Republic of the Philippines mortgage if one has been given on the property, considered, still the law does
considered, still the law does not apply, for it requires non-
SUPREME COURT
Manila
EN BANC
G.R. No. L-46306 October 27, 1939
LEVY HERMANOS, INC., plaintiff-appellant,
vs.
LAZARO BLAS GERVACIO, defendant-appellee.
Felipe Caniblas for appellant.
Abreu, Lichaucco and Picazo for appellee.
MORAN, J.:
On February 9-4, 1938, plaintiff filed a complaint in the
Court of First Instance of Manila, which substantially recites
the following facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to
defendant Lazaro Blas Gervacio, a Packard car. Defendant,
after making the initial payment, executed a promissory note
for the balance of P2,400, payable on or before June 15,
1937, with interest at 12 per cent per annum, to secure the
payment of the note, he mortgaged the car to the plaintiff.
Defendant failed to pay the note it its maturity. Wherefore,
plaintiff foreclosed the mortgage and the car was sold at
public auction, at which plaintiff was the highest bidder for
P1,800. The present action is for the collection of the balance
of P1,600 and interest.
Defendant admitted the allegations of the complaint, and
with this admission, the parties submitted the case for
decision. The lower court applied, the provisions of Act No.
4122, inserted as articles 1454-A of the Civil Code, and
rendered judgment in favor of the defendant. Plaintiff
appealed.
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property
payable in installments shall confer upon the
vendor the right to cancel the sale or foreclose the
without reimbursement to the purchaser of the payment of two or more installments in order that its
installments already paid, if there be an agreement provisions may be invoked. Here, only one installment was
to this effect. unpaid.
However, if the vendor has chosen to foreclose the Judgment is reversed, and the defendant-appellee is hereby
mortgage he shall have no further action against sentenced to pay plaintiff-appellant the sum of P1,600 with
the purchaser for the recovery of any unpaid interest at the rate of 12 per cent per annum from June 15,
balance owing by the same and any agreement to 1937, and the sum of P52.08 with interest at the rate of 6 per
the contrary shall be null and void. cent from the date of the filing of the complaint, with costs
in both instances against the appellee.
In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170),
we held that "in order to apply the provisions of article 1454- Avanceña, C.J., Villa-Real, Imperial, Diaz and Concepcion,
A of the Civil Code it must appear that there was a contract JJ., concur.
for the sale of personal property payable in installments and
that there has been a failure to pay two or more installments."
The contract, in the instant case, while a sale of personal
property, is not, however, one on installments, but on
straight term, in which the balance, after payment of the
initial sum, should be paid in its totality at the time specified
in the promissory note. The transaction is not is not,
therefore, the one contemplated in Act No. 4122 and
accordingly the mortgagee is not bound by the prohibition
therein contained as to the right to the recovery of the unpaid
balance.
Undoubtedly, the law is aimed at those sales where the price
is payable in several installments, for, generally, it is in these
cases that partial payments consist in relatively small
amounts, constituting thus a great temptation for
improvident purchasers to buy beyond their means. There is
no such temptation where the price is to be paid in cash, or,
as in the instant case, partly in cash and partly in one term,
for, in the latter case, the partial payments are not so small
as to place purchasers off their guard and delude them to a
miscalculation of their ability to pay. The oretically, perhaps,
there is no difference between paying the price in tow
installments, in so far as the size of each partial payment is
concerned; but in actual practice the difference exists, for,
according to the regular course of business, in contracts
providing for payment of the price in two installments, there
is generally a provision for initial payment. But all these
considerations are immaterial, the language of the law being
so clear as to require no construction at all.lâwphi1.nêt
The suggestion that the cash payment made in this case
should be considered as an installment in order to bring the
contract sued upon under the operation of the law, is
completely untenable. A cash payment cannot be considered
as a payment by installment, and even if it can be so
Sales 1 of 67
 SECOND DIVISION
[G.R. No. 61043. September 2, 1992.]
DELTA MOTOR SALES CORPORATION, Plaintiff-
Appellee, v. NIU KIM DUAN and CHAN FUE ENG,
Defendants-Appellants.
Francisco C. Bonoan for Plaintiff-Appellee.
Agapito M. Joaquin, for Defendants-Appellants.
SYLLABUS
1. CIVIL LAW; SALES; TREATMENT OF THE
INSTALLMENT PAYMENTS AS RENTALS;
STIPULATION IN A CONTRACT THAT THE
INSTALLMENTS PAID SHALL NOT BE RETURNED
TO THE VENDEE HELD VALID PROVIDED IT IS NOT
UNCONSCIONABLE. — Defendants-appellants cannot
complain that their downpayment of P774.00 and
installment payments of P5,655.92 were treated as rentals —
even though the total amount of P6,429,92 which they had
paid, approximates one-third (1/3) of the cost of the three (3)
air-conditioners. A stipulation in a contract that the
installments paid shall not be returned to the vendee is valid
insofar as the same may not be unconscionable under the
circumstances is sanctioned by Article 1486 of the New
Civil Code. The monthly installment payable by defendants-
appellants was P774.00. The P5,655.92 installment
payments correspond only to seven (7) monthly
installments. Since they admit having used the air-
conditioners for twenty-two (22) months, this means that
they did not pay fifteen (15) monthly installments on the said
air-conditioners and were thus using the same FREE for said
period — to the prejudice of plaintiff-appellee. Under the
circumstances, the treatment of the installment payments as
rentals cannot be said to be unconscionable.
2. REMEDIES OF THE VENDOR IN A SALE OF
PERSONAL PROPERTY PAYABLE IN
INSTALLMENTS; REMEDIES ARE ALTERNATIVE
AND NOT CUMULATIVE. — The vendor in a sale of
personal property payable in installments may exercise one
of three remedies, namely, (1) exact the fulfillment of the
obligation, should the vendee fail to pay; (2) cancel the sale
upon the vendee’s failure to pay two or more installments;
(3) foreclose the chattel mortgage, if one has been
constituted on the property sold, upon the vendee’s failure to
pay two or more installments. The third option or remedy,
however, is subject to the limitation that the vendor cannot
recover any unpaid balance of the price and any agreement
to the contrary is void (Art. 1484) The three (3) remedies are
alternative and NOT cumulative. If the creditor chooses one
remedy, he cannot avail himself of the other two.
DECISION
NOCON, J.:
Elevated to this Court by the Court of Appeals, in its
Resolution of May 20, 1982, on a pure question of law,[1] is
the appeal therein by defendants-appellants, Niu Kim Duan
and Chan Fue Eng assailing the trial court's decision
promulgated on October 11, 1977,[2] which ordered them to
pay plaintiff-appellee, Delta Motor Sales Corporation, the
amount of P6,188.29 with a 14% per annum interest which
was due on the three (3) "Daikin" air-conditioners
defendants-appellants purchased from plaintiff-appellee
under a Deed of Conditional Sale, after the same was
declared rescinded by the trial court. They were likewise
ordered to pay plaintiff-appellee P1,000.00 for and as
attorney's fees.
The events which led to the filing of the case in the lower
court were summarized by the Court of Appeals, as follows:
"'On July 5, 1975, the defendants purchased from the
plaintiff three (3) units of 'DAIKIN' air-conditioner all
valued at P19,350.00 as evidenced by the Deed of
Conditional Sale, Exhibit A; that the aforesaid deed of sale
had the following terms and conditions:
'(a) the defendants shall pay a down payment of P774.00 and
the balance of P18,576.00 shall [be] paid by them in twenty
four (24) installments; (b) the title to the properties
purchased shall remain with the plaintiff until the purchase
price thereof is fully paid; (c) if any two installments are not
paid by the defendants on their due dates, the whole of the
principal sum remaining unpaid shall become due, with
interest at the rate of 14% per annum; and (d) in case of a
suit, the defendants shall pay an amount equivalent to 25%
of the remaining unpaid obligation as damages, penalty and
attorney's fees; that to secure the payment of the balance of
P18,576.00 the defendants jointly and severally executed in
favor of the plaintiff a promissory note, Exhibit C; that the
three (3) air-conditioners were delivered to and received by
the defendants as shown by the delivery receipt, Exhibit B;
that after paying the amount of P6,966.00, the defendants
failed to pay at least two (2) monthly installments; that as of
January 6, 1977, the remaining unpaid obligation of the
defendants amounted to P12,920.08; that statements of
accounts were sent to the defendants and the plaintiff's
collectors personally went to the former to effect collections
but they failed to do so; that because of the unjustified refusal
of the defendants to pay their outstanding account and their
wrongful detention of the properties in question, the plaintiff
tried to recover the said properties extra-judicially but it
failed to do so; that the matter was later referred by the
plaintiff to its legal counsel for legal action; that in its
verified complaint dated January 28, 1977, the plaintiff
prayed for the issuance of a writ of replevin, which the Court
granted in its Order dated February 28, 1977, after the
plaintiff posted the requisite bond; that on April 11, 1977,
the plaintiff, by virtue of the aforesaid writ, succeeded in
retrieving the properties in question; that as of October 3,
1977, the outstanding account of the defendants is only in
the amount of P6,188.29 as shown by the computation,
Exhibit F, after deducting the interests in arrears, cover
charges, replevin bond premiums, the value of the units
repossessed and the like; and, that in view of the failure of
the defendants to pay their obligations, the amount of
P6,966.00 which had been paid by way of installments were
treated as rentals for the units in question for two (2) years
pursuant to the provisions of paragraph 5 of the Deed of
Conditional Sale, Exhibit A.' (pp. 5-7, Record; pp. 4-6,
Appellant's Brief)."
As above-stated, the trial court ruled in favor of plaintiff-
appellee.
Defendants-appellants assail the Deed of Conditional Sale
under which they purchased the three (3) Daikin air-
conditioners from plaintiff-appellee as being contrary to law,
morals, good custom, public order or public policy. In
particular, they point to the contract's paragraphs 5 and 7 as
iniquitous, which paragraphs state that:
"5. Should BUYER fail to pay any of the monthly
installments when due, or otherwise fail to comply with any
of the terms and conditions herein stipulated, this contract
shall automatically become null and void; and all sums so
paid by BUYER by reason thereof shall be considered as
rental and the SELLER shall then and there be free to take
possession thereof without liability for trespass or
responsibility for any article left in or attached to the
PROPERTY;
xxx xxx
"7. Should SELLER rescind this contract for any of the
reasons stipulated in the preceding paragraph, the BUYER,
by these presents obligates himself to peacefully deliver the
PROPERTY to the SELLER in case of rescission, and
Sales 2 of 67
should a suit be brought in court by the SELLER to seek
judicial declaration of rescissions and take possession of the
PROPERTY, the BUYER hereby obligates himself to pay
all the expenses to be incurred by reason of such suit and in
addition to pay the sum equivalent to 25% of the remaining
unpaid obligation as damages, penalty and attorney's fees;"[3]
Defendants-appellants claim that for the use of the plaintiff-
appellee's three air-conditioners, from July 5, 1975[4] to
April 11,1977,[5] or for a period of about 22 months, they, in
effect, paid rentals in the amount of P6,429.92,[6] or roughly
one-third (1/3) of the entire price of said air-conditioners
which was P19,350.00. They also complain that for the said
period the trial court is ordering them to pay P6,188.29 as
the balance due for the three air-conditioners repossessed.
Defendants-appellants were likewise ordered to pay
P1,000.00 as attorney's fees when plaintiff-appellee never
sought for attorney's fees in its complaint. They satirically
pointed out that by putting "a few touches here and there, the
same units can be sold again to the next imprudent
customer"[7] by plaintiff-appellee. Thus, enforcement of the
Deed of Conditional Sale will unjustly enrich plaintiff-
appellee at the expense of defendants-appellants.
I defendants-appellants. This is shown from the fact that its
Defendants-appellants cannot complain that their
downpayment of P774.00 and installment payments of
P5,655.92[8] were treated as rentals -- even though the total
amount of P6,429.92 which they had paid, approximates
one-third (1/3) of the cost of the three (3) air-conditioners. A
stipulation in a contract that the installments paid shall not
be returned to the vendee is valid insofar as the same may
not be unconscionable under the circumstances is sanctioned
by Article 1486 of the New Civil Code.[9] The monthly
installment payable by defendants-appellants was
P774.00.[10] The P5,655.92 installment payments correspond
only to seven (7) monthly installments. Since they admit
having used the air-conditioners for twenty-two (22)
months, this means that they did not pay fifteen (15) monthly
installments on the said air-conditioners and were thus using
the same FREE for said period -- to the prejudice of plaintiff-
appellee. Under the circumstances, the treatment of the
installment payments as rentals cannot be said to be
unconscionable.
II
The vendor in a sale of personal property payable in
installments may exercise one of three remedies, namely, (1)
exact the fulfillment of the obligation, should the vendee fail
to pay; (2) cancel the sale upon the vendee's failure to pay
two or more installments; (3) foreclose the chattel mortgage,
if one has been constituted on the property sold, upon the
vendee's failure to pay two or more installments. The third
option or remedy, however, is subject to the limitation that
the vendor cannot recover any unpaid balance of the price
and any agreement to the contrary is void (Art. 1484)[11]
The three (3) remedies are alternative and NOT cumulative.
If the creditor chooses one remedy, he cannot avail himself
of the other two.
It is not disputed that the plaintiff-appellee had taken
possession of the three air-conditioners, through a writ of
replevin when defendants-appellants refused to extra-
judicially surrender the same. This was done pursuant to
paragraphs 5 and 7 of its Deed of Conditional Sale when
defendants-appellants failed to pay at least two (2) monthly
installments, so much so that as of January 6, 1977, the total
amount they owed plaintiff-appellee, inclusive of interest,
was P12,920,08.[12] The case plaintiff-appellee filed was to
seek a judicial declaration that it had validly rescinded the
Deed of Conditional Sale.[13]
Clearly, plaintiff-appellee chose the second remedy of
Article 1484 in seeking enforcement of its contract with
Exhibit "F" which showed the computation of the
outstanding account of defendants- appellants as of October
3, 1977 took into account "the value of the units
repossessed."[14] Having done so, it is barred from exacting
payment from defendants-appellants of the balance of the
price of the three air-conditioning units which it had already
repossessed. It cannot have its cake and eat it too.[15]
WHEREFORE, the judgment of the trial court in Civil Case
No. 25578 is hereby SET ASIDE and the complaint filed by
plaintiff-appellee Delta Motor Sales Corporation is hereby
DISMISSED. No costs.
SO ORDERED.
Narvasa, C.J., (Chairman), Padilla, Regalado, and Melo,
JJ.,concur.
Sales 3 of 67
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-10789 May 28, 1957
AMADOR TAJANLANGIT, ET AL., plaintiff-
appellants,
vs.
SOUTHERN MOTORS, INC., ET AL., defendants-
appellees.
Almacen and Almacen for appellants.
Diosdado Garingalao for appellees.
BENGZON, J.:
The case. Appellants seek to reverse the order of Hon.
Pantaleon Pelayo, Judge of the Iloilo court of first instance
refusing to interfere with the alias writ of execution issued
in Civil Case No. 2942 pending in another sala of the same
court.
The facts. In April 1953 Amador Tajanlangit and his wife
Angeles, residents of Iloilo, bought, from the Southern
Motors Inc. of Iloilo two tractors and a thresher. In payment
for the same, they executed the promissory note Annex A
whereby they undertook to satisfy the total purchase price of
P24,755.75 in several installments (with interest) payable on
stated dates from May 18, 1953 December 10, 1955. The
note stipulated that if default be made in the payment of
interest or of any installment, then the total principal sum
still unpaid with interest shall at once become demandable
etc. The spouse failed to meet any installment. Wherefore,
they were sued, in the above Civil Case No. 2942, for the
amount of the promissory note.1 The spouses defaulted, and
the court, after listening to the Southern Motors' evidence
entered Judgment for it in the total sum of P24,755.75
together with interest at 12 per cent, plus 10 per cent of the
total amount due as attorney's fees and costs of collection.
Carrying out the order of execution, the sheriff levied on the
same machineries and farm implements which had been
bought by the spouses; and later sold them at public auction
to the highest bidder — which turned out to be the Southern
Motors itself — for the total sum of P10,000.
As its judgment called for much more, the Southern Motors
subsequently asked and obtained, an alias writ of execution;
and pursuant thereto, the provincial sheriff levied attachment
on the Tajanlangits' rights and interests in certain real
properties — with a view to another sale on execution.
To prevent such sale, the Tajanlangits instituted this action
in the Iloilo court of first instance for the purpose among
others, of annulling the alias writ of execution and all
proceedings subsequent thereto. Their two main theories: (1)
They had returned the machineries and farm implements to
the Southern Motors Inc., the latter accepted them, and had
thereby settled their accounts; for that reason, said spouses
did not contest the action in Civil Case No. 2942; and (2) as
the Southern Motors Inc. had repossessed the machines
purchased on installment (and mortgaged) the buyers were
thereby relieved from further responsibility, in view of the
Recto Law, now article 1484 of the New Civil Code.
For answer, the company denied the alleged "settlement and
understanding" during the pendency of civil case No. 2949.
It also denied having repossessed the machineries, the truth
being that they were attached by the sheriff and then
deposited by the latter in its shop for safekeeping, before the
sale at public auction.
The case was submitted for decision mostly upon a
stipulation of facts. Additional testimony was offered
together with documentary evidence. Everything considered
the court entered judgment, saying in part;
The proceedings in Civil Case No. 2942 above
referred to, were had in the Court of First Instance
(Branch 1) of the Province and of the City of
Iloilo. While this court (Branch IV) sympathizes
with plaintiffs, it cannot grant, in this action, the
relief prayed for the complaint because courts of
similar jurisdiction cannot invalidate the
judgments and orders of each other. Plaintiffs have
not pursued the proper remedy. This court is
without authority and jurisdiction to declare null
and void the order directing the issuance
of alias writ of execution because it was made by
another court of equal rank and category (see
Cabiao and Izquierdo vs. Del Rosario and Lim, 44
Phil., 82-186).
WHEREFORE, judgement is hereby rendered
dismissing the complaint with costs against
plaintiffs costs against plaintiffs. Let the writ of
preliminiary injunction issued on August 26,
1954, be lifted.
The plaintiffs reasonably brought the matter to the Court of
Appeals, but the latter forwarded the expediente, being of the
opinion that the appeal involved questions of jurisdiction
and/or law
Discussion. Appellants' brief elaborately explains in the nine
errors assigned, their original two theories although their
"settlement" idea appears to be somewhat modified.
"What is being sought in this present action" say appellants
"is to prohibit and forbid the appellee Sheriff of Iloilo from
attaching and selling at public auction sale the real properties
of appellants because that is now forbidden by our law after
the chattels that have been purchased and duly mortgagee
had already been repossessed by the same vendor-mortgagee
and later on sold at public auction sale and purchased by the
same at such meager sum of P10,000."
"Our law" provides,
ART. 1484. In a contract of sale of personal
property the price of which is payable in
installments, the vendor may exercise of the
following remedies:
(1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to
pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments. In this case, he shall have no further
action against the purchaser to recover any unpaid
balance of the price. Any agreement to the
contrary shall be void. (New Civil Code.)
Appellants would invoke the last paragraph. But there has
been no foreclosure of the chattel mortgage nor a foreclosure
sale. Therefore the prohibition against further collection
does not apply.
Sales 4 of 67
 At any rate it is the actual sale of the mortgaged
chattel in accordance with section 14 Act No. 1508
that would bar the creditor (who chooses to
foreclose) from recovering any unpaid balance.
(Pacific Com. Co. vs. De la Rama, 72 Phil. 380.)
(Manila Motor Co. vs. Fernandez, 99 Phil., 782.).
It is true that there was a chattel mortgage on the goods sold.
But the Southern Motors elected to sue on the note
exclusively, i.e. to exact fulfillment of the obligation to pay.
It had a right to select among the three remedies established
in Article 1484. In choosing to sue on the note, it was not
thereby limited to the proceeds of the sale, on execution, of
the mortgaged good.2
In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a
similar situation arose in connection with the purchase on
installment of a Chevrolet truck by Magbanua. Upon the
latter's default, suit on the note was filed, and the truck levied
on together with other properties of the debtor. Contending
that the seller was limited to the truck, the debtor obtained a
discharge of the other properties. This court said:
By praying that the defendant be ordered to pay
the sum of P4,690 together with the stipulated
interest at 12% per annum from 17 March 1954
until fully paid, plus 10 per cent of the total
amount due as attorney's fees and cost of
collection, the plaintiff acted to exact the
fulfillment of the obligation and not to
foreclose the mortgage on the truck. . . .
As the plaintiff has chosen to exact the fulfillment
of the defendant's obligation, the former may
enforce execution of the judgement rendered in its
favor on the personal and real properties of the
latter not exempt from execution sufficient to
satisfy the judgment. That part of the
judgement depriving the plaintiff of its right to
enforce judgment against the properties of the
defendant except the mortgaged truck and
discharging the writ of attachment on his other
properties is erroneous. (Emphasis ours.)
Concerning their second theory, — settlement or
cancellation — appellants allege that the very implements
sold "were duly returned" by them, and "were duly received
and accepted by the said vendor-mortgagee". Therefore they
argue, "upon the return of the same chattels and due
acceptance of the same by the vendor-mortgagee, the
conditional sale is ipso facto cancelled, with the right of the
vendor-mortgagee to appropriate whatever downpayment
and posterior monthly installments made by the purchaser as
it did happen in the present case at bar."
The trouble with the argument is that it assumes that
acceptance of the goods by the Southern Motors Co, with a
view to "cancellation" of the sale. The company denies such
acceptance and cancellation, asserting the goods, were
deposited in its shop when the sheriff attached them in
pursuance of the execution. Its assertion is backed up by the
sheriff, of whose credibility there is no reason to doubt.
Anyway this cancellation or settlement theory may not be
heeded now, because it would contravene the decision in
Civil Case No. 2942 above-mentioned — it would show the
Tajanlangits owned nothing to Southern Motors Inc. Such
decision is binding upon them, unless and until they manage
to set it aside in a proper proceeding — and this is not it.
There are other points involved in the case, such as the
authority of the judge of one branch of a court of first
instance to enjoin proceedings in another branch of the same
court. As stated, Judge Pelayo refused to interfere on that
ground. Appellants insist this was error on several counts.
We deem it unnecessary to deal with this procedural aspect,
inasmuch as we find that, on the merits, plaintiffs are not
entitled to the relief demanded.
Judgment. The decision dismissing the complaint, is
affirmed, with costs against appellants. So ordered.
Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador,
Concepcion, Reyes, J.B.L. and Endencia, JJ., concur.
Sales 5 of 67
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-67181 November 22, 1985
SPOUSES RESTITUTO NONATO and ESTER
NONATO, petitioners,
vs.
THE HONORABLE INTERMEDIATE APPELLATE
COURT and INVESTOR'S FINANCE
CORPORATION respondents.
ESCOLIN, J.:
The issue posed in this petition for review of the decision of
the respondent appellate court is whether a vendor, or his
assignee, who had cancelled the sale of a motor vehicle for
failure of the buyer to pay two or more of the stipulated
installments, may also demand payment of the balance of the
purchase price.
The pertinent facts are summarized by the respondent
appellate court as follows:
On June 28, 1976, defendant spouses
Restituto Nonato and Ester Nonato
purchased one (1) unit of Volkswagen
Sakbayan from the People's Car, Inc., on
installment basis. To secure complete
payment, the defendants executed a
promissory note (Exh. A or 1) and a
chattel mortgage in favor of People's
Car, Inc, (Exh. B or 2). People's Car,
Inc., assigned its rights and interests
over the note and mortgage in favor of
plaintiff Investor's Finance Corporation
(FNCB) Finance). For failure of
defendants to pay two or more
installments, despite demands, the car
was repossessed by plaintiff on March
20, 1978 (Exh. E or 4).
Despite repossession, plaintiff
demanded from defendants that they pay
the balance of the price of the car (Exhs.
F and C). Finally, on June 9, 1978,
plaintiff filed before the Court of First
Instance of Negros Occidental the
present complaint against defendants for
the latter to pay the balance of the price
of the car, with damages and attorney's
fees. (Records, pp. 36-37)
In their answer, the spouses Nonato alleged by way of
defense that when the company repossessed the vehicle, it
had, by that act, effectively cancelled the sale of the vehicle.
It is therefore barred from exacting recovery of the unpaid
balance of the purchase price, as mandated by the provisions
of Article 1484 of the Civil Code.
After due hearing, the trial court rendered a decision in favor
of the IFC and against the Nonatos, as follows:
PREMISES CONSIDERED, the Court
hereby renders judgment ordering the
defendant to pay to the plaintiff the
amount of P 17,537.60 with interest at
the rate of 14% per annum from July 28,
1976 until fully paid, 10% of the amount
due as attorney's fees, litigation
expenses in the amount of P 133.05 plus
the costs of this suit. No pronouncement
as to other charges and damages, the
same not having been proven to the
satisfaction of the Court. 1
On appeal, the respondent appellate court affirmed the j
judgment.
Hence, this petition for review on certiorari.
The applicable law in the case at bar, involving as it does a
sale of personal property on installment, is Article 1484 of
the Civil Code which provides:
In a contract of sale of personal property
the price of which is payable in
installments, the vendor may exercise
any of the following remedies:
(1) Exact fulfillment of the obligation,
should the vendee fail to pay;
(2) Cancel the sale, should the vendee's
failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on
the thing sold, if one has been
constituted, should the vendee's failure
to pay cover two or more installments.
In this case, he shall have no further
action against the purchaser to recover
any unpaid balance of the price. Any
agreement to the contrary shall be void.
The meaning of the aforequoted provision has been
repeatedly enunciated in a long line of cases. Thus: "Should
the vendee or purchaser of a personal property default in the
payment of two or more of the agreed installments, the
vendor or seller has the option to avail of any of these three
remedies-either to exact fulfillment by the purchaser of the
obligation, or to cancel the sale, or to foreclose the mortgage
on the purchased personal property, if one was constituted.
These remedies have been recognized as alternative, not
cumulative, that the exercise of one would bar the exercise
of the others. 2
It is not disputed that the respondent company had taken
possession of the car purchased by the Nonatos on
installments. But while the Nonatos maintain that the
company had, by that act, exercised its option to cancel the
contract of sale, the company contends that the repossession
of the vehicle was only for the purpose of appraising its value
and for storage and safekeeping pending full payment by the
Nonatos of the purchasing price. The company thus denies
having exercised its right to cancel the sale of the
repossessed car. The records show otherwise.
The receipt issued by the respondent company to the
Nonatos when it took possession of the vehicle states that the
vehicle could be redeemed within fifteen [151 days. 3 This
could only mean that should petitioners fail to redeem the
car within the aforesaid period by paying the balance of the
purchase price, the company would retain permanent
possession of the vehicle, as it did in fact. This was
confirmed by Mr. Ernesto Carmona, the company's witness,
who testified, to wit:
ATTY.
PAMPLONA:
Sales 6 of 67
 So that Mr.
Witness, it is clear
now that, per your
receipt and your
answer, the
company will not
return the unit
without paying a
sum of money,
more particularly
the balance of the
account?

WITNESS: Yes,
sir. 4

Respondent corporation further asserts that it repossessed

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

Indeed, the acts performed by the corporation are wholly

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

WHEREFORE, the judgment of the appellate court in CA-

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

SO ORDERED.

Concepcion, Jr. (Chairman), Abad Santos, Cuevas and

Alampay, JJ., concur.

Sales 7 of 67
 Republic of the Philippines Due to the failure of the plaintiffs to pay their monthly to this Court, appellants imputing to the lower court five
SUPREME COURT installments as per promissory note, the defendant alleged errors, as follows:
Manila corporation foreclosed the chattel mortgage extra-judicially,
and at the public auction sale of the two Ford Consul cars, of I
SECOND DIVISION which the plaintiffs were not notified, the defendant
corporation was the highest bidder and purchaser. Another
auction sale was held on November 16, 1965, involving the THE LOWER COURT ERRED IN
G.R. No. L-39806 January 27, 1983 remaining properties subject of the deed of chattel mortgage DECLARING THE CHATTEL
since plaintiffs' obligation was not fully satisfied by the sale MORTGAGE, EXHIBIT "C", NULL
LUIS RIDAD and LOURDES RIDAD, plaintiffs- of the aforesaid vehicles, and at the public auction sale, the AND VOID.
appellees, franchise of plaintiffs to operate five units of taxicab service
vs. was sold for P8,000 to the highest bidder, herein defendant II
FILIPINAS INVESTMENT and FINANCE corporation, which subsequently sold and conveyed the
CORPORATION, JOSE D. SEBASTIAN and JOSE same to herein defendant Jose D. Sebastian, who then filed THE LOWER COURT ERRED IN
SAN AGUSTIN, in his capacity as Sheriff, defendants- with the Public Service Commission an application for HOLDING THAT THE SALE AT
appellants. approval of said sale in his favor. PUBLIC AUCTION CONDUCTED
BY THE CITY SHERIFF OF MANILA
Osmundo Victoriano for plaintiffs-appellees. On February 21, 1966, plaintiffs filed an action for CONCERNING THE TAXICAB
annulment of contract before the Court of First Instance of FRANCHISE IS OF NO LEGAL
Wilhelmina V. Joven for defendant-appellants. Rizal, Branch I, with Filipinas Investment and Finance EFFECT.
Corporation, Jose D. Sebastian and Sheriff Jose San Agustin,
as party-defendants. By agreement of the parties, the case III
was submitted for decision in the lower court on the basis of
the documentary evidence adduced by the parties during the
DE CASTRO, J: pre-trial conference. Thereafter, the lower court rendered THE LOWER COURT ERRED IN
judgment as follows: SETTING ASIDE THE
CERTIFICATE OF SALE ISSUED BY
Appeal from the decision of the Court of First Instance of THE CITY SHERIFF OF MANILA IN
Rizal, Branch I, in Civil Case No. 9140 for annulment of IN VIEW OF THE ABOVE FAVOR OF FILIPINAS
contract, originally filed with the Court of Appeals but was CONSIDERATIONS, this Court INVESTMENT AND FINANCE
subsequently certified to this Court pursuant to Section 3 of declares the chattel mortgage, Exhibit CORPORATION COVERING
Rule 50 of the Rules of Court, there being no issue of fact "C", to be null and void in so far as the PLAINTIFFS' TAXICAB
involved in this appeal. taxicab franchise and the used Chevrolet FRANCHISE.
car of plaintiffs are concerned, and the
sale at public auction conducted by the
The materials facts of the case appearing on record may be IV
City Sheriff of Manila concerning said
stated as follows: On April 14, 1964, plaintiffs purchased
taxicab franchise, to be of no legal
from the Supreme Sales arid Development Corporation two
effect.1äwphï1.ñët The certificate of THE LOWER COURT ERRED IN
(2) brand new Ford Consul Sedans complete with
sale issued by the City Sheriff of Manila DECLARING VOID AND OF NO
accessories, for P26,887 payable in 24 monthly installments.
in favor of Filipinas Investment and LEGAL EFFECT THE ASSIGNMENT
To secure payment thereof, plaintiffs executed on the same
Finance Corporation concerning OF THE TAXICAB FRANCHISE
date a promissory note covering the purchase price and a
plaintiffs' taxicab franchise for P8,000 is MADE BY FILIPINAS
deed of chattel mortgage not only on the two vehicles
accordingly cancelled and set aside, and INVESTMENT AND FINANCE
purchased but also on another car (Chevrolet) and plaintiffs'
the assignment thereof made by CORPORATION IN FAVOR OF
franchise or certificate of public convenience granted by the
Filipinas Investment in favor of DEFENDANT.
defunct Public Service Commission for the operation of a
defendant Jose Sebastian is declared
taxi fleet. Then, with the conformity of the plaintiffs, the
void and of no legal effect. (Record on
vendor assigned its rights, title and interest to the above- V
Appeal, p. 128).
mentioned promissory note and chattel mortgage to
defendant Filipinas Investment and Finance Corporation. THE LOWER COURT (sic) IN NOT
From the foregoing judgment, defendants appealed to the
DECIDING THE CASE IN FAVOR OF
Court of Appeals which, as earlier stated, certified the appeal

