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Form of Contracts

Paredes v Espino

Date: March 13, 1968

Ponente: Reyes, JBL

Facts:
Paredes filed an action to compel (i.e. specific performance and damages) Espino to
execute a deed of sale and to pay damages. The complaint alleged that Espino had
entered into the sale to Paredes of Lot. 67 of the Puerto Princesa Cadastre at P4.00 a
square meter. According to Paredes, said deal had been closed by letter and telegram
but the actual execution of the deed of sale and payment of the price were deferred to
the arrival of Espino at Puerto Prinsesa. However, upon Espinos arrival, he refused and
to execute the deed of sale. As a result, Paredes lost expected profits from a resale of
the property.
o Exhibit A: Letter from Espino accepting Paredes offer re: purchase price of P4.00
a square meter
o Exhbit B: Telegram from Espino advising Paredes of his arrival by boat
Espino filed a MD on the ground that the complaint stated no cause of action and was
unenforceable under the Statute of Frauds.
CFI: Dismissed complaint there being no written contract (CC 1403).
Issue: WON enforcement pleaded in the complaint is barred by the Statute of Frauds; therefore,
unenforceable
Held: No.
Ratio:
Article 1403 (2) unless the same, or some note of memorandum thereof, be in
writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary evidence of its
contents.
Exhibits A and B constitute an adequate memorandum of the transaction. All essential
terms of the contract are present; hence, they satisfy the requirements of the Statue of
Frauds
o Signed by Espino
o Refered to property sold as Lot. 67 covered by TCT No. 62
o Stipulated its area as 1826 square meters
o Purchase price payable in cash
Berg v Magdalena Estate: a sufficient memorandum may be contained in two or more
documents.
Shaffer v Palma: whether the agreement is in writing or not, is a question of evidence;
and the authenticity of the writing need not be established until the trial is held. Paredes
having alleged that the contract is backed by letter and telegram, and the same being a
sufficient memorandum, his cause of action is thereby established, especially since
Espino has not denied the letters in question. At any rate, if the Court below entertained
any doubts about the existence of the written memorandum, it should have called for a
preliminary hearing on that point, and not dismissed the complaint.
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Dispositive: Appealed order is set aside and the case remanded to the Court of origin for trial
and decision.

Recto Law: Sales of Movables on Installments

ADELFA PROPERTIES INC VS CA

240 SCRA 565

FACTS:

Private respondents and their brothers Jose and Dominador were the registered CO-OWNERS
of a parcel of land in Las Pinas, covered by a TCT.

Jose and Dominador sold their share (eastern portion of the land) to Adelfa. Thereafter, Adelfa
expressed interest in buying the western portion of the property from private respondents
herein. Accordingly, an exclusive Option to Purchase was executed between Adelfa and
Private respondents and an option money of 50,000 was given to the latter.

A new owners copy of the certificate of title was issued (as the copy with respondent Salud was
lost) was issued but was kept by Adelfas counsel, Atty. Bernardo.

Before Adelfa could make payments, it received summons as a case was filed (RTC Makati)
against Jose and Dominador and Adelfa, because of a complaint in a civil case by the nephews
and nieces of private respondents herein. As a consequence, Adelfa, through a letter, informed
the private respondents that it would hold payment of the full purchase price and suggested that
they settle the case with their said nephews and nieces. Salud did not heed the suggestion;
respondents informed Atty. Bernardo that they are canceling the transaction. Atty Bernardo
made offers but they were all rejected.

RTC Makati dismissed the civil case. A few days after, private respondents executed a Deed of
Conditional Sale in favor of Chua, over the same parcel of land.

Atty Bernardo wrote private respondents informing them that in view of the dismissal of the
case, Adelfa is willing to pay the purchase price, and requested that the corresponding deed of
Absolute Sale be executed. This was ignored by private respondents.

Private respondents sent a letter to Adelfa enclosing therein a check representing the refund of
half the option money paid under the exclusive option to purchase, and requested Adelfa to
return the owners duplicate copy of Salud. Adelfa failed to surrender the certificate of title,
hence the private respondents filed a civil case before the RTC Pasay, for annulment of contract
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with damages. The trial court directed the cancellation of the exclusive option to purchase. On
appeal, respondent CA affirmed in toto the decision of the RTC hence this petition.

Issue:

Whether or not the agreement between Adelfa and Private Respondents was strictly an option
contract, wherefore Adelfa can invoke Recto Law?

Ruling:

NO. The agreement between the parties is a contract to sell, and not an option contract nor a
contract of sale. Also, Adelfa Properties cannot invoke Recto Law as well since the law covers
contracts of sale of personal property by installments. It is also applied to contracts purporting to
be leases of personal property with option to buy, when the lessor has deprived the lessee of
the possession or enjoyment of the thing. In this case, the object in dispute is a real property
land.

The alleged option contract is a contract to sell, rather than a contract of sale. The distinction
between the two is important for in contract of sale, the title passes to the vendee upon the
delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved
in the vendor and is not to pass until the full payment of the price. In a contract of sale, the
vendor has lost and cannot recover ownership until and unless the contract is resolved or
rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of
the price, such payment being a positive suspensive condition and failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming
effective. Thus, a deed of sale is considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is reserved in the seller until the full payment
of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment
the buyer fails to pay within a fixed period.

Be that as it may, and the validity of the suspension of payment notwithstanding, the Jimenezes
may no longer be compelled to sell and deliver the subject property to Adelfa Properties for two
reasons, that is, Adelfas failure to duly effect the consignation of the purchase price after the
disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly
rescinded by the Jimenezes.

Recto Law: Sales of Movables on Installments

THE BACHRACH MOTOR CO., INC.,vs.MARIANO LACSON LEDESMA, TALISAY-SILAY

MILLING CO., INC., and THE PHILIPPINE NATIONAL BANK,G.R. No. L-42462, August 31,
1937

FACTS

o June 30, 1927: Court of First Instance favored Bachrach Motor Co., Inc (Bachrach)
against Mariano Lacson Ledesma
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o Mariano Ledesma mortgaged to the Philippine National Bank (PNB) Talisay-Silay Milling
Co., Inc shares
o September 29, 1928: The Philippine National Bank brought an action against Ledesma
and his wife Concepcion Diaz for the recovery of a mortgage credit
o January 2, 1929: PNB amended its complaint by including the Bachrach Motor Co., Inc.,
as a party defendant because they claim to have rights to some of the subject matters of
this complaint
o January 30, 1929: Bachrach field a general denial of the accusation by the PNB
o The CFI favored the PNB
o December 20, 1929: Bachrach brought an action in the CFI against the Talisay-Silay
Milling Co., Inc., to recover P13,850 against the bonus or dividend w/c, by virtue of the
resolution of December 22, 1923, Central Talisay-Silay Milling Co., Inc., had declared in
favor of Ledesma as one of the owners of the hacienda which had been mortgaged to
the PNB to secure the obligation of the Talisay-Silay Milling Co., Inc. in favor of said
bank
o The CFI favored Bachrach Motor Co., Inc.

ISSUE

o Whether shares of stock are personal property and can be subject to pledge or chattel
mortgage
o Whether a pledge could not legally exist because the certificate of stock is not the
shares themselves or itcannot be the subject matter of the contract of pledge or of
chattel mortgage

HELD

o On the first issue: Yes, stocks are personal property and can be subject to pledge
or chattel mortgage.
o It is true, according to article 1865 of the Civil Code, that in order that a pledge may be
effective as against third person, evidence of its date must appear in a public instrument
in addition to the delivery of the thing pledged to the creditor. This provision has been
interpreted in the sense that for the contract to affect third person, it must appear in a
public instrument in addition to delivery of the thing pledged. It cannot be denied,
however, that section 4 of Act No. 1508, otherwise known as the Chattel Mortgage Law,
implicitly modified article 1865 of the Civil Code in the sense that a contract of pledge
and that of chattel mortgage, to be effective as against third persons, need not appear in
public instruments provided the thing pledged or mortgaged be delivered or placed in the
possession of the creditor.The provision of this article has, undoubtedly, been modified
by section 4 of the Chattel Mortgage Law, in so far as it provides that a chattel mortgage
shall not be valid against any person except the mortgagor, his executors or
administrators, unless the possession of the property is delivered to and retained by the
mortgagee or unless the mortgage is recorded in the office of the register of deeds of the
province in which the mortgagor resides.

