Professional Documents
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SUPREME COURT
Manila In a contract for the sale of personal property payable in
installments shall confer upon the vendor the right to cancel the
EN BANC sale or foreclose the mortgage if one has been given on the
property, without reimbursement to the purchaser of the
G.R. No. L-46306 October 27, 1939 installments already paid, if there be an agreement to this effect.
LEVY HERMANOS, INC., plaintiff-appellant, However, if the vendor has chosen to foreclose the mortgage he
vs. shall have no further action against the purchaser for the recovery
LAZARO BLAS GERVACIO, defendant-appellee. of any unpaid balance owing by the same and any agreement to
the contrary shall be null and void.
Felipe Caniblas for appellant.
Abreu, Lichaucco and Picazo for appellee. In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170), we held that "in
order to apply the provisions of article 1454-A of the Civil Code it must
appear that there was a contract for the sale of personal property payable in
installments and that there has been a failure to pay two or more
installments." The contract, in the instant case, while a sale of personal
MORAN, J.:
property, is not, however, one on installments, but on straight term, in which
the balance, after payment of the initial sum, should be paid in its totality at
On February 9-4, 1938, plaintiff filed a complaint in the Court of First the time specified in the promissory note. The transaction is not is not,
Instance of Manila, which substantially recites the following facts: 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
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro the recovery of the unpaid balance.
Blas Gervacio, a Packard car. Defendant, after making the initial payment,
executed a promissory note for the balance of P2,400, payable on or before Undoubtedly, the law is aimed at those sales where the price is payable in
June 15, 1937, with interest at 12 per cent per annum, to secure the several installments, for, generally, it is in these cases that partial payments
payment of the note, he mortgaged the car to the plaintiff. Defendant failed consist in relatively small amounts, constituting thus a great temptation for
to pay the note it its maturity. Wherefore, plaintiff foreclosed the mortgage improvident purchasers to buy beyond their means. There is no such
and the car was sold at public auction, at which plaintiff was the highest temptation where the price is to be paid in cash, or, as in the instant case,
bidder for P1,800. The present action is for the collection of the balance of partly in cash and partly in one term, for, in the latter case, the partial
P1,600 and interest. payments are not so small as to place purchasers off their guard and delude
them to a miscalculation of their ability to pay. The oretically, perhaps, there
Defendant admitted the allegations of the complaint, and with this admission, is no difference between paying the price in tow installments, in so far as the
the parties submitted the case for decision. The lower court applied, the size of each partial payment is concerned; but in actual practice the
provisions of Act No. 4122, inserted as articles 1454-A of the Civil Code, and difference exists, for, according to the regular course of business, in
rendered judgment in favor of the defendant. Plaintiff appealed. contracts providing for payment of the price in two installments, there is
generally a provision for initial payment. But all these considerations are
immaterial, the language of the law being so clear as to require no 1. CIVIL LAW; SALES; TREATMENT OF THE INSTALLMENT
construction at all.lâwphi1.nêt PAYMENTS AS RENTALS; STIPULATION IN A CONTRACT THAT THE
INSTALLMENTS PAID SHALL NOT BE RETURNED TO THE VENDEE
The suggestion that the cash payment made in this case should be HELD VALID PROVIDED IT IS NOT UNCONSCIONABLE. —
Defendants-appellants cannot complain that their downpayment of
considered as an installment in order to bring the contract sued upon under
P774.00 and installment payments of P5,655.92 were treated as
the operation of the law, is completely untenable. A cash payment cannot be
rentals — even though the total amount of P6,429,92 which they
considered as a payment by installment, and even if it can be so considered, had paid, approximates one-third (1/3) of the cost of the three (3)
still the law does not apply, for it requires non-payment of two or more air-conditioners. A stipulation in a contract that the installments
installments in order that its provisions may be invoked. Here, only one paid shall not be returned to the vendee is valid insofar as the
installment was unpaid. same may not be unconscionable under the circumstances is
sanctioned by Article 1486 of the New Civil Code. The monthly
Judgment is reversed, and the defendant-appellee is hereby sentenced to installment payable by defendants-appellants was P774.00. The
pay plaintiff-appellant the sum of P1,600 with interest at the rate of 12 per P5,655.92 installment payments correspond only to seven (7)
monthly installments. Since they admit having used the air-
cent per annum from June 15, 1937, and the sum of P52.08 with interest at
conditioners for twenty-two (22) months, this means that they did
the rate of 6 per cent from the date of the filing of the complaint, with costs in
not pay fifteen (15) monthly installments on the said air-
both instances against the appellee. conditioners and were thus using the same FREE for said period —
to the prejudice of plaintiff-appellee. Under the circumstances, the
Avanceña, C.J., Villa-Real, Imperial, Diaz and Concepcion, JJ., concur. treatment of the installment payments as rentals cannot be said to
be unconscionable.
SYLLABUS
DECISION
NOCON, J.:
statements of accounts were sent to the defendants and the
plaintiff’s collectors personally went to the former to effect
Elevated to this Court by the Court of Appeals, in its Resolution of collections but they failed to do so; that because of the unjustified
May 20, 1982, on a pure question of law, 1 is the appeal therein by refusal of the defendants to pay their outstanding account and
defendants-appellants, Niu Kim Duan and Chan Fue Eng assailing their wrongful detention of the properties in question, the plaintiff
the trial court’s decision promulgated on October 11, 1977, 2 tried to recover the said properties extra-judicially but it failed to
which ordered them to pay plaintiff-appellee, Delta Motor Sales do so; that the matter was later referred by the plaintiff to its legal
Corporation, the amount of P6,188.29 with a 14% per annum counsel for legal action; that in its verified complaint dated
interest which was due on the three (3) "Daikin" air-conditioners January 28, 1977, the plaintiff prayed for the issuance of a writ of
defendants-appellants purchased from plaintiff-appellee under a replevin, which the Court granted in its Order dated February 28,
Deed of Conditional Sale, after the same was declared rescinded 1977, after the plaintiff posted the requisite bond; that on April 11,
by the trial court. They were likewise ordered to pay plaintiff- 1977, the plaintiff, by virtue of the aforesaid writ, succeeded in
appellee P1,000.00 for and as attorney’s fees.chanrobles virtual retrieving the properties in question: that as of October 3, 1977,
lawlibrary the outstanding account of the defendants is only in the amount of
P6,188.29 as shown by the computation, Exhibit F, after deducting
The events which led to the filing of the case in the lower court the interests in arrears, cover charges, replevin bond premiums,
were summarized by the Court of Appeals, as the value of the units repossessed and the like; and, that in view
follows:jgc:chanrobles.com.ph of the failure of the defendants to pay their obligations, the
amount of P6,966.00 which had been paid by way of installments
"‘On July 5, 1975, the defendants purchased from the plaintiff were treated as rentals for the units in question for two (2) years
three (3) units of ‘DAIKIN’ air-conditioner all valued at P19,350.00 pursuant to the provisions of paragraph 5 of the Deed of
as evidenced by the Deed of Conditional Sale, Exhibit A; that the Conditional Sale, Exhibit A.’ (pp. 5-7, Record; pp. 4-6, Appellant’s
aforesaid deed of sale had the following terms and Brief)." chanrobles law library
conditions:chanrob1es virtual 1aw library
As above-stated, the trial court ruled in favor of Plaintiff-Appellee.
‘(a) the defendants shall pay a down payment of P774.00 and the
balance of P18,576.00 shall [be] paid by them in twenty four (24) Defendants-appellants assail the Deed of Conditional Sale under
installments; (b) the title to the properties purchased shall remain which they purchased the three (3) Daikin air-conditioners from
with the plaintiff until the purchase price thereof is fully paid; (c) if plaintiff-appellee as being contrary to law, morals, good custom,
any two installments are not paid by the defendants on their due public order or public policy. In particular, they point to the
dates, the whole of the principal sum remaining unpaid shall contract’s paragraphs 5 and 7 as iniquitous, which paragraphs
become due, with interest at the rate of 14% per annum: and (d) state that:jgc:chanrobles.com.ph
in case of a suit, the defendants shall pay an amount equivalent to
25% of the remaining unpaid obligation as damages, penalty and "5. Should BUYER fail to pay any of the monthly installments when
attorney’s fees; that to secure the payment of the balance of due, or otherwise fail to comply with any of the terms and
P18,576.00 the defendants jointly and severally executed in favor conditions herein stipulated, this contract shall automatically
of the plaintiff a promissory note, Exhibit C; that the three (3) air- become null and void and all sums so paid by BUYER by reason
conditioners were delivered to and received by the defendants as thereof shall be considered as rental and the SELLER shall then
shown by the delivery receipt, Exhibit B; that after paying the and there be free to take possession thereof without liability for
amount of P6,966.00, the defendants failed to pay at least two (2) trespass or responsibility for any article left in or attached to the
monthly installments; that as of January 6, 1977, the remaining PROPERTY:chanrob1es virtual 1aw library
unpaid obligation of the defendants amounted to P12,920.08; that
x x x P5,655.92 installment payments correspond only to seven (7)
monthly installments. Since they admit having used the air-
conditioners for twenty-two (22) months, this means that they did
"7. Should SELLER rescind this contract for any of the reasons not pay fifteen (15) monthly installments on the said air-
stipulated in the preceding paragraph, the BUYER, by these conditioners and were thus using the same FREE for said period —
presents obligates himself to peacefully deliver the PROPERTY to to the prejudice of plaintiff-appellee. Under the circumstances, the
the SELLER in case of rescission, and should a suit be brought in treatment of the installment payments as rentals cannot be said to
court by the SELLER to seek judicial declaration of rescission and be unconscionable.
take possession of the PROPERTY, the BUYER hereby obligates
himself to pay all the expenses to be incurred by reason of such II
suit and in addition to pay the sum equivalent to 25% of the
remaining unpaid obligation as damages, penalty and attorney’s
fees;" 3 The vendor in a sale of personal property payable in installments
may exercise one of three remedies, namely, (1) exact the
Defendants-appellants claim that for the use of the plaintiff- fulfillment of the obligation, should the vendee fail to pay; (2)
appellee’s three air-conditioners, from July 5, 1975 4 to April 11, cancel the sale upon the vendee’s failure to pay two or more
1977, 5 or for a period of about 22 months, they, in effect, paid installments; (3) foreclose the chattel mortgage, if one has been
rentals in the amount of P6,429,92, 6 or roughly one-third (1/3) of constituted on the property sold, upon the vendee’s failure to pay
the entire price of said air-conditioners which was P19,350.00. two or more installments. The third option or remedy, however, is
They also complain that for the said period the trial court is subject to the limitation that the vendor cannot recover any unpaid
ordering them to pay P6,188.29 as the balance due for the three balance of the price and any agreement to the contrary is void
air-conditioners repossessed. Defendants-appellants were likewise (Art. 1484) 11
ordered to pay P1,000.00 as attorney’s fees when plaintiff-appellee
never sought for attorney’s fees in its complaint. They satirically The three (3) remedies are alternative and NOT cumulative. If the
pointed out that by putting "a few touches here and there, the creditor chooses one remedy, he cannot avail himself of the other
same units can be sold again to the next imprudent customer" 7 two.chanrobles lawlibrary : rednad
by plaintiff-appellee. Thus, enforcement of the Deed of Conditional
Sale will unjustly enrich plaintiff-appellee at the expense of It is not disputed that the plaintiff-appellee had taken possession
defendants-appellants.chanrobles law library : red of the three air-conditioners, through a writ of replevin when
defendants-appellants refused to extra-judicially surrender the
I same. This was done pursuant to paragraphs 5 and 7 of its Deed of
Conditional Sale when defendants-appellants failed to pay at least
two (2) monthly installments, so much so that as of January 6,
Defendants-appellants cannot complain that their downpayment of 1977, the total amount they owed plaintiff-appellee, inclusive of
P774.00 and installment payments of P5,655.92 8 were treated as interest, was P12,920.08. 12 The case plaintiff-appellee filed was
rentals — even though the total amount of P6,429,92 which they to seek a judicial declaration that it had validly rescinded the Deed
had paid, approximates one-third (1/3) of the cost of the three (3) of Conditional Sale. 13
air-conditioners. A stipulation in a contract that the installments
paid shall not be returned to the vendee is valid insofar as the Clearly, plaintiff-appellee chose the second remedy of Article 1484
same may not be unconscionable under the circumstances is in seeking enforcement of its contract with defendants-appellants.
sanctioned by Article 1486 of the New Civil Code. 9 The monthly This is shown from the fact that its Exhibit "F" which showed the
installment payable by defendants-appellants was P774.00. 10 The computation of the outstanding account of defendants-appellants
as of October 3, 1977 took into account "the value of the units 1953 December 10, 1955. The note stipulated that if default be made in the
repossessed." 14 Having done so, it is barred from exacting payment of interest or of any installment, then the total principal sum still
payment from defendants-appellants of the balance of the price of unpaid with interest shall at once become demandable etc. The spouse
the three air-conditioning units which it had already repossessed. failed to meet any installment. Wherefore, they were sued, in the above Civil
It cannot have its cake and eat it too. 15 Case No. 2942, for the amount of the promissory note.1 The spouses
defaulted, and the court, after listening to the Southern Motors' evidence
WHEREFORE, the judgment of the trial court in Civil Case No.
entered Judgment for it in the total sum of P24,755.75 together with interest
25578 is hereby SET ASIDE and the complaint filed by plaintiff-
at 12 per cent, plus 10 per cent of the total amount due as attorney's fees
appellee Delta Motor Sales Corporation is hereby DISMISSED. No
costs. and costs of collection.
SO ORDERED Carrying out the order of execution, the sheriff levied on the same
Republic of the Philippines machineries and farm implements which had been bought by the spouses;
SUPREME COURT and later sold them at public auction to the highest bidder — which turned
Manila out to be the Southern Motors itself — for the total sum of P10,000.
EN BANC As its judgment called for much more, the Southern Motors subsequently
asked and obtained, an alias writ of execution; and pursuant thereto, the
G.R. No. L-10789 May 28, 1957 provincial sheriff levied attachment on the Tajanlangits' rights and interests in
certain real properties — with a view to another sale on execution.
