FIRST DIVISION
[G.R. No. 227520. June 17, 2019.]
A.S. TOPACIO CONSTRUCTION CORPORATION AND SPOUSES AUGUSTO S. TOPACIO AND ANTOINETTA B. TOPACIO, petitioners, vs. PCI LEASING AND FINANCE, INC. [NOW BDO LEASING AND FINANCE, INC.], respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, First Division, issued a Resolution dated June 17, 2019 which reads as follows:
"G.R. No. 227520 (A.S. Topacio Construction Corporation and Spouses Augusto S. Topacio and Antoinetta B. Topacio v. PCI Leasing and Finance, Inc. [now BDO Leasing and Finance, Inc.])
This is an appeal by certiorari seeking to reverse and set aside the June 13, 2016 Decision 1 and October 5, 2016 Resolution 2 of the Court of Appeals (CA) in CA-G.R. CV No. 103853, which affirmed the November 7, 2014 Decision 3 of the Regional Trial Court of Quezon City, Branch 85 (RTC) in Civil Case No. Q-01-43745, a complaint for sum of money.
The Antecedents
A.S. Topacio Construction Corporation (ASTCC) is a domestic corporation engaged in general construction. Augusto S. Topacio (Augusto) and Antoinetta B. Topacio (Antoinetta), collectively referred to as the Spouses Topacio, are the President and Corporate Secretary of ASTCC. 4 (ASTCC and the Spouses Topacio are hereby collectively referred to as petitioners). 5
On May 20, 1997, PCI Leasing and Finance, Inc., now BDO Leasing and Finance, Inc., (respondent) and ASTCC, through Augusto, entered into a lease contract denominated as Lease Agreement No. 023 6(Lease Agreement) covering chattels/personal properties (subject equipment). The terms and conditions of the lease contract are specified in Lease Schedule No. 0084, 7 0089, 8 0093, 9 and 114 10(Lease Schedules). 11
On May 21, 1997, the Spouses Topacio executed in favor of respondent a Continuing Guaranty of Lease Obligation (CGLO). 12 According to respondent, the spouses bound themselves to be jointly and severally liable for the entire obligation under the said continuing guaranty. 13
ASTCC failed to pay several installments of rentals due under the lease. This led respondent to demand payment of the entire unpaid balance of the obligation, which, as of January 18, 1999, amounted to P3,226,513.41 plus penalty charges of P244,878.51. 14 Respondent alleged that the Lease Agreement and Lease Schedules expressly provided that in case of default or failure to pay any installment and/or interest and other charges provided therein or any violation of the terms and conditions of the lease contract and schedules, the entire obligation shall become due and payable without notice to or demand on the corporation. It further claimed that ASTCC agreed to voluntarily surrender and deliver possession of the subject equipment, in case of default. 15 CAIHTE
Sometime in March 1999, ASTCC voluntarily surrendered to respondent the subject equipment. Respondent subsequently sold the said properties for P1,490,000.00, thereby leaving a deficiency obligation in the amount of P1,066,498.99 as of November 30, 2000. 16 Respondent then demanded from ASTCC and the Spouses Topacio the payment of the deficiency obligation. Respondent sent a Final Demand letter dated January 9, 2001 to petitioners. However, petitioners failed and refused to pay the said obligation. 17
As a result, respondent instituted an action for collection of sum of money. The complaint was raffled to Branch 78 of the Quezon City Regional Trial Court (Branch 78).18 Simultaneous with the filing of their pre-trial brief, the Spouses Topacio moved to dismiss the complaint as against them. They claimed that they were not real parties in interest because they merely acted in their capacity as officers of the corporation. 19
Proceedings concerning the Motion to
In its July 18, 2002 Resolution, Branch 78 granted the motion and dismissed the complaint insofar as the Spouses Topacio were concerned. 20
