Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-46306

October 27, 1939

LEVY HERMANOS, INC., plaintiff-appellant,

vs.
LAZARO BLAS GERVACIO, defendant-appellee.
Felipe Caniblas for appellant.
Abreu, Lichaucco and Picazo for appellee.

MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the Court of First
Instance of Manila, which substantially recites the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro
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
June 15, 1937, with interest at 12 per cent per annum, to secure the
payment of the note, he mortgaged the car to the plaintiff. Defendant failed
to pay the note it its maturity. Wherefore, plaintiff foreclosed the mortgage
and the car was sold at public auction, at which plaintiff was the highest
bidder for P1,800. The present action is for the collection of the balance of
P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this admission,
the parties submitted the case for decision. The lower court applied, the
provisions of Act No. 4122, inserted as articles 1454-A of the Civil Code, and
rendered judgment in favor of the defendant. Plaintiff appealed.

Article 1454-A of the Civil Code reads as follows:

In a contract for the sale of personal property payable in
installments shall confer upon the vendor the right to cancel the
sale or foreclose the mortgage if one has been given on the
property, without reimbursement to the purchaser of the
installments already paid, if there be an agreement to this effect.
However, if the vendor has chosen to foreclose the mortgage he
shall have no further action against the purchaser for the recovery
of any unpaid balance owing by the same and any agreement to
the contrary shall be null and void.
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
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
the time specified in the promissory note. The transaction is not is not,
therefore, the one contemplated in Act No. 4122 and accordingly the
mortgagee is not bound by the prohibition therein contained as to the right to
the recovery of the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is payable in
several installments, for, generally, it is in these cases that partial payments
consist in relatively small amounts, constituting thus a great temptation for
improvident purchasers to buy beyond their means. There is no such
temptation where the price is to be paid in cash, or, as in the instant case,
partly in cash and partly in one term, for, in the latter case, the partial
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
is no difference between paying the price in tow installments, in so far as the
size of each partial payment is concerned; but in actual practice the
difference exists, for, according to the regular course of business, in
contracts providing for payment of the price in two installments, there is
generally a provision for initial payment. But all these considerations are

immaterial, the language of the law being so clear as to require no

construction at all.lwphi1.nt
The suggestion that the cash payment made in this case should be
considered as an installment in order to bring the contract sued upon under
the operation of the law, is completely untenable. A cash payment cannot be
considered as a payment by installment, and even if it can be so considered,
still the law does not apply, for it requires non-payment of two or more
installments in order that its provisions may be invoked. Here, only one
installment was unpaid.
Judgment is reversed, and the defendant-appellee is hereby sentenced to
pay plaintiff-appellant the sum of P1,600 with interest at the rate of 12 per
cent per annum from June 15, 1937, and the sum of P52.08 with interest at
the rate of 6 per cent from the date of the filing of the complaint, with costs in
both instances against the appellee.
Avancea, C.J., Villa-Real, Imperial, Diaz and Concepcion, JJ., concur.

SECOND DIVISION
[G.R. No. 61043. September 2, 1992.]
DELTA MOTOR SALES CORPORATION, Plaintiff-Appellee, v.
NIU KIM DUAN and CHAN FUE ENG,Defendants-Appellants.
Francisco C. Bonoan for Plaintiff-Appellee.
Agapito M. Joaquin, for Defendants-Appellants.

SYLLABUS

1. CIVIL LAW; SALES; TREATMENT OF THE INSTALLMENT

PAYMENTS AS RENTALS; STIPULATION IN A CONTRACT THAT THE
INSTALLMENTS PAID SHALL NOT BE RETURNED TO THE VENDEE
HELD VALID PROVIDED IT IS NOT UNCONSCIONABLE.
Defendants-appellants cannot complain that their downpayment of
P774.00 and installment payments of P5,655.92 were treated as
rentals even though the total amount of P6,429,92 which they
had paid, approximates one-third (1/3) of the cost of the three (3)
air-conditioners. A stipulation in a contract that the installments
paid shall not be returned to the vendee is valid insofar as the
same may not be unconscionable under the circumstances is
sanctioned by Article 1486 of the New Civil Code. The monthly
installment payable by defendants-appellants was P774.00. The
P5,655.92 installment payments correspond only to seven (7)
monthly installments. Since they admit having used the airconditioners for twenty-two (22) months, this means that they did
not pay fifteen (15) monthly installments on the said airconditioners and were thus using the same FREE for said period
to the prejudice of plaintiff-appellee. Under the circumstances, the
treatment of the installment payments as rentals cannot be said to
be unconscionable.
2. REMEDIES OF THE VENDOR IN A SALE OF PERSONAL PROPERTY
PAYABLE IN INSTALLMENTS; REMEDIES ARE ALTERNATIVE AND
NOT CUMULATIVE. The vendor in a sale of personal property
payable in installments may exercise one of three remedies,
namely, (1) exact the fulfillment of the obligation, should the
vendee fail to pay; (2) cancel the sale upon the vendees failure to
pay two or more installments; (3) foreclose the chattel mortgage,
if one has been constituted on the property sold, upon the
vendees failure to pay two or more installments. The third option
or remedy, however, is subject to the limitation that the vendor
cannot recover any unpaid balance of the price and any agreement
to the contrary is void (Art. 1484) The three (3) remedies are
alternative and NOT cumulative. If the creditor chooses one
remedy, he cannot avail himself of the other two.

DECISION

NOCON, J.:

Elevated to this Court by the Court of Appeals, in its Resolution of

May 20, 1982, on a pure question of law, 1 is the appeal therein by
defendants-appellants, Niu Kim Duan and Chan Fue Eng assailing
the trial courts decision promulgated on October 11, 1977, 2
which ordered them to pay plaintiff-appellee, Delta Motor Sales
Corporation, the amount of P6,188.29 with a 14% per annum
interest which was due on the three (3) "Daikin" air-conditioners
defendants-appellants purchased from plaintiff-appellee under a
Deed of Conditional Sale, after the same was declared rescinded
by the trial court. They were likewise ordered to pay plaintiffappellee P1,000.00 for and as attorneys fees.chanrobles virtual
lawlibrary
The events which led to the filing of the case in the lower court
were summarized by the Court of Appeals, as
follows:jgc:chanrobles.com.ph
"On July 5, 1975, the defendants purchased from the plaintiff
three (3) units of DAIKIN air-conditioner all valued at P19,350.00
as evidenced by the Deed of Conditional Sale, Exhibit A; that the
aforesaid deed of sale had the following terms and
conditions:chanrob1es virtual 1aw library
(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)
installments; (b) the title to the properties purchased shall remain
with the plaintiff until the purchase price thereof is fully paid; (c) if
any two installments are not paid by the defendants on their due
dates, the whole of the principal sum remaining unpaid shall
become due, with interest at the rate of 14% per annum: and (d)
in case of a suit, the defendants shall pay an amount equivalent to
25% of the remaining unpaid obligation as damages, penalty and
attorneys fees; that to secure the payment of the balance of
P18,576.00 the defendants jointly and severally executed in favor
of the plaintiff a promissory note, Exhibit C; that the three (3) airconditioners were delivered to and received by the defendants as
shown by the delivery receipt, Exhibit B; that after paying the
amount of P6,966.00, the defendants failed to pay at least two (2)
monthly installments; that as of January 6, 1977, the remaining
unpaid obligation of the defendants amounted to P12,920.08; that

statements of accounts were sent to the defendants and the

plaintiffs collectors personally went to the former to effect
collections but they failed to do so; that because of the unjustified
refusal of the defendants to pay their outstanding account and
their wrongful detention of the properties in question, the plaintiff
tried to recover the said properties extra-judicially but it failed to
do so; that the matter was later referred by the plaintiff to its legal
counsel for legal action; that in its verified complaint dated
January 28, 1977, the plaintiff prayed for the issuance of a writ of
replevin, which the Court granted in its Order dated February 28,
1977, after the plaintiff posted the requisite bond; that on April 11,
1977, the plaintiff, by virtue of the aforesaid writ, succeeded in
retrieving the properties in question: that as of October 3, 1977,
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 interests in arrears, cover charges, replevin bond premiums,
the value of the units repossessed and the like; and, that in view
of the failure of the defendants to pay their obligations, the
amount of P6,966.00 which had been paid by way of installments
were treated as rentals for the units in question for two (2) years
pursuant to the provisions of paragraph 5 of the Deed of
Conditional Sale, Exhibit A. (pp. 5-7, Record; pp. 4-6, Appellants
Brief)." chanrobles law library
As above-stated, the trial court ruled in favor of Plaintiff-Appellee.
Defendants-appellants assail the Deed of Conditional Sale under
which they purchased the three (3) Daikin air-conditioners from
plaintiff-appellee as being contrary to law, morals, good custom,
public order or public policy. In particular, they point to the
contracts paragraphs 5 and 7 as iniquitous, which paragraphs
state that:jgc:chanrobles.com.ph
"5. Should BUYER fail to pay any of the monthly installments when
due, or otherwise fail to comply with any of the terms and
conditions herein stipulated, this contract shall automatically
become null and void and all sums so paid by BUYER by reason
thereof shall be considered as rental and the SELLER shall then
and there be free to take possession thereof without liability for
trespass or responsibility for any article left in or attached to the
PROPERTY:chanrob1es virtual 1aw library

"7. Should SELLER rescind this contract for any of the reasons
stipulated in the preceding paragraph, the BUYER, by these
presents obligates himself to peacefully deliver the PROPERTY to
the SELLER in case of rescission, and should a suit be brought in
court by the SELLER to seek judicial declaration of rescission and
take possession of the PROPERTY, the BUYER hereby obligates
himself to pay all the expenses to be incurred by reason of such
suit and in addition to pay the sum equivalent to 25% of the
remaining unpaid obligation as damages, penalty and attorneys
fees;" 3
Defendants-appellants claim that for the use of the plaintiffappellees three air-conditioners, from July 5, 1975 4 to April 11,
1977, 5 or for a period of about 22 months, they, in effect, paid
rentals in the amount of P6,429,92, 6 or roughly one-third (1/3) of
the entire price of said air-conditioners which was P19,350.00.
They also complain that for the said period the trial court is
ordering them to pay P6,188.29 as the balance due for the three
air-conditioners repossessed. Defendants-appellants were likewise
ordered to pay P1,000.00 as attorneys fees when plaintiff-appellee
never sought for attorneys fees in its complaint. They satirically
pointed out that by putting "a few touches here and there, the
same units can be sold again to the next imprudent customer" 7
by plaintiff-appellee. Thus, enforcement of the Deed of Conditional
Sale will unjustly enrich plaintiff-appellee at the expense of
defendants-appellants.chanrobles law library : red
I
Defendants-appellants cannot complain that their downpayment of
P774.00 and installment payments of P5,655.92 8 were treated as
rentals even though the total amount of P6,429,92 which they
had paid, approximates one-third (1/3) of the cost of the three (3)
air-conditioners. A stipulation in a contract that the installments
paid shall not be returned to the vendee is valid insofar as the
same may not be unconscionable under the circumstances is
sanctioned by Article 1486 of the New Civil Code. 9 The monthly
installment payable by defendants-appellants was P774.00. 10 The

P5,655.92 installment payments correspond only to seven (7)

monthly installments. Since they admit having used the airconditioners for twenty-two (22) months, this means that they did
not pay fifteen (15) monthly installments on the said airconditioners and were thus using the same FREE for said period
to the prejudice of plaintiff-appellee. Under the circumstances, the
treatment of the installment payments as rentals cannot be said to
be unconscionable.
II
The vendor in a sale of personal property payable in installments
may exercise one of three remedies, namely, (1) exact the
fulfillment of the obligation, should the vendee fail to pay; (2)
cancel the sale upon the vendees failure to pay two or more
installments; (3) foreclose the chattel mortgage, if one has been
constituted on the property sold, upon the vendees failure to pay
two or more installments. The third option or remedy, however, is
subject to the limitation that the vendor cannot recover any unpaid
balance of the price and any agreement to the contrary is void
(Art. 1484) 11
The three (3) remedies are alternative and NOT cumulative. If the
creditor chooses one remedy, he cannot avail himself of the other
two.chanrobles lawlibrary : rednad
It is not disputed that the plaintiff-appellee had taken possession
of the three air-conditioners, through a writ of replevin when
defendants-appellants refused to extra-judicially surrender the
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,
1977, the total amount they owed plaintiff-appellee, inclusive of
interest, was P12,920.08. 12 The case plaintiff-appellee filed was
to seek a judicial declaration that it had validly rescinded the Deed
of Conditional Sale. 13
Clearly, plaintiff-appellee chose the second remedy of Article 1484
in seeking enforcement of its contract with defendants-appellants.
This is shown from the fact that its Exhibit "F" which showed the
computation of the outstanding account of defendants-appellants

as of October 3, 1977 took into account "the value of the units

repossessed." 14 Having done so, it is barred from exacting
payment from defendants-appellants of the balance of the price of
the three air-conditioning units which it had already repossessed.
It cannot have its cake and eat it too. 15
WHEREFORE, the judgment of the trial court in Civil Case No.
25578 is hereby SET ASIDE and the complaint filed by plaintiffappellee Delta Motor Sales Corporation is hereby DISMISSED. No
costs.

1953 December 10, 1955. The note stipulated that if default be made in the
payment of interest or of any installment, then the total principal sum still
unpaid with interest shall at once become demandable etc. The spouse
failed to meet any installment. Wherefore, they were sued, in the above Civil
Case No. 2942, for the amount of the promissory note.1 The spouses
defaulted, and the court, after listening to the Southern Motors' evidence
entered Judgment for it in the total sum of P24,755.75 together with interest
at 12 per cent, plus 10 per cent of the total amount due as attorney's fees
and costs of collection.

SO ORDERED
Republic of the Philippines
SUPREME COURT
Manila

Carrying out the order of execution, the sheriff levied on the same
machineries and farm implements which had been bought by the spouses;
and later sold them at public auction to the highest bidder which turned
out to be the Southern Motors itself for the total sum of P10,000.
EN BANC

G.R. No. L-10789

May 28, 1957

AMADOR TAJANLANGIT, ET AL., plaintiff-appellants,

vs.
SOUTHERN MOTORS, INC., ET AL., defendants-appellees.
Almacen and Almacen for appellants.
Diosdado Garingalao for appellees.
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon. Pantaleon Pelayo,
Judge of the Iloilo court of first instance refusing to interfere with
the alias writ of execution issued in Civil Case No. 2942 pending in another
sala of the same court.
The facts. In April 1953 Amador Tajanlangit and his wife Angeles, residents
of Iloilo, bought, from the Southern Motors Inc. of Iloilo two tractors and a
thresher. In payment for the same, they executed the promissory note Annex
A whereby they undertook to satisfy the total purchase price of P24,755.75
in several installments (with interest) payable on stated dates from May 18,

As its judgment called for much more, the Southern Motors subsequently
asked and obtained, an alias writ of execution; and pursuant thereto, the
provincial sheriff levied attachment on the Tajanlangits' rights and interests in
certain real properties with a view to another sale on execution.
To prevent such sale, the Tajanlangits instituted this action in the Iloilo court
of first instance for the purpose among others, of annulling the alias writ of
execution and all proceedings subsequent thereto. Their two main theories:
(1) They had returned the machineries and farm implements to the Southern
Motors Inc., the latter accepted them, and had thereby settled their
accounts; for that reason, said spouses did not contest the action in Civil
Case No. 2942; and (2) as the Southern Motors Inc. had repossessed the
machines purchased on installment (and mortgaged) the buyers were
thereby relieved from further responsibility, in view of the Recto Law, now
article 1484 of the New Civil Code.
For answer, the company denied the alleged "settlement and understanding"
during the pendency of civil case No. 2949. It also denied having
repossessed the machineries, the truth being that they were attached by the
sheriff and then deposited by the latter in its shop for safekeeping, before the
sale at public auction.

The case was submitted for decision mostly upon a stipulation of facts.
Additional testimony was offered together with documentary evidence.
Everything considered the court entered judgment, saying in part;
The proceedings in Civil Case No. 2942 above referred to, were
had in the Court of First Instance (Branch 1) of the Province and of
the City of Iloilo. While this court (Branch IV) sympathizes with
plaintiffs, it cannot grant, in this action, the relief prayed for the
complaint because courts of similar jurisdiction cannot invalidate
the judgments and orders of each other. Plaintiffs have not pursued
the proper remedy. This court is without authority and jurisdiction to
declare null and void the order directing the issuance of alias writ of
execution because it was made by another court of equal rank and
category (see Cabiao and Izquierdo vs. Del Rosario and Lim, 44
Phil., 82-186).
WHEREFORE, judgement is hereby rendered dismissing the
complaint with costs against plaintiffs costs against plaintiffs. Let
the writ of preliminiary injunction issued on August 26, 1954, be
lifted.
The plaintiffs reasonably brought the matter to the Court of Appeals, but the
latter forwarded the expediente, being of the opinion that the appeal involved
questions of jurisdiction and/or law
Discussion. Appellants' brief elaborately explains in the nine errors assigned,
their original two theories although their "settlement" idea appears to be
somewhat modified.
"What is being sought in this present action" say appellants "is to prohibit
and forbid the appellee Sheriff of Iloilo from attaching and selling at public
auction sale the real properties of appellants because that is now forbidden
by our law after the chattels that have been purchased and duly mortgagee
had already been repossessed by the same vendor-mortgagee and later on
sold at public auction sale and purchased by the same at such meager sum
of P10,000."
"Our law" provides,

ART. 1484. In a contract of sale of personal property the price of

which is payable in installments, the vendor may exercise of the
following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void. (New Civil Code.)
Appellants would invoke the last paragraph. But there has been no
foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the
prohibition against further collection does not apply.
At any rate it is the actual sale of the mortgaged chattel in
accordance with section 14 Act No. 1508 that would bar the creditor
(who chooses to foreclose) from recovering any unpaid balance.
(Pacific Com. Co. vs.De la Rama, 72 Phil. 380.) (Manila Motor
Co. vs. Fernandez, 99 Phil., 782.).
It is true that there was a chattel mortgage on the goods sold. But the
Southern Motors elected to sue on the note exclusively, i.e. to exact
fulfillment of the obligation to pay. It had a right to select among the three
remedies established in Article 1484. In choosing to sue on the note, it was
not thereby limited to the proceeds of the sale, on execution, of the
mortgaged good.2
In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation
arose in connection with the purchase on installment of a Chevrolet truck by
Magbanua. Upon the latter's default, suit on the note was filed, and the truck
levied on together with other properties of the debtor. Contending that the
seller was limited to the truck, the debtor obtained a discharge of the other
properties. This court said:

By praying that the defendant be ordered to pay the sum of P4,690

together with the stipulated interest at 12% per annum from 17
March 1954 until fully paid, plus 10 per cent of the total amount due
as attorney's fees and cost of collection, the plaintiff acted to exact
the fulfillment of the obligation and not to foreclose the mortgage on
the truck. . . .

