MACONDRAY & CO., INC., PLAINTIFF AND APPELLANT, VS. URBANO EUSTAQUIO, DEFENDANT AND APPELLEE.

This is an appeal taken by the plaintiff
corporation from the judgment of the Court of First Instance of Manila
dismissing its complaint, without costs.

The plaintiff brought the action against the defendant to obtain
the possession of an automobile mortgaged by the latter, and to
recover, the balance owing upon a note executed by him, the interest
thereon, attorney’s fees, expenses of collection, and the costs. The
defendant was duly summoned, but he failed to appear or file his
answer, wherefore, he was declared in default and the appealed judgment
was rendered accordingly.

The plaintiff sold the defendant a De Soto car, Sedan, for the
price of which, P595, he executed in its favor the note of May 22,
1934. Under this note, the defendant undertook to pay the car in twelve
monthly installments, with 12 per cent interest per annum, and likewise
agreed that, should he fail to pay any monthly installment together
with interest, the remaining installments would become due and payable,
and the defendant shall pay 20 per cent upon the principal owing as
attorney’s fees, expenses of collection which the plaintiff might
incur, and the costs. To guarantee the performance of his obligations
under the note, the defendant on the same date mortgaged the purchased
car in favor of the plaintiff, and bound himself under the same
conditions stipulated in the note relative to the monthly installments,
interest, attorney’s fees, expenses of collection, and costs. The
mortgage deed was registered on June 11, 1934, in the office of the
register of deeds of the Province of Rizal. On the 22d of the same
month, the defendant paid P43.75 upon the first installment, and
thereafter failed to pay any of the remaining installments. In
accordance with the terms of the mortgage, the plaintiff called upon
the sheriff to take possession of the car, but the defendant refused to
yield possession thereof, whereupon, the plaintiff brought the replevin
sought and thereby succeeded in getting possession of the car. The car
was sold at public auction to the plaintiff for P250, the latter
incurring legal expenses in the amount of P10.68. According to the
liquidation filed by the plaintiff, the defendant was still indebted in
the amount of P342.20, interest at 12 per cent from November 20, 1934,
P110.25 as attorney’s fees, and the costs.

I. The plaintiff’s first assignment of error is addressed to the
appealed judgment in so far as it applied Act No. 4122 and dismissed
the complaint, notwithstanding the fact that the defendant waived his
rights under said law by not making any appearance, by having been
declared in default, by not interposing any special defense, and by not
asking for any positive relief.

Under section 128 of our Code of Civil Procedure, the judgment by
default against a defendant who has neither appeared nor filed his
answer does not imply a waiver of rights except that of being heard and
of presenting evidence in his favor. It does not imply admission by the
defendant of the facts and causes of action of the plaintiff, because
the codal section requires the latter to adduce his evidence in support
of his allegations as an indispensable condition before final judgment
could be given in his favor. Nor could it be interpreted as an
admission by the defendant that the plaintiff’s causes of action find
support in the law or that the latter is entitled to the relief prayed
for. (Chaffin vs. McFadden, 41 Ark., 42; Johnson vs. Pierce, 12 Ark., 599; Mayden vs. Johnson, 59 Ga., 105; Peo. vs. Rust, 292 111., 4i2; Madison County vs. Smith, 95 111., 328; Keen vs. Leipold, 211 111. A., 163; Chicago etc. Electric R. Co. vs.
Krempel, 116 111. A., 253.) For these reasons, we hold that the
defendant did not waive the application by the court of Act No. 4122,
and that the first assignment of error is untenable.

II. The plaintiff contends in its second assignment of error that
Act No. 4122 is invalid because it takes property without due process
of law, denies the equal protection of the laws, and impairs the
obligations of contract, thereby violating the provisions of section 3
of the Act of the United States Congress of August 29, 1916, known as
the Jones Law. This is not the first time that the constitutionality of
the said law has been impugned for like reasons. In Manila Trading
& Supply Co. vs. Reyes (62 Phil., 461), the validity of
the said law was already passed upon when it was questioned for the
same reasons here advanced. In resolving the questions in favor of the
validity of the law, we then held: “2. Liberty of contract, class legislation, and equal protection of the laws.—The
question of the validity of an act is solely one of constitutional
power. Questions of expediency, of motive, or of results are
irrelevant. Nevertheless it is not improper to inquire as to the
occasion for the enactment of a law. The legislative purpose thus
disclosed can then serve as a fit background for constitutional inquiry.

