Beruflich Dokumente
Kultur Dokumente
17, 2015 1
G.R. No. L-46306
LEVY
HERMANOS,
vs.
LAZARO BLAS GERVACIO, defendant-appellee.
Felipe
Caniblas
Abreu, Lichaucco and Picazo for appellee.
INC., plaintiff-appellant,
for
appellant.
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.
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable in installments shall confer upon the
vendor the right to cancel the sale or foreclose the mortgage if one has been given on the
property, without reimbursement to the purchaser of the installments already paid, if there be
an agreement to this effect.
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.
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.lwphi1.nt
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.
Judgment is reversed, and the defendant-appellee is hereby sentenced to pay plaintiff-appellant the
sum of P1,600 with interest at the rate of 12 per cent per annum from June 15, 1937, and the sum of
P52.08 with interest at the rate of 6 per cent from the date of the filing of the complaint, with costs in
both instances against the appellee.
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.
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 plaintiffappellee, 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
SYLLABUS
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 airconditioner 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 extra-judicially 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
above-stated,
the
trial
court
ruled
in
favor
of Plaintiff-Appellee.
Defendants-appellants assail the Deed of Conditional Sale under which they purchased the three (3)
Daikin air-conditioners from plaintiff-appellee as being contrary to law, morals, good custom, public
order or public policy. In particular, they point to the contracts paragraphs 5 and 7 as iniquitous, which
paragraphs
state
that:jgc:chanrobles.com.ph
"5. Should BUYER fail to pay any of the monthly installments when due, or otherwise fail to comply
with any of the terms and conditions herein stipulated, this contract shall automatically become null
and void and all sums so paid by BUYER by reason thereof shall be considered as rental and the
SELLER shall then and there be free to take possession thereof without liability for trespass or
responsibility for any article left in or attached to the PROPERTY:chanrob1es virtual 1aw library
x
"7. Should SELLER rescind this contract for any of the reasons stipulated in the preceding paragraph,
the BUYER, by these presents obligates himself to peacefully deliver the PROPERTY to the SELLER
in case of rescission, and should a suit be brought in court by the SELLER to seek judicial declaration
of rescission and take possession of the PROPERTY, the BUYER hereby obligates himself to pay all
the expenses to be incurred by reason of such suit and in addition to pay the sum equivalent to 25%
of the remaining unpaid obligation as damages, penalty and attorneys fees;" 3
Defendants-appellants claim that for the use of the plaintiff-appellees three air-conditioners, from July
5, 1975 4 to April 11, 1977, 5 or for a period of about 22 months, they, in effect, paid rentals in the
amount of P6,429,92, 6 or roughly one-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. Defendants-appellants
were likewise ordered to pay P1,000.00 as attorneys fees when plaintiff-appellee 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
defendants-appellants.chanrobles law library : red
I
Defendants-appellants cannot complain that their downpayment of P774.00 and installment payments
of P5,655.92 8 were treated as rentals even though the total amount of P6,429,92 which they had
paid, approximates one-third (1/3) of the cost of the three (3) air-conditioners. A stipulation in a
contract that the installments paid shall not be returned to the vendee is valid insofar as the same
may not be unconscionable under the circumstances is sanctioned by Article 1486 of the New Civil
Code. 9 The monthly installment payable by defendants-appellants was P774.00. 10 The P5,655.92
installment payments correspond only to seven (7) monthly installments. Since they admit having
used the air-conditioners for twenty-two (22) months, this means that they did not pay fifteen (15)
monthly installments on the said air-conditioners and were thus using the same FREE for said period
to the prejudice of plaintiff-appellee. Under the circumstances, the treatment of the installment
payments as rentals cannot be said to be unconscionable.
II
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 air-conditioners, 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 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.
13
Clearly, plaintiff-appellee chose the second remedy of Article 1484 in seeking enforcement of its
contract with defendants-appellants. This is shown from the fact that its Exhibit "F" which showed the
computation of the outstanding account of defendants-appellants as of October 3, 1977 took into
account "the value of the units repossessed." 14 Having done so, it is barred from exacting payment
from defendants-appellants of the balance of the price of the three air-conditioning units which it had
already
repossessed.
It
cannot
have
its
cake
and
eat
it
too.
15
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.
SO ORDERED.
AMADOR
TAJANLANGIT,
ET
vs.
SOUTHERN MOTORS, INC., ET AL., defendants-appellees.
Almacen
and
Diosdado Garingalao for appellees.
Almacen
AL., plaintiff-appellants,
for
appellants.
