Act No.

1508 - Chattel Mortgage Law

Sec. 2 - Property subject to chattel mortgage

Machinery may be treated as chattel.
If a house of strong materials may be considered as personal property for purposes of executing a
chattel mortgage thereon as long as the parties to the contract so agree and no innocent third party
will be prejudiced thereby, there is absolutely no reason why a machinery, which is movable in its
nature and becomes immobilized only by destination or purpose, may not be likewise treated as
such. This is really because one who has so agreed is estopped from denying the existence of the
chattel mortgage. 05plpecda
Makati Leasing and Finance Corp. vs. Wearever Textile Mills, Inc., G.R. No. L-58469,
May 16, 1983
Alejandra Torres vs. Francisco Limjap, G.R. No. 34385, September 21, 1931
Acme Shoe, Rubber & Plastic Corp. vs. Court of Appeals, G.R. No. 103576, August 22,
1996

Sec. 3 - Definition of chattel mortgage

Equitable conception of mortgage treats the mortgage merely as a security.

The definition of the chattel mortgage found in Act No. 1508 is a description of the form in which
the contract used to be commonly drafted in common-law countries rather than a statement of its
legal effects; and while it is true that the contract has been customarily written in the form of an out
and out sale, conditioned to be void upon performance of some condition subsequent, as for
instance, the payment of the secured debt, nevertheless the equitable conception of the mortgage,
now generally dominant, treats the mortgage merely as a security. There is no real analogy between
the chattel mortgage contract and a conditional sale as understood in the civil law.
Bachrach Motor Company, Inc. vs. Ricardo Summers, G.R. No. 17393, July 21, 1921
A valid mortgage cannot be be made to secure a future debt.
A mortgage that contains a stipulation in regard to future advances in the credit will take effect
only from the date the same are made and not from the date of the mortgage. Where the statute
provides that the parties to a chattel mortgage must make oath that the debt is a just debt, honestly
due and owing from the mortgagor to the mortgagee, it is obvious that a valid mortgage cannot be
made to secure a debt to be thereafter contracted.

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The Belgian Catholic Missionaries, Inc. vs. Magallanes Press Inc., G.R. No. 25729,
November 24, 1926
Urbano Jaca vs. Davao Lumber Company, G.R. No. L-25771, March 29, 1982

Sec. 4 - Validity

Chattel mortgage lien attaches to property wherever it may be.

The registration of the chattel mortgage more than three years prior to the writ of attachment
issued by respondent judge is an effective and binding notice to other creditors of its existence and
creates a real right or a lien, which being recorded, follows the chattel wherever it goes. The chattel
mortgage lien attaches to the property wherever it may be. Thus, private respondent as attaching
creditor acquired the properties in question subject to petitioner's mortgage lien as it existed thereon
at the time of the attachment.
Allied Banking Corporation vs. Emilio V. Salas, G.R. No. L-49081, December 13, 1988
Non-registration of mortgage does not affect immediate parties.
Article 2125 of the Civil Code clearly provides that the non-registration of the mortgage does not
affect the immediate parties. It states: "Art. 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.
Filipinas Marble Corporation vs. Intermediate Appellate Court, G.R. No. L-68010, May
30, 1986

Sec. 5 - Form

Chattel mortgage must comply substantially with the prescribed form.

A chattel mortgage must comply substantially with the form prescribed by the Chattel Mortgage
Law itself. One of the requisites, under Section 5 thereof, is an affidavit of good faith. While it is not
doubted that if such an affidavit is not appended to the agreement, the chattel mortgage would still be
valid between the parties (not against third persons acting in good faith), the fact, however, that the
statute has provided that the parties to the contract must execute an oath makes it obvious that the
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debt referred to in the law is a current, not an obligation that is yet merely contemplated.
Acme Shoe, Rubber and Plastic Corp. vs. Court of Appeals, G.R. No. 103576, August
22, 1996
Aleko E. Lilius vs. Manila Railroad Company, G.R. No. 42551, September 4, 1935
A document purporting to be a chattel mortgage, but which is not executed in conformity with the
Chattel Mortgage Law and has not been recorded, is of no effect as against parties.
Eulogio Betita vs. Simeon Ganzon, et al., G.R. No. 24137, March 29, 1926

Sec. 13 - Foreclosure

Foreclosure and actual sale of a mortgaged chattel bars further recovery by the vendor of any
balance.
The established rule is to the effect that the foreclosure and actual sale of a mortgaged chattel
bars further recovery by the vendor of any balance on the purchaser's outstanding obligation not so
satisfied by the sale. Its principal object is to remedy the abuses committed in connection with the
foreclosure of chattel mortgages. This prevents mortgagees from seizing the mortgaged property,
buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a
deficiency judgment. The almost invariable result of this procedure was that the mortgagor found
himself minus the property and still owing practically the full amount of his original indebtedness.
Under this, the vendor of personal property, the purchase price of which is payable in installments,
has the right to cancel the sale or foreclose the mortgage if one has been given on the property.
Whichever right the vendor elects he need not return to the purchaser the amount of the installments
already paid, 'if there be an agreement to that effect'. Furthermore, if the vendor avails himself of the
right to foreclose the mortgage this amendment prohibits him from bringing an action against the
purchaser for the unpaid balance.
The Bachrach Motor Co., Inc. vs. Pablo A. Millan, G.R. No. 42256, April 25, 1935
Ruperto G. Cruz vs. Fllipinas Investment and Finance Corporation, G.R. No. L-24772,
May 27, 1968
Eutropio Zayas, Jr. vs. Luneta Motor Company, G.R. No. L-30583, October 23, 1982
Vendor is precluded from having recourse against additional security put up by third party.
The vendor of personal property sold on the installment basis is precluded, after foreclosing the
chattel mortgage on the thing sold, from having a recourse against the additional security put up by a
third party to guarantee the purchaser's performance of his obligation.
Ruperto G. Cruz vs. Fllipinas Investment and Finance Corporation, G.R. No. L-24772,
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May 27, 1968

Lorenzo Pascual vs. Universal Motors Corporation, G.R. No. L-27862, November 20,
1974
Luis Ridad vs. Filipinas Investment and Finance Corp., G.R. No. L-39806, January 27,
1983
Mambulao Lumber Company vs PNB, G.R. No. L-22973, January 30, 1968
PNB vs. Manila Investment and Construction, G.R. No. L-27132, April 29, 1971
Industrial Finance Corporation vs. Pedro A. Ramirez, G.R. No. L-43821, May 26, 1977

Section 14 - Notification

Mortgagee cannot lawfully take mortgaged property by force against the debtor's will.
The right of the mortgagee to cause the mortgaged property to be sold at public auction after 30
days from the time the condition is broken is unquestionable; however, if "the debtor refuses to yield
up the property, the creditor must institute an action, either to effect a judicial foreclosure directly, or
to secure possession as a preliminary to the sale contemplated. . . . He cannot lawfully take the
property by force against the will of the debtor."
Bachrach Motor Company, Inc. vs. Ricardo Summers, G.R. No. 17393, July 21, 1921
BPI Credit Corp. vs. Court of Appeals, G.R. No. 96755, December 4, 1991

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