This document provides a summary of a court case regarding a dispute over ownership of books. The petitioner company, EDCA Publishing, sold books to an impostor who paid with a bounced check. The impostor then sold some of the books to private respondents Leonor and Gerardo Santos. EDCA forcibly took the books back from the Santos, claiming they were unlawfully deprived of the books since payment was not received. However, the courts ruled that ownership of the books was transferred to the impostor upon delivery, even though the check bounced, so the impostor could validly transfer ownership to the Santos. While EDCA may have claims against the impostor, they were not unlawfully deprived of the books
This document provides a summary of a court case regarding a dispute over ownership of books. The petitioner company, EDCA Publishing, sold books to an impostor who paid with a bounced check. The impostor then sold some of the books to private respondents Leonor and Gerardo Santos. EDCA forcibly took the books back from the Santos, claiming they were unlawfully deprived of the books since payment was not received. However, the courts ruled that ownership of the books was transferred to the impostor upon delivery, even though the check bounced, so the impostor could validly transfer ownership to the Santos. While EDCA may have claims against the impostor, they were not unlawfully deprived of the books
This document provides a summary of a court case regarding a dispute over ownership of books. The petitioner company, EDCA Publishing, sold books to an impostor who paid with a bounced check. The impostor then sold some of the books to private respondents Leonor and Gerardo Santos. EDCA forcibly took the books back from the Santos, claiming they were unlawfully deprived of the books since payment was not received. However, the courts ruled that ownership of the books was transferred to the impostor upon delivery, even though the check bounced, so the impostor could validly transfer ownership to the Santos. While EDCA may have claims against the impostor, they were not unlawfully deprived of the books
EDCA PUBLISHING & DISTRIBUTING CORP., petitioner, vs. THE SPOUSES LEONOR and GERARDO SANTOS, doing business under the name and style of "SANTOS BOOKSTORE," and THE COURT OF APPEALS, respondents. Emiliano S. Samson, R. Balderrama-Samson, Mary Anne B. Samson for petitioner. Cendaa, Santos, Delmundo & Cendaa for private respondents. D E C I S I O N CRUZ, J p: The case before us calls for the interpretation of Article 559 of the Civil Code and raises the particular question of when a person may be deemed to have been "unlawfully deprived" of movable property in the hands of another. The article runs in full as follows: ART. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. The movable property in this case consists of books, which were bought from the petitioner by an impostor who sold it to the private respondents. Ownership of the books was recognized in the private respondents by the Municipal Trial Court, 1 which was sustained by the Regional Trial Court, 2 which was in turn sustained by the Court of Appeals. 3 The petitioner asks us to declare that all these courts have erred and should be reversed. This case arose when on October 5, 1981, a person identifying himself as Professor Jose Cruz placed an order by telephone with the petitioner company for 406 books, payable on delivery. 4 EDCA prepared the corresponding invoice and delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of P8,995.65. 5 On October 7, 1981, Cruz sold 120 of the books to private respondent Leonor Santos who, after verifying the seller's ownership from the invoice he showed her, paid him P1,700.00. 6 Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before clearing of his first check, made inquiries with the De la Salle College where he had claimed to be a dean and was informed that there was no such person in its employ. Further verification revealed that Cruz had no more account or deposit with the Philippine Amanah Bank, against which he had drawn the payment check. 7 EDCA then went to the police, which set a trap and arrested Cruz on October 7, 1981. Investigation disclosed his real name as Tomas de la Pea and his sale of 120 of the books he had ordered from EDCA to the private respondents. 8 On the night of the same date, EDCA sought the assistance of the police in Precinct 5 at the UN Avenue, which forced their way into the store of the private respondents and threatened Leonor Santos with prosecution for buying stolen property. They seized the 120 books without warrant, loading them in a van belonging to EDCA, and thereafter turned them over to the petitioner. 9 Protesting this high-handed action, the private respondents sued for recovery of the books after demand for their return was rejected by EDCA. A writ of preliminary attachment was issued and the petitioner, after initial refusal, finally surrendered the books to the private respondents. 10 As previously stated, the petitioner was successively rebuffed in the three courts below and now hopes to secure relief from us. To begin with, the Court expresses its disapproval of the arbitrary action of the petitioner in taking the law into its own hands and forcibly recovering the disputed books from the private respondents. The circumstance that it did so with the assistance of the police, which should have been the first to uphold legal and peaceful processes, has compounded the wrong even more deplorably. Questions like the one at bar are decided not by policemen but by judges and with the use not of brute force but of lawful writs. Now to the merits. It is the contention of the petitioner that the private respondents have not established their ownership of the disputed books because they have not even produced a receipt to prove they had bought the stock. This is unacceptable. Precisely, the first sentence of Article 559 provides that "the possession of movable property acquired in good faith is equivalent to a title," thus dispensing with further proof. The argument that the private respondents did not acquire the books in good faith has been dismissed by the lower courts, and we agree. Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing that they had been sold to Cruz, who said he was selling them for a discount because he was in financial need. Private respondents are in the business of buying and selling books and often deal with hard-up sellers who urgently have to part with their books at reduced prices. To Leonor Santos, Cruz must have been only one of the many such sellers she was accustomed to dealing with. It is hardly bad faith for any one in the business of buying and selling books to buy them at a discount and resell them for a profit. But the real issue here is whether the petitioner has been unlawfully deprived of the books because the check issued by the impostor in payment therefor was dishonored. In its extended memorandum, EDCA cites numerous cases holding that the owner who has been unlawfully deprived of personal property is entitled to its recovery except only where the property was purchased at a public sale, in which event its return is subject to reimbursement of the purchase price. The petitioner is begging the question. It is putting the cart before the horse. Unlike in the cases invoked, it has yet to be established in the case at bar that EDCA has been unlawfully deprived of the books. The petitioner argues that it was, because the impostor acquired no title to the books that he could have validly transferred to the private respondents. Its reason is that as the payment check bounced for lack of funds, there was a failure of consideration that nullified the contract of sale between it and Cruz. The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. According to the Civil Code: cdll ART. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. xxx xxx xxx ART. 1477. The owner ship of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. ART. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. It is clear from the above provisions, particularly the last one quoted, that ownership in the thing sold shall not pass to the buyer until full payment of the purchase price only if there is a stipulation to that effect. Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of bouncing checks. But absent the stipulation above noted, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. In Asiatic Commercial Corporation v. Ang, 11 the plaintiff sold some cosmetics to Francisco Ang, who in turn sold them to Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he had validly bought them from Ang, paying for the same in cash. Finding that there was no conspiracy between Tan and Ang to deceive Asiatic, the Court of Appeals declared: Yet the defendant invoked Article 464 12 of the Civil Code providing, among other things that "one who has been unlawfully deprived of personal property may recover it from any person possessing it." We do not believe that the plaintiff has been unlawfully deprived of the cartons of Gloco Tonic within the scope of this legal provision. It has voluntarily parted with them pursuant to a contract of purchase and sale. The circumstance that the price was not subsequently paid did not render illegal a transaction which was valid and legal at the beginning. LLjur In Tagatac v. Jimenez, 13 the plaintiff sold her car to Feist, who sold it to Sanchez, who sold it to Jimenez. When the payment check issued to Tagatac by Feist was dishonored, the plaintiff sued to recover the vehicle from Jimenez on the ground that she had been unlawfully deprived of it by reason of Feist's deception. In ruling for Jimenez, the Court of Appeals held: The point of inquiry is whether plaintiff-appellant Trinidad C. Tagatac has been unlawfully deprived of her car. At first blush, it would seem that she was unlawfully deprived thereof, considering that she was induced to part with it by reason of the chicanery practiced on her by Warner L. Feist. Certainly, swindling, like robbery, is an illegal method of deprivation of property. In a manner of speaking, plaintiff-appellant was "illegally deprived" of her car, for the way by which Warner L. Feist induced her to part with it is illegal and is punished by law. But does this "unlawful deprivation" come within the scope of Article 559 of the New Civil Code? xxx xxx xxx . . . The fraud and deceit practiced by Warner L. Feist earmarks this sale as a voidable contract (Article 1390 N.C.C.). Being a voidable contract, it is susceptible of either ratification or annulment. If the contract is ratified, the action to annul it is extinguished (Article 1392, N.C.C.) and the contract is cleansed from all its defects (Article 1396, N.C.C.); if the contract is annulled, the contracting parties are restored to their respective situations before the contract and mutual restitution follows as a consequence (Article 1398, N.C.C.).
However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale remains valid and binding. When plaintiff-appellant Trinidad C. Tagatac delivered the car to Feist by virtue of said voidable contract of sale, the title to the car passed to Feist. Of course, the title that Feist acquired was defective and voidable. Nevertheless, at the time he sold the car to Felix Sanchez, his title thereto had not been avoided and he therefore conferred a good title on the latter, provided he bought the car in good faith, for value and without notice of the defect in Feist's title (Article 1506, N.C.C.). There being no proof on record that Felix Sanchez acted in bad faith, it is safe to assume that he acted in good faith. The above rulings are sound doctrine and reflect our own interpretation of Article 559 as applied to the case before us. Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly transfer to the private respondents. The fact that he had not yet paid for them to EDCA was a matter between him and EDCA and did not impair the title acquired by the private respondents to the books. One may well imagine the adverse consequences if the phrase "unlawfully deprived" were to be interpreted in the manner suggested by the petitioner. A person relying on the seller's title who buys a movable property from him would have to surrender it to another person claiming to be the original owner who had not yet been paid the purchase price therefor. The buyer in the second sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith without even the right to reimbursement of the amount he had paid for it. It bears repeating that in the case before us, Leonor Santos took care to ascertain first that the books belonged to Cruz before she agreed to purchase them. The EDCA invoice Cruz showed her assured her that the books had been paid for on delivery. By contrast, EDCA was less than cautious in fact, too trusting in dealing with the impostor. Although it had never transacted with him before, it readily delivered the books he had ordered (by telephone) and as readily accepted his personal check in payment. It did not verify his identity although it was easy enough to do this. It did not wait to clear the check of this unknown drawer. Worse, it indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery, thereby vesting ownership in the buyer. Cdpr Surely, the private respondent did not have to go beyond that invoice to satisfy herself that the books being offered for sale by Cruz belonged to him; yet she did. Although the title of Cruz was presumed under Article 559 by his mere possession of the books, these being movable property, Leonor Santos nevertheless demanded more proof before deciding to buy them. It would certainly be unfair now to make the private respondents bear the prejudice sustained by EDCA as a result of its own negligence. We cannot see the justice in transferring EDCA's loss to the Santoses who had acted in good faith, and with proper care, when they bought the books from Cruz. While we sympathize with the petitioner for its plight, it is clear that its remedy is not against the private respondents but against Tomas de la Pea, who has apparently caused all this trouble. The private respondents have themselves been unduly inconvenienced, and for merely transacting a customary deal not really unusual in their kind of business. It is they and not EDCA who have a right to complain. WHEREFORE, the challenged decision is AFFIRMED and the petition is DENIED, with costs against the petitioner. Narvasa, Gancayco, Grio-Aquino and Medialdea, JJ., concur. ||| (EDCA Publishing & Distributing Corp. v. Spouses Santos, G.R. No. 80298, April 26, 1990)
