Beruflich Dokumente
Kultur Dokumente
To prevent such sale, the Tajanlangits instituted this action in the Iloilo court
of first instance for the purpose among others, of annulling the alias writ of
execution and all proceedings subsequent thereto. Their two main theories:
(1) They had returned the machineries and farm implements to the Southern
Motors Inc., the latter accepted them, and had thereby settled their accounts;
for that reason, said spouses did not contest the action in Civil Case No.
2942; and (2) as the Southern Motors Inc. had repossessed the machines
purchased on installment (and mortgaged) the buyers were thereby relieved
from further responsibility, in view of the Recto Law, now article 1484 of the
New Civil Code.
For answer, the company denied the alleged "settlement and understanding"
during the pendency of civil case No. 2949. It also denied having repossessed
the machineries, the truth being that they were attached by the sheriff and
then deposited by the latter in its shop for safekeeping, before the sale at
public auction.
The case was submitted for decision mostly upon a stipulation of facts.
Additional testimony was offered together with documentary evidence.
Everything considered the court entered judgment, saying in part;
The proceedings in Civil Case No. 2942 above referred to, were had in the
Court of First Instance (Branch 1) of the Province and of the City of Iloilo.
While this court (Branch IV) sympathizes with plaintiffs, it cannot grant, in
this action, the relief prayed for the complaint because courts of similar
jurisdiction cannot invalidate the judgments and orders of each other.
Plaintiffs have not pursued the proper remedy. This court is without authority
and jurisdiction to declare null and void the order directing the issuance
of alias writ of execution because it was made by another court of equal rank
and category (see Cabiao and Izquierdo vs. Del Rosario and Lim, 44 Phil.,
82-186).
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.
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"What is being sought in this present action" say appellants "is to prohibit
and forbid the appellee Sheriff of Iloilo from attaching and selling at public
auction sale the real properties of appellants because that is now forbidden by
our law after the chattels that have been purchased and duly mortgagee had
already been repossessed by the same vendor-mortgagee and later on sold at
public auction sale and purchased by the same at such meager sum of
P10,000."
"Our law" provides,
ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise of the following remedies:
(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.).
It is true that there was a chattel mortgage on the goods sold. But the
Southern Motors elected to sue on the note exclusively, i.e. to exact
fulfillment of the obligation to pay. It had a right to select among the three
remedies established in Article 1484. In choosing to sue on the note, it was
not thereby limited to the proceeds of the sale, on execution, of the
mortgaged good.2
In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation
arose in connection with the purchase on installment of a Chevrolet truck by
Magbanua. Upon the latter's default, suit on the note was filed, and the truck
levied on together with other properties of the debtor. Contending that the
seller was limited to the truck, the debtor obtained a discharge of the other
properties. This court said:
By praying that the defendant be ordered to pay the sum of P4,690 together
with the stipulated interest at 12% per annum from 17 March 1954 until fully
paid, plus 10 per cent of the total amount due as attorney's fees and cost of
collection, the plaintiff acted to exact the fulfillment of the obligation and not
to foreclose the mortgage on the truck. . . .
As the plaintiff has chosen to exact the fulfillment of the defendant's
obligation, the former may enforce execution of the judgement rendered in
its favor on the personal and real properties of the latter not exempt from
execution sufficient to satisfy the judgment. That part of the
judgement depriving the plaintiff of its right to enforce judgment against the
properties of the defendant except the mortgaged truck and discharging the
writ of attachment on his other properties is erroneous. (Emphasis ours.)
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.
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
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unnecessary to deal with this procedural aspect, inasmuch as we find that, on
the merits, plaintiffs are not entitled to the relief demanded.
Judgment. The decision dismissing the complaint, is affirmed, with costs
against appellants. So ordered.
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G.R. No. L-67181 November 22, 1985
SPOUSES RESTITUTO NONATO and ESTER NONATO, petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and
INVESTOR'S FINANCE CORPORATIONrespondents.
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.
On June 28, 1976, defendant spouses Restituto Nonato and Ester Nonato
purchased one (1) unit of Volkswagen Sakbayan from the People's Car, Inc.,
on installment basis. To secure complete payment, the defendants executed a
promissory note (Exh. A or 1) and a chattel mortgage in favor of People's
Car, Inc, (Exh. B or 2). People's Car, Inc., assigned its rights and interests
over the note and mortgage in favor of plaintiff Investor's Finance
Corporation (FNCB) Finance). For failure of defendants to pay two or more
installments, despite demands, the car was repossessed by plaintiff on March
20, 1978 (Exh. E or 4).
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
Despite repossession, plaintiff demanded from defendants that they pay the
balance of the price of the car (Exhs. F and C). Finally, on June 9, 1978,
plaintiff filed before the Court of First Instance of Negros Occidental the
present complaint against defendants for the latter to pay the balance of the
price of the car, with damages and attorney's fees. (Records, pp. 36-37)
In their answer, the spouses Nonato alleged by way of defense that when the
company repossessed the vehicle, it had, by that act, effectively cancelled the
sale of the vehicle. It is therefore barred from exacting recovery of the unpaid
balance of the purchase price, as mandated by the provisions of Article 1484
of the Civil Code.
After due hearing, the trial court rendered a decision in favor of the IFC and
against the Nonatos, as follows:
(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.
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.
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The company thus denies having exercised its right to cancel the sale of the
repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos when it took
possession of the vehicle states that the vehicle could be redeemed within
fifteen [151 days. 3 This could only mean that should petitioners fail to
redeem the car within the aforesaid period by paying the balance of the
purchase price, the company would retain permanent possession of the
vehicle, as it did in fact. This was confirmed by Mr. Ernesto Carmona, the
company's witness, who testified, to wit:
ATTY. PAMPLONA:
So that Mr. Witness, it is clear now that, per your receipt and your answer,
the company will not return the unit without paying a sum of money, more
particularly the balance of the account?
WITNESS: Yes, sir. 4
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.
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G.R. No. L-17384
October 31, 1961
NESTOR RIGOR VDA. DE QUIAMBAO, ET AL., petitioners,
vs.
MANILA MOTOR COMPANY, INC., and the HON. COURT OF
APPEALS, respondents.
Manuel Y. Macias for petitioners.
Ozaeta, Gibbs and Ozaeta for respondents.
REYES, J.B.L., J.:
This petition for certiorari brings to this Court for review the decision of the
Court of Appeals in its CA-G.R. No. 17031-R, reversing that of the Court of
First Instance of Manila and dismissing petitioners' complaint.
The facts are not in dispute. On March 7, 1940, Gaudencio R. Quiambao,
deceased husband of petitioner Nestora Rigor Vda. de Quiambao and father
of the other petitioners, bought from respondent Manila Motor Company,
Inc. one (1) Studebaker car on the installment plan. Upon default in the
payment of a number of installments, respondent company sued Gaudencio
Quiambao in Civil Case No. 58084 of the Court of First Instance of Manila.
On December 4, 1940, judgment was entered in said case, awarding in favor
of the plaintiff the sum of P3,054.32, with interest thereon at 12% per
annum, and P300.00 attorney's fees.
On July 14, 1941, the court issued a writ of execution directed to the
Provincial Sheriff of Tarlac, who thereupon levied on and attached two
parcels of land covered by Transfer Certificate of Title No. 18390 of the
Office of the Register of Deeds for Tarlac. On August 27, 1941, Attorney
Felix P. David, then counsel for the Manila Motor Company, accompanied by
the sheriff, personally apprised Gaudencio Quiambao of the levy. The latter
pleaded to have the execution sale suspended and begged for time within
which to satisfy the judgment debt, proposing that in the meanwhile, he
would surrender to the company the Studebaker car. This proposition was
accepted, accordingly, Gaudencio Quiambao delivered the car to the
company, and Attorney David issued a receipt therefor that reads:
August 27, 1941
(a) Did the delivery of the Studebaker car to respondent company produce
the effect of rescinding or annulling the contract of sale between the
company and the deceased Gaudencio Quiambao and of barring the former
from executing its pre-war judgment in Civil Case No. 58043?
