Manila Trading & Supply Co. vs. E.M. Reyes

The Legislature may validly change judicial methods and remedies for the enforcement of contracts, and a statute that limits a mortgagee's remedy to the property included in the mortgage does not unduly interfere with the obligation of contracts, constitute class legislation, or deny equal protection of the laws. Act No. 4122, which prohibits a vendor who forecloses a chattel mortgage on installment-sold personal property from recovering any unpaid balance from the purchaser, is a valid exercise of legislative power, as parties have no vested right in particular remedies or modes of procedure.

The case involves a constitutional challenge to Act No. 4122, known as the Installment Sales Law, enacted on December 9, 1933, which amended the Civil Code by inserting Section 1454-A. The law addressed a social and economic evil: the practice of commercial houses that sold personal property on installment, and upon purchaser default, would repossess the goods, buy them at foreclosure sale for nominal prices, and still collect the entire balance with interest, costs, and attorney's fees. The law provided that if a vendor chose to foreclose a chattel mortgage on installment-sold property, the vendor would have no further action against the purchaser for any unpaid balance. The Organic Act (Act of Congress of August 29, 1916), Section 3, required that no bill shall embrace more than one subject, and that subject shall be expressed in the title of the bill.

On December 13, 1933, E.M. Reyes executed in favor of the Manila Trading & Supply Co. a chattel mortgage on an automobile as security for the payment of P400, which Reyes agreed to pay in ten equal monthly installments. This transaction occurred subsequent to the enactment of Act No. 4122. Reyes failed to pay some of the installments due on his obligation, as found by the trial judge.

Thereupon, the Manila Trading & Supply Co. proceeded to foreclose its chattel mortgage. The mortgaged property was sold at public auction by the sheriff of the City of Manila for the sum of P200. After applying this sum, with interest, costs, and liquidated damages to Reyes' indebtedness, the latter owed the company a balance of P275.47, with interest thereon at the rate of 12 percent per annum from February 19, 1934.

When Reyes failed to pay the deficiency on the debt, the company instituted an action in the Court of First Instance of Manila for the recovery thereof. To plaintiff's complaint, defendant filed an answer in which he pleaded as a defense that plaintiff, having chosen to foreclose its chattel mortgage, had no further action against defendant for the recovery of the unpaid balance owed by him to plaintiff, as provided by Act No. 4122. After trial, the lower court sustained defendant's defense and rendered a judgment absolving him from the complaint, with costs.

The trial judge, Judge Moran, described the evil the law aimed to correct: the inordinate love for luxury of those who, without sufficient means, purchase personal effects, and the ruinous practice of some commercial houses of purchasing back the goods sold for a nominal price besides keeping a part of the price already paid and collecting the balance, with stipulated interest, costs, and attorney's fees. The practice was described as "worse than usurious in many instances."

• Title of the Law: Appellant contended that Act No. 4122 embraces more than one subject in violation of Section 3 of the Organic Act, arguing that the Act amends both the Civil Code and the Chattel Mortgage Law (Act No. 1508), and that the amendment of the Chattel Mortgage Law is not expressed in the title of the bill.
• Liberty of Contract: Appellant argued that the Act unduly restrains the liberty of a person to contract with respect to his property rights, citing authorities from the State of Washington where a similar statute was held to be an undue restraint upon liberty of contract.
• Class Legislation: Appellant contended that the Act constitutes class legislation because it singles out vendors and lessors of personal property for special treatment.
• Equal Protection: Appellant argued that the Act denies vendors and lessors of personal property the equal protection of the laws.

• Validity of the Law: The respondent defended the validity of Act No. 4122, pleading as a defense that the plaintiff, having chosen to foreclose its chattel mortgage, had no further action against the defendant for the recovery of the unpaid balance, as provided by the Act.

• Title of the Law: Whether Act No. 4122 embraces more than one subject, in violation of Section 3 of the Organic Act, because it amends both the Civil Code and the Chattel Mortgage Law without expressing the latter in its title.
• Liberty of Contract: Whether Act No. 4122 unduly restrains the liberty of a person to contract with respect to his property rights.
• Class Legislation and Equal Protection: Whether Act No. 4122 constitutes class legislation and denies vendors and lessors of personal property the equal protection of the laws.

