IX-CHATTEL MORTGAGE(ARTS 2140-2141)

CHAPTER 5CHATTEL MORTGAGE

  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)

Definition of a chattel mortgage Is that contract by virtue of which personal property is recorded in the Chattel Mortgage

Register as a security for the performance of an obligation; (Old law), a conditional sale

Characteristics of chattel mortgage Accessory contract, it is for the purpose of securing the performance of a principal

obligation; Formal Contract, because of its validity, registration in the Chattel Mortgage Register is

indispensable; Unilateral Contract, it produces only obligations on the part of the creditor to free the

thing from encumbrance on fulfillment of the obligation.

Chattel mortgage and pledge distinguished

CHATTEL MORTGAGE PLEDGE> delivery of the personal property to mortgagee not necessary

> delivery is necessary

> registration in the Chattel Mortgage Registry is req’d by law

>registration in the Registry of Property is not necessary

>procedure for the sale of thing given different; found in Sec 14 of Act No. 1508

> procedure for the sale is found in Art 2112 of Civil Code

> if property foreclosed, excess over amount due goes to debtor

> debtor is not entitled to the excess unless it is otherwise agreed

>if property is foreclosed and there is deficiency, creditor is entitled to recover from debtor except if chattel mortgage is security for purchase of personal property in installments

> if property is sold and there is deficiency, creditor not entitled to recover deficiency notwithstanding any stipulation to contrary

Similarities between chattel mortgage and pledge: Both are executed to secure performance of a principal obligation; Both are constituted only on personal property; Both are indivisible; Both constitute a lien on the property; In both cases, the creditor cannot appropriate the property to himself in payment

of the debt; In both cases, when debtor defaults, the property must be sold for the payment of

the creditor; Both are extinguished by the fulfillment of the principal obligation or by the

destruction of the property pledged or mortgaged.Notes:

Sec. 14., Act No. 1508Sale of property at public auction; Officer's return; Fees; Disposition of proceeds. — The mortgagee, his executor, administrator, or assign, may, after thirty days from the time of condition broken, cause the mortgaged property, or any part thereof, to be sold at public auction by a public officer at a public place in the municipality where the mortgagor resides, or where the property is situated,

provided at least 10 days' notice of the time, place, and purpose of such sale has been posted at 2 or more public places in such municipality, and the mortgagee, his executor, administrator, or assign, shall notify the mortgagor or person holding under him and the persons holding subsequent mortgages of the time and place of sale, either by notice in writing directed to him or left at his abode, if within the municipality, or sent by mail if he does not reside in such municipality, at least 10 days previous to the sale.

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The officer making the sale shall, within 30 days thereafter, make in writing a return of his doings and file the same in the office of the register of deeds where the mortgage is recorded, and the register of deeds shall record the same. The fees of the officer for selling the property shall be the same as in the case of sale on execution as provided in Act No. 190, (4) and the amendments thereto, and the fees of the register of deeds for registering the officer's return shall be taxed as a part of the costs of sale, which the officer shall pay to the register of deeds. The return shall particularly describe the articles sold, and state the amount received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the

mortgages, shall be paid to the mortgagor or person holding under him on demand.

If the sale includes any "large cattle," a certificate of transfer as required by section sixteen of Act No. 1147(5) shall be issued by the treasurer of the municipality where the sale was held to the purchaser thereof.

Art. 2112, NCC The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of the thing pledged. This sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the public sale is to be held. If at the first auction the thing is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire claim.

Art. 2141. The provisions of this Code on pledge, insofar as they are not in conflict with the Chattel Mortgage Law shall be applicable to chattel mortgages.

Offenses involving chattel mortgage1. Knowingly removing any personal property mortgaged under the Chattel Mortgage Law to

any province or city other than the one in which it is located at the time of the execution of the mortgage without the written consent of the mortgagee; and

2. Selling and pledging personal property already mortgaged, or any part thereof, under the terms of the Chattel Mortgage Law without the consent of the mortgagee written at the back of the mortgage and duly recorded in the Chattel Mortgage Register.

>> Essential element common to the 2 acts punished under Art 319 of RPC: property removed or repledged, as the case may be, should be the same or identical property that was mortgaged or pledged before such removal or pledging;

~mortgagor not relieved of criminal liability even if mortgage indebtedness is thereafter paid in full or mortgagor-seller informed the purchaser that the thing sold had been mortgaged.