Sales 8 of 67
 THE DEFENDANTS. Appellants'
Brief, pp. 9 & 10)
From the aforequoted assignment of errors, the decisive
issue for consideration is the validity of the chattel mortgage
in so far as the franchise and the subsequent sale thereof are
concerned.
The resolution of said issue is unquestionably governed by
the provisions of Article 1484 of the Civil Code which states:
Art. 1484. In a contract of sale of
personal property the price of which is
payable in installments, the vendor may
exercise y of the following remedies:
(1) Exact fulfillment of the obligation,
should the vendee fail to pay;
(2) Cancel the sale, should the vendee's
failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on
the thing sold, if one has been
constituted, should the vendee's failure
to pay cover two or more installments.
In this case, he shall have no further
action against the purchaser to recover
any unpaid balance of the price. Any
agreement to the contrary shall be void.
Under the above-quoted article of the Civil Code, the vendor
of personal property the purchase price of which is payable
in installments, has the right, should the vendee default in
the payment of two or more of the agreed installments, to
exact fulfillment by the purchaser of the obligation, or to
cancel the sale, or to foreclose the mortgage on the
purchased personal property, if one was
constituted. 1 Whichever right the vendor elects, he cannot
avail of the other, these remedies being alternative, not
cumulative. 2 Furthermore, if the vendor avails himself of
the right to foreclose his mortgage, the law prohibits him
from further bringing an action against the vendee for the
purpose of recovering whatever balance of the debt secured
not satisfied by the foreclosure sale. 3 The precise purpose of
the law is to prevent mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price and
then bringing suit against the mortgagor for a deficiency
judgment, otherwise, the mortgagor-buyer would find
himself without the property and still owing practically the
full amount of his original indebtedness. 4
In the instant case, defendant corporation elected to
foreclose its mortgage upon default by the plaintiffs in the
payment of the agreed installments. Having chosen to
foreclose the chattel mortgage, and bought the purchased
vehicles at the public auction as the highest bidder, it
submitted itself to the consequences of the law as
specifically mentioned, by which it is deemed to have
renounced any and all rights which it might otherwise have
under the promissory note and the chattel mortgage as well
as the payment of the unpaid balance.
Consequently, the lower court rightly declared the nullity of
the chattel mortgage in question in so far as the taxicab
franchise and the used Chevrolet car of plaintiffs are
concerned, under the authority of the ruling in the case
of Levy Hermanos, Inc. vs. Pacific Commercial Co., et
al., 71 Phil. 587, the facts of which are similar to those in the
case at bar. There, we have the same situation wherein the
vendees offered as security for the payment of the purchase
price not only the motor vehicles which were bought on
installment, but also a residential lot and a house of strong
materials. This Court sustained the pronouncement made by
the lower court on the nullity of the mortgage in so far as it
included the house and lot of the vendees, holding that under
the law, should the vendor choose to foreclose the mortgage,
he has to content himself with the proceeds of the sale at the
public auction of the chattels which were sold on installment
and mortgaged to him and having chosen the remedy of
foreclosure, he cannot nor should he be allowed to insist on
the sale of the house and lot of the vendees, for to do so
would be equivalent to obtaining a writ of execution against
them concerning other properties which are separate and
distinct from those which were sold on installment. This
would indeed be contrary to public policy and the very spirit
and purpose of the law, limiting the vendor's right to
foreclose the chattel mortgage only on the thing sold.
In the case of Cruz v. Filipinos Investment & Finance
Corporation, 23 SCRA 791, this Court ruled that the vendor
of personal property sold on the installment basis is
precluded, after foreclosing the chattel mortgage on the thing
sold from having a recourse against the additional security
put up by a third party to guarantee the purchaser's
performance of his obligation on the theory that to sustain
the same would overlook the fact that if the guarantor should
be compelled to pay the balance of the purchase price, said
guarantor will in turn be entitled to recover what he has paid
from the debtor-vendee, and ultimately it will be the latter
who will be made to bear the payment of the of the balance
of the price, despite the earlier foreclosure of the chattel
mortgage given by him, thereby indirectly subverting the
protection given the latter. Consequently, the additional
mortgage was ordered cancelled. Said ruling was reiterated
in the case of Pascual v. Universal Motors Corporation, 61
SCRA 121. If the vendor under such circumstance is
prohibited from having a recourse against the additional
security for reasons therein stated, there is no ground why
such vendor should not likewise be precluded from further
extrajudicially foreclosing the additional security put up by
the vendees themselves, as in the instant case, it being
tantamount to a further action 5 that would violate Article
1484 of the Civil Code, for then is actually no between an
additional security put up by the vendee himself and such
security put up by a third party insofar as how the burden
would ultimately fall on the vendee himself is concerned.
Reliance on the ruling in Southern Motors, inc. v.
Moscoso, 2 SCRA 168, that in sales on installments, where
the action instituted is for and the mortgaged property is
subsequently attached and sold, the sales thereof does not
amount to a foreclosure of the mortgage, hence, the seller
creditor is entitled to a deficiency judgment, does not for the
stand of the appellants for that case is entirely different from
the case at bar. In that case, the vendor has availed of the first
remedy provided by Article 1484 of the Civil Code, i.e., to
exact fulfillment of the obligation whereas in the present
case, the remedy availed of was foreclosure of the chattel
mortgage.
The foregoing disposition renders superfluous a
determination of the other issue raised by the parties as to the
validity of the auction sale, in so far as the franchise of
plaintiffs is concerned, which sale had been admittedly held
without any notice to the plaintiffs.
IN VIEW HEREOF, the judgment appealed from is hereby
affirmed, with costs against the appellants.
SO ORDERED.
Makasiar (Chairman), Aquino, Concepcion, Jr., Guerrero,
Abad Santos and Escolin, JJ., concur.
Sales 9 of 67
 Republic of the Philippines The motor vehicle was delivered to the petitioner who 1)
SUPREME COURT paid the initial payment in the amount of P1,006.82; and 2)
Manila executed a promissory note in the amount of P7,920.00, the
balance of the total selling price, in favor of respondent
FIRST DIVISION Luneta Motor Company. The promissory note stated the
amounts and dates of payment of twenty-six installments
covering the P7,920.00 debt. Simultaneously with the
G.R. No. L-30583 October 23, 1982 execution of the promissory note and to secure its payment,
the petitioner executed a chattel mortgage on the subject
EUTROPIO ZAYAS, JR., petitioner, motor vehicle in favor of the respondent. After paying a total
vs. amount of P3,148.00, the petitioner was unable to pay
LUNETA MOTOR COMPANY and HONORABLE further monthly installments prompting the respondent
JUAN O. REYES, Presiding Judge of the Court of First Luneta Motor Company to extra-judicially foreclose the
Instance of Manila, Branch XXI, respondents. chattel mortgage (Annex "A" to Answer, Original Record, p.
10, supra). The motor vehicle was sold at public auction
with the respondent Luneta Motor Company represented by
Pantaleon Z. Salcedo for petitioner.
Atty. Leandro B. Fernandez as the highest bidder in the
amount of P5,000.00 (Annex "B" to Answer, Original
Leandro B. Fernandez for respondents. Record, p. 11, supra). Since the payments made by
petitioner Eutropio Zayas, Jr. plus the P5,000.00 realized
from the foreclosure of the chattel mortgage could not cover
the total amount of the promissory note executed by the
petitioner in favor of the respondent Luneta Motor
GUTIERREZ, JR., J.:
Company, the latter filed Civil Case No. 165263 with the
City Court of Manila for the recovery of the balance of
Eutropio Zayas, Jr., filed this petition for review by certiorari P1,551.74 plus interests.
to secure a reversal of the respondent court's orders which
remanded Civil Case No. 74381 for further proceedings
Luneta Motor Company alleged in its complaint that
instead of affirming the city court's order of dismissal,
defendant Eutropio Zayas, Jr. executed a promissory note in
the amount of P7,920.00 in its favor; that out of the
The petitioner Eutropio Zayas, Jr, purchased on installment P7,920.00, Eutropio Zayas, Jr. had paid only P6,368.26 plus
basis a motor vehicle described as ONE (1) UNIT FORD interest up to the date of the sale at public auction of the
THAMES FREIGHTER W/PUJ BODY with Engine No. motor vehicle; that the balance of P1,551.74 plus interest of
400E-127738 and Chassis No. 400E-127738 from Mr. 12% thereon from that date had already become due and
Roque Escaño of the Escaño Enterprises in Cagayan de Oro payable but despite repeated demands to pay the same,
City, dealer of respondent Luneta Motor Company, under Eutropio Zayas, Jr., refused and failed to pay.
the following terms and conditions:
In his answer with affirmative defenses and counterclaim,
Eutropio Zayas, Jr. admitted having executed the promissory
Selling price P7,500.00
note for the monthly payments, on a Ford Thames vehicle
Financing charge bearing Engine No. 400E-127738 which he purchased from
P1,426.82
the Luneta Motor Company but he denied his alleged
Total Selling Price outstanding liability of P1,551.74 plus interest thereon ... the
P8,926.82
said obligation if there was any, had already been discharged
Payable on Delivery either by payment or by sale in public auction of the said
P1,006.82
motor vehicle as evidenced by a Notice of Sale marked as
Payable in 24 months Annex "A" and Certificate of Sale marked as Annex "B";
P7,920.00
at 12% interest per (Answer, p. 7, Original Record). He alleged as affirmative
annum defenses, among others: 1) that the plaintiff has no cause of
action against him; and 2) that pursuant to Article 1484 of
the New Civil Code and the case of Pacific Commercial Co.
v. De La Rama, (72 Phil. 380) his obligation per the
promissory note was extinguished by the sale at public
auction of the motor vehicle, the subject of the chattel
mortgage which was executed by him in favor of the plaintiff
as security for the payment of said promissory note.
(Answer, p. 8, Original Record)
In its Reply, Luneta Motor Company denied the applicability
of Article 1484 of the Civil Code ... for the simple reason
that the contract involved between the parties is not one for
a sale on installment" (Reply, p. 13, Original Record).
After several postponements, the case was set for hearing.
As a result of the non- appearance of the plaintiff and its
counsel on the date set for hearing, defendant Zayas, Jr.
moved to have the case dismissed for lack of interest on the
part of the plaintiff. He also asked the court to allow him to
discuss the merits of his affirmative defense as if a motion to
dismiss had been filed. The issue raised and argued by the
defendant was whether or not a deficiency amount after the
motor vehicle, subject of the chattel mortgage, has been sold
at public auction could still be recovered. Zayas cited the
case of Ruperto Cruz v. Filipinas Investment (23 SCRA
791).<äre||anº•1àw>
Acting on the motion, the city court issued an Order:
On Petition of counsel for the defendant
for the dismissal of this case on the
ground that the defendant is no longer
liable for the deficiency judgment inas
much as the chattel mortgage has been
foreclosed, with the plaintiff as the
highest bidder thereof, citing the case
of Ruperto G. Cruz v. Filipinas
Investment decided on May 27, 1968,
G.R. No. L-24772 in connection with
Article 1484 of the Civil Code, and
finding the same well taken.
Let this case be dismissed without
pronouncement as to costs.
Luneta Motor Company filed an "Urgent Motion for
Reconsideration" reiterating its stand that Article 1484 of the
New Civil Code on sale of personal property by installment
was not applicable and that the contract involving the parties
was a mere case of an ordinary loan secured by chattel
mortgage. According to the plaintiff, the defendant executed
the promissory note and chattel mortgage to secure the
Sales 10 of 67
plaintiff's interest for having financed the purchase of the
motor vehicle by the defendant from the Escaño Enterprises
of Cagayan de Oro City, an entity entirely different and
distinct from the plaintiff corporation (p. 33, Original
Record).
The court denied the motion for reconsideration for lack of
merit.
Luneta Motor Company appealed the case to the Court of
First Instance of Manila where it was docketed as Civil Case
No. 74381.
After various incidents, the respondent court issued an order
which, in part, reads:
This is an appeal taken by plaintiff from
the order of the City Court of Manila,
dismissing its complaint on the ground
that the defendant is no longer liable for
the deficiency judgment inasmuch as the
chattel mortgage has been foreclosed,
with the plaintiff as the highest bidder
thereof, in line with the ruling of the
Supreme Court in the case of Ruperto G.
Cruz v. Filipinas Investment (G.R. No.
L24772) in connection with Article
1484 of the Civil Code.
xxx xxx xxx
After going over the pleadings in this
case, more particularly the complaint
and the answer to the complaint filed
with the City Court of Manila, this Court
is of the impression that the case at bar
may not be decided merely, as the City
Court had done, on the question of law
since the presentation of evidence is
necessary to adjudicate the questions
involved. WHEREFORE, this case is
hereby remanded to the court of origin
for further proceedings. (pp. 82-83,
Original Record)
Hence, this petition.
Petitioner Eutropio Zayas, Jr. now maintains::
That Respondent p. 36) Annex "A" is a Certification from the cashier of
Court of First Escano Enterprises on the monthly installments paid by Mr.
Instance erred: Eutropio Zayas, Jr. In the certification, the promissory note
in favor of Luneta Motor Company was specifically
1. IN HOLDING THAT THE mentioned. There was only one promissory note executed by
QUESTION OF LAW CANNOT BE Eutropio Zayas, Jr. in connection with the purchase of the
DECIDED SINCE PRESENTATION motor vehicle. The promissory note mentioned in the
OF EVIDENCE IS NECESSARY- certification refers to the promissory note executed by
REGARDING THE QUESTION OF Eutropio Zayas, Jr. in favor of respondent Luneta Motor
RECOVERY OF THE DEFICIENCY Company. Thus:
AMOUNT IN A CHATTEL
MORTGAGE AFTER SELLING IT IN CERTIFICATION
A PUBLIC AUCTION;
This is to certify that Mr. EUTROPIO
2. IN ORDERING THE REMAND OF ZAYAS, JR. has paid from us the
THE CASE TO THE CITY COURT following, of his FORD THAMES
FOR FURTHER PROCEEDINGS BEARING Engine No. 400E-127738,
TAKEN BY THE RESPONDENT promissory note dated October 6, 1966.
FROM THE CITY COURT TO THE Viz:
COURT OF FIRST INSTANCE,
BRANCH XXI, MANILA; and
3. IN NOT DISMISSING THE
APPEAL TAKEN BY THE PRIVATE
RESPONDENT FROM THE CITY
COURT TO THE COURT OF FIRST
INSTANCE.
The main defense of respondent Luneta Motor Company is
that Escano Enterprises, Cagayan de Oro City from which
petitioner Eutropio Zayas, Jr. purchased the subject motor
vehicle was a distinct and different entity; that the role of
Luneta Motor Company in the said transaction was only to
finance the purchase price of the motor vehicle; and that in
order to protect its interest as regards the promissory note
executed in its favor, a chattel mortgage covering the same
motor vehicle was also executed by petitioner Eutropio
Zayas, Jr. In short, respondent Luneta Motor Company
maintains that the contract between the company and the
petitioner was only an ordinary loan removed from the
coverage of Article 1484 of the New Civil Code.
The respondent's arguments have no merit.
The Escaño Enterprises of Cagayan de Oro City was an
agent of Luneta Motor Company. A very significant
evidence which proves the nature of the relationship between
Luneta Motor Company and Escaño Enterprises is Annex
"A. of the petitioner's OPPOSITION TO URGENT
MOTION FOR RECONSIDERATION. (Original Record,
Sales 11 of 67
ESCAÑO DATE AMOUNT
O.R RECEIVED

NUMBER

09998 October 5, P1,000.00

1966

10064 October 20, 242.00

1966

10188 November 166.00

8, 1966

10355 December 400.00

12,1966

LMC C.R. January 19, 270.00

#40031 1967

10536 February 1, 60.00

1967

10645 February 100.00

27, 1967

10704 March 100.00

13,1967

10749 March 22, 60.00

1967

10132 March 100.00

30,1967

10788 April 8, 100.00

1967

10795 April 11, 100.00

1967

10827 April 18, 100.00

1967

10934 May 10, 100.00

1967

10991 May 100.00

26,1967

Sales 12 of 67
 11105 June 150.00
19,1967

P3,148.00

ESCAÑO ENTERPRISES xxx xxx xxx almost invariable

result of this
(SGD.) EMELITA H. BACULIO (3) Foreclose the chattel ;mortgage on procedure was that
the thing sold, if one has been the mortgagor
constituted, should the vendee's failure found himself
C minus the property
to pay cover two or more installments. a
In this case, he shall have no further and still owing
s practically the full
action against the purchaser to recover h
any unpaid balance of the price. Any amount of his
i original
agreement to the contrary shall be void. e indebtedness.
r Under this
xxx xxx xxx amendment the
Escano Enterprises, a dealer of respondent Luneta Motor vendor of personal
Company, was merely a collecting-agent as far as the ... the established rule is to the effect that the foreclosure and property, the
purchase of the subject motor vehicle was concerned. The actual sale of a mortgaged chattel bars further recovery by purchase price of
principal and agent relationship is clear. the vendor of any balance on the purchaser's outstanding which is payable in
obligation not so satisfied by the sale. And the reason for this installments, has
But even assuming that the "distinct and independent entity" doctrine was aptly stated in the case of Bachrach Motor Co. the right to cancel
theory of the private respondent is valid, the nature of the vs. Millan, supra, thus: the sale or foreclose
transaction as a sale of personal property on installment basis the mortgage if one
remains. When, therefore, Escaño Enterprises, assigned its Undoubtedly the has been given on
rights vis-a-vis the sale to respondent Luneta Motor principal object of the property.
Company, the nature of the transaction involving Escano the above Whichever right the
Enterprises and Eutropio Zayas, Jr. did not change at all. As amendment was to vendor elects he
assignee, respondent Luneta Motor Company had no better remedy the abuses need not return to
rights than assignor Escaño Enterprises under the same committed in the purchaser the
transaction. The transaction would still be a sale of personal connection with the amount of the
property in installments covered by Article 1484 of the New foreclosure of installments already
Civil Code. To rule otherwise would pave the way for chattel mortgages. paid, "if there be an
subverting the policy underlying Article 1484 of the New This amendment agreement to that
Civil Code, on the foreclosure of chattel mortgages over prevents effect".
personal property sold on installment basis. mortgagees from Furthermore, if the
seizing the vendor avails
mortgaged himself of the right
ART. 1484. In a contract of sale of to foreclose the
personal property the price of which is property, buying it
at foreclosure sale mortgage this
payable in installments, the vendor may amendment
exercise any of the following remedies: for a low price and
then bringing suit prohibits him from
against the bringing an action
xxx xxx xxx mortgagor for a against the
deficiency purchaser for the
judgment. The unpaid balance.

Sales 13 of 67
 (Cruz v. Filipinas
Investment &
Finance
Corporation, 23
SCRA 791)

Our findings and conclusions are borne out by the records

available to the respondent court. There was no necessity for
the remand of records to the city court for the presentation
of evidence on the issue raised in the case.

WHEREFORE, the instant petition is hereby granted. The

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

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Vasquez

and Relova, JJ., concur.

Sales 14 of 67
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28074 May 29, 1970
NORTHERN MOTORS, INC., plaintiff-appellant,
vs.
CASIANO SAPINOSO and "JOHN DOE", defendants-
appellees.
Sycip, Salazar, Luna, Manalo & Feliciano for plaintiff-
appellant.
David F. Barrera for defendants-appellees.
VILLAMOR, J.:
Direct appeal on questions of law from the portion of the
judgment of the Court of First Instance of Manila, Branch
XXII, in its Civil Case No. 66199, ordering the plaintiff to
pay defendant Casiano Sapinoso the sum of P1,250.00.
The facts of this case are as follows:
On June 4, 1965, Casiano Sapinoso purchased from
Northern Motors, Inc. an Opel Kadett car for the price of
P12,171.00, making a down payment and executing a
promissory note for the balance of P10,540.00 payable in
installments with interest at 12% per annum, as follows:
P361.00 on July 5, 1965, and P351.00 on the 5th day of each
month beginning August, 1965, up to and including
December, 1967. To secure the payment of the promissory
note, Sapinoso executed in favor of Northern Motors, Inc. a
chattel mortgage on the car. The mortgage contract provided,
among others, that upon default by the mortgagor in the
payment of any part of the principal or interest due, the
mortgagee may elect any of the following remedies: (a) sale
of the car by the mortgagee; (b) cancellation of the contract
of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure;
(e) ordinary civil action to exact fulfillment of the mortgage
contract. It was further stipulated that "[w]hichever remedy
is elected by the mortgagee, the mortgagor expressly waives
his right to reimbursement by the mortgagee of any and all
amounts on the principal and interest already paid by him."
Sapinoso failed to pay the first installment of P361.00 due
on July 5, 1965, and the second, third, fourth and fifth
installments of P351.00 each due on the 5th day of August,
September, October and November, 1965, respectively.
Several payments were, however, made by Sapinoso, to wit:
P530.52 on November 21, 1965, P480.00 on December 21,
1965, and P400.00 on April 30, 1966. The first and third
payments aforesaid were applied to accrued interest up to
April 17, 1966, while the second payment was applied partly
(P158.10) to interest, and partly (P321.90) to the principal,
thereby reducing the balance unpaid to P10,218.10.
The vendee-mortgagor having failed to make further
payments, Northern Motors, Inc. filed the present complaint
on July 22, 1966, against Sapinoso and a certain person
whose name, identity and address were still unknown to the
plaintiff, hence denominated in the complaint as "John Doe."
In its complaint, Northern Motors, Inc. stated that it was
availing itself of the option given it under the mortgage
contract of extrajudicially foreclosing the mortgage, and
prayed that a writ of replevin be issued upon its filing of a
bond for the seizure of the car and for its delivery to it; that
after hearing, the plaintiff be adjudged to have the rightful
possession and ownership of the car; that in default of
delivery, the defendants be ordered to pay the plaintiff the
sum of P10,218.10 with interest, at 12% per annum from
April 18, 1966, until full payment of the said sum, as well as
an amount equivalent to 25% of the sum due as and for
attorney's fees and expenses of collection, and the costs of
the suit. Plaintiff also prayed for such other remedy as might
be deemed just and equitable in the premises.
Subsequent to the commencement of the action, but before
the filing of his answer, defendant Sapinoso made two
payments on the promissory note, the first on August 22,
1966, for P500.00, and the second on September 27, 1966,
for P750.00. In the meantime, on August 9, 1966, upon the
plaintiff's filing of a bond, a writ of replevin was issued by
the court. On October 20, 1966, copies of the summons,
complaint and annexes thereto were served on defendant
Sapinoso by the sheriff who executed the seizure warrant by
seizing the car from defendant Sapinoso on the same date,
and turning over its possession to the plaintiff on October 25,
1966.
On November 12, 1966, defendant Sapinoso filed an answer
admitting the allegations in the complaint with respect to the
sale to him of the car, the terms thereof, the execution of the
promissory note and of the chattel mortgage contract, and
the options open to the plaintiff under the said contract. He
alleged, however, that he had paid the total sum of
P4,230.52, leaving a balance of only P5,987.58; that upon
demand he immediately surrendered the possession of the
car to the plaintiff's representative; and that the value of the
car was only about P5,000.00, and not P10,000.00 as alleged
in the complaint. As special defenses the said defendant
alleged that he failed to pay the installments due because the
car was defective, and the plaintiff failed to have it fixed
although he had repeatedly called the plaintiff's attention
thereto, hence, the defendant had to procrastinate in his
payments in order to move the plaintiff to repair the car; and
that although the car could not be used, he paid P700.00 to
the plaintiff upon the latter's assurance that the car would be
fixed, but that instead of having the car fixed, the plaintiff,
in bad faith, filed the present complaint. The defendant
prayed that the complaint be dismissed and that the plaintiff
be ordered to return the car to him. He stated in his prayer
that he would be very much willing to pay the car in a
compromise agreement between him and the plaintiff.
After trial, the court a quo, in its decision dated April 4,
1967, held that defendant Sapinoso having failed to pay
more than two (2) installments, plaintiff-mortgagee acquired
the right to foreclose the chattel mortgage, which it could
avail of — as it has done in the present case — by filing an
action of replevin to secure possession of the mortgaged car
as a preliminary step to the foreclosure sale contemplated in
the Chattel Mortgage Law; and that the foreclosure of the
chattel mortgage and the recovery of the unpaid balance of
the price are alternative remedies which may not be pursued
conjunctively, so that in availing itself of its right to
foreclose the chattel mortgage, the plaintiff thereby
renounced whatever claim it may have had on the
promissory note, and, therefore, the plaintiff has no more
right to the collection of the attorney's fees stipulated in the
promissory note, and should return to defendant Sapinoso
the sum of P1,250.00 which the plaintiff had received from
the latter after having filed the present case on July 22, 1966,
and elected to foreclose the chattel mortgage. The
dispositive portion of the decision reads:
WHEREFORE, the Court finds that the
plaintiff has the right to the possession
of the OPEL KADETT two-door station
wagon Model 3464-91.5, with engine
No.
Sales 15 of 67
 10-0354333, and the delivery thereof to
the plaintiff is hereby ratified and
confirmed but said party is sentenced to
pay to the defendant the sum of P1,250,
with legal interest on P500 from August
22, 1966 and or P750 from September
27, 1966, until fully paid, without any
pronouncement as to costs.
In this appeal plaintiff-appellant claims that the court a
quo erred in ordering it to reimburse to defendant-appellee
Sapinoso the sum of P1,250.00 which the latter had paid. It
contends that under Article 1484 of the Civil Code it is
the exercise, not the mere election, of the remedy of
foreclosure that bars the creditor from recovering the unpaid
balance of the debt; that what the said Article 1484 prohibits
is "further action" to collect payment of the deficiency after
the creditor has foreclosed the mortgage; and that in paying
plaintiff-appellant the sum of P1,250.00 before defendant-
appellee Sapinoso filed his answer, and in not filing a
counterclaim for the recovery thereof, the said defendant-
appellee in effect renounced whatever right he might have
had to recover the said amount.
The appeal is meritorious.
In issuing a writ of replevin, and, after trial, in upholding
plaintiff-appellant's right to the possession of the car, and
ratifying and confirming its delivery to the said plaintiff-
appellant, the court below correctly considered the action as
one of replevin to secure possession of the mortgaged
vehicle as a preliminary step to this foreclosure sale
contemplated in Section 14 of Act No. 1508 (Bachrach
Motor Co. vs. Summers, 42 Phil., 3; Seño vs. Pestolante,
G.R. No. L-11755, April 23, 1958). The said court however
erred in concluding that the legal effect of the filing of the
action was to bar plaintiff-appellant from accepting further
payments on the promissory note. That the ultimate object of
the action is the foreclosure of the chattel mortgage, is of no
moment, for it is the fact of foreclosure and actual sale of the
mortgaged chattel that bar further recovery by the vendor of
any balance on the purchaser's outstanding obligation not
satisfied by the sale. (Manila Motor Co., Inc. vs. Fernandez,
99 Phil., 782, 786; Bachrach Motor Co. vs. Millan, 61 Phil.,
409; Manila Trading & Supply Co. vs. Reyes, 62 Phil. 461,
471; Cruz et al. vs. Filipinas Investment & Finance
Corporation, G.R. No. L-24772, May 27, 1968 [23 SCRA
791, 796].) In any event, what Article 1484(3) prohibits is
"further action against the purchaser to recover any unpaid
balance of the price;" and although this Court has construed
the word "action" in said Article 1484 to mean "any judicial
or extrajudicial proceeding by virtue of which the vendor
may lawfully be enabled to exact recovery of the supposed
unsatisfied balance of the purchase price from the purchaser
or his privy" (Cruz, et al. vs. Filipinas Investment & Finance
Corporation, supra), there is no occasion at this stage to
apply the restrictive provision of the said article, because
there has not yet been a foreclosure sale resulting in a
deficiency. The payment of the sum of P1,250.00 by
defendant-appellee Sapinoso was a voluntary act on his part
and did not result from a "further action" instituted by
plaintiff-appellant. If the mortgage creditor, before the actual
foreclosure sale, is not precluded from recovering the unpaid
balance of the price although he has filed an action of
replevin for the purpose of extrajudicial foreclosure, or if a
mortgage creditor who has elected to foreclose but who
subsequently desists from proceeding with the auction sale,
without gaining any advantage or benefit, and without
causing any disadvantage or harm to the vendee-mortgagor,
is not barred from suing on the unpaid account (Radiowealth,
Inc. vs. Lavin, et al., G.R. No. L-18563, April 27, 1963 [7
SCRA 804, 807]), there is no reason why a mortgage creditor
should be barred from accepting, before a foreclosure sale,
payments voluntarily tendered by the debtor-mortgagor who
admits a subsisting indebtedness.
PREMISES CONSIDERED, the judgment appealed from is
modified by setting aside the portion thereof which orders
plaintiff-appellant to pay defendant-appellee Sapinoso the
sum of P1,250.00, with costs in this instance against the said
defendant-appellee.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
Zaldivar, Fernando and Teehankee, JJ., concur.
Barredo, J., concurs in the result.
Castro, J., is on leave.
Sales 16 of 67
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-24772 May 27, 1968
RUPERTO G. CRUZ, ET AL., plaintiffs-appellees,
vs.
FILIPINAS INVESTMENT and FINANCE
CORPORATION, defendant-appellant.
Villareal, Almacen, Navarra and Associates for plaintiffs-
appellees.
Sycip, Salazar, Luna, Manalo and Feliciano for defendant-
appellant.
REYES, J.B.L., J.:
Appeal interposed by Filipinas Investment & Finance
Corporation from the decision of the Court of First Instance
of Rizal (Quezon City) in Civil Case No. Q-
7949.1ªvvphi1.nêt
In the action commenced by Ruperto G. Cruz and Felicidad
V. Vda. de Reyes in the Court of First Instance of Rizal
(Civil Case No. Q-7949), for cancellation of the real estate
mortgage constituted on the land of the latter 1 in favor of
defendant Filipinas Investment & Finance Corporation (as
assignee of the Far East Motor Corporation), the parties
submitted the case for decision on the following stipulation
of facts:
1. Their personal circumstances and legal
capacities to sue and be sued;
2. That on July 15, 1963, plaintiff Ruperto G. Cruz
purchased on installments, from the Far East
Motor Corporation, one (1) unit of Isuzu Diesel
Bus, described in the complaint, for P44,616.24,
Philippine Currency, payable in installments of
P1,487.20 per month for thirty (30) months,
beginning October 22, 1963, with 12 % interest
per annum, until fully paid. As evidence of said
indebtedness, plaintiff Cruz executed and
delivered to the Far East Motor Corporation a
negotiable promissory note in the sum of
P44,616.24, ...;
3. That to secure the payment of the promissory
note, Annex "A", Cruz executed in favor of the
seller, Far East Motor Corporation, a chattel
mortgage over the aforesaid motor vehicle...;
4. That as no down payment was made by Cruz,
the seller, Far East Motor Corporation, on the very
improvements thereon, in San Miguel, Bulacan...;
same date, July 15, 1963, required and Cruz
agreed to give, additional security for his
obligation besides the chattel mortgage, Annex
"B"; that said additional security was given by
plaintiff Felicidad Vda. de Reyes in the form of
SECOND MORTGAGE on a parcel of land
owned by her, together with the building and
5. That said land has an area of 68,902 square
meters, more or less, and covered by Transfer
Certificate of Title No. 36480 of the Registry of
Deeds of Bulacan in the name of plaintiff Mrs.
Reyes; and that it was at the time mortgaged to the
Development Bank of the Philippines to secure a
loan of P2,600.00 obtained by Mrs. Reyes from
that bank;
6. That also on July 15, 1963, the Far East Motor
Corporation for value received indorsed the
promissory note and assigned all its rights and
interest in the Deeds of Chattel Mortgage and in
the Deed of Real Estate Mortgage (Annexes "A",
"B" and "B-l") to the defendant, Filipinas
Investment & Finance Corporation, with due
notice of such assignment to the plaintiffs...;
7. That plaintiff Cruz defaulted in the payment of
the promisory note (Annex "A") ; that the only
sum ever paid to the defendant was Five Hundred
Pesos (P500.00) on October 2, 1963, which was
applied as partial payment of interests on his
principal obligation; that, notwithstanding
defendant's demands, Cruz made no payment on
any of the installments stipulated in the
promissory note;
8. That by reason of Cruz's default, defendant took
steps to foreclose the chattel mortgage on the bus;
that said vehicle had been damaged in an accident
while in the possession of plaintiff Cruz;
Passing upon the issues which, by agreement of the parties,
were limited to — (1) "Whether defendant, which has
9. That at the foreclosure sale held on January 31,
1964 by the Sheriff of Manila, the defendant was
the highest bidder, defendant's bid being for
Fifteen Thousand Pesos (P15,000.00)...;
10. That the proceeds of the sale of the bus were
not sufficient to cover the expenses of sale, the
principal obligation, interests, and attorney's fees,
i.e., they were not sufficient to discharge fully the
indebtedness of plaintiff Cruz to the defendant;
11. That on February 12, 1964, preparatory to
foreclosing its real estate mortgage on Mrs. Reyes'
land, defendant paid the mortgage indebtedness of
Mrs. Reyes to the Development Bank of the
Philippines, in the sum of P2,148.07, the unpaid
balance of said obligation...;
12. That pursuant to a provision in the real estate
mortgage contract, authorizing the mortgagee to
foreclose the mortgage judicially or extra-
judicially, defendant on February 29, 1964
requested the Provincial Sheriff of Bulacan to take
possession of, and sell, the land subject of the Real
Estate Mortgage, Annex "B-1", to satisfy the sum
of P43,318.92, the total outstanding obligation of
the plaintiffs to the defendant, as itemized in the
Statement of Account, which is made a part hereof
as Annex "F"...;
13. That notices of sale were duly posted and
served to the Mortgagor, Mrs. Reyes, pursuant to
and in compliance with the requirements of Act
3135...;
14. That on March 20, 1964, plaintiff Reyes
through counsel, wrote a letter to the defendant
asking for the cancellation of the real estate
mortgage on her land, but defendant did not
comply with such demand as it was of the belief
that plaintiff's request was without any legal basis;
15. That at the request of the plaintiffs, the
provincial Sheriff of Bulacan held in abeyance the
sale of the mortgaged real estate pending the result
of this action.
Sales 17 of 67
already extrajudicially foreclosed the chattel mortgage
executed by the buyer, plaintiff Cruz, on the bus sold to him
on installments, may also extrajudicially foreclose the real
estate mortgage constituted by plaintiff Mrs. Reyes on her
own land, as additional security, for the payment of the
balance of Cruz' Obligation, still remaining unpaid"; and (2)
whether or not the contending parties are entitled to
attorney's fees — the court below, in its decision of April 21,
1965, sustained the plaintiffs' stand and declared that the
extrajudicial foreclosure of the chattel mortgage on the bus
barred further action against the additional security put up
by plaintiff Reyes. Consequently, the real estate mortgage
constituted on the land of said plaintiff was ordered
cancelled and defendant was directed to pay the plaintiffs
attorney's fees in the sum of P200.00. Defendant filed the
present appeal raising the same questions presented in the
lower court.
There is no controversy that, involving as it does a sale of
personal property on installments, the pertinent legal
provision in this case is Article 1484 of the Civil Code of the
Philippines, 2 which reads:
ART. 1484. In a contract of sale of personal
property the price of which is payable in
installments, the vendor may exercise any of the
following remedies:
(1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to
pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments. In this case, he shall have no further
action against the purchaser to recover any unpaid
balance of the price. Any agreement to the
contrary shall be void.
The aforequoted provision is clear and simple: should the
vendee or purchaser of a personal property default in the
payment of two or more of the agreed installments, the
vendor or seller has the option to avail of any one of these
three remedies — either to exact fulfillment by the purchaser
of the obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one was
constituted. These remedies have been recognized as
alternative, not cumulative, 3 that the exercise of one would
bar the exercise of the others. 4 It may also be stated that the
established rule is to the effect that the foreclosure and actual
sale of a mortgaged chattel bars further recovery by the
vendor of any balance on the purchaser's outstanding
obligation not so satisfied by the sale. 5 And the reason for
this doctrine was aptly stated in the case of Bachrach Motor
Co. vs. Millan, supra, thus:
Undoubtedly the principal object of the above
amendment 6 was to remedy the abuses
committed in connection with the foreclosure of
chattel mortgages. This amendment prevents
mortgagees from seizing the mortgaged property,
buying it at foreclosure sale for a low price and
then bringing suit against the mortgagor for a
deficiency judgment. The almost invariable result
of this procedure was that the mortgagor found
himself minus the property and still owing
practically the full amount of his original
indebtedness. Under this amendment the vendor of
personal property, the purchase price of which is
payable in installments, has the right to cancel the
sale or foreclose the mortgage if one has been
given on the property. Whichever right the vendor
elects he need not return to the purchaser the
amount of the installments already paid, "if there
be in agreement to that effect". Furthermore, if the
vendor avails himself of the right to foreclose the
mortgage the amendment prohibits him from
bringing an action against the purchaser for the
unpaid balance.
It is here agreed that plaintiff Cruz failed to pay several
installments as provided in the contract; that there was
extrajudicial foreclosure of the chattel mortgage on the said
motor vehicle; and that defendant-appellant itself bought it
at the public auction duly held thereafter, for a sum less than
the purchaser's outstanding obligation. Defendant-appellant,
however, sought to collect the supported deficiency by going
against the real estate mortgage which was admittedly
constituted on the land of plaintiff Reyes as additional
security to guarantee the performance of Cruz' obligation,
claiming that what is being withheld from the vendor, by the
proviso of Article 1484 of the Civil Code, is only the right to
recover "against the purchaser", and not a recourse to the
additional security put up, not by the purchaser himself, but
by a third person.
There is no merit in this contention. To sustain appellant's
argument is to overlook the fact that if the guarantor should
be compelled to pay the balance of the purchase price, the
guarantor will in turn be entitled to recover what she has paid
from the debtor vendee (Art. 2066, Civil Code) ; so that
ultimately, it will be the vendee who will be made to bear
the payment of the balance of the price, despite the earlier
foreclosure of the chattel mortgage given by him. Thus, the
protection given by Article 1484 would be indirectly
subverted, and public policy overturned.
Neither is there validity to appellant's allegation that, since
the law speaks of "action", the restriction should be confined
only to the bringing of judicial suits or proceedings in court.
The word "action" is without a definite or exclusive
meaning. It has been invariably defined as —
... the legal demand of one's right, or rights; the
lawful demand of one's rights in the form given by
law; a demand of a right in a court of justice; the
lawful demand of one's right in a court of justice;
the legal and formal demand of ones rights from
another person or party, made and insisted on in a
court of justice; a claim made before a tribunal; an
assertion in a court of justice of a right given by
law; a demand or legal proceeding in a court of
justice to secure one's rights; the prosecution of
some demand in a court of justice; the means by
which men litigate with each other; the means that
the law has provided to put the cause of action into
effect;.... (Gutierrez Hermanos vs. De la Riva, 46
Phil. 827, 834-835).
Considering the purpose for which the prohibition contained
in Article 1484 was intended, the word "action" used therein
may be construed as referring to any judicial or extrajudicial
proceeding by virtue of which the vendor may lawfully be
enabled to exact recovery of the supposed unsatisfied
balance of the purchase price from the purchaser or his privy.
Certainly, an extrajudicial foreclosure of a real estate
mortgage is one such proceeding.
The provision of law and jurisprudence on the matter being
explicit, so that this litigation could have been avoided, the
award by the lower court of attorney's fees to the plaintiff's
in the sum of P200.00 is reasonable and in order.
However, we find merit in appellant's complaint against the
trial court's failure to order the reimbursement by appellee
Vda. de Reyes of the amount which the former paid to the
Development Bank of the Philippines, for the release of the
Sales 18 of 67
first mortgage on the land of said appellee. To the extent that
she was benefited by such payment, plaintiff-appellee Vda.
de Reyes should have been required to reimburse the
appellant.

WHEREFORE, the decision appealed from is modified, by

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

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez,

Castro and Angeles, JJ., concur.