Respondent appealed the July 18, 2002 Resolution with the CA. On May 21, 2004, the CA rendered a Decision 21 finding the complaint against the Spouses Topacio to be proper. The CA relied on the CGLO, which showed that the contract executed by the spouses was a surety contract wherein they bound themselves to be jointly and severally liable with ASTCC, the principal debtor. 22 It held that since the liability of petitioners were joint and solidary, respondent may proceed against anyone of the solidary debtors or some or all of them simultaneously. 23
Spouses Topacio filed an appeal by certiorari before the Court, docketed as G.R. No. 166243, questioning the May 21, 2004 Decision of the CA. The Court rendered a Resolution 24 on February 16, 2005, the fallo of which reads:
ACCORDINGLY, the Court Resolved to DENY the petition for review on certiorari of the [D]ecision dated May 21, 2004 of the Court of Appeals in CA-G.R. CV No. 76747 for failure to comply with requirement [N]o. five (5), as the verification of the petition and certification against forum shopping was signed by only one of the petitioners and not notarized. 25
The February 16, 2005 Resolution of the Court became final and executory on May 23, 2005, per the Entry of Judgment. 26
On November 17, 2006, the instant case was re-raffled to Branch 85 because Branch 78 was designated as a Special Court for Drug Cases. The RTC conducted further proceedings and trial ensued. 27
The RTC Ruling
In its November 7, 2014 Decision, the RTC ordered petitioners to jointly and severally pay respondent (1) P990,462.67 representing the unpaid deficiency obligation as of September 30, 2000, (2) interest of twelve percent (12%) per annum on the unpaid deficiency obligation starting January 10, 2001 to June 30, 2013 and six percent (6%) per annum from July 1, 2013 until full payment thereof, and (3) P10,086.30 as cost of litigation. 28
It determined that the transaction entered into by the parties is one of loan and not a lease agreement as defined by law. 29 It noted that, based on the deeds of sale presented by petitioners, the subject equipment of the Lease Agreement were originally owned by ASTCC. The pieces of equipment were "sold" to respondent by ASTCC for the purpose of leasing it back to the latter. 30 The pieces of equipment "leased" to ASTCC served as security for the loan extended by respondent, as it was owned by ASTCC prior to the execution of the Lease Agreement. 31
It noted that Augusto admitted the existence of their indebtedness arising from failure to pay several monthly rentals and that they voluntarily surrendered the subject equipment. Thus, it held that they should be made liable for whatever indebtedness they may have in favor of respondent. 32 It noted that respondent claimed a deficiency balance of P1,066,498.99. However, it deducted the amount of P76,036.32, representing the "expenses during the pull out of units" from said balance because respondent failed to substantiate or support by evidence the said expense. Accordingly, it held that the deficiency obligation amounts only to P990,462.67. 33 DETACa
On the issue of the joint and solidary liability of the petitioners, the RTC held that the CA already ruled that they are indeed jointly and solidarily liable on account of the CGLO executed by the Spouses Topacio in favor of respondent. It saw no compelling reason to disturb this pronouncement of the CA. 34
On the issue of whether there was novation when ASTCC surrendered the subject equipment to respondent, the RTC ruled in the negative. It held that the parties never agreed, expressly or impliedly, to enter into a new contract. Accordingly, the existing contract subsists and should be complied with. It declared that mere surrender of the subject equipment will not, in itself, extinguish the existing agreement between the parties, especially if "the said act of voluntary surrender is well within the original agreement. It simply did not find incompatible the existing agreement with the supposed new one. 35
Lastly, the RTC refused to award moral damages, exemplary damages, and attorney's fees to petitioners for lack of basis. It also refused to award any damages to respondent. It recognized the voluntary surrender of the subject equipment as negating any bad faith on the part of petitioners. 36
Unsatisfied, petitioners elevated an appeal with the CA.