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 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.
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.
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 aliaswrit 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).
WHEREFORE, judgement is hereby rendered dismissing the complaint with costs against
plaintiffs costs against plaintiffs. Let the writ of preliminiary injunction issued on August 26,
1954, be lifted.
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.
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 foreclosethe 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 writ of attachment on his
other properties is erroneous. (Emphasis ours.)
(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. (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.
At any rate it is the actual sale of the mortgaged chattel in accordance with section 14 Act No.
1508 that would bar the creditor (who chooses to foreclose) from recovering any unpaid
balance. (Pacific Com. Co.vs. De la Rama, 72 Phil. 380.) (Manila Motor Co. vs. Fernandez,
99 Phil., 782.).
Concerning their second theory, settlement or cancellation appellants allege that the very
implements sold "were duly returned" by them, and "were duly received and accepted by the said
vendor-mortgagee". Therefore they argue, "upon the return of the same chattels and due acceptance
of the same by the vendor-mortgagee, the conditional sale is ipso facto cancelled, with the right of the
vendor-mortgagee to appropriate whatever downpayment and posterior monthly installments made
by the purchaser as it did happen in the present case at bar."
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.
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
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.
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:
Judgment. The decision dismissing the complaint, is affirmed, with costs against appellants. So
ordered.
NONATO, petitioners,
INVESTOR'S
FINANCE
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.
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?
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
WITNESS: Yes, sir. 4
(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 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 remedieseither 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. 2
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.
WHEREFORE, the judgment of the appellate court in CA-G.R. No. 69276-R is hereby set aside and
the complaint filed by respondent Investors Finance Corporation against petitioner in Civil Case No.
13852 should be, as it is hereby, dismissed. No costs.
SO ORDERED.
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:
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.
Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the
defendant corporation foreclosed the chattel mortgage extra-judicially, 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.
V
THE LOWER COURT (sic) IN NOT DECIDING THE CASE IN FAVOR OF THE
DEFENDANTS. Appellants' Brief, pp. 9 & 10)
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:
Art. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise y of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
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 MANILA CONCERNING THE TAXICAB
FRANCHISE IS OF NO LEGAL EFFECT.
III
THE LOWER COURT ERRED IN SETTING ASIDE THE CERTIFICATE OF SALE
ISSUED BY THE CITY SHERIFF OF MANILA IN FAVOR OF FILIPINAS
INVESTMENT AND FINANCE CORPORATION COVERING PLAINTIFFS' TAXICAB
FRANCHISE.
IV
(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.
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
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.
Selling price
P7,500.00
Financing charge
P1,426.82
P8,926.82
Payable on Delivery
P1,006.82
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 twenty-six 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.chanroblesvirtualawlibrary chanrobles virtual law library
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 of Pacific 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) chanrobles virtual law library
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).chanroblesvirtualawlibrary chanrobles virtual law library
After several postponements, the case was set for hearing. As a result of the non- appearance 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. FilipinasInvestment (23 SCRA 791).chanroblesvirtualawlibrary chanrobles virtual
law library
Acting on the motion, the city court issued an Order: chanrobles virtual law library
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 ofRuperto G. Cruz v.
Filipinas Investment decided on May 27, 1968, G.R. No. L-24772 in connection with Article 1484 of
the Civil Code, and finding the same well taken.chanroblesvirtualawlibrary chanrobles virtual law
library
Let this case be dismissed without pronouncement as to costs.
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
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.
for
lack
of
Luneta Motor Company appealed the case to the Court of First Instance of Manila where it was
docketed as Civil Case No. 74381.chanroblesvirtualawlibrary chanrobles virtual law library
After various incidents, the respondent court issued an order which, in part, reads: chanrobles virtual
law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
xxx xxx xxxchanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
Petitioner Eutropio Zayas, Jr. now maintains::
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 chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
The respondent's arguments have no merit.chanroblesvirtualawlibrary chanrobles virtual law library
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: chanrobles virtual law library
C E R T I F I C A T I O N chanrobles virtual law library
This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid from us the following, of his FORD
THAMES BEARING Engine No. 400E-127738, promissory note dated October 6, 1966. Viz:
ESCAO O.R
NUMBER
DATE RECEIVED
AMOUNT
09998
October 5, 1966
P1,000.00
10788
April 8, 1967
100.00
10064
242.00
10795
100.00
10188
November 8, 1966
166.00
10827
100.00
10355
December 12,1966
400.00
10934
100.00
270.00
10991
May 26,1967
100.00
10536
February 1, 1967
60.00
11105
June 19,1967
150.00
10645
100.00
10704
March 13,1967
100.00
P3,148.00
10749
10132
March 30,1967
60.00
100.00
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.chanroblesvirtualawlibrary chanrobles virtual law library
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,
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
SO ORDERED.
