Republic of the Philippines In Macondray and Co. vs. De Santos (33 Off. Gaz.
ndray and Co. vs. De Santos (33 Off. Gaz., 2170), we held that "in order to apply the
SUPREME COURT
Manila
EN BANC
G.R. No. L-46306 October 27, 1939
LEVY HERMANOS, INC., plaintiff-appellant,
vs.
LAZARO BLAS GERVACIO, defendant-appellee.
Felipe Caniblas for appellant.
Abreu, Lichaucco and Picazo for appellee.
MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the Court of First Instance of Manila, which
substantially recites the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro Blas Gervacio, a
Packard car. Defendant, after making the initial payment, executed a promissory note for the
balance of P2,400, payable on or before June 15, 1937, with interest at 12 per cent per annum, to
secure the payment of the note, he mortgaged the car to the plaintiff. Defendant failed to pay the
note it its maturity. Wherefore, plaintiff foreclosed the mortgage and the car was sold at public
auction, at which plaintiff was the highest bidder for P1,800. The present action is for the collection
of the balance of P1,600 and interest.
Defendant admitted the allegations of the complaint, and with this admission, the parties submitted
the case for decision. The lower court applied, the provisions of Act No. 4122, inserted as articles
1454-A of the Civil Code, and rendered judgment in favor of the defendant. Plaintiff appealed.
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable in installments shall confer upon
the vendor the right to cancel the sale or foreclose the mortgage if one has been given on
the property, without reimbursement to the purchaser of the installments already paid, if
there be an agreement to this effect.
However, if the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by the same
and any agreement to the contrary shall be null and void.
provisions of article 1454-A of the Civil Code it must appear that there was a contract for the sale
of personal property payable in installments and that there has been a failure to pay two or more
installments." The contract, in the instant case, while a sale of personal property, is not, however,
one on installments, but on straight term, in which the balance, after payment of the initial sum,
should be paid in its totality at the time specified in the promissory note. The transaction is not is
not, therefore, the one contemplated in Act No. 4122 and accordingly the mortgagee is not bound
by the prohibition therein contained as to the right to the recovery of the unpaid balance.
Undoubtedly, the law is aimed at those sales where the price is payable in several installments,
for, generally, it is in these cases that partial payments consist in relatively small amounts,
constituting thus a great temptation for improvident purchasers to buy beyond their means. There
is no such temptation where the price is to be paid in cash, or, as in the instant case, partly in cash
and partly in one term, for, in the latter case, the partial payments are not so small as to place
purchasers off their guard and delude them to a miscalculation of their ability to pay. The oretically,
perhaps, there is no difference between paying the price in tow installments, in so far as the size
of each partial payment is concerned; but in actual practice the difference exists, for, according to
the regular course of business, in contracts providing for payment of the price in two installments,
there is generally a provision for initial payment. But all these considerations are immaterial, the
language of the law being so clear as to require no construction at all.lâwphi1.nêt
The suggestion that the cash payment made in this case should be considered as an installment
in order to bring the contract sued upon under the operation of the law, is completely untenable. A
cash payment cannot be considered as a payment by installment, and even if it can be so
considered, still the law does not apply, for it requires non-payment of two or more installments in
order that its provisions may be invoked. Here, only one installment was unpaid.
Judgment is reversed, and the defendant-appellee is hereby sentenced to pay plaintiff-appellant
the sum of P1,600 with interest at the rate of 12 per cent per annum from June 15, 1937, and the
sum of P52.08 with interest at the rate of 6 per cent from the date of the filing of the complaint,
with costs in both instances against the appellee.
Avanceña, C.J., Villa-Real, Imperial, Diaz and Concepcion, JJ., concur.
 SECOND DIVISION
[G.R. No. 61043. September 2, 1992.]
DELTA MOTOR SALES CORPORATION, Plaintiff-Appellee, v. NIU KIM DUAN and CHAN
FUE ENG, Defendants-Appellants.
Francisco C. Bonoan for Plaintiff-Appellee.
Agapito M. Joaquin, for Defendants-Appellants.
SYLLABUS
1. CIVIL LAW; SALES; TREATMENT OF THE INSTALLMENT PAYMENTS AS RENTALS;
STIPULATION IN A CONTRACT THAT THE INSTALLMENTS PAID SHALL NOT BE RETURNED
TO THE VENDEE HELD VALID PROVIDED IT IS NOT UNCONSCIONABLE. — Defendants-
appellants cannot complain that their downpayment of P774.00 and installment payments of
P5,655.92 were treated as rentals — even though the total amount of P6,429,92 which they had
paid, approximates one-third (1/3) of the cost of the three (3) air-conditioners. A stipulation in a
contract that the installments paid shall not be returned to the vendee is valid insofar as the same
may not be unconscionable under the circumstances is sanctioned by Article 1486 of the New Civil
Code. The monthly installment payable by defendants-appellants was P774.00. The P5,655.92
installment payments correspond only to seven (7) monthly installments. Since they admit having
used the air-conditioners for twenty-two (22) months, this means that they did not pay fifteen (15)
monthly installments on the said air-conditioners and were thus using the same FREE for said
period — to the prejudice of plaintiff-appellee. Under the circumstances, the treatment of the
installment payments as rentals cannot be said to be unconscionable.
2. REMEDIES OF THE VENDOR IN A SALE OF PERSONAL PROPERTY PAYABLE IN
INSTALLMENTS; REMEDIES ARE ALTERNATIVE AND NOT CUMULATIVE. — The vendor in a
sale of personal property payable in installments may exercise one of three remedies, namely, (1)
exact the fulfillment of the obligation, should the vendee fail to pay; (2) cancel the sale upon the
vendee’s failure to pay two or more installments; (3) foreclose the chattel mortgage, if one has
been constituted on the property sold, upon the vendee’s failure to pay two or more installments.
The third option or remedy, however, is subject to the limitation that the vendor cannot recover any
unpaid balance of the price and any agreement to the contrary is void (Art. 1484) The three (3)
remedies are alternative and NOT cumulative. If the creditor chooses one remedy, he cannot avail
himself of the other two.
DECISION
NOCON, J.:
Elevated to this Court by the Court of Appeals, in its Resolution of May 20, 1982, on a pure
question of law, 1 is the appeal therein by defendants-appellants, Niu Kim Duan and Chan Fue
Eng assailing the trial court’s decision promulgated on October 11, 1977, 2 which ordered them to
pay plaintiff-appellee, Delta Motor Sales Corporation, the amount of P6,188.29 with a 14% per
annum interest which was due on the three (3) "Daikin" air-conditioners defendants-appellants
purchased from plaintiff-appellee under a Deed of Conditional Sale, after the same was declared
rescinded by the trial court. They were likewise ordered to pay plaintiff-appellee P1,000.00 for and
as attorney’s fees.chanrobles virtual lawlibrary
The events which led to the filing of the case in the lower court were summarized by the Court of
Appeals, as follows:jgc:chanrobles.com.ph
"‘On July 5, 1975, the defendants purchased from the plaintiff three (3) units of ‘DAIKIN’ air-
conditioner all valued at P19,350.00 as evidenced by the Deed of Conditional Sale, Exhibit A; that
the aforesaid deed of sale had the following terms and conditions:chanrob1es virtual 1aw library
‘(a) the defendants shall pay a down payment of P774.00 and the balance of P18,576.00 shall [be]
paid by them in twenty four (24) installments; (b) the title to the properties purchased shall remain
with the plaintiff until the purchase price thereof is fully paid; (c) if any two installments are not paid
by the defendants on their due dates, the whole of the principal sum remaining unpaid shall
become due, with interest at the rate of 14% per annum: and (d) in case of a suit, the defendants
shall pay an amount equivalent to 25% of the remaining unpaid obligation as damages, penalty
and attorney’s fees; that to secure the payment of the balance of P18,576.00 the defendants
jointly and severally executed in favor of the plaintiff a promissory note, Exhibit C; that the three (3)
air-conditioners were delivered to and received by the defendants as shown by the delivery
receipt, Exhibit B; that after paying the amount of P6,966.00, the defendants failed to pay at least
two (2) monthly installments; that as of January 6, 1977, the remaining unpaid obligation of the
defendants amounted to P12,920.08; that statements of accounts were sent to the defendants and
the plaintiff’s collectors personally went to the former to effect collections but they failed to do so;
that because of the unjustified refusal of the defendants to pay their outstanding account and their
wrongful detention of the properties in question, the plaintiff tried to recover the said properties
extra-judicially but it failed to do so; that the matter was later referred by the plaintiff to its legal
counsel for legal action; that in its verified complaint dated January 28, 1977, the plaintiff prayed
for the issuance of a writ of replevin, which the Court granted in its Order dated February 28, 1977,
after the plaintiff posted the requisite bond; that on April 11, 1977, the plaintiff, by virtue of the
aforesaid writ, succeeded in retrieving the properties in question: that as of October 3, 1977, the
outstanding account of the defendants is only in the amount of P6,188.29 as shown by the
computation, Exhibit F, after deducting the interests in arrears, cover charges, replevin bond
premiums, the value of the units repossessed and the like; and, that in view of the failure of the
defendants to pay their obligations, the amount of P6,966.00 which had been paid by way of
installments were treated as rentals for the units in question for two (2) years pursuant to the
provisions of paragraph 5 of the Deed of Conditional Sale, Exhibit A.’ (pp. 5-7, Record; pp. 4-6,
Appellant’s Brief)." chanrobles law library
As above-stated, the trial court ruled in favor of Plaintiff-Appellee.
Defendants-appellants assail the Deed of Conditional Sale under which they purchased the three
(3) Daikin air-conditioners from plaintiff-appellee as being contrary to law, morals, good custom,
public order or public policy. In particular, they point to the contract’s paragraphs 5 and 7 as
iniquitous, which paragraphs state that:jgc:chanrobles.com.ph

"5. Should BUYER fail to pay any of the monthly installments when due, or otherwise fail to The vendor in a sale of personal property payable in installments may exercise one of three
comply with any of the terms and conditions herein stipulated, this contract shall automatically remedies, namely, (1) exact the fulfillment of the obligation, should the vendee fail to pay; (2)
become null and void and all sums so paid by BUYER by reason thereof shall be considered as cancel the sale upon the vendee’s failure to pay two or more installments; (3) foreclose the chattel
rental and the SELLER shall then and there be free to take possession thereof without liability for mortgage, if one has been constituted on the property sold, upon the vendee’s failure to pay two
trespass or responsibility for any article left in or attached to the PROPERTY:chanrob1es virtual or more installments. The third option or remedy, however, is subject to the limitation that the
1aw library vendor cannot recover any unpaid balance of the price and any agreement to the contrary is void
(Art. 1484) 11
x x x
The three (3) remedies are alternative and NOT cumulative. If the creditor chooses one remedy,
he cannot avail himself of the other two.chanrobles lawlibrary : rednad
"7. Should SELLER rescind this contract for any of the reasons stipulated in the preceding
paragraph, the BUYER, by these presents obligates himself to peacefully deliver the PROPERTY It is not disputed that the plaintiff-appellee had taken possession of the three air-conditioners,
to the SELLER in case of rescission, and should a suit be brought in court by the SELLER to seek through a writ of replevin when defendants-appellants refused to extra-judicially surrender the
judicial declaration of rescission and take possession of the PROPERTY, the BUYER hereby same. This was done pursuant to paragraphs 5 and 7 of its Deed of Conditional Sale when
obligates himself to pay all the expenses to be incurred by reason of such suit and in addition to defendants-appellants failed to pay at least two (2) monthly installments, so much so that as of
pay the sum equivalent to 25% of the remaining unpaid obligation as damages, penalty and January 6, 1977, the total amount they owed plaintiff-appellee, inclusive of interest, was
attorney’s fees;" 3 P12,920.08. 12 The case plaintiff-appellee filed was to seek a judicial declaration that it had validly
rescinded the Deed of Conditional Sale. 13
Defendants-appellants claim that for the use of the plaintiff-appellee’s three air-conditioners, from
July 5, 1975 4 to April 11, 1977, 5 or for a period of about 22 months, they, in effect, paid rentals in Clearly, plaintiff-appellee chose the second remedy of Article 1484 in seeking enforcement of its
the amount of P6,429,92, 6 or roughly one-third (1/3) of the entire price of said air-conditioners contract with defendants-appellants. This is shown from the fact that its Exhibit "F" which showed
which was P19,350.00. They also complain that for the said period the trial court is ordering them the computation of the outstanding account of defendants-appellants as of October 3, 1977 took
to pay P6,188.29 as the balance due for the three air-conditioners repossessed. Defendants- into account "the value of the units repossessed." 14 Having done so, it is barred from exacting
appellants were likewise ordered to pay P1,000.00 as attorney’s fees when plaintiff-appellee never payment from defendants-appellants of the balance of the price of the three air-conditioning units
sought for attorney’s fees in its complaint. They satirically pointed out that by putting "a few which it had already repossessed. It cannot have its cake and eat it too. 15
touches here and there, the same units can be sold again to the next imprudent customer" 7 by
plaintiff-appellee. Thus, enforcement of the Deed of Conditional Sale will unjustly enrich plaintiff- WHEREFORE, the judgment of the trial court in Civil Case No. 25578 is hereby SET ASIDE and
appellee at the expense of defendants-appellants.chanrobles law library : red the complaint filed by plaintiff-appellee Delta Motor Sales Corporation is hereby DISMISSED. No
costs.
I
SO ORDERED.

Defendants-appellants cannot complain that their downpayment of P774.00 and installment Narvasa, C.J., Padilla, Regalado and Melo, JJ., concur.
payments of P5,655.92 8 were treated as rentals — even though the total amount of P6,429,92
which they had paid, approximates one-third (1/3) of the cost of the three (3) air-conditioners. A
stipulation in a contract that the installments paid shall not be returned to the vendee is valid
insofar as the same may not be unconscionable under the circumstances is sanctioned by Article
1486 of the New Civil Code. 9 The monthly installment payable by defendants-appellants was
P774.00. 10 The P5,655.92 installment payments correspond only to seven (7) monthly
installments. Since they admit having used the air-conditioners for twenty-two (22) months, this
means that they did not pay fifteen (15) monthly installments on the said air-conditioners and were
thus using the same FREE for said period — to the prejudice of plaintiff-appellee. Under the
circumstances, the treatment of the installment payments as rentals cannot be said to be
unconscionable.

II
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10789 May 28, 1957
AMADOR TAJANLANGIT, ET AL., plaintiff-appellants,
vs.
SOUTHERN MOTORS, INC., ET AL., defendants-appellees.
Almacen and Almacen for appellants.
Diosdado Garingalao for appellees.
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon. Pantaleon Pelayo, Judge of the Iloilo court
of first instance refusing to interfere with the alias writ of execution issued in Civil Case No. 2942
pending in another sala of the same court.
The facts. In April 1953 Amador Tajanlangit and his wife Angeles, residents of Iloilo, bought, from
the Southern Motors Inc. of Iloilo two tractors and a thresher. In payment for the same, they
executed the promissory note Annex A whereby they undertook to satisfy the total purchase price
of P24,755.75 in several installments (with interest) payable on stated dates from May 18, 1953
December 10, 1955. The note stipulated that if default be made in the payment of interest or of
any installment, then the total principal sum still unpaid with interest shall at once become
demandable etc. The spouse failed to meet any installment. Wherefore, they were sued, in the
above Civil Case No. 2942, for the amount of the promissory note. 1 The spouses defaulted, and
the court, after listening to the Southern Motors' evidence entered Judgment for it in the total sum
of P24,755.75 together with interest at 12 per cent, plus 10 per cent of the total amount due as
attorney's fees and costs of collection.
Carrying out the order of execution, the sheriff levied on the same machineries and farm
implements which had been bought by the spouses; and later sold them at public auction to the
highest bidder — which turned out to be the Southern Motors itself — for the total sum of P10,000.
As its judgment called for much more, the Southern Motors subsequently asked and obtained,
an alias writ of execution; and pursuant thereto, the provincial sheriff levied attachment on the
Tajanlangits' rights and interests in certain real properties — with a view to another sale on
execution.
To prevent such sale, the Tajanlangits instituted this action in the Iloilo court of first instance for
the purpose among others, of annulling the alias writ of execution and all proceedings subsequent
thereto. Their two main theories: (1) They had returned the machineries and farm implements to
the Southern Motors Inc., the latter accepted them, and had thereby settled their accounts; for that
reason, said spouses did not contest the action in Civil Case No. 2942; and (2) as the Southern
Motors Inc. had repossessed the machines purchased on installment (and mortgaged) the buyers
were thereby relieved from further responsibility, in view of the Recto Law, now article 1484 of the
New Civil Code.
For answer, the company denied the alleged "settlement and understanding" during the pendency
of civil case No. 2949. It also denied having repossessed the machineries, the truth being that
they were attached by the sheriff and then deposited by the latter in its shop for safekeeping,
before the sale at public auction.
The case was submitted for decision mostly upon a stipulation of facts. Additional testimony was
offered together with documentary evidence. Everything considered the court entered judgment,
saying in part;
The proceedings in Civil Case No. 2942 above referred to, were had in the Court of First
Instance (Branch 1) of the Province and of the City of Iloilo. While this court (Branch IV)
sympathizes with plaintiffs, it cannot grant, in this action, the relief prayed for the
complaint because courts of similar jurisdiction cannot invalidate the judgments and
orders of each other. Plaintiffs have not pursued the proper remedy. This court is without
authority and jurisdiction to declare null and void the order directing the issuance
of alias writ of execution because it was made by another court of equal rank and
category (see Cabiao and Izquierdo vs. Del Rosario and Lim, 44 Phil., 82-186).
WHEREFORE, judgement is hereby rendered dismissing the complaint with costs against
plaintiffs costs against plaintiffs. Let the writ of preliminiary injunction issued on August
26, 1954, be lifted.
The plaintiffs reasonably brought the matter to the Court of Appeals, but the latter forwarded the
expediente, being of the opinion that the appeal involved questions of jurisdiction and/or law
Discussion. Appellants' brief elaborately explains in the nine errors assigned, their original two
theories although their "settlement" idea appears to be somewhat modified.
"What is being sought in this present action" say appellants "is to prohibit and forbid the appellee
Sheriff of Iloilo from attaching and selling at public auction sale the real properties of appellants
because that is now forbidden by our law after the chattels that have been purchased and duly
mortgagee had already been repossessed by the same vendor-mortgagee and later on sold at
public auction sale and purchased by the same at such meager sum of P10,000."
"Our law" provides,
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
 (2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (New Civil Code.)
Appellants would invoke the last paragraph. But there has been no foreclosure of the chattel
mortgage nor a foreclosure sale. Therefore the prohibition against further collection does not
apply.
At any rate it is the actual sale of the mortgaged chattel in accordance with section 14 Act
No. 1508 that would bar the creditor (who chooses to foreclose) from recovering any
unpaid balance. (Pacific Com. Co. vs.De la Rama, 72 Phil. 380.) (Manila Motor
Co. vs. Fernandez, 99 Phil., 782.).
It is true that there was a chattel mortgage on the goods sold. But the Southern Motors elected to
sue on the note exclusively, i.e. to exact fulfillment of the obligation to pay. It had a right to select
among the three remedies established in Article 1484. In choosing to sue on the note, it was not
thereby limited to the proceeds of the sale, on execution, of the mortgaged good.2
The trouble with the argument is that it assumes that acceptance of the goods by the Southern
Motors Co, with a view to "cancellation" of the sale. The company denies such acceptance and
cancellation, asserting the goods, were deposited in its shop when the sheriff attached them in
pursuance of the execution. Its assertion is backed up by the sheriff, of whose credibility there is
no reason to doubt. Anyway this cancellation or settlement theory may not be heeded now,
because it would contravene the decision in Civil Case No. 2942 above-mentioned — it would
show the Tajanlangits owned nothing to Southern Motors Inc. Such decision is binding upon them,
unless and until they manage to set it aside in a proper proceeding — and this is not it.
There are other points involved in the case, such as the authority of the judge of one branch of a
court of first instance to enjoin proceedings in another branch of the same court. As stated, Judge
Pelayo refused to interfere on that ground. Appellants insist this was error on several counts. We
deem it unnecessary to deal with this procedural aspect, inasmuch as we find that, on the merits,
plaintiffs are not entitled to the relief demanded.
Judgment. The decision dismissing the complaint, is affirmed, with costs against appellants. So
ordered.
Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion, Reyes, J.B.L. and
Endencia, JJ., concur.