The CA Ruling
In its June 13, 2016 Decision, the CA affirmed the November 7, 2014 Decision of the RTC. It affirmed the RTC's finding that the Spouses Topacio are jointly and severally liable with ASTCC. It noted that while they signed the Lease Agreement in their official capacity, they can be held personally liable by virtue of the CGLO they executed in favor of respondent. Further, it noted that the May 21, 2004 CA Decision in CA-G.R. CV No. 76747, which held that the Spouses Topacio may be held jointly and severally liable with ASTCC, has attained finality. The principle of the law of the case applies. 37
It did not find meritorious petitioners' argument that the RTC correctly found that the lease agreement entered into by the parties was in fact an equitable mortgage but that it erred in failing to apply the principles thereof. The court a quo stated that the RTC found that the transaction entered into by the parties was a loan. It did not pronounce the transaction to be an equitable mortgage. Further, it noted that they did not assail the terms of the Lease Agreement concerning default and surrender of the subject equipment. Applying the same, it found them liable for any deficiency obligation arising from the sale of the subject equipment. It upheld the amount of deficiency obligation found by the RTC. 38
Petitioners moved for reconsideration of this decision, which the CA denied in its October 5, 2016 Resolution.
Hence, this petition.
First, petitioners insist that the Spouses Topacio cannot be held jointly and severally liable with ASTCC because they signed the lease agreement in their capacity as corporate officers of ASTCC. They allege that respondent committed serious impropriety when it made it appear that the Lease Agreement, the Lease Schedules, and the CGLO were signed on separate occasions by the Spouses Topacio. In truth, these documents were signed on the same date, May 21, 1997, as shown by their notarization dates. Further, they claim that respondent inserted and typewrote the words "personal capacities" in the CGLO. Allegedly, these words were not present when the Spouses Topacio signed the document. Hence, such provision is void, of no effect, and unenforceable under the law. Further, they contend that respondent did not explain to the Spouses Topacio the import of the CGLO. They did not bother to read it because they were signing the same in their capacity as officers of ASTCC. 39 aDSIHc
Second, they assert that the transaction entered into by the parties is "one of loan with mortgage in the guise of a lease declared by law as an equitable mortgage." 40 They cite Article 1602 of the Civil Code, which provides the instances when a contract is presumed to be an equitable mortgage, in support of their claim. They point out that ASTCC remained in possession of the subject equipment throughout the transaction. As the real purpose of the parties in entering into the transaction is to generate funds for ASTCC from respondent by offering the subject equipment as security, it is obvious that the transaction entered into was an equitable mortgage. Being an equitable mortgage, they argue that the provisions of pledge/mortgage should be applied. In particular, they cite Article 2115 of the Civil Code which provides that the sale of the thing pledged shall extinguish the principal obligation and the creditor shall not be entitled to recover the deficiency, notwithstanding any stipulation to the contrary. Thus, when petitioners delivered the subject equipment to respondent on March 1999, it effectively sold those properties to respondent thereby extinguishing or releasing their liability to it. 41
In its February 9, 2017 Comment, 42 respondent argues that the CA, in its May 21, 2004 Decision, settled in the affirmative the issue of whether the Spouses Topacio signed the CGLO in their personal capacities. The May 21, 2004 Decision attained finality, and thus, the doctrine of stare decisis applies. The fact that they signed the CGLO in their personal capacities is beyond dispute. 43
Further, respondent emphasizes that petitioners should remain liable for the deficiency obligation notwithstanding surrender of the subject equipment. It insisted that petitioners' argument that the transaction was one of equitable mortgage deserves scant consideration because it was raised for the first time on appeal. It reiterated that the CA correctly stated that the subject transaction is not an equitable mortgage because the essential requisites are not present. It also insisted that, even assuming arguendo that the transaction was deemed a loan secured by a chattel mortgage, mere surrender of the subject equipment and their eventual sale will not result in the waiver of respondent's deficiency claim. Allegedly, petitioners' invocation of Article 2115 of the Civil Code is misplaced because the provision refers to the rules governing "pledge" and not "chattel mortgage." It cited the case of Superlines Transportation Co., Inc., et al. v. ICC Leasing and Financing Corporation, 44 where the Court held that both the Chattel Mortgage Law and Act 3135 governing extrajudicial foreclosure of real estate mortgage do not contain any provision precluding the mortgagee from recovering deficiency of the principal obligation. Thus, it concluded that it remains entitled to its deficiency claim. 45
Petitioners filed a Reply 46 dated June 14, 2017. Therein, they argued that the May 21, 2004 Decision of the CA pertained only to the issue of whether respondent had a cause of action against the Spouses Topacio. Allegedly, it did not touch on the issue of the validity and enforceability of the insertion of the phrase "personal capacities" in the CGLO. They reiterate that such insertion is invalid and unenforceable. Consequently, the Spouses Topacio cannot be held jointly and severally liable with ASTCC. 47 Furthermore, they also insist that the voluntary surrender of the subject equipment and their sale by respondent effectively extinguished the obligation arising from the loan. This is because the transaction entered into by the parties is in the nature of an equitable mortgage. The provisions governing pledge/mortgage, including Article 2115 of the Civil Code, apply. 48
ISSUES
WHETHER THE COURT MAY VALIDLY CONSIDER THE ISSUE OF THE SPOUSES TOPACIO'S SOLIDARY LIABILITY DESPITE THE FINAL AND EXECUTORY MAY 21, 2004 DECISION OF THE CA.
