SARIGUMBA III, NORBERTO O.

Northern Motors v. Sapinoso

33 SCRA 356 (1970)

RE: “Barring” effects of foreclosure in relation to sales of movables in installments

SALIENT FACTS:

1. An Opel Kadett car was the subject of a sale transaction for Php 12,171 where
the buyer made a down payment while the balance was to be paid in
installments.
2. To secure the payment of the balance, the buyer executed a chattel mortgage in
favor of the seller.
3. The mortgage contract provided that in the event the buyer fails to make the
agreed installments, the seller may elect any of the following remedies: (a) sale
of the car by the mortgagee; (b) cancellation of the contract of sale; (c)
extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary civil action to exact
fulfillment of the mortgage contract.
4. It was also stipulated therein that, “whichever remedy is elected by the
mortgagee, the mortgagor expressly waives his right to reimbursement by the
mortgagee of any and all amounts on the principal and interest already paid by
him.”
5. When the buyer failed to pay the installments, the seller immediately instituted an
action of replevin in order to foreclose the car.
6. However, sometime after the institution of the action, the buyer made two
additional payments for a total of Php 1,250 to the seller.
7. While the court decided in favor of the foreclosure of the car, it ordered the seller
to return the aforementioned Php 1,250 for the reason that since they have
already elected to foreclose the car, they cannot anymore recover the rest of the
amount owed to them
8. However, the seller contends that it is the fact of the actual foreclosure that would
bar further recovery from the debt owed to him and not simply because of his
election to foreclose the car.

ISSUE:

Whether or not the seller-mortgagee can validly retain the additional payments made to
him by the buyer-mortgagor despite having already elected to pursue the remedy of
foreclosure.
SUPREME COURT HELD:

Resolution of the Issue:

Yes, the seller-mortgagee can retain the Php1,250 paid to him by the buyer-mortgagor
after the former chose to foreclose the car.

Law Applicable to the ISSUE AND FACTS:

Article 1484 (3) of the Civil Code provides that in a sale where the price is payable in
installments, the vendor may exercise the remedy of foreclosing the chattel mortgage
on the thing sold, if one is constituted, should the vendee’s failure to pay cover two or
more installments. In this case, he shall have no further action against the purchaser to
recover any unpaid balance of the price.

Application of the Law Cited in the Problem:

The Supreme Court held that the restrictive provision of Article 1484 (3) cannot be
applied yet in the case at bar because there has been no foreclosure sale resulting in a
deficiency in the first place. It is not the act of electing the remedy of foreclosure that
bars further collection, but instead, it is the happening of the actual foreclosure sale
which bars such recovery. Hence, the voluntary payments worth Php 1,250 made by the
buyer are valid and need not be returned by the seller.

Doctrine of the Case:

Action of replevin in order to foreclose on the chattel mortgage does not produce the
barring effect under the Recto Law for it is the fact of foreclosure and actual sale of the
mortgaged chattel that bar further recovery by the seller of any balance on the buyer’s
outstanding obligation not satisfied by the sale.

CRITIQUE AND ANALYSIS:

In accordance with the law and existing jurisprudence, the Supreme Court correctly held
the retention of the additional payments made by the buyer to the seller even if the latter
has already chosen the remedy of foreclosure. Article 1484 (3) clearly provides that it is
the exercise of foreclosure which would bar further recovery by the seller of the
outstanding balance of the buyer’s obligation. This means that it is the actual
foreclosure sale that produces the “barring” effects of the said provision. Such doctrine
has also found support in our jurisprudence where the Court held that a mortgage
creditor, before the actual foreclosure sale, may even recover the unpaid balance of the
price although he already filed an action of replevin, or a mortgage creditor who has
elected to foreclose but who subsequently desists from proceeding with the auction
sale, without gaining any advantage or benefit, is not even barred from suing the unpaid
account.1

In the case at bar, it was the buyer himself who voluntarily and willfully made the
additional payments to the seller. This is despite the fact that he was already aware of
the intention of the seller to foreclose the chattel mortgage through the action of replevin
filed in court. Thus, it would be quite unjust if the seller, who was already prejudiced by
the failure of the buyer to abide by their prior agreement, would be further put at a
disadvantage by being ordered to return the said payments which they did not even
collect from the buyer. And considering that the action of replevin was just instituted at
the time the payments were made and an actual foreclosure sale was yet to occur, then
the retention in favor of the seller was only proper.

1 Radiowealth, Inc. v. Lavin, G.R. No. L-18563, April 27, 1963.