Pameca vs.

CA

Facts:

Gonzaga-Reyes, J. Pameca loaned P2million from DBP and

executed a promissory note, secured by its inventory of furniture and
equipment. A month before the mortgage contract, its supposed
market value was P2.5million. They defaulted so DBP extrajudicially
foreclosed on the chattels. It was the only bidder so it was able to buy
it for around P322,000. Then for the deficiency, it filed a complaint
against Pameca and its solidary debtors (Teveses and Pulido)
according to the promissory note it signed. 1980: Pameca
loaned P2mil from DBP. By virtue of this loan, Pameca (through its Pres,
Teves) executed a promissory note promising to pay by installment.
SECURITY for the LOAN: Chattel mortgage over PAMECAs properties in
Dumaguete (inventories, furniture, equipment) 1984: PAMECA failed to
pay so DBP extrajudicially forclosed the chattel mortgage.

DBP was the sole bidder and bought it for P322,000. After which,
DBP filed a complaint for collection of the balance of around P4mil. o
Complaint filed against Pameca and Herminio Teves and Victoria Teves
as solidary debtors with Pameca under the promissory note. RTC-
Makati: ordered Pameca to pay the P4mil. CA affirmed.
Petition in SC, Pameca argues: Public auction sale were tainted with
fraud. Claims the chattels were bought by DBP as sole bidder in only
1/6 of the market value, hence unconscionable and inequitable, and so
it is null and void. (claims the market value was for more than P2mil)
--- evidenced from an inventory dated March 1980 (valued at around
P2.5mil), in accordance with the terms of the chattel mortgage
contract that required that the inventories "be maintained at a level no
less than P2 mil". NCC 1484 and 2115 should be applied by analogy
reading the spirit of the law, and taking into consideration that the
contract of loan was a contract of adhesion Teves, Teves, and Pulido
were not solidarily liable with Pameca because the intention was that
the loan is only for the Corps benefit

Issues/Held: Can an action be instituted for deficiency of a debt after

foreclosure of the chattel mortgage? --YES W/N NCC 1484 and 2115
should be applied by analogy (Pameca invokes the equity jurisdiction
of the SC to preclude the recovery of the deficiency)-- NO W/N public
auction was tainted with fraud -- NO W/N Teves, Teves, Pulido are
solidarily liable with Pameca YES Ratio: First issue: NCC 2115
inrelation to the Chattel Mortgage Law: they are INCONSISTENT
Ablaza vs. Ignacio: o LC dismissed the complaint for collection of
deficiency in view of NCC 2141, which provides that the provisions of
the Civil Code on pledge shall also apply to chattel mortgages, insofar
as they are not in conflict with the Chattel Mortgage Law. It was the
LCs opinion that, by virtue of NCC 2141, the provisions of NCC 2115
(which deny the creditor-pledgee the right to recover deficiency in case
the proceeds of the foreclosure sale are less than the amount of the
principal obligation) will apply o SC reversed LC and held that the
provisions of the Chattel Mortgage Law regarding the effects of
foreclosure of chattel mortgage, being contrary to the provisions of
NCC 2115, 2115, in relation to 2141, may NOT be applied. It is clear
from Sec 14 of the Chattel Mortgage Law that the effects of foreclosure
run inconsistent with those of pledge under NCC 2115. o In pledge, the
sale of the thing pledged extinguishes the entire principal obligation,
such that the pledgor may no longer recover proceeds of the sale in
excess of the amount of the principal obligation o Sec 14 of the Chattel
Mortgage Law expressly ENTITLES the mortgagor (debtor) to the
balance of the proceeds, upon satisfaction of the principal obligation
and costs. Since the Chattel Mortgage Law bars the creditor-mortgagee
from retaining the excess of the sale proceeds there is a corollary
obligation on the part of the debtor-mortgagee to pay the deficiency in
case of a reduction in the price at public auction. Manila Trading v.
Tamaraw Plantation cited in Ablaza v. Ignacio: o Sec 3 provides that "a
chattel mortgage is a conditional sale", it further provides that it "is a
conditional sale of personal property as security for the payment of a
debt, or for the performance of some other obligation." The LC
overlooked that the chattels included in the mortgage are only given
as security and not as a payment of the debt, in case of a failure.
d2015member

