G.R. No. 47771 ; June 17, 1941
PACIFIC COMMERCIAL COMPANY, plaintiff and appellee, vs. GRACIANO DE LA RAMA, defendant and appellant.

FACTS

On September 18, 1937, the defendant, Graciano de la Rama, purchased a La Salle Sedan automobile on installment from the plaintiff, Pacific Commercial Company. To secure the unpaid balance of P3,120, the defendant executed a promissory note and mortgaged the automobile, with the mortgage deed registered. The defendant defaulted on the first three installments, except for a partial payment of P200, and the subsequent installments became due. On January 18, 1938, the plaintiff, through its attorney, wrote to the Provincial Sheriff of Negros Occidental, instructing him to take possession of the mortgaged automobile and sell it at public auction on February 7, 1938, and provided a copy of the mortgage deed. The Sheriff notified the defendant and, upon learning the car was under repair at Auterio Lizares’s shop, went to the shop, found the car, designated Lizares as the custodian or depositary, and received a receipt. On January 29, 1938, the plaintiff learned the car had been in an accident and was being repaired, so it wrote to the Sheriff instructing him to desist from foreclosing the mortgage. The Sheriff replied that he had already taken custody of the car and it was with Lizares as depositary. By letters dated February 4 and a telegram dated February 5, 1938, the plaintiff reiterated its request for the Sheriff to desist from foreclosing and selling the car. On February 19, the plaintiff wrote again requesting the return of the mortgage deed, and on March 7, an agent of the plaintiff personally met with the Sheriff, requesting that the sale not proceed. The Sheriff then suspended the public auction and notified the defendant and the depositary of the suspension. The plaintiff filed an action to recover the unpaid balance on the promissory note. The trial court ruled in favor of the plaintiff, ordering the defendant to pay the amounts claimed, stipulated interest, and costs. The defendant appealed, not disputing the proven facts but arguing that the plaintiff had already opted to foreclose the mortgage and cancel the installment sale, thereby losing its right to claim the unpaid balance.

ISSUE

Whether the plaintiff, by instructing the Sheriff to take possession of the mortgaged automobile for the purpose of foreclosure and sale, had already exercised its option under Article 1454-A of the Civil Code to foreclose the mortgage, thereby waiving its right to sue for the recovery of the unpaid balance of the debt.

RULING

The Supreme Court affirmed the trial court’s decision. The Court held that the defendant’s theory was untenable. Under Article 1454-A of the Civil Code (introduced by Act No. 4122 ), in a contract of sale of a movable payable in installments where the buyer defaults on two or more installments and a mortgage has been constituted on the thing sold, the seller has alternative remedies: (1) to resolve (cancel) the sale and recover the thing sold, without reimbursing installments paid if so stipulated; (2) to foreclose the mortgage in the manner authorized by the Chattel Mortgage Law ( Act No. 1508 ), in which case the seller cannot recover any deficiency from the buyer (any contrary pact is void); or (3) to simply collect the rest of the debt. These remedies are alternative and not cumulative; opting for one constitutes a waiver of the others.
The Court ruled that when the law refers to the “execution of the mortgage” (foreclosure) as a remedy that results in the waiver of others, it means the complete foreclosure process with all its incidents and proceedings until its termination, which necessarily includes the public auction sale of the mortgaged property. In this case, the final step—the public auction sale that transfers title to a third party—was never completed because the Sheriff lifted the deposit of the automobile and did not proceed with the sale as required by Section 14 of Act No. 1508 . Therefore, the plaintiff had not effectively opted for foreclosure. Merely instructing the Sheriff to take possession for the purpose of sale was a necessary step for foreclosure but did not itself constitute a final election of that remedy. Furthermore, the plaintiff’s subsequent instructions to desist and the Sheriff’s suspension of the sale demonstrated no completed foreclosure.
The Court also rejected the defendant’s alternative argument that the plaintiff’s instructions to the Sheriff implied a resolution (cancellation) of the sale. The instructions were for foreclosure, not resolution. Moreover, for the resolution of a contract, a unilateral declaration is insufficient; a corresponding judicial action and a final judgment to that effect are necessary.
The appealed judgment was confirmed, with costs against the defendant-appellant.