No. L-24772 – RUPERTO G. CRUZ, ET AL., plaintiffs-appellees, vs. FILIPINAS INVESTMENT & FINANCE CORPORATION, defendant-appellant.
REYES, J.B.L., J.
Rule Synopsis
Under the Recto Law, the foreclosure of the chattel mortgage constituted on the property purchased bars the seller from also foreclosing a real estate mortgage executed by the buyer executed as an additional security.
Facts
Ruperto G. Cruz (buyer) bought a Diesel Bus from Far East Motor Corporation (seller), payable in 30 monthly installments. The buyer executed a promissory note secured by a mortgage on the bus, and an additional second mortgage on the land (with building and improvements) of Felicidad Vda. de Reyes. The seller then assigned his rights over the note and the mortgages to Filipinas Investment & Finance Corporation (FIFC). The buyer defaulted in more than two installments. The bus was extrajudicially foreclosed and sold for P15k. To recover the balance, FIFC also sought to foreclose the additional mortgage on Mrs. Reyes’ property; FICC paid the senior mortgagee DBP as preparatory step for the foreclosure. Mrs. Reyes, through counsel, asked for the cancellation of the mortgage on her land but FICC refused.
Thus, the buyer and Reyes commenced an action before the CFI for the cancellation of the real estate mortgage constituted on the land of the latter. The CFI ordered the cancellation of the mortgage, holding that the extrajudicial foreclosure of the chattel mortgage on the bus barred further action against the additional security put up by Reyes. The SC affirmed.
Issue
May the seller, which has already extrajudicially foreclosed the chattel mortgage executed by the buyer, on the bus sold to him on installments, also extrajudicially foreclose the real estate mortgage constituted by Mrs. Reyes on her own land, as additional security, for the payment of the balance of the buyer’s obligation, still remaining unpaid?
Ruling and Discussion
No. The seller may no longer extrajudicially foreclose the real estate mortgage.
The three remedies granted to the unpaid seller of a movable property in installments, in case the buyer fails to pay two or more of said installments under Art. 1484 are alternative, not cumulative; the exercise of one would bar the exercise of the others. Furthermore, the foreclosure and actual sale of a mortgaged chattel bar further recovery by the vendor of any balance on the purchaser’s outstanding obligation not so satisfied by the sale. The purpose of such prohibition is to prevent abuse on the part of the mortgagee, whereby the latter exercises his right to foreclose the mortgage and buying the property at a low price, then bringing a suit to collect the deficiency. In such case, the buyer-mortgagor would find himself without the property and also practically still owing the same amount to the seller-mortgagee.
The SC also held that what is being withheld by the proviso of Article 1484 is not only the right to recover “against the purchaser”, but also a recourse to the additional security put up, not by the purchaser himself, but by a third person. For to rule otherwise would be to indirectly circumvent the mandate of Art. 1484 since, amount paid will be ultimately be borne by purchaser.
Lastly, the SC rule that the “further action” barred under Art. 1484 refers to any judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy. “Action,” in this case, is not limited to judicial proceedings, as argued by the seller. An extrajudicial foreclosure of a real estate mortgage is one such proceeding, as in the case at bar.
Dispositive
Decision modified.