Professional Documents
Culture Documents
SUPREME COURT
Manila
EN BANC
G.R. No. L-46306
MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the Court of First Instance of
Manila, which substantially recites the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro Blas
Gervacio, a Packard car. Defendant, after making the initial payment, executed a
promissory note for the balance of P2,400, payable on or before June 15, 1937, with
interest at 12 per cent per annum, to secure the payment of the note, he mortgaged
the car to the plaintiff. Defendant failed to pay the note it its maturity. Wherefore,
plaintiff foreclosed the mortgage and the car was sold at public auction, at which
plaintiff was the highest bidder for P1,800. The present action is for the collection of
the balance of P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this admission, the
parties submitted the case for decision. The lower court applied, the provisions of
Act No. 4122, inserted as articles 1454-A of the Civil Code, and rendered judgment in
favor of the defendant. Plaintiff appealed.
In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170), we held that "in order to
apply the provisions of article 1454-A of the Civil Code it must appear that there was
a contract for the sale of personal property payable in installments and that there has
been a failure to pay two or more installments." The contract, in the instant case,
while a sale of personal property, is not, however, one on installments, but on
straight term, in which the balance, after payment of the initial sum, should be paid
in its totality at the time specified in the promissory note. The transaction is not is
not, therefore, the one contemplated in Act No. 4122 and accordingly the mortgagee
is not bound by the prohibition therein contained as to the right to the recovery of
the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is payable in several
installments, for, generally, it is in these cases that partial payments consist in
relatively small amounts, constituting thus a great temptation for improvident
purchasers to buy beyond their means. There is no such temptation where the price
is to be paid in cash, or, as in the instant case, partly in cash and partly in one term,
for, in the latter case, the partial payments are not so small as to place purchasers off
their guard and delude them to a miscalculation of their ability to pay. The oretically,
perhaps, there is no difference between paying the price in tow installments, in so far
as the size of each partial payment is concerned; but in actual practice the difference
exists, for, according to the regular course of business, in contracts providing for
payment of the price in two installments, there is generally a provision for initial
payment. But all these considerations are immaterial, the language of the law being
so clear as to require no construction at all.
SECOND DIVISION
[G.R. No. 61043. September 2, 1992.]
DELTA MOTOR SALES CORPORATION, Plaintiff-Appellee, v. NIU KIM
DUAN and CHAN FUE ENG,Defendants-Appellants.
Francisco C. Bonoan for Plaintiff-Appellee.
Agapito M. Joaquin, for Defendants-Appellants.
The suggestion that the cash payment made in this case should be considered as an
installment in order to bring the contract sued upon under the operation of the law,
is completely untenable. A cash payment cannot be considered as a payment by
installment, and even if it can be so considered, still the law does not apply, for it
requires non-payment of two or more installments in order that its provisions may
be invoked. Here, only one installment was unpaid.
SYLLABUS
(Art. 1484) The three (3) remedies are alternative and NOT cumulative. If the
creditor chooses one remedy, he cannot avail himself of the other two.
DECISION
NOCON, J.:
Elevated to this Court by the Court of Appeals, in its Resolution of May 20, 1982, on
a pure question of law, 1 is the appeal therein by defendants-appellants, Niu Kim
Duan and Chan Fue Eng assailing the trial courts decision promulgated on October
11, 1977, 2 which ordered them to pay plaintiff-appellee, Delta Motor Sales
Corporation, the amount of P6,188.29 with a 14% per annum interest which was due
on the three (3) "Daikin" air-conditioners defendants-appellants purchased from
plaintiff-appellee under a Deed of Conditional Sale, after the same was declared
rescinded by the trial court. They were likewise ordered to pay plaintiff-appellee
P1,000.00 for and as attorneys fees.chanrobles virtual lawlibrary
The events which led to the filing of the case in the lower court were summarized by
the
Court
of
Appeals,
as
follows:jgc:chanrobles.com.ph
"On July 5, 1975, the defendants purchased from the plaintiff three (3) units of
DAIKIN air-conditioner all valued at P19,350.00 as evidenced by the Deed of
Conditional Sale, Exhibit A; that the aforesaid deed of sale had the following terms
and
conditions:chanrob1es
virtual
1aw
library
(a) the defendants shall pay a down payment of P774.00 and the balance of
P18,576.00 shall [be] paid by them in twenty four (24) installments; (b) the title to
the properties purchased shall remain with the plaintiff until the purchase price
thereof is fully paid; (c) if any two installments are not paid by the defendants on
their due dates, the whole of the principal sum remaining unpaid shall become due,
with interest at the rate of 14% per annum: and (d) in case of a suit, the defendants
shall pay an amount equivalent to 25% of the remaining unpaid obligation as
damages, penalty and attorneys fees; that to secure the payment of the balance of
P18,576.00 the defendants jointly and severally executed in favor of the plaintiff a
promissory note, Exhibit C; that the three (3) air-conditioners were delivered to and
received by the defendants as shown by the delivery receipt, Exhibit B; that after
paying the amount of P6,966.00, the defendants failed to pay at least two (2)
monthly installments; that as of January 6, 1977, the remaining unpaid obligation of
the defendants amounted to P12,920.08; that statements of accounts were sent to
the defendants and the plaintiffs collectors personally went to the former to effect
collections but they failed to do so; that because of the unjustified refusal of the
defendants to pay their outstanding account and their wrongful detention of the
properties in question, the plaintiff tried to recover the said properties extrajudicially but it failed to do so; that the matter was later referred by the plaintiff to its
legal counsel for legal action; that in its verified complaint dated January 28, 1977,
the plaintiff prayed for the issuance of a writ of replevin, which the Court granted in
its Order dated February 28, 1977, after the plaintiff posted the requisite bond; that
on April 11, 1977, the plaintiff, by virtue of the aforesaid writ, succeeded in retrieving
the properties in question: that as of October 3, 1977, the outstanding account of the
defendants is only in the amount of P6,188.29 as shown by the computation, Exhibit
F, after deducting the interests in arrears, cover charges, replevin bond premiums,
the value of the units repossessed and the like; and, that in view of the failure of the
defendants to pay their obligations, the amount of P6,966.00 which had been paid
by way of installments were treated as rentals for the units in question for two (2)
years pursuant to the provisions of paragraph 5 of the Deed of Conditional Sale,
Exhibit A. (pp. 5-7, Record; pp. 4-6, Appellants Brief)." chanrobles law library
As
above-stated,
the
trial
court
ruled
in
favor
of Plaintiff-Appellee.
third (1/3) of the entire price of said air-conditioners which was P19,350.00. They
also complain that for the said period the trial court is ordering them to pay
P6,188.29 as the balance due for the three air-conditioners repossessed. Defendantsappellants were likewise ordered to pay P1,000.00 as attorneys fees when plaintiffappellee never sought for attorneys fees in its complaint. They satirically pointed out
that by putting "a few touches here and there, the same units can be sold again to the
next imprudent customer" 7 by plaintiff-appellee. Thus, enforcement of the Deed of
Conditional Sale will unjustly enrich plaintiff-appellee at the expense of defendantsappellants.chanrobles law library : red
I
owed plaintiff-appellee, inclusive of interest, was P12,920.08. 12 The case plaintiffappellee filed was to seek a judicial declaration that it had validly rescinded the Deed
of
Conditional
Sale.
WHEREFORE, the judgment of the trial court in Civil Case No. 25578 is hereby SET
ASIDE and the complaint filed by plaintiff-appellee Delta Motor Sales Corporation is
hereby
DISMISSED.
No
costs.
The vendor in a sale of personal property payable in installments may exercise one of
three remedies, namely, (1) exact the fulfillment of the obligation, should the vendee
fail to pay; (2) cancel the sale upon the vendees failure to pay two or more
installments; (3) foreclose the chattel mortgage, if one has been constituted on the
property sold, upon the vendees failure to pay two or more installments. The third
option or remedy, however, is subject to the limitation that the vendor cannot
recover any unpaid balance of the price and any agreement to the contrary is void
(Art.
1484)
11
The three (3) remedies are alternative and NOT cumulative. If the creditor chooses
one remedy, he cannot avail himself of the other two.chanrobles lawlibrary : rednad
It is not disputed that the plaintiff-appellee had taken possession of the three airconditioners, through a writ of replevin when defendants-appellants refused to
extra-judicially surrender the same. This was done pursuant to paragraphs 5 and 7 of
its Deed of Conditional Sale when defendants-appellants failed to pay at least two (2)
monthly installments, so much so that as of January 6, 1977, the total amount they
SO ORDERED.
were sued, in the above Civil Case No. 2942, for the amount of the promissory
note.1 The spouses defaulted, and the court, after listening to the Southern Motors'
evidence entered Judgment for it in the total sum of P24,755.75 together with
interest at 12 per cent, plus 10 per cent of the total amount due as attorney's fees and
costs of collection.
EN BANC
G.R. No. L-10789
Carrying out the order of execution, the sheriff levied on the same machineries and
farm implements which had been bought by the spouses; and later sold them at
public auction to the highest bidder which turned out to be the Southern Motors
itself for the total sum of P10,000.
As its judgment called for much more, the Southern Motors subsequently asked and
obtained, an alias writ of execution; and pursuant thereto, the provincial sheriff
levied attachment on the Tajanlangits' rights and interests in certain real properties
with a view to another sale on execution.
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon. Pantaleon Pelayo, Judge of the
Iloilo court of first instance refusing to interfere with the alias writ of execution
issued in Civil Case No. 2942 pending in another sala of the same court.
The facts. In April 1953 Amador Tajanlangit and his wife Angeles, residents of Iloilo,
bought, from the Southern Motors Inc. of Iloilo two tractors and a thresher. In
payment for the same, they executed the promissory note Annex A whereby they
undertook to satisfy the total purchase price of P24,755.75 in several installments
(with interest) payable on stated dates from May 18, 1953 December 10, 1955. The
note stipulated that if default be made in the payment of interest or of any
installment, then the total principal sum still unpaid with interest shall at once
become demandable etc. The spouse failed to meet any installment. Wherefore, they
To prevent such sale, the Tajanlangits instituted this action in the Iloilo court of first
instance for the purpose among others, of annulling the alias writ of execution and
all proceedings subsequent thereto. Their two main theories: (1) They had returned
the machineries and farm implements to the Southern Motors Inc., the latter
accepted them, and had thereby settled their accounts; for that reason, said spouses
did not contest the action in Civil Case No. 2942; and (2) as the Southern Motors
Inc. had repossessed the machines purchased on installment (and mortgaged) the
buyers were thereby relieved from further responsibility, in view of the Recto Law,
now article 1484 of the New Civil Code.
For answer, the company denied the alleged "settlement and understanding" during
the pendency of civil case No. 2949. It also denied having repossessed the
machineries, the truth being that they were attached by the sheriff and then
deposited by the latter in its shop for safekeeping, before the sale at public auction.
The case was submitted for decision mostly upon a stipulation of facts. Additional
testimony was offered together with documentary evidence. Everything considered
the court entered judgment, saying in part;
The proceedings in Civil Case No. 2942 above referred to, were had in the
Court of First Instance (Branch 1) of the Province and of the City of Iloilo.
While this court (Branch IV) sympathizes with plaintiffs, it cannot grant, in
this action, the relief prayed for the complaint because courts of similar
jurisdiction cannot invalidate the judgments and orders of each other.
Plaintiffs have not pursued the proper remedy. This court is without
authority and jurisdiction to declare null and void the order directing the
issuance of alias writ of execution because it was made by another court of
equal rank and category (see Cabiao and Izquierdo vs. Del Rosario and Lim,
44 Phil., 82-186).
"What is being sought in this present action" say appellants "is to prohibit and forbid
the appellee Sheriff of Iloilo from attaching and selling at public auction sale the real
properties of appellants because that is now forbidden by our law after the chattels
that have been purchased and duly mortgagee had already been repossessed by the
same vendor-mortgagee and later on sold at public auction sale and purchased by
the same at such meager sum of P10,000."
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
The plaintiffs reasonably brought the matter to the Court of Appeals, but the latter
forwarded the expediente, being of the opinion that the appeal involved questions of
jurisdiction and/or law
Discussion. Appellants' brief elaborately explains in the nine errors assigned, their
original two theories although their "settlement" idea appears to be somewhat
modified.
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void. (New Civil Code.)
Appellants would invoke the last paragraph. But there has been no foreclosure of the
chattel mortgage nor a foreclosure sale. Therefore the prohibition against further
collection does not apply.
It is true that there was a chattel mortgage on the goods sold. But the Southern
Motors elected to sue on the note exclusively, i.e. to exact fulfillment of the
obligation to pay. It had a right to select among the three remedies established in
Article 1484. In choosing to sue on the note, it was not thereby limited to the
proceeds of the sale, on execution, of the mortgaged good. 2
In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation arose in
connection with the purchase on installment of a Chevrolet truck by Magbanua.
Upon the latter's default, suit on the note was filed, and the truck levied on together
with other properties of the debtor. Contending that the seller was limited to the
truck, the debtor obtained a discharge of the other properties. This court said:
By praying that the defendant be ordered to pay the sum of P4,690 together
with the stipulated interest at 12% per annum from 17 March 1954 until
fully paid, plus 10 per cent of the total amount due as attorney's fees and
cost of collection, the plaintiff acted to exact the fulfillment of the
obligation and not to foreclose the mortgage on the truck. . . .