Sales 19 of 67
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 106418 July 11, 1996
DANIEL L. BORBON II AND FRANCISCO L.
BORBON, petitioners,
vs.
SERVICEWIDE SPECIALISTS, INC. & HON. COURT
OF APPEALS, respondents.
VITUG, J.:p
From the decision of the Court of Appeals in CA-
G.R. CV No. 30693 which affirmed that of the
Regional Trial Court, NCJR, Branch 39, Manila,
in Civil Case No. 85-29954, confirming the
disputed possession of a motor vehicle in favor of
private respondent and ordering the payment to it
by petitioners of liquidated damages and attorney's
fees, the instant appeal was interposed.
The appellate court adopted the factual findings of
the court a quo, to wit:
The plaintiff's evidence shows among
others that on December 7, 1984,
defendants Daniel L. Borbon and
Francisco Borbon signed a promissory
note (Exh. A) which states among others
as follows:
PROMISSORY
NOTE
Acct. No.
115008276
Makati, Metro
Manila,
Philippines
December 7, 1984
"P122,856.00 "Acceptance by the holder thereof of
payment of any installment or any part
"For value received (installment price of hereof of payment of any installment or
the chattel/s purchased), I/We jointly any part thereof after due dated (sic)
and severally promised to pay shall not be considered as extending the
Pangasinan Auto Mart, Inc. or order, at time for the payment or any of the
its office at NMI Bldg., Buendia conditions hereof. Nor shall the failure
Avenue, Makati, MM the sum of One of the holder hereof to exercise any of
Hundred Twenty Two Thousand Eight its right under this note constitute or be
Hundred Fifty Six only (P122,856.00), deemed as a waiver of such rights.
Philippine Currency, to be payable
without need or notice or demand, in "Maker:
installments of the amounts following
and at the dates hereinafter set forth, to (S/t) DANIEL L.
wit: P10,238.00 monthly for Twelve BORBON, II
(12) months due and payable on the 7th
day of each month starting January,
1985, provided that at a late payment Address: 14 Colt
charge of 3% per month shall be added St., Rancho Estate I,
on each unpaid installment from due Concepcion Dos,
date thereof until fully paid. Marikina, MM
xxx xxx xxx (S/t) FRANCISCO
BORBON
"It is further agreed that if upon such
default, attorney's services are availed Address: 73
Sterling Life Home
of, an additional sum, equal to twenty
five percent (25%) of the total sum due Pamplona, Las
Piñas, MM
thereon, which shall not be less than five
hundred pesos, shall be paid to the
holder hereof for attorney's fees plus an WITNESSES
additional sum equivalent to twenty five
percent (25%) of the total sum due (illegible)
which likewise shall not be less than five (illegible)
hundred pesos for liquidated damages,
aside from expenses of collection and
the legal costs provided for in the Rules ————————
of Court. ————————
"It is expressly agreed that all legal "PAY TO THE
actions arising out of this note or in ORDER OF
connection with the chattel(s) subject FILINVEST
hereof shall only be brought in or CREDIT
submitted to the jurisdiction of the CORPORATION
proper court either in the City of Manila
or in the province, municipality or city without recourse,
where the branch of the holder hereof is notice, presentment
located. and
demand waived
Sales 20 of 67
 PANGASINAN January 29, 1985 by telegram (Exh. E;
AUTO MART, pp. 3-4, tsn, Sept. 30, 1985).
INC.
After the accounts were assigned to the
BY: plaintiff, the plaintiff attempted to
collect by sending a demand letter to the
(S/T) K.N. DULCE defendants for them to pay their entire
Dealer" obligation which, as of March 12, 1985,
totaled P185,257.80 (Exh. H; pp. 3-4,
tsn, Sept. 30, 1985).
To secure the Promissory Note, the
defendants executed a Chattel mortgage
(Exh. B) on For their defense, the defendants claim
that what they intended to buy from
Pangasinan Auto mart was a jeepney
"One (1) Brand new type Isuzu K. C. Cab. The vehicle they
1984 Isuzu bought was not delivered (pp. 11-12,
KCD 20 Crew Cab tsn, Oct. 17, 1985). Instead, through
(Conv.) misinterpretation and machination, the
Serial No. Pangasinan Motor Inc. delivered an
KCD20D0F
Isuzu crew cab, as this is the unit
207685 available at their warehouse. Later the
Key No. 5509
representative of Pangasinan Auto mart,
Inc. (assignor) told the defendants that
(Exhs. A and B, p. 2 tsn, September 10, their available stock is an Isuzu Cab but
1985) minus the rear body, which the
defendants agreed to deliver with the
The rights of Pangasinan Auto mart, Inc. understanding that the Pangasinan Auto
was later assigned to Filinvest Credit Mart, Inc. will refund the defendants the
Corporation on December 10, 1984, amount of P10,000.00 to have the rear
with notice to the defendants (Exh. C, p. body completed (pp. 12-34, Exhs. 2 to
10, Record). 3-3A).
On March 21, 1985, Filinvest Credit Despite communications with the
Corporation assigned all its rights, Pangasinan Auto Mart, Inc. the latter
interest and title over the Promissory was not able to replace the vehicle until
Note and the chattel mortgage to the the vehicle delivered was seized by
plaintiff (Exh. D; p. 3, tsn, Sept. 30, order of this court. the defendants argue
1985). that an asignee stands in the place of an
assignor which, to the mind of the court,
is correct. The asignee exercise all the
The promissory note stipulates that the rights of the assignor (Gonzales vs.
installment of P10,238.00 monthly
Rama Plantation Co., C.V. 08630, Dec.
should be paid on the 7th day of each 2, 1986).
month starting January 1985, but the
defendants failed to comply with their
obligation (p. 3, tsn, Sept. 30, 1985). The defendants further claim that they
are not in default of their obligation
because the Pangasinan Auto Mart was
Because the defendants did not pay their first guilty of not fulfilling its obligation
monthly installments, Filinvest
in the contract. the defendants claim that
demanded from the defendants the neither party incurs delay if the other
payment of their installments due in
does not comply with his obligation.
(citing Art. 1169, N.C.C.)1
In sustaining the decision of the court a quo, the
appellate court ruled that the petitioners could
avoid liability under the promissory note and the
chattel mortgage that secured it since private
respondent took the note for value and in good
faith.
In their appeal to this Court, petitioners merely
seek a modification of the decision of the appellate
court insofar as it has upheld the court a quo in the
award of liquidated damages and attorney's fees in
favor of private respondent. Petitioners invoke the
provisions of Article 1484 of the Civil Code which
reads:
Art. 1484. In a contract of sale of
personal property the price of which is
payable in installments, the vendor may
exercise any of the following remedies:
(1) Exact fulfillment of the obligation,
should the vendee fail to pay;
(2) Cancel the sale, should the vendee's
failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage or the
thing sold, if one has been constituted,
should the vendee's failure to pay cover
two or more installments. In this case, he
shall have no further action against the
purchaser to recover any unpaid balance
of the price. Any agreement to the
contrary shall be void.
The remedies under Article 1484 of the Civil Code
are not cumulative but alternative and
exclusive,2 which means, as so held in Nonato vs.
Intermediate Appellate Court and Investor's
Finance Corporation,3 that —
. . . Should the vendee or purchaser of a
personal property default in the payment
of two or more of the agreed
installments, the vendor or seller has the
Sales 21 of 67
 option to avail of any of these three
remedies — either to exact fulfillment
by the purchaser of the obligation, or to
cancel the sale, or to foreclose the
mortgage on the purchased personal
property, if one was constituted. These
remedies have been recognized as
alternative, not cumulative, that the
exercise of on e would bar the exercise
of the others.4
When the seller assigns his credit to another
person, the latter is likewise bound by the same
law. Accordingly, when the assignee forecloses on
the mortgage, there can be no further recovery of
the deficiency,5 and the seller-mortgagee is
deemed to have renounced any right
thereto.6 A contrario, in the event of the seller-
mortgagee first seeks, instead, the enforcement of
the additional mortgages, guarantees or other
security arrangements, he must be then be held to
have lost by waiver or non-choice his lien on the
chattel mortgage of the personal property sold by
and mortgaged back to him, although, similar to
an action for specific performance, he may still
levy on it.
In ordinary alternative obligations, a mere choice
categorically an unequivocally made and then
communicated by the person entitled to exercise
the option concludes the parties. The creditor may
not thereafter exercise any other option, unless the
chosen alternative proves to be innefectual or
unavailing due to no fault on his part. This rule, in
essence, is the difference between alternative
obligations, on the one hand, and alternative
remedies, upon the other hand, where, in the latter
case, the choice generally becomes conclusive
only upon the exercise of the remedy. For instance,
in one of the remedies expressed in Article 1484
of the Civil Code, it is only when there has been a
foreclosure of the chattel mortgage that the
vendee-mortgagor would be permitted to escape
from a deficiency liability. Thus, if the case is one
for specific performance, even when this action is
selected after the vendee has refused to surrender
the mortgaged property to permit an extrajudicial
foreclosure, that property may still be levied on
execution and an alias writ may be issued if the
proceeds thereof are insufficient to satisfy the
judgment
credit.7 So, also, a mere demand to surrender the
object which is not heeded by the mortgagor will
not amount to a foreclosure,8 but the repossession
thereof by the vendor-mortgagee would have the
effect of a foreclosure.
The parties here concede that the action for
replevin has been instituted for the foreclosure of
the vehicle in question (now in the possession of
private respondent). The sole issue raised before
us in this appeal is focused on the legal propriety
of the affirmance by the appellate court of the
awards made by the court a quo of liquidated
damages and attorney's fees to private respondent.
Petitioners hold that under Article 1484 of the
Civil Code, aforequoted, the vendor-mortgagee or
its assignees loses any right "to recover any unpaid
balance of the price" and any "agreement to the
contrary (would be) void.
The argument is aptly made. In Macondray & Co.
vs. Eustaquio,9 we have said that the phrase "any
unpaid balance" can only mean the deficiency
judgment to which the mortgagee may be entitled
to when the proceeds from the auction sale are
insufficient to cover the "full amount of the
secured obligations which . . . include interest on
the principal, attorney's fees, expenses of
collection, and the costs." In sum, we have
observed that the legislative intent is not to merely
limit the proscription of any further action to the
"unpaid balance of the principal" but, as so later
ruled in Luneta Motor Co. vs. Salvador, 10 to all
other claims that may be likewise be called in for
in the accompanying promissory note against the
buyer-mortgagor or his guarantor, including costs
and attorney's fees.
In Filipinas Investment & Finance Corporation
vs. Ridad 11 while we reiterated and expressed our
agreement on the basic philosophy behind Article
1484, we stressed, nevertheless, that the protection
given to the buyer-mortgagor should not be
considered to be without circumscription or as
being preclusive of all other laws or legal
principles. Hence, borrowing from the examples
made in Filipinas Investment, where the
mortgagor unjustifiably refused to surrender the
chattel subject of the mortgage upon failure of two
or more installments, or if he concealed the chattel
to place it beyond the reach of the mortgagee, that
thereby constrained the latter to seek court relief,
the expenses incurred for the prosecution of the
case, such as attorney's fees, could rightly be
awarded.
Private respondent bewails the instant petition in
that petitioners have failed to specifically raise the
issue on liquidated damages and attorney's fees
stipulated in the actionable documents. In several
cases, we have ruled that as long as the questioned
items bear relevance and close relation to those
specifically raised, the interest of justice would
dictate that they, too, must be considered and
resolved and that the rule that only theories raised
in the initial proceedings may be taken up by a
party thereto on appeal should only refer to
independent, not concomitant matters, to support
or oppose the cause of action.12
Given the circumstances, we must strike down the
award for liquidated damages made by the court a
quo but we uphold the grant of attorney's fees
which we, like the appellate court, find it to be
reasonable. Parenthetically, while the promissory
note may appear to have been a negotiable
instrument, private respondent, however, clearly
cannot claim unawareness of its accompanying
documents so as to thereby gain a right greater
than that of the assignor.
WHEREFORE, the appealed decision is
MODIFIED by deleting therefrom the award for
liquidated damages; in all other respects, the
judgment of the appellate court is AFFIRMED.
No costs.
Padilla, Bellosillo, Kapunan and Hermosisima,
Jr., JJ., concur
Sales 22 of 67
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-43683 July 16, 1937
MACONDRAY AND CO., INC., plaintiff-appellant,
vs.
URBANO EUSTAQUIO, defendant-appellee.
Jose Agbulos for appellant.
Urbano Eustaquio in his own behalf.
IMPERIAL, J.:
This is an appeal taken by the plaintiff corporation from the
judgment of the Court of First Instance of Manila dismissing
its complaint, without costs.
The plaintiff brought the action against the defendant to
obtain the possession of an automobile mortgaged by the
latter, and to recover the balance owing upon a note executed
by him, the interest thereon, attorney's fees, expenses of
collection, and the costs. The defendant was duly
summoned, but he failed to appear or file his answer,
wherefore he was declared in default and the appealed
judgment was rendered accordingly.
The plaintiff sold the defendant a De Soto car, Sedan, for the
price of which, P595, he executed in its favor the note of
May 22, 1934. Under this note, the defendant undertook to
pay the car in twelve monthly installments, with 12 percent
interest per annum, and likewise agreed that, should he fail
to pay any monthly installment together with interest, the
remaining installment would become due and payable, and
the defendant shall pay 20 per cent upon the principal
owning as attorney's fees, expenses of collection which the
plaintiff might incur, and the costs. To guarantee the
performance of his obligation under the note, the defendant
on the same date mortgaged the purchased car in favor of the
plaintiff, and bound himself under the same conditions
stipulated in the note relative to the monthly installments,
interest, attorney's fees, expenses of collection, and costs.
The mortgage deed was registered on June 11, 1934, in the
office of the register of deeds of the Province of Rizal. On
the 22d of the same month, the defendant paid P43.75 upon
the first installment, and thereafter failed to pay any of the
remaining installments. In accordance with the terms of the
mortgage, the plaintiff called upon the sheriff to take
possession of the car, but the defendant refused to yield
possession thereof, whereupon, the plaintiff brought the
replevin sought and thereby succeeded in getting possession
of the car. The car was sold at public auction to the plaintiff
for P250, the latter incurring legal expenses in the amount of
P10.68, According to the liquidation filed by the plaintiff,
the defendant was still indebted in the amount of P342.20,
interest at 12 per cent from November 20, 1934, P110.25 as
attorney's fees, and the costs.
I. The plaintiff's first assignment of error is addressed to the
appealed judgment in so far as it applied Act No. 4122 and
dismissed the complaint, notwithstanding the fact that the
defendant waived his rights under said law by not making
any appearance, by having been declared in default, by not
interposing any special defense, and not asking for any
positive relief.
Under section 128 of our Civil Procedure, the judgment by
default against a defendant who has neither appeared nor
filed his answer does not imply a waiver of right except that
of being heard and of presenting evidence in his favor. It
does not imply admission by the defendant of the facts and
causes of action of the plaintiff, because the codal section
requires the latter to adduce his evidence in support of his
allegation as an indispensable condition before final
judgment could be given in his favor. Nor could it be
interpreted as an admission by the defendant that the
plaintiff's causes of action find support in the law or that
latter is entitled to the relief prayed for. (Chaffin vs. Mac
Fadden, 41 Ark., 42; Johnson vs. Peirce, 12 Ark., 599;
Mayden vs. Johnson, 59 Ga., 105; Peo. vs. Rust, 292 Ill.,
412; Madison County vs. Smith, 95 Ill., 328; Keen vs.
Krempel, 166 Ill. A., 253.) For these reason, we hold that the
defendant did not waive the applicant by the court of Act No.
4122, and that the first assignment of error is untenable.
II. The plaintiff contends in its second assignment of error
that Act No. 4122 is invalid because it takes property without
due process of law, denies the equal protection of the laws,
and impairs the obligations of contract, thereby violating the
provisions of section 3 of the Act of the United States
Congress of August 29, 1916, known as the Jones Law. This
is not the first time that the constitutionality of the said law
has been impugned for like reasons. In Manila Trading and
Supply Co. vs. Reyes (64 Phil. 461), the validity of the said
law was already passed upon when it was questioned for the
same reason here advanced. In resolving the question in
favor of the validity of the law, we then held: "2. Liberty of
contract, class legislation, and equal protection of the laws.
— The question of the validity of an act is solely one of
constitutional power. Questions of expediency, of motive or
of results are irrelevant. Nevertheless it is not improper to
inquire as to the occasion for the enactment of a law. The
legislative purpose thus disclosed can then serve as a fit
background for constitution inquiry.
Judge Moran in fact instances had the following to
say relative to the reason for the enactment of Act
No. 4122:
"Act No. 4122 aims to correct a social
and economic evil, the inordinate love
for luxury of those who, without
sufficient means, purchase personal
effects, and the ruinous practice of some
commercial houses of purchasing back
the goods sold for a nominal price
besides keeping a part of the price
already paid and collecting the balance,
with stipulated interest, costs, and
attorney's fees. For instance, a company
sells a truck for P6,500. The purchaser
makes a down payment of P500, the
balance to be paid in twenty-four equal
installments of P250 each. Pursuant to
the practice before the enactment of Act
No. 4122, if the purchaser fails to pay
the first two installments, the company
takes possession of the truck and has it
sold at public auction at which sale it
purchases the truck for a nominal price,
at most P500, without prejudice to its
right to collect the balance of P5,500,
plus interest, costs. and attorney's fees.
As a consequence, the vendor does not
only recover the goods sold, used hardly
two months perhaps with only slight
wear and tear, but also collects the entire
stipulated purchase price, probably
swelled up fifty per cent including
interest, costs, and attorney's fees. This
practice is worse than usurious in many
instances. And although, of course, the
purchaser must suffer the consequences
of his imprudence and lack of foresight,
the chastisement must not be to the
extent of ruining him completely and, on
the other hand, enriching the vendor in a
manner which shocks the conscience.
Sales 23 of 67
 The object of the law is highly
commendable. As to whether or not the
means employed to do away with the
evil above mentioned are arbitrary will
be presently set out."
In a case which reached this court, Mr. Justice
Goddard, interpreting Act No. 4122, made the
following observations:
"Undoubtedly the principal object of the
above amendment was to remedy the
abuses committed in connection with
the foreclosure of chattel mortgages.
This amendment prevents mortgagees
from seizing the mortgaged property,
buying it at foreclosure sale for a low
price and then bringing suit against the
mortgagor for a deficiency judgment.
The almost invariable result of this
procedure was that the mortgagor found
himself minus the property and still
owing practically the full amount of his
original indebtedness. Under this
amendment the vendor of personal
property, the purchase price of which is
payable in installments, has the right to
cancel the sale or foreclose the mortgage
if one has been given on the property.
Whichever right the vendor elects he
need not return to the purchaser the
amount of the full installment already
paid, "if there be an agreement to that
effect." Furthermore, if the vendor
avails himself of the right from
foreclose the mortgage this amendment
prohibits him from bringing an action
against the purchaser for the unpaid
balance."
"In other words, under this amendment,
in all proceedings for the foreclosure of
chattel mortgages, executed on chattels
which have been sold on the installment
plan, the mortgagee is limited to the
property included in the mortgage"
(Bachrach Motor Co. vs. Millan [1935].
61 Phil., 409.).
Public policy having thus had in view the objects
just outlined, we should next examine the law to
determine if notwithstanding that policy, it
violates any of the constitutional principles
dealing with the three general subjects here to be
considered.
In an effort to enlighten us, our attention has been
directed to certain authorities, principally one
coming from the state of Washington and another
from the State of Oregon. For reason which will
soon appear we do not think that either decision is
controlling.
In 1897, an Act was passed in the State of
Washington which provided "that in all
proceedings for the foreclosure of mortgages
hereafter executed or on judgments rendered upon
the debt thereby secured the mortgagee or assignee
shall be limited to the property included in the
mortgage." It was held by a divided court of three
to two that the statute since limiting the right to
enforce a debt secured by mortgage to the property
mortgaged whether realty or chattles, was an
undue restraint upon the liberty of a citizen to
contract with respect to his property right. But as
is readily apparent, the Washington law and the
Philippine law are radically different in
phraseology and in effect. (Dennis vs. Moses
[1898], 40 L. R. A., 302.)
In Oregon, in a decision of a later date, an Act
abolishing deficiency judgment upon the
foreclosure of mortgages to secure the unpaid
balance of the purchase price of real property was
unanimously sustained by the Supreme Court of
that State. The importance of the subject matter in
that jurisdiction was revealed by the fact that four
separate opinions were prepared by the justices
participating, in one of which Mr. Justice Johns,
shortly thereafter to become a member of this
court, concurred. However, it is but fair state that
one of the reasons prompting the court to uphold
the law was the financial depression which had
prevailed in that State. While in the Philippines the
court take judicial notice of the stringency of
finance that presses upon the people we have no
reason to believe that this was the reason which
motivated the enactment of Act 4122. (Wright vs.
Wimberley [1919], 184 Pac., 740.)
While we are on the subject of the authority, we
may state that we have examined all of those
obtainable, including some of recent date but have
not been enlightened very much because as just
indicated, they concerned different state of facts
and different laws. We gain the most help from the
case of Bronzon vs. Kinzie ([1843], 1 How., 311),
decided by the Supreme Court of the United State.
It had under consideration a law passed in the State
of Illinois, which provide that the equitable estate
of the mortgagor should not be extinguished for
twelve months after sale on decree, and which
prevented any sale of the mortgaged property
unless two-thirds of the amount at which the
property had been valued by appraisers should be
bid therefor. The court, by Mr. Chief Justice Taney
declared: "Mortgages made since the passage of
these laws must undoubtedly be governed by
them; for every State has power to describe the
legal and equitable obligation of a contract to be
made and executed within it jurisdiction. It may
exempt any property it thinks proper from sale for
the payment of a debt; and may imposed such
conditions and restriction upon the creditor as its
judgment and policy may dictate. And all future
contracts would be subject to such provisions; and
they would be obligatory upon the parties in the
provisions; and they would be obligatory upon the
parties in the courts of the United States, as well
as in those of the state."
As we understand it, parties have no vested right
in particular remedies or modes of procedure, and
the legislature may change existing remedies or
modes of procedure without impairing the
obligation of contracts, provided an efficacious
remedy for enforcement. But changes in the
remedies available for the enforcement of a
mortgage may not, even when public policy is
invoked as an excuse, be pressed so far as to cut
down the security of a mortgage without
moderation or reason or in a spirit of oppression.
(Brotherhood of American Yeoman vs. Manz
[1922], 206 Pac., 403; Oshkosh Waterworks Co.
vs. Oshkosh [1908], 187 U. S., 437; W. B.
Worthen Co. vs. Kavanaugh [1935], 79 U. S.
Supreme Court Advance Opinions, 638.)
In the Philippines, the Chattel Mortgage Law did
not expressly provide for a deficiency judgment
upon the foreclosure of a mortgage. Indeed, it
Sales 24 of 67
required decisions of this court to authorize such a
procedure. (Bank of the Philippine Island vs.
Olutanga Lumber Co., [1924], 47 Phil., 20; Manila
Trading and Supply Co. vs. Tamaraw Plantation
Co., supra.) But the practice became universal
enactment regarding procedure. To a certain
extent the Legislature has now disauthorized this
practice, but has left a sufficient remedy
remaining.
Three remedies are available to the vendor who
has sold personal property on the installment plan.
(1) He may elect to exact the fulfillment of the
obligation. (Bachrach Motor Co. vs.
Milan, supra.) (2) If the vendee shall have failed
to pay two or more installments, the vendor may
cancel the sale. (3) If the vendee shall have failed
to pay two or more installments, the vendor may
foreclose the mortgage, if one has been given on
the property. The basis of the first option is the
Civil Code. The basis of the last two option is Act
No. 4122, amendatory of the Civil Code. And the
proviso to the right to foreclose is, that if the
vendor has chosen this remedy, he shall have no
further action against the purchaser for the
recovery of any unpaid balance owing by the
same. In other words, as we see it, the Act does no
more than qualify the remedy.
Most constitutional issues are determined by the
court's approach to them. The proper approach in
cases of this character should be to resolve all
presumptions in favor of the validity of an act in
the absence of a clear conflict between it and the
constitution. All doubts should be resolved in its
favor.
The controlling purpose of Act No. 4122 is
revealed to be to close the door to abuses
committed in connection with the foreclosure of
chattel mortgages when sales were payable in
installments. The public policy, obvious from the
statute, was defined and established by legislative
authority. It is for the courts to perpetuate it.
We are of the opinion that the Legislative may
change judicial methods and remedies for the
enforcement of contracts, as it has done by the
enactment of Act No. 4122, without unduly
interfering with the obligation of the contract,
without sanctioning class legislation, and without principal, it would have so stated. We hold, therefore, that
a denial of the equal protection of the laws. We the assignment of error is untenable.
rule that Act No. 4122 is valid and enforceable. As
a consequence, the errors assigned by the appellant In view of the foregoing, the appealed judgment is affirmed,
are overruled, and the judgment affirmed, the costs with the costs of this instance to the plaintiff and appellant.
of this instance to be taxed against the losing party. So ordered.
In his brief counsel for the plaintiff advances no new
Avanceña, C.J., Villa-Real, Abad Santos, Diaz, Laurel and
arguments which have not already been considered in Concepcion, JJ., concur.
the Reyes case, and we see no reason for reaching a different
conclusion now. The law seeks to remedy an evil which the
Legislature wished to suppress; this legislative body has
power to promulgate the law; the law does not completely
deprive vendors on the installment basis of a remedy, but
requires them to elect among three alternative remedies; the
law, on the other hand, does not completely exonerate the
purchasers, but only limits their liabilities and, finally, there
is no vested right when a procedural law is involved,
wherefore the Legislature could enact Act No. 4122 without
violating the aforesaid organic law.
III. In its last assignment of error plaintiff contends that, even
granting that Act No. 4122 is valid, the court should have
ordered the defendant to pay at least the stipulated interest,
attorney's fees, and the costs. This question involves the
interpretation of the pertinent portion of the law, reading:
"However, if the vendor has chosen to foreclose the
mortgage he shall have no further action against the
purchaser for the recovery of any unpaid balance owing by
the same, and any agreement to the contrary shall be null and
void." This paragraph, as its language shows, refers to the
mortgage contract executed by the parties, whereby the
purchaser mortgages the chattel sold to him on the
installment basis in order to guarantee the payment of its
price, and the words "any unpaid balance" should be
interpreted as having reference to the deficiency judgment to
which the mortgagee may be entitled where, after the
mortgaged chattel is sold at public auction, the proceeds
obtained therefrom are insufficient to cover the full amount
of the secured obligations which, in the case at bar as shown
by the note and by the mortgage deed, include interest on the
principal, attorney's fees, expenses of collection, and the
costs. The fundamental rule which should govern the
interpretation of laws is to ascertain the intention and
meaning of the Legislature and to give effect thereto. (Sec.
288, Code of Civil Procedure; U. S. vs. Toribio, 15 Phil., 85;
U. S. vs. Navarro, 19 Phil., 134; De Jesus vs. City of Manila,
29 Phil., 73; Borromeo vs. Mariano, 41 Phil., 322; People vs.
Concepcion, 44 Phil., 126.) Were it the intention of the
Legislature to limit its meaning to the unpaid balance of the
Sales 25 of 67
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-27645 November 28, 1969
FILIPINAS INVESTMENT & FINANCE
CORPORATION, plaintiff-appellee,
vs.
LOURDES V. RIDAD and LUIS RIDAD, defendants-
appellants.
Osmundo R. Victoriano for defendants-appellants.
Emilio B. Saunar for plaintiff-appellee.
CASTRO, J.:
Appeal by the spouses Lourdes V. Ridad and Luis Ridad
from the decision of the Court of First Instance of Manila in
civil case 64288, a replevin suit, awarding to the appellee
Filipinas Investment and Finance Corporation the amount of
P163.65 representing actual expenses and P300 as attorney's
fees.
The spouses Ridad bought from the Supreme Sales &
Development Corporation, the appellee's assignor-in-
interest, a Ford Consul sedan for the total price of
P13,371.40. The sum of P1,160 was paid on delivery, the
balance of P12,211.50 being payable in twenty-four equal
monthly installments, with interest at 12% per annum,
secured by a promissory note and a chattel mortgage on the
car executed on March 19, 1964. The spouses thereafter
failed to pay five consecutive installments on a remaining
balance of P5,274.53. On October 13, 1965 the appellee
instituted a replevin suit in the city court of Manila for the
seizure of the car (par. 7 of the complaint alleged
"unjustifiable failure and refusal of the defendants . . . to
surrender possession of the . . . motor vehicle for the purpose
of foreclosure"), or the recovery of the unpaid balance in
case delivery could not be effected. The car was then seized
by the sheriff of Manila and possession thereof was awarded
to the appellee. During the progress of the case, the appellee
instituted extrajudicial foreclosure proceedings, as a result of
which, on December 22, 1965, the car was sold at public
auction with the appellee as the highest bidder and
purchaser.
Meanwhile, in view of the failure of the defendants-spouses
to appear at the scheduled hearing of the case, allegedly due
to non-receipt of the summons, they were declared in
default. The default judgment ordered them to pay to the
appellee the sum of P500 as attorney's fees, and P163.65
representing actual expenses relative to the seizure of the car,
plus costs.
Their motion to set aside his order of default and the decision
having been denied, they appealed to the Court of First
Instance of Manila.
When the case was called for pre-trial, the CFI advanced the
opinion that there was no need for the parties to adduce
evidence and that the case could be decided on the basis of
the pleadings submitted by the parties.
The trial court on September 5, 1966, rendered judgment for
the appellee, as follows:
As stated in the pre-trial order of this Court dated
May 27, 1966, the only issue remaining to be
resolved is whether the plaintiff is entitled to
receive P500.00 as attorney's fees and P163.65 for
expenses incurred by the plaintiff in the seizure of
the car which was the object of the chattel
mortgage executed by the defendants in favor of
the plaintiff.
Upon consideration of the circumstances of the
case, the court holds that the plaintiff is entitled to
recover the amount of P163.65 which represents
the expenses incurred by the plaintiff in the seizure
of the car involved in this case.
Considering that the plaintiff had recovered the car
involved in the case while it is still in the lower
court, and considering further that the defendants
did not resist the case and the only question said
defendants raised before this court is the amount
of attorney's fees, the court in the exercise of its
equitable jurisdiction reduces the attorney's fees
granted to the plaintiff by the lower court to
P300.00.
In this appeal, the appellants contend that the trial court
erred: (1) in rendering a decision which does not state the
facts and the law on which it is based; (2) in condemning the
appellants to pay P300 for attorney's fees and P163.65 for
expenses incurred in the seizure of the car which was the
object of the chattel mortgage executed by them in favor of
the appellee; and (3) in not dismissing the appellee's
complaint.
1. We uphold the appellee's contention that the disputed
decision of the lower court complies substantially with the
requirements of law because it referred to the pre-trial order
it issued on May 27, 1966 which contains substantial
findings of facts. For although settled is the doctrine that a
decree with absolutely nothing to support it is a nullity, the
law, however, merely requires that a decision state the
"essential ultimate facts upon which the court's conclusion is
drawn."1 There being an express reference to the pre-trial
order, the latter must be considered and taken as forming part
of the decision. The claim, therefore, that the judgment
clearly transgresses the legal precept2 because it does not
state the facts of the case and the law on which it is based
and hence, is a nullity, finds no justification here.
2. The appellants theorize that the action of the appellee is
for the payment of the unpaid balance of the purchase price
with a prayer for replevin. When, therefore, the appellee
seized the car, extrajudicially foreclosed the mortgage, had
the vehicle sold, and bought the same at public auction as the
highest bidder, it thereby renounced any and all rights which
it might have under the promissory note as well as the
payment of the unpaid balance, and, consequently, what it
would otherwise be entitled under and by virtue of the
present action, including attorney's fees and costs of suit,
pursuant to article 1484 of the new Civil Code.
On the other hand, the appellee maintains that it is entitled
to an award of attorney's fees and actual expenses and costs
of suit by virtue of the unjustifiable failure and refusal of the
appellants to comply with their obligations (one of which is
the surrender of the chattel to the mortgagee upon the latter's
demand), contending that what is prohibited in art. 1484, par.
3 of the new Civil Code relied upon by the appellants is the
recovery of the unpaid balance of the purchase price by
means of an action other than a suit for replevin; that Luneta
Motor Co. vs. Salvador, et al., (L-13373, July 26, 1960) is
inapplicable to the present case because the remedy sought
in that case was in the conjunctive and not in the alternative,
such that, necessarily, when the appellee therein foreclosed
the mortgage on the motor vehicle during the progress of the
action, the other action for a sum of money had to be
dismissed since the same could not prosper as it would
constitute a separate action for the recovery of the unpaid
balance contemplated in article 1484; and that in the present
case, however, the court awarded attorney's fees, costs of suit
Sales 26 of 67
and expenses incurred in relation to the seizure of the motor
vehicle by virtue of the writ of replevin in the same action
because the appellee was compelled to institute the same on
account of the appellants' unjustifiable failure and refusal to
comply with the former's demands.
The appellee further argues that the award of attorney's fees
and the costs of suit together with expenses incurred, was
stipulated both in the promissory note and chattel mortgage
contract; that even in the absence of such stipulation, the
award of attorney's fees is discretionary on the part of the
court pursuant to par. 2, art. 2208, new Civil Code; and that
the said award could likewise be made by the lower court on
the basis of the general prayer in the complaint for the award
of whatever relief that the lower court may deem just and
equitable in the premises.
It is true that the present action is one for replevin, but
because it culminated in the foreclosure of the chattel
mortgage and the sale of the car at public auction, it is our
view that the provisions of art. 1484 of the Civil Code (Recto
Law) must govern the resolution of the issue here presented.
This article recites that
In a contract of sale of personal property the price
of which is payable in installments, the vendor
may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the
vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to
pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments. In this case, he shall have no further
action against the purchaser to recover any unpaid
balance of the price. Any agreement to the
contrary shall be void.
This article was reproduced from the old art. 1454-A, which
in turn was inserted by Act 4122 (Recto Law). "Three
remedies are available to the vendor who has sold personal
property on the installment plan: (1) He may elect to exact
the fulfillment of the obligation. (Bachrach Motor Co. vs.
Millan, 61 Phil. 409) (2) If the vendee shall have failed to
pay two or more installments, the vendor may cancel the
sale. (3) If the vendee shall have failed to pay two or more
installments, the vendor may foreclose the mortgage, if one
has been given on the property. The basis of the first option
is the Civil Code. The basis of the last two options is Act
4122 (inserted in the Spanish Civil Code as art. 4154-A and
now reproduced in arts. 1484 and 1485), amendatory of the
Civil Code. And the proviso to the right to foreclose is that
if the vendor has chosen this remedy, he shall have no further
action against the purchaser for the recovery of any unpaid
balance owing by the same. In other words, as we see it, the
Act does no more than qualify the remedy."3
The legal issue which is the core of the controversy in the
case at bar was resolved in Macondray & Co. vs.
Eustaquio,4 as follows:
The plaintiff brought the action against the
defendant to obtain the possession of an
automobile mortgaged by the latter, and to recover
the balance owing upon a note executed by him,
the interest thereon, attorney's fees, expenses of
collection, and the costs. The defendant was duly
summoned, but he failed to appear or file his
answer, wherefore, he was declared in default and
the appealed judgment was rendered accordingly.
The plaintiff sold to the defendant a De Soto car,
Sedan, for the price of which, P595, he executed
in its favor the note of May 22, 1934. Under this
note, the defendant undertook to pay the car in
twelve monthly installments, with 12 per cent
interests per annum, and likewise agreed that,
should he fail to pay any monthly installment
together with interest, the remaining installments
would become due and payable, and the defendant
shall pay 20 per cent upon the principal owing as
attorney's fees, expenses of collection which the
plaintiff might incur, and the costs. To guarantee
the performance of his obligations under the note,
the defendant on the same date mortgaged the
purchased car in favor of the plaintiff, and bound
himself under the same conditions stipulated in the
note relative to the monthly installments, interest,
attorney's fees, expenses of collection, and costs.
The mortgage deed was registered on June 11,
1934, in the office of the register of deeds of the
Province of Rizal. On the 22nd of the same month,
the defendant paid P43.75 upon the first
installment, and thereafter failed to pay any of the
remaining installments. In accordance with the
terms of the mortgage, the plaintiff called upon the
sheriff to take possession of the car, but the
defendant refused to yield possession thereof,
whereupon, the plaintiff brought the replevin
sought and thereby succeeded in getting
possession of the car. The car was sold at public
auction to the plaintiff for P250, the latter
incurring legal expenses in the amount of P10.68.
According to the liquidation filed by the plaintiff,
the defendant was still indebted in the amount of
P342.20, interest at 12 per cent from November
20, 1934, P110.25 as attorney's fees, and the costs.
xxx xxx xxx
In its last assignment of error plaintiff contends
that even granting that Act No. 4122 is valid, the
court should have ordered the defendant to pay at
least the stipulated interest, Attorney's fees and the
costs. This question involves the interpretation of
the pertinent portion of the law, reading:
"However, if the vendor has chosen to foreclose
the mortgage he shall have no further action
against the purchaser for the recovery of any
unpaid balance owing by the same, and any
agreement to the contrary shall be null and void."
This paragraph, as its language shows, refers to the
mortgage contract executed by the parties,
whereby the purchaser mortgages the chattel sold
to him on the installment basis in order to
guarantee the payment of its price, and the words
"any unpaid balance" should be interpreted as
having reference to the deficiency judgment to
which the mortgagee may be entitled where, after
the mortgaged chattel is sold at public auction, the
proceeds obtained therefrom are insufficient to
cover the full amount of the secured obligations
which, in the case at bar as shown by the note and
by the mortgage deed, include interest on the
principal, attorney's fees, expenses of collection,
and the costs. The fundamental rule which should
govern the interpretation of laws is to ascertain the
intention and meaning of the Legislature and to
give effect thereto. (Sec. 288, Code of Civil
Procedure; U.S. vs. Toribio, 15 Phil. 85; U.S. vs.
Navarro, 19 Phil. 134; De Jesus vs. City of Manila,
29 Phil. 73; Borromeo vs. Mariano, 41 Phil. 322;
People vs. Concepcion, 44 Phil. 126.) Were it the
intention of the Legislature to limit its meaning to
the unpaid balance of the principal, it would have
Sales 27 of 67
 so stated. We hold, therefore, that the assignment
of error is untenable. (emphasis supplied)
In other words, under this amendment as above interpreted,
in all proceedings for the foreclosure of a chattel mortgage,
executed on chattels which have been sold on the installment
plan, the mortgagee is limited to the property
mortgaged5 and is not entitled to attorney's fees and costs of
suit.
In a subsequent case6 where the vendor in a sale of personal
property in installments, upon failure of the vendee to pay
his obligations, the vendor commenced, through court
action, to recover the unpaid balance of the purchase price,
but later, during the progress of the action, foreclosed the
chattel mortgage constituted on the property, attorney's fees
and costs of suit were denied to the vendor. There the
Supreme Court held:
Paragraph 3 of the above-quoted provision (article
1484, new Civil Code) is clear that foreclosure of
the chattel mortgage and recovery of the unpaid
balance of the price are alternative remedies and
may not be pursued conjunctively. It appearing in
the case at bar that the vendor had already
foreclosed the chattel mortgage constituted on the
property and had taken possession thereof, the
lower court acted rightly in dismissing the
complaint filed for the purpose of recovering the
unpaid balance of the purchase price. By seizing
the truck and foreclosing the mortgage at the
progress of the suit, the plaintiff renounced
whatever claim it may have had under the
promissory note, and consequently, he has no
more cause of action against the promisor and the
guarantor. And he has no more right either to the
costs and the attorney's fees that would go with the
suit.
This might be considered a reiteration of the ruling
in Macondray.
A scrutiny of the doctrine enunciated in the above-cited
cases will reveal that its ultimate and salutary purpose is to
prevent the vendor from circumventing the Recto Law.
Congress sought to protect the buyers on installment who
more often than not have been victimized by sellers who,
before the enactment of this law, succeeded in unjustly
enriching themselves at the expense of the buyers, because
aside from recovering the goods sold, upon default of the
buyer in the payment of two installments, still retained for To the extent that our pronouncement here conflicts with the
themselves all amounts already paid, and in addition, were ruling announced and followed in the cases hereinbefore
adjudged entitled to damages, such as attorney's fees, discussed, the latter must be considered pro tanto qualified.
expenses of litigation and costs. Congress could not have
intended to impair much less do away with, the right of the ACCORDINGLY, the judgment a quo is affirmed. No costs.
seller to make commercial use of his credit against the buyer,
provided the buyer is not burdened beyond what this law
allows.7 Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal,
Zaldivar, Sanchez, Fernando, Teehankee and Barredo,
JJ., concur.
It would appear from the emphasis and precision of the
language employed in the decisions already adverted to that
in no instance whatsoever may the mortgagee recover from
the mortgagor any amount or sum after the foreclosure of the
mortgage, for, as we understand it, the philosophy of the
Recto Law is that the underprivileged mortgagors must be
afforded full protection against the rapacity of the
mortgagees.
But while we unconditionally concur in, and give our
approval to, the basic philosophy of the Recto Law, we view
with no small amount of circumspection the implication,
necessarily drawn from the above discussion, that the
mortgagee is not entitled to protection against perverse
mortgagors. Where the mortgagor plainly refuses to deliver
the chattel subject of the mortgage upon his failure to pay
two or more installments, or if he conceals the chattel to
place it beyond the reach of the mortgagee, what then is the
mortgagee expected to do? It is part of conventional wisdom
and the rule of law that no man can take the law into his own
hands; so it is not to be supposed that the Legislature
intended that the mortgagee should wrest or seize the chattel
forcibly from the control and possession of the mortgagor,
even to the extent of using violence which is unwarranted in
law. Since the mortgagee would enforce his rights through
the means and within the limits delineated by law, the next
step in such situations being the filing of an action for
replevin to the end that he may recover immediate
possession of the chattel and, thereafter, enforce his rights in
accordance with the contractual relationship between him
and the mortgagor as embodied in their agreement, then it
logically follows as a matter of common sense, that the
necessary expenses incurred in the prosecution by the
mortgagee of the action for replevin so that he can regain
possession of the chattel, should be borne by the mortgagor.
Recoverable expenses would, in our view, include expenses
properly incurred in effecting seizure of the chattel and
reasonable attorney's fees in prosecuting the action for
replevin. And we declare that in this case before us, the
amounts awarded by the court a quo to the mortgagee
(appellee) are reasonable.
Sales 28 of 67
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 142618 July 12, 2007
PCI LEASING AND FINANCE, INC., Petitioner,
vs.
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.
DECISION
GARCIA, J.:
On a pure question of law involving the application of
Republic Act (R.A.) No. 5980, as amended by R.A. No.
8556¸ in relation to Articles 1484 and 1485 of the Civil
Code, petitioner PCI Leasing and Finance, Inc. (PCI
LEASING, for short) has directly come to this Court via this
petition for review under Rule 45 of the Rules of Court to
nullify and set aside the Decision and Resolution dated
December 28, 1998 and February 15, 2000, respectively, of
the Regional Trial Court (RTC) of Quezon City, Branch 227,
in its Civil Case No. Q-98-34266, a suit for a sum of money
and/or personal property with prayer for a writ of replevin,
thereat instituted by the petitioner against the herein
respondent, Giraffe-X Creative Imaging, Inc. (GIRAFFE,
for brevity).
The facts:
On December 4, 1996, petitioner PCI LEASING and
respondent GIRAFFE entered into a Lease
Agreement,1 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.2 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)3 that GIRAFFE also executed for each of the leased
equipment. These disclosure statements inter alia described
GIRAFFE, vis-à-vis the two aforementioned equipment, as
the "borrower" who acknowledged the "net proceeds of the
loan," the "net amount to be financed," the "financial
charges," the "total installment payments" that it must pay
monthly for thirty-six (36) months, exclusive of the 36% per
annum "late payment charges." Thus, for the Silicon High
Impact Graphics, GIRAFFE agreed to pay ₱116,878.21
monthly, and for Oxberry Cinescan, ₱181.362.00 monthly.
Hence, the total amount GIRAFFE has to pay PCI
LEASING for 36 months of the lease, exclusive of monetary
penalties imposable, if proper, is as indicated below:
P116,878.21 @ month (for
the Silicon High
Impact Graphics) x 36
months = P 4,207,615.56
-- PLUS--
P181,362.00 @ month (for
the Oxberry
Cinescan) x 36 months = P 6,529,032.00
Total Amount to be paid by
GIRAFFE
P Instead of an answer, GIRAFFE, as defendant a quo, filed a
(or the NET CONTRACT
10,736,647.56
AMOUNT)
By the terms, too, of the Lease Agreement, GIRAFFE
undertook to remit the amount of ₱3,120,000.00 by way of
"guaranty deposit," a sort of performance and compliance
bond for the two equipment. Furthermore, the same
agreement embodied a standard acceleration clause,
operative in the event GIRAFFE fails to pay any rental
and/or other accounts due.
A year into the life of the Lease Agreement, GIRAFFE
defaulted in its monthly rental-payment obligations. And
following a three-month default, PCI LEASING, through
one Atty. Florecita R. Gonzales, addressed a formal pay-or-
surrender-equipment type of demand letter4 dated February
24, 1998 to GIRAFFE.
The demand went unheeded.
Hence, on May 4, 1998, in the RTC of Quezon City, PCI
LEASING instituted the instant case against GIRAFFE. In
its complaint,5 docketed in said court as Civil Case No. 98-
34266 and raffled to Branch 2276 thereof, PCI LEASING
prayed for the issuance of a writ of replevin for the recovery
of the leased property, in addition to the following relief:
2. After trial, judgment be rendered in favor of plaintiff [PCI
LEASING] and against the defendant [GIRAFFE], as
follows:
a. Declaring the plaintiff entitled to the possession
of the subject properties;
b. Ordering the defendant to pay the balance of
rental/obligation in the total amount of
₱8,248,657.47 inclusive of interest and charges
thereon;
c. Ordering defendant to pay plaintiff the expenses
of litigation and cost of suit…. (Words in bracket
added.)
Upon PCI LEASING’s posting of a replevin bond, the trial
court issued a writ of replevin, paving the way for PCI
LEASING to secure the seizure and delivery of the
equipment covered by the basic lease agreement.
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
Sales 29 of 67
 action against the purchaser to recover any unpaid
balance of the price. Any agreement to the
contrary shall be void. (Emphasis added.)
ART. 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.
It is thus GIRAFFE’s posture that the aforequoted Article
1484 of the Civil Code applies to its contractual relation with
PCI LEASING because the lease agreement in question, as
supplemented by the schedules documents, is really a lease
with option to buy under the companion article, Article
1485. Consequently, so GIRAFFE argues, upon the seizure
of the leased equipment pursuant to the writ of replevin,
which seizure is equivalent to foreclosure, PCI LEASING
has no further recourse against it. In brief, GIRAFFE asserts
in its Motion to Dismiss that the civil complaint filed by PCI
LEASING is proscribed by the application to the case of
Articles 1484 and 1485, supra, of the Civil Code.
In its Opposition to the motion to dismiss, PCI LEASING
maintains that its contract with GIRAFFE is a straight lease
without an option to buy. Prescinding therefrom, PCI
LEASING rejects the applicability to the suit of Article 1484
in relation to Article 1485 of the Civil Code, claiming that,
under the terms and conditions of the basic agreement, the
relationship between the parties is one between an ordinary
lessor and an ordinary lessee.
In a decision7 dated December 28, 1998, the trial court
granted GIRAFFE’s motion to dismiss mainly on the
interplay of the following premises: 1) the lease agreement
package, as memorialized in the contract documents, is akin
to the contract contemplated in Article 1485 of the Civil
Code, and 2) GIRAFFE’s loss of possession of the leased
equipment consequent to the enforcement of the writ of
replevin is "akin to foreclosure, … the condition precedent
for application of Articles 1484 and 1485 [of the Civil
Code]." Accordingly, the trial court dismissed Civil Case
No. Q-98-34266, disposing as follows:
WHEREFORE, premises considered, the defendant
[GIRAFFE] having relinquished any claim to the personal
properties subject of replevin which are now in the
possession of the plaintiff [PCI LEASING], plaintiff is
DEEMED fully satisfied pursuant to the provisions of
Articles 1484 and 1485 of the New Civil Code. By virtue of
said provisions, plaintiff is DEEMED estopped from further
action against the defendant, the plaintiff having recovered
thru (replevin) the personal property sought to be
payable/leased on installments, defendants being under
protection of said RECTO LAW. In view thereof, this case
is hereby DISMISSED.
With its motion for reconsideration having been denied by
the trial court in its resolution of February 15,
2000,8 petitioner has directly come to this Court via this
petition for review raising the sole legal issue of whether or
not the underlying Lease Agreement, Lease Schedules and
the Disclosure Statements that embody the financial leasing
arrangement between the parties are covered by and subject
to the consequences of Articles 1484 and 1485 of the New
Civil Code.
As in the court below, petitioner contends that the financial
leasing arrangement it concluded with the respondent
represents a straight lease covered by R.A. No. 5980, the
Financing Company Act, as last amended by R.A. No. 8556,
otherwise known as Financing Company Act of 1998, and is
outside the application and coverage of the Recto Law. To
the petitioner, R.A. No. 5980 defines and authorizes its
existence and business.
The recourse is without merit.
R.A. No. 5980, in its original shape and as amended,
partakes of a supervisory or regulatory legislation, merely
providing a regulatory framework for the organization,
registration, and regulation of the operations of financing
companies. As couched, it does not specifically define the
rights and obligations of parties to a financial leasing
arrangement. In fact, it does not go beyond defining
commercial or transactional financial leasing and other
financial leasing concepts. Thus, the relevancy of Article 18
of the Civil Code which reads:
Article 18. - In matters which are governed by … special
laws, their deficiency shall be supplied by the provisions of
this [Civil] Code.
Petitioner foists the argument that the Recto Law, i.e., the
Civil Code provisions on installment sales of movable
property, does not apply to a financial leasing agreement
because such agreement, by definition, does not confer on
the lessee the option to buy the property subject of the
financial lease. To the petitioner, the absence of an option-
to-buy stipulation in a financial leasing agreement, as
understood under R.A. No. 8556, prevents the application
thereto of Articles 1484 and 1485 of the Civil Code.
We are not persuaded.
The Court can allow that the underlying lease agreement has
the earmarks or made to appear as a financial leasing,9 a term
defined in Section 3(d) of R.A. No. 8556 as -
a mode of extending credit through a non-cancelable lease
contract under which the lessor purchases or acquires, at the
instance of the lessee, machinery, equipment, … office
machines, and other movable or immovable property in
consideration of the periodic payment by the lessee of a fixed
amount of money sufficient to amortize at least seventy
(70%) of the purchase price or acquisition cost, including
any incidental expenses and a margin of profit over an
obligatory period of not less than two (2) years during which
the lessee has the right to hold and use the leased property
… but with no obligation or option on his part to purchase
the leased property from the owner-lessor at the end of the
lease contract.
In its previous holdings, however, the Court, taking into
account the following mix: the imperatives of equity, the
contractual stipulations in question and the actuations of
parties vis-à-vis their contract, treated disguised transactions
technically tagged as financing lease, like here, as creating a
different contractual relationship. Notable among the
Court’s decisions because of its parallelism with this case is
BA Finance Corporation v. Court of Appeals10 which
involved a motor vehicle. Thereat, the Court has treated a
purported financial lease as actually a sale of a movable
property on installments and prevented recovery beyond the
buyer’s arrearages. Wrote the Court in BA Finance:
The transaction involved … is one of a "financial lease" or
"financial leasing," where a financing company would, in
effect, initially purchase a mobile equipment and turn around
to lease it to a client who gets, in addition, an option to
purchase the property at the expiry of the lease period. xxx.
xxx xxx xxx
The pertinent provisions of [RA] 5980, thus implemented,
read:
"'Financing companies,' … are primarily organized for the
purpose of extending credit facilities to consumers … either
Sales 30 of 67
by … leasing of motor vehicles, … and office machines and
equipment, … and other movable property."
"'Credit' shall mean any loan, … any contract to sell, or sale
or contract of sale of property or service, … under which part
or all of the price is payable subsequent to the making of
such sale or contract; any rental-purchase contract; ….;"
The foregoing provisions indicate no less than a mere
financing scheme extended by a financing company to a
client in acquiring a motor vehicle and allowing the latter to
obtain the immediate possession and use thereof pending full
payment of the financial accommodation that is given.
In the case at bench, xxx. [T]he term of the contract [over a
motor vehicle] was for thirty six (36) months at a "monthly
rental" … (P1,689.40), or for a total amount of P60,821.28.
The contract also contained [a] clause [requiring the Lessee
to give a guaranty deposit in the amount of P20,800.00] xxx
After the private respondent had paid the sum of P41,670.59,
excluding the guaranty deposit of P20,800.00, he stopped
further payments. Putting the two sums together, the
financing company had in its hands the amount of
P62,470.59 as against the total agreed "rentals" of
P60,821.28 or an excess of P1,649.31.
The respondent appellate court considered it only just and
equitable for the guaranty deposit made by the private
respondent to be applied to his arrearages and thereafter to
hold the contract terminated. Adopting the ratiocination of
the court a quo, the appellate court said:
xxx In view thereof, the guaranty deposit of P20,800.00
made by the defendant should and must be credited in his
favor, in the interest of fairness, justice and equity. The
plaintiff should not be allowed to unduly enrich itself at the
expense of the defendant. xxx This is even more compelling
in this case where although the transaction, on its face,
appear ostensibly, to be a contract of lease, it is actually a
financing agreement, with the plaintiff financing the
purchase of defendant's automobile …. The Court is
constrained, in the interest of truth and justice, to go into this
aspect of the transaction between the plaintiff and the
defendant … with all the facts and circumstances existing in
this case, and which the court must consider in deciding the
case, if it is to decide the case according to all the facts. xxx.
xxx xxx xxx
Considering the factual findings of both the court a quo and
the appellate court, the only logical conclusion is that the
private respondent did opt, as he has claimed, to acquire the
motor vehicle, justifying then the application of the
guarantee deposit to the balance still due and obligating the
petitioner to recognize it as an exercise of the option by the
private respondent. The result would thereby entitle said
respondent to the ownership and possession of the vehicle as
the buyer thereof. We, therefore, see no reversible error in
the ultimate judgment of the appellate court.11 (Italics in the
original; underscoring supplied and words in bracket added.)
In Cebu Contractors Consortium Co. v. Court of
Appeals,12 the Court viewed and thus declared a financial
lease agreement as having been simulated to disguise a
simple loan with security, it appearing that the financing
company purchased equipment already owned by a capital-
strapped client, with the intention of leasing it back to the
latter.
In the present case, petitioner acquired the office equipment
in question for their subsequent lease to the respondent, with
the latter undertaking to pay a monthly fixed rental therefor
in the total amount of ₱292,531.00, or a total of
₱10,531,116.00 for the whole 36 months. As a measure of
good faith, respondent made an up-front guarantee deposit
in the amount of ₱3,120,000.00. The basic agreement
provides that in the event the respondent fails to pay any
rental due or is in a default situation, then the petitioner shall
have cumulative remedies, such as, but not limited to, the
following:13
1. Obtain possession of the property/equipment;
2. Retain all amounts paid to it. In addition, the
guaranty deposit may be applied towards the
payment of "liquidated damages";
3. Recover all accrued and unpaid rentals;
4. Recover all rentals for the remaining term of the
lease had it not been cancelled, as additional
penalty;
5. Recovery of any and all amounts advanced by
PCI LEASING for GIRAFFE’s account xxx;
6. Recover all expenses incurred in repossessing,
removing, repairing and storing the property; and,
7. Recover all damages suffered by PCI
LEASING by reason of the default.
In addition, Sec. 6.1 of the Lease Agreement states that the
guaranty deposit shall be forfeited in the event the
respondent, for any reason, returns the equipment before the
expiration of the lease.
At bottom, respondent had paid the equivalent of about a
year’s lease rentals, or a total of ₱3,510,372.00, more or less.
Throw in the guaranty deposit (₱3,120,000.00) and the
respondent had made a total cash outlay of ₱6,630,372.00 in
favor of the petitioner. The replevin-seized leased equipment
had, as alleged in the complaint, an estimated residual value
of ₱6,900.000.00 at the time Civil Case No. Q-98-34266 was
instituted on May 4, 1998. Adding all cash advances thus
made to the residual value of the equipment, the total value
which the petitioner had actually obtained by virtue of its
lease agreement with the respondent amounts to
₱13,530,372.00 (₱3,510,372.00 + ₱3,120,000.00 +
₱6,900.000.00 = ₱13,530,372.00).
The acquisition cost for both the Silicon High Impact
Graphics equipment and the Oxberry Cinescan was, as stated
in no less than the petitioner’s letter to the respondent dated
November 11, 199614 approving in the latter’s favor a lease
facility, was ₱8,100,000.00. Subtracting the acquisition cost
of ₱8,100,000.00 from the total amount, i.e.,
₱13,530,372.00, creditable to the respondent, it would
clearly appear that petitioner realized a gross income of
₱5,430,372.00 from its lease transaction with the
respondent. The amount of ₱5,430,372.00 is not yet a final
figure as it does not include the rentals in arrears, penalties
thereon, and interest earned by the guaranty deposit.
As may be noted, petitioner’s demand letter15 fixed the
amount of ₱8,248,657.47 as representing the respondent’s
"rental" balance which became due and demandable
consequent to the application of the acceleration and other
clauses of the lease agreement. Assuming, then, that the
respondent may be compelled to pay ₱8,248,657.47, then it
would end up paying a total of ₱21,779,029.47
(₱13,530,372.00 + ₱8,248,657.47 = ₱21,779,029.47) for its
use - for a year and two months at the most - of the
equipment. All in all, for an investment of ₱8,100,000.00,
the petitioner stands to make in a year’s time, out of the
transaction, a total of ₱21,779,029.47, or a net of
₱13,679,029.47, if we are to believe its outlandish legal
submission that the PCI LEASING-GIRAFFE Lease
Agreement was an honest-to-goodness straight lease.
Sales 31 of 67
A financing arrangement has a purpose which is at once
practical and salutary. R.A. No. 8556 was, in fact, precisely
enacted to regulate financing companies’ operations with the
end in view of strengthening their critical role in providing
credit and services to small and medium enterprises and to
curtail acts and practices prejudicial to the public interest, in
general, and to their clienteles, in particular.16 As a regulated
activity, financing arrangements are not meant to quench
only the thirst for profit. They serve a higher purpose, and
R.A. No. 8556 has made that abundantly clear.
We stress, however, that there is nothing in R.A. No. 8556
which defines the rights and obligations, as between each
other, of the financial lessor and the lessee. In determining
the respective responsibilities of the parties to the agreement,
courts, therefore, must train a keen eye on the attendant facts
and circumstances of the case in order to ascertain the
intention of the parties, in relation to the law and the written
agreement. Likewise, the public interest and policy involved
should be considered. It may not be amiss to state that,
normally, financing contracts come in a standard prepared
form, unilaterally thought up and written by the financing
companies requiring only the personal circumstances and
signature of the borrower or lessee; the rates and other
important covenants in these agreements are still largely
imposed unilaterally by the financing companies. In other
words, these agreements are usually one-sided in favor of
such companies. A perusal of the lease agreement in
question exposes the many remedies available to the
petitioner, while there are only the standard contractual
prohibitions against the respondent. This is characteristic of
standard printed form contracts.
There is more. In the adverted February 24, 1998 demand
letter17 sent to the respondent, petitioner fashioned its claim
in the alternative: payment of the full amount of
₱8,248,657.47, representing the unpaid balance for the entire
36-month lease period or the surrender of the financed asset
under pain of legal action. To quote the letter:
Demand is hereby made upon you to pay in full your
outstanding balance in the amount of P8,248,657.47 on or
before March 04, 1998 OR to surrender to us the one (1) set
Silicon High Impact Graphics and one (1) unit Oxberry
Cinescan 6400-10…
We trust you will give this matter your serious and
preferential attention. (Emphasis added).
Evidently, the letter did not make a demand for the payment
of the ₱8,248,657.47 AND the return of the equipment; only
either one of the two was required. The demand letter was
prepared and signed by Atty. Florecita R. Gonzales,
presumably petitioner’s counsel. As such, the use of "or"
instead of "and" in the letter could hardly be treated as a
simple typographical error, bearing in mind the nature of the
demand, the amount involved, and the fact that it was made
by a lawyer. Certainly Atty. Gonzales would have known
that a world of difference exists between "and" and "or" in
the manner that the word was employed in the letter.
A rule in statutory construction is that the word "or" is a
disjunctive term signifying dissociation and independence of
one thing from other things enumerated unless the context
requires a different interpretation.18
In its elementary sense, "or", as used in a statute, is a
disjunctive article indicating an alternative. It often connects
a series of words or propositions indicating a choice of
either. When "or" is used, the various members of the
enumeration are to be taken separately.19
The word "or" is a disjunctive term signifying disassociation
and independence of one thing from each of the other things
enumerated.20
The demand could only be that the respondent need not
return the equipment if it paid the ₱8,248,657.47 outstanding
balance, ineluctably suggesting that the respondent can keep
possession of the equipment if it exercises its option to
acquire the same by paying the unpaid balance of the
purchase price. Stated otherwise, if the respondent was not
minded to exercise its option of acquiring the equipment by
returning them, then it need not pay the outstanding balance.
This is the logical import of the letter: that the transaction in
this case is a lease in name only. The so-called monthly
rentals are in truth monthly amortizations of the price of the
leased office equipment.
On the whole, then, we rule, as did the trial court, that the
PCI LEASING- GIRAFFE lease agreement is in reality a
lease with an option to purchase the equipment. This has
been made manifest by the actions of the petitioner itself,
foremost of which is the declarations made in its demand
letter to the respondent. There could be no other explanation
than that if the respondent paid the balance, then it could
keep the equipment for its own; if not, then it should return
them. This is clearly an option to purchase given to the
respondent. Being so, Article 1485 of the Civil Code should
apply.
The present case reflects a situation where the financing
company can withhold and conceal - up to the last moment -
its intention to sell the property subject of the finance lease,
in order that the provisions of the Recto Law may be
circumvented. It may be, as petitioner pointed out, that the
basic "lease agreement" does not contain a "purchase option"
clause. The absence, however, does not necessarily argue
against the idea that what the parties are into is not a straight
lease, but a lease with option to purchase. This Court has, to
be sure, long been aware of the practice of vendors of
personal property of denominating a contract of sale on
installment as one of lease to prevent the ownership of the
object of the sale from passing to the vendee until and unless
the price is fully paid. As this Court noted in Vda. de Jose v.
Barrueco:21
Sellers desirous of making conditional sales of their goods,
but who do not wish openly to make a bargain in that form,
for one reason or another, have frequently resorted to the
device of making contracts in the form of leases either with
options to the buyer to purchase for a small consideration at
the end of term, provided the so-called rent has been duly
paid, or with stipulations that if the rent throughout the term
is paid, title shall thereupon vest in the lessee. It is obvious
that such transactions are leases only in name. The so-called
rent must necessarily be regarded as payment of the price in
installments since the due payment of the agreed amount
results, by the terms of the bargain, in the transfer of title to
the lessee.
In another old but still relevant case of U.S. Commercial v.
Halili,22 a lease agreement was declared to be in fact a sale
of personal property by installments. Said the Court:
. . . There can hardly be any question that the so-called
contracts of lease on which the present action is based were
veritable leases of personal property with option to purchase,
and as such come within the purview of the above article
[Art. 1454-A of the old Civil Code on sale of personal
property by installment]. xxx
Being leases of personal property with option to purchase as
contemplated in the above article, the contracts in question
are subject to the provision that when the lessor in such case
"has chosen to deprive the lessee of the enjoyment of such
personal property," "he shall have no further action" against
Sales 32 of 67
the lessee "for the recovery of any unpaid balance" owing by
the latter, "agreement to the contrary being null and void."
In choosing, through replevin, to deprive the respondent of
possession of the leased equipment, the petitioner waived its
right to bring an action to recover unpaid rentals on the said
leased items. Paragraph (3), Article 1484 in relation to
Article 1485 of the Civil Code, which we are hereunder re-
reproducing, cannot be any clearer.
ART. 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise any of the following remedies:
xxx xxx xxx
(3) Foreclose the chattel mortgage on the thing sold, if one
has been constituted, should the vendee's failure to pay cover
two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid
balance of the price. Any agreement to the contrary shall be
void.
as embodied in its demand letter. Else, we would witness a
situation where even if the respondent surrendered the
equipment voluntarily, the petitioner can still sue upon its
claim. This would be most unfair for the respondent. We
cannot allow the petitioner to renege on its word. Yet more
than that, the very word "or" as used in the letter conveys
distinctly its intention not to claim both the unpaid balance
and the equipment. It is not difficult to discern why: if we
add up the amounts paid by the respondent, the residual
value of the property recovered, and the amount claimed by
the petitioner as sued upon herein (for a total of
₱21,779,029.47), then it would end up making an instant
killing out of the transaction at the expense of its client, the
respondent. The Recto Law was precisely enacted to prevent
this kind of aberration. Moreover, due to considerations of
equity, public policy and justice, we cannot allow this to
happen.1avvphil.zw+ Not only to the respondent, but those
similarly situated who may fall prey to a similar scheme.
WHEREFORE, the instant petition is DENIED and the trial
court’s decision is AFFIRMED.
Costs against petitioner.

