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Yap Kim Chuan v. Tiaoqui GR No.

1006, Indeed lessor is liable for warranty against


September 18, 1915 any hidden defects. But this liability for
warranty of the thing leased does not
FACTS: The plaintiff in this case is a lessee of
amount to an obligation to indemnify the
the defendant. During the periodof lease,
tenant for damages, which is only to be
his merchandise was damaged due to leaks
allowed when there is proof that the lessor
in the roof of the storeroom in the leased
acted with fraud and in bad faith by
building. For this reason, he asked the
concealing to the lessee.
defendant-lessor to indemnify him for
damage caused by the leaks in the roof. JERRY T. MOLES v. INTERMEDIATE APPELLATE
The defendant-lessor, on the other hand, COURT AND MARIANO M. DIOLOSA
argued that the building being occupied by G.R. No. 73913, January 31,
the plaintiff was new and was built based 1989
on standard required by the government.
The leak was due to a torrential rain the FACTS:
heaviest from the month of January of that
year. He further argued that the leak was Jerry Moles(petitioner) bought from Mariano
not solely caused by the heavy rain but also Diolosa owner of Diolosa Publishing House
due to improper location of said a linotype printing machine(secondhand
merchandise inside the building. machine). Moles promised Diolosa that will
pay the full amount after the loan from DBP
ISSUE: Can the lessor be held liable for
worth P50,000.00 will be released. Private
indemnity for the damage caused to
respondent on return issued a certification
thegoods of lessee? Did he fail to perform
wherein he warrated that the machine was
his obligations as lessor?
in A-1 condition, together with other express
HELD: No. Article 1562 of the Civil Code warranties. After the release of the of the
reads: "If, at the time of the lease of money from DBP, Petitioner required the
theestate, the condition of the same was Respondent to accomplish some of the
not mentioned, the law presumes that the requirements. On which the dependant
lessee received it in good condition, unless complied the requirements on the same
there be proof to the contrary." day.

Moreover, there is no evidence in the case On November 29, 1977, petitioner wrote
that he failed in the performance of the private respondent that the machine was
obligations he assumed in executing the not functioning properly. The petitioner
lease, nor does there appear to have been found out that the said machine was not in
stipulated therein the liability now imputed good condition as experts advised and it
to him. The fact is that neither the lessor no was worth lesser than the purchase price.
the lessees knew that the roof was defective After several telephone calls regarding the
and was going to leak when it rained, for defects in the machine, private respondent
they only became aware of the leaks during sent two technicians to make necessary
the rainstorm; and therefore only on the repairs but they failed to put the machine in
hypothesis that the lessor had known of such running condition and since then the
defect and had concealed it from the petitioner wan unable to use the machine
plaintiffs could he be held responsible for anymore.
the consequences thereof on account of
the leakages that occurred. ISSUE/S:
1. Whether there is an implied warranty of category of being redhibitory.
its quality or fitness.
As already narrated, an expert witness for
2. Whether the hidden defects in the the petitioner categorically established that
machine is sufficient to warrant a rescission the machine required major repairs before it
of the contract between the parties. could be used. This, plus the fact that
petitioner never made appropriate use of
HELD: the machine from the time of purchase until
an action was filed, attest to the major
1. It is generally held that in the sale of a
defects in said machine, by reason of which
designated and specific article sold as
the rescission of the contract of sale is
secondhand, there is no implied warranty as
sought. The factual finding, therefore, of the
to its quality or fitness for the purpose
trial court that the machine is not
intended, at least where it is subject to
reasonably fit for the particular purpose for
inspection at the time of the sale. On the
which it was intended must be upheld, there
other hand, there is also authority to the
being ample evidence to sustain the same.
effect that in a sale of secondhand articles
there may be, under some circumstances,
At a belated stage of this appeal, private
an implied warranty of fitness for the
respondent came up for the first time with
ordinary purpose of the article sold or for the
the contention that the action for rescission
particular purpose of the buyer.
is barred by prescription. While it is true that
Article 1571 of the Civil Code provides for a
Said general rule, however, is not without
prescriptive period of six months for
exceptions. Article 1562 of our Civil Code,
a redhibitory action, a cursory reading of
which was taken from the Uniform Sales Act,
the ten preceding articles to which it refers
provides:
will reveal that said rule may be applied
"Art. 1562. In a sale of goods, there is an only in case of implied warranties. The
implied warranty or condition as to the present case involves one with an express
quality or fitness of the goods, as follows: warranty. Consequently, the general rule
on rescission of contract, which is four years
(1) Where the buyer, expressly or by shall apply. Considering that the original
implication, makes known to the seller the case for rescission was filed only one year
particular purpose for which the goods are after the delivery of the subject machine,
acquired, and it appears that the buyer the same is well within the prescriptive
relies on the seller's skill or judgment period. This is aside from the doctrinal rule
(whether he be the grower or manufacturer that the defense of prescription is waived
or not), there is an implied warranty that the and cannot be considered on appeal if not
goods shall be reasonably fit for such raised in the trial court, and this case does
purpose;" not have the features for an exception to
said rule.