In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation arose in connection with
the purchase on installment of a Chevrolet truck by Magbanua. Upon the latter's default, suit on
the note was filed, and the truck levied on together with other properties of the debtor. Contending
that the seller was limited to the truck, the debtor obtained a discharge of the other properties.
This court said:

By praying that the defendant be ordered to pay the sum of P4,690 together with the
stipulated interest at 12% per annum from 17 March 1954 until fully paid, plus 10 per cent
of the total amount due as attorney's fees and cost of collection, the plaintiff acted to
exact the fulfillment of the obligation and not to foreclose the mortgage on the truck. . . .

As the plaintiff has chosen to exact the fulfillment of the defendant's obligation, the former
may enforce execution of the judgement rendered in its favor on the personal and real
properties of the latter not exempt from execution sufficient to satisfy the judgment. That
part of the judgement depriving the plaintiff of its right to enforce judgment against the
properties of the defendant except the mortgaged truck and discharging the writ of
attachment on his other properties is erroneous. (Emphasis ours.)

Concerning their second theory, — settlement or cancellation — appellants allege that the very
implements sold "were duly returned" by them, and "were duly received and accepted by the said
vendor-mortgagee". Therefore they argue, "upon the return of the same chattels and due
acceptance of the same by the vendor-mortgagee, the conditional sale is ipso facto cancelled,
with the right of the vendor-mortgagee to appropriate whatever downpayment and posterior
monthly installments made by the purchaser as it did happen in the present case at bar."
 Republic of the Philippines
SUPREME COURT
Manila
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.
ESCOLIN, J.:
The issue posed in this petition for review of the decision of the respondent appellate court is
whether a vendor, or his assignee, who had cancelled the sale of a motor vehicle for failure of the
buyer to pay two or more of the stipulated installments, may also demand payment of the balance
of the purchase price.
The pertinent facts are summarized by the respondent appellate court as follows:
On June 28, 1976, defendant spouses Restituto Nonato and Ester Nonato
purchased one (1) unit of Volkswagen Sakbayan from the People's Car, Inc., on
installment basis. To secure complete payment, the defendants executed a
promissory note (Exh. A or 1) and a chattel mortgage in favor of People's Car,
Inc, (Exh. B or 2). People's Car, Inc., assigned its rights and interests over the
note and mortgage in favor of plaintiff Investor's Finance Corporation (FNCB)
Finance). For failure of defendants to pay two or more installments, despite
demands, the car was repossessed by plaintiff on March 20, 1978 (Exh. E or 4).
Despite repossession, plaintiff demanded from defendants that they pay the
balance of the price of the car (Exhs. F and C). Finally, on June 9, 1978, plaintiff
filed before the Court of First Instance of Negros Occidental the present
complaint against defendants for the latter to pay the balance of the price of the
car, with damages and attorney's fees. (Records, pp. 36-37)
In their answer, the spouses Nonato alleged by way of defense that when the company
repossessed the vehicle, it had, by that act, effectively cancelled the sale of the vehicle. It is
therefore barred from exacting recovery of the unpaid balance of the purchase price, as mandated
by the provisions of Article 1484 of the Civil Code.
After due hearing, the trial court rendered a decision in favor of the IFC and against the Nonatos,
as follows:
PREMISES CONSIDERED, the Court hereby renders judgment ordering the
defendant to pay to the plaintiff the amount of P 17,537.60 with interest at the
rate of 14% per annum from July 28, 1976 until fully paid, 10% of the amount due
as attorney's fees, litigation expenses in the amount of P 133.05 plus the costs of
this suit. No pronouncement as to other charges and damages, the same not
having been proven to the satisfaction of the Court. 1
On appeal, the respondent appellate court affirmed the j judgment.
Hence, this petition for review on certiorari.
The applicable law in the case at bar, involving as it does a sale of personal property on
installment, is Article 1484 of the Civil Code which provides:
In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance
of the price. Any agreement to the contrary shall be void.
The meaning of the aforequoted provision has been repeatedly enunciated in a long line of cases.
Thus: "Should the vendee or purchaser of a personal property default in the payment of two or
more of the agreed installments, the vendor or seller has the option to avail of any of these three
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 [151 days. 3 This could only mean
that should petitioners fail to redeem the car within the aforesaid period by paying the balance of
the purchase price, the company would retain permanent possession of the vehicle, as it did in
fact. This was confirmed by Mr. Ernesto Carmona, the company's witness, who testified, to wit:

ATTY. PAMPLONA:

So that Mr. Witness, it is clear now that, per your receipt and
your answer, the company will not return the unit without paying
a sum of money, more particularly the balance of the account?

WITNESS: Yes, sir. 4

Respondent corporation further asserts that it repossessed the vehicle merely for the purpose of
appraising its current value. The allegation is untenable, for even after it had notified the Nonatos
that the value of the car was not sufficient to cover the balance of the purchase price, there was
no attempt at all on the part of the company to return the repossessed car,

Indeed, the acts performed by the corporation are wholly consistent with the conclusion that it had
opted to cancel the contract of sale of the vehicle. It is thus barred from exacting payment from
petitioners of the balance of the price of the vehicle which it had already repossessed. It cannot
have its cake and eat it too.

WHEREFORE, the judgment of the appellate court in CA-G.R. No. 69276-R is hereby set aside
and the complaint filed by respondent Investors Finance Corporation against petitioner in Civil
Case No. 13852 should be, as it is hereby, dismissed. No costs.

SO ORDERED.

Concepcion, Jr. (Chairman), Abad Santos, Cuevas and Alampay, JJ., concur
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-39806 January 27, 1983
LUIS RIDAD and LOURDES RIDAD, plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, JOSE D. SEBASTIAN and JOSE
SAN AGUSTIN, in his capacity as Sheriff, defendants-appellants.
Osmundo Victoriano for plaintiffs-appellees.
Wilhelmina V. Joven for defendant-appellants.
DE CASTRO, J:
Appeal from the decision of the Court of First Instance of Rizal, Branch I, in Civil Case No. 9140
for annulment of contract, originally filed with the Court of Appeals but was subsequently certified
to this Court pursuant to Section 3 of Rule 50 of the Rules of Court, there being no issue of fact
involved in this appeal.
The materials facts of the case appearing on record may be stated as follows: On April 14, 1964,
plaintiffs purchased from the Supreme Sales arid Development Corporation two (2) brand new
Ford Consul Sedans complete with accessories, for P26,887 payable in 24 monthly installments.
To secure payment thereof, plaintiffs executed on the same date a promissory note covering the
purchase price and a deed of chattel mortgage not only on the two vehicles purchased but also on
another car (Chevrolet) and plaintiffs' franchise or certificate of public convenience granted by the
defunct Public Service Commission for the operation of a taxi fleet. Then, with the conformity of
the plaintiffs, the vendor assigned its rights, title and interest to the above-mentioned promissory
note and chattel mortgage to defendant Filipinas Investment and Finance Corporation.
Due to the failure of the plaintiffs to pay their monthly installments as per promissory note, the
defendant corporation foreclosed the chattel mortgage extra-judicially, and at the public auction
sale of the two Ford Consul cars, of which the plaintiffs were not notified, the defendant
corporation was the highest bidder and purchaser. Another auction sale was held on November
16, 1965, involving the remaining properties subject of the deed of chattel mortgage since
plaintiffs' obligation was not fully satisfied by the sale of the aforesaid vehicles, and at the public
auction sale, the franchise of plaintiffs to operate five units of taxicab service was sold for P8,000
to the highest bidder, herein defendant corporation, which subsequently sold and conveyed the
same to herein defendant Jose D. Sebastian, who then filed with the Public Service Commission
an application for approval of said sale in his favor.
On February 21, 1966, plaintiffs filed an action for annulment of contract before the Court of First
Instance of Rizal, Branch I, with Filipinas Investment and Finance Corporation, Jose D. Sebastian
and Sheriff Jose San Agustin, as party-defendants. By agreement of the parties, the case was
submitted for decision in the lower court on the basis of the documentary evidence adduced by the
parties during the pre-trial conference. Thereafter, the lower court rendered judgment as follows:
IN VIEW OF THE ABOVE CONSIDERATIONS, this Court declares the chattel
mortgage, Exhibit "C", to be null and void in so far as the taxicab franchise and
the used Chevrolet car of plaintiffs are concerned, and the sale at public auction
conducted by the City Sheriff of Manila concerning said taxicab franchise, to be
of no legal effect.1äwphï1.ñët The certificate of sale issued by the City Sheriff of
Manila in favor of Filipinas Investment and Finance Corporation concerning
plaintiffs' taxicab franchise for P8,000 is accordingly cancelled and set aside, and
the assignment thereof made by Filipinas Investment in favor of defendant Jose
Sebastian is declared void and of no legal effect. (Record on Appeal, p. 128).
From the foregoing judgment, defendants appealed to the Court of Appeals which, as earlier
stated, certified the appeal to this Court, appellants imputing to the lower court five alleged errors,
as follows:
I
THE LOWER COURT ERRED IN DECLARING THE CHATTEL MORTGAGE,
EXHIBIT "C", NULL AND VOID.
II
THE LOWER COURT ERRED IN HOLDING THAT THE SALE AT PUBLIC
AUCTION CONDUCTED BY THE CITY SHERIFF OF MANILA CONCERNING
THE TAXICAB FRANCHISE IS OF NO LEGAL EFFECT.
III
THE LOWER COURT ERRED IN SETTING ASIDE THE CERTIFICATE OF
SALE ISSUED BY THE CITY SHERIFF OF MANILA IN FAVOR OF FILIPINAS
INVESTMENT AND FINANCE CORPORATION COVERING PLAINTIFFS'
TAXICAB FRANCHISE.
IV
THE LOWER COURT ERRED IN DECLARING VOID AND OF NO LEGAL
EFFECT THE ASSIGNMENT OF THE TAXICAB FRANCHISE MADE BY
FILIPINAS INVESTMENT AND FINANCE CORPORATION IN FAVOR OF
DEFENDANT.
V
 THE LOWER COURT (sic) IN NOT DECIDING THE CASE IN FAVOR OF THE
DEFENDANTS. Appellants' Brief, pp. 9 & 10)
From the aforequoted assignment of errors, the decisive issue for consideration is the validity of
the chattel mortgage in so far as the franchise and the subsequent sale thereof are concerned.
The resolution of said issue is unquestionably governed by the provisions of Article 1484 of the
Civil Code which states:
Art. 1484. In a contract of sale of personal property the price of which is payable
in installments, the vendor may exercise y of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendee's failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance
of the price. Any agreement to the contrary shall be void.
Under the above-quoted article of the Civil Code, the vendor of personal property the purchase
price of which is payable in installments, has the right, should the vendee default in the payment of
two or more of the agreed installments, to exact fulfillment by the purchaser of the obligation, or to
cancel the sale, or to foreclose the mortgage on the purchased personal property, if one was
constituted. 1 Whichever right the vendor elects, he cannot avail of the other, these remedies
being alternative, not cumulative. 2 Furthermore, if the vendor avails himself of the right to
foreclose his mortgage, the law prohibits him from further bringing an action against the vendee
for the purpose of recovering whatever balance of the debt secured not satisfied by the
foreclosure sale. 3 The precise purpose of the law is to prevent mortgagees from seizing the
mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment, otherwise, the mortgagor-buyer would find himself without
the property and still owing practically the full amount of his original indebtedness. 4
In the instant case, defendant corporation elected to foreclose its mortgage upon default by the
plaintiffs in the payment of the agreed installments. Having chosen to foreclose the chattel
mortgage, and bought the purchased vehicles at the public auction as the highest bidder, it
submitted itself to the consequences of the law as specifically mentioned, by which it is deemed to
have renounced any and all rights which it might otherwise have under the promissory note and
the chattel mortgage as well as the payment of the unpaid balance.
Consequently, the lower court rightly declared the nullity of the chattel mortgage in question in so
far as the taxicab franchise and the used Chevrolet car of plaintiffs are concerned, under the
authority of the ruling in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al., 71
Phil. 587, the facts of which are similar to those in the case at bar. There, we have the same
situation wherein the vendees offered as security for the payment of the purchase price not only
the motor vehicles which were bought on installment, but also a residential lot and a house of
strong materials. This Court sustained the pronouncement made by the lower court on the nullity
of the mortgage in so far as it included the house and lot of the vendees, holding that under the
law, should the vendor choose to foreclose the mortgage, he has to content himself with the
proceeds of the sale at the public auction of the chattels which were sold on installment and
mortgaged to him and having chosen the remedy of foreclosure, he cannot nor should he be
allowed to insist on the sale of the house and lot of the vendees, for to do so would be equivalent
to obtaining a writ of execution against them concerning other properties which are separate and
distinct from those which were sold on installment. This would indeed be contrary to public policy
and the very spirit and purpose of the law, limiting the vendor's right to foreclose the chattel
mortgage only on the thing sold.
In the case of Cruz v. Filipinos Investment & Finance Corporation, 23 SCRA 791, this Court ruled
that the vendor of personal property sold on the installment basis is precluded, after foreclosing
the chattel mortgage on the thing sold from having a recourse against the additional security put
up by a third party to guarantee the purchaser's performance of his obligation on the theory that to
sustain the same would overlook the fact that if the guarantor should be compelled to pay the
balance of the purchase price, said guarantor will in turn be entitled to recover what he has paid
from the debtor-vendee, and ultimately it will be the latter who will be made to bear the payment of
the of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by
him, thereby indirectly subverting the protection given the latter. Consequently, the additional
mortgage was ordered cancelled. Said ruling was reiterated in the case of Pascual v. Universal
Motors Corporation, 61 SCRA 121. If the vendor under such circumstance is prohibited from
having a recourse against the additional security for reasons therein stated, there is no ground
why such vendor should not likewise be precluded from further extrajudicially foreclosing the
additional security put up by the vendees themselves, as in the instant case, it being tantamount
to a further action 5 that would violate Article 1484 of the Civil Code, for then is actually no
between an additional security put up by the vendee himself and such security put up by a third
party insofar as how the burden would ultimately fall on the vendee himself is concerned.
Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168, that in sales on
installments, where the action instituted is for and the mortgaged property is subsequently
attached and sold, the sales thereof does not amount to a foreclosure of the mortgage, hence, the
seller creditor is entitled to a deficiency judgment, does not for the stand of the appellants for that
case is entirely different from the case at bar. In that case, the vendor has availed of the first
remedy provided by Article 1484 of the Civil Code, i.e., to exact fulfillment of the obligation
whereas in the present case, the remedy availed of was foreclosure of the chattel mortgage.
The foregoing disposition renders superfluous a determination of the other issue raised by the
parties as to the validity of the auction sale, in so far as the franchise of plaintiffs is concerned,
which sale had been admittedly held without any notice to the plaintiffs.
IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with costs against the
appellants.
SO ORDERED.
 Republic of the Philippines The motor vehicle was delivered to the petitioner who 1) paid the initial payment in the amount of
SUPREME COURT P1,006.82; and 2) executed a promissory note in the amount of P7,920.00, the balance of the total
Manila selling price, in favor of respondent Luneta Motor Company. The promissory note stated the
amounts and dates of payment of twenty-six installments covering the P7,920.00 debt.
FIRST DIVISION Simultaneously with the execution of the promissory note and to secure its payment, the petitioner
executed a chattel mortgage on the subject motor vehicle in favor of the respondent. After paying
a total amount of P3,148.00, the petitioner was unable to pay further monthly installments
G.R. No. L-30583 October 23, 1982
prompting the respondent Luneta Motor Company to extra-judicially foreclose the chattel
mortgage (Annex "A" to Answer, Original Record, p. 10, supra). The motor vehicle was sold at
EUTROPIO ZAYAS, JR., petitioner, public auction with the respondent Luneta Motor Company represented by Atty. Leandro B.
vs. Fernandez as the highest bidder in the amount of P5,000.00 (Annex "B" to Answer, Original
LUNETA MOTOR COMPANY and HONORABLE JUAN O. REYES, Presiding Judge of the Record, p. 11, supra). Since the payments made by petitioner Eutropio Zayas, Jr. plus the
Court of First Instance of Manila, Branch XXI, respondents. P5,000.00 realized from the foreclosure of the chattel mortgage could not cover the total amount
of the promissory note executed by the petitioner in favor of the respondent Luneta Motor
Pantaleon Z. Salcedo for petitioner. Company, the latter filed Civil Case No. 165263 with the City Court of Manila for the recovery of
the balance of P1,551.74 plus interests.
Leandro B. Fernandez for respondents.
Luneta Motor Company alleged in its complaint that defendant Eutropio Zayas, Jr. executed a
promissory note in the amount of P7,920.00 in its favor; that out of the P7,920.00, Eutropio Zayas,
Jr. had paid only P6,368.26 plus interest up to the date of the sale at public auction of the motor
vehicle; that the balance of P1,551.74 plus interest of 12% thereon from that date had already
GUTIERREZ, JR., J.: become due and payable but despite repeated demands to pay the same, Eutropio Zayas, Jr.,
refused and failed to pay.
Eutropio Zayas, Jr., filed this petition for review by certiorari to secure a reversal of the respondent
court's orders which remanded Civil Case No. 74381 for further proceedings instead of affirming In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr. admitted having
the city court's order of dismissal, executed the promissory note for the monthly payments, on a Ford Thames vehicle bearing
Engine No. 400E-127738 which he purchased from the Luneta Motor Company but he denied his
The petitioner Eutropio Zayas, Jr, purchased on installment basis a motor vehicle described as alleged outstanding liability of P1,551.74 plus interest thereon ... the said obligation if there was
ONE (1) UNIT FORD THAMES FREIGHTER W/PUJ BODY with Engine No. 400E-127738 and any, had already been discharged either by payment or by sale in public auction of the said motor
Chassis No. 400E-127738 from Mr. Roque Escaño of the Escaño Enterprises in Cagayan de Oro vehicle as evidenced by a Notice of Sale marked as Annex "A" and Certificate of Sale marked as
City, dealer of respondent Luneta Motor Company, under the following terms and conditions: Annex "B"; (Answer, p. 7, Original Record). He alleged as affirmative defenses, among others: 1)
that the plaintiff has no cause of action against him; and 2) that pursuant to Article 1484 of the
New Civil Code and the case of Pacific Commercial Co. v. De La Rama, (72 Phil. 380) his
Selling price P7,500.00 obligation per the promissory note was extinguished by the sale at public auction of the motor
vehicle, the subject of the chattel mortgage which was executed by him in favor of the plaintiff as
Financing charge P1,426.82 security for the payment of said promissory note. (Answer, p. 8, Original Record)
Total Selling Price P8,926.82
In its Reply, Luneta Motor Company denied the applicability of Article 1484 of the Civil Code ... for
Payable on P1,006.82 the simple reason that the contract involved between the parties is not one for a sale on
Delivery installment" (Reply, p. 13, Original Record).