~sale is valid although no written consent was obtained from mortgagee but mortgagor lays himself open to criminal prosecution.

Applicability of provisions on pledge Art 2141, only insofar as they are not in conflict with any provision of Chattel Mortgage Law;

otherwise, latter will apply. Has been ruled that “the provisions of the Chattel Mortgage Law with regard to the

effects of the foreclosure of a chattel mortgage are precisely contrary to the provisions of Art 2115 of the Civil Code” and “accordingly, the chattel mortgage creditor may maintain an action for deficiency.”

Note: Actually, Chattel Mortgage Law is silent on the matter of recovering deficiency after the foreclosure sale of the mortgaged chattel.

Subject matter of chattel mortgage Must always be personal or movable property; following have been held mortgageable under

the Chattel Mortgage Law: Shares of stock in a corporation

But if the owner of the shares not domiciled in the same province where corporation is domiciled, the registration must be made in both provinces;

An interest in business It is personal property capable of appropriation

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Machinery treated by the parties as personal property subsequently installed on leased land.

Nature of machineries in dispute ( i.e they were heavy, bolted or cemented on real property mortgaged) does not make them ipso facto immovable under Art 415(3) and (5) of NCC.

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Machinery and equipment appearing to be immobile, may be treated by the parties as chattels to secure an obligation under the principle of estoppel; may be considered a personal property, if there is a stipulation as when it is used as security in payment of an obligation where a chattel mortgage is executed overit.

“After acquired properties” as real property by expressly agreeing that they shall automatically become subject to lien of real estate, impresses upon the properties the character determined by the parties who must be held in estoppel to question it; such deemed immobilized with the result that it is not necessary to register them a second time as chattel mortgages to affect third parties;

Vessels Essential that mortgage is recorded in the office of the Phil. Coast Guard of

the port of documentation of such vessels to be effective to third persons; Not necessary that it be recorded in the office of the Register of Deeds.

Motor Vehicles Must also be registered with Land Transportation Office With respect to vehicles used for public services, mortgage must also carry

the approval of the Land Transportation Franchising and Regulatory Board (LTFRB) to make it effective against the public and the Commission;

Recording provisions of the Revised Motor Vehicles Law (Land Transportation and Traffic Code) merely complimentary to those of Chattel Mortgage Law; mortgage of any motor vehicle in order to affect 3rd persons should not only be registered in Chattel Mortgage Registry but also recorded in Motor Vehicles Office (LTO); failure of mortgagee to report the mortgage in his favor has effect of making said mortgage INEFFECTIVE against a purchaser in good faith who registers his purchase of same vehicle in Motor Vehicles Office;

House of mixed materials By its very nature considered personal property and expressly designated by

the parties.

House intended to be demolished What are really mortgaged are the materials thereof and are therefore

personal property;

House built on rented land Where not only deed of mortgage considered it as such but also did not form

part of land, an object placed on land by one who had only a temporary right to the same, such as lessee or usufructuary, does not become immobilized by attachment;

View that parties to a deed of chattel mortgage may agree to consider a house as personal property for purpose of said contract is good insofar as the contracting parties are concerned; based on principle of estoppel;

But house whether erected by owner or usufructuary or lessee, was subject of chattel mortgage and considered personal property by parties does not make said house personal for purposes of notice to be given for its sale at public auction~ demanded by the need for a definite, orderly and well-defined regulation for official and public guidance and prevent confusion and misunderstanding; sales on execution affect the public and 3rd persons.

House of strong materials May be considered as personal property as long as parties to the contract

agree and no innocent third party will be prejudiced thereby; no reason why a

machinery which is movable in its nature and becomes immobilized only by destination or purpose may not be likewise treated as such;

Registration of a building of strong materials produces no effect as far as building is concerned; as building is an immovable property, it cannot be divested of its character of realty by the fact that it belongs to another. If status of the building were to depend on the ownership of land, a situation would be created where a permanent fixture changes its nature or character as the ownership of the land changes hands. As personal properties could only be subject of a chattel mortgage, the execution of a chattel mortgage on a building is invalid and a nullity, and the registration of the document in chattel mortgage register is merely a futile act and cannot affect the rights of a subsequent real estate morgagee of the same property.

