VIII.
CHATTEL MORTGAGE and sale immediately becomes void, and the mortgagee is
A. GENERAL CONCEPTS
Art. 2085 The following requisites are essential to the
contracts of pledge and mortgage:
(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. (1857)
Art. 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. (1858)
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)
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)
A chattel mortgage:
Is a real security transaction constituted to secure
the fulfillment of a principal obligation by the absolute
owner (the mortgagor) of personal property who has
free disposal of the property, and in the absence
thereof, is legally authorized for the purpose
Is perfected by the recording of the personal property
in the Chattel Mortgage Register as a security
Subjects the collateral to the condition that when the
principal obligation becomes due, the collateral may be
alienated for payment to the creditor (the mortgagee)
Art. 2140: adheres to the equitable concept of a chattel
mortgage; preserves the distinction between pledge and
chattel mortgage
Act of recording grants the chattel mortgagee the symbolic
possession of the collateral
In commercial transactions, it greatly facilitates the sale of
goods and merchandise; sales of merchandise would be
sluggish and insubstantial if a chattel mortgage did not
adequately protect sellers against the defaults and
delinquencies of buyers
Old definition of Chattel Mortgage (but repealed by the
CC)
A conditional sale of personal property as security for the
payment of a debt, or the performance of some other
obligation specified therein, the condition being that the
sale shall be void upon the seller paying the purchaser a
sum of money or doing some other act named. If the
condition is performed according to the terms the mortgage
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thereby divested of his title.
Originally regarded as a conditional sale of personal
property, similar to a pacto de retro sale
PCI Leasing & Finance, Inc. v. Trojan Metal Industries Inc., et
al.
The true transaction was a simple loan secured by a
chattel mortgage, instead of a simulated financial
leasing
Upon TMIs default, PCILF was entitled to seize the
mortgaged equipment, not as owner but as creditor-
mortgagee for the purpose of foreclosing the chattel
mortgage
PCILFs sale to a third party of the mortgaged
equipment and collection of the proceeds of the sale
can be deemed in the exercise of its right to foreclose
the chattel mortgage as creditor-mortgagee
Brief Facts: TMI came to PCI to seek a loan. Instead of
extending a loan, PCI offered to buy various equipment TMI
owned, in exchange for P2.8M. Deeds of sale were executed
and both parties entered into a lease agreement.
B. FORM OF CHATTEL MORTGAGE
Act No. 1508, Sec. 4 Validity. A chattel mortgage shall
not be valid against any person except the mortgagor, his
executors or administrators, unless the possession of the
property is delivered to and retained by the mortgagee or
unless the mortgage is recorded in the office of the register
of deeds of the province in which the mortgagor resides at
the time of making the same, or, if he resides without the
Philippine Islands, in the province in which the property is
situated: Provided, however, That if the property is situated
in a different province from that in which the mortgagor
resides, the mortgage shall be recorded in the office of the
register of deeds of both the province in which the
mortgagor resides and that in which the property is
situated, and for the purposes of this Act the city of Manila
shall be deemed to be a province.
Act No. 1508, Sec. 5 Form. A chattel mortgage shall be
deemed to be sufficient when made substantially in
accordance with the following form, and shall be signed by
the person or persons executing the same, in the presence
of two witnesses, who shall sign the mortgage as witnesses
to the execution thereof, and each mortgagor and
mortgagee, or, in the absence of the mortgagee, his agent
or attorney, shall make and subscribe an affidavit in
substance as hereinafter set forth, which affidavit, signed
by the parties to the mortgage as above stated, and the
certificate of the oath signed by the authority administering
the same, shall be appended to such mortgage and
recorded therewith.
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.
"This mortgage made this ____ day of ______19____ by
_______________, a resident of the municipality of
______________, Province of ____________, Philippine Islands
mortgagor, to ____________, a resident of the municipality of
___________, Province of ______________, Philippine Islands,
mortgagee, witnesseth:
"That the said mortgagor hereby conveys and mortgages to
the said mortgagee all of the following-described personal
property situated in the municipality of ______________,
Province of ____________ and now in the possession of said
mortgagor, to wit:
1

(Here insert specific description of the property mortgaged.)
"This mortgage is given as security for the payment to the
said ______, mortgagee, of promissory notes for the sum of
____________ pesos, with (or without, as the case may be)
interest thereon at the rate of ___________ per centum per
annum, according to the terms of __________, certain
promissory notes, dated _________, and in the words and
figures following (here insert copy of the note or notes
secured).
"(If the mortgage is given for the performance of some
other obligation aside from the payment of promissory
notes, describe correctly but concisely the obligation to be
performed.)