2. We have to consider the rule
on redhibitory defects contemplated in
Article 1561 of the Civil Code. BRICKTOWN DEVELOPMENT CORP. and
A redhibitory defect must be an MARIANO Z. VERALDE vs. AMOR TIERRA
imperfection or defect of such nature as to DEVELOPMENT CORPORATION and the HON.
engender a certain degree of importance. COURT OF APPEALS
An imperfection or defect of little G.R. No. 112182December 12, 1994
consequence does not come within the
CONTRACT AS A SOURCE OF OBLIGATION Several months later, private
respondents counsel, demanded the
FACTS: refund of private respondent's various
payments to petitioner corporation,
Bricktown Development allegedly "amounting to P2,455,497.71," with
Corporation, represented by its President interest within fifteen days from receipt of
and co-petitioner Mariano Z. Velarde, said letter, or, in lieu of a cash payment, to
executed two Contracts to Sell in favor of assign to private respondent an equivalent
Amor Tierra Development Corporation, number of unencumbered lots at the same
represented in these acts by its Vice- price fixed in the contracts. When the
President, Moises G. Petilla, covering a total demand was not heeded, Amor Tierra filed
of 96 residential lots at the Multinational an action with the court a quo which
Village Subdivision, La Huerta, Paraaque, rendered a decion in its favor. The decision
Metro Manila. of the lower court was affirmed in toto by
the Court of Appeals. Hence, this petition.
The total price of P21,639,875.00 was
stipulated to be paid by private respondent ISSUE:
in such amounts and maturity dates, as
follows: P2,200,000.00 on 31 March 1981; 1. Whether or not the contract was
P3,209,968.75 on 30 June 1981; P4,729,906.25 properly rescinded.
on 31 December 1981; and the balance of 2. Whether or not Bricktown properly
P11,500,000.00 to be paid by means of an forfeited the payments of Amor
assumption by private respondent of Tierra.
petitioner corporation's mortgage liability to
the Philippine Savings Bank or, alternately, to RULING:
be made payable in cash. On date, March
31, 1981, the parties executed a The contract between Bricktown
Supplemental Agreement, providing that and Amor Tierra was validly rescinded
private respondent would additionally pay because of the failure of the latter to pay
to petitioner corporation the amounts of the agreed amounts stipulated in the
P55,364.68, or 21% interest on the balance of contract on the proper date even after the
down payment for the period from 31 sixty-days grace period. Furthermore, the
March to 30 June 1981, and of P390,369.37 records showed that private respondent
representing interest paid by petitioner corporation paid less than the amount
corporation to the Philippine Savings Bank in agreed upon. The Supreme Court also
updating the bank loan for the period from added that such cancellation must be
01 February to 31 March 1981. respected. It may also be noteworthy to
add that in a contract to sell, the non-
Private respondent was only able to payment of the purchase price can prevent
pay petitioner corporation the sum of the obligation to convey title from acquiring
P1,334,443.21. However, the parties any obligatory force.
continued to negotiate for a possible
modification of their agreement, but On the second issue, the Supreme
nothing conclusive happened. And on Court ruled that since the private
October 12, 1981, petitioners counsel sent respondent did not actually possessed the
private respondent a Notice of property under the contract, the petitioner is
Cancellation of Contract because of the then ordered to return to private respondent
latters failure to pay the agreed amount. the amount remitted. However, to adjudge
any interest payment by petitioners on the
amount to be thus refunded, private NO. Santos was a good faith buyer after
respondent should not be allowed to totally taking steps to verify the identity of the
free itself from its own breach. seller. When she was showed the invoice,
she reasonably believed that he was a
legitimate seller. With regard to unlawful
deprivation, EDCA was not unlawfully
EDCA PUBLISHING v. SANTOS deprived of the property by mere failure of
consideration. There was already a
FACTS:
perfected contract of sale. Proof was even
substantiated when EDCA gave the invoice
The movable property in this case consists of
as proof of payment upon delivery of the
books, which were bought from EDCA by an
books. This did not amount to unlawful
impostor who sold it to SANTOS. EDCA
taking, because by the delivery of EDCA to
Publishing sold to a person identifying
Cruz, ownership of the books already
himself as Professor Jose Cruz who placed
transferred to him.
an order by telephone with the former for
406 books, payable on delivery. EDCA
It would certainly be unfair now to make the
prepared the corresponding invoice and
SANTOSES bear the prejudice sustained by
delivered the books as ordered, for which
EDCA as a result of its own negligence. We
Cruz issued a personal check. On October
cannot see the justice in transferring EDCA's
7, 1981, Cruz then sold the 120 of the books
loss to the SANTOSES who had acted in
to Leonor Santos who asked for verification,
good faith, and with proper care, when
and was then showed the invoice for the
they bought the books from Cruz.
books.
PILAR T. OCAMPO, v. COURT OF APPEALS
Meanwhile, EDCA having become
and MAGDALENA S. VILLARUZ
suspicious over a second order placed by
G.R. No. 97442 June
Cruz even before clearing of his first check,
30, 1994
made inquiries with the De la Salle College
where he had claimed to be a dean and TOPIC: Consequences of Failure to Comply
was informed that there was no such person with Prestation
in its employ. Further verification revealed
that Cruz had no more account or deposit NCC Article 1191. The power to
with the Philippine Amanah Bank, against rescind obligations is implied in
which he had drawn the payment check. reciprocal ones, in case one of
EDCA then went to the police, which set a theobligors should not comply with
trap and arrested Cruz. Investigation what is incumbent upon him.
disclosed his real name as Tomas de la Pea
and his sale of 120 of the books he had The injured party may choose between
ordered from EDCA to the private the fulfillment and the rescission of the
respondents. obligation, with the payment of damages
in either case. He may also seek rescission,
ISSUE: even after he has chosen fulfillment, if the
latter should become impossible.