FIRST DIVISION [G.R. No. 97442. June 30, 1994.] PILAR T. OCAMPO, petitioner, vs. COURT OF APPEALS and MAGDALENA S. VILLARUZ, respondents. SYLLABUS 1. CIVIL LAW; SALES; AGREEMENT TO SELL; WHEN PERFECTED AS A CONTRACT OF ABSOLUTE SALE; CASE AT BAR. Appellate court upheld the sale in favor of Villaruz on the theory that the 21 April 1975 agreement of Tolosa and Ocampo was merely a contract to sell. It claimed that in the absence of a deed of absolute sale in favor of Ocampo, in relation to par. 4 of the contract, Tolosa retained ownership over the land and validly conveyed the same to Villaruz, "Agreement to Sell Real Property" was a perfected contract of absolute sale wherein Tolosa forthwith sold, ceded and transferred the land to Ocampo. It provided "[T]hat for and in consideration of the sum of TWENTY-FIVE THOUSAND PESOS (P25,000.00), Philippine Currency, to be paid by the VENDEE unto the VENDOR, the latter hereby SELLS, CEDES and TRANSFERS in favor of the former her heirs and assigns, the above-described parcel of land, free from all liens and encumbrances." 2. ID.; ID.; ID.; ID.; SELLER HAD NO RIGHT TO RETAIN OWNERSHIP DESPITE NON-DELIVERY OF CERTAIN DOCUMENTS IN CASE AT BAR. The conditions mentioned in Dignos, reiterating Taguba and Luzon Brokerage Co., Inc., were not found in the subject contract to indicate that it was indeed a mere contract to sell or a deed of conditional sale. Contrary to the interpretation of the appellate court, we find nothing significant about par. 4 of the contract. . . . Paragraph 4 pertains to the undertaking of the seller to execute and deliver to the buyer any document deemed necessary by law to implement the sale and transfer title since the parties were unsure of what documents were pertinent. If the intent was for the seller to retain ownership and possession of the land through non-delivery of certain documents unless the price be fully paid, par. 4 alone should be inutile; it should have been complemented with a proviso that the sale would not be implemented nor the title considered transferred unless another document specifically for said purpose be first executed and delivered to the buyer. In this regard, no right to retain ownership and possession of the land pending full payment of the price can be inferred from the fact that no delivery was made to Ocampo. 3. ID.; ID.; ID.; ID.; RESCISSION; FAILURE TO PAY PRICE IN FULL WITHIN THE FIXED PERIOD, A GROUND THEREFOR; CASE AT BAR. The failure of the buyer to pay the price in full within a fixed period does not, by itself, bar the transfer of the ownership or possession, much less dissolve the contract of sale. . . . Under Art. 1592 of the Civil Code, the failure of Ocampo to complete her payment of the purchase price within the stipulated period merely accorded Tolosa the option to rescind the contract of sale upon judicial or notarial demand. However, the letter of 2 August 1977 claimed to have been sent by Tolosa to Ocampo rescinding the contract of sale was defective because it was not notarized and, more importantly, it was not proven to have been received by Ocampo. Likewise, Civil Case No. 12163 could not be considered a judicial demand under Art. 1592 of the Civil Code because it did not pray for the rescission of the contract. 4. ID.; ID.; ID.; ID.; ID.; ID.; EFFECT THEREOF; CASE AT BAR. Although the complaint sought the cancellation of Ocampo's adverse claim on Tolosa's OCT and for the refund of the payments made, these could not be equivalent to a rescission. In other words, seeking discharge from contractual obligations and an offer for restitution is not the same as abrogation of the contract. To rescind is "[t]o declare a contract void in its inception and to put an end to it as though it never were." It is "[n]ot merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made." 5. ID.; ID.; ID.; ID.; ID.; NOT JUSTIFIED WHERE BREACH OF CONTRACT WAS ONLY SLIGHT; CASE AT BAR. If only to accentuate her intention to make good her contractual obligations, Ocampo offered to pay the balance of the purchase price in her letter of 15 March 1977 or more than four months before Tolosa allegedly wrote his letter of rescission on 2 August 1977, and more than six months before the filing of Civil Case No. 12163 on 7 October 1977. This offer to pay prior to the demand for rescission is sufficient to defeat Tolosa's prerogative under Art. 1592 of the Civil Code. Tolosa, on the other hand, is now precluded from raising the issue of late payments. His unqualified acceptance of payments after the six-month period expired constitutes waiver of the period and, hence, of the ground to rescind under Art. 1592. In any case, however, the breach on the part of Ocampo was only slight if not outweighed by the bad faith of Tolosa in reneging in his own prestations, hence, judicial rescission of the contract cannot be justified. 6. ID.; ID.; DOUBLE SALES; BUYER HAVING OLDER TITLE IN GOOD FAITH, PREFERRED OVER REGISTRANT IN BAD FAITH; CASE AT BAR. While the contract dated 3 June 1977 in favor of Villaruz is also a contract of sale, that of Ocampo dated 21 April 1975 should prevail pursuant to Art. 1544 of the Civil Code on double sales. While Villaruz may have registered his contract or came into possession ahead of Ocampo, Villaruz was never in good faith. Since Ocampo had her adverse claim annotated on Tolosa's OCT on 6 June 1976, Villaruz could not profess innocence thereof when she signed her contract on 3 June 1977; in fact, her full payment of the purchase price was made dependent, among others, on the cancelation of this claim. Moreover, Villaruz admitted having been informed by Tolosa of the first sale to Ocampo while still negotiating to buy the land. Knowledge of the foregoing should have impelled Villaruz to investigate the circumstances of the annotation since this is equivalent to registration of Ocampo's contract of sale as against Villaruz. In sum, Ocampo having the older title in good faith and considering that personal knowledge thereof by Villaruz constitutes registration as against the latter, Ocampo should be considered the preferred buyer. D E C I S I O N BELLOSILLO, J p: Two (2) documents, an "Agreement to Sell Real Property" and a "Contract to Sell," covering the same parcel of land were executed by a seller in favor of two (2) different buyers. Both buyers now assert against each other a better title to the property. In dispute is an 18,260-square meter lot in the Poblacion of Tigbauan, Iloilo, described in Plan Psu-223696, L.R.C. Case No. N-675, L.R.C. Record No. N-38846, and registered under Original Certificate of Title No. 0-7743 in the name of seller Severino Tolosa. On 20 August 1974, Tolosa mortgaged the land to the Philippine Veterans Bank and had the encumbrance annotated on his certificate of title under Entry No. 238353. prcd On 17 March 1975, Tolosa and Pilar T. Ocampo, the latter being then represented by Teresa T. Borres, 1 entered into a contract whereby Tolosa undertook to sell the same parcel of land to Ocampo not later than 15 May 1975 for P22,000.00, P1,000.00 of which was paid upon execution thereof. 2 On 21 April 1975, the parties entered into an "Agreement to Sell Real Property" 3 whereby Tolosa "sells, cedes and transfers" the land to Ocampo in consideration of P25,000.00, P12,500.00 of which was paid upon signing of the deed and the balance to be due within six (6) months thereafter. Paragraph 4 of the contract provides that "immediately upon complete payment of the purchase price . . . by the VENDEE, the VENDOR . . . agrees to execute and deliver unto the VENDEE whatever pertinent document or documents necessary to implement this sale and to transfer title to the VENDEE." Before the six-month period to complete the payment of the purchase price expired, Ocampo paid but only the total of P16,700.00. 4 Nevertheless Tolosa accepted her subsequent late payments amounting to P3,900.00. 5 Meanwhile, the subject property was involved in a boundary dispute. 6 On 6 June 1976, upon learning of the mortgage lien, Ocampo caused her adverse claim to be annotated on Tolosa's certificate of title as Entry No. 279936. LLjur In his letter to Ocampo dated 15 March 1977, Tolosa sought the cancellation of Ocampo's adverse claim and presented her with two options, namely, a refund of payments made, or a share from the net proceeds if sold to a third party. 7 On even date, Ocampo through counsel wrote Tolosa expressing her readiness to pay the balance of the purchase price, which was P5,400.00, should Tolosa be ready to deliver to her the deed of absolute sale and the owner's duplicate of OCT No. 0-7743 for purposes of registration. 8 On 3 June 1977, Tolosa and Magdalena S. Villaruz executed a "Contract to Sell" 9 whereby Tolosa "sells, cedes, transfers, and conveys" to Villaruz the same land in consideration of P94,300.00. The amount of P15,000.00 was to be paid upon execution and the balance upon cancellation of all liens and encumbrances from the certificate of title. The contract stipulated the immediate conveyance of the physical possession of the land to Villaruz, although no deed of definite sale would be delivered to her unless the price was fully paid. The contract noted the supposed judicial termination of the boundary dispute over the land. On 19 July 1977, Tolosa wrote Ocampo offering to reimburse her what she paid provided she would sign a document canceling her adverse claim. 10 Failing to convince Ocampo, Tolosa filed a petition in the Court of First Instance of Iloilo to cancel the adverse claim of Ocampo. On 30 July 1977, Judge Ricardo M. Ilarde denied the petition. 11 On 4 August 1977, another adverse claim was caused to be annotated by Ocampo on OCT No. 0-7743 under Entry No. 302257. 12 LLjur
On 7 October 1977, Tolosa filed an action for "Breach of Contract, Damages and Quieting of Title" against Teresa Borres. 13 Borres claimed in her answer that she was merely the agent of Ocampo who was the real party in interest. Borres however died so that the trial court, on 2 July 1979, ordered her substitution by defendant Ocampo. Magdalena S. Villaruz, then claiming to have already bought the land, intervened in the case. On 9 October 1979, during the pendency of Civil Case No. 12163, Tolosa succeeded in securing from another branch of the court the cancellation of the adverse claims of Ocampo without notice to her. 14 This paved the way for the registration on 23 November 1979 of the contract of sale of Villaruz dated 8 August 1979 and the subsequent issuance of Transfer Certificate of Title No. T-100021 in her name which canceled the Original Certificate of Title No. 0-7743 of Tolosa. On 13 October 1981, Ocampo filed a third-party complaint against Villaruz. 15 On 7 January 1988, Judge Julian Y. Ereo of the Regional Trial Court of Iloilo, Branch 27, rendered a decision in Civil Case No. 12163 dismissing the complaint of Tolosa as well as the complaint in intervention of Villaruz 1. Declaring the contract to sell executed between plaintiff Severino Tolosa and third-party defendant Magdalena Villaruz as null and void as well as the Transfer of Certificate of Title issued in connection therewith, if any; LLpr 2. Ordering plaintiff Tolosa to execute the corresponding deed of sale in favor of third-party plaintiff Pilar T. Ocampo over the lot in litigation upon the latter's payment of the balance of P4,400.00; 3. Ordering plaintiff Tolosa to vacate and deliver possession of the lot in question to Pilar T. Ocampo; 4. Ordering plaintiff to pay Pilar T. Ocampo P10,000.00 as attorney's fees, P30,000.00 as moral damages, P2,000.00 as litigation expenses, and costs. Her motion for reconsideration having been denied on 26 March 1988, Villaruz appealed to the Court of Appeals. On 11 October 1990, the 16th Division of the Court of Appeals, 16 in CA-G.R. No. 18428, reversed and set aside the trial court's decision 1. Declaring Magdalena S. Villaruz the absolute owner of the parcel of land covered by TCT No. T-100021 of the Register of Deeds of Iloilo; 2. Ordering the Register of Deeds of Iloilo to annotate at the back of TCT No. T-100021 the adverse claims filed by Pilar Ocampo under Entry No. 279936 and 302257 found in OCT No. 0-7743; and 3. Ordering the parties to pay proportionate costs. The appellate court upheld the sale in favor of Villaruz on the theory that the 21 April 1975 agreement of Tolosa and Ocampo was merely a contract to sell. It claimed that in the absence of a deed of absolute sale in favor of Ocampo, in relation to par. 4 of the contract, Tolosa retained ownership over the land and validly conveyed the same to Villaruz. prcd The agreement between Tolosa and Ocampo dated 21 April 1975 although titled "Agreement to Sell Real Property" was a perfected contract of absolute sale wherein Tolosa forthwith sold, ceded and transferred the land to Ocampo. It provided "[T]hat for and in consideration of the sum of TWENTY-FIVE THOUSAND PESOS (P25,000.00), Philippine Currency, to be paid by the VENDEE unto the VENDOR, the latter hereby SELLS, CEDES and TRANSFERS in favor of the former her heirs and assigns, the above-described parcel of land, free from all liens and encumbrances." In Dignos v. CA, 17 we laid down the criteria that: ". . . a deed of sale is absolute in nature although denominated as a 'Deed of Conditional Sale' where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period (Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305). cdphil The conditions mentioned in Dignos, reiterating Taguba and Luzon Brokerage Co., Inc., were not found in the subject contract to indicate that it was indeed a mere contract to sell or a deed of conditional sale. Contrary to the interpretation of the appellate court, we find nothing significant about par. 4 of the contract which provides that . . . immediately upon complete payment of the purchase price herein by the VENDEE, the VENDOR hereby agrees to execute and deliver unto the VENDEE whatever pertinent document or documents necessary to implement this sale and to transfer title to the VENDEE. Paragraph 4 pertains to the undertaking of the seller to execute and deliver to the buyer any document deemed necessary by law to implement the sale and transfer title since the parties were unsure of what documents were pertinent. If the intent was for the seller to retain ownership and possession of the land through non-delivery of certain documents unless the price be fully paid, par. 4 alone should be inutile; it should have been complemented with a proviso that the sale would not be implemented nor the title considered transferred unless another document specifically for said purpose be first executed and delivered to the buyer. In this regard, no right to retain ownership and possession of the land pending full payment of the price can be inferred from the fact that no delivery was made to Ocampo. 18 The failure of the buyer to pay the price in full within a fixed period does not, by itself, bar the transfer of the ownership or possession, 19 much less dissolve the contract of sale. We held in De la Cruz v. Legaspi: 20 . . . they err in the assertion that as plaintiff failed to pay the price after the execution of the document of sale as agreed previously, the contract became null and void for lack of consideration. It cannot be denied that when the document was signed the cause or consideration existed: P450. The document specifically said so; and such was undoubtedly the agreement. Subsequent non- payment of the price at the time agreed upon did not convert the contract into one without cause or consideration: a nudum pactum (Levy vs. Johnson, 4 Phil. 650; Puato vs. Mendoza, 64 Phil. 457). The situation was rather one in which there is failure to pay the consideration, with its resultant consequences. In other words, when after the notarization of the contract, plaintiff failed to hand the money to defendants, as he previously promised, there was default on his part at most, and defendants' right was to demand interest legal interest for the delay, pursuant to article 1501 (3) of the Civil Code 21 (Villaruel vs. Tan King, 43 Phil. 251), or to demand rescission in court. (Escueta vs. Pardo, 42 Off. Gaz. 2759; Cortes vs. Bibao, 41 Phil. 298.) Such failure, however, did not ipso facto resolve the contract, no stipulation to that effect having been alleged (Cf. Warner Barnes & Co. vs. Inza, 43 Phil. 505). Neither was there any agreement nor allegation that payment on time was essential (Cf. Abella vs. Francisco, 55 Phil. 477; Berg vs. Magdalena Estate, 92 Phil. 110). cdphil Under Art. 1592 of the Civil Code, the failure of Ocampo to complete her payment of the purchase price within the stipulated period merely accorded Tolosa the option to rescind the contract of sale upon judicial or notarial demand. 