Mortgage of improvements on land Chattel mortgage

For purposes of Chattel Mortgage Law, both growing crops and large cattle (Sec 7, pars 2 & 3, Act 1508) are personal property and therefore, capable of being mortgaged although they would be considered immovable property under the conditions stated in Art 415 Nos. (2) and (6) of NCC; no conflict between the CML and CC because Art 416(2) of CC classifies as personal property “Real property which by any special provisions of law is considered as personalty.”

Real Estate mortgage Settled in our jurisdiction that in GENERAL, and so far as the public is concerned,

such improvements if falling under the provision of Art 415 of Civil Code, are immovable property; as a consequence, mortgage constituted on said improvements must be susceptible of registration as a real estate mortgage and of annotation on the certificate of title to the land of which they form part, although land itself may not be subject to said encumbrance.

No absolute criterion between personal and real property Arts 415 and 416 of CC supply no absolute criterion for discriminating between

the 2 kinds of property for purposes of the application of CML; state rules which, considered as a GENERAL DOCTRINE, are laws in this jurisdiction.

Under given conditions, property may have character different from that imputed to it in said articles;

Parties to a contract may, by agreement, treat as personal property that which by nature would be real property; familiar phenomenon to see things classified as real property for purposes of taxation which on general principles might be personal property.

Other situations are constantly arising in which the proper classification of one thing or another as real or personal property may be said to be doubtful.

Subject matter to be described and identified SEC 7 of CML does not demand a minute and specific description of every chattel

mortgaged in the deed of mortgage, but only requires that the description of mortgaged property be such as enable the parties to the mortgage or any other person to identify the same after a reasonable investigation and inquiry ; otherwise MORTGAGE IS INVALID.

Extent of chattel mortgage Sec 7, par 4 of Act No. 1508 provides:

“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 depository as the property originally mortgaged, anything in the mortgage to the contrary notwithstanding.”

1. Coverage extends only to property described therein.~limitation found in this provision makes reference to “like or substituted property thereafter acquired…” not to those already existing and originally included at the date of constitution of the mortgage; contrary view would unduly impose a more rigid condition that what law prescribes which is that the description be only such as to enable identification after a reasonable inquiry and investigation.

~does not apply to “stores open to the public for retail business where the goods are constantly sold and substituted with new stock, such as drugstores, grocery stores, dry goods stores, etc; otherwise” it would be practically impossible to constitute a mortgage on such stores without closing them contrary to the very spirit and purpose of the Act; defeat purpose for which the law was enacted: the promotion of business and the economic development of country.xxx”

2. Stipulation including after-acquired property~ is valid and binding xxx 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, etc.

~where facts taken together, evince the conclusion that the parties’ intention is to treat the controverted properties (i.e. machineries) as chattels (although they appear to be immobile), a fortiori, the after-acquired properties, which are of the same description as the properties enumerated in the contract must also be treated as chattels.

Chattel mortgage of after-incurred obligations A pledge, real estate mortgage, or antichresis may exceptionally secure after-incurred

obligations so long as these future debts are accurately described. A chattel mortgage, however, can only cover obligations existing at the time the mortgage is

constituted. Although a promise expressed in a chattel mortgage to include debts that are yet to be

contracted can be a binding commitment that can be compelled upon, the security itself, however, does not come into existence or arise until after a chattel mortgage agreement covering the newly contracted debt is executed either by concluding a fresh chattel mortgage or by amending the old contract conformably with the form prescribed by the CML.

Refusal on the part of the borrower to execute such agreement so as to cover the after-incurred obligation can constitute an act of default on the part of borrower of the financing agreement whereon the promise is written but, of course, remedy of foreclosure can only cover the debts extant at the time of constitution and during the life of the chattel mortgage sought to be foreclosed.

Creation of a chattel mortgage Law provides for only one way for executing a valid chattel mortgage- REGISTRATION OF

THE PERSONAL PROPERTY IN THE CHATTEL MORTGAGE REGISTER as security for the performance of an obligation.

Under CML, if property situated in a different province from that in which the mortgagor resides, the registration must be in both registers; otherwise, chattel mortgage is VOID.

