Professional Documents
Culture Documents
2.) Cancel
This is rescission of the contract that can be exercised
by the seller. But the vendee must have failed to pay
2 or more installments as a condition thereto.
Remember: If you choose one remedy, you can't choose the others.
These remedies, believe it or not, are also available to the buyer. You
also can't use all or any of them at the same time.
The Recto Law also won't apply to a straight sale (i.e. a sale where
there is a downpayment and the balance is payable in the future in a
single payment only.) The seller can also assign his credit to another
person, making that person the new creditor.
The Recto Law also covers leases with the option to purchase.
CASE TITLE :
MAGNA FINANCIAL SERVICES GROUP, INC. VS. ELIAS COLARINA
CITATION :
G.R. NO. 158635 (DECEMBER 9, 2005)
TOPIC :
RECTO LAW
FACTS OF THE CASE:
Colarina failed to pay the complete monthly amortization and despite repeated
demands from Magna,the former failed to make the necessary payment.
Magna then instituted a complaint for foreclosure of chattel mortgage with replevin
before the MTCCof Legaspi City. In its complaint, Magna prayed for both 1.)
the payment of the principal sum with penalty charges plus liquidated damages,
and 2.)
for Colarina to surrender possession of the Multicab
.
Ruling of the MTCC
The MTCC granted the prayer for the issuance a writ replevin and upon
service of a copy of the sameto respondent by the sheriff, the respondent
voluntarily surrendered possession of the motor vehicleto said sheriff.
The MTCC then rendered its decision in favour of Magna, ordering Colarina
to pay, among others,the principal amount plus penalty charges.
The MTCC also declared that should Colarina default in paying the money
judgment, the subjectmotor vehicle shall be sold at a public auction to satisfy
said judgment.
Ruling of the RTC
Colarina appealed to the RTC of Legaspi City. During the pendency of his
appeal before the RTC,Colarina died and was substituted in the case by his
heirs.
The RTC rendered its judgment affirming in toto the decision of the MTCC.
Ruling of the CA
Colarinas heirs filed a Petition for Review before the Court of Appeal, which
reversed and set aside
the decision of both the MTCC and the RTC.
Applying Article 1484 of the Civil Code of the Philippines, the CA ordered the
foreclosure of thechattel mortgage over the subject vehicle without any right on the
part of Magna to seek the paymentof unpaid balance of the purchase price.
According to the appellate court, the MTC and the RTC erred in ordering the
defendant to pay theunpaid balance of the purchase price of the subject vehicle
irrespective of the fact that the complaintfiled by petitioner was for the foreclosure of
its chattel mortgage.
The judgment of the lower court in effect allowed Mana to retain the possession and
ownership of thesubject vehicle and at the same time claim against the defendant for
the unpaid balance of itspurchase price.ISSUE(S):1. Whether petitioner availed of
avail itself of the first and third remedies under Article 1484; and,2. Whether
there was actual foreclosure of the subject motor vehicle
HELD:
As to the First IssueThe Supreme Court says YES.
It is unmistakable that petitioner preferred to avail itself of thefirst
and third remedies under Article 1484, at the same time suing for
replevin. For this reason, the Courtof Appeals justifiably set aside
the decision of the RTC. Perusing the Complaint, the petitioner, under
itsprayer number 1, sought for the payment of the unpaid
amortizations which is a remedy that is providedunder Article 1484
of the Civil Code, allowing an unpaid vendee to exact fulfillment of
the obligation. Atthe same time, petitioner prayed that Colarina be
ordered to surrender possession of the vehicle so thatit may
ultimately be sold at public auction, which remedy is contained
under Article 1484. Such a schemeis not only irregular but is a
flagrant circumvention of the prohibition of the law. By praying for
theforeclosure of the chattel, Magna Financial Services Group, Inc.
renounced whatever claim it may haveunder the promissory note.
Article 1484, paragraph 3, provides that if the vendor has availed hi
mself of the right to foreclose the chattel mortgage, he shall have no
further action against the purchaser to recover any unpaid
balance of the purchase price.
Any agreement to the contrary shall be void.
In other words, in allproceedings for the foreclosure of chattel
mortgages executed on chattels which have been sold on
theinstallment plan, the mortgagee is limited to the property included
in the mortgage.In sum, since the petitioner has undeniably elected a
remedy of foreclosure under Article 1484(3) of the Civil Code, it is
bound by its election and thus may not be allowed to change what it
has opted for nor to ask for more. On this point, the
Court of Appeals correctly set aside the trial courts decision and
instead rendered a judgment of foreclosure as prayed for by the
petitioner.
As to the Second IssueThe Supreme Court says NO.
In the case at bar, there is no dispute that the subject vehicle
isalready in the possession of the petitioner, Magna Financial
Services Group, Inc. However, actualforeclosure has not been
pursued, commenced or concluded by it.Where the mortgagee
elects a remedy of foreclosure, the law requires the actual
foreclosure of themortgaged chattel. As held in the case
Manila Motor Co. v. Fernandez
, it is actual sale of the mortgagedchattel in accordance with
Sec. 14 of Act No. 1508 that would bar the creditor (who
chooses to foreclose)from recovering any unpaid balance. And
it is deemed that there has been foreclosure of the
mortgagewhen all the proceedings of the foreclosure, including
the sale of the property at public auction, havebeen
accomplished
Pascual vs. Universal Motors Corp.
61 SCRA 121
November 1974
FACTS:
Was Article 1484 of the New Civil Code applicable in the case
at bar?
COURT RULING:
The Supreme Court concluded to the contrary, saying that the first
issue was whether or not the sale was one on installments. The lower
court found that it was, and that there was failure to pay two or more
installments, a finding which is not subject to review by the Supreme
Court.
The next contention is that what article 1484 withholds from the
vendor is the right to recover any deficiency from the
purchaser after the foreclosure of the chattel mortgage, and
not a recourse to the additional security put up by a third
party to guarantee the purchaser's performance of his
obligation. But the Supreme Court to sustain this argument of
the appellant would be to indirectly subvert and public policy
overturn the protection given by Article 1484.
Southern Motors Inc vs. Moscoso
2 SCRA 168
May 1961
FACTS:
Which remedy under the Civil Code did the vendor Southern
Motors avail?
COURT RULING:
The Supreme Court, in affirming the decision of the lower court, found
that there is nothing unlawful or irregular in appellee Southern
Motors's act of attaching the mortgaged truck itself.