22 However, the letter of 2 August 1977 claimed to have been sent by Tolosa to Ocampo rescinding the contract of sale 23 was defective because it was not notarized 24 and, more importantly, it was not proven to have been received by Ocampo. 25 Likewise, Civil Case No. 12163 could not be considered a judicial demand under Art. 1592 of the Civil Code because it did not pray for the rescission of the contract. Although the complaint sought the cancellation of Ocampo's adverse claim on Tolosa's OCT and for the refund of the payments made, these could not be equivalent to a rescission. In other words, seeking discharge from contractual obligations and an offer for restitution is not the same as abrogation of the contract. To rescind is "[t]o declare a contract void in its inception and to put an end to it as though it never were." 26 It is "[n]ot merely to terminate it and release parties from further obligations to each other but to abrogate it from the beginning and restore parties to relative positions which they would have occupied had no contract ever been made." 27 Even assuming arguendo that Civil Case No. 12163 was a valid judicial demand, rescission is not granted as a matter of course. Before Civil Case No. 12163 was filed on 7 October 1977, Ocampo not only paid Tolosa a total of P20,600.00 but also discharged Tolosa's mortgage debt in the amount of P4,453.41. Had not Tolosa ordered the Philippine Veterans Bank to return the mortgage debt payment by Ocampo, 28 the purchase price would have been deemed fully paid. LLjur If only to accentuate her intention to make good her contractual obligations, Ocampo offered to pay the balance of the purchase price in her letter of 15 March 1977 or more than four months before Tolosa allegedly wrote his letter of rescission on 2 August 1977, and more than six months before the filing of Civil Case No. 12163 on 7 October 1977. This offer to pay prior to the demand for rescission is sufficient to defeat Tolosa's prerogative under Art. 1592 of the Civil Code. Tolosa, on the other hand, is now precluded from raising the issue of late payments. His unqualified acceptance of payments after the six-month period expired constitutes waiver of the period and, hence, of the ground to rescind under Art. 1592. In any case, however, the breach on the part of Ocampo was only slight if not outweighed by the bad faith of Tolosa in reneging in his own prestations, hence, judicial rescission of the contract cannot be justified. Angeles v. Calasanz 29 is apropos
The right to rescind the contract for non-performance of one of its stipulations . . . is not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated: The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil., 821, 827). The question of whether a breach of a contract is substantial depends upon the attendant circumstances (Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17, 1968) . . . The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell . . . because they failed to pay the August installment, despite demand, for more than four (4) months. prLL The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P3920.00 excluding the 7 percent interest, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs-appellees (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829). It would unjustly enrich the defendants-appellants. Article 1234 of the Civil Code which provides that '[I]f 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,' also militates against the unilateral act of the defendants-appellants in canceling the contract. . . . We agree with the plaintiffs-appellees that when the defendants-appellants, instead of availing of their right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have waived and are now estopped from exercising their alleged right of rescission. In De Guzman v. Guieb (48 SCRA 68), we held . . . But defendants do not deny that in spite of the long arrearages, neither they nor their predecessor . . . even took steps to cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is admitted that the delayed payments were received without protest or qualification. . . . Under these circumstances, We cannot but agree with the lower court that at the time appellees exercised their option, appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the non- payment of six-months rentals by appellees by their having accepted without qualification on July 21, 1964 the full payment by appellees of all their arrearages. LLjur While the contract dated 3 June 1977 in favor of Villaruz is also a contract of sale, that of Ocampo dated 21 April 1975 should prevail pursuant to Art. 1544 of the Civil Code on double sales. 30 While Villaruz may have registered his contract or came into possession ahead of Ocampo, Villaruz was never in good faith. Since Ocampo had her adverse claim annotated on Tolosa's OCT on 6 June 1976, Villaruz could not profess innocence thereof when she signed her contract on 3 June 1977; in fact, her full payment of the purchase price was made dependent, among others, on the cancelation of this claim. Moreover, Villaruz admitted having been informed by Tolosa of the first sale to Ocampo while still negotiating to buy the land. 31 Knowledge of the foregoing should have impelled Villaruz to investigate the circumstances of the annotation since this is equivalent to registration of Ocampo's contract of sale as against Villaruz. In sum, Ocampo having the older title in good faith and considering that personal knowledge thereof by Villaruz constitutes registration as against the latter, Ocampo should be considered the preferred buyer. Incidentally, the stipulation in the contract of Villaruz conveying the land in her favor bows to Tolosa's admission at the witness stand on 15 May 1980 that he never actually delivered the possession of the property to anyone. 32 From the foregoing, although the decision of the trial court ordering Tolosa to execute another deed of sale in favor of Ocampo already became final as against him for failing to appeal therefrom, there is no more need for it. For practical purposes, it is enough that we order Villaruz to reconvey the property to Ocampo. llcd WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE and the decision dated 7 January 1988 of the Regional Trial Court of Iloilo, Branch 27, in Civil Case No. 12163 is REINSTATED, with the modification that respondent Magdalena S. Villaruz is directed to reconvey the subject land now covered by TCT No. T-100021 in her name to petitioner Pilar T. Ocampo, without prejudice to Severino Tolosa collecting from petitioner Pilar T. Ocampo the balance of the purchase price of P4,400.00 which nevertheless may be deducted from the monetary awards made by the trial court in favor of petitioner Ocampo. SO ORDERED. Cruz, Davide, Jr., Quiason and Kapunan, JJ., concur. Footnotes ||| (Ocampo v. Court of Appeals, G.R. No. 97442, June 30, 1994)
EN BANC [G.R. No. L-14475. May 30, 1961.] SOUTHERN MOTORS, INC., plaintiff-appellee, vs. ANGEL MOSCOSO, defendant-appellant. Diosdado Garingalao for plaintiff-appellee. Calixto Zaldivar for defendant-appellant. SYLLABUS 1. SALE ON INSTALLMENTS; ACTION FILED IS FOR SPECIFIC PERFORMANCE; MORTGAGED PROPERTY ATTACHED; SALE OF MORTGAGED PROPERTY NOT TANTAMOUNT TO FORECLOSURE OF MORTGAGED; DEFICIENCY JUDGMENT. In sales on installments, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgaged; hence, the seller-creditor is entitled to deficiency judgment. D E C I S I O N PAREDES, J p: The case was submitted on agreed statement of facts. On June 6, 1957, plaintiff-appellee, Southern Motors, Inc. sold to defendant-appellant Angel Moscoso one Chevrolet truck, on installment basis, for P6,445.00. Upon making a down payment, the defendant executed a promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price (Annex A, complaint), to secure the payment of which, a chattel mortgage was constituted on the truck in favor of the plaintiff (Annex B). Of said account of P4,915.00, the defendant had paid a total of P550.00, which P110.00 was applied to the interest up to August 15, 1957, and P400.00 to the principal, thus leaving an unpaid balance of P4,475.00. The defendant failed to pay 3 installments on the balance of the purchase price. On November 4, 1957, the plaintiff filed a complaint against the defendant, to recover the unpaid balance of the promissory note. Upon plaintiff's petition, embodied in the complaint, a writ of attachment was issued by the lower court on the properties of the defendant. Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to defendant, were attached by the Sheriff of San Jose, Antique, where defendant was residing on November 25, 1957, and said truck was brought to the plaintiff's compound in Iloilo City, for safe keeping. After attachment and before the trial of the case on the merits, acting upon the plaintiff's motion dated December 23, 1957, for the immediate sale of the mortgaged truck, the Provincial Sheriff of Iloilo on January 2, 1958, sold the said truck at public auction in which plaintiff itself was the only bidder for P1,000.00. The case had not been set for hearing then. The trial court on March 27, 1958, condemned the defendant to pay the plaintiff the amount of P4,475.00 with interest at the rate of 12% per annum from August 16, 1957, until fully paid, plus 10% thereof as attorney's fees and costs, against which defendant interposed the present appeal, contending that the trial court erred (1) In not finding that the attachment caused to be levied on the truck and its immediate sale at public auction, was tantamount to the foreclosure of the chattel mortgage on said truck; and (2) In rendering judgment in favor of the plaintiff-appellee. Both parties agreed that the case is governed by Article 1484 of the new Civil Code, which provides: "ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void." While the appellee claims that in filing the complaint, demanding payment of the unpaid balance of the purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment of the obligation (specific performance); the appellant, on the other hand, contends that appellee had availed itself of the third remedy viz, the foreclosure of the chattel mortgage on the truck. The appellant argues that considering the history of the law, the circumstances leading to its enactment, the evil that the law was intended to correct and the remedy afforded (Art. 1454-A of the old Civ. Code; Act No. 4122; Bachrach Motor Co. vs. Reyes 62 Phil., 461, 466-469); that the appellee did not content itself by waiting for the judgment on the complaint and then execute the judgment which might be rendered in its favor, against the properties of the appellant; that the appellee obtained a preliminary attachment on the subject of the chattel mortgage itself and caused said truck to be sold at public auction, in which he was the bidder for P1,000.00; the result of which, was similar to what would have happened, had it foreclosed the mortgage pursuant to the provisions of sec. 14 of Act No. 1508 (Chattel Mortgage Law); the said appellee had availed itself of the third remedy aforequoted. In other words, appellant submits that the matter should be looked at, not by the allegations in the complaint, but by the very effect and result of the procedural steps taken and that appellee tried to camouflage its acts by filing a complaint purportedly to exact the fulfillment of an obligation, in an attempt to circumvent the provisions of article 1484 of the new Civil Code. Appellant concludes that under his theory, a deficiency judgment would be without legal basis. We do not share the views of the appellant on this matter. Manifestly, the appellee had chosen the first remedy. The complaint is an ordinary civil action for recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted the procedure or methods outlined by sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions, under the Rules of Court. Had appellee elected the foreclosure, it would not have instituted this case, in court; it would not have caused the chattel to be attached under rule 59, and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the house and lot of the appellant at San Jose, Antique. In the case of Southern Motors, Inc. vs. Magbanua, G.R. No. L-8578, Oct. 29, 1956, we held: "By praying that the defendant be ordered to pay it the sum of P4,690.00 together with the stipulated interest at 14% per annum from 17 March 1954 until fully paid, plus 10% of the total amount due as attorney's fees and costs of collection, the plaintiff elected to exact the fulfillment of the obligation and not to foreclose the mortgage on the truck. Otherwise, it would not have gone to court to collect the amount as prayed for in the complaint. Had it elected to foreclose the mortgage on the truck, all the plaintiff had to do was to cause the truck to be sold at public auction pursuant to section 14 of the Chattel Mortgage Law. The fact that aside from the mortgaged truck, another Chevrolet truck and two parcels of land belonging to the defendant were attached, shows that the plaintiff did not intend to foreclose the mortgage. "As the plaintiff has chosen to exact the fulfillment of the defendant's obligation, the former may enforce execution of the judgment rendered in its favor on the personal and real property of the latter not exempt from execution sufficient to satisfy the judgment. That part of the judgment against the properties of the defendant except the mortgaged truck and discharging the writ of attachment on his other properties is erroneous." We perceive nothing unlawful or irregular in appellee's act of attaching the mortgaged truck itself. Since herein appellee has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the judgment that may be favorably rendered hereon, on all personal and real properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest that the attachment was merely an incident to an ordinary civil action. (Sections 1 & 11, Rule 59; sec. 16 Rule 39.) The mortgage creditor may recover judgment on the mortgage debt and cause an execution on the mortgaged property and may cause an attachment to be issued and levied on such property, upon beginning his civil action (Tizon vs. Valdez, 48 Phil., 910- 911). IN VIEW HEREOF, the judgment appealed from hereby is affirmed, with cots against the defendant-appellant. Bengzon, C.J., Bautista Angelo, Labrador, Concepcion, Dizon, De Leon and Natividad, JJ., concur. Separate Opinions REYES, J.B.L., J., concurring: I fully concur in the opinion, and would only add that appellant's argument ignores a substantial difference between the effect of foreclosing the chattel mortgage and attaching the mortgaged chattel. The variance lies in the ability of the debtor to retain possession of the property attached by giving a counterbond and thereby discharging the attachment. This remedy the debtor does not have in the event of foreclosure. ||| (Southern Motors, Inc. v. Moscoso, G.R. No. L-14475, May 30, 1961)
