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PAMECA Wood Treatment Plant, Herminio Teves, Victoria Teves, and Hiram Pulido v. CA and DBP (1999) Gonzaga-Reyes, J. Pameca loaned P2mil from DBP and executed a promissory note, secured by its inventory of furniture and equipment. A month before the mortgage contract, its supposed market value was P2.5mil. They defaulted so DBP extrajudicially foreclosed on the chattels. It was the only bidder so it was able to buy it for around P322,000. Then for the deficiency, it filed a complaint against Pameca and its solidary debtors (Teveses and Pulido) according to the promissory note it signed. 1980: Pameca loaned P2mil from DBP. By virtue of this loan, Pameca (through its Pres, Teves) executed a promissory note promising to pay by installment. SECURITY for the LOAN: Chattel mortgage over PAMECAs properties in Dumaguete (inventories, furniture, equipment) 1984: PAMECA failed to pay so DBP extrajudicially forclosed the chattel mortgage. DBP was the sole bidder and bought it for P322,000. After which, DBP filed a complaint for collection of the balance of around P4mil. o Complaint filed against Pameca and Herminio Teves and Victoria Teves as solidary debtors with Pameca under the promissory note. RTC-Makati: ordered Pameca to pay the P4mil. CA affirmed. CA ruling: o Disregarded documents (inventory dated March 1980) for failure to present them in evidence, or allude to them before the LC and said that it is not unlikely that the chattels deteriorated as thereby fetching a low price at the auction sale. o Did not find anything fraudulent in the circumstance that DBP was the sole bidder, as all legal procedures for the conduct of a foreclosure sale were complied with, thus giving rise to the presumption of regularity in the performance of public duties.

Petition in SC, Pameca argues: Public auction sale were tainted with fraud. Claims the chattels were bought by DBP as sole bidder in only 1/6 of the market value, hence unconscionable and inequitable, and so it is null and void. (claims the market value was for more than P2mil) --- evidenced from an inventory dated March 1980 (valued at around P2.5mil), in accordance with the terms of the chattel mortgage contract that required that the inventories "be maintained at a level no less than P2 mil". NCC 1484 and 2115 should be applied by analogy reading the spirit of the law, and taking into consideration that the contract of loan was a contract of adhesion Teves, Teves, and Pulido were not solidarily liable with Pameca because the intention was that the loan is only for the Corps benefit

Issues/Held: Can an action be instituted for deficiency of a debt after foreclosure of the chattel mortgage? --YES W/N NCC 1484 and 2115 should be applied by analogy (Pameca invokes the equity jurisdiction of the SC to preclude the recovery of the deficiency)-- NO W/N public auction was tainted with fraud -- NO W/N Teves, Teves, Pulido are solidarily liable with Pameca YES Ratio: First issue: NCC 2115 inrelation to the Chattel Mortgage Law: they are INCONSISTENT Ablaza vs. Ignacio: o LC dismissed the complaint for collection of deficiency in view of NCC 2141, which provides that the provisions of the Civil Code on pledge shall also apply to chattel mortgages, insofar as they are not in conflict with the Chattel Mortgage Law. It was the LCs opinion that, by virtue of NCC 2141, the provisions of NCC 2115 (which deny the creditor-pledgee the right to recover deficiency in case the proceeds of the foreclosure sale are less than the amount of the principal obligation) will apply o SC reversed LC and held that the provisions of the Chattel Mortgage Law regarding the effects of foreclosure of chattel mortgage, being contrary to the provisions of NCC 2115, 2115, in relation to 2141, may NOT be applied. It is clear from Sec 14 of the Chattel Mortgage Law that the effects of foreclosure run inconsistent with those of pledge under NCC 2115. o 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 o Sec 14 of the Chattel Mortgage Law expressly ENTITLES the mortgagor (debtor) 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. Manila Trading v. Tamaraw Plantation cited in Ablaza v. Ignacio: o Sec 3 provides that "a chattel mortgage is a conditional sale", it further provides that it "is a conditional sale of personal property as security for the payment of a debt, or for the performance of some other obligation." The LC overlooked that the chattels included in the mortgage are only given as security and not as a payment of the debt, in case of a failure.

