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Macondray & Co. v. Eustaquio 64 Phil.

446 (1937) -Melchora purchaser for the recovery of any unpaid balance (i.e. the deficiency
DOCTRINE: When there is a contract which allows the buyer to pay in judgment) owing by the same.
installments and the item (personal property) sold is used as a To conclude, Macondray brought the action against Eustaquio
guarantee, and the buyer defaults in payment, there are three remedies to obtain the possession of an automobile mortgaged by the latter, and
available to the seller provided in the NCC. However, among these to recover the balance owing upon a note executed by him, the interest
choices, if the seller chooses to foreclose the item sold, he shall have thereon, attorney’s fees, expenses of collection, and the costs. Such
no further action against the purchaser for the recovery of any unpaid complaint was dismissed by the court below without costs. Now, the SC
balance. holds that this appealed judgment is affirmed, with the costs of this
instance to the plaintiff and appellant.
FACTS: Urbano Eustaquio bought a car from Macondray & Co. Inc.
worth P595.00. Eustaquio for this purpose executed a note which *added by me. Not part of full text.
described his terms of payment: I shall pay 12 monthly installments with
12% interest per annum; If I fail to pay for any monthly installment, all Levy Hermanos v. Gervacio (GR L-46306; 10/27/1939) -Melchora
other remaining installments shall become due & payable; If this
happens, I shall pay 20% of the principal for atty.’s fees, collection DOCTRINE: A cash payment (which is a straight payment) cannot be
expenses, and costs. considered as a payment by installment, and even if it can be so
Meanwhile, as guarantee for payment, THE CAR WHICH considered, still the law does not apply, for it requires non-payment of
WAS SUBJECT OF THE SALE was mortgaged to the seller Macondray. two or more installments in order that its provisions may be invoked.
Unfortunately Eustaquio failed to make payment. Macondray Here, only one installment was unpaid.
called upon a sheriff to take possession of the mortgaged car. In spite
of Eustaquio’s resistance, it was taken and auctioned with Macondray FACTS: On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to
as the highest bidder. defendant Lazaro Blas Gervacio, a Packard car. Defendant, after
The defendant was still indebted in the amount of P342.20, making the initial payment, executed a promissory note for the balance
interest at 12 per cent from November 20, 1934, P110.25 as attorney’s of P2,400, payable on or before June 15, 1937, with interest at 12 per
fees, and the costs. cent per annum, to secure the payment of the note, he mortgaged the
The plaintiff at the lower court questioned the constitutionality car to the plaintiff. Defendant failed to pay the note it its maturity.
of the latter’s application of Act No. 4122 (An Act to Further Amend Wherefore, plaintiff foreclosed the mortgage and the car was sold at
Section One Hundred Eighty-Five of Commonwealth Act Numbered public auction, at which plaintiff was the highest bidder for P1,800. The
Four Hundred and Sixty-Six, Otherwise Known as the National Internal present action is for the collection of the balance of P1,600 and interest.
Revenue Code, as Amended, and for Other Purposes). He argues that
it is invalid because it takes property without due process of law, denies ISSUE: Was it proper to apply Act 4122 in favor of Hermanos against
the equal protection of the laws, and impairs the obligations of contract, Gervacio who paid a cash payment? NO.
thereby violating the provisions of section 3 of the Act of The United
States Congress of August 29, 1916, known as the Jones Law. HELD: In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170), we
held that "in order to apply the provisions of article 1454-A of the Civil
ISSUE: Can Macondray demand for the unpaid balance of the car after Code it must appear that there was a contract for the sale of personal
having this item foreclosed? NO. 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
HELD: of personal property, is not, however, one on installments, but on straight
ABUSES COMMITTED IN CONNECTION WITH THE term, in which the balance, after payment of the initial sum, should be
FORECLOSURE OF CHATTEL MORTGAGES paid in its totality at the time specified in the promissory note. The
Pursuant to the practice before the enactment of Act No. transaction is not is not, therefore, the one contemplated in Act No. 4122
4122, if the purchaser fails to pay the first two installments, the company and accordingly the mortgagee is not bound by the prohibition therein
takes possession of the truck and has it sold at public auction at which contained as to the right to the recovery of the unpaid balance.
sale it purchases the truck for a nominal price, at most P500, without The suggestion that the cash payment made in this case
prejudice to its right to collect the balance of P5,500, plus interest, costs, should be considered as an installment in order to bring the contract
and attorney’s fees. As a consequence, the vendor does not only sued upon under the operation of the law, is completely untenable. A
recover the goods sold, used hardly two months perhaps with only slight cash payment cannot be considered as a payment by installment, and
wear and tear, but also collects the entire stipulated purchase price, even if it can be so considered, still the law does not apply, for it requires
probably swelled up fifty per cent including interest, costs, and attorney’s non-payment of two or more installments in order that its provisions may
fees. be invoked. Here, only one installment was unpaid.
In the Philippines, the Chattel Mortgage Law did not expressly To conclude, the lower court applied the provisions of Act No.
provide for a deficiency judgment (i.e. the remaining balance after selling 4122, inserted as articles 1454-A of the Civil Code, and rendered
the item at an auction, For example, consider a home, bought for judgment in favor of the defendant. Now, the SC reverses this judgment,
$300,000 with a 4% interest rate and including a $30,000 down and the defendant-appellee is hereby sentenced to pay plaintiff-
payment. The borrower defaults on the $270,000 loan after two years, appellant the sum of P1,600 with interest at the rate of 12% per annum
leaving a principal balance of $256,000. The bank sells the home for from June 15, 1937, and the sum of P52.08 with interest at the rate of
$245,000, then seeks a deficiency judgment against the borrower for the 6% from the date of the filing of the complaint, with costs in both
outstanding $11,000*) upon the foreclosure of a mortgage. instances against the appellee.
Indeed, it required decisions of this court to authorize such a procedure.
(Bank of the Philippine Islands v. Olutanga Lumber Co. [1924], 47 Phil., SOUTHERN MOTORS, INC vs. ANGELO MOSCOSO - Kim
20; Manila Trading & Supply Co. v. Tamaraw Plantation Co., supra.) But G.R. No. L-14475 May 30, 1961
the practice became universal enough to acquire the force of direct
legislative enactment regarding procedure. To a certain extent the DOCTRINE: The complaint is an ordinary civil action for recovery of the
Legislature has now disauthorized this practice, but has left a sufficient remaining unpaid balance due on the promissory note. The plaintiff had
remedy remaining. not adopted the procedure or methods outlined by Sec. 14 of the Chattel
Three remedies are available to the vendor who has sold Mortgage Law but those prescribed for ordinary civil actions, under the
personal property on the installment plan. (1) He may elect to exact the Rules of Court.
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 FACTS: On June 6, 1957, plaintiff-appellee Southern Motors, Inc. sold
may cancel the sale. (3) If the vendee shall have failed to pay two or to defendant-appellant Angel Moscoso one Chevrolet truck, on
more installments, the vendor may foreclose the mortgage, if one has installment basis, for P6,445.00. Upon making a down payment, the
been given on the property. The basis of the first option is the Civil Code. defendant executed a promissory note for the sum of P4,915.00,
The basis of the last two options is Act No. 4122, amendatory of the Civil representing the unpaid balance of the purchase price (Annex A,
Code. And the proviso to the right to foreclose is, that if the vendor has complaint), to secure the payment of which, a chattel mortgage was
chosen this remedy, he shall have no further action against the constituted on the truck in favor of the plaintiff (Annex B). Of said account
of P4,915.00, the defendant had paid a total of P550.00, of which
P110.00 was applied to the interest up to August 15, 1957, and P400.00 foreclosing the chattel mortgage and attaching the mortgaged chattel.
to the principal, thus leaving an unpaid balance of P4,475.00. The The variance lies in the ability of the debtor to retain possession of the
defendant failed to pay 3 installments on the balance of the purchase property attached by giving a counterbond and thereby discharging the
price. attachment. This remedy the debtor does not have in the event of
foreclosure.
On November 4, 1957, the plaintiff filed a complaint against the
defendant, to recover the unpaid balance of the promissory note. Upon
plaintiff's petition, embodied in the complaint, a writ of attachment was LUIS RIDAD and LOURDES RIDAD vs. FILIPINAS
issued by the lower court on the properties Of the defendant. Pursuant INVESTMENT and FINANCE CORPORATION, JOSE D. SEBASTIAN
thereto, the said Chevrolet truck, and a house and lot belonging to and JOSE SAN AGUSTIN, in his capacity as Sheriff, defendants-
defendant, were attached by the Sheriff of San Jose, Antique, where appellants. - Kim
defendant was residing on November 25, 1957, and said truck was G.R. No. L-39806 January 27, 1983
brought to the plaintiff's compound in Iloilo City, for safe keeping.
