VIII.

RISK OF LOSS

Sun Brothers vs. Jose Velasco (54 OG 5143)

FACTS: Sun Brothers & company delivered to Lopez an Admiral refrigerator under a “Conditional Sale
Agreement”. Out of the P1,700 purchase price, only P500 was paid as downpayment.

Inter alia, they stipulated that Lopez shall not remove the refrigerator from his address nor part possession
therewith without the express written consent of Sun brothers. In violation thereof, Sun Brothers may
rescind the sale, recover possession and the amounts paid shall be forfeited. The refrigerator shall remain
the absolute property of Sun Brothers until Lopez has fully paid the purchase price.

Lopez sold the refrigerator to JV Trading (owned by Jose Velasco) without knowledge of Sun brothers for
P850, misrepresented himself as Jose Lim and executed a document stating that he is the absolute owner.
Thereafter, Velasco displayed the refrigerator in his store abd Co Kang Chui bought it for P985.

ISSUE: Whether Co Kang Chiu, an innocent buyer from a store, has a better right as owner than Sun
Brothers, a conditional vendor

RULING: Co Kang Chiu has a better right than Sun Brothers.

Article 1505 of the Civil Code provides:

“Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires
no better title to the goods than the seller had, unless the owner if the goods is by his conduct precluded
from denying the seller’s authority to sell.

“Nothing in this Title, however, shall affect:

(1) The provisions of any factors’ acts, recording laws, or any other provision of law enabling the apparent
owner of goods to dispose of them as if he were the true owner thereof;

(3) Purchases made in a merchant’s store, or in fairs, or markets, …”

The lower court committed error when it applied the 1st paragraph of Article 1505. It is true that Francisco
Lopez, the conditional vendee, never had any title to the refrigerator in question, because the stipulation
between him and the conditional vendor, Sun Brothers, is that title shall vest in the vendee upon payment
in full of the purchase price, and Lopez has not fully paid such price. When Lopez, who has not tile to the
refrigerator, sold it to Jose Velasco, the latter did not acquire any better right than what Lopez had ---
which is practically nothing. We do not agree with the court a quo that Velasco was a purchaser in good
faith and for value for the reason that Lopez, being a private person who is not engaged in the business
of selling refrigerators, Velasco must be reasonably expected to have inquired from Lopez whether or not
the refrigerator he was selling has been paid in full. In this, Velasco has been negligent.

Also, since Co Kang Chui purchased the refrigerator from JV Trading, a merchant store and
displayed thereat, the 3rd paragraph of Art. 1505 applies, from which Co Kang Chui should be declared as
having acquired a valid title to the refrigerator, although his predecessors in interest did not have any
right of ownership over it. This is a case of imperfect or void title ripening into a valid one, as a result of
some intervening causes. The policy of the law which we do not feel justified to deviate, has always been
that where the rights and interests of a vendor comes into clash with that of an innocent buyer for value,
the latter must be protected.

The rule embodied in Article 1505 (3) protecting innocent third parties who have made purchases at
merchants’ stores in good faith and for value appears to us to be a wise and necessary rule not only to
facilitate commercial sales on movables but to give stability to business transactions. This rule is necessary
in a country such as ours where free enterprise prevails, for buyers cannot be reasonably expected to look
behind the title of every article when he buys at a store. The doctrine of caveat emptor [the buyer alone
is responsible for checking the quality and suitability of goods before a purchase is made] is now rarely
applied, and if it is ever mentioned, it is more of an exception rather than the general rule.

Upon the whole, we are persuaded to believe that Co Kang Chui who is now is possession of the
refrigerator should be adjudged the owner thereof, because he bought it at a merchant’s store in good
faith and for value.

G.R. No. L-21263 April 30, 1965

LAWYERS COOPERATIVE PUBLISHING COMPANY, plaintiff-appellee, vs. PERFECTO A. TABORA,

defendant-appellant.

FACTS: On May 3, 1955, Tabora bought from the Lawyer’s Coop one complete set of American
Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus one set of American Jurisprudence,
General Index, consisting of 4 volumes, for a total price of P1,675.50 which, in addition to the cost of
freight of P6.90, makes a total of P1,682.40. Tabora made a partial payment of P300.00, leaving a balance
of P1,382.40. The books were duly delivered and receipted for by Tabora on May 15, 1955 in his law office
Ignacio Building, Naga City.

In the midnight of the same date, however, a big fire broke out in that locality which destroyed and burned
all the buildings standing on one whole block including at the law office and library of Tabora. As a result,
the books bought from the company as above stated, together with Tabora's important documents and
papers, were burned during the conflagration. This unfortunate event was immediately reported by
Tabora to the company in a letter he sent on May 20, 1955. On May 23, the company replied and as a
token of goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of the Philippine Reports. As
Tabora failed to pay he monthly installments agreed upon on the balance of the purchase price
notwithstanding the long time that had elapsed, the company demanded payment of the installments
due, and having failed, to pay the same, it commenced the present action before the Court of First
Instance of Manila for the recovery of the balance of the obligation. Plaintiff also prayed that defendant
be ordered to pay 25% of the amount due as liquidated damages, and the cost of action.

Defendant, in his answer, pleaded force majeure as a defense. He alleged that the books bought from the
plaintiff were burned during the fire that broke out and since the loss was due to force majeure he cannot
be held responsible for the loss. He prayed that the complaint be dismissed and that he be awarded moral
damages in the amount of P15,000.00.
After due hearing, the court a quo rendered judgment for the plaintiff. It ordered the defendant to pay
the sum of P1,382.40, with legal interest thereon from the filing of the complaint. Defendant took the
case to the Court of Appeals, but the same is now before us by virtue of a certification issued by that Court
that the case involves only questions of law.

ISSUE: Whether or not Tabora should bear the cost of the items bought that was damaged by fire.

RULING: This contention cannot be sustained. While as a rule the loss of the object of the contract of sale
is borne by the owner or in case of force majeure the one under obligation to deliver the object is exempt
from liability, the application of that rule does not here obtain because the law on the contract entered
into on the matter argues against it. It is true that in the contract entered into between the parties the
seller agreed that the ownership of the books shall remain with it until the purchase price shall have been
fully paid, but such stipulation cannot make the seller liable in case of loss not only because such was
agreed merely to secure the performance by the buyer of his obligation but in the very contract it was
expressly agreed that the "loss or damage to the books after delivery to the buyer shall be borne by the
buyer." Any such stipulation is sanctioned by Article 1504 of our Civil Code, which in part provides:

(1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has been retained by the seller merely to secure performance
by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such
delivery.

Neither can appellant find comfort in the claim that since the books were destroyed by fire without any
fault on his part he should be relieved from the resultant obligation under the rule that an obligor should
be held exempt from liability when the loss occurs thru a fortuitous event. This is because this rule only
holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation
holding him liable even in case of fortuitous event. Here these qualifications are not present. The
obligation does not refer to a determinate thing, but is pecuniary in nature, and the obligor bound himself
to assume the loss after the delivery of the goods to him. In other words, the obligor agreed to assume
any risk concerning the goods from the time of their delivery, which is an exception to the rule provided
for in Article 1262 of our Civil Code.

Appellant likewise contends that the court a quo erred in sentencing him to pay attorney's fees. This is
merely the result of a misapprehension for what the court a quo ordered appellant to pay is not 25% of
the amount due as attorney's fees, but as liquidated damages, which is in line with an express stipulation
of the contract. We believe, however, that the appellant should not be made to pay any damages because
his denial to pay the balance of the account is not due to bad faith.