As the plaintiff has chosen to exact the fulfillment of the defendant's
obligation, the former may enforce execution of the judgement rendered in
its favor on the personal and real properties of the latter not exempt from
execution sufficient to satisfy the judgment. That part of the
judgement depriving the plaintiff of its right to enforce judgment against
the properties of the defendant except the mortgaged truck and discharging
The trouble with the argument is that it assumes that acceptance of the goods by the
Southern Motors Co, with a view to "cancellation" of the sale. The company denies
such acceptance and cancellation, asserting the goods, were deposited in its shop
when the sheriff attached them in pursuance of the execution. Its assertion is backed
up by the sheriff, of whose credibility there is no reason to doubt. Anyway this
cancellation or settlement theory may not be heeded now, because it would
contravene the decision in Civil Case No. 2942 above-mentioned it would show
the Tajanlangits owned nothing to Southern Motors Inc. Such decision is binding
upon them, unless and until they manage to set it aside in a proper proceeding
and this is not it.
There are other points involved in the case, such as the authority of the judge of one
branch of a court of first instance to enjoin proceedings in another branch of the
same court. As stated, Judge Pelayo refused to interfere on that ground. Appellants
insist this was error on several counts. We deem it unnecessary to deal with this
procedural aspect, inasmuch as we find that, on the merits, plaintiffs are not entitled
to the relief demanded.
Judgment. The decision dismissing the complaint, is affirmed, with costs against
appellants. So ordered.
ESCOLIN, J.:
The issue posed in this petition for review of the decision of the respondent appellate
court is whether a vendor, or his assignee, who had cancelled the sale of a motor
vehicle for failure of the buyer to pay two or more of the stipulated installments, may
also demand payment of the balance of the purchase price.
The pertinent facts are summarized by the respondent appellate court as follows:
In their answer, the spouses Nonato alleged by way of defense that when the
company repossessed the vehicle, it had, by that act, effectively cancelled the sale of
the vehicle. It is therefore barred from exacting recovery of the unpaid balance of the
purchase price, as mandated by the provisions of Article 1484 of the Civil Code.
After due hearing, the trial court rendered a decision in favor of the IFC and against
the Nonatos, as follows:
The applicable law in the case at bar, involving as it does a sale of personal property
on installment, is Article 1484 of the Civil Code which provides:
The meaning of the aforequoted provision has been repeatedly enunciated in a long
line of cases. Thus: "Should the vendee or purchaser of a personal property default in
the payment of two or more of the agreed installments, the vendor or seller has the
option to avail of any of these three remedies-either to exact fulfillment by the
purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the
purchased personal property, if one was constituted. These remedies have been
recognized as alternative, not cumulative, that the exercise of one would bar the
exercise of the others.
It is not disputed that the respondent company had taken possession of the car
purchased by the Nonatos on installments. But while the Nonatos maintain that the
company had, by that act, exercised its option to cancel the contract of sale, the
company contends that the repossession of the vehicle was only for the purpose of
appraising its value and for storage and safekeeping pending full payment by the
Nonatos of the purchasing price. The company thus denies having exercised its right
to cancel the sale of the repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos when it took
possession of the vehicle states that the vehicle could be redeemed within fifteen [151
days. 3 This could only mean that should petitioners fail to redeem the car within the
aforesaid period by paying the balance of the purchase price, the company would
retain permanent possession of the vehicle, as it did in fact. This was confirmed by
Mr. Ernesto Carmona, the company's witness, who testified, to wit:
ATTY. PAMPLONA:
So that Mr. Witness, it is clear now that, per
your receipt and your answer, the company will
not return the unit without paying a sum of
money, more particularly the balance of the
account?
Respondent corporation further asserts that it repossessed the vehicle merely for the
purpose of appraising its current value. The allegation is untenable, for even after it
had notified the Nonatos that the value of the car was not sufficient to cover the
balance of the purchase price, there was no attempt at all on the part of the company
to return the repossessed car,
Indeed, the acts performed by the corporation are wholly consistent with the
conclusion that it had opted to cancel the contract of sale of the vehicle. It is thus
barred from exacting payment from petitioners of the balance of the price of the
vehicle which it had already repossessed. It cannot have its cake and eat it too.
SO ORDERED.
DE CASTRO, J:
Appeal from the decision of the Court of First Instance of Rizal, Branch I, in Civil
Case No. 9140 for annulment of contract, originally filed with the Court of Appeals
but was subsequently certified to this Court pursuant to Section 3 of Rule 50 of the
Rules of Court, there being no issue of fact involved in this appeal.
The materials facts of the case appearing on record may be stated as follows: On
April 14, 1964, plaintiffs purchased from the Supreme Sales arid Development
Corporation two (2) brand new Ford Consul Sedans complete with accessories, for
P26,887 payable in 24 monthly installments. To secure payment thereof, plaintiffs
executed on the same date a promissory note covering the purchase price and a deed
of chattel mortgage not only on the two vehicles purchased but also on another car
(Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by
the defunct Public Service Commission for the operation of a taxi fleet. Then, with
the conformity of the plaintiffs, the vendor assigned its rights, title and interest to
the above-mentioned promissory note and chattel mortgage to defendant Filipinas
Investment and Finance Corporation.
SECOND DIVISION
G.R. No. L-39806 January 27, 1983
LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D.
SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as
Sheriff, defendants-appellants.
Osmundo Victoriano for plaintiffs-appellees.
Wilhelmina V. Joven for defendant-appellants.
Due to the failure of the plaintiffs to pay their monthly installments as per
promissory note, the defendant corporation foreclosed the chattel mortgage extrajudicially, and at the public auction sale of the two Ford Consul cars, of which the
plaintiffs were not notified, the defendant corporation was the highest bidder and
purchaser. Another auction sale was held on November 16, 1965, involving the
remaining properties subject of the deed of chattel mortgage since plaintiffs'
obligation was not fully satisfied by the sale of the aforesaid vehicles, and at the
public auction sale, the franchise of plaintiffs to operate five units of taxicab service
was sold for P8,000 to the highest bidder, herein defendant corporation, which
subsequently sold and conveyed the same to herein defendant Jose D. Sebastian,
who then filed with the Public Service Commission an application for approval of
said sale in his favor.
On February 21, 1966, plaintiffs filed an action for annulment of contract before the
Court of First Instance of Rizal, Branch I, with Filipinas Investment and Finance
Corporation, Jose D. Sebastian and Sheriff Jose San Agustin, as party-defendants. By
agreement of the parties, the case was submitted for decision in the lower court on
the basis of the documentary evidence adduced by the parties during the pre-trial
conference. Thereafter, the lower court rendered judgment as follows:
From the foregoing judgment, defendants appealed to the Court of Appeals which, as
earlier stated, certified the appeal to this Court, appellants imputing to the lower
court five alleged errors, as follows:
From the aforequoted assignment of errors, the decisive issue for consideration is
the validity of the chattel mortgage in so far as the franchise and the subsequent sale
thereof are concerned.
The resolution of said issue is unquestionably governed by the provisions of Article
1484 of the Civil Code which states:
I
THE LOWER COURT ERRED IN DECLARING THE CHATTEL
MORTGAGE, EXHIBIT "C", NULL AND VOID.
II
THE LOWER COURT ERRED IN HOLDING THAT THE SALE AT
PUBLIC AUCTION CONDUCTED BY THE CITY SHERIFF OF
Under the above-quoted article of the Civil Code, the vendor of personal property the
purchase price of which is payable in installments, has the right, should the vendee
default in the payment of two or more of the agreed installments, to exact fulfillment
by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage
on the purchased personal property, if one was constituted. 1 Whichever right the
vendor elects, he cannot avail of the other, these remedies being alternative, not
cumulative. 2 Furthermore, if the vendor avails himself of the right to foreclose his
mortgage, the law prohibits him from further bringing an action against the vendee
for the purpose of recovering whatever balance of the debt secured not satisfied by
the foreclosure sale. 3 The precise purpose of the law is to prevent mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a low price and then
bringing suit against the mortgagor for a deficiency judgment, otherwise, the
mortgagor-buyer would find himself without the property and still owing practically
the full amount of his original indebtedness.
In the instant case, defendant corporation elected to foreclose its mortgage upon
default by the plaintiffs in the payment of the agreed installments. Having chosen to
foreclose the chattel mortgage, and bought the purchased vehicles at the public
auction as the highest bidder, it submitted itself to the consequences of the law as
specifically mentioned, by which it is deemed to have renounced any and all rights
which it might otherwise have under the promissory note and the chattel mortgage
as well as the payment of the unpaid balance.
Consequently, the lower court rightly declared the nullity of the chattel mortgage in
question in so far as the taxicab franchise and the used Chevrolet car of plaintiffs are
concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. vs.
Pacific Commercial Co., et al., 71 Phil. 587, the facts of which are similar to those in
the case at bar. There, we have the same situation wherein the vendees offered as
security for the payment of the purchase price not only the motor vehicles which
were bought on installment, but also a residential lot and a house of strong
materials. This Court sustained the pronouncement made by the lower court on the
nullity of the mortgage in so far as it included the house and lot of the vendees,
holding that under the law, should the vendor choose to foreclose the mortgage, he
has to content himself with the proceeds of the sale at the public auction of the
chattels which were sold on installment and mortgaged to him and having chosen
the remedy of foreclosure, he cannot nor should he be allowed to insist on the sale of
the house and lot of the vendees, for to do so would be equivalent to obtaining a writ
of execution against them concerning other properties which are separate and
distinct from those which were sold on installment. This would indeed be contrary to
public policy and the very spirit and purpose of the law, limiting the vendor's right to
foreclose the chattel mortgage only on the thing sold.
In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 SCRA 791,
this Court ruled that the vendor of personal property sold on the installment basis is
precluded, after foreclosing the chattel mortgage on the thing sold from having a
recourse against the additional security put up by a third party to guarantee the
purchaser's performance of his obligation on the theory that to sustain the same
would overlook the fact that if the guarantor should be compelled to pay the balance
of the purchase price, said guarantor will in turn be entitled to recover what he has
paid from the debtor-vendee, and ultimately it will be the latter who will be made to
bear the payment of the of the balance of the price, despite the earlier foreclosure of
the chattel mortgage given by him, thereby indirectly subverting the protection given
the latter. Consequently, the additional mortgage was ordered cancelled. Said ruling
was reiterated in the case of Pascual v. Universal Motors Corporation, 61 SCRA 121.
If the vendor under such circumstance is prohibited from having a recourse against
the additional security for reasons therein stated, there is no ground why such
vendor should not likewise be precluded from further extrajudicially foreclosing the
additional security put up by the vendees themselves, as in the instant case, it being
tantamount to a further action 5 that would violate Article 1484 of the Civil Code, for
then is actually no between an additional security put up by the vendee himself and
such security put up by a third party insofar as how the burden would ultimately fall
on the vendee himself is concerned.
Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168, that in sales
on installments, where the action instituted is for and the mortgaged property is
subsequently attached and sold, the sales thereof does not amount to a foreclosure of
the mortgage, hence, the seller creditor is entitled to a deficiency judgment, does not
for the stand of the appellants for that case is entirely different from the case at bar.
In that case, the vendor has availed of the first remedy provided by Article 1484 of
the Civil Code, i.e., to exact fulfillment of the obligation whereas in the present case,
the remedy availed of was foreclosure of the chattel mortgage.
The foregoing disposition renders superfluous a determination of the other issue
raised by the parties as to the validity of the auction sale, in so far as the franchise of
plaintiffs is concerned, which sale had been admittedly held without any notice to
the plaintiffs.
IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs
against the appellants.
SO ORDERED.
the Escao Enterprises in Cagayan de Oro City, dealer of respondent Luneta Motor
Company, under the following terms and conditions:
Selling price
P7,500.00
Financing charge
P1,426.82
P8,926.82
Payable
Delivery
on
P1,006.82
Payable
in
24
months at 12%
interest per annum
P7,920.00
The motor vehicle was delivered to the petitioner who 1) paid the initial payment in
the amount of P1,006.82; and 2) executed a promissory note in the amount of
P7,920.00, the balance of the total selling price, in favor of respondent Luneta Motor
Company. The promissory note stated the amounts and dates of payment of twentysix installments covering the P7,920.00 debt. Simultaneously with the execution of
the promissory note and to secure its payment, the petitioner executed a chattel
mortgage on the subject motor vehicle in favor of the respondent. After paying a total
amount of P3,148.00, the petitioner was unable to pay further monthly installments
prompting the respondent Luneta Motor Company to extra-judicially foreclose the
chattel mortgage (Annex "A" to Answer, Original Record, p. 10,supra). The motor
vehicle was sold at public auction with the respondent Luneta Motor Company
represented by Atty. Leandro B. Fernandez as the highest bidder in the amount of
P5,000.00 (Annex "B" to Answer, Original Record, p. 11,supra). Since the payments
made by petitioner Eutropio Zayas, Jr. plus the P5,000.00 realized from the
foreclosure of the chattel mortgage could not cover the total amount of the
promissory note executed by the petitioner in favor of the respondent Luneta Motor
Company, the latter filed Civil Case No. 165263 with the City Court of Manila for the
recovery of the balance of P1,551.74 plus interests.
Luneta Motor Company alleged in its complaint that defendant Eutropio Zayas, Jr.
executed a promissory note in the amount of P7,920.00 in its favor; that out of the
P7,920.00, Eutropio Zayas, Jr. had paid only P6,368.26 plus interest up to the date
of the sale at public auction of the motor vehicle; that the balance of P1,551.74 plus
interest of 12% thereon from that date had already become due and payable but
despite repeated demands to pay the same, Eutropio Zayas, Jr., refused and failed to
pay.