There are other points involved in the case, such as the authority of the
judge of one branch of a court of first instance to enjoin proceedings in
another branch of the same court. As stated, Judge Pelayo refused to
interfere on that ground. Appellants insist this was error on several counts.
We deem it unnecessary to deal with this procedural aspect, inasmuch as
we find that, on the merits, plaintiffs are not entitled to the relief demanded.

As the plaintiff has chosen to exact the fulfillment of the defendant's

obligation, the former may enforce execution of the judgement
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.)

Judgment. The decision dismissing the complaint, is affirmed, with costs

against appellants. So ordered.

Concerning their second theory, settlement or cancellation appellants

allege that the very implements sold "were duly returned" by them, and
"were duly received and accepted by the said vendor-mortgagee". Therefore
they argue, "upon the return of the same chattels and due acceptance of the
same by the vendor-mortgagee, the conditional sale is ipso facto cancelled,
with the right of the vendor-mortgagee to appropriate whatever
downpayment and posterior monthly installments made by the purchaser as
it did happen in the present case at bar."
The trouble with the argument is that it assumes that acceptance of the
goods by the Southern Motors Co, with a view to "cancellation" of the sale.
The company denies such acceptance and cancellation, asserting the
goods, were deposited in its shop when the sheriff attached them in
pursuance of the execution. Its assertion is backed up by the sheriff, of
whose credibility there is no reason to doubt. Anyway this cancellation or
settlement theory may not be heeded now, because it would contravene the
decision in Civil Case No. 2942 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.
The pertinent facts are summarized by the respondent appellate court as
follows:

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-67181 November 22, 1985

On June 28, 1976, defendant spouses Restituto Nonato

and Ester Nonato purchased one (1) unit of Volkswagen
Sakbayan from the People's Car, Inc., on installment
basis. To secure complete payment, the defendants
executed a promissory note (Exh. A or 1) and a chattel
mortgage in favor of People's Car, Inc, (Exh. B or 2).
People's Car, Inc., assigned its rights and interests over
the note and mortgage in favor of plaintiff Investor's
Finance Corporation (FNCB) Finance). For failure of
defendants to pay two or more installments, despite
demands, the car was repossessed by plaintiff on March
20, 1978 (Exh. E or 4).
Despite repossession, plaintiff demanded from defendants
that they pay the balance of the price of the car (Exhs. F
and C). Finally, on June 9, 1978, plaintiff filed before the
Court of First Instance of Negros Occidental the present
complaint against defendants for the latter to pay the
balance of the price of the car, with damages and
attorney's fees. (Records, pp. 36-37)

In their answer, the spouses Nonato alleged by way of defense that when
the company repossessed the vehicle, it had, by that act, effectively
cancelled the sale of the vehicle. It is therefore barred from exacting
recovery of the unpaid balance of the purchase price, as mandated by the
provisions of Article 1484 of the Civil Code.
After due hearing, the trial court rendered a decision in favor of the IFC and
against the Nonatos, as follows:
PREMISES CONSIDERED, the Court hereby renders
judgment ordering the defendant to pay to the plaintiff the
amount of P 17,537.60 with interest at the rate of 14% per
annum from July 28, 1976 until fully paid, 10% of the
amount due as attorney's fees, litigation expenses in the
amount of P 133.05 plus the costs of this suit. No
pronouncement as to other charges and damages, the
same not having been proven to the satisfaction of the
Court. 1
On appeal, the respondent appellate court affirmed the j judgment.
Hence, this petition for review on certiorari.
The applicable law in the case at bar, involving as it does a sale of personal
property on installment, is Article 1484 of the Civil Code which provides:
In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of
the following remedies:
(1) Exact fulfillment of the obligation, should the vendee
fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one

has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary
shall be void.
The meaning of the aforequoted provision has been repeatedly enunciated
in a long line of cases. Thus: "Should the vendee or purchaser of a personal
property default in the payment of two or more of the agreed installments,
the vendor or seller has the option to avail of any of these three remedieseither to exact fulfillment by the purchaser of the obligation, or to cancel the
sale, or to foreclose the mortgage on the purchased personal property, if one
was constituted. These remedies have been recognized as alternative, not
cumulative, that the exercise of one would bar the exercise of the others. 2
It is not disputed that the respondent company had taken possession of the
car purchased by the Nonatos on installments. But while the Nonatos
maintain that the company had, by that act, exercised its option to cancel the
contract of sale, the company contends that the repossession of the vehicle
was only for the purpose of appraising its value and for storage and
safekeeping pending full payment by the Nonatos of the purchasing price.
The company thus denies having exercised its right to cancel the sale of the
repossessed car. The records show otherwise.
The receipt issued by the respondent company to the Nonatos when it took
possession of the vehicle states that the vehicle could be redeemed within
fifteen [151 days. 3 This could only mean that should petitioners fail to
redeem the car within the aforesaid period by paying the balance of the
purchase price, the company would retain permanent possession of the
vehicle, as it did in fact. This was confirmed by Mr. Ernesto Carmona, the
company's witness, who testified, to wit:
ATTY. PAMPLONA:
So that Mr. Witness, it is clear now that,
per your receipt and your answer, the
company will not return the unit without

paying a sum of money, more

particularly the balance of the account?
WITNESS: Yes, sir. 4
Respondent corporation further asserts that it repossessed the vehicle
merely for the purpose of appraising its current value. The allegation is
untenable, for even after it had notified the Nonatos that the value of the car
was not sufficient to cover the balance of the purchase price, there was no
attempt at all on the part of the company to return the repossessed car,
Indeed, the acts performed by the corporation are wholly consistent with the
conclusion that it had opted to cancel the contract of sale of the vehicle. It is
thus barred from exacting payment from petitioners of the balance of the
price of the vehicle which it had already repossessed. It cannot have its cake
and eat it too.
WHEREFORE, the judgment of the appellate court in CA-G.R. No. 69276-R
is hereby set aside and the complaint filed by respondent Investors Finance
Corporation against petitioner in Civil Case No. 13852 should be, as it is
hereby, dismissed. No costs.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39806 January 27, 1983
LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D.
SEBASTIAN and JOSE SAN AGUSTIN, in his capacity as
Sheriff, defendants-appellants.
Osmundo Victoriano for plaintiffs-appellees.
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.
The materials facts of the case appearing on record may be stated as
follows: On April 14, 1964, plaintiffs purchased from the Supreme Sales arid
Development Corporation two (2) brand new Ford Consul Sedans complete

with accessories, for P26,887 payable in 24 monthly installments. To secure

payment thereof, plaintiffs executed on the same date a promissory note
covering the purchase price and a deed of chattel mortgage not only on the
two vehicles purchased but also on another car (Chevrolet) and plaintiffs'
franchise or certificate of public convenience granted by the defunct Public
Service Commission for the operation of a taxi fleet. Then, with the
conformity of the plaintiffs, the vendor assigned its rights, title and interest to
the above-mentioned promissory note and chattel mortgage to defendant
Filipinas Investment and Finance Corporation.
Due to the failure of the plaintiffs to pay their monthly installments as per
promissory note, the defendant corporation foreclosed the chattel mortgage
extra-judicially, and at the public auction sale of the two Ford Consul cars, of
which the plaintiffs were not notified, the defendant corporation was the
highest bidder and purchaser. Another auction sale was held on November
16, 1965, involving the remaining properties subject of the deed of chattel
mortgage since plaintiffs' obligation was not fully satisfied by the sale of the
aforesaid vehicles, and at the public auction sale, the franchise of plaintiffs to
operate five units of taxicab service was sold for P8,000 to the highest
bidder, herein defendant corporation, which subsequently sold and conveyed
the same to herein defendant Jose D. Sebastian, who then filed with the
Public Service Commission an application for approval of said sale in his
favor.
On February 21, 1966, plaintiffs filed an action for annulment of contract
before the Court of First Instance of Rizal, Branch I, with Filipinas Investment
and Finance Corporation, Jose D. Sebastian and Sheriff Jose San Agustin,
as party-defendants. By agreement of the parties, the case was submitted
for decision in the lower court on the basis of the documentary evidence
adduced by the parties during the pre-trial conference. Thereafter, the lower
court rendered judgment as follows:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court
declares the chattel mortgage, Exhibit "C", to be null and
void in so far as the taxicab franchise and the used
Chevrolet car of plaintiffs are concerned, and the sale at
public auction conducted by the City Sheriff of Manila
concerning said taxicab franchise, to be of no legal

effect.1wph1.t The certificate of sale issued by the

City Sheriff of Manila in favor of Filipinas Investment and
Finance Corporation concerning plaintiffs' taxicab
franchise for P8,000 is accordingly cancelled and set
aside, and the assignment thereof made by Filipinas
Investment in favor of defendant Jose Sebastian is
declared void and of no legal effect. (Record on Appeal, p.
128).
From the foregoing judgment, defendants appealed to the Court of Appeals
which, as earlier stated, certified the appeal to this Court, appellants
imputing to the lower court five alleged errors, as follows:
I
THE LOWER COURT ERRED IN DECLARING THE
CHATTEL MORTGAGE, EXHIBIT "C", NULL AND VOID.
II
THE LOWER COURT ERRED IN HOLDING THAT THE
SALE AT PUBLIC AUCTION CONDUCTED BY THE CITY
SHERIFF OF MANILA CONCERNING THE TAXICAB
FRANCHISE IS OF NO LEGAL EFFECT.
III
THE LOWER COURT ERRED IN SETTING ASIDE THE
CERTIFICATE OF SALE ISSUED BY THE CITY SHERIFF
OF MANILA IN FAVOR OF FILIPINAS INVESTMENT AND
FINANCE CORPORATION COVERING PLAINTIFFS'
TAXICAB FRANCHISE.
IV
THE LOWER COURT ERRED IN DECLARING VOID AND
OF NO LEGAL EFFECT THE ASSIGNMENT OF THE

TAXICAB FRANCHISE MADE BY FILIPINAS

INVESTMENT AND FINANCE CORPORATION IN FAVOR
OF DEFENDANT.
V
THE LOWER COURT (sic) IN NOT DECIDING THE CASE
IN FAVOR OF THE DEFENDANTS. Appellants' Brief, pp.
9 & 10)
From the aforequoted assignment of errors, the decisive issue for
consideration is the validity of the chattel mortgage in so far as the franchise
and the subsequent sale thereof are concerned.
The resolution of said issue is unquestionably governed by the provisions of
Article 1484 of the Civil Code which states:
Art. 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise y of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee
fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one
has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have
no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary
shall be void.
Under the above-quoted article of the Civil Code, the vendor of personal
property the purchase price of which is payable in installments, has the right,
should the vendee default in the payment of two or more of the agreed

installments, to exact fulfillment by the purchaser of the obligation, or to

cancel the sale, or to foreclose the mortgage on the purchased personal
property, if one was constituted. 1 Whichever right the vendor elects, he
cannot avail of the other, these remedies being alternative, not
cumulative. 2 Furthermore, if the vendor avails himself of the right to
foreclose his mortgage, the law prohibits him from further bringing an action
against the vendee for the purpose of recovering whatever balance of the
debt secured not satisfied by the foreclosure sale. 3 The precise purpose of
the law is to prevent mortgagees from seizing the mortgaged property,
buying it at foreclosure sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would
find himself without the property and still owing practically the full amount of
his original indebtedness. 4
In the instant case, defendant corporation elected to foreclose its mortgage
upon default by the plaintiffs in the payment of the agreed installments.
Having chosen to foreclose the chattel mortgage, and bought the purchased
vehicles at the public auction as the highest bidder, it submitted itself to the
consequences of the law as specifically mentioned, by which it is deemed to
have renounced any and all rights which it might otherwise have under the
promissory note and the chattel mortgage as well as the payment of the
unpaid balance.
Consequently, the lower court rightly declared the nullity of the chattel
mortgage in question in so far as the taxicab franchise and the used
Chevrolet car of plaintiffs are concerned, under the authority of the ruling in
the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71 Phil.
587, the facts of which are similar to those in the case at bar. There, we
have the same situation wherein the vendees offered as security for the
payment of the purchase price not only the motor vehicles which were
bought on installment, but also a residential lot and a house of strong
materials. This Court sustained the pronouncement made by the lower court
on the nullity of the mortgage in so far as it included the house and lot of the
vendees, holding that under the law, should the vendor choose to foreclose
the mortgage, he has to content himself with the proceeds of the sale at the
public auction of the chattels which were sold on installment and mortgaged
to him and having chosen the remedy of foreclosure, he cannot nor should
he be allowed to insist on the sale of the house and lot of the vendees, for to
do so would be equivalent to obtaining a writ of execution against them

concerning other properties which are separate and distinct from those
which were sold on installment. This would indeed be contrary to public
policy and the very spirit and purpose of the law, limiting the vendor's right to
foreclose the chattel mortgage only on the thing sold.

The foregoing disposition renders superfluous a determination of the other

issue raised by the parties as to the validity of the auction sale, in so far as
the franchise of plaintiffs is concerned, which sale had been admittedly held
without any notice to the plaintiffs.

In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 SCRA

791, this Court ruled that the vendor of personal property sold on the
installment basis is precluded, after foreclosing the chattel mortgage on the
thing sold from having a recourse against the additional security put up by a
third party to guarantee the 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 debtorvendee, 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.

IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with

costs against the appellants.

Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168,

that in sales on installments, where the action instituted is for and the
mortgaged property is subsequently attached and sold, the sales thereof
does not amount to a foreclosure of the mortgage, hence, the seller creditor
is entitled to a deficiency judgment, does not for the stand of the appellants
for that case is entirely different from the case at bar. In that case, the
vendor has availed of the first remedy provided by Article 1484 of the Civil
Code, i.e., to exact fulfillment of the obligation whereas in the present case,
the remedy availed of was foreclosure of the chattel mortgage.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30583 October 23, 1982
EUTROPIO ZAYAS, JR., petitioner,
vs.

LUNETA MOTOR COMPANY and HONORABLE JUAN O. REYES,

Presiding Judge of the Court of First Instance of Manila, Branch
XXI, respondents.

Payable on
Delivery

P1,006.82

Payable in 24
months at 12%
interest per annum

P7,920.00

Pantaleon Z. Salcedo for petitioner.

Leandro B. Fernandez for respondents.

GUTIERREZ, JR., J.:

Eutropio Zayas, Jr., filed this petition for review by certiorari to secure a
reversal of the respondent court's orders which remanded Civil Case No.
74381 for further proceedings instead of affirming the city court's order of
dismissal,
The petitioner Eutropio Zayas, Jr, purchased on installment basis a motor
vehicle described as ONE (1) UNIT FORD THAMES FREIGHTER W/PUJ
BODY with Engine No. 400E-127738 and Chassis No. 400E-127738 from
Mr. Roque Escao of the Escao Enterprises in Cagayan de Oro City, dealer
of respondent Luneta Motor Company, under the following terms and
conditions:

Selling price

P7,500.00

Financing charge

P1,426.82

Total Selling Price

P8,926.82

The motor vehicle was delivered to the petitioner who 1) paid the initial
payment in the amount of P1,006.82; and 2) executed a promissory note in
the amount of P7,920.00, the balance of the total selling price, in favor of
respondent Luneta Motor Company. The promissory note stated the
amounts and dates of payment of twenty-six installments covering the
P7,920.00 debt. Simultaneously with the execution of the promissory note
and to secure its payment, the petitioner executed a chattel mortgage on the
subject motor vehicle in favor of the respondent. After paying a total amount
of P3,148.00, the petitioner was unable to pay further monthly installments
prompting the respondent Luneta Motor Company to extra-judicially
foreclose the chattel mortgage (Annex "A" to Answer, Original Record, p.
10,supra). The motor vehicle was sold at public auction with the respondent
Luneta Motor Company represented by Atty. Leandro B. Fernandez as the
highest bidder in the amount of P5,000.00 (Annex "B" to Answer, Original
Record, p. 11,supra). Since the payments made by petitioner Eutropio
Zayas, Jr. plus the P5,000.00 realized from the foreclosure of the chattel
mortgage could not cover the total amount of the promissory note executed
by the petitioner in favor of the respondent Luneta Motor Company, the latter
filed Civil Case No. 165263 with the City Court of Manila for the recovery of
the balance of P1,551.74 plus interests.
Luneta Motor Company alleged in its complaint that defendant Eutropio
Zayas, Jr. executed a promissory note in the amount of P7,920.00 in its
favor; that out of the P7,920.00, Eutropio Zayas, Jr. had paid only P6,368.26
plus interest up to the date of the sale at public auction of the motor vehicle;
that the balance of P1,551.74 plus interest of 12% thereon from that date
had already become due and payable but despite repeated demands to pay
the same, Eutropio Zayas, Jr., refused and failed to pay.

In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr.
admitted having executed the promissory note for the monthly payments, on
a Ford Thames vehicle bearing Engine No. 400E-127738 which he
purchased from the Luneta Motor Company but he denied his alleged
outstanding liability of P1,551.74 plus interest thereon ... the said obligation if
there was any, had already been discharged either by payment or by sale in
public auction of the said motor vehicle as evidenced by a Notice of Sale
marked as Annex "A" and Certificate of Sale marked as Annex "B"; (Answer,
p. 7, Original Record). He alleged as affirmative defenses, among others: 1)
that the plaintiff has no cause of action against him; and 2) that pursuant to
Article 1484 of the New Civil Code and the case ofPacific Commercial Co. v.
De La Rama, (72 Phil. 380) his obligation per the promissory note was
extinguished by the sale at public auction of the motor vehicle, the subject of
the chattel mortgage which was executed by him in favor of the plaintiff as
security for the payment of said promissory note. (Answer, p. 8, Original
Record)
In its Reply, Luneta Motor Company denied the applicability of Article 1484
of the Civil Code ... for the simple reason that the contract involved between
the parties is not one for a sale on installment" (Reply, p. 13, Original
Record).

Let this case be dismissed without pronouncement as to

costs.
Luneta Motor Company filed an "Urgent Motion for Reconsideration"
reiterating its stand that Article 1484 of the New Civil Code on sale of
personal property by installment was not applicable and that the contract
involving the parties was a mere case of an ordinary loan secured by chattel
mortgage. According to the plaintiff, the defendant executed the promissory
note and chattel mortgage to secure the plaintiff's interest for having
financed the purchase of the motor vehicle by the defendant from the
Escao Enterprises of Cagayan de Oro City, an entity entirely different and
distinct from the plaintiff corporation (p. 33, Original Record).
The court denied the motion for reconsideration for lack of merit.
Luneta Motor Company appealed the case to the Court of First Instance of
Manila where it was docketed as Civil Case No. 74381.
After various incidents, the respondent court issued an order which, in part,
reads:

After several postponements, the case was set for hearing. As a result of the
non- appearance of the plaintiff and its counsel on the date set for hearing,
defendant Zayas, Jr. moved to have the case dismissed for lack of interest
on the part of the plaintiff. He also asked the court to allow him to discuss
the merits of his affirmative defense as if a motion to dismiss had been filed.
The issue raised and argued by the defendant was whether or not a
deficiency amount after the motor vehicle, subject of the chattel mortgage,
has been sold at public auction could still be recovered. Zayas cited the case
of Ruperto Cruz v. Filipinas Investment (23 SCRA 791).<re||an1w>

This is an appeal taken by plaintiff from the order of the

City Court of Manila, dismissing its complaint on the
ground that the defendant is no longer liable for the
deficiency judgment inasmuch as the chattel mortgage
has been foreclosed, with the plaintiff as the highest
bidder thereof, in line with the ruling of the Supreme Court
in the case of Ruperto G. Cruz v. Filipinas
Investment (G.R. No. L24772) in connection with Article
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

of this case on the ground that the defendant is no longer
liable for the deficiency judgment inas much as the chattel
mortgage has been foreclosed, with the plaintiff as the
highest bidder thereof, citing the case of Ruperto G. Cruz
v. Filipinas Investmentdecided on May 27, 1968, G.R. No.
L-24772 in connection with Article 1484 of the Civil Code,
and finding the same well taken.