“Judge Moran in first instance had the following to say relative to the reasons for the enactment of Act No. 4122:

” ‘Act No. 4122 aims to correct asocial and economic evil, the
inordinate love for luxury of those who, without sufficient means,
purchase personal effects, and the ruinous practice of some commercial
houses of purchasing back the goods sold for a nominal price besides
keeping a part of the price already paid and collecting the balance,
with stipulated interest, costs, and attorney’s fees. For instance, a
company sells a truck for P6,500. The purchaser makes a down payment of
P500, the balance to be paid in twenty-four equal installments of P250
each. Pursuant to the practice before the enactment of Act No. 4122, if
the purchaser fails to pay the first two installments, the company
takes possession of the truck and has it sold at public auction at
which sale it purchases the truck for a nominal price, at most P500,
without prejudice to its right to collect the balance of P5,500, plus
interest, costs, and attorney’s fees. As a consequence, the vendor does
not only recover the goods sold, used hardly two months perhaps with
only slight wear and tear, but also collects the entire stipulated
purchase price, probably swelled up fifty per cent including interest,
costs, and attorney’s fees. This practice is worse than usurious in
many instances. And although, of course, the purchaser must suffer the
consequences of his imprudence and lack of foresight, the chastisement
must not be to the extent of ruining him completely and, on the other
hand, enriching the vendor in a manner which shocks the conscience. The
object of the law is highly commendable. As to whether or not the means
employed to do away with the evil abovementioned are arbitrary will be
presently set out.’

“In a case which reached this court, Mr. Justice Goddard, interpreting Act No. 4122, made the following observations :

” ‘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.’

” ‘In other words,
under this amendment, in all proceedings for the foreclosure of chattel
mortgages, executed on chattels which have been sold on the installment
plan, the mortgagee is limited to the property included in the
mortgage.’ (Bachrach Motor Co. vs. Millan [1935], 61 Phil., 409.)

“Public policy having thus had in view the objects just, outlined, we
should next examine the law to determine if notwithstanding that
policy, it violates any of the constitutional principles dealing with
the three general subjects here to be considered.

“In an
effort to enlighten us, our attention has been directed to certain
authorities, principally one coming from the State of Washington and
another from the State of Oregon. For reasons which will soon appear,
we do not think that either decision is controlling.

“In
1897, an Act was passed in the State of Washington which provided ‘that
in all proceedings for the foreclosure of mortgages hereafter executed,
or on judgments rendered upon the debt thereby secured, the mortgagee
or assignee shall be limited to the property included in the mortgage.’
It was held by a divided court of three to two that the statute since
limiting the right to enforce a debt secured by mortgage to the
property mortgaged, whether realty or chattels, was an undue restraint
upon the liberty of a citizen to contract with respect to his property
rights. But as is readily apparent, the Washington law and the
Philippine law are radically different in phraseology and in effect.
(Dennis vs. Moses [1898], 40 L. R. A., 302.)

“In
Oregon, in a decision of a later date, an Act abolishing deficiency
judgments upon the foreclosure of mortgages to secure the unpaid
balance of the purchase price of real property was unanimously
sustained by the Supreme Court of that State. The importance of the
subject matter in that jurisdiction was revealed by the fact that four
separate opinions were prepared by the justices participating, in one
of which Mr. Justice Johns, shortly thereafter to become a member of
this court, concurred. However, it is but fair to state that one of the
reasons prompting the court to uphold the law was the financial
depression which had prevailed in that State. While in the Philippines
the court can take judicial notice of the stringency of finances that
presses upon the people, we have no reason to believe that this was the
reason which motivated the enactment of Act No. 4122. (Wright vs. Wimberley [1919], 184 Pac., 740.)

“While we are on the subject of the authorities, we may state that we
have examined all of those obtainable, including some of recent date,
but have not been enlightened very much because as just indicated, they
concerned different states of facts and different laws. We gain the
most help from the case of Bronzon vs. Kinzie ([1843], 1
How., 311), decided by the Supreme Court of the United States. It had
under consideration a law passed in the State of Illinois, which
provided that the equitable estate of the mortgagor should not be
extinguished for 1 twelve months after sale on decree, and which
prevented any sale of the mortgaged property unless two-thirds of the
amount at which the property had been valued by appraisers should be
bid therefor. The court, by Mr. Chief Justice Taney, declared:
‘Mortgages made since the passage of these laws must undoubtedly be
governed by them; for every State has the power to describe the legal
and equitable obligations of a contract to be made and executed within
its jurisdiction. It may exempt any property it thinks proper from sale
for the payment of a debt; and may impose such conditions and
restrictions upon the creditor as its judgment and policy may dictate.
And all future contracts would be subject to such provisions; and they
would be obligatory upon the parties in the courts of the United
States, as well as in those of the State.’

“As we understand
it, parties have no vested right in particular remedies or modes of
procedure, and the legislature may change existing remedies or modes of
procedure without impairing the obligation of contracts, provided an
efficacious remedy remains for enforcement. But changes in the remedies
available for the enforcement of a mortgage may not, even when public
policy is invoked as an excuse, be pressed so far as to cut down the
security of a mortgage without moderation or reason or in a spirit of
oppression(Brotherhood of American Yeoman vs. Manz [1922], 206 Pac, 403; Oshkosh Waterworks Co. vs. Oshkosh [1908], 187 U. S., 437; W. B. Worthen Co. vs. Kavanaugh [1935], 79 U. S. Supreme Court Advance Opinions, 638.)