o Pledge of the 6,300 stock dividends is valid against the Bachrach because the certificate
was delivered to the creditor bank, notwithstanding the fact that the contract does not
appear in a public instrument.
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o On the second issue: Yes, a pledge could legally exist because the certificate of
stock is not the shares themselves or it cannot be the subject matter of the
contract of pledge or of chattel mortgage.
o Certificates of stock or of stock dividends, under the Corporation Law, are quasi
negotiable instruments in the sense that they may be given in pledge or mortgage to
secure an obligation. Certificates of stock, while not negotiable in the sense of the law
merchant, like bills and notes, are so framed and dealt with as to be transferable, when
property endorsed, by mere delivery, and as they frequently convey, by estoppel against
the corporation or against prior holders, as good a title to the transferee as if they were
negotiable, and inasmuch as a large commercial use is made of such certificates as
collateral security, and it is to the public interest that such use should be simplify and
facilitated by placing them as nearly as possible on the plane of commercial paper, they
are often spoken of and treated as quasi negotiable, that is as having some of the
attributes and partaking of the character of negotiable instruments, in passing from hand
to hand, especially where they are accompanied by an assignment and power of
attorney, executed in blank, to transfer them to anyone who may obtain possession as
holders, even though such assignment and power are under seal.

Recto Law: Sales of Movables on Installments

LEVY HERMANOS, INC. VS. LAZARO BLAS GERVACIO

G.R. L-46306 10/27/1939

Facts:

Plaintiff (herein petitioner) Levy Hermanos Inc., filed a case for sum of money for the balance
obligation and its interest against defendant (herein respondent) Lazaro Gervacio before the
CFI (RTC).

Plaintiff alleged that they sold to defendant a Packard car. After making the initial payment,
defendant executed da promissory note for hte balance, payable on or before June 15, 1937,
with interest at 12% per annum, to secure the payment of the note, he mortgaged the car to the
plaintiff. Defendant failed to pay the note in its maturity, hence plaintiff foreclosed the mortgage
and the car was sold at public auction, at which plaintiff was the highest bidder.

Defendant admitted the allegations of plaintiff and the case was submitted for decision.
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THe CFI ruled in favor of defendant, the Court considered their contract as one on installments,
applying the provisions of Act. No. 4122 (known as Recto Law), inserted as articles 1454-A
(article 1484 of the present code) of the Civil Code. Plaintiff appealed.

Issue: Whether or not the contract is one on installments, considering that it involves sale of
personal property.

Ruling:

Yes, since the contract is not one on installments.

Article 1454-A of the Civil Code reads that:

In a contract for the sale of personal property payable in installments shall confer upon the
vendor the right to cancel the sale or foreclose the mortgage if one has been given ont he
property, withiout reimbursement to the purchase of the installments already paid, if there be an
agrreement to this effect.

However, if the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by the same and any
agreement to the contrary shall be null and void.

The Court cited the case of Macondray and Co. Vs. De Santos, which they held that in order to
apply the provisions of article 1454-A of the Civil Code it must appear that there has been a
failure to pay two or more installments.In the instant case, the contract, while a sale of personal
property, is not, however, one on installments, but on a straight term, in which the balance, after
paymentof the initial sum, should be paid in its totality at the time specified in the promissory
note. The transaction is not, therefore, the one contemplated in Act. No. 4122 and accordingly
the mortgagee is not bound by the prohibition therein contained as to the right to the recovery of
the unpaid balance.

The law is aimed at those sales where the price is payable in several installments, for, generally,
it is in these cases that partial payments consist in relatively small amounts, constituting thus a
great temptation for improvident purchasers to buy beyond their means. There is no such
temptation where the price is to be paid in cash, or, as in the instant case, partyly in cash and
partly in one term, for, in the latter case, the partial payments are not so small as to place
purchsers off their guard and delude them to a miscalculation of their ability to pay. Theoritically
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perhaps, there is no difference between paying the price in tow installments, in so far as the size
of each partial payment is concerned; but in actual practice the difference exists, for, according
to the regular course of business, in contracts providing for payment of the price in two
installments, there is generally a provision for initial payment. But all these considerations are
immateral, the language of the law being so clear as to require no construction at all.

A cash payment cannot be considered as a payment by installment, and even if it can be so

considered, still the law does not apply, for it requires non-payment of two or more installments
in order that its provisions may be invoked; in the case at bar, only one installment was unpaid.

The Court reversed the lower courts decision.

Recto Law: Sales of Movables on Installments (Finance Company)

Zayas Jr vs. Luneta Motors

Foreclosure of chattel mortgage; Agency; Principal and agent relationship; Being a collecting
agent of a company proves the nature of relationship between principal and agent. The Escao
Enterprises of Cagayan de Ore City was an agent of Luneta Motor Company.

Facts:

EutropioZayas, Jr, purchased on installment basis a motor vehicle described as ONE (1) UNIT
FORD THAMES FREIGHTER from Mr. RoqueEscao of the Escao Enterprises in Cagayan de
Oro City, dealer 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, Zayas executed a chattel mortgage on the subject motor vehicle in favor of
the respondent.

After paying a total amount of P3,148.00, the petitioner was unable to pay further monthly
installments prompting the respondent Luneta Motor Company to extra-judicially foreclose the
chattel mortgage.

In his answer with affirmative defenses and counterclaim, EutropioZayas, Jr. admitted having
executed the promissory note for the monthly payments, on a Ford Thames vehicle bearing
Engine No. 400E-127738 which he purchased from the Luneta Motor Company but he denied
his alleged outstanding liability of P1,551.74 plus interest thereoo, the said obligation if there
was any, had already been discharged either by payment or by sale in public auction of the said
motor vehicle as evidenced by a Notice of Sale

Issue:
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Whether or not Luneta Motors can collect the deficiency of the Chattel Mortgage.

Ruling:

The Escao Enterprises of Cagayan de Ore 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. Annex A is a certification from the cashier of Escao
Enterprises on the monthly installments paid by Mr. EutropioZayas, Jr.

In the certification, the promissory note in favor of Luneta Motor Company was specifically
mentioned. There was only one promissory note executed by EutropioZayas, Jr. in connection
with the purchase of the motor vehicle. The promissory note mentioned in the certification refers
to the promisorry note executed by EutropioZayas, Jr. in favor of respondent Luneta Motor
Company. x xxEscao 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 EutropioZayas,
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.

Recto Law: Sales of Movables on Installments (Finance Company)

PAMECA WOOD TREATMENT PLANT, INC., HERMINIO G. TEVES, VICTORIA V.EVES and
HIRAM DIDAY R. PULIDO vs. HON. COURT OF APPEALS and DEVELOPMENT
BANK OF THE PHILIPPINES,

FACTS:
Petitioner PAMECA Wood Treatment Plant, Inc. (PAMECA) obtained a loan of equivalent to
P2,000,000.00 from respondent Bank.With this loan, petitioner PAMECA, through its President,
petitioner Herminio C. Teves, executed a promissory note for the said amount, promising to pay
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the loan by installment. As security for the said loan, a chattel mortgage was also executed
over PAMECAs properties in Dumaguete City, consisting of inventories, furniture and
equipment, to cover the whole value of the loan.
PAMECA failed to pay so respondent bank extrajudicially foreclosed the chattel mortgage,
and, as sole bidder in the public auction, purchased the foreclosed properties for a sum of
P322,350.00. Respondent bank filed a complaint for the collection of the balance against
petitioner PAMECA and private petitioners herein, as solidary debtors with PAMECA under the
promissory note.

RTCs DECISION:
RTC of Makati rendered a decision ordering the defendants to pay jointly and severally the
remaining balance plus 21% interest per annum and other charges

CAs DECISION:
The Court of Appeals affirmed the RTC decision.

ISSUE: Whether or not petitioner can be compelled to pay the deficiency resulting from the
loan secured by chattel mortgage.

SCs DECISION:

Yes. It is clear from the above provision Sec 14 Act no. 1508 as amended that effects of
foreclosure under the Chattel mortgage law run inconsistent with Pledge under Art
2115. Whereas, in pledge, the sale of the thing pledged extinguishes the entire principal
obligation, such that the pledgor may no longer recover proceeds of the sale in excess of the
amount of the principal obligation, Section 14 of the Chattel Mortgage Law expressly
entitles the mortgagor to the balance of the proceeds, upon satisfaction of the principal
obligation and costs.
Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of
the sale proceeds there is a corollary obligation on the part of the debtor-mortgagee to pay
the deficiency in case of a reduction in the price at public auction.