AMADOR TAJANLANGIT, ET AL., plaintiff-appellants,
vs. To prevent such sale, the Tajanlangits instituted this action in the Iloilo court
SOUTHERN MOTORS, INC., ET AL., defendants-appellees. of first instance for the purpose among others, of annulling the alias writ of
execution and all proceedings subsequent thereto. Their two main theories:
Almacen and Almacen for appellants. (1) They had returned the machineries and farm implements to the Southern
Diosdado Garingalao for appellees. Motors Inc., the latter accepted them, and had thereby settled their
accounts; for that reason, said spouses did not contest the action in Civil
Case No. 2942; and (2) as the Southern Motors Inc. had repossessed the
BENGZON, J.:
machines purchased on installment (and mortgaged) the buyers were
thereby relieved from further responsibility, in view of the Recto Law, now
The case. Appellants seek to reverse the order of Hon. Pantaleon Pelayo,
article 1484 of the New Civil Code.
Judge of the Iloilo court of first instance refusing to interfere with
the alias writ of execution issued in Civil Case No. 2942 pending in another
For answer, the company denied the alleged "settlement and understanding"
sala of the same court.
during the pendency of civil case No. 2949. It also denied having
repossessed the machineries, the truth being that they were attached by the
The facts. In April 1953 Amador Tajanlangit and his wife Angeles, residents
sheriff and then deposited by the latter in its shop for safekeeping, before the
of Iloilo, bought, from the Southern Motors Inc. of Iloilo two tractors and a
sale at public auction.
thresher. In payment for the same, they executed the promissory note Annex
A whereby they undertook to satisfy the total purchase price of P24,755.75
in several installments (with interest) payable on stated dates from May 18,
The case was submitted for decision mostly upon a stipulation of facts. ART. 1484. In a contract of sale of personal property the price of
Additional testimony was offered together with documentary evidence. which is payable in installments, the vendor may exercise of the
Everything considered the court entered judgment, saying in part; following remedies:
The proceedings in Civil Case No. 2942 above referred to, were (1) Exact fulfillment of the obligation, should the vendee fail to pay;
had in the Court of First Instance (Branch 1) of the Province and of
the City of Iloilo. While this court (Branch IV) sympathizes with (2) Cancel the sale, should the vendee's failure to pay cover two or
plaintiffs, it cannot grant, in this action, the relief prayed for the more installments;
complaint because courts of similar jurisdiction cannot invalidate
the judgments and orders of each other. Plaintiffs have not pursued (3) Foreclose the chattel mortgage on the thing sold, if one has
the proper remedy. This court is without authority and jurisdiction to been constituted, should the vendee's failure to pay cover two or
declare null and void the order directing the issuance of alias writ of more installments. In this case, he shall have no further action
execution because it was made by another court of equal rank and against the purchaser to recover any unpaid balance of the price.
category (see Cabiao and Izquierdo vs. Del Rosario and Lim, 44 Any agreement to the contrary shall be void. (New Civil Code.)
Phil., 82-186).
Appellants would invoke the last paragraph. But there has been no
WHEREFORE, judgement is hereby rendered dismissing the foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the
complaint with costs against plaintiffs costs against plaintiffs. Let prohibition against further collection does not apply.
the writ of preliminiary injunction issued on August 26, 1954, be
lifted.
At any rate it is the actual sale of the mortgaged chattel in
accordance with section 14 Act No. 1508 that would bar the creditor
The plaintiffs reasonably brought the matter to the Court of Appeals, but the (who chooses to foreclose) from recovering any unpaid balance.
latter forwarded the expediente, being of the opinion that the appeal involved (Pacific Com. Co. vs.De la Rama, 72 Phil. 380.) (Manila Motor
questions of jurisdiction and/or law Co. vs. Fernandez, 99 Phil., 782.).
Discussion. Appellants' brief elaborately explains in the nine errors assigned, It is true that there was a chattel mortgage on the goods sold. But the
their original two theories although their "settlement" idea appears to be Southern Motors elected to sue on the note exclusively, i.e. to exact
somewhat modified. fulfillment of the obligation to pay. It had a right to select among the three
remedies established in Article 1484. In choosing to sue on the note, it was
"What is being sought in this present action" say appellants "is to prohibit not thereby limited to the proceeds of the sale, on execution, of the
and forbid the appellee Sheriff of Iloilo from attaching and selling at public mortgaged good.2
auction sale the real properties of appellants because that is now forbidden
by our law after the chattels that have been purchased and duly mortgagee In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation
had already been repossessed by the same vendor-mortgagee and later on arose in connection with the purchase on installment of a Chevrolet truck by
sold at public auction sale and purchased by the same at such meager sum Magbanua. Upon the latter's default, suit on the note was filed, and the truck
of P10,000." levied on together with other properties of the debtor. Contending that the
seller was limited to the truck, the debtor obtained a discharge of the other
"Our law" provides, properties. This court said:
By praying that the defendant be ordered to pay the sum of P4,690 There are other points involved in the case, such as the authority of the
together with the stipulated interest at 12% per annum from 17 judge of one branch of a court of first instance to enjoin proceedings in
March 1954 until fully paid, plus 10 per cent of the total amount due another branch of the same court. As stated, Judge Pelayo refused to
as attorney's fees and cost of collection, the plaintiff acted to exact interfere on that ground. Appellants insist this was error on several counts.
the fulfillment of the obligation and not to foreclose the mortgage on We deem it unnecessary to deal with this procedural aspect, inasmuch as
the truck. . . . we find that, on the merits, plaintiffs are not entitled to the relief demanded.
As the plaintiff has chosen to exact the fulfillment of the defendant's Judgment. The decision dismissing the complaint, is affirmed, with costs
obligation, the former may enforce execution of the judgement against appellants. So ordered.
rendered in its favor on the personal and real properties of the latter
not exempt from execution sufficient to satisfy the judgment. That
part of the judgement depriving the plaintiff of its right to enforce
judgment against the properties of the defendant except the
mortgaged truck and discharging the writ of attachment on his other
properties is erroneous. (Emphasis ours.)
The trouble with the argument is that it assumes that acceptance of the
goods by the Southern Motors Co, with a view to "cancellation" of the sale.
The company denies such acceptance and cancellation, asserting the
goods, were deposited in its shop when the sheriff attached them in
pursuance of the execution. Its assertion is backed up by the sheriff, of
whose credibility there is no reason to doubt. Anyway this cancellation or
settlement theory may not be heeded now, because it would contravene the
decision in Civil Case No. 2942 above-mentioned — it would show the
Tajanlangits owned nothing to Southern Motors Inc. Such decision is binding
upon them, unless and until they manage to set it aside in a proper
proceeding — and this is not it.
SPOUSES RESTITUTO NONATO and ESTER NONATO, petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE COURT and
INVESTOR'S FINANCE CORPORATIONrespondents.
ESCOLIN, J.:
The issue posed in this petition for review of the decision of the respondent
appellate court is whether a vendor, or his assignee, who had cancelled the
sale of a motor vehicle for failure of the buyer to pay two or more of the
stipulated installments, may also demand payment of the balance of the
purchase price.
SO ORDERED.
Wilhelmina V. Joven for defendant-appellants.
DE CASTRO, J:
Appeal from the decision of the Court of First Instance of Rizal, Branch I, in
Civil Case No. 9140 for annulment of contract, originally filed with the Court
of Appeals but was subsequently certified to this Court pursuant to Section 3
of Rule 50 of the Rules of Court, there being no issue of fact involved in this
appeal.
In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 SCRA IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with
791, this Court ruled that the vendor of personal property sold on the costs against the appellants.
installment basis is precluded, after foreclosing the chattel mortgage on the
thing sold from having a recourse against the additional security put up by a SO ORDERED.
third party to guarantee the purchaser's performance of his obligation on the
theory that to sustain the same would overlook the fact that if the guarantor
should be compelled to pay the balance of the purchase price, said
guarantor will in turn be entitled to recover what he has paid from the debtor-
vendee, and ultimately it will be the latter who will be made to bear the
payment of the of the balance of the price, despite the earlier foreclosure of
the chattel mortgage given by him, thereby indirectly subverting the
protection given the latter. Consequently, the additional mortgage was
ordered cancelled. Said ruling was reiterated in the case of Pascual v.
Universal Motors Corporation, 61 SCRA 121. If the vendor under such
circumstance is prohibited from having a recourse against the additional
security for reasons therein stated, there is no ground why such vendor
should not likewise be precluded from further extrajudicially foreclosing the
additional security put up by the vendees themselves, as in the instant case,
it being tantamount to a further action 5 that would violate Article 1484 of the
Civil Code, for then is actually no between an additional security put up by
the vendee himself and such security put up by a third party insofar as how
the burden would ultimately fall on the vendee himself is concerned.
Eutropio Zayas, Jr., filed this petition for review by certiorari to secure a The motor vehicle was delivered to the petitioner who 1) paid the initial
reversal of the respondent court's orders which remanded Civil Case No. payment in the amount of P1,006.82; and 2) executed a promissory note in
74381 for further proceedings instead of affirming the city court's order of the amount of P7,920.00, the balance of the total selling price, in favor of
dismissal, respondent Luneta Motor Company. The promissory note stated the
amounts and dates of payment of twenty-six installments covering the
The petitioner Eutropio Zayas, Jr, purchased on installment basis a motor P7,920.00 debt. Simultaneously with the execution of the promissory note
vehicle described as ONE (1) UNIT FORD THAMES FREIGHTER W/PUJ and to secure its payment, the petitioner executed a chattel mortgage on the
BODY with Engine No. 400E-127738 and Chassis No. 400E-127738 from subject motor vehicle in favor of the respondent. After paying a total amount
Mr. Roque Escaño of the Escaño Enterprises in Cagayan de Oro City, dealer of P3,148.00, the petitioner was unable to pay further monthly installments
of respondent Luneta Motor Company, under the following terms and prompting the respondent Luneta Motor Company to extra-judicially
conditions: foreclose the chattel mortgage (Annex "A" to Answer, Original Record, p.
10,supra). The motor vehicle was sold at public auction with the respondent
Luneta Motor Company represented by Atty. Leandro B. Fernandez as the
highest bidder in the amount of P5,000.00 (Annex "B" to Answer, Original
Record, p. 11,supra). Since the payments made by petitioner Eutropio
Selling price P7,500.00
Zayas, Jr. plus the P5,000.00 realized from the foreclosure of the chattel
mortgage could not cover the total amount of the promissory note executed
by the petitioner in favor of the respondent Luneta Motor Company, the latter
filed Civil Case No. 165263 with the City Court of Manila for the recovery of
Financing charge P1,426.82 the balance of P1,551.74 plus interests.
After several postponements, the case was set for hearing. As a result of the This is an appeal taken by plaintiff from the order of the
non- appearance of the plaintiff and its counsel on the date set for hearing, City Court of Manila, dismissing its complaint on the
defendant Zayas, Jr. moved to have the case dismissed for lack of interest ground that the defendant is no longer liable for the
on the part of the plaintiff. He also asked the court to allow him to discuss deficiency judgment inasmuch as the chattel mortgage
the merits of his affirmative defense as if a motion to dismiss had been filed. has been foreclosed, with the plaintiff as the highest
The issue raised and argued by the defendant was whether or not a bidder thereof, in line with the ruling of the Supreme Court
deficiency amount after the motor vehicle, subject of the chattel mortgage, in the case of Ruperto G. Cruz v. Filipinas
has been sold at public auction could still be recovered. Zayas cited the case Investment (G.R. No. L24772) in connection with Article
of Ruperto Cruz v. Filipinas Investment (23 SCRA 791).<äre||anº•1àw> 1484 of the Civil Code.
Acting on the motion, the city court issued an Order: xxx xxx xxx
On Petition of counsel for the defendant for the dismissal After going over the pleadings in this case, more
of this case on the ground that the defendant is no longer particularly the complaint and the answer to the complaint
liable for the deficiency judgment inas much as the chattel filed with the City Court of Manila, this Court is of the
mortgage has been foreclosed, with the plaintiff as the impression that the case at bar may not be decided
highest bidder thereof, citing the case of Ruperto G. Cruz merely, as the City Court had done, on the question of law
v. Filipinas Investmentdecided on May 27, 1968, G.R. No. since the presentation of evidence is necessary to
L-24772 in connection with Article 1484 of the Civil Code, adjudicate the questions involved. WHEREFORE, this
and finding the same well taken. case is hereby remanded to the court of origin for further
proceedings. (pp. 82-83, Original Record)
Hence, this petition. RECONSIDERATION. (Original Record, p. 36) Annex "A" is a Certification
from the cashier of Escano Enterprises on the monthly installments paid by
Petitioner Eutropio Zayas, Jr. now maintains:: Mr. Eutropio Zayas, Jr. In the certification, the promissory note in favor of
Luneta Motor Company was specifically mentioned. There was only one
promissory note executed by Eutropio Zayas, Jr. in connection with the
That Respondent Court of First Instance purchase of the motor vehicle. The promissory note mentioned in the
erred: certification refers to the promissory note executed by Eutropio Zayas, Jr. in
favor of respondent Luneta Motor Company. Thus:
1. IN HOLDING THAT THE QUESTION OF LAW
CANNOT BE DECIDED SINCE PRESENTATION OF C E R T I F I CAT I O N
EVIDENCE IS NECESSARY- REGARDING THE
QUESTION OF RECOVERY OF THE DEFICIENCY
AMOUNT IN A CHATTEL MORTGAGE AFTER SELLING This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid
IT IN A PUBLIC AUCTION; from us the following, of his FORD THAMES BEARING
Engine No. 400E-127738, promissory note dated October
6, 1966. Viz:
2. IN ORDERING THE REMAND OF THE CASE TO THE
CITY COURT FOR FURTHER PROCEEDINGS TAKEN
BY THE RESPONDENT FROM THE CITY COURT TO er
THE COURT OF FIRST INSTANCE, BRANCH XXI,
MANILA; and Escano Enterprises, a dealer of respondent Luneta Motor Company, was
merely a collecting-agent as far as the purchase of the subject motor vehicle
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE was concerned. The principal and agent relationship is clear.
PRIVATE RESPONDENT FROM THE CITY COURT TO
THE COURT OF FIRST INSTANCE. 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
The main defense of respondent Luneta Motor Company is that Escano personal property on installment basis remains. When, therefore, Escaño
Enterprises, Cagayan de Oro City from which petitioner Eutropio Zayas, Jr. Enterprises, assigned its rights vis-a-vis the sale to respondent Luneta Motor
purchased the subject motor vehicle was a distinct and different entity; that Company, the nature of the transaction involving Escano Enterprises and
the role of Luneta Motor Company in the said transaction was only to finance Eutropio Zayas, Jr. did not change at all. As assignee, respondent Luneta
the purchase price of the motor vehicle; and that in order to protect its Motor Company had no better rights than assignor Escaño Enterprises
interest as regards the promissory note executed in its favor, a chattel under the same transaction. The transaction would still be a sale of personal
mortgage covering the same motor vehicle was also executed by petitioner property in installments covered by Article 1484 of the New Civil Code. To
Eutropio Zayas, Jr. In short, respondent Luneta Motor Company maintains rule otherwise would pave the way for subverting the policy underlying
that the contract between the company and the petitioner was only an Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages
ordinary loan removed from the coverage of Article 1484 of the New Civil over personal property sold on installment basis.