SECOND DIVISION [G.R. No. L-67181. November 22, 1985.] SPOUSES RESTITUTO NONATO and ESTER NONATO, petitioners, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT and INVESTOR'S FINANCE CORPORATION, respondents. Pamplona, Genito & Valdezco Law Office for petitioners. Dinglasan Law Office for private respondent. D E C I S I O N ESCOLIN, J p: 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: "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 P17,537.60 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 P133.05 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 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: LexLib "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 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." 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 [15] 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. prLL 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. Concepcion, Jr. (Chairman), Abad Santos, Cuevas and Alampay, JJ., concur. ||| (Nonato v. Intermediate Appellate Court, G.R. No. L-67181, November 22, 1985)
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, defendant-appellants. Osmundo Victoriano for plaintiffs-appellees. Wilhelmina V. Joven for defendant-appellants. SYLLABUS 1. CIVIL LAW; CONTRACTS; SALE OF PERSONAL PROPERTY ON INSTALLMENT BASIS; REMEDIES OF THE VENDOR SHOULD THE VENDEE DEFAULT; ALTERNATIVE NOT CUMULATIVE. Under Article 1484 of the Civil Code, the vendor of personal property, the purchase 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. (Luneta Motor Co. vs. Dimagiba, 3 SCRA 884; Radiowealth, Inc. vs. Lavin, 7 SCRA 804; Industrial Finance Corporation vs. Tobias, 78 SCRA 28). Whichever right the vendor elects he cannot avail of the other, these remedies being alternative, not cumulative. (Industrial Finance Corp. vs. Tobias, Ibid; Cruz vs. Filipinas Investment and Finance Corp., 23 SCRA 791). 2. ID.; ID.; ID.; ID.; ID.; ELECTION TO FORECLOSE THE MORTGAGE ON DEFAULT PRECLUDES ACTION FOR RECOVERY OF UNPAID BALANCE; PURPOSE OF THE LAW. 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. (Luneta Motor Co. vs. Dimagiba, Supra; Northern Motors, Inc. vs. Sapinoso, 33 SCRA 356). 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. (Bachrach Motor Co. vs. Millan, 61 Phil. 409; Macondray & Co. vs. Benito, 62 Phil. 137; Zayas vs. Luneta Motor Co., L-30583, October 23, 1982). 3. ID.; ID.; ID.; ID.; ID.; ID.; RULING IN LEVY HERMANOS, INC. vs. PACIFIC COMMERCIAL CO., ET AL. APPLICABLE TO CASE AT BAR. Where the appellant corporation elected to foreclose its mortgage upon default by the appellee in the payment of the agreed installments and having chosen to foreclose the chattel mortgage, bought the purchased vehicles at public auction as the highest bidder, it submitted itself to the consequences of Article 1484 of the Civil Code and 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. 4. ID.; ID.; ID.; ID.; ID.; ID.; PROHIBITION OF RECOURSE AGAINST ADDITIONAL SECURITY; WHETHER PUT UP BY A THIRD PARTY OR BY THE VENDEES THEMSELVES. 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. (Cruz vs. Filipinas Investment & Finance Corporation, 23 SCRA 791; Pascual vs. 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 (cf. Cruz vs. Filipinas Investment & Finance Corporation, supra) that would violate Article 1484 of the Civil Code, for there is actually no difference 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. 5. ID.; ID.; ID.; ID.; SALE OF MORTGAGED PROPERTY IN AN ACTION FOR SPECIFIC PERFORMANCE; DIFFERENTIATED FROM FORECLOSURE OF CHATTEL MORTGAGE IN CASE AT BAR. In sales on installments, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage, hence, the seller-creditor is entitled to a deficiency judgment. (Southern Motors, Inc. vs. Moscoso, 2 SCRA 168). 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. D E C I S I O N DE CASTRO, J p: 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. LLphil The materials facts of the case appearing on record may be stated as follows: On April 14, 1964, plaintiffs purchased from the Supreme Sales and 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 extrajudicially, 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 P'8,000 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. 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 any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void."
Under the 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. cdrep In the case of Cruz v. Filipinas 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 debtor-vendee, and ultimately it will be the latter 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, 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 there is actually no difference 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. Reliance on the ruling in Southern Motors, Inc. v. Moscoso, 2 SCRA 168, that in sales on installments, where the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage, hence, the seller-creditor is entitled to a deficiency judgment, does not fortify 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. 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. LibLex IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against the appellants. SO ORDERED. Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero, Abad Santos and Escolin, JJ., concur. ||| (Ridad v. Filipinas Investment and Finance Corp., G.R. No. L-39806, January 27, 1983)
FIRST DIVISION [G.R. No. 106418. July 11, 1996.] DANIEL L. BORBON II AND FRANCISCO L. BORBON, petitioners, vs. SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF APPEALS, respondents. Jaime D. Lauron for petitioners. Labaguis Loyola Angara and Associates for private respondent. SYLLABUS 1. CIVIL LAW; SPECIAL CONTRACTS; SALE OF PERSONAL PROPERTY PAYABLE IN INSTALLMENTS; REMEDIES; ALTERNATIVE AND EXCLUSIVE. The remedies under Article 1484 of the Civil Code are not cumulative but alternative and exclusive, which means, as so held in Nonato vs. Intermediate Appellate Court and Investor's Finance Corporation, that ". . . 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." When the seller assigns his credit to another person, the latter is likewise bound by the same law. Accordingly, when the assignee forecloses on the mortgage, there can be no further recovery of the deficiency, and the seller-mortgagee is deemed to have renounced any right thereto. A contrario, in the event 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 and mortgaged back to him, although, similar to an action for specific performance, he may still levy on it. 2. ID.; ID.; ID.; ID.; ID.; CHOICE THEREOF CONCLUSIVE ONLY UPON EXERCISE OF REMEDY; EXAMPLES. In alternative remedies, the choice generally becomes conclusive only upon the exercise of the remedy. For instance, it is only when there has been a foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to escape from a deficiency liability. Thus, if the case is one for specific performance, even when this action is selected after the vendee has refused to surrender the mortgaged property to permit an extrajudicial foreclosure, that property may still be levied on execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy the judgment credit. So, also, a mere demand to surrender the object which is not heeded by the mortgagor will not amount to a foreclosure, but the repossession thereof by the vendor-mortgagee would have the effect of foreclosure. 3. ID.; ID.; ID.; ID.; ID.; FORECLOSURE OF MORTGAGE CONSTITUTED ON PURCHASED PROPERTY; THAT THERE WILL BE NO FURTHER ACTION FOR ANY UNPAID BALANCE THEREOF; SCOPE OF APPLICATION. Under Article 1484 of the Civil Code, 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." In Filipinas Investment & Finance Corporation vs. Ridad while we reiterated and expressed our agreement on the basic philosophy behind Article 1484, we stressed, nevertheless, that the protection given to the buyer-mortgagor should not be considered to be without circumscription or as being preclusive of all other laws or legal principles. Hence, 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. 4. REMEDIAL LAW; CIVIL PROCEDURE; APPEAL; ONLY ISSUES RAISED IN TRIAL COURT CAN BE TAKEN UP ON APPEAL; EXCEPTION. 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. D E C I S I O N VITUG, J p: 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 '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 7th 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. '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. '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 (S/t) FRANCISCO BORBON Address: 73 Sterling Life Home Pamplona, Las Pias, MM "WITNESSES (illegible) (illegible) __________ _________ 'PAY TO THE ORDER OF FILINVEST CREDIT CORPORATION 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 (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). "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). "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 " . . . 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 and mortgaged back to him, although, similar to an action for specific performance, he may still levy on it. In ordinary alternative obligations, a mere choice categorically 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 headed by the mortgagor will not amount to a foreclosure, 8 but the repossession thereof by the vendor-mortgagee 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 sufficient to cover the "full amount of the secured obligations which . . . 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 in Filipinas Investment, where the mortgagor unjustifiably refused to surrender the chattel subject of the mortgage upon failure of two or more installments, or if he concealed the chattel to place it beyond the reach of the mortgagee, that thereby constrained the latter to seek court relief, the expenses, incurred for the prosecution of the case, such as attorney's fees, could rightly be awarded. 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. Padilla, Bellosillo, Kapunan, and Hermosisima, Jr., JJ ., concur. ||| (Borbon II v. Servicewide Specialists, Inc., G.R. No. 106418, July 11, 1996)
FIRST DIVISION [G.R. No. L-27862. November 20, 1974.] LORENZO PASCUAL and LEONILA TORRES, plaintiffs-appellees, vs. UNIVERSAL MOTORS CORPORATION, defendant-appellant. Cesar C. Peralejo for plaintiffs-appellees. Francisco Carreon & Renato E. Taada for defendant-appellant. D E C I S I O N MAKALINTAL, J p: In the lower court the parties entered into the following stipulation of facts: "1. That the plaintiffs executed the real estate mortgage subject matter of this complaint on December 14, 1960 to secure the payment of the indebtedness of PDP Transit, Inc. for the purchase of five (5) units of Mercedez Benz trucks under invoices Nos. 2836, 2837, 2838, 2839 and 2840 with a total purchase price or principal obligation of P152,506.50 but plaintiffs' guarantee is not to exceed P50,000.00 which is the value of the mortgage. 2. That the principal obligation of P152,506.50 was to bear interest at 1% a month from December 14, 1960. 3. That as of April 5, 1961 with reference to the two units mentioned above and as of May 22, 1961 with reference to the three units, PDP Transit, Inc., plaintiffs' principal, had paid to the defendant Universal Motors Corporation the sum of P92,964.91, thus leaving a balance of P68,641.69 including interest due as of February 8, 1965. 4. That the aforementioned obligation guaranteed by the plaintiffs under the Real Estate Mortgage, subject of this action, is further secured by separate deeds of chattel mortgages on the Mercedez Benz units covered by the aforementioned invoices in favor of the defendant Universal Motors Corporation. 5. That on March 19, 1965, the defendant Universal Motors Corporation filed a complaint against PDP Transit, Inc. before the Court of First Instance of Manila docketed as Civil Case No. 60201 with a petition for a writ of Replevin, to collect the balance due under the Chattel Mortgages and to repossess all the units sold to plaintiffs' principal PDP Transit, Inc. including the five (5) units guaranteed under the subject Real (Estate) Mortgage." In addition to the foregoing the Universal Motors Corporation admitted during the hearing that in its suit (C.C. No. 60201) against the PDP Transit, Inc. it was able to repossess all the units sold to the latter, including the five (5) units guaranteed by the subject real estate mortgage, and to foreclose all the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction. With the foregoing background, the spouses Lorenzo Pascual and Leonila Torres, the real estate mortgagors, filed an action in the Court of First Instance of Quezon City (Civil Case No. 8189) for the cancellation of the mortgage they constituted on two (2) parcels of land 1 in favor of the Universal Motors Corporation to guarantee the obligation of PDP Transit, Inc. to the extent of P50,000. The court rendered judgment for the plaintiffs, ordered the cancellation of the mortgage, and directed the defendant Universal Motors Corporation to pay attorney's fees to the plaintiffs in the sum of P500.00. Unsatisfied with the decision, defendant interposed the present appeal. In rendering judgment for the plaintiffs the lower court said in part: ". . . there does not seem to be any doubt that Art. 1484 2 of the New Civil Code may be applied in relation to a chattel mortgage constituted upon personal property on the installment basis (as in the present case) precluding the mortgagee to maintain any further action against the debtor for the purpose of recovering whatever balance of the debt secured, and even adding that any agreement to the contrary shall be null and void." The appellant now disputes the applicability of Article 1484 Civil Code to the case at bar on the ground that there is no evidence on record that the purchase by PDP Transit, Inc. of the five (5) trucks, the payment of the price of which was partly guaranteed by the real estate mortgage in question, was payable in installments and that the purchaser had failed to pay two or more installments. The appellant also contends that in any event what article 1484 prohibits is for the vendor to recover from the purchaser the unpaid balance of the price after he has foreclosed the chattel mortgage on the thing sold, but not a recourse against the security put up by a third party. Both arguments are without merit. The first involves an issue of fact: whether or not the sale was one on installments; and on this issue the lower court found that it was, and that there was failure to pay two or more installments. This finding is not subject to review by this Court. The appellant's bare allegation to the contrary cannot be considered at this stage of the case. The next contention is that what article 1484 withholds from the vendor is the right to recover any deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the additional security put up by a third party to guarantee the purchaser's performance of his obligation. A similar argument has been answered by this Court in this wise "(T)o 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." (Cruz vs. Filipinas Investment & Finance Corporation, L- 24772, May 27, 1968; 23 SCRA 791). The decision appealed from is affirmed, with costs against the defendant-appellant. Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur. Teehankee, J., did not take part. Footnotes 1.Situated in Quezon City and covered by Transfer Certificates of Title Nos. 77639 and 3005. 2.Article 1484 of the Civil Code provides: "ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclosure 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."
