LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees, vs.

FILIPINAS
INVESTMENT and FINANCE CORPORATION, JOSE D. SEBASTIAN and JOSE SAN
AGUSTIN, in his capacity as Sheriff, defendant-appellants.

1983-01-27 | G.R. No. L-39806

DECISION

DE CASTRO, J.:

Appeal from the decision of the Court of First Instance of Rizal, Branch I, in Civil Case No. 9140 for
annulment of contract, originally filed with the Court of Appeals but was subsequently certified to this
Court pursuant to Section 3 of Rule 50 of the Rules of Court, there being no issue of fact involved in this
appeal.

The materials facts of the case appearing on record may be stated as follows: On April 14, 1964,
plaintiffs purchased from the Supreme Sales and Development Corporation two (2) brand new Ford
Consul Sedans complete with accessories, for P26,887 payable in 24 monthly installments. To secure
payment thereof, plaintiffs executed on the same date a promissory note covering the purchase price
and a deed of chattel mortgage not only on the two vehicles purchased but also on another car
(Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the defunct Public
Service Commission for the operation of a taxi fleet. Then, with the conformity of the plaintiffs, the vendor
assigned its rights, title and interest to the above-mentioned promissory note and chattel mortgage to
defendant Filipinas Investment and Finance Corporation.

Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the defendant
corporation foreclosed the chattel mortgage extrajudicially, and at the public auction sale of the two Ford
Consul cars, of which the plaintiffs were not notified, the defendant corporation was the highest bidder
and purchaser. Another auction sale was held on November 16, 1965, involving the remaining properties
subject of the deed of chattel mortgage since plaintiffs' obligation was not fully satisfied by the sale of the
aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to operate five units of
taxicab service was sold for P'8,000 to the highest bidder, herein defendant corporation, which
subsequently sold and conveyed the same to herein defendant Jose D. Sebastian, who then filed with
the Public Service
Commission an application for approval of said sale in his favor.

On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First
Instance of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and
Sheriff Jose San Agustin, as party-defendants. By agreement of the parties, the case was submitted for
decision in the lower court on the basis of the documentary evidence adduced by the parties during the
pre-trial conference. Thereafter, the lower court rendered judgment as follows:

"IN VIEW OF THE ABOVE CONSIDERATIONS, this Court declares the chattel mortgage, Exhibit 'C', to
be null and void in so far as the taxicab franchise and the used Chevrolet car of plaintiffs are concerned,
and the sale at public auction conducted by the City Sheriff of Manila concerning said taxicab franchise,
to be of no legal effect. The certificate of sale issued by the City Sheriff of Manila in favor of Filipinas
Investment and Finance Corporation concerning plaintiffs' taxicab franchise for P8,000 is accordingly
cancelled and set aside, and the assignment thereof made by Filipinas Investment in favor of defendant
Jose Sebastian is declared void and of no legal effect." (Record on Appeal, p. 128).

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From the foregoing judgment, defendants appealed to the Court of Appeals which, as earlier stated,
certified the appeal to this Court, appellants imputing to the lower court five alleged errors, as follows:

I
"THE LOWER COURT ERRED IN DECLARING THE CHATTEL MORTGAGE, EXHIBIT 'C', NULL AND
VOID.

II
"THE LOWER COURT ERRED IN HOLDING THAT THE SALE AT PUBLIC AUCTION CONDUCTED
BY THE CITY SHERIFF OF MANILA CONCERNING THE TAXICAB FRANCHISE IS OF NO LEGAL
EFFECT.

III
"THE LOWER COURT ERRED IN SETTING ASIDE THE CERTIFICATE OF SALE ISSUED BY THE
CITY SHERIFF OF MANILA IN FAVOR OF FILIPINAS INVESTMENT AND FINANCE CORPORATION
COVERING PLAINTIFFS' TAXICAB FRANCHISE.

IV
"THE LOWER COURT ERRED IN DECLARING VOID AND OF NO LEGAL EFFECT THE
ASSIGNMENT OF THE TAXICAB FRANCHISE MADE BY FILIPINAS INVESTMENT AND FINANCE
CORPORATION IN FAVOR OF DEFENDANT.

V
THE LOWER COURT (sic) IN NOT DECIDING THE CASE IN FAVOR OF THE DEFENDANTS."
(Appellants' Brief, pp. 9 & 10)

From the aforequoted assignment of errors, the decisive issue for consideration is the validity of the
chattel mortgage in so far as the franchise and the subsequent sale thereof are concerned.

The resolution of said issue is unquestionably governed by the provisions of Article 1484 of the Civil
Code which states:

"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."