Filipinas Marble Corp vs IAC, SC ruled that if chattel mortgage is not recorded, it is nevertheless binding between the parties.

Period within which registration should be made Law does not provide any specific time; Ledesma vs Perez, SC held that “law substantially and sufficiently complied with where the

registration is made by the mortgagee before the mortgagor has complied with his principal obligation and no right of innocent 3rd persons is prejudiced; view in accord with practical justice, for the law does not intend that its provisions be used as a shield to avoid performance of an obligation under what would otherwise be a valid contract.”

Effect of registration 1. Creates real right

Registration is an effective and binding notice to other creditors of its existence and creates a real right or a lien which, being recorded, follows the chattel whenever it goes;

Registration gives mortgagee symbolical possession; protect him from debtor’s possible disposal of the property, the chattel mortgage is made effective against third persons by process of registration.

a. That chattel mortgagee has the symbolical possession and that he has preferential right to have physical possession is inferable from Art 319 of RPC which penalizes wrongful removal, sale or pledge of the mortgaged chattel without the written consent of mortgagee;

b. The lien of a chattel mortgagee over mortgaged property is superior to the levy made on the same by the assignee of the unsecured judgment creditor of the chattel mortgagor; theory that the breach by mortgagor of chattel mortgagor should not affect the assignee because he is not a privy to such contract is untenable; judgment-creditor can only attach the equity or right of redemption of mortgagor.

c. Rule that “a mortgagee has the right to rely in good faith on the certificate of title of the mortgagor to the property given as security and in the absence of any sign that might arouse suspicion, has no obligation to undertake further investigation,” generally pertains to real property, particularly registered land~ it may also be applied by analogy to the personal property, specifically vessels or ships, since shipowners likewise required by law to register their vessels with Phil. Coast Guard.

2. Adds nothing to mortgage Act of recording a chattel mortgage consists in the fact that it operates as a

constructive notice of the existence of the contract, and the legal effects of the contract must be discovered in the instrument itself in relation with the fact of notice;

Registration adds nothing to the instrument, considered as a source of title and affects nobody’s rights except as a species of notice.

Registration of assignment of mortgage not required. Applying by analogy Art 2128 of the Civil Code to a chattel mortgage, it appears that a

chattel mortgage credit may be alienated or assigned to a third person.

There is no law expressly requiring the recording of the assignment of a mortgage; but may be recorded, law is permissive and not mandatory.

Clear that debtor is protected if he pays his creditor without actual knowledge that the debt has been assigned; such notice must be actual, and the recording of the assignment will not operate as constructive notice to the debtor.

Duty of Register of Deeds ministerial in respect to the registration of chattel mortgage; no provision of law which confers upon the

Register of Deeds any judicial or quasi-judicial power to determine the nature of any document of which registration is sought as a chattel mortgage.

Duty to accept the proper fee and place the instrument on record, leaving the effects of registration to be determined by the court if such question should arise for legal determination.

Cannot refuse registration on the ground only that the interests mortgaged do not appear to be personal property within the meaning of the CML.

Affidavit of good faith required Is an oath in a contract of chattel mortgage wherein the parties “severally swear that the

mortgage is made for the purpose of securing the obligation specified in the conditions thereof and for no other purposes and that the same is a just and valid obligation and one not entered into for the purpose of fraud.

Effect of Absence 1. CML in Sec 5, in describing what shall be deemed sufficient to constitute a

good chattel mortgage includes requirement of an affidavit of good faith appended to the mortgage and recorded therewith;

2. Absence of the affidavit VITIATES a mortgage only as against third persons without notice like creditors and subsequent encumbrancers;

3. Special affidavit required only for the purpose of transforming an already valid mortgage into “preferred mortgage;” not necessary for the validity of the chattel mortgage itself but only to give it a preferred status.

Where mortgage includes debt thereafter to be contracted 4. Obvious that the debt referred to in the law is a current, not an obligation that

is merely contemplated;5. Deed of chattel mortgage is void where it provides that the security stated

therein “is for the payment of any and all obligations contracted and which may hereafter be contracted by the mortgagor in favor of mortgagee;

6. A mortgage that contains a stipulation in regard to future advances in the credt will take effect only from the date the same are made and not from the date of mortgage.

