CHATTEL MORTGAGE

(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)

CHATTEL MORTGAGE

> Contract  by  virtue  of  which  personal  property  is  recorded in  the  Chattel  Mortgage  Register  as  security  for  the performance of an obligation

CHARACTERISTICS

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

> 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

1.   Costs

2.   Obligation  itself.    Pay  first  the  interest  and  then  the principal.  If there is penalty, then pay it first.
3.   Junior encumbrances
4.   Owner