Sales Case Set 9

[G.R. No. L-10789. May 28, 1957.
]
AMADOR TAJANLANGIT v SOUTHERN MOTORS, INC.
SYLLABUS
1. SALE; PERSONAL PROPERTY SOLD ON INSTALLMENTS; WHEN VENDOR MAY RECOVER THE UNPAID
BALANCE OF THE PURCHASE PRICE. In a contract of sale of personal property the price of which is
payable in installments, secured by a mortgage on the goods sold, the vendor who chooses to exact
fulfillment of the obligation to pay is not limited to the proceeds of the sale, on execution, of the
mortgaged goods. The vendor may still recover from the purchaser the unpaid balance of the price, if
any.
DECISION
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon. Pantaleon Pelayo, Judge of the Iloilo court of first
instance refusing to interfere with the alias writ of execution issued in Civil Case No. 2942 pending in
another sala of the same court.
The facts. In April 1953 Amador Tajanlangit and his wife Angeles, residents of Iloilo, bought from the
Southern Motors Inc. of Iloilo two tractors and a thresher. In payment for the same, they executed the
promissory note Annex A whereby they undertook to satisfy the total purchase price of P24,755.75 in
several installments (with interest) payable on stated dates from May 18, 1953 to December 10, 1955.
The note stipulated that if default be made in the payment of interest or of any installment, then the
total principal sum still unpaid with interest shall at once become demandable etc. The spouses failed to
meet any installment. Wherefore, they were sued, in the above Civil Case No. 2942, for the amount of
the promissory note. 1 The spouses defaulted, and the court, after listening to the Southern Motors
evidence entered judgment for it in the total sum of P24,755.75 together with interest at 12 per cent,
plus 10 per cent of the total amount due as attorneys fees and costs of collection.
Carrying out the order of execution, the sheriff levied on the same machineries and farm implements
which had been bought by the spouses; and later sold them at public auction to the highest bidder
which turned out to be the Southern Motors itself for the total sum of P10,000.
As its judgment called for much more, the Southern Motors subsequently asked and obtained, an alias
writ of execution; and pursuant thereto, the provincial sheriff levied attachment on the Tajanlangits
rights and interests in certain real properties with a view to another sale on execution.
To prevent such sale, the Tajanlangits instituted this action in the Iloilo court of first instance for the
purpose among others, of annulling the alias writ of execution and all proceedings subsequent thereto.
Their two main theories: (1) They had returned the machineries and farm implements to the Southern
Motors Inc., the latter accepted them, and had thereby settled their accounts; for that reason, said
spouses did not contest the action in Civil Case No. 2942; and (2) as the Southern Motors Inc. had
repossessed the machines purchased on installment (and mortgaged) the buyers were thereby relieved
from further responsibility, in view of the Recto Law, now article 1484 of the New Civil Code.
For answer, the company denied the alleged "settlement and understanding" during the pendency of civil
case No. 2942. 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:
jgc:chanrobles.com .ph
"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 in 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 v. Del Rosario and Lim, 44 Phil., 182-186).
WHEREFORE, judgment is hereby rendered dismissing the complaint with costs against plaintiffs. Let the
writ of preliminary injunction issued on August 26, 1954, be lifted."
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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.
"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 mortgaged to the
vendor-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 any of the following remedies:
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(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendees failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees
failure to pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void."
(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. v. De la Rama, 72 Phil. 380.)" Manila Motor Co. v. 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. 1
In Southern Motors Inc. v. Magbanua, (100 Phil., 155) a similar situation arose in connection with the
purchase on installment of a Chevrolet truck by Magbanua. Upon the latters 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:
jgc:chanroble s.com.ph
"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
attorneys fees and cost of collection, the plaintiff elected 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 defendants obligation, the former may enforce
execution of the judgment 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 judgment 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." (Italics 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 down-payment 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 abovementioned - it would show the Tajanlangits owned nothing to
Southern Motors Inc. Such decision is binding upon them, unless and until they manage to set it aside in
a proper proceeding - and this is not it.
There are other points involved in the case, such as the authority of the judge of one branch of a court
of first instance to enjoin proceedings in another branch of the same court. As stated, Judge Pelayo
refused to interfere on that ground. Appellants insist this was error on several counts. We deem it
unnecessary to deal with this procedural aspect, inasmuch as we find that, on the merits, plaintiffs are
not entitled to the relief demanded.
Judgment. The decision dismissing the complaint, is affirmed, with costs against appellants. So ordered.
Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and Endencia, JJ.,
concur.
[G.R. No. L-67181. November 22, 1985.]

SPOUSES RESTITUTO NONATO v HONORABLE INTERMEDIATE APPELLATE COURT The issue
posed in this petition for review of the decision of the respondent appellate court is whether a vendor, or
his assignee, who had cancelled the sale of a motor vehicle for failure of the buyer to pay two or more of
the stipulated installments, may also demand payment of the balance of the purchase price.
The pertinent facts are summarized by the respondent appellate court as follows:
"On June 28, 1976, defendant spouses Restituto Nonato and Ester Nonato purchased one (1) unit of
Volkswagen Sakbayan from the Peoples 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 Peoples Car,
Inc. (Exh. B or 2). Peoples Car, Inc., assigned its rights and interests over the note and mortgage in
favor of plaintiff Investors 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).
"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 attorneys 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:
"PREMISES CONSIDERED, the Court hereby renders judgment ordering the defendant to pay to the
plaintiff the amount of P17,537.60 with interest at the rate of 14% per annum from July 28, 1976 until
fully paid, 10% of the amount due as attorneys fees, litigation expenses in the amount of P133.05 plus
the costs of this suit. No pronouncement as to other charges and damages, the same not having been
proven to the satisfaction of the Court." 1
On appeal, the respondent appellate court affirmed the judgment.
Hence, this petition for review on certiorari.
The applicable law in the case at bar, involving as it does a sale of personal property on installment, is
Article 1484 of the Civil Code which provides:
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"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:
The meaning of the aforequoted provision has been repeatedly enunciated in a long line of cases. Thus;
"Should the vendee or purchaser of a personal property default in the payment of two or more of the
agreed installments, the vendor or seller has the option to avail of any of these three remedies either
to exact fulfillment by the purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage
on the purchased personal property, if one was constituted. These remedies have been recognized as
alternative, not cumulative, that the exercise of one would bar the exercise of the others." 2
It is not disputed that the respondent company had taken possession of the car purchased by the
Nonatos on installments. But while the Nonatos maintain that the company had, by that act, exercised
its option to cancel the contract of sale, the company contends that the repossession of the vehicle was
only for the purpose of appraising its value and for storage and safekeeping pending full payment by the
Nonatos of the purchasing price. The company thus denies having exercised its right to cancel the sale of
the repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos when it took possession of the vehicle
states that the vehicle could be redeemed within fifteen [15] 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 companys 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.
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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.
[G.R. No. L-17384. October 31, 1961.]

NESTOR RIGOR VDA. DE QUIAMBAO v MANILA MOTOR COMPANY
SYLLABUS
1. SALE ON INSTALLMENT; CAR SURRENDERED TO SELLER PENDING SETTLEMENT OF JUDGMENT; PART
PAYMENT MADE AFTER SURRENDER OF CAR; CONTRACT OF SALE NOT RESCINDED; JUDGMENT STILL
ENFORCEABLE. Where the car sold on installment is surrendered to the seller by the buyer in order
that the latter might be given more time within which to satisfy the judgment debt and to suspend the
impending execution sale of the buyers properties levied upon, and said buyer paid part of his
indebtedness thereafter, the surrender of said car could not have amounted to a foreclosure of the
chattel mortgage, and the judgment may still be executed.
2. ID.; WAR DAMAGE PAYMENT OF CAR VALUE NOT EQUIVALENT TO FORECLOSURE; SELLER NOT
BARRED FROM RECOVERING UNPAID BALANCE. Respondent company (seller) having been the party
who was last in possession of the lost car, it was well within its rights to protect the interest of the car
owner, as well as its own, by claiming, as it did, the corresponding war damage compensation for said
car to be credited to the owner, and that payment could not have the legal effect of formal foreclosure of
the chattel mortgagee so as to preclude the seller from recovering any unpaid balance. 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 v. De la
Rama, 72 Phil. 380; Manila Motor Company, Inc. v. Fernandez, 99 Phil., 782; 52 Off. Gaz., [16] 6883).
3. OBLIGATION AND CONTRACTS; DEBT MORATORIUM; PRESCRIPTIVE PERIOD INTERRUPTED BY
INTERRUPTION OF COURT FUNCTIONS. The courts 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 by order of the Chairman of the Executive Commission (Talens v. Chuakay & Co., G. R. No.
L-10127, June 30, 1958), and this interruption in the functions of the courts interrupted the running of
the prescriptive period (Palma v. Celda, 81 Phil., 416).
4. JUDGMENTS; ENFORCEMENT OF; EXECUTION AND LEVY. A valid execution issued and levy made
within the five-year 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.
5. MORATORIUM LAW; SUSPENSION OF RUNNING OF STATUTE OF LIMITATIONS. Since in Rutter v.