7. Chattel mortgage can only cover obligations existing at the time the mortgage is constituted; once said obligations are paid, there can be no foreclosure in new loans concluded after the execution of chattel mortgage since there is no longer any mortgage.

Right of redemption When the condition of a chattel mortgage is broken the following may redeem:

a. The mortgagor;b. A person holding a subsequent mortgage; orc. A subsequent attaching creditor.

An attaching creditor who so 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;

The redemption is made by paying or delivering to the mortgagee the amount due on such mortgage and the costs and expenses incurred by such breach of condition before the sale thereof.

Upon sale of personal property at the foreclosure (or execution) sale, all rights of ownership leave the mortgagor (judgment debtor) and become vested in the purchaser. THERE IS NO RIGHT TO REDEEM PERSONAL PROPERTY.

Right acquired by second mortgagee and subsequent purchaser

1. Before payment of debt

After chattel mortgage is executed, there remains in the mortgagor a mere right of redemption and only this right passes to the second mortgagee in case of a second mortgage.

As between the 1st and 2nd mortgagee, therefore, the latter can only recover the property from the former by paying him the mortgage debt.

Even when the 2nd mortgagee goes through the formality of an extrajudicial foreclosure, the purchaser acquires no more than the right of redemption from the 1st

mortgagee.

2. After payment of debt If the only leviable or attachable interest of a chattel mortgagor in a mortgaged

property is his right of redemption, it follows that the judgment or attaching creditor who purchased the property at the execution sale could not acquire anything except such right of redemption;

He is not entitled to the actual possession and delivery of the property without first paying the mortgage debt.

Right of mortgagee to possession1. After default

When default occurs and the creditor desires to foreclose, the right of the creditor to take the mortgaged property is clearly implied from the provision which gives him the right to sell.

2. Before default A chattel mortgagee is NOT ENTITLED to the possession of the property upon the

execution of the chattel mortgage for otherwise, the contract becomes a pledge and ceases to be a chattel mortgage.

3. Where mortgagor refuses to surrender possession Creditor’s remedy is to institute an action either to effect a judicial foreclosure

directly or to secure possession as a preliminary to the sale contemplated in Sec 14 of Act No 1508.

a. Mortgagee’s right of possession conditioned upon fact of default. Creditor cannot lawfully take the property by force against the will of the

debtor. REASON: Creditor’s right of possession is conditioned upon the fact of default,

and existence of this fact may naturally be subject of controversy.

b. Sheriff mere agent of morgagee Nor can the public officer, such as sheriff, seize the property where creditor

could not as it is manifest that such officer proceeding under the authority or the language of Sec 14 becomes the mere agent of creditor;

For the recovery of possession, where right is disputed, the creditor must proceed along the usual channels by action in court.

c. Sheriff without authority to seize mortgaged property Not required in case of default and mortgagor refuses upon demand to

surrender possession of the mortgaged chattel, for mortgagee before he can file an action for replevin or for judicial foreclosure, to first ask the sheriff to foreclose the mortgage or take possession of the property; unnecessary because sheriff has no authority to seize the mortgaged property but also would be an exercise in futility.

d. Recoverable expenses against the mortgagor Include expenses properly incurred in effecting seizure of the chattel and

reasonable attorney’s fees in prosecuting the action for replevin.

4. Where right of mortgage conceded/disputed The action need only be maintained against him who so possesses the property; Persons having a special right of property in the goods the recovery of which is

sought, such as chattel mortgagee, may maintain an action for replevin therefore; Where mortgage authorizes the mortgagee to take possession of property on default,

he may maintain an action to recover possession of the mortgaged chattels from the mortgagor or from any person in whose hands he may find them.

In effect, mortgagee, upon mortgagor’s default, is constituted an attorney in fact of mortgagor enabling such mortgagee to act for and in behalf of owner.

That defendant is not privy to the chattel mortgage should be inconsequential; fact that object of replevin is traced to his possession, one can properly be a defendant in action for replevin.

5. Where third party claims title Under Sec 14, Rule 57 of Rules of Court, a third party claimant to a property levied

upon by writ of attachment must make an affidavit showing that he has title thereto or right to the possession thereof; excludes CHATTEL MORTGAGEE because a chattel mortgage is merely a security for a loan and does not transfer title to the property mortgaged to the chattel mortgagee.

