Luis Ridad and Lourdes Ridad, plaintiffs-appellees, v Filipinas Investment and Finance Corporation, Jose D.

Sebastian and Jose San Agustin, in his capacity as Sheriff, defendants-appellants January 27, 1983 De Castro, J. Plaintiffs purchased from Supreme Sales and Development Corporation (Supreme) 2 brand new Ford Consul Sedans, for P26,887 payable in 24 monthly installments. To secure payment thereof, plaintiffs executed a promissory note covering the purchase price and a deed of chattel mortgage on the two vehicles purchased and also on another car (Chevrolet) and plaintiffs franchise or certificate of public convenience granted by the defunct Public Service Commission for the operation of a taxi fleet. With the conformity of plaintiffs, the vendor Supreme assigned its rights, title and interest to the promissory note and chattel mortgage to the defendant Filipinas Investment and Finance Corporation. Plaintiffs failed to pay their monthly installments. Filipinas foreclosed the chattel mortgage extra-judicially. During the public auction, of which the plaintiffs were not notified, the 2 Ford Consul cars were bought by defendant Filipinas, who was as the highest bidder. During another public auction, the rest of the properties (including the taxi franchise) subject of the chattel mortgage were sold, and bought by defendant Filipinas also. Filipinas subsequently sold the taxi franchise to defendant Jose D. Sebastian, who filed with the Public Service Commission an application for approval of said sale. Plaintiffs then filed an action for annulment of contract before the CFI, against Filipinas, Sebastian, and Sheriff San Agustin. CFI ruling: The chattel mortgage was null and void in so far as the taxi franchise and the used Chevrolet car were concerned, and the sale at public auction of the taxicab franchise was to be of no legal effect. The Certificate of Sale issued by the Sheriff of Manila in favor of Filipinas concerning the taxi franchise was cancelled and set aside. The assignment made by Filipinas in favor of Jose Sebastian was also declared void and of no legal effect. The CA certified the defendants appeal to the SC.

Issue: Is the chattel mortgage and its subsequent sale valid? NO Ratio: 1) Article 1484 of the Civil Code is applicable. Under this article, the vendor of personal property the purchase price of which is payable in installments, has the right, should the vendee default in the payment of two or more of the agreed installments, to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was constituted. The vendor can only choose one option. 2) If the vendor avails himself of the right to foreclose the mortgage, the law prohibits him from further bringing an action against the vendee for the purpose of recovering whatever balance of the debt secured is not satisfied by the foreclosure sale. 3) Purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and the bringing suit against the mortgagor for a deficiency judgment. a. Without the law, the mortgagor-buyer would find himself without the property and still owing practically the full amount of his original debt. 4) In this case, defendant Filipinas chose to foreclose the mortgage upon default of plaintiffs, and bought the vehicles at the public auction as the highest bidder.

Filipinas is deemed to have renounced any and all rights which it might otherwise have under the promissory note and the chattel mortgage as well as the payment of the unpaid balance. 5) The lower court rightly declared the nullity of the chattel mortgage in so far as the taxi franchise and the Chevrolet were concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. v Pacific Commercial Co., et al. 6) The vendors right to foreclose is limited only on the thing sold. 7) The vendor of personal property sold on installment is precluded, after foreclosing the chattel mortgage on the thing sold, from having a recourse against the additional security put up by a third party to guarantee the purchasers performance of his obligation. (Cruz v Filipinos Investment & Finance Corporation) a. Otherwise, if the vendee could still be compelled to pay the balance of the purchase price, the vendee will be made to bear the payment of the balance despite the earlier foreclosure. Judgment appealed from is affirmed. Ces =)

a.