“In the Philippines, the Chattel Mortgage Law did not expressly provide
for a deficiency judgment upon the foreclosure of a mortgage. Indeed,
it required decisions of this court to authorize such a procedure.
(Bank of the Philippine Islands vs. Olutanga Lumber Co. [1924], 47 Phil., 20; Manila Trading & Supply Co. vs. Tamaraw Plantation Co., supra.)
But the practice became universal enough to acquire the force of direct
legislative enactment regarding procedure. To a certain extent the
Legislature has now disauthorized this practice, but has left a
sufficient remedy remaining.

“Three remedies are available
to the vendor who has sold personal property on the installment plan.
(1) He may elect to exact the fullfilment of the obligation. (Bachrach
Motor Co. vs. Millan, supra.) (2) If the vendee
shall have failed to pay two or more installments, the vendor may,
cancel the sale. (3) If the vendee shall have failed to pay two or more
installments, the vendor may foreclose the mortgage, if one has been
given on the property. The basis of the first option is the Civil Code.
The basis of the last two options is Act No. 4122, amendatory of the
Civil Code. And the proviso to the right to foreclose is, that if the
vendor has chosen this remedy, he shall have no further action against
the purchaser for the recovery of any unpaid balance owing by the same.
In other words, as we see it, the Act does no more than qualify the
remedy.

“Most constitutional issues are determined by the
court’s approach to them. The proper approach in cases of this
character should be to resolve all presumptions in favor of the
validity of an act in the absence of a clear conflict between it and
the constitution. All doubts should be resolved in its favor.

“The controlling purpose of Act No. 4122 is revealed to be to close the
door to abuses committed in connection with the foreclosure of chattel
mortgages when sales were payable, in installments. That public policy,
obvious from the statute, was defined and established by legislative
authority. It is for the courts to perpetuate it.

“We are of
the opinion that the Legislature may change judicial methods and
remedies for the enforcement of contracts, as it has done by the
enactment of Act No. 4122, without unduly interfering with the
obligation of the contract, without sanctioning class legislation, and
without a denial of the equal protection of the laws. We rule that* Act
No. 4122 is valid and enforceable. As a consequence, the errors
assigned by the appellant are overruled, and the judgment affirmed, the
costs of this instance to be taxed against the losing party.”

In his brief counsel for the plaintiff advances no new arguments
which have not already been considered in the Reyes case, and we see no
reason for reaching a different conclusion now. The law seeks to remedy
an evil which the Legislature wished to suppress; this legislative body
has power to promulgate the law; the law does not completely deprive
vendors on the installment basis of a remedy, but requires them to
elect among three alternative remedies; the law, on the other hand,
does not completely exonerate the purchasers, but only limits their
liabilities and, finally, there is no vested right when a procedural
law is involved, wherefore the Legislature could enact Act No. 4122
without violating the aforesaid organic law.

III. In its last assignment of error plaintiff contends that, even
granting that Act No. 4122 is valid, the court should have ordered the
defendant to pay at least the stipulated interest, attorney’s fees, and
the costs. This question involves the interpretation of the pertinent
portion of the law, reading: “However, if the vendor has chosen to
foreclose the mortgage he shall have no further action, against the
purchaser for the recovery of any unpaid balance owing by the same, and
any agreement to the contrary shall be null and void.” This paragraph,
as its language shows, refers to the mortgage contract executed by the
parties, whereby the purchaser mortgages the chattel sold to him on the
installment basis in order to guarantee the payment of its price, and
the words “any unpaid balance” should be interpreted as having
reference to the deficiency judgment to which the mortgagee may be
entitled where, after the mortgaged chattel is sold at public auction,
the proceeds obtained therefrom are insufficient to cover the full
amount of the secured obligations which, in the case at bar as shown by
the note and by the mortgage deed, include interest on the principal,
attorney’s fees, expenses of collection, and the costs. The fundamental
rule which should govern the interpretation of laws is to ascertain the
intention and meaning of the Legislature and to give effect thereto.
(Sec. 288, Code of Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19 Phil., 134; De Jesus vs. City of Manila, 29 Phil., 73; Borromeo vs. Mariano, 41 Phil., 322; People vs.
Concepcion, 44 Phil., 126.) Were it the intention of the Legislature to
limit its meaning to the unpaid balance of the principal, it would have
so stated. We hold, therefore, that the assignment of error is
untenable.

In view of the foregoing, the appealed judgment is affirmed, with
the costs of this instance to the plaintiff and appellant. So ordered.

Avancena, C. J., Villa-Real, Abad Santos, Diazf Laurel, and Concepcion, JJ., concur.