XI. PERFORMANCE OF CONTRACT

G.R. No. 137552 June 16, 2000

ROBERTO Z. LAFORTEZA, GONZALO Z. LAFORTEZA, MICHAEL Z. LAFORTEZA, DENNIS Z. LAFORTEZA, and

LEA Z. LAFORTEZA, petitioners, vs. ALONZO MACHUCA, respondent.
FACTS: the heirs of the late Francisco Q. Laforteza represented by Roberto Z. Laforteza and Gonzalo Z.
Laforteza, Jr. entered into a Memorandum of Agreement (Contract to Sell) with Alonzo Machuca over the
subject property for the sum of SIX HUNDRED THIRTY THOUSAND PESOS (P630,000.00) payable as follows:

(a) P30,000.00 as earnest money, to be forfeited in favor of the defendants if the sale is not
effected due to the fault of the plaintiff;

(b) P600,000.00 upon issuance of the new certificate of title in the name of the late Francisco Q.
Laforteza and upon execution of an extra-judicial settlement of the decedent's estate with sale in
favor of the plaintiff.

Significantly, the fourth paragraph of the Memorandum of Agreement (Contract to Sell) dated January 20,
1989 contained a provision as follows:

. . . . Upon issuance by the proper Court of the new title, the BUYER-LESSEE shall be notified in
writing and said BUYER-LESSEE shall have thirty (30) days to produce the balance of P600,000.00
which shall be paid to the SELLER-LESSORS upon the execution of the Extrajudicial Settlement with
sale.

On January 20, 1989, plaintiff paid the earnest money of THIRTY THOUSAND PESOS (P30,000.00), plus
rentals for the subject property.

On September 18, 1998, defendant heirs, through their counsel wrote a letter to the plaintiff furnishing
the latter a copy of the reconstituted title to the subject property, advising him that he had thirty (3) days
to produce the balance of SIX HUNDRED PESOS (sic) (P600,000.00) under the Memorandum of Agreement
which plaintiff received on the same date.

On October 18, 1989, plaintiff sent the defendant heirs a letter requesting for an extension of the THIRTY
(30) DAYS deadline up to November 15, 1989 within which to produce the balance of SIX HUNDRED
THOUSAND PESOS (P600,000.00). Defendant Roberto Z. Laforteza, assisted by his counsel Atty. Romeo L.
Gutierrez, signed his conformity to the plaintiff's letter request. The extension, however, does not appear
to have been approved by Gonzalo Z. Laforteza, the second attorney-in-fact as his conformity does not
appear to have been secured.

On November 15, 1989, plaintiff informed the defendant heirs, through defendant Roberto Z. Laforteza,
that he already had the balance of SIX HUNDRED THOUSAND PESOS (P600,000.00) covered by United
Coconut Planters Bank Manager's Check No. 000814 dated November 15, 1989. However, the defendants,
refused to accept the balance. Defendant Roberto Z. Laforteza had told him that the subject property was
no longer for sale.

On November 20, 1998, defendants informed plaintiff that they were cancelling the Memorandum of
Agreement (Contract to Sell) in view of the plaintiff's failure to comply with his contractual obligations.

Thereafter, plaintiff reiterated his request to tender payment of the balance of SIX HUNDRED THOUSAND
PESOS (P600,000.00). Defendants, however, insisted on the rescission of the Memorandum of Agreement.
Thereafter, plaintiff filed the instant action for specific performance. The lower court rendered judgment
on July 6, 1994 in favor of the plaintiff ordering the said defendants to accept the balance of P600,000.00
as full payment of the consideration for the purchase of the house and lot.
Petitioners appealed to the Court of Appeals, which affirmed with modification the decision of the lower
court. Hence this petition.

ISSUE: Whether or not the failure of the respondent to pay the balance of the purchase price within the
period allowed is fatal to his right to enforce the agreement.

RULING: Admittedly, the failure of the respondent to pay the balance of the purchase price was a breach
of the contract and was a ground for rescission thereof. The extension of thirty (30) days allegedly granted
to the respondent by Roberto Z. Laforteza was correctly found by the Court of Appeals to be ineffective
inasmuch as the signature of Gonzalo Z. Laforteza did not appear thereon as required by the Special
Powers of Attorney. However, the evidence reveals that after the expiration of the six-month period
provided for in the contract, the petitioners were not ready to comply with what was incumbent upon
them, i.e. the delivery of the reconstituted title of the house and lot. It was only on September 18, 1989
or nearly eight months after the execution of the Memorandum of Agreement when the petitioners
informed the respondent that they already had a copy of the reconstituted title and demanded the
payment of the balance of the purchase price. The respondent could not therefore be considered in delay
for in reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready
to comply in a proper manner with what was incumbent upon him.

Even assuming for the sake of argument that the petitioners were ready to comply with their obligation,
we find that rescission of the contract will still not prosper. The rescission of a sale of an immovable
property is specifically governed by Article 1592 of the New Civil Code, which reads:

In the sale of immovable property, even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long as no demand for rescission of
the contract has been made upon him either judicially or by a notarial act. After the demand, the
court may not grant him a new term.

It is not disputed that the petitioners did not make a judicial or notarial demand for rescission.1avvphi1
The November 20, 1989 letter of the petitioners informing the respondent of the automatic rescission of
the agreement did not amount to a demand for rescission, as it was not notarized. It was also made five
days after the respondent's attempt to make the payment of the purchase price. This offer to pay prior to
the demand for rescission is sufficient to defeat the petitioners' right under article 1592 of the Civil Code.
Besides, the Memorandum Agreement between the parties did not contain a clause expressly authorizing
the automatic cancellation of the contract without court intervention in the event that the terms thereof
were violated. A seller cannot unilaterally and extrajudicially rescind a contract or sale where there is no
express stipulation authorizing him to extrajudicially rescind. Neither was there a judicial demand for the
rescission thereof. Thus, when the respondent filed his complaint for specific performance, the agreement
was still in force inasmuch as the contract was not yet rescinded. At any rate, considering that the six-
month period was merely an approximation of the time if would take to reconstitute the lost title and was
not a condition imposed on the perfection of the contract and considering further that the delay in
payment was only thirty days which was caused by the respondents justified but mistaken belief that an
extension to pay was granted to him, we agree with the Court of Appeals that the delay of one month in
payment was a mere casual breach that would not entitle the respondents to rescind the contract.
Rescission of a contract will not be permitted for a slight or casual breach, but only such substantial and
fundamental breach as would defeat the very object of the parties in making the agreement.
G.R. No. L-25885 January 31, 1972

LUZON BROKERAGE CO., INC., plaintiff-appellee, vs. MARITIME BUILDING CO., INC., and MYERS
BUILDING CO., INC., defendants, MARITIME BUILDING CO., INC., defendant-appellant.

FACTS: On April 30, 1949, Myers Building Co. entered into a Deed of Conditional Sale with Maritime
Building Co. over 3 parcels of land with improvements in Manila City for P1M. Maritime paid P50, 000.00
upon execution. The balance was to be paid in monthly instalments of P10, 000.00 at 5% interest per
annum (later lowered to P5, 000.00 at 5.5% interest per annum). The parties further agreed that: 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 the right to re-enter the property and take possession. Moreover, if
Maritime refuses to peacefully deliver the possession of the properties subject of this contract to the
Myers in case of rescission, a suit should be brought in court by the Myers to seek judicial declaration of
rescission.

Unfortunately, Maritime failed to pay the installment for March 1961, for which the Vice-President,
George Schedler,of the Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C.
Parsons, requesting 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 encountering difficulties in connection with the
operation of the warehouse business. Consequently, on May 1961, Myers made a demand upon Maritime
for the unpaid installments; also, Myers advised Maritime of the cancellation of the Deed of Conditional
Sale and demanded the return of the property, holding Maritime liable for rentals at P10, 000.00 monthly.
Myers thereafter demanded from its lessee, Luzon Brokerage, to avoid paying to the wrong party, filed an
action for interpleader. After the filing of this action, the Myers Building Co., Inc. in its answer filed a cross-
claim against the Maritime Building Co., Inc. praying for the confirmation of its right to cancel the said
contract.

ISSUE: Whether or not Myers Company is entitled to extra-judicially rescind the Deed of Conditional Sale.

