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THIRD DIVISION

[G.R. No. 106435. July 14, 1999]

PAMECA WOOD TREATMENT PLANT, INC., ERMINIO G. TE!E", !ICTORIA!. TE!E" #$% IRAM DIDA& R. P'LIDO,petitioners, vs.ON. CO'RTO( APPEAL" #$% DE!ELOPMENT )AN* O( TEPILIPPINE", respondents.

D E C I " I O N

GON+AGARE&E", J.-

Before Us for review on certiorariis the decision of the respondent Court ofAppeals in CA !R! CV No! "#$%&' pro(ul)ated on April "*' &++"' ,&-affir(in) intotothe decision of the Re)ional Trial Court of .a/ati,"-to award respondent 0an/1sdeficienc2 clai(' arisin) fro( a loan secured 02 chattel (ort)a)e!

The antecedents of the case are as follows3

On April ' &+$4' petitioner 5A.6CA 7ood Treat(ent 5lant' Inc! 85A.6CA9o0tained a loan of US:"%#'$$&!%#' or the e;uivalent of 5"'444'444!44 fro(respondent Ban/! B2 virtue of this loan' petitioner 5A.6CA' throu)h its 5resident'petitioner Her(inio C! Teves' e' and upon petitioner 5A.6CA1s failure to pa2'respondent 0an/ e%,*-with Branch &*" of the Re)ional TrialCourt of .a/ati Cit2 a)ainst petitioner 5A.6CA and private petitioners herein' assolidar2 de0tors with 5A.6CA under the pro(issor2 note!

On e0ruar2 $' &++4' the RTC of .a/ati rendered a decision on the case' thedispositive portion of which we reproduce as follows3

7H6R6OR6' ?ud)(ent is here02 rendered orderin) the defendants to pa2?ointl2 and severall2 plaintiff the 8&9 su( of 5>'*%%'**"!>% representin) thedeficienc2 clai( of the latter as of .arch *&' &+$>' plus "& interest per annu(and other char)es fro( April &' &+$> until the whole a(ount is full2 paid and 8"9the costs of the suit! SO ORD6R6D!,>-

The Court of Appeals affir(ed the RTC decision! Hence' this 5etition!

The petition raises the followin) )rounds3

&! Respondent appellate court )ravel2 erred in not reversin) the decision of thetrial court' and in not holdin) that the pu0lic auction sale of petitioner 5A.6CA1schattels were tainted with fraud' as the chattels of the said petitioner were 0ou)ht02 private respondent as sole 0idder in onl2 &E% of the (ar/et value of the propert2'hence unconsciona0le and ine;uita0le' and therefore null and void!

"! Respondent appellate court )ravel2 erred in not appl2in) 02 analo)2 Article&>$> and Article "&&@ of the Civil Code 02 readin) the spirit of the law' and ta/in)into consideration the fact that the contract of loan was a contract of adhesion!

*! The appellate court )ravel2 erred in holdin) the petitioners Her(inio Teves'Victoria Teves and Hira( Dida2 R! 5ulido solidaril2 lia0le with 5A.6CA 7oodTreat(ent 5lant' Inc! when the intention of the parties was that the loan is onl2 forthe corporation1s 0enefit!

Relative to the first )round' petitioners contend that the a(ount of5*""'*@4!44 at which respondent 0an/ 0id for and purchased the (ort)a)edproperties was unconsciona0le and ine;uita0le considerin) that' at the ti(e of thepu0lic sale' the (ort)a)ed properties had a total value of (ore than5"'444'444!44! Accordin) to petitioners' this is evident fro( an inventor2 dated.arch *&' &+$4,@-'which valued the properties at 5"'@&$'%"&!44' in accordancewith the ter(s of the chattel (ort)a)e contract ,%-

0etween the parties that re;uiredthat the inventories 0e (aintained at a level no less than 5" (illion! 5etitionersar)ue that respondent 0an/1s act of 0iddin) and purchasin) the (ort)a)ed

properties for 5*""'*@4!44 or onl2 a0out &E% of their actual value in a pu0lic sale inwhich it was the sole 0idder was fraudulent' unconsciona0le and ine;uita0le' andconstitutes sufficient )round for the annul(ent of the auction sale!

To this' respondent 0an/ contends that the a0oveFcited inventor2 and chattel(ort)a)e contract were not in fact su0(itted as evidence 0efore the RTC of.a/ati' and that these docu(ents were first produced 02 petitioners onl2 when thecase was 0rou)ht to the Court of Appeals!,#-The Court of Appeals' in turn'disre)arded these docu(ents for petitioners1 failure to present the( in evidence' orto even allude to the( in their testi(onies 0efore the lower court!,$-Instead'respondent court declared that it is not at all unli/el2 for the chattels to have

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sufficientl2 deteriorated as to have fetched such a low price at the ti(e of theauction sale!,+-Neither did respondent court find an2thin) irre)ular or fraudulent inthe circu(stance that respondent 0an/ was the sole 0idder in the sale' as all thele)al procedures for the conduct of a foreclosure sale have 0een co(plied with'thus )ivin) rise to the presu(ption of re)ularit2 in the perfor(ance of pu0lic duties!,&4-

5etitioners also ;uestion the rulin) of respondent court' affir(in) the RTC' tohold private petitioners' officers and stoc/holders of petitioner 5A.6CA' lia0le with5A.6CA for the o0li)ation under the loan o0tained fro( respondent 0an/'contrar2 to the doctrine of separate and distinct corporate personalit2! ,&&-5rivatepetitioners contend that the2 0eca(e si)natories to the pro(issor2 note onl2 as a(atter of practice 02 the respondent 0an/' that the pro(issor2 note was in thenature of a contract of adhesion' and that the loan was for the 0enefit of thecorporation' 5A.6CA' alone!,&"-

Gastl2' invo/in) the e;uit2 ?urisdiction of the Supre(e Court' petitionerssu0(it that Articles &>$> ,&*-and "&&@,&>-of the Civil Code 0e applied in analo)2 tothe instant case to preclude the recover2 of a deficienc2 clai(!,&@-

5etitioners are not the first to posit the theor2 of the applica0ilit2 of Article"&&@ to foreclosures of chattel (ort)a)e! In the leadin) case of A0laa vs!I)nacio,&%-' the lower court dis(issed the co(plaint for collection of deficienc2

?ud)(ent in view of Article "&>& of the Civil Code' which provides that theprovisions of the Civil Code on pled)e shall also appl2 to chattel (ort)a)es'insofar as the2 are not in conflict with the Chattel .ort)a)e Gaw! It was the lowercourt1s opinion that' 02 virtue of Article "&>&' the provisions of Article "&&@ whichden2 the creditorFpled)ee the ri)ht to recover deficienc2 in case the proceeds ofthe foreclosure sale are less than the a(ount of the principal o0li)ation' will appl2!

This Court reversed the rulin) of the lower court and held that the provisionsof the Chattel .ort)a)e Gaw re)ardin) the effects of foreclosure of chattel(ort)a)e' 0ein) contrar2 to the provisions of Article "&&@' Article "&&@ in relation toArticle "&>&' (a2 not 0e applied to the case!

Section &> of Act No! &@4$' as a(ended' or the Chattel .ort)a)e Gaw' states3

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