CREDIT TRANSACTIONS

Distinctions between PPSA v Civil Code and Chattel Mortgage Law

From the lectures of Atty. Jazzie Sarona-Lozare

CIVIL CODE PPSA

(RA 11057)

Section 11. Perfection of Security Interest

b. On perfection, a security interest becomes
effective against third parties
“For the mortgage of any motor vehicle to affect
third persons, it should not only be registered in
the chattel mortgage registry but the same
Means of Perfection – Tangible Assets – A security
should also be recorded in the motor vehicle
interest tangible assets may be perfected by either:
office (LTO). The failure of the mortgagee to
a.) Registration of a notice as defined under these
Mortgage of any report the mortgage executed in his favor is
Rules with the Registry; Provided, that a security that
motor vehicle to binding between the mortgagee and the
is not registered remains valid between the parties
affect third mortgagor but ineffective/not binding as against
persons a purchaser in good faith.” (Borlough v Fortune
Enterprises)
NOTE: With the effectivity of the PPSA, it is now
sufficient that you have the mortgage or the security
in interest registered with the register of deeds. That
NOTE: In order to affect third persons, the
is sufficient for its validity. No need for further
mortgage should be recorded also in the LTO.
registration in the LTO because this requirement was
already expressly appealed under the PPSA.

NOTES BY: Elaizza L. Concepcion

 CREDIT TRANSACTIONS
Distinctions between PPSA v Civil Code and Chattel Mortgage Law
From the lectures of Atty. Jazzie Sarona-Lozare

CIVIL CODE PPSA

(RA 11057)

IRR – RA 11057
Registration of Notice
“The duties of a register of deeds in respect to the
Section 5.05. Sufficiency of Notice. –
registration of chattel mortgage are of a purely ministerial
(a) An initial notice of security of interest shall not be rejected:
character. The parties to a contract may, by agreement,
i. If it identifies the grantor by an identification number, as
treat as personal property which by nature would be a real
further prescribed in the regulations;
property. A register of deeds has no authority to pass
ii. If it identifies the secured creditor or an agent of the secured
upon the capacity of the parties to a chattel mortgage
creditor by name;
which is presented to him for record. If the mortgage
iii. If it provides an address for the grantor and secured creditor
Duty of the register of property is real instead of personal, the chattel mortgage
or its agent;
deeds in respect to would no doubt be held ineffective as against third
iv. If it describes the collateral;
registration of chattel parties, but this is a question to be determined by the
v. If it states the duration of effectivity of the security interest;
mortgage courts of justice and not by the register of deeds.”
and
(Standard Oil v Jaramillo)
vi. If the prescribed fee has been tendered, or an arrangement
has been made for payment of fees by other means.
NOTE: What is important is it is binding between the
parties involved and no discretion on the part of the
NOTE: If all of these are complied with, the registry of deeds
register of deeds to refuse such registration on the ground
has the duty to register it. In other words, I think the rule would
that what is involved is a real property
still be the same. The duty of the registry of deeds is still purely
ministerial in nature even in the effectivity of the PPSA.

NOTES BY: Elaizza L. Concepcion

 CREDIT TRANSACTIONS
Distinctions between PPSA v Civil Code and Chattel Mortgage Law
From the lectures of Atty. Jazzie Sarona-Lozare

THE CHATTEL MORTGAGE LAW PPSA

(ACT 1508) (RA 11057)

Section 4. Validity – “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…”

NOTE: This is applicable if what is involved are One registry of properties or personal properties.
Requirement of shares of stock. There’s no problem if the
registration of two corporation who issued the shares of stock is in No similar requirement and no specific provision
different places the same place where the mortgagor resides. that would require registration of two different
places
If the mortgagor resides in a different city or
province and the corporation which issued that
shares is in a different city or province, there must
be registration on both province where the
mortgagor resides and in which the property is
situated (in this case, shares of stock) in which the
corporation which issued the shares has its
principal office.

