Philippine Supreme Court Resolutions > Year 2007 > June 2007 Resolutions > [G.R. No. 150133 : June 13, 2007] CELSO A. FERNANDEZ, FE J. VILLANUEVA-FERNANDEZ, AND NORA ELLEN ESTRELLADO, PETITIONERS V. COURT OF APPEALS AND DEVELOPMENT BANK OF THE PHILIPPINES, RESPONDENTS :

Quoted hereunder, for your information, is a resolution of this Court dated 13 JUNE 2007

G.R. No. 150133: CELSO A. FERNANDEZ, FE J. VILLANUEVA-FERNANDEZ, and NORA ELLEN ESTRELLADO, petitioners v. COURT OF APPEALS and DEVELOPMENT BANK OF THE PHILIPPINES, respondents.

This petition for review^[1] assails the 14 June 2001 Decision^[2] and 14 September 2001 Resolution of the Court of Appeals in CA-G.R. CV No. 44083. The Court of Appeals affirmed the decision^[3] of the Regional Trial Court of Makati, Branch 148 (trial court) dismissing the case filed by Celso A. Fernandez, Fe J. Villanueva-Fernandez, and Nora Ellen Estrellado (petitioners) against Development Bank of the Philippines (DBP) and the Provincial Sheriff of Sta. Cruz, Laguna. The Court of Appeals also denied the petitioners' motion for reconsideration.

Sometime in April 1980, Spouses Celso A. Fernandez and Fe Villanueva-Fernandez (Spouses Fernandez) obtained from DBP a loan of P2,714,600 for the construction of a purse seiner vessel. Only P722,828^[4] was released to the Spouses Fernandez for their non-compliance with the conditions for the release of the loan. In July 1982, DBP approved the renewal of the loan in the reduced amount of P2,613,778. The Spouses Fernandez executed a chattel mortgage over the purse seiner vessel as security for the loan.

The Spouses Fernandez failed to pay the loan. When DBP was about to foreclose the chattel mortgage sometime in July 1985, a typhoon heavily damaged the purse seiner vessel. The Spouses Fernandez claimed for total loss insurance indemnity from the vessel's insurer which denied the claim. The insurer offered only P1.3 million as indemnity forcing the Spouses Fernandez to file a case with the Regional Trial Court of Makati. The case was subsequently compromised on the agreement that the vessel would be repaired until sea worthy.

At this point, the Spouses Fernandez requested for rehabilitation or restructuring of the loan. DBP approved but required an additional mortgage over three parcels of land owned by Nora Ellen Estrellado (Estrellado).

The Spouses Fernandez defaulted on their loan again. Consequently, DBP extrajudicially foreclosed the chattel mortgage through the Office of the Provincial Sheriff of Lucena City. DBP was the sole bidder for P153,000. The Sheriff then issued a certificate of sale.

Considering that P153,000 was insufficient to cover the indebtedness of the Spouses Fernandez, DBP foreclosed the additional collateral extended by Estrellado. DBP was again the lone bidder for P677,450. The Sheriff then issued a certificate of sale in favor of DBP. In both foreclosure proceedings, the Spouses Fernandez did not appear because they had no funds for the bidding.

The Spouses Fernandez filed with the Regional Trial Court of Makati a complaint against DBP, DBP pool of accredited insurance companies, Sheriff of Quezon City, and Dona Industries Corp., docketed as Civil Case No. 88-770. The complaint had the following prayer:

WHEREFORE, plaintiffs hereby respectfully pray this Honorable Court after due hearing to render judgment, declaring --

a) As unconscionable and unwarranted increases made by the defendant Development Bank of the Philippines on plaintiffs' loan from the original interest of fourteen percent (14%) per annum to twenty-one percent (21%) per annum and afterward thirty-five percent (35%) per annum as null and void;

b) The Commitment Fee of P114,375.03 as null and void;

c) Plaintiffs are covered under the incentive plan of payment as shown in the July 2, 1983 letter of the defendant Development Bank of the Philippines and therefore, entitled to all the privileges embodied therein;

