Commercial Law Review

Special Laws
Maria Zarah Villanueva - Castro
CHATTEL MORTGAGE:
A. Define chattel mortgage
It is an accessory contract by virtue of which
personal property is recorded in the Chattel
Mortgage Register as a security for the
performance of an obligation.
Subject Matter:
*It covers personal or movable properties
contemplated under Article 416 and 417 of
the New Civil Code including shares of
stocks and interest in business.
*Growing crops may be subject to chattel
mortgage as express provision of law.
General Rule: Buildings are not subject of
chattel mortgage.
Exception: The chattel mortgage over a
building is considered valid as between the
parties on the basis of estoppels but not
against third persons.
B. Distinguish chattel mortgage from pledge
Pledge
Chattel Mortgage
Not perfected until Delivery
is
not
there is delivery
necessary
Registration is not Registration
is
necessary
necessary to bind
third persons
No
recovery
for General Rule: There
deficiency
is
recovery
for
deficiency
Exception: In case
of sale under Recto
Law
General
Rule: Debtor is entitled to
Debtor is not entitled the excess
to the excess
Exceptions: there is
stipulation; and in
case of legal pledge
Pledge can secure Cannot secure afterafter-incurred
incurred obligations
obligations
C. Why is registration necessary?
Registration creates a lien that follows the
property and serves as notice to third
persons.
*Good faith is not a defense.

Q: If there is actual knowledge but no

registration, is the third party bound to the
mortgage?
A: YES. The registration requirement is
complied with by reason of actual
knowledge.
D. Where do you register chattel mortgage?
The mortgage must be registered in the
Chattel Mortgage Register of the Register of
Deeds of the province in which the
mortgagor resides at the time of making the
sane or if, he resides within the Philippines,
in the province in which the property is
situated. If the property is situated in different
province from that in which the mortgagor
resides, that mortgage must be recorded in
the Chattel Mortgage Register of the
Register of Deeds of both the province in
which the mortgagor resides and that in
which the property is situated.
E. Is there a foreclosure sale in chattel
mortgage?
YES.
Can the mortgagee recover deficiency?
YES. Except in case of sale subject to Recto
Law.
Requisites:
1. Sale of personal property.
2. The personal property subject of sale is
covered by chattel mortgage
3. The payment is via instalment
F. After-incurred Obligations
*Chattel mortgage can cover only obligations
existing at the time the mortgage is
constituted.
*It cannot cover after-incurred obligations
because of the execution of affidavit of good
faith.
*Drag net clause is not allowed in chattel
mortgage.
- Drag net clause is a clause in pledge, real
mortgage, or antichresis that allows the
properties subject of pledge, real mortgage
or antichresis to secure future obligations.
AN ACT TO REGULATE THE SALE OF
PROPERTY
UNDER
SPECIAL
POWERS
INSERTED IN OR ANNEXED TO REAL ESTATE
MORTGAGE (ACT 3135):

Commercial Law Review

Special Laws
Maria Zarah Villanueva - Castro
A. Requirements
for
the
foreclosure to be effected

extrajudicial

1. There must be a special power inserted

in or attached to any real estate
mortgage allowing the sale of property.
2. Said sale cannot be made legally outside
of the province in which the property sold
is situated; and in case the place within
said province in which the sale is to be
made is subject to stipulation, such sale
shall be made in said place or in the
municipal building of the municipality in
which the property or part thereof is
situated.
3. Notice shall be given by posting notices
of the sale for not less than twenty days
in at least three public places of the
municipality or city where the property is
situated, and if such property is worth
more than four hundred pesos, such
notice shall also be published once a
week for at least three consecutive
weeks in a newspaper of general
circulation in the municipality or city.
4. The sale shall be made at public auction,
between the hours or nine in the morning
and four in the afternoon; and shall be
under the direction of the sheriff of the
province, the justice or auxiliary justice of
the peace of the municipality in which
such sale has to be made, or a notary
public of said municipality, who shall be
entitled to collect a fee of five pesos each
day of actual work performed, in addition
to his expenses.
B. In case of foreclosure sale, what are the
jurisdictional requirements?
Sec. 2 of Act 3135 provides that: Said sale
cannot be made legally outside of the
province in which the property sold is
situated; and in case the place within said
province in which the sale is to be made is
subject to stipulation, such sale shall be
made in said place or in the municipal
building of the municipality in which the
property or part thereof is situated
C. In case of foreclosure sale, what is the
period of redemption?
For Natural persons: 1 year from the date
of the registration of the certificate of sale
with the Register of Deeds.

For Juridical persons: the right to redeem

the property is 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.
D. Is the purchaser entitled to possess the
property
during
the
period
of
redemption?
YES. Sec. 47 of the GBL provides that the
purchaser at the auction sale concerned
whether in a judicial or extra-judicial
foreclosure shall have the right to enter upon
and take possession of such property
immediately after the date of the confirmation
of the auction sale and administer the same
in accordance with law. Furthermore, Sec. 7
of Act No. 3135 provides that the purchaser
may petition the Court of First Instance of the
province or place where the property or any
part thereof is situated, to give him
possession thereof during the redemption
period, furnishing bond in an amount
equivalent to the use of the property for a
period of twelve months, to indemnify the
debtor in case it be shown that the sale was
made without violating the mortgage or
without complying with the requirements of
this Act.
E. If the purchaser complied with the
requisites required by law, does the court
has jurisdiction to deny the same?
NO. Under Sec. 7 of Act No. 3135, the court
shall, upon approval of the bond, order that a
writ of possession issue, addressed to the
sheriff of the province in which the property
is situated, who shall execute said order
immediately.
BULK SALES LAW:
A. What are the transactions covered?
1. Sale, transfer, mortgage or disposition
other than in the ordinary course of trade
and business;
2. Sale, transfer, mortgage or other
disposition of all or substantially all of the
business or trade; and