Under the above-quoted article of the Civil Code, the vendor of personal property the purchase price of
which is payable in installments, has the right, should the vendee default in the payment of two or more
of the agreed installments, to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or
to foreclose the mortgage on the purchased personal property, if one was constituted. 1 Whichever right
the vendor elects, he cannot avail of the other, these remedies being alternative, not cumulative. 2
Furthermore, if the vendor avails himself of the right to foreclose his mortgage, the law prohibits him from
further bringing an action against the vendee for the purpose of recovering whatever balance of the debt
secured not satisfied by the foreclosure sale. 3 The precise purpose of the law is to prevent mortgagees
from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit
against the mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would find himself
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without the property and still owing practically the full amount of his original indebtedness. 4

In the instant case, defendant corporation elected to foreclose its mortgage upon default by the plaintiffs
in the payment of the agreed installments. Having chosen to foreclose the chattel mortgage, and bought
the purchased vehicles at the public auction as the highest bidder, it submitted itself to the
consequences of the law as specifically mentioned, by which it is deemed to have renounced any and all
rights which it might otherwise have under the promissory note and the chattel mortgage as well as the
payment of the unpaid balance.

Consequently, the lower court rightly declared the nullity of the chattel mortgage in question in so far as
the taxicab franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the
ruling in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil. 587, the facts of
which are similar to those in the case at bar. There, we have the same situation wherein the vendees
offered as security for the payment of the purchase price not only the motor vehicles which were bought
on installment, but also a residential lot and a house of strong materials. This Court sustained the
pronouncement made by the lower court on the nullity of the mortgage in so far as it included the house
and lot of the vendees, holding that under the law, should the vendor choose to foreclose the mortgage,
he has to content himself with the proceeds of the sale at the public auction of the chattels which were
sold on installment and mortgaged to him, and having chosen the remedy of foreclosure, he cannot nor
should he be allowed to insist on the sale of the house and lot of the vendees, for to do so would be
equivalent to obtaining a writ of execution against them concerning other properties which are separate
and distinct from those which were sold on installment. This would indeed be contrary to public policy
and the very spirit and purpose of the law, limiting the vendor's right to foreclose the chattel mortgage
only on the thing sold.

In the case of Cruz v. Filipinas Investment & Finance Corporation, 23 SCRA 791, this Court ruled that
the vendor of personal property sold on the installment basis is precluded, after foreclosing the chattel
mortgage on the thing sold, from having a recourse against the additional security put up by a third party
to guarantee the purchaser's performance of his obligation on the theory that to sustain the same would
overlook the fact that if the guarantor should be compelled to pay the balance of the purchase price, said
guarantor will in turn be entitled to recover what he has paid from the debtor-vendee, and ultimately it will
be the latter who will be made to bear the payment of the balance of the price, despite the earlier
foreclosure of the chattel mortgage given by him, thereby indirectly subverting the protection given the
latter. Consequently, the additional mortgage was ordered cancelled. Said ruling was reiterated in the
case of Pascual v. Universal Motors Corporation, 61 SCRA 121. If the vendor under such circumstance
is prohibited from having a recourse against the additional security for reasons therein stated, there is no
ground why such vendor should not likewise be precluded from further extrajudicially foreclosing the
additional security put up by the vendees themselves, as in the instant case, it being tantamount to a
further action [5] that would violate Article 1484 of the Civil Code, for there is actually no difference
between an additional security put up by the vendee himself and such security put up by a third party
insofar as how the burden would ultimately fall on the vendee himself is concerned.

Reliance on the ruling in Southern Motors, Inc. v. Moscoso, 2 SCRA 168, that in sales on installments,
where the action instituted is for specific performance and the mortgaged property is subsequently
attached and sold, the sale thereof does not amount to a foreclosure of the mortgage, hence, the
seller-creditor is entitled to a deficiency judgment, does not fortify the stand of the appellants for that
case is entirely different from the case at bar. In that case, the vendor has availed of the first remedy
provided by Article 1484 of the Civil Code, i.e., to exact fulfillment of the obligation; whereas in the
present case, the remedy availed of was foreclosure of the chattel mortgage.

The foregoing disposition renders superfluous a determination of the other issue raised by the parties as
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to the validity of the auction sale, in so far as the franchise of plaintiffs is concerned, which sale had been
admittedly held without any notice to the plaintiffs.

IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against the appellants.

SO ORDERED.

Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero, Abad Santos and Escolin, JJ., concur.

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Footnotes
1. Luneta Motor Co. v. Dimagiba, 3 SCRA 884; Radiowealth, Inc. v. Lavin, 7 SCRA 804; Industrial
Finance Corporation v. Tobias, 78 SCRA 28.
2. Industrial Finance Corp. v. Tobias, Ibid., Cruz v. Filipinas Investment & Finance Corporation, 23 SCRA
791.
3. Luneta Motor Co. v. Dimagiba, Supra; Northern Motors, Inc. v. Sapinoso, 33 SCRA 356.
4. Bachrach Motor Co. v. Millan, 61 Phil. 409; Macondray & Co. v. Benito, 62 Phil. 137; Zayas v. Luneta
Motor Co., L-30583, October 23, 1982.
5. cf. Cruz v. Filipinas Investment & Finance Corporation, Supra.

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