Whether or not EDCA PUBLISHINGAND
DISTRIBUTING CORP was unlawfully deprived The court shall decree the rescission
of the property? claimed, unless there be just cause
authorizing the fixing of a period.
HELD:
This is understood to be without prejudice Bank and had the
to the rights of third persons who have encumbrance
acquired the thing, in accordance with annotated on his
articles 1385 and 1388 and the Mortgage certificate of title
Law. (1124)
Before the six-month period to
NCC Article 1592. In the sale of immovable complete the payment of the
property, even though it may have been purchase price expired, Ocampo
stipulated that uponfailure to pay the price paid but only the total of P16,700.00.
at the time agreed upon the rescission of 4Nevertheless Tolosa accepted her

the contract shall of right take place, the subsequent late payments
vendee may pay, even after the expiration amounting to P3,900.00.
of the period, as long as no demand for
rescission of the contract has been made Upon learning of the mortgage lien,
upon him either judicially or by a notarial Ocampo caused her adverse claim
act. After the demand, the court may not to be annotated onTolosas
grant him a new term. (1504a) certificate of title

FACTS: Two (2) documents, an "Agreement Later on, Tolosa sought the
to Sell Real Property" and a "Contract to cancellation of Ocampos adverse
Sell," covering thesame parcel of land were claim and presented her with two
executed by a seller in favor of two (2) options, namely, a refund of
different buyers. Both buyers now assert payments made, or a share from
against each other a better title to the the net proceeds if sold to a third
property. party.

Tolosa and Ocampo (represented Subsequently, Tolosa and


by Borres) entered into an Magdalena S. Villaruz executed a
"Agreement to Sell Real Property" "Contract to Sell" 9whereby Tolosa
3whereby Tolosa "sells, cedes and "sells, cedes, transfers, and
transfers" the land to Ocampo in conveys" to Villaruz the same land
consideration of P25,000.00, in consideration of P94,300.00. The
P12,500.00 of which was paid upon amount of P15,000.00 was to be
signing of the deed and the paid upon execution and the
balance to be due within six (6) balance upon cancellation of all
months thereafter. Paragraph 4 of liens and encumbrances from the
the contract provides that certificate of title. The contract
"immediately upon complete stipulated the immediate
payment of the purchase price . . . conveyance of the physical
by the VENDEE, the VENDOR . . . possession of the land to Villaruz,
agrees to execute and deliver unto although no deed of definite sale
the VENDEE whatever pertinent would be delivered to her unless
document or documents necessary the price was fully paid.
to implement this sale and to
transfer title to the VENDEE." Tolosa wrote Ocampo offering to
reimburse her what she paid
Subject property is provided she would sign a
mortgaged the land to document canceling her adverse
the Philippine Veterans claim. Failing to convince Ocampo,
Tolosa filed a petition in the Court of titled "Agreement to Sell Real Property" was
First Instance of Iloilo to cancel the a perfected contract of absolute sale.
adverse claim of Ocampo. The Paragraph 4 pertains to the undertaking of
petition was however denied but the seller to execute and deliver to the
Tolosa was able to get a favourable buyer any document deemed necessary
decision in another branch of the by law to implement the sale and transfer
court. title since the parties were unsure of what
documents were pertinent. If the intent was
The contract of sale between for the seller to retain ownership and
Tolosa and Villaruz was registered possession of the land through non-delivery
and a new title in the name of of certain documents unless the price be
Villaruz was eventually issued. fully paid, par. 4 alone should be inutile; it
should have been complemented with a
AggrivedOcampo filed a third party proviso that the sale would not be
complaint against Villaruz implemented nor the title considered
transferred unless another document
RTC decided in favour of Ocampo
specifically for said purpose be first
declaring the agreement between
executed and delivered to the buyer. In this
Talosa and Villaruz as null and void
regard, no right to retain ownership and
and ordered Tolosa to execute the
possession of the land pending full payment
corresponding Deed of Sale in
of the price can be inferred from the fact
favour of Ocampo.
that no delivery was made to Ocampo. The
failure of the buyer to pay the price in full
CA reversed RTC s decision
within a fixed period does not, by itself, bar
upholding the agreement between
the transfer of the ownership or possession,
Tolosa and Villaruz, hence, this
19much less dissolve the contract of sale.
appeal. The appellate court
upheld the sale in favor of Villaruz
Under Art. 1592 of the Civil Code, the failure
on the theory that the 21 April 1975
of Ocampo to complete her payment of
agreement of Tolosa and Ocampo
the purchase price within the stipulated
was merely a contract to sell. It
period merely accorded Tolosa the option
claimed that in the absence of a
to rescind the contract of sale upon judicial
deed of absolute sale in favor of
or notarial demand.obles virtual law library
Ocampo, in relation to par. 4 of the
contract, Tolosa retained However, the letter of 2 August 1977
ownership over the land and validly claimed to have been sent by Tolosa to
conveyed the same to Ocampo rescinding the contract of sale
Villaruz.chanroblesvirtualawlibraryc was defective because it was not notarized
hanrobles and, more importantly, it was not proven to
have been received by Ocampo.