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(b) Did the payment to respondent company and the latter's acceptance of
war damage compensation for the lost car amount to a foreclosure of the
mortgage covenated in its favor? and
(c) Was the pre-war judgment already prescribed taking into account the
moratorium laws?
Anent the first issue, petitioners, citing the case of H.E. Heacock Company
vs. Buntal Manufacturing Company, et al., 66 Phil. 245-246, maintain that
the "taking of the automobile by respondent company from Gaudencio
Quiambao ... amounted to a waiver of said company's right to execute its
judgment in Civil Case No. 58043 and clearly constituted a cancellation or
rescission of the sale," which, under the first paragraph of Article 1454-A of
the old Civil Code1, then applicable, bars any further claim for unpaid
installments. There is no merit in this claim. Unlike situation that arose in the
H.E. Heacock Company case wherein the vendor demanded the return of the
thing sold and thereby indicated an unequivocal desire on its part to rescind
its contract with the vendee, here it was the buyer (deceased Gaudencio
Quiambao) who offered, indeed pleaded, to surrender his car only in order
that he might given more time within which to satisfy the judgment debt, and
suspend the impending execution sale of the properties levied upon. The very
receipt issued then by the company, and accepted without objection by the
deceased (Gaudencio Quiambao), indicated that the car was received
"pending settlement of the judgment in Civil Case No. 58043." Other
circumstances that militate against petitioners' theory of rescission or
annulment of the contract of sale and waiver of the judgment of debt and,
conversely, strengthen the proposition that the delivery of the car to
respondent company was merely to postpone the satisfaction of the judgment
amount, are that the deceased still paid the further sum of P500.00 on
account of his indebtedness about two months after the car was surrendered,
and that despite respondent company's acceptance of the car, the company
made repeated demands against the petitioners to settle the deceased's unpaid
accounts.
Since respondent company did not receive the car for the purpose of
appropriating the same, but merely as security for the ultimate satisfaction of
its judgment credit, the situation under consideration could not have
amounted to a foreclosure of the chattel mortgage as petitioners imply.
Petitioners next argue that "the payment of war damage compensation to
respondent company . . . produced the same and equal legal effect as formal
foreclosure," and in view of the second paragraph of Article 1454-A 2 of the
Spanish Civil Code, the latter is now precluded from claiming unpaid
installments. We do not agree. Having been the party who was last in
possession of the lost car, the company was well within its rights, or better
still, under obligation, to protect the interest of the car owner, as well as its
own, by claiming, as it did, the corresponding war damage compensation for
the car. Such action of the company can not reasonably be construed as a
constriction of its rights under the pre-war judgment.
Furthermore, in Manila Motor Company, Inc. vs. Fernandez, 52 Off. Gaz.
No. 16, 6883, 6885, we held:
. . . At any rate, it is the actual sale of the mortgaged chattel in accordance
with section 14 of Act No. 1508 that would bar the creditor (who chooses to
foreclose) from recovering any unpaid balance (Pacific Commercial
Company vs. De la Rama, 72 Phil. 380).
But perhaps the best reason why respondent company may not be construed
as having rescinded or cancelled the contract of sale or foreclosed the
mortgage on the automobile in question is precisely because it brought suit
for specific performance, and won, in the pre-war Civil Case No. 58043.
There is likewise no merit in the contention that the pre-war judgment had
already prescribed. Said judgment was entered on December 4, 1940, and on
July 14, 1941, a writ of execution was issued. Respondent company took no
further step to enforce the judgment until May 19, 1954, on which date,
respondent scheduled two (2) parcels of land owned by the petitioners for
sale at public auction pursuant to the writ of July 14, 1941. From the entry of
the judgment to May 19, 1954, a period of 13 years, 5 months and 15 days
had elapsed. From this term we must deduct the period covered by the debt
moratorium under Executive Order No. 32 (which applied to all debts
payable within the Philippines), from the time the order took effect on March
10, 1945, until it was partially lifted by Republic Act No. 342 on July 26,
1948.
Deducting the period during which Executive Order No. 32 was in force,
which is 3 years, 4 months and 16 days, from 13 years, 5 months and 15
days, the period covered from the entry of the pre-war judgment to the time
respondent company attempted to sell the levied properties at auction, there
is still left a period of 10 years and 29 days. But as held in Talens vs.
Chuakay & Co., G.R. No. L-10127, June 30, 1958, this Court may take
judicial notice of the fact that regular courts in Luzon were closed for months
during the early part of the Japanese occupation until they were reconstituted
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by order of the Chairman of the Executive Commission on January 30,
1942.3 This interruption in the functions of the courts has also been held to
interrupt the running of the prescriptive period (see also Palma vs. Celda, 81
Phil. 416). That being the case, respondent company could not be barred by
prescription from proceeding with the execution sale pursuant to the levy and
writ of execution issued under the pre-war judgment, considering that even
the minimum period of from December 8, 1941, the outbreak of the Pacific
War to January 30, 1942 is already a term of one (1) month and 23 days.
had been seized from it by the enemy occupant during the war. This should
reduce the principal amount still due the respondent from the petitioners to
the sum of P1,542.72.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of
Appeals appealed from is affirmed, with costs against petitioners.
Petitioners raised the issue whether or not the pre-war writ of execution and
levy may still be enforced by sale of the levied property after the lapse of the
five-year period within which a judgment may be executed by motion. On
this point, this Court has held:
We are of the opinion that a valid execution issued and levy made within the
period provided by law may be enforced by a sale thereafter. . . . The sale of
the property by the sheriff and the application of the proceeds are simply the
carrying out of the writ of execution and levy which when issued were valid.
This rests upon the principle that the levy is the essential act by which the
property is set apart for the satisfaction of the judgment and taken into
custody of the law, and that after it has been taken from the defendant, his
interest is limited to its application to the judgment, irrespective of the time
when it may be sold (Southern Cal. L. Co. vs. Hotel Co., 94 Cal. 217, 222).
(Government of P.I. vs. Echaus, 71 Phil. 318)..
The case of Ansaldo vs. Fidelity and Surety Company of the Philippine
Islands, G.R. No. L-2378, April 27, 1951, invoked by the petitioners, is not
in point, for there the judgment creditor attempted to carry out the writ of
execution 10 years after entry of judgment. As correctly observed by the
appellate court below, both cited cases
. . . affirm the fundamental principles that a valid judgment may be enforced
by motion within five years after its entry, and by action after the lapse of
said period but before the same shall have been barred by any statute of
limitations, and that a valid execution issued and levy made within the fiveyear period after entry of the judgment may be enforced by sale of the
property levied upon thereafter, provided the sale is made within ten years
after the entry of the judgment.
The petitioners should, however, be credited the amount of P409.75 which
the respondent Manila Motor Company actually received from the Philippine
War Damage Commission on account of the car of Gaudencio Quiambao that
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RUPERTO G. CRUZ, ET AL., plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE
CORPORATION, defendant-appellant.
Villareal, Almacen, Navarra and Associates for plaintiffs-appellees.
Sycip, Salazar, Luna, Manalo and Feliciano for defendant-appellant.