||| (Pascual v. Universal Motors Corp., G.R. No. L-27862, November 20, 1974)
SECOND DIVISION [G.R. No. 158635. December 9, 2005.] MAGNA FINANCIAL SERVICES GROUP, INC., petitioner, vs. ELIAS COLARINA, respondent. D E C I S I O N CHICO-NAZARIO, J p: The undisputed facts of this case show that on 11 June 1997, Elias Colarina bought on installment from Magna Financial Services Group, Inc., one (1) unit of Suzuki Multicab, more particularly described as follows: MAKE - SUZUKI MULTICAB MODEL - ER HT ENGINE NO. - 834963 FRAME NO. - LTO-067886-RO7-C COLOR - WHITE 1 After making a down payment, Colarina executed a promissory note for the balance of P229,284.00 payable in thirty-six (36) equal monthly installments at P6,369.00 monthly, beginning 18 July 1997. To secure payment thereof, Colarina executed an integrated promissory note and deed of chattel mortgage over the motor vehicle. Colarina failed to pay the monthly amortization beginning January 1999, accumulating an unpaid balance of P131,607.00. Despite repeated demands, he failed to make the necessary payment. On 31 October 2000 Magna Financial Services Group, Inc. filed a Complaint for Foreclosure of Chattel Mortgage with Replevin 2 before the Municipal Trial Court in Cities (MTCC), Branch 2, Legaspi City, docketed as Civil Case No. 4822. 3 Upon the filing of a Replevin Bond, a Writ of Replevin was issued by the MTCC. On 27 December 2000, summons, together with a copy of the Writ of Replevin, was served on Colarina who voluntarily surrendered physical possession of the vehicle to the Sheriff, Mr. Antonio Lozano. On 02 January 2001, the aforesaid motor vehicle was turned over by the sheriff to Magna Financial Services Group, Inc. 4 On 12 July 2001, Colarina was declared in default for having filed his answer after more than six (6) months from the service of summons upon him. Thereupon, the trial court rendered judgment based on the facts alleged in the Complaint. In a decision dated 23 July 2001, it held: 5 WHEREFORE, judgment is hereby rendered in favor of plaintiff Magna Financial Services Group, Inc. and against the defendant Elias Colarina, ordering the latter: a) to pay plaintiff the principal sum of one hundred thirty one thousand six hundred seven (P131,607.00) pesos plus penalty charges at 4.5% per month computed from January, 1999 until fully paid; b) to pay plaintiff P10,000.00 for attorney's fees; and c) to pay the costs. The foregoing money judgment shall be paid within ninety (90) days from the entry of judgment. In case of default in such payment, the one (1) unit of Suzuki Multicab, subject of the writ of replevin and chattel mortgage, shall be sold at public auction to satisfy the said judgment. 6 Colarina appealed to the Regional Trial Court (RTC) of Legazpi City, Branch 4, where the case was docketed as Civil Case No. 10013. During the pendency of his appeal before the RTC, Colarina died and was substituted in the case by his heirs. 7 In a decision dated 30 January 2002, the RTC affirmed in toto the decision of the MTCC. 8 Colarina filed a Petition for Review before the Court of Appeals, docketed as CA-G.R. SP No. 69481. On 21 January 2003, the Court of Appeals rendered its decision 9 holding: . . . We find merit in petitioners' assertion that the MTC and the RTC erred in ordering the defendant to pay the unpaid balance of the purchase price of the subject vehicle irrespective of the fact that the instant complaint was for the foreclosure of its chattel mortgage. The principal error committed by the said courts was their immediate grant, however erroneous, of relief in favor of the respondent for the payment of the unpaid balance without considering the fact that the very prayer it had sought was inconsistent with its allegation in the complaint. CTDAaE Verily, it is beyond cavil that the complaint seeks the judicial foreclosure of the chattel mortgage. The fact that the respondent had unconscionably sought the payment of the unpaid balance regardless of its complaint for the foreclosure of the said mortgage is glaring proof that it intentionally devised the same to deprive the defendant of his rights. A judgment in its favor will in effect allow it to retain the possession and ownership of the subject vehicle and at the same time claim against the defendant for the unpaid balance of its purchase price. In such a case, the respondent would luckily have its cake and eat it too. Unfortunately for the defendant, the lower courts had readily, probably unwittingly, made themselves abettors to respondent's devise to the detriment of the defendant. xxx xxx xxx WHEREFORE, finding error in the assailed decision, the instant petition is hereby GRANTED and the assailed decision is hereby REVERSED AND SET ASIDE. Let the records be remanded to the court of origin. Accordingly, the foreclosure of the chattel mortgage over the subject vehicle as prayed for by the respondent in its complaint without any right to seek the payment of the unpaid balance of the purchase price or any deficiency judgment against the petitioners pursuant to Article 1484 of the Civil Code of the Philippines, is hereby ORDERED. 10 A Motion for Reconsideration dated 11 February 2003 11 filed by Magna Financial Services Group, Inc., was denied by the Court of Appeals in a resolution dated 22 May 2003. 12 Hence, this Petition for Review on Certiorari based on the sole issue: WHAT IS THE TRUE NATURE OF A FORECLOSURE OF CHATTEL MORTGAGE, EXTRAJUDICIAL OR JUDICIAL, AS AN EXERCISE OF THE 3RD OPTION UNDER ARTICLE 1484, PARAGRAPH 3 OF THE CIVIL CODE. In its Memorandum, petitioner assails the decision of the Court of Appeals and asserts that a mortgage is only an accessory obligation, the principal one being the undertaking to pay the amounts scheduled in the promissory note. To secure the payment of the note, a chattel mortgage is constituted on the thing sold. It argues that an action for foreclosure of mortgage is actually in the nature of an action for sum of money instituted to enforce the payment of the promissory note, with execution of the security. In case of an extrajudicial foreclosure of chattel mortgage, the petition must state the amount due on the obligation and the sheriff, after the sale, shall apply the proceeds to the unpaid debt. This, according to petitioner, is the true nature of a foreclosure proceeding as provided under Rule 68, Section 2 of the Rules of Court. 13 On the other hand, respondent countered that the Court of Appeals correctly set aside the trial court's decision due to the inconsistency of the remedies or reliefs sought by the petitioner in its Complaint where it prayed for the custody of the chattel mortgage and at the same time asked for the payment of the unpaid balance on the motor vehicle. 14 Article 1484 of the Civil Code explicitly provides: ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage 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. Our Supreme Court in Bachrach Motor Co., Inc. v. Millan 15 held: "Undoubtedly the principal object of the above amendment (referring to Act 4122 amending Art. 1454, Civil Code of 1889) 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 the 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." ICcDaA In its Complaint, Magna Financial Services Group, Inc. made the following prayer: WHEREFORE, it is respectfully prayed that judgment render ordering defendant: 1. To pay the principal sum of P131,607.00 with penalty charges at 4.5% per month from January 1999 until paid plus liquidated damages. 2. Ordering defendant to reimburse the plaintiff for attorney's fee at 25% of the amount due plus expenses of litigation at not less than P10,000.00. 3. Ordering defendant to surrender to the plaintiff the possession of the Multicab described in paragraph 2 of the complaint. 4. Plaintiff prays for other reliefs just and equitable in the premises. It is further prayed that pendent lite, an Order of Replevin issue commanding the Provincial Sheriff at Legazpi City or any of his deputies to take such multicab into his custody and, after judgment, upon default in the payment of the amount adjudged due to the plaintiff, to sell said chattel at public auction in accordance with the chattel mortgage law. 16 In its Memorandum before us, petitioner resolutely declared that it has opted for the remedy provided under Article 1484(3) of the Civil Code, 17 that is, to foreclose the chattel mortgage. It is, however, unmistakable from the Complaint that petitioner preferred to avail itself of the first and third remedies under Article 1484, at the same time suing for replevin. For this reason, the Court of Appeals justifiably set aside the decision of the RTC. Perusing the Complaint, the petitioner, under its prayer number 1, sought for the payment of the unpaid amortizations which is a remedy that is provided under Article 1484(1) of the Civil Code, allowing an unpaid vendee to exact fulfillment of the obligation. At the same time, petitioner prayed that Colarina be ordered to surrender possession of the vehicle so that it may ultimately be sold at public auction, which remedy is contained under Article 1484(3). Such a scheme is not only irregular but is a flagrant circumvention of the prohibition of the law. By praying for the foreclosure of the chattel, Magna Financial Services Group, Inc. renounced whatever claim it may have under the promissory note. 18
Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose the chattel mortgage, "he shall have no further action against the purchaser to recover any unpaid balance of the purchase price. Any agreement to the contrary shall be void." In other words, 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. 19 Contrary to petitioner's claim, a contract of chattel mortgage, which is the transaction involved in the present case, is in the nature of a conditional sale of personal property given as a security for the payment of a debt, or the performance of some other obligation specified therein, the condition being that the sale shall be void upon the seller paying to the purchaser a sum of money or doing some other act named. 20 If the condition is performed according to its terms, the mortgage and sale immediately become void, and the mortgagee is thereby divested of his title. 21 On the other hand, in case of non payment, foreclosure is one of the remedies available to a mortgagee by which he subjects the mortgaged property to the satisfaction of the obligation to secure that for which the mortgage was given. Foreclosure may be effected either judicially or extrajudicially, that is, by ordinary action or by foreclosure under power of sale contained in the mortgage. It may be effected by the usual methods, including sale of goods at public auction. 22 Extrajudicial foreclosure, as chosen by the petitioner, is attained by causing the mortgaged property to be seized by the sheriff, as agent of the mortgagee, and have it sold at public auction in the manner prescribed by Section 14 of Act No. 1508, or the Chattel Mortgage Law. 23 This rule governs extrajudicial foreclosure of chattel mortgage. aCSEcA In sum, since the petitioner has undeniably elected a remedy of foreclosure under Article 1484(3) of the Civil Code, it is bound by its election and thus may not be allowed to change what it has opted for nor to ask for more. On this point, the Court of Appeals correctly set aside the trial court's decision and instead rendered a judgment of foreclosure as prayed for by the petitioner. The next issue of consequence is whether or not there has been an actual foreclosure of the subject vehicle. In the case at bar, there is no dispute that the subject vehicle is already in the possession of the petitioner, Magna Financial Services Group, Inc. However, actual foreclosure has not been pursued, commenced or concluded by it. Where the mortgagee elects a remedy of foreclosure, the law requires the actual foreclosure of the mortgaged chattel. Thus, in Manila Motor Co. v. Fernandez, 24 our Supreme Court said that it is actual sale of the mortgaged chattel in accordance with Sec. 14 of Act No. 1508 that would bar the creditor (who chooses to foreclose) from recovering any unpaid balance. 