Code.
ART. 1484. In a contract of sale of personal property the
The respondent's arguments have no merit. price of which is payable in installments, the vendor may
exercise any of the following remedies:
The Escaño Enterprises of Cagayan de Oro City was an agent of Luneta
Motor Company. A very significant evidence which proves the nature of the xxx xxx xxx
relationship between Luneta Motor Company and Escaño Enterprises is
Annex "A. of the petitioner's OPPOSITION TO URGENT MOTION FOR xxx xxx xxx
(3) Foreclose the chattel ;mortgage on the thing sold, if SO ORDERED.
one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ.,
have no further action against the purchaser to recover concur.
any unpaid balance of the price. Any agreement to the
contrary shall be void.
... the established rule is to the effect that the foreclosure and actual sale of
a mortgaged chattel bars further recovery by the vendor of any balance on
the purchaser's outstanding obligation not so satisfied by the sale. And the
reason for this doctrine was aptly stated in the case of Bachrach Motor Co.
vs. Millan, supra, thus:
Our findings and conclusions are borne out by the records available to the
respondent court. There was no necessity for the remand of records to the
city court for the presentation of evidence on the issue raised in the case.
8. That by reason of Cruz's default, defendant took steps to 15. That at the request of the plaintiffs, the provincial Sheriff of
foreclose the chattel mortgage on the bus; that said vehicle had Bulacan held in abeyance the sale of the mortgaged real estate
been damaged in an accident while in the possession of plaintiff pending the result of this action.
Cruz;
Passing upon the issues which, by agreement of the parties, were limited to
9. That at the foreclosure sale held on January 31, 1964 by the — (1) "Whether defendant, which has already extrajudicially foreclosed the
Sheriff of Manila, the defendant was the highest bidder, defendant's chattel mortgage executed by the buyer, plaintiff Cruz, on the bus sold to him
bid being for Fifteen Thousand Pesos (P15,000.00)...; on installments, may also extrajudicially foreclose the real estate mortgage
constituted by plaintiff Mrs. Reyes on her own land, as additional security, for established rule is to the effect that the foreclosure and actual sale of a
the payment of the balance of Cruz' Obligation, still remaining unpaid"; and mortgaged chattel bars further recovery by the vendor of any balance on the
(2) whether or not the contending parties are entitled to attorney's fees — purchaser's outstanding obligation not so satisfied by the sale. 5 And the
the court below, in its decision of April 21, 1965, sustained the plaintiffs' reason for this doctrine was aptly stated in the case of Bachrach Motor Co.
stand and declared that the extrajudicial foreclosure of the chattel mortgage vs. Millan, supra, thus:
on the bus barred further action against the additional security put up by
plaintiff Reyes. Consequently, the real estate mortgage constituted on the Undoubtedly the principal object of the above amendment 6 was to
land of said plaintiff was ordered cancelled and defendant was directed to remedy the abuses committed in connection with the foreclosure of
pay the plaintiffs attorney's fees in the sum of P200.00. Defendant filed the chattel mortgages. This amendment prevents mortgagees from
present appeal raising the same questions presented in the lower court. seizing the mortgaged property, buying it at foreclosure sale for a
low price and then bringing suit against the mortgagor for a
There is no controversy that, involving as it does a sale of personal property deficiency judgment. The almost invariable result of this procedure
on installments, the pertinent legal provision in this case is Article 1484 of was that the mortgagor found himself minus the property and still
the Civil Code of the Philippines, 2 which reads: owing practically the full amount of his original indebtedness. Under
this amendment the vendor of personal property, the purchase
ART. 1484. In a contract of sale of personal property the price of price of which is payable in installments, has the right to cancel the
which is payable in installments, the vendor may exercise any of sale or foreclose the mortgage if one has been given on the
the following remedies: property. Whichever right the vendor elects he need not return to
the purchaser the amount of the installments already paid, "if there
(1) Exact fulfillment of the obligation, should the vendee fail to pay; be in agreement to that effect". Furthermore, if the vendor avails
himself of the right to foreclose the mortgage the amendment
prohibits him from bringing an action against the purchaser for the
(2) Cancel the sale, should the vendee's failure to pay cover two or
unpaid balance.
more installments;
The appellate court adopted the factual findings of the court a quo, to
The provision of law and jurisprudence on the matter being explicit, so that
wit:
this litigation could have been avoided, the award by the lower court of
"The plaintiff's evidence shows among others that on December 7, 1984, defendants 'Acceptance by the holder hereof of payment of any installment or any part thereof
Daniel L. Borbon and Francisco Borbon signed a promissory note (Exh. A) which after due dated (sic) shall not be considered as extending the time for the payment or
states among others as follows: any of the installments aforesaid or as a modification of any of the conditions
hereof. Nor shall the failure of the holder hereof to exercise any of its right under
"'PROMISSORY NOTE this note constitute or be deemed as a waiver of such rights.
'For value received (installment price of the chattel/s purchased), I/We jointly and (S/t) FRANCISCO BORBON
severally promised to pay Pangasinan Auto Mart, Inc. or order, at its office at NMI
Bldg. Buendia Avenue, Makati, MM the sum of One Hundred Twenty Two Address: 73 Sterling Life Home Pamplona, Las Pias, MM
Thousand Eight Hundred Fifty Six only (P122,856.00), Philippine Currency, to be
payable without need of notice or demand, in installments of the amounts following "WITNESSES
and at the dates hereinafter set forth, to wit: P10,238.00 monthly for Twelve (12)
months due and payable on the 7 day of each month starting January, 1985, provided
(illegible) ____(illegible)_____
that a late payment charge of 3% per month shall be added on each unpaid
installment from due date thereof until fully paid.
'PAY TO THE ORDER OF
FILINVEST CREDIT CORPORATION
xxx xxx xxx
"On March 21, 1985, Filinvest Credit Corporation assigned all its rights, interest and In sustaining the decision of the court a quo, the appellate court ruled
title over the Promissory Note and the chattel mortgage to the plaintiff (Exh. D; p. 3, that petitioners could not avoid liability under the promissory note and the
tsn, Sept. 30, 1985). chattel mortgage that secured it since private respondent took the note for
value and in good faith.
"The promissory note stipulates that the installment of P10,238.00 monthly should
be paid on the 7th day of each month starting January 1985, but the defendants In their appeal to this Court, petitioners merely seek a modification of
failed to comply with their obligation (p. 3, tsn, Sept. 30, 1985). the decision of the appellate court insofar as it has upheld the court a quo in
the award of liquidated damages and attorney's fees in favor of private
respondent. Petitioners invoke the provisions of Article 1484 of the Civil
"Because the defendants did not pay their monthly installments, Filinvest demanded
Code which reads:
from the defendants the payment of their installments due on January 29, 1985 by
telegram (Exh. E; pp. 3-4, tsn, Sept. 30, 1985).
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
"After the accounts were assigned to the plaintiff, the plaintiff attempted to collect
remedies:
by sending a demand letter to the defendants for them to pay their entire obligation
which, as of March 12, 1985, totaled P185,257.80 (Exh. H; pp. 3-4, tsn, Sept. 30,
1985). "(1) Exact fulfillment of the obligation, should the vendee fail to pay;
"For their defense, the defendants claim that what they intended to buy from "(2) Cancel the sale, should the vendee's failure to pay cover two or
Pangasinan Auto Mart was a jeepney type Isuzu K. C. Cab. The vehicle that they more installments;
bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985).Instead, through
misrepresentation and machination, the Pangasinan Motor, Inc. delivered an Isuzu "(3) Foreclose the chattel mortgage or the thing sold, if one has been
crew cab, as this is the unit available at their warehouse. Later the representative of constituted, should the vendee's failure to pay cover two or more
Pangasinan Auto Mart, Inc. (assignor) told the defendants that their available stock installments. In this case, he shall have no further action against the
is an Isuzu Cab but minus the rear body, which the defendants agreed to deliver with purchaser to recover any unpaid balance of the price. Any agreement to the
the understanding that the Pangasinan Auto Mart, Inc. will refund the defendants the contrary shall be void."
amount of P10,000.00 to have the rear body completed (pp. 12-34, Exhs. 2 to 3-3A).
The remedies under Article 1484 of the Civil Code are not cumulative thereof are insufficient to satisfy the judgment credit. [7] So, also, a mere
but alternative and exclusive,[2] which means, as so held in Nonato vs. demand to surrender the object which is not heeded by the mortgagor will
Intermediate Appellate Court and Investor's Finance Corporation,[3] that - not amount to a foreclosure, [8] but the repossession thereof by the vendor-
mortgagee would have the effect of foreclosure.
"x x x Should the vendee or purchaser of a personal property default in the payment
of two or more of the agreed installments, the vendor or seller has the option to avail The parties here concede that the action for replevin has been
of any of these three remedies either to exact fulfillment by the purchaser of the instituted for the foreclosure of the vehicle in question (now in the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased possession of private respondent). The sole issue raised before us in this
personal property, if one was constituted. These remedies have been recognized as appeal is focused on the legal propriety of the affirmance by the appellate
alternative, not cumulative, that the exercise of one would bar the exercise of the court of the awards made by the court a quo of liquidated damages and
others."[4] attorney's fees to private respondent.Petitioners hold that under Article 1484
of the Civil Code, aforequoted, the vendor-mortgagee or its assignees loses
When the seller assigns his credit to another person, the latter is any right "to recover any unpaid balance of the price" and any "agreement to
likewise bound by the same law. Accordingly, when the assignee forecloses the contrary (would be) void."
on the mortgage, there can be no further recovery of the deficiency,[5] and
the seller-mortgagee is deemed to have renounced any right thereto. The argument is aptly made. In Macondray & Co. vs. Eustaquio[9] we
[6]
A contrario, in the event the seller-mortgagee first seeks, instead, the have said that the phrase "any unpaid balance" can only mean the
enforcement of the additional mortgages, guarantees or other security deficiency judgment to which the mortgagee may be entitled to when the
arrangements, he must then be held to have lost by waiver or non-choice his proceeds from the auction sale are insufficient to cover the "full amount of
lien on the chattel mortgage of the personal property sold by any mortgaged the secured obligation which x x x include interest on the principal, attorney's
back to him, although, similar to an action for specific performance, he may fees, expenses of collection, and costs." In sum, we have observed that the
still levy on it. 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
In ordinary alternative obligations, a mere choice categorically and Co. vs. Salvador,[10] to all other claims that may likewise be called for in the
unequivocally made and then communicated by the person entitled to accompanying promissory note against the buyer-mortgagor or his
exercise the option concludes the parties. The creditor may not thereafter guarantor, including costs and attorney's fees.
exercise any other option, unless the chosen alternative proves to be
ineffectual or unavailing due to no fault on his part. This rule, in essence, is In Filipinas Investment & Finance Corporation vs. Ridad[11] while we
the difference between alternative obligations, on the one hand, and reiterated and expressed our agreement on the basic philosophy behind
alternative remedies, upon the other hand, where, in the latter case, the Article 1484, we stressed, nevertheless, that the protection given to the
choice generally becomes conclusive only upon the exercise of the buyer-mortgagor should not be considered to be without circumscription or
remedy. For instance, in one of the remedies expressed in Article 1484 of as being preclusive of all other laws or legal principles. Hence, borrowing
the Civil Code, it is only when there has been a foreclosure of the chattel from the examples made inFilipinas Investment, where the mortgagor
mortgage that the vendee-mortgagor would be permitted to escape from a unjustifiably refused to surrender the chattel subject of the mortgage upon
deficiency liability. Thus, if the case is one for specific performance, even failure of two or more installments, or if he concealed the chattel to place it
when this action is selected after the vendee has refused to surrender the beyond the reach of the mortgagee, that thereby constrained the latter to
mortgaged property to permit an extrajudicial foreclosure, that property may seek court relief, the expenses incurred for the prosecution of the case, such
still be levied on execution and an alias writ may be issued if the proceeds as attorney's fees, could rightly be awarded.
Private respondent bewails the instant petition in that petitioners have MACONDRAY AND CO., INC., plaintiff-appellant,
failed to specifically raise the issue on liquidated damages and attorney's vs.
fees stipulated in the actionable documents. In several cases, we have ruled URBANO EUSTAQUIO, defendant-appellee.
that as long as the questioned items bear relevance and close relation to
those specifically raised, the interest of justice would dictate that they, too, Jose Agbulos for appellant.
must be considered and resolved and that the rule that only theories raised Urbano Eustaquio in his own behalf.
in the initial proceedings may be taken up by a party thereto on appeal
should only refer to independent, not concomitant matters, to support or IMPERIAL, J.:
oppose the cause of action.[12]
This is an appeal taken by the plaintiff corporation from the judgment of the
Given the circumstances, we must strike down the award for liquidated Court of First Instance of Manila dismissing its complaint, without costs.
damages made by the court a quo but we uphold the grant of attorney's fees
which we, like the appellate court, find to be reasonable. Parenthetically,
The plaintiff brought the action against the defendant to obtain the
while the promissory note may appear to have been a negotiable instrument,
possession of an automobile mortgaged by the latter, and to recover the
private respondent, however, clearly cannot claim unawareness of its
balance owing upon a note executed by him, the interest thereon, attorney's
accompanying documents so as to thereby gain a right greater than that of
fees, expenses of collection, and the costs. The defendant was duly
the assignor.
summoned, but he failed to appear or file his answer, wherefore he was
declared in default and the appealed judgment was rendered accordingly.
WHEREFORE, the appealed decision is MODIFIED by deleting
therefrom the award for liquidated damages; in all other respects the
The plaintiff sold the defendant a De Soto car, Sedan, for the price of which,
judgment of the appellate court is AFFIRMED. No cost.