RULING: Well settled is, however, the rule that a judicial action for the rescission of a contract is not
necessary where the contract provides that it may be revoked and cancelled for violation of any of its
terms and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 334,,
and cases cited therein).

Resort to judicial action for rescission is obviously not contemplated.... The validity of the stipulation can
not be seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has
been upheld by this Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA 504).

The obvious remedy of the party opposing the rescission for any reason being to file the corresponding
action to question the rescission and enforce the agreement, as indicated in our decision in University of
the Philippines vs. Walfrido de los Angeles, L-28602, 29 September 1970, 35 SCRA 107.

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that
rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the resolution of the contract was not warranted,
the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed,
and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment
of the corresponding court that will conclusively and finally settle whether the action taken was or was
not correct in law. But the law definitely does not require that the contracting party who believes itself
injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the other's breach will have to passively sit and watch its damages
accumulate during the pendency of the suit until the final judgment of rescission is rendered when the
law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article
2203).

The distinction between contracts of sale and contract to sell with reserved title has been recognized by
this Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure
of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse
conveyance and retain the sums or installments already received, where such rights are expressly
provided for, as in the case at bar.

Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000 already
paid to Myers, as a result of its failure to make good a balance of only P319,300.65, payable at P5,000
monthly, becomes unimpressive when it is considered that while obligated to pay the price of one million
pesos at P5,000 monthly, plus interest, Maritime, on the other hand, had leased the building to Luzon
Brokerage, Inc. since 1949; and Luzon paid P13,000 a month rent, from September, 1951 to August 1956,
and thereafter until 1961, at P10,000 a month, thus paying a total of around one and a half million pesos
in rentals to Maritime. Even adding to Maritime's losses of P973,000 the P10,000 damages and P3,000
attorneys' fees awarded by the trial court, it is undeniable that appellant Maritime has come out of the
entire transaction still at a profit to itself.

There remains the procedural objection raised by appellant Maritime to this interpleader action filed by
the Luzon Brokerage Co., the lessee of the building conditionally sold by Myers to Maritime. It should be
recalled that when Maritime defaulted in its payments to Myers, and the latter notified the former that it
was cancelling the contract of conditional sale, Myers also notified Luzon Brokerage, Maritime's lessee of
the building, of the cancellation of the sale, and demanded that Luzon should pay to Myers the rentals of
the building beginning from June, 1961, under penalty of ejectment (Record on Appeal, pages 14-15). In
doubt as to who was entitled to the rentals, Luzon filed this action for interpleader against Myers and
Maritime, and deposited the rentals in court as they fell due. The appellant Maritime moved to dismiss
on the ground that (a) Luzon could not entertain doubts as to whom the rentals should be paid since Luzon
had leased the building from Maritime since 1949, renewing the contract from time to time, and Myers
had no right to cancel the lease; and (b) that Luzon was not a disinterested party, since it tended to favor
appellee Myers. The court below overruled Maritime's objections and We see no plausible reason to
overturn the order. While Myers was not a party to the lease, its cancellation of the conditional sale of
the premises to Maritime, Luzon's lessor, could not but raise reasonable doubts as to the continuation of
the lease, for the termination of the lessor's right of possession of the premises necessarily ended its right
to the rentals falling due thereafter. The preceding portion of our opinion is conclusive that Luzon's doubts
were grounded under the law and the jurisprudence of this Court.

G.R. No. 125347 June 19, 1997

EMILIANO RILLO, petitioner, vs. COURT OF APPEALS and CORB REALTY INVESTMENT, CORP.,
respondents.

FACTS: On June 18, 1985, petitioner Rillo signed a "Contract To Sell of Condominium Unit" with private
respondent Corb Realty Investment Corporation. Under the contract, CORB REALTY agreed to sell to RILLO
a 61.5 square meter condominium unit located in Mandaluyong, Metro Manila. The contract price was
P150,000.00, one half of which was paid upon its execution, while the balance of P75,000.00 was to be
paid in twelve (12) equal monthly installments of P7,092.00 beginning July 18, 1985. It was also stipulated
that all outstanding balance would bear an interest of 24% per annum; the installment in arrears would
be subject to liquidated penalty of 1.5% for every month of default from due date. It was further agreed
that should petitioner default in the payment of three (3) or four (4) monthly installments, forfeiture
proceedings would be governed by existing laws, particularly the Condominium Act.

On July 18, 1985, RILLO failed to pay the initial monthly amortization. On August 18, 1985, he again
defaulted in his payment. On September 20, 1985, he paid the first monthly installment of P7,092.00. On
October 2, 1985, he paid the second monthly installment of P7,092.00. His third payment was on February
2, 1986 but he paid only P5,000.00 instead of the stipulated P7,092.00.

On July 20, 1987 or seventeen (17) months after RILLO's last payment, CORB REALTY informed him by
letter that it is cancelling their contract due to his failure to settle his accounts on time. CORB REALTY also
expressed its willingness to refund RILLO's money.

CORB REALTY, however, did not cancel the contract for on September 28, 1987, it received P60,000.00
from petitioner.

RILLO defaulted again in his monthly installment payment. Consequently, CORB REALTY informed RILLO
through letter that it was proceeding to rescind their contract. 6 In a letter dated August 29, 1988, it
requested RILLO to come to its office and withdraw P102,459.35 less the rentals of the unit from July 1,
1985 to February 28, 1989. Again the threatened rescission did not materialize. A "compromise" was
entered into by the parties on March 12, 1989.Rillo once more failed to honor their agreement. RILLO was
able to pay P2,000.00 on April 25, 1989 and P2,000.00 on May 15, 1989.

On April 3, 1990, CORB REALTY sent RILLO a statement of accounts which fixed his total arrears, including
interests and penalties, to P155,129.00. When RILLO failed to pay this amount, CORE REALTY filed a
complaint 10 for cancellation of the contract to sell with the Regional Trial Court of Pasig.

In his answer to the complaint, RILLO averred, among others, that while he had already paid a total of
P149,000.00, CORB REALTY could not deliver to him his individual title to the subject property; that CORB
REALTY could not claim any right under their previous agreement as the same was already novated by
their new agreement for him to pay P50,000.00 representing interest charges and other penalties spread
through twenty-five (25) months beginning April 1989; and that CORB REALTY's claim of P155,129.99 over
and above the amount he already paid has no legal basis.
At the pre-trial, the parties stipulated that RILLO's principal outstanding obligation as of March 12, 1989
was P50,000.00 and he has paid only P4,000.00 thereof and that the monthly amortization of P2,000.00
was to bear 18% interest per annum based on the unpaid balance. The issues were defined as: (1) whether
or not CORB REALTY was entitled to a rescission of the contract; and (2) if not, whether or not RILLO's
current obligation to CORB REALTY amounts to P62,000.00 only inclusive of accrued interests. 12

The Regional Trial Court held that CORB REALTY cannot rescind the "Contract to Sell" because petitioner
did not commit a substantial breach of its terms. It found that RILLO substantially complied with the
"Contract to Sell" by paying a total of P154,184.00. It ruled that the remedy of CORB REALTY is to file a
case for specific performance to collect the outstanding balance of the purchase price.

CORB REALTY appealed the aforesaid decision to public respondent Court of Appeals, reversing the
decision. It ruled: (1) that rescission does not apply as the contract between the parties is not an absolute
conveyance of real property but is a contract to sell; (2) that the Condominium Act (Republic Act No. 4726,
as amended by R.A. 7899) does not provide anything on forfeiture proceedings in cases involving
installment sales of condominium units, hence, it is Presidential Decree No. 957 (Subdivision and
Condominium Buyers Protective Decree) which should be applied to the case at bar. Under Presidential
Decree No. 957, the rights of a buyer in the event of failure to pay installment due, other than the failure
of the owner or developer to develop the project, shall be governed by Republic Act No. 6552 or the
REALTY INSTALLMENT BUYER PROTECTION ACT also known as the Maceda Law (enacted on September
14, 1972).

