G.R. No. L-62415 August 20, 1990
BICOL SAVINGS & LOAN ASSOCIATION, petitioner, vs. JAIME GUINHAWA and THE HON. PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE OF CAMARINES SUR, BRANCH III, respondents.

FACTS

Petitioner Bicol Savings and Loan Association (BISLA) extended a loan to Victorio Depositario, with private respondent Jaime Guinhawa acting as a solidary co-maker on the promissory note. To secure the loan, Depositario executed a chattel mortgage over a Yamaha motorcycle. Due to non-payment, BISLA foreclosed the chattel mortgage. The foreclosure sale resulted in a deficiency of P5,158.06. BISLA then filed a complaint for the recovery of this deficiency amount against both Depositario and Guinhawa. The parties later entered into a stipulation of facts, dropping Depositario from the case as his whereabouts were unknown, and agreed that the sole issue for resolution was Guinhawa’s liability for the deficiency.
The City Court ruled in favor of BISLA, holding Guinhawa solidarily liable for the deficiency. On appeal, the Court of First Instance reversed this decision. The appellate court reasoned that by choosing to foreclose the chattel mortgage—a security to which Guinhawa was not a party—BISLA effectively elected to collect from the principal debtor, Depositario, thereby precluding a subsequent action against the solidary co-maker for any deficiency. It cited the case of Pascual vs. Universal Motors to support its conclusion.

ISSUE

Whether a solidary co-maker on a promissory note remains liable for the deficiency resulting from the extrajudicial foreclosure of a chattel mortgage executed solely by the principal debtor.

RULING

The Supreme Court reversed the decision of the Court of First Instance and reinstated the City Court’s judgment, holding private respondent Guinhawa liable for the deficiency. The Court clarified that the right to recover a deficiency after a chattel mortgage foreclosure is well-established. A chattel mortgage is merely a security, not a payment of the debt; thus, foreclosure does not extinguish the principal obligation to the extent it remains unpaid. An independent civil action for the deficiency is permissible.
The Court distinguished the inapplicability of Pascual vs. Universal Motors, which involved a sale on installment where the foreclosure of the units barred further recovery from the guarantors. The instant case involves a simple loan secured by a chattel mortgage, with Guinhawa’s obligation arising from his solidary co-maker status on the promissory note. Under Article 1216 of the Civil Code, a creditor may proceed against any one of the solidary debtors. The demand against or foreclosure of the security from one debtor (Depositario) does not obstruct action against the others so long as the debt is not fully collected. Guinhawa, as a solidary co-maker, is considered a surety under Article 2047. The law does not preclude simultaneous or successive actions against the principal debtor and the surety. Article 2080, which releases guarantors if subrogation rights are impaired, was deemed inapplicable as Guinhawa’s liability was in the nature of a surety, not a guarantor. Therefore, his solidary obligation on the note persisted despite the foreclosure of the separate chattel mortgage.