P595, he executed in its favor the note of May 22, 1934. Under this note, the
defendant undertook to pay the car in twelve monthly installments, with 12
SO ORDERED. percent interest per annum, and likewise agreed that, should he fail to pay
any monthly installment together with interest, the remaining installment
would become due and payable, and the defendant shall pay 20 per cent
upon the principal owning as attorney's fees, expenses of collection which
the plaintiff might incur, and the costs. To guarantee the performance of his
obligation under the note, the defendant on the same date mortgaged the
purchased car in favor of the plaintiff, and bound himself under the same
conditions stipulated in the note relative to the monthly installments, interest,
Republic of the Philippines
attorney's fees, expenses of collection, and costs. The mortgage deed was
SUPREME COURT
registered on June 11, 1934, in the office of the register of deeds of the
Manila
Province of Rizal. On the 22d of the same month, the defendant paid P43.75
upon the first installment, and thereafter failed to pay any of the remaining
EN BANC
installments. In accordance with the terms of the mortgage, the plaintiff
called upon the sheriff to take possession of the car, but the defendant
G.R. No. L-43683 July 16, 1937 refused to yield possession thereof, whereupon, the plaintiff brought the
replevin sought and thereby succeeded in getting possession of the car. The
car was sold at public auction to the plaintiff for P250, the latter incurring of constitutional power. Questions of expediency, of motive or of results are
legal expenses in the amount of P10.68, According to the liquidation filed by irrelevant. Nevertheless it is not improper to inquire as to the occasion for
the plaintiff, the defendant was still indebted in the amount of P342.20, the enactment of a law. The legislative purpose thus disclosed can then
interest at 12 per cent from November 20, 1934, P110.25 as attorney's fees, serve as a fit background for constitution inquiry.
and the costs.
Judge Moran in fact instances had the following to say relative to
I. The plaintiff's first assignment of error is addressed to the appealed the reason for the enactment of Act No. 4122:
judgment in so far as it applied Act No. 4122 and dismissed the complaint,
notwithstanding the fact that the defendant waived his rights under said law "Act No. 4122 aims to correct a social and economic evil,
by not making any appearance, by having been declared in default, by not the inordinate love for luxury of those who, without
interposing any special defense, and not asking for any positive relief. sufficient means, purchase personal effects, and the
ruinous practice of some commercial houses of
Under section 128 of our Civil Procedure, the judgment by default against a purchasing back the goods sold for a nominal price
defendant who has neither appeared nor filed his answer does not imply a besides keeping a part of the price already paid and
waiver of right except that of being heard and of presenting evidence in his collecting the balance, with stipulated interest, costs, and
favor. It does not imply admission by the defendant of the facts and causes attorney's fees. For instance, a company sells a truck for
of action of the plaintiff, because the codal section requires the latter to P6,500. The purchaser makes a down payment of P500,
adduce his evidence in support of his allegation as an indispensable the balance to be paid in twenty-four equal installments of
condition before final judgment could be given in his favor. Nor could it be P250 each. Pursuant to the practice before the enactment
interpreted as an admission by the defendant that the plaintiff's causes of of Act No. 4122, if the purchaser fails to pay the first two
action find support in the law or that latter is entitled to the relief prayed for. installments, the company takes possession of the truck
(Chaffin vs. Mac Fadden, 41 Ark., 42; Johnson vs. Peirce, 12 Ark., 599; and has it sold at public auction at which sale it purchases
Mayden vs. Johnson, 59 Ga., 105; Peo. vs. Rust, 292 Ill., 412; Madison the truck for a nominal price, at most P500, without
County vs. Smith, 95 Ill., 328; Keen vs. Krempel, 166 Ill. A., 253.) For these prejudice to its right to collect the balance of P5,500, plus
reason, we hold that the defendant did not waive the applicant by the court interest, costs. and attorney's fees. As a consequence, the
of Act No. 4122, and that the first assignment of error is untenable. vendor does not only recover the goods sold, used hardly
two months perhaps with only slight wear and tear, but
II. The plaintiff contends in its second assignment of error that Act No. 4122 also collects the entire stipulated purchase price, probably
is invalid because it takes property without due process of law, denies the swelled up fifty per cent including interest, costs, and
equal protection of the laws, and impairs the obligations of contract, thereby attorney's fees. This practice is worse than usurious in
violating the provisions of section 3 of the Act of the United States Congress many instances. And although, of course, the purchaser
of August 29, 1916, known as the Jones Law. This is not the first time that must suffer the consequences of his imprudence and lack
the constitutionality of the said law has been impugned for like reasons. of foresight, the chastisement must not be to the extent of
InManila Trading and Supply Co. vs. Reyes (64 Phil. 461), the validity of the ruining him completely and, on the other hand, enriching
said law was already passed upon when it was questioned for the same the vendor in a manner which shocks the conscience. The
reason here advanced. In resolving the question in favor of the validity of the object of the law is highly commendable. As to whether or
law, we then held: "2. Liberty of contract, class legislation, and equal not the means employed to do away with the evil above
protection of the laws. — The question of the validity of an act is solely one mentioned are arbitrary will be presently set out."
In a case which reached this court, Mr. Justice Goddard, Washington and another from the State of Oregon. For reason
interpreting Act No. 4122, made the following observations: which will soon appear we do not think that either decision is
controlling.
"Undoubtedly the principal object of the above amendment
was to remedy the abuses committed in connection with In 1897, an Act was passed in the State of Washington which
the foreclosure of chattel mortgages. This amendment provided "that in all proceedings for the foreclosure of mortgages
prevents mortgagees from seizing the mortgaged property, hereafter executed or on judgments rendered upon the debt
buying it at foreclosure sale for a low price and then thereby secured the mortgagee or assignee shall be limited to the
bringing suit against the mortgagor for a deficiency property included in the mortgage." It was held by a divided court of
judgment. The almost invariable result of this procedure three to two that the statute since limiting the right to enforce a debt
was that the mortgagor found himself minus the property secured by mortgage to the property mortgaged whether realty or
and still owing practically the full amount of his original chattles, was an undue restraint upon the liberty of a citizen to
indebtedness. Under this amendment the vendor of contract with respect to his property right. But as is readily
personal property, the purchase price of which is payable apparent, the Washington law and the Philippine law are radically
in installments, has the right to cancel the sale or foreclose different in phraseology and in effect. (Dennis vs. Moses [1898], 40
the mortgage if one has been given on the property. L. R. A., 302.)
Whichever right the vendor elects he need not return to
the purchaser the amount of the full installment already In Oregon, in a decision of a later date, an Act abolishing deficiency
paid, "if there be an agreement to that effect." judgment upon the foreclosure of mortgages to secure the unpaid
Furthermore, if the vendor avails himself of the right from balance of the purchase price of real property was unanimously
foreclose the mortgage this amendment prohibits him from sustained by the Supreme Court of that State. The importance of
bringing an action against the purchaser for the unpaid the subject matter in that jurisdiction was revealed by the fact that
balance." four separate opinions were prepared by the justices participating,
in one of which Mr. Justice Johns, shortly thereafter to become a
"In other words, under this amendment, in all proceedings member of this court, concurred. However, it is but fair state that
for the foreclosure of chattel mortgages, executed on one of the reasons prompting the court to uphold the law was the
chattels which have been sold on the installment plan, the financial depression which had prevailed in that State. While in the
mortgagee is limited to the property included in the Philippines the court take judicial notice of the stringency of finance
mortgage" (Bachrach Motor Co. vs. Millan [1935]. 61 Phil., that presses upon the people we have no reason to believe that this
409.). was the reason which motivated the enactment of Act 4122. (Wright
vs. Wimberley [1919], 184 Pac., 740.)
Public policy having thus had in view the objects just outlined, we
should next examine the law to determine if notwithstanding that While we are on the subject of the authority, we may state that we
policy, it violates any of the constitutional principles dealing with the have examined all of those obtainable, including some of recent
three general subjects here to be considered. date but have not been enlightened very much because as just
indicated, they concerned different state of facts and different laws.
In an effort to enlighten us, our attention has been directed to We gain the most help from the case of Bronzon vs. Kinzie ([1843],
certain authorities, principally one coming from the state of 1 How., 311), decided by the Supreme Court of the United State. It
had under consideration a law passed in the State of Illinois, which has now disauthorized this practice, but has left a sufficient remedy
provide that the equitable estate of the mortgagor should not be remaining.
extinguished for twelve months after sale on decree, and which
prevented any sale of the mortgaged property unless two-thirds of Three remedies are available to the vendor who has sold personal
the amount at which the property had been valued by appraisers property on the installment plan. (1) He may elect to exact the
should be bid therefor. The court, by Mr. Chief Justice Taney fulfillment of the obligation. (Bachrach Motor Co. vs. Milan, supra.)
declared: "Mortgages made since the passage of these laws must (2) If the vendee shall have failed to pay two or more installments,
undoubtedly be governed by them; for every State has power to the vendor may cancel the sale. (3) If the vendee shall have failed
describe the legal and equitable obligation of a contract to be made to pay two or more installments, the vendor may foreclose the
and executed within it jurisdiction. It may exempt any property it mortgage, if one has been given on the property. The basis of the
thinks proper from sale for the payment of a debt; and may first option is the Civil Code. The basis of the last two option is Act
imposed such conditions and restriction upon the creditor as its No. 4122, amendatory of the Civil Code. And the proviso to the right
judgment and policy may dictate. And all future contracts would be to foreclose is, that if the vendor has chosen this remedy, he shall
subject to such provisions; and they would be obligatory upon the have no further action against the purchaser for the recovery of any
parties in the provisions; and they would be obligatory upon the unpaid balance owing by the same. In other words, as we see it,
parties in the courts of the United States, as well as in those of the the Act does no more than qualify the remedy.
state."
Most constitutional issues are determined by the court's approach
As we understand it, parties have no vested right in particular to them. The proper approach in cases of this character should be
remedies or modes of procedure, and the legislature may change to resolve all presumptions in favor of the validity of an act in the
existing remedies or modes of procedure without impairing the absence of a clear conflict between it and the constitution. All
obligation of contracts, provided an efficacious remedy for doubts should be resolved in its favor.
enforcement. But changes in the remedies available for the
enforcement of a mortgage may not, even when public policy is The controlling purpose of Act No. 4122 is revealed to be to close
invoked as an excuse, be pressed so far as to cut down the the door to abuses committed in connection with the foreclosure of
security of a mortgage without moderation or reason or in a spirit of chattel mortgages when sales were payable in installments. The
oppression. (Brotherhood of American Yeoman vs. Manz [1922], public policy, obvious from the statute, was defined and established
206 Pac., 403; Oshkosh Waterworks Co. vs. Oshkosh [1908], 187 by legislative authority. It is for the courts to perpetuate it.
U. S., 437; W. B. Worthen Co. vs. Kavanaugh [1935], 79 U. S.
Supreme Court Advance Opinions, 638.)
We are of the opinion that the Legislative may change judicial
methods and remedies for the enforcement of contracts, as it has
In the Philippines, the Chattel Mortgage Law did not expressly done by the enactment of Act No. 4122, without unduly interfering
provide for a deficiency judgment upon the foreclosure of a with the obligation of the contract, without sanctioning class
mortgage. Indeed, it required decisions of this court to authorize legislation, and without a denial of the equal protection of the laws.
such a procedure. (Bank of the Philippine Island vs. Olutanga We rule that Act No. 4122 is valid and enforceable. As a
Lumber Co., [1924], 47 Phil., 20; Manila Trading and Supply Co. vs. consequence, the errors assigned by the appellant are overruled,
Tamaraw Plantation Co., supra.) But the practice became universal and the judgment affirmed, the costs of this instance to be taxed
enactment regarding procedure. To a certain extent the Legislature against the losing party.
In his brief counsel for the plaintiff advances no new arguments which have
not already been considered in theReyes case, and we see no reason for
reaching a different conclusion now. The law seeks to remedy an evil which
the Legislature wished to suppress; this legislative body has power to
promulgate the law; the law does not completely deprive vendors on the
installment basis of a remedy, but requires them to elect among three
alternative remedies; the law, on the other hand, does not completely
exonerate the purchasers, but only limits their liabilities and, finally, there is
no vested right when a procedural law is involved, wherefore the Legislature
could enact Act No. 4122 without violating the aforesaid organic law.
III. In its last assignment of error plaintiff contends that, even granting that
Act No. 4122 is valid, the court should have ordered the defendant to pay at
least the stipulated interest, attorney's fees, and the costs. This question
involves the interpretation of the pertinent portion of the law, reading:
"However, if the vendor has chosen to foreclose the mortgage he shall have
no further action against the purchaser for the recovery of any unpaid
balance owing by the same, and any agreement to the contrary shall be null
and void." This paragraph, as its language shows, refers to the mortgage
contract executed by the parties, whereby the purchaser mortgages the
chattel sold to him on the installment basis in order to guarantee the
payment of its price, and the words "any unpaid balance" should be
interpreted as having reference to the deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged chattel is sold at
public auction, the proceeds obtained therefrom are insufficient to cover the
full amount of the secured obligations which, in the case at bar as shown by
the note and by the mortgage deed, include interest on the principal, Republic of the Philippines
attorney's fees, expenses of collection, and the costs. The fundamental rule SUPREME COURT
which should govern the interpretation of laws is to ascertain the intention Manila
and meaning of the Legislature and to give effect thereto. (Sec. 288, Code of
Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19 Phil., EN BANC
134; De Jesus vs. City of Manila, 29 Phil., 73; Borromeo vs. Mariano, 41
Phil., 322; People vs. Concepcion, 44 Phil., 126.) Were it the intention of the G.R. No. L-27645 November 28, 1969
Legislature to limit its meaning to the unpaid balance of the principal, it
would have so stated. We hold, therefore, that the assignment of error is FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiff-appellee,
untenable. vs.
LOURDES V. RIDAD and LUIS RIDAD, defendants-appellants.
In view of the foregoing, the appealed judgment is affirmed, with the costs of
this instance to the plaintiff and appellant. So ordered.
Osmundo R. Victoriano for defendants-appellants. When the case was called for pre-trial, the CFI advanced the opinion that
Emilio B. Saunar for plaintiff-appellee. there was no need for the parties to adduce evidence and that the case
could be decided on the basis of the pleadings submitted by the parties.