DOCTRINE: Whichever right the vendor elects, he cannot avail of the
After attachment and before the trial of the case on the merits, acting other, these remedies being alternative, not cumulative.
upon the plaintiff's motion dated December 23, 1957, for the immediate
sale of the mortgaged truck, the Provincial Sheriff of Iloilo on January 2, FACTS: : On April 14, 1964, plaintiffs purchased from the Supreme
1958, sold the truck at public auction in which plaintiff itself was the only Sales arid Development Corporation two (2) brand new Ford Consul
bidder for P1,000.00. The case had not been set for hearing, then. Sedans complete with accessories, for P26,887 payable in 24 monthly
installments. To secure payment thereof, plaintiffs executed on the
The trial court on March 27, 1958, condemned the defendant to pay the same date a promissory note covering the purchase price and a deed of
plaintiff the amount of P4,475.00 with interest at the rate of 12% per chattel mortgage not only on the two vehicles purchased but also on
annum from August 16, 1957, until fully paid, plus 10% thereof as another car (Chevrolet) and plaintiffs' franchise or certificate of public
attorneys fees and costs. Both parties agreed that the case is governed convenience granted by the defunct Public Service Commission for the
by Article 1484 operation of a taxi fleet. Then, with the conformity of the plaintiffs, the
vendor assigned its rights, title and interest to the above-mentioned
While the appellee claims that in filing the complaint, demanding promissory note and chattel mortgage to defendant Filipinas Investment
payment of the unpaid balance of the purchase price, it has availed of and Finance Corporation.
the first remedy provided in said article i.e. to exact fulfillment of the Due to the failure of the plaintiffs to pay their monthly installments as per
obligation (specific performance); the appellant, on the other hand, promissory note, the defendant corporation foreclosed the chattel
contends that appellee had availed itself of the third remedy viz, the mortgage extra-judicially, and at the public auction sale of the two Ford
foreclosure of the chattel mortgage on the truck. Consul cars, of which the plaintiffs were not notified, the defendant
corporation was the highest bidder and purchaser. Another auction sale
Appellant submits that the matter should be looked at, not by the was held on November 16, 1965, involving the remaining properties
allegations in the complaint, but by the very effect and result of the subject of the deed of chattel mortgage since plaintiffs' obligation was
procedural steps taken and that appellee tried to camouflage its acts by not fully satisfied by the sale of the aforesaid vehicles, and at the public
filing a complaint purportedly to exact the fulfillment of an obligation auction sale, the franchise of plaintiffs to operate five units of taxicab
petition, in an attempt to circumvent the provisions of Article 1484 of the service was sold for P8,000 to the highest bidder, herein defendant
new Civil Code. Appellant concludes that under his theory, a deficiency corporation, which subsequently sold and conveyed the same to herein
judgment would be without legal basis. defendant Jose D. Sebastian, who then filed with the Public Service
Commission an application for approval of said sale in his favor.
ISSUE: WON the attachment caused to be levied on the truck and its On February 21, 1966, plaintiffs filed an action for annulment of contract
immediate sale at public auction, was tantamount to the foreclosure of before the Court of First Instance of Rizal, Branch I, with Filipinas
the chattel mortgage on said truck Investment and Finance Corporation, Jose D. Sebastian and Sheriff
Jose San Agustin, as party-defendants. By agreement of the parties, the
HELD: No. We do not share the views of the appellant on this matter. case was submitted for decision in the lower court on the basis of the
Manifestly, the appellee had chosen the first remedy. The complaint is documentary evidence adduced by the parties during the pre-trial
an ordinary civil action for recovery of the remaining unpaid balance due conference.
on the promissory note. The plaintiff had not adopted the procedure or
methods outlined by Sec. 14 of the Chattel Mortgage Law but those RTC: This Court declares the chattel mortgage, Exhibit "C", to be null
prescribed for ordinary civil actions, under the Rules of Court. Had and void in so far as the taxicab franchise and the used Chevrolet car of
appellee elected the foreclosure, it would not have instituted this case in plaintiffs are concerned, and the sale at public auction conducted by the
court; it would not have caused the chattel to be attached under Rule City Sheriff of Manila concerning said taxicab franchise, to be of no legal
59, and had it sold at public auction, in the manner prescribed by Rule effect.
39. That the herein appellee did not intend to foreclose the mortgage
truck, is further evinced by the fact that it had also attached the house From the foregoing judgment, defendants appealed to the Court of
and lot of the appellant at San Jose, Antique. Appeals which, as earlier stated, certified the appeal to this Court, there
being no issue of fact involved in this appeal.
We perceive nothing unlawful or irregular in appellee's act of attaching
the mortgaged truck itself. Since herein appellee has chosen to exact ISSUE: Validity of the chattel mortgage in so far as the franchise and
the fulfillment of the appellant's obligation, it may enforce execution of the subsequent sale thereof are concerned.
the judgment that may be favorably rendered hereon, on all personal
and real properties of the latter not exempt from execution sufficient to HELD: Invalid. The resolution of said issue is unquestionably governed
satisfy such judgment. It should be noted that a house and lot at San by the provisions of Article 1484 of the Civil Code
Jose, Antique were also attached. No one can successfully contest that
the attachment was merely an incident to an ordinary civil action. Under the above-quoted article of the Civil Code, the vendor of personal
(Sections 1 & 11, Rule 59; Sec. 16, Rule 39). The mortgage creditor may property the purchase price of which is payable in installments, has the
recover judgment on the mortgage debt and cause an execution on the right, should the vendee default in the payment of two or more of the
mortgaged property and may cause an attachment to be issued and agreed installments, to exact fulfillment by the purchaser of the
levied on such property, upon beginning his civil action (Tizon vs. obligation, or to cancel the sale, or to foreclose the mortgage on the
Valdez, 48 Phil. 910-911). purchased personal property, if one was constituted. 1 Whichever right
IN VIEW HEREOF, the judgment appealed from hereby is affirmed, with the vendor elects, he cannot avail of the other, these remedies being
costs against the defendant-appellant. alternative, not cumulative. 2 Furthermore, if the vendor avails himself of
the right to foreclose his mortgage, the law prohibits him from further
REYES, J.B.L., J., concurring: bringing an action against the vendee for the purpose of recovering
I fully concur in the opinion, and would only add that appellant's whatever balance of the debt secured not satisfied by the foreclosure
argument ignores a substantial difference between the effect of 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 same was pointed to by Lavin; that upon being informed by
price and then bringing suit against the mortgagor for a deficiency the deputy sheriff of the foreclosure of the chattel and of the
judgment, otherwise, the mortgagor-buyer would find himself without the deputy's intention to seize the same, Lavin offered no
property and still owing practically the full amount of his original objection thereto; that despite such lack of objection of
indebtedness. 4 defendant Lavin to the foreclosure, the chattel could not be
taken to Manila there being no truck to bring it; that it was
In the instant case, defendant corporation elected to foreclose its understood between the sheriff and Lavin that the former
mortgage upon default by the plaintiffs in the payment of the agreed would fetch a truck from Vigan to pick up the chattel from
installments. Having chosen to foreclose the chattel mortgage, and Narvacan to Manila. The record also reveals that upon
bought the purchased vehicles at the public auction as the highest reaching Vigan on December 17, 1957 (the day prior to the
bidder, it submitted itself to the consequences of the law as specifically scheduled public sale) the deputy sheriff received a letter from
mentioned, by which it is deemed to have renounced any and all rights plaintiff's counsel including a wire asking him (sheriff) to
which it might otherwise have under the promissory note and the chattel suspend the auction sale as the defendants-mortgagors had
mortgage as well as the payment of the unpaid balance. voluntarily agreed to surrender the chattel; that as a result of
Consequently, the lower court rightly declared the nullity of the chattel this communication, the provincial sheriff of Ilocos Sur
mortgage in question in so far as the taxicab franchise and the used suspended the foreclosure sale of the chattel which,
Chevrolet car of plaintiffs are concerned, under the authority of the ruling incidentally, remains in the possession of defendant Lavin.
in the case of Levy Hermanos, Inc. vs. Pacific Commercial Co., et al. RTC: Dismissed case
Public policy and the very spirit and purpose of the law, limiting the There being no dispute as to the facts, the Court of Appeals certified this
vendor's right to foreclose the chattel mortgage only on the thing sold. case to us for resolution of the question of law involved therein.

Reliance on the ruling in Southern Motors, inc. v. Moscoso, 2 SCRA 168, ISSUE: Whether the plaintiff is precluded to press for collection of an
that in sales on installments, where the action instituted is for and the account secured by a chattel mortgage, after it shall have informed the
mortgaged property is subsequently attached and sold, the sales thereof defendants of its intention to foreclose on the same mortgage and the
does not amount to a foreclosure of the mortgage, hence, the seller voluntary acceptance of such step (foreclosure) by defendants-
creditor is entitled to a deficiency judgment, does not for the stand of the mortgagors".