INC., plaintiff-appellant,
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.
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.
The appeal is meritorious.
In issuing a writ of replevin, and, after trial, in upholding plaintiff-appellant's right to the possession of
the car, and ratifying and confirming its delivery to the said plaintiff-appellant, the court below correctly
considered the action as one of replevin to secure possession of the mortgaged vehicle as a
preliminary step to this foreclosure sale contemplated in Section 14 of Act No. 1508 (Bachrach Motor
Co. vs. Summers, 42 Phil., 3; Seo vs. Pestolante, G.R. No. L-11755, April 23, 1958). The said court
however erred in concluding that the legal effect of the filing of the action was to bar plaintiff-appellant
from accepting further payments on the promissory note. That the ultimate object of the action is the
foreclosure of the chattel mortgage, is of no moment, for it is the fact of foreclosure and actual sale of
the mortgaged chattel that bar further recovery by the vendor of any balance on the purchaser's
RUPERTO
G.
CRUZ,
ET
AL., plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, defendant-appellant.
Villareal,
Almacen,
Navarra
and
Associates
Sycip, Salazar, Luna, Manalo and Feliciano for defendant-appellant.
for
plaintiffs-appellees.
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...;
12. That pursuant to a provision in the real estate mortgage contract, authorizing the
mortgagee to foreclose the mortgage judicially or extra-judicially, defendant on February 29,
1964 requested the Provincial Sheriff of Bulacan to take possession of, and sell, the land
subject of the Real Estate Mortgage, Annex "B-1", to satisfy the sum of P43,318.92, the total
outstanding obligation of the plaintiffs to the defendant, as itemized in the Statement of
Account, which is made a part hereof as Annex "F"...;
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...;
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 Mortgage (Annexes "A", "B" and "B-l") to the defendant, Filipinas
Investment & Finance Corporation, with due notice of such assignment to the plaintiffs...;
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;
7. That plaintiff Cruz defaulted in the payment of the promisory note (Annex "A") ; that the
only sum ever paid to the defendant was Five Hundred Pesos (P500.00) on October 2, 1963,
which was applied as partial payment of interests on his principal obligation; that,
notwithstanding defendant's demands, Cruz made no payment on any of the installments
stipulated in the promissory note;
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.
8. That by reason of Cruz's default, defendant took steps to foreclose the chattel mortgage on
the bus; that said vehicle had been damaged in an accident while in the possession of
plaintiff Cruz;
9. That at the foreclosure sale held on January 31, 1964 by the Sheriff of Manila, the
defendant was the highest bidder, defendant's bid being for Fifteen Thousand Pesos
(P15,000.00)...;
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 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.
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.
There is no merit in this contention. To sustain appellant's argument is to overlook the fact that if the
guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be
entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code) ; so that
ultimately, it will be the vendee who will be made to bear the payment of the balance of the price,
despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection given by
Article 1484 would be indirectly subverted, and public policy overturned.
Neither is there validity to appellant's allegation that, since the law speaks of "action", the restriction
should be confined only to the bringing of judicial suits or proceedings in court.
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.
VITUG, J.:p
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:
"Acceptance by the holder thereof of payment of any installment or any part 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 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.
PROMISSORY NOTE
"Maker:
Acct.
Makati,
Philippines
December 7, 1984
No.
Metro
115008276
Manila,
Rancho
Estate
I,
"P122,856.00
(S/t) FRANCISCO BORBON
"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 or 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 7th day of each month starting January, 1985, provided that at a
late payment charge of 3% per month shall be added on each unpaid installment
from due date thereof until fully paid.
Address:
73
Pamplona, Las Pias, MM
Sterling
WITNESSES
(illegible) (illegible)
Life
Home
notice,
ORDER
OF
presentment
and
K.N. DULCE
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.
KCD20D0F
Key No. 5509
Isuzu
(Conv.)
207685
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 they bought
was not delivered (pp. 11-12, tsn, Oct. 17, 1985). Instead, through misinterpretation
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 3-3A).
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 asignee stands in the place of an assignor which, to the
mind of the court, is correct. The asignee 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 the petitioners
could 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.