CASTRO, J.:
The trial court on September 5, 1966, rendered judgment for the appellee,
Appeal by the spouses Lourdes V. Ridad and Luis Ridad from the decision of as follows:
the Court of First Instance of Manila in civil case 64288, a replevin suit,
awarding to the appellee Filipinas Investment and Finance Corporation the As stated in the pre-trial order of this Court dated May 27, 1966, the
amount of P163.65 representing actual expenses and P300 as attorney's only issue remaining to be resolved is whether the plaintiff is
fees. entitled to receive P500.00 as attorney's fees and P163.65 for
expenses incurred by the plaintiff in the seizure of the car which
The spouses Ridad bought from the Supreme Sales & Development was the object of the chattel mortgage executed by the defendants
Corporation, the appellee's assignor-in-interest, a Ford Consul sedan for the in favor of the plaintiff.
total price of P13,371.40. The sum of P1,160 was paid on delivery, the
balance of P12,211.50 being payable in twenty-four equal monthly Upon consideration of the circumstances of the case, the court
installments, with interest at 12% per annum, secured by a promissory note holds that the plaintiff is entitled to recover the amount of P163.65
and a chattel mortgage on the car executed on March 19, 1964. The which represents the expenses incurred by the plaintiff in the
spouses thereafter failed to pay five consecutive installments on a remaining seizure of the car involved in this case.
balance of P5,274.53. On October 13, 1965 the appellee instituted a replevin
suit in the city court of Manila for the seizure of the car (par. 7 of the Considering that the plaintiff had recovered the car involved in the
complaint alleged "unjustifiable failure and refusal of the defendants . . . to case while it is still in the lower court, and considering further that
surrender possession of the . . . motor vehicle for the purpose of the defendants did not resist the case and the only question said
foreclosure"), or the recovery of the unpaid balance in case delivery could defendants raised before this court is the amount of attorney's fees,
not be effected. The car was then seized by the sheriff of Manila and the court in the exercise of its equitable jurisdiction reduces the
possession thereof was awarded to the appellee. During the progress of the attorney's fees granted to the plaintiff by the lower court to P300.00.
case, the appellee instituted extrajudicial foreclosure proceedings, as a
result of which, on December 22, 1965, the car was sold at public auction In this appeal, the appellants contend that the trial court erred: (1) in
with the appellee as the highest bidder and purchaser. rendering a decision which does not state the facts and the law on which it is
based; (2) in condemning the appellants to pay P300 for attorney's fees and
Meanwhile, in view of the failure of the defendants-spouses to appear at the P163.65 for expenses incurred in the seizure of the car which was the object
scheduled hearing of the case, allegedly due to non-receipt of the summons, of the chattel mortgage executed by them in favor of the appellee; and (3) in
they were declared in default. The default judgment ordered them to pay to not dismissing the appellee's complaint.
the appellee the sum of P500 as attorney's fees, and P163.65 representing
actual expenses relative to the seizure of the car, plus costs. 1. We uphold the appellee's contention that the disputed decision of the
lower court complies substantially with the requirements of law because it
Their motion to set aside his order of default and the decision having been referred to the pre-trial order it issued on May 27, 1966 which contains
denied, they appealed to the Court of First Instance of Manila. substantial findings of facts. For although settled is the doctrine that a
decree with absolutely nothing to support it is a nullity, the law, however,
merely requires that a decision state the "essential ultimate facts upon which The appellee further argues that the award of attorney's fees and the costs
the court's conclusion is drawn."1 There being an express reference to the of suit together with expenses incurred, was stipulated both in the
pre-trial order, the latter must be considered and taken as forming part of the promissory note and chattel mortgage contract; that even in the absence of
decision. The claim, therefore, that the judgment clearly transgresses the such stipulation, the award of attorney's fees is discretionary on the part of
legal precept2 because it does not state the facts of the case and the law on the court pursuant to par. 2, art. 2208, new Civil Code; and that the said
which it is based and hence, is a nullity, finds no justification here. award could likewise be made by the lower court on the basis of the general
prayer in the complaint for the award of whatever relief that the lower court
2. The appellants theorize that the action of the appellee is for the payment may deem just and equitable in the premises.
of the unpaid balance of the purchase price with a prayer for replevin. When,
therefore, the appellee seized the car, extrajudicially foreclosed the It is true that the present action is one for replevin, but because it culminated
mortgage, had the vehicle sold, and bought the same at public auction as in the foreclosure of the chattel mortgage and the sale of the car at public
the highest bidder, it thereby renounced any and all rights which it might auction, it is our view that the provisions of art. 1484 of the Civil Code (Recto
have under the promissory note as well as the payment of the unpaid Law) must govern the resolution of the issue here presented.
balance, and, consequently, what it would otherwise be entitled under and
by virtue of the present action, including attorney's fees and costs of suit, This article recites that
pursuant to article 1484 of the new Civil Code.
In a contract of sale of personal property the price of which is
On the other hand, the appellee maintains that it is entitled to an award of payable in installments, the vendor may exercise any of the
attorney's fees and actual expenses and costs of suit by virtue of the following remedies:
unjustifiable failure and refusal of the appellants to comply with their
obligations (one of which is the surrender of the chattel to the mortgagee (1) Exact fulfillment of the obligation, should the vendee fail to pay;
upon the latter's demand), contending that what is prohibited in art. 1484,
par. 3 of the new Civil Code relied upon by the appellants is the recovery of
(2) Cancel the sale, should the vendee's failure to pay cover two or
the unpaid balance of the purchase price by means of an action other than a
more installments;
suit for replevin; that Luneta Motor Co. vs. Salvador, et al., (L-13373, July
26, 1960) is inapplicable to the present case because the remedy sought in
that case was in the conjunctive and not in the alternative, such that, (3) Foreclose the chattel mortgage on the thing sold, if one has
necessarily, when the appellee therein foreclosed the mortgage on the motor been constituted, should the vendee's failure to pay cover two or
vehicle during the progress of the action, the other action for a sum of more installments. In this case, he shall have no further action
money had to be dismissed since the same could not prosper as it would against the purchaser to recover any unpaid balance of the price.
constitute a separate action for the recovery of the unpaid balance Any agreement to the contrary shall be void.
contemplated in article 1484; and that in the present case, however, the
court awarded attorney's fees, costs of suit and expenses incurred in relation This article was reproduced from the old art. 1454-A, which in turn was
to the seizure of the motor vehicle by virtue of the writ of replevin in the inserted by Act 4122 (Recto Law). "Three remedies are available to the
same action because the appellee was compelled to institute the same on vendor who has sold personal property on the installment plan: (1) He may
account of the appellants' unjustifiable failure and refusal to comply with the elect to exact the fulfillment of the obligation. (Bachrach Motor Co. vs. Millan,
former's demands. 61 Phil. 409) (2) If the vendee shall have failed to pay two or more
installments, the vendor may cancel the sale. (3) If the vendee shall have
failed to pay two or more installments, the vendor may foreclose the
mortgage, if one has been given on the property. The basis of the first option the terms of the mortgage, the plaintiff called upon the sheriff to
is the Civil Code. The basis of the last two options is Act 4122 (inserted in take possession of the car, but the defendant refused to yield
the Spanish Civil Code as art. 4154-A and now reproduced in arts. 1484 and possession thereof, whereupon, the plaintiff brought the replevin
1485), amendatory of the Civil Code. And the proviso to the right to foreclose sought and thereby succeeded in getting possession of the car. The
is that if the vendor has chosen this remedy, he shall have no further action car was sold at public auction to the plaintiff for P250, the latter
against the purchaser for the recovery of any unpaid balance owing by the incurring legal expenses in the amount of P10.68. According to the
same. In other words, as we see it, the Act does no more than qualify the liquidation filed by the plaintiff, the defendant was still indebted in
remedy."3 the amount of P342.20, interest at 12 per cent from November 20,
1934, P110.25 as attorney's fees, and the costs.
The legal issue which is the core of the controversy in the case at bar was
resolved in Macondray & Co. vs. Eustaquio,4 as follows: xxx xxx xxx
The plaintiff brought the action against the defendant to obtain the In its last assignment of error plaintiff contends that even granting
possession of an automobile mortgaged by the latter, and to that Act No. 4122 is valid, the court should have ordered the
recover the balance owing upon a note executed by him, the defendant to pay at least the stipulated interest, Attorney's fees and
interest thereon, attorney's fees, expenses of collection, and the the costs. This question involves the interpretation of the pertinent
costs. The defendant was duly summoned, but he failed to appear portion of the law, reading: "However, if the vendor has chosen to
or file his answer, wherefore, he was declared in default and the foreclose the mortgage he shall have no further action against the
appealed judgment was rendered accordingly. purchaser for the recovery of any unpaid balance owing by the
same, and any agreement to the contrary shall be null and void."
The plaintiff sold to the defendant a De Soto car, Sedan, for the This paragraph, as its language shows, refers to the mortgage
price of which, P595, he executed in its favor the note of May 22, contract executed by the parties, whereby the purchaser mortgages
1934. Under this note, the defendant undertook to pay the car in the chattel sold to him on the installment basis in order to
twelve monthly installments, with 12 per cent interests per annum, guarantee the payment of its price, and the words "any unpaid
and likewise agreed that, should he fail to pay any monthly balance" should be interpreted as having reference to the
installment together with interest, the remaining installments would deficiency judgment to which the mortgagee may be entitled where,
become due and payable, and the defendant shall pay 20 per cent after the mortgaged chattel is sold at public auction, the proceeds
upon the principal owing as attorney's fees, expenses of collection obtained therefrom are insufficient to cover the full amount of the
which the plaintiff might incur, and the costs. To guarantee the secured obligations which, in the case at bar as shown by the note
performance of his obligations under the note, the defendant on the and by the mortgage deed, include interest on the principal,
same date mortgaged the purchased car in favor of the plaintiff, attorney's fees, expenses of collection, and the costs. The
and bound himself under the same conditions stipulated in the note fundamental rule which should govern the interpretation of laws is
relative to the monthly installments, interest, attorney's fees, to ascertain the intention and meaning of the Legislature and to
expenses of collection, and costs. The mortgage deed was give effect thereto. (Sec. 288, Code of Civil Procedure; U.S. vs.
registered on June 11, 1934, in the office of the register of deeds of Toribio, 15 Phil. 85; U.S. vs. Navarro, 19 Phil. 134; De Jesus vs.
the Province of Rizal. On the 22nd of the same month, the City of Manila, 29 Phil. 73; Borromeo vs. Mariano, 41 Phil. 322;
defendant paid P43.75 upon the first installment, and thereafter People vs. Concepcion, 44 Phil. 126.) Were it the intention of the
failed to pay any of the remaining installments. In accordance with Legislature to limit its meaning to the unpaid balance of the
principal, it would have so stated. We hold, therefore, that the default of the buyer in the payment of two installments, still retained for
assignment of error is untenable. (emphasis supplied) themselves all amounts already paid, and in addition, were adjudged entitled
to damages, such as attorney's fees, expenses of litigation and costs.
In other words, under this amendment as above interpreted, in all Congress could not have intended to impair much less do away with, the
proceedings for the foreclosure of a chattel mortgage, executed on chattels right of the seller to make commercial use of his credit against the buyer,
which have been sold on the installment plan, the mortgagee is limited to the provided the buyer is not burdened beyond what this law allows.7
property mortgaged5 and is not entitled to attorney's fees and costs of suit.
It would appear from the emphasis and precision of the language employed
In a subsequent case6 where the vendor in a sale of personal property in in the decisions already adverted to that in no instance whatsoever may the
installments, upon failure of the vendee to pay his obligations, the vendor mortgagee recover from the mortgagor any amount or sum after the
commenced, through court action, to recover the unpaid balance of the foreclosure of the mortgage, for, as we understand it, the philosophy of the
purchase price, but later, during the progress of the action, foreclosed the Recto Law is that the underprivileged mortgagors must be afforded full
chattel mortgage constituted on the property, attorney's fees and costs of protection against the rapacity of the mortgagees.
suit were denied to the vendor. There the Supreme Court held:
But while we unconditionally concur in, and give our approval to, the basic
Paragraph 3 of the above-quoted provision (article 1484, new Civil philosophy of the Recto Law, we view with no small amount of
Code) is clear that foreclosure of the chattel mortgage and recovery circumspection the implication, necessarily drawn from the above
of the unpaid balance of the price are alternative remedies and may discussion, that the mortgagee is not entitled to protection against perverse
not be pursued conjunctively. It appearing in the case at bar that mortgagors. Where the mortgagor plainly refuses to deliver the chattel
the vendor had already foreclosed the chattel mortgage constituted subject of the mortgage upon his failure to pay two or more installments, or if
on the property and had taken possession thereof, the lower court he conceals the chattel to place it beyond the reach of the mortgagee, what
acted rightly in dismissing the complaint filed for the purpose of then is the mortgagee expected to do? It is part of conventional wisdom and
recovering the unpaid balance of the purchase price. By seizing the the rule of law that no man can take the law into his own hands; so it is not
truck and foreclosing the mortgage at the progress of the suit, the to be supposed that the Legislature intended that the mortgagee should
plaintiff renounced whatever claim it may have had under the wrest or seize the chattel forcibly from the control and possession of the
promissory note, and consequently, he has no more cause of action mortgagor, even to the extent of using violence which is unwarranted in law.
against the promisor and the guarantor. And he has no more right Since the mortgagee would enforce his rights through the means and within
either to the costs and the attorney's fees that would go with the the limits delineated by law, the next step in such situations being the filing of
suit. an action for replevin to the end that he may recover immediate possession
of the chattel and, thereafter, enforce his rights in accordance with the
This might be considered a reiteration of the ruling in Macondray. contractual relationship between him and the mortgagor as embodied in their
agreement, then it logically follows as a matter of common sense, that the
necessary expenses incurred in the prosecution by the mortgagee of the
A scrutiny of the doctrine enunciated in the above-cited cases will reveal that
action for replevin so that he can regain possession of the chattel, should be
its ultimate and salutary purpose is to prevent the vendor from circumventing
borne by the mortgagor. Recoverable expenses would, in our view, include
the Recto Law. Congress sought to protect the buyers on installment who
expenses properly incurred in effecting seizure of the chattel and reasonable
more often than not have been victimized by sellers who, before the
attorney's fees in prosecuting the action for replevin. And we declare that in
enactment of this law, succeeded in unjustly enriching themselves at the
this case before us, the amounts awarded by the court a quo to the
expense of the buyers, because aside from recovering the goods sold, upon
mortgagee (appellee) are reasonable.
To the extent that our pronouncement here conflicts with the ruling
announced and followed in the cases hereinbefore discussed, the latter must
be considered pro tanto qualified. DECISION
On a pure question of law involving the application of Republic Act (R.A.) No.
5980, as amended by R.A. No. 8556 in relation to Articles 1484 and 1485 of the
Civil Code, petitioner PCI Leasing and Finance, Inc. (PCI LEASING, for short) has
directly come to this Court via this petition for review under Rule 45 of the Rules of
Court to nullify and set aside the Decision and Resolution dated December 28, 1998
and February 15, 2000, respectively, of the Regional Trial Court (RTC) of Quezon
City, Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money
and/or personal property with prayer for a writ of replevin, thereat instituted by the
petitioner against the herein respondent, Giraffe-X Creative Imaging, Inc.
(GIRAFFE, for brevity).