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 HELD: No. But the vendor-mortgagee in the present case desisted, on
of the Civil Code, i.e., to exact fulfillment of the obligation whereas in the its own initiative, from consummating the auction sale, without gaining
present case, the remedy availed of was foreclosure of the chattel any advantage or benefit, and without causing any disadvantage or
mortgage. harm to the vendees-mortgagors. The least that could be said is that
such desistance of the plaintiff from proceeding with the auction sale
IN VIEW HEREOF, the judgment appealed from is hereby affirmed, with was a timely disavowal that cancelled and rendered useless its previous
costs against the appellants. choice to foreclose; its acts, being extrajudicial, brought no trouble upon
any court, and were harmless to the defendants. For this reason, the
plaintiff can not be considered as having "exercised" (the code uses the
RADIOWEALTH, INC. vs. JOSE LAVIN, ET AL. - Kim word "exercise") the remedy of foreclosure because of its incomplete
G.R. No. L-18563 April 27, 1963 implementation, and, therefore, the plaintiff is not barred from suing on
DOCTRINE: The least that could be said is that such desistance of the the unpaid account.
plaintiff from proceeding with the auction sale was a timely disavowal While there are some American authorities holding that the mere
that cancelled and rendered useless its previous choice to foreclose initiation of proceedings constitutes a bind choice of remedies that
precludes pursuit of alternative courses, others hold that no binding
FACTS: On 14 March 1958, the plaintiff filed a complaint in the Court of election occurs before a decision on the merits is had (18 Am. Jur. 143),
First Instance of Manila to recover from jointly and severally, the balance or a detriment to the other party supervenes; and we think the latter to
of the purchase price of a certain machinery, the interests thereon, be the better rule, considering that the creditor, in desisting from a
liquidated damages, and attorney's fees. foreclosure of the chattel mortgage, and suing instead for the unpaid
balance, does not assume really inconsistent positions, and considering
It appears that on 9 July 1958, at the City of Manila, bought from the further that detriment to the opposing party is a prerequisite to the
plaintiff a model WD Howard Wet Paddy Rotavator, with its accessories, operation of estoppel.
for P3,300.00, paying a down payment of P1,000.00. As stipulated, the
balance which was secured by a chattel mortagage on the machinery, Tajanlangit v. Southern Motors 101 Phil. 606 (1957) -Celine
was payable in 12 monthly installments, the first payment of P191.67 to Plaintiff-appellant: AMADOR TAJANLANGIT, ET AL.
commence on 12 August 1956. The defendants also executed a Defendant-appellees: SOUTHERN MOTORS, INC., ET AL.,
promissory note evidencing the same account. It was, likewise, agreed Ponente: Bengson, J.
that the said balance shall bear 8% interest per annum, and if not paid DOCTRINE: In a contract of sale of personal property the price of which
on the due dates, the same shall bear 12% interest per annum, aside is payable in installments, secured by a mortgage on the goods sold, the
from 20% for liquidated damages and another 20% for attorney's fees. vendor who chooses to exact fulfillment of the obligation to pay is not
The machinery was delivered to the defendants at their residence at limited to the proceeds of the sale, on execution, of the mortgaged
Tupac, Narvacan, Ilocos Sur. goods. The vendor may still recover from the purchaser the unpaid
The said defendants never paid any of the 12 installments, and all balance of the price, if any.
became due and payable.
The defendants were declared in default for their failure to file an FACTS: Amador Tajanlangit and his wife, Angeles bought 2 tractors and
answer, and judgment was accordingly rendered against them. a thresher and executed a promissory note whereby they undertook to
However, they filed a petition for relief from judgment, and in the course satisfy the total purchase price of P24,755.75 in several installments
of the hearing of this petition it was discovered that — (with interest) payable on stated dates from May 18, 1953 to December
long prior to the filing of the instant complaint on March 14, 10, 1955. The note stipulated that if default be made in the payment of
1958, plaintiff firm had, on September 30, 1957, notified the interest or of any installment, then the total principal sum still unpaid with
Provincial Sheriff of Ilocos Sur including the defendants interest shall at once become demandable etc. The spouses failed to
themselves of the firm's desire to foreclose the chattel meet any installment and the court entered judgment against
mortgage constituted on the rotavator. The record reveals — Tajanlangit, ordering them to the total sum of P24,755.75 together with
and on this there appears no dispute either — that in interest at 12 per cent, plus 10 per cent of the total amount due as
consonance with plaintiff's notification to the sheriff of its attorney's fees and costs of collection.
desire to foreclose on the chattel the auction sale was Carrying out the order of execution, the sheriff levied on the same
scheduled on December 18, 1957; that pursuant to this machineries and farm implements which had been bought by the
request for foreclosure, Deputy Sheriff Anicoche went to spouses; and later sold them at public auction to the highest bidder —
Narvacan, Ilocos Sur, where he found defendant Jose Lavin which turned out to be the Southern Motors itself — for the total sum of
and upon asking the latter for the mortgaged property, the P10,000.
As its judgment called for much more, the Southern Motors Trial Court: **renders judgment in favor of IFC** **orders the
subsequently asked and obtained, an alias writ of execution; and defendant spouses to pay to the plaintiff IFC the amount of
pursuant thereto, the provincial sheriff levied attachment on the P17,537.60 with interest at the rate of 14% per annum from
Tajanlangits' rights and interests in certain real properties — with a view July 28, 1976 until fully paid, 10% of the amount due as
to another sale on execution. attorney's fees, litigation expenses in the amount of P133.05
plus the costs of this suit. No pronouncement as to other
AMADOR TAJANLANGIT, ET AL.: As the Southern Motors Inc. had charges and damages, the same not having been proven to
repossessed the machines purchased on installment (and mortgaged) the satisfaction of the Court."**
the buyers were thereby relieved from further responsibility, in view of Respondent appellate court: **affirms trial court judgment*
the Recto Law, now article 1484 of the New Civil Code.
ISSUE: Whether a vendor, or his assignee, who had cancelled the sale
SOUTHERN MOTORS, INC., ET AL.: **denies having repossessed the of a motor vehicle for failure of the buyer to pay two or more of the
machineries, the truth being that they were attached by the sheriff and stipulated installments, may also demand payment of the balance of the
then deposited by the latter in its shop for safekeeping, before the sale purchase price.
at public auction.**
HELD: Article 1484 of the Civil Code applies. The article provides:
ISSUE: Whether or not the prohibition against further collection in Article In a contract of sale of personal property the price of which is payable in
1484 applies. installments, the vendor may exercise any of the following remedies:
4) Exact fulfillment of the obligation, should the vendee fail to
HELD: Article 1484 of the Civil Code provides that: pay;
In a contract of sale of personal property the price of which is payable in 5) Cancel the sale, should the vendee's failure to pay cover two
installments, the vendor may exercise any of the following remedies: or more installments;
1) Exact fulfillment of the obligation, should the vendee fail to 6) Foreclose the chattel mortgage on the thing sold, if one has
pay; been constituted, should the vendee's failure to pay cover two
2) Cancel the sale, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further
or more installments; action against the purchaser to recover any unpaid balance of
3) Foreclose the chattel mortgage on the thing sold, if one has the price. Any agreement to the contrary shall be void.
been constituted, should the vendee's failure to pay cover two Should the vendee or purchaser of a personal property default in the
or more installments. In this case, he shall have no further payment of two or more of the agreed installments, the vendor or seller
action against the purchaser to recover any unpaid balance of has the option to avail of any of these three remedies — either to exact
the price. Any agreement to the contrary shall be void. fulfillment by the purchaser of the obligation, or to cancel the sale, or to
Tajanlangit invoked the last remedy but there has been no foreclosure foreclose the mortgage on the purchased personal property, if one was
of the chattel mortgage nor a foreclosure sale. Therefore, the prohibition constituted. These remedies have been recognized as alternative, not
against further collection does not apply. While it is true that there was cumulative, that the exercise of one would bar the exercise of the others.
a chattel mortgage on the goods sold, Southern Motors elected to sue In the present case, it is not disputed that IFC had taken possession of
on the note exclusively, i.e. to exact fulfillment of the obligation to pay. It the car purchased by the Nonatos after the spouses defaulted in their
had a right to select among the three remedies established in Article payments. The defense of IFC that it the repossession of the vehicle
1484. In choosing to sue on the note, it was not thereby limited to the was only for the purpose of appraising its value and for storage and
proceeds of the sale, on execution, of the mortgaged good. The vendor safekeeping pending full payment of the spouses is untenable. The
may still recover from the purchaser the unpaid balance of the price, if receipt issued by IFC to the spouses when it took possession of the
any. vehicle that the vehicle could be redeemed within 15 days. This could
only mean that should the spouses fail to redeem the car within the
Nonato v. IAC (GR L-67181; 11/ 22/1985) -Celine period provided, IFC would retain permanent possession of the vehicle.
Petitioners: SPOUSES RESTITUTO NONATO and ESTER NONATO IFC even notified the spouses Nonato that the value of the car was not
Respondents: THE HONORABLE INTERMEDIATE APPELLATE sufficient to cover the balance of the purchase price and there was no
COURT and INVESTOR'S FINANCE CORPORATION attempt at all on the part of the company to return the car.
Ponente: ESCOLIN, J. The acts performed by IFC are consistent with the conclusion that it had
opted to cancel the sale of the vehicle. Therefore, it is barred from
DOCTRINE: Should the vendee or purchaser of a personal property exacting payment from the petitioners of the balance of the price of the
default in the payment of two or more of the agreed installments, the vehicle which it had already repossessed.