• Title of the Law: No. The Act does not embrace more than one subject in violation of the Organic Act. While Act No. 4122 deals with three subjects — sales of personal property on the installment plan, chattel mortgages, and leases of personal property with option to repurchase — all three are comprehended within the subject of installment payments, and the title sufficiently expressed the subject by indicating that the law had to do with an amendment of the Civil Code in the portion given up to contract of purchase and sale.
• Liberty of Contract: No. The Act does not unduly restrain liberty of contract. The Legislature may change judicial methods and remedies for the enforcement of contracts without unduly interfering with the obligation of contracts, provided an efficacious remedy remains for enforcement.
• Class Legislation and Equal Protection: No. The Act does not constitute class legislation nor deny equal protection of the laws. The controlling purpose of the Act is to close the door to abuses committed in connection with the foreclosure of chattel mortgages when sales were payable in installments, a valid public policy established by legislative authority.

• Title of the Law: The Court found the appellant's argument "altogether too narrow and technical a view of the matter." Legislation should not be embarrassed by overly strict construction. The constitutional provision, while designed to remedy an evil, was not designed to require great particularity in stating the object of the law in its title. The Court noted that while Act No. 4122 deals with three subjects — sales of personal property on the installment plan, chattel mortgages, and leases of personal property with option to repurchase — all three are comprehended within the subject of installment payments, citing Macondray & Co. vs. R. de Santos (61 Phil., 370). The Court further noted the close analogy between chattel mortgages under Act No. 1508 and conditional sales under the Civil Code, and adopted the general rule that a title which declares a statute to be an act to amend a specific code is sufficient, and the precise nature of the amendatory act need not be further stated, citing People vs. Buenviaje (47 Phil., 536).

• Liberty of Contract: The Court examined the legislative purpose behind the Act, quoting Judge Moran's observations about the social and economic evil the law sought to correct: the ruinous practice of commercial houses repossessing goods, buying them at auction for nominal prices, and still collecting the full balance with interest, costs, and attorney's fees. The Court also quoted Justice Goddard's interpretation in Bachrach Motor Co. vs. Millan (61 Phil., 409) that the principal object of the amendment was to remedy abuses in chattel mortgage foreclosures. The Court distinguished the Washington statute cited by appellant, noting that the Washington law and the Philippine law are "radically different in phraseology and in effect." The Court relied on Bronson vs. Kinzie (1 How., 311), where the United States Supreme Court declared that "every State has the power to describe the legal and equitable obligations of a contract to be made and executed within its jurisdiction" and may "impose such conditions and restrictions upon the creditor as its judgment and policy may dictate." The Court held that parties have no vested right in particular remedies or modes of procedure, and the Legislature may change existing remedies or modes of procedure without impairing the obligation of contracts, provided an efficacious remedy remains for enforcement.

• Class Legislation and Equal Protection: The Court identified three remedies available to a vendor who has sold personal property on the installment plan: (1) exact the fulfillment of the obligation; (2) cancel the sale if the vendee failed to pay two or more installments; or (3) foreclose the mortgage, if one has been given on the property. The proviso to the right to foreclose is that if the vendor chooses this remedy, he shall have no further action against the purchaser for the recovery of any unpaid balance. The Court concluded that the Act "does no more than qualify the remedy." The Court emphasized the proper approach in constitutional cases: "to resolve all presumptions in favor of the validity of an act in the absence of a clear conflict between it and the constitution. All doubts should be resolved in its favor." The controlling purpose of the Act — to close the door to abuses in chattel mortgage foreclosures — was a public policy defined and established by legislative authority, and it is for the courts to perpetuate it.

• Presumption of Constitutionality — All presumptions are resolved in favor of the validity of an act in the absence of a clear conflict between it and the constitution; all doubts should be resolved in its favor. The Court applied this doctrine in upholding Act No. 4122, emphasizing that the question of the validity of an act is solely one of constitutional power, and questions of expediency, motive, or results are irrelevant.

• Legislative Power to Change Remedies — Parties have no vested right in particular remedies or modes of procedure, and the Legislature may change existing remedies or modes of procedure without impairing the obligation of contracts, provided an efficacious remedy remains for enforcement. The Court applied this doctrine in holding that Act No. 4122, which limits the mortgagee to the property included in the mortgage upon foreclosure, merely qualifies the remedy and does not unduly interfere with the obligation of contracts.

• One Subject — One Title Rule — A title which declares a statute to be an act to amend a specific code is sufficient, and the precise nature of the amendatory act need not be further stated. The constitutional provision requiring that a bill embrace only one subject, expressed in its title, was not designed to require great particularity in stating the object of the law in its title. The Court applied this doctrine in holding that Act No. 4122's title sufficiently expressed its subject.