25 And it is deemed that there has been foreclosure of the mortgage when all the proceedings of the foreclosure, including the sale of the property at public auction, have been accomplished. 26 That there should be actual foreclosure of the mortgaged vehicle was reiterated in the case of De la Cruz v. Asian Consumer and Industrial Finance Corporation: 27 It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever conducted. As we ruled in Filinvest Credit Corp. v. Phil. Acetylene Co., Inc. (G.R. No. 50449, 30 January 1982, 111 SCRA 421) Under the law, the delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only operate to extinguish appellant's liability if the appellee had actually caused the foreclosure sale of the mortgaged property when it recovered possession thereof (Northern Motors, Inc. v. Sapinoso, 33 SCRA 356 [1970]; Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 [1969]; Manila Motors Co., Inc. v. Fernandez, 99 Phil. 782 [1956]). Be that as it may, although no actual foreclosure as contemplated under the law has taken place in this case, since the vehicle is already in the possession of Magna Financial Services Group, Inc. and it has persistently and consistently avowed that it elects the remedy of foreclosure, the Court of Appeals, thus, ruled correctly in directing the foreclosure of the said vehicle without more. WHEREFORE, premises considered, the instant petition is DENIED for lack of merit and the decision of the Court of Appeals dated 21 January 2003 is AFFIRMED. Costs against petitioner. SO ORDERED. Puno, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur. ||| (Magna Financial Services Group Inc. v. Colarina, G.R. No. 158635, December 09, 2005)
EN BANC [G.R. No. L-25951. June 30, 1969.] FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiff-appellant, vs. JULIAN R. VITUG, JR. and SUPREME SALES & DEVELOPMENT CORPORATION, defendants-appellees. Wilhelmina V. Joven for plaintiff-appellant. Antonio V. Borromeo for defendants-appellees. SYLLABUS 1. CIVIL LAW; SALE OF CHATTEL BY INSTALLMENTS; RULE THAT VENDOR AFTER RECOVERY OF PROPERTY CANNOT RECOVER UNPAID BALANCE OF PRICE, NOT APPLICABLE TO ASSIGNEE IN INSTANT CASE. Where in the assignment made by the vendor to the assignee of the promissory note and chattel mortgage of the vendee involving property bought by installments, there was definite and clear agreement between the vendor and assignee that should the assignee fail to secure recovery from the vendee, the right was reserved to the assignee to seek recourse for the deficiency against the vendor, the assignee can recover from the vendor the deficiency that resulted after the assignee had foreclosed the chattel mortgage on and sold at public auction the chattel involved. The Recto Law providing for non-recovery of the unpaid balance of the price after the property sold had been foreclosed is not violated. 2. ID.; ID.; ID.; ID.; PURPOSE. Congress seeks to protect under the Recto Law (Article 1484 of the Civil Code) are only 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, in addition, furthermore, to other damages, such as attorney's fees and costs. 3. ID,; ID.; ID.; CASE OF CRUZ V. FILIPINAS INVESTMENT AND FINANCE CORPORATION, ET AL DISTINGUISHED FROM CASE AT BAR. The case of Cruz v. Filipinas Investment and Finance Corp., et al was entirely different from the one at bar. In that case, herein appellant Filipinas Investment and Finance Corporation was trying to recover from the guarantor of the buyer, whereas in the present case, it is precisely stipulated in effect, that the Filipinas Investment and Finance Corp. had right of recourse against the seller should the buyer fail to pay the assigned credit in full. D E C I S I O N BARREDO, J p: Appeal from an order of dismissal by the Court of First Instance of Manila, in its Civil Case No. 60915, entitled Filipinas Investment & Finance Corporation vs. Julian R. Vitug, Jr. and Supreme Sales & Development Corporation, of the amended complaint of July 16, 1965 of plaintiff-appellant Filipinas Investment & Finance Corporation whereby it sought to recover from defendant-appellee Supreme Sales & Development Corporation the deficiency that resulted after it had foreclosed the chattel mortgage on and sold at public auction, the car of the other defendant, Julian Vitug, Jr. who had failed to pay to appellee installments due on the promissory note representing the purchase price of said car which he had bought from the same, appellant being the assignee of appellee of its rights in the said promissory note. The material allegations in appellant's amended complaint are: The defendant, Julian R. Vitug Jr., executed and delivered to appellee a promissory note in the amount of P14,605.00 payable in monthly installments according to a schedule of payments; the payment of the aforesaid amount which was the purchase price of a motor vehicle, a 4-door Consul sedan, bought by said defendant from appellee, was secured by a chattel mortgage over such automobile; on the same day, appellee negotiated the above- mentioned promissory note in favor of appellant Filipinas Investment & Finance Corporation, assigning thereto all its rights, title and interests to the same, the assignment including the right of recourse against appellee; defendant Vitug defaulted in the payment of part of the installment which fell due on January 6, 1965, as well as the subsequent three consecutive monthly installments which he was supposed to have paid on February 6, March 6 and April 6, 1965; there being a provision in the aforesaid promissory note and chattel mortgage that failure to pay the installments due would result in the entire obligation becoming due and demandable, appellant demanded from appellee the payment of such outstanding balance; in turn, appellee "authorized (appellant) to take such action as may be necessary to enable (it) to take possession of the . . . motor vehicle." Pursuant to such authority, appellant secured possession of the mortgaged vehicle by means of the writ of replevin duly obtained from the court, preparatory to the foreclosure of the mortgage, but said writ became unnecessary because upon learning of the same, defendant Vitug voluntarily surrendered the car to appellant; thereafter, the said car was sold at public auction, but the proceeds still left a deficiency of P8,349.35, plus interest of 12% per annum from April 21, 1965; and appellant, the above foreclosure and sale notwithstanding, would hold appellee liable for the payment of such outstanding balance, plus attorney's fees and costs. On August 4, 1965, appellee filed an urgent motion to dismiss on the ground, inter alia that under Article 1484 of the Civil Code of the Philippines, which particular provision is otherwise known as the Recto Law, appellant has no cause of action against appellee. Said provision is as follows: "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." In its order of August 30, 1965, subject of this appeal, the lower court found the aforesaid ground to be meritorious and, as already stated, the amended complaint was dismissed as to appellee Supreme Sales & Development Corporation. According to the order of dismissal: "It is undisputed in the instant case that the amount of P14,605.00 mentioned as consideration in both the promissory note and the chattel mortgage in the instant case represents the selling price of one(1) automobile New Ford Consul 315 4- door Sedan, payable in the installments mentioned in said documents. Under pars. 5 and 9 of the amended complaint, the writ of replevin was obtained in the instant case for purposes of foreclosure of mortgage. In applying for a writ of replevin, the plaintiff thereby made his choice, namely, to foreclose the mortgage covering said automobile; and having accepted said automobile from defendant Julian R. Vitug, Jr., what remains is for the plaintiff to sell said automobile through either a judicial or an extrajudicial foreclosure of said mortgage, without benefit of a deficiency judgment or deficiency collection . . . should the proceeds of the foreclosure sale be less than the balance of the installment sale price of said automobile due and collectible." On September 23, 1965, appellant filed a motion for reconsideration but this was denied on October 26, 1965, hence, this appeal. The principal error assigned by appellant has reference to the applicability of Art. 1484 of the Civil Code, as amended, to the facts of this case. Appellant maintains that: "II THE TRIAL COURT ERRED IN HOLDING THAT ARTICLE 1484 OF THE CIVIL CODE OF THE PHILIPPINES IS APPLICABLE TO THE TRANSACTION BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT- APPELLEE." Under the facts alleged in the amended complaint which are deemed admitted by the motion to dismiss, 1 this assignment of error must be sustained. The specific allegations in the amended complaint which have material bearing to the issue herein are: "4. On November 4, 1964, defendant Supreme Sales & Development Corporation, with notice to defendant Julian R. Vitug, Jr. negotiated in favor of (endorsed and delivered to) plaintiff the above-mentioned promissory note, Annex "A", on a with-recourse basis whereby in case of the failure and/or refusal of the maker thereof, defendant Julian R. Vitug, Jr. to pay the obligation under the said promissory note, plaintiff shall have the right of recourse against the said defendant corporation. "On the same date, the said defendant corporation, with notice to defendant Julian R. Vitug, Jr., assigned to plaintiff its rights, title, and interests to the aforesaid promissory note and chattel mortgage, Annexes "A" and "B" hereof, as shown by the Deed of Assignment executed by defendant Supreme Sales & Development Corporation in favor of plaintiffs, a copy of which is hereto attached as Annex "C" and made an integral part hereof, which assignment is also subject to the right of recourse above-mentioned. "13. The defendant corporation is liable to plaintiff for the entire balance of the obligation covered by the promissory note, Annex "A", and secured by the chattel mortgage, Annex "B" as a general endorser of the promissory note, Annex "A", and assignor of the chattel mortgage on a with-recourse basis. But should plaintiff be able to sell the above-described motor vehicle, then the said defendant corporation is liable to the plaintiff for the payment of the balance of the obligation after applying thereto the proceeds of the sale of the said vehicle." (Record on Appeal, pp. 12 and 15.) Thus it can be seen that the assignment made by appellee to appellant of the promissory note and mortgage of defendant Vitug was on a with-recourse basis. In other words, there was a definite and clear agreement between appellant and appellee that should appellant fail to secure full recovery from defendant Vitug, the right was reserved to appellant to seek recourse for the deficiency against appellee. Accordingly, the question for resolution by the Court now is whether or not this provision regarding recourse contained in the agreement between appellant and appellee violates the Recto Law which declares null and void any agreement in contravention thereof. We do not believe that it does.