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 Zayas v. Luneta Motor 117 SCRA 726 (1982) - Maricon
cancel the sale, or to foreclose the mortgage on the purchased personal DOCTRINE: The purchase price of which is payable in installments, has
property, if one was constituted. These remedies have been recognized the right to cancel the sale or foreclose the mortgage if one has been
as alternative, not cumulative, that the exercise of one would bar the given on the property. Whichever right the vendor elects he need not
exercise of the others. return to the purchaser the amount of the installments already paid, "if
there be an agreement to that effect". Furthermore, if the vendor avails
FACTS: On June 28, 1976, spouses Restituto Nonato and Ester Nonato himself of the right to foreclose the mortgage this amendment prohibits
purchased one (1) unit of Volkswagen Sakbayan from the People's Car, him from bringing an action against the purchaser for the unpaid
Inc. on installment basis. To secure complete payment, the spouses balance.
executed a promissory note and a chattel mortgage in favor of People's
Car, Inc. People's Car, Inc., assigned its rights and interests over the FACTS: Petitioner Eutropio Zayas, Jr, purchased on installment basis a
note and mortgage in favor of plaintiff Investor's Finance Corporation motor vehicle described as ONE (1) UNIT FORD THAMES FREIGHTER
(FNCB) Finance). For failure of the spouses to pay two or more W/PUJ BODY from Mr. Roque Escaño of the Escaño Enterprises in
installments, despite demands, the car was repossessed by Investor's Cagayan de Oro City, dealer of respondent Luneta Motor Company,
Finance Corporation on March 20, 1978 (Exh. E or 4). under the following terms and conditions:
Investor’s Finance Corporation: The spouses Restituto
Nonato and Ester Nonato should pay the balance of the price Selling price P7,500.00
of the car, despite repossession. **files before the Court of Financing charge P1,426.82
First Instance of Negros Occidental the present complaint Total Selling Price P8,926.82
against the spouses for the latter to pay the balance of the Payable on Delivery P1,006.82
price of the car, with damages and attorney's fees.** Payable in 24 months at 12% interest per annum P7,920.00
Spouses Nonato: When the company repossessed the
vehicle, it had, by that act, effectively cancelled the sale of the Motor vehicle was delivered to the petitioner who paid the
vehicle. It is therefore barred from exacting recovery of the initial payment of P1,006.82 and executed a promissory note in amount
unpaid balance of the purchase price, as mandated by the of P7,920.00, the balance of the total selling price in favor of the
provisions of Article 1484 of the Civil Code. respondent. The promissory note stated the amounts and dates of
payment of twenty-six installments covering the P7,920.00 debt. December 7, 1985 with interest at eighteen per cent (18%) per annum
Simultaneously with the execution of the promissory note and to secure based on balances.
its payment, the petitioner executed a chattel mortgage on the subject
motor vehicle in favor of the respondent. After paying a total amount of The contract also provided for a grace period of one month within which
P3,148.00, the petitioner was unable to pay further monthly installments to make payments. Should the month of grace expire without the
prompting the respondent Luneta Motor Company to extra-judicially installments for both months having been satisfied, an interest of 18%
foreclose the chattel mortgage. The motor vehicle was sold at public per annum will be charged on the unpaid installments.5
auction with the respondent Luneta Motor Company represented by
Atty. Leandro B. Fernandez as the highest bidder in the amount of Should a period of ninety (90) days elapse from the expiration of the
P5,000.00. However, the payments could not cover the total amount of grace period without the overdue and unpaid installments having been
the promissory note executed. Respondent filed Civil Case No. 165263 paid with the corresponding interests up to that date, respondent
with the City Court of Manila for the recovery of the balance of P1,551.74 Fernando, as vendor, was authorized to declare the contract cancelled
plus interests. and to dispose of the parcel of land, as if the contract had not been
entered into. The payments made, together with all the improvements
Respondent alleged that the balance of P1,551.74 plus made on the premises, shall be considered as rents paid for the use and
interest of 12% thereon from that date had already become due and occupation of the premises and as liquidated damages.
payable but despite repeated demands to pay the same, Eutropio
Zayas, Jr., refused and failed to pay. Zayas denied his alleged Carmelita Leaño made several payments in lump sum. Thereafter, she
outstanding liability of P1,551.74 plus interest thereon ... the said constructed a house on the lot valued at P800,000.00. The last payment
obligation if there was any, had already been discharged either by that she made was on April 1, 1989.
payment or by sale in public auction of the said motor vehicle.
Respondent denied the applicability of Article 1484 of the Civil Code ... On September 16, 1991, the trial court rendered a decision in an
for the simple reason that the contract involved between the parties is ejectment case earlier filed by respondent Fernando ordering petitioner
not one for a sale on installment. Leaño to vacate the premises and to pay P250.00 per month by way of
compensation for the use and occupation of the property from May 27,
City court – dismissal of the case 1991 until she vacated the premises, attorney's fees and costs of the
CFI – remanded for further proceedings suit. On August 24, 1993, the trial court issued a writ of execution which
was duly served on petitioner Leaño. In which Leaño filed with the RTC
ISSUE: W/N the contract between the respondent was only an ordinary a complaint for specific performance with preliminary injunction.
loan removed from the coverage of Art. 1484 of the NCC Petitioner Leaño assailed the validity of the judgment of the municipal
trial court12 for being violative of her right to due process and for being
HELD: No. Escano Enterprises, a dealer of respondent Luneta Motor contrary to the avowed intentions of Republic Act No. 6552 regarding
Company, was merely a collecting-agent as far as the purchase of the protection to buyers of lots on installments.
subject motor vehicle was concerned. The principal and agent
relationship is clear. RTC – contract between the parties was an absolute sale, making Leaño
the owner of the lot upon actual and constructive delivery thereof.
But even assuming that the "distinct and independent entity" theory of Respondent Fernando, the seller, was divested of ownership and cannot
the private respondent is valid, the nature of the transaction as a sale of recover the same unless the contract is rescinded pursuant to Article
personal property on installment basis remains. When, therefore, 1592 of the Civil Code which requires a judicial or notarial demand.
Escaño Enterprises, assigned its rights vis-a-vis the sale to respondent Since there had been no rescission, petitioner Leaño, as the owner in
Luneta Motor Company, the nature of the transaction involving Escano possession of the property, cannot be evicted.
Enterprises and Eutropio Zayas, Jr. did not change at all. As assignee,
respondent Luneta Motor Company had no better rights than assignor CA – affirmed RTC
Escaño Enterprises under the same transaction. The transaction would
still be a sale of personal property in installments covered by Article 1484 ISSUE: (1) whether the transaction between the parties in an absolute
of the New Civil Code. To rule otherwise would pave the way for sale or a conditional sale;
subverting the policy underlying Article 1484 of the New Civil Code, on (2) whether there was a proper cancellation of the contract to sell; and
the foreclosure of chattel mortgages over personal property sold on (3) whether petitioner was in delay in the payment of the monthly
installment basis. amortizations.

ART. 1484. In a contract of sale of personal property the price of which HELD: HELD: (1) CONDITIONAL SALE. The intention of the parties
is payable in installments, the vendor may exercise any of the following was to reserve the ownership of the land in the seller until the buyer has
remedies: paid the total purchase price.
It was the possession which was transferred and not the ownership. In
(3) Foreclose the chattel ;mortgage on the thing sold, if one has been the case at bar, petitioner Leaño's non-payment of the installments after
constituted, should the vendee's failure to pay cover two or more April 1, 1989, prevented the obligation of respondent Fernando to
installments. In this case, he shall have no further action against the convey the property from arising. In fact, it brought into effect the
purchaser to recover any unpaid balance of the price. Any agreement to provision of the contract on cancellation.
the contrary shall be void.
Article 1592 of the Civil Code is inapplicable to the case at bar. However,
The established rule is to the effect that the foreclosure and actual sale any attempt to cancel the contract to sell would have to comply with the
of a mortgaged chattel bars further recovery by the vendor of any provisions of Republic Act No. 6552, the "Realty Installment Buyer
balance on the purchaser's outstanding obligation not so satisfied by the Protection Act." R.A. No. 6552 recognizes in conditional sales of all
sale. kinds of real estate (industrial, commercial, residential) the right of the
seller to cancel the contract upon non-payment of an installment by the
Leaño v. CA 369 SCRA 36; 2001 – Maricon buyer, which is simply an event that prevents the obligation of the vendor
to convey title from acquiring binding force.36 The law also provides for
DOCTRINE: The intention of the parties was to reserve the ownership the rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of the law
of the land in the seller until the buyer has paid the total purchase price. provides that:

FACTS: On November 13, 1985, Hermogenes Fernando, as vendor and "If the contract is cancelled, the seller shall refund to the buyer the cash
Carmelita Leaño, as vendee executed a contract to sell involving a piece surrender value of the payments on the property equivalent to fifty
of land, Lot No. 876-B, with an area of 431 square meters, located at percent of the total payments made and, after five years of installments,
Sto. Cristo, Baliuag, Bulacan. Leaño bound herself to pay Fernando the an additional five percent every year but not to exceed ninety percent of
sum of P107,750.00 as the total purchase price of the lot. P10,775.00 the total payment made: Provided, That the actual cancellation of the
as downpayment and the balance of P96,975.00 shall be paid within a contract shall take place after thirty days from receipt by the buyer of the
period of 10 years at a monthly amortization of P1,747.30 to begin from 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 recognizes in conditional sales of all kinds of real estate (industrial and
buyer." commercial as well as residential) the non-applicability of Article 1592
(1504) Civil Code to such contracts to sell on installments and the right
(2) NO. The decision in the ejectment case. operated as the notice of of the seller to cancel the contract (in accordance with the established
cancellation required by Sec. 3(b). As petitioner Leaño was not given doctrine of this Court) upon non-payment “which is simply an event that
then cash surrender value of the payments that she made, there was prevents the obligation of the vendor to convey title from acquiring
still no actual cancellation of the contract. binding force.”

