GR 96755; (December, 1991) (Digest)
G.R. No. 96755 , December 4, 1991
BPI Credit Corporation (Formerly Filinvest Credit Corporation), petitioner, vs. The Honorable Court of Appeals and Dominador Cabacungan, respondents.
FACTS
Dominador Cabacungan purchased a vehicle on installment from B.M. Domingo Motor Sales, Inc., which assigned its rights under the promissory note and chattel mortgage to Filinvest Credit Corporation (now BPI Credit). Cabacungan made several installment payments, some of which were in excess of the stipulated monthly amount, resulting in an overpayment. On September 13, 1983, Filinvest’s employees apprehended Cabacungan’s driver and helper and seized the vehicle, alleging default for overdue amortizations. Cabacungan tendered a check for the claimed overdue amount, but Filinvest refused it, demanding full payment of the entire balance. Cabacungan filed a complaint for replevin, claiming the seizure was effected without a court order or foreclosure petition.
The trial court ruled in favor of Cabacungan, ordering Filinvest to return the amount he had paid plus damages. The Court of Appeals affirmed this decision. Filinvest elevated the case to the Supreme Court, arguing that the seizure was a valid exercise of its rights under the chattel mortgage contract.
ISSUE
Whether Filinvest legally seized the mortgaged vehicle from Cabacungan.
RULING
The Supreme Court ruled that the seizure was illegal. The Court emphasized that a chattel mortgage is merely an accessory contract securing the principal obligation. The mortgagee’s right to possession arises only upon default by the mortgagor and, critically, only after foreclosure. The Court cited the landmark case of Bachrach Motor Co. vs. Summers, which established that a mortgagee does not have the right to unilaterally take possession of the mortgaged property without judicial authority. Any provision in a chattel mortgage contract authorizing such extrajudicial seizure is void as it constitutes a pactum commissorium, which is prohibited by law. The seizure conducted by Filinvest’s agents, therefore, constituted a violation of this principle. Consequently, Filinvest was held liable for damages. The Supreme Court modified the monetary award but affirmed the finding of liability against Filinvest for the illegal taking of the vehicle.