As pointed out in appellant's brief, the transaction between appellant and appellee was purely an ordinary discounting transaction whereby the promissory note executed by defendant Vitug was negotiated by appellee in favor of appellant for a valuable consideration at a certain discount, accompanied by an assignment also of the chattel mortgage executed by said defendant to secure the payment of his promissory note and with the express stipulation that should there be any deficiency, recourse could be had against appellee. Stated otherwise, the remedy presently being sought is not against the buyer of the car or the defendant Vitug but against the seller, independent of whether or not such seller may have a right of recovery against the buyer, which, in this case, he does not have under the Recto Law. It is clear to Us, on the other hand, that under said law, what Congress seeks to protect are only 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 amount already paid, in addition, furthermore, to other damages, such as attorney's fees, and costs. Surely, Congress could not have intended to impair and much less do away with the right of the seller to make commercial use of his credit against the buyer, provided said buyer is not burdened beyond what this law allows. We are not unmindful that in the case of Cruz, et al. vs. the same Filipinas Investment & Finance Corporation, L-24772, May 27, 1968, 23 SCRA 791, this Court broadened the scope of the Recto Law beyond its letter and held that within its spirit, a seller of goods on installment does not have any right of action against a third party who, in addition to the buyer's mortgage of the goods sold, furnishes additional security for the payment of said installments or the purchase price of said goods. In that case, it was held: "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 supposed 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." As can be seen, that case of Cruz was entirely different from this one at bar. In that case, herein appellant Filipinas Investment & Finance Corporation was trying to recover from the guarantor of the buyer, whereas in the present case, it is precisely stipulated in effect, that the Filipinas Investment & Finance Corporation had a right of recourse against the seller should the buyer fail to pay the assigned credit in full. It is the contention of appellee that since what were assigned to appellant were only whatever rights it had against the buyer, it should follow that inasmuch as appellee has no right to recover from the defendant beyond the proceeds of the foreclosure sale, the appellant, as assignee, should also have no right to recover any deficiency. We do not view the matter that way. The very fact that the assignee was given the stipulated right of recourse against the assignor negates the idea that the parties contemplated to limit the recovery of the assignee to only the proceeds of the mortgage sale. ACCORDINGLY, the order of dismissal of the lower court is reversed and this case is ordered remanded to the lower court for further proceedings, with costs against appellee Supreme Sales & Development Corporation. Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Capistrano and Teehankee, JJ., concur. Dizon and Fernando, JJ., did not take part. ||| (Filipinas Investment & Finance Corp. v. Vitug, Jr., G.R. No. L-25951, June 30, 1969)
FIRST DIVISION [G.R. No. 140468. January 16, 2003.] OLYMPIA HOUSING, INC., petitioner, vs. PANASIATIC TRAVEL CORPORATION and MA. NELIDA GALVEZ-YCASIANO, respondents. Poblador Bautista & Reyes for petitioner. Narciso Jimenez Gonzales Liwanag Bello Yaldez & Caluya for private respondent. SYNOPSIS Petitioner and respondent Ma. Nelida Galvez-Ycasiano entered into a Contract to Sell whereby the former agreed to sell to the latter on installment a condominium unit. Respondent subsequently defaulted in the payment of the monthly installment. Despite repeated demands to pay, respondent failed to settle her obligation. Hence, petitioner rescinded the contract and thereafter filed a complaint for Recovery of Possession. On her part, respondent interposed the defense that she had made substantial payments of the purchase price of the subject condominium unit. The Regional Trial Court dismissed the complaint ruling that it was prematurely filed without complying with the mandate of Republic Act No. 6552. The trial court found no notice of cancellation of the demand for rescission of the contract by a notarial act and no full payment of the cash surrender value to the respondent. On appeal, the Court of Appeals sustained the trial court. Petitioner elevated the matter before the Supreme Court. The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The Court, however, found that no such cancellation took place at any time prior to the institution of the action for reconveyance. What had been sent by petitioner to respondent was a letter, dated 02 June 1988, whereby petitioner demanded payment within thirty days from receipt thereof with the threat that if the demand was not heeded, the contract would forthwith be cancelled or rescinded. Nor did the appellate court erroneously ignore the "notarial rescission" attached to the complaint for reconveyance. Apparently, the so-called "notarial rescission" was not sent to respondent prior to the institution of the case for reconveyance but merely served on respondent by way of an attachment to the complaint. In any case, the Court held that a notarial rescission, standing alone, could not have validly effected the cancellation of the contract in this case. Republic Act No. 6552, otherwise known as the "Realty Installment Buyer Protection Act" recognizes the right of the seller to cancel the contract, but any such cancellation must be done in conformity with the requirements therein prescribed. In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the payments on the property. The Court denied the petition. SYLLABUS 1. CIVIL LAW; SALES; REPUBLIC ACT NO. 6552; REALTY INSTALLMENT BUYER PROTECTIONS ACT; CANCELLATION OF CONTRACT IN CASE OF BUYER'S DEFAULT IN THE INSTALLMENT PAYMENT; NOTARIAL RESCISSION ALONE COULD NOT HAVE INVALIDLY EFFECTED THE CANCELLATION OF THE CONTRACT; CASE AT BAR. The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any time prior to the institution of the action for reconveyance. What had been sent by petitioner to respondent was a letter, dated 02 June 1988, that read: . . . . As so aptly observed by the courts below, the foregoing communication to the buyer merely demanded payment within thirty (30) days from receipt thereof with the threat that if the demand were not heeded, the contract would forthwith be cancelled or rescinded. Nor did the appellate court erroneously ignore the "notarial rescission" attached to the complaint for reconveyance. Apparently, the so-called "notarial rescission" was not sent to respondents prior to the institution of the case for reconveyance but merely served on respondents by way of an attachment to the complaint. In any case, a notarial rescission, standing alone, could not have invalidly effected, in this case, the cancellation of the contract. 2. ID.; ID.; ID.; ID.; REQUIREMENTS. The governing law is Republic Act No. 6552, otherwise known as the "Realty Installment Buyer Protection Act,'' which has become effective since 16 September 1972. Republic Act No. 6552 is a special law governing transactions that involve, subject to certain exceptions, the sale on installment basis of real property. The law has been enacted mainly "to protect buyers of real estate on installment payments against onerous and oppressive conditions." Section 3 of the statute provides: . . . . The enactment recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with the requirements therein prescribed. In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the payments on the property. The actual cancellation of the contract can only be deemed to take place upon the expiry of a 30-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value. cCSDaI 3. ID.; CONTRACTS; RESCISSION; ACTION FOR RESCISSION DISTINGUISHED FROM ACTION FOR RECONVEYANCE; CASE AT BAR. The Court agrees with petitioner that it is not precluded from going to the court to demand judicial rescission in lieu of a notarial act of rescission. This much must be recognized. Thus, in Layug vs. Intermediate Appellate Court the Court has ruled that a demand for rescission by notarial act would appear to be merely circuitous, consequently superfluous, with the filing by the seller of an action for annulment of contract and for recovery of damages. Unfortunately for petitioner, it would be incorrect to apply Layug to the instant case. Layug is basically an action for annulment of contract, a kindred concept of rescission, whereas the instant case before the Court is one for recovery of possession on the thesis of a prior rescission of the contract covering the property. Not only is an action for reconveyance conceptually different from an action for rescission but that, also, the effects that flow from an affirmative judgment in either case would be materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual restitution which is not necessarily the situation that can arise in an action for reconveyance. Additionally, in an action for rescission (also often termed as resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing of a period. 4. REMEDIAL LAW; ACTIONS; A PARTY IN LITIGATION CANNOT BE PERMITTED TO FREELY AND SUBSTANTIALLY CHANGE THE THEORY OR THE CAUSE OF ACTION OF HIS CASE. Nor should a party in litigation be permitted to freely and substantially change the theory or the cause of action of his case that, otherwise, can put to undue disadvantage the other party by not being accurately and timely apprised of what he is up against. The character of an action is determined from the issues raised by the complaint, from the nature of the right or grievance asserted, and from the relief sought in the complaint. A change of theory can result in grave alteration of the stand theretofore taken by the parties, and a court must not thereafter take it upon itself to assume its own position on, or the factual and legal considerations of the case. D E C I S I O N VITUG, J p: The petition for review on certiorari before the Court assails the decision, promulgated on 11 June 1999, and the resolution, promulgated on 14 October 1999, of the Court of Appeals in CA-G.R. CV Case No. 53516. The case originated from a complaint for Recovery of Possession (Accion Publiciana) filed by Olympia Housing, Inc., against Panasiatic Travel Corporation, Maria Nelida Ycasiano and the latter's husband. The object in litigation is a condominium unit sold at the price of P2,340,000.00 payable on installments at the rate of P33,657.40 per month. On the basis of the facts encapsulated by the trial court, it would appear that "On August 8, 1984, plaintiff and defendant Ma. Nelida Galvez-Ycasiano entered into a Contract to Sell, whereby the former agreed to sell to the latter condominium unit no. D-12, comprising an area of 160.50 square meters, more or less, situated on the ground floor of Olympia Condominium located at Makati, Metro Manila, covered by Condominium Certificate of Title No. 6711, for the agreed price of P2,340,000.00 payable in installments of P33,657.40 per month. "The schedule of payments [were] as follows: Date Particulars Amount July 17, 1984 Reservation/Deposit P100,000.00 July 19, 1984 50% Down payment P1,070,000.00 "Balance of 50% payable in sixty (60) monthly installments at 24% per annum base on diminishing balance. "Monthly amortization to commence on Sept. 17 1984 .................... P33,657.40/month "Interest of 2% is included in regular monthly amortization, past due amortization shall bear interest of 2% per month plus penalty charge of 2% per month. "Pursuant to the Contract to Sell, defendant Ma. Nelida Galvez-Ycasiano made a reservation/deposit in the amount of P100,000.00 on July 17, 1984 and 50% down payment in the amount of P1,070,000.00 on July 19, 1984. "Defendants made several payments in cash and thru credit memos issued by plaintiff representing plane tickets bought by plaintiff from defendant Panasiatic Travel Corp., which is owned by defendant Ma. Nelida Galvez-Ycasiano, who credited/offset the amount of the said plane tickets to defendant's account due to plaintiff. "Plaintiff alleged that far from complying with the terms and conditions of said Contract to Sell, defendants failed to pay the corresponding monthly installments which as of June 2, 1988 amounted to P1,924,345.52. Demand to pay the same was sent to defendant Ma. Nelida Galvez-Ycasiano, but the latter failed to settle her obligation.