Esteban (93 Phil., 68; 49 Off. Gaz., 1807), the Supreme Court did not declare the Moratorium Law void
ab initio, but only held that its continued operation and enforcement had already become unreasonable
and oppressive, said law did suspend the running of the statute of limitations, and no action could be
taken to collect monetary obligations falling within the purview of the law during the period that it was
still in effect (Santos Vda. Montilla v. Pacific Commercial Co., 98 Phil., 133; Liboro v. Finance & Mining
Investments Corps., 102 Phil., 489; Manila Motor Co. v. Flores, 99 Phil., 52 Off. Gaz., [13], 5804; Pacific
Commercial v. Aquino, 53 Off. Gaz., No. 13). Consequently, whether or not the creditor actually brought
his action to court before or after the law been voided, still the period for the enforcement of his credit
was tolled by the moratorium law.
DECISION
REYES, J.B.L., J.:
This petition for certiorari brings to this Court for review the decision of the Court of Appeals in its CAG.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. 58043 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
attorneys 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

Received from Mr. Gaudencio Quiambao, Studebaker President Sedan License No. 45-368 pending
settlement of the judgment in Civil Case No. 58043 CFI Manila rendered in favor of Manila Motor
Company.
DAVID AND ANGELES
by (Sgd.) Felix P. David.
Attorneys for Manila Motor Company."
On October 16, 1941, Gaudencio Quiambao remitted to the company, on account of the judgment, the
sum of P500.00; he, however, failed to make further payments, thus leaving a balance still unsettled of
P1,952.47, with interest thereon at 12 per cent per annum from March 6, 1940.
In the meantime, the Pacific war broke out, and when the Japanese forces occupied the country shortly
thereafter, the invaders seized all the assets of the Manila Motor Company, Inc. as enemy property.
After the war, the company filed with the Philippine War Damage Commission, among other things, a
claim for its mortgage lien on the car of Gaudencio Quiambao and was awarded the sum of P780.47,
P409.75 of which amount had already been paid.
On October 12, 1949, the company addressed a letter to Gaudencio Quiambao asking him to fill a blank
form relative to the lost car. Quiambao having since died, his widow, Nestora Rigor Vda. de Quiambao,
returned the form with the statement that the questioned car was surrendered to the company for
storage. On May 18, 1953, a demand was made on the widow to settle the deceaseds unpaid accounts,
but in view of her refusal, the company urged the Provincial Sheriff of Tarlac to carry out the pre-war
writ of execution issued in Civil Case No. 58043. Although the records of that case had been lost during
the war, and have not been reconstituted, a copy of said writ of execution kept on file by the provincial
sheriff was saved. Accordingly, the latter advertised for sale at public auction the properties levied upon.
Notified of the sheriffs action, the heirs of the deceased Quiambao filed this suit to annul and set aside
the writ of execution and to recover damages. Judgment was rendered by the Court of First Instance of
Manila in favor of plaintiffs-petitioners, but on appeal to the Court of Appeals, the decision was reversed
and another entered dismissing the complaint. Hence, this appeal by writ of certiorari.
Briefly, the issues are:
(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?
(b) Did the payment to respondent company and the latters acceptance of war damage compensation
for the lost car amount to a foreclosure of the mortgage covenanted 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 v. 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 companys 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 Code 1 , then applicable, bars any further claim for
unpaid installments. There is no merit in this claim. Unlike the 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 be
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 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 companys acceptance of the car, the company made repeated demands against the
petitioners to settle the deceaseds 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., v. 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 v. 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 v. 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 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 v. 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.
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. v. Hotel Co., 94 Cal. 217, 222)." (Government of P.I. v. Echaus, 71 Phil.
318).
The case of Ansaldo v. 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 the 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 five-year
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 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.
Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Concepcion, Paredes, Dizon and De Leon, JJ., concur.
Barrera, J., took no part.
[G.R. No. L-24772. May 27, 1968.]