ART. 1485. The preceding article shall be applied to SO ORDERED.

contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.

As we articulated in Elisco Tool Manufacturing Corp. v.

Court of Appeals,23 the remedies provided for in Article
1484 of the Civil Code are alternative, not cumulative. The
exercise of one bars the exercise of the others. This
limitation applies to contracts purporting to be leases of
personal property with option to buy by virtue of the same
Article 1485. The condition that the lessor has deprived the
lessee of possession or enjoyment of the thing for the
purpose of applying Article 1485 was fulfilled in this case
by the filing by petitioner of the complaint for a sum of
money with prayer for replevin to recover possession of the
office equipment.24 By virtue of the writ of seizure issued by
the trial court, the petitioner has effectively deprived
respondent of their use, a situation which, by force of the
Recto Law, in turn precludes the former from maintaining
an action for recovery of "accrued rentals" or the recovery of
the balance of the purchase price plus interest. 25

The imperatives of honest dealings given prominence in the

Civil Code under the heading: Human Relations, provide
another reason why we must hold the petitioner to its word

Sales 33 of 67
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-26578 January 28, 1974
LEGARDA HERMANOS and JOSE
LEGARDA, petitioners,
vs.
FELIPE SALDAÑA and COURT OF APPEALS
(FIFTH DIVISION) * respondents.
Manuel Y. Macias for petitioners.
Mario E. Ongkiko for private respondent.
TEEHANKEE, J.:1äwphï1.ñët
The Court, in affirming the decision under review of the
Court of Appeals, which holds that the respondent buyer
of two small residential lots on installment contracts on a
ten-year basis who has faithfully paid for eight
continuous years on the principal alone already more
than the value of one lot, besides the larger stipulated
interests on both lots, is entitled to the conveyance of one
fully paid lot of his choice, rules that the judgment is fair
and just and in accordance with law and equity.
The action originated as a complaint for delivery of two
parcels of land in Sampaloc, Manila and for execution of
the corresponding deed of conveyance after payment of
the balance still due on their purchase price. Private
respondent as plaintiff had entered into two written
contracts with petitioner Legarda Hermanos as
defendant subdivision owner, whereby the latter agreed
to sell to him Lots Nos. 7 and 8 of block No. 5N of the
subdivision with an area of 150 square meters each, for
the sum of P1,500.00 per lot, payable over the span of ten
years divided into 120 equal monthly installments of
P19.83 with 10% interest per annum, to commence on
May 26, 1948, date of execution of the contracts.
Subsequently, Legarda Hermanos partitioned the
subdivision among the brothers and sisters, and the two
lots were among those allotted to co-petitioner Jose
Legarda who was then included as co-defendant in the
action.
It is undisputed that respondent faithfully paid for eight
continuous years about 95 (of the stipulated 120)
monthly installments totalling P3,582.06 up to the month
of February, 1956, which as per petitioners' own
statement of account, Exhibit "1", was applied to
respondent's account (without distinguishing the two
lots), as follows:
To interests P1,889.78
To principal 1,682.28
Total P3,582.061
It is equally undisputed that after February, 1956 up to the
filing of respondent's complaint in the Manila court of first
instance in 1961, respondent did not make further payments.
The account thus shows that he owed petitioners the sum of
P1,317.72 on account of the balance of the purchase price
(principal) of the two lots (in the total sum of P3,000.00),
although he had paid more than the stipulated purchase price
of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the
filing of the action, respondent wrote petitioners stating that
his desire to build a house on the lots was prevented by their
failure to introduce improvements on the subdivision as
"there is still no road to these lots," and requesting
information of the amount owing to update his account as "I
intend to continue paying the balance due on said lots."
Petitioners replied in their letter of February 11, 1961 that as
respondent had failed to complete total payment of the 120
installments by May, 1958 as stipulated in the contracts to
sell, "pursuant to the provisions of both contracts all the
amounts paid in accordance with the agreement together
with the improvements on the premises have been
considered as rents paid and as payment for damages
suffered by your failure,"2 and "Said cancellation being in
order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court
sustaining petitioners' cancellation of the contracts and
dismissing respondent's complaint, respondent appellate
court on appeal rendered its judgment of July 27, 1966
reversing the lower court's judgment and ordering petitioners
"to deliver to the plaintiff possession of one of the two lots,
at the choice of defendants, and to execute the corresponding
deed of conveyance to the plaintiff for the said lot,"3 ruling
as follows: —
During the hearing, plaintiff testified
that he suspended payments because the
lots were not actually delivered to him,
or could not be, due to the fact that they
were completely under water; and also
because the defendants-owners failed to
make improvements on the premises,
such as roads, filling of the submerged
areas, etc., despite repeated promises of
their representative, the said Mr. Cenon.
As regards the supposed cancellation of
the contracts, plaintiff averred that no
demand has been made upon him
regarding the unpaid installments, and
for this reason he could not be declared
in default so as to entitle the defendants
to cancel the said contracts.
The issue, therefore, is: Under the above
facts, may defendants be compelled, or
not, to allow plaintiff to complete
payment of the purchase price of the two
lots in dispute and thereafter to execute
the final deeds of conveyance thereof in
his favor?
xxx xxx xxx
Whether or not plaintiffs explanation for
his failure to pay the remaining
installments is true, considering the
circumstances obtaining in this case, we
elect to apply the broad principles
of equity and justice. In the case at bar,
we find that the plaintiff has paid
the total sum of P3,582.06 including
interests, which is even more than the
value of the two lots. And even if the
sum applied to the principal alone were
to be considered, which was of the total
of P1,682.28, the same was
already more than the value of one lot,
which is P1,500.00. The only balance
Sales 34 of 67
 due on both lots was P1,317.72, which
was even less than the value of one lot.
We will consider as fully paid by the
plaintiff at least one of the two lots, at
the choice of the defendants. This is
more in line with good conscience than
a total denial to the plaintiff of a little
token of what he has paid the defendant
Legarda Hermanos.4
Hence, the present petition for review, wherein petitioners
insist on their right of cancellation under the "plainly valid
written agreements which constitute the law between the
parties" as against "the broad principles of equity and
justice" applied by the appellate court. Respondent on the
other hand while adhering to the validity of the doctrine of
the Caridad Estates cases5 which recognizes the right of a
vendor of land under a contract to sell to cancel the contract
upon default, with forfeiture of the installments paid as
rentals, disputes its applicability herein contending that here
petitioners-sellers were equally in default as the lots were
"completely under water" and "there is neither evidence nor
a finding that the petitioners in fact cancelled the contracts
previous to receipt of respondent's letter."6
The Court finds that the appellate court's judgment finding
that of the total sum of P3,582.06 (including interests of
P1,889.78) already paid by respondent (which
was more than the value of two lots), the sum applied by
petitioners to the principal alone in the amount of P1,682.28
was already more than the value of one lot of P1,500.00 and
hence one of the two lots as chosen by respondent would be
considered as fully paid, is fair and just and in accordance
with law and equity.
As already stated, the monthly payments for eight years
made by respondent were applied to his account without
specifying or distinguishing between the two lots subject of
the two agreements under petitioners' own statement of
account, Exhibit "1".7 Even considering respondent as
having defaulted after February 1956, when he suspended
payments after the 95th installment, he had as of the already
paid by way of principal (P1,682.28) more than the full
value of one lot (P1,500.00). The judgment recognizing this
fact and ordering the conveyance to him of one lot of his
choice while also recognizing petitioners' right to retain the
interests of P1,889.78 paid by him for eight years
on both lots, besides the cancellation of the contract for one
lot which thus reverts to petitioners, cannot be deemed to
deny substantial justice to petitioners nor to defeat their
rights under the letter and spirit of the contracts in question.
The Court's doctrine in the analogous case of J.M. Tuason &
Co. Inc. vs. Javier8 is fully applicable to the present case,
with the respondent at bar being granted lesser benefits,
since no rescission of contract was therein permitted. There,
where the therein buyer-appellee identically situated as
herein respondent buyer had likewise defaulted in
completing the payments after having religiously paid the
stipulated monthly installments for almost eight years and
notwithstanding that the seller-appellant had duly notified
the buyer of the rescission of the contract to sell, the Court
upheld the lower court's judgment denying judicial
confirmation of the rescission and instead granting the buyer
an additional grace period of sixty days from notice of
judgment to pay all the installment payments in
arrears together with the stipulated 10% interest per annum
from the date of default, apart from reasonable attorney's
fees and costs, which payments, the Court observed, would
have the plaintiff-seller "recover everything due thereto,
pursuant to its contract with the defendant, including such
damages as the former may have suffered in consequence of
the latter's default."
In affirming, the Court held that "Regardless, however, of
the propriety of applying said Art. 1592 thereto, We find that
plaintiff herein has not been denied substantial justice, for,
according to Art. 1234 of said Code: 'If the obligation has
been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete
fulfillment, less damages suffered by the obligee,'" and "that
in the interest of justice and equity, the decision appealed
from may be upheld upon the authority of Article 1234 of
the Civil Code."9
ACCORDINGLY, the appealed judgment of the appellate
court is hereby affirmed. Without pronouncement as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muñoz
Palma, JJ., concur.1äwphï
Sales 35 of 67
 Total Metro BankMarch
THIRD DIVISION Contract :[P]2,566,795.00 Check No.26, [P]80,000.00
Price 0370882 2003
G.R. No. 208185, September 06, 2017 Reservation Metro BankApril
:[P]20,000.00
Fee Check No.26, [P]75,789.00
PRISCILLA ZAFRA ORBE, Petitioner, v. FILINVEST Down 0370883 2003
:[P]493,357.00
LAND, INC., Respondent. Payments Metro BankFeb.
Payable on Check No.12, [P]37,811.00
:[P]54,818.00 monthly
DECISION installments 0401000 2004
from 8/4/01- Metro BankJuly
LEONEN, J.: 4/4/02 Check No.14, [P]30,000.00[11]
Balance :[P]2,053,436.00 0531301 2004
When Republic Act No. 6552 or the Maceda Law speaks of Payable on Orbe was unable to make further payments allegedly on
paying "at least two years of installments" in order for the installments account of financial difficulties.[12]
benefits under its Section 3[1] to become available, it refers for a period
to the buyer's payment of two (2) years' worth of the of 7 years On October 4, 2004, Filinvest sent a notice of
stipulated fractional, periodic payments due to the seller. from cancellation,[13] which was received by Orbe on October 18,
When the buyer's payments fall short of the equivalent of 5/8/024/8/09 2004.[14] The notice and its accompanying jurat read:
two (2) years' worth of installments, the benefits that the First year :[P]27,936.84 monthly
buyer may avail of are limited to those under Section Second PRISCILLA Z. ORBE
4.[2] Should the buyer still fail to make payments within :[P]39,758.84 monthly
year #107 Morena St. Villaverde Homes
Section 4's grace period, the seller may cancel the contract. Third year :[P]41,394.84 monthly Novaliches, Q,C.
Any such cancellation is ineffectual, however, unless it is Fourth year
made through a valid notarial act. to Seventh :[P]42,138.84 monthly[9] Re: Account No. 6181426
year Project HIGH
This resolves a Petition for Review on Certiorari[3] under From June 17, 2001 to July 14, 2004, Orbe paid a total of Phase 1
Rule 45 of the 1997 Rules of Civil Procedure praying that P608,648.20. These were mainly through several Metrobank Block 10
the assailed October 11, 2012 Decision[4] and July 3, 2013 checks, for which Filinvest issued official receipts.[10] Check Lot 1
Resolution[5] of the Court of Appeals in CA-G.R. SP No. payments were made as follows:
118285 be reversed and set aside. Gentlemen (sic):
METROBANK
The assailed Court of Appeals October 11, 2012 Decision DATE AMOUNT
CHECK NO. Our records show that your account remains unpaid despite
reversed the prior rulings of the Office of the President, the Metro BankJune our written request for your payment. We have in fact given
Board of Commissioners of the Housing and Land Use Check No.17, [P]20,000.00 you sixty (60) days to update but you failed to settle your
Regulator; Board (HLURB Board of Commissioners), and 0306533 2001 account. Accordingly, please be informed that we are now
of Housing and Land Use Arbiter Leonard Jacinto A. Metro BankJuly hereby canceling your account effective thirty (30) days
Soriano (Arbiter Soriano) of the Expanded National Capital Check No.29, [P]54,818.00 from receipt hereof,
Region Field Office of the Housing and Land Use 0306544 2001
Regulatory Board (HLURB Field Office). It held that Metro BankAug. Very truly yours,
petitioner Priscilla Zafra Orbe (Orbe) is entitled to the Check No.29, [P]54,818.00
benefits of Section 3 of Republic Act No. 6552.[6] The 0306545 2001 COLLECTION DEPARTMENT
assailed Court of Appeals July 3, 2013 Resolution denied Metro BankSept.
Orbe's Motion for Reconsideration.[7] Check No.29, [P]54,818.00 By:
0306546 2001
Sometime in June 2001, Orbe entered into a purchase Metro Bank _________________(sgd.)_________________
agreement with respondent Filinvest Land, Inc. (Filinvest) May 8,
Check No. [P]100,000.00 MA. LOUELLA D. SENIA
over a 385-square-meter lot identified as Lot 1, Block 10, 2002
032()243
Phase 1, Highlands Pointe, Taytay, Rizal. The total contract Metro BankMay Republic of the Philippines )
price was P2,566,795.00, payable on installment Check No.22, [P]100,000.00 Makati City )S.S.
basis[8] under the following terms: 0320244 2002
SUBSCRIBED AND SWORN to before me this OCT 06
2004, affiant exhibiting to me Community Tax Certificate