NOTES BY: Elaizza L. Concepcion

 CREDIT TRANSACTIONS
Distinctions between PPSA v Civil Code and Chattel Mortgage Law
From the lectures of Atty. Jazzie Sarona-Lozare

THE CHATTEL MORTGAGE LAW PPSA

(ACT 1508) (RA 11057)

Apply Section 7 of Act 1508 which provides for the

Reasonable Description rule.

Limitation in Section 7: “A chattel mortgage shall cover

only the property described therein and not like or
substitute property thereafter acquired by the mortgagor
and placed in the same depository as the property
originally mortgaged”

Description of the NOTE: Section 7 does not demand a minute and specific
It is enough that you use the term “all personal property, all
property involved in a description of every chattel mortgage in the deal of
equipment, all personal property with generic category”
chattel mortgage mortgage but, only requires that the description be such
as to enable the parties in the mortgage or any other
person after reasonable inquiry and investigation to
identify the same.

The limitation found in Section 7 on the phrase like or

substituted properties make reference to those thereafter
acquired by the mortgagor and placed in the same
depository as the property originally mortgaged and not
to those already existing and originally included at the
deed of the constitution of the chattel mortgage.

NOTES BY: Elaizza L. Concepcion

 CREDIT TRANSACTIONS
Distinctions between PPSA v Civil Code and Chattel Mortgage Law
From the lectures of Atty. Jazzie Sarona-Lozare

THE CHATTEL MORTGAGE LAW PPSA

(ACT 1508) (RA 11057)

GENERAL RULE: The general rule under Act 1508 with regard to after
acquired properties is it will not be deemed included.

EXCEPTION: unless it is in the form of substitution or replenishment

Future Property/ Future properties are a valid subject matter provided that the
NOTE: Future property is not allowed under the Chattel Mortgage
After-acquired property Law. Although, as an exception, a stipulation in the mortgage
grantor will have a right over these future properties
extending its scope and effect to after-acquired properties is valid and
binding where such properties, in renewal of or in substitution for
goods on hand such as inventory when the mortgage was executed or
purchased with the proceeds of sale of such goods.

A chattel mortgage can only cover obligations existing at the time the
mortgage is constituted. Although there may be a promise expressed
in a chattel mortgage to include future debts, the security itself does
not come into existence or arise until after a chattel mortgage
agreement covering the newly contracted debt is executed, either
you execute a new chattel mortgage or you amend the old contract If you look at the provisions of the law, as well as the IRR, there is no express
of chattel mortgage. Refusal on the part of the borrower to execute provision that would say that it would cover future obligation. What is
the agreement [so as] to cover the after-incurred obligation can mentioned is the requirement that the security agreement identify the
Future Obligations/ constitute an act of default on the part of the borrower [of the secured obligation. However, if you take a look at the sample documents
After-incurred financing agreement] whereon the promise is written, but remedy of or contracts or security agreement attached as annexes to the IRR, they
obligations foreclosure can only cover the debts extant or existing at the time of mention the coverage of the security interest. It may cover present and
the constitution and during the life of the chattel mortgage that is future obligations. In other words, as long as it is covered by the PPSA, it
sought to be foreclosed. (Acme Shoe v CA) can cover future obligations, but, of course, it must be specifically identified
in the security agreement.
The only effect is that there would be no more chattel mortgage to
foreclose, but the second loan continues to be valid and existing, and
the debtor should, nevertheless, be held liable therefor. What was
lost was only the remedy of foreclosure on the part of the mortgagee.
(Marquez v Elisan)