RUPERTO G. CRUZ v FlLIPINAS INVESTMENT & FINANCE CORPORATION
SYLLABUS
1. CIVIL LAW; SALES; SALE OF PERSONAL PROPERTY ON INSTALLMENTS; FORECLOSURE OF CHATTEL
MORTGAGE; EFFECT. - 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 purchasers outstanding
obligation not so satisfied by the sale. There is no merit to the claim 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, because if the guarantor should be compelled to pay the balance of the purchase price, the
guarantor will in turn be entitled to recover what he has paid from the debtor vendee (Article 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.
2. ID.; ID.; ID.; ID.; ID.; ACTION AS USED IN ARTICLE 1484 DEFINED. Considering the purpose for
which the prohibition contained in Article 1484 was intended, the word "action" used therein may be
construed as referring to any judicial or extra-judicial proceeding by virtue of which the vendor may
lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the
purchaser or his privy. Certainly, an extrajudicial foreclosure of a real estate mortgage is one such
proceeding.
3. ATTORNEYS FEES; AWARD, WHEN PROPER. The provision of law and jurisprudence on the matter
being explicit so that this litigation could have been avoided, the award by the lower court of attorneys
fees to the plaintiffs in the sum of P200.00 is reasonable and in order.
4. REAL ESTATE MORTGAGE; PAYMENT MADE BY 2ND MORTGAGE FOR THE RELEASE OF THE FIRST
MORTGAGE REIMBURSABLE FROM MORTGAGOR. There is merit in appellants complaint against the
trial courts failure to order the reimbursement by appellee Vda. de Reyes of the amount which the
former paid to the Development Bank of the Philippines, for the release of the first mortgage on the land
of said appellee. To the extent that she was benefited by such payment, plaintiff-appellee Vda. de Reyes
should have been required to reimburse the appellant.
DECISION
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.
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:
"2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from the Far East Motor
Corporation, one (1) unit of Isuzu Diesel Bus, described in the complaint, for P44,616.24, Philippine
Currency, payable in installments of P1,487.20 per month for thirty (30) months, beginning October 22,
1963, with 12% interest per annum, until fully paid. As evidence of said indebtedness, plaintiff Cruz
executed and delivered to the Far East Motor Corporation a negotiable promissory in the sum of
P44,616.24 . . .;
"3. That to secure the payment of the promissory note, Annex A, Cruz executed in favor of the seller Far
East Motor Corporation, a chattel mortgage over the aforesaid motor vehicle . . .;
"4. That as no down payment was made by Cruz, the seller, Far East Motor Corporation, on the very
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 improvements thereon, in San Miguel, Bulacan . . .;
"5. That said land has an area of 68,902 square meters, more or less, and covered by Transfer
Certificate of Title No. T-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-1) 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 promissory 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 defendants demands, Cruz
made no payment on any of the installments stipulated in the promissory note;
"8. That by reason of Cruzs 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, defendants bid being for Fifteen Thousand Pesos (P15,000.00). . .
"10. That the proceeds of the sale of the bus were not sufficient to cover the expenses of sale, the
principal obligation, interests, and attorneys fees, i.e., they were not sufficient to discharge fully the
indebtedness of plaintiff Cruz to the defendant;
"11. That on February 12, 1964, preparatory to foreclosing its real estate mortgage on Mrs. Reyes land,
defendant paid the mortgage indebtedness of Mrs. Reyes to the Development Bank of the Philippines, in
the sum of P2,148.07, the unpaid balance of said obligation . . .;
"12. That pursuant to a provision of the real estate mortgage contract, authorizing the mortgagee to
foreclose the mortgage judicially or extra-judicially, defendant on February 29, 1964 requested the
Provincial Sheriff of Bulacan to take possession of, and sell, the land subject of the Real Estate Mortgage,
Annex B-l, 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 plaintiffs 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 attorneys 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
plaintiff attorneys 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:
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 orders. 4 It may also be stated that the established rule is to the effect
that the foreclosure and actual sale of a mortgage chattel bars further recovery by the vendor of any
balance on the purchasers 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. v. 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 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."
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
purchasers outstanding obligation. Defendant-appellant, however, sought to collect the supposed
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 appellants argument is to overlook the fact that if the
guarantor should be compelled to pay the balance of the purchaser 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 appellants allegation that since the law speaks of "action", the restriction
should be confined only to the bringing of judicial suits or proceedings in court.
The word "action" is without a definite or exclusive meaning. It has been invariably defined as
". . . the legal demand of ones right, or rights; the lawful demand of ones rights in the form given by
law; a demand of a right in a court of justice; the lawful demand of ones right in a court of justice; the
legal and formal demand of ones rights from another person or party, made and insisted on in a court of
justice; a claim made before a tribunal; an assertion in a court of justice of a right given by law; a
demand or legal proceeding in a court of justice to secure ones rights; the prosecution of some demand
in a court of justice; the means by which men litigate with each other; the means that the law has
provided to put the cause of action into effect; . . ." (Gutierrez Hermanos v. De la Riva, 46 Phil. 827,
834-835).
Considering the purpose for which the prohibition contained in Article 1484 was intended, the word
"action" used therein may be construed as referring to any judicial or extrajudicial proceeding by virtue
of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of
the purchase price from the purchaser or his privy. Certainly, an extrajudicial foreclosure of a real estate
mortgage is one such proceeding.
The provision of law and jurisprudence on the matter being explicit so that this litigation could have been
avoided, the award by the lower court of attorneys fees to the plaintiffs in the sum of P200.00 is
reasonable and in order.
However, we find merit in appellants complaint against the trial courts failure to order the
reimbursement by appellee Vda. de Reyes of the amount which the former paid to the Development
Bank of the Philippines, for the release of the first mortgage on the land of said appellee. To the extent
that she was benefited by such payment, plaintiff-appellee Vda. de Reyes should have been required to
reimburse the Appellant.
WHEREFORE, the decision appealed from is modified, by ordering plaintiff-appellee Felicidad Vda. de
Reyes to reimburse to defendant- appellant Filipinas Investment & Finance Corporation the sum of
P2,148.07, with legal interest thereon from the finality of this decision until it is fully paid. In all other
respects, the judgment of the court below is affirmed, with costs against the defendant- Appellant.
[G.R. No. L-39806. January 27, 1983.]
LUIS RIDAD v FILIPINAS INVESTMENT and FINANCE CORPORATION
SYLLABUS
1. CIVIL LAW; CONTRACTS; SALE OF PERSONAL PROPERTY ON INSTALLMENT BASIS; REMEDIES OF THE
VENDOR SHOULD THE VENDEE DEFAULT; ALTERNATIVE NOT CUMULATIVE. Under Article 1484 of the
Civil Code, the vendor of personal property, the purchase 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. (Luneta Motor Co. v. Dimagiba, 3 SCRA 884;
Radiowealth, Inc. v. Lavin, 7 SCRA 804; Industrial Finance Corporation v. Tobias, 78 SCRA 28).
Whichever right the vendor elects he cannot avail of the other, these remedies being alternative, not
cumulative. (Industrial Finance Corp. v. Tobias, Ibid; Cruz v. Filipinas Investment and Finance Corp., 23
SCRA 791).
2. ID.; ID.; ID.; ID.; ID.; ELECTION TO FORECLOSE THE MORTGAGE ON DEFAULT PRECLUDES ACTION
FOR RECOVERY OF UNPAID BALANCE; PURPOSE OF THE LAW. If the vendor avails himself of the right
to foreclose his mortgage, the law prohibits him from further bringing an action against the vendee for
the purpose of recovering whatever balance of the debt secured not satisfied by the foreclosure sale.
(Luneta Motor Co. v. Dimagiba, Supra; Northern Motors, Inc. v. Sapinoso, 33 SCRA 356). The precise
purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment,
otherwise, the mortgagor-buyer would find himself without the property and still owing practically the
full amount of his original indebtedness. (Bachrach Motor Co. v. Millan, 61 Phil. 409; Macondray & Co. v.
Benito, 62 Phil. 137; Zayas v. Luneta Motor Co., L-30583, October 23, 1982).
3. ID.; ID.; ID.; ID.; ID.; ID.; RULING IN LEVY HERMANOS, INC. v. PACIFIC COMMERCIAL CO., ET AL.
APPLICABLE TO CASE AT BAR. Where the appellant corporation elected to foreclose its mortgage upon
default by the appellee in the payment of the agreed installments and having chosen to foreclose the
chattel mortgage, bought the purchased vehicles at public auction as the highest bidder, it submitted
itself to the consequences of Article 1484 of the Civil Code and the lower court rightly declared the
nullity of the chattel mortgage in question in so far as the taxicab franchise and the used Chevrolet car
of plaintiffs are concerned, under the authority of the ruling in the case of Levy Hermanos, Inc. v. Pacific
Commercial Co., Et Al., 71 Phil. 587, the facts of which are similar to those in the case at bar.
4. ID.; ID.; ID.; ID.; ID.; ID.; PROHIBITION OF RECOURSE AGAINST ADDITIONAL SECURITY; WHETHER
PUT UP BY A THIRD PARTY OR BY THE VENDEES THEMSELVES. 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 purchasers
performance of his obligation. (Cruz v. Filipinas Investment & Finance Corporation, 23 SCRA 791;
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 (cf. Cruz v. Filipinas Investment & Finance Corporation, supra) that would violate Article
1484 of the Civil Code, for there is actually no difference 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.
5. ID.; ID.; ID.; ID.; SALE OF MORTGAGED PROPERTY IN AN ACTION FOR SPECIFIC PERFORMANCE;
DIFFERENTIATED FROM FORECLOSURE OF CHATTEL MORTGAGE IN CASE AT BAR. In sales on
installments, where the action instituted is for specific performance and the mortgaged property is
subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage,
hence, the seller-creditor is entitled to a deficiency judgment. (Southern Motors, Inc. v. Moscoso, 2
SCRA 168). 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.
DECISION
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.
chanroble s law library
The materials facts of the case appearing on record may be stated as follows: On April 14, 1964,
plaintiffs purchased from the Supreme Sales and 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 extrajudicially, and at the public auction sale of
the two Ford Consul cars, of which the plaintiffs were not notified, the defendant corporation was the
highest bidder and purchaser. Another auction sale was held on November 16, 1965, involving the
remaining properties subject of the deed of chattel mortgage since plaintiffs obligation was not fully
satisfied by the sale of the aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to
operate five units of taxicab service was sold for P8,000 to the highest bidder, herein defendant
corporation, which subsequently sold and conveyed the same to herein defendant Jose D. Sebastian,
who then filed with the Public Service Commission an application for approval of said sale in his favor.
On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First
Instance of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian and
Sheriff Jose San Agustin, as party-defendants. By agreement of the parties, the case was submitted for
decision in the lower court on the basis of the documentary evidence adduced by the parties during the
pre-trial conference. Thereafter, the lower court rendered judgment as follows:
"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. 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:
chanrob1es virtual 1aw
library
I
"THE LOWER COURT ERRED IN DECLARING THE CHATTEL MORTGAGE, EXHIBIT C, NULL AND VOID.
II
"THE LOWER COURT ERRED IN HOLDING THAT THE SALE AT PUBLIC AUCTION CONDUCTED BY THE
CITY SHERIFF OF MANILA CONCERNING THE TAXICAB FRANCHISE IS OF NO LEGAL EFFECT.
III
"THE LOWER COURT ERRED IN SETTING ASIDE THE CERTIFICATE OF SALE ISSUED BY THE CITY
SHERIFF OF MANILA IN FAVOR OF FILIPINAS INVESTMENT AND FINANCE CORPORATION COVERING
PLAINTIFFS TAXICAB FRANCHISE.
IV
"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
Under the above-quoted article of the Civil Code, the vendor of personal property the purchase price of
which is payable in installments, has the right, should the vendee default in the payment of two or more
of the agreed installments, to exact fulfillment by the purchaser of the obligation, or to cancel the sale,
or to foreclose the mortgage on the purchased personal property, if one was constituted. 1 Whichever
right the vendor elects, he cannot avail of the other, these remedies being alternative, not cumulative. 2
Furthermore, if the vendor avails himself of the right to foreclose his mortgage, the law prohibits him
from further bringing an action against the vendee for the purpose of recovering whatever balance of the
debt secured not satisfied by the foreclosure sale. 3 The precise purpose of the law is to prevent
mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then
bringing suit against the mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would
find himself without the property and still owing practically the full amount of his original indebtedness.
4
In the instant case, defendant corporation elected to foreclose its mortgage upon default by the plaintiffs
in the payment of the agreed installments. Having chosen to foreclose the chattel mortgage, and bought
the purchased vehicles at the public auction as the highest bidder, it submitted itself to the
consequences of the law as specifically mentioned, by which it is deemed to have renounced any and all
rights which it might otherwise have under the promissory note and the chattel mortgage as well as the
payment of the unpaid balance.
Consequently, the lower court rightly declared the nullity of the chattel mortgage in question in so far as
the taxicab franchise and the used Chevrolet car of plaintiffs are concerned, under the authority of the
ruling in the case of Levy Hermanos, Inc. v. Pacific Commercial Co., Et Al., 71 Phil. 587, the facts of
which are similar to those in the case at bar. There, we have the same situation wherein the vendees
offered as security for the payment of the purchase price not only the motor vehicles which were bought
on installment, but also a residential lot and a house of strong materials. This Court sustained the
pronouncement made by the lower court on the nullity of the mortgage in so far as it included the house
and lot of the vendees, holding that under the law, should the vendor choose to foreclose the mortgage,
he has to content himself with the proceeds of the sale at the public auction of the chattels which were
sold on installment and mortgaged to him, and having chosen the remedy of foreclosure, he cannot nor
should he be allowed to insist on the sale of the house and lot of the vendees, for to do so would be
equivalent to obtaining a writ of execution against them concerning other properties which are separate
and distinct from those which were sold on installment. This would indeed be contrary to public policy
and the very spirit and purpose of the law, limiting the vendors right to foreclose the chattel mortgage
only on the thing sold.
chanroble s virtual lawlibrary
In the case of Cruz v. Filipinas 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 purchasers 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 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 there is actually no
difference 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 specific performance and the mortgaged property is subsequently
attached and sold, the sale thereof does not amount to a foreclosure of the mortgage, hence, the sellercreditor is entitled to a deficiency judgment, does not fortify 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.
chanrobles.com :cralaw:re d
IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against the appellants.
SO ORDERED.
[G.R. No. L-30583. October 23, 1982.]