ISSUE: Whether or not the CA erred on holding and deciding that rescission is the proper remedy on a
perfected and consummated contract

RULING: The respondent court did not err when it did not apply Articles 1191 and 1592 of the Civil Code
on rescission to the case at bar. The contract between the parties is not an absolute conveyance of real
property but a contract to sell. In a contract to sell real property on installments, the full payment of the
purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual
or serious, but simply an event which prevented the obligation of the vendor to convey title from acquiring
any obligatory force." 14 The transfer of ownership and title would occur after full payment of the
purchase price. We held in Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. 15 that there can be no
rescission of an obligation that is still non-existent, the suspensive condition not having happened.

Given the nature of the contract of the parties, the respondent court correctly applied Republic Act No.
6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey
title from acquiring binding force. 16 It also provides the right of the buyer on installments in case he
defaults in the payment of succeeding instalments.

Petitioner RILLO paid less than two years in installment payments, hence, he is only entitled to a grace
period of not less than sixty (60) days from the due date within which to make his installment payment.
CORB REALTY, on the otherhand, has the right to cancel the contract after thirty (30) days from receipt by
RILLO of the notice of cancellation. Hence, the respondent court did not err when it upheld CORB REALTY's
right to cancel the subject contract upon repeated defaults in payment by RILLO.
G.R. No. 130347 March 3, 1999

ABELARDO VALARAO, GLORIOSA VALARAO and CARLOS VALARAO, petitioners, vs. COURT OF APPEALS
and MEDEN A. ARELLANO, respondents.

FACTS: On September 4, 1987, spouses Abelardo and Gloriosa Valarao, thru their son Carlos Valarao as
their attorney-in-fact, sold to Meden Arellano under a Deed of Conditional Sale a parcel of land situated
in the District of Diliman, Q. C., covered by TCT No. 152879 with an area of 1,504 square meters, for the
sum of P3,225,000.00 payable under a schedule of payment stated therein.

In the same Deed of Conditional Sale, Arellano obligated herself to encumber by way of real estate
mortgage in favor of [petitioners] vendors her separate piece of property with the condition that upon
full payment of the balance of P2,225.000.00, the said mortgage shall become null and void and without
further force and effect.

It was further stipulated upon that should the vendee fail to pay three (3) successive monthly installments
or anyone year-end lump sum payment within the period stipulated, the sale shall be considered
automatically rescinded without the necessity of judicial action and all payments made by the vendee
shall be forfeited in favor of the vendors by way of rental for the use and occupancy of the property and
as liquidated damages. All improvements introduced by the vendee to the property shall belong to the
vendors without any right of reimbursement.

Arellano alleged that as of September, 1990, she had already paid the amount of P2,028,000.00, although
she admitted having failed to pay the installments due in October and November, 1990. Petitioner,
however, [had] tried to pay the installments due [in] the said months, including the amount due [in] the
month of December, 1990 on December 30 and 31, 1990, but was turned down by the vendors-
[petitioners] thru their maid, Mary Gonzales, who refused to accept the payment offered. [Private
respondent] maintains that on previous occasions, the same maid was the one who [had] received
payments tendered by her. It appears that Mary Gonzales refused to receive payment allegedly on orders
of her employers who were not at home.

Arellano then reported the matter to, and sought the help of, the local barangay officials. Efforts to settle
the controversy before the barangay proved unavailing as vendors-[petitioners] never appeared in the
meetings arranged by the barangay lupon.

Arellano tried to get in touch with [petitioners] over the phone and was able to talk with [Petitioner]
Gloriosa Valarao who told her that she [would] no longer accept the payments being offered and that
[private respondent] should instead confer with her lawyer, a certain Atty. Tuazon. When all her efforts
to make payment were unsuccessful, [private respondent] sought judicial action. by filing this petition for
consignation on January 4, 1991.

On the other hand, vendors-[petitioners], thru counsel, sent Arellano a letter dated 4 January 1991
notifying her that they were enforcing the provision on automatic rescission as a consequence of which
the Deed of Conditional Sale [was deemed] null and void, and . . . all payments made, as well as the
improvements introduced on the property, [were] thereby forfeited. The letter also made a formal
demand on Arellano to vacate the property should she not heed the demand of [petitioners] to sign a
contract of lease for her continued stay in the property.

In reply, Arellano sent a letter dated January 14, 1991, denying that she [had] refused to pay the
installments due [in] the months of October, November and December, and countered that it was
[petitioners] who refused to accept payment, thus constraining her to file a petition for consignation
before the Regional Trial Court of Quezon City docketed as Civil Case No. Q-91-7603.

Notwithstanding their knowledge of the filing by [private respondent] of a consignation case against them
in the Regional Trial Court of Quezon City docketed as Civil Case No. Q-91-7603, [petitioners], through
counsel, sent the Arellano another letter dated January 19, 1991, denying the allegations of her attempts
to tender payment on December 30 and 31, 1990, and demanding that Arellano vacate and turnover the
property and pay a monthly compensation for her continued occupation of the subject property at the
rate of P20,000.00, until she shall have vacated the same.

ISSUE: Whether or not petitioner’s letter could effect the rescission of the Deed of Conditional Sale even
if it is not notarized under Art 1592

RULING: As a general rule, a contract is the law between the parties. 15 Thus, "from the moment the
contract is perfected, the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all consequences which, according to their nature, may be in keeping with good
faith, usage and law." 16 Also, "the stipulations of the contract being the law between the parties, courts
have no alternative but to enforce them as they were agreed [upon] and written, there being no law or
public policy against the stipulated forfeiture of payments already made." 17 However, it must be shown
that private respondent-vendee failed to perform her obligation, thereby giving petitioners-vendors the
right to demand the enforcement of the contract.

The SC concede the validity of the automatic forfeiture clause, which deems any previous payments
forfeited and the contract automatically rescinded upon the failure of the vendee to pay three successive
monthly installments or any one yearend lump sum payment. However, petitioners failed to prove the
conditions that would warrant the implementation of this clause.

It is clear that petitioners were not justified in refusing to accept the tender of payment made by private
respondent on December 30 and 31, 1990. Had they accepted it on either of said dates, she would have
paid all three monthly installments due. In other words, there was no deliberate failure on her part to
meet her responsibility to pay. The Court takes note of her willingness and persistence to do so, and,
petitioners cannot now say otherwise. The fact is: they refused to accept her payment and thus have no
reason to demand the enforcement of the automatic forfeiture clause. They cannot be rewarded for their
own misdeed.

Because their maid had received monthly payments in the past, it is futile for petitioners to insist now
that she could not have accepted the aforementioned tender of payment, on the ground that she did not
have a special power of attorney to do so. Clearly, they are estopped from denying that she had such
authority. Under Article 1241 of the Civil Code, payment through a third person is valid "[i]f by the
creditor's conduct, the debtor has been led to believe that the third person had authority to receive the
payment."
In any event, the rescission of the contract and the forfeiture of the payments already made could not be
effected, because the case falls squarely under Republic Act No. 6552, otherwise known as the "Maceda
Law." Section 3 of said law provides:

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment
payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act. 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 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 on the
payments on the property equivalent to fifty percent of the total payments made and, after five
years of installments, an additional five percent every year but not to exceed ninety percent of
the total payments made: Provided, That the actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the cash surrender value to
the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the
total number of installments made.

Hence, the private respondent was entitled to a one-month grace period for every year of installments
paid, which means that she had a total grace period of three months from December 31, 1990. Indeed, to
rule in favor of petitioner would result in patent injustice and unjust enrichment. This tribunal is not
merely a court of law, but also a court of justice.

G.R. No. 141205 May 9, 2002

ACTIVE REALTY & DEVELOPMENT CORPORATION, petitioner, vs. NECITA G. DAROYA, represented by
Attorney-In-Fact Shirley Daroya-Quinones, respondents.