Commercial Law Review

Special Laws
Maria Zarah Villanueva - Castro
3. Sale, transfer, mortgage or other
disposition of all or substantially all of the
fixtures and equipment.
B. What are the transactions not covered?
1. Sale by virtue of judicial order
2. Sale or mortgage is made in the ordinary
course of trade and business
3. When accompanied with a written waiver
by the seller/mortgagors creditors
4. Sale by assignee in insolvency or those
beyond the reach of creditors
5. Sale of properties exempt
attachment or execution.
C. What are the obligations
seller/mortgagor/assignor?

of

from

D. There is no violation of bulk sales law,

can the creditors may still go after the
properties to enforce their claims?
YES.
Does it matter that the properties are in
the hands of the buyer?
NO.
*Bulk sales law applies even if there is an
agreement on how payment of the sale be
made.
*It doesnt matter if the claim has not been
reduced to judgment.
E. Purpose of the Bulk Sales Law:

the

To prevent the merchants from evading in

their obligations.

1. The person who shall sell, mortgage,

transfer or assign stock of goods, wares,
merchandise, provisions or materials in
bulk shall give a written statement sworn
of substantially of the names and
addresses of all creditors to whom said
seller or mortgagor may be indebted,
together with the amount of indebtedness
due or owing, or to become due or
owning by said seller or mortgagor to
each of said creditors to the buyer.

It seeks to prevent the defrauding of

creditors by the secret sale or disposal in
bulk of all or substantially all of a merchants
stock of goods.

2. It is also the duty of the seller, mortgagor,

transferor or assignor to make a full
detailed inventory and to preserve the
goods, wares, merchandise in bulk
showing the quantity and, so far as is
possible with the exercise of reasonable
diligence, the cost price of the seller of
each article to be included in the sale,
transfer or mortgage.
3. To notify the creditors whose name and
address is set forth in the verified
statement of the seller at least 10 days
before transferring possession thereof,
personally by or registered mail, of the
price, terms and conditions of the sale.
4. The sworn statement containing the
names and the addresses of all creditors
must be registered in the Bureau of
Commerce.
5. The proceeds of the sale must be applied
to all his credits pro rata.

INSOLVENCY LAW:
A. What is the object of suspension of
payment?
The object of suspension of payment is to
seek postponement of the payment of debts
in order to provide the debtor a given period
to convert some of his properties to cash.
B. What is the financial condition of the
applicant when he filed the petition for
suspension of payment?
The debtor has sufficient property to cover all
his debts but there is impossibility to meet
them when they respectively fall due.
C. Where do you file a
suspension of payment?

petition

for

The petition is filed in the court of the

province or of the city where the debtor
resided for six months next preceding the
filing of his petition.
D. What are the effects of the filing of a
petition for suspension of payment?
1. No disposition in any manner of his
property may be made by the petitioner
except insofar as concerns the ordinary
operations of commerce or of industry in
which he is engaged;
3

Commercial Law Review

Special Laws
Maria Zarah Villanueva - Castro
2. No payments may be made by the
petitioner except in the ordinary course of
his business or industry; and
3. Upon request to the court, all pending
executions against the debtor shall be
suspended except execution against
property especially mortgaged.
E. What is double majority rule for proposed
schedule of liability?
Sec. 8 (e) of the Insolvency Law provides
that to form a majority, it is necessary that
2/3 of the creditors voting unite upon the
same proposition and that the claims
represented by said majority vote amount to
at least 3/5 of the total liabilities of the debtor
mentioned in the petition.
F. Distinguish insolvency from suspension
Suspension of
Payment
The
debtor
has
sufficient
property
but he foresees the
impossibility
of
meeting his debts as
they fall due
The purpose is to
suspend or delay
payment of debts
The
amount
of
indebtedness is not
affected
The
number
of
creditors
is
immaterial

Insolvency
The debtor does not
have
sufficient
property to pay his
debts
The purpose is to
discharge the debtor
from the payment of
certain debts
Some of the creditors
may receive less
than their credits
In case of involuntary
insolvency, three or
more creditors are
required

G. Distinguish involuntary insolvency from

voluntary insolvency
Involuntary
Insolvency
3 or more creditors
are required
Filed by 3 or more
qualified creditors
Debtors must have
committed one or
more
acts
of
insolvency
Indebtedness must
not be less than
P1,000
Petition must be
accompanied by a
bond

H. What are the effects of the filing of

insolvency
proceeding
whether
involuntary or voluntary?
1. Forbid the payment to the debtor of any
debt due to him and the delivery to him of
any property belonging to him;
2. Forbid the transfer of any property by
him;
3. Stay of all pending civil proceedings
against the insolvent
I.

What are the debts that are not affected

by discharge?
Sec. 68 of the Insolvency Law substantially
provides that the following debts are not
discharged:
1. Taxes or assessment due to the National
Government or Local Government;
2. Debt created by fraud or embezzlement;
3. Debt created by defalcation by public
officer or while acting in fiduciary
capacity; and
4. Claims of secured creditors

J. Discharge
Sec. 69 of the Insolvency Law substantially
provides that the insolvent debtor is released
from:
1. All his debts and liabilities set forth in the
schedule; and
2. All debts, liabilities or claims which were
or might have been proved against the
estate in insolvency.

Voluntary
Insolvency
One
creditor
is
sufficient
Filed by the debtor
No
need
for
commissions of acts
of insolvency
Amount
of
indebtedness must
exceed P1,000
Bond is not required