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Theory of the LC would lead to the absurdity that if the chattels given as security should sell for more than the indebtedness, that the creditor would be entitled to the full amount for which it was sold, even though that amount was greatly in excess of the indebtedness. Such a result was not contemplated by the legislature when it adopted the law. The value of the chattels changes greatly from time to time, and sometimes very rapidly. If for example, the chattels should increase in value and a sale under that condition should result in largely overpaying the indebtedness, and if the creditor is not permitted to retain the excess, then the same would require the debtor to pay the deficiency in case of a reduction in the price of the chattels between the date of the contract and a breach of the condition. Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as other authors on the question of chattel mortgages, have said, that "in case of a sale under a foreclosure of a chattel mortgage, there is no question that the mortgagee or creditor may maintain an action for the deficiency, if any should occur." And that the law permits a private sale, such sale is not a satisfaction of the debt, to any greater extent than the value of the property at the time of the sale. The amount received at the time of the sale, always requiring good faith, is only a payment, and an action may be maintained for a deficiency in the debt.

NCC 1484 applies solely to the sale of personal property the price of which is payable in installments. Although NCC 1484, par (3) bars any action against the purchaser to recover an unpaid balance of the price, where the seller opts to foreclose the chattel mortgage, should the buyers failure to pay cover 2 or more installments, this provision is specifically applicable to a sale on installments. To accommodate Pamecos prayer even on the basis of equity would be to expand the application of the provisions of NCC 1484 to situations beyond its specific purview, and ignore the language and intent of the Chattel Mortgage Law. Equity, "justice outside legality", is applied only in the absence of, and never against, statutory law or judicial rules of procedure. Second issue: SC unable to find merit that the public auction sale is void on grounds of fraud and inadequacy of price. Pameco never assailed the validity of the sale in the RTC, only in the CA. Basic is the rule that parties may not bring on appeal issues that were not raised on trial. In any case, inventory and chattel mortgage document do not prove that the mortgaged properties had a market value of at least P2mil on Jan 1984, the date of the foreclosure sale. At best, the chattel mortgage contract only indicates the obligation of the mortgagor-debtor to maintain the inventory at a value of at least P2mil. The inventory was as of March 1980, or even prior to April 1980, the date of the contracts of loan and chattel mortgage. It is far from being an accurate estimate of the market value of the properties. The mere fact that DBP was the sole bidder does not warrant the conclusion that the transaction was attended with fraud. Fraud is a serious allegation that requires full and convincing evidence, and may not be inferred from the lone circumstance that it was only DBP that bid. The sparseness of evidence leaves the SC no discretion but to uphold the presumption of regularity in the conduct of the public sale. Third issue: Affirm the Teveses liability with Pameco in the loan. As found by the TC and CA, the terms of the promissory note unmistakably set forth the solidary nature of the Teveses commitment: o we hereby bind ourselves, jointly and severally, to make partial payments as follows o in case of default in the payment of any installment above, we bind ourselves to pay DBP for advances o bind ourselves to pay additional interest and penalty charges on loan amortizations or portion thereof in arrears as follows o bind ourselves to pay for bank advances for insurance premiums, taxes o bind ourselves to reimburse DBP on a pro-rata basis for all costs incurred by DBP on the foreign currency borrowings from where the loan shall be drawn o jointly and severally bind ourselves to pay for attorney's fees as provided for in the mortgage contrac o Promissory note was signed: Pameca by: (followed by the) sgd. Teveses and Pulido Clear that Teveses intended to bind themselves solidarily with Pameca in the loan. They are not made to answer for the corporate act of Pameca, but are made liable because they made themselves comakers with Pameca under the promissory note. Petition denied.