Manila Trading & Supply Co. v. Santos
REITERATIONFacts
The Antecedents: The Manila Trading and Supply Company sold a Ford Truck chassis to Tomas Santos and Genaro D. Saez. For the unpaid balance of P2,200, the defendants executed twenty promissory notes and a chattel mortgage over the truck chassis. The defendants failed to pay any of the promissory notes. The plaintiff attached the mortgaged chattel, which was sold at public auction for P700 in favor of the plaintiff. The plaintiff credited this amount, leaving a balance of P1,897.55, for which the plaintiff instituted an action to collect. Procedural History: The defendants' special defense was that the plaintiff's action cannot prosper because it is contrary to Act No. 4122. The case was submitted for decision based on a stipulation of facts. The trial court rendered a decision sentencing the defendants to pay the plaintiff the sum of P1,897.55, with interest and costs. The defendants appealed. The Petition: The defendants appealed the decision, primarily arguing that Act No. 4122 should have been applied to their case, and secondarily, that the court erred in sentencing them jointly and severally for the unpaid balance, and in denying their motion for a new trial.
Issue(s)
Whether Act No. 4122, which took effect after the execution of the chattel mortgage but before the filing of the action, is applicable to the case. Whether the plaintiff is entitled to a deficiency judgment after the foreclosure of the chattel mortgage. Whether the defendants are jointly and severally liable for the unpaid balance.
Ruling
The Supreme Court affirmed the appealed judgment, holding that Act No. 4122 is inapplicable and that the plaintiff is entitled to a deficiency judgment in accordance with Act No. 1508. The defendants are jointly and severally liable for the unpaid balance, with interest and costs.
Ratio Decidendi
On the applicability of Act No. 4122: The Court held that Act No. 4122, which took effect on December 9, 1933, is not applicable to the chattel mortgage executed on October 3, 1933. The principle of irretroactivity of laws, embodied in Article 3 of the Civil Code, dictates that laws have no retroactive effect unless expressly provided. Since Act No. 4122 does not state that it has retroactive effect, it cannot apply to contracts executed before its effectivity. The fact that the action was filed after the law took effect does not change this principle, as the right to a deficiency judgment already existed under Act No. 1508 at the time Act No. 4122 was approved. The action is merely a remedy to protect a pre-existing right. On the entitlement to a deficiency judgment: The Court reiterated its rulings in previous cases, such as Bank of the Philippine Islands vs. Olutanga Lumber Co. and Manila Trading and Supply Co. vs. Tamaraw Plantation Co., that under Act No. 1508, the Chattel Mortgage Law, a creditor holding a chattel mortgage as security may maintain an action for the recovery of the balance remaining unpaid after the foreclosure of the mortgage. The chattels included in the mortgage are given as security, not as payment of the debt. Therefore, if the sale proceeds are insufficient to cover the debt, the debtor is not relieved from paying the balance. Section 14 of Act No. 1508 outlines the application of sale proceeds, indicating that the residue after satisfying the secured obligation is to be paid to subsequent mortgagees or the mortgagor, implying that a deficiency can be pursued. On the joint and several liability: The Court found the defendants' argument that the promissory notes were imaginary or fictitious to be unfounded. The promissory notes were not without consideration; they represented the unpaid balance of the price of the truck chassis sold to the defendants. As onerous contracts, their consideration was the undertaking of the defendants to pay their value. The amounts were true and correct as they totaled the unpaid balance. Therefore, the defendants are jointly and severally liable for the debt as stipulated in the promissory notes and the mortgage.
Main Doctrine
Act No. 4122, which prohibits a deficiency judgment after foreclosure of a chattel mortgage, is not applicable to mortgages executed prior to its effectivity, as laws have no retroactive effect unless expressly provided. The creditor is entitled to a deficiency judgment under Act No. 1508 for the unpaid balance after the foreclosure sale.