REYES, J.B.L., J.:
Appeal interposed by Filipinas Investment & Finance Corporation from the
decision of the Court of First Instance of Rizal (Quezon City) in Civil Case
No. Q-7949.1vvphi1.nt
In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes
in the Court of First Instance of Rizal (Civil Case No. Q-7949), for
cancellation of the real estate mortgage constituted on the land of the latter 1
in favor of defendant Filipinas Investment & Finance Corporation (as
assignee of the Far East Motor Corporation), the parties submitted the case
for decision on the following stipulation of facts:
1. Their personal circumstances and legal capacities to sue and be sued;
5. That said land has an area of 68,902 square meters, more or less, and
covered by Transfer Certificate of Title No. 36480 of the Registry of Deeds
of Bulacan in the name of plaintiff Mrs. Reyes; and that it was at the time
mortgaged to the Development Bank of the Philippines to secure a loan of
P2,600.00 obtained by Mrs. Reyes from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for value
received indorsed the promissory note and assigned all its rights and interest
in the Deeds of Chattel Mortgage and in the Deed of Real Estate Mortgage
(Annexes "A", "B" and "B-l") to the defendant, Filipinas Investment &
Finance Corporation, with due notice of such assignment to the plaintiffs...;
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;
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)...;
3. That to secure the payment of the promissory note, Annex "A", Cruz
executed in favor of the seller, Far East Motor Corporation, a chattel
mortgage over the aforesaid motor vehicle...;
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...;
4. That as no down payment was made by Cruz, the seller, Far East Motor
Corporation, on the very improvements thereon, in San Miguel, Bulacan...;
same date, July 15, 1963, required and Cruz agreed to give, additional
security for his obligation besides the chattel mortgage, Annex "B"; that said
additional security was given by plaintiff Felicidad Vda. de Reyes in the
form of SECOND MORTGAGE on a parcel of land owned by her, together
with the building and
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;
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12. That pursuant to a provision in the real estate mortgage contract,
authorizing the mortgagee to foreclose the mortgage judicially or extrajudicially, 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...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter to
the defendant asking for the cancellation of the real estate mortgage on her
land, but defendant did not comply with such demand as it was of the belief
that plaintiff's request was without any legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan held
in abeyance the sale of the mortgaged real estate pending the result of this
action.
Passing upon the issues which, by agreement of the parties, were limited to
(1) "Whether defendant, which has already extrajudicially foreclosed the
chattel mortgage executed by the buyer, plaintiff Cruz, on the bus sold to him
on installments, may also extrajudicially foreclose the real estate mortgage
constituted by plaintiff Mrs. Reyes on her own land, as additional security,
for the payment of the balance of Cruz' Obligation, still remaining unpaid";
and (2) whether or not the contending parties are entitled to attorney's fees
the court below, in its decision of April 21, 1965, sustained the plaintiffs'
stand and declared that the extrajudicial foreclosure of the chattel mortgage
on the bus barred further action against the additional security put up by
plaintiff Reyes. Consequently, the real estate mortgage 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.
There is no controversy that, involving as it does a sale of personal property
on installments, the pertinent legal provision in this case is Article 1484 of
the Civil Code of the Philippines, 2 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:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void.
The aforequoted provision is clear and simple: should the vendee or
purchaser of a personal property default in the payment of two or more of the
agreed installments, the vendor or seller has the option to avail of any one of
these three remedies either to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the
purchased personal property, if one was constituted. These remedies have
been recognized as alternative, not cumulative, 3 that the exercise of one
would bar the exercise of the others. 4 It may also be stated that the
established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not so satisfied by the sale. 5 And the
reason for this doctrine was aptly stated in the case of Bachrach Motor Co.
vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment 6 was to remedy
the abuses committed in connection with the foreclosure of chattel
mortgages. This amendment prevents mortgagees from seizing the
mortgaged property, buying it at foreclosure sale for a low price and then
bringing suit against the mortgagor for a deficiency judgment. The almost
invariable result of this procedure was that the mortgagor found himself
minus the property and still owing practically the full amount of his original
indebtedness. Under this amendment the vendor of personal property, the
purchase price of which is payable in installments, has the right to cancel the
sale or foreclose the mortgage if one has been given on the property.
Whichever right the vendor elects he need not return to the purchaser the
amount of the installments already paid, "if there be in agreement to that
effect". Furthermore, if the vendor avails himself of the right to foreclose the
mortgage the amendment prohibits him from bringing an action against the
purchaser for the unpaid balance.
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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.
SALES
5.) Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39806 January 27, 1983
LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D.
SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as
Sheriff, defendants-appellants.
Osmundo Victoriano for plaintiffs-appellees.
Wilhelmina V. Joven for defendant-appellants.
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.
On February 21, 1966, plaintiffs filed an action for annulment of contract
before the Court of First Instance of Rizal, Branch I, with Filipinas
Investment and Finance Corporation, Jose D. Sebastian and Sheriff Jose San
Agustin, as party-defendants. By agreement of the parties, the case was
submitted for decision in the lower court on the basis of the documentary
evidence adduced by the parties during the pre-trial conference. Thereafter,
the lower court rendered judgment as follows:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court declares the
chattel mortgage, Exhibit "C", to be null and void in so far as the taxicab
franchise and the used Chevrolet car of plaintiffs are concerned, and the sale
at public auction conducted by the City Sheriff of Manila concerning said
taxicab franchise, to be of no legal effect.1wph1.t The certificate of sale
issued by the City Sheriff of Manila in favor of Filipinas Investment and
Finance Corporation concerning plaintiffs' taxicab franchise for P8,000 is
accordingly cancelled and set aside, and the assignment thereof made by
Filipinas Investment in favor of defendant Jose Sebastian is declared void
and of no legal effect. (Record on Appeal, p. 128).
From the foregoing judgment, defendants appealed to the Court of Appeals
which, as earlier stated, certified the appeal to this Court, appellants imputing
to the lower court five alleged errors, as follows:
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
12
SALES
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
THE LOWER COURT ERRED IN DECLARING VOID AND OF NO
LEGAL EFFECT THE ASSIGNMENT OF THE TAXICAB FRANCHISE
MADE BY FILIPINAS INVESTMENT AND FINANCE CORPORATION
IN FAVOR OF DEFENDANT.
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;
(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
13
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In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 SCRA
791, this Court ruled that the vendor of personal property sold on the
installment basis is precluded, after foreclosing the chattel mortgage on the
thing sold from having a recourse against the additional security put up by a
third party to guarantee the purchaser's performance of his obligation on the
theory that to sustain the same would overlook the fact that if the guarantor
should be compelled to pay the balance of the purchase price, said guarantor
will in turn be entitled to recover what he has paid from the debtor-vendee,
and ultimately it will be the latter who will be made to bear the payment of
the of the balance of the price, despite the earlier foreclosure of the chattel
mortgage given by him, thereby indirectly subverting the protection given the
latter. Consequently, the additional mortgage was ordered cancelled. Said
ruling was reiterated in the case of Pascual v. Universal Motors
Corporation, 61 SCRA 121. If the vendor under such circumstance is
prohibited from having a recourse against the additional security for reasons
therein stated, there is no ground why such vendor should not likewise be
precluded from further extrajudicially foreclosing the additional security put
up by the vendees themselves, as in the instant case, it being tantamount to a
further action 5 that would violate Article 1484 of the Civil Code, for then is
actually no between an additional security put up by the vendee himself and
such security put up by a third party insofar as how the burden would
ultimately fall on the vendee himself is concerned.
Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168,
that in sales on installments, where the action instituted is for and the
mortgaged property is subsequently attached and sold, the sales thereof does
not amount to a foreclosure of the mortgage, hence, the seller creditor is
entitled to a deficiency judgment, does not for the stand of the appellants for
that case is entirely different from the case at bar. In that case, the vendor has
availed of the first remedy provided by Article 1484 of the Civil Code, i.e., to
exact fulfillment of the obligation whereas in the present case, the remedy
availed of was foreclosure of the chattel mortgage.
The foregoing disposition renders superfluous a determination of the other
issue raised by the parties as to the validity of the auction sale, in so far as the
franchise of plaintiffs is concerned, which sale had been admittedly held
without any notice to the plaintiffs.
IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with
costs against the appellants.
SO ORDERED.