Payable in 24 P7,920.00 After several postponements, the case was set for hearing. As a result of the non- appearance of
months at 12% the plaintiff and its counsel on the date set for hearing, defendant Zayas, Jr. moved to have the
interest per case dismissed for lack of interest on the part of the plaintiff. He also asked the court to allow him
annum to discuss the merits of his affirmative defense as if a motion to dismiss had been filed. The issue
raised and argued by the defendant was whether or not a deficiency amount after the motor
vehicle, subject of the chattel mortgage, has been sold at public auction could still be recovered.
Zayas cited the case of Ruperto Cruz v. Filipinas Investment (23 SCRA 791).<äre||anº•1àw>
Acting on the motion, the city court issued an Order:
On Petition of counsel for the defendant for the dismissal of this case on the
ground that the defendant is no longer liable for the deficiency judgment inas
much as the chattel mortgage has been foreclosed, with the plaintiff as the
highest bidder thereof, citing the case of Ruperto G. Cruz v. Filipinas
Investment decided on May 27, 1968, G.R. No. L-24772 in connection with
Article 1484 of the Civil Code, and finding the same well taken.
Let this case be dismissed without pronouncement as to costs.
Luneta Motor Company filed an "Urgent Motion for Reconsideration" reiterating its stand that
Article 1484 of the New Civil Code on sale of personal property by installment was not applicable
and that the contract involving the parties was a mere case of an ordinary loan secured by chattel
mortgage. According to the plaintiff, the defendant executed the promissory note and chattel
mortgage to secure the plaintiff's interest for having financed the purchase of the motor vehicle by
the defendant from the Escaño Enterprises of Cagayan de Oro City, an entity entirely different and
distinct from the plaintiff corporation (p. 33, Original Record).
The court denied the motion for reconsideration for lack of merit.
Luneta Motor Company appealed the case to the Court of First Instance of Manila where it was
docketed as Civil Case No. 74381.
After various incidents, the respondent court issued an order which, in part, reads:
This is an appeal taken by plaintiff from the order of the City Court of Manila,
dismissing its complaint on the ground that the defendant is no longer liable for
the deficiency judgment inasmuch as the chattel mortgage has been foreclosed,
with the plaintiff as the highest bidder thereof, in line with the ruling of the
Supreme Court in the case of Ruperto G. Cruz v. Filipinas Investment (G.R. No.
L24772) in connection with Article 1484 of the Civil Code.
xxx xxx xxx
After going over the pleadings in this case, more particularly the complaint and
the answer to the complaint filed with the City Court of Manila, this Court is of the
impression that the case at bar may not be decided merely, as the City Court had
done, on the question of law since the presentation of evidence is necessary to
adjudicate the questions involved. WHEREFORE, this case is hereby remanded
to the court of origin for further proceedings. (pp. 82-83, Original Record)
Hence, this petition.
Petitioner Eutropio Zayas, Jr. now maintains::
That Respondent Court of First Instance erred:
1. IN HOLDING THAT THE QUESTION OF LAW CANNOT BE DECIDED SINCE
PRESENTATION OF EVIDENCE IS NECESSARY- REGARDING THE
QUESTION OF RECOVERY OF THE DEFICIENCY AMOUNT IN A CHATTEL
MORTGAGE AFTER SELLING IT IN A PUBLIC AUCTION;
2. IN ORDERING THE REMAND OF THE CASE TO THE CITY COURT FOR
FURTHER PROCEEDINGS TAKEN BY THE RESPONDENT FROM THE CITY
COURT TO THE COURT OF FIRST INSTANCE, BRANCH XXI, MANILA; and
3. IN NOT DISMISSING THE APPEAL TAKEN BY THE PRIVATE
RESPONDENT FROM THE CITY COURT TO THE COURT OF FIRST
INSTANCE.
The main defense of respondent Luneta Motor Company is that Escano Enterprises, Cagayan de
Oro City from which petitioner Eutropio Zayas, Jr. purchased the subject motor vehicle was a
distinct and different entity; that the role of Luneta Motor Company in the said transaction was only
to finance the purchase price of the motor vehicle; and that in order to protect its interest as
regards the promissory note executed in its favor, a chattel mortgage covering the same motor
vehicle was also executed by petitioner Eutropio Zayas, Jr. In short, respondent Luneta Motor
Company maintains that the contract between the company and the petitioner was only an
ordinary loan removed from the coverage of Article 1484 of the New Civil Code.
The respondent's arguments have no merit.
The Escaño Enterprises of Cagayan de Oro City was an agent of Luneta Motor Company. A very
significant evidence which proves the nature of the relationship between Luneta Motor Company
and Escaño Enterprises is Annex "A. of the petitioner's OPPOSITION TO URGENT MOTION FOR
RECONSIDERATION. (Original Record, p. 36) Annex "A" is a Certification from the cashier of
Escano Enterprises on the monthly installments paid by Mr. Eutropio Zayas, Jr. In the certification,
the promissory note in favor of Luneta Motor Company was specifically mentioned. There was
only one promissory note executed by Eutropio Zayas, Jr. in connection with the purchase of the
motor vehicle. The promissory note mentioned in the certification refers to the promissory note
executed by Eutropio Zayas, Jr. in favor of respondent Luneta Motor Company. Thus:
CERTIFICATION
This is to certify that Mr. EUTROPIO ZAYAS, JR. has paid from us the following, of his FORD
THAMES BEARING Engine No. 400E-127738, promissory note dated October 6, 1966. Viz:
ESCAÑO O.R DATE RECEIVED AMOUNT
NUMBER
09998 October 5, 1966 P1,000.00 P3,148.00

ESCAÑO ENTERPRISES
10064 October 20, 1966 242.00
(SGD.) EMELITA H. BACULIO
10188 November 8, 1966 166.00
Cashier

10355 December 12,1966 400.00 Escano Enterprises, a dealer of respondent Luneta Motor Company, was merely a collecting-
agent as far as the purchase of the subject motor vehicle was concerned. The principal and agent
relationship is clear.
LMC C.R. #40031 January 19, 1967 270.00
But even assuming that the "distinct and independent entity" theory of the private respondent is
valid, the nature of the transaction as a sale of personal property on installment basis remains.
10536 February 1, 1967 60.00 When, therefore, Escaño Enterprises, assigned its rights vis-a-vis the sale to respondent Luneta
Motor Company, the nature of the transaction involving Escano Enterprises and Eutropio Zayas,
Jr. did not change at all. As assignee, respondent Luneta Motor Company had no better rights
10645 February 27, 1967 100.00 than assignor Escaño Enterprises under the same transaction. The transaction would still be a
sale of personal property in installments covered by Article 1484 of the New Civil Code. To rule
otherwise would pave the way for subverting the policy underlying Article 1484 of the New Civil
10704 March 13,1967 100.00 Code, on the foreclosure of chattel mortgages over personal property sold on installment basis.

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

10749 March 22, 1967 60.00
payable in installments, the vendor may exercise any of the following remedies:

10132 March 30,1967 100.00 xxx xxx xxx

xxx xxx xxx

10788 April 8, 1967 100.00
(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
10795 April 11, 1967 100.00 shall have no further action against the purchaser to recover any unpaid balance
of the price. Any agreement to the contrary shall be void.

10827 April 18, 1967 100.00

xxx xxx xxx

10934 May 10, 1967 100.00 ... the established rule is to the effect that the foreclosure and actual sale of a mortgaged chattel
bars further recovery by the vendor of any balance on the purchaser's outstanding obligation not
so satisfied by the sale. And the reason for this doctrine was aptly stated in the case of Bachrach
10991 May 26,1967 100.00 Motor Co. vs. Millan, supra, thus:

Undoubtedly the principal object of the above amendment was

11105 June 19,1967 150.00 to remedy the abuses committed in connection with the
foreclosure of chattel mortgages. This amendment prevents
mortgagees from seizing the mortgaged property, buying it at
 foreclosure sale for a low price and then bringing suit against
the mortgagor for a deficiency judgment. The almost invariable
result of this procedure was that the mortgagor found himself
minus the property and still owing practically the full amount of
his original indebtedness. Under this amendment the vendor of
personal property, the purchase price of which is payable in
installments, has the right to cancel the sale or foreclose the
mortgage if one has been given on the property. Whichever
right the vendor elects he need not return to the purchaser the
amount of the installments already paid, "if there be an
agreement to that effect". Furthermore, if the vendor avails
himself of the right to foreclose the mortgage this amendment
prohibits him from bringing an action against the purchaser for
the unpaid balance. (Cruz v. Filipinas Investment & Finance
Corporation, 23 SCRA 791)

Our findings and conclusions are borne out by the records available to the respondent court.
There was no necessity for the remand of records to the city court for the presentation of evidence
on the issue raised in the case.

WHEREFORE, the instant petition is hereby granted. The orders remanding the case to the court
of origin and denying the motion for reconsideration of the Court of First Instance of Manila,
Branch XXI issued in Civil Case No. 74381 are annulled. Accordingly, the Court of First Instance
of Manila, Branch XXI is directed to dismiss the appeal in Civil Case No. 74381. The Order of the
City Court of Manila dismissing the complaint in Civil Case No. 165263 is affirmed.

SO ORDERED.

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

 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28074 May 29, 1970
NORTHERN MOTORS, INC., plaintiff-appellant,
vs.
CASIANO SAPINOSO and "JOHN DOE", defendants-appellees.
Sycip, Salazar, Luna, Manalo & Feliciano for plaintiff-appellant.
David F. Barrera for defendants-appellees.
VILLAMOR, J.:
Direct appeal on questions of law from the portion of the judgment of the Court of First Instance of
Manila, Branch XXII, in its Civil Case No. 66199, ordering the plaintiff to pay defendant Casiano
Sapinoso the sum of P1,250.00.
The facts of this case are as follows:
On June 4, 1965, Casiano Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car for
the price of P12,171.00, making a down payment and executing a promissory note for the balance
of P10,540.00 payable in installments with interest at 12% per annum, as follows: P361.00 on July
5, 1965, and P351.00 on the 5th day of each month beginning August, 1965, up to and including
December, 1967. To secure the payment of the promissory note, Sapinoso executed in favor of
Northern Motors, Inc. a chattel mortgage on the car. The mortgage contract provided, among
others, that upon default by the mortgagor in the payment of any part of the principal or interest
due, the mortgagee may elect any of the following remedies: (a) sale of the car by the mortgagee;
(b) cancellation of the contract of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure; (e)
ordinary civil action to exact fulfillment of the mortgage contract. It was further stipulated that
"[w]hichever remedy is elected by the mortgagee, the mortgagor expressly waives his right to
reimbursement by the mortgagee of any and all amounts on the principal and interest already paid
by him."
Sapinoso failed to pay the first installment of P361.00 due on July 5, 1965, and the second, third,
fourth and fifth installments of P351.00 each due on the 5th day of August, September, October
and November, 1965, respectively. Several payments were, however, made by Sapinoso, to wit:
P530.52 on November 21, 1965, P480.00 on December 21, 1965, and P400.00 on April 30, 1966.
The first and third payments aforesaid were applied to accrued interest up to April 17, 1966, while
the second payment was applied partly (P158.10) to interest, and partly (P321.90) to the principal,
thereby reducing the balance unpaid to P10,218.10.
The vendee-mortgagor having failed to make further payments, Northern Motors, Inc. filed the
present complaint on July 22, 1966, against Sapinoso and a certain person whose name, identity
and address were still unknown to the plaintiff, hence denominated in the complaint as "John
Doe." In its complaint, Northern Motors, Inc. stated that it was availing itself of the option given it
under the mortgage contract of extrajudicially foreclosing the mortgage, and prayed that a writ of
replevin be issued upon its filing of a bond for the seizure of the car and for its delivery to it; that
after hearing, the plaintiff be adjudged to have the rightful possession and ownership of the car;
that in default of delivery, the defendants be ordered to pay the plaintiff the sum of P10,218.10
with interest, at 12% per annum from April 18, 1966, until full payment of the said sum, as well as
an amount equivalent to 25% of the sum due as and for attorney's fees and expenses of
collection, and the costs of the suit. Plaintiff also prayed for such other remedy as might be
deemed just and equitable in the premises.
Subsequent to the commencement of the action, but before the filing of his answer, defendant
Sapinoso made two payments on the promissory note, the first on August 22, 1966, for P500.00,
and the second on September 27, 1966, for P750.00. In the meantime, on August 9, 1966, upon
the plaintiff's filing of a bond, a writ of replevin was issued by the court. On October 20, 1966,
copies of the summons, complaint and annexes thereto were served on defendant Sapinoso by
the sheriff who executed the seizure warrant by seizing the car from defendant Sapinoso on the
same date, and turning over its possession to the plaintiff on October 25, 1966.
On November 12, 1966, defendant Sapinoso filed an answer admitting the allegations in the
complaint with respect to the sale to him of the car, the terms thereof, the execution of the
promissory note and of the chattel mortgage contract, and the options open to the plaintiff under
the said contract. He alleged, however, that he had paid the total sum of P4,230.52, leaving a
balance of only P5,987.58; that upon demand he immediately surrendered the possession of the
car to the plaintiff's representative; and that the value of the car was only about P5,000.00, and not
P10,000.00 as alleged in the complaint. As special defenses the said defendant alleged that he
failed to pay the installments due because the car was defective, and the plaintiff failed to have it
fixed although he had repeatedly called the plaintiff's attention thereto, hence, the defendant had
to procrastinate in his payments in order to move the plaintiff to repair the car; and that although
the car could not be used, he paid P700.00 to the plaintiff upon the latter's assurance that the car
would be fixed, but that instead of having the car fixed, the plaintiff, in bad faith, filed the present
complaint. The defendant prayed that the complaint be dismissed and that the plaintiff be ordered
to return the car to him. He stated in his prayer that he would be very much willing to pay the car in
a compromise agreement between him and the plaintiff.
After trial, the court a quo, in its decision dated April 4, 1967, held that defendant Sapinoso having
failed to pay more than two (2) installments, plaintiff-mortgagee acquired the right to foreclose the
chattel mortgage, which it could avail of — as it has done in the present case — by filing an action
of replevin to secure possession of the mortgaged car as a preliminary step to the foreclosure sale
contemplated in the Chattel Mortgage Law; and that the foreclosure of the chattel mortgage and
the recovery of the unpaid balance of the price are alternative remedies which may not be pursued
conjunctively, so that in availing itself of its right to foreclose the chattel mortgage, the plaintiff
thereby renounced whatever claim it may have had on the promissory note, and, therefore, the
plaintiff has no more right to the collection of the attorney's fees stipulated in the promissory note,
and should return to defendant Sapinoso the sum of P1,250.00 which the plaintiff had received
from the latter after having filed the present case on July 22, 1966, and elected to foreclose the
chattel mortgage. The dispositive portion of the decision reads:
WHEREFORE, the Court finds that the plaintiff has the right to the possession of
the OPEL KADETT two-door station wagon Model 3464-91.5, with engine No.
10-0354333, and the delivery thereof to the plaintiff is hereby ratified and
confirmed but said party is sentenced to pay to the defendant the sum of P1,250,
with legal interest on P500 from August 22, 1966 and or P750 from September
27, 1966, until fully paid, without any pronouncement as to costs.
In this appeal plaintiff-appellant claims that the court a quo erred in ordering it to reimburse to
defendant-appellee Sapinoso the sum of P1,250.00 which the latter had paid. It contends that
under Article 1484 of the Civil Code it is the exercise, not the mere election, of the remedy of
foreclosure that bars the creditor from recovering the unpaid balance of the debt; that what the
said Article 1484 prohibits is "further action" to collect payment of the deficiency after the creditor
has foreclosed the mortgage; and that in paying plaintiff-appellant the sum of P1,250.00 before
defendant-appellee Sapinoso filed his answer, and in not filing a counterclaim for the recovery
thereof, the said defendant-appellee in effect renounced whatever right he might have had to
recover the said amount.
replevin for the purpose of extrajudicial foreclosure, or if a mortgage creditor who has elected to
foreclose but who subsequently desists from proceeding with the auction sale, without gaining any
advantage or benefit, and without causing any disadvantage or harm to the vendee-mortgagor, is
not barred from suing on the unpaid account (Radiowealth, Inc. vs. Lavin, et al., G.R. No. L-18563,
April 27, 1963 [7 SCRA 804, 807]), there is no reason why a mortgage creditor should be barred
from accepting, before a foreclosure sale, payments voluntarily tendered by the debtor-mortgagor
who admits a subsisting indebtedness.
PREMISES CONSIDERED, the judgment appealed from is modified by setting aside the portion
thereof which orders plaintiff-appellant to pay defendant-appellee Sapinoso the sum of P1,250.00,
with costs in this instance against the said defendant-appellee.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Fernando and Teehankee, JJ.,
concur.
Barredo, J., concurs in the result.
Castro, J., is on leave.

The appeal is meritorious.

In issuing a writ of replevin, and, after trial, in upholding plaintiff-appellant's right to the possession
of the car, and ratifying and confirming its delivery to the said plaintiff-appellant, the court below
correctly considered the action as one of replevin to secure possession of the mortgaged vehicle
as a preliminary step to this foreclosure sale contemplated in Section 14 of Act No. 1508
(Bachrach Motor Co. vs. Summers, 42 Phil., 3; Seño vs. Pestolante, G.R. No. L-11755, April 23,
1958). The said court however erred in concluding that the legal effect of the filing of the action
was to bar plaintiff-appellant from accepting further payments on the promissory note. That the
ultimate object of the action is the foreclosure of the chattel mortgage, is of no moment, for it is the
fact of foreclosure and actual sale of the mortgaged chattel that bar further recovery by the vendor
of any balance on the purchaser's outstanding obligation not satisfied by the sale. (Manila Motor
Co., Inc. vs. Fernandez, 99 Phil., 782, 786; Bachrach Motor Co. vs. Millan, 61 Phil., 409; Manila
Trading & Supply Co. vs. Reyes, 62 Phil. 461, 471; Cruz et al. vs. Filipinas Investment & Finance
Corporation, G.R. No. L-24772, May 27, 1968 [23 SCRA 791, 796].) In any event, what Article
1484(3) prohibits is "further action against the purchaser to recover any unpaid balance of the
price;" and although this Court has construed the word "action" in said Article 1484 to mean "any
judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact
recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his
privy" (Cruz, et al. vs. Filipinas Investment & Finance Corporation, supra), there is no occasion at
this stage to apply the restrictive provision of the said article, because there has not yet been a
foreclosure sale resulting in a deficiency. The payment of the sum of P1,250.00 by defendant-
appellee Sapinoso was a voluntary act on his part and did not result from a "further action"
instituted by plaintiff-appellant. If the mortgage creditor, before the actual foreclosure sale, is not
precluded from recovering the unpaid balance of the price although he has filed an action of
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24772 May 27, 1968
RUPERTO G. CRUZ, ET AL., plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE CORPORATION, defendant-appellant.
Villareal, Almacen, Navarra and Associates for plaintiffs-appellees.
Sycip, Salazar, Luna, Manalo and Feliciano for defendant-appellant.
REYES, J.B.L., J.:
Appeal interposed by Filipinas Investment & Finance Corporation from the decision of the Court of
First Instance of Rizal (Quezon City) in Civil Case No. Q-7949.1ªvvphi1.nêt
In the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes in the Court of First
Instance of Rizal (Civil Case No. Q-7949), for cancellation of the real estate mortgage constituted
on the land of the latter 1 in favor of defendant Filipinas Investment & Finance Corporation (as
assignee of the Far East Motor Corporation), the parties submitted the case for decision on the
following stipulation of facts:
1. Their personal circumstances and legal capacities to sue and be sued;
2. That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from the
Far East Motor Corporation, one (1) unit of Isuzu Diesel Bus, described in the complaint,
for P44,616.24, Philippine Currency, payable in installments of P1,487.20 per month for
thirty (30) months, beginning October 22, 1963, with 12 % interest per annum, until fully
paid. As evidence of said indebtedness, plaintiff Cruz executed and delivered to the Far
East Motor Corporation a negotiable promissory note in the sum of P44,616.24, ...;
3. That to secure the payment of the promissory note, Annex "A", Cruz executed in favor
of the seller, Far East Motor Corporation, a chattel mortgage over the aforesaid motor
vehicle...;
4. That as no down payment was made by Cruz, the seller, Far East Motor Corporation,
on the very improvements thereon, in San Miguel, Bulacan...; same date, July 15, 1963,
required and Cruz agreed to give, additional security for his obligation besides the chattel
mortgage, Annex "B"; that said additional security was given by plaintiff Felicidad Vda. de
Reyes in the form of SECOND MORTGAGE on a parcel of land owned by her, together
with the building and
5. That said land has an area of 68,902 square meters, more or less, and covered by
Transfer Certificate of Title No. 36480 of the Registry of Deeds of Bulacan in the name of
plaintiff Mrs. Reyes; and that it was at the time mortgaged to the Development Bank of
the Philippines to secure a loan of P2,600.00 obtained by Mrs. Reyes from that bank;
6. That also on July 15, 1963, the Far East Motor Corporation for value received indorsed
the promissory note and assigned all its rights and interest in the Deeds of Chattel
Mortgage and in the Deed of Real Estate Mortgage (Annexes "A", "B" and "B-l") to the
defendant, Filipinas Investment & Finance Corporation, with due notice of such
assignment to the plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of the promisory note (Annex "A") ; that the
only sum ever paid to the defendant was Five Hundred Pesos (P500.00) on October 2,
1963, which was applied as partial payment of interests on his principal obligation; that,
notwithstanding defendant's demands, Cruz made no payment on any of the installments
stipulated in the promissory note;
8. That by reason of Cruz's default, defendant took steps to foreclose the chattel
mortgage on the bus; that said vehicle had been damaged in an accident while in the
possession of plaintiff Cruz;
9. That at the foreclosure sale held on January 31, 1964 by the Sheriff of Manila, the
defendant was the highest bidder, defendant's bid being for Fifteen Thousand Pesos
(P15,000.00)...;
10. That the proceeds of the sale of the bus were not sufficient to cover the expenses of
sale, the principal obligation, interests, and attorney's fees, i.e., they were not sufficient to
discharge fully the indebtedness of plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to foreclosing its real estate mortgage on Mrs.
Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes to the
Development Bank of the Philippines, in the sum of P2,148.07, the unpaid balance of said
obligation...;
12. That pursuant to a provision in the real estate mortgage contract, authorizing the
mortgagee to foreclose the mortgage judicially or extra-judicially, defendant on February
29, 1964 requested the Provincial Sheriff of Bulacan to take possession of, and sell, the
land subject of the Real Estate Mortgage, Annex "B-1", to satisfy the sum of P43,318.92,
the total outstanding obligation of the plaintiffs to the defendant, as itemized in the
Statement of Account, which is made a part hereof as Annex "F"...;
13. That notices of sale were duly posted and served to the Mortgagor, Mrs. Reyes,
pursuant to and in compliance with the requirements of Act 3135...;
14. That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter to the
defendant asking for the cancellation of the real estate mortgage on her land, but
 defendant did not comply with such demand as it was of the belief that plaintiff's request
was without any legal basis;
15. That at the request of the plaintiffs, the provincial Sheriff of Bulacan held in abeyance
the sale of the mortgaged real estate pending the result of this action.
Passing upon the issues which, by agreement of the parties, were limited to — (1) "Whether
defendant, which has already extrajudicially foreclosed the chattel mortgage executed by the
buyer, plaintiff Cruz, on the bus sold to him on installments, may also extrajudicially foreclose the
real estate mortgage constituted by plaintiff Mrs. Reyes on her own land, as additional security, for
the payment of the balance of Cruz' Obligation, still remaining unpaid"; and (2) whether or not the
contending parties are entitled to attorney's fees — the court below, in its decision of April 21,
1965, sustained the plaintiffs' stand and declared that the extrajudicial foreclosure of the chattel
mortgage on the bus barred further action against the additional security put up by plaintiff Reyes.
Consequently, the real estate mortgage constituted on the land of said plaintiff was ordered
cancelled and defendant was directed to pay the plaintiffs attorney's fees in the sum of P200.00.
Defendant filed the present appeal raising the same questions presented in the lower court.
There is no controversy that, involving as it does a sale of personal property on installments, the
pertinent legal provision in this case is Article 1484 of the Civil Code of the Philippines, 2 which
reads:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
The aforequoted provision is clear and simple: should the vendee or purchaser of a personal
property default in the payment of two or more of the agreed installments, the vendor or seller has
the option to avail of any one of these three remedies — either to exact fulfillment by the
purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These remedies have been recognized as alternative,
not cumulative, 3 that the exercise of one would bar the exercise of the others. 4 It may also be
stated that the established rule is to the effect that the foreclosure and actual sale of a mortgaged
chattel bars further recovery by the vendor of any balance on the purchaser's outstanding
obligation not so satisfied by the sale. 5 And the reason for this doctrine was aptly stated in the
case of Bachrach Motor Co. vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment 6 was to remedy the abuses
committed in connection with the foreclosure of chattel mortgages. This amendment
prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale
for a low price and then bringing suit against the mortgagor for a deficiency judgment. The
almost invariable result of this procedure was that the mortgagor found himself minus the
property and still owing practically the full amount of his original indebtedness. Under this
amendment the vendor of personal property, the purchase price of which is payable in
installments, has the right to cancel the sale or foreclose the mortgage if one has been
given on the property. Whichever right the vendor elects he need not return to the
purchaser the amount of the installments already paid, "if there be in agreement to that
effect". Furthermore, if the vendor avails himself of the right to foreclose the mortgage the
amendment prohibits him from bringing an action against the purchaser for the unpaid
balance.
It is here agreed that plaintiff Cruz failed to pay several installments as provided in the contract;
that there was extrajudicial foreclosure of the chattel mortgage on the said motor vehicle; and that
defendant-appellant itself bought it at the public auction duly held thereafter, for a sum less than
the purchaser's outstanding obligation. Defendant-appellant, however, sought to collect the
supported deficiency by going against the real estate mortgage which was admittedly constituted
on the land of plaintiff Reyes as additional security to guarantee the performance of Cruz'
obligation, claiming that what is being withheld from the vendor, by the proviso of Article 1484 of
the Civil Code, is only the right to recover "against the purchaser", and not a recourse to the
additional security put up, not by the purchaser himself, but by a third person.
There is no merit in this contention. To sustain appellant's argument is to overlook the fact that if
the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in
turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code) ; so
that ultimately, it will be the vendee who will be made to bear the payment of the balance of the
price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the protection
given by Article 1484 would be indirectly subverted, and public policy overturned.
Neither is there validity to appellant's allegation that, since the law speaks of "action", the
restriction should be confined only to the bringing of judicial suits or proceedings in court.
The word "action" is without a definite or exclusive meaning. It has been invariably defined as —
... the legal demand of one's right, or rights; the lawful demand of one's rights in the form
given by law; a demand of a right in a court of justice; the lawful demand of one's right in
a court of justice; the legal and formal demand of ones rights from another person or
party, made and insisted on in a court of justice; a claim made before a tribunal; an
assertion in a court of justice of a right given by law; a demand or legal proceeding in a
court of justice to secure one's rights; the prosecution of some demand in a court of
justice; the means by which men litigate with each other; the means that the law has
provided to put the cause of action into effect;.... (Gutierrez Hermanos vs. De la Riva, 46
Phil. 827, 834-835).
Considering the purpose for which the prohibition contained in Article 1484 was intended, the word
"action" used therein may be construed as referring to any judicial or extrajudicial proceeding by
virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied
balance of the purchase price from the purchaser or his privy. Certainly, an extrajudicial
foreclosure of a real estate mortgage is one such proceeding.