It is not also tenable to apply by analogy of Article 1484 of the Civil Code to the instant
case.As correctly pointed out by the trial court, the said article applies clearly and solely to the
sale of personal property the price of which is payable in installments. Although Article 1484,
paragraph (3) expressly bars any further action against the purchaser to recover an unpaid
balance of the price, where the vendor opts to foreclose the chattel mortgage on the thing sold,
should the vendees failure to pay cover two or more installments, this provision is specifically
applicable to a sale on installments
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To accommodate petitioners prayer even on the basis of equity would be to expand the
application of the provisions of Article 1484 to situations beyond its specific purview, and ignore
the language and intent of the Chattel Mortgage Law.Equity, which has been aptly described as
justice outside legality, is applied only in the absence of, and never against, statutory law or
judicial rules of procedure.

(additions lang nako ni. Kay wala mani mastate)

Article 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
Article 2115.The sale of the thing pledged shall extinguish the principal obligation, whether or
not the proceeds of the sale are equal to the amount of the principal obligation, interest and
expenses in a proper case. If the price of the sale is more than said amount, the debtor shall not
be entitled to the excess, unless it is otherwise agreed. If the price of the sale is less, neither
shall the creditor be entitled to recover the deficiency, notwithstanding any stipulation to the
contrary.

Remedies (Art. 1484)

Borbon vs Servicewide Specialists

Facts:

Defendants Daniel L. Borbon and Francisco Borbon signed a promissory note to the
order of Pangasinan Auto Mart Inc., to pay without notice or demand the amount of P 122856
payable in instalment for twelve months and a late payment charge of 3% shall be added on
each unpaid instalment. It was further stipulated that acceptance by the holder of payment of
any installment after due date will not be considered as extending the time for payment nor the
failure of the holder to exercise any of its rights be deemed a waiver of such rights. The rights
of Pangasinan Auto Mart were later assigned to Filinvest Credit Corporation. Filinvest assigned
all its rights, interest and titleover the Promissory notes and the chattel mortgage to the plaintiff.
Defendants failed to pay their monthly installments, Filinvest demanded from defendants
payment of their installments. After accounts were assigned to the plaintiff, it attempted to
collect by sending a demand letter to the defendant for them to pay their entire obligation.
Defendants claim that what they intend to buy from Pangasinan was a jeepney type Isuzu K.C
Cab. The vehicle they bought was not delivered. Instead, through misinterpretation and
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machination, the Pangasinan Motor Inc. delivered an Isuzu crew cab, as this is the unit available
at their warehouse. Later the representative of Pangasinan Auto mart, Inc. (assignor) told the
defendants that their available stock is an Isuzu Cab but minus the rear body, which the
defendants agreed to deliver with the understanding that the Pangasinan Auto Mart, Inc. will
refund the defendants the amount of P10,000.00 to have the rear body completed Despite
communications with the Pangasinan Auto Mart, Inc. the latter was not able to replace the
vehicle until the vehicle delivered was seized by order of this court. The defendants argue that
an asignee stands in the place of an assignor which, to the mind of the court, is correct. The
asignee exercise all the rights of the assignor. The defendants further claim that they are not in
default of their obligation because the Pangasinan Auto Mart was first guilty of not fulfilling its
obligation in the contract. The defendants claim that neither party incurs delay if the other does
not comply with his obligation.
Issue: WON the petitioners may recover the deficiency?
Held:
No. When the seller assigns his credit to another person, the latter is likewise bound by
the same law. Accordingly, when the assignee forecloses on the mortgage, there can be no
further recovery of the deficiency, and the seller-mortgagee is deemed to have renounced any
right thereto. A contrario, in the event of the seller-mortgagee first seeks, instead, the
enforcement of the additional mortgages, guarantees or other security arrangements, he must
be then be held to have lost by waiver or non-choice his lien on the chattel mortgage of the
personal property sold by and mortgaged back to him, although, similar to an action for specific
performance, he may still levy on it.
In ordinary alternative obligations, a mere choice categorically an unequivocally made and then
communicated by the person entitled to exercise the option concludes the parties. The creditor
may not thereafter exercise any other option, unless the chosen alternative proves to be
innefectual or unavailing due to no fault on his part. This rule, in essence, is the difference
between alternative obligations, on the one hand, and alternative remedies, upon the other
hand, where, in the latter case, the choice generally becomes conclusive only upon the exercise
of the remedy. For instance, in one of the remedies expressed in Article 1484 of the Civil Code,
it is only when there has been a foreclosure of the chattel mortgage that the vendee-mortgagor
would be permitted to escape from a deficiency liability. Thus, if the case is one for specific
performance, even when this action is selected after the vendee has refused to surrender the
mortgaged property to permit an extrajudicial foreclosure, that property may still be levied on
execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy the
judgment credit. So, also, a mere demand to surrender the object which is not heeded by the
mortgagor will not amount to a foreclosure, but the repossession thereof by the vendor-
mortgagee would have the effect of a foreclosure.
The parties here concede that the action for replevin has been instituted for the
foreclosure of the vehicle in question (now in the possession of private respondent). The sole
issue raised before us in this appeal is focused on the legal propriety of the affirmance by the
appellate court of the awards made by the court a quo of liquidated damages and attorney's
fees to private respondent. Petitioners hold that under Article 1484 of the Civil Code,
aforequoted, the vendor-mortgagee or its assignees loses any right "to recover any unpaid
balance of the price" and any "agreement to the contrary (would be) void.
The argument is aptly made. In Macondray & Co. vs. Eustaquio, we have said that the
phrase "any unpaid balance" can only mean the deficiency judgment to which the mortgagee
may be entitled to when the proceeds from the auction sale are insufficient to cover the "full
 12

amount of the secured obligations which . . . include interest on the principal, attorney's fees,
expenses of collection, and the costs." In sum, we have observed that the legislative intent is
not to merely limit the proscription of any further action to the "unpaid balance of the principal"
but, as so later ruled in Luneta Motor Co. vs. Salvador, to all other claims that may be likewise
be called in for in the accompanying promissory note against the buyer-mortgagor or his
guarantor, including costs and attorney's fees.
In Filipinas Investment & Finance Corporation vs. Ridad while we reiterated and
expressed our agreement on the basic philosophy behind Article 1484, we stressed,
nevertheless, that the protection given to the buyer-mortgagor should not be considered to be
without circumscription or as being preclusive of all other laws or legal principles. Hence,
borrowing from the examples made in Filipinas Investment, where the mortgagor unjustifiably
refused to surrender the chattel subject of the mortgage upon failure of two or more
installments, or if he concealed the chattel to place it beyond the reach of the mortgagee, that
thereby constrained the latter to seek court relief, the expenses incurred for the prosecution of
the case, such as attorney's fees, could rightly be awarded.

Remedies (Art. 1484) - Forclosure

Universal Motors Corp. vs. Sy Hian Tat

FACTS:

Appellant Dy Hian Tat bought from appellee Universal Motors Corporation a Mercedes-
Benz diesel truck on an instalment basis.
When appellant defaulted in the payment of the instalments, appellee filed an action for
replevin before the CFI of Manila in order to recover possession of said truck.
Appellee further prayed that in event said truck could not be recovered, appellant should
pay to the former not only the unpaid balance for the sale of the truck but also the
attorneys fees and the costs of suit.
Appellant, on the hand, admits that appellee is entitled to the possession of the said
truck.
The CFI rendered its judgment adjudging that the appellee has the right of possession
over the Mercedes-Benz Diesel Truck.
The lower court further ordered that appellant pay to appellee amounts representing
attorney's fees and costs of suit.
Appellant appealed the decision of the CFI to the Supreme Court on the ground that the
awarding of attorneys fees by the lower court erred to the appellee is contrary to the
provisions of article 1484 of the New Civil Code of the Philippines.

ISSUE:

Whether Article 1484 of the Civil Code is applicable to the case at bar.
RULING:
The Supreme Court say NO.
According to the Supreme Court, Article 1484 of the Civil Code does not apply to the case at bar
because the present case is an action for replevin and not a foreclosure of mortgage.
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ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1)Exact fulfillment of the obligation, should the vendee fail to pay;

(2)Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3)Foreclose the chattel mortgage on the thing sold if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.

