Pascual v. Universal Motors Corporation
REITERATIONFacts
The Antecedents: Plaintiffs Lorenzo Pascual and Leonila Torres executed a real estate mortgage on December 14, 1960, to secure the indebtedness of PDP Transit, Inc. for the purchase of five Mercedez Benz trucks. The principal obligation was P152,506.50, with interest at 1% per month, but the mortgage guarantee was not to exceed P50,000.00. PDP Transit, Inc. had paid P92,964.91 as of May 22, 1961, leaving a balance. The obligation was also secured by chattel mortgages on the trucks. On March 19, 1965, Universal Motors Corporation (UMC) filed a complaint against PDP Transit, Inc. to collect the balance and repossess the units, including the five guaranteed by the real estate mortgage. UMC repossessed all units and foreclosed the chattel mortgages. Procedural History: The mortgagors, Pascual and Torres, filed an action in the Court of First Instance of Quezon City for the cancellation of their real estate mortgage. The lower court rendered judgment for the plaintiffs, ordering the cancellation of the mortgage and directing UMC to pay attorney's fees. UMC appealed. The Petition: The defendant-appellant, Universal Motors Corporation, disputes the applicability of Article 1484 of the Civil Code, arguing that the sale was not on installments and that the article prohibits recovery from the purchaser, not from a third-party guarantor.
Issue(s)
Whether Article 1484 of the Civil Code is applicable to the case. Whether the prohibition under Article 1484 against recovering the balance after foreclosure extends to recourse against a third-party security.
Ruling
The Supreme Court affirmed the decision of the lower court, ordering the cancellation of the real estate mortgage and upholding the applicability of Article 1484 of the Civil Code. The Court ruled that the prohibition against recovering the balance after foreclosure of the chattel mortgage extends to recourse against a third-party security.
Ratio Decidendi
On the applicability of Article 1484 of the Civil Code: The Court held that Article 1484 of the Civil Code is applicable to contracts of sale of personal property on an installment basis, which precludes the mortgagee from maintaining any further action against the debtor for the recovery of any balance of the debt secured. The lower court found that the sale of the trucks was on installments and that there was a failure to pay two or more installments. This factual finding by the lower court is not subject to review by the Supreme Court. The appellant's contention that the sale was not on installments was a bare allegation that could not be considered at that stage of the case. Therefore, the conditions for the application of Article 1484 were met. On whether the prohibition extends to recourse against a third-party security: The Court rejected the appellant's argument that Article 1484 only prohibits recovery from the purchaser and not from a third-party guarantor. The Court reasoned that to sustain such an argument would be to overlook the fact that if the guarantor were compelled to pay the balance, the guarantor would, in turn, be entitled to recover from the debtor-vendee. This would ultimately result in the vendee bearing the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage. Consequently, the protection afforded by Article 1484 would be indirectly subverted, and public policy overturned. The Court cited its ruling in Cruz vs. Filipinas Investment & Finance Corporation to support this position, emphasizing that the purpose of Article 1484 is to protect purchasers of personal property on installment plans from oppressive remedies of the vendor.
Main Doctrine
Article 1484 of the Civil Code, which prohibits a vendor from recovering the unpaid balance of the price after foreclosing the chattel mortgage on the sold personal property, also precludes recourse against a third-party security put up to guarantee the purchaser's obligation, as such recourse would indirectly subvert the protection afforded by the said article.