"The conditions of this obligation are such that if the
mortgagor, his heirs, executors, or administrators shall well
and truly perform the full obligation (or obligations) above
stated according to the terms thereof, then this obligation
shall be null and void.
"Executed at the municipality of _________, in the Province of
________, this _____ day of 19_____
____________________
(Signature of mortgagor.)
"In the presence of
"_________________
"_________________
(Two witnesses sign here.)
FORM OF OATH.
"We severally swear that the foregoing mortgage is made
for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the
same is a just and valid obligation, and one not entered into
for the purpose of fraud."
FORM OF CERTIFICATE OF OATH.
"At ___________, in the Province of _________, personally
appeared ____________, the parties who signed the foregoing
affidavit and made oath to the truth thereof before me.
"_____________________________"
(Notary public, justice of the peace, 1 or other officer, as the
case may be.)
Act No. 1508, Sec. 6 Corporations. When a corporation
is a party to such mortgage the affidavit required may be
made and subscribed by a director, trustee, cashier,
treasurer, or manager thereof, or by a person authorized on
the part of such corporation to make or to receive such
mortgage. When a partnership is a party to the mortgage
the affidavit may be made and subscribed by one member
thereof.
To be valid against any person:
Recorded in the office of the register of deeds:
Resident: Province in which the mortgagor resides at
the time of making the same
Non-resident: Province in which the province is situated
If property is situated in a different province from which
the mortgagor resides: Both the province in which the
mortgagor resides and in which the property is situated
Form (see Sec. 5, Act No. 1508)
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Signed by the person or persons executing the same
In the presence of two witnesses, who shall sign as
witnesses to the execution
Each mortgagor and mortgagee, or, in the absence of
the mortgagee, his agent or attorney, shall make and
subscribe an affidavit in substance, signed by the
parties
Certificate of oath signed by the authority
administering the same
Appended to the mortgage and recorded
When a corporation is a party: affidavit may be made and
subscribed by a director, trustee, cashier, treasurer, or
manager thereof, or by a person authorized
When a partnership is a party: affidavit may be made and
subscribed by one member
C. OBLIGATIONS SECURED
Act No. 1508, Sec. 5 Form. xxx
FORM OF OATH.
"We severally swear that the foregoing mortgage is made
for the purpose of securing the obligation specified in the
conditions thereof, and for no other purpose, and that the
same is a just and valid obligation, and one not entered into
for the purpose of fraud."
FORM OF CERTIFICATE OF OATH.
"At ___________, in the Province of _________, personally
appeared ____________, the parties who signed the foregoing
affidavit and made oath to the truth thereof before me.
"_____________________________"
(Notary public, justice of the peace (now municipal judge),
or other officer, as the case may be.)
AFFIDAVIT OF GOOD FAITH
Unique requirement, required to be executed by the parties
under the Chattel Mortgage Law
Affidavit states that the chattel mortgage is:
1. Made solely for the purpose of securing the obligation
specified in the chattel mortgage, and
2. The principal obligation is a just and valid obligation,
and one not entered into for the purpose of fraud
OBLIGATIONS SECURED
Unlike a pledge, can only cover obligations existing at the
time the mortgage is constituted
Cannot secure after-incurred obligations even if these
future debts are accurately described
Cannot be made to secure a debt to be thereafter
contracted because the law provides that the parties must
make oath that the debt is a just debt, honestly due and
owing from the mortgagor to the mortgagee
An increase or an extension of the chattel mortgage
obligation becomes a new chattel mortgage in itself, and
will take effect only from the date the same are made and
NOT from the date of the original chattel mortgage
CONTRACT TO MORTGAGE
If it includes future debts is a binding commitment
But chattel mortgage itself, is not perfected until after an
agreement covering the newly contracted debt is executed
conformably with the form prescribed
2
 ACME Shoe, Rubber & Plastic Corporation v. CA
Refusal of the debtor to execute the agreement to cover the
after-incurred obligation may consist in an event of default
of the contract to mortgage
- Remedy of foreclosure will only cover the debts existing
at the time of constitution of the contract of chattel
mortgage
Contracts of personal security: the faithful
performance of the obligation by the principal debtor is
secured by the personal commitment of another
Contracts of real security: fulfillment is secured by
an encumbrance of property
o If the principal obligation becomes due and the
debtor defaults, the property encumbered can be
alienated for the payment of the obligation
o Should the obligation be duly paid, the contract is
automatically extinguished proceeding from the
accessory character of the agreement
o Once the obligation is complied with, then the
contract of security becomes, ipso facto, null and
void
A promise expressed in a chattel mortgage to include
debts that are yet to be contracted can be a binding
commitment that can be compelled upon; the security
itself, however, does not come into existence or arise
until after a chattel mortgage agreement covering the
newly contract debt is executed
o Refusal on the party of the borrower to execute the
agreement to cover the after-incurred obligation
can constitutes an act of default
o Remedy of foreclosure can only cover debts extant
at the time of constitution and during the life of the
chattel mortgage sought to be foreclosed
Since the 1978 chattel mortgage had ceased to exist
coincidentally with the full payment of the P3-M loan,
there no longer was any chattel mortgage that could
cover the new loans that were concluded thereafter

Contracts Involved:
(a) Contract of Loan: between Acme and Producers
1st: P3-M (FULLY PAID) with chattel mortgage
2nd: P2.7-M (FULLY PAID)
3rd: P1-M (NOT FULLY PAID)
(b) Chattel Mortgage: between Chua Pac and Producers,
in favor of Acme covering the P3-M

Brief Facts: Acme obtained a loan worth P3-M from

Producers Bank, with Chua Pac executing a Chattel
Mortgage Agreement to secure said loan. In the Agreement,
there was a stipulation providing for the mortgage securing
subsequent/future loans. Later, Acme obtained 2 more loans
from Producers, fully paying the first and defaulting in the
second. The Bank applied for the extrajudicial foreclosure of
the mortgage, which was opposed by Acme.