After going over the pleadings in this case, more

particularly the complaint and the answer to the complaint
filed with the City Court of Manila, this Court is of the
impression that the case at bar may not be decided
merely, as the City Court had done, on the question of law
since the presentation of evidence is necessary to
adjudicate the questions involved. WHEREFORE, this
case is hereby remanded to the court of origin for further
proceedings. (pp. 82-83, Original Record)

Hence, this petition.

Petitioner Eutropio Zayas, Jr. now maintains::
That Respondent Court of First Instance
erred:

RECONSIDERATION. (Original Record, p. 36) Annex "A" is a Certification

from the cashier of Escano Enterprises on the monthly installments paid by
Mr. Eutropio Zayas, Jr. In the certification, the promissory note in favor of
Luneta Motor Company was specifically mentioned. There was only one
promissory note executed by Eutropio Zayas, Jr. in connection with the
purchase of the motor vehicle. The promissory note mentioned in the
certification refers to the promissory note executed by Eutropio Zayas, Jr. in
favor of respondent Luneta Motor Company. Thus:

1. IN HOLDING THAT THE QUESTION OF LAW

CANNOT BE DECIDED SINCE PRESENTATION OF
EVIDENCE IS NECESSARY- REGARDING THE
QUESTION OF RECOVERY OF THE DEFICIENCY
AMOUNT IN A CHATTEL MORTGAGE AFTER SELLING
IT IN A PUBLIC AUCTION;
2. IN ORDERING THE REMAND OF THE CASE TO THE
CITY COURT FOR FURTHER PROCEEDINGS TAKEN
BY THE RESPONDENT FROM THE CITY COURT TO
THE COURT OF FIRST INSTANCE, BRANCH XXI,
MANILA; and
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE
PRIVATE RESPONDENT FROM THE CITY COURT TO
THE COURT OF FIRST INSTANCE.
The main defense of respondent Luneta Motor Company is that Escano
Enterprises, Cagayan de Oro City from which petitioner Eutropio Zayas, Jr.
purchased the subject motor vehicle was a distinct and different entity; that
the role of Luneta Motor Company in the said transaction was only to finance
the purchase price of the motor vehicle; and that in order to protect its
interest as regards the promissory note executed in its favor, a chattel
mortgage covering the same motor vehicle was also executed by petitioner
Eutropio Zayas, Jr. In short, respondent Luneta Motor Company maintains
that the contract between the company and the petitioner was only an
ordinary loan removed from the coverage of Article 1484 of the New Civil
Code.
The respondent's arguments have no merit.
The Escao Enterprises of Cagayan de Oro City was an agent of Luneta
Motor Company. A very significant evidence which proves the nature of the
relationship between Luneta Motor Company and Escao Enterprises is
Annex "A. of the petitioner's OPPOSITION TO URGENT MOTION FOR

C E R T I F I CAT I O N
This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid
from us the following, of his FORD THAMES BEARING
Engine No. 400E-127738, promissory note dated October
6, 1966. Viz:
er
Escano Enterprises, a dealer of respondent Luneta Motor Company, was
merely a collecting-agent as far as the purchase of the subject motor vehicle
was concerned. The principal and agent relationship is clear.
But even assuming that the "distinct and independent entity" theory of the
private respondent is valid, the nature of the transaction as a sale of
personal property on installment basis remains. When, therefore, Escao
Enterprises, assigned its rights vis-a-vis the sale to respondent Luneta Motor
Company, the nature of the transaction involving Escano Enterprises and
Eutropio Zayas, Jr. did not change at all. As assignee, respondent Luneta
Motor Company had no better rights than assignor Escao Enterprises
under the same transaction. The transaction would still be a sale of personal
property in installments covered by Article 1484 of the New Civil Code. To
rule otherwise would pave the way for subverting the policy underlying
Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages
over personal property sold on installment basis.
ART. 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise any of the following remedies:
xxx xxx xxx
xxx xxx xxx

(3) Foreclose the chattel ;mortgage on the thing sold, if

one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the
contrary shall be void.
xxx xxx xxx
... 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:
Undoubtedly the principal object of the above amendment was to
remedy the abuses committed in connection with the foreclosure of
chattel mortgages. This amendment prevents mortgagees from seizing
the mortgaged property, buying it at foreclosure sale for a low price and
then bringing suit against the mortgagor for a deficiency judgment. The
almost invariable result of this procedure was that the mortgagor found
himself minus the property and still owing practically the full amount of
his original indebtedness. Under this amendment the vendor of personal
property, the purchase price of which is payable in installments, has the
right to cancel the sale or foreclose the mortgage if one has been given
on the property. Whichever right the vendor elects he need not return to
the purchaser the amount of the installments already paid, "if there be
an agreement to that effect". Furthermore, if the vendor avails himself of
the right to foreclose the mortgage this amendment prohibits him from
bringing an action against the purchaser for the unpaid balance. (Cruz
v. Filipinas Investment & Finance Corporation, 23 SCRA 791)
Our findings and conclusions are borne out by the records available to the
respondent court. There was no necessity for the remand of records to the
city court for the presentation of evidence on the issue raised in the case.
WHEREFORE, the instant petition is hereby granted. The orders remanding
the case to the court of origin and denying the motion for reconsideration of
the Court of First Instance of Manila, Branch XXI issued in Civil Case No.
74381 are annulled. Accordingly, the Court of First Instance of Manila,
Branch XXI is directed to dismiss the appeal in Civil Case No. 74381. The
Order of the City Court of Manila dismissing the complaint in Civil Case No.
165263 is affirmed.

SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez and Relova, JJ.,
concur.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC

executing a promissory note for the balance of P10,540.00 payable in

installments with interest at 12% per annum, as follows: P361.00 on July 5,
1965, and P351.00 on the 5th day of each month beginning August, 1965,
up to and including December, 1967. To secure the payment of the
promissory note, Sapinoso executed in favor of Northern Motors, Inc. a
chattel mortgage on the car. The mortgage contract provided, among others,
that upon default by the mortgagor in the payment of any part of the principal
or interest due, the mortgagee may elect any of the following remedies: (a)
sale of the car by the mortgagee; (b) cancellation of the contract of sale; (c)
extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary civil action to
exact fulfillment of the mortgage contract. It was further stipulated that
"[w]hichever remedy is elected by the mortgagee, the mortgagor expressly
waives his right to reimbursement by the mortgagee of any and all amounts
on the principal and interest already paid by him."

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

NORTHERN MOTORS, INC., plaintiff-appellant,
vs.
CASIANO SAPINOSO and "JOHN DOE", defendants-appellees.
Sycip, Salazar, Luna, Manalo & Feliciano for plaintiff-appellant.
David F. Barrera for defendants-appellees.

VILLAMOR, J.:
Direct appeal on questions of law from the portion of the judgment of the
Court of First Instance of Manila, Branch XXII, in its Civil Case No. 66199,
ordering the plaintiff to pay defendant Casiano Sapinoso the sum of
P1,250.00.
The facts of this case are as follows:
On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc.
an Opel Kadett car for the price of P12,171.00, making a down payment and

Sapinoso failed to pay the first installment of P361.00 due on July 5, 1965,
and the second, third, fourth and fifth installments of P351.00 each due on
the 5th day of August, September, October and November, 1965,
respectively. Several payments were, however, made by Sapinoso, to wit:
P530.52 on November 21, 1965, P480.00 on December 21, 1965, and
P400.00 on April 30, 1966. The first and third payments aforesaid were
applied to accrued interest up to April 17, 1966, while the second payment
was applied partly (P158.10) to interest, and partly (P321.90) to the
principal, thereby reducing the balance unpaid to P10,218.10.
The vendee-mortgagor having failed to make further payments, Northern
Motors, Inc. filed the present complaint on July 22, 1966, against Sapinoso
and a certain person whose name, identity and address were still unknown
to the plaintiff, hence denominated in the complaint as "John Doe." In its
complaint, Northern Motors, Inc. stated that it was availing itself of the option
given it under the mortgage contract of extrajudicially foreclosing the
mortgage, and prayed that a writ of replevin be issued upon its filing of a
bond for the seizure of the car and for its delivery to it; that after hearing, the
plaintiff be adjudged to have the rightful possession and ownership of the
car; that in default of delivery, the defendants be ordered to pay the plaintiff
the sum of P10,218.10 with interest, at 12% per annum from April 18, 1966,
until full payment of the said sum, as well as an amount equivalent to 25% of
the sum due as and for attorney's fees and expenses of collection, and the

costs of the suit. Plaintiff also prayed for such other remedy as might be
deemed just and equitable in the premises.
Subsequent to the commencement of the action, but before the filing of his
answer, defendant Sapinoso made two payments on the promissory note,
the first on August 22, 1966, for P500.00, and the second on September 27,
1966, for P750.00. In the meantime, on August 9, 1966, upon the plaintiff's
filing of a bond, a writ of replevin was issued by the court. On October 20,
1966, copies of the summons, complaint and annexes thereto were served
on defendant Sapinoso by the sheriff who executed the seizure warrant by
seizing the car from defendant Sapinoso on the same date, and turning over
its possession to the plaintiff on October 25, 1966.
On November 12, 1966, defendant Sapinoso filed an answer admitting the
allegations in the complaint with respect to the sale to him of the car, the
terms thereof, the execution of the promissory note and of the chattel
mortgage contract, and the options open to the plaintiff under the said
contract. He alleged, however, that he had paid the total sum of P4,230.52,
leaving a balance of only P5,987.58; that upon demand he immediately
surrendered the possession of the car to the plaintiff's representative; and
that the value of the car was only about P5,000.00, and not P10,000.00 as
alleged in the complaint. As special defenses the said defendant alleged that
he failed to pay the installments due because the car was defective, and the
plaintiff failed to have it fixed although he had repeatedly called the plaintiff's
attention thereto, hence, the defendant had to procrastinate in his payments
in order to move the plaintiff to repair the car; and that although the car could
not be used, he paid P700.00 to the plaintiff upon the latter's assurance that
the car would be fixed, but that instead of having the car fixed, the plaintiff, in
bad faith, filed the present complaint. The defendant prayed that the
complaint be dismissed and that the plaintiff be ordered to return the car to
him. He stated in his prayer that he would be very much willing to pay the
car in a compromise agreement between him and the plaintiff.
After trial, the court a quo, in its decision dated April 4, 1967, held that
defendant Sapinoso having failed to pay more than two (2) installments,
plaintiff-mortgagee acquired the right to foreclose the chattel mortgage,
which it could avail of as it has done in the present case by filing an
action of replevin to secure possession of the mortgaged car as a

preliminary step to the foreclosure sale contemplated in the Chattel

Mortgage Law; and that the foreclosure of the chattel mortgage and the
recovery of the unpaid balance of the price are alternative remedies which
may not be pursued conjunctively, so that in availing itself of its right to
foreclose the chattel mortgage, the plaintiff thereby renounced whatever
claim it may have had on the promissory note, and, therefore, the plaintiff
has no more right to the collection of the attorney's fees stipulated in the
promissory note, and should return to defendant Sapinoso the sum of
P1,250.00 which the plaintiff had received from the latter after having filed
the present case on July 22, 1966, and elected to foreclose the chattel
mortgage. The dispositive portion of the decision reads:
WHEREFORE, the Court finds that the plaintiff has the
right to the possession of the OPEL KADETT two-door
station wagon Model 3464-91.5, with engine No.
10-0354333, and the delivery thereof to the plaintiff is
hereby ratified and confirmed but said party is sentenced
to pay to the defendant the sum of P1,250, with legal
interest on P500 from August 22, 1966 and or P750 from
September 27, 1966, until fully paid, without any
pronouncement as to costs.
In this appeal plaintiff-appellant claims that the court a quo erred in ordering
it to reimburse to defendant-appellee Sapinoso the sum of P1,250.00 which
the latter had paid. It contends that under Article 1484 of the Civil Code it is
the exercise, not the mere election, of the remedy of foreclosure that bars
the creditor from recovering the unpaid balance of the debt; that what the
said Article 1484 prohibits is "further action" to collect payment of the
deficiency after the creditor has foreclosed the mortgage; and that in paying
plaintiff-appellant the sum of P1,250.00 before defendant-appellee Sapinoso
filed his answer, and in not filing a counterclaim for the recovery thereof, the
said defendant-appellee in effect renounced whatever right he might have
had to recover the said amount.
The appeal is meritorious.
In issuing a writ of replevin, and, after trial, in upholding plaintiff-appellant's
right to the possession of the car, and ratifying and confirming its delivery to

the said plaintiff-appellant, the court below correctly considered the action as
one of replevin to secure possession of the mortgaged vehicle as a
preliminary step to this foreclosure sale contemplated in Section 14 of Act
No. 1508 (Bachrach Motor Co. vs. Summers, 42 Phil., 3; Seo vs.
Pestolante, G.R. No. L-11755, April 23, 1958). The said court however erred
in concluding that the legal effect of the filing of the action was to bar
plaintiff-appellant from accepting further payments on the promissory note.
That the ultimate object of the action is the foreclosure of the chattel
mortgage, is of no moment, for it is the fact of foreclosure and actual sale of
the mortgaged chattel that bar further recovery by the vendor of any balance
on the purchaser's outstanding obligation not satisfied by the sale. (Manila
Motor Co., Inc. vs. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. vs.
Millan, 61 Phil., 409; Manila Trading & Supply Co. vs. Reyes, 62 Phil. 461,
471; Cruz et al. vs. Filipinas Investment & Finance Corporation, G.R. No. L24772, May 27, 1968 [23 SCRA 791, 796].) In any event, what Article
1484(3) prohibits is "further action against the purchaser to recover any
unpaid balance of the price;" and although this Court has construed the word
"action" in said Article 1484 to mean "any judicial or extrajudicial proceeding
by virtue of which the vendor may lawfully be enabled to exact recovery of
the supposed unsatisfied balance of the purchase price from the purchaser
or his privy" (Cruz, et al. vs. Filipinas Investment & Finance
Corporation, supra), there is no occasion at this stage to apply the restrictive
provision of the said article, because there has not yet been a foreclosure
sale resulting in a deficiency. The payment of the sum of P1,250.00 by
defendant-appellee Sapinoso was a voluntary act on his part and did not
result from a "further action" instituted by plaintiff-appellant. If the mortgage
creditor, before the actual foreclosure sale, is not precluded from recovering
the unpaid balance of the price although he has filed an action of replevin for
the purpose of extrajudicial foreclosure, or if a mortgage creditor who has
elected to foreclose but who subsequently desists from proceeding with the
auction sale, without gaining any advantage or benefit, and without causing
any disadvantage or harm to the vendee-mortgagor, is not barred from suing
on the unpaid account (Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563,
April 27, 1963 [7 SCRA 804, 807]), there is no reason why a mortgage
creditor should be barred from accepting, before a foreclosure sale,
payments voluntarily tendered by the debtor-mortgagor who admits a
subsisting indebtedness.

PREMISES CONSIDERED, the judgment appealed from is modified by

setting aside the portion thereof which orders plaintiff-appellant to pay
defendant-appellee Sapinoso the sum of P1,250.00, with costs in this
instance against the said defendant-appellee.

RUPERTO G. CRUZ, ET AL., plaintiffs-appellees,

vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, defendantappellant.
Villareal, Almacen, Navarra and Associates for plaintiffs-appellees.
Sycip, Salazar, Luna, Manalo and Feliciano for defendant-appellant.
REYES, J.B.L., J.:
Appeal interposed by Filipinas Investment & Finance Corporation from the
decision of the Court of First Instance of Rizal (Quezon City) in Civil Case
No. Q-7949.1vvphi1.nt
In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de
Reyes in the Court of First Instance of Rizal (Civil Case No. Q-7949), for
cancellation of the real estate mortgage constituted on the land of the latter 1
in favor of defendant Filipinas Investment & Finance Corporation (as
assignee of the Far East Motor Corporation), the parties submitted the case
for decision on the following stipulation of facts:
1. Their personal circumstances and legal capacities to sue and be
sued;

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-24772

May 27, 1968

2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on

installments, from the Far East Motor Corporation, one (1) unit of
Isuzu Diesel Bus, described in the complaint, for P44,616.24,
Philippine Currency, payable in installments of P1,487.20 per
month for thirty (30) months, beginning October 22, 1963, with 12
% interest per annum, until fully paid. As evidence of said
indebtedness, plaintiff Cruz executed and delivered to the Far East
Motor Corporation a negotiable promissory note in the sum of
P44,616.24, ...;
3. That to secure the payment of the promissory note, Annex "A",
Cruz executed in favor of the seller, Far East Motor Corporation, a
chattel mortgage over the aforesaid motor vehicle...;

4. That as no down payment was made by Cruz, the seller, Far

East Motor Corporation, on the very improvements thereon, in San
Miguel, Bulacan...; same date, July 15, 1963, required and Cruz
agreed to give, additional security for his obligation besides the
chattel mortgage, Annex "B"; that said additional security was given
by plaintiff Felicidad Vda. de Reyes in the form of SECOND
MORTGAGE on a parcel of land owned by her, together with the
building and
5. That said land has an area of 68,902 square meters, more or
less, and covered by Transfer Certificate of Title No. 36480 of the
Registry of Deeds of Bulacan in the name of plaintiff Mrs. Reyes;
and that it was at the time mortgaged to the Development Bank of
the Philippines to secure a loan of P2,600.00 obtained by Mrs.
Reyes from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for
value received indorsed the promissory note and assigned all its
rights and interest in the Deeds of Chattel Mortgage and in the
Deed of Real Estate Mortgage (Annexes "A", "B" and "B-l") to the
defendant, Filipinas Investment & Finance Corporation, with due
notice of such assignment to the plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of the promisory note
(Annex "A") ; that the only sum ever paid to the defendant was Five
Hundred Pesos (P500.00) on October 2, 1963, which was applied
as partial payment of interests on his principal obligation; that,
notwithstanding defendant's demands, Cruz made no payment on
any of the installments stipulated in the promissory note;
8. That by reason of Cruz's default, defendant took steps to
foreclose the chattel mortgage on the bus; that said vehicle had
been damaged in an accident while in the possession of plaintiff
Cruz;
9. That at the foreclosure sale held on January 31, 1964 by the
Sheriff of Manila, the defendant was the highest bidder, defendant's
bid being for Fifteen Thousand Pesos (P15,000.00)...;