FACTS: Petitioner ACTIVE REALTY & DEVELOPMENT CORPORATION is the owner and developer of Town
& Country Hills Executive Village in Antipolo, Rizal. On January 2, 1985, it entered into a Contract to Sell
with respondent NECITA DAROYA, a contract worker in the Middle East, whereby the latter agreed to buy
a 515 sq. m. lot for P224,025.00 in petitioner’s subdivision.

The contract to sell stipulated that the respondent shall pay the initial amount of P53,766.00 upon
execution of the contract and the balance of P170,259.00 in sixty (60) monthly installments of P4,893.35.
Adding the down payment and installment payments, it would appear that the total amount is
P346,367.00, a figure higher than that stated as the contract price.
On May 5, 1989, petitioner accepted respondent’s amortization in the amount of P40,000.00. By August
8, 1989, respondent was in default of P15,282.85 representing three (3) monthly amortizations. Petitioner
sent respondent a notice of cancellation of their contract to sell, to take effect thirty (30) days from receipt
of the letter. It does not appear from the records, however, when respondent received the letter.
Nonetheless, when respondent offered to pay for the balance of the contract price, petitioner refused as
it has allegedly sold the lot to another buyer.

On August 26, 1991, respondent filed a complaint for specific performance and damages against
petitioner before the Arbitration Branch of the Housing and Land Use Regulatory Board (HLURB). It sought
to compel the petitioner to execute a final Deed of Absolute Sale in respondent’s favor after she pays any
balance that may still be due from her. Respondent claimed that she is entitled to the final deed of sale
after she offered to pay the balance of P24,048.47, considering that she has already paid the total sum of
P314,816.76, which amount is P90,835.76 more than the total contract price of P224,025.00.

On June 14, 1993, HLURB Arbiter found for the respondent. He ruled that the cancellation of the contract
to sell was void as petitioner failed to pay the cash surrender value to respondent as mandated by law.
However, as the subject lot was already sold to a third party and the respondent had agreed to a full
refund of her installment payments, petitioner was ordered to refund to respondent all her payments in
the amount of P314,816.70, with 12% interest per annum from August 26, 1991 (the date of the filing of
the complaint) until fully paid and to pay P10,000.00 as attorney’s fees.

On appeal, the HLURB Board of Commissioners set aside the Arbiter’s Decision. It ruled that, as both
parties were at fault, i.e., respondent incurred in delay in her installment payments and respondent failed
to send a notarized notice of cancellation, petitioner was ordered to refund to the respondent one half of
the total amount she has paid or P157,408.35, which was allegedly akin to the remedy provided under
the Maceda Law.

Respondent appealed to the Office of the President. On June 2, 1998, Chief Presidential Counsel modified
the Decision of the HLURB as he found that it was not in accord with the provisions of the Maceda Law.
He held that as petitioner did not comply with the legal requisites for a valid cancellation of the contract,
the contract to sell between the parties subsisted and concluded that respondent was entitled to the lot
after payment of her outstanding balance. However, as the petitioner disclosed that the lot was already
sold to another person and that the actual value of the lot as of the date of the contract was P1,700.00
per square meter, petitioner was ordered to refund to the respondent the amount of P875,000.00, the
true and actual value of the lot as of the date of the contract, with interest at 12% per annum computed
from August 26, 1991 until fully paid, or to deliver a substitute lot at the choice of respondent.

Upon denial of its motion for reconsideration, petitioner assailed the Decision in the Court of Appeals.
However, its petition for review was denied due course for insufficiency in form and substance. Petitioner
moved for reconsideration. The Court of Appeals denied it on an entirely new ground, i.e., for untimely
filing of the petition for review. Hence this petition.

ISSUE: Whether or not the petitioner can be compelled to refund to the respondent the value of the lot
or to deliver a substitute lot at respondent’s option.

RULING: The contract to sell in the case at bar is governed by Republic Act No. 6552 -- "The Realty
Installment Buyer Protection Act," or more popularly known as the Maceda Law. Section 3 of R.A. No.
6552 provided for the rights of the buyer in case of default in the payment of succeeding installments,
where he has already paid at least two (2) years of installments, thus:

"(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; x x x

(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; 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."

In this case, respondent has already paid in four (4) years a total of P314,860.76 or P90,835.76 more than
the contract price of P224,035.00. In April 1989, petitioner decided to cancel the contract when the
respondent incurred in delay in the payment of P15,282.85, representing three (3) monthly amortizations.
Petitioner refused to accept respondent’s subsequent tender of payment of the outstanding balance
alleging that it has already cancelled the contract and sold the subject lot to another buyer.

However, the records clearly show that the petitioner failed to comply with the mandatory twin
requirements for a valid and effective cancellation under the law, i.e., he failed to send a notarized notice
of cancellation and refund the cash surrender value. At no time, from the date it gave a notice of
cancellation up to the time immediately before the respondent filed the case against petitioner, did the
latter exert effort to pay the cash surrender value. In fact, the records disclose that it was only during the
preliminary hearing of the case before the HLURB arbiter when petitioner offered to pay the cash
surrender value. Petitioner justifies its inaction on the ground that the respondent was always out of the
country. Even then, the records are bereft of evidence to show that petitioner attempted to pay the cash
surrender value to respondent through her last known address. The omission is surprising considering
that even during the times respondent was out of the country, petitioner has been sending her written
notices to remind her to pay her installment arrears through her last known address.

Clearly, had respondent not filed a case demanding a final deed of sale in her favor, petitioner would not
have lifted a finger to give respondent what was due her – actual payment of the cash surrender value,
among others. In disregard of basic equitable principles, petitioner’s stance would enable it to resell the
property, keep respondent’s installment payments, not to mention the cash surrender value which it was
obligated to return. The Layug case cited by petitioner is inapropos. In Layug, the lot buyer did not pay for
the outstanding balance of his account and the Court found that notarial rescission or cancellation was no
longer necessary as the seller has already filed in court a case for rescission of the contract to sell. In the
case at bar, respondent offered to pay for her outstanding balance of the contract price but respondent
refused to accept it. Neither did petitioner adduce proof that the respondent’s offer to pay was made
after the effectivity date stated in its notice of cancellation.

Moreover, there was no formal notice of cancellation or court action to rescind the contract. Given the
circumstances, we find it illegal and iniquitous that petitioner, without complying with the mandatory
legal requirements for canceling the contract, forfeited both respondent’s land and hard-earned money
after she has paid for, not just the contract price, but more than the consideration stated in the contract
to sell.
Thus, for failure to cancel the contract in accordance with the procedure provided by law, we hold that
the contract to sell between the parties remains valid and subsisting. 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 did in this case. Ordinarily, petitioner would have had no other recourse but to accept payment.
However, respondent can no longer exercise this right as the subject lot was already sold by the petitioner
to another buyer which lot, as admitted by the petitioner, was valued at P1,700.00 per square meter. 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 respondent the actual value of the lot resold, i.e., P875,000.00,
with 12% interest per annum computed from August 26, 1991 until fully paid or to deliver a substitute lot
at the option of the respondent.

XII. WARRANTIES

G.R. No. 141480 November 29, 2006

CARLOS B. DE GUZMAN, Petitioner, vs. TOYOTA CUBAO, INC., Respondent.

FACTS: On November 27, 1997, petitioner purchased from respondent a brand new white Toyota Hi-Lux
in the amount of ₱508,000. Petitioner made a down payment of ₱152,400, leaving a balance of ₱355,600
which was payable in 36 months with 54% interest. The vehicle was delivered to petitioner two days later.
On October 18, 1998, petitioner demanded the replacement of the engine of the vehicle because it
developed a crack after traversing Marcos Highway during a heavy rain. Petitioner asserted that
respondent should replace the engine with a new one based on an implied warranty. Respondent
countered that the alleged damage on the engine was not covered by a warranty.

