Question XIII, Civil Law, 2018 Bar Exam

Sonny Inc., (SI) purchased several heavy machineries from Single Equipment Philippines, Inc. (SEP) for PhP 10 million, payable in 36 monthly installments. A chattel mortgage was constituted on the same machineries as security for the amount. As additional security, the President of SI, Stan Smith, mortgaged his personal house and lot. SI failed to pay the 16th and succeeding monthly installments. SEP then commenced a collection suit against SI, and in the course of the proceedings, a writ of attachment was issued against Sl’s properties, including the mortgaged machineries. The attached properties were subsequently sold at public action, but the proceeds thereof were insufficient to satisfy the judgment credit.

(a) Can SEP legally recover the deficiency? (2.5%)

(b) Instead of collecting the deficiency, can SEP commence extrajudicial proceedings to foreclose the mortgage on Stan’s house and lot in order to recover the deficiency? (2.5%)

Suggested Answer:

(a) Yes. Answer

Under the jurisprudence, if there has been no foreclosure of the chattel mortgage nor a foreclosure sale, the prohibition against further collection under the Recto Law does not apply. Rule

In the case at bar, there has been no foreclosure of the chattel mortgage nor a foreclosure sale. Instead, SEP instituted a collection suit. Should the proceeds resulting from public auction be insufficient, SEP is not prohibited from recovering the deficiency. Apply

Thus, SEP can legally recover the de...

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