Nowhere in the stipulation of facts or even in the pleadings does it appear that appellee has
foreclosed its mortgage. Merely because a copy of the mortgage has been attached to the
complaint does not make this action one of foreclosure of a chattel mortgage. True, appellee
succeeded in recovering the truck in question, precisely by means of the present action of
replevin, but surely, this case is far from being the action of foreclosure of chattel mortgage.

The mere fact that appellee has secured possession of the truck in question does not
necessarily mean that it will foreclose its mortgage. Indeed, there is no showing at all that
appellee is causing the sale thereof at public auction or in even preparing to do so. It is quite
possible that appellee wanted merely to be sure that the truck is not lost or rendered valueless,
preparatory to having it levied upon under a writ of attachment

Remedies (Art. 1484)

INDUSTRIAL FINANCE CORPORATION vs.HON. PEDRO A. RAMIREZ, Judge of the Court

of First instance of Manila, and CONSUELO ALCOBA

FACTS:

On December 4, 1970 ArnaldoDizon sold to Consuelo Alcoba his 1966 model Chevrolet car for
P13,157.89, payable in eighteen monthly installments, which were secured by a chattel
mortgage on the car.

On that same date, Dizon assigned for ten thousand pesos to Industrial Finance Corporation all
his rights and interest in the chattel mortgage. Consuelo Alcoba defaulted in the payment of the
first four installments. Because of that default and by virtue of the acceleration clause in the
promissory note forming part of the mortgage, the whole obligation became due and
demandable.

On November 20, 1971, or less than a year after Industrial Finance Corporation had discounted
Consuelo Alcoba's promissory note to Dizon, the corporation sued her in the Court of First
 14

Instance of Manila (Civil Case No. 85583). The complaint, a printed form used by the
corporation in collection cases, is denominated "replevin with damages".

In its complaint Industrial Finance Corporation prayed for alternative reliefs. The main objective
of its complaint was recovery of the mortgaged car by means of a writ of replevin.

The mortgagee-assignee wanted to foreclose extrajudiciallythe chattel mortgage but, before it

could do so, the sheriff had to seize the car by means of the provisional remedy of an order for
the delivery of personal property.

The lower court issued the writ of replevin. But the sheriff was not able to seize the mortgaged
car. Consequently, there was no extrajudicial foreclosure of the mortgage since, for that
purpose, possession of the car by the sheriff is necessary.

A second alias writ of execution was issued. The sheriff was able to levy upon the mortgaged
car which was then in the possession of the Aco Motor Service of Dagupan City. At the
execution sale held on April 25, 1974 Industrial Finance Corporation bought the mortgaged car
for P4,000 (Exh. 3-A, p. 72, Expedients).

The lower court in its order of March 2, 1976 denied the motion for a third alias writ of execution.
It treated the execution sale as a "virtual foreclosure of the chattel mortgage".

ISSUE:

Whether or not by means of that complaint, Industrial Finance Corporation sought to foreclose
the chattel mortgage as contemplated in article 1484 of the Civil Code, formerly Act No. 4122,
otherwise known as the Recto Installment Sales Law.

RULING:
 15

The Civil Code 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:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void. (1454-A-a).

According to article 1484, it is only when there has been a foreclosure that the mortgagor is not
liable for any deficiency.

In this case, there was no foreclosure. The mortgagee evidently chose the remedy of specific
performance. It levied upon the car by virtue of an execution and not as an incident of a
foreclosure proceeding. It is entitled to an alias writ of execution for the portion of the judgment
that has not been satisfied.

The rule is that in installment sales, if 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.

Remedies (Art. 1484)

Northern Motors, Inc. vs. Sapinoso

 16

FACTS:

On June 4, 1965, CasianoSapinoso 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

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."

The vendee-mortgagor having failed to make 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 attorney's 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.

the plaintiff's 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

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.

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 plaintiff's attention thereto, hence, the defendant had to procrastinate in his
payments in order to move the plaintiff to repair the car; and that although the car could not be
used, he paid P700.00 to the plaintiff upon the latter's assurance that the car would be fixed, but
that instead of having the car fixed, the plaintiff, in bad faith, filed the present complaint. The
defendant prayed that the complaint be dismissed and that the plaintiff be ordered to return the
 17

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 courta quo, in its decision dated April 4, 1967, held that defendant Sapinoso
having failed to pay more than two (2) installments, plaintiff-mortgagee acquired the right to
foreclose the chattel mortgage, which it could avail of as it has done in the present case
by filing an action of replevin to secure possession of the mortgaged car as a preliminary step to
the foreclosure sale contemplated in the Chattel Mortgage Law; and that the foreclosure of the
chattel mortgage and the recovery of the unpaid balance of the price are alternative remedies
which may not be pursued conjunctively, so that in availing itself of its right to foreclose the
chattel mortgage, the plaintiff thereby renounced whatever claim it may have had on the
promissory note, and, therefore, the plaintiff has no more right to the collection of the attorney's
fees stipulated in the promissory note, and should return to defendant Sapinoso the sum of
P1,250.00 which the plaintiff had received from the latter after having filed the present case on
July 22, 1966, and elected to foreclose the chattel mortgage.

plaintiff contends that under Article 1484 of the Civil Code it is theexercise, not the
mereelection, 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 mortgageand that in paying
plaintiff-appellant the sum of P1,250.00 before defendant-appellee Sapinoso filed his answer,
and in not filing a counterclaim for the recovery thereof, the said defendant-appellee in effect
renounced whatever right he might have had to recover the said amount.

ISSUE: whether the plaintiffs contention has merit

HELD: The appeal is meritorious.

RULING:

"Article 1484. Civil Code - In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void."

"Under the law, the delivery of possession of the mortgaged property to the mortgagee,
the herein appellee, can onlyoperateto extinguish appellant's liability if the appellee had
actually caused the foreclosure sale of the mortgaged property when it recovered
possession thereof. It is worth noting that it is the fact of foreclosure and actual sale of the
mortgaged chattel that bar recovery by the vendor of any balance of the purchaser's
 18

outstanding obligation not satisfied by the sale (New Civil Code, par. 3, Article 1484). As held by
this Court, if the vendor desisted, on his own initiative, from consummating the auction sale,
such desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still
sue for specific performance"

In issuing a writ of replevin, and, after trial, in upholding plaintiff-appellant's right to the
possession of the car, and ratifying and confirming its delivery to the said plaintiff-appellant, the
court below correctly considered the action as one of replevin to secure possession of the
mortgaged vehicle as a preliminary step to this foreclosure sale

Remedies (Art. 1484)

Cruz v. Filipinas Investment & Finance Corp.

Facts:
Petitioner Ruperto Cruz purchased on installments one (1) unit of Isuzu Diesel busfrom Far
East Motors. Petitioner issued a promissory note as evidence of his indebtedness to Far East
Motors. To secure such promissory note, chattel mortgage was instituted on the said vehicle.
Since no down payment was made by Cruz, an additional security was required by Far East
Motors. The additional security was given by plaintiff Felicidad de Reyes over her land which at
the time was mortgaged to DBP. Later, Far East Motors assigned all its rights and interests to
the Deed of Chattel Mortgage and Deed of Real Estate Mortgage to respondent, with due notice
of assignment to the petitioners. Subsequently, petitioner defaulted on the promissory note so
respondent foreclosed the chattel mortgage on the bus. However, the proceeds from the chattel
mortgage were insufficient to discharge fully the indebtedness. Preparatory to extra-judicially
foreclosing the real estate mortgage on Reyes land, defendant paid DBP her unpaid
balance.Petitioner Reyes sent a letter demanding cancellation of her real estate mortgage, but
defendant did not heed so the former instituted a suit against the latter for cancellation of said
real estate mortgage.

RTC: sustained petitioner and declared that the extrajudicial foreclosure of the chattel mortgage
on the bus barred further action against the additional security put up by Reyes

Ratio of 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, to wit:

Art. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the 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.
 19

Issue: Whether or not the action referred in Art. 1484 is confined only to those actions where
there is a judicial suit or proceeding in court

Ruling:
No, the action referred to in Art. 1484 is not limited to judicial suits or proceedings.

The word action is without a definite or exclusive meaning. It has invariably been defined as:

the legal demand of ones right, or rights;

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;

Considering the purpose for which the prohibition contained in Article 1484, 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 purchasing price form the purchaser or his privy. Certainly, an extrajudicial
foreclosure of a real estate mortgage is one such proceeding.