Doctrine: A chattel mortgage can only cover obligations

existing at the time the mortgage is constituted. A promise
to include debts yet to be contracted can be a binding
commitment that can be compelled upon, but the security
itself does not come into existence until a new chattel
mortgage is created or the old one is amended conformably
with the Chattel Mortgage Law.

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D. OBJECT OF CHATTEL MORTGAGE
Art. 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. (1874a)
Art. 416 The following things are deemed to be personal
property:
(1) Those movables susceptible of appropriation which are
not included in the preceding article;
(2) Real property which by any special provision of law is
considered as personalty;
(3) Forces of nature which are brought under control by
science; and
(4) In general, all things which can be transported from
place to place without impairment of the real property to
which they are fixed. (335a)
Art. 417 The following are also considered as personal
property:
(1) Obligations and actions which have for their object
movables or demandable sums; and
(2) Shares of stock of agricultural, commercial and industrial
entities, although they may have real estate. (336a)
Act No. 1508, Sec. 2 All personal property shall be subject
to mortgage, agreeably to the provisions of this Act, and a
mortgage executed in pursuance thereof shall be termed
chattel mortgage.
GR: Movable/Personal properties are the object of a chattel
mortgage.
EX: Jurisprudence provides that immovable/real properties
may be the object of a chattel mortgage when (1) parties
validly agree/consent to treat them as movable/personal
properties, and (2) no third persons are prejudiced by such
an agreement. (Makati Leasing and Finance Corp v.
Wearever Textile Mills, citing Tumalad v. Vicencio).
Makati Leasing and Finance Corp v. Wearever Textile
Mills
Concept: Chattel Mortgage; Object of Chattel Mortgage
Contract Involved:
(a) Chattel Mortgage, between MLFC and WTM over
certain raw materials and machinery
Brief Facts: When WTM defaulted on its obligation to MLFC,
MLFC sought to execute the deed of chattel mortgage
(subject of which was an immobilized machine) securing the
obligation. The CFI found for MLFC and issued a writ of
replevin. However, the CA reversed the CFI and ruled that
the immobilized machine is n invalid subject of the writ and
of the chattel mortgage.
Doctrine: Parties may treat real property as personal
property for a chattel mortgage, as long as (1) they validly
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agree/consent to it, and (2) no third persons are prejudiced
by such an arrangement.
1. REASONABLE DESCRIPTION RULE
Act No. 1508, Sec. 7 Descriptions of property. The
description of the mortgaged property shall be such as to
enable the parties to the mortgage, or any other person,
after reasonable inquiry and investigation, to identify the
same.
If the property mortgaged be large cattle," as defined by
section one of Act Numbered Eleven and forty-seven, (Now
section 511 of the Administrative Code) and the
amendments thereof, the description of said property in the
mortgage shall contain the brands, class, sex, age, knots of
radiated hair commonly known as remolinos, or cowlicks,
and other marks of ownership as described and set forth in
the certificate of ownership of said animal or animals,
together with the number and place of issue of such
certificates of ownership.
If growing crops be mortgaged the mortgage may contain
an agreement stipulating that the mortgagor binds himself
properly to tend, care for and protect the crop while
growing, and faithfully and without delay to harvest the
same, and that in default of the performance of such duties
the mortgage may enter upon the premises, take all the
necessary measures for the protection of said crop, and
retain possession thereof and sell the same, and from the
proceeds of such sale pay all expenses incurred in caring
for, harvesting, and selling the crop and the amount of the
indebtedness or obligation secured by the mortgage, and
the surplus thereof, if any shall be paid to the mortgagor or
those entitled to the same.
