CHATTEL MORTGAGE A. Requisites 1. Constituted to secure a principal obligation. 2. Mortgagor is absolute owner of the thing. 3.

The persons constituting the mortgage have free disposal of property/legally authorized 4. Essence is when principal obligation becomes due, the things in which the mortgage consists may be alienated for the payment to the creditor. 5. Perfected by recording Personal property is recorded in the Chattel Mortgage Register as security for the performance of an obligation. Notes: - provisions of pledge applicable as long as its not in conflict with the Chattel Mortgage Law. - If a CM contract is not recorded it is not binding on third persons. Only valid between mortgagor and mortgagee mortgagee may compel mortgagor by specific performance to register the mortgage. - Act of recording grants chattel mortgagee the symbolic possession of the collateral. B. Form Act 1508 1. Chattel mortgage not valid unless recorded in the office of deeds (Sec. 4) 2. Where recorded: a. province where mortgagor resides at the time of the making of the CM b. OR if he resides outside Phils. where property is situated. c. If the property is situated in a different province from which the mortgagor resides recorded both where the property is and where mortgagor resides. d. City of Manila considered a province 3. Form (Sec. 5) Deemed sufficient when substantially in accordance with the ff. form a. and signed by parties b. in the presence of 2 witnesses c. each mortgagee and mortgagor, or in the absence of mortgagee, his agent/attorney shall make and subscribe an affidavit d. and the certificate of oath signed by authority administering the same. e. property must be specifically described. f. copy of notes/notes secured attached. g. describe concisely other obligations aside from payment of PN Notes: - (Sec. 6) if corporation: affidavit by director, cashier, trustee, cashier, treasurer/manager/person authorized - if partnership: one member thereof C. Obligations Secured - CM Law requires an affidavit of good faith stating that the CM is:

1. made solely for the purpose of securing obligation specified in CM AND 2. principal obligation is a just and valid obligation, not entered into for purposes of fraud. - Logically, a CM can only cover obligations existing at the time the mortgage is constituted. It cant cover future debts even if particularly described. - Increase/extension of CM becomes new CM in itself and will take effect only from the date the same are made and not from the date of the original CM. - Contract to mortgage that includes future debts is a binding commitment, the contract of CM itself is not perfected until after an agreement covering the newly contracted debt is executed according to CM law. Refusal on the part of the debtor to execute the agreement as to cover afterincurred obligation may constitute an event of default of the contract to mortgage BUT the remedy of foreclosure will cover only debts existing at the time of constitution of the contract of CM. D. Object of Chattel Mortgage 1. movables 2. personal property (Act. 1508, Sec. 2) 3. obligations and actions which have for their object movables or demandable sums. 4. shares of stock of agricultural, commercial, and industrial entities, although they may have real estate. I. Reasonable Description Rule Act. No. 1508, Sec. 7 description of mortgaged property shall be as such as to enable the parties to the mortgage or any other person, after reasonable inquiry and investigation to identify the same. II. After Acquired Properties Act. No. 1508, Sec. 7 A CM shall be deemed to cover only property described therein and not like or substituted property thereafter acquired by the mortgagor and placed in the same depositary as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding. Par. Does not apply to retail stores. GR: Chattel covers only the property described therein and does not cover property thereafter acquired. E:A stipulation in a CM authorizing mortgagor to sell the property covered by the CM, and to replace, renew or substitute them with other property thereafter acquired is VALID and BINDING and extends the scope and effet of the CM to after acquired properties. E. Ownership of Collateral - Mortgagor can alienate mortgaged property as he continues to be the owner of the same - Mortgagors right to alienate is restricted by requirements imposed by law. - MORTGAGOR MUST PROCURE THE WRITTEN CONSENT OF MORTGAGEE (PENAL LIABILITY IF HE DOESNT)

