Equitable Savings Bank v.

Palces
G.R. No. 214752 | March 9, 2016
PERLAS-BERNABE, J.

FACTS:
Rosalinda Palces (Palces) purchased a vehicle through a loan granted by Equitable Savings
Bank (Equitable) in the amount of P1,196,100. In connection to this, Palces executed a Promissory
Note with Chattel Mortgage in favour of Equitable, stating, among others, that:
1. Palces shall pay petitioner the aforesaid amount in 36-monthly installments;
2. Palces default in paying any installment renders the remaining balance due and
payable; and
3. Palces failure to pay any installments shall give Equitable the right to declare the entire
obligation due and payable and may likewise, at its option, foreclose the mortgage; or
file an ordinary civil action for collection and/or such other action or proceedings as
may be allowed under the law.

When Palces defaulted in paying two installments, Equitable filed a Complaint for Recovery
of Possession with Replevin with Alternative Prayer for Sum of Money and Damages against Palces.
In her defense, Palces claimed that she spoke to an officer of the bank regarding the delay in
payment and the officer gave his consent thereto. Palces also alleged that she paid a total of
P103,000 during the month after her default.

The RTC ruled in favor of Equitable and confirmed the latters right to possess the vehicle to
be foreclosed and held that it is no longer entitled to its alternative prayer, i.e., the payment of the
remaining balance of the loan, including penalties, charges, and other costs appurtenant thereto.

However, the CA modified the RTC decision and ordered Equitable to return the amount of
P103,000 to Palces. It held that while Palces was indeed liable to Equitable under the Promissory
Note with Chattel Mortgage, Equitable should not have accepted Palces late partial payments in the
aggregate amount of P103,000. In this regard, the CA opined that by choosing to recover the subject
vehicle via a writ of replevin, Equitable already waived its right to recover any unpaid installments,
pursuant to Article 1484 of the Civil Code.

ISSUE: Is Equitable bound to return to Palces the late partial payments amounting to P103,000? NO

RATIO:

Article 1484 is not applicable in this case

Article 1484 of the Civil Code,1 which governs the sale of personal properties in
installments, applies only to a situation where there is a venor-vendee relationship between the
parties involved.

1Article 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:
 In the case at bar, there was no vendor-vendee relationship between Equitable and
Palces. The records would reveal that Palces never bought the subject vehicle from Equitable
but from a third party, and merely sought financing from Equitable for its full purchase
price. A loan contract with the accessory chattel mortgage contract and not a contract of
sale of personal property in installments was entered into by the parties with Palces
standing as the debtor-mortgagor and Equitable as the creditor-mortgagee. Therefore, the
conclusion of the CA that Article 1484 finds application in this case was misplaced.

There was nothing in the Promissory Note with Chattel Mortgage that bars Equitable from
receiving any late partial payments from Palces. If at all, Equitables acceptance of Palces late
partial payments in the aggregate amount of P103,000 will only operate to reduce her outstanding
obligation to Equitable from P664,500 to P561,500. Such a reduction in Palces outstanding
obligation should be accounted for when Equitable conducts the impending foreclosure sale of the
vehicle. Once such foreclosure sale has been made, the proceeds thereof should be applied to the
reduced amount of Palces outstanding obligation, and the excess of said proceeds, if any, should be
returned to her.

1. Exact fulfilment of the obligation, should the vendee fail to pay;

2. Cancel the sale, should the vendees failure to pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees
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.