(3) YES. Fernando performed his part of the obligation by allowing FACTS:
petitioner Leaño to continue in possession and use of the property. This is the same case filed in 1972 and it is the 2nd Motion for
Clearly, when petitioner Leaño did not pay the monthly amortizations in Reconsideration of Maritime. Same case with the same facts = still
accordance with the terms of the contract, she was in delay and liable denied Maritime.
for damages. However, we agree with the trial court that the default SC’s grounds:
committed by petitioner Leaño in respect of the obligation could be 1. A party should not keep a case pending by repetitious
compensated by the interest and surcharges imposed upon her under reiterations of the same contentions.
the contract in question. 2. No new grounds but is merely a reiteration
3. Stare decisis (cited CJ Castro’s work on this concept)
Article 1169 of the Civil Code provides that in reciprocal obligations, 4. Cited governing law and precedents of this denial
neither party incurs in delay if the other does not comply or is not ready a. Bad faith by Maritime by not paying the installments
to comply in a proper manner with what is incumbent upon him. From b. Article 1592 is not applicable to such contracts to sell or
the moment one of the parties fulfills his obligation, delay by the other conditional sales and no error was committed by the trial court in
begins. refusing to extend the periods for payment.
c. Maritime’s serious breach of contract refusing to pay monthly
Olympia Housing v. Panasiatic Corp. 395 SCRA 2003; 2003 – Jerico installments (P319, 300.65) despite earning as a lessor (P1, 500, 000).
i. Reason for not paying the remaining balance: Maritime had
DOCTRINE: deliberately defaulted on the monthly installments due after its request
Republic Act No. 6552, or the “Realty Installment Buyer Protection Act”; for a suspension of payments until the close of 1961 had been expressly
Purpose; The law has been enacted mainly “to protect buyers of real rejected "under any condition" by Myers and then nevertheless withheld
estate on installment payments against onerous and oppressive the payments and gave Myers notice that it would "withhold any further
conditions.”—The governing law is Republic Act No. 6552, otherwise payments" unless the heirs of the late F.H. Myers honored a totally
known as the “Realty Installment Buyer Protection Act,” which has unconnected alleged personal promise of the F.H. Myers to indemnify it
become effective since 16 September 1972. Republic Act No. 6552 is a for a possible liability of about P396,000.00 to a labor union in
special law governing transactions that involve, subject to certain connection with a completely different transaction (which alleged liability
exceptions, the sale on installment basis of real property. The law has was already barred against the estate of F. H. Myers and with which
been enacted mainly “to protect buyers of real estate on installment appellee Myers corporation had nothing whatsoever to do).
payments against onerous and oppressive conditions.” 5. THE PART THAT MATTERS: Republic Act No. 6552
FACTS: entitled "An Act to Provide Protection to Buyers of Real Estate on
Olympia Housing, Inc. agreed to sell a condominium unit to Ma. Nelida Installment Payments" (known also as the Maceda law)
Galvez-Ycasiano for P2,340,000 payable in installments of P33,657.40 • A law recognizing the right of cancellation of the contract of
per month and schedule of payments were also agreed on. conditional sale of real estate or on installments upon failure to pay the
stipulated installments and retention or forfeiture as rentals of the
Pursuant to the contract, defendant made a deposit of P100,000 and installments previously paid.
50% down payment on the dates agreed. She made several payments On April 30, 1949, the defendant Myers Building Co. entered into a Deed
in cash and thru cash credit memos issued by plaintiff representing of Conditional Sale, in favor of Maritime Building Co. over 3 parcels of
plane tickets bought from Panasiatic Travel Corp, owned by Ma. Nelida. land with improvements in Manila City for P1M. Maritime paid P50,
000.00 upon execution. The balance was to be paid in monthly
When defendant failed to pay installments which amounted to instalments of P10, 000.00 at 5% interest per annum (later lowered to
P1,924,345.52 even after demand, plaintiff allegedly rescinded the P5, 000.00 at 5.5% interest per annum). The parties further agreed that:
contract by a Notarial Act of Rescission. a. If Maritime defaults, the contract would be annulled at Myers’ option;
b. All payments already made shall be forfeited; and c. Myers shall have
ISSUE: Whether or not the contract to sell executed in favor of the right to re-enter the property and take possession. Moreover, if
respondent buyer had been validly cancelled or rescinded Maritime refuses to peacefully deliver the possession of the properties
subject of this contract to the Myers in case of rescission, a suit should
HELD: No cancellation took place. The notarial rescission was not sent be brought in court by the Myers to seek judicial declaration of
to respondents prior to the institution of the case for reconveyance but rescission.
merely served on respondents by way of an attachment to the complaint. Unfortunately, Maritime failed to pay the installment for March 1961, for
which the Vice-President, George Schedler,of the Maritime Building Co.,
In any case, a notarial rescission, standing alone, could not have Inc., wrote a letter to the President of Myers, Mr. C. Parsons, requesting
invalidly effected the cancellation of the contract. for a moratorium on the monthly payment of the installments until the
end of the year 1961, for the reason that the said company was
RA 6552 (Realty Installment Buyer Protection Act) states that any encountering difficulties in connection with the operation of the
cancellation must be done in conformity with the requirements therein warehouse business. Consequently, on May 1961, Myers made a
prescribed. In addition to the notarial act of rescission, the seller is demand upon Maritime for the unpaid installments; also, Myers advised
required to refund to the buyer the cash surrender value of the payments Maritime of the cancellation of the Deed of Conditional Sale and
on the property. demanded the return of the property, holding Maritime liable for rentals
at P10, 000.00 monthly. Myers thereafter demanded from its lessee,
The actual cancellation of the contract can only be deemed to take place Luzon Brokerage, to avoid paying to the wrong party, filed an action for
upon the expiry of a 30-day period following the receipt by the buyer of interpleader. After the filing of this action, the Myers Building Co., Inc. in
the notice of cancellation or demand for rescission by a notarial act and its answer filed a cross-claim against the Maritime Building Co., Inc.
the full payment of the cash surrender value. praying for the confirmation of its right to cancel the said contract.

Luzon Brokerage v. Maritime Bldg. 86 SCRA 305; 1978 – Jerico ISSUE: Whether or not Myers Company is entitled to extra-judicially
rescind the Deed of Conditional Sale.
DOCTRINE:
R.A. 6552 (Maceda Law) expressly recognizes the vendor’s right of HELD:
cancellation of sale on installments of industrial and commercial YES. The Court cannot now deny or refuse to honor Myer’s contractual
properties with full retention of previous payments. Republic Act 6552 right of cancellation, which is now reaffirmed and recognized by the law
itself and is no longer a matter of precedents or doctrinal jurisprudence. others, that Del Monte unilaterally cancelled the first contract
Maceda Law and forced petitioner to execute the second contract, which
materially and unjustly altered the terms and conditions of the
The enactment on September 14, 1972 by Congress of Republic Act No. original contract. The trial court rendered upholding the
6552 entitled "An Act to Provide Protection to Buyers of Real Estate on validity of Contract to Sell No. 2491-V and ordering Spouses
Installment Payments" (known also as the Maceda law) has now placed Fabrigas either to complete payments thereunder or to vacate
the 39-year old jurisprudence of this Court (recognizing the right of the property.
cancellation of the contract of conditional sale of real estate or on ● CA- rejected this argument on the ground that Contract to Sell
installments upon failure to pay the stipulated installments and retention No. 2482-V had been rescinded pursuant to the automatic
or forfeiture as rentals of the installments previously paid) into the rescission clause therein.
category of a law (insofar as industrial lots and commercial buildings as
is the case at bar are concerned) which is now beyond overturning even ISSUE: WON a party to contract to sell may unilaterally rescind or has
by this Court. the right to cancel the contract upon default if it so stipulated?

Fabrigas v. San Francisco del Monte 476 SCRA 247 (2005) - Chantal HELD: The court held that CA erred in ruling that Del Monte was “well
DOCTRINE: R.A 6552, SECTION 4. In case where less than two years within its right to cancel the contract by express grant of paragraph 7
of installments were paid, the seller shall give the buyer a grace period without the need of notifying [petitioners],” instead of applying the
of not less than sixty days from the date the installment became due. pertinent provisions of R.A. 6552 (Maceda Law).
If the buyer fails to pay the installments due at the expiration of the grace ● Petitioners’ contention that none of Del Monte’s demand
period, the seller may cancel the contract after thirty days from receipt letters constituted a valid rescission of Contract to Sell No.
by the buyer of the notice of cancellation or the demand for rescission 2482-V is correct. Petitioners defaulted in all monthly
of the contract by a notarial act. installments. They may be credited only with the amount of
₱30,000.00 paid upon the execution of Contract to Sell No.