The facts:
-- PLUS--
P181,362.00 @ month (for the Oxberry Upon PCI LEASINGs posting of a replevin bond, the trial court issued a
Cinescan) x 36 months = P 6,529,032.00 writ of replevin, paving the way for PCI LEASING to secure the seizure and
Total Amount to be paid by GIRAFFE delivery of the equipment covered by the basic lease agreement.
(or the NET CONTRACT AMOUNT) P 10,736,647.56
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to
Dismiss, therein arguing that the seizure of the two (2) leased equipment stripped
By the terms, too, of the Lease Agreement, GIRAFFE undertook to PCI LEASING of its cause of action. Expounding on the point, GIRAFFE argues
remit the amount of P3,120,000.00 by way of guaranty deposit, a sort of that, pursuant to Article 1484 of the Civil Code on installment sales of personal
performance and compliance bond for the two equipment. Furthermore, the same property, PCI LEASING is barred from further pursuing any claim arising from the
agreement embodied a standard acceleration clause, operative in the event lease agreement and the companion contract documents, adding that the agreement
GIRAFFE fails to pay any rental and/or other accounts due. between the parties is in reality a lease of movables with option to buy. The given
situation, GIRAFFE continues, squarely brings into applicable play Articles 1484
A year into the life of the Lease Agreement, GIRAFFE defaulted in its and 1485 of the Civil Code, commonly referred to as the Recto Law. The cited
monthly rental-payment obligations. And following a three-month default, PCI articles respectively provide:
LEASING, through one Atty. Florecita R. Gonzales, addressed a formal pay-or-
surrender-equipment type of demand letter[4] dated February 24, 1998 to GIRAFFE. 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:
The demand went unheeded.
(1) Exact fulfillment of the obligation, should the
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING vendee fail to pay;
instituted the instant case against GIRAFFE. In its complaint, [5] docketed in said
court as Civil Case No. 98-34266 and raffled to Branch 227 [6] thereof, (2) Cancel the sale, should the vendee's failure to pay
PCI LEASING prayed for the issuance of a writ of replevin for the recovery of the cover two or more installments;
leased property, in addition to the following relief:
(3) Foreclose the chattel mortgage on the thing
2. After trial, judgment be rendered in favor of sold, if one has been constituted, should the vendee's failure to
plaintiff [PCI LEASING] and against the defendant [GIRAFFE], pay cover two or more installments. In this case, he shall
as follows: have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary
a. Declaring the plaintiff entitled to the shall be void. (Emphasis added.)
possession of the subject
properties; ART. 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property with
b. Ordering the defendant to pay the balance option to buy, when the lessor has deprived the lessee of the
of rental/obligation in the total possession or enjoyment of the thing.
amount of P8,248,657.47 inclusive
of interest and charges thereon;
c. Ordering defendant to pay plaintiff the It is thus GIRAFFEs posture that the aforequoted Article 1484 of the Civil
expenses of litigation and cost of Code applies to its contractual relation with PCI LEASING because the lease
suit. (Words in bracket added.) agreement in question, as supplemented by the schedules documents, is really
a lease with option to buy under the companion article, Article 1485. Consequently,
so GIRAFFE argues, upon the seizure of the leased equipment pursuant to the writ
of replevin, which seizure is equivalent to foreclosure, PCI LEASING has no further
recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss that the civil
complaint filed by PCI LEASING is proscribed by the application to the case of The recourse is without merit.
Articles 1484 and 1485, supra, of the Civil Code.
R.A. No. 5980, in its original shape and as amended, partakes of a
In its Opposition to the motion to dismiss, PCI LEASING maintains that supervisory or regulatory legislation, merely providing a regulatory framework for
its contract with GIRAFFE is a straight lease without an option to buy. Prescinding the organization, registration, and regulation of the operations of financing
therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in companies. As couched, it does not specifically define the rights and obligations of
relation to Article 1485 of the Civil Code, claiming that, under the terms and parties to a financial leasing arrangement. In fact, it does not go beyond defining
conditions of the basic agreement, the relationship between the parties is one commercial or transactional financial leasing and other financial leasing concepts.
between an ordinary lessor and an ordinary lessee. Thus, the relevancy of Article 18 of the Civil Code which reads:
In a decision[7] dated December 28, 1998, the trial court granted Article 18. - In matters which are governed by special
GIRAFFEs motion to dismiss mainly on the interplay of the following premises: 1) laws, their deficiency shall be supplied by the provisions of this
the lease agreement package, as memorialized in the contract documents, is akin to [Civil] Code.
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 Petitioner foists the argument that the Recto Law, i.e., the Civil Code
1484 and 1485 [of the Civil Code]. Accordingly, the trial court dismissed Civil Case provisions on installment sales of movable property, does not apply to a financial
No. Q-98-34266, disposing as follows: leasing agreement because such agreement, by definition, does not confer on the
lessee the option to buy the property subject of the financial lease. To the petitioner,
WHEREFORE, premises considered, the defendant the absence of an option-to-buy stipulation in a financial leasing agreement, as
[GIRAFFE] having relinquished any claim to the personal understood under R.A. No. 8556, prevents the application thereto of Articles 1484
properties subject of replevin which are now in the possession of and 1485 of the Civil Code.
the plaintiff [PCI LEASING], plaintiff is DEEMED fully We are not persuaded.
satisfied pursuant to the provisions of Articles 1484 and 1485 of
the New Civil Code. By virtue of said provisions, plaintiff is The Court can allow that the underlying lease agreement has the earmarks
DEEMED estopped from further action against the defendant, or made to appear as a financial leasing,[9] a term defined in Section 3(d) of R.A. No.
the plaintiff having recovered thru (replevin) the personal 8556 as -
property sought to be payable/leased on installments, defendants
being under protection of said RECTO LAW. In view thereof, a mode of extending credit through a non-cancelable
this case is hereby DISMISSED. lease contract under which the lessor purchases or acquires, at
the instance of the lessee, machinery, equipment, office
With its motion for reconsideration having been denied by the trial court machines, and other movable or immovable property in
in its resolution of February 15, 2000, [8] petitioner has directly come to this consideration of the periodic payment by the lessee of a fixed
Court via this petition for review raising the sole legal issue of whether or not the amount of money sufficient to amortize at least seventy (70%)
underlying Lease Agreement, Lease Schedules and the Disclosure Statements that of the purchase price or acquisition cost, including any
embody the financial leasing arrangement between the parties are covered by and incidental expenses and a margin of profit over an
subject to the consequences of Articles 1484 and 1485 of the New Civil Code. obligatory period of not less than two (2) years during which the
lessee has the right to hold and use the leased property but with
As in the court below, petitioner contends that the financial leasing no obligation or option on his part to purchase the leased
arrangement it concluded with the respondent represents a straight lease property from the owner-lessor at the end of the lease contract.
covered by R.A. No. 5980, the Financing Company Act, as last amended by R.A.
No. 8556, otherwise known as Financing Company Act of 1998, and is outside the
application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines In its previous holdings, however, the Court, taking into account the
and authorizes its existence and business. following mix: the imperatives of equity, the contractual stipulations in question and
the actuations of parties vis--vis their contract, treated disguised transactions Lessee to give a guaranty deposit in the amount of P20,800.00]
technically tagged as financing lease, like here, as creating a different contractual xxx
relationship. Notable among the Courts decisions because of its parallelism with this
case is BA Finance Corporation v. Court of Appeals [10] which involved a motor After the private respondent had paid the sum of
vehicle. Thereat, the Court has treated a purported financial lease as actually a sale P41,670.59, excluding the guaranty deposit of P20,800.00, he
of a movable property on installments and prevented recovery beyond the buyers stopped further payments. Putting the two sums together, the
arrearages. Wrote the Court in BA Finance: financing company had in its hands the amount of P62,470.59 as
against the total agreed "rentals" of P60,821.28 or an excess of
The transaction involved is one of a "financial P1,649.31.
lease" or "financial leasing," where a financing company
would, in effect, initially purchase a mobile equipment and The respondent appellate court considered it only just
turn around to lease it to a client who gets, in addition, an and equitable for the guaranty deposit made by the private
option to purchase the property at the expiry of the lease respondent to be applied to his arrearages and thereafter to hold
period. xxx. the contract terminated. Adopting the ratiocination of the court a
quo, the appellate court said:
xxx xxx xxx
xxx In view thereof, the guaranty
The pertinent provisions of [RA] 5980, thus deposit of P20,800.00 made by the
implemented, read: defendant should and must be credited in his
favor, in the interest of fairness, justice and
"'Financing companies,' are equity. The plaintiff should not be allowed
primarily organized for the purpose of to unduly enrich itself at the expense of
extending credit facilities to consumers the defendant. xxx This is even more
either by leasing of motor vehicles, and compelling in this case where although
office machines and equipment, and other the transaction, on its face, appear
movable property." ostensibly, to be a contract of lease, it is
actually a financing agreement, with the
"'Credit' shall mean any loan, any plaintiff financing the purchase of
contract to sell, or sale or contract of sale of defendant's automobile . The Court is
property or service, under which part or all constrained, in the interest of truth and
of the price is payable subsequent to the justice, to go into this aspect of the
making of such sale or contract; any rental- transaction between the plaintiff and the
purchase contract; .;" defendant with all the facts and
circumstances existing in this case, and
The foregoing provisions indicate no less than a mere which the court must consider in deciding
financing scheme extended by a financing company to a client in the case, if it is to decide the case according
acquiring a motor vehicle and allowing the latter to obtain the to all the facts. xxx.
immediate possession and use thereof pending full payment of
the financial accommodation that is given. xxx xxx xxx
In the case at bench, xxx. [T]he term of the Considering the factual findings of both the court a
contract [over a motor vehicle] was for thirty six (36) months at quo and the appellate court, the only logical conclusion is that
a "monthly rental" (P1,689.40), or for a total amount of the private respondent did opt, as he has claimed, to acquire
P60,821.28. The contract also contained [a] clause [requiring the the motor vehicle, justifying then the application of the
guarantee deposit to the balance still due and obligating the
petitioner to recognize it as an exercise of the option by the In addition, Sec. 6.1 of the Lease Agreement states that the guaranty
private respondent. The result would thereby entitle said deposit shall be forfeited in the event the respondent, for any reason, returns the
respondent to the ownership and possession of the vehicle as equipment before the expiration of the lease.
the buyer thereof. We, therefore, see no reversible error in the
ultimate judgment of the appellate court. [11] (Italics in the At bottom, respondent had paid the equivalent of about a years lease
original; underscoring supplied and words in bracket added.) rentals, or a total of P3,510,372.00, more or less. Throw in the guaranty
deposit (P3,120,000.00) and the respondent had made a total cash outlay
In Cebu Contractors Consortium Co. v. Court of Appeals,[12] the Court of P6,630,372.00 in favor of the petitioner. The replevin-seized leased equipment
viewed and thus declared a financial lease agreement as having been simulated to had, as alleged in the complaint, an estimated residual value ofP6,900.000.00 at the
disguise a simple loan with security, it appearing that the financing company time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash
purchased equipment already owned by a capital-strapped client, with the intention advances thus made to the residual value of the equipment, the total value which the
of leasing it back to the latter. petitioner had actually obtained by virtue of its lease agreement with the respondent
amounts to P13,530,372.00 (P3,510,372.00 + P3,120,000.00 + P6,900.000.00
= P13,530,372.00).
In the present case, petitioner acquired the office equipment in question
for their subsequent lease to the respondent, with the latter undertaking to pay a The acquisition cost for both the Silicon High Impact Graphics equipment
monthly fixed rental therefor in the total amount of P292,531.00, or a total and the Oxberry Cinescan was, as stated in no less than the petitioners letter to the
of P10,531,116.00 for the whole 36 months. As a measure of good faith, respondent respondent dated November 11, 1996[14] approving in the latters favor a lease
made an up-front guarantee deposit in the amount ofP3,120,000.00. The basic facility, was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00 from
agreement provides that in the event the respondent fails to pay any rental due or is the total amount, i.e., P13,530,372.00, creditable to the respondent, it would clearly
in a default situation, then the petitioner shall have cumulative remedies, such as, but appear that petitioner realized a gross income of P5,430,372.00 from its lease
not limited to, the following:[13] transaction with the respondent. The amount of P5,430,372.00 is not yet a final
figure as it does not include the rentals in arrears, penalties thereon,
1. Obtain possession of the property/equipment; and interest earned by the guaranty deposit.
2. Retain all amounts paid to it. In addition, the As may be noted, petitioners demand letter [15] fixed the amount
guaranty deposit may be applied towards the payment of P8,248,657.47 as representing the respondents rental balance which became due
of liquidated damages; and demandable consequent to the application of the acceleration and other clauses
of the lease agreement. Assuming, then, that the respondent may be compelled to
3. Recover all accrued and unpaid rentals; pay P8,248,657.47, then it would end up paying a total
of P21,779,029.47 (P13,530,372.00 + P8,248,657.47 = P21,779,029.47) for its use
4. Recover all rentals for the remaining term of the - for a year and two months at the most - of the equipment. All in all, for an
lease had it not been cancelled, as additional investment of P8,100,000.00, the petitioner stands to make in a years time, out of the
penalty; transaction, a total of P21,779,029.47, or a net of P13,679,029.47, if we are to
believe its outlandish legal submission that the PCI LEASING-GIRAFFE Lease
5. Recovery of any and all amounts advanced by Agreement was an honest-to-goodness straight lease.
PCI LEASING for GIRAFFEs account xxx;
A financing arrangement has a purpose which is at once practical and
6. Recover all expenses incurred in repossessing, salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing
removing, repairing and storing the property; and, companies operations with the end in view of strengthening their critical role in
providing credit and services to small and medium enterprises and to curtail acts and
7. Recover all damages suffered by PCI LEASING by practices prejudicial to the public interest, in general, and to their clienteles, in
reason of the default. particular.[16] As a regulated activity, financing arrangements are not meant to quench
only the thirst for profit. They serve a higher purpose, and R.A. No. 8556 has made
that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556 which defines In its elementary sense, "or", as used in a statute, is a
the rights and obligations, as between each other, of the financial lessor and the disjunctive article indicating an alternative. It often connects a
lessee. In determining the respective responsibilities of the parties to the agreement, series of words or propositions indicating a choice of either.
courts, therefore, must train a keen eye on the attendant facts and circumstances of When "or" is used, the various members of the enumeration are
the case in order to ascertain the intention of the parties, in relation to the law and to be taken separately.[19]
the written agreement. Likewise, the public interest and policy involved should be
considered. It may not be amiss to state that, normally, financing contracts come in a The word "or" is a disjunctive term signifying
standard prepared form, unilaterally thought up and written by the financing disassociation and independence of one thing from each of the
companies requiring only the personal circumstances and signature of the borrower other things enumerated.[20]
or lessee; the rates and other important covenants in these agreements are still
largely imposed unilaterally by the financing companies. In other words, these
agreements are usually one-sided in favor of such companies. A perusal of the lease The demand could only be that the respondent need not return the
agreement in question exposes the many remedies available to the petitioner, while equipment if it paid the P8,248,657.47 outstanding balance, ineluctably suggesting
there are only the standard contractual prohibitions against the respondent. This is that the respondent can keep possession of the equipment if it exercises its option to
characteristic of standard printed form contracts. acquire the same by paying the unpaid balance of the purchase price. Stated
otherwise, if the respondent was not minded to exercise its option of acquiring the
There is more. In the adverted February 24, 1998 demand letter[17] sent to equipment by returning them, then it need not pay the outstanding balance. This is
the respondent, petitioner fashioned its claim in the alternative: payment of the full the logical import of the letter: that the transaction in this case is a lease in name
amount ofP8,248,657.47, representing the unpaid balance for the entire 36-month only. The so-called monthly rentals are in truth monthly amortizations of the price of
lease period or the surrender of the financed asset under pain of legal action. To the leased office equipment.
quote the letter:
On the whole, then, we rule, as did the trial court, that the PCI LEASING-
Demand is hereby made upon you to pay in full your GIRAFFE lease agreement is in reality a lease with an option to
outstanding balance in the amount of P8,248,657.47 on or before purchase the equipment. This has been made manifest by the actions of the
March 04, 1998 OR to surrender to us the one (1) set Silicon petitioner itself, foremost of which is the declarations made in its demand letter to
High Impact Graphics and one (1) unit Oxberry Cinescan 6400- the respondent. There could be no other explanation than that if the respondent paid
10 the balance, then it could keep the equipment for its own; if not, then it should return
them. This is clearly an option to purchase given to the respondent. Being so, Article
We trust you will give this matter your serious and 1485 of the Civil Code should apply.
preferential attention. (Emphasis added).
