CREDIT TRANSACTION CASE DIGEST/ MAGNA FINANCIAL SERVICES GROUP, INC. CS. COLARINA, G.R. NO. 158635, 9 DECEMBER 2005, 477 SCRA 245
MAGNA FINANCIAL SERVICES GROUP, INC. CS.
COLARINA,
G.R. NO. 158635, 9 DECEMBER 2005, 477 SCRA 245
TOPIC/DOCTRINE
Article 1484, paragraph 3, provides that if the vendor has
availed himself of the right to foreclose the chattel mortgage, “he shall have
no further action against the purchaser to recover any unpaid balance of the
purchase price. Any agreement to the contrary shall be void.” It is deemed
that there has been foreclosure of the mortgage when all the proceedings of the
foreclosure including the sale of the property at public auction have been
accomplished.
FACTS
Elias Colarina bought on installment from Magna
Financial Services Group, Inc., 1 unit of Suzuki Multicab. After making a down
payment, Colarina executed a PN for the balance of P229,284. To secure payment thereof, Colarina executed
an integrated PN and deed of chattel mortgage over the motor vehicle.
Colarina failed to pay the monthly amortization
beginning January 1999, accumulating an unpaid balance of P131,607. Despite repeated demands, he failed to make
the necessary payment. Magna Financial
Services Group, Inc. filed a Complaint for Foreclosure of Chattel Mortgage with
Replevin before the MTCC. Upon filing of
a bond, a writ of replevin was issued. Colarina who voluntarily surrendered
physical possession of the vehicle to the Sheriff. After declaring Colarina in default, the
trial court ruled against defendant and ordered him to pay the sum of P131,607
plus penalty charges, attorney’s fees and cost. In case of nonpayment, the
multicab shall be sold at public auction. The RTC affirmed. The CA rendered its
decision ruling that the courts erred in ordering the defendant to pay the
unpaid balance of the purchase price irrespective of the fact that the
complaint was for the foreclosure of the chattel mortgage.
ISSUE
What is the true nature of a foreclosure of chattel
mortgage under Article 1484(3)?
RULING
The court held that Act 4122 amending Art. 1454, Civil Code
of 1889 prevents mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing the suit against the
mortgagor for a deficiency judgment. The almost invariable result of this
procedure was that the mortgagor found himself minus the property and still
owing practically the full amount of his original indebtedness.” Article 1484,
paragraph 3, provides that if the vendor has availed himself of the right to
foreclose the chattel mortgage, “he shall have no further action against the
purchaser to recover any unpaid balance of the purchase price. Any agreement to
the contrary shall be void.” And it is deemed that there has been foreclosure
of the mortgage when all the proceedings of the foreclosure, including the sale
of the property at public auction, have been accomplished.
Extrajudicial foreclosure, as chosen by the petitioner, is attained by causing the mortgaged property to be seized by the sheriff, as agent of the mortgagee, and have it sold at public auction in the manner prescribed by Section 14 of Act No. 1508, or the Chattel Mortgage Law. Thus, in Manila Motor Co. v. Fernandez, our Supreme Court said that it is actual sale of the mortgaged chattel in accordance with Sec. 14 of Act No. 1508 that would bar the creditor (who chooses to foreclose) from recovering any unpaid balance.