The provision of law and jurisprudence on the matter being explicit, so that this litigation could
have been avoided, the award by the lower court of attorney's fees to the plaintiff's in the sum of
P200.00 is reasonable and in order.

However, we find merit in appellant's complaint against the trial court's failure to order the
reimbursement by appellee Vda. de Reyes of the amount which the former paid to the
Development Bank of the Philippines, for the release of the first mortgage on the land of said
appellee. To the extent that she was benefited by such payment, plaintiff-appellee Vda. de Reyes
should have been required to reimburse the appellant.

WHEREFORE, the decision appealed from is modified, by ordering plaintiff-appellee Felicidad

Vda. de Reyes to reimburse to defendant-appellant Filipinas Investment & Finance Corporation
the sum of P2,148.07, with legal interest thereon from the finality of this decision until it is fully
paid. In all other respects, the judgment of the court below is affirmed, with costs against the
defendant-appellant.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro and Angeles, JJ., concur.
Fernando, J., is on leave.
 Republic of the Philippines Twelve (12) months due and payable on the 7th day of each month starting
SUPREME COURT January, 1985, provided that at a late payment charge of 3% per month shall be
Manila added on each unpaid installment from due date thereof until fully paid.

FIRST DIVISION 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
G.R. No. 106418 July 11, 1996 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
DANIEL L. BORBON II AND FRANCISCO L. BORBON, petitioners,
hundred pesos for liquidated damages, aside from expenses of collection and the
vs. legal costs provided for in the Rules of Court.
SERVICEWIDE SPECIALISTS, INC. & HON. COURT OF APPEALS, respondents.
"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
VITUG, J.:p province, municipality or city where the branch of the holder hereof is located.

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.
"Acceptance by the holder thereof of payment of any installment or any part
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
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.

The appellate court adopted the factual findings of the court a quo, to wit: "Maker:

The plaintiff's evidence shows among others that on December 7, 1984, (S/t) DANIEL L. BORBON, II
defendants Daniel L. Borbon and Francisco Borbon signed a promissory note
(Exh. A) which states among others as follows:
Address: 14 Colt St., Rancho Estate I,
Concepcion Dos, Marikina, MM
PROMISSORY NOTE
(S/t) FRANCISCO BORBON
Acct. No. 115008276
Makati, Metro Manila,
Address: 73 Sterling Life Home
Philippines Pamplona, Las Piñas, MM
December 7, 1984
WITNESSES
"P122,856.00
(illegible) (illegible)
"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 or notice or demand, in installments of the amounts "PAY TO THE ORDER OF
following and at the dates hereinafter set forth, to wit: P10,238.00 monthly for FILINVEST CREDIT CORPORATION
 without recourse, notice, presentment and of Pangasinan Auto mart, Inc. (assignor) told the defendants that their available
demand waived 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
PANGASINAN AUTO MART, INC. defendants the amount of P10,000.00 to have the rear body completed (pp. 12-
34, Exhs. 2 to 3-3A).
BY:
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
(S/T) K.N. DULCE
court. the defendants argue that an asignee stands in the place of an assignor
Dealer"
which, to the mind of the court, is correct. The asignee exercise all the rights of
the assignor (Gonzales vs. Rama Plantation Co., C.V. 08630, Dec. 2, 1986).
To secure the Promissory Note, the defendants executed a Chattel mortgage
(Exh. B) on
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
"One (1) Brand new 1984 Isuzu the contract. the defendants claim that neither party incurs delay if the other does
KCD 20 Crew Cab (Conv.) not comply with his obligation. (citing Art. 1169, N.C.C.)1
Serial No. KCD20D0F 207685
Key No. 5509
In sustaining the decision of the court a quo, the appellate court ruled that the petitioners
could avoid liability under the promissory note and the chattel mortgage that secured it
(Exhs. A and B, p. 2 tsn, September 10, 1985) since private respondent took the note for value and in good faith.

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).
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:

The promissory note stipulates that the installment of P10,238.00 monthly should (1) Exact fulfillment of the obligation, should the vendee fail to pay;
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).
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
Because the defendants did not pay their monthly installments, Filinvest
demanded from the defendants the payment of their installments due in January
(3) Foreclose the chattel mortgage or the thing sold, if one has been constituted,
29, 1985 by telegram (Exh. E; pp. 3-4, tsn, Sept. 30, 1985).
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
After the accounts were assigned to the plaintiff, the plaintiff attempted to collect of the price. Any agreement to the contrary shall be void.
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,
The remedies under Article 1484 of the Civil Code are not cumulative but alternative and
tsn, Sept. 30, 1985).
exclusive,2 which means, as so held in Nonato vs. Intermediate Appellate Court and
Investor's Finance Corporation,3 that —
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 they
. . . Should the vendee or purchaser of a personal property default in the
bought was not delivered (pp. 11-12, tsn, Oct. 17, 1985). Instead, through
payment of two or more of the agreed installments, the vendor or seller has the
misinterpretation and machination, the Pangasinan Motor Inc. delivered an Isuzu
option to avail of any of these three remedies — either to exact fulfillment by the
crew cab, as this is the unit available at their warehouse. Later the representative
 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 on e 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 of the seller-mortgagee first seeks,
instead, the enforcement of the additional mortgages, guarantees or other security
arrangements, he must be then be held to have lost by waiver or non-choice his lien on
the chattel mortgage of the personal property sold by and mortgaged back to him,
although, similar to an action for specific performance, he may still levy on it.
In ordinary alternative obligations, a mere choice categorically an unequivocally made
and then communicated by the person entitled to exercise the option concludes the
parties. The creditor may not thereafter exercise any other option, unless the chosen
alternative proves to be innefectual or unavailing due to no fault on his part. This rule, in
essence, is the difference between alternative obligations, on the one hand, and
alternative remedies, upon the other hand, where, in the latter case, the choice generally
becomes conclusive only upon the exercise of the remedy. For instance, in one of the
remedies expressed in Article 1484 of the Civil Code, it is only when there has been a
foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to
escape from a deficiency liability. Thus, if the case is one for specific performance, even
when this action is selected after the vendee has refused to surrender the mortgaged
property to permit an extrajudicial foreclosure, that property may still be levied on
execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy
the judgment
credit.7 So, also, a mere demand to surrender the object which is not heeded by the
mortgagor will not amount to a foreclosure,8 but the repossession thereof by the vendor-
mortgagee would have the effect of a foreclosure.
The parties here concede that the action for replevin has been instituted for the
foreclosure of the vehicle in question (now in the possession of private respondent). The
sole issue raised before us in this appeal is focused on the legal propriety of the
affirmance by the appellate court of the awards made by the court a quoof liquidated
damages and attorney's fees to private respondent. Petitioners hold that under Article
1484 of the Civil Code, aforequoted, the vendor-mortgagee or its assignees loses any
right "to recover any unpaid balance of the price" and any "agreement to the contrary
(would be) void.
The argument is aptly made. In Macondray & Co. vs. Eustaquio,9 we have said that the
phrase "any unpaid balance" can only mean the deficiency judgment to which the
mortgagee may be entitled to when the proceeds from the auction sale are insufficient to
cover the "full amount of the secured obligations which . . . include interest on the
principal, attorney's fees, expenses of collection, and the costs." In sum, we have
observed that the legislative intent is not to merely limit the proscription of any further
action to the "unpaid balance of the principal" but, as so later ruled in Luneta Motor Co.
vs. Salvador, 10 to all other claims that may be likewise be called in for in the
accompanying promissory note against the buyer-mortgagor or his guarantor, including
costs and attorney's fees.
In Filipinas Investment & Finance Corporation vs. Ridad 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 it 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 costs.
Padilla, Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur
 FIRST DIVISION
[G.R. No. 43683. July 16, 1937.]
MACONDRAY & CO., INC., Plaintiff-Appellant, v. URBANO EUSTAQUIO, Defendant-
Appellee.
Jose Agbulos for Appellant.
Urbano Eustaquio in his own behalf.
SYLLABUS
1. CIVIL PROCEDURE; JUDGMENT BY DEFAULT, EFFECT OF. — Under section 128 of our
Code of Civil Procedure, the judgment by default against a defendant who has neither appeared
nor filed his answer does not imply a waiver of rights except that of being heard and of presenting
evidence in his favor. It does not imply admission by the defendant of the facts and causes of
action of the plaintiff, because the codal section requires the latter to adduce his evidence in
support of his allegations as an indispensable condition before final judgment could be given in his
favor. Nor could it be interpreted as an admission by the defendant that the plaintiff’s causes of
action find support in the law or that the latter is entitled to the relief prayed for. (Chaffin v.
McFadden, 41 Ark., 42; Johnson v. Pierce, 12 Ark., 599; Mayden v. Johnson, 59 Ga., 105; Peo. v.
Rust, 292 Ill., 412; Madison County v. Smith, 95 Ill., 328; Keen v. Leipold, 211 Ill. A., 163 Chicago
etc. Electric R. Co. v. Krempel, 116 Ill. A., 253.)
2. ACT NO. 4122, VALIDITY AND CONSTITUTIONALITY OF; POWER OF THE LEGISLATURE
TO ENACT SAME. — The ruling in Manila Trading & Supply Co. v. Reyes (62 Phil., 461), is
reaffirmed. The law seeks to remedy an evil which the Legislature wished to suppress; this
legislative body has power to promulgate the law; the law does not completely deprive vendors on
the installment basis of a remedy, but requires them to elect among three alternative remedies; the
law, on the other hand, does not completely exonerate the purchasers, but only limits their
liabilities and, finally, there is no vested right when a procedural law is involved, wherefore, the
Legislature could enact Act No. 4122 without violating the aforesaid organic law.
3. ID., ID., INTERPRETATION. — The plaintiff contends that, even granting that Act No. 4122 is
valid, the court should have ordered the defendant to pay at least the stipulated interest, attorney’s
fees, and the costs. This question involves the interpretation of the pertinent portion of the law,
reading: "However, if the vendor has chosen to foreclose the mortgage he shall have no further
action against the purchaser for the recovery of any unpaid balance owing by the same, and any
agreement to the contrary shall be null and void." This paragraph, as its language shows, refers to
the mortgage contract executed by the parties, whereby the purchaser mortgages the chattel sold
to him on the installment basis in order to guarantee the payment of its price, and the words "any
unpaid balance" should be interpreted as having reference to the deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged chattel is sold at public auction, the
proceeds obtained therefrom are insufficient to cover the full amount of the secured obligations
which, in the case at bar as shown by the note and by the mortgage deed, include interest on the
principal, attorney’s fees, expenses of collection, and the costs. The fundamental rule which
should govern the interpretation of laws is to ascertain the intention and meaning of the
Legislature and to give effect thereto. (Sec. 288, Code of Civil Procedure; U. S. v. Toribio, 15 Phil.,
85; U. S. v. Navarro, 19 Phil., 134; De Jesus v. City of Manila, 29 Phil., 73; Borromeo v. Mariano,
41 Phil., 322; People v. Concepcion, 44 Phil., 126.) Were it the intention of the Legislature to limit
its meaning to the unpaid balance of the principal, it would have so stated.
DECISION
IMPERIAL, J.:
This is an appeal taken by the plaintiff corporation from the judgment of the Court of First Instance
of Manila dismissing its complaint, without costs.
The plaintiff brought the action against the defendant to obtain the possession of an automobile
mortgaged by the latter, and to recover the balance owing upon a note executed by him, the
interest thereon, attorney’s fees, expenses of collection, and the costs. The defendant was duly
summoned, but he failed to appear or file his answer, wherefore, he was declared in default and
the appealed judgment was rendered accordingly.
The plaintiff sold the defendant a De Soto car, Sedan, for the price of which, P595, he executed in
its favor the note of May 22, 1934. Under this note, the defendant undertook to pay the car in
twelve monthly installments with 12 per cent interest per annum, likewise agreed that, should he
fail to pay any monthly installment together with interest, the remaining installments would become
due and payable, and the defendant shall pay 20 per cent upon the principal owing as attorney’s
fees, expenses of collection which the plaintiff might incur, and the costs. To guarantee the
performance of his obligations under the note, the defendant on the same date mortgaged the
purchased car in favor of the plaintiff, and bound himself under the same condition stipulated in
the note relative to the monthly installments, interest, attorney’s fees, expenses of collection, and
costs. The mortgaged deed was registered on June 11, 1934, in the office of the register of deeds
of the Province of Rizal. On the 22d of the same month, the defendant paid P43.75 upon the first
installment, and thereafter failed to pay any of the remaining installments. In accordance with the
terms of the mortgage, the plaintiff called upon the sheriff to take possession of the car, but the
defendant refused to yield possession thereof, whereupon, the plaintiff brought the replevin sought
and thereby succeeded in getting possession of the car. The car was sold at public auction to the
plaintiff for P250, the latter incurring legal expenses in the amount of P10.68. According to the
liquidation filed by the plaintiff, the defendant was still indebted in the amount of P342.20, interest
at 12 per cent from November 20, 1934, P110.25 as attorney’s fees, and the costs.
I. The plaintiff’s first assignment of error is addressed to the appealed judgment in so far as it
applied Act No. 4122 and dismissed the complaint, notwithstanding the fact that the defendant
waived his rights under said law by not making any appearance, by having been declared in
default, by not interposing any special defense, and by not asking for any positive relief.
Under section 128 of our Code of Civil Procedure, the judgment by default against a defendant
who has neither appeared nor filed his answer does not imply a waiver of rights except that of
being heard and of presenting evidence in his favor. It does not imply admission by the defendant
of the facts and causes of action of the plaintiff, because the codal section requires the latter to
adduce his evidence in support of his allegations as an indispensable condition before final
judgment could be given in his favor. Nor could it be interpreted as an admission by the defendant suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure
that the plaintiff’s causes of action find support in the law or that the latter is entitled to the relief was that the mortgagor found himself minus the property and still owing practically the full amount
prayed for. (Chaffin v. McFadden, 41 Ark., 42; Johnson v. Pierce, 12 Ark., 599; Mayden v. of his original indebtedness. Under this amendment the vendor of personal property, the purchase
Johnson, 59 Ga., 105; Peo. v. Rust, 292 Ill., 412; Madison County v. Smith, 95 Ill., 328; Keen v. price of which is payable in installments, has the right to cancel the sale or foreclose the mortgage
Leipold, 211 Ill. A., 163; Chicago etc. Electric R. Co. v. Krempel, 116 Ill. A., 253.) For these if one has been given on the property. Whichever right the vendor elects he need not return to the
reasons, we hold that the defendant did not waive the application by the court of Act No. 4122, purchaser the amount of the installments already paid, "if there be an agreement to that effect."
and that the first assignment of error is untenable. Furthermore, if the vendor avails himself of the right to foreclose the mortgage this amendment
prohibits him from bringing an action against the purchaser for the unpaid balance.’
II. The plaintiff contends in its second assignment of error that Act No. 4122 is invalid because it
takes property without due process of law, denies the equal protection of the laws, and impairs the "‘In other words, under this amendment, in, all proceedings for the foreclosure of chattel
obligations of contract, thereby violating the provisions of section 3 of the Act of The United States mortgages, executed on chattels which have been sold on the installment plan, the mortgagee is
Congress of August 29, 1916, known as the Jones Law. This is not the first time that the limited to the property included in the mortgage.’ (Bachrach Motor Co. v. Millan [1935], 61 Phil.,
constitutionality of the said law has been impugned for like reasons. In Manila Trading & Supply 409.)
Co. v. Reyes (62 Phil., 461), the validity of the said law was already passed upon when it was
questioned for the same reasons here advanced. In resolving the questions in favor of the validity "Public policy having thus had in view the objects just outlined, we should next examine the law to
of the law, we then held: "2. Liberty of contract, class legislation, and equal protection of the laws. determine if nothwithstanding that policy, it violates any of the constitutional principles dealing with
— The question of the validity of an act is solely one of constitutional power. Questions of the three general subjects here to be considered.
expediency, of motive, or of results are irrelevant. Nevertheless it is not improper to inquire as to
the occasion for the enactment of a law. The legislative purpose thus disclosed can then serve as "In an effort to enlighten us, our attention has been directed to certain authorities, principally one
a fit background for constitutional inquiry. coming from the State of Washington and another from the State of Oregon. For reasons which
will soon appear, we do not think that either decision is controlling.
"Judge Moran in first instance had the following to say relative to the reasons for the enactment of
Act No. 4122:jgc:chanrobles.com.ph "In 1897, an Act was passed in the State of Washington which provided ’that in all proceedings for
the foreclosure of mortgages hereafter executed, or on judgments rendered upon the debt thereby
"‘Act No. 4122 aims to correct a social and economic evil, the inordinate love for luxury of those secured, the mortgagee or assignee shall be limited to the property included in the mortgage.’ It
who, without sufficient means, purchase personal effects, and the ruinous practice of some was held by a divided court of three to two that the statute since limiting the right to enforce a debt
commercial houses of purchasing back the goods sold for a nominal price besides keeping a part secured by mortgage to the property mortgaged, whether realty or chattels, was an undue
of the price already paid and collecting the balance, with stipulated interest, costs, and attorney’s restraint upon the liberty of a citizen to contract with respect to his property rights. But as is readily
fees. For instance, a company sells a truck for P6,500. The purchaser makes a down payment of apparent, the Washington law and the Philippine law are radically different in phraseology and in
P500, the balance to be paid in twenty-four equal installments of P250 each. Pursuant to the effect. (Dennis v. Moses [1898], 40 L. R. A., 302.)
practice before the enactment of Act No. 4122, if the purchaser fails to pay the first two
installments, the company takes possession of the truck and has it sold at public auction at which "In Oregon, in a decision of a later date, an Act abolishing deficiency judgments upon the
sale it purchases the truck for a nominal price, at most P500, without prejudice to its right to collect foreclosure of mortgages to secure the unpaid balance of the purchase price of real property was
the balance of P5,500, plus interest, costs, and attorney’s fees. As a consequence, the vendor unanimously sustained by the Supreme Court of that State. The importance of the subject matter
does not only recover the goods sold, used hardly two months perhaps with only slight wear and in that jurisdiction was revealed by the fact that four separate opinions were prepared by the
tear, but also collects the entire stipulated purchase price, probably swelled up fifty per cent justices participating, in one of which Mr. Justice Johns, shortly thereafter to become a member of
including interest, costs, and attorney’s fees. This practice is worse than usurious in many this court, concurred. However, it is but fair to state that one of the reasons prompting the court to
instances. And although, of course, the purchaser must suffer the consequences of his uphold the law was the financial depression which had prevailed in that State. While in the
imprudence and lack of foresight, the chastisement must not be to the extent of ruining him Philippines, the court can take judicial notice of the stringency of finances that presses upon the
completely and, on the other hand, enriching the vendor in a manner which shocks the people, we have no reason to believe that this was the reason which motivated the enactment of
conscience. The object of the law is highly commendable. As to whether or not the means Act No. 4122. (Wright v. Wimberley [1919], 184 Pac., 740).
employed to do away with the evil abovementioned are arbitrary will be presently set out.’
"While we are on the subject of the authorities, we may state that we have examined all of those
"In a case which reached this court, Mr. Justice Goddard, interpreting Act No. 4122, made the obtainable, including some of recent date, but have not been enlightened very much because as
following observations:jgc:chanrobles.com.ph just indicated, they concerned different states of facts and different laws. We gain the most help
from the case of Bronzon v. Kinzie [1843], 1 How., 311), decided by the Supreme Court of the
"‘Undoubtedly the principal object of the above amendment was to remedy the abuses committed United States. It had under consideration a law passed in the State of Illinois, which provided that
in connection with the foreclosure of chattel mortgages. This amendment prevents mortgagees the equitable estate of the mortgagor should not be extinguished for twelve months after sale on
from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing decree, and which prevented any sale of the mortgaged property unless two-thirds of the amount
at which the property had been valued by appraisers should be bid therefor. The court, by Mr.
Chief Justice Taney, declared: ’Mortgages made since the passage of these laws must
undoubtedly be governed by them; for every State has the power to describe the legal and
equitable obligations of a contract to be made and executed within its jurisdiction. It may exempt
any property it thinks proper from sale for the payment of a debt; and may impose such conditions
and restrictions upon the creditor as its judgment and policy may dictate. And all future contracts
would be subject to such provisions; and they would be obligatory upon the parties in the courts of
the United States, as well as in those of the State.’
"As we understand it, parties have no vested right in particular remedies or modes of procedure,
and the legislature may change existing remedies or modes of procedure without impairing the
obligation of contracts, provided an efficacious remedy remains for enforcement. But changes in
the remedies available for the enforcement of a mortgage may not, even when public policy is
invoked as an excuse, be pressed so far as to cut down the security of a mortgage without
moderation or reason or in a spirit of oppression. (Brotherhood of American Yeoman v. Manz
[1922], 206 Pac., 403; Oshkosh Waterworks Co. v. Oshkosh [1908], 187 U. S., 437; W. B.
Worthen Co. v. Kavanaugh [1935], 79 U. S. Supreme Court Advance Opinions, 638.)
"In the Philippines, the Chattel Mortgage Law did not expressly provide for a deficiency judgment
upon the foreclosure of a mortgage. Indeed, it required decisions of this court to authorize such a
procedure. (Bank of the Philippine Islands v. Olutanga Lumber Co. [1924], 47 Phil., 20; Manila
Trading & Supply Co. v. Tamaraw Plantation Co., supra.) But the practice became universal
enough to acquire the force of direct legislative enactment regarding procedure. To a certain
extent the Legislature has now disauthorized this practice, but has left a sufficient remedy
remaining.
"Three remedies are available to the vendor who has sold personal property on the installment
plan. (1) He may elect to exact the fulfillment of the obligation. (Bachrach Motor Co. v. Millan,
supra.) (2) If the vendee shall have failed to pay two or more installments, the vendor may cancel
the sale. (3) If the vendee shall have failed to pay two or more installments, the vendor may
foreclose the mortgage, if one has been given on the property. The basis of the first option is the
Civil Code. The basis of the last two options is Act No. 4122, amendatory of the Civil Code. And
the proviso to the right to foreclose is, that if the vendor has chosen this remedy, he shall have no
further action against the purchaser for the recovery of any unpaid balance owing by the same. In
other words, as we see it, the Act does no more than qualify the remedy.
"Most constitutional issues are determined by the court’s approach to them. The proper approach
in cases of this character should be to resolve all presumptions in favor of the validity of an act in
the absence of a clear conflict between it and the constitution. All doubts should be resolved in its
favor.
"The controlling purpose of Act No. 4122 is revealed to be to close the door to abuses committed
in connection with the foreclosure of chattel mortgages when sales were payable in installments.
That public policy, obvious from the statute, was defined and established by legislative authority. It
is for the courts to perpetuate it.
"We are of the opinion that the Legislature may change judicial methods and remedies for the
enforcement of contracts, as it has done by the enactment of Act No. 4122, without unduly
interfering with the obligation of the contract, without sanctioning class legislation, and without a
denial of the equal protection of the laws. We rule that Act No. 4122 is valid and enforceable. As a
consequence, the errors assigned by the appellant are overruled, and the judgment affirmed, the
costs of this instance to be taxed against the losing party."cralaw virtua1aw library
In his brief counsel for the plaintiff advances no new arguments which have not already been
considered in the Reyes case, and we see no reason for reaching a different conclusion now. The
law seeks to remedy an evil which the Legislature wished to suppress; this legislative body has
power to promulgate the law; the law does not completely deprive vendors on the installment
basis of a remedy, but requires them to elect among three alternative remedies; the law, on the
other hand, does not completely exonerate the purchasers, but only limits their liabilities and,
finally, there is no vested right when a procedural law is involved, wherefore the Legislature could
enact Act No. 4122 without violating the aforesaid organic law.
III. In its last assignment of error plaintiff contends that, even granting that Act No. 4122 is valid,
the court should have ordered the defendant to pay at least the stipulated interest, attorney’s fees,
and the costs. This question involves the interpretation of the pertinent portion of the law, reading:
"However, if the vendor has chosen to foreclose the mortgage he shall have no further action
against the purchaser for the recovery of any unpaid balance owing by the same, and any
agreement to the contrary shall be null and void." This paragraph, as its language shows, refers to
the mortgage contract executed by the parties, whereby the purchaser mortgages the chattel sold
to him on the installment basis in order to guarantee the payment of its price, and the words "any
unpaid balance" should be interpreted as having reference to the deficiency judgment to which the
mortgagee may be entitled where, after the mortgaged chattel is sold at public auction, the
proceeds obtained therefrom are insufficient to cover the full amount of the secured obligations
which, in the case at bar as shown by the note and by the mortgage deed, include interest on the
principal, attorney’s fees, expenses of collection, and the costs. The fundamental rule which
should govern the interpretation of laws is to ascertain the intention and meaning of the
Legislature and to give effect thereto. (Sec. 288, Code of Civil Procedure; U. S. v. Toribio, 15 Phil.,
85; U. S. v. Navarro, 19 Phil., 134; De Jesus v. City of Manila, 29 Phil., 73; Borromeo v. Mariano,
41 Phil., 322; People v. Concepcion, 44 Phil., 126.) Were it the intention of the Legislature to limit
its meaning to the unpaid balance of the principal, it would have so stated. We hold, therefore, that
the assignment of error is untenable.
In view of the foregoing, the appealed judgment is affirmed, with the costs of this instance to the
plaintiff and appellant. So ordered.
Avanceña, C.J., Villa-Real, Abad Santos, Diaz, Laurel and Concepcion, JJ., concur.
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27645 November 28, 1969
FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiff-appellee,
vs.
LOURDES V. RIDAD and LUIS RIDAD, defendants-appellants.
Osmundo R. Victoriano for defendants-appellants.
Emilio B. Saunar for plaintiff-appellee.
CASTRO, J.:
Appeal by the spouses Lourdes V. Ridad and Luis Ridad from the decision of the Court of First
Instance of Manila in civil case 64288, a replevin suit, awarding to the appellee Filipinas
Investment and Finance Corporation the amount of P163.65 representing actual expenses and
P300 as attorney's fees.
The spouses Ridad bought from the Supreme Sales & Development Corporation, the appellee's
assignor-in-interest, a Ford Consul sedan for the total price of P13,371.40. The sum of P1,160
was paid on delivery, the balance of P12,211.50 being payable in twenty-four equal monthly
installments, with interest at 12% per annum, secured by a promissory note and a chattel
mortgage on the car executed on March 19, 1964. The spouses thereafter failed to pay five
consecutive installments on a remaining balance of P5,274.53. On October 13, 1965 the appellee
instituted a replevin suit in the city court of Manila for the seizure of the car (par. 7 of the complaint
alleged "unjustifiable failure and refusal of the defendants . . . to surrender possession of the . . .
motor vehicle for the purpose of foreclosure"), or the recovery of the unpaid balance in case
delivery could not be effected. The car was then seized by the sheriff of Manila and possession
thereof was awarded to the appellee. During the progress of the case, the appellee instituted
extrajudicial foreclosure proceedings, as a result of which, on December 22, 1965, the car was
sold at public auction with the appellee as the highest bidder and purchaser.
Meanwhile, in view of the failure of the defendants-spouses to appear at the scheduled hearing of
the case, allegedly due to non-receipt of the summons, they were declared in default. The default
judgment ordered them to pay to the appellee the sum of P500 as attorney's fees, and P163.65
representing actual expenses relative to the seizure of the car, plus costs.
Their motion to set aside his order of default and the decision having been denied, they appealed
to the Court of First Instance of Manila.
When the case was called for pre-trial, the CFI advanced the opinion that there was no need for
the parties to adduce evidence and that the case could be decided on the basis of the pleadings
submitted by the parties.
The trial court on September 5, 1966, rendered judgment for the appellee, as follows:
As stated in the pre-trial order of this Court dated May 27, 1966, the only issue remaining
to be resolved is whether the plaintiff is entitled to receive P500.00 as attorney's fees and
P163.65 for expenses incurred by the plaintiff in the seizure of the car which was the
object of the chattel mortgage executed by the defendants in favor of the plaintiff.
Upon consideration of the circumstances of the case, the court holds that the plaintiff is
entitled to recover the amount of P163.65 which represents the expenses incurred by the
plaintiff in the seizure of the car involved in this case.
Considering that the plaintiff had recovered the car involved in the case while it is still in
the lower court, and considering further that the defendants did not resist the case and
the only question said defendants raised before this court is the amount of attorney's fees,
the court in the exercise of its equitable jurisdiction reduces the attorney's fees granted to
the plaintiff by the lower court to P300.00.
In this appeal, the appellants contend that the trial court erred: (1) in rendering a decision which
does not state the facts and the law on which it is based; (2) in condemning the appellants to pay
P300 for attorney's fees and P163.65 for expenses incurred in the seizure of the car which was
the object of the chattel mortgage executed by them in favor of the appellee; and (3) in not
dismissing the appellee's complaint.
1. We uphold the appellee's contention that the disputed decision of the lower court complies
substantially with the requirements of law because it referred to the pre-trial order it issued on May
27, 1966 which contains substantial findings of facts. For although settled is the doctrine that a
decree with absolutely nothing to support it is a nullity, the law, however, merely requires that a
decision state the "essential ultimate facts upon which the court's conclusion is drawn." 1 There
being an express reference to the pre-trial order, the latter must be considered and taken as
forming part of the decision. The claim, therefore, that the judgment clearly transgresses the legal
precept2 because it does not state the facts of the case and the law on which it is based and
hence, is a nullity, finds no justification here.
2. The appellants theorize that the action of the appellee is for the payment of the unpaid balance
of the purchase price with a prayer for replevin. When, therefore, the appellee seized the car,
extrajudicially foreclosed the mortgage, had the vehicle sold, and bought the same at public
auction as the highest bidder, it thereby renounced any and all rights which it might have under
the promissory note as well as the payment of the unpaid balance, and, consequently, what it
would otherwise be entitled under and by virtue of the present action, including attorney's fees and
costs of suit, pursuant to article 1484 of the new Civil Code.
On the other hand, the appellee maintains that it is entitled to an award of attorney's fees and
actual expenses and costs of suit by virtue of the unjustifiable failure and refusal of the appellants
to comply with their obligations (one of which is the surrender of the chattel to the mortgagee upon
the latter's demand), contending that what is prohibited in art. 1484, par. 3 of the new Civil Code
relied upon by the appellants is the recovery of the unpaid balance of the purchase price by
means of an action other than a suit for replevin; that Luneta Motor Co. vs. Salvador, et al., (L-
13373, July 26, 1960) is inapplicable to the present case because the remedy sought in that case
was in the conjunctive and not in the alternative, such that, necessarily, when the appellee therein
foreclosed the mortgage on the motor vehicle during the progress of the action, the other action
for a sum of money had to be dismissed since the same could not prosper as it would constitute a
separate action for the recovery of the unpaid balance contemplated in article 1484; and that in
the present case, however, the court awarded attorney's fees, costs of suit and expenses incurred
in relation to the seizure of the motor vehicle by virtue of the writ of replevin in the same action
because the appellee was compelled to institute the same on account of the appellants'
unjustifiable failure and refusal to comply with the former's demands.
The appellee further argues that the award of attorney's fees and the costs of suit together with
expenses incurred, was stipulated both in the promissory note and chattel mortgage contract; that
even in the absence of such stipulation, the award of attorney's fees is discretionary on the part of
the court pursuant to par. 2, art. 2208, new Civil Code; and that the said award could likewise be
made by the lower court on the basis of the general prayer in the complaint for the award of
whatever relief that the lower court may deem just and equitable in the premises.
It is true that the present action is one for replevin, but because it culminated in the foreclosure of
the chattel mortgage and the sale of the car at public auction, it is our view that the provisions of
art. 1484 of the Civil Code (Recto Law) must govern the resolution of the issue here presented.
This article recites that
In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.
This article was reproduced from the old art. 1454-A, which in turn was inserted by Act 4122
(Recto Law). "Three remedies are available to the vendor who has sold personal property on the
installment plan: (1) He may elect to exact the fulfillment of the obligation. (Bachrach Motor Co. vs.
Millan, 61 Phil. 409) (2) If the vendee shall have failed to pay two or more installments, the vendor
may cancel the sale. (3) If the vendee shall have failed to pay two or more installments, the vendor
may foreclose the mortgage, if one has been given on the property. The basis of the first option is
the Civil Code. The basis of the last two options is Act 4122 (inserted in the Spanish Civil Code as
art. 4154-A and now reproduced in arts. 1484 and 1485), amendatory of the Civil Code. And the
proviso to the right to foreclose is that if the vendor has chosen this remedy, he shall have no
further action against the purchaser for the recovery of any unpaid balance owing by the same. In
other words, as we see it, the Act does no more than qualify the remedy."3
The legal issue which is the core of the controversy in the case at bar was resolved in Macondray
& Co. vs. Eustaquio,4 as follows:
The plaintiff brought the action against the defendant to obtain the possession of an
automobile mortgaged by the latter, and to recover the balance owing upon a note
executed by him, the interest thereon, attorney's fees, expenses of collection, and the
costs. The defendant was duly summoned, but he failed to appear or file his answer,
wherefore, he was declared in default and the appealed judgment was rendered
accordingly.
The plaintiff sold to the defendant a De Soto car, Sedan, for the price of which, P595, he
executed in its favor the note of May 22, 1934. Under this note, the defendant undertook
to pay the car in twelve monthly installments, with 12 per cent interests per annum, and
likewise agreed that, should he fail to pay any monthly installment together with interest,
the remaining installments would become due and payable, and the defendant shall pay
20 per cent upon the principal owing as attorney's fees, expenses of collection which the
plaintiff might incur, and the costs. To guarantee the performance of his obligations under
the note, the defendant on the same date mortgaged the purchased car in favor of the
plaintiff, and bound himself under the same conditions stipulated in the note relative to the
monthly installments, interest, attorney's fees, expenses of collection, and costs. The
mortgage deed was registered on June 11, 1934, in the office of the register of deeds of
the Province of Rizal. On the 22nd of the same month, the defendant paid P43.75 upon
the first installment, and thereafter failed to pay any of the remaining installments. In
accordance with the terms of the mortgage, the plaintiff called upon the sheriff to take
possession of the car, but the defendant refused to yield possession thereof, whereupon,
the plaintiff brought the replevin sought and thereby succeeded in getting possession of
the car. The car was sold at public auction to the plaintiff for P250, the latter incurring
legal expenses in the amount of P10.68. According to the liquidation filed by the plaintiff,
the defendant was still indebted in the amount of P342.20, interest at 12 per cent from
November 20, 1934, P110.25 as attorney's fees, and the costs.
xxx xxx xxx
In its last assignment of error plaintiff contends that even granting that Act No. 4122 is
valid, the court should have ordered the defendant to pay at least the stipulated interest,
Attorney's fees and the costs. This question involves the interpretation of the pertinent
portion of the law, reading: "However, if the vendor has chosen to foreclose the mortgage
he shall have no further action against the purchaser for the recovery of any unpaid
balance owing by the same, and any agreement to the contrary shall be null and void."
This paragraph, as its language shows, refers to the mortgage contract executed by the
parties, whereby the purchaser mortgages the chattel sold to him on the installment basis
in order to guarantee the payment of its price, and the words "any unpaid balance" should
be interpreted as having reference to the deficiency judgment to which the mortgagee
may be entitled where, after the mortgaged chattel is sold at public auction, the proceeds
 obtained therefrom are insufficient to cover the full amount of the secured obligations
which, in the case at bar as shown by the note and by the mortgage deed, include interest
on the principal, attorney's fees, expenses of collection, and the costs. The fundamental
rule which should govern the interpretation of laws is to ascertain the intention and
meaning of the Legislature and to give effect thereto. (Sec. 288, Code of Civil Procedure;
U.S. vs. Toribio, 15 Phil. 85; U.S. vs. Navarro, 19 Phil. 134; De Jesus vs. City of Manila,
29 Phil. 73; Borromeo vs. Mariano, 41 Phil. 322; People vs. Concepcion, 44 Phil.
126.) Were it the intention of the Legislature to limit its meaning to the unpaid balance of
the principal, it would have so stated. We hold, therefore, that the assignment of error is
untenable. (emphasis supplied)
In other words, under this amendment as above interpreted, in all proceedings for the foreclosure
of a chattel mortgage, executed on chattels which have been sold on the installment plan, the
mortgagee is limited to the property mortgaged5 and is not entitled to attorney's fees and costs of
suit.
In a subsequent case6 where the vendor in a sale of personal property in installments, upon failure
of the vendee to pay his obligations, the vendor commenced, through court action, to recover the
unpaid balance of the purchase price, but later, during the progress of the action, foreclosed the
chattel mortgage constituted on the property, attorney's fees and costs of suit were denied to the