Sales 36 of 67
No. 05465460 issued on February 09, 2004 at Manila. however, that "[e]quity . . . should come in especially where,
as here, the payment period is relatively short and the
(sgd.) monthly installment is relatively of substantial
AVELIO L. SALCEDO amounts."[29] Thus, it concluded that Orbe was still entitled
NOTARY PUBLIC to a 50% refund.[30]
UNTIL DECEMBER 31, 2004
PTR NO. 3703389 3/01/04 SAN JUAN Filinvest then appealed to the Office of the President.[31]
IBP N0.609984 2/04/04 PASIG CITY
In its February 4, 2011 Decision,[32] the Office of the
Doc. No. 314 President sustained the conclusion that Orbe was entitled to
Page No. 64 a 50% refund. It disagreed with the HLURB Board of
Book No. XVIII Commissioners' finding that Section 3's benefits were
Series of 2004[15] available to Orbe purely as a matter of equity. It agreed
instead with Arbiter Soriano's reliance on how Orbe "ha[d]
Noting that "efforts . . . to seek for a reconsideration of said made installment payments for more than two (2) years."[33]
cancellation . . . proved futile," and that the parcel had since
been sold by Filinvest to a certain Ruel Ymana "in evident Filinvest made another appeal to the Court of
bad faith,"[16] Orbe filed against Filinvest a Complaint for Appeals,[34] arguing that:
refund with damages dated November 13, 2007 before the
HLURB Field Office.[17] Orbe emphasized that she had [W]hat [Republic Act No. 6552] requires for refund of the
made payments "beginning June, 2001 up to October, cash surrender value is not the length of time of at least two
2004."[18] She further asserted that the October 4, 2004 years from the first payment to the last payment, but the
Notice did not amount to an "effective cancellation by number of installments paid, that is, at least two ears of
notarial act."[19] installments or twenty[-]four (24) monthly installments
paid.[35]
In its Answer with Counterclaim, Filinvest asserted that
Orbe failed to make 24 monthly amortization payments on Thus, Section 3, which requires the refund of the cash
her account, and thus, could not benefit from Section 3 of surrender value, will only apply when the buyer has made at
Republic Act No. 6552. According to Filinvest, the least 24 installment payments.[36]
P608,648.20 paid by Orbe from June 17, 2001 to July 14,
2004 covered only the reservation fee, down payment, and In its assailed October 11, 2012 Decision,[37] the Court of
late payment charges, exclusive of the monthly amortization Appeals reversed the prior rulings of the Office of the
payments stipulated in the Purchase Agreement.[20] President, of the HLURB Board of Commissioners, and of
Arbiter Soriano; and dismissed Orbe's Complaint.[38]
In his July 25, 2008 Decision,[21] Arbiter Soriano of the
HLURB Field Office ruled in favor of Orbe. He held that The Court of Appeals reasoned that the phrase "two years of
since Orbe made payments "from 17 June 2001 to 14 July installments" under Section 3 means that total payments
2004, or a period of more than two years,"[22] all of which made should at least be equivalent to two years' worth of
should be credited to the principal,[23] she was entitled to a installments.[39] Considering that Orbe's total payment of
refund of the cash surrender value equivalent to 50% of the P608,648.20 was short of the required two (2) years' worth
total payments she had made, pursuant to Section 3 of of installments, she could not avail of the benefits of Section
Republic Act No. 6552.[24] 3.[40] What applied instead was Section 4, enabling a grace
period of 60 days from the day the installment became due
Filinvest appealed to the HLURB Board of and further enabling the seller to cancel or rescind the
Commissioners.[25] contract through a notarial act, should the buyer still fail to
pay within the grace period.[41] It found Filinvest to have sent
In its April 15, 2009 Decision,[26] the HLURB Board of Orbe a valid, notarized notice of cancellation thereby
Commissioners affirmed Arbiter Soriano's Decision.[27] It precluding any further relief.[42]
disagreed with Arbiter Soriano's conclusion that Orbe had
paid two (2) years' installments. It specifically noted rather, In its assailed July 3, 2013 Resolution,[43] the Court of
that the buyer's payments fell two (2) months short of the Appeals denied Orbe's Motion for Reconsideration.
equivalent of two years of installments.[28] It added,
Hence, the present petition was filed.[44]
For resolution is the issue of whether or not petitioner
Priscilla Zafra Orbe is entitled to a refund or to any other
benefit under Republic Act No. 6552.
The Court of Appeals correctly held that petitioner was not
entitled to benefits under Section 3 of Republic Act No. 6552
as she had failed to pay two (2) years' worth of installments
pursuant to the terms of her original agreement with
respondent. It also correctly held that with the shortage in
petitioner's payment, what applies is Section 4, instead of
Section 3. This means that respondent could cancel the
contract since petitioner failed to pay within the 60-day
grace period.
The Court of Appeals, however, failed to realize that the
notice of cancellation made by respondent was an invalid
notarial act. Failing to satisfy all of Section 4's requisites for
a valid cancellation, respondent's cancellation was
ineffectual. The contract between petitioner and respondent
should then be deemed valid and subsisting.[45] Considering
however, that respondent ha.s since sold the lot to another
person, an equitable ruling is proper. Therefore, this Court
rules in a manner consistent with how it resolved Olympia
Housing v. Panasiatic Travel,[46] Pagtalunan v. Vda. de
Manzano,[47] Active Realty and Development v.
Daroya,[48] Associated Marine Officers and Seamen's Union
of the Philippines PTGWO-ITF v.
Decena,[49] and Gatchalian Realty v. Angeles.[50]
I
Republic Act No. 6552, the Realty Installment Buyer Act or
more popularly reffered to as the Maceda Law, named after
its author, the late Sen. Ernesto Maceda, was adopted with
the purpose of "protect[ing] buyers of real estate on
installment payments against onerous and oppressive
conditions."[51] It "delineat[es] the rights and remedies of . .
. buyers and protect[s] them from one-sided and pernicious
contract stipulations":[52]
Its declared public policy is to protect buyers of real estate
on installment basis against onerous and oppressive
conditions. The law seeks to address the acute housing
shortage problem in our country that has prompted
thousands of middle and lower class buyers of houses, lots
and condominium units to enter into all sorts of contracts
with private housing developers involving installment
schemes. Lot buyers, mostly low income earners eager to
acquire a lot upon which to build their homes, readily affix
Sales 37 of 67
their signatures on these contracts, without an opportunity to
question the onerous provisions therein as the contract is
offered to them on a "take it or leave it" basis. Most of these
contracts of adhesion, drawn exclusively by the developers,
entrap innocent buyers by requiring cash deposits for
reservation agreements which often times include, in fine
print, onerous default clauses where all the installment
payments made will be forfeited upon failure to pay any
installment due even if the buyers had made payments for
several years. Real estate developers thus enjoy an
unnecessary advantage over lot buyers who[m] they often
exploit with iniquitous results. They get to forfeit all the
installment payments of defaulting buyers and resell the
same lot to another buyer with the same exigent conditions.
To help especially the low income lot buyers, the legislature
enacted R.A. No. 6552 delineating the rights and remedies
of lot buyers and protect[ing] them from one-sided and
pernicious contract stipulations.[53]
Having been adopted with the explicit objective of
protecting buyers against what it recognizes to be
disadvantageous and onerous conditions, the Maceda Law's
provisions must be liberally construed in favor of buyers.
Within the bounds of reason, fairness, and justice, doubts in
its interpretation must be resolved in a manner that will
afford buyers the fullest extent of its benefits.
II
Sections 3 and 4 of the Maceda Law spell out the rights of
defaulting buyers on installment payments, depending on the
extent of payments made.
Section 3 governs situations in which a buyer "has paid at
least two years of installments":
Section 3. In all transactions or contracts involving the sale
or financing of real estate on installment payments,
including residential condominium apartments but
excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty eight hundred
forty-four, as amended by Republic Act Numbered Sixty-
three hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of
succeeding installments:
To pay, without additional interest, the unpaid
(a) installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments
made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the
contract and its extensions, if any.
If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty per cent of the total payments
made and, after five years of installments, an additional
five per cent every year but not to exceed ninety per cent
(b)of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty
days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract
by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract shall be
included in the computation of the total number of
installment payments made.
Section 4 governs situations "where less than two years of
installments were paid":
Section 4, In case where less than two years of installments
were paid, the seller shall give the buyer a grace period of
not less than sixty days from the date the installment became
due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the
contract by a notarial act.
In both Sections 3 and 4, defaulting buyers are afforded
grace periods in which they may pay the installments due.
Should they fail to make payment within the applicable
period, cancellation of their agreement with the seller may
ensue.
III
Contrary to petitioner's allegations, she did not pay "at least
two years of installments" as to fall within the protection of
Section 3.
In a sale by installment, a buyer defers full payment of the
purchase price and ratably apportions payment across a
period. It is typified by regular, fractional payments. It is
these regular, fractional payments that are referred to as
"installments."[54]
Thus, when Section 3 speaks of paying "at least two years
of installments," it refers to the equivalent of the totality of
payments diligently or consistently made throughout a
period of two (2) years. Accordingly, where installments are
to be paid on a monthly basis, paying "at least two years of
installments" pertains to the aggregate value of 24 monthly
installments. As explained in Gatchalian Realty v.
Angeles:[55]
It should be noted that Section 3 of R.A. 6552 and paragraph
six of Contract Nos. 2271 and 2272, speak of "two years of
installments." The basis for computation of the term refers
to the installments that correspond to the number of months
of payments, and not to the number of months that the
contract is in effect as well as any grace period that has been
given. Both the law and the contracts thus prevent any buyer
who has not been diligent in paying his monthly installments
tom unduly claiming the rights provided in Section 3 of R.A.
6552.[56] (Emphasis supplied)
The phrase "at least two years of installments" refers to value
and time. It does not only refer to the period when the buyer
has been making payments, with total disregard for the value
that the buyer has actually conveyed.[57] It refers to the
proportionate value of the installments made, as well as
payments having been made for at least two (2) years.
Laws should never be so interpreted as to produce results
that are absurd or unreasonable.[58] Sustaining petitioner's
contention that spe falls within Section 3's protection just
because she has been paying for more than two (2) years
goes beyond a justified, liberal construction of the Maceda
Law. It facilitates arbitrariness, as intermittent payments of
fluctuating amounts would become permissible, so long as
they stretch for two (2) years. Worse, it condones an
absurdity. It sets a precedent that would endorse minimal,
token payments that extend for two (2) years. A buyer could,
then, literally pay loose change for two (2) years and still
come under Section 3's protection.
Reckoning payment of "at least two years of installments"
on the basis of the regular, factional payments due from the
buyer was demonstrated in Marina Properties Corp. v.
Court of Appeals.[59] There, the monthly amortization of
P67,024.22 was considered in determining the validity of the
cancellation of the contract by the seller:
We likewise uphold the finding that MARINA's cancellation
of the Contract To Buy and To Sell was clearly illegal. Prior
to MARINA's unilateral act of rescission, H.L. CARLOS
had already paid P1,810,330.70, or more than 50% of the
contract price of P3,614,000.00. Moreover, the sum H.L.
Sales 38 of 67
CARLOS had disbursed amounted to more than the total of
24 installments, i.e., two years' worth of installments
computed at a monthly installment rate of P67,024.22,
inclusive of the downpayment.[60]
In Jestra Development and Management Corporation v.
Pacifico,[61] where down payment was itself payable in
portions, this Court reckoned the monthly installment
payment for the down payment amounting to P121,666.66,
rather than the monthly amortization. This Court justified
this by referencing Section 3's injunction that "[d]own
payments, deposits or options on the contract shall be
included in the computation of the total number of
installment payments made":
The total purchase price of the property is P2,500,000. As
provided in the Reservation Application, the 30% down
payment on the purchase price or P750,000 was to be paid
in six monthly installments of P121,666.66. Under the
Contract to Sell, the 70% balance of P1,750,000.00 on the
purchase price was to be paid in 10 years through monthly
installments of P34,983, which was later increased to
P39,468 in accordance with the agreement to restructure the
same.
While, under the above-quoted Section 3 of R.A. No. 6552,
the down payment is included in computing the total number
of installment payments made, the proper divisor is neither
P34,983 nor P39,468, but P121,666.66, the monthly
installment on the down payment.
The P750,000 down payment was to be paid in six monthly
installments. If the down payment of P750,000 is to be
deducted from the total payment of P846,600, the remainder
is only P96,600. Since respondent was able to pay the down
payment in full eleven (11) months after the last monthly
installment was due, and the sum of P76,600 representing
penalty for delay of payment is deducted from the remaining
P96,600, only a balance of P20,000 remains.
As respondent failed to pay at least two years of installments,
he is not, under above-quoted Section 3 of R.A. No. 6552,
entitled to a refund of the cash surrender value of his
payments.[62]
Jestra was wrong to use the installment payments on the
down payment as divisor. It is an error to reckon the payment
of two (2) years' worth of installments on the apportionment
of the down payment because, even in cases where the down
payment is broken down into smaller, more affordable
portions, payments for it still do not embody the ratable
apportionment of the contract price throughout
the entire duration of the contract term. Rather than the
partial payments for the down payment, it is the partition of
the contract price into monthly amortizations that manifests
the ratable apportionment across a complete contract term
that is the essence of sales on installment. The correct
standard is that which was used in Marina, not in Jestra.
Marina also correctly demonstrated how Section 3's
injunction that "[d]own payments, deposits or options on the
contract shall be included in the computation of the total
number of installment payments made" should operate.
In Marina, the total amount of P1,810,330.70 paid by the
buyer was inclusive of payments for down payment worth
P1,034,200.00 and cash deposit worth P50,000.00. In
concluding that the buyer in Marina had paid more than two
(2) years' or 24 months' worth of installments, what this
Court considered was the total amount of P1,810,330.70 and
not merely the payments on amortizations.
Following Marina, this Court reckons petitioner's
satisfaction of the requisite two (2) years' or 24 months'
worth of installments using as divisor the monthly
amortizations due from petitioner. However, this Court notes
that the mon1hly amortizations due from petitioner were
stipulated to escalate on a yearly basis. In keeping with the
need to construe the Maceda Law in a manner favorable to
the buyer, this Court uses as basis the monthly amortizations
set for the first year, i.e., P27,936.84. With this as the
divisor, it shall appear that petitioner has only paid 21.786
months' worth of installments. This falls short of the
requisite two (2) years' or 24 months' worth of installments.
IV
Failing to satisfy Section 3's threshold, petitioner's case is
governed by Section 4 of the Maceda Law.
Thus, she was "entitled to a grace period of not less than
sixty (60) days from the due date within which to make [her]
installment payment. [Respondent], on the other hand, ha[d]
the right to cancel the contract after thirty (30) days from
receipt by [petitioner] of the notice of cancellation."[63]
For cancellations under Section 4 to be valid, three (3)
requisites must concur, First, the buyer must have been given
a 60-day grace period but failed to utilize it. Second, the
seller must have sent a notice of cancellation or demand for
rescission by notarial act And third, the cancellation shall
take effect only after 30 days of the buyer's receipt of the
notice of cancellation:
Essentially, the said provision provides for three (3)
requisites before the seller may actually cancel the subject
contract: first, the seller shall give the buyer a 60-day grace
period to be reckoned from the date the installment became
due; second, the seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if the
buyer fails to pay the installments due at the expiration of the
said grace period; and third, the seller may actually cancel
the contract only after thirty (30) days from the buyer's
receipt of the said notice of cancellation/demand for
rescission by notarial act.[64] (Emphasis in the original)
Respondent's October 4, 2004 notice indicates that petitioner
failed to utilize the 60-day grace period. It also indicates that
cancellation was to take effect "thirty (30) days from [its]
receipt":
Our records show that your account remains unpaid despite
our written request for your payment. We have in fact given
you sixty (60) days to update but you failed to settle your
account. Accordingly, please be informed that we are now
hereby canceling your account effective thirty (30) days
from receipt hereof.[65]
The notice of cancellation was also accompanied by a jurat;
thereby making it appear to have been a valid notarial act:
SUBSCRIBED AND SWORN to before me this OCT 06
2004, affiant exhibiting to me Community Tax Certificate
No. 05465460 issued on February 09, 2004 at
lvfanila.[66] (Emphasis supplied)
This is not, however, the valid notarial act contemplated by
the Maceda Law.
In ordinary circumstances, "[n]otarization of a private
document converts the document into a public one making it
admissible in court without further proof of its
authenticity."[67] To enable this conversion, Rule 132,
Section 19 of the Revised Rules of Evidence specifically
requires that a document be "acknowledged before a notary
public."[68]
Rule II, Section 1 of A.M. No. 02-8-13-SC, the 2004 Rules
on Notarial Practice, defines an acknowledgement, as
follows:
SECTION 1. Acknowledgment. - "Acknowledgment" refers
to an act in which an individual on a single occasion:
appears in person before the notary public and presents
(a)
an integrally complete instrument or document;
Sales 39 of 67