Lease with Option to Purchase

Title: PCI Leasing v. Giraffe-X Creative

Citation: 527 SCRA 405

Facts:

PCI Leasing and Giraffe entered into a Lease Agreement, whereby the former leased out the
latter one set of Silicon High Impact Graphics and accessories, and one unit of Oxberry
Cinescan 6400-10. Both parties signed two separate documents, each denominated as Lease
Schedule and another two separate documents, denominated as Disclosure Statements of
 20

Loan/Credit Transaction (Single Payment or Installment Plan). One year after the execution of
the agreement, Giraffe defaulted in its monthly rental payment obligations. And following a
three-month default, PCI addressed a formal pay-or-surrender-equipment type of demand letter
to Giraffe but it went unheeded.

PCI filed a complaint before the RTC of Quezon City praying for the issuance of writ of replevin
for the recovery of the leased property. Upon PCI LEASINGs posting of a replevin bond, the trial
court issued a writ of replevin, paving the way for PCI LEASING to secure the seizure and
delivery of the equipment covered by the basic lease agreement. On the other hand, Giraffe
argued that, pursuant to Article 1484 of the Civil Code on installment sales of personal property,
PCI LEASING is barred from further pursuing any claim arising from the lease agreement and
the companion contract documents, adding that the agreement between the parties is in reality
a lease of movables with option to buy. PCI Leasing argued that it is a straight lease without an
option to buy.

The RTC granted Giraffes motion to dismiss the case on the basis of the following premises: 1)
the lease agreement package, as memorialized in the contract documents, is akin to the
contract contemplated in Article 1485 of the Civil Code, and 2) GIRAFFEs loss of possession of
the leased equipment consequent to the enforcement of the writ of replevin is akin to
foreclosure, the condition precedent for application of Articles 1484 and 1485 [of the Civil Code].

Hence, this petition for review on certiorari.

Issue/s:

Whether or not the underlying Lease Agreement, Lease Schedules and the Disclosure
Statements that embody the financial leasing arrangement between the parties are covered by
and subject to the consequences of Articles 1484 and 1485 of the New Civil Code.

Ruling:

The Supreme Court denied the petition and affirmed the ruling of the trial court. On the whole,
then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease agreement is in
reality a lease with an option to purchase the equipment. This has been made manifest by the
actions of the petitioner itself, foremost of which is the declarations made in its demand letter to
the respondent. There could be no other explanation than that if the respondent paid the
balance, then it could keep the equipment for its own; if not, then it should return them. This is
 21

clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code
should apply.

The present case reflects a situation where the financing company can withhold and conceal -
up to the last moment - its intention to sell the property subject of the finance lease, in order that
the provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that
the basic lease agreement does not contain a purchase option clause. The absence, however,
does not necessarily argue against the idea that what the parties are into is not a straight lease,
but a lease with option to purchase. This Court has, to be sure, long been aware of the practice
of vendors of personal property of denominating a contract of sale on installment as one of
lease to prevent the ownership of the object of the sale from passing to the vendee until and
unless the price is fully paid.

In choosing, through replevin, to deprive the respondent of possession of the leased equipment,
the petitioner waived its right to bring an action to recover unpaid rentals on the said leased
items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are
hereunder re-reproducing, cannot be any clearer.

ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:

xxx xxx xxx

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.

ART. 1485. The preceding article shall be applied to contracts purporting to be leases of
personal property with option to buy, when the lessor has deprived the lessee of the possession
or enjoyment of the thing.

Lease with Option to Purchase

 22

Elisco Tool Manufacturing Corporation, Petitioner, v.

CA, Rolando Lantan and Rina Lantan, Respondents
G.R. No. 109966, May 31, 1999, 2nd Division

J. Mendoza

Facts:

On January 9, 1980, Private Respondent Rolando Lantan entered into a lease agreement with
option to buy with his company, Elisco Tool Manufacturing Corporation, as head of its cash
department, over a car Colt Lancer 2 door for a period of Five (5) years with a monthly rental of
PhP 1,010.65, to be made through salary deduction, and at the end of Five (5) year period or
upon payment of the 60th monthly rental, Respondent Lantan may exercise the option to
purchase the motor vehicle from his employer, and all monthly rentals shall be applied to the
payment of the full purchase price of the car. A Promissory Note was executed therefor which
provided, among others, that In case of default, in the payment of any installment on the
stipulated due date, we agree to pay as liquidated damages 2% of the amount due and unpaid
for every thirty (30) days of default or fraction thereof.

In 1981, Elisco Tool ceased operations, as a result of which Private Respondent Rolando
Lantan was laid off. Nonetheless, as of December 4, 1984, private respondent was able to
make payments for the car in the total amount of P61,070.94.

On June 6, 1986, Petitioner filed a complaint, entitled "replevin plus sum of money," against
Private Respondent Rolando and Rina Lantan before the RTC of Pasig, Metro Manila, alleging
that (1) Private Respondents failed to pay the monthly rentals which, as of May 1986, totalled
PhP 39,054.86, (2) despite demands, Private Respondents failed to settle their obligation
thereby entitling Petitioner to the possession of the car, and praying that, in the event that
manual delivery of the car cannot be effected for any reason, to render judgment ordering the
Private Respondents to pay PhP 60,000.00, the estimated actual value of the car.

The trial court sustained Private Respondents' claim that the agreement in question was one of
sale and held that the latter had fully paid the price of the car having paid the total amount of
PhP 61,070.94. The Court of Appeals affirmed in toto the decision of the court a quo declaring
Respondent Spouses Rolando Lantan and Rina Lantan owners of the said car which they had
acquired under a car plan for top employees of the Elizalde group of companies.

Thus, this petition for review.

Issue:

Whether the lease contract with option to buy is a contract of sale on installment, and whether
Private Respondents are the owners of the car.

Ruling:
 23

Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in
question under a car plan for executives of the Elizalde group of companies. Under a typical car
plan, the company advances the purchase price of a car to be paid back by the employee
through monthly deductions from his salary. The company retains ownership of the motor
vehicle until it shall have been fully paid for.

This Court has long been aware of the practice of vendors of personal property of denominating
a contract of sale on installment as one of lease to prevent the ownership of the object of the
sale from passing to the vendee until and unless the price is fully paid. As this Court noted in
Vda. de Jose v. Barrueco:
Sellers desirous of malting 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 the bargain, in the
transfer of title to the lessee.

In the case at bar, although the agreement provides for the payment by Private Respondents of
"monthly rentals," the fifth paragraph thereof gives them the option to purchase the motor
vehicle at the end of the 5th year or upon payment of the 60th monthly rental when "all monthly
rentals shall be applied to the payment of the full purchase price of the car." It is clear that the
transaction in this case is a lease in name only. The so-called monthly rentals are in truth
monthly amortizations on the price of the car.

Both the trial court and the Court of Appeals correctly ruled that private respondents could no
longer be held liable for the amounts of PhP 39,054.86 or PhP 60,000.00 because Private
Respondents had fulfilled their part of the obligation. The agreement does not provide for the
payment of interest on unpaid monthly "rentals" or installments because it was entered into in
pursuance of a car plan adopted by the company for the benefit of its deserving employees.

Petitioner contends that the promissory note provides for such interest payment. However, as
the Court of Appeals held:
The promissory note in which the 2% monthly interest on delayed payments appears does
not form part of the contract. There is no consideration for the promissory note. There is
nothing to show that plaintiff advanced the purchase price of the vehicle for Lantan so as
to make the latter indebted to the former for the amount stated in the promissory note x x x
x In other words, Plaintiff did not buy the vehicle for Rolando Lantan, advancing the
purchase price for that purpose. There is nothing in the complaint or in the evidence to
show such arrangement. Therefore, there was no indebtedness secured by a promissory
note to speak of. There being no consideration for the promissory note, the same,
including the penalty clause contained thereon, has no binding effect.

There is no evidence that private respondents received the amount of PhP 60,639.00 indicated
in the promissory note as its value. What was proven below is the fact that private respondents
received from petitioner the 2-door Colt Lancer car which was valued at PhP 60,000 and for
 24

which private respondent Rolando Lantan paid monthly amortizations of P1,010.65 through
salary deductions.

