SOUTHWESTERN SUGAR & MOLASSES vs.

ATLANTIC GULF
FACTS:
On March 24, 1953, defendant-appellant Atlantic granted plaintiff-appellee Southwestern an
option period of ninety days to buy the formers barge No. 10 for the sum of P30,000. On May
11 of the same year, Southwestern Company communicated its acceptance of the option to
Atlantic through a letter, to which the latter replied that their understanding was that the
"offer of option" is to be a cash transaction and to be effected "at the time the lighter is
available." On June 25, Atlantic advised the Southwestern Company that since there is still
further work for it, the barge could not be turned over to the latter company.
On June 27, 1953, the Southwestern Company filed this action to compel Atlantic to sell the
barge in line with the option, depositing with the court a check covering the sum of P30,000,
but said check was later withdrawn with the approval of the court. On June 29, the Atlantic
withdrew its "offer of option" with due notices to Southwestern Company stating that the
option was granted merely as a favor. The Atlantic contended that the option to sell it made
to Southwestern Company is null and void because said option to sell is not supported by
any consideration.
The trial court granted herein plaintiff-appellee Southwestern Companys action for specific
performance and ordered herein defendant-appellant Atlantic to pay damages equivalent to
6 per centum per annum on the sum of P30,000 from the date of the filing of the complaint.
ISSUE:
Is Atlantic liable for specific performance and to pay damages in favor of Southwestern
Company?
HELD:
The Supreme Court reversed the trial courts decision applying Article 1479 of the new Civil
Code. The Court reiterated that "an accepted unilateral promise" can only have a binding
effect if supported by a consideration, which means that the option can still be withdrawn,
even if accepted, if said option is not supported by any consideration. The option that
Atlantic had provided was without consideration, hence, can be withdrawn notwithstanding
Southwestern Companys acceptance of said option.
American jurisprudence hold that an offer, once accepted, cannot be withdrawn, regardless
of whether it is supported or not by a consideration, but the specific provisions of Article
1479 commands otherwise. While under the "offer of option" in question appellant Atlantic
has assumed a clear obligation to sell its barge to appellee Southwestern Company and the
option has been exercised in accordance with its terms, and there appears to be no valid or
justifiable reason for the former to withdraw its offer, the Court cannot adopt a different
attitude because the law on the matter is clear.

ATKINS, KROLL and CO., INC., v. CUA HIAN TEK

FACTS:
Atkins Kroll & Co. sent a letter to B. Cu HianTek on September 13, 1951, offering cartons of
Luneta brand Sardines subject to reply by September 23, 1951. HianTek unconditionally
accepted the said offer through a letter delivered on September 21, 1951, but Atkins failed
to deliver the commodities due to the shortage of catch of sardines by the packers in
California.
HianTek, therefore, filed an action for damages in the CFI of Manila which granted the same
in his favor.
Atkins herein contends that there was no such contract of sale but only an option to buy,
which was not enforceable for lack of consideration because it is provided under the 2nd
paragraph of Article 1479 of the New Civil Code that "an accepted unilatateral promise to
buy or to sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price. Atkins also insisted that the
offer was a mere offer of option, because the "firm offer" was a continuing offer to sell until
September 23.
ISSUE:
Whether a contract of sale was constituted between the parties or only a unilateral promise
to buy.
HELD:
SC held that there was a contract of sale between the parties. ATKINs argument assumed
that only a unilateral promise arose when the respondent accepted the offer is incorrect
because a bilateral contract to sell and to buy was created upon HIAN TEKs acceptance.
Cua Hian Teks letter-reply to Atkins indicated that he accepted "the firm offer for the sale.
After accepting the promise and before he exercises his option, the holder of the option is
not bound to buy. In this case at bar, however, upon TEKs acceptance of herein ATKIN's
offer, a bilateral promise to sell and to buy ensued, and the respondent had immediately
assumed the obligations of a purchaser.

