GR 158635; (December, 2005) (Digest)
G.R. No. 158635 December 9, 2005
Magna Financial Services Group, Inc. vs. Elias Colarina
FACTS
Respondent Elias Colarina purchased a Suzuki Multicab from petitioner Magna Financial Services Group, Inc. on installment. He executed a promissory note for the balance and a deed of chattel mortgage over the vehicle as security. Colarina defaulted on his payments. Magna filed a Complaint for Foreclosure of Chattel Mortgage with Replevin before the Municipal Trial Court. A writ of replevin was issued, and the vehicle was seized and delivered to Magna. Colarina was declared in default.
The MTCC rendered a judgment ordering Colarina to pay the unpaid balance plus penalty charges and attorney’s fees. The decision further stated that if the money judgment was not paid within 90 days, the vehicle would be sold at public auction to satisfy the judgment. The Regional Trial Court affirmed this decision on appeal. Colarina then elevated the case to the Court of Appeals.
ISSUE
Whether the trial court correctly granted a money judgment for the unpaid balance in an action for judicial foreclosure of chattel mortgage, or whether such remedy is barred under Article 1484 of the Civil Code.
RULING
The Supreme Court affirmed the Court of Appeals and ruled that the MTCC and RTC erred. The action filed was specifically one for judicial foreclosure of chattel mortgage. Under Article 1484 of the Civil Code, in installment sales of personal property, the vendor is given three mutually exclusive remedies: (1) exact fulfillment, (2) cancel the sale, or (3) foreclose the mortgage. The vendor must elect only one.
By choosing to foreclose the chattel mortgage, Magna opted for the third remedy. The law expressly prohibits the vendor from further pursuing the purchaser for any deficiency after the foreclosure sale. The trial court’s judgment, which ordered Colarina to pay the unpaid balance and provided for the sale of the vehicle only in case of non-payment, was legally erroneous. It effectively allowed Magna to obtain a money judgment while retaining possession of the collateral through replevin, a result tantamount to recovering both the property and the debt, which Article 1484 precisely seeks to prevent.
The correct procedure in a judicial foreclosure is for the court to ascertain the amount due and order the mortgagor to pay that amount within a specific period. If the mortgagor fails to pay, the court shall order the sale of the mortgaged property at public auction. The proceeds satisfy the debt, and no deficiency judgment can be pursued against the mortgagor. The case was remanded to the trial court for proper proceedings consistent with a pure foreclosure action.