vendor. There the Supreme Court held:
Paragraph 3 of the above-quoted provision (article 1484, new Civil Code) is clear that
foreclosure of the chattel mortgage and recovery of the unpaid balance of the price are
alternative remedies and may not be pursued conjunctively. It appearing in the case at
bar that the vendor had already foreclosed the chattel mortgage constituted on the
property and had taken possession thereof, the lower court acted rightly in dismissing the
complaint filed for the purpose of recovering the unpaid balance of the purchase price. By
seizing the truck and foreclosing the mortgage at the progress of the suit, the plaintiff
renounced whatever claim it may have had under the promissory note, and consequently,
he has no more cause of action against the promisor and the guarantor. And he has no
more right either to the costs and the attorney's fees that would go with the suit.
This might be considered a reiteration of the ruling in Macondray.
A scrutiny of the doctrine enunciated in the above-cited cases will reveal that its ultimate and
salutary purpose is to prevent the vendor from circumventing the Recto Law. Congress sought to
protect the buyers on installment who more often than not have been victimized by sellers who,
before the enactment of this law, succeeded in unjustly enriching themselves at the expense of
the buyers, because aside from recovering the goods sold, upon default of the buyer in the
payment of two installments, still retained for themselves all amounts already paid, and in addition,
were adjudged entitled to damages, such as attorney's fees, expenses of litigation and costs.
Congress could not have intended to impair much less do away with, the right of the seller to make
commercial use of his credit against the buyer, provided the buyer is not burdened beyond what
this law allows.7
It would appear from the emphasis and precision of the language employed in the decisions
already adverted to that in no instance whatsoever may the mortgagee recover from the
mortgagor any amount or sum after the foreclosure of the mortgage, for, as we understand it, the
philosophy of the Recto Law is that the underprivileged mortgagors must be afforded full
protection against the rapacity of the mortgagees.
But while we unconditionally concur in, and give our approval to, the basic philosophy of the Recto
Law, we view with no small amount of circumspection the implication, necessarily drawn from the
above discussion, that the mortgagee is not entitled to protection against perverse mortgagors.
Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his failure
to pay two or more installments, or if he conceals the chattel to place it beyond the reach of the
mortgagee, what then is the mortgagee expected to do? It is part of conventional wisdom and the
rule of law that no man can take the law into his own hands; so it is not to be supposed that the
Legislature intended that the mortgagee should wrest or seize the chattel forcibly from the control
and possession of the mortgagor, even to the extent of using violence which is unwarranted in
law. Since the mortgagee would enforce his rights through the means and within the limits
delineated by law, the next step in such situations being the filing of an action for replevin to the
end that he may recover immediate possession of the chattel and, thereafter, enforce his rights in
accordance with the contractual relationship between him and the mortgagor as embodied in their
agreement, then it logically follows as a matter of common sense, that the necessary expenses
incurred in the prosecution by the mortgagee of the action for replevin so that he can regain
possession of the chattel, should be borne by the mortgagor. Recoverable expenses would, in our
view, include expenses properly incurred in effecting seizure of the chattel and reasonable
attorney's fees in prosecuting the action for replevin. And we declare that in this case before us,
the amounts awarded by the court a quo to the mortgagee (appellee) are reasonable.
To the extent that our pronouncement here conflicts with the ruling announced and followed in the
cases hereinbefore discussed, the latter must be considered pro tanto qualified.
ACCORDINGLY, the judgment a quo is affirmed. No costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and
Barredo, JJ.,concur.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142618 July 12, 2007
PCI LEASING AND FINANCE, INC., Petitioner,
vs.
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.
DECISION
GARCIA, J.:
On a pure question of law involving the application of Republic Act (R.A.) No. 5980, as amended
by R.A. No. 8556¸ in relation to Articles 1484 and 1485 of the Civil Code, petitioner PCI Leasing
and Finance, Inc. (PCI LEASING, for short) has directly come to this Court via this petition for
review under Rule 45 of the Rules of Court to nullify and set aside the Decision and Resolution
dated December 28, 1998 and February 15, 2000, respectively, of the Regional Trial Court (RTC)
of Quezon City, Branch 227, in its Civil Case No. Q-98-34266, a suit for a sum of money and/or
personal property with prayer for a writ of replevin, thereat instituted by the petitioner against the
herein respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE, for brevity).
The facts:
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease
Agreement,1whereby the former leased out to the latter one (1) set of Silicon High Impact
Graphics and accessories worth ₱3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10
worth ₱6,500,000.00. In connection with this agreement, the parties subsequently signed two (2)
separate documents, each denominated as Lease Schedule.2Likewise forming parts of the basic
lease agreement were two (2) separate documents denominated Disclosure Statements of
Loan/Credit Transaction (Single Payment or Installment Plan)3 that GIRAFFE also executed for
each of the leased equipment. These disclosure statements inter alia described GIRAFFE, vis-à-
vis the two aforementioned equipment, as the "borrower" who acknowledged the "net proceeds of
the loan," the "net amount to be financed," the "financial charges," the "total installment payments"
that it must pay monthly for thirty-six (36) months, exclusive of the 36% per annum "late payment
charges." Thus, for the Silicon High Impact Graphics, GIRAFFE agreed to pay ₱116,878.21
monthly, and for Oxberry Cinescan, ₱181.362.00 monthly. Hence, the total amount GIRAFFE has
to pay PCI LEASING for 36 months of the lease, exclusive of monetary penalties imposable, if
proper, is as indicated below:
P116,878.21 @ month (for the Silicon High
Impact Graphics) x 36 months = P 4,207,615.56
-- PLUS--
P181,362.00 @ month (for the Oxberry
Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by GIRAFFE
(or the NET CONTRACT AMOUNT) P 10,736,647.56
By the terms, too, of the Lease Agreement, GIRAFFE undertook to remit the amount of
₱3,120,000.00 by way of "guaranty deposit," a sort of performance and compliance bond for the
two equipment. Furthermore, the same agreement embodied a standard acceleration clause,
operative in the event GIRAFFE fails to pay any rental and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment
obligations. And following a three-month default, PCI LEASING, through one Atty. Florecita R.
Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter4 dated February
24, 1998 to GIRAFFE.
The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case
against GIRAFFE. In its complaint,5 docketed in said court as Civil Case No. 98-34266 and raffled
to Branch 2276 thereof, PCI LEASING prayed for the issuance of a writ of replevin for the recovery
of the leased property, in addition to the following relief:
2. After trial, judgment be rendered in favor of plaintiff [PCI LEASING] and against the defendant
[GIRAFFE], as follows:
a. Declaring the plaintiff entitled to the possession of the subject properties;
b. Ordering the defendant to pay the balance of rental/obligation in the total amount of
₱8,248,657.47 inclusive of interest and charges thereon;
c. Ordering defendant to pay plaintiff the expenses of litigation and cost of suit…. (Words
in bracket added.)
Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of replevin, paving
the way for PCI LEASING to secure the seizure and delivery of the equipment covered by the
basic lease agreement.
Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing
that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action.
Expounding on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on
installment sales of personal property, PCI LEASING is barred from further pursuing any claim
arising from the lease agreement and the companion contract documents, adding that the
agreement between the parties is in reality a lease of movables with option to buy. The given
situation, GIRAFFE continues, squarely brings into applicable play Articles 1484 and 1485 of the
Civil Code, commonly referred to as the Recto Law. The cited articles respectively provide:
ART. 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should
the vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void. (Emphasis added.)
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or
enjoyment of the thing.
It is thus GIRAFFE’s posture that the aforequoted Article 1484 of the Civil Code applies to its
contractual relation with PCI LEASING because the lease agreement in question, as
supplemented by the schedules documents, is really a lease with option to buy under the
companion article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure of the
leased equipment pursuant to the writ of replevin, which seizure is equivalent to foreclosure, PCI
LEASING has no further recourse against it. In brief, GIRAFFE asserts in its Motion to Dismiss
that the civil complaint filed by PCI LEASING is proscribed by the application to the case of
Articles 1484 and 1485, supra, of the Civil Code.
In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with GIRAFFE
is a straight lease without an option to buy. Prescinding therefrom, PCI LEASING rejects the
applicability to the suit of Article 1484 in relation to Article 1485 of the Civil Code, claiming that,
under the terms and conditions of the basic agreement, the relationship between the parties is one
between an ordinary lessor and an ordinary lessee.
In a decision7 dated December 28, 1998, the trial court granted GIRAFFE’s motion to dismiss
mainly on the interplay of the following premises: 1) the lease agreement package, as
memorialized in the contract documents, is akin to the contract contemplated in Article 1485 of the
Civil Code, and 2) GIRAFFE’s loss of possession of the leased equipment consequent to the
enforcement of the writ of replevin is "akin to foreclosure, … the condition precedent for
application of Articles 1484 and 1485 [of the Civil Code]." Accordingly, the trial court dismissed
Civil Case No. Q-98-34266, disposing as follows:
WHEREFORE, premises considered, the defendant [GIRAFFE] having relinquished any claim to
the personal properties subject of replevin which are now in the possession of the plaintiff [PCI
LEASING], plaintiff is DEEMED fully satisfied pursuant to the provisions of Articles 1484 and 1485
of the New Civil Code. By virtue of said provisions, plaintiff is DEEMED estopped from further
action against the defendant, the plaintiff having recovered thru (replevin) the personal property
sought to be payable/leased on installments, defendants being under protection of said RECTO
LAW. In view thereof, this case is hereby DISMISSED.
With its motion for reconsideration having been denied by the trial court in its resolution of
February 15, 2000,8petitioner has directly come to this Court via this petition for review raising the
sole legal issue of whether or not the underlying Lease Agreement, Lease Schedules and the
Disclosure Statements that embody the financial leasing arrangement between the parties are
covered by and subject to the consequences of Articles 1484 and 1485 of the New Civil Code.
As in the court below, petitioner contends that the financial leasing arrangement it concluded with
the respondent represents a straight lease covered by R.A. No. 5980, the Financing Company
Act, as last amended by R.A. No. 8556, otherwise known as Financing Company Act of 1998, and
is outside the application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines
and authorizes its existence and business.
The recourse is without merit.
R.A. No. 5980, in its original shape and as amended, partakes of a supervisory or regulatory
legislation, merely providing a regulatory framework for the organization, registration, and
regulation of the operations of financing companies. As couched, it does not specifically define the
rights and obligations of parties to a financial leasing arrangement. In fact, it does not go beyond
defining commercial or transactional financial leasing and other financial leasing concepts. Thus,
the relevancy of Article 18 of the Civil Code which reads:
Article 18. - In matters which are governed by … special laws, their deficiency shall be supplied by
the provisions of this [Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment
sales of movable property, does not apply to a financial leasing agreement because such
agreement, by definition, does not confer on the lessee the option to buy the property subject of
the financial lease. To the petitioner, the absence of an option-to-buy stipulation in a financial
leasing agreement, as understood under R.A. No. 8556, prevents the application thereto of
Articles 1484 and 1485 of the Civil Code.
We are not persuaded.
The Court can allow that the underlying lease agreement has the earmarks or made to appear as
a financial leasing,9 a term defined in Section 3(d) of R.A. No. 8556 as -
a mode of extending credit through a non-cancelable lease contract under which the lessor
purchases or acquires, at the instance of the lessee, machinery, equipment, … office machines,
and other movable or immovable property in consideration of the periodic payment by the lessee
of a fixed amount of money sufficient to amortize at least seventy (70%) of the purchase price or
acquisition cost, including any incidental expenses and a margin of profit over an obligatory period
of not less than two (2) years during which the lessee has the right to hold and use the leased
property … but with no obligation or option on his part to purchase the leased property from the
owner-lessor at the end of the lease contract.
In its previous holdings, however, the Court, taking into account the following mix: the imperatives
of equity, the contractual stipulations in question and the actuations of parties vis-à-vis their
contract, treated disguised transactions technically tagged as financing lease, like here, as
creating a different contractual relationship. Notable among the Court’s decisions because of its
parallelism with this case is BA Finance Corporation v. Court of Appeals 10 which involved a motor
vehicle. Thereat, the Court has treated a purported financial lease as actually a sale of a movable
property on installments and prevented recovery beyond the buyer’s arrearages. Wrote the Court
in BA Finance:
The transaction involved … is one of a "financial lease" or "financial leasing," where a financing
company would, in effect, initially purchase a mobile equipment and turn around to lease it to a
client who gets, in addition, an option to purchase the property at the expiry of the lease period.
xxx.
xxx xxx xxx
The pertinent provisions of [RA] 5980, thus implemented, read:
"'Financing companies,' … are primarily organized for the purpose of extending credit facilities to
consumers … either by … leasing of motor vehicles, … and office machines and equipment, …
and other movable property."
"'Credit' shall mean any loan, … any contract to sell, or sale or contract of sale of property or
service, … under which part or all of the price is payable subsequent to the making of such sale or
contract; any rental-purchase contract; ….;"
The foregoing provisions indicate no less than a mere financing scheme extended by a financing
company to a client in acquiring a motor vehicle and allowing the latter to obtain the immediate
possession and use thereof pending full payment of the financial accommodation that is given.
In the case at bench, xxx. [T]he term of the contract [over a motor vehicle] was for thirty six (36)
months at a "monthly rental" … (P1,689.40), or for a total amount of P60,821.28. The contract also
contained [a] clause [requiring the Lessee to give a guaranty deposit in the amount of P20,800.00]
xxx
After the private respondent had paid the sum of P41,670.59, excluding the guaranty deposit of
P20,800.00, he stopped further payments. Putting the two sums together, the financing company
had in its hands the amount of P62,470.59 as against the total agreed "rentals" of P60,821.28 or
an excess of P1,649.31.
The respondent appellate court considered it only just and equitable for the guaranty deposit
made by the private respondent to be applied to his arrearages and thereafter to hold the contract
terminated. Adopting the ratiocination of the court a quo, the appellate court said:
xxx In view thereof, the guaranty deposit of P20,800.00 made by the defendant should and must
be credited in his favor, in the interest of fairness, justice and equity. The plaintiff should not be
allowed to unduly enrich itself at the expense of the defendant. xxx This is even more compelling
in this case where although the transaction, on its face, appear ostensibly, to be a contract of
lease, it is actually a financing agreement, with the plaintiff financing the purchase of defendant's
automobile …. The Court is constrained, in the interest of truth and justice, to go into this aspect of
the transaction between the plaintiff and the defendant … with all the facts and circumstances
existing in this case, and which the court must consider in deciding the case, if it is to decide the
case according to all the facts. xxx.
xxx xxx xxx
Considering the factual findings of both the court a quo and the appellate court, the only logical
conclusion is that the private respondent did opt, as he has claimed, to acquire the motor vehicle,
justifying then the application of the guarantee deposit to the balance still due and obligating the
petitioner to recognize it as an exercise of the option by the private respondent. The result would
thereby entitle said respondent to the ownership and possession of the vehicle as the buyer
thereof. We, therefore, see no reversible error in the ultimate judgment of the appellate
court.11(Italics in the original; underscoring supplied and words in bracket added.)
In Cebu Contractors Consortium Co. v. Court of Appeals,12 the Court viewed and thus declared a
financial lease agreement as having been simulated to disguise a simple loan with security, it
appearing that the financing company purchased equipment already owned by a capital-strapped
client, with the intention of leasing it back to the latter.
In the present case, petitioner acquired the office equipment in question for their subsequent lease
to the respondent, with the latter undertaking to pay a monthly fixed rental therefor in the total
amount of ₱292,531.00, or a total of ₱10,531,116.00 for the whole 36 months. As a measure of
good faith, respondent made an up-front guarantee deposit in the amount of ₱3,120,000.00. The
basic agreement provides that in the event the respondent fails to pay any rental due or is in a
default situation, then the petitioner shall have cumulative remedies, such as, but not limited to,
the following:13
1. Obtain possession of the property/equipment;
2. Retain all amounts paid to it. In addition, the guaranty deposit may be applied towards
the payment of "liquidated damages";
3. Recover all accrued and unpaid rentals;
4. Recover all rentals for the remaining term of the lease had it not been cancelled, as
additional penalty;
 5. Recovery of any and all amounts advanced by PCI LEASING for GIRAFFE’s account
xxx;
6. Recover all expenses incurred in repossessing, removing, repairing and storing the
property; and,
7. Recover all damages suffered by PCI LEASING by reason of the default.
In addition, Sec. 6.1 of the Lease Agreement states that the guaranty deposit shall be forfeited in
the event the respondent, for any reason, returns the equipment before the expiration of the lease.
At bottom, respondent had paid the equivalent of about a year’s lease rentals, or a total of
₱3,510,372.00, more or less. Throw in the guaranty deposit (₱3,120,000.00) and the respondent
had made a total cash outlay of ₱6,630,372.00 in favor of the petitioner. The replevin-seized
leased equipment had, as alleged in the complaint, an estimated residual value of ₱6,900.000.00
at the time Civil Case No. Q-98-34266 was instituted on May 4, 1998. Adding all cash advances
thus made to the residual value of the equipment, the total value which the petitioner had actually
obtained by virtue of its lease agreement with the respondent amounts to ₱13,530,372.00
(₱3,510,372.00 + ₱3,120,000.00 + ₱6,900.000.00 = ₱13,530,372.00).
The acquisition cost for both the Silicon High Impact Graphics equipment and the Oxberry
Cinescan was, as stated in no less than the petitioner’s letter to the respondent dated November
11, 199614 approving in the latter’s favor a lease facility, was ₱8,100,000.00. Subtracting the
acquisition cost of ₱8,100,000.00 from the total amount, i.e., ₱13,530,372.00, creditable to the
respondent, it would clearly appear that petitioner realized a gross income of ₱5,430,372.00 from
its lease transaction with the respondent. The amount of ₱5,430,372.00 is not yet a final figure as
it does not include the rentals in arrears, penalties thereon, and interest earned by the guaranty
deposit.
As may be noted, petitioner’s demand letter15 fixed the amount of ₱8,248,657.47 as representing
the respondent’s "rental" balance which became due and demandable consequent to the
application of the acceleration and other clauses of the lease agreement. Assuming, then, that the
respondent may be compelled to pay ₱8,248,657.47, then it would end up paying a total of
₱21,779,029.47 (₱13,530,372.00 + ₱8,248,657.47 = ₱21,779,029.47) for its use - for a year and
two months at the most - of the equipment. All in all, for an investment of ₱8,100,000.00, the
petitioner stands to make in a year’s time, out of the transaction, a total of ₱21,779,029.47, or a
net of ₱13,679,029.47, if we are to believe its outlandish legal submission that the PCI LEASING-
GIRAFFE Lease Agreement was an honest-to-goodness straight lease.
A financing arrangement has a purpose which is at once practical and salutary. R.A. No. 8556
was, in fact, precisely enacted to regulate financing companies’ operations with the end in view of
strengthening their critical role in providing credit and services to small and medium enterprises
and to curtail acts and practices prejudicial to the public interest, in general, and to their clienteles,
in particular.16 As a regulated activity, financing arrangements are not meant to quench only the
thirst for profit. They serve a higher purpose, and R.A. No. 8556 has made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556 which defines the rights and
obligations, as between each other, of the financial lessor and the lessee. In determining the
respective responsibilities of the parties to the agreement, courts, therefore, must train a keen eye
on the attendant facts and circumstances of the case in order to ascertain the intention of the
parties, in relation to the law and the written agreement. Likewise, the public interest and policy
involved should be considered. It may not be amiss to state that, normally, financing contracts
come in a standard prepared form, unilaterally thought up and written by the financing companies
requiring only the personal circumstances and signature of the borrower or lessee; the rates and
other important covenants in these agreements are still largely imposed unilaterally by the
financing companies. In other words, these agreements are usually one-sided in favor of such
companies. A perusal of the lease agreement in question exposes the many remedies available to
the petitioner, while there are only the standard contractual prohibitions against the respondent.
This is characteristic of standard printed form contracts.
There is more. In the adverted February 24, 1998 demand letter17 sent to the respondent,
petitioner fashioned its claim in the alternative: payment of the full amount of ₱8,248,657.47,
representing the unpaid balance for the entire 36-month lease period or the surrender of the
financed asset under pain of legal action. To quote the letter:
Demand is hereby made upon you to pay in full your outstanding balance in the amount of
P8,248,657.47 on or before March 04, 1998 OR to surrender to us the one (1) set Silicon High
Impact Graphics and one (1) unit Oxberry Cinescan 6400-10…
We trust you will give this matter your serious and preferential attention. (Emphasis added).
Evidently, the letter did not make a demand for the payment of the ₱8,248,657.47 AND the return
of the equipment; only either one of the two was required. The demand letter was prepared and
signed by Atty. Florecita R. Gonzales, presumably petitioner’s counsel. As such, the use of "or"
instead of "and" in the letter could hardly be treated as a simple typographical error, bearing in
mind the nature of the demand, the amount involved, and the fact that it was made by a lawyer.
Certainly Atty. Gonzales would have known that a world of difference exists between "and" and
"or" in the manner that the word was employed in the letter.
A rule in statutory construction is that the word "or" is a disjunctive term signifying dissociation and
independence of one thing from other things enumerated unless the context requires a different
interpretation.18
In its elementary sense, "or", as used in a statute, is a disjunctive article indicating an alternative. It
often connects a series of words or propositions indicating a choice of either. When "or" is used,
the various members of the enumeration are to be taken separately.19
The word "or" is a disjunctive term signifying disassociation and independence of one thing from
each of the other things enumerated.20
The demand could only be that the respondent need not return the equipment if it paid the
₱8,248,657.47 outstanding balance, ineluctably suggesting that the respondent can keep
possession of the equipment if it exercises its option to acquire the same by paying the unpaid
balance of the purchase price. Stated otherwise, if the respondent was not minded to exercise its
option of acquiring the equipment by returning them, then it need not pay the outstanding balance.
This is the logical import of the letter: that the transaction in this case is a lease in name only. The
so-called monthly rentals are in truth monthly amortizations of the price of the leased office
equipment.
On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease
agreement is in reality a lease with an option to purchase the equipment. This has been made
manifest by the actions of the petitioner itself, foremost of which is the declarations made in its
demand letter to the respondent. There could be no other explanation than that if the respondent
paid the balance, then it could keep the equipment for its own; if not, then it should return them.
This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil
Code should apply.
The present case reflects a situation where the financing company can withhold and conceal - up
to the last moment - its intention to sell the property subject of the finance lease, in order that the
provisions of the Recto Law may be circumvented. It may be, as petitioner pointed out, that the
basic "lease agreement" does not contain a "purchase option" clause. The absence, however,
does not necessarily argue against the idea that what the parties are into is not a straight lease,
but a lease with option to purchase. This Court has, to be sure, long been aware of the practice of
vendors of personal property of denominating a contract of sale on installment as one of lease to
prevent the ownership of the object of the sale from passing to the vendee until and unless the
price is fully paid. As this Court noted in Vda. de Jose v. Barrueco:21
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently resorted to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee. It is
obvious that such transactions are leases only in name. The so-called rent must necessarily be
regarded as payment of the price in installments since the due payment of the agreed amount
results, by the terms of the bargain, in the transfer of title to the lessee.
In another old but still relevant case of U.S. Commercial v. Halili, 22 a lease agreement was
declared to be in fact a sale of personal property by installments. Said the Court:
. . . There can hardly be any question that the so-called contracts of lease on which the present
action is based were veritable leases of personal property with option to purchase, and as such
come within the purview of the above article [Art. 1454-A of the old Civil Code on sale of personal
property by installment]. xxx
Being leases of personal property with option to purchase as contemplated in the above article,
the contracts in question are subject to the provision that when the lessor in such case "has
chosen to deprive the lessee of the enjoyment of such personal property," "he shall have no
further action" against the lessee "for the recovery of any unpaid balance" owing by the latter,
"agreement to the contrary being null and void."
In choosing, through replevin, to deprive the respondent of possession of the leased equipment,
the petitioner waived its right to bring an action to recover unpaid rentals on the said leased items.
Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are hereunder
re-reproducing, cannot be any clearer.
ART. 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:
xxx xxx xxx
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary
shall be void.
ART. 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or
enjoyment of the thing.
As we articulated in Elisco Tool Manufacturing Corp. v. Court of Appeals, 23 the remedies provided
for in Article 1484 of the Civil Code are alternative, not cumulative. The exercise of one bars the
exercise of the others. This limitation applies to contracts purporting to be leases of personal
property with option to buy by virtue of the same Article 1485. The condition that the lessor has
deprived the lessee of possession or enjoyment of the thing for the purpose of applying Article
1485 was fulfilled in this case by the filing by petitioner of the complaint for a sum of money with
prayer for replevin to recover possession of the office equipment.24 By virtue of the writ of seizure
issued by the trial court, the petitioner has effectively deprived respondent of their use, a situation
which, by force of the Recto Law, in turn precludes the former from maintaining an action for
recovery of "accrued rentals" or the recovery of the balance of the purchase price plus interest. 25
The imperatives of honest dealings given prominence in the Civil Code under the heading: Human
Relations, provide another reason why we must hold the petitioner to its word as embodied in its
demand letter. Else, we would witness a situation where even if the respondent surrendered the
equipment voluntarily, the petitioner can still sue upon its claim. This would be most unfair for the
respondent. We cannot allow the petitioner to renege on its word. Yet more than that, the very
word "or" as used in the letter conveys distinctly its intention not to claim both the unpaid balance
and the equipment. It is not difficult to discern why: if we add up the amounts paid by the
respondent, the residual value of the property recovered, and the amount claimed by the petitioner
as sued upon herein (for a total of ₱21,779,029.47), then it would end up making an instant killing
out of the transaction at the expense of its client, the respondent. The Recto Law was precisely
enacted to prevent this kind of aberration. Moreover, due to considerations of equity, public policy
and justice, we cannot allow this to happen.1avvphil.zw+ Not only to the respondent, but those
similarly situated who may fall prey to a similar scheme.
WHEREFORE, the instant petition is DENIED and the trial court’s decision is AFFIRMED.
Costs against petitioner.
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26578 January 28, 1974
LEGARDA HERMANOS and JOSE LEGARDA, petitioners,
vs.
FELIPE SALDAÑA and COURT OF APPEALS (FIFTH DIVISION) * respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.
TEEHANKEE, J.:1äwphï1.ñët
The Court, in affirming the decision under review of the Court of Appeals, which holds that
the respondent buyer of two small residential lots on installment contracts on a ten-year
basis who has faithfully paid for eight continuous years on the principal alone already more
than the value of one lot, besides the larger stipulated interests on both lots, is entitled to
the conveyance of one fully paid lot of his choice, rules that the judgment is fair and just
and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila
and for execution of the corresponding deed of conveyance after payment of the balance
still due on their purchase price. Private respondent as plaintiff had entered into two
written contracts with petitioner Legarda Hermanos as defendant subdivision owner,
whereby the latter agreed to sell to him Lots Nos. 7 and 8 of block No. 5N of the subdivision
with an area of 150 square meters each, for the sum of P1,500.00 per lot, payable over the
span of ten years divided into 120 equal monthly installments of P19.83 with 10% interest
per annum, to commence on May 26, 1948, date of execution of the contracts.
Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and
sisters, and the two lots were among those allotted to co-petitioner Jose Legarda who was
then included as co-defendant in the action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of the
stipulated 120) monthly installments totalling P3,582.06 up to the month of February, 1956,
which as per petitioners' own statement of account, Exhibit "1", was applied to
respondent's account (without distinguishing the two lots), as follows:
To interests P1,889.78
To principal 1,682.28
Total P3,582.061
It is equally undisputed that after February, 1956 up to the filing of respondent's complaint in the
Manila court of first instance in 1961, respondent did not make further payments. The account
thus shows that he owed petitioners the sum of P1,317.72 on account of the balance of the
purchase price (principal) of the two lots (in the total sum of P3,000.00), although he had
paid more than the stipulated purchase price of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action, respondent wrote
petitioners stating that his desire to build a house on the lots was prevented by their failure to
introduce improvements on the subdivision as "there is still no road to these lots," and requesting
information of the amount owing to update his account as "I intend to continue paying the balance
due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete
total payment of the 120 installments by May, 1958 as stipulated in the contracts to sell, "pursuant
to the provisions of both contracts all the amounts paid in accordance with the agreement together
with the improvements on the premises have been considered as rents paid and as payment for
damages suffered by your failure,"2 and "Said cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining petitioners' cancellation of
the contracts and dismissing respondent's complaint, respondent appellate court on appeal
rendered its judgment of July 27, 1966 reversing the lower court's judgment and ordering
petitioners "to deliver to the plaintiff possession of one of the two lots, at the choice of defendants,
and to execute the corresponding deed of conveyance to the plaintiff for the said lot,"3 ruling as
follows: —
During the hearing, plaintiff testified that he suspended payments because the
lots were not actually delivered to him, or could not be, due to the fact that they
were completely under water; and also because the defendants-owners failed to
make improvements on the premises, such as roads, filling of the submerged
areas, etc., despite repeated promises of their representative, the said Mr.
Cenon. As regards the supposed cancellation of the contracts, plaintiff averred
that no demand has been made upon him regarding the unpaid installments, and
for this reason he could not be declared in default so as to entitle the defendants
to cancel the said contracts.
The issue, therefore, is: Under the above facts, may defendants be compelled, or
not, to allow plaintiff to complete payment of the purchase price of the two lots in
dispute and thereafter to execute the final deeds of conveyance thereof in his
favor?
 xxx xxx xxx
Whether or not plaintiffs explanation for his failure to pay the remaining
installments is true, considering the circumstances obtaining in this case, we
elect to apply the broad principles of equity and justice. In the case at bar, we
find that the plaintiff has paid the total sum of P3,582.06 including interests,
which is even more than the value of the two lots. And even if the sum applied to
the principal alone were to be considered, which was of the total of P1,682.28,
the same was already more than the value of onelot, which is P1,500.00. The
only balance due on both lots was P1,317.72, which was even less than the
value of one lot. We will consider as fully paid by the plaintiff at least one of the
two lots, at the choice of the defendants. This is more in line with good
conscience than a total denial to the plaintiff of a little token of what he has paid
the defendant Legarda Hermanos.4
Hence, the present petition for review, wherein petitioners insist on their right of cancellation under
the "plainly valid written agreements which constitute the law between the parties" as against "the
broad principles of equity and justice" applied by the appellate court. Respondent on the other
hand while adhering to the validity of the doctrine of the Caridad Estates cases 5 which recognizes
the right of a vendor of land under a contract to sell to cancel the contract upon default, with
forfeiture of the installments paid as rentals, disputes its applicability herein contending that here
petitioners-sellers were equally in default as the lots were "completely under water" and "there is
neither evidence nor a finding that the petitioners in fact cancelled the contracts previous to receipt
of respondent's letter."6
the seller-appellant had duly notified the buyer of the rescission of the contract to sell, the Court
upheld the lower court's judgment denying judicial confirmation of the rescission and instead
granting the buyer an additional grace period of sixty days from notice of judgment to pay all the
installment payments in arrears together with the stipulated 10% interest per annum from the date
of default, apart from reasonable attorney's fees and costs, which payments, the Court observed,
would have the plaintiff-seller "recover everything due thereto, pursuant to its contract with the
defendant, including such damages as the former may have suffered in consequence of the
latter's default."
In affirming, the Court held that "Regardless, however, of the propriety of applying said Art. 1592
thereto, We find that plaintiff herein has not been denied substantial justice, for, according to Art.
1234 of said Code: 'If the obligation has been substantially performed in good faith, the obligor
may recover as though there had been a strict and complete fulfillment, less damages suffered by
the obligee,'" and "that in the interest of justice and equity, the decision appealed from may be
upheld upon the authority of Article 1234 of the Civil Code."9
ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without
pronouncement as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muñoz Palma, JJ., concur.1äwphï1.ñët