A chattel mortgage shall be deemed to cover only the
property described therein and not like or substituted
property thereafter acquired by the mortgagor and placed
in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary
notwithstanding.
Sec. 7 of Act 1508 (Chattel Mortgage Law) does NOT require
a specific and thorough definition.
The Reasonable Description Rule under the said provision
only requires that the description must enable the parties to
identify the collateral, after reasonable inquiry and
investigation.
2. AFTER ACQUIRED PROPERTIES
Act No. 1508, Sec. 7 Descriptions of property. The
description of the mortgaged property shall be such as to
enable the parties to the mortgage, or any other person,
after reasonable inquiry and investigation, to identify the
same.
If the property mortgaged be large cattle," as defined by
section one of Act Numbered Eleven and forty-seven, (Now
section 511 of the Administrative Code) and the
amendments thereof, the description of said property in the
mortgage shall contain the brands, class, sex, age, knots of
radiated hair commonly known as remolinos, or cowlicks,
and other marks of ownership as described and set forth in
the certificate of ownership of said animal or animals,
together with the number and place of issue of such
certificates of ownership.
4

If growing crops be mortgaged the mortgage may contain
an agreement stipulating that the mortgagor binds himself
properly to tend, care for and protect the crop while
growing, and faithfully and without delay to harvest the
same, and that in default of the performance of such duties
the mortgage may enter upon the premises, take all the
necessary measures for the protection of said crop, and
retain possession thereof and sell the same, and from the
proceeds of such sale pay all expenses incurred in caring
for, harvesting, and selling the crop and the amount of the
indebtedness or obligation secured by the mortgage, and
the surplus thereof, if any shall be paid to the mortgagor or
those entitled to the same.
A chattel mortgage shall be deemed to cover only the
property described therein and not like or substituted
property thereafter acquired by the mortgagor and placed
in the same depository as the property originally
mortgaged, anything in the mortgage to the contrary
notwithstanding.
GR: A chattel mortgage will only cover the property
described therein, and shall not cover property acquired
after its execution.
EX: However, Sec. 7 allows for a stipulation in the chattel
mortgage that the mortgagor may sell the chattel that is
covered by the mortgage, and is thereafter obligated to
replace, renew or substitute the sold chattel with other
property thereafter acquired. Such provision is valid and
binding and effectively widens the scope of a chattel
mortgage to after acquired properties.
The purpose of allowing such a provision is to promote
economic and business transactions.
Had it not been allowed, it would have been impossible to
constitute a chattel mortgage over, for example, a retail
store, the stocked goods of which are bought and sold
frequently, without requiring them to close down. This is
contrary to the purpose of the Chattel Mortgage Law.
It is only required that the chattel mortgage expressly
stipulate that such after acquired properties are included
under the coverage of the chattel mortgage.
E. OWNERSHIP OF COLLATERAL
It is essential that (1) the mortgagor be the absolute
owner of the collateral, and (2) that the mortgagor have
the free disposal of the collateral OR, if it does not have
such right to freely dispose of the collateral, be legally
authorized to constitute the mortgage.
A mortgagor retains the right to alienate the collateral.
However, such right is restrained by requirements imposed
by law: the mortgagor MUST obtain the consent of the
mortgagee to make such alienation.
- Otherwise, he shall be liable under RPC Art. 319, Par. 2
(Sale or Pledge of Mortgaged Property)
Somera in class: While it is already established that failure
to obtain consent of the mortgagee with respect to the
alienation will affect criminal liability, how does it affect the
validity of the alienation (ex. sale) to a third person?
Dy v. CA
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When a sale of the collateral by the mortgagor is
involved, lack of consent from the mortgage only affects the
criminal liability of the mortgagor but NOT the validity
Concept: Chattel mortgage; ownership of collateral
Contracts Involved:
(a) Contract of Loan (Financing contract) between
Wilfredo Dy and Libra Finance and Investment
Corporation
(b) Chattel Mortgage over the truck and tractor between
Wilfredo Dy and Libra
(c) Contract of Sale with Assumption of Mortgage
over the tractor between Wilfredo Dy and Perfecto Dy
(d) Chattel Mortgage between Perfecto Dy and Libra
(e) Contract of Sale over the truck between Wilfredo Dy
and Carol Dy-Seno
Brief Facts: Wilfredo purchased a tractor and truck through
financing extended by Libra Finance. He sold the tractor to
his brother Perfecto, who assumed the mortgage debt with
the consent of Libra. After the consummation of the sale
through the execution of a Deed of Absolute Sale in favor of
perfecto, the tractor was seized by the provincial sheriff of
Cebu to satisfy the judgment debt of Wilfredo in a civil case
filed against the latter by Gelac Trading. Perfecto is now
questioning the validity of the seizure of the tractor,
claiming that he and not Wilfredo was the owner of the
same at the time it was taken into custody by the sheriff,
hence could not be levied upon to satisfy a judgment
against Wilfredo.