EUTROPIO ZAYAS v LUNETA MOTOR COMPANY
SYNOPSIS
Petitioner purchased on installment basis a motor vehicle from Escao, a dealer of respondent Luneta
Motor Company. After the initial payment, petitioner simultaneously executed in favor of respondent
company a promissory note for the balance of the total selling price and a chattel mortgage on the
subject property to secure its payment. When, after a few monthly installment, petitioner defaulted in its
payments, respondent company extrajudicially foreclosed the chattel mortgage and subsequently bought
the property at public auction. The total purchase price not having been realized from the foreclosure
sale, respondent further filed a civil suit to recover the balance. Upon motion of petitioner, the City Court
dismissed the case on the ground that the former is no longer liable fore the deficiency judgment since
the chattel mortgage had been foreclosed, with respondent company as the highest bidder. On appeal,
however, respondent Court of First Court of origin for further proceedings. Hence, this petitioners only
an ordinary loan removed from the coverage of Article 1484 of the New Civil Code, since respondent
company is merely a financing company distinct from Escao Enterprises from where petitioner bought
the vehicle.
The Supreme Court held that, as borne by the records, there was a principal-agent relationship between
Escao Enterprises and respondent company, and the transaction entered into by respondent or its
agent and petitioner is one of sale of personal property on installment; and that consequently, pursuant
to Art. 1484 of the New Civil Code and prevailing jurisprudence , the vendor, having availed himself of
the right to foreclose the mortgage, is prohibited from bringing an action against the purchaser for the
unpaid balance of the total purchase price.
Petitioner grandted.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACT OF AGENCY; PRINCIPAL-AGENT RELATIONSHIP PRESENT
IN CASE AT BAR. The Escao Enterprise of Cagayan de Oro City was an agent to 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 petitioners OPPOSITION TO URGENT MOTION FOR
RECONSIDERATION. Annex "A" is a certification from the cashier of Escao 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 promisory note mentioned in the
certification refers to the promissory note executed by Eutropio Zayas, Jr. in favor of respondent Luneta
Motor Company. Escao 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.
2. ID.; ID.; CONTRACT OF SALE; SALE OF PERSONAL PROPERTY ON INSTALLMENT; A CASE OF. 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 Escao 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 on installment 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. (See Cruz v. Filipinas Investment & Finance Corporation, 23 SCRA
791).
DECISION
GUTIERREZ, JR., J.:
Eutropio Zayas, Jr., filed this petition for review by certiorari to secure a reversal of the respondent
courts orders which remanded Civil Case No. 74381 for further proceedings instead of affirming the city
courts order of dismissal.
The petitioner Eutropio Zayas, Jr. purchased on installment basis a motor vehicle described as ONE (1)
UNIT FORD THAMES FREIGHTER W/PUJ BODY with Engine No. 400E-127738 and Chassis No. 400E-
127738 from Mr. Roque Escao of the Escao Enterprises in Cagayan de Oro City, dealer of respondent
Luneta Motor Company, under the following terms and conditions:
Selling price 7,500.00

Financing charge 1,426.82
Total Selling Price 8,926.82
Payable on Delivery 1,006.82
Payable in 24 months at 12 %
interest per annum 7,920.00
The motor vehicle was delivered to the petitioner who 1) paid the initial payment in the amount of
P1,006.82, and 2) executed a promissory note in the amount of P7,920.00, the balance of the total
selling price, in favor of respondent Luneta Motor Company. The promissory note stated the amounts
and dates of payment of twenty-six installments covering the P7,920.00 debt. Simultaneously with the
execution of the promissory note and to secure its payment, the petitioner executed a chattel mortgage
on the subject motor vehicle in favor of the Respondent. After paying a total amount of P3,148.00, the
petitioner was unable to pay further monthly installments prompting the respondent Luneta Motor
Company to extrajudicially foreclose the chattel mortgage (Annex "A" to Answer, Original Record, p. 10,
supra). The motor vehicle was sold at public auction with the respondent Luneta Motor Company
represented by Atty. Leandro B. Fernandez as the highest bidder in the amount of P5,000.00 (Annex "B"
to Answer, Original Record, p. 11, supra). Since the payments made by petitioner Eutropio Zayas, Jr.
plus the P5,000.00, realized from the foreclosure of the chattel mortgage could not cover the total
amount of the promissory note executed by the petitioner in favor of the respondent Luneta Motor
Company, the latter filed Civil Case No. 165263 with the City Court of Manila for the recovery of the
balance of P1,551.74 plus interests.
Luneta Motor Company alleged in its complaint that defendant-Eutropio Zayas, Jr. executed a promissory
note in the amount of P7,920.00 in its favor; that out of the P7,920.00, Eutropio Zayas, Jr. had paid only
P6,368.26 plus interest up to the date of the sale at public auction of the motor vehicle; that the balance
of P1,551.74 plus interest of 12% thereon from that date had already become due and payable but
despite repeated demands to pay the same, Eutropio Zayas, Jr., refused and failed to pay.
In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr. admitted having executed
the promissory note for the monthly payments, on a Ford Thames vehicle bearing Engine No. 400E127738 which he purchased from the Luneta Motor Company but he denied his alleged outstanding
liability of P1,551.74 plus interest thereon." . . id obligation if there was any, had already been
discharged either by payment or by sale in public auction of the said motor vehicle as evidenced by a
Notice of Sale marked as Annex "A" and Certificate of Sale marked as Annex "B" ; (Answer, p. 7, Original
Record). He alleged as affirmative defenses, among others: 1) that the plaintiff has no cause of action
against him; and 2) that pursuant to Article 1484 of the New Civil Code and the case of Pacific
Commercial Co. v. De La Rama, (72 Phil. 380) his obligation per the promissory note was extinguished
by the sale at public auction of the motor vehicle, the subject of the chattel mortgage which was
executed by him in favor of the plaintiff as security for the payment of said promissory note. (Answer, p.
8, Original Record)
In its Reply, Luneta Motor Company denied the applicability of Article 1484 of the Civil Code." . . e
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).
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 found 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, citing the case of Ruperto G. Cruz v. Filipinas Investment
decided on May 27, 1968, G.R. No. L-24772 in connection with Article 1484 of the Civil Code, and finding
the same well taken.
"Let this case be dismissed without pronouncement as to costs."
Luneta Motor Company filed an "Urgent Motion for Reconsideration" reiterating its stand that Article
1484 of the New Civil Code on sale of personal property by installment was not applicable and that the
contract involving the parties was a mere case of an ordinary loan secured by chattel mortgage.
According to the plaintiff, the defendant executed the promissory note and chattel mortgage to secure
the plaintiffs interest for having financed the purchase of the motor vehicle by the defendant from the
Escao Enterprises of Cagayan de Oro City, an entity entirely different and distinct from the plaintiff
corporation (p. 33, Original Record).
The court denied the motion for reconsideration for lack of merit.
Luneta Motor Company appealed the case to the Court of First Instance of Manila where it was docketed
as Civil Case No. 74381.
After various incidents, the respondent court issued an order which, in part, reads:
chanroblesvirtualawlibrary
"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. L-24772) in
connection with Article 1484 of the Civil Code.
x
"After going over the pleadings in this case, more particularly the complaint and the answer to the
complaint filed with the City Court of Manila, this Court is of the impression that the case at bar may not
be decided merely, as the City Court had done, on the question of law since the presentation of evidence
is necessary to adjudicate the questions involved.WHEREFORE, this case is hereby remanded to the
court of origin for further proceedings. (pp. 82-83, Original Record)"
Hence, this petition.
Petitioner Eutropio Zayas, Jr. now maintains:
"That Respondent Court of First Instance erred:
1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE DECIDED SINCE PRESENTATION OF

