G.R. No. L-28074 May 29, 1970
NORTHERN MOTORS, INC., plaintiff-appellant, vs. CASIANO SAPINOSO and “JOHN DOE”, defendants-appellees.

FACTS

On June 4, 1965, Casiano Sapinoso purchased an Opel Kadett car from Northern Motors, Inc. (NMI) for P12,171.00. He made a down payment and executed a promissory note for the balance of P10,540.00, payable in monthly installments with 12% interest. To secure payment, Sapinoso executed a chattel mortgage on the car in favor of NMI. The mortgage contract provided that upon default, NMI could elect remedies including sale, cancellation, extrajudicial or judicial foreclosure, or an ordinary civil action, and stipulated that the mortgagor waived reimbursement of any amounts already paid if any remedy was elected.
Sapinoso defaulted on the first five installments but made subsequent payments of P530.52, P480.00, and P400.00, which were applied to interest and principal, reducing the balance to P10,218.10. Due to further non-payment, NMI filed a complaint on July 22, 1966, against Sapinoso and “John Doe,” stating it was availing of the option to extrajudicially foreclose the mortgage. It prayed for a writ of replevin to seize the car, and for judgment granting it rightful possession and ownership, or, in default of delivery, payment of the balance with interest and attorney’s fees.
After filing the complaint but before Sapinoso’s answer, he made two more payments: P500.00 on August 22, 1966, and P750.00 on September 27, 1966. A writ of replevin was issued on August 9, 1966, and the car was seized from Sapinoso on October 20, 1966, and delivered to NMI on October 25, 1966.
In his answer, Sapinoso admitted the sale and terms but alleged he had paid a total of P4,230.52, leaving a balance of only P5,987.58, and that he surrendered the car upon demand. He claimed default was due to the car being defective and NMI’s failure to repair it despite assurances, and prayed for dismissal and return of the car.
The trial court held that NMI, having elected to foreclose by filing the replevin action, renounced its claim on the promissory note and thus had no right to collect attorney’s fees and should return the P1,250.00 paid by Sapinoso after the case was filed. It ratified the delivery of the car to NMI but ordered NMI to pay Sapinoso P1,250.00 with legal interest.

ISSUE

Whether the trial court erred in ordering Northern Motors, Inc. to reimburse Casiano Sapinoso the sum of P1,250.00 which he paid after the filing of the foreclosure complaint but before the actual foreclosure sale.

RULING

Yes, the trial court erred. The Supreme Court modified the judgment by setting aside the portion ordering NMI to pay Sapinoso P1,250.00.
The Court held that the filing of the replevin action as a preliminary step to foreclosure does not, by itself, bar the creditor from accepting further payments on the promissory note before an actual foreclosure sale. Article 1484(3) of the Civil Code prohibits a “further action against the purchaser to recover any unpaid balance of the price” only after the creditor has foreclosed the mortgage and there is a deficiency from the sale. The Court construed “action” to mean any judicial or extrajudicial proceeding to recover the balance, but emphasized that the restrictive provision applies only after a foreclosure sale results in a deficiency. Since no foreclosure sale had yet occurred, there was no deficiency to trigger the prohibition.
The payments made by Sapinoso were voluntary and did not result from any “further action” instituted by NMI to recover the balance. The Court cited precedents establishing that a mortgage creditor who has elected to foreclose but has not proceeded with an auction sale is not barred from suing on the unpaid account, nor is one precluded from recovering the balance before an actual sale. Consequently, there is no legal bar to a mortgage creditor accepting voluntary payments from the debtor before a foreclosure sale. Therefore, NMI was not obligated to return the P1,250.00 paid by Sapinoso.