10. That the proceeds of the sale of the bus were not sufficient to
cover the expenses of sale, the principal obligation, interests, and
attorney's fees, i.e., they were not sufficient to discharge fully the
indebtedness of plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real
estate mortgage on Mrs. Reyes' land, defendant paid the mortgage
indebtedness of Mrs. Reyes to the Development Bank of the
Philippines, in the sum of P2,148.07, the unpaid balance of said
obligation...;
12. That pursuant to a provision in the real estate mortgage
contract, authorizing the mortgagee to foreclose the mortgage
judicially or extra-judicially, defendant on February 29, 1964
requested the Provincial Sheriff of Bulacan to take possession of,
and sell, the land subject of the Real Estate Mortgage, Annex "B-1",
to satisfy the sum of P43,318.92, the total outstanding obligation of
the plaintiffs to the defendant, as itemized in the Statement of
Account, which is made a part hereof as Annex "F"...;
13. That notices of sale were duly posted and served to the
Mortgagor, Mrs. Reyes, pursuant to and in compliance with the
requirements of Act 3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote
a letter to the defendant asking for the cancellation of the real
estate mortgage on her land, but defendant did not comply with
such demand as it was of the belief that plaintiff's request was
without any legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of
Bulacan held in abeyance the sale of the mortgaged real estate
pending the result of this action.
Passing upon the issues which, by agreement of the parties, were limited to
(1) "Whether defendant, which has already extrajudicially foreclosed the
chattel mortgage executed by the buyer, plaintiff Cruz, on the bus sold to him
on installments, may also extrajudicially foreclose the real estate mortgage

constituted by plaintiff Mrs. Reyes on her own land, as additional security, for
the payment of the balance of Cruz' Obligation, still remaining unpaid"; and
(2) whether or not the contending parties are entitled to attorney's fees
the court below, in its decision of April 21, 1965, sustained the plaintiffs'
stand and declared that the extrajudicial foreclosure of the chattel mortgage
on the bus barred further action against the additional security put up by
plaintiff Reyes. Consequently, the real estate mortgage constituted on the
land of said plaintiff was ordered cancelled and defendant was directed to
pay the plaintiffs attorney's fees in the sum of P200.00. Defendant filed the
present appeal raising the same questions presented in the lower court.
There is no controversy that, involving as it does a sale of personal property
on installments, the pertinent legal provision in this case is Article 1484 of
the Civil Code of the Philippines, 2 which reads:
ART. 1484. In a contract of sale of personal property the price of
which is payable in installments, the vendor may exercise any of
the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.
The aforequoted provision is clear and simple: should the vendee or
purchaser of a personal property default in the payment of two or more of
the agreed installments, the vendor or seller has the option to avail of any
one of these three remedies either to exact fulfillment by the purchaser of
the obligation, or to cancel the sale, or to foreclose the mortgage on the
purchased personal property, if one was constituted. These remedies have
been recognized as alternative, not cumulative, 3 that the exercise of one
would bar the exercise of the others. 4 It may also be stated that 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. 5 And the
reason for this doctrine was aptly stated in the case of Bachrach Motor Co.
vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment 6 was to
remedy the abuses committed in connection with the foreclosure of
chattel mortgages. This amendment prevents mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a
low price and then bringing suit against the mortgagor for a
deficiency judgment. The almost invariable result of this procedure
was that the mortgagor found himself minus the property and still
owing practically the full amount of his original indebtedness. Under
this amendment the vendor of personal property, the purchase
price of which is payable in installments, has the right to cancel the
sale or foreclose the mortgage if one has been given on the
property. Whichever right the vendor elects he need not return to
the purchaser the amount of the installments already paid, "if there
be 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
unpaid balance.
It is here agreed that plaintiff Cruz failed to pay several installments as
provided in the contract; that there was extrajudicial foreclosure of the
chattel mortgage on the said motor vehicle; and that defendant-appellant
itself bought it at the public auction duly held thereafter, for a sum less than
the purchaser's outstanding obligation. Defendant-appellant, however,
sought to collect the supported deficiency by going against the real estate
mortgage which was admittedly constituted on the land of plaintiff Reyes as
additional security to guarantee the performance of Cruz' obligation, claiming
that what is being withheld from the vendor, by the proviso of Article 1484 of
the Civil Code, is only the right to recover "against the purchaser", and not a
recourse to the additional security put up, not by the purchaser himself, but
by a third person.

There is no merit in this contention. To sustain appellant's argument is to

overlook the fact that if the guarantor should be compelled to pay the
balance of the purchase price, the guarantor will in turn be entitled to recover
what she has paid from the debtor vendee (Art. 2066, Civil Code) ; so that
ultimately, it will be the vendee who will be made to bear the payment of the
balance of the price, despite the earlier foreclosure of the chattel mortgage
given by him. Thus, the protection given by Article 1484 would be indirectly
subverted, and public policy overturned.
Neither is there validity to appellant's allegation that, since the law speaks of
"action", the restriction should be confined only to the bringing of judicial
suits or proceedings in court.
The word "action" is without a definite or exclusive meaning. It has been
invariably defined as
... the legal demand of one's right, or rights; the lawful demand of
one's rights in the form given by law; a demand of a right in a court
of justice; the lawful demand of one's right in a court of justice; the
legal and formal demand of ones rights from another person or
party, made and insisted on in a court of justice; a claim made
before a tribunal; an assertion in a court of justice of a right given
by law; a demand or legal proceeding in a court of justice to secure
one's rights; the prosecution of some demand in a court of justice;
the means by which men litigate with each other; the means that
the law has provided to put the cause of action into effect;....
(Gutierrez Hermanos vs. De la Riva, 46 Phil. 827, 834-835).
Considering the purpose for which the prohibition contained in Article 1484
was intended, the word "action" used therein may be construed as referring
to any judicial or extrajudicial proceeding by virtue of which the vendor may
lawfully be enabled to exact recovery of the supposed unsatisfied balance of
the purchase price from the purchaser or his privy. Certainly, an extrajudicial
foreclosure of a real estate mortgage is one such proceeding.
The provision of law and jurisprudence on the matter being explicit, so that
this litigation could have been avoided, the award by the lower court of

attorney's fees to the plaintiff's in the sum of P200.00 is reasonable and in

order.
However, we find merit in appellant's complaint against the trial court's
failure to order the reimbursement by appellee Vda. de Reyes of the amount
which the former paid to the Development Bank of the Philippines, for the
release of the first mortgage on the land of said appellee. To the extent that
she was benefited by such payment, plaintiff-appellee Vda. de Reyes should
have been required to reimburse the appellant.
WHEREFORE, the decision appealed from is modified, by ordering plaintiffappellee Felicidad Vda. de Reyes to reimburse to defendant-appellant
Filipinas Investment & Finance Corporation the sum of P2,148.07, with legal
interest thereon from the finality of this decision until it is fully paid. In all
other respects, the judgment of the court below is affirmed, with costs
against the defendant-appellant.

DANIEL L. BORDON II AND FRANCISCO L. BORBON, petitioners,

vs. SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF
APPEALS, respondents.
DECISION
VITUG, J.:
From the decision of the Court of Appeals in CA-G.R. CV No. 30693
which affirmed that of the Regional Trial Court, NCJR, Branch 39, Manila, in
Civil Case No. 85-29954, confirming the disputed possession of a motor
vehicle in favor of private respondent and ordering the payment to it by
petitioners of liquidated damages and attorney's fees, the instant appeal was
interposed.
The appellate court adopted the factual findings of the court a quo, to
wit:

"The plaintiff's evidence shows among others that on December 7, 1984, defendants
Daniel L. Borbon and Francisco Borbon signed a promissory note (Exh. A) which
states among others as follows:
"'PROMISSORY NOTE
Acct. No. 115008276
Makati, Metro Manila,
Philippines
December 7, 1984

'Acceptance by the holder hereof of payment of any installment or any part thereof
after due dated (sic) shall not be considered as extending the time for the payment or
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
this note constitute or be deemed as a waiver of such rights.
'Maker:
(S/t) DANIEL L. BORBON, II
Address: 14 Colt St., Rancho Estate I, Concepcion Dos, Marikina,
MM

'P122,856.00
'For value received (installment price of the chattel/s purchased), I/We jointly and
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
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
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
that a late payment charge of 3% per month shall be added on each unpaid
installment from due date thereof until fully paid.

(S/t) FRANCISCO BORBON

Address: 73 Sterling Life Home Pamplona, Las Pias, MM
"WITNESSES
(illegible) ____(illegible)_____
'PAY TO THE ORDER OF
FILINVEST CREDIT CORPORATION

xxx xxx xxx

'It is further agreed that if upon such default, attorney's services are availed of, an
additional sum equal to twenty five percent (25%) of the total sum due thereon,
which shall not be less than five hundred pesos, shall be paid to the holder hereof for
attorney's fees plus an additional sum equivalent to twenty five percent (25%) of the
total sum due which likewise shall not be less than five hundred pesos for liquidated
damages, aside from expenses of collection and the legal costs provided for in the
Rules of Court.
'It is expressly agreed that all legal actions arising out of this note or in connection
with the chattel(s) subject hereof shall only be brought in or submitted to the
jurisdiction of the proper court either in the City of Manila or in the province,
municipality or city where the branch of the holder hereof is located.

without recourse, notice, presentment and demand waived

PANGASINAN AUTO MART, INC.
BY:
(S/T) K.N. DULCE
Dealer'
"To secure the Promissory Note, the defendants executed a Chattel Mortgage (Exh.
B) on

'One (1) Brand new 1984 Isuzu

KCD 20 Crew Cab (Conv.)
Serial No. KC20D0F 207685
Key No. 5509

"Despite Communications with the Pangasinan Auto Mart, Inc., the latter was not
able to replace the vehicle until the vehicle delivered was seized by order of this
court. The defendants argue that an assignee stands in the place of an assignor
which, to the mind of the court, is correct. The assignee exercise all the rights of the
assignor (Gonzales vs. Rama Plantation Co., C.V. 08630, Dec. 2, 1986).

(Exhs. A and B, p. 2 tsn, September 10, 1985)

"The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit
Corporation on December 10, 1984, with notice to the defendants (Exh. C, p. 10,
Record).
"On March 21, 1985, Filinvest Credit Corporation assigned all its rights, interest and
title over the Promissory Note and the chattel mortgage to the plaintiff (Exh. D; p. 3,
tsn, Sept. 30, 1985).
"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
failed to comply with their obligation (p. 3, tsn, Sept. 30, 1985).
"Because the defendants did not pay their monthly installments, Filinvest demanded
from the defendants the payment of their installments due on January 29, 1985 by
telegram (Exh. E; pp. 3-4, tsn, Sept. 30, 1985).
"After the accounts were assigned to the plaintiff, the plaintiff attempted to collect
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).
"For their defense, the defendants claim that what they intended to buy from
Pangasinan Auto Mart was a jeepney type Isuzu K. C. Cab. The vehicle that they
bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985).Instead, through
misrepresentation and machination, the Pangasinan Motor, Inc. delivered an Isuzu
crew cab, as this is the unit available at their warehouse. Later the representative of
Pangasinan Auto Mart, Inc. (assignor) told the defendants that their available stock
is an Isuzu Cab but minus the rear body, which the defendants agreed to deliver with
the understanding that the Pangasinan Auto Mart, Inc. will refund the defendants the
amount of P10,000.00 to have the rear body completed (pp. 12-34, Exhs. 2 to 3-3A).

"The defendants further claim that they are not in default of their obligation because
the Pangasinan Auto Mart was first guilty of not fulfilling its obligation in the
contract. The defendants claim that neither party incurs delay if the other does not
comply with his obligation. (citing Art. 1169, N.C.C.)"[1]
In sustaining the decision of the court a quo, the appellate court ruled
that petitioners could not avoid liability under the promissory note and the
chattel mortgage that secured it since private respondent took the note for
value and in good faith.
In their appeal to this Court, petitioners merely seek a modification of
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
Code which reads:
ART. 1484. In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of the following
remedies:
"(1) Exact fulfillment of the obligation, should the vendee fail to pay;
"(2) Cancel the sale, should the vendee's failure to pay cover two or
more installments;
"(3) Foreclose the chattel mortgage or the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void."

The remedies under Article 1484 of the Civil Code are not cumulative
but alternative and exclusive,[2] which means, as so held in Nonato vs.
Intermediate Appellate Court and Investor's Finance Corporation,[3] that "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
of any of these three remedies either to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These remedies have been recognized as
alternative, not cumulative, that the exercise of one would bar the exercise of the
others."[4]
When the seller assigns his credit to another person, the latter is
likewise bound by the same law. Accordingly, when the assignee forecloses
on the mortgage, there can be no further recovery of the deficiency,[5] and
the seller-mortgagee is deemed to have renounced any right thereto.
[6]
A contrario, in the event the seller-mortgagee first seeks, instead, the
enforcement of the additional mortgages, guarantees or other security
arrangements, he must then be held to have lost by waiver or non-choice his
lien on the chattel mortgage of the personal property sold by any mortgaged
back to him, although, similar to an action for specific performance, he may
still levy on it.
In ordinary alternative obligations, a mere choice categorically and
unequivocally made and then communicated by the person entitled to
exercise the option concludes the parties. The creditor may not thereafter
exercise any other option, unless the chosen alternative proves to be
ineffectual or unavailing due to no fault on his part. This rule, in essence, is
the difference between alternative obligations, on the one hand, and
alternative remedies, upon the other hand, where, in the latter case, the
choice generally becomes conclusive only upon the exercise of the
remedy. For instance, in one of the remedies expressed in Article 1484 of
the Civil Code, it is only when there has been a foreclosure of the chattel
mortgage that the vendee-mortgagor would be permitted to escape from a
deficiency liability. Thus, if the case is one for specific performance, even
when this action is selected after the vendee has refused to surrender the
mortgaged property to permit an extrajudicial foreclosure, that property may
still be levied on execution and an alias writ may be issued if the proceeds

thereof are insufficient to satisfy the judgment credit. [7] So, also, a mere
demand to surrender the object which is not heeded by the mortgagor will
not amount to a foreclosure, [8] but the repossession thereof by the vendormortgagee would have the effect of foreclosure.
The parties here concede that the action for replevin has been
instituted for the foreclosure of the vehicle in question (now in the
possession of private respondent). The sole issue raised before us in this
appeal is focused on the legal propriety of the affirmance by the appellate
court of the awards made by the court a quo of liquidated damages and
attorney's fees to private respondent.Petitioners hold that under Article 1484
of the Civil Code, aforequoted, the vendor-mortgagee or its assignees loses
any right "to recover any unpaid balance of the price" and any "agreement to
the contrary (would be) void."
The argument is aptly made. In Macondray & Co. vs. Eustaquio[9] we
have said that the phrase "any unpaid balance" can only mean the
deficiency judgment to which the mortgagee may be entitled to when the
proceeds from the auction sale are insufficient to cover the "full amount of
the secured obligation which x x x include interest on the principal, attorney's
fees, expenses of collection, and costs." In sum, we have observed that the
legislative intent is not to merely limit the proscription of any further action to
the "unpaid balance of the principal" but, as so later ruled in Luneta Motor
Co. vs. Salvador,[10] to all other claims that may likewise be called for in the
accompanying promissory note against the buyer-mortgagor or his
guarantor, including costs and attorney's fees.
In Filipinas Investment & Finance Corporation vs. Ridad[11] while we
reiterated and expressed our agreement on the basic philosophy behind
Article 1484, we stressed, nevertheless, that the protection given to the
buyer-mortgagor should not be considered to be without circumscription or
as being preclusive of all other laws or legal principles. Hence, borrowing
from the examples made inFilipinas Investment, where the mortgagor
unjustifiably refused to surrender the chattel subject of the mortgage upon
failure of two or more installments, or if he concealed the chattel to place it
beyond the reach of the mortgagee, that thereby constrained the latter to
seek court relief, the expenses incurred for the prosecution of the case, such
as attorney's fees, could rightly be awarded.

