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.

Plaintiffs purchased a 2 brand new Ford Consul Sedans for P26,887 payable in instalment basis for
24 months from Supreme Sales arid Development Corporation. To secure payment the plaintiff
executed a promissory note and a deed of chattel mortgage covering the 2 purchased car and a
Chevrolet car. Moreover, a certificate of public convenience for operation of a taxi fleet was granted
by the Public Service Commission. After which the vendor assigned its rights, title and interest to the
promissory note and chattel mortgage to defendant corporations.

However, plaintiffs failed to pay the monthly installments, so the 2 Ford Consul was foreclosed extra-
judicially by the defendant corporation and acquired the same during the public auction sale as the
highest bidder. Another auction sale was then held for the remaining properties such as 5 units of
taxicab, wherein the defendant corporation was again the highest bidder and then sold and
conveyed the same to Jose Sebastian who by then filed before the Public Service Commission an
application for approval of said sale in his favor.

In connection with this, plaintiff filed an action for annulment of the contract before the CFI.

CFI Ruling

Ruled that the chattel mortgage were void including the taxicab franchise and the sale at public
auction has no legal effect.

ISSUE: WON the chattel mortgage in so far as the franchise and the sale to Sebastian was valid?

Ruling:

NO. Under Article 1484 of the Civil Code providing remedies on sale of personal properties payable
in installments in case of default, the vendor has the right to demand for exact fulfillment of the
obligation, cancel the same of to foreclose the mortgage on the purchased personal property. This
remedies are alternative, wherein if one vendor chooses one of the remedy he cannot avail of the
other. Further provided that if in case the vendor avails foreclosure, the law prohibits bringing an
action against the vendee for recovering whatever unpaid balance not secured by the foreclosure
sale. In which the defendant corporation elected, thus submitting to all the consequences mentioned.
The purpose of the law, is to prevent mortgagees from seizing mortgage property, buying it for a low
price and then bringing a suit against the mortgagor for a deficiency judgement.

Applying the jurisprudence in the case of Cruz v Filipinos Investment & Finance Corporation, this
Court ruled that the vendor of personal property sold on the installment basis 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 purchaser's performance of his obligation on the
theory that to sustain the same would overlook the fact that if the guarantor should be compelled to
pay the balance of the purchase price, said guarantor will in turn be entitled to recover what he has
paid from the debtor-vendee, and ultimately it will be the latter who will be made to bear the payment
of the of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by
him, thereby indirectly subverting the protection given the latter. Consequently, the additional
mortgage was ordered cancelled. Said ruling was reiterated in the case of Pascual v. Universal
Motors Corporation, 61 SCRA 121. If the vendor under such circumstance is prohibited from having
a recourse against the additional security for reasons therein stated, there is no ground why such
vendor should not likewise be precluded from further extrajudicially foreclosing the additional
security put up by the vendees themselves, as in the instant case, it being tantamount to a further
action   that would violate Article 1484 of the Civil Code, for then is actually no between an additional
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security put up by the vendee himself and such security put up by a third party insofar as how the
burden would ultimately fall on the vendee himself is concerned.

The foregoing disposition renders superfluous a determination of the other issue raised by the
parties as to the validity of the auction sale, in so far as the franchise of plaintiffs is concerned, which
sale had been admittedly held without any notice to the plaintiffs.

IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against the
appellants.