SPOUSES ROMULO DE LA CRUZ AND DELIA DE LA CRUZ, AND DANIEL FAJARDO, PETITIONERS, VS. ASIAN CONSUMER AND INDUSTRIAL FINANCE CORPORATION AND THE HONORABLE COURT OF APPEALS, RESPON…

The pivotal point before Us is whether a chattel mortgagee, after
opting to foreclose the mortgage but failing afterwards to sell the property at
public auction, may still sue to recover the unpaid balance of the purchase
price.

On 22 September 1982, the spouses Romulo de la Cruz and Delia de
la Cruz, and one Daniel Fajardo, petitioners herein, purchased on installment
basis one (1) unit Hino truck from Benter Motor Sales Corporation (BENTER for
brevity). To secure payment, they
executed in favor of BENTER a chattel mortgage over the vehicle^[1]
and a promissory note for P282,360.00
payable in thirty (30) monthly installments of P9,412.00.^[2] On the same date, BENTER assigned its rights
and interest over the vehicle in favor of private
respondent Asian Consumer and Industrial Finance Corporation (ASIAN for
brevity).^[3] Although petitioners initially paid some
installments they subsequently defaulted on more than two (2) installments. Thereafter,
notwithstanding the demand letter of ASIAN,^[4] petitioners failed to settle their
obligation.

On 26 September 1984, by virtue of a petition for extrajudicial
foreclosure of chattel mortgage, the sheriff attempted to reposses the vehicle
but was unsuccesful because of
the refusal of the son of petitioner, Rolando de la Cruz, to surrender the
same. Hence, the return of the sheriff
that the service was not satisfied.

On 10 October 1984, petitioner Romulo de la Cruz brought the
vehicle to the office of ASIAN and left it there where it was inventoried and
inspected.^[5]

On 27 November 1984, ASIAN filed an ordinary action with the
court a quo for collection of the balance of P196,152.99 of the purchase
price, plus liquidated damages and attorney’s fees.^[6]

After trial, the court below rendered judgment in favor of ASIAN.

On appeal, the Court of Appeals affirmed the judgment and held
that –

“x x x no extrajudicial foreclosure of chattel mortgage ever
transpired in the case at bar. Undoubtedly, plaintiff had first chosen to extrajudically foreclose the
mortgage, but this did not materialize through no fault of plaintiff, as
defendant refused to surrender the Hino truck. The mere fact that the writ is now in possession of plaintiff and a
Technical and Inspection Report was made in connection therewith is not
conclusive of the extrajudicial foreclosure, for in this kind of foreclosure,
possession of the chattel by the sheriff is necessary, aside from the sale at
public auction.”

“Though the remedy of foreclosure was first chosen, this
remedy however proved ineffectual due to no fault of plaintiff. Therefore, plaintiff may exercise other
remedies such as exact fulfillment of the obligation and thereafter recover the
deficiency. This is the essence of the
rule of alternative remedies under Article 1484.”

Petitioners take exception. While they do not dispute that where the mortgagee elects the remedy of foreclosure – which,
according to them, includes the option to sell in a public or private sale,
commences and pursues it, and in consideration of which he also performs
everything that is incumbent upon him to do to implement the foreclosure – they
nevertheless insist that he should not later be allowed to change course midway
in the process, abandon the foreclosure and shift to other remedies such as
collection of the balance, especially after having recovered the mortgaged
chattel from them and while retaining possession thereof.

We do not agree with petitioners.

It is not disputed that the instant case is covered by the
so-called “Recto Law”, now Art. 1484 of the New Civil Code, which
provides:

“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: (1) Exact fulfillment of the
obligation, should the vendee fail to pay; (2) Cancel the sale, should the
vendee’s failure to pay cover two or more installments; (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.”