In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr.
admitted having executed the promissory note for the monthly payments, on a Ford
Thames vehicle bearing Engine No. 400E-127738 which he purchased from the
Luneta Motor Company but he denied his alleged outstanding liability of P1,551.74
plus interest thereon ... the said obligation if there was any, had already been
discharged either by payment or by sale in public auction of the said motor vehicle as
evidenced by a Notice of Sale marked as Annex "A" and Certificate of Sale marked as
Annex "B"; (Answer, p. 7, Original Record). He alleged as affirmative defenses,
among others: 1) that the plaintiff has no cause of action against him; and 2) that
pursuant to Article 1484 of the New Civil Code and the case ofPacific Commercial
Co. v. De La Rama, (72 Phil. 380) his obligation per the promissory note was
extinguished by the sale at public auction of the motor vehicle, the subject of the
chattel mortgage which was executed by him in favor of the plaintiff as security for
the payment of said promissory note. (Answer, p. 8, Original Record)
In its Reply, Luneta Motor Company denied the applicability of Article 1484 of the
Civil Code ... for the simple reason that the contract involved between the parties is
not one for a sale on installment" (Reply, p. 13, Original Record).
After several postponements, the case was set for hearing. As a result of the nonappearance of the plaintiff and its counsel on the date set for hearing, defendant
Zayas, Jr. moved to have the case dismissed for lack of interest on the part of the
plaintiff. He also asked the court to allow him to discuss the merits of his affirmative
defense as if a motion to dismiss had been filed. The issue raised and argued by the
defendant was whether or not a deficiency amount after the motor vehicle, subject of
the chattel mortgage, has been sold at public auction could still be recovered. Zayas
cited the case of Ruperto Cruz v. Filipinas Investment (23 SCRA 791).
Acting on the motion, the city court issued an Order:
On Petition of counsel for the defendant for the dismissal of this
case on the ground that the defendant is no longer liable for the
deficiency judgment inas much as the chattel mortgage has been
foreclosed, with the plaintiff as the highest bidder thereof, citing
the case of Ruperto G. Cruz v. Filipinas Investmentdecided on
May 27, 1968, G.R. No. L-24772 in connection with Article 1484 of
the Civil Code, and finding the same well taken.
Let this case be dismissed without pronouncement as to costs.
Luneta Motor Company filed an "Urgent Motion for Reconsideration" reiterating its
stand that Article 1484 of the New Civil Code on sale of personal property by
installment was not applicable and that the contract involving the parties was a mere
case of an ordinary loan secured by chattel mortgage. According to the plaintiff, the
defendant executed the promissory note and chattel mortgage to secure the
plaintiff's interest for having financed the purchase of the motor vehicle by the
defendant from the Escao Enterprises of Cagayan de Oro City, an entity entirely
different and distinct from the plaintiff corporation (p. 33, Original Record).
The court denied the motion for reconsideration for lack of merit.
Luneta Motor Company appealed the case to the Court of First Instance of Manila
where it was docketed as Civil Case No. 74381.
After various incidents, the respondent court issued an order which, in part, reads:
This is an appeal taken by plaintiff from the order of the City Court
of Manila, dismissing its complaint on the ground that the
defendant is no longer liable for the deficiency judgment inasmuch
as the chattel mortgage has been foreclosed, with the plaintiff as
the highest bidder thereof, in line with the ruling of the Supreme
Court in the case of Ruperto G. Cruz v. Filipinas Investment (G.R.
No. L24772) in connection with Article 1484 of the Civil Code.
xxx xxx xxx
After going over the pleadings in this case, more particularly the
complaint and the answer to the complaint filed with the City
Court of Manila, this Court is of the impression that the case at bar
may not be decided merely, as the City Court had done, on the
question of law since the presentation of evidence is necessary to
adjudicate the questions involved. WHEREFORE, this case is
hereby remanded to the court of origin for further proceedings.
(pp. 82-83, Original Record)
Hence, this petition.
Petitioner Eutropio Zayas, Jr. now maintains:
That Respondent Court of First Instance erred:
1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE
DECIDED SINCE PRESENTATION OF EVIDENCE IS
NECESSARY- REGARDING THE QUESTION OF RECOVERY OF
THE DEFICIENCY AMOUNT IN A CHATTEL MORTGAGE
AFTER SELLING IT IN A PUBLIC AUCTION;
2. IN ORDERING THE REMAND OF THE CASE TO THE CITY
COURT FOR FURTHER PROCEEDINGS TAKEN BY THE
RESPONDENT FROM THE CITY COURT TO THE COURT OF
FIRST INSTANCE, BRANCH XXI, MANILA; and
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE PRIVATE
RESPONDENT FROM THE CITY COURT TO THE COURT OF
FIRST INSTANCE.
The main defense of respondent Luneta Motor Company is that Escano Enterprises,
Cagayan de Oro City from which petitioner Eutropio Zayas, Jr. purchased the subject
motor vehicle was a distinct and different entity; that the role of Luneta Motor
Company in the said transaction was only to finance the purchase price of the motor
vehicle; and that in order to protect its interest as regards the promissory note
executed in its favor, a chattel mortgage covering the same motor vehicle was also
executed by petitioner Eutropio Zayas, Jr. In short, respondent Luneta Motor
Company maintains that the contract between the company and the petitioner was
only an ordinary loan removed from the coverage of Article 1484 of the New Civil
Code.
The respondent's arguments have no merit.
The Escao Enterprises of Cagayan de Oro City was an agent of Luneta Motor
Company. A very significant evidence which proves the nature of the relationship
between Luneta Motor Company and Escao Enterprises is Annex "A. of the
petitioner's OPPOSITION TO URGENT MOTION FOR RECONSIDERATION.
(Original Record, p. 36) Annex "A" is a Certification from the cashier of Escano
Enterprises on the monthly installments paid by Mr. Eutropio Zayas, Jr. In the
certification, the promissory note in favor of Luneta Motor Company was specifically
mentioned. There was only one promissory note executed by Eutropio Zayas, Jr. in
connection with the purchase of the motor vehicle. The promissory note mentioned
in the certification refers to the promissory note executed by Eutropio Zayas, Jr. in
favor of respondent Luneta Motor Company. Thus:
CERTIFICATION
This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid from us
the following, of his FORD THAMES BEARING Engine No. 400E127738, promissory note dated October 6, 1966. Viz:
ESCAO ENTERPRISES
(SGD.) EMELITA H. BACULIO
Cashier
Escano Enterprises, a dealer of respondent Luneta Motor Company, was merely a
collecting-agent as far as the purchase of the subject motor vehicle was concerned.
The principal and agent relationship is clear.
But even assuming that the "distinct and independent entity" theory of the private
respondent is valid, the nature of the transaction as a sale of personal property on
installment basis remains. When, therefore, Escao Enterprises, assigned its rights
vis-a-vis the sale to respondent Luneta Motor Company, the nature of the
transaction involving Escano Enterprises and Eutropio Zayas, Jr. did not change at
all. As assignee, respondent Luneta Motor Company had no better rights than
assignor Escao Enterprises under the same transaction. The transaction would still
be a sale of personal property in installments covered by Article 1484 of the New
Civil Code. To rule otherwise would pave the way for subverting the policy
underlying Article 1484 of the New Civil Code, on the foreclosure of chattel
mortgages over personal property sold on installment basis.
ART. 1484. In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of
the following remedies:
WHEREFORE, the instant petition is hereby granted. The orders remanding the case
to the court of origin and denying the motion for reconsideration of the Court of First
Instance of Manila, Branch XXI issued in Civil Case No. 74381 are annulled.
Accordingly, the Court of First Instance of Manila, Branch XXI is directed to dismiss
the appeal in Civil Case No. 74381. The Order of the City Court of Manila dismissing
the complaint in Civil Case No. 165263 is affirmed.
... the established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not so satisfied by the sale. And the reason for
this doctrine was aptly stated in the case of Bachrach Motor Co. vs. Millan, supra,
thus:
Undoubtedly the principal object of the above
amendment was to remedy the abuses
committed in connection with the foreclosure of
chattel mortgages. This amendment prevents
mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low
price and then bringing suit against the
mortgagor for a deficiency judgment. The
almost invariable result of this procedure was
that the mortgagor found himself minus the
property and still owing practically the full
amount of his original indebtedness. Under this
amendment the vendor of personal property, the
purchase price of which is payable in
installments, has the right to cancel the sale or
foreclose the mortgage if one has been given on
the property. Whichever right the vendor elects
he need not return to the purchaser the amount
of the installments already paid, "if there be an
agreement to that effect". Furthermore, if the
vendor avails himself of the right to foreclose the
mortgage this amendment prohibits him from
bringing an action against the purchaser for the
unpaid balance. (Cruz v. Filipinas Investment &
Finance Corporation, 23 SCRA 791)
Our findings and conclusions are borne out by the records available to the
respondent court. There was no necessity for the remand of records to the city court
for the presentation of evidence on the issue raised in the case.
SO ORDERED.
VILLAMOR, J.:
Direct appeal on questions of law from the portion of the judgment of the Court of
First Instance of Manila, Branch XXII, in its Civil Case No. 66199, ordering the
plaintiff to pay defendant Casiano Sapinoso the sum of P1,250.00.
The facts of this case are as follows:
On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc. an Opel
Kadett car for the price of P12,171.00, making a down payment and executing a
promissory note for the balance of P10,540.00 payable in installments with interest
at 12% per annum, as follows: P361.00 on July 5, 1965, and P351.00 on the 5th day
of each month beginning August, 1965, up to and including December, 1967. To
secure the payment of the promissory note, Sapinoso executed in favor of Northern
Motors, Inc. a chattel mortgage on the car. The mortgage contract provided, among
others, that upon default by the mortgagor in the payment of any part of the
principal or interest due, the mortgagee may elect any of the following remedies: (a)
sale of the car by the mortgagee; (b) cancellation of the contract of sale; (c)
extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary civil action to exact
fulfillment of the mortgage contract. It was further stipulated that "[w]hichever
remedy is elected by the mortgagee, the mortgagor expressly waives his right to
reimbursement by the mortgagee of any and all amounts on the principal and
interest already paid by him."
Sapinoso failed to pay the first installment of P361.00 due on July 5, 1965, and the
second, third, fourth and fifth installments of P351.00 each due on the 5th day of
August, September, October and November, 1965, respectively. Several payments
were, however, made by Sapinoso, to wit: P530.52 on November 21, 1965, P480.00
on December 21, 1965, and P400.00 on April 30, 1966. The first and third payments
aforesaid were applied to accrued interest up to April 17, 1966, while the second
payment was applied partly (P158.10) to interest, and partly (P321.90) to the
principal, thereby reducing the balance unpaid to P10,218.10.
Subsequent to the commencement of the action, but before the filing of his answer,
defendant Sapinoso made two payments on the promissory note, the first on August
22, 1966, for P500.00, and the second on September 27, 1966, for P750.00. In the
meantime, on August 9, 1966, upon the plaintiff's filing of a bond, a writ of replevin
was issued by the court. On October 20, 1966, copies of the summons, complaint and
annexes thereto were served on defendant Sapinoso by the sheriff who executed the
seizure warrant by seizing the car from defendant Sapinoso on the same date, and
turning over its possession to the plaintiff on October 25, 1966.
On November 12, 1966, defendant Sapinoso filed an answer admitting the allegations
in the complaint with respect to the sale to him of the car, the terms thereof, the
execution of the promissory note and of the chattel mortgage contract, and the
options open to the plaintiff under the said contract. He alleged, however, that he
had paid the total sum of P4,230.52, leaving a balance of only P5,987.58; that upon
demand he immediately surrendered the possession of the car to the plaintiff's
representative; and that the value of the car was only about P5,000.00, and not
P10,000.00 as alleged in the complaint. As special defenses the said defendant
alleged that he failed to pay the installments due because the car was defective, and
the plaintiff failed to have it fixed although he had repeatedly called the plaintiff's
attention thereto, hence, the defendant had to procrastinate in his payments in order
to move the plaintiff to repair the car; and that although the car could not be used, he
paid P700.00 to the plaintiff upon the latter's assurance that the car would be fixed,
but that instead of having the car fixed, the plaintiff, in bad faith, filed the present
complaint. The defendant prayed that the complaint be dismissed and that the
plaintiff be ordered to return the car to him. He stated in his prayer that he would be
very much willing to pay the car in a compromise agreement between him and the
plaintiff.
After trial, the court a quo, in its decision dated April 4, 1967, held that defendant
Sapinoso having failed to pay more than two (2) installments, plaintiff-mortgagee
acquired the right to foreclose the chattel mortgage, which it could avail of as it
has done in the present case by filing an action of replevin to secure possession of
the mortgaged car as a preliminary step to the foreclosure sale contemplated in the
Chattel Mortgage Law; and that the foreclosure of the chattel mortgage and the
recovery of the unpaid balance of the price are alternative remedies which may not
be pursued conjunctively, so that in availing itself of its right to foreclose the chattel
mortgage, the plaintiff thereby renounced whatever claim it may have had on the
promissory note, and, therefore, the plaintiff has no more right to the collection of
the attorney's fees stipulated in the promissory note, and should return to defendant
Sapinoso the sum of P1,250.00 which the plaintiff had received from the latter after
having filed the present case on July 22, 1966, and elected to foreclose the chattel
mortgage. The dispositive portion of the decision reads:
WHEREFORE, the Court finds that the plaintiff has the right to
the possession of the OPEL KADETT two-door station wagon
Model
3464-91.5,
with
engine
No.
10-0354333, and the delivery thereof to the plaintiff is hereby
ratified and confirmed but said party is sentenced to pay to the
defendant the sum of P1,250, with legal interest on P500 from
August 22, 1966 and or P750 from September 27, 1966, until fully
paid, without any pronouncement as to costs.
