A Chattel Mortgage lets a borrower use personal (movable) property — most often a motor vehicle, but also equipment, machinery, or inventory — as security for a loan, without giving up possession of it. If the borrower (the mortgagor) defaults, the lender (the mortgagee) can foreclose and have the property sold under the Chattel Mortgage Law. What makes a chattel mortgage distinctive in the Philippines is the Affidavit of Good Faith — a sworn statement the law requires to give the mortgage priority over other creditors. This guide explains the document's structure, its legal basis, and how registration works.
What Is a Chattel Mortgage?
A chattel mortgage is an accessory contract that records movable property as security for a principal obligation. Unlike a pledge, the mortgagor keeps possession of the property; unlike a real estate mortgage, the subject is personal property and the governing law is Act No. 1508. The mortgage must be registered to bind third parties, and a motor vehicle mortgage must also be recorded with the LTO.
The defining feature is the statutory Affidavit of Good Faith: the parties swear that the mortgage secures a genuine obligation and was not entered into to defraud creditors. A chattel mortgage without this affidavit is valid between the parties but loses the preference the law grants registered chattel mortgages.
When Do You Need a Chattel Mortgage?
- Vehicle financing — a car, truck, or motorcycle is pledged to secure a loan, with the mortgage annotated on the LTO Certificate of Registration.
- Equipment and machinery loans — business equipment secures financing.
- Inventory or movable assets — movable assets are used as collateral for a credit line.
- Private loans secured by personal property — an individual lends money and takes a movable as security.
Legal Basis
- Act No. 1508 (The Chattel Mortgage Law) — The governing statute. Section 5 prescribes the form of the contract and requires the Affidavit of Good Faith; other sections govern registration and foreclosure.
- Civil Code Articles 2140–2141 — Provide that movables may be the subject of a chattel mortgage and that the law on pledge applies suppletorily to chattel mortgages.
- Civil Code Article 2085 — The essential requisites of a mortgage apply: it secures a principal obligation, and the mortgagor must be the absolute owner with free disposal of the property.
- LTO regulations — Require recording and annotation of a chattel mortgage over a motor vehicle on the Certificate of Registration.
- 2004 Rules on Notarial Practice — The Affidavit of Good Faith must be sworn before a notary, and the deed must be notarized to be registrable.
Required Elements of a Chattel Mortgage
- Parties — full names, civil status, citizenship, and addresses of the mortgagor and mortgagee.
- The secured obligation — principal amount (in words and figures), interest, term, and maturity date.
- Description of the personal property — a specific description, including make and model, serial/engine/chassis number, and plate/CR/OR number where the property is a vehicle, and the location where it is kept.
- Words of mortgage — conveying the property by way of chattel mortgage to secure the obligation.
- Defeasance and default clauses — void on full payment; acceleration and foreclosure on default under Act 1508.
- Covenant against disposition — the mortgagor will not sell, remove, or further encumber the property without the mortgagee's written consent.
- Attorney's fees and registration clauses.
- Affidavit of Good Faith — the statutory sworn statement, signed by both parties.
- Date and place, signatures, and a notarial acknowledgment block.
Sample Chattel Mortgage
Below is a representative excerpt of what a Chattel Mortgage looks like, including the statutory Affidavit of Good Faith. Use Legalia Pro to generate a complete, notary-ready version with your own parties, loan terms, and property details filled in.
This Chattel Mortgage is made and executed by and between:
Juan Dela Cruz, of legal age, Filipino, single, and a resident of 123 Mabuhay Street, Barangay San Antonio, Quezon City, hereinafter referred to as the Mortgagor;
— and —
Maria Santos, of legal age, Filipino, single, and a resident of 456 Mabini Street, Barangay Poblacion, Makati City, hereinafter referred to as the Mortgagee;
WITNESSETH: That —
1. That the Mortgagor is justly indebted to the Mortgagee in the principal sum of Three Hundred Fifty Thousand Pesos (350,000.00), Philippine currency, with interest at the rate of 6% per annum, payable in twelve (12) equal monthly installments, the whole of which obligation shall mature and become due and demandable on June 3, 2027.
