G.R. No. 238201 - Federal Land, Inc. vs. Northlander Real Estate and Development, Inc.

On June 4, 1965, Casiano Sapinoso purchased an Opel Kadett car from Northern Motors, Inc. for a total price of P12,171.00.
The payment scheme involved a down payment and the execution of a promissory note covering the balance of P10,540.00, with installments payable monthly at an interest rate of 12% per annum.
To secure the promissory note, Sapinoso executed a chattel mortgage on the car in favor of Northern Motors, Inc.
The mortgage contract detailed several remedies available to the mortgagee upon default, including:

The contract also contained a stipulation where, regardless of the remedy elect by the mortgagee, the mortgagor expressly waived his right to reimbursement for any amounts already paid on the principal and interest.

Sapinoso defaulted on the first installment of P361.00 due on July 5, 1965, as well as on the second through fifth installments of P351.00 each due on subsequent months (August through November 1965).
Despite these defaults, several payments were made on his part:

P530.52 paid on November 21, 1965, applied entirely to accrued interest up to April 17, 1966;
P480.00 on December 21, 1965, partly allocated – P158.10 to interest and P321.90 to principal – reducing the outstanding balance to P10,218.10;
P400.00 on April 30, 1966, further attributed to interest.

Owing to non-payment, Northern Motors, Inc. filed a complaint on July 22, 1966, against Sapinoso and an unknown party identified as “John Doe,” seeking to implement the extrajudicial foreclosure remedy provided under the chattel mortgage.
The complaint prayed for:

The issuance of a writ of replevin upon the filing of a bond for the seizure of the car;
An adjudication of rightful possession and ownership of the car to Northern Motors, Inc.; and
Payment by the defendants of the outstanding balance of P10,218.10 (with interest) plus 25% of that sum as attorney’s fees and collection expenses, among other reliefs.

Following the filing of the complaint, defendant Sapinoso made additional payments on the note:

Issuance of a writ of replevin on August 9, 1966 after bond filing;
Seizure of the car on October 20, 1966 and its turnover to the plaintiff on October 25, 1966; and
Defendant Sapinoso’s eventual answer on November 12, 1966, admitting key allegations regarding the sale, terms, and security arrangement, but contesting the application of payments, the alleged outstanding balance, and claiming that the car was defective.

Sapinoso’s failure to pay more than two installments legally entitled the plaintiff (mortgagee) to foreclose the chattel mortgage.
Foreclosure of the chattel mortgage and collection of the unpaid balance of the promissory note are alternative remedies, not complementary ones.

As a consequence, by electing foreclosure, the plaintiff waived its right to further demand payment on the promissory note, including any claim to the attorney’s fees stipulated therein.
The court ordered that while the plaintiff retained the right to possession of the vehicle, it was also condemned to pay Sapinoso the sum of P1,250.00 (with legal interest on P500.00 from August 22, 1966, and on P750.00 from September 27, 1966).

On appeal, the plaintiff contested the reimbursement order, arguing that under Article 1484 of the Civil Code, it was the exercise of foreclosure, not merely the election, which would bar the creditor from recovering the remaining unpaid balance.
The contention further included that the voluntary receipt of payment by Sapinoso, made before filing his answer and without a counterclaim for recovery, effectively constituted a waiver of his right to reclaim the said amount.
The appellate court analyzed the nature of the replevin action—viewing it as a preliminary step toward foreclosure—and determined that the voluntary payment did not result from a “further action” as prohibited by Article 1484.
Accordingly, the appellate court modified the trial court’s judgment, setting aside the portion that ordered payment of P1,250.00 to Sapinoso.

Whether the foreclosure action through replevin, as a preliminary remedy, precludes the acceptance or recovery of voluntary payments made on the promissory note.
If the acceptance of voluntary payments by the mortgagee prior to the foreclosure sale constitutes a waiver of the right to subsequently recover the outstanding unpaid balance or other related sums (e.g., attorney’s fees).
How Article 1484 of the Civil Code should be interpreted with respect to prohibiting “further action” against the purchaser for recovering any unsatisfied balance after foreclosure of the chattel mortgage.
Whether the actual foreclosure sale, which bars further recovery, had taken place, or if the replevin action sufficed merely as a preliminary step not affecting the creditor’s right to accept payments.