ISSUE: WON Tolosa has the right to rescind
hanrobles Likewise, Civil Case No. 12163
the contract entered between him and
could not be considered a judicial demand
Ocampo.
under Art. 1592 of the Civil Code because it
did not pray for the rescission of the
RULING: NO. CA decision reversed and set
contract. Although the complaint sought
aside and RTC ruling reinstated
the cancellation of Ocampos adverse
The agreement between Tolosa and claim on Tolosas OCT and for the refund of
Ocampo dated 21 April 1975 although the payments made, these could not be
equivalent to a rescission. Even assuming truck on installment basis, for P6,445.00.
arguendo that Civil Case No. 12163 was a Upon making a down payment, the
valid judicial demand, rescission is not defendant executed a promissory note for
granted as a matter ofcourse. Before Civil the sum of P4,915.00, representing the
Case No. 12163 was filed on 7 October unpaid balance of the purchase price to
1977, Ocampo not only paid Tolosa a total secure the payment of which, achattel
of P20,600.00 but also discharged Tolosas mortgage was constituted on the truck in
mortgage debt in the amount of P4,453.41. favor of the plaintiff. Of said account, the
Had not Tolosa ordered the Philippine defendant had paid a total of P550.00, of
Veterans Bank to return the mortgage debt which P110.00 was applied to the interest
payment by Ocampo, the purchase price and P400.00 to the principal, thus leaving an
would have been deemed fully paid. unpaid balance of P4,475.00. The
defendant failed to pay 3 installments on
Tolosa, on the other hand, is now precluded the balance of the purchase price. Plaintiff
from raising the issue of late payments. His filed a complaint against the defendant, to
unqualified acceptance of payments after recover the unpaid balance of the
the six-month period expired constitutes promissory note. Upon plaintiff's petition, a
waiver of the period and, hence, of the writ of attachment was issued by the lower
ground to rescind under Art. 1592 court on the properties of the defendant.
Pursuant thereto, the said Chevrolet truck,
In any case, however, the breach on the and a house and lot belonging to
part of Ocampo was only slight if not defendant, were attached by the Sheriff
outweighed by the bad faith of Tolosa in and said truck was brought to the plaintiff's
reneging in his own prestations, hence, compound for safe keeping. After
judicial rescission of the contract cannot be attachment and before the trial of the case
justified. on the merits, acting upon the plaintiff's
motion for the immediate sale of the
Angeles v. Calasanz.
mortgaged truck, the Provincial Sheriff of
Iloilo sold the truck at public auction in
While the contract dated 3 June 1977 in
which plaintiff itself was the only bidder for
favor of Villaruz is also a contract of sale,
P1,OOO.OO. The trial court condemned the
that of Ocampo should prevail pursuant to
defendant to pay the plaintiff the amount of
Art. 1544 of the Civil code on double sales.
P4,475.00 with interest at the rate of 12% per
While Villaruz may have registered his
annum from August 16, 1957,until fully paid,
contract or came into possession ahead of
plus 10% thereof as attorneys fees and
Ocampo, Villaruz was never in good faith
costs. Hence, this appeal by the defendant.
since Ocampo already had her adverse
claim annotated on Tolosas title before the
ISSUE:
sale between Tolosa and Villaruz.
Whether or not the attachment caused to
be levied on the truck and its immediate
SOUTHERN MOTORS, INC. vs. MOSCOSO
sale at public auction, was tantamount to
2 SCRA 168G.R. No. L-14475, May 30, 1961
the foreclosure of the chattel mortgage on
said truck.
FACTS:
HELD:
Plaintiff Southern Motors, Inc. sold to
No. Article 1484 of the Civil Code provides
defendant Angel Moscoso one Chevrolet
that in a contract of sale of personal
property the price of which is payable in an execution on the mortgaged property
installments, the vendor may exercise any of and may cause an attachment to be issued
the following remedies: (I) Exact fulfillment and levied on such property, upon
of the obligation, should the vendee fail beginning his civil action.
to pay; (2) Cancel the sale, should the
vendee's failure to pay cover two or more Nonato v. IAC.
installments; and (3) Foreclose the chattel GR no. L-67181, November 22, 1985
mortgage on the thing sold, if one has been
constituted, should the vendee's failure to FACTS:
pay cover two or more installments. In this In 1976, Spouses RestitutoNonato and Ester
case, he shall have no further action against Nonato purchased a volkswagen from the
the purchaser to recover any unpaid Peoples Car Inc on installment basis.
balance of the price. Any agreement to the
contrary shall be void. The plaintiff had 1. To secure their complete payment,
Nonato executed a promissory note and a
chosen the first remedy. The complaint is an
chattel mortgage in favor of Peoples Car
ordinary civil action for recovery of the
Inc.