The Court finds that the appellate court's judgment finding that of the total sum of P3,582.06
(including interests of P1,889.78) already paid by respondent (which was more than the value of
two lots), the sum applied by petitioners to the principal alone in the amount of P1,682.28 was
already more than the value of one lot of P1,500.00 and hence one of the two lots as chosen by
respondent would be considered as fully paid, is fair and just and in accordance with law and
equity.

As already stated, the monthly payments for eight years made by respondent were applied to his
account without specifying or distinguishing between the two lots subject of the two agreements
under petitioners' own statement of account, Exhibit "1".7 Even considering respondent as having
defaulted after February 1956, when he suspended payments after the 95th installment, he had as
of the already paid by way of principal (P1,682.28) more than the full value of one lot (P1,500.00).
The judgment recognizing this fact and ordering the conveyance to him of one lot of his choice
while also recognizing petitioners' right to retain the interests of P1,889.78 paid by him for eight
years on both lots, besides the cancellation of the contract for one lot which thus reverts to
petitioners, cannot be deemed to deny substantial justice to petitioners nor to defeat their rights
under the letter and spirit of the contracts in question.

The Court's doctrine in the analogous case of J.M. Tuason & Co. Inc. vs. Javier8 is fully applicable
to the present case, with the respondent at bar being granted lesser benefits, since no rescission
of contract was therein permitted. There, where the therein buyer-appellee identically situated as
herein respondent buyer had likewise defaulted in completing the payments after having
religiously paid the stipulated monthly installments for almost eight years and notwithstanding that
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 167452 January 30, 2007
JESTRA DEVELOPMENT AND MANAGEMENT CORPORATION, Petitioner,
vs.
DANIEL PONCE PACIFICO, represented by his attorney-in-fact Jordan M.
Pizarras, Respondent.
DECISION
CARPIO MORALES, J.:
On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a Reservation Application 1 with Fil-
Estate Marketing Association for the purchase of a house and lot located at Lot 28, Block 3, Phase
II, Jestra Villas, Barangay La Huerta, Municipality of Parañaque, Metro Manila (the property), and
paid the reservation fee of P20,000.
Under the Reservation Application, the total purchase price of the property was P2,500,000, and
the down payment equivalent to 30% of the purchase price or P750,000 was to be paid interest-
free in six monthly installments due every fifth of the month starting July
1996 until December 1996. As the P20,000 reservation fee formed part of the down payment, the
monthly installment on the down payment was fixed at P121,666.66.
Also under the Reservation Application, upon full payment of the 30% down payment by Pacifico,
he was to sign a contract to sell with the owner and developer of the property, Joprest
Development and Management Corporation (now Jestra Development and Management
Corporation, hereafter Jestra). And the 70% balance on the purchase price or P1,750,000 was to
be payable in 10 years, to bear interest at 21% per annum, at a monthly installment
of P34,982.50. When the payment of the installments on the 70% balance should commence, the
Reservation Application was silent.
Unable to comply with the schedule of payments, Pacifico requested Jestra to allow him to make
periodic payments on the down payment "in an amount that he could afford," to which Jestra
acceded provided that late payment penalties/surcharges2 are paid.
With still a remaining balance of P260,000 on the down payment, Pacifico and Jestra executed
on March 6, 1997, Contract to Sell No. 833 over the property. The said contract was silent on the
unsettled balance on the down payment.
Under the Contract to Sell, Pacifico should have had on November 5, 1996, or one month prior to
the deadline stated under the Reservation Application, fully paid the 30% down payment, and that
the 120 monthly installments for the 70% balance or P1,750 should have had commenced
on December 7, 1996, viz:
SECTION 2. TERMS OF PAYMENT. The PURCHASER agrees to pay the aforecited purchase
price [of P2,500,000.00] in the following manner, namely:
2.1 The total amount of SEVEN HUNDRED FIFTY THOUSAND PESOS ONLY (P750,000.00)
Philippine Currency as down payment on or before November 5, 1996.
2.2 The balance of ONE MILLION SEVEN HUNDTED FIFTY THOUSAND PESOS ONLY
(P1,750,00.00), Philippine Currency, shall be paid in One Hundred Twenty (120) equal monthly
installments at THIRTY FOUR THOUSAND NINE HUNDRED EIGHT THREE PESOS ONLY
(P34,983.00) Philippine Currency, to commence on December 7, 1996, with interest at the rate of
Twenty One Percent (21%) per annum. The PURCHASER shall issue One Hundred Twenty (120)
postdated checks in favor of the OWNER/DEVELOPER for each of the monthly installments,
which checks shall be delivered to the latter upon signing of this CONTRACT. The PURCHASER
shall be subject to the pre-qualification requirements of COCOLIFE for the Mortgage Redemption
Insurance (MRI) and the Building Insurance on the UNIT. Interest re-pricing shall be effected on
the 6th Year, to commence on December 7, 2001.
x x x x (Underscoring supplied)
By letter4 of November 12, 1997, Pacifico requested Jestra that "the balance be restructured" in
light of the "present business condition."
By November 27, 1997, Pacifico had fully paid the 30% down payment, and by December 4, 1997,
he had paid a total of P846,600, P76,600 of which Jestra applied as penalty charges for the
belated settlement of the down payment.
By letter of December 11, 1997, Jestra, through counsel, sent Pacifico a final demand for the
payment of P444,738.885 representing the total of 11 installments due on the 70% balance of the
purchase price, inclusive of 21% interest per annum and add-on interest at the rate of P384.81 per
day, counted from January 7, 1997. Further, Jestra demanded the payment of P73,750
representing "penalties for the [belated settlement of the] down payment." And it reminded Pacifico
that "as provided in Section 5 of the said contract, [Jestra] reserves its right to automatically cancel
or rescind the same on account of [his] failure/refusal to comply with the terms thereof."6
Pacifico later requested Jestra, by letter of November 12, 1997, for a restructuring of his unsettled
obligation. His request was granted on the condition that the interest for the period from December
1996 to November 1997 amounting to P224,396.37 would be added to the 70% balance on the
purchase price; and that Pacifico issue 12 postdated checks beginning each year to cover his
amortization payments.
In light of the restructured scheme, the monthly amortization on the 70% balance was
from P34,982.50 increased to P39,468, to commence on January 5, 1998.
Pacifico thus issued to Jestra 12 postdated Security Bank checks to cover his monthly
amortizations from January to December 1998. The checks for January and February 1998 were,
however, dishonored due to insufficiency of funds.7
By letter of March 24, 1998, Pacifico informed Jestra that due to sudden financial difficulties, he
was suspending payment of his obligation during the 10-month period, and that he wanted to
dispose of the property to recover his investment.8 And he requested that the postdated checks he
issued be returned to him.
Jestra, by letter9 of March 31, 1998, denied Pacifico’s request to suspend payment and for the
return of the postdated checks. It, however, gave him until April 15, 1998 to sell the property failing
which it warned him that it would be constrained to re-open it for sale.
Thereafter, Jestra sent Pacifico a notarial Notice of Cancellation, dated May 1, 1998, notifying him
that it was, within 30 days after his receipt thereof, exercising its right to cancel the Contract to
Sell. Pacifico received the notice on May 13, 1998.
In a separate move, Jestra through its Credit and Collection Manager sent Pacifico a letter dated
May 27, 1998, demanding payment of the total amount of P209,377.75 covering monthly
amortizations from January 30 to May 30, 1998 inclusive of penalties. And it gave him until June 1,
1998 to settle his account, failing which the Contract to Sell would be automatically cancelled and
it would re-open the property for sale.10
On February 24, 1999, Pacifico filed a complaint before the Housing and Land Use Regulatory
Board (HLURB) against Jestra, docketed as HLURB Case No. REM-122499-10378, claiming that
despite his full payment of the down payment, Jestra failed to deliver to him the property within 90
days as provided in the Contract to Sell dated March 6, 1997, and Jestra instead sold the property
to another buyer in October of 1998.11
Pacifico further claimed in his complaint that upon learning of the double sale, he, through his
lawyer, demanded that Jestra deliver the property to him but it failed to do so without just and valid
cause.
Pacifico thus prayed that, among others things, judgment be rendered declaring the second sale a
nullity, ordering Jestra to deliver the property to him and to pay him P11,000 a month from July
1997 until delivery.
By Decision12 of March 15, 2000, the Housing and Land Use Arbiter held Jestra liable for failure to
comply with Section 3 of Republic Act (RA) No. 6552 (Realty Installment Buyer Protection Act)
requiring payment by the seller of the cash surrender value of the buyer’s payments and Section
17 of Presidential Decree No. 957 (REGULATING THE SALE OF SUBDIVISION LOTS AND
CONDOMINIUMS, PROVIDING PENALTIES FOR VIOLATIONS THEREOF) requiring it to
register the Contract to Sell in the Office of the Register of Deeds.
The Arbiter found that while Pacifico had paid a total amount of P846,600 which is "more or less
equivalent to 24 monthly installments under the contract to sell . . . wherein the monthly
amortization is P34,983,"13 he could no longer demand the delivery of the property, its title having
already been transferred in the name of another buyer.
Thus the Arbiter disposed:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the complainant and
ordering respondent:
1. To pay and/or reimburse to the complainant the total payments made amounting to
Eight Hundred Forty Six Thousand Six Hundred Pesos (P846,600.00) with interest
thereon at twelve percent (12%) per annum to be computed from the filing of the
complaint on 24 February 1999 until fully paid; and
2. To pay complainant the amount of Fifty Thousand Pesos (P50,000.00) as
damages and attorney’s feesplus the costs of litigation.14 (Underscoring supplied)
On appeal, the Board of Commissioners of the HLURB modified the decision of the Arbiter by
deleting the award of P50,000 damages and ordering Jestra to pay P20,000 as attorney’s fees
and P10,000 administrative fine for failure to register the Contract to Sell in the Office of the
Register of Deeds.
By Resolution of January 27, 2003, the HLURB Board of Commissioners denied 15 Jestra’s motion
for reconsideration.
By Order16 of December 9, 2003, the Office of the President (OP), to which the case was elevated,
adopted "by reference the findings of facts and conclusions of law" contained in the HLURB Board
Resolution of January 27, 2003. And by Order17 dated March 18, 2004, it denied Jestra’s motion
for reconsideration.
On Jestra’s petition for review under Rule 43 of the Rules of Court, the Court of Appeals (CA), by
Decision18 dated January 31, 2005, affirmed the Orders of the OP.
Its motion for reconsideration having been denied by CA Resolution19 of March 16, 2005, Jestra
(hereafter petitioner) comes before this Court on a petition for review, faulting the appellate court
for:
I. . . . adopting the OP’s conclusion that penalty payments should be included in
computing the total number of installment payments made by a buyer (in relation to the
payment of a cash surrender value upon cancellation of a contract to sell) in spite of its
exclusion from the items to be included in computing the two (2) years installment
payments as provided in RA 6552
II. . . . adopting the OP’s conclusion that petitioner failed to deliver possession of the
subject property to respondent upon his full payment of the downpayment [sic] and that
petitioner’s act of canceling the contract to sell was unconscionable despite being allowed
under RA 6552.
RA No. 6552 was enacted to protect buyers of real estate on installment against onerous and
oppressive conditions. While the seller has under the Act the option to cancel the contract due to
non-payment of installments, he must afford the buyer a grace period to pay them and, if at least
two years installments have already been paid, to refund the cash surrender value of the
payments. Thus Section of the Act provides:
SECTION 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred
forty-four, as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the
buyer has paid at least two years of installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within the total grace
period earned by him which is hereby fixed at the rate of one month grace period for
every one year of installment payments made: Provided, That this right shall be exercised
by the buyer only once in every five years of the life of the contract and its extensions, if
any.
(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the total payments
made, and, after five years of installments, an additional five per cent every year but not
to exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be included in the computation of the
total number of installment payments made.
This Court finds that neither of the parties’ computations is in order.
The total purchase price of the property is P2,500,000. As provided in the Reservation Application,
the 30% down payment on the purchase price or P750,000 was to be paid in six monthly
installments of P121,666.66. Under the Contract to Sell, the 70% balance of P1,750,000.00 on the
purchase price was to be paid in 10 years through monthly installments of P34,983, which was
later increased to P39,468 in accordance with the agreement to restructure the same.
While, under the above-quoted Section 3 of RA No. 6552, the down payment is included in
computing the total number of installment payments made, the proper divisor is neither P34,983
nor P39,468, but P121,666.66, the monthly installment on the down payment.
The P750,000 down payment was to be paid in six monthly installments. If the down payment
of P750,000 is to be deducted from the total payment of P846,600, the remainder is only P96,600.
Since respondent was able to pay the down payment in full eleven (11) months after the last
monthly installment was due, and the sum of P76,600 representing penalty for delay of payment is
deducted from the remaining P96,600, only a balance of P20,000 remains.
As respondent failed to pay at least two years of installments, he is not, under above-quoted
Section 3 of RA No. 6552, entitled to a refund of the cash surrender value of his payments. What
applies to the case instead is Section 4 of the same law, viz:
SECTION 4. In case where less than two years of installments were paid, the seller shall give the
buyer a grace period of not less than sixty days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act. (Underscoring supplied)