FACTS: 2482-V, which should be deemed equivalent to less than two
● April 23, 1983- Petitioner Sps. Fabrigas and respondent San (2) years’ installments. Given the nature of the contract
Francisco Del Monte, Inc. entered into an agreement, between petitioners and Del Monte, the applicable legal
denominated as Contract to Sell 2482-V whereby the latter provision on the mode of cancellation of Contract to Sell No.
agreed to sell to Spouses Fabrigas a parcel of residential land 2482-V is Section 4 and not Section 3 of R.A. 6552. Section
situated in Barrio Almanza, Las Piñas, Manila for and in 4 is applicable to instances where less than two years
consideration of the amount of ₱109,200.00. The agreement installments were paid, which provides that:
stipulated that Spouses Fabrigas shall pay ₱30,000.00 as SECTION 4. In case where less than two years of installments were
down payment and the balance within (10) years in monthly paid, the seller shall give the buyer a grace period of not less than sixty
successive installments of ₱1,285.69. Among the clauses in days from the date the installment became due.
the contract is an automatic cancellation clause in case of If the buyer fails to pay the installments due at the expiration of the grace
default, which states as follows: 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
7. Should the PURCHASER fail to make any of the payments including of the contract by a notarial act.
interest as herein provided, within 30 days after the due date, this ● Thus, the cancellation of the contract under Section 4 is a two-
contract will be deemed and considered as forfeited and annulled step process. First, the seller should extend the buyer a grace
without necessity of notice to the PURCHASER, and said SELLER shall period of at least sixty (60) days from the due date of the
be at liberty to dispose of the said parcel of land to any other person in installment. Second, at the end of the grace period, the seller
the same manner as if this contract had never been executed. In the shall furnish the buyer with a notice of cancellation or demand
event of such forfeiture, all sums of money paid under this contract will for rescission through a notarial act, effective thirty (30) days
be considered and treated as rentals for the use of said parcel of land, from the buyer’s receipt thereof. A mere notice or letter, short
and the PURCHASER hereby waives all right to ask or demand the of a notarial act, would not suffice. While the Court concedes
return thereof and agrees to peaceably vacate the said premises. that Del Monte had allowed petitioners a grace period longer
than the minimum sixty (60)-day requirement under Section 4,
● After paying ₱30,000.00, Spouses Fabrigas took possession it did not comply, however, with the requirement of notice of
of the property but failed to make any installment payments cancellation or a demand for rescission. Instead, Del Monte
on the balance of the purchase price. Del Monte sent demand applied the automatic rescission clause of the contract.
letters on four occasions to remind Spouses Fabrigas to Contrary, however, to Del Monte’s position which the
satisfy their contractual obligation. Despite of the demand appellate court sustained, the automatic cancellation clause
letters and grace period that Del Monte granted to sps. is void under Section 7in relation to Section 4 of R.A. 6552.
Fabrigas, they still failed to satisfy their obligation. Thus, Del ● The Court, however, found that although the original contract
Monte cancelled the contract to sell but did not furnish to sell was not validly rescinded, it has already been
petitioners any notice regarding such. extinguished by novation since the parties executed a second
● November 06, 1984- Petitioner remitted the amount of contract to sell under restructured payment terms. To dispel
₱13,000.00 to Del Monte. On January 12, 1985, petitioner the novation of Contract to Sell No. 2482-V by Contract to Sell
Marcelina again remitted the amount of ₱12,000.00. No. 2491-V, petitioners contend that the subsequent contract
Thereafter, petitioner Marcelina and Del Monte entered into is void for two reasons: first, petitioner Isaias Fabrigas did not
another contract to sell 2491-V covering the same property give his consent thereto, and second, the subsequent contract
but under restructured terms of payment. is a contract of adhesion. In accordance with Art. 1317, any
● Petitioner sps. made irregular payment under the new transaction entered by the wife without the court or the
agreement prompting Del Monte to send a demand letter once husband’s authority is unenforceable. That is the status to be
again, informing the spouses of their overdue account accorded Contract to Sell No. 2491-V, it having been
equivalent to 9 installments. No other payments were made executed by petitioner Marcelina without her husband’s
by petitioners except the amount of ₱10,000.00 which conformity. Being an unenforceable contract, Contract to Sell
petitioners tendered sometime in October 1987 but which Del No. 2491-V is susceptible to ratification. As found by the
Monte refused to accept, the latter claiming that the payment courts below, after being informed of the execution of the
was intended for the satisfaction of the first Contract to Sell contract, the husband, petitioner Isaias Fabrigas, continued
which had already been previously cancelled. remitting payments for the satisfaction of the obligation under
● For failure to pay, Del Monte notified petitioners that their Contract to Sell No. 2491-V. These acts constitute ratification
contract to sell had been cancelled and demanded that of the contract. Such ratification cleanses the contract from all
petitioners vacate the property. its defects from the moment it was constituted.
● Del Monte instituted an action for Recovery of Possession ● Anent Del Monte’s claim that Contract to Sell No. 2491-V is a
with Damages against Spouses Fabrigas before the RTC, contract of adhesion, suffice it to say that assuming for the
Branch 63 of Makati City. Spouses Fabrigas claimed, among nonce that the contract is such the characterization does not
automatically render it void. A contract of adhesion is so- real estate on installments. It recognizes the vendor's right to
called because its terms are prepared by only one party while cancel such contracts upon failure of the vendee to comply
the other party merely affixes his signature signifying his with the terms of the sale, but imposes, chiefly for the latter's
adhesion thereto. Such contracts are not void in themselves. protection, certain conditions thereon. Even in residential
They are as binding as ordinary contracts. Parties who enter properties the Act recognizes and reaffirms the vendor's right
into such contracts are free to reject the stipulations entirely. to cancel the contract to sell upon breach and nonpayment of
● Thus, Contract to Sell No. 2491-V is valid and binding and the stipulated installments.
the spouses remain liable for breach under the second ● The law provides that "in all transactions or contracts involving
contract. the sale or financing of real estate on installment payments,
including residential condominium apartments, where the
Layug v. IAC 167 SCRA 627 (1988) – Chantal buyer has paid at least two years of installments, the buyer is
entitled to the following rights in case he defaults in the
DOCTRINE: Even in residential properties, RA 6552 recognizes and payment of succeeding installments:
reaffirms the vendor’s right to cancel the contract to sell upon breach (a) To pay, without additional interest, the unpaid installments due within
and non-payment of the stipulated installments. The one who fails to pay the total grace period earned by him which is hereby fixed at the rate of
the rest of the instalments as agreed upon is left only to a right to a one month grace period for every year of installment payments made:
refund of the cash surrender value of the payments on the property Provided , That this right shall be exercised by the buyer only once in
equivalent to 50% of the total payments already made. 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
FACTS: cash surrender value of the payments on the property equivalent to fifty
● Petitioner Layug and Rodrigo Gabuya entered into a contract percent of the total payments made and, after five years of installments,
for the purchase on installments of 12 lots at Barrio Bara-as, an additional five per cent every year but not to exceed ninety per cent
Iligan City owned by Gabuya. The contract also provided for of the total payments made; Provided, That the actual cancellation of the
the automatic cancellation of the contract and forfeiture of all contract shall take place after thirty days from receipt by the buyer of the
installments thus far paid, which would be considered as notice of cancellation or the demand for rescission of the contract by a
rentals for the use of the lots, to wit: notarial act and upon full payment of the cash surrender value to the
... (S)hould the vendee fail to pay any of the yearly installments when buyer.
due or otherwise fail to comply with any of the terms and conditions ● In the case at bar, Layug had paid two (2) annual installments.
herein stipulated, then this deed of conditional sale shall automatically He is deemed therefore, in the words of the law, to have "paid
and without any further formality, become null and void, and all sums so at least two years of installments." He therefore had a grace
paid by the vendee by reason thereof, shall be considered as rentals period of "one month for every year of installment payments
and the vendor shall then and there be free to enter into the premises, made," or two (2) months (corresponding to the two years of
take possession thereof or sell the properties to any other party. installments paid) from October 5, 1980 within which to pay
● Layug paid the first two annual installments only and failed to the final installment. That he made no payment within this
pay the last. Hence, Gabuya made several informal demands grace period is plain from the evidence. He has thus been left
for payment; and when all these proved unavailing, he made only with the right to a refund of the "cash surrender value of
a formal written demand which was sent to and received by the payments on the property equivalent to fifty percent of the
Layug by registered mail. When this, too, went unheeded, total payments made," or P40,000.00 (i.e., ½ of the total
Gabuya finally brought suit in the Court of First Instance of payments of P80,000.00). Such refund will be the operative
Lanao del Norte for the annulment of his contract with Layug act to make effective the cancellation of the contract by
and for the recovery of damages. Gabuya, conformably with the terms of the law. The additional
● Layug adverts to the stipulation in his contract a) granting him, formality of a demand on Gabuya's part for rescission by
as vendee, “a 30days grace period within which to pay” any notarial act would appear, in the premises, to be merely
yearly instalment not paid within the time fixed therefor, and circuitous and consequently superfluous.
b) declaring him liable, in the event of his failure to pay within ● Thus, Gabuya’s cancellation shall become effective and
the grace period, “for interest at the legal rate.” He argues that fully operative only upon payment to Layug’s satisfaction
the stipulation indicates that rescission was not envisioned as of the "cash surrender value" of his payments, in the sum
a remedy against a failure to pay instalments and that such of P40,000.00.
failure was not a ground for abrogating the contract but merely
generated liability for interest at legal rate…” Active Realty v. Daroya- Rochelle
● TC- declared the contract of conditional sale cancelled, and
forfeited in Gabuya's favor all payments made by Layug, DOCTRINE: The failure to cancel the contract in accordance with the
considering them as rentals for the 12 lots for the period from procedure provided by law (twin requirements), the court held that the
the perfection of the contract in 1978 to June 11, 1981. This contract to sell between the parties remains valid and subsisting. As
decision was affirmed by CA. Daroya lost her chance to pay the balance, since the property was sold
to a 3rd party, it is only just and equitable that the petitioner be ordered
ISSUE: WON Gabuya had the right to rescind the contract? to refund Daroya the actual value of the lot resold or at the value it was
sold to the 2nd buyer.