Doctrine: The mortgagor who gave the property as
security under a chattel mortgage did not part with the
ownership of the same. Hence, the mortgagor could validly
alienate the property mortgaged but sale can only bind the
mortgagee if the same be done with the latters consent.
Servicewide Specialists v. IAC
If the alienation, however, amounts to a substitution
of the debtor (as it is in this case), the consent of the
mortgagee-creditor is essential, pursuant to Art. 1293 of the
NCC; it affects the validity of the alienation.
F. FORECLOSURE OF CHATTEL MORTGAGE
Act No. 1508, Sec. 8 Failure of mortgagee to discharge
the mortgage. If the mortgagee, assign, administrator,
executor, or either of them, after performance of the
condition before or after the breach thereof, or after tender
of the performance of the condition, at or after the time
fixed for the performance, does not within ten days after
being requested thereto by any person entitled to redeem,
discharge the mortgage in the manner provided by law, the
person entitled to redeem may recover of the person whose
duty it is to discharge the same twenty pesos for his neglect
and all damages occasioned thereby in an action in any
court having jurisdiction of the subject-matter thereof.
Act No. 1508, Sec. 14 Sale of property at public auction;
Officer's return; Fees; Disposition of proceeds. The
mortgagee, his executor, administrator, or assign, may,
after thirty days from the time of condition broken, cause
the mortgaged property, or any part thereof, to be sold at
public auction by a public officer at a public place in the
municipality where the mortgagor resides, or where the
property is situated, provided at least ten days' notice of
the time, place, and purpose of such sale has been posted
at two or more public places in such municipality, and the
mortgagee, his executor, administrator, or assign, shall
notify the mortgagor or person holding under him and the
persons holding subsequent mortgages of the time and
5
place of sale, either by notice in writing directed to him or
left at his abode, if within the municipality, or sent by mail if
he does not reside in such municipality, at least ten days
previous to the sale.
The officer making the sale shall, within thirty days
thereafter, make in writing a return of his doings and file the
same in the office of the register of deeds where the
mortgage is recorded, and the register of deeds shall record
the same. The fees of the officer for selling the property
shall be the same as in the case of sale on execution as
provided in Act Numbered One hundred and ninety, (Now
Rule 141, section 7 of the Rules of Court) and the
amendments thereto, and the fees of the register of deeds
for registering the officer's return shall be taxed as a part of
the costs of sale, which the officer shall pay to the register
of deeds. The return shall particularly describe the articles
sold, and state the amount received for each article, and
shall operate as a discharge of the lien thereon created by
the mortgage. The proceeds of such sale shall be applied to
the payment, first, of the costs and expenses of keeping
and sale, and then to the payment of the demand or
obligation secured by such mortgage, and the residue shall
be paid to persons holding subsequent mortgages in their
order, and the balance, after paying the mortgages, shall be
paid to the mortgagor or person holding under him on
demand.
If the sale includes any "large cattle," a certificate of
transfer as required by section sixteen of Act Numbered
Eleven hundred and forty-seven (Now Section 523 of the
Administrative Code) shall be issued by the treasurer of the
municipality where the sale was held to the purchaser
thereof.
A.M. No. 99-10-05-0 August 7, 2001
[PROCEDURE IN EXTRA-JUDICIAL FORECLOSURE OF
MORTGAGE]
In line with the responsibility of an Executive Judge under
Administrative Order No. 6, dated June 30, 1975, for the
management of courts within his administrative area,
included in which is the task of supervising directly the work
of the Clerk of Court, who is also the Ex-Office Sheriff, and
his staff, and the issuance of commissions to notaries public
and enforcement of their duties under the law, the following
procedures are hereby prescribed in extrajudicial
foreclosure of mortgages:
1. All applications for extra-judicial foreclosure of mortgage
whether under the direction of the sheriff or a notary public,
pursuant to Act 3135, as amended by Act 4118, and Act
1508, as amended, shall be filed with the Executive Judge,
through the Clerk of court who is also the Ex-Officio Sheriff.
