Articles 2140 and 2141

Art. 2140. By a chattel mortgage, p

ersonal property is recorded in the
Chattel Mortgage Register as a
security for the performance of an
obligation. If the movable, instead
ofbeing recorded, is delivered to
the creditor or a third person, the
contract is a pledge and not a
chattel mortgage.
CHARACTERISTICS
 Formal contract
 Accessory
 Unilateral contract
 Does not convey dominion but is only a
security
 Creates a real right and follows the
chattel wherever it goes
Note:
If there is no registration, there is no
chattel mortgage. But if there is
delivery, the contract becomes a
pledge. So if there is no registration
and there is no delivery, it follows
legally there is neither a chattel
mortgage nor a pledge.
SOME PROPERTIES CONSIDERED AS PROPER
OBJECTS OF CHATTEL MORTGAGE
 Interest in business (Involuntary Insolvency of
Stockholders vs. Ramirez, 44 Phil. 933)
 Shares of stocks in a corporation
 Machinery treated as personal property
 House intended to be demolished
 A house considered as personal property by
agreement of the parties and no innocent third
party is prejudiced.
 Vessels – registration must be with the Philippine
Coast Guard
 Motor vehicles – Register of Deeds and Land
Transportation Office
Extent of Chattel Mortgage
 Section 7 of the Chattel Mortgage Law
A chattel mortgage shall be deemed to cover
only the 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.
But
 A stipulation in the chattel mortgage,
extending its scope and effect to the after-
acquired property, is valid and binding
where the after-acquired property is in
renewal of, or in substitution for, goods on
hand when the mortgage was executed, or is
purchased with the proceeds of the sale of
such goods.
SIGNIFICANCE OF REGISTRATION
 Registration of the mortgage is tantamount to the
symbolic delivery of the chattel to the mortgagee ,
which is equivalent to actual delivery. (Meyers vs.
Thein, 15 Phil. 303)
 Registration is an effective and binding notice to
the other creditors of its existence and creates a
real right or lien which, being recorded follows
the chattel mortgage wherever is goes. The
registration gives the mortgage symbolical
possession. (Northern Motors vs. Coquia, 68 Phil.
374)
When to register?
Before payment of the
principal obligation and
no right of innocent third
party is prejudiced.
PERIOD TO FORECLOSE
The foreclosure period in
chattel mortgage is 30 days
from the time the condition
has been broken. (Sec. 14,
Chattel Mortgage Law)
FORECLOSURE PROCEDURE
1. There is a 30-day cooling off period before the public auction,
from the time the condition is broken
2. Notice—at least 10 days notice of the time, day, place, and purpose
of such sale has been posted at 2 or more public
places in such municipality. Personal notice or mail shall
also be given to the mortgagor or person holding under him and
the persons holding subsequent mortgages of the time and place of
sale.
3. Sheriff should possess the property as he needs to deliver the same
to the winning bidder. If the mortgagor refuses
to do so, the mortgagee can seek the help of the court. There co
uld also be a stipulation in the contract as well. But if the debtor
is not willing and able, the loss is with the creditor.
4. There is a 30-day equity of redemption period (payment of
obligation)
5. After foreclosure, there could be recovery of deficiency,
but there is Recto Law (1484) pertaining to sale of
personal property in installments and there is a Chattel
Mortgage to secure payment of price.
Case 1
Certain taxicabs were mortgaged by Yellow
Taxi Corporation to the Green Taxi
Corporation in a duly recorded chattel
mortgage. Orange Taxi Corporation, a
creditor of Yellow Taxi attached the
mortgaged taxicabs and had them sold in a
public auction.

Is Orange Taxi correct?

Application of Proceeds of Public
Sale
1. Costs and expenses of keeping and sale;
2. Payment of the obligation secured by the
mortgage;
3. Claims of persons holding subsequent
mortgages in their order;
4. The balance, if any, shall be paid to the
mortgagor or person holding under him.