- Dy v. CA: Absence of the written consent of the mortgagee to the sale does not affect validity of the sale. - Servicewide Specialits: Only notice to the debtor of the assignment of the credit is required. Consent is not required. : Consent of creditor mortgagee to alienation of mortgaged property to bind creditor. Validity of sale is affected. F. Foreclosure of CM Act. 1508, Sec. 8 If mortgagee fails to discharge the mortgage within 10 days after being requested by any person entitled to redeem after performance of the condition, before or after the breach thereof, or after tender of performance of condition, the person may collect P20 for neglect and damages. Sale of Property at Public Auction (Act. 1508, Sec. 14) 1. Mortgagee, executor, administrator, assign 2. After 30 days 3. Cause mortgaged property/part thereof to be sold at public auction 4. By a public officer 5. At a public place in the municipality where the mortgagor resides or where the property is situated. 6. At least 10 days notice of such sale has been posted in 2 or more public places. 7. Mortgagee shall notify mortgagor/person holding under him/persons holding subsequent mortgages of the time and place of the sale either by notice in writing or left at his abode (if within municipality), or sent by mail (outside municipality) at least 10 days before the sale. 8. Officer making the sale shall within 30 days make a return and file the same in the register of deeds where the mortgage is recorded. 9. Fees same as sale on execution, registering of officers return taxed as part of costs of the sale which the officer shall pay to the register of deeds. 10. Return particularly describe the articles sold and state the amount received for each article & shall operate as discharge of lien created by mortgage. 11. Proceeds Applied: 1. costs and expense of sale/keeping 2. payment of principal obligation 3. persons holding subsequent mortgages 4. balance left mortgagor A.M. No. 99-10-05-0: 1. All applications for extra-judicial foreclodure of mortgage whether under sheriff/notary shall be filed with executive judge through CoC (ex-officio sheriff) 2. Give file no. & docket the same 3. collect filing fees 4. diff mortgages: location; to have applications docketed with CoC in places where the properties are located. 5. Raffle to sheriff 6. Sheriff shall prepare notice of extra-judicial sale. 7. Chattel mortgage at least 10 days in 2 or more public places in the municipality where mortgagor resides or where the property is located.

8. Sale made at place where mortgagor resides or where the property is located. 9. After sale, CoC shall collect appropriate fees. 10. Sheriff shall prepare a return and file it with the Registry of Deeds where mortgage is recorded. 11. Sheriff shall report names of bidders to CoC 12. Upon presentation of receipts, CoC shall issue and sign the Cert. of Sale subject to approval of Exec. Judge. I. Equity of Redemption When the condition of CM is broken 1. mortgagor, person holding a subsequent mortgage, or a subsequent attaching creditor 2. may redeem the same by paying/delivering to the mortgagee the amount due on such mortgage and the reasonable costs and expenses incurred by such breach of condition 3. BEFORE THE SALE THEREOF 4*. Attaching creditor who redeems shall be subrogated to the rights of the mortgagee and entitled to foreclose the mortgage in the same manner that the mortgagee could foreclose it. 5. When: 30 days from time when condition is broken, before sale Equity of Redemption right of mortgagor in default to recover the collateral before a foreclosure sale by paying the principal, interest, and other costs that are due. right of mortgagor to extinguish the mortgage and retain ownership of the collateral after default in the performance of the principal obligation but before foreclosure sale of the collateral by paying the principal obligation within the period of grace provided by law (30 days). II. Right of Redemption Occurs after foreclosure sale but within period prescribed by law. NO RIGHT OF REDEMPTION IN CM

III. Right to Possession - Mortgagee is generally not in possession of the collateral unless and until the principal defaults and the mortgagee seeks to foreclose. - CM customarily constitutes the mortgagee (upon default of principal debtor) as atty. In fact of mortgagor, enabling him to act in behalf of owner of collateral. - In effect, mortgagee is authorized to take possession of the collateral on default. - But when possessor of collateral refuses to yield possession Replevin - Replevin determines nothing more than the right of possession - Sec. 14 of CM Law: does not require foreclosure before action for replevin. III. Right to Surplus/Deficiency - Sec. 14 of CM Law: mortgagor entitled to balance (surplus) of the price of the sale.

Deficiency: mortgagee? pays