In their appeal to this Court, petitioners merely seek a modification of the decision of the
appellate court insofar as it has upheld the court a quo in the award of liquidated damages
and attorney's fees in favor of private respondent. Petitioners invoke the provisions of Article
1484 of the Civil Code which reads:
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:
Civil Code, it is only when there has been a foreclosure of the chattel mortgage that the
vendee-mortgagor would be permitted to escape from a deficiency liability. Thus, if the case
is one for specific performance, even when this action is selected after the vendee has
refused to surrender the mortgaged property to permit an extrajudicial foreclosure, that
property may still be levied on execution and an alias writ may be issued if the proceeds
thereof
are
insufficient
to
satisfy
the
judgment
credit. 7 So, also, a mere demand to surrender the object which is not heeded by the
mortgagor will not amount to a foreclosure, 8 but the repossession thereof by the vendormortgagee would have the effect of a foreclosure.
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 obligations which . . . include interest on the principal, attorney's fees,
expenses of collection, and the 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 be
likewise be called in 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 in Filipinas 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.
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.
MACONDRAY
AND
vs.
URBANO EUSTAQUIO, defendant-appellee.
Jose
Agbulos
Urbano Eustaquio in his own behalf.
CO.,
INC., plaintiff-appellant,
for
appellant.
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 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.
I. The plaintiff's first assignment of error is addressed to the appealed judgment in so far as it applied
Act No. 4122 and dismissed the complaint, notwithstanding the fact that the defendant waived his
rights under said law by not making any appearance, by having been declared in default, by not
interposing any special defense, and not asking for any positive relief.
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
"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 an effort to enlighten us, our attention has been directed to certain authorities, principally
one coming from the state of Washington and another from the State of Oregon. For reason
which will soon appear we do not think that either decision is controlling.
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.)
In Oregon, in a decision of a later date, an Act abolishing deficiency judgment upon the
foreclosure of mortgages to secure the unpaid balance of the purchase price of real property
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.
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. (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.
Most constitutional issues are determined by the court's approach to them. The proper
approach in cases of this character should be to resolve all presumptions in favor of the
validity of an act in the absence of a clear conflict between it and the constitution. All doubts
should be resolved in its favor.
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.
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.
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
FILIPINAS
INVESTMENT
&
FINANCE
CORPORATION, plaintiff-appellee,
vs.
LOURDES V. RIDAD and LUIS RIDAD, defendants-appellants.
Osmundo
R.
Victoriano
Emilio B. Saunar for plaintiff-appellee.
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.
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 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
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 pre-trial 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 precept 2 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., (L-13373, 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 chattel 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
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 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.
xxx
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
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 mortgagee (appellee) are reasonable.
To the extent that our pronouncement here conflicts with the ruling announced and followed in the
cases hereinbefore discussed, the latter must be considered pro tanto qualified.
ACCORDINGLY, the judgment a quo is affirmed. No costs.
FINANCE,
INC., Petitioner,
(or the NET CONTRACT AMOUNT)
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:
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease
Agreement,1whereby the former leased out to the latter one (1) set of Silicon High Impact Graphics
and accessories worthP3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10
worth P6,500,000.00. In connection with this agreement, the parties subsequently signed two (2)
separate documents, each denominated as Lease Schedule. 2 Likewise forming parts of the basic
lease agreement were two (2) separate documents denominated Disclosure Statements of
Loan/Credit Transaction (Single Payment or Installment Plan) 3 that GIRAFFE also executed for each
of the leased equipment. These disclosure statements inter alia described GIRAFFE, vis--vis the two
aforementioned equipment, as the "borrower" who acknowledged the "net proceeds of the loan," the
"net amount to be financed," the "financial charges," the "total installment payments" that it must pay
monthly for thirty-six (36) months, exclusive of the 36% per annum "late payment charges." Thus, for
the Silicon High Impact Graphics, GIRAFFE agreed to pay P116,878.21 monthly, and for Oxberry
Cinescan, P181.362.00 monthly. Hence, the total amount GIRAFFE has to pay PCI LEASING for 36
months of the lease, exclusive of monetary penalties imposable, if proper, is as indicated below:
P116,878.21
@
month
Impact Graphics) x 36 months =
(for
the
Silicon
High
P 4,207,615.56
-- PLUS-P181,362.00
@
Cinescan) x 36 months =
Total
Amount
to
month
(for
the
Oxberry
P 6,529,032.00
be
paid
by
GIRAFFE
P 10,736,647.56
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount
of P3,120,000.00 by way of "guaranty deposit," a sort of performance and compliance bond for the
two equipment. Furthermore, the same agreement embodied a standard acceleration clause,
operative in the event GIRAFFE fails to pay any rental and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment
obligations. And following a three-month default, PCI LEASING, through one Atty. Florecita R.
Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter 4 dated February 24,
1998 to GIRAFFE.
The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case against
GIRAFFE. In its complaint,5 docketed in said court as Civil Case No. 98-34266 and raffled to Branch
2276 thereof, PCI LEASING prayed for the issuance of a writ of replevin for the recovery of the leased
property, in addition to the following relief:
2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the defendant
[GIRAFFE], as follows:
a. Declaring the plaintiff entitled to the possession of the subject properties;
b. Ordering the defendant to pay the balance of rental/obligation in the total amount
of P8,248,657.47 inclusive of interest and charges thereon;
c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit. (Words in
bracket added.)
Upon PCI LEASINGs posting of a replevin bond, the trial court issued a writ of replevin, paving the
way for PCI LEASING to secure the seizure and delivery of the equipment covered by the basic lease
agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing that
the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action. Expounding
on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of
personal property, PCI LEASING is barred from further pursuing any claim arising from the lease
agreement and the companion contract documents, adding that the agreement between the parties is
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, 2000,8petitioner 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.
R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory
legislation, merely providing a regulatory framework for the organization, registration, and regulation
of the operations of financing companies. As couched, it does not specifically define the rights and
obligations of parties to a financial leasing arrangement. In fact, it does not go beyond defining
commercial or transactional financial leasing and other financial leasing concepts. Thus, the
relevancy of Article 18 of the Civil Code which reads:
Article 18. - In matters which are governed by special laws, their deficiency shall be supplied by
the provisions of this [Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment sales
of movable property, does not apply to a financial leasing agreement because such agreement, by
definition, does not confer on the lessee the option to buy the property subject of the financial lease.
To the petitioner, the absence of an option-to-buy stipulation in a financial leasing agreement, as
understood under R.A. No. 8556, prevents the application thereto of Articles 1484 and 1485 of the
Civil Code.
We are not persuaded.
contained [a] clause [requiring the Lessee to give a guaranty deposit in the amount of P20,800.00]
xxx
a mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, office machines, and
other movable or immovable property in consideration of the periodic payment by the lessee of a
fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or
acquisition cost, including any incidental expenses and a margin of profit over an obligatory period of
not less than two (2) years during which the lessee has the right to hold and use the leased property
but with no obligation or option on his part to purchase the leased property from the owner-lessor
at the end of the lease contract.
After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit of
P20,800.00, he stopped further payments. Putting the two sums together, the financing company had
in its hands the amount of P62,470.59 as against the total agreed "rentals" of P60,821.28 or an
excess of P1,649.31.
In its previous holdings, however, the Court, taking into account the following mix: the imperatives of
equity, the contractual stipulations in question and the actuations of parties vis--vis their contract,
treated disguised transactions technically tagged as financing lease, like here, as creating a different
contractual relationship. Notable among the Courts decisions because of its parallelism with this case
is BA Finance Corporation v. Court of Appeals10 which involved a motor vehicle. Thereat, the Court
has treated a purported financial lease as actually a sale of a movable property on installments and
prevented recovery beyond the buyers arrearages. Wrote the Court in BA Finance:
xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should and must be
credited in his favor, in the interest of fairness, justice and equity. The plaintiff should not be allowed
to unduly enrich itself at the expense of the defendant. xxx This is even more compelling in this case
where although the transaction, on its face, appear ostensibly, to be a contract of lease, it is actually a
financing agreement, with the plaintiff financing the purchase of defendant's automobile . The Court
is constrained, in the interest of truth and justice, to go into this aspect of the transaction between the
plaintiff and the defendant with all the facts and circumstances existing in this case, and which the
court must consider in deciding the case, if it is to decide the case according to all the facts. xxx.
The transaction involved is one of a "financial lease" or "financial leasing," where a financing
company would, in effect, initially purchase a mobile equipment and turn around to lease it to a client
who gets, in addition, an option to purchase the property at the expiry of the lease period. xxx.
xxx
xxx
xxx
The respondent appellate court considered it only just and equitable for the guaranty deposit made by
the private respondent to be applied to his arrearages and thereafter to hold the contract terminated.