Private respondent bewails the instant petition in that petitioners have

failed to specifically raise the issue on liquidated damages and attorney's
fees stipulated in the actionable documents. In several cases, we have ruled
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,
must be considered and resolved and that the rule that only theories raised
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
oppose the cause of action.[12]
Given the circumstances, we must strike down the award for liquidated
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,
while the promissory note may appear to have been a negotiable instrument,
private respondent, however, clearly cannot claim unawareness of its
accompanying documents so as to thereby gain a right greater than that of
the assignor.
WHEREFORE, the appealed decision is MODIFIED by deleting
therefrom the award for liquidated damages; in all other respects the
judgment of the appellate court is AFFIRMED. No cost.
SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-43683

July 16, 1937

MACONDRAY AND CO., INC., plaintiff-appellant,

vs.
URBANO EUSTAQUIO, defendant-appellee.
Jose Agbulos for appellant.
Urbano Eustaquio in his own behalf.
IMPERIAL, J.:
This is an appeal taken by the plaintiff corporation from the judgment of the
Court of First Instance of Manila dismissing its complaint, without costs.
The plaintiff brought the action against the defendant to obtain the
possession of an automobile mortgaged by the latter, and to recover the
balance owing upon a note executed by him, the interest thereon, attorney's
fees, expenses of collection, and the costs. The defendant was duly
summoned, but he failed to appear or file his answer, wherefore he was
declared in default and the appealed judgment was rendered accordingly.
The plaintiff sold the defendant a De Soto car, Sedan, for the price of which,
P595, he executed in its favor the note of May 22, 1934. Under this note, the
defendant undertook to pay the car in twelve monthly installments, with 12
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,
attorney's fees, expenses of collection, and costs. The mortgage deed was
registered on June 11, 1934, in the office of the register of deeds of the
Province of Rizal. On the 22d of the same month, the defendant paid P43.75
upon the first installment, and thereafter failed to pay any of the remaining
installments. In accordance with the terms of the mortgage, the plaintiff
called upon the sheriff to take possession of the car, but the defendant
refused to yield possession thereof, whereupon, the plaintiff brought the
replevin sought and thereby succeeded in getting possession of the car. The

car was sold at public auction to the plaintiff for P250, the latter incurring
legal expenses in the amount of P10.68, According to the liquidation filed by
the plaintiff, the defendant was still indebted in the amount of P342.20,
interest at 12 per cent from November 20, 1934, P110.25 as attorney's fees,
and the costs.
I. The plaintiff's first assignment of error is addressed to the appealed
judgment in so far as it applied Act No. 4122 and dismissed the complaint,
notwithstanding the fact that the defendant waived his rights under said law
by not making any appearance, by having been declared in default, by not
interposing any special defense, and not asking for any positive relief.
Under section 128 of our Civil Procedure, the judgment by default against a
defendant who has neither appeared nor filed his answer does not imply a
waiver of right except that of being heard and of presenting evidence in his
favor. It does not imply admission by the defendant of the facts and causes
of action of the plaintiff, because the codal section requires the latter to
adduce his evidence in support of his allegation as an indispensable
condition before final judgment could be given in his favor. Nor could it be
interpreted as an admission by the defendant that the plaintiff's causes of
action find support in the law or that latter is entitled to the relief prayed for.
(Chaffin vs. Mac Fadden, 41 Ark., 42; Johnson vs. Peirce, 12 Ark., 599;
Mayden vs. Johnson, 59 Ga., 105; Peo. vs. Rust, 292 Ill., 412; Madison
County vs. Smith, 95 Ill., 328; Keen vs. Krempel, 166 Ill. A., 253.) For these
reason, we hold that the defendant did not waive the applicant by the court
of Act No. 4122, and that the first assignment of error is untenable.
II. The plaintiff contends in its second assignment of error that Act No. 4122
is invalid because it takes property without due process of law, denies the
equal protection of the laws, and impairs the obligations of contract, thereby
violating the provisions of section 3 of the Act of the United States Congress
of August 29, 1916, known as the Jones Law. This is not the first time that
the constitutionality of the said law has been impugned for like reasons.
InManila Trading and Supply Co. vs. Reyes (64 Phil. 461), the validity of the
said law was already passed upon when it was questioned for the same
reason here advanced. In resolving the question in favor of the validity of the
law, we then held: "2. Liberty of contract, class legislation, and equal
protection of the laws. The question of the validity of an act is solely one

of constitutional power. Questions of expediency, of motive or of results are

irrelevant. Nevertheless it is not improper to inquire as to the occasion for
the enactment of a law. The legislative purpose thus disclosed can then
serve as a fit background for constitution inquiry.
Judge Moran in fact instances had the following to say relative to
the reason for the enactment of Act No. 4122:
"Act No. 4122 aims to correct a social and economic evil,
the inordinate love for luxury of those who, without
sufficient means, purchase personal effects, and the
ruinous practice of some commercial houses of
purchasing back the goods sold for a nominal price
besides keeping a part of the price already paid and
collecting the balance, with stipulated interest, costs, and
attorney's fees. For instance, a company sells a truck for
P6,500. The purchaser makes a down payment of P500,
the balance to be paid in twenty-four equal installments of
P250 each. Pursuant to the practice before the enactment
of Act No. 4122, if the purchaser fails to pay the first two
installments, the company takes possession of the truck
and has it sold at public auction at which sale it purchases
the truck for a nominal price, at most P500, without
prejudice to its right to collect the balance of P5,500, plus
interest, costs. and attorney's fees. As a consequence, the
vendor does not only recover the goods sold, used hardly
two months perhaps with only slight wear and tear, but
also collects the entire stipulated purchase price, probably
swelled up fifty per cent including interest, costs, and
attorney's fees. This practice is worse than usurious in
many instances. And although, of course, the purchaser
must suffer the consequences of his imprudence and lack
of foresight, the chastisement must not be to the extent of
ruining him completely and, on the other hand, enriching
the vendor in a manner which shocks the conscience. The
object of the law is highly commendable. As to whether or
not the means employed to do away with the evil above
mentioned are arbitrary will be presently set out."

In a case which reached this court, Mr. Justice Goddard,

interpreting Act No. 4122, made the following observations:
"Undoubtedly the principal object of the above amendment
was to remedy the abuses committed in connection with
the foreclosure of chattel mortgages. This amendment
prevents mortgagees from seizing the mortgaged property,
buying it at foreclosure sale for a low price and then
bringing suit against the mortgagor for a deficiency
judgment. The almost invariable result of this procedure
was that the mortgagor found himself minus the property
and still owing practically the full amount of his original
indebtedness. Under this amendment the vendor of
personal property, the purchase price of which is payable
in installments, has the right to cancel the sale or foreclose
the mortgage if one has been given on the property.
Whichever right the vendor elects he need not return to
the purchaser the amount of the full installment already
paid, "if there be an agreement to that effect."
Furthermore, if the vendor avails himself of the right from
foreclose the mortgage this amendment prohibits him from
bringing an action against the purchaser for the unpaid
balance."
"In other words, under this amendment, in all proceedings
for the foreclosure of chattel mortgages, executed on
chattels which have been sold on the installment plan, the
mortgagee is limited to the property included in the
mortgage" (Bachrach Motor Co. vs. Millan [1935]. 61 Phil.,
409.).
Public policy having thus had in view the objects just outlined, we
should next examine the law to determine if notwithstanding that
policy, it violates any of the constitutional principles dealing with the
three general subjects here to be considered.
In an effort to enlighten us, our attention has been directed to
certain authorities, principally one coming from the state of

Washington and another from the State of Oregon. For reason

which will soon appear we do not think that either decision is
controlling.
In 1897, an Act was passed in the State of Washington which
provided "that in all proceedings for the foreclosure of mortgages
hereafter executed or on judgments rendered upon the debt
thereby secured the mortgagee or assignee shall be limited to the
property included in the mortgage." It was held by a divided court of
three to two that the statute since limiting the right to enforce a debt
secured by mortgage to the property mortgaged whether realty or
chattles, was an undue restraint upon the liberty of a citizen to
contract with respect to his property right. But as is readily
apparent, the Washington law and the Philippine law are radically
different in phraseology and in effect. (Dennis vs. Moses [1898], 40
L. R. A., 302.)
In Oregon, in a decision of a later date, an Act abolishing deficiency
judgment upon the foreclosure of mortgages to secure the unpaid
balance of the purchase price of real property was unanimously
sustained by the Supreme Court of that State. The importance of
the subject matter in that jurisdiction was revealed by the fact that
four separate opinions were prepared by the justices participating,
in one of which Mr. Justice Johns, shortly thereafter to become a
member of this court, concurred. However, it is but fair state that
one of the reasons prompting the court to uphold the law was the
financial depression which had prevailed in that State. While in the
Philippines the court take judicial notice of the stringency of finance
that presses upon the people we have no reason to believe that this
was the reason which motivated the enactment of Act 4122. (Wright
vs. Wimberley [1919], 184 Pac., 740.)
While we are on the subject of the authority, we may state that we
have examined all of those obtainable, including some of recent
date but have not been enlightened very much because as just
indicated, they concerned different state of facts and different laws.
We gain the most help from the case of Bronzon vs. Kinzie ([1843],
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

provide that the equitable estate of the mortgagor should not be
extinguished for twelve months after sale on decree, and which
prevented any sale of the mortgaged property unless two-thirds of
the amount at which the property had been valued by appraisers
should be bid therefor. The court, by Mr. Chief Justice Taney
declared: "Mortgages made since the passage of these laws must
undoubtedly be governed by them; for every State has power to
describe the legal and equitable obligation of a contract to be made
and executed within it jurisdiction. It may exempt any property it
thinks proper from sale for the payment of a debt; and may
imposed such conditions and restriction upon the creditor as its
judgment and policy may dictate. And all future contracts would be
subject to such provisions; and they would be obligatory upon the
parties in the provisions; and they would be obligatory upon the
parties in the courts of the United States, as well as in those of the
state."
As we understand it, parties have no vested right in particular
remedies or modes of procedure, and the legislature may change
existing remedies or modes of procedure without impairing the
obligation of contracts, provided an efficacious remedy for
enforcement. But changes in the remedies available for the
enforcement of a mortgage may not, even when public policy is
invoked as an excuse, be pressed so far as to cut down the
security of a mortgage without moderation or reason or in a spirit of
oppression. (Brotherhood of American Yeoman vs. Manz [1922],
206 Pac., 403; Oshkosh Waterworks Co. vs. Oshkosh [1908], 187
U. S., 437; W. B. Worthen Co. vs. Kavanaugh [1935], 79 U. S.
Supreme Court Advance Opinions, 638.)
In the Philippines, the Chattel Mortgage Law did not expressly
provide for a deficiency judgment upon the foreclosure of a
mortgage. Indeed, it required decisions of this court to authorize
such a procedure. (Bank of the Philippine Island vs. Olutanga
Lumber Co., [1924], 47 Phil., 20; Manila Trading and Supply Co. vs.
Tamaraw Plantation Co., supra.) But the practice became universal
enactment regarding procedure. To a certain extent the Legislature

has now disauthorized this practice, but has left a sufficient remedy
remaining.
Three remedies are available to the vendor who has sold personal
property on the installment plan. (1) He may elect to exact the
fulfillment of the obligation. (Bachrach Motor Co. vs. Milan, supra.)
(2) If the vendee shall have failed to pay two or more installments,
the vendor may cancel the sale. (3) If the vendee shall have failed
to pay two or more installments, the vendor may foreclose the
mortgage, if one has been given on the property. The basis of the
first option is the Civil Code. The basis of the last two option is Act
No. 4122, amendatory of the Civil Code. And the proviso to the right
to foreclose is, that if the vendor has chosen this remedy, he shall
have no further action against the purchaser for the recovery of any
unpaid balance owing by the same. In other words, as we see it,
the Act does no more than qualify the remedy.
Most constitutional issues are determined by the court's approach
to them. The proper approach in cases of this character should be
to resolve all presumptions in favor of the validity of an act in the
absence of a clear conflict between it and the constitution. All
doubts should be resolved in its favor.
The controlling purpose of Act No. 4122 is revealed to be to close
the door to abuses committed in connection with the foreclosure of
chattel mortgages when sales were payable in installments. The
public policy, obvious from the statute, was defined and established
by legislative authority. It is for the courts to perpetuate it.
We are of the opinion that the Legislative may change judicial
methods and remedies for the enforcement of contracts, as it has
done by the enactment of Act No. 4122, without unduly interfering
with the obligation of the contract, without sanctioning class
legislation, and without a denial of the equal protection of the laws.
We rule that Act No. 4122 is valid and enforceable. As a
consequence, the errors assigned by the appellant are overruled,
and the judgment affirmed, the costs of this instance to be taxed
against the losing party.

In his brief counsel for the plaintiff advances no new arguments which have
not already been considered in 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,
attorney's fees, expenses of collection, and the costs. The fundamental rule
which should govern the interpretation of laws is to ascertain the intention
and meaning of the Legislature and to give effect thereto. (Sec. 288, Code of
Civil Procedure; U. S. vs. Toribio, 15 Phil., 85; U. S. vs. Navarro, 19 Phil.,
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
Legislature to limit its meaning to the unpaid balance of the principal, it
would have so stated. We hold, therefore, that the assignment of error is
untenable.
In view of the foregoing, the appealed judgment is affirmed, with the costs of
this instance to the plaintiff and appellant. So ordered.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-27645

November 28, 1969

FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiff-appellee,

vs.
LOURDES V. RIDAD and LUIS RIDAD, defendants-appellants.

Osmundo R. Victoriano for defendants-appellants.

Emilio B. Saunar for plaintiff-appellee.

When the case was called for pre-trial, the CFI advanced the opinion that
there was no need for the parties to adduce evidence and that the case
could be decided on the basis of the pleadings submitted by the parties.

CASTRO, J.:
Appeal by the spouses Lourdes V. Ridad and Luis Ridad from the decision of
the Court of First Instance of Manila in civil case 64288, a replevin suit,
awarding to the appellee Filipinas Investment and Finance Corporation the
amount of P163.65 representing actual expenses and P300 as attorney's
fees.
The spouses Ridad bought from the Supreme Sales & Development
Corporation, the appellee's assignor-in-interest, a Ford Consul sedan for the
total price of P13,371.40. The sum of P1,160 was paid on delivery, the
balance of P12,211.50 being payable in twenty-four equal monthly
installments, with interest at 12% per annum, secured by a promissory note
and a chattel mortgage on the car executed on March 19, 1964. The
spouses thereafter failed to pay five consecutive installments on a remaining
balance of P5,274.53. On October 13, 1965 the appellee instituted a replevin
suit in the city court of Manila for the seizure of the car (par. 7 of the
complaint alleged "unjustifiable failure and refusal of the defendants . . . to
surrender possession of the . . . motor vehicle for the purpose of
foreclosure"), or the recovery of the unpaid balance in case delivery could
not be effected. The car was then seized by the sheriff of Manila and
possession thereof was awarded to the appellee. During the progress of the
case, the appellee instituted extrajudicial foreclosure proceedings, as a
result of which, on December 22, 1965, the car was sold at public auction
with the appellee as the highest bidder and purchaser.
Meanwhile, in view of the failure of the defendants-spouses to appear at the
scheduled hearing of the case, allegedly due to non-receipt of the summons,
they were declared in default. The default judgment ordered them to pay to
the appellee the sum of P500 as attorney's fees, and P163.65 representing
actual expenses relative to the seizure of the car, plus costs.
Their motion to set aside his order of default and the decision having been
denied, they appealed to the Court of First Instance of Manila.

The trial court on September 5, 1966, rendered judgment for the appellee,
as follows:
As stated in the pre-trial order of this Court dated May 27, 1966, the
only issue remaining to be resolved is whether the plaintiff is
entitled to receive P500.00 as attorney's fees and P163.65 for
expenses incurred by the plaintiff in the seizure of the car which
was the object of the chattel mortgage executed by the defendants
in favor of the plaintiff.
Upon consideration of the circumstances of the case, the court
holds that the plaintiff is entitled to recover the amount of P163.65
which represents the expenses incurred by the plaintiff in the
seizure of the car involved in this case.
Considering that the plaintiff had recovered the car involved in the
case while it is still in the lower court, and considering further that
the defendants did not resist the case and the only question said
defendants raised before this court is the amount of attorney's fees,
the court in the exercise of its equitable jurisdiction reduces the
attorney's fees granted to the plaintiff by the lower court to P300.00.
In this appeal, the appellants contend that the trial court erred: (1) in
rendering a decision which does not state the facts and the law on which it is
based; (2) in condemning the appellants to pay P300 for attorney's fees and
P163.65 for expenses incurred in the seizure of the car which was the object
of the chattel mortgage executed by them in favor of the appellee; and (3) in
not dismissing the appellee's complaint.
1. We uphold the appellee's contention that the disputed decision of the
lower court complies substantially with the requirements of law because it
referred to the pre-trial order it issued on May 27, 1966 which contains
substantial findings of facts. For although settled is the doctrine that a
decree with absolutely nothing to support it is a nullity, the law, however,

merely requires that a decision state the "essential ultimate facts upon which
the court's conclusion is drawn."1 There being an express reference to the
pre-trial order, the latter must be considered and taken as forming part of the
decision. The claim, therefore, that the judgment clearly transgresses the
legal precept2 because it does not state the facts of the case and the law on
which it is based and hence, is a nullity, finds no justification here.
2. The appellants theorize that the action of the appellee is for the payment
of the unpaid balance of the purchase price with a prayer for replevin. When,
therefore, the appellee seized the car, extrajudicially foreclosed the
mortgage, had the vehicle sold, and bought the same at public auction as
the highest bidder, it thereby renounced any and all rights which it might
have under the promissory note as well as the payment of the unpaid
balance, and, consequently, what it would otherwise be entitled under and
by virtue of the present action, including attorney's fees and costs of suit,
pursuant to article 1484 of the new Civil Code.
On the other hand, the appellee maintains that it is entitled to an award of
attorney's fees and actual expenses and costs of suit by virtue of the
unjustifiable failure and refusal of the appellants to comply with their
obligations (one of which is the surrender of the chattel to the mortgagee
upon the 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
the unpaid balance of the purchase price by means of an action other than a
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,
necessarily, when the appellee therein foreclosed the mortgage on the motor
vehicle during the progress of the action, the other action for a sum of
money had to be dismissed since the same could not prosper as it would
constitute a separate action for the recovery of the unpaid balance
contemplated in article 1484; and that in the present case, however, the
court awarded attorney's fees, costs of suit and expenses incurred in relation
to the seizure of the motor vehicle by virtue of the writ of replevin in the
same action because the appellee was compelled to institute the same on
account of the appellants' unjustifiable failure and refusal to comply with the
former's demands.

The appellee further argues that the award of attorney's fees and the costs
of suit together with expenses incurred, was stipulated both in the
promissory note and chattel mortgage contract; that even in the absence of
such stipulation, the award of attorney's fees is discretionary on the part of
the court pursuant to par. 2, art. 2208, new Civil Code; and that the said
award could likewise be made by the lower court on the basis of the general
prayer in the complaint for the award of whatever relief that the lower court
may deem just and equitable in the premises.
It is true that the present action is one for replevin, but because it culminated
in the foreclosure of the chattel mortgage and the sale of the car at public
auction, it is our view that the provisions of art. 1484 of the Civil Code (Recto
Law) must govern the resolution of the issue here presented.
This article recites that
In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the
following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two or
more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.
This article was reproduced from the old art. 1454-A, which in turn was
inserted by Act 4122 (Recto Law). "Three remedies are available to the
vendor who has sold personal property on the installment plan: (1) He may
elect to exact the fulfillment of the obligation. (Bachrach Motor Co. vs. Millan,
61 Phil. 409) (2) If the vendee shall have failed to pay two or more
installments, the vendor may cancel the sale. (3) If the vendee shall have
failed to pay two or more installments, the vendor may foreclose the

mortgage, if one has been given on the property. The basis of the first option
is the Civil Code. The basis of the last two options is Act 4122 (inserted in
the Spanish Civil Code as art. 4154-A and now reproduced in arts. 1484 and
1485), amendatory of the Civil Code. And the proviso to the right to foreclose
is that if the vendor has chosen this remedy, he shall have no further action
against the purchaser for the recovery of any unpaid balance owing by the
same. In other words, as we see it, the Act does no more than qualify the
remedy."3
The legal issue which is the core of the controversy in the case at bar was
resolved in Macondray & Co. vs. Eustaquio,4 as follows:
The plaintiff brought the action against the defendant to obtain the
possession of an automobile mortgaged by the latter, and to
recover the balance owing upon a note executed by him, the
interest thereon, attorney's fees, expenses of collection, and the
costs. The defendant was duly summoned, but he failed to appear
or file his answer, wherefore, he was declared in default and the
appealed judgment was rendered accordingly.
The plaintiff sold to the defendant a De Soto car, Sedan, for the
price of which, P595, he executed in its favor the note of May 22,
1934. Under this note, the defendant undertook to pay the car in
twelve monthly installments, with 12 per cent interests per annum,
and likewise agreed that, should he fail to pay any monthly
installment together with interest, the remaining installments would
become due and payable, and the defendant shall pay 20 per cent
upon the principal owing as attorney's fees, expenses of collection
which the plaintiff might incur, and the costs. To guarantee the
performance of his obligations under the note, the defendant on the
same date mortgaged the purchased car in favor of the plaintiff,
and bound himself under the same conditions stipulated in the note
relative to the monthly installments, interest, attorney's fees,
expenses of collection, and costs. The mortgage deed was
registered on June 11, 1934, in the office of the register of deeds of
the Province of Rizal. On the 22nd of the same month, the
defendant paid P43.75 upon the first installment, and thereafter
failed to pay any of the remaining installments. In accordance with