In this appeal plaintiff-appellant claims that the court a quo erred in ordering it to
reimburse to defendant-appellee Sapinoso the sum of P1,250.00 which the latter had
paid. It contends that under Article 1484 of the Civil Code it is the exercise, not the
mere election, of the remedy of foreclosure that bars the creditor from recovering the
unpaid balance of the debt; that what the said Article 1484 prohibits is "further
action" to collect payment of the deficiency after the creditor has foreclosed the
mortgage; and that in paying plaintiff-appellant the sum of P1,250.00 before
defendant-appellee Sapinoso filed his answer, and in not filing a counterclaim for the
recovery thereof, the said defendant-appellee in effect renounced whatever right he
might have had to recover the said amount.
there has not yet been a foreclosure sale resulting in a deficiency. The payment of the
sum of P1,250.00 by defendant-appellee Sapinoso was a voluntary act on his part
and did not result from a "further action" instituted by plaintiff-appellant. If the
mortgage creditor, before the actual foreclosure sale, is not precluded from
recovering the unpaid balance of the price although he has filed an action of replevin
for the purpose of extrajudicial foreclosure, or if a mortgage creditor who has elected
to foreclose but who subsequently desists from proceeding with the auction sale,
without gaining any advantage or benefit, and without causing any disadvantage or
harm to the vendee-mortgagor, is not barred from suing on the unpaid account
(Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563, April 27, 1963 [7 SCRA 804,
807]), there is no reason why a mortgage creditor should be barred from accepting,
before a foreclosure sale, payments voluntarily tendered by the debtor-mortgagor
who admits a subsisting indebtedness.
EN BANC
G.R. No. L-24772
Appeal interposed by Filipinas Investment & Finance Corporation from the decision
of the Court of First Instance of Rizal (Quezon City) in Civil Case No. Q-7949.
In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes in the
Court of First Instance of Rizal (Civil Case No. Q-7949), for cancellation of the real
estate mortgage constituted on the land of the latter 1 in favor of defendant Filipinas
Investment & Finance Corporation (as assignee of the Far East Motor Corporation),
the parties submitted the case for decision on the following stipulation of facts:
3. That to secure the payment of the promissory note, Annex "A", Cruz
executed in favor of the seller, Far East Motor Corporation, a chattel
mortgage over the aforesaid motor vehicle...;
4. That as no down payment was made by Cruz, the seller, Far East Motor
Corporation, on the very improvements thereon, in San Miguel, Bulacan...;
same date, July 15, 1963, required and Cruz agreed to give, additional
security for his obligation besides the chattel mortgage, Annex "B"; that
said additional security was given by plaintiff Felicidad Vda. de Reyes in the
form of SECOND MORTGAGE on a parcel of land owned by her, together
with the building and
5. That said land has an area of 68,902 square meters, more or less, and
covered by Transfer Certificate of Title No. 36480 of the Registry of Deeds
of Bulacan in the name of plaintiff Mrs. Reyes; and that it was at the time
mortgaged to the Development Bank of the Philippines to secure a loan of
P2,600.00 obtained by Mrs. Reyes from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for value
received indorsed the promissory note and assigned all its rights and
interest in the Deeds of Chattel Mortgage and in the Deed of Real Estate
10. That the proceeds of the sale of the bus were not sufficient to cover the
expenses of sale, the principal obligation, interests, and attorney's fees, i.e.,
they were not sufficient to discharge fully the indebtedness of plaintiff Cruz
to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real estate
mortgage on Mrs. Reyes' land, defendant paid the mortgage indebtedness
of Mrs. Reyes to the Development Bank of the Philippines, in the sum of
P2,148.07, the unpaid balance of said obligation...;
constituted on the land of said plaintiff was ordered cancelled and defendant was
directed to pay the plaintiffs attorney's fees in the sum of P200.00. Defendant filed
the present appeal raising the same questions presented in the lower court.
13. That notices of sale were duly posted and served to the Mortgagor, Mrs.
Reyes, pursuant to and in compliance with the requirements of Act 3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter
to the defendant asking for the cancellation of the real estate mortgage on
her land, but defendant did not comply with such demand as it was of the
belief that plaintiff's request was without any legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan
held in abeyance the sale of the mortgaged real estate pending the result of
this action.
Passing upon the issues which, by agreement of the parties, were limited to (1)
"Whether defendant, which has already extrajudicially foreclosed the chattel
mortgage executed by the buyer, plaintiff Cruz, on the bus sold to him on
installments, may also extrajudicially foreclose the real estate mortgage constituted
by plaintiff Mrs. Reyes on her own land, as additional security, for the payment of
the balance of Cruz' Obligation, still remaining unpaid"; and (2) whether or not the
contending parties are entitled to attorney's fees the court below, in its decision of
April 21, 1965, sustained the plaintiffs' stand and declared that the extrajudicial
foreclosure of the chattel mortgage on the bus barred further action against the
additional security put up by plaintiff Reyes. Consequently, the real estate mortgage
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
The aforequoted provision is clear and simple: should the vendee or purchaser of a
personal property default in the payment of two or more of the agreed installments,
the vendor or seller has the option to avail of any one of these three remedies
either to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or
It is here agreed that plaintiff Cruz failed to pay several installments as provided in
the contract; that there was extrajudicial foreclosure of the chattel mortgage on the
said motor vehicle; and that defendant-appellant itself bought it at the public auction
duly held thereafter, for a sum less than the purchaser's outstanding obligation.
Defendant-appellant, however, sought to collect the supported deficiency by going
against the real estate mortgage which was admittedly constituted on the land of
plaintiff Reyes as additional security to guarantee the performance of Cruz'
obligation, claiming that what is being withheld from the vendor, by the proviso of
Article 1484 of the Civil Code, is only the right to recover "against the purchaser",
and not a recourse to the additional security put up, not by the purchaser himself,
but by a third person.
The word "action" is without a definite or exclusive meaning. It has been invariably
defined as
... the legal demand of one's right, or rights; the lawful demand of one's
rights in the form given by law; a demand of a right in a court of justice; the
lawful demand of one's right in a court of justice; the legal and formal
demand of ones rights from another person or party, made and insisted on
in a court of justice; a claim made before a tribunal; an assertion in a court
of justice of a right given by law; a demand or legal proceeding in a court of
justice to secure one's rights; the prosecution of some demand in a court of
justice; the means by which men litigate with each other; the means that the
law has provided to put the cause of action into effect;.... (Gutierrez
Hermanos vs. De la Riva, 46 Phil. 827, 834-835).
Considering the purpose for which the prohibition contained in Article 1484 was
intended, the word "action" used therein may be construed as referring to any
judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be
enabled to exact recovery of the supposed unsatisfied balance of the purchase price
from the purchaser or his privy. Certainly, an extrajudicial foreclosure of a real estate
mortgage is one such proceeding.
The provision of law and jurisprudence on the matter being explicit, so that this
litigation could have been avoided, the award by the lower court of attorney's fees to
the plaintiff's in the sum of P200.00 is reasonable and in order.
However, we find merit in appellant's complaint against the trial court's failure to
order the reimbursement by appellee Vda. de Reyes of the amount which the former
paid to the Development Bank of the Philippines, for the release of the first mortgage
on the land of said appellee. To the extent that she was benefited by such payment,
plaintiff-appellee Vda. de Reyes should have been required to reimburse the
appellant.
WHEREFORE, the decision appealed from is modified, by ordering plaintiffappellee Felicidad Vda. de Reyes to reimburse to defendant-appellant Filipinas
Investment & Finance Corporation the sum of P2,148.07, with legal interest thereon
from the finality of this decision until it is fully paid. In all other respects, the
judgment of the court below is affirmed, with costs against the defendant-appellant.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ.,
concur.
Fernando, J., is on leave.
[G.R. No. 106418. July 11, 1996]
'For value received (installment price of the chattel/s purchased), I/We jointly and
severally promised to pay Pangasinan Auto Mart, Inc. or order, at its office at NMI
Bldg. Buendia Avenue, Makati, MM the sum of One Hundred Twenty Two Thousand
Eight Hundred Fifty Six only (P122,856.00), Philippine Currency, to be payable
without need of notice or demand, in installments of the amounts following and at
the dates hereinafter set forth, to wit: P10,238.00 monthly for Twelve (12) months
due and payable on the 7 day of each month starting January, 1985, provided that a
late payment charge of 3% per month shall be added on each unpaid installment
from due date thereof until fully paid.
DECISION
VITUG, J.:
From the decision of the Court of Appeals in CA-G.R. CV No. 30693 which
affirmed that of the Regional Trial Court, NCJR, Branch 39, Manila, in Civil Case No.
85-29954, confirming the disputed possession of a motor vehicle in favor of private
respondent and ordering the payment to it by petitioners of liquidated damages and
attorney's fees, the instant appeal was interposed.
The appellate court adopted the factual findings of the court a quo, to wit:
"The plaintiff's evidence shows among others that on December 7, 1984, defendants
Daniel L. Borbon and Francisco Borbon signed a promissory note (Exh. A) which
states among others as follows:
"'PROMISSORY NOTE
Acct.
Makati,
Philippines
December 7, 1984
'P122,856.00
No.
Metro
115008276
Manila,
'It is further agreed that if upon such default, attorney's services are availed of, an
additional sum equal to twenty five percent (25%) of the total sum due thereon,
which shall not be less than five hundred pesos, shall be paid to the holder hereof for
attorney's fees plus an additional sum equivalent to twenty five percent (25%) of the
total sum due which likewise shall not be less than five hundred pesos for liquidated
damages, aside from expenses of collection and the legal costs provided for in the
Rules of Court.
'It is expressly agreed that all legal actions arising out of this note or in connection
with the chattel(s) subject hereof shall only be brought in or submitted to the
jurisdiction of the proper court either in the City of Manila or in the province,
municipality or city where the branch of the holder hereof is located.
'Acceptance by the holder hereof of payment of any installment or any part thereof
after due dated (sic) shall not be considered as extending the time for the payment or
any of the installments aforesaid or as a modification of any of the conditions
hereof. Nor shall the failure of the holder hereof to exercise any of its right under this
note constitute or be deemed as a waiver of such rights
"To secure the Promissory Note, the defendants executed a Chattel Mortgage (Exh.
B) on
'One
(1)
Brand
new
1984
KCD
20
Crew
Cab
Serial
No.
KC20D0F
Key No. 5509
'Maker:
Isuzu
(Conv.)
207685
"The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit
Corporation on December 10, 1984, with notice to the defendants (Exh. C, p. 10,
Record).
"On March 21, 1985, Filinvest Credit Corporation assigned all its rights, interest and
title over the Promissory Note and the chattel mortgage to the plaintiff (Exh. D; p. 3,
tsn, Sept. 30, 1985).
(illegible) ____(illegible)_____
'PAY
TO
THE
FILINVEST CREDIT CORPORATION
ORDER
OF
"The promissory note stipulates that the installment of P10,238.00 monthly should
be paid on the 7th day of each month starting January 1985, but the defendants
failed to comply with their obligation (p. 3, tsn, Sept. 30, 1985).
DULCE
"After the accounts were assigned to the plaintiff, the plaintiff attempted to collect by
sending a demand letter to the defendants for them to pay their entire obligation
which, as of March 12, 1985, totaled P185,257.80 (Exh. H; pp. 3-4, tsn, Sept. 30,
1985).
"For their defense, the defendants claim that what they intended to buy from
Pangasinan Auto Mart was a jeepney type Isuzu K. C. Cab. The vehicle that they
bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985).Instead, through
misrepresentation and machination, the Pangasinan Motor, Inc. delivered an Isuzu
crew cab, as this is the unit available at their warehouse. Later the representative of
Pangasinan Auto Mart, Inc. (assignor) told the defendants that their available stock
is an Isuzu Cab but minus the rear body, which the defendants agreed to deliver with
the understanding that the Pangasinan Auto Mart, Inc. will refund the defendants
the amount of P10,000.00 to have the rear body completed (pp. 12-34, Exhs. 2 to 33A).
"Despite Communications with the Pangasinan Auto Mart, Inc., the latter was not
able to replace the vehicle until the vehicle delivered was seized by order of this
court. The defendants argue that an assignee stands in the place of an assignor
which, to the mind of the court, is correct. The assignee exercise all the rights of the
assignor (Gonzales vs. Rama Plantation Co., C.V. 08630, Dec. 2, 1986).
"The defendants further claim that they are not in default of their obligation because
the Pangasinan Auto Mart was first guilty of not fulfilling its obligation in the
contract. The defendants claim that neither party incurs delay if the other does not
comply with his obligation. (citing Art. 1169, N.C.C.)"[1]
In sustaining the decision of the court a quo, the appellate court ruled that
petitioners could not avoid liability under the promissory note and the chattel
mortgage that secured it since private respondent took the note for value and in good
faith.
The remedies under Article 1484 of the Civil Code are not cumulative but
alternative and exclusive,[2] which means, as so held in Nonato vs. Intermediate
Appellate Court and Investor's Finance Corporation,[3] that
"x x x Should the vendee or purchaser of a personal property default in the payment
of two or more of the agreed installments, the vendor or seller has the option to avail
of any of these three remedies either to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These remedies have been recognized as
alternative, not cumulative, that the exercise of one would bar the exercise of the
others."[4]
When the seller assigns his credit to another person, the latter is likewise
bound by the same law. Accordingly, when the assignee forecloses on the mortgage,
there can be no further recovery of the deficiency, [5] and the seller-mortgagee is
deemed to have renounced any right thereto.[6] A contrario, in the event the sellermortgagee first seeks, instead, the enforcement of the additional mortgages,
guarantees or other security arrangements, he must then be held to have lost by
waiver or non-choice his lien on the chattel mortgage of the personal property sold
by any mortgaged back to him, although, similar to an action for specific
performance, he may still levy on it.
