If a borrower pledges a laptop as collateral for a loan but the collateral is land, which statement is correct?

If a borrower pledges a laptop as collateral for a loan but the collateral is land, which statement is correct?

• A. The contract of chattel mortgage is null and void in so far as the contracting parties are concerned because the subject matter is a land.
• B. CANNOT foreclose the chattel mortgage over the land because the subject matter must be a movable property.
• C. C may still foreclose the chattel mortgage on the land on the basis of doctrine of estoppel.
• D. Third person directly affected by the contract of chattel mortgage is not allowed to file an action for declaration of nullity.

Answer: (C)

A chattel mortgage is meant for movable property; land is immovable, so using a chattel mortgage to cover land isn’t a proper form of security. Yet, if the borrower and lender acted as if the instrument were a valid chattel mortgage and proceeded with rights and remedies under it, the borrower may be barred from challenging the arrangement. The doctrine of estoppel prevents a party from denying a claim or right when their own actions or representations have induced reliance by the other party. In this scenario, because the parties have treated the mortgage as enforceable and pursued foreclosure actions, the lender can foreclose on the land under the estoppel principle.

A chattel mortgage is meant for movable property; land is immovable, so using a chattel mortgage to cover land isn’t a proper form of security. Yet, if the borrower and lender acted as if the instrument were a valid chattel mortgage and proceeded with rights and remedies under it, the borrower may be barred from challenging the arrangement. The doctrine of estoppel prevents a party from denying a claim or right when their own actions or representations have induced reliance by the other party. In this scenario, because the parties have treated the mortgage as enforceable and pursued foreclosure actions, the lender can foreclose on the land under the estoppel principle.