WHETHER PETITIONERS ARE OBLIGED TO PAY THEIR DEFICIENCY OBLIGATION TO RESPONDENT.
The Court's Ruling
The petition is denied for lack of merit.
The issue of the Spouses Topacio's solidary liability with ASTCC to respondent has been decided with finality in the May 21, 2004 Decision of the CA. The disposition contained in the said decision constitutes the law of the case. The Court will not disturb what has been decided.
The transaction entered into by the parties is a loan secured by a chattel mortgage. Contrary to petitioners' assertions, the applicable law is not the provisions on pledge contained in the Civil Code but those of Act No. 1508, otherwise known as the Chattel Mortgage Law. Under established jurisprudence, any deficiency resulting from an extrajudicial foreclosure of a chattel mortgage may be recovered by the mortgagee through the institution of an independent civil action. 49 Accordingly, respondent is entitled to payment of its deficiency claim.
The May 21, 2004 Decision of the CA,
The issue of the Spouses Topacio's solidary liability was raised on appeal before the CA when the RTC dismissed the complaint as against them. The CA, in its May 21, 2004 Decision, ruled that, by virtue of the CGLO, the Spouses Topacio bound themselves to be jointly and solidarily liable with ASTCC for the obligation under the Lease Agreement. It observed that the CGLO would be of no use if it was executed by the Spouses Topacio in their capacity as corporate officers as it would still be ASTCC who would be bound thereby. The CGLO would serve no purpose in such a case. Finally, it held that a reading of the CGLO would show that it was a surety contract where the spouses bound themselves to be jointly and solidarily liable with ASTCC. 50 ETHIDa
In its February 16, 2005 Resolution, this Court denied the Spouses Topacio's appeal assailing the May 21, 2004 Decision of the CA. The said resolution attained finality on May 23, 2005 and was entered in the Book of Entries of Judgments.
The May 21, 2004 Decision of the CA, as affirmed by this Court, constitutes the law of the case. It is controlling herein and may no longer be disturbed.
The Court discussed the doctrine of "law of the case" in Spouses Bañes, et al. v. Lutheran Church in the Philippines, et al., 51 to wit:
Law of the case is the opinion delivered on a former appeal. It applies to an established rule that when an appellate court passes on a question and remands the case to the lower court for further proceedings, the question there settled becomes the law of the case upon subsequent appeal. It further means that whatever is once irrevocably established as the controlling legal rule or decision between the same parties in the same case continues to be the law of the case, whether correct on general principles or not, so long as the facts on which such decision was predicated continue to be the facts of the case before the court.