HELD:
● Yes. The grace period clause should be read conjointly with FACTS: Active Realty entered into a Contract to Sell with Daroya,
the stipulation on rescission, and in such a manner as to give whereby the latter agreed to buy a lot for P224,025.00 in petitioner’s
both full effect. It is apparent that there is no such subdivision and that the respondent shall pay a down payment upon
inconsistency between the two as would support a hypothesis execution of the contract and the balance in sixty (60) monthly
that one cannot be given effect without making the other a installments which totalled to a figure higher than that stated as the
dead letter. The patent and logical import of both provisions, contract price.
taken together, is that when the vendee fails to pay any
installment on its due date, he becomes entitled to a grace However, respondent was in default representing three (3) monthly
period of 30 days to cure that default by paying the amount of amortizations. Petitioner moved for the cancellation of their contract to
the installment plus interest; but that if he should still fail to sell. Petitioner refused the respondent’s offer to pay the remaining
pay within the grace period, then rescission of the contract amount as it has sold the lot to another buyer. Respondent filed a
takes place. Layug cannot be permitted to claim that all his complaint against petitioner before the Housing and Land Use
payments should be credited to him in their entirety, without Regulatory Board (HLURB) for the execution of a final Deed of Absolute
regard whatever to the damages his default might have Sale in respondent’s favor after she pays any balance that may still be
caused to Gabuya. due from her.
● At the time of the execution of the contract in question, and
the breach thereof, there was a statute already in force and HLURB Arbiter found for the respondent and ruled that the cancellation
applicable thereto, Republic Act No. 6552. It governs sales of of the contract to sell was void as petitioner failed to pay the cash
surrender value to respondent as mandated by law. On appeal, the Quezon City. On September 2, 1988 private respondent sold the land to
HLURB Board of Commissioners set aside the Arbiter’s Decision which petitioners Vicente and Michael Lim for P3,547,600.00.
did not apply the remedies provided under the Maceda Law and found
that both parties were at fault, i.e., respondent incurred in delay in her As prepared by petitioners' broker, Atty. Rustico Zapata of the Zapata
installment payments and respondent failed to send a notarized notice Realty Company, the receipt embodying the agreement reads as
of cancellation. The Board ordered petitioner to refund to the respondent follows:
one half of the total amount she has paid. “The seller assumes full responsibility to eject the
squatters/occupants within a period of sixty (60) days from the
Respondent appealed to the Office of the President which modified the date of receipt of the earnest money; and in case the seller
Decision of the HLURB. The COS between the parties subsisted and shall fail in her commitment to eject the squatters/occupants
concluded that respondent was entitled to the lot after payment of her within said period, the seller shall... refund to the buyer this
outstanding balance due to petitioner’s failure to comply with the legal sum of P200,000.00 [plus another sum of ONE HUNDRED
requisites for a valid cancellation of the contract. THOUSAND (P100,000.00) PESOS as liquidated damages];”

However, as the lot was already sold to another person and that the Private respondent Luna failed to eject the squatters from the land
actual value of the lot as of the date of the contract was P1,700.00 per despite her alleged efforts to do so. On January 17, 1989, the parties
square meter, petitioner was ordered to refund to the respondent the met at the office of Edmundo Kaimo to negotiate a price increase to
amount of P875,000.00, the true and actual value of the lot as of the facilitate the ejectment of the squatters. After a few days, private
date of the contract, with interest at 12% per annum computed from respondent tried to return the earnest money alleging her failure to eject
August 26, 1991 (date of filing of the complaint) until fully paid, or to the squatters. She claimed that as a result of her failure to remove the
deliver a substitute lot at the choice of respondent. squatters from the land, the contract of sale ceased to exist and she no
longer had the obligation to sell and deliver her property to petitioners.
CA ruled against petitioner only on the basis of form and substance.
The appellate court described the sale in this case as a "contract with a
ISSUE: WON the petitioner can be compelled to refund to the conditional obligation" whereby the private respondent's obligation to
respondent the value of the lot or to deliver a substitute lot at sell and deliver and the petitioners' obligation to pay the balance of the
respondent’s option. purchase price depended on the fulfillment of the condition that the
squatters be removed within 60 days.
HELD: SC found for the respondent and ruled in the affirmative. The
contract to sell in the case at bar is governed by the Maceda Law. More ISSUE: Whether as a result of private respondent's failure to eject the
specifically, Section 3 of R.A. No. 6552 provided for the rights of the squatters from the land, petitioners, as the Court of Appeals ruled, lost
buyer in case of default in the payment of succeeding installments, the right to demand that the land be sold to them
where he has already paid at least two (2) years of installments.
HELD: The Supreme Court held that they did not lose such right and
The records clearly showed that the petitioner failed to comply with the that the CA erred in holding otherwise. The agreement, as quoted,
mandatory twin requirements for a valid and effective cancellation under shows a perfected contract of sale. Indeed, the earnest money given is
the law, that petitioner failed to send a notarized notice of cancellation, proof of the perfection of the contract.
and failed to refund the cash surrender value since it was only during
the preliminary hearing of the case before the HLURB arbiter when As Art. 1482 of the Civil Code states, "Whenever earnest money is given
petitioner offered to pay the cash surrender value. in a contract of sale, it shall be considered as part of the price and as
proof of the perfection of the contract." Private respondent Luna
Moreover, there was no formal notice of cancellation or court action to contends that as the condition of ejecting the squatters was not met, she
rescind the contract and therefore SC found it illegal and iniquitous that no longer has an obligation to proceed with the sale of her lot.
petitioner, without complying with the mandatory legal requirements for
cancelling the contract, forfeited both respondent’s land and hard- Private respondent fails to distinguish between a condition imposed on
earned money after she has paid for, not just the contract price, but more the perfection of the contract and a condition imposed on the
than the consideration stated in the contract to sell. Thus, for failure to performance of an obligation. Failure to comply with the first condition
cancel the contract in accordance with the procedure provided by law, results in the failure of a contract, while failure to comply with the second
the SC held that the contract to sell between the parties remains valid condition only gives the other party the option either to refuse to proceed
and subsisting. with the sale or to waive the condition. In this case, there is already a
perfected contract.
Following Section 3(a) of R.A. No. 6552, respondent has the right to offer
to pay for the balance of the purchase price, without interest, which she The condition was imposed only on the performance of the
did in this case. Ordinarily, petitioner would have had no other recourse obligation.Hence, petitioners have the right to choose whether to
but to accept payment. However, respondent can no longer exercise this demand the return of P200,000.00 which they have paid as earnest
right as the subject lot was already sold by the petitioner to another money or to proceed with the sale They have chosen to proceed with
buyer which lot was valued at P1,700.00 per square meter. the sale and private respondent cannot refuse to do so.

As respondent lost her chance to pay for the balance of the P875,000.00
lot, it is only just and equitable that the petitioner be ordered to refund to POWER COMMERCIAL AND INDUSTRIAL CORPORATION vs.
respondent the actual value of the lot resold, i.e., P875,000.00, with 12% COURT OF APPEALS
interest per annum computed from August 26, 1991 until fully paid or to DOCTRINE: A breach of this warranty requires that: (1) The purchaser
deliver a substitute lot at the option of the respondent. has been deprived of the whole or part of the thing sold;(2) This eviction
is by a final judgment;(3) The basis thereof is by virtue of a right prior to
the sale made by the vendor; and(4) The vendor has been summoned
Lim v. CA and Luna – Rochelle and made co-defendant in the suit for eviction at the instance of the
vendee. Absent of any of these elements breach of the warranty cannot
DOCTRINE: Private respondent fails to distinguish between a condition be raised.
imposed on the perfection of the contract and a condition imposed on
the performance of an obligation. Failure to comply with the first FACTS: Petitioner, Power Commercial & Industrial Development
condition results in the failure of a contract, while failure to comply with Corporation (PCID),an industrial asbestos manufacturer, needed a
the second condition only gives the other party the option either to refuse bigger office space and warehouse for its products. For this purpose, it
to proceed with the sale or to waive the condition. entered into a contract of sale with the spouses Quiambao, herein
private respondents. The contract involved a parcel of land located in
FACTS: Private respondent Liberty Luna is the owner of a piece of land San Antonio Village, Makati City. The parties agreed that petitioner
located at the corner of G. Araneta Avenue and Quezon Avenue in would pay private respondents P108,000.00 as down payment, and the
balance of P295,000.00 upon the execution of the deed of transfer of
the title over the property. Further, petitioner assumed, as part of the As for the second issue, Contrary to the contention of petitioner that a
purchase price, the existing mortgage on the land. In full satisfaction return of the payments it made to PNB is warranted under Article 2154
thereof, he paid P79,145.77 to Respondent Philippine National Bank of the Code, solutio indebiti does not apply in this case. This doctrine
("PNB" for brevity). applies where: (1) a payment is made when there exists no binding
Respondent spouses mortgaged again said land to PNB to guarantee a relation between the payor, who has no duty to pay, and the person who
loan of P145,000.00, P80,000.00 of which was paid to respondent received the payment, and (2) the payment is made through mistake,
spouses. Petitioner agreed to assume payment of the loan. The parties and not through liberality or some other cause. In this case, petitioner
executed a Deed of Absolute Sale With Assumption of Mortgage. was under obligation to pay the amortizations on the mortgage under
Mrs. C.D. Constantino, then General Manager of petitioner-corporation, the contract of sale and the deed of real estate mortgage. Therefore, it
submitted to PNB said deed with a formal application for assumption of cannot be said that it did not have a duty to pay to PNB the amortization
mortgage. on the mortgage.