Adopting the ratiocination of the court a quo, the appellate court said:
xxx
xxx
xxx
Considering the factual findings of both the court a quo and the appellate court, the only logical
conclusion is that the private respondent did opt, as he has claimed, to acquire the motor vehicle,
justifying then the application of the guarantee deposit to the balance still due and obligating the
petitioner to recognize it as an exercise of the option by the private respondent. The result would
thereby entitle said respondent to the ownership and possession of the vehicle as the buyer thereof.
We, therefore, see no reversible error in the ultimate judgment of the appellate court. 11 (Italics in the
original; underscoring supplied and words in bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals, 12 the Court viewed and thus declared a
financial lease agreement as having been simulated to disguise a simple loan with security, it
appearing that the financing company purchased equipment already owned by a capital-strapped
client, with the intention of leasing it back to the latter.
In the present case, petitioner acquired the office equipment in question for their subsequent lease to
the respondent, with the latter undertaking to pay a monthly fixed rental therefor in the total amount
of P292,531.00, or a total of P10,531,116.00 for the whole 36 months. As a measure of good faith,
respondent made an up-front guarantee deposit in the amount of P3,120,000.00. The basic
agreement provides that in the event the respondent fails to pay any rental due or is in a default
situation, then the petitioner shall have cumulative remedies, such as, but not limited to, the
following:13
most - of the equipment. All in all, for an investment of P8,100,000.00, the petitioner stands to make
in a years time, out of the transaction, a total of P21,779,029.47, or a net of P13,679,029.47, if we
are to believe its outlandish legal submission that the PCI LEASING-GIRAFFE Lease Agreement was
an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556 was, in
fact, precisely enacted to regulate financing companies operations with the end in view of
strengthening their critical role in providing credit and services to small and medium enterprises and
to curtail acts and practices prejudicial to the public interest, in general, and to their clienteles, in
particular.16 As a regulated activity, financing arrangements are not meant to quench only the thirst for
profit. They serve a higher purpose, and R.A. No. 8556 has made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and obligations, as
between each other, of the financial lessor and the lessee. In determining the respective
responsibilities of the parties to the agreement, courts, therefore, must train a keen eye on the
attendant facts and circumstances of the case in order to ascertain the intention of the parties, in
relation to the law and the written agreement. Likewise, the public interest and policy involved should
be considered. It may not be amiss to state that, normally, financing contracts come in a standard
prepared form, unilaterally thought up and written by the financing companies requiring only the
personal circumstances and signature of the borrower or lessee; the rates and other important
covenants in these agreements are still largely imposed unilaterally by the financing companies. In
other words, these agreements are usually one-sided in favor of such companies. A perusal of the
lease agreement in question exposes the many remedies available to the petitioner, while there are
only the standard contractual prohibitions against the respondent. This is characteristic of standard
printed form contracts.
There is more. In the adverted February 24, 1998 demand letter 17 sent to the respondent, petitioner
fashioned its claim in the alternative: payment of the full amount of P8,248,657.47, representing the
unpaid balance for the entire 36-month lease period or the surrender of the financed asset under pain
of legal action. To quote the letter:
Demand is hereby made upon you to pay in full your outstanding balance in the amount of
P8,248,657.47 on or before March 04, 1998 OR to surrender to us the one (1) set Silicon High Impact
Graphics and one (1) unit Oxberry Cinescan 6400-10
We trust you will give this matter your serious and preferential attention. (Emphasis added).
Evidently, the letter did not make a demand for the payment of the P8,248,657.47 AND the return of
the equipment; only either one of the two was required. The demand letter was prepared and signed
by Atty. Florecita R. Gonzales, presumably petitioners counsel. As such, the use of "or" instead of
"and" in the letter could hardly be treated as a simple typographical error, bearing in mind the nature
of the demand, the amount involved, and the fact that it was made by a lawyer. Certainly Atty.
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such transactions
are leases only in name. The so-called rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount results, by the terms of the bargain, in the
transfer of title to the lessee.
In another old but still relevant case of U.S. Commercial v. Halili, 22 a lease agreement was declared to
be in fact a sale of personal property by installments. Said the Court:
. . . There can hardly be any question that the so-called contracts of lease on which the present action
is based were veritable leases of personal property with option to purchase, and as such come within
the purview of the above article [Art. 1454-A of the old Civil Code on sale of personal property by
installment]. xxx
Being leases of personal property with option to purchase as contemplated in the above article, the
contracts in question are subject to the provision that when the lessor in such case "has chosen to
deprive the lessee of the enjoyment of such personal property," "he shall have no further action"
against the lessee "for the recovery of any unpaid balance" owing by the latter, "agreement to the
contrary being null and void."