The 2% surcharge is not provided for in the agreement. Its collection by the company would in
fact run counter to the purpose of providing "added emoluments" to its deserving employees.
Consequently, the total amount of PhP 61,070.94 already paid to petitioner should be
considered payment of the full purchase price of the car or the total installments paid.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED.

Capacity to Buy and Sell

MERCEDES CALIMLIM- CANULLAS vs JUDGE FORTUN (CFI, BRANCH 1) , CORAZON

DAGUINES

Petition for Review on certiorari assailing the Decision, dated October 6, 1980 and
Motion for Reconsideration on November 26, 1980 for this case whereby it was ruled:
upholding the sale of parcel of land in favor of Daguines but not on the conjugal house thereon

Facts:

Petitioner Mercedes Calimlim-Canullas and Fernando Canullas were married in 1962

and bore five children. They lived in a small house on the residential land (size: 891sqm)
in question located at Bacabac, Bugallon, Pangasinan. He inherited the land when his
father died in 1965.

In 1978, he abandoned his family and lived with the private respondent, Corazon
Daguines.

On April 15, 1980, Fernando sold the subject property with the house to Daguines
for 2,000 pesos. In the document of sale, Fernando described the house as also
inherited from my deceased parents

During the pendency of this appeal, Fernando and Daguines were convicted of
concubinage on October 27, 1981, the judgement has become final.

Unable to take possession of the lot and house, DAGUINES initiated a complaint on
June 19, 1980 for quieting of title and damages against MERCEDES.The latter resisted
and claimed that the house in dispute where she and her children were residing,
including the coconut trees on the land, were built and planted with conjugal funds and
through her industry; that the sale of the land together with the house and improvements
to DAGUINES was null and void because they are conjugal properties and she had not
given her consent to the sale.

Ruling of CFI Pangasinan:

Principally declared DAGUINES "as the lawful owner of the land in question as well as
the one-half of the house erected on said land."
 25

Issue:

Whether or not the sale of the lot together with the house and
improvementsthereon was valid under the circumstances surrounding the
transaction.

Held:

We find that the contract of sale was null and void for being contrary to
morals and public policy.

Article 1409 of the Civil Code: contracts whose cause, object, or purpose is
contrary to law, morals, good customs, public order, or public policy are void and
inexistent from the very beginning.

Article 1352also provides that: "Contracts without cause, or with unlawful cause,
produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good
customs, public order, or public policy."

Application of law: The sale was made by a husband in favor of a concubine after
he had abandoned his family and left the conjugal home where his wife and children
lived and from whence they derived their support. That sale was subversive of the
stability of the family, a basic social institution which public policy cherishes and protects.

Capacity to Buy and Sell

Cruzvs. CA, 281 SCRA 491

(G.R. No. 120122 November 6, 1997)

This a case of a woman spurned and beguiled now whines a costly odyssey in relations extra
legem.

FACTS:
Gloria R. Cruz was the owner of a lot with an area of 747.7 square meters, together with the
improvements thereon. In 1977 she and respondent Romeo V. Suzara lived together as
husband and wife without benefit of marriage; in September 1982, solely out of love and
affection for Suzara, she executed a deed of absolute sale over the lot in favor of Suzara
without any monetary consideration; thereafter, Suzara registered the document in his favor and
used the property as collateral for a bank loan P350,000.00; he however failed to pay the loan
so that after four (4) years the mortgage was foreclosed. She paid the bank P40,638.88 to
restructure the loan resulting in the extension of the redemption period to two (2) years.
However, without her knowledge and before the expiration of the extended period, Suzara
redeemed the property. She tried to talk to him but he avoided her. Finally, to protect her
interest, she executed an Affidavit of Adverse Claim which she filed with the Register the Deeds
of Quezon City asserting that her sale in favor of Suzara was null and void for lack of
consideration and being contrary to law and public policy.
 26

On 22 February 1990 she filed a complaint with Regional Trial Court of Manila against
respondent Suzara for quieting of title, declaration of nullity of documents and damages with
prayer for writ of preliminary injunction.

The Registry of Deeds (ROD), in response to the courts order to show cause why it was
refusing to annotate the notice of lispendens,filed a manifestation informing the trial court that
the property had been sold by respondent Suzara to his co-respondent Vizconde who was
already the registered owner thereof and since Vizconde was not impleaded in the case the
notice of lispendens could not be annotated on his title until the requirements of law were met
and the annotation of the notice judicially ordered. As stated in the immediately preceding
paragraph, the motion to admit amended complaint impleading respondent Vizconde was filed
ex parte on 3 April 1990.

In response to the amended complaint, Vizconde answered that there was no privity of contract
between him and petitioner; he (Vizconde) was a purchaser for value in good faith; the sale
between him and Suzara was executed on 22 December 1989 or long before the execution of
the Affidavit of Adverse Claim; and, the action was barred by laches, estoppel and prescription.
RTC & CA RULING:
The trial court rendered a decision dismissing the complaint and the counterclaims as well as
the cross claim of respondent Vizconde. It ruled that the sale between petitioner and respondent
Suzara was valid with "love, affection and accommodation" being the consideration for the sale.
It also found Vizconde an innocent purchaser for value because at the time he purchased the
property he was unaware of the adverse claim of petitioner.

On appeal, the Court of Appeals affirmed the judgment of the court a quo.

ISSUES:
1. Whether or not the lower courts erred in holding that the sale between her and Suzara
was valid for there was no price paid in money or its equivalent and that the
consideration of "love, affection and accommodation" for the sale was not a valid cause
for the conveyance of the property;and that there could be no valid sale among them for
being common-law spouses under Art. 1490 of the Civil Code; and
2. Whether or not respondent Vizconde was an innocent purchaser for value in good faith
considering that there was substitution by a second deed of dated 5 February 1990,
registered 6 March 1990 to avoid payment of fines and penalties for late registration,
where there was already and adverse claim on 22 January 1990.
RULING:

We cannot sustain petitioner. Although under Art. 1490 the husband and wife cannot sell
property to one another as a rule which, for policy consideration and the dictates of morality
require that the prohibition apply to common-law relationships, petitioner can no longer seek
reconveyance of the property to her as it has already been acquired by respondent Vizcondein
good faith and for valuefrom her own transferee.
The real purpose of the Torrens system of registration is to quiet title to land and to put a stop to
any question of legality of the title except claims which have been recorded in the certificate of
title at the time of registration or which may arise subsequent thereto. Every registered owner
and every subsequent purchaser for value in good faith holds the title to the property free from
all encumbrances except those noted in the certificate. Hence, a purchaser is not required to
 27

explore further what the Torrens title on its face indicates in quest for any hidden defect
or inchoate right that may subsequently defeat his right thereto.
Where innocent third persons, relying on the correctness of the certificate of title thus issued,
acquire rights over the property the court cannot disregard such rights and order the total
cancellation of the certificate. The effect of such an outright cancellation would be to impair
public confidence in the certificate of title, for everyone dealing with property registered under
the Torrens system would have to inquire in every instance whether the title has been regularly
or irregularly issued. This is contrary to the evident purpose of the law. Every person dealing
with registered land may safely rely on the correctness of the certificate of title issued therefor
and the law will in no way oblige him to go behind the certificate to determine the condition of
the property. Even if a decree in a registration proceeding is infected with nullity, still an innocent
purchaser for value relying on a Torrens title issued in pursuance thereof is protected. A
purchaser in good faith is one who buys the property of another without notice that some
other person has a right to or interest in such property and pays a full and fair price for
the same at the time of such purchase or before he has notice of the claim of another
person.
For purposes of resolving the present controversy, the allegation that there was a second deed
of sale executed solely for the purpose of evading the penalties resulting from late payment of
taxes and registration is immaterial. The fact is, petitioner herself admits that the actual sale of
the property occurred on 22 December 1989. A contract of sale is consensual and is
perfected once agreement is reached between the parties on the subject matter and the
consideration therefor.
Vizcondebeing a purchaser of registered land for value in good faith holds an
indefeasible title to the land. This is without prejudice however to any appropriate remedy
petitioner may take against her erstwhile common-law husband, respondent Suzara.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals affirming that of the
trial court is AFFIRMED. Costs against petitioner.