As a rule, a decision on a prior appeal of the same case is held to be the law of the case whether that question is right or wrong, the remedy of the party deeming himself aggrieved being to seek a rehearing. Indeed, courts must adhere thereto, whether the legal principles laid down were "correct on general principles or not," or "whether the question is right or wrong" because public policy, judicial orderliness and economy require such stability in the final judgments of courts or tribunals of competent jurisdiction. 52 (citations omitted)
The May 21, 2004 Decision of the CA squarely passed upon the issue of whether the Spouses Topacio are solidarily liable with ASTCC by virtue of the CGLO they signed. It specifically discussed whether the same was executed by the Spouses Topacio in their capacity as corporate officers or as individuals. These were answered in the affirmative by the May 21, 2004 Decision. The said decision constitutes the controlling legal rule between the parties and it continues to be the law of the case herein.
Spouses Topacio attempt to circumvent the May 21, 2004 Decision of the CA by arguing that it is not binding as it failed to discuss the validity and enforceability of the insertion of the phrase "personal capacities" in the CGLO.
The Court finds the argument to be deserving of scant consideration.
First, the fact that the May 21, 2004 Decision of the CA did not specifically discuss the supposed insertion of the phrase "personal capacities" in the CGLO appears to be entirely attributable to the Spouses Topacio. It appears that they failed to raise the same as an argument before the CA and is only raising it now in the appeal of a separate, though related, decision. Most importantly, the May 21, 2004 Decision has become final and executory. Clearly, the supposed error ascribed to the CA arose out of the Spouses Topacio's own act or inaction. The Court cannot and will not disturb a final judgment, especially on such flimsy basis. Besides, the issue raised involves a question of fact: did respondent insert the phrase "personal capacities" without the consent of the Spouses Topacio? This question, being a question of fact, is not within the province of an appeal under Rule 45 of the Rules of Court. Only questions of law may be raised in an appeal by certiorari before this Court as it is not a trier of facts. 53
Second, the existence of the phrase "personal capacities" in the CGLO is not integral to the CA's May 21, 2004 ruling.
A perusal of the CGLO shows that it expressly states that "[t]he obligations of the undersigned hereunder shall be absolute and unconditional under all circumstances, being joint and several with those of Lessee, and shall be performed by the undersigned regardless of (a) whether Lessor shall have taken any steps to collect any of the Obligations from Lessee or shall have otherwise exercised any of its rights or remedies under the Lease against Lessee or the equipment. . . ." 54 By this provision alone, it is clear that the undersigned, the Spouses Topacio, bound themselves jointly and severally with ASTCC in the fulfillment of the obligations.
Further, the CA expressly held that the Spouses Topacio could not have signed the CGLO in their capacity as corporate officers because it would render the CGLO ineffectual. ASTCC cannot be the surety to an obligation principally contracted by it. It would render nugatory the entire purpose of the surety agreement. This is made more significant by the fact that the CGLO provides that "[i]n order to induce you (the "Lessor") to purchase equipment (the "Equipment"), and lease the same to [ASTCC] (the "Lessee") under a Lease Agreement. . .," the CGLO was executed by the Spouses Topacio. Considering this purpose, it is obvious that respondent would not have been induced to enter into the Lease Agreement if the very party bound already in the Lease Agreement would be the surety as well. cSEDTC
Similarly, the Spouses Topacio's contention that respondent misleads the Court by alleging that the Lease Agreement, the Lease Schedules, and the CGLO were signed on separate dates when, in truth, they were all signed on May 21, 1997, deserves scant consideration. The fact that they were all signed on the same day is irrelevant in determining the propriety of passing upon an issue already settled in a final and executory decision. It is also irrelevant in determining the nature of the Spouses Topacio's liability.
Finally, the contention that respondent did not bother to explain to them the import of the CGLO also deserves scant consideration of this Court. This matter should have been raised before the CA, when it was resolving the propriety of the RTC dismissal of the complaint as against the Spouses Topacio. They cannot belatedly raise it after the finality of the judgment holding them capable of being solidarily liable with ASTCC by virtue of said CGLO. Further, they admit that they did not even bother to read the CGLO. The Court will not reward their negligence by considering such argument in their hopes that it will allow reversal of a long final judgment.