SANCHEZ v. RIGOS
FACTS:
On April 3, 1961, plaintiff Nicolas Sanchez and defendant Severina Rigos executed aninstrument entitled Option to Purchase, whereby Rigos agreed, promised _and committed
to sell to Sanchez at the sum P1,510.00 a parcel of land situated in San Jose, Nueva Ecija,
described in TCT No. NT-12528, within two (2) years from said date with the understanding
that said option shall be deemed terminated and elapsed, if Sanchez shall fail to exercise
his right to buy the property within the stipulated period. Inasmuch as several tenders of
payment of the sum of PI,510.00, made by Sanchez within said period, were rejected by Mrs.
Rigos, on March 12, 1963, the former deposited said amount with the CFI of Nueva Ecija and
commenced against the latter the present action, for specific performance and damages.
After the filing of defendants answer admitting some allegations of the complaint, denying
other allegations thereof, and alleging, as special defense, that the contract between the
parties is a unilateral promise to sell, and the same being unsupported by any valuable
consideration, by force of the New Civil Code, is null and void on February 11, 1964, both
parties, assisted by their respective counsel, jointly moved for a judgment on the pleadings.
Accordingly, on February 28, 1964, the lower court rendered judgment for anchez, ordering
Mrs. Rigos to accept the sum judicially consigned by him and to execute, in his favor, the
requisite deed of conveyance. Mrs. Rigos was, likewise, sentenced to pay P200.00, as
attorneys fees, and other costs. Hence, this appeal by Mrs. Rigos.
ISSUE:
Whether or not Rigos should accept the payment and execute the deed of conveyance.
HELD:
Yes. Article 1479 of the Civil Code provides that a promise to buy and sell a determinate
thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or
to sell a determinate thing for a price certain is binding upon the promisor if the promise is
supported by a consideration distinct from the price.
An option is unilateral- a promise to sell at the price fixed whenever the offeree should
decide to exercise his option within the specified time. After accepting the promise and
before he exercises his option, the holder of the option is not bound to buy. He is free either
to buy or not to buy later. In this case, however, upon accepting herein petitioners offer a
bilateral promise to sell and to buy ensued, and the respondent ipso facto assumed the

obligation of a purchaser. He did not just get the right subsequently to buy or not to buy. It
was not a mere option then; it was a bilateral contract of sale.
If the option is given without a consideration, it is a mere offer of a contract of sale, which is
not binding until accepted. If, however, acceptance is made before a withdrawal, it
constitutes a binding contract of sale, even though the option was not supported by a
sufficient consideration. Since there may be no valid contract without a cause or
consideration, the promisor is not bound by his promise and may, accordingly, withdraw it.
Pending notice of its withdrawal, his accepted promise partakes, however, of the nature or
an offer to sell which, if accepted, results in a perfected contract of sale.

SERRA v. CA
FACTS:
Petitioner is the owner of a 374 square meter parcel of land in Masbate, Masbate. Sometime
in 1975, private respondent Rizal Commercial Banking Corp., in its desire to put up a branch
in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered
property. On May 20, 1975, a contract of lease with option to buy was contracted by the
parties. Pursuant to said contract, a binding and other improvements were constructed on
the land which housed the branch office of RCBC in Masbate, Masbate. Within three years
from the signing of the contract, petitioner complied with his part of the agreement by
having the property registered and placed under the TORRENS SYSTEM, for which OCT was
issued by the Register of Deeds of the Province of Masbate.
Petitioner alleges that as soon as he had the property registered, he kept on pursuing the
manager of the branch to effect the sale of the lot as per their agreement. It was not until
September 4, 1984, however, when the respondent bank decided to exercise its option and
informed petitioner, of its intention to buy the property at the agreed price of not greater
than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the
respondent, petitioner replied that he is no longer selling the property.
Hence, a complaint for specific performance and damages were filed by respondent against
petitioner. In the complaint, respondent alleged that during the negotiations it made clear to
petitioner that it intends to stay permanently on property once its branch office is opened
unless the exigencies of the business requires otherwise. Aside from its prayer for specific
performance, it likewise asked for an award of P50,000.00 for attorneys tees PIOO,OOO.OO
as exemplary damages and the cost of the suit.
ISSUES:
1. Whether or not the disputed contract is a contract of adhesion. 2. Whether or not the
petitioner may be compelled to exercise the option to buy before the time expires. 3.
Whether or not there was no consideration to support the option, distinct from the price,
hence the option cannot be exercised.
HELD:

1. No. A contract of adhesion is one wherein a party usually a corporation, prepares the
stipulations in the contract while the other party merely affixes his signature or his adhesion
thereto. These types of contract are as binding as ordinary contracts. Because in reality, the
party who adheres to the contract is free to reject it entirely although this Court will not
hesitate to rule out blind adherence to terms where facts and circumstances will show that it
is basically one-sided.
We do not find the situation in the present case to be inequitable. Petitioner is a highly
educated man, who, at the time of the trial was already a CPA-Lawyer, and when he entered
into the contract, was already a CPA, holding a respectable position with the Metropolitan
Manila Commission. It is evident that a man of his stature should have been more cautious
in transactions he enters into, particularly where it concerns valuable properties. He is amply
equipped to drive a hard bargain if he would be so minded to.
2. No. In a unilateral promise to sell, where the debtor fails to withdraw the promise before
the acceptance by the creditor, the transaction becomes a bilateral contract to sell and to
buy, because upon acceptance by the creditor of the offer to sell by the debtor, there is
already a meeting of the minds of the parties as to the thing which is determinate and the
price which is certain. In which case, the parties may then reciprocally demand performance.
Jurisprudence has taught us that an optional contract is a privilege existing only in one party
the buyer. For a separate consideration paid, he is given the right to decide to purchase
or not, a certain merchandise or properly, at any time within the agreed period, at a fixed
price. This being his prerogative, he may not be compelled to exercise the option to buy
before the time expires.
3. Yes. A price is considered certain if it is so with reference to another thing certain or when
the determination thereof is left to the judgment of a specified person or persons. And
generally, gross inadequacy of price does not affect a contract of sale. Contracts are to be
construed according to the sense ai1d meaning of the terms which the parties themselves
have used. In the present dispute, there is evidence to show that the intention of the parties
is to peg the price at P210 per square meter.

ROMAN v. GRIMALT
FACTS:
Pedro Roman, the owner, and Andres Grimalt, the purchaser, had been for several days
negotiating for the purchase of the schooner Santa Marina from the 13th to the 23d of
June, 1904. They agreed upon the sale of the vessel for the sum of 1,500 pesos, payable in
three installments, provided the title papers to the vessel were in proper form. It is so stated
in the letter written by the purchaser to the owner on the 23rd of June.
The vessel was sunk in the bay on the afternoon of the 25th of June, 1904, during a severe
storm and before the owner had complied with the condition exacted by the proposed
purchaser, to wit, the production of the proper papers showing that the plaintiff was in fact
the owner of the vessel in question.
On July 2, 1904, petitioner Roman filed a complaint in the CFI against Andres Grimalt,
praying that judgment be entered in his favor and against the defendant (1) for the
purchase price of the schooner Santa Marina, to wit, 1,500 pesos or its equivalent in
Philippine currency, payable by installments in the manner stipulated; (2) for legal interest
on the installments due on the dates set forth in the complaint; (3) for costs of proceedings;
and (4) for such other and further remedy as might be considered just and equitable.
ISSUE:
Whether or not the defendant is under the obligation to pay the price of the vessel
HELD:
No. The sale of the schooner was not perfected and the purchaser did not consent to the
execution of the deed of transfer for the reason that the title of the vessel was in the name
of one Paulina Giron and not in the name of Pedro Roman, the alleged owner. If no contract

of sale was actually executed by the parties the loss of the vessel must be borne by its
owner and not by a party who only intended to purchase it and who was unable to do so on
account of failure on the part of the owner to show proper title to the vessel and thus enable
them to draw up the contract of sale. The defendant was under no obligation to pay the
price of the vessel, the purchase of which had not been concluded. The conversations had
between the parties and the letter written by defendant to plaintiff did not establish a
contract sufficient in itself to create reciprocal rights between the parties.

NORKIS DISTRIBUTORS v. CA
FACTS:
Petitioner Norkis Distributors, Inc. is the distributor of Yamaha motorcycles in Negros
Occidental. On September 20, 1979, private respondent Alberto Nepales bought trom the
Norkis Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX. The
price of P7,500.00 was payable by means of a Letter of Guaranty from the DBP, which Norkis
agreed to accept. Credit was extended to Nepales for the price of the motorcycle payable by
DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a
chattel mortgage on the motorcycle in favor of DBP. Petitioner issued a sales invoice which
Nepales signed in conformity with the terms of the sale. In the meantime, however, the
motorcycle remained in Norkis possession. On January 22, 1980, the motorcycle was
delivered to a certain Julian Nepales, allegedly the agent of Alberto Nepales. The
motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An
investigation conducted by the DBP revealed that the unit was being driven by a certain
Zacarias Payba at the time of the accident. The unit was a total wreck was returned.
On March 20, 1980, DBP released the proceeds of private respondents motorcycle loan to
Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in
March, 1980, Nepales paid the difference of P328 and demanded the delivery of the
motorcycle. When Norkis could not deliver, he filed an action for specific performance with
damages against Norkis in the RTC of Negros Occidental. He alleged that Norkis failed to
deliver the motorcycle which he purchased, thereby causing him damages. Norkis answered

that the motorcycle had already been delivered to private respondent before the accident,
hence, the risk of loss or damage had to be borne by him as owner of the unit.
ISSUE:
Whether or not there has been a transfer of ownership of the motorcycle to Alberto Nepales
HELD:
No.The issuance of a sales invoice does not prove transfer of ownership of the thing sold to
the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and
cost of the thing sold and has been considered not a bill of sale. In all forms of delivery, it is
necessary that the act of delivery whether constructive or actual, be coupled with the
intention of delivering the thing. The act, without the intention, is insufficient. When the
motorcycle was registered by Norkis in the name of private respondent, Norkis did not
intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of
a chattel mortgage in favor of the DBP for the release of the buyers motorcycle loan.
Article 1496 of the Civil Code which provides that in the absence of an express assumption
of risk by the buyer, the things sold remain at sellers risk until the ownership thereof is
transferred to the buyer, is applicable to this case, for there was neither an actual nor
constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller,
Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This
is in accordance with the well known doctrine of res perit domino.