The present case reflects a situation where the financing company can
Evidently, the letter did not make a demand for the payment of withhold and conceal - up to the last moment - its intention to sell the property
the P8,248,657.47 AND the return of the equipment; only either one of the two was subject of the finance lease, in order that the provisions of the Recto Law may be
required. The demand letter was prepared and signed by Atty. Florecita R. Gonzales, circumvented. It may be, as petitioner pointed out, that the basic lease agreement
presumably petitioners counsel. As such, the use of or instead of and in the letter does not contain a purchase option clause. The absence, however, does not
could hardly be treated as a simple typographical error, bearing in mind the nature of necessarily argue against the idea that what the parties are into is not a straight lease,
the demand, the amount involved, and the fact that it was made by a lawyer. but a lease with option to purchase. This Court has, to be sure, long been aware of
Certainly Atty. Gonzales would have known that a world of difference exists the practice of vendors of personal property of denominating a contract of sale on
between and and or in the manner that the word was employed in the letter. 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
A rule in statutory construction is that the word "or" is in Vda. de Jose v. Barrueco:[21]
a disjunctive term signifying dissociation and independence of Sellers desirous of making conditional sales of their
one thing from other things enumerated unless the context goods, but who do not wish openly to make a bargain in that
requires a different interpretation.[18] form, for one reason or another, have frequently resorted to
the device of making contracts in the form of leases either (3) Foreclose the chattel mortgage on the thing sold, if
with options to the buyer to purchase for a small one has been constituted, should the vendee's failure to pay
consideration at the end of term, provided the so-called cover two or more installments. In this case, he shall have no
rent has been duly paid, or with stipulations that if the rent further action against the purchaser to recover any unpaid
throughout the term is paid, title shall thereupon vest in the balance of the price. Any agreement to the contrary shall be
lessee. It is obvious that such transactions are leases only in void.
name. The so-called rent must necessarily be regarded as
payment of the price in installments since the due payment of ART. 1485. The preceding article shall be applied to contracts purporting
the agreed amount results, by the terms of the bargain, in the to be leases of personal property with option to buy, when the
transfer of title to the lessee. lessor has deprived the lessee of the possession or enjoyment of
the thing.
Almost five years later, on February 2, 1961 just before the filing of the
action, respondent wrote petitioners stating that his desire to build a The issue, therefore, is: Under the above facts, may
house on the lots was prevented by their failure to introduce defendants be compelled, or not, to allow plaintiff to
improvements on the subdivision as "there is still no road to these complete payment of the purchase price of the two
lots," and requesting information of the amount owing to update his lots in dispute and thereafter to execute the final
account as "I intend to continue paying the balance due on said lots." deeds of conveyance thereof in his favor?
Petitioners replied in their letter of February 11, 1961 that as xxx xxx xxx
respondent had failed to complete total payment of the 120
installments by May, 1958 as stipulated in the contracts to sell, Whether or not plaintiffs explanation for his failure to
"pursuant to the provisions of both contracts all the amounts paid in pay the remaining installments is true, considering the
accordance with the agreement together with the improvements on the circumstances obtaining in this case, we elect to
premises have been considered as rents paid and as payment for apply the broad principles ofequity and justice. In the
damages suffered by your failure," 2 and "Said cancellation being in case at bar, we find that the plaintiff has paid the total
order, is hereby confirmed." sum of P3,582.06 including interests, which is
even more than the value of the two lots. And even if
From the adverse decision of July 17, 1963 of the trial court sustaining the sum applied to the principal alone were to be
petitioners' cancellation of the contracts and dismissing respondent's considered, which was of the total of P1,682.28, the
complaint, respondent appellate court on appeal rendered its judgment same was already more than the value of one lot,
of July 27, 1966 reversing the lower court's judgment and ordering which is P1,500.00. The only balance due on both lots
petitioners "to deliver to the plaintiff possession of one of the two lots, was P1,317.72, which was even less than the value of
at the choice of defendants, and to execute the corresponding deed of one lot. We will consider as fully paid by the
conveyance to the plaintiff for the said lot," 3 ruling as follows: — plaintiff at least one of the two lots, at the choice of
the defendants. This is more in line with good
conscience than a total denial to the plaintiff of a little
During the hearing, plaintiff testified that he
suspended payments because the lots were not
token of what he has paid the defendant Legarda As already stated, the monthly payments for eight years made by
Hermanos. 4 respondent were applied to his account without specifying or
distinguishing between the two lots subject of the two agreements
Hence, the present petition for review, wherein petitioners insist on under petitioners' own statement of account, Exhibit "1". 7 Even
their right of cancellation under the "plainly valid written agreements considering respondent as having defaulted after February 1956, when
which constitute the law between the parties" as against "the broad he suspended payments after the 95th installment, he had as of the
principles of equity and justice" applied by the appellate court. already paid by way of principal(P1,682.28) more than the full value
Respondent on the other hand while adhering to the validity of the of one lot (P1,500.00). The judgment recognizing this fact and ordering
doctrine of the Caridad Estates cases 5 which recognizes the right of a the conveyance to him of one lot of his choice while also recognizing
vendor of land under a contract to sell to cancel the contract upon petitioners' right to retain the interests of P1,889.78 paid by him for
default, with forfeiture of the installments paid as rentals, disputes its eight years on both lots, besides the cancellation of the contract for
applicability herein contending that here petitioners-sellers were one lot which thus reverts to petitioners, cannot be deemed to
equally in default as the lots were "completely under water" and "there deny substantial justice to petitioners nor to defeat their rights under
is neither evidence nor a finding that the petitioners in fact cancelled the letter and spirit of the contracts in question.
the contracts previous to receipt of respondent's letter." 6
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc.
The Court finds that the appellate court's judgment finding that of the vs. Javier 8 is fully applicable to the present case, with the respondent
total sum of P3,582.06 (including interests of P1,889.78) already paid by at bar being granted lesser benefits, since no rescission of contract
respondent (which was more than the value of two lots), the sum was therein permitted. There, where the therein buyer-appellee
applied by petitioners to the principal alone in the amount of P1,682.28 identically situated as herein respondent buyer had likewise defaulted
was already more than the value ofone lot of P1,500.00 and in completing the payments after having religiously paid the stipulated
hence one of the two lots as chosen by respondent would be monthly installments for almost eight years and notwithstanding that
considered as fully paid, is fair and just and in accordance with law the seller-appellant had duly notified the buyer of the rescission of the
and equity. contract to sell, the Court upheld the lower court's
judgment denying judicial confirmation of the rescission and instead
granting the buyer an additional grace period of sixty days from notice
of judgment to pay all the installment payments in arrears together
with the stipulated 10% interest per annum from the date of default,
apart from reasonable attorney's fees and costs, which payments, the
Court observed, would have the plaintiff-seller "recover everything due
thereto, pursuant to its contract with the defendant, including such
damages as the former may have suffered in consequence of the
latter's default."
SECOND DIVISION
DECISION
Unable to comply with the schedule of payments, Pacifico requested Jestra x x x x (Underscoring supplied)
to allow him to make periodic payments on the down payment "in an amount
that he could afford," to which Jestra acceded provided that late payment By letter4 of November 12, 1997, Pacifico requested Jestra that "the balance
penalties/surcharges2 are paid. be restructured" in light of the "present business condition."
With still a remaining balance of P260,000 on the down payment, Pacifico By November 27, 1997, Pacifico had fully paid the 30% down payment, and
and Jestra executed on March 6, 1997, Contract to Sell No. 833 over the by December 4, 1997, he had paid a total of P846,600, P76,600 of which
property. The said contract was silent on the unsettled balance on the down Jestra applied as penalty charges for the belated settlement of the down
payment. payment.
Under the Contract to Sell, Pacifico should have had on November 5, By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final
1996, or one month prior to the deadline stated under the Reservation demand for the payment ofP444,738.885 representing the total of 11
Application, fully paid the 30% down payment, and that the 120 monthly installments due on the 70% balance of the purchase price, inclusive of 21%
installments for the 70% balance or P1,750 should have had commenced interest per annum and add-on interest at the rate of P384.81 per day,
on December 7, 1996, viz: counted from January 7, 1997. Further, Jestra demanded the payment
of P73,750 representing "penalties for the [belated settlement of the] down
payment." And it reminded Pacifico that "as provided in Section 5 of the said amount of P209,377.75 covering monthly amortizations from January 30 to
contract, [Jestra] reserves its right to automatically cancel or rescind the May 30, 1998 inclusive of penalties. And it gave him until June 1, 1998 to
same on account of [his] failure/refusal to comply with the terms thereof."6 settle his account, failing which the Contract to Sell would be automatically
cancelled and it would re-open the property for sale.10
Pacifico later requested Jestra, by letter of November 12, 1997, for a
restructuring of his unsettled obligation. His request was granted on the On February 24, 1999, Pacifico filed a complaint before the Housing and
condition that the interest for the period from December 1996 to November Land Use Regulatory Board (HLURB) against Jestra, docketed as HLURB
1997 amounting to P224,396.37 would be added to the 70% balance on the Case No. REM-122499-10378, claiming that despite his full payment of the
purchase price; and that Pacifico issue 12 postdated checks beginning each down payment, Jestra failed to deliver to him the property within 90 days as
year to cover his amortization payments. provided in the Contract to Sell dated March 6, 1997, and Jestra instead sold
the property to another buyer in October of 1998.11
In light of the restructured scheme, the monthly amortization on the 70%
balance was from P34,982.50 increased toP39,468, to commence on Pacifico further claimed in his complaint that upon learning of the double
January 5, 1998. sale, he, through his lawyer, demanded that Jestra deliver the property to
him but it failed to do so without just and valid cause.
Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover
his monthly amortizations from January to December 1998. The checks for Pacifico thus prayed that, among others things, judgment be rendered
January and February 1998 were, however, dishonored due to insufficiency declaring the second sale a nullity, ordering Jestra to deliver the property to
of funds.7 him and to pay him P11,000 a month from July 1997 until delivery.
By letter of March 24, 1998, Pacifico informed Jestra that due to sudden By Decision12 of March 15, 2000, the Housing and Land Use Arbiter held
financial difficulties, he was suspending payment of his obligation during the Jestra liable for failure to comply with Section 3 of Republic Act (RA) No.
10-month period, and that he wanted to dispose of the property to recover 6552 (Realty Installment Buyer Protection Act) requiring payment by the
his investment.8 And he requested that the postdated checks he issued be seller of the cash surrender value of the buyer’s payments and Section 17 of
returned to him. Presidential Decree No. 957 (REGULATING THE SALE OF SUBDIVISION
LOTS AND CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS
Jestra, by letter9 of March 31, 1998, denied Pacifico’s request to suspend THEREOF) requiring it to register the Contract to Sell in the Office of the
payment and for the return of the postdated checks. It, however, gave him Register of Deeds.
until April 15, 1998 to sell the property failing which it warned him that it
would be constrained to re-open it for sale. The Arbiter found that while Pacifico had paid a total amount of P846,600
which is "more or less equivalent to 24 monthly installments under the
Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May contract to sell . . . wherein the monthly amortization is P34,983,"13 he could
1, 1998, notifying him that it was, within 30 days after his receipt thereof, no longer demand the delivery of the property, its title having already been
exercising its right to cancel the Contract to Sell. Pacifico received the notice transferred in the name of another buyer.
on May 13, 1998.
Thus the Arbiter disposed:
In a separate move, Jestra through its Credit and Collection Manager sent
Pacifico a letter dated May 27, 1998, demanding payment of the total
WHEREFORE, premises considered, judgment is hereby rendered in favor value upon cancellation of a contract to sell) in spite of its exclusion
of the complainant and ordering respondent: from the items to be included in computing the two (2) years
installment payments as provided in RA 6552
1. To pay and/or reimburse to the complainant the total
payments made amounting to Eight Hundred Forty Six Thousand II. . . . adopting the OP’s conclusion that petitioner failed to deliver
Six Hundred Pesos (P846,600.00) with interest thereon at twelve possession of the subject property to respondent upon his full
percent (12%) per annum to be computed from the filing of the payment of the downpayment [sic] and that petitioner’s act of
complaint on 24 February 1999 until fully paid; and canceling the contract to sell was unconscionable despite being
allowed under RA 6552.
