EUTROPIO ZAYAS, JR., PETITIONER, VS. LUNETA MOTOR COMPANY AND HONORABLE JUAN O. REYES, PRESIDING JUDGE OF THE COURT OF FIRST INSTANCE OF MANILA, BRANCH XXI, RESPONDENTS.

Eutropio Zayas,
Jr., filed this petition for review by certiorari to secure a reversal
of the respondent court’s orders which remanded Civil Case No. 74381 for
further proceedings instead of affirming the city court’s order of dismissal.

The petitioner Eutropio Zayas, Jr. purchased on installment basis a motor vehicle
described as ONE (1) UNIT FORD THAMES FREIGHTER W/PUJ BODY with Engine No.
400E-127738 and Chassis No. 400E-127738 from Mr. Roque
Escaño of the Escaño
Enterprises in Cagayan de Oro
City, dealer of respondent Luneta Motor Company,
under the following terms and condi­tions:

Selling price—————————–  
P 7,500.00

Financing charge———————– P 1,426.82

Total Selling Price ——————— P 8,926.82

Payable on Delivery ——————- P 1,006.82

Payable in 24 months

at 12% interest

per annum —————————— P7,920.00

The
motor vehicle was delivered to the petitioner who 1) paid the initial
payment in the amount of P1,006.82; and 2) executed a
promissory note in the amount of P7,920.00, the balance of the total selling
price, in favor of respondent Luneta Motor Company.  The promissory note stated the amounts and
dates of payment of twenty-six installments covering the P7,920.00
debt.  Simultaneously with the execution
of the promissory note and to secure its payment, the petitioner executed a
chattel mortgage on the subject motor vehicle in favor of the respondent.  After paying a total amount of P3,148.00, the petitioner was unable to pay further monthly
installments prompting the respondent Luneta Motor
Company to extrajudicially foreclose the chattel
mortgage (Annex “A” to Answer, Original Record, p. 10, supra).  The motor vehicle was sold at public auction
with the respondent Luneta Motor Company represented
by Atty. Leandro B. Fernandez as the highest bidder
in the amount of P5,000.00 (Annex “B” to Answer, Original Record, p.
11, supra).  Since the payments
made by petitioner Eutropio Zayas,
Jr. plus the P5,000.00 realized from the foreclosure
of the chattel mortgage could not cover the total amount of the promissory note
executed by the petitioner in favor of the respondent Luneta
Motor Company, the latter filed Civil Case No. 165263 with the City Court of
Manila for the re­covery of the balance of P1,551.74 plus interests.

Luneta Motor Company alleged in its complaint that
defendant Eutropio Zayas,
Jr. executed a promissory note in the amount of P7,920.00 in its favor; that
out of the P7,920.00, Eutropio Zayas,
Jr. had paid only P6,368.26 plus interest up to the date of the sale at public
auction of the motor vehicle; that the balance of P1,551.74 plus interest of
12% thereon from that date had already become due and payable but despite
repeated demands to pay the same, Eutropio Zayas, Jr., refused and failed to pay.

In his answer with
affirmative defenses and counter­claim, Eutropio Zayas, Jr. admitted having executed the promissory note for
the monthly payments, on a Ford Thames vehicle bearing Engine No. 400E-127738
which he purchased from the Lineta Motor Company but
he denied his alleged outstanding liability of P1,551.74 plus interest thereon
“x x x the said
obligation if there was any, had already been discharged either by payment or
by sale in public auction of the said motor vehicle as evidenced by a Notice of
Sale marked as Annex “A” and Certificate of Sale marked as Annex
“B”; (Answer, p. 7, Original Record). 
He alleged as affirmative defenses, among others:  1) that the plaintiff has no cause of action
against him; and 2) that pursuant to Article 1484 of the New Civil Code and the
case of Pacific Commercial Co. v. De La Rama,
(72 Phil. 380) his obligation per the promissory note was extinguished by the
sale at public auction of the motor vehicle, the subject of the chattel
mortgage which was executed by him in favor of the plaintiff as security for
the payment of said promissory note. 
(Answer, p. 8, Original Record)

In its Reply, Luneta Motor Company denied the applicability of Article
1484 of the Civil Code “x x x
for the simple reason that the contract involved between the parties is not one
for a sale on installment” (Reply, p. 13, Original Record).