On April 20, 1999, petitioner filed a complaint for damages against respondent with the RTC. Respondent
moved to dismiss the case on the ground that under Article 1571 of the Civil Code, the petitioner’s cause
of action had prescribed as the case was filed more than six months from the date the vehicle was sold
and/or delivered.

In an Order dated September 9, 1999, the RTC granted respondent’s motion and dismissed the complaint.
The Court agrees with the plaintiff’s counsel that the subject pick-up is a consumer product because it is
used for personal, family or agricultural purposes, contrary to defendant counsel’s claim that it is not
because it is a non-consumable item.

Since no warranty card or agreement was attached to the complaint, the contract of sale of the subject
pick-up carried an implied warranty that it was free from any hidden faults or defects, or any charge or
encumbrance not declared or known to the buyer. The prescriptive period thereof is six (6) months under
the Civil Code (Art. 1571).

Under RA No. 7394, the provisions of the Civil Code on conditions and warranties shall govern all contracts
of sale with condition and warranties (Art. 67). The duration of the implied warranty (not accompanied
by an express warranty) shall endure not less than sixty days nor more than one (1) year following the sale
of new consumer products (Art. 68, par. [e]). The two (2) year prescriptive period under Art. 169 cannot
prevail over Art. 68 because the latter is the specific provision on the matter.
The Court has noted that the prescriptive period for implied and express warranties cannot be the same.
In the Civil Code, an action for violation of an implied warranty against hidden defects prescribes in six (6)
months, while if it based on an express warranty[,] the action prescribes in four (4) years. Under RA No.
7394, the implied warranty cannot be more than one (1) year; however, the implied warranty can only be
of equal duration to that an express warranty when the implied warranty of merchantability accompanies
an express warranty (Art. 68, par. [e]). Therefore, the prescriptive period of two years under Art. 169 does
not cover an implied warranty, which is not accompanied by an express warranty. It is applicable to cases
where there is an express warranty in the sale of the consumer product.

Relative to plaintiff’s argument that the claim for moral and exemplary damages and attorney’s fees is
based on quasi-delict or breach of contract, such are merely ancillary to the main cause of action which is
based on warranty against hidden defects. Without the latter, the former cannot stand alone.

Based on the record, the subject vehicle was purchased on 27 November 1997 and delivered on 29
November 1997. This case was filed only on 20 April 1999 or almost nineteen (19) months from [the] sale
and/or delivery. Applying Art. 1571 of Civil Code, the action is barred by prescription because the
complaint was filed more than six (6) months after the sale and/or delivery of the vehicle. In addition, the
duration of the implied warranty of not more than one (1) year under Art. 68, par (e) of RA No. 7394 has
already elapsed.

On December 21, 1999, the RTC denied petitioner’s motion for reconsideration, as follows:

Submitted for resolution are: (1) plaintiff’s Motion for Reconsideration; (2) defendant’s Opposition; and
(3) plaintiff’s Reply.

Although plaintiff’s motion was filed beyond the ten-day period, the Court is convinced that it was not for
the purpose of delay; hence, it cannot be considered as a mere scrap of paper.

After a thorough study, the Court resolves that while reference to Art. 68, par. (e) of RA No. 7394 may
have been misplaced, yet the subject sale carried an implied warranty whose prescriptive period is six (6)
months under Art. 1571 of the Civil Code.

ISSUE: Whether or not petitioner’s cause of action has prescribed

RULING: Petitioner contends that the dismissal on the ground of prescription was erroneous because the
applicable provision is Article 169 of Republic Act No. 7394 (otherwise known as "The Consumer Act of
the Philippines" which was approved on April 13, 1992), and not Article 1571 of the Civil Code. Petitioner
specifies that in his complaint, he neither asked for a rescission of the contract of sale nor did he pray for
a proportionate reduction of the purchase price. What petitioner claims is the enforcement of the
contract, that is, that respondent should replace either the vehicle or its engine with a new one. In this
regard, petitioner cites Article 169 of Republic Act No. 7394 as the applicable provision, so as to make his
suit come within the purview of the two-year prescriptive period. Tangentially, petitioner also justifies
that his cause of action has not yet prescribed because this present suit, which was an action based on
quasi-delict, prescribes in four years.

On the other hand, respondent maintains that petitioner’s cause of action was already barred by the
statute of limitations under Article 1571 of the Civil Code for having been filed more than six months from
the time the vehicle was purchased and/or delivered. Respondent reiterates that Article 169 of Republic
Act No. 7394 does not apply.

Petitioner’s argument is erroneous. Article 1495 of the Civil Code states that in a contract of sale, the
vendor is bound to transfer the ownership of and to deliver the thing that is the object of sale. Corollarily,
the pertinent provisions of the Code set forth the available remedies of a buyer against the seller on the
basis of a warranty against hidden defects:

Art. 1561. The vendor shall be responsible for warranty against the 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 this trade or profession, should have known them.
(Emphasis supplied)

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.

Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after
six months from the delivery of the thing sold.

Under Article 1599 of the Civil Code, once an express warranty is breached, the buyer can accept or keep
the goods and maintain an action against the seller for damages. In the absence of an existing express
warranty on the part of the respondent, as in this case, the allegations in petitioner’s complaint for
damages were clearly anchored on the enforcement of an implied warranty against hidden defects, i.e.,
that the engine of the vehicle which respondent had sold to him was not defective. By filing this case,
petitioner wants to hold respondent responsible for breach of implied warranty for having sold a vehicle
with defective engine. Such being the case, petitioner should have exercised this right within six months
from the delivery of the thing sold.7 Since petitioner filed the complaint on April 20, 1999, or more than
nineteen months counted from November 29, 1997 (the date of the delivery of the motor vehicle), his
cause of action had become time-barred.

Petitioner contends that the subject motor vehicle comes within the context of Republic Act No. 7394.
Thus, petitioner relies on Article 68 (f) (2) in relation to Article 169 of Republic Act No. 7394. Article 4 (q)
of the said law defines "consumer products and services" as goods, services and credits, debts or
obligations which are primarily for personal, family, household or agricultural purposes, which shall
include, but not limited to, food, drugs, cosmetics, and devices. The following provisions of Republic Act
No. 7394 state:

Art. 67. Applicable Law on Warranties. — The provisions of the Civil Code on conditions and
warranties shall govern all contracts of sale with conditions and warranties.
 Art. 68. Additional Provisions on Warranties. — In addition to the Civil Code provisions on sale
with warranties, the following provisions shall govern the sale of consumer products with
warranty:

e) Duration of warranty. The seller and the consumer may stipulate the period within which the
express warranty shall be enforceable. If the implied warranty on merchantability accompanies
an express warranty, both will be of equal duration.1âwphi1

Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year
following the sale of new consumer products.

f) Breach of warranties — xxx

2) In case of breach of implied warranty, the consumer may retain in the goods and recover
damages, or reject the goods, cancel the contract and recover from the seller so much of the
purchase price as has been paid, including damages.

Consequently, even if the complaint is made to fall under the Republic Act No. 7394, the same should still
be dismissed since the prescriptive period for implied warranty thereunder, which is one year, had
likewise lapsed.

G.R. No. 110295 October 18, 1993

COCA-COLA BOTTLERS PHILIPPINES, INC., vs. THE HONORABLE COURT OF APPEALS (Fifth Division) and
MS. LYDIA GERONIMO, respondents.