remaining unpaid balance due on the
promissory note. The plaintiff had not 2. Subsequently, Peoples Car Inc
adopted the procedure or methods assigned its rights and interest over the note
outlined by Sec. 14 of the Chattel Mortgage and mortagge in favor of Investors Finance
Law but those prescribed for ordinary civil Corp (IFC).
actions, under the Rules of Court. Had the 3. For failure of the spouses to pay two or
plaintiff elected the foreclosure, it would not more installments, despite demands, the car
have instituted this case in court; it would was repossessed by IFC.
not have caused the chattel to be
attached under Rule 59, and had it sold at 4. Despite repossession, IFC still
demanded from Nonato that they pay the
public auction, in the manner prescribed by
balance of the price of the car. IFC, then,
Rule 39. That the plaintiff did not intend to
filed a complaint for the payment of the
foreclose the mortgage truck, is further
price of the car with damages
evinced by the fact that it had also
attached the house and lot of the appellant 5. Nonato, in their defense, argued that
at San Jose, Antique. when the company repossessed the car, IFC
had, by that act, effectively cancelled the
We perceive nothing unlawful or irregular in sale of the vehicle. As such, it was barred
plaintiff's act of attaching the mortgaged from exacting the recovery of the unpaid
truck itself. Since the plaintiff has chosen to balance of the purchase price as
exact the fulfillment of the appellant's mandated by Art 1484.
obligation, it may enforce execution of the 6. The trial court rendered in favor of IFC
judgment that may be favorably rendered and ordered the spouses Nonato pay the
hereon, on all personal and real properties balance of the purchase price of the car
of the latter not exempt from execution with interest. CA affirmed the same.
sufficient to satisfy such judgment. It should
be noted that a house and lot at San Jose,
Antique were also attached. No one can ISSUE: WON a vendor or his assignee, who
successfully contest that the attachment had cancelled the sale of a motor vehicle
was merely an incident to an ordinary civil for failure of the buyer to pay two or more of
action. The mortgage creditor may recover the stipulated installments, may also
judgment on the mortgage debt and cause demand payment of the balance of the
purchase price
permanent possession of the vehicle. IFC
even notified the spouses Nonato that the
HELD: No. The applicable law in the case at
value of the car was not sufficient to cover
bar is Art 1484 which provides that:
the balance of the purchase price and
In a contract of sale of personal property there was no attempt at all on the part of
the price of which is payable in installments, the company to return the car.
the vendor may exercise any of the
The acts performed by IFC are consistent
following remedies:
with the conclusion that it had opted to
(1) Exact fulfillment of the obligation, cancel the sale of the vehicle. Therefore, it is
should the vendee fail to pay; barred from exacting payment from the
petitioners of the balance of the price of the
(2) Cancel the sale, should the vendee's vehicle which it had already repossessed (it
failure to pay cover two or more cannot have its cake and eat it too)
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 Ridad v. Filipinas Investment and Finance
purchaser to recover any unpaid balance Corp
of the price. Any agreement to the contrary
shall be void.
Facts: The spouses Ridad purchased from
This provision means that should the vendee the Supreme Sales Development
or the purchaser of a personal property Corporation two (2) brand new Ford Consul
default in the payment of two or more of Sedans complete with accessories. To
the agreed installments, the vendor or the secure payment thereof, plaintiffs executed
seller has the option to avail any of these 3 on the same date a promissory note
covering the purchase price and a deed of
remedieseither to exact fulfillment by the
chattel mortgage not only on the two
purchaser of the obligation, or to cancel the
vehicles purchased but also on another car
sale, or to foreclose the mortgage on the (Chevrolet) and their franchise or certificate
purchased personal property, if one was of public convenience granted by the
constituted. These remedies have been defunct Public Service Commission for the
recognized as an alternative, not operation of a taxi fleet with Filipinas
cumulative, that the exercise of one should Investment.
bar the exercise of the others.

In the present case, it is not disputed that Due to the failure of the plaintiffs to pay their
IFC had taken possession of the car monthly installments as per promissory note,
Filipinas Investment foreclosed on the
purchased by the Nonatos after the spouses
chattel mortgage on the Ford Consul
defaulted in their payments. The defense of
Sedans. The foreclosure sale had a
IFC that it the repossession of the vehicle deficiency. Consequently, the corporation
was only for the purpose of appraising its foreclosed the mortgage constituted on the
value and for storage and safekeeping (Chevrolet) and their franchise or certificate
pending full payment of the spouses is of public convenience.
untenable. The receipt issued by IFC to the
spouses when it took possession of the
Issue: Whether Filipinas Investment is
vehicle that the vehicle could be redeemed precluded from foreclosing the second
within 15 days. This could only mean that mortgage to recover the deficiency on the
should the spouses fail to redeem the car first mortgage
within the period provided, IFC would retain
Held: No. The vendor of personal property payment of their installments due by
sold on the installment basis is precluded, telegram. The plaintiff attempted to collect
after foreclosing the chattel mortgage on by sending a demand letter to the Borbons
the thing sold from having a recourse which totaled P185,257.80. The Borbonss
against the additional security put up by a claim that what they intended to buy was a
third party to guarantee the purchasers jeepney type Isuzu K. C. Cab. The vehicle
performance of his obligation on the theory
that they bought was not delivered. Instead,
that to sustain the same would overlook the
through misrepresentation and
fact that if the guarantor should be
compelled to pay the balance of the machination, the PAMI delivered an Isuzu
purchase price, said guarantor will in turn be crew cab. Later the representative of PAMI
entitled to recover what he has paid from told the Borbons that their available stock is
the debtor-vendee, and ultimately it will be an Isuzu Cab but minus the rear body, which
the latter who will be made to bear the the Borbons agreed to deliver with the
payment of the of the balance of the price, understanding that the PAMI will refund the
despite the earlier foreclosure of the chattel Borbons the amount of P10,000.00 to have
mortgage given by him, thereby indirectly the rear body completed. PAMI was not
subverting the protection given the latter. able to replace the vehicle until the vehicle
delivered was seized by order of this court.
