G.R. No. L-30583 October 23, 1982
EUTROPIO ZAYAS, JR., petitioner, vs. LUNETA MOTOR COMPANY and HONORABLE JUAN O. REYES, Presiding Judge of the Court of First Instance of Manila, Branch XXI, respondents.

FACTS

Petitioner Eutropio Zayas, Jr. purchased a motor vehicle on installment from a dealer of respondent Luneta Motor Company. He paid an initial amount and executed a promissory note for the balance, secured by a chattel mortgage on the vehicle in favor of Luneta. After Zayas defaulted on subsequent installments, Luneta extrajudicially foreclosed the chattel mortgage. Luneta itself was the highest bidder at the public auction. Luneta then filed a case in the City Court of Manila to recover a purported deficiency balance from Zayas after applying his payments and the auction proceeds to the debt.
Zayas moved to dismiss, arguing that under Article 1484 of the Civil Code, the foreclosure of the chattel mortgage extinguished his entire obligation, barring any action for a deficiency judgment. The City Court agreed and dismissed the complaint. Luneta appealed to the Court of First Instance (CFI), which issued orders remanding the case to the City Court for further proceedings instead of affirming the dismissal. Zayas filed this petition for review.

ISSUE

Whether the respondent Court of First Instance erred in remanding the case for further proceedings instead of dismissing Luneta Motor Company’s action for a deficiency judgment following the foreclosure of the chattel mortgage.

RULING

Yes. The Supreme Court granted the petition, annulled the CFI’s orders, and directed the dismissal of Luneta’s appeal, thereby affirming the City Court’s order of dismissal. The legal logic is anchored on the application of Article 1484(3) of the Civil Code. This provision explicitly states that if a vendor in a contract of sale of personal property payable in installments elects to foreclose a chattel mortgage constituted on the thing sold, “he shall have no further action against the purchaser to recover any unpaid balance of the price.”
The transaction between Zayas and Luneta, though structured through a dealer and involving financing, was unequivocally a sale of personal property on installment. The promissory note and chattel mortgage were accessory contracts securing the primary contract of sale. Consequently, upon Luneta’s election to foreclose the chattel mortgage after Zayas’s default, it was barred by law from pursuing any deficiency claim. The policy behind Article 1484 is to prevent the abuse where a mortgagee seizes the property, buys it at a low foreclosure price, and still sues the mortgagor for a large unpaid balance, leaving the buyer without the property and still deeply in debt. The CFI’s remand for further proceedings was a reversible error, as the legal issue was settled on the pleadings and the application of Article 1484(3) was mandatory, leaving no factual issue to be tried.