The issue of the nature of the Spouses Topacio's liability to respondent has been settled. The nature of such liability is joint and several. This is the law of the case, which the Court cannot and will not disturb.
The transaction entered into by the
The following facts are not in dispute: (1) ASTCC originally owned the subject equipment; (2) it sold the subject equipment to respondent; (3) ASTCC and respondent then entered into a lease contract covering the subject equipment, wherein ASTCC leased the subject equipment from respondent; (4) the Spouses Topacio executed the CGLO; and (5) ASTCC defaulted in the payment of the "rentals" under the lease agreement.
In order to determine the nature of the contract entered into by the parties, a review of its pertinent provisions is essential.
Section 19.2 (k) of the Lease Agreement, as found by the CA, provides that ". . . Upon occurrence of any breach or default by LESSEE, LESSOR is authorized to sell at public or private sale, such monies, securities and/or properties of value for the purpose of applying the proceeds thereof to the payment of the LESSEE's obligation under this Agreement." 55
Further, Section 19.3 of the Lease Agreement, per the CA, states that "[t]he proceeds derived from the sale or releasing of the PROPERTY, shall, as and when received by the LESSOR be applied first to the expenses incurred by the LESSOR in connection with the repossession, sale or re-leasing of the PROPERTY, is reasonable compensation for undertaking such sale or re-lease, all legal costs and fees, OTHER AMOUNTS, and the balance, if any, to the RENTAL due from the LESSEE. In case the proceeds from such sale or re-lease are not sufficient to cover all amounts payable by the LESSEE to the LESSOR, the LESSEE shall be liable to the LESSOR for the deficiency." 56
The Court finds, based on the foregoing provisions, that the transaction entered into by the parties is a loan secured by a chattel mortgage. The parties charged the subject equipment as security for the performance of ASTCC's obligation under the loan. It is security for the payment of the supposed rentals under the lease agreement.
Article 2140 of the Civil Code provides that "[b]y chattel mortgage, personal property is recorded in the Chattel Mortgage Register as a security for the performance of an obligation. If the movable, instead of being recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel mortgage."
The Court is not unmindful of the fact that there is no evidence on record that the chattel mortgage herein was registered by the parties in the Chattel Mortgage Register. However, the mortgage is binding between the parties despite its non-registration pursuant to Article 2125, in relation to the last paragraph of Article 2124, 57 of the Civil Code. Article 2125 provides that "if the instrument is recorded, the mortgage is nevertheless binding between the parties." SDAaTC
Petitioners claim that the provisions on pledge/mortgage apply to the transaction it entered into with respondent. In particular, they argue that their obligation to respondent was extinguished when respondent sold the subject equipment. Further, they contend that respondent is barred from recovering the deficiency by virtue of Article 2115 of the Civil Code.
Article 2115 applies to the contract of pledge. Petitioners appear to have based their argument on its applicability in the instant case on Article 2140 of the Civil Code, which provides that if the movable is not recorded in the Chattel Mortgage Register but is delivered to the creditor or third person, the contract is deemed a pledge and not a chattel mortgage. Petitioners' logic seems to be that since they delivered the subject equipment to respondent and the chattel mortgage was not recorded in the Chattel Mortgage Register, the contract became a pledge. This is patently erroneous.
The delivery contemplated in Article 2140 of the Civil Code, for a chattel mortgage to become a pledge, is a delivery to the mortgagee of the chattel subject of the mortgage at the time of the execution of the contract. Respondent should have been placed in possession of the subject equipment at the time of the execution of the Lease Agreement and its Schedules for the mortgage to have become a pledge. This is evident in Article 2093 of the Civil Code, which states that it is necessary that the thing pledged be placed in the possession of the creditor, or a third person, in order to constitute the contract of pledge. Without delivery, there can be no pledge.
In the instant case, ASTCC did not deliver possession of the subject equipment to respondent upon execution of the Lease Agreement and its Schedules. It retained possession of the subject equipment and used it for its own purposes. No pledge was constituted.