EVIDENCE IS NECESSARY REGARDING THE QUESTION OF RECOVERY OF THE DEFICIENCY AMOUNT
IN A CHATTEL MORTGAGE AFTER SELLING IT IN A PUBLIC AUCTION;
2. IN ORDERING THE REMAND OF THE CASE TO THE CITY COURT FOR FURTHER PROCEEDINGS TAKEN
BY THE RESPONDENT FROM THE CITY COURT TO THE COURT OF FIRST INSTANCE, BRANCH XXI,
MANILA; and
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE PRIVATE RESPONDENT FROM THE CITY COURT TO
THE COURT OF FIRST INSTANCE."
The main defense of respondent Luneta Motor Company is that Escao 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.
chanroble s law library : red
The respondents 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 petitioners OPPOSITION TO URGENT MOTION FOR
RECONSIDERATION. (Original Record, p. 36) Annex "A" is a certification from the cashier of Escao
Enterprises on the monthly installments paid by Mr. Eutropio Zayas, Jr. In the certification, the
promissory note in favor of Luneta Motor Company was specifically mentioned. There was only one
promissory note executed by Eutropio Zayas, Jr. in connection with the purchase of the motor vehicle.
The promissory note mentioned in the certification refers to the promissory note executed by Eutropio
Zayas, Jr. in favor of respondent Luneta Motor Company. Thus:
"CERTIFICATION
"This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid from us the following, of his FORD THAMES
BEARING Engine No. 400E-127738, promissory note dated October 6, 1966. Viz:
ESCAO O.R. DATE RECEIVED AMOUNT

NUMBER
09998 October 5, 1966 P1,000.00
10064 October 20, 1966 242.00
10188 November 8, 1966 166.00
10355 December 12, 1966 400.00
LMC C.R. #40031 January 19, 1967 270.00
10536 February 1, 1967 60.00
10645 February 27, 1967 100.00
10704 March 13, 1967 100.00
10749 March 22, 1967 60.00
10132 March 30, 1967 100.00
10788 April 8, 1967 100.00
10795 April 11, 1967 100.00
10827 April 18, 1967 100.00
10934 May 10, 1967 100.00
10991 May 26, 1967 100.00
11105 June 19, 1967 150.00
________
P3,148.00
ESCAO ENTERPRISES
(SGD.) EMELITA H. BACULIO

Cashier"
Escao 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 Escao 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.
"(3) Foreclose the chattel ,mortgage on the thing sold, if one has been constituted, should the vendees
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void,
x
". . . 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 purchasers outstanding obligation not so satisfied
by the sale. And the reason for this doctrine was aptly stated in the case of Bachrach Motor Co. v. Millan,
supra thus:
"Undoubtedly the principal object of the above amendment was to remedy the abuses committed in
the installments already paid, if there be an agreement to that effect. Furthermore, if the vendor avails
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.
[G.R. No. L-28074. May 29, 1970.]

NORTHERN MOTORS, INC. v CASIANO SAPINOSO
SYLLABUS
1. REMEDIAL LAW; ACTION FOR REPLEVIN; PRELIMINARY STEP TO FORECLOSURE SALE. In issuing a
writ of replevin, and, after trial, in upholding plaintiff-appellants right to the possession of the car, and
ratifying and confirming the 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 the
foreclosure sale contemplated in Section 14 of Act 1508.
2. ID.; ID.; ID.; ACTUAL SALE AS BAR TO RECOVERY OF UNPAID AMOUNT. The said court erred in
concluding that the legal effect of the filing of the action was to bar plaintiff-appellant from accepting
further payments on the promissory note. That the ultimate object of the action is the foreclosure of the
chattel mortgage, is of no moment, for it is the fact of foreclosure and actual sale of the mortgaged
chattel that bar further recovery by the vendor of any balance on the purchasers outstanding obligation
not satisfied by the sale.
3. ID.; ID.; ARTICLE 1484 OF NEW CIVIL CODE NOT APPLICABLE IN CASE AT BAR. 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, 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.
4. ID.; ID.; ACCEPTANCE OF UNPAID BALANCE BY CREDITOR-MORTGAGEE; CASE OF RADIOWEALTH,
INC. VS. LAVIN, ET AL. If the mortgage creditor, before the actual foreclosure sale was not precluded
from recovering the unpaid balance of the price although he has filed an action of replevin for the
purpose of extrajudicial foreclosure, or if a mortgage creditor who has elected to foreclose but who
subsequently desists from proceeding with the auction sale without gaining any advantage or benefit,
and without causing any disadvantage or harm to the vendee-mortgagor, is not barred from suing on the
unpaid account, 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.
DECISION
VILLAMOR, J.:
Direct appeal on questions of law from the portion of the judgment of the Court of First Instance of
Manila, Branch XXII, in its Civil Case No. 66199, ordering the plaintiff to pay defendant Casiano Sapinoso
the sum of P1,250.00.
The facts of this case are as follows:
On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car for the
price of P12,171.00, making a down payment and executing a promissory note for the balance of
P10,540.00 payable in installments with interest at 12% per annum, as follows: P361.00 on July 5,
1965, and P351.00 on the 5th day of each month beginning August, 1965, up to and including
December, 1967. To secure the payment of the promissory note, Sapinoso executed in favor of Northern
Motors, Inc. a chattel mortgage on the car. The mortgage contract provided, among others, that upon
default by the mortgagor in the payment of any part of the principal or interest due, the mortgagee may
elect any of the following remedies: (a) sale of the car by the mortgagee; (b) cancellation of the contract
of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary civil action to exact fulfillment
of the mortgage contract. It was further stipulated that" [w]hichever remedy is elected by the
mortgagee, the mortgagor expressly waives his right to reimbursement by the mortgagee of any and all
amounts on the principal and interest already paid by him."
Sapinoso failed to pay the first installment of P361.00 due on July 5, 1965, and the second, third, fourth
and fifth installments of P351.00 each due on the 5th day of August, September, October and November,
1965, respectively. Several payments were, however, made by Sapinoso, to wit: P530.52 on November
21, 1965, P480.00 on December 21, 1965, and P400.00 on April 30, 1966. The first and third payments
aforesaid were applied to accrued interest up to April 17, 1966, while the second payment was applied
partly (P158.10) to interest, and partly (P321.90) to the principal, thereby reducing the balance unpaid
to P10,218.10.
The vendee-mortgagor having failed to make further payments, Northern Motors, Inc. filed the present
complaint on July 22, 1966, against Sapinoso and a certain person whose name, identity and address
were still unknown to the plaintiff, hence denominated in the complaint as "John Doe." In its complaint,
Northern Motors, Inc. stated that it was availing itself of the option given it under the mortgage contract
of extrajudicially foreclosing the mortgage, and prayed that a writ of replevin be issued upon its filing of
a bond for the seizure of the car and for its delivery to it; that after hearing, the plaintiff be adjudged to
have the rightful possession and ownership of the car; that in default of delivery, the defendants be
ordered to pay the plaintiff the sum of P10,218.10 with interest at 12% per annum from April 18, 1966,
until full payment of the said sum, as well as an amount equivalent to 25% of the sum due as and for
attorneys fees and expenses of collection, and the costs of the suit. Plaintiff also prayed for such other
remedy as might be deemed just and equitable in the premises.
Subsequent to the commencement of the action, but before the filing of his answer, defendant Sapinoso
made two payments on the promissory note, the first on August 22, 1966, for P500.00, and the second
on September 27, 1966, for P750.00. In the meantime, on August 9, 1966, upon the plaintiffs filing of a
bond, a writ of replevin was issued by the court. On October 20, 1966, copies of the summons,
complaint and annexes thereto were served on defendant Sapinoso by the sheriff who executed the
seizure warrant by seizing the car from defendant Sapinoso on the same date, and turning over its
possession to the plaintiff on October 25, 1966.
On November 12, 1966, defendant Sapinoso filed an answer admitting the allegations in the complaint
with respect to the sale to him of the car, the terms thereof, the execution of the promissory note and of
the chattel mortgage contract, and the options open to the plaintiff under the said contract. He alleged,
however, that he had paid the total sum of P4,230.52, leaving a balance of only P5,987.58; that upon
demand he immediately surrendered the possession of the car to the plaintiffs representative; and that
the value of the car was only about P5,000.00, and not P10,000.00 as alleged in the complaint. As
special defenses the said defendant alleged that he failed to pay the installments due because the car
was defective, and the plaintiff failed to have it fixed although he had repeatedly called the plaintiffs
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 latters 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
attorneys fees stipulated in the promissory note, and should return to defendant Sapinoso he 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 twodoor station wagon Model 3464-91.5, with engine No. 10-0354333, and the delivery thereof to the
plaintiff is hereby ratified and confirmed but said party is sentenced to pay to the defendant the sum of
P1,250, with legal interest on P500 from August 22, 1966 and or P750 from September 27, 1966, until
fully paid, without any pronouncement as to costs."
In this appeal plaintiff-appellant claims that the court a quo erred in ordering it to reimburse to
defendant-appellee Sapinoso the sum of P1,250.00 which the latter had paid. It contends that under
Article 1484 of the Civil Code it is the exercise, not the mere election, of the remedy of foreclosure that
bars the creditor from recovering the unpaid balance of the debt; that what the said Article 1484
prohibits is "further action" to collect payment of the deficiency after the creditor has foreclosed the
mortgage; and that in paying plaintiff-appellant the sum of P1,250 00 before defendant-appellee
Sapinoso filed his answer, and in not filing a counterclaim for the recovery thereof, the said defendantappellee 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-appellants 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 the foreclosure sale contemplated in Section 14 of Act No 1508 (Bachrach Motor Co. v. Summers,
42 Phil., 3; Seo v. Pestolante, G.R. No. L-11755, April 23, 1958). The said court however erred in
concluding that the legal effect of the filing of the action was to bar plaintiff-appellant from accepting
further payments on the promissory note. That the ultimate object of the action is the foreclosure of the
chattel mortgage, is of no moment, for it is the fact of foreclosure and actual sale of the mortgaged
chattel that bar further recovery by the vendor of any balance on the purchasers outstanding obligation
not satisfied by the sale (Manila Motor Co., Inc. v. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. v.
Millan, 61 Phil., 409; Manila Trading & Suppy Co. v. Reyes, 62 Phil. 461, 471; Cruz Et. Al. v. Filipinas
Investment & Finance Corporation, G.R. No. L-24772, 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. v. 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 defendant-appellee Sapinoso was a
voluntary act on his part and did not result from a "further action" instituted by plaintiff-appellant. If the
mortgage creditor, before the actual foreclosure sale, is not precluded from recovering the unpaid
balance of the price although he has filed an action of replevin for the purpose of extra-judicial
foreclosure, or if a mortgage creditor who has elected to foreclose but who subsequently desists from
proceeding with the auction sale, without gaining any advantage or benefit, and without causing any
disadvantage or harm to the vendee-mortgagor, is not barred from suing on the unpaid account
(Radiowealth, Inc. v. 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.
[G.R. No. 43683. July 16, 1937.]