6. Where claimant is an unpaid seller Has no cause of action against mortgagee for recovery of the value of the goods and

merchandise; mortgagee caused no injury to unpaid seller; obligation to pay remains with obligor-mortgagor; if there was any damage to unpaid seller resulting from the inclusion of the unpaid goods and merchandise in the foreclosure, it was “damnum absque injuria” (loss without injury).

Foreclosure of chattel mortgage1. After payment of the debt or the performance of the condition specified in the Chattel

Mortgage, the mortgagee must discharge the mortgage in the manner provided by law otherwise, he may be held liable for damages by any person entitled to redeem the mortgage.

1. Public Sale

If the mortgagor defaults in the payment of the secured debt or otherwise fails to comply with the conditions of the mortgage, the creditor has no right to appropriate to himself the personal property because he is permitted only to recover his credit from the proceeds of the sale of the property at public auction through a public officer in the manner prescribed in Sec 14 of Act No 1508.

a. Sc 14 allows the mortgagee to have the property mortgaged sold in almost the same manner as that allowed by Act No. 3135 which governs the extrajudicial foreclosure of real estate mortgage; necessary that the requirements of the law relative to notice and registration are complied with.

b. The mere fact that mortgagee was the sole bidder for mortgaged property in the public sale does not warrant the conclusion that the transaction was attended with fraud; requires a serious allegation that requires full and convincing evidence.

Note: SC Admin Order No. 3 (Oct 19, 1984) as amended by Admin Order No. 99-10-05-0, Jan 15, 2000), makes its provisions uniformly applicable to all extrajudicial foreclosure of both real estate mortgage under Act No, 3135 as amended and chattel mortgage under Act No. 1508, as amended whether conducted under the direction of the Sheriff or notary public.

2. Private Sale Nothing illegal, immoral, or against public order in an agreement for the private sale

of the personal properties covered by the chattel mortgage; mortgagor is in estoppel to question except on ground of fraud or duress.

Period to foreclose mortgage

1. Chattel Mortgage Mortgagee may, after 30 days from the time of the condition broken, cause the

mortgaged property to be sold at public auction by a public officer; 30-day period to foreclose a chattel mortgage is the MINIMUM period after violation

of the mortgage condition for the mortgage creditor to cause the sale at public auction of the mortgaged chattel with at least 10 days notice to the mortgagor and posting of public notice of time, place and purpose of such sale, and is a period for mortgagor to discharge the mortgage obligation;

After the sale of chattel at public auction, the right of redemption is no longer available to the mortgagor.

2. Real Estate Mortgage Judicial Foreclosure, grace period for the mortgagor to pay amount due is NOT LESS

THAN 90 days nor MORE THAN 120 days FROM ENTRY OF JUDGMENT ON FORECLOSURE; in default of such payment, property shall be sold at public auction to satisfy judgment.

Civil Action to Recover Credit1. Independent action for enforcement of credit NOT required

To require him to do so would be nullification of his lien and would defeat purpose of chattel mortgage which is to give him preference over the mortgage chattels for the satisfaction of his credit;

As signatory to a valid and subsisting promissory note secured by a chattel mortgage, the mortgagor is the one primarily and directly liable to the mortgagee for the amount of the loan; not a defense that he has transferred the possession or ownership of the mortgaged property to seller thereof.

2. Mortgage lien deemed abandoned by obtaining a personal judgment By instituting a civil action to recover amount of the loan from mortgagor and by

securing judgment in his favor, mortgagee abandons his mortgage lien on the mortgage chattel for he clearly manifests his lack of desire and interest to go after the mortgaged property as security for principal obligation.

Ordinary action to recover possession of chattel In case of refusal of mortgagor to surrender the possession of the mortgaged chattel sold by

the sheriff, remedy of the purchaser is to bring an ordinary action for recovery of possession, instead of merely asking for a writ of possession, in order to give mortgagor the opportunity to be heard not only regarding possession but also regarding the obligation covered by mortgage.

CML does not contain provisions similar to Secs 6 and 7 of Act NO. 3135 governing extrajudicial foreclosure of real estate mortgages, which make the provisions of Rule 39 of the Rules of Court on redemption in case of execution sales applicable to an extrajudicial foreclosure of a real estate mortgage.

