Act No.

1508, otherwise known as the Chattel Mortgage Law

I. Definition:

Sec. 3. Chattel mortgage defined. — A chattel mortgage is 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 to the
purchaser a sum of money or doing some other act named. If the condition is performed
according to its terms the mortgage and sale immediately become void, and the mortgagee is
thereby divested of his title.

II. Object/subject of CM

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.

Notes:

SUBJECT MATTER OF THE CHATTEL MORTGAGE:

1. Shares of Stocks: Recorded at the principal office of business of the corporation and at
the residence of the mortgagor
2.Interest in Business
3. Machinery treated by the parties as personal property
4.Vessels: It is essentially the mortgage accorded in the office of the Philippine Coast Guard
of the port of documentation of the vessels.
5. Motor Vehicles: Recorded with the LTO where the vehicle is registered, the place where
the property may be found and the residence of the owner thereof.
6.House of Mixed Materials
7. House Built on Rented Land: It does not form part of the land. It is treated merely as an
object placed only a land by one who had a temporary right to the same.
8. House of Strong Materials may be considered as personal property for purposes of
executing a chattel mortgage as long as the parties to the contract so agrees and no
innocent third party will be prejudiced thereby.
9. For purposes of the Chattel Mortgage Law, both growing crops and large cattle are
personal property and therefore, capable of being mortgaged although they would be
considered as immovable property under certain conditions

As to object, it is the same with Pledge, what makes it different then?

i. Delivery of personal property to the mortgagee is not necessary, but he registration in the
Registry of property is required in CM.1 [registration creates a real right]
Where to register?
 in the Register of deeds where the mortgagor resides
 when the property is situated somewhere, it needs to be registered also in the RD
where the property is situated {location of the property and residence of the
mortgagor differs}
 if what is mortgaged is a car, registration with LTO is also needed. Absent this,
the mortgage would not be binding against third persons

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Art, 2140. By a CM, personal property is recorded in the Chattel Mortgage Register x x x. if the movable
instead of being recorded, is delivered to the creditor or third person, the contract is pledge and not a CM.

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 ii. Procedure for the sale is different.
iii. If the property is foreclosed and there is excess, the amount goes to the debtor, except if
the mortgaged is a security for the purchase of personal property on instalment basis (recto
law). [in pledge, the debtor is not entitled to the excess unless otherwise provided or except
in case of legal pledge]
iv. If there is deficiency, the creditor may recover the deficiency. [in pledge, the creditor is
not entitled to the deficiency notwithstanding any stipulation]

III. Characteristics
i. Accessory contract
ii. Unilateral contract: Obligation on the part of the creditor to free the thing mortgaged
from encumbrance
iii. Formal contract [required to be registered, thus, has to be in writing]
Sec. 5. 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.

Affidavit of good faith is an oath in the contract of CM wherein the parties severally
swear that the mortgage is made for the purpose of securing the obligation specified therein
and for no other purposes and that the same is just and valid obligations and not entered for
purposes of fraud. The absence of the affidavit vitiates the mortgage only as against third
persons without notice.
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.

IV. Validity
Gen. rule- valid only against the mortgagor, his executors or administrators,
i. unless the possession of the property is delivered to and retained by the
mortgagee or
ii. 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:
V. After payment of the debt or the performance of the condition specified therein, the
mortgagee must discharge the mortgage, otherwise, he may be held liable for damages by
any person entitled to redeem the mortgage.

VI. Remedy in case of non-payment of mortgage debt.

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Public Sale
– If the mortgagor defaults in the payment of the secured debt or otherwise fails to
comply with the conditions of the mortgage, the creditor has no right to appropriate to
himself the personal property because he is only permitted to recover his credit from the
proceeds of the sale of the property at the public auction.

Foreclosure of CM.
Sec. 14. 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, 4 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 5 shall be issued by the treasurer of the
municipality where the sale was held to the purchaser thereof.

Private Sale
– There is nothing illegal, immoral or against public order in an agreement for the private
sale of personal properties covered by the chattel mortgage. The mortgagor is estopped
to question it except on the ground of fraud or duress.

OFFENSES INVOLVING CHATTEL MORTGAGE

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 1. Knowingly removing any personal property mortgaged under Chattel Mortgage 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 of the mortgagee;
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 mortgagee written
on the bank of the mortgage and duly recorded in the Chattel Mortgage Registry.
(Article 319, Revised Penal Code)

* The mortgagor is not relieved from criminal liability even if the mortgage
indebtedness is thereafter paid in full or the mortgagor-seller informed the purchaser
that the thing sold had been mortgaged.
* The sale is valid although no written consent was obtained from the mortgagee but
the mortgagor lays himself open to criminal prosecution

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:
(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. – Affidavit of Good Faith

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 "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.