MACONDRAY & CO., INC v URBANO EUSTAQUIO
SYLLABUS
1. CIVIL PROCEDURE; JUDGMENT BY DEFAULT, EFFECT OF. Under section 128 of our Code of Civil
Procedure, the judgment by default against a defendant who has neither appeared nor filed his answer
does not imply a waiver of rights 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 allegations 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 plaintiffs causes of action find support in the law or that the latter is entitled
to the relief prayed for. (Chaffin v. McFadden, 41 Ark., 42; Johnson v. Pierce, 12 Ark., 599; Mayden v.
Johnson, 59 Ga., 105; Peo. v. Rust, 292 Ill., 412; Madison County v. Smith, 95 Ill., 328; Keen v. Leipold,
211 Ill. A., 163 Chicago etc. Electric R. Co. v. Krempel, 116 Ill. A., 253.)
2. ACT NO. 4122, VALIDITY AND CONSTITUTIONALITY OF; POWER OF THE LEGISLATURE TO ENACT
SAME. The ruling in Manila Trading & Supply Co. v. Reyes (62 Phil., 461), is reaffirmed. The law seeks
to remedy an evil which the Legislature wished to suppress; this legislative body has power to
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.
3. ID., ID., INTERPRETATION. The 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, attorneys 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, attorneys 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. v. Toribio,
15 Phil., 85; U. S. v. Navarro, 19 Phil., 134; De Jesus v. City of Manila, 29 Phil., 73; Borromeo v.
Mariano, 41 Phil., 322; People v. 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.
DECISION
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, attorneys 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 per cent interest per annum, 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 attorneys 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 condition stipulated in the note relative to the monthly installments,
interest, attorneys fees, expenses of collection, and costs. The mortgaged 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 attorneys fees, and the costs.
I. The plaintiffs 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 by not asking for any positive relief.
Under section 128 of our Code of Civil Procedure, the judgment by default against a defendant who has
neither appeared nor filed his answer does not imply a waiver of rights 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 allegations 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 plaintiffs causes of action find support in the
law or that the latter is entitled to the relief prayed for. (Chaffin v. McFadden, 41 Ark., 42; Johnson v.
Pierce, 12 Ark., 599; Mayden v. Johnson, 59 Ga., 105; Peo. v. Rust, 292 Ill., 412; Madison County v.
Smith, 95 Ill., 328; Keen v. Leipold, 211 Ill. A., 163; Chicago etc. Electric R. Co. v. Krempel, 116 Ill. A.,
253.) For these reasons, we hold that the defendant did not waive the application 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. In Manila Trading & Supply Co. v. Reyes (62 Phil., 461), the
validity of the said law was already passed upon when it was questioned for the same reasons here
advanced. In resolving the questions in favor of the validity of the law, we then held: "2. Liberty of
contract, class legislation, and equal protection of the laws. The question of the validity of an act is
solely one of constitutional power. Questions of expediency, of motive, or of results are irrelevant.
Nevertheless it is not improper to inquire as to the occasion for the enactment of a law. The legislative
purpose thus disclosed can then serve as a fit background for constitutional inquiry.
"Judge Moran in first instance had the following to say relative to the reasons 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 attorneys 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 attorneys 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 attorneys 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 abovementioned are
arbitrary will be presently set out.
"In a case which reached this court, Mr. Justice Goddard, interpreting Act No. 4122, made the following
observations:
"Undoubtedly the principal object of the above amendment was to remedy the abuses committed in
the installments already paid, "if there be an agreement to that effect." Furthermore, if the vendor avails
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. v. 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 nothwithstanding 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 reasons which will soon
appear, we do not think that either decision is controlling.
"In 1897, an Act was passed in the State of Washington which provided that in all proceedings for the
foreclosure of mortgages hereafter executed, or on judgments rendered upon the debt thereby secured,
the mortgagee or assignee shall be limited to the property included in the mortgage. It was held by a
divided court of three to two that the statute since limiting the right to enforce a debt secured by
mortgage to the property mortgaged, whether realty or chattels, was an undue restraint upon the liberty
of a citizen to contract with respect to his property rights. But as is readily apparent, the Washington law
and the Philippine law are radically different in phraseology and in effect. (Dennis v. Moses [1898], 40 L.
R. A., 302.)
"In Oregon, in a decision of a later date, an Act abolishing deficiency judgments upon the foreclosure of
mortgages to secure the unpaid balance of the purchase price of real property was unanimously
sustained by the Supreme Court of that State. The importance of the subject matter in that jurisdiction
was revealed by the fact that four separate opinions were prepared by the justices participating, in one
of which Mr. Justice Johns, shortly thereafter to become a member of this court, concurred. However, it
is but fair to state that one of the reasons prompting the court to uphold the law was the financial
depression which had prevailed in that State. While in the Philippines, the court can take judicial notice
of the stringency of finances that presses upon the people, we have no reason to believe that this was
the reason which motivated the enactment of Act No. 4122. (Wright v. Wimberley [1919], 184 Pac.,
740).
"While we are on the subject of the authorities, 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 states of facts and different laws. We gain the most help from the
case of Bronzon v. Kinzie [1843], 1 How., 311), decided by the Supreme Court of the United States. It
had under consideration a law passed in the State of Illinois, which provided 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 the
power to describe the legal and equitable obligations of a contract to be made and executed within its
jurisdiction. It may exempt any property it thinks proper from sale for the payment of a debt; and may
impose such conditions and restrictions 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 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 remains 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 v. Manz [1922], 206 Pac., 403; Oshkosh Waterworks
Co. v. Oshkosh [1908], 187 U. S., 437; W. B. Worthen Co. v. 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 Islands v. Olutanga Lumber Co. [1924], 47 Phil., 20; Manila Trading & Supply Co.
v. Tamaraw Plantation Co., supra.) But the practice became universal enough to acquire the force of
direct legislative enactment regarding procedure. To a certain extent the Legislature has now
disauthorized this practice, but has left a sufficient remedy remaining.
"Three remedies are available to the vendor who has sold personal property on the installment plan. (1)
He may elect to exact the fulfillment of the obligation. (Bachrach Motor Co. v. Millan, supra.) (2) If the
vendee shall have failed to pay two or more installments, the vendor may cancel the sale. (3) If the
vendee shall have failed to pay two or more installments, the vendor may foreclose the mortgage, if one
has been given on the property. The basis of the first option is the Civil Code. The basis of the last two
options is Act No. 4122, amendatory of the Civil Code. And the proviso to the right to foreclose is, that if
the vendor has chosen this remedy, he shall have no further action against the purchaser for the
recovery of any unpaid balance owing by the same. In other words, as we see it, the Act does no more
than qualify the remedy.
"Most constitutional issues are determined by the courts approach to them. The proper approach in
cases of this character should be to resolve all presumptions in favor of the validity of an act in the
absence of a clear conflict between it and the constitution. All doubts should be resolved in its favor.
"The controlling purpose of Act No. 4122 is revealed to be to close the door to abuses committed in
connection with the foreclosure of chattel mortgages when sales were payable in installments. That
public policy, obvious from the statute, was defined and established by legislative authority. It is for the
courts to perpetuate it.
"We are of the opinion that the Legislature may change judicial methods and remedies for the
enforcement of contracts, as it has done by the enactment of Act No. 4122, without unduly interfering
with the obligation of the contract, without sanctioning class legislation, and without a denial of the equal
protection of the laws. We rule that Act No. 4122 is valid and enforceable. As a consequence, the errors
assigned by the appellant are overruled, and the judgment affirmed, the costs of this instance to be
taxed against the losing party."
In his brief counsel for the plaintiff advances no new arguments which have not already been considered
in the Reyes case, and we see no reason for reaching a different conclusion now. The law seeks to
remedy an evil which the Legislature wished to suppress; this legislative body has power to promulgate
the law; the law 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, attorneys 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
guarantee the payment of its price, and the words "any unpaid balance" should be interpreted as having
meaning of the Legislature and to give effect thereto. (Sec. 288, Code of Civil Procedure; U. S. v. Toribio,
15 Phil., 85; U. S. v. Navarro, 19 Phil., 134; De Jesus v. City of Manila, 29 Phil., 73; Borromeo v.
Mariano, 41 Phil., 322; People v. 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.
Avancea, C.J., Villa-Real, Abad Santos, Diaz, Laurel and Concepcion, JJ., concur.
[G.R. No. L-27645. November 28, 1969.]