Action for replevin as a remedy1. Nature of remedy

Is both a form of principal remedy and of a provisional relief; May refer to the action itself, i.e to regain possession of personal chattels being

wrongfully detained from the plaintiff by another, or to the provisional remedy that

would allow the plaintiff to retain the thing during pendency of the action and hold it pendent elite;

Action primarily possessory in nature and generally determines nothing more than the right of possession.

Mixed Action, being partly IN REM and partly IN PERSONAM In REM- insofar as the recovery of specific property is concerned; IN PERSONAM- the gist of the replevin action is the right of the plaintiff to

obtain possession of specific personal property by reason of his being the owner or of his having a special interest therein.

2. Where right of possession is not disputed Action need only be maintained against him who so possesses the property; Mortgagee, upon mortgagor’s default is constituted an attorney in fact of the

mortgagor enabling such mortgagee to act for and in behalf of the owner.

3. Where right of possession disputed Essential to have other persons involved and accordingly impleaded for a complete

determination and resolution of the controversy; Burden to establish a valid justification for such action lies with the plaintiff; adverse

possessor who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract, simply because the mortgagee brings up an action for replevin.

4. Matters to be established A chattel mortgagee, unlike a pledge, need not be in, nor entitled to the possession

of the property unless and until mortgagor defaults and the mortgagee thereupon seeks to foreclose thereon;

Since mortgagee’s right of possession is conditioned upon the actual fact of default which itself may be controverted, inclusion of other parties, like debtor or mortgagor is required in order to allow a full and conclusive determination of case;

Where mortgagee seeks a replevin in order to effect the eventual foreclosure of mortgage, not only existend of, but also the mortgagor’s default on, the chattel mortgage that, among other things, can properly uphold the right to replevy the property; burden to establish a valid justification for that action lies with the plaintiff.

Adverse possessor, who is not the mortgagor, cannot just be deprived of his possession, let alone be bound by the terms of the chattel mortgage contract simply because mortgagee brings up an action for replevin.

Right of morgagee to recover deficiency1. Where mortgage foreclosed

Creditor may maintain an action for the deficiency although CML is SILENT on this point;

REASON: Chattel mortgage is only given as a security not as payment for the debt in case of failure of payment;

Both CML and Act No. 3135 governing EXTRAJUDICIAL FORECLOSURE of real estate mortgage DO NOT contain any provision, expressly or impliedly, precluding the mortgagee from recovering deficiency of the principal obligation

Action may be brought within 10 years from the time the cause of action accrues, even if it not upon a written contract because the obligation of mortgagor to pay the deficiency is one created by law; action is in nature of a mortgage action because its purpose is precisely to enforce the mortgage contract.

2. Where mortgage constituted as security for purchase of personal property payable in installments

No deficiency judgment can be asked and any agreement to the contrary shall be void;

Once vendor of personal property sold on installment has foreclosed the chattel mortgage on the thing sold, he is precluded from proceeding against the security put up by a third person for if the latter should be compelled to pay the balance, he will

in turn, be entitled what he has paid from debtor-vendee; vendee will be made to bear payment of balance of price, despite foreclosure of chattel mortgage given by him, indirectly subverting protection given by Art 1484.

Remedies granted by Art 1484 are ALTERNATIVE, not cumulative, and EXCLUSIVE, the exercise of one would bar exercise of the others.

Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void

3. Where mortgaged property subsequently attached and sold Chattel mortgagee is entitled to deficiency judgment in an action for specific

performance; Execution sale is not a foreclosure sale

Application of proceeds of sale The proceeds of the sale are to be applied to the payment of the following:

1. Costs and expenses of keeping and sale;2. Payment of obligation secured by mortgage;3. Claims of persons holding subsequent mortgages in their order; and4. Balance, if any, shall be paid to the mortgagor or person holding under him.

In pledge, sale of thing pledged extinguishes the entire principal obligation such that the pledgor may no longer recover the proceeds of the sale in excess of the amount of the principal obligation;

Sec 14 of CML, on the otherhand, expressly entitles the mortgagor to the balance of the proceeds upon satisfaction of the principal obligation and costs; since CML bars the creditor-mortgagee from retaining excess of sale proceeds, there is a corollary obligation on the part of the debtor-mortgagor to pay deficiency in case of reduction in price at public auction.