SOUTHERN MOTORS INC. v. MOSCOSO

FACTS:
Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck on
installment basis, for P6,445.00. Upon making a down payment, the defendant executed a
promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase
price to secure the payment of which, a chattel mortgage was constituted on the truck in
favor of the plaintiff. Of said account, the defendant had paid a total of P550.00, of which
P110.00 was applied to the interest and P400.00 to the principal, thus leaving an unpaid
balance of P4,475.00. The defendant failed to pay 3 installments on the balance of the
purchase price.
Plaintiff filed a complaint against the defendant, to recover the unpaid balance of the
promissory note. Upon plaintiffs petition, a writ of attachment was issued by the lower court
on the properties of the defendant. Pursuant thereto, the said Chevrolet truck, and a house
and lot belonging to defendant, were attached by the Sheriff and said truck was brought to
the plaintiffs compound for safe keeping. After attachment and before the trial of the case
on the merits, acting upon the plaintiffs motion for the immediate sale of the mortgaged
truck, the Provincial Sheriff of Iloilo sold the truck at public auction in which plaintiff itself

was the only bidder for P1,OOO.OO. The trial court condemned the defendant to pay the
plaintiff the amount of P4,475.00 with interest at the rate of 12% per annum from August 16,
1957, until fully paid, plus 10% thereof as attorneys fees and costs. Hence, this appeal by
the defendant.
ISSUE:
Whether or not the attachment caused to be levied on the truck and its immediate sale at
public auction, was tantamount to the foreclosure of the chattel mortgage on said truck.
HELD:
No.Article 1484 of the Civil Code provides 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: (I) 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; and (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.
The plaintiff had chosen the first remedy. The complaint is an ordinary civil action for
recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not
adopted the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but
those prescribed for ordinary civil actions, under the Rules of Court. Had the plaintiff elected
the foreclosure, it would not have instituted this case in court; it would not have caused the
chattel to be attached under Rule 59, and had it sold at public auction, in the manner
prescribed by Rule 39. That the plaintiff did not intend to foreclose the mortgage truck, is
further evinced by the fact that it had also attached the house and lot of the appellant at
San Jose, Antique.
We perceive nothing unlawful or irregular in plaintiffs act of attaching the mortgaged truck
itself. Since the plaintiff has chosen to exact the fulfillment of the appellants obligation, it
may enforce execution of the judgment that may be favorably rendered hereon, on all
personal and real properties of the latter not exempt from execution sufficient to satisfy such
judgment. It should be noted that a house and lot at San Jose, Antique were also attached.
No one can successfully contest that the attachment was merely an incident to an ordinary
civil action. The mortgage creditor may recover judgment on the mortgage debt and cause
an execution on the mortgaged property and may cause an attachment to be issued and
levied on such property, upon beginning his civil action.

PASCUAL v. UNIVERSAL MOTORS CORPORATION

FACTS:
Plaintiff-appellee spouses Lorenzo Pascual and Leonila Torres (spouses Pasqual) executed the
real estate mortgage subject matter of this complaint on December 14, 1960 to secure the
payment of the indebtedness of PDP Transit, Inc. (PDP Trans.) for the purchase of 5 units of
Mercedes Benz trucks, with a total purchase price or principal obligation of P152,506.50
which was to bear interest at 1% per month starting that day, but the plaintiffs' guarantee is
not to exceed P50,000.00 which is the value of the mortgage. The PDP Trans., as the
spouses Pasqual's principal, paid to defendant-appellant Universal Motors Corporation
(Universal Motors) the sum of P92,964.91 on April 5, 1961 for two of the five Mercedes Benz
trucks and on May 22, 1961 for the remaining three, thus leaving a balance of P68,641.69
including interest due on February 8, 1965.

