Facts:

On June 19, 1980, Victorio Depositario and Jaime Guinhawa, the private respondent, entered into a loan agreement with Bicol Savings and Loan Association (BISLA) for the amount of P10,622.00. The loan was to be repaid in monthly installments of P535.45, starting July 1980 and maturing on June 19, 1982. To secure the loan, Depositario executed a chattel mortgage on a Yamaha motorcycle. However, both Depositario and Guinhawa failed to meet their payment obligations, leading to the foreclosure of the motorcycle. As of July 31, 1981, a deficiency of P5,158.06 remained after the foreclosure. On August 6, 1981, BISLA filed a complaint in the City Court of Naga against both Depositario and Guinhawa for the recovery of the deficiency. A stipulation of facts was later agreed upon, wherein Guinhawa admitted the existence of the deficiency but contended that he was not a party to the chattel mortgage and had not been notified of the foreclosure. The City Court ruled in favor of BISLA, af...

Facts:

Loan and Security Agreement

• On June 19, 1980, Victorio Depositario, together with Jaime Guinhawa as a solidary co-maker, obtained a loan of P10,622.00 from Bicol Savings and Loan Association (BISLA). The loan was payable in monthly installments of P535.45, starting July 1980, with maturity on June 19, 1982.
• To secure the loan, Depositario executed a chattel mortgage on a Yamaha motorcycle.

Foreclosure and Deficiency

• Due to the failure of Depositario and Guinhawa to pay the loan, BISLA foreclosed the chattel mortgage. After the foreclosure, a deficiency of P5,158.06 remained as of July 31, 1981.
• BISLA demanded payment of the deficiency from both Depositario and Guinhawa.

Legal Proceedings

• On August 6, 1981, BISLA filed a complaint in the City Court of Naga, Branch II, to recover the deficiency amount from Depositario and Guinhawa.
• A stipulation of facts was entered into between BISLA and Guinhawa, wherein Depositario was dropped from the case due to his unknown whereabouts. The stipulation included:
  1. Admission of the deficiency amount of P5,158.06, plus 17% interest compounded monthly.
  2. Guinhawa’s acknowledgment that he was a solidary co-maker on the promissory note but was not a party to the chattel mortgage.
  3. Agreement that the sole issue was whether Guinhawa was liable for the deficiency.
  4. Agreement to submit the case for decision based on the stipulation of facts.
  5. Agreement on attorney’s fees and costs depending on the outcome.

Lower Court Decision

• On December 4, 1981, the City Court ruled in favor of BISLA, holding that Guinhawa, as a solidary debtor, was liable for the deficiency under Article 1216 of the Civil Code.

Appeal to the Court of First Instance

• Guinhawa appealed to the Court of First Instance of Camarines Sur, Branch III, which reversed the lower court’s decision. The appellate court held that BISLA’s foreclosure of the chattel mortgage constituted an election to collect from Depositario, and Guinhawa, as a non-party to the mortgage, could not be held liable for the deficiency.

Issue:

1. Whether Guinhawa, as a solidary co-maker, is liable for the deficiency after the foreclosure of the chattel mortgage executed by Depositario.
2. Whether the foreclosure of the chattel mortgage precludes BISLA from recovering the deficiency from Guinhawa.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Conclusion:

The Supreme Court ruled that Guinhawa, as a solidary co-maker, is liable for the deficiency after the foreclosure of the chattel mortgage. The decision of the City Court was reinstated, and costs were imposed on Guinhawa.