It is true that ASTCC voluntarily delivered possession of the subject equipment to respondent upon its default or failure to pay the agreed upon "rental fees." Did this act convert the chattel mortgage to a pledge?
The Court answers in the negative.
This act did not convert the chattel mortgage to a pledge. ASTCC delivered possession of the subject equipment to respondent pursuant to the terms of the supposed Lease Agreement, in particular Section 19.3 thereof. Its delivery was in performance of its obligation under the chattel mortgage entered into with respondent. It was done merely in performance of the terms of the chattel mortgage and cannot be interpreted to mean the constitution of a pledge over the subject equipment. There could have been no pledge at this point because the principal obligation, the payment of the loan, had already been breached by non-payment on the specified due dates. The subject equipment was delivered in order to satisfy the obligation arising from the default, not to constitute another security for the loan through a pledge.
Most importantly, to sustain this position would result in the absurd scenario where, upon breach of the principal obligation, every chattel mortgage is converted to a pledge by delivery of the properties subject of the mortgage to the mortgagee in order to satisfy the obligation secured thereby. This cannot be the scenario contemplated by the laws governing pledge and chattel mortgages. This would render nugatory the entire concept of a chattel mortgage.
Petitioners also cannot seek solace from Article 2141 of the Civil Code, which makes applicable to chattel mortgages the provisions of the Code on pledge, insofar as they are not in conflict with the Chattel Mortgage Law.
Article 2115, in relation to Article 2141, is not applicable to chattel mortgages. The Court has previously held that the provisions of Article 2115 may not be applied to chattel mortgages as it is contrary to the provisions of the Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage, viz.: 58
Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:
xxx xxx xxx
The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same in the office of the Registry of Deeds where the mortgage is recorded, and the Register of Deeds shall record the same. The fees of the officer for selling the property shall be the same as the case of sale on execution as provided in Act Numbered One Hundred and Ninety, and the amendments thereto, and the fees of the Register of Deeds for registering the officer's return shall be taxed as a part of the costs of sale, which the officer shall pay to the Register of Deeds. The return shall particularly describe the articles sold, and state the amount received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. The proceeds of such sale shall be applied to the payment, first, of the costs and expenses of keeping and sale, and then to the payment of the demand or obligation secured by such mortgage, and the residue shall be paid to persons holding subsequent mortgages in their order, and the balance, after paying the mortgage, shall be paid to the mortgagor or persons holding under him on demand." (Emphasis supplied) acEHCD
It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law run inconsistent with those of pledge under Article 2115. Whereas, 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, Section 14 of the Chattel Mortgage Law expressly entitles the mortgagor 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. 59 (emphasis supplied)
This ruling was echoed in Superlines Transportation Co., Inc. v. ICC Leasing and Financing Corporation: 60
x x x This Court had consistently ruled that if in an extrajudicial foreclosure of a chattel mortgage a deficiency exists, an independent civil action may be instituted for the recovery of said deficiency. To deny the mortgagee the right to maintain an action to recover the deficiency after foreclosure of the chattel mortgage would be to overlook the fact that the chattel mortgage is only given as security and not as payment for the debt in case of failure of payment. Both the Chattel Mortgage Law and Act 3135 governing extrajudicial foreclosure of real estate mortgage, do not contain any provision, expressly or impliedly, precluding the mortgagee from recovering deficiency of the principal obligation.
In a case of recent vintage, this Court held that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is still entitled to claim the deficiency from the debtor:
To begin with, it is settled that if the proceeds of the sale are insufficient to cover the debt in an extrajudicial foreclosure of the mortgage, the mortgagee is entitled to claim the deficiency from the debtor. For when the legislature intends to deny the right of a creditor to sue for any deficiency resulting from foreclosure of security given to guarantee an obligation it expressly provides as in the case of pledges [Civil Code, Art. 2115] and in chattel mortgages, while silent as to the mortgagee's right to recover, does not, on the other hand, prohibit recovery of deficiency. Accordingly, it has been held that a deficiency claim arising from the extrajudicial foreclosure is allowed. 61 (citations omitted)
To recapitulate, the transaction entered into by the parties is a loan secured by a chattel mortgage. Considering it is a chattel mortgage, the Chattel Mortgage Law and jurisprudence interpreting said law apply. Jurisprudence is clear that the mortgagee in a chattel mortgage is entitled to recover any deficiency after an extrajudicial foreclosure of the property mortgaged.