On March 19, 1965, Universal Motors filed this complaint with the CFI of Manila against the
PDP Trans. to collect the balance due under the Chattel Mortgages and to repossess all the
units sold to PDP Trans. as the spouse Pascuals principal, including the 5 units guaranteed
under the subject Real (Estate) Mortgage. During the hearinbg, Universal Motors admitted
that it was able to repossess all the units sold to the latter, including the 5 units guaranteed
by the subject real estate mortgage, and to foreclose all the chattel mortgages constituted
thereon, resulting in the sale of the trucks at public auction. As the real estate mortgagors,
the spouses Pascual filed an action with the CFI of Quezon City for the cancellation of the
mortgage they constituted on 2 parcels of land in favor of the Universal Motors to guarantee
the obligation of PDP Trans. to the amount of P50,000. The said CFI rendered judgment in
favor of the spouses Pascual and ordered the cancellation of the mortgage.
ISSUE:
Was Article 1484 of the New Civil Code applicable in the case at bar?
HELD:
The Supreme Court affirmed the lower courts decision. Appellant Universal Motors argues
that Article 1484 is not applicable to the case at bar because there is no evidence on record
that the purchase by PDP Trans. of the 5 trucks was payable in installments and that the PDP
Trans. had failed to pay two or more installments. Universal Motors also contends that what
Article 1484 prohibits is for the vendor to recover from the purchaser the unpaid balance of
the price after he has foreclosed the chattel mortgage on the thing sold, but not a recourse
against the security put up by a third party.
The Supreme Court concluded to the contrary, saying that the first issue was whether or not
the sale was one on installments. The lower court found that it was, and that there was
failure to pay two or more installments, a finding which is not subject to review by the
Supreme Court.
The next contention is that what article 1484 withholds from the vendor is the right to
recover any deficiency from the purchaser after the foreclosure of the chattel mortgage,
and not a recourse to the additional security put up by a third party to guarantee the
purchaser's performance of his obligation. But the Supreme Court to sustain this argument
of the appellant would be to indirectly subvert and public policy overturn the protection
given by Article 1484.

FILINVEST CREDIT CORP. v. COURT OF APPEALS

FACTS:
Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the
sale of gravel produced from crushed rocks and used for construction purposes. They
intended to buy rock crusher from Rizal Consolidated Corporation which carried a cash price
tag of P550,000.00. They applied for financial assistance from herein petitioner Filinvest
Credit Corporation, who agreed to extend financial aid on the certain conditions.

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,
P23,000.00 next 6 months, P24,800.00 next 15 months. It was likewise stipulated that at
the end of the two-year period, the machine would be owned by the private respondents.
Thus the private respondent issued in favor of the petitioner a check for P150,550.00, as
initial rental (or guaranty deposit), and 24 postdated checks corresponding to the 24
monthly rentals. In addition, to guarantee their compliance with the lease contract, the
private respondent executed a real estate mortgage over two parcels of land in favor of the
petitioner. The rock crusher was delivered to the spouses.
However, 3 months later, the souses stopped payment when petitioner had not acted on the
complaints of the spouses about the machine. As a consequence, petitioner extrajudicially
foreclosed the real estate mortgage. The spouses filed a complaint before the RTC. The RTC
rendered a decision in favor of private respondent. The petitioner elevated the case to CA
which affirmed the decision in toto. Hence, this petition.
ISSUES:
1. Whether or not the nature of the contract is one of a contract of sale. 2. Whether or not
the remedies of the seller provided for in Article 1484 are cumulative.
HELD:
1. Yes. 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.
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 restored 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.
2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2
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.

RIUDAD v. FILIPINAS INVESTMENT AND FINANCE CORP.

Facts:

The spouses Ridad purchased from the Supreme Sales Development Corporation two (2)
brand new Ford Consul Sedans complete with accessories. 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 their franchise or certificate of public convenience granted by the defunct
Public Service Commission for the operation of a taxi fleet with Filipinas Investment.
Due to the failure of the plaintiffs to pay their monthly installments as per promissory note,
Filipinas Investment foreclosed on the chattel mortgage on the Ford Consul Sedans. The
foreclosure sale had a deficiency. Consequently, the corporation foreclosed the mortgage
constituted on the (Chevrolet) and their franchise or certificate of public convenience.
Issue:
Whether Filipinas Investment is precluded from foreclosing the second mortgage to recover
the deficiency on the first mortgage
Held:
No. 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 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.
If the vendor under such circumstance is prohibited from having a recourse against the
additional security for reasons therein stated, there is no ground why such vendor should not
likewise be precluded from further extrajudicially foreclosing the additional security put up
by the vendees themselves, as in the instant case, it being tantamount to a further action 5
that would violate Article 1484 of the Civil Code, for then is actually no between an
additional security put up by the vendee himself and such security put up by a third party
insofar as how the burden would ultimately fall on the vendee himself is concerned.