FILIPINAS INVESTMENT & FINANCE CORPORATION v LOURDES V. RIDAD
SYLLABUS
1. REMEDIAL LAW; JUDGMENTS; JUDGMENT MUST STATE CLEARLY AND DISTINCTLY THE FACTS AND
THE LAW ON WHICH IT IS BASED; RULE SUBSTANTIALLY COMPLIED WITH IN INSTANT CASE.
Although settled is the doctrine that a a decree with absolutely nothing to support it is a nullity, the law,
however, merely requires that a decision state the "essential ultimate facts upon which the courts
conclusion is drawn." Thus, where a decision of the lower court referred to a pre-trial order which
contains substantial findings of facts, such express reference to the pre-trial order must be considered
and taken as forming part of the decision and the decision cannot be disputed as a nullity on the ground
that it does not state the facts of the case and the law on which it is based.
2. CIVIL LAW; SALE OF CHATTEL ON INSTALLMENT; VENDORS ACTION FOR REPLEVIN GOVERNED BY
THE PROVISION OF ART. 1484 OF THE CIVIL CODE IF MORTGAGE IS FORECLOSED DURING PROGRESS
OF THE CASE. Where there is a sale of chattel on installments secured by a promissory note and a
chattel mortgage on the property sold, and the vendee-mortgagor fails to pay five consecutive
installments causing the vendor-mortgagee to institute a replevin suit for the seizure of the property or
the recovery of the unpaid balance in case delivery could not be effected, and after the property is
seized by the sheriff and during the progress of the case, the vendor-mortgagee instituted extrajudicial
foreclosure proceedings as a result of which the property was sold at public auction with the vendormortgagee as the highest bidder, the action for replevin culminating in the foreclosure sale should be
governed by the provisions of Art. 1484 of the New Civil Code under which the mortgagee is limited to
the property mortgaged and is not entitled to attorneys fees and costs of the suit.
3. D.; ID.; ID.; VENDOR ENTITLED TO RECOVER COSTS OF SUIT IN CASE OF PLAIN REFUSAL OF
VENDEE TO DELIVER THE PROPERTY. 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, and the mortgagee files 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, the necessary expenses incurred in the prosecution by the mortgagee of the action for
replevin so that he can regain possession of the chattel, should be borne by the mortgagor. Recoverable
expenses would include expenses properly incurred in effecting seizure of the chattel and reasonable
attorneys fees in prosecuting the action for replevin.
DECISION
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 attorneys fees.
The spouses Ridad bought from the Supreme Sales & Development Corporation, the appellees assignorin-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 attorneys fees, and P163,65 representing
actual expenses relative to the seizure of the car, plus costs.
Their motion to set aside the 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 attorneys 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 attorneys fees, the court in the exercise of its
equitable jurisdiction reduces the attorneys fees granted to the plaintiff by the lower court to P300.00."
cralaw
virtua1aw library
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
attorneys 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 appellees
complaint.
1. We uphold the appellees contention that the disputed decision of the lower court complies
substantially with the requirements of law because it referred to the pre-trial order it issued on May 27,
1966 which contains substantial findings of facts. For although settled is the doctrine that a decree with
absolutely nothing to support it is a nullity, the law, however, merely requires that a decision state the
"essential ultimate facts upon which the courts conclusion is drawn." 1 There being an express reference
to the pre-trial order, the latter must be considered and taken as forming part of the decision. The claim,
therefore, that the judgment clearly transgresses the legal precept 2 because it does not state the facts
of the case and the law on which it is based and hence, is a nullity, finds no justification here.
2. The appellants theorize that the action of the appellee is for the payment of the unpaid balance of the
purchase price with a prayer for replevin. When, therefore, the appellee seized the car, extrajudicially
foreclosed the mortgage, had the vehicle sold, and bought the same at public auction as the highest
bidder, it thereby renounced any and all rights which it might have under the promissory note as well as
the payment of the unpaid balance, and, consequently, what it would otherwise be entitled under and by
virtue of the present action, including attorneys 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 attorneys 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 latters
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. v. 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
attorneys 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 formers demands.
The appellee further argues that the award of attorneys 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 attorneys 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 vendees failure to pay cover two or more installments;
"(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendees
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. v. 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. 1485 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.
v. Eustaquio, 4 as follows:
"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, attorneys 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 attorneys 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, attorneys 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 attorneys fees,
and the costs.
x
"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, attorneys 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
guarantee the payment of its price, and the words any unpaid balance should be interpreted as having
meaning of the Legislature and to give effect thereto. (Sec. 288, Code of Civil Procedure; U.S. v. Toribio,
15 Phil. 85; U.S. v. Navarro, 19 Phil. 134; De Jesus v. City of Manila, 29 Phil. 73; Borromeo v. Mariano,
41 Phil. 322; People v. 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." (Italics supplied)
In other words, under this amendment as above interpreted, in all proceedings for the foreclosure of a
chattel mortgage, executed on chattels which have been sold on the installment plan, the mortgagee is
limited to the property mortgaged 5 and is not entitled to attorneys fees and costs of suit.
In a subsequent case 6 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, attorneys 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 attorneys fees that would go with the suit."
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 attorneys 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 re cover from the mortgagor any amount
or sum after the foreclosure of the mortgage, for, as we understand it, the philosophy of the Recto Law
is that the underprivileged mortgagors must be afforded full protection against the rapacity of the
mortgagees.
But while we unconditionally concur in, and give our approval to, the basic philosophy of the Recto Law,
we view with no small amount of circumspection the implication, necessarily drawn from the above
discussion, that the mortgagee is not entitled to protection against perverse mortgagors. Where the
mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his failure to pay two or
more installments, or if he conceals the chattel to place it beyond the reach of the mortgagee, what then
is the mortgagee expected to do? It is part of conventional wisdom and the rule of law that no man can
take the law into his own hands; so it is not to be supposed that the Legislature intended that the
mortgagee should wrest or seize the chattel forcibly from the control and possession of the mortgagor,
even to the extent of using violence which is unwarranted in law. Since the mortgagee would enforce his
rights through the means and within the limits delineated by law, the next step in such situations being
the filing of an action for replevin to the end that he may recover immediate possession of the chattel
and, thereafter, enforce his rights in accordance with the contractual relationship between him and the
mortgagor as embodied in their agreement, then it logically follows as a matter of common sense, that
the necessary expenses incurred in the prosecution by the mortgagee of the action for replevin so that
he can regain possession of the chattel, should be borne by the mortgagor. Recoverable expenses would,
in our view, include expenses properly incurred in effecting seizure of the chattel and reasonable
attorneys fees in prosecuting the action for replevin. And we declare that in this case before us, the
amounts awarded by the court a quo to the mortgagee (appellee) are reasonable.
To the extent that our pronouncement here conflicts with the ruling announced and followed in the cases
hereinbefore discussed, the latter must be considered pro tanto qualified.
ACCORDINGLY, the judgment a quo is affirmed. No costs.
[G.R. No. 82508. September 29, 1989.]

