the payment of the
part of the credit secured by the property which said third
person possesses, in the terms and with the formalities which
the law establishes.
Article 2130. A stipulation forbidding the owner from
alienating the immovable mortgaged shall be void.
Article 2131. The form, extent and consequences of a
mortgage, both as to its constitution, modification and
extinguishment, and as to other matters not included in this
Chapter, shall be governed by the provisions of the Mortgage
Law and of the Land Registration Law.
Article 2132. By the contract of antichresis the creditor
acquires the right to receive the fruits of an immovable of his
debtor, with the obligation to apply them to the payment of the
interest, if owing, and thereafter to the principal of his credit.
Article 2133. The actual market value of the fruits at the time
of the application thereof to the interest and principal shall be
the measure of such application.
Article 2136. The debtor cannot reacquire the enjoyment of
the immovable without first having totally paid what he owes
the creditor.
Article 2137. The creditor does not acquire the ownership of
the real estate for non-payment of the debt within the period
agreed upon.
Every stipulation to the contrary shall be void. But the
creditor may petition the court for the payment of the debt or
the sale of the real property. In this case, the Rules of Court
on the foreclosure of mortgages shall apply.
Article 2138. The contracting parties may stipulate that the
interest upon the debt be compensated with the fruits of the
property which is the object of the antichresis, provided that if
the value of the fruits should exceed the amount of interest
allowed by the laws against usury, the excess shall be applied
to the principal.
Article 2139. The last paragraph of article 2085, and articles
2089 to 2091 are applicable to this contract.
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.
Article 2141. The provisions of this Code on pledge, insofar
as they are not in conflict with the Chattel Mortgage Law shall
be applicable to chattel mortgages.