If the vendor under such circumstance is The assignee exercise all the rights of the
prohibited from having a recourse against assignor. The Borbons further claim that they
the additional security for reasons therein are not in default of their obligation
stated, there is no ground why such vendor because the Pangasinan Auto Mart was first
should not likewise be precluded from guilty of not fulfilling its obligation in the
further extrajudicially foreclosing the contract.
additional security put up by the vendees
themselves, as in the instant case, it being ISSUE: Whether petitioners could not avoid
tantamount to a further action 5 that would liability under the promissory note and the
violate Article 1484 of the Civil Code, for chattel mortgage
then is actually no between an additional
security put up by the vendee himself and HELD: No. When the seller assigns his credit
such security put up by a third party insofar to another person, the latter is likewise
as how the burden would ultimately fall on bound by the same law. Accordingly, when
the vendee himself is concerned. the assignee forecloses on the mortgage,
there can be no further recovery of the
Borbon II vs. Servicewide deficiency, and the seller-mortgagee is
deemed to have renounced any right
thereto. A contrario, in the event the seller-
FACTS: The Borbons signed a promissory
mortgagee first seeks, instead, the
note where they jointly and severally
enforcement of the additional mortgages,
promised to pay Pangasinan Auto Mart, Inc.
guarantees or other security arrangements,
the sum of P122,856.00, to be payable
he must then be held to have lost by waiver
without need of notice or demand, in
or non-choice his lien on the chattel
installments of P10,238.00 monthly for 12
mortgage of the personal property sold by
months. To secure the Promissory Note, the
any mortgaged back to him, although,
defendants executed a Chattel Mortgage
similar to an action for specific
on 1 brand new 1984 Isuzu, KCD 20 Crew
performance, he may still levy on it.
Cab. The rights of PAMI was later assigned
to Filinvest with notice to the Borbons.
Filinvest assigned all its rights over the
Promissory Note and the chattel mortgage
to the plaintiff. Because the Borbons did not
pay their monthly installments, Filinvest
demanded from the defendants the
Held: Yes. In rendering judgment for the
plaintiffs the lower court said in part: "...
Pascual vs Universal Motors Corporation: there does not seem to be any doubt that
Art. 1484 of the New Civil Code may be
applied in relation to a chattel mortgage
Facts: Petitioners executed a real estate
constituted upon personal property on the
mortgage to secure the payment of the
installment basis (as in the present case)
indebtedness of PDP Transit, Inc. for the
precluding the mortgagee to maintain any
purchase of 5 units of Mercedez Benz trucks,
further action against the debtor for the
with a total purchase price or principal
purpose of recovering whatever balance of
obligation of Php 152, 506.50. Sometime in
the debt secured, and even adding that
April 1961, PDP Transit, Inc., petitioners
any agreement to the contrary shall be null
principal, had paid to respondent company
and void." What article 1484 withholds from
the sum of Php 92,964.91, leaving a balance
the vendor is the right to recover any
of Php 68,641.69, plus interest. The
deficiency from the purchaser after the
aforementioned obligation guaranteed by
foreclosure of the chattel mortgage and not
the petitioners under the Real Estate
a recourse to the additional security put up
Mortgage is further secured by separate
by a third party to guarantee the
deeds of chattel mortgages on the
purchaser's performance of his obligation.
Mercedez Benz units.

Magna Financial vs. Colarina


In 1965, respondent filed a complaint
against PDP Transit, Inc. with a petition for a
writ of replevin, to collect the balance due Facts:
under the Chattel Mortgages and to
repossess all the units sold to PDP Transit, Respondent bought a Multicab from
Inc., including the 5 units guaranteed under petitioner. To secure the obligation,
the subject Real Estate Mortgage. respondent executed a promissory note
and a chattel mortgage of the vehicle in
Respondent admitted during the hearing favor of the petitioner. Respondent then
that in its suit (C.C. No. 60201) against the defaulted in payment. Petitioner filed a
PDP Transit, Inc. it was able to repossess all complaint for foreclosure of chattel
the units sold to the latter, including the 5 mortgage with replevin. A writ of replevin
units guaranteed by the subject real estate was issued and the vehicle was turned over
mortgage, and to foreclose all the chattel to Magna financial. The trial court and RTC
mortgages constituted thereon, resulting in decided in favor ofpetitioner and ordered
the sale of the trucks at public auction. respondent to pay the unpaid balance and
foreclose the chattel mortgage. The Court
of Appeals reversed the decision.
