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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.

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