FACTS: On 7 May 1990, Lydia L. Geronimo, the herein private respondent, filed a complaint for damages
against petitioner with the RTC of Dagupan City. She alleges in her complaint that she was the proprietress
of Kindergarten Wonderland Canteen docketed as located in Dagupan City, an enterprise engaged in the
sale of soft drinks and other goods to the students of Kindergarten Wonderland and to the public; on or
about 12 August 1989, some parents of the students complained to her that the Coke and Sprite soft
drinks sold by her contained fiber-like matter and other foreign substances or particles; he then went over
her stock of softdrinks and discovered the presence of some fiber-like substances in the contents of some
unopened Coke bottles and a plastic matter in the contents of an unopened Sprite bottle; she brought the
said bottles to the Regional Health Office of the Department of Health at San Fernando, La Union, for
examination; subsequently, she received a letter from the Department of Health informing her that the
samples she submitted "are adulterated;" as a consequence of the discovery of the foreign substances in
the beverages, her sales of soft drinks severely plummeted from the usual 10 cases per day to as low as 2
to 3 cases per day resulting in losses of from P200.00 to P300.00 per day, and not long after that she had
to lose shop on 12 December 1989; she became jobless and destitute; she demanded from the petitioner
the payment of damages but was rebuffed by it. She prayed for judgment ordering the petitioner to pay
her P5,000.00 as actual damages, P72,000.00 as compensatory damages, P500,000.00 as moral damages,
P10,000.00 as exemplary damages, the amount equal to 30% of the damages awarded as attorney's fees,
and the costs.

The petitioner moved to dismiss the complaint on the grounds of failure to exhaust administrative
remedies and prescription. Anent the latter ground, the petitioner argued that since the complaint is for
breach of warranty under Article 1561 of the said Code. In her Comment thereto, private respondent
alleged that the complaint is one for damages which does not involve an administrative action and that
her cause of action is based on an injury to plaintiff's right which can be brought within four years pursuant
to Article 1146 of the Civil Code; hence, the complaint was seasonably filed. Subsequent related pleadings
were thereafter filed by the parties.

In its Order of 23 January 1991, the trial court granted the motion to dismiss. It ruled that the doctrine of
exhaustion of administrative remedies does not apply as the existing administrative remedy is not
adequate. It also stated that the complaint is based on a contract, and not on quasi-delict, as there exists
pre-existing contractual relation between the parties; thus, on the basis of Article 1571, in relation to
Article 1562, the complaint should have been filed within six months from the delivery of the thing sold.

Her motion for the reconsideration of the order having been denied by the trial court in its Order of 17
April 1991, the private respondent came to this Court via a petition for review on certiorari which we
referred to the public respondent "for proper determination and disposition.

In a decision promulgated on 28 January 1992, the public respondent annulled the questioned orders of
the RTC and directed it to conduct further proceedings in Civil Case No. D-9629. In holding for the private
respondent, it ruled that:

Petitioner's complaint being one for quasi-delict, and not for breach of warranty as respondent
contends, the applicable prescriptive period is four years.

It should be stressed that the allegations in the complaint plainly show that it is an action or
damages arising from respondent's act of "recklessly and negligently manufacturing adulterated
food items intended to be sold or public consumption". It is truism in legal procedure that what
determines the nature of an action are the facts alleged in the complaint and those averred as a
defense in the defendant's answer. Secondly, despite the literal wording of Article 2176 of the
Civil code, the existence of contractual relations between the parties does not absolutely preclude
an action by one against the other for quasi-delict arising from negligence in the performance of
a contract.

Significantly, in American jurisprudence, the authorities are one in saying that the availability of an action
or breach of warranty does not bar an action for torts in a sale of defective goods.

Its motion for the reconsideration of the decision having been denied by the public respondent in its
Resolution, the petitioner took his recourse under Rule 45 of the Revised Rules of Court.

ISSUE: Whether or not the action for damages by the Geronimo against the soft drinks manufacturer
should be treated as one for breach of implied warranty under article 1561 of the CC which prescribes
after six months from delivery of the thing sold.

RULING: The public respondent's conclusion that the cause of action in is found on quasi-delict and that,
therefore, pursuant to Article 1146 of the Civil Code, it prescribes in four (4) years is supported by the
allegations in the complaint which makes reference to the reckless and negligent manufacture of
"adulterated food items intended to be sold for public consumption."
The vendee's remedies against a vendor with respect to the warranties against hidden defects of or
encumbrances upon the thing sold are not limited to those prescribed in Article 1567 of the Civil Code
which provides:

Art. 1567. In the case of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a proportionate reduction of the price, with
damages either case.

The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which case
the ordinary rule on obligations shall be applicable. Under the law on obligations, responsibility arising
from fraud is demandable in all obligations and any waiver of an action for future fraud is void.
Responsibility arising from negligence is also demandable in any obligation, but such liability may be
regulated by the courts, according to the circumstances. Those guilty of fraud, negligence, or delay in the
performance of their obligations and those who in any manner contravene the tenor thereof are liable for
damages.

The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action
based thereon may be brought by the vendee. While it may be true that the pre-existing contract between
the parties may, as a general rule, bar the applicability of the law on quasi-delict, the liability may itself be
deemed to arise from quasi-delict, i.e., the acts which breaks the contract may also be a quasi-delict. Thus,
liability for quasi-delict may still exist despite the presence of contractual relations.

G.R. No. 154554 November 9, 2005

GOODYEAR PHILIPPINES, INC., Petitioner, vs. ANTHONY SY and JOSE L. LEE, Respondents.

FACTS: The subject of this case involves a 6 Wheeler motor vehicle. The vehicle was originally owned by
Goodyear which it purchased from Industrial and Transport Equipment, Inc. in 1983. It had since been in
the service of Goodyear until April 30, 1986 when it was hijacked. This hijacking was reported to the PNP
which issued out an alert alarm on the said vehicle as a stolen one. It was later on recovered also in 1986.

The vehicle was used by Goodyear until 1996, when it sold it to Anthony Sy on September 12, 1996. Sy, in
turn, sold it to Jose L. Lee on January 29, 1997. But the latter on December 4, 1997, filed an action for
rescission of contract with damages against Sy, because he could not register the vehicle in his name due
to the certification from the PNP Regional Traffic Management Office in Legazpi City that it was a stolen
vehicle and the alarm covering the same was not lifted. Instead, the PNP in Legazpi City impounded the
vehicle and charged Lee criminally.

Upon being informed by Sy of the denial of the registration of the vehicle in Lee’s name, Goodyear
requested on July 10, 1997 the PNP to lift the stolen vehicle alarm status. This notwithstanding, Goodyear
was impleaded as third-party defendant in the third-party complaint filed by Sy on January 9, 1998.

The RTC resolved to dismiss the third-party complaint on the basis of the first proffered ground in its
challenged Order dated May 27, 1998.

In granting the appeal, the CA reasoned that the Third-Party Complaint had stated a cause of action. First,
petitioner did not make good its warranty in the Deed of Sale: to convey the vehicle to Respondent
Anthony Sy free from all liens, encumbrances and legal impediments. The reported hijacking of the vehicle
was a legal impediment that prevented its subsequent sale.

Second, Respondent Sy had a right to protect and a warranty to enforce, while petitioner had the
corresponding obligation to honor that warranty. The latter caused the impairment of that right, though,
when the vehicle it had sold to him was refused registration, because of the non-lifting of the alert status
issued at its instance. That petitioner had to execute all documents necessary to confer a perfect title to
him before he could seek recourse to the courts was deemed a ludicrous condition precedent, because it
could easily refuse to fulfill that condition in order to obviate the filing of a case against it. Hence, this
Petition.

ISSUE: Whether or not the Court of Appeals erred in failing to find that petitioner did not breach any
warranty in the absence of proof that at the time it sold the subject vehicle to Sy, petitioner was not the
owner thereof.

RULING: In a contract of sale, the vendor is bound to transfer the ownership of and to deliver the thing
that is the object of the sale. Moreover, the implied warranties are as follows: first, the vendor has a right
to sell the thing at the time that its ownership is to pass to the vendee, as a result of which the latter shall
from then on have and enjoy the legal and peaceful possession of the thing; and, second, the thing shall
be free from any charge or encumbrance not declared or known to the vendee.

Upon the execution of the Deed of Sale, petitioner did transfer ownership of and deliver the vehicle to
Respondent Sy. No other owner or possessor of the vehicle had been alleged, and the ownership and
possession rights of petitioner over it had never been contested. The Deed of Sale executed on September
12, 1996 showed that petitioner was the absolute owner. Therefore, at the time that ownership passed
to Sy, petitioner alone had the right to sell the vehicle.