With the foregoing background, the spouses
Lorenzo Pascual and Leonila Torres, the real
estate mortgagors, filed for the cancellation Issue:
of the mortgage they constituted on two (2)
parcels of land in favor of respondent to Whether MFS can avail of the two
guarantee the obligation of PDP Transit, Inc. remedies, payment of unpaid balance and
to the extent of P50,000. The court rendered foreclosure of chattel mortgage?
judgment for the petitioners, ordered the
cancellation of the mortgage, and directed Held:
the respondent to pay attorney's fees to the
petitioners. Respondent interposed the No. Petitioner, having elected the
present appeal. foreclosure of chattel mortgage, is not
entitled to be paid the balance even
Issue: W/n Art. 1484 of the Civil Code though it did not actually foreclose the
applies in the case at bar. chattel mortgage. Article 1484, paragraph
3, provides that if the vendor has availed
himself of the right to foreclose the chattel
mortgage, he shall have no further action including a right of recourse against co-
against the purchaser to recover any defendant Supreme Sales.
unpaid balance of the purchase price. Any
agreement to the contrary shallbe void. In
other words, in all proceedings for the
Vitug predictably failed to pay for
foreclosure of chattel mortgages executed
on chattels which have been sold on the the car, and petitioner applied for a writ of
installment plan, the mortgagee is limited to replevin, but this was negated when Vitug
the property included in the mortgage. The voluntarily surrendered the vehicle. The car
petitioners prayer contains two remedies, was sold in public auction but the proceeds
payment of unpaid balance and left a balance of Php 8, 349.35, which
foreclosure of chattel mortgage. Such a petitioner now wishes to collect from co-
scheme is not only irregular but is a flagrant defendant Supreme Sales.
circumvention of the prohibition of the law.
By praying for the foreclosure of the chattel,
Magna Financial Services Group, Inc.
Issue
renounced whatever claim it may have
under the promissory note. WON petitioner can collect on the
balance from Supreme Sales despite
Filipinas Investment vs Vitug Jr., and the provision of the Recto Law (Art
Supreme Sales and Development 1484)?

Doctrine
Held
- Under Art 1484 of the Civil Code, the
vendor may only exercise in the YES.The transaction between appellant and
alternative the following remedies: appellee was purely an ordinary discounting
a.) exact fulfillment of the obligation; transaction whereby the promissory note
b.) cancel the sale in case the failure executed by defendant Vitug was
to pay covers two or more negotiated by appellee in favor of
installments and c.) foreclose the
appellant for a valuable consideration at a
chattel mortgage in case one has
certain discount, accompanied by an
been executed over the personalty
involved in the case. assignment also of the chattel mortgage
- However, the provision can admit of executed by said defendant to secure the
some exceptions as in the present payment of his promissory note and with the
case, where it has been expressly express stipulation that should there be any
stipulated in the assignment that deficiency, recourse could be had against
recourse may be had against the appellee. Stated otherwise, the remedy
seller should the buyer fail to pay for presently being sought is not against the
the balance of the obligation. buyer of the car or the defendant Vitug but
against the seller, independent of whether or
Facts not such seller may have a right of recovery
against the buyer, which, in this case, he
Respondent Vitug bought a four- does not have under the Recto Law.
door Consul sedan for Php 14,605. He
executed a promissory note providing for
monthly installment payment and at the
same time constituted a chattel mortgage
over the vehicle. On the same day he
assigned his negotiated the promissory note
in favor of herein petitioner Filipinas
Investment, assigning thereto all his rights,
OLYMPIA HOUSING, INC., (PETITIONER) VS.
PANASIATIC TRAVEL CORPORATION AND At present, the subject condominium unit is
MA.NELIDA GALVEZ-YCASIANO, being occupied by defendant Panasiatic Travel
RESPONDENTS. Corp., hence the suit for Recovery of
Possession (AccionPubliciana) with prayer for
attorneys fees, exemplary damages and
FACTS: The object in litigation is a condominium reasonable rentals for the unit from July 28,1988
unit sold at the price of P2,340,000.00 payable at the rate of P32,100.00 per month until the
on installments at the rate of P33,657.40 per condominium unit is finally vacated.
month. Defendant Ma.Nelida Galvez-Ycasiano, while
admitting the existence of the contract to sell,
On August 8, 1984, plaintiff Olympia Housing, interposed the defense that she has made
Inc. and defendant Ma.Nelida Galvez-Ycasiano substantial payments of the purchase price of
entered into a Contract to Sell, whereby the the subject condominium unit amounting to
former agreed to sell to the latter condominium P1,964,452.82 in accordance with the provisions
unit no. D-12, comprising an area of 160.50 of the contract to sell; that she decided to stop
square meters, more or less, situated on the payment of the purchase price in the meantime
ground floor of Olympia Condominium located at because of substantial differences between her
Makati, Metro Manila, covered by Condominium and the plaintiff in the computation of the
Certificate of Title No. 6711, for the agreed price balance of the purchase price.
of P2,340,000.00 payable in installments of
P33,657.40 per month. The Regional Trial Court dismissed the
complaint, having been prematurely filed without
complying with RA6552.
Monthly amortization to commence on Sept.
17,1984.
