G.R. No. 106435 July 14, 1999
PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V. TEVES and HIRAM DIDAY R. PULIDO, petitioners, vs. HON. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES, respondents.

FACTS

Petitioner PAMECA Wood Treatment Plant, Inc. obtained a loan of US$267,881.67 (P2,000,000.00) from respondent Development Bank of the Philippines (DBP) on April 17, 1980. A promissory note was executed by PAMECA through its President, petitioner Herminio G. Teves. The loan was secured by a chattel mortgage over PAMECA’s properties in Dumaguete City. Due to PAMECA’s failure to pay, DBP extrajudicially foreclosed the chattel mortgage on January 18, 1984. As the sole bidder at the public auction, DBP purchased the foreclosed properties for P322,350.00. DBP then filed a complaint for collection of a deficiency claim of P4,366,332.46 against PAMECA and the individual petitioners (Herminio G. Teves, Victoria V. Teves, and Hiram Diday R. Pulido) as solidary debtors under the promissory note. The Regional Trial Court (RTC) of Makati ruled in favor of DBP, ordering the petitioners to pay the deficiency jointly and severally. The Court of Appeals affirmed the RTC decision in toto.

ISSUE

1. Whether the public auction sale of the mortgaged chattels was tainted with fraud, unconscionable, and inequitable, and therefore null and void, because DBP purchased them as sole bidder for only about 1/6 of their alleged market value.
2. Whether Articles 1484 and 2115 of the Civil Code should be applied by analogy to preclude DBP’s recovery of a deficiency claim.
3. Whether the individual petitioners (corporate officers/stockholders) should be held solidarily liable with the corporation for the loan obligation.

RULING

1. On the validity of the auction sale: The Court found no merit in the claim of fraud. The petitioners contended the properties were worth over P2,000,000.00 based on an inventory dated March 31, 1980, and a chattel mortgage clause requiring inventories be maintained at a level no less than P2 million. However, the Court of Appeals disregarded these documents as they were not presented as evidence before the RTC. The appellate court also noted it was not unlikely the chattels had deteriorated in value by the time of the 1984 auction. Furthermore, the Court upheld the presumption of regularity in the performance of public duties, as all legal procedures for the foreclosure sale were complied with. The mere fact that DBP was the sole bidder did not, by itself, establish fraud.
2. On the application of Articles 1484 and 2115 by analogy: The Court ruled that these articles are not applicable. Article 1484 governs installment sales of personal property and expressly bars a vendor who forecloses a chattel mortgage from recovering any unpaid balance. This provision is inapplicable to a simple loan secured by a chattel mortgage. Regarding Article 2115, which governs pledge and states that a sale of the thing pledged extinguishes the principal obligation and the creditor cannot recover a deficiency, the Court held it does not apply to chattel mortgages. Citing Ablaza vs. Ignacio, the Court explained that Section 14 of the Chattel Mortgage Law (Act No. 1508) provides a different scheme: the proceeds of a foreclosure sale are applied to the obligation, and any residue is paid to the mortgagor. Since the law entitles the mortgagor to any excess, the correlative obligation is for the mortgagor to pay any deficiency if the sale proceeds are insufficient. The provisions of the Chattel Mortgage Law on this point are contrary to Article 2115 and, therefore, under Article 2141 of the Civil Code, the Chattel Mortgage Law prevails.
3. On the solidary liability of the individual petitioners: The Court affirmed the solidary liability of the individual petitioners. They were signatories to the promissory note, which established their personal commitment to the obligation. The defense that they signed only as a matter of the bank’s practice and that the loan was solely for the corporation’s benefit was rejected. By signing the promissory note, they assumed the liability of co-makers, and their liability is separate from the corporation’s. The doctrine of separate corporate personality does not shield them from personal liability arising from their own direct undertakings.
The Supreme Court DENIED the petition and AFFIRMED the decision of the Court of Appeals.