NORTHERN MOTORS, INC., PLAINTIFF-APPELLANT, VS. CASIANO SAPINOSO AND “JOHN DOE”, DEFENDANTS-APPELLEES.

Direct appeal on questions of law from the por­tion of the
judgment of the Court of First Instance of Manila, Branch XXII, in its Civil
Case No. 66199, ordering the plaintiff to pay defendant Casiano
Sapinoso the sum of P1,250.00.

The facts of this case are as follows:

On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car for the price of
P12,171.00, making a down payment and executing a
promissory note for the balance of P10,540.00, payable in installments with
interest at 12% per annum, as follows: 
P361.00 on July 5, 1965, and P351.00 on the 5th day of each month
beginning August, 1965, up to and in­cluding December, 1967.  To secure the payment of the promissory note,
Sapinoso executed in favor of Northern Motors, Inc. a
chattel mortgage on the car.  The mort­gage
contract provided, among others, that upon default by the mortgagor in the
payment of any part of the prin­cipal or interest due, the mortgagee 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 to0 exact
fulfillment of the mortgage contract.  It
was further stipulated that “[w]hichever 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.”

Sapinoso failed to pay the first
installment of P361.00 due on July 5,
1965, and the second, third, fourth and fifth installments of
P351.00 each due on the 5th day of August, September, October and November,
1965, respectively.  Several payments Were, however, made by Sapinoso,
to wit:  P530.52 on November 21, 1965, P480.00 on December 21, 1965, and P400.00 on April 30, 1966.  The first and third payments aforesaid were
ap­plied to accrued interest up to April
17, 1966, while the second payment was applied partly (P158.10) to
interest, and partly (P321.90) to the principal, thereby reducing the balance
unpaid to P10,218.10.

The vendee-mortgagor haying failed to make fur­ther payments,
Northern Motors, Inc. filed the present complaint on July 22, 1966, against Sapinoso
and a cer­tain person whose name, identity and address were still unknown to
the plaintiff, hence denominated in the com­plaint as “John
Doe”.  In its complaint, Northern
Motors, Inc. stated that it was availing itself of the option given it under
the mortgage contract of extrajudicially foreclosing
the mortgage, and prayed that a writ of rep­levin be
issued upon its filing of a bond for the seizure of the car and for its
delivery to it; that after hear­ing, the plaintiff be adjudged to have the
rightful pos­session and ownership of the car; that in default of delivery, the
defendants be ordered to pay the plaintiff the sum of P10,218.10 with interest
at 12% per annum from April 18, 1966, until full payment of the said sum, as
well as an amount equivalent to 25% of the sum due as and for attorney’s fees
and expenses of collection, and the costs of the suit.  Plaintiff also prayed for such other remedy as
might be deemed just and equitable in the pre­mises.

Subsequent to the commencement of the action, but before the
filing of his answer, defendant Sapinoso made two
payments on the promissory note, the first on August 22, 1966, for P500.00, and the second on September 27, 1966, for P750.00.  In the meantime, on August 9, 1966, upon the plaintiff’s filing of a
bond, a writ of replevin was issued by the
court.  On October 20, 1966, copies of the summons, complaint and
annexes thereto were served on defendant Sapinoso by
the sheriff who executed the sei­zure warrant by seizing the car from defendant
Sapinoso on the same date, and turning over its
possession to the plaintiff on October
25, 1966.

On November 12, 1966,
defendant Sapinoso filed an answer admitting the
allegations in the complaint with respect to the sale to him of the car, the
terms there­of, the execution of the promissory note and of the chat­tel
mortgage contract, and the options open to the plain­tiff under the said
contract.  He alleged, however, that he
had paid the total sum of P4,230.52, leaving a balance of only P5,987.58; that
upon demand he immediate­ly surrendered the possession of the car to the plain­tiff’s
representative; and that the value of the car was only about P5,000.00, and not
P10,000.00 as al­leged in the complaint. 
As special defenses the said defendant alleged that he failed to pay the
installments due because the car was defective, and the plaintiff failed to
have it fixed although he had repeatedly call­ed the plaintiff’s attention
thereto, hence, the defendant had to procrastinate in his payments in order to
move the plaintiff to repair the car; and that although the car could not be
used, he paid P700.00 to the plaintiff upon the latter’s assurance that the car
would be fixed, but that instead of having the car fix­ed, the plaintiff, in
bad faith, filed the present complaint. 
The defendant prayed that the complaint be dis­missed and that the
plaintiff be ordered to return the car to him. 
He stated in his prayer that ho would be very much willing to pay the
car in a compromise agree­ment between him and the plaintiff.