Capacity to Buy and Sell (Guardians)

THE PHILIPPINE TRUST COMPANY, AS GUARDIAN OF THE PROPERTY OF THE MINOR,

MARIANO L. BERNARDO, PETITIONER, VS. SOCORRO ROLDAN, FRANCISCO
HERMOSO, FIDEL C. RAMOS AND EMILIO CRUZ, RESPONDENTS. [ G.R. No. L-8477, May
31, 1956 ]

FACTS:
Mariano L Bernardo, a minor, inherited from his father, Marcelo Bernardo 17 parcels of
land located in Guiguinto, Bulacan. In view of his minority, guardianship proceedings were
instituted on July 27, 1947, where Socorro Roland, surviving spouse of Marcelo and step-
mother of Mariano, was appointed as guardian of the latter. Also, Socorro filed a motion asking
authority to sell as guardian the 17 parcels for the sum of P14,700 to his brother-in-law, Dr. Fidel
C. Ramos, the purpose of the sale being allegedly to invest money in a residential house, which
the minor desired to have on Tindalo St., Manila. The motion was granted.
 28

On August 5, 1947 Socorro, as guardian, then executed the proper deed of sale in favor of
Fidel Ramos and on August 12, 1947, she asked for and obtained judicial confirmation of the
sale. However, on August 13, 1947, Fidel Ramos executed in favor of Socorro personally, a
deed of conveyance covering the same 17 parcels for the sum of P15,000. And on October 21,
1947 Socorro sold 4 out of the 17 parcels to Emilio Cruz for P3,000, reserving herself the right
to repurchase.

On August 10, 1948, petitioner Phil. Trust Co. replaced Socorro as guardian. Petitioner
filed a complaint to annul two contracts regarding the 17 parcels of land: a) the sale thereof by
Socorro, as guardian, to Fidel Ramos; and b) sale thereof by Fidel Ramos to Socorro
personally. Petitioner contends that the step-mother in effect, sold to herself, the properties of
her ward thus should be annulled as it violates Art. 1459 of the Civil Code prohibiting the
guardian from purchasing either in person or through the mediation of another the property of
her ward. As to the third conveyance, that Socorro had acquired no valid title to convey to Cruz.
The trial court held that Art 1459 was not controlling as there was no proof that Ramos was a
mere intermediary or that the latter agreed with Socorro to but the parcels of land for her benefit.
The Court of Appeals affirmed the judgment, adding that the minor new the particulars of, and
approved the transactions, and that only clear and positive evidence of fraud and bad faith, and
not mere insinuations and interferences will overcome the presumptions that a sale was
concluded in all good faith for value. Hence, this petition.

ISSUE: Whether the two contracts of sale made by Socorro was valid.

HELD:
No. The court held that even without proof that Socorro had connived with Fidel Ramos.
Remembering the general doctrine that guardianship is a trust of the highest order, and the
trustee cannot be allowed to have any inducement to neglect his ward's interest and in line with
the court's suspicion whenever the guardian acquires the ward's property we have no hesitation
to declare that in this case, in the eyes of the law, Socorro Roldan took by purchase her ward's
parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies.

The temptation which naturally besets a guardian so circumstanced, necessitates the

annulment of the transaction, even if no actual collusion is proved (so hard to prove) between
such guardian and the intermediate purchaser. This would uphold a sound principle of equity
and justice.

From both the legal and equitable standpoints these three sales should not be sustained:
the first two for violation of article 1459 of the Civil Code; and the third because Socorro Roldan
could pass no title to Emilio Cruz. The annulment carries with it (Article 1303 Civil Code) the
 29

obligation of Socorro Roldan to return the 17 parcels together with their fruits and the duty of the
minor, through his guardian to repay P14,700 with legal interest.

Capacity to Buy and Sell (Attorneys disqualification)

Valencia vs Cabanting 196 SCRA 302

Facts: In 1933, complainant Paulino Valencia and his wife Romana allegedly bought a parcel of
land, where they built their residential house, from a certain Serapia Raymundo, an heir of
Pedro Raymundo the original owner. However, they failed to register the sale or secure a
transfer certificate of title in their names.Sometime in 1968, a conference was held in the house
of Atty. Eduardo Jovellanos to settle the land dispute. Valencia exhibited a deed of sale written
in the Ilocano dialect. However, Raymundo claimed that the deed covered a different property.
Valencia and Raymundo were not able to settle their differences.

On 1969,Raymundo, assisted by Atty.Cabanting, filed a complaint against Valencia for the

recovery of possession with damages.

On 1973, Raymundo sold 40 square meters of the litigated lot to Atty. Jovellanos and the
remaining portion she sold to her counsel, Atty. Arsenio Fer. Cabanting.

On 1974, Valencia filed a disbarment proceeding against Atty. Cabanting on the ground that
said counsel allegedly violated Article 1491 of the New Civil Code as well as Article II of the
Canons of Professional Ethics, prohibiting the purchase of property under litigation by a
counsel.

Issue: Whether or not Atty. Cabanting purchased the subject property in violation of Art. 1491 of
the New Civil Code

Ruling: Yes. The purchase of the property by Atty. Cabanting in this case constitutes
malpractice in violation of Art. 1491 and the Canons of Professional Ethics. Clearly, this
malpractice is a ground for suspension.

Under Article 1491 of the New Civil Code:

The following persons cannot acquire by purchase, even at a public of judicial auction, either in
person or through the mediation of another:

(5) . . . this prohibition includes the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may be the object of any litigation in which
they make take part by virtue of their profession.

Public policy prohibits the transactions in view of the fiduciary relationship involved. It is
intended to curtail any undue influence of the lawyer upon his client. Greed may get the better of
 30

the sentiments of loyalty and disinterestedness. Any violation of this prohibition would constitute
malpractice and is a ground for suspension.

Capacity to Buy and Sell (Contingent Fees)

THE DIRECTOR OF LANDS vs.SILVERETRA ABABA, ET AL., claimants, JUAN

LARRAZABAL, MARTA C. DE LARRAZABAL, MAXIMO ABAROQUEZ and ANASTACIA
CABIGAS, petitioners-appellants, ALBERTO FERNANDEZ, G.R. No. L-26096, February 27,
1979
FACTS
The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo
Abarquez, for the annulment of a contract of sale with right of repurchase and for the recovery
of the land. Litigating as a pauper in the lower court and engaging the services of his lawyer on
a contingent basis, petitioner, liable to compensate his lawyer whom he also retained for his
appeal executed a document in the Cebuano-Visayan dialect whereby he obliged himself to
give to his lawyer one-half (1/2) of whatever he might recover from Lots 5600 and 5602 should
the appeal prosper.
The case having been resolved and title having been issued to petitioner, adverse claimant
waited for petitioner to comply with his obligation under the document executed by him on June
10, 1961 by delivering the one-half () portion of the said parcels of land.
Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of
land covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de
Larrazabal. Upon being informed of the intention of the petitioner, adverse claimant immediately
took steps to protect his interest by filing with the trial court a motion to annotate attorney's lien
on TCT No. 31841 on June 10, 1965 and by notifying the prospective buyers of his claim over
the one-half portion of the parcels of land.
Notwithstanding the annotation of the adverse claim, petitioner-spouse Maximo Abarquez and
Anastacia Cabigas conveyed by deed of absolute sale two-thirds (2/3) of the lands covered by
TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. When the
new transfer certificate of title No. 32996 was issued, the annotation of adverse claim on TCT
No. 31841 necessarily had to appear on the new transfer certificate of title. This adverse claim
on TCT No. 32996 became the subject of cancellation proceedings filed by herein petitioner-
spouses. The adverse claimant, Atty. Alberto B. Fernandez, filed his opposition to the petition for
cancellation. The trial court resolved the issue when it declared that the petition to cancel the
adverse claim should be denied. The admission by the petitioners that the lawyers (Attys.
Fernandez and Batiguin) are entitled to only one-third of the lot described in Transfer Certificate
of Title No. 32966 is the best proof of the authority to maintain said adverse claim
The trial court resolved the issue on March 19, 1966 when it declared that the petition to cancel
the adverse claim should be denied. The admission by the petitioners that the lawyers (Attys.
Fernandez and Batiguin) are entitled to only one-third of the lot described in Transfer Certificate
of Title No. 32966 is the best proof of the authority to maintain said adverse claim.
Petitioner-spouses decided to appeal the order of dismissal to this Court. They contend that a
contract for a contingent fee violates Article 1491 because it involves an assignment of a
property subject of litigation.
 31