In this jurisdiction, the three (3) remedies provided for in the
“Recto Law” are alternative and not comulative; the exercise of one
would preclude the other remedies. Consequently, should the vendee-mortgagor default in the payment of two
or more of the agreed installments, the vendor-mortgagee has the option to
avail of any of these three (3)
remedies: either to exact fulfillment
of the obligation, to cancel the sale, or to foreclose the mortgage on the
purchased chattel, if one was constituted.^[7]

The records show that on 14 September 1984 ASIAN initiated a
petition for extrajudicial foreclosure of the chattel mortgage. But the sheriff failed to recover the motor
vehicle from petitioners due to the refusal of the son of petitioners Romulo
and Delia de la Cruz to surrender
it. It was not      until 10 October 1984, or almost a month later, that petitioners delivered the unit to
ASIAN. The action to recover the
balance of the purchase price was instituted on 27 November 1984.

It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged
vehicle, it did not pursue the
foreclosure of the mortgage as shown by the fact that no auction sale of the
vehicle was ever conducted. As We ruled in Filinvest Credit Corp. v. Phil. Acetylene Co., Inc.^[8] –

“Under the law, the delivery of possession of the mortgaged
property to the mortgagee, the herein appellee, can only operate to extinguish appellant’s
liability if the appellee had actually caused the foreclosure sale of the mortgaged
property when it recovered possession thereof (Northern Motors, Inc. v. Sapinoso, 33 SCRA 356 [1970]; Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 [1969]; Manila
Motors Co., Inc. v. Fernandez, 99 Phil. 782 [1956]). It is worth noting that it is the fact of
foreclosure and actual sale of the mortgaged chattel that bar recovery by the
vendor of any balance of the purchaser’s outstanding obligation not satisfied
by the sale (New Civil Code, par. 3, Article 1484). As held by this Court, if the vendor desisted, on his own
initiative, from consummating the auction sale, such desistance was a timely
disavowal of the remedy of foreclosure, and the vendor can still sue for
specific performance” (Industrial
Finance Corp. v. Tobias, 78 SCRA 28 [1977]; Radiowealth, Inc. v. Lavin, L-18563, April 27, 1963, 7 SCRA 804; Pacific Commercial Co. v. dela Rama, 72
Phil. 380 [1941]).

Consequently, in the case before Us, there being no actual
foreclosure of the mortgaged property, ASIAN is correct in resorting to an
ordinary action for collection of the unpaid balance of the purchase price.

We note however that the trial court, as well as the Court of
Appeals, failed to consider that the vehicle was already in the possession of
ASIAN when it directed petitioners herein to pay P184,466.67 representing the
balance of the purchase price of the mortgaged property. Law and equity will not permit ASIAN to have
its cake and eat it too, so to speak. By allowing ASIAN to retain possession of the vehicle and then directing
petitioners to pay the unpaid balance would certainly result in unjust
enrichment of the former. Accordingly,
the ownership and possession of the vehicle should be returned to petitioners
by ASIAN in the condition that it was when delivered to it, and if this be no
longer feasible, to deduct from the adjudged liability of petitioners the
amount of P60,000.00, its corresponding appraised value.^[9]

WHEREFORE, the assailed decision is AFFIRMED, with the
MODIFICATION that the subject vehicle be returned to petitioners or, at their
option, they be allowed to deduct P60,000.00 from their adjudged
liability. No costs.

SO ORDERED.

Griño-Aquino and
Medialdea, JJ., concur.

Cruz, J., (Chairman), on leave.

^[1]
Exh. “C”.

^[2]
Exh. “A”.

^[3]
Exh. “D”.

^[4]
Exh. “E”.

^[5]
Annex “4”, Repossession and Mechanical Inspection Report and Receipt.

^[6]
Record, p. 16.

^[7]
See Pacific Commercial Co. v. De
la Rama, 72 Phil. 380 (1941);
Manila Motor, Inc v. Fernandez, 99 Phil. 782 (1956); Radiowealth v. Lavin, L-18563, April 27, 1963, 7 SCRA 804.

^[8]
G.R. No. 50449, 30 January 1982, 111
SCRA 421.

^[9]
Appraised value of the truck, Rollo,
p. 24.