G.R. No. 43861. September 26, 1938
THE MANILA TRADING & SUPPLY COMPANY, PLAINTIFF AND APPELLEE, VS. TOMAS SANTOS AND GENARO D. SAEZ, DEFENDANTS AND APPELLANTS.
IMPERIAL, J.:
chassis, Model BB, 157-WB, L. S. Dual Wheels standard equipment.” For
the unpaid balance of the price amounting to P2,200, the defendants
executed twenty promissory notes, the first three for P150 each and the
others for P100 each, payable successively on the 16th of every month
beginning November 16, 1933. The defendants also bound themselves to
pay interest at 12 per cent per annum. To secure these promissory
notes, the defendants mortgaged to the plaintiff the “Ford Truck
chassis” and accordingly executed on the same date the corresponding
instrument which was acknowledged before a notary public on the 9th of
the same month and later registered in the office of the registrar of
deeds. As the defendants failed to pay any of the promissory notes, the
plaintiff attached the chattel mortgaged, which was sold by the sheriff
at public auction on February 24, 1934, in accordance with Act No.
1508, for the sum of P700 in favor of said plaintiff who was the
highest bidder. The plaintiff credited the defendants with said amount,
as a result of which the latter still owed P1,897.55. The plaintiff
instituted the present action for the purpose of collecting this
balance with its interest. In their answer the defendants set up the
special defense that plaintiff’s action cannot prosper because it is
contrary to Act No. 4122. The case was submitted under the following
stipulation:
“Come now the parties in the
above-entitled case, by their respective attorneys, and to this
honorable court respectfully submit this case for decision in
conformity with the pleadings, for the reason that the only issue
raised therein is the applicability of Act No. 4122 of the Philippine
Legislature; and the parties accordingly agree:“1. That the mortgage instrument was executed on October 3, 1933.
“2.
That the mortgaged property was sold at public auction on February 24,
1934, by reason of the failure to pay some installments.“3. That the complaint was filed on August 31, 1934.
“4. That the defendants admit that they were required to pay the sum of
P1,897.55 on May 23, 1934, or after the public sale of the mortgaged
property which took place while Act No. 4122 was already effective.
“Wherefore, it is respectfully prayed that this case be considered submitted for decision of this honorable court.”
The defendants appealed from the decision of the court sentencing them
to pay the plaintiff the sum of P1,897.55, with interest at 12 per cent
per annum from February 24, 1934, and the costs.
-
Under their first assignment of error the defendants contend that the
court erred in not applying to this case the provisions of Act No. 4122
which took effect on December 9, 1933. In the part pertinent hereto,
this law provides that the vendor who has chosen to foreclose the
mortgage shall have no further action against the purchaser for the
recovery of any unpaid balance owing by the same, any agreement to the
contrary being null and void. The prohibition undoubtedly refers to the
deficiency judgment spoken of in section 260 of the Code of Civil
Procedure which is applicable to real estate mortgages.The court held that Act No. 4122 has no application, because otherwise
it would be given retroactive effect. The defendants insist that the
aforesaid law should govern, because it was already in full force and
effect when the present action was brought. We are of the opinion that
this pretension is unfounded. It is a legal principle embodied in
article 3 of the Civil Code that laws have no retroactive effect unless
it is otherwise provided therein. It is conceded that there is nothing
in Act No. 4122 which states that its provisions have retroactive
effect. In criminal law the principle of irretroactivity equally
applies, except when the penal provisions are favorable to the accused
(article 22, Revised Penal Code). As a corollary principle, rights and
obligations are governed by the law by which they are created (article
1090, Civil Code). Rights and obligations arising from contracts have
the force of law between the contracting parties and are governed by
their stipulations (article 1091, Civil Code), and consensual
agreements are binding provided they are not contrary to law, morals or
public order (article 1255, Civil Code). In accordance with the rule of
irretroactivity, Act No. 4122 is not applicable to this case, for the
reason that the mortgage which gave rise to the plaintiffs rights was
executed on October 3, 1933 and the aforesaid Act took effect only on
December 9, 1933. The contention that said Act must be applied because
the present action was instituted when it was already effective, cannot
be sustained. The action is the correlative of a right and is nothing
more than a remedy conceded by law to protect that right. If the
plaintiff was entitled to a deficiency judgment under Act No. 1508,
this right already existed when Act No. 4122 was approved and cannot be
affected by the prohibition contained in the latter Act.As to whether the plaintiff had a right to a deficiency judgment in
conformity with the Chattel Mortgage Law, Act No. 1508, we have already
so held in the cases of Bank of the Philippine Islands vs. Olutanga Lumber Co. (47 Phil, 20), and Manila Trading & Supply Co. vs. Tamaraw Plantation Co. (47 Phil., 513). In the latter case it was said:” ‘Under these two cases, the appellant argues:
” ‘It is, therefore, beyond doubt that a chattel mortgage executed in accordance with Act No. 1508 is a conditional sale, or sale of the chattels with right of repurchase.
” ‘A chattel mortgage under Act No. 1508 is a sale with right of
repurchase, almost identical to that with similar name of the Civil
Code; it was so held by this Honorable Court in Meyers vs. Thein (16 Phil., 303), and incidentally it was said in Rosales vs. Reyes and Ordoveza (25 Phil., 495) that “* * * a chattel mortgage, is in many respects similar to a sale under pacto de retro.
