9. Finding a 24 month payment plan and its seller attractive, P purchased a Toyota Innova from B. He paid a downpayment of Php 100,000.00 and obtained financing from another equally attractive company, G Co. thus he executed a chattel mortgage over the vehicle in favor of G Co. when P defaulted, G Co foreclosed the chattel mortgage and still sought to recover the deficiency. May G Co still recover the deficiency?

Yes, G Co may still recover the deficiency. Although the mortgage law is silent as to the matter of recovering deficiency after the foreclosure sale of mortgage chattel, there have been a catena of cases decided by the Supreme Court which allows the chattel mortgage creditor to maintain an action for deficiency.

In the case of Pameca Wood Treatment vs CA, the SC stated that the effects of foreclosure under the Chattel Mortgage Law run inconsistent of those of pledge under Article 2115. Whereas in pledge, the sale of the thing pledged extinguishes the entire principal obligation, such that the pledger may no longer recover the 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 the satisfaction of the principal obligation and costs.

Section 14 of Act No. 1508, as amended, or the Chattel Mortgage Law, states:

The officer making the sale shall, within thirty days thereafter, make in writing a return of his doings and file the same in the office of the register of deeds where the mortgage is recorded, and the register of deeds shall record the same. The fees of the officer for selling the property shall be the same as in the case of sale on execution as provided in Act Numbered One hundred and ninety, 4 and the amendments thereto, and the fees of the register of deeds for registering the officer's return shall be taxed as a part of the costs of sale, which the officer shall pay to the register of deeds. The return shall particularly describe the articles sold, and state the amount received for each article, and shall operate as a discharge of the lien thereon created by the mortgage. 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 mortgages, shall be paid to the mortgagor or person holding under him on demand.

10. To secure the payment of his loan of Php 200,000.00, A executed in favor of E Banking Corporation, in one document, a Real Estate Mortgage over three lots registered in his name and a chattel mortgage over his three cars and one Isuzu cargo truck. Upon his failure to pay the loan due on due date, the bank foreclosed the mortgage on the three lots, which were subsequently sold for only Php 100,000.00 at the foreclosure sale. Thereafter, E bank filed an ordinary action for the collection of the deficiency. A contended that the chattel mortgage contract he executed was indivisible and consequently, the bank had no legal right to foreclose only the real estate

mortgage and leave out the chattel mortgage, and then sue him for a supposed deficiency judgement. Correct?

The contention of A is not correct.

As held in the case of Philippine Bank of Commerce vs Macadaeg. “The argument is fallacious because the mere embodiment of the real estate mortgage and the chattel mortgage in one document does not fuse both securities into an indivisible whole. Both remain distinct agreements, differing not only in the subject matter of the contract but in the governing legal provisions. Petitioner bank, therefore had every right to foreclose the real estate mortgage and waive the chattel mortgage, and maintain instead a personal action for the recovery of the unpaid balance of its credit.”