(ARTICLES 2140-2141, CHATTEL MORTGAGE LAW)
Art. 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. (n)
> Contract by virtue of which personal property is recorded in the Chattel Mortgage Register as security for the performance of an obligation
1. Accessory contract
2. Formal contract
WHAT MAKES IT DIFFERENT FROM A PLEDGE?
1. Delivery of the personal property to the mortgagee is not necessary
2. The registration in the Register is required by law
3. Procedure for the sale of the thing is different
4. If the property is foreclosed and there is excess, the amount goes to the debtor
5. If there is deficiency, the creditor may recover the deficiency
WHEN DO YOU DO A Chattel Mortgage OR PLEDGE?
> When property needs to be retained by the debtor, then opt for a chattel mortgage
Art. 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. (n)
LAWS GOVERNING CHATTEL MORTGAGE
1. Chattel mortgage law, Act 1508
2. Civil Code provisions
3. Revised Administrative Code
4. Revised Penal Code
OFFENSES INVOLVING CHATTEL MORTGAGE
1. Knowingly removing personal property mortgaged to any province or city other than the one in which it was located at the time of the execution of the mortgage without the written consent
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 CM Register
> Registration shall be done in the Register of Deeds where the mortgagor resides
> And when the property is situated somewhere else, it needs to be registered also in the Register of Deeds of the area where the property is situated
> Chattel mortgage would not be valid and binding as against third persons absent any registration
> If what is mortgaged is a car, registration with the LTO is also needed. Absent this, again, it would not be binding and invalid as against third persons
FORM OF CONTRACT AS STATED IN THE LAW.
> Theoretically, the mortgagor may sign the contract alone but practically, the mortgagee must sign also given that they both need to sign the affidavit of good faith
AFFIDAVIT OF GOOD FAITH
> Part of the chattel mortgage contract wherein it is stated that the chattel mortgage has been constituted to secure a principal obligation and not meant for fraud or any ill purpose
> It is possible to defraud using mortgage. You can take away property through mortgage from an unsecured creditor.
FORMAL REQUIREMENT OF DESCRIPTION OF PROPERTY
> Attach a description or schedule of the properties mortgaged
> There is also the requirement of payment of registration fees and documentary stamp taxes
FORECLOSURE (SIMILAR BUT NOT IDENTICAL WITH REM) SECTION 14, CHATTEL MORTGAGE LAW
1. There is a 30-day cooling off period before the public auction, from the time the condition is broken
2. Notice—at least 10 days notice of the time, day, place, and purpose of such sale has been posted at 2 or more public places in such municipality. Personal notice or mail shall also be given to the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale.
3. Sheriff should possess the property as he needs to deliver the same to the winning bidder. If the mortgagor refuses to do so, the mortgagee can seek the help of the court. There could also be a stipulation in the contract as well. But if the debtor is not willing and able, the loss is with the creditor.
4. There is a 30-day equity of redemption period (payment of obligation)
5. After foreclosure, there could be recovery of deficiency, but there is Recto Law (1484) pertaining to sale of personal property in installments and there is a Chattel Mortgage to secure payment of price.
AN ACTION FOR SPECIFIC PERFORMANCE IS TANTAMOUNT TO THE ABANDONMENT OF RIGHTS OF MORTGAGEE
APPLICATION OF PROCEEDS OF FORECLOSURE
2. Obligation itself. Pay first the interest and then the principal. If there is penalty, then pay it first.
3. Junior encumbrances