Respondents tendered the amount of
P4,304,026.53 to petitioner viaMetrobank
Interest of 2% is included in regular monthly
Cashiers Check. Petitioner refused to accept
amortization, past due amortization shall bear
the payment, constraining respondents to
interest of 2% per month plus penalty charge of
consign at the disposal of the court. In an order,
2% per month.
the check was allowed to be substituted by
Pursuant to the Contract to Sell, defendant another cashiers check payable to the Clerk of
Court of the Makati Regional Trial Court.
Ma.Nelida Galvez-Ycasiano made a
Complying with yet another court order,
reservation/deposit in the amount of
respondents deposited the amount of
P100,000.00 on July 17, 1984 and 50% down
P4,304,026.53 with the Land Bank of the
payment in the amount of P1,070,000.00 on July
19, 1984. Philippines and subsequently submitted to the
court the corresponding bank book as well as
the banks verification.
Defendants made several payments in cash and
thru credit memos issued by plaintiff
Both parties appealed the judgment of the trial
representing plane tickets bought by plaintiff
court. In its now questioned decision of 11 June
from defendant Panasiatic Travel Corp., which is
owned by defendant Ma. Nelida Galvez- 1999, the appellate court sustained the trial
court.
Ycasiano, who credited/offset the amount of the
said plane tickets to defendants account due to
ISSUES:
plaintiff.
1) effect of the filing of the complaint and
Plaintiff alleged that far from complying with the the notarial act of rescission attached
terms and conditions of said Contract to Sell, thereto vis--vis the requirements of r.a.
defendants failed to pay the corresponding 6552
monthly installments which as of June 2, 1988 2) rescission of the subject contract to sell
amounted to P1,924,345.52. Demand to pay the on the ground that petitioner failed to
same was sent to defendant Ma. Nelida Galvez- pay the cash surrender value prior to the
Ycasiano, but the latter failed to settle her filing of the complaint
obligation. 3) allowing respondent ycasiano to pay on
her already-defaulted obligations and,
For failure of defendant to pay her obligation upon such payment, ordering petitioner
plaintiff allegedly rescinded the contract by a to issue the certificate of title to her.
Notarial Act of Rescission.
RULING: required to refund to the buyer the cash
surrender value of the payments on the
The petition must be denied. property.[13] The actual cancellation of the
contract can only be deemed to take place upon
The action for reconveyance filed by petitioner
was predicated on an assumption that its the expiry of a 30-day period following the
contract to sell executed in favor of respondent receipt by the buyer of the notice of cancellation
buyer had been validly cancelled or rescinded. or demand for rescission by a notarial
The records would show that, indeed, no such act and the full payment of the cash surrender
cancellation took place at any time prior to the value.
institution of the action for reconveyance.
The Court agrees with petitioner that it is not
As so aptly observed by the courts below, the
foregoing communication to the buyer merely precluded from going to the court to demand
demanded payment within thirty (30) days from judicial rescission in lieu of a notarial act of
receipt thereof with the threat that if the demand rescission. This much must be recognized.
were not heeded, the contract would forthwith be Thus, in Layug vs. Intermediate Appellate
cancelled or rescinded. Nor did the appellate Court[14] the Court has ruled that a demand for
court erroneously ignore the notarial rescission rescission by notarial act would appear to be
attached to the complaint for reconveyance.
merely circuitous, consequently superfluous,
Apparently, the so-called notarial rescission
was not sent to respondents prior to the with the filing by the seller of an action for
institution of the case for reconveyance but annulment of contract and for recovery of
merely served on respondents by way of an damages. Unfortunately for petitioner, it would
attachment to the complaint. In any case, a be incorrect to apply Layug to the instant
notarial rescission, standing alone, could not case. Layug is basically an action for annulment
have invalidly effected, in this case, the
of contract, a kindred concept of rescission,
cancellation of the contract.
whereas the instant case before the Court is one
As the trial court elaborated in this case: for recovery of possession on the thesis of a
It should be a notice of cancellation or demand prior rescission of the contract covering the
for rescission of the contract by notarial act. property.[15] Not only is an action for
reconveyance conceptually different from an
Further, the law requires also full payment of the action for rescission but that, also, the effects
cash surrender value to the buyer but there is no
that flow from an affirmative judgment in either
evidence adduced by the plaintiff that they
delivered to the defendant the cash surrender case would be materially dissimilar in various
value. Admittedly, no such full payment of the respects. The judicial resolution of a contract
cash surrender value to the defendant was gives rise to mutual restitution which is not
made. A mere promise to return is not what the necessarily the situation that can arise in an
law contemplates. action for reconveyance. Additionally, in an
action for rescission (also often termed as
The governing law is Republic Act No. 6552,
resolution), unlike in an action for reconveyance
otherwise known as the RealtyInstalment Buyer
Protection Act,a special law governing predicated on an extrajudicial rescission
transactions that involve, subject to certain (rescission by notarial act), the Court, instead of
exceptions, the sale on instalment basis of real decreeing rescission, may authorize for a just
property.The law has been enacted mainly to cause the fixing of a period.[16]
protect buyers of real estate
on instalment payments against onerous and
oppressive conditions.

The enactment recognizes the right of the seller


to cancel the contract but any such cancellation
must be done in conformity with the
requirements therein prescribed.[12]In addition to
the notarial act of rescission, the seller is