2. Upon receipt of an application for extra-judicial
foreclosure of mortgage, it shall be the duty of the Clerk of
Court to:
a) receive and docket said application and to stamp
thereon the corresponding file number, date and time of
filing;
b) collect the filing fees therefore pursuant to rule 141,
Section 7(c), as amended by A.M. No. 00-2-01-SC, and issue
the corresponding official receipt;
c) examine, in case of real estate mortgage foreclosure,
whether the applicant has complied with all the
requirements before the public auction is conducted under
the direction of the sheriff or a notary public, pursuant to
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Sec. 4 of Act 3135, as amended;
d) sign and issue the certificate of sale, subject to the
approval of the Executive Judge, or in his absence, the Vice-
Executive Judge. No certificate of sale shall be issued in
favor of the highest bidder until all fees provided for in the
aforementioned sections and in Rule 141, Section 9(1), as
amended by A.M. No. 00-2-01-SC, shall have been paid;
Provided, that in no case shall the amount payable under
Rule 141, Section 9(1), as amended, exceed P100,000.00;
e) after the certificate of sale has been issued to the
highest bidder, keep the complete records, while awaiting
any redemption within a period of one (1) year from date of
registration of the certificate of sale with the Register of
Deeds concerned, after which, the records shall be archived.
Notwithstanding the foregoing provision, juridical persons
whose property is sold pursuant to an extra-judicial
foreclosure, shall have the right to redeem the property
until, but not after, the registration of the certificate of
foreclosure sale which in no case shall be more than three
(3) months after foreclosure, whichever is earlier, as
provided in Section 47 of Republic Act No. 8791 (as
amended, Res. Of August 7, 2001).
Where the application concerns the extrajudicial foreclosure
of mortgages of real estates and/or chattels in different
locations covering one indebtedness, only one filing fee
corresponding to such indebtedness shall be collected. The
collecting Clerk of Court shall, apart from the official receipt
of the fees, issue a certificate of payment indicating the
amount of indebtedness, the filing fees collected, the
mortgages sought to be foreclosed, the real estates and/or
chattels mortgaged and their respective locations, which
certificate shall serve the purpose of having the application
docketed with the Clerks of Court of the places where the
other properties are located and of allowing the extrajudicial
foreclosures to proceed thereat.
3. The notices of auction sale in extrajudicial foreclosure for
publication by the sheriff or by a notary public shall be
published in a newspaper of general circulation pursuant to
Section 1, Presidential Decree No. 1079, dated January 2,
1977, and non-compliance therewith shall constitute a
violation of Section 6 thereof.
4. The Executive Judge shall, with the assistance of the
Clerk of Court, raffle applications for extrajudicial
foreclosure of mortgage under the direction of the sheriff
among all sheriffs, including those assigned to the Office of
the Clerk of Court and Sheriffs IV assigned in the branches.
5. The name/s of the bidder/s shall be reported by the
sheriff or the notary public who conducted the sale to the
Clerk of Court before the issuance of the certificate of sale.
This Resolution amends or modifies accordingly
Administrative Order No. 3 issued by then Chief Justice
Enrique M. Fernando on 19 October 1984 and
Administrative Circular No. 3-98 issued by the Chief Justice
Andres R. Narvasa on 5 February 1998.
The Court Administrator may issue the necessary guidelines
for the effective enforcement of this Resolution.
The Clerk of Court shall cause the publication of this
Resolution in a nuewspaper of general circulation not later
than August 14, 2001 and furnish copies thereof to the
Integrated Bar of the Philippines.
This Resolution shall take effect on the 1st day of
September of the year 2001.
6
 municipality where the sale was held to the purchaser
Promulgated this 7th day of August 2001 in the City of thereof.
Manila.
The redemption cited in Section 13 of the Chattel Mortgage
If the principal obligation becomes due and the debtor Law partakes of an equity of redemption.
defaults, the creditor, as mortgagee, may elect to
foreclose the collateral, by causing its alienation in EQUITY OF REDEMPTION
accordance with the procedures allowed by law. - The right of the mortgagor in default to recover the
collateral before a foreclosure sale by paying the
The Chattel Mortgage Law authorizes the extrajudicial principal, interest, and other costs that are due, thereby
foreclosure of chattel mortgage. alleviating, as a matter of equity, the severity of the
legal rule on default (Blacks Law Dictionary, Ninth
1. EQUITY OF REDEMPTION Edition)
- The right of the mortgagor to extinguish the mortgage
Act No. 1508, Sec. 13 When the condition of a chattel and retain ownership of the collateral after default in
mortgage is broken, a mortgagor or person holding a the performance of the principal obligation but before
subsequent mortgage, or a subsequent attaching creditor the foreclosure sale of the collateral, by paying the
may redeem the same by paying or delivering to the principal obligation within a grace period of 30 days
mortgagee the amount due on such mortgage and the granted by the Chattel Mortgage Law
reasonable costs and expenses incurred by such breach of
condition before the sale thereof. An attaching creditor who If the equity of redemption is exercised not by the
so redeems shall be subrogated to the rights of the mortgagor but by a subsequent attaching creditor, who
mortgagee and entitled to foreclose the mortgage in the effectively pays the mortgagee, the rights acquired by the
same manner that the mortgagee could foreclose it by the attaching creditor are the rights that pertain to the
terms of this Act. mortgagee, granting the attaching creditor the right to
foreclose the chattel mortgage.