the terms of the mortgage, the plaintiff called upon the sheriff to
take possession of the car, but the defendant refused to yield
possession thereof, whereupon, the plaintiff brought the replevin
sought and thereby succeeded in getting possession of the car. The
car was sold at public auction to the plaintiff for P250, the latter
incurring legal expenses in the amount of P10.68. According to the
liquidation filed by the plaintiff, the defendant was still indebted in
the amount of P342.20, interest at 12 per cent from November 20,
1934, P110.25 as attorney's fees, and the costs.
xxx

xxx

xxx

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,
attorney's fees, expenses of collection, and the costs. The
fundamental rule which should govern the interpretation of laws is
to ascertain the intention and meaning of the Legislature and to
give effect thereto. (Sec. 288, Code of Civil Procedure; U.S. vs.
Toribio, 15 Phil. 85; U.S. vs. Navarro, 19 Phil. 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
Legislature to limit its meaning to the unpaid balance of the

principal, it would have so stated. We hold, therefore, that the

assignment of error is untenable. (emphasis supplied)
In other words, under this amendment as above interpreted, in all
proceedings for the foreclosure of a chattel mortgage, executed on chattels
which have been sold on the installment plan, the mortgagee is limited to the
property mortgaged5 and is not entitled to attorney's fees and costs of suit.
In a subsequent case6 where the vendor in a sale of personal property in
installments, upon failure of the vendee to pay his obligations, the vendor
commenced, through court action, to recover the unpaid balance of the
purchase price, but later, during the progress of the action, foreclosed the
chattel mortgage constituted on the property, attorney's fees and costs of
suit were denied to the vendor. There the Supreme Court held:
Paragraph 3 of the above-quoted provision (article 1484, new Civil
Code) is clear that foreclosure of the chattel mortgage and recovery
of the unpaid balance of the price are alternative remedies and may
not be pursued conjunctively. It appearing in the case at bar that
the vendor had already foreclosed the chattel mortgage constituted
on the property and had taken possession thereof, the lower court
acted rightly in dismissing the complaint filed for the purpose of
recovering the unpaid balance of the purchase price. By seizing the
truck and foreclosing the mortgage at the progress of the suit, the
plaintiff renounced whatever claim it may have had under the
promissory note, and consequently, he has no more cause of action
against the promisor and the guarantor. And he has no more right
either to the costs and the attorney's fees that would go with the
suit.
This might be considered a reiteration of the ruling in Macondray.
A scrutiny of the doctrine enunciated in the above-cited cases will reveal that
its ultimate and salutary purpose is to prevent the vendor from circumventing
the Recto Law. Congress sought to protect the buyers on installment who
more often than not have been victimized by sellers who, before the
enactment of this law, succeeded in unjustly enriching themselves at the
expense of the buyers, because aside from recovering the goods sold, upon

default of the buyer in the payment of two installments, still retained for
themselves all amounts already paid, and in addition, were adjudged entitled
to damages, such as attorney's fees, expenses of litigation and costs.
Congress could not have intended to impair much less do away with, the
right of the seller to make commercial use of his credit against the buyer,
provided the buyer is not burdened beyond what this law allows.7
It would appear from the emphasis and precision of the language employed
in the decisions already adverted to that in no instance whatsoever may the
mortgagee recover from the mortgagor any amount or sum after the
foreclosure of the mortgage, for, as we understand it, the philosophy of the
Recto Law is that the underprivileged mortgagors must be afforded full
protection against the rapacity of the mortgagees.
But while we unconditionally concur in, and give our approval to, the basic
philosophy of the Recto Law, we view with no small amount of
circumspection the implication, necessarily drawn from the above
discussion, that the mortgagee is not entitled to protection against perverse
mortgagors. Where the mortgagor plainly refuses to deliver the chattel
subject of the mortgage upon his failure to pay two or more installments, or if
he conceals the chattel to place it beyond the reach of the mortgagee, what
then is the mortgagee expected to do? It is part of conventional wisdom and
the rule of law that no man can take the law into his own hands; so it is not
to be supposed that the Legislature intended that the mortgagee should
wrest or seize the chattel forcibly from the control and possession of the
mortgagor, even to the extent of using violence which is unwarranted in law.
Since the mortgagee would enforce his rights through the means and within
the limits delineated by law, the next step in such situations being the filing of
an action for replevin to the end that he may recover immediate possession
of the chattel and, thereafter, enforce his rights in accordance with the
contractual relationship between him and the mortgagor as embodied in their
agreement, then it logically follows as a matter of common sense, that the
necessary expenses incurred in the prosecution by the mortgagee of the
action for replevin so that he can regain possession of the chattel, should be
borne by the mortgagor. Recoverable expenses would, in our view, include
expenses properly incurred in effecting seizure of the chattel and reasonable
attorney's fees in prosecuting the action for replevin. And we declare that in
this case before us, the amounts awarded by the court a quo to the
mortgagee (appellee) are reasonable.

To the extent that our pronouncement here conflicts with the ruling
announced and followed in the cases hereinbefore discussed, the latter must
be considered pro tanto qualified.
ACCORDINGLY, the judgment a quo is affirmed. No costs.

DECISION
GARCIA, J.:
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:

FIRST DIVISION
PCI LEASING AND FINANCE, INC.,
Petitioner,

- versus -

GIRAFFE-X CREATIVE IMAGING, INC.,

Respondent.

On December 4, 1996, petitioner PCI LEASING and respondent

GIRAFFE entered into a Lease Agreement,[1] whereby the former leased out to the
latter one (1) set of Silicon High Impact Graphics and accessories
worth P3,900,00.00 and one (1) unit of Oxberry Cinescan 640010 worth P6,500,000.00. In connection with this agreement, the parties subsequently
signed two (2) separate documents, each denominated as Lease Schedule.[2] Likewise
forming parts of the basic lease agreement were two (2) separate documents
G.R. No. 142618
denominated Disclosure Statements of Loan/Credit Transaction (Single Payment or
Installment Plan)[3] that GIRAFFE also executed for each of the leased equipment.
Present:
These disclosure statements inter aliadescribed GIRAFFE, vis--vis the two
PUNO, C.J., Chairperson,aforementioned equipment, as the borrower who acknowledged the net proceeds of
the loan, the net amount to be financed, the financial charges, thetotal installment
*
SANDOVAL-GUTIERREZ,
payments that it must pay monthly for thirty-six (36) months, exclusive of the
CORONA,
36% per annum late payment charges. Thus, for the Silicon High Impact
AZCUNA, and
Graphics,GIRAFFE agreed to pay P116,878.21 monthly, and for Oxberry
GARCIA, JJ.
Cinescan, P181.362.00 monthly. Hence, the total amount GIRAFFE has to pay PCI
LEASING for 36 months of the lease, exclusive of monetary penalties imposable, if
Promulgated:
proper, is as indicated below:

July 12, 2007

x------------------------------------------------------------------------------------x

P116,878.21 @ month (for the Silicon High

Impact Graphics) x 36 months = P 4,207,615.56
-- PLUS--

P181,362.00 @ month (for the Oxberry

Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT) P 10,736,647.56
By the terms, too, of the Lease Agreement, GIRAFFE undertook to
remit the amount of P3,120,000.00 by way of guaranty deposit, a sort of
performance and compliance bond for the two equipment. Furthermore, the same
agreement embodied a standard acceleration clause, operative in the event
GIRAFFE fails to pay any rental and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its
monthly rental-payment obligations. And following a three-month default, PCI
LEASING, through one Atty. Florecita R. Gonzales, addressed a formal pay-orsurrender-equipment type of demand letter[4] dated February 24, 1998 to GIRAFFE.

Upon PCI LEASINGs posting of a replevin bond, the trial court issued a
writ of replevin, paving the way for PCI LEASING to secure the seizure and
delivery of the equipment covered by the basic lease agreement.
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
PCI LEASING of its cause of action. Expounding on the point, GIRAFFE argues
that, pursuant to Article 1484 of the Civil Code on installment sales of personal
property, PCI LEASING is barred from further pursuing any claim arising from the
lease agreement and the companion contract documents, adding that the agreement
between the parties is in reality a lease of movables with option to buy. The given
situation, GIRAFFE continues, squarely brings into applicable play Articles 1484
and 1485 of the Civil Code, commonly referred to as the Recto Law. The cited
articles respectively provide:
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.

Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING
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,
PCI LEASING prayed for the issuance of a writ of replevin for the recovery of the
leased property, in addition to the following relief:
2. After trial, judgment be rendered in favor of
plaintiff [PCI LEASING] and against the defendant [GIRAFFE],
as follows:
a. Declaring the plaintiff entitled to the
possession
of
the
subject
properties;
b. Ordering the defendant to pay the balance
of rental/obligation in the total
amount of P8,248,657.47 inclusive
of interest and charges thereon;
c. Ordering defendant to pay plaintiff the
expenses of litigation and cost of
suit. (Words in bracket added.)

(1) Exact fulfillment of the obligation, should the

vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;
(3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary
shall be void. (Emphasis added.)
ART. 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.

It is thus GIRAFFEs posture that the aforequoted Article 1484 of the Civil
Code applies to its contractual relation with PCI LEASING because the lease
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
Articles 1484 and 1485, supra, of the Civil Code.
In its Opposition to the motion to dismiss, PCI LEASING maintains that
its contract with GIRAFFE is a straight lease without an option to buy. Prescinding
therefrom, PCI LEASING rejects the applicability to the suit of Article 1484 in
relation to Article 1485 of the Civil Code, claiming that, under the terms and
conditions of the basic agreement, the relationship between the parties is one
between an ordinary lessor and an ordinary lessee.
In a decision[7] dated December 28, 1998, the trial court granted
GIRAFFEs motion to dismiss mainly on the interplay of the following premises: 1)
the lease agreement package, as memorialized in the contract documents, is akin to
the contract contemplated in Article 1485 of the Civil Code, and 2) GIRAFFEs loss
of possession of the leased equipment consequent to the enforcement of the writ of
replevin is akin to foreclosure, the condition precedent for application of Articles
1484 and 1485 [of the Civil Code]. Accordingly, the trial court dismissed Civil Case
No. Q-98-34266, disposing as follows:
WHEREFORE, premises considered, the defendant
[GIRAFFE] having relinquished any claim to the personal
properties subject of replevin which are now in the possession of
the plaintiff [PCI LEASING], plaintiff is DEEMED fully
satisfied pursuant to the provisions of Articles 1484 and 1485 of
the New Civil Code. By virtue of said provisions, plaintiff is
DEEMED estopped from further action against the defendant,
the plaintiff having recovered thru (replevin) the personal
property sought to be payable/leased on installments, defendants
being under protection of said RECTO LAW. In view thereof,
this case is hereby DISMISSED.
With its motion for reconsideration having been denied by the trial court
in its resolution of February 15, 2000, [8] petitioner has directly come to this
Court via this petition for review raising the sole legal issue of whether or not the
underlying Lease Agreement, Lease Schedules and the Disclosure Statements that
embody the financial leasing arrangement between the parties are covered by and
subject to the consequences of Articles 1484 and 1485 of the New Civil Code.
As in the court below, petitioner contends that the financial leasing
arrangement it concluded with the respondent represents a straight lease
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
and authorizes its existence and business.

The recourse is without merit.

R.A. No. 5980, in its original shape and as amended, partakes of a
supervisory or regulatory legislation, merely providing a regulatory framework for
the organization, registration, and regulation of the operations of financing
companies. As couched, it does not specifically define the rights and obligations of
parties to a financial leasing arrangement. In fact, it does not go beyond defining
commercial or transactional financial leasing and other financial leasing concepts.
Thus, the relevancy of Article 18 of the Civil Code which reads:
Article 18. - In matters which are governed by special
laws, their deficiency shall be supplied by the provisions of this
[Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the Civil Code
provisions on installment sales of movable property, does not apply to a financial
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,
the absence of an option-to-buy stipulation in a financial leasing agreement, as
understood under R.A. No. 8556, prevents the application thereto of Articles 1484
and 1485 of the Civil Code.
We are not persuaded.
The Court can allow that the underlying lease agreement has the earmarks
or made to appear as a financial leasing,[9] a term defined in Section 3(d) of R.A. No.
8556 as a mode of extending credit through a non-cancelable
lease contract under which the lessor purchases or acquires, at
the instance of the lessee, machinery, equipment, office
machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed
amount of money sufficient to amortize at least seventy (70%)
of the purchase price or acquisition cost, including any
incidental expenses and a margin of profit over an
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
no obligation or option on his part to purchase the leased
property from the owner-lessor at the end of the lease contract.
In its previous holdings, however, the Court, taking into account the
following mix: the imperatives of equity, the contractual stipulations in question and

the actuations of parties vis--vis their contract, treated disguised transactions

technically tagged as financing lease, like here, as creating a different contractual
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
vehicle. Thereat, the Court has treated a purported financial lease as actually a sale
of a movable property on installments and prevented recovery beyond the buyers
arrearages. Wrote the Court in BA Finance:
The transaction involved is one of a "financial
lease" or "financial leasing," where a financing company
would, in effect, initially purchase a mobile equipment and
turn around to lease it to a client who gets, in addition, an
option to purchase the property at the expiry of the lease
period. xxx.

Lessee to give a guaranty deposit in the amount of P20,800.00]

xxx
After the private respondent had paid the sum of
P41,670.59, excluding the guaranty deposit of P20,800.00, he
stopped further payments. Putting the two sums together, the
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
P1,649.31.
The respondent appellate court considered it only just
and equitable for the guaranty deposit made by the private
respondent to be applied to his arrearages and thereafter to hold
the contract terminated. Adopting the ratiocination of the court a
quo, the appellate court said:

xxx xxx xxx

The pertinent provisions of [RA] 5980, thus
implemented, read:
"'Financing
companies,' are
primarily organized for the purpose of
extending credit facilities to consumers
either by leasing of motor vehicles, and
office machines and equipment, and other
movable property."
"'Credit' shall mean any loan, any
contract to sell, or sale or contract of sale of
property or service, under which part or all
of the price is payable subsequent to the
making of such sale or contract; any rentalpurchase contract; .;"
The foregoing provisions indicate no less than a mere
financing scheme extended by a financing company to a client in
acquiring a motor vehicle and allowing the latter to obtain the
immediate possession and use thereof pending full payment of
the financial accommodation that is given.
In the case at bench, xxx. [T]he term of the
contract [over a motor vehicle] was for thirty six (36) months at
a "monthly rental" (P1,689.40), or for a total amount of
P60,821.28. The contract also contained [a] clause [requiring the

xxx In view thereof, the guaranty

deposit of P20,800.00 made by the
defendant should and must be credited in his
favor, in the interest of fairness, justice and
equity. The plaintiff should not be allowed
to unduly enrich itself at the expense of
the defendant. xxx This is even more
compelling in this case where although
the transaction, on its face, appear
ostensibly, to be a contract of lease, it is
actually a financing agreement, with the
plaintiff financing the purchase of
defendant's automobile . The Court is
constrained, in the interest of truth and
justice, to go into this aspect of the
transaction between the plaintiff and the
defendant
with
all
the facts
and
circumstances existing in this case, and
which the court must consider in deciding
the case, if it is to decide the case according
to all the facts. xxx.
xxx xxx xxx
Considering the factual findings of both the court a
quo and the appellate court, the only logical conclusion is that
the private respondent did opt, as he has claimed, to acquire
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

private respondent. The result would thereby entitle said
respondent to the ownership and possession of the vehicle as
the buyer thereof. We, therefore, see no reversible error in the
ultimate judgment of the appellate court. [11] (Italics in the
original; underscoring supplied and words in bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals,[12] the Court
viewed and thus declared a financial lease agreement as having been simulated to
disguise a simple loan with security, it appearing that the financing company
purchased equipment already owned by a capital-strapped client, with the intention
of leasing it back to the latter.
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
monthly fixed rental therefor in the total amount of P292,531.00, or a total
of P10,531,116.00 for the whole 36 months. As a measure of good faith, respondent
made an up-front guarantee deposit in the amount ofP3,120,000.00. The basic
agreement provides that in the event the respondent fails to pay any rental due or is
in a default situation, then the petitioner shall have cumulative remedies, such as, but
not limited to, the following:[13]
1.
2.

3.

Obtain possession of the property/equipment;

Retain all amounts paid to it. In addition, the
guaranty deposit may be applied towards the payment
of liquidated damages;
Recover all accrued and unpaid rentals;

4.

Recover all rentals for the remaining term of the

lease had it not been cancelled, as additional
penalty;

5.

Recovery of any and all amounts advanced by

PCI LEASING for GIRAFFEs account xxx;

6.

Recover all expenses incurred in repossessing,

removing, repairing and storing the property; and,

7.

Recover all damages suffered by PCI LEASING by

reason of the default.

