In the Philippines, a Chattel Mortgage serves as a security interest over personal or movable property. This encumbrance is officially recorded—or annotated—on the property's title or record (such as a Certificate of Registration for vehicles) to notify third parties of the existing lien. Once the underlying debt or obligation is fully satisfied, the mortgage must be legally cancelled to restore the "clean" status of the property.

The process is governed primarily by the Chattel Mortgage Law (Act No. 1508) and the Property Registration Decree (P.D. 1529).

1. The Trigger: Full Payment of the Obligation

The cancellation process cannot begin until the debtor (Mortgagor) has completely fulfilled the obligation to the creditor (Mortgagee). Upon full payment, the Mortgagor has the legal right to demand a document that proves the debt is extinguished.

2. Essential Document: Release of Chattel Mortgage

The most critical document in this process is the Release of Chattel Mortgage (sometimes called a "Cancellation of Chattel Mortgage" or "Deed of Discharge").

Content: This document must explicitly state that the obligation secured by the mortgage has been paid and that the Mortgagee is releasing the lien on the specific property described.
Execution: It must be signed by the Mortgagee (the lender or bank).
Notarization: The document must be notarized. A public instrument is a mandatory requirement for registration with government agencies.

3. Procedural Steps for Specific Property Types

While the general principle remains the same, the venue for cancellation depends on the nature of the property.

A. Motor Vehicles (LTO and Registry of Deeds)

For vehicles, the process involves two distinct government entities:

Registry of Deeds (RD): Since the mortgage was originally registered with the RD where the Mortgagor resides and where the property is located, the cancellation must be recorded there first. You must present the notarized Release of Mortgage and the original Official Receipt (OR) of the registration fee. The RD will issue a Certificate of Cancellation.
Land Transportation Office (LTO): After the RD, the owner must go to the LTO (specifically the branch where the vehicle is currently registered) to have the "Encumbered" notation removed from the Certificate of Registration (CR).

Requirements: Notarized Release of Mortgage, the RD’s Certificate of Cancellation, and the original CR/OR.

B. Other Movable Property (Heavy Equipment, Shares, etc.)

For other types of personal property, the process is centralized at the Registry of Deeds. Under the Personal Property Security Act (PPSA), there is a transition toward a centralized electronic registry (the Land Registration Authority's PPSA Registry), but the fundamental requirement remains filing a termination statement or a discharge document to clear the record.

4. Documentary Requirements Checklist

To ensure a smooth cancellation, the following are typically required:

Original Release of Chattel Mortgage (signed and notarized).
Original Promissory Note (often requested by the bank for their internal marking as "Paid").
Original Title or Certificate of Registration (CR and OR for vehicles).
Valid Government-Issued IDs of the parties involved.
Secretary’s Certificate (if the Mortgagee is a corporation/bank, authorizing the officer to sign the release).
Payment of Registration Fees at the Registry of Deeds and/or LTO.

5. Legal Significance of Cancellation

Failure to cancel the annotation can lead to several complications:

Inability to Sell: A buyer will rarely purchase property with an active encumbrance on the record.
Refusal of Further Financing: Other banks will not accept the property as collateral if a prior mortgage is still annotated.
Estate Issues: If the owner passes away, an active mortgage annotation complicates the settlement of the estate and the transfer of assets to heirs.

6. Timeline and Costs

The timeline for the Registry of Deeds typically ranges from 3 to 10 working days, depending on the volume of the specific branch. Costs involve a Registration Fee, which is usually calculated based on the loan amount or a fixed schedule of fees set by the Land Registration Authority (LRA).

Note on the Personal Property Security Act (RA 11057): The PPSA has introduced reforms to simplify the creation and registration of security interests in personal property. While the traditional "Chattel Mortgage" terminology is still widely used, the law is shifting toward a unified "Security Interest" framework where cancellation is handled via a Termination Statement filed in a centralized electronic registry.