G.R. No. L-39806 January 27, 1983
LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees, vs. FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D. SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as Sheriff, defendants-appellants.

FACTS

Plaintiffs-appellees, the Ridads, purchased two vehicles on installment from Supreme Sales and Development Corporation. To secure payment, they executed a promissory note and a chattel mortgage covering not only the two purchased vehicles but also a separate Chevrolet car and their taxicab franchise. The vendor assigned these rights to defendant-appellant Filipinas Investment and Finance Corporation. Upon the Ridads’ default in installment payments, the finance corporation extrajudicially foreclosed the chattel mortgage. The two purchased Ford cars were sold at public auction, with the corporation as the highest bidder.
Since the proceeds from that sale did not fully satisfy the debt, the corporation proceeded with a second auction sale, selling the Ridads’ taxicab franchise. The plaintiffs were not notified of this sale. The corporation purchased the franchise and later sold it to co-defendant Jose D. Sebastian. The Ridads then filed an action for annulment of contract, specifically targeting the chattel mortgage over the franchise and the Chevrolet, and the subsequent auction sale of the franchise.

ISSUE

Whether the chattel mortgage over the additional properties (the taxicab franchise and the Chevrolet car) and the subsequent foreclosure sale of the franchise are valid, given that the vendor-mortgagee had already elected to foreclose the mortgage on the originally purchased vehicles.

RULING

The Supreme Court affirmed the lower court’s decision, declaring the chattel mortgage null and void insofar as it covered the taxicab franchise and the used Chevrolet car, and nullifying the auction sale of the franchise. The legal logic is anchored on Article 1484 of the Civil Code, which governs installment sales of personal property. This article provides the vendor with three alternative, not cumulative, remedies upon the vendee’s default: exact fulfillment, cancel the sale, or foreclose the chattel mortgage on the thing sold. The law expressly states that if the vendor forecloses the mortgage, “he shall have no further action against the purchaser to recover any unpaid balance of the price.”
The Court held that by electing to foreclose the chattel mortgage on the purchased vehicles, the mortgagee (Filipinas Investment) submitted itself to the statutory prohibition against any further recovery action for any deficiency. The foreclosure of the additional security (the franchise and the Chevrolet) constituted precisely the kind of “further action” to recover the unpaid balance that Article 1484 seeks to prevent. Allowing such a practice would subvert the law’s protective intent, as it would ultimately leave the vendee without the purchased property and still burdened with the debt, despite the foreclosure. The fact that the additional security was put up by the vendees themselves does not alter this conclusion, as the ultimate burden would still fall on them, circumventing the law’s clear mandate.