FILINVEST CREDIT CORPORATION v THE COURT OF APPEALS, JOSE SY BANG
SYLLABUS
1. CIVIL LAW; OWNERSHIP; FINANCING INSTITUTION AS OWNER IS NOT IMMUNE FRAOM ANY
RECOURSE FROM BUYER; CASE AT BAR. Bent on acquiring a rock crusher, the private respondents
applied for financial assistance from the petitioner, FILINVEST Credit Corporation. The petitioner agreed
to extend to the private respondents financial aid on the following conditions: that the machinery be
purchased in the petitioners name; that it be leased (with option to purchase upon the termination of
the lease period) to the private respondents; and that the private respondents execute a real estate
mortgage in favor of the petitioner as security for the amount advanced by the latter. Held: 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.
2. ID.; CONTRACTS; INTERPRETATION; A CONTRACT IS WHAT THE LAW DEFINES IT AND THE PARTIES
INTEND IT TO BE, NOT WHAT IF IS CALLED BY THE PARTIES. 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. It is apparent here that the 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.
3. ID.; SPECIAL CONTRACTS; SALES; REMEDIES OF SELLER OF MOVABLES PAYABLE IN INSTALLMENTS
WHERE BUYER FAILS TO PAY TWO OR MORE INSTALLMENTS; REMEDIES ARE ALTERNATIVE NOT
CUMULATIVE. Under Article 1484 of the New Civil Code, the seller of movables in installments, in case
the buyer fails to pay two or more installments, may elect to pursue either of the following remedies: (1)
exact fulfillment by the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on
the purchased property if one was constituted thereon. It is now settled that the said remedies are
alternative and not cumulative and therefore, the exercise of one bars the exercise of the others.
4. ID.; ID.; ID.; CONTRACT OF LEASE WITH OPTION TO BUY, RESORTED TO AS A MEANS OF
CIRCUMVENT ARTICLE 1484 OF NEW CIVIL CODE. Indubitably, the device contract of lease with
option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3)
thereof. Through the set-up, the vendor, by retaining ownership over the property in the guise of being
the lessor, retains, likewise, the right to repossess the same, without going through the process of
foreclosure, in the event the vendee-lessee defaults in the payment of the installments. There arises
therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor,
after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the
installments-cum-rentals already paid.
5. ID.; QUASI-DELICTS, NEGLIGENCE; BETWEEN TWO PARTIES, HE WHO BY HIS NEGLIGENCE CAUSED
THE LOSS, SHALL BEAR THE SAME. Considering that between the parties, it is the private
respondents, by reason of their business, who are presumed to be more knowledgeable, if not experts,
on the machinery subject of the contract, they should not therefore be heard now to complain of any
alleged deficiency of the said machinery. It is their failure or neglect to exercise the caution and
prudence of an expert, or, at least, of a prudent man, in the selection, testing, and inspection of the rock
crusher that gave rise to their difficulty and to this conflict. A well-established principle in law is that
between two parties, he, who by his negligence caused the loss, shall bear the same.
6. ID.; SPECIAL CONTRACTS; SALES; WARRANTY; EXPRESS WAIVER OF WARRANTIES ABSOLVED
SELLER FROM ANY LIABILITY ARISING FROM ANY DEFECT OR DEFICIENCY OF MACHINERY; CASE AT
BAR. At any rate, even if the private respondents could not be adjudged as negligent, they still are
precluded from imputing any liability on the petitioner. One of the stipulations in the contract they
entered into with the petitioner is an express waiver of warranties in favor of the latter. By so 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 machines production capacity being
"typewritten" and that of the waiver being "printed" does not militate against the latters 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.
7. ID.; ID.; ID.; ID.; BUYER SHOULD INSPECT A PRODUCT BEFORE PURCHASE AND NOT RETURN IT
FOR DEFECTS DISCOVERED LATER ON. 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.
8. ID.; ID.; ID.; ID.; WAIVER NOT CONSIDERED A MERE SUPRLUSAGE IN CONTRACT. 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.
DECISION
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.
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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:
ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT

(RECONDITIONED) [sic]
JAW CRUSHER 10 x 16
DOUBLE ROLL CRUSHER 16x16
3 UNITS PRODUCT CONVEYOR
75 HP ELECTRIC MOTOR
8 PCS. BRAND NEW TIRES
CHASSIS NO. 19696
GOOD RUNNING CONDITION 3
Oscar Sy Bang, a brother of private respondent Jose Sy Bang, went to inspect the machine at the Rizal
Consolidateds plant site. Apparently satisfied with the machine, the private respondents signified their
intent to purchase the same. They were however confronted with a problem the rock crusher carried a
cash price tag of P550,000.00. Bent on acquiring the machinery, the private respondents applied for
financial assistance from the petitioner, FILINVEST Credit Corporation. The petitioner agreed to extend to
the private respondents financial aid on the following conditions: that the machinery be purchased in the
petitioners name; that it be leased (with option to purchase upon the termination of the lease period) to
the private respondents; and that the private respondents execute a real estate mortgage in favor of the
petitioner as security for the amount advanced by the latter.
Accordingly, on May 18, 1981, a contract of lease of machinery (with option to purchase) was entered
into by the parties whereby the private respondents agreed to lease from the petitioner the rock crusher
for two years starting from July 5, 1981 payable as follows:
P10,000.00 first 3 months

23,000.00 next 6 months
24,800.00 next 15 months 4
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
As a consequence of the non-payment by the private respondents of the rentals on the rock crusher as
they fell due despite the repeated written demands, the petitioner extrajudicially foreclosed the real
estate 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 oclock 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. T-32480 and T-5779 of the Registry of Deeds of Lucena City;
4. ordering the defendant corporation to pay plaintiffs P30,000.00 as attorneys fees and the costs of the
suit.
SO ORDERED. 11
Dissatisfied with the trial courts 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. 12 Hence, 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 petitioners 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.
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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 that
the 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:
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
The importance of the criticism is heightened in the light of Article 1484 of the new Civil Code which
provides for the remedies of an unpaid seller of movables in installment basis.
Article 1484. In a contract of sale of personal property the price of which is payable in installments, the
(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted, should the vendees
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.
Under the aforequoted provision, the seller of movables in installments, in case the buyer fails to pay
two or more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by
the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the purchased
property if one was constituted thereon. It is now settled that the said remedies are alternative and not
cumulative and therefore, the exercise of one bars the exercise of the others.
Indubitably, the device contract of lease with option to buy is at times resorted to as a means to
circumvent Article 1484, particularly paragraph (3) thereof. Through the set-up, the vendor, by retaining
ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the
same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the
payment of the installments. There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the
contract of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these reasons
that Article 1485 of the new Civil Code provides that:
Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the
thing. (Emphasis ours.)
Unfortunately, even with the foregoing findings, we however fail to find any reason to hold the petitioner
liable for the rock crushers 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:
LESSEES SELECTION, INSPECTION AND VERIFICATION. The LESSEE hereby confirms and
acknowledges that he has independently inspected and verified the leased property and has selected and
received the same from the Dealer of his own choosing in good order and excellent running and
operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this
Contract." 16
Moreover, considering that between the parties, it is the private respondents, by reason of their
business, who are presumed to be more knowledgeable, if not experts, on the machinery subject of the
contract, they should not therefore be heard now to complain of any alleged deficiency of the said
machinery. It is their failure or neglect to exercise the caution and prudence of an expert, or, at least, of
a prudent man, in the selection, testing, and inspection of the rock crusher that gave rise to their
difficulty and to this conflict. A well-established principle in law is that between two parties, he, who by
his negligence caused the loss, shall bear the same.
At any rate, even if the private respondents could not be adjudged as negligent, they still are precluded
from imputing any liability on the petitioner. One of the stipulations in the contract they entered into with
the petitioner is an express waiver of warranties in favor of the latter. By so 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 machines production capacity being "typewritten" and
that of the waiver being "printed" does not militate against the latters 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.
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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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[G.R. No. L-10789. May 28, 1957.

"Our law" provides,

[G.R. No. L-67181. November 22, 1985.]

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at all on the part of the company to return the repossessed car.

[G.R. No. L-17384. October 31, 1961.]

5. MORATORIUM LAW; SUSPENSION OF RUNNING OF STATUTE OF LIMITATIONS. Since in Rutter v.

"August 27, 1941

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Barrera, J., took no part.

[G.R. No. L-24772. May 27, 1968.]

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[G.R. No. L-30583. October 23, 1982.]

Selling price 7,500.00

Acting on the motion, the city court issued an Order:

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"That Respondent Court of First Instance erred:

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1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE DECIDED SINCE PRESENTATION OF

The respondents arguments have no merit.

ESCAO O.R. DATE RECEIVED AMOUNT

(SGD.) EMELITA H. BACULIO

[G.R. No. L-28074. May 29, 1970.]

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The appeal is meritorious.

[G.R. No. 43683. July 16, 1937.]

Advance Opinions, 638.)

[G.R. No. L-27645. November 28, 1969.]

This might be considered a reiteration of the ruling in Macondray.

[G.R. No. 82508. September 29, 1989.]

The controversy stemmed from the following facts:

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ONE UNIT LIPPMAN PORTABLE CRUSHING PLANT

P10,000.00 first 3 months

WHEREFORE, PREMISES CONSIDERED, Judgment is hereby rendered:

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1. making the injunction permanent;

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