Act No. 1508, Sec. 14 Sale of property at public auction;
Officer's return; Fees; Disposition of proceeds. The
mortgagee, his executor, administrator, or assign, may,
after thirty days from the time of condition broken, cause
the mortgaged property, or any part thereof, to be sold at
public auction by a public officer at a public place in the
municipality where the mortgagor resides, or where the
property is situated, provided at least ten days' notice of
the time, place, and purpose of such sale has been posted
at two or more public places in such municipality, and the
mortgagee, his executor, administrator, or assign, shall
notify the mortgagor or person holding under him and the
persons holding subsequent mortgages of the time and
place of sale, either by notice in writing directed to him or
left at his abode, if within the municipality, or sent by mail if
he does not reside in such municipality, at least ten days
previous to the sale.

The officer making the sale shall, within thirty days

thereafter, make in writing a return of his doings and file the
same in the office of the register of deeds where the
mortgage is recorded, and the register of deeds shall record
the same. The fees of the officer for selling the property
shall be the same as in the case of sale on execution as
provided in Act Numbered One hundred and ninety, (Now
Rule 141, section 7 of the Rules of Court) and the
amendments thereto, and the fees of the register of deeds
for registering the officer's return shall be taxed as a part of
the costs of sale, which the officer shall pay to the register
of deeds. The return shall particularly describe the articles
sold, and state the amount received for each article, and
shall operate as a discharge of the lien thereon created by
the mortgage. The proceeds of such sale shall be applied to
the payment, first, of the costs and expenses of keeping
and sale, and then to the payment of the demand or
obligation secured by such mortgage, and the residue shall
be paid to persons holding subsequent mortgages in their
order, and the balance, after paying the mortgages, shall be
paid to the mortgagor or person holding under him on
demand.

If the sale includes any "large cattle," a certificate of

transfer as required by section sixteen of Act Numbered
Eleven hundred and forty-seven (Now Section 523 of the
Administrative Code) shall be issued by the treasurer of the
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2. RIGHT OF REDEMPTION
Different from Equity of Redemption
Right of the mortgagor to repurchase the collateral even
after confirmation of a foreclosure sale but within the
periods prescribed by law
It is a statutory right of a mortgagor in default to reclaim,
regain or recover the collateral after the foreclosure sale
In this jurisdiction, there is no statute that vests the
right of redemption over personal property
Under the Chattel Mortgage Law, the mortgagor has only an
equity of redemption but no right of redemption over
property sold
Rizal Commercial Banking Corporation v. Royal Cargo
Corporation (2009)
Concept: Foreclosure of Chattel Mortgage Right of
Redemption
Contracts Involved:
(a) P3M obligation between RCBC and Terrymanila
(b) Chattel Mortgage between RCBC and Terrymanila
(c) Writ of Attachment over some of Terrymanilas
properties applied for by ROYAL
Brief Facts: Upon Terrymanilas petition for voluntary
insolvency, RCBC was granted permission to foreclose the
chattel mortgage executed over Terrymanilas assets. A
foreclosure sale subsequently happened, in which RCBC was
the winning bidder. ROYAL filed an annulment of said
foreclosure sale, as it included some of the properties of
Terrymanila it had already attached to secure a judgment
award against it, and that RCBC failed to notify them of the
auction sale pursuant to Sec. 14 of the CM law.
Doctrine: An equity of redemption under Sec. 13 of CM
law, is different from the right to redemption under Sec. 14.
An equity of redemption may be exercised only after default
of the mortgagor in the performance of the conditions in the
mortgage but before the sale of the property.
3. RIGHT TO POSSESSION
A mortgagee, unlike a pledgee, is generally not in
possession of the collateral unless and until the principal
debtor defaults and the mortgagee seeks to foreclose.
The chattel mortgage contract constitutes the mortgagee,
upon the principal debtors default, as an attorney-in-fact
of the mortgagor, enabling the mortgagee to act for and in
behalf of the owner of the collateral
- The mortgagee is authorized to take possession of the
collateral on default of the principal debtor
- When possessor of collateral refuses to yield
possession, the mortgage has the right to maintain an
action to recover possession, or replevy, the collateral,
from the mortgagor or from any person in possession
Replevin possessory in nature and determines nothing
more than the right of possession; only the person in
possession needs to be impleaded
Section 14 of the Chattel Mortgage Law does not require
that foreclosure of the collateral is caused before instituting
an action for replevin
Rationale: right of possession of the collateral is
conditioned upon fact of actual default of debtor, and this
may be subject to controversy, hence foreclosure cannot be
the first recourse since the sheriff has no duty or authority
in the first instance to seize the collateral, but also because
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whenever the sheriff proceeds under Section 14, he
becomes a mere agent of the mortgagee. In this case, an
action to recover possession or replevin should be instituted
first.