"For failure of defendant to pay her obligation plaintiff allegedly rescinded the contract by a Notarial Act of Rescission. "At present, the subject condominium unit is being occupied by defendant Panasiatic Travel Corp., hence the suit for Recovery of Possession (Accion Publiciana) with prayer for attorney's fees, exemplary damages and reasonable rentals for the unit from July 28, 1988 at the rate of P32,100.00 per month until the condominium unit is finally vacated. "Defendant Ma. Nelida Galvez-Ycasiano, while admitting the existence of the contract to sell, interposed the defense that she has made substantial payments of the purchase price of the subject condominium unit amounting to P1,964,452.82 in accordance with the provisions of the contract to sell; that she decided to stop payment of the purchase price in the meantime because of substantial differences between her and the plaintiff in the computation of the balance of the purchase price. "xxx xxx xxx "Evidence adduced by plaintiff such as the statement of account of defendant Ma. Nelida Galvez-Ycasiano (Exh. 'C') has been established by plaintiff's witness, Mrs. Isabelita Rivera, which indeed shows that on several occasions defendant either failed to pay on time or was completely in default in the payment of the monthly installment of the subject condominium unit. "It can be deduced from said documentary evidence that defendant should start paying the installment on September 17, 1984, but defendant paid on September 21, 1984 the amount of P51,238.00 thru credit memo. Witness claimed that a credit memo is a document issued by Olympia Housing Inc. to Panasiatic Travel Corp. for the amount of ticket purchased instead of paying in cash they just issued credit memo in order that it would be offset on the monthly amortization due to Olympia Housing Corp. She claimed that they based it on the invoice that they [were] sending them. "Witness further claimed that since the amount due was only P33,657.40 what she did to the excess of P51,238.00 was to apply it to the next installment. The next installment was due on October 12, 1984 in the amount of P26,158.00 representing the excess. It was paid thru credit memo no. 031 on October 17, 1984. In fact, there was still an excess of P10,081.20. The third installment was due on November 17, 1984. Defendant made partial payment because the excess payment of P10,081.20 was applied to the third installment. The 4th installment was due on December 17, 1984; the defendant did not pay instead she paid on January 9, 1985 the amount of P51,619.08 in cash per O.R. No. 295. Before this payment on January 9, 1985 defendant owed plaintiff P59,931.81 based on the amortization. The basis [was] the unpaid amortization due and payable plus 2% interest and 2% penalty charges per month. After payment, the amount due was P8,312.73. The 5th installment was due on January 17, 1985. No payment was made on the 6th, 7th, 8th installments which were due on January, February, March, April 17, 1985 respectively. The 9th installment was due on May 17, 1985, it was not paid. Defendant made a payment on June 1985 for P33,231.90 in cash per O.R. No. 439. The next payment was made on June 8, 1985 for P25,574.59. After these two payments, there was still an outstanding amount due of P32,552.44. No payment was made on the 10th and 11th installments. The next payment was made on July 24, 1985 for P60,000.00. After this payment the outstanding amount due was P43,881.76. She made payment on August 16, 1985 for P30,067.00 thru credit memo no. 045. After this payment the outstanding amount due was P15,160.46. She did not on the 12th installment, instead she paid on August 28, 1985 for P26,043.00 thru credit memo no. 046. After this payment the outstanding amount due was P23,511.07. She did not pay on the 13th installment, instead she paid on October 10, 1985 for P20,830.00 thru credit memo no. 006. After this payment the outstanding amount due was P38,728.61. She did not pay on the 14th installment, instead payment was made on November 10, 1985 for P16,212.00 thru credit memo no. 010. After this payment the outstanding amount due was P58,851.83. No payments were made on the 15th, 16th and 17th installments. She paid on January 30, 1986 for P33,657.40 in cash per O.R. No. 842. After this payment the outstanding balance was P138,233.23. No payment was made on the 18th and 19th installment which fell due on February 17 and March 17, 1986. The next payment was made on April 15, 1986 for P25,263.23. After this payment the outstanding balance was P198,425.88. She did not pay for six (6) consecutive months from April 17 to September 17, 1986 corresponding to the 20th up to the 25th installment. The next payment was made on October 14, 1986 for P82,780.33 in cash per O.R. No. 1628. After this payment the outstanding amount due was P350,712.73. The 26th and 27th installments were not paid. She paid on November 24, 1986 for P134,629.60. After this payment the outstanding balance was P306,306.66. Witness claimed that the basis for the computation was the unpaid amortization due payable for the particular period plus 2% interest and 2% penalty charge per month. In computing the interest she used the simple method. The 28th up to the 31st installments were not paid. The next payment was made on April 30, 1987 for P22,213.00 thru credit memo no. 134. After this payment the outstanding balance was P471,317.60. The basis for this computation is the unpaid amortization due plus 2% interest and 2% penalty charge per month. The 33rd, 34th and 35th installments were not paid. The next payment was made on July 22, 1987 for P19,752.00 thru credit memo no. 146. After this payment the outstanding balance was P664,822.78. The 36th and 37th installments were not paid." 1 On 31 January 1995, the Regional Trial Court, Branch V, of Makati City ruled thusly "WHEREFORE, premises considered, judgment is hereby rendered as follows: "1. As the complaint has been prematurely filed without complying with the mandate of Republic Act No. 6552, the complaint is hereby dismissed; "2. That the obligation of defendant Maria Nelida Galvez Ycasiano has now become due and demandable, said defendant is hereby ordered to pay the sum of P4,007,473.49 as of November 30, 1994 plus 18% interest per annum, computed from 1 December 1994, but within sixty days from receipt of a copy of this decision; "3. Upon payment thereof, for plaintiff to issue the corresponding certificate of title in favor of defendant; "4. In the event that said amount in full is not paid including the current amount due including the interest sans penalties, then immediately thereafter, without necessity of demand, the defendants must vacate the premises and all payments will be charged as rentals to the property. "No award of damages and attorney's fees for any parties is being adjudged. "No costs." 2 Thereupon, respondents tendered the amount of P4,304,026.53 to petitioner via Metrobank Cashier's Check No. CC008857. Petitioner refused to accept the payment, constraining respondents to consign at the disposal of the court a quo the check on 26 April 1995. In an order, dated 05 June 1996, the check was allowed to be substituted by another cashier's check payable to the Clerk of Court of the Makati Regional Trial Court. Complying with yet another court order of 04 January 1996, respondents deposited the amount of P4,304,026.53 with the Land Bank of the Philippines and subsequently submitted to the court the corresponding bank book as well as the bank's verification. HIETAc Meanwhile, both parties appealed the judgment of the trial court. In its now questioned decision of 11 June 1999, the appellate court sustained the trial court. The denial of the motion for reconsideration prompted petitioner to file the instant petition for review on certiorari, raising the following assignment of errors, to wit: "I "THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE OF THE SUPREME COURT WHEN IT FAILED AND/OR REFUSED TO RULE UPON THE EFFECT OF THE FILING OF THE COMPLAINT AND THE NOTARIAL ACT OF RESCISSION ATTACHED THERETO VIS--VIS THE REQUIREMENTS OF R.A. 6552. "II "THE COURT OF APPEALS ACTED IN A MANNER NOT IN ACCORD WITH LAW AND APPLICABLE JURISPRUDENCE OF THE SUPREME COURT IN REFUSING TO DECREE THE RESCISSION OF THE SUBJECT CONTRACT TO SELL ON THE GROUND THAT PETITIONER FAILED TO PAY THE CASH SURRENDER VALUE PRIOR TO THE FILING OF THE COMPLAINT. "III "THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S DECISION ALLOWING RESPONDENT YCASIANO TO PAY ON HER ALREADY-DEFAULTED OBLIGATIONS AND, UPON SUCH PAYMENT, ORDERING PETITIONER TO ISSUE THE CERTIFICATE OF TITLE TO HER." 3 Respondents, upon the other hand, would insist that the petition should be held devoid of merit considering that: first, the issues raised in the petition would strike at fundamentally factual questions beyond the province of a petition for review on certiorari with this Court; second, there was no valid rescission of the contract to sell on account of the failure of petitioner to give notice of rescission by notarial act, a requisite laid down in Republic Act No. 6552; third, the oft-invoked Layug vs. IAC 4 case would scarcely find application, it being a case for annulment of contract, not one for the recovery of possession; fourth, no effective rescission had taken place on account of the failure of petitioner to pay the cash surrender value, conformably with the terms of the law; and fifth, there being no valid rescission, the contract remained valid and subsisting, still thereby obligating respondents to pay the outstanding balance of the purchase price. In its Reply Brief, petitioner asseverated that, while not categorically made, the Court, in Layug, 5 had held to be sufficiently anchored, nevertheless, an action for judicial rescission even if no notarial act of rescission was priorly executed and the non-payment of the cash surrender value before the filing of the complaint. 6 Moreover, petitioner argued that while the complaint before the trial court was denominated as one for "recovery of possession," the suit could still be considered as a case for judicial rescission considering that the issue of whether or not it was entitled to recover possession over the property subject matter of the contract to sell would require, for its resolution, passing upon the initial issue of whether or not the contract was in fact rescinded by virtue of a notarial act. 7
The petition must be denied. The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any time prior to the institution of the action for reconveyance. What had been sent by petitioner to respondent was a letter, dated 02 June 1988, that read: "02 June 1988 "MS. NELIDA GALVEZ Pan Asiatic Travel Corp. 3rd Floor, S & L Building Roxas Boulevard, Manila "Dear Ms. Galvez: "We have sent you many letters in the past asking you to update your payments in accordance with the terms of our Contract to Sell dated August 25, 1984 as follows: Purchase Price, Unit No. D-12 P2,340,000.00 Terms of Payment: - July 17, 1984, Reservation/ Deposit 100,000.00 - July 19, 1984, 50% Down payment 1,070,000.00 - balance payable in 60 monthly installments with 24% p.a. interest on diminishing balance. Monthly payments to commence Sept. 12, 1984 33,657.04/month Note: Past due payments to bear interest of 2% per month plus penalty charge of 2% per month. "You are in default and your overdue account now stands as follows: Purchase Price P2,340,000.00 Add: Interest on monthly Amortizations 849,444.00
P3,189,444.00 Add: Interest and penalties on overdues (Refer to Exh. 'A') 679,002.34
P3,868,446.34 Less: Payments (Refer To Exh. 'B') 1,944,100.82
TOTAL DUE AND DEMANDABLE P1,924,345.52 ========== "Unless we receive payment in full within 30 days after service of this notice upon you, our Contract to Sell shall be cancelled and/or rescinded. "Please give this matter its due attention. "Very truly yours, "(Sgd.) Illegible (Type) FELIX H. LIMCAOCO, JR. President" 8 As so aptly observed by the courts below, the foregoing communication to the buyer merely demanded payment within thirty (30) days from receipt thereof with the threat that if the demand were not heeded, the contract would forthwith be cancelled or rescinded. Nor did the appellate court erroneously ignore the "notarial rescission" attached to the complaint for reconveyance. Apparently, the so-called "notarial rescission" was not sent to respondents prior to the institution of the case for reconveyance but merely served on respondents by way of an attachment to the complaint. In any case, a notarial rescission, standing alone, could not have invalidly effected, in this case, the cancellation of the contract. cdasia As the trial court elaborated in this case: "A careful study of the evidence presented does not show a notice of cancellation or the demand for rescission of the contract by a notarial act. The plaintiff appears to be claiming that the June 2, 1988 letter is a notice of cancellation or a demand for rescission of the contract by a notarial act. This could not be what the law contemplates. It should be a notice of cancellation or demand for rescission of the contract by notarial act. "Further, the law requires also full payment of the cash surrender value to the buyer but there is no evidence adduced by the plaintiff that they delivered to the defendant the cash surrender value. Admittedly, no such full payment of the cash surrender value to the defendant was made. A mere promise to return is not what the law contemplates." 9 The governing law is Republic Act No. 6552, otherwise known as the "Realty Installment Buyer Protection Act," which has become effective since 16 September 1972. Republic Act No. 6552 is a special law governing transactions that involve, subject to certain exceptions, the sale on installment basis of real property. 10 The law has been enacted mainly "to protect buyers of real estate on installment payments against onerous and oppressive conditions." 11 Section 3 of the statute provides: "Sec. 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 Number 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 installments made." The enactment recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with the requirements therein prescribed. 12 In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the payments on the property. 13 The actual cancellation of the contract can only be deemed to take place upon the expiry of a 30-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value. CAacTH The Court agrees with petitioner that it is not precluded from going to the court to demand judicial rescission in lieu of a notarial act of rescission. This much must be recognized. Thus, in Layug vs. Intermediate Appellate Court 14 the Court has ruled that a demand for rescission by notarial act would appear to be merely circuitous, consequently superfluous, with the filing by the seller of an action for annulment of contract and for recovery of damages. Unfortunately for petitioner, it would be incorrect to apply Layug to the instant case. Layug is basically an action for annulment of contract, a kindred concept of rescission, whereas the instant case before the Court is one for recovery of possession on the thesis of a prior rescission of the contract covering the property. 15 Not only is an action for reconveyance conceptually different from an action for rescission but that, also, the effects that flow from an affirmative judgment in either case would be materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual restitution which is not necessarily the situation that can arise in an action for reconveyance. Additionally, in an action for rescission (also often termed as resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the Court, instead of decreeing rescission, may authorize for a just cause the fixing of a period. 16 Nor should a party in litigation be permitted to freely and substantially change the theory or the cause of action of his case 17 that, otherwise, can put to undue disadvantage the other party by not being accurately and timely apprised of what he is up against. The character of an action is determined from the issues raised by the complaint, from the nature of the right or grievance asserted, and from the relief sought in the complaint. 18 A change of theory can result in grave alteration of the stand theretofore taken by the parties, and a court must not thereafter take it upon itself to assume its own position on, or the factual and legal considerations of, the case. WHEREFORE, all premises considered, the instant petition is DENIED and the appealed decision is AFFIRMED. No costs. HITEaS SO ORDERED. Davide, Jr., C.J., Ynares-Santiago, Carpio and Azcuna, JJ., concur. ||| (Olympia Housing v. Panasiatic Travel Corp., G.R. No. 140468, January 16, 2003)