is attested to be personally known to the notary public or
(b)identified by the notary public through competent
evidence of identity as defined by these Rules; and
represents to the notary public that the signature on the
instrument or document was voluntarily affixed by him
for the purposes stated in the instrument or document,
(c) declares that he has executed the instrument or document
as his free and voluntary act and deed, and, if he acts in a
particular representative capacity, that he has the
authority to sign in that capacity.
Notarization under the Maceda Law extends beyond
converting private documents into public ones. Under
Sections 3 and 4, notarization enables the exercise of the
statutory right of unilateral cancellation by the seller of a
perfected contract. If an acknowledgement is necessary in
the customary rendition of public documents, with greater
reason should an acknowledgement be imperative in notices
of cancellation or demands for rescission made under
Sections 3 and 4 of the Maceda Law.
Through an acknowledgement, individuals acting as
representatives declare that they are authorized to act as such
representatives. This is particularly crucial with respect to
signatories to notices of cancellation or demands for
rescission under Sections 3 and 4 of the Maceda Law. In a
great number of cases, the sellers of real property shall be
juridical persons acting through representatives. In these
cases, it is imperative that the officer signing for the seller
indicate that he or she is duly authorized to effect the
cancellation of an otherwise perfected contract. Not all
personnel are capacitated to effect these cancellations;
individuals purporting to do so must demonstrate their
specific authority. In the case of corporations, this authority
is vested through board resolutions, or by stipulations in the
articles of incorporation or by-laws.
Respondent's notice of cancellation here was executed by an
individual identified only as belonging to respondent's
Collection Department. It was also accompanied not by an
acknowledgement, but by a jurat.
A jurat is a distinct notarial act, which makes no averment
concerning the authority of a representative. It is defined by
Rule II, Section 6 of the 2004 Rules on Notarial Practice, as
follows:
SECTION 6. Jurat. - "Jurat" refers to an act in which an
individual on a single occasion:
appears in person before the notary public and presents
(a)
an instrument or document;
is personally known to the notary public or identified by
(b)the notary public through competent evidence of identity
as defined by these Rules;
signs the instrument or document in the presence of the
(c)
notary; and
takes an oath or affirmation before the notary public as to
(d)
such instrument or document.
Even if respondent's notarization by jurat and not by
acknowledgement were to be condoned, respondent's jurat
was not even a valid jurat executed according to the
requirements of the 2004 Rules on Notarial Practice.
The 2004 Rules on Notarial Practice took effect on August
1, 2004.[69] It governed respondent's October 4, 2004 notice,
which was notarized on October 6, 2004. As Rule II, Section
6 of these Rules clearly states, the person signing the
document must be "personally known to the notary public or
identified by the notary public through competent evidence
of identity."
Rule II, Section 12, in turn, defines "competent evidence of
identity." As originally worded, when the 2004 Rules on
Notarial Practice came into effect on August 1, 2004, Rule
II, Section 12 read:
Section 12. Competent Evidence of Identity. - The phrase
"competent evidence of identity" refers to the identification
of an individual based on:
at least one current identification document issued by an
(a) official agency bearing the photograph and signature of
the individual; or
the oath or affirmation of one credible witness not privy
to the instrument, document or transaction who is
personally known to the notary public and who personally
(b)knows the individual, or of two credible witnesses neither
of whom is privy to the instrument, document or
transaction who each personally knows the individual and
shows to the notary public documentary identification.
The proof of identity used by the signatory to respondent's
notice of cancellation was a community tax certificate,
which no longer satisfies this requirement.
Rule II, Section 12 was eventually amended by A.M. No. 02-
8-13-SC. As amended, it specifically rebukes the validity of
a community tax certificate as a competent evidence of
identity:
Section 12. Competent Evidence of Identity. - The phrase
"competent evidence of identity" refers to the identification
of an individual based on:
a. at least one current identification document issued
by an official agency bearing the photograph and
signature of the individual, such as but not limited
to, passport, driver's license, Professional
Regulations Commission ID, National Bureau of
Investigation clearance, police clearance, postal
ID, voter's ID, Barangay certification,
Government Service and Insurance System
(GSIS) e-card, Social Security System (SSS) card,
Philhealth card, senior citizen card, Overseas
Workers Welfare Administration (OWWA) ID,
OFW ID, seaman's book, alien certificate of
registration/immigrant certificate of registration,
government office ID, certification from the
National Council for the Welfare of Disabled
Persons (NCWDP), Department of Social Welfare
and Development (DSWD) certification; or
b. the oath or affirmation of one credible witness not
privy to the instrument, document or transaction
who is personally known to the notary public and
who personally knows the individual, or of two
credible witnesses neither of whom is privy to the
instrument, document or transaction who each
personally knows the individual and shows to the
notary public documentary identification.
Baylon v. Almo[70] explained why community tax certificates
were specifically excluded as a permissible proof of identity:
As a matter of fact, recognizing the established unreliability
of a community tax certificate in proving the identity of a
person who wishes to have his document notarized, we did
not include it in the list of competent evidence of identity
that notaries public should use in ascertaining the identity of
persons appearing before them to have their documents
notarized.[71]
Marina Properties v. Court of Appeals[72] was unequivocal:
"[I]n order to effect the cancellation of a contract, a notarial
cancellation must first be had."[73] Realty Exchange Venture
Corp. v. Sendino[74] explained, "Since R.A. 6552 mandates
cancellation by notarial act - among other requirements
Sales 40 of 67
before any cancellation of a contract may be effected,
petitioners' precipitate cancellation of its contract with
private respondent without observing the conditions
imposed by the said law was invalid and
improper."[75] In Active Realty and Development v.
Daroya,[76] where the seller "failed to send a notarized notice
of cancellation,"[77] this Court decried the iniquity foisted
upon a buyer. "[W]e 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."[78]
In ordinary circumstances, where notarization serves merely
to convert a private document into a public document,
notaries public have been admonished about faithfully
observing the rules governing notarial acts: "Faithful
observance and utmost respect of the legal solemnity of an
oath in an acknowledgment or jurat is sacrosanct."[79] It is
with greater reason that the diligent observance of notarial
rules should be impressed in cases concerned with a seller's
exercise of a statutory privilege through cancellations under
the Maceda Law.
Respondent's failure to diligently satisfy the imperatives of
the 2004 Rules on Notarial Practice constrains this Court to
consider its notice as an invalid notarial act. This amounts to
respondent's failure to satisfy the second requisite for valid
cancellations under Section 4, ultimately rendering its
cancellation of the purchase agreement ineffectual.
This Court is mindful of jurisprudence in which it has been
lenient with the requirement of presenting a competent
evidence of identity before a notary public.
Galicto v. Aquino,[80] Coca Cola Bottlers Philippines, Inc. v.
Dela Cruz,[81] Victorio-Aquino v. Pacific Plans,
[82]
Inc., and Reyes v. Glaucoma
Research Foundation, Inc.[83] concerned verifications and
certifications of non-forum shopping in which jurats did not
indicate the required competent evidence of identity. In these
cases, this Court overlooked the defects considering that
"defective jurat in the Verification/Certification of Non-
Forum Shopping is not a fatal defect . . . The verification is
only a formal, not a jurisdictional, requirement that the Court
may waive."[84] Likewise, this Court considered it more
appropriate to not hinder the consideration of pleadings in
order that party-litigants may exhaustively plead their
cases.[85]
Galicto, Coca-Cola, Victorio-Aquino, and Reyes are
markedly different from the present controversy. They
merely concerned formal infractions. In contrast, this case
concerns Section 4's definite precondition for the seller's
exercise of its option to repudiate a contract. At stake
in Galicto, Coca-Cola, Victorio-Aquino, and Reyes was the
right to be heard in judicial proceedings, a cognate of due
process. What is at stake here is different: the grant of a
statutory privilege relating to a civil contract.
To be effective, sellers' cancellations under the Maceda Law
must strictly comply with the requirements of Sections 3 and
4. This Court clarifies here that with respect to notices of
cancellation or demands for rescission by notarial act, an
acknowledgement is imperative. Moreover, when these are
made through representatives of juridical persons selling real
property, the authority of these representatives must be duly
demonstrated. For corporations, the representative's
authority must have either been granted by a board
resolution or existing in the seller's articles of incorporation
or by-laws.
With the Maceda Law's avowed purpose of extending
benefits to disadvantaged buyers and liberating them from
onerous and oppressive conditions, it necessarily follows
that the Maceda Law's permission for sellers to cancel
contracts becomes available only when its conditions are
heedfully satisfied. No liberal construction of the Maceda
Law can be made in favor of the seller and at the same time
burdening the buyer.
V exercise this right because the developer sold the subject
There being no valid cancellation, the purchase agreement
between petitioner and respondent "remains valid and
subsisting."[86] However, respondent has already sold the lot
purchased by petitioner to a certain Ruel Ymana.[87]
Gatchalian Realty v. Angeles[88] confronted a similar
predicament. In determining the most judicious manner of
disposing of the controversy, this Court considered the
analogous cases of Olympia Housing v. Panasiatic
Travel,[89] Pagtalunan v. Vda. de Manzano,[90] Active Realty
and Development v. Daroya,[91] and Associated Marine
Officers and Seamen's Union of the Philippines PTGWO-
ITF v. Decena:[92]
In Olympia, this Court dismissed the complaint for recovery
of possession for having been prematurely filed without
complying with the mandate of R.A. 6552. We ordered the
defaulting buyer to pay the developer the balance as of the
date of the filing of the complaint plus 18% interest per
annum computed from the day after the date of the filing of
the complaint, but within 60 days from the receipt of a copy
of the decision. Upon payment, the developer shall issue the
corresponding certificate of title in favor of the defaulting
buyer, If the defaulting buyer fails to pay the full amount,
then the defaulting buyer shall vacate the subject property
without need of demand and all payments will be charged as
rentals to the property. There was no award for damages and
attorney's fees, and no costs were charged to the parties.
In Pagtalunan, this Court dismissed the complaint for
unlawful detainer. We also ordered the defaulting buyer to
pay the developer the balance of the purchase price plus
interest at 6% per annum from the date of filing of the
complaint up to the finality of judgment, and thereafter, at
the rate of 12% per annum. Upon payment, the developer
shall issue a Deed of Absolute Sale of the subject property
and deliver the corresponding certificate of title in favor of
the defaulting buyer. If the defaulting buyer fails to pay the
full amount within 60 days from finality of the decision, then
the defaulting buyer should vacate the subject property
without need of demand and all payments will be charged as
rentals to the property. No costs were charged to the parties.
In Active, this Court held that the Contract to Sell between
the parties remained valid because of the developer's failure
to send a notarized notice of cancellation and to refund the
cash surrender value. The defaulting buyer thus had the right
to offer to pay the balance of the purchase price, and the
developer had no choice but to accept
payment. However, the defaulting buyer was unable to
lot. This Court ordered the developer to refund to the
defaulting buyer the actual value of the lot with 12% interest
per annum computedfrom the date of the filing of the
complaint until fully paid, or to deliver a substitute lot at the
option of the defaulting buyer.
In Associated, this Court dismissed the complaint for
unlawful detainer. We held that the Contract to Sell between
the parties remained valid because the developer failed to
send to the defaulting buyer a notarized notice of
cancellation and to refund the cash surrender value. We
ordered the MeTC to conduct a hearing within 30 days from
receipt of the decision to determine the unpaid balance of the
full value of the subject properties as well as the current
reasonable amount of rent for the subject properties. We
ordered the defaulting buyer to pay, within 60 days from the
trial court's determination of the amounts, the unpaid balance
of the full value of the subject properties with interest at 6%
per annum computed from the date of sending of the notice
of final demand up to the date of actual payment. Upon
payment, we ordered the developer to execute a Deed of
Sales 41 of 67
Absolute Sale over the subject properties and deliver the
transfer certificate of title to the defaulting buyer. In case of
failure to pay within the mandated 60 day period, we ordered
the defaulting buyer to immediately vacate the premises
without need for further demand. The developer should also
pay the defaulting buyer the cash surrender value, and the
contract should be deemed cancelled 30 days after the
defaulting buyer's receipt of the full payment of the cash
surrender value. If the defaulting buyer failed to vacate the
premises, he should be charged reasonable rental in the
amount determined by the trial court.[93] (Emphasis
supplied)
Gatchalian proceeded to, first, assert the propriety of
equitably resolving the controversy, and second, consider
the options available to the buyer. It specifical1y noted that
in the event that its subject properties were no longer
available, only two (2) options remained: a refund or an offer
of substitute properties. It was exclusively for the buyer to
choose between these options:
We observe that this case has, from the institution of the
complaint, been pending with the courts for 10 years. As
both parties prayed for the issuance of reliefs that are just
and equitable under the premises, and in the exercise of our
discretion, we resolve to dispose of this case in an equitable
manner. Considering that GRI did not validly rescind
Contracts to Sell Nos. 2271 and 2272, Angeles has two
options:
1. The option to pay, within 60 days from the MeTC's
determination of the proper amounts, the unpaid balance of
the full value of the purchase price of the subject properties
plus interest at 6% per annum from 11 November 2003, the
date of filing of the complaint, up to the finality of this
Decision, and thereafter, at the rate of 6% per annum. Upon
payment of the full amount, GRI shall immediately execute
Deeds of Absolute Sale over the subject properties and
deliver the corresponding transfer certificate of title to
Angeles.
In the event that the subject properties are no longer
available, GRI should offer substitute properties of equal
value. Acceptance the suitability of the substitute properties
is Angeles' sole prerogative. Should Angeles refuse the
substitute properties, GRI shall refund to Angeles the actual
value of the subject properties with 6% interest per annum
computed from 11 November 2003, the date of the filing of
the complaint, until fully paid; and
2. The option to accept from GRI P574,148.40, the cash
surrender value of the subject properties, with interest at 6%
per annum, computed from 11 November 2003, the date of this case.
the filing of the complaint, until fully paid. Contracts to Sell
Nos. 2271 and 2272 shall be deemed cancelled 30 days after Considering that it did not validly cancel its contract with
Angeles' receipt of GRI's full payment of the cash surrender petitioner and has also sold the lot to another person, it is
value. No rent is further charged upon Angeles as GRI proper that respondent be ordered to refund petitioner. This
already had possession of the subject properties on 10 refund shall not be the full, actual value of the lot resold, as
October 2006.[94] (Emphasis supplied) was ordered in Active and Gatchalian, lest petitioner be
unjustly enriched. Rather, it shall only be the amount
This case is most akin to Active. There, as in this case, the actually paid by petitioner to respondent, i.e., P608,648.20.
subject property was actually sold by the seller to a third In view of Nacar v. Gallery Frames, this amount shall be
person. Gatchalian mirrored Active in discerning an subject to legal interest at the rate of twelve percent (12%)
equitable ruling in the event that its subject properties had per annum reckoned from the filing of petitioner's
been sold by the seller to another person. Complaint[100] until June 30, 2013; and six percent (6%) per
annum from July 1, 2013 until fully paid.[101]
It was Active that originally identified two (2) options where
a seller wrongly cancelled a contract with a buyer and had WHEREFORE, the Petition for Review on Certiorari
since sold that property to a third person, refunding is GRANTED.
the actual[95] value of the lot sold plus interest or delivering
a substitute lot to the buyer: The assailed October 11, 2012 Decision and July 3, 2013
Resolution of the Court of Appeals in CA-G.R. SP No.
Thus, for failure to cancel the contract in accordance with 118285 are REVERSED and SET ASIDE.
the procedure provided by law, we hold that the contract to
sell between the parties remains valid and subsisting. Respondent Filinvest Land, Inc. is ordered to refund
Following Section 3(a) of R.A. No. 6552, respondent has the petitioner Priscilla Zafra Orbe the amount of P608,648.20.
right to offer to pay for the balance of the purchase price, This refund shall earn legal interest at twelve percent (12%)
without interest, which she did in this case. Ordinarily, per annum from November 17, 2004 to June 30, 2013, and
petitioner would have had no other recourse but to accept six percent (6%) per annum, reckoned from July 1, 2013
payment. However, respondent can no longer exercise this until fully paid.
right as the subject lot was already sold by the petitioner to
another buyer which lot, as admitted by the petitioner, was This case is REMANDED to the Housing and Land Use
valued at P1,700.00 per square meter. As respondent lost her Regulatory Board Expanded National Capital Regional
chance to pay for the balance of the P875,000.00 lot, it is Field Office FOR PROPER EXECUTION.
only just and equitable that the petitioner be ordered
to refund to respondent the actual value of the lot SO ORDERED.
resold, i.e., P875,000.00, with 12% interest per annum
computed from August 26, 1991 until fully paid or to deliver Velasco, Jr., (Chairperson), Bersamin, Martires,
a substitute lot at the option of the respondent.[96] (Emphasis and Gesmundo, JJ., concur.
supplied)
In Active, the buyer managed to pay the full price of the
principal value of the lot but was still short of the total
contract price net of interest.[97] Unlike the buyer in Active,
petitioner here has only made partial payments. Thus, a full
refund of the actual value of the lot,
as Active and Gatchalian ordered, is improper. In addition,
petitioner has disavowed any interest in proceeding with the
purchase.[98] She has even admitted to not having the
financial capacity for this.[99] The antecedents, too,
demonstrate that petitioner made no further attempt at
proceeding with the purchase. Therefore, this Court
follows Active's precedent, as it did in Gatchalian, but
makes adjustments in consideration of the peculiarities of
Sales 42 of 67
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 167452 January 30, 2007
JESTRA DEVELOPMENT AND MANAGEMENT
CORPORATION, Petitioner,
vs.
DANIEL PONCE PACIFICO, represented by his
attorney-in-fact Jordan M. Pizarras, Respondent.
DECISION
CARPIO MORALES, J.:
On June 5, 1996, Daniel Ponce Pacifico (Pacifico) signed a
Reservation Application1 with Fil-Estate Marketing
Association for the purchase of a house and lot located at Lot
28, Block 3, Phase II, Jestra Villas, Barangay La Huerta,
Municipality of Parañaque, Metro Manila (the property), and
paid the reservation fee of P20,000.
Under the Reservation Application, the total purchase price
of the property was P2,500,000, and the down payment
equivalent to 30% of the purchase price or P750,000 was to
be paid interest-free in six monthly installments due every
fifth of the month starting July 1996 until December 1996.
As the P20,000 reservation fee formed part of the down
payment, the monthly installment on the down payment was
fixed at P121,666.66.
Also under the Reservation Application, upon full payment
of the 30% down payment by Pacifico, he was to sign a
contract to sell with the owner and developer of the property,
Joprest Development and Management Corporation (now
Jestra Development and Management Corporation, hereafter
Jestra). And the 70% balance on the purchase price
or P1,750,000 was to be payable in 10 years, to bear interest
at 21% per annum, at a monthly installment of P34,982.50.
When the payment of the installments on the 70% balance
should commence, the Reservation Application was silent.
Unable to comply with the schedule of payments, Pacifico
requested Jestra to allow him to make periodic payments on
the down payment "in an amount that he could afford," to
which Jestra acceded provided that late payment
penalties/surcharges2 are paid.
With still a remaining balance of P260,000 on the down
payment, Pacifico and Jestra executed on March 6, 1997,
Contract to Sell No. 833 over the property. The said contract
was silent on the unsettled balance on the down payment.
Under the Contract to Sell, Pacifico should have had
on November 5, 1996, or one month prior to the deadline
stated under the Reservation Application, fully paid the 30%
down payment, and that the 120 monthly installments for the
70% balance or P1,750 should have had commenced
on December 7, 1996, viz:
SECTION 2. TERMS OF PAYMENT. The PURCHASER
agrees to pay the aforecited purchase price [of
P2,500,000.00] in the following manner, namely:
2.1 The total amount of SEVEN HUNDRED FIFTY
THOUSAND PESOS ONLY (P750,000.00) Philippine
Currency as down payment on or before November 5, 1996.
2.2 The balance of ONE MILLION SEVEN HUNDTED
FIFTY THOUSAND PESOS ONLY (P1,750,00.00),
Philippine Currency, shall be paid in One Hundred Twenty
(120) equal monthly installments at THIRTY FOUR
THOUSAND NINE HUNDRED EIGHT THREE PESOS
ONLY (P34,983.00) Philippine Currency, to commence on
December 7, 1996, with interest at the rate of Twenty One
Percent (21%) per annum. The PURCHASER shall issue
One Hundred Twenty (120) postdated checks in favor of the
OWNER/DEVELOPER for each of the monthly
installments, which checks shall be delivered to the latter
upon signing of this CONTRACT. The PURCHASER shall
be subject to the pre-qualification requirements of
COCOLIFE for the Mortgage Redemption Insurance (MRI)
and the Building Insurance on the UNIT. Interest re-pricing
shall be effected on the 6th Year, to commence on December
7, 2001.
x x x x (Underscoring supplied)
By letter4 of November 12, 1997, Pacifico requested Jestra
that "the balance be restructured" in light of the "present
business condition."
By November 27, 1997, Pacifico had fully paid the 30%
down payment, and by December 4, 1997, he had paid a total
of P846,600, P76,600 of which Jestra applied as penalty
charges for the belated settlement of the down payment.
By letter of December 11, 1997, Jestra, through counsel, sent
Pacifico a final demand for the payment
of P444,738.885 representing the total of 11 installments due
on the 70% balance of the purchase price, inclusive of 21%
interest per annum and add-on interest at the rate of P384.81
per day, counted from January 7, 1997. Further, Jestra
demanded the payment of P73,750 representing "penalties
for the [belated settlement of the] down payment." And it
reminded Pacifico that "as provided in Section 5 of the said
contract, [Jestra] reserves its right to automatically cancel or
rescind the same on account of [his] failure/refusal to
comply with the terms thereof."6
Pacifico later requested Jestra, by letter of November 12,
1997, for a restructuring of his unsettled obligation. His
request was granted on the condition that the interest for the
period from December 1996 to November 1997 amounting
to P224,396.37 would be added to the 70% balance on the
purchase price; and that Pacifico issue 12 postdated checks
beginning each year to cover his amortization payments.
In light of the restructured scheme, the monthly amortization
on the 70% balance was from P34,982.50 increased
to P39,468, to commence on January 5, 1998.
Pacifico thus issued to Jestra 12 postdated Security Bank
checks to cover his monthly amortizations from January to
December 1998. The checks for January and February 1998
were, however, dishonored due to insufficiency of funds.7
By letter of March 24, 1998, Pacifico informed Jestra that
due to sudden financial difficulties, he was suspending
payment of his obligation during the 10-month period, and
that he wanted to dispose of the property to recover his
investment.8 And he requested that the postdated checks he
issued be returned to him.
Jestra, by letter9 of March 31, 1998, denied Pacifico’s
request to suspend payment and for the return of the
postdated checks. It, however, gave him until April 15, 1998
to sell the property failing which it warned him that it would
be constrained to re-open it for sale.
Thereafter, Jestra sent Pacifico a notarial Notice of
Cancellation, dated May 1, 1998, notifying him that it was,
within 30 days after his receipt thereof, exercising its right
Sales 43 of 67
to cancel the Contract to Sell. Pacifico received the notice on
May 13, 1998.
In a separate move, Jestra through its Credit and Collection
Manager sent Pacifico a letter dated May 27, 1998,
demanding payment of the total amount of P209,377.75
covering monthly amortizations from January 30 to May 30,
1998 inclusive of penalties. And it gave him until June 1,
1998 to settle his account, failing which the Contract to Sell
would be automatically cancelled and it would re-open the
property for sale.10
On February 24, 1999, Pacifico filed a complaint before the
Housing and Land Use Regulatory Board (HLURB) against
Jestra, docketed as HLURB Case No. REM-122499-10378,
claiming that despite his full payment of the down payment,
Jestra failed to deliver to him the property within 90 days as
provided in the Contract to Sell dated March 6, 1997, and
Jestra instead sold the property to another buyer in October
of 1998.11
Pacifico further claimed in his complaint that upon learning
of the double sale, he, through his lawyer, demanded that
Jestra deliver the property to him but it failed to do so
without just and valid cause.
Pacifico thus prayed that, among others things, judgment be
rendered declaring the second sale a nullity, ordering Jestra
to deliver the property to him and to pay him P11,000 a
month from July 1997 until delivery.
By Decision12 of March 15, 2000, the Housing and Land Use
Arbiter held Jestra liable for failure to comply with Section
3 of Republic Act (RA) No. 6552 (Realty Installment Buyer
Protection Act) requiring payment by the seller of the cash
surrender value of the buyer’s payments and Section 17 of
Presidential Decree No. 957 (REGULATING THE SALE
OF SUBDIVISION LOTS AND CONDOMINIUMS,
PROVIDING PENALTIES FOR VIOLATIONS
THEREOF) requiring it to register the Contract to Sell in the
Office of the Register of Deeds.
The Arbiter found that while Pacifico had paid a total
amount of P846,600 which is "more or less equivalent to 24
monthly installments under the contract to sell . . . wherein
the monthly amortization is P34,983,"13 he could no longer
demand the delivery of the property, its title having already
been transferred in the name of another buyer.
Thus the Arbiter disposed:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the complainant and ordering
respondent:
1. To pay and/or reimburse to the complainant the
total payments made amounting to Eight Hundred
Forty Six Thousand Six Hundred Pesos
(P846,600.00) with interest thereon at twelve
percent (12%) per annum to be computed from the
filing of the complaint on 24 February 1999 until
fully paid; and
2. To pay complainant the amount of Fifty
Thousand Pesos (P50,000.00) as
damages and attorney’s fees plus the costs of
litigation.14 (Underscoring supplied)
On appeal, the Board of Commissioners of the HLURB
modified the decision of the Arbiter by deleting the award
of P50,000 damages and ordering Jestra to pay P20,000 as
attorney’s fees and P10,000 administrative fine for failure to
register the Contract to Sell in the Office of the Register of
Deeds.
By Resolution of January 27, 2003, the HLURB Board of
Commissioners denied15 Jestra’s motion for reconsideration.
By Order16 of December 9, 2003, the Office of the President
(OP), to which the case was elevated, adopted "by reference
the findings of facts and conclusions of law" contained in the
HLURB Board Resolution of January 27, 2003. And by
Order17 dated March 18, 2004, it denied Jestra’s motion for
reconsideration.
On Jestra’s petition for review under Rule 43 of the Rules of
Court, the Court of Appeals (CA), by Decision18 dated
January 31, 2005, affirmed the Orders of the OP.
Its motion for reconsideration having been denied by CA
Resolution19 of March 16, 2005, Jestra (hereafter petitioner)
comes before this Court on a petition for review, faulting the
appellate court for:
I. . . . adopting the OP’s conclusion that penalty
payments should be included in computing the
total number of installment payments made by a
buyer (in relation to the payment of a cash
surrender value upon cancellation of a contract to
sell) in spite of its exclusion from the items to be
included in computing the two (2) years
installment payments as provided in RA 6552
II. . . . adopting the OP’s conclusion that petitioner
failed to deliver possession of the subject property
to respondent upon his full payment of the
downpayment [sic] and that petitioner’s act of
canceling the contract to sell was unconscionable
despite being allowed under RA 6552.
RA No. 6552 was enacted to protect buyers of real estate on
installment against onerous and oppressive conditions.
While the seller has under the Act the option to cancel the
contract due to non-payment of installments, he must afford
the buyer a grace period to pay them and, if at least two years
installments have already been paid, to refund the cash
surrender value of the payments. Thus Section of the Act
provides:
SECTION 3. In all transactions or contracts involving the
sale or financing of real estate on installment payments,
including residential condominium apartments but
excluding industrial lots, commercial buildings and sales to
tenants under Republic Act Numbered Thirty-eight hundred
forty-four, as amended by Republic Act Numbered Sixty-
three hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of
succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period
earned by him which is hereby fixed at the rate of
one month grace period for every one year of
installment payments made: Provided, That this
right shall be exercised by the buyer only once in
every five years of the life of the contract and its
extensions, if any.
(b) If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per
cent of the total payments made, and, after five
years of installments, an additional five per cent
every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual
cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice
Sales 44 of 67
 of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be
included in the computation of the total number of
installment payments made.
As the records indicate, the total payments made by Pacifico
(hereafter respondent) amounted to P846,600. The appellate
court, in concluding that respondent paid at least two years
of installments, adopted the formula used by the HLURB by
dividing the amount of P846,600 by the monthly
amortization of P34,983 to thus result to a quotient of 24.2
months.
Petitioner contests the computation, however. It claims that
the amount of P76,600 represents penalty payment and is a
separate item to answer for its lost income as a seller due to
the delay in the payment20 of the 30% down payment. It thus
submits that the amount of P76,600 does not form part of the
purchase price and should thus be excluded in determining
the total number of installments made.
Petitioner likewise claims that the proper divisor is
not P34,983 but P39,468 since the parties agreed to
restructure the amortizations owing to respondent’s inability
to comply with the schedule of payments previously agreed
upon in the Contract to Sell, and that if respondent’s total
payments less the penalty is to be divided by P39,468, the
total installments paid would only cover 19.5 months, hence,
it was not obliged under RA No. 6552 to pay the cash
surrender value of such total payments.
This Court finds that neither of the parties’ computations is
in order.
The total purchase price of the property is P2,500,000. As
provided in the Reservation Application, the 30% down
payment on the purchase price or P750,000 was to be paid
in six monthly installments of P121,666.66. Under the
Contract to Sell, the 70% balance of P1,750,000.00 on the
purchase price was to be paid in 10 years through monthly
installments of P34,983, which was later increased
to P39,468 in accordance with the agreement to restructure
the same.
While, under the above-quoted Section 3 of RA No. 6552,
the down payment is included in computing the total number
of installment payments made, the proper divisor is Instead, he requested for suspension of payment and for time
neither P34,983 nor P39,468, but P121,666.66, the monthly to dispose of the property to recover his investment.
installment on the down payment.
Respondent admits that petitioner was justified in canceling
The P750,000 down payment was to be paid in six monthly the contract to sell via the notarial Notice of Cancellation
installments. If the down payment of P750,000 is to be which he received on May 13, 1998. The contract was
deducted from the total payment of P846,600, the remainder deemed cancelled22 30 days from May 13, 1998 or on June
is only P96,600. Since respondent was able to pay the down 12, 1998.
payment in full eleven (11) months after the last monthly
installment was due, and the sum of P76,600 representing WHEREFORE, the petition is GRANTED. The assailed
penalty for delay of payment is deducted from the Decision and Resolution dated January 31, 2005 and March
remaining P96,600, only a balance of P20,000 remains. 16, 2005 of the Court of Appeals are hereby REVERSED
and SET ASIDE. The complaint of respondent, Daniel
As respondent failed to pay at least two years of installments, Ponce Pacifico, is DISMISSED.1avvphi1.net
he is not, under above-quoted Section 3 of RA No. 6552,
entitled to a refund of the cash surrender value of his SO ORDERED.
payments. What applies to the case instead is Section 4 of
the same law, viz:
SECTION 4. In case where less than two years of
installments were paid, the seller shall give the buyer a grace
period of not less than sixty days from the date the
installment became due.
If the buyer fails to pay the installments due at the expiration
of the grace period, the seller may cancel the contract after
thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by
a notarial act. (Underscoring supplied)
In Fabrigas v. San Francisco del Monte, Inc.,21 this Court
described the cancellation of the contract under Section 4 as
a two-step process. First, the seller should extend the buyer
a grace period of at least sixty (60) days from the due date of
the installment. Second, at the end of the grace period, the
seller shall furnish the buyer with a notice of cancellation or
demand for rescission through a notarial act, effective thirty
(30) days from the buyer's receipt thereof.
Respondent admits that under the restructured scheme, the
first installment on the 70% balance of the purchase price
was due on January 5, 1998. While he issued checks to cover
the same, the first two were dishonored due to insufficiency
of funds.
While respondent was notified of the dishonor of the checks,
he took no action thereon, hence, the 60 days grace period
lapsed. Respondent made no further payments thereafter.
Sales 45 of 67
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-57552 October 10, 1986
LUISA F. MCLAUGHLIN, petitioner,
vs.
THE COURT OF APPEALS AND RAMON
FLORES, respondents.
R.C. Domingo Jr. & Associates for private respondent.
FERIA, Actg. C.J.
This is an appeal by certiorari from the decision of the Court
of Appeals, the dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING
PREMISES, the petition for certiorari
and mandamus is hereby GRANTED
and the Orders of respondent court dated
November 21 and 27 both 1980 are
hereby nullified and set aside and
respondent Judge is ordered to order
private respondent to accept petitioner's
Pacific Banking Corporation certified
manager's Check No. MC-A-000311
dated November 17, 1980 in the amount
of P76,059.71 in full settlement of
petitioner's obligation, or another check
of equivalent kind and value, the earlier
check having become stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and
private respondent Ramon Flores entered into a contract of
conditional sale of real property. Paragraph one of the deed
of conditional sale fixed the total purchase price of
P140,000.00 payable as follows: a) P26,550.00 upon the
execution of the deed; and b) the balance of P113,450.00 to
be paid not later than May 31, 1977. The parties also agreed
that the balance shall bear interest at the rate of 1% per
month to commence from December 1, 1976, until the full
purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then
Court of First Instance of Rizal (Civil Case No. 33573) for
the rescission of the deed of conditional sale due to the
failure of private respondent to pay the balance due on May
31, 1977.
On December 27, 1979, the parties submitted a Compromise
Agreement on the basis of which the court rendered a
decision on January 22, 1980. In said compromise
agreement, private respondent acknowledged his
indebtedness to petitioner under the deed of conditional sale
in the amount of P119,050.71, and the parties agreed that
said amount would be payable as follows: a) P50,000.00
upon signing of the agreement; and b) the balance of
P69,059.71 in two equal installments on June 30, 1980 and
December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon
the signing of the agreement and in addition he also paid an
"escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private
respondent agreed to pay one thousand (P l,000.00) pesos
monthly rental beginning December 5, 1979 until the
obligation is duly paid, for the use of the property subject
matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further
state:
That the parties are agreed that in the
event the defendant (private respondent)
fails to comply with his obligations
herein provided, the plaintiff (petitioner)
will be entitled to the issuance of a writ
of execution rescinding the Deed of
Conditional Sale of Real Property. In
such eventuality, defendant (private
respondent) hereby waives his right to
appeal to (from) the Order of Rescission
and the Writ of Execution which the
Court shall render in accordance with
the stipulations herein provided for.
That in the event of execution all
payments made by defendant (private
respondent) will be forfeited in favor of
the plaintiff (petitioner) as liquidated
damages.
On October 15, 1980, petitioner wrote to private respondent
demanding that the latter pay the balance of P69,059.71 on
or before October 31, 1980. This demand included not only
the installment due on June 30, 1980 but also the installment
due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to
petitioner signifying his willingness and intention to pay the
full balance of P69,059.71, and at the same time demanding
to see the certificate of title of the property and the tax
payment receipts.
Private respondent states on page 14 of his brief that on
November 3, 1980, the first working day of said month, he
tendered payment to petitioner but this was refused
acceptance by petitioner. However, this does not appear in
the decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of
Execution alleging that private respondent failed to pay the
installment due on June 1980 and that since June 1980 he
had failed to pay the monthly rental of P l,000.00. Petitioner
prayed that a) the deed of conditional sale of real property be
declared rescinded with forfeiture of all payments as
liquidated damages; and b) the court order the payment of
Pl,000.00 back rentals since June 1980 and the eviction of
private respondent.
On November 14, 1980, the trial court granted the motion
for writ of execution.
On November 17, 1980, private respondent filed a motion
for reconsideration tendering at the same time a Pacific
Banking Corporation certified manager's check in the
amount of P76,059.71, payable to the order of petitioner and
covering the entire obligation including the installment due
on December 31, 1980. However, the trial court denied the
motion for reconsideration in an order dated November 21,
1980 and issued the writ of execution on November 25,
1980.
In an order dated November 27, 1980, the trial court granted
petitioner's ex-parte motion for clarification of the order of
execution rescinding the deed of conditional sale of real
property.
On November 28, 1980, private respondent filed with the
Court of Appeals a petition for certiorari and prohibition
assailing the orders dated November 21 and 27, 1980.
Sales 46 of 67
As initially stated above, the appellate court nullified and set
aside the disputed orders of the lower court. In its decision,
the appellate court ruled in part as follows:
The issue here is whether respondent
court committed a grave abuse of
discretion in issuing the orders dated
November 21, 1980 and November
27,1980.
The general rule is that rescission will
not be permitted for a slight or casual
breach of the contract, but only for such
breaches as are substantial and
fundamental as to defeat the object of
the parties in making the agreement.
(Song Fo & Co. vs. Hawaiian-Philippine
Co., 47 Phil. 821)
In aforesaid case, it was held that a delay
in payment for a small quantity of
molasses, for some twenty days is not
such a violation of an essential condition
of the contract as warrants rescission for
non-performance.
In Universal Food Corp. vs. Court of
Appeals, 33 SCRA 1, the Song Fo ruling
was reaffirmed.
In the case at bar, McLaughlin wrote
Flores on October 15, 1980 demanding
that Flores pay the balance of
P69,059.71 on or before October 31,
1980. Thus it is undeniable that despite
Flores' failure to make the payment
which was due on June 1980,
McLaughlin waived whatever right she
had under the compromise agreement as
incorporated in the decision of
respondent court, to demand rescission.
xxx xxx xxx
It is significant to note that on
November 17, 1980, or just seventeen
(17) days after October 31, 1980, the
deadline set by McLaughlin, Flores
tendered the certified manager's check.
We hold that the Song Fo ruling is
applicable herein considering that in the
latter case, there was a 20-day delay in
the payment of the obligation as
compared to a 17-day delay in the
instant case.
Furthermore, as held in the recent case
of New Pacific Timber & Supply Co.,
Inc. vs. Hon. Alberto Seneris, L-41764,
December 19, 1980, it is the accepted
practice in business to consider a
cashier's or manager's check as cash and
that upon certification of a check, it is
equivalent to its acceptance (Section
187, Negotiable Instrument Law) and
the funds are thereby transferred to the
credit of the creditor (Araneta v.
Tuason, 49 O.G. p. 59).
In the New Pacific Timber & Supply
Co., Inc. case, the Supreme Court
further held that the object of certifying
a check is to enable the holder thereof to
use it as money, citing the ruling in PNB
vs. National City Bank of New York, 63
Phil. 711.
In the New Pacific Timber case, it was
also ruled that the exception in Section
63 of the Central Bank Act that the
clearing of a check and the subsequent
crediting of the amount thereof to the
account of the creditor is equivalent to
delivery of cash, is applicable to a
payment through a certified check.
Considering that Flores had already paid
P101,550.00 under the contract to sell,
excluding the monthly rentals paid,
certainly it would be the height of
inequity to have this amount forfeited in
favor McLaughlin. Under the
questioned orders, McLaughlin would
get back the property and still keep
P101,550.00.
Petitioner contends that the appellate court erred in not
observing the provisions of Article No. 1306 of the Civil
Code of the Philippines and in having arbitrarily abused its
judicial discretion by disregarding the penal clause
stipulated by the parties in the compromise agreement which
was the basis of the decision of the lower court.
We agree with the appellate court that it would be
inequitable to cancel the contract of conditional sale and to
have the amount of P101,550.00 (P l48,126.97 according to
private respondent in his brief) already paid by him under
said contract, excluding the monthly rentals paid, forfeited
in favor of petitioner, particularly after private respondent
had tendered the amount of P76,059.71 in full payment of
his obligation.
In the analogous case of De Guzman vs. Court of Appeals,
this Court sustained the order of the respondent judge
denying the petitioners' motion for execution on the ground
that the private respondent had substantially complied with
the terms and conditions of the compromise agreement, and
directing the petitioners to immediately execute the
necessary documents transferring to the private respondent
the title to the properties (July 23, 1985, 137 SCRA 730). In
the case at bar, there was also substantial compliance with
the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of
November 16, 1978 in the case of Luzon Brokerage Co., Inc.
vs. Maritime Building Co., Inc., to the effect that Republic
Act 6552 (the Maceda Law) "recognizes and reaffirms the
vendor's right to cancel the contract to sell upon breach and
non-payment of the stipulated installments but requires a
grace period after at least two years of regular installment
payments ... . " (86 SCRA 305, 329)
On the other hand, private respondent also invokes said law
as an expression of public policy to protect buyers of real
estate on installments against onerous and oppressive
conditions (Section 2 of Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on
September 14, 1972 provides as follows:
In case where less than two years of
installments were paid, the seller shall
give the buyer a grace period of not less
than sixty days from the date the
installment became due. If the buyer
fails to pay the installments due at the
expiration of the grace period, the seller
may cancel the contract after thirty days
from receipt by the buyer of the notice
Sales 47 of 67
 of the cancellation or the demand for
rescission of the contract by a notarial
act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter
entered into contrary to the provisions of
Sections 3, 4, 5 and 6, shall be null and
void.
The spirit of these provisions further supports the decision
of the appellate court. The record does not contain the
complete text of the compromise agreement dated December
20, 1979 and the decision approving it. However, assuming
that under the terms of said agreement the December 31,
1980 installment was due and payable when on October 15,
1980, petitioner demanded payment of the balance of
P69,059.71 on or before October 31, 1980, petitioner could
cancel the contract after thirty days from receipt by private
respondent of the notice of cancellation. Considering
petitioner's motion for execution filed on November 7, 1980
as a notice of cancellation, petitioner could cancel the
contract of conditional sale after thirty days from receipt by
private respondent of said motion. Private respondent's
tender of payment of the amount of P76,059.71 together with
his motion for reconsideration on November 17, 1980 was,
therefore, well within the thirty-day period grants by law..
The tender made by private respondent of a certified bank
manager's check payable to petitioner was a valid tender of
payment. The certified check covered not only the balance
of the purchase price in the amount of P69,059.71, but also
the arrears in the rental payments from June to December,
1980 in the amount of P7,000.00, or a total of P76,059.71.
On this point the appellate court correctly applied the ruling
in the case of New Pacific Timber & Supply Co., Inc. vs.
Seneris (101 SCRA 686, 692-694) to the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of
Court provides that:
An offer in writing to pay a particular
sum of money or to deliver a written
instrument or specific property is, if
rejected, equivalent to the actual
production and tender of the money,
instrument, or property.
However, although private respondent had made a valid
tender of payment which preserved his rights as a vendee in
the contract of conditional sale of real property, he did not
follow it with a consignation or deposit of the sum due with
the court. As this Court has held:
The rule regarding payment of
redemption prices is invoked. True that
consignation of the redemption price is
not necessary in order that the vendor
may compel the vendee to allow the
repurchase within the time provided by
law or by contract. (Rosales vs. Reyes
and Ordoveza, 25 Phil. 495.) We have
held that in such cases a mere tender of
payment is enough, if made on time, as
a basis for action against the vendee to
compel him to resell. But that tender
does not in itself relieve the vendor from
his obligation to pay the price when
redemption is allowed by the court. In
other words, tender of payment is
sufficient to compel redemption but is
not in itself a payment that relieves the
vendor from his liability to pay the
redemption price. " (Paez vs. Magno, 83
Phil. 403, 405)
On September 1, 1986, the Court issued the following
resolution
Considering the allegation in petitioner's
reply brief that the Manager's Check
tendered by private respondent on
November 17, 1980 was subsequently
cancelled and converted into cash, the
Court RESOLVED to REQUIRE the
parties within ten (10) days from notice
to inform the Court whether or not the
amount thereof was deposited in court
and whether or not private respondent
continued paying the monthly rental of
P1,000.00 stipulated in the Compromise
Agreement.
In compliance with this resolution, both parties submitted
their respective manifestations which confirm that the
Manager's Check in question was subsequently withdrawn
and replaced by cash, but the cash was not deposited with
the court.
According to Article 1256 of the Civil Code of the
Philippines, if the creditor to whom tender of payment has
been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of
the thing or sum due, and that consignation alone shall
produce the same effect in the five cases enumerated therein;
Article 1257 provides that in order that the consignation of
the thing (or sum) due may release the obligor, it must first
be announced to the persons interested in the fulfillment of
the obligation; and Article 1258 provides that consignation
shall be made by depositing the thing (or sum) due at the
disposal of the judicial authority and that the interested
parties shall also be notified thereof.
As the Court held in the case of Soco vs.
Militante, promulgated on June 28, 1983, after examining
the above-cited provisions of the law and the jurisprudence
on the matter:
Tender of payment must be
distinguished from consignation.
Tender is the antecedent of
consignation, that is, an act preparatory
to the consignation, which is the
principal, and from which are derived
the immediate consequences which the
debtor desires or seeks to obtain. Tender
of payment may be extrajudicial, while
consignation is necessarily judicial, and
the priority of the first is the attempt to
make a private settlement before
proceeding to the solemnities of
consignation. (8 Manresa 325). (123
SCRA 160,173)
In the above-cited case of De Guzman vs. Court of
Appeals (137 SCRA 730), the vendee was released from
responsibility because he had deposited with the court the
balance of the purchase price. Similarly, in the above-cited
case of New Pacific Timber & Supply Co., Inc. vs.
Seneris (101 SCRA 686), the judgment debtor was released
from responsibility by depositing with the court the amount
of the judgment obligation.
In the case at bar, although as above stated private
respondent had preserved his rights as a vendee in the
contract of conditional sale of real property by a timely valid
tender of payment of the balance of his obligation which was
not accepted by petitioner, he remains liable for the payment
Sales 48 of 67
of his obligation because of his failure to deposit the amount
due with the court.

In his manifestation dated September 19, 1986, private

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

However, inasmuch as petitioner did not accept the aforesaid

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

WHEREFORE, the decision of the Court of Appeals is

AFFIRMED with the following modifications:

(a) Petitioner is ordered to accept from private respondent

the Metrobank Cashier's Check No. CC 004233 in her favor
in the amount of P76,059.71 or another certified check of a
reputable bank drawn in her favor in the same amount;

(b) Private respondent is ordered to pay petitioner, within

sixty (60) days from the finality of this decision, the rentals
in arrears of P l,000.00 a month from January 1, 1981 until
full payment thereof; and

(c) Petitioner is ordered to execute a deed of absolute sale in

favor of private respondent over the real property in question
upon full payment of the amounts as provided in paragraphs
(a) and (b) above. No costs.

SO ORDERED.