d) Considering Account Nos. 055256-184 1 & 2 and 171 1 & 2 in the name of plaintiffs with the defendant Development Bank of the Philippines as having been fully paid and to consider said amounts close for all purposes;

e) The incident on July 7, 1985 at Dalahican, Lucena City which caused vessel Fernandez I, the net and Skiff Boat to be declared a total or constructive loss, was due to the fault or negligence of the crews of F/V Viking-C and therefore its owner defendant Dona Industries Corporation, should be made to pay plaintiffs damages which will be proven during the trial of this case;

f) Sentencing the two (2) defendants corporations and Dona Industries Corporation to pay plaintiffs damages and attorney's fees which should be proven during the trial of this case.^[5]

This case was eventually dismissed after DBP filed a demurrer to evidence.

Thereafter, petitioners filed the instant case with the trial court, docketed as Civil Case No. 92-536. The trial court dismissed the case and ordered petitioners to pay DBP P8,000 as litigation expenses.

On appeal, the Court of Appeals affirmed the decision of the trial court. The Court of Appeals also denied the petitioners' motion for reconsideration in its Resolution dated 14 September 2001.

Hence, this petition.

Petitioners raise the issues of (1) whether the foreclosure of the chattel mortgage precluded the foreclosure of the real estate mortgage over Estrellado's lots for the recovery of the loan deficiency; and (2) whether the present action is barred by res judicata.

The petition has no merit.

Petitioners' reliance on Article 1484 of the Civil Code is misplaced. Article 1484 states:

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.

This provision governs a contract of sale of personal property the price of which is payable in installments. In this case, the foreclosure of the chattel mortgage was a result of the Spouses Fernandez's default on their loan with DBP. What is involved here is a loan agreement with mortgage, not a contract of sale of personal property.

Petitioners' contention that the extrajudicial foreclosure of the chattel mortgage barred the foreclosure of the real estate mortgage for the deficiency is untenable. DBP is not precluded from foreclosing the real estate mortgage over Estrellado's lots to recover the deficiency of the loan.^[6] The real estate mortgage was executed as additional security for the loan obtained by the Spouses Fernandez from DBP.

Both Act No. 1508, as amended, or the Chattel Mortgage Law and Act No. 3135, as amended, governing extrajudicial foreclosure of real estate mortgage do not contain any provision, expressly or impliedly, precluding the mortgagee from recovering the deficiency of the principal obligation.^[7] There is no prohibition, express or implied, against the foreclosure of real estate mortgage as additional security for a loan.

On petitioners' claim that the foreclosed properties were worth millions at the time of the auctions, the Court finds no evidence to prove this allegation. Besides, a low winning bid at a public auction, by itself, is not a ground to invalidate the auction. In addition, DBP's purchase of the foreclosed properties at a very low price did not prevent the Spouses Fernandez from paying their entire obligation.

Further, that it is DBP, as the mortgagee, which eventually acquired the mortgaged properties is not a valid reason for the Spouses Fernandez to refuse to pay the remaining balance of their obligation. A mortgage is a security and not a satisfaction of indebtedness.^[8]

The foregoing discussion renders the resolution of the second issue unnecessary.

WHEREFORE, the petition is DENIED. The Decision dated 14 June 2001 and the Resolution dated 14 September 2001 of the Court of Appeals in CA-G.R. CV No. 44083 are AFFIRMED.

SO ORDERED. Quisumbing, J., on official leave.

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^[1] Under Rule 45 of the Rules of Court.

^[2] Rollo, pp. 23-29. Penned by Associate Justice Bernardo P. Abesamis, with Associate Justices Godardo A. Jacinto and Eliezer R. De Los Santos concurring.

^[3] Id. at 38-47. Penned by Judge Oscar B. Pimentel.

^[4] In its Comment, DBP stated that P772,828 was released to the Spouses Fernandez.

^[5] Id. at 16.

^[6] See Phil. Bank of Commerce v. Macadaeg, 109 Phil. 981 (1960).

^[7] See Superlines Transportation Co., Inc. v. ICC Leasing & Financing Corp., 446 Phil. 669 (2003).

^[8] Philippine Bank of Commerce v. De Vera, 116 Phil. 1326 (1962).