After trial, the court a quo, in its decision dated April
4, 1967, held that defendant Sapinoso having failed
to pay more than two (2) installments, plaintiff-mortgagee acquired the right
to foreclose the chat­tel mortgage, which it could avail of – as it has done in
the present case – by filing an action of replevin to
secure possession of the mortgaged car as a prelim­inary step to the
foreclosure sale contemplated in the Chattel Mortgage Law; and that the
foreclosure of the chattel mortgage and the recovery of the unpaid balance of
the price are alternative remedies which may not be pursued conjunctively, so
that in availing itself of its right to foreclose the chattel mortgage, the
plaintiff there­by renounced whatever claim it may have had on the prom­issory
note, and, therefore, the plaintiff has no more right to the collection of the
attorney’s fees stipulat­ed in the promissory note, and should return to defend­ant
Sapinoso the sum of P1,250.00 which the plaintiff had
received from the latter after having filed the pre­sent case on July 22, 1966,
and elected to foreclose the chattel mortgage. 
The dispositive portion of the de­cision
reads:

“WHEREFORE, the Court finds that the plaintiff has the right
to the possession of the OPEL KADETT two door sta­tion wagon Model 3464-91.5,
with engine No. 10-0354333, and the delivery there­of to the plaintiff is
hereby ratified and confirmed but said party is sentenced to pay to the
defendant the sum of P1,250, with legal interest on
P500 from August 22, 1966 and on P750 from September 27, 1966, until fully
paid, without any pronounce­ment as to costs.”

In this appeal plaintiff-appellant claims that the court a quo
erred in ordering it to reimburse to defendant?appellee
Sapinoso the sum of P1,250.00
which the lat­ter had paid.  It contends
that under Article 1484 of the Civil Code it is the exercise, not the
mere election, of the remedy of foreclosure that bars the creditor from
recovering the unpaid balance of the debt; that what the said Article 1484
prohibits is “further action” to collect payment of the deficiency
after the creditor has foreclosed the mortgage; and that in paying plain­tiff-appellant
the sum of P1,250.00 before defendant-ap­pellee Sapinoso filed his answer, and in not filing a counterclaim
for the recovery thereof, the said defend­ant-appellee
in effect renounced whatever right he might have had to recover the said
amount.

The appeal is meritorious.

In issuing a writ of replevin, and,
after trial, in upholding plaintiff-appellant’s right to the pos­session of the
car, and ratifying and confirming its delivery to the said plaintiff-appellant,
the court be­low correctly considered the action as one of replevin
to secure possession of the mortgaged vehicle as a pre­liminary step to the
foreclosure sale contemplated in Section 14 of Act No. 1508 (Bachrach Motor Co. vs. Summers, 42 Phil. 3; Seño vs. Pestolante, G.R. No.
L-11755, April 23, 1958).  The said court however erred in con­cluding
that the legal effect of the filing of the action was to bar
plaintiff-appellant from accepting fur­ther payments on the promissory
note.  That the ultimate object of the
action is the foreclosure of the chattel mortgage, is of no moment, for it is
the fact of fore­closure and actual sale of the mortgaged chattel that bar
further recovery by the vendor of any balance on the purchaser’s outstanding
obligation not satisfied by the sale. 
(Manila Motor Co., Inc. vs. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. vs. Millan, 61
Phil., 409; Manila Trading & Supply Co. vs. Reyes, 62 Phil., 461, 471;
Cruz, et al. vs. Filipinas Investment & Finance Corporation, G.R. No. L-24772, May 27, 1968 [23 SCRA 791,
796].) In any event, what Article 1484(3) prohibits is “further
action against the purchaser to recover any unpaid balance of the price;”
and although this Court has construed the word “action” in said
Article 1484 to mean “any judicial or extrajudicial proceeding by vir­tue
of which the vendor may lawfully be enabled to exact recovery of the supposed
unsatisfied balance of the pur­chase price from the purchaser or his
privy” (Cruz, et al. vs. Filipinas Investment & Finance Corporation, supra),
there is no occasion at this stage to apply the restrictive provision of the
said article, because there has not yet been a foreclosure sale resulting in a
defi­ciency.  The payment of the sum of
P1,250.00 by defend­ant-appellee
Sapinoso was a voluntary act on his part and did not
result from a “further action” instituted by
plaintiff-appellant.  If the mortgage
creditor, before the actual foreclosure sale, is not precluded from recover­ing
the unpaid balance of the price although he has filed an action of replevin for the purpose of extrajudicial foreclosure, or
if a mortgage creditor who has elected to foreclose but who subsequently
desists from proceed­ing with the auction sale, without gaining any advantage
or benefit, and without causing any disadvantage or harm to the
vendee-mortgagor, is not barred from suing on the unpaid account (Radiowealth, Inc. vs. La­vin, et
al., G.R. No. L-18563, April 27, 1963,
[7 SCRA 804, 807]), there is no reason why a mortgage creditor should be barred
from accepting, before a foreclosure sale, payments voluntarily tendered by the
debtor-mort­gagor who admits a subsisting indebtedness.

PREMISES CONSIDERED, the judgment appealed from is
modified by setting aside the portion thereof which orders plaintiff-appellant
to pay defendant-appellee Sapinoso
the sum of P1,250.00, with costs in this instance
against the said defendant-appellee.

Concepcion, C.J., Reyes, Dizon, Makalintal, Zaldivar, Fernando, and
Teehankee, JJ., concur.

Barredo, J., in the result.

Castro, J., on official leave.