In the same manner, when he sold the same truck to Lee, Respondent Sy was exercising his right as
absolute owner. Unfortunately, though, from the time Respondent Lee attempted to register the truck in
his name, he could not have or enjoy the legal and peaceful possession of the vehicle, because it had been
impounded by the PNP, which also opposed its registration.

The impoundment of the vehicle and the failure to register it were clearly acts that were not deliberately
caused by petitioner, but that resulted solely from the failure of the PNP to lift the latter’s own alarm over
the vehicle. Pursuant to Republic Act 6975, these matters were purely administrative and governmental
in nature. Petitioner had no authority, much less power, over the PNP. Hence, the former did not breach
its obligation as a vendor to Respondent Sy; neither did it violate his right for which he could maintain an
action for the recovery of damages. Without this crucial allegation of a breach or violation, no cause of
action exists.

A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold. As such,
a warranty has a natural tendency to induce the vendee -- relying on that affirmation or promise -- to
purchase the thing. The vendor impliedly warrants that that which is being sold is free from any charge or
encumbrance not declared or known to the vendee. The decisive test is whether the vendor assumes to
assert a fact of which the vendee is ignorant.

Gratia argumenti that there was a breach of the implied warranty against hidden encumbrances, notice
of the breach was not given to petitioner within a reasonable time. Article 1586 of the Civil Code requires
that notice be given after the breach, of which Sy ought to have known. In his Third-Party Complaint
against petitioner, there was no allegation at all that respondent had given petitioner the requisite notice.

More important, an action for damages for a breach of implied warranties must be brought within six
months from the delivery of the thing sold. The vehicle was understood to have been delivered to Sy when
it was placed in his control or possession. Upon execution of the Deed of Sale on September 12, 1996,
control and possession of the vehicle was transferred to respondent. That the vehicle had been delivered
is bolstered by the fact that no contrary allegation was raised in the Third-Party Complaint. Whether the
period should be reckoned from the actual or from the constructive delivery through a public instrument,
more than six months had lapsed before the filing of the Third-Party Complaint.

Finally, the argument that there was a breach of the implied warranty against eviction does not hold
water, for there was never any final judgment based on either a right prior to the sale; or an act that could
be imputed to petitioner and deprive Sy of ownership or possession of the vehicle purchased.

XIII. BREACH OF CONTRACT

G.R. No. 142618 July 12, 2007

PCI LEASING AND FINANCE, INC., Petitioner, vs. GIRAFFE-X CREATIVE IMAGING, INC., Respondent.

FACTS: On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease
Agreement, whereby 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. Likewise forming parts of the basic lease agreement were two (2)
separate documents denominated Disclosure Statements of Loan/Credit Transaction (Single Payment or
Installment Plan) 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 a total of 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 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.
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.

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 decision 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]."

With its motion for reconsideration having been denied by the trial court in its resolution of February 15,
2000, petitioner has directly come to this Court via this petition for review raising the sole legal issue of
whether or not the underlying Lease Agreement, Lease Schedules and the Disclosure Statements that
embody the financial leasing arrangement between the parties are covered by and subject to the
consequences of Articles 1484 and 1485 of the New Civil Code.

As in the court below, petitioner contends that the financial leasing arrangement it concluded with the
respondent represents a straight lease covered by R.A. No. 5980, the Financing Company Act, as last
amended by R.A. No. 8556, otherwise known as Financing Company Act of 1998, and is outside the
application and coverage of the Recto Law. To the petitioner, R.A. No. 5980 defines and authorizes its
existence and business.

ISSUE: 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.

RULING: 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.

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.

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.
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.

G.R. No. L-43821 May 26, 1977

INDUSTRIAL FINANCE CORPORATION, petitioner, vs. HON. PEDRO A. RAMIREZ, Judge of the Court of
First instance of Manila, and CONSUELO ALCOBA, respondents.

FACTS: On December 4, 1970 Arnaldo Dizon sold to Consuelo Alcoba his 1966 model Chevrolet car for
P13,157.89, payable in eighteen monthly installments, which were secured by a chattel mortgage on the
car. On that same date, Dizon assigned for ten thousand pesos to Industrial Finance Corporation all his
rights and interest in the chattel mortgage. Consuelo Alcoba defaulted in the payment of the first four
installments. Because of that default and by virtue of the acceleration clause in the promissory note
forming part of the mortgage, the whole obligation became due and demandable.

As of February 27, 1972 Consuelo Alcoba owed Industrial Finance Corporation the sum of P7,678.05. On
November 20, 1971, or less than a year after Industrial Finance Corporation had discounted Consuelo
Alcoba's promissory, note to Dizon, the corporation sued her in the CFI Manila (Civil Case No. 85583). The
complaint, a printed form used by the corporation in collection cases, is denominated "replevin with
damages".

RULING: The lower court in its order of March 2, 1976 denied the motion for a third alias writ of execution.
It treated the execution sale as a "virtual foreclosure of the chattel mortgage" which, although not
beneficial to the mortgagee, Industrial Finance Corporation, barred it from recovering the deficiency
under article 1484.

That order of denial is assailed by the corporation in the instant certiorari case. The lower court relied on
Filipinos Investment & Finance Corporation vs. Ridad, L- 27645, November 28, 1969, 30 SCRA 564. In the
Ridad case, the mortgagee of a car, the price of which was payable in installments, filed a replevin suit
against the mortgagor with an alternative prayer for the recovery of the unpaid price in case the car could
not be seized. The car was actually seized. The mortgage was extrajudicially foreclosed. The trial court
rendered judgment against the mortgagor only for P300 as attorney's fees and P163.65 as expenses of
foreclosure. There was no judgment for the balance of the mortgage debt.
The mortgagors in the Ridad case appealed to this Court. They contested the correctness of the judgment
for P463.65 as attorney's fees and expenses for foreclosure.

This Court held that the mortgagors should pay the mortgagee attorney's fees and expenses of foreclosure
because while the mortgagors should be protected against the capacity of the mortgagees, the law should
not be construed as depriving the mortgagee of "protection against perverse mortgagors" (Castro, J, in
Ridad case).

It is obvious that the facts of the Ridad case are materially different from the facts of the instant case.
Here, there was no extrajudicial foreclosure of the mortgage. Consuelo Alcoba, the mortgagee, acted
perversely in not surrendering the mortgaged car to the corporation and in preventing extrajudicial
foreclosure. Had she complied with the writ of replevin, then the corporation could have foreclosed the
mortgage and, in that event, she would not be liable for any deficiency.

But she violated the mortgage by removing the car from her residence at 3 Gladiola Street, Roxas District,
Quezon City. She did not comply with the stipulation that, upon her default, the car should be delivered,
on demand, to the mortgagee in Manila.

The corporation's action was for specific performance or fulfillment of the obligation and not for judicial
foreclosure Consuelo Alcoba's payment of P2,000 on account of the money judgment against her signified
that she acquiesced in the action for specific performance. She cannot now be heard to say that the
judgment resulting from that action could not be enforced because the mortgagees had opted for
foreclosure of the mortgage. The Civil Code provides.

ART. 1484. In a contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) 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. (1454-A-a).

According to article 1484, it is only when there has been a foreclosure that the mortgagor is not liable for
any deficiency.

In this case, there was no foreclosure. The mortgagee evidently chose the remedy of specific performance.
It levied upon the car by virtue of an execution and not as an incident of a foreclosure proceeding. It is
entitled to an alias writ of execution for the portion of the judgment that has not been satisfied.

The rule is that in installment sales, if the action instituted is for specific performance and the mortgaged
property is subsequently attached and sold, the sale thereof does not amount to a foreclosure of the
mortgage. Hence, the seller-creditor is entitled to a deficiency judgment.