14
SALES
6.) Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30583 October 23, 1982
EUTROPIO ZAYAS, JR., petitioner,
vs.
LUNETA MOTOR COMPANY and HONORABLE JUAN O. REYES,
Presiding Judge of the Court of First Instance of Manila, Branch
XXI, respondents.
Pantaleon Z. Salcedo for petitioner.
Leandro B. Fernandez for respondents.
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.
Selling price
P7,500.00
Financing charge
P1,426.82
P8,926.82
Payable on Delivery
P1,006.82
P7,920.00
In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr.
admitted having executed the promissory note for the monthly payments, on
a Ford Thames vehicle bearing Engine No. 400E-127738 which he purchased
from the Luneta Motor Company but he denied his alleged outstanding
liability of P1,551.74 plus interest thereon ... the said obligation if there was
any, had already been discharged either by payment or by sale in public
auction of the said motor vehicle as evidenced by a Notice of Sale marked as
Annex "A" and Certificate of Sale marked as Annex "B"; (Answer, p. 7,
Original Record). He alleged as affirmative defenses, among others: 1) that
the plaintiff has no cause of action against him; and 2) that pursuant to
Article 1484 of the New Civil Code and the case ofPacific Commercial Co.
v. De La Rama, (72 Phil. 380) his obligation per the promissory note was
extinguished by the sale at public auction of the motor vehicle, the subject of
15
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the chattel mortgage which was executed by him in favor of the plaintiff as
security for the payment of said promissory note. (Answer, p. 8, Original
Record)
In its Reply, Luneta Motor Company denied the applicability of Article 1484
of the Civil Code ... for the simple reason that the contract involved between
the parties is not one for a sale on installment" (Reply, p. 13, Original
Record).
After several postponements, the case was set for hearing. As a result of the
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. Filipinas Investment (23 SCRA 791).<re||an1w>
Acting on the motion, the city court issued an Order:
On Petition of counsel for the defendant for the dismissal of this case on the
ground that the defendant is no longer liable for the deficiency judgment inas
much as the chattel mortgage has been foreclosed, with the plaintiff as the
highest bidder thereof, citing the case of Ruperto G. Cruz v. Filipinas
Investmentdecided on May 27, 1968, G.R. No. L-24772 in connection with
Article 1484 of the Civil Code, and finding the same well taken.
Luneta Motor Company appealed the case to the Court of First Instance of
Manila where it was docketed as Civil Case No. 74381.
After various incidents, the respondent court issued an order which, in part,
reads:
This is an appeal taken by plaintiff from the order of the City Court of
Manila, dismissing its complaint on the ground that the defendant is no
longer liable for the deficiency judgment inasmuch as the chattel mortgage
has been foreclosed, with the plaintiff as the highest bidder thereof, in line
with the ruling of the Supreme Court in the case of Ruperto G. Cruz v.
Filipinas Investment (G.R. No. L24772) in connection with Article 1484 of
the Civil Code.
xxx xxx xxx
After going over the pleadings in this case, more particularly the complaint
and the answer to the complaint filed with the City Court of Manila, this
Court is of the impression that the case at bar may not be decided merely, as
the City Court had done, on the question of law since the presentation of
evidence is necessary to adjudicate the questions involved. WHEREFORE,
this case is hereby remanded to the court of origin for further proceedings.
(pp. 82-83, Original Record)
Hence, this petition.
Petitioner Eutropio Zayas, Jr. now maintains::
The court denied the motion for reconsideration for lack of merit.
16
SALES
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE PRIVATE
RESPONDENT FROM THE CITY COURT TO THE COURT OF FIRST
INSTANCE.
The main defense of respondent Luneta Motor Company is that Escano
Enterprises, Cagayan de Oro City from which petitioner Eutropio Zayas, Jr.
purchased the subject motor vehicle was a distinct and different entity; that
the role of Luneta Motor Company in the said transaction was only to finance
the purchase price of the motor vehicle; and that in order to protect its
interest as regards the promissory note executed in its favor, a chattel
mortgage covering the same motor vehicle was also executed by petitioner
Eutropio Zayas, Jr. In short, respondent Luneta Motor Company maintains
that the contract between the company and the petitioner was only an
ordinary loan removed from the coverage of Article 1484 of the New Civil
Code.
The respondent's arguments have no merit.
The Escao Enterprises of Cagayan de Oro City was an agent of Luneta
Motor Company. A very significant evidence which proves the nature of the
relationship between Luneta Motor Company and Escao Enterprises is
Annex "A. of the petitioner's OPPOSITION TO URGENT MOTION FOR
RECONSIDERATION. (Original Record, p. 36) Annex "A" is a Certification
from the cashier of Escano Enterprises on the monthly installments paid by
Mr. Eutropio Zayas, Jr. In the certification, the promissory note in favor of
Luneta Motor Company was specifically mentioned. There was only one
promissory note executed by Eutropio Zayas, Jr. in connection with the
purchase of the motor vehicle. The promissory note mentioned in the
certification refers to the promissory note executed by Eutropio Zayas, Jr. in
favor of respondent Luneta Motor Company. Thus:
C E R T I F I C AT I O N
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
10064
242.00
10188
November 8, 1966
166.00
10355
December 12,1966
400.00
270.00
10536
February 1, 1967
60.00
10645
100.00
10704
March 13,1967
100.00
10749
60.00
10132
March 30,1967
100.00
10788
April 8, 1967
100.00
10795
100.00
10827
100.00
10934
100.00
10991
May 26,1967
100.00
11105
June 19,1967
150.00
17
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P3,148.00
ESCAO ENTERPRISES
(SGD.) EMELITA H. BACULIO
Cashier
Escano Enterprises, a dealer of respondent Luneta Motor Company, was
merely a collecting-agent as far as the purchase of the subject motor vehicle
was concerned. The principal and agent relationship is clear.
But even assuming that the "distinct and independent entity" theory of the
private respondent is valid, the nature of the transaction as a sale of personal
property on installment basis remains. When, therefore, Escao Enterprises,
assigned its rights vis-a-vis the sale to respondent Luneta Motor Company,
the nature of the transaction involving Escano Enterprises and Eutropio
Zayas, Jr. did not change at all. As assignee, respondent Luneta Motor
Company had no better rights than assignor Escao Enterprises under the
same transaction. The transaction would still be a sale of personal property in
installments covered by Article 1484 of the New Civil Code. To rule
otherwise would pave the way for subverting the policy underlying Article
1484 of the New Civil Code, on the foreclosure of chattel mortgages over
personal property sold on installment basis.
ART. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
xxx xxx xxx
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.
... the established rule is to the effect that the foreclosure and actual sale of a
mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not so satisfied by the sale. And the reason
for this doctrine was aptly stated in the case of Bachrach Motor Co. vs.
Millan, supra, thus:
Undoubtedly the principal object of the above amendment was to remedy the
abuses committed in connection with the foreclosure of chattel mortgages.
This amendment prevents mortgagees from seizing the mortgaged property,
buying it at foreclosure sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment. The almost invariable result of this
procedure was that the mortgagor found himself minus the property and still
owing practically the full amount of his original indebtedness. Under this
amendment the vendor of personal property, the purchase price of which is
payable in installments, has the right to cancel the sale or foreclose the
mortgage if one has been given on the property. Whichever right the vendor
elects he need not return to the purchaser the amount of the installments
already paid, "if there be an agreement to that effect". Furthermore, if the
vendor avails himself of the right to foreclose the mortgage this amendment
prohibits him from bringing an action against the purchaser for the unpaid
balance. (Cruz v. Filipinas Investment & Finance Corporation, 23 SCRA
791)
Our findings and conclusions are borne out by the records available to the
respondent court. There was no necessity for the remand of records to the
city court for the presentation of evidence on the issue raised in the case.
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.
SO ORDERED.