The parties here concede that the action for replevin has been instituted for the
foreclosure of the vehicle in question (now in the possession of private
respondent). The sole issue raised before us in this appeal is focused on the legal
propriety of the affirmance by the appellate court of the awards made by the court a
quo of liquidated damages and attorney's fees to private respondent.Petitioners hold
that under Article 1484 of the Civil Code, aforequoted, the vendor-mortgagee or its
assignees loses any right "to recover any unpaid balance of the price" and any
"agreement to the contrary (would be) void."
The argument is aptly made. In Macondray & Co. vs. Eustaquio[9] we have said
that the phrase "any unpaid balance" can only mean the deficiency judgment to
which the mortgagee may be entitled to when the proceeds from the auction sale are
insufficient to cover the "full amount of the secured obligation which x x x include
interest on the principal, attorney's fees, expenses of collection, and costs." In sum,
we have observed that the legislative intent is not to merely limit the proscription of
any further action to the "unpaid balance of the principal" but, as so later ruled
in Luneta Motor Co. vs. Salvador,[10] to all other claims that may likewise be called for
in the accompanying promissory note against the buyer-mortgagor or his guarantor,
including costs and attorney's fees.
In Filipinas Investment & Finance Corporation vs. Ridad [11] while we reiterated
and expressed our agreement on the basic philosophy behind Article 1484, we
stressed, nevertheless, that the protection given to the buyer-mortgagor should not
be considered to be without circumscription or as being preclusive of all other laws
or legal principles. Hence, borrowing from the examples made inFilipinas
Investment, where the mortgagor unjustifiably refused to surrender the chattel
subject of the mortgage upon failure of two or more installments, or if he concealed
the chattel to place it beyond the reach of the mortgagee, that thereby constrained
the latter to seek court relief, the expenses incurred for the prosecution of the case,
such as attorney's fees, could rightly be awarded.
Private respondent bewails the instant petition in that petitioners have failed to
specifically raise the issue on liquidated damages and attorney's fees stipulated in the
actionable documents. In several cases, we have ruled that as long as the questioned
items bear relevance and close relation to those specifically raised, the interest of
justice would dictate that they, too, must be considered and resolved and that the
rule that only theories raised in the initial proceedings may be taken up by a party
thereto on appeal should only refer to independent, not concomitant matters, to
support or oppose the cause of action. [12]
Given the circumstances, we must strike down the award for liquidated
damages made by the court a quo but we uphold the grant of attorney's fees which
we, like the appellate court, find to be reasonable. Parenthetically, while the
promissory note may appear to have been a negotiable instrument, private
respondent, however, clearly cannot claim unawareness of its accompanying
documents so as to thereby gain a right greater than that of the assignor.
SO ORDERED.
costs. The defendant was duly summoned, but he failed to appear or file his answer,
wherefore he was declared in default and the appealed judgment was rendered
accordingly.
for
appellant.
The plaintiff sold the defendant a De Soto car, Sedan, for the price of which, P595, he
executed in its favor the note of May 22, 1934. Under this note, the defendant
undertook to pay the car in twelve monthly installments, with 12 percent interest per
annum, and likewise agreed that, should he fail to pay any monthly installment
together with interest, the remaining installment would become due and payable,
and the defendant shall pay 20 per cent upon the principal owning as attorney's fees,
expenses of collection which the plaintiff might incur, and the costs. To guarantee
the performance of his obligation under the note, the defendant on the same date
mortgaged the purchased car in favor of the plaintiff, and bound himself under the
same conditions stipulated in the note relative to the monthly installments, interest,
attorney's fees, expenses of collection, and costs. The mortgage deed was registered
on June 11, 1934, in the office of the register of deeds of the Province of Rizal. On the
22d of the same month, the defendant paid P43.75 upon the first installment, and
thereafter failed to pay any of the remaining installments. In accordance with the
terms of the mortgage, the plaintiff called upon the sheriff to take possession of the
car, but the defendant refused to yield possession thereof, whereupon, the plaintiff
brought the replevin sought and thereby succeeded in getting possession of the car.
The car was sold at public auction to the plaintiff for P250, the latter incurring legal
expenses in the amount of P10.68, According to the liquidation filed by the plaintiff,
the defendant was still indebted in the amount of P342.20, interest at 12 per cent
from November 20, 1934, P110.25 as attorney's fees, and the costs.
IMPERIAL, J.:
This is an appeal taken by the plaintiff corporation from the judgment of the Court of
First Instance of Manila dismissing its complaint, without costs.
The plaintiff brought the action against the defendant to obtain the possession of an
automobile mortgaged by the latter, and to recover the balance owing upon a note
executed by him, the interest thereon, attorney's fees, expenses of collection, and the
Under section 128 of our Civil Procedure, the judgment by default against a
defendant who has neither appeared nor filed his answer does not imply a waiver of
right except that of being heard and of presenting evidence in his favor. It does not
imply admission by the defendant of the facts and causes of action of the plaintiff,
because the codal section requires the latter to adduce his evidence in support of his
allegation as an indispensable condition before final judgment could be given in his
favor. Nor could it be interpreted as an admission by the defendant that the
plaintiff's causes of action find support in the law or that latter is entitled to the relief
prayed for. (Chaffin vs. Mac Fadden, 41 Ark., 42; Johnson vs. Peirce, 12 Ark., 599;
Mayden vs. Johnson, 59 Ga., 105; Peo. vs. Rust, 292 Ill., 412; Madison County vs.
Smith, 95 Ill., 328; Keen vs. Krempel, 166 Ill. A., 253.) For these reason, we hold that
the defendant did not waive the applicant by the court of Act No. 4122, and that the
first assignment of error is untenable.
II. The plaintiff contends in its second assignment of error that Act No. 4122 is
invalid because it takes property without due process of law, denies the equal
protection of the laws, and impairs the obligations of contract, thereby violating the
provisions of section 3 of the Act of the United States Congress of August 29, 1916,
known as the Jones Law. This is not the first time that the constitutionality of the
said law has been impugned for like reasons. InManila Trading and Supply Co. vs.
Reyes (64 Phil. 461), the validity of the said law was already passed upon when it was
questioned for the same reason here advanced. In resolving the question in favor of
the validity of the law, we then held: "2. Liberty of contract, class legislation, and
equal protection of the laws. The question of the validity of an act is solely one of
constitutional power. Questions of expediency, of motive or of results are irrelevant.
Nevertheless it is not improper to inquire as to the occasion for the enactment of a
law. The legislative purpose thus disclosed can then serve as a fit background for
constitution inquiry.
"Act No. 4122 aims to correct a social and economic evil, 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. For instance, a company sells a truck for P6,500.
The purchaser makes a down payment of P500, the balance to be
paid in twenty-four equal installments of P250 each. Pursuant to
the practice before the enactment of Act No. 4122, if the purchaser
fails to pay the first two installments, the company takes
possession of the truck and has it sold at public auction at which
sale it purchases the truck for a nominal price, at most P500,
without prejudice to its right to collect the balance of P5,500, plus
interest, costs. and attorney's fees. As a consequence, the vendor
does not only recover the goods sold, used hardly two months
perhaps with only slight wear and tear, but also collects the entire
stipulated purchase price, probably swelled up fifty per cent
including interest, costs, and attorney's fees. This practice is worse
than usurious in many instances. And although, of course, the
purchaser must suffer the consequences of his imprudence and
lack of foresight, the chastisement must not be to the extent of
ruining him completely and, on the other hand, enriching the
vendor in a manner which shocks the conscience. The object of the
law is highly commendable. As to whether or not the means
employed to do away with the evil above mentioned are arbitrary
will be presently set out."
In a case which reached this court, Mr. Justice Goddard, interpreting Act
No. 4122, made the following observations:
Judge Moran in fact instances had the following to say relative to the reason
for the enactment of Act No. 4122:
"Undoubtedly the principal object of the above amendment was to
remedy the abuses committed in connection with the foreclosure
of chattel mortgages. This amendment prevents mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a
low price and then bringing suit against the mortgagor for a
deficiency judgment. The almost invariable result of this
procedure was that the mortgagor found himself minus the
property and still owing practically the full amount of his original
indebtedness. Under this amendment the vendor of personal
property, the purchase price of which is payable in installments,
has the right to cancel the sale or foreclose the mortgage if one has
been given on the property. Whichever right the vendor elects he
need not return to the purchaser the amount of the full installment
already paid, "if there be an agreement to that effect."
Furthermore, if the vendor avails himself of the right from
foreclose the mortgage this amendment prohibits him from
bringing an action against the purchaser for the unpaid balance."
"In other words, under this amendment, in all proceedings for the
foreclosure of chattel mortgages, executed on chattels which have
been sold on the installment plan, the mortgagee is limited to the
property included in the mortgage" (Bachrach Motor Co. vs.
Millan [1935]. 61 Phil., 409.).
Public policy having thus had in view the objects just outlined, we should
next examine the law to determine if notwithstanding that policy, it violates
any of the constitutional principles dealing with the three general subjects
here to be considered.
In 1897, an Act was passed in the State of Washington which provided "that
in all proceedings for the foreclosure of mortgages hereafter executed or on
judgments rendered upon the debt thereby secured the mortgagee or
assignee shall be limited to the property included in the mortgage." It was
held by a divided court of three to two that the statute since limiting the
right to enforce a debt secured by mortgage to the property mortgaged
whether realty or chattles, was an undue restraint upon the liberty of a
citizen to contract with respect to his property right. But as is readily
apparent, the Washington law and the Philippine law are radically different
in phraseology and in effect. (Dennis vs. Moses [1898], 40 L. R. A., 302.)
While we are on the subject of the authority, we may state that we have
examined all of those obtainable, including some of recent date but have
not been enlightened very much because as just indicated, they concerned
different state of facts and different laws. We gain the most help from the
case of Bronzon vs. Kinzie ([1843], 1 How., 311), decided by the Supreme
Court of the United State. It had under consideration a law passed in the
State of Illinois, which provide that the equitable estate of the mortgagor
should not be extinguished for twelve months after sale on decree, and
which prevented any sale of the mortgaged property unless two-thirds of
the amount at which the property had been valued by appraisers should be
bid therefor. The court, by Mr. Chief Justice Taney declared: "Mortgages
made since the passage of these laws must undoubtedly be governed by
them; for every State has power to describe the legal and equitable
obligation of a contract to be made and executed within it jurisdiction. It
may exempt any property it thinks proper from sale for the payment of a
debt; and may imposed such conditions and restriction upon the creditor as
its judgment and policy may dictate. And all future contracts would be
subject to such provisions; and they would be obligatory upon the parties in
the provisions; and they would be obligatory upon the parties in the courts
of the United States, as well as in those of the state."
(3) If the vendee shall have failed to pay two or more installments, the
vendor may foreclose the mortgage, if one has been given on the property.
The basis of the first option is the Civil Code. The basis of the last two
option is Act No. 4122, amendatory of the Civil Code. And the proviso to the
right to foreclose is, that if the vendor has chosen this remedy, he shall have
no further action against the purchaser for the recovery of any unpaid
balance owing by the same. In other words, as we see it, the Act does no
more than qualify the remedy.
In the Philippines, the Chattel Mortgage Law did not expressly provide for a
deficiency judgment upon the foreclosure of a mortgage. Indeed, it required
decisions of this court to authorize such a procedure. (Bank of the
Philippine Island vs. Olutanga Lumber Co., [1924], 47 Phil., 20; Manila
Trading and Supply Co. vs. Tamaraw Plantation Co., supra.) But the
practice became universal enactment regarding procedure. To a certain
extent the Legislature has now disauthorized this practice, but has left a
sufficient remedy remaining.
We are of the opinion that the Legislative 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
contract, without sanctioning class legislation, and without a denial of the
equal protection of the laws. We rule that Act No. 4122 is valid and
enforceable. As a consequence, the errors assigned by the appellant are
overruled, and the judgment affirmed, the costs of this instance to be taxed
against the losing party.
Three remedies are available to the vendor who has sold personal property
on the installment plan. (1) He may elect to exact the fulfillment of the
obligation. (Bachrach Motor Co. vs. Milan, supra.) (2) If the vendee shall
have failed to pay two or more installments, the vendor may cancel the sale.
In his brief counsel for the plaintiff advances no new arguments which have not
already been considered in theReyes case, and we see no reason for reaching a
different conclusion now. The law seeks to remedy an evil which the Legislature
wished to suppress; this legislative body has power to promulgate the law; the law
The controlling purpose of Act No. 4122 is revealed to be to close the door
to abuses committed in connection with the foreclosure of chattel
mortgages when sales were payable in installments. The public policy,
obvious from the statute, was defined and established by legislative
authority. It is for the courts to perpetuate it.
does not completely deprive vendors on the installment basis of a remedy, but
requires them to elect among three alternative remedies; the law, on the other hand,
does not completely exonerate the purchasers, but only limits their liabilities and,
finally, there is no vested right when a procedural law is involved, wherefore the
Legislature could enact Act No. 4122 without violating the aforesaid organic law.