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

Sales 49 of 67
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 111238 January 25, 1995
ADELFA PROPERTIES, INC., petitioner,
vs.
COURT OF APPEALS, ROSARIO JIMENEZ-
CASTAÑEDA and SALUD JIMENEZ, respondents.
REGALADO, J.:
The main issues presented for resolution in this petition for
review on certiorari of the judgment of respondent Court of
appeals, dated April 6, 1993, in CA-G.R. CV No. 347671 are
(1) whether of not the "Exclusive Option to Purchase"
executed between petitioner Adelfa Properties, Inc. and
private respondents Rosario Jimenez-Castañeda and Salud
Jimenez is an option contract; and (2) whether or not there
was a valid suspension of payment of the purchase price by
said petitioner, and the legal effects thereof on the
contractual relations of the parties.
The records disclose the following antecedent facts which
culminated in the present appellate review, to wit:
1. Herein private respondents and their brothers, Jose and
Dominador Jimenez, were the registered co-owners of a
parcel of land consisting of 17,710 square meters, covered
by Transfer Certificate of Title (TCT) No. 309773,2 situated
in Barrio Culasi, Las Piñas, Metro Manila.
2. On July 28, 1988, Jose and Dominador Jimenez sold their
share consisting of one-half of said parcel of land,
specifically the eastern portion thereof, to herein petitioner
pursuant to a "Kasulatan sa Bilihan ng
Lupa."3 Subsequently, a "Confirmatory Extrajudicial
Partition Agreement"4 was executed by the Jimenezes,
wherein the eastern portion of the subject lot, with an area of
8,855 square meters was adjudicated to Jose and Dominador
Jimenez, while the western portion was allocated to herein
private respondents.
3. Thereafter, herein petitioner expressed interest in buying
the western portion of the property from private respondents.
Accordingly, on November 25, 1989, an "Exclusive Option
to Purchase"5 was executed between petitioner and private
respondents, under the following terms and conditions:
1. The selling price of said 8,655 square
meters of the subject property is TWO
MILLION EIGHT HUNDRED FIFTY
SIX THOUSAND ONE HUNDRED
FIFTY PESOS ONLY (P2,856,150.00)
2. The sum of P50,000.00 which we
received from ADELFA PROPERTIES,
INC. as an option money shall be
credited as partial payment upon the
consummation of the sale and the
balance in the sum of TWO MILLION
EIGHT HUNDRED SIX THOUSAND
ONE HUNDRED FIFTY PESOS
(P2,806,150.00) to be paid on or before
November 30, 1989;
3. In case of default on the part of
ADELFA PROPERTIES, INC. to pay
said balance in accordance with
paragraph 2 hereof, this option shall be
cancelled and 50% of the option money
to be forfeited in our favor and we will
refund the remaining 50% of said
money upon the sale of said property to
a third party;
4. All expenses including the
corresponding capital gains tax, cost of
documentary stamps are for the account
of the VENDORS, and expenses for the
registration of the deed of sale in the
Registry of Deeds are for the account of
ADELFA PROPERTIES, INC.
Considering, however, that the owner's copy of the
certificate of title issued to respondent Salud Jimenez had
been lost, a petition for the re-issuance of a new owner's copy
of said certificate of title was filed in court through Atty.
Bayani L. Bernardo, who acted as private respondents'
counsel. Eventually, a new owner's copy of the certificate of
title was issued but it remained in the possession of Atty.
Bernardo until he turned it over to petitioner Adelfa
Properties, Inc.
4. Before petitioner could make payment, it received
summons6 on November 29, 1989, together with a copy of a
complaint filed by the nephews and nieces of private
respondents against the latter, Jose and Dominador Jimenez,
and herein petitioner in the Regional Trial Court of Makati,
docketed as Civil Case No. 89-5541, for annulment of the
deed of sale in favor of Household Corporation and recovery
of ownership of the property covered by TCT No. 309773.7
5. As a consequence, in a letter dated November 29, 1989,
petitioner informed private respondents that it would hold
payment of the full purchase price and suggested that private
respondents settle the case with their nephews and nieces,
adding that ". . . if possible, although November 30, 1989 is
a holiday, we will be waiting for you and said plaintiffs at
our office up to 7:00 p.m."8 Another letter of the same tenor
and of even date was sent by petitioner to Jose and
Dominador Jimenez.9 Respondent Salud Jimenez refused to
heed the suggestion of petitioner and attributed the
suspension of payment of the purchase price to "lack of word
of honor."
6. On December 7, 1989, petitioner caused to be annotated
on the title of the lot its option contract with private
respondents, and its contract of sale with Jose and
Dominador Jimenez, as Entry No. 1437-4 and entry No.
1438-4, respectively.
7. On December 14, 1989, private respondents sent
Francisca Jimenez to see Atty. Bernardo, in his capacity as
petitioner's counsel, and to inform the latter that they were
cancelling the transaction. In turn, Atty. Bernardo offered to
pay the purchase price provided that P500,000.00 be
deducted therefrom for the settlement of the civil case. This
was rejected by private respondents. On December 22, 1989,
Atty. Bernardo wrote private respondents on the same matter
but this time reducing the amount from P500,000.00 to
P300,000.00, and this was also rejected by the latter.
8. On February 23, 1990, the Regional Trial Court of Makati
dismissed Civil Case No. 89-5541. Thus, on February 28,
1990, petitioner caused to be annotated anew on TCT No.
309773 the exclusive option to purchase as Entry No. 4442-
4.
Sales 50 of 67
9. On the same day, February 28, 1990, private respondents
executed a Deed of Conditional Sale 10 in favor of Emylene
Chua over the same parcel of land for P3,029,250, of which
P1,500,000.00 was paid to private respondents on said date,
with the balance to be paid upon the transfer of title to the
specified one-half portion.
10. On April 16, 1990, Atty. Bernardo wrote private
respondents informing the latter that in view of the dismissal
of the case against them, petitioner was willing to pay the
purchase price, and he requested that the corresponding deed
of absolute sale be executed. 11 This was ignored by private
respondents.
11. On July 27, 1990, private respondents' counsel sent a
letter to petitioner enclosing therein a check for P25,000.00
representing the refund of fifty percent of the option money
paid under the exclusive option to purchase. Private
respondents then requested petitioner to return the owner's
duplicate copy of the certificate of title of respondent Salud
Jimenez. 12 Petitioner failed to surrender the certificate of
title, hence private respondents filed Civil Case No. 7532 in
the Regional Trial Court of Pasay City, Branch 113, for
annulment of contract with damages, praying, among others,
that the exclusive option to purchase be declared null and
void; that defendant, herein petitioner, be ordered to return
the owner's duplicate certificate of title; and that the
annotation of the option contract on TCT No. 309773 be
cancelled. Emylene Chua, the subsequent purchaser of the
lot, filed a complaint in intervention.
12. The trial court rendered judgment 13 therein on
September 5, 1991 holding that the agreement entered into
by the parties was merely an option contract, and declaring
that the suspension of payment by herein petitioner
constituted a counter-offer which, therefore, was tantamount
to a rejection of the option. It likewise ruled that herein
petitioner could not validly suspend payment in favor of
private respondents on the ground that the vindicatory action
filed by the latter's kin did not involve the western portion of
the land covered by the contract between petitioner and
private respondents, but the eastern portion thereof which
was the subject of the sale between petitioner and the
brothers Jose and Dominador Jimenez. The trial court then
directed the cancellation of the exclusive option to purchase,
declared the sale to intervenor Emylene Chua as valid and
binding, and ordered petitioner to pay damages and
attorney's fees to private respondents, with costs.
13. On appeal, respondent Court of appeals affirmed in
toto the decision of the court a quo and held that the failure
of petitioner to pay the purchase price within the period
agreed upon was tantamount to an election by petitioner not
to buy the property; that the suspension of payment
constituted an imposition of a condition which was actually
a counter-offer amounting to a rejection of the option; and
that Article 1590 of the Civil Code on suspension of
payments applies only to a contract of sale or a contract to
sell, but not to an option contract which it opined was the
nature of the document subject of the case at bar. Said
appellate court similarly upheld the validity of the deed of
conditional sale executed by private respondents in favor of
intervenor Emylene Chua.
In the present petition, the following assignment of errors are
raised:
1. Respondent court of appeals acted with grave abuse of
discretion in making its finding that the agreement entered
into by petitioner and private respondents was strictly an
option contract;
2. Granting arguendo that the agreement was an option
contract, respondent court of Appeals acted with grave abuse
of discretion in grievously failing to consider that while the
option period had not lapsed, private respondents could not
unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of
discretion in failing to appreciate fully the attendant facts
and circumstances when it made the conclusion of law that
Article 1590 does not apply; and
4. Respondent Court of Appeals acted with grave abuse of
discretion in conforming with the sale in favor of appellee
Ma. Emylene Chua and the award of damages and attorney's
fees which are not only excessive, but also without in fact
and in law. 14
An analysis of the facts obtaining in this case, as well as the
evidence presented by the parties, irresistibly leads to the
conclusion that the agreement between the parties is a
contract to sell, and not an option contract or a contract of
sale.
I a contract to sell.
1. In view of the extended disquisition thereon by respondent
court, it would be worthwhile at this juncture to briefly
discourse on the rationale behind our treatment of the alleged
option contract as a contract to sell, rather than a contract of
sale. The distinction between the two is important for in
contract of sale, the title passes to the vendee upon the
delivery of the thing sold; whereas in a contract to sell, by
agreement the ownership is reserved in the vendor and is not
to pass until the full payment of the price. In a contract of
sale, the vendor has lost and cannot recover ownership until
and unless the contract is resolved or rescinded; whereas in
a contract to sell, title is retained by the vendor until the full
payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach but
an event that prevents the obligation of the vendor to convey
title from becoming effective. Thus, a deed of sale is
considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is
reserved in the seller until the full payment of the price, nor
one giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed
period. 15
There are two features which convince us that the parties
never intended to transfer ownership to petitioner except
upon the full payment of the purchase price. Firstly, the
exclusive option to purchase, although it provided for
automatic rescission of the contract and partial forfeiture of
the amount already paid in case of default, does not mention
that petitioner is obliged to return possession or ownership
of the property as a consequence of non-payment. There is
no stipulation anent reversion or reconveyance of the
property to herein private respondents in the event that
petitioner does not comply with its obligation. With the
absence of such a stipulation, although there is a provision
on the remedies available to the parties in case of breach, it
may legally be inferred that the parties never intended to
transfer ownership to the petitioner to completion of
payment of the purchase price.
In effect, there was an implied agreement that ownership
shall not pass to the purchaser until he had fully paid the
price. Article 1478 of the civil code does not require that
such a stipulation be expressly made. Consequently, an
implied stipulation to that effect is considered valid and,
therefore, binding and enforceable between the parties. It
should be noted that under the law and jurisprudence, a
contract which contains this kind of stipulation is considered
Sales 51 of 67
Moreover, that the parties really intended to execute a
contract to sell, and not a contract of sale, is bolstered by the
fact that the deed of absolute sale would have been issued
only upon the payment of the balance of the purchase price,
as may be gleaned from petitioner's letter dated April 16,
1990 16 wherein it informed private respondents that it "is
now ready and willing to pay you simultaneously with the
execution of the corresponding deed of absolute sale."
Secondly, it has not been shown there was delivery of the
property, actual or constructive, made to herein petitioner.
The exclusive option to purchase is not contained in a public
instrument the execution of which would have been
considered equivalent to delivery. 17 Neither did petitioner
take actual, physical possession of the property at any given
time. It is true that after the reconstitution of private
respondents' certificate of title, it remained in the possession
of petitioner's counsel, Atty. Bayani L. Bernardo, who
thereafter delivered the same to herein petitioner. Normally,
under the law, such possession by the vendee is to be
understood as a delivery.18 However, private respondents
explained that there was really no intention on their part to
deliver the title to herein petitioner with the purpose of
transferring ownership to it. They claim that Atty. Bernardo
had possession of the title only because he was their counsel
in the petition for reconstitution. We have no reason not to
believe this explanation of private respondents, aside from
the fact that such contention was never refuted or
contradicted by petitioner.
2. Irrefragably, the controverted document should legally be
considered as a perfected contract to sell. On this particular
point, therefore, we reject the position and ratiocination of
respondent Court of Appeals which, while awarding the
correct relief to private respondents, categorized the
instrument as "strictly an option contract."
The important task in contract interpretation is always the
ascertainment of the intention of the contracting parties and
that task is, of course, to be discharged by looking to the
words they used to project that intention in their contract, all
the words not just a particular word or two, and words in
context not words standing alone. 19 Moreover, judging from
the subsequent acts of the parties which will hereinafter be
discussed, it is undeniable that the intention of the parties
was to enter into a contract to sell. 20 In addition, the title of
a contract does not necessarily determine its true
nature. 21 Hence, the fact that the document under discussion
is entitled "Exclusive Option to Purchase" is not controlling
where the text thereof shows that it is a contract to sell.
An option, as used in the law on sales, is a continuing offer
or contract by which the owner stipulates with another that
the latter shall have the right to buy the property at a fixed
price within a certain time, or under, or in compliance with,
certain terms and conditions, or which gives to the owner of
the property the right to sell or demand a sale. It is also
sometimes called an "unaccepted offer." An option is not of
itself a purchase, but merely secures the privilege to
buy. 22 It is not a sale of property but a sale of property but a
sale of the right to purchase. 23 It is simply a contract by
which the owner of property agrees with another person that
he shall have the right to buy his property at a fixed price
within a certain time. He does not sell his land; he does not
then agree to sell it; but he does sell something, that it is, the
right or privilege to buy at the election or option of the other
party. 24 Its distinguishing characteristic is that it imposes no
binding obligation on the person holding the option, aside
from the consideration for the offer. Until acceptance, it is
not, properly speaking, a contract, and does not vest,
transfer, or agree to transfer, any title to, or any interest or
right in the subject matter, but is merely a contract by which
the owner of property gives the optionee the right or
privilege of accepting the offer and buying the property on
certain terms. 25
On the other hand, a contract, like a contract to sell, involves
a meeting of minds two persons whereby one binds himself,
with respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere
consent, 27 which is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are
to constitute the contract. The offer must be certain and the
acceptance absolute. 28
The distinction between an "option" and a contract of sale is
that an option is an unaccepted offer. It states the terms and
conditions on which the owner is willing to sell the land, if
the holder elects to accept them within the time limited. If
the holder does so elect, he must give notice to the other
party, and the accepted offer thereupon becomes a valid and
binding contract. If an acceptance is not made within the
time fixed, the owner is no longer bound by his offer, and
the option is at an end. A contract of sale, on the other hand,
fixes definitely the relative rights and obligations of both
parties at the time of its execution. The offer and the
acceptance are concurrent, since the minds of the contracting
parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and
documentary evidence presented by the parties, readily
shows that there is indeed a concurrence of petitioner's offer
to buy and private respondents' acceptance thereof. The rule
is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct
communicated to the offeror, it may be made either in a
formal or an informal manner, and may be shown by acts,
conduct, or words of the accepting party that clearly manifest
a present intention or determination to accept the offer to buy
or sell. Thus, acceptance may be shown by the acts, conduct,
or words of a party recognizing the existence of the contract
of sale. 30
The records also show that private respondents accepted the
offer of petitioner to buy their property under the terms of
their contract. At the time petitioner made its offer, private
respondents suggested that their transfer certificate of title
be first reconstituted, to which petitioner agreed. As a matter
of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo,
who assisted private respondents in filing a petition for
reconstitution. After the title was reconstituted, the parties
agreed that petitioner would pay either in cash or manager's
check the amount of P2,856,150.00 for the lot. Petitioner
was supposed to pay the same on November 25, 1989, but it
later offered to make a down payment of P50,000.00, with
the balance of P2,806,150.00 to be paid on or before
November 30, 1989. Private respondents agreed to the
counter-offer made by petitioner. 31 As a result, the so-called
exclusive option to purchase was prepared by petitioner and
was subsequently signed by private respondents, thereby
creating a perfected contract to sell between them.
It cannot be gainsaid that the offer to buy a specific piece of
land was definite and certain, while the acceptance thereof
was absolute and without any condition or qualification. The
agreement as to the object, the price of the property, and the
terms of payment was clear and well-defined. No other
significance could be given to such acts that than they were
meant to finalize and perfect the transaction. The parties
even went beyond the basic requirements of the law by
stipulating that "all expenses including the corresponding
capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of
the deed of sale in the Registry of Deeds are for the account
of Adelfa properties, Inc." Hence, there was nothing left to
be done except the performance of the respective obligations
of the parties.
We do not subscribe to private respondents' submission,
which was upheld by both the trial court and respondent
court of appeals, that the offer of petitioner to deduct
P500,000.00, (later reduced to P300,000.00) from the
Sales 52 of 67
purchase price for the settlement of the civil case was
tantamount to a counter-offer. It must be stressed that there
already existed a perfected contract between the parties at
the time the alleged counter-offer was made. Thus, any new
offer by a party becomes binding only when it is accepted by
the other. In the case of private respondents, they actually
refused to concur in said offer of petitioner, by reason of
which the original terms of the contract continued to be
enforceable.
At any rate, the same cannot be considered a counter-offer
for the simple reason that petitioner's sole purpose was to
settle the civil case in order that it could already comply with
its obligation. In fact, it was even indicative of a desire by
petitioner to immediately comply therewith, except that it
was being prevented from doing so because of the filing of
the civil case which, it believed in good faith, rendered
compliance improbable at that time. In addition, no inference
can be drawn from that suggestion given by petitioner that it
was totally abandoning the original contract.
More importantly, it will be noted that the failure of
petitioner to pay the balance of the purchase price within the
agreed period was attributed by private respondents to "lack
of word of honor" on the part of the former. The reason of
"lack of word of honor" is to us a clear indication that private
respondents considered petitioner already bound by its
obligation to pay the balance of the consideration. In effect,
private respondents were demanding or exacting fulfillment
of the obligation from herein petitioner. with the arrival of
the period agreed upon by the parties, petitioner was
supposed to comply with the obligation incumbent upon it to
perform, not merely to exercise an option or a right to buy
the property.
The obligation of petitioner on November 30, 1993 consisted
of an obligation to give something, that is, the payment of
the purchase price. The contract did not simply give
petitioner the discretion to pay for the property. 32 It will be
noted that there is nothing in the said contract to show that
petitioner was merely given a certain period within which to
exercise its privilege to buy. The agreed period was intended
to give time to herein petitioner within which to fulfill and
comply with its obligation, that is, to pay the balance of the
purchase price. No evidence was presented by private
respondents to prove otherwise.
The test in determining whether a contract is a "contract of
sale or purchase" or a mere "option" is whether or not the
agreement could be specifically enforced. 33 There is no
doubt that the obligation of petitioner to pay the purchase
price is specific, definite and certain, and consequently
binding and enforceable. Had private respondents chosen to
enforce the contract, they could have specifically compelled
petitioner to pay the balance of P2,806,150.00. This is
distinctly made manifest in the contract itself as an integral
stipulation, compliance with which could legally and
definitely be demanded from petitioner as a consequence.
This is not a case where no right is as yet created nor an
obligation declared, as where something further remains to
be done before the buyer and seller obligate
themselves. 34 An agreement is only an "option" when no
obligation rests on the party to make any payment except
such as may be agreed on between the parties as
consideration to support the option until he has made up his
mind within the time specified. 35 An option, and not a
contract to purchase, is effected by an agreement to sell real
estate for payments to be made within specified time and
providing forfeiture of money paid upon failure to make
payment, where the purchaser does not agree to purchase, to
make payment, or to bind himself in any way other than the
forfeiture of the payments made. 36 As hereinbefore
discussed, this is not the situation obtaining in the case at
bar.
While there is jurisprudence to the effect that a contract
which provides that the initial payment shall be totally
forfeited in case of default in payment is to be considered as
an option contract, 37 still we are not inclined to conform
with the findings of respondent court and the court a quo that
the contract executed between the parties is an option
contract, for the reason that the parties were already
contemplating the payment of the balance of the purchase
price, and were not merely quoting an agreed value for the
property. The term "balance," connotes a remainder or
something remaining from the original total sum already
agreed upon.
In other words, the alleged option money of P50,000.00 was
actually earnest money which was intended to form part of
the purchase price. The amount of P50,000.00 was not
distinct from the cause or consideration for the sale of the
property, but was itself a part thereof. It is a statutory rule
that whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and as proof of the
perfection of the contract. 38 It constitutes an advance
payment and must, therefore, be deducted from the total
price. Also, earnest money is given by the buyer to the seller
to bind the bargain.
There are clear distinctions between earnest money and
option money, viz.: (a) earnest money is part of the purchase
price, while option money ids the money given as a distinct
consideration for an option contract; (b) earnest money is
given only where there is already a sale, while option money
applies to a sale not yet perfected; and (c) when earnest
money is given, the buyer is bound to pay the balance, while
when the would-be buyer gives option money, he is not
required to buy. 39
The aforequoted characteristics of earnest money are
apparent in the so-called option contract under review, even
though it was called "option money" by the parties. In
addition, private respondents failed to show that the payment
of the balance of the purchase price was only a condition
precedent to the acceptance of the offer or to the exercise of
the right to buy. On the contrary, it has been sufficiently
established that such payment was but an element of the
performance of petitioner's obligation under the contract to
sell. 40
II
1. This brings us to the second issue as to whether or not
there was valid suspension of payment of the purchase price
by petitioner and the legal consequences thereof. To justify
its failure to pay the purchase price within the agreed period,
petitioner invokes Article 1590 of the civil Code which
provides:
Art. 1590. Should the vendee be
disturbed in the possession or ownership
of the thing acquired, or should he have
reasonable grounds to fear such
disturbance, by a vindicatory action or a
foreclosure of mortgage, he may
suspend the payment of the price until
the vendor has caused the disturbance or
danger to cease, unless the latter gives
security for the return of the price in a
proper case, or it has been stipulated
that, notwithstanding any such
contingency, the vendee shall be bound
to make the payment. A mere act of
trespass shall not authorize the
suspension of the payment of the price.
Respondent court refused to apply the aforequoted provision
of law on the erroneous assumption that the true agreement
between the parties was a contract of option. As we have
Sales 53 of 67
hereinbefore discussed, it was not an option contract but a
perfected contract to sell. Verily, therefore, Article 1590
would properly apply.
Both lower courts, however, are in accord that since Civil
Case No. 89-5541 filed against the parties herein involved
only the eastern half of the land subject of the deed of sale
between petitioner and the Jimenez brothers, it did not,
therefore, have any adverse effect on private respondents'
title and ownership over the western half of the land which
is covered by the contract subject of the present case. We
have gone over the complaint for recovery of ownership
filed in said case 41 and we are not persuaded by the factual
findings made by said courts. At a glance, it is easily
discernible that, although the complaint prayed for the
annulment only of the contract of sale executed between
petitioner and the Jimenez brothers, the same likewise
prayed for the recovery of therein plaintiffs' share in that
parcel of land specifically covered by TCT No. 309773. In
other words, the plaintiffs therein were claiming to be co-
owners of the entire parcel of land described in TCT No.
309773, and not only of a portion thereof nor, as incorrectly
interpreted by the lower courts, did their claim pertain
exclusively to the eastern half adjudicated to the Jimenez
brothers.
Such being the case, petitioner was justified in suspending
payment of the balance of the purchase price by reason of
the aforesaid vindicatory action filed against it. The
assurance made by private respondents that petitioner did not
have to worry about the case because it was pure and simple
harassment 42 is not the kind of guaranty contemplated under
the exceptive clause in Article 1590 wherein the vendor is
bound to make payment even with the existence of a
vindicatory action if the vendee should give a security for
the return of the price.
2. Be that as it may, and the validity of the suspension of
payment notwithstanding, we find and hold that private
respondents may no longer be compelled to sell and deliver
the subject property to petitioner for two reasons, that is,
petitioner's failure to duly effect the consignation of the
purchase price after the disturbance had ceased; and,
secondarily, the fact that the contract to sell had been validly
rescinded by private respondents.
The records of this case reveal that as early as February 28,
1990 when petitioner caused its exclusive option to be
annotated anew on the certificate of title, it already knew of
the dismissal of civil Case No. 89-5541. However, it was
only on April 16, 1990 that petitioner, through its counsel,
wrote private respondents expressing its willingness to pay
the balance of the purchase price upon the execution of the
corresponding deed of absolute sale. At most, that was
merely a notice to pay. There was no proper tender of
payment nor consignation in this case as required by law.
The mere sending of a letter by the vendee expressing the
intention to
pay, without the accompanying payment, is not considered a
valid tender of payment. 43 Besides, a mere tender of
payment is not sufficient to compel private respondents to
deliver the property and execute the deed of absolute sale. It
is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase
price. 44 The rule is different in case of an option
contract 45 or in legal redemption or in a sale with right to
repurchase, 46 wherein consignation is not necessary
because these cases involve an exercise of a right or privilege
(to buy, redeem or repurchase) rather than the discharge of
an obligation, hence tender of payment would be sufficient
to preserve the right or privilege. This is because the
provisions on consignation are not applicable when there is
no obligation to pay. 47 A contract to sell, as in the case
before us, involves the performance of an obligation, not
merely the exercise of a privilege of a right. consequently,
performance or payment may be effected not by tender of
payment alone but by both tender and consignation.
Furthermore, petitioner no longer had the right to suspend
payment after the disturbance ceased with the dismissal of
the civil case filed against it. Necessarily, therefore, its
obligation to pay the balance again arose and resumed after
it received notice of such dismissal. Unfortunately,
petitioner failed to seasonably make payment, as in fact it
has deposit the money with the trial court when this case was
originally filed therein.
By reason of petitioner's failure to comply with its
obligation, private respondents elected to resort to and did
announce the rescission of the contract through its letter to
petitioner dated July 27, 1990. That written notice of
rescission is deemed sufficient under the circumstances.
Article 1592 of the Civil Code which requires rescission
either by judicial action or notarial act is not applicable to a
contract to sell. 48 Furthermore, judicial action for rescission
of a contract is not necessary where the contract provides for
automatic rescission in case of breach,49 as in the contract
involved in the present controversy.
We are not unaware of the ruling in University of the
Philippines vs. De los Angeles, etc. 50 that the right to rescind
is not absolute, being ever subject to scrutiny and review by
the proper court. It is our considered view, however, that this
rule applies to a situation where the extrajudicial rescission
is contested by the defaulting party. In other words,
resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in court. If the
debtor impugns the declaration, it shall be subject to judicial
determination51 otherwise, if said party does not oppose it,
the extrajudicial rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner
was duly furnished and did receive a written notice of
rescission which specified the grounds therefore, it failed to
reply thereto or protest against it. Its silence thereon suggests
an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of
instituting suit was transferred from the rescinder to the
defaulter by virtue of the automatic rescission clause in the
contract. 54 But then, the records bear out the fact that aside
from the lackadaisical manner with which petitioner treated
private respondents' latter of cancellation, it utterly failed to
seriously seek redress from the court for the enforcement of
its alleged rights under the contract. If private respondents
had not taken the initiative of filing Civil Case No. 7532,
evidently petitioner had no intention to take any legal action
to compel specific performance from the former. By such
cavalier disregard, it has been effectively estopped from
seeking the affirmative relief it now desires but which it had
theretofore disdained.
WHEREFORE, on the foregoing modificatory premises,
and considering that the same result has been reached by
respondent Court of Appeals with respect to the relief
awarded to private respondents by the court a quo which we
find to be correct, its assailed judgment in CA-G.R. CV No.
34767 is hereby AFFIRMED.
SO ORDERED.
Narvasa, C.J., Puno and Mendoza, JJ., concur.
Sales 54 of 67
 Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 103577 October 7, 1996
ROMULO A. CORONEL, ALARICO A. CORONEL,
ANNETTE A. CORONEL, ANNABELLE C.
GONZALES (for herself and on behalf of Florida C.
Tupper, as attorney-in-fact), CIELITO A. CORONEL,
FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG, petitioners,
vs.
THE COURT OF APPEALS, CONCEPCION D.
ALCARAZ, and RAMONA PATRICIA ALCARAZ,
assisted by GLORIA F. NOEL as attorney-in-
fact, respondents.
MELO, J.:p
The petition before us has its roots in a complaint for specific
performance to compel herein petitioners (except the last
named, Catalina Balais Mabanag) to consummate the sale of
a parcel of land with its improvements located along
Roosevelt Avenue in Quezon City entered into by the parties
sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by
respondent court in this wise:
On January 19, 1985, defendants-
appellants Romulo Coronel, et al.
(hereinafter referred to as Coronels)
executed a document entitled "Receipt
of Down Payment" (Exh. "A") in favor
of plaintiff Ramona Patricia Alcaraz
(hereinafter referred to as Ramona)
which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 — Total amount
50,000 — Down payment
———————————
P1,190,000.00 — Balance
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the
sum of Fifty Thousand Pesos purchase
price of our inherited house and lot,
covered by TCT No. 119627 of the
Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.
We bind ourselves to effect the transfer
in our names from our deceased father,
Constancio P. Coronel, the transfer
certificate of title immediately upon
receipt of the down payment above-
stated.
On our presentation of the TCT already
in or name, We will immediately
execute the deed of absolute sale of said
property and Miss Ramona Patricia
Alcaraz shall immediately pay the
balance of the P1,190,000.00.
Clearly, the conditions appurtenant to
the sale are the following:
1. Ramona will make a down payment
of Fifty Thousand (P50,000.00) Pesos
upon execution of the document
aforestated;
2. The Coronels will cause the transfer
in their names of the title of the property
registered in the name of their deceased
father upon receipt of the Fifty
Thousand (P50,000.00) Pesos down
payment;
3. Upon the transfer in their names of the
subject property, the Coronels will
execute the deed of absolute sale in
favor of Ramona and the latter will pay
the former the whole balance of One
Million One Hundred Ninety Thousand
(P1,190,000.00) Pesos.
On the same date (January 15, 1985),
plaintiff-appellee Concepcion D.
Alcaraz (hereinafter referred to as
Concepcion), mother of Ramona, paid
the down payment of Fifty Thousand
(P50,000.00) Pesos (Exh. "B", Exh.
"2").
On February 6, 1985, the property
originally registered in the name of the
Coronels' father was transferred in their
names under TCT
No. 327043 (Exh. "D"; Exh. "4")
On February 18, 1985, the Coronels sold
the property covered by TCT No.
327043 to intervenor-appellant Catalina
B. Mabanag (hereinafter referred to as
Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00) Pesos
after the latter has paid Three Hundred
Thousand (P300,000.00) Pesos (Exhs.
"F-3"; Exh. "6-C")
For this reason, Coronels canceled and
rescinded the contract (Exh. "A") with
Ramona by depositing the down
payment paid by Concepcion in the
bank in trust for Ramona Patricia
Alcaraz.
On February 22, 1985, Concepcion, et
al., filed a complaint for specific
performance against the Coronels and
caused the annotation of a notice of lis
pendens at the back of TCT No. 327403
(Exh. "E"; Exh. "5").
On April 2, 1985, Catalina caused the
annotation of a notice of adverse claim
covering the same property with the
Registry of Deeds of Quezon City (Exh.
"F"; Exh. "6").
On April 25, 1985, the Coronels
executed a Deed of Absolute Sale over
the subject property in favor of Catalina
(Exh. "G"; Exh. "7").
Sales 55 of 67
 On June 5, 1985, a new title over the
subject property was issued in the name
of Catalina under TCT No. 351582
(Exh. "H"; Exh. "8").
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court
(Branch 83, RTC, Quezon City) the parties agreed to submit
the case for decision solely on the basis of documentary
exhibits. Thus, plaintiffs therein (now private respondents)
proffered their documentary evidence accordingly marked
as Exhibits "A" through "J", inclusive of their corresponding
submarkings. Adopting these same exhibits as their own,
then defendants (now petitioners) accordingly offered and
marked them as Exhibits "1" through "10", likewise
inclusive of their corresponding submarkings. Upon motion
of the parties, the trial court gave them thirty (30) days
within which to simultaneously submit their respective
memoranda, and an additional 15 days within which to
submit their corresponding comment or reply thereof, after
which, the case would be deemed submitted for resolution.
On April 14, 1988, the case was submitted for resolution
before Judge Reynaldo Roura, who was then temporarily
detailed to preside over Branch 82 of the RTC of Quezon
City. On March 1, 1989, judgment was handed down by
Judge Roura from his regular bench at Macabebe, Pampanga
for the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific
performance is hereby rendered
ordering defendant to execute in favor
of plaintiffs a deed of absolute sale
covering that parcel of land embraced in
and covered by Transfer Certificate of
Title No. 327403 (now TCT No.
331582) of the Registry of Deeds for
Quezon City, together with all the
improvements existing thereon free
from all liens and encumbrances, and
once accomplished, to immediately
deliver the said document of sale to
plaintiffs and upon receipt thereof, the
said document of sale to plaintiffs and
upon receipt thereof, the plaintiffs are
ordered to pay defendants the whole
balance of the purchase price amounting
to P1,190,000.00 in cash. Transfer
Certificate of Title No. 331582 of the
Registry of Deeds for Quezon City in
the name of intervenor is hereby
canceled and declared to be without
force and effect. Defendants and
intervenor and all other persons
claiming under them are hereby ordered
to vacate the subject property and
deliver possession thereof to plaintiffs.
Plaintiffs' claim for damages and
attorney's fees, as well as the
counterclaims of defendants and
intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City,
March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioner before
the new presiding judge of the Quezon City RTC but the
same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant
motion, i.e., to annul the decision and to
render anew decision by the
undersigned Presiding Judge should be
denied for the following reasons: (1)
The instant case became submitted for
decision as of April 14, 1988 when the
parties terminated the presentation of
their respective documentary evidence
and when the Presiding Judge at that
time was Judge Reynaldo Roura. The
fact that they were allowed to file
memoranda at some future date did not
change the fact that the hearing of the
case was terminated before Judge Roura
and therefore the same should be
submitted to him for decision; (2) When
the defendants and intervenor did not
object to the authority of Judge
Reynaldo Roura to decide the case prior
to the rendition of the decision, when
they met for the first time before the
undersigned Presiding Judge at the
hearing of a pending incident in Civil
Case No. Q-46145 on November 11,
1988, they were deemed to have
acquiesced thereto and they are now
estopped from questioning said
authority of Judge Roura after they
received the decision in question which
happens to be adverse to them; (3)
While it is true that Judge Reynaldo
Roura was merely a Judge-on-detail at
this Branch of the Court, he was in all
respects the Presiding Judge with full
authority to act on any pending incident
submitted before this Court during his
incumbency. When he returned to his
Official Station at Macabebe,
Pampanga, he did not lose his authority
to decide or resolve such cases
submitted to him for decision or
resolution because he continued as
Judge of the Regional Trial Court and is
of co-equal rank with the undersigned
Presiding Judge. The standing rule and
supported by jurisprudence is that a
Judge to whom a case is submitted for
decision has the authority to decide the
case notwithstanding his transfer to
another branch or region of the same
court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for
reconsideration of the Decision dated
March 1, 1989 rendered in the instant
case, resolution of which now pertains
to the undersigned Presiding Judge,
after a meticulous examination of the
documentary evidence presented by the
parties, she is convinced that the
Decision of March 1, 1989 is supported
by evidence and, therefore, should not
be disturbed.
IN VIEW OF THE FOREGOING, the
"Motion for Reconsideration and/or to
Annul Decision and Render Anew
Decision by the Incumbent Presiding
Judge" dated March 20, 1989 is hereby
DENIED.
SO ORDERED.
Sales 56 of 67
 Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December
16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes,
Abad Santos (P), JJ.) rendered its decision fully agreeing
with the trial court.
Hence, the instant petition which was filed on March 5,
1992. The last pleading, private respondents' Reply
Memorandum, was filed on September 15, 1993. The case
was, however, re-raffled to undersigned ponente only on
August 28, 1996, due to the voluntary inhibition of the
Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements
in the disquisition of respondent court in the affirmance of
the trial court's decision, we definitely find the instant
petition bereft of merit.
The heart of the controversy which is the ultimate key in the
resolution of the other issues in the case at bar is the precise
determination of the legal significance of the document
entitled "Receipt of Down Payment" which was offered in
evidence by both parties. There is no dispute as to the fact
that said document embodied the binding contract between
Ramona Patricia Alcaraz on the one hand, and the heirs of
Constancio P. Coronel on the other, pertaining to a particular
house and lot covered by TCT No. 119627, as defined in
Article 1305 of the Civil Code of the Philippines which reads
as follows:
Art. 1305. A contract is a meeting of
minds between two persons whereby
one binds himself, with respect to the
other, to give something or to render
some service.
While, it is the position of private respondents that the
"Receipt of Down Payment" embodied a perfected contract
of sale, which perforce, they seek to enforce by means of an
action for specific performance, petitioners on their part
insist that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and
because of the absence of Ramona P. Alcaraz, who left for
the United States of America, said contract could not
possibly ripen into a contract absolute sale.
Plainly, such variance in the contending parties' contentions
is brought about by the way each interprets the terms and/or
conditions set forth in said private instrument. Withal, based
on whatever relevant and admissible evidence may be
available on record, this, Court, as were the courts below, is
now called upon to adjudge what the real intent of the parties
was at the time the said document was executed.
The Civil Code defines a contract of sale, thus:
Art. 1458. By the contract of sale one of
the contracting parties obligates himself
to transfer the ownership of and to
deliver a determinate thing, and the
other to pay therefor a price certain in
money or its equivalent.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a
contract of sale are the following:
a) Consent or meeting of the minds, that
is, consent to transfer ownership in
exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its
equivalent.
Under this definition, a Contract to Sell may not be
considered as a Contract of Sale because the first essential
element is lacking. In a contract to sell, the prospective seller
explicity reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet agree
or consent to transfer ownership of the property subject of
the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to
do is to fulfill is promise to sell the subject property when
the entire amount of the purchase price is delivered to him.
In other words the full payment of the purchase price
partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and thus,
ownership is retained by the prospective seller without
further remedies by the prospective buyer. In Roque
vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to
rule:
Hence, We hold that the contract
between the petitioner and the
respondent was a contract to sell where
the ownership or title is retained by the
seller and is not to pass until the full
payment of the price, such payment
being a positive suspensive condition
and failure of which is not a breach,
casual or serious, but simply an event
that prevented the obligation of the
vendor to convey title from acquiring
binding force.
Stated positively, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, the
prospective seller's obligation to sell the subject property by
entering into a contract of sale with the prospective buyer
becomes demandable as provided in Article 1479 of the
Civil Code which states:
Art. 1479. A promise to buy and sell a
determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or
to sell a determinate thing for a price
certain is binding upon the promissor if
the promise is supported by a
consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract
whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to
the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase
price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller
may likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a
contingent event which may or may not occur. If the
suspensive condition is not fulfilled, the perfection of the
contract of sale is completely abated (cf. Homesite and
housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).
However, if the suspensive condition is fulfilled, the contract
of sale is thereby perfected, such that if there had already
Sales 57 of 67
been previous delivery of the property subject of the sale to
the buyer, ownership thereto automatically transfers to the
buyer by operation of law without any further act having to
be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer
although the property may have been previously delivered to
him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute
sale.
It is essential to distinguish between a contract to sell and a
conditional contract of sale specially in cases where the
subject property is sold by the owner not to the party the
seller contracted with, but to a third person, as in the case at
bench. In a contract to sell, there being no previous sale of
the property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full
payment of the purchase price, for instance, cannot be
deemed a buyer in bad faith and the prospective buyer cannot
seek the relief of reconveyance of the property. There is no
double sale in such case. Title to the property will transfer to
the buyer after registration because there is no defect in the
owner-seller's title per se, but the latter, of course, may be
used for damages by the intending buyer.
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale becomes
absolute and this will definitely affect the seller's title
thereto. In fact, if there had been previous delivery of the
subject property, the seller's ownership or title to the
property is automatically transferred to the buyer such that,
the seller will no longer have any title to transfer to any third
person. Applying Article 1544 of the Civil Code, such
second buyer of the property who may have had actual or
constructive knowledge of such defect in the seller's title, or
at least was charged with the obligation to discover such
defect, cannot be a registrant in good faith. Such second
buyer cannot defeat the first buyer's title. In case a title is
issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to
the task of deciphering the real nature of the contract entered
into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words
used therein should be given their natural and ordinary
meaning unless a technical meaning was intended (Tan vs.
Court of Appeals, 212 SCRA 586 [1992]). Thus, when
petitioners declared in the said "Receipt of Down Payment"
that they —
Received from Miss Ramona Patricia
Alcaraz of 146 Timog, Quezon City, the
sum of Fifty Thousand Pesos purchase
price of our inherited house and lot,
covered by TCT No. 1199627 of the
Registry of Deeds of Quezon City, in the
total amount of P1,240,000.00.
without any reservation of title until full payment
of the entire purchase price, the natural and
ordinary idea conveyed is that they sold their
property.
When the "Receipt of Down Payment" is considered in its
entirety, it becomes more manifest that there was a clear
intent on the part of petitioners to transfer title to the buyer,
but since the transfer certificate of title was still in the name
of petitioner's father, they could not fully effect such transfer
although the buyer was then willing and able to immediately
pay the purchase price. Therefore, petitioners-sellers
undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a
new certificate of title in their names from that of their father,
after which, they promised to present said title, now in their
names, to the latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire balance of
the purchase price.
The agreement could not have been a contract to sell because
the sellers herein made no express reservation of ownership
or title to the subject parcel of land. Furthermore, the
circumstance which prevented the parties from entering into
an absolute contract of sale pertained to the sellers
themselves (the certificate of title was not in their names)
and not the full payment of the purchase price. Under the
established facts and circumstances of the case, the Court
may safely presume that, had the certificate of title been in
the names of petitioners-sellers at that time, there would
have been no reason why an absolute contract of sale could
not have been executed and consummated right there and
then.
Moreover, unlike in a contract to sell, petitioners in the case
at bar did not merely promise to sell the properly to private
respondent upon the fulfillment of the suspensive condition.
On the contrary, having already agreed to sell the subject
property, they undertook to have the certificate of title
changed to their names and immediately thereafter, to
execute the written deed of absolute sale.
Thus, the parties did not merely enter into a contract to sell
where the sellers, after compliance by the buyer with certain
terms and conditions, promised to sell the property to the
latter. What may be perceived from the respective
undertakings of the parties to the contract is that petitioners
had already agreed to sell the house and lot they inherited
from their father, completely willing to transfer full
ownership of the subject house and lot to the buyer if the
documents were then in order. It just happened, however,
that the transfer certificate of title was then still in the name
of their father. It was more expedient to first effect the
change in the certificate of title so as to bear their names.
That is why they undertook to cause the issuance of a new
transfer of the certificate of title in their names upon receipt
of the down payment in the amount of P50,000.00. As soon
as the new certificate of title is issued in their names,
petitioners were committed to immediately execute the deed
of absolute sale. Only then will the obligation of the buyer
to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is
most commonly entered into so as to protect the seller
against a buyer who intends to buy the property in
installment by withholding ownership over the property until
the buyer effects full payment therefor, in the contract
entered into in the case at bar, the sellers were the one who
were unable to enter into a contract of absolute sale by reason
of the fact that the certificate of title to the property was still
in the name of their father. It was the sellers in this case who,
as it were, had the impediment which prevented, so to speak,
the execution of an contract of absolute sale.
What is clearly established by the plain language of the
subject document is that when the said "Receipt of Down
Payment" was prepared and signed by petitioners Romeo A.
Coronel, et al., the parties had agreed to a conditional
contract of sale, consummation of which is subject only to
the successful transfer of the certificate of title from the
name of petitioners' father, Constancio P. Coronel, to their
names.
The Court significantly notes this suspensive condition was,
in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4").
Thus, on said date, the conditional contract of sale between
petitioners and private respondent Ramona P. Alcaraz
Sales 58 of 67
became obligatory, the only act required for the
consummation thereof being the delivery of the property by
means of the execution of the deed of absolute sale in a
public instrument, which petitioners unequivocally
committed themselves to do as evidenced by the "Receipt of
Down Payment."
Article 1475, in correlation with Article 1181, both of the
Civil Code, plainly applies to the case at bench. Thus,
Art. 1475. The contract of sale is
perfected at the moment there is a
meeting of minds upon the thing which
is the object of the contract and upon the
price.
From the moment, the parties may
reciprocally demand performance,
subject to the provisions of the law
governing the form of contracts.
Art. 1181. In conditional obligations,
the acquisition of rights, as well as the
extinguishment or loss of those already
acquired, shall depend upon the
happening of the event which
constitutes the condition.
Since the condition contemplated by the parties which is the
issuance of a certificate of title in petitioners' names was
fulfilled on February 6, 1985, the respective obligations of
the parties under the contract of sale became mutually
demandable, that is, petitioners, as sellers, were obliged to
present the transfer certificate of title already in their names
to private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the
buyer on her part, was obliged to forthwith pay the balance
of the purchase price amounting to P1,190,000.00.
It is also significant to note that in the first paragraph in page
9 of their petition, petitioners conclusively admitted that:
3. The petitioners-sellers Coronel bound
themselves "to effect the transfer in our
names from our deceased father
Constancio P. Coronel, the transfer
certificate of title immediately upon
receipt of the downpayment above-
stated". The sale was still subject to this
suspensive condition. (Emphasis
supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a
contract of sale subject to a suspensive condition. Only, they
contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not
complied with this condition of first
transferring the title to the property
under their names, there could be no
perfected contract of sale. (Emphasis
supplied.)
(Ibid.)
not aware that they set their own trap for
themselves, for Article 1186 of the Civil Code
expressly provides that:
Art. 1186. The condition shall be
deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
Besides, it should be stressed and emphasized that what is
more controlling than these mere hypothetical arguments is
the fact that the condition herein referred to was actually
and indisputably fulfilled on February 6, 1985, when a new
title was issued in the names of petitioners as evidenced by
TCT No. 327403 (Exh. "D"; Exh. "4").
The inevitable conclusion is that on January 19, 1985, as
evidenced by the document denominated as "Receipt of
Down Payment" (Exh. "A"; Exh. "1"), the parties entered
into a contract of sale subject only to the suspensive
condition that the sellers shall effect the issuance of new
certificate title from that of their father's name to their names
and that, on February 6, 1985, this condition was fulfilled
(Exh. "D"; Exh. "4").
We, therefore, hold that, in accordance with Article 1187
which pertinently provides —
Art. 1187. The effects of conditional
obligation to give, once the condition
has been fulfilled, shall retroact to the
day of the constitution of the obligation
...
In obligation to do or not to do, the
courts shall determine, in each case, the
retroactive effect of the condition that
has been complied with.
the rights and obligations of the parties with
respect to the perfected contract of sale became
mutually due and demandable as of the time of
fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and
buyer arose.
Petitioners also argue there could been no perfected contract
on January 19, 1985 because they were then not yet the
absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode
of transferring ownership as follows:
Art. 774. Succession is a mode of
acquisition by virtue of which the
property, rights and obligations to be
extent and value of the inheritance of a
person are transmitted through his death
to another or others by his will or by
operation of law.
Petitioners-sellers in the case at bar being the sons
and daughters of the decedent Constancio P.
Coronel are compulsory heirs who were called to
succession by operation of law. Thus, at the point
their father drew his last breath, petitioners
stepped into his shoes insofar as the subject
property is concerned, such that any rights or
obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided
that rights to the succession are transmitted from
the moment of death of the decedent (Article 777,
Civil Code; Cuison vs. Villanueva, 90 Phil. 850
[1952]).
Be it also noted that petitioners' claim that succession may
not be declared unless the creditors have been paid is
Sales 59 of 67
rendered moot by the fact that they were able to effect the
transfer of the title to the property from the decedent's name
to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that
time and they cannot be allowed to now take a posture
contrary to that which they took when they entered into the
agreement with private respondent Ramona P. Alcaraz. The
Civil Code expressly states that:
Art. 1431. Through estoppel an
admission or representation is rendered
conclusive upon the person making it,
and cannot be denied or disproved as
against the person relying thereon.
Having represented themselves as the true owners
of the subject property at the time of sale,
petitioners cannot claim now that they were not yet
the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a
perfected contract of sale between them and Ramona P.
Alcaraz, the latter breached her reciprocal obligation when
she rendered impossible the consummation thereof by going
to the United States of America, without leaving her address,
telephone number, and Special Power of Attorney
(Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43),
for which reason, so petitioners conclude, they were correct
in unilaterally rescinding rescinding the contract of sale.
We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We note
that these supposed grounds for petitioners' rescission, are
mere allegations found only in their responsive pleadings,
which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec.
11, Rule 6, Revised Rules of Court). The records are
absolutely bereft of any supporting evidence to substantiate
petitioners' allegations. We have stressed time and again that
allegations must be proven by sufficient evidence (Ng Cho
Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan,
2 SCRA 598 [1961]. Mere allegation is not an evidence
(Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the
United States of America on February 6, 1985, we cannot
justify petitioner-sellers' act of unilaterally and extradicially
rescinding the contract of sale, there being no express
stipulation authorizing the sellers to extarjudicially rescind
the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375
[1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged
absence of Ramona P. Alcaraz because although the
evidence on record shows that the sale was in the name of
Ramona P. Alcaraz as the buyer, the sellers had been dealing
with Concepcion D. Alcaraz, Ramona's mother, who had
acted for and in behalf of her daughter, if not also in her own
behalf. Indeed, the down payment was made by Concepcion
D. Alcaraz with her own personal check (Exh. "B"; Exh. "2")
for and in behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's
authority to represent Ramona P. Alcaraz when they
accepted her personal check. Neither did they raise any
objection as regards payment being effected by a third
person. Accordingly, as far as petitioners are concerned, the
physical absence of Ramona P. Alcaraz is not a ground to
rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to
be in default, insofar as her obligation to pay the full
purchase price is concerned. Petitioners who are precluded
from setting up the defense of the physical absence of
Ramona P. Alcaraz as above-explained offered no proof
whatsoever to show that they actually presented the new
transfer certificate of title in their names and signified their
willingness and readiness to execute the deed of absolute
sale in accordance with their agreement. Ramona's
corresponding obligation to pay the balance of the purchase
price in the amount of P1,190,000.00 (as buyer) never
became due and demandable and, therefore, she cannot be
deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a
contract involving reciprocal obligations may be considered
in default, to wit:
Art. 1169. Those obliged to deliver or to
do something, incur in delay from the
time the obligee judicially or
extrajudicially demands from them the
fulfillment of their obligation.
xxx xxx xxx
In reciprocal obligations, neither party
incurs in delay if the other does not
comply or is not ready to comply in a
proper manner with what is incumbent
upon him. From the moment one of the
parties fulfill his obligation, delay by the
other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the
contract of sale between petitioners and respondents.
With the foregoing conclusions, the sale to the other
petitioner, Catalina B. Mabanag, gave rise to a case of
double sale where Article 1544 of the Civil Code will apply,
to wit:
Art. 1544. If the same thing should have
been sold to different vendees, the
ownership shall be transferred to the
person who may have first taken
possession thereof in good faith, if it
should be movable property.
Should if be immovable property, the
ownership shall belong to the person
acquiring it who in good faith first
recorded it in Registry of Property.
Should there be no inscription, the
ownership shall pertain to the person
who in good faith was first in the
possession; and, in the absence thereof
to the person who presents the oldest
title, provided there is good faith.
The record of the case shows that the Deed of Absolute Sale
dated April 25, 1985 as proof of the second contract of sale
was registered with the Registry of Deeds of Quezon City
giving rise to the issuance of a new certificate of title in the
name of Catalina B. Mabanag on June 5, 1985. Thus, the
second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions being: (a)
when the second buyer, in good faith, registers the sale ahead
of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good
faith, acquires possession of the property ahead of the first
buyer. Unless, the second buyer satisfies these requirements,
title or ownership will not transfer to him to the prejudice of
the first buyer.
Sales 60 of 67
In his commentaries on the Civil Code, an accepted authority
on the subject, now a distinguished member of the Court,
Justice Jose C. Vitug, explains:
The governing principle is prius
tempore, potior jure (first in time,
stronger in right). Knowledge by the
first buyer of the second sale cannot
defeat the first buyer's rights except
when the second buyer first registers in
good faith the second sale (Olivares vs.
Gonzales, 159 SCRA 33). Conversely,
knowledge gained by the second buyer
of the first sale defeats his rights even if
he is first to register, since knowledge
taints his registration with bad faith (see
also Astorga vs. Court of Appeals, G.R.
No. 58530, 26 December 1984). In Cruz
vs. Cabana (G.R. No. 56232, 22 June
1984, 129 SCRA 656), it has held that it
is essential, to merit the protection of
Art. 1544, second paragraph, that the
second realty buyer must act in good
faith in registering his deed of sale
(citing Carbonell vs. Court of Appeals,
69 SCRA 99, Crisostomo vs. CA, G.R.
No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and
Jurisprudence, 1993 Edition, p. 604).
Petitioner point out that the notice of lis pendens in the case
at bar was annoted on the title of the subject property only
on February 22, 1985, whereas, the second sale between
petitioners Coronels and petitioner Mabanag was
supposedly perfected prior thereto or on February 18, 1985.
The idea conveyed is that at the time petitioner Mabanag, the
second buyer, bought the property under a clean title, she
was unaware of any adverse claim or previous sale, for
which reason she is buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality
is not whether or not the second buyer was a buyer in good
faith but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any
defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.
February 22, 1985, a notice of lis pendens had been
annotated on the transfer certificate of title in the names of Panganiban, J., took no part.
petitioners, whereas petitioner Mabanag registered the said
sale sometime in April, 1985. At the time of registration,
therefore, petitioner Mabanag knew that the same property
had already been previously sold to private respondents, or,
at least, she was charged with knowledge that a previous
buyer is claiming title to the same property. Petitioner
Mabanag cannot close her eyes to the defect in petitioners'
title to the property at the time of the registration of the
property.
This Court had occasions to rule that:
If a vendee in a double sale registers that
sale after he has acquired knowledge
that there was a previous sale of the
same property to a third party or that
another person claims said property in a
pervious sale, the registration will
constitute a registration in bad faith and
will not confer upon him any right.
(Salvoro vs. Tanega, 87 SCRA 349
[1978]; citing Palarca vs. Director of
Land, 43 Phil. 146; Cagaoan vs.
Cagaoan, 43 Phil. 554; Fernandez vs.
Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between
petitioners and Ramona P. Alcaraz, perfected on February 6,
1985, prior to that between petitioners and Catalina B.
Mabanag on February 18, 1985, was correctly upheld by
both the courts below.
Although there may be ample indications that there was in
fact an agency between Ramona as principal and
Concepcion, her mother, as agent insofar as the subject
contract of sale is concerned, the issue of whether or not
Concepcion was also acting in her own behalf as a co-buyer
is not squarely raised in the instant petition, nor in such
assumption disputed between mother and daughter. Thus,
We will not touch this issue and no longer disturb the lower
courts' ruling on this point.
WHEREFORE, premises considered, the instant petition is
hereby DISMISSED and the appealed judgment
AFFIRMED.
SO ORDERED.
Sales 61 of 67
 Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-28602 September 29, 1970
UNIVERSITY OF THE PHILIPPINES, petitioner,
vs.
WALFRIDO DE LOS ANGELES, in his capacity as
JUDGE of the COURT OF FIRST INSTANCE IN
QUEZON CITY, et al., respondents.
Office of the Solicitor General Antonio P. Barredo, Solicitor
Augusto M. Amores and Special Counsel Perfecto V.
Fernandez for petitioner.
Norberto J. Quisumbing for private respondents.
REYES, J.B.L., J.:
Three (3) orders of the Court of First Instance of Rizal
(Quezon City), issued in its Civil Case No. 9435, are sought
to be annulled in this petition for certiorari and prohibition,
filed by herein petitioner University of the Philippines (or
UP) against the above-named respondent judge and the
Associated Lumber Manufacturing Company, Inc. (or
ALUMCO). The first order, dated 25 February 1966,
enjoined UP from awarding logging rights over its timber
concession (or Land Grant), situated at the Lubayat areas in
the provinces of Laguna and Quezon; the second order, dated
14 January 1967, adjudged UP in contempt of court, and
directed Sta. Clara Lumber Company, Inc. to refrain from
exercising logging rights or conducting logging operations
on the concession; and the third order, dated 12 December
1967, denied reconsideration of the order of contempt.
As prayed for in the petition, a writ of preliminary injunction
against the enforcement or implementation of the three (3)
questioned orders was issued by this Court, per its resolution
on 9 February 1968.
The petition alleged the following:
That the above-mentioned Land Grant was segregated from
the public domain and given as an endowment to UP, an
institution of higher learning, to be operated and developed
for the purpose of raising additional income for its support,
pursuant to Act 3608;
That on or about 2 November 1960, UP and ALUMCO
entered into a logging agreement under which the latter was
granted exclusive authority, for a period starting from the
date of the agreement to 31 December 1965, extendible for
a further period of five (5) years by mutual agreement, to cut,
collect and remove timber from the Land Grant, in
consideration of payment to UP of royalties, forest fees, etc.;
that ALUMCO cut and removed timber therefrom but, as of
8 December 1964, it had incurred an unpaid account of
P219,362.94, which, despite repeated demands, it had failed
to pay; that after it had received notice that UP would rescind
or terminate the logging agreement, ALUMCO executed an
instrument, entitled "Acknowledgment of Debt and
Proposed Manner of Payments," dated 9 December 1964,
which was approved by the president of UP, and which
stipulated the following:
3. In the event that the payments called
for in Nos. 1 and 2 of this paragraph are
not sufficient to liquidate the foregoing
indebtedness of the DEBTOR in favor
of the CREDITOR, the balance
outstanding after the said payments have
been applied shall be paid by the
DEBTOR in full no later than June 30,
1965;
xxx xxx xxx
5. In the event that the DEBTOR fails to
comply with any of its promises or
undertakings in this document, the
DEBTOR agrees without reservation
that the CREDITOR shall have the right
and the power to consider the Logging
Agreement dated December 2, 1960 as
rescinded without the necessity of any
judicial suit, and the CREDITOR shall
be entitled as a matter of right to Fifty
Thousand Pesos (P50,000.00) by way of
and for liquidated damages;
ALUMCO continued its logging operations, but again
incurred an unpaid account, for the period from 9 December
1964 to 15 July 1965, in the amount of P61,133.74, in
addition to the indebtedness that it had previously
acknowledged.
That on 19 July 1965, petitioner UP informed respondent
ALUMCO that it had, as of that date, considered as
rescinded and of no further legal effect the logging
agreement that they had entered in 1960; and on 7 September
1965, UP filed a complaint against ALUMCO, which was
docketed as Civil Case No. 9435 of the Court of First
Instance of Rizal (Quezon City), for the collection or
payment of the herein before stated sums of money and
alleging the facts hereinbefore specified, together with other
allegations; it prayed for and obtained an order, dated 30
September 1965, for preliminary attachment and preliminary
injunction restraining ALUMCO from continuing its
logging operations in the Land Grant.
That before the issuance of the aforesaid preliminary
injunction UP had taken steps to have another concessionaire
take over the logging operation, by advertising an invitation
to bid; that bidding was conducted, and the concession was
awarded to Sta. Clara Lumber Company, Inc.; the logging
contract was signed on 16 February 1966.
That, meantime, ALUMCO had filed several motions to
discharge the writs of attachment and preliminary injunction
but were denied by the court;
That on 12 November 1965, ALUMCO filed a petition to
enjoin petitioner University from conducting the bidding; on
27 November 1965, it filed a second petition for preliminary
injunction; and, on 25 February 1966, respondent judge
issued the first of the questioned orders, enjoining UP from
awarding logging rights over the concession to any other
party.
That UP received the order of 25 February 1966 after it had
concluded its contract with Sta. Clara Lumber Company,
Inc., and said company had started logging operations.
That, on motion dated 12 April 1966 by ALUMCO and one
Jose Rico, the court, in an order dated 14 January 1967,
declared petitioner UP in contempt of court and, in the same
order, directed Sta. Clara Lumber Company, Inc., to refrain
from exercising logging rights or conducting logging
operations in the concession.
Sales 62 of 67
The UP moved for reconsideration of the aforesaid order, but
the motion was denied on 12 December 1967.
Except that it denied knowledge of the purpose of the Land
Grant, which purpose, anyway, is embodied in Act 3608 and,
therefore, conclusively known, respondent ALUMCO did
not deny the foregoing allegations in the petition. In its
answer, respondent corrected itself by stating that the period
of the logging agreement is five (5) years - not seven (7)
years, as it had alleged in its second amended answer to the
complaint in Civil Case No. 9435. It reiterated, however, its
defenses in the court below, which maybe boiled down to:
blaming its former general manager, Cesar Guy, in not
turning over management of ALUMCO, thereby rendering
it unable to pay the sum of P219,382.94; that it failed to
pursue the manner of payments, as stipulated in the
"Acknowledgment of Debt and Proposed Manner of
Payments" because the logs that it had cut turned out to be
rotten and could not be sold to Sta. Clara Lumber Company,
Inc., under its contract "to buy and sell" with said firm, and
which contract was referred and annexed to the
"Acknowledgment of Debt and Proposed Manner of
Payments"; that UP's unilateral rescission of the logging
contract, without a court order, was invalid; that petitioner's
supervisor refused to allow respondent to cut new logs
unless the logs previously cut during the management of
Cesar Guy be first sold; that respondent was permitted to cut
logs in the middle of June 1965 but petitioner's supervisor
stopped all logging operations on 15 July 1965; that it had
made several offers to petitioner for respondent to resume
logging operations but respondent received no reply.
The basic issue in this case is whether petitioner U.P. can
treat its contract with ALUMCO rescinded, and may
disregard the same before any judicial pronouncement to that
effect. Respondent ALUMCO contended, and the lower
court, in issuing the injunction order of 25 February 1966,
apparently sustained it (although the order expresses no
specific findings in this regard), that it is only after a final
court decree declaring the contract rescinded for violation of
its terms that U.P. could disregard ALUMCO's rights under
the contract and treat the agreement as breached and of no
force or effect.
We find that position untenable.
In the first place, UP and ALUMCO had expressly stipulated
in the "Acknowledgment of Debt and Proposed Manner of
Payments" that, upon default by the debtor ALUMCO, the
creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
without the necessity of any judicial suit." As to such special
stipulation, and in connection with Article 1191 of the Civil
Code, this Court stated in Froilan vs. Pan Oriental Shipping
Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
there is nothing in the law that prohibits
the parties from entering into agreement
that violation of the terms of the contract
would cause cancellation thereof, even
without court intervention. In other
words, it is not always necessary for the
injured party to resort to court for
rescission of the contract.
Of course, it must be understood that the act of 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).
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
that judicial action is necessary for the resolution of a
reciprocal obligation,1 since in every case where the
extrajudicial resolution is contested only the final award of
the court of competent jurisdiction can conclusively settle
whether the resolution was proper or not. It is in this sense
that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject
to judicial invalidation, unless attack thereon should become
barred by acquiescence, estoppel or prescription.
Fears have been expressed that a stipulation providing for a
unilateral rescission in case of breach of contract may render
nugatory the general rule requiring judicial action (v.
Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed.
Vol. IV, page 140) but, as already observed, in case of abuse
or error by the rescinder the other party is not barred from
questioning in court such abuse or error, the practical effect
of the stipulation being merely to transfer to the defaulter the
initiative of instituting suit, instead of the rescinder.
In fact, even without express provision conferring the power
of cancellation upon one contracting party, the Supreme
Court of Spain, in construing the effect of Article 1124 of
the Spanish Civil Code (of which Article 1191 of our own
Civil; Code is practically a reproduction), has repeatedly
held that, a resolution of reciprocal or synallagmatic
contracts may be made extrajudicially unless successfully
impugned in court.
El articulo 1124 del Codigo Civil
establece la facultad de resolver las
obligaciones reciprocas para el caso de
que uno de los obligados no cumpliese
lo que le incumbe, facultad que, segun
jurisprudencia de este Tribunal, surge
immediatamente despuesque la otra
parte incumplio su deber, sin necesidad
de una declaracion previa de los
Tribunales. (Sent. of the Tr. Sup. of
Spain, of 10 April 1929; 106 Jur. Civ.
897).
Segun reiterada doctrina de esta Sala,
el Art. 1124 regula la resolucioncomo
una "facultad" atribuida a la parte
perjudicada por el incumplimiento del
contrato, la cual tiene derecho do opcion
entre exigir el cumplimientoo la
resolucion de lo convenido, que puede
ejercitarse, ya en la via judicial, ya
fuera de ella, por declaracion del
acreedor, a reserva, claro es, que si la
declaracion de resolucion hecha por una
de las partes se impugna por la otra,
Sales 63 of 67
 queda aquella sometida el examen y
sancion de los Tribunale, que habran de
declarar, en definitiva, bien hecha la
resolucion o por el contrario, no ajustada
a Derecho. (Sent. TS of Spain, 16
November 1956; Jurisp. Aranzadi, 3,
447).
La resolucion de los contratos
sinalagmaticos, fundada en el
incumplimiento por una de las partes de
su respectiva prestacion, puedetener
lugar con eficacia" 1. o Por la
declaracion de voluntad de la otra hecha
extraprocesalmente, si no es impugnada
en juicio luego con exito. y 2. 0 Por la
demanda de la perjudicada, cuando no
opta por el cumplimientocon la
indemnizacion de danos y perjuicios
realmente causados, siempre quese
acredite, ademas, una actitud o conducta
persistente y rebelde de laadversa o la
satisfaccion de lo pactado, a un hecho
obstativo que de un modoabsoluto,
definitivo o irreformable lo impida,
segun el art. 1.124, interpretado por la
jurisprudencia de esta Sala, contenida en
las Ss. de 12 mayo 1955 y 16 Nov. 1956,
entre otras, inspiradas por el principio
del Derecho intermedio, recogido del
Canonico, por el cual fragenti fidem,
fides non est servanda. (Ss. de 4 Nov.
1958 y 22 Jun. 1959.) (Emphasis
supplied).
whatever prejudice may be suffered by respondent
ALUMCO is susceptibility of compensation in damages, it
becomes plain that the acts of the court a quo in enjoining
petitioner's measures to protect its interest without first
receiving evidence on the issues tendered by the parties, and
in subsequently refusing to dissolve the injunction, were in
grave abuse of discretion, correctible by certiorari, since
appeal was not available or adequate. Such injunction,
therefore, must be set aside.
For the reason that the order finding the petitioner UP in
contempt of court has open appealed to the Court of Appeals,
and the case is pending therein, this Court abstains from
making any pronouncement thereon.
WHEREFORE, the writ of certiorari applied for is granted,
and the order of the respondent court of 25 February 1966,
granting the Associated Lumber Company's petition for
injunction, is hereby set aside. Let the records be remanded
for further proceedings conformably to this opinion.
Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee,
Barredo, Villamor and Makasiar, JJ., concur.
Reyes, J.B.L., Actg. C.J., is on leave.