In addition, Sec. 6.1 of the Lease Agreement states that the guaranty
deposit shall be forfeited in the event the respondent, for any reason, returns the
equipment before the expiration of the lease.
At bottom, respondent had paid the equivalent of about a years lease
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
of P6,630,372.00 in favor of the petitioner. The replevin-seized leased equipment
had, as alleged in the complaint, an estimated residual value ofP6,900.000.00 at the
time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash
advances thus made to the residual value of the equipment, the total value which the
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).
The acquisition cost for both the Silicon High Impact Graphics equipment
and the Oxberry Cinescan was, as stated in no less than the petitioners letter to the
respondent dated November 11, 1996[14] approving in the latters favor a lease
facility, was P8,100,000.00. Subtracting the acquisition cost of P8,100,000.00 from
the total amount, i.e., P13,530,372.00, creditable to the respondent, it would clearly
appear that petitioner realized a gross income of P5,430,372.00 from its lease
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,
and interest earned by the guaranty deposit.
As may be noted, petitioners demand letter [15] fixed the amount
of P8,248,657.47 as representing the respondents rental balance which became due
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
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
- for a year and two months at the most - of the equipment. All in all, for an
investment of P8,100,000.00, the petitioner stands to make in a years time, out of the
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
Agreement was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and
salutary. R.A. No. 8556 was, in fact, precisely enacted to regulate financing
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
practices prejudicial to the public interest, in general, and to their clienteles, in
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
the rights and obligations, as between each other, of the financial lessor and the
lessee. In determining the respective responsibilities of the parties to the agreement,
courts, therefore, must train a keen eye on the attendant facts and circumstances of
the case in order to ascertain the intention of the parties, in relation to the law and
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
standard prepared form, unilaterally thought up and written by the financing
companies requiring only the personal circumstances and signature of the borrower
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
agreement in question exposes the many remedies available to the petitioner, while
there are only the standard contractual prohibitions against the respondent. This is
characteristic of standard printed form contracts.
There is more. In the adverted February 24, 1998 demand letter[17] sent to
the respondent, petitioner fashioned its claim in the alternative: payment of the full
amount ofP8,248,657.47, representing the unpaid balance for the entire 36-month
lease period or the surrender of the financed asset under pain of legal action. To
quote the letter:
Demand is hereby made upon you to pay in full your
outstanding balance in the amount of P8,248,657.47 on or before
March 04, 1998 OR to surrender to us the one (1) set Silicon
High Impact Graphics and one (1) unit Oxberry Cinescan 640010
We trust you will give this matter your serious and
preferential attention. (Emphasis added).
Evidently, the letter did not make a demand for the payment of
the P8,248,657.47 AND the return of the equipment; only either one of the two was
required. The demand letter was prepared and signed by Atty. Florecita R. Gonzales,
presumably petitioners counsel. As such, the use of or instead of and in the letter
could hardly be treated as a simple typographical error, bearing in mind the nature of
the demand, the amount involved, and the fact that it was made by a lawyer.
Certainly Atty. Gonzales would have known that a world of difference exists
between and and or in the manner that the word was employed in the letter.
A rule in statutory construction is that the word "or" is
a disjunctive term signifying dissociation and independence of
one thing from other things enumerated unless the context
requires a different interpretation.[18]

In its elementary sense, "or", as used in a statute, is a

disjunctive article indicating an alternative. It often connects a
series of words or propositions indicating a choice of either.
When "or" is used, the various members of the enumeration are
to be taken separately.[19]
The word "or" is a disjunctive term signifying
disassociation and independence of one thing from each of the
other things enumerated.[20]
The demand could only be that the respondent need not return the
equipment if it paid the P8,248,657.47 outstanding balance, ineluctably suggesting
that the respondent can keep possession of the equipment if it exercises its option to
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
equipment by returning them, then it need not pay the outstanding balance. This is
the logical import of the letter: that the transaction in this case is a lease in name
only. The so-called monthly rentals are in truth monthly amortizations of the price of
the leased office equipment.
On the whole, then, we rule, as did the trial court, that the PCI LEASINGGIRAFFE lease agreement is in reality a lease with an option to
purchase the equipment. This has been made manifest by the actions of the
petitioner itself, foremost of which is the declarations made in its demand letter to
the respondent. There could be no other explanation than that if the respondent paid
the balance, then it could keep the equipment for its own; if not, then it should return
them. This is clearly an option to purchase given to the respondent. Being so, Article
1485 of the Civil Code should apply.
The present case reflects a situation where the financing company can
withhold and conceal - up to the last moment - its intention to sell the property
subject of the finance lease, in order that the provisions of the Recto Law may be
circumvented. It may be, as petitioner pointed out, that the basic lease agreement
does not contain a purchase option clause. The absence, however, does not
necessarily argue against the idea that what the parties are into is not a straight lease,
but a lease with option to purchase. This Court has, to be sure, long been aware of
the practice of vendors of personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the object of the sale from
passing to the vendee until and unless the price is fully paid. As this Court noted
in Vda. de Jose v. Barrueco:[21]
Sellers desirous of making conditional sales of their
goods, but who do not wish openly to make a bargain in that
form, for one reason or another, have frequently resorted to

the device of making contracts in the form of leases either

with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called
rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the
lessee. It is obvious that such transactions are leases only in
name. The so-called rent must necessarily be regarded as
payment of the price in installments since the due payment of
the agreed amount results, by the terms of the bargain, in the
transfer of title to the lessee.
In another old but still relevant case of U.S. Commercial v. Halili,[22] a
lease agreement was declared to be in fact a sale of personal property by
installments. Said the Court:
. . . There can hardly be any question that the so-called
contracts of lease on which the present action is based were
veritable leases of personal property with option to purchase,
and as such come within the purview of the above article [Art.
1454-A of the old Civil Code on sale of personal property by
installment]. xxx
Being leases of personal property with option to
purchase as contemplated in the above article, the contracts in
question are subject to the provision that when the lessor in such
case has chosen to deprive the lessee of the enjoyment of such
personal property, he shall have no further action against the
lessee for the recovery of any unpaid balance owing by the
latter, agreement to the contrary being null and void.
In choosing, through replevin, to deprive the respondent of possession of
the leased equipment, the petitioner waived its right to bring an action to recover
unpaid rentals on the said leased items. Paragraph (3), Article 1484 in relation to
Article 1485 of the Civil Code, which we are hereunder re-reproducing, cannot be
any clearer.
ART. 1484. In a contract of sale of personal property
the price of which is payable in installments, the vendor may
exercise any of the following remedies:
xxx xxx xxx

(3) Foreclose the chattel mortgage on the thing sold, if

one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be
void.
ART. 1485. The preceding article shall be applied to contracts purporting
to be leases of personal property with option to buy, when the
lessor has deprived the lessee of the possession or enjoyment of
the thing.
As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals,
the remedies provided for in Article 1484 of the Civil Code are alternative, not
cumulative. The exercise of one bars the exercise of the others. This limitation
applies to contracts purporting to be leases of personal property with option to buy
by virtue of the same Article 1485. The condition that the lessor has deprived the
lessee of possession or enjoyment of the thing for the purpose of applying Article
1485 was fulfilled in this case by the filing by petitioner of the complaint for a sum
of money with prayer for replevin to recover possession of the office equipment.
[24]
By virtue of the writ of seizure issued by the trial court, the petitioner has
effectively deprived respondent of their use, a situation which, by force of the Recto
Law, in turn precludes the former from maintaining an action for recovery of
accrued rentals or the recovery of the balance of the purchase price plus interest. [25]
[23]

The imperatives of honest dealings given prominence in the Civil Code

under the heading: Human Relations, provide another reason why we must hold the
petitioner to its word as embodied in its demand letter. Else, we would witness
a situation where even if the respondent surrendered the equipment voluntarily, the
petitioner can still sue upon its claim. This would be most unfair for the respondent.
We cannot allow the petitioner to renege on its word. Yet more than that, the very
word or as used in the letter conveys distinctly its intention not to claim both the
unpaid balance and the equipment. It is not difficult to discern why: if we add up the
amounts paid by the respondent, the residual value of the property recovered, and
the amount claimed by the petitioner as sued upon herein (for a total
of P21,779,029.47), then it would end up making an instant killing out of the
transaction at the expense of its client, the respondent. The Recto Law was precisely
enacted to prevent this kind of aberration. Moreover, due to
considerations of equity, public policy and justice, we cannot allow this to

happen. Not only to the respondent, but those similarly situated who may fall prey to
a similar scheme.

Mario E. Ongkiko for private respondent.

WHEREFORE, the instant petition is DENIED and the trial courts
decision is AFFIRMED.
Costs against petitioner.
TEEHANKEE, J.:1wph1.t
SO ORDERED.
The Court, in affirming the decision under review of the Court of
Appeals, which holds that the respondent buyer of two small
residential lots on installment contracts on a ten-year basis who has
faithfully paid for eight continuous years on the principal alone already
more than the value of one lot, besides the larger stipulated interests
on both lots, is entitled to the conveyance of one fully paid lot of his
choice, rules that the judgment is fair and just and in accordance with
law and equity.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION

G.R. No. L-26578 January 28, 1974

LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAA and COURT OF APPEALS (FIFTH
DIVISION) * respondents.
Manuel Y. Macias for petitioners.

The action originated as a complaint for delivery of two parcels of land

in Sampaloc, Manila and for execution of the corresponding deed of
conveyance after payment of the balance still due on their purchase
price. Private respondent as plaintiff had entered into two written
contracts with petitioner Legarda Hermanos as defendant subdivision
owner, whereby the latter agreed to sell to him Lots Nos. 7 and 8 of
block No. 5N of the subdivision with an area of 150 square meters
each, for the sum of P1,500.00 per lot, payable over the span of ten
years divided into 120 equal monthly installments of P19.83 with 10%
interest per annum, to commence on May 26, 1948, date of execution of
the contracts. Subsequently, Legarda Hermanos partitioned the
subdivision among the brothers and sisters, and the two lots were
among those allotted to co-petitioner Jose Legarda who was then
included as co-defendant in the action.
It is undisputed that respondent faithfully paid for eight continuous
years about 95 (of the stipulated 120) monthly installments totalling
P3,582.06 up to the month of February, 1956, which as per petitioners'
own statement of account, Exhibit "1", was applied to respondent's
account (without distinguishing the two lots), as follows:
To interests P1,889.78

To principal 1,682.28
Total P3,582.06 1
It is equally undisputed that after February, 1956 up to the filing of
respondent's complaint in the Manila court of first instance in 1961,
respondent did not make further payments. The account thus shows
that he owed petitioners the sum of P1,317.72 on account of the
balance of the purchase price (principal) of the two lots (in the total
sum of P3,000.00), although he had paid more than the stipulated
purchase price of P1,500.00 for one lot.
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
house on the lots was prevented by their failure to introduce
improvements on the subdivision as "there is still no road to these
lots," and requesting information of the amount owing to update his
account as "I intend to continue paying the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as
respondent had failed to complete total payment of the 120
installments by May, 1958 as stipulated in the contracts to sell,
"pursuant to the provisions of both contracts all the amounts paid in
accordance with the agreement together with the improvements on the
premises have been considered as rents paid and as payment for
damages suffered by your failure," 2 and "Said cancellation being in
order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining
petitioners' cancellation of the contracts and dismissing respondent's
complaint, respondent appellate court on appeal rendered its judgment
of July 27, 1966 reversing the lower court's judgment and ordering
petitioners "to deliver to the plaintiff possession of one of the two lots,
at the choice of defendants, and to execute the corresponding deed of
conveyance to the plaintiff for the said lot," 3 ruling as follows:
During the hearing, plaintiff testified that he
suspended payments because the lots were not

actually delivered to him, or could not be, due to the

fact that they were completely under water; and also
because the defendants-owners failed to make
improvements on the premises, such as roads, filling
of the submerged areas, etc., despite repeated
promises of their representative, the said Mr. Cenon.
As regards the supposed cancellation of the
contracts, plaintiff averred that no demand has been
made upon him regarding the unpaid installments,
and for this reason he could not be declared in default
so as to entitle the defendants to cancel the said
contracts.
The issue, therefore, is: Under the above facts, may
defendants be compelled, or not, to allow plaintiff to
complete payment of the purchase price of the two
lots in dispute and thereafter to execute the final
deeds of conveyance thereof in his favor?
xxx xxx xxx
Whether or not plaintiffs explanation for his failure to
pay the remaining installments is true, considering the
circumstances obtaining in this case, we elect to
apply the broad principles ofequity and justice. In the
case at bar, we find that the plaintiff has paid the total
sum of P3,582.06 including interests, which is
even more than the value of the two lots. And even if
the sum applied to the principal alone were to be
considered, which was of the total of P1,682.28, the
same was already more than the value of one lot,
which is P1,500.00. The only balance due on both lots
was P1,317.72, which was even less than the value of
one lot. We will consider as fully paid by the
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

token of what he has paid the defendant Legarda

Hermanos. 4
Hence, the present petition for review, wherein petitioners insist on
their right of cancellation under the "plainly valid written agreements
which constitute the law between the parties" as against "the broad
principles of equity and justice" applied by the appellate court.
Respondent on the other hand while adhering to the validity of the
doctrine of the Caridad Estates cases 5 which recognizes the right of a
vendor of land under a contract to sell to cancel the contract upon
default, with forfeiture of the installments paid as rentals, disputes its
applicability herein contending that here petitioners-sellers were
equally in default as the lots were "completely under water" and "there
is neither evidence nor a finding that the petitioners in fact cancelled
the contracts previous to receipt of respondent's letter." 6
The Court finds that the appellate court's judgment finding that of the
total sum of P3,582.06 (including interests of P1,889.78) already paid by
respondent (which was more than the value of two lots), the sum
applied by petitioners to the principal alone in the amount of P1,682.28
was already more than the value ofone lot of P1,500.00 and
hence one of the two lots as chosen by respondent would be
considered as fully paid, is fair and just and in accordance with law
and equity.

As already stated, the monthly payments for eight years made by

respondent were applied to his account without specifying or
distinguishing between the two lots subject of the two agreements
under petitioners' own statement of account, Exhibit "1". 7 Even
considering respondent as having defaulted after February 1956, when
he suspended payments after the 95th installment, he had as of the
already paid by way of principal(P1,682.28) more than the full value
of one lot (P1,500.00). The judgment recognizing this fact and ordering
the conveyance to him of one lot of his choice while also recognizing
petitioners' right to retain the interests of P1,889.78 paid by him for
eight years on both lots, besides the cancellation of the contract for
one lot which thus reverts to petitioners, cannot be deemed to
deny substantial justice to petitioners nor to defeat their rights under
the letter and spirit of the contracts in question.
The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc.
vs. Javier 8 is fully applicable to the present case, with the respondent
at bar being granted lesser benefits, since no rescission of contract
was therein permitted. There, where the therein buyer-appellee
identically situated as herein respondent buyer had likewise defaulted
in completing the payments after having religiously paid the stipulated
monthly installments for almost eight years and notwithstanding that
the seller-appellant had duly notified the buyer of the rescission of the
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."
In affirming, the Court held that "Regardless, however, of the propriety
of applying said Art. 1592 thereto, We find that plaintiff herein has not
been denied substantial justice, for, according to Art. 1234 of said
Code: 'If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and

complete fulfillment, less damages suffered by the obligee,'" and "that

in the interest of justice and equity, the decision appealed from may be
upheld upon the authority of Article 1234 of the Civil Code." 9
ACCORDINGLY, the appealed judgment of the appellate court is hereby
affirmed. Without pronouncement as to costs.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 167452

January 30, 2007

JESTRA DEVELOPMENT AND MANAGEMENT

CORPORATION, Petitioner,
vs.
DANIEL PONCE PACIFICO, represented by his attorney-in-fact Jordan
M. Pizarras, Respondent.
DECISION
CARPIO MORALES, J.:

On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation

Application1 with Fil-Estate Marketing Association for the purchase of a
house and lot located at Lot 28, Block 3, Phase II, Jestra Villas, Barangay La
Huerta, Municipality of Paraaque, Metro Manila (the property), and paid the
reservation fee of P20,000.
Under the Reservation Application, the total purchase price of the property
was P2,500,000, and the down payment equivalent to 30% of the purchase
price or P750,000 was to be paid interest-free in six monthly installments
due every fifth of the month starting July 1996 until December 1996. As
the P20,000 reservation fee formed part of the down payment, the monthly
installment on the down payment was fixed at P121,666.66.
Also under the Reservation Application, upon full payment of the 30% down
payment by Pacifico, he was to sign a contract to sell with the owner and
developer of the property, Joprest Development and Management
Corporation (now Jestra Development and Management Corporation,
hereafter Jestra). And the 70% balance on the purchase price or P1,750,000
was to be payable in 10 years, to bear interest at 21% per annum, at a
monthly installment ofP34,982.50. When the payment of the installments on
the 70% balance should commence, the Reservation Application was silent.

SECTION 2. TERMS OF PAYMENT. The PURCHASER agrees to pay the

aforecited purchase price [of P2,500,000.00] in the following manner,
namely:
2.1 The total amount of SEVEN HUNDRED FIFTY THOUSAND PESOS
ONLY (P750,000.00) Philippine Currency as down payment on or before
November 5, 1996.
2.2 The balance of ONE MILLION SEVEN HUNDTED FIFTY THOUSAND
PESOS ONLY (P1,750,00.00), Philippine Currency, shall be paid in One
Hundred Twenty (120) equal monthly installments at THIRTY FOUR
THOUSAND NINE HUNDRED EIGHT THREE PESOS ONLY (P34,983.00)
Philippine Currency, to commence on December 7, 1996, with interest at the
rate of Twenty One Percent (21%) per annum. The PURCHASER shall issue
One Hundred Twenty (120) postdated checks in favor of the
OWNER/DEVELOPER for each of the monthly installments, which checks
shall be delivered to the latter upon signing of this CONTRACT. The
PURCHASER shall be subject to the pre-qualification requirements of
COCOLIFE for the Mortgage Redemption Insurance (MRI) and the Building
Insurance on the UNIT. Interest re-pricing shall be effected on the 6th Year,
to commence on December 7, 2001.

Unable to comply with the schedule of payments, Pacifico requested Jestra

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
penalties/surcharges2 are paid.

x x x x (Underscoring supplied)
By letter4 of November 12, 1997, Pacifico requested Jestra that "the balance
be restructured" in light of the "present business condition."

With still a remaining balance of P260,000 on the down payment, Pacifico

and Jestra executed on March 6, 1997, Contract to Sell No. 833 over the
property. The said contract was silent on the unsettled balance on the down
payment.

By November 27, 1997, Pacifico had fully paid the 30% down payment, and
by December 4, 1997, he had paid a total of P846,600, P76,600 of which
Jestra applied as penalty charges for the belated settlement of the down
payment.

