G.R. No. 43683; July 16, 1937
Macondray and Co., Inc. vs. Urbano Eustaquio

FACTS

Macondray and Co., Inc. sold a De Soto sedan to Urbano Eustaquio on an installment basis. Eustaquio executed a promissory note and a chattel mortgage on the vehicle to secure payment. After paying only the first installment, he defaulted. The plaintiff foreclosed the mortgage, repossessed the car through replevin, and purchased it at public auction for a nominal sum. It then filed an action to recover the unpaid balance of the debt, including interest, attorney’s fees, and costs. The defendant was declared in default for failure to appear or answer. The trial court dismissed the complaint, applying Act No. 4122, which prohibits a vendor from recovering any deficiency after foreclosing a chattel mortgage on installment sales.

ISSUE

1. Whether the defendant, by being declared in default, waived his right to the application of Act No. 4122.
2. Whether Act No. 4122 is constitutional.
3. Whether, under Act No. 4122, the plaintiff is entitled to recover interest, attorney’s fees, and costs after foreclosure.

RULING

1. No. A judgment by default does not constitute a waiver of rights except the right to be heard and present evidence. It does not imply an admission of the legal sufficiency of the plaintiff’s cause of action. Thus, the defendant did not waive the application of Act No. 4122.
2. Yes. Act No. 4122 is constitutional. It is a valid exercise of police power to remedy social and economic abuses in installment sales and chattel mortgage foreclosures, where vendors would repossess goods and still sue for the full balance, leading to oppressive results. The law does not violate due process, equal protection, or impair contractual obligations.
3. No. Under the clear language of Act No. 4122, if the vendor chooses to foreclose the mortgage, it “shall have no further action against the purchaser for the recovery of any unpaid balance.” The term “any unpaid balance” encompasses the entire secured obligation, including the principal, interest, attorney’s fees, and costs. The plaintiff is therefore barred from recovering any deficiency after foreclosure.

The appealed judgment dismissing the complaint is affirmed.

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