SALES
7.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28074 May 29, 1970
NORTHERN MOTORS, INC., plaintiff-appellant,
vs.
CASIANO SAPINOSO and "JOHN DOE", defendants-appellees.
Sycip, Salazar, Luna, Manalo & Feliciano for plaintiff-appellant.
David F. Barrera for defendants-appellees.
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,
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to pay the installments due because the car was defective, and the plaintiff
failed to have it fixed although he had repeatedly called the plaintiff's
attention thereto, hence, the defendant had to procrastinate in his payments in
order to move the plaintiff to repair the car; and that although the car could
not be used, he paid P700.00 to the plaintiff upon the latter's assurance that
the car would be fixed, but that instead of having the car fixed, the plaintiff,
in bad faith, filed the present complaint. The defendant prayed that the
complaint be dismissed and that the plaintiff be ordered to return the car to
him. He stated in his prayer that he would be very much willing to pay the
car in a compromise agreement between him and the plaintiff.
After trial, the court a quo, in its decision dated April 4, 1967, held that
defendant Sapinoso having failed to pay more than two (2) installments,
plaintiff-mortgagee acquired the right to foreclose the chattel mortgage,
which it could avail of as it has done in the present case by filing an
action of replevin to secure possession of the mortgaged car as a preliminary
step to the foreclosure sale contemplated in the Chattel Mortgage Law; and
that the foreclosure of the chattel mortgage and the recovery of the unpaid
balance of the price are alternative remedies which may not be pursued
conjunctively, so that in availing itself of its right to foreclose the chattel
mortgage, the plaintiff thereby renounced whatever claim it may have had on
the promissory note, and, therefore, the plaintiff has no more right to the
collection of the attorney's fees stipulated in the promissory note, and should
return to defendant Sapinoso the sum of P1,250.00 which the plaintiff had
received from the latter after having filed the present case on July 22, 1966,
and elected to foreclose the chattel mortgage. The dispositive portion of the
decision reads:
WHEREFORE, the Court finds that the plaintiff has the right to the
possession of the OPEL KADETT two-door station wagon Model 3464-91.5,
with engine No.
10-0354333, and the delivery thereof to the plaintiff is hereby ratified and
confirmed but said party is sentenced to pay to the defendant the sum of
P1,250, with legal interest on P500 from August 22, 1966 and or P750 from
September 27, 1966, until fully paid, without any pronouncement as to costs.
In this appeal plaintiff-appellant claims that the court a quo erred in ordering
it to reimburse to defendant-appellee Sapinoso the sum of P1,250.00 which
the latter had paid. It contends that under Article 1484 of the Civil Code it is
the exercise, not the mere election, of the remedy of foreclosure that bars the
creditor from recovering the unpaid balance of the debt; that what the said
Article 1484 prohibits is "further action" to collect payment of the deficiency
after the creditor has foreclosed the mortgage; and that in paying plaintiffappellant 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 plaintiffappellant 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 outstanding obligation not satisfied by the sale. (Manila Motor
Co., Inc. vs. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. vs. Millan,
61 Phil., 409; Manila Trading & Supply Co. vs. Reyes, 62 Phil. 461, 471;
Cruz et al. vs. Filipinas Investment & Finance Corporation, G.R. No. L24772, May 27, 1968 [23 SCRA 791, 796].) In any event, what Article
1484(3) prohibits is "further action against the purchaser to recover any
unpaid balance of the price;" and although this Court has construed the word
"action" in said Article 1484 to mean "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" (Cruz, et al. vs. Filipinas Investment & Finance
Corporation, supra), there is no occasion at this stage to apply the restrictive
provision of the said article, because there has not yet been a foreclosure sale
resulting in a deficiency. The payment of the sum of P1,250.00 by defendantappellee Sapinoso was a voluntary act on his part and did not result from a
"further action" instituted by plaintiff-appellant. If the mortgage creditor,
before the actual foreclosure sale, is not precluded from recovering the
unpaid balance of the price although he has filed an action of replevin for the
purpose of extrajudicial foreclosure, or if a mortgage creditor who has
elected to foreclose but who subsequently desists from proceeding with the
auction sale, without gaining any advantage or benefit, and without causing
any disadvantage or harm to the vendee-mortgagor, is not barred from suing
20
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on the unpaid account (Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563,
April 27, 1963 [7 SCRA 804, 807]), there is no reason why a mortgage
creditor should be barred from accepting, before a foreclosure sale, payments
voluntarily tendered by the debtor-mortgagor who admits a subsisting
indebtedness.
PREMISES CONSIDERED, the judgment appealed from is modified by
setting aside the portion thereof which orders plaintiff-appellant to pay
defendant-appellee Sapinoso the sum of P1,250.00, with costs in this instance
against the said defendant-appellee.
21
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8.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-43683
July 16, 1937
MACONDRAY AND CO., INC., plaintiff-appellant,
vs.
URBANO EUSTAQUIO, defendant-appellee.
Jose Agbulos for appellant.
Urbano Eustaquio in his own behalf.
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.
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.
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 obligations of contract, thereby
violating the provisions of section 3 of the Act of the United States Congress
of August 29, 1916, known as the Jones Law. This is not the first time that
the constitutionality of the said law has been impugned for like reasons.
InManila Trading and Supply Co. vs. Reyes (64 Phil. 461), the validity of the
said law was already passed upon when it was questioned for the same
reason here advanced. In resolving the question in favor of the validity of the
law, we then held: "2. Liberty of contract, class legislation, and equal
protection of the laws. The question of the validity of an act is solely one
of constitutional power. Questions of expediency, of motive or of results are
irrelevant. Nevertheless it is not improper to inquire as to the occasion for the
22
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enactment of a law. The legislative purpose thus disclosed can then serve as a
fit background for constitution inquiry.
Judge Moran in fact instances had the following to say relative to the reason
for the enactment of Act No. 4122:
"Act No. 4122 aims to correct a social and economic evil, the inordinate love
for luxury of those who, without sufficient means, purchase personal effects,
and the ruinous practice of some commercial houses of purchasing back the
goods sold for a nominal price besides keeping a part of the price already
paid and collecting the balance, with stipulated interest, costs, and attorney's
fees. For instance, a company sells a truck for P6,500. The purchaser makes a
down payment of P500, the balance to be paid in twenty-four equal
installments of P250 each. Pursuant to the practice before the enactment of
Act No. 4122, if the purchaser fails to pay the first two installments, the
company takes possession of the truck and has it sold at public auction at
which sale it purchases the truck for a nominal price, at most P500, without
prejudice to its right to collect the balance of P5,500, plus interest, costs. and
attorney's fees. As a consequence, the vendor does not only recover the goods
sold, used hardly two months perhaps with only slight wear and tear, but also
collects the entire stipulated purchase price, probably swelled up fifty per
cent including interest, costs, and attorney's fees. This practice is worse than
usurious in many instances. And although, of course, the purchaser must
suffer the consequences of his imprudence and lack of foresight, the
chastisement must not be to the extent of ruining him completely and, on the
other hand, enriching the vendor in a manner which shocks the conscience.
The object of the law is highly commendable. As to whether or not the means
employed to do away with the evil above mentioned are arbitrary will be
presently set out."
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 a case which reached this court, Mr. Justice Goddard, interpreting Act No.
4122, made the following observations:
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.)
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Philippines the court take judicial notice of the stringency of finance that
presses upon the people we have no reason to believe that this was the reason
which motivated the enactment of Act 4122. (Wright vs. Wimberley [1919],
184 Pac., 740.)
While we are on the subject of the authority, we may state that we have
examined all of those obtainable, including some of recent date but have not
been enlightened very much because as just indicated, they concerned
different state of facts and different laws. We gain the most help from the
case of Bronzon vs. Kinzie ([1843], 1 How., 311), decided by the Supreme
Court of the United State. It had under consideration a law passed in the State
of Illinois, which provide that the equitable estate of the mortgagor should
not be extinguished for twelve months after sale on decree, and which
prevented any sale of the mortgaged property unless two-thirds of the amount
at which the property had been valued by appraisers should be bid therefor.