ISSUE
Whether the registration of the adverse claim of Atty. Fernandez is valid in the contract for a
contingent fee as basis of his interest.
HELD
The registration of adverse claim is valid. For the prohibition in Article 1941 to operate, the sale
or transfer of the property must take place during the pendency of the litigation involving the
property.
A contract for a contingent fee is not covered by Article 1491 because the transfer or
assignment of the property in litigation takes effect only after the finality of a favorable judgment.
In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of
whatever Maximo Abarquez might recover from his share in the lots in question, is contingent
upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer
or assignment of one-half (1/2) of the property in litigation will take place only if the appeal
prospers. Therefore, the transfer actually takes effect after the finality of a favorable judgment
rendered on appeal and not during the pendency of the litigation involving the property in
question. Consequently, the contract for a contingent fee is not covered by Article 1491.
The one-half () interest of Atty. Fernandez in the lots in question should therefore be
respected. Indeed, he has a better right than petitioner-spouses, Juan Larrazabal and Marta C.
de Larrazabal. They purchased their two-thirds (2/3) interest in the lots in question with the
knowledge of the adverse claim of Atty. Fernandez. The adverse claim was annotated on the old
transfer certificate of title and was later annotated on the new transfer certificate of title issued to
them. As held by this Court:

The annotation of an adverse claim is a measure designed to protect the interest of a person
over a piece of real property where the registration of such interest or right is not otherwise
provided for by the Land Registration Act, and serves as a notice and warning to third parties
dealing with said property that someone is claiming an interest on the same or a better right
than the registered owner thereof.
Having purchased the property with the knowledge of the adverse claim, they are therefore in
bad faith. Consequently, they are estopped from questioning the validity of the adverse claim.

Constructive Delivery

AVILES VS. ARCEGA 44 PHIL 924

Facts:

Plaintiff (herein petitioner) bring and action to recover title to a house of mixed materials erected
on a leasehold land of the Nagtahan estate. While plaintiff claim owership of said house, the
defendants (herein respondents) assert title in themselves. Ith may raise the question, which of
the two sales was the title to the house in dispute transferred.
 32

The house in question originally belong to Sps. Vinancio and Vicenta Alcantara (owner). On
October 1917, the owner sold the said khouse in a public document to the plaintiff, with a
stipulation that during 4 months from sale, the owners would continue in possession of the
house. It should be noted that palintiff never had possession of the house even after the
expiration of the 4 months following the sale.

On March 13, 1918, the same owners, who continued having possession of the house, in a
public document sold the same house to the defendants (herein respondents), who then and
there took possession of said house. Thus the case for recovery of title was filed.

At the trial of the case, the parties entered into the following stipulation of facts:

1.That the house in dispute in this cse was on October 10, 1917, sold by the owners to the
plaintiffs, and acknowledge on the 8th of November 1971, before the notary public, it having
been stipulated that during 4 months from the 10th of October, 1917, the vendors would
continue in possession of the house the expenses for repair, land and other tax to be for their
account, as well as the payment of the rent for the lot on whihc it is erected.

2.That in a document dated March 13, 1918, and acknowldeged on the following day before the
notary public, the same property was sold by the same owners to defendants, who took
possession of the property, as stated in the complaint, the plaintiff never taken possession
thereof.

The trial court rendered judgment declaring defendants to be the owners of the house. Plaintiffs
appealled.

Issue: Whether or not the trial court was correct in declaring the second sale as the valid sale.

Ruling:

Yes. The court entertain no doubt, either under the facts or under the law of hte case, as to the
right of the defendants to the house in question, with absolute exlusion of the plaintiffs.
 33

Constructive Delivery

JOSE FLORENDO, Plaintiff-Appellee, v. EUSTAQUIO P. FOZ, defendant and appellee.

JUAN CALVO and LUIS FOZ, sureties of the defendant Eustaquio P. Foz, Appellants.

Facts:

The appellants became the sureties of the defendant on an appeal bond, the condition of which
was "that the appellant was obligated to the appellee in the sum of P2,000 Philippine currency,
for the fulfillment of the judgment appealed from in case it should be wholly or partly affirmed."
Said judgment was as follows: "For the reasons above expressed, the court decrees the specific
performance by the defendant of the contract for the purchase and sale of the lands, said
defendant to deliver to plaintiff the land described in the complaint; said defendant paying to the
plaintiff the rents which he would save received for said lands described in the complaint from
the 1st day of July, 1909, until full compliance with this judgment; that from the P4,000
deposited in the provincial treasury of Ilocos Sur there be paid to the Roman Catholic Apostolic
Church of Vigan the mortgage now due which the said church holds against the defendant,
together with the costs of the action; that the balance of the said P4,000 after satisfying this
decree shall be paid to the said defendant." Said balance of the P4,000, after the deduction of
the mortgage of the Roman Catholic Apostolic Church, instead of being paid over to the
defendant in this case, the appellant in the case in which the bond was given, was seized by
another judgment creditor and applied to the payment of another and different judgment. Upon
the appeal of the sureties from a judgment rendered against them upon said bond, Held: That
the fulfillment of the said provision in the judgment ordering that the balance of the P4,000
which remained after the payment of the mortgage of the Roman Catholic Apostolic Church, be
turned over the defendant in this case, the appellant in the case in which the bond was given,
was not a condition precedent to their liability upon the bond, and that they were liable thereon
although said provision was not carried out.

Issue(s):
1. Whether or not the Court of First Instance erred in not declaring invalid and of force or effects
the payment of the sum of P1,079.41 to the sheriff of Ilocos Sur in part satisfaction of the
execution issued by the clerk of the Court of First Instance of Manila on the 30th day of April,
1912.
2. Whether or not the court erred in not declaring null and void the undertaking executed by
Juan Calvo and Luis Foz jointly and severally with Eustaquio P. Foz upon the ground that said
Foz was insolvent at the time of and since the execution of said undertaking.

Ruling:

1. The appellants argue that they bound themselves to the fulfillment of the judgment in case it
should be affirmed and that said judgment contained a clause that the balance of the P4,000,
after paying the mortgage held by the Roman Catholic Apostolic Church, should be turned over
to the appellant in the action in which said judgment was obtained; and that it was a breach of
the condition upon which the bond was given to permit that sum to be turned over for the
payment of another and different judgment. They also argue that said sum having been paid to
a stranger instead of to the defendant and appellant, the execution in all its parts of the
judgment appealed from was rendered impossible, the defendant was deprived of certain
 34

resources which he otherwise would have had, and the plaintiff and appellee in this case would
have collected upon his execution said sum of P1,079.41, thus reducing to that extent the sum
which the sureties must pay.

Perhaps the appellants have some grievance at the manner in which the P1,079.41 was
handled by the court when we look at the requirement of the judgment for the execution of
which they stood guarantors. It is a grievance, however, which, in our judgment, cannot be
remedied in this proceeding or on this appeal, even if it be conceded that it have a remedy at all.

The sureties bound themselves to the fulfillment of the judgment, not in those particulars in
which it was favorable to the appellants, but to those in which it was favorable to the appellee.
The appellee, if his judgment should be affirmed, was entitled to receive a certain sum of
money, or sum which, by a subsequent procedure, was made certain. To assure him the
payment of this sum, the obligation was incurred by the sureties on the bond. They may have
had, generally speaking, strong reasons to believe that in case they were obliged to pay the
judgment they would receive the benefit of the sum of P1,079.41, which the court had ordered
to be turned over to the defendant after the payment of the church mortgage. This, however,
was merely an expectation, a hope rather than a right.

The judgment upon which that sum was paid might have taken preference over the judgment for
the payment of which they stood surety. In that event there would have been grave doubt of the
efficacy of the order, if contested , that said sum of P1,079.41 be paid upon said judgment, as
against the rights of the judgment creditor upon whose judgment the sum was actually paid.

2. We might say that we have been cited to no provision of law, and we know of none, which
renders an appeal bond void because the appellant happens to be insolvent at the time the
bond is executed. The precise purpose of a bond on appeal is to protect the appellee from the
insolvency of the appellant and to assure to him the effective execution of the judgment on the
termination of the litigation.

To say the least, the sureties took the chance of having that sum withdrawn from the
defendants resources and paid upon another obligation, or of having it paid to Foz himself for
his personal use. As a legal proposition the sureties agreed to see that the judgment appealed
from should be paid if affirmed, and that is all that the appellee is asking of them.

The judgment appealed from is hereby affirmed, with costs against the appellants.