Under the Contract to Sell, Pacifico should have had on November 5,

1996, or one month prior to the deadline stated under the Reservation
Application, fully paid the 30% down payment, and that the 120 monthly
installments for the 70% balance or P1,750 should have had commenced
on December 7, 1996, viz:

By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final
demand for the payment ofP444,738.885 representing the total of 11
installments due on the 70% balance of the purchase price, inclusive of 21%
interest per annum and add-on interest at the rate of P384.81 per day,
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
contract, [Jestra] reserves its right to automatically cancel or rescind the
same on account of [his] failure/refusal to comply with the terms thereof."6
Pacifico later requested Jestra, by letter of November 12, 1997, for a
restructuring of his unsettled obligation. His request was granted on the
condition that the interest for the period from December 1996 to November
1997 amounting to P224,396.37 would be added to the 70% balance on the
purchase price; and that Pacifico issue 12 postdated checks beginning each
year to cover his amortization payments.
In light of the restructured scheme, the monthly amortization on the 70%
balance was from P34,982.50 increased toP39,468, to commence on
January 5, 1998.
Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover
his monthly amortizations from January to December 1998. The checks for
January and February 1998 were, however, dishonored due to insufficiency
of funds.7
By letter of March 24, 1998, Pacifico informed Jestra that due to sudden
financial difficulties, he was suspending payment of his obligation during the
10-month period, and that he wanted to dispose of the property to recover
his investment.8 And he requested that the postdated checks he issued be
returned to him.
Jestra, by letter9 of March 31, 1998, denied Pacificos request to suspend
payment and for the return of the postdated checks. It, however, gave him
until April 15, 1998 to sell the property failing which it warned him that it
would be constrained to re-open it for sale.
Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May
1, 1998, notifying him that it was, within 30 days after his receipt thereof,
exercising its right to cancel the Contract to Sell. Pacifico received the notice
on May 13, 1998.

amount of P209,377.75 covering monthly amortizations from January 30 to

May 30, 1998 inclusive of penalties. And it gave him until June 1, 1998 to
settle his account, failing which the Contract to Sell would be automatically
cancelled and it would re-open the property for sale.10
On February 24, 1999, Pacifico filed a complaint before the Housing and
Land Use Regulatory Board (HLURB) against Jestra, docketed as HLURB
Case No. REM-122499-10378, claiming that despite his full payment of the
down payment, Jestra failed to deliver to him the property within 90 days as
provided in the Contract to Sell dated March 6, 1997, and Jestra instead sold
the property to another buyer in October of 1998.11
Pacifico further claimed in his complaint that upon learning of the double
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 prayed that, among others things, judgment be rendered
declaring the second sale a nullity, ordering Jestra to deliver the property to
him and to pay him P11,000 a month from July 1997 until delivery.
By Decision12 of March 15, 2000, the Housing and Land Use Arbiter held
Jestra liable for failure to comply with Section 3 of Republic Act (RA) No.
6552 (Realty Installment Buyer Protection Act) requiring payment by the
seller of the cash surrender value of the buyers payments and Section 17 of
Presidential Decree No. 957 (REGULATING THE SALE OF SUBDIVISION
LOTS AND CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS
THEREOF) requiring it to register the Contract to Sell in the Office of the
Register of Deeds.
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
contract to sell . . . wherein the monthly amortization is P34,983,"13 he could
no longer demand the delivery of the property, its title having already been
transferred in the name of another buyer.
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

of the complainant and ordering respondent:
1. To pay and/or reimburse to the complainant the total
payments made amounting to Eight Hundred Forty Six Thousand
Six Hundred Pesos (P846,600.00) with interest thereon at twelve
percent (12%) per annum to be computed from the filing of the
complaint on 24 February 1999 until fully paid; and
2. To pay complainant the amount of Fifty Thousand Pesos
(P50,000.00) as damages and attorneys feesplus the costs of
litigation.14 (Underscoring supplied)
On appeal, the Board of Commissioners of the HLURB modified the decision
of the Arbiter by deleting the award ofP50,000 damages and ordering Jestra
to pay P20,000 as attorneys fees and P10,000 administrative fine for failure
to register the Contract to Sell in the Office of the Register of Deeds.
By Resolution of January 27, 2003, the HLURB Board of Commissioners
denied15 Jestras motion for reconsideration.
By Order16 of December 9, 2003, the Office of the President (OP), to which
the case was elevated, adopted "by reference the findings of facts and
conclusions of law" contained in the HLURB Board Resolution of January
27, 2003. And by Order17 dated March 18, 2004, it denied Jestras motion for
reconsideration.
On Jestras petition for review under Rule 43 of the Rules of Court, the Court
of Appeals (CA), by Decision18 dated January 31, 2005, affirmed the Orders
of the OP.
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:
I. . . . adopting the OPs conclusion that penalty payments should
be included in computing the total number of installment payments
made by a buyer (in relation to the payment of a cash surrender

value upon cancellation of a contract to sell) in spite of its exclusion

from the items to be included in computing the two (2) years
installment payments as provided in RA 6552
II. . . . adopting the OPs conclusion that petitioner failed to deliver
possession of the subject property to respondent upon his full
payment of the downpayment [sic] and that petitioners act of
canceling the contract to sell was unconscionable despite being
allowed under RA 6552.
RA No. 6552 was enacted to protect buyers of real estate on installment
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
must afford the buyer a grace period to pay them and, if at least two years
installments have already been paid, to refund the cash surrender value of
the payments. Thus Section of the Act provides:
SECTION 3. In all transactions or contracts involving the sale or financing of
real estate on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty-eight hundred forty-four, as
amended by Republic Act Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of installments, the buyer is entitled to
the following rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid installments due
within the total grace period earned by him which is hereby fixed at
the rate of one month grace period for every one year of installment
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.
(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
five years of installments, an additional five per cent every year but
not to exceed ninety per cent of the total payments made: Provided,

That the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.
As the records indicate, the total payments made by Pacifico (hereafter
respondent) amounted to P846,600. The appellate court, in concluding that
respondent paid at least two years of installments, adopted the formula used
by the HLURB by dividing the amount of P846,600 by the monthly
amortization of P34,983 to thus result to a quotient of 24.2 months.
Petitioner contests the computation, however. It claims that the amount
of P76,600 represents penalty payment and is a separate item to answer for
its lost income as a seller due to the delay in the payment20 of the 30% down
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
number of installments made.
Petitioner likewise claims that the proper divisor is not P34,983 but P39,468
since the parties agreed to restructure the amortizations owing to
respondents inability to comply with the schedule of payments previously
agreed upon in the Contract to Sell, and that if respondents total payments
less the penalty is to be divided by P39,468, the total installments paid would
only cover 19.5 months, hence, it was not obliged under RA No. 6552 to pay
the cash surrender value of such total payments.
This Court finds that neither of the parties computations is in order.
The total purchase price of the property is P2,500,000. As provided in the
Reservation Application, the 30% down payment on the purchase price
or P750,000 was to be paid in six monthly installments of P121,666.66.
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.

While, under the above-quoted Section 3 of RA No. 6552, the down payment
is included in computing the total number of installment payments made, the
proper divisor is neither P34,983 nor P39,468, but P121,666.66, the monthly
installment on the down payment.
The P750,000 down payment was to be paid in six monthly installments. If
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
pay the down payment in full eleven (11) months after the last monthly
installment was due, and the sum of P76,600 representing penalty for delay
of payment is deducted from the remaining P96,600, only a balance
of P20,000 remains.
As respondent failed to pay at least two years of installments, he is not,
under above-quoted Section 3 of RA No. 6552, entitled to a refund of the
cash surrender value of his payments. What applies to the case instead is
Section 4 of the same law, viz:
SECTION 4. In case where less than two years of installments were paid,
the seller shall give the buyer a grace period of not less than sixty days from
the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act. (Underscoring supplied)
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
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
seller shall furnish the buyer with a notice of cancellation or demand for
rescission through a notarial act, effective thirty (30) days from the buyer's
receipt thereof.

Respondent admits that under the restructured scheme, the first installment
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
to insufficiency of funds.
While respondent was notified of the dishonor of the checks, he took no
action thereon, hence, the 60 days grace period lapsed. Respondent made
no further payments thereafter. Instead, he requested for suspension of
payment and for time to dispose of the property to recover his investment.
Respondent admits that petitioner was justified in canceling the contract to
sell via the notarial Notice of Cancellation which he received on May 13,
1998. The contract was deemed cancelled22 30 days from May 13, 1998 or
on June 12, 1998.
WHEREFORE, the petition is GRANTED. The assailed Decision and
Resolution dated January 31, 2005 and March 16, 2005 of the Court of
Appeals are hereby REVERSED and SET ASIDE. The complaint of
respondent, Daniel Ponce Pacifico, is DISMISSED.1avvphi1.net
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-57552 October 10, 1986
LUISA F. MCLAUGHLIN, petitioner,
vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.
R.C. Domingo Jr. & Associates for private respondent.

FERIA, Actg. C.J.

This is an appeal by certiorari from the decision of the Court of Appeals, the
dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING PREMISES, the petition
for certiorari and mandamus is hereby GRANTED and the
Orders of respondent court dated November 21 and 27
both 1980 are hereby nullified and set aside and
respondent Judge is ordered to order private respondent
to accept petitioner's Pacific Banking Corporation certified
manager's Check No. MC-A-000311 dated November 17,
1980 in the amount of P76,059.71 in full settlement of
petitioner's obligation, or another check of equivalent kind
and value, the earlier check having become stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and private
respondent Ramon Flores entered into a contract of conditional sale of real
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
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
interest at the rate of 1% per month to commence from December 1, 1976,
until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First
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.
On December 27, 1979, the parties submitted a Compromise Agreement on
the basis of which the court rendered a decision on January 22, 1980. In
said compromise agreement, private respondent acknowledged his
indebtedness to petitioner under the deed of conditional sale in the amount
of P119,050.71, and the parties agreed that said amount would be payable
as follows: a) P50,000.00 upon signing of the agreement; and b) the balance
of P69,059.71 in two equal installments on June 30, 1980 and December 31,
1980.

As agreed upon, private respondent paid P50,000.00 upon the signing of the
agreement and in addition he also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent
agreed to pay one thousand (P l,000.00) pesos monthly rental beginning
December 5, 1979 until the obligation is duly paid, for the use of the property
subject matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:
That the parties are agreed that in the event the defendant
(private respondent) fails to comply with his obligations
herein provided, the plaintiff (petitioner) will be entitled to
the issuance of a writ of execution rescinding the Deed of
Conditional Sale of Real Property. In such eventuality,
defendant (private respondent) hereby waives his right to
appeal to (from) the Order of Rescission and the Writ of
Execution which the Court shall render in accordance with
the stipulations herein provided for.
That in the event of execution all payments made by
defendant (private respondent) will be forfeited in favor of
the plaintiff (petitioner) as liquidated damages.
On October 15, 1980, petitioner wrote to private respondent demanding that
the latter pay the balance of P69,059.71 on or before October 31, 1980. This
demand included not only the installment due on June 30, 1980 but also the
installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying
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
payment receipts.
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
this was refused acceptance by petitioner. However, this does not appear in
the decision of the Court of Appeals.

On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging

that private respondent failed to pay the installment due on June 1980 and
that since June 1980 he had failed to pay the monthly rental of P l,000.00.
Petitioner prayed that a) the deed of conditional sale of real property be
declared rescinded with forfeiture of all payments as liquidated damages;
and b) the court order the payment of Pl,000.00 back rentals since June
1980 and the eviction of private respondent.
On November 14, 1980, the trial court granted the motion for writ of
execution.
On November 17, 1980, private respondent filed a motion for
reconsideration tendering at the same time a Pacific Banking Corporation
certified manager's check in the amount of P76,059.71, payable to the order
of petitioner and covering the entire obligation including the installment due
on December 31, 1980. However, the trial court denied the motion for
reconsideration in an order dated November 21, 1980 and issued the writ of
execution on November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioner's exparte motion for clarification of the order of execution rescinding the deed of
conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a
petition for certiorari and prohibition assailing the orders dated November 21
and 27, 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
part as follows:
The issue here is whether respondent court committed a
grave abuse of discretion in issuing the orders dated
November 21, 1980 and November 27,1980.
The general rule is that rescission will not be permitted for
a slight or casual breach of the contract, but only for such
breaches as are substantial and fundamental as to defeat

the object of the parties in making the agreement. (Song

Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821)
In aforesaid case, it was held that a delay in payment for a
small quantity of molasses, for some twenty days is not
such a violation of an essential condition of the contract as
warrants rescission for non-performance.
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1,
the Song Fo ruling was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October
15, 1980 demanding that Flores pay the balance of
P69,059.71 on or before October 31, 1980. Thus it is
undeniable that despite Flores' failure to make the
payment which was due on June 1980, McLaughlin
waived whatever right she had under the compromise
agreement as incorporated in the decision of respondent
court, to demand rescission.
xxx xxx xxx
It is significant to note that on November 17, 1980, or just
seventeen (17) days after October 31, 1980, the deadline
set by McLaughlin, Flores tendered the certified manager's
check. We hold that the Song Fo ruling is applicable
herein considering that in the latter case, there was a 20day delay in the payment of the obligation as compared to
a 17-day delay in the instant case.
Furthermore, as held in the recent case of New Pacific
Timber & Supply Co., Inc. vs. Hon. Alberto Seneris, L41764, December 19, 1980, it is the accepted practice in
business to consider a cashier's or manager's check as
cash and that upon certification of a check, it is equivalent
to its acceptance (Section 187, Negotiable Instrument
Law) and the funds are thereby transferred to the credit of
the creditor (Araneta v. Tuason, 49 O.G. p. 59).

In the New Pacific Timber & Supply Co., Inc. case, the
Supreme Court further held that the object of certifying a
check is to enable the holder thereof to use it as money,
citing the ruling in PNB vs. National City Bank of New
York, 63 Phil. 711.
In the New Pacific Timber case, it was also ruled that the
exception in Section 63 of the Central Bank Act that the
clearing of a check and the subsequent crediting of the
amount thereof to the account of the creditor is equivalent
to delivery of cash, is applicable to a payment through a
certified check.
Considering that Flores had already paid P101,550.00
under the contract to sell, excluding the monthly rentals
paid, certainly it would be the height of inequity to have
this amount forfeited in favor McLaughlin. Under the
questioned orders, McLaughlin would get back the
property and still keep P101,550.00.
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
having arbitrarily abused its judicial discretion by disregarding the penal
clause stipulated by the parties in the compromise agreement which was the
basis of the decision of the lower court.
We agree with the appellate court that it would be inequitable to cancel the
contract of conditional sale and to have the amount of P101,550.00 (P
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
petitioner, particularly after private respondent had tendered the amount of
P76,059.71 in full payment of his obligation.
In the analogous case of De Guzman vs. Court of Appeals, this Court
sustained the order of the respondent judge denying the petitioners' motion
for execution on the ground that the private respondent had substantially
complied with the terms and conditions of the compromise agreement, and
directing the petitioners to immediately execute the necessary documents

transferring to the private respondent the title to the properties (July 23,
1985, 137 SCRA 730). In the case at bar, there was also substantial
compliance with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November 16,
1978 in the case of Luzon Brokerage Co., Inc. vs. Maritime Building Co.,
Inc., to the effect that Republic Act 6552 (the Maceda Law) "recognizes and
reaffirms the vendor's right to cancel the contract to sell upon breach and
non-payment of the stipulated installments but requires a grace period after
at least two years of regular installment payments ... . " (86 SCRA 305, 329)
On the other hand, private respondent also invokes said law as an
expression of public policy to protect buyers of real estate on installments
against onerous and oppressive conditions (Section 2 of Republic Act No.
6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972
provides as follows:
In case where less than two years of installments were
paid, the seller shall give the buyer a grace period of not
less than sixty days from the date the installment became
due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the
notice of the cancellation or the demand for rescission of
the contract by a notarial act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter entered into
contrary to the provisions of Sections 3, 4, 5 and 6, shall
be null and void.
The spirit of these provisions further supports the decision of the appellate
court. The record does not contain the complete text of the compromise
agreement dated December 20, 1979 and the decision approving it.
However, assuming that under the terms of said agreement the December

31, 1980 installment was due and payable when on October 15, 1980,
petitioner demanded payment of the balance of P69,059.71 on or before
October 31, 1980, petitioner could cancel the contract after thirty days from
receipt by private respondent of the notice of cancellation. Considering
petitioner's motion for execution filed on November 7, 1980 as a notice of
cancellation, petitioner could cancel the contract of conditional sale after
thirty days from receipt by private respondent of said motion. Private
respondent's tender of payment of the amount of P76,059.71 together with
his motion for reconsideration on November 17, 1980 was, therefore, well
within the thirty-day period grants by law..
The tender made by private respondent of a certified bank manager's check
payable to petitioner was a valid tender of payment. The certified check
covered not only the balance of the purchase price in the amount of
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
this point the appellate court correctly applied the ruling in the case of New
Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-694) to
the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:
An offer in writing to pay a particular sum of money or to
deliver a written instrument or specific property is, if
rejected, equivalent to the actual production and tender of
the money, instrument, or property.
However, although private respondent had made a valid tender of payment
which preserved his rights as a vendee in the contract of conditional sale of
real property, he did not follow it with a consignation or deposit of the sum
due with the court. As this Court has held:
The rule regarding payment of redemption prices is
invoked. True that consignation of the redemption price is
not necessary in order that the vendor may compel the
vendee to allow the repurchase within the time provided
by law or by contract. (Rosales vs. Reyes and Ordoveza,
25 Phil. 495.) We have held that in such cases a mere

tender of payment is enough, if made on time, as a basis

for action against the vendee to compel him to resell. But
that tender does not in itself relieve the vendor from his
obligation to pay the price when redemption is allowed by
the court. In other words, tender of payment is sufficient to
compel redemption but is not in itself a payment that
relieves the vendor from his liability to pay the redemption
price. " (Paez vs. Magno, 83 Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the
Manager's Check tendered by private respondent on
November 17, 1980 was subsequently cancelled and
converted into cash, the Court RESOLVED to REQUIRE
the parties within ten (10) days from notice to inform the
Court whether or not the amount thereof was deposited in
court and whether or not private respondent continued
paying the monthly rental of P1,000.00 stipulated in the
Compromise Agreement.
In compliance with this resolution, both parties submitted their respective
manifestations which confirm that the Manager's Check in question was
subsequently withdrawn and replaced by cash, but the cash was not
deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if the creditor
to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due, and that consignation alone shall produce the same
effect in the five cases enumerated therein; Article 1257 provides that in
order that the consignation of the thing (or sum) due may release the obligor,
it must first be announced to the persons interested in the fulfillment of the
obligation; and Article 1258 provides that consignation shall be made by
depositing the thing (or sum) due at the disposal of the judicial authority and
that the interested parties shall also be notified thereof.

As the Court held in the case of Soco vs. Militante, promulgated on June 28,
1983, after examining the above-cited provisions of the law and the
jurisprudence on the matter:
Tender of payment must be distinguished from
consignation. Tender is the antecedent of consignation,
that is, an act preparatory to the consignation, which is the
principal, and from which are derived the immediate
consequences which the debtor desires or seeks to
obtain. Tender of payment may be extrajudicial, while
consignation is necessarily judicial, and the priority of the
first is the attempt to make a private settlement before
proceeding to the solemnities of consignation. (8 Manresa
325). (123 SCRA 160,173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA
730), the vendee was released from responsibility because he had
deposited with the court the balance of the purchase price. Similarly, in the
above-cited case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101
SCRA 686), the judgment debtor was released from responsibility by
depositing with the court the amount of the judgment obligation.
In the case at bar, although as above stated private respondent had
preserved his rights as a vendee in the contract of conditional sale of real
property by a timely valid tender of payment of the balance of his obligation
which was not accepted by petitioner, he remains liable for the payment of
his obligation because of his failure to deposit the amount due with the court.
In his manifestation dated September 19, 1986, private respondent states
that on September 16, 1980, he purchased a Metrobank Cashier's Check
No. CC 004233 in favor of petitioner Luisa F. McLaughlin in the amount of
P76,059.71, a photocopy of which was enclosed and marked as Annex "A1;" but that he did not continue paying the monthly rental of Pl,000.00
because, pursuant to the decision of the appellate court, petitioner herein
was ordered to accept the aforesaid amount in full payment of herein
respondent's obligation under the contract subject matter thereof.

However, inasmuch as petitioner did not accept the aforesaid amount, it was
incumbent on private respondent to deposit the same with the court in order
to be released from responsibility. Since private respondent did not deposit
said amount with the court, his obligation was not paid and he is liable in
addition for the payment of the monthly rental of Pl,000.00 from January 1,
1981 until said obligation is duly paid, in accordance with paragraph 3 of the
Compromise Agreement. Upon full payment of the amount of P76,059.71
and the rentals in arrears, private respondent shall be entitled to a deed of
absolute sale in his favor of the real property in question.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
following modifications:
(a) Petitioner is ordered to accept from private respondent the Metrobank
Cashier's Check No. CC 004233 in her favor in the amount of P76,059.71 or
another certified check of a reputable bank drawn in her favor in the same
amount;
(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
(c) Petitioner is ordered to execute a deed of absolute sale in favor of private
respondent over the real property in question upon full payment of the
amounts as provided in paragraphs (a) and (b) above. No costs.

SO ORDERED.