• "Legislation should not be embarrassed by overly strict construction. The constitutional provision, while designed to remedy an evil, was not designed to require great particularity in stating the object of the law in its title. In reality, while Act No. 4122 deals with three subjects, sales of personal property on the installment plan, chattel mortgages, and leases of personal property with option to repurchase, all three are comprehended within the subject of installment payments." — This passage articulates the Court's interpretation of the one subject-one title rule under the Organic Act, holding that related subjects may be comprehended within a single broader subject.

• "As we understand it, parties have no vested right in particular remedies or modes of procedure, and the Legislature may change existing remedies or modes of procedure without impairing the obligation of contracts, provided an efficacious remedy remains enforcement." — This is the core doctrinal statement on the Legislature's power to modify remedies without violating the obligation of contracts clause.

• "Most constitutional issues are determined by the court's approach to them. The proper approach in cases of this character should be to resolve all presumptions in favor of the validity of an act in the absence of a clear conflict between it and the constitution. All doubts should be resolved in its favor." — This passage states the controlling approach to constitutional adjudication, emphasizing the presumption of validity.

• "We are of the opinion that the Legislature may change judicial methods and remedies for the enforcement of contracts, as it has done by the enactment of Act No. 4122, without unduly interfering with the obligation of the contracts, without sanctioning class legislation, and without a denial of the equal protection of the laws." — This is the ratio decidendi of the case, upholding the constitutionality of the Installment Sales Law.

• Macondray & Co. vs. R. de Santos, 61 Phil., 370 (1935) — Cited as controlling authority for the proposition that the three subjects covered by Act No. 4122 are all comprehended within the subject of installment payments.
• Bachrach Motor Co. vs. Millan, 61 Phil., 409 (1935) — Cited for Justice Goddard's interpretation of Act No. 4122, explaining that the principal object of the amendment was to remedy abuses in chattel mortgage foreclosures.
• Manila Trading & Supply Co. vs. Tamaraw Plantation Co., 47 Phil., 513 (1925) — Cited for the proposition that a chattel mortgage under Act No. 1508 is not of the same effect as a contract of purchase and sale with right of repurchase under the Civil Code.
• People vs. Buenviaje, 47 Phil., 536 (1925) — Cited for the general rule that a title which declares a statute to be an act to amend a specific code is sufficient, and the precise nature of the amendatory act need not be further stated.
• Bronson vs. Kinzie, 1 How., 311 (1843) — Cited as the most helpful authority, holding that every State has the power to describe the legal and equitable obligations of a contract made within its jurisdiction and may impose conditions and restrictions upon the creditor as its judgment and policy may dictate.
• Bank of the Philippine Islands vs. Olutanga Lumber Co., 47 Phil., 20 (1924) — Cited for the proposition that the Chattel Mortgage Law did not expressly provide for a deficiency judgment upon foreclosure, and it required court decisions to authorize such a procedure.
• Wright vs. Wimberly, 184 Pac., 740 (1919) — Distinguished; the Oregon statute abolishing deficiency judgments on real property mortgages was upheld partly due to the financial depression, a reason not applicable to the Philippine law.

• Section 3, Organic Act (Act of Congress of August 29, 1916) — The constitutional provision requiring that no bill enacted into law shall embrace more than one subject, and that subject shall be expressed in the title of the bill. The Court held that Act No. 4122 complied with this requirement.
• Section 1454-A, Civil Code (inserted by Act No. 4122) — The Installment Sales Law provision that in a contract for the sale of personal property payable in installments, failure to pay two or more installments confers upon the vendor the right to cancel the sale or foreclose the mortgage without reimbursement to the purchaser of installments already paid, if there is an agreement to this effect; and if the vendor chooses to foreclose the mortgage, he shall have no further action against the purchaser for the recovery of any unpaid balance.
• Section 3, Act No. 1508 (Chattel Mortgage Law) — The provision defining a chattel mortgage as a conditional sale of personal property as security for the payment of a debt or the performance of some other obligation. The Court noted the close analogy between chattel mortgages under this law and conditional sales under the Civil Code.

Avanceña, C.J., Villa-Real, Abad Santos, Hull, Vickers, Goddard, Diaz, and Recto, JJ., concurred.

N/A — No dissenting opinions were noted in the decision.