NOTES BY: Elaizza L. Concepcion

 CREDIT TRANSACTIONS
Distinctions between PPSA v Civil Code and Chattel Mortgage Law
From the lectures of Atty. Jazzie Sarona-Lozare
THE CHATTEL MORTGAGE LAW
(ACT 1508)
No right of redemption after the sales is held to discharge
the obligation. What you have under the chattel mortgage
law is an equity of redemption. When we talk about equity
of redemption, after default but before sale or before
registration of the sale.
There is no right to redeem of personal property under
the Chattel Mortgage law. In other words, the ownership
is vested upon the highest bidder during the foreclosure
sale. There is no one-year period of redemption when it
comes to a Chattel Mortgage. (Cabral v Evangelista)
Right of redemption
NOTE:
Relevant here:
• 30-day period: Only after 30-days can the public
auction be held.
• 10 days notice: The sale, ten days before that, at least
you have given notice to the mortgagor-debtor
• Public notice: Under the Chattel Mortgage Law, what is
required only is posting of the public notice. No
requirement of publication, unlike under Act 3135 for
extrajudicial foreclosure of real estate mortgage.
NOTES BY: Elaizza L. Concepcion
PPSA
(RA 11057)
Section 45. Right of Redemption. — (a) Any person who is
entitled to receive a notification of disposition in accordance
with this Chapter is entitled to redeem the collateral by paying
or otherwise performing the secured obligation in full,
including the reasonable cost of enforcement.
(b) The right of redemption may be exercised unless:
(1) The person entitled to redeem has not, after the default,
waived in writing the right to redeem;
(2) The collateral is sold or otherwise disposed of, acquired or
collected by the secured creditor or until the conclusion of an
agreement by the secured creditor for that purpose; and
(3) The secured creditor has retained the collateral
NOTE: It is not really a right of redemption because, technically
speaking, as we have seen in the several cases that we have
discussed, when we talk about right of redemption, it is after
the registration of sale and we call it equity of redemption,
right to pay after default, but essentially, it is after default but
before registration of the sale. But if you look at the provisions
in the PPSA, even if it used the term right of redemption, what
we have here is an equity of redemption, pay prior to the sale.
After the sale has already happened or after, as in this case, as
we would recall under PPSA, the secured creditor can retain
the collateral upon consent of the grantor, that’s it. It’s
finished. So, there is no redemption.
 CREDIT TRANSACTIONS
Distinctions between PPSA v Civil Code and Chattel Mortgage Law
From the lectures of Atty. Jazzie Sarona-Lozare

THE CHATTEL MORTGAGE LAW PPSA

(ACT 1508) (RA 11057)

Section 14 of the Chattel Mortgage expressly entitles the mortgagor

to the balance of the proceeds upon satisfaction of the principal
obligation and cause. Since the chattel mortgage bars the creditor
mortgagee from retaining the excess of the sales proceeds, there is a
corollary obligation on the part of the debtor mortgagee to pay the
deficiency in case of reduction. So, if there is an excess, mortgagor is
entitled but if there is deficiency, mortgagee can go after the debtor Differentiate it to PPSA, as to the application of proceeds:
mortgagor. (PAMECA v CA)
1. Apply to the reasonable expenses
2. To the satisfaction of the obligation secured by the security interest
NOTE: you cannot apply 1484 in a mortgage. 1484 is the Recto Law.
3. The satisfaction of the obligation secured by any subordinate security
interest or in the collateral if a written demand and proof of the interest
Remember in 1484, you have three remedies therein:
are received before distribution of the proceeds is completed
1. Specific Performance
2. Cancellation
Deficiency and Excess
3. Foreclosure of mortgage if any What if there is excess?
&
Application of proceeds The secured creditor shall account to the grantor for any surplus and unless
To which, if that remedy is availed of under 1484 paragraph 3 otherwise agreed, the debtor is liable for any deficiency.
(Foreclosure), the vendor is not anymore entitled to any deficiency in
case the price during the foreclosure sale is not sufficient to pay off More or less, it is the same with chattel mortgage law, the only difference
the unpaid purchase price. But again, that is only applicable if what is is the phrase, “unless otherwise agreed”. We do not have that phrase
involved is a sale of personal property in installments that there is under the chattel mortgage law but I think under the old chattel mortgage
chattel mortgage. law, if there is an agreement that the debtor is not liable for any deficiency,
I don’t think it would be much of an issue because remember, the purpose
of this is on the part of the mortgagee to hold an honest sale.
In Section 14, in case of Sale or foreclosure sale, the proceeds will be
applied as follows:

1. The cost and expenses of keeping and sale;

2. Obligation secured by the Chattel Mortgage;
3. Subsequent mortgagees; and
4. if there is excess, to the mortgagor

NOTES BY: Elaizza L. Concepcion