The court, by Mr. Chief Justice Taney declared: "Mortgages made since the
passage of these laws must undoubtedly be governed by them; for every
State has power to describe the legal and equitable obligation of a contract to
be made and executed within it jurisdiction. It may exempt any property it
thinks proper from sale for the payment of a debt; and may imposed such
conditions and restriction upon the creditor as its judgment and policy may
dictate. And all future contracts would be subject to such provisions; and they
would be obligatory upon the parties in the provisions; and they would be
obligatory upon the parties in the courts of the United States, as well as in
those of the state."
As we understand it, parties have no vested right in particular remedies or
modes of procedure, and the legislature may change existing remedies or
modes of procedure without impairing the obligation of contracts, provided
an efficacious remedy for enforcement. But changes in the remedies
available for the enforcement of a mortgage may not, even when public
policy is invoked as an excuse, be pressed so far as to cut down the security
of a mortgage without moderation or reason or in a spirit of oppression.
(Brotherhood of American Yeoman vs. Manz [1922], 206 Pac., 403; Oshkosh
Waterworks Co. vs. Oshkosh [1908], 187 U. S., 437; W. B. Worthen Co. vs.
Kavanaugh [1935], 79 U. S. Supreme Court Advance Opinions, 638.)
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
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promulgate the law; the law does not completely deprive vendors on the
installment basis of a remedy, but requires them to elect among three
alternative remedies; the law, on the other hand, does not completely
exonerate the purchasers, but only limits their liabilities and, finally, there is
no vested right when a procedural law is involved, wherefore the Legislature
could enact Act No. 4122 without violating the aforesaid organic law.
III. In its last assignment of error plaintiff contends that, even granting that
Act No. 4122 is valid, the court should have ordered the defendant to pay at
least the stipulated interest, attorney's fees, and the costs. This question
involves the interpretation of the pertinent portion of the law, reading:
"However, if the vendor has chosen to foreclose the mortgage he shall have
no further action against the purchaser for the recovery of any unpaid balance
owing by the same, and any agreement to the contrary shall be null and
void." This paragraph, as its language shows, refers to the mortgage contract
executed by the parties, whereby the purchaser mortgages the chattel sold to
him on the installment basis in order to guarantee the payment of its price,
and the words "any unpaid balance" should be interpreted as having
reference to the deficiency judgment to which the mortgagee may be entitled
where, after the mortgaged chattel is sold at public auction, the proceeds
obtained therefrom are insufficient to cover the full amount of the secured
obligations which, in the case at bar as shown by the note and by the
mortgage deed, include interest on the principal, attorney's fees, expenses of
collection, and the costs. The fundamental rule which should govern the
interpretation of laws is to ascertain the intention and meaning of the
Legislature and to give effect thereto. (Sec. 288, Code of Civil Procedure; U.
S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19 Phil., 134; De Jesus vs. City
of Manila, 29 Phil., 73; Borromeo vs. Mariano, 41 Phil., 322; People vs.
Concepcion, 44 Phil., 126.) Were it the intention of the Legislature to limit its
meaning to the unpaid balance of the principal, it would have so stated. We
hold, therefore, that the assignment of error is untenable.
In view of the foregoing, the appealed judgment is affirmed, with the costs of
this instance to the plaintiff and appellant. So ordered.
25
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9.) Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27645
November 28, 1969
FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiffappellee,
vs.
LOURDES V. RIDAD and LUIS RIDAD, defendants-appellants.
Osmundo R. Victoriano for defendants-appellants.
Emilio B. Saunar for plaintiff-appellee.
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 the progress of the case, the appellee instituted
extrajudicial foreclosure proceedings, as a result of which, on December 22,
1965, the car was sold at public auction with the appellee as the highest
bidder and purchaser.
Meanwhile, in view of the failure of the defendants-spouses to appear at the
scheduled hearing of the case, allegedly due to non-receipt of the summons,
they were declared in default. The default judgment ordered them to pay to
the appellee the sum of P500 as attorney's fees, and P163.65 representing
actual expenses relative to the seizure of the car, plus costs.
Their motion to set aside his order of default and the decision having been
denied, they appealed to the Court of First Instance of Manila.
When the case was called for pre-trial, the CFI advanced the opinion that
there was no need for the parties to adduce evidence and that the case could
be decided on the basis of the pleadings submitted by the parties.
The trial court on September 5, 1966, rendered judgment for the appellee, as
follows:
As stated in the pre-trial order of this Court dated May 27, 1966, the only
issue remaining to be resolved is whether the plaintiff is entitled to receive
P500.00 as attorney's fees and P163.65 for expenses incurred by the plaintiff
in the seizure of the car which was the object of the chattel mortgage
executed by the defendants in favor of the plaintiff.
Upon consideration of the circumstances of the case, the court holds that the
plaintiff is entitled to recover the amount of P163.65 which represents the
expenses incurred by the plaintiff in the seizure of the car involved in this
case.
Considering that the plaintiff had recovered the car involved in the case while
it is still in the lower court, and considering further that the defendants did
not resist the case and the only question said defendants raised before this
court is the amount of attorney's fees, the court in the exercise of its equitable
jurisdiction reduces the attorney's fees granted to the plaintiff by the lower
court to P300.00.
In this appeal, the appellants contend that the trial court erred: (1) in
rendering a decision which does not state the facts and the law on which it is
based; (2) in condemning the appellants to pay P300 for attorney's fees and
P163.65 for expenses incurred in the seizure of the car which was the object
of the chattel mortgage executed by them in favor of the appellee; and (3) in
not dismissing the appellee's complaint.
1. We uphold the appellee's contention that the disputed decision of the lower
court complies substantially with the requirements of law because it referred
to the 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
26
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that a decision state the "essential ultimate facts upon which the court's
conclusion is drawn."1 There being an express reference to the pre-trial order,
the latter must be considered and taken as forming part of the decision. The
claim, therefore, that the judgment clearly transgresses the legal
precept2 because it does not state the facts of the case and the law on which it
is based and hence, is a nullity, finds no justification here.
2. The appellants theorize that the action of the appellee is for the payment of
the unpaid balance of the purchase price with a prayer for replevin. When,
therefore, the appellee seized the car, extrajudicially foreclosed the mortgage,
had the vehicle sold, and bought the same at public auction as the highest
bidder, it thereby renounced any and all rights which it might have under the
promissory note as well as the payment of the unpaid balance, and,
consequently, what it would otherwise be entitled under and by virtue of the
present action, including attorney's fees and costs of suit, pursuant to article
1484 of the new Civil Code.
On the other hand, the appellee maintains that it is entitled to an award of
attorney's fees and actual expenses and costs of suit by virtue of the
unjustifiable failure and refusal of the appellants to comply with their
obligations (one of which is the surrender of the chattel to the mortgagee
upon the latter's demand), contending that what is prohibited in art. 1484, par.
3 of the new Civil Code relied upon by the appellants is the recovery of the
unpaid balance of the purchase price by means of an action other than a suit
for replevin; that Luneta Motor Co. vs. Salvador, et al., (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 the lower court on the basis of the general prayer
in the complaint for the award of whatever relief that the lower court may
deem just and equitable in the premises.
It is true that the present action is one for replevin, but because it culminated
in the foreclosure of the chattel mortgage and the sale of the car at public
auction, it is our view that the provisions of art. 1484 of the Civil Code
(Recto Law) must govern the resolution of the issue here presented.
This article recites that
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:
(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.
This article was reproduced from the old art. 1454-A, which in turn was
inserted by Act 4122 (Recto Law). "Three remedies are available to the
vendor who has sold personal property on the installment plan: (1) He may
elect to exact the fulfillment of the obligation. (Bachrach Motor Co. vs.