In the light of the foregoing principles, and considering that

the complaint of petitioner University made out a prima
facie case of breach of contract and defaults in payment by
respondent ALUMCO, to the extent that the court below
issued a writ of preliminary injunction stopping ALUMCO's
logging operations, and repeatedly denied its motions to lift
the injunction; that it is not denied that the respondent
company had profited from its operations previous to the
agreement of 5 December 1964 ("Acknowledgment of Debt
and Proposed Manner of Payment"); that the excuses offered
in the second amended answer, such as the misconduct of its
former manager Cesar Guy, and the rotten condition of the
logs in private respondent's pond, which said respondent was
in a better position to know when it executed the
acknowledgment of indebtedness, do not constitute on their
face sufficient excuse for non-payment; and considering that

Sales 64 of 67
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-56076 September 21, 1983
PALAY, INC. and ALBERT ONSTOTT, petitioner,
vs.
JACOBO C. CLAVE, Presidential Executive Assistant
NATIONAL HOUSING AUTHORITY and NAZARIO
DUMPIT respondents.
Santos, Calcetas-Santos & Geronimo Law Office for
petitioner.
Wilfredo E. Dizon for private respondent.
MELENCIO-HERRERA, J.:
The Resolution, dated May 2, 1980, issued by Presidential
Executive Assistant Jacobo Clave in O.P. Case No. 1459,
directing petitioners Palay, Inc. and Alberto Onstott jointly
and severally, to refund to private respondent, Nazario
Dumpit, the amount of P13,722.50 with 12% interest per
annum, as resolved by the National Housing Authority in its
Resolution of July 10, 1979 in Case No. 2167, as well as the
Resolution of October 28, 1980 denying petitioners' Motion
for Reconsideration of said Resolution of May 2, 1980, are
being assailed in this petition.
On March 28, 1965, petitioner Palay, Inc., through its
President, Albert Onstott executed in favor of private
respondent, Nazario Dumpit, a Contract to Sell a parcel of
Land (Lot No. 8, Block IV) of the Crestview Heights
Subdivision in Antipolo, Rizal, with an area of 1,165 square
meters, - covered by TCT No. 90454, and owned by said
corporation. The sale price was P23,300.00 with 9% interest
per annum, payable with a downpayment of P4,660.00 and
monthly installments of P246.42 until fully paid. Paragraph
6 of the contract provided for automatic extrajudicial
rescission upon default in payment of any monthly
installment after the lapse of 90 days from the expiration of
the grace period of one month, without need of notice and
with forfeiture of all installments paid.
Respondent Dumpit paid the downpayment and several
installments amounting to P13,722.50. The last payment was
made on December 5, 1967 for installments up to September
1967.
On May 10, 1973, or almost six (6) years later, private
respondent wrote petitioner offering to update all his
overdue accounts with interest, and seeking its written
consent to the assignment of his rights to a certain Lourdes
Dizon. He followed this up with another letter dated June 20,
1973 reiterating the same request. Replying petitioners
informed respondent that his Contract to Sell had long been
rescinded pursuant to paragraph 6 of the contract, and that
the lot had already been resold.
Questioning the validity of the rescission of the contract,
respondent filed a letter complaint with the National
Housing Authority (NHA) for reconveyance with an
altenative prayer for refund (Case No. 2167). In a
Resolution, dated July 10, 1979, the NHA, finding the
rescission void in the absence of either judicial or notarial
demand, ordered Palay, Inc. and Alberto Onstott in his
capacity as President of the corporation, jointly and
severally, to refund immediately to Nazario Dumpit the
amount of P13,722.50 with 12% interest from the filing of
the complaint on November 8, 1974. Petitioners' Motion for
Reconsideration of said Resolution was denied by the NHA
in its Order dated October 23, 1979. 1
On appeal to the Office of the President, upon the allegation
that the NHA Resolution was contrary to law (O.P. Case No.
1459), respondent Presidential Executive Assistant, on May
2, 1980, affirmed the Resolution of the NHA.
Reconsideration sought by petitioners was denied for lack of
merit. Thus, the present petition wherein the following issues
are raised:
I other payments herein agreed upon, the
Whether notice or demand is not
mandatory under the circumstances and,
therefore, may be dispensed with by
stipulation in a contract to sell.
II
Whether petitioners may be held liable
for the refund of the installment
payments made by respondent Nazario
M. Dumpit.
III
Whether the doctrine of piercing the veil
of corporate fiction has application to
the case at bar.
IV
Whether respondent Presidential
Executive Assistant committed grave
abuse of discretion in upholding the
decision of respondent NHA holding
petitioners solidarily liable for the
refund of the installment payments
made by respondent Nazario M. Dumpit
thereby denying substantial justice to
the petitioners, particularly petitioner
Onstott
We issued a Temporary Restraining Order on Feb 11, 1981
enjoining the enforcement of the questioned Resolutions and
of the Writ of Execution that had been issued on December
2, 1980. On October 28, 1981, we dismissed the petition but
upon petitioners' motion, reconsidered the dismissal and
gave due course to the petition on March 15, 1982.
On the first issue, petitioners maintain that it was justified in
cancelling the contract to sell without prior notice or demand
upon respondent in view of paragraph 6 thereof which
provides-
6. That in case the BUYER falls to
satisfy any monthly installment or any
BUYER shall be granted a month of
grace within which to make the payment
of the t in arrears together with the one
corresponding to the said month of
grace. -It shall be understood, however,
that should the month of grace herein
granted to the BUYER expire, without
the payment & corresponding to both
months having been satisfied, an interest
of ten (10%) per cent per annum shall be
charged on the amounts the BUYER
should have paid; it is understood
Sales 65 of 67
 further, that should a period of NINETY
(90) DAYS elapse to begin from the
expiration of the month of grace
hereinbefore mentioned, and the
BUYER shall not have paid all the
amounts that the BUYER should have
paid with the corresponding interest up
to the date, the SELLER shall have the
right to declare this contract cancelled
and of no effect without notice, and as a
consequence thereof, the SELLER may
dispose of the lot/lots covered by this
Contract in favor of other persons, as if
this contract had never been entered
into. In case of such cancellation of this
Contract, all the amounts which may
have been paid by the BUYER in
accordance with the agreement, together
with all the improvements made on the
premises, shall be considered as rents
paid for the use and occupation of the
above mentioned premises and for
liquidated damages suffered by virtue of
the failure of the BUYER to fulfill his
part of this agreement : and the BUYER
hereby renounces his right to demand or
reclaim the return of the same and
further obligates peacefully to vacate the
premises and deliver the same to the
SELLER.
Well settled is the rule, as held in previous
jurisprudence, 2 that 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. However, even in the cited cases, there
was at least a written notice sent to the defaulter informing
him of the rescission. As stressed in University of the
Philippines vs. Walfrido de los Angeles 3 the act of a party in
treating a contract as cancelled should be made known to the
other. We quote the pertinent excerpt:
Of course, it must be understood that the
act of a party in treating a contract as
cancelled or resolved in 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).
We see no conflict between this ruling
and the previous jurisprudence of this
Court invoked by respondent declaring
that judicial action is necessary for the
resolution of a reciprocal obligation
(Ocejo Perez & Co., vs. International
Banking Corp., 37 Phil. 631; Republic
vs. Hospital de San Juan De Dios, et al.,
84 Phil 820) since in every case where
the extrajudicial resolution is contested
only the final award of the court of
competent jurisdiction can conclusively
settle whether the resolution was proper
or not. It is in this sense that judicial
action win be necessary, as without it,
the extrajudicial resolution will remain
contestable and subject to judicial
invalidation unless attack thereon
should become barred by acquiescense,
estoppel or prescription.
Fears have been expressed that a
stipulation providing for a unilateral
rescission in case of breach of contract
may render nugatory the general rule
requiring judicial action (v. Footnote,
Padilla Civil Law, Civil Code Anno.,
1967 ed. Vol. IV, page 140) but, as
already observed, in case of abuse or
error by the rescinder the other party is
not barred from questioning in court
such abuse or error, the practical effect
of the stipulation being merely to
transfer to the defaulter the initiative of
instituting suit, instead of the
rescinder (Emphasis supplied).
Of similar import is the ruling in Nera vs. Vacante 4 ,
reading:
A stipulation entitling one party to take
possession of the land and building if the
other party violates the contract does
not ex propio vigore confer upon the
former the right to take possession
thereof if objected to without judicial
intervention and determination.
This was reiterated in Zulueta vs. Mariano 5 where we held
that extrajudicial rescission has legal effect where the other
party does not oppose it.6 Where it is objected to, a judicial
determination of the issue is still necessary.
In other words, resolution of reciprocal contracts may be
made extrajudicially unless successfully impugned in Court.
If the debtor impugns the declaration, it shall be subject to
judicial determination. 7
In this case, private respondent has denied that rescission is
justified and has resorted to judicial action. It is now for the
Court to determine whether resolution of the contract by
petitioners was warranted.
We hold that resolution by petitioners of the contract was
ineffective and inoperative against private respondent for
Sales 66 of 67
lack of notice of resolution, as held in the U.P. vs. Angeles
case, supra
Petitioner relies on Torralba vs. De los Angeles 8 where it
was held that "there was no contract to rescind in court
because from the moment the petitioner defaulted in the
timely payment of the installments, the contract between the
parties was deemed ipso facto rescinded." However, it
should be noted that even in that case notice in writing was
made to the vendee of the cancellation and annulment of the
contract although the contract entitled the seller to
immediate repossessing of the land upon default by the
buyer.
The indispensability of notice of cancellation to the buyer
was to be later underscored in Republic Act No. 6551
entitled "An Act to Provide Protection to Buyers of Real
Estate on Installment Payments." which took effect on
September 14, 1972, when it specifically provided:
Sec. 3(b) ... 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. (Emphasis
supplied).
The contention that private respondent had waived his right
to be notified under paragraph 6 of the contract is neither
meritorious because it was a contract of adhesion, a standard
form of petitioner corporation, and private respondent had
no freedom to stipulate. A waiver must be certain and
unequivocal, and intelligently made; such waiver follows
only where liberty of choice has been fully
accorded. 9 Moreover, it is a matter of public policy to
protect buyers of real estate on installment payments against
onerous and oppressive conditions. Waiver of notice is one
such onerous and oppressive condition to buyers of real
estate on installment payments.
Regarding the second issue on refund of
the installment payments made by
private respondent. Article 1385 of the
Civil Code provides:
ART. 1385. Rescission creates the
obligation to return the things which
were the object of the contract, together
with their fruits, and the price with its its contract with private respondent when it rescinded the
interest; consequently, it can be carried contract to sell extrajudicially and had sold it to a third
out only when he who demands person.
rescission can return whatever he may
be obliged to restore. In this case, petitioner Onstott was made liable because he
was then the President of the corporation and he a to be the
Neither sham rescission take place when controlling stockholder. No sufficient proof exists on record
the things which are the object of the that said petitioner used the corporation to defraud private
contract are legally in the possession of respondent. He cannot, therefore, be made personally liable
third persons who did not act in bad just because he "appears to be the controlling stockholder".
faith. Mere ownership by a single stockholder or by another
corporation is not of itself sufficient ground for disregarding
In this case, indemnity for damages may the separate corporate personality. 18 In this respect then, a
be demanded from the person causing modification of the Resolution under review is called for.
the loss.
WHEREFORE, the questioned Resolution of respondent
As a consequence of the resolution by petitioners, rights to public official, dated May 2, 1980, is hereby modified.
the lot should be restored to private respondent or the same Petitioner Palay, Inc. is directed to refund to respondent
should be replaced by another acceptable lot. However, Nazario M. Dumpit the amount of P13,722.50, with interest
considering that the property had already been sold to a third at twelve (12%) percent per annum from November 8, 1974,
person and there is no evidence on record that other lots are the date of the filing of the Complaint. The temporary
still available, private respondent is entitled to the refund of Restraining Order heretofore issued is hereby lifted.
installments paid plus interest at the legal rate of 12%
computed from the date of the institution of the action. 10 It No costs.
would be most inequitable if petitioners were to be allowed
to retain private respondent's payments and at the same time SO ORDERED.
appropriate the proceeds of the second sale to another.
We come now to the third and fourth issues regarding the
personal liability of petitioner Onstott who was made jointly
and severally liable with petitioner corporation for refund to
private respondent of the total amount the latter had paid to
petitioner company. It is basic that a corporation is invested
by law with a personality separate and distinct from those of
the persons composing it as wen as from that of any other
legal entity to which it may be related. 11 As a general rule,
a corporation may not be made to answer for acts or
liabilities of its stockholders or those of the legal entities to
which it may be connected and vice versa. However, the veil
of corporate fiction may be pierced when it is used as a shield
to further an end subversive of justice 12 ; or for purposes that
could not have been intended by the law that created it 13 ; or
to defeat public convenience, justify wrong, protect fraud, or
defend crime. 14 ; or to perpetuate fraud or confuse
legitimate issues 15 ; or to circumvent the law or perpetuate
deception 16 ; or as an alter ego, adjunct or business conduit
for the sole benefit of the stockholders. 17
We find no badges of fraud on petitioners' part. They had
literally relied, albeit mistakenly, on paragraph 6 (supra) of
Sales 67 of 67