Applying the foregoing to the instant case, respondent is entitled to the payment of the deficiency obligation resulting from the sale of the subject equipment. Further, since the Spouses Topacio's solidary liability has been settled with finality by the May 21, 2004 Decision of the CA, respondent is entitled to such payment from ASTCC, Augusto, and Antoinetta, jointly and severally. The CA did not err when it affirmed the RTC's ruling in the wise.
WHEREFORE, the petition is DENIED. The June 13, 2016 Decision and October 5, 2016 Resolution of the Court of Appeals in CA-G.R. CV No. 103853 are AFFIRMED.
SO ORDERED." Del Castillo, J., no part; Reyes, Jr., J.C., J., designated additional member per Raffle dated June 10, 2019.
Very truly yours,
(SGD.) LIBRADA C. BUENADivision Clerk of Court
Footnotes
1.Rollo, pp. 35-50; penned by Associate Justice Renato C. Francisco with Associate Justices Apolinario D. Bruselas, Jr. and Danton Q. Bueser, concurring.
2.Id. at 52-54.
3.Id. at 56-71; penned by Acting Presiding Judge Luisito G. Cortez.
4.Id. at 36.
5.Id.
6.Id. at 81-83.
7.Id. at 86.
8.Id. at 89.
9.Id. at 92.
10.Id. at 95.
11.Id. at 36-38.
12.Id. at 97.
13.Id. at 39.
14.Id.
15.Id. at 38.
16.Supra note 13.
17.Id.
18.Id. at 56.
19.Id. at 40.
20.Id. at 40.
21.Id. at 153-159; copy provided is incomplete. Based on the rollo, pp. 69 to 79, of G.R. No. 166243, entitled Spouses Augusto S. Topacio and Antoinetta B. Topacio v. PCI Leasing and Finance, Inc., the May 21, 2004 Decision of the CA is penned by Justice Mariano C. Del Castillo and concurred in by Associate Justice Marina L. Buzon and Associate Justice Noel G. Tijam.
22.Id. at 40.
23.Id.
24.Id. at 161-162.
25.Id. at 161.
26.Supra note 24.
27.Id. at 57.
28.Id. at 70.
29.Id. at 67.
30.Id. at 66.
31.Supra note 29.
32.Id.
33.Id. at 68.
34.Id. at 68-69.
35.Id. at 69.
36. Id. at 69-70.
37. Id. at 45-46.
38. Id. at 46-49.
39. Id. at 21-23.
40. Id. at 23.
41. Id. at 23-28.
42. Id. at 174-186.
43. Id. at 178-182.
44. 446 Phil. 669 (2003).
45. Rollo, pp. 184-185.
46. Id. at 190-196.
47. Id. at 190-191.
48. Id. at 191-195.
49. See Superlines Transportation Co., Inc. v. ICC Leasing and Financing Corp., supra note 44, at 688-689.
50. Rollo, pp. 157-158.
51. 511 Phil. 458 (2005).
52. Id. at 476-477.
53. Mangahas, et al. v. Court of Appeals, et al., 588 Phil. 61, 77 (2008).
54. Rollo, p. 97.
55. Id. at 48.
56. Id.
57. ARTICLE 2124. Only the following property may be the object of a contract of mortgage:
(1) Immovables;
(2) Alienable real rights in accordance with the laws, imposed upon immovables.
Nevertheless, movables may be the object of a chattel mortgage.
58. PAMECA Wood Treatment Plant, Inc., et al. v. Court of Appeals, et al., 369 Phil. 544, 551-552 (1999).
59. Id.
60. Supra note 44.
61. Id. at 688-689.