2. To pay complainant the amount of Fifty Thousand Pesos
(P50,000.00) as damages and attorney’s feesplus the costs of RA No. 6552 was enacted to protect buyers of real estate on installment
litigation.14 (Underscoring supplied) against onerous and oppressive conditions. While the seller has under the
Act the option to cancel the contract due to non-payment of installments, he
On appeal, the Board of Commissioners of the HLURB modified the decision must afford the buyer a grace period to pay them and, if at least two years
of the Arbiter by deleting the award ofP50,000 damages and ordering Jestra installments have already been paid, to refund the cash surrender value of
to pay P20,000 as attorney’s fees and P10,000 administrative fine for failure the payments. Thus Section of the Act provides:
to register the Contract to Sell in the Office of the Register of Deeds.
SECTION 3. In all transactions or contracts involving the sale or financing of
By Resolution of January 27, 2003, the HLURB Board of Commissioners real estate on installment payments, including residential condominium
denied15 Jestra’s motion for reconsideration. apartments but excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
By Order16 of December 9, 2003, the Office of the President (OP), to which amended by Republic Act Numbered Sixty-three hundred eighty-nine, where
the case was elevated, adopted "by reference the findings of facts and the buyer has paid at least two years of installments, the buyer is entitled to
conclusions of law" contained in the HLURB Board Resolution of January the following rights in case he defaults in the payment of succeeding
27, 2003. And by Order17 dated March 18, 2004, it denied Jestra’s motion for installments:
reconsideration.
(a) To pay, without additional interest, the unpaid installments due
On Jestra’s petition for review under Rule 43 of the Rules of Court, the Court within the total grace period earned by him which is hereby fixed at
of Appeals (CA), by Decision18 dated January 31, 2005, affirmed the Orders the rate of one month grace period for every one year of installment
of the OP. payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its
extensions, if any.
Its motion for reconsideration having been denied by CA Resolution19 of
March 16, 2005, Jestra (hereafter petitioner) comes before this Court on a
petition for review, faulting the appellate court for: (b) If the contract is cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on the property
equivalent to fifty per cent of the total payments made, and, after
I. . . . adopting the OP’s conclusion that penalty payments should
five years of installments, an additional five per cent every year but
be included in computing the total number of installment payments
not to exceed ninety per cent of the total payments made: Provided,
made by a buyer (in relation to the payment of a cash surrender
That the actual cancellation of the contract shall take place after While, under the above-quoted Section 3 of RA No. 6552, the down payment
thirty days from receipt by the buyer of the notice of cancellation or is included in computing the total number of installment payments made, the
the demand for rescission of the contract by a notarial act and upon proper divisor is neither P34,983 nor P39,468, but P121,666.66, the monthly
full payment of the cash surrender value to the buyer. installment on the down payment.
Down payments, deposits or options on the contract shall be included in the The P750,000 down payment was to be paid in six monthly installments. If
computation of the total number of installment payments made. the down payment of P750,000 is to be deducted from the total payment
of P846,600, the remainder is only P96,600. Since respondent was able to
As the records indicate, the total payments made by Pacifico (hereafter pay the down payment in full eleven (11) months after the last monthly
respondent) amounted to P846,600. The appellate court, in concluding that installment was due, and the sum of P76,600 representing penalty for delay
respondent paid at least two years of installments, adopted the formula used of payment is deducted from the remaining P96,600, only a balance
by the HLURB by dividing the amount of P846,600 by the monthly of P20,000 remains.
amortization of P34,983 to thus result to a quotient of 24.2 months.
As respondent failed to pay at least two years of installments, he is not,
Petitioner contests the computation, however. It claims that the amount under above-quoted Section 3 of RA No. 6552, entitled to a refund of the
of P76,600 represents penalty payment and is a separate item to answer for cash surrender value of his payments. What applies to the case instead is
its lost income as a seller due to the delay in the payment20 of the 30% down Section 4 of the same law, viz:
payment. It thus submits that the amount of P76,600 does not form part of
the purchase price and should thus be excluded in determining the total SECTION 4. In case where less than two years of installments were paid,
number of installments made. the seller shall give the buyer a grace period of not less than sixty days from
the date the installment became due.
Petitioner likewise claims that the proper divisor is not P34,983 but P39,468
since the parties agreed to restructure the amortizations owing to If the buyer fails to pay the installments due at the expiration of the grace
respondent’s inability to comply with the schedule of payments previously period, the seller may cancel the contract after thirty days from receipt by the
agreed upon in the Contract to Sell, and that if respondent’s total payments buyer of the notice of cancellation or the demand for rescission of the
less the penalty is to be divided by P39,468, the total installments paid would contract by a notarial act. (Underscoring supplied)
only cover 19.5 months, hence, it was not obliged under RA No. 6552 to pay
the cash surrender value of such total payments. In Fabrigas v. San Francisco del Monte, Inc.,21 this Court described the
cancellation of the contract under Section 4 as a two-step process. First, the
This Court finds that neither of the parties’ computations is in order. seller should extend the buyer a grace period of at least sixty (60) days from
the due date of the installment. Second, at the end of the grace period, the
The total purchase price of the property is P2,500,000. As provided in the seller shall furnish the buyer with a notice of cancellation or demand for
Reservation Application, the 30% down payment on the purchase price rescission through a notarial act, effective thirty (30) days from the buyer's
or P750,000 was to be paid in six monthly installments of P121,666.66. receipt thereof.
Under the Contract to Sell, the 70% balance of P1,750,000.00 on the
purchase price was to be paid in 10 years through monthly installments
of P34,983, which was later increased to P39,468 in accordance with the
agreement to restructure the same.
Respondent admits that under the restructured scheme, the first installment FERIA, Actg. C.J.
on the 70% balance of the purchase price was due on January 5, 1998.
While he issued checks to cover the same, the first two were dishonored due This is an appeal by certiorari from the decision of the Court of Appeals, the
to insufficiency of funds. dispositive part of which reads as follows:
While respondent was notified of the dishonor of the checks, he took no IN VIEW OF THE FOREGOING PREMISES, the petition
action thereon, hence, the 60 days grace period lapsed. Respondent made for certiorari and mandamus is hereby GRANTED and the
no further payments thereafter. Instead, he requested for suspension of Orders of respondent court dated November 21 and 27
payment and for time to dispose of the property to recover his investment. both 1980 are hereby nullified and set aside and
respondent Judge is ordered to order private respondent
Respondent admits that petitioner was justified in canceling the contract to to accept petitioner's Pacific Banking Corporation certified
sell via the notarial Notice of Cancellation which he received on May 13, manager's Check No. MC-A-000311 dated November 17,
1998. The contract was deemed cancelled22 30 days from May 13, 1998 or 1980 in the amount of P76,059.71 in full settlement of
on June 12, 1998. petitioner's obligation, or another check of equivalent kind
and value, the earlier check having become stale.
WHEREFORE, the petition is GRANTED. The assailed Decision and
Resolution dated January 31, 2005 and March 16, 2005 of the Court of On February 28, 1977, petitioner Luisa F. McLaughlin and private
Appeals are hereby REVERSED and SET ASIDE. The complaint of respondent Ramon Flores entered into a contract of conditional sale of real
respondent, Daniel Ponce Pacifico, is DISMISSED.1avvphi1.net property. Paragraph one of the deed of conditional sale fixed the total
purchase price of P140,000.00 payable as follows: a) P26,550.00 upon the
SO ORDERED. execution of the deed; and b) the balance of P113,450.00 to be paid not later
than May 31, 1977. The parties also agreed that the balance shall bear
Republic of the Philippines interest at the rate of 1% per month to commence from December 1, 1976,
SUPREME COURT until the full purchase price was paid.
Manila
On June 19, 1979, petitioner filed a complaint in the then Court of First
SECOND DIVISION Instance of Rizal (Civil Case No. 33573) for the rescission of the deed of
conditional sale due to the failure of private respondent to pay the balance
due on May 31, 1977.
G.R. No. L-57552 October 10, 1986
Paragraphs 6 and 7 of the Compromise Agreement further state: On November 14, 1980, the trial court granted the motion for writ of
execution.
That the parties are agreed that in the event the defendant
(private respondent) fails to comply with his obligations On November 17, 1980, private respondent filed a motion for
herein provided, the plaintiff (petitioner) will be entitled to reconsideration tendering at the same time a Pacific Banking Corporation
the issuance of a writ of execution rescinding the Deed of certified manager's check in the amount of P76,059.71, payable to the order
Conditional Sale of Real Property. In such eventuality, of petitioner and covering the entire obligation including the installment due
defendant (private respondent) hereby waives his right to on December 31, 1980. However, the trial court denied the motion for
appeal to (from) the Order of Rescission and the Writ of reconsideration in an order dated November 21, 1980 and issued the writ of
Execution which the Court shall render in accordance with execution on November 25, 1980.
the stipulations herein provided for.
In an order dated November 27, 1980, the trial court granted petitioner's ex-
That in the event of execution all payments made by parte motion for clarification of the order of execution rescinding the deed of
defendant (private respondent) will be forfeited in favor of conditional sale of real property.
the plaintiff (petitioner) as liquidated damages.
On November 28, 1980, private respondent filed with the Court of Appeals a
On October 15, 1980, petitioner wrote to private respondent demanding that petition for certiorari and prohibition assailing the orders dated November 21
the latter pay the balance of P69,059.71 on or before October 31, 1980. This and 27, 1980.
demand included not only the installment due on June 30, 1980 but also the
installment due on December 31, 1980. As initially stated above, the appellate court nullified and set aside the
disputed orders of the lower court. In its decision, the appellate court ruled in
On October 30, 1980, private respondent sent a letter to petitioner signifying part as follows:
his willingness and intention to pay the full balance of P69,059.71, and at the
same time demanding to see the certificate of title of the property and the tax The issue here is whether respondent court committed a
payment receipts. grave abuse of discretion in issuing the orders dated
November 21, 1980 and November 27,1980.
Private respondent states on page 14 of his brief that on November 3, 1980,
the first working day of said month, he tendered payment to petitioner but The general rule is that rescission will not be permitted for
this was refused acceptance by petitioner. However, this does not appear in a slight or casual breach of the contract, but only for such
the decision of the Court of Appeals. breaches as are substantial and fundamental as to defeat
the object of the parties in making the agreement. (Song In the New Pacific Timber & Supply Co., Inc. case, the
Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821) Supreme Court further held that the object of certifying a
check is to enable the holder thereof to use it as money,
In aforesaid case, it was held that a delay in payment for a citing the ruling in PNB vs. National City Bank of New
small quantity of molasses, for some twenty days is not York, 63 Phil. 711.
such a violation of an essential condition of the contract as
warrants rescission for non-performance. In the New Pacific Timber case, it was also ruled that the
exception in Section 63 of the Central Bank Act that the
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, clearing of a check and the subsequent crediting of the
the Song Fo ruling was reaffirmed. amount thereof to the account of the creditor is equivalent
to delivery of cash, is applicable to a payment through a
In the case at bar, McLaughlin wrote Flores on October certified check.
15, 1980 demanding that Flores pay the balance of
P69,059.71 on or before October 31, 1980. Thus it is Considering that Flores had already paid P101,550.00
undeniable that despite Flores' failure to make the under the contract to sell, excluding the monthly rentals
payment which was due on June 1980, McLaughlin paid, certainly it would be the height of inequity to have
waived whatever right she had under the compromise this amount forfeited in favor McLaughlin. Under the
agreement as incorporated in the decision of respondent questioned orders, McLaughlin would get back the
court, to demand rescission. property and still keep P101,550.00.
xxx xxx xxx Petitioner contends that the appellate court erred in not observing the
provisions of Article No. 1306 of the Civil Code of the Philippines and in
It is significant to note that on November 17, 1980, or just having arbitrarily abused its judicial discretion by disregarding the penal
seventeen (17) days after October 31, 1980, the deadline clause stipulated by the parties in the compromise agreement which was the
set by McLaughlin, Flores tendered the certified manager's basis of the decision of the lower court.
check. We hold that the Song Fo ruling is applicable
herein considering that in the latter case, there was a 20- We agree with the appellate court that it would be inequitable to cancel the
day delay in the payment of the obligation as compared to contract of conditional sale and to have the amount of P101,550.00 (P
a 17-day delay in the instant case. l48,126.97 according to private respondent in his brief) already paid by him
under said contract, excluding the monthly rentals paid, forfeited in favor of
Furthermore, as held in the recent case of New Pacific petitioner, particularly after private respondent had tendered the amount of
Timber & Supply Co., Inc. vs. Hon. Alberto Seneris, L- P76,059.71 in full payment of his obligation.
41764, December 19, 1980, it is the accepted practice in
business to consider a cashier's or manager's check as In the analogous case of De Guzman vs. Court of Appeals, this Court
cash and that upon certification of a check, it is equivalent sustained the order of the respondent judge denying the petitioners' motion
to its acceptance (Section 187, Negotiable Instrument for execution on the ground that the private respondent had substantially
Law) and the funds are thereby transferred to the credit of complied with the terms and conditions of the compromise agreement, and
the creditor (Araneta v. Tuason, 49 O.G. p. 59). directing the petitioners to immediately execute the necessary documents
transferring to the private respondent the title to the properties (July 23, 31, 1980 installment was due and payable when on October 15, 1980,
1985, 137 SCRA 730). In the case at bar, there was also substantial petitioner demanded payment of the balance of P69,059.71 on or before
compliance with the compromise agreement. October 31, 1980, petitioner could cancel the contract after thirty days from
receipt by private respondent of the notice of cancellation. Considering
Petitioner invokes the ruling of the Court in its Resolution of November 16, petitioner's motion for execution filed on November 7, 1980 as a notice of
1978 in the case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., cancellation, petitioner could cancel the contract of conditional sale after
Inc., to the effect that Republic Act 6552 (the Maceda Law) "recognizes and thirty days from receipt by private respondent of said motion. Private
reaffirms the vendor's right to cancel the contract to sell upon breach and respondent's tender of payment of the amount of P76,059.71 together with
non-payment of the stipulated installments but requires a grace period after his motion for reconsideration on November 17, 1980 was, therefore, well
at least two years of regular installment payments ... . " (86 SCRA 305, 329) within the thirty-day period grants by law..
On the other hand, private respondent also invokes said law as an The tender made by private respondent of a certified bank manager's check
expression of public policy to protect buyers of real estate on installments payable to petitioner was a valid tender of payment. The certified check
against onerous and oppressive conditions (Section 2 of Republic Act No. covered not only the balance of the purchase price in the amount of
6552). P69,059.71, but also the arrears in the rental payments from June to
December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 this point the appellate court correctly applied the ruling in the case of New
provides as follows: Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-694) to
the case at bar.
(b) Private respondent is ordered to pay petitioner, within sixty (60) days
from the finality of this decision, the rentals in arrears of P l,000.00 a month
from January 1, 1981 until full payment thereof; and