In choosing, through replevin, to deprive the respondent of possession of the leased equipment, the
petitioner waived its right to bring an action to recover unpaid rentals on the said leased items.
Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are hereunder rereproducing, cannot be any clearer.
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:
xxx
xxx
xxx
(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.
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment
of the thing.
As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals, 23 the remedies provided for
in Article 1484 of the Civil Code are alternative, not cumulative. The exercise of one bars the exercise
of the others. This limitation applies to contracts purporting to be leases of personal property with
option to buy by virtue of the same Article 1485. The condition that the lessor has deprived the lessee
of possession or enjoyment of the thing for the purpose of applying Article 1485 was fulfilled in this
To principal 1,682.28
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.
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.
The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila
and for execution of the corresponding deed of conveyance after payment of the balance still
due on their purchase price. Private respondent as plaintiff had entered into two written
contracts with petitioner Legarda Hermanos as defendant subdivision owner, whereby the
latter agreed to sell to him Lots Nos. 7 and 8 of block No. 5N of the subdivision with an area of
150 square meters each, for the sum of P1,500.00 per lot, payable over the span of ten years
divided into 120 equal monthly installments of P19.83 with 10% interest per annum, to
commence on May 26, 1948, date of execution of the contracts. Subsequently, Legarda
Hermanos partitioned the subdivision among the brothers and sisters, and the two lots were
among those allotted to co-petitioner Jose Legarda who was then included as co-defendant in
the action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of the
stipulated 120) monthly installments totalling P3,582.06 up to the month of February, 1956,
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."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete
total payment of the 120 installments by May, 1958 as stipulated in the contracts to sell,
"pursuant to the provisions of both contracts all the amounts paid in accordance with the
agreement together with the improvements on the premises have been considered as rents
paid and as payment for damages suffered by your failure," 2 and "Said cancellation being in
order, is hereby confirmed."
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:
During the hearing, plaintiff testified that he suspended payments because the
lots were not actually delivered to him, or could not be, due to the fact that they
were completely under water; and also because the defendants-owners failed
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 of one lot of P1,500.00 and hence one of the two lots as
chosen by respondent would be considered asfully paid, is fair and just and in accordance
with law and equity.
The issue, therefore, is: Under the above facts, may defendants be compelled,
or not, to allow plaintiff to complete payment of the purchase price of the two
lots in dispute and thereafter to execute the final deeds of conveyance thereof
in his favor?
As already stated, the monthly payments for eight years made by respondent were applied to
his account without specifying or distinguishing between the two lots subject of the two
agreements under petitioners' own statement of account, Exhibit "1". 7 Even considering
respondent as having defaulted after February 1956, when he suspended payments after the
95th installment, he had as of the already paid by way ofprincipal (P1,682.28) more than the
full value of one lot (P1,500.00). The judgment recognizing this fact and ordering the
conveyance to him of one lot of his choice while also recognizing petitioners' right to retain
the interests of P1,889.78 paid by him for eight years on both lots, besides the cancellation of
the contract for one lot which thus reverts to petitioners, cannot be deemed to
deny substantial justice to petitioners nor to defeat their rights under the letter and spirit of
the contracts in question.
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 seller-appellant 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."
In affirming, the Court held that "Regardless, however, of the propriety of applying said Art.
1592 thereto, We find that plaintiff herein has not been denied substantial justice, for,
according to Art. 1234 of said Code: 'If the obligation has been substantially
performed in good faith, the obligor may recover as though there had been a strict and
complete fulfillment, less damages suffered by the obligee,'" and "that in the interest
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 of P34,982.50. 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/surcharges 2 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. 833 over the property. The said contract was silent on the
unsettled balance on the down payment.
JESTRA
DEVELOPMENT
AND
MANAGEMENT
CORPORATION, Petitioner,
vs.
DANIEL PONCE PACIFICO, represented by his attorney-in-fact Jordan M. Pizarras, Respondent.
DECISION
CARPIO MORALES, J.:
On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation Application 1 with Fil-Estate
Marketing Association for the purchase of a house and lot located at Lot 28, Block 3, Phase II, Jestra
Villas, Barangay La Huerta, Municipality of Paraaque, Metro Manila (the property), and paid the
reservation fee of P20,000.
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
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 re-open 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
On February 24, 1999, Pacifico filed a complaint before the Housing and Land Use Regulatory Board
(HLURB) against Jestra, docketed as HLURB Case No. REM-122499-10378, 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.
