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 Contract and Parties Involved

• On or about June 19, 1980, Victorio Depositario, the principal borrower, together with Jaime Guinhawa, acting as his solidary co-maker, entered into a loan agreement with Bicol Savings and Loan Association (BISLA).
• The loan amount was P10,622.00, with a repayment schedule of P535.45 every 19th day of each month starting July 1980 until maturity on June 19, 1982.
• To secure the loan, the principal borrower executed a chattel mortgage over a Yamaha Motorcycle.

Foreclosure and Deficiency

• Due to non-payment by both Depositario and Guinhawa, BISLA foreclosed the chattel mortgage on the motorcycle.
• The foreclosure resulted in a deficiency amounting to P5,158.06 as of July 31, 1981.
• BISLA demanded payment of the deficiency from the parties involved.

Judicial Proceedings in the City Court of Naga

• On August 6, 1981, BISLA filed a complaint in the City Court of Naga, Branch II, seeking recovery of the deficiency amount arising from the mortgage foreclosure.
• A stipulation of facts was entered into between BISLA and Jaime Guinhawa, wherein:
• Guinhawa admitted the existence of the deficiency and acknowledged his joint and several liability under the promissory note, though he stated he was not a party to the chattel mortgage.
• The parties agreed that the single issue was Guinhawa’s liability to pay the deficiency.
• An arrangement for additional attorney’s fees amounting to 10% of the aggregate sum in case of a decision favoring BISLA was established.
• On December 4, 1981, the City Court rendered a decision in favor of BISLA, affirming the deficiency claim and holding the solidary debtor(s) liable.

Appeal and Reversal by the Court of First Instance of Camarines Sur

• Jaime Guinhawa appealed the City Court decision to the Court of First Instance of Camarines Sur, Branch III.
• The appellate court reversed the City Court decision on the ground that:
• Although the co-maker’s obligation is solidary under the promissory note, BISLA’s choice to foreclose the chattel mortgage meant it collected from Depositario, the principal debtor.
• As Guinhawa was not a party to the mortgage, collecting a deficiency from him was inappropriate.
• The respondent court cited the precedent in Pascual vs. Universal Motors to justify its reversal.

Supreme Court's Review

• The Supreme Court examined whether the creditor’s foreclosure on the chattel mortgage precluded further action against a solidary debtor who was not a party to that mortgage.
• The Court noted that extrajudicial or judicial foreclosure does not extinguish the creditor's right to recover any deficiency from other solidary debtors.
• It emphasized that the nature of the loan—as secured by a chattel mortgage for payment security—differs from a sale on installment, impacting the liability of the co-maker.

Issue:

Whether the creditor, BISLA, can validly proceed against Jaime Guinhawa, the solidary co-maker, for the deficiency amount resulting from the foreclosure of the chattel mortgage, despite him not being a party to that mortgage.

• Does the selection of foreclosure on the chattel mortgage against the principal debtor preclude the creditor from recovering the balance deficiency from the co-maker?
• How does Article 1216 of the Civil Code, which permits proceeding against any solidary debtor, affect the liability of the co-maker in this instance?
• Is the respondent’s invocation of Article 2080 to release the co-maker from further liability applicable when his obligation is that of a surety under the promissory note?

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)