In Fabrigas v. San Francisco del Monte, Inc.,21 this Court described the cancellation of the contract
As the records indicate, the total payments made by Pacifico (hereafter respondent) amounted
under Section 4 as a two-step process. First, the seller should extend the buyer a grace period of
to P846,600. The appellate court, in concluding that respondent paid at least two years of
at least sixty (60) days from the due date of the installment. Second, at the end of the grace
installments, adopted the formula used by the HLURB by dividing the amount of P846,600 by the
monthly amortization of P34,983 to thus result to a quotient of 24.2 months. period, the seller shall furnish the buyer with a notice of cancellation or demand for rescission
through a notarial act, effective thirty (30) days from the buyer's receipt thereof.
Petitioner contests the computation, however. It claims that the amount of P76,600 represents
Respondent admits that under the restructured scheme, the first installment on the 70% balance
penalty payment and is a separate item to answer for its lost income as a seller due to the delay in
of the purchase price was due on January 5, 1998. While he issued checks to cover the same, the
the payment20 of the 30% down payment. It thus submits that the amount of P76,600 does not
first two were dishonored due to insufficiency of funds.
form part of the purchase price and should thus be excluded in determining the total number of
installments made.
While respondent was notified of the dishonor of the checks, he took no action thereon, hence, the
60 days grace period lapsed. Respondent made no further payments thereafter. Instead, he
Petitioner likewise claims that the proper divisor is not P34,983 but P39,468 since the parties
requested for suspension of payment and for time to dispose of the property to recover his
agreed to restructure the amortizations owing to respondent’s inability to comply with the schedule
investment.
of payments previously agreed upon in the Contract to Sell, and that if respondent’s total
payments less the penalty is to be divided by P39,468, the total installments paid would only cover
19.5 months, hence, it was not obliged under RA No. 6552 to pay the cash surrender value of
such total payments.
Respondent admits that petitioner was justified in canceling the contract to sell via the notarial
Notice of Cancellation which he received on May 13, 1998. The contract was deemed
cancelled22 30 days from May 13, 1998 or on June 12, 1998.

WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution dated January
31, 2005 and March 16, 2005 of the Court of Appeals are hereby REVERSED and SET ASIDE.
The complaint of respondent, Daniel Ponce Pacifico, is DISMISSED.1avvphi1.net

SO ORDERED.
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-57552 October 10, 1986
LUISA F. MCLAUGHLIN, petitioner,
vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.
R.C. Domingo Jr. & Associates for private respondent.
FERIA, Actg. C.J.
This is an appeal by certiorari from the decision of the Court of Appeals, the dispositive part of
which reads as follows:
IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and
mandamus is hereby GRANTED and the Orders of respondent court dated
November 21 and 27 both 1980 are hereby nullified and set aside and
respondent Judge is ordered to order private respondent to accept petitioner's
Pacific Banking Corporation certified manager's Check No. MC-A-000311 dated
November 17, 1980 in the amount of P76,059.71 in full settlement of petitioner's
obligation, or another check of equivalent kind and value, the earlier check
having become stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores
entered into a contract of conditional sale of real property. Paragraph one of the deed of
conditional sale fixed the total purchase price of P140,000.00 payable as follows: a) P26,550.00
upon the execution of the deed; and b) the balance of P113,450.00 to be paid not later than May
31, 1977. The parties also agreed that the balance shall bear interest at the rate of 1% per month
to commence from December 1, 1976, until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of Rizal (Civil
Case No. 33573) for the rescission of the deed of conditional sale due to the failure of private
respondent to pay the balance due on May 31, 1977.
On December 27, 1979, the parties submitted a Compromise Agreement on the basis of which the
court rendered a decision on January 22, 1980. In said compromise agreement, private
respondent acknowledged his indebtedness to petitioner under the deed of conditional sale in the
amount of P119,050.71, and the parties agreed that said amount would be payable as follows: a)
P50,000.00 upon signing of the agreement; and b) the balance of P69,059.71 in two equal
installments on June 30, 1980 and December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of the agreement and in
addition he also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay one
thousand (P l,000.00) pesos monthly rental beginning December 5, 1979 until the obligation is
duly paid, for the use of the property subject matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:
That the parties are agreed that in the event the defendant (private respondent)
fails to comply with his obligations herein provided, the plaintiff (petitioner) will be
entitled to the issuance of a writ of execution rescinding the Deed of Conditional
Sale of Real Property. In such eventuality, defendant (private respondent) hereby
waives his right to appeal to (from) the Order of Rescission and the Writ of
Execution which the Court shall render in accordance with the stipulations herein
provided for.
That in the event of execution all payments made by defendant (private
respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated
damages.
On October 15, 1980, petitioner wrote to private respondent demanding that the latter pay the
balance of P69,059.71 on or before October 31, 1980. This demand included not only the
installment due on June 30, 1980 but also the installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying his willingness and
intention to pay the full balance of P69,059.71, and at the same time demanding to see the
certificate of title of the property and the tax payment receipts.
Private respondent states on page 14 of his brief that on November 3, 1980, the first working day
of said month, he tendered payment to petitioner but this was refused acceptance by petitioner.
However, this does not appear in the decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that private
respondent failed to pay the installment due on June 1980 and that since June 1980 he had failed
to pay the monthly rental of P l,000.00. Petitioner prayed that a) the deed of conditional sale of
real property be declared rescinded with forfeiture of all payments as liquidated damages; and b)
the court order the payment of Pl,000.00 back rentals since June 1980 and the eviction of private
respondent.
On November 14, 1980, the trial court granted the motion for writ of execution.
On November 17, 1980, private respondent filed a motion for reconsideration tendering at the
same time a Pacific Banking Corporation certified manager's check in the amount of P76,059.71,
payable to the order of petitioner and covering the entire obligation including the installment due
on December 31, 1980. However, the trial court denied the motion for reconsideration in an order
dated November 21, 1980 and issued the writ of execution on November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioner's ex-parte motion for
clarification of the order of execution rescinding the deed of conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a petition for certiorari
and prohibition assailing the orders dated November 21 and 27, 1980.
As initially stated above, the appellate court nullified and set aside the disputed orders of the lower
court. In its decision, the appellate court ruled in part as follows:
The issue here is whether respondent court committed a grave abuse of
discretion in issuing the orders dated November 21, 1980 and November
27,1980.
The general rule is that rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are substantial and
fundamental as to defeat the object of the parties in making the agreement.
(Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821)
In aforesaid case, it was held that a delay in payment for a small quantity of
molasses, for some twenty days is not such a violation of an essential condition
of the contract as warrants rescission for non-performance.
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo ruling
was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that
Flores pay the balance of P69,059.71 on or before October 31, 1980. Thus it is
undeniable that despite Flores' failure to make the payment which was due on
June 1980, McLaughlin waived whatever right she had under the compromise
agreement as incorporated in the decision of respondent court, to demand
rescission.
xxx xxx xxx
It is significant to note that on November 17, 1980, or just seventeen (17) days
after October 31, 1980, the deadline set by McLaughlin, Flores tendered the
certified manager's check. We hold that the Song Fo ruling is applicable herein
considering that in the latter case, there was a 20-day delay in the payment of
the obligation as compared to a 17-day delay in the instant case.
Furthermore, as held in the recent case of New Pacific Timber & Supply Co., Inc.
vs. Hon. Alberto Seneris, L-41764, December 19, 1980, it is the accepted
practice in business to consider a cashier's or manager's check as cash and that
upon certification of a check, it is equivalent to its acceptance (Section 187,
Negotiable Instrument Law) and the funds are thereby transferred to the credit of
the creditor (Araneta v. Tuason, 49 O.G. p. 59).
In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further
held that the object of certifying a check is to enable the holder thereof to use it
as money, citing the ruling in PNB vs. National City Bank of New York, 63 Phil.
711.
In the New Pacific Timber case, it was also ruled that the exception in Section 63
of the Central Bank Act that the clearing of a check and the subsequent crediting
of the amount thereof to the account of the creditor is equivalent to delivery of
cash, is applicable to a payment through a certified check.
Considering that Flores had already paid P101,550.00 under the contract to sell,
excluding the monthly rentals paid, certainly it would be the height of inequity to
have this amount forfeited in favor McLaughlin. Under the questioned orders,
McLaughlin would get back the property and still keep P101,550.00.
Petitioner contends that the appellate court erred in not observing the provisions of Article No.
1306 of the Civil Code of the Philippines and in having arbitrarily abused its judicial discretion by
disregarding the penal clause stipulated by the parties in the compromise agreement which was
the basis of the decision of the lower court.
We agree with the appellate court that it would be inequitable to cancel the contract of conditional
sale and to have the amount of P101,550.00 (P l48,126.97 according to private respondent in his
brief) already paid by him under said contract, excluding the monthly rentals paid, forfeited in favor
of petitioner, particularly after private respondent had tendered the amount of P76,059.71 in full
payment of his obligation.
In the analogous case of De Guzman vs. Court of Appeals, this Court sustained the order of the
respondent judge denying the petitioners' motion for execution on the ground that the private
respondent had substantially complied with the terms and conditions of the compromise
agreement, and directing the petitioners to immediately execute the necessary documents
transferring to the private respondent the title to the properties (July 23, 1985, 137 SCRA 730). In
the case at bar, there was also substantial compliance with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in the case
of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., to the effect that Republic Act 6552
(the Maceda Law) "recognizes and reaffirms the vendor's right to cancel the contract to sell upon
breach and non-payment of the stipulated installments but requires a grace period after at least
two years of regular installment payments ... . " (86 SCRA 305, 329)
On the other hand, private respondent also invokes said law as an expression of public policy to
protect buyers of real estate on installments against onerous and oppressive conditions (Section 2
of Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides as follows:
In case where less than two years of installments were paid, the seller shall give
the buyer a grace period of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due at the expiration of the
grace period, the seller may cancel the contract after thirty days from receipt by
the buyer of the notice of the cancellation or the demand for rescission of the
contract by a notarial act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter entered into contrary to the provisions of
Sections 3, 4, 5 and 6, shall be null and void.
The spirit of these provisions further supports the decision of the appellate court. The record does
not contain the complete text of the compromise agreement dated December 20, 1979 and the
decision approving it. However, assuming that under the terms of said agreement the December
31, 1980 installment was due and payable when on October 15, 1980, petitioner demanded
payment of the balance of P69,059.71 on or before October 31, 1980, petitioner could cancel the
contract after thirty days from receipt by private respondent of the notice of cancellation.
Considering petitioner's motion for execution filed on November 7, 1980 as a notice of
cancellation, petitioner could cancel the contract of conditional sale after thirty days from receipt by
private respondent of said motion. Private respondent's tender of payment of the amount of
P76,059.71 together with his motion for reconsideration on November 17, 1980 was, therefore,
well within the thirty-day period grants by law..
The tender made by private respondent of a certified bank manager's check payable to petitioner
was a valid tender of payment. The certified check covered not only the balance of the purchase
price in the amount of P69,059.71, but also the arrears in the rental payments from June to
December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On this point the appellate
court correctly applied the ruling in the case of New Pacific Timber & Supply Co., Inc. vs. Seneris
(101 SCRA 686, 692-694) to the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:
An offer in writing to pay a particular sum of money or to deliver a written
instrument or specific property is, if rejected, equivalent to the actual production
and tender of the money, instrument, or property.
However, although private respondent had made a valid tender of payment which preserved his
rights as a vendee in the contract of conditional sale of real property, he did not follow it with a
consignation or deposit of the sum due with the court. As this Court has held:
The rule regarding payment of redemption prices is invoked. True that
consignation of the redemption price is not necessary in order that the vendor
may compel the vendee to allow the repurchase within the time provided by law
or by contract. (Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We have held
that in such cases a mere tender of payment is enough, if made on time, as a
basis for action against the vendee to compel him to resell. But that tender does
not in itself relieve the vendor from his obligation to pay the price when
redemption is allowed by the court. In other words, tender of payment is sufficient
to compel redemption but is not in itself a payment that relieves the vendor from
his liability to pay the redemption price. " (Paez vs. Magno, 83 Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the Manager's Check
tendered by private respondent on November 17, 1980 was subsequently
cancelled and converted into cash, the Court RESOLVED to REQUIRE the
parties within ten (10) days from notice to inform the Court whether or not the
amount thereof was deposited in court and whether or not private respondent
continued paying the monthly rental of P1,000.00 stipulated in the Compromise
Agreement.
In compliance with this resolution, both parties submitted their respective manifestations which
confirm that the Manager's Check in question was subsequently withdrawn and replaced by cash,
but the cash was not deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due, and that consignation alone shall
produce the same effect in the five cases enumerated therein; Article 1257 provides that in order
that the consignation of the thing (or sum) due may release the obligor, it must first be announced
to the persons interested in the fulfillment of the obligation; and Article 1258 provides that
consignation shall be made by depositing the thing (or sum) due at the disposal of the judicial
authority and that the interested parties shall also be notified thereof.
As the Court held in the case of Soco vs. Militante, promulgated on June 28, 1983, after
examining the above-cited provisions of the law and the jurisprudence on the matter:
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation, which
is the principal, and from which are derived the immediate consequences which
the debtor desires or seeks to obtain. Tender of payment may be extrajudicial,
while consignation is necessarily judicial, and the priority of the first is the attempt
to make a private settlement before proceeding to the solemnities of
consignation. (8 Manresa 325). (123 SCRA 160,173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730), the vendee was
released from responsibility because he had deposited with the court the balance of the purchase
price. Similarly, in the above-cited case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101
SCRA 686), the judgment debtor was released from responsibility by depositing with the court the
amount of the judgment obligation.

In the case at bar, although as above stated private respondent had preserved his rights as a
vendee in the contract of conditional sale of real property by a timely valid tender of payment of
the balance of his obligation which was not accepted by petitioner, he remains liable for the
payment of his obligation because of his failure to deposit the amount due with the court.

In his manifestation dated September 19, 1986, private respondent states that on September 16,
1980, he purchased a Metrobank Cashier's Check No. CC 004233 in favor of petitioner Luisa F.
McLaughlin in the amount of P76,059.71, a photocopy of which was enclosed and marked as
Annex "A- 1;" but that he did not continue paying the monthly rental of Pl,000.00 because,
pursuant to the decision of the appellate court, petitioner herein was ordered to accept the
aforesaid amount in full payment of herein respondent's obligation under the contract subject
matter thereof.

However, inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on private
respondent to deposit the same with the court in order to be released from responsibility. Since
private respondent did not deposit said amount with the court, his obligation was not paid and he
is liable in addition for the payment of the monthly rental of Pl,000.00 from January 1, 1981 until
said obligation is duly paid, in accordance with paragraph 3 of the Compromise Agreement. Upon
full payment of the amount of P76,059.71 and the rentals in arrears, private respondent shall be
entitled to a deed of absolute sale in his favor of the real property in question.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following modifications:

(a) Petitioner is ordered to accept from private respondent the Metrobank Cashier's Check No. CC
004233 in her favor in the amount of P76,059.71 or another certified check of a reputable bank
drawn in her favor in the same amount;

(b) Private respondent is ordered to pay petitioner, within sixty (60) days from the finality of this
decision, the rentals in arrears of P l,000.00 a month from January 1, 1981 until full payment
thereof; and

(c) Petitioner is ordered to execute a deed of absolute sale in favor of private respondent over the
real property in question upon full payment of the amounts as provided in paragraphs (a) and (b)
above. No costs.

SO ORDERED.

Fernan, Alampay, Gutierrez, Jr. and Paras, JJ., concur.