Servicewide Specialists vs. CA
Concept: Right to Possession (Chattel Mortgage)
NB: No quoted contracts; only references to the exhibits
where they were found. The terms of the contracts are
shown underlined below, as culled from the discussion by
the Court.
Brief Facts: Laus bought a motor vehicle on credit, issuing
therefor a promissory note secured by a chattel mortgage
over the vehicle. Laus failed to pay despite demands from
Servicewide. Servicewide, for the purpose of foreclosing the
mortgage, filed a replevin suit against Tee, alleged
possessor of the motor vehicle, who was later substituted
by Villafranca, who alleged that he owned the motor
vehicle. Laus was not impleaded in the suit for replevin.
Doctrine: In an action for replevin arising from a chattel
mortgage, if the plaintiffs right to possess the thing is not
or cannot be disputed, then it is enough to file the
complaint against the possessor of the thing mortgaged;
otherwise, other persons need to be impleaded. Plaintiffs
right to possession is in controversy, for example, when
ownership rights to the thing or default of the mortgagor is
disputed.
4. RIGHT TO SURPLUS OR DEFICIENCY
Act No. 1508, Sec. 14 Sale of property at public auction;
Officer's return; Fees; Disposition of proceeds. The
mortgagee, his executor, administrator, or assign, may,
after thirty days from the time of condition broken, cause
the mortgaged property, or any part thereof, to be sold at
public auction by a public officer at a public place in the
municipality where the mortgagor resides, or where the
property is situated, provided at least ten days' notice of
the time, place, and purpose of such sale has been posted
at two or more public places in such municipality, and the
mortgagee, his executor, administrator, or assign, shall
notify the mortgagor or person holding under him and the
persons holding subsequent mortgages of the time and
place of sale, either by notice in writing directed to him or
left at his abode, if within the municipality, or sent by mail if
he does not reside in such municipality, at least ten days
previous to the sale.
The officer making the sale shall, within thirty days
thereafter, make in writing a return of his doings and file the
same in the office of the register of deeds where the
mortgage is recorded, and the register of deeds shall record
the same. The fees of the officer for selling the property
shall be the same as in the case of sale on execution as
provided in Act Numbered One hundred and ninety, (Now
Rule 141, section 7 of the Rules of Court) and the
amendments thereto, and the fees of the register of deeds
for registering the officer's return shall be taxed as a part of
the costs of sale, which the officer shall pay to the register
of deeds. The return shall particularly describe the articles
sold, and state the amount received for each article, and
shall operate as a discharge of the lien thereon created by
the mortgage. The proceeds of such sale shall be applied to
the payment, first, of the costs and expenses of keeping
and sale, and then to the payment of the demand or
obligation secured by such mortgage, and the residue shall
be paid to persons holding subsequent mortgages in their
order, and the balance, after paying the mortgages, shall be
paid to the mortgagor or person holding under him on
8
demand.
If the sale includes any "large cattle," a certificate of
transfer as required by section sixteen of Act Numbered
Eleven hundred and forty-seven (Now Section 523 of the
Administrative Code) shall be issued by the treasurer of the
municipality where the sale was held to the purchaser
thereof.
Mortgagor is entitled to the balance (or surplus) of the price
of sale over the amounts required to be paid under Section
14
In case of insufficient proceeds, the mortgagor is likewise
liable to pay the deficiency (although the law is silent on the
matter)
PAMECA Wood Treatment Plant Inc vs. Court of
Appeals
Concept: Chattel Mortgage
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Contracts Involved:
(a) Contract of Loan: between PAMECA and DBP
(b) Chattel Mortgage: in favor of DBP over PAMECA
properties in Dumaguete
Brief Facts: Pameca loaned P2mil from DBP and executed
a promissory note, secured by its inventory of furniture and
equipment. A monthbefore the mortgage contract, its
supposed market value was P2.5mil. They defaulted so DBP
extrajudicially foreclosed on thechattels. It was the only
bidder so it was able to buy it for around P322,000. Then for
the deficiency, it filed a complaint against Pameca and its
solidary debtors (Teveses and Pulido) according to the
promissory note it signed.
Doctrine: Since the Chattel Mortgage Law bars the
creditor-mortgagee from retaining the excess of the sale
proceeds there is a corollary obligation on the part of the
debtor-mortgagee to pay the deficiency in case of a
reduction in the price at public auction
9