PNB informed respondent spouses that, for petitioner's failure to submit
the papers necessary for approval pursuant to the former's letter dated NUTRIMIX FEEDS CORPORATION, vs. COURT OF APPEALS
January 15, 1980, the application for assumption of mortgage was DOCTRINE: A manufacturer or seller of a product cannot be held liable
considered withdrawn and that the outstanding balance of P145,000.00 for any damage allegedly caused by the product in the absence of any
was deemed fully due and demandable; and that said loan was to be proof that the product in question was defective. The defect must be
paid in full within fifteen (15) days from notice. present upon the delivery or manufacture of the product; or when the
Petitioner paid PNB P41,880.45 and P20,283.14 on two separate dates, product left the seller’s or manufacturer’s control; or when the product
payments which were to be applied to the outstanding loan. Petitioner was sold to the purchaser; or the product must have reached the user
filed Civil Case against respondent spouses for rescission and or consumer without substantial change in the condition it was sold
damages. Petitioner demanded the return of the payments it made on
the ground that its assumption of mortgage was never approved. While FACTS:
this case was pending, the mortgage was foreclosed. The property was Spouses Evangelista, the private respondents herein, started to directly
subsequently bought by PNB during the public auction. procure various kinds of animal feeds from petitioner Nutrimix Feeds
Trial Court ruled that the failure of respondent spouses to deliver actual Corporation. The petitioner gave the respondents a credit period of thirty
possession to petitioner entitled the latter to rescind the sale, and in view to forty-five days to postdate checks to be issued in payment for the
of such failure and of the denial of the latter’s assumption of mortgage, delivery of the feeds. The accommodation was made apparently
PNB was obliged to return the payments made by the latter. because of the company president’s close friendship with Eugenio
Court of Appeals reversed the trial court decision. It held that the deed Evangelista, the brother of respondent Efren Evangelista. The various
of sale between respondent spouses and petitioner did not obligate the animal feeds were paid and covered by checks with due dates from July
former to eject the lessees from the land in question as a condition of 1993 to September 1993. Initially, the respondents were good paying
the sale, nor was the occupation thereof by said lessees a violation of customers. In some instances, however, they failed to issue checks
the warranty against eviction. Hence, there was no substantial breach despite the deliveries of animal feeds which were appropriately covered
to justify the rescission of said contract or the return of the payments by sales invoices.
made Petitioner contends: there was a substantial breach of the contract Private respondents incurred an aggregate unsettled account with the
between the parties warranting rescission CA gravely erred in failing to petitioner in the amount of ₱766,151.00.
consider in its decision that a breach of implied warranty under Article When the checks were deposited at the petitioner’s depository bank, the
1547 in relation to Article 1545 of the Civil Code applies in the case-at- same were, consequently, dishonored because respondent Maura
bar. Evangelista had already closed her account. The petitioner made
several demands for the respondents to settle their unpaid obligation,
ISSUE: WON Respondent Court of Appeals gravely erred in failing but the latter failed and refused to pay their remaining balance with the
to consider in its decision that a breach of implied warranty under petitioner.
Article 1547 in relation to Article 1545 of the Civil Code applies in Petitioner filed with the Regional Trial Court of Malolos, Bulacan, a
the case-at-bar. complaint, against the respondents for sum of money and damages with
WON Respondent Court of Appeals gravely erred in failing to consider a prayer for issuance of writ of preliminary attachment. In their answer
in its decision that a mistake in payment giving rise to a situation where with counterclaim, the respondents admitted their unpaid obligation but
the principle of solutio indebiti applies is obtaining in the case-at-bar. impugned their liability to the petitioner. They asserted that the nine
HELD: Obvious to us in the ambivalent stance of petitioner is its failure checks issued by respondent Maura Evangelista were made to
to establish any breach of the warranty against eviction. Despite its guarantee the payment of the purchases, which was previously
protestation that its acquisition of the lot was to enable it to set up a determined to be procured from the expected proceeds in the sale of
warehouse for its asbestos products and that failure to deliver actual their broilers and hogs. They contended that inasmuch as the sudden
possession thereof defeated this purpose, still no breach of warranty and massive death of their animals was caused by the contaminated
against eviction can be appreciated because the facts of the case do not products of the petitioner, the nonpayment of their obligation was based
show that the requisites for such breach have been satisfied. A breach on a just and legal ground.
of this warranty requires the concurrence of the following circumstances: Herein respondents also lodged a complaint for damages against the
(1) The purchaser has been deprived of the whole or part of the thing petitioner, for the untimely and unforeseen death of their animals
sold; supposedly effected by the adulterated animal feeds the petitioner sold
(2) This eviction is by a final judgment; to them. The petitioner moved to dismiss the respondents’ complaint on
(3) The basis thereof is by virtue of a right prior to the sale made by the the ground of litis pendentia. The trial court denied the same in a
vendor; and Resolution and ordered the consolidation of the case. The petitioner filed
(4) The vendor has been summoned and made co-defendant in the suit its Answer with Counterclaim, alleging that the death of the respondents’
for eviction at the instance of the vendee. animals was due to the widespread pestilence in their farm. The
In the absence of these requisites, a breach of the warranty against petitioner, likewise, maintained that it received information that the
eviction under Article 1547 cannot be declared. respondents were in an unstable financial condition and even sold their
Petitioner argues in its memorandum that it has not yet ejected the animals to settle their obligations from other enraged and insistent
occupants of said lot, and not that it has been evicted therefrom. As creditors. A joint trial thereafter ensued.
correctly pointed out by Respondent Court, the presence of lessees After due consideration of the evidence presented, the trial court ruled
does not constitute an encumbrance of the land, nor does it deprive in favor of the petitioner.
petitioner of its control thereof. Undaunted, the respondents sought a review of the trial court’s decision
We note, however, that petitioner's deprivation of ownership and control to the Court of Appeals (CA), principally arguing that the trial court erred
finally occurred when it failed and/or discontinued paying the in holding that they failed to prove that their broilers and hogs died as a
amortizations on the mortgage, causing the lot to be foreclosed and sold result of consuming the petitioner’s feeds.
at public auction. But this deprivation is due to petitioner's fault, and not CA modified the decision of the trial court. CA ruled that the
to any act attributable to the vendor-spouses.Because petitioner failed respondents were not obligated to pay their outstanding obligation to the
to impugn its integrity, the contract is presumed, under the law, to be petitioner in view of its breach of warranty against hidden defects. The
valid and subsisting. CA further argued that the declarations of Dr. Diaz were not effectively
impugned during cross-examination, nor was there any contrary
evidence adduced to destroy his damning allegations.

ISSUE: WON Nutrimix is guilty of breach of Warranty due to hidden


defects?

HELD: No. The provisions on warranty against hidden defects are found
in Articles 1561 and 1566 of the New Civil Code of the Philippines, which
read as follows:
Art. 1561. The vendor shall be responsible for warranty
against hidden defects which the thing sold may have, should
they render it unfit for the use for which it is intended, or should
they diminish its fitness for such use to such an extent that,
had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; but said
vendor shall not be answerable for patent defects or those
which may be visible, or for those which are not visible if the
vendee is an expert who, by reason of his trade or profession,
should have known them.
Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he was
not aware thereof.
This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.
A hidden defect is one which is unknown or could not have been known
to the vendee. Under the law, the requisites to recover on account of
hidden defects are as follows: (a) the defect must be hidden;(b) the
defect must exist at the time the sale was made;(c) the defect must
ordinarily have been excluded from the contract;(d) the defect, must be
important (renders thing UNFIT or considerably decreases FITNESS);
(e) the action must be instituted within the statute of limitations
In the sale of animal feeds, there is an implied warranty that it is
reasonably fit and suitable to be used for the purpose which both parties
contemplated. To be able to prove liability on the basis of breach of
implied warranty, three things must be established by the respondents.
The first is that they sustained injury because of the product; the second
is that the injury occurred because the product was defective or
unreasonably unsafe; and finally, the defect existed when the product
left the hands of the petitioner.A manufacturer or seller of a product
cannot be held liable for any damage allegedly caused by the product in
the absence of any proof that the product in question was defective. The
defect must be present upon the delivery or manufacture of the product;
or when the product left the seller’s or manufacturer’s control; or when
the product was sold to the purchaser; or the product must have reached
the user or consumer without substantial change in the condition it was
sold. Tracing the defect to the petitioner requires some evidence that
there was no tampering with, or changing of the animal feeds.
In essence, we hold that the respondents failed to prove that the
petitioner is guilty of breach of warranty due to hidden defects. It is,
likewise, rudimentary that common law places upon the buyer of the
product the burden of proving that the seller of the product breached its
warranty.
It must be stressed, however, that the remedy against violations of
warranty against hidden defects is either to withdraw from the contract
(accion redhibitoria) or to demand a proportionate reduction of the price
(accion quanti minoris), with damages in either case.