Millan, 61 Phil. 409) (2) If the vendee shall have failed to pay two or more
installments, the vendor may cancel the sale. (3) If the vendee shall have
failed to pay two or more installments, the vendor may foreclose the
mortgage, if one has been given on the property. The basis of the first option
is the Civil Code. The basis of the last two options is Act 4122 (inserted in
the Spanish Civil Code as art. 4154-A and now reproduced in arts. 1484 and
1485), amendatory of the Civil Code. And the proviso to the right to
foreclose is that if the vendor has chosen this remedy, he shall have no
further action against the purchaser for the recovery of any unpaid balance
owing by the same. In other words, as we see it, the Act does no more than
qualify the remedy."3
The legal issue which is the core of the controversy in the case at bar was
resolved in Macondray & Co. vs. Eustaquio,4 as follows:
27
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The plaintiff brought the action against the defendant to obtain the possession
of an automobile mortgaged by the latter, and to recover the balance owing
upon a note executed by him, the interest thereon, attorney's fees, expenses
of collection, and the costs. The defendant was duly summoned, but he failed
to appear or file his answer, wherefore, he was declared in default and the
appealed judgment was rendered accordingly.
The plaintiff sold to the defendant a De Soto car, Sedan, for the price of
which, P595, he executed in its favor the note of May 22, 1934. Under this
note, the defendant undertook to pay the car in twelve monthly installments,
with 12 per cent interests per annum, and likewise agreed that, should he fail
to pay any monthly installment together with interest, the remaining
installments would become due and payable, and the defendant shall pay 20
per cent upon the principal owing as attorney's fees, expenses of collection
which the plaintiff might incur, and the costs. To guarantee the performance
of his obligations under the note, the defendant on the same date mortgaged
the purchased car in favor of the plaintiff, and bound himself under the same
conditions stipulated in the note relative to the monthly installments, interest,
attorney's fees, expenses of collection, and costs. The mortgage deed was
registered on June 11, 1934, in the office of the register of deeds of the
Province of Rizal. On the 22nd of the same month, the defendant paid P43.75
upon the first installment, and thereafter failed to pay any of the remaining
installments. In accordance with the terms of the mortgage, the plaintiff
called upon the sheriff to take possession of the car, but the defendant refused
to yield possession thereof, whereupon, the plaintiff brought the replevin
sought and thereby succeeded in getting possession of the car. The car was
sold at public auction to the plaintiff for P250, the latter incurring legal
expenses in the amount of P10.68. According to the liquidation filed by the
plaintiff, the defendant was 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 note and by the mortgage deed, include
interest on the principal, attorney's fees, expenses of collection, and the costs.
The fundamental rule which should govern the interpretation of laws is to
ascertain the intention and meaning of the Legislature and to give effect
thereto. (Sec. 288, Code of Civil Procedure; U.S. vs. Toribio, 15 Phil. 85;
U.S. vs. Navarro, 19 Phil. 134; De Jesus vs. City of Manila, 29 Phil. 73;
Borromeo vs. Mariano, 41 Phil. 322; People vs. Concepcion, 44 Phil.
126.) Were it the intention of the Legislature to limit its meaning to the
unpaid balance of the principal, it would have so stated. We hold, therefore,
that the assignment of error is untenable. (emphasis supplied)
In other words, under this amendment as above interpreted, in all
proceedings for the foreclosure of a chattel mortgage, executed on chattels
which have been sold on the installment plan, the mortgagee is limited to the
property mortgaged5 and is not entitled to attorney's fees and costs of suit.
In a subsequent case6 where the vendor in a sale of personal property in
installments, upon failure of the vendee to pay his obligations, the vendor
commenced, through court action, to recover the unpaid balance of the
purchase price, but later, during the progress of the action, foreclosed the
chattel mortgage constituted on the property, attorney's fees and costs of suit
were denied to the vendor. There the Supreme Court held:
Paragraph 3 of the above-quoted provision (article 1484, new Civil Code) is
clear that foreclosure of the chattel mortgage and recovery of the unpaid
balance of the price are alternative remedies and may not be pursued
conjunctively. It appearing in the case at bar that the vendor had already
foreclosed the chattel mortgage constituted on the property and had taken
possession thereof, the lower court acted rightly in dismissing the complaint
filed for the purpose of recovering the unpaid balance of the purchase price.
By seizing the truck and foreclosing the mortgage at the progress of the suit,
the plaintiff renounced whatever claim it may have had under the promissory
note, and consequently, he has no more cause of action against the promisor
and the guarantor. And he has no more right either to the costs and the
attorney's fees that would go with the suit.
28
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This might be considered a reiteration of the ruling in Macondray.
A scrutiny of the doctrine enunciated in the above-cited cases will reveal that
its ultimate and salutary purpose is to prevent the vendor from circumventing
the Recto Law. Congress sought to protect the buyers on installment who
more often than not have been victimized by sellers who, before the
enactment of this law, succeeded in unjustly enriching themselves at the
expense of the buyers, because aside from recovering the goods sold, upon
default of the buyer in the payment of two installments, still retained for
themselves all amounts already paid, and in addition, were adjudged entitled
to damages, such as attorney's fees, expenses of litigation and costs.
Congress could not have intended to impair much less do away with, the
right of the seller to make commercial use of his credit against the buyer,
provided the buyer is not burdened beyond what this law allows. 7
It would appear from the emphasis and precision of the language employed
in the decisions already adverted to that in no instance whatsoever may the
mortgagee recover from the mortgagor any amount or sum after the
foreclosure of the mortgage, for, as we understand it, the philosophy of the
Recto Law is that the underprivileged mortgagors must be afforded full
protection against the rapacity of the mortgagees.
But while we unconditionally concur in, and give our approval to, the basic
philosophy of the Recto Law, we view with no small amount of
circumspection the implication, necessarily drawn from the above discussion,
that the mortgagee is not entitled to protection against perverse mortgagors.
Where the mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more installments, or if he conceals
the chattel to place it beyond the reach of the mortgagee, what then is the
mortgagee expected to do? It is part of conventional wisdom and the rule of
law that no man can take the law into his own hands; so it is not to be
supposed that the Legislature intended that the mortgagee should wrest or
seize the chattel forcibly from the control and possession of the mortgagor,
even to the extent of using violence which is unwarranted in law. Since the
mortgagee would enforce his rights through the means and within the limits
delineated by law, the next step in such situations being the filing of an action
for replevin to the end that he may recover immediate possession of the
chattel and, thereafter, enforce his rights in accordance with the contractual
relationship between him and the mortgagor as embodied in their agreement,
then it logically follows as a matter of common sense, that the necessary
expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by
29
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10.) Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 82508 September 29, 1989
FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN
SY BANG,*respondents.
Labaquis, Loyola, Angara and Associates for petitioner.
Alfredo 1. Raya for private respondents.
SARMIENTO, J.:
This is a petition for review on certiorari of the decision, 1 dated March 17,
1988, of the Court of Appeals which affirmed with modification the
decision 2 of the Regional Trial Court of Quezon, Branch LIX, Lucena City.
