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PAMECA vs.

CA
G.R. No. 106435, July 14, 1999, Gonzaga-Reyes, J. | kam

SUBJECT MATTER: Chattel Mortgage


SUMMARY: PAMECA obtained a loan from DBP. As security for the loan, a chattel mortgage was executed over PAMECA’s
properties (inventories, furniture, and equipment). DBP extra-judicially foreclosed the chattel mortgage upon PAMECA’s
default. DBP was the sole bidder and the chattels were sold for P 322,000.00. DPB filed a complaint for collection of the
balance of P 4.3 million with RTC. Both RTC and CA held that PAMECA must pay the balance. PAMECA contends that since the
provisions on pledge applies to chattel mortgage by virtue of Article 2141, the creditor has no right to recover deficiency from
the debtor. The SC held that since Sec. 14 of the Chattel Mortgage Law bars the creditor-mortgagor 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.

DOCTRINES: Whereas, 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, Section 14 of the
Chattel Mortgage Law expressly entitles the mortgagor 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.

FACTS:
Petitioners PAMECA Wood Treatment Plant Inc., Herminio G. Teves, Victoria V. Teves, and Hiram Diday R. Pulido
Respondents Court of Appeals and Development Bank of the Philippines

 April 17, 1980 – PAMECA obtained a loan of around $267k or the equivalent of P2M from DBP. Herminio Teves, as
President of PAMECA, executed a promissory note. As security for the loan, a chattel mortgage was executed over
PAMECA’s properties in Dumaguete City (inventories, furniture and equipment).
 Jan. 1984 – DBP extra-judicially foreclosed the chattel mortgage upon PAMECA’s failure to pay. It was the sole bidder
in a public auction, wherein the chattels were sold for about P 322,000.00.
 DBP filed a complaint for collection of the balance of P4.3 million with RTC Makati.

RTC: PAMECA must pay the balance to DBP. CA affirmed.

Thus, this petition.

ISSUE (HELD): WON the mortgagee after foreclosing on the chattel mortgage may obtain the balance (of the debt and price on
which the chattels were sold) from mortgagor? (YES)

RATIO DECIDENDI:
PAMECA:
a. Public auction sale was tainted with fraud, with DBP being the sole bidder in only 1/6 of the market value of the
property. (Bank bought for P322,500 when mortgaged properties had a value of P2million.)
b. Art. 1481 and 2115 NCC applies.
c. The Teveses and Pulido is not solidarily liable because the loan was for the corporation’s, having a separate and
distinct personality, benefit.

DBP: The inventory on which PAMECA based their conclusion that the chattels sold amounted to P2.5M was presented on
appeal to CA, which disregarded it. There is a presumption of regularity in the performance of public duties. There was
nothing irregular that DBP was the sole bidder.
 The case of Ablaza vs. Ignacio applies.
a. In this case, the lower court held that the mortgagee may not collect the deficiency from mortgagor upon
foreclosure of the chattel mortgage citing Art. 2141 NCC (provisions on pledge shall apply to chattel mortgages).
b. The SC, however, REVERSED and held that the Sec 14, Act 1508 expressly entitles the mortgagor to the balance
(excess) of the proceeds, upon satisfaction of the principal obligation.
c. Since the Chattel Mortgage Law bars the mortgagee from retaining the excess of the proceeds of the sale, it is
corollary that the mortgagor shall pay the deficiency when the value of the chattels have decreased.

 Art. 1484 NCC applies to the sale of personal property the price of which is payable in installments. To hold that this
applies to chattel mortgages will extend the application of the law wherein it was not intended.
 PAMECA never assailed the validity of the auction sale in the RTC.
 Nothing irregular in the price nor manner in which the sale was conducted.
 Lastly, the Teveses and Pulido were correctly held by the CA to be solidarily liable with PAMECA based on the
promissory notes, when they signed as co-makers.

DISPOSITIVE: Petition DENIED. CA AFFIRMED.