On January 1, 2025, Marie purchased from Toyota Alabang, Inc. (Toyota) a 2025 Toyota Camry for PHP 2.4 million, payable in 24 equal monthly installments starting from January 31, 2025. To secure the payment of the price, she executed a chattel mortgage over the vehicle in favor of Toyota. However, starting June 30, 2025, Marie began defaulting in the payment of the remaining installments due. Thus, on February 1, 2026, Toyota filed an action against Marie for the payment of the remaining balance plus damages. After due hearing, Toyota was able to obtain a final judgment directing Marie to pay the remaining balance. Acting upon the motion for execution of Toyota, the court ordered the immediate sale of the mortgaged vehicle. The sheriff then sold the vehicle for PHP 700,000.00 only, still leaving a deficiency. Upon motion, the court ordered Marie to pay Toyota the remaining balance plus interest at the rate of 10% per annum until fully paid. Marie filed a motion for reconsideration contending that the trial court erred in not finding that the immediate sale of the vehicle at public auction was tantamount to the foreclosure of the chattel mortgage on said vehicle and there can no longer be any recovery of the deficiency. Is Marie correct? Explain.
Suggested answer only. Not an official answer and not legal advice.
No, Marie is not correct. Under Article 1484 of the Civil Code (Recto Law), the remedies of a vendor in an installment sale of personal property are alternative. The bar against recovering a deficiency applies only when
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Quick check
Under Article 1484 of the Civil Code (Recto Law), when does the bar against recovering a deficiency judgment apply?
Under Article 1484(3) of the Civil Code, the prohibition against recovering a deficiency applies exclusively when the vendor elects to foreclose the chattel mortgage.
What is the legal character of a public auction sale conducted by a sheriff to enforce a court judgment for the unpaid price of personal property?
When a vendor sues for exact fulfillment, the subsequent sale of the mortgaged property by the sheriff is an execution sale, not a mortgage foreclosure.
Which of the following best describes the remedies granted to a vendor under Article 1484 of the Civil Code upon the buyer's default?
The remedies under Article 1484 of the Civil Code are strictly alternative, so electing one remedy bars resort to the remaining options.
Why is a vendor who chooses the remedy of exact fulfillment permitted to collect a deficiency after the public sale of the mortgaged property?
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If the proceeds from an execution sale in an action for exact fulfillment fail to cover the full judgment amount, how may the vendor recover the unpaid balance?
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Learn more about these topics
1. Recto Law
Under Article 1484 of the Civil Code, known as the Recto Law, a vendor in an installment sale of personal property has three alternative remedies upon the buyer's default. The seller may exact fulfillment of the obligation, cancel the sale for failure to pay two or more installments, or foreclose the chattel mortgage. These remedies are strictly alternative and not cumulative, so electing one bars resort to the others. The law protects installment buyers from oppressive practices and unjust enrichment.
2. Exact Fulfillment
When an installment seller elects exact fulfillment under Article 1484(1), the action is one for specific performance to collect the unpaid balance. In contrast, foreclosure under Article 1484(3) requires the actual foreclosure sale of the mortgaged chattel under statutory procedures. Pursuing specific performance does not constitute a foreclosure, even if the creditor subsequently levies upon and sells the mortgaged property on execution. The execution sale by the sheriff merely satisfies a money judgment.
3. Deficiency Bar
Under Article 1484(3) of the Civil Code, the prohibition against recovering a deficiency judgment applies exclusively when the seller forecloses the chattel mortgage. If the seller chooses exact fulfillment and obtains a court judgment, the bar against deficiency recovery does not apply. In an execution sale resulting from a collection suit, the creditor may satisfy the unpaid balance from other non-exempt assets. Consequently, the execution sale does not extinguish the debtor's remaining liability.