ooo

oo

Theory of the LC would lead to the absurdity that if the chattels given
as security should sell for more than the indebtedness, that the
creditor would be entitled to the full amount for which it was sold, even
though that amount was greatly in excess of the indebtedness. Such a
result was not contemplated by the legislature when it adopted the
law. The value of the chattels changes greatly from time to time, and
sometimes very rapidly. If for example, the chattels should increase in
value and a sale under that condition should result in largely
overpaying the indebtedness, and if the creditor is not permitted to
retain the excess, then the same would require the debtor to pay the
deficiency in case of a reduction in the price of the chattels between
the date of the contract and a breach of the condition. Mr. Justice Kent,
in the 12th Edition of his Commentaries, as well as other authors on
the question of chattel mortgages, have said, that "in case of a sale
under a foreclosure of a chattel mortgage, there is no question that the
mortgagee or creditor may maintain an action for the deficiency, if any
should occur." And that the law permits a private sale, such sale is not
a satisfaction of the debt, to any greater extent than the value of the
property at the time of the sale. The amount received at the time of
the sale, always requiring good faith, is only a payment, and an action
may be maintained for a deficiency in the debt.

NCC 1484 applies solely to the sale of personal property the price of
which is payable in installments. Although NCC 1484, par (3) bars
any action against the purchaser to recover an unpaid balance of the
price, where the seller opts to foreclose the chattel mortgage, should
the buyers failure to pay cover 2 or more installments, this provision is
specifically applicable to a sale on installments. To accommodate
Pamecos prayer even on the basis of equity would be to expand the
application of the provisions of NCC 1484 to situations beyond its
specific purview, and ignore the language and intent of the Chattel
Mortgage Law. Equity, "justice outside legality", is applied only in
the absence of, and never against, statutory law or judicial rules of
procedure.

Second issue: SC unable to find merit that the public auction sale is
void on grounds of fraud and inadequacy of price. Pameco never
assailed the validity of the sale in the RTC, only in the CA. Basic is the
rule that parties may not bring on appeal issues that were not raised
on trial. In any case, inventory and chattel mortgage document do
not prove that the mortgaged properties had a market value of at least
P2mil on Jan 1984, the date of the foreclosure sale. At best, the chattel
mortgage contract only indicates the obligation of the mortgagor-
debtor to maintain the inventory at a value of at least P2mil. The
inventory was as of March 1980, or even prior to April 1980, the date
of the contracts of loan and chattel mortgage. It is far from being an
accurate estimate of the market value of the properties. The mere fact
that DBP was the sole bidder does not warrant the conclusion that the
transaction was attended with fraud. Fraud is a serious allegation
that requires full and convincing evidence, and may not be inferred
from the lone circumstance that it was only DBP that bid. The
sparseness of evidence leaves the SC no discretion but to uphold the
presumption of regularity in the conduct of the public sale.

Third issue: Affirm the Teveses liability with Pameco in the loan. As
found by the TC and CA, the terms of the promissory note
unmistakably set forth the solidary nature of the Teveses commitment:
o we hereby bind ourselves, jointly and severally, to make partial
payments as follows o in case of default in the payment of any
installment above, we bind ourselves to pay DBP for advances o bind
ourselves to pay additional interest and penalty charges on loan
amortizations or portion thereof in arrears as follows o bind ourselves
to pay for bank advances for insurance premiums, taxes o bind
ourselves to reimburse DBP on a pro-rata basis for all costs incurred by
DBP on the foreign currency borrowings from where the loan shall be
drawn o jointly and severally bind ourselves to pay for attorney's
fees as provided for in the mortgage contrac o Promissory note was
signed: Pameca by: (followed by the) sgd. Teveses and Pulido
Clear that Teveses intended to bind themselves solidarily with Pameca
in the loan. They are not made to answer for the corporate act of
Pameca, but are made liable because they made themselves comakers
with Pameca under the promissory note. Petition denied.