The controversy stemmed from the following facts: The private respondents,
the spouses Jose Sy Bang and Iluminada Tan, were engaged in the sale of
gravel produced from crushed rocks and used for construction purposes. In
order to increase their production, they engaged the services of Mr. Ruben
Mercurio, the proprietor of Gemini Motor Sales in Lucena City, to look for a
rock crusher which they could buy. Mr. Mercurio referred the private
respondents to the Rizal Consolidated Corporation which then had for sale
one such machinery described as:
The contract likewise stipulated that at the end of the two-year period, the
machine would be owned by the private respondents. Thus, the private
respondents issued in favor of the petitioner a check for P150,550.00, as
initial rental (or guaranty deposit), and twenty-four (24) postdated checks
corresponding to the 24 monthly rentals. In addition, to guarantee their
compliance with the lease contract, the private respondents executed a real
estate mortgage over two parcels of land in favor of the petitioner. The rock
crusher was delivered to the private respondents on June 9, 1981. Three
months from the date of delivery, or on September 7, 1981, however, the
private respondents, claiming that they had only tested the machine that
month, sent a letter-complaint to the petitioner, alleging that contrary to the
20 to 40 tons per hour capacity of the machine as stated in the lease contract,
the machine could only process 5 tons of rocks and stones per hour. They
then demanded that the petitioner make good the stipulation in the lease
contract. They followed that up with similar written complaints to the
petitioner, but the latter did not, however, act on them. Subsequently, the
private respondents stopped payment on the remaining checks they had
issued to the petitioner. 5
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mortgage. 6 On April 18, 1983, the private respondents received a Sheriff s
Notice of Auction Sale informing them that their mortgaged properties were
going to be sold at a public auction on May 25, 1983 at 10:00 o'clock in the
morning at the Office of the Provincial Sheriff in Lucena City to satisfy their
indebtedness to the petitioner. 7 To thwart the impending auction of their
properties, the private respondents filed before the Regional Trial Court of
Quezon, on May 4, 1983, 8 a complaint against the petitioner, for the
rescission of the contract of lease, annullment of the real estate mortgage,
and for injunction and damages, with prayer for the issuance of a writ of
preliminary injunction. 9 On May 23, 1983, three days before the scheduled
auction sale, the trial court issued a temporary restraining order commanding
the Provincial Sheriff of Quezon, and the petitioner, to refrain and desist
from proceeding with the public auction. 10 Two years later, on September 4,
1985, the trial court rendered a decision in favor of the private respondents,
the dispositive portion of which reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
1. making the injunction permanent;
2. rescinding the contract of lease of the machinery and equipment and
ordering the plaintiffs to return to the defendant corporation the machinery
subject of the lease contract, and the defendant corporation to return to
plaintiffs the sum of P470,950.00 it received from the latter as guaranty
deposit and rentals with legal interest thereon until the amount is fully
restituted;
3. annulling the real estate mortgage constituted over the properties of the
plaintiffs covered by Transfer Certificate of Title Nos. T32480 and T-5779 of
the Registry of Deeds of Lucena City;
4. ordering the defendant corporation to pay plaintiffs P30,000.00 as
attorney's fees and the costs of the suit.
SO ORDERED. 11
Dissatisfied with the trial court's decision, the petitioner elevated the case to
the respondent Court of Appeals.
On March 17, 1988, the appellate court, finding no error in the appealed
judgment, affirmed the same in toto. 12Hence, this petition.
Before us, the petitioner reasserts that the private respondents' cause of action
is not against it (the petitioner), but against either the Rizal Consolidated
Corporation, the original owner-seller of the subject rock crusher, or Gemini
Motors Sales which served as a conduit facilitator of the purchase of the said
machine. The petitioner argues that it is a financing institution engaged in
quasi-banking activities, primarily the lending of money to entrepreneurs
such as the private respondents and the general public, but certainly not the
leasing or selling of heavy machineries like the subject rock crusher. The
petitioner denies being the seller of the rock crusher and only admits having
financed its acquisition by the private respondents. Further, the petitioner
absolves itself of any liability arising out of the lease contract it signed with
the private respondents due to the waiver of warranty made by the latter. The
petitioner likewise maintains that the private respondents being presumed to
be knowledgeable about machineries, should be held responsible for the
detection of defects in the machine they had acquired, and on account of that,
they are estopped from claiming any breach of warranty. Finally, the
petitioner interposed the defense of prescription, invoking Article 1571 of the
Civil Code, which provides:
Art. 1571. Actions arising from the provisions of the preceding ten articles
shall be barred after six months, from the delivery of the thing sold.
We find the petitioner's first contention untenable. While it is accepted that
the petitioner is a financing institution, it is not, however, immune from any
recourse by the private respondents. Notwithstanding the testimony of
private respondent Jose Sy Bang that he did not purchase the rock crusher
from the petitioner, the fact that the rock crusher was purchased from Rizal
Consolidated Corporation in the name and with the funds of the petitioner
proves beyond doubt that the ownership thereof was effectively transferred to
it. It is precisely this ownership which enabled the petitioner to enter into the
"Contract of Lease of Machinery and Equipment" with the private
respondents.
Be that as it may, the real intention of the parties should prevail. The
nomenclature of the agreement cannot change its true essence, i.e., a sale on
installments. It is basic that a contract is what the law defines it and the
parties intend it to be, not what it is called by the parties. 13 It is apparent here
thatthe intent of the parties to the subject contract is for the so-called rentals
to be the installment payments. Upon the completion of the payments, then
the rock crusher, subject matter of the contract, would become the property
of the private respondents. This form of agreement has been criticized as a
lease only in name. Thus in Vda. de Jose v. Barrueco 14 we stated:
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Sellers desirous of making conditional sales of their goods, but who do not
wish openly to make a bargain in that form, for one reason or another, have
frequently resorted to the device of making contracts in the form of leases
either with options to the buyer to purchase for a small consideration at the
end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent 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 bargain, in the transfer of title to the lessee. 15
Unfortunately, even with the foregoing findings, we however fail to find any
reason to hold the petitioner liable for the rock crusher's failure to produce in
accordance with its described capacity. According to the petitioner, it was the
private respondents who chose, inspected, and tested the subject machinery.
It was only after they had inspected and tested the machine, and found it to
their satisfaction, that the private respondents sought financial aid from the
petitioner. These allegations of the petitioner had never been rebutted by the
private respondents. In fact, they were even admitted by the private
respondents in the contract they signed. Thus:
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signing the agreement, the private respondents absolved the petitioner from
any liability arising from any defect or deficiency of the machinery they
bought. The stipulation on the machine's production capacity being
"typewritten" and that of the waiver being "printed" does not militate against
the latter's effectivity. As such, whether "a capacity of 20 to 40 tons per hour"
is a condition or a description is of no moment. What stands is that the
private respondents had expressly exempted the petitioner from any warranty
whatsoever. Their Contract of Lease Of Machinery And Equipment states:
WARRANTY-LESSEE absolutely releases the lessor from any liability
whatsoever as to any and all matters in relation to warranty in accordance
with the provisions hereinafter stipulated. 17
Taking into account that due to the nature of its business and its mode of
providing financial assistance to clients, the petitioner deals in goods over
which it has no sufficient know-how or expertise, and the selection of a
particular item is left to the client concerned, the latter, therefore, shoulders
the responsibility of protecting himself against product defects. This is where
the waiver of warranties is of paramount importance. Common sense dictates
that a buyer inspects a product before purchasing it (under the principle of
caveat emptor or "buyer beware") and does not return it for defects
discovered later on, particularly if the return of the product is not covered by
or stipulated in a contract or warranty. In the case at bar, to declare the waiver
as non-effective, as the lower courts did, would impair the obligation of
contracts. Certainly, the waiver in question could not be considered a mere
surplusage in the contract between the parties. Moreover, nowhere is it
shown in the records of the case that the private respondent has argued for its
nullity or illegality. In any event, we find no ambiguity in the language of the
waiver or the release of warranty. There is therefore no room for any
interpretation as to its effect or applicability vis-a- vis the deficient output of
the rock crusher. Suffice it to say that the private respondents have validly
excused the petitioner from any warranty on the rock crusher. Hence, they
should bear the loss for any defect found therein.
WHEREFORE, the Petition is GRANTED; the Decision of the Court of
Appeals dated March 17, 1988 is hereby REVERSED AND SET ASIDE, and
another one rendered DISMISSING the complaint. Costs against the private
respondents.
SO ORDERED.
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