PAMECA Wood v CA

G.R. No. 106435. July 14, 1999

SUMMARY
PAMECA obtained a loan from DBP through a promissory note executed by its officers and secured by a
chattel mortgage. PAMECA was unable to pay thus DBP foreclosed the mortgage and was the sole bidder.
DBP filed an action for collection of the deficiency. The issues are whether DBP may collect for the
deficiency, whether the auction sale is valid, and whether PAMECA and its officers are solidarily liable.
The court held that DBP may collect the deficiency as provided in the Chattel Mortgage Law and that the
provisions of pledge is not consistent with the provisions of the CML as such Art. 2115 in relation to Art.
2141 is not applicable. Moreover, the auction sale is valid since the petitioners never questioned its validity
during trial, only on appeal, and DBP as the sole bidder does not prove fraud. Lastly, PAMECO and its
officers are solidarily liable since the terms of the promissory note provide such nature.

FACTS
PAMECA obtained a loan of USD 267,881.67, or PHP 2,000,000 from DBP, evidenced by a promissory
note executed by its President Herminio Teves. As security for the said loan, a chattel mortgage was also
executed over PAMECAs properties in Dumaguete City, consisting of inventories, furniture and equipment,
to cover the whole value of the loan.
PAMECA failed to pay the obligation thus DBP extrajudicially foreclosed the chattel mortgage to which
DBP was the sole bidder and was able to buy the properties for PHP322,350 or 1/6 of the actual value. DBP
filed for collection of the balance against PAMECA and its officers, as solidary debtors with PAMECA.
RTC ordered petitioners to pay DBP; CA affirmed RTC. Hence, this petition
ISSUES
1. Whether the foreclosure of the chattel mortgage bars for the collection of deficiency as provided in
Art. 21151 in relation to Art. 21412? [NO]
2. Whether Art. 14843 is applicable? [NO]
3. Whether the auction sale is valid? [YES]
4. Whether PAMECA’s officers are solidarily liable with PAMECA? [YES]

1The sale of the thing pledged shall extinguish the principal obligation, whether or not the proceeds of the sale 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.
2The provisions of this Code on pledge, insofar as they are not in conflict with the Chattel Mortgage Law shall be applicable to
chattel mortgages.
3In 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
HELD
1. The Section 14 of the Chattel Mortgage Law provides that: The proceeds 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 mortgage, shall be
paid to the mortgagor or persons holding under him on demand.

It is clear from the above provision that the effects of foreclosure under the Chattel Mortgage Law
run inconsistent with those of pledge under Article 2115. In pledge, the sale of the thing pledged
extinguishes the entire principal obligation, such that the pledgor may no longer recover proceeds
of the sale in excess of the amount of the principal obligation. While in the Chattel Mortgage Law
the mortgagor is entitled to the balance of the proceeds, upon satisfaction of the principal obligation
and costs.

Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the sale
proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency
in case of a reduction in the price at public auction

2. The said article applies clearly and solely to the sale of personal property the price of which is
payable in installments. Although Article 1484, paragraph (3) expressly bars any further action
against the purchaser to recover an unpaid balance of the price, where the vendor opts to foreclose
the chattel mortgage on the thing sold, should the vendees failure to pay cover two or more
installments, this provision is specifically applicable to a sale on installments.

3. Petitioners never assailed the validity of the sale in the RTC, and only in the Court of Appeals did
they attempt to prove inadequacy of price. Basic is the rule that parties may not bring on appeal
issues that were not raised on trial. Furthermore, the mere fact that respondent bank was the sole
bidder for the mortgaged properties in the public sale does not warrant the conclusion that the
transaction was attended with fraud.

4. The terms of the promissory note unmistakably set forth the solidary nature of private petitioners
commitment:
 Before the date of maturity, we hereby bind ourselves, jointly and severally
 In the event of foreclosure of the mortgage securing this note, we further bind ourselves
jointly and severally to pay the deficiency, if any.