2. That the Mortgagor is the absolute owner, free from all liens and encumbrances, of the following described personal property now in the Mortgagor's possession, to wit: one (1) unit motor vehicle, sedan, color silver (make and model: Toyota Vios 1.3 XE, model year 2022; serial/engine/chassis no.: Engine No. 2NR-1234567, Chassis No. MR053JG40N1234567; plate/CR/OR no.: Plate No. ABC 1234). The said property is presently located and kept at 123 Mabuhay Street, Barangay San Antonio, Quezon City.
3. That to secure the full and faithful payment of the foregoing obligation, the Mortgagor does hereby convey by way of CHATTEL MORTGAGE unto the Mortgagee, its/his/her heirs, successors, and assigns, the above-described personal property.
4. That this chattel mortgage shall be null and void upon the full payment of the obligation hereby secured; otherwise, it shall remain in full force and effect and may be foreclosed in the manner provided by Act No. 1508, the Chattel Mortgage Law, and other applicable laws.
5. That the Mortgagor shall keep the mortgaged property in good condition and in the Mortgagor's possession at the place where it is presently kept, and shall not sell, assign, lease, transfer, pledge, further encumber, conceal, remove, or otherwise dispose of the same, or any part thereof, without the prior written consent of the Mortgagee.
6. That the Mortgagor shall be in default upon failure to pay the obligation hereby secured when due, breach of any undertaking herein, the unauthorized sale, transfer, removal, or concealment of the mortgaged property, the creation of any further lien or encumbrance thereon, or the occurrence of any event that materially impairs the Mortgagee's security; in any of which events the entire obligation shall, at the option of the Mortgagee, become immediately due and demandable, and this chattel mortgage may be foreclosed in the manner provided by Act No. 1508.
7. That in case of foreclosure or any litigation arising from or in connection with this chattel mortgage, the Mortgagor shall pay the Mortgagee attorney's fees equivalent to 25% of the total outstanding obligation, plus the costs of suit and the expenses of foreclosure.
8. That this Chattel Mortgage, together with the Affidavit of Good Faith, shall be registered with the proper Registry of Deeds and, where the mortgaged property is a motor vehicle, annotated with the Land Transportation Office. All registration fees, documentary stamp taxes, notarial fees, and other expenses relating to the execution and registration of this mortgage shall be for the account of the Mortgagor, unless otherwise agreed in writing.
IN WITNESS WHEREOF, the parties have hereunto signed this Chattel Mortgage on June 3, 2026 at Quezon City, Philippines.
We, Juan Dela Cruz and Maria Santos, the Mortgagor and Mortgagee, respectively, in the foregoing Chattel Mortgage, severally swear that the said mortgage is made for the purpose of securing the obligation specified in the conditions thereof, and for no other purpose, and that the same is a just and valid obligation, and one not entered into for the purpose of fraud.
BEFORE ME, a Notary Public for and in the above jurisdiction, this June 3, 2026, personally appeared:
| Name | Competent Evidence of Identity |
|---|---|
| JUAN DELA CRUZ | Philippine Passport No. P1234567A |
| MARIA SANTOS | Philippine Passport No. P7654321B |
known to me and to me known to be the same persons who executed the foregoing Chattel Mortgage and the Affidavit of Good Faith, and they acknowledged to me that the same are their free and voluntary act and deed.
WITNESS MY HAND AND SEAL on the date and at the place first above written.
Generate Your Chattel Mortgage — Pro Plan Required
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Subscribe to Pro — Generate NowHow to Draft a Chattel Mortgage
- Identify the parties and the loan. State the mortgagor's and mortgagee's circumstances, then the principal, interest, term, and maturity of the secured obligation.
- Describe the movable property specifically. For a vehicle, include make and model, engine/chassis/serial number, plate/CR/OR number, and where the property is kept.
- Add the words of mortgage, defeasance, default, and covenant clauses — including the undertaking not to sell or remove the property without consent.
- Include the Affidavit of Good Faith. This sworn statement is required by Section 5 of Act 1508 to give the mortgage preference — do not omit it.
- Add attorney's-fees and registration clauses covering the Registry of Deeds and, for vehicles, the LTO.
- Execute, notarize, and register. Both parties sign the deed and the affidavit before a notary; then register with the Registry of Deeds and record with the LTO for vehicles.