After several
postponements, the case was set for hearing. 
As a result of the non-appearance of the plaintiff and its counsel on
the date set for hearing, defendant Zayas, Jr. moved
to have the case dismissed for lack of interest on the part of the plaintiff.  He also asked the court to allow him to
discuss the merits of his affirmative defense as if a motion to dismiss had
been filed.  The issue raised and argued
by the defendant was whether or not a deficiency amount after the motor
vehicle, subject of the chattel mortgage, has been sold at public auction could
still be recovered.  Zayas
cited the case of Ruperto Cruz v. Filipinas
Investment (23 SCRA 791).

Acting on the motion, the
city court issued an Order:

“On Petition of counsel for the defendant for the dismissal of
this case on the ground that the defendant is no longer liable for the
deficiency judgment inasmuch as the chattel mortgage has been foreclosed, with
the plaintiff as the highest bidder thereof, citing the case of Ruperto G. Cruz v. Filipinas Investment decided on May 27,
1968, G.R. No. L-24772 in connection with Article 1484 of the
Civil Code, and find­ing the same well taken.

“Let this case be dismissed without pronouncement as to
costs.”

Luneta Motor Company filed an “Urgent Motion for
Reconsideration” reiterating its stand that Article 1484 of the New Civil
Code on sale of personal property by installment was not applicable and that
the contract involving the parties was a mere case of an ordinary loan secured
by chattel mortgage.  According to the
plaintiff, the defendant executed the promissory note and chattel mortgage to
secure the plaintiff’s interest for having financed the purchase of the motor
vehicle by the defendant from the Escaño Enterprises
of Cagayan de Oro City, an
entity entirely different and distinct from the plaintiff corporation (p. 33,
Original Record).

The court denied the
motion for reconsideration for lack of merit.

Luneta Motor Company appealed the case to the Court
of First Instance of Manila where it was docketed as Civil Case No. 74381.

After various incidents,
the respondent court issued an order which, in part, reads:

“This is an appeal taken by plaintiff from the order of the
City Court of Manila, dismissing its complaint on the ground that the defendant
is no longer liable for the deficiency judgment inasmuch as the chattel
mortgage has been foreclosed, with the plaintiff as the highest bidder thereof,
in line with the ruling of the Supreme Court in the case of Ruperto
G. Cruz v. Filipinas Investment (G.R. No. L-24772) in connection
with Article 1484 of the Civil Code.

xxx                            xxx                               xxx

“After going over the pleadings in this case, more
particularly the complaint and the answer to the complaint filed with the City
Court of Manila, this Court is of the impression that the case at bar may not
be decided merely, as the City Court had done, on the question of law since the
presentation of evidence is necessary to adjudicate the questions
involved.  ‘WHEREFORE, this case is
hereby remanded to the court of origin for further proceedings.  (pp. 82-83, Original Record)”

Hence, this petition.

Petitioner Eutropio Zayas,
Jr. now maintains:

“That Respondent Court of First Instance erred:

1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE DECIDED SINCE
PRESENTATION OF EVIDENCE IS NECESSARY – REGARDING THE QUESTION OF RECOVERY OF
THE DEFICIENCY AMOUNT IN A CHATTEL MORTGAGE AFTER SELLING IT IN A PUBLIC
AUCTION;

2. IN ORDERING THE REMAND OF THE CASE TO THE CITY COURT FOR FURTHER
PROCEEDINGS TAKEN BY THE RESPONDENT FROM THE CITY COURT TO THE COURT OF FIRST
INSTANCE, BRANCH XXI, MANILA; and

3. IN NOT DISMISSING THE APPEAL TAKEN BY THE
PRIVATE RESPONDENT FROM THE CITY COURT TO THE COURT OF FIRST INSTANCE.”

The main defense of respondent Luneta
Motor Company is that Escaño Enterprises, Cagayan de Oro City from which
petitioner Eutropio Zayas,
Jr. purchased the subject motor vehicle was a distinct and different entity;
that the role of Luneta Motor Company in the said
transaction was only to finance the purchase price of the motor vehicle; and
that in order to pro­tect its interest as regards the promissory note executed
in its favor, a chattel mortgage covering the same motor vehicle was also
executed by petitioner Eutropio Zayas,
Jr.  In short, respondent Luneta Motor Company maintains that the contract between
the company and the petitioner was only an ordinary loan removed from the
coverage of Article 1484 of the New Civil Code.

The respondent’s arguments have no merit.

