Chattel Mortgage

Question 1

What is a Chattel Mortgage

Answer 1

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)

Question 2

Requisites of Chattel Mortgage
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Answer 2

A chattel mortgage 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. Therequisites of a chattel mortgage are:
● a. Affidavit of good faith and;
● b. It must be registered.

Question 3

What are the laws governing Chattel Mortgage

Answer 3

● a. Chattel mortgage law, Act 1508
● b. Civil Code provisions
● c. Revised Administrative Code
● d. Revised Penal Code

Question 4

Offenses involving Chattel Mortgage

Answer 4

● Knowingly removing personal property mortgaged 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.
● Selling or pledging personal property already mortgaged or any part thereof, under the terms of the Chattel Mortgage Law , , without the consent of the mortgage written on the back of the mortgage and duly recorded in the CM Register

Question 5

What is the difference between a chattel mortgage and a pledge?

Answer 5

‘PLEDGE
There must be delivery
Registration is not required
Excess of the amount in auction sales goes to the creditor
Creditor is not entitled to recover deficiency in auction sale
To bind third persons must be in a public instrument indicating the description of the thing pledged and date of pledge
CHATTEL MORTGAGE
Delivery is not necessary
Must be registered
Excess of the amount in foreclosure sale will go to the debtor
Creditor is entitled to recover the deficiency
Must be accompanied by affidavit of good faith and must be registered in the Chattel mortgage registry.

Question 6

The petitioner, Makati Leasing and Finance Corporation, entered into a Receivable Purchase Agreement with the respondent, Wearever Textile Mills, Inc., wherein the latter assigned several receivables to the former. To secure the collection of the assigned receivables, the respondent executed a Chattel Mortgage over certain raw materials inventory and a machinery known as an Artos Aero Dryer Stentering Range.

When the respondent defaulted on its obligations, the petitioner filed a petition for extrajudicial foreclosure of the mortgaged properties. However, the Deputy Sheriff assigned to implement the foreclosure was unable to seize the machinery. As a result, the petitioner filed a complaint for judicial foreclosure with the Court of First Instance of Rizal.

The lower court issued a writ of seizure, but its enforcement was restrained upon the respondent’s motion for reconsideration. After several incidents, the lower court eventually lifted the restraining order and ordered the enforcement of the writ of seizure. The sheriff - ‘ then removed the main drive motor of the machinery.

The Court of Appeals, in certiorari and prohibition proceedings filed by the respondent, set aside the orders of the lower court and ordered the return of the seized drive motor. The appellate court ruled that the machinery is a real property and cannot be the subject of replevin or a chattel mortgage.