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.
as
On appeal, the Board of Commissioners of the HLURB modified the decision of the Arbiter by deleting
the award of P50,000 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 denied 15 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 Order 17 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
Decision18dated 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:
I. . . . adopting the OPs conclusion that penalty payments should be included in computing
the total number of installment payments made by a buyer (in relation to the payment of a
cash surrender value upon cancellation of a contract to sell) in spite of its exclusion from the
items to be included in computing the two (2) years installment payments as provided in RA
6552
II. . . . adopting the OPs conclusion that petitioner failed to deliver possession of the subject
property to respondent upon his full payment of the downpayment [sic] and that petitioners
act of canceling the contract to sell was unconscionable despite being allowed under RA
6552.
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 nonpayment 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:
SECTION 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred fortyfour, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has
paid at least two years of installments, the buyer is entitled to the following rights in case he defaults
in the payment of succeeding installments:
(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.
Down payments, deposits or options on the contract shall be included in the computation of the total
number of installment payments made.
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.
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 cancelled 22 30 days
from May 13, 1998 or on June 12, 1998.
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.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution dated January 31,
2005 and March 16, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE. The
complaint of respondent, Daniel Ponce Pacifico, is DISMISSED.1avvphi1.net
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.
SO ORDERED.
As respondent failed to pay at least two years of installments, he is not, under above-quoted 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:
MCLAUGHLIN, petitioner,
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.
On November 14, 1980, the trial court granted the motion for writ of execution.
On November 17, 1980, private respondent filed a motion for reconsideration tendering at the same
time a Pacific Banking Corporation certified manager's check in the amount of P76,059.71, payable to
the order of petitioner and covering the entire obligation including the installment due on December
31, 1980. However, the trial court denied the motion for reconsideration in an order dated November
21, 1980 and issued the writ of execution on November 25, 1980.
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:
The issue here is whether respondent court committed a grave abuse of discretion in
issuing the orders dated November 21, 1980 and November 27,1980.
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.
In aforesaid case, it was held that a delay in payment for a small quantity of
molasses, for some twenty days is not such a violation of an essential condition of
the contract as warrants rescission for non-performance.
Considering that Flores had already paid P101,550.00 under the contract to sell,
excluding the monthly rentals paid, certainly it would be the height of inequity to have
this amount forfeited in favor McLaughlin. Under the questioned orders, McLaughlin
would get back the property and still keep P101,550.00.
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo ruling was
reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that
Flores pay the balance of P69,059.71 on or before October 31, 1980. Thus it is
undeniable that despite Flores' failure to make the payment which was due on June
1980, McLaughlin waived whatever right she had under the compromise agreement
as incorporated in the decision of respondent court, to demand rescission.
xxx xxx xxx
It is significant to note that on November 17, 1980, or just seventeen (17) days after
October 31, 1980, the deadline set by McLaughlin, Flores tendered the certified
manager's check. We hold that the Song Fo ruling is applicable herein considering
that 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.
Furthermore, as held in the recent case of New Pacific Timber & Supply Co., Inc. vs.
Hon. Alberto Seneris, L-41764, December 19, 1980, it is the accepted practice in
business to consider a cashier's or manager's check as cash and that upon
certification of a check, it is equivalent to its acceptance (Section 187, Negotiable
Instrument Law) and the funds are thereby transferred to the credit of the creditor
(Araneta v. Tuason, 49 O.G. p. 59).
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.
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 nonpayment 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).
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:
The rule regarding payment of redemption prices is invoked. True that consignation
of the redemption price is not necessary in order that the vendor may compel the
vendee to allow the repurchase within the time provided by law or by contract.
(Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We have held that in such cases a
mere tender of payment is enough, if made on time, as a basis for action against the
vendee to compel him to resell. But that tender does not in itself relieve the vendor
from his obligation to pay the price when redemption is allowed by the court. In other
words, tender of payment is sufficient to compel redemption but is not in itself a
payment that relieves the vendor from his liability to pay the redemption price. "
(Paez vs. Magno, 83 Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the Manager's Check
tendered by private respondent on November 17, 1980 was subsequently cancelled
and converted into cash, the Court RESOLVED to REQUIRE the parties within ten
(10) days from notice to inform the Court whether or not the amount thereof was
deposited in court and whether or not private respondent continued paying the
monthly rental of P1,000.00 stipulated in the Compromise Agreement.
In compliance with this resolution, both parties submitted their respective manifestations which
confirm that the Manager's Check in question was subsequently withdrawn and replaced by cash, but
the cash was not deposited with the court.
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.
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.