The Escaño Enterprises of Cagayan de Oro City was an agent
of Luneta Motor Company.  A very significant evidence which proves the
nature of the relationship between Luneta Motor
Company and Escaño Enterprises is Annex “A. of the petitioner’s OPPOSITION TO URGENT
MOTION FOR RECONSIDERATION.  (Original
Record, p. 36) Annex “A” is a certification from the cashier of Escaño Enterprises on the monthly installments paid by Mr. Eutropio Zayas, Jr.  In the certification, the promissory note in
favor of Luneta Motor Company was specifically
mentioned.  There was only one promissory
note executed by Eutropio Zayas,
Jr. in connection with the purchase of the motor vehicle.  The promissory note mentioned in the
certification refers to the promissory note executed by Eutropio
Zayas, Jr. in favor of respondent Luneta
Motor Company.  Thus:

“C
E R T I F I C A T
I O N

“This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid from
us the following, of his FORD THAMES BEARING Engine No. 400E-127738, promissory
note dated October 6, 1966.  Viz:

ESCAÑO ENTERPRISES

(SGD.) EMELITA H. BACULIO

Cashier”

Escaño
Enterprises, a dealer of respondent Luneta Motor
Company, was merely a collecting-agent as far as the purchase of the subject
motor vehicle was concerned.  The
principal and agent relationship is clear.

But even assuming that
the “distinct and independent entity” theory of the private
respondent is valid, the nature of the transaction as a sale of personal
property on installment basis remains. 
When, therefore, Escaño Enterprises, assigned
its rights vis-a-vis the sale to respondent Luneta Motor Company, the nature of the transaction
involving Escaño Enterprises and Eutropio
Zayas, Jr. did not change at all.  As assignee, respondent Luneta
Motor Company had no better rights than assignor Escaño
Enterprises under the same transaction. 
The transaction would still be a sale of personal property in
installments covered by Article 1484 of the New Civil Code.  To rule otherwise would pave the way for
subverting the policy underlying Article 1484 of the New Civil Code, on the
foreclosure of chattel mortgages over personal property sold on installment
basis.

“ART. 1484.  In a contract of sale of personal
property the price of which is payable in installments, the vendor may exercise
any of the following remedies:

xxx                xxx                   xxx

xxx                xxx                   xxx

“(3)    Foreclose the
chattel mortgage on the thing sold, if one has been 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.  Any agreement to the contrary shall be void.

xxx                xxx                   xxx

“x x x the established rule is to the effect that the
foreclosure and actual sale of a mortgaged chattel bars further recovery by the
vendor of any balance on the purchaser’s outstanding obligation not so
satisfied by the sale.  And the reason
for this doctrine was aptly stated in the case of Bachrach
Motor Co. vs. Millan, supra, thus:

“‘Undoubtedly the principal object of the above amendment was
to remedy the abuses committed in connection with the foreclosure of chattel
mortgages.  This amendment prevents
mortgagees from seizing the mortgaged property, buying it at foreclosure sale
for a low price and then bringing suit against the mortgagor for a deficiency
judgment.  The almost invariable result
of this procedure was that the mortgagor found himself minus the property and
still owing practically the full amount of his original indebtedness.  Under this amendment the vendor of personal
property, the purchase price of which is payable in installments, has the right
to cancel the sale or foreclose the mortgage if one has been given on the
property.  Whichever right the vendor
elects he need not return to the purchaser the amount of the installments
already paid, ‘if there be an agreement to that effect’.  Furthermore, if the vendor avails himself of
the right to foreclose the mortgage this amendment prohibits him from bringing
an action against the purchaser for the unpaid balance.'” (Cruz v.
Filipinas Investment & Finance Corporation, 23 SCRA 791)

Our findings and
conclusions are borne out by the records available to the respondent
court.  There was no necessity for the
remand of records to the city court for the presentation of evidence on the
issue raised in the case.

WHEREFORE, the instant petition is hereby
granted.  The orders remanding the case
to the court of origin and denying the motion for reconsideration of the Court
of First Instance of Manila, Branch XXI issued in Civil Case No. 74381 are
annulled.  Accordingly, the Court of
First Instance of Manila, Branch XXI is directed to dis­miss the appeal in
Civil Case No. 74381.  The Order of the
City Court of Manila dismissing the complaint in Civil Case No. 165263 is
affirmed.

SO ORDERED.

Teehankee, (Chairman), Melencio-Herrera, Plana, Vasquez,
and Relova, JJ., concur.