LUIS G. ABLAZA, PLAINTIFF AND APPELLANT, VS. GABRIEL A. IGNACIO, DEFENDANT AND APPELLEE.

BAUTISTA ANGELO, J.:

This is an action for deficiency arising from a
foreclosure of a chattel mortgage instituted when the new Civil Code
has already taken effect.

Defendant, after having been served with the summons
and the complaint, failed to answer within the reglementary period.
Upon motion of plaintiff, defendant was declared in default. Then
plaintiff presented his evidence and submitted the case for decision.

On August 30, 1956, the court rendered decision
dismissing the complaint on the ground that, under the provisions of
Articles 2141 and 2115 of the new civil Code, “plaintiff is not
entitled to deficiency judgment notwithstanding defendant being
declared in default for the reason that it is manifestly against the
law.” Hence the present appeal.

It appears that defendant borrowed from plaintiff
the amount of 52,250, payable after sixty days, with interest at 12%
per annum, and to secure the loan, he executed a chattel mortgage on an
Oldsmobile car. Defendant failed to pay the indebtedness on its date of
maturity, thereby violating one of the conditions of the mortgage.
Thereupon, plaintiff proceeded to foreclose the mortgage
extrajudicially and the mortgaged chattel was sold at public auction
for the amount of P700.00. Deducting this amount from, the total
obligation, in addition to the interest and liquidated damages agreed
upon, the remaining balance was P2,675. To collect this balance,
plaintiff instituted the present action.

The lower court dismissed this case in spite of the
fact that defendant was declared in default and plaintiff presented
enough evidence to support his claim because, being an action for
deficiency oh a chattel mortgage, it opined that the mortgage creditor
is no longer entitled to it under the provisions of the new Civil Code.
Said the lower court:

“It is clear from the evidence presented that plaintiff in the instant case seeks deficiency judgment on a chattel mortgage.

“The Civil Code provides:

‘Art.
2141.—The provisions of this Code on pledge insofar as they are not in
conflict with the Chattel Mortgage Law, shall be applicable to chattel
mortgages.’

“Art. 2115.—The sale of the
thing pledged shall extinguish the principal obligation, whether or not
the proceeds of the 3ale are equal to the amount of the principal
obligation, interest and expenses in a proper case. If the price of the
sale is more than said amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed, if the price of the sale is less
neither shall the creditor be entitled to recover the deficiency,
notwithstanding any stipulation to the contrary.’

“With
the above-quoted provisions of the Civil Code, this Court is of the
opinion that plaintiff is not entitled to deficiency judgment
notwithstanding defendant being declared in default for the reason that
it is manifestly against the law.”

We are of the opinion that the trial court is in
error. It is clear from Article 2141 that the provisions of the new
Civil Code on pledge shall apply to a chattel mortgage only
in so far as they are not in conflict with the Chattel Mortgage Law. In
other words, the provisions of the new Civil Code on pledge can only
apply if they do not run counter to any provision of the Chattel
Mortgage Law, otherwise, the provisions of the latter law shall apply.
Here we find tint the provisions of the Chattel Mortgage Law with
regard to the effects of the foreclosure of a chattel mortgage are
precisely contrary to the provisions of Article 2115 which were applied
by the trial court. This can be seen from a perusal of Section 14 of
said law, which we quote:

“SEC. 14. The mortgagee, his
executor, administrator, or assign, may, after thirty days from the
time of condition broken, cause the mortgaged property, or any part
thereof, to be sold at public auction by a public officer at a public
place in the municipality where the mortgagor resides, or where the
property is situated, provided at least ten days notice of the time,
place, and purpose of such sale has been posted at two or more public
places in such municipality, and the mortgagee, his executor,
administrator, or assign, shall notify the mortgagor or person holding
under him and the person holding subsequent mortgages of the time and
place of sale, either by notice in writing direct to him or left at his
abode, if within the municipality, or sent by mail if he does not
reside in such municipality at least ten days previous to the sale.

“The
officer making the sale shall, within thirty days thereafter, make in
writing a return of his doings and file the same; in the office of the
Registry of Deeds where the mortgage is recorded, and the Register of
Deeds shall record the same. The fees of the officer for selling the
property shall be the same as the case of sale on execution as provided
in Act numbered one hundred and ninety, and the amendments thereto, and
the fees of the Register of Deeds for registering the officer’s return
shall be taxed as a part of the costs of sale, which the officer shall
pay to the Register of Deeds. The return shall particularly describe
the articles sold, and state the amount received for each article, and
shall operate as a discharge of the lien thereon created by the
mortgage. The proceeds of such sale shall the be applied to the
payment, first, of the costs and expenses of keeping and sale, and then
to the payment of the demand or obligation secured by such mortgage,
and the residue shall be paid to persons holding subsequent; mortgages
in their order, and the balance, after paying the mortgage, shall be
paid to the mortgagor or persons holding under him on demand.” (Underlining supplied)

Interpreting the nature of a chattel mortgage and
the effects of its foreclosure in case of non-payment of the
obligation, this Court made the following pronouncement:

“While it is true that section 3 of
Act no. 1508 provides that ‘a chattel mortgage is a conditional sale,1
it further provides that it ‘is a conditional sale of personal property
as security for the payment of a debt, or for the performance
of some other obligation specified therein.’ The lower court overlooked
the fact that the chattels included in the chattel mortgage are only
given as a security and not as a payment of the debt, in case of a
failure of payment.

“The theory of the lower
court would lead to the absurd conclusion that if the chattels
mentioned in the mortgage, given as security, should sell for more than
the amount of the indebtedness secured, that the creditor would be
entitled to the full amount for which it might be sold, even though the
amount was greatly in excess of the indebtedness. Such a result
certainly was not contemplated by the legislature when it adopted Act
no. 1508. There seems to be no reason supporting that theory under the
provision of the law. The value of chattels changes greatly from time
to time, and sometimes very rapidly. If, for example, the chattels
should greatly increase in value and a sale under that condition should
result in largely overpaying the indebtedness, and if the creditor is
not permitted to retain the excess, then the same token would require
the debtor to pay the deficiency in case of a reduction in the price of
the chattels between, the date of the contract and a breach of the
condition.

“Mr. Justice Kent, in the 12th
Edition of his Commentaries, as well as other authors on the question
of chattel mortgages, have said, that ‘in case of a sale under a
foreclosure of a chattel mortgage, there is no question that the
mortgagee or creditor may maintain er action for the deficiency, if any
should occur.1 And the fact that Act No. 1508 permits a private sale,
such sale is not, in fact, a satisfaction of the debt, to any greater
extent than the value of the property at the time of the sale. The
amount received at the time of the sale, of course, always requiring
good” faith and honesty in the sale, is only a payment, pro tanto, and
an action may be maintained for a deficiency in the debt.” (Manila Trading and Supply Co. vs. Tamaraw Plantation Co., 47 Phil., 513; Underlining supplied)

Considering that the provisions of the Chattel
Mortgage law regarding the effects of the foreclosure of a chattel
mortgage are contrary to the provisions of Article 2115 of the new
Civil Code, we find no plausible reason why the latter should apply to
the present case.

Wherefore, the decision appealed from is reversed.
Judgment is hereby rendered ordering defendant to pay to plaintiff the
amount of P2,675, with interest thereon from January 3, 1955, and the
costs of action.

Paras, C.J., Bengzon, Montemayor, Reyes, A., Labrador, Concepcion, Reyes, J.B.L., Edencia, and Felix, JJ., concur.