* * * It is, therefore, clear that a chattel mortgage partakes of the
character of the sale with right of repurchase of the Civil Code, and
that it is not a mortgage within the meaning of said Code. What then is
a contract of sale with right of repurchase? According to this
Honorable Court, interpreting articles 1607 and 1518 of the Civil Code
‘Conventional redemption is the right which the vendor reserves to
himself to recover the thing sold, with the obligation to reimburse to
the vendee the price of the sale, the expenses of the contract, and any
other legitimate payment made by reason of the sale, and the useful and
necessary expenses incurred for account of the thing sold.’ ” (Lichauco
vs. Berenguer, 20 Phil., 12.)” ‘What would be the effect of a contract of sale with right of
repurchase, if the vendor does not comply with the condition
subsequent? Article 1509 of the Civil Code says that “the vendee shall
acquire irrevocably the ownership of the thing sold,” and no more.
There is no law whatever providing that, if the value of the thing sold
is not sufficient to cover the debt owing from the vendor to the
purchaser, that is to say, the purchase price, the purchaser shall have
an action against the vendor to recover the difference. Nor is there
any such provision in Act No. 1503, the Chattel Mortgage Law. All said
Act No. 1508 provides on this point is what appears in section 14
thereof.” ‘A reading of said section 14 of Act No. 1508 will show that there
does not exist any such right to maintain an action for the difference
between the price obtained in a sale at public auction and that which
must really be paid.’“In answer to this argument, it must be noted in the first place that in Meyers vs. Thein, supra,
it is not said that a chattel mortgage is in effect the same as a
contract of sale with right of repurchase, but is a sale with right of
repurchase almost identical to that of the Civil Code having said
denomination. And in Bachrach vs. Mantel, supra, the
court holds that the mortgagee in a chattel mortgage is the legal, and
the mortgagor the equitable, owner. Secondly, what is held in those two
cases is that a chattel mortgage is a conditional sale as security for
the payment of the debt, according to section 3 of Act No. 1508. If the
thing pledged is sold, it is for the purpose of securing the payment of
the debt; so that if the price of the sale is insufficient to cover the
debt, the debtor is not thereby relieved from the payment of the
balance, just as the creditor cannot retain the surplus in case the
price of the sale should exceed the debt secured. In the case of
Bachrach Motor Co. vs. Summers (42 Phil., 8), we said that:
‘The definition of the chattel mortgage found in section 3 of the
Chattel Mortgage Law (Act No. 1508) is a description of the form in
which the contract used to be commonly drafted in common-law countries
rather than a statement of its legal effects; and while it is true that
the contract has been customarily written in the form of an out and out
sale, conditioned to be void upon performance of some condition
subsequent, as for instance, the payment of the secured debt,
nevertheless the equitable conception of the mortgage, now generally
dominant, treats the mortgage merely as a security. There is no real
analogy between the chattel mortgage contract and a conditional sale as
understood in the civil law.’“Section 14 of Act No. 1508 provides, with regard to the application of
the proceeds of the sale of the chattels mortgaged, as follows:” ‘* * * The proceed of such sale
shall 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 mortgages, shall be paid to the mortgagor or person holding
under him on demand.’“Which simply shows that the contention of the appellant is untenable.
“But where the same question now raised by the appellant was directly solved is in Bank of the Philippine Islands vs.
Olutanga Lumber Co. (47 Phil., 20). In that case there was raised the
question whether or not a creditor, holding a chattel mortgage as
security for the payment of the debt, may maintain an action for the
recovery of the balance remaining unpaid after the foreclosure of the
mortgage. This court decided this question in the affirmative. In the
body of the decision the court said:” ‘The theory of the court a quo
evidently is, that a chattel mortgage is a conditional sale of the
property, and, in case of a failure of the condition, to wit: to pay
the debt, the sale becomes absolute and the creditor is obliged to
resort to the mortgaged property for a payment of this debt, and the
foreclosure of the mortgage is his sole recourse.” ‘While it is true that section 8 of Act No. 1508 provides that “a
chattel mortgage is a conditional sale,” 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 that 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 an action for
the deficiency, if any should occur.” 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.’ “We hold, in conclusion, that the court did not err in declaring Act
No. 4122 to be inapplicable and in ruling that the plaintiff is
entitled to a deficiency judgment in accordance with Act No. 1508. -
The defendants pretend under their second assignment of error that the
court erred in sentencing them jointly and severally to pay the sum
hereinbefore mentioned with interest and the costs. It is argued that
the promissory notes signed by them are imaginary or fictitious because
they did not receive any money, and said notes represent the unpaid
balance of the price of the Ford Truck chassis. The argument is so
unfounded that we would be justified to disregard this assignment of
error. However, it may be stated that said notes are not without
consideration and that, as they are onerous contracts, their
consideration is the undertaking or promise assumed by the defendants
to pay their value (article 1274, Civil Code). As regards the amounts
of the notes, there is no doubt that they are true and correct since
their total represents the unpaid balance of the price of the chassis
sold to the defendants. - The last assignment of error refers to the denial of the motion for new trial filed by the defendants pro forma
for purposes of their appeal. We hold, for the reasons already set
forth in connection with the other assignments of error, that the court
properly denied the motion for new trial.
The appealed judgment, being in accordance with law, is affirmed with costs against the defendants-appellants. So ordered.
Avanceña, C. J., Villa-Real, Abad Santos, Diaz, Laurel, and Concepcion, JJ., concur.