III. In its last assignment of error plaintiff contends that, even granting that Act No.
4122 is valid, the court should have ordered the defendant to pay at least the
stipulated interest, attorney's fees, and the costs. This question involves the
interpretation of the pertinent portion of the law, reading: "However, if the vendor
has chosen to foreclose the mortgage he shall have no further action against the
purchaser for the recovery of any unpaid balance owing by the same, and any
agreement to the contrary shall be null and void." This paragraph, as its language
shows, refers to the mortgage contract executed by the parties, whereby the
purchaser mortgages the chattel sold to him on the installment basis in order to
guarantee the payment of its price, and the words "any unpaid balance" should be
interpreted as having reference to the deficiency judgment to which the mortgagee
may be entitled where, after the mortgaged chattel is sold at public auction, the
proceeds obtained therefrom are insufficient to cover the full amount of the secured
obligations which, in the case at bar as shown by the note and by the mortgage deed,
include interest on the principal, attorney's fees, expenses of collection, and the
costs. The fundamental rule which should govern the interpretation of laws is to
ascertain the intention and meaning of the Legislature and to give effect thereto.
(Sec. 288, Code of Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19
Phil., 134; De Jesus vs. City of Manila, 29 Phil., 73; Borromeo vs. Mariano, 41 Phil.,
322; People vs. Concepcion, 44 Phil., 126.) Were it the intention of the Legislature to
limit its meaning to the unpaid balance of the principal, it would have so stated. We
hold, therefore, that the assignment of error is untenable.
In view of the foregoing, the appealed judgment is affirmed, with the costs of this
instance to the plaintiff and appellant. So ordered.
the . . . motor vehicle for the purpose of foreclosure"), or the recovery of the unpaid
balance in case delivery could not be effected. The car was then seized by the sheriff
of Manila and possession thereof was awarded to the appellee. During the progress
of the case, the appellee instituted extrajudicial foreclosure proceedings, as a result
of which, on December 22, 1965, the car was sold at public auction with the appellee
as the highest bidder and purchaser.
G.R. No. L-27645
for
defendants-appellants.
CASTRO, J.:
Appeal by the spouses Lourdes V. Ridad and Luis Ridad from the decision of the
Court of First Instance of Manila in civil case 64288, a replevin suit, awarding to the
appellee Filipinas Investment and Finance Corporation the amount of P163.65
representing actual expenses and P300 as attorney's fees.
Their motion to set aside his order of default and the decision having been denied,
they appealed to the Court of First Instance of Manila.
When the case was called for pre-trial, the CFI advanced the opinion that there was
no need for the parties to adduce evidence and that the case could be decided on the
basis of the pleadings submitted by the parties.
The trial court on September 5, 1966, rendered judgment for the appellee, as follows:
The spouses Ridad bought from the Supreme Sales & Development Corporation, the
appellee's assignor-in-interest, a Ford Consul sedan for the total price of P13,371.40.
The sum of P1,160 was paid on delivery, the balance of P12,211.50 being payable in
twenty-four equal monthly installments, with interest at 12% per annum, secured by
a promissory note and a chattel mortgage on the car executed on March 19, 1964.
The spouses thereafter failed to pay five consecutive installments on a remaining
balance of P5,274.53. On October 13, 1965 the appellee instituted a replevin suit in
the city court of Manila for the seizure of the car (par. 7 of the complaint alleged
"unjustifiable failure and refusal of the defendants . . . to surrender possession of
As stated in the pre-trial order of this Court dated May 27, 1966, the only
issue remaining to be resolved is whether the plaintiff is entitled to receive
P500.00 as attorney's fees and P163.65 for expenses incurred by the
plaintiff in the seizure of the car which was the object of the chattel
mortgage executed by the defendants in favor of the plaintiff.
Upon consideration of the circumstances of the case, the court holds that
the plaintiff is entitled to recover the amount of P163.65 which represents
the expenses incurred by the plaintiff in the seizure of the car involved in
this case.
Considering that the plaintiff had recovered the car involved in the case
while it is still in the lower court, and considering further that the
defendants did not resist the case and the only question said defendants
raised before this court is the amount of attorney's fees, the court in the
exercise of its equitable jurisdiction reduces the attorney's fees granted to
the plaintiff by the lower court to P300.00.
In this appeal, the appellants contend that the trial court erred: (1) in rendering a
decision which does not state the facts and the law on which it is based; (2) in
condemning the appellants to pay P300 for attorney's fees and P163.65 for expenses
incurred in the seizure of the car which was the object of the chattel mortgage
executed by them in favor of the appellee; and (3) in not dismissing the appellee's
complaint.
1. We uphold the appellee's contention that the disputed decision of the lower court
complies substantially with the requirements of law because it referred to the pretrial order it issued on May 27, 1966 which contains substantial findings of facts. For
although settled is the doctrine that a decree with absolutely nothing to support it is
a nullity, the law, however, merely requires that a decision state the "essential
ultimate facts upon which the court's conclusion is drawn." 1 There being an express
reference to the pre-trial order, the latter must be considered and taken as forming
part of the decision. The claim, therefore, that the judgment clearly transgresses the
legal precept2 because it does not state the facts of the case and the law on which it is
based and hence, is a nullity, finds no justification here.
2. The appellants theorize that the action of the appellee is for the payment of the
unpaid balance of the purchase price with a prayer for replevin. When, therefore, the
appellee seized the car, extrajudicially foreclosed the mortgage, had the vehicle sold,
and bought the same at public auction as the highest bidder, it thereby renounced
any and all rights which it might have under the promissory note as well as the
payment of the unpaid balance, and, consequently, what it would otherwise be
entitled under and by virtue of the present action, including attorney's fees and costs
of suit, pursuant to article 1484 of the new Civil Code.
On the other hand, the appellee maintains that it is entitled to an award of attorney's
fees and actual expenses and costs of suit by virtue of the unjustifiable failure and
refusal of the appellants to comply with their obligations (one of which is the
surrender of the chattel to the mortgagee upon the latter's demand), contending that
what is prohibited in art. 1484, par. 3 of the new Civil Code relied upon by the
appellants is the recovery of the unpaid balance of the purchase price by means of an
action other than a suit for replevin; that Luneta Motor Co. vs. Salvador, et al., (L13373, July 26, 1960) is inapplicable to the present case because the remedy sought
in that case was in the conjunctive and not in the alternative, such that, necessarily,
when the appellee therein foreclosed the mortgage on the motor vehicle during the
progress of the action, the other action for a sum of money had to be dismissed since
the same could not prosper as it would constitute a separate action for the recovery
of the unpaid balance contemplated in article 1484; and that in the present case,
however, the court awarded attorney's fees, costs of suit and expenses incurred in
relation to the seizure of the motor vehicle by virtue of the writ of replevin in the
same action because the appellee was compelled to institute the same on account of
the appellants' unjustifiable failure and refusal to comply with the former's demands.
The appellee further argues that the award of attorney's fees and the costs of suit
together with expenses incurred, was stipulated both in the promissory note and
chatt0el mortgage contract; that even in the absence of such stipulation, the award of
attorney's fees is discretionary on the part of the court pursuant to par. 2, art. 2208,
new Civil Code; and that the said award could likewise be made by the lower court on
the basis of the general prayer in the complaint for the award of whatever relief that
the lower court may deem just and equitable in the premises.
It is true that the present action is one for replevin, but because it culminated in the
foreclosure of the chattel mortgage and the sale of the car at public auction, it is our
view that the provisions of art. 1484 of the Civil Code (Recto Law) must govern the
resolution of the issue here presented.
recovery of any unpaid balance owing by the same. In other words, as we see it, the
Act does no more than qualify the remedy." 3
The legal issue which is the core of the controversy in the case at bar was resolved
in Macondray & Co. vs. Eustaquio,4 as follows:
This article recites that
This article was reproduced from the old art. 1454-A, which in turn was inserted by
Act 4122 (Recto Law). "Three remedies are available to the vendor who has sold
personal property on the installment plan: (1) He may elect to exact the fulfillment of
the obligation. (Bachrach Motor Co. vs. Millan, 61 Phil. 409) (2) If the vendee shall
have failed to pay two or more installments, the vendor may cancel the sale. (3) If the
vendee shall have failed to pay two or more installments, the vendor may foreclose
the mortgage, if one has been given on the property. The basis of the first option is
the Civil Code. The basis of the last two options is Act 4122 (inserted in the Spanish
Civil Code as art. 4154-A and now reproduced in arts. 1484 and 1485), amendatory of
the Civil Code. And the proviso to the right to foreclose is that if the vendor has
chosen this remedy, he shall have no further action against the purchaser for the
The plaintiff brought the action against the defendant to obtain the
possession of an automobile mortgaged by the latter, and to recover the
balance owing upon a note executed by him, the interest thereon, attorney's
fees, expenses of collection, and the costs. The defendant was duly
summoned, but he failed to appear or file his answer, wherefore, he was
declared in default and the appealed judgment was rendered accordingly.
The plaintiff sold to the defendant a De Soto car, Sedan, for the price of
which, P595, he executed in its favor the note of May 22, 1934. Under this
note, the defendant undertook to pay the car in twelve monthly
installments, with 12 per cent interests per annum, and likewise agreed
that, should he fail to pay any monthly installment together with interest,
the remaining installments would become due and payable, and the
defendant shall pay 20 per cent upon the principal owing as attorney's fees,
expenses of collection which the plaintiff might incur, and the costs. To
guarantee the performance of his obligations under the note, the defendant
on the same date mortgaged the purchased car in favor of the plaintiff, and
bound himself under the same conditions stipulated in the note relative to
the monthly installments, interest, attorney's fees, expenses of collection,
and costs. The mortgage deed was registered on June 11, 1934, in the office
of the register of deeds of the Province of Rizal. On the 22nd of the same
month, the defendant paid P43.75 upon the first installment, and thereafter
failed to pay any of the remaining installments. In accordance with the
terms of the mortgage, the plaintiff called upon the sheriff to take
possession of the car, but the defendant refused to yield possession thereof,
whereupon, the plaintiff brought the replevin sought and thereby succeeded
in getting possession of the car. The car was sold at public auction to the
plaintiff for P250, the latter incurring legal expenses in the amount of
P10.68. According to the liquidation filed by the plaintiff, the defendant was
xxx
xxx
In its last assignment of error plaintiff contends that even granting that Act
No. 4122 is valid, the court should have ordered the defendant to pay at
least the stipulated interest, Attorney's fees and the costs. This question
involves the interpretation of the pertinent portion of the law, reading:
"However, if the vendor has chosen to foreclose the mortgage he shall have
no further action against the purchaser for the recovery of any unpaid
balance owing by the same, and any agreement to the contrary shall be null
and void." This paragraph, as its language shows, refers to the mortgage
contract executed by the parties, whereby the purchaser mortgages the
chattel sold to him on the installment basis in order to guarantee the
payment of its price, and the words "any unpaid balance" should be
interpreted as having reference to the deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged chattel is sold at
public auction, the proceeds obtained therefrom are insufficient to cover
the full amount of the secured obligations which, in the case at bar as
shown by the note and by the mortgage deed, include interest on the
principal, attorney's fees, expenses of collection, and the costs. The
fundamental rule which should govern the interpretation of laws is to
ascertain the intention and meaning of the Legislature and to give effect
thereto. (Sec. 288, Code of Civil Procedure; U.S. vs. Toribio, 15 Phil. 85;
U.S. vs. Navarro, 19 Phil. 134; De Jesus vs. City of Manila, 29 Phil. 73;
Borromeo vs. Mariano, 41 Phil. 322; People vs. Concepcion, 44 Phil.
126.) Were it the intention of the Legislature to limit its meaning to the
unpaid balance of the principal, it would have so stated. We hold,
therefore, that the assignment of error is untenable. (emphasis supplied)
In other words, under this amendment as above interpreted, in all proceedings for
the foreclosure of a chattel mortgage, executed on chattels which have been sold on
the installment plan, the mortgagee is limited to the property mortgaged 5 and is not
entitled to attorney's fees and costs of suit.
A scrutiny of the doctrine enunciated in the above-cited cases will reveal that its
ultimate and salutary purpose is to prevent the vendor from circumventing the Recto
Law. Congress sought to protect the buyers on installment who more often than not
have been victimized by sellers who, before the enactment of this law, succeeded in
unjustly enriching themselves at the expense of the buyers, because aside from
recovering the goods sold, upon default of the buyer in the payment of two
installments, still retained for themselves all amounts already paid, and in addition,
were adjudged entitled to damages, such as attorney's fees, expenses of litigation and
costs. Congress could not have intended to impair much less do away with, the right
of the seller to make commercial use of his credit against the buyer, provided the
buyer is not burdened beyond what this law allows.7
It would appear from the emphasis and precision of the language employed in the
decisions already adverted to that in no instance whatsoever may the mortgagee
recover from the mortgagor any amount or sum after the foreclosure of the
mortgage, for, as we understand it, the philosophy of the Recto Law is that the
underprivileged mortgagors must be afforded full protection against the rapacity of
the mortgagees.
