GR 111080; (April, 2000) (Digest)
G.R. No. 111080 ; April 5, 2000
JOSE S. OROSA and MARTHA P. OROSA, petitioners, vs. HON. COURT OF APPEALS and FCP CREDIT CORPORATION, respondents.
FACTS
Petitioner Jose Orosa purchased a vehicle on installment from Fiesta Motor Sales Corporation, executing a promissory note and a chattel mortgage, which were subsequently assigned to respondent FCP Credit Corporation. FCP filed a complaint for replevin, alleging Orosa defaulted on installments due from July to October 1984. The Regional Trial Court dismissed the complaint, finding Orosa had made the payments, and awarded him moral and exemplary damages, attorney’s fees, and ordered the vehicle’s return. The Court of Appeals, in the appealed decision, modified the RTC ruling by deleting the awards for damages and the order for the vehicle’s return, instead ordering FCP to reimburse Orosa the value of the fourteen monthly installments he had paid, with interest.
ISSUE
The primary issue is whether the Court of Appeals erred in deleting the awards for damages and the order for the vehicle’s return, and in ordering reimbursement of installments paid instead.
RULING
The Supreme Court affirmed the Court of Appeals’ decision. The legal logic rests on the principle that a chattel mortgage is merely an accessory contract securing the principal obligation. Upon the filing of the replevin suit, FCP was deemed to have elected the remedy of foreclosure, thereby waiving any claim for the unpaid balance. Consequently, the principal obligation was extinguished. The Court clarified that the remedy of a mortgagee upon default is alternative: either to foreclose the mortgage or to exact fulfillment of the principal obligation. By choosing foreclosure via the replevin action, FCP could no longer demand payment. Since the suit was unfounded—as Orosa was not in default—FCP had no right to seize the vehicle. However, the extinguishment of the principal debt also precluded Orosa’s right to recover the vehicle itself. The equitable solution, following jurisprudence, was to order the reimbursement of the installments Orosa had actually paid, as he received no benefit from the payments for a vehicle he could no longer possess. The deletion of moral and exemplary damages was upheld due to lack of conclusive proof of bad faith, and attorney’s fees were properly disallowed absent any statutory or contractual basis for their award.