But while we unconditionally concur in, and give our approval to, the basic
philosophy of the Recto Law, we view with no small amount of circumspection the
implication, necessarily drawn from the above discussion, that the mortgagee is not
entitled to protection against perverse mortgagors. Where the mortgagor plainly
refuses to deliver the chattel subject of the mortgage upon his failure to pay two or
more installments, or if he conceals the chattel to place it beyond the reach of the
mortgagee, what then is the mortgagee expected to do? It is part of conventional
wisdom and the rule of law that no man can take the law into his own hands; so it is
not to be supposed that the Legislature intended that the mortgagee should wrest or
seize the chattel forcibly from the control and possession of the mortgagor, even to
the extent of using violence which is unwarranted in law. Since the mortgagee would
enforce his rights through the means and within the limits delineated by law, the
next step in such situations being the filing of an action for replevin to the end that
he may recover immediate possession of the chattel and, thereafter, enforce his
rights in accordance with the contractual relationship between him and the
mortgagor as embodied in their agreement, then it logically follows as a matter of
common sense, that the necessary expenses incurred in the prosecution by the
mortgagee of the action for replevin so that he can regain possession of the chattel,
should be borne by the mortgagor. Recoverable expenses would, in our view, include
expenses properly incurred in effecting seizure of the chattel and reasonable
attorney's fees in prosecuting the action for replevin. And we declare that in this case
before us, the amounts awarded by the court a quo to the
x-----------------------------------------------------------------------x
DECISION
GARCIA, J.:
On a pure question of law involving the application of Republic Act (R.A.) No. 5980,
as amended by R.A. No. 8556 in relation to Articles 1484 and 1485 of the Civil Code,
petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short) has directly come
to this Court via this petition for review under Rule 45 of the Rules of Court to nullify
and set aside the Decision and Resolution dated December 28, 1998 and February
15, 2000, respectively, of the Regional Trial Court (RTC) of Quezon City, Branch 227,
in its Civil Case No. Q-98-34266, a suit for a sum of money and/or personal property
with prayer for a writ of replevin, thereat instituted by the petitioner against the
herein respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE, for brevity).
The facts:
- versus -
It is thus GIRAFFEs posture that the aforequoted Article 1484 of the Civil
Code applies to its contractual relation with PCI LEASING because the lease
agreement in question, as supplemented by the schedules documents, is really
a lease with option to buy under the companion article, Article 1485.
Consequently, so GIRAFFE argues, upon the seizure of the leased equipment
pursuant to the writ of replevin, which seizure is equivalent to foreclosure, PCI
LEASING has no further recourse against it. In brief, GIRAFFE asserts in its Motion
to Dismiss that the civil complaint filed by PCI LEASING is proscribed by the
application to the case of Articles 1484 and 1485, supra, of the Civil Code.
In its Opposition to the motion to dismiss, PCI LEASING maintains that its
contract with GIRAFFE is a straight lease without an option to buy. Prescinding
therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in
relation to Article 1485 of the Civil Code, claiming that, under the terms and
conditions of the basic agreement, the relationship between the parties is one
between an ordinary lessor and an ordinary lessee.
In a decision[7] dated December 28, 1998, the trial court granted GIRAFFEs
motion to dismiss mainly on the interplay of the following premises: 1) the lease
agreement package, as memorialized in the contract documents, is akin to the
contract contemplated in Article 1485 of the Civil Code, and 2) GIRAFFEs loss of
possession of the leased equipment consequent to the enforcement of the writ of
replevin is akin to foreclosure, the condition precedent for application of Articles
1484 and 1485 [of the Civil Code]. Accordingly, the trial court dismissed Civil Case
No. Q-98-34266, disposing as follows:
WHEREFORE, premises considered, the defendant
[GIRAFFE] having relinquished any claim to the personal
properties subject of replevin which are now in the possession of
the plaintiff [PCI LEASING], plaintiff is DEEMED fully satisfied
pursuant to the provisions of Articles 1484 and 1485 of the New
Civil Code. By virtue of said provisions, plaintiff is DEEMED
estopped from further action against the defendant, the plaintiff
having recovered thru (replevin) the personal property sought to
be payable/leased on installments, defendants being under
protection of said RECTO LAW. In view thereof, this case is hereby
DISMISSED.
With its motion for reconsideration having been denied by the trial court in
its resolution of February 15, 2000, [8] petitioner has directly come to this
Court via this petition for review raising the sole legal issue of whether or not the
underlying Lease Agreement, Lease Schedules and the Disclosure Statements that
embody the financial leasing arrangement between the parties are covered by and
subject to the consequences of Articles 1484 and 1485 of the New Civil Code.
As in the court below, petitioner contends that the financial leasing
arrangement it concluded with the respondent represents a straight lease
covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A. No.
8556, otherwise known as Financing Company Act of 1998, and is outside the
application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines
and authorizes its existence and business.
The recourse is without merit.
provisions
of
[RA]
5980,
thus
3.
4.
5.
6.
7.
In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit
shall be forfeited in the event the respondent, for any reason, returns the
equipment before the expiration of the lease.
happen. Not only to the respondent, but those similarly situated who may fall prey to
a similar scheme.
WHEREFORE, the instant petition is DENIED and the trial courts
decision is AFFIRMED.
Costs against petitioner.
SO ORDERED.
TEEHANKEE, J.:1wph1.t
The Court, in affirming the decision under review of the Court of
Appeals, which holds that the respondent buyer of two small residential
lots on installment contracts on a ten-year basis who has faithfully paid
for eight continuous years on the principal alone already more than the
value of one lot, besides the larger stipulated interests on both lots, is
entitled to the conveyance of one fully paid lot of his choice, rules that
the judgment is fair and just and in accordance with law and equity.
To interests P1,889.78
To principal 1,682.28
From the adverse decision of July 17, 1963 of the trial court sustaining
petitioners' cancellation of the contracts and dismissing respondent's
complaint, respondent appellate court on appeal rendered its judgment
of July 27, 1966 reversing the lower court's judgment and ordering
petitioners "to deliver to the plaintiff possession of one of the two lots, at
the choice of defendants, and to execute the corresponding deed of
conveyance to the plaintiff for the said lot," 3 ruling as follows:
Total P3,582.06 1
It is equally undisputed that after February, 1956 up to the filing of
respondent's complaint in the Manila court of first instance in 1961,
respondent did not make further payments. The account thus shows that
he owed petitioners the sum of P1,317.72 on account of the balance of the
purchase price (principal) of the two lots (in the total sum of P3,000.00),
although he had paid more than the stipulated purchase price of
P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the
action, respondent wrote petitioners stating that his desire to build a
house on the lots was prevented by their failure to introduce
improvements on the subdivision as "there is still no road to these lots,"
and requesting information of the amount owing to update his account
as "I intend to continue paying the balance due on said lots."
The Court finds that the appellate court's judgment finding that of the
total sum of P3,582.06 (including interests of P1,889.78) already paid by
respondent (which was more than the value of two lots), the sum applied
by petitioners to the principal alone in the amount of P1,682.28 was
already more than the value ofone lot of P1,500.00 and hence one of the
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs.
Javier 8 is fully applicable to the present case, with the respondent at bar
being granted lesser benefits, since no rescission of contract was therein
permitted. There, where the therein buyer-appellee identically situated
as herein respondent buyer had likewise defaulted in completing the
payments after having religiously paid the stipulated monthly
installments for almost eight years and notwithstanding that the sellerappellant had duly notified the buyer of the rescission of the contract to
sell, the Court upheld the lower court's judgment denying judicial
confirmation of the rescission and instead granting the buyer an
additional grace period of sixty days from notice of judgment to pay all
the installment payments in arrears together with the stipulated 10%
interest per annum from the date of default, apart from reasonable
attorney's fees and costs, which payments, the Court observed, would
have the plaintiff-seller "recover everything due thereto, pursuant to its
contract with the defendant, including such damages as the former may
have suffered in consequence of the latter's default."
Under the Reservation Application, the total purchase price of the property
was P2,500,000, and the down payment equivalent to 30% of the purchase price
or P750,000 was to be paid interest-free in six monthly installments due every fifth
of the month starting July 1996 until December 1996. As the P20,000 reservation fee
formed part of the down payment, the monthly installment on the down payment
was fixed at P121,666.66.
Also under the Reservation Application, upon full payment of the 30% down
payment by Pacifico, he was to sign a contract to sell with the owner and developer of
the property, Joprest Development and Management Corporation (now Jestra
Development and Management Corporation, hereafter Jestra). And the 70% balance
on the purchase price or P1,750,000 was to be payable in 10 years, to bear interest at
21% per annum, at a monthly installment ofP34,982.50. When the payment of the
installments on the 70% balance should commence, the Reservation Application was
silent.
Unable to comply with the schedule of payments, Pacifico requested Jestra to allow
him to make periodic payments on the down payment "in an amount that he could
afford,"
to
which
Jestra
acceded
provided
that
late
payment
penalties/surcharges2 are paid.
With still a remaining balance of P260,000 on the down payment, Pacifico and
Jestra executed on March 6, 1997, Contract to Sell No. 83 3 over the property. The
said contract was silent on the unsettled balance on the down payment.
Under the Contract to Sell, Pacifico should have had on November 5, 1996, or one
month prior to the deadline stated under the Reservation Application, fully paid the
30% down payment, and that the 120 monthly installments for the 70% balance
or P1,750 should have had commenced on December 7, 1996, viz:
SECTION 2. TERMS OF PAYMENT. The PURCHASER agrees to pay the aforecited
purchase price [of P2,500,000.00] in the following manner, namely:
2.1 The total amount of SEVEN HUNDRED FIFTY THOUSAND PESOS ONLY
(P750,000.00) Philippine Currency as down payment on or before November 5,
1996.
2.2 The balance of ONE MILLION SEVEN HUNDTED FIFTY THOUSAND PESOS
ONLY (P1,750,00.00), Philippine Currency, shall be paid in One Hundred Twenty
(120) equal monthly installments at THIRTY FOUR THOUSAND NINE HUNDRED
EIGHT THREE PESOS ONLY (P34,983.00) Philippine Currency, to commence on
December 7, 1996, with interest at the rate of Twenty One Percent (21%) per annum.
The PURCHASER shall issue One Hundred Twenty (120) postdated checks in favor
of the OWNER/DEVELOPER for each of the monthly installments, which checks
shall be delivered to the latter upon signing of this CONTRACT. The PURCHASER
shall be subject to the pre-qualification requirements of COCOLIFE for the Mortgage
Redemption Insurance (MRI) and the Building Insurance on the UNIT. Interest repricing shall be effected on the 6th Year, to commence on December 7, 2001.
By November 27, 1997, Pacifico had fully paid the 30% down payment, and by
December 4, 1997, he had paid a total of P846,600, P76,600 of which Jestra applied
as penalty charges for the belated settlement of the down payment.
By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final demand
for the payment ofP444,738.885 representing the total of 11 installments due on the
70% balance of the purchase price, inclusive of 21% interest per annum and add-on
interest at the rate of P384.81 per day, counted from January 7, 1997. Further, Jestra
demanded the payment of P73,750 representing "penalties for the [belated
settlement of the] down payment." And it reminded Pacifico that "as provided in
Section 5 of the said contract, [Jestra] reserves its right to automatically cancel or
rescind the same on account of [his] failure/refusal to comply with the terms
thereof."6
Pacifico later requested Jestra, by letter of November 12, 1997, for a restructuring of
his unsettled obligation. His request was granted on the condition that the interest
for the period from December 1996 to November 1997 amounting to P224,396.37
would be added to the 70% balance on the purchase price; and that Pacifico issue 12
postdated checks beginning each year to cover his amortization payments.
In light of the restructured scheme, the monthly amortization on the 70% balance
was from P34,982.50 increased toP39,468, to commence on January 5, 1998.
x x x x (Underscoring supplied)
Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover his monthly
amortizations from January to December 1998. The checks for January and
February 1998 were, however, dishonored due to insufficiency of funds. 7
By letter4 of November 12, 1997, Pacifico requested Jestra that "the balance be
restructured" in light of the "present business condition."
By letter of March 24, 1998, Pacifico informed Jestra that due to sudden financial
difficulties, he was suspending payment of his obligation during the 10-month
period, and that he wanted to dispose of the property to recover his investment. 8 And
he requested that the postdated checks he issued be returned to him.
Jestra, by letter9 of March 31, 1998, denied Pacificos request to suspend payment
and for the return of the postdated checks. It, however, gave him until April 15, 1998
to sell the property failing which it warned him that it would be constrained to reopen it for sale.
Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May 1, 1998,
notifying him that it was, within 30 days after his receipt thereof, exercising its right
to cancel the Contract to Sell. Pacifico received the notice on May 13, 1998.
In a separate move, Jestra through its Credit and Collection Manager sent Pacifico a
letter dated May 27, 1998, demanding payment of the total amount of P209,377.75
covering monthly amortizations from January 30 to May 30, 1998 inclusive of
penalties. And it gave him until June 1, 1998 to settle his account, failing which the
Contract to Sell would be automatically cancelled and it would re-open the property
for sale.10
Pacifico thus prayed that, among others things, judgment be rendered declaring the
second sale a nullity, ordering Jestra to deliver the property to him and to pay
him P11,000 a month from July 1997 until delivery.
By Decision12 of March 15, 2000, the Housing and Land Use Arbiter held Jestra
liable for failure to comply with Section 3 of Republic Act (RA) No. 6552 (Realty
Installment Buyer Protection Act) requiring payment by the seller of the cash
surrender value of the buyers payments and Section 17 of Presidential Decree No.
957 (REGULATING THE SALE OF SUBDIVISION LOTS AND CONDOMINIUMS,
PROVIDING PENALTIES FOR VIOLATIONS THEREOF) requiring it to register the
Contract to Sell in the Office of the Register of Deeds.
The Arbiter found that while Pacifico had paid a total amount of P846,600 which is
"more or less equivalent to 24 monthly installments under the contract to sell . . .
wherein the monthly amortization is P34,983,"13 he could no longer demand the
delivery of the property, its title having already been transferred in the name of
another buyer.
Thus the Arbiter disposed:
On February 24, 1999, Pacifico filed a complaint before the Housing and Land Use
Regulatory Board (HLURB) against Jestra, docketed as HLURB Case No. REM122499-10378, claiming that despite his full payment of the down payment, Jestra
failed to deliver to him the property within 90 days as provided in the Contract to
Sell dated March 6, 1997, and Jestra instead sold the property to another buyer in
October of 1998.11
Pacifico further claimed in his complaint that upon learning of the double sale, he,
through his lawyer, demanded that Jestra deliver the property to him but it failed to
do so without just and valid cause.
On appeal, the Board of Commissioners of the HLURB modified the decision of the
Arbiter by deleting the award ofP50,000 damages and ordering Jestra to
pay P20,000 as attorneys fees and P10,000 administrative fine for failure to register
the Contract to Sell in the Office of the Register of Deeds.
By Resolution of January 27, 2003, the HLURB Board of Commissioners
denied15 Jestras motion for reconsideration.
By Order16 of December 9, 2003, the Office of the President (OP), to which the case
was elevated, adopted "by reference the findings of facts and conclusions of law"
contained in the HLURB Board Resolution of January 27, 2003. And by
Order17 dated March 18, 2004, it denied Jestras motion for reconsideration.
On Jestras petition for review under Rule 43 of the Rules of Court, the Court of
Appeals (CA), by Decision18 dated January 31, 2005, affirmed the Orders of the OP.
Its motion for reconsideration having been denied by CA Resolution 19 of March 16,
2005, Jestra (hereafter petitioner) comes before this Court on a petition for review,
faulting the appellate court for:
(a) To pay, without additional interest, the unpaid installments due within
the total grace period earned by him which is hereby fixed at the rate of one
month grace period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only once in every
five years of the life of the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty per cent
of the total payments made, and, after five years of installments, an
additional five per cent every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.
RA No. 6552 was enacted to protect buyers of real estate on installment against
onerous and oppressive conditions. While the seller has under the Act the option to
cancel the contract due to non-payment of installments, he must afford the buyer a
grace period to pay them and, if at least two years installments have already been
paid, to refund the cash surrender value of the payments. Thus Section of the Act
provides:
As the records indicate, the total payments made by Pacifico (hereafter respondent)
amounted to P846,600. The appellate court, in concluding that respondent paid at
least two years of installments, adopted the formula used by the HLURB by dividing
the amount of P846,600 by the monthly amortization of P34,983 to thus result to a
quotient of 24.2 months.
Petitioner contests the computation, however. It claims that the amount of P76,600
represents penalty payment and is a separate item to answer for its lost income as a
seller due to the delay in the payment 20 of the 30% down payment. It thus submits
that the amount of P76,600 does not form part of the purchase price and should thus
be excluded in determining the total number of installments made.
Petitioner likewise claims that the proper divisor is not P34,983 but P39,468 since
the parties agreed to restructure the amortizations owing to respondents inability to
comply with the schedule of payments previously agreed upon in the Contract to Sell,
and that if respondents total payments less the penalty is to be divided by P39,468,
the total installments paid would only cover 19.5 months, hence, it was not obliged
under RA No. 6552 to pay the cash surrender value of such total payments.
While, under the above-quoted Section 3 of RA No. 6552, the down payment is
included in computing the total number of installment payments made, the proper
divisor is neither P34,983 nor P39,468, but P121,666.66, the monthly installment on
the down payment.
The P750,000 down payment was to be paid in six monthly installments. If the down
payment of P750,000 is to be deducted from the total payment of P846,600, the
remainder is only P96,600. Since respondent was able to pay the down payment in
full eleven (11) months after the last monthly installment was due, and the sum
of P76,600 representing penalty for delay of payment is deducted from the
remaining P96,600, only a balance of P20,000 remains.
As respondent failed to pay at least two years of installments, he is not, under abovequoted Section 3 of RA No. 6552, entitled to a refund of the cash surrender value of
his payments. What applies to the case instead is Section 4 of the same law, viz:
SECTION 4. In case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than sixty days from the date the
installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the contract by a notarial
act. (Underscoring supplied)
In Fabrigas v. San Francisco del Monte, Inc.,21 this Court described the cancellation
of the contract under Section 4 as a two-step process. First, the seller should extend
the buyer a grace period of at least sixty (60) days from the due date of the
installment. Second, at the end of the grace period, the seller shall furnish the buyer
with a notice of cancellation or demand for rescission through a notarial act, effective
thirty (30) days from the buyer's receipt thereof.
Respondent admits that under the restructured scheme, the first installment on the
70% balance of the purchase price was due on January 5, 1998. While he issued
checks to cover the same, the first two were dishonored due to insufficiency of funds.
While respondent was notified of the dishonor of the checks, he took no action
thereon, hence, the 60 days grace period lapsed. Respondent made no further
payments thereafter. Instead, he requested for suspension of payment and for time
to dispose of the property to recover his investment.
Republic of the Philippines
SUPREME COURT
Manila
Respondent admits that petitioner was justified in canceling the contract to sell via
the notarial Notice of Cancellation which he received on May 13, 1998. The contract
was deemed cancelled22 30 days from May 13, 1998 or on June 12, 1998.
SECOND DIVISION
G.R. No. L-57552 October 10, 1986
SO ORDERED.
On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of
Rizal (Civil Case No. 33573) for the rescission of the deed of conditional sale due to
the failure of private respondent to pay the balance due on May 31, 1977.
On December 27, 1979, the parties submitted a Compromise Agreement on the basis
of which the court rendered a decision on January 22, 1980. In said compromise
agreement, private respondent acknowledged his indebtedness to petitioner under
the deed of conditional sale in the amount of P119,050.71, and the parties agreed that
said amount would be payable as follows: a) P50,000.00 upon signing of the
agreement; and b) the balance of P69,059.71 in two equal installments on June 30,
1980 and December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of the
agreement and in addition he also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay
one thousand (P l,000.00) pesos monthly rental beginning December 5, 1979 until
the obligation is duly paid, for the use of the property subject matter of the deed of
conditional sale.
That the parties are agreed that in the event the defendant (private
respondent) fails to comply with his obligations herein provided,
the plaintiff (petitioner) will be entitled to the issuance of a writ of
execution rescinding the Deed of Conditional Sale of Real
Property. In such eventuality, defendant (private respondent)
hereby waives his right to appeal to (from) the Order of Rescission
and the Writ of Execution which the Court shall render in
accordance with the stipulations herein provided for.
That in the event of execution all payments made by defendant
(private respondent) will be forfeited in favor of the plaintiff
(petitioner) as liquidated damages.
On October 15, 1980, petitioner wrote to private respondent demanding that the
latter pay the balance of P69,059.71 on or before October 31, 1980. This demand
included not only the installment due on June 30, 1980 but also the installment due
on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying his
willingness and intention to pay the full balance of P69,059.71, and at the same time
demanding to see the certificate of title of the property and the tax payment receipts.
Private respondent states on page 14 of his brief that on November 3, 1980, the first
working day of said month, he tendered payment to petitioner but this was refused
acceptance by petitioner. However, this does not appear in the decision of the Court
of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that
private respondent failed to pay the installment due on June 1980 and that since
June 1980 he had failed to pay the monthly rental of P l,000.00. Petitioner prayed
that a) the deed of conditional sale of real property be declared rescinded with
forfeiture of all payments as liquidated damages; and b) the court order the payment
of Pl,000.00 back rentals since June 1980 and the eviction of private respondent.
The general rule is that rescission will not be permitted for a slight
or casual breach of the contract, but only for such breaches as are
substantial and fundamental as to defeat the object of the parties
in making the agreement. (Song Fo & Co. vs. Hawaiian-Philippine
Co., 47 Phil. 821)
On November 14, 1980, the trial court granted the motion for writ of execution.
In an order dated November 27, 1980, the trial court granted petitioner's ex-parte
motion for clarification of the order of execution rescinding the deed of conditional
sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a petition
for certiorari and prohibition assailing the orders dated November 21 and 27, 1980.
As initially stated above, the appellate court nullified and set aside the disputed
orders of the lower court. In its decision, the appellate court ruled in part as follows:
in the latter case, there was a 20-day delay in the payment of the
obligation as compared to a 17-day delay in the instant case.
In the New Pacific Timber & Supply Co., Inc. case, the Supreme
Court further held that the object of certifying a check is to enable
the holder thereof to use it as money, citing the ruling in PNB vs.
National City Bank of New York, 63 Phil. 711.
In the New Pacific Timber case, it was also ruled that the exception
in Section 63 of the Central Bank Act that the clearing of a check
and the subsequent crediting of the amount thereof to the account
of the creditor is equivalent to delivery of cash, is applicable to a
payment through a certified check.
Petitioner contends that the appellate court erred in not observing the provisions of
Article No. 1306 of the Civil Code of the Philippines and in having arbitrarily abused
its judicial discretion by disregarding the penal clause stipulated by the parties in the
compromise agreement which was the basis of the decision of the lower court.
We agree with the appellate court that it would be inequitable to cancel the contract
of conditional sale and to have the amount of P101,550.00 (P l48,126.97 according to
private respondent in his brief) already paid by him under said contract, excluding
the monthly rentals paid, forfeited in favor of petitioner, particularly after private
respondent had tendered the amount of P76,059.71 in full payment of his obligation.
In the analogous case of De Guzman vs. Court of Appeals, this Court sustained the
order of the respondent judge denying the petitioners' motion for execution on the
ground that the private respondent had substantially complied with the terms and
conditions of the compromise agreement, and directing the petitioners to
immediately execute the necessary documents transferring to the private respondent
the title to the properties (July 23, 1985, 137 SCRA 730). In the case at bar, there was
also substantial compliance with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in
the case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., to the effect
that Republic Act 6552 (the Maceda Law) "recognizes and reaffirms the vendor's
right to cancel the contract to sell upon breach and non-payment of the stipulated
installments but requires a grace period after at least two years of regular installment
payments ... . " (86 SCRA 305, 329)
On the other hand, private respondent also invokes said law as an expression of
public policy to protect buyers of real estate on installments against onerous and
oppressive conditions (Section 2 of Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides
as follows:
In case where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than sixty days
from the date the installment became due. If the buyer fails to pay
the installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt by the
buyer of the notice of the cancellation or the demand for rescission
of the contract by a notarial act.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:
The spirit of these provisions further supports the decision of the appellate court.
The record does not contain the complete text of the compromise agreement dated
December 20, 1979 and the decision approving it. However, assuming that under the
terms of said agreement the December 31, 1980 installment was due and payable
when on October 15, 1980, petitioner demanded payment of the balance of
P69,059.71 on or before October 31, 1980, petitioner could cancel the contract after
thirty days from receipt by private respondent of the notice of cancellation.
Considering petitioner's motion for execution filed on November 7, 1980 as a notice
of cancellation, petitioner could cancel the contract of conditional sale after thirty
days from receipt by private respondent of said motion. Private respondent's tender
of payment of the amount of P76,059.71 together with his motion for reconsideration
on November 17, 1980 was, therefore, well within the thirty-day period grants by
law..
The tender made by private respondent of a certified bank manager's check payable
to petitioner was a valid tender of payment. The certified check covered not only the
balance of the purchase price in the amount of P69,059.71, but also the arrears in the
However, although private respondent had made a valid tender of payment which
preserved his rights as a vendee in the contract of conditional sale of real property,
he did not follow it with a consignation or deposit of the sum due with the court. As
this Court has held:
According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom
tender of payment has been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of the thing or sum due, and
that consignation alone shall produce the same effect in the five cases enumerated
therein; Article 1257 provides that in order that the consignation of the thing (or
sum) due may release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation; and Article 1258 provides that
consignation shall be made by depositing the thing (or sum) due at the disposal of
the judicial authority and that the interested parties shall also be notified thereof.
As the Court held in the case of Soco vs. Militante, promulgated on June 28, 1983,
after examining the above-cited provisions of the law and the jurisprudence on the
matter:
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730), the
vendee was released from responsibility because he had deposited with the court the
balance of the purchase price. Similarly, in the above-cited case of New Pacific
Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686), the judgment debtor was
released from responsibility by depositing with the court the amount of the judgment
obligation.
In the case at bar, although as above stated private respondent had preserved his
rights as a vendee in the contract of conditional sale of real property by a timely valid
tender of payment of the balance of his obligation which was not accepted by
petitioner, he remains liable for the payment of his obligation because of his failure
to deposit the amount due with the court.
In his manifestation dated September 19, 1986, private respondent states that on
September 16, 1980, he purchased a Metrobank Cashier's Check No. CC 004233 in
favor of petitioner Luisa F. McLaughlin in the amount of P76,059.71, a photocopy of
which was enclosed and marked as Annex "A- 1;" but that he did not continue paying
the monthly rental of Pl,000.00 because, pursuant to the decision of the appellate
court, petitioner herein was ordered to accept the aforesaid amount in full payment
of herein respondent's obligation under the contract subject matter thereof.
However, inasmuch as petitioner did not accept the aforesaid amount, it was
incumbent on private respondent to deposit the same with the court in order to be
released from responsibility. Since private respondent did not deposit said amount
with the court, his obligation was not paid and he is liable in addition for the
payment of the monthly rental of Pl,000.00 from January 1, 1981 until said
obligation is duly paid, in accordance with paragraph 3 of the Compromise
Agreement. Upon full payment of the amount of P76,059.71 and the rentals in
arrears, private respondent shall be entitled to a deed of absolute sale in his favor of
the real property in question.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following
modifications:
(a) Petitioner is ordered to accept from private respondent the Metrobank Cashier's
Check No. CC 004233 in her favor in the amount of P76,059.71 or another certified
check of a reputable bank drawn in her favor in the same amount;
(b) Private respondent is ordered to pay petitioner, within sixty (60) days from the
finality of this decision, the rentals in arrears of P l,000.00 a month from January 1,
1981 until full payment thereof; and
(c) Petitioner is ordered to execute a deed of absolute sale in favor of private
respondent over the real property in question upon full payment of the amounts as
provided in paragraphs (a) and (b) above. No costs.
SO ORDERED.